Form 10-Q

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

-----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, QkTai6PGXrq9dKsAJHGN2PDRuDWfI6of0HsCpyxREY1RyvH++F02QijgCeP6k48+ qlnHpqAhN1Eo9ilIqCF+iw== 0001193125-08-220204.txt : 20081030 0001193125-08-220204.hdr.sgml : 20081030 20081030153606 ACCESSION NUMBER: 0001193125-08-220204 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20080928 FILED AS OF DATE: 20081030 DATE AS OF CHANGE: 20081030 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: 081150924 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

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 September 28, 2008

¨	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)

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

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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Common Stock Outstanding as of October 24, 2008: 232,823,711 shares

HARLEY-DAVIDSON, INC.

Form 10-Q Index

For the Quarter Ended September 28, 2008


		Page
Part I	Financial Information

Item 1.	Consolidated 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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	35

Part II	Other Information

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 6.	Exhibits	37

Signature		38

PART I – FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

Harley-Davidson, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 28, 2008		September 30, 2007		September 28, 2008		September 30, 2007
Net revenue	$	1,422,834	$	1,541,401	$	4,301,716	$	4,340,494
Cost of goods sold		938,762		950,048		2,779,583		2,720,928

Gross profit		484,072		591,353		1,522,133		1,619,566

Financial services income		111,966		98,471		312,095		319,964
Financial services expense		76,333		49,002		204,408		146,349

Operating income from financial services		35,633		49,469		107,687		173,615

Selling, administrative and engineering expense		251,703		235,360		724,902		653,275

Income from operations		268,002		405,462		904,918		1,139,906
Investment income		2,751		5,353		7,033		19,432
Interest expense		1,226		—		1,226		—

Income before provision for income taxes		269,527		410,815		910,725		1,159,338
Provision for income taxes		102,986		145,849		333,816		411,572

Net income	$	166,541	$	264,966	$	576,909	$	747,766

Earnings per common share:
Basic	$	0.71	$	1.07	$	2.45	$	2.96
Diluted	$	0.71	$	1.07	$	2.45	$	2.95

Cash dividends per common share	$	0.33	$	0.30	$	0.96	$	0.76

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

Harley-Davidson, Inc.

Condensed Consolidated Balance Sheets

(In thousands)


	(Unaudited) September 28, 2008		December 31, 2007		(Unaudited) September 30, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	504,385	$	402,854	$	401,385
Marketable securities		524		2,475		55,355
Accounts receivable, net		331,388		181,217		185,208
Finance receivables held for sale		2,245,015		781,280		431,843
Finance receivables held for investment, net		1,115,035		1,575,283		1,275,590
Inventories		401,277		349,697		376,950
Prepaid expenses and other current assets		222,890		174,508		130,126

Total current assets		4,820,514		3,467,314		2,856,457

Finance receivables held for investment, net		906,244		845,044		861,138
Property, plant and equipment, net		1,088,179		1,060,590		1,009,075
Prepaid pension costs		75,054		89,881		44,024
Goodwill		144,678		61,401		60,519
Other long-term assets		165,068		132,376		139,747

	$	7,199,737	$	5,656,606	$	4,970,960


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	435,291	$	300,188	$	383,719
Accrued liabilities		635,479		484,936		578,531
Current portion of debt		1,138,982		1,119,955		250,168

Total current liabilities		2,209,752		1,905,079		1,212,418

Debt		2,033,000		980,000		980,000
Pension liability		68,149		51,551		59,569
Postretirement healthcare benefits		207,810		192,531		207,957
Other long-term liabilities		180,667		151,954		148,013

Commitments and contingencies (Note 13)

Total shareholders’ equity		2,500,359		2,375,491		2,363,003

	$	7,199,737	$	5,656,606	$	4,970,960

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

Harley-Davidson, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended
	September 28, 2008			September 30, 2007
Net cash (used by) provided by operating activities (Note 3)	$	(221,222	)	$	1,368,257

Cash flows from investing activities:
Capital expenditures		(153,687	)		(139,437	)
Origination of finance receivables held for investment		(471,735	)		(374,854	)
Collections on finance receivables held for investment		360,485			282,707
Collection of retained securitization interests		75,379			87,827
Purchase of marketable securities		—			(381,992	)
Sales and redemptions of marketable securities		2,019			986,919
Acquisition of business, net of cash acquired		(95,224	)		—
Other, net		(1,192	)		1,696

Net cash (used by) provided by investing activities		(283,955	)		462,866

Cash flows from financing activities:
Proceeds from issuance of medium-term notes		993,550			—
Net decrease in finance-credit facilities and commercial paper		(86,519	)		(506,938	)
Revolving debt		175,057			—
Dividends		(225,243	)		(189,093	)
Purchase of common stock for treasury		(250,008	)		(1,000,133	)
Excess tax benefits from share-based payments		301			3,057
Issuance of common stock under employee stock option plans		1,179			21,429

Net cash provided by (used by) financing activities		608,317			(1,671,678	)

Effect of exchange rate changes on cash and cash equivalents		(1,609	)		3,543

Net increase in cash and cash equivalents		101,531			162,988

Cash and cash equivalents:
At beginning of period		402,854			238,397

At end of period	$	504,385		$	401,385

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

HARLEY-DAVIDSON, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Use of Estimates

The condensed interim consolidated financial statements included in this quarterly report on Form 10-Q 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 U.S. generally accepted accounting principles 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 September 28, 2008 and September 30, 2007, the condensed consolidated statements of income for the three and nine month periods then ended and the condensed consolidated statements of cash flows for the nine month periods then ended. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.

2. New Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS No. 158 requires employers that sponsor defined benefit pension and postretirement benefit plans to recognize previously unrecognized actuarial losses and prior service costs in the statement of financial position and to recognize future changes in these amounts in the year in which changes occur through comprehensive income. Additionally, employers are required to measure the funded status of a plan as of the date of their year-end statements of financial position. The Company adopted SFAS No. 158, as it relates to recognizing the funded status of its defined benefit pension and postretirement benefit plans, and the related disclosure requirements, as of December 31, 2006. The requirement to measure the funded status as of the date of the year-end statement of financial position was adopted on January 1, 2008. Upon adoption, the Company recorded a reduction to retained earnings of $18.1 million ($11.2 million, net of tax) and an increase to accumulated other comprehensive income of $4.2 million ($2.6 million, net of tax).

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. SFAS No. 157 applies to fair value measurements required by existing accounting pronouncements and does not require any new fair value measurements. The Company adopted SFAS No. 157 on January 1, 2008; see Note 7 for disclosures required under SFAS No. 157. The Company has not adopted SFAS No. 157 for non-financial assets and liabilities as permitted by FASB Staff Position No. FAS 157-2, which provided a deferral of such provisions until 2009.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS No. 141(R) changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre-acquisition contingencies, transaction costs, in-process research and development and restructuring costs. In addition, under SFAS No. 141(R), changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. SFAS No. 141(R) will be effective for the Company beginning in fiscal year 2009. This standard will change the Company’s accounting treatment for business combinations on a prospective basis, when adopted.

activities. Entities will be required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedge items affect an entity’s financial position, financial performance and cash flows. The Company is required to adopt SFAS No. 161 beginning in fiscal year 2009. The Company is currently evaluating the impact the new disclosure requirements will have on its consolidated financial statements and notes thereto.

3. Additional Balance Sheet and Cash Flow Information

Inventories are valued at the lower of cost or market. Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist of the following (in thousands):


	September 28, 2008		December 31, 2007		September 30, 2007
Components at the lower of FIFO cost or market
Raw materials and work in process	$	152,350	$	149,954	$	149,040
Motorcycle finished goods		170,140		107,768		164,744
Parts and accessories and general merchandise		116,480		124,109		94,768

Inventory at lower of FIFO cost or market		438,970		381,831		408,552
Excess of FIFO over LIFO cost		37,693		32,134		31,602

	$	401,277	$	349,697	$	376,950

The reconciliation of net income to net cash (used by) provided by operating activities is as follows (in thousands):


	Nine Months Ended
	September 28, 2008			September 30, 2007
Cash flows from operating activities:
Net income	$	576,909		$	747,766
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		154,393			152,966
Amortization of acquisition-related intangibles		16,556			—
Provision for employee long-term benefits		59,102			56,882
Stock compensation expense		18,461			15,499
Loss (gain) on current year securitizations		5,370			(36,033	)
Net change in wholesale finance receivables		352,127			306,246
Origination of retail finance receivables held for sale		(2,353,720	)		(2,522,496	)
Collections on retail finance receivables held for sale		310,295			63,892
Proceeds from securitization of retail finance receivables		467,722			2,486,780
Contributions to pension and postretirement plans		(13,444	)		(9,940	)
Foreign currency adjustments		(4,053	)		(6,626	)
Other, net		66,273			15,288
Changes in current assets and liabilities:
Accounts receivable, net		(39,521	)		(33,576	)
Finance receivables—accrued interest and other		5,370			(13,232	)
Inventories		(32,918	)		(78,775	)
Accounts payable and accrued liabilities		214,929			221,096
Other		(25,073	)		2,520

Total adjustments		(798,131	)		620,491

Net cash (used by) provided by operating activities	$	(221,222	)	$	1,368,257

4. Acquisition

On August 8, 2008, the Company announced the completion of its purchase of privately-held Italian motorcycle maker MV Agusta Group (MVAG). The Company acquired 100 percent of MVAG shares for total consideration of €68.3 million ($105.1 million), which includes the satisfaction of existing bank debt for €47.5 million ($73.2 million). In addition, the agreement provides for a contingent payment to the former owner of MVAG in 2016, if certain financial targets are met. The Company financed the transaction and MVAG’s initial working capital requirements through $175.1 million of short-term revolving debt under existing credit facilities. The Company believes the acquisition of MVAG will enhance the Company’s presence in Europe and its penetration into the performance segment of the motorcycle market.

In conjunction with the acquisition of MVAG, the Company recorded initial goodwill of $87.9 million and initial intangible assets of $33.8 million. The Company is in the process of obtaining third-party valuations of certain intangible assets; thus, the allocation of the purchase price is still preliminary. Additionally, the Company recorded a $16.6 million one-time expense (included within Selling and administrative expenses) related to the fair value of acquired in-process research and development projects.

The operating results of MVAG, which is part of the Motorcycles & Related Products segment, have been included in the Company’s consolidated financial statements from the date of acquisition. Pro forma information reflecting this acquisition has not been disclosed as the pro forma impact on consolidated net income would not be material.

5. Impairment of Investment in Retained Securitization Interests

During the nine months ended September 28, 2008 and September 30, 2007, the Company recorded an impairment charge of $6.3 million and $3.5 million, respectively, related to its retained securitization interests (a component of Finance receivables held for investment in the Condensed Consolidated Balance Sheets). Retained securitization interests are recorded at fair value, which is based on the present value of future expected cash flows using the Company’s best estimate of key assumptions for credit losses, prepayment speed and discount rates commensurate with the risks involved. During the nine months ended September 28, 2008 and September 30, 2007, the fair value of certain retained securitization interests was lower than the amortized cost, which indicated impairment. These impairments were considered permanent and as a result the investment in retained securitization interests has been appropriately written down to fair value. The decline in fair value was due to higher actual and anticipated credit losses on certain securitization portfolios. During the nine months ended September 30, 2007, the higher actual and anticipated credit losses were partially offset by a slowing in actual and expected prepayment speeds. These charges were recorded as a reduction of Financial services income.

6. Restructuring Costs

During the second quarter of 2008, the Company finalized a plan to ship fewer motorcycles to its worldwide dealer network in 2008 than it shipped in 2007. The Company achieved this reduction through temporary plant shutdowns, adjusted daily production rates and a workforce reduction involving approximately 730 positions. As a result of the workforce reduction plan, the Company recorded an $11.5 million charge during the second quarter of 2008 within Selling, administrative and engineering expense. The total restructuring charge consisted of $7.6 million of employee severance benefits and $3.9 million of special retiree benefits for those individuals eligible to receive benefits. During the third quarter of 2008, the Company increased its restructuring plan charge related to special retiree benefits by $0.9 million while reversing $0.4 million of employee severance benefits not expected to be utilized. As of September 28, 2008, all 730 employees and contract workers have departed from the Company.

The following table summarizes the Company’s restructuring reserve recorded in Accrued liabilities as of September 28, 2008 (in thousands):


	Employee Severance
Original reserve	$	7,594
Utilized—cash		(76	)

Balance, June 29, 2008	$	7,518
Utilized—cash		(3,248	)
Reserve release—noncash		(381	)

Balance, September 28, 2008	$	3,889

Of the total restructuring reserve, $3.9 million is recorded within Accrued liabilities and $4.8 million is recorded within Postretirement healthcare benefits in the Company’s Condensed Consolidated Balance Sheet as of September 28, 2008.

7. Fair Value Measurements

The fair value of financial assets and liabilities are measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of financial assets and liabilities, the Company uses various valuation techniques. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.

The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the table below.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 28, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):


	Balance as of September 28, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents and marketable securities	$	258,583	$	258,059	$	524		—
Derivatives		13,570		—		13,570		—
Investment in retained securitization interests		399,827		—		—	$	399,827

	$	671,980	$	258,059	$	14,094	$	399,827

Liabilities:
Derivatives	$	6,258		—	$	6,258		—

The following table presents additional information about the Investment in retained securitization interests which is measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3). The Investment in retained securitization interests is valued using pricing models and discounted cash flow methodologies incorporating assumptions that, in management’s judgment, reflect the assumptions marketplace participants would use at September 28, 2008. Refer to “Critical Accounting Estimates” under Item 7 and Note 3 of Notes to the Consolidated Financial Statements under Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for further discussion regarding the assumptions used to value the Investment in retained securitization interests.


(in thousands)	Three months ended September 28, 2008			Nine months ended September 28, 2008
Balance, beginning of period	$	461,657		$	407,742
Total gains or losses (realized/unrealized):
Included in Financial services income^(a)		12,986			39,220
Included in other comprehensive income		(5,059	)		(13,382	)
Sales, repurchases and settlements, net		(69,757	)		(33,753	)

Balance, end of period	$	399,827		$	399,827

(a)	Total gains or losses included in Financial services income includes an impairment charge of $6.3 million as discussed in Note 5.

Finance receivables held for sale in the aggregate are carried at the lower of cost or estimated fair value, and are measured at fair value on a non-recurring basis using significant unobservable inputs (Level 3). HDFS uses discounted cash flow methodologies to estimate the fair value of finance receivables held for sale that incorporate appropriate assumptions for funding costs and credit enhancement, as well as estimates concerning credit losses and prepayments, that in management’s judgment, reflect assumptions marketplace participants would use at September 28, 2008. Any amount by which cost exceeds fair value is accounted for as a

valuation allowance with an offset to other income. At September 28, 2008, the Company recorded a non-cash charge of $9.4 million due to a decline in the fair value below cost on finance receivables held for sale, primarily as a result of higher estimated funding costs related to significant volatility in the capital markets. The fair value of the finance receivables held for sale at September 28, 2008 was $2.24 billion.

8. Product Warranty and Safety Recall Campaigns

The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except for Japan, where the Company provides a standard three-year limited warranty on all new motorcycles sold. The warranty coverage for the retail customer includes parts and labor and generally begins when the motorcycle is sold to a retail customer. The Company maintains reserves for future warranty claims using an estimated cost per unit sold, which is based primarily on historical Company claim information. Additionally, the Company has from time to time initiated certain voluntary safety recall campaigns. The Company reserves for all estimated costs associated with safety recalls in the period that the safety recalls are announced. Changes in the Company’s warranty and safety recall liability were as follows (in thousands):


	Three months ended						Nine months ended
	September 28, 2008			September 30, 2007			September 28, 2008			September 30, 2007
Balance, beginning of period	$	81,427		$	74,017		$	70,523		$	66,385
Warranties issued during the period		12,273			13,625			37,921			40,642
Warranties from business acquisition		2,469			—			2,469			—
Settlements made during the period		(21,881	)		(18,582	)		(51,047	)		(49,611	)
Recalls and changes to pre-existing warranty liabilities		115			58			14,537			11,702

Balance, end of period	$	74,403		$	69,118		$	74,403		$	69,118

The liability for safety recall campaigns was $4.2 million and $2.9 million as of September 28, 2008 and September 30, 2007, respectively.

9. Business Segments

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


	Three months ended				Nine months ended
	September 28, 2008		September 30, 2007		September 28, 2008		September 30, 2007
Motorcycles net revenue	$	1,422,834	$	1,541,401	$	4,301,716	$	4,340,494

Gross profit		484,072		591,353		1,522,133		1,619,566
Operating expenses		250,046		233,068		710,420		639,512

Operating income from Motorcycles		234,026		358,285		811,713		980,054

Financial Services income		111,966		98,471		312,095		319,964
Financial Services expense		76,333		49,002		204,408		146,349

Operating income from Financial Services		35,633		49,469		107,687		173,615

Corporate expenses		1,657		2,292		14,482		13,763

Income from operations	$	268,002	$	405,462	$	904,918	$	1,139,906

As discussed in Note 5, Financial Services income for the nine months ended September 28, 2008 and September 30, 2007 includes an impairment charge of $6.3 million and $3.5 million, respectively. As discussed in Note 7, Financial Services income for the three and nine months ended September 28, 2008 includes a lower of cost or fair value adjustment related to finance receivables held for sale of $9.4 million.

As discussed in Note 4, Operating expenses of the Motorcycles segment for the three and nine months ended September 28, 2008 include a $16.6 million one-time expense related to the fair value of acquired in-process research and development projects. Additionally, as discussed in Note 6, Operating expenses of the Motorcycles segment for the three and nine months ended September 28, 2008 include a net restructuring charge of $0.5 million and $12.0 million, respectively. Neither of these charges relates to Financial Services.

10. Earnings Per Share

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


	Three months ended				Nine months ended
	September 28, 2008		September 30, 2007		September 28, 2008		September 30, 2007
Numerator:
Net income used in computing basic and diluted earnings per share	$	166,541	$	264,966	$	576,909	$	747,766

Denominator:
Denominator for basic earnings per share—weighted-average common shares		233,081		247,057		235,068		252,513
Effect of dilutive securities—employee stock compensation plan		339		557		253		750

Denominator for diluted earnings per share—adjusted weighted-average shares outstanding		233,420		247,614		235,321		253,263

Basic earnings per share	$	0.71	$	1.07	$	2.45	$	2.96
Diluted earnings per share	$	0.71	$	1.07	$	2.45	$	2.95

Outstanding options to purchase 5.4 million and 1.4 million shares of common stock for the three months ended September 28, 2008 and September 30, 2007, respectively, and 5.1 million and 0.8 million shares of common stock for the nine months ended September 28, 2008 and September 30, 2007, respectively, were not included in the Company’s computation of dilutive securities because the exercise price was greater than the market price and therefore the effect would have been anti-dilutive.

11. Comprehensive Income

The following table sets forth the reconciliation of net income to comprehensive income (in thousands):


	Three months ended						Nine months ended
	September 28, 2008			September 30, 2007			September 28, 2008			September 30, 2007
Net income	$	166,541		$	264,966		$	576,909		$	747,766
Foreign currency translation adjustment		(37,736	)		14,261			(16,362	)		23,105
Changes in net unrealized (losses) and gains, net of tax:
Retained securitization interest		(3,263	)		4,823			(8,705	)		(3,881	)
Derivative financial instruments		9,971			(7,218	)		20,740			(8,144	)
Marketable securities		—			641			68			1,342
Unrecognized pension and postretirement benefit plan liabilities		2,623			3,742			7,869			11,226

	$	138,136		$	281,215		$	580,519		$	771,414

12. Employee Benefit Plans

The Company has several defined benefit pension plans and postretirement healthcare benefit plans (Retirement Plans), which cover substantially all employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) 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):


	Three months ended						Nine months ended
	September 28, 2008			September 30, 2007			September 28, 2008			September 30, 2007
Pension and SERPA Benefits
Service cost	$	12,841		$	12,912		$	38,523		$	38,736
Interest cost		17,148			14,941			51,444			44,823
Expected return on plan assets		(22,015	)		(20,209	)		(66,045	)		(60,627	)
Amortization of unrecognized:
Prior service cost		1,540			1,673			4,620			5,019
Net loss		1,604			2,919			4,812			8,757

Net periodic benefit cost	$	11,118		$	12,236		$	33,354		$	36,708


Postretirement Healthcare Benefits
Service cost	$	3,270		$	3,191		$	9,810		$	9,573
Interest cost		5,410			4,895			16,230			14,685
Expected return on plan assets		(2,808	)		(2,496	)		(8,424	)		(7,488	)
Amortization of unrecognized:
Prior service credit		(281	)		(281	)		(843	)		(843	)
Net loss		1,375			1,734			4,125			5,202
Special retiree benefits		826			—			4,781			—

Net periodic benefit cost	$	7,792		$	7,043		$	25,679		$	21,129

The Company does not expect to make additional contributions to further fund its pension and postretirement healthcare plans during the remainder of 2008 beyond the amount of current benefit payments for SERPA and postretirement healthcare plans. However, due to significant declines in worldwide financial market conditions, the Company may be required to make additional contributions in 2009 in addition to the amount of current benefit payments.

During the remainder of 2008, the Company expects to continue its practice of funding the SERPA and postretirement healthcare plans in amounts equal to benefits paid during the year.

As discussed in Note 6, the Company recorded a net restructuring reserve of $12.0 million during the nine months ended September 28, 2008. Of this amount, $4.8 million relates to postretirement healthcare benefits which are included as part of Special retiree benefits in the table above.

13. Commitments and 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 ongoing basis and are updated based on new developments or new information in each matter.

Shareholder Lawsuits:

A number of shareholder class action lawsuits were filed between May 18, 2005 and July 1, 2005 in the United States District Court for the Eastern District of Wisconsin. On February 14, 2006, the court consolidated all of the actions into a single case, captioned In re Harley-Davidson, Inc. Securities Litigation, and appointed Lead Plaintiffs and Co-Lead Plaintiffs’ Counsel. Pursuant to the schedule set by the court, on October 2, 2006, the Lead Plaintiffs filed a Consolidated Class Action Complaint, which names the Company and Jeffrey L. Bleustein, James L. Ziemer, and James M. Brostowitz, who are current or former Company officers, as defendants. The Consolidated Complaint alleges securities law violations and seeks unspecified damages relating generally to the Company’s April 13, 2005 announcement that it was reducing short-term production growth and planned increases of motorcycle shipments from 317,000 units in 2004 to a new 2005 target of 329,000 units (compared to its original target of 339,000 units). On December 18, 2006, the defendants filed a motion to dismiss the Consolidated Complaint in its entirety. Briefing of the motion to dismiss was completed in April 2007.

Three shareholder derivative lawsuits were filed in the United States District Court for the Eastern District of Wisconsin on June 3, 2005, October 25, 2005 (this lawsuit was later voluntarily dismissed) and December 2, 2005 and two shareholder derivative lawsuits were filed in Milwaukee County Circuit Court on July 22, 2005 and November 16, 2005 against some or all of the following current or former directors and officers of the Company: Jeffrey L. Bleustein, James L. Ziemer, James M. Brostowitz, Barry K. Allen, Richard I. Beattie, George H. Conrades, Judson C. Green, Donald A. James, Sara L. Levinson, George L. Miles, Jr., James A. Norling, James A. McCaslin, Donna F. Zarcone, Jon R. Flickinger, Gail A. Lione, Ronald M. Hutchinson, W. Kenneth Sutton, Jr. and John A. Hevey. The lawsuits also name the Company as a nominal defendant. In general, the shareholder derivative complaints include factual allegations similar to those in the class action complaints and allegations that officers and directors breached their fiduciary duties to the Company. On February 14, 2006, the state court consolidated the two state court derivative actions and appointed Lead Plaintiffs and Lead Plaintiffs’ counsel, and on April 24, 2006, the state court ordered that the consolidated state court derivative action be stayed until after motions to dismiss the federal securities class action are decided. On February 15, 2006, the federal court consolidated the federal derivative lawsuits with the securities and ERISA (see below) actions for administrative purposes. On February 1, 2007, the federal court appointed Lead Plaintiff and Co-Lead Plaintiffs’ Counsel in the consolidated federal derivative action.

On August 25, 2005, a class action lawsuit alleging violations of the Employee Retirement Income Security Act (ERISA) was filed in the United States District Court for the Eastern District of Wisconsin. As noted above, on February 15, 2006, the court ordered the ERISA action consolidated with the federal derivative and securities actions for administrative purposes. Pursuant to the schedule set by the court, on October 2, 2006, the ERISA plaintiff filed an Amended Class Action Complaint, which named the Company, the Harley-Davidson Motor Company Retirement Plans Committee, the Company’s Leadership and Strategy Council, Harold A. Scott, James L. Ziemer, James M. Brostowitz, Gail A. Lione, Joanne M. Bischmann, Karl M. Eberle, Jon R. Flickinger, Ronald M. Hutchinson, James A. McCaslin, W. Kenneth Sutton, Jr., and Donna F. Zarcone, who are current or former Company officers or employees, as defendants. In general, the ERISA complaint includes factual allegations similar to those in the shareholder class action lawsuits and alleges on behalf of participants in certain Harley-Davidson retirement savings plans that the plan fiduciaries breached their ERISA fiduciary duties. On December 18, 2006, the defendants filed a motion to dismiss the ERISA complaint in its entirety. Briefing of the motion to dismiss was completed in April 2007.

The Company believes the allegations against all of the defendants in the lawsuits against the Company are without merit and it intends to vigorously defend against them. Since all of these matters are in the preliminary stages, the Company is unable to predict the scope or outcome or quantify their eventual impact, if any, on the Company. At this time, the Company is also unable to estimate associated expenses or possible losses. The Company maintains insurance that may limit its financial exposure for defense costs and liability for an unfavorable outcome, should it not prevail, for claims covered by the insurance coverage.

Environmental Matters:

remediation activities, including an ongoing site-wide remedial investigation/feasibility study (RI/FS). In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.

In February 2002, the Company was advised by the 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. In July 2005, the York facility was designated as the first site in Pennsylvania to be addressed under the “One Cleanup Program.” The program provides a more streamlined and efficient oversight of voluntary remediation by both PADEP and EPA and will be carried out consistent with the Agreement with the Navy. As a result, the RCRA facility lead agreement has been superseded.

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 $6.2 million. The Company has established reserves for this amount, which are included in Accrued liabilities in the Condensed 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 related to the remediation of soil are expected to be incurred over a period of several years ending in 2012. Response Costs related to ground water remediation may continue for some time beyond 2012.

Under the terms of the sale of the Commercial Vehicles Division in 1996, the Company has agreed to indemnify Utilimaster Corporation, until December 2008, for certain claims related to environmental contamination present at the date of sale, up to $20.0 million. Based on the environmental studies performed, the Company does not expect to incur any material expenditures under this indemnification.

Product Liability Matters:

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

Item 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 (HDMC), Buell Motorcycle Company (Buell), MV Agusta Group (MVAG), and Harley-Davidson Financial Services (HDFS). HDMC produces heavyweight motorcycles and offers a line of motorcycle parts, accessories, general merchandise and related services. HDMC manufactures five families of motorcycles: Touring, Dyna^®, Softail^®, Sportster^® and VRSC™. Buell produces premium sport performance motorcycles and offers a line of motorcycle parts, accessories and apparel. MVAG produces premium, high-performance sport motorcycles sold under the MV Agusta^® brand and lightweight sport motorcycles sold under the Cagiva^® brand. HDFS provides wholesale and retail financing and insurance programs primarily to Harley-Davidson and Buell dealers and customers.

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

Overview and Outlook⁽¹⁾

The Company’s 2008 third quarter net revenue and net income were down 7.7% and 37.1%, respectively, compared to the third quarter of 2007. The Company’s third quarter financial performance reflected a 13.7% decrease in shipments of Harley-Davidson motorcycles and lower operating income from Financial Services as the challenging U.S. economic environment continued to impact the Company’s results during the third quarter of 2008.

Worldwide retail sales of Harley-Davidson motorcycles in the third quarter of 2008 were down 9.6%. U.S retail sales of Harley-Davidson motorcycles in the third quarter of 2008 were down 15.5% while international retail sales were up 11.3%. However, sales growth in certain European countries slowed more during the third quarter of 2008 than the Company anticipated as a result of deteriorating economic conditions. The Company continues to carefully monitor all of its markets in light of the challenging economy and remains committed to shipping fewer Harley-Davidson motorcycles to its worldwide dealer network than it expects they will sell at retail in 2008.

