
<PAGE>   1
                                                                      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 referenced
elsewhere herein, including the information referenced under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                      1999          1998             1997           1996          1995        1994        1993
---------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>             <C>             <C>           <C>           <C>         <C>
STATEMENT OF OPERATIONS DATA
Sales data
   Total sales dollars          $1,321,076    $1,175,520      $ 1,048,296     $1,191,901    $1,113,852    $826,286    $528,011
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     % change from
       prior year                       12%           12%             (12%)            7%           35%         56%         38%
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   Sales mix by product (%)
     All-terrain vehicles               59%           57%              45%            37%           33%         30%         27%
---------------------------------------------------------------------------------------------------------------------------------
     Snowmobiles                        28%           32%              42%            43%           46%         52%         59%
---------------------------------------------------------------------------------------------------------------------------------
     Personal watercraft                 4%            4%               7%            16%           16%         14%          9%
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     Motorcycles                         4%            1%              --             --            --          --          --
---------------------------------------------------------------------------------------------------------------------------------
     International                       5%            6%               6%             4%            5%          4%          5%
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Gross profit data
   Total gross profit dollars   $  328,340    $  278,287      $   262,538     $  263,816    $  247,993    $196,783    $141,387
---------------------------------------------------------------------------------------------------------------------------------
     % of sales                         25%           24%              25%            22%           22%         24%         27%
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Operating expense data
   Amortization of
     intangibles and
     noncash compensation       $   10,472    $    8,703      $     5,887     $    5,325    $    5,616    $ 14,321    $ 13,466
---------------------------------------------------------------------------------------------------------------------------------
   Conversion costs                     --            --               --             --            --      12,315          --
---------------------------------------------------------------------------------------------------------------------------------
   Other operating expenses        204,222       169,478          163,549        161,074       140,719      94,485      74,694
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     % of sales                         15%           14%              16%            14%           13%         11%         14%
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Actual, adjusted,(1) and
   pro forma data(2)
   Net income                   $   76,326    $   70,624(1)   $    65,383     $   62,293    $   60,776    $ 54,703    $ 33,027
---------------------------------------------------------------------------------------------------------------------------------
   Diluted net income
     per share                  $     3.07    $     2.72(1)   $      2.45     $     2.24    $     2.19    $   1.98    $   1.21
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOW DATA
Cash flow from
   operating activities         $  124,354    $  121,385      $   102,308      $  89,581    $   77,749    $111,542    $ 78,503
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Purchase of property
   and equipment                    65,063        61,532           36,798         45,336        47,154      32,656      18,946
---------------------------------------------------------------------------------------------------------------------------------
Repurchase and retirement
   of common stock                  52,412        37,728           39,903         13,587            --          --          --
---------------------------------------------------------------------------------------------------------------------------------
Cash dividends
   to shareholders                  19,732        18,582           16,958         16,390       116,639          --          --
---------------------------------------------------------------------------------------------------------------------------------
Cash dividends per share        $     0.80    $     0.72      $      0.64     $     0.60    $     4.27          --          --
---------------------------------------------------------------------------------------------------------------------------------
Cash distributions
   declared to partners                 --            --               --             --            --      50,942      47,217
---------------------------------------------------------------------------------------------------------------------------------
Cash distributions
   declared per unit                    --            --               --             --            --    $   1.68    $   1.67
---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
(at end of year)
Cash and cash equivalents       $    6,184    $    1,466      $     1,233     $    5,812    $    3,501    $ 62,881    $ 33,798
---------------------------------------------------------------------------------------------------------------------------------
Current assets                     214,714       183,840          217,458        193,405       175,271     206,489     109,748
---------------------------------------------------------------------------------------------------------------------------------
Total assets                       442,027       378,697          384,746        351,717       314,436     331,166     180,548
---------------------------------------------------------------------------------------------------------------------------------
Current liabilities                233,800       204,964          191,111        161,387       155,722     161,457      98,055
---------------------------------------------------------------------------------------------------------------------------------
Borrowings under
   credit agreement                 40,000        20,500           24,400         35,000        40,200          --          --
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity/
   Partners' capital               168,227       153,233          169,235        155,330       118,514     169,709      82,493
=================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                           Years Ended December 31,
                                   1992        1991        1990        1989
----------------------------------------------------------------------------
<S>                            <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA
Sales data
   Total sales dollars         $383,818    $297,677    $296,147    $242,618
----------------------------------------------------------------------------
     % change from
       prior year                    29%          1%         22%         41%
----------------------------------------------------------------------------
   Sales mix by product (%)
     All-terrain vehicles            25%         25%         19%         19%
----------------------------------------------------------------------------
     Snowmobiles                     63%         69%         74%         74%
----------------------------------------------------------------------------
     Personal watercraft              7%         --          --          --
----------------------------------------------------------------------------
     Motorcycles                     --          --          --          --
----------------------------------------------------------------------------
     International                    5%          6%          7%          7%
----------------------------------------------------------------------------
Gross profit data
   Total gross profit dollars  $112,322    $ 94,120    $ 93,845    $ 80,384
----------------------------------------------------------------------------
     % of sales                      29%         32%         32%         33%
----------------------------------------------------------------------------
Operating expense data
   Amortization of
     intangibles and
     noncash compensation      $ 11,997    $ 13,108    $ 12,116    $ 15,717
----------------------------------------------------------------------------
   Conversion costs                  --          --          --          --
----------------------------------------------------------------------------
   Other operating expenses      59,634      49,294      50,917      38,366
----------------------------------------------------------------------------
     % of sales                      16%         17%         17%         16%
----------------------------------------------------------------------------
Actual, adjusted,(1) and
   pro forma data(2)
   Net income                  $ 24,602    $ 20,727    $ 20,465    $ 16,657
----------------------------------------------------------------------------
   Diluted net income
     per share                 $   0.91    $   0.81    $   0.79    $   0.65
----------------------------------------------------------------------------
CASH FLOW DATA
Cash flow from
   operating activities        $ 55,316    $ 46,642    $ 54,782    $ 44,447
----------------------------------------------------------------------------
Purchase of property
   and equipment                 12,295      15,988       7,158       7,065
----------------------------------------------------------------------------
Repurchase and retirement
   of common stock                   --          --          --          --
----------------------------------------------------------------------------
Cash dividends
   to shareholders                   --          --          --          --
----------------------------------------------------------------------------
Cash dividends per share             --          --          --          --
----------------------------------------------------------------------------
Cash distributions
   declared to partners          44,507      42,581      42,582      32,514
----------------------------------------------------------------------------
Cash distributions
   declared per unit           $   1.67    $   1.67    $   1.67    $   1.51
----------------------------------------------------------------------------
BALANCE SHEET DATA
(at end of year)
Cash and cash equivalents      $ 19,094    $ 20,098    $ 32,025    $ 27,886
----------------------------------------------------------------------------
Current assets                   74,999      59,200      66,893      60,344
----------------------------------------------------------------------------
Total assets                    146,681     135,509     138,704     137,628
----------------------------------------------------------------------------
Current liabilities              69,054      52,646      46,602      38,875
----------------------------------------------------------------------------
Borrowings under
   credit agreement                  --          --          --          --
----------------------------------------------------------------------------
Shareholders' equity/
   Partners' capital             77,627      82,863      92,102      98,753
============================================================================
</TABLE>

(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 of $61.4 million, or
         $1.53 per diluted share, has been excluded from the 1998 financial data
         presented to assist in comparing the continuing results of operations
         of the Company exclusive of the settlement which had no effect on the
         future operations of the Company.

