-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wfm+Clcw51ucHX/baPHnhuO8BbYzVW0NQojxEkp2SMCr11BMo7+UvWmulxxhHA+X BuifEP0MA5kD7/vB2V/f4g== 0000897069-04-000981.txt : 20040506 0000897069-04-000981.hdr.sgml : 20040506 20040506163602 ACCESSION NUMBER: 0000897069-04-000981 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040328 FILED AS OF DATE: 20040506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEY DAVIDSON INC CENTRAL INDEX KEY: 0000793952 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 391382325 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09183 FILM NUMBER: 04785587 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 sdc731.htm QUARTERLY REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	for the quarterly period ended March 28, 2004
	OR

[ ]	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 or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
3700 West Juneau Avenue, Milwaukee, Wisconsin		53208
(Address of principal executive offices)		(Zip Code)

(414) 342-4680
(Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes X No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock Outstanding as of April 30, 2004: 295,145,463 shares.

HARLEY-DAVIDSON, INC.

Form 10-Q IndexFor
the Quarter Ended March 28, 2004

			Page

Part I. Financial Information

	Item 1.	Financial Statements

		Condensed Consolidated Statements of Income	3

		Condensed Consolidated Balance Sheets	4

		Condensed Consolidated Statements of Cash Flows	5

		Notes to Condensed Consolidated Financial Statements	6-11

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12-22

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

	Item 4.	Controls and Procedures	22

Note regarding forward looking statements			22

Part II. Other Information

	Item 1.	Legal Proceedings	23

	Item 2.	Changes in Securities and Use of Proceeds	24

	Item 6.	Exhibits and Reports on Form 8-K	24

Signatures			25

Exhibits Index			26

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

	Three months ended
	March 28, 2004			March 30, 2003
Net revenue	$	1,165,701		$	1,113,691
Cost of goods sold		725,572			710,659

Gross profit		440,129			403,032
Financial services income		80,494			70,769
Financial services expense		30,181			27,412

Operating income from financial services		50,313			43,357
Operating expenses		177,520			167,880

Income from operations		312,922			278,509
Interest income, net		4,970			5,957
Other income (expense), net		(713	)		(216	)

Income before provision for income taxes		317,179			284,250
Provision for income taxes		112,599			98,066

Net income	$	204,580		$	186,184

Earnings per common share:
Basic	$	.69		$	.62

Diluted	$	.68		$	.61

Weighted-average common shares outstanding:
Basic		297,832			302,364

Diluted		299,932			304,560

Cash dividends per share	$	.08		$	.035

See accompanying notes.

Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)

	(Unaudited) March 28, 2004		December 31, 2003		(Unaudited) March 30, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	590,643	$	812,449	$	395,943
Marketable securities		512,044		510,211		494,742
Accounts receivable, net		132,270		112,406		117,907
Current portion of finance receivables, net		1,172,532		1,001,990		1,050,330
Inventories		222,811		207,726		214,419
Other current assets		76,975		84,345		75,851

Total current assets		2,707,275		2,729,127		2,349,192
Finance receivables, net		558,737		735,859		451,973
Property, plant and equipment, net		1,015,940		1,046,310		1,028,281
Goodwill, net		52,925		53,678		50,461
Other assets		355,093		358,114		119,867

	$	4,689,970	$	4,923,088	$	3,999,774

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	299,543	$	223,902	$	252,575
Accrued expenses and other liabilities		400,415		407,566		401,768
Current portion of finance debt		195,703		324,305		300,060

Total current liabilities		895,661		955,773		954,403
Finance debt		670,000		670,000		380,000
Other long-term liabilities		223,018		212,179		157,194
Postretirement health care benefits		134,091		127,444		110,761
Contingencies (Note 9)
Total shareholders' equity		2,767,200		2,957,692		2,397,416

	$	4,689,970	$	4,923,088	$	3,999,774

See accompanying notes.

Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

	Three months ended
	March 28, 2004			March 30, 2003
Cash flows from operating activities:
Net income	$	204,580		$	186,184
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation		50,947			45,877
Provision for long-term employee benefits		17,581			17,701
Provision for finance credit losses		830			532
Gain on current year securitizations		(25,240	)		(26,423	)
Collection of retained securitization interests		30,942			18,558
Tax benefit of stock options		9,108			1,755
Other, net		12,165			223
Net changes in current assets and current liabilities		49,977			47,690

Total adjustments		146,310			105,913

Net cash provided by operating activities		350,890			292,097
Cash flows for investing activities:
Capital expenditures		(30,990	)		(41,796	)
Finance receivables acquired or originated		(1,644,388	)		(1,513,044	)
Finance receivables collected		1,042,482			939,704
Proceeds from securitizations		613,861			541,072
Purchase of marketable securities		(140,286	)		(436,925	)
Sales and redemptions of marketable securities		139,315			456,526
Other, net		(266	)		(1,759	)

Net cash used in investing activities		(20,272	)		(56,222	)
Cash flows for financing activities:
Net decrease in finance debt		(140,522	)		(91,193	)
Dividends		(23,587	)		(10,610	)
Purchase of common stock for treasury		(403,519	)		(20,164	)
Issuance of common stock under employee stock plans		15,204			1,107

Net cash used in financing activities		(552,424	)		(120,860	)
Net (decrease) increase in cash and cash equivalents		(221,806	)		115,015
Cash and cash equivalents:
At beginning of period		812,449			280,928

At end of period	$	590,643		$	395,943

See accompanying notes.

HARLEY-DAVIDSON, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1 — Basis of Presentation and Use of Estimates

The condensed interim consolidated financial statements included herein have been prepared by Harley-Davidson, Inc. (the “Company”) without audit. Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States for interim financial information. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the condensed consolidated balance sheets as of March 28, 2004 and March 30, 2003, the condensed consolidated statements of income for the three-month periods then ended and the condensed consolidated statements of cash flows for the three-month periods then ended. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Note 2 — Inventories

The Company values its inventories at the lower of cost, principally using the last-in, first-out (LIFO) method, or market. Inventories consisted of the following (in thousands):

	March 28, 2004		December 31, 2003		March 30, 2003
Components at the lower of FIFO cost or market:
Raw material & work-in-process	$	79,904	$	89,823	$	78,605
Finished goods		83,624		57,778		61,985
Parts and accessories and general merchandise		76,825		77,417		91,096

		240,353		225,018		231,686
Excess of FIFO over LIFO		17,542		17,292		17,267

	$	222,811	$	207,726	$	214,419

Note 3 — Product Warranty

The Company provides a standard limited warranty on all new motorcycles sold. The warranty coverage includes parts and labor and begins when the motorcycle is sold to a retail customer. During September 2003 (beginning with shipments of 2004 model year motorcycles) the Company extended its warranty coverage from one year to two years in all of its markets except Europe, where the term had already been extended in 2002 to comply with European regulations. The Company maintains reserves for future warranty claims using an estimated cost per unit sold, which is based on historical Company claim information. Changes in the Company’s warranty liability were as follows (in thousands):

	Three months ended
	March 28, 2004			March 30, 2003
Balance, beginning of period	$	30,475		$	28,890
Warranties issued during the period		9,434			11,283
Settlements made during the period		(6,499	)		(6,400	)
Changes to the liability for pre-existing warranties during the period		2,129			529

Balance, end of period	$	35,539		$	34,302

Note 4 — Business Segments

The Company operates in two business segments: Motorcycles and Related Products (Motorcycles) and Financial Services (Financial Services) which consists of the Company’s subsidiary, Harley-Davidson Financial Services, Inc (HDFS). 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. Selected segment information is set forth below (in thousands):

	Three months ended
	March 28, 2004		March 30, 2003
Net revenue	$	1,165,701	$	1,113,691
Gross profit		440,129		403,032
Operating expenses		173,031		163,407

Operating income from Motorcycles and Related Products		267,098		239,625
Financial Services income		80,494		70,769
Financial Services expense		30,181		27,412

Operating income from Financial Services		50,313		43,357
Corporate expenses		4,489		4,473

Income from operations	$	312,922	$	278,509

Note 5 — Earnings Per Share

The following table sets forth the computation for basic and diluted earnings per common share (in thousands, except per share amounts):

	Three months ended
	March 28, 2004		March 30, 2003
Numerator
Net income used in computing basic
And diluted earnings per common share	$	204,580	$	186,184

Denominator
Denominator for basic earnings per common share-
Weighted-average common shares		297,832		302,364
Effect of dilutive securities - employee
Stock options and nonvested stock		2,100		2,196

Denominator for diluted earnings per common share -
Adjusted weighted-average common shares outstanding		299,932		304,560

Basic earnings per common share	$	.69	$	.62

Diluted earnings per common share	$	.68	$	.61

Note 6 — Comprehensive Income

Total comprehensive income was $212.3 million and $192.4 million for the three-month periods ended March 28, 2004 and March 30, 2003, respectively. Total comprehensive income is comprised of net income, foreign currency translation adjustments and changes in net unrealized gains and losses related to: investment in retained securitization interests, derivative financial instruments designated as cash flow hedges and marketable securities. The following is a reconciliation of net income to comprehensive income (in thousands):

	Three months ended
	March 28, 2004			March 30, 2003
Net income	$	204,580		$	186,184
Foreign currency translation adjustments		(3,144	)		1,194
Changes in net unrealized gains and losses, net of tax:
Retained securitization interests		2,733			3,685
Derivative financial instruments		7,620			1,577
Marketable securities		509			(283	)

Comprehensive income	$	212,298		$	192,357

Note 7 – Employee Benefit Plans

The Company has several defined benefit pension plans and several postretirement health care 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. Components of net periodic benefit costs were as follows (in thousands):

	Pension & SERPA Benefits Three months ended						Postretirement Healthcare Benefits Three months ended
	March 28, 2004			March 30, 2003			March 28, 2004			March 30, 2003
Service cost	$	9,216		$	8,820		$	2,972		$	3,037
Interest cost		11,463			10,494			3,929			3,365
Expected return on plan assets		(14,798	)		(9,875	)
Amortization of unrecognized:
Prior service cost		1,770			1,775			(254	)		136
Net loss		2,536			2,403			1,639			1,074

Net periodic benefit cost	$	10,187		$	13,617		$	8,286		$	7,612

As disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2003, the Company has no minimum required pension plan contributions in 2004 and currently does not plan to make a contribution in 2004. Postretirement healthcare claims are paid as incurred.

On December 8, 2003, a bill was signed into law that expands Medicare, primarily adding a prescription drug benefit for Medicare-eligible retirees starting in 2006. The Company anticipates that the benefits it pays after 2006 will be lower as a result of the new Medicare provisions; however, the retiree medical obligations and costs reported do not reflect the impact of this legislation. Deferring the recognition of the new Medicare provisions’ impact is permitted by Financial Accounting Standards Board Staff Position 106-1 due to open questions about some of the new Medicare provisions and a lack of authoritative accounting guidance about certain matters. The final accounting guidance could require changes to previously reported information.

Note 8 — Stock Options

The Company has stock option plans under which the Board of Directors may grant to employees nonqualified stock options with or without appreciation rights. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. For purposes of pro forma disclosures under SFAS No. 123, “Accounting for Stock-Based Compensation,” the estimated fair value of the options, using the Black-Scholes options pricing model, is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per share amounts):

Note 8 — Stock Options (continued)

	Three months ended
	March 28, 2004			March 30, 2003
Net income, as reported	$	204,580		$	186,184
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all option awards, net of related tax effects		(3,450	)		(3,275	)

Pro forma net income	$	201,130		$	182,909

Earnings per share:
Basic as reported	$	.69		$	.62

Basic pro forma	$	.68		$	.60

Diluted as reported	$	.68		$	.61

Diluted pro forma	$	.67		$	.60

Note 9 — Contingencies

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 on-going basis and are updated based on new developments or new information in each matter.

