FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

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 JUNE 30, 2002

OR

[   ] 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	(IRS Employer
incorporation or organization	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    

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 July 31, 2002, 23,093,469 shares of Common Stock of the issuer were outstanding.

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

TABLE OF CONTENTS

POLARIS INDUSTRIES INC.
FORM 10-Q
For Quarterly Period Ended June 30, 2002

Table of Contents

			Page
Part I FINANCIAL INFORMATION
	Item 1 — Consolidated Financial Statements
		Consolidated Balance Sheets		3
		Consolidated Statements of Income		4
		Consolidated Statements of Cash Flows		5
		Notes to Consolidated Financial Statements		6
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Results of Operations		13
		Cash Dividends		15
		Liquidity and Capital Resources		15
		Inflation and Exchange Rates		16
	Item 3 — Quantitative and Qualitative Disclosures on Market Risk
		Note regarding forward-looking statements		18
Part II OTHER INFORMATION				19
	Item 1 Legal Proceedings
	Item 2 Changes in Securities
	Item 3 Defaults upon Senior Securities
	Item 4 Submission of Matters to a Vote of Security Holders
	Item 6 Exhibits and Reports on Form 8-K
SIGNATURE PAGE				20

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

POLARIS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)

				June 30, 2002
				(Unaudited)			December 31, 2001
Assets
Current Assets
	Cash and cash equivalents			$	46,060		$	40,530
	Trade receivables				41,693			56,119
	Inventories				174,228			152,717
	Prepaid expenses and other				8,350			10,203
	Deferred tax assets				45,715			45,748
		Total current assets			316,046			305,317
Deferred tax assets					6,404			9,361
Property and equipment, net					167,814			170,323
Investments in finance affiliate and retail credit deposit					47,750			52,963
Goodwill, net					23,999			23,541
Intangible and other assets, net					3,635			3,658
		Total Assets		$	565,648		$	565,163
Liabilities and Shareholders’ Equity
Current Liabilities:
	Accounts payable			$	106,248		$	101,554
	Accrued expenses				166,091			190,911
	Income taxes payable				22,395			15,872
		Total current liabilities			294,734			308,337
Borrowings under credit agreement					18,036			18,043
		Total Liabilities			312,770			326,380
Shareholders’ Equity:
	Common stock				227			229
	Additional paid -in capital				0			0
	Deferred compensation				(2,261	)		(4,888	)
	Other comprehensive loss				(1,288	)		(5,192	)
	Retained earnings				256,200			248,634
		Total shareholders’ equity			252,878			238,783
			Total Liabilities and Shareholders’ Equity	$	565,648		$	565,163

See Notes to Consolidated Financial Statements

3

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

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

			For Three Months Ended June 30,						For Six Months Ended June 30,
			2002			2001			2002			2001
Sales			$	362,589		$	354,558		$	661,758		$	644,246
Cost of Sales				288,160			291,087			529,569			521,655
	Gross profit			74,429			63,471			132,189			122,591
Operating expenses
	Selling and marketing			20,388			18,736			41,079			40,935
	Research and development			11,363			8,059			20,849			16,537
	General and administrative			16,674			12,876			29,947			26,030
		Total operating expenses		48,425			39,671			91,875			83,502
Income from financial services				3,038			3,218			6,230			6,698
		Operating Income		29,042			27,018			46,544			45,787
Non-operating Expense (Income):
	Interest expense			781			2,532			1,463			4,644
	Other income, net			(1,601	)		(1,585	)		(2,274	)		(841	)
		Income before income taxes		29,862			26,071			47,355			41,984
Provision for Income Taxes				10,004			8,994			15,864			14,484
		Net Income	$	19,858		$	17,077		$	31,491		$	27,500
Net Income Per Share
		Basic	$	0.88		$	0.74		$	1.40		$	1.19
		Diluted	$	0.83		$	0.72		$	1.32		$	1.16
Weighted average shares outstanding:
		Basic		22,457			23,077			22,450			23,115
		Diluted		23,821			23,728			23,835			23,707