(2)      The comparability of the information reflected in the Selected
         Financial data is materially affected by the conversion from a master
         limited partnership to a corporation on December 22, 1994, which
         resulted in the Company recording a net deferred tax asset of $65.0
         million, conversion expenses of $12.3 million and a corresponding net
         increase in 1994 net income. Pro forma data is presented to assist in
         comparing the continuing results of operations of the Company exclusive
         of the conversion costs and as if the Company was a taxable corporation
         for each period presented.



<PAGE>   2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
of financial condition and results of operations
================================================================================

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, 1999, and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere herein.



RESULTS OF OPERATIONS

1999 VS. 1998

Sales increased to $1.321 billion in 1999, representing a 12 percent increase
from $1.176 billion in 1998. The increase in sales was primarily due to higher
all-terrain vehicle (ATV) sales, resulting from the tenth consecutive year of
increased ATV sales.

     North American sales of ATVs and related parts, garments and accessories
(PG&A) of $774.3 million in 1999 were 15 percent higher than $673.9 million in
1998. The increased sales reflect the continued double-digit growth of the
industry as consumers find new and expanded uses for the product. Polaris'
growth was driven by the continued strength of its Sportsman line of products.
Sales of ATVs and related PG&A comprised 59 percent of total company sales in
1999 compared to 57 percent in 1998.

     North American sales of snowmobiles and related PG&A of $376.9 million in
1999 were 1 percent higher than $374.4 million in 1998. The modest increase in
sales was accomplished in spite of a decline in total industry sales in 1999 due
to another winter of below average snowfall levels for much of North America.
Sales of snowmobiles and related PG&A comprised 28 percent of total company
sales in 1999 compared to 32 percent in 1998.

     North American sales of personal watercraft (PWC) and related PG&A of $54.2
million in 1999 were 7 percent higher than $50.4 million in 1998. The increase
was attributable to a slight market share increase driven by our new Genesis
model. The average per unit sales price increased 9 percent for PWC in 1999 as a
result of the success of our higher-priced Genesis model. Sales of PWC and
related PG&A comprised 4 percent of total company sales in 1999 and in 1998.

     North American sales of Victory motorcycles and related PG&A of $47.4
million in 1999 were significantly higher than $15.2 million in 1998. 1999 was
the first full year of Victory production. Sales of  Victory motorcycles and
related PG&A comprised 4 percent of total company sales in 1999 compared to 1
percent in 1998.

     International sales of snowmobiles, ATVs, PWC, and related PG&A of $68.3
million in 1999 were 11 percent higher than $61.7 million in 1998. International
sales increased across all product lines as Polaris continues to focus on
international markets as an opportunity for growth. International sales
comprised 5 percent of total company sales in 1999, compared to 6 percent in
1998.

     Gross profit increased to $328.3 million in 1999, representing an 18
percent increase over $278.3 million gross profit in 1998. This increase in
gross profit dollars was a result of higher sales volume and an increase in
gross profit margin percentage to 24.9 percent in 1999 from 23.7 percent in
1998. The increase in gross profit margin percentage was primarily a result of
manufacturing cost reductions, in areas such as ATV model consolidation, Victory
cost improvements, a full year impact of the plastic injection molding facility,
and supplier partnership cost savings, as well as the margin benefit of
increased sales of higher margin PG&A. These positive factors have been somewhat
offset by a shift in sales mix to ATVs, which have a lower gross profit margin
than snowmobiles, and the negative impact of the Japanese yen and Canadian
dollar exchange rates during 1999.

     Polaris has continued to invest in new product development, innovation, and
product diversification. Research and development expenses were $31.3 million
(2.4 percent of sales) in 1999 and $28.4 million (2.4 percent of sales) in 1998.
In addition, Polaris incurred tooling expenditures for new products of $18.3
million in 1999 and $24.8 million in 1998. In 1999, more than 79 percent of
sales came from products introduced in the past three years.

     Operating expenses in 1999 increased 20 percent to $214.7 million from
$178.2 million in 1998. Expressed as a percentage of sales, operating expenses
increased to 16.3 percent in 1999 from 15.2 percent in 1998. These increases are
primarily related to a planned increase in expenses to build the infrastructure
to support the Company's growth and brand recognition initiatives, and a higher
level of promotional and advertising costs related to assisting the dealers in
selling their inventories.

     Nonoperating expense (income) in 1998 included a $61.4 million provision
for litigation loss related to the settlement of the Injection Research
Specialists litigation, a one-time charge that did not affect the ongoing
operations of the company. The remaining decline in nonoperating expense
(income) in 1999 from 1998 primarily reflects the unfavorability related to
Canadian dollar exchange rate hedging in 1999 partially offset by the positive
financial impact of the Company's equity in the income of Polaris Acceptance.

     Net income in 1999 was $76.3 million, an increase from $31.0 million in
1998, primarily as a result of the 1998 litigation settlement. Net income as a
percent of sales was 5.8 percent in 1999, an increase from 2.6 percent in 1998.
Net income per diluted share increased to $3.07 in 1999 from $1.19 in 1998. Net
income increased 8 percent to $76.3 million from net income (adjusted to exclude
the litigation settlement) of $70.6 million in 1998. Net income as a percent of
sales decreased to 5.8 percent in 1999 from adjusted net income as a percent of
sales of 6.0 percent in 1998. Net income per diluted share increased 13 percent
to $3.07 in 1999 from adjusted net income per diluted share of $2.72 in 1998.


<PAGE>   3
1998 VS. 1997
Sales increased to $1.176 billion in 1998, representing a 12 percent increase
from $1.048 billion in 1997. The increase in sales was primarily due to higher
ATV sales, partially offset by a decline in snowmobile sales.

     In 1998, Polaris achieved its ninth consecutive year of increased ATV
sales. North American sales of ATVs and PG&A of $673.9 million in 1998 were 42
percent higher than $473.2 million in 1997. The increased sales reflect the
continued strong growth of the industry as consumers find new and expanded uses
for the product. Additionally, management believes that Polaris increased its
market share of ATV sales as a result of its continued expansion of the popular
Sportsman line of ATVs and other new model introductions. The average per unit
sales price increased 6 percent for ATVs in 1998 as the sales mix continued to
move to new, higher performance models. Sales of ATVs and related PG&A comprised
57 percent of total company sales in 1998 compared to 45 percent in 1997.

     North American sales of snowmobiles and PG&A of $374.4 million in 1998 were
16 percent lower than $443.0 million in 1997. The decline is due to lower
snowmobile production levels in 1998 in response to poor snow conditions, warmer
than normal temperatures in North America and higher ending dealer inventories
for the 1997-1998 selling season. Sales of snowmobiles and related PG&A
comprised 32 percent of total company sales in 1998 compared to 42 percent in
1997.