In January 2001, the Company, on its own initiative, notified each owner of 1999 and early-2000 model year Harley-Davidson^® motorcycles equipped with Twin Cam 88 and Twin Cam 88B engines that the Company was extending the warranty for a rear cam bearing to 5 years or 50,000 miles. Subsequently, on June 28, 2001, a putative nationwide class action was filed against the Company in state court in Milwaukee County, Wisconsin, which was amended by a complaint filed September 28, 2001. The complaint alleged that this cam bearing is defective and asserted various legal theories. The complaint sought unspecified compensatory and punitive damages for affected owners, an order compelling the Company to repair the engines, and other relief. On February 27, 2002, the Company’s motion to dismiss the amended complaint was granted by the Court and the amended complaint was dismissed in its entirety. An appeal was filed with the Wisconsin Court of Appeals. On April 12, 2002, the same attorneys filed a second putative nationwide class action against the Company in state court in Milwaukee County, Wisconsin relating to this cam bearing issue and asserting different legal theories than in the first action. The complaint sought unspecified compensatory damages, an order compelling the Company to repair the engines and other relief. On September 23, 2002, the Company’s motion to dismiss was granted by the Court, the complaint was dismissed in its entirety, and no appeal was taken. On January 14, 2003, the Wisconsin Court of Appeals reversed the trial court’s February 27, 2002 dismissal of the complaint in the first action, and the Company petitioned the Wisconsin Supreme Court for review. On March 26, 2004 the Wisconsin Supreme Court reversed the Court of Appeals and dismissed the remaining claims in the action. On April 12, 2004, the same attorneys filed a third action on behalf of the same plaintiffs from the action just dismissed by the Wisconsin Supreme Court. The Company intends to continue to vigorously defend this matter. The Company believes that the 5 year/50,000 mile warranty extension it announced in January 2001 adequately addresses the condition for affected owners.

The Company is involved with government agencies and groups of potentially responsible parties in various environmental matters, including a matter involving the clean up 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 since 1986 in undertaking environmental investigation and remediation activities, including an on-going 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 U.S. Environmental Protection Agency (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. The objectives and procedures for facility lead corrective action under RCRA are consistent with the investigation and remediation already being conducted under the Agreement with the Navy, and the Company agreed to participate in EPA’s corrective action program under a RCRA facility lead agreement.

Although the RI/FS is still underway and substantial uncertainty exists concerning the nature and scope of the additional environmental investigation and remediation that will ultimately be required at the York facility, the Company estimates that its share of the future Response Costs at the York facility will be approximately $7.6 million. The Company has established reserves for this amount, which are included in Accrued expenses and other liabilities in the consolidated balance sheets.

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 are expected to be incurred over a period of several years ending in 2010.

Under the terms of the sale of the Commercial Vehicles Division in 1996, the Company has agreed to indemnify Utilimaster Corporation, until 2008, for certain claims related to environmental contamination present at the date of sale, up to $20 million. Based on the environmental studies performed as part of the sale of the Transportation Vehicles segment, the Company does not expect to incur any material expenditures under this indemnification.

Additionally, the Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures which 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 2. 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 and Buell Motorcycle Company and Harley-Davidson Financial Services. Harley-Davidson Motor Company produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel and general merchandise. Harley-Davidson Motor Company manufactures five families of motorcycles: Touring, Dyna Glide, Softail^®, VRSC and Sportster^®. Buell Motorcycle Company produces sport motorcycles, including four big-twin XB models and the single-cylinder Buell^® Blast^®. Buell also offers a line of motorcycle parts, accessories, apparel and general merchandise. Harley-Davidson Financial Services provides wholesale and retail financing and insurance programs primarily to Harley-Davidson/Buell dealers and customers.

Overview⁽¹⁾

Management believes that the Company’s performance during the first quarter of 2004 is in line with both its short and long-term performance objectives. During the first quarter of 2004 the Company shipped 74,090 Harley-Davidson units, grew revenue by 4.7% and increased diluted earnings per share by 11.5%, over the same quarter last year. These results, are on track to meet the Company’s 2004 objectives to ship 317,000 Harley-Davidson units and to achieve an earnings growth rate in the mid-teens. These results, in combination with the Company’s continuing effort to offer innovative products and services and to drive productivity gains in all facets of the business, are in line with the Company’s longer-term goals to ship 400,000 Harley-Davidson units in 2007 and to achieve earnings growth rates in the mid-teens for the foreseeable future.

Results of Operations for the Three Months Ended March 28, 2004
Compared to the Three Months Ended March 30, 2003

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

Overall

The Company’s net revenue for the first quarter of 2004 totaled $1.17 billion, a $52.0 million, or 4.7%, increase over the first quarter of 2003. First quarter net income for 2004 was $204.6 million compared to $186.2 million in 2003, an increase of 9.9%. Diluted earnings per share for the first quarter of 2004 was $.68, representing an 11.5% increase over 2003 first quarter earnings per share of $.61. Diluted earnings per share was positively impacted during the first quarter of 2004 by a decrease in the weighted-average shares outstanding, which were 299.9 million in the first quarter of 2004 compared to 304.6 million in the same quarter last year. The decrease in weighted-average shares outstanding was primarily due to the Company’s repurchase of 7.8 million shares of common stock during the first quarter of 2004. The Company’s share repurchases are discussed in further detail under “Liquidity and Capital Resources.”

Net Revenue

The following table includes net revenue by product line for the Motorcycles segment for the three months ended March 28, 2004 and March 30, 2003 (in millions):

	2004		2003		Increase (Decrease)

Harley-Davidson(R)motorcycles	$	918.8	$	876.5	$	42.3		4.8	%
Buell(R)motorcycles		22.1		20.5		1.6		7.7

Total motorcycles		940.9		897.0		43.9		4.9
Parts & Accessories		169.2		159.8		9.4		5.8
General Merchandise		54.4		56.5		(2.1	)	(3.7	)
Other		1.2		.4		.8		n.m.

Net revenue	$	1,165.7	$	1,113.7	$	52.0		4.7	%

The increase in net revenue during the first quarter of 2004 was led by a $42.3 million, or 4.8%, increase in revenue from the sale of Harley-Davidson motorcycles. Harley-Davidson motorcycle revenue was higher primarily as a result of the 4.9% increase in units shipped (see “Motorcycle Unit Shipments” below). During the first quarter of 2004 Harley-Davidson motorcycle revenue also benefited from changes in foreign currency exchange rates partially offset by lower revenue due to changes in product mix and lower wholesale prices as discussed below.

During the first quarter of 2004 changes in foreign currency exchange rates, when compared to the same period last year, resulted in an increase in Harley-Davidson motorcycle revenue of approximately $17.0 million. Offsetting the higher revenue from changes in exchange rates was lower revenue resulting from changes in product mix and lower wholesale pricing.

Motorcycle revenue in the first quarter of 2004 was negatively impacted by an increase in the percentage of shipments consisting of lower priced Sportster motorcycles and a decrease in the percentage of shipments consisting of more expensive custom motorcycles. This shift in mix was driven by increased production of Sportster motorcycles that began with the introduction of the completely redesigned 2004 Sportster models in September 2003. The redesigned Sportster motorcycles are an important part of the Company’s strategy to attract new customers to the Harley-Davidson family. The Company expects that Sportster motorcycles will continue to be in the range of 20% to 25% of total units shipped over the longer term. ⁽¹⁾

Finally, Harley-Davidson motorcycle revenue in the first quarter of 2004 was negatively impacted by the lower wholesale prices associated with the 2004 model year motorcycles. Wholesale prices on the 2004 models reflect the elimination of 100^th Anniversary special edition features and as a result are slightly lower than the wholesale prices for the 100^th Anniversary models sold during the first quarter of 2003.

During the first quarter of 2004 net revenue from Parts and Accessories (P&A) totaled $169.2 million, a 5.8% increase over the first quarter of 2003. Total P&A revenue in the first quarter of last year included $13.9 million from sales of 100th Anniversary P&A products. Excluding the 100th Anniversary revenue from 2003, the P&A revenue growth rate for the first quarter of 2004 was 15.9%. On a longer-term basis the Company expects that the growth rate for P&A revenue will be slightly higher than the growth rate for Harley-Davidson^® motorcycle units.⁽¹⁾

General Merchandise net revenue during the first quarter of 2004 was $54.4 million, down 3.7% from the same period last year. Revenue from 100th Anniversary General Merchandise products accounted for $8.3 million of total General Merchandise revenue during the first quarter of last year. Excluding the revenue from the sale of 100^thAnniversary products from the first quarter of 2003, the General Merchandise revenue growth rate for the first quarter of 2004 was 12.7%. The Company expects that the longer-term growth rate for General Merchandise revenue will be lower than the growth rate for Harley-Davidson motorcycle units.⁽¹⁾

Motorcycle Unit Shipments

The following table includes worldwide motorcycle unit shipments for the three months ended March 28, 2004 and March 30, 2003:



Touring motorcycle units	21,404	18,488	2,916		15.8	%
Custom motorcycle units*	36,864	38,972	(2,108	)	(5.4	)
Sportster motorcycle units	15,822	13,148	2,674		20.3

Harley-Davidson motorcycle units	74,090	70,608	3,482		4.9
Buell motorcycle units	2,603	2,941	(338	)	(11.5	)

Total motorcycle units	76,693	73,549	3,144		4.3	%

*Custom motorcycle units, as used in this table, includes Softail^®, Dyna Glide, VRSC and other custom models.

During the first quarter of 2004 the Company shipped 74,090 Harley-Davidson motorcycle units, 3,482 more units than in 2003. This increase in units was driven by strong retail demand for the Company’s 2004 model year motorcycles.

The Company’s wholesale motorcycle unit shipments are retailed through an independent worldwide dealer network. During the first quarter of 2004, retail sales of the Company’s Harley-Davidson motorcycles in the United States outpaced the heavyweight motorcycle (651+cc) industry, with an increase of 13.0%. In Europe and Japan retail sales for Harley-Davidson motorcycles during the first quarter of 2004 were flat and down, respectively, compared to the same quarter last year. Heavyweight (651+cc) motorcycle retail registrations data available to the Company, for the United States, Europe and Japan, through the month indicated, is as follows:


United	Harley-Davidson models only (through March)	54,216	47,992	13.0	%
States ^(a)	Industry (through March)	102,407	94,170	8.7
Europe ^(b)	Harley-Davidson models only (through March)	5,376	5,367	0.2
	Industry (through February)	32,202	33,852	(4.9	)
Japan ^(c)	Harley- Davidson models only (through March)	1,929	2,137	(9.7	)
	Industry (through February)	4,350	5,284	(17.7	)

(a)	U.S. data provided by the Motorcycle Industry Council.

(b)	Europe data provided by Company reports and Giral S.A., includes retail sales in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and The United Kingdom.

(c)	Japan data provided by Company reports and industry sources.

