10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

	(Mark one)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
	For the quarterly period ended MARCH 31, 2005
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
	For the transition period from       to

Commission File Number 1-11411

Polaris Industries Inc.

(Exact Name of Registrant as Specified in its Charter)

Minnesota	41-1790959
(State or other jurisdiction of incorporation or organization	(IRS Employer Identification No.)

2100 Highway 55, Medina, MN	55340
(Address of principal executive offices)	(Zip Code)

(763) 542-0500

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x     No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Section 12b-2 of the Exchange Act).

Yes x     No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     As of April 27, 2005, 42,584,783 shares of Common Stock of the issuer were outstanding.

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

POLARIS INDUSTRIES INC.
FORM 10-Q
For Quarterly Period Ended March 31, 2005

		Page
Part 1	FINANCIAL INFORMATION
	Item 1 - Consolidated Financial Statements
	Consolidated Balance Sheets		3
	Consolidated Statements of Income		4
	Consolidated Statements of Cash Flows		5
	Notes to Unaudited Consolidated Financial Statements		6
	Item 2 - - Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Overview		14
	Results of Operations		14
	Discontinued Operations		15
	Cash Dividends		15
	Liquidity and Capital Resources		15
	Inflation and Foreign Exchange Rates		17
	Significant Accounting Policies		18
	Item 3 - - Quantitative and Qualitative Disclosures about Market Risk
	Note regarding forward-looking statements		19
	Item 4 - - Controls and Procedures		20
Part II	OTHER INFORMATION		21
	Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		21
	Item 6 Exhibits		21
SIGNATURE PAGE			22

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

POLARIS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)

	March 31, 2005			December 31, 2004
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	41,257		$	138,469
Trade receivables, net		61,625			71,172
Inventories, net		229,257			173,624
Prepaid expenses and other		10,008			12,090
Deferred tax assets		59,617			65,489
Current assets of discontinued operations		3,093			4,811
Total current assets		404,857			465,655
Property and equipment, net		214,273			200,901
Investments in finance affiliate and retail credit deposit		89,747			98,386
Goodwill, net		24,725			24,798
Intangible and other assets, net		3,166			3,185
Total Assets	$	736,768		$	792,925
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	118,992		$	96,302
Accrued expenses		191,289			252,704
Income taxes payable		6,185			31,001
Current liabilities of discontinued operations		20,134			25,186
Total current liabilities		336,600			405,193
Deferred income taxes		6,000			8,000
Borrowings under credit agreement		18,000			18,000
Total liabilities	$	360,600		$	431,193
Shareholders’ Equity:
Preferred stock $0.01 par value, 20,000 shares authorized, no shares issued and outstanding		—			—
Common stock $0.01 par value, 80,000 shares authorized, 43,236 and 42,741 shares issued and outstanding	$	432		$	427
Additional paid-in capital		—			—
Deferred compensation		(9,282	)		(8,516	)
Retained earnings		382,395			366,345
Accumulated other comprehensive income, net		2,623			3,476
Total shareholders’ equity		376,168			361,732
Total Liabilities and Shareholders’ Equity	$	736,768		$	792,925

All periods reflect the classification of the Marine Division results as discontinued operations. The balance
sheet at December 31, 2004 has been derived from the audited financial statements at that date.

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

3

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
UNAUDITED

	First Quarter Ended March 31,
	2005			2004
Sales	$	358,312		$	328,997
Cost of sales		273,825			251,466
Gross profit		84,487			77,531
Operating expenses
Selling and marketing		27,131			28,115
Research and development		16,223			13,202
General and administrative		20,394			17,871
Total operating expenses		63,748			59,188
Income from financial services		8,542			8,136
Operating Income		29,281			26,479
Non-operating Expense
Interest expense		575			524
Other expense, net		171			371
Income before income taxes		28,535			25,584
Provision for Income Taxes		9,417			8,442
Net Income from continuing operations	$	19,118		$	17,142
Loss from discontinued operations, net of tax		(275	)		(2,837	)
Net Income	$	18,843		$	14,305
Basic Net Income per share
Continuing operations	$	0.45		$	0.40
Loss from discontinued operations		(0.01	)		(0.06	)
Net Income	$	0.44		$	0.34
Diluted Net Income per share
Continuing operations	$	0.42		$	0.38
Loss from discontinued operations		(0.00	)		(0.06	)
Net Income	$	0.42		$	0.32
Weighted average shares outstanding:
Basic		42,817			42,570
Diluted		45,000			45,248

