Edgar Filing: HARLEY DAVIDSON INC

10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-9183

Harley-Davidson, Inc.

(Exact name of registrant as specified in its charter)


Wisconsin		39-1382325
(State of organization)		(I.R.S. Employer Identification No.)
3700 West Juneau Avenue Milwaukee, Wisconsin		53208
(Address of principal executive offices)		(Zip code)

Registrants telephone number: (414) 342-4680

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
COMMON STOCK, $.01 PAR VALUE PER SHARE		NEW YORK STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such requirements for the past 90 days. Yes x No ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act (check one).


Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x

Aggregate market value of the voting stock held by non-affiliates of the registrant at June 26, 2011: $8,881,219,627

Number of shares of the registrant’s common stock outstanding at January 31, 2012: 230,497,185 shares

Documents Incorporated by Reference

Part III of this report incorporates information by reference from registrant’s Proxy Statement for the annual meeting of its shareholders to be held on April 28, 2012.

Harley-Davidson, Inc.

Form 10-K

For The Year Ended December 31, 2011


		Page
Part I

Item 1.	Business		3
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		20
Item 2.	Properties		21
Item 3.	Legal Proceedings		22
Item 4.	Mine Safety Disclosures		23

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		24
Item 6.	Selected Financial Data		26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		55
Item 8.	Consolidated Financial Statements and Supplementary Data		56
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		123
Item 9A.	Controls and Procedures		123

Part III

Item 10.	Directors, Executive Officers and Corporate Governance		124
Item 11.	Executive Compensation		124
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		124
Item 13.	Certain Relationships and Related Transactions, and Director Independence		125
Item 14.	Principal Accountant Fees and Services		125

Part IV

Item 15.	Exhibits and Financial Statements Schedules		126

Signatures			128

PART I

Note regarding forward-looking statements

The Company intends that certain matters discussed by the Company are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this note or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption “Risk Factors” in Item 1A of this report and under “Cautionary Statements” in Item 7 of this report. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made as of the date indicated or, if a date is not indicated, as of the date of the filing of this report (February 23, 2012) and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Item 1.

Business

Harley-Davidson, Inc. was incorporated in 1981, at which time it purchased the Harley-Davidson^® motorcycle business from AMF Incorporated in a management buyout. In 1986, Harley-Davidson, Inc. became publicly held. Unless the context otherwise requires, all references to the “Company” include Harley-Davidson, Inc. and all of its subsidiaries. The Company operates in two segments: the Motorcycles & Related Products (Motorcycles) segment and the Financial Services (Financial Services) segment. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations.

The Motorcycles segment designs, manufactures and sells at wholesale heavyweight (engine displacement of 651+cc) Harley-Davidson motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services. The Company’s products are sold to retail customers through a network of independent dealers. The Company conducts business on a global basis, with sales in North America, Europe/Middle East/Africa (EMEA), Asia-Pacific and Latin America.

In 2009, the Company decided to exit its former Buell product line and ceased production of Buell motorcycles. The sale of remaining Buell motorcycle inventory to independent dealers and/or distributors was substantially completed during 2010. The majority of independent dealers continue to provide ongoing service and replacement parts to Buell owners.

In 2010, the Company completed the sale of MV Agusta (MV). The results of MV have been presented as a discontinued operation for all periods.

The Motorcycles segment discussion that follows is specific to the Harley-Davidson brand unless otherwise specifically noted.

The Financial Services segment consists of Harley-Davidson Financial Services (HDFS). HDFS provides wholesale and retail financing and provides insurance and insurance-related programs primarily to Harley-Davidson dealers and their retail customers. HDFS conducts business principally in the United States and Canada.

See Note 21 of Notes to Consolidated Financial Statements for financial information related to the Company’s business segments.

Motorcycles and Related Products

Motorcycles – The primary business of the Motorcycles segment is to design and manufacture premium motorcycles for the heavyweight market and sell them at wholesale. The Company’s worldwide motorcycle sales generated approximately 76%, 76% and 75% of the total net revenue in the Motorcycles segment during each of the years 2011, 2010 and 2009, respectively.

Harley-Davidson branded motorcycle products feature classic styling, design simplicity, durability and quality. 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 883cc to 1802cc.

The total heavyweight (651+cc) motorcycle market is comprised of the following five segments:

•

Traditional (a basic motorcycle which usually 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 (emphasizes styling and individual owner customization);

•

Touring (incorporates features such as saddlebags, fairings, or large luggage compartments and emphasizes rider comfort and load capacity); and

•

Dual (designed with the capability for use on public roads as well as for off-highway recreational use).

The Company competes in the touring and cruiser segments of the heavyweight motorcycle market. The touring segment of the heavyweight market was pioneered by the Company and includes the Harley-Davidson Touring family of motorcycles, including three-wheeled motorcycles, which are generally equipped with fairings, windshields, saddlebags and/or Tour Pak^® luggage carriers. The cruiser segment of the market includes motorcycles featuring the distinctive styling associated with classic Harley-Davidson motorcycles and includes the Company’s Dyna, Softail, V-Rod^® and Sportster motorcycle families.

The worldwide heavyweight motorcycle market is highly competitive. The Company’s major competitors are based outside the U.S. The Company’s competitors generally offer heavyweight motorcycles with classic styling that compete directly with many of the Company’s products.

Competition in the heavyweight motorcycle market is based upon a number of factors, including price, quality, reliability, styling, product features, customer preference, warranties and availability of financing. The Company’s motorcycle products continue to generally command a premium price at retail relative to competitors’ comparable motorcycles. The Company emphasizes quality, reliability and styling in its products and generally offers a two-year warranty for its motorcycles. The Company regards its support of the motorcycling lifestyle across a wide demographic range through events, rides, rallies including those sponsored by Harley Owners Group^® (H.O.G. ^®) as a competitive advantage. The Company also considers the availability of a line of motorcycle parts and accessories and general merchandise and the availability of financing through HDFS as competitive advantages.

According to the Motorcycle Industry Council, the touring and cruiser segments accounted for approximately 84%, 85% and 83% of total heavyweight retail unit registrations in the U.S. during 2011, 2010 and 2009, respectively. During 2011, the heavyweight portion of the market represented approximately 61% of the total U.S. motorcycle market (street legal models including both on-highway, dual purpose models and three-wheeled vehicles) in terms of new units registered.

The following chart includes U.S. retail registration data for Harley-Davidson motorcycles for the years 2009 through 2011:

U.S. Heavyweight Motorcycle Registration Data^(a)^(b)

(Units in thousands)


	2011			2010			2009
Total new heavyweight motorcycle registrations		271.0			259.7			304.3
Harley-Davidson new registrations		150.9			142.7			162.0
		55.7	%		54.9	%		53.2	%

(a)	Heavyweight data includes street legal 651+cc models. Street legal 651+cc models include on-highway, dual purpose models and three-wheeled vehicles.

(b)

U.S. industry data is derived from information provided by Motorcycle Industry Council (MIC). This third party data is subject to revision and update. The retail registration data for Harley-Davidson motorcycles presented in this table may differ slightly from the Harley-Davidson retail sales data presented in Item 7 of this report. The Company’s source for retail sales data in Item 7 of this report is sales and warranty registrations provided by Harley-Davidson dealers as compiled by the Company. The differences are not significant and generally relate to the timing of data submissions to the independent sources.

The European heavyweight motorcycle market (as defined below) is similar in size to the U.S. market; but customer preferences vary across the region. For example, in Europe, the sportbike segment represented nearly 38% of the total heavyweight market in 2011 while the touring segment popular in the U.S. represented 36% of the European heavyweight motorcycle market.

The following chart includes European retail registration data for Harley-Davidson for the years 2009 through 2011:

European Heavyweight Motorcycle Registration Data^(a)^(b)

(Units in thousands)


	2011			2010			2009
Total new heavyweight motorcycle registrations		293.0			301.3			313.6
Harley-Davidson new registrations		40.0			38.3			37.7
		13.7	%		12.7	%		12.0	%

(a)	Heavyweight data includes street legal 651+cc models. Street legal 651+cc models include on-highway, dual purpose models and three-wheeled vehicles.

(b)

Europe data includes retail sales in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data is derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. This third party data is subject to revision and update. The retail registration data for Harley-Davidson motorcycles presented in this table may differ slightly from the Harley-Davidson retail sales data presented in Item 7 of this report. The Company’s source for retail sales data in Item 7 of this report is sales and warranty registrations provided by Harley-Davidson dealers as compiled by the Company. The differences are not significant and generally relate to the timing of data submissions to the independent sources.

In 2011, the U.S. and European regions accounted for approximately 83% of total annual independent dealer retail sales of new Harley-Davidson motorcycles. The Company also competes in other markets around the world. The most significant other markets, based on the Company’s retail sales data, are Canada, Japan, Australia and Brazil.

Parts & Accessories – Parts and Accessories (P&A) products are comprised of replacement parts (Genuine Motor Parts) and mechanical and cosmetic accessories (Genuine Motor Accessories). Worldwide P&A net revenue comprised 17.5%, 17.9% and 17.9% of net revenue in the Motorcycles segment in 2011, 2010 and 2009, respectively.

General Merchandise – Worldwide General Merchandise net revenue, which includes revenue from MotorClothes^® apparel and riding gear, comprised 5.9%, 6.2% and 6.6% of net revenue in the Motorcycles segment in 2011, 2010 and 2009, respectively.

Licensing – The Company creates an awareness of the Harley-Davidson brand among its customers and the non-riding public through a wide range of products for enthusiasts by licensing the name “Harley-Davidson” and other trademarks owned by the Company. The Company’s licensed products include t-shirts, vehicle accessories, jewelry, small leather goods, toys and numerous other products. The majority of licensing activity currently occurs in the U.S. Royalty revenues from licensing, included in Motorcycles segment net revenue, were $43.2 million, $39.8 million and $38.3 million in 2011, 2010 and 2009, respectively.

Harley-Davidson Museum – In 2008, the Company opened the Harley-Davidson Museum in Milwaukee, Wisconsin. The Museum is a unique experience that the Company believes builds and strengthens bonds between riders and the Company and enhances the brand among the public at large. The 130,000 square foot museum campus houses the Harley-Davidson Museum and Archives, a restaurant, café, retail store and special event space. The Museum gives the Company a unique way to create memories for customers – through visiting, planning rides and hosting special events at the Museum.

Other Services – The Company also provides a variety 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.

International Sales – The Company’s revenue from the sale of motorcycles and related products to independent dealers and distributors located outside of the United States was approximately $1.51 billion, $1.36 billion and $1.38 billion, or approximately 32%, 33% and 32% of net revenue of the Motorcycles segment, during 2011, 2010 and 2009, respectively.

Patents and Trademarks – The Company strategically manages its portfolio of patents, trade secrets, copyrights, trademarks and other intellectual property.

The Company and its subsidiaries own, and continue to obtain, patent rights that relate to its motorcycles and related products and processes for their production. Certain technology-related intellectual property is also protected, where appropriate, by license agreements, confidentiality agreements or other agreements with suppliers, employees and other third parties. The Company diligently protects its intellectual property, including patents and trade secrets, and its rights to innovative and proprietary technology. This protection, including enforcement, is important as the Company moves forward with investments in new products, designs and technologies. While the Company believes patents are important to its business operations and in the aggregate constitute a valuable asset, the success of the business is not dependent on any one patent or group of patents. The Company’s active patent portfolio has an average age for patents of approximately nine years. A patent review committee, which is comprised of a number of key executives, manages the patent strategy and portfolio of the Company.

Trademarks are important to the Company’s motorcycle business and licensing activities. The Company has a vigorous worldwide program of trademark registration and enforcement to maintain and strengthen the value of the trademarks and prevent the unauthorized use of those trademarks. The HARLEY-DAVIDSON trademark and the Bar and Shield trademark are each highly recognizable to the public and are very valuable assets. Additionally, the Company uses numerous other trademarks, trade names and logos which are registered worldwide. The following are among the Company’s trademarks: HARLEY-DAVIDSON, H-D, HARLEY, the Bar & Shield Logo, MOTORCLOTHES, the MotorClothes Logo, RIDER’S EDGE, HARLEY OWNERS GROUP, H.O.G., the H.O.G. Logo, SOFTAIL, SPORTSTER and V-ROD. The HARLEY-DAVIDSON

trademark has been used since 1903 and the Bar and Shield trademark since at least 1910. Substantially all of the Company’s trademarks are owned by H-D Michigan, LLC, a subsidiary of the Company, which also manages the Company’s trademark strategy and portfolio.

Marketing – The Company is currently executing a multi-generational and multi-cultural marketing strategy; the Company measures the success of this strategy by monitoring market shares (where available) across its various customer definitions, as well as monitoring brand health in various markets.

U.S. retail purchasers of new Harley-Davidson motorcycles include both core and outreach customers and are diverse in terms of age, gender and ethnicity. The Company defines its U.S. core customer base as Caucasian men over the age of 35 and its U.S. outreach customers as women, young adults, African-American adults, and Latino adults. In 2010, the Company was the market share leader in U.S. new motorcycle registrations in terms of heavyweight (street legal 651cc+) motorcycles within its core and outreach customers. The Company is also the market leader across all on-road registrations, regardless of engine displacement, within all its core and outreach customers. (Source: R. L. Polk & Co. 2010 motorcycle registrations)

The Company is in the process of implementing its multi-generational and multi-cultural customer marketing strategy outside of the U.S. As a result, the Company is currently establishing definitions for core and outreach customer segments outside of the U.S.

The average U.S. retail purchaser of a new Harley-Davidson motorcycle has a median household income of approximately $89,000. More than three-quarters of the U.S. retail sales of new Harley-Davidson motorcycles are to purchasers with at least one year of education beyond high school and 34% of the buyers have college/graduate degrees. (Sources: 2011 Company Studies)

The Company’s products are marketed to retail customers worldwide primarily through advertising and promotional activities via television, print, radio, direct mailings, as well as electronic advertising and social media. Additionally, local marketing efforts are accomplished through a cooperative program with the Company’s independent dealers.

During 2010, the Company established what it calls a “Creativity Model” whereby it uses web-based crowd-sourcing as a source for its main marketing creative development. Crowd-sourcing draws on the ideas of passionate brand fans around the world to help guide the creative direction of the brand. The Company also works closely with outside experts in media, digital marketing, public relations and product placement to expand its marketing impact.

Customer experiences have traditionally been at the center of much of the Company’s marketing. To attract customers and achieve its goals, the Company not only participates in motorcycle rallies, both large and small, around the world, but also in major motorcycle consumer shows, racing activities, music festivals, mixed martial arts activities and other special promotional and charitable events.

Since 1983, the Company has promoted its Harley-Davidson products and the related lifestyle through the Harley Owner’s Group (H.O.G.), which has approximately 1 million members worldwide and the Company believes is the industry’s largest company-sponsored motorcycle enthusiast organization. This group also sponsors many motorcycle events, including rallies and rides for Harley-Davidson motorcycle enthusiasts throughout the world.

In 2000, the Company initiated Rider’s Edge – the Harley-Davidson Academy of Motorcycling. Rider’s Edge offers a series of rider education experiences that provide both new and experienced riders with deeper engagement in the sport of motorcycling by teaching basic and advanced motorcycling skills and knowledge. The courses are conducted by a network of select Harley-Davidson dealerships throughout the U.S., enabling students to experience the Harley-Davidson lifestyle, environment, people, and products as they learn.

In 2011, the Company launched a new global Harley-Davidson Authorized Tours Program that offers Harley-Davidson riders the opportunity to experience riding opportunities worldwide. Riders can also rent Harley-Davidson motorcycles worldwide through the Company’s Authorized Rentals Program.

The Company website (www.harley-davidson.com) is also utilized to market its products and services. The website also features an online catalog which allows retail customers to create and share product wish lists, utilize a dealer locator and place merchandise orders. Internet orders are sold and fulfilled by the participating authorized Harley-Davidson dealer selected by the retail customer. Dealers also handle any after-sale services that retail customers may require.

Harley-Davidson Distribution – The Company’s products are retailed through an independent dealer network, of which the majority sells Harley-Davidson motorcycles exclusively. The Company’s independent dealerships stock and sell the Company’s motorcycles, P&A, general merchandise and licensed products, and perform service for the Company’s motorcycles. The Company’s independent dealers may also have secondary locations (SRLs) to meet additional retail and service needs of the Company’s riding customers. SRLs also provide P&A, general merchandise and licensed products and are authorized to sell and service new motorcycles. The Company’s independent dealers also sell P&A, general merchandise and licensed products through “non-traditional” retail outlets. The “non-traditional” outlets, which are extensions of the main dealership, consist of Alternate Retail Outlets (AROs) and Seasonal Retail Outlets (SROs). AROs are located primarily in high traffic locations such as malls, airports or popular vacation destinations and focus on selling the Company’s general merchandise and licensed products. SROs are located in similar high traffic areas, but operate on a seasonal basis out of temporary locations such as vendor kiosks. AROs and SROs are not authorized to sell new motorcycles.

The Company’s North American region consists of the United States and Canada. In the United States, the Company distributes its motorcycles and related products to a network of independently-owned full-service Harley-Davidson dealerships and the Overseas Military Sales Corporation, an entity that retails the Company’s products to members of the U.S. military. The Company distributes its motorcycles to its dealers in the U.S. based on dealer orders but subject to an allocation system that the Company designed to be forward-looking and market-driven to align the distribution of motorcycles with the demand in individual dealer markets. The allocation system can affect the number of units of particular models that dealers are able to order and the timing of shipments to dealers. In Canada, the Company sells its motorcycles and related products at wholesale to a single independent distributor, Deeley Harley-Davidson Canada/Fred Deeley Imports Ltd., which in turn sells to independent dealers in the Canadian market.

The Company’s operations in the EMEA region are managed out of its Oxford, England regional headquarters. In the EMEA region, the Company distributes all products sold to independent dealers through its subsidiaries located in the Austria, Czech Republic, Dubai, France, Germany, Italy, Netherlands, Russia, South Africa, Spain, Switzerland and the United Kingdom and three independent distributors located in Greece, Sweden and Finland.

The Company’s operations in the Asia-Pacific region are managed out of its Singapore regional headquarters. In the Asia-Pacific region, the Company distributes all products sold to independent dealers in Australia, China, India and Japan through subsidiaries in those countries. The Company distributes all products sold to independent dealers for the remaining Asia-Pacific markets in which its motorcycles are sold from its U.S. operations.

