Harley Davidson, Inc. 2012 Annual Report

110 years of

customization

Harley Davidson, Inc.

2012 Annual Report

110 years later and with 2012 in the rear view mirror, Harley - Davidson keeps covering ground. The road remains stretched out before us, and we’ve got plenty of distance left to travel. But we are passing significant mile markers. Our journey of transformation is bringing us better ways of working and taking us to new places all over the world. Changing our ways hasn’t been easy—nothing worthwhile ever is. And at every turn, we are being inspired by the dreams and expectations of our customers.

2012 Harley Davidson, Inc.

Customers for life... Harley Davidson values the deep emotional connection that is created with our customers through our products, services and experiences. We are fueled by the brand loyalty and trust that our customers place in us to deliver premium quality and the promise of a fulfilling lifetime ownership experience. We share this commitment by embracing a culture of personal responsibility and stewardship for quality in everything we do.

4

We fulfill dreams that are inspired by the many roads of the world by providing remarkable motorcycles and extraordinary customer experiences. We fuel the passion for fressdom in our customers to express their own identity.

Parts & Accessories Review

Letter to Shareholders

5

Officers & directors

12

Motorcycle Review of operations

16

26

General Merchandise Review

48

(dollars in millions)

Net Income

Financial Summary 2008

933.84

2009

654.72

2010

70.64

2011

259.67

2012

548.08

4 I Letter to the Shareholders

A Letter from Keith E. Wandell

Dear Fellow Shareholders:

We have come a long way from where we began just over two years ago, and our 2012 results reflect this progress. Income from continuing operations more than doubled to $548.1 million on a 9.3 percent increase in revenue, compared to 2011. At retail, the Harley-Davidson brand showed its continued power and appeal, with sales of new HarleyDavidson motorcycles up 5.9 percent globally for the full year compared to the prior year. In the fourth quarter alone, new Harley Davidson motorcycle retail sales grew 10.9 percent glob ally year over year, including an 11.8 percent increase in the U.S.—our largest market. Our share of the U.S. heavyweight market stood at a record 55.7 percent in 2012. We were also number one or number two in heavyweight motorcycle market share in nine countries across Europe. We generated strong growth in Latin America as the result of a significant number of new dealers. And new Harley-Davidson motorcycle sales in the Asia Pacific region grew, despite the effects of the natural disaster early in the year in Japan—our largest market in the region. While we celebrate

these and other 2012 successes, our focus remains clearly on the

road ahead and the continued

execution of our transformation strategy. We expect the changes underway in our approach to product development, manufacturing and the retail experience will enable Harley-Davidson to be world-class and customer led in everything we do, and we are pursuing this work with a relentless drive.

Flexible Manufacturing In 2011, we made great strides in the transformation of our York operations. All Tour ing, Softail® and Tri Glide® motorcycles are now built under one roof, on one assembly line. Even more powerful than the bricks-and-mortar change is the change in the culture, where the employees on the line are creating and imple menting operating improvements on a daily basis. Beginning in early 2013, we expect to have surge capability at York, enabling us to more closely match production to changes in seasonal demand. We also expect to have significantly greater flexibility to adjust product mix based on retail demand. Similar changes are underway in the operating structure at our manufacturing facilities in Kansas City, Milwaukee and Tomahawk, Wis. Harley-Davidson employees in our Complete Knock-Down (CKD) production facilities in Manaus, Brazil, and Bawal, India, are implementing the same common operation system as well. And in Manaus, we moved into larger space to provide the capacity to meet the

needs of that growing market. In short, every aspect of our approach to manufacturing centers on one thing: getting the right motorcycle to the right customer at the right time.

Shorter Product Development Times.

When it comes to creating remarkable motorcycles, we have re-engineered our entire product develop ment approach with a focus on three key elements: 1) a laser focus on the best product opportunities; 2) reduced time-to-market 3) increased product development capacity through efficiencies. While Harley-Davidson has an outstanding lineup of products, and they are clearly a driving force behind our success at retail, what we are the most excited about is that the best is yet to come! Today in product development, there are 30 percent more projects in development than there were just two years ago. We are evoting 25 percent more engineering resources to innovation. Over the coming years, customers will see a remarkable stream of new products: motorcycles for our core market, our

outreach markets, international markets.

A Premium Customer Experience… the World Over At retail, Harley-Davidson and its worldwide dealer network are creating the vision and implementing the strategy to keep us great—not just as the best motorcycle dealer network, but as one of the world’s best retailers. Together with our dealers, we are marshalling the resources, the systems, the tools, capabilities and talent that will improve all the ways Harley-Davidson interacts with customers.