HDFS has maintained its position as a stable, consistent source of financing for dealers and retail customers despite turbulent conditions in the credit markets. Going forward, the Company believes HDFS will continue to have access to capital markets and, in the event that capital market conditions worsen, has developed contingency plans to obtain appropriate funding as discussed under “Liquidity and Capital Resources”.

On October 16, 2008, the Company announced a narrowed 2008 shipment expectation for Harley-Davidson motorcycles of 303,500 to 306,000 units. This compares to the previous range of 303,500 to 307,500 units. At the same time, the Company also provided a narrowed expectation for 2008 diluted earnings per share of $3.00 to $3.10, which compares to the previous range of $3.00 to $3.18.

⁽¹⁾

Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption “Cautionary Statements” included in this report, and in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date indicated, or if no date is indicated as of the filing of this report (October 30, 2008), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The Company believes that the near-term global economic environment will be challenging for the business and it will continue to make prudent decisions to manage through this difficult environment. At the same time, the Company is optimistic about its long-term business prospects and plans to continue to reinvest in the business. This was evidenced during the quarter by the acquisition of MVAG which will enhance the Company’s presence in Europe and its penetration into the performance segment of the motorcycle market.

Results of Operations for the Three Months Ended September 28, 2008

Compared to the Three Months Ended September 30, 2007

Consolidated Results


	Three months ended
(in millions, except earnings per share and effective income tax rate)	September 28, 2008			September 30, 2007			(Decrease) Increase			% Change
Operating income from motorcycles & related products	$	234.0		$	358.3		$	(124.3	)	(34.7	)%
Operating income from financial services	$	35.6		$	49.5		$	(13.9	)	(28.0	)%
Investment income	$	2.8		$	5.4		$	(2.6	)	(48.6	)%
Interest expense	$	1.2			—		$	1.2		N/M
Net income	$	166.5		$	265.0		$	(98.5	)	(37.1	)%
Diluted earnings per share	$	0.71		$	1.07		$	(0.36	)	(33.6	)%

Effective income tax rate		38.2	%		35.5	%

As discussed in Overview and Outlook, the decrease in Motorcycles operating income during the third quarter was driven by a decrease in shipments of Harley-Davidson motorcycles. In addition, lower operating income from Financial Services contributed to the decrease in consolidated income from operations for the third quarter of 2008 compared to the third quarter of 2007. Please refer to the detailed discussion of segment results following.

Investment income was lower during the third quarter of 2008 due to the decrease in average marketable securities during the same period. Interest expense during the third quarter relates to consolidated debt incurred in connection with the acquisition of MVAG.

Diluted earnings per share in the third quarter of 2008 were down 33.6% from the same quarter last year on lower net income which more than offset the positive impact of fewer weighted-average shares outstanding. Diluted earnings per share during the third quarter of 2008 were positively impacted by a decrease in the weighted-average shares outstanding, which were 233.4 million in the third quarter of 2008 compared to 247.6 million in the third quarter of 2007. The decrease in weighted-average shares outstanding was driven by the Company’s repurchases of common stock over the last year. The Company’s third quarter 2008 share repurchases are discussed in further detail under “Liquidity and Capital Resources.”

The Company’s effective income tax rate for the third quarter of 2008 was 38.2% compared to 35.5% in the same quarter last year. The increase was due primarily to a one-time $16.6 million non-deductible in-process research and development charge for MVAG and the expiration of the federal research and development tax credit as of December 31, 2007. In October 2008, the federal research and development tax credit was reinstated for two years retroactive to January 1, 2008 continuing through December 31, 2009. The Company expects its full year effective tax rate for 2008 will be approximately 35.5%.⁽¹⁾

Motorcycle Unit Shipments & Net Revenue

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


	Three months ended
	September 28, 2008			September 30, 2007			(Decrease) Increase		% Change
Motorcycle Unit Shipments
United States	49,953	66.9	%	65,756	76.0	%	(15,803	)	(24.0	)%
International	24,751	33.1	%	20,779	24.0	%	3,972		19.1

Harley-Davidson motorcycle units	74,704	100.0	%	86,535	100.0	%	(11,831	)	(13.7	)

Touring motorcycle units	24,008	32.1	%	28,461	32.9	%	(4,453	)	(15.6	)
Custom motorcycle units*	34,322	45.9	%	39,488	45.6	%	(5,166	)	(13.1	)
Sportster motorcycle units	16,374	21.9	%	18,586	21.5	%	(2,212	)	(11.9	)

Harley-Davidson motorcycle units	74,704	100.0	%	86,535	100.0	%	(11,831	)	(13.7	)

Buell motorcycle units	2,760			2,639			121		4.6	%

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

During the third quarter of 2008, the Company shipped 74,704 Harley-Davidson motorcycles, a decrease of 11,831 motorcycles, or 13.7%, from the same quarter last year. The Company’s shipments in the U.S. in 2008 continued to be negatively impacted by the challenging economic environment, but were consistent with previously announced plans to ship 23,000 to 27,000 fewer Harley-Davidson motorcycles in 2008 than were shipped in 2007. The Company’s shipments in international markets grew during the third quarter, and the percentage of units shipped to international customers increased, consistent with the Company’s strategic focus on global markets.

The following table includes net revenue for the Motorcycles & Related Products segment (in millions):


	Three months ended
	September 28, 2008		September 30, 2007		(Decrease) Increase			% Change
Net Revenue
Harley-Davidson motorcycles	$	1,051.0	$	1,182.6	$	(131.6	)	(11.1	)%
Buell motorcycles		26.1		22.5		3.6		15.9

		1,077.1		1,205.1		(128.0	)	(10.6	)

Parts & Accessories		259.0		251.5		7.5		3.0
General Merchandise		84.0		83.2		0.8		1.0
Other		2.7		1.6		1.1		N/M

Net revenue	$	1,422.8	$	1,541.4	$	(118.6	)	(7.7	)%

Motorcycles segment net revenue decreased $118.6 million, or 7.7%. Net revenue was lower by approximately $134 million primarily due to the 13.7% lower shipment volume. In addition, product mix changes decreased revenue by approximately $8 million. Partially offsetting the unfavorability in volume and product mix was favorability of approximately $2 million from wholesale price increases on Harley-Davidson motorcycles and favorability resulting from changes in foreign currency exchange rates of approximately $22 million.

Harley-Davidson Motorcycle Retail Sales

Harley-Davidson Motorcycle Retail Sales^(a)

Heavyweight (651+cc)


	Three months ended
	September 28, 2008	September 30, 2007	(Decrease) Increase		% Change
North America Region
United States	59,000	69,810	(10,810	)	(15.5	)%
Canada	3,682	3,277	405		12.4

Total North America Region	62,682	73,087	(10,405	)	(14.2	)

Europe Region (Includes Middle East and Africa)
Europe^(b)	8,481	8,301	180		2.2
Other	1,006	920	86		9.3

Total Europe Region	9,487	9,221	266		2.9

Asia Pacific Region
Japan	4,697	3,808	889		23.3
Other	2,310	2,156	154		7.1

Total Asia Pacific Region	7,007	5,964	1,043		17.5

Latin America Region	1,776	1,254	522		41.6

Total Worldwide Retail Sales	80,952	89,526	(8,574	)	(9.6	)%

(a)

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

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

Cost of Goods Sold

Cost of goods sold was $938.8 million for the Motorcycles segment in the third quarter of 2008, a decrease of $11.3 million or 1.2% versus the corresponding period last year. Cost of goods sold was also impacted by the 13.7% decline in shipment volume, which resulted in a decrease of approximately $59 million. Additionally, changes in product mix resulted in a decrease of approximately $5 million. Partially offsetting these decreases were higher manufacturing costs of approximately $40 million. Manufacturing costs increased partially as the result of a higher fixed cost per unit due to allocating fixed costs to fewer units. Additionally, higher manufacturing costs were also the result of increased product cost as the Company invests in new models and increased product content, such as new features and options on the Company’s motorcycles. Cost of goods sold also increased by approximately $7 million resulting from changes in foreign currency exchange rates. Raw material surcharges were approximately $6 million higher when compared to the prior year third quarter.

Gross Profit

Gross profit was $484.1 million for the Motorcycles segment for the third quarter 2008, a decrease of $107.3 million or 18.1% versus the same period last year. Gross margin for the third quarter of 2008 was 34.0% compared to 38.4% for the third quarter of 2007. The factors impacting the change in gross margin are detailed under “Motorcycle Unit Shipments and Net Revenue” and “Cost of Goods Sold” above.

Financial Services

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


	Three months ended
	September 28, 2008		September 30, 2007		Increase (Decrease)			% Change
Interest income	$	79.8	$	43.6	$	36.2		83.0	%
Income from securitizations		13.9		21.1		(7.2	)	(34.0	)
Other income		18.2		33.8		(15.6	)	(46.1	)

Financial services income		111.9		98.5		13.4		13.7

Interest expense		37.5		19.2		18.3		95.3
Operating expenses		38.8		29.8		9.0		30.3

Financial services expense		76.3		49.0		27.3		55.8

Operating income from financial services	$	35.6	$	49.5	$	(13.9	)	(28.0	)%

During the third quarter of 2008, interest income benefited from higher average retail outstanding receivables, partially offset by lower wholesale lending rates. Interest expense was higher in the third quarter of 2008 due to increased borrowings to support higher outstanding retail receivables, partially offset by lower borrowing rates as compared to the same period of 2007. The increase in retail receivables outstanding was driven by the lack of securitization transactions in the second and third quarters of 2008 due to capital market volatility. The increase in operating expenses in the third quarter of 2008 is primarily due to an increase in the provision for credit losses.

Income from securitizations in the third quarter of 2008 decreased as compared to the third quarter of 2007 primarily due to the absence of a securitization transaction during the third quarter of 2008. This compares to a $782.0 million securitization transaction that was completed in the third quarter of 2007 with a gain of $3.5 million. Income from securitizations also decreased due to lower income from retained securitization interests, which totaled $13.9 million in the third quarter of 2008 versus $17.5 million in the third quarter of 2007.

During the three months ended September 28, 2008, HDFS recorded a non-cash charge to earnings of $9.4 million from the lower of cost or estimated fair value on its finance receivables held for sale. HDFS uses discounted cash flow methodologies to estimate the fair value of finance receivables held for sale that incorporate appropriate assumptions for funding costs and credit enhancement, as well as estimates concerning credit losses and prepayments, that in management’s judgment, reflect assumptions marketplace participants would use. Any amount by which cost exceeds fair value is accounted for as a valuation allowance with an offset to other income. The decline in fair value below cost was primarily due to higher estimated funding costs related to significant volatility in the capital markets. The charge to earnings was recorded in other income and was a primary factor for the decrease in other income in the third quarter of 2008 as compared to the same period of 2007.

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


	Three months ended
	September 28, 2008			September 30, 2007
Balance, beginning of period	$	35.9		$	26.9
Provision for finance credit losses		8.0			2.0
Charge-offs, net of recoveries		(7.1	)		(1.8	)

Balance, end of period	$	36.8		$	27.1

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 estimated losses of principal in the existing portfolio.

Operating Expenses

The following table includes operating expenses for the Motorcycles segment and Corporate (in millions):


	Three months ended
	September 28, 2008		September 30, 2007		Increase (Decrease)			% Change
Motorcycles and Related Products
Selling & administrative	$	210.9	$	185.0	$	25.9		14.0	%
Engineering		39.1		48.1		(9.0	)	(18.7	)
Corporate		1.7		2.3		(0.6	)	(27.7	)

Total operating expenses	$	251.7	$	235.4	$	16.3		6.9	%

Total operating expenses, which include selling, administrative and engineering expenses, were 17.7% and 15.3% of net revenue for the third quarters of 2008 and 2007, respectively. Selling and administrative expenses were higher due primarily to the impact of the one-time $16.6 million expense related to the value of in-process research and development at MVAG during the third quarter of 2008 (see Note 4 of Notes to Condensed Consolidated Financial Statements for further discussion). Additionally, selling and administrative expenses increased due to higher international operating costs associated with the Company’s international growth; however, this was partially offset by lower engineering spending during the third quarter of 2008 compared to the third quarter of 2007.

Results of Operations for the Nine Months Ended September 28, 2008

Compared to the Nine Months Ended September 30, 2007

Consolidated Results


	Nine months ended
(in millions, except earnings per share and effective income tax rate amounts)	September 28, 2008			September 30, 2007			(Decrease) Increase			% Change
Operating income from motorcycles & related products	$	811.7		$	980.1		$	(168.4	)	(17.2	)%
Operating income from financial services	$	107.7		$	173.6		$	(65.9	)	(38.0	)%
Investment income	$	7.0		$	19.4		$	(12.4	)	(63.8	)%
Interest expense	$	1.2			—		$	1.2		N/M
Net income	$	576.9		$	747.8		$	(170.9	)	(22.8	)%
Diluted earnings per share	$	2.45		$	2.95		$	(0.50	)	(16.9	)%

Effective income tax rate		36.7	%		35.5	%

The decrease in Motorcycles operating income during the nine months ended September 28, 2008 was driven by a decrease in shipments of Harley-Davidson motorcycles. In addition, lower operating income from Financial Services contributed to the decrease in consolidated income from operations for the nine months ended September 28, 2008 compared to the same period last year. Please refer to the detailed discussion of segment results following.

Investment income was lower during the first nine months of 2008 due to the decrease in average marketable securities during the same period. Interest expense during the first three quarters relates to consolidated debt incurred in connection with the acquisition of MVAG.

Diluted earnings per share for the first nine months of 2008 were down 16.9% from the same period last year on lower net income which more than offset the positive impact of fewer weighted-average shares outstanding. Diluted earnings per share during the first nine months of 2008 were positively impacted by a decrease in the weighted-average shares outstanding, which were 235.3 million in the first nine months of 2008 compared to 253.3 million in the first nine months of 2007. The decrease in weighted-average shares outstanding was driven by the Company’s repurchases of common stock over the last year. The Company’s third quarter 2008 share repurchases are discussed in further detail under “Liquidity and Capital Resources.”

The Company’s effective income tax rate for the first nine months of 2008 was 36.7% compared to 35.5% in the same period last year. The increase was due primarily to the non-deductible in-process research and development charge for MVAG and the expiration of the federal research and development tax credit as of December 31, 2007. In October 2008, the federal research and development tax credit was reinstated for two years retroactive to January 1, 2008 continuing through December 31, 2009.

Diluted earnings per share during the first nine months of 2008 were positively impacted by a decrease in the weighted-average shares outstanding, which were 235.3 million in the first nine months of 2008 compared to 253.3 million in the first nine months of 2007. The decrease in weighted-average shares outstanding was driven by the Company’s repurchases of common stock over the last year. The Company’s 2008 share repurchases are discussed in further detail under “Liquidity and Capital Resources.”

Motorcycle Unit Shipments & Net Revenue

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


	Nine months ended
	September 28, 2008			September 30, 2007			(Decrease) Increase		% Change
Motorcycle Unit Shipments
United States	149,228	65.8	%	182,447	73.2	%	(33,219	)	(18.2	)%
International	77,670	34.2	%	66,966	26.8	%	10,704		16.0

Harley-Davidson motorcycle units	226,898	100.0	%	249,413	100.0	%	(22,515	)	(9.0	)

Touring motorcycle units	75,691	33.4	%	84,934	34.1	%	(9,243	)	(10.9	)
Custom motorcycle units*	105,316	46.4	%	109,576	43.9	%	(4,260	)	(3.9	)
Sportster motorcycle units	45,891	20.2	%	54,903	22.0	%	(9,012	)	(16.4	)

Harley-Davidson motorcycle units	226,898	100.0	%	249,413	100.0	%	(22,515	)	(9.0	)

Buell motorcycle units	9,224			8,376			848		10.1	%

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

During the first nine months of 2008, the Company shipped 226,898 Harley-Davidson motorcycles, a decrease of 22,515 motorcycles, or 9.0%, from the same period last year. The Company’s shipments in the U.S. in 2008 continued to be negatively impacted by the challenging economic environment, but were consistent with previously announced plans to ship 23,000 to 27,000 fewer Harley-Davidson motorcycles in 2008 than were shipped in 2007. The Company’s shipments in international markets grew during the nine-month period, and the percentage of units shipped to international customers increased, consistent with the Company’s strategic focus on global markets.

The following table includes net revenue for the Motorcycles & Related Products segment (in millions):


	Nine months ended
	September 28, 2008		September 30, 2007		(Decrease) Increase			% Change
Net Revenue
Harley-Davidson motorcycles	$	3,255.3	$	3,328.3	$	(73.0	)	(2.2	)%
Buell motorcycles		89.7		72.8		16.9		23.2

Total motorcycles		3,345.0		3,401.1		(56.1	)	(1.6	)

Parts & Accessories		706.6		703.1		3.5		0.5
General Merchandise		244.8		232.0		12.8		5.5
Other		5.3		4.3		1.0		N/M

Net revenue	$	4,301.7	$	4,340.5	$	(38.8	)	(0.9	)%

Motorcycles segment net revenue decreased $38.8 million, or 0.9%. Net revenue was lower by approximately $273 million primarily due to the 9.0% lower shipment volume. Partially offsetting the unfavorability in volume was favorability resulting from changes in foreign currency exchange rates of approximately $116 million and product mix changes of approximately $84 million. In addition, wholesale price increases on Harley-Davidson motorcycles contributed approximately $20 million to revenue. Net revenue for the first nine months of 2007 was also impacted by sales incentives and a one-time special financing promotion that was not repeated in the first nine months of 2008. This resulted in approximately $15 million of favorability in the first nine months of 2008.

Harley-Davidson Motorcycle Retail Sales

The Company sells its motorcycles at wholesale to an independent network of dealers and distributors who in turn sell the Company’s products at retail. Worldwide retail sales of Harley-Davidson motorcycles decreased 6.0% during the first nine months of 2008 relative to the same period last year. Retail sales of Harley-Davidson motorcycles decreased 11.9% in the United States while growing 12.6% internationally. On an industry-wide basis, the heavyweight (651+cc) portion of the market was down 4.0% in the United States (through September) while growing 3.8% in Europe (through August) when compared to the same periods in 2007. The following table includes retail unit sales of Harley-Davidson motorcycles:

Harley-Davidson Motorcycle Retail Sales^(a)

Heavyweight (651+cc)


	Nine months ended
	September 28, 2008	September 30, 2007	(Decrease) Increase		% Change
North America Region
United States	189,437	215,092	(25,655	)	(11.9	)%
Canada	14,552	12,855	1,697		13.2

Total North America Region	203,989	227,947	(23,958	)	(10.5	)

Europe Region (Includes Middle East and Africa)
Europe^(b)	34,284	32,594	1,690		5.2
Other	3,483	2,675	808		30.2

Total Europe Region	37,767	35,269	2,498		7.1

Asia Pacific Region
Japan	11,502	10,028	1,474		14.7
Other	7,722	6,816	906		13.3

Total Asia Pacific Region	19,224	16,844	2,380		14.1

Latin America Region	6,034	3,902	2,132		54.6

Total Worldwide Retail Sales	267,014	283,962	(16,948	)	(6.0	)%

(a)

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

The following table includes industry retail motorcycle registration data through the month indicated:

Motorcycle Industry Retail Registrations

Heavyweight (651+cc)


	2008	2007	(Decrease) Increase		% Change
United States (September)^(a)	425,731	443,511	(17,780	)	(4.0	)%
Europe (August)^(b)	323,139	311,164	11,975		3.8	%

(a)	U.S. industry data includes 651+cc models derived from submission of motorcycle retail sales by each major manufacturer to an independent third party.

(b)

Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Industry retail motorcycle registration data includes 651+cc models derived from information provided by Giral S.A., an independent agency.

Cost of Goods Sold

Cost of goods sold was $2.78 billion for the Motorcycles segment in the first nine months of 2008, an increase of $58.7 million or 2.2% versus the corresponding period last year. The increased cost was led by higher manufacturing costs of approximately $97 million. Manufacturing costs increased partially as the result of a higher fixed cost per unit due to allocating fixed costs to fewer units. Additionally, higher manufacturing costs were also the result of increased product cost as the Company invests in new models and increased product content, such as new features and options on the Company’s motorcycles. Cost of goods sold also increased by approximately $55 million resulting from changes in foreign currency exchange rates and approximately $23 million related to changes in product mix. Partially offsetting these cost increases were lower costs of approximately $123 million resulting from lower shipment volumes. Raw material surcharges were approximately $6 million higher when compared to the prior year nine months.

Gross Profit

Gross profit was $1.52 billion for the Motorcycles segment for the first nine months of 2008, a decrease of $97.4 million or 6.0% versus the same period last year. Gross margin for the first nine months of 2008 was 35.4% compared to 37.3% for the first nine months of 2007. The factors impacting the change in gross margin are detailed under “Motorcycle Unit Shipments and Net Revenue” and “Cost of Goods Sold” above.

Financial Services

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


	Nine months ended
	September 28, 2008		September 30, 2007		Increase (Decrease)			% Change
Interest income	$	197.6	$	139.7	$	57.9		41.4	%
Income from securitizations		36.0		86.2		(50.2	)	(58.2	)
Other income		78.5		94.0		(15.5	)	(16.6	)

Financial services income		312.1		319.9		(7.8	)	(2.5	)

Interest expense		90.1		58.3		31.8		54.6
Operating expenses		114.3		88.0		26.3		29.8

Financial services expense		204.4		146.3		58.1		39.7

Operating income from financial services	$	107.7	$	173.6	$	(65.9	)	(38.0	)%

During the first nine months of 2008, interest income benefited from higher average retail outstanding receivables, partially offset by lower wholesale lending rates. Interest expense was higher during the first nine months of 2008 due to increased borrowings to support growth in outstanding retail receivables, partially offset by lower borrowing rates as compared to the same period of 2007. The increase in retail receivables outstanding was driven by the lack of a securitization in the second and third quarters of 2008 due to capital market volatility. The increase in operating expenses in the first nine months of 2008 is primarily due to an increase in the provision for credit losses.

Income from securitizations during the first nine months of 2008 was lower as compared to 2007 due primarily to the loss on the first quarter 2008 securitization transaction and the absence of a securitization transaction in the second and third quarters of 2008. This compares to three securitization transactions completed in the first nine months of 2007.

During the first nine months of 2008, HDFS sold $540.0 million in retail motorcycle loans in a securitization transaction and recognized a loss of $5.4 million, or 0.99% as a percentage of loans sold. This compares to a gain as a percentage of loans sold of 1.42%, or $36.0 million, on $2.53 billion of loans securitized in the first nine months of 2007. The loss in 2008 was driven by increased securitization funding costs due to capital market volatility and higher projected credit losses. In the 2008 securitization transaction, HDFS retained $54.0 million of the subordinated securities issued by the securitization trust. The subordinated securities that were retained have been included in the investment in retained securitization interests (a component of finance receivables held for investment) in the Condensed Consolidated Balance Sheets. The cash proceeds from the 2008 securitization transaction are net of the cost of the retained subordinated securities.

Income from securitizations was also negatively impacted during the first nine months of 2008 by a $6.3 million write down of certain retained securitization interests. The write down, which occurred in the second quarter of 2008 and is considered a permanent impairment, resulted from a decline in the fair value of certain retained securitization interests due to higher actual and anticipated credit losses on those securitization portfolios. This compares to an impairment charge of $3.5 million incurred during the first nine months of 2007.

HDFS reviews its assumptions for determining the fair value of the investment in retained securitization interests each quarter. Key assumptions include expected losses, prepayment speed and discount rate. HDFS determines these assumptions by reviewing historical trends and current economic conditions. Given the challenging U.S. economy, credit losses on HDFS’ retail installment loans have increased, and as a result, the fair value of retained securitization interests have declined and in some cases this decline is permanent. Depending on the behavior of future loss rates, prepayment speeds and the discount rate, HDFS could experience further write-downs of its retained interests, which had a fair value of $399.8 million as of September 28, 2008. A write-down in the retained securitization interest generally represents a non-cash charge in the period in which it is recorded, but ultimately represents a reduction in the residual cash flow that HDFS expects to receive from its investment in retained securitization interests.

During the nine months ended September 28, 2008, HDFS recorded a non-cash charge to earnings of $9.4 million from the lower of cost or estimated fair value on its finance receivables held for sale. HDFS uses discounted cash flow methodologies to estimate the fair value of finance receivables held for sale that incorporate appropriate assumptions for funding costs and credit enhancement, as well as estimates concerning credit losses and prepayments, that in management’s judgment, reflect assumptions marketplace participants would use. Any amount by which cost exceeds fair value is accounted for as a valuation allowance with an offset to other income. The decline in fair value below cost was primarily due to higher estimated funding costs related to significant volatility in the capital markets. The charge to earnings was recorded in other income and was a primary factor for the decrease in other income during the first nine months of 2008 as compared to the same period of 2007.

Annualized losses on HDFS’ managed retail motorcycle loans were 1.97% during the first nine months of 2008 compared to 1.65% during the first nine months of 2007. The 30-day delinquency rate for managed retail motorcycle loans at September 28, 2008 increased to 5.59% from 4.91% at September 30, 2007. Managed retail loans include loans held by HDFS as well as those sold through securitization transactions. The increase in losses was primarily due to a higher incidence of loss resulting from an increase in delinquent accounts. The Company expects that HDFS will continue to experience higher delinquencies and credit losses as a percentage of managed retail motorcycle loans in 2008 as compared to 2007.⁽¹⁾

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


	Nine months ended
	September 28, 2008			September 30, 2007
Balance, beginning of period	$	30.3		$	27.3
Provision for finance credit losses		24.5			4.3
Charge-offs, net of recoveries		(18.0	)		(4.5	)

Balance, end of period	$	36.8		$	27.1

Operating Expenses

The following table includes operating expenses for the Motorcycles segment and Corporate (in millions):


	Nine months ended
	September 28, 2008		September 30, 2007		Increase (Decrease)			% Change
Motorcycles and Related Products
Selling & administrative	$	584.5	$	504.9	$	79.6		15.8	%
Engineering		126.0		134.6		(8.6	)	(6.4	)
Corporate		14.5		13.8		0.7		5.2

Total operating expenses	$	725.0	$	653.3	$	71.7		11.0	%

Total operating expenses, which include selling, administrative and engineering expenses, were 16.9% and 15.1% of net revenue for the first nine months of 2008 and 2007, respectively. Selling and administrative expenses include a $12.0 million restructuring charge incurred by the Company during the first nine months of 2008 (see Note 6 of Notes to Condensed Consolidated Financial Statements for further discussion) and the impact of the one-time $16.6 million expense related to the value of in-process research and development at MVAG (see Note 4 of Notes to Condensed Consolidated Financial Statements for further discussion). In addition, selling and administrative expenses were higher due to higher international operating costs associated with the Company’s international growth.

Other Matters

New Accounting Standards Not Yet Adopted

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. Entities will be required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedge items affect an entity’s financial position, financial performance and cash flows. The Company is required to adopt SFAS No. 161 beginning in fiscal year 2009. The Company is currently evaluating the impact the new disclosure requirements will have on its consolidated financial statements and notes thereto.

Critical Accounting Estimates

Critical accounting estimates are described in “Critical Accounting Estimates” under Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. There have been no material changes to the Company’s critical accounting estimates included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 except as described below.

Finance Receivables Held for Sale – U.S. retail motorcycle loans that the Company intends to securitize at the time of loan origination are classified as finance receivables held for sale. Finance receivables held for sale in the aggregate are carried at the lower of cost or estimated fair value. HDFS uses discounted cash flow methodologies to estimate the fair value of finance receivables held for sale that incorporate appropriate assumptions for funding costs and credit enhancement, as well as estimates concerning credit losses and prepayments, that in management’s judgment, reflect assumptions marketplace participants would use. Any amount by which cost exceeds fair value is accounted for as a valuation allowance with an offset to other income. Cash flows related to finance receivables held for sale are included in cash flows from operating activities.