     North American sales of personal watercraft (PWC) and related PG&A of $50.4
million in 1998 were 31 percent lower than $73.4 million in 1997. The decrease
is attributable to significantly lower production levels of PWC in 1998 to
compensate for the increased dealer inventory remaining from the prior season
reflecting the reduction of industry growth. Sales of PWC and related PG&A
comprised 4 percent of total company sales in 1998 compared to 7 percent in
1997.

     North American sales of Victory motorcycles and related PG&A were $15.2
million in 1998. Victory shipments to our dealers began in July 1998. Sales of
Victory motorcycles and related PG&A comprised 1 percent of total company sales
in 1998, the initial year of production.

     International sales of snowmobiles, ATVs, PWC, and related PG&A of $61.7
million in 1998 were 5 percent higher than $58.7 million in 1997. The increase
in international sales was primarily due to an increase in ATV shipments.
International sales comprised 6 percent of total Company sales in 1998, the same
as 1997.

     Gross profit increased to $278.3 million in 1998, representing a 6 percent
increase over $262.5 million gross profit in 1997. However, the gross profit
margin percentage of 23.7 percent in 1998 decreased from 25.0 percent in 1997.
The decrease in gross profit margin percentage is primarily a result of (a) the
mix impact of the substantial increase in sales of ATVs, which have a lower
margin than snowmobiles, (b) negative impact of the Canadian dollar exchange
rate when compared to the prior year, (c) initial production rollout of the
Victory motorcycles, and (d) reduced pricing on 1998 model ATVs implemented in
the Fall of 1997. These negative factors have been somewhat offset by the
continued improvement in overall product quality, which has resulted in a
decrease in warranty expenses.

     Polaris has continued to invest in new product development, innovation, and
product diversification. Research and development expenses were $28.4 million
(2.4 percent of sales) in 1998 and $26.7 million (2.5 percent of sales) in 1997.
In addition, Polaris incurred tooling expenditures for new products of $24.8
million in 1998 and $19.3 million in 1997. In 1998, 73 percent of sales came
from products introduced in the past three years.

     Operating expenses in 1998 increased 5 percent to $178.2 million from
$169.4 million in 1997. Expressed as a percentage of sales, operating expenses
decreased to 15.2 percent in 1998 from 16.2 percent in 1997. These decreases are
primarily attributable to the leveraging effect of higher sales and reduced
level of promotional and advertising costs related to assisting dealers in
selling their PWC and snowmobile inventories partially offset by a planned
increase in advertising expenditures.

     Nonoperating expense (income) in 1998 includes a $61.4 million provision
for litigation loss related to the settlement of the Injection Research
Specialists litigation. This is a one-time charge that does not affect the
ongoing operations of the company. The remaining improvement in nonoperating
expense (income) in 1998 from 1997 primarily reflects the positive financial
impact of the Company's equity in the income of Polaris Acceptance.

     The provision for income taxes was reduced to a rate of 35.5 percent of
pretax income beginning in the third quarter of 1998 from 36.0 percent in prior
periods as a result of certain tax planning strategies.

     Net income in 1998 was $31.0 million, a decrease from $65.4 million in
1997, primarily as a result of the litigation settlement. Net income as a
percent of sales was 2.6 percent in 1998, a decrease from 6.2 percent in 1997.
Net income per diluted share decreased to $1.19 in 1998 from $2.45 in 1997. Net
income adjusted to exclude the litigation settlement increased 8 percent to
$70.6 million in 1998 from $65.4 million in 1997. Adjusted net income as a
percent of sales decreased to 6.0 percent in 1998 from 6.2 percent in 1997.
Adjusted net income per diluted share increased 11 percent to $2.72 in 1998 from
$2.45 in 1997.



LIQUIDITY AND CAPITAL RESOURCES

Polaris' primary sources of funds have been cash provided by operating
activities, a $175 million bank line of credit and a dealer floor plan financing
program. Polaris' primary uses of funds have been for capital investments, new
product development, repurchase and retirement of common stock, cash dividends
to shareholders, and payment of litigation expenses.


<PAGE>   4
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
of financial condition and results of operations (continued)
================================================================================


     During 1999, Polaris generated net cash from operating activities of $124.4
million, which was utilized to fund capital expenditures of $65.1 million, net
investments in affiliates of $1.9 million, cash dividends of $19.7 million and
the repurchase of common stock of $52.4 million. During 1998, Polaris generated
net cash from operating activities of $121.4 million, which was utilized to fund
capital expenditures of $61.5 million, cash dividends of $18.6 million, and the
repurchase of common stock of $37.7 million. During 1997, Polaris generated net
cash from operating activities of $102.3 million, which was utilized to fund
capitalized expenditures of $36.8 million, net investments in affiliates of $2.6
million, cash dividends of $17.0 million and the repurchase of common stock of
$39.9 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 maturing on March 31, 2002, under which it may borrow up to
$175 million until March 31, 2000 and $150 million thereafter until maturity.
The arrangement provides borrowing for working capital needs and the repurchase
and retirement of common stock. Borrowings under the line of credit bear
interest, 6.52 percent at December 31, 1999, based on LIBOR or "prime" rates. In
July 1999, Polaris entered into an interest rate swap agreement to manage
exposure to fluctuations in interest rates. The effect of the swap agreement is
to fix the interest rate at 5.80 percent for $20 million of borrowings under the
credit line for a period of two years. At December 31, 1999, Polaris had total
borrowings under the line of credit of $40.0 million compared to $20.5 million
at December 31, 1998. In addition, at December 31, 1999, Polaris had letters
of credit outstanding of $16.2 million related to purchase obligations for
raw materials.

     On October 21, 1999, the Polaris Board of Directors approved a new share
repurchase authorization of 2.5 million shares of the Company's outstanding
common stock. Prior thereto, the Board of Directors authorized the cumulative
repurchase of up to 5.0 million shares of the company's common stock. During
1999, Polaris paid $52.4 million to repurchase and retire nearly 1.5 million
shares. Polaris had approximately 2.9 million shares available to repurchase
under the Board of Directors authorizations as of December 31, 1999.

     In February 1996, a wholly owned subsidiary of Polaris entered into a
partnership agreement with Transamerica Distribution Finance (TDF) to form
Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris'
dealers and distributors and in 1999 began providing other financial services to
dealers, distributors and retail customers of Polaris including retail credit
and extended service contracts. Polaris has a 50 percent equity interest in
Polaris Acceptance and guarantees 50 percent of the outstanding indebtedness of
Polaris Acceptance under a credit agreement between Polaris Acceptance and TDF.
At December 31, 1999, Polaris' contingent liability with respect to the
guarantee was approximately $170.0 million. In February 2000, the term of the
partnership agreement was extended; in consideration thereof, the Polaris
guarantee of the outstanding indebtedness of Polaris Acceptance was eliminated.

     Polaris has arrangements with certain finance companies, including Polaris
Acceptance, to provide floor plan financing for its distributors and dealers.
These arrangements provide liquidity by financing distributor and dealer
purchases of Polaris products without the use of Polaris' working capital.
Substantially all of the sales of snowmobiles, ATVs, motorcycles and PWC (but
not parts, garments and accessories) are financed under these arrangements
whereby Polaris receives payment within a few days of shipment of the product.
The amount financed by distributors and dealers under these arrangements at
December 31, 1999 and 1998, was approximately $472.0 million and $384.0 million,
respectively. Polaris participates in the cost of dealer and distributor
financing up to certain limits. Polaris has agreed to repurchase products
repossessed by the finance companies to an annual maximum of 15 percent of the
average amount 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 financed units.

