10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number 1-11411

POLARIS INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

Minnesota	41-1790959
(State or other jurisdiction of incorporation)	(IRS employer identification no.)
2100 Highway 55, Medina MN	55340
(Address of principal executive offices)	(Zip Code)
(763) 542-0500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange
Title of class	on which registered
Common Stock, $.01 par value	New York Stock Exchange
	Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ü      No      

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes           No  ü 

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ü      No      

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [     ]

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ü      Accelerated filer           Non-accelerated filer      

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes           No  ü 

     The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $1,978,753,634 as of February 21, 2006, based upon the last sales price per share of the registrant’s Common Stock, as reported on the New York Stock Exchange on such date.

     As of February 21, 2006, 41,554,872 shares of Common Stock, $.01 par value, of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2005 (the “2005 Annual Report”) furnished to the Securities and Exchange Commission are incorporated by reference into Part II of this Form 10-K.

     Portions of the definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held on April 20, 2006 filed with the Securities and Exchange Commission (the “2006 Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

POLARIS INDUSTRIES INC.

2005 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		9
Item 1B.	Unresolved Staff Comments		12
Item 2.	Properties		12
Item 3.	Legal Proceedings		12
Item 4.	Submission of Matters to a Vote of Security Holders		12
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
Item 6.	Selected Financial Data		14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		14
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		23
Item 8.	Financial Statements and Supplementary Data		26
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		48
Item 9A.	Controls and Procedures		48
Item 9B.	Other Information		48
PART III
Item 10.	Directors and Executive Officers of the Registrant		48
Item 11.	Executive Compensation		49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		49
Item 13.	Certain Relationships and Related Transactions		49
Item 14.	Principal Accounting Fees and Services		49
PART IV
Item 15.	Exhibits, Financial Statement Schedules		49
	Signatures		50

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PART I

Item 1. Business

      Polaris Industries Inc. (the “Company” or “Polaris”), a Minnesota corporation, was formed in 1994 and is the successor to Polaris Industries Partners LP. The term “Polaris” as used herein refers to the business and operations of the Company, its subsidiaries and its predecessors which began doing business in the early 1950’s. Polaris designs, engineers and manufactures all terrain vehicles (“ATVs”), snowmobiles, and motorcycles and markets them, together with related replacement parts, garments and accessories (“PG&A”) through dealers and distributors principally located in the United States, Canada and Europe. Sales of ATVs, snowmobiles, motorcycles, and PG&A accounted for the following approximate percentages of Polaris’ sales for the years ended December 31:

	ATVs		Snowmobiles		Motorcycles		PG&A
2005		66%		14%		5%		15%
2004		66%		16%		4%		14%
2003		67%		15%		4%		14%

      On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine products effective immediately. The marine products division’s financial results are reported separately as discontinued operations for all periods presented. See Note 9 of Notes to Consolidated Financial Statements for a discussion of the discontinuation of marine products.

Industry Background

      All Terrain Vehicles. ATVs are four-wheel vehicles with balloon style tires designed for off-road use and traversing rough terrain, swamps and marshland. ATVs are used for recreation, in such sports as fishing and hunting, as well as for utility purposes on farms, ranches and construction sites.

      ATVs were introduced to the North American market in 1971 by Honda. Other Japanese motorcycle manufacturers including Yamaha, Kawasaki and Suzuki entered the North American ATV market in the late 1970s and early 1980s. Polaris entered the ATV market in 1985, Arctic Cat entered in 1995 and Bombardier Recreational Products Inc. (“Bombardier”) entered in 1998. In 2004, John Deere entered into the North American ATV market. In 1985, the number of three- and four-wheel ATVs sold in North America peaked at approximately 650,000 units per year, then dropped dramatically to a low of 148,000 in 1989. Since that time, the industry has grown each year in North America until 2005. Polaris estimates that during the calendar year 2005 the world-wide industry grew one percent with approximately 1,138,000 ATVs sold worldwide.

      Polaris also competes in the utility vehicle market with its RANGER^tm off-road utility vehicle platform. Polaris estimates that the utility vehicle market grew approximately 25 percent during the calendar year 2005 with approximately 245,000 utility vehicles sold worldwide.

      Polaris estimates that during the calendar year 2005 the ATV and utility vehicle industry combined, grew four percent with approximately 1,383,000 units sold worldwide.

      Snowmobiles. In the early 1950s, a predecessor to Polaris produced a “gas powered sled” which became the forerunner of the Polaris snowmobile. Snowmobiles have been manufactured under the Polaris name since 1954.

      Originally conceived as a utility vehicle for northern, rural environments, the snowmobile gained popularity as a recreational vehicle. From the mid-1950s through the late 1960s, over 100 producers entered the snowmobile market and snowmobile sales reached a peak of approximately 495,000 units in 1971. The Polaris product survived the industry decline in which snowmobile sales fell to a low point of approximately 87,000 units in 1983 and the number of snowmobile manufacturers serving the North American market declined to four: Yamaha, Bombardier, Arctic Cat and Polaris. Polaris estimates that during the season ended March 31, 2005, industry sales of snowmobiles on a worldwide basis were approximately 165,000 units, down nine percent from the previous season.

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      Motorcycles. Heavyweight motorcycles are over the road vehicles utilized as a mode of transportation as well as for recreational purposes. There are four segments: cruisers, touring, sport bikes, and standard motorcycles.

      Polaris entered the motorcycle market in 1998 with an initial entry product in the cruiser segment. U.S. industry retail cruiser sales more than doubled from 1996 to 2004. Polaris entered the touring segment in 2000. Polaris estimates that the cruiser and touring market segments combined grew five percent in 2005 with approximately 466,000 cruiser and touring motorcycles sold in the U.S. market. Other major cruiser and touring motorcycle manufacturers include Harley Davidson, Honda, Yamaha, Kawasaki and Suzuki.

Products

      All Terrain Vehicles. Polaris entered the ATV market in the spring of 1985. Polaris currently produces four-wheel ATVs, which provide more stability for the rider than earlier three-wheel versions. Polaris’ line of ATVs, consisting of twenty-one models, includes general purpose, sport and four-wheel drive utility models, with 2006 model year suggested United States retail prices ranging from approximately $1,800 to $8,600. In 2000, Polaris introduced its first youth ATV models. In addition, Polaris has a six-wheel off-road utility vehicle and the Polaris RANGER^tm, an off-road side by side utility and recreational vehicle. In 2001, Polaris expanded its utility line called the Polaris Professional Series (“PPS”) with a sourced all surface loader product as well as a 4X4 and 6X6 ATV (ATV Pro), each of which were modifications of existing products. In 2004, the PPS line was phased out and the RANGER^tm line expanded to meet both the commercial and recreational customer. The main competitors for the RANGER^tm are John Deere, Kawasaki, Yamaha , Arctic Cat and Kubota.

      Most of Polaris’ ATVs feature the totally automatic Polaris variable transmission, which requires no manual shifting, and a MacPherson strut front suspension, which enhances control and stability. Polaris’ on demand all-wheel drive provides industry leading traction performance and ride quality thanks to its on demand, easy shift on-the-fly patented design. Polaris’ ATVs include two-cycle and four-cycle engines and both shaft and concentric chain drive. In 1999, Polaris introduced its first manual transmission ATV models. In 2003, Polaris introduced the industry’s first electronic fuel injected ATV, the Sportsman 700 EFI. In 2005, Polaris introduced the industry’s first independent rear suspension, center mounted exhaust and PRO steering on a sport ATV, the Outlaw.

      Snowmobiles. Polaris produces a full line of snowmobiles, consisting of 33 models, ranging from youth to utility and economy models to performance and competition models. The 2006 model year suggested United States retail prices ranged from approximately $2,100 to $11,000. Polaris snowmobiles are sold principally in the United States, Canada and Europe. Polaris believes its snowmobiles have a long-standing reputation for quality, dependability and performance. Polaris believes that it and its predecessors were the first to develop several features for wide commercial use in snowmobiles, including independent front suspension, long travel rear suspension, hydraulic disc brakes, liquid cooling for brakes and a three cylinder engine. In 2001, Polaris introduced a new, more environmentally-friendly snowmobile featuring a four-stroke engine designed specifically for snowmobiles.

      Motorcycles. In 1998, Polaris began manufacturing V-twin cruiser motorcycles under the Victory^tm brand name. Currently Polaris’ line of motorcycles consists of eight models, the Victory Vegas^tm, Kingpin^tm, Touring Cruiser, Hammer, Eight Ball, Vegas Jackpot and a limited edition Arlen Ness Signature Series Vegas^tm and Kingpin^tm. Suggested United States retail prices for the 2006 model year Victory motorcycles ranged from approximately $13,000 to $22,000.

      Parts, Garments and Accessories. Polaris produces or supplies a variety of replacement parts and accessories for its ATVs, snowmobiles, motorcycles and personal watercraft. ATV accessories include products such as winches, bumper/brushguards, plows, racks, mowers, tires, pull-behinds, and oil. Snowmobile accessories include products such as covers, traction products, reverse kits, electric starters, tracks, bags, windshields, oil and lubricants. Motorcycle accessories include products such as saddle bags, handlebars, backrests, exhaust, windshields, seats, oil and various chrome accessories. Polaris also markets a full line of recreational apparel including helmets, jackets, bibs and pants, leathers and hats for its snowmobile, ATV, and

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motorcycle lines. The apparel is designed to Polaris’ specifications, purchased from independent vendors and sold by Polaris through its dealers and distributors, and online through its e-commerce subsidiary under the Polaris brand name.

      Discontinued Operations — Marine Products. Polaris entered the PWC market in 1992. Polaris’ 2004 line of watercraft consisted of eight models across the touring, performance and racing segments. In early 2003 Polaris announced its entry into the sport boat market with the Polaris EX2100 and LE2100 Sport Boat line, a sourced product from Brunswick Corporation. The 2004 model year suggested United States retail prices for Polaris’ PWC ranged from approximately $6,500 to $9,700 and $25,000 to $26,000 for the Sport Boat line. On September 2, 2004, the Company announced that it had decided to cease to manufacture marine products effective immediately. As technology and the distribution channel evolved, the marine division’s lack of commonality with other Polaris product lines created challenges for Polaris and its dealer base. The marine division continued to experience escalating costs and increasing competitive pressures and was never profitable for Polaris. See Note 9 of Notes to Consolidated Financial Statements for a discussion of the discontinuation of marine products.

Manufacturing and Distribution Operations

      Polaris’ products are assembled at its original manufacturing facility in Roseau, Minnesota and at its facility in Spirit Lake, Iowa. Since snowmobiles, ATVs and motorcycles incorporate similar technology, substantially the same equipment and personnel are employed in their production. Polaris is vertically integrated in several key components of its manufacturing process, including stamping, welding, clutch assembly and balancing, painting, cutting and sewing, and manufacture of foam seats. Fuel tanks, tracks, tires and instruments, and certain other component parts are purchased from third party vendors. Polaris manufactures a number of other components for its snowmobiles, ATVs, and motorcycles. Raw materials or standard parts are readily available from multiple sources for the components manufactured by Polaris. Polaris’ work force is familiar with the use, operation and maintenance of the products, since many employees own snowmobiles, ATVs, and motorcycles. In 1991, Polaris acquired a manufacturing facility in Osceola, Wisconsin to manufacture component parts previously produced by third party suppliers. In 1994, Polaris acquired a manufacturing facility in Spirit Lake, Iowa in order to expand the assembly capacity of the Company. In 1998, Victory motorcycle production began at Polaris’ Spirit Lake, Iowa facility. The production includes welding, finish painting, and final assembly. Certain Victory operations, including engine assembly and the bending of frame tubes are conducted at the Osceola, Wisconsin facility. In 2001, all seat manufacturing was moved to a leased facility in St. Croix Falls, Wisconsin. In early 2002, Polaris completed the expansion and renovation of its Roseau manufacturing facility, which has increased capacity and enhanced production flexibility.

      In 1998, Polaris completed construction of a plastic injection molding facility adjacent to the Roseau, Minnesota facility. This was a vertical integration project for Polaris in the manufacture of snowmobile hoods and certain large plastic molded parts on ATVs.

      Pursuant to informal agreements between Polaris and Fuji Heavy Industries Ltd. (“Fuji”), Fuji was the exclusive manufacturer of Polaris’ two-cycle snowmobile engines from 1968 to 1995. Fuji has manufactured engines for Polaris’ ATV products since their introduction in the spring of 1985. Fuji develops such engines to the specific requirements of Polaris. Polaris believes its relationship with Fuji to be excellent. If, however, Fuji terminated its relationship, interruption in the supply of engines would adversely affect Polaris’ production pending the continued development of substitute supply arrangements.

      Polaris has been designing and producing its own engines for selected models of snowmobiles since 1995 and all Victory motorcycles since 1998. In 2001, Polaris began producing its own engines for select ATV models. Polaris purchased a building adjacent to the Osceola facility to house the manufacturing of these Polaris-designed and built domestic engines.

      In addition, Polaris entered into an agreement with Fuji to form Robin Manufacturing, U.S.A. (“Robin”) in 1995. Under the agreement, Polaris made an investment for a 40% ownership position in Robin, which builds engines in the United States for recreational and industrial products. Potential advantages to

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Polaris of these additional sources of engines include reduced foreign exchange risk, lower shipping costs and less dependence in the future on a single supplier for engines. See Note 7 of Notes to Consolidated Financial Statements for a discussion of the Robin agreement.

      In 2000, Polaris entered into an agreement with a Taiwan manufacturer to co-design, develop and produce youth ATVs. In 2002, Polaris entered into an agreement with a German manufacturer to co-design, develop and produce four-stroke engines for PWC and certain model year 2006 snowmobiles. In 2004, Polaris expanded the agreement with the Taiwan manufacturer to include the design, development and production of a value-priced Phoenix ATV model and in 2005 to include the Sawtooth ATV model.

      Polaris anticipates no significant difficulties in obtaining substitute supply arrangements for other raw materials or components for which it relies upon limited sources of supply.

      Contract carriers ship Polaris’ products from its manufacturing and distribution facilities to our customers.

      Polaris maintains distribution facilities in Vermillion, South Dakota; Winnipeg, Manitoba; Passy, France; Askim, Norway; Ostersund, Sweden; Gloucester, United Kingdom and Ballarat, Victoria, Australia. These facilities distribute PG&A products to our North American dealers and international dealers and distributors.

Production Scheduling

      Polaris’ products are produced and delivered throughout the year. Orders for ATVs are placed by the dealers periodically throughout the year. Delivery of snowmobiles to consumers begins in autumn and continues during the winter season. Orders for each year’s production of snowmobiles are placed by the dealers in the spring. Orders for Victory motorcycles are placed by the dealers in the summer after meetings with dealers. Units are built to order each year. In addition, non-refundable deposits made by consumers to dealers in the spring for pre-ordered snowmobiles assist in production planning. The anticipated volume of units to be produced is substantially committed to by dealers and distributors prior to production. Retail sales activity at the dealer level is monitored by Polaris for snowmobiles, ATVs, and motorcycles and incorporated into each product’s production scheduling.

      Manufacture of snowmobiles commences in late winter of the previous season and continues through late autumn or early winter of the current season. Since 1993, Polaris has had the ability to manufacture ATVs year round. Victory motorcycle manufacturing began in 1998 and continues year round. Polaris has the ability to alternate production of the various products on the existing manufacturing lines as demand dictates.

Sales and Marketing

      Polaris products are sold through a network of 1,700 dealers in North America, and five subsidiaries and 40 distributors in 126 countries outside of North America.

      Polaris sells its snowmobiles directly to dealers in the snowbelt regions of the United States and Canada. Many dealers and distributors of Polaris snowmobiles also distribute Polaris’ ATVs. At the end of 2005, approximately 900 dealerships were located in areas of the United States where snowmobiles are not regularly sold. Unlike its primary competitors, which market their ATV products principally through their affiliated motorcycle dealers, Polaris also sells its ATVs through lawn and garden and farm implement dealers.

      With the exception of France, Great Britain, Sweden, Norway, Australia and New Zealand, sales of Polaris’ products in Europe and other offshore markets are handled through independent distributors. In 1999, Polaris acquired certain assets of its distributor in Australia and New Zealand and now distributes its products to its dealer network in those countries through a wholly-owned subsidiary. During 2000, Polaris acquired its distributor in France and now distributes its products to its dealer network in France through a wholly-owned subsidiary. In 2002, Polaris acquired certain assets of its distributors in Great Britain, Sweden and Norway and now distributes its products to its dealer networks in Great Britain, Sweden and Norway through wholly-owned subsidiaries. See Notes 1 and 10 of Notes to Consolidated Financial Statements for a discussion of international operations.

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      Victory motorcycles are distributed direct through authorized Victory dealers. Polaris has a high quality dealer network in North America for its other product lines from which many of the approximately 330 current Victory dealers were selected. Polaris expects to develop a Victory dealer network totaling approximately 450 dealers over the next three to four years.

      Dealers and distributors sell Polaris’ products under contractual arrangements pursuant to which the dealer or distributor is authorized to market specified products, required to carry certain replacement parts and perform certain warranty and other services. Changes in dealers and distributors take place from time to time. Polaris believes a sufficient number of qualified dealers and distributors exist in all geographic areas to permit an orderly transition whenever necessary.

      In 1996, a wholly-owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of Transamerica Distribution Finance (“TDF”) to form Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris’ dealers in the United States. Under the partnership agreement, Polaris has a 50% equity interest in Polaris Acceptance. Polaris does not guarantee the outstanding indebtedness of Polaris Acceptance. In 2004, TDF was merged with a subsidiary of General Electric Company and, as a result of that merger, TDF’s name was changed to GE Commercial Distribution Finance Corporation (“GECDF”). No significant change in the Polaris Acceptance relationship has resulted from the change of ownership from TDF. See Notes 2 and 6 of Notes to Consolidated Financial Statements for a discussion of this financial services arrangement.

      Polaris has arrangements with Polaris Acceptance (United States) and GE affiliates (Australia, Canada, France, Germany, Great Britain, Ireland, New Zealand, Norway and Sweden) to provide floor plan financing for its dealers. Substantially all of Polaris’ North American sales of snowmobiles, ATVs, motorcycles and related PG&A are financed under arrangements whereby Polaris is paid within a few days of shipment of its product. Polaris participates in the cost of dealer financing and has agreed to repurchase products from the finance companies under certain circumstances and subject to certain limitations. Polaris has not historically been required to repurchase a significant number of units. However, there can be no assurance that this will continue to be the case. If necessary, Polaris will adjust its sales return allowance at the time of sale should management anticipate material repurchases of units financed through the finance companies. See Notes 2 and 6 of Notes to Consolidated Financial Statements for a discussion of this financial services arrangement.

      In October 2001 Household Bank (SB), N.A. (“Household”) and a wholly owned subsidiary of Polaris entered into a Revolving Program Agreement with Household to provide retail financing to consumers who buy Polaris products in the United States. In August 2005, the wholly owned subsidiary of Polaris entered into a new multi-year contract with HSBC Bank Nevada, National Association (“HSBC”), formerly known as Household Bank (SB), N.A. under which HSBC will continue managing the Polaris private label credit card program under the StarCard label. The terms of the new multi-year agreement, executed on August 10, 2005, became effective as of August 1, 2005. The new agreement provides for income to be paid to Polaris based on a percentage of the volume of retail credit business generated. The previous agreement provided for equal sharing of all income and losses with respect to the retail credit portfolio, subject to certain limitations. The new contract removes all credit, interest rate and funding risk to Polaris and also eliminates the need for Polaris to maintain a retail credit cash deposit with HSBC, which was $50.0 million at August 1, 2005. See Note 6 of Notes to Consolidated Financial Statements for a discussion of this financial services arrangement.

      Polaris promotes the Polaris brand among the riding and non-riding public and provides a wide range of products for enthusiasts by licensing the name Polaris. The Company currently licenses the production and sale of a range of items, including die cast toys, video games, and numerous other products.

      During 2000, a wholly-owned subsidiary of Polaris established an e-commerce site, purepolaris.com, to sell clothing and accessories over the Internet directly to consumers. The site has been developed with a revenue sharing arrangement with the dealers.

      Polaris’ marketing activities are designed primarily to promote and communicate directly with consumers and secondarily to assist the selling and marketing efforts of its dealers and distributors. Polaris makes available and advertises discount or rebate programs, retail financing or other incentives for its dealers and

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distributors to remain price competitive in order to accelerate retail sales to consumers. Polaris advertises its products directly using print advertising in the industry press and in user group publications, billboards, television and radio. Polaris also provides media advertising and partially underwrites dealer and distributor media advertising to a degree and on terms which vary by product and from year to year. From time to time, Polaris produces promotional films for its products, which are available to dealers for use in the showroom or at special promotions. Polaris also provides product brochures, leaflets, posters, dealer signs, and miscellaneous other promotional items for use by dealers.

      Polaris expended approximately $105.1 million for sales and marketing in 2005, $106.0 million in 2004, and $92.3 million in 2003.

Engineering, Research and Development, and New Product Introduction

      Polaris employs approximately 425 persons who are engaged in the development and testing of existing products and research and development of new products and improved production techniques. Management believes Polaris and its predecessors were the first to develop, for wide commercial use, independent front suspension for snowmobiles, long travel rear suspension for snowmobiles, the use of liquid cooling for snowmobile brakes, the use of hydraulic brakes in snowmobiles, the three cylinder engine in snowmobiles, the adaptation of the MacPherson strut front suspension, “on demand” four-wheel drive systems and the Concentric Drive System for use in ATVs, the application of a forced air cooled variable power transmission system to ATVs and the use of electronic fuel injection for ATVs.

