UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the transition period from                                        to                                       

Commission File Number 1-11411

Polaris Industries Inc.

(763) 542-0500

     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:

FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

POLARIS INDUSTRIES INC.
FORM 10-Q
For Quarterly Period Ended September 30, 2004

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

POLARIS INDUSTRIES INC.

All periods reflect the classification of the Marine Division results as discontinued operations. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date.

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

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

POLARIS INDUSTRIES INC.

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

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

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

POLARIS INDUSTRIES INC.

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

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

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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, 2003, 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 effective immediately. 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.

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 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:

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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:

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
September 30, 2004

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):

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 2.42 percent at September 30, 2004).

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 September 30, 2004, 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 wholly owned 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 cash investments shared equally between the two partners. Polaris has not guaranteed the outstanding indebtedness of Polaris Acceptance. Substantially all of Polaris’ U.S. sales are financed through Polaris Acceptance whereby Polaris receives payment within a few days of shipment of the product. The amount financed for dealers under this arrangement at September 30, 2004 was approximately $615,000,000.

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 floor plan portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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 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 with Household debt and 15 percent cash deposit shared equally between the two parties. The amount financed by consumers under this arrangement, net of loss reserves, at September 30, 2004 is approximately $618,000,000. 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 also provides extended service contracts to consumers and certain insurance contracts to consumers through various third-party suppliers. Polaris does not retain any warranty, insurance or financial risk in any of these arrangements. Polaris’ service fee income generated from these arrangements has been included as a component of Income from financial services in the accompanying consolidated statements of income.

Polaris implemented FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” during the third quarter 2003. This was an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and addresses the consolidation of variable interest entities by businesses. Polaris used the guidelines in FIN 46 to analyze the Company’s relationship with Polaris Acceptance and concluded that Polaris Acceptance is not a variable interest entity to Polaris and therefore the current method of consolidation remains appropriate.

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
September 30, 2004

NOTE 6.   Shareholders’ Equity

During the first nine months of 2004, Polaris paid $49,225,000 to repurchase and retire 1,126,000 shares of its common stock. As of September 30, 2004 the Company has authorization from its Board of Directors to repurchase up to an additional 3,290,000 shares of Polaris stock.

Polaris paid a regular cash dividend of $0.23 per share on August 16, 2004 to holders of record on August 2, 2004.

On October 21, 2004, the Polaris Board of Directors declared a regular cash dividend of $0.23 per share payable on or about November 15, 2004 to holders of record of such shares at the close of business on November 1, 2004.

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):

Comprehensive Income

Comprehensive income represents net income adjusted for foreign currency translation adjustments and the deferred gain (loss) 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
September 30, 2004

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 September 30, 2004, the fair value of the interest rate swap agreement was a liability of $1,997,000 which is recorded, net of tax, as a component of Accumulated other comprehensive income (loss) in shareholders’ equity.

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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 September 30, 2004, Polaris had open Japanese yen foreign exchange contracts with notional amounts totaling U.S. $17,116,000, and an unrealized loss of $199,000 and open Canadian dollar contracts with notional amounts totaling U.S. $73,993,000 and an unrealized loss of $4,440,000. 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 effective immediately. 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 includes a total of $28,705,000 in expected future cash payments for costs to assist the dealers in selling their remaining inventory, incentives and discounts to encourage consumers to purchase remaining products, costs to cancel supplier arrangements, legal and regulatory issues, and personnel termination costs.

In addition, the loss includes $6,895,000 in non-cash costs related primarily to the disposition of tooling, other physical assets, and the Company’s remaining inventory. Components of the accrued disposal costs are as follows (in thousands):

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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 quarter and year to date periods ended September 30, 2004 and 2003. 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.

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

Results of Operations

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

Sales were $510.6 million in the third quarter of 2004, representing a 15 percent increase from $444.4 million in sales for the same period in 2003. Total sales increased to $1,234.2 million for the year to date period ended September 30, 2004, up 13 percent from $1,097.0 million for the same period in 2003. The increase in sales is a result of sales increases in ATVs, Victory motorcycles and PG&A.