Selected Balance Sheet Data	March 31, 2005		March 31, 2004
Cash and cash equivalents	$	41,257	$	26,269
Trade receivables, net		61,625		52,346
Inventories		229,257		185,784
Total assets		736,768		631,980
Accounts payable		118,992		87,979
Borrowings under credit agreement		18,000		25,004
Shareholders’ equity		364,741		315,158

Business Unit Information	First Quarter Ended March 31,
	2005		2004		% change
Snowmobiles	$	7,217	$	13,322		(46	)%
All-terrain Vehicles		265,946		237,854		12	%
Victory Motorcyces		23,406		20,853		12	%
Parts, Garments & Accessories		61,743		56,968		8	%
Total Sales	$	358,312	$	328,997		9	%

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

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

4

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited

	First Quarter Ended
	March 31,
	2005			2004
Operating Activities:
Net income	$	18,843		$	14,305
Net loss from discontinued operations		275			2,837
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization		12,787			12,305
Noncash compensation		4,240			3,984
Noncash income from financial services		(3,166	)		(2,697	)
Deferred income taxes		3,872			5,120
Changes in current operating items:
Trade receivables		9,547			(1,772	)
Inventories		(55,632	)		(18,845	)
Accounts payable		22,689			24,934
Accrued expenses		(61,415	)		(65,812	)
Income taxes payable		(11,945	)		(2,912	)
Prepaid expenses and others, net		1,225			4,290
Net cash used for continuing operations		(58,680	)		(24,263	)
Net cash flow provided by (used for) discontinued operations		(3,608	)		191
Net cash used for operating activities		(62,288	)		(24,072	)
Investing Activities:
Purchase of property and equipment		(26,063	)		(17,970	)
Investments in finance affiliate and retail credit deposit, net		11,804			6,973
Net cash used for continuing operations investment activities		(14,259	)		(10,997	)
Net cash used for discontinued operations investment activities		—			(264	)
Net cash used for investing activities		(14,259	)		(11,261	)
Financing Activities:
Borrowings under credit agreement		79,000			71,000
Repayments under credit agreement		(79,000	)		(64,004	)
Repurchase and retirement of common shares		(21,481	)		(19,849	)
Cash dividends to shareholders		(11,834	)		(9,806	)
Proceeds from stock issuances under employee plans		12,650			1,500
Net cash used for financing activities		(20,665	)		(21,159	)
Net decrease in cash and cash equivalents		(97,212	)		(56,492	)
Cash and cash equivalents at beginning of period		138,469			82,761
Cash and cash equivalents at end of period	$	41,257		$	26,269

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

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

5

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

POLARIS INDUSTRIES INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Significant Accounting Policies

Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and, therefore, do not include all information and disclosures of results of operations, financial position and changes in cash flow in conformity with accounting principles generally accepted in the United States for complete financial statements. Accordingly, such statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, previously filed with the Securities and Exchange Commission. In the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Due to the seasonality of the snowmobile, all terrain vehicle (ATV), motorcycle and the parts, garments and accessories (PG&A) business, and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year.

On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine products. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the marine products division’s financial results are reported separately as discontinued operations for all periods presented.

New accounting pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payments” (SFAS No. 123R). The statement originally required the expensing of stock options in the financial statements for periods no later than the annual or interim periods beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission extended the implementation date of SFAS No. 123R to the beginning of the Company’s next fiscal year. Based on the change in the implementation date, Polaris expects to implement the statement beginning with its interim financial statements for the first quarter of 2006. As of yet the Company has not made a determination of the valuation methodology and, therefore, has not determined the impact to future periods.

Product Warranties
Polaris provides a limited warranty for ATVs for a period of six months and for a period of one year for all remaining products. Polaris may provide longer warranties related to certain promotional programs, as well as longer warranties in certain geographical markets as determined by local regulations and market conditions. Polaris’ standard warranties require the Company or its dealers to repair or replace defective product during such warranty period at no cost to the consumer. The warranty reserve is established at the time of sale to the dealer or distributor based on management’s best estimate using historical rates and

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

trends. Adjustments to the warranty reserve are made from time to time as actual claims become known in order to properly estimate the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors that could have an impact on the warranty accrual in any given period include the following: improved manufacturing quality, shifts in product mix, changes in warranty coverage periods, snowfall and its impact on snowmobile usage, product recalls and any significant changes in sales volume. The activity in Polaris’ accrued warranty reserve for the periods presented, excluding the discontinued marine business, is as follows (in thousands):

	First Quarter
	Ended March 31,
	2005			2004
Accrued warranty reserve, beginning	$	28,243		$	29,068
Additions charged to expense		5,465			3,356
Warranty claims paid		(11,057	)		(8,481	)
Consumer Products Safety Commission (CPSC) settlement paid (charged to expense prior to 2004)		(950	)		—
Accrued warranty reserve, ending	$	21,701		$	23,943

During the first quarter of 2005, the Company paid the CPSC $950,000 to settle claims alleging that the Company violated the Consumer Product Safety Act dating back to the late 1990’s. Polaris and the CPSC approved the settlement to avoid continuing legal costs associated with protracted litigation.