      Polaris utilizes internal combustion engine testing facilities to design and optimize engine configurations for its products. Polaris utilizes specialized facilities for matching engine, exhaust system and clutch performance parameters in its products to achieve desired fuel consumption, power output, noise level and other objectives. Polaris’ engineering department is equipped to make small quantities of new product prototypes for testing by Polaris’ testing teams and for the planning of manufacturing procedures. In addition, Polaris maintains numerous test facilities where each of the products is extensively tested under actual use conditions. In 2005, Polaris completed construction of its 127,000 square-foot research and development facility in Wyoming, Minnesota for engineering, design and development personnel for Polaris’ line of ATVs and Victory motorcycles. Total cost of the facility is approximately $35 million.

      Polaris expended for research and development approximately $68.1 million in 2005, $60.7 million in 2004, and $47.1 million in 2003.

Investment in KTM Power Sports AG

      During the summer of 2005 Polaris purchased a 25 percent interest in Austrian motorcycle manufacturer KTM Power Sports AG (“KTM”) and is partnering with KTM on several important strategic projects. The goal of the partnership is to strengthen the competitive position of both companies and provide tangible benefits to customers, dealers, suppliers and shareholders. During the first phase of the strategic partnership, each company will continue to be run separately, but will work together on several specific cooperative projects involving new product development, engine technology sharing, distribution, manufacturing, and purchasing. It is expected that this initial phase will last approximately two years. Additionally, Polaris and KTM’s largest shareholder, Cross Industries AG (“Cross”), have entered into an option agreement which, under certain conditions in 2007, either Cross may purchase Polaris’ interest in KTM or, alternatively, Polaris may become the majority shareholder of KTM. In the latter case, the majority of the purchase price to Cross will be settled in Polaris shares and Cross will become a significant shareholder in the combined Polaris/KTM organization. Cross’ principal shareholders are KTM Chief Executive Officer Stefan Pierer and KTM Chief Financial Officer Rudolf Knünz. The exercise price under both option arrangements is based on market-based, predetermined pricing formulas to be derived from operating results of both companies in 2007.

Competition

      The ATV, snowmobile, motorcycle, and utility vehicle markets in the United States and Canada are highly competitive. Competition in such markets is based upon a number of factors, including price, quality,

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reliability, styling, product features and warranties. At the dealer level, competition is based on a number of factors including sales and marketing support programs (such as financing and cooperative advertising). Certain Polaris competitors are more diversified and have financial and marketing resources which are substantially greater than those of Polaris.

      Polaris’ products are competitively priced and management believes Polaris’ sales and marketing support programs for dealers are comparable to those provided by its competitors. Polaris’ products compete with many other recreational products for the discretionary spending of consumers, and, to a lesser extent, with other vehicles designed for utility applications.

Product Safety and Regulation

      ATVs, snowmobiles, and motorcycles are subject to extensive federal and state safety, environmental and other government regulation.

      Safety regulation. The federal government and individual states have promulgated or are considering promulgating laws and regulations relating to the use and safety of Polaris products. The federal government is the primary regulator of product safety.

      Polaris ATVs are subject to vehicle safety standards administered by the U.S. Consumer Product Safety Commission (“CPSC”). In 1988, Polaris, five competitors and the CPSC entered into a ten-year consent decree settling litigation involving CPSC’s attempt to force an industry-wide recall of all three-wheel ATVs and four-wheel ATVs sold that could be used by children under 16 years of age.

      The settlement required, among other things, that ATV purchasers receive “hands on” training. In April 1998 this consent decree expired, and Polaris entered into a voluntary action plan under which Polaris agreed to continue various activities previously required under the consent decree, including age recommendations, warning labels, point of purchase materials, hands on training and an information and education effort. Polaris also agreed to continue dealer monitoring to ascertain dealer compliance with safety obligations including age recommendations and training requirements.

      Polaris does not believe that its voluntary action plan will have a material adverse effect on Polaris or negatively affect its business to any greater degree than those of its competitors who have undertaken similar action plans with the CPSC. Nevertheless, there can be no assurance that future recommendations or regulatory actions by the federal government or individual states would not have an adverse effect on the Company. Polaris will continue to attempt to assure that its dealers are in compliance with their safety obligations. Polaris has notified its dealers that it may terminate or not renew any dealer it determines has violated such safety obligations. Polaris believes that its ATVs have always complied with safety standards relevant to ATVs.

      On January 13, 2005, Polaris announced that it had reached an agreement with the CPSC to pay $950,000 to settle two long-standing disputes. The disputes were related to CPSC allegations that in the late 1990’s Polaris was not timely in reporting two recalls related to problems with throttle controls and oil lines in certain Polaris ATV models. Polaris disagreed strongly with these allegations but agreed to settle with the CPSC to avoid continuing legal costs associated with protracted legal proceedings.

      Polaris snowmobiles are subject to vehicle safety standards administered by the CPSC. Polaris is a member of the International Snowmobile Manufacturers Association (“ISMA”), a trade association formed to promote safety in the manufacture and use of snowmobiles, among other things. ISMA members include all of the major snowmobile manufacturers. The ISMA members are also members of the Snowmobile Safety and Certification Committee, which promulgated voluntary sound and safety standards for snowmobiles. These standards require testing and evaluation by an independent testing laboratory. Polaris believes that its snowmobiles have always complied with safety standards relevant to snowmobiles.

      Polaris PWC are subject to federal vehicle safety standards administered by the U.S. Coast Guard. Polaris believes that its PWC always complied with safety standards relevant to PWC.

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      Victory motorcycles are subject to federal vehicle safety standards administered by the National Highway Transportation Safety Administration. Victory motorcycles are also subject to various state vehicle safety standards. Polaris believes that its motorcycles have always complied with safety standards relevant to motorcycles.

      Polaris products are also subject to international standards related to safety in places where it sells its products outside the United States. Polaris believes that its Victory motorcycles, ATVs, PWC, and snowmobiles have always complied with applicable safety standards in the United States and internationally.

      Emissions. The federal Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) have adopted emissions regulations setting maximum emission standards for ATVs, PWC and snowmobiles. CARB has existing emission regulations for ATVs which the Company already meets. In October 2002, the EPA established new corporate average emission standards that take effect in model years 2006 through 2012 for non-road recreational vehicles, including ATVs and snowmobiles. The Company has developed engine and emission technologies along with its existing technology base that meets current requirements. In 2002, Polaris entered into an agreement with a German manufacturer to supply four-stroke engines for certain models of snowmobiles.

      EPA has existing regulations requiring PWC manufacturers to gradually reduce their average emissions between 1999 and 2006. For PWC sold in California, CARB accelerated this scheduled emission reduction by requiring manufacturers to meet the EPA 2006 emission level by 2001 and requiring further emission reductions by 2004 and 2008. Conventional two-stroke cycle engines cannot meet these more restrictive PWC emission requirements. Polaris entered into a license agreement with Bombardier Motor Corporation of America to use the Ficht fuel injection technology which was used to meet PWC emission requirements. In 2002, Polaris entered into an agreement with a German manufacturer to supply four-stroke engines for PWC. Polaris stopped manufacturing PWC in 2004.

      Victory motorcycles are subject to federal and state emission standards and regulations. Polaris believes that its motorcycles have always complied with applicable standards and related regulations, including the model year 2004 CARB emission standards. The CARB regulations require additional motorcycle emission reductions in model year 2008. In January 2004, the EPA adopted the CARB emission limits, but is allowing an additional two model years to meet the CARB 2004 and 2008 requirements on a nationwide basis.

      Polaris products are also subject to international laws and regulations related to emissions in places where it sells its products outside the United States.

      Polaris is unable to predict the ultimate impact of the adopted or proposed regulations on Polaris and its business. Polaris is currently developing and obtaining engine and emission technologies that will meet the requirements of the new emission standards. Polaris believes that its Victory motorcycles, ATVs, PWC, and snowmobiles have always complied with applicable emission standards and related regulations in the United States and internationally.

      Use regulation. State and federal laws and regulations have been promulgated or are under consideration relating to the use or manner of use of Polaris’ products. Some states and localities have adopted, or are considering the adoption of, legislation and local ordinances which restrict the use of PWC or ATVs to specified hours and locations. The federal government also has restricted the use of ATVs, PWC, and snowmobiles in some national parks. In several instances this restriction has been a ban on the recreational use of these vehicles.

      Polaris is unable to predict the outcome of such actions or the possible effect on its business. Polaris believes that its business would be no more adversely affected than those of its competitors by the adoption of any pending laws or regulations. Polaris continues to monitor these activities in conjunction with industry associations and supports balanced and appropriate programs that educate the product user on safe use of its products and how to protect the environment.

8

Employment

      Due to the seasonality of the Polaris business and certain changes in production cycles, total employment levels vary throughout the year. Despite such variations in employment levels, employee turnover has not been high. During 2005, Polaris employed an average of approximately 3,600 persons. Approximately 1,400 of its employees are salaried. Polaris considers its relations with its employees to be excellent. Polaris’ employees have not been represented by a union since July 1982.

Available Information

      Polaris’ Internet website is http://www.polarisindustries.com. Polaris makes available free of charge, on or through its website, its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission. Polaris also makes available through its website its corporate governance materials, including its Corporate Governance Guidelines, the charters of the Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee and Technology Committee of its Board of Directors and its Code of Business Conduct and Ethics. Any shareholder wishing to receive a copy of these corporate governance materials should write to Polaris Industries Inc., 2100 Highway 55, Medina, Minnesota 55340, Attention: Investor Relations. Information contained on Polaris’ website is not part of this report.

Forward-Looking Statements

      This 2005 Annual Report contains not only historical information, but also “forward-looking statements” intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” can generally be identified as such because the context of the statement will include words such as the Company or management “believes,” “anticipates,” “expects,” “estimates” or words of similar import. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking. Forward-looking statements may also be made from time to time in oral presentations, including telephone conferences and/or webcasts open to the public. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainties that could cause results in future periods to differ materially from those anticipated by some of the statements made in this report, including the risks and uncertainties described below under the heading entitled “Item 1A — Risk Factors” and elsewhere in this report. The risks and uncertainties discussed in this report are not exclusive and other factors that the Company may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.

      Any forward-looking statements made in this report or otherwise speak only as of the date of such statement, and Polaris undertakes no obligation to update such statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. Polaris advises you, however, to consult any further disclosures made on related subjects in future quarterly reports on Form 10-Q and current reports on Form 8-K that are filed with or furnished to the Securities and Exchange Commission.

Item 1A. Risk Factors

      The following are significant factors known to Polaris that could materially adversely affect the Company’s business, financial condition, or operating results, as well as adversely affect the value of an investment in Polaris common stock.

                  Polaris’ products are subject to extensive federal and state safety, environmental and other government regulation that may require the Company to incur expenses or modify product offerings in order to maintain compliance with the actions of regulators.

      Polaris products are subject to extensive laws and regulations relating to safety, environmental and other regulations promulgated by the U.S. federal government and individual states as well as international regulatory authorities. Although Polaris believes that its snowmobiles, ATVs, and motorcycles have always complied with applicable vehicle safety and emissions standards and related regulations, there can be no

9

assurance that future regulations will not require additional safety standards or emission reductions that would require additional expenses and/or modification of product offerings in order to maintain such compliance. Although Polaris is unable to predict the ultimate impact of adopted or proposed regulations on its business and operating results, Polaris believes that its business would be no more adversely affected than those of its competitors by the adoption of any pending laws or regulations. Polaris products are also subject to laws and regulations that restrict the use or manner of use during certain hours and locations. Polaris continues to monitor these activities in conjunction with industry associations and supports balanced and appropriate programs that educate the product user on safe use of its products and how to protect the environment.

                  A significant adverse determination in any material product liability claim against Polaris could adversely affect the operating results or financial condition.

      Polaris’ product liability insurance limits and coverage were adversely affected by the general decline in the availability of liability insurance starting in 1985. As a result of the high cost of premiums, and the historically insignificant amount of claims paid by Polaris, Polaris was self-insured from June 1985 to June 1996. In June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for incidents occurring subsequent to the policy date that exceeded its self-insured retention levels. In September 2002, due to insurance market conditions resulting in significantly higher proposed premium costs, Polaris again elected not to purchase insurance for product liability losses. The estimated costs resulting from any losses are charged to expense when it is probable a loss has been incurred and the amount of the loss is reasonably determinable.

      Product liability claims are made against Polaris from time to time. From 1981 through 2005, Polaris and its predecessors paid an aggregate of approximately $15.8 million in product liability claims from continuing operations. Polaris has recorded an accrued liability on its balance sheet of $7.1 million at December 31, 2005 for the possible payment of pending claims related to continuing operations. Polaris believes such accruals are adequate. Polaris does not believe the outcome of any pending product liability litigation will have a material adverse effect on the operations of Polaris. However, no assurance can be given that its historical claims record, which did not include ATVs prior to 1985 or motorcycles prior to 1998, will not change or that material product liability claims against Polaris will not be made in the future. Adverse determination of material product liability claims made against Polaris would have a material adverse effect on Polaris’ financial condition. See Note 8 of Notes to Consolidated Financial Statements.

                  Significant repair and/or replacement with respect to product warranty claims or product recalls could have a material adverse impact on the results of operation.

      Polaris provides a limited warranty for ATVs for a period of six months and for a period of one year for its snowmobiles and motorcycles. Polaris may provide longer warranties related to certain promotional programs, as well as longer warranties in certain geographical markets as determined by local regulations and market conditions. Although Polaris employs quality control procedures, sometimes a product is distributed which needs repair or replacement. Polaris’ standard warranties require the Company or its dealers to repair or replace defective products during such warranty periods at no cost to the consumer. Historically, product recalls have been administered through Polaris’ dealers and distributors and have not had a material effect on Polaris’ business. See Note 1 of Notes to Consolidated Financial Statements in this Annual Report.

                  Changing weather conditions may reduce demand for certain Polaris products and negatively impact net sales.

      Lack of snowfall in any year in any particular region of the United States or Canada may adversely affect snowmobile retail sales and related PG&A sales in that region. Polaris seeks to minimize this potential effect by stressing pre-season sales (see “Production Scheduling”) and facilitate the transfer of dealer inventories from one location to another and by balancing production to retail sales and industry conditions. However, there is no assurance that weather conditions would not have a material effect on Polaris’ sales of ATVs, snowmobiles, motorcycles, or PG&A.

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                  Polaris faces intense competition in all product lines, including from some competitors that have greater financial and marketing resources. Failure to compete effectively against competitors would negatively impact Polaris’ business and operating results.

      The snowmobile, ATV and motorcycle markets in the United States and Canada are highly competitive. Competition in such markets is based upon a number of factors, including price, quality, reliability, styling, product features and warranties. At the dealer level, competition is based on a number of factors including sales and marketing support programs (such as financing and cooperative advertising). Certain Polaris competitors are more diversified and have financial and marketing resources which are substantially greater than those of Polaris. In addition, Polaris’ products compete with many other recreational products for the discretionary spending of consumers, and, to a lesser extent, with other vehicles designed for utility applications. Although Polaris has been able to effectively compete with its numerous competitors, failure to do so could have a material adverse effect on future business performance.

                  Termination or interruption of informal supply arrangements could have a material adverse effect on the Company’s business or results of operations.

      Pursuant to informal agreements between Polaris and Fuji in Japan, Fuji was the exclusive manufacturer of Polaris two-cycle snowmobile engines from 1968 to 1995. Fuji has manufactured engines for Polaris’ ATV products since their introduction in the spring of 1985. Such engines are developed by Fuji to the specific requirements of Polaris. Polaris believes its relationship with Fuji to be excellent. With the absence of a written agreement, if the informal relationship was terminated by Fuji, we could experience an interruption in the supply of engines that would adversely affect Polaris’ production pending the establishment of substitute supply arrangements. Polaris continues to develop additional sources for engines to reduce the risk of dependence on a single supplier and to minimize the effect of fluctuations in the Japanese yen. Polaris anticipates no significant difficulties in obtaining substitute supply arrangements for other raw materials or components for which it relies upon limited sources of supply. There can be no assurance that alternate supply arrangements will be made on satisfactory terms.

                  Fluctuations in foreign currency exchange rates could result in declines in the reported net sales and net earnings.

      The changing relationships of primarily the U.S. dollar to the Canadian dollar, the Euro and the Japanese yen have from time-to-time had a negative impact on results of operations. While we actively manage the exposure to fluctuating foreign currency exchange rates by entering into foreign exchange hedging contracts, these contracts hedge foreign currency denominated transactions and any change in the fair value of the contracts would be offset by changes in the underlying value of the transactions being hedged.

                  The following additional factors that could have a negative effect on the future financial performance of Polaris and its common stock are discussed in the section entitled “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this report:

•  Higher dealer and factory inventories/lower shipments

•  Lower levels of consumer spending related to concerns over gasoline and home heating costs

•  Higher commodity and transportation costs, particularly energy-related costs resulting from recent natural disasters

•  Higher floor plan financing costs

•  Increases in the cost and availability of certain raw materials, including aluminum, steel and plastic resins

•  Effects from the relationship with KTM

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Item 1B. Unresolved Staff Comments

      Not Applicable.

Item 2. Properties

      The following sets forth the Company’s material facilities as of December 31, 2005.

		Owned or		Square
Location	Facility Type/Use	Leased		Footage
Spirit Lake, Iowa	Whole Goods Manufacturing		Owned		270,800
Spirit Lake, Iowa	Warehouse		Leased		10,000
Medina, Minnesota	Headquarters		Owned		130,000
Roseau, Minnesota	Whole Goods Manufacturing		Owned		642,000
Roseau, Minnesota	Injection Molding		Owned		79,500
Roseau, Minnesota	Shipping Facility		Owned		4,900
Vermillion, South Dakota	Distribution Center		Owned		256,000
Vermillion, South Dakota	Warehouse		Leased		52,000
Osceola, Wisconsin	Component Parts Manufacturing		Owned		192,500
Osceola, Wisconsin	Engine Manufacturing		Owned		97,000
St. Croix Falls, Wisconsin	Component Parts Manufacturing		Leased		59,500
Ballarat, Victoria, Australia	Office and Warehouse		Leased		12,000
Winnipeg, Manitoba, Canada	Office and Warehouse		Leased		48,000
Passy, France	Office and Warehouse		Leased		10,000
Askim, Norway	Office and Warehouse		Leased		10,760
Ostersund, Sweden	Office and Warehouse		Leased		14,280
Gloucester, United Kingdom	Office and Warehouse		Leased		8,650
Wyoming, Minnesota	R & D Building		Owned		127,000

      Polaris owns substantially all tooling and machinery (including heavy presses, conventional and computer-controlled welding facilities for steel and aluminum, assembly lines, paint lines, and sewing lines) used in the manufacture of its products. Polaris makes ongoing capital investments in its facilities. These investments have increased production capacity for ATVs, snowmobiles and motorcycles. The Company believes Polaris’ manufacturing facilities are adequate in size and suitable for its present manufacturing needs.

Item 3. Legal Proceedings

      Polaris is involved in a number of legal proceedings, none of which is expected to have a material effect on the financial condition or the business of Polaris.

Item 4. Submission of Matters to a Vote of Security Holders

      No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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Executive Officers of the Registrant

      Set forth below are the names of the executive officers of the Company as of February 21, 2006, their ages, titles, the year first appointed as an executive officer of the Company, and employment for the past five years:

Name	Age		Title
Thomas C. Tiller		44	Chief Executive Officer
Bennett J. Morgan		42	President and Chief Operating Officer
Jeffrey A. Bjorkman		46	Vice President — Operations
John B. Corness		51	Vice President — Human Resources
Michael W. Malone		47	Vice President — Finance, Chief Financial Officer and Secretary
Mary P. McConnell		53	Vice President and General Counsel
Mark E. Blackwell		52	Vice President — Victory Motorcycles and International Operations

      Executive officers of the Company are elected at the discretion of the Board of Directors with no fixed term with the exception of Mr. Tiller who has an employment agreement with the Company expiring on December 31, 2007. Mr. Morgan has an employment agreement with no expiration date. There are no family relationships between or among any of the executive officers or directors of the Company.

      Mr. Tiller was appointed President and Chief Operating Officer of the Company in July 1998. In 1999 Mr. Tiller was promoted to President and Chief Executive Officer, and as of April 2005 is solely the Chief Executive Officer of the Company. Prior to joining Polaris, Mr. Tiller was employed by General Electric Company in various management positions for fifteen years.

      Mr. Morgan was promoted to President and Chief Operating Officer of the Company in April 2005; prior to that he was Vice President and General Manager of the ATV Division of Polaris. Prior to managing the ATV Division, Mr. Morgan was General Manager of the PGA Division for Polaris from 1997 to 2001. He joined Polaris in 1987 and spent his early career in various product development, marketing and operations management positions of increasing responsibility.

      Mr. Bjorkman has been Vice President — Operations of the Company since July 2000. Mr. Bjorkman had been Vice President — Manufacturing since January 1995, and prior thereto held positions of Plant Manager and Manufacturing Engineering Manager since July 1990. Prior to joining Polaris, Mr. Bjorkman was employed by General Motors Corporation in various management positions for nine years.