The Company’s operations in the Latin America region are managed out of its Miami, FL regional headquarters. The Company distributes all products sold in the Latin America region to independent dealers in Mexico and Brazil through subsidiaries in those countries, and the Company distributes all products sold to independent dealers for the remaining Latin American markets in which its motorcycles are sold from its U.S. operations.

The following table includes the number of worldwide Harley-Davidson independent dealerships by geographic region as of December 31, 2011:


	North America Region				EMEA Region		Asia-Pacific Region		Latin America Region		Total
	United States		Canada		EMEA Region		Asia-Pacific Region		Latin America Region		Total
Full Service Dealerships		635		69		369		230		44		1,347
SRLs		71		5		1		44		—		121

Total		706		74		370		274		44		1,468

Non-traditional		85		5		23		1		24		138

Overall, the Company believes the U.S. dealer network profit margins improved in 2011 compared to 2010 as a result of higher retail sales and prudent management of their cost structures. During 2011, 22 dealer points in the U.S. dealer network closed, and the Company expects significantly fewer dealer points to close during 2012. Outside of the U.S., the Company’s strategy calls for the international dealer network to expand by 100 to 150 dealer points from the end of 2009 through the end of 2014.

Retail Customer and Dealer Financing – The Company believes that HDFS, as well as other financial services companies, provide adequate financing to Harley-Davidson independent distributors, dealers and their retail customers. HDFS provides financing to Harley-Davidson independent dealers and the retail customers of those dealers in the U.S. and Canada. HDFS also provides financing to the Company’s Canadian distributor. The Company’s independent distributors, dealers and their retail customers in the EMEA, Asia-Pacific and Latin America regions are not financed by HDFS, but have access to financing through other established financial services companies, some of which have licensing or branding agreements with the Company.

Seasonality – The timing of retail sales made by the Company’s independent dealers tracks closely with regional riding seasons. The seasonality of wholesale shipments made by the Company has been different depending on the geographic market.

The Company’s independent dealers in the U.S. and Canadian markets typically have built their inventory levels in the late fall and winter in anticipation of the spring and summer selling seasons. The availability of floor plan financing and financing assistance through HDFS has assisted dealers with the management of these seasonal increases in inventory. In the U.S., seasonal financing assistance is subsidized by the Company, and in Canada, seasonal financing assistance is sponsored by the region’s single independent distributor, Deeley Harley-Davidson Canada/Fred Deeley Imports Ltd. As a result, the Company’s wholesale shipments to these markets have historically not been affected to any material extent by seasonality.

In the majority of the remaining international markets, the Company’s wholesale shipments track more closely with regional riding seasons. In general, the Company’s independent dealers and distributors in these international markets do not build inventory levels in the non-riding seasons, and as a result, the Company’s wholesale shipments to these markets are generally lower in the non-riding seasons than in the riding seasons.

Motorcycle Manufacturing – The Company’s manufacturing strategy is designed to continuously improve product quality and productivity while reducing costs and increasing flexibility to respond to continuously changing customer expectations and preferences.

The Company realizes that flexible manufacturing processes and flexible supply chains combined with cost-competitive and flexible labor agreements are critical to enabling the Company to respond to customers in a cost effective manner. The ongoing restructuring of the Company’s U.S. manufacturing plants, which commenced in 2009, supports the Company’s efforts to become more flexible and cost competitive allowing it to get the right product at the right time to the customer. Significant restructuring accomplishments include: consolidation of motorcycle production onto a single production line at the York, Pennsylvania facility; consolidation of the

Wisconsin powertrain production facilities into the Menomonee Falls location; and the ratification of new more flexible labor agreements at all of the Company’s U.S. manufacturing locations. Restructuring efforts will continue over the next few years as the Company implements its flexible production processes and completes the shut down and outsourcing of wheel and wheel hub production in 2013.

To support the Company’s international growth initiatives, in 2011, the Company completed its second CKD (Complete Knock Down) assembly plant. This plant located in India follows the Company’s 1999 CKD manufacturing entry into Brazil. A CKD plant assembles motorcycles from component kits produced by the Company’s U.S. plants and by the Company’s suppliers.

Raw Materials and Purchased Components – The Company continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, the Company gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. This strategy has generated improved product quality, technical integrity, application of new features and innovations and faster manufacturing ramp-up of new vehicle introductions. Through a continued focus on collaboration and strong supplier relationships, the Company believes it will be positioned to achieve strategic objectives and deliver cost and quality improvement over the long-term.

The Company purchases all of its raw materials, principally steel and aluminum castings, forgings, steel sheets and bars, and certain motorcycle components, including, but not limited to, electronic fuel injection systems, batteries, tires, seats, electrical components and instruments. In 2011, the Company announced that it will close New Castalloy, its Australian facility that currently manufactures the majority of the wheels and wheel hubs for its motorcycles. The Company is in the process of sourcing these components through existing suppliers, and it anticipates this transition will be completed by mid-2013. The Company closely monitors the overall viability of its supply base. At this time, the Company does not anticipate difficulties in obtaining raw materials or components.

Research and Development – In 2011, the Company commenced and is executing a strategy to transform product development with the objectives of reducing cost and time to market and ensuring the Company delivers relevant products for an increasingly diverse customer base. The objectives of the strategy include implementing a new product development methodology and organization structure that support greater innovation, flexibility, capacity and focus on consumer insight. The Company incurred research and development expenses of $145.4 million, $136.2 million and $143.1 million during 2011, 2010 and 2009, respectively.

Regulation – International, federal, state and local authorities have various environmental control requirements relating to air, water and noise that affect the business and operations of the Company. The Company strives to ensure that its facilities and products comply with all applicable environmental regulations and standards.

The Company’s motorcycles that are sold in the United States are subject to certification by the U.S. Environmental Protection Agency (EPA) for compliance with applicable emissions and noise standards. Harley-Davidson motorcycle products have been designed to comply with EPA standards and the Company believes it will comply with future requirements when they go into effect. Additionally, the Company’s motorcycle products must comply with the motorcycle emissions, noise and safety standards of Canada, the European Union, Japan, Brazil and certain other foreign markets where they are sold, and the Company believes its products currently comply with those standards. Because the Company expects that environmental standards will become even more stringent over time, the Company will continue to incur some level of research, development and production costs in this area for the foreseeable future.

The Company, as a manufacturer of motorcycle products, is subject to the U.S. National Traffic and Motor Vehicle Safety Act, which is administered by the U.S. National Highway Traffic Safety Administration (NHTSA). The Company has certified to NHTSA that its motorcycle products comply fully with all applicable

federal motor vehicle safety standards and related regulations. The Company has from time to time initiated certain voluntary recalls. During the last three years, the Company has initiated 12 voluntary recalls related to Harley-Davidson motorcycles at a total cost of $18.7 million. The Company reserves for all estimated costs associated with recalls in the period that the recalls are announced.

Employees – As of December 31, 2011, the Motorcycles segment had approximately 6,000 employees. Unionized employees at the manufacturing facilities in Menomonee Falls and Tomahawk, Wisconsin and Kansas City, Missouri are represented by the United Steelworkers of America (USW), as well as the International Association of Machinist and Aerospace Workers (IAM). Production workers at the motorcycle manufacturing facility in York, Pennsylvania are represented by the IAM. In September 2010, the Company’s unionized employees in Wisconsin ratified three separate new seven-year labor agreements which will take effect April 1, 2012 upon the March 31, 2012 expiration of the current collective bargaining agreement. The collective bargaining agreement with the Kansas City USW and IAM unions took effect on August 1, 2011 and will expire on July 31, 2018, and the collective bargaining agreement with the Pennsylvania-IAM union took effect on February 2, 2010 and will expire on February 2, 2017. Please refer to the Overview section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the Company’s restructuring activities and the impact on the number of employees.

Internet Access – The Company’s internet website address is www.harley-davidson.com. The Company makes available free of charge (other than an investor’s own internet access charges) through its internet website the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the United States Securities and Exchange Commission (SEC). In addition, the Company makes available, through its website, the following corporate governance materials: (a) the Company’s Corporate Governance Policy; (b) Committee Charters approved by the Company’s Board of Directors for the Audit Committee, Human Resources Committee, Nominating and Corporate Governance Committee and Sustainability Committee; (c) the Company’s Financial Code of Ethics; (d) the Company’s Code of Business Conduct (the Code of Conduct) in eight languages including English; (e) the Conflict of Interest Process for Directors, Executive Officers and Other Employees (the Conflict Process); (f) a list of the Company’s Board of Directors; (g) the Company’s By-laws; (h) the Company’s Environmental Policy; (i) the Company’s Policy for Managing Disclosure of Material Information; (j) the Company’s Supplier Code of Conduct; (k) the Sustainability Strategy Report; and (l) the list of compensation survey participants used as market reference points for various components of compensation as reported in the Company’s Notice of Annual Meeting and Proxy Statement filed with the SEC on March 25, 2011, which compensation relates to the Company’s named executive officers. This information is also available from the Company upon request. The Company satisfies the disclosure requirements under the Code of Conduct, the Conflict Process and applicable New York Stock Exchange listing requirements regarding waivers of the Code of Conduct or the Conflict Process by disclosing the information in the Company’s proxy statement for its annual meeting of shareholders or on the Company’s website. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

Financial Services

HDFS is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans, primarily for the purchase of Harley-Davidson motorcycles. HDFS is an agent for certain unaffiliated insurance companies providing property/casualty insurance and also sells extended service contracts, gap coverage and debt protection products to motorcycle owners. HDFS conducts business principally in the United States and Canada, and primarily through certain subsidiaries such as Harley-Davidson Credit Corp., Eaglemark Savings Bank, Harley-Davidson Insurance Services, Inc., and Harley-Davidson Financial Services Canada, Inc.

Wholesale Financial Services – HDFS provides wholesale financial services to Harley-Davidson dealers, including floorplan and open account financing of motorcycles and motorcycle parts and accessories. HDFS

offers wholesale financial services to Harley-Davidson dealers in the United States and Canada, and during 2011 approximately 98% of such dealers utilized those services. The wholesale finance operations of HDFS are located in Plano, Texas.

Retail Financial Services – HDFS provides retail financing to consumers, including installment lending for the purchase of new and used Harley-Davidson motorcycles. HDFS’ retail financial services are available through most Harley-Davidson dealers in the United States and Canada. HDFS’ retail finance operations are principally located in Carson City, Nevada and Plano, Texas.

Insurance Services – HDFS offers point-of-sale protection products and sales training to Harley-Davidson dealers in both the U.S. and Canada. HDFS is an insurance agent that represents multiple insurance companies to offer motorcycle insurance and also offers extended service contracts, credit protection, and motorcycle maintenance products. HDFS also direct-markets motorcycle insurance to owners of Harley-Davidson motorcycles. In addition, HDFS markets a comprehensive package of business insurance coverages and services to owners of Harley-Davidson dealerships. The insurance operations of HDFS are located in Carson City, Nevada and Chicago, Illinois.

Funding – The Company believes a diversified and cost effective funding strategy is important to meet HDFS’ goal of providing credit while delivering appropriate returns and profitability. Financial Services operations have been funded with unsecured debt, unsecured commercial paper, an asset-backed commercial paper conduit facility, and committed unsecured bank facilities, and through the term asset-backed securitization market. HDFS also has a support agreement with the Company whereby, if required, the Company agrees to provide financial support in the form of advances and/or loans. Please refer to the section titled “Liquidity and Capital Resources as of December 31, 2011” within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.

Competition – The Company regards its ability to offer a package of wholesale and retail financial services in the U.S. and Canada as a significant competitive advantage. Competitors in the financial services industry compete for business based largely on price and, to a lesser extent, service. HDFS competes on convenience, service, brand association, dealer relations, industry experience, terms and price.

In the United States, HDFS financed 51.0% of the new Harley-Davidson motorcycles retailed by independent dealers during 2011, as compared to 47.9% in 2010. In Canada, HDFS financed 30.4% of the new Harley-Davidson motorcycles retailed by independent dealers during 2011, as compared to 32.2% in 2010. Competitors for retail motorcycle finance business are primarily banks, credit unions and other financial institutions. In the motorcycle insurance business, competition primarily comes from national insurance companies and from insurance agencies serving local or regional markets. For insurance-related products such as extended service contracts, HDFS faces competition from certain regional and national industry participants as well as dealer in-house programs.

Competition for the wholesale motorcycle finance business primarily consists of banks and other financial institutions providing wholesale financing to Harley-Davidson dealers in their local markets.

Trademarks – HDFS uses various trademarks and trade names for its financial services and products which are licensed from H-D Michigan, LLC, including HARLEY-DAVIDSON, H-D and the Bar & Shield logo.

Seasonality – In the U.S. and Canada, motorcycles are primarily used during warmer months. Accordingly, HDFS experiences seasonal variations in wholesale and retail financing activities. In general, from mid-March through August, retail financing volume increases while wholesale financing volume decreases as dealer inventories decline. From September through mid-March, there is generally a decrease in retail financing volume while dealer inventories generally build and turn over more slowly, thereby increasing wholesale finance receivables.

Regulation – The operations of HDFS (both U.S. and foreign) are subject, in certain instances, to supervision and regulation by state and federal administrative agencies and various foreign governmental authorities. Many of the statutory and regulatory requirements imposed by such entities are in place to provide consumer protection as it pertains to the selling and ongoing servicing of financial products and services. Therefore, operations may be subject to various regulations, laws and judicial and/or administrative decisions imposing requirements and restrictions, which among other things: (a) regulate credit granting activities, including establishing licensing requirements, in applicable jurisdictions; (b) establish maximum interest rates, finance charges and other charges; (c) regulate customers’ insurance coverage; (d) require disclosure of credit and insurance terms to customers; (e) govern secured transactions; (f) set collection, foreclosure, repossession and claims handling procedures and other trade practices; (g) prohibit discrimination in the extension of credit and administration of loans; (h) regulate the use and reporting of information related to a borrower; (i) require certain periodic reporting; (j) govern the use and protection of non-public personal information; (k) regulate the use of information reported to the credit reporting agencies; (l) regulate the reporting of information to the credit reporting agencies; and/or (m) regulate insurance solicitation and sales practices.

Depending on the provisions of the applicable laws and regulations, the interpretation of laws and regulations and the specific facts and circumstances involved, violations of or non-compliance with these laws may limit the ability of HDFS to collect all or part of the principal or interest on applicable loans, may entitle the borrower to rescind the loan or to obtain a refund of amounts previously paid, could subject HDFS to the payment of damages or penalties and administrative sanctions, including “cease and desist” orders, and could limit the number of loans eligible for HDFS securitization programs.

Such regulatory requirements and associated supervision could limit the discretion of HDFS in operating its business. Noncompliance with applicable statutes or regulations could result in the suspension or revocation of any charter, license or registration at issue, as well as the imposition of civil fines, criminal penalties and administrative sanctions. The Company cannot assure that the applicable laws or regulations will not be amended or construed differently, that new laws and regulations will not be adopted or that interest rates charged by HDFS will not rise to maximum levels permitted by law, the effect of any of which could be to adversely affect the business of HDFS or its results of operations.

A subsidiary of HDFS, Eaglemark Savings Bank (ESB), is a Nevada state thrift chartered as an Industrial Loan Company (ILC). As such, the activities of this subsidiary are governed by federal regulations and State of Nevada banking laws and are subject to examination by the Federal Deposit Insurance Corporation (FDIC) and Nevada state bank examiners. ESB originates retail loans and sells the loans to a non-banking subsidiary of HDFS. This process allows HDFS to offer retail products with many common characteristics across the United States and to similarly service loans to U.S. retail customers.

Employees – As of December 31, 2011, the Financial Services segment had approximately 600 employees.

Item 1A.

Risk Factors

An investment in Harley-Davidson, Inc. involves risks, including those discussed below. These risk factors should be considered carefully before deciding whether to invest in the Company.

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The Company may not be able to successfully execute its long-term business strategy. There is no assurance that the Company will be able to drive growth to the extent desired through its focus of efforts and resources on the Harley-Davidson brand or to enhance productivity and profitability to the extent desired through continuous improvement.

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Expanding international sales subjects the Company to risks that may have a material adverse effect on its business. Expanding international sales is a part of the Company’s long-term business strategy. International operations and sales are subject to various risks, including political and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade

barriers, the impact of foreign government regulations and the effects of income and withholding taxes, governmental expropriation and differences in business practices. The Company may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international operations and sales that could cause loss of revenues and earnings. Unfavorable changes in the political, regulatory and business climate could have a material adverse effect on the Company’s net sales, financial condition, profitability or cash flows.

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The Company must effectively execute the Company’s restructuring plans within expected costs. During 2009, 2010 and 2011, the Company announced a combination of restructuring actions that are designed to reduce administrative costs, eliminate excess capacity and exit non-core business operations. Effectively executing these plans within expected costs and realizing expected benefits will depend upon a number of factors, including the time required to complete planned actions and effective collaboration with the unions representing the Company’s employees, the absence of material issues associated with workforce reductions, availability of and effective use of third party service providers to assist in implementing the actions, avoidance of unexpected disruptions in production, retention of key employees involved in implementing the restructuring plans and the ability of the Company to dispose of vacated facilities in a cost effective manner.

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The Company sells its products at wholesale and must rely on a network of independent dealers and distributors to manage the retail distribution of its products. The Company depends on the capability of its independent dealers and distributors to develop and implement effective retail sales plans to create demand among retail purchasers for the motorcycles and related products and services that the dealers and distributors purchase from the Company. If the Company’s independent dealers and distributors are not successful in these endeavors, then the Company will be unable to maintain or grow its revenues and meet its financial expectations. Further, independent dealers and distributors may experience difficulty in funding their day-to-day cash flow needs and paying their obligations resulting from adverse business conditions such as weakened retail sales and tightened credit. If dealers are unsuccessful, they may exit or be forced to exit the business or, in some cases, the Company may seek to terminate relationships with certain dealerships. As a result, the Company could face additional adverse consequences related to the termination of dealer relationships. Additionally, liquidating a former dealer’s inventory of new and used motorcycles can add downward pressure on new and used motorcycle prices. Further, the unplanned loss of any of the Company’s independent dealers may lead to inadequate market coverage for retail sales of new motorcycles and for servicing previously sold motorcycles, create negative impressions of the Company with its retail customers, and adversely impact the Company’s ability to collect wholesale receivables that are associated with that dealer.