Prior to the third quarter of 2008, the cost basis of finance receivables held for sale was lower than the estimated fair value and no lower of cost or estimated fair value adjustment has been required. However, significant volatility in the capital markets during the third quarter of 2008 required HDFS to record a $9.4 million non-cash charge due to a decline in the fair value below cost related to finance receivables held for sale. In the future, volatility in the capital markets or negative credit performance of finance receivables held for sale could result in further decreases in the fair value of finance receivables held for sale.

Commitments and Contingencies

Shareholder Lawsuits:

Environmental Matters:

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

Cleanup Program.” The program provides a more streamlined and efficient oversight of voluntary remediation by both PADEP and EPA and will be carried out consistent with the Agreement with the Navy. As a result, the RCRA facility lead agreement has been superseded.

Product Liability Matters:

Liquidity and Capital Resources as of September 28, 2008

The Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities and return value to shareholders.⁽¹⁾ In addition, the Company has had access and expects that it will have continued access to the unsecured debt, unsecured commercial paper, committed unsecured bank credit facility and asset-backed securitization markets to support the ongoing cash requirements of its Financial Services business. HDFS regularly assesses its long-term capital market strategy, which includes diversifying funding sources in the capital markets to provide the appropriate level of flexibility to fund its business and to adjust to market conditions as necessary.

In the fourth quarter of 2008, HDFS expects to have funding available to repay $400.0 million of medium-term notes maturing in December 2008, through available funds, proceeds from a fourth quarter 2008 unsecured debt issuance or other sources. HDFS also expects it will have continuing access to the unsecured commercial paper and committed unsecured bank credit facility markets. In addition, HDFS is also exploring the establishment of an asset-backed commercial paper facility to supplement its existing unsecured commercial paper program.

In 2009, HDFS expects to utilize a combination of funding sources including the unsecured debt, asset-backed securitization, commercial paper and committed unsecured bank credit facility markets. In addition, given the unprecedented volatility in the capital markets, HDFS has developed contingency plans which would only be implemented in the event that conditions in the capital markets limit HDFS’ funding sources. These contingencies include but are not limited to utilizing cash from the Motorcycles Segment and issuing Harley-Davidson, Inc. unsecured debt.

Due to the extreme volatility in the capital markets and management’s conservative approach to liquidity management, the Company does not plan to repurchase shares during the fourth quarter until HDFS has successfully executed a capital market transaction and obtained additional financial flexibility.

As discussed in Note 4 of Notes to Condensed Consolidated Financial Statements, the Company completed the purchase of MVAG during the third quarter of 2008. The Company financed the transaction and MVAG’s initial working capital requirements through $175.1 million of short-term revolving debt under the Global Credit Facilities (as defined below). Going forward, the Company anticipates that short-term working capital requirements for MVAG will be financed through additional short-term debt borrowings.

Cash Flow Activity

The following table summarizes the operating, investing and financing cash flow activity for the periods indicated (in thousands):


	Nine months ended
	September 28, 2008			September 30, 2007
Net cash (used by) provided by operating activities	$	(221,222	)	$	1,368,257
Net cash (used by) provided by investing activities		(283,955	)		462,866
Net cash provided by (used by) financing activities		608,317			(1,671,678	)

Total	$	103,140		$	159,445

Operating Activities

The decrease in operating cash flow from the first nine months of 2007 to the first nine months of 2008 was due primarily to lower securitization proceeds. Proceeds from the sale of retail finance receivables resulted in cash inflows of $467.7 million and $2.49 billion during the first nine months of 2008 and 2007, respectively. During the first nine months of 2008, HDFS funded a greater percentage of its business with proceeds from commercial paper and medium-term notes than it did in the same period last year.

As discussed in Note 12 of Notes to Condensed Consolidated Financial Statements, the Company does not expect to make additional contributions to further fund its pension and postretirement healthcare plans during the remainder of 2008 beyond the amount of current benefit payments for SERPA and postretirement healthcare plans. However, due to significant declines in worldwide financial market conditions, the Company may be required to make additional contributions in 2009 in addition to the amount of current benefit payments.

Investing Activities

The Company’s investing activities consist primarily of capital expenditures, net changes in finance receivables held for investment and short-term investment activity.

Capital expenditures were $153.7 million and $139.4 million during the first nine months of 2008 and 2007, respectively. The Company estimates that total capital expenditures for 2008 will be in the range of $235.0 million to $250.0 million.⁽¹⁾ The Company anticipates it will have the ability to fund all capital expenditures in 2008 with internally generated funds.⁽¹⁾

Sales and redemptions of marketable securities (net of purchases) in the first nine months of 2008 resulted in cash inflow of $2.0 million compared to $604.9 million in the first nine months of 2007. The year over year decline in cash inflow from marketable securities is a result of the Company reducing its investment in marketable securities over the previous twelve months, generally for the purpose of funding share repurchases.

The year over year increase in cash used in investing activities was also affected by the Company’s acquisition of MVAG during the third quarter of 2008.

Financing Activities

The Company’s financing activities consist primarily of share repurchases, dividend payments and debt activity. During the first nine months of 2008, the Company repurchased 6.3 million shares of its common stock at a total cost of $250.0 million. The Company repurchased 3.1 million of these shares under a general authorization provided by the Company’s Board of Directors in October 2006 to buy back 20.0 million shares. As of September 28, 2008, no shares remained under this authorization. The

remaining 3.2 million shares were repurchased under an authorization granted by the Company’s Board of Directors in December 2007, which separately authorized the Company to buy back up to 20.0 million shares of its common stock. In addition, the Company also has an authorization from the Company’s Board of Directors that is designed to provide the Company with continuing authority to repurchase shares to offset dilution caused by the exercise of stock options and the issuance of nonvested stock. Please see Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds” for additional details regarding the Company’s share repurchase activity and authorizations.

The Company paid dividends of $0.96 per share at a total cost of $225.2 million during the first nine months of 2008, compared to dividends of $0.76 per share at a total cost of $189.1 million during the same period last year.

During the nine months ended September 28, 2008, debt increased by $1.94 billion which was primarily driven by higher finance receivables outstanding as HDFS funded a greater percentage of its business through debt rather than through securitization transactions when compared to the first nine months of 2007. Additionally, the Company financed the acquisition and initial working capital requirements of MVAG through $175.1 million of short-term revolving debt under the Global Credit Facilities (as defined below). The Company’s total outstanding debt consisted of the following as of September 28, 2008 and September 30, 2007 (in millions):


	Nine months ended
	September 28, 2008		September 30, 2007
Credit facilities	$	382.9	$	214.4
Commercial paper		786.3		391.6

		1,169.2		606.0
Medium-term notes		2,002.8		594.2
Senior subordinated notes		—		30.0

Total finance debt	$	3,172.0	$	1,230.2

Credit Facilities – In July 2008, the Company and HDFS entered into a $950.0 million 364-day facility and a $950.0 million three-year facility (collectively, “Global Credit Facilities”) to replace existing credit facilities. The Global Credit Facilities, which total $1.90 billion, are committed facilities and are primarily used to support HDFS’ unsecured commercial paper program and to fund HDFS’ lending activities and other operations. Borrowings under the Global Credit Facilities will bear interest at various variable rates, which may be adjusted upward or downward depending on whether certain criteria are satisfied. As a result of the Global Credit Facilities, HDFS may issue unsecured commercial paper in the aggregate equal to the unused portion of the Global Credit Facilities.

Commercial Paper – Subject to limitations, HDFS can issue unsecured commercial paper of up to $1.90 billion as of September 28, 2008. Maturities may range up to 365 days from the issuance date. Outstanding unsecured commercial paper may not exceed the unused portion of the Global Credit Facilities.

Medium-Term Notes – In May 2008, HDFS issued $1.00 billion of 6.80% medium-term notes due in June 2018. HDFS also has $400.0 million of 3.63% medium-term notes outstanding which are due in December 2008, $200.0 million of 5.00% medium-term notes due in December 2010, and $400.0 million of 5.25% medium-term notes due in December 2012 (all four issuances are collectively referred to as “Notes”). The Notes provide for semi-annual interest payments and principal due at maturity. As of September 28, 2008 and September 30, 2007, the Notes included a fair value adjustment increasing the balance by $5.1 million and reducing the balance by $5.8 million, respectively, 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 a portion of the Notes from a fixed to a floating rate, which is based on 3-month LIBOR.

Senior Subordinated Debt – At September 30, 2007, HDFS had $30.0 million of 6.79% senior subordinated notes outstanding which were due in December 2007. In December 2007, the notes matured and the principal and accrued interest was paid in full.

Intercompany Borrowing – HDFS has a revolving credit line with the Company whereby HDFS may borrow up to $210.0 million from the Company at a market interest rate. As of September 28, 2008 and September 30, 2007, HDFS had no outstanding borrowings owed to the Company under this agreement.

The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support in order to maintain 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.

Operating and Financial Covenants – HDFS and the Company are subject to various operating and financial covenants related to the Global Credit Facilities and Notes. The more significant covenants are described below.

The covenants limit HDFS’ ability to:

•

incur certain additional indebtedness;

•

assume or incur certain liens;

•

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

•

purchase or hold margin stock.

Under the Global Credit Facilities financial covenants, the debt to equity ratio of HDFS and its consolidated subsidiaries cannot exceed 10.0 to 1.0 and the Company must maintain an interest ratio coverage of 2.5 to 1.0. The minimum required HDFS consolidated tangible net worth is $300.0 million. No financial covenants are required under the Notes.

At September 28, 2008, HDFS and the Company remained in compliance with all of the existing covenants.

Cautionary Statements

The Company’s ability to meet the targets and expectations noted depends upon, among other factors, the Company’s ability to (i) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead; (ii) manage production capacity and production changes; (iii) manage supply chain issues; (iv) provide products, services and experiences that are successful in the marketplace; (v) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace; (vi) sell all of its motorcycles and related products and services to its independent dealers; (vii) continue to develop the capabilities of its distributor and dealer network; (viii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations; (ix) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices; (x) manage access to reliable sources of capital and adjust to fluctuations in the cost of capital; (xi) adjust to regional and worldwide demographic trends and economic and political conditions, including healthcare inflation, pension reform and tax changes; (xii) anticipate consumer confidence in the economy; (xiii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio; (xiv) retain and attract talented employees; (xv) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation; (xvi) implement and manage enterprise-wide information technology solutions and secure data contained in those systems; and (xvii) successfully integrate and profitably operate MV Agusta Group.

In addition, the Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Other factors are described in risk factors that the Company has disclosed in documents previously filed with the Securities and Exchange Commission. Many of these risk factors are impacted by the current turbulent capital, credit and retail markets.

The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company.

In addition, the Company’s independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.

Refer to “Risk Factors” under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for a discussion of additional factors and a more complete discussion of some of the cautionary statements noted above.

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, 2007 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 Annual Report on Form 10-K for the year December 31, 2007.

Item 4.

Controls and Procedures

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 President and Chief Executive Officer and Executive 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 President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

Changes in Internal Controls

There was no change in the Company’s internal control over financial reporting during the quarter ended September 28, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1.

Legal Proceedings

The information required under this Item 1 of Part II is contained in Item 1 of Part 1 of this Quarterly Report on Form 10-Q in Note 13 of the Notes to Condensed Consolidated Financial Statements, and such information is incorporated herein by reference in this Item 1 of Part II.

Item 1A.

Risk Factors

Refer to Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for a discussion regarding risk factors relating to the Company. There have been no material changes to the risk factors included in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2.

Unregistered Sales of Equity 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 quarter ended September 28, 2008:


2008 Fiscal Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
June 30 to August 3	3,386	$	37	—	23,797,367
August 4 to August 31	2,507,236		40	2,507,194	21,309,409
September 1 to September 28	—		—	—	21,311,409

Total	2,510,622	$	40	2,507,194

The Company has an authorization (originally adopted in December 1997) by its Board of Directors to repurchase shares of its outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (1) the number of shares issued in connection with the exercise of stock options or grants of nonvested stock occurring on or after January 1, 2004 plus (2) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. The Company did not repurchase any shares under this authorization during the quarter ended September 28, 2008.

The shares repurchased during the third quarter of 2008 were repurchased under an authorization granted by the Company’s Board of Directors in December 2007, which separately authorized the Company to buy back up to 20.0 million of its common stock with no dollar limit or expiration date. As of September 28, 2008, 16.7 million shares remained under this authorization.

The Harley-Davidson, Inc. 2004 Incentive Stock Plan permits participants to satisfy all or a portion of the federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares otherwise issuable under the award; (b) tender back shares received in connection with such award; or (c) deliver other previously owned shares, in each case having a value equal to the amount to be withheld. The Company acquired 3,386 shares under this plan during the quarter ended September 28, 2008.

Item 6.

Exhibits

Refer to the Exhibit Index on page 39 of this report.

SIGNATURE

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: October 30, 2008		/s/ Thomas E. Bergmann
		Thomas E. Bergmann
		Executive Vice President and Chief Financial Officer
		(Principal financial and accounting officer)

HARLEY-DAVIDSON, INC.

Exhibit Index to Form 10-Q


Exhibit No.		Description

4.1		3-Year Credit Agreement, dated as of July 16, 2008, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto, JPMorgan Chase Bank, N.A., as global administrative agent and global swing line lender, Citibank, N.A., as syndication agent, and ABN Amro Bank N.V., BNP Paribas and Deutsche Bank AG, New York branch, as documentation agents (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed July 22, 2008 (File No. 1-9183))

4.2		364-Day Credit Agreement, dated as of July 16, 2008, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto, JPMorgan Chase Bank, N.A., as global administrative agent, Citibank, N.A., as syndication agent, and ABN Amro Bank N.V., BNP Paribas and Deutche Bank AG, New York branch, as documentation agents (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed July 22, 2008 (File No. 1-9183))

10.1		Harley-Davidson, Inc. Deferred Compensation Plan for Nonemployee Directors, as amended and restated effective January 1, 2009

10.2		Harley-Davidson 2005 Deferred Compensation Plan, initially effective January 1, 2005 as amended and restated effective January 1, 2009

10.3		Harley-Davidson, Inc. Director Stock Plan as amended and restated effective January 1, 2009

10.4		Harley-Davidson Pension Benefit Restoration Plan as amended and restated effective January 1, 2009

10.5		Form of Harley-Davidson, Inc. Amended and Restated Supplemental Executive Retirement Plan Agreement between the Registrant and James L. Ziemer and James A. McCaslin

10.6		Harley-Davidson Retiree Insurance Allowance Plan effective January 1, 2009

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

EX-10.1 2 dex101.htm DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS Deferred Compensation Plan for Nonemployee Directors

Exhibit 10.1

HARLEY-DAVIDSON, INC.

DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS

(As Amended and Restated Effective January 1, 2009)

Concept

Harley-Davidson, Inc. (the “Company”) created this Plan, effective as of May 1, 1995, to assist nonemployee directors of the Company to defer income, other than income payable under the Harley-Davidson, Inc. Director Stock Plan (the “Stock Plan”), until retirement, death, or other cessation of service as member of the Board of Directors of the Company. The Plan is amended and restated effective January 1, 2009, to conform the terms of the Plan with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

Administrator

The Nominating and Corporate Governance Committee of the Board of Directors of the Company is the Administrator of the Plan.

Definitions

a. Affiliate: Each corporation, trade or business that, with the Company, forms part of a controlled group of corporations or group of trades or businesses under common control within the meaning of Code Sections 414(b) or (c); provided that for purpose of determining when a nonemployee director has incurred a Separation from Service, the phrase “at least fifty percent (50%)” shall be used in place of “at least eighty percent (80%)” each place it appears in Code Section 414(b) and (c) and the regulations thereunder.

b. Board: The Board of Directors of the Company.

c. Change of Control Event:

i. For purposes of distribution of the Pre-2005 Deferred Benefit Account, a change of control event as defined in Schedule A.

ii. For purposes of distribution of the Post-2004 Deferred Benefit Account, a change of control event as defined in regulations promulgated by the Secretary of the Treasury for purposes of Code Section 409A, with respect to Harley-Davidson, Inc.

d. Separation from Service: The date on which a nonemployee director ceases service as a director of the Company and all Affiliates, provided that such cessation of service constitutes a separation from service for purposes of Code Section 409A.

Eligibility

Directors of the Company who are not employees of the Company (“nonemployee directors”) are eligible under the Plan.

Participation Requirements

A nonemployee director must complete a Deferred Compensation Agreement in order to defer compensation under the Plan. A nonemployee director who executes a Deferred Compensation Agreement is referred to as a participant until all of his or her benefits hereunder are paid in full.

Compensation Deferral

A Deferred Compensation Agreement under the Plan will not apply to compensation that a nonemployee director elects to receive in the form of shares of common stock of the Company under Section 7.1 of the Stock Plan. Each Deferred Compensation Agreement must specify the percentage of the participant’s Annual Retainer Fee that would otherwise be paid in cash and that is to be deferred, which percentage may be one hundred percent (100%), fifty percent (50%), or none. For purposes of the Plan, the term “Annual Retainer Fee” means the annual retainer fee then in effect for service by the participant as a director, board committee chair and/or committee member.

a. Initial Deferral Election. A nonemployee director may make an initial deferral election within 30 days of the date on which he or she first becomes a nonemployee director. If a nonemployee director does not make a deferral election during this period, the director will be deemed to have made a deferral election to defer none of the cash portion of the director’s Annual Retainer Fee. A nonemployee director’s initial deferral election (i) must be in writing and delivered to the Treasurer of the Company, (ii) shall apply with respect to the portion of the director’s Annual Retainer Fee that is to be paid in cash and that will be earned on and after the date the Treasury of the Company receives the election, and (iii) shall remain in effect from year-to-year thereafter unless modified or revoked by a subsequent deferral election that becomes effective in accordance with the provisions hereof.

b. Revised Deferral Election. Except to the extent that the Company is permitted and elects to give earlier effect to a nonemployee director’s modification or revocation to his or her deferral election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, a nonemployee director’s deferral election, once effective with respect to a calendar year, may not be revoked or modified for that calendar year. A nonemployee director may revoke or modify his or her then current deferral election by filing a revised deferral election form, properly completed and signed, with the Treasurer of the Company. However, except to the extent that the Company is permitted and elects to give earlier effect to a nonemployee director’s revised election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, the revised deferral election will become effective on January 1 of the calendar year following the calendar year during which the revised deferral election is received and accepted by the Treasurer of the Company, or as soon thereafter as is administratively practicable. A nonemployee director’s revised deferral election, once effective, shall remain in effect until again modified by the nonemployee director or otherwise revoked in accordance with the provisions hereof.

Deferred Benefit Account

The Company will establish on its books a Deferred Benefit Account for each nonemployee director executing a Deferred Compensation Agreement. Deferred compensation shall be credited to this account as of the date on which such compensation is deemed to accrue to the nonemployee director. Distributions shall be charged to this account as they are made. A nonemployee director’s Deferred Benefit Account shall consist of the following subaccounts, if applicable:

a. Pre-2005 Deferred Benefit Account. The portion of a nonemployee director’s Deferred Benefit Account that is attributable to the cash portion of the Annual Retainer Fee that would have been paid to the nonemployee director prior to January 1, 2005 except for the nonemployee director’s deferral election, together with any deemed investment gain or loss thereon.

b. Post-2004 Deferred Benefit Account. The portion of a nonemployee director’s Deferred Benefit Account that is attributable to the cash portion of the Annual Retainer Fee that would otherwise be paid to the nonemployee director after December 31, 2004 except for the nonemployee director’s deferral election, together with any deemed investment gain or loss thereon.

Participant Investment Directions

Prior to July 1, 2001, interest at the Plan’s interest rate was credited to the account of each nonemployee director as of the last day of each month. Interest was calculated by applying the Plan’s interest rate to the balances of the account on such date including distributions to be deducted on that date. The Plan’s interest rate meant, for each 12 consecutive calendar months ending after September 1, the Moody’s Long Term Bond Rate in effect on such September 1 (or the last business day immediately preceding such date if it is a Saturday, Sunday, or holiday) divided by 12.

Effective July 1, 2001, each nonemployee director’s Deferred Benefit Account shall be deemed to be invested in investment options made available by the Administrator and selected by the nonemployee director, in accordance with Administrator rules and procedures uniformly applied.

The Administrator shall select and may prospectively change the investment options to be available for participant investment direction under the Plan and the number of times each year (not less than one) that participants may change investment directions. Any new or revised participant investment direction, completed in accordance with Administrator rules, shall apply to a participant’s entire Deferred Benefit Account. The authorized representative of a deceased participant’s estate may provide investment directions after the death of the participant and in accordance with the provisions of the Plan.

No Trust Fund Created

A participant’s Deferred Benefit Account is a means of measuring the value of the participant’s deferred compensation. The account does not create a trust fund of any kind. Any assets earmarked by the Company to pay benefits under the Plan do at all times remain with the Company. A participant has no property interest in specific assets of the Company because of the Plan. The rights of the participant, or an estate, to benefits under the Plan shall be solely those of an unsecured creditor of the Company.

Statement of Account

Following the close of each year the Company will provide statements of account to each participant.

Distribution of Pre-2005 Deferred Benefit Account

Upon cessation of a nonemployee director’s service as a director of the Company for any reason, or upon the occurrence of a Change of Control Event, the Company will make payments to the nonemployee director (or, in case of the death of the nonemployee director, to his or her beneficiary designated in accordance with the Plan or, if no such beneficiary is designated, to his or her estate), as compensation for prior service as a director, in respect of the nonemployee director’s Pre-2005 Deferred Benefit Account.

a. Form of Payments: A nonemployee director may elect to have payments in respect of the Pre-2005 Deferred Benefit Account made either in (i) a single payment, or (ii) annual installments; provided, however, that if a nonemployee director making a deferral election under the Plan has elected to defer stock compensation under the Harley Davidson, Inc. Director Stock Plan (the “Stock Plan”), then that nonemployee director must elect a payment option with respect to the nonemployee director’s Pre-2005 Deferred Benefit Account under the Plan that provides the same timing of deferred payments as the payment option elected with respect to the nonemployee director’s Pre-2005 Deferral Share Account under the Stock Plan. Under the installment payment option, at the time a nonemployee director makes his or her initial deferral election, or thereafter in accordance with Plan rules, the nonemployee director may select (subject to the proviso in the immediately preceding sentence) the number of years over which benefits are to be paid to the nonemployee director, up to a maximum of 5 years. The payment option elected shall apply to the nonemployee director’s entire Pre-2005 Deferred Benefit Account. The installment payment option does not apply upon the occurrence of a Change of Control Event. A nonemployee director who fails to make any payment election with respect to his or her Pre-2005 Deferred Benefit Account under the Plan and has not made a payment election with respect to the nonemployee director’s Pre-2005 Deferral Share Account under the Stock Plan shall be deemed to have elected the single payment option. A nonemployee director who fails to make any payment election with respect to his or her Pre-2005 Deferred Benefit Account under the Plan but has made a payment election with respect to the nonemployee director’s Pre-2005 Deferral Share Account under the Stock Plan will be deemed to have elected under the Plan the same payment option with respect to the nonemployee director’s Pre-2005 Deferred Benefit Account that he or she has made with respect to his or her pre-2005 account under the Stock Plan. If at the time of the cessation of a nonemployee director’s service there exists a conflict in the payment options that the nonemployee director elected with respect to the Pre-2005 Deferred Benefit Account under the Plan and the nonemployee director’s payment election with respect to his or her Pre-2005 Deferral Share Account under the Stock Plan, then that nonemployee director will be deemed to have made a payment election with respect to his or her Pre-2005 Deferred Benefit Account under the Plan that provides the same timing of deferred payments as the payment option that the nonemployee director elected with respect to his or her Pre-2005 Deferral Share Account under the Stock Plan.

b. If the nonemployee director has elected the single payment option, then the Company will make payment to the nonemployee director in respect of the nonemployee director’s Pre-2005 Deferred Benefit Account within 30 days after the end of the calendar quarter in which the nonemployee director ceases service as a director of the Company. In addition, the Company will make payment to the nonemployee director in respect of the nonemployee director’s Pre-2005 Deferred Benefit Account promptly upon the occurrence of a Change of Control Event.

c. If the nonemployee director has elected the installment payment option, then the first installment will be made within 30 days after the end of the calendar quarter in which the nonemployee director ceases service as a director of the Company, and each subsequent installment shall be paid in July of each calendar year following the calendar year in which the first installment is paid to the nonemployee director during the installment period. The annual installment payment amount for any calendar year shall be determined by dividing the value of the nonemployee director’s Pre-2005 Deferred Benefit Account as of January 1 of the year for which the payment is being made by the number of installment payments remaining to be made, and then rounding the quotient obtained for all but the final installment to the next lowest whole dollar; provided that the final installment shall be the entire undistributed balance in the nonemployee director’s Pre-2005 Deferred Benefit Account.

d. Changes by a nonemployee director in the payment option elected and/or in the number of years in the installment payment period (not to exceed 5 years) shall be in writing and filed with the Treasurer of the Company not less than 12 months before the date the nonemployee director ceases service as a director of the Company for any reason. If a change is requested less than 12 months in advance of the date the nonemployee director ceases service as a director of the Company for any reason, then the nonemployee director’s previous valid election of a form of payment shall be given effect.

The Pre-2005 Deferred Benefit Account shall remain subject to participant investment direction (and adjustment for deemed investment gain or loss) during the installment payment period.

Distribution of Post-2004 Deferred Benefit Account

Upon a nonemployee director’s Separation from Service for any reason, or upon the occurrence of a Change of Control Event, the Company will make payments to the nonemployee director (or, in the case of the death of the nonemployee director, to his or her beneficiary designated in accordance with the Plan or, if no such beneficiary is designated, to his or her estate), as compensation for prior service as a director, in respect of the nonemployee director’s Post-2004 Deferred Benefit Account.

a. Form of Payments: At the time that a nonemployee director first makes a post-2004 deferral election under this Plan or first makes a post-2004 deferral election under the Stock Plan, whichever occurs earlier, the nonemployee director shall make a payment election which shall govern distribution of both the nonemployee director’s Post-2004 Deferred Benefit Account under this Plan and the nonemployee director’s Post-2004 Deferral Share Account under the Stock Plan. In such payment election, the nonemployee director may elect to have payments made either in (i) a single payment, or (ii) annual installments. Under the installment payment option, the nonemployee director may select the number of years over which benefits are to be paid to the nonemployee director, up to a maximum of 5 years. The payment option elected shall apply to the nonemployee director’s entire Post-2004 Deferred Benefit Account under this Plan and the nonemployee’s director’s entire Post-2004 Deferral Share Account under the Stock Plan. The installment payment option does not apply upon the occurrence of a Change of Control Event. A nonemployee director who fails to make a payment election shall be deemed to have elected the single payment option. Prior to January 1, 2009, a nonemployee director may change his or her payment election by filing a revised payment election form, properly completed and signed, with the Treasurer of the Company; provided that a revised election submitted during calendar

year 2006, 2007 or 2008 may not operate to defer into a subsequent calendar year the distribution of amounts that otherwise would have been paid in the calendar year in which the revised election is submitted, or to accelerate into the calendar year in which the revised election is submitted amounts that otherwise were scheduled for distribution in a subsequent calendar year. Changes in a payment election are not permitted on or after January 1, 2009.

b. If the nonemployee director has elected the single payment option, then the Company will make payment to the nonemployee director in respect of the nonemployee director’s Post-2004 Deferred Benefit Account within 30 days after the end of the calendar quarter in which occurs the nonemployee director’s Separation from Service. In addition, the Company will make payment to the nonemployee director in respect of the nonemployee director’s Post-2004 Deferred Benefit Account within 30 days following the occurrence of a Change of Control Event.

c. If the nonemployee director has elected the installment payment option, then the first installment will be made within 30 days after the end of the calendar quarter in which occurs the nonemployee director’s Separation from Service, and each subsequent installment shall be paid in July of each calendar year following the calendar year in which the first installment is paid to the nonemployee director during the installment period. The annual installment payment amount for any calendar year shall be determined by dividing the value of the nonemployee director’s Post-2004 Deferred Benefit Account as of January 1 of the year for which the payment is being made by the number of installment payments remaining to be made, and then rounding the quotient obtained for all but the final installment to the next lowest whole dollar; provided that the final installment shall be the entire undistributed balance in the nonemployee director’s Post-2004 Deferred Benefit Account.