Gross Profit

Gross profit of $440.1 million for the Motorcycles segment in the first quarter of 2004 was $37.1 million, or 9.2%, higher than gross profit in the same quarter last year. The $37.1 million increase in gross profit resulted primarily from the increase in net revenue. The gross margin was 37.8% in the first quarter of 2004 compared to 36.2% in the first quarter of 2003. The increase in gross margin in the first quarter of 2004 was driven primarily by favorable foreign currency exchange rates compared to the same quarter last year. The net impact of changes in foreign currency exchange rates on revenues and costs resulted in $10.0 million of higher gross profit during the first quarter of 2004 compared to the same quarter in 2003.

Financial Services

The following table includes the condensed statements of operations for the Financial Services segment, for the three months ended March 28, 2004 and March 30, 2003 (in millions):

	2004		2003		Increase (Decrease)

Interest income	$	26.5	$	22.7	$	3.8		16.7	%
Gain on current year securitizations		25.2		26.4		(1.2	)	(4.5	)
Servicing fee income		6.9		5.3		1.6		30.0
Insurance commissions		10.3		9.6		0.7		7.4
Income on investment in retained securitization
interests		10.4		4.7		5.7		121.3
Other income		1.2		2.1		(0.9	)	(42.4	)

Financial services income		80.5		70.8		9.7		13.7
Interest expense		5.5		4.6		0.9		18.9
Provision for credit losses		0.8		0.5		0.3		56.0
Operating expenses		23.9		22.3		1.6		7.2

Financial services expense		30.2		27.4		2.8		10.1

Operating income from financial services	$	50.3	$	43.4	$	6.9		16.0	%

Financial services income during the first quarter of 2004 was $80.5 million, an increase of $9.7 million over the first quarter of 2003. Operating income from financial services for the first quarter of 2004 was $50.3 million, an increase of $6.9 million over same quarter in 2003. The increase in operating income during the first quarter of 2004 was driven by continued strong marketplace acceptance of HDFS’ finance and insurance products as well as increased securitization related income.

During the first quarter of 2004, HDFS sold $625.0 million of retail motorcycle loans through securitization transactions resulting in gains of $25.2 million. During the first quarter of 2003, HDFS sold approximately $550.0 million of retail motorcycle loans resulting in gains of $26.4 million. The net gain as a percentage of the amount of loans securitized was 4.04% in 2004, which decreased from 4.80% in 2003, but is within the Company’s expectation of 3% to 4% for the current interest rate environment.⁽¹⁾

During 2004, income on investment in retained securitization interests increased $5.7 million over 2003 as the portfolio continued to perform better than anticipated.

Changes in HDFS’ allowance for credit losses during the three months ended March 28, 2004 and March 30, 2003 were as follows (in millions):

	2004			2003
Balance, beginning of period	$	31.3		$	31.0
Provision for finance credit losses		0.8			0.5
Charge-offs		(0.8	)		(0.5	)

Balance, end of period	$	31.3		$	31.0

HDFS’ periodic evaluation of the adequacy of the allowance for credit losses is generally based on HDFS’ past loan loss experience, known and inherent risks in the portfolio, and current economic conditions. HDFS believes the allowance is adequate to cover the losses of principal and accrued interest in the existing portfolio.

Operating Expenses

The following table includes operating expenses for the Motorcycles segment and Corporate for the three months ended March 28, 2004 and March 30, 2003 (in millions):

	2004		2003		Increase (Decrease)

Motorcycles	$	173.0	$	163.4	$	9.6	5.9	%
Corporate		4.5		4.5		0.0	--

Total operating expenses	$	177.5	$	167.9	$	9.6	5.7	%

Total operating expenses during the first quarter of 2004 increased $9.6 million or 5.7% compared to the same period last year. Operating expenses as a percent of net revenue were 15.2% and 15.1% for first quarters of 2004 and 2003, respectively. Operating expenses, which include selling, administrative and engineering expense, are driven by the Company’s ongoing investment in various initiatives designed to support its current and longer-term growth objectives. In addition, during the first quarter of 2004, operating expenses were negatively impacted by $3.0 million due to changes in foreign currency exchange rates when compared to the first quarter of 2003.

Interest Income, net

Net interest income for the Motorcycles segment during the first quarter of 2004 was $5.0 million compared to $6.0 million in the same quarter last year. In connection with capacity expansion efforts, $1.1 million of interest cost was capitalized during the first quarter of 2003. No interest was capitalized in the first quarter of 2004.

Provision for Income Taxes

The Company’s effective income tax rate was 35.5% and 34.5% during the first quarters of 2004 and 2003, respectively. The Company’s effective income tax rate increased to 35.5% during the fourth quarter of 2003 as pre-tax income grew faster than certain permanent tax differences. The Company expects that the income tax rate will be 35.5% during the remainder of 2004.⁽¹⁾

Other Matters

Commitments and Contingencies

Liquidity and Capital Resources

Operating Activities

The Company’s main source of liquidity is cash from operating activities which consists of net income adjusted for non-cash operating activities, collections of retained securitization interests, pension plan contributions, the tax benefit of stock option exercises and changes in current assets and liabilities.

The Company generated $350.9 million of cash from operating activities during the first quarter of 2004 compared to $292.1 million in the first quarter of 2003. The largest component of cash from operating activities is net income adjusted for depreciation, which was approximately $255.5 million in 2004 compared to $232.1 million in 2003. Other items impacting operating cash flows are detailed in the Condensed Consolidated Statements of Cash Flows on page 5 of this report.

Cash provided by operating activities is also impacted by changes in current assets and liabilities. Changes in these balances increased operating cash flows by approximately $50.0 million and $47.7 million in the first quarters of 2004 and 2003, respectively. Changes in current assets and liabilities for the three months ended March 28, 2004 and March 30, 2003 were as follows (in millions):

	2004			2003
Accounts receivable, net	$	(19.9	)	$	(9.2	)
Inventories		(15.1	)		3.7
Prepaid expenses & other current assets		2.6			14.3
Finance receivables - accrued interest and other		(8.0	)		(11.7	)
Accounts payable/Accrued expenses		90.4			50.6

	$	50.0		$	47.7

Changes in accounts payable and accrued expenses resulted in an increase to operating cash flows of $90.4 million in the first quarter of 2004. This increase relates primarily to higher accrued income taxes and higher accounts payable related to increased unit volumes and during the first quarter of 2004. Similar factors contributed to the increase in 2003.

Consolidated inventories increased $15.1 million during the first quarter of 2004. This net increase includes a $25.8 million increase in finished goods motorcycle inventory offset by decreases in the Company’s other inventory categories (see Note 2 to the condensed consolidated financial statements). 2004 first quarter finished goods motorcycle inventory included a higher level of goods in-transit due to the timing of inventory transfers from the Company’s U.S. manufacturing facilities to its international subsidiaries. In addition, the Company has continued to improve its distribution to its dealers in Europe by eliminating some independent distributors and by continuing its effort to provide its dealers with a wider selection of product that can be quickly accessed from a Company controlled centralized warehouse. These changes have resulted in modest increases in Company inventory levels in Europe.

Investing Activities

The Company’s investing activities consist primarily of capital expenditures, finance receivables activity and net changes in marketable securities. Net cash used in investing activities was $20.3 million and $56.2 million during the first quarters of 2004 and 2003, respectively.

Capital expenditures were $31.0 million and $41.8 million through March of 2004 and 2003, respectively. The Company estimates that total capital expenditures required in 2004 will be in the range from $250 to $300 ^million.(1) The Company anticipates it will have the ability to fund all capital expenditures in 2004 with internally generated funds.⁽¹⁾

During the first quarters of 2004 and 2003, HDFS acquired and originated $1.64 billion and $1.51 billion of finance receivables, respectively. Proceeds from securitization transactions and collections resulted in cash inflows of $1.66 billion and $1.48 billion during the first quarters of 2004 and 2003, respectively.

Financing Activities

The Company’s financing activities consist primarily of stock transactions, dividend payments and finance debt activity. Net cash used in financing activities during the first quarters of 2004 and 2003 was $552.4 million and $120.9 million, respectively.

During the first quarter of 2004 the Company repurchased 7.8 million shares of its common stock at a total cost of $403.5 million, which represents a weighted-average price of $51.73 per share. This repurchase was made with the existing authority previously granted by the Board of Directors under which 7.8 million shares remained prior to the first quarter of 2004. On April 24, 2004 the Company’s Board of Directors authorized the Company to buyback up to an additional 20 million shares of its common stock.

The Company also has continuing authorization from its Board of Directors to repurchase shares of the Company’s 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, 1998 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. During the first quarter of 2003, the Company repurchased .5 million shares of its common stock under this authorization at a weighted-average price of $40.33 per share. No shares were repurchased under this authorization during the first quarter of 2004.

During the first quarter of 2004 the Company paid a dividend of $.08 per share or $23.6 million, compared to the 2003 first quarter dividend of $.035 per share or $10.6 million. On April 24, 2004 the Company’s Board of Directors approved a second quarter cash dividend of $0.10 per share, a 25% increase over the Company’s first quarter 2004 dividend, payable June 24, 2004 to shareholders of record as of June 3, 2004.

In addition to operating cash flow and asset-backed securitizations, HDFS is financed by the issuance of commercial paper, borrowings under revolving credit facilities, medium term notes, senior subordinated debt and borrowings from the Company. HDFS’ outstanding debt consisted of the following as of March 28, 2004 and March 30, 2003 (in thousands):

	2004		2003
Commercial paper	$	260,804	$	492,909
Domestic credit facilities		100,058		76,019
European credit facility		64,032		81,132
Medium term notes		410,809		--
Senior subordinated notes		30,000		30,000

	$	865,703	$	680,060

HDFS has agreements with financial institutions providing bank credit facilities totaling $750 million (Domestic Credit Facilities). The Domestic Credit Facilities consist of a $350 million revolving term facility due in 2005 and a $400 million 364-day revolving credit facility due September 2004. HDFS expects that the $400 million credit facility expiring in September 2004 will be renewed or that suitable alternatives exist.⁽¹⁾

The primary uses of the Domestic Credit Facilities are to provide liquidity to the unsecured commercial paper program and to fund HDFS’ business operations.

Subject to limitations, HDFS may issue up to $750 million of short-term commercial paper with maturities up to 270 days. Outstanding commercial paper may not exceed the unused portion of the Domestic Credit Facilities. As a result, the combined total of commercial paper and borrowings under the Domestic Credit Facilities was limited to $750 million as of March 28, 2004.

HDFS has a $200 million European revolving credit facility due July 2005. The primary purpose of the facility is to fund HDFS’ European business operations.

During November 2003, HDFS issued $400 million in medium term notes (Notes) due in December 2008. The Notes provide for semi-annual interest payments and principal due at maturity. At March 28, 2004, the Notes include a fair value adjustment of $10.9million due to interest rate swap agreements designated as fair value hedges. The effect of the interest rate swap agreements is to convert the interest rate on the Notes from a fixed to a floating rate.

HDFS has $30 million of ten year senior subordinated notes, expiring in 2007.

HDFS has a revolving credit line with the Company whereby HDFS may borrow up to $210 million from the Company at a market interest rate. As of March 28, 2004, HDFS had no outstanding borrowings owed to the Company under this agreement. As of March 30, 2003, HDFS had $100 million in outstanding borrowings to the Company under this agreement. The $100 million loan was eliminated upon consolidation and therefore is not included in finance debt in table above or on the consolidated balance sheets.

