Safiya Tayyiba,mba,shadan Women's Cllg Of Engg & Tech.

Project Report On Company Analysis For “HARLEY-DAVIDSON” By

Safiya Tayyiba (08L51E0037) Dissertation submitted as a Partial Fulfillment for the award of degree in

Master of Business Administration (MBA)

SHADAN WOMENS COLLEGE OF ENGINEERING & TECHNOLOGY (Affiliated to Jawaharlal Nehru Technological University) Khairatabad, Hyderabad. 500004

DECLARATION

I hereby declare that this project report titled “ A Company Analysis for Harley Davidson” submitted by me to MBA Department, Shadan Women’s College of Engineering & Technology is a bonafide work undertaken by me and I is not submitted to any other University or Institution for the award of any degree/diploma/certificate or published any time before

Name and Address of the Student SAFIYA TAYYIBA 6-2-951/A/1/G-4, Sadaf Habitat, Khairatabad Hyderabad -500004

Date: 16th July, 2009

Signature of the Student

ABSTRACT

Company is a voluntary association of persons formed for the purpose of doing business having a distinct name and limited liability Company analysis is to identify company’s needs and determining solutions to financial, human resource, marketing problems. Solutions often include a systems development component, financial statements, policies, procedures, to improve the status of the company but may also consist of process improvement or organizational change. Company analysis focuses on understanding the needs of the business as a whole, its strategic direction, and identifying initiatives that will allow a business to meet those strategic goals. Involves planning, requires development process, were requirements are the highest priority for implementation, and managing change.

ACKNOWLEDGEMENTS

I express my gratitude and thanks to Almighty God and my parents without whose support; I could not have made this career in Master of Business Administration. I wish to place on record a deep sense of gratitude to our project guide Ms. Nikhat Sultana and Head of Department Ms. Atiya Mahboob for their constant motivation and valuable suggestions and advices through out the project work. I also express my gratitude to other faculty members for their cooperation during the course and project. Finally, I would like to thank my friends for their cooperation to complete this project.

Table of Contents Sl.No 1. 2.

3.

4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Title Introduction Harley-Davidson: Company Profile Financial Statement for Harley-Davidson Inc. 3.1 Annual Income Statement 3.2 Balance Sheet 3.3 Cash Flow Statement 3.4 Additional Balance Sheet & Cash Flow Information 3.5 Inventories 3.6 Supplemental Cash Flow 3.7 Discontinued Operations Stock: Harley-Davidson Human Resource Management Marketing Corporate Governance Policy: Harley-Davidson Product Line Risk Management and Risk Factors Investment Decision and Conclusion Strategic Report for Harley Davidson

INCOME TAXES COMMITMENTS AND CONTINGENCIES BUSINESS SEGMENTS AND FOREIGN OPERATIONS Global Ranking HERITAGE HARLEY DAVIDSON ADVERTISEMENTS HARLEY AROUND THE GLOBE

19.

EXTRA CURRICULAR ACTIVITIES OF HARLEY DAVIDSON

20.

CONCLUSION

21.

BIBILOGRAPHY

1. INTRODUCTION Measurement is obviously essential for determining whether HR practices and the HR function add value to an organization. Generally, HR is considered a cost or resource absorption center; however, it will become increasingly more common for HR to price and sell its services internally and externally. In the alternative, HR can justify its contribution by demonstrating cost savings, reduced turnover, enhanced employee productivity and increased job satisfaction. Three approaches. There are at least three approaches to assessing HR's value: * Volume/activity ratios that frequently take the form of efficiency indices; * Internal customer/employee satisfaction surveys; and * Program evaluation and benchmarking. Other aggregate measures less commonly used include sales revenue per employee, HR cost per sales dollar and return on HR investment. These measures tend to be more financially based and generally require more analytical skill to develop, use and interpret. Likewise, program evaluation and benchmarking are not commonly used, although they are powerful approaches to demonstrating HR's organizational contributions. External wage and benefit surveys, a form of benchmarking, were used by all respondents, however. Several of the more specific measures (cost per employee training hour, cost per hire, labor contract costing, and benefit cost ratios) are also based in cost accounting or financial analysis. Again, many of these tended to be used less and were rated as less important. One of the most frequently used and the most important measure was the OSHA incident rate; this is the only measure on the list with a basis in federal regulation. Efficiency vs. effectiveness. Many of the measures capture aspects of efficiency, but do not necessarily provide much indication of effectiveness. For example, consider average time to fill new and vacant positions: over a period of time, an HR department could significantly reduce the cycle time to fill positions, but unless the right applicants are chosen, HR may not be effective in staffing the organization. Return on HR investment, program evaluation and attitude surveys do address effectiveness concerns. Unfortunately, HR respondents indicated less use of these methods. Several measures of HR staffing performance were also rated as lower in

importance or had less usage. Staffing is one of the HR functions that is information- and relationship-based, making it more deserving of careful assessment.

2. HARLEY-DAVIDSON: COMPANY PROFILE

Harley-Davidson, Inc. operates in two segments: the Motorcycles & Related Products (Motorcycles) segment and the Financial Services segment. The Motorcycles segment includes the group of companies doing business as Harley-Davidson Motor Company (HDMC), Buell Motorcycle Company (Buell) and MV Agusta (MV). The Motorcycles segment designs, manufactures and sells at wholesale primarily heavyweight (engine displacement of 651+cubic centimeters) touring, custom and performance motorcycles, as well as a line of motorcycle parts, accessories, general merchandise and related services. The Financial Services segment includes the group of companies doing business as Harley-Davidson Financial Services (HDFS). HDFS provides wholesale and retail financing and, as an agent, provides insurance and insurance-related programs primarily to Harley-Davidson and Buell dealers and their retail customers. HDFS conducts business in the United States and Canada. In August 2008,it acquired MV Agusta Group. 2.1 Quick Financial Synopsis. BRIEF: For the three months ended 29 March 2009, Harley- Davidson, Inc.'s revenues decreased 1% to $1.40B. Net income decreased 37% to $117.3M. Revenues reflect a decrease in demand for motorcycles and lower financial services income. Net income also reflects an increase in financial service expenses, higher Motorcycles segment operating expenses, the presence of interest expense and lower net investment income. 2.2 History. In 1901, William S Harley, age 21, drew up plans for a small engine with a displacement of 7.07 cubic inches (116 cc) and four-inch (102 mm) flywheels. The engine was designed for use in a regular pedal-bicycle frame. Over the next two years Harley and his childhood friend Arthur Davidson labored on their motor-bicycle using the north side Milwaukee machine shop at the home of their friend, Henry Melk. It was finished in 1903 with the help of Arthur's brother, Walter Davidson Upon completion the boys found their power-cycle unable to conquer

Milwaukee's modest hills without pedal assistance. Will Harley and the Davidson’s quickly wrote off their first motor-bicycle as a valuable learning experiment. Work immediately began on a new and improved second-generation machine. This first "real" Harley-Davidson motorcycle had a bigger engine of 24.74 cubic inches (405 cc) with 9.75 inches (25 cm) flywheels weighing 28 lb (13 kg). The machine's advanced loop-frame pattern was similar to the 1903 Milwaukee Merkel motorcycle (designed by Joseph Merkel, later of Flying Merkel fame.) The bigger engine and loop-frame design took it out of the motorized-bicycle category and would help define what a modern motorcycle should contain in the years to come. The boys also received help with their bigger engine from outboard motor pioneer Ole Evinrude, who was then building gas engines of his own design for automotive use on Milwaukee's Lake Street.

Harley-Davidson Motor Company Type Founded

Public (NYSE: HOG) 1903 William S. Harley

Founder(s)

Arthur Davidson Walter Davidson William A. Davidson

Headquarters Milwaukee, Wisconsin, United States Key people

Keith E. Wandell, CEO

Products

Motorcycles

Revenue

▲ 5.7 Billion (USD) (2007)[1]

Employees Subsidiaries Website

9,700 (2006)[2] Buell MV Agusta www.harley-davidson.com

The prototype of the new loop-frame Harley-Davidson was assembled in a 10- by 15-foot (3 by 5 meter) shed in the Davidson family backyard. Most of the major parts, however, were made elsewhere, including some probably fabricated at the West Milwaukee railshops where oldest brother William A. Davidson was then tool room foreman. This prototype machine was functional by 8 September 1904 when it competed in a Milwaukee motorcycle race held at State Fair Park. It was ridden by Edward Hildebrand and placed fourth. This is the first documented appearance of a Harley-Davidson motorcycle in the historical record.

In January 1905, small advertisements were placed in the "Automobile and Cycle Trade Journal" that offered bare Harley-Davidson engines to the do-it-yourself trade. By April, complete motorcycles were in production on a very limited basis. That year the first Harley-Davidson dealer, Carl H. Lang of Chicago, sold three bikes from the dozen or so built in the Davidson backyard shed. (Some years later the original shed was taken to the Juneau Avenue factory where it would stand for many decades as a tribute to the Motor Company's humble origins. Unfortunately, the first shed was accidentally destroyed by contractors in the early 1970s during a clean-up of the factory yard.) In 1906, Harley and the Davidson’s built their first factory on Chestnut Street (later Juneau Avenue). This location remains the Motor Company's corporate headquarters today. The first Juneau Avenue plant was a 40 by 60-foot (18 m) single-story wooden structure. That year around 50 motorcycles were produced. 1907 model.

Harley-Davidson 1000 cc HT 1916

In 1907, William S. Harley graduated from the University of Wisconsin-Madison with a degree in mechanical engineering. That year additional factory expansion came with a second floor and later with facings and additions of Milwaukee pale yellow ("cream") brick. With the new facilities production increased to 150 motorcycles in 1907. The company was officially incorporated that September. They also began selling their motorcycles to police departments around this time, a market that has been important to them ever since. Production in 1905 and 1906 were all single-cylinder models with 26.84 cubic inch (440 cc) engines. In February 1907 a prototype model with a 45-degree V-Twin engine was displayed at the Chicago Automobile Show. Although shown and advertised, very few VTwin models were built between 1907 and 1910. These first V-Twins displaced 53.68 cubic inches (880 cc) and produced about 7 horsepower (5 kW). This gave about double the power of the first singles. Top speed was about 60 mph (97 km/h). Production jumped from 450 motorcycles in 1908 to 1,149 machines in 1909 By 1911 some 150 makes of motorcycles had already been built in the United States – although just a handful would survive the 1910s.In 1911, an improved V-Twin model was introduced. The new engine had mechanically operated intake valves, as opposed to the "automatic" intake valves used on earlier V-Twins that opened by engine vacuum. With a displacement of 49.48 cubic inches (810 cc), the 1911 V-Twin was smaller than

earlier twins, but gave better performance. After 1913 the majority of bikes produced by Harley-Davidson would be V-Twin models. By 1913, the yellow brick factory had been demolished and on the site a new 5-story structure of reinforced concrete and red brick had been built. Begun in 1910, the red brick factory with its many additions would take up two blocks along Juneau Avenue and around the corner on 38th Street. Despite the competition, Harley-Davidson was already pulling ahead of Indian and would dominate motorcycle racing after 1914. Production that year swelled to 16,284 machines. In the mid-'30s, Alfred Rich Child opened a production line in Japan with the 74ci VL. The Japanese license-holder severed its business relations with Harley-Davidson in 1936 and continued manufacturing the VL under the Rikuo name. An 80 cubic inch flathead engine was added to the line in 1935, by which time the singlecylinder motorcycles had been discontinued. In 1936, the 61E and 61EL models with the "Knucklehead" OHV engines was introduced. Valvetrain problems in early Knucklehead engines required a redesign halfway through its first year of production and retrofitting of the new valvetrain on earlier engines. By 1937, all Harley-Davidson's flathead engines were equipped with dry-sump oil recirculation systems similar to the one introduced in the "Knucklehead" OHV engine. The revised 74 cubic inch V and VL models were renamed U and UL, the 80 cubic inch VH and VLH to be renamed UH and ULH, and the 45 cubic inch R to be renamed W. In 1941, the 74 cubic inch "Knucklehead" was introduced as the F and the FL. The 80 cubic inch flathead UH and ULH models were discontinued after 1941, while the 74" U & UL flathead models were produced up to 1948

AMF H-D Electra Glide In 1952, following their application to the US Tariff Commission for a 40% tax on imported motorcycles, Harley-Davidson was charged with restrictive practices. Hollywood also damaged Harley's image with many outlaw biker gang films produced from the 1950s through the 1970s, following the 1947 Hollister, CA biker riot on July 4.

"Harley-Davidson" for a long time was synonymous with the Hells Angels and other outlaw motorcyclists. In 1969, American Machinery and Foundry (AMF) bought the company, streamlined production, and slashed the workforce. This tactic resulted in a labor strike and a lower quality of bikes. The bikes were expensive and inferior in performance, handling, and quality to Japanese motorcycles. Sales declined, quality plummeted, and the company almost went bankrupt.[36] The "Harley-Davidson" name was mocked as "Hardly Ableson", "Hardly Driveable," and "Hogly Ferguson",[37][38] and the nickname "Hog" became pejorative.

1998 Harley-Davidson FXSTC In 1981, AMF sold the company to a group of thirteen investors led by Vaughn Beals and Willie G. Davidson for $80 million. Inventory was strictly controlled using the Just In Time system. In the early eighties, Harley-Davidson claimed that Japanese manufacturers were importing motorcycles into the US in such volume as to harm or threaten to harm domestic producers. After an investigation by the US International Trade Commission, President Reagan imposed in 1983 a 45% tariff on imported bikes and bikes over 700 cc engine capacity. Harley Davidson subsequently rejected offers of assistance from Japanese motorcycle makers. Rather than trying to match the Japanese, the new management deliberately exploited the "retro" appeal of the machines, building motorcycles that deliberately adopted the look and feel of their earlier machines and the subsequent customizations of owners of that era. Many components such as brakes, forks, shocks, carburetors, electrics and wheels were outsourced from foreign manufacturers and quality increased, technical improvements were made, and buyers slowly returned. To remain profitable Harley continues to increase the amount of overseas-made parts it uses, while being careful not to harm its valuable "American Made" image.