The Post-2004 Deferred Benefit Account shall remain subject to participant investment direction (and adjustment for deemed investment gain or loss) during the installment payment period.

Hardship Payments

The Administrator may, in its sole discretion, upon the finding that the nonemployee director has suffered an “unforeseeable emergency” , distribute to the nonemployee director part or all of the nonemployee director’s Deferred Benefit Account, as needed to meet the nonemployee director’s need. An “unforeseeable emergency” means a severe financial hardship to the nonemployee director resulting from an illness or accident of the nonemployee director, the nonemployee director’s spouse, or the nonemployee director’s dependent (as defined in Internal Revenue Code Section 152(a) without regard to Sections 152(b)(1), (b)(2), and (d)(1)(B)), loss of the nonemployee director’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the nonemployee director. The amount authorized by the Administrator for distribution with respect to an emergency may not exceed the amounts necessary to satisfy the emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the nonemployee director’s assets, to the extent that liquidation of such assets would not itself cause severe financial hardship.

Designation of Beneficiary

Each participant entitled to any payments from his or her Deferred Benefit Account from time to time may designate a beneficiary or beneficiaries to whom any such payments are to be paid in case of the participant’s death before receipt of any or all of such payments. Any designation will revoke all prior designations by the participant, shall be in a form prescribed by the Company and will be effective only when filed by the participant, during his or her lifetime, in writing with the Treasurer of the Company. References in the Plan to a participant’s “beneficiary” at any date shall include such persons designated as concurrent beneficiaries on the director’s beneficiary designation form then in effect. In the absence of any such designation, any balance remaining in a participant’s Deferred Benefit Account at the time of the participant’s death shall be paid to such participant’s estate in a lump sum.

Assignment

A participant may not assign the right to receive benefits under the Plan.

Not a Contract to Continue as Director

This Plan may not be construed as giving any person the right to be retained as a director of the Company.

Taxes

The Company may withhold from all benefit payments any amounts which may be required to be withheld under applicable tax laws.

Amendment and Termination

The Company may, at any time, by action of the Nominating and Corporate Governance Committee of the Board of Directors of the Company, amend the Plan, with prospective effect, or terminate the Plan. The Company may not, however, reduce any benefit payments to or on behalf of a nonemployee director based on deferrals already made, without the nonemployee director’s consent.

Distribution of Benefits Following Plan Termination

Termination of the Plan will operate to accelerate distribution of benefits only to the extent permitted under Code Section 409A, including:

a. The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), and the amounts accrued under the Plan but not yet paid are distributed to nonemployee directors or their beneficiaries, as applicable, in a single sum payment, regardless of any distribution election then in effect, by the latest of: (1) the last day of the calendar year in which the Plan termination and liquidation occurs, (2) the last day of the calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (3) the last day of the first calendar year in which payment is administratively practicable.

b. The Plan is terminated at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate. In such event, all amounts accrued under the Plan but not yet paid will be distributed to all nonemployee directors and their beneficiaries, as applicable, in a single sum payment no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of termination, regardless of any distribution election then in effect. This provision shall not be effective unless all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plan’s termination, unless any individual who was eligible under this Plan is excluded from participating thereunder for such three (3) year period.

Except as provided in Paragraphs a. and b. above or as otherwise permitted in regulations promulgated by the Secretary of the Treasury under Code Section 409A, any action that terminates the Plan but that does not qualify for accelerated distribution under Code Section 409A shall instead be construed as an amendment to discontinue further benefit accruals, but the Plan will continue to operate, in accordance with its terms as from time to time amended and in accordance with applicable elections by the nonemployee director, with respect to the nonemployee director’s benefit accrued through the date of termination, and in no event shall any such action purporting to terminate the Plan form the basis for accelerating distributions to the nonemployee director or a beneficiary.

Construction

The Plan is to be construed under the laws of the State of Wisconsin, without reference to conflict of law principles thereof.

Binding Agreement

This Plan is binding upon the Company and participants and their respective successors, assigns, heirs, executors, and beneficiaries.

Miscellaneous Section 409A Rules

a. Accelerated Distribution Following Section 409A Failure. If an amount under this Plan is required to be included in a nonemployee director’s income under Code Section 409A prior to the date such amount is actually distributed, the nonemployee director shall receive a distribution, in a single sum, within ninety (90) days after the date it is finally determined that the Plan fails to meet the requirements of Code Section 409A. The distribution shall equal the amount required to be included in the nonemployee director’s income as a result of such failure.

b. Permitted Delay in Payment. If a distribution required under the terms of this Plan would jeopardize the ability of the Company or of an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making the distribution does not jeopardize the ability of the Company or of an Affiliate to continue as a going concern. Further, if any distribution pursuant to the Plan will violate the terms of Section 16(b) of the Securities Exchange Act of 1934 or other Federal securities laws, or any other applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such law.

AS AMENDED, pursuant to authorization of the Board of Directors of the Company as of:


Date:

HARLEY-DAVIDSON, INC.

By:

		Its:

SCHEDULE A TO THE

HARLEY-DAVIDSON, INC.

DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTS

For purposes of clause i of the definition of Change of Control Event, a Change of Control Event means any one of the following:

a. Continuing directors no longer constitute at least two-thirds of the directors of Harley-Davidson, Inc. “Continuing director” means any individual who is either (i) a member of the Board on May 3, 2003, 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);

b. Any person or group of persons (as defined in Rule 13d-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), together with its affiliates, becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the then outstanding common stock of Harley-Davidson, Inc. or twenty percent (20%) or more of the voting power of the then outstanding securities of Harley-Davidson, Inc. entitled generally to vote for the election of the members of the Board;

c. The approval by the shareholders of Harley-Davidson, Inc. of the merger or consolidation of Harley-Davidson, Inc. with any other corporation, the sale of substantially all of the assets of Harley-Davidson, Inc., or the liquidation or dissolution, of Harley-Davidson, Inc., unless, in the case of a merger or consolidation, the then Continuing Directors in office immediately prior to such merger or consolidation will constitute at least two-thirds (2/3) of the directors of the surviving corporation of such merger or consolidation and any parent (as such term is defined in Rule 12b-2 under the Exchange) of such corporation; or

d. At least two-thirds (2/3) of the then Continuing Directors in office immediately prior to any other action proposed to be taken by the shareholders of Harley-Davidson, Inc. or by the Board determines that such proposed action, if taken, would constitute a change of control of Harley-Davidson, Inc. and such action is taken.

EX-10.2 3 dex102.htm 2005 DEFERRED COMPENSATION PLAN 2005 Deferred Compensation Plan

Exhibit 10.2

HARLEY-DAVIDSON 2005

DEFERRED COMPENSATION PLAN

(Originally Effective January 1, 2005, and as Amended and Restated Effective January 1, 2009)

TABLE OF CONTENTS


		Page
ARTICLE I. DEFINITIONS AND CONSTRUCTION		2
Section 1.01. Definitions		2
Section 1.02. Construction and Applicable Law		6

ARTICLE II. PARTICIPATION		7
Section 2.01. Eligibility		7

ARTICLE III. EMPLOYEE DEFERRED COMPENSATION		8
Section 3.01. Deferrals Of Base Compensation		8
Section 3.02. Deferrals of Annual Bonus Awards		9
Section 3.03. Restricted Stock Deferrals		10
Section 3.04. Matching Contribution Credits		13
Section 3.05. Employer Retirement Contribution Restoration Credits		13
Section 3.06. Other Deferrals and Credits		14
Section 3.07. Effect of Unforeseeable Emergency or Hardship		15
Section 3.08. Involuntary Termination of Deferral Elections		15

ARTICLE IV. ACCOUNTING AND HYPOTHETICAL INVESTMENT ELECTIONS		16
Section 4.01. Investment Options		16
Section 4.02. Participant Investment Elections		16
Section 4.03. Allocation of Deemed Investment Gain or Loss		17
Section 4.04. Accounts are For Record Keeping Purposes Only		17

ARTICLE V. DISTRIBUTION OF ACCOUNTS		18
Section 5.01. Distribution of Account		18
Section 5.02. Distribution Election		19
Section 5.03. Death Benefit Payments		20
Section 5.04. Hardship Withdrawals		21
Section 5.05. Automatic Single Sum Distribution		22
Section 5.06. Acceleration of Payments Upon a Change of Control		22

ARTICLE VI. GENERAL PROVISIONS		23
Section 6.01. Administration		23
Section 6.02. Restrictions to Comply with Applicable Law		23
Section 6.03. Claims Procedures		23
Section 6.04. Participant Rights Unsecured		25
Section 6.05. Distributions for Tax Withholding and Payment		25
Section 6.06. Amendment or Termination of Plan		26
Section 6.07. Administrative Expenses		28
Section 6.08. Successors and Assigns		28
Section 6.09. Right of Offset		28
Section 6.10. Not a Contract of Employment		29
Section 6.11. Miscellaneous Distribution Rules		29

HARLEY-DAVIDSON 2005

DEFERRED COMPENSATION PLAN

Harley-Davidson Motor Company Group, Inc. (the “Company”) maintains the Harley-Davidson Deferred Compensation Plan (the “Original Plan”) for the benefit of eligible employees of the Company and its Affiliates. The Original Plan continues in effect with respect to amounts deferred through December 31, 2004.

The Company has established the Harley-Davidson 2005 Deferred Compensation Plan (the “Plan”) with respect to amounts deferred by eligible participants after December 31, 2004. The Plan is intended to promote the best interests of the Company and its Affiliates by attracting and retaining key management employees possessing a strong interest in the successful operation of the Company and its Affiliates and encouraging their continued loyalty, service and counsel to the Company and its Affiliates. The Plan is amended and restated effective January 1, 2009 to comply with final regulations under Code Section 409A.

ARTICLE I. DEFINITIONS AND CONSTRUCTION

Section 1.01. Definitions.

The following terms have the meanings indicated below unless the context in which the term is used clearly indicates otherwise:

(a) Account: The record keeping account or accounts maintained to record the interest of each Participant under the Plan. An Account is established for record keeping purposes only and not to reflect (or require) the physical segregation of assets on the Participant’s behalf. To the extent relevant with respect to any Participant, the Participant’s overall Account may consist of such subaccounts or balances as the Administrator may determine to be necessary or appropriate.

(b) Administrator: The Retirement Plans Committee appointed by the Board.

(c) Affiliate: Each corporation, trade or business that, with the Company, forms part of a controlled group of corporations or group of trades or businesses under common control within the meaning of Code Sections 414(b) or (c); provided that for purpose of determining when a Participant has incurred a Separation from Service, the phrase “at least fifty percent (50%)” shall be used in place of “at least eighty percent (80%)” each place it appears in Code Section 414(b) and (c) and the regulations thereunder.

(d) Annual Bonus Deferral: See Section 1.01(l)(ii).

(e) Base Compensation: The base salary or wage payable by a Participating Employer to an Eligible Employee for services performed prior to reduction for contributions by the Eligible Employee to this Plan or pre-tax or after-tax contributions by the Eligible Employee to any other employee benefit plan maintained by a Participating Employer, but exclusive of extraordinary payments such as overtime, bonuses, meal allowances, reimbursed expenses, termination pay, moving pay, commuting expenses, severance pay, non-elective deferred compensation payments or accruals, stock options or restricted stock, or the value of employer-provided fringe benefits or coverage, all as determined in accordance with such uniform rules, regulations or standards as may be prescribed by the Administrator.

(f) Base Compensation Deferral: See Section 1.01(l)(i).

(g) Beneficiary: The person or entity designated by a Participant to be his or her beneficiary for purposes of this Plan. If a beneficiary dies before receiving all payments due such beneficiary, any remaining payments will be made to the designated beneficiary’s estate unless a contingent beneficiary was designated by the Participant as to such amounts. If there is a contingent beneficiary payments will be made to the contingent beneficiary and, if such contingent beneficiary dies, any remaining payments will be made to the contingent beneficiary’s estate. If there is no beneficiary designation in force when Plan benefits become payable upon the death of a Participant, payment shall be made to the Participant’s current spouse, or if the Participant is not married or the spouse is not then living, to the Participant’s estate. Beneficiary designations shall be in writing, filed with the Administrator, be in such form as the Administrator may prescribe for this purpose, and shall become effective only upon acknowledgement by the Administrator.

(h) Board: The Board of Directors of the Company.

(i) Code: The Internal Revenue Code of 1986, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include reference to any successor provision thereto.

(j) Committee: The Compensation Committee of the Board of Directors of Harley-Davidson, Inc.

(k) Company: Harley-Davidson Motor Company Group, Inc., or any successor thereto.

(l) Deferral: An amount credited, in accordance with a Participant’s election, to the Participant’s Account under the Plan in lieu of the current payment of an equal amount of compensation to the Participant. Deferrals include the following:

(i)

Base Compensation Deferral: A Deferral of all or a portion of a Participant’s Base Compensation in accordance with Section 3.01.

(ii)

Annual Bonus Deferral: A Deferral of all or a portion of a Participant’s annual bonus award in accordance with Section 3.02.

(iii)

Restricted Stock Deferral: A Deferral of all or a portion of a Participant’s restricted stock or restricted stock unit award under the Incentive Stock Plan, in accordance with Section 3.03.

(m) Disability: The inability of a Participant to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, as determined by the Administrator.

(n) Eligible Employee: A common law employee of a Participating Employer who has been designated by the Administrator or the Committee as being eligible to participate in this Plan or who is eligible for the benefits described in Section 3.05.

(o) ERISA: The Employee Retirement Income Security Act of 1974, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of ERISA shall be deemed to include reference to any successor provision thereto.

(p) Incentive Stock Plan: The Harley-Davidson, Inc. 2004 Incentive Stock Plan, or any successor to such plan.

(q) Investment Options: The hypothetical investment options established by the Administrator from time to time (which may, but need not, be based upon one or more of the investment options available under the Retirement Savings Plan for Salaried Employees of Harley-Davidson).

(r) Matching Contribution Credits: The amounts (if any) credited in accordance with Section 3.04.

(s) Participant: An Eligible Employee or a former Eligible Employee with an undistributed Account balance under the Plan.

(t) Participating Employer: The Company and each Affiliate that, with the consent of the Administrator or the Committee, participates in the Plan for the benefit of one or more Participants.

(u) Separation from Service: The date on which a Participant separates from service (within the meaning of Code Section 409A) from the Company and all Affiliates. A Separation from Service occurs when the Company and the Participant reasonably anticipate that no further services will be performed by the Participant for the Company and its Affiliates after that date or that the level of bona fide services the Participant will perform after such date as an employee of the Company or an Affiliate will permanently decrease to no more than 20% of the average level of bona fide services performed by the Participant (whether as an employee or independent contractor) for the Company and its Affiliates over the immediately preceding 36-month period (or such lesser period of services). The Participant is not considered to have incurred a Separation from Service if the Participant is absent from active employment due to military leave, sick leave or other bona fide reason if the period of such leave does not exceed the greater of (i) six months, or (ii) the period during which the Participant’s right to reemployment by the Company or an Affiliate is provided either by statute or by contract; provided that if the leave of absence is due to a medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, the leave may be extended for up to 29 months without causing the Participant to have incurred a Separation from Service.

(v) Stock Unit: A hypothetical share of common stock of Harley-Davidson, Inc.

(w) Valuation Date: See Section 4.03.

Section 1.02. Construction and Applicable Law.

(a) Wherever any words are used 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 use in the singular or the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. Titles of articles and sections are for general information only, and the Plan is not to be construed by reference to such items.

(b) This Plan is intended to be a plan of deferred compensation maintained for a select group of management or highly compensated employees as that term is used in ERISA, and shall be interpreted so as to comply with the applicable requirements thereof. In all other respects, the Plan is to be construed and its validity determined according to the laws of the State of Wisconsin (without reference to conflict of law principles thereof) to the extent such laws are not preempted by federal law, and any action for benefits under the Plan or to enforce the terms of the Plan shall be heard in the State of Wisconsin by the court with jurisdiction over the claim. In case any provision of the Plan is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, but the Plan shall, to the extent possible, be construed and enforced as if the illegal or invalid provision had never been inserted.

ARTICLE II. PARTICIPATION

Section 2.01. Eligibility.

Except for Section 3.05, an employee shall be eligible to participate in the Plan only if the employee is employed by a Participating Employer and if the employee has been designated as an Eligible Employee by the Administrator or the Committee. When designating an employee as an Eligible Employee, the Administrator or the Committee, in their sole discretion, may designate the employee for participation in the entire Plan or any part thereof. An employee who satisfies the requirements Section 3.05 is eligible to participate in the Plan with respect to the benefits described in that Section, whether or not the Participant has been designated for participation in the other components of the Plan.

ARTICLE III. EMPLOYEE DEFERRED COMPENSATION

Section 3.01. Deferrals Of Base Compensation.

(a) Amount. A Participant may elect, in such form and manner as the Administrator may prescribe, to defer payment of a portion of the Base Compensation that would otherwise be paid to the Participant. A Participant’s election shall specify either a fixed dollar amount or a percentage (in increments of 1% to a maximum of 85% or such lower percentage specified by the Administrator) of the Participant’s Base Compensation that the Participant wishes to defer. The minimum annual Base Compensation Deferral is $5,000 (or if the Participant has designated a percentage of Base Compensation to be deferred, the percentage that, when applied to the Participant’s Base Compensation rate at the time the Deferral election is made, is expected to result in an annual Base Compensation Deferral of at least $5,000).

(b) Initial Deferral Election. In the case of a Participant who has been designated for participation for the first time (and who has not previously been designated as being eligible for participation in another deferred compensation plan that is required to be aggregated with this Plan for purposes of Code Section 409A), the Participant may submit his or her initial Base Compensation Deferral election within 30 days of being designated for participation in the Plan. If the Participant does so, the Participant’s validly executed Base Compensation Deferral election shall become effective with respect to Base Compensation attributable to services to be performed subsequent to the date on which the election is filed with the Administrator, or as soon thereafter as is practicable. Alternatively, the Participant at any time may elect to make Base Compensation Deferrals by submitting a validly executed Base Compensation Deferral election to the Administrator, but the election shall become effective and shall apply only to Base Compensation attributable to services performed on or after January 1 of the calendar year following the calendar year during which the election is received by the Administrator, or as soon thereafter as practicable. A Participant’s Base Compensation Deferral election, once effective, shall remain in effect until modified by the Participant in accordance with subsection (c) below or otherwise revoked in accordance with Plan rules.

(c) Revised Deferral Election. Except to the extent that the Administrator is permitted (and elects) to give earlier effect to a Participant’s revocation or revision to his or her Base Compensation Deferral election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, a Participant’s Deferral election, once effective with respect to a calendar year, may not be revoked or modified with respect to Base Compensation for that calendar year. A Participant may modify his or her then current Base Compensation Deferral election by filing a revised Base Compensation Deferral election form, properly completed and signed, with the Administrator. However, except to the extent that the Administrator is permitted (and elects) to give earlier effect to a Participant’s revised election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, the revised election will be effective only with respect to Base Compensation for services performed on or after January 1 of the calendar year following the calendar year during which the revised election is received by the Administrator, or as soon thereafter as practicable. A Participant’s revised Deferral election, once effective, shall remain in effect until again modified by the Participant under this Section or otherwise revoked in accordance with Plan rules.

(d) Base Compensation Paid Following Year End For the Payroll Period That Includes December 31. For purposes of applying a Participant’s Base Compensation Deferral election, Base Compensation paid after December 31 of a calendar year that is attributable solely to services performed during the payroll period that includes December 31, if paid in accordance with the normal timing arrangement by which a Participating Employer compensates employees for services rendered, is treated as Base Compensation for services performed in the subsequent calendar year, even though part or all of the Participant’s services might have been performed in the prior calendar year.

Section 3.02. Deferrals of Annual Bonus Awards.

A Participant may irrevocably elect, in such form and manner as the Administrator may prescribe, to defer payment of a portion of the annual cash bonus that may be awarded and that would otherwise be paid to the Participant with respect to any calendar year. A Participant’s election shall specify either a fixed dollar amount or a percentage (in increments of 1% to a maximum of 85% or such lesser amount or percentage as may be established by the Administrator, or as may be consistent with Code Section 409A and

necessary in order to comply with applicable withholding obligations, whether attributable to withholdings required under applicable law or other authorized withholdings) of the Participant’s annual cash bonus that the Participant wishes to defer. In the case of any bonus award that does not constitute performance-based compensation for purposes of Code Section 409A, a validly executed Annual Bonus Deferral election shall be effective only if the Annual Bonus Deferral election is received by the Administrator prior to the last day of the calendar year preceding the calendar year in which the Participant performs the services on which the bonus award is based, or by such other time as provided in regulations promulgated by the Secretary of the Treasury and adopted by the Administrator. In the case of any bonus award that constitutes performance-based compensation for purposes of Code Section 409A, a validly executed Annual Bonus Deferral election shall become effective with respect to the bonus that may be awarded to the Participant with respect to a calendar year if the Participant’s Deferral election is received by the Administrator at least six (6) months prior to the end of the (calendar year) performance period for the bonus, or by such earlier (but not later) date as the Administrator may establish. A Participant’s Annual Bonus Deferral election becomes irrevocable at the end of the permitted election period, and the Participant may not thereafter revoke or modify his or her election, except as may be permitted by the Administrator in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A. A Participant’s election to defer a bonus award shall be effective only for the performance period to which the election relates, and shall not carry over from year to year.

Section 3.03. Restricted Stock Deferrals.

(a) A Participant may elect, in such form and manner as the Administrator may prescribe, to defer payment of all or any portion of any restricted stock or restricted stock unit award that the Participant receives under the Incentive Stock Plan. A Participant’s election shall specify the whole number of shares or units (up to 100% of such shares or units, or such lesser number or percentage as may be established by the Administrator or as may be consistent with Code Section 409A and necessary in order to comply with applicable withholding obligations, whether attributable to withholdings required under applicable law or other authorized withholdings) of the Participant’s award that the Participant wishes to defer; provided that if the Participant specifies a

deferral percentage and application of that percentage does not produce a whole number of shares or units, the number of shares or units to be deferred shall be increased to the next higher whole number of share or units. In the case of any award that is not performance-based compensation for purposes of Code Section 409A, a validly executed Restricted Stock Deferral election shall be effective only if the Restricted Stock Deferral election is received by the Administrator prior to the last day of the calendar year preceding the calendar year in which begins the service period for which the restricted stock or restricted stock units are granted, or by such other time as provided in regulations promulgated by the Secretary of the Treasury and adopted by the Administrator. In the case of any award that is performance-based compensation for purposes of Code Section 409A, a validly executed Restricted Stock Deferral election shall become effective with respect to shares or units to be earned by the Participant with respect to any performance period if the Participant’s Restricted Stock Deferral election is received by the Administrator at least six (6) months prior to the end of such performance period or by such earlier (but not later) date as the Administrator may establish. A Participant’s Restricted Stock Deferral election becomes irrevocable at the end of the permitted election period, and the Participant may not thereafter revoke or modify his or her election, except as may be permitted by the Administrator in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A. A Participant’s Restricted Stock Deferral election shall be effective only for the particular restricted stock or restricted stock unit award to which the election relates, and a Participant’s election does not carry over from award to award.

(b) A Participant who has made a Restricted Stock Deferral election will be credited under this Plan, on a one-for-one basis, with a number of Stock Units equal to the number of shares of restricted stock or the number of stock units that originally were granted to the Participant under the Incentive Stock Plan but that the Participant has elected to defer under this Plan as a Restricted Stock Deferral. Any dividends (or similar distribution) that would have been payable on the Stock Units credited to a Participant’s Account if such Stock Units were actual shares of Harley-Davidson, Inc. common stock will be credited to the Participant’s Account in the form of additional Stock Units. If any such dividend or other distribution is not already expressed in the form of shares, it shall be converted, for record keeping purposes, into whole and fractional Stock Units. The conversion shall be accomplished by dividing the amount of the dividend or distribution by the closing price of a share of Harley-Davidson, Inc. common stock on the payment date for the dividend or distribution.

(c) Unless otherwise determined by the Committee, the Participant’s interest in Stock Units attributable to a Restricted Stock Deferral shall be subject to the same vesting or forfeiture conditions to which the Participant would have been subject if the Participant had received the restricted stock or restricted stock unit award directly rather than electing to defer delivery of such award. Similarly, unless otherwise determined by the Committee, the dividend (or distribution) credits that are made in the form of additional Stock Units in accordance with subsection (b), shall be subject to the same vesting or forfeiture conditions as apply with respect to the Stock Unit on which the dividend (or distribution) credit is based.

(d) In the event of any merger, share exchange, reorganization, consolidation, recapitalization, stock dividend or stock split involving Harley-Davidson, Inc. common stock, or other event in which Harley-Davidson, Inc. common stock is subdivided or combined, or a cash dividend is declared the amount of which, on a per share basis, exceeds fifteen percent (15%) of the fair market value of a share of Harley-Davidson, Inc. common stock, at the time the dividend is declared, or Harley-Davidson, Inc. shall effect any other dividend or other distribution of Harley-Davidson, Inc. common stock that the Board determines by resolution is extraordinary or special in nature or that is in connection with a transaction that Harley-Davidson, Inc. characterizes publicly as a recapitalization or reorganization of Harley-Davidson, Inc. common stock or words of similar import, or any other event shall occur, which, in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, the Committee shall make appropriate equitable adjustments with respect to the Stock Units (if any) credited to the Account of each Participant. The nature of any such adjustment shall be determined by the Committee, in its discretion.

(e) Shares of Harley-Davidson, Inc. common stock distributed in settlement of a Participant’s Stock Units, including the shares distributed in settlement of dividend (or distribution) credits that were made in the form of additional Stock Units, shall be charged against the pool of available shares under the Incentive Stock Plan.

Section 3.04. Matching Contribution Credits.

The Administrator will also credit to the Account of each Participant a Matching Contribution Credit (denominated in cash) on amounts deferred under this Plan as Base Compensation Deferrals and/or Annual Bonus Deferrals, as determined by the Administrator. The Matching Contribution Credit will be in the same relative amount as the matching contribution that is made to the Participant’s pre-tax savings account under the Retirement Savings Plan for Salaried Employees of Harley-Davidson (“Retirement Savings Plan”) on amounts the Participant has elected to defer under that plan. This Matching Contribution Credit will be made as of the last day of the calendar year quarter in which the employer matching contribution is deposited to the Retirement Savings Plan for a year. The Matching Contribution Credit, and the earnings attributed to it, are subject to the vesting rules of the Retirement Savings Plan so that a Participant who terminates employment prior to becoming vested in his or her matching contributions under the Retirement Savings Plan shall forfeit the portion of his or her Account under this Plan that is attributable to Matching Contribution Credits, and earnings thereon. Matching Contribution Credits to this Plan shall not be deemed to be an employer matching contribution to the Retirement Savings Plan for any nondiscrimination testing purposes. A Participant will not, under any circumstances, be credited with aggregate Matching Contribution Credits under this Plan and matching contributions under the Retirement Savings Plan that exceeds the rate of matching applicable for the year under the Retirement Savings Plan multiplied by six percent (6%) of the Participant’s Base Compensation and Annual Bonus for such year, without regard to any deferrals of such amounts made hereunder.

Section 3.05. Employer Retirement Contribution Restoration Credits.

(a) Unless the Administrator determines otherwise, a Participant (whether or not designated for participation in other aspects of the Plan) who is hired on or after August 1, 2006 and who is covered under the Employer Retirement Contribution feature of the Retirement Savings Plan for Salaried Employees of Harley-Davidson or the Buell Motorcycle Company Retirement Savings Plan (collectively, the “Retirement Savings Plan”) will be eligible to receive an additional credit to his or her Account for each year, in accordance with the rules of this Section, if the Participant’s Employer Retirement Contribution under the Retirement Savings Plan is limited because of the limitations of Code Section 401(a)(17) or 415.

(b) With respect to each Participant whose Employer Retirement Contribution is limited in the manner described in subsection (a), the Participant shall receive an additional credit under this Plan equal to the difference between (i) the Employer Retirement Contribution that would have been allocated to the Participant for the year under the Retirement Savings Plan if the Code Section 401(a)(17) and 415 limitations did not apply and if Base Compensation and Annual Bonus Deferrals made by the Participant under this Plan are treated as if they had been paid to the Participant in cash, and (ii) the Employer Retirement Contribution to which the Participant is actually entitled for such year under the Retirement Savings Plan.

