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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

For the fiscal year ended December 31, 2003

Commission file number 1-11411

POLARIS INDUSTRIES INC.

Securities registered pursuant to section 12(b) of the Act

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

     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. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  ü      No      

     The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,771,507,360 as of March 1, 2004, 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 March 1, 2004, 21,546,956 shares, on a pre-split basis, of Common Stock, $.01 par value, of the registrant were outstanding (representing 43,093,912 shares on post-split basis).

DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2003 (the “2003 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 22, 2004 filed with the Securities and Exchange Commission (the “2004 Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

POLARIS INDUSTRIES INC.

2003 FORM 10-K ANNUAL REPORT

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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, motorcycles and personal watercraft (“PWC”) 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, PWC and PG&A accounted for the following approximate percentages of Polaris’ sales for the years ended December 31:

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 2003, John Deere announced its planned entrance into the North American ATV market in early 2004. 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 consistently. Polaris estimates that during the calendar year 2003 the industry grew six percent with approximately 1,041,000 ATVs sold worldwide.

      Polaris also competes in the utility vehicle market with its RANGER™ off-road utility vehicle and professional series UTV platforms. The utility vehicle market grew approximately seven percent during the calendar year 2003 and is approximately a 110,000 unit market.

      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, 2003, industry sales of snowmobiles on a worldwide basis were approximately 186,000 units, down nine percent from the previous season.

      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 1993 to 2002. Polaris entered the touring segment in 2000. Polaris estimates that the cruiser and touring market segments combined, grew five percent in 2003 with

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      Personal Watercraft. PWC include both sit-down and stand-up versions of water scooter vehicles, and are designed for use on lakes, rivers, oceans and bays. PWC are used primarily for recreational purposes and are designed for one, two, three or four passengers. Polaris entered the PWC market in 1992. After many years of rapid growth, the worldwide industry retail sales of PWC peaked at approximately 225,000 units in 1996. Polaris estimates that during the year ended September 30, 2003, worldwide industry retail sales for PWC were approximately 120,000 units, flat with the previous season. Other major PWC manufacturers are Bombardier, Yamaha, Kawasaki and Honda.

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 seventeen models, includes general purpose, sport and four-wheel drive utility models, with 2004 model year suggested United States retail prices ranging from approximately $2,000 to $7,900. In 2000, Polaris introduced its first youth ATV models. In addition, Polaris has a six-wheel off-road utility vehicle and the Polaris RANGER™, 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 utility task vehicles (UTVs) and a 4X4 and 6X6 ATV (ATV Pro), each of which were modifications of existing products. The main competitors for both RANGER™ and PPS are John Deere, Kawasaki and Yamaha.

      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 AWD 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.

      Prior to 1989, the ATV industry experienced some reduced demand arising from publicity surrounding safety-related and environmental concerns. However, management believes this market has stabilized since 1989 and has sustained consistent growth.

      Snowmobiles. Polaris produces a full line of snowmobiles, consisting of thirty-seven models, ranging from youth to utility and economy models to performance and competition models. The 2004 model year suggested United States retail prices ranged from approximately $2,000 to $10,000. 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 four models, the Victory Vegas^TM, Kingpin^TM, Touring Cruiser (TC) and a limited edition Arlen Ness Signature Series Vegas^TM. Suggested United States retail prices for the 2004 model year Victory motorcycles ranged from approximately $15,000 to $20,000.

      Personal Watercraft. Polaris entered the personal watercraft market in 1992. Polaris’ 2003 line of watercraft consisted of eight models across the touring, performance and racing segments. Management believes that its models had the industry’s first three-cylinder engines developed specifically for PWC and that its models were the first to comply with EPA 2006 requirements. In late 2002, Polaris announced its first four stroke engine powered personal watercraft, and in early 2003 announced its entry into the sport boat market with the Polaris EX2100 and LE2100 Sport Boat line, a sourced product from Brunswick Corporation. The

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      Parts, Garments and Accessories. Polaris produces or supplies a variety of replacement parts and accessories for its ATVs, snowmobiles, motorcycles and PWC. 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. PWC accessories include products such as footwear, goggles, wet suits, life vests, tow ropes, oils and lubricants.

      Polaris also markets a full line of recreational apparel including helmets, jackets, bibs and pants, personal flotation devices, leathers and hats for its snowmobile, ATV, motorcycle and PWC 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.