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Changes in general economic conditions, tightening of credit, political events or other factors may adversely impact dealers’ retail sales. The motorcycle industry has been affected by general economic conditions over which motorcycle manufacturers have little control. These factors can weaken the retail environment and lead to weaker demand for discretionary purchases such as motorcycles. Tightening of credit can limit the availability of funds from financial institutions and other lenders and sources of capital which could adversely affect the ability of retail consumers to obtain loans for the purchase of motorcycles from lenders, including HDFS. Should general economic conditions or motorcycle industry demand decline, the Company’s results of operations and financial condition may be substantially adversely affected. The motorcycle industry can also be affected by political conditions and other factors over which motorcycle manufacturers have little control.

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Retail sales of the Company’s independent dealers may be adversely impacted by declining prices for used motorcycles and excess supplies of new motorcycles. The Company has observed that when prices for used Harley-Davidson motorcycles have declined, it has had the effect of reducing demand among retail purchasers for new Harley-Davidson motorcycles (at or near manufacturer’s suggested retail prices). Also, while the Company has taken steps designed to balance production volumes for its new motorcycles with demand, the Company’s competitors could choose to supply new motorcycles to the market in excess of demand at reduced prices which could also have the effect of reducing demand

for new Harley-Davidson motorcycles (at or near manufacturer’s suggested retail prices). Ultimately, reduced demand among retail purchasers for new Harley-Davidson motorcycles leads to reduced shipments by the Company.

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The Company may not be able to successfully execute its manufacturing strategy. The Company’s manufacturing strategy is designed to continuously improve product quality and productivity, while reducing costs and increasing flexibility to respond to ongoing changes in the marketplace. The Company believes flexible manufacturing, including flexible supply chains and flexible labor agreements, is the key element to enable improvements in the Company’s ability to respond to customers in a cost effective manner. To implement this strategy, the Company must be successful in its continuous improvement efforts which are dependent on the involvement of management, production employees and suppliers. Any inability to achieve these objectives could adversely impact the profitability of the Company’s products and its ability to deliver the right product at the right time to the customer.

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The Company must invest in and successfully implement new information systems and technology. The Company is continually modifying and enhancing its systems and technology to increase productivity and efficiency. The Company has several strategic projects in process, some of which the Company will implement in 2012 and continuing over the next several years. As new systems and technologies (and related strategies) are implemented, the Company could experience unanticipated difficulties resulting in unexpected costs and adverse impacts to its manufacturing and other business processes. When implemented, the systems and technology may not provide the benefits anticipated and could add costs and complications to ongoing operations, which may have a material adverse effect on the Company’s business and results of operations.

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The Company and its independent dealers must successfully adjust to a more seasonal retail sales pattern. The Company records the wholesale sale of a motorcycle when it is shipped to the Company’s independent dealers and distributors. In the past several years, increased availability of new Harley-Davidson motorcycles has resulted in the timing of retail purchases from the Company’s independent dealers tracking more closely with regional motorcycle riding seasons. As a result, the Company and its independent dealers and distributors must be able to successfully manage changes in production rates, inventory levels and other business processes to manage costs associated with a more seasonal retail sales pattern. Failure to adjust through the implementation of a more flexible manufacturing process or through adjustments to its methods of distributing motorcycles among its independent dealers and distributors may have a material adverse effect on the Company’s business and results of operations.

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The Company relies on third party suppliers to obtain raw materials and provide component parts for use in the manufacture of its motorcycles. The Company cannot be certain that it will not experience supply problems such as unfavorable pricing or untimely delivery of raw materials and components. In certain circumstances, the Company relies on a single supplier to provide the entire requirement of a specific part, and a change in this established supply relationship may cause disruption in the Company’s production schedule. In addition, the price and availability of raw materials and component parts from suppliers can be adversely affected by factors outside of the Company’s control such as the supply of a necessary raw material or natural disasters. Further, Company suppliers may experience difficulty in funding their day-to-day cash flow needs because of tightening credit caused by financial market disruption. In addition, adverse economic conditions and related pressure on select suppliers due to difficulties in the global manufacturing arena could adversely affect their ability to supply the Company. These supplier risks may have a material adverse effect on the Company’s business and results of operations.

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The Company’s financial services operations rely on external sources to finance a significant portion of its operations. Liquidity is essential to the Company’s financial services business. Disruptions in financial markets may cause lenders and institutional investors to reduce or cease to loan money to borrowers, including financial institutions. The Company’s financial services operations may

be negatively affected by the difficulty in raising capital in the long-term and short-term capital markets. These negative consequences may in turn adversely affect the Company’s business and results of operations in various ways, including through higher costs of capital, reduced funds available through its financial services operations to provide loans to independent dealers and their retail customers, and dilution to existing share value through the use of alternative sources of capital.

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The Company’s financial services operations are highly dependent on accessing capital markets to fund their operations at competitive interest rates, the Company’s access to capital and its cost of capital are highly dependent upon its credit ratings, and any negative credit rating actions will adversely affect its earnings and results of operations. The ability of the Company and its financial services operations to access unsecured capital markets is influenced by their short-term and long-term credit ratings. If the Company’s credit ratings are downgraded or its ratings outlook is negatively changed, the Company’s cost of borrowing will increase, resulting in reduced earnings and interest margins, or the Company’s access to capital may be disrupted or impaired.

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The Company’s financial services operations are exposed to credit risk on its retail and wholesale receivables. Credit risk is the risk of loss arising from a failure by a customer to meet the terms of any contract with the Company’s financial services operations. Credit losses are influenced by general business and economic conditions, including unemployment rates, bankruptcy filings and other factors that negatively affect household incomes, as well as contract terms, customer credit profiles and the new and used motorcycle market. Negative changes in general business, economic or market factors may have an additional adverse impact on the Company’s financial services credit losses and future earnings. Credit losses are adversely impacted by increases in the frequency of loss and by decreases in the value of repossessed Harley-Davidson branded motorcycles. If there are adverse circumstances that involve a material decline in values of Harley-Davidson-branded motorcycles, those circumstances or any related decline in resale values for Harley-Davidson-branded motorcycles could contribute to increased delinquencies and credit losses.

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The Company has a number of competitors, some of which have greater financial resources than the Company. Many of the Company’s competitors are more diversified than the Company, and they may compete in all segments of the motorcycle market, other powersports markets and/or the automotive market. Also, the Company’s manufacturer’s suggested retail price for its motorcycles is generally higher than its competitors, and if price becomes a more important competitive factor for consumers in the heavyweight motorcycle market, the Company may be at a competitive disadvantage. In addition, the Company’s financial services operations face competition from various banks, insurance companies and other financial institutions that may have access to additional sources of capital at more competitive rates and terms, particularly for borrowers in higher credit tiers. Failure to adequately address and respond to these competitive pressures worldwide and in the U.S. may have a material adverse effect on the Company’s business and results of operations.

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The Company’s marketing strategy of appealing to and growing sales to multi-generational and multi-cultural customers worldwide may not continue to be successful. The Company has been successful in marketing its products in large part by promoting the experience of motorcycling. To sustain and grow the business over the long-term, the Company must continue to be successful selling products and promoting the experience of motorcycling to both core customers and outreach customers such as women, young adults and ethnically diverse adults. The Company must also execute its multi-generational and multi-cultural strategy without adversely impacting the strength of the brand with core customers.

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The Company’s success depends upon the continued strength of the Harley-Davidson brand. The Company believes that the Harley-Davidson brand has significantly contributed to the success of its business and that maintaining and enhancing the brand is critical to expanding its customer base. Failure to protect the brand from infringers or to grow the value of the Harley-Davidson brand may have a material adverse effect on the Company’s business and results of operations.

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The Company’s ability to remain competitive is dependent upon its capability to develop and successfully introduce new, innovative and compliant products. The motorcycle market continues to advance in terms of cutting edge styling and new technology and, at the same time, be subject to increasing regulations related to safety and emissions. The Company must continue to distinguish its products from its competitors’ products with unique styling and new technologies and to protect its intellectual property from imitators. In addition, these new products must comply with applicable regulations worldwide and satisfy the potential demand for products that produce lower emissions and achieve better fuel economy. The Company must make product advancements while maintaining the classic look, sound and feel associated with Harley-Davidson products. The Company must also be able to design and manufacture these products and deliver them to the marketplace in an efficient and timely manner. There can be no assurances that the Company will be successful in these endeavors or that existing and prospective customers will like or want the Company’s new products.

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The Company is exposed to market risk from changes in foreign exchange rates, commodity prices and interest rates. The Company sells its products internationally and in most markets those sales are made in the foreign country’s local currency. The Company is also subject to risks associated with changes in prices of commodities. Earnings from the Company’s financial services business are affected by changes in interest rates. The Company uses derivative financial instruments to attempt to manage foreign currency exchange rates, commodity price and interest rate risks. Also, these transactions may expose the Company to credit risk in the event of counterparty default to the derivative financial instruments. There can be no assurance that in the future the Company will successfully manage these risks.

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The Company’s operations are dependent upon attracting and retaining skilled employees, including executive officers and other senior leaders. The Company’s future success depends on its continuing ability to identify, hire, develop, motivate, retain and promote skilled personnel for all areas of its organization. The Company’s current and future total compensation arrangements, which include benefits and incentive awards, may not be successful in attracting new employees and retaining and motivating the Company’s existing employees. In addition, the Company must cultivate and sustain a work environment where employees are engaged and energized in their jobs to maximize their performance. If the Company does not succeed in attracting new personnel, retaining existing personnel, implementing effective succession plans and motivating and engaging personnel, including executive officers, the Company may be unable to develop and distribute products and services and effectively execute its plans and strategies.

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The Company incurs substantial costs with respect to employee pension and healthcare benefits. The Company’s cash funding requirements and its estimates of liabilities and expenses for pensions and healthcare benefits for both active and retired employees are based on several factors that are outside the Company’s control. These factors include funding requirements of the Pension Protection Act of 2006, the rate used to discount the future estimated liability, the rate of return on plan assets, current and projected healthcare costs, healthcare reform or legislation, retirement age and mortality. Changes in these factors can impact the expense and cash requirements associated with these benefits which could have a material adverse effect on future results of operations, liquidity or shareholders’ equity. In addition, costs associated with these benefits put the Company under significant cost pressure as compared to our competitors that may not bear the costs of similar benefit plans.

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The Company manufactures products that create exposure to product liability claims and litigation. To the extent plaintiffs are successful in showing that personal injury or property damage result from defects in the design or manufacture of the Company’s products, the Company may be subject to claims for damages that are not covered by insurance. The costs associated with defending product liability claims, including frivolous lawsuits, and payment of damages could be substantial. The Company’s reputation may also be adversely affected by such claims, whether or not successful.

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The Company must maintain its reputation of being a good corporate citizen and treating customers, employees, suppliers and other stakeholders fairly. The Company believes it has a

history of good corporate governance. Prior to the enactment of the Sarbanes-Oxley Act of 2002, the Company had in place many of the corporate governance procedures and processes now mandated by the Sarbanes-Oxley Act and related rules and regulations, such as Board Committee Charters and a Corporate Governance Policy. In 1992, the Company established a Code of Business Conduct that defines how employees interact with various Company stakeholders and addresses issues such as confidentiality, conflict of interest and fair dealing. Failure to maintain this reputation may have a material adverse effect on the Company’s business and results of operations.

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The Company is and may in the future become subject to legal proceedings and commercial or contractual disputes. These are typically claims that arise in the normal course of business. The uncertainty associated with substantial unresolved claims and lawsuits may harm the Company’s business, financial condition, reputation and brand. The defense of the lawsuits may result in the expenditures of significant financial resources and the diversion of management’s time and attention away from business operations. In addition, although we are unable to determine the amount, if any, that we may be required to pay in connection with the resolution of the lawsuits by settlement or otherwise, any such payment may have a material adverse effect on the Company’s business and results of operations. Refer to the Company’s disclosures concerning legal proceedings in the periodic reports that the Company files with the Securities and Exchange Commission for additional detail regarding lawsuits and other claims against the Company.

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The Company must comply with governmental laws and regulations that are subject to change and involve significant costs. The Company’s sales and operations in areas outside the U.S. may be subject to foreign laws, regulations and the legal systems of foreign courts or tribunals. These laws and policies governing operations of foreign-based companies may result in increased costs or restrictions on the ability of the Company to sell its products in certain countries. The Company’s international sales operations may also be adversely affected by United States laws affecting foreign trade and taxation.

The Company is subject to income and non-income based taxes in the United States and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax liabilities and other tax liabilities. The Company believes that it complies with applicable tax law. If the governing tax authorities have a different interpretation of the applicable law or if there is a change in tax law, our financial condition and/or results of operations may be adversely affected.

The Company’s domestic sales and operations are subject to governmental policies and regulatory actions of agencies of the United States Government, including the Environmental Protection Agency (“EPA”), SEC, National Highway Traffic Safety Administration, Department of Labor and Federal Trade Commission. In addition, the Company’s sales and operations are also subject to laws and actions of state legislatures and other local regulators, including dealer statutes and licensing laws. Changes in regulations or the imposition of additional regulations may have a material adverse effect on the Company’s business and results of operations.

The Company’s motorcycle products use internal combustion engines. These motorcycle products are subject to statutory and regulatory requirements governing emissions and noise, including standards imposed by the EPA, state regulatory agencies, such as California Air Resources Board, and regulatory agencies in certain foreign countries where the Company’s motorcycle products are sold. The Company is also subject to statutory and regulatory requirements governing emissions and noise in the conduct of the Company’s manufacturing operations. Any significant change to the regulatory requirements governing emissions and noise may substantially increase the cost of manufacturing the Company’s products. Further, in response to concerns about global climate changes, the Company may face greater regulatory or customer pressure to develop products that generate less emissions. This may require the Company to spend additional funds on research, product development, and implementation costs and subject the Company to the risk that the Company’s competitors may respond to these pressures in a manner that gives them a competitive advantage.

The Company’s financial services operations are governed by various foreign, federal and state laws that more specifically affect general financial and lending institutions. The financial services operations originate the majority of its consumer loans through its subsidiary, Eaglemark Savings Bank, a Nevada state thrift chartered as an industrial loan company. The U.S. Congress is currently considering several proposals that would impose additional regulation and supervision over the financial services industry. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was passed into law. The Dodd-Frank Act is a sweeping piece of legislation, and the financial services industry is still assessing the impacts. Congress detailed some significant changes, but the Dodd-Frank Act leaves many details to be determined by regulation and further study. The full impact will not be fully known for months or even years, as regulations that are intended to implement the Dodd-Frank Act are adopted by the appropriate agencies, and the text of the Dodd-Frank Act is analyzed by impacted stakeholders and possibly the courts. The Dodd-Frank Act also created the Bureau of Consumer Financial Protection (“CFPB”), housed in the Federal Reserve. The CFPB has been granted significant rule-making authority in the area of consumer financial products and services. The direction that the CFPB will take, the regulations it will adopt, and its interpretation of existing laws and regulations are all elements that are not yet known. Compliance with the law may be costly and could affect operating results as the implementation of new forms, processes, procedures and controls and infrastructure may be required to comply with the regulations. Compliance may create operational constraints and place limits on pricing. Failure to comply with these regulations, changes in these or other regulations, or the imposition of additional regulations, could affect HDFS’ earnings, limit its access to capital, limit the number of loans eligible for HDFS securitization programs and have a material adverse effect on HDFS’ business and results of operations.

In addition, the Company is also subject to policies and actions of the New York Stock Exchange (“NYSE”). Many major competitors of the Company are not subject to the requirements of the SEC or the NYSE rules. As a result, the Company may be required to disclose certain information that may put the Company at a competitive disadvantage to its principal competitors.

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A cybersecurity breach involving digital consumer or employee personal data may adversely affect the Company’s reputation, revenue and earnings. The Company and certain of its third-party vendors receive and store digital personal information in connection with its human resources operations, financial services operations, the Harley Owners Group and other aspects of its business. Any system failure, accident or security breach could result in disruptions to our operations. To the extent that any disruptions or security breach results in a loss or damage to our data, or in inappropriate disclosure of confidential information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against the Company and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

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The Company’s Motorcycles segment is dependent upon unionized labor. Substantially all of the hourly production employees working in the Motorcycles segment are represented by unions and covered by collective bargaining agreements. Harley-Davidson Motor Company is currently a party to five collective bargaining agreements with local affiliates of the International Association of Machinists and Aerospace Workers and the United Steelworkers of America. Current collective bargaining agreements with hourly employees in Pennsylvania, Kansas City and Wisconsin will expire in 2017, 2018 and 2019, respectively. Collective bargaining agreements generally cover wages, healthcare benefits and retirement plans, seniority, job classes and work rules. There is no certainty that the Company will be successful in negotiating new agreements with these unions that extend beyond the current expiration dates or that these new agreements will be on terms that will allow the Company to be competitive. Failure to renew these agreements when they expire or to establish new collective bargaining agreements on terms acceptable to the Company and the unions could result in the relocation of production facilities, work stoppages or other labor disruptions which may have a material adverse effect on customer relationships and the Company’s business and results of operations.

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The Company’s operations may be affected by greenhouse emissions and climate change and related regulations. In particular, climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. There have been bills pending in Congress that would regulate greenhouse gas emissions. In addition, several states, including states where the Company has manufacturing plants, are considering various greenhouse gas registration and reduction programs. Energy security and availability and its related costs affect all aspects of the Company’s manufacturing operations in the United States, including the Company’s supply chain. The Company’s manufacturing plants use energy, including electricity and natural gas, and certain of the Company’s plants emit amounts of greenhouse gas that may be affected by these legislative and regulatory efforts. Greenhouse gas regulation could increase the price of the electricity the Company purchases, increase costs for use of natural gas, potentially restrict access to or the use of natural gas, require the Company to purchase allowances to offset the Company’s own emissions or result in an overall increase in costs of raw materials, any one of which could increase the Company’s costs, reduce competitiveness in a global economy or otherwise negatively affect the Company’s business, operations or financial results. Many of the Company’s suppliers face similar circumstances. While additional regulation of emissions in the future appears likely, it is too early to predict how this regulation will ultimately affect the Company’s business, operations or financial results. Physical risks to the Company’s business operations as identified by the Intergovernmental Panel on Climate Change and other expert bodies include scenarios such as sea level rise, extreme weather conditions and resource shortages. Extreme weather may disrupt the production and supply of natural gas, a fuel necessary for the manufacture of motorcycles. Supply disruptions would raise market rates and jeopardize the continuity of motorcycle production.