     Polaris has made significant capital investments to increase production
capacity, quality, and efficiency, and for new product development and
diversification. Investments made during 1999 include: (a) tooling expenditures
for new product development across all product lines of $18.3 million during
1999, (b) investments of $10.3 million in returnable crates, which not only
reduce costs but also are environmentally friendly and (c) an investment of
$12.0 million in a new corporate headquarters in Medina, MN which became
operational in late January 2000; Polaris had previously been scattered
throughout several office buildings in suburban Minneapolis. Polaris anticipates
that capital expenditures, including tooling, for 2000 will range from $65
million to $75 million.

     Management believes that existing cash balances, cash flows to be generated
from operating activities and available borrowing capacity under the line of
credit arrangement will be sufficient to fund operations, regular dividends,
share repurchases, and capital expenditure requirements for 2000. At this time,
management is not aware of any factors that would have a material adverse impact
on cash flow beyond 2000.

     Injection Research Specialists ("IRS") commenced an action in 1990 against
Polaris and Fuji Heavy Industries, Ltd. ("Fuji"), one of Polaris' engine
suppliers, in Colorado Federal Court alleging various claims relating to
electronic fuel injection systems for snowmobiles. In October 1998, following
the entry of judgment against Polaris for $34.0 million (before pre- and
post-judgement interest) and affirmance thereof by the Federal Court of Appeals,
IRS, Polaris and Fuji entered into a confidential settlement agreement to settle
all outstanding claims between the parties. The resulting provision for
litigation loss of $61.4 million was reflected as non-operating expense in the
accompanying consolidated statement of operations for the year ended December
31, 1998. Polaris no longer uses any of the technology in dispute.

<PAGE>   5
     Polaris proforma results with 1998 adjusted to exclude the provision for
litigation loss are as follows:

<TABLE>
<CAPTION>
                                                            For the Years Ended
                                                               December 31,
                                                             1999          1998
-------------------------------------------------------------------------------
<S>                                                      <C>            <C>
Adjusted income before income taxes                      $118,335       $109,771
Provision for income taxes                                 42,009         39,147
-------------------------------------------------------------------------------
Adjusted net income                                      $ 76,326       $ 70,624
================================================================================
Adjusted net income per diluted share                    $   3.07       $   2.72
================================================================================
</TABLE>


YEAR 2000

Polaris did not experience any significant business related interruptions
relative to the Year 2000 compliance of its computer systems.
The Company is continuing to monitor potential problems but does not expect any
major impact during the year. The cost of the Year 2000 initiatives of
approximately $1.5 million, which were expensed as incurred, was not material to
Polaris' financial position.

INFLATION AND EXCHANGE RATES

Polaris does not believe that inflation has had a material impact on the results
of its operations. However, the changing relationships of the U.S. dollar to the
Canadian dollar and Japanese yen have had a material impact from time-to-time.

     During 1999, purchases totaling 16 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 since mid-1998 has resulted in higher raw material
purchase prices. Polaris' cost of sales in 1999 was negatively impacted by the
Japanese yen exchange rate fluctuation when compared to the prior year. The
dollar has continued to weaken in relation to the yen and in view of the foreign
exchange hedging contracts currently in place, Polaris anticipates that the
yen-dollar exchange rate will again have a negative impact on cost of sales
during 2000 when compared to 1999.

     Polaris operates in Canada through a wholly owned subsidiary. Sales of the
Canadian subsidiary comprised 11 percent of total Company sales in 1999. Polaris
utilizes foreign exchange hedging contracts to manage its exposure to the
Canadian dollar. The U.S. dollar has strengthened in relation to the Canadian
dollar beginning in 1998 and it has had a negative financial impact on Polaris
gross margins when compared to the same periods in both 1999 and 1998. In view
of the currently strengthening Canadian dollar and the foreign exchange hedging
contracts currently in place, Polaris anticipates a positive impact on net
income during 2000 when compared to 1999.

     In the past, Polaris has been a party to, and in the future may enter into,
foreign exchange hedging contracts for both the Japanese yen and the Canadian
dollar to minimize the impact of exchange rate fluctuations within each year. At
December 31, 1999, Polaris had open Japanese yen foreign exchange hedging
contracts with notional amounts totaling $25.3 million U.S. dollars and open
Canadian dollar foreign exchange contracts with notional amounts totaling $83.0
million U.S. dollars which mature throughout 2000.

     Since October 1995, Polaris has been manufacturing its own engines for
selected models of PWC, motorcycles and snowmobiles at its Osceola, Wisconsin
facility. In addition, earlier 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.

     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 to differ materially from those anticipated by some of the statements
made herein. In addition to the factors discussed above, among the other factors
that could cause actual results to differ materially are the following: product
offerings and pricing strategies by competitors; future conduct of litigation
processes; 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.



<PAGE>   6
================================================================================
CONSOLIDATED BALANCE SHEETS
in thousands, except per share data
================================================================================

<TABLE>
<CAPTION>
                                                              December 31,
                                                          1999             1998
-------------------------------------------------------------------------------

ASSETS

CURRENT ASSETS
<S>                                                  <C>              <C>
Cash and cash equivalents                            $   6,184        $   1,466
   Trade receivables                                    53,293           43,035
   Inventories                                         118,062          107,436
   Prepaid expenses and other                            6,175            2,903
   Deferred tax assets                                  31,000           29,000
-------------------------------------------------------------------------------
     Total current assets                              214,714          183,840
-------------------------------------------------------------------------------
DEFERRED TAX ASSETS                                     16,000           21,000
-------------------------------------------------------------------------------




PROPERTY AND EQUIPMENT
   Land, buildings and improvements                     38,616           37,226
   Equipment and tooling                               236,951          192,255
-------------------------------------------------------------------------------
                                                       275,567          229,481
   Less-accumulated depreciation                      (124,645)        (105,227)
-------------------------------------------------------------------------------
     Total property and equipment                      150,922          124,254
-------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATES                               38,310           26,636

INTANGIBLE ASSETS, NET                                  22,081           22,967
-------------------------------------------------------------------------------
                                                     $ 442,027        $ 378,697
===============================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.


<PAGE>   7
<TABLE>
<CAPTION>
                                                                       December 31,
                                                                     1999         1998
--------------------------------------------------------------------------------------
<S>                                                             <C>          <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                             $  91,805    $  77,258
   Accrued expenses:
     Compensation                                                  35,291       41,664
     Warranties                                                    40,392       37,921
     Other                                                         52,899       41,110
   Income taxes payable                                            13,413        7,011
--------------------------------------------------------------------------------------
     Total current liabilities                                    233,800      204,964
--------------------------------------------------------------------------------------

BORROWINGS UNDER CREDIT AGREEMENT                                  40,000       20,500
--------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (NOTES 1, 3, 5, 7 AND 8)

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,
     24,226 and 25,355 shares issued and outstanding                  242          253
   Additional paid-in capital                                       8,987       48,622
   Deferred compensation                                           (7,818)      (6,726)
   Compensation payable in common stock                             5,975        6,844
   Retained earnings                                              160,841      104,240
--------------------------------------------------------------------------------------
     Total shareholders' equity                                   168,227      153,233
--------------------------------------------------------------------------------------
                                                                $ 442,027    $ 378,697
======================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.