Ford F-150 crew cab Harley-Davidson edition The "Sturgis" model, boasting a dual belt-drive, was introduced. By 1990, with the introduction of the "Fat Boy", Harley once again became the sales leader in the heavyweight (over 750 cc) market. At the time of the Fat Boy model introduction a story rapidly spread that its silver paint job and other features were inspired by the World War II American B-29 bomber; and that the Fat Boy name was a combination of the names of the atom bombs (Fat Man and Little Boy) that were dropped on Nagasaki and Hiroshima respectively. However, the Urban Legend Reference Pages lists this story as an urban legend. 1994 saw the replacement of the FXR frame with the Dyane, though it was revived briefly in 1999 and 2000 for special limited editions. In 1999, Ford Motor Company added a Harley-Davidson edition to the Ford F-Series F-150 line, complete with the Harley-Davidson logo. This truck was a Super Cab for model year 1999. In 2000, Ford changed the truck to a crew cab and in 2002 added a super-charged engine (5.4 L) which continued until 2003. In 2004, the Ford/Harley was changed to a Super-Duty, which continues through 2006. Ford again produced a Harley-Davidson Edition F-150 for their 2006 model-year, as well. Building started on $75 million 130,000 square-foot (12,000 m2) Harley-Davidson Museum in the Menomonee River Valley on June 1, 2006. It opened in 2008 and houses the company's vast collection of historic motorcycles and corporate archives, along with a restaurant, café and meeting space. Buell Motorcycle Company Main article: Buell Motorcycle Company Harley-Davidson's association with sport bike manufacturer Buell Motorcycle Company began in 1987 when they supplied Buell with fifty surplus XR1000 engines. Buell continued to buy engines from Harley-Davidson until 1993, when Harley-Davidson bought forty-nine percent of the Buell Motorcycle Company. Harley-Davidson increased its share in Buell to ninety-eight percent in 1998 and to complete ownership in 2003] In an attempt to attract newcomers to motorcycling in general and to Harley-Davidson in particular, Buell developed a low-cost, low-maintenance motorcycle. The resulting motorcycle, the single-cylinder Buell Blast, was introduced in 2000.

2.3 Claims of stock price manipulation Harley Davidson Inc (NYSE:HOG) stock price (source: ZenoBank.com). During its period of peak demand, during the late 1990s and early 2000s, Harley-Davidson embarked on a program of expanding the number of dealerships throughout the country. At the same time, its current dealers typically had waiting lists that extended up to a year for some of the most popular models. Harley-Davidson, like the auto manufacturers, records a sale not when a consumer buys their product, but rather when it is delivered to a

dealer. Therefore, it is possible for the manufacturer to inflate sales numbers by requiring dealers to accept more inventory than desired in a practice called channel stuffing. When demand softened following the unique 2003 model year, this news lead to a dramatic decline in the stock price. In April 2004 alone, the price of HOG shares dropped from over $60 to under $40. Immediately prior to this decline, retiring CEO Jeffrey Bluestein profited $42 million on the exercise of employee stock options. Harley-Davidson was named as a defendant in numerous class action suits filed by investors who claimed they were intentionally defrauded by Harley-Davidson's management and directors. By January 2007, the price of Harley-Davidson shares reached $70. On February 2, 2007, upon the expiration of their union contract, about 2,700 employees at Harley-Davidson Inc.'s largest manufacturing plant in York, PA went on strike after failing to agree on wages and health benefits. During the tendency of the strike, the company refused to pay for any portion of the striking employees' health care. The day before the strike, after the union voted against the proposed contract and to authorize the strike, the company shut down all production at the plant. The York facility employs more than 3,200 workers, both union and non-union. Harley-Davidson announced on February 16, 2007, that it had reached a labor agreement with union workers at its largest manufacturing plant, a breakthrough in the two-weekold strike. The strike disrupted Harley-Davidson’s national production and had ripple effects as far away as Wisconsin, where 440 employees were laid off, and many Harley suppliers also laid off workers because of the strike.

FINANCIAL ANALYSIS

3. FINANCIAL STATEMENTS FOR HARLEY-DAVIDSON, INC. 3.1 Annual Income Statement In Millions of U.S. Dollars (except for per share items) Revenue Other Revenue, Total Total Revenue Cost of Revenue, Total Gross Profit Selling/General/Admin. Expenses, Total Research & Development Depreciation/Amortization Interest Expense, Net - Operating Interest/Investment Income - Operating Interest Expense(Income) - Net Operating Unusual Expense (Income) Other Operating Expenses, Total Total Operating Expense Operating Income Interest Expense, Net Non-Operating Interest/Invest Income - Non-Operating Interest Income(Exp), Net Non-Operating Gain (Loss) on Sale of Assets Other, Net Net Income Before Taxes Provision for Income Taxes Net Income After Taxes Minority Interest Equity In Affiliates U.S. GAAP Adjustment Net Income Before Extra. Items Accounting Change Discontinued Operations Extraordinary Item Tax on Extraordinary Items Net Income Preferred Dividends General Partners' Distributions Miscellaneous Earnings Adjustment Pro Forma Adjustment Interest Adjustment - Primary EPS Income Available to Com Excl ExtraOrd Income Available to Com Incl ExtraOrd Basic Weighted Average Shares Basic EPS Excluding Extraordinary Items Basic EPS Including Extraordinary Items Dilution Adjustment Diluted Weighted Average Shares Diluted EPS Excluding ExtraOrd Items Diluted EPS Including ExtraOrd Items DPS - Common Stock Primary Issue Gross Dividends - Common Stock Total Special Items Normalized Income Before Taxes Effect of Special Items on Income Taxes Inc Tax Ex Impact of Sp Items

2006 2008 2007 2006-12-31 2008-12-31 2007-12-31 Reclassified Period Length Period Length 2007-12-31 12 Months 12 Months Period Length 12 Months 5,971.3 6,143.0 6,185.6 ---5,971.3 6,143.0 6,185.6 3,957.7 3,816.8 3,742.0 2,013.6 2,326.3 2,443.6 984.6 900.7 846.4 ---------------------4,942.3 4,717.5 4,588.4 1,029.0 1,425.6 1,597.2 (4.5) 0.0 0.0 ---9.5 22.3 27.1 ------1,034.0 1,447.8 1,624.2 379.3 514.0 581.1 654.7 933.8 1,043.2 ---------654.7 933.8 1,043.2 ------------654.7 933.8 1,043.2 ---------------654.7 933.8 1,043.2 654.7 933.8 1,043.2 234.23 249.21 264.45 2.795 3.747 3.945 2.795 3.747 3.945 0.0 0.0 0.0 234.48 249.88 265.27 2.792 3.737 3.932 2.792 3.737 3.932 1.290 1.060 0.810 302.3 260.8 212.9 ---1,034.0 1,447.8 1,624.2 ---379.3 514.0 581.1

2005 2005-12-31 Reclassified 2007-12-31 Period Length 12 Months 5,673.8 -5,673.8 3,441.7 2,232.1 767.2 -------4,208.9 1,465.0 --22.8 --1,487.8 528.2 959.6 ---959.6 ----959.6 -----959.6 959.6 280.30 3.423 3.423 0.0 281.04 3.415 3.415 0.625 173.8 -1,487.8 -528.2

2004 2004-12-31 Reclassified 2005-12-31 Period Length 12 Months 5,320.5 -5,320.5 3,232.3 2,088.1 726.6 -------3,959.0 1,361.5 --23.1 -(5.1) 1,379.5 489.7 889.8 ---889.8 ----889.8 -----889.8 889.8 295.01 3.016 3.016 0.0 296.85 2.997 2.997 0.405 119.2 -1,379.5 -489.7

Normalized Income After Taxes Normalized Inc. Avail to Com. Basic Normalized EPS Diluted Normalized EPS

654.7 654.7 2.795 2.792

933.8 933.8 3.747 3.737

1,043.2 1,043.2 3.945 3.932

959.6 959.6 3.423 3.415

889.8 889.8 3.016 2.997

3.2 Annual Balance Sheet In Millions of U.S. Dollars (except for per share items) Cash Cash & Equivalents Short Term Investments Cash and Short Term Investments Accounts Receivable - Trade, Net Notes Receivable - Short Term Receivables – Other Total Receivables, Net Total Inventory Prepaid Expenses Other Current Assets, Total Total Current Assets Property/Plant/Equipment, Total – Gross Accumulated Depreciation, Total Property/Plant/Equipment, Total – Net Goodwill, Net Intangibles, Net Long Term Investments Note Receivable - Long Term Other Long Term Assets, Total Other Assets, Total Total Assets Accounts Payable Payable/Accrued Accrued Expenses Notes Payable/Short Term Debt Current Port. of LT Debt/Capital Leases Other Current liabilities, Total Total Current Liabilities Long Term Debt Capital Lease Obligations Total Long Term Debt Total Debt Deferred Income Tax Minority Interest Other Liabilities, Total Total Liabilities Redeemable Preferred Stock, Total Preferred Stock - Non Redeemable, Net Common Stock, Total Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Treasury Stock – Common ESOP Debt Guarantee Unrealized Gain (Loss) Other Equity, Total Total Equity Total Liabilities & Shareholders' Equity Shares Outs - Common Stock Primary Issue Shares Outstanding - Common Issue 2 Shares Outstanding - Common Issue 3 Shares Outstanding - Common Issue 4 Total Common Shares Outstanding Total Preferred Shares Outstanding

2008 2008-12-31 -593.6 0.0 593.6 4,118.7 --4,118.7 400.9 141.4 123.3 5,377.9 3,032.0 (1,937.5) 1,094.5 138.6 --817.1 400.6 -7,828.6 323.7 -490.7 1,762.2 0.0 27.2 2,603.8 2,176.2 -2,176.2 3,938.4 --933.0 5,713.0 --3.4 846.8 6,458.8 (4,670.8) -(10.4) (512.2) 2,115.6 7,828.6 232.76 ---232.76 --

2007 2007-12-31 Reclassified 2008-12-31 -402.9 2.5 405.3 2,537.8 --2,537.8 349.7 71.2 103.3 3,467.3 2,757.9 (1,697.4) 1,060.6 61.4 --845.0 222.3 -5,656.6 300.2 -431.0 756.9 397.5 19.5 1,905.1 980.0 -980.0 2,134.4 --396.0 3,281.1 --3.4 812.2 6,117.6 (4,420.4) -(3.2) (134.1) 2,375.5 5,656.6 238.49 ---238.49 --

2006 2006-12-31 -238.4 658.1 896.5 2,244.4 --2,244.4 287.8 48.5 73.4 3,550.6 2,532.5 (1,508.0) 1,024.5 58.8 --726.0 172.3 -5,532.1 283.5 -295.5 0.0 832.5 184.2 1,595.7 870.0 -870.0 1,702.5 0.0 -309.7 2,775.4 --3.3 766.4 5,460.6 (3,267.0) --(206.7) 2,756.7 5,532.1 258.05 ---258.05 --

2005 2005-12-31 -141.0 905.2 1,046.2 1,763.9 --1,763.9 221.4 52.5 61.3 3,145.2 2,334.1 (1,322.5) 1,011.6 56.6 --600.8 441.0 -5,255.2 270.6 -234.6 0.0 205.0 162.9 873.1 1,000.0 -1,000.0 1,205.0 155.2 -143.3 2,171.6 --3.3 596.2 4,630.4 (2,205.0) --58.7 3,083.6 5,255.2 274.00 ---274.00 --

2004 2004-12-31 Reclassified 2005-12-31 -275.2 1,336.9 1,612.1 1,745.4 --1,745.4 226.9 38.3 60.5 3,683.2 2,193.4 (1,168.7) 1,024.7 59.5 --488.3 227.7 -5,483.3 244.2 -267.9 0.0 495.4 165.2 1,172.7 800.0 -800.0 1,295.4 51.4 -240.7 2,264.8 --3.3 533.1 3,844.6 (1,150.4) --(12.1) 3,218.5 5,483.3 294.31 ---294.31 --

3.3 Cash Flow Statement 2005 2004 2008 2007 2006 2005-12-31 2004-12-31 In Millions of U.S. Dollars 2008-12-31 2007-12-31 2006-12-31 Reclassified Reclassified (except for per share items) Period Length Period Length Period Length 2006-12-31 2006-12-31 12 Months 12 Months 12 Months Period Length Period Length 12 Months 12 Months Net Income/Starting Line 654.7 933.8 1,043.2 959.6 889.8 Depreciation/Depletion 222.2 204.2 213.8 205.7 214.1 Amortization 20.1 0.0 0.0 --Deferred Taxes (49.4) (60.5) (39.8) 48.2 (41.3) Non-Cash Items 361.7 91.6 (79.5) (359.7) (72.0) Changes in Working Capital (1,893.9) (370.9) (375.8) 108.8 (154.8) Cash from Operating Activities (684.6) 798.1 761.8 962.6 835.8 Capital Expenditures (232.2) (242.1) (219.6) (198.4) (213.6) Other Investing Cash Flow (161.1) 633.3 184.3 392.2 (364.4) Items, Total Cash from Investing Activities (393.2) 391.2 (35.3) 193.8 (578.0) Financing Cash Flow Items 0.3 3.1 18.9 6.1 0.0 Total Cash Dividends Paid (302.3) (260.8) (212.9) (173.8) (119.2) Issuance (Retirement) of Stock, (249.2) (1,132.0) (936.2) (1,023.4) (502.0) Net Issuance (Retirement) of Debt, 1,844.6 351.9 493.1 (80.7) 305.0 Net Cash from Financing Activities 1,293.4 (1,037.8) (637.0) (1,271.8) (316.1) Foreign Exchange Effects (24.8) 12.9 7.9 (18.8) 4.1 Net Change in Cash 190.7 164.5 97.4 (134.2) (54.2)

3.4 Additional Balance Sheet and Cash Flows Information Balance sheet information is as follows:

Domestic motorcycle sales are generally floor planned by the purchasing dealers. Foreign motorcycle sales are sold on open account, letter of credit, draft and payment in advance. Effective September 1, 1997, Eaglemark became responsible for all credit and collection activities for the Motorcycles segment¹s domestic receivables. As such, approximately $69 million of accounts receivable are classified as finance receivables as of December 31, 1997. The presentation of finance receivables has been changed to classify receivables representing wholesale motorcycle and parts and accessories receivables and retail finance receivables with maturities of less than one year as current. The allowance for doubtful accounts deducted from accounts receivable was $1.5 million and $1.9 million at December 31, 1997 and 1996, respectively.