      Mr. Corness has been Vice President — Human Resources of the Company since January 1999. Prior to joining Polaris, Mr. Corness was employed by General Electric Company in various human resource positions for nine years. Before that time, Mr. Corness held various human resource positions with Maple Leaf Foods and Transalta Utilities.

      Mr. Malone has been Vice President — Finance, Chief Financial Officer and Secretary of the Company since January 1997. Mr. Malone was Vice President and Treasurer of the Company from December 1994 to January 1997 and was Chief Financial Officer and Treasurer of a predecessor company of Polaris from January 1993 to December 1994. Prior thereto and since 1986, he was Assistant Treasurer of a predecessor company of Polaris. Mr. Malone joined Polaris in 1984 after four years with Arthur Andersen LLP.

      Ms. McConnell joined Polaris as Vice President and General Counsel in March 2003. Just prior to joining Polaris, Ms. McConnell was General Counsel for the Control Products Division of Honeywell. From 1995 to 2002, Ms. McConnell was the Senior Vice President, General Counsel and Secretary of Genmar Holdings, Inc. Before that time, Ms. McConnell was a partner with the law firm of Lindquist & Vennum, and held various positions with the Dakota County Attorneys’ Office and the U.S. Corps of Engineers.

      Mr. Blackwell was promoted to Vice President — Victory Motorcycles and International Operations in October 2005. Mr. Blackwell joined Polaris in September 2000 as General Manager for Victory Motorcycles.

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Mr. Blackwell has over 30 years of progressive experience in the powersports industry, beginning in retail and working through a variety of assignments at the distributor and manufacturer levels for Japanese, European and American companies.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

      The information under the caption “Other Investor Information” appearing on the inside back cover of the Company’s 2005 Annual Report is incorporated herein by reference.

      Polaris Shares Repurchased for the Quarter ended December 31, 2005

								Maximum Number
						Total Number of		of Shares That May
						Shares Purchased as		Yet Be Purchased
		Total Number of		Average Price Paid		Part of Publicly		Under the
Period		Shares Purchased		per Share		Announced Program		Program(1)
October 1 - 31, 2005			216,000	$	45.88		216,000		4,896,000
November 1 - 30, 2005			238,000		46.59		238,000		4,658,000
December 1 - 31, 2005			-0-		-0-		-0-		4,658,000
	Total		454,000	$	46.25		454,000		4,658,000

(1)  The Board of Directors approved the repurchase of up to an aggregate of 27.0 million shares of the Company’s common stock pursuant to the share repurchase program (the “Program”) of which approximately 22.3 million shares have been repurchased through December 31, 2005. This Program does not have an expiration date.

Item 6. Selected Financial Data

      The information under the caption “11-Year Selected Financial Data” appearing on pages 18 and 19 of the Company’s 2005 Annual Report is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

      The following discussion pertains to the results of operations and financial position of the Company for each of the three years in the period ended December 31, 2005, and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this report. On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine products effective immediately. The marine products division’s financial results are reported separately as discontinued operations for all periods presented.

Executive-Level Overview

      For the full year ended December 31, 2005, Polaris reported record net income from continuing operations of $144.3 million, an increase of five percent over net income from continuing operations of $136.8 million for the year ended December 31, 2004. Earnings per share from continuing operations was $3.29 per diluted share for the year ended December 31, 2005, an eight percent increase over earnings per share of $3.04 per diluted share for the same period in 2004. Sales from continuing operations for the full year ended December 31, 2005 totaled a record $1.870 billion, up five percent compared to sales from continuing operations of $1.773 billion for the full year 2004. The Company’s product lines consist of ATVs and utility vehicles, snowmobiles, motorcycles and related PG&A. ATVs is the largest product line representing 66 percent of Polaris’ sales in 2005. The increase in total Company sales in 2005 was due to growth in all product lines, except snowmobiles. The increase in ATVs, Victory motorcycles and PG&A sales was driven

14

primarily by new product introductions during the year. The Company sells its products through a network of 1,700 dealers in North America and five subsidiaries and 40 distributors in 126 countries outside of North America. The Company has increased its foreign presence with sales outside of North America representing over 12 percent of total Company sales in 2005 compared to 11 percent in 2004. The Company’s gross profit in 2005 decreased two percent from 2004 and the gross margin percentage declined to 22.3 percent compared to 23.9 percent in 2004 primarily due to higher commodity costs, floor plan financing and an increase in warranty expenses compared to 2004.

      In 2005 Polaris invested in Austrian motorcycle manufacturer KTM by purchasing a 25 percent interest in that company from a third party for $85.4 million. Income from the investment in KTM is recorded on an after-tax basis on the income statement as a component of Equity in income of manufacturing affiliates and totaled $2.3 million for the portion of the 2005 year the KTM investment was held.

      Additionally, during the year the Company entered into a new multi-year contract with HSBC, which provides for income to be paid to Polaris based on a percentage of the volume of retail credit business generated. The previous agreement provided for equal sharing of all income and losses with respect to the retail credit portfolio. The new agreement removes all credit and funding risk to Polaris and also eliminates the need for Polaris to maintain a retail credit cash deposit with HSBC, which was $50.0 million on August 1, 2005, the effective date of the new agreement. Income from financial services, which includes income generated from both the retail credit portfolio and the wholesale credit portfolio, increased 21 percent to $38.6 million in 2005 compared to $32.0 million in 2004.

      There were a number of challenges during 2005 including the following:

•  Lower consumer confidence, including concerns about increasing gasoline prices and home heating costs

•  Higher commodity and transportation costs, particularly energy related costs, driven by hurricanes Rita and Katrina

•  Higher inventory levels both at the factory and the dealers

•  Rising interest rates

      In response to these challenges, management made a number of timely adjustments that enabled Polaris to produce another record year of earnings per share for the shareholders. In addition to effectively managing the business through a difficult period, several important moves were made during 2005 that will help to positively position Polaris for the future including:

•  The successful introduction of several new ATVs, RANGERs, snowmobiles and Victory motorcycles

•  The announcement of an exciting strategic partnership with KTM an Austrian-based motorcycle manufacturer with a strong international presence

•  The modification of the retail credit relationship with HSBC, which contributed to improved earnings and cash flow in addition to removing all credit and funding risk to Polaris

•  Completion of the new research and development facility in Wyoming, Minnesota

Many of the challenges the Company experienced throughout 2005 will likely continue into the first half of 2006. North American ATV retail sales for the industry are expected to continue to be soft, commodity costs are expected to remain higher than historical levels, and dealer and factory inventories remain higher than desired given current economic and industry conditions. However, once these near-term headwinds begin to abate, Polaris expects to be well-positioned to capitalize on strengthening demand. The underlying businesses of Polaris are strong, with a diverse portfolio of industry leading products, and the Company has made some very strategic investments that should drive growth and increased profitability for many years to come.

15

Results of Operations

2005 vs. 2004

Continuing Operations

      Sales from continuing operations increased to $1.870 billion in 2005, representing a five percent increase from $1.773 billion in 2004. The increase in sales was primarily due to favorable mix change as more higher priced models of Victory motorcycles and utility vehicles were sold in 2005 compared to 2004.

      Sales of ATVs of $1,239.4 million in 2005 were seven percent higher than $1,159.8 million in 2004. Sales growth was a direct result of new product introductions and strong RANGER^tm and international sales growth during the year. The average per unit sales price increased four percent due to the mix impact of the new products introduced during 2005, favorable currency rates and select price increases. Sales of ATVs comprised 66 percent of total Company sales in 2005 and 2004.

      Sales of snowmobiles of $256.7 million in 2005 were 11 percent lower than $288.4 million in 2004. The decrease was due to lower dealer orders in 2005 following a disappointing selling season. The average per unit sales price increased two percent due to the higher percentage of higher priced performance snowmobiles sold in 2005 versus 2004, as well as the impact of favorable currency rates. Sales of snowmobiles comprised 14 percent of total Company sales in 2005 compared to 16 percent in 2004.

      Sales of Victory motorcycles of $99.5 million in 2005 were 34 percent higher than $74.0 million in 2004. The increase is attributable to improved brand recognition, the success of the Hammer and Vegas Jackpot models, a more powerful 100 cubic inch engine and a new six speed transmission, and improvements in the dealer network. The average per unit sales price for motorcycles increased nine percent, which was driven by product mix change as more of the higher priced Victory Hammer, Kingpin and Signature Series models were sold in 2005 compared to 2004. Sales of Victory motorcycles comprised five percent of total Company sales in 2005 compared to four percent in 2004.

      Sales of PG&A of $274.2 million in 2005 were nine percent higher than $251.0 million in 2004. The PG&A business was positively impacted by growth in ATVs, utility vehicles and motorcycle PG&A sales during 2005. PG&A sales comprised 15 percent of total company sales in 2005 compared to 14 percent in 2004.

      Gross profit decreased to $417.9 million in 2005, representing a two percent decrease compared to $424.3 million gross profit in 2004. The gross profit margin percentage was 22.3 percent in 2005, a decrease of 160 basis points from 23.9 percent for the full year 2004. The decrease in gross profit dollars and margin percentage was primarily due to increased raw material costs, declining snowmobile gross margins, higher floor plan financing costs, higher warranty expenses and incremental transportation and fuel costs. These higher costs were partially offset by continued efficiency gains and savings from various cost reduction initiatives. Warranty expenses increased 38 percent to $36.3 million for the year ending December 31, 2005 compared to $26.3 million in the prior year. The increase in warranty expense in 2005 is the result of higher warranty claims, primarily for snowmobiles.

      Operating expenses in 2005 decreased one percent to $241.7 million from $244.7 million in 2004. Expressed as a percentage of sales, operating expenses decreased to 12.9 percent in 2005 from 13.8 percent in 2004. Research and development expenses increased 12 percent in 2005 primarily from investments in new product development and the new research and development facility in Wyoming, Minnesota that opened in spring 2005. Sales and marketing expenses decreased one percent in 2005 as result of cost saving efforts. General and administrative expenses decreased 12 percent in 2005 primarily due to a lower Polaris stock price during 2005 that reduced stock based compensation plan expenses as well as operating cost control measures taken by the Company.

      Income from financial services in 2005 increased 21 percent to $38.6 million compared to $32.0 million for 2004 due to increased profitability generated from both the wholesale credit portfolio and increased income from the retail credit arrangement with HSBC.

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      Equity in income of manufacturing affiliates (which primarily represents the Company’s portion of income from the investment in KTM, net of tax) increased $2.3 million for the full year 2005 compared to 2004. The Company purchased a 25 percent interest in KTM in the summer of 2005.

      Interest expense was $4.7 million in 2005 compared to $2.1 million in 2004. The increase in interest expense is primarily the result of higher interest rates and higher average debt levels on borrowings under the credit agreement in 2005 to fund the investment in KTM and higher share repurchases.

      Non-operating other expense decreased $1.6 million in 2005 when compared to 2004 primarily due to the strengthening of the U.S. dollar and the resulting effects of foreign currency hedging transactions related primarily to the Canadian dollar.

      The income tax provision for the full year 2005 was recorded at a rate of approximately 30.8 percent of pretax income, a reduction from 33.0 percent recorded in 2004, resulting primarily from certain favorable income tax events.

      Net income from continuing operations in 2005 was $144.3 million, an increase of five percent from $136.8 million in 2004. Net income from continuing operations as a percent of sales was 7.7 percent in 2005, equal to the 2004 percentage. Net income per diluted share from continuing operations increased eight percent to $3.29 in 2005 from $3.04 in 2004.

     Discontinued Operations

      Effective September 2, 2004 the Company ceased to manufacture marine products. The marine products division’s financial results are being reported separately as discontinued operations for all periods presented. The wind-down of operations for the marine products division is proceeding as planned, and is expected to be substantially completed during 2006. For the full year ended December 31, 2005, the loss from discontinued operations was $1.0 million, after tax, or $0.02 per diluted share, compared to a loss of $8.5 million or $0.19 per diluted share in 2004. Reported net income for the full year 2005, including both continuing and discontinued operations was $143.3 million or $3.27 per diluted share compared to $104.5 million, or $2.32 per diluted share for the full year 2004 which included a $23.9 million, net of tax, loss on disposal of discontinued operations in 2004.

2004 vs. 2003

Continuing Operations

      Sales from continuing operations increased to $1.773 billion in 2004, representing a 14 percent increase from $1.552 billion in 2003. The increase in sales was primarily due to higher sales volume from all product lines, along with favorable currency rate movements in 2004.

      Sales of ATVs of $1,159.8 million in 2004 were 11 percent higher than $1,043.2 million in 2003. Sales growth was driven by the introduction of five completely new products and upgrades of several current models for model year 2005, including a new limited edition 700 EFI (electronic fuel injection) XP RANGER^tm, an 800 EFI Sportsman, a military version ATV built for the retail consumer, a new Troy Lee Edition Predator 500 and the new value priced Phoenix. The average per unit sales price increased four percent due to the mix impact of the new products introduced during 2004 and favorable currency rates. Sales of ATVs comprised 66 percent of total Company sales in 2004 compared to 67 percent in 2003.

      Sales of snowmobiles of $288.4 million in 2004 were 26 percent higher than $229.2 million in 2003. The increase was due to new product introductions, including the Fusion 900 and 900 RMK models that include the new IQ chassis. In addition, lower levels of dealer inventory coming into the 2004-2005 selling season allowed for production increases in calendar year 2004. The average per unit sales price increased seven percent due to the higher percentage of higher priced performance snowmobiles sold in 2004 versus 2003, as well as the impact of favorable currency rates. Sales of snowmobiles comprised 16 percent of total Company sales in 2004 compared to 15 percent in 2003.

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      Sales of Victory motorcycles of $74.0 million in 2004 were 29 percent higher than $57.4 million in 2003. The increase is attributable to improved brand recognition, the success of the Vegas and Kingpin models and improvement in the dealer network. Three new models were introduced for the 2005 model year including the Vegas 8-Ball, the Hammer with a more powerful engine, a six speed transmission and a 250mm rear tire, and the Ness Signature Series Kingpin. The average per unit sales price for motorcycles increased four percent, which was driven by product mix change as more of the higher priced Victory Vegas, Kingpin and Signature Series models were sold in 2004 compared to 2003. Sales of Victory motorcycles comprised four percent of total Company sales in both 2004 and 2003.

      Sales of PG&A of $251.0 million in 2004 were 13 percent higher than $222.5 million in 2003. The PG&A business was positively impacted by balanced growth during 2004 across each product line. PG&A sales comprised 14 percent of total Company sales in both 2004 and 2003.

      Gross profit increased to $424.3 million in 2004, representing a 17 percent increase over the $362.9 million gross profit in 2003. This increase in gross profit dollars was a result of higher sales volume and an increase in gross profit margin percentage to 23.9 percent of sales in 2004 from 23.4 percent in 2003. The gross profit margin for the full year 2004 benefited from continued efficiency gains and savings from various cost reduction initiatives. A net positive impact from currency fluctuations and a moderating sales promotion environment, particularly in ATVs during the fourth quarter 2004 also contributed to the improved gross margins for the year. These improvements, in aggregate, were reduced somewhat by increased raw material costs, primarily for steel, incremental transportation and fuel costs, and the added manufacturing startup costs associated with the increased number of new 2005 model year ATVs, snowmobiles and Victory motorcycles. Warranty expenses increased eight percent to $26.3 million for the year ending December 31, 2004 compared to $24.4 million in the prior year. This increase in warranty expense in 2004 is principally the result of higher sales volume during the year particularly from the international operations which typically have longer warranty periods.

      Operating expenses in 2004 increased 18 percent to $244.7 million from $206.6 million in 2003. Expressed as a percentage of sales, operating expenses increased to 13.8 percent in 2004 from 13.3 percent in 2003. Research and development expenses increased 29 percent in 2004 as the Company continued to invest in reducing the lead time for designing, developing and introducing new products as well as to increase the success rate of new product introductions. Sales and marketing expenses increased 15 percent in 2004 as Polaris continued to upgrade the distribution network of 1,900 dealers in North America in the area of sales, service, merchandising and strengthening of the Polaris brand through advertising efforts to accelerate future growth. Additionally, approximately $2.8 million was spent to celebrate Polaris’ 50th Anniversary during 2004. General and administrative expenses increased 16 percent in 2004 primarily related to higher expenses and currency fluctuations related to the growing international subsidiaries and a positive move in the stock price that increased stock-based compensation expenses during 2004.

      Income from financial services in 2004 increased 36 percent to $32.0 million compared to $23.6 million for 2003 due to increases in the receivable balances of both the retail and wholesale credit arrangements. Retail credit losses, which have increased to approximately four percent of the retail portfolio balance, continue to be in line with the Company’s expectations and the experience of portfolios similar in nature and maturity.

      Non-operating other expense increased $5.4 million in 2004 when compared to 2003 primarily due to the weak U.S. dollar and the resulting effects of foreign currency hedging transactions related primarily to the Canadian dollar.

      Net income from continuing operations in 2004 was $136.8 million, an increase of 14 percent from $119.8 million in 2003. Net income from continuing operations as a percent of sales was 7.7 percent in 2004, equal to the 2003 percentage. Net income per diluted share from continuing operations increased 14 percent to $3.04 in 2004 from $2.66 in 2003.

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Discontinued Operations

      Effective September 2, 2004 the Company ceased to manufacture marine products. The marine products division’s financial results are being reported separately as discontinued operations for all periods presented. During the third quarter 2004, the Company recorded a loss on disposal of discontinued operations of $35.6 million before tax, or $23.9 million after tax, or $0.53 per diluted share. This loss includes the estimated costs to support the dealers in selling their remaining inventory, additional incentives and discounts to encourage consumers to purchase remaining products, the disposal of factory inventory, tooling and other physical assets, and the cancellation of supplier arrangements. For the full year 2004, the loss from discontinued operations was $8.5 million, after tax, or $0.19 per diluted share, compared to a loss of $8.9 million or $0.20 per diluted share in 2003. Full year 2004 reported net income, including both continuing and discontinued operations and the loss on disposal of discontinued operations was $104.5 million or $2.32 per diluted share, compared to $110.9 million, or $2.46 per diluted share for the full year 2003.

Critical Accounting Policies

      The significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following: revenue recognition, sales promotions and incentives, dealer holdback programs, product warranties and product liability.

      Revenue recognition: Revenues are recognized at the time of shipment to the dealer or distributor. Historically, product returns, whether in the normal course of business or resulting from repurchases made under the floorplan financing program have not been material. However, Polaris has agreed to repurchase products repossessed by the finance companies up to certain limits. Polaris’ financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements. Polaris has not historically recorded any significant sales return allowances because it has not been required to repurchase a significant number of units. However, an adverse change in retail sales could cause this situation to change.

      Sales promotions and incentives: Polaris generally provides for estimated sales promotion and incentive expenses, which are recognized as a reduction to sales, at the time of sale to the dealer or distributor. Examples of sales promotion and incentive programs include dealer and consumer rebates, volume discounts, retail financing programs and sales associate incentives. Sales promotion and incentive expenses are estimated based on current programs and historical rates for each product line. Polaris records these amounts as a liability in the consolidated balance sheet until they are ultimately paid. At December 31, 2005 and 2004, accrued sales promotions and incentives were $62.2 million and $59.3 million, respectively, reflecting a slight increase in the ATV sales promotions and incentives environment during 2005 and increased dealer inventory levels. Actual results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the customer usage rate varies from historical trends. Adjustments to sales promotions and incentives accruals are made from time to time as actual usage becomes known in order to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date. Historically, sales promotion and incentive expenses have been within the Company’s expectations and differences have not been material.

      Dealer holdback programs: Polaris provides dealer incentive programs whereby at the time of shipment Polaris withholds an amount from the dealer until ultimate retail sale of the product. Polaris records these amounts as a liability on the consolidated balance sheet until they are ultimately paid. Payments are generally made to dealers twice each year, in the first quarter and the third quarter, subject to previously established criteria. Polaris recorded accrued liabilities of $84.7 million and $78.2 million for dealer holdback programs in the consolidated balance sheets as of December 31, 2005 and 2004, respectively.

      Product warranties: Polaris provides a limited warranty for ATVs for a period of six months and for a period of one year for its snowmobiles, and motorcycles. Polaris may provide longer warranties related to certain promotional programs, as well as longer warranties in certain geographical markets as determined by local regulations and market conditions. Polaris’ standard warranties require the Company or its dealers to

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repair or replace defective products during such warranty periods at no cost to the consumer. The warranty reserve is established at the time of sale to the dealer or distributor based on management’s best estimate using historical rates and trends. Polaris records these amounts as a liability in the consolidated balance sheet until they are ultimately paid. At December 31, 2005 and 2004, the warranty reserve was $28.2 million. Adjustments to the warranty reserve are made from time to time based on actual claims experience in order to properly estimate the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. While management believes that the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable could differ materially from what will actually transpire in the future.

      Product liability: Polaris is subject to product liability claims in the normal course of business. Polaris self insures its product liability claims. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably determinable. The Company utilizes historical trends and actuarial analysis tools to assist in determining the appropriate loss reserve levels. At December 31, 2005 and 2004 the Company had accruals of $7.1 million and $5.3 million, respectively, for the possible payment of pending claims. These accruals are included in other accrued expenses in the accompanying consolidated balance sheets. While management believes the product liability reserve is adequate, adverse determination of material product liability claims made against the Company could have a material adverse effect on Polaris’ financial condition.

New Accounting Pronouncements

      Polaris implemented Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” during the third quarter 2003. This was an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and addresses the consolidation of variable interest entities by businesses. Polaris used the guidelines in FIN 46 to analyze the Company’s relationships, including the relationship with Polaris Acceptance, and concluded that the Company has no variable interest entities in 2003, 2004 and 2005.