<PAGE>   8
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS
in thousands, except per share data
================================================================================


<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                                        1999                 1998                 1997
-------------------------------------------------------------------------------------------------------

<S>                                              <C>                  <C>                  <C>
Sales                                            $ 1,321,076          $ 1,175,520          $ 1,048,296
Cost of Sales                                        992,736              897,233              785,758
------------------------------------------------------------------------------------------------------
     Gross profit                                    328,340              278,287              262,538
------------------------------------------------------------------------------------------------------
     Gross profit percent                               24.9%                23.7%                25.0%
------------------------------------------------------------------------------------------------------
Operating Expenses
   Selling and marketing                             142,406              118,688              112,978
   Research and development                           31,311               28,387               26,722
   General and administrative                         40,977               31,106               29,736
------------------------------------------------------------------------------------------------------
     Total operating expenses                        214,694              178,181              169,436
------------------------------------------------------------------------------------------------------
     Operating income                                113,646              100,106               93,102

Nonoperating Expense (income)
   Interest expense                                    4,285                2,959                2,829
   Equity in (income) of affiliates                   (9,745)              (7,819)              (6,718)
   Other expense (income), net                           771               (4,805)              (5,171)
   Provision for litigation loss (Note 2)                 --               61,409                   --
------------------------------------------------------------------------------------------------------
     Income before income taxes                      118,335               48,362              102,162
Provision for Income Taxes                            42,009               17,347               36,779
------------------------------------------------------------------------------------------------------
     Net income                                  $    76,326          $    31,015          $    65,383
======================================================================================================
Basic Net Income Per Share                       $      3.09          $      1.20          $      2.45

Diluted Net Income Per Share                     $      3.07          $      1.19          $      2.45
======================================================================================================
</TABLE>

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



<PAGE>   9
================================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
in thousands
================================================================================

<TABLE>
<CAPTION>
                                                                                     Compensation
                                                         Additional                    Payable in
                                Preferred    Common         Paid-in       Deferred         Common      Retained
                                    Stock     Stock         Capital   Compensation          Stock       Earnings        Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>         <C>          <C>            <C>               <C>          <C>
Balance, December 31, 1996             --       270         102,946           (978)         9,710         43,382      155,330
   First Rights conversion
     to stock                          --         3           7,164             --         (7,210)            --          (43)
   Employee stock compensation         --         2           2,733         (2,155)         4,846             --        5,426
   Dividends                           --        --              --             --             --        (16,958)     (16,958)
   Repurchase and retirement
     of common shares                  --       (15)        (39,888)            --             --             --      (39,903)
   Net income                          --        --              --             --             --         65,383       65,383
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997             --       260          72,955         (3,133)         7,346         91,807      169,235
   First Rights conversion
     to stock                          --         1           1,841             --         (1,864)            --          (22)
   Employee stock compensation         --         3          11,543         (3,593)         1,362             --        9,315
   Dividends                           --        --              --             --             --        (18,582)     (18,582)
   Repurchase and retirement
     of common shares                  --       (11)        (37,717)            --             --             --      (37,728)
   Net income                          --        --              --             --             --         31,015       31,015
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998             --       253          48,622         (6,726)         6,844        104,240      153,233
   First Rights conversion
     to stock                          --        --             323             --           (286)             7           44
   Employee stock compensation         --         4          12,439         (1,092)          (583)            --       10,768
   Dividends                           --        --              --             --             --        (19,732)     (19,732)
   Repurchase and retirement
     of common shares                  --       (15)        (52,397)            --             --             --      (52,412)
   Net income                          --        --              --             --             --         76,326       76,326
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999      $      --     $ 242       $   8,987        $(7,818)       $ 5,975      $ 160,841    $ 168,227
=============================================================================================================================
</TABLE>

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



<PAGE>   10


================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
in thousands
================================================================================
<TABLE>
<CAPTION>


                                                                          For the Years Ended December 31,
                                                                    1999                1998                 1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                        $76,326              $31,015            $65,383
  Adjustments to reconcile net income to net cash
    provided by operating activities
    Depreciation and amortization                                    39,281               36,192             33,168
    Noncash compensation                                              9,586                7,808              5,010
    Equity in (income) of affiliates                                 (9,745)              (7,819)            (6,718)
    Deferred income taxes                                             3,000                5,000                 --
    Changes in current operating items
      Trade receivables                                             (10,258)                (443)            (6,435)
      Inventories                                                   (10,626)               32,108           (16,633)
      Accounts payable                                               14,547                16,231            10,513
      Accrued expenses                                                7,887                 6,828            11,551
      Income taxes payable                                            6,402                (9,206)            7,660
      Other                                                          (2,046)                3,671            (1,191)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                           124,354               121,385           102,308
====================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                                (65,063)              (61,532)          (36,798)
  Investments in and advances to affiliates                         (11,366)               (9,112)          (16,627)
  Distributions and repayments from affiliates                        9,437                 9,702            13,999
--------------------------------------------------------------------------------------------------------------------
    Net cash used for investing activities                          (66,992)              (60,942)          (39,426)
====================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
  Borrowings under credit agreement                                 501,275               338,200           290,100
  Repayments under credit agreement                                (481,775)             (342,100)         (300,700)
  Repurchase and retirement of common shares                        (52,412)              (37,728)          (39,903)
  Cash dividends to shareholders                                    (19,732)              (18,582)          (16,958)
    Net cash used for financing activities                          (52,644)              (60,210)          (67,461)
--------------------------------------------------------------------------------------------------------------------
    Increase (decrease) in cash and cash equivalents                  4,718                   233            (4,579)
====================================================================================================================
CASH AND CASH EQUIVALENTS
  Beginning                                                           1,466                 1,233             5,812
--------------------------------------------------------------------------------------------------------------------
  Ending                                                             $6,184                $1,466            $1,233
====================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
  Interest paid during the year                                     $36,620               $24,731           $25,838
====================================================================================================================
  Income taxes paid during the year                                 $38,651               $21,475           $29,007
====================================================================================================================
</TABLE>

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





<PAGE>   11
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================



NOTE 1           ORGANIZATION AND SIGNIFICANT
                 ACCOUNTING POLICIES



Polaris Industries Inc. ("Polaris" or the "Company") is 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 all-terrain vehicles, snowmobiles,
motorcycles and personal watercraft. Polaris products, together with related
parts, garments and accessories are sold worldwide through a network of dealers,
distributors and its subsidiaries.

BASIS OF PRESENTATION: All significant intercompany transactions and balances
have been eliminated in consolidation.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles 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. Such investments
have consisted 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.

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
millions):


<TABLE>
<CAPTION>
                                                    December 31,
                                             1999                 1998
<S>                                         <C>             <C>
Raw materials and purchased components      $     28.0      $     32.2
Service parts, garments and accessories           50.6            41.1
Finished goods                                    39.4            34.1
                                            ----------      ----------
                                            $    118.1      $    107.4
                                            ==========      ==========
</TABLE>

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 10-20 years for buildings and improvements and
from 1-7 years for equipment and tooling. Fully depreciated tooling is
eliminated from the accounting records annually.