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The Company must detect issues with the Company’s motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation. The Company must also complete any recall campaigns within cost expectations. The company must continually improve and adhere to product development and manufacturing processes to ensure high quality products are shipped to dealers. If product designs or manufacturing processes are defective, the Company could experience delays in new model launches, product recalls, conventional warranty claims, and product liability or unconventional warranty claims, which may involve purported class actions. While the Company uses reasonable methods to estimate the cost of warranty, recall and product liability costs and appropriately reflect those in the financial statements, there is a risk the actual costs could exceed estimates. Further, shipping products with poor quality may also adversely affect the Company’s reputation.

The Company disclaims any obligation to update these Risk Factors or any other forward-looking statements. The Company assumes no obligation (and specifically disclaims any such obligation) to update these Risk Factors or any other forward-looking statements to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

The following is a summary of the principal operating properties of the Company as of December 31, 2011:

Motorcycles & Related Products Segment


Type of Facility	Location	Approximate Square Feet		Status
Corporate Office	Milwaukee, WI		515,000	Owned
Museum	Milwaukee, WI		130,000	Owned
Airplane hangar	Milwaukee, WI		14,600	Owned
Manufacturing⁽¹⁾	Wauwatosa, WI		430,000	Owned
Product Development Center	Wauwatosa, WI		409,000	Owned
Distribution Center⁽²⁾	Franklin, WI		255,000	Owned
Data Center	Franklin, WI		25,000	Owned
Manufacturing⁽³⁾	Menomonee Falls, WI		881,600	Owned
Manufacturing⁽⁴⁾	Tomahawk, WI		226,000	Owned
Office	Ann Arbor, MI		3,400	Lease expiring 2014
Office	Cleveland, OH		23,000	Lease expiring 2014
Manufacturing and Materials Velocity Center⁽⁵⁾	Kansas City, MO		450,000	Owned
Warehouse	Kansas City, MO		20,000	Lease expiring 2013
Manufacturing⁽⁶⁾	York, PA		582,400	Owned
Motorcycle Testing	Naples, FL		82,000	Owned
Office	Miami, FL		10,000	Lease expiring 2016
Motorcycle Testing	Yucca, AZ		79,000	Lease expiring 2019
Office and Training Facility	Monterrey, Mexico		8,300	Lease expiring 2014
Manufacturing and Office⁽⁷⁾	Manaus, Brazil		100,000	Lease expiring 2016
Office	Sao Paulo, Brazil		1,200	Lease expiring 2015
Office and Warehouse	Oxford, England		21,000	Lease expiring 2017
Office	Rijswijk, The Netherlands		6,000	Lease expiring 2021
Office	Creteil, France		8,500	Lease expiring 2016
Office	Morfelden-Walldorf, Germany		19,900	Lease expiring 2012
Office	Sant Cugat, Spain		3,400	Lease expiring 2017
Office	Zurich, Switzerland		2,000	Lease expiring 2014
Office and Warehouse	Arese, Italy		17,000	Lease expiring 2015
Office	Prague, Czech Republic		1,900	Lease expiring 2019
Office	Dubai, United Arab Emirates		3,600	Lease expiring 2015
Office	Vienna, Austria		2,700	Lease expiring 2016
Office	Gurgaon, India		9,400	Lease expiring 2013
Manufacturing⁽⁸⁾	Bawal, India		68,200	Lease expiring 2013
Office	Moscow, Russia		2,200	Lease expiring 2013
Warehouse	Yokohama, Japan		15,000	Lease expiring 2012
Office	Tokyo, Japan		14,000	Lease expiring 2012
Office	Akishima, Japan		13,000	Lease expiring 2028
Office	Shanghai, China		3,300	Lease expiring 2012
Office	Shanghai, China		10,800	Lease expiring 2015
Office	Singapore		8,800	Lease expiring 2015
Office	Cape Town, South Africa		3,500	Lease expiring 2013
Office	Sydney, Australia		21,800	Lease expiring 2012
Manufacturing⁽⁹⁾	Adelaide, Australia		485,000	Lease expiring 2013

(1)	Facility was idled during 2010 and production moved to Menomonee Falls, WI.

(2)	The P&A warehousing and distribution activity at this facility was moved to an outsourced facility during 2011.

(3)	Motorcycle powertrain production.

(4)	Fiberglass/plastic parts production and painting.

(5)	Motorcycle parts fabrication, painting and Dyna, Sportster^® and V-Rod^® assembly.

(6)	Motorcycle parts fabrication, painting and Softail^® and touring model assembly.

(7)	Assembly of select models for the Brazilian market.

(8)	Assembly of select models for the Indian market.

(9)	The Company anticipates that the motorcycle wheel production will be fully outsourced by mid-2013 .

Financial Services Segment


Type of Facility	Location	Approximate Square Feet		Status
Office	Chicago, IL		26,000	Lease expiring 2022
Office	Plano, TX		61,500	Lease expiring 2014
Office	Carson City, NV		100,000	Owned
Storage	Carson City, NV		1,600	Lease expiring 2012

The Financial Services segment has three office facilities: Chicago, Illinois (corporate headquarters); Plano, Texas (wholesale, insurance and retail operations); and Carson City, Nevada (retail and insurance operations).

Item 3.

Legal Proceedings

The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining required reserves related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reserves are monitored on an ongoing basis and are updated based on new developments or new information in each matter.

Environmental Protection Agency Notice

In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses to the EPA’s inquiry and engaged in discussions with the EPA. It is possible that a result of the EPA’s investigation will be some form of enforcement action by the EPA that will seek a fine or other relief. However, at this time the Company does not know and cannot reasonably estimate the impact of any remedies the EPA might seek.

York Environmental Matters:

The Company is involved with government agencies and groups of potentially responsible parties in various environmental matters, including a matter involving the cleanup of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including an ongoing site-wide remedial investigation/feasibility study (RI/FS). In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.

In February 2002, the Company was advised by the EPA that it considers some of the Company’s remediation activities at the York facility to be subject to the EPA’s corrective action program under the Resource Conservation and Recovery Act (RCRA) and offered the Company the option of addressing corrective action under a RCRA facility lead agreement. In July 2005, the York facility was designated as the first site in Pennsylvania to be addressed under the “One Cleanup Program.” The program provides a more streamlined and efficient oversight of voluntary remediation by both PADEP and EPA and will be carried out consistent with the Agreement with the Navy. As a result, the RCRA facility lead agreement has been superseded.

The Company estimates that its share of the future Response Costs at the York facility will be approximately $3.9 million and has established a reserve for this amount which is included in accrued liabilities in the Condensed Consolidated Balance Sheets. As noted above, the RI/FS is still underway and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS or otherwise at the York facility, we are unable to make a reasonable estimate of those additional costs, if any, that may result.

The estimate of the Company’s future Response Costs that will be incurred at the York facility is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response Costs related to the remediation of soil are expected to be incurred primarily over a period of several years ending in 2015. Response Costs related to ground water remediation may continue for some time beyond 2015.

Product Liability Matters:

Additionally, the Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability will not have a material adverse effect on the Company’s consolidated financial statements.

Item 4.

Mine Safety Disclosures

Not Applicable

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Harley-Davidson, Inc. common stock is traded on the New York Stock Exchange, Inc. The high and low market prices for the common stock, reported as New York Stock Exchange, Inc. Composite Transactions, were as follows:


2011	Low		High		2010	Low		High
First quarter	$	34.56	$	43.14	First quarter	$	21.81	$	28.98
Second quarter	$	34.70	$	43.15	Second quarter	$	23.61	$	36.13
Third quarter	$	31.50	$	46.88	Third quarter	$	21.26	$	29.17
Fourth quarter	$	31.93	$	40.92	Fourth quarter	$	27.79	$	35.59

The Company paid the following dividends per share:


	2011		2010		2009
First quarter	$	0.100	$	0.10	$	0.10
Second quarter		0.125		0.10		0.10
Third quarter		0.125		0.10		0.10
Fourth quarter		0.125		0.10		0.10

	$	0.475	$	0.40	$	0.40

As of January 31, 2012 there were 87,081 shareholders of record of Harley-Davidson, Inc. common stock.

The following table contains detail related to the repurchase of common stock based on the date of trade during the quarter ended December 31, 2011:


2011 Fiscal Month	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
September 26 to October 30		1,800,327	$	35		1,800,327		20,432,222
October 31 to November 27		1,241,900	$	38		1,241,900		19,192,864
November 28 to December 31		442,550	$	35		442,550		18,588,388

Total		3,484,777	$	36		3,484,777

The Company has an authorization (originally adopted in December 1997) by its Board of Directors to repurchase shares of its outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (1) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 2004 plus (2) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. All of the share repurchases completed by the Company during the fourth quarter ended December 31, 2011 were done so under this authorization. As of December 31, 2011, 1.9 million shares remained under this authorization.

In December 2007, the Company’s Board of Directors separately authorized the Company to buy back up to 20.0 million shares of its common stock with no dollar limit or expiration date. As of December 31, 2011, 16.7 million shares remained under this authorization.

From time to time, the Company may enter into a Rule 10b5-1 trading plan for the purpose of repurchasing shares under either the 1997 or 2007 authorization.

The Harley-Davidson, Inc. 2009 Incentive Stock Plan (exhibit 10.5) and predecessor stock plans permit participants to satisfy all or a portion of the statutory federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold Shares otherwise issuable under the award, (b) tender back shares received in connection with such award or (c) deliver other previously owned Shares, in each case having a value equal to the amount to be withheld. During the fourth quarter of 2011, the Company acquired 1,486 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock awards.

Item 12 of this Annual Report on Form 10-K contains certain information relating to the Company’s equity compensation plans.

The following information in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such a filing: the SEC requires the Company to include a line graph presentation comparing cumulative five year Common Stock returns with a broad-based stock index and either a nationally recognized industry index or an index of peer companies selected by the Company. The Company has chosen to use the Standard & Poor’s 500 Index as the broad-based index and the Standard & Poor’s MidCap 400 Index as a more specific comparison. The Standard & Poor’s MidCap 400 Index was chosen because the Company does not believe that any other published industry or line-of-business index adequately represents the current operations of the Company. The graph assumes a beginning investment of $100 on December 31, 2006 and that all dividends are reinvested.

LOGO


	2006 ($)		2007 ($)		2008 ($)		2009 ($)		2010 ($)		2011 ($)
Harley-Davidson, Inc.		100		68		26		39		55		62
Standard & Poor’s MidCap 400 Index		100		109		69		95		121		118
Standard & Poor’s 500 Index		100		105		66		84		97		99

Item 6.

Selected Financial Data


(In thousands, except per share amounts)	2011⁽¹⁾		2010⁽¹⁾			2009⁽²⁾			2008⁽²⁾			2007
Statement of operations data:
Revenue:
Motorcycles & Related Products	$	4,662,264	$	4,176,627		$	4,287,130		$	5,578,414		$	5,726,848
Financial Services		649,449		682,709			494,779			376,970			416,196

Total revenue	$	5,311,713	$	4,859,336		$	4,781,909		$	5,955,384		$	6,143,044

Income from continuing operations	$	548,078	$	259,669		$	70,641		$	684,235		$	933,843
Income (loss) from discontinued operations, net of tax		51,036		(113,124	)		(125,757	)		(29,517	)		—

Net income (loss)	$	599,114	$	146,545		$	(55,116	)	$	654,718		$	933,843

Weighted-average common shares:
Basic		232,889		233,312			232,577			234,225			249,205
Diluted		234,918		234,787			233,573			234,477			249,882
Earnings per common share from continuing operations:
Basic	$	2.35	$	1.11		$	0.30		$	2.92		$	3.75
Diluted	$	2.33	$	1.11		$	0.30		$	2.92		$	3.74
Earnings (loss) per common share from discontinued operations:
Basic	$	0.22	$	(0.48	)	$	(0.54	)	$	(0.13	)	$	—
Diluted	$	0.22	$	(0.48	)	$	(0.54	)	$	(0.13	)	$	—
Earnings (loss) per common share:
Basic	$	2.57	$	0.63		$	(0.24	)	$	2.80		$	3.75
Diluted	$	2.55	$	0.62		$	(0.24	)	$	2.79		$	3.74
Dividends paid per common share	$	0.475	$	0.400		$	0.400		$	1.290		$	1.060
Balance sheet data:
Total assets	$	9,674,164	$	9,430,740		$	9,155,518		$	7,828,625		$	5,656,606
Total debt	$	5,722,619	$	5,752,356		$	5,636,129		$	3,914,887		$	2,099,955
Total equity	$	2,420,256	$	2,206,866		$	2,108,118		$	2,115,603		$	2,375,491

⁽¹⁾	2011 and 2010 data includes the effects of consolidating formerly off-balance sheet qualifying special purpose entities as required by the new guidance within Accounting Standards Codification (ASC) Topic 810, “Consolidations” and ASC Topic 860, “Transfers and Servicing.”

⁽²⁾	2009 and 2008 total assets include assets of discontinued operations of $181.2 million and $238.7 million, respectively.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). HDMC produces heavyweight cruiser and touring motorcycles. HDMC manufactures five families of motorcycles: Touring, Dyna^®, Softail^®, Sportster^® and V-Rod^®. HDFS provides wholesale and retail financing and insurance programs primarily to Harley-Davidson dealers and customers.

The Company operates in two business segments: Motorcycles & Related Products (Motorcycles) and Financial Services (Financial Services). The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations.

The “% Change” figures included in the “Results of Operations” section were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented.

Overview

The Company produced strong financial results in 2011 and continued to make progress against its long-term business strategy, announced in 2009. The Company’s long-term business strategy is centered on four key pillars: growth, continuous improvement, leadership development and sustainability. Under this strategy, the Company expects to drive growth through a focus of efforts and resources on the unique strengths of the Harley-Davidson brand and to enhance productivity and profitability through continuous improvement. The strategy focuses Company resources on Harley-Davidson products and experiences, global expansion, demographic outreach and commitment to core customers. In addition, the Company will continue to expand its initiatives to enhance profitability through continuous improvement in manufacturing, product development and business operations.

During 2011, the Company made progress towards transforming its operations to be more flexible and customer led. The Company’s efforts were focused on shortening product development lead times, implementing flexible manufacturing, expanding internationally and providing a premium retail experience. These efforts included significant changes at the York manufacturing facility where production of all models that the facility produces was consolidated onto a single production line, and the Company achieved it target throughput rates by the end of 2011. In addition, international expansion continued with the opening of new regional headquarters for the Company’s Asia Pacific region and its Latin America region as well as the addition of new dealers outside the U.S. Finally, the Company began the process of transforming the Company’s worldwide dealer network to provide the capabilities and systems that will improve interactions with retail customers, provide a premium retail experience and strengthen dealer profitability.

In 2011, worldwide independent dealer retail sales of new Harley-Davidson motorcycles grew 5.9% compared to 2010, including a 5.8% increase in the U.S. The Company believes the solid improvement in retail sales of new Harley-Davidson motorcycles reflects the strong appeal of its product lineup, its new investments in growth opportunities across all regions, the efforts of the independent dealer network, and improved consumer confidence in the U.S.

(1)

Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption “Risk Factors” in Item 1A and under “Cautionary Statements” in Item 7 of this report. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date of the filing of this report (February 23, 2012), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The Company’s income from continuing operations for 2011 was $548.1 million, or $2.33 per diluted share compared to $259.7 million, or $1.11 per diluted share, in 2010. The increase in 2011 income from continuing operations was driven by strong financial performance in both the Motorcycles and the Financial Services segments. Operating income from the Motorcycles segment was up $182.4 million over 2010 on a 10.7% increase in wholesale shipments of Harley-Davidson motorcycles and lower restructuring costs. The Motorcycles segment delivered these results despite pressure on gross margin resulting from temporary inefficiencies associated with restructuring efforts and higher raw material and fuel costs compared to 2010. Operating income from the Financial Services segment was also up over the prior year, increasing $86.9 million on strong credit performance.

Please refer to the “Results of Operations 2011 Compared to 2010” for additional details concerning the results for 2011.

Outlook⁽¹⁾

On January 24, 2012, the Company announced its expectation to ship 240,000 to 245,000 Harley-Davidson motorcycles during 2012, with 58,000 to 63,000 Harley-Davidson motorcycles expected to ship in the first quarter of 2012. The 2012 shipment estimate takes several factors into consideration, including macro-economic concerns, near-term production limitations driven by on-going restructuring activities, and a strategy to move production closer to retail sales. First, while the Company is encouraged by the strong retail sales in 2011, it remains cautious on the U.S. economic recovery and concerned over the continuing debt issues in Europe. Second, the 2012 first quarter shipment expectations reflect an effort to increase U.S. first quarter dealer inventory and to prepare for potential disruptions that may result from the Company’s planned implementation of a new enterprise resource planning (ERP) system at York in 2012. Finally, the 2012 shipment guidance takes into consideration a new capability to efficiently flex the manufacturing labor force starting in the first half of 2013. This capability is a key component of the Company’s strategy to be more flexible, and to efficiently produce motorcycles closer to customer demand. Beginning in early 2013, the Company expects to be able to increase production at York by adding flexible workers thus increasing capacity utilization in the first and second quarters of 2013. Consequently, in the U.S. it is expected that dealers will retail more units than the Company will ship in 2012, thereby lowering year-end retail inventory in the U.S. dealer network as it enters the winter season. The Company’s ability to maximize flexibility in the entire manufacturing system will occur in 2014 when the same capability will be in place for our Kansas City and Wisconsin operations.

In addition, the Company announced its expectation for full year 2012 gross margin to be between 34.75% and 35.75%. The Company expects gross margin will be positively impacted in 2012 by incremental restructuring savings, increased productivity from continuous improvement initiatives and the 2012 model year price increases which took effect in July 2011. The Company believes that product mix, raw materials and temporary inefficiencies from its restructuring activities will be comparable to 2011 levels, and that currency will be a headwind in 2012.

The Company’s capital expenditure estimates for 2012 are between $190 million to $210 million, including approximately $25 million to support restructuring activities. The Company anticipates it will have the ability to fund all capital expenditures in 2012 with cash flows generated by operations.

The Company also announced on January 24, 2012 that it expects the full year 2012 effective income tax rate to be approximately 35.5% for continuing operations. This guidance excludes the effect of any potential future nonrecurring adjustments such as changes in tax legislation or audit settlements which are recorded as discrete items in the period in which they are settled.

Restructuring Activities⁽¹⁾

2011 Restructuring Plans

In December 2011, the Company made a decision to cease operations at New Castalloy, its Australian subsidiary and producer of cast motorcycle wheels and wheel hubs, and source those components through other existing suppliers. The Company expects the transition of supply from New Castalloy to be complete by mid-2013. The decision to close New Castalloy comes as part of the Company’s overall long term strategy to develop world-class manufacturing capability throughout the Company by restructuring and consolidating operations for greater competitiveness, efficiency and flexibility. In connection with this decision, the Company will reduce its workforce by approximately 200 employees by mid-2013.