One example is eCommerce, where later this year we will roll out an entirely new, rich and distinctly Harley-Davidson online shopping experience. he goal of this transformation at retail is quite simple: to provide a premium retail experience with every customer, every day and everywhere, while strengthening dealer profitability. Just as with the transformations in product development and manufacturing, we believe the opportunities and potential are tremendous.contributions of Willie G. Davidson, who is retiring at the end of April after nearly half a century as head of styling. Willie will stay

close to Harley-Davidson as Chief Styling Officer Emeritus, and through special design projects and his presence at rallies and events.

Few individuals have the kind of impact on an organization, a brand and a lifestyle that Willie has had, and his legacy will continue to grow, thanks to the talent he has nurtured in the HarleyDavidson styling studios. Everyone with a love for motorcycles owes a great deal to his vision and talent. All of us are honored to have been blessed by his presence. Clearly, Harley-Davidson has an amazing history and story. We also continue to expand the HarleyDavidson experience to the many roads of the world. In 2011, we added 35 ealers in interna tional markets, including Mexico, India, Thai land, Turkey, China and Brazil.

Fulfilling Dreams At the core, these three transformations— in manufacturing, product development and at retail—come down to one thing: we must ensure, in a world of ever-increasing customer expectations, Harley-Davidson continues to fulfill dreams through remarkable motorcycles and extraordinary customer experiences far into the future. While fulfilling dreams is truly a team effort, I want to recognize, on behalf of all of us at Harley-Davidson,

extraordinary tremendous untapped potential in this great brand, and through our transforma tion we are we are unleashing that potential.

While much remains to be done, we are well down the road and everyone involved deserves much credit for bringing these changes to life. I continue to be impressed by the efforts of all our employees, dealers and suppliers to deliver for our customers. No doubt there will be challenges on the road ahead. But our vision is clear and we are resolute in our determination, working as one company, one team and moving in one direction, to deliver for all our stakeholders.

Harley Davidson Inc., 2012 I 5

Harley-Davidson Inc. Board of Directors Martha F. Brooks Former President and Chief Operating Officer Barry K. Allen Senior Advisor, Providence Equity Partners; President, Allen Enterprises, LLC

R. John Anderson Former President & Chief Executive Officer, Levi Strauss

Keith E. Wandell Chairman, President and Chief Executive Offcer Harley-Davidson, Inc.

George H. Conrades Chairman of the Board Richard I. Beattie Chairman of the Board Donald Cooper Senior Advisor Barbara Washington Director Arthur Graver Director Don Draper Director

26 I Gerneral Merchandise Review

Men’s apparel U. S Worldwide Shipments

Youth U. S Worldwide Shipments

Women’s apparel U. S Worldwide Shipments Building our brand while customizing your merch

Other U. S Worldwide Shipments

350 300 250 200 150 100 50 0

Harley Davidson Apparel

Worldwide Shipments units in thousands

350 300 250 200 150 100 50 0

Motircycle & Related Revenue

National Shipments units in thousands

This year, revenue from sales of Harley-Davidson motorcycles decreased to $3.17 billion in 2012, a decline of 25.2 percent from 2011, on a 26.5 percent reduction in shipments of Harley Davidson motorcycles. Revenue from Genuine Parts and Accessories in 2012 totaled $767.3 million, a 10.7 percent decrease from the previous year, and General Merchandise revenue was $282.2 million, a decrease of 10.1 percent compared to 2011. During 2012, Harley-David son took actions to lower its cost structure through eliminating excess capacity, reducing administrative costs and exiting non-core business operations. Consequently, 2012 results were significantly affected by non-recurring charges. Harley-Davidson expects restructuring activities announced in 2009 to deliver between $240 million and $260 m in annual ongoing

savings upon completion of those restructuring activities. Harley-Davidson’s share price increased48.5 percent during 2012 and the Company paid out dividends of $0.40 per share in 2012. Harley-Davidson has paid a dividend every year since 1993 in apparel and riding gear; and related services. It also licenses the HarleyDavidson name and other trademarks. This segment sells its products through independent dealers and distributors primarily in North America, Europe, the Middle East, Africa, the Asia Pacific, Japan and Latin America. The Financial Services segment provides wholesale retail financing; and insurance and insurance-related programs primarily to its dealers and their retail customers in the United States and Canada. Its wholesale financial services include floorplan and open account financing of motorcycles, and

motorcycle parts and accessories; and retail financial services comprise installment lending for the purchase of its new and used motorcycles.