INTANGIBLE ASSETS: Intangible assets are stated net of accumulated amortization
totaling $12.5 million at December 31, 1999, and $11.6 million at December 31,
1998, and consist principally of cost in excess of the net assets of the
business acquired which is amortized on a straight-line basis over 40 years.
Other intangible assets are amortized using the straight-line method over their
estimated useful lives ranging from 5 to 17 years.

Polaris periodically assesses the amortization period and recoverability of the
carrying amount of its intangible assets to determine potential impairment based
upon expected future cash flows from the related business. To date, management
has determined that no such impairment exists.

PRODUCT WARRANTIES: Polaris provides for estimated warranty costs at the time of
sale to the dealer or distributor customer and for other costs associated with
specific items at the time their existence and amounts are determinable.

FOREIGN CURRENCY: Polaris' Canadian and Australian subsidiaries use the United
States dollar as their functional currencies. Canadian and Australian assets and
liabilities are translated at the foreign exchange rates in effect at the
balance sheet date. Revenues and expenses are translated at the average foreign
exchange rate in effect. Translation and exchange gains and losses are reflected
in the results of operations.

     Polaris enters into foreign exchange contracts to manage currency exposures
of its purchase commitments denominated in foreign currencies and transfers of
funds from its Canadian subsidiary. Polaris does not use any financial contract
for trading purposes. These contracts are accounted for as hedges, thus market
value gains and losses are recognized at the time of purchase or transfer of
funds, respectively. The criteria to determine if hedge accounting is
appropriate are (1) the designation of a hedge to an underlying exposure, (2)
whether or not overall risk is reduced and (3) if there is a correlation between
the value of the foreign exchange contract and the underlying exposure. Gains
and losses related to purchase commitments are recorded as adjustments to cost
of sales while gains and losses related to transfers of funds are recorded as
other expense (income) on the accompanying statements of operations. At December
31, 1999, Polaris had open Japanese yen foreign exchange contracts with notional
amounts totaling $25.3 million United States dollars and open Canadian dollar
foreign exchange contracts with notional amounts totaling $83.0 million United
States dollars which mature throughout 2000.

SEGMENT REPORTING: Polaris has reviewed SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" and determined that the
aggregation criteria outlined in SFAS No. 131 has been achieved and therefore
Polaris' four operating divisions are reportable as a single reportable segment.

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 (Note 3),
have not been material. Polaris provides for estimated sales promotion expenses
at the time of sale to the dealer or distributor customer.

FOREIGN OPERATIONS: The following data relates to Polaris' foreign operations
(in millions of United States dollars):

<TABLE>
<CAPTION>
                                               For the Years Ended December 31,
                                        1999              1998             1997
<S>                                     <C>               <C>               <C>
Canadian Subsidiary:
Sales                                   $148.2            $142.5            $154.3
Operating income                           3.1               3.0               6.4
Identifiable assets                       23.6              18.9              20.3
                                        ------            ------            ------
Other export sales                       $68.3             $61.7             $58.7
                                        ======            ======            ======
</TABLE>



<PAGE>   12

================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================


MAJOR SUPPLIER: During 1999, 1998, and 1997, purchases of engines and related
components totaling 15, 12 and 16 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 United States
dollar and the Japanese yen.

NEW ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board issued
Statement of Financial Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133) in June 1998. Polaris is not required to
adopt SFAS No. 133 until January 1, 2001. However, Polaris does not believe the
adoption of SFAS No. 133 will have a material effect on its Financial
Statements.


NOTE 2           LITIGATION SETTLEMENT


Injection Research Specialists ("IRS") commenced an action in 1990 against
Polaris and Fuji Heavy Industries, Ltd. ("Fuji") one of Polaris' engine
suppliers, in Colorado Federal Court alleging various claims relating to
electronic fuel injection systems for snowmobiles. In October 1998, following a
judgment against Polaris for $34.0 million (before pre- and post-judgement
interest) and affirmance thereof by the Federal Court of Appeals, IRS, Polaris
and Fuji entered into a confidential settlement agreement to settle all
outstanding claims between the parties. The resulting provision for litigation
loss of $61.4 million has been reflected as non-operating expense in the
accompanying statement of operations for the year ended December 31, 1998. The
net income impact of the litigation loss was $39.6 million or $1.53 per diluted
share in 1998. Adjusted net income excluding the IRS litigation provision was
$70.6 million or $2.72 per diluted share in 1998. Polaris no longer uses any of
the technology in dispute.

NOTE 3           FINANCING

BANK FINANCING: Polaris is a party to an unsecured bank line of credit
arrangement under which it may borrow up to $175 million until March 31, 2000
and up to $150 million thereafter until maturity. Interest is charged at rates
based on LIBOR or "prime" and the agreement expires on March 31, 2002, at which
time the outstanding balance is due. In July 1999, Polaris entered into an
interest rate swap agreement to manage exposure to fluctuations in interest
rates. The effect of the swap agreement is to fix the interest rate at 5.80
percent for $20 million of borrowings under the credit line for a period of two
years. The following summarizes activity under Polaris' credit arrangement (in
millions):


<TABLE>
<CAPTION>
                                         1999                    1998
<S>                                      <C>                     <C>
Total borrowings at December 31          $40.0                   $20.5
Average outstanding borrowings
  during year                            $80.5                   $48.4
Maximum outstanding borrowings
  during year                           $131.5                   $77.0
Interest rate at December 31             6.16%                   5.95%
</TABLE>

LETTERS OF CREDIT: At December 31, 1999, Polaris had open letters of credit
totaling approximately $16.2 million. The amounts outstanding are reduced as
inventory purchases pertaining to the contracts are received.

CUSTOMER FINANCING PROGRAM: Certain finance companies, including Polaris
Acceptance, an affiliate (Note 7), provide floor plan financing to distributors
and dealers on the purchase of Polaris products. The amount financed by
distributors and dealers under these arrangements at December 31, 1999, was
approximately $472.0 million. Polaris has agreed to repurchase products
repossessed by the finance companies up to an annual maximum of 15 percent of
the average amounts 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 and distributor financing up
to certain limits and subject to certain conditions. Such expenditures are
included with operating expenses in the accompanying statements of operations.