See Notes to Consolidated Financial Statements

4

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

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

					For Six Months Ended June 30,
					2002			2001
Operating Activities:
	Net income				$	31,491		$	27,500
	Adjustments to reconcile net income to net cash provided by operating activities   Depreciation and amortization					27,354			25,729
			Noncash compensation			8,751			6,111
			Noncash income from financial services			(3,947	)		(6,371	)
			Deferred income taxes			2,990			(10,034	)
			Changes in current operating items
				Trade receivables		14,426			(18,217	)
				Inventories		(21,511	)		(54,002	)
				Accounts payable		4,694			33,207
				Accrued expenses		(24,820	)		1,369
				Income taxes payable		9,630			5,512
				Prepaid expenses and others, net		5,675			(6,816	)
				Net cash provided by operating activities		54,733			3,988
Investing Activities:
	Purchase of property and equipment					(24,758	)		(28,192	)
	Investments in finance affiliate and retail credit deposit, net					9,096			9,150
	Acquisition of business					(458	)		0
		Net cash used for investing activities				(16,120	)		(19,042	)
Financing Activities:
	Borrowings under credit agreement					246,000			471,099
	Repayments under credit agreement					(246,007	)		(423,113	)
	Repurchase and retirement of common shares					(29,824	)		(22,068	)
	Cash dividends to shareholders					(12,689	)		(11,509	)
	Proceeds from the exercise of stock options					9,437			1,580
		Net cash provided by/(used for) financing activities				(33,083	)		15,989
Net increase in cash and cash equivalents						5,530			935
Cash and cash equivalents at beginning of period					$	40,530		$	2,369
Cash and cash equivalents at end of period					$	46,060		$	3,304

See Notes to Consolidated Financial Statements

5

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

POLARIS INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. 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, 2001, 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), personal watercraft (PWC), 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.

Polaris implemented two new accounting rules during the first quarter 2002. Floor plan financing expenses that previously were included in selling and marketing expenses are now recorded as an offset to sales to comply with the requirements of Emerging Issues Task Force Issue (EITF) 01-09. Cooperative advertising expenses that previously were included in selling and marketing expenses are now recorded in cost of sales to comply with Emerging Issues Task Force Issue (EITF) 00-25. Certain amounts in 2001 have been reclassified to conform to the new requirements. These changes had no impact on previously reported net income.

Income from financial services which was previously reported as non-operating income is now reported as a component of operating income to better reflect income from ongoing operations of which financial services has a significant impact. This change has no impact on previously reported net income.

NOTE 2. Inventories

The major components of inventories are as follows (in thousands):

	June 30, 2002		December 31, 2001
Raw Materials & Purchased Components	$	41,430	$	22,107
Parts, Garments & Accessories		51,749		53,573
Finished Goods		81,049		77,037
	$	174,228	$	152,717

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

NOTE 3. Financing Agreement

Polaris has an unsecured bank line of credit arrangement with maximum available borrowings of $150,000,000 expiring on June 14, 2004. In addition, Polaris has entered into a 364-day unsecured bank line of credit arrangement expiring on June 12, 2003 with maximum available borrowings of $100,000,000. For both credit arrangements, interest is charged at rates based on LIBOR or “prime” (2.42 percent at June 30, 2002).

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 June 30, 2002, total borrowings under the bank line of credit arrangements were $18,036,000 and have 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. Polaris Acceptance provides floor plan financing to Polaris’ dealers in the United States. Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. The receivable portfolio is recorded on Polaris Acceptance’s books, which is consolidated onto TDF’s books and is funded 85 percent through a loan from an affiliate of TDF 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 June 30, 2002 was approximately $515,000,000.

