Polaris Reports Second Quarter 2006 Results

Second Quarter Highlights:

-- Earnings per share from continuing operations in-line with expectations

-- Gross margin percentage improved 27 basis points to 21.7% due to quality improvements, currency benefits and various cost reduction initiatives implemented by the Company

-- Victory motorcycle sales grew 26%

-- Narrowing range of full year 2006 earnings from continuing operations guidance to $3.10 to $3.20 per diluted share on an expected 3 to 5 percent decline in sales

-- Recorded an additional loss on disposal for marine products of $2.0 million, net of tax

Polaris Industries Inc. (NYSE:PII)(PSE:PII) today reported netincome from continuing operations of $22.7 million, or $0.53 perdiluted share for the second quarter ended June 30, 2006, in line withpreviously issued guidance. By comparison, 2005 second quarter netincome from continuing operations as adjusted for the impact of SFAS123(R) was $29.1 million or $0.66 per diluted share. Sales fromcontinuing operations for the second quarter 2006 totaled $384.3million, a decrease of 13 percent from last year's second quartersales from continuing operations of $442.3 million.

Tom Tiller, Chief Executive Officer, stated, "Our second quarterresults met our expectations in a continuing challenging environment.As expected, reduced North American ATV and snowmobile shipments todealers in the 2006 second quarter resulted in reduced overall Companysales and earnings when compared to the same period in 2005. Theefforts of both Polaris and our dealers to reduce ATV and snowmobileinventory levels are only a part of the important, proactive stepsthat are being taken to effectively manage the business through achallenging economic period in which rising interest rates and highgasoline prices have negatively impacted consumer sentiment anddiscretionary spending. Although dealer ATV inventory levels havedecreased sequentially, we expect further reductions as we movethrough the balance of the 2006 calendar year as dealers continue todesire lower ATV inventory levels. I am confident we and our dealersare taking the necessary steps to bring down inventories toappropriate levels."

Tiller continued, "In addition to adjustments to our ATV andsnowmobile production volumes, we have worked to source componentsfrom lower cost suppliers and reduce our internal operating costs. Asa result of these efforts and positive product mix changes, we arestarting to realize improved gross margins despite lower sales levels.In addition to these operational actions, we have continued to developnew, innovative products that will play a critical role in our futurerevenue growth.

Tiller concluded, "While our North American ATV and snowmobilebusinesses are working through some near-term challenges, I am pleasedwith the progress we are making in other parts of our business such asVictory motorcycles, RANGER(TM) utility vehicles and the jointprojects with KTM Power Sports AG which are on schedule andprogressing nicely. These exciting areas of our business will play animportant role in our future growth and we are encouraged by thepositive momentum that each is currently enjoying."

Six Month Results from Continuing Operations

For the six months ended June 30, 2006, Polaris reported netincome from continuing operations of $33.9 million or $0.79 perdiluted share compared to net income from continuing operations of$47.0 million or $1.06 per diluted share for the six months ended June30, 2005 as adjusted for the impact of SFAS 123(R). Sales fromcontinuing operations for the year-to-date period ended June 30, 2006totaled $717.8 million, down ten percent compared to sales fromcontinuing operations of $800.6 million for the six-month period in2005.

2006 Business Outlook

For the full year 2006 the Company is narrowing its earnings pershare from continuing operations guidance from the previouslyannounced range of $3.08 to $3.20 to the current range of $3.10 to$3.20 per diluted share. Full year 2005 SFAS 123(R) adjusted earningsper share from continuing operations was $3.15 per diluted share. Dueto the expectation that North American dealers will continue to makemodest adjustments to their ATV inventory levels through reducedorders in the second half of the year, total company sales are nowexpected to decline three to five percent for the full year 2006, aslight change from previously issued guidance that sales were expectedto decline one to three percent for the full year. For the thirdquarter of 2006, the Company expects sales from continuing operationsto be three percent to five percent lower than during the thirdquarter of 2005. Third quarter 2006 earnings from continuingoperations are expected to be in the range of $1.03 to $1.08 perdiluted share, compared to SFAS 123(R) adjusted earnings of $1.11 perdiluted share for the third quarter of 2005.

Accounting for Stock-Based Compensation

Polaris adopted SFAS 123(R) "Accounting for Stock-BasedCompensation" effective the beginning of fiscal year 2006 using themodified retrospective method. All prior periods have been adjusted togive effect to the adoption of SFAS 123(R) using the modifiedretrospective method. The Company provided revised quarterlyConsolidated Financial Statements for the 2005 year reflecting theadoption of SFAS 123(R) under the modified retrospective method in aForm 8-K dated January 26, 2006.