Sales of ATVs were $338.7 million in the third quarter of 2004, up 18 percent from third quarter 2003 sales of $287.7 million. Sales growth was driven by the successful introduction of the 2005 model year ATVs including the completely redesigned Sportsman line. Sales of Polaris ATVs outside of North America continued to grow, increasing 67 percent during the third quarter 2004 compared to the third quarter of 2003. Additionally, the Company introduced several new models that will begin shipping in the fourth quarter 2004 including the all new Sportsman 800 EFI (electronic fuel injection), the new Sportsman 700 MV (military version) and a new entry-level ATV called the Phoenix. For the nine month period ended September 30, 2004, sales of ATVs have increased 10 percent from the comparable period in 2003. The average ATV per unit sales price for the third quarter 2004 was slightly higher than last year’s third quarter due primarily to a mix change as more of the new higher priced Sportsman’s and RANGER models were sold during the third quarter of 2004.

Sales of snowmobiles were $94.7 million for the third quarter of 2004, a decrease of two percent from sales of $96.8 million for the comparable period in 2003 due to the differences in planned timing of shipments as most of the all-new 900 Fusion and 900 RMK snowmobiles will be shipped in the fourth quarter of 2004. For the nine month period ended September 30, 2004, sales of snowmobiles have increased 17 percent from the comparable period in 2003. The average snowmobile per unit sales price for the third quarter 2004 was down slightly compared to last year’s third quarter unit sales price due to mix change.

13

FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

Sales of Victory motorcycles were $11.1 million for the third quarter 2004, a 128 percent increase from $4.9 million for the comparable period in 2003. For the nine month period ended September 30, 2004, sales of Victory motorcycles increased 35 percent from the comparable period in 2003. Growing brand recognition, an increase in the number and quality of Victory dealers and the initial production and shipment of the model year 2005 motorcycles contributed to the increase in sales for the third quarter 2004. The average per unit sales price for Victory motorcycles increased during the third quarter 2004 when compared to the same period in 2003 due to a product mix change as more of the higher priced Vegas and Kingpin models were sold during the third quarter of 2004.

PG&A sales were $66.1 million for the third quarter 2004, an increase of 20 percent from $55.0 million for the third quarter of 2003. Snowmobile and ATV PG&A sales growth was the primary reason for the increase in sales with both lines experiencing very strong growth during the third quarter 2004. The PG&A business continues to focus on accelerating innovation, maintaining high order fill rates and driving towards industry leading product and service quality. An example of the innovative products in PG&A is the recently introduced new Lock and Ride™ system developed exclusively for Polaris ATVs, which makes installation of ATV accessories fast and easy without the use of tools. For the nine month period ended September 30, 2004, PG&A sales have increased 16 percent from the comparable period in 2003.

Gross profit for the third quarter 2004 increased 12 percent to $123.4 million compared to $110.1 million for the third quarter 2003 primarily due to the growth in sales during the quarter. The gross profit margin as a percent of sales for the third quarter 2004 declined 60 basis points to 24.2 percent compared to the third quarter in 2003. The decline in the gross profit margin percentage was a result of increased raw material costs, primarily for steel, incremental transportation and fuel costs, and the added manufacturing startup costs associated with the increased number of new 2005 model year ATVs, Victory motorcycles and snowmobiles. These increased costs were partially offset by ongoing product cost reduction efforts during the third quarter of 2004.

For the year to date period ended September 30, 2004, gross profit increased 16 percent to $293.2 million or 23.8 percent of sales compared to $253.8 million or 23.1 percent of sales in the comparable period in 2003. The gross profit and gross profit margin percentage improvement for the year to date period was generated from increased sales, production efficiency gains and ongoing cost reduction efforts, as well as a sales mix benefit. These positive benefits were partially offset by a higher level of sales promotional expenses required and higher commodity costs incurred in the first nine months of 2004 compared to the same period last year.