In connection with debt agreements, HDFS has various operating and financial covenants and remains in compliance at March 28, 2004. The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support in order to maintain certain financial covenants. 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.

The Company expects future activities of HDFS will be financed from funds internally generated by HDFS, sale of loans through securitization programs, issuance of commercial paper and medium term notes, borrowings under revolving credit facilities, advances or loans from the Company and subordinated debt. ⁽¹⁾

Risk Factors

The Company’s ability to meet the targets and expectations noted in this Form 10-Q depends upon, among other factors, the Company’s ability to (i) continue to realize production efficiencies at its production facilities through the implementation of innovative manufacturing techniques and other means, (ii) successfully implement production capacity increases in its facilities, (iii) successfully introduce new products and services, (iv) avoid unexpected P&A/general merchandise supplier backorders, (v) sell all of the Harley-Davidson motorcycles it plans to produce, (vi) continue to develop the capacity of its distributor and dealer network, (vii) avoid unexpected changes in the regulatory environment for its products, (viii) successfully adjust to foreign currency exchange rate fluctuations, (ix) successfully adjust to interest rate fluctuations, and (x) successfully manage changes in the credit quality of HDFS’s loan portfolio. Also, given current economic conditions in the metal markets, the Company is closely monitoring supply, availability and pricing for both its suppliers and in-house operations. However, at this time, the Company does not anticipate any significant difficulties in obtaining these raw materials or components. In addition, the Company could experience delays in the operation of manufacturing facilities as a result of work stoppages, difficulty with suppliers, natural causes, terrorism or other factors. These risks, potential delays and uncertainties regarding the costs could also adversely impact the Company’s capital expenditure estimates (see “Liquidity and Capital Resources” section).

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2003 for a complete discussion of the Company’s market risk. There have been no material changes to the market risk information included in the Company’s 2003 annual report on Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management evaluated, with the participation of the Company’s Chairman and Chief Executive Officer and Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the Chairman and Chief Executive Officer and the Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the date of such evaluation to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

(b) Changes in internal controls. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s first quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

⁽¹⁾ Note regarding forward-looking statements

The Company intends that certain matters discussed are “forward-looking statements” intended to qualify for the safe harbors 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” or “estimates” or words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives, targets 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. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Part II — OTHER INFORMATION

Item 1. Legal Proceedings

Although the RI/FS is still underway and substantial uncertainty exists concerning the nature and scope of the additional environmental investigation and remediation that will ultimately be required at the York facility, the Company estimates that its share of the future Response Costs at the York facility will be approximately $7.6 million. The Company has established reserves for this amount, which are included in accrued expenses and other liabilities in the Company’s consolidated balance sheets.

Item 2. Changes in Securities and Use of Proceeds

The following table contains detail related to the repurchase of common stock based on the date of trade during the first quarter ended March 28, 2004.

Fiscal Month		Average Price Paid per Share
January	2,364,500	$	49.18	2,364,500	7,099,208
February	5,435,500	$	52.84	5,435,500	2,138,492
March	--		--	--	2,206,270

Total	7,800,000	$	51.73	7,800,000	~

All of the shares repurchased by the Company during the first quarter of 2004 were completed under a publicly disclosed authorization from the Company’s Board of Directors originally approved in 1990. The original authorization provided for the repurchase of 16 million shares of common stock (adjusted for two 2-for-1 stock splits) and contained no dollar limit or expiration date.

On April 24, 2004, subsequent to the period covered by this report, the Company’s Board of Directors authorized the buyback of up to an additional 20 million shares of common stock with no dollar limit or expiration date.

Also, since 1998, the Company has continuing authorization from its Board of Directors to repurchase shares of the Company’s 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, 1998 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. No shares were repurchased under this authorization during the first quarter of 2004.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Refer to the Exhibit Index on page 26 of this report.

(b) Reports on Form 8-K

On January 22, 2004 the Company filed a Current Report on Form 8-K furnishing under Item 12 the Company’s press release dated January 21, 2004, announcing the Company’s annual financial results for the period ended December 31, 2003.

Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HARLEY-DAVIDSON, INC.
Date: May 6, 2004	By:	/s/ James L. Ziemer
		James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer)
Date: May 6, 2004	By:	/s/ James M. Brostowitz
		James M. Brostowitz Vice President and Treasurer (Principal Accounting Officer)

HARLEY-DAVIDSON, INC.
Exhibit Index to Form 10-Q

Exhibit
Number

10.1*

2004 Incentive Stock Plan

10.2*

Amended Corporate Short Term Incentive Plan

31.1	Chief Executive Officer Certification pursuant to Rule 13a-14(a)

31.2	Chief Financial Officer Certification pursuant to Rule 13a-14(a)

32.1	Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. §1350

* Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer will participate.

EX-10.1 2 sdc731a.htm 2004 INCENTIVE STOCK PLAN

Exhibit 10.1

HARLEY-DAVIDSON, INC.
2004 INCENTIVE STOCK PLAN

1. Purposes, History and Effective Date.

(a) Purpose. The Harley-Davidson, Inc. 2004 Incentive Stock Plan has two complementary purposes: (i) to attract and retain outstanding individuals to serve as officers and other employees and (ii) to increase shareholder value. The Plan will provide participants incentives to increase shareholder value by offering the opportunity to acquire shares of the Company’s common stock or receive monetary payments based on the value of such common stock on the potentially favorable terms that this Plan provides.

(b) History. Prior to the effective date of this Plan, the Company had in effect the 1995 Plan, which was originally effective May 6, 1995. Upon shareholder approval of this Plan, the 1995 Plan will terminate and no new awards will be granted under the 1995 Plan, although awards granted under such plan and still outstanding will continue to be subject to all terms and conditions of such plan.

(c) Effective Date. This Plan will become effective, and Awards may be granted under this Plan, on and after the Effective Date. This Plan will terminate as provided in Section 14.

2. Definitions. Capitalized terms used in this Plan have the following meanings:

(a) “1995 Plan” means the Harley-Davidson, Inc. 1995 Stock Option Plan, as amended.

(b) “Affiliate” has the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act or any successor rule or regulation thereto.

(c) “Award” means a grant of Options, Stock Appreciation Rights, Performance Shares, Performance Units, Restricted Stock, Restricted Stock Units, STIP Shares or Dividend Equivalent Units.

(d) “Award Agreement” means any written agreement, contract, or other instrument or document evidencing the grant of an Award in such form as the Committee determines.

(e) “Board” means the Board of Directors of the Company.

(f) “Change of Control” means the occurrence of any one of the following events:

(i) the Continuing Directors no longer constitute at least two-thirds of the Directors constituting the Board;

(ii) any person or group (as defined in Rule 13d-5 under the Exchange Act), together with its affiliates, becomes the beneficial owner, directly or indirectly, of 20% or more of the Company’s then outstanding Stock or 20% or more of the voting power of the Company’s then outstanding Stock;

(iii) the approval by the Company’s shareholders of the merger or consolidation of the Company with any other corporation, the sale of substantially all of the Company’s assets or the liquidation or dissolution of the Company, unless, in the case of a merger or consolidation, the Continuing Directors in office immediately prior to such merger or consolidation constitute at least two-thirds of the directors constituting the board of directors of the surviving corporation of such merger or consolidation and any parent (as defined in Rule 12b-2 under the Exchange Act) of such corporation; or

(iv) at least two-thirds of the then Continuing Directors in office immediately prior to any other action proposed to be taken by the Company’s shareholders or by the Board determine that such proposed action, if taken, would constitute a change of control of the Company and such action is taken.

(g) “Change of Control Price” means the highest Fair Market Value price per Share during the sixty (60)-day period preceding the date of a Change of Control.

(h) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes any successor provision and the regulations promulgated under such provision.

(i) “Committee” means the Human Resources Committee of the Board (or a successor committee with the same or similar authority).

(j) “Company” means Harley-Davidson, Inc., a Wisconsin corporation, or any successor thereto.

(k) “Continuing Director” means any individual who is either (i) a member of the Board on the Effective Date or (ii) a member of the Board whose election or nomination to the Board was approved by a vote of at least two-thirds (2/3) of the Continuing Directors (other than a person whose election was as a result of an actual or threatened proxy or other control contest).

(l) “Director” means a member of the Board, and “Non-Employee Director” means a Director who is not also an employee of the Company or its Subsidiaries.

(m) “Disability” has the meaning ascribed to the term in Code Section 22(e)(3), as determined by the Committee.

(n) “Disinterested Persons” means the non-employee directors of the Company within the meaning of Rule 16b-3 as promulgated under the Exchange Act.

(o) “Dividend Equivalent Unit” means the right to receive cash equal to the cash dividends paid with respect to a Share.

(p) “Effective Date” means the date the Company’s shareholders approve this Plan.

(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act includes any successor provision and the regulations and rules promulgated under such provision.

(r) “Fair Market Value” means, per Share on the date as of which Fair Market Value is being determined,, if the Stock is listed for trading on the New York Stock Exchange, the average of the high and low reported sales prices on the date in question as reported in The Wall Street Journal, or if no sales of Stock occur on the date in question, on the last preceding date on which there was a sale on such exchange. If the Stock is not listed or admitted to trading on the New York Stock Exchange on the date in question, then “Fair Market Value” means, per Share on the date as of which Fair Market Value is being determined, (i) the average of the high and low reported sales prices on the date in question on the principal national securities exchange on which the Stock is listed or admitted to trading, or if no sales of Stock occur on the date in question, on the last preceding date on which there was a sale on such exchange; or (ii) if the Stock is not listed or admitted to trading on any national securities exchange, the average of the highest and lowest quoted sale price on the date in question, or if no sales of Stock occur on the date in question, on the last preceding date on which there was a sale; or (iii) if not so quoted, the average of the high bid and low asked prices on the date in question in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or such other system then in use, or if no sales of Stock occur on the date in question, on the last preceding date on which there was a sale; or (iv) if on any such date the Stock is not quoted by any such organization, the average of the high bid and low asked prices on the date in question as furnished by a professional market maker making a market in the Stock selected by the Board for the date in question, or if no sales of Stock occur on the date in question, on the last preceding date on which there was a sale; or (v) if on any such date no market maker is making a market in the Stock, the price as determined in good faith by the Committee; provided that if Fair Market Value is being determined under clause (v) for purposes of determining the Change of Control Price, the value will be determined by the Continuing Directors.

(s) “Option” means the right to purchase Shares at a specified price for a specified period of time.

(t) “Participant” means an individual selected by the Committee to receive an Award, and includes any individual who holds an Award after the death of the original recipient.

(u) “Performance Goals” means any goals the Committee establishes that relate to one or more of the following for such period as the Committee specifies (in all cases excluding the effects of (A) extraordinary, unusual, transition, one-time and/or non-recurring items of gain or loss, (B) gains or losses on the disposition of a business or arising from the sale of assets outside the ordinary course of business, or (C) changes in tax or accounting regulations or laws):

(i) Any one or more of the following as determined for the Company on a consolidated basis, for any one or more Affiliates or divisions of the Company and/or for any other business unit or units of the Company, as determined by the Committee at the time an Award is made:

(1) Net sales;

(2) Cost of goods sold;

(3) Gross profit;

(4) Selling, administrative and engineering expenses;

(5) Income from operations;

(6) Income before interest and the provision for income taxes;

(7) Income before provision for income taxes;

(8) Net income;

(9) Average accounts receivable, calculated by taking the average of accounts receivable at the end of each fiscal month during the period in question;

(10) Average inventories, calculated by taking the average of inventories at the end of each fiscal month during the period in question;

(11) Return on average equity, with average equity calculated by taking the average of equity at the end of each fiscal month during the period in question;

(12) Return on year-end equity;

(13) Return on average assets, with average assets calculated by taking the average of assets at the end of each fiscal month during the period in question;

(14) Return on capital;

(15) Total shareholder return.