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, motorcycles and PWC 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, hulls, 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, motorcycles, and PWC. 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, motorcycles and PWC. 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 is expected to enhance future growth through increased capacity and 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 PWC and 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.

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      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 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 2002, Polaris entered into an agreement with a German manufacturer to co-design, develop and produce four-stroke engines for the new MSX personal watercraft.

      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 facilities.

      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 PWC are placed by the dealers in autumn after meetings with dealers and distributors. 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, motorcycles and PWC 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. Polaris manufactures PWC during the fall, winter and spring months. 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 approximately 2,000 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 and PWC. At the end of 2003, approximately 1,000 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 and PWC through lawn and garden, boat and marine, motor sports and farm implement dealers. The Polaris Professional Series product line is sold through a select number of commercial outdoor power equipment dealer locations across North America totaling approximately 150 at December 31, 2003.

      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

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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 current 300 Victory dealers were selected. Polaris expects to develop a Victory dealer network totaling approximately 400 to 500 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 January 2004, TDF was purchased by GE Commercial Finance, a subsidiary of General Electric Company. No significant change in the Polaris Acceptance relationship is expected 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), TDF affiliates (Canada, France, Great Britain, Ireland, Norway and Sweden) and GE Commercial Corporation (Australia and New Zealand), to provide floor plan financing for its dealers. Substantially all of Polaris’ North American sales of snowmobiles, ATVs, PWC, 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 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. The agreement with Household provides that all income and losses of the retail credit portfolio are shared equally with 50 percent to Polaris and 50 percent to Household. Either party has the right to terminate the agreement if profitability of the portfolio falls below certain minimum levels. Polaris’ financial exposure under this agreement is limited to its investment ($36.1 million at December 31, 2003) plus an aggregate amount of not more than $15.0 million. In 2003, approximately 32 percent of the wholegood products sold to consumers in the United States were financed under these arrangements. 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

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      Polaris expended approximately $96.9 million for sales and marketing in 2003, $86.7 million in 2002, and $82.5 million in 2001.

Engineering, Research and Development, and New Product Introduction

      Polaris employs approximately 400 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 and PWC, 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 2003, Polaris announced it would build a 100,000 square-foot research and development facility in Wyoming, Minnesota for engineering, design and development personnel for Polaris’ line of ATVs, PWC, and Victory motorcycles. Construction is expected to begin in 2004 and should be completed late in 2005 at a total cost of approximately $30 million.

      Polaris expended for research and development approximately $51.8 million in 2003, $45.6 million in 2002, and $35.7 million in 2001.

Competition

      The ATV, snowmobile, motorcycle, PWC 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, 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, motorcycles and PWC are subject to extensive federal and state safety, environmental and other government regulation.

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      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.

      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 continues to work with the U.S. Coast Guard to develop standards and to evaluate PWC safety matters. Polaris believes that its PWC have always complied with safety standards relevant to PWC.

      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.

      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 is currently developing engine and emission technologies that will be used along with its existing technology base to meet these requirements.

      The EPA has existing regulations requiring PWC manufacturers to gradually reduce their average emissions between 1999 and 2006. 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 has entered into a license agreement with Bombardier Motor Corporation of America to use the Ficht fuel injection technology which has been used to meet current PWC emission requirements. In

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      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 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.

      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 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.

Product Liability

      Polaris’ product liability insurance limits and coverages 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 2003, Polaris and its predecessors paid an aggregate of approximately $12.6 million in product liability claims. Polaris has recorded an accrued liability on its balance sheet of $5.7 million at December 31, 2003 for the possible payment of pending claims. 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, PWC prior to 1992, 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.

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, motorcycles, PPS and PWC products. 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, a product is sometimes distributed which needs repair or replacement. Polaris’ standard warranties require the Company or

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Effects of Weather

      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 shifting 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, PWC or PG&A.

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 2003, Polaris employed an average of approximately 3,400 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’s website is not part of this report.

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Item 2.     Properties

      The following sets forth the Company’s material facilities as of December 31, 2003.

      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, motorcycles and PWC. 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.

      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 March 1, 2004, their ages, titles, the year first appointed as an executive officer of the Company, and employment for the past five years:

      Executive officers of the Company are elected at the discretion of the Board of Directors with no fixed term. There are no family relationships between or among any of the executive officers or directors of the Company.