3.5 Inventories

3.6 Supplemental cash flow

Of the interest paid in 1997 and 1996, approximately $3.5 million and $2.1 million was capitalized, respectively. Interest paid includes the interest payments of Eaglemark for which the related expense is classified as part of operating income from financial services.

Ratios for Harley-Davidson, Inc.

Market Capitalization Market Cap ($ Millions) Shares Outstanding Float

4,100.60 234.45 232.10

Valuation Ratios Price/Earnings Price/Sales Price/Book Price/Cash Flow

7.00 0.69 1.92 4.67

Profitability Ratios (%) Gross Margin Operating Margin Net Profit Margin

33.36 16.26 9.80

Financial Strength Quick Ratio Current Ratio LT Debt/Equity Total Debt/Equity

1.91 2.07 102.87 186.16

Per Share Data ($ USD) Earnings Sales Book Value Cash Flow Cash

2.50 25.47 9.52 4.62 2.55

Management Effectiveness (%) Return on Equity Return on Assets Return on Investment

29.16 9.71 14.59

Dividend Information Dividend Yield (%) Dividend Per Share ($ USD) Payout Ratio

2.29 1.09 46.17

INTERNAL ANALYSIS FINANCIAL RATIOS:LIQUIDITY RATIOS Current Ratio = Current Assets / Current Liabilities = 2729/956 = 2.85 Quick Ratio = (Current Assets – Inventory) / Current Liabilities = (2729-208)/956 = 2521/956 = 2.63

LEVERAGE RATIOS Debt to Total Assets Ratio = Total Debt / Total Assets =994/4923 =0.20 Debt to Equity Ratio = Total debt / Total stock holders equity =994/2958 =0.34 Long Term Debt Equity Ratio = Long term Debt / Total stock holders equity =670/2958 = 0.23 Times Interest Earned Ratio = Profits before interests and taxes / Total Interest charges =1149/0

ACTIVITY RATIOS Inventory Turnover = Sales / Inventory of finished goods =4624/208 =22.23

Fixed Assets Turnover = Sales / Fixed Assets =4624/2194 =2.10 Total Assets Turnover = Sales / Total Assets =4624/4923

=0.93

Accounts Receivables Turnover = Annual Credit Sales / Accounts receivable =4624/1114 =4.15 Average Collection Period = Accounts Receivables / (Total credit sales/365) =1114/(4624/365) =1114/12.66 =87.99

PROFITABILITY RATIOS Gross Profit Margin = (Sales – COGS) / Sales = (4624-3070)/4624 =1554/4624=0.34 Operating Profit Margin = EBIT / Sales =1149/4624 =0.25 Net Profit Margin = Net Income / Sales =761/4624 = 0.16 Return on Total Assets (ROA) = Net Income / Total Assets = 761 / 4923 = 0.15 Return on Equity (ROE) = Net income / Total Stock holders equity

= 761 / 2958 = 0.26 Earnings Per share (EPS) = Net income / Total stock holders equity = 761 / 302 = 2.519 Price Earning ratio=Market price per share/Earning per share =39.11/2.519 =15.526 Growth ratio Sales=Annual % growth in total sales = (4624-4091)*100/4091=13.029 Net income =Annual % growth in profits = (760-580)*100/580=31.034

3.7 Discontinued Operations On January 22, 1996, the Company announced its strategic decision to discontinue the operations of the Transportation Vehicles segment in order to concentrate its financial and human resources on its core motorcycle business. The Transportation Vehicles segment was comprised of the Recreational Vehicles division, the Commercial Vehicles division and B & B Molders, a manufacturer of custom or standard tooling and injection molded plastic pieces. During 1996, the Company completed the sale of the Transportation Vehicles segment for an aggregate sales price of approximately $105 million; approximately $100 million in cash and $5 million in notes and preferred stock. The condensed statement of operations relating to discontinued operations is presented below:

Included in the 1996 gain on disposition of discontinued operations is a net tax benefit of $2.0 million, including benefits related to the Company’s 1994 legal reorganization. It is the Company’s policy to allocate interest on debt (to be assumed by the buyer) to discontinued operations, which was approximately $.7 million and $2.5 million for 1996 and 1995, respectively.

4. STOCK 4.1 An Introduction to Stock Options Options on stocks and stock indexes are derivative instruments. Stock investors may use stock options to hedge against a price decline, to lock in a future purchase price, or to speculate on the future price of a stock. Employees may also receive stock options through an employee compensation plan. For employees, stock options represent the potential for growth in value and the possibility that the increase in value will be taxed at a favorable capital-gains tax rate. 4.2 The Basics of Stock Options A stock option is essentially a contract that gives one party the right to purchase or sell a stated number of shares of a stock at a specified price. The price at which the shares may be purchased or sold is known as the strike or exercise price. The right to exercise lasts for a stated period of time, which may be months or years, until the expiration date. If not exercised on or before the expiration date, the option expires. Options come in two forms: calls and puts. A call option gives the option purchaser the right to buy the underlying stock. A put option gives the option purchaser the right to sell the underlying stock. A call option is valuable to the extent that the exercise price is below the market value of the underlying stock. For example, if a stock is trading at $100 per share and you hold a call option entitling you to buy the stock at $72 per share, your option has an immediate value to you of $100 – $72 = $28, before taking into account any tax consequences or transaction fees. A put option is the mirror image of a call option. A put option becomes more valuable as the price of the stock moves below the exercise price. For example, if you have purchased a put option with a strike price of $90 and the stock price moves to $80, you may choose to exercise the option and sell the underlying stock at $90 for an immediate unrealized per share gain of $90 – $80 = $10. With both calls and puts, the purchaser of the option has the right to exercise, while the option seller is obligated to respond if the option is exercised. The option purchaser pays an upfront fee known as the premium to the option seller in return for the right of exercise. The option buyer has a known investment risk — if the option expires unexercised, the purchaser of the option recognizes the premium paid as a loss. Conversely, the option seller undertakes potentially unlimited market risk in return for the premium received.

4.3 Components of an Option’s Value Option contracts are traded on regulated markets, and their values may fluctuate throughout the trading day. The price of an option at any given time is based on several factors, including the current price of the underlying stock, the price volatility of the underlying stock, the time to maturity, and interest rates. Intrinsic value — the intrinsic value of the option is the difference between the exercise price and the price of the underlying security. An option is "in the money" when the intrinsic value is positive. Volatility — part of an option’s value reflects the volatility of the underlying security. If a stock price is highly volatile, there is a relatively greater chance that the option will be "in the money" at expiration, and therefore, the option will carry a higher premium than an option on a less a volatile stock. Time value — the more time remaining until the expiration date of the option, the greater the potential for a significant change to occur in the price of the underlying security and the greater the value of the option. Time value diminishes as the expiration date of the option approaches. Interest rates — the option premium is a cash payment that can be invested by the option seller to generate interest income. Higher interest rates present opportunities for potentially greater earnings on the option premium. Intrinsic value, volatility, and time value can significantly affect an option’s market value. An option with an exercise price above the current market value of the underlying security may still have considerable potential value. For example, if you hold a call option with an exercise price of $72 and the current share price is $65; your option would generate a loss if it were exercised today. However, as stated above, option contracts typically are valid for months or years, until the stated expiration date. The time value of the call option is the potential that the share price will rise over time and eventually exceed the option exercise price. 4.4 Employee Stock Options Employee stock options are call options granted by an employer as part of an employee compensation plan. There are two main types of employee stock options: incentive stock options and nonqualified stock options. Incentive stock options offer special income tax benefits to the employee. An incentive stock option (ISO) must meet a number of criteria to qualify for favorable tax treatment. As long as the shares acquired through an ISO are held for at least one year following exercise and are not disposed of until at least two years after the option is granted, the difference between the option price and the sale price is taxed as a long-term gain. The tax is applied at the sale of the stock. If you don’t meet the one-year

holding-period requirement, the transaction is considered a "disqualifying disposition" and your gains are taxed as ordinary income. A nonqualified stock option (NSO) is an option that doesn’t meet the ISO criteria. Gains on NSOs are taxed as ordinary income at the time of exercise.

4.5 Stock Quote of Harley Davidson: HOG - NYSE 4:12 PM ET - Jul 13 2009 $ 16.58 $ 0.40 3,919,200 18,532 $ 15.76 $ 16.60 $ 7.99 $ 48.05

Harley Davidson’s stock has been relatively flat over the last 12 months as a whole, underperforming the S&P 500, indicating the market sentiment that Harley Davidson will not be able to maintain its current growth trend which has yielded record revenues, profits, and earnings per share each year for the past 19 years. The 12 month stock prices can be seen in Figure 1, along with returns on the S&P 500. The stock has been quite volatile over that period indicating that the market as an institution may be having a hard time making up its mind about the prospects for Harley Davidson. In April 2005 Harley Davidson share prices dropped by nearly 1/3 when the company announced that it was lowering its guidance on motorcycle shipment growth due to 16 increasingly clogged retail channels and building inventories. A two year record of Harley Davidson share prices can be seen in Figure 2. In the wake of that announcement many analysts began to predict doom for the company, especially for its fourth quarter. Citigroup analysts even predicted growth of less than 1% for Harley’s motorcycle shipments in the fourth quarter, even though guidance from the company’s management predicted growth between 4 and 6 percent. Harley Davidson’s actual shipment growth was within its guidance range, a much better result than many analysts had predicted.

Harley Davidson’s stock has recently been trading at a slight premium to the stock of Honda. Harley Davidson’s recent price to earnings ratio has been 15.51 versus 15.16 for Honda. Comparable P/E ratios and share prices were not available for Suzuki or Yamaha due to the fact that neither company is traded in US stock exchanges. Harley-Davidson Stock Tracker HOG - NYSE Jul 13 4:12 PM ET

Jul 13 3:41 PM ET

$ 16.58

8,331.68

$ 0.40

185.16

3,919,200

252,983,700

$ 15.76

8,130.42

$ 16.60

8,331.68

1year stock price history

HOG STOCK REPORT (2-Year Price History)

HOG STOCK REPORT (2-Year Price History)

$18.96

Recent Price (7/16 4:02PM) +8.4% ------------------52-Week Price ---------------------------------------- $7.99 - $48.05 Market Capitalization --------------------------------- $4.1 Billion Dividend Yield ----------------------------------------- 2.30% Most Recent Dividend --------------------------------- $1.29

HOG REVENUE As a value investing shop, we are interested in seeing how HOG's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 3.12x and the low end of the range at 1.89x. With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for HOG of 0.68x is well below its normal historic Price to Sales levels. At a price of $16.18, HOG is 73% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

HOG CASH EARNINGS Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. HOG is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for HOG, the current level of Cash Earnings compared to its historical levels helps identify where HOG is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 16.04 and a historical low Cash Earnings per share ratio of 9.50, an investor can relate where value becomes optimal. So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for HOG? From the Ockham perspective, we are looking specifically at HOG to see if the market is recognizing the huge disparity between HOG's past stock price to Cash Earnings ratio to today's levels. At a difference of 65% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at HOG. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

HOG DIVIDENDS When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for HOG to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis. The estimated annual dividend for HOG is $0.40 producing a current dividend yield of 2.47%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from HOG against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from HOG over previous years was 11.28% while the lowest dividend yield was 0.20%. It is never a good sign for a company to pay significantly lower dividends, in this case 56.97% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as

Human Resource Management

5. HUMAN RESOURCE MANAGEMENT (HRM) HRM is the strategic and coherent approach to the management of an organization's most valued assets - the people working there who individually and collectively contribute to the achievement of the objectives of the business. The terms "human resource management" and "human resources" (HR) have largely replaced the term "personnel management" as a description of the processes involved in managing people in organizations. In simple sense, HRM means employing people, developing their resources, utilizing, maintaining and compensating their services in tune with the job and organizational requirement.

The Human Resources Management (HRM) function includes a variety of activities, and key among them is deciding what staffing needs you have and whether to use independent contractors or hire employees to fill these needs, recruiting and training the best employees, ensuring they are high performers, dealing with performance issues, and ensuring your personnel and management practices conform to various regulations. Activities also include managing your approach to employee benefits and compensation, employee records and personnel policies. Usually small businesses (for-profit or nonprofit) have to carry out these activities themselves because they can't yet afford partor full-time help. However, they should always ensure that employees have -- and are aware of -- personnel policies which conform to current regulations. These policies are often in the form of employee manuals, which all employees have. Note that some people distinguish a difference between HRM (a major management activity) and HRD (Human Resource Development, a profession). Those people might include HRM in HRD, explaining that HRD includes the broader range of activities to develop personnel inside of organizations, including, eg, career development, training, organization development, etc. There is a long-standing argument about where HR-related functions should be organized into large organizations, e.g., "should HR be in the Organization Development department or the other way around?" The HRM function and HRD profession have undergone tremendous change over the past 20-30 years. Many years ago, large organizations looked to the "Personnel Department," mostly to manage the paperwork around hiring and paying people. More recently, organizations consider the "HR Department" as playing a major role in staffing, training and helping to manage people so that people and the organization are performing at maximum capability in a highly fulfilling manner.