      In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-based Payment (“SFAS No. 123(R)”). SFAS No. 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments SFAS No. 123(R) (e.g. stock options) granted to employees. This applies to all transactions involving the issuance of the Company’s equity in exchange for goods or services, including employee services. Upon adoption of SFAS No. 123(R), all stock option awards to employees will be recognized as expense in the income statement, typically over the requisite service period. SFAS No. 123(R) carried forward the guidance from SFAS No. 123 for payment transactions with non-employees. The Securities and Exchange Commission delayed the effective date in April 2005, to require public companies to adopt the standard as of the first annual period beginning after June 15, 2005.

      SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods: 1) Modified Prospective Method under which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date; or 2) Modified Retrospective Method which includes the requirements of the modified prospective method described above, but also permits entities to restate the historical financial statements based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures for all prior periods presented.

      Polaris is adopting SFAS No. 123(R) in the first quarter of fiscal year 2006, using the Modified Retrospective Method and will continue to value options using the Black-Scholes-Merton valuation model, incorporating key assumptions on volatility and expected option lives based on analysis of historical indicators.

      As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using the intrinsic value method under APB Opinion No. 25, Accounting for Stock Issued to Employees. In accordance with APB Opinion No. 25, Polaris generally recognizes no compensation expense for employee stock options. Assuming the Company had adopted SFAS No. 123(R) for fiscal year 2005, pro forma diluted

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earnings per share from continuing operations would have been reduced by $0.14 per diluted share from $3.29 per diluted share to $3.15 per diluted share. Accordingly, the adoption of the fair value method under SFAS No. 123(R) in the first quarter of 2006 will have an impact on the Company’s reported consolidated earnings from operations. The adoption of SFAS No. 123(R) is expected to result in a charge to full year 2006 earnings of approximately $0.12 to $0.14 per diluted share. However, the total expense recorded in future periods will depend on several variables, including the number of share-based awards granted, the number of grants that ultimately vest, and the fair value assigned to those awards.

Liquidity and Capital Resources

      Polaris’ primary sources of funds have been cash provided by operating activities and borrowings under credit arrangements of $250.0 million. Polaris’ primary uses of funds have been for repayments under the credit agreement, repurchase and retirement of common stock, capital investments, cash dividends to shareholders and new product development.

      During 2005, Polaris generated net cash from continuing operating activities of $177.6 million, a decrease of 28 percent from 2004. The net cash was utilized for the repurchase of shares of common stock of $132.3 million, to fund capital expenditures of $89.8 million and to pay cash dividends of $47.0 million. During 2004, Polaris generated net cash from continuing operating activities of $245.4 million, which was utilized to fund capital expenditures of $88.8 million, repurchase shares of common stock of $66.8 million and pay cash dividends of $38.9 million.

      The seasonality of production and shipments causes working capital requirements to fluctuate during the year. Polaris has an unsecured bank line of credit arrangement with maximum available borrowings of $250.0 million expiring on June 25, 2009. This arrangement provides borrowing for working capital needs and the repurchase and retirement of shares of common stock. Borrowings under the lines of credit bear interest based on LIBOR or “prime” rates. At December 31, 2005 and 2004, Polaris had total borrowings under the line of credit of $18.0 million. The Company’s debt to total capital ratio was five percent at December 31, 2005 and at December 31, 2004. Polaris has entered into an interest rate swap agreement to manage exposures to fluctuations in interest rates. At December 31, 2005, the effect of this agreement was to fix the interest rate at 7.21 percent for $18.0 million of any borrowing until June 2007.

      The following table summarizes the Company’s significant future contractual obligations at December 31, 2005 (in millions):

		Total		<1 Year		1-3 Years		>3 Years
Borrowings under credit agreement		$	18.0		—		—	$	18.0
Interest expense under swap agreement			1.9	$	1.3	$	0.6		—
Operating leases			6.5		2.6		3.4		0.5
Capital leases			0.3		0.3		—		—
	Total	$	26.7	$	4.2	$	4.0	$	18.5

      Additionally, at December 31, 2005, Polaris had letters of credit outstanding of $3.7 million related to purchase obligations for raw materials.

      The Polaris Board of Directors has authorized the cumulative repurchase of up to 27.0 million shares of the Company’s common stock. During 2005, Polaris paid $132.3 million to repurchase and retire approximately 2.4 million shares. The shares repurchased had a positive impact on earnings per share of approximately $0.09 per share for the year ended December 31, 2005. The Company has authorization from its Board of Directors to repurchase up to an additional 4.7 million shares of Polaris stock as of December 31, 2005.

      Polaris has arrangements with certain finance companies (including Polaris Acceptance) to provide floor plan financing for its dealers. These arrangements provide liquidity by financing dealer purchases of Polaris products without the use of Polaris’ working capital. Substantially all of the worldwide sales of snowmobiles,

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ATVs, motorcycles and related PG&A are financed under these arrangements whereby Polaris receives payment within a few days of shipment of the product. The amount financed by worldwide dealers under these arrangements at December 31, 2005 and 2004, was approximately $930.0 million and $795.2 million, respectively. Polaris participates in the cost of dealer financing up to certain limits. Polaris has agreed to repurchase products repossessed by the finance companies up to an annual maximum of no more than 15 percent of the average month-end balances outstanding during the prior calendar year. Polaris’ financial exposure under these agreements is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements. However, an adverse change in retail sales could cause this situation to change and thereby require Polaris to repurchase repossessed units.

      In 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of TDF to form Polaris Acceptance. In 2004, TDF was merged with a subsidiary of General Electric Company and, as a result of that merger, TDF’s name was changed to GE Commercial Distribution Finance Corporation (“GECDF”). Polaris Acceptance provides floor plan financing to Polaris’ dealers in the United States. Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. The receivable portfolio is recorded on Polaris Acceptance’s books, and is funded 85 percent through a loan from an affiliate of GECDF ($681.8 million at December 31, 2005) and 15 percent by cash investment shared equally between the two partners. Polaris has not guaranteed the outstanding indebtedness of Polaris Acceptance. This agreement provides for periodic options for renewal, purchase, or termination by either party. Substantially all of Polaris’ U.S. sales are financed through Polaris Acceptance whereby Polaris receives payment within a few days of shipment of the product.

      Polaris’ investment in Polaris Acceptance is accounted for under the equity method, and is recorded as a component of Investments in Finance Affiliate and Retail Credit Deposit in the accompanying consolidated balance sheets. The partnership agreement provides that all income and losses of the floor plan portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50 percent by GECDF. Polaris’ allocable share of the income of Polaris Acceptance has been included as a component of Income from financial services in the accompanying consolidated statements of income. As of December 31, 2005, the wholesale portfolio for dealers in the United States was $796.5 million, a 19 percent increase from $669.4 million at December 31, 2004. Credit losses in this portfolio have been modest, averaging less than one percent of the portfolio over the life of the partnership.

      In October 2001 Household and a subsidiary of Polaris entered into a Revolving Program Agreement with Household to provide retail financing to consumers who buy Polaris products in the United States. In August 2005, the wholly owned subsidiary of Polaris entered into a new multi-year contract with HSBC, formerly known as Household Bank (SB), N.A. under which HSBC will continue managing the Polaris private label credit card program under the StarCard label. The terms of the new multi-year agreement became effective as of August 10, 2005. The new agreement provides for income to be paid to Polaris based on a percentage of the volume of retail credit business generated. The previous agreement provided for equal sharing of all income and losses with respect to the retail credit portfolio, subject to certain limitations. The new contract removes all credit, interest rate and funding risk to Polaris and also eliminates the need for Polaris to maintain a retail credit cash deposit with HSBC, which was $50.0 million at August 1, 2005. For the full year 2005 consumers financed approximately 37 percent of Polaris vehicles sold in the United States through the HSBC arrangement, compared to 34 percent in 2004, while the volume of revolving credit contracts written in calendar 2005 was $527.1 million, an 8% increase over 2004.

      During 2005, a wholly owned Austrian subsidiary of Polaris (“Polaris Austria”) made an investment in Austrian motorcycle manufacturer KTM by purchasing a 25 percent interest in that company from a third party for $82.8 million. Additionally, Polaris and KTM’s largest shareholder, Cross Industries AG (“Cross”), have entered into an option agreement which provides that, under certain conditions in 2007, either Cross may purchase Polaris’ interest in KTM or, alternatively, Polaris may purchase Cross’ interest and become the majority shareholder of KTM. In the latter case, under most circumstances, the majority of the purchase price to Cross will be settled in Polaris shares and Cross will become a significant shareholder in the combined Polaris/ KTM organization. Cross’ principal shareholders are entities controlled by KTM Chief Executive

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Officer Stefan Pierer and KTM Chief Financial Officer Rudolf Knünz. The exercise price under both option arrangements are based on market-based, predetermined pricing formulas to be derived from operating results of both companies in 2007.

      Improvements in manufacturing capacity and product development during 2005 included (a) expenditures of $15.2 million for the completion of the construction of a new research and product development facility in Wyoming, Minnesota which opened in April 2005, (b) expenditures of $6.3 million for the expansion of the research and development and injection molding facility at the Roseau, Minnesota location, (c) tooling expenditures for new product development across all product lines of $21.7 million, and (d) expenditures of $9.4 million to purchase returnable crates for the shipment of snowmobiles. Polaris anticipates that capital expenditures for 2006, including tooling and research and development equipment, will range from $70.0 million to $80.0 million.

      Management believes that existing cash balances, cash flows to be generated from operating activities and available borrowing capacity under the line of credit arrangements will be sufficient to fund operations, regular dividends, share repurchases, and capital expenditure requirements for 2006. At this time, management is not aware of any factors that would have a material adverse impact on cash flow beyond 2006.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Inflation, Foreign Exchange Rates and Interest Rates

      Polaris does not believe that inflation has had a material impact on the results of its operations in 2005, other than the increasing market prices of certain purchased commodity raw materials. However, the changing relationships of primarily the U.S. dollar to the Canadian dollar, Euro and Japanese yen have had a material impact from time-to-time.

      During 2005, purchases totaling 12 percent of Polaris’ cost of sales were from Japanese yen denominated suppliers. The impact of the Japanese yen exchange rate fluctuation on Polaris’ raw material purchase prices and cost of sales in 2005 was negligible when compared to the prior year. In view of the foreign exchange hedging contracts entered into in early 2006, Polaris anticipates that the yen-dollar exchange rates will have a favorable impact on cost of sales during the hedged periods of 2006 when compared to 2005.

      Polaris operates in Canada through a wholly-owned subsidiary. Sales of the Canadian subsidiary comprised 11 percent of total Polaris sales in 2005. From time to time, Polaris utilizes foreign exchange hedging contracts to manage its exposure to the Canadian dollar. The U.S. dollar weakened in relation to the Canadian dollar in 2005 which resulted in a positive financial impact on Polaris gross margins when compared to the same periods in 2004. In view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the Canadian dollar to U.S. dollar exchange rates will have a favorable impact on net income during 2006 compared to 2005 for the hedged periods.

      In the past, Polaris has been a party to, and in the future may enter into, foreign exchange hedging contracts for the Japanese yen, Euro, and the Canadian dollar to minimize the impact of exchange rate fluctuations within each year. At December 31, 2005, Polaris had open Canadian dollar foreign exchange hedging contracts with notional amounts totaling $56.7 million U.S. dollars, which mature at various times through the first half of 2006. The average exchange rate of the Canadian dollar foreign exchange hedging contracts is 0.84 U.S. dollar per Canadian dollar. At December 31, 2005, the Company had open Japanese yen foreign exchange hedging contracts with notional amounts totaling $63.3 million, which mature at various times through the third quarter of 2006. The average exchange rate of the Japanese yen foreign exchange hedging contracts is 111.6 yen to the dollar. At December 31, 2005 the Company had no Euro foreign exchange hedging contracts in place.

      The fair values of the Japanese yen and Canadian dollar hedge contracts at December 31, 2005 represent an unrealized loss of $3.3 million. A ten percent fluctuation in the currency rates as of December 31, 2005 would have resulted in a change in the fair value of the Canadian dollar and Japanese yen hedge contracts of approximately $9.9 million combined. However, since these contracts hedge foreign currency denominated

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transactions, any change in the fair value of the contracts would be offset by changes in the underlying value of the transaction being hedged.

      Polaris is subject to market risk from fluctuating market prices of certain purchased commodity raw materials including steel, aluminum, fuel, and petroleum-based resins. In addition, the Company is a purchaser of components and parts containing various commodities, including steel, aluminum, rubber and others which are integrated into the Company’s end products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. The Company generally buys these commodities and components based upon market prices that are established with the vendor as part of the purchase process. While Polaris may do so in the future, the Company did not enter into any derivative contracts to hedge the exposure to commodity risk in 2005.

      The Company generally attempts to obtain firm pricing from most of its suppliers for volumes consistent with planned production. To the extent that commodity prices increase and the Company does not have firm pricing from its suppliers, or its suppliers are not able to honor such prices, the Company may experience gross margin declines to the extent it is not able to increase selling prices of its products. During 2005 the Company experienced commodity price increases with some of these key raw materials. Competitive market pressures limited the ability to pass these cost increases to customers, thereby eroding Polaris’ gross margins in 2005.

      Polaris is a party to an unsecured bank line of credit arrangement under which it may borrow an aggregate of up to $250.0 million until maturity. Interest is charged at variable rates based on LIBOR or “prime”. Additionally, Polaris is a party to an interest rate swap agreement that locks in a fixed interest rate on $18.0 million of long-term debt. The Company is exposed to interest rate changes on any borrowings during the year in excess of $18.0 million. Based upon the average outstanding line of credit borrowings of $96.4 million during 2005, a one-percent fluctuation in interest rates would have had an approximately $0.8 million impact on interest expense in 2005.

      Polaris has been manufacturing its own engines for selected models of snowmobiles since 1995, motorcycles since 1998 and ATVs since 2001 at its Osceola, Wisconsin facility. Also, in 1995, Polaris entered into an agreement with Fuji Heavy Industries Ltd. to form Robin Manufacturing U.S.A., Inc. (“Robin”). Under the terms of the agreement, Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Potential advantages to Polaris of having these additional sources of engines include reduced foreign exchange risk, lower shipping costs and less dependence in the future on a single supplier for engines.

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INDEX TO FINANCIAL STATEMENTS

	Page
Management’s Report on Company’s Internal Control Over Financial Reporting		26
Report of Independent Registered Public Accounting Firm on Company’s Internal Control over Financial Reporting		27
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements		28
Consolidated Balance Sheets as of December 31, 2005 and 2004		29
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003		30
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003		31
Consolidated Statements of Cash Flows for the Years ended December 31, 2005, 2004 and 2003		32
Notes to Consolidated Financial Statements		33

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Item 8. Financial Statements and Supplementary Data

Management’s Report on Company’s Internal Control over Financial Reporting

      Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting of the Company. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

      The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

      Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting as of December 31, 2005. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control  — Integrated Framework. Based on management’s evaluation and those criteria, management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2005.

      Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report in which they expressed an unqualified opinion, which report appears on the following page.

Thomas C. Tiller

Chief Executive Officer

Michael W. Malone

Vice President — Finance,

Chief Financial Officer and Secretary

February 21, 2006

Further discussion of the Company’s internal controls and procedures is included in Item 9A of this report, under the caption “Controls and Procedures.”

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Polaris Industries Inc.

      We have audited management’s assessment, included in the accompanying Management’s Report on Company’s Internal Control over Financial Reporting, that Polaris Industries Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Polaris Industries Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that Polaris Industries Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Polaris Industries Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Polaris Industries Inc. as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2005 and our report dated February 21, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 21, 2006

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Polaris Industries Inc.

      We have audited the accompanying consolidated balance sheets of Polaris Industries Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Polaris Industries Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Polaris Industries Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 21, 2006

28

POLARIS INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

				December 31,
				2005			2004
ASSETS
Current Assets
	Cash and cash equivalents			$	19,675		$	138,469
	Trade receivables, net of allowance for doubtful accounts of $2,889 and $4,334				78,350			71,172
	Inventories, net				202,022			173,624
	Prepaid expenses and other				13,330			12,090
	Deferred income taxes				60,498			65,489
	Current assets from discontinued operations				113			4,811
		Total current assets			373,988			465,655
Property and Equipment
	Land, buildings and improvements				99,106			77,910
	Equipment and tooling				415,446			386,575
					514,552			464,485
	Less accumulated depreciation				(292,216	)		(263,584	)
		Net property and equipment			222,336			200,901
Investments in Finance Affiliate and Retail Credit Deposit					59,601			98,386
Investments in Manufacturing Affiliates					87,772			2,877
Goodwill, net					25,039			24,798
Intangibles and Other Assets, net					220			308
Total Assets				$	768,956		$	792,925
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable			$	97,065		$	96,302
	Accrued expenses:
		Compensation			51,022			50,815
		Warranties			28,178			28,243
		Sales promotions and incentives			62,227			59,348
		Dealer holdback			84,707			78,214
		Other			37,594			36,084
	Income taxes payable				9,428			31,001
	Current liabilities from discontinued operations				5,393			25,186
		Total current liabilities			375,614			405,193
Deferred Income Taxes					5,685			8,000
Borrowings under Credit Agreement					18,000			18,000
		Total Liabilities		$	399,299		$	431,193
Shareholders’ Equity:
	Preferred stock $0.01 par value, 20,000 shares authorized, no shares issued and outstanding				—			—
	Common stock $0.01 par value, 80,000 shares authorized, 41,687 and 42,741 shares issued and outstanding			$	417		$	427
	Additional paid-in capital				—			—
	Deferred compensation				(3,523	)		(8,516	)
	Retained earnings				375,193			366,345
	Accumulated other comprehensive income (loss)				(2,430	)		3,476
		Total shareholders’ equity			369,657			361,732
			Total Liabilities and Shareholders’ Equity	$	768,956		$	792,925

All periods reflect the classification of the Marine Division results as discontinued operations.

The accompanying footnotes are an integral part of these consolidated statements.

29

POLARIS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

			For the Years Ended December 31,
			2005			2004			2003
Sales			$	1,869,819		$	1,773,206		$	1,552,351
Cost of sales				1,451,927			1,348,943			1,189,475
	Gross profit			417,892			424,263			362,876
Operating expenses
	Selling and marketing			105,114			105,984			92,321
	Research and development			68,146			60,700			47,069
	General and administrative			68,486			77,977			67,175
		Total operating expenses		241,746			244,661			206,565
Income from financial services				38,640			32,035			23,587
	Operating income			214,786			211,637			179,898
Nonoperating expense (income)
	Interest expense			4,713			2,111			2,465
	Equity in (income) of manufacturing affiliates			(2,308	)		(6	)		(27	)
	Other expense (income), net			3,748			5,333			(56	)
	Income before income taxes			208,633			204,199			177,516
Provision for income taxes				64,348			67,386			57,693
	Net income from continuing operations		$	144,285		$	136,813		$	119,823
	Loss from discontinued operations, net of tax		$	(1,007	)	$	(8,457	)	$	(8,894	)
	Loss on disposal of discontinued operations, net of tax			—			(23,852	)		—
	Net Income		$	143,278		$	104,504		$	110,929
Basic net income per share
	Continuing operations		$	3.42		$	3.23		$	2.80
	Loss from discontinued operations			(0.02	)		(0.20	)		(0.21	)
	Loss on disposal of discontinued operations			—			(0.56	)		—
	Net Income		$	3.40		$	2.47		$	2.59
Diluted net income per share
	Continuing operations		$	3.29		$	3.04		$	2.66
	Loss from discontinued operations			(0.02	)		(0.19	)		(0.20	)
	Loss on disposal of discontinued operations			—			(0.53	)		—
	Net Income		$	3.27		$	2.32		$	2.46
Weighted average number of common and common equivalent shares outstanding:
	Basic			42,131			42,318			42,905
	Diluted			43,881			45,035			45,056

All periods presented reflect the classification of the Marine Division’s financial results and the loss on disposal of the division as discontinued operations.

The accompanying footnotes are an integral part of these consolidated statements.

30

POLARIS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(in thousands, except per share data)

																	Accumulated
								Additional									Other
		Number of			Common			Paid-In			Deferred			Retained			Comprehensive
		Shares			Stock			Capital			Compensation			Earnings			Income (Loss)			Total
Balance, December 31, 2002			44,600		$	446			—		$	(12,106	)	$	289,433		$	(667	)	$	277,106
	Employee stock compensation		386			4			11,087			3,184									14,275
	Proceeds from stock issuances under employee plans		852			9			12,124												12,133
	Tax effect of exercise of stock options								6,389												6,389
	Cash dividends declared ($0.62 per share)														(26,657	)					(26,657	)
	Repurchase and retirement of common shares		(2,476	)		(25	)		(29,600	)					(43,500	)					(73,125	)
Comprehensive income:
	Net income														110,929
	Foreign currency translation adjustments, net																	3,743
	Unrealized loss on derivative instruments, net																	(5,415	)
Total comprehensive income																					109,257
Balance, December 31, 2003			43,362		$	434			—		$	(8,922	)	$	330,205		$	(2,339	)	$	319,378
	Employee stock compensation		139			1			16,073			406									16,480
	Proceeds from stock issuances under employee plans		636			6			11,815												11,821
	Tax effect of exercise of stock options								9,420												9,420
	Cash dividends declared ($0.92 per share)														(38,856	)					(38,856	)
	Repurchase and retirement of common shares		(1,396	)		(14	)		(37,308	)					(29,508	)					(66,830	)
Comprehensive income:
	Net income														104,504
	Foreign currency translation adjustments, net																	3,478
	Unrealized gain on derivative instruments, net																	2,337
Total comprehensive income																					110,319
Balance, December 31, 2004			42,741		$	427			—		$	(8,516	)	$	366,345		$	3,476		$	361,732
	Employee stock compensation		197			2			7,409			4,993									12,404
	Proceeds from stock issuances under employee plans		1,110			11			20,034												20,045
	Tax effect of exercise of stock options								17,340												17,340
	Cash dividends declared ($1.12 per share)														(46,956	)					(46,956	)
	Repurchase and retirement of common shares		(2,361	)		(23	)		(44,783	)					(87,474	)					(132,280	)
Comprehensive income:
	Net income														143,278
	Foreign currency translation adjustments, net																	(7,377	)
	Unrealized gain on derivative instruments, net																	1,471
Total comprehensive income																					137,372
Balance, December 31, 2005			41,687		$	417			—		$	(3,523	)	$	375,193		$	(2,430	)	$	369,657

The accompanying footnotes are an integral part of these consolidated statements.