In February 2011, the Company’s unionized employees at its facility in Kansas City, Missouri ratified a new seven-year labor agreement. The new agreement took effect on August 1, 2011. The new contract is similar to the labor agreements ratified at the Company’s Wisconsin facilities in September 2010 and its York, Pennsylvania facility in December 2009, and allows for similar flexibility and increased production efficiency. Once the new contract is implemented, the production system in Kansas City, like Wisconsin and York, will include the addition of a flexible workforce component.

After taking actions to implement the new ratified labor agreement, the Company expects to have about 145 fewer full-time hourly unionized employees in its Kansas City facility than would be required under the existing contract.

2010 Restructuring Plan

In September 2010, the Company’s unionized employees in Wisconsin ratified three separate new seven-year labor agreements which take effect in April 2012 when the current contracts expire. The new contracts are similar to the labor agreement ratified at the Company’s York, Pennsylvania facility in December 2009 and allow for similar flexibility and increased production efficiency. Once the new contracts are implemented, the production system in Wisconsin, like York, will include the addition of a flexible workforce component.

Based on the new ratified labor agreements, the Company expects to have about 250 fewer full-time hourly unionized employees in its Milwaukee-area facilities when the contracts are implemented in 2012 than would be required under the existing contract. In Tomahawk, the Company expects to have about 75 fewer full-time hourly unionized employees when the contract is implemented than would be required under the current contract.

2009 Restructuring Plan

During 2009, in response to the U.S. economic recession and worldwide slowdown in consumer demand, the Company committed to a volume reduction and a combination of restructuring actions that are expected to be completed at various dates between 2009 and 2012. The actions were designed to reduce administrative costs, eliminate excess capacity and exit non-core business operations. The Company’s significant announced actions included the restructuring and transformation of its York, Pennsylvania production facility including the implementation of a new more flexible unionized labor agreement; consolidation of facilities related to engine and transmission production; outsourcing of certain distribution and transportation activities and exiting the Buell product line.

The 2009 restructuring plans included a reduction of approximately 2,700 to 2,900 hourly production positions and approximately 720 non-production, primarily salaried positions within the Motorcycles segment and approximately 100 salaried positions in the Financial Services segment.

Restructuring Costs and Savings

During 2011, the Company incurred $68.0 million in restructuring expense related to its combined restructuring plan activities. This is in addition to $387.8 million in restructuring and impairment expense incurred in prior years since its restructuring activities were initiated in 2009. On January 24, 2012, the Company

revised its estimate for restructuring expenses related to its combined restructuring plan activities initiated since early 2009 to $500 million to $520 million from 2009 through 2013, and the Company expects approximately 35% of those amounts to be non-cash. The Company had most recently estimated these expenses to be $505 million to $525 million over the same time period. The revised estimate includes estimated restructuring expenses of $50 million to $60 million for 2012. The Company anticipates annual ongoing total savings from restructuring activities initiated since early 2009 of approximately $315 million to $335 million upon completion of all announced restructuring activities. The Company has realized or estimates that it will realize cumulative savings from these restructuring activities, measured against 2008, as follows:

•

2009 - $91 million (91% operating expense and 9% cost of sales) (actual);

•

2010 - $172 million (64% operating expense and 36% cost of sales) (actual);

•

2011 - $217 (51% operating expense and 49% cost of sales) (actual);

•

2012 - $275 million to $295 million (35-45% operating expense and 55-65% cost of sales) (estimated);

•

2013 - $300 million to $320 million (30-40% operating expense and 60-70% cost of sales) (estimated);

•

2014 - $315 million to $335 million (30-40% operating expense and 60-70% cost of sales) (estimated); and

•

Ongoing annually upon completion - $315 million to $335 million (30-40% operating expense and 60-70% cost of sales) (estimated).

Discontinued Operations

In 2011, the Company recognized a $51.0 million benefit on income from discontinued operations, driven by the reversal of tax amounts reserved in prior years related to the divestiture of the Company’s MV Agusta subsidiaries. The amounts had been reserved pending an agreement with the IRS on the tax treatment of the transaction. With the agreement, the Company anticipates no further financial adjustments related to MV Agusta.⁽¹⁾

Results of Operations 2011 Compared to 2010

Consolidated Results


(in thousands, except earnings per share)	2011		2010			Increase (Decrease)			% Change
Operating income from motorcycles & related products	$	561,176	$	378,758		$	182,418			48.2	%
Operating income from financial services		268,791		181,873			86,918			47.8

Operating income		829,967		560,631			269,336			48.0
Investment income		7,963		5,442			2,521			46.3
Interest expense		45,266		90,357			(45,091	)		(49.9	)
Loss on debt extinguishment		—		85,247			(85,247	)		NM

Income before income taxes		792,664		390,469			402,195			103.0
Provision for income taxes		244,586		130,800			113,786			87.0

Income from continuing operations		548,078		259,669			288,409			111.1
Income (loss) from discontinued operations, net of taxes		51,036		(113,124	)		164,160			(145.1	)

Net income	$	599,114	$	146,545		$	452,569			308.8	%


Diluted earnings per share from continuing operations	$	2.33	$	1.11		$	1.22			109.9	%
Diluted (earnings) loss per share from discontinued operations	$	0.22	$	(0.48	)	$	0.70			(145.8	%)
Diluted earnings per share	$	2.55	$	0.62		$	1.93			311.3	%

Operating income for the Motorcycles segment during 2011 improved by $182.4 million compared to 2010 primarily due to increased motorcycle shipments and lower spending on the Company’s ongoing restructuring activities. Operating income for the Financial Services segment improved by $86.9 million during 2011 primarily due to improved credit performance in the retail motorcycle finance receivable portfolio. Please refer to the “Motorcycles and Related Products Segment” and “Financial Services Segment” discussions following for a more detailed discussion of the factors affecting operating income.

Interest expense for 2011 related to the Company’s senior unsecured notes, was approximately $45 million lower than in 2010. The decrease in interest expense on the senior unsecured notes is due to the Company’s repurchase of $297.0 million of the $600.0 million senior unsecured notes during the fourth quarter of 2010.

During the fourth quarter of 2010, the Company repurchased $297.0 million of the $600.0 million senior unsecured notes at a price of $380.8 million. As a result of the transaction, the Company incurred a loss on debt extinguishment of $85.2 million which also includes $1.4 million of capitalized debt issuance costs that were written-off. The Company used cash on hand for the repurchase and the repurchased notes were cancelled.

The effective income tax rate for 2011 was 30.9% compared to 33.5% for 2010. The lower 2011 effective tax rate was mainly driven by a change in the 2011 Wisconsin income tax law associated with certain net operating losses and a one-time tax charge in 2010 associated with the federal healthcare legislation.

Motorcycles and Related Products Segment

Harley-Davidson Motorcycle Retail Sales

Worldwide independent dealer retail sales of Harley-Davidson motorcycles increased 5.9% during 2011 compared to 2010. Retail sales of Harley-Davidson motorcycles increased 5.8% in the United States and 6.1% internationally in 2011. The following table includes retail unit sales of Harley-Davidson motorcycles:

Harley-Davidson Motorcycle Retail Sales^(a)

Heavyweight (651+cc)


	2011		2010		(Decrease) Increase			% Change
North America Region
United States		151,683		143,391		8,292			5.8	%
Canada		10,502		10,376		126			1.2

Total North America Region		162,185		153,767		8,418			5.5

Europe Region (Includes Middle East and Africa)
Europe^(b)		39,334		37,378		1,956			5.2
Other		5,006		3,810		1,196			31.4

Total Europe Region		44,340		41,188		3,152			7.7

Asia Pacific Region
Japan		10,401		11,405		(1,004	)		(8.8	)
Other		11,015		9,582		1,433			15.0

Total Asia Pacific Region		21,416		20,987		429			2.0

Latin America Region		7,247		6,168		1,079			17.5

Total Worldwide Retail Sales		235,188		222,110		13,078			5.9	%

(a)	Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning retail sales and this information is subject to revision.

(b)	Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The following table includes industry retail motorcycle registration data:

Heavyweight Motorcycle Registration Data^(a)


	2011		2010		Decrease			% Change
United States^(b)		271,018		259,733		11,285			4.3	%
Europe^(c)		293,018		301,321		(8,303	)		(2.8	%)

(a)	Heavyweight data includes street legal 651+cc models. Street legal 651+cc models include on-highway, dual purpose models and three-wheeled vehicles.

(b)	United States industry data is derived from information provided by Motorcycle Industry Council (MIC). This third party data is subject to revision and update. Prior periods have been adjusted to include all dual purpose models that were previously excluded.

(c)

Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data includes 651+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. Europe market data is reported on a one-month lag. This third-party data is subject to revision and update.

Motorcycle Unit Shipments

The following table includes wholesale motorcycle unit shipments for the Motorcycles segment:


	2011				2010				(Decrease) Increase			% Change
United States		152,180	65.3	%		131,636	62.5	%		20,544			15.6	%
International		80,937	34.7	%		78,858	37.5	%		2,079			2.6

Harley-Davidson motorcycle units		233,117	100.0	%		210,494	100.0	%		22,623			10.7	%

Touring motorcycle units		92,002	39.5	%		81,927	38.9	%		10,075			12.3	%
Custom motorcycle units^*		91,459	39.2	%		87,158	41.4	%		4,301			4.9
Sportster motorcycle units		49,656	21.3	%		41,409	19.7	%		8,247			19.9

Harley-Davidson motorcycle units		233,117	100.0	%		210,494	100.0	%		22,623			10.7	%

Buell motorcycle units		274				2,614				(2,340	)		(89.5	%)

*	Custom motorcycle units, as used in this table, include Dyna, Softail, VRSC and CVO models.

During 2011, wholesale shipments of Harley-Davidson motorcycles were up 10.7% compared to the prior year and within the Company’s most recent expected shipment range of 228,000 to 235,000 motorcycles. Temporary production constraints resulting from restructuring efforts at the Company’s York, PA (York) facility that impacted York production for 2011 eased during the fourth quarter of 2011, allowing a slightly higher mix of Touring motorcycles compared to the prior year. Sportster shipment mix was also higher than in 2010 and near the high end of the historical range of 18% to 22% due to strong retail demand for Sportster models.

At the end of 2011, U.S. dealer inventory was up slightly compared to 2010. As discussed under the “Outlook” section, the Company expects that its 2012 shipment targets for Harley-Davidson motorcycles to independent dealers in the U.S. will be lower than their retail sales for 2012 and result in a decrease in dealer retail inventory levels.⁽¹⁾

Segment Results

The following table includes the condensed statement of operations for the Motorcycles segment (in thousands):


	2011		2010		(Decrease) Increase			% Change
Revenue:
Harley-Davidson motorcycles	$	3,553,291	$	3,136,987	$	416,304			13.3	%
Buell motorcycles		1,256		16,280		(15,024	)		(92.3	)
Parts & Accessories		816,569		749,240		67,329			9.0
General Merchandise		274,124		259,125		14,999			5.8
Other		17,024		14,995		2,029			13.5

Total revenue		4,662,264		4,176,627		485,637			11.6

Cost of goods sold		3,106,288		2,749,224		357,064			13.0

Gross profit		1,555,976		1,427,403		128,573			9.0

Selling & administrative expense		788,565		756,177		32,388			4.3
Engineering expense		138,243		128,960		9,283			7.2
Restructuring expense		67,992		163,508		(95,516	)		(58.4	)

Operating expense		994,800		1,048,645		(53,845	)		(5.1	)

Operating income from motorcycles	$	561,176	$	378,758	$	182,418			48.2	%

The following table includes the estimated impact of the significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from 2010 to 2011 (in millions):


	Net Revenue		Cost of Goods Sold			Gross Profit
2010	$	4,177	$	2,749		$	1,428
Volume		365		250			115
Price		15		—			15
Foreign currency exchange rates and hedging		89		84			5
Shipment mix		16		15			1
Raw material prices		—		32			(32	)
Manufacturing costs		—		(24	)		24

Total		485		357			128

2011	$	4,662	$	3,106		$	1,556

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from 2010 to 2011:

•

Volume increases were driven by the 10.7% increase in wholesale shipments of Harley-Davidson motorcycle units as well as higher sales volumes for Parts & Accessories and General Merchandise.

•

On average, wholesale prices on the Company’s 2012 model year motorcycles are higher than the prior model year resulting in the favorable impact on revenue and gross profit during the period.

•

Foreign currency exchange rates during 2011 relative to 2010 resulted in a positive impact on net revenue. Gains and losses associated with the revaluation of foreign-denominated assets and liabilities and foreign currency hedging (included in cost of goods sold) were unfavorable when compared to 2010 which offset the majority of the positive impact of currency included in net revenue.

•

Shipment mix changes positively impacted net revenue and resulted primarily from product mix changes both between and within the Company’s motorcycle families. However, the impact of these mix changes on cost of goods sold mostly offset the benefits included in revenue.

•

Raw material prices were higher in 2011 relative to 2010 due to increased metals and fuel costs.

•

Manufacturing costs were favorably impacted by savings related to restructuring and continuous improvement initiatives, partially offset by temporary inefficiencies associated with the Company’s restructuring and transformation at its York facility. During 2011, the Company experienced $32 million in temporary inefficiencies compared to $9 million in 2010 and expects temporary inefficiencies in 2012 to be generally in line with 2011.⁽¹⁾ In 2012, the Company expects temporary inefficiencies associated with its restructuring activities, including the completion of restructuring at York, the implementation of new labor contracts in Kansas City and Wisconsin, and the continuation of efforts to exit its wheel and wheel hub manufacturing operations in Australia.⁽¹⁾

The increase in selling, administrative and engineering expense was primarily due to increased spending on growth initiatives and higher recall expenses offset by savings realized from the Company’s restructuring efforts and continuous improvement initiatives. In addition, the Company incurred during 2010 approximately $15 million of non-recurring costs in connection with the Company’s efforts to expand its presence in Brazil. Restructuring expense was lower in 2011 than in 2010. For further information regarding the Company’s previously announced restructuring activities, refer to Note 5 of Notes to Condensed Consolidated Financial Statements.

Financial Services Segment

Segment Results

The following table includes the condensed statements of operations for the Financial Services segment (in thousands):


	2011		2010		Increase (Decrease)			% Change
Interest income	$	598,675	$	635,207	$	(36,532	)		(5.8	%)
Other income		50,774		47,502		3,272			6.9

Financial services revenue		649,449		682,709		(33,260	)		(4.9	)

Interest expense		229,492		272,484		(42,992	)		(15.8	)
Provision for credit losses		17,031		93,118		(76,087	)		(81.7	)
Operating expenses		134,135		135,234		(1,099	)		(0.8	)

Financial services expense		380,658		500,836		(120,178	)		(24.0	)

Operating income from financial services	$	268,791	$	181,873	$	86,918			47.8	%

Interest income decreased during 2011 due to lower average retail and wholesale finance receivables outstanding. Interest expense benefited from lower debt levels related to lower average retail and wholesale finance receivables outstanding and a more favorable cost of funds, partially offset by a $9.6 million loss on the extinguishment of debt.

The provision for credit losses related to retail motorcycle and wholesale receivables decreased by $70.1 million and $7.1 million, respectively, in 2011 compared to 2010. The decrease in the provision for retail motorcycle credit losses was primarily driven by favorable finance receivable credit loss performance. The decrease in provision for wholesale credit losses is primarily due to favorable finance receivable performance.

The Company believes that 2012 operating income from Financial Services will decrease compared to 2011, as approximately $40 million in 2011 balance sheet allowance releases are not expected to reoccur in 2012. In addition lower net interest income is anticipated as the portfolio of retail loans continues to contract as a result of lower U.S. retail sales over the last few years, and we expect a modest tightening of margins on prime tier retail lending due to a more competitive lending environment. Although the Company expects lower operating income in 2012 compared to 2011, it expects to report positive operating income in 2012.⁽¹⁾

Annual losses on HDFS’ retail motorcycle loans were 1.20% during 2011 compared to 2.11% in 2010. The decrease in credit losses from 2010 was due to a lower frequency of loss and a modest improvement in the recovery values of repossessed motorcycles. The 30-day delinquency rate for retail motorcycle loans at December 31, 2011 decreased to 3.85% from 5.07 % at December 31, 2010.

Changes in the allowance for finance credit losses on finance receivables were as follows (in millions):


	2011			2010
Balance, beginning of period	$	173,589		$	150,082
Allowance related to newly consolidated finance receivables		—			49,424
Provision for finance credit losses		17,031			93,118
Charge-offs, net of recoveries		(65,171	)		(119,035	)

Balance, end of period	$	125,449		$	173,589

At December 31, 2011, the allowance for finance credit losses on finance receivables was $116.1 million for retail receivables, which included $66.0 million related to finance receivables held by variable interest entities (VIEs), and $9.3 million for wholesale receivables. At December 31, 2010, the allowance for finance credit

losses on finance receivables was $157.8 million for retail receivables, which included $103.8 million related to finance receivables held by consolidated VIEs, and $15.8 million for wholesale receivables. See Note 7 of Notes to Condensed Consolidated Financial Statements for more information on the Company’s VIEs.

As part of the January 1, 2010 adoption of the new accounting guidance within Accounting Standards Codification (ASC) Topic 810 “Consolidations” and ASC Topic 860 “Transfers and Servicing”, the Company consolidated an initial allowance for credit losses of $49.4 million related to the previously unconsolidated securitized finance receivables through an adjustment to retained earnings. Subsequent changes in the provision for credit losses are included in the statement of operations.

HDFS’ periodic evaluation of the adequacy of the allowance for finance credit losses on finance receivables is generally based on HDFS’ past loan loss experience, known and inherent risks in the portfolio, current economic conditions and the estimated value of any underlying collateral. Please refer to Note 6 of Notes to Consolidated Financial Statements for further discussion regarding the Company’s allowance for finance credit losses on finance receivables.