Discontinued Operations Results

The Company ceased manufacturing marine products on September 2,2004. As a result, the marine products division's financial resultsare being reported separately as discontinued operations for allperiods presented. The Company's second quarter 2006 loss fromdiscontinued operations was $0.1 million, net of tax, or $0.00 perdiluted share, compared to a loss of $0.1 million, net of tax, or$0.00 per diluted share in the second quarter 2005. During the secondquarter of 2006, the Company recorded an additional loss on disposalof discontinued operations of $3.1 million before tax, or $2.0 millionafter tax. This loss includes the estimated costs required to supportadditional product liability litigation claims and warranty expensesrelated to marine products. Reported net income for the second quarter2006, including both continuing and discontinued operations and theloss on disposal of discontinued operations was $20.6 million, or$0.48 per diluted share compared to $29.0 million, or $0.66 perdiluted share in the second quarter of 2005. For the six months endedJune 30, 2006, the loss from discontinued operations was $0.2 million,after tax, or less than $0.01 per diluted share, compared to a loss of$0.4 million or $0.01 per diluted share in 2005. Reported net incomefor the six months ended June 30, 2006, including each of continuingand discontinued operations, the loss on disposal of discontinuedoperations and the cumulative effect of the SFAS 123(R) accountingchange was $32.1 million or $0.75 per diluted share, compared to $46.6million, or $1.05 per diluted share for the six months ended June 30,2005.

(In millions except per share data)

2nd Quarter ended Six Months ended
June 30, June 30,
----------------------------------------------------------------------
2006 2005 Change 2006 2005 Change
----------------------------------------------------------------------
Sales $384.3 $442.3 -13% $717.8 $800.6 -10%
----------------------------------------------------------------------
Operating income from
continuing operations $37.4 $45.2 -17% $53.5 $72.8 -27%
----------------------------------------------------------------------
Net Income from
continuing operations $22.7 $29.1 -22% $33.9 $47.0 -28%
----------------------------------------------------------------------
Earnings per share from
continuing operations
(diluted) $0.53 $0.66 -20% $0.79 $1.06 -25%
----------------------------------------------------------------------
Net Income $20.6 $29.0 -29% $32.1 $46.6 -31%
----------------------------------------------------------------------
Earnings per share
(diluted) $0.48 $0.66 -27% $0.75 $1.05 -29%
----------------------------------------------------------------------

Note: 2005 results have been adjusted to reflect the implementation of
SFAS 123(R) using the modified retrospective method.

ATV (all-terrain vehicle) sales in the second quarter 2006decreased five percent from the second quarter 2005. The reduction insales was primarily due to decreased shipments of ATVs to dealers inNorth America as dealers reduced orders with the aim of improvingtheir inventory levels. Additionally, International sales were lowerduring the quarter due to softer sales in some southern countries inEurope, particularly Spain and France. The Company continued toexperience growth during the quarter in the RANGER(TM) product line,as well as accelerating sales from its new entry-level Hawkeye ATV andits new two-up ATV, the Sportsman X2. Dealer inventory levels in NorthAmerica improved from the first quarter of 2006 to the second quarter2006 and are at comparable levels to a year ago. Year-to-date 2006 ATVsales decreased seven percent from 2005 to a total of $530.3 million.

Sales of Victory motorcycles increased 26 percent during thesecond quarter 2006, as compared to the second quarter of 2005. Thisincrease in sales is attributable to continued improved brandrecognition, the success of the Hammer and Vegas Jackpot models,positive customer response to a more powerful 100 cubic inch engineand six speed transmission that is now available in most of the modelline, and improvements in the dealer network that have contributed toan expanding market share. Year-to-date 2006 Victory motorcycle salesincreased 17 percent over 2005, to total $53.1 million for the firstsix months of 2006.

Snowmobile sales totaled $5.3 million for the 2006 second quartercompared to $51.9 million for the prior year's second quarter.Shipments in the second quarter were lower as a result of asignificantly lower level of orders placed by dealers for 2007 modelyear snowmobiles and a change in the timing of quarterly shipments todealers in 2006. As we have previously discussed, order levelsdeclined primarily because of elevated season-ending dealer inventorylevels, which were driven by weaker retail sales during this pastriding season due to below average snowfall across many regions ofNorth America and warranty issues relating to certain 2005 and 2006model year snowmobiles. Year-to-date 2006 snowmobile sales totaled$7.8 million compared to 2005 year-to-date sales of $59.1 million.

Parts, Garments, and Accessories ("PG&A") sales decreased twopercent for the second quarter and one percent for the year-to-dateperiod ended June 30, 2006 respectively, compared to the same periodsin 2005. The decline in PG&A sales was primarily related to the lowershipments of ATVs during the quarter and year to date period.