This segment also offers motorcycle insurance, as well as extended service contracts, credit protection, motorcycle maintenance products, gap coverage, and debt protection products to motorcycle owners. The company was founded in 1903 and is headquartered in Milwaukee, Wisconsin.

The Harley-Davidson Company is committed to customizing our brand by your identity.

16 I Parts and Accessories Review

Parts & Accessories 40.3% (wheels, sprockets & rotors)

24.5% (engine trim)

10.1% (controls & handlebars)

2.5% (Audio & GPS)

12.4% (Lighting & visibility)

17.5%($816.6 m) of the company’s revenue is sold from parts & accessories

In 2012, Harley-Davidson’s journey of transformation gained momentum.

It is a multifaceted journey to make us more agile and more effective at exceeding customer expectations, and, in doing so, to create growth opportunities and sustain our business stakeholders far into the future.

This year, we have many successes in sellig parts and accessories as well as apparel and riding gear; and related services. It also licenses the Harley-Davidson name and other trademarks.

This segment sells its products through a network of independent dealers, distributors primarily in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America.

The Financial Services segment provides wholesale retail financing; and insurance and insurance-related programs primarily to its dealers and their retail customers in the United States and Canada. Its wholesale financial services include floorplan and open account financing of motorcycles and motorcycle parts and accessories; and financial services comprise installment lending for the purchase of its new and used motorcycles. This segment also offers

motorcycle insurance, as well as extended service contracts, credit protection, motorcycle maintenance products, gap cover, and debt protection products to motorcycle owners.

The company was founded in 1903 and is headquartered in Milwaukee, Wisconsin. HarleyDavidson name and other trademarks. This segment sells its products through a network of independent dealers, distributors primarily in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The Financial Services segment and motorcycle parts and accessories; and financial services comprise installment lending for the purchase of its new and used motorcycles. This segment also offers motorcycle insurance, as well as extended service contracts, credit protection, motorcycle maintenance products, gap cover, and debt

protection products to motorcycle owners.

The company was founded in 1903 and is headquartered in Milwaukee, Wisconsin. Harley Davidson’s Parts & Accessories had doubled since last year both worldwide and nationally.

The customization of our bikes are at the touch of a button and at the hand of one of our own.

12 I Motorcycle Review of Operations

76.2% ($3,554.5m)

76.2% of the company’s revenue in 2012 was sold in motorcycles

Hand built motorcycles with detailed craftmanship Their desirability is undeniable. As the upper echelon of the motorcycle world, Harley-Davidson Custom Vehicle Operations models stand proud as the most coveted custom motorcycles.

Introduced a decade ago, the exclusive CVO models fuel the imagination of any rider who dreams about customization. A select group of engineers and designers work together to create these factory customs that illustrate what is possible with Harley-Davidson Genuine Parts & Accessories.

For 2012 four limited edition CVO models were born from the Fat Bob,TM Softail® Springer,® Road Glide® and Ultra Classic® Electra Glide.® Injected with a large amount of breathtaking features and distinctive details like more powerful engines, exclusive accessories and cutting edge paint, CVO motorcycles command attention wherever they go. Production quantities are limited and each motorcycle is hand built by highly skilled technicians.

Combined with meticulous attention to detail and comfort, a CVO bike is as inspirational as it is enviable.

110th Anniversary editions

If there’s one thing that’s remained unchanged in 110 years at Harley-Davidson, it’s that everything begins with the motorcycle.

All of it. From the inspired Design and engineering of a new model, to the styling of a one-ofa-kind accessory, to the creation of functional riding gear, it all starts and begins with our bikes and endless possibilities promise riders.

Our motorcycles entice adventure and ignite passion. They inspire change and fulfill dreams.

And it doesn’t happen by chance. By investing in the development and evolution of our motorcycles - in the ways that matter most to riders - we build our brand, our enthusiast base and, most importantly, our company. Creating authenticity in a world of imitation is a valuable and enduring thing and this indisputable truth will ensure Harley-Davidson continues to capture the hearts and imaginations of motorcycle enthusiasts for generations to come.

14 I Motorcycle Review of Operations

“The only thing better than a motorcycle, is two motorcycles.”

-

Mike Werner

After nearly five decades, Willie G. Davidson is retiring as Head of Styling at HarleyDavidson. He will stay connected to the company as Chief Styling O≈cer Emeritus.