NOTE 4           INCOME TAX MATTERS

Components of Polaris' provision for income taxes are as follows (in millions):

<TABLE>
<CAPTION>
                                                      For the Years Ended December 31,
                                          1999                               1998                    1997
<S>                                       <C>                                <C>                      <C>
Current
  Federal                                 $36.1                              $10.4                    $31.6
  State                                     1.6                                0.7                      2.3
  Foreign                                   1.3                                1.2                      2.9
Deferred                                    3.0                                5.0                       --
                                          -----                              -----                    -----
    Total                                 $42.0                              $17.3                    $36.8
                                          =====                              =====                    =====
</TABLE>

     Reconciliations of the Federal statutory income tax rate to the effective
tax rate are as follows:

<TABLE>
<CAPTION>
                                          1999               1998               1997
<S>                                       <C>                <C>                <C>
Federal statutory rate                    35.0%              35.0%              35.0%
State income taxes,
  net of federal benefit                   1.5                2.5                2.5
Other permanent differences               (1.0)              (1.6)              (1.5)
                                          -----              -----              -----
  Effective income tax rate               35.5%              35.9%              36.0%
                                          =====              =====              =====
</TABLE>



<PAGE>   13

     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 tax asset
consists of the following (in millions):


<TABLE>
<CAPTION>

                                                    December 31,
                                   1999                 1998               1997
<S>                                <C>                  <C>                <C>
Current deferred tax assets:
     Inventories                   $4.1                 $4.1               $4.0
     Accrued expenses              26.9                 24.7               24.0
     Compensation payable in
          common stock              --                  0.2                1.0
                                   -----                -----              -----
          Total current            31.0                 29.0               29.0
                                   -----                -----              -----
Noncurrent deferred tax assets:
     Cost in excess of net assets
          of business acquired     23.0                 25.2               27.6
     Property and equipment        (8.9)                (4.9)              (2.0)
     Compensation payable in
          common stock             1.9                  0.7                0.4
                                   -----                -----              -----
          Total noncurrent         16.0                 21.0               26.0
                                   -----                -----              -----
          Total                    $47.0                $50.0              $55.0
                                   =====                =====              =====
</TABLE>


NOTE 5           STOCK-BASED COMPENSATION


Polaris maintains a stock option plan (Option Plan) under which incentive and
nonqualified stock options for a maximum of 2.4 million 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. Shares outstanding under
the Option Plan have exercise prices ranging from $25.75 to $49.45 and a
weighted average remaining contractual life of 7.6 years.

     Polaris maintains a broad based stock option plan (Broad Based Plan) under
which incentive stock options for a maximum of 350,000 shares of common stock
may be issued to substantially all Polaris employees. Options vest three years
from the award date and expire after ten years.

     Polaris maintains a restricted stock plan (Restricted Plan) under which a
maximum of 800,000 shares of common stock may be awarded as an incentive to
certain employees with no cash payments required from the recipient. The
restrictions lapse after a three to four year period if Polaris achieves certain
performance measures.

     Polaris sponsors a qualified non-leveraged Employee Stock Ownership Plan
(ESOP) under which a maximum of 1.25 million shares of common stock can be
awarded. Shares vest immediately and require no cash payments from the
recipient. Substantially all employees are eligible to participate in the ESOP.

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

<TABLE>
<CAPTION>
                                                      Broad Based     Restricted     First Rights
                          Option Plan                  Plan            Plan           Plan            ESOP
                                      Weighted
                                      Average
                                      Exercise
                      Shares          Price           Shares          Shares         Shares          Shares
<S>                   <C>             <C>             <C>             <C>           <C>              <C>
Outstanding as
of December 31,
1996                  391,830         $30.66           --             61,795         431,255          --
     Granted          142,980         $25.75           --             64,915          --              --
     Converted         --              --              --              --            (318,755)        --
     Forfeited        (38,617)        $29.50           --             (2,835)        (15,000)         --
---------             --------        ------          ----            -------        --------        ---
Outstanding as
of December 31,
1997                  495,743         $29.33           --             123,875        97,500          170,000
     Granted          691,590         $40.15           --             147,765         --             173,206
     Exercised/
     Converted        (33,425)        $29.00           --              --            (87,750)         --
     Forfeited        (76,183)        $30.94           --             (28,605)       (1,500)          --
---------             --------        ------          ----            --------       -------         ---
Outstanding as
of December 31,
1998                  1,077,725       $36.17           --             243,035        8,250           343,206
     Granted          311,970         $32.47          337,900         145,235         --             170,000
     Exercised/
     Converted        (29,768)        $29.54           --              --            (8,250)          --
     Forfeited        (19,774)        31.50           (19,300)        (11,795)        --              --
---------             --------        -----           --------        --------       ----            ----
Outstanding as
of December 31,
1999                  1,340,153       $35.06          318,600         376,475         --             513,206
----                  =========       ======          =======         =======        ====            =======
Exercisable/
Vested as
of December 31,
1999                  258,357         $30.91           --              --             --             513,206
----                  =======         ======          ====            ====           ====           ========
</TABLE>


     Polaris maintains a nonqualified deferred compensation plan (Director Plan)
under which 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. A maximum of 75,000 shares
of common stock has been authorized under this plan and 26,305 shares have been
earned as of December 31, 1999.





<PAGE>   14
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================

     Polaris accounts for all stock based compensation plans under APB Opinion
No. 25, under which compensation costs of $9.6 million, $7.8 million, and $5.0
million were recorded in 1999, 1998 and 1997, 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:

<TABLE>
<CAPTION>
                                   1999              1998              1997
<S>                                <C>               <C>               <C>
Net Income (in millions)
     As Reported                   76.3              $31.0             $65.4
     Pro Forma                     73.5              29.3              64.3
Net Income Per Share
     As Reported                   $3.07             $1.19             $2.45
     Pro Forma                      2.95              1.13              2.41
                                   =====             =====             =====
</TABLE>

     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:


<TABLE>
<CAPTION>
                                     1999              1998               1997
<S>                                  <C>               <C>                <C>
Risk free interest rate              6.6%              5.6%               6.6%
Expected life                        7 YEARS           7 years            7 years
Expected volatility                  23%               14%                23%
Expected dividend yield              2.2%              2.0%               2.5%
                                    =====             =====             =====
</TABLE>

     The weighted average fair values at the grant dates of shares awarded under
the above plans are as follows:

<TABLE>
<CAPTION>
                                  1999              1998             1997
<S>                               <C>               <C>              <C>
Option Plan                       $8.99             $5.57            $7.45
Restricted Plan                   $32.47            $34.89           $25.75
ESOP                              $36.25            $39.19           $30.56
Broad Based Plan                  $8.99             $ --             $ --
                                  =====             =====            =====
</TABLE>


NOTE 6           SHAREHOLDERS' EQUITY


STOCK REPURCHASE PROGRAM: In October 1999, the Polaris Board of Directors
approved a new share repurchase authorization of up to 2.5 million shares of the
Company's common stock. Prior thereto, the Board of Directors had authorized the
cumulative repurchase of up to 5.0 million shares of the Company's common stock.
During 1999, Polaris paid $52.4 million to repurchase and retire nearly 1.5
million shares. Cumulative repurchases through December 31, 1999 are
approximately 4.6 million shares for $143.6 million. Polaris had approximately
2.9 million shares available to repurchase under Board of Directors
authorizations as of December 31, 1999.

NET INCOME PER SHARE: Polaris calculates net income per share in accordance with
Statement of Financial Accounting Standards No. 128, which requires the
presentation of basic and diluted earnings per share. Basic earnings per share
is computed by dividing net income available to common shareholders by the
weighted average Polaris Industries Inc. 1999 number of common shares
outstanding during each year, including shares earned under the expired First
Rights plan, the Director Plan and the ESOP. Diluted earnings per share is
computed under the treasury stock method and is calculated to compute the
dilutive effect of outstanding stock options. A reconciliation of these amounts
is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                 1999                    1998             1997
<S>                                              <C>                     <C>              <C>
Net income available to common
shareholders                                     $76,326                 $31,015          $65,383
                                                 =======                 =======          =======
Weighted average number
     of common shares outstanding                24,539                  25,709           26,403
First Rights                                      --                     21               139
Director Plan                                    23                      17               12
ESOP                                             170                     170              170
                                                 -------                 -------          -------
Common shares outstanding
     --  basic                                   24,732                  25,917           26,724
                                                 -------                 -------          -------
Dilutive effect of Option Plan                   168                     69               15
                                                 -------                 -------          -------
Common and potential common
     shares outstanding -- diluted               24,900                  25,986           26,739
                                                 =======                 =======          =======
Basic earnings per share                         $3.09                   $1.20            $2.45
                                                 =======                 =======          =======
Diluted earnings per share                       $3.07                   $1.19            $2.45
                                                 =======                 =======          =======
</TABLE>


     Polaris also has shares issued under the Restricted Plan, which will not be
included in the above calculations until certain performance criteria are met.