Gross profit, as a percentage of sales, was 21.7 percent for thesecond quarter 2006, an increase from 21.4 percent in the comparablequarter of 2005. During the second quarter 2006, increased sales ofhigher gross margin products, improvements in product qualityresulting in lower warranty cost, favorable currency effects andsavings from various cost reduction initiatives were partially offsetby increased raw materials, floor plan financing and sales promotioncosts. For the first six months of 2006, gross profit, as a percentageof sales, was 21.0 percent compared to 22.2 percent for the samesix-month period in 2005.

For the second quarter 2006, operating expenses decreased slightlyto $57.6 million compared to $57.8 million for the second quarter of2005. Operating expenses as a percent of sales increased to 15.0percent from 13.1 percent in the second quarter of 2005. For theyear-to-date period, operating expenses decreased three percent to$118.2 million or 16.5 percent of sales compared to $121.4 million or15.2 percent of sales for the same period in 2005. Operating expensesdecreased for the second quarter and year-to-date periods primarilydue to the impact on compensation plan expenses of moderating growthrates of the Company's profitability and a lower stock price during2006, in addition to operating cost control measures taken by theCompany.

Income from financial services increased 41 percent to $11.5million in the second quarter 2006, up from $8.2 million in the secondquarter 2005, due to increased profitability generated from both theretail and wholesale credit portfolios. Income from financial servicesfor the year-to-date period ended June 30, 2006 increased 25 percentto $20.9 million compared to $16.7 million for the same period in2005. The increase in income from the wholesale credit portfolio inthe 2006 periods is the result of higher interest rates and higherdealer inventory levels. The income generated from the retail creditportfolio has increased in the 2006 periods in part due to the successof an additional offering to Polaris dealers to finance their used andnon-Polaris products through Polaris' retail credit relationship withHSBC.

Interest expense increased to $2.0 million and $3.5 million forthe 2006 second quarter and year-to-date periods, respectively,compared to $1.2 million and $1.8 million for the second quarter andyear-to-date periods, respectively, of 2005. The increase is due tohigher debt levels and increased interest rates during the 2006periods.

Equity in income of manufacturing affiliates (which primarilyrepresents the Company's portion of income (loss) from its investmentin 25% of KTM Power Sports AG, an Austrian motorcycle manufacturer)totaled a loss of $0.2 million for the second quarter of 2006 andincome of $1.0 million for the 2006 year to date period. The secondquarter loss from the KTM investment represents Polaris' share ofKTM's fiscal third quarter operating results which is consistent withtheir historical seasonal pattern of product shipments andprofitability levels. The Company purchased a 25 percent interest inKTM in July 2005.

Financial Position and Cash Flow

Net cash provided by operating activities of continuing operationsfor the second quarter of 2006 totaled $52.1 million compared to $63.2million in the second quarter of 2005. Year-to-date ended June 30,2006, net cash provided by operating activities of continuingoperations totaled $9.0 million, an improvement of $16.0 millioncompared to a use of cash of $7.0 million in the first half of 2005. Adecrease in the growth rates of inventory levels compared to the sameperiod last year was the primary reason for the increase in net cashprovided by operating activities during the first half of 2006. TheCompany's debt to total capital ratio was 21 percent at June 30, 2006,compared to eight percent at the same time a year ago, resultingprimarily from the KTM investment. Cash and cash equivalents were$10.6 million at June 30, 2006 compared to $14.3 million a year ago.

Share Buyback Continues

During the second quarter 2006 the Company repurchased and retired927,000 shares of its common stock for $41.8 million, bringing totalshare repurchases to 1.3 million shares, or $58.2 million for theyear-to-date period ending June 30, 2006. Since inception of the sharerepurchase program in 1996, approximately 23.6 million shares havebeen repurchased at an average price of $27.09 per share. As of June30, 2006, the Company has authorization from its Board of Directors torepurchase up to an additional 3.4 million shares of Polaris stock.

Conference Call to be Held

Today at 9:00 AM (CDT) Polaris Industries Inc. will host aconference call to discuss Polaris' second quarter 2006 earningsresults released this morning. The conference call is accessible bydialing 800-374-6475 in the U.S. and Canada or 706-679-2596 forInternational calls or via the Investor Relations page of theCompany's web site, www.polarisindustries.com (click on Our Companythen Investor Relations). The conference call will be availablethrough Thursday, July 20, 2006 by dialing 800-642-1687 in the U.S.and Canada, or 706-645-9291 for International calls and enteringpasscode 1790160, and on Polaris' web site.