Stock Based Employee Compensation
Polaris accounts for all stock based compensation plans in accordance with the provision of APB Opinion No. 25. 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 (in thousands):

	First Quarter
	Ended March 31,
	2005		2004
Net income from continuing operations:
As reported	$	19,118	$	17,142
Less: Additional compensation expense, net of tax		1,254		1,304
Pro forma	$	17,864	$	15,838
Net income from continuing operations per share (diluted):
As reported	$	0.42	$	0.38
Pro forma	$	0.40	$	0.35

The fair value of each award under the Option Plan is estimated on the date of grant using the Black-Scholes option-pricing model.

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

NOTE 2. Inventories

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

	March 31, 2005			December 31, 2004
Raw Materials and Purchased Components	$	41,523		$	14,993
Service Parts, Garments and Accessories		70,629			67,966
Finished Goods		127,461			100,735
Less: reserves		(10,356	)		(10,070	)
Inventories	$	229,257		$	173,624

NOTE 3. Financing Agreement

Polaris has an unsecured bank line of credit arrangement with maximum available borrowings of $250,000,000 expiring on June 25, 2009. Interest is charged at rates based on LIBOR or “prime” (effective rate was 3.43 percent at March 31, 2005).

Polaris has entered into an interest rate swap agreement to manage exposures to fluctuations in interest rates. The effect of this agreement is to fix the interest rate at 7.21 percent for $18,000,000 of borrowings under the credit line until June 2007.

As of March 31, 2005, total borrowings under the bank line of credit arrangement was $18,000,000 and has been classified as long-term in the accompanying consolidated balance sheets.

NOTE 4. Investments in Finance Affiliate and Retail Credit Deposit

In 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of Transamerica Distribution Finance (TDF) to form Polaris Acceptance. In January 2004, TDF was purchased by GE Commercial Distribution Finance (GECDF), a subsidiary of General Electric Company. Polaris Acceptance provides floor plan financing to Polaris’ dealers in the United States. Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. The receivable portfolio is recorded on Polaris Acceptance’s books, and is funded 85 percent through a loan from an affiliate of GECDF and 15 percent by a cash investment shared equally between the two partners. Polaris has not guaranteed the outstanding indebtedness of Polaris Acceptance. Substantially all of Polaris’ U.S. sales are financed through Polaris Acceptance whereby Polaris receives payment within a few days of shipment of the product. The net amount financed for dealers under this arrangement at March 31, 2005 was approximately $619,000,000.

Polaris’ investment in Polaris Acceptance is accounted for under the equity method, and is recorded as a component of Investments in finance affiliate and retail credit deposit in the accompanying consolidated balance sheets. The partnership agreement provides that all income and losses of the portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50 percent by

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

GECDF. Polaris’ allocable share of the income of Polaris Acceptance has been included as a component of Income from financial services in the accompanying consolidated statements of income.

A wholly owned subsidiary of Polaris has an agreement with Household Bank, N.A. (Household) to provide private label retail credit financing to Polaris consumers through Polaris dealers in the United States. The receivable portfolio is owned and managed by Household and is funded 85 percent by Household and its affiliates and 15 percent by a cash deposit shared equally between the two parties. The amount financed by consumers under this arrangement, net of loss reserves, at March 31, 2005 is approximately $659,000,000. Polaris’ deposit in the retail credit portfolio is reflected as a component of Investments in finance affiliate and retail credit deposit in the accompanying consolidated balance sheets. The agreement with Household provides that all income and losses of the retail credit portfolio are shared 50 percent by Polaris and 50 percent by Household. Polaris’ allocable share of the income from the retail credit portfolio has been included as a component of Income from financial services in the accompanying consolidated statements of income. Under the terms of the agreement, either party has the right to terminate the agreement if profitability of the portfolio falls below certain minimum levels. Polaris’ financial exposure under this agreement is limited to its deposit plus an aggregate amount of not more than $15,000,000.