5.1 Harley-Davidson (HRM) Abstract: The case discusses the human resource initiatives adopted by Harley-Davidson Motor Company (H-D), the leading manufacturer of heavy-weight motorcycles in the US, to encourage greater employee participation and collaboration. In 1992, H-D adopted circle based organization structure in its efforts to foster teamwork among the employees and do away with the command-and-control

leadership style of management. The case also discusses another major HR initiative that H-D implemented in 2004; the deployment of 'Accenture Human Capital Development Framework' (HCDF). This initiative was undertaken by the company in order to bring about major improvements in its human resource functions, and thereby attain improved business performance. The case describes the HCDF in detail and the benefits reaped by H-D after its implementation Introduction In 2006, Harley-Davidson Motor Company (H-D), the leading manufacturer of heavyweight motorcycles in the United States (US), implemented the 'Accenture Human Capital Development Framework' (HCDF). This initiative was undertaken by H-D in order to bring about improvements in its human resource (HR) functions, and thereby attain improved business performance. This was the second time that the HCDF framework was being implemented in the company, the first time being in 2004. Another major HR initiative that H-D adopted to encourage greater employee participation and collaboration in 1992 was the circle organization. The rationale behind creating such circles was to come out of the command-and-control leadership style of management and foster teamwork among the employees. H-D took these initiatives after the company's new management realized that in order to survive in a highly competitive market in the long run, it was essential to make the company a continuous learning and improving organization where there was free and open communication between all levels of the employees. Each and every employee, it felt, should be able to comprehend their roles in the company and the consequence of their roles to the company.

5.2 The 'Softer' Management Style According to The Harley-Davidson Employee Involvement Manual published in 1983, the nine "musts" for employee involvement at H-D were: • Management, with the help of its words and actions, must reveal that continuous improvement of quality and efficiency is a way of life, and not merely another program. • Management must be firmly committed to the people-building philosophy, which implied the belief that employees are thinking, rational human beings and hence they should be encouraged to develop and grow. • Management must be strictly committed to the Employee Involvement program and should display that commitment cultivates a mutual trust between the employees and the

management. • Employees should be comprehensively trained in specific problem-solving and methods of quality control... 5.3 Human Capital Development Framework H-D's focus on business growth had compelled the HR function to concentrate more on recruiting. Thus, some of the other important HR practices like performance reviews, career development, and succession planning had taken a back seat. This created a difficult situation for the new employees who were unaware of the culture at H-D. In the absence of processes and programs which would help employees to improve and grow, H-D was confronted with the risk of losing its competitiveness. 5.4 Employee Benefit Plans The Company has several noncontributory defined benefit pension plans covering substantially all employees of the Motorcycles segment. Benefits are based primarily on years of service and, for certain plans, levels of compensation. The Company’s policy with respect to the pension plans is to fund pension benefits to the extent contributions are deductible for tax purposes. The following data is provided for the pension plans for the years indicated:

5.5 Reconciliation of funded status:

The provisions of Financial Accounting Standards Board Statement No. 87, “Employers’ Accounting for Pensions,” require the recognition of an additional minimum liability and related intangible asset to the extent that accumulated benefits exceed plan assets. At December 31, 1996, the adjustment required to reflect the Company’s minimum pension liability was $9.7 million. No adjustment was required at December 31, 1997. The assumptions used in determining pension expense (for the following year) and funded status information shown above were as follows:

Included in plan assets are 453,096 shares of the Company’s common stock at December 31, 1997 and 1996. The market value of these shares at December 31, 1997 and 1996 was $12.3 million and $10.6 million, respectively. Dividends paid on these shares were approximately $61,000 and $47,000 during 1997 and 1996, respectively. Certain of the Company’s plans relating to hourly and salaried employees have been amended to increase the scheduled benefits. During 1996, the Company accrued approximately $2.0 million related to early retirement benefits offered to some hourly employees. The Company has various defined contribution benefit plans which in total cover substantially all full-time employees. Employees can make voluntary contributions in accordance with the provisions of their respective plan, which includes a 401(k) tax deferral option. The Company accrued $2.9 million, $2.0 million and $1.5 million for matching contributions during 1997, 1996 and 1995, respectively. The Company also has unfunded supplemental executive retirement plan (SERP) agreements with certain executive officers. The plan was instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. The Company has recorded a net liability of $4.8 million and $4.1 million for the SERP at December 31, 1997 and 1996, respectively. 5.6 Postretirement Health Care Benefits The Company has several postretirement health care benefit plans covering substantially all employees of the Motorcycles segment. Employees are eligible to receive benefits upon attaining age 55 after rendering at least 10 years of service to the Company. The Company’s postretirement health care plans are currently funded as claims are submitted ($2.5 million in 1997 and $2.3 million in 1996). Some of the plans require employee contributions to offset benefit costs. The status of the plans was as follows:

The weighted average health care cost trend rate used in determining the accumulated postretirement benefit obligation of the health care plans was 8% in 1997. The per capita health care cost trend rate is assumed to decrease gradually to 6% for 1999 and remain at that level thereafter. This assumption can have a significant effect on the amounts reported. If the weighted average health care cost trend rate were to increase by 1%, the accumulated postretirement benefit obligation as of September 30, 1997 and the aggregate of service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1998 would increase by $5.4 million and $.8 million, respectively. The weighted average discount rate used to determine the accumulated postretirement benefit obligation of the health care plans as of September 30, 1997 and 1996 was 8.25%.For purposes of pro forma disclosures under SFAS No. 123, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows:

In determining the effect of SFAS No. 123, the Black-Scholes option pricing model was used with the following weighted-average assumptions for 1997 and 1996: risk-free interest rate of approximately 6% and 5%, respectively; dividend yield of .5%; expected common stock market volatility factor of .4; and a weighted-average expected life of the options of two years from the vesting date. Forfeitures are recognized as they occur. These pro forma calculations only include the effects of 1997, 1996 and 1995 grants.

MARKETING

6. MARKETING STRATEGIES OF HARLEY-DAVIDSON

Case Details:

Case Code : Case Length : Period : Pub Date : Teaching Note : Organization : Industry : Countries :

MKTG174 19 Pages 1995-2007 2007 Not Available Harley-Davidson Automobile - Motorcycle US

Abstract The case discusses the marketing strategies of the US-based motorcycle manufacturer Harley-Davidson Motor Company (H-D). It details the marketing mix elements of H-D including product, price, distribution and promotion strategies of the company. Notwithstanding the success of H-D's marketing strategies, some critics were of the opinion that H-D was not focusing on its core competency, i.e. motorcycles, and said that by putting its logo on several products, the company was diluting its brand. Analysts also criticized H-D's dealers, saying they still had a long way to go in maintaining good relationships with the company's customers.

6.1 Issues Understand the various marketing mix elements of H-D Critically analyze H-D's move to license several of its products and whether this will lead to its brand dilution or not Appreciate the importance of channel partners in maintaining good relationship with the customers Keywords: Harley-Davidson Motor Company, Marketing Mix, Product, Heavy-Weight Motorcycles, Pricing, Distribution, Dealership Evaluation Norms, Promotion, Advertising Strategy,

Brand Image, Brand Dilution, Customer Relationship Management, Marketing Philosophy, Demographic Profile

6.2 Introduction On January 17, 2007, US Rider News named Harley-Davidson Motor Company's (H-D's) 'Softail Custom' motorbike as the "Best New Nostalgic Bike of 2007". According to Scott Cochran, Editor of US Rider News, "The new 2007 Softail Custom recalls the looks of those B-movie bikes of the 1960s. Ape hanger handlebars, heavily stepped kingand-queen seats, padded sissy bars and wide forks with 21-inch front wheels all speak volumes to the 'Easy Rider' set. But this outlaw comes in armed with Harley's most modern and powerful standard engine to date - the Twin Cam 96 plus the bonafide easy rider - Harley's 'Softail' chassis." Founded in the year 1903, H-D started its business as a manufacturer of heavy-weight motorcycles, which had an engine displacement of 651cc or above. H-D also produced a full range of motorcycle parts, accessories, clothing, and general merchandise. The company focused on traditional styling, design, simplicity, durability, and quality. It launched new models regularly, customized according to the needs and requirements of customers. H-D's marketing campaign aimed at shifting the owners of the company's motorcycles to bigger and more expensive motorcycles. The distribution of H-D motorcycles was done mainly through dealerships and also through non-traditional outlets which were extensions of the main dealership. H-D's products were sold to retail customers primarily through dealer promotions, the company's website, customer events, and advertising through national television, print, radio, direct mailings, and through advertising on the Internet. However, despite the success that H-D had achieved over the decades, it came in for quite a bit of criticism from analysts. Some critics were of the opinion that H-D was moving from its core competency, i.e. motorcycles, and diluting its brand image. They also criticized H-D dealers, saying they still had a long way to go in maintaining good relationships with the company's customers. Background Note In 1903, H-D was established by William S. Harley (William) and Arthur Davidson (Arthur) at Milwaukee in the US. William, who was born in Milwaukee on

December 29, 1880, started working in a bicycle factory at the age of 15. Arthur, who was William's childhood friend, also started working at a young age. Both of them were mechanically inclined. They manufactured their first motorcycle in a 10x15 feet wooden shed with a hand-written sign on the door that read, 'Harley-Davidson Motorcycle Company'. The first product launched was a racer bike. The company's operations expanded rapidly and the two were later joined by Arthur's brother Walter. In 1906, H-D started a new 28x80 feet factory at Chestnut Street, which later came to be known as Juneau Avenue. By then, the company's employee strength had increased to six full-time employees. In the same year, the company also produced its first motorcycle catalog. On September 17, 1907, the name 'Harley-Davidson Motor Company' was incorporated. In 1908, H-D sold the first motorcycle for police duty to the Detroit Police Department in Michigan in the US. The V-twin powered motorcycle was introduced by the company in 1909 and for the first time, the company also started selling motorcycle spare parts. The V-twin powered motorcycle was the fastest motorcycle during those times and could travel at a speed of 60 miles per hour. The popular 'Bar & Shield' logo was used for the first time in 1910 (Refer to Exhibit I for a picture of this logo). It was trademarked at the US Patent office after a year. 6.3 The Problems In the year 1969, H-D was taken over by the American Machine and Foundry (AMF). During this period, the production of motorcycles increased by more than 300 percent to 14,000 motorcycles per annum. However, the quality of the motorcycles was one aspect which was totally ignored. Adding to H-D's problems, Japanese manufacturers began flooding the market with high-quality, low-priced light to medium-weight motorcycles in the 1970s at a time when H-D was manufacturing mainly heavy-weight motorcycles. The company earned a bad name for poor quality products. Coupled with the competition from the Japanese companies brought H-D to the verge of collapse. 6.4 The Marketing Mix In order to overcome the problems that H-D faced in the early 1980s and help the company regain its market share, a restructuring plan was implemented. Teerlink developed an innovative system known as Circles of Management for bringing both workers and dealers together and involving them in taking key decisions relating to the company. A new marketing philosophy was developed based on the desires of the customers and H-D made efforts to position motorcycles as a lifestyle product... Product At the time when H-D was formed, it offered only grey colored motorcycle to its customers and provided three basic styles. However, the company realized that in order to survive, it had to offer its

customers more choice... Pricing H-D realized that it would not be possible for it to compete with the Japanese manufacturers on the pricing front. This was because manufacturers like Honda not only manufactured a low-priced highquality product, but also spent heavily on advertising their products. Distribution H-D started selling its motorcycles through its dealers in 1904. The company's first dealer was CH Lang of Chicago, Illinois (Refer to Exhibit IV for the number of H-D's full-line dealer outlets in the US). All the dealers were independent individuals with a business orientation... Promotion Over the decades, H-D had adopted several strategies to promote its motorcycle brand. The products of H-D were sold to retail customers mainly through dealer promotions, customer events, and advertising through national television, print, radio, direct mailings, and through advertising on the Internet. 6.5 The Road Ahead Though H-D was able to successfully overcome the crisis which had confronted the company during the early 1980s, it came in for plenty of criticism in the process. Industry experts criticized the company's move to license several of its products. They opined that H-D should focus on its core competency i.e. motorcycles and said that by putting its logo on several products, the company was selling out and diluting its brand. 6.6 Segmentation and Targeting H-D had four major marketing objectives. First, it wanted to expand its potential customer base to include both enthusiast and nonenthusiast affluent males in the 35-44 age group. This was partly accomplished by introducing the V-ROD model to the younger demographic. Second, H-D wanted to enhance its market share by targeting the first time buyers of motorcycles. Third, it wanted to set the appropriate pricing strategy, which appealed to the target customers, through market research.

When H-D was formed, it only offered one color of motorcycle gray and three basic styles. Later, the company began to offer a variety of models, including Sportsters, Super Glides, Low Riders, Softails, Sport Glides, Tour Glides and Electra Glides, in numerous vivid colors. Many of these models were developed when H-D realized its customers were customizing the bikes but these additional revenues were not coming to the company. In 1999, H-D introduced the Custom Vehicle Operations (CVO) program, which offered a limited quantity of H-D motorcycles, which had been uniquely customized at the factory with H-D accessories. The limited edition motorcycles were produced at the York, Pennsylvania facility on a separate, low volume assembly line that was formerly used for military contract production.

6.7 Advertising & Promotion H-D's marketing communications mix had evolved over time. In the early 1990s, dealer promotions, customer events, magazine and direct mail advertising, public relations and cooperative programs drove HD's marketing efforts. The company started advertising in magazines targeted at the general public. Fashions and Collectible catalogs were produced with various H-D merchandise twice a year. Clothes sold in stores such as Bloomingdale and J.C. Penny exposed H-D to people who might not have thought about visiting a dealership. Leveraging the Brand H-D believed its key strength lay in its brand image rather than technology. It had built its brand image by expressing the emotional bonding of American Youth. H-D's Ex-President and CEO, Richard Teerlink said, "The bike represents to America, the adventurous pioneer spirit, the wild west, having your own horse, and going where you want to go - the motorcycle takes on some attributes of the iron horse. It suggests personal freedom and independence. Brand loyalty for H-D is emotional. The H-D's symbol is based on a pattern of association that includes the American flag and the eagle; reflective of the passion for freedom Americans enjoyed." H-D measured brand loyalty by the percentage of men and women who tattooed the company's logo on their body. By that measure, H-D had the highest loyalty of any brand in the world. The most popular tattoo in the US was the H-D shield. Many H-D owners, even those who did not have tattoos, saw H-D a The experience of riding an H-D, or even an association that came from wearing H-D clothing, was a way for some to express their individuality. H-D had a vigorous global program of trademark registration and enforcement...s an important part of their identity. 6.8 Looking Ahead H-D's ambitious vision was to more than double its production for the company's 100th anniversary.