About Polaris

Information about the complete line of Polaris products isavailable from authorized Polaris dealers or from the Polaris homepageat www.polarisindustries.com.

With annual 2005 sales of $1.9 billion, Polaris designs,engineers, manufactures and markets snowmobiles, all-terrain vehicles(ATVs), Victory motorcycles and the Polaris RANGER(TM) forrecreational and utility use.

Polaris is a recognized leader in the snowmobile industry and oneof the largest manufacturers of ATVs in the world. Victorymotorcycles, established in 1998 and representing the first all-newAmerican-made motorcycle from a major company in nearly 60 years, arerapidly making impressive in-roads into the motorcycle cruisermarketplace. Polaris also enhances the riding experience with acomplete line of Pure Polaris apparel, accessories and parts,available at Polaris dealerships. Consumers can also purchase appareland vehicle accessories anytime at www.polarisindustries.com.

Polaris Industries Inc. trades on the New York Stock Exchange andPacific Stock Exchange under the symbol "PII," and the Company isincluded in the S&P Small-Cap 600 stock price index.

Except for historical information contained herein, the mattersset forth in this news release, including management's expectationsregarding 2006 sales, shipments, net income and cash flow, areforward-looking statements that involve certain risks anduncertainties that could cause actual results to differ materiallyfrom those forward-looking statements. Potential risks anduncertainties include such factors as product offerings, promotionalactivities and pricing strategies by competitors; warranty expenses;foreign currency exchange rate fluctuations; effects of the KTMrelationship; environmental and product safety regulatory activity;effects of weather; commodity costs; uninsured product liabilityclaims; and overall economic conditions, including inflation andconsumer confidence and spending. Investors are also directed toconsider other risks and uncertainties discussed in documents filed bythe Company with the Securities and Exchange Commission.

POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
and Other Selected Financial Information
(In Thousands, Except Per Share Data)
(Unaudited)

For Three Months For Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2006 2005 2006 2005
---- ---- ---- ----
Sales $384,335 $442,296 $717,844 $800,608
Cost of Sales 300,906 347,462 567,023 623,199
--------- --------- --------- ---------
Gross profit 83,429 94,834 150,821 177,409
Operating expenses
Selling and marketing 26,550 26,424 54,870 54,550
Research and development 20,710 18,086 37,207 35,243
General and administrative 10,294 13,332 26,118 31,566
--------- --------- --------- ---------
Total operating expenses 57,554 57,842 118,195 121,359

Income from financial services 11,546 8,206 20,872 16,748
--------- --------- --------- ---------
Operating Income 37,421 45,198 53,498 72,798

Non-operating Expense
(Income):
Interest expense 2,035 1,183 3,548 1,758
Equity in (income) loss of
manufacturing affiliates 222 3 (961) -
Other expense (income), net 816 1,070 99 1,244
--------- --------- --------- ---------
Income before income taxes 34,348 42,942 50,812 69,796

Provision for Income Taxes 11,619 13,809 16,890 22,799
--------- --------- --------- ---------
Net Income from continuing
operations $22,729 $29,133 $33,922 $46,997
Loss from discontinued
operations, net of tax (137) (145) (207) (420)
Loss on disposal of
discontinued operations,
net of tax (2,021) - (2,021) -
Cumulative effect of
accounting change, net of
tax - - 407 -
--------- --------- --------- ---------
Net Income $20,571 $28,988 $32,101 $46,577
========= ========= ========= =========
Basic Net Income per share
Continuing operations $0.55 $0.69 $0.82 $1.10
Loss from discontinued
operations $(0.00) $(0.00) $(0.01) $(0.01)
Loss on disposal of
discontinued operations,
net of tax $(0.05) $- $(0.05) $-
Cumulative effect of
accounting change, net of
tax - - 0.01 -
--------- --------- ========= =========
Net Income $0.50 $0.69 $0.77 $1.09
========= ========= ========= =========

Diluted Net Income per share
Continuing operations $0.53 $0.66 $0.79 $1.06
Loss from discontinued
operations $(0.00) $(0.00) $(0.00) $(0.01)
Loss on disposal of
discontinued operations,
net of tax $(0.05) $- $(0.05) $-
Cumulative effect of
accounting change, net of
tax - - 0.01 -
--------- --------- --------- ---------
Net Income $0.48 $0.66 $0.75 $1.05
========= ========= ========= =========

Weighted average shares
outstanding:
Basic 41,394 42,270 41,593 42,544
========= ========= ========= =========
Diluted 42,575 43,870 42,850 44,478
========= ========= ========= =========