31

POLARIS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

					For the Year Ended December 31,
					2005			2004			2003
Operating Activities:
	Net income				$	143,278		$	104,504		$	110,929
		Net loss from discontinued operations				1,007			32,309			8,894
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				67,936			59,339			52,657
		Noncash compensation				12,404			16,480			14,275
		Noncash income from financial services				(14,174	)		(11,488	)		(9,300	)
		Noncash income from manufacturing affiliates				(2,308	)		(6	)		(27	)
		Deferred income taxes				2,676			(1,460	)		(8,131	)
		Changes in current operating items:
			Trade receivables			(7,178	)		(20,598	)		(1,429	)
			Inventories			(28,396	)		(6,686	)		(22,201	)
			Accounts payable			762			33,258			(22,363	)
			Accrued expenses			11,025			17,378			38,242
			Income taxes payable			(4,234	)		17,882			8,502
			Prepaid expenses and others, net			(5,169	)		4,444			(2,255	)
				Net cash provided by continuing operations		177,629			245,356			167,793
				Net cash flow provided from (used for) discontinued operations		(16,101	)		1,472			(12,028	)
				Net cash provided by operating activities		161,528			246,828			155,765
Investing Activities:
	Purchase of property and equipment					(89,770	)		(88,836	)		(59,209	)
	Investments in financial affiliates and financial services arrangements					(22,811	)		(32,367	)		(21,647	)
	Distributions from financial affiliates and financial services arrangements					75,770			25,047			16,554
	Investments in manufacturing affiliates					(85,443	)		—			—
	Distributions from manufacturing affiliates					1,123			—			—
				Net cash used for continuing operations investment activities		(121,131	)		(96,156	)		(64,302	)
				Net cash used for discontinued operations investment activities		—			(1,091	)		(2,227	)
				Net cash used for investing activities		(121,131	)		(97,247	)		(66,529	)
Financing Activities:
	Borrowings under credit agreement					795,000			428,000			453,001
	Repayments under credit agreement					(795,000	)		(428,008	)		(453,020	)
	Repurchase and retirement of common shares					(132,280	)		(66,830	)		(73,125	)
	Cash dividends to shareholders					(46,956	)		(38,856	)		(26,657	)
	Proceeds from stock issuances under employee plans					20,045			11,821			12,133
	Net cash used for financing activities					(159,191	)		(93,873	)		(87,668	)
	Net increase (decrease) in cash and cash equivalents					(118,794	)		55,708			1,568
Cash and cash equivalents at beginning of period						138,469			82,761			81,193
Cash and cash equivalents at end of period					$	19,675		$	138,469		$	82,761
Supplemental Cash Flow Information
	Interest paid on debt borrowings				$	4,708		$	2,126		$	2,492
	Income taxes paid				$	67,370		$	36,170		$	51,048

All periods reflect the classification of the Marine Division results as discontinued operations.

The accompanying footnotes are an integral part of these consolidated statements.

32

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization and Significant Accounting Policies

      Polaris Industries Inc. (“Polaris” or the “Company”) a Minnesota corporation, and its subsidiaries, are engaged in a single industry segment consisting of the design, engineering, manufacturing and marketing of innovative, high-quality, high-performance motorized products for recreation and utility use, including ATVs, snowmobiles, and motorcycles. Polaris products, together with related replacement PG&A are sold worldwide through a network of dealers, distributors and its subsidiaries located in the United States, Canada, France, Great Britain, Australia, Norway and Sweden.

      Basis of presentation: The accompanying consolidated financial statements include the accounts of Polaris and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. Income from financial services is reported as a component of operating income to better reflect income from ongoing operations of which financial services has a significant impact. Shares and per share information have been adjusted to give effect to the two-for-one stock split declared on January 22, 2004 and payable on March 8, 2004 to shareholders of record on March 1, 2004. Polaris’ share of the income from the KTM investment is recorded as a component of equity in income from manufacturing affiliates for the portion of 2005 that the KTM investment was held.

      On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine products effective immediately. The marine products division’s financial results are reported separately as discontinued operations for all periods presented.

      Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates.

      Cash equivalents: Polaris considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents and are stated at cost, which approximates fair value. Such investments consist principally of commercial paper and money market mutual funds.

      Fair value of financial instruments: Except as noted, the carrying value of all financial instruments approximates their fair value.

      Allowance for doubtful accounts: Polaris’ financial exposure to collection of accounts receivable is limited due to its agreements with certain finance companies. For receivables not serviced through these finance companies, the Company provides a reserve for doubtful accounts based on historical rates and trends. This reserve is adjusted periodically as information about specific accounts becomes available.

      Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. The major components of inventories are as follows (in thousands):

	December 31,
	2005			2004
Raw materials and purchased components	$	17,321		$	14,993
Service parts, garments and accessories		70,299			67,966
Finished goods		126,311			100,735
Less: reserves		(11,909	)		(10,070	)
Inventories	$	202,022		$	173,624

33

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Property and equipment: Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful life of the respective assets, ranging from 10-40 years for buildings and improvements and from 1-7 years for equipment and tooling. Fully depreciated tooling is eliminated from the accounting records annually.

      Goodwill and other assets: Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets.” SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS No. 142 requires that these assets be reviewed for impairment at least annually. An impairment charge is recognized only when the calculated fair value of a reporting unit, including goodwill, is less than its carrying amount. The Company performed analyses as of December 31, 2005 and December 31, 2004. The results of the analyses indicated that no goodwill impairment existed. In accordance with SFAS No. 142 the Company will complete an impairment analysis on an annual basis.

      The changes in the carrying amount of goodwill for the years ended December 31, 2005 and 2004 are as follows (in thousands):

	2005		2004
Balance as of beginning of year	$	24,798	$	24,295
Goodwill acquired during the year		—		—
Currency translation effect on foreign goodwill balances		241		503
Balance as of end of year	$	25,039	$	24,798

      As required by SFAS No. 142, intangibles with finite lives continue to be amortized. Included in intangible assets are patents and customer lists. Intangible assets before accumulated amortization were $3,435,000 at December 31, 2005 and $4,095,000 at December 31, 2004. Accumulated amortization was $3,215,000 at December 31, 2005 and $3,787,000 at December 31, 2004. The net value of intangible assets is included as a component of intangible and other assets in the accompanying consolidated balance sheets.

      Research and Development Expenses: Polaris records research and development expenses in the year in which they are incurred as a component of operating expenses. In the years ended December 31, 2005, 2004 and 2003 Polaris incurred $68,146,000, $60,700,000, and $47,069,000 respectively.

      Advertising Expenses: Polaris records advertising expenses as a component of selling and marketing expenses in the period in which they are incurred. In the years ended December 31, 2005, 2004 and 2003 Polaris incurred $33,560,000, $34,293,000, and $30,614,000 respectively.

      Shipping and Handling Costs: Polaris records shipping and handling costs as a component of cost of sales at the time the product is shipped.

      Product warranties: Polaris provides a limited warranty for ATVs for a period of six months and for a period of one year for its snowmobiles and motorcycles. Polaris may provide longer warranties related to certain promotional programs, as well as longer warranties in certain geographical markets as determined by local regulations and market conditions. Polaris’ standard warranties require the Company or its dealers to repair or replace defective products during such warranty periods at no cost to the consumer. The warranty reserve is established at the time of sale to the dealer or distributor based on management’s best estimate using historical rates and trends. Adjustments to the warranty reserve are made from time to time as actual claims become known in order to properly estimate the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors that could have an impact on the warranty accrual in any given year include the following: improved manufacturing quality, shifts in product mix, changes in warranty

34

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

coverage periods, snowfall and its impact on snowmobile usage, product recalls and any significant changes in sales volume.

      The activity in the warranty reserve during the years presented is as follows (in thousands):

	For the Year Ended December 31,
	2005			2004			2003
Balance at beginning of year	$	28,243		$	29,068		$	29,369
Additions charged to expense		36,312			26,274			24,431
Warranty claims paid		(35,427	)		(27,099	)		(24,732	)
Consumer Product Safety Commission settlement paid		(950	)		—			—
Balance at end of year	$	28,178		$	28,243		$	29,068

      Sales promotions and incentives: Polaris provides for estimated sales promotion and incentive expenses, which are recognized as a reduction to sales, at the time of sale to the dealer or distributor. Examples of sales promotion and incentive programs include dealer and consumer rebates, volume discounts, retail financing programs and sales associate incentives. Sales promotion and incentive expenses are estimated based on current programs and historical rates for each product line. Actual results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the customer usage rate varies from historical trends. Polaris recorded accrued liabilities of $62,227,000 and $59,348,000 related to various sales promotions and incentive programs as of December 31, 2005 and 2004, respectively. Historically, sales promotion and incentive expenses have been within the Company’s expectations and differences have not been material.

      Dealer holdback programs: Polaris provides dealer incentive programs whereby at the time of shipment Polaris withholds an amount from the dealer until ultimate retail sale of the product. Polaris records these amounts as a liability on the consolidated balance sheet until they are ultimately paid. Payments are generally made to dealers twice each year, in the first quarter and the third quarter, subject to previously established criteria. Polaris recorded accrued liabilities of $84,707,000, and $78,214,000 for dealer holdback programs in the consolidated balance sheet as of December 31, 2005 and 2004, respectively.

      Foreign currency translation: During the first quarter ended March 31, 2003, the Company completed a review of the functional currency for each of its foreign entities. It was determined the economic facts and circumstances had changed such that the functional currencies in the Canadian and Australian subsidiaries and the New Zealand branch should become their local currencies. Previously the U.S. dollar had been their functional currency. Effective January 1, 2003 the functional currency in the Canadian and Australian subsidiaries and the New Zealand branch were changed to the Canadian dollar, Australian dollar, and the New Zealand dollar, respectively. The initial implementation of this change in functional currency had the effect of reducing the U.S. dollar value of the combined net assets of Canada, Australia and New Zealand by $869,000 and increasing the accumulated other comprehensive loss by $869,000 during the first quarter of 2003. Polaris entities in France, Great Britain, Sweden and Norway had been using their local currency as their functional currency and will continue to do so. In 2005 Polaris established an Austrian subsidiary with the Euro as its functional currency.

      The assets and liabilities in all Polaris foreign entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of other comprehensive income (loss) in the equity section of the accompanying consolidated balance sheets. Revenues and expenses in all of Polaris’ foreign entities are translated at the average foreign exchange rate in effect for each month of the quarter. The net accumulated other comprehensive income (loss) related to translation gains and losses was a net gain of $14,000 at December 31, 2005 and a net gain of $7,392,000 at December 31, 2004.

35

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Revenue recognition: Revenues are recognized at the time of shipment to the dealer or distributor. Product returns, whether in the normal course of business or resulting from repossession under its customer financing program (see Note 2), have not been material. Polaris provides for estimated sales promotion expenses which are recognized as a reduction of sales when products are sold to the dealer or distributor customer.

      Major supplier: During 2005, 2004 and 2003, purchases of engines and related components totaling 10, 11 and 11 percent, respectively, of Polaris’ cost of sales were from a single Japanese supplier. Polaris has agreed with the supplier to share the impact of fluctuations in the exchange rate between the U.S. dollar and the Japanese yen.

      Stock-based employee compensation: Polaris accounts for all stock based compensation plans in accordance with the provision of APB Opinion No. 25, under which compensation costs of $12,404,000, $16,480,000 and $14,275,000 were recorded in 2005, 2004, and 2003, respectively. Had compensation costs for these plans been recorded at fair value consistent with the methodology prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation,” Polaris’ net income and net income per share would have been reduced to the following pro forma amounts:

		2005			2004			2003
Net income from continuing operations (in thousands):
	As reported	$	144,285		$	136,813		$	119,823
	Additional compensation expense, net of tax		(6,564	)		(4,556	)		(4,645	)
	Pro forma	$	137,721		$	132,257		$	115,178
Net income from continuing operations per share (diluted):
	As reported	$	3.29		$	3.04		$	2.66
	Pro forma	$	3.15		$	2.97		$	2.58

      The fair value of each award under the Option Plan is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used to estimate the fair value of options:

	2005			2004			2003
Risk free interest rate		3.9	%		3.8	%		4.2	%
Expected life		5.0  years			5.5  years			7.0  years
Expected volatility		30	%		35	%		38	%
Expected dividend yield		2.1	%		1.9	%		1.7	%

      The weighted average fair values at the grant dates of grants awarded under certain plans were as follows:

	2005		2004		2003
Option Plan	$	14.25	$	15.47	$	15.18
Restricted Stock Plan	$	66.06	$	59.45	$	36.83
ESOP	$	50.20	$	68.02	$	31.82

      See Note 4 for additional disclosures regarding stock-based compensation.

      Accounting for derivative instruments and hedging activities SFAS No. 133: “Accounting for Derivative Instruments and Hedging Activities,” requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge criteria are met, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The unrealized losses of the derivative instruments of $3,942,000 at December 31, 2005 and $6,405,000 at December 31, 2004 were recorded as other accrued liabilities in the accompanying balance sheet. Polaris derivative instruments

36

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

consist of the interest rate swap agreement and foreign exchange contracts discussed below. The after tax unrealized losses of $2,444,000 and $3,916,000 as of December 31, 2005 and 2004, respectively, were recorded as components of accumulated other comprehensive income (loss).

      Interest rate swap agreement: Polaris has one interest rate swap agreement on $18,000,000 of long term debt. The swap agreement, expiring in 2007, has been designated as and meets the criteria as a cash flow hedge. The fair value of this swap agreement was calculated by comparing the fixed rate on the agreement to the market rate of financial instruments similar in nature. The fair values of this swap on December 31, 2005 and 2004 were unrealized losses of $659,000 and $1,664,000 respectively, which was recorded as a liability in the accompanying consolidated balance sheets. Gains and losses resulting from this agreement are recorded in interest expense when realized.

      Foreign exchange contracts: Polaris enters into foreign exchange contracts to manage currency exposures of certain of its purchase commitments denominated in foreign currencies and transfers of funds from time to time from its Canadian and European subsidiaries. Polaris does not use any financial contracts for trading purposes. The contracts have been designated as and meet the criteria for cash flow hedges. At December 31, 2005, Polaris had open Canadian dollar contracts with notional amounts totaling U.S. $56,658,000 and an unrealized loss of $1,180,000. At December 31, 2005, Polaris had open Japanese yen contracts with notional amounts totaling U.S. $63,264,000 and an unrealized loss of $2,103,000. These contracts met the criteria for cash flow hedges and the net unrealized loss, after tax, is recorded as a component of other comprehensive loss in shareholders’ equity. Gains and losses on the Canadian dollar contracts at settlement are recorded in Nonoperating other (income) expense. Gains and losses on the Japanese yen contracts at settlement are recorded in cost of sales.

      Comprehensive income: Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income represents net income adjusted for foreign currency translation adjustments and the gain or loss on derivative instruments. The Company has chosen to disclose comprehensive income in the accompanying consolidated statements of shareholders’ equity and comprehensive income.

      New accounting pronouncements: Polaris implemented Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” during the third quarter 2003. This was an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and addresses the consolidation of variable interest entities by businesses. Polaris used the guidelines in FIN 46 to analyze the Company’s relationships, including the relationship with Polaris Acceptance, and concluded that the Company has no variable interest entities in 2003, 2004 and 2005.

      In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payments” (“SFAS No. 123(R)”). SFAS No. 123(R) requires the expensing of stock options in the financial statements for periods no later than the annual period beginning after June 15, 2005. The Company is required to implement SFAS No. 123(R) during the interim period ending March 31, 2006. The adoption of SFAS No. 123(R) is expected to result in a charge to full year 2006 earnings of approximately $0.12 to $0.14 per diluted share. However, the total expense recorded in future periods will depend on several variables, including the number of share-based awards granted, the number of grants that ultimately vest, and the fair value assigned to those awards. Assuming the Company had adopted SFAS No. 123(R) for fiscal year 2005, pro forma diluted earnings per share from continuing operations would have been reduced by $0.14 per diluted share from $3.29 per diluted share to $3.15 per diluted share.

      Reclassifications: Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. The reclassifications had no impact on operations as previously reported.

37

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 2: Financing

      Bank financing: Polaris is a party to an unsecured bank line of credit arrangement under which it may borrow up to $250,000,000. Interest is charged at rates based on LIBOR or “prime.” The arrangement contains various restrictive covenants which limit investments, acquisitions and indebtedness. The arrangements also require Polaris to maintain certain financial ratios including a minimum tangible net worth, minimum interest coverage and a maximum leverage ratio. Polaris was in compliance with each of the covenants as of December 31, 2005.

      The following summarizes activity under Polaris’ credit arrangements (dollars in thousands):

	2005			2004			2003
Total borrowings at December 31,	$	18,000		$	18,000		$	18,008
Average outstanding borrowings during year	$	96,430		$	50,268		$	71,340
Maximum outstanding borrowings during year	$	190,000		$	98,000		$	135,000
Interest rate at December 31		4.955	%		2.765	%		1.70	%

      Polaris has entered into an interest rate swap agreement to manage exposures to fluctuations in interest rates. The effect of this agreement is to fix the interest rate at 7.21 percent for $18,000,000 of any borrowing until June 2007. The fair value of the interest rate swap was a liability of $659,000 as of December 31, 2005.

      Letters of credit: At December 31, 2005, Polaris had open letters of credit totaling approximately $3,713,000. The amounts outstanding are reduced as inventory purchases pertaining to the contracts are received.

      Dealer financing programs: Certain finance companies, including Polaris Acceptance, an affiliate (see Note 6), provide floor plan financing to dealers on the purchase of Polaris products. The amount financed by worldwide dealers under these arrangements at December 31, 2005, was approximately $930,000,000. Polaris has agreed to repurchase products repossessed by the finance companies up to an annual maximum of no more than 15 percent of the average month-end balances outstanding during the prior calendar year. Polaris’ financial exposure under these arrangements is limited to the difference between the amount paid to the finance companies for repurchases and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements during the periods presented. As a part of its marketing program, Polaris contributes to the cost of dealer financing up to certain limits and subject to certain conditions. Such expenditures are included as an offset to sales in the accompanying consolidated statements of income.

Note 3: Income Taxes

      Components of Polaris’ provision for income taxes for continuing operations are as follows (in thousands):

		For the Years Ended December 31,
		2005		2004			2003
Current:
	Federal	$	52,093	$	59,024		$	57,316
	State		5,649		6,453			5,439
	Foreign		3,930		3,369			3,069
Deferred			2,676		(1,460	)		(8,131	)
Total		$	64,348	$	67,386		$	57,693

38

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Reconciliation of the Federal statutory income tax rate to the effective tax rate is as follows:

	For the Years Ended
	December 31,
	2005			2004			2003
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		1.8			2.0			2.0
Extraterritorial income exclusion/ Foreign sales Corporation		(2.0	)		(2.5	)		(2.0	)
Settlement of state tax audit		(1.2	)		—			—
Other permanent differences		(2.8	)		(1.5	)		(2.5	)
Effective income tax rate		30.8	%		33.0	%		32.5	%

      In 2005 the Company realized an income tax benefit generated from the settlement of prior year state income tax audit disputes for the years 1997 through 2000. As a result of the settlement, a portion of the Company’s recorded income tax reserves were no longer necessary, resulting in a reduction in the income tax provision for 2005.

      U.S. income taxes have not been provided on undistributed earnings of certain foreign subsidiaries as of December 31, 2005. The Company has reinvested such earnings overseas in foreign operations indefinitely and expects that future earnings will also be reinvested overseas indefinitely in these subsidiaries.

      Polaris utilizes the liability method of accounting for income taxes whereby deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. The net deferred income taxes consist of the following (in thousands):

		December 31,
		2005			2004			2003
Current deferred income taxes:
	Inventories	$	6,515		$	6,540		$	5,431
	Accrued expenses		52,485			56,460			50,569
	Derivative instruments		1,498			2,489			3,517
	Total current		60,498			65,489			59,517
Noncurrent net deferred income taxes:
	Cost in excess of net assets of business acquired		8,609			11,988			14,773
	Property and equipment		(19,840	)		(25,330	)		(22,995	)
	Compensation payable in common stock		5,546			5,342			4,734
	Total noncurrent		(5,685	)		(8,000	)		(3,488	)
	Total	$	54,813		$	57,489		$	56,029

Note 4: Stock-Based Compensation and Savings Plan

      Polaris maintains a stock option plan (“Option Plan”) under which incentive and nonqualified stock options for a maximum of 8,200,000 shares of common stock may be issued to certain employees. Options granted to date generally vest three years from the award date and expire after ten years.