Polaris facilitates the availability of extended service contracts and certain insurance contracts to consumers through arrangements with various third party suppliers. Polaris does not have any incremental warranty, insurance or financial risk from any of these third party arrangements. Polaris collects commission fees from these arrangements which are included as a component of Income from financial services in the accompanying consolidated statements of income.

NOTE 5. Investment in Manufacturing Affiliate

Polaris is a partner with Fuji Heavy Industries Ltd. in Robin Manufacturing, U.S.A. (Robin). Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Polaris’ investment in Robin is accounted for under the equity method, and is recorded as a component of Intangible and other assets in the accompanying consolidated balance sheets. Polaris’ allocable share of the income of Robin has been included as a component of Other expense (income) in the accompanying consolidated statements of income.

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

NOTE 6. Shareholders’ Equity

During the first three months of 2005, Polaris paid $21,481,000 to repurchase and retire approximately 304,000 shares of its common stock. As of March 31, 2005 the Company has authorization from its Board of Directors to repurchase up to an additional 2,716,000 shares of Polaris stock.

Polaris paid a regular cash dividend of $0.28 per share on February 15, 2005 to holders of record on February 1, 2005.

On April 21, 2005, the Polaris Board of Directors declared a regular cash dividend of $0.28 per share payable on or about May 16, 2005 to holders of record of such shares at the close of business on May 2, 2005.

Net Income per Share
Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period, including shares earned under the non-qualified deferred compensation plan for the Board of Directors (Director Plan) and the Employee Stock Ownership Plan (ESOP). Diluted net income per share is computed under the treasury stock method and is calculated to reflect the dilutive effect of outstanding stock options and certain shares issued under the restricted stock plan.

A reconciliation of these amounts is as follows (in thousands):

	First Quarter
	Ended March 31,
	2005		2004
Weighted average number of common shares outstanding		42,620		42,321
Director Plan		63		60
ESOP		134		189
Weighted average shares outstanding — basic		42,817		42,570
Net effect of dilutive stock options and restricted stock		2,183		2,678
Weighted average shares outstanding — diluted		45,000		45,248

Comprehensive Income
Comprehensive income represents net income adjusted for foreign currency translation adjustments and the deferred gains or losses on derivative instruments utilized to hedge Polaris’ interest and foreign exchange exposures. Comprehensive income is as follows (in thousands):

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

	First Quarter
	Ended March 31,
	2005			2004
Net Income	$	18,843		$	14,305
Other comprehensive income:
Foreign currency translation adjustments		(2,225	)		(1,060	)
Unrealized gain on derivative instruments, net		1,372			4,031
Comprehensive Income	$	17,990		$	17,276

NOTE 7. Commitments and Contingencies

Polaris is subject to product liability claims in the normal course of business. Polaris is currently self insured for all product liability claims. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably determinable. The Company utilizes historical trends and actuarial analysis tools to assist in determining the appropriate loss reserve levels.

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 probable that any legal proceedings pending against or involving Polaris will have a material adverse effect on Polaris’ financial position or results of operations.

NOTE 8. Accounting for Derivative Instruments and Hedging Activities

Accounting and reporting standards require that every derivative instrument, including certain derivative instruments embedded in other contracts be recorded in the balance sheet as either an asset or liability measured at its fair value. Changes in the derivative’s fair value should be recognized currently in earnings unless specific hedge criteria are met and companies must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

Interest Rate Swap Agreements
Polaris has an interest rate swap agreement expiring in 2007 related to $18,000,000 of debt that has been designated and meets the criteria as a cash flow hedge. At March 31, 2005, the fair value of the interest rate swap agreement was an unrealized loss of $1,226,000, which is recorded net of tax as a component of Accumulated other comprehensive income (loss) in shareholders’ equity.

Foreign Exchange Contracts
Polaris enters into foreign exchange contracts to manage currency exposures of certain of its purchase commitments denominated in foreign currencies and transfers of funds from its foreign subsidiaries. Polaris does not use any financial contracts for trading purposes. These contracts have been designated as and meet the criteria for cash flow hedges or fair value hedges.

At March 31, 2005, Polaris had open Japanese yen foreign exchange contracts

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

with notional amounts totaling U.S. $25,593,000, and an unrealized loss of $149,000 and open Canadian dollar contracts with notional amounts totaling U.S. $67,516,000 and an unrealized loss of $2,786,000. These contracts met the criteria for cash flow hedges and the net unrealized gains and losses, after tax, are recorded as a component of Accumulated other comprehensive income (loss) in shareholders’ equity.