STOCK PURCHASE PLAN: Polaris maintains an Employee Stock Purchase Plan (Purchase
Plan). A total of 750,000 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.


NOTE 7           INVESTMENTS IN AFFILIATES


In February 1996, a wholly owned subsidiary of Polaris entered into a
partnership agreement with Transamerica Distribution Finance (TDF) to form
Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris'
dealers and distributors and in 1999 began providing other financial services
including retail credit and extended service contracts to dealers, distributors
and retail customers of Polaris. Polaris' subsidiary has a 50 percent equity
interest in Polaris Acceptance and guarantees 50 percent of the outstanding
indebtedness of Polaris Acceptance under a credit agreement between Polaris
Acceptance and TDF. At December 31, 1999, Polaris' contingent liability with
respect to the guarantee was approximately $170.0 million. In February 2000, the
term of the partnership agreement was extended; in consideration thereof, the
Polaris guarantee of the outstanding indebtedness of Polaris Acceptance was
eliminated.





<PAGE>   15


     In February 1995, Polaris entered into an agreement with Fuji Heavy
Industries Ltd. to form Robin Manufacturing, U.S.A. (Robin). Under the
agreement, Polaris has a 40 percent ownership interest in Robin, which builds
engines in the United States for recreational and industrial products.

     Polaris' investments in joint ventures are accounted for under the equity
method. Polaris' allocable share of the income of Polaris Acceptance and Robin
has been included as a component of nonoperating expense (income) in the
accompanying statements of operations. Polaris Acceptance is a partnership and
the payment of income taxes is the responsibility of each of the partners. Robin
is a corporation responsible for the payment of its own income taxes.

     Summarized combined financial information for the joint ventures is
presented as follows (in millions):

<TABLE>
<CAPTION>
                                                           December 31,
                                                   1999              1998
<S>                                                <C>               <C>
Revenues                                           $81.7             $65.0
Cost of goods sold, interest
and operating expenses                             61.5              48.9
                                                   ------            ------
Net income before income taxes                     $20.2             $16.1
                                                   ======            ======
Finance receivables, net                           $408.8            $323.7
Other assets                                       21.3              17.3
                                                   ------            ------
                                                   $430.1            $341.0
                                                   ======            ======
Notes payable                                      $338.6            $278.4
Other liabilities                                  14.2              12.1
Shareholders' equity and Partners' capital         77.3              50.5
                                                   ------            ------
                                                   $430.1            $341.0
                                                   ======            ======
</TABLE>


Note 8           Commitments and Contingencies

PRODUCT LIABILITY: Polaris is subject to product liability claims in the normal
course of business and prior to June 1996 elected not to purchase insurance for
product liability losses. Effective June 1996, Polaris purchased excess
insurance coverage for catastrophic product liability claims for incidents
occurring subsequent to the policy date that exceed a self-insured retention.
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.

INCOME TAX AUDIT: Revenue Canada has assessed Polaris approximately $16.0
million in taxes, penalties and interest for the period January 1, 1992 through
December 31, 1994 resulting from an income tax audit for that period. Revenue
Canada has asserted that Polaris overcharged its Canadian subsidiary for various
goods and services during the audit period primarily through improper
intercompany transfer pricing policies. Polaris disagrees with the assessment
and is vigorously contesting it.

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 not a
probability 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 noncancelable operating
leases. Total rent expense under all lease agreements was $2.9 million, $2.5
million, and $2.8 million, for 1999, 1998 and 1997, respectively. Future minimum
payments, exclusive of other costs, required under noncancelable operating
leases at December 31, 1999, total $1.5 million cumulatively through 2004.


Note 9           Quarterly Financial Data
(Unaudited) (In millions, except per share data)

<TABLE>
<CAPTION>
                                                                              Net                Diluted Net
                                                     Gross                    Income             Income (Loss)
                            Sales                    Profit                   (Loss)             Per Share
1999:
<S>                         <C>                      <C>                      <C>                <C>
First Quarter               $237.8                   $56.4                    $9.1               $.36
Second Quarter              324.3                    74.9                     15.1               .60
Third Quarter               388.9                    101.3                    27.2               1.10
Fourth Quarter              370.1                    95.7                     24.9               1.02
                            --------                 ------                   -----
Totals                      $1,321.1                 $328.3                   $76.3              $3.07
                            ========                 ======                   =====              =====
1998:
First Quarter               $210.0                   $46.8                    $8.3               $.32
Second Quarter              274.7                    64.2                     14.5               .55
Third Quarter               359.9                    86.4                     (14.5)             (.56)
Fourth Quarter              330.9                    80.9                     22.7               .88
                            --------                 ------                   -----
Totals                      $1,175.5                 $278.3                   $31.0              $1.19
                            ========                 ======                   =====              =====

</TABLE>




<PAGE>   16
===============================================================================
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,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.


                               ARTHUR ANDERSEN LLP


Minneapolis, Minnesota,
January 28, 2000

<PAGE>   17
===============================================================================
INVESTOR INFORMATION
===============================================================================

INDEPENDENT AUDITORS
Arthur Andersen LLP
Minneapolis, MN

FORM 10-K
The Form 10-K annual report to the Securities and Exchange Commission is
available without charge to shareholders upon written request to:

Investor Relations
Polaris Industries Inc.
2100 Highway 55
Medina, MN 55340

ANNUAL SHAREHOLDERS' MEETING
The meeting will be held at 9 a.m., Thursday, May 18, 2000, at the Polaris
Industries Inc. corporate headquarters, 2100 Highway 55, Medina, Minn. A proxy
statement will be mailed on or about March 27, 2000, to each shareholder of
record on March 20, 2000.

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

SUMMARY OF TRADING

<TABLE>
<CAPTION>
                              YEAR ENDED DECEMBER 31,
                              1999                1998
QUARTER                  HIGH      LOW       HIGH      LOW
<S>                     <C>      <C>        <C>       <C>
First                   $39.44   $27.00     $38.00    $27.81
Second                   45.63    30.06      39.00     33.00
Third                    44.75    34.38      38.19     30.31
Fourth                   39.50    32.69      39.19     24.75
</TABLE>

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.

CASH DIVIDENDS DECLARED

<TABLE>
<CAPTION>
QUARTER                  1999      1998
<S>                      <C>       <C>
First                    $.20      $.18
Second                    .20       .18
Third                     .20       .18
Fourth                    .20       .18
                         ----      ----
Total                    $.80      $.72
                         ====      ====
</TABLE>

Shareholders of record of the Company's common stock on March 1, 2000: 2,928.

Share price on March 1, 2000: $31-11/16.