      Mr. Tiller was named President and Chief Operating Officer of the Company in July 1998. In 1999, Mr. Tiller was promoted to his present position of 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. 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. Sobaski has been Vice President — Sales, Marketing and Business Development since April 2002. Mr. Sobaski had been Vice President — Marketing and Business Development of the Company since September 2001. Prior to joining Polaris, Mr. Sobaski was employed by ConAgra Foods, Inc. as President of ConAgra Grocery Brands from 1999 to October 2001 and held various senior sales and marketing management positions at The Pillsbury Company from 1992 to 1998. Before that time, Mr. Sobaski held various management positions at The Drackett Company (a division of Bristol-Meyers Squibb), Kraft Foods and General Mills spanning a thirteen-year period.

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PART II

      The information under the caption “Other Investor Information” appearing on the inside back cover of the Company’s 2003 Annual Report is incorporated herein by reference.

      The information under the caption “11-Year Selected Financial Data” appearing on pages 22 and 23 of the Company’s 2003 Annual Report is incorporated herein by reference.

      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, 2003, and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this report. Shares outstanding and earnings per share data have been adjusted throughout the document 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.

Executive-Level Overview

      For the full year ended December 31, 2003, Polaris reported record net income of $110.9 million or $2.46 per diluted share, a 12 percent increase over $2.19 per diluted share for the year ended December 31, 2002. Sales for the full year ended December 31, 2003 totaled a record $1.606 billion, up six percent from $1.521 billion for the full year 2002. The Company’s product lines consist of all-terrain recreational and utility vehicles (ATVs), snowmobiles, personal watercraft (PWC), motorcycles and related parts, garments and accessories (PG&A). ATVs is the largest product line representing 65 percent of Polaris’ sales in 2003. The increase in sales in 2003 was largely due to the continued growth in the Company’s ATV business. ATV sales grew eleven percent in 2003 over 2002, a direct result of new product introductions during the year. Although the ATV industry is competitive, the Company remains confident in its ATV business because of the number of new products in development and the anticipated continued growth of the overall ATV industry. The Company sells its products through a network of nearly 2,000 dealers in North America and five subsidiaries and 40 distributors in 126 countries outside North America. The Company has increased its foreign presence with sales outside of North America representing 10 percent of total Company sales in 2003 compared to six percent in 2002. The Company’s gross profit in 2003 increased eight percent over 2002 primarily due to the higher sales volume and an increase in the gross profit margin percentage to 22.4 percent of sales in 2003 from 21.8 percent in 2002. Net income for the Company increased seven percent in 2003 over 2002.

      Overall, 2003 was a good year for the Company. We faced three main challenges in 2003; the slow start to the economic recovery driven by the war in Iraq, poor snowfall which has impacted our snowmobile business, and an aggressive competitive environment, particularly in ATVs. We were successful in overcoming these challenges and our business and financial results remained solid throughout 2003.

Results of Operations

      Sales increased to $1.606 billion in 2003, representing a six percent increase from $1.521 billion in 2002. The increase in sales was due to higher sales volume primarily from ATVs, Victory motorcycles and PG&A along with favorable currency rate movement in 2003, partially offset by lower snowmobile sales.

      Sales of ATVs of $1,043.2 million in 2003 were 11 percent higher than $937.9 million in 2002. The increase in sales is a direct result of new product introductions including the All Terrain Pickup (ATP) which was named 2004 “ATV of the Year” by ATV Magazine, the introduction of the new Sportsman^TM 700 EFI

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      Sales of snowmobiles of $229.2 million in 2003 were 22 percent lower than $293.4 million in 2002. The decrease was due to the lack of significant snowfall the previous season throughout much of North America, which resulted in a planned overall lower production schedule for the 2003 calendar year. As a result of the conservative production schedule in 2003, dealer inventories of Polaris snowmobiles at December 31, 2003 were significantly lower than in the prior year. The average per unit sales price increased seven percent as a higher percentage of higher priced performance snowmobiles were sold in 2003 versus 2002, as well as the impact of favorable currency rates. Sales of snowmobiles comprised 14 percent of total Company sales in 2003 compared to 19 percent in 2002.