Operating expenses in the third quarter of 2004 increased 18 percent to $63.5 million from $53.6 million in the comparable 2003 period. As a percentage of sales, operating expenses increased to 12.4 percent for the third quarter of 2004 compared to 12.1 percent for the same period in 2003. For the year to date period ended September 30, 2004, operating expenses increased 19 percent to $180.6 million or 14.6 percent of sales compared to $151.4 million or 13.8 percent of sales in the comparable period in 2003. Operating expenses increased for the quarter and year to date periods primarily due to the continuation of initiatives taken to accelerate the design, development and introduction of new products, as well as distribution network improvements and added expense related to the growing international subsidiaries, and a one-time expense related to the 50th Anniversary celebration held in July 2004.

14

FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

Income from financial services increased two percent to $7.4 million in the third quarter 2004, up from $7.3 million in the third quarter 2003. The growth rate of financial services moderated during the third quarter as the retail credit penetration rate has stabilized. For the year to date period ended September 30, 2004, income from financial services increased 41 percent to $22.8 million compared to $16.2 million in the comparable period in 2003. The increase for the year to date 2004 period is primarily due to increased profitability generated from the retail credit portfolio as consumers utilized available retail financing options in greater numbers. The credit quality of the retail credit portfolio has remained stable and credit losses continue to be in line with expectations.

Discontinued Operations

On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine products effective immediately. The marine products division’s financial results are reported separately as discontinued operations for all periods presented. In the third quarter of 2004, the Company recorded a loss on disposal of discontinued operations of $35.6 million before tax or $23.9 million after an $11.7 million tax benefit. This loss includes a total of $28.7 million dollars in expected future cash payments for costs to assist the dealers in selling their remaining inventory, incentives and discounts to encourage consumers to purchase remaining products, costs to cancel supplier arrangements, legal and regulatory issues, and personnel termination costs. In addition, the loss includes $6.9 million in non-cash costs related primarily to the disposition of tooling, other physical assets, and the Company’s remaining inventory.

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

Cash Dividends

Polaris paid a $0.23 per share dividend on August 16, 2004 to shareholders of record on August 2, 2004. On October 21, 2004, the Polaris Board of Directors declared a regular cash dividend of $0.23 per share payable on or about November 15, 2004 to holders of record of such shares at the close of business on November 1, 2004.

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

Liquidity and Capital Resources

Net cash provided by continuing operating activities from continuing operations totaled $137.6 million for the nine months ended September 30, 2004 an increase of 61 percent compared to net cash provided by continuing operating activities of $85.4 million for the nine months ended September 30, 2003. A reduction in cash required to fund factory inventory levels in the year to date period of 2004 compared to the same period last year and higher accounts payable balances were the primary reasons for the significant increase in net cash provided by operating activities of continuing operations during the first nine months of 2004. Net cash used for investing activities from continuing operations was $55.2 million during the first nine months of 2004 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 $67.9 million during the nine months ended September 30, 2004, which primarily represents dividends paid to shareholders and the repurchase of common shares. Cash and cash equivalents totaled $106.6 million at September 30, 2004.

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 2.42 percent at September 30, 2004). As of September 30, 2004, 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 September 30, 2004 compared to six percent at September 30, 2003.

The following table summarizes the Company’s significant future contractual obligations at September 30, 2004 (in millions):

Additionally, at September 30, 2004, Polaris had letters of credit outstanding of $10.1 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.

Year to date 2004, Polaris paid $49.2 million to repurchase and retire approximately 1.1 million shares of its common stock. The shares repurchased had a positive impact on earnings per share of approximately $0.01 per share for the year to date period ended September 30, 2004. The Company has authorization from its Board of Directors to repurchase up to an additional 3.3 million shares of Polaris stock as of September 30, 2004.

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

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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 wholly owned 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 with a loan from an affiliate of GECDF and 15 percent by 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 floor plan portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50 percent by GECDF. Polaris’ allocable share of the income of Polaris Acceptance has been included as a component of Income from financial services in the accompanying consolidated statements of income.

