Harley Davidson Annual Report

OVEROUR HANDLEBARS, WECANSEE THEWORLD.

AnnualReport2009

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FREEDOM.

We fuel

the passion for

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A BOND THAT HAS NO

BOUNDARIES.

COURAGE,FOCUSANDDIRECTIONDEARFELLOWSHAREHOLDERS:Intheworsteconomicdownturnindecades,2009wasayearthatrequiredHarley-Davidsontorespondwithtough,courageousdecisions.Wehadtwokeypriorities.First,weexecutedonourstrategytomanagethebusinesseffectivelyintheneartermandaddresstheimmediatechallenges.Butweneededtodomorethansimplypersevere.Weneededtoestablishabold,clearstrategicdirectionthatwouldmaximizeourop-portunitiesgoingforwardandrestoretheCompanyasastrongbusinessthatcouldconsistentlygrowoverthelonghaul.Wesetthatdirection,andthewordthatbestdescribesournewstrategyis“focus.”

ADDRESSINGTHEIMMEDI-ATECHALLENGESToaddresstheimmediatechal-lengesof2009andthedeeprecession,wedecreasedHarley-Davidsonmotorcycleshipmentstodealersbynearly27percentcomparedto2008.Managingsupplyinlinewithdemandremainsatoppriorityasakeyunderpinningofbrandstrength.Weembarkedonamajorconsolidationandrestructuringofourproductionoperationstogetourcost

structurerightatlowervolumes.WealsosucceededinobtainingthefundingneededtosupportthelendingactivitiesofHarley-DavidsonFinancialServices—anotherpriorityforusin2009.Ourabilitytofundmotorcycleloansforcustomerswasakeystrategicadvantagein2009andwasoneofthereasonsforourmarketsharegrowthduringtheyear.Asaresultofouractions,HDFSisonmuchstrongerfooting,andwebelievewehaveprovidedforitsanticipatedfundingneedsfor2010.

STRATEGICFOCUSLookingoutacrossalongerhorizon,inOctoberweunveiledourlong-term“DeliveringResultsThroughFocus”businessstrategy,withitsfourpillars:growth,continuousimprovement,leadershipdevelopmentandsustainability.Aspartofthisstrategytofocusourefforts,weannouncedwewouldexitfromtheBuellproductlineandsellMVAgusta,focusingourresourcesontheHarley-Davidsonbrand,whichincludescontinuingtoexpandthebrandglobally.

HIGH-POTENTIALBRANDTheheartofourstrategyisourstrongbeliefthatfocusingourinvestmentbehindthepowerfulHarley-Davidsonbrandprovidesasuperiorpathtotappingthefullpotentialofthebrandandtosustainedlong-termgrowth.TheHarley-Davidsonbrandconsistentlyranksamongthestrongestglobally,acrossmanydemographicgroups.Evenin

today’smorepractical,cautiousconsumerenvironment,peopleofallagesandbackgroundsstilldreamabouttheHarley-Davidsonexpe-rience.WeseegreatpotentialtodrivegrowthgloballyandintheU.S.throughuniqueproductsandexperiences,boththroughout-reachtonewcustomersandourcommitmenttocorecustomers.Ourstrategyismulti-generationalandmulti-cultural.Itcallsforustogrowsalestoourcorecustom-ers,whilegrowingsalestooutreachcustomersatafasterrate.OurDarkCustomprod-ucts,includingtheIron883,areastrongdrawforyoungadults,andmotorcyclesliketheStreetGlide,TriGlideandElectraGlideUltraLimitedhaveearnedtheongoingcommitmentofcoreriders.Ininternationalmarketsweplantoadd100to150dealerpointsthrough2014,andinthesameperiodincreaseinternationalretailunitsalestomorethan40percentoftotalretailunitsales,upfromabout33percentin2009.