(c) A Participant will have a vested and non-forfeitable right to the credits made under this Section, and any deemed investment gains or losses on such credits, if the Participant is vested in the Employer Retirement Contributions made to his or her account under the Retirement Savings Plan. If the Participant terminates employment prior to obtaining a vested right to the Employer Retirement Contributions under the Retirement Savings Plan, the credits made on the Participant’s behalf under this Section, together will all deemed investment gains or losses on such credits, shall be forfeited.

Section 3.06. Other Deferrals and Credits.

The Administrator or the Committee, in their discretion, may, with respect to any Participant, determine that the Participant is eligible to make Deferrals with respect to additional components of the Participant’s remuneration or receive employer contribution credits in addition to the credits described herein. In no event, however, shall the Administrator or Committee authorize such additional Deferrals or credits unless the Administrator or Committee has first determined that the Deferrals or credits have been elected or authorized in a manner that will not result in the imposition of tax under Code Section 409A.

Section 3.07. Effect of Unforeseeable Emergency or Hardship.

Notwithstanding the general timing rules under Sections 3.01 and 3.02 that govern Participant Deferral elections, if a Participant receives a distribution on account of (a) “unforeseeable emergency” under Section 5.04 or (b) a distribution on account of “hardship” under the Retirement and Savings Plan or any other qualified plan maintained by the Company or an Affiliate that includes a qualified cash or deferred arrangement under Code Section 401(k) where such plan requires the Participant to cease qualified and non-qualified deferrals as a condition of receiving the distribution, then the Participant’s then-existing Base Compensation Deferral election, Annual Bonus Deferral election, and any Restricted Stock Deferral election may be terminated (and not merely suspended) to the extent this Administrator so determines. Any Deferral election made after a termination of a Deferral election due to hardship or unforeseeable emergency will be considered an “initial deferral election” that is subject to the rules of Code Section 409A and the regulations promulgated thereunder with respect to “initial deferral elections.”

Section 3.08. Involuntary Termination of Deferral Elections.

Subject to Code Section 409A, a Participant’s Deferral election will terminate, or contribution credits to a Participant’s Account will cease, if the Administrator or the Committee determines that the Participant is no longer eligible to participate in the Plan or that revocation of a Participant’s eligibility is necessary or desirable in order for the Plan to qualify under ERISA as a plan of deferred compensation for a select group of management or highly compensated employees.

ARTICLE IV. ACCOUNTING AND HYPOTHETICAL INVESTMENT ELECTIONS

Section 4.01. Investment Options.

The Administrator may designate two or more Investment Options. The Administrator’s designation of an Investment Option does not imply any obligation on the part of the Participating Employers to set aside or otherwise invest funds in the designated Investment Option. The Investment Option serves merely as a device for determining the amount of deemed investment gain or loss to be credited or charged to the Participant’s Account. Further, the Administrator may at any time modify the roster of available Investment Options, including the elimination of any Investment Option that was previously available under the Plan.

Section 4.02. Participant Investment Elections.

(a) This Section applies to the deemed investment of a Participant’s Account, other than the portion attributable to Restricted Stock Deferrals. The portion of a Participant’s Account that is attributable to Restricted Stock Deferrals is deemed to be invested in Stock Units, and the Participant is not permitted to exercise investment discretion with respect to this portion.

(b) In accordance with uniform rules prescribed by the Administrator, which shall permit Participants to make investment directions at least annually, each Participant shall designate, in writing or in such other manner as the Administrator may prescribe, how his or her Account (other than the portion of the Account attributable to Restricted Stock Deferrals) shall be deemed to be invested among the Investment Options. A Participant’s investment designation, when effective, shall operate both (i) to reallocate the Participant’s existing Account balance (other than the portion of the Account attributable to Restricted Stock Deferrals) in the percentages specified by the Participant in his or her investment election, and (ii) as a direction with respect to the deemed investment of future Deferrals or other credits (other than Restricted Stock Deferrals) made while the designation is in effect. If the Participant fails to make a timely and complete investment designation, he or she shall be deemed to have elected that 100% of his or her Account credited to the default Investment Option specified by the Administrator.

(c) When selecting more than one Investment Option, the Participant shall designate, in whole multiples of 1% or such other percentage determined by the Administrator, the percentage of his or her eligible Account (and of future eligible Deferrals or credits) to be allocated to each Investment Option.

(d) A Participant’s investment election or deemed investment election shall become effective on the date established by the Administrator for this purpose, and shall remain in effect unless and until modified by a subsequent election that becomes effective in accordance with the rules of this Section.

(e) Other than a reallocation of a Participant’s eligible Account pursuant to a revised investment election submitted by the Participant, the deemed investment allocation of a Participant will not be adjusted to reflect differences in the relative investment return realized by the various hypothetical Investment Options that the Participant has designated, i.e., the Participant’s Account will not be periodically “rebalanced” to return the investment allocation of the Participant’s account to the investment allocation in effect on the effective date of the Participant’s most recent investment election.

Section 4.03. Allocation of Deemed Investment Gain or Loss.

As of the last day of each calendar quarter, or at such other times as the Administrator may prescribe (each, a “Valuation Date”), the Account of each Participant will be credited (or charged) based upon the investment gain (or loss) that the Participant would have realized with respect to his or her Account since the immediately preceding Valuation Date had the Account been invested in accordance with the terms of the Plan and the Participant’s actual or deemed investment election.

Section 4.04. Accounts are For Record Keeping Purposes Only.

Plan Accounts and the record keeping procedures described herein serve solely as a device for determining the amount of benefits accumulated by a Participant under the Plan, and shall not constitute or imply an obligation on the part of a Participating Employer to fund such benefits. In any event, a Participating Employer may, in its discretion, set aside assets and/or contribute to a trust assets equal to part or all of such account balances and invest such assets in life insurance or any other investment deemed appropriate. Any such assets held by a Participating Employer or in a trust shall be and remain the sole property of the Participating Employer or the trust, as applicable, and a Participant shall have no proprietary rights of any nature whatsoever with respect to such assets.

ARTICLE V. DISTRIBUTION OF ACCOUNTS

Section 5.01. Distribution of Account.

Distribution of a Participant’s vested Account will be made, in accordance with this Article V, following the date on which the Participant incurs a Separation from Service. The manner in which a Participant’s Account will be distributed depends on whether the Participant has attained age fifty-five (55) on or prior to the date on which the Participant incurs a Separation from Service.

(a) If the Participant incurs a Separation from Service prior to attaining fifty-five (55) years of age, the Participant’s vested Account will be distributed in a single sum cash payment notwithstanding any contrary distribution election made by the Participant in accordance with Section 5.02 below. For purposes of determining the cash portion of such distribution, the Participant’s vested Account balance will be valued as of the Valuation Date that is coincident with or immediately preceding the six (6) month anniversary of the Participant’s Separation from Service, and payment will be made thirty (30) days following such six (6) month anniversary. Distribution shall be made in cash, except that with respect to the portion of the Participant’s Account that is attributable to Restricted Stock Deferrals, the Participant shall receive one (1) share of Harley-Davidson, Inc. common stock for each whole Stock Unit credited to the Participant’s Account, and cash in lieu of any fractional Stock Unit.

(b) If the Participant’s Separation from Service occurs on or after the Participant’s attainment of fifty-five (55) years of age, the Participant’s vested Account balance will be distributed in one (1) to fifteen (15) annual installments, as elected by the Participant in accordance with Section 5.02 below. The first installment will be paid thirty (30) days following the six (6) month anniversary of the Participant’s Separation from Service. Each subsequent installment shall be made in June of each calendar year, subsequent to the year the initial installment was paid, during the installment period. Distributions shall be made in cash, except that with respect to the portion of any installment that is attributable to the Participant’s Restricted Stock Deferrals, the Participant shall receive one (1) share of Harley-Davidson, Inc. common stock for each whole Stock Unit that is being settled/distributed, and cash in lieu of any fractional Stock Unit. The cash portion of a Participant’s annual distribution amount shall be determined by dividing (A) the Participant’s

aggregate vested balance in the Account (other than the portion attributable to Restricted Stock Deferrals) as of the Valuation Date immediately preceding the installment distribution date by (B) the number of installment payments remaining to be made under the distribution period selected by the Participant. The stock portion of the Participant’s annual distribution amount shall be determined by dividing (A) the Participant’s vested Stock Units in the Account by (B) the number of installment payments remaining to be made under the distribution period selected by the Participant. During the installment payment period, the undistributed Account will continue to be credited or charged with deemed investment gains or losses in the same way that deemed gains or losses are credited or charged while the Participant is employed.

Section 5.02. Distribution Election.

(a) Distribution Election. A Participant shall elect the number of annual installments, from one (1) to fifteen (15), over which his or her Account is to be distributed following the Participant’s Separation from Service. The election shall be in such form as the Administrator shall prescribe.

(b) Timing of Distribution Election and Default Distribution Election. An Eligible Employee shall make a distribution election at the same time as the Participant first makes a Deferral election under the Plan. A Participant who fails to make a distribution election shall be deemed to have elected distribution in ten (10) annual installments. Except as described in subsection (c) below, a Participant’s election or deemed distribution election is irrevocable.

(c) Modification of Distribution Election. On or before December 31, 2008, a Participant may revise his or her distribution election or deemed distribution election; provided that a revised distribution election made during calendar years 2006, 2007 or 2008 will not be given effect, and the Participant’s immediately prior valid distribution election (or deemed election) will continue in effect, if the revised election would operate to cause amounts that would otherwise be distributable in the calendar year in which the revised distribution election is made to be deferred for distribution in a subsequent calendar year, or to cause amounts that would otherwise be distributable in a subsequent calendar year to become distributable in the calendar year in which the revised election is made. A Participant’s distribution election as in effect on December 31, 2008, shall be irrevocable.

(d) Effectiveness of Distribution Election. A Participant’s distribution election will be given effect only if the Participant’s Separation from Service occurs on or after the date on which the Participant attains age fifty-five (55). If the Participant’s Separation from Service occurs prior to attainment of age fifty-five (55), the Participant’s distribution election will be null and void, and the Participant’s vested Account will be distributed, in accordance with Section 5.01(a), in a single payment.

(e) Distribution Election Procedures. A distribution election (or through December 31, 2008, modified distribution election) shall be deemed made only when it is received and accepted as complete by the Administrator.

(f) Acceleration of Payments. Notwithstanding any other provision of the Plan, if the Administrator determines that all or any portion of a Participant’s Account is required to be included in the Participant’s income as a result of a failure to comply with the requirements of Code Section 409A and the regulations promulgated thereunder, the Company or applicable Affiliate shall immediately make distribution from the Plan to the Participant or Beneficiary, in one lump sum, of the amount (but not exceeding the amount) that is so taxable.

Section 5.03. Death Benefit Payments.

(a) Death Prior to Separation from Service. Upon the death of a Participant prior to the Participant’s Separation from Service, the Participant’s Beneficiary will receive a single sum benefit equal to the Participant’s vested undistributed Account balance, the cash portion of which shall be valued as of the Valuation Date coincident with or immediately preceding the date of the Participant’s death. The distribution will be made within ninety (90) days following the Participant’s death. Distribution shall be made in cash, except that with respect to the portion of the Participant’s Account that is attributable to Restricted Stock Deferrals, the Beneficiary shall receive one (1) share of Harley-Davidson, Inc. common stock for each whole Stock Unit credited to the Participant’s Account, and cash in lieu of any fractional Stock Unit.

(b) Death After Separation from Service. Upon the death of a Participant following the Participant’s Separation from Service but prior to completion of distribution of the Participant’s vested Account, the Participant’s Beneficiary will receive a single sum benefit equal to the Participant’s undistributed vested Account balance, the cash portion of which shall be valued as of the Valuation Date coincident with or immediately preceding the date of the Participant’s death. The distribution will be made within ninety (90) days following the Participant’s death. Distribution shall be made in cash, except that with respect to the portion of the Participant’s Account that is attributable to Restricted Stock Deferrals, the Beneficiary shall receive one (1) share of Harley-Davidson, Inc. common stock for each whole Stock Unit credited to the Participant’s Account, and cash in lieu of any fractional Stock Unit.

Section 5.04. Hardship Withdrawals.

A Participant who has incurred an “unforeseeable emergency” may request, and the Administrator may (but need not) approve a distribution of part or all of the Participant’s vested Account balance, in accordance with and subject to the limitations set forth in this Section. An “unforeseeable emergency” means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or the Participant’s dependent (as defined in Code Section 152(a) without regard to Sections 152(b)(1), (b)(2), and (d)(1)(B)), loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The amount authorized by the Administrator for distribution with respect to an emergency may not exceed the amounts necessary to satisfy the emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets, to the extent that liquidation of such assets would not itself cause severe financial hardship.

Section 5.05. Automatic Single Sum Distribution.

In the case of any Participant or Beneficiary whose vested Account (when added to the balance of any other account under a non-qualified deferred compensation arrangement that is required to be aggregated with this Plan under Code Section 409A) has a value equal to or less than the applicable dollar amount under Code Section 402(g)(1)(B), e.g., $15,500 for 2008, the Account will be distributed in the form of a single sum payment on the date on which distributions would otherwise commence, and such single sum payment shall be in lieu of any installment distribution period that would otherwise apply. Distribution shall be made in cash, except that with respect to the portion of the Participant’s Account that is attributable to Restricted Stock Deferrals, the Participant shall receive one (1) share of Harley-Davidson, Inc. common stock for each whole Stock Unit credited to the Participant’s Account, and cash in lieu of any fractional Stock Unit.

Section 5.06. Acceleration of Payments Upon a Change of Control.

Notwithstanding anything herein to the contrary, upon a change of control event (within the meaning of Code Section 409A), the vested Account of each Participant shall be paid to the Participant or Beneficiary, as applicable, as soon as practicable, but in no event more than 30 days, after the change of control event in a single sum payment, regardless of any distribution election then in effect.

ARTICLE VI. GENERAL PROVISIONS

Section 6.01. Administration.

The Administrator shall administer and interpret the Plan and supervise preparation of Participant elections, forms, and any amendments thereto. The Administrator may, in its discretion, delegate any or all of its authority and responsibility, and to the extent of any such delegation, any references herein to the Administrator shall be deemed references to such delegee; provide that any such delegee shall not act in any non-ministerial fashion in a matter affecting the delegee’s own participation or interest in the Plan. Interpretation of the Plan shall be within the sole discretion of the Administrator or the Committee and shall be final and binding upon each Participant and Beneficiary. The Administrator or the Committee may adopt and modify rules and regulations relating to the Plan as it deems necessary or advisable for the administration of the Plan. Further, the Administrator shall not act in any non-ministerial fashion in any matter that affects one or more of the members of the committee that is the Administrator (unless such action affects all Participants uniformly) and any such action will be taken or decision made by the Committee.

Section 6.02. Restrictions to Comply with Applicable Law.

Notwithstanding any other provision of the Plan, the Participating Employers shall have no obligation to make any payment under the Plan unless such payment is in accordance with the terms of the Plan and will comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. The Administrator or the Committee shall have the right to restrict any transaction, or impose other rules and requirements, to the extent it deems necessary or desirable in order to comply with any law or exemption.

Section 6.03. Claims Procedures.

accordance with regulations issued by the Secretary of the Treasury under Code Section 409A. Any such claim shall be filed in writing stating the nature of the claim, and the facts supporting the claim, the amount claimed and the name and address of the claimant. The Administrator shall review the claim. If the Administrator denies the claim, it shall deliver, within one hundred thirty-five (135) days of the date the first payment was made (or should have been made) in accordance with the terms of the Plan or in accordance with regulations issued by the Secretary of the Treasury under Code Section 409A, a written notice of such denial decision. If the claimant’s claim is denied in whole or part, the Administrator shall provide written notice to the claimant of such denial. The written notice shall include the specific reason(s) for the denial; reference to specific Plan provisions upon which the denial is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and a description of the Plan’s review procedures (as set forth in subsection (b)) and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse determination upon review.

(b) The claimant has the right to appeal the Administrator’s decision by filing a written appeal to the Administrator within 180 days after the payment (or first payment) is made (or should have been made) in accordance with the terms of the Plan or in accordance with regulations issued by the Secretary of the Treasury under Code Section 409A. The claimant will have the opportunity, upon request and free of charge, to have reasonable access to and copies of all documents, records and other information relevant to the claimant’s appeal. The claimant may submit written comments, documents, records and other information relating to his or her claim with the appeal. The Administrator will review all comments, documents, records and other information submitted by the claimant relating to the claim, regardless of whether such information was submitted or considered in the initial claim determination. The Administrator shall make a determination on the appeal within 60 days after receiving the claimant’s written appeal; provided that the Administrator may determine that an additional 60-day extension is necessary due to circumstances beyond the Administrator’s control, in which event the Administrator shall notify the claimant prior to the end of the initial period that an extension is needed, the reason therefor and the date by which the Administrator expects to render a decision. If the claimant’s appeal is denied in whole or part, the Administrator shall provide written notice to the claimant of such denial. The written notice shall

include the specific reason(s) for the denial; reference to specific Plan provisions upon which the denial is based; a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claimant’s claim; and a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA.

Section 6.04. Participant Rights Unsecured.

(a) Unsecured Claim. The right of a Participant or the Participant’s Beneficiary to receive a distribution hereunder shall be an unsecured claim, and neither the Participant nor any Beneficiary shall have any rights in or against any amount credited to his or her Account or any other specific assets of a Participating Employer. The right of a Participant or Beneficiary to the payment of benefits under this Plan shall not be assigned, encumbered, or transferred, except by will or the laws of descent and distribution. The rights of a Participant hereunder are exercisable during the Participant’s lifetime only by the Participant or his or her guardian or legal representative.

(b) Contractual Obligation. The Company may authorize the creation of a trust or other arrangements to assist it in meeting the obligations created under the Plan. However, any liability to any person with respect to the Plan shall be based solely upon any contractual obligations that may be created pursuant to the Plan. No obligation of a Participating Employer shall be deemed to be secured by any pledge of, or other encumbrance on, any property of a Participating Employer. Nothing contained in this Plan and no action taken pursuant to its terms shall create or be construed to create a trust of any kind, or a fiduciary relationship between a Participating Employer and any Participant or Beneficiary, or any other person.

Section 6.05. Distributions for Tax Withholding and Payment.

(a) Notwithstanding the time or schedule of payments otherwise applicable to the Participant, the Administrator may direct that distribution from a Participant’s vested Account be made (i) to pay the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2) with respect to compensation deferred under the Plan, (ii) to pay the income tax at source on wages imposed under Code Section 3401 or the corresponding withholding provisions of applicable state, local, or foreign tax laws as a result of the payment of FICA taxes, and (iii) to pay the additional income tax at source on wages attributable to the “pyramiding” of Code Section 3401 wages and taxes; provided that the total amount distributed under this provision must not exceed the aggregate of the FICA tax and the income tax withholding related to such FICA tax.

(b) The amount actually distributed to the Participant in accordance with the time or schedule of payments applicable to the Participant will be reduced by applicable tax withholding except to the extent such withholding requirements previously were satisfied in accordance with subsection (a) above.

Section 6.06. Amendment or Termination of Plan.

(a) There shall be no time limit on the duration of the Plan.

(b) The Board may at any time amend the Plan, including but not limited to modifying the terms and conditions applicable to (or otherwise eliminating) Deferrals or contribution credits to be made on or after the amendment date; provided, however, that no amendment or termination may reduce or eliminate any Account balance accrued to the date of such amendment or termination (except as such Account balance may be reduced as a result of investment losses allocable to such Account).

(c) The Board may terminate the Plan at any time. Upon termination of the Plan, Accounts may be paid to Participants and Beneficiaries in a single sum payment, without regard to any distribution election then in effect, but only if the following are met:

(i)

The Board terminates the Plan within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), and the amounts accrued under the Plan but not yet paid are distributed to the Participants or Beneficiaries, as applicable, by the latest of: (A) the last day of the calendar year in which the Plan termination and liquidation occurs, (B) the last day of the calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (C) the last day of the first calendar year in which payment is administratively practicable.

(ii)

The Board terminates the Plan at any time during the period that begins thirty (30) days prior and ends twelve (12) months following a change of control event (within the meaning of Code Section 409A), provided that all arrangements required to be aggregated with the Plan (within the meaning of Code Section 409A) sponsored by the Company or an Affiliate are terminated and liquidated with respect to each Participant that experienced the change of control event, so that all participants under similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date of termination of the arrangements.

(iii)

The Board terminates the Plan at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate. In such event, all amounts accrued under the Plan but not yet paid will be distributed to all Participants or Beneficiaries, as applicable, no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of termination. This provision shall not be effective unless all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plan’s termination, unless any individual who was a Participant under this Plan is excluded from participating thereunder for such three (3) year period.

Except as provided in Paragraphs (i), (ii) and (iii) above or as otherwise permitted in regulations promulgated by the Secretary of the Treasury under Code Section 409A, any action that purports to terminate the Plan shall instead be construed as an amendment to discontinue further benefit accruals, but the Plan will continue to operate, in accordance with its terms as from time to time amended and in accordance with applicable Participant elections, with respect to the Participant’s benefit accrued through the date of termination, and in no event shall any such action purporting to terminate the Plan form the basis for accelerating distributions to Participants and Beneficiaries.

Section 6.07. Administrative Expenses.

Costs of establishing and administering the Plan will be paid by the Participating Employers.

Section 6.08. Successors and Assigns.

This Plan shall be binding upon and inure to the benefit of the Participating Employers, their successors and assigns and the Participants and their heirs, executors, administrators, and legal representatives.

Section 6.09. Right of Offset.

The Participating Employers shall have the right to offset from the benefits payable hereunder (and at the time such benefit would otherwise be payable) any amount that the Participant owes to the Company or an Affiliate or other entity in which the Company or an Affiliate maintains an ownership interest. The offset shall be applied so as to include, but shall not be limited to, any fines, penalties, damages or any other amounts (including attorneys’ fees) imposed on or paid by the Company or Affiliate as a result of any conduct of the Participant during the Participant’s employment. The Company may effectuate the offset without the consent of the Participant (or the Participant’s spouse or Beneficiary, in the event of the Participant’s death).

Section 6.10. Not a Contract of Employment.

This Plan may not be construed as giving any person the right to be retained as an employee of the Company or any Affiliate.

Section 6.11. Miscellaneous Distribution Rules.

(a) Accelerated Distribution Following Section 409A Failure. If an amount under this Plan is required to be included in a Participant’s income under Code Section 409A prior to the date such amount is actually distributed, the Participant shall receive a distribution, in a lump sum, within ninety (90) days after the date it is finally determined that the Plan fails to meet the requirements of Code Section 409A. The distribution shall equal the amount required to be included in the Participant’s income as a result of such failure.

(b) Permitted Delay in Payment. If a distribution required under the terms of this Plan would jeopardize the ability of the Company or of an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making the distribution does not jeopardize the ability of the Company or of an Affiliate to continue as a going concern. Further, if any distribution pursuant to the Plan will violate the terms of Section 16(b) of the Securities Exchange Act of 1934 or other Federal securities laws, or any other applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such law.

(c) Disregard of Six Month Delay. Notwithstanding anything herein to the contrary, if at the time of a Participant’s Separation from Service, the stock of Harley-Davidson, Inc. or any other related entity that is considered a “service recipient” within the meaning of Section 409A of the Code is not traded on an established securities market or otherwise, then the provisions of the Plan requiring that payments be delayed for six months shall cease to apply. In such event, the payment (if a lump sum) or initial payment (if installments) shall be made within ninety (90) days following the event triggering the benefit payment(s).


HARLEY-DAVIDSON MOTOR MOTOR GROUP, INC.

By:
Title:
Date:

EX-10.3 4 dex103.htm DIRECTOR STOCK PLAN Director Stock Plan

Exhibit 10.3

HARLEY-DAVIDSON, INC.

DIRECTOR STOCK PLAN

(As Amended and Restated Effective January 1, 2009)

ARTICLE I

Purpose

The purpose of the Harley-Davidson, Inc. Director Stock Plan is to facilitate payment of compensation to nonemployee directors in the form of Common Stock of Harley-Davidson, Inc. or in a form the value of which is based upon the value of Common Stock of Harley-Davidson, Inc. Such payment should provide a method for nonemployee directors to meet the requirements of the Director and Senior Executive Stock Ownership Guidelines for Harley-Davidson, Inc. and an increased incentive for nonemployee directors to contribute to the future success and prosperity of Harley-Davidson, Inc. We believe this will, in turn, enhance the value of the stock for the benefit of the shareholders, and increase the ability of Harley-Davidson, Inc. to attract and retain directors of exceptional skill upon whom, in large measure, its sustained growth and profitability depend.

ARTICLE II

Definitions

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

2.1. Affiliate: Each corporation, trade or business that, with the Company, forms part of a controlled group of corporations or group of trades or businesses under common control within the meaning of Code Sections 414(b) or (c); provided that for purpose of determining when an Outside Director has incurred a Separation from Service, the phrase “at least fifty percent (50%)” shall be used in place of “at least eighty percent (80%)” each place it appears in Code Section 414(b) and (c) and the regulations thereunder.

2.2. Annual Retainer Fee: The annual retainer fee then in effect for service by an Outside Director as a director, board committee chair and/or committee member, excluding grants of “Share Units” pursuant to Article IX hereof.

2.3. Board: The Board of Directors of the Company.

2.4. Change of Control Event:

a. For purposes of Section 8.4, a change of control event as defined in Schedule A.

b. For purposes of Sections 8.5 and 9.6, a change of control event as defined in regulations promulgated by the Secretary of the Treasury for purposes of Code Section 409A, with respect to Harley-Davidson, Inc.

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

2.6. Committee: The Nominating and Corporate Governance Committee of the Board; provided that if any member of the Nominating and Corporate Governance Committee is not a Disinterested Person, the Committee shall be comprised of only those members of the Nominating and Corporate Governance Committee who are Disinterested Persons.

2.7. Common Stock: The common stock of the Company.

2.8. Company: Harley-Davidson, Inc.

2.9. Deferral Election: An election by an Outside Director to defer receiving all or any portion of the shares of Common Stock that would otherwise be transferred to such Outside Director pursuant to a Share Election.

2.10. Disinterested Persons: Nonemployee directors within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended.

2.11. Fair Market Value: (From and after February 14, 2007) On the date as of which Fair Market Value is being determined, if the Common Stock is listed for trading on the New York Stock Exchange, the closing sales price on the date in question as reported in The Wall Street Journal, or if no sales of Common Stock occur on the date in question, on the last preceding date on which there was a sale on such exchange.

2.12. Option: A stock option granted under the Plan.

2.13. Option Price: The purchase price of a share of Common Stock under an Option.

2.14. Optionee: A person who has been granted one or more Options.

2.15. Outside Director: Each member of the Board who is not also an employee of the Company or any Subsidiary (including members of the Committee).

2.16. Plan: The Harley-Davidson, Inc. Director Stock Plan.

2.17. Separation from Service: The date on which an Outside Director ceases service as a director of the Company and all Affiliates, provided that such cessation of service constitutes a separation from service for purposes of Code Section 409A.

-2-

2.18. Share Accounts. An Outside Director’s Deferral Share Account and/or Grant Share Account; provided, however, that an Outside Director’s Deferral Share Account shall consist of the following subaccounts (as applicable):

a. Pre-2005 Deferral Share Account. The portion of an Outside Director’s Deferral Share Account that is attributable to shares of Common Stock that would have been paid to the Outside Director prior to January 1, 2005 except for the Outside Director’s Deferral Election, together with any additional Share Units credited as a result of deemed dividends on the Share Units credited to the subaccount.

b. Post-2004 Deferral Share Account. The portion of an Outside Director’s Deferral Share Account that is attributable to shares of Common Stock that would otherwise be paid to the Outside Director after December 31, 2004 except for the Outside Director’s Deferral Election, together with any additional Share Units credited as a result of deemed dividends on the Share Units credited to the subaccount.