NOTE 9. Discontinued Operations

On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine products. In the third quarter of 2004, the Company recorded a loss on disposal of discontinued operations of $35,600,000 before tax or $23,852,000 after tax. This loss included a total of $28,705,000 in expected future cash payments for costs to assist the dealers in selling their remaining inventory, incentives and discounts to encourage consumers to purchase remaining products, costs to cancel supplier arrangements, legal and regulatory issues, and personnel termination costs. In addition, there were $8,287,000 of liabilities related to the marine products division at the time of the exit announcement. Total cash outlays of $4,944,000 were made in the first quarter of 2005 related to the liabilities. Total cash outlays of $17,854,000 have been made since the marine products division exit announcement.

In addition, the loss on disposal of discontinued operations includes $6,895,000 in non-cash costs related primarily to the disposition of tooling, other physical assets, and the Company’s remaining inventory. Non-cash charges totaling $108,000 were made to the accrual in the first quarter of 2005. Total non-cash charges of $5,899,000 have been made to the accrual since the marine products division exit announcement.

No adjustments were made to the closedown accrual during the first quarter of 2005. Utilization of components of the accrued disposal costs during the first quarter of 2005 are as follows (in thousands):

			Utilization Three
	Balance		Months Ended March			Balance March 31,
	December 31, 2004		31, 2005			2005
Dealer & customer incentive costs to sell remaining dealer inventory including product warranty	$	12,111	$	(3,986	)	$	8,125
Costs related to canceling supplier arrangements		5,039		(290	)		4,749
Legal, regulatory, personnel and other costs		6,932		(668	)		6,264
Disposition of tooling, inventory and other fixed assets (non-cash)		1,104		(108	)		996
Total	$	25,186	$	(5,052	)	$	20,134

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

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

	First Quarter Ended
	March 31,
	2005			2004
Sales	$	1,675		$	16,979
Loss on discontinued operations before income tax benefit		(411	)		(4,234	)
Income tax (benefit)		(136	)		(1,397	)
Loss on discontinued operations, net of tax	$	(275	)	$	(2,837	)

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion pertains to the results of operations and financial position of Polaris Industries Inc., a Minnesota corporation (“Polaris” or the “Company”) for the quarters ended March 31, 2005 and 2004. Due to the seasonality of the snowmobile, all terrain vehicle (ATV), parts, garments and accessories (PG&A) and motorcycle business, and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year.

The Company ceased manufacturing marine products on September 2, 2004. The marine products division’s financial results are reported separately as discontinued operations for all periods presented.

Results of Operations

Note: Unless otherwise noted, the following discussion relates only to results from continuing operations.

Sales were $358.3 million in the first quarter of 2005, representing a nine percent increase from $329.0 million in sales for the same period in 2004.

Sales of ATVs were $266.0 million in the first quarter of 2005, up 12 percent from the first quarter 2004 sales of $237.9 million. Continued strong growth in the RANGER™ product line, increasing demand for the new Sportsman 800 EFI (electronic fuel injection) ATV and the new value priced Phoenix ATV, and continued strong international sales growth were the primary contributors to the ATV sales growth for the first quarter 2005. The average ATV per unit sales price for the first quarter 2005 increased six percent over last year’s first quarter primarily as a result of the higher RANGER™ shipments and a positive product mix change.

Sales of snowmobiles were $7.2 million for the first quarter of 2005, a decrease of 46 percent from sales of $13.3 million for the comparable period in 2004. The decrease is due to timing of shipments. Last year sales in the first quarter were higher than normal due to increased late season dealer demand resulting from better snowfall in January through March of 2004. Snowfall in the first quarter of 2005 was below normal across many of the regions in the snowbelt of North America, causing dealer inventories of snowmobiles to be at higher levels at the end of the riding season compared to last year’s levels. The average snowmobile per unit sales price for the first quarter 2005 decreased slightly compared to last year’s first quarter unit sales price due to product mix change.

Sales of Victory motorcycles were $23.4 million for the first quarter 2005, a 12 percent increase from $20.8 million for the comparable period in 2004. The increase is attributable to ongoing positive brand recognition, consumer acceptance of the new Victory motorcycles including the Vegas, Kingpin and the all new Hammer model, which began shipping in March 2005, and an improved dealer network. The average per unit sales price for Victory motorcycles increased during the first quarter 2005 when compared to the same period in 2004 due to a product mix change.