      Sales of Victory motorcycles of $57.4 million in 2003 were 70 percent higher than $33.8 million in 2002. The increase is primarily attributable to the positive acceptance of the new Vegas model, which was named the year’s best cruiser motorcycle by four leading motorcycle enthusiast magazines. Shipments to dealers of the new Kingpin cruiser motorcycle began in the fourth quarter 2003. The average per unit sales price for motorcycles increased 15 percent, which was driven by product mix change as the higher priced Victory Vegas continued to gain recognition and acceptance by the consumer. Sales of Victory motorcycles comprised four percent of total Company sales in 2003 compared to two percent in 2002.

      Sales of PWC of $53.5 million in 2003 were one percent higher than $53.1 million in 2002. The slow growth was primarily due to the soft economy which resulted in relatively flat industry retail sales in 2003 and a later transition to 2004 model year production in preparation for manufacturing of the new four stroke MSX personal watercraft. The average per unit sales price for PWC increased 16 percent due to a product mix change as more of the higher horsepower, direct injected, higher priced MSX personal watercraft were sold in 2003 versus 2002. Sales of PWC comprised three percent of total Company sales in 2003 compared to four percent in 2002.

      Sales of PG&A of $222.5 million in 2003 were 10 percent higher than $203.1 million in 2002. The PG&A business was positively impacted by balanced growth during the year across each product line, with the exception of snowmobile related PG&A products. PG&A sales comprised 14 percent of total Company sales in 2003, compared to 13 percent in 2002.

      Gross profit increased to $360.0 million in 2003, representing an eight percent increase over the $332.3 million gross profit in 2002. This increase in gross profit dollars was a result of higher sales volume and an increase in gross profit margin percentage to 22.4 percent of sales in 2003 from 21.8 percent in 2002. The gross profit margin for the full year 2003 continued to benefit from several ongoing initiatives, including continued efficiency gains from the Roseau facility redesign; savings from various cost reduction initiatives; and higher margins in the international business generated from the new dealer direct distribution models in Great Britain, Sweden and Norway. A net positive impact of currency fluctuations during the year also contributed to improved gross margins. These improvements, in aggregate, were offset somewhat by a higher level of promotional expenses required in 2003. Warranty expenses increased 20 percent to $27.8 million for the year ending December 31, 2003 compared to $23.2 million in the prior year. This increase in warranty expense in 2003 is principally the result of the following: (a) ATV, snowmobile and PWC product recalls in the 2003 period which resulted in additional warranty expense recorded, (b) the Company’s decision to provide extended coverage of certain claims relating to prior model year snowmobiles that were out of the warranty period but had low mileage due to the lack of snowfall in prior years and (c) longer warranty periods offered for snowmobiles through certain promotional programs.

      Operating expenses in 2003 increased 12 percent to $216.9 million from $194.0 million in 2002. Expressed as a percentage of sales, operating expenses increased to 13.5 percent in 2003 from 12.8 percent in 2002. Operating expenses increased for the full year 2003 primarily due to the continuation of initiatives taken to accelerate the design and introduction of new products and the added expense of the new international

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      Income from financial services in 2003 increased 61 percent to $23.6 million compared to $14.6 million for 2002 primarily due to growth in the percentage of consumers making use of available retail financing options and increases in Company-sponsored retail finance sales incentives. The credit quality of the retail credit portfolio has remained stable and retail credit losses, which have averaged slightly above three percent of the portfolio balance, continue to be in line with expectations.

      Non-operating other income decreased from 2002 levels due to the effects of foreign currency hedging transactions related primarily to the Canadian dollar.

      Net income in 2003 was $110.9 million, an increase of seven percent from $103.6 million in 2002. Net income as a percent of sales was 6.9 percent in 2003, an increase from 6.8 percent in 2002. Net income per diluted share increased 12 percent to $2.46 in 2003 from $2.19 in 2002.

      Sales increased to $1.521 billion in 2002, representing a two percent increase from $1.488 billion in 2001. The increase in sales was primarily due to higher ATV and Victory motorcycle sales, partially offset by lower snowmobile sales and related parts, garments and accessories sales in 2002.