The company had decided on a 9.6 percent annual increase in motorcycle production to 289,000 in 2003... How Harley-Davidson's Marketing strategy has Overcome Fierce Competition from Foreign Companies As many enthusiasts may describe it, the pride of owning a Harley-Davidson is the pride of owning an 'American Icon'. Harley-Davidson's (HD) positioning strategy can best be defined by its mission statement: "We fulfill dreams through the experience of motorcycling- by providing to motorcyclists and to the general public an expanding line of motorcycles, and branded products and services in selected market segments." Now in its 100th year, however, the ideal of owning an 'American Icon' has slowly dwindled out of the public's mind, due mostly to the competition from Japanese manufacturers like Honda and Yamaha. HD's strength's of its powerful brand image, maintaining good customer relationships, strong financial position, and superiority of technology and design are hindered by its weaknesses related to product capacity and unfulfilled demand for their products2. 6.9 Strategic Direction and Marketing Objectives HD has chosen the strategic direction of targeting a younger market that is technologically conscious in order to increase its share in the performance cruiser market space. With the introduction of the new V-Rod motorcycle, HD is in a position of attaining a sizeable share in the performance cruiser marketplace. To target the younger market with the new product line, the company has adopted the following marketing objectives: to expand its current market (market expansion), diversify its product line (product diversification), and modify its marketing mix to target a younger demographic. During the 1970's, HD was facing a decline in market share due to increased competition with Japanese companies. By phasing out weak models, becoming more selective, and limiting sales and promotions, HD was able to carve out a niche in the marketplace which it enjoys today3. Now again faced with a period of decline, HD is relying on its newly adopted marketing objectives. First, HD needs to expand its potential customer base to include enthusiasts and non-enthusiasts males in the 35-44 age group. (INSERT MEDIAMARK DATA HERE) This is accomplished through the introduction of the VRod and positioning it in the market to a younger demographic. Secondly, HD needs to position the V-Rod to also appeal to first time buyers of motorcycles. HD's strong brand identity can help pull in new clients. Third, HD has to set an appropriate marketing mix that will help attract a younger consumer base. By using the low-end approach, which involves attracting a young audience to a brand name product with a low price tag (similar to what Jaguar and BMW have done), HD can expand its popularity to the domestic and international market. 6.10 Marketing Mix Elements

For Harley-Davidson's marketing objectives to be successful, the company has to implement the four elements of a marketing mix for the V-Rod. These four elements are strategies that involve the product, pricing, promotion, and distribution. The product strategy is any decision that helps the company continue to develop new products around its signature American image and positions the company in the market as such. The main reason for the introduction of the V-Rod was the need to create a bike that would appeal to a younger demographic and attain a greater market share for the company. By using the low-end targeting method (as discussed previously) with the introduction of the V-Rod, this can be considered HD's first step toward implementing its strategic and marketing objectives. As for the pricing strategy, HD must be careful to implement a pricing decision based on the low-end targeting method. Priced at $17,000 MSRP, HD's V-Rod has the second highest price tag in the performance cruiser market. Although HD does have a 22% share of the total market, HD's pricing strategy has three main factors that have influenced how it has priced the V-Rod: 1) the used motorcycle market, 2) lower priced motorcycles, and 3) HD's inability to keep up with demand4. In order for HD to attain a greater market share, the company must examine how these three factors will continually play a role in pricing and adjust accordingly. The Harley-Davidson Corporation has found multiple ways to implement its promotion strategy. HD's primary promotional tool since 1983 has been the HOG. The company's advertisements and commercials are focused around female images. Since 93% of bikers are males, the HOG advertising campaign has been successful for decades5. HD also uses another strong promotional campaign through its cafes, located in most dealerships. HD has also developed an interactive website (www.harley-davidson.com). The website gives the company the chance to expand its operations online. Finally, HD's most important promotional tool is the brand image of a truly American product. Such a tool appeals to the domestic market, and owning a Harley-Davidson bike fits well into supporting the national feelings of pride for America. HD's distribution strategy can best be described by its creed found on its website: "Harley-Davidson's dealer's are the company's life-line to our customers, with a wide variety of product offerings, dealer's provide knowledge, service, and information to riders out on the road." The networks of dealers established by HD are placed in areas that provide access to the largest concentration of potential customers. These dealerships are used to distribute products, accessories, and merchandise. HD also promotes its motorcycles through dealerships with marketing programs, shows, and public relation programs. Demo bikes are also made available at events like Daytona and Sturgis. HD also has a non-dealer network of mid to high-end department stores like Costco's and BJ's. These outlets are meant to appeal to the non-enthusiast. 6.11 Timing, Cost, Return, and Feedback of the Marketing Plan

Before the marketing plan and strategy for HD can be introduced, an analysis of the timing at which the plan is to be implemented, the cost and return of the plan and the feedback involved in continually improving the product must be done. The most strategic timing for the plan is at peak buying seasons such as around bike demo events and seasonal shopping. It is at these times that people are most interested in new products like the V-Rod and more likely to have the assets to purchase the product. The cost of implementing the marketing plan is going to be related to the assets involved in the development and research, as well as the production of the V-Rod and the promotion/advertising involved in making the V-Rod known to motorcyclists and nonenthusiasts. The optimal return that is desired from the implementation of the marketing plan is a sizeable and profitable share in the performance cruiser market. A substantial share in the market would be attributed to HD's strategic plan of attracting new 'low-end' buyers. This group of buyers is a younger demographic compared to HD's traditional consumer base. Attaining such a group would most certainly guarantee HD future business by attempting to gain brand loyalty. The most important aspect of understanding the functionality of the marketing plan is the feedback involved from the consumer. To comprehend why or why not a certain aspect of the marketing mix is working, consumers of the product must be allowed to give their input. Continual and efficient uptake of data from the customer, whether through surveys or questionnaires or any other technique is critical in order to see whether the marketing plan implemented is working accordingly as planned.

6.12 process data model of market segmentation

7. CORPORATE GOVERNANCE POLICY- HARLEY DAVIDSON INC

The Harley-Davidson Board of Directors and management believe that the Company, in the interests of its stakeholders, should embrace corporate governance practices in keeping with our leadership position in our business and current legislation and rules. The Company’s policies of corporate governance must be rooted in and consistent with its Business Process. The Nominating and Corporate Governance Committee of the Board has been empowered by its charter to continuously review corporate governance practices of the Company and to make recommendations to the Board to assure the Company’s leadership in this area. The Nominating and Corporate Governance Committee reports its findings and recommendations to the Board for action. The Company believes its leadership in the corporate governance area is evident in the practices mentioned in this policy book. 7.1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Harley-Davidson, Inc. and all of its subsidiaries (the Company), including the accounts of Harley-Davidson Motor Company (HDMC), Eaglemark Financial Services, Inc. (Eaglemark), and Holiday Rambler LLC (Holiday Rambler). All significant inter company accounts and transactions are eliminated. As disclosed in Note 3, the operations of Holiday Rambler are classified as discontinued operations. The Company has an investment which is accounted for using the equity method. Accordingly, the Company’s share of the net earnings (losses) of this entity is included in consolidated net income. (b)USE OF ESTIMATES The preparation of financial statements in conformity with 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. ©CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. (d)FINANCE RECEIVABLES INCOME RECOGNITION Interest income on finance receivables is recorded as earned and is based on the average outstanding daily balance for wholesale and retail receivables. Accrued interest is classified with finance receivables. Certain loan origination costs are deferred and amortized over the estimated life of the related receivable as a reduction in financing revenue. (e)FINANCE RECEIVABLES CREDIT LOSSES The provision for credit losses on finance receivables is charged to income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover the losses of principal and interest in the existing portfolio. The Company’s wholesale loan chargeoff policy is based on a loan-by-loan review. Retail revolving charge receivables are charged off at the earlier of 180 days contractually past due or when otherwise deemed to be uncollectible. Retail installment receivables are generally charged off at 120 days contractually past due. 7.2RETAIL INSTALLMENT LOANS SOLD WITH LIMITED RECOURSE; SECURITIZATION AND SERVICING INCOME During 1997 and 1996, Eaglemark securitized and sold approximately $300 million and $238 million, respectively, of its retail installment loans through securitization transactions. Eaglemark retained limited recourse and also the servicing rights to these contracts. Eaglemark recognizes a gain for the difference between the carrying value of the receivables sold and the adjusted sales price. The adjusted sales price is determined based on a present value estimate of future cash flows on each loan pool sold.

Eaglemark adopted Statement of Financial Accounting Standards (SFAS) No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” effective January 1, 1997. Adopting SFAS No. 125 had an immaterial effect. INVENTORIES: Inventories are valued at the lower of cost or market. Inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories, $33.3 million in 1997 and $25.5 million in 1996, are valued at the lower of cost or market using the first-in, first-out (FIFO) method. DEPRECIATION: Depreciation of plant and equipment is determined on the straightline basis over the estimated useful lives of the assets. Accelerated methods are used for income tax purposes. FACILITIES START-UP COSTS: Facilities start-up costs are expensed as incurred. During 1997 and 1996, the Company incurred approximately $19.3 million and $7.3 million in start-up costs, respectively. PRODUCT WARRANTY: Product warranty costs are charged to operations based upon the estimated warranty cost per unit sold. DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses forward foreign exchange contracts to mitigate the risk that cash flows resulting from the Company’s firm commitments for the sale of product to foreign customers will be adversely affected by changes in exchange rates. Realized and unrealized gains and losses on forward foreign exchange contracts resulting from changes in the spot exchange rate are deferred and recognized at the time the hedged transaction is settled. Eaglemark enters into interest rate cap and swap agreements to reduce the impact of fluctuations in interest rates on its floating rate debt. Eaglemark’s credit risk is the amount of uncollected interest related to these agreements. The differential to be paid or received under these agreements is recognized as an adjustment to interest expense. The unamortized cost of the interest rate cap agreements is included in other assets. The fair values of interest rate cap agreements and forward foreign currency contracts are discussed in Note 12. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses were approximately $53.3 million, $37.7 million, and $27.2 million for 1997, 1996 and 1995, respectively. ENVIRONMENTAL The Company accrues for environmental loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company adopted SOP 96-1, “Environmental Remediation Liabilities,” effective January 1, 1997. Adopting SOP 96-1 had an immaterial effect. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued SFAS No. 128, “Earnings per Share,” which replaced the calculation of primary and fully

diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share exclude any nonvested stock. Diluted earnings per share are very similar to the previously defined fully diluted earnings per share. During 1996 and 1995, stock options were not materially dilutive; therefore, the Company was not required to disclose fully diluted earnings per share. Earnings per share amounts for all periods presented have been restated to conform to the Statement 128 requirements. COMPREHENSIVE INCOME The Company is required to adopt SFAS No. 130, “Reporting Comprehensive Income,” effective January 1, 1998. Comprehensive income and its components will be required to be presented for each year for which an income statement is presented. Components to be included in comprehensive income for the Company are expected to consist primarily of translation adjustments related to the consolidation of foreign subsidiaries. INTERNAL-USE SOFTWARE The Company is required to adopt the new SOP, “Accounting for Costs of Computer Software Developed or Obtained for Internal Use,” effective January 1, 1999. The SOP will require the Company to capitalize costs incurred in connection with developing or obtaining internal-use software. The Company expects to early adopt the SOP in 1998. Had the Company adopted the SOP in 1997, approximately $9 million of costs associated with internal-use software would have been capitalized. RECLASSIFICATIONS Certain prior year balances have been reclassified in order to conform to current-year presentation.

NOTES PAYABLE As of December 31, 1997, the Company had unsecured lines of credit totaling approximately $42.7 million, of which approximately $40.8 million remained available after consideration of outstanding letters of credit. As of December 31, 1996, $2.6 million of notes payable was included in accrued and other liabilities. There were no outstanding notes payables at December 31, 1997.

8. PRODUCT LINE 1900’s 1901

William S. Harley, age 21, completes a blueprint drawing of an engine designed to fit into a bicycle.

1903

William S. Harley and Arthur Davidson make available to the public the first production Harley-Davidson® motorcycle. The bike was built to be a racer, with a 3-1/8 inch bore and 3-1/2 inch stroke. The factory in which they worked was a 10 x 15-foot wooden shed with the words "Harley-Davidson Motor Company" crudely scrawled on the door. Arthur's brother Walter later joins their efforts. Henry Meyer of Milwaukee, a schoolyard pal of William S. Harley and Arthur Davidson, buys one of the 1903 models directly from the founders.

1904

The first Harley-Davidson Dealer, C.H. Lang of Chicago, IL, opens for business and sells one of the first three production Harley-Davidson motorcycles ever made.

1905

On July 4th, a H-D motorcycle wins a 15 mile race in Chicago with a time of 19:02. In Milwaukee, the first full-time employee is hired.

1906

A new factory, measuring 28 x 80 feet, is built on the Chestnut St. site, later renamed Juneau Avenue. Staff size is increased to six full-time employees. Also, the first motorcycle catalog is produced by the Company and the nickname "Silent Gray Fellow" is used for the first time.

1907

William A. Davidson, brother to Arthur and Walter Davidson, quits his job as tool foreman for the Milwaukee Road railroad and joins the Motor Company.

Harley-Davidson Motor Company is incorporated on September 17th. The stock is split four ways between the four founders, and staff size has more than doubled from the previous year to eighteen employees. Factory size is doubled as well. Dealer recruitment begins, targeting the New England region.

1908

Walter Davidson scores a perfect 1,000 points at the 7th Annual Federation of American Motorcyclists Endurance and Reliability Contest. Three days after the contest, Walter sets the FAM economy record at 188.234 miles per gallon. Word of Harley-Davidson's extremely tough motorcycle spreads rapidly. The first motorcycle sold for police duty is delivered to the Detroit, MI, Police Department.