2.19. Share Election: An election by an Outside Director to receive either 50% or 100% of his or her Annual Retainer Fee in the form of Common Stock (subject to any Deferral Election by an Outside Director), with the receipt of such shares of Common Stock to be in lieu of any cash payment for that portion of his or her Annual Retainer Fee; provided, however, that if, at the time an Annual Retainer Fee is payable, an Outside Director satisfies, through the ownership of Common Stock and/or Share Units credited to his or her Share Accounts, the stock ownership guidelines for directors then in effect that the Board or any committee of the Board has established, then the Outside Director may make a Share Election to receive 0% of such Annual Retainer Fee in the form of Common Stock.

2.20. Share Unit: A hypothetical share of Common Stock.

2.21. 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.

2.22. Termination Date: The day preceding the tenth anniversary of the date on which the Option is granted.

ARTICLE III

Administration

3.1. The Committee: The Committee shall administer the Plan and shall have full power to construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper.

3.2. Actions Final: Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive.

-3-

ARTICLE IV

Shares Subject to the Plan

4.1. The total number of shares of Common Stock available for delivery under the Plan shall be 200,000 as of May 2, 1998 (after giving effect to a 2-for-1 stock split effected in 2000). The foregoing amount shall be subject to adjustment in accordance with Article X of the Plan. If an Option or portion thereof shall expire, be canceled or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Options shall be available for future grants of Options. Shares of Common Stock to be delivered under the Plan shall be made available solely from authorized and issued shares of Common Stock reacquired and held as treasury shares. In no event shall the Company be required to deliver fractional shares of Common Stock under the Plan. Whenever under the terms of the Plan a fractional share of Common Stock would otherwise be required to be delivered, there shall be delivered in lieu thereof one full share of Common Stock. Payments in respect of an Outside Director’s Share Accounts that are made in cash shall not reduce the number of shares of Common Stock available for delivery under the Plan.

ARTICLE V

Eligibility

5.1. Only Outside Directors shall be entitled to participate in the Plan.

ARTICLE VI

Options

6.1. Option Grants: Prior to December 31, 2002, each Outside Director who served as a member of the Board immediately following an annual meeting of shareholders of the Company was automatically granted on the first business day after such meeting (the “Annual Grant Date”) an Option for the purchase of such number of shares of Common Stock (rounded up to the nearest multiple of 100) whose Fair Market Value on the Annual Grant Date equaled three (3) times the Optionee’s Annual Retainer Fee other than committee chair retainer fees. No such Option shall be granted under the Plan after December 31, 2002.

6.2. Option Agreements: All Options shall be evidenced by written agreements executed by the Company. Such options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date.

6.3. Option Price: The Option Price shall be the Fair Market Value of a share of Common Stock on the Annual Grant Date.

6.4. Period of Exercise: Options shall be exercisable from and after the Annual Grant Date and shall terminate one year after the Optionee ceases to serve as a member of the Board for any reason, except that as to any Optionee who is removed from the Board for cause in accordance with the Company’s Restated Articles of Incorporation, the Options held by the Optionee shall terminate immediately on such removal. In any event, no Option or portion thereof shall be exercisable after the Termination Date.

-4-

6.5. Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and provision (in a manner acceptable to the Committee) for payment of the full price of the shares being purchased pursuant to the Option and any withholding taxes due thereon.

6.6. Nontransferability of Options: Except as may be otherwise provided by the Committee, each Option shall, during the Optionee’s lifetime, be exercisable only by the Optionee and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void.

ARTICLE VII

Share Election

7.1. Share Election:

a. Initial Share Election. Within 30 days of the date on which an Outside Director first becomes an Outside Director, the Outside Director shall make a Share Election that will specify the portion of the Outside Director’s Annual Retainer Fee that is to be paid in shares of Common Stock (subject to any deferral by the Outside Director under Section 7.2 below) and the portion that is to be paid in cash (subject to any deferral by the Outside Director under the Company’s Deferred Compensation Plan for Nonemployee Directors (the “Cash Deferral Plan”)). An Outside Director’s Share Election (i) must be in writing and delivered to the Treasurer of the Company, (ii) shall be effective with respect to the portion of the Outside Director’s Annual Retainer Fee that will be earned on and after the date the Treasurer of the Company receives the Share Election, or as soon thereafter as is administratively practicable, and (iii) shall remain in effect from year-to-year thereafter unless modified or revoked by a subsequent Share Election that becomes effective in accordance with the provisions hereof. If an Outside Director elects (or is deemed to have elected) to receive only 50% of his or her Annual Retainer Fee in the form of shares of Common Stock, then the remaining 50% shall be paid in cash (subject to any deferral by the Outside Director under the Cash Deferral Plan). If an Outside Director who is entitled to do so elects to receive 0% of his or her Annual Retainer Fee in the form of shares of Common Stock, then all of his or her Annual Retainer Fee shall be paid in cash (subject to any deferral by the Outside Director under the Cash Deferral Plan). If an Outside Director has not made a Share Election, the Director will be deemed to have made a Share Election to receive 50% of his or her Annual Retainer Fee in the form of Common Stock.

-5-

b. Revised Share Election. Except to the extent that the Company is permitted and elects to give earlier effect to an Outside Director’s modification or revocation to his or her Share Election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, an Outside Director’s Share Election, once effective with respect to a calendar year, may not be revoked or modified with respect to the Outside Director’s Annual Retainer Fee for that calendar year. An Outside Director may revoke or modify his or her then current Share Election by filing a revised Share Election form, properly completed and signed, with the Treasurer of the Company. However, except to the extent that the Company is permitted and elects to give earlier effect to a Director’s revised election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, the revised Share Election will become effective on January 1 of the calendar year following the calendar year during which the revised Share Election is received by the Treasurer of the Company, or as soon thereafter as is administratively practicable. An Outside Director’s revised Share Election, once effective, shall remain in effect until again modified by the Outside Director or otherwise revoked in accordance with the provisions hereof.

7.2. Transfer of Shares: Subject to any Deferral Election by an Outside Director, shares of Common Stock issuable to an Outside Director pursuant to a Share Election shall be transferred to such Outside Director as of the first business day following each annual meeting of the shareholders of the Company, except that, for an Outside Director elected to the Board at a time other than at an annual meeting of the shareholders of the Company, shares of Common Stock issuable to the Outside Director pursuant to a Share Election shall be transferred to such Outside Director as of the first business day following the first meeting of the Board or a committee of the Board that the Outside Director attends. The total number of shares of Common Stock to be so transferred shall be determined by dividing (x) the dollar amount of the Annual Retainer Fee payable to which the Share Election applies, by (y) the Fair Market Value of a share of Common Stock on the day on which the Annual Retainer Fee is payable to the Outside Director.

ARTICLE VIII

Deferral Elections

8.1. Deferral Election: Each Outside Director may make a Deferral Election to defer receiving all, 50% or none of the shares of Common Stock that would otherwise be transferred to such Outside Director pursuant to a Share Election with respect to any Annual Retainer Fees otherwise earned after the effective date of the Deferral Election.

a. Initial Deferral Election. An Outside Director may make a Deferral Election within 30 days of the date on which an Outside Director first becomes an Outside Director. If an Outside Director has not made a Share Election during this period, the Director will be deemed to have made a Share Election to defer none of the shares covered by the Director’s Share Election. An Outside Director’s Deferral Election (i) must be in writing and delivered to the Treasurer of the Company, and (ii) shall remain in effect from year-to-year thereafter unless modified or revoked by a subsequent Deferral Election that becomes effective in accordance with the provisions hereof.

-6-

b. Revised Deferral Election. Except to the extent that the Company is permitted and elects to give earlier effect to an Outside Director’s modification or revocation to his or her Deferral Election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, an Outside Director’s Deferral Election, once effective with respect to a calendar year, may not be revoked or modified for that calendar year. An Outside Director may revoke or modify his or her then current Deferral Election by filing a revised Deferral Election form, properly completed and signed, with the Treasurer of the Company. However, except to the extent that the Company is permitted and elects to give earlier effect to a Director’s revised election in accordance with regulations promulgated by the Secretary of the Treasury under Code Section 409A, the revised Deferral Election will become effective on January 1 of the calendar year following the calendar year during which the revised Deferral Election is received by the Treasurer of the Company, or as soon thereafter as is administratively practicable. An Outside Director’s revised Deferral Election, once effective, shall remain in effect until again modified by the Outside Director or otherwise revoked in accordance with the provisions hereof.

8.2. Deferral Share Accounts: An Outside Director who makes a Deferral Election shall have the number of deferred shares of Common Stock (including fractions of a share) that would otherwise be transferred pursuant to Section 7.2 credited as whole and fractional Share Units, with fractional units calculated to four decimal places, to a “Deferral Share Account” for the Outside Director, for recordkeeping purposes only.

8.3. Cash Dividends and Deferral Share Accounts: Whenever cash dividends are paid by the Company on outstanding Common Stock, on the payment date therefor there shall be credited to the Outside Director’s Deferral Share Account a number of additional Share Units, with fractional units calculated to four decimal places, equal to (i) the aggregate dividend that would be payable on outstanding shares of Common Stock equal to the number of Share Units credited to such Deferral Share Account on the record date for the dividend, divided by (ii) the Fair Market Value of a share of Common Stock on the last business day immediately preceding the date of payment of the dividend.

8.4. Distribution of Pre-2005 Deferral Share Account: Upon cessation of an Outside Director’s service as a director of the Company for any reason, or upon the occurrence of a Change of Control Event, the Company will make payments to the Outside Director (or, in case of the death of the Outside Director, to his or her beneficiary designated in accordance with Section 13.5 or, if no such beneficiary is designated, to his or her estate), as compensation for prior service as a director, in respect of the Outside Director’s Pre-2005 Deferral Share Account. All payments in respect of the Pre-2005 Deferral Share Account shall be made in shares of Common Stock by converting Share Units into Common Stock on a one-for-one basis. However, to the extent shares of Common Stock are not available for delivery under the Plan, the Committee may direct that all or any part of the payments in respect of the Pre-2005 Deferral Share Account be made in cash rather than by delivery of Common Stock, in which case the cash payment shall be determined by multiplying the number of Share Units in the Pre-2005 Deferral Share Account that are the subject of the cash payment by the Fair Market Value of a share of Common Stock on the last business day preceding the date on which payment is made. Similarly, any distribution payable under the Plan with respect to a fraction of a Share Unit shall be made in cash, with the amount of the cash payment determined by multiplying the fractional Share Unit by the Fair Market Value of a share of Common Stock on the last business day preceding the date on which payment is made.

-7-

a. Form of Payments: An Outside Director may elect to have payments in respect of the Pre-2005 Deferral Share Account made either in (i) a single payment, or (ii) annual installments; provided, however, that if an Outside Director making a Deferral Election under the Plan has elected to defer cash compensation under the Cash Deferral Plan, then that Outside Director must elect a payment option with respect to the Outside Director’s Pre-2005 Deferral Share Account under the Plan that provides the same timing of deferred payments as the payment option elected with respect to the Outside Director’s Pre-2005 Deferred Benefit Account under the Cash Deferral Plan. Under the installment payment option, at the time an Outside Director makes his or her initial Deferral Election, or thereafter in accordance with Plan rules, the Outside Director may select (subject to the proviso in the immediately preceding sentence) the number of years over which benefits are to be paid to the Outside Director, up to a maximum of 5 years, except that the number of installments selected may not result in any one installment payment with respect to less than 100 Share Units. The payment option elected shall apply to the Outside Director’s entire Pre-2005 Deferral Share Account. The installment payment option does not apply upon the occurrence of a Change of Control Event. An Outside Director who fails to make any payment election with respect to his or her Pre-2005 Deferral Share Account under the Plan and has not made a payment election with respect to the Outside Director’s Pre-2005 Deferred Benefit Account under the Cash Deferral Plan shall be deemed to have elected the single payment option. An Outside Director who fails to make any payment election with respect to his or her Pre-2005 Deferral Share Account under the Plan but has made a payment election with respect to the Outside Director’s Pre-2005 Deferred Benefit Account under the Cash Deferral Plan will be deemed to have elected under the Plan the same payment option with respect to the Outside Director’s Pre-2005 Deferral Share Account that he or she has made with respect to his or her Pre-2005 Deferred Benefit Account under the Cash Deferral Plan. If at the time of the cessation of an Outside Director’s service there exists a conflict in the payment options that the Outside Director elected with respect to the Pre-2005 Deferral Share Account under the Plan and the Outside Director’s payment election with respect to his or her Pre-2005 Deferred Benefit Account under the Cash Deferral Plan, then that Outside Director will be deemed to have made a payment election with respect to his or her Pre-2005 Deferral Share Account under the Plan that provides the same timing of deferred payments as the payment option that the Outside Director elected with respect to his or her Pre-2005 Deferred Benefit Account under the Cash Deferral Plan.

b. If the Outside Director has elected the single payment option, then the Company will make payment to the Outside Director in respect of the number of Share Units credited to the Outside Director’s Pre-2005 Deferral Share Account within 30 days after the end of the calendar quarter in which the Outside Director ceases service as a director of the Company. In addition, the Company will make payment to the Outside Director in respect of the number of Share Units credited to the Outside Director’s Pre-2005 Deferral Share Account promptly upon the occurrence of a Change of Control Event.

-8-

c. If the Outside Director has elected the installment payment option, then the first installment will be made within 30 days after the end of the calendar quarter in which the Outside Director ceases service as a director of the Company, and each subsequent installment shall be paid in July of each calendar year following the calendar year in which the first installment is paid to the Outside Director during the installment period. The annual installment payment amount for any calendar year shall be initially determined by dividing the number of Share Units credited to the Outside Director’s Pre-2005 Deferral Share Account as of January 1 of the year for which the payment is being made and for which such an election is in effect by the number of installment payments remaining to be made, and then rounding the quotient obtained for all but the final installment to the next lowest whole number.

d. Changes by an Outside Director in the payment option elected and/or in the number of years in the installment payment period (not to exceed 5 years) shall be in writing and filed with the Treasurer of the Company not less than 12 months before the date the Outside Director ceases service as a director of the Company for any reason. If a change is requested less than 12 months in advance of the date the Outside Director ceases service as a director of the Company for any reason, then the Outside Director’s previous valid election of a form of payment shall be given effect.

8.5. Distribution of Post-2004 Deferral Share Account. Upon an Outside Director’s Separation from Service for any reason, or upon the occurrence of a Change of Control Event, the Company will make payments to the Outside Director (or, in case of the death of the Outside Director, to his or her beneficiary designated in accordance with Section 13.5 or, if no such beneficiary is designated, to his or her estate), as compensation for prior service as a director, in respect of the Outside Director’s Post-2004 Deferral Share Account. All payments in respect of the Post-2004 Deferral Share Account shall be made in shares of Common Stock by converting Share Units into Common Stock on a one-for-one basis. However, to the extent shares of Common Stock are not available for delivery under the Plan, the Committee may direct that all or any part of the payments in respect of the Post-2004 Deferral Share Account be made in cash rather than by delivery of Common Stock, in which case the cash payment shall be determined by multiplying the number of Share Units in the Post-2004 Deferral Share Account that are the subject of the cash payment by the Fair Market Value of a share of Common Stock on the last business day preceding the date on which payment is made. Similarly, any distribution payable under the Plan with respect to a fraction of a Share Unit shall be made in cash, with the amount of the cash payment determined by multiplying the fractional Share Unit by the Fair Market Value of a share of Common Stock on the last business day preceding the date on which payment is made.

a. Form of Payments: At the time that an Outside Director first makes a post-2004 Deferral Election under this Plan or first makes a post-2004 deferral election under the Cash Deferral Plan, whichever occurs earlier, the Outside Director shall make a payment election which shall govern distribution of both the Outside Director’s Post-2004 Deferral Share Account under this Plan and the Outside Director’s Post-2004 Deferred Benefit Account under the Cash Deferral Plan. In such payment election, the Outside Director may elect to have payments made either in (i) a single payment, or (ii) annual installments. Under the installment payment option, the Outside Director may select the number of years over which benefits are to be paid to the Outside Director, up to a maximum of 5 years, except that the number of installments selected may not result in any one installment payment with respect to less than 100 Share Units. The payment option elected shall apply to the Outside Director’s

-9-

entire Post-2004 Deferral Share Account under this Plan and the Outside Director’s entire Post-2004 Deferred Benefit Account under the Cash Deferral Plan. The installment payment option does not apply upon the occurrence of a Change of Control Event. An Outside Director who fails to make a payment election shall be deemed to have elected the single payment option. Prior to January 1, 2009, an Outside Director may change his or her payment election by filing a revised payment election form, properly completed and signed, with the Treasurer of the Company; provided that a revised election submitted during calendar year 2006, 2007 or 2008 may not operate to defer into a subsequent calendar year the distribution of amounts that otherwise would have been paid in the calendar year in which the revised election is submitted, or to accelerate into the calendar year in which the revised election is submitted amounts that otherwise were scheduled for distribution in a subsequent calendar year. Changes in a payment election are not permitted on or after January 1, 2009.

b. If the Outside Director has elected the single payment option, then the Company will make payment to the Outside Director in respect of the number of Share Units credited to the Outside Director’s Post-2004 Deferral Share Account within 30 days after the end of the calendar quarter in which occurs the Outside Director’s Separation from Service. In addition, the Company will make payment to the Outside Director in respect of the number of Share Units credited to the Outside Director’s Post-2004 Deferral Share Account within 30 days following the occurrence of a Change of Control Event.

8.6. If the Outside Director has elected the installment payment option, then the first installment will be made within 30 days after the end of the calendar quarter in which occurs the Outside Director’s Separation from Service, and each subsequent installment shall be paid in July of each calendar year following the calendar year in which the first installment is paid to the Outside Director during the installment period. The annual installment payment amount for any calendar year shall be initially determined by dividing the number of Share Units credited to the Outside Director’s Post-2004 Deferral Share Account as of January 1 of the year for which the payment is being made and for which such an election is in effect by the number of installment payments remaining to be made, and then rounding the quotient obtained to the next lowest whole number; provided that the final installment shall be the entire remaining undistributed balance.

8.7. Hardship Payments: The Committee may, in its sole discretion, upon the finding that an Outside Director has suffered an “unforeseeable emergency”, pay to the Outside Director part or all of his or her Deferral Share Account, as needed to meet the Outside Director’s need. An “unforeseeable emergency” means a severe financial hardship to the Outside Director resulting from an illness or accident of the Outside Director, the Outside Director’s spouse, or the Outside Director’s dependent (as defined in Code Section 152(a) without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B)), loss of the Outside Director’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Outside Director. The amount authorized by the Committee for distribution with respect to an emergency may not exceed the amounts necessary to satisfy the emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Outside Director’s assets, to the extent that liquidation of such assets would not itself cause severe financial hardship.

-10-

ARTICLE IX

Share Unit Grants

9.1. Share Unit Grants. Each Outside Director shall automatically be granted Share Units under the Plan in the manner set forth in this Article IX. All grants of Share Units pursuant to this Article IX shall immediately vest in full on the date of grant.

9.2. Annual Share Unit Grants to Outside Directors. Beginning with the first annual meeting of shareholders held after April 28, 2006, each Outside Director shall, as of the first business day following such annual meeting, receive a grant of such number of Share Units as the Board shall determine at the meeting of the Board coinciding with such annual meeting.

9.3. Grant of Share Units to Newly-Elected Outside Directors. Any person who is first elected as an Outside Director after April 29, 2006 at a time other than at an annual meeting of the shareholders of the Company shall automatically be granted, as of the first business day following the first meeting of the Board or a committee of the Board that the Outside Director attends, a number of Share Units equal to the number of Share Units last granted to each of the Outside Directors pursuant to Section 9.2.

9.4. Grant Share Accounts: An Outside Director who receives a grant of Share Units pursuant to Section 9.2 or Section 9.3 shall have the number of Share Units granted to such Outside Director credited to a “Grant Share Account” established for the Outside Director, for recordkeeping purposes only.

9.5. Cash Dividends and Grant Share Accounts: Whenever cash dividends are paid by the Company on outstanding Common Stock, on the payment date therefor there shall be credited to the Outside Director’s Grant Share Account a number of additional Share Units, with fractional units calculated to four decimal places, equal to (i) the aggregate dividend that would be payable on outstanding shares of Common Stock equal to the number of Share Units credited to such Grant Share Account on the record date for the dividend, divided by (ii) the Fair Market Value of a share of Common Stock on the last business day immediately preceding the date of payment of the dividend.

9.6. Payments: Within 30 days after the end of the calendar quarter in which occurs an Outside Director’s Separation from Service for any reason, or upon the occurrence of a Change of Control Event, the Company will make a payment to the Outside Director (or, in case of the death of the Outside Director, to his or her beneficiary designated in accordance with Section 13.5 or, if no such beneficiary is designated, to his or her estate), as compensation for prior service as a director, in respect of the Outside Director’s Grant Share Account. All payments in respect of a Grant Share Account shall be made in a single sum in shares of Common Stock by converting Share Units into Common Stock on a one-for-one basis. However, to the extent shares of Common Stock are not available for delivery under the Plan, the Committee may direct that all or any part of the payments in respect of a Grant Share Account be

-11-

made in cash rather than by delivery of Common Stock, in which case the cash payment shall be determined by multiplying the number of Share Units in the Grant Share Account that are the subject of the cash payment by the Fair Market Value of a share of Common Stock on the last business day preceding the date on which payment is made. Similarly, any distribution payable under the Plan with respect to a fraction of a Share Unit shall be made in cash, with the amount of the cash payment determined by multiplying the fractional Share Unit by the Fair Market Value of a share of Common Stock on the last business day preceding the date on which payment is made.

ARTICLE X

Adjustments

10.1. If (a) the Company shall at any time be involved in a merger or other transaction in which the Common Stock is changed or exchanged; or (b) the Company shall subdivide or combine its Common Stock or the Company shall declare a dividend payable in its Common Stock, other securities (other than any associated preferred stock purchase rights issued pursuant to that certain Rights Agreement, dated February 17, 2000, between the Company and ComputerShare Investor Services, LLC, as successor rights agent, or similar stock purchase rights that the Company might authorize and issue in the future) or other property; or (c) the Company shall effect a cash dividend the amount of which exceeds 15% of the trading price of the Common Stock at the time the dividend is declared or any other dividend or other distribution on the Common Stock in the form of cash, or a repurchase of Common Stock, that the Board determines by resolution is special or extraordinary in nature or that is in connection with a transaction that the Company characterizes publicly as a recapitalization or reorganization involving the Common Stock; or (d) any other event shall occur which, in the case of this clause (d), in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of securities subject to the Plan; (ii) the number and type of securities subject to outstanding Options; (iii) the Option Price with respect to any Option; and (iv) the number of Share Units credited to each Outside Director’s Share Accounts; provided, however, that Options subject to grant or previously granted to Optionees and the number of Share Units credited to each Outside Director’s Share Accounts under the Plan at the time of any such event shall be subject to only such adjustment as shall be necessary to maintain the proportionate interest of the Optionee or Outside Director and preserve, without exceeding, the value of such Options and Outside Director’s Share Accounts. Unless the Committee determines otherwise, any such adjustment to an Option that is exempt from Code Section 409A shall be made in manner that permits the Option to continue to be so exempt, and any adjustment to an Option that is subject to Code Section 409A shall be made in a manner that complies with the provisions thereof. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee and Outside Director.

-12-

ARTICLE XI

Amendment and Termination of Plan

11.1. General Powers: The Committee of the Board of Directors may at any time terminate or suspend the Plan. Subject to applicable limitations set forth in New York Stock Exchange rules, the Code or Rule 16b-3 under the Securities Exchange Act of 1934, the Committee of the Board of Directors may amend the Plan as it shall deem advisable including (without limiting the generality of the foregoing) any amendments deemed by the Committee of the Board of Directors to be necessary or advisable to assure conformity of the Plan with any requirements of state and federal laws or regulations now or hereafter in effect; provided, however, that the Committee of the Board of Directors may not amend either the provisions of Section 6.1 or the amount of the Annual Retainer Fee more often than once in any six month period. In addition, no amendment shall be made to any Option to reduce the Option Price thereof except as permitted by Section 10.1, and any amendment or other action that is required, under applicable law or under applicable stock exchange rules, to be adopted by the Board of Directors shall be valid only if it is adopted by the full Board of Directors rather than by the Committee of the Board of Directors.

11.2. No Impairment: No amendment, suspension or termination of this Plan shall, without the Outside Director’s consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Outside Director under the Plan or other entitlement of an Outside Director under the Plan. But, the Committee need not obtain Outside Director (or other interested party) consent for the adoption, amendment or rescission of rules and regulations relating to this Plan that do not materially and adversely affect the Outside Director in respect of any Option or other entitlement of an Outside Director under the Plan then outstanding.

11.3. Section 409A: The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for any Option or other entitlement of an Outside Director under the Plan that is subject to Code Section 409A to comply therewith.

11.4. Distribution of Benefits Following Plan Termination. Termination of the Plan will operate to accelerate distribution of benefits only to the extent permitted under Code Section 409A, including:

a. The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), and the amounts accrued under the Plan but not yet paid are distributed to Outside Directors or their beneficiaries, as applicable, in a single sum payment, regardless of any distribution election then in effect, by the latest of: (1) the last day of the calendar year in which the Plan termination and liquidation occurs, (2) the last day of the calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (3) the last day of the first calendar year in which payment is administratively practicable.

-13-

b. The Plan is terminated at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate. In such event, all amounts accrued under the Plan but not yet paid will be distributed to all Outside Directors and their beneficiaries, as applicable, in a single sum payment no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of termination, regardless of any distribution election then in effect. This provision shall not be effective unless all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plan’s termination, unless any individual who was eligible under this Plan is excluded from participating thereunder for such three (3) year period.

Except as provided in Paragraphs a. and b. above or as otherwise permitted in regulations promulgated by the Secretary of the Treasury under Code Section 409A, any action that terminates the Plan but that does not qualify for accelerated distribution under Code Section 409A shall instead be construed as an amendment to discontinue further benefit accruals, but the Plan will continue to operate, in accordance with its terms as from time to time amended and in accordance with applicable elections by the Outside Director, with respect to the Outside Director’s benefit accrued through the date of termination, and in no event shall any such action purporting to terminate the Plan form the basis for accelerating distributions to the Outside Director or a beneficiary.

ARTICLE XII

Government and Other Regulations

12.1. The obligation of the Company to make payments or issue or transfer and deliver shares of Common Stock under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded.

ARTICLE XIII

Miscellaneous Provisions

13.1. Plan Does Not Confer Shareholder Rights: Neither an Outside Director nor any person entitled to exercise the Outside Director’s rights in the event of the Outside Director’s death shall have any rights of a shareholder with respect to the shares subject to an Option, Share Election or any Share Units held in the Outside Director’s Share Accounts, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option, transfer of shares pursuant to a Share Election or the delivery of shares in respect of the Outside Director’s Share Accounts.

13.2. No Assets: No stock, cash or other property shall be deliverable to an Outside Director in respect of the Outside Director’s Share Accounts until the date or dates identified pursuant to Article VIII or Article IX, and an Outside Director’s Share Units shall be reflected in an unfunded account established for such Outside Director by the Company. Payment of the Company’s obligation with respect to an Outside Director’s Share Accounts shall be from general funds, and no special assets (stock, cash or otherwise) have been or shall be set aside as security for this obligation.

-14-

13.3. No Transfers: An Outside Director’s rights to payments under Article VIII and/or Article IX are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or garnishment by an Outside Director’s creditors or the creditors of his or her beneficiaries, whether by operation of law or otherwise, and any attempted sale, transfer, assignment, pledge, or encumbrance with respect to such payment shall be null and void, and shall be without legal effect and shall not be recognized by the Company.

13.4. Unsecured Creditor; No Trust Fund: The right of an Outside Director to receive payments under Article VIII and/or Article IX is that of a general, unsecured creditor of the Company, and the obligation of the Company to make payments constitutes a mere promise by the Company to pay such benefits in the future. Further, the arrangements contemplated by Article VIII and Article IX are intended to be unfunded for tax purposes and for purposes of Title I of ERISA.