      Sales of ATVs of $937.9 million in 2002 were 13 percent higher than $827.0 million in 2001. The increased sales reflected the continued growth of both Polaris and the industry as consumers found new and expanded uses for the product as well as the introduction of several new products including the Sportsman 700 Twin, introduced in late 2001, and the Sportsman 600 and sport ATV, the Predator, both introduced in 2002. Additionally, the new Polaris Professional Series continued to develop and sales of the RANGER line of utility vehicles increased significantly over 2001. The increased sales were also helped by a product mix driven average per unit sales price increase of five percent due to the new products introduced during the 2002 year. Sales of ATVs comprised 62 percent of total Company sales in 2002 compared to 56 percent in 2001.

      Sales of snowmobiles of $293.4 million in 2002 were 21 percent lower than $373.0 million in 2001. The decrease was due to lower unit shipments to dealers after a winter of poor snow conditions. The decrease in sales was partially offset by a product mix driven increase in the average per unit sales price of three percent as a higher percentage of higher-priced mountain and performance snowmobiles were sold in 2002 versus 2001. Sales of snowmobiles comprised 19 percent of total Company sales in 2002 compared to 25 percent in 2001.

      Sales of PWC of $53.1 million in 2002 were 12 percent lower than $60.3 million in 2001. The decrease was primarily due to the soft economy which resulted in an overall decline in industry retail sales in 2002 and timing of shipments as the Company began shipments of the 2003 PWC models to dealers later than in prior years. The average per unit sales price for PWC increased two percent due to product mix change as higher horsepower, direct injected, higher-priced PWC were sold in 2002 versus 2001. Sales of PWC comprised four percent of total Company sales in 2002 and 2001.

      Sales of Victory motorcycles of $33.8 million in 2002 were 81 percent higher than $18.7 million in 2001. The increase was primarily attributable to the continued growth in the motorcycle industry, improvement in Victory’s dealership network and continued positive acceptance of several new product introductions. The average per unit sales price for motorcycles increased 13 percent, which was driven by lower promotional costs required in 2002 compared to 2001 as the Victory brand continued to gain recognition and acceptance by the consumer. Sales of Victory motorcycles comprised two percent of total Company sales in 2002 compared to one percent in 2001.

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      Sales of PG&A of $203.1 million in 2002 were three percent lower than $208.7 million in 2001. The PG&A business was negatively impacted by the lack of significant snowfall in much of the primary riding areas of North America during 2002. Sales of snowmobile related PG&A have traditionally represented approximately 40 percent of total PG&A sales; however, for the full year 2002, sales of snowmobile related items represented only about 30 percent of total PG&A sales, a direct result of the lack of snowfall. On the positive side, PG&A sales for the full year 2002 increased 13 percent for the other product lines primarily as a result of growth in the ATV, RANGER and motorcycle product lines, added product offerings across all lines, improved PG&A quality and emphasis on selling solutions to the customer. PG&A sales comprised 13 percent of total Company sales in 2002, compared to 14 percent in 2001.

      Gross profit increased to $332.3 million in 2002, representing an eight percent increase over the $307.0 million gross profit in 2001. This increase in gross profit dollars was a result of higher sales volume and an increase in gross profit margin percentage to 21.8 percent in 2002 from 20.6 percent in 2001. The improvement in the gross profit margin for 2002 was generated by a number of initiatives the Company had implemented, including efficiency gains from the Roseau facility redesign; changes in the sales mix resulting from the new products introduced over the past several quarters; savings from various cost reduction initiatives; and lower warranty expense resulting from quality improvements. These were all offset somewhat by lower sales in the high margin PG&A business and a higher level of promotional expenses required in 2002. The warranty expense decreased 30 percent to $23.2 million for the year ended December 31, 2002 compared to $33.4 million for the same period in the prior year. The decrease in warranty expense was primarily the result of the following: (a) higher quality products manufactured across all product lines, (b) lower snowmobile sales in 2002 compared to 2001, which traditionally have higher per unit warranty costs than other products, (c) tighter control of the out of warranty period approval process resulting in fewer claims being approved for payment, and (d) less consumer usage of snowmobiles in 2002 due to the lack of good snowfall during the riding season.