(16) Economic value added, or other measure of profitability that considers the cost of capital employed.

(17) Net cash provided by operating activities;

(18) Net cash provided by operating activities less net cash used in investing activities;

(19) Net increase (decrease) in cash and cash equivalents;

(20) Customer satisfaction;

(21) Market share; or

(22) Product quality.

(ii) Basic earnings per Share for the Company on a consolidated basis.

(iii) Diluted earnings per Share for the Company on a consolidated basis.

In the case of Awards that the Committee determines will not be considered “performance-based compensation” under Code Section 162(m), the Committee may establish other Performance Goals not listed in this Plan.

(v) “Performance Shares” means the right to receive Shares to the extent Performance Goals are achieved.

(w) “Performance Units” means the right to receive a payment valued in relation to a unit the value of which is equal to the Fair Market Value of one or more Shares, to the extent Performance Goals are achieved.

(x) “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 14(d) and 15(d) thereof.

(y) “Plan” means this Harley-Davidson, Inc. 2004 Incentive Stock Plan, as may be amended from time to time.

(z) “Restricted Stock” means Shares that are subject to a risk of forfeiture and/or restrictions on transfer, which may lapse upon the achievement or partial achievement of Performance Goals and/or upon the completion of a period of service.

(aa) “Restricted Stock Unit” means the right to receive a payment valued in relation to a unit that has a value equal to the Fair Market Value of a Share, which right may vest upon the achievement or partial achievement of Performance Goals and/or upon the completion of a period of service.

(bb) “Retirement” means termination of employment from the Company and its Affiliates on or after age sixty-two (62) or, with the consent of the Committee, at an earlier age.

(cc) “Rule 16b-3” means Rule 16b-3 as promulgated by the United States Securities and Exchange Commission under the Exchange Act.

(dd) “Section 16 Participants” means Participants who are subject to the provisions of Section 16 of the Exchange Act.

(ee) “Share” means a share of Stock.

(ff) “STIP Shares” means Shares that the Company delivers in payment or partial payment of an award under the Harley-Davidson, Inc. Corporate Short Term Incentive Plan (or any successor thereto) or other incentive plans of the Company or its affiliates that the Committee designates from time to time.

(gg) “Stock” means the common stock of the Company.

(hh) “Stock Appreciation Right” or “SAR” means the right of a Participant to receive a payment equal to the appreciation of the Fair Market Value of a Share during a specified period of time.

(ii) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each such corporation owns stock possessing fifty percent (50%) or more of the total combined voting power in one of the other corporations in the chain.

3. Administration.

(a) Committee Administration. In addition to the authority specifically granted to the Committee in this Plan, the Committee has full discretionary authority to administer this Plan, including but not limited to the authority to (i) interpret the provisions of this Plan, (ii) prescribe, amend and rescind rules and regulations relating to this Plan, (iii) correct any defect, supply any omission, or reconcile any inconsistency in any Award or Award Agreement in the manner and to the extent it deems desirable to carry this Plan into effect and (iv) make all other determinations necessary or advisable for the administration of this Plan.

(b) Delegation to Other Committees or CEO. To the extent applicable law permits, the Board or the Committee may delegate to another committee of the Board, or the Committee may delegate to the Chief Executive Officer of the Company, any or all of the authority and responsibility of the Committee. However, no such delegation is permitted with respect to Awards made to Section 16 Participants at the time any such delegated authority or responsibility is exercised. To the extent applicable law permits, the Board or the Committee also may delegate to another committee of the Board consisting entirely of Non-Employee Directors any or all of the authority and responsibility of the Committee with respect to individuals who are Section 16 Participants. If the Board or Committee has made such a delegation, then all references to the Committee in this Plan include such other committee or the Chief Executive Officer to the extent of such delegation.

(c) Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with this Plan or any Award, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member’s own behalf.

4. Eligibility. The Committee may designate any of the following as a Participant from time to time: any officer or other employee of the Company or any of its Affiliates, or an individual that the Company or an Affiliate has engaged to become an officer or other employee. The Committee’s designation of a Participant in any year will not require the Committee to designate such person to receive an Award in any other year.

5. Types of Awards. Subject to the terms of this Plan, the Committee may grant any type of Award to any Participant it selects, but only employees of the Company or a Subsidiary may receive grants of incentive stock options. Awards may be granted alone or in addition to, in tandem with, or in substitution for any other Award (or any other award granted under another plan of the Company or any Affiliate of the Company). Awards granted under this Plan shall be evidenced by an Award Agreement except to the extent the Committee provides otherwise.

6. Shares Reserved under this Plan.

(a) Plan Reserve. Subject to adjustment as provided in Section 16, an aggregate of 12,000,000 Shares, plus the number of Shares described in Section 6(c), are reserved for issuance under this Plan. The number of Shares reserved for issuance under this Plan shall be reduced only by the number of Shares delivered in payment or settlement of Awards. Notwithstanding the foregoing, subject to adjustment as provided in Section 16, the Company may issue only 12,000,000 Shares upon the exercise of incentive stock options. In addition, any Shares issued in connection with Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units shall count against the limit described in this Section 6(a) as two Shares for every one Share issued. Shares issued in connection with any other type of Award shall be counted against this limit as one Share for every one Share issued.

(b) Replenishment of Shares Under this Plan. If an Award lapses, expires, terminates or is cancelled without the issuance of Shares under the Award, or if Shares are forfeited under an Award, then the Shares subject to such Award may again be used for new Awards under this Plan under Section 6(a), including issuance as incentive stock options. If Shares are issued under any Award and the Company subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, or if previously owned Shares are delivered to the Company in payment of the exercise price of an Award, then such Shares may again be used for new Awards under this Plan under Section 6(a), but such Shares may not be issued pursuant to incentive stock options.

(c) Addition of Shares from Predecessor Plan. In addition to the Shares reserved for issuance under Section 6(a), the number of Shares which were reserved for issuance under the 1995 Plan but which are not subject to any outstanding awards under such plan as of the Effective Date shall be available for issuance under Awards granted under this Plan. Further, after the Effective Date, if any Shares subject to awards granted under the 1995 Plan would again become available for new grants under the terms of such plan if such plan were still in effect, then those Shares will be available for the purpose of granting Awards under this Plan, thereby increasing the number of Shares available for issuance under this Plan as determined under the first sentence of Section 6(a). Any such Shares will not be available for future awards under the terms of the 1995 Plan, which plan is terminated on the Effective Date.

(d) Participant Limitations. Subject to adjustment as provided in Section 16, no Participant may be granted Awards that could result in such Participant:

(i) receiving in any calendar year Options for, and/or Stock Appreciation Rights with respect to, more than 800,000 Shares (reduced, in the initial calendar year in which this Plan is effective, by the number of options granted to a Participant under the 1995 Plan in such year, if any);

(ii) receiving in any calendar year Awards of Restricted Stock and/or Restricted Stock Units relating to more than 400,000 Shares; or

(iii) receiving in any calendar year Awards of Performance Shares, and/or Awards of Performance Units, for more than 400,000 Shares.

In all cases, determinations under this Section 6(d) should be made in a manner that is consistent with the exemption for performance-based compensation that Code Section 162(m) provides.

7. Options. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each Option, including but not limited to:

(a) Whether the Option is an “incentive stock option” which meets the requirements of Code Section 422, or a “nonqualified stock option” which does not meet the requirements of Code Section 422; provided that in the case of an incentive stock option, if the aggregate Fair Market Value (determined on the date of grant) of the Shares with respect to which all “incentive stock options” (within the meaning of Code Section 422) are first exercisable by the Participant during any calendar year (under this Plan and under all other incentive stock option plans of the Company or any Affiliate that is required to be included under Code Section 422) exceeds $100,000, such Option automatically shall be treated as a nonqualified stock option to the extent this limit is exceeded.

(b) The number of Shares subject to the Option.

(c) The exercise price, which may not be less than the Fair Market Value of the Shares subject to the Option as determined on the date of grant; provided that (i) no incentive stock option shall be granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Code Section 424(d)) more than ten percent of the total combined voting power of all classes of stock of the Company or of any Subsidiary unless the exercise price is at least 110 percent of the Fair Market Value of a Share on the date of grant; and (ii) the exercise price may vary during the term of the Option if the Committee determines that there should be adjustments to the exercise price relating to achievement of Performance Goals and/or to changes in an index or indices that the Committee determines is appropriate (but in no event may the exercise price be less than the Fair Market Value of the Shares subject to the Option as determined on the date of grant).

(d) The terms and conditions of exercise, which may include a requirement that exercise of the Option is conditioned upon achievement of one or more Performance Goals; provided that, unless the Committee provides otherwise in an Award Agreement:

(i) An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company (or its designee) and payment of the full exercise price of the Shares being purchased pursuant to the Option and any withholding taxes due thereon.

(ii) A Participant may exercise an Option with respect to less than the full number of Shares for which the Option may then be exercised, but a Participant must exercise the Option in full Shares.

(iii) The exercise price may be paid: in United States dollars in cash or by check, bank draft or money order payable to the order of the Company; through the delivery of Shares with an aggregate Fair Market Value on the date of exercise equal to the exercise price; or by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Shares as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Shares to exercise an Option as it deems appropriate, including, without, limitation, any limitation or prohibition designed to avoid certain accounting consequences that may result from the use of Shares as payment upon exercise of an Option.

(e) The termination date, except that each Option must terminate no later than ten (10) years after the date of grant, and each incentive stock option granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Code Section 424(d)) more than ten percent of the total combined voting power of all classes of stock of the Company or of any Subsidiary must terminate no later than five (5) years after the date of grant.

(f) The exercise period following a Participant’s termination of employment, provided that:

(i) Unless the Committee provides otherwise, if a Participant shall cease to be employed by the Company or any of its Affiliates other than by reason of Retirement, Disability, or death, (A) the portion of the Option that is not vested shall terminate on the date of such cessation of employment and (B) the Participant shall have a period ending on the earlier of the Option’s termination date or 90 days from the date of cessation of employment to exercise the vested portion of the Option to the extent not previously exercised. At the end of such period, the Option shall terminate.

(ii) Unless the Committee provides otherwise, if a Participant shall cease to be employed by the Company or any of its Affiliates by reason of Retirement or Disability, the Option shall remain exercisable, to the extent it was exercisable at the time of cessation of employment, until the earliest of: the Option’s termination date; the death of the Participant, or such later date not more than one year after the death of the Participant as the Committee, in its discretion, may provide; the third anniversary of the date of the cessation of the Participant’s employment, if employment ceased by reason of Retirement; or the first anniversary of the date of the cessation of the Participant’s employment by reason of Disability. At the end of such period, the Option shall terminate.

(iii) In the event of the death of the Participant while employed by the Company or any of its Affiliates, the Option may be exercised at any time prior to the earlier of the Option’s termination date or the first anniversary of the date of the Participant’s death to the extent that the Participant was entitled to exercise such Option on the Participant’s date of death. In the event of the death of the Participant while entitled to exercise an Option pursuant to Section 7(f)(ii), the Committee, in its discretion, may permit such Option to be exercised prior to the Option’s termination date during a period of up to one year from the death of the Participant, as determined by the Committee to the extent that the Option was exercisable at the time of cessation of the Participant’s employment.