Beginning in 1999, Polaris Acceptance entered into an Income Sharing Agreement with Transamerica Retail Financial Services (TRFS), a subsidiary of TDF. TRFS and its banking affiliate provide private label retail credit financing to Polaris consumers through Polaris dealers in the United States. In October 2001, TRFS sold a significant portion of the retail portfolio to Household Bank, N.A. (Household). The remaining amount financed by consumers through TRFS and its banking affiliate is in the process of being liquidated, which is expected to be completed some time in 2002.

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

Polaris’ investment in Polaris Acceptance is accounted for under the equity method, and is recorded as a component of Investments in Finance Affiliate and Retail Credit Deposit in the accompanying consolidated balance sheets. The partnership agreement provides that all income and losses of the floor plan and retail credit portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50 percent by TDF’s wholly owned subsidiary. Polaris’ allocable share of the income of Polaris Acceptance has been included as a component of Income from Financial Services in the accompanying consolidated statements of income.

In October 2001, a wholly owned subsidiary of Polaris entered into agreements with Household and an affiliate of Household to provide private label retail credit financing through installment and revolving loans to Polaris consumers through Polaris dealers in the United States. The amount financed by consumers under this arrangement at June 30, 2002 was approximately $192,000,000. The receivable portfolio is owned and managed by Household 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 sheet. Polaris’ subsidiary participates in 50 percent of the profits or losses of the revolving credit portfolio. Polaris’ allocable share of the income from the retail credit portfolio has been included as a component of Income from Financial Services in the accompanying consolidated statements of income. Under the terms of the agreements, either party has the right to terminate the agreements if profitability of the portfolio falls below certain minimum levels. Polaris’ financial exposure under this agreement is limited to its deposit plus an aggregate amount of not more than $15,000,000.

Polaris also provides extended service contracts to consumers and certain insurance contracts to dealers and 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.

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 income in the accompanying consolidated statements of income.

8

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

NOTE 6. Shareholder’s Equity

During the first six months of 2002, Polaris paid $29,824,000 to repurchase and retire 461,000 shares of its common stock. Polaris had approximately 2,175,000 remaining shares available to repurchase under its current Board of Directors’ authorization as of June 30, 2002.

Polaris paid a regular cash dividend of $0.28 per share payable on May 15, 2002 to holders of record on May 1, 2002.

The Polaris Board of Directors also declared a regular cash dividend of $0.28 per share payable on or about August 15, 2002 to holders of record on August 1, 2002.

Net Income per Share

Net income per share for the periods ended June 30, 2002 and 2001 was calculated based on the weighted average number of common and potential common shares outstanding.

Basic earnings per share using SFAS No. 128 “Earnings Per Share” is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year, including shares earned under the Director Plan and the Employee Stock Ownership Plan (ESOP). Diluted earnings per share is computed under the treasury stock method and is calculated to reflect the dilutive effect of the Option Plan. A reconciliation of these amounts is as follows (in thousands):

	For Three Months				For Six Months
	Ended June 30,				Ended June 30,
	2002		2001		2002		2001
Weighted average number of common shares outstanding		22,265		22,881		22,257		22,917
Director Plan		22		26		23		28
ESOP		170		170		170		170
Basic weighted average shares outstanding		22,457		23,077		22,450		23,115
Net effect of dilutive stock options		1,364		651		1,385		592
Diluted weighted average shares outstanding		23,821		23,728		23,835		23,707

9

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

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):

		For Three Months					For Six Months
		Ended June 30,					Ended June 30,
		2002		2001			2002		2001
Net income		$	19,858	$	17,077		$	31,491	$	27,500
Other comprehensive income:
	Foreign currency translation adjustment		234		(196	)		106		(266	)
	Effect of SFAS 133 adoption		—		—			—		(2,544	)
	Unrealized gain (loss) on derivative instruments		2,677		1,596			3,798		(1,389	)
Comprehensive income		$	22,769	$	18,477		$	35,395	$	23,301

NOTE 7. Commitments and Contingencies

Polaris is subject to product liability claims in the normal course of business and prior to June 1996 elected not to purchase insurance for product liability losses. Effective June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for incidents occurring subsequent to the policy date that exceeds a self-insured retention. The estimated costs resulting from any losses are charged to expense when it is probable a loss has been incurred and the amount of the loss is reasonably determinable.