39

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Polaris maintains a broad based stock option plan (“Broad Based Plan”) under which incentive stock options for a maximum of 700,000 shares of common stock could be issued to substantially all Polaris employees. These options expire in 2009. Options with respect to 675,400 shares of common stock were granted under this plan during 1999 at an exercise price of $15.78 and of the options initially granted under the plan, an aggregate of 518,400 vested in March 2002.

      The following summarizes share activity in the Option Plan and Broad Based Plan, and the weighted average exercise price for the Option Plan:

		Option Plan								Broad Based Plan
		Shares						Weighted		Shares
		Available for			Outstanding			Average		Available for		Outstanding
		Future Issuance			Shares			Exercise Price		Future Issuance		Shares
Balance as of December 31, 2002			437,864			5,060,836		$	21.30		—		155,800
	Granted		(275,700	)		275,700			40.03		—		—
	Exercised		—			(642,440	)		15.32		—		(56,900	)
	Forfeited		80,700			(80,700	)		21.71		—		—
Balance as of December 31, 2003			242,864			4,613,396			23.19		—		98,900
	Reserved		2,000,000
	Granted		(596,700	)		596,700			49.82		—		—
	Exercised		—			(573,151	)		17.53		—		(19,600	)
	Forfeited		40,500			(40,500	)		27.73		—		—
Balance as of December 31, 2004			1,686,664			4,596,445			27.26		—		79,300
	Granted		(750,800	)		750,800			55.12		—		—
	Exercised		—			(999,907	)		18.69		—		(11,600	)
	Forfeited		82,540			(82,540	)		38.43		—		(1,000	)
Balance as of December 31, 2005			1,018,404			4,264,798		$	33.94		—		66,700

      The following table summarizes information about stock options outstanding at December 31, 2005:

	Options Outstanding						Options Exercisable
	Number		Weighted Average		Weighted		Number		Weighted
	Outstanding at		Remaining		Average		Exercisable at		Average
Range of Exercisable Options	12/31/05		Contractual Life		Exercise Price		12/31/05		Exercise Price
$12.88 to $18.31		478,048		3.4	$	15.56		478,048	$	15.56
$18.32 to $24.73		1,245,296		4.3	$	23.14		1,239,296	$	23.14
$24.74 to $29.33		1,066,354		6.2	$	28.78		1,024,536	$	28.99
$29.34 to $59.45		1,282,300		8.9	$	47.81		22,600	$	34.67
$59.46 to $75.21		259,500		4.1	$	67.71		—		—

      The weighted average exercise prices of options exercisable as of December 31, 2005, 2004 and 2003 were $24.05, $27.88 and $20.20, respectively. The weighted average remaining contractual life of outstanding options was 6.0 years as of December 31, 2005. In 2005 Polaris issued 15,000 options whereby the exercise price exceeded the market price on the date of grant. The weighted average exercise price of these options was $75.21. The exercise price of all other options granted during 2005 was equal to the market price on the date of grant.

      Polaris maintains a restricted stock plan (“Restricted Plan”) under which a maximum of 2,350,000 shares of common stock may be awarded as an incentive to certain employees with no cash payments required from the recipient. The majority of the awards, and all awards issued subsequent to 2002,

40

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

contain restrictions which lapse after a two to four year period if Polaris achieves certain performance measures. Shares of restricted stock granted, net of converted, lapsed and forfeited shares totaled a negative 225,040 shares, negative 332,930 shares, and negative 284,546 shares in 2005, 2004 and 2003, respectively.

      Polaris sponsors a qualified non-leveraged employee stock ownership plan (“ESOP”) under which a maximum of 3,250,000 shares of common stock can be awarded. The shares are allocated to eligible participants accounts based on total cash compensation earned during the calendar year. Shares vest immediately and require no cash payments from the recipient. Substantially all employees are eligible to participate in the ESOP, with the exception of Company officers. Total expense related to the ESOP was $9,265,000, $9,533,000, and $9,014,000 in 2005, 2004 and 2003, respectively. As of December 31, 2005 there were 2,399,955 shares vested in the plan.

      Polaris maintains a nonqualified deferred compensation plan (“Director Plan”) under which members of the Board of Directors who are not Polaris officers or employees can elect to receive common stock equivalents in lieu of director’s fees, which will be converted into common stock when board service ends. Mr. Pierer does not participate in the Director Plan. A maximum of 200,000 shares of common stock has been authorized under this plan of which 69,725 equivalents have been earned and 55,642 shares have been issued to retired directors as of December 31, 2005.

      Polaris maintains a non-employee director stock option plan (the “Directors Stock Option Plan”), under which nonqualified stock options for a maximum of 200,000 shares of common stock may be issued to non-employee directors. Each non-employee Director as of the date of the annual shareholders meetings have been granted an option to purchase 4,000 shares of common stock at a price per share equal to the fair market value as of the date of grant with the exception of Mr. Pierer who does not participate in this plan. Options become exercisable as of the date of the next Annual Meeting following the date of grant and must be exercised no later than 10 years from the date of grant. Options granted under the Directors Stock Option Plan and outstanding totaled 92,000 at a weighted average exercise price of $43.84 as of December 31, 2005.

      Polaris sponsors a 401(k) retirement savings plan under which eligible U.S. employees may choose to contribute up to 50 percent of eligible compensation on a pre-tax basis, subject to certain IRS limitations. The Company matches 100 percent of employee contributions up to a maximum of five percent of eligible compensation. Matching contributions were $7,253,000, $6,796,000, and $6,214,000 in 2005, 2004 and 2003, respectively.

Note 5:  Shareholders’ Equity

      Stock repurchase program: The Polaris Board of Directors has authorized the cumulative repurchase of up to 27,000,000 shares of the Company’s common stock. During 2005, Polaris paid $132,280,000 to repurchase and retire approximately 2,361,000 shares. Cumulative repurchases through December 31, 2005 were approximately 22,342,000 shares at a cost of $581,046,000.

      Shareholder rights plan: During 2000, the Polaris Board of Directors adopted a shareholder rights plan. Under the plan, a dividend of preferred stock purchase rights will become exercisable if a person or group should acquire 15 percent or more of the Company’s stock. The dividend will consist of one purchase right for each outstanding share of the Company’s common stock held by shareholders of record on June 1, 2000. Each right will entitle its holder to purchase one-hundredth of a share of a new series of junior participating preferred stock at an exercise price of $150, subject to adjustment. The rights expire in 2010 and may be redeemed earlier by the Board of Directors for $0.01 per right.

      Net income per share: Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year, including shares earned under the Director Plan and the ESOP. Diluted earnings per share is computed under the

41

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

treasury stock method and is calculated to compute the dilutive effect of outstanding stock options and certain shares issued under the Restricted Plan. A reconciliation of these amounts is as follows (in thousands):

	2005		2004		2003
Weighted average number of common shares outstanding		41,894		42,093		42,522
Director Plan		66		59		52
ESOP		171		166		331
Common shares outstanding — basic		42,131		42,318		42,905
Dilutive effect of Restricted Plan		255		402		515
Dilutive effect of Option Plan		1,495		2,315		1,636
Common and potential common shares outstanding — diluted		43,881		45,035		45,056

      During 2005, 2004, and 2003, the number of options that could potentially dilute earnings per share on a fully diluted basis that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive was 466,000 shares, no shares and no shares respectively.

      Stock Purchase Plan: Polaris maintains an employee stock purchase plan (“Purchase Plan”). A total of 1,500,000 shares of common stock are reserved for this plan. The Purchase Plan permits eligible employees to purchase common stock at 85 percent of the average market price each month. As of December 31, 2005, approximately 441,000 shares had been purchased under the Purchase Plan.

Note 6:  Financial Services Arrangements

      In 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of Transamerica Distribution Finance (TDF) to form Polaris Acceptance. In 2004, TDF was merged with a subsidiary of General Electric Company and, as a result of that merger, TDF’s name was changed to GE Commercial Distribution Finance Corporation (“GECDF”). Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. The receivable portfolio is recorded on Polaris Acceptance’s books, and is funded 85 percent through a loan from an affiliate of GECDF and 15 percent by cash investments shared equally between the two partners. Polaris has not guaranteed the outstanding indebtedness of Polaris Acceptance. Substantially all of Polaris’ U.S. sales are financed through Polaris Acceptance whereby Polaris receives payment within a few days of shipment of the product. The net amount financed for dealers under this arrangement at December 31, 2005 was $796,500,000. Polaris has agreed to repurchase products repossessed by Polaris Acceptance up to an annual maximum of 15 percent of the average month-end balances outstanding during the prior calendar year. For calendar year 2006, the potential 15 percent aggregate repurchase obligation is approximately $98,000,000. Polaris’ financial exposure under this arrangement is limited to the difference between the amount paid to the finance company for repurchases and the amount received on the resale of the repossessed product. No material losses have been incurred under this agreement during the periods presented. Polaris’ trade receivables from Polaris Acceptance were $813,000 and $1,824,000 at December 31, 2005 and 2004, respectively.

      Polaris’ investment in Polaris Acceptance at December 31, 2005 of $59,601,000 is accounted for under the equity method, and is recorded as a component of Investments in Finance Affiliate and Retail Credit Deposit in the accompanying consolidated balance sheets. The partnership agreement provides that all income and losses of the portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50 percent by GECDF. Polaris’ allocable share of the income of Polaris Acceptance has been included as a component of Income from financial services in the accompanying statements of income.

42

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Summarized financial information for Polaris Acceptance is presented as follows (in thousands):

	For the Year Ended December 31,
	2005		2004		2003
Revenues	$	55,430	$	38,066	$	34,262
Interest and operating expenses		27,082		15,090		15,662
Net income before income taxes	$	28,348	$	22,976	$	18,600

		As of December 31,
		2005		2004
Finance receivables, net		$	796,459	$	669,422
Other assets			119		108
	Total Assets	$	796,578	$	669,530
Notes payable		$	681,815	$	578,174
Other liabilities			1,903		1,620
Partners’ capital			112,860		89,736
	Total Liabilities and Partners’ Capital	$	796,578	$	669,530

      In October 2001 Household Bank (SB), N.A. (“Household”) and a subsidiary of Polaris entered into a Revolving Program Agreement with Household to provide retail financing to consumers who buy Polaris products in the United States. In August 2005, the wholly owned subsidiary of Polaris entered into a new multi-year contract with HSBC Bank Nevada, National Association (“HSBC”), formerly known as Household Bank (SB), N.A. under which HSBC will continue managing the Polaris private label credit card program under the StarCard label. The terms of the new multi-year agreement became effective as of August 10, 2005. The new agreement provides for income to be paid to Polaris based on a percentage of the volume of retail credit business generated. The previous agreement provided for equal sharing of all income and losses with respect to the retail credit portfolio, subject to certain limitations. The new contract removes all credit, interest rate and funding risk to Polaris and also eliminates the need for Polaris to maintain a retail credit cash deposit with HSBC, which was approximately $50,000,000 at August 1, 2005.

      Polaris also provides extended service contracts to consumers and certain insurance contracts to dealers and consumers through various third-party suppliers. Polaris does not retain any warranty, insurance or financial risk in any of these arrangements. Polaris’ service fee income generated from these arrangements has been included as a component of Income from financial services in the accompanying consolidated statements of income.

      Income from financial services as included in the consolidated statements of income is comprised of the following (in thousands):

	For the Year Ended December 31
	2005		2004		2003
Equity in earnings of Polaris Acceptance	$	14,174	$	11,488	$	9,300
Income from HSBC agreement		22,167		19,184		13,176
Income from other financial services activities		2,299		1,363		1,111
Total income from financial services	$	38,640	$	32,035	$	23,587

43

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 7:  Investment in Manufacturing Affiliates

      The caption Investment in Manufacturing Affiliates in the consolidated balance sheets represents Polaris’ equity investment in Robin Manufacturing, U.S.A. (Robin) which builds engines in the United States for recreational and industrial products and the investment in the Austrian motorcycle company KTM Power Sports AG (KTM), which manufacturers off-road and on-road motorcycles. Polaris has a 40 percent ownership interest in Robin and during 2005 purchased a 25 percent ownership interest in KTM. Polaris’ investments, including associated transaction costs, totaling $87,772,000 at December 31, 2005 and $2,877,000 at December 31, 2004 are accounted for under the equity method. Polaris’ allocable share of the income of these investments of $2,308,000, $6,000, and $27,000 for 2005, 2004 and 2003, respectively, are recorded in Equity in (income) of manufacturing affiliates in the accompanying consolidated statements of income.

      Summary financial information for KTM follows in the table below. KTM reports their financial results in Euros utilizing the International Financial Reporting Standards (IFRS) method; the balances below have been adjusted for the effects of conversion to generally accepted accounting principals in the United States (US GAAP) and translated into U.S. dollars. The balance sheet data presented below is as of the end of KTM’s first quarter ended November 30, 2005, the most recent available data. The statement of income data presented below represents the results of operations for the portion of 2005 that the KTM investment was held by Polaris:

(In thousands of US $)
Current assets	$	230,700
Noncurrent assets		257,000
Current liabilities		163,400
Noncurrent liabilities		143,800
Minority interests		200
Shareholder’s equity	$	180,300

(In thousands of US $)
Net sales	$	213,200
Gross profit		67,600
Net income	$	9,200

At December 29, 2005 KTM’s stock was trading at €47.50 with a U.S. dollar market capitalization of approximately $387,800,000.

Note 8:  Commitments and Contingencies

      Product liability: Polaris is subject to product liability claims in the normal course of business. Polaris is currently self insured for all product liability claims. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably determinable. The Company utilizes historical trends and actuarial analysis tools to assist in determining the appropriate loss reserve levels. At December 31, 2005 the Company had an accrual of $7,067,000 for the probable payment of pending claims related to continuing operations. This accrual is included as a component of Other Accrued expenses in the accompanying consolidated balance sheets.

      Litigation: Polaris is a defendant in lawsuits and subject to claims arising in the normal course of business. In the opinion of management, it is unlikely that any legal proceedings pending against or involving Polaris will have a material adverse effect on Polaris’ financial position or results of operations.

      Leases: Polaris leases buildings and equipment under non-cancelable operating leases. Total rent expense under all lease agreements was $3,678,000, $3,590,000, and $3,429,000 for 2005, 2004 and 2003, respectively.

44

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum payments, exclusive of other costs required under non-cancelable operating leases at December 31, 2005 total $5,699,000 cumulatively through 2009.

Note 9:  Discontinued Operations

      On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine products effective immediately. In the third quarter 2004, the Company recorded a loss on disposal of discontinued operations of $35,600,000 before tax, or $23,852,000 after tax. This loss includes a total of $28,705,000 in expected future cash payments for costs to assist the dealers in selling their remaining inventory, incentives and discounts to encourage consumers to purchase remaining products, costs to cancel supplier arrangements, legal and regulatory issues, and personnel termination costs. In addition, the loss includes $6,895,000 in non-cash costs related primarily to the disposition of tooling, other physical assets, and the Company’s remaining inventory. Components of the accrued disposal costs are as follows (in thousands):

						Utilization from
						Closedown
		Balance Prior				Date Through			Balance					Balance
		To				December 31,			December 31,		Utilization			December 31,
		Charge		Charge		2004			2004		During 2005			2005
Incentive costs to sell remaining inventory including product warranty		$	3,960	$	11,608	$	(3,457	)	$	12,111	$	(11,895	)	$	216
Costs related to canceling supplier arrangements			—		14,159		(9,120	)		5,039		(5,039	)		—
Legal, regulatory, personnel and other costs			4,327		2,938		(333	)		6,932		(1,755	)		5,177
Disposition of tooling, inventory and other fixed assets (non-cash)			—		6,895		(5,791	)		1,104		(1,104	)		—
	Total	$	8,287	$	35,600	$	(18,701	)	$	25,186	$	(19,793	)	$	5,393

      The financial results of the marine products division included in discontinued operations are as follows (in thousands):

Discontinued Operations

	For the Years Ended December 31,
	2005			2004			2003
Sales	$	3,831		$	49,769		$	53,518
Loss on discontinued operations before income tax benefit	$	(1,503	)	$	(12,623	)	$	(13,177	)
Income tax (benefit)		(496	)		(4,166	)		(4,283	)
Loss from discontinued operations, net of tax	$	(1,007	)	$	(8,457	)	$	(8,894	)
Loss on disposal of discontinued operations				$	(35,600	)
Income tax (benefit)					(11,748	)
Loss on disposal of discontinued operations, net of tax				$	(23,852	)

45

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		As of December 31,
		2005		2004
Accounts receivable			—	$	255
Inventory		$	113		4,556
	Total current assets		113		4,811
Net property and equipment			—		—
	Total assets	$	113	$	4,811
Accounts payable		$	—	$	—
Accrued expenses			5,393		25,186
	Current liabilities	$	5,393	$	25,186

Note 10:  Segment Reporting

      Polaris has reviewed SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and determined that the Company meets the aggregation criteria outlined since the Company’s segments have similar (1) economic characteristics, (2) product and services, (3) production processes, (4) customers, (5) distribution channels, and (6) regulatory environments. Therefore, the Company reports as a single business segment.

      The following data relates to Polaris’ foreign continuing operations (in thousands of U.S. dollars):

		For the Years Ended December 31,
		2005		2004		2003
Canadian subsidiary:
	Sales from continuing operations	$	204,458	$	197,344	$	203,862
	Identifiable assets		24,590		26,108		26,909
Other foreign countries:
	Sales from continuing operations	$	232,764	$	194,184	$	140,980
	Identifiable assets		68,663		73,357		62,269

46

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 11:  Quarterly Financial Data (unaudited)

	Continuing Operations
							Diluted				Diluted
							Net Income				Net Income
	Sales		Gross Profit		Net Income		per Share		Net Income		per Share
	(in thousands, except per share data)
2005
First Quarter	$	358,312	$	84,487	$	19,118	$	0.42	$	18,843	$	0.42
Second Quarter		442,296		96,376		30,135		0.68		29,990		0.68
Third Quarter		543,124		126,781		51,127		1.17		50,862		1.16
Fourth Quarter		526,087		110,248		43,905		1.03		43,583		1.02
Totals	$	1,869,819	$	417,892	$	144,285	$	3.29	$	143,278	$	3.27
2004
First Quarter	$	328,997	$	77,531	$	17,142	$	0.38	$	14,305	$	0.32
Second Quarter		394,628		92,224		27,426		0.61		24,369		0.54
Third Quarter		510,623		123,417		44,572		1.00		18,653		0.42
Fourth Quarter		538,958		131,091		47,673		1.05		47,177		1.04
Totals	$	1,773,206	$	424,263	$	136,813	$	3.04	$	104,504	$	2.32

47

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not applicable.

Item 9A. Controls and Procedures

      The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Vice President-Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Vice President-Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. No changes have occurred during the period covered by this report or since the evaluation date that would have a material effect on the disclosure controls and procedures.

      The Company’s internal control report is included in this report after Item 8, under the caption “Management’s Report on Company’s Internal Control over Financial Reporting”.

Item 9B. Other Information

      Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant

      (a) Directors of the Registrant

      The information under the caption “Election of Directors — Information Concerning Nominees and Directors” in the Company’s 2006 Proxy Statement is incorporated herein by reference.

      (b) Executive Officers of the Registrant

      Information concerning Executive Officers of the Company is included in this Report after Item 4, under the caption “Executive Officers of the Registrant.”

      (c) Identification of the Audit Committee; Audit Committee Financial Expert.

      The information under the caption “Corporate Governance — Committees of the Board and Meetings — Audit Committee” in the Company’s 2006 Proxy Statement is incorporated herein by reference.

      (d) Compliance with Section 16(a) of the Exchange Act

      The information under the caption “Corporate Governance — Section 16 Beneficial Ownership Reporting Compliance” in the Company’s 2006 Proxy Statement is incorporated herein by reference.

      (e) Code of Ethics.

      We have adopted a Code of Business Conduct and Ethics that applies to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and all other Polaris employees. This Code of Business Conduct and Ethics is posted on our website at www.polarisindustries.com and may be found as follows:

•  From our main web page, first click on “Our Company.”

•  Next, click on “Investor Relations.”

•  Next, click on “Corporate Governance.”

•  Finally, click on “Business Code of Conduct and Ethics.”

      A copy of our Code of Business Conduct and Ethics will be furnished to any shareholder who submits a written request for it. Such request should be sent to Polaris Industries Inc., 2100 Highway 55, Medina, Minnesota 55340, Attention: Investor Relations.

48

      We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from a provision of this Code of Business Conduct and Ethics by posting such information on our website, at the address and location specified above.

Item 11. Executive Compensation

      The information under the captions “Executive Compensation and Stock Option Information” and “Corporate Governance — Director Compensation” in the Company’s 2006 Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      The information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plans” in the Company’s 2006 Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

      The information under the caption “Corporate Governance — Certain Relationships and Related Transactions” in the Company’s 2006 Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

      The information under the caption “Independent Registered Public Accounting Firm” in the Company’s 2006 Proxy Statement is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules

      (a) The following documents are filed as part of this report:

      (1) Financial Statements

The financial statements listed in the Index to Financial Statements on page 25 are included in Part II of this Form 10-K.

      (2) Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts is included on page 52 of this report.