      Operating expenses in 2002 increased nine percent to $194.0 million from $177.2 million in 2001. Expressed as a percentage of sales, operating expenses increased to 12.8 percent in 2002 from 11.9 percent in 2001. Operating expenses increased in 2002 as a result of efforts to accelerate new product introductions and improve the dealer channel. Research and development expenses in 2002 increased 28 percent to $45.6 million (3.0 percent of sales) from $35.7 million (2.4 percent of sales) in 2001, as the Company moved to accelerate the time it takes to design, develop and introduce new products as well as increase the success rate of new product introductions. In 2002, more than 59 percent of sales came from products introduced in the prior three years. Additionally, the Company committed additional resources toward upgrading the distribution network of approximately 2,000 dealers in North America in the area of sales, service, merchandising and strengthening of the Polaris brand to accelerate future growth.

      Interest expense declined 67 percent as a result of lower interest rates and lower average debt levels on borrowings under the credit agreements in 2002 compared to 2001.

      Non-operating other income increased from 2001 due to the favorable effects of foreign currency hedging transactions related to the Canadian dollar exposure and balance sheet translation of foreign subsidiaries in 2002.

      The provision for income taxes decreased from a rate of 34.5 percent of pre-tax income in 2001 to 32.8 percent of pre-tax income in 2002 due primarily to increased benefit from the foreign sales corporation and the impact of tax initiatives the Company implemented.

      Net income in 2002 was $103.6 million, an increase of 13 percent from $91.4 million in 2001. Net income as a percent of sales was 6.8 percent in 2002, an increase from 6.1 percent in 2001. Net income per diluted share increased 13 percent to $2.19 in 2002 from $1.94 in 2001.

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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, 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, 2003 and 2002, accrued sales promotions and incentives were $63.5 million and $39.5 million, respectively, reflecting a significant increase in the ATV sales promotions and incentives environment during 2003. 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 $73.6 million and $73.7 million for dealer holdback programs in the consolidated balance sheets as of December 31, 2003 and 2002, 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, motorcycles and PWC products. 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. Polaris records these amounts as a liability in the consolidated balance sheet until they are ultimately paid. At December 31, 2003 and 2002, the warranty reserve was $30.7 million and $30.9 million, respectively. 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, 2003 and 2002 the Company had accruals of $5.7 million and $6.0 million,

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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 2003, Polaris generated net cash from operating activities of $155.8 million, down 19 percent from 2002. The net cash was utilized for the repurchase of shares of common stock of $73.1 million, to fund capital expenditures of $61.4 million and to pay cash dividends of $26.7 million. During 2002, Polaris generated net cash from operating activities of $192.8 million, which was utilized to fund capital expenditures of $56.6 million, repurchase shares of common stock of $76.4 million and pay cash dividends of $25.3 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 $150.0 million expiring on June 27, 2006. In addition, Polaris has a 364-day unsecured bank line of credit arrangement expiring on June 25, 2004 of $100.0 million, which management currently expects to extend beyond 2004 as has been done in the past. These arrangements provide 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, 2003 and 2002, Polaris had total borrowings under the lines of credit of $18.0 million. The Company’s debt to total capital ratio was five percent at December 31, 2003 compared to six percent at December 31, 2002. Polaris has entered into an interest rate swap agreement to manage exposures to fluctuations in interest rates. At December 31, 2003, 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, 2003 (in millions):

      Additionally, at December 31, 2003, Polaris had letters of credit outstanding of $3.7 million related to purchase obligations for raw materials. The Company has no off balance sheet arrangements other than operating leases which are included in the table above.

      The Polaris Board of Directors has authorized the cumulative repurchase of up to 23.0 million shares of the Company’s common stock. During 2003, Polaris paid $73.1 million to repurchase and retire 2.5 million shares. Polaris had 4.4 million shares available to repurchase under the Board of Directors authorization as of December 31, 2003.

      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, ATVs, motorcycles and PWC 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, 2003 and 2002, was approximately $694.0 million and

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      In 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of TDF to form Polaris Acceptance. 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, which is consolidated onto TDF’s books and is funded 85 percent with a loan from an affiliate of TDF ($496.1 million at December 31, 2003) 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.

      Beginning in 1999, Polaris Acceptance entered into an Income Sharing Agreement with Transamerica Retail Financial Services (TRFS), a subsidiary of TDF. TRFS provided private label retail credit financing to Polaris consumers through Polaris dealers in the United States. In October 2001, TRFS sold a significant portion of the retail portfolio to Household Bank (SB), N.A. (Household). The remaining amount financed by consumers through TRFS was liquidated in 2002.