1909The six-year-old Harley-Davidson Motor Company introduces its first V-twin powered

motorcycle. With a displacement of 49.5 cubic inches, the bike produces seven horsepower. The image of two cylinders in a 45-degree configuration would fast become one of the most enduring icons of Harley-Davidson history. Also available for the first time from the Motor Company are spare parts for motorcycles.

1910’s 1910

The famed "Bar & Shield" logo is used for the first time. It is trademarked at the U.S. Patent office one year later.

At least seven different first place finishes are captured at races, endurance contests and hill climbs across America. All seven winners are riding HarleyDavidson® motorcycles.

1911

The "F-head" engine becomes a workhorse of the Harley-Davidson motorcycle until 1929.

1912

Construction begins on what will become the six story headquarters and main factory building at Juneau Ave. in Milwaukee. A separate Parts and Accessories Department is formed. H-D exports motorcycles to Japan, marking the first ever sales outside of the U.S. Dealer network grow to over 200 nationwide.

1913

The Racing Department is formed, with William Ottaway as its first Assistant Engineer to racing engineer William S. Harley. Also, the Forecar delivery van is offered for the first time.

1914

Sidecars are made available to Harley-Davidson buyers. Clutch and brake pedals now available on F-head singles and twins.

The Motor Company formally enters motorcycle racing this year. The first Racing Engineer is William S. Harley. Within a few short years, team HarleyDavidson is referred to informally as the "Wrecking Crew" because of their incredible dominance of the sport. The Two-Speed rear hub transmission is introduced for two years only in the Model 10F. Patented by William S. Harley, it was effective but discontinued in order to further improve drivetrain function in 1915 with a three-speed design.

1915

Harley-Davidson motorcycles are now available with three speed slidinggear transmissions with final and primary drive on the same side.

1916

The Enthusiast begins its reign as the longest continuously published motorcycle magazine in the world.

1917

During this year, roughly one-third of all Harley-Davidson motorcycles produced are sold to the U.S. military. The Quartermasters School, a department of Harley-Davidson devoted to training military mechanics on Harley-Davidson motorcycles, opens for business in July. It will later become the Service School. The sale of Harley-Davidson bicycles begins. Individual components are made by the Davis Sewing Machine Co. of Dayton, Ohio. The bicycles are sold through the H-D dealer network.

1918

Almost half of all Harley-Davidson motorcycles produced are sold for use by the U.S. military in World War I. At War's end, it is estimated that the Army used some 20,000 motorcycles in their efforts, most of which were HarleyDavidsons. One day after the signing of the Armistice, Corporal Roy Holtz of Chippewa Falls, Wis., is the first American to enter Germany. He is riding a Harley-Davidson.

1919The 37 cubic inch opposed twin cylinder Sport model is introduced and gains great popularity

overseas. Unique not only for the cylinder configuration, which was directly opposed and flat, the Sport quickly earns a reputation for being uncommonly quiet.

1920’s 1920

By 1920, Harley-Davidson is the largest motorcycle manufacturer in the world. New Harley-Davidson® motorcycles can be purchased from over 2,000 dealers in 67 countries worldwide. Leslie "Red" Parkhurst breaks 23 speed records on a Harley-Davidson 61 cubic inch racing motorcycle. Also, the "hog" association starts when the racing team's mascot, a pig, is carried on a victory lap after each race won by the team.

1922

The first 74 cubic inch V-twin engine is introduced on the JD and FD models. Harley-Davidson dealerships are now found in sixty-seven countries. Harley-Davidson riders sweep all eight National Championship races.

1925

Gas tanks on all models now have a distinct teardrop shape. This basic appearance is set for all subsequent Harley-Davidson motorcycles.

Joe Petrali begins racing for Harley-Davidson. He would become one of the most successful dirt-track racers for Harley-Davidson, and one of the most successful racers of all time.

1926

Single-cylinder motorcycles are again sold by Harley-Davidson for the first time since 1918. Models A, AA, B, and BA are available in side-valve and overhead-valve engine configurations.

1928

The first Harley-Davidson two cam engine is made available to the public on the JD series motorcycles. The bike is capable of top speeds between 85 - 100 mph. Front wheel brakes are now available on all Harley-Davidson motorcycles.

1929The 45 cubic inch V-twin engine (later to be known as the "flathead") is introduced on the D model. The

engine proves to be so reliable that variations of it are available on Harley-Davidson motorcycles as late as 1973.

1930’s

1930

Bill Davidson, Jr. wins the Jack Pine endurance contest with 997 points of 1,000. All individual class winners are riding Harley-Davidson® motorcycles.

1931

All of Harley-Davidson's remaining American competition is now gone except Indian (Hendee Manufacturing). Indian and Harley-Davidson are the only two American motorcycle manufacturers until 1953.

1932

The 45 cubic inch-driven, three-wheeled Servi-car begins its 41 year run as a popular commercial and police vehicle.

In dirt track racing, Harley-Davidson racer Joe Petrali begins a five-year consecutive streak of winning the AMA Grand National Championship. Petrali also wins the National Hill-Climb Championships for 1932 to 1935.

1933

An art-deco "eagle" design is painted on all gas tanks. This marks the beginning of graphic designs on Harley-Davidson motorcycles (with the exception of previously special order-only paint schemes). This styling decision was made in part to stimulate the low sales numbers caused by the Great Depression.

1935

The Japanese motorcycle industry is founded as a result of Harley-Davidson licensing blueprints, tools, dies and machinery to the Sankyo Company of Japan. The result is the Rikuo motorcycle. Joe Petrali and his Harley-Davidson peashooter win all thirteen of the American Motorcycle Association National Championship dirt track races. Petrali breaks four records in the process.

1936

Harley-Davidson introduces the EL, an overhead valve, 61 cubic inch powered bike. With increased horsepower and bold styling changes, the motorcycle quickly earns the nickname of "Knucklehead," due to the shape of its rocker boxes. The same year, the Motor Company introduces a 80 cubic inch side valve engine.

1937

The first WL models are produced. Joe Petrali sets a new land speed record of 136.183 mph on a modified Harley-Davidson 61 cubic inch overhead valve-driven motorcycle. . The same day, he also breaks the record for 45 cubic inch engine motorcycles.

1938 The Jack Pine Gypsies Motorcycle Club holds the first Black Hills Rally in Sturgis, SD.

On the 3.2 mile beach course at Daytona, FL, Ben Campanale wins the first of two consecutive victories at the Daytona 200 on a Harley-Davidson WLDR.

1940’s

1940

Babe Tancrede is the winner at the Daytona 200, riding a WLDR model.

1941

America is plunged into World War II. Production of civilian motorcycles is almost entirely suspended in favor of military production. The Service School is converted back to the Quartermasters School for the training of military mechanics.

The FL series premieres.

1942

Among other motorcycles made for the Army, H-D produces the unique XA 750, a motorcycle with horizontally opposed cylinders and shaft drive, designed for desert use. The contract is cancelled early due to war combat moving out of North Africa. Only 1,011 XA's are built.

1943

Harley-Davidson receives the first of its four Army-Navy "E" Awards for excellence in wartime production. Overseas, many American servicemen get their first exposure to Harley-Davidson motorcycles, something they would not forget when they would return stateside.

1945

World War II ends, and Harley-Davidson has produced almost 90,000 WLA models for military use. Wasting no time, production of civilian motorcycles resumes in November.

1946

Harley-Davidson introduces the 45 cubic inch flathead WR racing motorcycle. It proves to be one of the best racing motorcycles ever built.

1947

Attendees at the year's Dealers Convention in Milwaukee are given a train ride to a "secret destination," which turns out to be the newly purchased plant on Capitol Drive. The plant was formerly the A.O. Smith Propeller Plant, created during the war. Harley-Davidson uses the plant as a large machine shop, shipping the new parts to Juneau Ave. for final assembly.

Harley-Davidson begins selling what will become the classic black leather motorcycle jacket.

Harley-Davidson dirt track racer Jimmy Chann wins the first of three consecutive AMA Grand National Championships.

1948

New features are added to the 61 and 74 overhead valve engines, including aluminum heads and hydraulic valve lifters. Also new are the one piece, chrome plated rocker covers shaped like cake pans. The nickname "Panhead" only seemed logical. Production of American-made lightweight motorcycles begins with the model S. Various versions will be sold until 1966.

1949 Hydraulic front forks first appear on the new Hydra-Glide models.

1950

1950’s

Larry Headrick wins the AMA Grand National Championship for HarleyDavidson in dirt track racing.

Harley-Davidson riders win 18 of 24 National Championships and set six new racing records.

1952

The side-valve K model is introduced with an integrated engine & transmission to compete with smaller, sportier motorcycles coming mainly from Great Britain. The K will eventually evolve into the Sportster.

1953

Harley-Davidson celebrates its 50th Anniversary in style. An attractive logo is created, depicting a "V" in honor of the engine which had brought the Company so far, with a bar overlaid reading "Harley-Davidson" and the words, above and below, "50 years--American made." A medallion version of this logo is placed on the front fenders of the 1954 models. Hendee Manufacturing, the creator of the Indian motorcycle, goes out of business. Harley-Davidson would be the sole U.S. motorcycle manufacturer for the next 46 years.

1954

Dirt track racer Joe Leonard wins the AMA Grand National Championship. Over the next eight years, the Grand National Championship will be won by Harley-Davidson racers.

1955

This year begins a seven-year consecutive run of victories at the Daytona 200. The victories will be shared by racers Brad Andres, Johnny Gibson, Joe Leonard and Roger Reiman. All ride Harley-Davidson KR models. Reiman's victory in 1961 is on the new speedway course.

1956

The new young star Elvis Presley poses for the cover of the MayEnthusiast sitting on a 1956 model KH.

1957

The motorcycling public met a new motorcycle called the Sportster®. It premiers as a 55 cubic inch overhead valve engine, and within one year of its debut, becomes known as the first of the "Superbikes." Another HarleyDavidson tradition and legend is born.

1958 The first rear brakes and hydraulic rear suspensions appear on the Duo-Glide.

Racer Carroll Resweber wins the first of four AMA Grand National Championships.

1960’s 1960

The Harley-Davidson Topper motor scooter is introduced and is the only scooter platform the Motor Company ever produced.

Harley-Davidson purchases a half interest in Aeronatica-Macchi, forming Aermacchi Harley-Davidson, a European division that will produce small, single cylinder motorcycles. In this year of Brad Andres' 1st place finish at the Daytona 200, the top 14 finishers are also riding Harley-Davidson 750 KR models.

1961

Introduction of the Sprint model.

1962

Harley-Davidson purchases 60 percent of the stock in the Tomahawk Boat Manufacturing Company. H-D recognizes the rising relevance of fiberglass in motorcycle production, and begins manufacturing its own components. As a result, the Tomahawk Division is established and is operational as a HarleyDavidson facility by 1963.

1963

Ralph White resumes the winning of the Daytona 200 for Harley-Davidson, again on a 750 KR motorcycle.

1964

Roger Reiman wins the AMA Grand National Championship for HarleyDavidson. Reiman also scores the first of back-to-back Daytona 200 victories on a 750 KR. The three-wheeled Servi-Car becomes the very first Harley-Davidson motorcycle to receive an electric starter.

1965

The Electra-Glide® replaces the Duo-Glide and is updated with electric starter. The Electra-Glide is the first FL available with electric start, and the Sportster® line would receive electric starters soon after. In a Streamliner powered by a 250cc Sprint CR racing engine, George Roeder shatters the speed records for Class A and Class C runs, averaging 177 miles per hour. Harley-Davidson dirt track racer Bart Markel wins the AMA Grand National Championship in 1965 and 1966.

1966

The first of the "Shovelhead" engines is introduced on the Electra-Glide models, replacing the Panhead.

1968

Cal Rayborn wins the first of back-to-back victories at the Daytona 200 on a 750 KR model.

1969 Harley-Davidson merges with the American Machine and Foundry Company (AMF), a longtime producer of leisure products. Mert Lawill wins the AMA Grand National Championship for team Harley-Davidson in dirt track racing.

1970’s 1970

In consideration of new AMA rules for Class C racing, a new Sportster®based motorcycle, the XR-750 racer is introduced.

On the Bonneville salt flats near Wendover, Utah, racer Cal Rayborn breaks the world record for land speed set by a motorcycle. The vehicle is a sixteen foot streamliner powered by a single Sportster engine, and averages just over 265 mph.

1971

In response to the customizing craze, Harley-Davidson introduces the FX 1200 Super Glide®, which combined a sporty front end (similar to that of the XL series) with the frame and powertrain of the FL series. A new class of motorcycle, the cruiser, is born.

First year of Harley-Davidson snowmobile production.

1972

The new, more powerful, more reliable aluminum alloy XR-750 debuts. It becomes the dominant dirt track racer through the next three decades. Dirt track racer Mark Brelsford wins the AMA Grand National Championship on the XR-750 this year.

1973

Motorcycle production is upgraded when all assembly operations are moved to a modern 400,000 square foot plant in York, Penn. All other production operations remain in Milwaukee and Tomahawk. The Capitol Drive plant in Milwaukee begins production of engines.

1975

The first of four more consecutive years of Harley-Davidson AMA Grand National Championships in dirt track racing. Gary Scott wins in 1975. The following three years are won by racing legend Jay Springsteen.

1977

Harley-Davidson introduces the FXS Low Rider® to the public in Daytona Beach. With drag style handlebars, unique engine and paint treatments, the Low Rider lives up to its name by placing the rider in a lowered seating position than was typical. Later in the same year, Willie G. Davidson's dynamic version of the Sportster, the Cafe Racer, is released.

1979

Introduction of the FXEF Fat Bob, "Fat" because of the dual gas tanks, "Bob" for the bobbed fenders.

980

1980’s

Harley-Davidson debuts the FLT with its vibration dampening, rubberisolated drivetrain and unique trailing front fork. The FLT also debutes an engine and five-speed transmission that are hard bolted together. A Kevlar belt replaces the chain as the final drive. The belt is cleaner running, and needs less adjustments and maintenance. It isn't long before belt final drive is standard on all Harley-Davidson® motorcycles. The AMA Grand National Championship in dirt track racing goes to yet another Harley-Davidson racer, Randy Goss.