All other supplemental financial statement schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

      (3) Exhibits

The Exhibits to this report are listed in the Exhibit Index on pages 53 to 55.

A copy of any of these Exhibits will be furnished at a reasonable cost to any person who was a shareholder of the Company as of February 21, 2006, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Polaris Industries Inc., 2100 Highway 55, Medina, Minnesota 55340, Attention: Investor Relations.

      (b) Exhibits

Included in Item 15(a)(3) above.

      (c) Financial Statement Schedules

Included in Item 15(a)(2) above.

49

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota on March 1, 2006.

Polaris Industries Inc.

By:  /s/ Thomas C. Tiller

Thomas C. Tiller

Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature		Title	Date
/s/ Gregory R. Palen Gregory R. Palen		Chairman and Director	March 1, 2006
/s/ Thomas C. Tiller Thomas C. Tiller		Chief Executive Officer and Director (Principal Executive Officer)	March 1, 2006
/s/ Michael W. Malone Michael W. Malone		Vice President-Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)	March 1, 2006
* Andris A. Baltins		Director	March 1, 2006
* Robert L. Caulk		Director	March 1, 2006
* Annette K. Clayton		Director	March 1, 2006
* William E. Fruhan, Jr.		Director	March 1, 2006
* John R. Menard, Jr.		Director	March 1, 2006
* Stefan Pierer		Director	March 1, 2006
* R. M. Schreck		Director	March 1, 2006
* Richard A. Zona		Director	March 1, 2006
*By:	/s/ Thomas C. Tiller (Thomas C. Tiller Attorney-in-Fact)		March 1, 2006

*  Thomas C. Tiller, pursuant to Powers of Attorney executed by each of the officers and directors listed above whose name is marked by an “*” and filed as an exhibit hereto, by signing his name hereto does hereby sign and execute this Report of Polaris Industries Inc. on behalf of each of such officers and directors in the capacities in which the names of each appear above.

50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Polaris Industries Inc.:

      We have audited the consolidated financial statements of Polaris Industries Inc. as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, and have issued our report thereon dated February 21, 2006 (included elsewhere in this Form 10-K). Our audit also included the financial statement schedules listed in Item 15(a) of this Form 10-K. These schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

      In our opinion, the financial statement schedules for the years ended December 31, 2005, 2004, and 2003, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Minneapolis, Minnesota

February 21, 2006

51

POLARIS INDUSTRIES INC.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

			Additions
	Balance at		Charged to
	Beginning of		Costs and		Other Changes			Balance at
Allowance for Doubtful Accounts	Period		Expenses		Add (Deduct)(1)			End of Period
2003: Deducted from asset accounts — Allowance for doubtful accounts receivable	$	4,435	$	2,517	$	(1,314	)	$	5,638
2004: Deducted from asset accounts — Allowance for doubtful accounts receivable	$	5,638	$	1,647	$	(2,951	)	$	4,334
2005: Deducted from asset accounts — Allowance for doubtful accounts receivable	$	4,334	$	1,190	$	(2,635	)	$	2,889

(1)  Uncollectible accounts receivable written off, net of recoveries.

			Additions
	Balance at		Charged to
	Beginning of		Costs and		Other Changes			Balance at
Inventory Reserve	Period		Expenses		Add (Deduct)(2)			End of Period
2003: Deducted from asset accounts — Allowance for obsolete inventory	$	10,410	$	7,374	$	(7,256	)	$	10,528
2004: Deducted from asset accounts — Allowance for obsolete inventory	$	10,528	$	6,030	$	(6,488	)	$	10,070
2005: Deducted from asset accounts — Allowance for obsolete inventory	$	10,070	$	10,099	$	(8,260	)	$	11,909

(2)  Inventory disposals, net of recoveries

52

POLARIS INDUSTRIES INC.

EXHIBIT INDEX TO ANNUAL REPORT ON

FORM 10-K

For Fiscal Year Ended December 31, 2005

Exhibit
Number		Description
	2.a	Call Option Agreement dated as of July 18, 2005, by and between Polaris Beteiligungsverwaltungs GmbH and Cross Industries AG, incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed July 19, 2005.
	3.a	Articles of Incorporation of Polaris Industries Inc. (the “Company”), as amended, incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
	.b	Bylaws of the Company, incorporated by reference to Exhibit 3(b) to the Company’s Registration Statement on Form S-4, filed November 21, 1994 (No. 033-55769).
	4.a	Specimen Stock Certificate of the Company, incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-4, filed November 21, 1994 (No. 033-55769).
	.b	Rights Agreement, dated as of May 18, 2000 between the Company and Norwest Bank Minnesota, N.A. (now Wells Fargo Bank Minnesota, N.A.), as Rights Agent, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A, filed May 25, 2000.
	10.a	Shareholder Agreement with Fuji Heavy Industries LTD., incorporated by reference to Exhibit 10(k) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994.
	.b	Registration Rights Agreement between and among the Company, Victor K. Atkins, EIP I Inc., EIP Holdings Inc. and LB I Group Inc., incorporated by reference to Exhibit 10(1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994.
	.c	Polaris 401(K) Retirement Savings Plan, incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8, filed January 11, 2000 (No. 333-94451).
	.d	Polaris Industries Inc. Supplemental Retirement/Savings Plan incorporated by reference to Exhibit 10(b) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	.e	Polaris Industries Inc. Employee Stock Ownership Plan effective January 1, 1997 incorporated by reference to Exhibit 10(d) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.*
	.f	Polaris Industries Inc. 1999 Broad Based Stock Option Plan incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, filed May 5, 1999 (No. 333-77765).
	.g	Polaris Industries Inc. 1995 Stock Option Plan, as amended and restated, incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8, filed October 31, 2005 (No. 333-129335).*
	.h	Form of Nonqualified Stock Option Agreement and Notice of Exercise Form for options granted under the Polaris Industries Inc. 1995 Stock Option Plan, as amended and restated, incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8, filed October 31, 2005 (No. 333-129335).*
	.i	Form of Nonqualified Stock Option Agreement and Notice of Exercise Form for options granted to the Chief Executive Officer under the Polaris Industries Inc. 1995 Stock Option Plan, as amended and restated, incorporated by reference to Annex A to Exhibit 10(q) to the Company’s Current Report on Form 8-K, filed February 2, 2005.*
	.j	Polaris Industries Inc. Deferred Compensation Plan for Directors, as amended and restated, incorporated by reference to Exhibit 10.g to the Company’s Current Report on Form 8-K, filed April 26, 2005.*

53

Exhibit
Number		Description
	.k	Polaris Industries Inc. Restricted Stock Plan, as amended and restated, incorporated by reference to Exhibit 10.n to the Company’s Current Report on Form 8-K, filed April 26, 2005.*
	.l	Form of Performance Restricted Share Award Agreement for performance restricted shares awarded under the Polaris Industries Inc. Restricted Stock Plan, as amended and restated, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8, filed June 7, 1996 (No. 333-05463).*
	.m	Form of Performance Restricted Share Award Agreement for performance restricted shares awarded to the Chief Executive Officer under the Polaris Industries Inc. Restricted Stock Plan, as amended and restated, incorporated by reference to Annex B to Exhibit 10(q) to the Company’s Current Report on Form 8-K, filed February 2, 2005.*
	.n	Amended and Restated Polaris Industries Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 to the Company’s Post-Effective Amendment No. 1 to Registration Statement on Form S-8 filed September 14, 2004 (No. 333-21007).
	.o	Form of Change of Control Agreement entered into with executive officers of Company incorporated by reference to Exhibit 10(q) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.*
	.p	Polaris Industries Inc. 2003 Non-Employee Director Stock Option Plan, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, filed November 17, 2003 (No. 333-110541).*
	.q	Polaris Industries Inc. Senior Executive Annual Incentive Compensation Plan.*
	.r	Polaris Industries Inc. Long Term Incentive Plan.*
	.s	Employment Agreement between the Company and Thomas C. Tiller dated February 20, 2006, incorporated by reference to Exhibit 10(q) to the Company’s Current Report on Form 8-K, filed February 21, 2006.*
	.t	Letter dated April 4, 2005 by and between the Company and Bennett J. Morgan, incorporated by reference to Exhibit 10.y to the Company’s Current Report on Form 8-K, filed April 18, 2005.*
	.u	Severance Agreement, Waiver and Release dated April 26, 2005 by and between Polaris Sales Inc. and Ken Sobaski, incorporated by reference to Exhibit 10.z to the Company’s Current Report on Form 8-K, filed May 2, 2005.
	.v	Joint Venture Agreement between the Company and GE Commercial Distribution Finance Corporation, formerly known as Transamerica Commercial Finance Corporation (“GE Commercial Distribution Finance”) dated February 7, 1996 incorporated by reference to Exhibit 10(i) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.
	.w	First Amendment to Joint Venture Agreement between the Company and GE Commercial Distribution Finance dated June 30, 1999, incorporated by reference to Exhibit 10(x) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.
	.x	Second Amendment to Joint Venture Agreement between the Company and GE Commercial Distribution Finance dated February 24, 2000, incorporated by reference to Exhibit 10(y) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.
	.y	Third Amendment to Joint Venture Agreement between the Company and GE Commercial Distribution Finance dated February 28, 2003, incorporated by reference to Exhibit 10(t) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
	.z	Manufacturer’s Repurchase Agreement between the Company and Polaris Acceptance dated February 7, 1996 incorporated by reference to Exhibit 10(j) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.
	.aa	Five-Year Revolving Credit Agreement dated June 25, 2004, among the Company, certain subsidiaries of the Company, the lenders identified therein, Bank of America, N.A., as administrative agent and issuing lender, U.S. Bank N.A., as syndication agent, and The Bank of Tokyo Mitsubishi, Ltd., Chicago Branch, as documentation agent, incorporated by reference to Exhibit 10(j) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.

54

Exhibit
Number		Description
	.bb	First Amendment to Five-Year Revolving Credit Agreement among the Company, certain subsidiaries of the Company, the lenders identified therein and Bank of America, N.A., as administrative agent dated July 11, 2005, incorporated by reference to Exhibit 10(j) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
	.cc	Revolving Program Agreement between Polaris Sales Inc. and HSBC Bank Nevada, National Association, formerly known as Household Bank (SB), N.A., dated August 10, 2005, incorporated by reference to Exhibit 10.u to the Company’s Current Report on Form 8-K, filed August 12, 2005.
	13	Portions of the Annual Report to Security Holders for the Year Ended December 31, 2005 included pursuant to Note 2 to General Instruction G.
	21	Subsidiaries of Registrant.
	23	Consent of Ernst & Young LLP.
	24	Power of Attorney.
	31.a	Certification of Chief Executive Officer required by Exchange Act Rule 13a-14(a).
	31.b	Certification of Chief Financial Officer required by Exchange Act Rule 13a-14(a).
	32.a	Certification furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.b	Certification furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*  Management contract or compensatory plan.

55 EX-10.Q 2 c01594exv10wq.htm SENIOR EXECUTIVE ANNUAL INCENTIVE COMPENSATION PLAN

Exhibit 10.q

POLARIS INDUSTRIES INC.
SENIOR EXECUTIVE
ANNUAL INCENTIVE COMPENSATION PLAN

     1. Purpose. The Polaris Industries Inc. Senior Executive Annual Incentive Compensation Plan is intended to provide incentives for Eligible Senior Executives to attain and maintain the highest standards of performance, to attract and retain key executives of outstanding competence and ability, to stimulate the active interest of key executives in the development and financial success of the Company, to further align the identity of interests of employees with those of the Company’s shareholders generally and to reward executives for outstanding performance when certain objectives are achieved.

     2. Definitions. As used herein, the terms set forth below shall have the following respective meanings:

     (a) “Board” means the Board of Directors of the Company.

     (b) “Business Criteria” means the business criteria listed in Section 6 of this Plan.

     (c) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     (d) “Committee” means the Committee appointed by the Board to administer the Plan. The Committee shall be constituted at all times so as to meet the outside director requirements of Section 162(m) of the Code.

     (e) “Company” means Polaris Industries Inc. and its successors and assigns.

     (f) “Effective Date” means January 1, 2004.

     (g) “Eligible Senior Executive” means any senior executive employee of the Company designated by the Committee as an Eligible Senior Executive.

     (h) “Incentive Compensation Award” means an incentive compensation award payable under this Plan.

     (i) “Incentive Compensation Award Period” means, with respect to an Incentive Compensation Award, as determined by the Committee, the calendar year beginning on or after the Effective Date with respect to which such Incentive Compensation Award is to be determined. It is expressly intended that any particular calendar year may be included in the Performance Period of multiple Incentive Compensation Awards.

     (j) “Participant” means, with respect to an Incentive Compensation Award Period, the Eligible Senior Executives selected by the Committee to be eligible to receive an Incentive Compensation Award for such Incentive Compensation Award Period as provided in Section 5 of this Plan.

     (k) “Performance Objective” means the performance objective or objectives established pursuant to Section 5 of the Plan.

     (l) “Plan” means the Polaris Industries Inc. Senior Executive Annual Incentive Compensation Plan, as it may be amended from time to time.

     3. Administration. The Committee shall interpret the Plan, prescribe, amend, and rescind rules relating to it, select eligible Participants, and take all other actions necessary for its administration, which actions shall be final and binding upon all Participants. To the extent permitted by law, all members of the Board of Directors, including the members of the Committee, shall be indemnified and held harmless by the Company with respect to any loss, cost, liability or expense that may be reasonably incurred in connection with any claim, action, suit or proceeding which arises by reason of any act or omission under the Plan so long as such act or omission is taken in good faith and within the scope of the authority delegated herein.

     4. Compliance with Section 162(m). The Plan shall be administered to comply with Section 162(m) of the Code and regulations promulgated thereunder, and if any Plan provision is found not to be in compliance with Section 162(m) of the Code, the provision shall be deemed modified as necessary to meet the requirements of Section 162(m) of the Code.

     5. Selection of Participants and Performance Objective. Prior to the commencement of each Incentive Compensation Award Period, or at such later time as permitted by Section 162(m) of the Code and regulations thereunder, the Committee shall determine in writing (i) the Participants who shall be eligible to receive an Incentive Compensation Award for such Incentive Compensation Award Period, (ii) the Performance Objective, which shall consist of any one or more of the Business Criteria, and (iii) the formula for computing the amount of the Incentive Compensation Award payable to each Participant if the Performance Objective is achieved , which formula shall comply with the requirements applicable to performance-based compensation plans under Section 162(m) of the Code. The amount of an Incentive Compensation Award may be denominated in cash and/or in shares of the Company’s common stock, provided that all amounts paid under the Plan shall be in cash.

     6. Business Criteria. The Business Criteria will include specified levels of one or more of the following:

Operating Income	Net Income
Pre-Tax Income	Customer Retention
Cash Flow	Return on Investment
Return on Capital	Revenue
Return on Equity	Revenue Growth
Return on Assets	Total Shareholder Return
Return on Sales	Stock Price
Expense Targets	Market Share
Customer Satisfaction	Productivity Targets
Sales	Earnings Per Share
Sales Growth	Earnings Per Share Growth
	Economic Value Added

The above terms shall have the same meaning as in the Company’s financial statements, or if the terms are not used in the Company’s financial statements, as applied pursuant to generally accepted accounting principles, or as used in the Company’s industry, as applicable. As

2

determined by the Committee, the Business Criteria shall be applied (i) in absolute terms or relative to one or more other companies or indices and (ii) to a business unit, geographic region, one or more separately incorporated entities, or the Company as a whole.

     7. Incentive Compensation Award Certification. The Committee shall certify in writing prior to payment of the Incentive Compensation Award that the Performance Objective has been attained and the Incentive Compensation Award is payable. With respect to Committee certification, approved minutes of the meeting in which the certification is made shall be treated as written certification.

     8. Maximum Incentive Compensation Award Payable. The maximum amount payable with respect to an Incentive Compensation Award to any Participant is $2,500,000.

     9. Extraordinary or Unusual Events. The Committee may, in its discretion, disregard the impact of any extraordinary or unusual event (in accordance with generally accepted accounting procedures) in determining whether a Performance Objective has been obtained or may make appropriate adjustments in any Performance Objective to reflect such extraordinary or unusual event.

     10. Discretion to Reduce Awards. The Committee, in its sole and absolute discretion, may reduce the amount of any award otherwise payable to a Participant.

     11. Active Employment Requirement. Except as provided below, an Incentive Compensation Award shall be paid for an Incentive Compensation Award Period only to a Participant who is actively employed by the Company (or on approved vacation or other approved leave of absence) throughout the Incentive Compensation Award Period and who is employed by the Company on the date the Incentive Compensation Award is paid. To the extent consistent with the deductibility of awards under Section 162(m) of the Code and regulations thereunder, the Committee may in its sole discretion grant an Incentive Compensation Award for the Incentive Compensation Award Period to a Participant who is first employed or who is promoted to a position eligible to become a Participant under this Plan during the Incentive Compensation Award Period, or whose employment is terminated during the Incentive Compensation Award Period because of the Participant’s retirement under the Company’s 401(k) plan, death, or because of disability as defined in Section 22(e)(3) of the Code. In such cases of active employment for part of an Incentive Compensation Award Period, a pro rata Incentive Compensation Award may be paid for the Incentive Compensation Award Period.

     12. Payment of Incentive Compensation Award. An Incentive Compensation Award shall be paid to the Participant for the Incentive Compensation Award Period as provided in this Plan. The Company shall pay the Incentive Compensation Award to the Participant in such form as the Committee may determine and at such time as the Committee may determine after the Committee certifies that the Incentive Compensation Award is payable as provided in Section 7. A Participant may defer receipt of an Incentive Compensation Award in accordance with procedures established by the Committee from time to time. In the event of the Participant’s incompetency, the Company in its sole discretion may pay any Incentive Compensation Award to the Participant’s guardian or directly to the Participant. In the event of the Participant’s death, any Incentive Compensation Award shall be paid to the Participant’s spouse or, if there is no surviving spouse, the Participant’s estate. Payments under this Section shall operate as a complete discharge of the Committee and the Company. The Company shall deduct from any Incentive Compensation Award paid under the Plan the amount of any taxes required to be withheld by the federal or any state or local government.

3

     13. Shareholder Approval. No Incentive Compensation Award shall be payable under this Plan unless the Plan is disclosed to and approved by the shareholders of the Company in accordance with Section 162(m) of the Code and regulations thereunder.

     14. Limitation of Rights. Nothing in this Plan shall be construed to (a) give any employee of the Company any right to be awarded any Incentive Compensation Award other than that set forth herein, as determined by the Committee; (b) give a Participant any rights whatsoever with respect to shares of common stock of the Company; (c) limit in any way the right of the Company to terminate an employee’s employment with the Company at any time for any reason or no reason; (d) give a Participant or any other person any interest in any fund or in any specific asset or assets of the Company; or (e) be evidence of any agreement or understanding, express or implied, that the Company will employ an employee in any particular position or at any particular rate of remuneration.

     15. Non-Exclusive Arrangement. The adoption and operation of this Plan shall not preclude the Board or the Committee from approving other short-term incentive compensation arrangements for the benefit of individuals who are Participants hereunder as the Board or Committee, as the case may be, deems appropriate and in the best interests of the Company.

     16. Nonassignment. The right of a Participant to the payment of any Incentive Compensation Award under the Plan may not be assigned, transferred, pledged, or encumbered, nor shall such right or other interests be subject to attachment, garnishment, execution, or other legal process.

     17. Amendment or Termination of the Plan. The Board may amend or terminate the Plan at any time, except that no amendment or termination shall be made that would impair the rights of any Participant to a Incentive Compensation Award that would be payable were the Participant to terminate employment on the effective date of such amendment or termination, unless the Participant consents to such amendment or termination. The Plan shall automatically terminate on January 1, 2009 unless sooner terminated by action of the Board or extended with the approval of the Board and the Company’s shareholders.

     18. Governing Law. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Minnesota, other than the conflict of law provisions of such laws.

4

EX-10.Q

exv10wq

EX-10.R

Exhibit 10.r

POLARIS INDUSTRIES INC.
LONG TERM INCENTIVE PLAN

     1. Purpose. The Polaris Industries Inc. Long Term Incentive Plan is intended to increase incentives for Eligible Employees to attain and maintain the highest standards of performance, to attract and retain key executives of outstanding competence and ability, to stimulate the active interest of key executives in the development and financial success of the Company, to further the identity of interests of employees with those of the Company’s shareholders generally and to reward executives for outstanding performance when certain objectives are achieved.

     2. Definitions. As used herein, the terms set forth below shall have the following respective meanings:

     (a) “Board” means the Board of Directors of the Company.

     (b) “Business Criteria” means the business criteria listed in Section 6 of this Plan.

     (c) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     (d) “Committee” means the Committee appointed by the Board to administer the Plan. The Committee shall be constituted at all times so as to meet the outside director requirements of Section 162(m) of the Code.

     (e) “Company” means Polaris Industries Inc. and its successors and assigns.

     (f) “Effective Date” means January 1, 2004.

     (g)“Eligible Employee” means any employee of the Company designated by the Committee as an Eligible Employee.

     (h) “Incentive Compensation Award” means an incentive compensation award payable under this Plan.

     (i) “Incentive Compensation Award Period” means, with respect to an Incentive Compensation Award, as determined by the Committee, the three consecutive calendar years beginning on or after the Effective Date with respect to which such Incentive Compensation Award is to be paid.