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

Polaris adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001. SFAS No. 133 establishes accounting and reporting standards requiring 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. SFAS No. 133 requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge criteria are met, and requires that a company 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 June 30, 2002, the unrealized loss pertaining to the swap

10

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

agreement was $2,350,000 which is recorded, net of tax, as a component of Other comprehensive 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 Canadian subsidiary. Polaris does not use any financial contracts for trading purposes. These contracts have been designated as and meet the criteria for cash flow hedges.

At June 30, 2002, Polaris had open Japanese yen foreign exchange contracts with notional amounts totaling U.S. $35,332,000. At June 30, 2002, Polaris had open Canadian dollar foreign exchange contracts with notional amounts totaling U.S. $72,929,000. The Japanese yen contracts have an unrealized gain of $1,668,000 and the Canadian dollar contracts have an unrealized loss of $1,452,000, both of which are recorded, net of tax, as a component of Other comprehensive loss in shareholders’ equity.

NOTE 9. Goodwill and Intangible Assets

Effective January 1, 2002, the Company adopted SFAS 142 “Goodwill and Other Intangible Assets.” Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. An impairment charge is recognized only when the calculated fair value of a reporting unit, including goodwill, is less than its carrying amount. Polaris calculated the fair value of its reporting unit using a discounted cash flow model. The results of the analysis indicated that no goodwill impairment existed as of January 1, 2002. In accordance with SFAS 142 the Company will complete an impairment analysis on an annual basis.

Goodwill before accumulated amortization was $35,118,000 at June 30, 2002 and $34,660,000 at December 31, 2001. Accumulated amortization was $11,119,000 at June 30, 2002 and $11,119,000 at December 31, 2001.

As required by SFAS 142, intangibles with finite lives continue to be amortized. Included in intangibles assets are patents, trademarks, trade names, customer lists and technology. Intangible assets before accumulated amortization were $4,134,000 at June 30, 2002 and $4,123,000 at December 31, 2001. Accumulated amortization was $3,329,000 at June 30, 2002 and $3,230,000 at December 31, 2001. The net value of intangible assets is included as a component of Intangible and other assets in the accompanying consolidated balance sheets.

11

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

A reconciliation of reported net income adjusted to reflect the adoption of SFAS 142 is provided below (in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2002		2001		2002		2001
Reported net income	$	19,858	$	17,077	$	31,491	$	27,500
Add-back goodwill amortization, net of tax		—		143		—		286
Adjusted net income	$	19,858	$	17,220	$	31,491	$	27,786
Reported basic net income per share	$	0.88	$	0.74	$	1.40	$	1.19
Add-back goodwill amortization		—		0.01		—		0.01
Adjusted basic net income per share	$	0.88	$	0.75	$	1.40	$	1.20
Reported diluted net income per share	$	0.83	$	0.72	$	1.32	$	1.16
Add-back goodwill amortization		—		0.01		—		0.01
Adjusted diluted net income per share	$	0.83	$	0.73	$	1.32	$	1.17

12

FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

Item 2

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

The following discussion pertains to the results of operations and financial position of Polaris Industries Inc., a Minnesota corporation (“Polaris” or the “Company”) for the quarter and year-to-date periods ended June 30, 2002 and 2001. Due to the seasonality of the snowmobile, all terrain vehicle (ATV), personal watercraft (PWC), 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.

Results of Operations

Sales were $362.6 million in the second quarter of 2002, representing a two percent increase from $354.6 million in sales for the same period in 2001.