13.5. Designation of Beneficiary: Each Outside Director or former Outside Director entitled to any payments under Article VIII and/or Article IX from time to time may designate a beneficiary or beneficiaries to whom any such payments are to be paid in case of the Outside Director’s death before receipt of any or all of such payments. Any designation shall revoke all prior designations by the Outside Director or former Outside Director, shall be in a form prescribed by the Company and shall be effective only when filed by the Outside Director or former Outside Director, during his or her lifetime, in writing with the Treasurer of the Company. References in this Plan to an Outside Director’s “beneficiary” at any date shall include such persons designated as concurrent beneficiaries on the director’s beneficiary designation form then in effect. In the absence of any such designation, any balance remaining in an Outside Director’s or former Outside Director’s Share Accounts at the time of the director’s death shall be paid to such Outside Director’s estate.

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

13.7. Use of Exercise Proceeds: Payment received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company’s treasury and reissued.

13.8. 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 in connection with the adoption, administration, amendment or termination of the Plan, 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

-15-

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. To the extent that Code Section 409A applies to payments made pursuant to this Section, the payments shall be completed on or before the latest date permitted for payments made pursuant to an indemnification or expense reimbursement provision.

13.9. Withholding Taxes: The Company may, in its discretion, require an Outside Director to pay to the Company at the time of exercise of an Option or issuance of Common Stock under the Plan the amount that the Company deems necessary to satisfy its obligation, if any, to withhold Federal, state or local income, FICA or other taxes incurred by the reason of the exercise or issuance. An Outside Director shall satisfy the federal, state and local withholding tax obligations arising in connection with the exercise of an Option or issuance of Common Stock under the Plan in a manner acceptable to the Committee.

13.10. No Guarantee Of Tax Treatment: The Company does not guarantee to any Outside Director or any other person with an interest in an Option or other entitlement of an Outside Director under the Plan that any such Option or other entitlement intended to be exempt from Code Section 409A shall be so exempt, or that any Option or other entitlement intended to comply with Code Section 409A shall so comply, and nothing in this Plan obligates the Company or any affiliate to indemnify, defend or hold harmless any individual with respect to the tax consequences of any such failure.

13.11. Miscellaneous Distribution Rules.

a. Accelerated Distribution Following Section 409A Failure. If an amount under this Plan is required to be included in a Participant’s income under Code Section 409A prior to the date such amount is actually distributed, the Outside Director shall receive a distribution, in a single sum, within ninety (90) days after the date it is finally determined that the Plan fails to meet the requirements of Code Section 409A. The distribution shall equal the amount required to be included in the Outside Director’s income as a result of such failure.

-16-

ARTICLE XIV

Effective Date

14.1. The Plan became effective on May 2, 1998 and was amended on May 3, 2003 and April 29, 2006. The Plan, as further amended herein, shall become effective on January 1, 2009.

-17-

SCHEDULE A TO THE

HARLEY-DAVIDSON, INC.

DIRECTOR STOCK PLAN, AS AMENDED

A Change of Control Event, for purposes of Section 8.4, means any one of the following:

EX-10.4 5 dex104.htm PENSION BENEFIT RESTORATION PLAN Pension Benefit Restoration Plan

Exhibit 10.4

HARLEY-DAVIDSON

PENSION BENEFIT RESTORATION PLAN

(As Amended and Restated Effective January 1, 2009)

HARLEY-DAVIDSON MOTOR COMPANY GROUP, INC., a Wisconsin corporation, maintains the Harley-Davidson Pension Benefit Restoration Plan (the “Plan”) to provide benefits as follows:

Purpose.

The purpose of the Plan is to provide the benefits which a Participant would have been entitled to receive under the Funded Plan except for (a) the statutory maximum annual benefit limitations of Code Section 415, (b) the statutory maximum limitations on pensionable pay provided for in Code Section 401(a)(17), and (c) the exclusion from the definition of pensionable compensation in the Funded Plan for amounts contributed as a pretax contribution to a nonqualified plan of deferred compensation.

2.	Definitions.

The following terms have the following meanings unless the context clearly indicates otherwise:

(a) “Affiliate” means each corporation, trade or business that, with the Company, constitutes a controlled group of corporations, or group of trades or businesses under common control, within the meaning of Code Sections 414(b) or (c); provided that for purposes of determining when a Participant has incurred a Separation from Service, the phrase “at least 50 percent” shall be used in place of “at least 80 percent” each place it appears in Code Section 414(b) and (c) and the regulations thereunder.

(b) “Applicable Interest Rate” means the product of (i) one (1.0) minus the applicable maximum tax rate at the Participant’s Determination Date, with such rate expressed as a decimal, and (ii) the discount rate used by the Company to value the obligations of the Funded Plan, as set forth in the Company’s disclosure for purposes of Statement of Financial Accounting Standard No. 87 (or any successor) for the fiscal year of the Company that includes the first day of the month coincident with or next following the Participant’s Separation from Service for any reason other than death, with such rate also expressed as a decimal. The product shall then be rounded up to the nearest hundredth. The “applicable maximum tax rate” means the total of the maximum federal individual income tax, the maximum State of Wisconsin individual income tax, and the Hospital Insurance (Medicare) payroll tax, taking into account the deductibility of state income taxes for federal income tax purposes, to the extent permitted by law and tax rates as they are legally in effect at the Participant’s Determination Date. Any subsequent adjustments which may be made to tax rates or to the Funded Plan’s expected rate of return on plan assets, even if having retroactive effect to such date, shall be disregarded.

(d) “Change of Control Event” means a “change in control event” (as such term is defined for purposes of Code Section 409A) with respect to the Company.

(e) “Code” means the Internal Revenue Code of 1986, and the ruling and regulations issued thereunder, all as amended and in effect from time to time.

(f) “Committee” means the Retirement Plans Committee appointed by the Board or, if such Committee is unable to fulfill its duties under the Plan, the Board.

(g) “Company” means Harley-Davidson Motor Company Group, Inc., or any successor thereto.

(h) “Determination Date” means:

(1) With respect to a vested Participant whose benefit is payable as a monthly annuity benefit, the later to occur of (i) the first day of the month coincident with or next following the Participant’s attainment of age fifty-five (55), or (ii) the first day of the month coincident with or next following the Participant’s Separation from Service; or

(2) With respect to a vested Participant whose benefit is payable as a single sum, the first day of the month coincident with or next following the Participant’s Separation from Service for any reason other than death.

(i) “Employee” means a common-law employee of the Company or an Affiliate who was hired prior to August 1, 2006 and who is a participant in the Funded Plan.

(j) “Funded Plan” means the Retirement Annuity Plan for Salaried Employees of Harley-Davidson, as from time to time amended and in effect.

(k) “Normal Retirement Date” means, with respect to any Participant, the Participant’s normal retirement date for purposes of the Funded Plan.

(l) “Participant” means an Employee who becomes a Participant in accordance with Section 3. Where the context so requires, a Participant also means a former employee entitled to receive a benefit hereunder.

-2-

(m) “Payment Date” means the date on which payment of a Participant’s vested benefit is made (if a single sum) or commences (if a monthly annuity), as determined in accordance with Sections 6 and 7.

(n) “Pension Restoration Benefit” means the benefit described in Section 5. The fact that a Participant has accrued a Pension Restoration Benefit under this Plan does not suggest or require that a contract from an insurance company will be obtained to provide such benefit.

(o) “Separation from Service” means the date on which a Participant separates from service (within the meaning of Code Section 409A) from the Company and all Affiliates. A Separation from Service occurs when the Company and the Participant reasonably anticipate that no further services will be performed by the Participant for the Company and its Affiliates after that date or that the level of bona fide services the Participant will perform after such date as an employee of the Company or an Affiliate will permanently decrease to no more than 20% of the average level of bona fide services performed by the Participant (whether as an employee or independent contractor) for the Company and its Affiliates over the immediately preceding 36-month period (or such lesser period of services). The Participant is not considered to have incurred a Separation from Service if the Participant is absent from active employment due to military leave, sick leave or other bona fide reason if the period of such leave does not exceed the greater of (i) six months, or (ii) the period during which the Participant’s right to reemployment by the Company or an Affiliate is provided either by statute or by contract; provided that if the leave of absence is due to a medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, the leave may be extended for up to 29 months without causing the Participant to have incurred a Separation from Service.

(p) “Spouse” means the surviving spouse of a deceased Participant.

(q) “Unrestricted Benefit” means the hypothetical benefit to which a Participant would be entitled under the Funded Plan if the Funded Plan benefit were calculated in accordance with the assumptions set forth in Section 5.

Other terms, if not defined herein but defined in the Funded Plan, shall have the same meaning as under the Funded Plan.

3.	Participation.

An Employee, if then still employed by the Company or an Affiliate, will become a Participant in this Plan on January 1 of the calendar year following the calendar year in which the Employee’s Unrestricted Benefit is greater than the Employee’s actual benefit accrued under the Funded Plan. Notwithstanding the foregoing, the Committee shall limit the group of employees who become Participants in the Plan to a select group of management and highly compensated employees, as determined by the Committee in accordance with ERISA.

-3-

Vesting.

A Participant’s entitlement to Pension Restoration Benefits hereunder vests and becomes nonforfeitable concurrently, to the extent accrued hereunder, with the vesting in the Participant’s benefit entitlement under the Funded Plan. If a Participant is not vested under the Funded Plan, the Participant is not vested under this Plan.

5.	Pension Restoration Benefit.

(a) Eligibility. A Pension Restoration Benefit is payable to the Participant only if (1) the Employee has become a Participant in accordance with Section 3, (2) the Participant is vested in accordance with Section 4, and (3) the Participant is living on the Determination Date. Following the Participant’s death, the only benefits payable shall be those, if any, payable in accordance with Sections 10 and 11.

(b) Formula Benefit. The amount of a Participant’s Pension Restoration Benefit, when expressed in the form of a monthly single life annuity, without survivor benefits, with payment commencing on the Participant’s Normal Retirement Date, is equal to the difference between (1) and (2) below:

(1) Unrestricted Benefit. The monthly benefit to which the Participant would have been entitled under the Funded Plan, if (A) such benefit was expressed in the form of a single life annuity, without survivor benefits, with payment commencing on the Participant’s Normal Retirement Date, (B) such benefit was calculated (i) by disregarding the maximum compensation limitation of Code Section 401(a)(17), (ii) by disregarding the maximum benefit limitation of Code Section 415, and (iii) by assuming that all amounts voluntarily deferred by the Participant into a non-qualified deferred compensation plan of the Company or an Affiliate were instead paid to the Participant, in the year of the deferral, as current cash compensation; and

(2) Actual Funded Plan Benefit. The monthly benefit to which the Participant is actually entitled under the Funded Plan, when such benefit is expressed in the form of a single life annuity, without survivor benefits, with payment commencing on the Participant’s Normal Retirement Date. The form or time of payment actually applicable to the Participant under the Funded Plan is disregarded.

6.	Initial Payment Election.

(a) Payment Election as to Form of Payment. Each Participant shall make a payment election whether to receive his or her vested benefit as (1) a single sum cash payment, or (2) an annuity distribution. A Participant who has elected (or is deemed to have elected) the annuity payment option is not required to elect the specific form of annuity at the time of making the initial payment election, so long as the available forms of annuity distribution are actuarially equivalent, with actuarial equivalence determined using factors that are reasonable for purposes of Code Section 409A. If the available forms of annuity distribution are actuarially equivalent for purposes of Code Section 409A, the Participant may choose the specific form of monthly annuity prior to the Determination Date, in accordance with rules prescribed by the Committee.

-4-

(b) Date of Initial Payment Election.

(i) In the case of an Employee who became a Participant prior to January 1, 2009, the initial payment election must be made on or before December 31, 2008. Except as provided in Section 7, the last election on file with the Company on December 31, 2008 shall be irrevocable.

(ii) In the case of an Employee who becomes a Participant after December 31, 2008, the initial payment election must be made prior to the first day of the calendar year in which the Employee becomes a Participant, or within such other period as is permitted under Code Section 409A. Except as provided in Section 7, the last election on file with the Company by the election deadline shall be irrevocable.

(c) Default Initial Payment Election. If a Participant has not made an initial payment election within the prescribed period, the Participant will be deemed to have elected to receive an annuity distribution.

(d) Payment Date. If payment is being made pursuant to a Participant’s initial payment election, i.e., the Participant has not submitted an effective revision to his or her initial payment election, then:

(1) If payment is being made in a single sum, the Payment Date will be the first day of the seventh (7^th) month following the month in which occurs the Participant’s Separation from Service.

(2) If payment is being made as a monthly annuity, the Payment Date will be the later to occur of (A) the first date of the month coincident with or next following the Participant’s attainment of age fifty-five (55), or (B) the first day of the seventh (7^th ) month following the month in which occurs the Participant’s Separation from Service.

7.	Revised Payment Election.

In its sole discretion, the Committee may (but need not) permit a Participant who has in effect a payment election to receive a single sum distribution to elect the annuity payment option, or a Participant who has in effect a payment election of the annuity payment option to elect the single sum payment option. However, the Participant’s revised election will be given effect only if (1) the Participant’s revised payment election is submitted and accepted by the Committee at least twelve (12) months prior to what would have been the Payment Date under the Participant’s immediately prior valid election, and (2) the revised Payment Date is the later of (i) five years from the Payment Date under the Participant’s immediately prior valid election, or (ii) the Payment Date that would otherwise apply under Section 6(d) above if the Participant’s revised benefit election were the Participant’s initial payment election. For purposes of Code Section 409A, an annuity payment option is considered to be a single payment rather than a series of independent payments.

-5-

8.	Distribution of Single Sum Benefits (For Participants Electing the Single Sum Form of Payment).

(a) Time of Payment. The single sum benefit will be calculated as of the Determination Date but paid on the Payment Date.

(b) Amount of Single Sum Payment. The amount of the Participant’s single sum cash payment shall be equal to (A) the present value of the Participant’s monthly Pension Restoration Benefit as of the Determination Date, and (B) interest for the period from Determination Date through the last day of the month preceding the Payment Date. The present value determination shall be made on the assumption that two hundred forty (240) consecutive monthly Pension Restoration Benefit payments in the form of a single life annuity would otherwise have been made to the Participant and further assuming that payment of the benefit commenced on the later of the first day of the month following the Participant’s attainment of age fifty-five (55) or the Participant’s Determination Date. The Applicable Interest Rate shall be used to determine present value, including, when the assumed benefit commencement date is later than the Determination Date, discounting the present value determined as of the assumed commencement date to the Determination Date, and for crediting interest from the Determination Date to the Payment Date.

9.	Distribution of Monthly Annuity Benefits (For Participants Electing the Annuity Form of Payment).

(a) Monthly Benefits Commencing Prior to January 1, 2009. The Pension Restoration Benefit of a Participant whose benefit commences to be paid, in an annuity form, prior to January 1, 2009, will be paid in the same form of payment applicable to the payment of benefits to the Participant under the Funded Plan and such payments shall commence at the same time as payments commence to the Participant under the Funded Plan. If a periodic payment method other than a single life annuity form of payment is in effect under the Funded Plan, the Participant’s benefit under this Plan shall be converted to an actuarially equivalent benefit in the form in which payment is being made under the Funded Plan on the basis of the Funded Plan’s method of determining actuarial equivalency. In addition, if the Participant’s benefit commencement date under this Plan is prior to the Participant’s Normal Retirement Date, the benefit under this Plan shall be subject to reduction on the same basis that the benefit would be subject to reduction for early commencement if the benefit were being paid from the Funded Plan.

-6-

(b) Monthly Benefits Commencing After December 31, 2008. The Pension Restoration Benefit of a Participant whose benefit commences to be paid, in an annuity form, after December 31, 2008, shall be calculated and paid as follows:

(1) Form of Payment. The Participant may elect, in accordance with such conditions as may be established by the Committee, to receive payment in any form of annuity that would be available to the Participant under the Funded Plan if the Pension Restoration Benefit were being paid under the Funded Plan rather than under this Plan; provided that the spousal consent requirements under the Funded Plan will not apply.

(2) Calculation of Payment Amount. The monthly annuity will be calculated as if payment of the Pension Restoration Benefit commenced on the Determination Date, even though actual payment of the benefit will commence on the Payment Date in accordance with subparagraph (3) below. If a periodic payment method other than a single life annuity form of payment is elected, the Participant’s benefit under this Plan shall be converted to an actuarially equivalent benefit in the form in which payment is being made under the Funded Plan on the basis of the Funded Plan’s method of determining actuarial equivalency. In addition, if the Participant’s Determination Date is prior to the Participant’s Normal Retirement Date, the benefit under this Plan shall be subject to reduction on the same basis that the benefit would be subject to reduction for early commencement if the benefit were being paid from the Funded Plan. The Participant’s election of the specific form of annuity must be made prior to the Determination Date, and the election becomes irrevocable on the Determination Date.

(3) Time of Payment. The monthly benefit shall be paid beginning with a payment on the Payment Date. The payment for the month that includes the Payment Date will include (i) the regular monthly payment for the month that includes the Payment Date, (ii) a catch-up payment for each such month from the month that includes the Determination Date through the month preceding the Payment Date, together with simple (non-compounded) interest on each installment of the catch-up payment, at the Applicable Interest Rate, from the date on which the monthly payment otherwise would have been made if payment of the monthly Pension Restoration Benefit had commenced on the Determination Date, to the last day of the month preceding the Payment Date. Thereafter, the payment for each month will be the regular monthly payment amount.

10.	Death On or After Separation from Service.

If a vested Participant dies on or after the date of his or her Separation from Service, the only benefits that are payable under the Plan shall be those, if any, that are payable in accordance with the form of benefit payment applicable to the Participant. Thus:

(a) In the case of a Participant who has in effect an election of the single sum payment form, the single sum benefit, to the extent not paid prior to the Participant’s death, will be paid to the Participant’s Spouse, or if none, to the Participant’s estate, within 90 days of the Participant’s death.

(b) In the case of a Participant who has not elected the single sum payment form, the death benefits shall be those, if any, that are payable under the form of annuity distribution applicable to the Participant under this Plan. Benefit payments to the Spouse or other recipient shall commence on the Payment Date that would have been applicable to the Participant if he or she had survived.

-7-

11.	Death Prior to Separation from Service.

(a) Death of Married Participant With Monthly Annuity Benefit Election. Except as provided below with respect to a Participant who had in effect an election of the single sum payment, if a vested Participant dies before the Participant’s Separation from Service and the Participant has a Spouse who is eligible to receive a preretirement surviving spouse benefit under the Funded Plan, such Spouse shall be entitled to receive a preretirement surviving spouse benefit under this Plan. The preretirement surviving spouse benefit provides monthly payments for the life of the surviving Spouse commencing on the later to occur of (i) the first day of the month following the Participant’s death, or (ii) the first day of the month following the month in which the Participant would have attained age fifty-five (55) had the Participant lived. The monthly preretirement surviving Spouse benefit will be equal to the monthly preretirement surviving Spouse benefit to which the Spouse would have been entitled, at the benefit commencement date described in the preceding sentence, if the Participant’s Pension Restoration Benefit under this Plan had instead been accrued under and payable from the Funded Plan using the Funded Plan’s methodology for determining preretirement surviving spouse benefits, other than the Code Sections 401(a)(17) and 415 limitations.

(b) Optional Lump Sum Payment. If a vested Participant dies before the Participant’s Determination Date and the Participant has a Spouse who is eligible to receive a preretirement surviving spouse benefit under the Funded Plan, and if the Participant had in effect at the time of his or her death a valid election to receive the Participant’s Pension Restoration Benefit as a single sum payment, any preretirement surviving spouse benefit which is otherwise payable under this Plan shall be paid to the Participant’s surviving Spouse in the form of a single sum cash amount. The single sum cash amount shall be equal to the present value of the monthly benefits described in subsection (a), above, and shall be determined on the assumption that two hundred forty (240) consecutive monthly benefit payments would otherwise be made, commencing on the later of the first day of the month following the date the deceased Participant would have attained age fifty-five (55) or the deceased Participant’s Determination Date. The Applicable Interest Rate shall be used to determine present value, including, when the assumed benefit commencement date is later than the Determination Date, discounting the present value determined as of the assumed commencement date to the Determination Date. Payment of the optional lump sum amount shall be completed within ninety (90) days following the Participant’s death.

(c) No Death Benefits in Other Circumstances. If the Participant dies before the Participant is vested in the Pension Restoration Benefit, or if the Participant dies prior to the Participant’s Separation from Service and the Participant does not have a surviving Spouse, no benefits are payable hereunder.

-8-

12.	Effect of Change of Control Event.

(a) Prior to Separation from Service. If a Change of Control Event occurs while a Participant is actively employed by the Company or an Affiliate, the Company may, in its sole discretion, establish an irrevocable grantor trust, to be entered into by the Company and the trustee thereof, for the purpose of holding assets sufficient to fund some or all of the liability or contingent liability of the Company or applicable Affiliate to pay benefits hereunder to the Participant. Funding of such irrevocable grantor (“rabbi”) trust shall be in the discretion of the Board, subject to the restrictions on funding imposed by Code Section 409A(b)(3).

(b) After Separation From Service. If, after a Participant incurs a Separation from Service, a Change of Control Event occurs (which shall be considered an intervening event for purposes of Code Section 409A that permits an acceleration of payments), and the Participant has not yet received all amounts due under the Plan, then the Company shall (i) with respect to a Participant who has a single sum payment election in effect, pay the single sum payment amount, as calculated in accordance with the foregoing provisions of the Plan, as soon as practicable (but no more than 90 days) following the date of the Change in Control Event, or (ii) with respect to a Participant (or surviving Spouse or other beneficiary of a deceased Participant where the form of benefit applicable to the Participant provides for the designation of a beneficiary) who is receiving or entitled to receive periodic benefits under the Plan, cash out, in single lump sum payment amount, the present value of any remaining payments yet to be made to or on behalf of the Participant. The present value of the periodic payments that would otherwise be made shall be determined as of the first day of the month following the month in which the Change of Control Event occurred. Present value shall be based on the assumption that the recipient of the monthly payments being cashed out has the life expectancy assigned to a person of similar age under the Funded Plan’s general mortality assumptions used for funding purposes. If payments on behalf of the Participant have not yet commenced as of the date of this determination of present value, it shall be further assumed that payments would have commenced on the later of such date of determination of present value or the first day of the month following the fifty-fifth birthday of the Participant. The Applicable Interest Rate shall be used to determine present value, including, when the assumed benefit commencement date is later than the date as of which present value is determined, discounting present value determined as of the payment commencement date to the date as of which it is being determined.

13.	Administration of the Plan.

The Committee shall administer and interpret the Plan, and supervise its operation. Interpretation of the Plan by the Committee shall be final and binding upon the Participant and any other person or entity claiming benefits by virtue of the Participant’s participation in the Plan.

14.	Claims Procedures.

(a) Initial Claim. If a Participant, Spouse or beneficiary (the “claimant”) believes that he or she is entitled to a benefit under the Plan that is not provided, the claimant or his legal representative shall file a written claim for such benefit with the Committee within ninety (90) days of the date payment could have been timely made in accordance with the terms of the Plan or under Regulations

-9-

issued by the Secretary of the Treasury under Code Section 409A. The Committee shall review the claim and render its decision with respect to the claim within one hundred thirty-five (135) days of the date payment could have been timely made in accordance with the terms of the Plan or under Regulations issued by the Secretary of the Treasury under Code Section 409A. If the claimant’s claim is denied in whole or part, the Committee shall provide written notice to the claimant of such denial. The written notice shall include the specific reason(s) for the denial; reference to specific Plan provisions upon which the denial is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and a description of the Plan’s review procedures (as set forth in subsection (b)) and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse determination upon review. If the claimant does not receive a written decision within the time period(s) described above, the claim shall be deemed denied on the last day of such period(s).

(b) Request for Appeal. The claimant has the right to appeal the Committee’s decision by filing a written appeal of the Committee’s decision or deemed denial within one hundred eighty (180) days of the date payment could have been timely made in accordance with the terms of the Plan or under Regulations issued by the Secretary of the Treasury under Code Section 409A. The claimant will have the opportunity, upon request and free of charge, to have reasonable access to and copies of all documents, records and other information relevant to the claimant’s appeal. The claimant may submit written comments, documents, records and other information relating to his claim with the appeal. The Committee will review all comments, documents, records and other information submitted by the claimant relating to the claim, regardless of whether such information was submitted or considered in the initial claim determination. The Committee shall make a determination on the appeal within sixty (60) days after receiving the claimant’s written appeal; provided that the Committee may determine that an additional sixty (60)-day extension is necessary due to circumstances beyond the Committee’s control, in which event the Committee shall notify the claimant prior to the end of the initial period that an extension is needed, the reason therefor and the date by which the Committee expects to render a decision. If the claimant’s appeal is denied in whole or part, the Committee shall provide written notice to the claimant of such denial. The written notice shall include the specific reason(s) for the denial; reference to specific Plan provisions upon which the denial is based; a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claimant’s claim; and a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA. If the claimant does not receive a written decision within the time period(s) described above, the appeal shall be deemed denied on the last day of such period(s).

(c) Special Rules. If the claimant is a member of the Committee, consideration of the claim, whether the initial claim or a request for review, and the decision with respect to any such claim, shall be made by the Human Resources Committee of the Board.

-10-

15.	Amendment.

The Company, by action of the Human Resources Committee of the Board, may at any time amend the Plan, including but not limited to modifying the terms and conditions applicable to (or otherwise eliminating) accrual of benefits on or after the amendment date; provided, however, that no amendment may reduce or eliminate any vested accrued benefit accumulated to the date of such amendment (except as the benefit may be reduced as a result of increases in the amount payable under the Funded Plan) without a Participant’s consent, except as otherwise specifically provided herein. In addition, the Committee may at any time amend the Plan to make administrative changes, ministerial changes, changes necessary to comply with applicable law, or other changes that do not materially affect the level of benefits provided under the Plan.

16.	Termination.

The Company, by action of the Human Resources Committee of the Board, may terminate the Plan. Upon termination of the Plan, future accrual of benefits shall cease. In addition, upon termination of the Plan, Participant benefits may be cashed-out in a manner consistent with Section 12(b), but only if one of the following are met.

(a) The Company terminates the Plan within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), and the amounts accrued under the Plan but not yet paid are distributed to the Participants, Spouses or beneficiaries, as applicable, in a single sum payment, regardless of any distribution election then in effect, by the later of: (A) the calendar year in which the Plan termination and liquidation occurs or (B) the first calendar year in which an amount is no longer subject to a substantial risk of forfeiture, or (C) the first calendar year in which the payment is administratively practicable.

(b) The Company terminates the Plan at any time during the period that begins thirty (30) days prior and ends twelve (12) months following a Change of Control Event, provided that all arrangements required to be aggregated with the Plan (within the meaning of Code Section 409A) sponsored by the Company or an Affiliate are terminated and liquidated with respect to each Participant that experienced the Change in Control Event, so that all participants under similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date of termination of the arrangements.

(c) The Company terminates the Plan at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate. In such event, all amounts accrued under the Plan but not yet paid will be distributed to all Participants, Spouses or beneficiaries, as applicable, in a single sum payment no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of termination, regardless of any distribution election then in effect. This provision shall not be effective unless all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month

-11-

period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plan’s termination, unless any individual who was a Participant under this Plan is excluded from participating thereunder for such three (3) year period.

17.	Coordination of Pension Benefit Restoration Benefits with SERP.

The Pension Restoration Benefit hereunder and any benefit entitlements of the Participant under the Harley-Davidson Pension Supplemental Executive Retirement Plan shall be coordinated so as to have the effect of being benefits provided by a single plan or program. As a result, the same form of benefit payment is required for benefits under each program, and the benefits payable under each program may be combined into one payment or check.

18.	Unfunded Agreement.

The Plan is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Nothing contained in the Plan and no action taken pursuant to its terms shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and the Participant, or any other person. The right of the Participant or any other person or entity to receive benefits hereunder shall be an unsecured claim against the general assets of Company or applicable Affiliate and neither the Participant nor any other person or entity shall have any rights in or against any amounts which may be earmarked by the Company or an Affiliate in order to implement the Plan or any other specific assets of the Company or an Affiliate.

19.	Additional Section 409A Provisions.

-12-

(c) Disregard of Six Month Delay. Notwithstanding anything herein to the contrary, if at the time of a Participant’s Separation from Service the stock of Harley-Davidson, Inc. or any other related entity that is considered a “service recipient” within the meaning of Section 409A of the Code is not traded on an established securities market or otherwise, then the provisions of the Plan requiring that payments be delayed for six months shall cease to apply. In such event, the payment (if a lump sum) or initial payment (if an annuity) shall be made within ninety (90) days following the event triggering the benefit payment(s).