Results of Operations 2010 Compared to 2009

Consolidated Results


(in thousands, except earnings per share)	2010			2009			Increase		% Change
Operating income from motorcycles & related products	$	378,758		$	314,055		$	64,703		20.6	%
Operating income (loss) from financial services		181,873			(117,969	)		299,842		N/M

Operating income		560,631			196,086			364,545		185.9
Investment income		5,442			4,254			1,188		27.9
Interest expense		90,357			21,680			68,677		316.8
Loss on debt extinguishment		85,247			—			85,247		N/M

Income before income taxes		390,469			178,660			211,809		118.6
Provision for income taxes		130,800			108,019			22,781		21.1

Income from continuing operations		259,669			70,641			189,028		267.6
Loss from discontinued operations, net of income taxes		(113,124	)		(125,757	)		12,633		10.0

Net income (loss)	$	146,545		$	(55,116	)	$	201,661		N/M

Diluted earnings per share from continuing operations	$	1.11		$	0.30		$	0.81		270.0	%
Diluted loss per share from discontinued operations	$	(0.48	)	$	(0.54	)	$	0.06		11.1	%
Diluted earnings (loss) per share	$	0.62		$	(0.24	)	$	0.86		N/M

Operating income for the Motorcycles segment was $64.7 million higher in 2010 compared to 2009 driven by improved gross profit and a decrease in operating expenses. Operating income for the Financial Services segment improved by $299.8 million primarily due to favorable net interest income, improved credit performance and two non-recurring, non-cash charges totaling $101.1 million that were incurred during 2009. The favorable net interest income was primarily due to the increase in on-balance sheet finance receivables and a lower cost of funds. As discussed below, the lower cost of funds was due in part to HDFS’ transfer in the fourth quarter of 2009 to the Company of amounts related to the Company’s $600.0 million senior unsecured notes issued in February 2009. Please refer to the “Motorcycles and Related Products Segment” and “Financial Services Segment” discussions following for a more detailed discussion of the factors affecting operating income.

Interest expense for 2010 includes $87.5 million related to the Company’s senior unsecured notes, compared to $16.2 million in 2009. During the first quarter of 2009, the Company transferred the full $600.0 million of proceeds from the issuance of the notes to HDFS to fund HDFS’ operations. As HDFS diversified its debt

structure through a combination of actions during 2009, its funding profile improved and allowed HDFS to transfer the full $600.0 million of proceeds back to the Company during the fourth quarter of 2009. As a result, interest expense for 2009 includes interest on the notes only during the periods when the full $600.0 million of proceeds were held by the Company. Interest expense for the periods in which the full $600.0 million of proceeds were held by HDFS is included in financial services interest expense.

The effective income tax rate for 2010 continuing operations was 33.5% compared to 60.5% for 2009. During 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law. As a result of these Acts, reimbursements the Company receives under Medicare Part D coverage for providing retiree prescription drug benefits would no longer be tax free beginning in 2013. In response to these Acts and the Company recorded income tax expense of $13.3 million associated with this change. Also impacting the effective income tax rate for 2010 were a favorable impact from a domestic manufacturing benefit and the favorable conclusion of an Internal Revenue Service audit in 2010 and, in connection with the audit settlement, an adjustment to income taxes payable. The effective income tax rate for 2009 was impacted by a $28.4 million non-deductible goodwill charge incurred during the second quarter of 2009 as well as an unanticipated change in Wisconsin tax law during the first quarter of 2009 which resulted in the Company establishing a valuation allowance of $22.5 million related to net operating loss carryforwards.

Motorcycles and Related Products Segment

Harley-Davidson Motorcycle Retail Sales

Worldwide independent dealer retail sales of Harley-Davidson motorcycles decreased 8.5% during 2010 compared to 2009. Retail sales continued to be impacted on a global basis by difficult economic conditions. Retail sales of Harley-Davidson motorcycles decreased by 11.7% in the United States and 1.9% internationally during 2010 compared to 2009. On an industry-wide basis, the heavyweight (651+cc) portion of the market was down 14.6% in the United States and down 3.9% in Europe when compared to 2009. The following table includes retail unit sales of Harley-Davidson motorcycles:

Harley-Davidson Motorcycle Retail Sales^(a)

Heavyweight (651+cc)


	2010		2009		(Decrease) Increase			% Change
North America Region
United States		143,391		162,385		(18,994	)		(11.7	%)
Canada		10,376		11,406		(1,030	)		(9.0	)

Total North America Region		153,767		173,791		(20,024	)		(11.5	)

Europe Region (Includes Middle East and Africa)
Europe^(b)		37,378		36,444		934			2.6
Other		3,810		3,560		250			7.0

Total Europe Region		41,188		40,004		1,184			3.0

Asia Pacific Region
Japan		11,405		13,105		(1,700	)		(13.0	)
Other		9,582		9,884		(302	)		(3.1	)

Total Asia Pacific Region		20,987		22,989		(2,002	)		(8.7	)

Latin America Region		6,168		5,850		318			5.4

Total Worldwide Retail Sales		222,110		242,634		(20,524	)		(8.5	%)

(a)

Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning retail sales and this information is subject to revision. Only Harley-Davidson motorcycles are included in the Harley-Davidson Motorcycle Retail Sales data.

(b)	Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The following table includes industry retail motorcycle registration data:

Heavyweight Motorcycle Registration Data^(a)


	2010		2009		Decrease			% Change
United States^(b)		259,733		304,304		(44,571	)		(14.6	%)
Europe^(c)		301,321		313,569		(12,248	)		(3.9	%)

(a)	Heavyweight data includes street legal 651+cc models. Street legal 651+cc models include on-highway, dual purpose models and three-wheeled vehicles.

(b)	U.S. industry data is derived from information provided by Motorcycle Industry Council (MIC). This third party data is subject to revision and update. Prior periods have been adjusted to include all dual purpose models that were previously excluded.

(c)

Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Industry retail motorcycle registration data is derived from information provided by Giral S.A., an independent agency. This third party data is subject to revision and update.

Motorcycle Unit Shipments

The following table includes wholesale motorcycle unit shipments for the Motorcycles segment:


	2010				2009				(Decrease) Increase			% Change
United States		131,636	62.5	%		144,464	64.8	%		(12,828	)		(8.9	%)
International		78,858	37.5	%		78,559	35.2	%		299			0.4

Harley-Davidson motorcycle units		210,494	100.0	%		223,023	100.0	%		(12,529	)		(5.6	%)

Touring motorcycle units		81,927	38.9	%		84,104	37.7	%		(2,177	)		(2.6	)
Custom motorcycle units^(a)		87,158	41.4	%		91,650	41.1	%		(4,492	)		(4.9	)
Sportster motorcycle units		41,409	19.7	%		47,269	21.2	%		(5,860	)		(12.4	)

Harley-Davidson motorcycle units		210,494	100.0	%		223,023	100.0	%		(12,529	)		(5.6	%)

Buell motorcycle units		2,614				9,572				(6,958	)		(72.7	%)

(a)	Custom motorcycle units, as used in this table, include Dyna, Softail, VRSC and CVO models.

During 2010, the Company shipped 210,494 Harley-Davidson motorcycles, a decrease of 12,529 motorcycles, or 5.6%, from 2009. The Company’s 2010 shipment volume resulted in lower U.S. dealer inventory of new Harley-Davidson motorcycles at the end of 2010 compared to the end of 2009.

Segment Results

The following table includes the condensed statement of operations for the Motorcycles segment (in thousands):


	2010		2009		(Decrease) Increase			% Change
Revenue:
Harley-Davidson motorcycles	$	3,136,987	$	3,174,810	$	(37,823	)		(1.2	%)
Buell motorcycles		16,280		46,514		(30,234	)		(65.0	)
Parts & Accessories		749,240		767,275		(18,035	)		(2.4	)
General Merchandise		259,125		282,210		(23,085	)		(8.2	)
Other		14,995		16,321		(1,326	)		(8.1	)

Total revenue		4,176,627		4,287,130		(110,503	)		(2.6	)

Cost of goods sold		2,749,224		2,900,934		(151,710	)		(5.2	)

Gross profit		1,427,403		1,386,196		41,207			3.0

Selling & administrative expense		756,177		702,854		53,323			7.6
Engineering expense		128,960		148,311		(19,351	)		(13.0	)
Restructuring expense and other impairments		163,508		220,976		(57,468	)		(26.0	)

Operating expense		1,048,645		1,072,141		(23,496	)		(2.2	)

Operating income from motorcycles	$	378,758	$	314,055	$	64,703			20.6	%

The following table includes the estimated impact of the significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from 2009 to 2010 (in millions):


	Net Revenue			Cost of Goods Sold			Gross Profit
2009	$	4,287		$	2,901		$	1,386
Volume		(282	)		(201	)		(81	)
Foreign currency exchange rates and hedging		17			17			—
Shipment mix		126			10			116
Raw material prices		—			11			(11	)
Manufacturing costs		—			27			(27	)
Buell exit costs		29			(16	)		45

Total		(110	)		(152	)		42

2010	$	4,177		$	2,749		$	1,428

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from 2009 to 2010:

•

Volume decreases were primarily the result of the 5.6% decrease in wholesale shipments of Harley-Davidson motorcycle units as well as lower volumes for Parts & Accessories and General Merchandise.

•

Foreign currency exchange rates during 2010 relative to 2009 resulted in a positive impact on net revenue. Gains and losses associated with the revaluation of foreign-denominated assets and liabilities and foreign currency hedging (included in cost of goods sold) were unfavorable when compared to the same period last year which offset the positive impact of currency included in net revenue.

•

Shipment mix changes benefited net revenue and gross profit due to a higher mix of the Company’s higher margin touring motorcycles and changes in product mix within the Company’s motorcycle families. Product mix changes were also impacted by motorcycle option offerings, shipment location and related products.

•

Raw material prices were higher in 2010 relative to 2009 due to unfavorability in steel and aluminum prices.

•

Manufacturing costs increased partially as the result of a higher fixed cost per unit due to allocating fixed costs across fewer units. Higher manufacturing costs were also the result of increasing product cost associated with new models and increased product content. Finally, manufacturing costs were also higher due to temporary inefficiencies associated with the Company’s transition to outsourcing non-core operations at its York facility. These increased costs were partially offset by productivity gains.

•

In 2009, the Company incurred Buell exit costs consisting of sales incentives to independent dealers and inventory write-downs. The sales incentives lowered 2009 revenue while the inventory write-downs increased 2009 cost of sales.

The increase in selling and administrative expense was primarily due to increased expense associated with the Company’s variable incentive compensation programs and increased spending on growth initiatives partially offset by savings from the Company’s restructuring efforts and lower warranty and recall charges. During 2010, the Company accrued for a payout of variable incentive compensation programs; no accrual was made during 2009 due to the Company’s determination that plan targets would not be met. Increased spending on growth initiatives during 2010 included approximately $15 million of costs associated with the Company’s efforts to expand its presence in Brazil. As part of these expansion efforts, in late 2010, the Company reached an agreement with the previous dealer in Brazil that permits the Company to develop a new network of independent

dealers as it expands its presence in that market. The decrease in engineering expense was primarily due to savings from the Company’s restructuring efforts. The Company’s announced restructuring plans are further discussed in Note 5 of Notes to Consolidated Financial Statements.

Financial Services Segment

Segment Results

The following table includes the condensed statements of operations for the financial services segment (in thousands):


	2010		2009			Increase (Decrease)			% Change
Interest income	$	635,207	$	434,152		$	201,055			46.3	%
Loss from securitizations		—		(13,676	)		13,676			N/M
Other income		47,502		74,303			(26,801	)		(36.1	)

Financial services revenue		682,709		494,779			187,930			38.0

Interest expense		272,484		283,634			(11,150	)		(3.9	)
Provision for credit losses		93,118		169,206			(76,088	)		(45.0	)
Operating expenses		135,234		128,219			7,015			5.5
Restructuring expense		—		3,302			(28,387	)		N/M
Goodwill impairment		—		28,387			(3,302	)		N/M

Financial services expense		500,836		612,748			(111,912	)		(18.3	)

Operating income (loss) from financial services	$	181,873	$	(117,969	)	$	299,842			N/M

On January 1, 2010, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140” (codified within ASC Topic 860), and SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (codified in ASC Topic 810). As a result of the adoption of the new accounting guidance, the Company consolidated the assets and liabilities of its formerly unconsolidated Qualifying Special Purpose Entities (QSPEs) on January 1, 2010. Beginning on January 1, 2010, the Company began recognizing interest income and credit losses on the previously unconsolidated securitized receivables and interest expense on the related debt within its statement of operations. The Company’s statement of operations no longer includes income from securitizations, including the initial gain or loss previously recorded on off-balance sheet securitizations, income on the investment in retained securitization interests and servicer fees. In addition, the Company no longer incurs charges related to other-than-temporary impairments on its investment in retained securitization interests as that asset has been derecognized.

Interest income during 2010 benefited primarily from higher average retail finance receivables, which was driven by the consolidation of formerly off-balance sheet QSPEs. Interest expense decreased by $11.2 million compared to 2009 due to more favorable cost of funds, partially offset by increased borrowings related to the newly consolidated securitization trusts.

There was no income or loss from securitizations during 2010 due to the elimination of the investment in retained securitization interests. During 2009, HDFS recorded a $45.4 million other-than-temporary impairment of certain retained securitization interests due to higher actual and anticipated credit losses partially offset by a slowing in actual and expected prepayment speeds. Partially offsetting the other-than-temporary impairment was $31.7 million of income earned from the investment in the retained securitization interests.

Other income decreased during 2010 compared to 2009 primarily due to no servicer fee income partially offset by the benefit of no lower of cost or market valuation adjustment for finance receivables held for sale. As a result of the consolidation of the formerly off-balance sheet securitization trusts, the Company no longer records

servicer fee income from servicing off-balance sheet finance receivables. During 2009, the Company earned $25.5 million of servicer fee income. The Company recognized a $5.9 million charge to earnings for a lower of cost or market valuation adjustment related to its finance receivables held for sale during 2009. The charge, which was the result of the determination that the cost exceeded the fair value of the finance receivables held for sale, was due to higher projected credit losses partially offset by lower funding costs. HDFS used discounted cash flow methodologies to estimate the fair value of finance receivables held for sale that incorporated appropriate assumptions for discount rate, funding costs and credit enhancement, as well as estimates concerning credit losses and prepayments that, in management’s judgment, reflected assumptions that market participants would use.

The provision for credit losses related to retail and wholesale receivables decreased by $68.5 million and $7.9 million, respectively, in 2010 compared to 2009. The decrease in the provision for retail credit losses was primarily driven by the second quarter 2009 reclassification of $3.14 billion of finance receivables held for sale to finance receivables held for investment. The reclassification resulted in a $72.7 million increase in the allowance for finance credit losses during 2009. The provision for wholesale credit losses was $7.9 million lower during 2010 versus 2009 due to a reduction in wholesale finance receivables outstanding from prior year and lower specific reserve needs in 2010 as a number of dealer credit situations were resolved.

As part of the January 1, 2010 adoption of the new accounting guidance within ASC Topic 810 and ASC Topic 860, the Company consolidated an initial allowance for credit losses of $49.4 million related to the previously unconsolidated securitized finance receivables through an adjustment to retained earnings. Subsequent changes in the provision for credit losses are included in the statement of operations.

Annual losses on HDFS’ managed retail motorcycle finance receivables were 2.11% in 2010 compared to 2.86% for 2009. The 30-day delinquency rate for managed retail motorcycle finance receivables at December 31, 2010 decreased to 5.07% from 6.51% at December 31, 2009. At December 31, 2010, managed retail finance receivables were comprised of all finance receivables held by HDFS, including those that were consolidated beginning January 1, 2010. Prior to January 1, 2010, managed retail finance receivables included finance receivables held by HDFS and those sold through off-balance sheet securitization transactions. The decrease in credit losses from 2009 was due to a lower frequency of loss and a modest improvement in the recovery values of repossessed motorcycles.

Changes in the allowance for finance credit losses on finance receivables held for investment were as follows (in millions):


	2010			2009
Balance, beginning of period	$	150,082		$	40,068
Allowance related to newly consolidated finance receivables	$	49,424
Provision for finance credit losses		93,118			169,206
Charge-offs, net of recoveries		(119,035	)		(59,192	)

Balance, end of period	$	173,589		$	150,082

At December 31, 2010, the allowance for finance credit losses on finance receivables was $15.8 million for wholesale receivables and $157.8 million for retail receivables, which includes $103.8 million related to finance receivables held by consolidated variable interest entities (VIEs). See Note 8 of Notes to Consolidated Financial Statements for more information on the Company’s VIEs. The allowance for finance credit losses on finance receivables was $133.3 million for retail receivables and $16.8 million for wholesale receivables at December 31, 2009.

conditions and the estimated value of any underlying collateral. Please refer to Note 6 of Notes to Consolidated Financial Statements for further discussion regarding the Company’s allowance for finance credit losses on finance receivables.

During 2009, the Company recorded an impairment charge of $28.4 million related to the goodwill associated with HDFS.

Other Matters

New Accounting Standards Not Yet Adopted

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 clarifies the application of existing guidance within ASC Topic 820, “Fair Value Measurement,” to ensure consistency between U.S. GAAP and IFRS. ASU No. 2011-04 also requires new disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements and also requires new disclosures around transfers into and out of Levels 1 and 2 in the fair value hierarchy. The Company is required to adopt ASU No. 2011-04 beginning in the first quarter of 2012 and the adoption of ASU No. 2011-04 will only impact the content of the current disclosure.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 amends the guidance within ASC Topic 220, “Comprehensive Income,” to eliminate the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. ASU No. 2011-05 requires that all nonowner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company is required to adopt ASU No. 2011-05 beginning in the first quarter of 2012 and the adoption of ASU No. 2011-05 will only impact the format of the current presentation.

Critical Accounting Estimates

The Company’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Management believes that the following are some of the more critical judgment areas in the application of accounting policies that currently affect the Company’s financial condition and results of operations. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors.

Allowance for Finance Credit Losses on Finance Receivables – The allowance for uncollectible accounts is maintained at a level management believes is adequate to cover the losses of principal in the existing finance receivables portfolio. HDFS performs a periodic and systematic collective evaluation of the adequacy of the retail allowance. HDFS utilizes loss forecast models which consider a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates and current economic conditions including items such as unemployment rates.

The wholesale portfolio is primarily composed of large balance, non-homogeneous finance receivables. HDFS’ wholesale allowance evaluation is first based on a loan-by-loan review. A specific allowance is established for wholesale finance receivables determined to be individually impaired when management concludes that the borrower will not be able to make full payment of contractual amounts due based on the original terms of the loan agreement. The impairment is determined based on the cash that the Company expects to receive discounted at the loan’s original interest rate or the fair value of the collateral, if the loan is collateral-dependent. In establishing the allowance, management considers a number of factors including the specific borrower’s financial performance as well as ability to repay. Finance receivables in the wholesale portfolio that are not individually evaluated for impairment are segregated, based on similar risk characteristics, according to

the Company’s internal risk rating system and collectively evaluated for impairment. The related allowance is based on factors such as the Company’s past loan loss experience, current economic conditions as well as the value of the underlying collateral.