Sales of ATVs were $200.2 million in the second quarter of 2002, up five percent from second quarter 2001 sales of $191.1 million. Sales benefited from the introduction of several new products, including the Sportsman 700, two new models of the RANGER utility task vehicle; and the new Polaris Professional Series. Polaris Professional Series sales were $2.8 million in the second quarter 2002 versus $0.7 million in the second quarter 2001. The average per unit sales price for the second quarter 2002 was higher than last year’s second quarter due to a mix change as more of the new higher priced Sportsman 700, RANGERs, and Professional Series models were sold during the current quarter.

Sales of snowmobiles were $91.4 million for the second quarter of 2002, four percent lower than the $94.9 million for the comparable period in 2001. The decrease is mainly the result of dealers taking a more conservative ordering approach due to last season’s light snowfall, resulting in an overall lower production schedule for the 2002-2003 model year. The average per unit sales price for snowmobiles increased during the second quarter 2002 when compared to the prior year period due to a mix change.

Sales of PWC were $10.5 million for the second quarter of 2002, an increase of ten percent from the second quarter 2001 sales of $9.5 million. Although unit shipments were comparable, lower promotion expenses were required to assist retail sales in the second quarter of 2002 since the competitive promotional activity for PWC has been more modest this season.

Sales of Victory motorcycles were $7.7 million for the second quarter 2002, a decrease of 22 percent from $9.9 million for the comparable period in 2001. The decrease is primarily attributable to a change in timing of shipments between the first and second quarter of 2002 compared to a year ago. Year to date sales are up 32 percent for Victory motorcycles. During the quarter two new Victory models and the new Freedom engine introduced last fall continued to gain market acceptance. The average per unit sales price for the second quarter 2002 decreased due to a change in mix of models sold.

PG&A sales were $52.8 million for the second quarter 2002, an increase of seven percent from $49.2 million for the second quarter of 2001. All components of the PG&A business except for snowmobiles, showed improvement over the prior year. Improvements were driven

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

by higher volume of whole goods sold during the quarter, additional PG&A product offerings, improved quality, and an emphasis on selling solutions to the customer.

Total sales increased to $661.8 million for the year-to-date period ended June 30, 2002, up three percent from $644.2 million for the same period in 2001. The increase in sales is primarily due to higher sales of ATVs offset somewhat by lower snowmobile sales versus the prior year period.

Gross profit for the second quarter 2002 increased 17 percent to $74.4 million or 20.5 percent of sales compared to $63.5 million or 17.9 percent of sales for the second quarter 2001. For the year to date period ended June 30, 2002, gross profit increased eight percent to $132.2 million or 20.0 percent of sales compared to $122.6 million or 19.0 percent of sales in the comparable period in 2001. The increase in gross profit as a percent of sales for the 2002 second quarter and the year to date periods is due to a number of factors, including efficiency gains from the Roseau facility redesign completed in the first quarter 2002; changes in the sales mix from new products introduced over the past several quarters; savings from various cost reduction initiatives; an increase in the number of engines produced in house; and improved product quality resulting in lower warranty expense. These favorable factors were offset somewhat by higher ATV promotional expenses incurred in the 2002 periods when compared to the same periods a year ago.

Operating expenses in the second quarter of 2002 increased 22 percent to $48.4 million from $39.7 million in the comparable 2001 period. As a percentage of sales, operating expenses increased to 13.4 percent for the second quarter of 2002 compared to 11.2 percent for the same period in 2001. For the year-to-date period ended June 30, 2002 operating expenses increased ten percent to $91.9 million or 13.9 percent of sales compared to $83.5 million or 13.0 percent of sales in the comparable period in 2001. The increase in operating expenses for the 2002 second quarter and the year to date periods is primarily the result of an increase in research and development expenses related to future product introductions and technologies as well as a positive move in the stock price that has occurred which has increased the cost of stock based compensation plans in the 2002 periods when compared to the same periods a year ago.