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FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

PG&A sales were $61.7 million for the first quarter 2005, an increase of eight percent from $57.0 million for the first quarter of 2004. The PG&A business was positively impacted by stronger sales of ATV parts and accessories. Specifically, the new Lock and Ride accessories for ATV and RANGER™ have been well received by Polaris ATV buyers for their versatility and ease of installation.

Gross profit for the first quarter 2005 increased nine percent to $84.5 million compared to $77.5 million for the first quarter 2004 primarily due to the growth in sales during the quarter. The gross profit margin as a percent of sales for the first quarter 2005 was flat when compared to the first quarter 2004 at 23.6 percent. The gross profit margin continued to benefit from production efficiency gains and ongoing cost reduction efforts, as well as a net positive impact of currency fluctuations during the quarter. However, these improvements, in aggregate, were offset by increased raw material costs, primarily for steel and other commodities, and higher warranty, transportation and fuel costs incurred in the first quarter of 2005 when compared to the first quarter 2004.

Operating expenses in the first quarter of 2005 increased eight percent to $63.7 million from $59.2 million in the comparable 2004 period. As a percentage of sales, operating expenses decreased to 17.8 percent for the first quarter of 2005 compared to 18.0 percent for the same period in 2004. Lower selling and marketing expenses in the first quarter 2005 were offset by a 23 percent increase in research and development expenditures as Polaris continues with initiatives to accelerate the design and introduction of new products. The Company’s new research, testing and technology center in Wyoming, Minnesota is on schedule to open in the second quarter 2005.

Income from financial services increased five percent to $8.5 million in the first quarter 2005, up from $8.1 million in the first quarter 2004 primarily a result of the increased profitability generated from the wholesale receivable portfolio of Polaris Acceptance.

Discontinued Operations

The Company ceased manufacturing marine products on September 2, 2004. As a result, the marine products division’s financial results are being reported separately as discontinued operations for all periods presented. The Company’s first quarter 2005 loss from discontinued operations was $0.3 million, net of tax, or less than $0.01 per diluted share, compared to a loss of $2.8 million, net of tax, or $0.06 per diluted share in the first quarter 2004. Reported net income for the first quarter 2005, including both continuing and discontinued operations, was $18.8 million, or $0.42 per diluted share compared to $14.3 million, or $0.32 per diluted share in the first quarter of 2004.

Cash Dividends

Polaris paid a $0.28 per share dividend on February 15, 2005 to shareholders of record on February 1, 2005. On April 21, 2005, the Polaris Board of Directors declared a regular cash dividend of $0.28 per share payable on or about May 16, 2005 to holders of record of such shares at the close of business on May 2, 2005.

Liquidity and Capital Resources

Net cash used for continuing operating activities totaled $58.7 million for the first quarter ended March 31, 2005 compared to net cash used for continuing operating activities of $24.3 million for the three months ended March 31, 2004. An increase in cash required to fund factory inventory levels in the first quarter of 2005 compared to the same period last

15

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

year was the primary reason for the increased use of net cash used for operating activities of continued operations during the first quarter of 2005. Net cash used for investing activities from continuing operations was $14.3 million during the first three months of 2005 and primarily represents the purchase of property and equipment offset somewhat by a reduction of the investment in finance affiliate and retail credit deposit. Net cash used for financing activities was $20.7 million during the three months ended March 31, 2005, which primarily represents dividends paid to shareholders and the repurchase of common shares offset somewhat by an increase in proceeds from employee stock option exercises. Cash and cash equivalents totaled $41.3 million at March 31, 2005.

The seasonality of production and shipments causes working capital requirements to fluctuate during the year. Polaris has an unsecured bank line of credit arrangement with maximum available borrowings of $250.0 million. Interest is charged at rates based on LIBOR or “prime” (effective rate was 3.43 percent at March 31, 2005). As of March 31, 2005, total borrowing under this credit arrangement was $18.0 million and has been classified as long-term in the accompanying consolidated balance sheets. The Company’s debt to total capital ratio was five percent at March 31, 2005 compared to seven percent at March 31, 2004.

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

	Total		< 1 year		1-3 Years		> 3 Years
Borrowings under credit agreement	$	18.0	$	—	$	—	$	18.0
Interest expense under swap agreement		2.9		1.3		1.6		—
Operating leases		5.7		2.2		2.9		0.6
Capital leases		0.5		0.3		0.2		—
Total	$	27.1	$	3.8	$	4.7	$	18.6

Additionally, at March 31, 2005, Polaris had letters of credit outstanding of $4.5 million related to purchase obligations for raw materials.