Any Participant who disposes of Shares acquired upon the exercise of an incentive stock option either (a) within two years after the date of the grant of such Option or (b) within one year after the transfer of such Shares to the Participant, shall notify the Company of such disposition and of the amount realized upon such disposition.

In all other respects, the terms of any incentive stock option should comply with the provisions of Code Section 422 except to the extent the Committee determines otherwise.

8. Stock Appreciation Rights. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each SAR, including but not limited to:

(a) Whether the SAR is granted independently of an Option or relates to an Option; provided that if an SAR is granted in relation to an Option, then unless otherwise determined by the Committee, the SAR shall be exercisable or shall mature at the same time or times, on the same conditions and to the extent and in the proportion, that the related Option is exercisable and may be exercised or mature for all or part of the Shares subject to the related Option. Upon exercise of any number of SARs, the number of Shares subject to the related Option shall be reduced accordingly and such Option may not be exercised with respect to that number of Shares. The exercise of any number of Options that relate to an SAR shall likewise result in an equivalent reduction in the number of Shares covered by the related SAR.

(b) The number of Shares to which the SAR relates.

(c) The grant price, provided that (i) the grant price shall not be less than the Fair Market Value of the Shares subject to the SAR as determined on the date of grant and (ii) the grant price may vary during the term of the SAR if the Committee determines that there should be adjustments to the grant price relating to achievement of Performance Goals and/or to changes in an index or indices that the Committee determines is appropriate (but in no event may the grant price be less than the Fair Market Value of the Shares subject to the SAR as determined on the date of grant).

(d) The terms and conditions of exercise or maturity.

(e) The termination date, provided that an SAR must terminate no later than 10 years after the date of grant.

(f) The exercise period following a Participant’s termination of employment.

(g) Whether the SAR will be settled in cash, Shares or a combination thereof.

9. Performance Awards. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each Award of Performance Shares or Performance Units, including but not limited to:

(a) The number of Shares and/or units to which such Award relates.

(b) One or more Performance Goals that must be achieved during such period as the Committee specifies in order for the Participant to realize the benefit of such Award.

(c) Whether all or a portion of the Performance Goals subject to an Award are deemed achieved upon a Participant’s death, Disability or Retirement.

(d) With respect to Performance Units, whether to settle such Award in cash, Shares, or a combination of cash and Shares.

10. Restricted Stock and Restricted Stock Unit Awards. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each Award of Restricted Stock or Restricted Stock Units, including but not limited to:

(a) The number of Shares and/or units to which such Award relates.

(b) The period of time, if any, over which the risk of forfeiture or restrictions imposed on the Award will lapse, or the Award will vest, and whether, as a condition for the Participant to realize all or a portion of the benefit provided under the Award, one or more Performance Goals must be achieved during such period, if any, as the Committee specifies; provided that, subject to the provisions of Section 10(c), if an Award requires the achievement of Performance Goals, then the period to which such Performance Goals relate must be at least one year in length, and if an Award is not subject to Performance Goals, then the Award must have a restriction period of at least one year.

(c) Whether all or any portion of the period of forfeiture or restrictions imposed on the Award will lapse, or the vesting of the Award will be accelerated, upon a Participant’s death, Disability or Retirement.

(d) With respect to Restricted Stock Units, whether to settle such Awards in cash, Shares, or a combination of cash and Shares.

(e) With respect to Restricted Stock, the manner of registration of certificates for such Shares, and whether to hold such Shares in escrow pending lapse of the period of forfeiture or restrictions or to issue such Shares with an appropriate legend referring to such restrictions.

(f) Whether dividends paid with respect to an Award of Restricted Stock will be immediately paid or held in escrow or otherwise deferred and whether such dividends shall be subject to the same terms and conditions as the Award to which they relate.

11. STIP Shares. Subject to the terms and conditions of this Plan, the Committee may elect to have the Company deliver STIP Shares in payment or partial payment of awards under the Harley-Davidson, Inc. Corporate Short Term Incentive Plan (or any successor thereto) or other incentive plans of the Company or its affiliates that the Committee designates from time to time.

12. Dividend Equivalent Units. Subject to the terms and conditions of this Plan, the Committee will determine all terms and conditions of each Award of Dividend Equivalent Units, including but not limited to whether such Award will be granted in tandem with another Award, and the form, timing and conditions of payment.

13. Transferability.Awards are not transferable other than by will or the laws of descent and distribution, unless and to the extent the Committee allows a Participant to: (a) designate in writing a beneficiary to exercise the Award after the Participant’s death; or (b) transfer an Award, provided that STIP Shares and other Shares that a Participant receives upon final payment of an Award shall be transferable unless the Committee designates otherwise at the time of the Award.

14. Termination and Amendment of Plan; Amendment, Modification or Cancellation of Awards.

(a) Term of Plan. Unless the Board or the Committee earlier terminates this Plan pursuant to Section 14(b), this Plan will terminate on the tenth anniversary of the Effective Date.

(b) Termination and Amendment. The Board or the Committee may amend, alter, suspend, discontinue or terminate this Plan at any time, subject to the following limitations:

(i) the Board must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) action of the Board, (B) applicable corporate law or (C) any other applicable law;

(ii) shareholders must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) Section 16 of the Exchange Act, (B) the Code, (C) the listing requirements of any principal securities exchange or market on which the Shares are then traded or (D) any other applicable law; and

(iii) shareholders must approve any of the following Plan amendments: (A) an amendment to materially increase any number of Shares specified in Section 6(a) or 6(d) (except as permitted by Section 16); or (B) an amendment to the provisions of Section 14(e).

(c) Amendment, Modification or Cancellation of Awards. Except as provided in Section 14(e) and subject to the requirements of this Plan, the Committee may modify or amend any Award or waive any restrictions or conditions applicable to any Award or the exercise of the Award, and the terms and conditions applicable to any Awards may at any time be amended, modified or canceled by mutual agreement between the Committee and the Participant or any other person(s) as may then have an interest in the Award, so long as any amendment or modification does not increase the number of Shares issuable under this Plan (except as permitted by Section 16), but the Committee need not obtain Participant (or other interested party) consent for the cancellation of an Award pursuant to the provisions of Section 16(a) or the modification of an Award to the extent deemed necessary to comply with any applicable law or the listing requirements of any principal securities exchange or market on which the Shares are then traded, or to preserve favorable accounting treatment of any Award for the Company.

(d) Survival of Authority and Awards. Notwithstanding the foregoing, the authority of the Board and the Committee under this Section 14 will extend beyond the date of this Plan’s termination. In addition, termination of this Plan will not affect the rights of Participants with respect to Awards previously granted to them, and all unexpired Awards will continue in full force and effect after termination of this Plan except as they may lapse or be terminated by their own terms and conditions.

(e) Repricing Prohibited. Notwithstanding anything in this Plan to the contrary, and except for the adjustments provided in Section 16, neither the Committee nor any other person may decrease the exercise price for any outstanding Option after the date of grant nor cancel or allow a Participant to surrender an outstanding Option to the Company as consideration for the grant of a new Option with a lower exercise price or the grant of another type of Award the effect of which is to reduce the exercise price of any outstanding Option.

(f) Foreign Participation. To assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Committee approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country. In addition, all such supplements, amendments, restatements or alternative versions must comply with the provisions of Section 14(b)(ii).

15. Taxes. The Company is entitled to withhold the amount of any tax attributable to any amount payable or Shares delivered or deliverable under this Plan after giving the holder of the Award notice as far in advance as practicable, and the Company may defer making payment or delivery if any such tax may be pending unless and until indemnified to its satisfaction. The Committee may permit a Participant to satisfy all or a portion of the federal, state and local withholding tax obligations arising in connection with such Award 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 Fair Market Value equal to the amount to be withheld. However, the amount to be withheld may not exceed the total minimum federal, state and local tax withholding obligations associated with the transaction. The election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise as the Committee requires.

16. Adjustment Provisions; Change of Control.

(a) Adjustment of Shares. If the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that the Committee determines an adjustment to be appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then, subject to Participants’ rights under Section 16(c), the Committee may, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares subject to this Plan (including the number and type of Shares described in Sections 6(a) and 6(d)) and which may after the event be made the subject of Awards under this Plan, (ii) the number and type of Shares subject to outstanding Awards, and (iii) the grant, purchase, or exercise price with respect to any Award. In any such case, the Committee may also (or in lieu of the foregoing) make provision for a cash payment to the holder of an outstanding Award in exchange for the cancellation of all or a portion of the Award (without the consent of the holder of an Award) in an amount determined by the Committee effective at such time as the Committee specifies (which may be the time such transaction or event is effective), but if such transaction or event constitutes a Change of Control, then (A) such payment shall be at least as favorable to the holder as the greatest amount the holder could have received in respect of such Award under Section 16(c) and (B) from and after the Change of Control, the Committee may make such a provision only if the Committee determines that doing so is necessary to substitute, for each Share then subject to an Award, the number and kind of shares of stock, other securities, cash or other property to which holders of Stock are or will be entitled in respect of each Share pursuant to the transaction or event in accordance with the last sentence of this subsection (a). However, in each case, with respect to Awards of incentive stock options, no such adjustment may be authorized to the extent that such authority would cause this Plan to violate Code Section 422(b). Further, the number of Shares subject to any Award payable or denominated in Shares must always be a whole number. Without limitation, subject to Participants’ rights under Section 16(c), in the event of any reorganization, merger, consolidation, combination or other similar corporate transaction or event, whether or not constituting a Change of Control (other than any such transaction in which the Company is the continuing corporation and in which the outstanding Stock is not being converted into or exchanged for different securities, cash or other property, or any combination thereof), the Committee may substitute, on an equitable basis as the Committee determines, for each Share then subject to an Award, the number and kind of shares of stock, other securities, cash or other property to which holders of Stock are or will be entitled in respect of each Share pursuant to the transaction.

(b) Issuance or Assumption. Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the Committee may authorize the issuance or assumption of Awards upon such terms and conditions as it may deem appropriate.

(c) Change of Control. Except to the extent the Committee provides a result more favorable to holders of Awards (either in an Award Agreement or at the time of a Change of Control), in the event of a Change of Control:

(i) each holder of an Option or SAR (A) shall have the right at any time thereafter to exercise the Option or SAR in full whether or not the Option or SAR was theretofore exercisable; and (B) shall have the right, exercisable by written notice to the Company within 30 days after the Change of Control, to receive, in exchange for the surrender of the Option or SAR, an amount of cash equal to the excess of the Change of Control Price of the Shares covered by the Option or SAR that is so surrendered over the exercise or grant price of such Shares under the Award;

(ii) Restricted Stock and Restricted Stock Units that are not then vested shall vest, and any period of forfeiture or restrictions to which Restricted Stock and Restricted Stock Units are subject shall lapse, upon the date of the Change of Control and each holder of such Restricted Stock or Restricted Stock Units shall have the right, exercisable by written notice to the Company within 30 days after the Change of Control, to receive, in exchange for the surrender of such Restricted Stock or Restricted Stock Units, an amount of cash equal to the Change of Control Price of such Restricted Stock or Restricted Stock Units;

(iii) each holder of a Performance Share and/or Performance Unit for which the performance period has not expired shall have the right, exercisable by written notice to the Company within 30 days after the Change of Control, to receive, in exchange for the surrender of the Performance Share and/or Performance Unit, an amount of cash equal to the product of the value of the Performance Share and/or Performance Unit and a fraction the numerator of which is the number of whole months that have elapsed from the beginning of the performance period to which the Award is subject to the date of the Change of Control and the denominator of which is the number of whole months in the performance period;

(iv) each holder of a Performance Share and/or Performance Unit that has been earned but not yet paid shall receive an amount of cash equal to the value of the Performance Share and/or Performance Unit; and

(v) all Dividend Equivalent Units that are vested but not yet paid shall be paid, any Dividend Equivalent Units that were awarded in connection with another Award shall vest and become payable to the same extent as the Award to which it relates, and any other Dividend Equivalent Units shall become fully vested and immediately payable.