Income from financial services decreased six percent to $3.0 million in the second quarter 2002 from $3.2 million in the second quarter 2001. The decrease is due primarily to the lower interest rates in the second quarter 2002 compared to the prior year.

Interest expense decreased 69 percent to $0.8 million in the second quarter 2002 from $2.5 million in the second quarter 2001. The decrease relates primarily to lower interest rates and lower borrowing levels in the second quarter 2002 compared to the prior year period.

Other non-operating income remained relatively flat at $1.6 million in the second quarter 2002 and 2001. The other income is generated primarily from the impact of currency fluctuations in the re-measurement of the balance sheets of foreign subsidiaries in each period presented.

The income tax provision rate for the second quarter 2002 was recorded at 33.5 percent of income before income taxes, a reduction from 34.5 percent in the second quarter last year. The revised rate is a result of the favorable impact of tax planning activities.

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

Cash Dividends

Polaris paid a $0.28 per share dividend payable on May 15, 2002 to shareholders of record on May 1, 2002. In July 2002, the Board of Directors declared a $0.28 per share dividend payable on or about August 15, 2002 to shareholders of record on August 1, 2002.

Liquidity and Capital Resources

Net cash of $54.7 million was provided by operating activities during the six months ended June 30, 2002, a $50.7 million improvement over the comparable period of 2001 primarily resulting from lower inventory and accounts receivable levels than a year ago. Net cash used for investing activities was $16.1 million during the six months ended June 30, 2002 and primarily represents the purchase of property and equipment offset somewhat by a seasonal reduction of the investment in finance affiliate and retail credit deposit. Net cash used for financing activities was $33.1 million during the six months ended June 30, 2002, which primarily represents dividends paid to shareholders and the repurchase of common shares offset by proceeds from the exercise of stock options. Cash and cash equivalents totaled $46.1 million at June 30, 2002.

The seasonality of production and shipments causes working capital requirements to fluctuate during the year. Polaris has unsecured bank line of credit arrangements with maximum available borrowings of $250.0 million. Interest is charged at rates based on LIBOR or “prime” (2.42 percent at June 30, 2002). As of June 30, 2002, total borrowings under these credit arrangements were $18.0 million and have been classified as long-term in the accompanying consolidated balance sheets.

In the past, Polaris has entered into interest rate swap agreements to manage exposures to fluctuations in interest rates. Currently the Company has one 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 2002, Polaris paid $29.8 million to repurchase and retire 461,000 shares of its common stock with cash on hand and borrowings under its line of credit arrangements. As of June 30, 2002 approximately 7.3 million shares have been repurchased since the inception of the board authorization.

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 arrangements 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 factors that would have a material impact in 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. Polaris Acceptance provides floor plan financing to Polaris’ dealers in the United States. Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. The receivable portfolio is recorded on Polaris Acceptance’s books, which is consolidated onto TDF’s books and is funded 85 percent with a loan from an affiliate of TDF 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

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

Polaris’ U.S. sales are financed through Polaris Acceptance whereby Polaris receives payment within a few days of shipment of the product.

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

Polaris’ investment in Polaris Acceptance is accounted for under the equity method, and is recorded as a component of Investments in Finance Affiliate and Retail Credit Deposit in the accompanying consolidated balance sheets. The partnership agreement provides that all income and losses of the floor plan and retail credit portfolio are shared 50 percent by Polaris’ wholly owned subsidiary and 50 percent by TDF’s wholly owned subsidiary. Polaris’ allocable share of the income of Polaris Acceptance has been included as a component of Income from Financial Services in the accompanying consolidated statements of income.

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

As of June 30, 2002, the wholesale portfolio for dealers in the United States was approximately $515.0 million, a six percent decrease from $547.0 million at December 31, 2001. Credit losses in this portfolio have been modest, averaging less than 0.3 percent of the portfolio over the six-year life of the partnership. The Household retail credit portfolio balance as of June 30, 2002, was approximately $192.0 million, up from $160.0 million at December 31, 2001. Receivable losses have averaged about three percent in the two-year life of this portfolio, in line with industry norms.