In honor of the historic Sturgis motorcycle rally, Harley-Davidson releases the FXB Sturgis model, employing belt drive, black chrome appointments and 80 cubic inch engine. The FXWG Wide Glide is introduced for the 1980 model year.

1981

On February 26, thirteen Harley-Davidson senior executives sign a letter of intent to purchase Harley-Davidson Motor Company from AMF. By mid-June, the buyback is official, and the phrase "The Eagle Soars Alone" becomes a rallying cry.

Scott Parker begins racing for team Harley-Davidson on the AMA dirt track circuit. He will become the most successful racer in Harley-Davidson history, accumulating 93 career victories and, more incredibly, winning 9 Grand National Champion titles in a 10 year period.

1982

More innovations demonstrate a new commitment to quality, such as the FXR/FXRS Super Glide® II with its rubber-isolated, five-speed powertrain and the welded and stamped frame for the new Sportster® models. The top three finishers in the AMA Grand National Championship are Ricky Graham, Jay Springsteen and Randy Goss. This begins a two year run of dirt track Championship wins for Harley-Davidson. Goss takes the Championship in 1983. The Materials As Needed (MAN) application is introduced to production. Generally, this means that parts and raw materials are purchased and built only as they are required. This dramatically lowers production costs and improves quality.

1983

Harley-Davidson successfully petitions the International Trade Commission (ITC) for tariff relief, which is granted April 1, 1983. The tariff, scheduled to end five years later, is placed on all imported Japanese motorcycles 700cc or larger as a response to Japanese motorcycle manufacturers stockpiling inventories of unsold motorcycles in the United States. One of Harley-Davidson's most unique endeavors begins: Harley Owners Group®. Fondly referred to as H.O.G.®, the Group immediately becomes the largest factory-sponsored motorcycle club in the world. Within six years, H.O.G. membership soars to more than 90,000. By the year 2000, it exceeds 500,000 members. Dirt track racer Randy Goss wins the AMA Grand National Championship this year.

1984

Harley-Davidson unveils the 1340cc V²® Evolution® engine on five models including the all-new Softail®. The result of seven years of development, the Evolution engine produces more power at every speed, runs cooler, cleaner and is oil-tight. Also witnessed is the debut of the Softail design and its trend-setting method of "hiding" the motorcycle's rear shock absorbers.

1986

In another bold styling and engineering move, Harley-Davidson releases the Heritage Softail®.

The Motor Company is listed on the American Stock Exchange, the first time Harley-Davidson is publicly traded since 1969, the year of the AMF merger.

The Sportster® motorcycle line receives the Evolution V-twin engine.

To diversify its holdings, Harley-Davidson purchases Holiday Rambler Corporation, producer of quality motor homes.

1987

Harley-Davidson is listed on the New York Stock Exchange.

Harley-Davidson makes both business and American history. H-D petitions the International Trade Commission for early termination of the five-year tariffs on heavyweight motorcycles. In effect, the move demonstrated confidence in H-D's ability to compete in the marketplace. Harley-Davidson begins the "Buy Back Program," for the XLH 883 Sportster, which offers full trade-in value within two years on either a model FL or FX.

1988 The springer front end returns in the FXSTS Springer® Softail®. Also introduced is the

Sportster 1200. Harley-Davidson celebrates its 85th Anniversary with a Homecoming in Milwaukee, attended by over 60,000 enthusiasts.

The Harley-Davidson Traveling Museum hits the road, displaying memorabilia, classic Harley-Davidson motorcycles and the rich history of the Harley-Davidson rider.

Scott Parker wins the first of his nine AMA Grand National Championships. His total domination is unprecedented in the history of the sport of dirt track motorcycle racing.

1990’s 1990

Upon its introduction, the FLSTF Fat Boy® almost instantaneously becomes a modern legend of motorcycle design.

1991

Installation of a $31 million state of the art paint facility begins at the York, PA, factory. It becomes fully operational in 1992. The Dyna line of motorcycles debuts with the 1991 FXDB Dyna Glide Sturgis®.

1993

Harley-Davidson celebrates its 90th Anniversary in Milwaukee with a Family Reunion. An estimated 100,000 people ride in a parade of motorcycles.

Harley-Davidson buys a minority interest in the Buell Motorcycle Company. Erik Buell created the Company to manufacture American sport motorcycles using Harley-Davidson® XL 883 and 1200 engines.

1994

Harley-Davidson enters Superbike racing with the introduction of the VR1000, a dual overhead cam, liquid-cooled motorcycle.

The classically-styled FLHR Road King® is introduced.

1995

The 30th Anniversary Ultra Classic® Electra Glide® becomes the first production Harley-Davidson motorcycle to include sequential port electronic fuel injection.

1996

A new, state-of-the-art Parts and Accessories Distribution Center opens in Franklin, WI. By the beginning of 1997, all inventory is moved from the original warehouse at Juneau Avenue to the new 250,000-sq.-ft. facility.

1997

A new 217,000-sq.-ft. Product Development Center opens next to the Capitol Drive plant in Milwaukee. The building is dedicated to Willie G. Davidson.

Powertrain Operations at Capitol Drive expanded its capacity by moving FL engine and transmission production to a newly purchased plant located in Menomonee Falls. XL engines and transmissions, as well as Genuine Parts Manufacturing, remain at Capitol Drive. A new 330,000-sq.-ft. plant in Kansas City produces its first Sportster.

1998

Harley-Davidson celebrates its 95th Anniversary. 140,000 plus riders are warmly received by Milwaukee to help with the celebration.

A new assembly facility opens in Manaus, Brazil, the first operations outside of the U.S. Harley-Davidson buys a remaining 49% interest in Buell Motorcycle Company. Erik Buell is named Chairman of Buell operations.

1999

The Touring and Dyna motorcycle families receive the new Twin Cam 88® engine.

2000’s 2000

The FXSTD Softail® Deuce™ is introduced to the immediate delight of riders and the motorcycle media.

The 2000 model year Softail® models are outfitted with the Twin Cam 88B™ engine, a counter-balanced version of the Twin Cam 88.

Fuel injection is unveiled as a feature new to the Softail line of motorcycles for the 2001 model year. Buell introduces the Blast®, a single-cylinder motorcycle, for the 2000 model year. The Blast receives excellent reviews. It's introduced in tandem with the Rider's Edge® Academy of Motorcycling, a beginner's rider course available through Harley-Davidson and Buell dealerships.

2001

The VRSCA V-Rod® is introduced for the 2002 model year. Inspired by the VR-1000 racing motorcycle, the V-Rod is Harley-Davidson's first motorcycle to combine fuel injection, overhead cams and liquid cooling, and delivers 115 horsepower. Harley-Davidson Racing announces the latest addition to the team: 17 year old Jennifer Snyder, the first woman to win a national event in the Formula USA National Dirt Track Series. Harley-Davidson announces expansions at the Product Development Center (Milwaukee), as well as Tomahawk, WI, and York, PA, facilities.

2002

The all-new Buell® Firebolt® storms onto the scene.

The Open Road Tour debuts in Atlanta, GA, in July to celebrate the upcoming Harley-Davidson 100th Anniversary.

2003

Buell Motorcycle Company unleashes the Lightning® XB9S.

More than 250,000 people come to Milwaukee for the final stop of the Open Road Tour and the Harley-Davidson 100th Anniversary Celebration and Party.

2004

For the 2004 model year, the Sportster® family models receive rubber engine mounting, a new frame, and a wider rear tire. Some Sportster® models receive a redesigned gas tank. The FLHRSI Road King® Custom is introduced. With its low rear suspension and wide handlebars, the FLHRSI brings a beach look to a classic HarleyDavidson motorcycle. Andrew Hines of the Screamin' Eagle®/Vance & Hines Harley-Davidson drag racing team clinches his first NHRA Powerade Pro Stock Motorcycle Championship at age 21, the youngest champion in NHRA history.

2005

The XL 883L Sportster® 883 Low brings a lowered seating position to the Sportster® line.

The FLSTNI Softail® Deluxe adds a sleek look to the Softail® line and a paint scheme reminiscent of 1939 Harley-Davidson motorcycles. Also, the FLSTSC/I Softail® Springer® Classic revives looks from the late 1940s.

Andrew Hines wins his second straight NHRA Powerade Pro Stock Motorcycle Championship. G.T. Tonglet, also of the Screamin' Eagle®/Vance & Hines Harley-Davidson team, places second. Harley-Davidson and the Muscular Dystrophy Association (MDA) mark the 25th anniversary of their partnership.

2006 The first of the 6-speed transmissions are made available on 2006 model year

Dyna™ motorcycles. Also joining the Dyna™ family is the FXDB/I Street Bob™.

The 2006 model year includes the all-new FLHX/I Street Glide™, a lower profile touring motorcycle.

Harley-Davidson unveils plans for an all-new museum in Milwaukee, scheduled for opening in 2008.

Harley-Davidson appoints Beijing Feng Huo Lun (FHL) as the first authorized HarleyDavidson dealer on mainland China.

9. Risk Management and Risk Factors Harley-Davidson Inc. is subject to various types of risks that directly affect the growth and operations of the companies in this sector. The following talks about some major risks areas in the company. 9.1Currency Risk: The Company sells its products internationally and in certain markets, it denominates those sales in the local currency of the foreign country. The Company’s most significant foreign denominated sales are in the Euro. The Euros exchange rate to the U.S dollars went up by 18% in 2002. As a result, the Company’s earnings are affected by fluctuations in the value of the U.S. dollar relative to certain foreign currencies. The Company utilizes foreign currency contracts to mitigate the effect of these fluctuations on earnings. 9.2Interest Rate Risk: The outlook for interest rates has important implications for Harley-Davidson Financial Services’ earnings. Interest rates influence how much money the HDFS can make. For this reason, the HDFS is concerned with Federal Reserve policy and its influence on interest rates. In June 2003, the Fed has cut the federal funds target rate 13 times since January 2001 by a total of 5.5 percentage points to the lowest level in more than 40 years. HDFS utilizes interest rate swaps to reduce the impact of fluctuations in interest rates. 9.3Legal Risk: The Company is subject to lawsuits and other claims related to environmental, product and other matters. • Harley-Davidson has a lawsuit against them for the defects in the twin cam 88 engines. They are still in the process of the lawsuit in the Wisconsin Supreme Court. Therefore, the company spends a lot of money in the process of the lawsuit. • The Company is involved with government agencies in various environmental matters, including a matter involving the clean up of soil and groundwater contamination at its York, Pennsylvania facility. The Company estimates that its share of the future Response Costs at the York facility will be approximately $7.9 million. 9.4Economic Risk: • Unemployment Rate High unemployment will cause a slowdown in consumer spending, so consumer are less likely to buy a new motorcycle. • Consumer Confidence The confidence report has indicated that there is still a relatively low consumer sentiment, which may be proof that there is a delay in the up start of consumer and commercial spending. 9.5Other Risks: • Terrorism Risk: The September 11, 2001 terrorist attack impacted the company’s retail activates slowdown in areas around New York City and Washington D.C. • Operation Risk: Company could experience delays in the operation of manufacturing facilities as a result of work stoppages, difficulty with suppliers.

Production Risk: Company could increase the productivity in its facilities to meet the customer demand or company could sell all of the Harley-Davidson motorcycles it plans to product. • Credit Risk: HDFS is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail installment sales contracts. It would suffer some loan will default on repayments linked to the obligation. • Natural causes: A natural disaster (earthquake, hurricane, etc.) which could impact the company’s factory and retail stores. •

10. Investment Decision and Conclusion In conclusion, we believe Harley-Davison has a great product with a loyal brand following. The Harley-Davison bike has become an American icon, which foreign competitors can not match despite years of trying. In addition, H-D is a financially healthy company with minimal debt and they’ve continued to improve operating performance regardless of the economic climate. Based on these factors, as well as favorable valuations from the DDM model we feel that the company should be rated a “Buy”. Harley-Davison will be a good addition to our portfolio given the conservative nature and objectives of the Graduate Fund. We recommend purchasing 200 shares of HD stock at a price at market price. We believe that 200 shares is proper given the fact that the stock has risen in recent months and is no longer significantly undervalued. However, we believe the stock has some upside potential and is good long-term investment. No stock in the Graduate Fund is significantly correlated with HarleyDavison.

11. Strategic Report for Harley Davidson Harley Davidson remains a financially strong and stable company. During 2005 the company reported the 19th consecutive year of record revenues and record earnings. While Harley Davidson’s growth has slowed over the past several years the decline in growth rates are primarily attributable to a maturing market, which results in lower growth rates for all member of the motorcycle sub-industry. During 2006 Standard and Poor’s predicts that the motorcycle sub-industry will grow between 1% and 3%, a much slower rate than the double digit annual gains the sector saw throughout the 90’s and late 80’s. Despite the company’s strong financial outlook the stock price has not been performing well over the past year. The stock price fell dramatically in April 2005 when Harley Davidson management lowered guidance of new motorcycle shipments to the network of independent dealers. Wall Street analysts proceeded to predict doom for the company as it appeared that it would be unable to continue its trend of strong growth. Although the company actually produced results that were in the upper bound of its guidance and within the guidance from before April the stock price has yet to recover to its earlier levels. It seems that Harley Davidson management’s strategy of under promising and over-delivering has backfired, especially because analysts remain wary of the company’s prospects despite Harley exceeding their expectations. Another reason for analysts’ pessimism about Harley Davidson is that recently the company seems to be resting on its laurels, content with its current market position and doing little to attract new, younger customers or to offer new motorcycle designs to appeal to previous customers. One sign of this is that Harley Davidson’s dollar amount spent on advertising and research and development has actually been decreasing over 4 the past couple of years. To some it might seem that management is sacrificing the future of the company by not attracting new riders in order to boost financial performance today.