In the past, Polaris has entered into interest rate swap agreements to manage exposures to fluctuations in interest rates. Currently the Company has one such agreement in place. The effect of the agreement is to fix the interest rate at 7.21 percent for $18.0 million of borrowings under the credit line until June 2007.

During the first quarter of 2005, Polaris paid $21.5 million to repurchase and retire 0.3 million shares of its common stock. The shares repurchased in the first quarter had a positive impact on earnings per share of less than $0.01 per share for the quarter ended March 31, 2005. The Company has authorization from its Board of Directors to repurchase up to an additional 2.7 million shares of Polaris stock as of March 31, 2005.

Management believes that existing cash balances and bank borrowings, cash flow 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 requirements for the foreseeable future. At this time, management is not aware of any adverse factors that would have a material impact on cash flow.

In 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of Transamerica Distribution Finance (TDF) to form Polaris Acceptance. In January 2004, TDF was purchased by GE Commercial Distribution Finance (GECDF), a

16

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

subsidiary of General Electric Company. Polaris Acceptance provides floor plan financing to Polaris’ dealers in the United States. Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. The receivable portfolio is recorded on Polaris Acceptance’s books, and is funded 85 percent with a loan from an affiliate of GECDF and 15 percent by a cash investment shared equally between the two partners. Polaris has not guaranteed the outstanding indebtedness of Polaris Acceptance. Substantially all of Polaris’ U.S. sales are financed through Polaris Acceptance whereby Polaris receives payment within a few days of shipment of the product.

Polaris’ investment in Polaris Acceptance is accounted for under the equity method, and is recorded as a component of Investments in finance affiliate and retail credit deposit in the accompanying consolidated balance sheets. The partnership agreement provides that all income and losses of the portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50 percent by GECDF. Polaris’ allocable share of the income of Polaris Acceptance has been included as a component of Income from financial services in the accompanying consolidated statements of income.

A wholly owned subsidiary of Polaris has an agreement with Household to provide private label retail credit financing through installment and revolving loans to Polaris consumers through Polaris dealers in the United States. The receivable portfolio is owned and managed by Household and its affiliate and is funded by Household and its affiliate except to the extent of a cash deposit by Polaris’ subsidiary equal to seven and one-half percent of the revolving credit portfolio balance. Polaris’ deposit with Household is reflected as a component of Investments in finance affiliate and retail credit deposit in the accompanying consolidated balance sheets. Polaris’ subsidiary participates in 50 percent of the profits or losses of the revolving credit portfolio. Polaris’ allocable share of the income from the retail credit portfolio has been included as a component of Income from financial services in the accompanying consolidated statements of income. Under the terms of the agreement, either party has the right to terminate the agreement if profitability of the portfolio falls below certain minimum levels. Polaris’ financial exposure under this agreement is limited to its deposit plus an aggregate amount of not more than $15.0 million.

As of March 31, 2005, the Polaris Acceptance wholesale portfolio balance for dealers in the United States was approximately $619.0 million, a 17 percent increase from $528.0 million at March 31, 2004. Credit losses in this portfolio have been modest, averaging less than one percent of the portfolio. The Household retail credit portfolio balance as of March 31, 2005, was approximately $659.0 million, a 26 percent increase from $522.0 million at March 31, 2004. Credit losses have averaged slightly more than four percent of the portfolio balance, in line with Household’s experience with portfolios similar in nature and maturity.

Inflation and Foreign Exchange Rates

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

During calendar year 2004, purchases totaling 13 percent of Polaris’ cost of sales were from yen-denominated suppliers. Polaris’ cost of sales in the first quarter ended March 31, 2005 was negatively impacted by the Japanese yen-U.S. dollar exchange rate fluctuation when compared to the same period in 2004. At March 31, 2005 Polaris had open Japanese yen foreign exchange hedging contracts in place through the third quarter of

17

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

2005 with notional amounts totaling $25.6 million with an average rate of approximately 105 Japanese yen to the U.S. dollar. In view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the Japanese yen-U.S. dollar exchange rate will continue to have a negative impact on cost of sales for the remainder of 2005 when compared to the same periods in 2004.