CONTINUOUSIMPROVE-MENTWealsobelievewehavesignificantopportunitytorunourbusinessmoreeffectivelyandefficientlythroughcontinuousimprovementinmanufacturing,productdevelopmentandbusi-nessoperations.Ourfocusoncontinuousimprovementgoesbeyondsimplyreducingcosts.Itextendstoourabilitytodelivertherightbikestotherightmarketsattherighttime,anessentialcapabilitywhenit

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comestocustomersatisfactionandeffectivelymanagingsupplyinlinewithdemand.ThetransformationcurrentlyunderwayatourvehicleoperationsinYork,Pa.,demonstratesourcommitmenttoreshapingthefaceofHarley-Davidsonmanufacturing,withmuchgreaterflexibilityandsignificantsavingsfromamoreefficientoperation.Justasimpor-tantisthetransformationunderwayinHarley-Davidsonproductdevelopment.Ourworkfocusesonproductselection,costreductionandtimecompression,toreducetimetomarketandconsistentlydeliveroncustomerexpectations.Theseactionsrepresentimportantearlystepsinwhatwillbeanongoingjourneyincontinuousimprovement.

THEROADAHEAD2009wasindeedayearthattestedourcompany,butitwasalsoayearofgenuineachievementasweembarkedonanewcourse.ItwasayearinwhichwetookmanycourageousactionstopositionHarley-Davidsonforthefuture.Ouraccomplishmentswerepossibleonlythroughthehardwork,unwaveringspiritanddedicationofouremployees,dealersandsuppliers,whofocuseverydayondeliveringanoutstandingexperienceforourcustomers.Ithankallthemembersofourteamfortheirmanycontributions.Asweexecuteonourstrategy,wedonotpromiseeasysolutions.Consumerswilllikelycontinuetobecautiousinaneconomicenvironmentthat

remainschallenging.However,webelieveourstrategyandtheperformancemeasureswehavelaidoutarebasedonanappropriateandprudentapproachtothemarket.Deliveringonourplanswilltakediscipline,determi-nationandintensefocus,butweareconfidentwecanachieveourgoalsthroughourstrategy.ONECOMPANY,ONETEAM,ONEDIRECTIONWhenmyjourneyhereatHarley-DavidsonbeganlastMay,itwasobviousthatpeoplewerepassionateaboutthebrand.AsIhavehadtheopportunitytogettoknowourcustomers,dealersandemployees,jointhematralliesandeventsandridewiththem,itisclearthepassionisfarstrongeranddeeperthananythingIcouldeverhaveimagined.AllofusatHarley-Davidsonarefullycommitted—asonecompany,workingasoneteamandpull-inginonedirection—todoingtherightthingsforthiscompanyandforthecollectivefutureofallstakeholders.Byaligningtheorganizationbehindaclearstrategicdirection,wearemov-ingwithappropriateurgencyandmakinggreatprogresstowardourgoaltodojustthat.Weappreci-atethetrustyouhaveplacedinustomovethiscompanyforward.Whilethereisstillplentyofhardworkahead,Icouldnotfeelbetterabouttheprogresswehavemadeandthepathwehavechosen.

Sincerely,KEITHE.WANDELLPRESIDENTANDCHIEFEXECUTIVEOFFICER

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STARTING AT $15,899 > Legendary looks, hidden technology and street cred...it’s what the Softail family is all about. A classic hard tail look and feel combined with the latest technology to deliver a full-throttle ride that’s packed with attitude.

STARTING AT $11,999 >

Inspired by the 70’s spirit of self-expression, the Dyna’s blend of bold custom styling and precision performance make these machines a pure rider’s motorcycle. With an authentic attitude that shuns expectations, these bikes speak for themselvse.

< STARTING AT $6,999

Born on the flat track and rasied on the streets,the Sportster continues to evolve while stayingtrue to its roots. With no-nonsence V-Twinperformance and nimble maneuverability,it offers no excuses...just the irresistble combination of power and agility.