      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 TDF’s subsidiary. 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, 2003, the wholesale portfolio for dealers in the United States was $580.9 million, a one percent decrease from $585.2 million at December 31, 2002. Credit losses in this portfolio have been modest, averaging less than one percent of the portfolio over the seven-year life of the partnership.

      In October 2001, a wholly owned subsidiary of Polaris entered into agreements with Household and an affiliate of Household to provide private label retail credit financing through installment and revolving loans to Polaris consumers through Polaris dealers in the United States. The receivable portfolio is owned and managed by Household and its affiliate and is funded by Household and its affiliate except to the extent of a cash deposit by Polaris’ subsidiary equal to 7.5 percent of the revolving credit portfolio balance. Polaris’ deposit with Household is reflected as a component of Investments in Finance Affiliate and Retail Credit Deposit in the accompanying consolidated balance sheets. Polaris’ subsidiary participates in 50 percent of the profits or losses of the revolving credit portfolio. Polaris’ allocable share of the income from the retail credit portfolio has been included as a component of Income from Financial Services in the accompanying consolidated statements of income. Under the terms of the agreements, either party has the right to terminate the agreements if profitability of the portfolio falls below certain minimum levels. Polaris’ financial exposure under this agreement is limited to its deposit ($36.1 million at December 31, 2003) plus an aggregate amount of not more than $15.0 million.

      The Household retail credit portfolio balance as of December 31, 2003, was $517.4 million, up substantially from $329.0 million at December 31, 2002. As expected, this portfolio continues to grow rapidly as the penetration rate increases from better linkage with the Company’s promotional efforts. In 2003, approximately 32 percent of the wholegoods products sold to consumers in the United States were financed under this arrangement, up from 23 percent in 2002. Receivable losses for this retail credit portfolio have remained relatively stable, averaging slightly above three percent of the portfolio, in line with expectations as the portfolio continues to mature. The Company has established adequate reserves for the retail credit

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      Improvements in manufacturing capacity and product development include (a) expenditures of $3.0 million for the expansion of the research and development facility at the Roseau, Minnesota location, (b) tooling expenditures for new product development across all product lines of $14.2 million, (c) expenditures of $2.6 million to expand the Spirit Lake, Iowa facility, and (d) investments in engineering and development technologies of $4.0 million during 2003. Polaris anticipates that capital expenditures for 2004, including tooling and research and development equipment, as well as an incremental funding of approximately $22.0 million for a new product development facility in Wyoming, Minnesota, will range from $85.0 million to $95.0 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 2004. At this time, management is not aware of any factors that would have a material adverse impact on cash flow beyond 2004.

Inflation, Foreign Exchange Rates and Interest Rates

      Polaris does not believe that inflation has had a material impact on the results of its operations. 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 2003, purchases totaling 11 percent of Polaris’ cost of sales were from Japanese yen denominated suppliers. The weakening of the U.S. dollar in relation to the Japanese yen has resulted in higher raw material purchase prices during 2003. Polaris’ cost of sales in 2003 was negatively impacted by the Japanese yen exchange rate fluctuation when compared to the prior year. In view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the yen-dollar exchange rates will have a negative impact on cost of sales during the hedged periods of 2004 when compared to 2003.

      Polaris operates in Canada through a wholly-owned subsidiary. Sales of the Canadian subsidiary comprised 13 percent of total Polaris sales in 2003. 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 2003 which resulted in a positive financial impact on Polaris gross margins when compared to the same periods in 2002. 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 2004 compared to 2003 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, 2003, Polaris had open Japanese yen, Euro and Canadian dollar foreign exchange hedging contracts with notional amounts totaling $20.2 million, $2.8 million and $101.6 million U.S. dollars, respectively, which mature throughout 2004. The average exchange rate in these foreign exchange hedging contracts are 108 Japanese yen per United States dollar, Euro foreign exchange hedges at 1.15 Euro to the dollar and .71 U.S. dollar per Canadian dollar.