Polaris operates in Canada through a wholly owned subsidiary. The weakening of the U.S. dollar in relationship to the Canadian dollar has resulted in higher gross margin levels in the first quarter ended March 31, 2005 when compared to the same period in 2004. At March 31, 2005 Polaris had open Canadian dollar foreign exchange hedging contracts in place through the third quarter of 2005 with notional amounts totaling $67.5 million with an average rate of approximately 0.79. In view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the Canadian dollar-U.S. dollar exchange rate will continue to have a positive impact on net income for the remainder of 2005 when compared to the same periods in 2004.

Polaris operates in various countries in Europe through wholly owned subsidiaries and also sells to certain distributors in other countries and purchases components from certain suppliers directly from its U.S. operations in Euro denominated transactions. The weakening of the U.S. dollar in relationship to the Euro has resulted in slightly higher gross margin levels on a comparable basis in the first quarter ended March 31, 2005 when compared to the same period in 2004. Polaris currently does not have any Euro currency hedging contracts in place for the remainder of 2005.

The assets and liabilities in all Polaris foreign entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of Accumulated other comprehensive income (loss) in the shareholders’ equity section of the accompanying consolidated balance sheets. Revenues and expenses in all Polaris foreign entities are translated at the average foreign exchange rate in effect for each month of the quarter.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2004.

18

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

Item 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 for a complete discussion on the Company’s market risk. There have been no material changes to the market risk information included in the Company’s 2004 Annual Report on Form10-K.

Note Regarding Forward Looking Statements

Certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” can generally be identified as such because the context of the statement will include words such as the Company or management “believes,” “anticipates,” “expects,” “estimates” or words of similar import. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainty that could cause results in future periods to differ materially from those anticipated by some of the statements made in this report. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: product offerings, promotional activities and pricing strategies by competitors; future 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.

19

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

Item 4

CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Vice President-Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Vice President-Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There were no material changes in the Company’s internal controls over financial reporting during the first quarter of 2005.

20

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

PART II. OTHER INFORMATION

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

			Total	Maximum
			Number of	Number of
			Shares	Shares
			Purchased	That May
	Total		as Part of	Yet Be
	Number of	Average	Publicly	Purchased
	Shares	Price Paid	Announced	Under the
Period	Purchased	per Share	Program	Program(1)
January 1 - 31, 2005	0	0	0	3,019,574
February 1 - 28, 2005	304,044	$  70.65	304,044	2,715,530
March 1 - 31, 2005	0	0	0	2,715,530
Total	304,044	$  70.65	304,044	2,715,530

⁽¹⁾ Our Board of Directors approved the repurchase of up to an aggregate of 23 million shares of the Company’s common stock pursuant to the share repurchase program (the “Program”) of which 20.3 million shares have been repurchased through March 31, 2005. This Program does not have an expiration date.

Item 6-Exhibits

(a) Exhibits

Exhibit 31.a — Certification of Chief Executive Officer — Section 302

Exhibit 31.b — Certification of Chief Financial Officer — Section 302

Exhibit 32.a — Certification of Chief Executive Officer — Section 906

Exhibit 32.b — Certification of Chief Financial Officer — Section 906

21

FORM 10-Q
For the Quarterly Period Ended
March 31, 2005

Polaris Industries Inc.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	POLARIS INDUSTRIES INC. (Registrant)
Date: May 5, 2005	/s/ Thomas C. Tiller
	Thomas C. Tiller
	Chief Executive Officer (Principal Executive Officer)
Date: May 5, 2005	/s/ Michael W. Malone
	Michael W. Malone
	Vice President, Finance, Chief Financial Officer, and Secretary (Principal Financial and Chief Accounting Officer)

22

EX-31.A

Exhibit 31.a

CERTIFICATIONS

I, Thomas C. Tiller, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Polaris Industries Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2005

/s/ Thomas C. Tiller 

Thomas C. Tiller 

Chief Executive Officer 

EX-31.B

Exhibit 31.b

I, Michael W. Malone, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Polaris Industries Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2005

/s/ Michael W. Malone 

Michael W. Malone 

Vice President- Finance,
Chief Financial Officer and Secretary 

EX-32.A

Exhibit 32.a

POLARIS INDUSTRIES INC.

STATEMENT PURSUANT TO 18 U.S.C. §1350

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

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

Date: May 5, 2005

/s/ Thomas C. Tiller  

Thomas C. Tiller 

Chief Executive Officer 

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

EX-32.B

Exhibit 32.b

POLARIS INDUSTRIES INC.

STATEMENT PURSUANT TO 18 U.S.C. §1350

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

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

Date: May 5, 2005

/s/ Michael W. Malone  

Michael W. Malone 

Vice President—Finance,
Chief Financial Officer and Secretary 

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