Product Warranty – Estimated warranty costs are reserved for each motorcycle at the time of sale. The warranty reserve is an estimated cost per unit sold based upon historical Company claim data used in combination with other known factors that may affect future warranty claims. The Company updates its warranty estimates quarterly to ensure that the warranty reserves are based on the most current information available.

The Company believes that past claim experience is indicative of future claims; however, the factors affecting actual claims can be volatile. As a result, actual claims experience may differ from estimated which could lead to material changes in the Company’s warranty provision and related reserves. The Company’s warranty liability is discussed further in Note 1 of Notes to Consolidated Financial Statements.

Pensions and Other Postretirement Healthcare Benefits – The Company has several defined benefit pension plans and several postretirement healthcare benefit plans, which cover substantially all employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993.

U.S. GAAP requires that companies recognize in their statement of financial position a liability for defined benefit pension and postretirement plans that are underfunded or an asset for defined benefit pension and postretirement benefit plans that are overfunded.

Pension, SERPA and postretirement healthcare obligations and costs are calculated through actuarial valuations. The valuation of benefit obligations and net periodic benefit costs relies on key assumptions including discount rates, long-term expected return on plan assets, future compensation and healthcare cost trend rates.

The Company determines its discount rate assumptions by referencing high-quality long-term bond rates that are matched to the duration of its own benefit obligations. Based on this analysis, the Company decreased the discount rate for pension and SERPA obligations from 5.79% as of December 31, 2010 to 5.30% as of December 31, 2011. The Company decreased the discount rate for postretirement healthcare obligations from 5.28% to 4.90%. The Company determines its healthcare trend assumption for the postretirement healthcare obligation by considering factors such as estimated healthcare inflation, the utilization of healthcare benefits and changes in the health of plan participants. Based on the Company’s assessment of this data as of December 31, 2011, the Company set its healthcare cost trend rate at 8.5% as of December 31, 2011. The Company expects the healthcare cost trend rate to reach its ultimate rate of 5% by 2019.⁽¹⁾ These assumption changes were reflected immediately in the benefit obligation and will be amortized into net periodic benefit costs over future periods.

Plan assets are measured at fair value and are subject to market volatility. In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted to reflect the current view of the long-term investment market.

Changes in the funded status of defined benefit pension and postretirement benefit plans resulting from the difference between assumptions and actual results are initially recognized in other comprehensive income and amortized to expense over future periods. The following information is provided to illustrate the sensitivity of pension and postretirement healthcare obligations and costs to changes in these major assumptions (in thousands):


	Amounts based on current assumptions		Impact of a 1% decrease in the discount rate		Impact of a 1% decrease in the expected return on assets		Impact of a 1% increase in the healthcare cost trend rate
2011 Net periodic benefit costs
Pension and SERPA	$	45,291	$	20,343	$	13,328		n/a
Postretirement healthcare	$	21,202	$	1,268	$	1,175	$	1,915

2011 Benefit obligations
Pension and SERPA	$	1,570,930	$	242,383		n/a		n/a
Postretirement healthcare	$	380,625	$	33,788		n/a	$	14,225

This information should not be viewed as predictive of future amounts. The calculation of pension, SERPA and postretirement healthcare obligations and costs is based on many factors in addition to those discussed here. This information should be considered in combination with the information provided in Note 15 of Notes to Consolidated Financial Statements.

Stock Compensation Costs – The total cost of the Company’s share-based awards is equal to the grant date fair value per award multiplied by the number of awards granted (adjusted for forfeitures). This cost is recognized as expense on a straight-line basis over the service periods of the awards. Forfeitures are initially estimated based on historical Company information and subsequently updated over the life of the awards to ultimately reflect actual forfeitures. As a result, changes in forfeiture activity can influence the amount of stock compensation cost recognized from period to period.

The Company estimates the fair value of option awards as of the grant date using a lattice-based option valuation model which utilizes ranges of assumptions over the expected term of the options, including stock price volatility, dividend yield and risk free interest rate.

The valuation model uses historical data to estimate option exercise behavior and employee terminations. The expected term of options granted is derived from the output of the option valuation model and represents the average period of time that options granted are expected to be outstanding.

The Company uses a weighted-average of historical and implied volatility to determine the expected volatility of its stock. The implied volatility is derived from options that are actively traded and the market prices of both the traded options and underlying shares are measured at a similar point in time to each other and on a date reasonably close to the grant date of the employee stock options. In addition, the traded options have exercise prices that are both (a) near-the-money and (b) close to the exercise price of the employee stock options. Finally, the remaining maturities of the traded options on which the estimate is based are at least one year.

Dividend yield was based on the Company’s expected dividend payments and the risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant.

Changes in the valuation assumptions could result in a significant change to the cost of an individual option. However, the total cost of an award is also a function of the number of awards granted, and as result, the Company has the ability to control the cost of its equity awards by adjusting the number of awards granted.

Income Taxes – The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax

bases and operating loss and other loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining the Company’s worldwide provision for income taxes and recording the related deferred tax assets and liabilities. In the ordinary course of the Company’s business, there are transactions and calculations where the ultimate tax determination is uncertain. Accruals for unrecognized tax benefits are provided for in accordance with the requirements of ASC Topic 740. An unrecognized tax benefit represents the difference between the recognition of benefits related to exposure items for income tax reporting purposes and financial reporting purposes. The unrecognized tax benefit is included within other long-term liabilities in the Consolidated Balance Sheets. The Company has a reserve for interest and penalties on exposure items, if applicable, which is recorded as a component of the overall income tax provision. The Company is regularly under audit by tax authorities. Although the outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provision includes amounts sufficient to pay any assessments. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.

Contractual Obligations

A summary of the Company’s expected payments for significant contractual obligations as of December 31, 2011 is as follows (in thousands):


	2012		2013 - 2014		2015 - 2016		Thereafter		Total
Principal payments on debt	$	1,878,733	$	1,917,075	$	977,853	$	948,958	$	5,722,619
Interest payments on debt		221,704		314,158		159,710		94,221		789,793
Operating lease payments		12,076		14,884		8,683		5,585		41,228

	$	2,112,513	$	2,246,117	$	1,146,246	$	1,048,764	$	6,553,640

As described in Note 13 of Notes to Consolidated Financial Statements, the Company classified $195.6 million related to its unsecured commercial paper and its Global Credit Facilities (as defined in “Liquidity and Capital Resources”) as long-term debt as of December 31, 2011. This amount is classified as long term because it is supported by the Global Credit Facilities and is expected to remain outstanding for an uninterrupted period extending beyond one year. The Company has assumed that this amount will be repaid in 2013.

Interest obligations include the impact of interest rate hedges outstanding as of December 31, 2011. Interest for floating rate instruments assumes December 31, 2011 rates remain constant.

As of December 31, 2011, the Company had no material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment which generally have terms of less than 90 days.

The Company has long-term obligations related to its pension, SERPA and postretirement healthcare plans at December 31, 2011. During 2011, the Company contributed $219.5 million to its pension, SERPA and postretirement healthcare plans, which included a $200.0 million voluntary contribution to its pension plans. No additional contributions were required during 2011 beyond current benefit payments for SERPA and postretirement healthcare plans. In January 2012, the Company voluntarily contributed another $200 million to its qualified pension plans to further fund its pension plans and the Company expects that no additional qualified pension plan contributions will be required in 2012. The Company expects it will continue to make on-going contributions related to current benefit payments for SERPA and postretirement healthcare plans. The Company’s expected future contributions to these plans are provided in Note 15 of Notes to Consolidated Financial Statements.

As described in Note 14 of Notes to Consolidated Financial Statements, the Company has unrecognized tax benefits of $57.1 million and accrued interest and penalties of $24.3 million as of December 31, 2011. However, the Company cannot make a reasonably reliable estimate for the period of cash settlement for either the liability for unrecognized tax benefits or accrued interest and penalties.

Commitments and Contingencies

Environmental Protection Agency Notice

York Environmental Matters:

The Company estimates that its share of the future Response Costs at the York facility will be approximately $3.9 million and has established a reserve for this amount which is included in accrued liabilities in the Condensed Consolidated Balance Sheets⁽¹⁾. As noted above, the RI/FS is still underway and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS or otherwise at the York facility, we are unable to make a reasonable estimate of those additional costs, if any, that may result.

Product Liability Matters:

Liquidity and Capital Resources as of December 31, 2011

Over the long-term, the Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities and return value to shareholders.⁽¹⁾ The Company believes the Motorcycles operations will continue to be primarily funded through cash flows generated by operations. The Company’s Financial Services operations have been funded with unsecured debt, unsecured commercial paper, an asset-backed commercial paper conduit facility, and committed unsecured bank facilities and through the term asset-backed securitization market.

The Company’s strategy is to maintain a minimum of twelve months of its projected liquidity needs through a combination of cash and marketable securities and availability under credit facilities. The following table summarizes the Company’s cash and marketable securities and availability under credit facilities (in thousands):


	December 31, 2011
Cash and cash equivalents	$	1,526,950
Marketable securities		153,380

Total cash and cash equivalents and marketable securities		1,680,330

Global credit facilities		315,920
Asset-backed conduit facility		600,000

Total availability under credit facilities		915,920

Total	$	2,596,250

Although the Company believes it has obtained the funding necessary to support HDFS’ operations for 2012⁽¹⁾, the Company recognizes that it must continue to adjust its business to changes in the lending environment. The Company intends to continue with a diversified funding profile through a combination of short-term and long-term funding vehicles and to pursue a variety of sources to obtain cost-effective funding. The Financial Services operations could be negatively affected by higher costs of funding and the increased difficulty of raising, or potential unsuccessful efforts to raise, funding in the short-term and long-term capital markets.⁽¹⁾ These negative consequences could in turn adversely affect the Company’s business and results of operations in various ways, including through higher costs of capital, reduced funds available through its Financial Services operations to provide loans to independent dealers and their retail customers, and dilution to existing shareholders through the use of alternative sources of capital.

January 2012, the Company made a voluntary contribution of $200 million to its qualified pension plans to further fund its pension plans and expects that no additional qualified pension plan contributions will be required in 2012. The Company expects it will continue to make on-going contributions related to current benefit payments for SERPA and postretirement healthcare plans. The Company’s expected future contributions to these plans are provided in Note 15 of Notes to Consolidated Financial Statements.

Cash Flow Activity

The following table summarizes the cash flow activity of continuing operations for the years ended December 31, 2011, 2010 and 2009 (in thousands):


	2011			2010			2009
Net cash provided by operating activities	$	885,291		$	1,163,418		$	609,010
Net cash (used) provided by investing activities		(63,542	)		145,437			(863,487	)
Net cash (used) provided by financing activities		(308,944	)		(1,856,090	)		1,381,937
Effect of exchange rate changes on cash and cash equivalents		(7,788	)		4,940			6,789

Net increase (decrease) in cash and cash equivalents	$	505,017		$	(542,295	)	$	1,134,249

Operating Activities

The decrease in operating cash flow in 2011 compared to 2010 was due primarily to a $200.0 million voluntary contribution to the Company’s qualified pension plans in 2011 and higher cash outflows related to an increase in wholesale finance receivables originations in 2011. In addition, working capital changes resulted in lower operating cash inflows in 2011 as compared to 2010. This was due in part to increases in inventory that were the result of a management decision to increase finished goods motorcycle inventories at the end of 2011.

In 2012, the Company plans to implement a new ERP system at York which the Company expects to provide new capabilities across the supply chain, including the ability to do more factory customization, enable more flexible production and provide end-to-end supply chain integration. As a result, the Company expects to experience downtime at York as the system is implemented. To minimize the impact on dealers and customers during the implementation, the Company produced and inventoried approximately 7,000 incremental motorcycles in the fourth quarter of 2011. The Company expects to carry higher finished goods inventory into 2012 when it expects production to be impacted by the ERP implementation.⁽¹⁾

The increase in operating cash flow for 2010 compared to 2009 was due primarily to the classification of the Company’s retail lending activities and favorable movements in working capital. U.S. retail motorcycle finance receivables originated prior to June 28, 2009 were classified as held-for-sale based on the Company’s intent to securitize these U.S. retail motorcycle finance receivables in off-balance sheet securitization transactions under U.S. GAAP in effect at that time. Accordingly, the net cash outflows related to the origination and collection of these retail finance receivables were classified as operating cash flows in 2009 and prior.

Investing Activities

The Company’s investing activities consist primarily of capital expenditures, net changes in retail finance receivables and short-term investment activity. Capital expenditures were $189.0 million, $170.8 million and $116.7 million during 2011, 2010 and 2009, respectively.

Net cash flows from finance receivables, which consisted primarily of retail finance receivables, for 2011 were $278.4 million lower than in the same period last year as a result of an increase in retail motorcycle loan originations during 2011.

Net cash flows from finance receivables for 2010 were $1.19 billion higher than in 2009. The increase in cash flow from net changes in finance receivables in 2010 compared to 2009 reflect the incremental cash flows from finance receivables held by securitization trusts that were not consolidated prior to January 1, 2010. On

January 1, 2010 the Company began consolidating formerly off-balance sheet QSPEs, used in connection with its prior off-balance sheet securitization transactions, as a result of adopting new U.S. GAAP.

Changes in the Company’s investment in marketable securities resulted in cash outflows of $12.5 million, $100.1 million and $39.7 million in 2011, 2010 and 2009, respectively.

Financing Activities

The Company’s financing activities consist primarily of dividend payments, share repurchases and debt activity.

The Company paid dividends of $0.475 per share totaling $111.0 million during 2011, $0.40 per share totaling $94.1 million during 2010 and $0.40 per share totaling $93.8 million in 2009.

Cash outflows from share repurchases were $224.5 million, $1.7 million and $1.9 million for 2011, 2010 and 2009, respectively. Share repurchases during 2011 included 6.0 million shares of common stock related to discretionary share repurchases as well as shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock awards. Share repurchases in 2010 and 2009 were limited to shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock awards. As of December 31, 2011, 16.7 million shares remained on a board-approved share repurchase authorization. In addition, as of December 31, 2011, 1.9 million shares remained on a separate board-approved share repurchase authorization that is in place to offset option exercises and restricted stock grants. In total at December 31, 2011, the Company had authorization to repurchase 18.6 million shares of its common stock.

The Company’s total outstanding debt consisted of the following as of December 31, 2011, 2010 and 2009 (in thousands):


	2011		2010		2009
Global credit facilities	$	159,794	$	213,772	$	448,049
Unsecured commercial paper		874,286		582,572		325,099
Medium-term notes		2,298,193		1,897,778		2,103,396
Senior unsecured notes		303,000		303,000		600,000
Term asset-backed securitization debt		2,087,346		2,755,234		2,159,585

Total debt	$	5,722,619	$	5,752,356	$	5,636,129

In order to access the debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings. Generally, lower credit ratings result in higher borrowing costs and reduced access to debt capital markets. A credit rating agency may change or withdraw the Company’s ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. The Company’s short-term debt ratings affect its ability to issue unsecured commercial paper. The Company’s short- and long-term debt ratings as of December 31, 2011 were as follows:


	Short-Term		Long-Term	Outlook
Moody’s		P2	Baa1	Stable
Standard & Poor’s		A2	BBB	Positive watch
Fitch		F2	BBB+	Positive

On January 25, 2012 Standard & Poor’s raised the Company’s long-term rating to BBB+ and changed the outlook to stable.

Global Credit Facilities – On April 28, 2011, the Company and HDFS entered into a new $675.0 million four-year credit facility to refinance and replace a $675.0 million 364-day credit facility that matured in April 2011.

The new four-year credit facility matures in April 2015. The Company and HDFS also have a $675.0 million three-year credit facility which matures in April 2013. The new four-year credit facility and the three-year credit facility (together, the Global Credit Facilities) bear interest at various variable interest rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based upon the average daily unused portion of the aggregate commitments under the Global Credit Facilities. The Global Credit Facilities are committed facilities and primarily used to support HDFS’ unsecured commercial paper program.

Unsecured Commercial Paper – Subject to limitations, HDFS could issue unsecured commercial paper of up to $1.35 billion as of December 31, 2011 supported by the Global Credit Facilities. Outstanding unsecured commercial paper may not exceed the unused portion of the Global Credit Facilities. Maturities may range up to 365 days from the issuance date. HDFS intends to repay unsecured commercial paper as it matures with additional unsecured commercial paper or through other means, such as borrowing under the Global Credit Facilities, borrowing under its asset-backed commercial paper conduit facility or through the use of operating cash flow.⁽¹⁾

Medium-Term Notes – The Company has the following medium-term notes (collectively, the Notes) issued and outstanding at December 31, 2011 (in thousands):


Principal Amount	Rate			Issue Date	Maturity Date
$ 400,000		5.25	%	December 2007	December 2012
$ 500,000		5.75	%	November 2009	December 2014
$ 450,000		3.875	%	March 2011	March 2016
$ 950,131		6.80	%	May 2008	June 2018

The Notes provide for semi-annual interest payments and principal due at maturity. During 2011, HDFS repurchased an aggregate $49.9 million of its $1.0 billion, 6.80% medium-term notes which mature in June 2018. As a result, HDFS recognized in financial services interest expense a $9.6 million loss on the extinguishment of debt, which included unamortized discounts and fees. During December 2010, the $200.0 million 5.00% medium-term notes matured, and the principal and accrued interest were paid in full. Unamortized discounts on the Notes reduced the balance by $1.9 million, $2.2 million, and $2.7 million at December 31, 2011, 2010 and 2009, respectively.

In January 2012, HDFS issued $400.0 million of medium-term notes, which mature in March 2017 and have an annual interest rate of 2.70%. The medium-term notes provide for semi-annual interest payments and principal due at maturity.

Senior Unsecured Notes – In February 2009, the Company issued $600.0 million of senior unsecured notes in an underwritten offering. The senior unsecured notes provide for semi-annual interest payments and principal due at maturity. The senior unsecured notes mature in February 2014 and have an annual interest rate of 15%. During the fourth quarter of 2010, the Company repurchased $297.0 million of the $600.0 million senior unsecured notes at a price of $380.8 million.