Inflation and 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 and Canadian dollar have had a material impact from time to time.

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

During calendar 2001, purchases totaling 12 percent of Polaris’ cost of sales were from yen-denominated suppliers. Polaris’ cost of sales in the second quarter ended June 30, 2002 was positively impacted by the Japanese yen-U.S. dollar exchange rate fluctuation when compared to the same period in 2001. 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 positive impact on cost of sales during the remainder of 2002 when compared to the same periods in 2001.

Polaris operates in Canada through a wholly owned subsidiary. The weakening of the Canadian dollar in relationship to the U.S. dollar has resulted in lower gross margin levels on a comparable basis in the second quarter 2002 when compared to the same period in 2001. 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 negative impact on cost of sales during the remainder of 2002 when compared to the same periods in 2001.

Currency re-measurement, translation and exchange gains and losses are reflected in the results of operations for the Canadian and Australian subsidiaries and are reflected as Other Comprehensive Loss in the equity section of the balance sheet for the French subsidiary.

In the past, Polaris has been a party to, and in the future may enter into, foreign exchange hedging contracts for each of the Japanese yen, Euro, Taiwan dollar and Canadian dollar to minimize the impact of exchange rate fluctuations within each year. At June 30, 2002, Polaris had open Japanese yen and Canadian dollar foreign exchange hedging contracts with notional amounts totaling $35.3 million and $72.9 million U.S. dollars, respectively, which will mature at various times throughout the remainder of 2002.

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

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, 2001 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 2001 annual report on Form 10-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 to differ materially from those anticipated by some of the statements made herein. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: product offerings and pricing strategies by competitors; future conduct of litigation or audit 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
June 30, 2002

PART II. OTHER INFORMATION

     Item 1 — Legal Proceedings

     None

     Item 2 — Changes in Securities

     None

     Item 3 — Defaults upon Senior Securities

     None

     Item 4 — Submission of Matters to a Vote of Security Holders

The Company held its annual meeting of shareholders on May 2, 2002. Proxies for matters to be voted upon at the annual meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934, as amended. The following matters were voted upon at the annual meeting:

To elect the following nominees as Class II members of the board of directors of the Company for a new term of three years and until their successors are duly elected and qualified:

				Withheld
		Votes For		Authority
William E. Fruhan, Jr.			19,911,341		175,076
John R. Menard, Jr.			19,901,860		184,557
	R. M. Schreck		19,908,103		178,314

To elect the following nominee as a Class III member of the board of directors of the Company for a new term of one year and until his successor is duly elected and qualified:

			Withheld
	Votes For		Authority
George W. Buckley		19,901,096		185,321

The terms of the following directors continued after the annual meeting: Gregory R. Palen, Richard A. Zona, Andris A. Baltins, Thomas C. Tiller and J. Richard Stonesifer.

     Item 6 — Exhibits and Reports on Form 8-K

     (a) Exhibits

Exhibit 10(k) — Amended and Restated 364 Day Revolving Credit Agreement dated June 13, 2002, among the Company, certain subsidiaries of the Company, the lenders identified therein, Bank of America N.A., as administrative agent and U.S. Bank N.A., as syndication agent and issuing lender.

Exhibit 99(a) — Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350.

Exhibit 99(b) — Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350.

     (b) Reports on Form 8-K

None

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FORM 10-Q
For the Quarterly Period Ended
June 30, 2002

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)
		/s/ Thomas C. Tiller
Date:	August 9, 2002	Thomas C. Tiller President and Chief Executive Officer
		/s/ Michael W. Malone
Date:	August 9, 2002	Michael W. Malone Vice President, Finance, Chief Financial Officer, and Secretary (Principal Financial and Chief Accounting Officer)

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