Business Unit Second Quarter Ended For the Six Months Ended
Information June 30, June 30,
-------------
2006 2005 % chg 2006 2005 % chg
---- ---- ----- ---- ---- -----
Snowmobiles $5,269 $51,914 -90% $7,814 $59,131 -87%
All-Terrain
Vehicles 286,679 302,298 -5% 530,280 568,244 -7%
Victory
Motorcycles 27,844 22,157 26% 53,132 45,563 17%
Parts, Garments &
Accessories 64,543 65,927 -2% 126,618 127,670 -1%
--------- --------- ----- --------- --------- -----
Total Sales $384,335 $442,296 -13% $717,844 $800,608 -10%
========= ========= ===== ========= ========= =====


2005 results have been adjusted to reflect the adoption of SFAS 123R
under the modified retrospective method. All periods presented
reflect the classification of the Marine Division's financial results
as discontinued operations.


POLARIS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS


Subject to Reclassification June 30, 2006 June 30, 2005
(In Thousands) (Unaudited) (Unaudited)
------------- -------------

Assets
Current Assets
Cash and cash equivalents $10,563 $14,320
Trade receivables, net 55,555 57,344
Inventories, net 241,302 236,818
Prepaid expenses and other 9,324 11,297
Deferred tax assets 55,584 56,244
Current assets of discontinued
operations - 982
------------- -------------
Total current assets 372,328 377,005

Property and equipment, net 219,071 219,845
Investments in Finance Affiliate and
Retail Credit Deposit 49,872 92,357
Investments in Manufacturing Affiliates 93,741 2,875
Deferred Income Taxes 1,693 1,899
Goodwill, net 25,345 24,657
Intangible and other assets, net 175 264
------------- -------------
Total Assets $762,225 $718,902
============= =============

Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $93,814 $106,630
Accrued expenses 213,730 216,258
Income taxes payable 11,657 16,321
Current liabilities of discontinued
operations 2,623 15,594
------------- -------------
Total current liabilities 321,824 354,803

Borrowings under credit agreement 91,000 30,000
------------- -------------
Total liabilities $412,824 $384,803
------------- -------------

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, 40,545 and 42,150
shares issued and outstanding $405 $421
Additional paid-in capital -- --
Retained earnings 342,345 333,138
Accumulated other comprehensive income,
net 6,651 540
------------- -------------
Total shareholders' equity $349,401 $334,099
------------- -------------

Total Liabilities and Shareholders'
Equity $762,225 $718,902
============= =============


2005 results have been adjusted to reflect the adoption of SFAS 123R
under the modified retrospective method. All periods reflect the
classification of the Marine Division results as discontinued
operations.



POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS


Subject to Reclassification For Six Months
(In Thousands) Ended June 30,
--------------
(Unaudited) 2006 2005
---- ----

Operating Activities:
Net income before cumulative effect of
accounting change $31,694 $46,577
Net loss from discontinued operations 2,228 420
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 30,782 28,416
Noncash compensation 7,534 10,447
Noncash income from financial services (7,567) (6,259)
Noncash income from manufacturing affiliates (961) -
Deferred income taxes 4,724 5,672
Changes in current operating items:
Trade receivables 22,795 13,828
Inventories (39,281) (63,193)
Accounts payable (3,250) 10,328
Accrued expenses (50,000) (36,447)
Income taxes payable 2,230 (14,680)
Prepaid expenses and others, net 8,062 (2,143)
--------- ---------
Net cash provided by (used for) continuing
operations 8,990 (7,034)
Net cash flow (used for) discontinued
operations (4,885) (6,182)
--------- ---------
Net cash provided by (used for) operating
activities 4,105 (13,216)

Investing Activities:
Purchase of property and equipment (27,762) (47,175)
Investments in finance affiliate and retail
credit deposit, net 17,296 12,288
--------- ---------
Net cash used for investing activities (10,466) (34,887)

Financing Activities:
Borrowings under credit agreement 342,000 297,000
Repayments under credit agreement (269,000) (285,000)
Repurchase and retirement of common shares (58,187) (92,096)
Cash dividends to shareholders (25,630) (23,646)
Tax effect of exercise of stock options 1,698 12,469
Proceeds from stock issuances under employee
plans 6,368 15,227
--------- ---------

Net cash used for financing activities (2,751) (76,046)
--------- ---------

Net decrease in cash and cash equivalents (9,112) (124,149)

Cash and cash equivalents at beginning of period 19,675 138,469
--------- ---------

Cash and cash equivalents at end of period $10,563 $14,320
========= =========

2005 results have been adjusted to reflect the adoption of SFAS 123R
under the modified retrospective method. All periods presented
reflect the classification of the marine division's financial results
as discontinued operations.