      The fair values of the Japanese yen and Canadian dollar hedge contracts at December 31, 2003 represent an unrealized gain of $0.1 million and an unrealized loss of $7.2 million, respectively. A ten percent fluctuation in the currency rates as of December 31, 2003 would have resulted in a change in the fair value of the Japanese yen hedge contracts of approximately $5.3 million and a change in the fair value of the Canadian dollar hedge contracts of approximately $1.4 million. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts would be offset by changes in the underlying value of the transaction being hedged.

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      Polaris is a party to two unsecured bank line of credit arrangements 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 $71.3 million during 2003, a one-percent fluctuation in interest rates would have had approximately a $0.7 million impact on interest expense in 2003.

      Polaris has been manufacturing its own engines for selected models of PWC and 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.

Forward-Looking Statements

      Certain matters discussed in this report are “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. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainty that could cause results in future periods to differ materially from those anticipated by some of the statements made in this report. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: product offerings, promotional activities and pricing strategies by competitors; future litigation exposure; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; uninsured product liability claims; and overall economic conditions, including inflation and consumer confidence and spending.

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INDEX TO FINANCIAL STATEMENTS

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Report of Ernst & Young LLP, Independent Auditors

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, 2003 and 2002 and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for the years then ended. 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 audit. The consolidated financial statements of Polaris Industries Inc. and subsidiaries for the year ended December 31, 2001, were audited by other auditors who have ceased operations and whose reports dated January 23, 2002 expressed an unqualified opinion on those statements.

      We conducted our audits in accordance with auditing standards generally accepted in the 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 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Polaris Industries Inc. and subsidiaries as of December 31, 2003 and 2002 and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

      As discussed above, the consolidated financial statements of Polaris Industries Inc. and subsidiaries for the year December 31, 2001, were audited by other auditors who have ceased operations. As described in Note 1, these consolidated financial statements have been revised to include the transitional disclosures required by Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”, which was adopted by the Company as of January 1, 2002. As further described in Note 1, these financial statements have also been revised to include reclassifications required by Emerging Issues Task Force No. 01-09 and No. 00-25, reclassification of income from financial services from non-operating income to operating income, restatement and reclassifications to give effect to the stock split and other reclassifications to conform to the current year presentation. We have audited the disclosures restatements and reclassifications in Note 1 and, in our opinion, the disclosures restatements and reclassifications for 2001 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements of the Company other than with respect to such disclosures restatements and reclassifications and, accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial statements taken as a whole.

	/s/ Ernst & Young LLP

Minneapolis, Minnesota

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The accompanying financial statements of the Company for the year ended December 31, 2001 were audited by Arthur Andersen LLP (“Andersen”), who were dismissed by the Company as its independent auditors on March 15, 2002. Due to Andersen’s well-publicized change in circumstances since it issued the following report, the Company has not been able to obtain either a re-issuance of the report by Andersen or Andersen’s consent to the inclusion of the report in this Form 10-K as would normally be required by the rules of the Securities and Exchange Commission (“SEC”). The SEC has provided certain guidance to Andersen’s former audit clients, including Rule 2-02 of Regulation S-X, which provides for the inclusion of a copy of the following report in this Form 10-K and Rule 437a under the Securities and Exchange Act of 1934 (the “Exchange Act”), which relieves the Company of its obligation to file Andersen’s consent with this Form 10-K. That guidance from the SEC also requires that we inform you that under the circumstances you may not be able to recover against Andersen under Section 11 of the Exchange Act in the event that the Company’s financial statements that were audited by Andersen contained material misstatements or omissions.

Certain financial information for the period ended December 31, 2001 was not reviewed by Andersen and includes (1) reclassifications to conform to the Company’s fiscal 2003 financial statement presentation, and (2) reclassifications and additional disclosures to conform with new accounting pronouncements and SEC rules and regulations.

Report of Independent Public Accountants

To Polaris Industries Inc.:

      We have audited the accompanying consolidated balance sheets of Polaris Industries Inc. (a Minnesota corporation) and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of Polaris’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Polaris Industries Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

	Arthur Andersen LLP
	Minneapolis, Minnesota
	January 23, 2002

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POLARIS INDUSTRIES INC.

Note:	Shares outstanding and common stock data 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.

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

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POLARIS INDUSTRIES INC.

Note:	Shares outstanding and earnings per share data 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.

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

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POLARIS INDUSTRIES INC.

Note:	Shares outstanding, common stock and dividends per share data 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.

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

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POLARIS INDUSTRIES INC.