In our business, product innovation creates demand. Being the first to market with an exciting new model or new feature brings in new buyers and gives existing owners a reason to trade up. Innovation also can create new niches that capture sales while competitors play catch up. Last year we introduced the 6-wheel-drive Polaris Ranger specialty vehicle, available in spring of 1998, that continues our record of innovation. It's the industry's only specialty work vehicle with true off-road mobility.

Walk into a Polaris snowmobile dealership and you'll see what we mean about enticing existing owners. More than half of buyers are trading in a Polaris sled purchased within the past two years. Maybe it's a racer who wants a machine with more muscle or a couple who can't wait to get their gloves on our new independently controlled driver and passenger handwarmers. No matter what their lifestyle, they know we're continually adding features and models to make their ride more enjoyable. By listening to our customers, we're able to deliver on key design factors that drive purchase decisions:

Performance. It means different things to different people, based on where they live and how they use their machines. A Colorado sled owner may define performance as handling in deep powder, while in Alaska, performance may be measured by how a sled hauls logs or packs game. For the sports segment---riders who equate performance with power---we've developed bigger, more powerful engines and sleeker, tougher styles. Innovative performance features pay off: Our Sportsman 500---the only ATV with independent long-travel suspension, giving it an industry-leading 11 inch ground clearance---defined and entirely new market segment that Polaris continues to dominate.

Comfort and Convenience. Baby Boomers increasingly seek comfort. We gained significant PWC market share when stable and dry-riding 3-passenger models joined our performance-orientated 2-passenger lineup. And our sleds continue to win market share thanks to comfort-conscious details like adjustable backrests and smooth-riding rear suspensions that have become the industry standard.

Safety. As Boomers age, they become more concerned with safety, too. We've been at the forefront of innovative safety features, like hydraulic disc brakes on snowmobiles and full ATV floorboards. But our leadership goes beyond just products. We were the first to introduce safety training for all ATV purchasers, and the concept was so well received that Polaris PWC purchasers now get training, too. We're also helping instill a conscientious attitude early: The Polaris Foundation is the sole sponsor of 4-H's PWC water safety program, which is being piloted in Minnesota for future rollout nationwide. Plus, we provide snowmobiles and support to the snowmobile industry's Safe Rider program for safety-training videos and brochures.

Style. Understanding customer needs means understanding the psychology of ownership. Although buyers choose a model based primarily on use and features, you can bet they consider the personal statement it makes. Our design teams carefully consider everything from color and graphics to the overall shape of the machine. Victory is the latest example of Polaris' appreciation of style. It's based on the classic, chrome-driven aesthetics that cyclists demand in a cruiser. And because everyone wants to look good when they ride, we offer garments and accessories that complement each of our current models---and provide us with high margin revenue opportunities.