The first design Willie G. Davidson ever did for Harley-Davidson was the tank emblem in 1957. He wasn’t an employee yet, just a young designer out of Art Center College of Design moonlighting for the Motor Company. With a father who took him to races and rode a different motorcycle home from work almost every night, and uncles who also worked at the Motor Company, Willie G. had motorcycling in his blood.

When it came time to build our styling department, it was a job he was literally born to do.

Harley Davidson Inc. , 2012 I 15

350 300 250 200 150 100 50 0

Harley Davidson Motorcycle

Worldwide Shipments units in thousands

The cruiser segment of the market includes motorcycles featuring HarleyDavidson motorcycles and includes the Company’s Dyna, Softail, V-Rod and Sportster motorcycle families. Parts and Accessories (P&A) products are consists of replacement parts (Genuine Motor Parts) and mechanical and cosmetic accessories (Genuine Motor Accessories). Worldwide General Merchandise includes revenue from MotorClothes apparel and riding gear.

The Company’s licensed products include t-shirts, vehicle accessories, jewelry, small leather goods, toys and numerous other products. The Company also provides a range of services to its independent dealers, including service and business management training programs and customized dealer software packages.

Motorcycle rentals are available through many of the Company’s independent dealers under the Company’s authorized Rentals Program. The Company’s revenue from the sale of motorcycles and related products to independent dealers and

distributors located outside of the United States. Its North American region consists of the United States and Canada. The primary business of the Motorcycles segment is to design and manufacture motorcycles for the heavyweight market and sell them at wholesale. The Company manufactures five families of motorcycles: Touring, Dyna, Softail, Sportster, and V-Rod. The first four of these motorcycle families are powered by an air-cooled, twin-cylinder engine with a 45-degree V configuration. The V-Rod family is powered by a liquid-cooled, twin-cylinder engine with a 60-degree V configuration.

The Company’s Harley-Davidson engines range in displacement size from 883 cubic centimeters to 1802 cubic centimeters. The total heavyweight (651+ cubic centimeters) motorcycle market consists of five segments: traditional (a basic motorcycle, which features upright seating for one or two passengers); sportbike (incorporates racing technology, aerodynamic styling, low handlebars with a sport riding position and

high performance tires); cruiser (focuses on individual owner customization); touring (incorporates features, such as saddlebags, fairings, or large luggage compartments and emphasizes rider comfort and load capacity), and dual (designed for use on public roads, as well as for off-highway recreational use).

48 I Financial Report Summary

76.2% of

the company’s

revenue sold

in 2012 was Motorcycles

Harley Davidson Inc. , 2012 I 49

In 2012, Harley-Davidson’s revenue from motorcycles and related products on a continuing operations basis increased 11.6 percent to $4.66 billion compared to 2010. I ncome from continuing operations increased 111.1 percent from the prior year to $548.1 million, reflecting improved operating margin for the Company’s motorcycle business, strong operating income at Harley-Davidson Financial Services and a lower effective tax rate. Revenue from sales of Harley-Davidson motorcycles was $3.55 billion in 2011, an increase of 13.3 percent compared to 2010 on a 10.7 percent increase in shipments of Harley-Davidson motorcycles.

Revenue from Genuine Parts and Accessories in 2011 totaled $816.6 million, a 9.0 percent increase compared to the previous year, and General Merchandise revenue was $274.1 million, a 5.8 percent increase compared to 2010. During 2011, Harley-Davidson continued taking actions for transformational changes in the areas of product development, manufacturing

and retail. Harley-Davidson expects restructuring activities announced since 2009 to deliver between $315 million and $335 million in an nual ongoing savings upon completion of those restructuring activities. Harley-Davidson’s share price increased 12.1 percent during 2011 and the Company paid out dividends of $.475 per share in 2011. Harley-Davidson has paid a dividend every year since 1993.

Region, 17.5 percent in the Latin America Region, 2.0 percent in the Asia Pacific Region and 1.2 in Canada. In 2011, the Company shipped 233,117 Harley-Davidson motorcycles worldwide, compared to 210,494 in 2010. In 2011, 34.7 % of the Harley-Davidson motorcycles shipped went to international markets, compared to 37.5 percent in 2010.