For purposes of this Section 16(c), the “value” of a Performance Share shall be equal to, and the “value” of a Performance Unit shall be based on, the Change of Control Price.

Unless any agreement between the Participant and the Company provides for a payment by the Company to the Participant to cover the excise taxes due by the Participant upon receipt of an excess parachute payment within the meaning of Code Section 280G, if the receipt of any payment by a Participant under the circumstances described above would result in the payment by the Participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the amount of such payment shall be reduced to the extent required to prevent the imposition of such excise tax.

17. Miscellaneous.

(a) Other Terms and Conditions. The grant of any Award may also be subject to other provisions (whether or not applicable to the Award granted to any other Participant) as the Committee determines appropriate, including, without limitation, provisions for:

(i) one or more means to enable Participants to defer the delivery of Shares or recognition of taxable income relating to Awards or cash payments derived from the Awards on such terms and conditions as the Committee determines, including, by way of example, the form and manner of the deferral election, the treatment of dividends paid on the Shares during the deferral period or a means for providing a return to a Participant on amounts deferred, and the permitted distribution dates or events (provided that if Shares would have otherwise been issued under an Award but for the deferral described in this paragraph and ultimately Shares will be or are issued in respect of the Award, then such Shares shall be treated as if they were issued for purposes of Section 6(a));

(ii) the payment of the exercise price of Options by delivery of cash or other Shares or other securities of the Company (including by attestation) having a then Fair Market Value equal to the exercise price of the Shares being purchased pursuant to the Option, or by delivery (including by fax) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the Shares and deliver the sale or margin loan proceeds directly to the Company to pay for the exercise price;

(iii) conditioning the grant or benefit of an Award on the Participant’s agreement to comply with covenants not to compete, not to solicit employees and customers and not to disclose confidential information that may be effective during or after the Participant’s employment, and/or provisions requiring the Participant to disgorge any profit, gain or other benefit received in connection with an Award as a result of the breach of such covenant;

(iv) restrictions on resale or other disposition of Shares, including imposition of a retention period; and

(v) compliance with federal or state securities laws and stock exchange requirements.

(b) Employment. The issuance of an Award shall not confer upon a Participant any right with respect to continued employment with the Company or any Affiliate. Unless determined otherwise by the Committee, for purposes of this Plan and all Awards, the following rules shall apply:

(i) a Participant who transfers employment between the Corporation and any Affiliate of the Company, or between the Company’s Affiliates, will not be considered to have terminated employment;

(ii) a Participant who ceases to be employed by the Company or an Affiliate of the Company and immediately thereafter becomes a Non-Employee Director, a non-employee director of any of its Affiliates, or a consultant to the Company or any of its Affiliates shall not be considered to have terminated employment until such Participant’s service as a director of, or consultant to, the Company and its Affiliates has ceased; and

(iii) a Participant employed by an Affiliate of the Company will be considered to have terminated employment when such entity ceases to be an Affiliate of the Company.

(c) No Fractional Shares. No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the Committee may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights to fractional Shares or other securities will be canceled, terminated or otherwise eliminated.

(d) Unfunded Plan. This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund with respect to this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any Participant or other person. To the extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater than the rights of the Company’s general unsecured creditors.

(e) Requirements of Law and Securities Exchange. The granting of Awards and the issuance of Shares in connection with an Award are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision of this Plan or any Award Agreement, the Company has no liability to deliver any Shares under this Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity, and unless and until the Participant has taken all actions required by the Company in connection therewith. The Company may impose such restrictions on any Shares issued under this Plan as the Company determines necessary or desirable to comply with all applicable laws, rules and regulations or the requirements of any national securities exchanges.

(f) Governing Law. This Plan, and all agreements under this Plan, will be construed in accordance with and governed by the laws of the State of Wisconsin, without reference to any conflict of law principles. The parties agree that the exclusive venue for any legal action or proceeding with respect to this Plan, any Award or any Award Agreement shall be a court sitting in the County of Milwaukee, or the Federal District Court for the Eastern District of Wisconsin sitting in the County of Milwaukee, in the State of Wisconsin, and further agree that any such action may be heard only in a “bench” trial, and any party to such action or proceeding shall agree to waive its right to a jury trial.

(g) Limitations on Actions. Any legal action or proceeding with respect to this Plan, any Award or any Award Agreement must be brought within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint.

(h) Construction. Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. Titles of sections are for general information only, and this Plan is not to be construed with reference to such titles.

(i) Severability. If any provision of this Plan or any Award Agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any Award Agreement or any Award under any law the Committee deems applicable, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan, such Award Agreement or such Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such Award Agreement and such Award will remain in full force and effect.

EX-10.2 3 sdc731b.htm AMENDED CORPORATE SHORT TERM INCENTIVE PLAN

Exhibit 10.2

HARLEY-DAVIDSON, INC.
AMENDED CORPORATE SHORT TERM INCENTIVE PLAN

ARTICLE I

PURPOSE

Harley-Davidson, Inc. intends to provide a total compensation opportunity for its employees that includes incentive compensation dependent upon continuously improving performance. The Company has historically provided short term incentive compensation plans in which substantially all employees are eligible to participate. The purpose of the Harley-Davidson, Inc. Corporate Short Term Incentive Plan is to provide the Company’s Chief Executive Officer and certain other eligible Executives who do not participate in other Company incentive compensation plans an increased financial incentive to contribute to the future success and prosperity of the Company.

ARTICLE II

DEFINITIONS

The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article:

2.1. Board:The Board of Directors of Harley-Davidson, Inc.

2.2. Change of Control Event: Any event the occurrence of which constitutes a Change of Control as defined in the Harley-Davidson, Inc. 2004 Incentive Stock Plan, as amended.

2.3. Code:The Internal Revenue Code of 1986, as amended.

2.4. Committee:The Human Resources Committee of the Board (including any successor committee thereto); provided, however, that if any member or members of the Human Resources Committee of the Board would cause the Human Resources Committee of the Board not to satisfy the administration requirement of Code section 162(m)(4)(C) or the disinterested administration requirement of Rule 16b-3 under the Exchange Act, the Committee shall be comprised of the Human Resources Committee of the Board without such member or members.

2.5. Common Stock: The Common Stock of Harley-Davidson, Inc.

2.6. Company:Harley-Davidson, Inc. and, unless the context otherwise requires, its Subsidiaries.

2.7. Category Percentage: When two or more of the Performance Categories are selected for a Participant or a group of Participants for any Plan Year, the relative percentage weighting given to each selected Performance Category.

2.8. Disability:Disability within the meaning of section 22(e)(3) of the Code, as determined by the Committee.

2.9. Exchange Act: The Securities Exchange Act of 1934, as amended.

2.10. Excluded Items: Any gains or losses from the sale of assets outside the ordinary course of business, any gains or losses from discontinued operations, any extraordinary gains or losses, the effects of accounting changes, and any unusual, nonrecurring, transition, one-time or similar items or charges.

2.11. Executive: An executive officer of the Company within the meaning of Rule 3b-7 under the Exchange Act, which may include members of the Board.

2.12. Fair Market Value: “Fair Market Value” as defined in the Harley-Davidson, Inc. 2004 Incentive Stock Plan, as amended, as of the trading date immediately preceding the date on which the Performance Award being paid in Common Stock, in whole or in part, is paid to the Participant.

2.13. Participant: With respect to a Plan Year, an Executive selected by the Committee to participate in the Plan for such Plan Year.

2.14. Performance Award: With respect to a Participant for a Plan Year, an award made pursuant to the Plan in an amount equal to the Target Award multiplied by the Total Performance Percentage, subject to discretionary reduction pursuant to section 5.5 hereof and the limit of section 5.6 hereof.

2.15. Performance Categories: The following categories (in all cases before Excluded Items):

a. Net sales for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

b. Cost of goods sold for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

c. Gross profit for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

d. Selling, administrative and engineering expenses for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

e. Income from operations for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

f. Income before interest and the provision for income taxes for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

g. Income before provision for income taxes for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

h. Net income for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

i. Basic earnings per common share for the Plan Year for the Company on a consolidated basis.

j. Diluted earnings per common share for the Plan Year for the Company on a consolidated basis.

k. Average accounts receivable during the Plan Year, calculated by taking the average of accounts receivable at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

l. Average inventories during the Plan Year, calculated by taking the average of inventories at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

m. Return on average equity for the Plan Year, with average equity calculated by taking the average of equity at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

n. Return on year-end equity for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

o. Return on average assets for the Plan Year, with average assets calculated by taking the average of assets at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

p. Return on capital for the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

q. Total shareholder return for the Plan Year.

r. Economic value added, or other measure of profitability that considers the cost of capital employed, for the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection A.

s. Net cash provided by operating activities for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

t. Net cash provided by operating activities less net cash used in investing activities for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

u. Net increase (decrease) in cash and cash equivalents for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

v. Customer satisfaction for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

w. Market share for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

x. Product quality for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Subsidiaries or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

2.16. Performance Limit: A percentage relating to a Performance Category that equals or exceeds one hundred percent (100%).

2.17. Performance Percentage: The percentage between zero percent (0%) and the Performance Limit derived from the Performance Scale for the applicable Performance Category for a Plan Year, with the Performance Limit representing maximum performance, one hundred percent (100%) representing target performance and zero percent (0%) representing below minimum performance in such Performance Category for the Plan Year.

2.18. Performance Scale: A performance scale from which a Performance Percentage may be objectively calculated for any given level of actual performance within that Performance Category during the Plan Year. The Performance Scale may be a linear function, a step function or a combination.

2.19. Plan: The Harley-Davidson, Inc. Amended Corporate Short Term Incentive Plan.

2.20. Plan Year: The Company’s full fiscal year (or, in the discretion of the Committee, a period consisting of one or more full fiscal months of the Company representing less than a full fiscal year that ends on the last day of a fiscal year).

2.21. Retirement: Retirement on or after age sixty-two or, with the consent of the Committee, at an earlier age.

2.22. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by the Company.

2.23. Target Award: With respect to a Participant in any Plan Year, the amount of such Participant’s base salary in such Plan Year multiplied by the Target Percentage for such Plan Year.

2.24. Target Percentage: A percentage with respect to a Participant for a Plan Year.

2.25. Total Performance Percentage: With respect to a Participant for a Plan Year, the sum of the Performance Percentage multiplied by the Category Percentage for each Performance Category applicable to such Participant for such Plan Year. If there is only one Performance Category for a Plan Year for a Participant, then the Performance Percentage is also the Total Performance Percentage.