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 September 30, 2004, the Polaris Acceptance wholesale portfolio balance for dealers in the United States was approximately $615.0 million, a seven percent increase from $573.0 million at September 30, 2003. Credit losses in this portfolio have been modest, averaging less than one percent of the portfolio over the life of the partnership. The Household retail credit portfolio balance as of September 30, 2004, was approximately $618.0 million, up from $469.0 million at September 30, 2003. Credit losses have averaged slightly more than three percent of the portfolio balance, in line with Company expectations.

17

FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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 2003, purchases totaling 11 percent of Polaris’ cost of sales were from yen-denominated suppliers. Polaris’ cost of sales in the third quarter and year to date periods ended September 30, 2004 were negatively impacted by the Japanese yen-U.S. dollar exchange rate fluctuation when compared to the same periods in 2003. At September 30, 2004 Polaris had open Japanese yen foreign exchange hedging contracts in place for the remainder of 2004 with notional amounts totaling $17.1 million with an average rate of approximately 108 yen to the 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 during the fourth quarter of 2004 when compared to the same period in 2003.

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 third quarter and year to date periods ended September 30, 2004 when compared to the same periods in 2003. At September 30, 2004 Polaris had open Canadian dollar foreign exchange hedging contracts in place through the first quarter of 2005 with notional amounts totaling $74.0 million with an average rate of approximately 0.75. 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 during the fourth quarter of 2004 when compared to the same period in 2003.

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 higher gross margin levels on a comparable basis in the third quarter and year to date periods ended September 30, 2004 when compared to the same periods in 2003. Polaris currently does not have any Euro currency hedging contracts in place for the remainder of 2004. In view of the current foreign exchange rate level for the Euro, Polaris anticipates that the Euro-U.S. dollar exchange rate will have a positive effect on net income during the fourth quarter of 2004 when compared to the same period in 2003.

During the first quarter ended March 31, 2003, the Company completed a review of the functional currency for each of its foreign entities. It was determined the economic facts and circumstances had changed such that the functional currencies in the Canadian, Australian and New Zealand entities should become their local currencies. Previously the U.S. dollar had been their functional currency. Effective January 1, 2003 the functional currency in the Canadian and Australian subsidiaries and New Zealand branch were changed to the Canadian dollar, Australian dollar, and the New Zealand dollar, respectively. The initial implementation of this change in functional currency had the effect of reducing the U.S. dollar value of the combined net assets of Canada, Australia and New Zealand by $869,000 and increasing the accumulated other comprehensive loss by $869,000 during the first quarter of 2003.

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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 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 to Shareholders incorporated by reference in the Company’s Form 10-K for the year ended December 31, 2003.

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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, 2003 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 2003 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.

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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 President and 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 President and 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 third quarter of 2004.

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

PART II. OTHER INFORMATION

     Item 2 – Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

⁽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 19.7 million shares have been repurchased through September 30, 2004. This Program does not have an expiration date.

     Item 6-Exhibits and Reports on Form 8-K

(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

(b)

Reports on Form 8-K

     During the quarter ended September 30, 2004, the Company furnished to the Securities and Exchange Commission the following reports on Form 8-K:

     1. Current Report on Form 8-K containing a copy of materials to be used by executives of the Company in presentations to investors and others was furnished on July 22, 2004 under Item 9.

     2. Current Report on Form 8-K including its press release announcing the Company’s decision to cease manufacture of marine products, disclosing the expected costs of such decision and containing a copy of materials to be used by executives of the Company in presentations to investors and others was furnished on September 2, 2004 under Items 2.02, 2.05, 7.01 and 9.01.

     On October 14, 2004, the Company furnished under Item 2.02 a Current Report on Form 8-K including its press release announcing the Company’s third quarter 2004 financial results and copies of the Company’s unaudited consolidated statements of income, unaudited consolidated balance sheets and unaudited consolidated statements of cash flows, which were discussed by management during the earnings conference call hosted on that date.

     Also, on October 21, 2004, the Company filed under Item 5.02 a Current Report on Form 8-K including its press release announcing the election of Robert L. Caulk as a director of the Company.

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FORM 10-Q
For the Quarterly Period Ended
September 30, 2004

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.

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