     (j) “Participant” means, with respect to an Incentive Compensation Award Period, the Eligible Employees selected by the Committee to be eligible to receive an Incentive Compensation Award for such Incentive Compensation Award Period as provided in Section 5 of this Plan.

     (k) “Performance Objective” means the performance objective or objectives established pursuant to Section 5 of the Plan.

     (l) “Plan” means the Polaris Industries Inc. Long Term Incentive Plan, as it may be amended from time to time.

     3. Administration. The Committee shall interpret the Plan, prescribe, amend, and rescind rules relating to it, select eligible Participants, and take all other actions necessary for its administration, which actions shall be final and binding upon all Participants. To the extent permitted by law, all

members of the Board of Directors, including the members of the Committee, shall be indemnified and held harmless by the Company with respect to any loss, cost, liability or expense that may be reasonably incurred in connection with any claim, action, suit or proceeding which arises by reason of any act or omission under the Plan so long as such act or omission is taken in good faith and within the scope of the authority delegated herein.

     4. Compliance with Section 162(m). The Plan shall be administered to comply with Section 162(m) of the Code and regulations promulgated thereunder, and if any Plan provision is found not to be in compliance with Section 162(m) of the Code, the provision shall be deemed modified as necessary to meet the requirements of Section 162(m) of the Code.

     5. Selection of Participants and Performance Objective. Prior to the commencement of each Incentive Compensation Award Period, or at such later time as permitted by Section 162(m) of the Code and regulations thereunder, the Committee shall determine in writing (i) the Participants who shall be eligible to receive an Incentive Compensation Award for such Incentive Compensation Award Period, (ii) the Performance Objective, which shall consist of any one or more of the Business Criteria, and (iii) the formula for computing the amount of the Incentive Compensation Award payable to each Participant if the Performance Objective is achieved , which formula shall comply with the requirements applicable to performance-based compensation plans under Section 162(m) of the Code. The amount of an Incentive Compensation Award payable to a Participant may be denominated in cash and, pursuant to terms established by the Committee, at the election of a Participant may be adjusted to reflect changes in the market price of the Company’s common stock during an Incentive Compensation Award Period, provided that all amounts paid under the Plan shall be paid in cash.

     6. Business Criteria. The Business Criteria will include specified levels of one or more of the following:

Operating Income	Net Income
Pre-Tax Income	Customer Retention
Cash Flow	Return on Investment
Return on Capital	Revenue
Return on Equity	Revenue Growth
Return on Assets	Total Shareholder Return
Return on Sales	Stock Price
Expense Targets	Market Share
Customer Satisfaction	Productivity Targets
Sales	Earnings Per Share
Sales Growth	Earnings Per Share Growth
	Economic Value Added

The above terms shall have the same meaning as in the Company’s financial statements, or if the terms are not used in the Company’s financial statements, as applied pursuant to generally accepted accounting principles, or as used in the Company’s industry, as applicable. As determined by the Committee, the Business Criteria shall be applied (i) in absolute terms or relative to one or more other companies or indices and (ii) to a business unit, geographic region, one or more separately incorporated entities, or the Company as a whole).

     7. Incentive Compensation Award Certification. The Committee shall certify in writing prior to payment of the Incentive Compensation Award that the Performance Objective has been attained and the Incentive Compensation Award is payable. With respect to Committee certification, approved minutes of the meeting in which the certification is made shall be treated as written certification.

     8. Maximum Incentive Compensation Award Payable. The maximum amount payable with respect to an Incentive Compensation Award to any Participant is 200% of such Participant’s base salary (up to a maximum of base salary of $1,000,000).

     9. Extraordinary or Unusual Events. The Committee may, in its discretion, disregard the impact of any extraordinary or unusual event (in accordance with generally accepted accounting procedures) in determining whether a Performance Objective has been obtained or may make appropriate adjustments in any Performance Objective to reflect such extraordinary or unusual event.

     10. Discretion to Reduce Awards. The Committee, in its sole and absolute discretion, may reduce the amount of any award otherwise payable to a Participant.

     11. Active Employment Requirement. Except as provided below, an Incentive Compensation Award shall be paid for an Incentive Compensation Award Period only to a Participant who is actively employed by the Company (or on approved vacation or other approved leave of absence) throughout the Incentive Compensation Award Period and who is employed by the Company on the date the Incentive Compensation Award is paid. To the extent consistent with the deductibility of awards under Section 162(m) of the Code and regulations thereunder, the Committee may in its sole discretion grant an Incentive Compensation Award for the Incentive Compensation Award Period to a Participant who is first employed or who is promoted to a position eligible to become a Participant under this Plan during the Incentive Compensation Award Period, or whose employment is terminated during the Incentive Compensation Award Period because of the Participant’s retirement under the Company’s 401(k) plan, death, or because of disability as defined in Section 22(e)(3) of the Code. In such cases of active employment for part of an Incentive Compensation Award Period, a pro rata Incentive Compensation Award may be paid for the Incentive Compensation Award Period.

     12. Payment of Incentive Compensation Award. An Incentive Compensation Award shall be paid to the Participant for the Incentive Compensation Award Period as provided in this Plan. The Company shall pay the Incentive Compensation Award to the Participant in such form as the Committee may determine and at such time as the Committee may determine after the Committee certifies that the Incentive Compensation Award is payable as provided in Section 7. A Participant may defer receipt of an Incentive Compensation Award in accordance with procedures established by the Committee from time to time. In the event of the Participant’s incompetency, the Company in its sole discretion may pay any Incentive Compensation Award to the Participant’s guardian or directly to the Participant. In the event of the Participant’s death, any Incentive Compensation Award shall be paid to the Participant’s spouse or, if there is no surviving spouse, the Participant’s estate. Payments under this Section shall operate as a complete discharge of the Committee and the Company. The Company shall deduct from any Incentive Compensation Award paid under the Plan the amount of any taxes required to be withheld by the federal or any state or local government.

     13. Shareholder Approval. No Incentive Compensation Award shall be payable under this Plan unless the Plan is disclosed to and approved by the shareholders of the Company in accordance with Section 162(m) of the Code and regulations thereunder.

     14. Limitation of Rights. Nothing in this Plan shall be construed to (a) give any employee of the Company any right to be awarded any Incentive Compensation Award other than that set forth herein, as determined by the Committee; (b) give a Participant any rights whatsoever with respect to shares of common stock of the Company; (c) limit in any way the right of the Company to terminate an employee’s employment with the Company at any time for any reason or no reason; (d) give a Participant or any other person any interest in any fund or in any specific asset or assets of the Company; or (e) be evidence of

any agreement or understanding, express or implied, that the Company will employ an employee in any particular position or at any particular rate of remuneration.

     15. Non-Exclusive Arrangement. The adoption and operation of this Plan shall not preclude the Board or the Committee from approving other short-term incentive compensation arrangements for the benefit of individuals who are Participants hereunder as the Board or Committee, as the case may be, deems appropriate and in the best interests of the Company.

     16. Nonassignment. The right of a Participant to the payment of any Incentive Compensation Award under the Plan may not be assigned, transferred, pledged, or encumbered, nor shall such right or other interests be subject to attachment, garnishment, execution, or other legal process.

     17. Amendment or Termination of the Plan. The Board may amend or terminate the Plan at any time, except that no amendment or termination shall be made that would impair the rights of any Participant to a Incentive Compensation Award that would be payable were the Participant to terminate employment on the effective date of such amendment or termination, unless the Participant consents to such amendment or termination. The Plan shall automatically terminate on January 1, 2009 unless sooner terminated by action of the Board or extended with the approval of the Board and the Company’s shareholders.

     18. Governing Law. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Minnesota, other than the conflict of law provisions of such laws.

EX-13

Exhibit 13

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 Operations,” located in the Form 10-K included in this report.

For the Years Ended December 31,	2005			2004			2003			2002
Statement of Operations Data
Sales data:
Total sales from continuing operations	$	1,869,819		$	1,773,206		$	1,552,351		$	1,468,170
Percent change from prior year		5	%		14	%		6	%		3	%
Sales mix by product:
All-terrain vehicles		66	%		66	%		67	%		64	%
Snowmobiles		14	%		16	%		15	%		20	%
Motorcycles		5	%		4	%		4	%		2	%
PG&A		15	%		14	%		14	%		14	%
Gross profit data:
Total gross profit from continuing operations	$	417,892		$	424,263		$	362,876		$	332,432
Percent of sales		22	%		24	%		23	%		23	%
Operating expense data from continuing operations:
Amortization of intangibles and noncash compensation	$	12,492		$	16,643		$	14,472		$	16,437
Other operating expenses		229,254			228,018			192,093			166,188
Percent of sales		12	%		13	%		12	%		11	%
Total operating expenses		241,746			244,661			206,565			182,625
Net income data:
Net income from continuing operations	$	144,285		$	136,813		$	119,823		$	111,330
Diluted net income per share from continuing operations	$	3.29		$	3.04		$	2.66		$	2.36
Net income	$	143,278		$	104,504		$	110,929		$	103,592
Diluted net income per share	$	3.27		$	2.32		$	2.46		$	2.19
Cash Flow Data
Cash flow from continuing operating activities	$	177,629		$	245,356		$	167,793		$	200,601
Purchase of property and equipment for continuing operations		89,770			88,836			59,209			52,313
Repurchase and retirement of common stock		132,280			66,830			73,125			76,389
Cash dividends to shareholders		46,956			38,856			26,657			25,273
Cash dividends per share	$	1.12		$	0.92		$	0.62		$	0.56
Balance Sheet Data
(at end of year)
Cash and cash equivalents	$	19,675		$	138,469		$	82,761		$	81,193
Current assets		373,988			465,655			387,716			343,659
Total assets		768,956			792,925			671,352			608,646
Current liabilities		375,614			405,193			330,478			313,513
Borrowings under credit agreement		18,000			18,000			18,008			18,027
Shareholders’ equity / partners’ capital		369,657			361,732			319,378			277,106

(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, 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 $101.2 million, $78.4 million and $1.52 per share, respectively.

18       POLARIS INDUSTRIES INC.

2001			2000			1999			1998			1997			1996			1995
$	1,427,400		$	1,327,030		$	1,244,782		$	1,105,685		$	947,775		$	985,472		$	908,988
	8	%		7	%		13	%		17	%		(4	%)		8	%		31	%
	58	%		62	%		59	%		58	%		48	%		44	%		39	%
	26	%		23	%		25	%		28	%		37	%		42	%		47	%
	1	%		1	%		3	%		1	%		—			—			—
	15	%		14	%		13	%		13	%		15	%		14	%		14	%
$	306,307		$	287,969		$	256,611		$	213,381		$	195,027		$	192,131		$	180,913
	21	%		22	%		21	%		19	%		21	%		19	%		20	%
$	16,482		$	12,702		$	10,472		$	8,703		$	5,887		$	5,325		$	5,616
	150,386			143,152			119,600			153,903			79,505			76,240			67,163
	11	%		11	%		10	%		14	%(1)		8	%		8	%		7	%
	166,868			155,854			130,072			162,606			85,392			81,565			72,779
$	97,716		$	89,466		$	84,642		$	38,761	(1)	$	75,964		$	70,708		$	64,759
$	2.07		$	1.89		$	1.70		$	0.75	(1)	$	1.42		$	1.27		$	1.17
$	91,414		$	82,809		$	76,326		$	31,015	(1)	$	65,383		$	62,293		$	60,776
$	1.94		$	1.75		$	1.53		$	0.60	(1)	$	1.22		$	1.12		$	1.09
$	192,034		$	105,055		$	134,469		$	124,701		$	97,655		$	88,872		$	81,215
	52,856			61,590			60,659			56,796			32,389			37,128			38,964
	49,207			39,622			52,375			37,728			39,903			13,587			—
	22,846			20,648			19,732			18,582			16,958			16,390			116,639
$	0.50		$	0.44		$	0.40		$	0.36		$	0.32		$	0.30		$	2.13
$	40,530		$	2,369		$	6,184		$	1,466		$	1,233		$	5,812		$	3,501
	305,317			240,912			214,714			183,840			217,458			193,405			175,271
	565,163			490,186			442,027			378,697			384,746			351,717			314,436
	308,337			238,384			233,800			204,964			191,111			161,387			155,722
	18,043			47,068			40,000			20,500			24,400			35,000			40,200
	238,783			204,734			168,227			153,233			169,235			155,330			118,514

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
1996	$	96.4	$	—		$	(7.5	)		—		$	88.9
1997		100.0		—			(2.3	)		—			97.7
1998		108.9		5.0			50.4		$	(39.6	)		124.7
1999		119.6		3.0			11.9			—			134.5
2000		129.3		1.6			(25.9	)		—			105.1
2001		150.0		(9.7	)		51.8			—			192.0
2002		174.1		7.2			19.3			—			200.6
2003		177.5		(8.1	)		(1.6	)		—			167.8
2004		201.1		(1.5	)		45.7			—			245.4
2005		208.1		2.7			(33.2	)		—			177.6

2005 ANNUAL REPORT       19

OTHER INVESTOR INFORMATION

STOCK EXCHANGES

Shares of common stock of Polaris Industries Inc. trade on the New York Stock Exchange and on the Pacific Stock Exchange under the symbol PII.

INDEPENDENT AUDITORS
Ernst & Young LLP
Minneapolis, MN

TRANSFER AGENT AND REGISTRAR

Communications concerning transfer requirements, address changes, dividends and lost certificates, as well as requests for Dividend Reinvestment Plan enrollment information, should be addressed to:

Wells Fargo Bank Minnesota, N.A.
Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075-1139
1-800-468-9716
www.wellsfargo.com/com/shareowner_services

ANNUAL SHAREHOLDERS’ MEETING

The meeting will be held at 9 a.m. CST, Thursday, April 20, 2006, at the Polaris Industries Inc. corporate headquarters, 2100 Highway 55, Medina, Minnesota. A proxy statement will be mailed on or about March 1, 2006, to each shareholder of record on February 21, 2006.

SUMMARY OF TRADING

	For the Years Ended December 31,
	2005				2004
Quarter	High		Low		High		Low
First	$	74.18	$	62.22	$	45.73	$	39.30
Second		71.19		51.60		48.15		41.10
Third		60.23		46.53		56.44		44.25
Fourth		53.95		43.75		69.41		51.83

CASH DIVIDENDS DECLARED

Cash dividends are declared quarterly and have been paid since 1995. As of January 19, 2006, the quarterly dividend was increased to $0.31 per share.

Quarter	2005		2004
First	$	0.28	$	0.23
Second		0.28		0.23
Third		0.28		0.23
Fourth		0.28		0.23
Total	$	1.12	$	0.92

SHAREHOLDERS OF RECORD

Shareholders of record of the Company’s common stock on February 21, 2006 were 2,972.

SHAREHOLDER COMPOSITION (Pie Chart)
Institutions	75%
Individuals and Others	16%
Officers, Directors and Employees	9%

DIVIDEND REINVESTMENT PLAN

Shareholders may automatically reinvest their dividends in additional Polaris common stock through the Dividend Reinvestment Plan, which also provides for purchase of common stock by voluntary cash contributions. For additional information, please contact Wells Fargo Shareowner Services at 1-800-468-9716 or visit the Wells Fargo Bank Web site at www.wellsfargo.com.

PRODUCT BROCHURES

For product brochures and dealer locations, 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

INVESTOR RELATIONS

Security analysts and investment professionals should direct their business-related inquiries to:

Richard Edwards
Director of Investor Relations
Polaris Industries Inc.
2100 Highway 55
Medina, MN 55340
763-513-3477
richard.edwards@polarisind.com

RESEARCH COVERAGE AS OF FEBRUARY 2006
A.G. Edwards
Bank of America Securities
BB&T Capital Markets
Citigroup (Smith Barney)
Craig-Hallum Partners
JPMorgan
Merrill Lynch
FTN Midwest Securities
Raymond James & Associates
RBC Capital Markets
Robert W. Baird & Co.
SBK Brooks Investment Corp.

STOCK-SPLIT HISTORY

August 1993            2 for 1
October 1995           3 for 2
March 2004             2 for 1

CEO CERTIFICATION

The Company’s Chief Executive Officer submitted the annual CEO certification to the New York Stock Exchange certifying that he is not aware of any violation by the Company of the New York Stock Exchange’s corporate governance listing standards.

EX-21

Exhibit 21

REGISTRANT
POLARIS INDUSTRIES INC.

	State or Other Jurisdiction
	of Incorporation or
Name of Subsidiary	Organization
Polaris Industries Inc.	Delaware
Polaris Industries Ltd.	Manitoba, Canada
Polaris Acceptance Inc.	Minnesota
Polaris Sales Inc.	Minnesota
Polaris Industries Manufacturing LLC	Minnesota
Polaris Insurance Services LLC	Minnesota
Polaris Direct Inc.	Minnesota
Polaris Sales Australia Pty Ltd.	Australia
Polaris France S.A.	France
Polaris Britain Limited	United Kingdom
Polaris Norway AS	Norway
Polaris Scandinavia AB	Sweden
Polaris Austria GmbH	Austria

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements on Form S-8 Nos. 33-57503, 33-60157, 333-05463, 333-21007, 333-77765, 333-94451, 333-84478, 333-110541, and 333-129335 of our reports dated February 21, 2006, with respect to the consolidated financial statements and schedule of Polaris Industries Inc. (Polaris), Polaris management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Polaris, included in the Annual Report on
Form 10-K for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Minneapolis, Minnesota
February 27, 2006

EX-24

Exhibit 24

POWER OF ATTORNEY

(FORM 10-K)

     KNOW ALL MEN BY THESE PRESENTS, that POLARIS INDUSTRIES INC., a Minnesota corporation (the “Company”), and each of the undersigned directors of the Company, hereby constitutes and appoints Thomas C. Tiller and Michael W. Malone and each of them (with full power to each of them to act alone) its/his/her true and lawful attorney-in-fact and agent, for it/him/her and on its/his/her behalf and in its/his/her name, place and stead, in any and all capacities to sign, execute, affix its/his/her seal thereto and file the Annual Report on Form 10-K for the year ended December 31, 2005 under the Securities Exchange Act of 1934, as amended, with any amendment or amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority.

     There is hereby granted to said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in respect of the foregoing as fully as it/he/she or itself/himself/herself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.

     This Power of Attorney may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument and any of the undersigned directors may execute this Power of Attorney by signing any such counterpart.

     POLARIS INDUSTRIES INC. has caused this Power of Attorney to be executed in its name by its Chief Executive Officer on the 19^th day of January, 2006.

POLARIS INDUSTRIES INC.
By	/s/ Thomas C. Tiller
	Thomas C. Tiller
	Chief Executive Officer

The undersigned, directors of POLARIS INDUSTRIES INC., have hereunto set their hands as of the 19^th day of January, 2006.

/s/ Andris A. Baltins	/s/ Gregory R. Palen
Andris A. Baltins	Gregory R. Palen
/s/ Robert L. Caulk	/s/ Stefan Pierer
Robert L. Caulk	Stefan Pierer
/s/ Annette K. Clayton	/s/ R. M. Schreck
Annette K. Clayton	R. M. Schreck
/s/ William E. Fruhan, Jr.	/s/ Thomas C. Tiller
William E. Fruhan, Jr.	Thomas C. Tiller
/s/ John R. Menard, Jr.	/s/ Richard A. Zona
John R. Menard, Jr.	Richard A. Zona

D I R E C T O R S

2

EX-31.A

EXHIBIT 31(a)

I, Thomas C. Tiller, certify that:

      1. I have reviewed this annual report on Form 10-K of Polaris Industries Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b. Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Thomas C. Tiller

Thomas C. Tiller

Chief Executive Officer

Date: March 1, 2006

EX-31.B

EXHIBIT 31(b)

I, Michael W. Malone, certify that:

      1. I have reviewed this annual report on Form 10-K of Polaris Industries Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b. Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael W. Malone

Michael W. Malone

Vice President — Finance,

Chief Financial Officer and Secretary

Date: March 1, 2006

EX-32.A

Exhibit 32.a

POLARIS INDUSTRIES INC.

STATEMENT PURSUANT TO 18 U.S.C. §1350

I, Thomas C. Tiller, Chief Executive Officer of Polaris Industries Inc., a Minnesota corporation (the “Company”), hereby certify as follows:

1.	This statement is provided pursuant to 18 U.S.C. § 1350 in connection with the Company’s Annual Report on Form 10-K for the period ended December 31, 2005 (the “Periodic Report”);
2.	The Periodic Report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended; and
3.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods indicated therein.

Date: March 1, 2006

/s/ Thomas C. Tiller

Thomas C. Tiller

Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Polaris Industries Inc. and will be retained by Polaris Industries Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.B

Exhibit 32.b

POLARIS INDUSTRIES INC.

STATEMENT PURSUANT TO 18 U.S.C. §1350

I, Michael W. Malone, Vice President-Finance, Chief Financial Officer and Secretary of Polaris Industries Inc., a Minnesota corporation (the “Company”), hereby certify as follows:

1.	This statement is provided pursuant to 18 U.S.C. § 1350 in connection with the Company’s Annual Report on Form 10-K for the period ended December 31, 2005 (the “Periodic Report”);
2.	The Periodic Report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended; and
3.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods indicated therein.

Date: March 1, 2006

/s/ Michael W. Malone

Michael W. Malone

Vice President—Finance,

Chief Financial Officer and

Secretary

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Polaris Industries Inc. and will be retained by Polaris Industries Inc. and furnished to the Securities and Exchange Commissinor its staff upon request.