ARTICLE III

ADMINISTRATION

3.1. The Committee shall administer the Plan and shall have full authority to set Target Percentages, Performance Categories, Category Percentages, Performance Scales and Performance Limits, to determine which Executives shall participate in the Plan, to interpret the Plan, to establish and amend rules and regulations for its administration and to perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper.

3.2. The actions and determinations of the Committee on all matters relating to the Plan shall be final and conclusive.

ARTICLE IV

ELIGIBILITY AND PARTICIPATION

All Executives shall be eligible to participate in the Plan. The Committee shall select in writing, in its sole discretion, the Executives who shall participate in the Plan for a Plan Year prior to the commencement of the Plan Year (or such later time as may be permitted under Code section 162(m)). Without limitation, the Committee may (a) select an Executive as a Participant at any time during the course of a Plan Year and (b) take action as a result of which there is an additional Target Award in respect of an Executive who, as to a Plan Year that is in progress, is already a Participant and as to whom a Target Award is already in effect where the additional Target Award relates to the same Plan Year or a Plan Year ending on the same date. Members of the Board who are not employees of the Company shall not be eligible to participate in the Plan.

ARTICLE V

PERFORMANCE AWARDS

5.1. Target Percentage: Prior to the commencement of each Plan Year (or such later time as may be permitted under Code section 162(m)), the Committee shall fix in writing a Target Percentage for each Target Award for each Participant for such Plan Year. If the Committee does not fix a new Target Percentage for a Participant for any Plan Year, the Target Percentage for such Participant for such Plan Year shall be the same as such Participant’s Target Percentage for the prior Plan Year.

5.2. Performance Categories: Prior to the commencement of each Plan Year (or such later time as may be permitted under Code section 162(m)), the Committee shall select in writing one or more of the Performance Categories for each Target Award for each Participant or group of Participants for such Plan Year. If more than one Performance Category is chosen for any Participant or group of Participants, then the Committee shall assign a Category Percentage to each Performance Category selected for such Participant or group of Participants; provided that the total of the Category Percentages for each Target Award must equal 100% for such Participant or group of Participants. Performance Categories and/or Category Percentages need not be the same for all Participants for any Plan Year.

5.3. Performance Scale: Prior to the commencement of each Plan Year (or such later time as may be permitted under Code section 162(m)), the Committee shall approve in writing a Performance Scale (including without limitation a Performance Limit) for each Performance Category selected for each Target Award for such Plan Year.

5.4. Payment of Performance Awards: The amount of Performance Awards for a Plan Year shall be calculated by the Company, certified in writing by the Committee and, following such certification, paid to Participants for such Plan Year as soon as reasonably practicable following the end of such Plan Year. Payments of Performance Awards shall be made, in the sole discretion of the Committee, in cash, Common Stock pursuant to the Harley-Davidson, Inc. 2004 Incentive Stock Plan, as amended, or a combination of cash and Common Stock. If a Performance Award is paid in Common Stock, the Common Stock shall be valued at Fair Market Value. To the extent paid in Common Stock, except as the Committee may otherwise provide, Performance Awards may not be deferred by a Participant under the terms of any deferred compensation or other plan of the Company. A Participant whose employment with the Company terminates prior to the end of a Plan Year shall not be entitled to receive any Performance Award hereunder for such Plan Year. Notwithstanding the foregoing sentence:

a. The Committee may, in its sole discretion, provide for payment, in whole or in part, of the Performance Award for such Plan Year if the Participant’s employment with the Company terminates by reason of the Participant’s death, Disability or Retirement; and

b. Prior to, and for a period of ninety (90) days following, a Change of Control Event during a Plan Year, the Committee may, in its sole discretion and in lieu of any other payments under the Plan for such Plan Year, provide for the payment to all Participants of either (i) Performance Awards for such Plan Year based on annualizing the Company’s actual performance through the end of the Company’s most recently completed fiscal month prior to such Change of Control Event or (ii) Target Awards for such Plan Year.

Performance Awards or Target Awards payable under this section 5.4(b) shall be paid upon the occurrence of the Change of Control Event or immediately following the Committee’s decision to make such payment, whichever is later.

5.5. Discretionary Reduction of Performance Award: The Committee may, in its sole discretion, at any time prior to payment, reduce the amount of any Performance Award by up to fifty percent (50%). Such reductions need not be uniform among Participants. The Committee may, but shall not be required to, give one or more reasons for any such reduction. This section 5.5 has been included because the Board believes that even though the Company may have performed well in the selected Performance Categories for the applicable Plan Year, there is always a possibility that the Company’s performance in the selected Performance Categories will substantially exceed the Company’s overall financial and strategic performance for the Plan Year. In such a case, the Board believes that the Committee must have the flexibility to reduce the amount of the Performance Awards payable to one or more of the Participants who, after all, are the Executives ultimately responsible for the Company’s performance. The Committee shall not have the discretionary authority to increase the amount of any Performance Award above the amount determined in accordance with the terms of the Plan. This section 5.5 shall not apply following a Change of Control Event.

5.6. Maximum Performance Award: Notwithstanding anything in the Plan to the contrary, no Participant shall be entitled to receive more than three million dollars (before any withholding pursuant to section 6.2 hereof and whether paid in cash, Common Stock or a combination) in the aggregate under Performance Awards in respect of one Plan Year or in respect of more than one Plan Year where the Plan Years end on the same date.

ARTICLE VI

MISCELLANEOUS

6.1. Nonassignability: Performance Awards shall not be assigned, pledged or transferred, other than by the laws of descent and distribution, and shall not be subject to levy, attachment, execution or other similar process. If a Participant attempts to assign, pledge or transfer any right to a Performance Award or in the event of any levy, attachment, execution or similar process upon the rights or interests conferred by the Plan, the Committee may terminate the participation of the Participant in the Plan effective as of the date of such notice and the Participant shall have no further rights hereunder.

6.2. Withholding Taxes: The Company shall withhold from the payment of each Performance Award the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state and local income or other taxes incurred by reason of the payment of the Performance Award.

6.3. Amendment or Termination of the Plan: The Board may from time to time or at any time amend, suspend or terminate the Plan.

6.4. Other Compensation: Nothing contained in this Plan shall be deemed in any way to restrict or limit the Company from making any award or payment to a Participant under any other plan, policy, program, understanding or arrangement, whether now existing or hereinafter in effect.

6.5. Payments to Other Persons: If payment of a Performance Award, in whole or in part, is legally required to be made to any person other than the applicable Participant, any such payment will be a complete discharge of the liability of the Company to such Participant for such amount.

6.6. Unfunded Plan: The Company shall have no obligation to purchase assets, place assets in trust or otherwise take any action to fund, secure or segregate any amounts to be paid under the Plan.

6.7. Indemnification: In addition to any other rights of indemnification they may have as members of the Board or the Committee, the members of the Board and the Committee shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan and against all amounts paid by them in settlement thereof (provided that such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgement in any such action, suit or proceeding, except a judgement based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding, the Board or Committee member shall give the Company notice thereof in writing and an opportunity, at the Company’s expense, to handle and defend such action, suit or proceeding before such Board or Committee member undertakes to handle and defend such action, suit or proceeding on his or her own behalf.

6.8. No Employment Rights: Nothing in this Plan shall confer upon any Executive or Participant any right to continued employment with the Company.

6.9. Plan Expenses: Any expenses of administering the Plan shall be borne by the Company.

6.10. In Writing: For purposes of this Plan, actions taken by the Committee “in writing” shall include, without limitation, actions recorded in the minutes of any meeting of the Committee and any unanimous consent action of the Committee in lieu of a meeting thereof.

6.11. Section Headings: The section headings contained herein are for convenience only, and in the event of any conflict between the text of the Plan and the section headings, the text of the Plan shall control.

6.12. Applicable Law: The Plan shall be governed by the internal laws of the State of Wisconsin without regard to the conflict of law principles thereof.

6.13. Effective Date: The Plan has been effective since January 1, 1994 following shareholder approval. Shareholders approved amendments to the Plan effective as of January 1, 1999. Amendments to the Plan approved by the Board on February 10, 2004 shall be effective as of January 1, 2004. However, the Plan shall terminate and no Performance Awards shall be paid hereunder in respect of any Plan Year ending after December 31, 2003 if the Plan has not been approved by the requisite vote of the Company’s shareholders under Code section 162(m) at the first meeting of the Company’s shareholders held after December 31, 2003.

EX-31.1 4 sdc731c.htm CEO CERTIFICATION

Exhibit 31.1

Chief Executive Officer Certification
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

I, Jeffrey L. Bleustein, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Harley-Davidson, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 6, 2004	By:	/s/ Jeffrey L. Bleustein
		Jeffrey L. Bleustein Chief Executive Officer

EX-31.2 5 sdc731d.htm CFO CERTIFICATION

Exhibit 31.2

Chief Financial Officer Certification
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

I, James L. Ziemer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Harley-Davidson, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 6, 2004	By:	/s/ James L. Ziemer
		James L. Ziemer Vice President and Chief Financial Officer

EX-32.1 6 sdc731e.htm WRITTEN STMT OF CEO AND CFO

Exhibit 32.1

Written Statement of the Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. sec. 1350

Solely for the purpose of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and the Vice President and Chief Financial Officer of Harley-Davidson, Inc. (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 28, 2004 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2004


	/s/ Jeffrey L. Bleustein
	Jeffrey L. Bleustein Chief Executive Officer
	/s/ James L. Ziemer
	James L. Ziemer Vice President and Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

HARLEY-DAVIDSON, INC.

Form 10-Q IndexFor the Quarter Ended March 28, 2004

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

HARLEY-DAVIDSON, INC.Notes to Condensed Consolidated Financial Statements(Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview(1)

Results of Operations for the Three Months Ended March 28, 2004Compared to the Three Months Ended March 30, 2003

Overall

Net Revenue

Motorcycle Unit Shipments

Gross Profit

Financial Services

Operating Expenses

Interest Income, net

Provision for Income Taxes

Other Matters

Commitments and Contingencies

Liquidity and Capital Resources

Operating Activities

Investing Activities

Financing Activities

Risk Factors

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

(1) Note regarding forward-looking statements

Part II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities and Use of Proceeds

Item 6. Exhibits and Reports on Form 8-K

HARLEY-DAVIDSON, INC. 2004 INCENTIVE STOCK PLAN

1. Purposes, History and Effective Date.

2. Definitions. Capitalized terms used in this Plan have the following meanings:

3. Administration.

6. Shares Reserved under this Plan.

17. Miscellaneous.

HARLEY-DAVIDSON, INC.AMENDED CORPORATE SHORT TERM INCENTIVE PLAN

ARTICLE I

PURPOSE

ARTICLE II

DEFINITIONS

ARTICLE III

ADMINISTRATION

ARTICLE IV

ELIGIBILITY AND PARTICIPATION

ARTICLE V

PERFORMANCE AWARDS

ARTICLE VI

MISCELLANEOUS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q IndexFor
the Quarter Ended March 28, 2004

HARLEY-DAVIDSON, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Overview⁽¹⁾

Results of Operations for the Three Months Ended March 28, 2004
Compared to the Three Months Ended March 30, 2003

⁽¹⁾ Note regarding forward-looking statements

HARLEY-DAVIDSON, INC.
2004 INCENTIVE STOCK PLAN

HARLEY-DAVIDSON, INC.
AMENDED CORPORATE SHORT TERM INCENTIVE PLAN