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STARTING AT $14,999 >

Harley tradition meets the future of American muscle...with engine technology inspired by our rich racing experience, the VRSC models deliver an unexpected mix of style and power.

STARTING AT $16,999 >

Timeless style. Mile after comfortable mile. Harley Touring motorcycles provide the ultimate in long-haul luxury for both rider and passanger alike. With new upgrades like a re-designed frame and chassis and the six-gallon fual tank and Brembo brakes, the long road to nowhere never seemed so appealing.

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HistoryintheMaking

1903 Harley Davidson is founded

1903 The first Harley-Davidson motorcycle is manufactured

1907 The first Harley-Davidsons sold for police duty

1928 Front wheel brake appears

1937 William A. Davidson dies

1942 Walter Davidson dies

1943 Bill Harley dies

1950 Arthur Davidson dies

1960 Harley Davidson teams up with Italian manufacturer Aeronautica MacchiS.p.A. to produce a line of smaller bikes including the Shortster and Sprint

models.

1965 After being privately held for over 60 years, Harley-Davidson goespublic.

1972 First disc brakes on a Harley

1981 Senior executives at Harley-Davidson purchase the company from AMF.Harley-Davidson once again becomes a privately owned company.

1986 By offering common stock and subordinated notes, Harley-Davidson onceagain becomes a publically owned corporation.

1991 All Harleys change to five speed transmission

1992 All Harleys adopt a belt drive

1993 “90th Anniversary” homecoming

1995 First fuel injection models

2005 Harley-Davidson and the Muscular Dystrophy Association mark the 25th anniversary of their partnership.

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STATEMENT OF OPERATIONS DATA: 2009 2008 2007

Motorcycles and related products revenue $ 4,287,130 $ 5,578,414 $ 5,726,848Gross profit 1,386,196 1,931,144 2,114,100Selling, administrative and engineering expense 851,165 942,267 900,708Restructuring expense and other impairments 220,976 12,475 -

Operating income from motorcycles and related products 314,055 976,402 1,213,392

Financial services revenue 494,779 376,970 416,196Financial services expense 581,059 294,205 204,027Restructuring expense 3,302 - -Goodwill impairment 28,387 - -

Operating (loss) income from fifi nancial services (117,969) 82,765 212,169

Operating income 196,086 1,059,167 1,425,561Investment income 4,254 11,296 22,258Interest expense 21,680 4,542 -Income before income taxes 178,660 1,065,921 1,447,819Provision for income taxes 108,019 381,686 513,976Income from continuing operations 70,641 684,235 933,843Loss from discontinued operations, net of tax (125,757) (29,517) -Net (loss) income $ (55,116) $ 654,718 $ 933,843

Earnings per common share from continuing operations: Basic $ 0.30 $ 2.92 $ 3.75 Diluted $ 0.30 $ 2.92 $ 3.74Loss per common share from discontinued operations: Basic $ (0.54) $ (0.13) - Diluted $ (0.54) $ (0.13) -(Loss) earnings per common share: Basic $ (0.24) $ 2.80 $ 3.75 Diluted $ (0.24) $ 2.79 $ 3.74Weighted-average common shares: Basic 232,577 234,225 249,205 Diluted 233,573 234,477 249,882

Cash dividends per common share $ 0.40 $ 1.29 $ 1.06

CONSOLIDATED BALANCE SHEET DATA (AT DECEM-BER 31): Total assets $ 9,155,518 $ 7,828,625 $ 5,656,606 Total debt $ 5,636,129 $ 3,914,887 $ 2,099,955 Total equity $ 2,108,118 $ 2,115,603 $ 2,375,491

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FINANCIALHIGHLIGHTS

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HarleyDavidson,Inc.Year-End Stock Prices

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HARLEY DAVIDSON, INC.3700 West Juneau Avenue

P.O. Box 653Milwaukee, Wisconsin 53201-0653

www.harley-davidson.com