Asset-Backed Commercial Paper Conduit Facility – On September 9, 2011, the Company amended and restated its revolving asset-backed conduit facility which provides for a total aggregate commitment of $600.0 million. At December 31, 2011, HDFS had no outstanding borrowings under the conduit facility.

This debt provides for interest on outstanding principal based on prevailing commercial paper rates, or LIBOR plus a specified margin to the extent the advance is not funded by a conduit lender through the issuance of commercial paper. The conduit facility also provides for an unused commitment fee based on the unused portion of the total aggregate commitment of $600.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivable collateral are applied to

outstanding principal. Upon expiration of the conduit facility, any outstanding principal will continue to be reduced monthly through available collections. Unless earlier terminated or extended by mutual agreement of HDFS and the lenders, as of December 31, 2011, the conduit facility expires on September 7, 2012.

Term Asset-Backed Securitization Debt – On January 1, 2010, the Company adopted new guidance within ASC Topics 810 and 860 for consolidating VIEs. As a result, the Company consolidated the securitized U.S. retail motorcycle finance receivables, resulting in secured borrowings, and other related assets and liabilities related to the formerly unconsolidated QSPEs in the Company’s consolidated financial statements. The consolidation of the secured notes related to these VIEs resulted in a $1.89 billion increase in securitization debt on January 1, 2010, the effective date of adoption.

For all of the term asset-backed securitization transactions, the Company transferred U.S. retail motorcycle finance receivables to separate VIEs, which in turn issued secured notes, with various maturities and interest rates to investors. All of the notes held by VIEs are secured by future collections of the purchased U.S. retail motorcycle finance receivables. The U.S. retail motorcycle finance receivables included in the term asset-backed securitization transactions are not available to pay other obligations or claims of the Company’s creditors until the associated debt and other obligations are satisfied. Cash and cash equivalent balances held by the VIEs are used only to support the securitizations. There is no amortization schedule for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual lives have various maturities ranging from 2012 to 2018.

As of December 31, 2011, the assets of the VIEs totaled $3.09 billion, of which $2.85 billion of finance receivables and $228.8 million of cash were restricted as collateral for the payment of $2.09 billion secured notes. Approximately $640.3 million of the obligations under the secured notes were classified as current at December 31, 2011, based on the contractual maturities of the restricted finance receivables.

Intercompany Borrowing – HDFS has a revolving credit line with the Company whereby HDFS may borrow up to $210.0 million from the Company at a market interest rate. As of December 31, 2011, 2010 and 2009, HDFS had no outstanding borrowings owed to the Company under this agreement.

The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support in order to maintain HDFS’ fixed-charge coverage at 1.25 and minimum net worth of $40.0 million. Support may be provided at the Company’s option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company’s ability to withdraw funds from HDFS outside the normal course of business. No amount has ever been provided to HDFS under the support agreement.

Operating and Financial Covenants – HDFS and the Company are subject to various operating and financial covenants related to the Global Credit Facilities and various operating covenants under the Notes and the asset-backed commercial paper conduit facility. The more significant covenants are described below.

The covenants limit the Company’s and HDFS’ ability to:

•

incur certain additional indebtedness;

•

assume or incur certain liens;

•

participate in a merger, consolidation, liquidation or dissolution; and

•

purchase or hold margin stock.

Under the financial covenants of the Global Credit Facilities, the consolidated debt to equity ratio of HDFS cannot exceed 10.0 to 1.0. In addition, the Company must maintain a minimum interest coverage ratio of 2.25 to 1.0 for each fiscal quarter through June 2013 and 2.5 to 1.0 for each fiscal quarter thereafter. No financial covenants are required under the Notes or the asset-backed commercial paper conduit facility.

At December 31, 2011, 2010 and 2009, HDFS and the Company remained in compliance with all of the existing covenants.

Cash Flows from Discontinued Operations

There were no cash flows from discontinued operations during 2011. During the years ended December 31, 2010 and 2009, cash flows from discontinued operations were a net cash outflow of $72.3 million and $91.3 million.

Cautionary Statements

The Company’s ability to meet the targets and expectations noted depends upon, among other factors, the Company’s ability to:

(i)

execute its business strategy,

(ii)

effectively execute the Company’s restructuring plans within expected costs and timing,

(iii)

implement and manage enterprise-wide information technology solutions, including solutions at its manufacturing facilities, and secure data contained in those systems,

(iv)

adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices,

(v)

anticipate the level of consumer confidence in the economy,

(vi)

manage through inconsistent economic conditions, including changing capital, credit and retail markets,

(vii)

continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead,

(viii)

successfully implement with our labor unions the agreements that we have executed with them that we believe will provide flexibility and cost-effectiveness to accomplish restructuring goals and long-term competitiveness,

(ix)

manage risks that arise through expanding international operations and sales,

(x)

manage supply chain issues, including any unexpected interruptions or price increases caused by raw material shortages or natural disasters,

(xi)

manage production capacity and production changes,

(xii)

provide products, services and experiences that are successful in the marketplace, (xiii) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace,

(xiv)

manage the risks that our independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand,

(xv)

continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital,

(xvi)

manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio,

(xvii)

sell all of its motorcycles and related products and services to its independent dealers,

(xviii)

continue to develop the capabilities of its distributor and dealer network,

(xix)

manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations,

(xx)

adjust to healthcare inflation and reform, pension reform and tax changes,

(xxi)

retain and attract talented employees, and

(xxii)

detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation.

In addition, the Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Other factors are described in “Risk Factors” under Item 1A which includes a discussion of additional risk factors and a more complete discussion of some of the cautionary statements noted above.

The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company. In addition, the Company’s independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in foreign exchange rates and interest rates. To reduce such risks, the Company selectively uses derivative financial instruments. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes. Sensitivity analysis is used to manage and monitor foreign exchange and interest rate risk.

The Company sells its products internationally and in most markets those sales are made in the foreign country’s local currency. As a result, the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. The Company’s most significant foreign currency risk relates to the Euro, the Australian dollar and the Japanese yen. The Company utilizes foreign currency contracts to mitigate the effect of the Euro, the Australian dollar and the Japanese yen fluctuations on earnings. The foreign currency contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate. At December 31, 2011, the notional U.S. dollar value of outstanding Euro, Australian dollar and Japanese yen foreign currency contracts was $306.4 million. The Company estimates that a uniform 10% weakening in the value of the U.S. dollar relative to the currencies underlying these contracts would result in a decrease in the fair value of the contracts of approximately $29.5 million as of December 31, 2011. Further disclosure relating to the fair value of derivative financial instruments is included in Note 9 of the Notes to Consolidated Financial Statements.

The Company’s earnings are affected by changes in interest rates. HDFS utilizes interest rate swaps to reduce the impact of fluctuations in interest rates on its debt. As of December 31, 2011, HDFS had interest rate swaps outstanding with a notional value of $102.1 million. HDFS estimates that a 10% decrease in interest rates would result in a $0.2 million decrease in the fair value of the agreements.

Item 8.

Consolidated Financial Statements and Supplementary Data


	Page
Management’s Report on Internal Control Over Financial Reporting		57

Report of the Audit Committee		58

Reports of Independent Registered Public Accounting Firm		60

Consolidated statements of operations		61

Consolidated balance sheets		62

Consolidated statements of cash flows		63

Consolidated statements of shareholders’ equity		64

Notes to consolidated financial statements		66

Supplementary data

Quarterly financial data (unaudited)		122

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control – Integrated Framework, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2011. Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of the Company’s internal control over financial reporting.

February 6, 2012


Keith E. Wandell		John A. Olin
Chairman, President and Chief Executive Officer		Senior Vice President and Chief Financial Officer

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board of Directors reviews the Company’s financial reporting process and the audit process. All of the Audit Committee members are independent in accordance with the Audit Committee requirements of the New York Stock Exchange, Inc.

The Audit Committee of the Board of Directors has reviewed and discussed with management its assessment of the effectiveness of the Company’s internal control system over financial reporting as of December 31, 2011. Management has concluded that the internal control system was effective. Additionally, the Company’s internal control over financial reporting as of December 31, 2011 was audited by Ernst & Young LLP, the Company’s independent registered public accounting firm for the 2011 fiscal year. The Audit Committee has reviewed and discussed the audited financial statements of the Company for the 2011 fiscal year with management as well as with representatives of Ernst & Young LLP. The Audit Committee has also discussed with Ernst & Young LLP, the matters required to be discussed under the Public Company Accounting Oversight Board (PCAOB) AU Section 380, Communications with Audit Committees. The Audit Committee has received written disclosures from Ernst & Young, LLP regarding their independence as required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and has discussed with representatives of Ernst & Young LLP the independence of Ernst & Young LLP. Based on the review and discussions referred to above, the Audit Committee has recommended to the Board of Directors that the audited financial statements for the 2011 fiscal year be included in the Company’s Annual Report on Form 10-K for the 2011 fiscal year.

February 6, 2012

Audit Committee of the Board of Directors

Richard I. Beattie

George L. Miles, Jr.

N. Thomas Linebarger

James A. Norling, Chairman

Jochen Zeitz

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL

CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders of Harley-Davidson, Inc.:

We have audited Harley-Davidson, Inc.’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Harley-Davidson, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Harley-Davidson, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Harley-Davidson, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2011 of Harley-Davidson, Inc. and our report dated February 23, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Milwaukee, Wisconsin

February 23, 2012

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Harley-Davidson, Inc.:

We have audited the accompanying consolidated balance sheets of Harley-Davidson, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the index at item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harley-Davidson, Inc. at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2010, the Company changed its method of accounting for variable interest entities, including qualifying special-purpose entities, to conform with Accounting Standards Codification Topic 810 and Accounting Standards Codification Topic 860.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Harley-Davidson, Inc.’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Milwaukee, Wisconsin

February 23, 2012

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2011, 2010 and 2009

(In thousands, except per share amounts)


	2011		2010			2009
Revenue:
Motorcycles and related products	$	4,662,264	$	4,176,627		$	4,287,130
Financial services		649,449		682,709			494,779

Total revenue		5,311,713		4,859,336			4,781,909

Costs and expenses:
Motorcycles and related products cost of goods sold		3,106,288		2,749,224			2,900,934
Financial services interest expense		229,492		272,484			283,634
Financial services provision for credit losses		17,031		93,118			169,206
Selling, administrative and engineering expense		1,060,943		1,020,371			979,384
Restructuring expense and asset impairment		67,992		163,508			224,278
Goodwill impairment		—		—			28,387

Total costs and expenses		4,481,746		4,298,705			4,585,823

Operating income		829,967		560,631			196,086
Investment income		7,963		5,442			4,254
Interest expense		45,266		90,357			21,680
Loss on debt extinguishment		—		85,247			—

Income before provision for income taxes		792,664		390,469			178,660
Provision for income taxes		244,586		130,800			108,019

Income from continuing operations		548,078		259,669			70,641
Income (loss) from discontinued operations, net of tax		51,036		(113,124	)		(125,757	)

Net income (loss)	$	599,114	$	146,545		$	(55,116	)


Earnings per common share from continuing operations:
Basic	$	2.35	$	1.11		$	0.30
Diluted	$	2.33	$	1.11		$	0.30

Earnings (loss) per common share from discontinued operations:
Basic	$	0.22	$	(0.48	)	$	(0.54	)
Diluted	$	0.22	$	(0.48	)	$	(0.54	)

Earnings (loss) per common share:
Basic	$	2.57	$	0.63		$	(0.24	)
Diluted	$	2.55	$	0.62		$	(0.24	)

Cash dividends per common share	$	0.475	$	0.40		$	0.40

The accompanying notes are an integral part of the consolidated financial statements.

HARLEY-DAVIDSON, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2011 and 2010

(In thousands, except share amounts)


	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	1,526,950		$	1,021,933
Marketable securities		153,380			140,118
Accounts receivable, net		219,039			262,382
Finance receivables, net		1,168,603			1,080,432
Restricted finance receivables held by variable interest entities, net		591,864			699,026
Inventories		418,006			326,446
Restricted cash held by variable interest entities		229,655			288,887
Deferred income taxes		132,331			146,411
Other current assets		102,378			100,991

Total current assets		4,542,206			4,066,626

Finance receivables, net		1,754,441			1,553,781
Restricted finance receivables held by variable interest entities, net		2,271,773			2,684,330
Property, plant and equipment, net		809,459			815,112
Goodwill		29,081			29,590
Deferred income taxes		202,439			213,989
Other long-term assets		64,765			67,312

	$	9,674,164		$	9,430,740

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	255,713		$	225,346
Accrued liabilities		564,172			556,671
Short-term debt		838,486			480,472
Current portion of long-term debt		399,916			—
Current portion of long-term debt held by variable interest entities		640,331			751,293

Total current liabilities		2,698,618			2,013,782
Long-term debt		2,396,871			2,516,650
Long-term debt held by variable interest entities		1,447,015			2,003,941
Pension liability		302,483			282,085
Postretirement healthcare liability		268,582			254,762
Other long-term liabilities		140,339			152,654

Commitments and contingencies (Note 17)

Shareholders’ equity:
Series A Junior participating preferred stock, none issued		—			—
Common stock, 339,107,230 and 338,260,456 shares issued in 2011 and 2010, respectively		3,391			3,382
Additional paid-in-capital		968,392			908,055
Retained earnings		6,824,180			6,336,077
Accumulated other comprehensive loss		(476,733	)		(366,222	)

		7,319,230			6,881,292
Less:
Treasury stock (108,566,699 and 102,739,587 shares in 2011 and 2010, respectively), at cost		(4,898,974	)		(4,674,426	)

Total shareholders’ equity		2,420,256			2,206,866

	$	9,674,164		$	9,430,740

The accompanying notes are an integral part of the consolidated financial statements.

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2011, 2010 and 2009

(In thousands)


	2011			2010			2009
Net cash provided by operating activities of continuing operations (Note 2)	$	885,291		$	1,163,418		$	609,010
Cash flows from investing activities of continuing operations:
Capital expenditures		(189,035	)		(170,845	)		(116,748	)
Originations of finance receivables		(2,622,024	)		(2,252,532	)		(1,378,226	)
Collections on finance receivables		2,760,049			2,668,962			607,168
Collection of retained securitization interests		—			—			61,170
Purchases of marketable securities		(142,653	)		(184,365	)		(39,685	)
Sales and redemptions of marketable securities		130,121			84,217			—
Other, net		—			—			2,834

Net cash (used by) provided by investing activities of continuing operations		(63,542	)		145,437			(863,487	)

Cash flows from financing activities of continuing operations:
Proceeds from issuance of medium term notes		447,076			—			496,514
Repayment of medium term notes		(59,211	)		(200,000	)		—
Proceeds from issuance of senior unsecured notes		—			—			595,026
Repayment of senior unsecured notes		—			(380,757	)		—
Proceeds from securitization debt		1,082,599			598,187			2,413,192
Repayments of securitization debt		(1,754,568	)		(1,896,665	)		(263,083	)
Net increase (decrease) in credit facilities and unsecured commercial paper		237,827			30,575			(1,083,331	)
Net repayments in asset-backed commercial paper		(483	)		(845	)		(513,168	)
Net change in restricted cash		59,232			77,654			(167,667	)
Dividends		(111,011	)		(94,145	)		(93,807	)
Purchase of common stock for treasury, net of issuances		(224,548	)		(1,706	)		(1,920	)
Excess tax benefits from share-based payments		6,303			3,767			170
Issuance of common stock under employee stock option plans		7,840			7,845			11

Net cash (used by) provided by financing activities of continuing operations		(308,944	)		(1,856,090	)		1,381,937

Effect of exchange rate changes on cash and cash equivalents of continuing operations		(7,788	)		4,940			6,789

Net increase (decrease) in cash and cash equivalents of continuing operations		505,017			(542,295	)		1,134,249

Cash flows from discontinued operations:
Cash flows from operating activities of discontinued operations		—			(71,073	)		(71,298	)
Cash flows from investing activities of discontinued operations		—			—			(18,805	)
Effect of exchange rate changes on cash and cash equivalents of discontinued operations		—			(1,195	)		(1,208	)

		—			(72,268	)		(91,311	)


Net increase (decrease) in cash and cash equivalents	$	505,017		$	(614,563	)	$	1,042,938


Cash and cash equivalents:
Cash and cash equivalents – beginning of period	$	1,021,933		$	1,630,433		$	568,894
Cash and cash equivalents of discontinued operations – beginning of period		—			6,063			24,664
Net increase (decrease) in cash and cash equivalents		505,017			(614,563	)		1,042,938
Less: Cash and cash equivalents of discontinued operations – end of period		—			—			(6,063	)

Cash and cash equivalents – end of period	$	1,526,950		$	1,021,933		$	1,630,433

The accompanying notes are an integral part of the consolidated financial statements.

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years ended December 31, 2011, 2010 and 2009

(In thousands, except share amounts)


	Common Stock				Additional paid-in capital		Retained Earnings			Accumulated Other comprehensive income (loss)			Treasury Balance			Total
	Issued Shares		Balance		Additional paid-in capital		Retained Earnings			Accumulated Other comprehensive income (loss)			Treasury Balance			Total
Balance December 31, 2008		335,653,577	$	3,357	$	846,796	$	6,458,778		$	(522,526	)	$	(4,670,802	)	$	2,115,603
Comprehensive income:
Net loss		—		—		—		(55,116	)		—			—			(55,116	)
Other comprehensive income (loss):
Foreign currency translation adjustment		—		—		—		—			30,932			—			30,932
Amortization of net prior service cost, net of taxes of ($1,576)		—		—		—		—			2,679			—			2,679
Amortization of actuarial loss, net of taxes of ($6,919)		—		—		—		—			11,761			—			11,761
Pension and post-retirement plan funded status adjustment, net of taxes of ($17,126)		—		—		—		—			29,111			—			29,111
Pension and post-retirement plan settlement and curtailment, net of taxes of ($18,942)		—		—		—		—			32,197			—			32,197
Change in net unrealized gains (losses):
Investment in retained securitization interests, net of taxes ($7,619)		—		—		—		—			13,600			—			13,600
Derivative financial instruments, net of tax benefit of $1,184		—		—		—		—			(1,239	)		—			(1,239	)

Comprehensive income																	63,925
Adjustment to apply measurement date provisions of FSP 115-2, net of taxes of ($8,108)		—		—		—		14,413			(14,413	)		—			—
Dividends		—		—		—		(93,807	)		—			—			(93,807	)
Repurchase of common stock		—		—		—		—			—			(1,920	)		(1,920	)
Share-based compensation and 401(k) match made with Treasury shares