Harley-Davidson Motorcycles Worldwide retail sales of Harley-Davidson motorcycles by independent dealers increased 5.9 percent in 2011 compared to 2010. In the United States, 2011 retail sales increased 5.8 percent to 151,683 Harley-Davidson motorcycles and overall U.S. heavyweight (651+ cc) market registrations increased 4.3 percent. For the full year 2011, retail sales of Harley-Davidson motorcycles in international markets increased 6.1 percent compared to 2010. For the same period, retail sales of Harley-Davidson motor cycles increased 7.7 percent in the Europe

Financial Services recorded operating income of $268.8 million compared to $181.9 million in 2010. HDFS’ results benefitted from a lower cost of funds and improved credit performance compared to the prior year.

Harley-Davidson Financial Services

Harley Davidson Inc.

2012 financial report In thousands, except per-share amounts

Statement of Operations Data:

2012

Motorcycles and related products revenue

Gross Profit Selling, administrative and engineering expense Restructing expense and other impairments

2011

2010

$ 4,662,264 $ 4,176,627 1,555,976 1,427,403 926,808 885,137 67,992 163,508

$ 4,287,130 1,386,196 851,165 220,976

Operating income from motorcycles & related products Financial services revenue

Financial services expense

Restructing expense Goodwill impairment

561,176 649,449 380,658 – –

378,758 682,709 500,836 – –

314,055 494,779 581,059 3,302 28,387

Operating income (loss) from financial services

268,791

181,873

(117,969)

Operating income

Investment income Interest expense

Loss on debt extinguishment

829,967 7,963 45,266 –

560,631 5,442 90,357 85,247

196,086 4,254 21,680 –

Income before provision for income taxes Provision for income taxes

792,664 244,586

390,469 130,800

178,660 108,019

Income from continuing operations Income (loss) from discontinued operations, net of tax

48,078 51,036

259,669 (113,124)

70,641 (12,867)

Motorcycle and Related Products Revenue Distribution

67.7% United States ($3,156.6) 16.8% Europe ($781.4)

76.2% Motorcycles 17.9% Parts & Accessories 5.2% General Merchandise

Net income (loss) Earnings per common share from continuing operations: Basic Diluted Earnings (loss) per common share from discontinued operations: Basic Diluted Earnings (loss) per common share: Basic Diluted Weighted-average common shares: Basic Diluted

Cash dividends per common share Consolidated Balance Sheet Data (at December 31) Total assets Total debt Total equity

By Region

By Product Line

(Dollars in millions)

4.9% Japan ($229.4) 3.3% Canada ($154.3) 3.0% Australia ($141.4)

$ 599,114

$ 146,545

$ (55,116)

$ 2.35 $ 2.33

$ 1.11 $ 1.11

$ 0.30 $ 0.30

$ 0.22 $ 0.22

$ (0.48) $ (0.48)

$ (0.54) $ (0.54)

$ 2.57 $ 2.55

$ 0.63 $ 0.62

$ (0.24) $ (0.24)

232,889 234,918 $ 0.475

233,312 234,787 $ 0.40

232,577 233,573 $ 0.40

$ 9,674,164 $ 9,430,740 $ 5,722,619 $ 5,752,356 $ 2,420,256 $ 2,206,866

$ 9,155,518 $ 5,636,129 $ 2,108,118

Harley Davidson Inc. . 2012 I 29

“My love for Harley shines as bright as the chrome on my bike�

Just like the V-Twin beats at the heart of every bike we produce, the Harley-Davidson culture strongly propels our company to the successful heights we enjoy today. The H-D culture provides employees with continued opportunities for growth and professional development because we believe that people are our only long term competitive advantage. Our culture believes in providing high customer satisfaction by supplying products and services that delight customers and offer value. And, our culture values and promote employee development, diversity, and leadership excellence. To us, our culture is as strong as the iron and steel we put into our bikes, and shines as bright as the chrome.

2012

your custom bike starts here Harley Davidson values the deep emotional connection that is created with out customers through our products, services and experiences. We are fueled by the brand loyalty and trust that our customers place in us to deliver premium quality and the promise of a fulfilling lifetime ownership experience.

We share this commitment by embracing a culture of personal responsibility and stewardship for quality in everything we do.

part of the pack, for life We are fueled by the brand loyalty and trust that our customers place in us to deliver premium quality and the promise of a fulfilling lifetime ownership experience. We share this commitment by embracing a culture of personal responsibility and stewardship for quality in everything we do.

Harley-Davidson, Inc. 3700 West Juneau Avenue Milwaukee, WI 53208 United States Phone: 414-342-4680 Fax: 414-343-4621 Website: http://www.harley-davidson.com