20.	Additional ERISA Provisions.

The Committee is the named fiduciary. The Plan is unfunded. Direct payment is the basis of payment of benefits under the Plan.

21.	Tax Withholding.

The Company shall have the right to deduct from any benefit payment made hereunder, or from any other amount due a Participant, the amount of cash sufficient to satisfy the Company’s or Affiliate’s foreign, federal, state or local income tax withholding obligations with respect to such deferral (or vesting thereof) or payment. In addition, if prior to the date of distribution of any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due, the Committee may direct that the Participant’s benefit be reduced by an actuarially equivalent amount to reflect the amount needed to pay the Participant’s portion of such tax.

22.

Offset.

To the maximum extent permitted under Code Section 409A, the Company shall have the right to offset, without the requirement of obtaining the consent of the Participant (or his Spouse or beneficiary, in the event of the Participant’s death), from the benefits payable hereunder any amount that the Participant owes to the Company or any Affiliate.

23.	Assignment.

The right of an employee or any other person to the payment of benefits under this Agreement shall not be assigned, transferred, pledged or encumbered except to the extent provided in a qualified domestic relations order within the meaning of Article XII of the Funded Plan.

24.	Effect on Retirement Plans.

Any benefits accrued pursuant to the Plan shall not be deemed compensation to the Participant for the purpose of computing benefits under any qualified retirement plan or other benefit plan, whether qualified or nonqualified, which may be maintained by the Company or an Affiliate.

-13-

25.	Severability.

If any of the provisions of the Plan shall be held to be invalid, the remainder of the Plan shall not be affected thereby.

26.	Binding upon Successors.

This Agreement shall be binding upon and inure to the benefit of the Company, and its successors and assigns, and the Participant and the Participant’s heirs, executors, administrators, and legal representatives.

27.	Governing Law.

The Plan shall be construed in accordance with and governed by the laws of the State of Wisconsin, without reference to conflict of law principles thereof, to the extent not preempted by federal law.

-14-

EX-10.5 6 dex105.htm FORM OF AMENDED & RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT Form of Amended & Restated Supplemental Executive Retirement Plan Agreement

Exhibit 10.5

HARLEY-DAVIDSON

AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

FOR

(“EXECUTIVE”)

HARLEY-DAVIDSON, INC., a Wisconsin corporation, together with its subsidiaries and affiliates (collectively referred to herein as the “Employer”), hereby amends and restates the previously established Supplemental Executive Retirement Plan (the “SERP”) for the Executive, effective as of the day of , , as follows:

1. Purpose. The purpose of the SERP is to provide the Executive with retirement income benefits which are supplemental to entitlements under the Funded Plan, the Harley-Davidson Retirement Savings Plan, the Harley-Davidson Pension Benefit Restoration Plan, and the Employer’s post-retirement medical benefits plan.

2. Definitions. The following terms have the following meanings unless the context clearly indicates otherwise:

(a) “Affiliate” means each corporation, trade or business that, with the Company, constitutes a controlled group of corporations, or group of trades or businesses under common control, within the meaning of Code Sections 414(b) or (c); provided that for purposes of determining when the Executive has incurred a Separation from Service, the phrase “at least 50 percent” shall be used in place of “at least 80 percent” each place it appears in Code Section 414(b) and (c) and the regulations thereunder.

(b) “Applicable Interest Rate” means the product of (i) one (1.0) minus the applicable maximum tax rate at the Executive’s Determination Date, with such rate expressed as a decimal, and (ii) the discount rate used by the Company to value the obligations of the Funded Plan, as set forth in the Company’s disclosure for purposes of Statement of Financial Accounting Standard No. 87 (or any successor) for the fiscal year of the Company that includes the first day of the month coincident with or next following the Participant’s Separation from Service for any reason other than death, with such rate also expressed as a decimal. The product shall then be rounded up to the nearest hundredth. The “applicable maximum tax rate” means the total of the maximum federal individual income tax, the maximum State of Wisconsin individual income tax, and the Hospital Insurance (Medicare) payroll tax, taking into account the deductibility of state income taxes for federal income tax purposes, to the extent permitted by law and tax rates as they are legally in effect at the Executive’s Determination Date. Any subsequent adjustments which may be made to tax rates or to the Funded Plan’s expected rate of return on plan assets, even if having retroactive effect to such date, shall be disregarded.

(c) “Applicable Percentage” means thirty-five percent (35%) plus, for each full calendar month of employment completed by the Executive after age fifty-five (55), one thousand seven hundred eighty-six ten-thousandths percent (0.1786%), not to exceed a maximum of fifty percent (50%) at age sixty-two (62).

(d) “Board” means the Board of Directors of Harley-Davidson, Inc.

(e) “Change of Control Event” means a “change in control event” (as such term is defined for purposes of Code Section 409A) with respect to the Company.

(f) “Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

(g) “Committee” means the Retirement Plans Committee appointed by the Board, or, if such Committee is unable to fulfill its duties under the SERP, the Board.

(h) “Company” means Harley-Davidson, Inc., or any successor thereto.

(i) “Determination Date” has the meaning assigned in the Harley-Davidson Pension Benefit Restoration Plan.

(j) “Earnings” and “Final Average Earnings” have the meanings assigned to such terms by the Funded Plan except that each shall be determined for purposes of this SERP without regard to the limitations on pensionable earnings imposed by Code Section 401(a)(17) and increased by any amount which would be taxable compensation if such amount were not contributed as a pretax contribution to a nonqualified plan of deferred compensation maintained by an Employer.

(k) “Effective Date” means the date first above written.

(l) “Funded Plan” means the Retirement Annuity Plan for Salaried Employees of Harley-Davidson, as from time to time amended and in effect.

(m) “Payment Date” shall have the meaning assigned in the Harley-Davidson Pension Benefit Restoration Plan.

(n) “SERP Benefit” means the monthly benefit payable in the form of a single life annuity for the life of the Executive equal to the Applicable Percentage multiplied by the Executive’s Final Average Earnings as specially defined for purposes of this SERP, offset and reduced by the Executive’s monthly benefit entitlement payable in the normal single life annuity form under (i) the Funded Plan and (ii) the Harley-Davidson Pension Benefit Restoration Plan. A SERP Benefit hereunder is payable only to an Executive who is living on the date payments are to commence to be paid to the Executive, which is deemed to be the Executive’s Determination Date. “Annuity,” for all purposes hereunder, means periodic payments of income and does not, under any circumstance, suggest or require that a contract from an insurance company will be obtained to provide such periodic payments.

(o) “Spouse” means the surviving spouse of the Executive, as such term is defined in the Funded Plan.

3. Vesting. The Executive’s entitlement to the SERP Benefit hereunder vests and becomes nonforfeitable, to the extent accrued, upon completion of fifteen (15) Years of Vesting Service and attainment of age fifty-five (55) before termination of employment for any reason, including death. For purposes of this SERP the term “Years of Vesting Service” has the meaning assigned to it by the Funded Plan.

4. Coordination of SERP Benefits with Pension Benefit Restoration Plan. The SERP Benefit hereunder and any benefit entitlements of the Executive under the Harley-Davidson Pension Benefit Restoration Plan shall be coordinated by the Employer so as to have the effect of being benefits provided by a single plan or program. As a result, the same form and time of benefit payment is required for benefits under each program and the benefits payable under each program may be combined into one payment or check. The Executive’s SERP Benefit shall be paid at the same time and in the same form of benefit payment elected by the Executive under the Harley-Davidson Pension Benefit Restoration Plan.

5. Amount of SERP Benefit.

(a) Annuity Form of Payment. If the SERP Benefit is to be paid in the form of an annuity other than a single life annuity form of payment, the Executive’s single life annuity payment hereunder shall be converted to the actuarial equivalent of such benefit on the basis of the Funded Plan’s method of determining actuarial equivalency.

(b) Lump Sum Form of Payment. If the SERP Benefit is to be paid in the form of a lump sum, the amount of the Executive’s lump sum cash payment shall be determined as of the Executive’s Determination Date but paid on the Payment Date. The amount of the Executive’s single sum cash payment shall be equal to (A) the present value of the Executive’s SERP Benefit as of the Determination Date, and (B) interest for the period from the Determination Date through the last day of the month preceding the Payment Date. The present value determination shall be made on the assumption that two hundred forty (240) consecutive monthly SERP Benefit payments in the form of a single life annuity would otherwise have been made to the Executive, commencing on the Executive’s Determination Date. The Applicable Interest Rate shall be used to determine present value, including, when the assumed benefit commencement date is later than the Determination Date, discounting the present value determined as of the assumed commencement date to the Determination Date, and for crediting interest from the Determination Date to the Payment Date.

6. Death On or After Separation from Service. If the vested Executive dies on or after the date of his Separation from Service, the only benefits that are payable under the SERP shall be those, if any, that are payable in accordance with the form of benefit payment applicable to the Executive.

7. Death Prior to Separation from Service.

(a) Entitlement to, Timing and Form of Payment. If the vested Executive dies before the payment or commencement of benefits hereunder, and the Executive has a Spouse who is eligible to receive a preretirement surviving spouse benefit under the Funded Plan, such Spouse shall be entitled to receive a preretirement surviving spouse benefit hereunder. The payment of such preretirement surviving spouse benefit shall be made at the same time and in the same form of distribution as applies to the Spouse under the Harley-Davidson Pension Benefit Restoration Plan.

(b) Amount of Payment. If the surviving Spouse benefit is payable as monthly payments for the life of the surviving Spouse, such monthly payments shall be equal in amount to the Spouse’s monthly preretirement surviving spouse benefit, determined using the Funded Plan methodology for determining preretirement surviving spouse benefits based on the deceased Executive’s accrued benefits under the SERP immediately prior to death. If the surviving Spouse benefit is payable as a lump sum, the single lump sum cash amount shall be equal to the present value of the monthly benefits described hereinabove, determined on the assumption that two hundred forty (240) consecutive monthly benefit payments would otherwise be made, commencing on the first day of the month following the Executive’s date of death. The Applicable Interest Rate shall be used to determine present value.

8. Other Terminations of Employment. If employment terminates before the Executive is vested in SERP Benefits, or if employment terminates due to the death of the Executive and the Executive does not have a surviving Spouse, no benefits are payable hereunder.

9. Effect of Change of Control Event.

(a) Prior to Separation from Service. If a Change of Control Event is determined by the Committee to have occurred while the Executive is actively employed by the Employer, the Committee may, in its sole discretion, establish an irrevocable grantor trust, to be entered into by the Employer and the trustee thereof, for the purpose of holding assets sufficient to fund some or all of the liability or contingent liability of the Employer to pay benefits hereunder to the Executive. Funding of such irrevocable grantor (“rabbi”) trust shall be in the discretion of the Board.

(b) After Separation from Service. If, after the Executive incurs a Separation from Service, a Change of Control Event occurs (which shall be considered an intervening event for purposes of Code Section 409A that permits an acceleration of payments), and the Executive or Spouse, as applicable, has not yet received all amounts due under the SERP, then the Employer shall cash out, in a single lump sum payment amount, the present value of any remaining payments yet to be made to or on behalf of the Executive. Present value in this situation shall be determined as of the first day of the month following the month in which the Change of Control Event is determined to have occurred and shall be based on the assumption that the recipient of the monthly payments has the life expectancy assigned to a person of the same age under the Funded Plan’s general mortality assumptions used for funding purposes. The Applicable Interest Rate shall be used to determine present value.

10. Administration of the SERP. The Committee shall administer and interpret the SERP, and supervise its operation. Interpretation of the SERP by the Committee shall be final and binding upon the Executive.

11. Unfunded SERP. This SERP is unfunded and is maintained by the Employer primarily for the purpose of providing deferred compensation for a select member of management who is also highly compensated. Nothing contained in this SERP and no action taken pursuant to its terms shall create or be construed to create a fiduciary relationship between the Employer and the Executive, or any other person. The right of the Executive to receive benefits hereunder shall be an unsecured claim against the general assets of the Employer and neither the Executive nor any other person shall have any rights in or against any amounts which may be earmarked by the Employer in order to implement this SERP, or any other specific assets of the Employer.

12. Additional Section 409A Provisions.

(a) Accelerated Distribution Following Section 409A Failure. If an amount under this SERP is required to be included in the Executive’s income under Code Section 409A prior to the date such amount is actually distributed, the Executive shall receive a distribution, in a lump sum, within ninety (90) days after the date it is finally determined that the SERP fails to meet the requirements of Code Section 409A. The distribution shall equal the amount required to be included in the Executive’s income as a result of such failure.

(b) Permitted Delay in Payment. If a distribution required under the terms of this SERP would jeopardize the ability of the Company or of an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making the distribution does not jeopardize the ability of the Company or of an Affiliate to continue as a going concern. Further, if any distribution pursuant to the SERP will violate the terms of Section 16(b) of the Securities Exchange Act of 1934 or other Federal securities laws, or any other applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such law.

13. Additional ERISA Provisions. The Committee is the named fiduciary. The SERP is unfunded. Direct payment is the basis of payment of benefits under the SERP. The Committee shall determine all claims in accordance with the claims procedure set forth in the Harley-Davidson Pension Benefit Restoration Plan.

14. Tax Withholding. The Employer shall have the right to deduct from any benefit payment made hereunder, or from any other amount due the Executive, the amount of cash sufficient to satisfy the Employer’s foreign, federal, state or local income tax withholding obligations with respect to such deferral (or vesting thereof) or payment. In addition, if prior to the date of distribution of any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due, the Committee may direct that the Executive’s benefit be reduced by an actuarially equivalent amount to reflect the amount needed to pay the Executive’s portion of such tax.

15. Assignment. The right of the Executive or any other person to the payment of benefits under this SERP shall not be assigned, transferred, pledged or encumbered.

16. Effect on Retirement Plans. Any benefits accrued hereunder shall not be deemed compensation to the Executive for the purpose of computing benefits under any qualified retirement plan or other benefit plan, whether qualified or nonqualified, which may be maintained by an Employer.

17. Severability. If any of the provisions of this SERP shall be held to be invalid, or shall be determined to be inconsistent with the purpose of this SERP, the remainder of the agreement shall not be affected thereby.

18. Binding upon Successors. This SERP shall be binding upon and inure to the benefit of the Employer and its successors and assigns and the Executive and the Executive’s heirs, executors, administrators, and legal representatives.

19. Governing Law. This SERP shall be construed in accordance with and governed by the laws of the State of Wisconsin, without reference to conflict of law principles thereof, to the extent not preempted by federal law.

EX-10.6 7 dex106.htm RETIREE INSURANCE ALLOWANCE PLAN Retiree Insurance Allowance Plan

Exhibit 10.6

HARLEY-DAVIDSON

RETIREE INSURANCE ALLOWANCE PLAN

Effective January 1, 2009

TABLE OF CONTENTS


		Page
ARTICLE I. DEFINITIONS AND CONSTRUCTION		2
Section 1.01. Definitions		2
Section 1.02. Construction and Applicable Law		4

ARTICLE II. PARTICIPATION AND ELIGIBILITY FOR RETIREE INSURANCE ALLOWANCE		5
Section 2.01. Participation		5
Section 2.02. Eligibility for the Separation Allowance Benefit		5

ARTICLE III. CALCULATION AND PAYMENT OF RETIREE INSURANCE ALLOWANCE		7
Section 3.01. Amount of Retiree Insurance Allowance		7
Section 3.02. Payment		7

ARTICLE IV. GENERAL PROVISIONS		8
Section 4.01. Administration		8
Section 4.02. Claims Procedures		8
Section 4.03. Participant Rights Unsecured		10
Section 4.04. Distributions for Tax Withholding and Payment		10
Section 4.05. Amendment or Termination of Plan		11
Section 4.06. Administrative Expenses		11
Section 4.07. Successors and Assigns		11
Section 4.08. Right of Offset		11
Section 4.09. Not a Contract of Employment		12
Section 4.10. Miscellaneous Distribution Rules		12

HARLEY-DAVIDSON

RETIREE INSURANCE ALLOWANCE PLAN

Pursuant to resolutions adopted by the Human Resources Committee of the Board of Directors of Harley-Davidson, Inc. in May 1996, certain executives may become eligible for a lump sum retiree insurance allowance. This benefit was originally implemented as a payment in lieu of post-retirement life insurance.

To comply with the requirements of Code Section 409A, it is desirable to adopt a formal plan document, as set forth herein. The Plan is intended to promote the best interests of the Company and its Affiliates by attracting and retaining key management employees possessing a strong interest in the successful operation of the Company and its Affiliates and encouraging their continued loyalty, service and counsel to the Company and its Affiliates.

ARTICLE I. DEFINITIONS AND CONSTRUCTION

Section 1.01. Definitions.

The following terms have the meanings indicated below unless the context in which the term is used clearly indicates otherwise:

(a) Administrator: The Retirement Plans Committee appointed by the Board.

(b) Affiliate: Each corporation, trade or business that, with the Company, forms part of a controlled group of corporations or group of trades or businesses under common control within the meaning of Code Sections 414(b) or (c); provided that for purpose of determining when a Participant has incurred a Separation from Service, the phrase “at least fifty percent (50%)” shall be used in place of “at least eighty percent (80%)” each place it appears in Code Section 414(b) and (c) and the regulations thereunder.

(c) Base Compensation: A Participant’s annual base salary rate, prior to reduction for pre-tax or after-tax contributions by the Participant Employee to any qualified or non-qualified employee benefit plan maintained by a Participating Employer, but exclusive of extraordinary payments such as overtime, bonuses, meal allowances, reimbursed expenses, termination pay, moving pay, commuting expenses, severance pay, non-elective deferred compensation payments or accruals, stock options, restricted stock or restricted stock units, or the value of employer-provided fringe benefits or coverage, all as determined in accordance with such uniform rules, regulations or standards as may be prescribed by the Administrator.

(d) Beneficiary: The person or entity designated by a Participant to be his or her beneficiary for purposes of this Plan. If a beneficiary dies before receiving all payments due such beneficiary, any remaining payments will be made to the designated beneficiary’s estate unless a contingent beneficiary was designated by the Participant as to such amounts. If there is a contingent beneficiary payments will be made to the contingent beneficiary and, if such contingent beneficiary dies, any remaining payments will be made to the contingent beneficiary’s estate. If there is no beneficiary designation in force when Plan benefits become payable upon the death of a Participant, payment shall be made to the Participant’s current spouse, or if the Participant is not married or the spouse is not then living, to the Participant’s estate. Beneficiary designations shall be in writing, filed with the Administrator, be in such form as the Administrator may prescribe for this purpose, and shall become effective only upon acknowledgement by the Administrator.

(e) Board: The Board of Directors of the Company.

(f) Code: The Internal Revenue Code of 1986, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include reference to any successor provision thereto.

(g) Committee: The Human Resources Committee of the Board of Directors of Harley-Davidson, Inc.

(h) Company: Harley-Davidson, Inc., or any successor thereto.

(i) ERISA: The Employee Retirement Income Security Act of 1974, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of ERISA shall be deemed to include reference to any successor provision thereto.

(j) Participant: An employee who becomes a participant in the Plan in accordance with Section 2.01.

(k) Participating Employer: The Company and each Affiliate that, with the consent of the Administrator or the Committee, participates in the Plan for the benefit of one or more Participants.

(l) Retiree Insurance Allowance: The benefit described in Section 3.01(a), consisting of both the Retiree Insurance Base Amount and the tax gross-up payment.

(m) Retiree Insurance Base Amount: The portion of the Retiree Insurance Allowance described in clause (i) of Section 3.01(a), exclusive of the tax gross-up payment.

(n) Separation from Service: The date on which a Participant separates from service (within the meaning of Code Section 409A) from the Company and all Affiliates. A Separation from Service occurs when the Company and the Participant reasonably anticipate that no further services will be performed by the Participant for the Company and its Affiliates after that date or that the level of bona fide services the Participant will perform after such date as an employee of the Company or an Affiliate will permanently decrease to no more than 20% of the average level of bona fide services performed by the Participant (whether as an employee or independent contractor) for the Company and its Affiliates over the immediately preceding 36-month period (or such lesser period of services). The Participant is not considered to have incurred a Separation from Service if the Participant is absent from active employment due to military leave, sick leave or other bona fide reason if the period of such leave does not exceed the greater of (i) six months, or (ii) the period during which the Participant’s right to reemployment by the Company or an Affiliate is provided either by statute or by contract; provided that if the leave of absence is due to a medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, the leave may be extended for up to 29 months without causing the Participant to have incurred a Separation from Service.

Section 1.02. Construction and Applicable Law.

ARTICLE II. PARTICIPATION AND ELIGIBILITY FOR

RETIREE INSURANCE ALLOWANCE

Section 2.01. Participation.

Unless the Committee has promulgated different eligibility rules, a common law employee of a Participating Employer shall be a Participant if the employee is (a) classified by the Participating Employer as a General Manager or Vice President, and (b) employed at the S80 career band level and above.

Section 2.02. Eligibility for the Separation Allowance Benefit.

A Participant will be entitled to receive the Retiree Insurance Allowance if:

(a) The Participant satisfies the participation requirements set forth in Section 2.01 above immediately prior to his or her retirement for reasons other than death;

(b) The Participant retires from active employment with the Company and its Affiliates on or after attainment of age fifty-five (55) and completion of five (5) or more years of service. For this purpose, a Participant’s service means (i) in the case of a Participant hired prior to August 1, 2006, the Participant’s service for vesting purposes that is recognized under the Retirement Annuity Plan for Salaried Employees of Harley-Davidson, and (ii) in the case of a Participant hired on or after August 1, 2006, the Participant’s service for vesting purposes that is recognized under the Retirement Savings Plan for Salaried Employees of Harley-Davidson, or any successor to such plans.

(c) If the Participant dies after retirement but prior to receipt of the Retiree Insurance Allowance, the Retiree Insurance Allowance will be paid to the Participant’s Beneficiary. If the Participant dies prior to retirement, even if the Participant is eligible to retire, no benefit is payable under the Plan.

(d) The Retiree Insurance Allowance shall not duplicate any other program of the Company or an Affiliate under which the Executive may be entitled to a payment in lieu of post-retirement life insurance.

ARTICLE III. CALCULATION AND PAYMENT OF

RETIREE INSURANCE ALLOWANCE

Section 3.01. Amount of Retiree Insurance Allowance.

(a) Amount. The Retiree Insurance Allowance shall be an amount equal to the sum of (i) one times the Participant’s Base Compensation immediately prior to the Participant’s retirement (the Retiree Insurance Base Amount), and (ii) the tax gross-up amount determined under subsection (b) below.

(b) Tax Gross Up Amount. The tax gross-up amount is an additional amount such that the net amount retained by the Participant, after deduction for federal and state income taxes and FICA and Medicare employment taxes on the Retiree Insurance Base Amount, and any federal and state income taxes and FICA and Medicare employment taxes on the additional payment, shall equal the Retiree Insurance Base Amount. For purposes of determining the tax gross-up amount, the Participant shall be deemed to pay federal and state income taxes at the highest marginal rate of federal and state income taxation in the calendar year in which the payment is to be made.

Section 3.02. Payment.

The Retiree Insurance Allowance shall be paid, in a single cash payment, on the first business day of the month following the month in which occurs the six month anniversary of the date of the Participant’s Separation from Service. Notwithstanding anything herein to the contrary, if at the time of a Participant’s Separation from Service the stock of Harley-Davidson, Inc. or any other related entity that is considered a “service recipient” within the meaning of section 409A of the Code is not traded on an established securities market or otherwise, then the provisions of the Plan requiring that payments be delayed for six months shall cease to apply. In such event, the payment shall be made within ninety (90) days following the date of the Participant’s Separation from Service.

ARTICLE IV. GENERAL PROVISIONS

Section 4.01. Administration.

The Administrator shall administer and interpret the Plan. The Administrator may, in its discretion, delegate any or all of its authority and responsibility, and to the extent of any such delegation, any references herein to the Administrator shall be deemed references to such delegee; provide that any such delegee shall not act in any non-ministerial fashion in a matter affecting the delegee’s own participation or interest in the Plan. Interpretation of the Plan shall be within the sole discretion of the Administrator or the Committee and shall be final and binding upon each Participant and Beneficiary. The Administrator or the Committee may adopt and modify rules and regulations relating to the Plan as it deems necessary or advisable for the administration of the Plan. Further, the Administrator shall not act in any non-ministerial fashion in any matter that affects one or more of the members of the committee that is the Administrator (unless such action affects all Participants uniformly) and any such action will be taken or decision made by the Committee.

Section 4.02. Claims Procedures.

(a) If a Participant or Beneficiary (the “claimant”) believes that he is entitled to a benefit under the Plan that is not provided, the claimant or his or her legal representative shall file a written claim for such benefit with the Administrator, not later than ninety (90) days after the payment (or first payment) is made (or should have been made) in accordance with the terms of the Plan or in accordance with regulations issued by the Secretary of the Treasury under Code Section 409A. Any such claim shall be filed in writing stating the nature of the claim, and the facts supporting the claim, the amount claimed and the name and address of the claimant. The Administrator shall review the claim. If the Administrator denies the claim, it shall deliver, within one hundred thirty-five (135) days of the date the first payment was made (or should have been made) in accordance with the terms of the Plan or in accordance with regulations issued by the Secretary of the Treasury under Code Section 409A, a written notice of such denial decision. If the claimant’s claim is denied in whole or part, the Administrator shall provide written notice to the claimant of such denial. The written notice shall include the specific reason(s) for the denial; reference to specific Plan provisions upon which the

denial is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and a description of the Plan’s review procedures (as set forth in subsection (b)) and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse determination upon review.

Section 4.03. Participant Rights Unsecured.

Section 4.04. Distributions for Tax Withholding and Payment.

Section 4.05. Amendment or Termination of Plan.

(a) There shall be no time limit on the duration of the Plan.

(b) The Company, by action of the Human Resources Committee of the Board, may at any time amend or terminate the Plan; provided, however, that no amendment or termination may reduce or eliminate the undistributed benefit payable to or on behalf of a Participant who retired with an entitlement to a Retiree Insurance Allowance prior to the date on which such action to amend or terminate the Plan is adopted. Termination of the Plan will not operate to accelerate distribution in violation of Code Section 409A.

Section 4.06. Administrative Expenses.

Costs of establishing and administering the Plan will be paid by the Participating Employers.

Section 4.07. Successors and Assigns.

Section 4.08. Right of Offset.

To the extent that such action does not violate Code Section 409A, the Participating Employers shall have the right to offset from the benefits payable hereunder (and at the time such benefit would otherwise be payable) any amount that the Participant owes to the Company or an Affiliate or other entity in which the Company or an Affiliate maintains an ownership interest. The offset shall be applied so as to include, but shall not be limited to, any fines, penalties, damages or any other amounts (including attorneys’ fees) imposed on or paid by the Company or Affiliate as a result of any conduct of the Participant during the Participant’s employment. The Company may effectuate the offset without the consent of the Participant (or the Participant’s spouse or Beneficiary, in the event of the Participant’s death).

Section 4.09. Not a Contract of Employment.

This Plan may not be construed as giving any person the right to be retained as an employee of the Company or any Affiliate.

Section 4.10. Miscellaneous Distribution Rules.


HARLEY-DAVIDSON, INC.

By:
Title:
Date:

EX-31.1 8 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

Exhibit 31.1

Chief Executive 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;

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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: October 30, 2008		/s/ James L. Ziemer
				James L. Ziemer
				President and Chief Executive Officer

EX-31.2 9 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

Exhibit 31.2

Chief Financial Officer Certification

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

I, Thomas E. Bergmann, 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;

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: October 30, 2008		/s/ Thomas E. Bergmann
				Thomas E. Bergmann
				Executive Vice President and Chief Financial Officer

EX-32.1 10 dex321.htm SECTION 906 CEO AND CFO CERTIFICATION Section 906 CEO and CFO Certification

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 President and Chief Executive Officer and the Executive 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 September 28, 2008 (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: October 30, 2008		/s/ James L. Ziemer
				James L. Ziemer
				President and Chief Executive Officer

				/s/ Thomas E. Bergmann
				Thomas E. Bergmann
				Executive Vice President and Chief Financial Officer

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company