11.1Substitutes and Complements Heavyweight motorcycles are a luxury item for the vast majority of consumers so there are few close substitutes for heavyweight motorcycles that could serious affect the market. Honda, Yamaha, and Suzuki all also manufacture smaller, quicker motorcycles, which are the closest substitute followed by passenger cars and scooter bikes. However, for most people considering purchasing a heavyweight motorcycle are not also seriously considering one of these options. Heavyweight motorcycles project a certain image which is part of the consumer’s decision to purchase a motorcycle. Also smaller motorcycles require a different riding style, more hunched over the bike as opposed to sitting upright on a heavyweight motorcycle. Passenger cars are weak substitutes for heavyweight motorcycles because consumers rarely purchase them to satisfy transportation requirements. These bikes are more of a luxury item than a necessity for traveling from point A to point B. Even though motorcycles may be better through traffic and use less gasoline than a car a consumer purchasing a motorcycle for these reasons would be more inclined to purchase a lighter motorcycle, which would be more maneuverable and fuel-

efficient than a heavyweight bike. The most obvious complement for heavyweight motorcycles is gasoline. If the price of fuel is high then consumers will be less likely to purchase a heavyweight bike due to the fact that most trips taken on such a motorcycle is largely discretionary and taken for pleasure rather than through a need for transportation. However, if consumers are willing to pay between $8 thousand and $25 thousand for a luxury item like a heavyweight motorcycle then they are probably not troubled by paying a slightly higher price for gasoline.

11.2Buyer and Supplier Power Harley Davidson operates nearly every stage of the production of a motorcycle, taking raw materials such as steel and basic electrical components and shipping completed motorcycles to its extensive independent dealership network. Because there are many suppliers of all inputs that Harley Davidson requires for its manufacturing operations there is very little that any single supplier can do the exact rents from Harley. If one supplier attempted to increase its profits by charging Harley a higher price it would not be difficult for Harley to switch suppliers without a significant disruption in production. Similarly, Harley Davidson’s customers are largely individual consumers, making it difficult for them to seriously affect Harley Davidson’s financial situation by refusing to cooperate. Since Harley Davidson dealerships are independently owned an operated the companies customers are technically its licensed dealers, but the sheer number of dealers that Harley Davidson has throughout the world makes the situation for dealers not much better than individual riders.

11.3 -100 Years of Harley Davidson Harley-Davidson, also known as HD, has been around for over 100 years, beginning in 1903 in Milwaukee, Wisconsin between two friends. Though William and Walter Davidson, Arthur Davidson's brothers, would join the project, the original prototype was conceived by William Harley and Arthur Davidson. Together, their working relationship founded the HD Company, later this company would grow enough to deserve to be incorporated, with the help of Walter's skills as a mechanic and William Davidson's abilities to make tools. During 1903 Harley-Davidson turned out a grand total of 3 motorcycles, all were bought and paid for before completion. Gray was the standard color of the first motorcycles, which were often referred to as the? Silent Gray Fellows?. By 1905, the Company had grown at such a rate that they were now selling motorcycle motors, marine motors, reversible propellers, and float feed carburetors along with the standard motorcycles. The Harley-Davidson company only continued to prosper through the next decade. Among the biggest fans of the company was the United States Postal service, who in 1914 used 4,800 of the company's bikes but nine departments in total used the company's products in the federal government in that year. By 1916, the military was in on the act and they began outfitting their HD's with machine guns in skirmishes with Panch Villa.

The federal government did not ease up on their use of HD during the first World War, on the contrary, the government purchased fifty percent of all of the HD motorcycles during this period and shipped them overseas for the military to use. The sport of racing was the way that HD thrived and prospered in the post-war years of the 1920s. Unlike many companies during the 1930s, the effects of the Great Depression were not strong enough to press Harley-Davidson out of business, they continued to prosper. Repeating their government service in the 1940s, the HD bikes were a valuable tool during the Second World War. In the decade of the 1950s, the company began employing more aggressive marketing strategies and saw increased growth. Once again war broke out, this time in Korea but unfortunately motorcycles were replaced in popularity with the military with the Jeep. Harley-Davidson was free to concentrate on its civilian consumers. The 1960s were a decade of change for the company, as well as the rest of the United States. Change can be seen through the company's decision to produce the 3-wheeled golfing cart. By the end of the decade these carts cornered about one third of the United States market, and were even used oversees. In according to the change theme, motorcycle accessories became part of the Harley-Davidson family during the 1960s too. Racing once again became a focus during the 1970s, as Harley-Davidson motorcycles received advances in technology that allowed them to make great strides in the sport. The 1980s were a decade of great financial change for many companies, and for the HD Company, this was especially true when they became a private ownership again as the result of a buyback. The company seemed to show a renewed interest in building better machines so much so that they won the contract with the California Highway Patrol in 1984, 1985, 1987, 1988 and 1989. Customized factory motorcycles took center stage during the 1990s, when HarleyDavidson introduced the FLSTF Fat Boy. The goal of the new bike was to invoke the feel of past bikes while keeping up to date. The Twenty first century has come and the company remains strong. The basic line of the company is composed of the Sporster, the Dyna, the Softail, the VRSC, and a Touring line, each line then diverges into different models.

12. INCOME TAXES Provision for income taxes consists of the following:

The provision for income taxes differs from the amount which would be provided by applying the statutory U.S. corporate income tax rate due to the following items:

Deferred income taxes result from temporary differences between the recognition of revenues and expenses for financial statements and income tax returns. The principal components of the Company¹s deferred tax assets and liabilities include the following:

13. COMMITMENTS AND CONTINGENCIES The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility (the Facility). The Facility was formerly used by the U.S. Navy and AMF (the predecessor corporation of Minstar). The Company purchased the Facility from AMF in 1981. Although the Company is not certain as to the extent of the environmental contamination at the Facility, it is working with the Pennsylvania Department of Environmental Resources in undertaking certain investigation and remediation activities. In March 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 investigation and remediation activities at the Facility (response costs). The trust will administer the payment of the future response costs at the Facility as covered by the Agreement. In addition, in March 1991 the Company entered into a settlement agreement with Minstar related to certain indemnification obligations assumed by Minstar in connection with the Company’s purchase of the Facility. Pursuant to this settlement, Minstar is obligated to reimburse the Company for a portion of its response costs at the Facility. Although substantial uncertainty exists concerning the nature and scope of the environmental remediation that will ultimately be required at the Facility, based on preliminary information currently available to the Company and taking into account the Company’s settlement agreement with the Navy and the settlement agreement with Minstar, the Company estimates that it will incur approximately $6 million of net additional response costs at the Facility. The Company has established reserves for this amount. The Company’s estimate of additional response costs is based on reports of environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response costs are expected to be incurred over a period of approximately 10 years. Under the terms of the sale of the Commercial Vehicles Division, the Company has agreed to indemnify Utilimaster Corporation, for 12 years, for certain claims related to environmental contamination present at the date of sale, up to $20 million. Based on the environmental studies performed as part of the sale of the Transportation Vehicles segment, the Company does not expect to incur any material expenditure under this indemnification. Since June, 1996, the Company self-insures its product liability losses in the United States up to $2.5 million ($3.0 million between June, 1995 and June, 1996). Catastrophic coverage is maintained for individual claims in excess of $2.5 million ($3.0 million between June, 1995 and June, 1996) up to $25 million. Prior to June, 1995, the Company was self-insured for all product liability losses in the United States. Outside the United States, the Company is insured for product liability up to $25 million per individual claim

and in the aggregate. The Company accrues for claim exposures which are probable of occurrence and can be reasonably estimated.

14. BUSINESS SEGMENTS AND FOREIGN OPERATIONS (A) BUSINESS SEGMENTS The Company operates in two business segments (excluding discontinued operations): Motorcycles and Related Products and Financial Services. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations. The Motorcycles and Related Products (“Motorcycles”) segment consists primarily of the Company’s wholly-owned subsidiary, H-D Michigan, Inc., and its wholly-owned subsidiary, Harley-Davidson Motor Company. The Motorcycles segment designs, manufactures and sells primarily heavyweight (engine displacement of 651+cc) touring and custom motorcycles and a broad range of related products which include motorcycle parts and accessories and riding apparel. The Company, which is the only major American motorcycle manufacturer, has held the largest share of the United States heavyweight motorcycle market since 1986. The Company holds a smaller market share in the European market, which is a larger market than the United States, and in the Japanese market, which is a smaller market than the United States. The Financial Services (“Eaglemark”) segment consists of the Company’s majorityowned subsidiary, Eaglemark Financial Services, Inc. Eaglemark provides motorcycle floor planning and parts and accessories financing to the Company’s participating North American dealers. Eaglemark also offers retail financing opportunities to the Company’s domestic motorcycle customers. In addition, Eaglemark has established The HarleyDavidson Chrome VISA Card for customers in the United States. Eaglemark also provides property and casualty insurance for motorcycles as well as extended service contracts. A smaller portion of its customers are in other leisure products businesses. Prior to 1995, Eaglemark carried on business only in the United States. In 1995, Eaglemark expanded its operations to include Canada. The Company early adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” effective December 31, 1997. Adoption of the Statement required the Company to change the disclosure of geographic information but did not require significant changes in the way segments were disclosed. Information by industry segment is set forth below:

(1) The results of operations for the majority-owned financial services subsidiary are included as Operating income from financial services in the statements of operations. (2) The results of operations for the Transportation Vehicles segment are classified as discontinued operations in the statements of operations.

(B) GEOGRAPHIC INFORMATION Included in the consolidated financial statements are the following amounts relating to geographic locations:

(1) Revenues are attributed to geographic regions based on location of customer. (2) Long-lived assets include all long-term assets except those specifically excluded under SFAS No. 131 such as deferred income taxes and financial instruments, including finance receivables

15. Global Ranking

Harley-Davidson Rank: 380 (Previous rank: 368) Get quote: HDI $ millions

% change from 2004

5,673.8

6.6

Profits

959.6

7.8

Assets

5,255.2

—

Stockholders' Equity

3,083.6

—

13,326.9

—

Revenues

Market Value 3/17/2006 Profits as % of

Earnings per share

Revenues

16.9

2005 $

3.41

Assets

18.3

% change from 2004

13.7

Stockholders' equity

31.1

1995-2005 annual growth rate %

24.7

Total return to Investors

%

2005

-14.2

1995-2005 annual rate

22.4

Industry: Transportation Equipment Rank

Company

500 rank

Revenues ($ millions)

1

Brunswick

363

5,923.8

2

Harley-Davidson

380

5,673.8

3

Trinity Industries

632

2,902.0

4

Polaris Industries

843

1,873.7

“Our motorcycles have the attitude not our people”-(H-D) LET'S RIDE!

Harley-Davidson/Buell of Ocean County is the premier HarleyDavidson/Buell dealer in New Jersey! Harley-Davidson/Buell of Ocean County is different from other New Jersey Harley-Davidson dealers. As we like to say, “Our Motorcycles Have the Attitude, Not Our People!” Here, it’s all about our goal to offer HarleyDavidson® motorcycle riders and enthusiasts a true “full-service” dealership staffed by dedicated people committed to the sport of motorcycling – people who share a love of riding in and around the Jersey shore! Our sales staff is incredibly knowledgeable about every aspect of the Harley experience, from motorcycle sales to parts and accessories, and Harley-Davidson® MotorClothes® merchandise, too! Harley-Davidson/Buell of Ocean County fulfills the needs of the Jersey shore motorcycling community by providing a total destination point for new Harley® bikes for sale, used Harley® bikes, Harley-Davidson® rentals, Harley-Davidson® accessories, Harley-Davidson® parts, Buell® motorcycles, Buell® accessories, Buell® parts and more.

16. HERITAGE HARLEY DAVIDSON H-D opened our doors in October of 1982; that makes it the oldest Harley-Davidson dealer in New Hampshire! H-D’S are also the last second generation local family owned AND operated Harley-Davidson dealer in New Hampshire. Come and see how local ownership can make a difference to you. Heritage Harley-Davidson is a Factory-Authorized Harley-Davidson® Parts & Accessories Dealer. It has won dozens of performance awards. H-D has the best Customer Satisfaction ratings in the region, and is willing to PROVE it. It has a full team of PHD & Factory-Trained Technicians, all of whom have graduated from advanced, off site factory schools within the last year. Whether you're looking to buy first Harley® or been riding Harley-Davidson® motorcycles for years, the sales team help the customers in terms of purchase. Instant financing is available. .

HARLEY’S MISSION/VISION/WORK VALUES 16.1 Mission: Heritage Harley-Davidson fulfills dreams by providing all riders and customers with a friendly, comfortable and knowledgeable Harley-Davidson environment. We will consistently treat everyone with fairness and integrity and be genuinely interested in their satisfaction and in maintaining a long term relationship. Mission Statement says: “Harley Davidson fulfills dreams through the experiences of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles, branded products and services in selected market segments”

MISSION analysis COMPONENTS

YES / NO

CUSTOMERS PRODUCTS & SERVICES MARKETS CONCERN FOR SURVIVAL TECHNOLOGY PHILOSOPHY SELF CONCEPT CONCERN FOR PUBLIC IMAGE CONCERN FOR EMPLOYEES

YES YES YES YES NO YES YES YES NO

MISSION STATEMENT EVALUATION MATRIX PROPOSED MISSION To be branded as the best motorcycle available in the world

PROPOSED VISION The best quality motorcycle, motorcycle products and financial services will be provided world wide is the commitment of Harley-Davidson. Customer

satisfaction is our motto and the Harley-Davidson customers can experience the taste of reality of motorcycle dreams by relaying their satisfaction on us. Harley-Davidson is dedicated to use the advanced technology to produce the most superior motorcycle in domestic and international markets. Stay competitive and continue growth worldwide remain profitable and survive is our philosophy. Employees of HarleyDavidson are the foundation of the company and they are the driving force behind the Harley-Davidson name. The total team effort of Harley-Davidson employees is devoted to fulfilling dreams of customers and we believe that there is not a motorcycle riding experience like a Harley-Davidson’s. Excellence is our push though our Harley-Davidson bar and shield logo that says superior quality. Honesty and customer loyalty and these morals are the heartbeat of Harley-Davidson organization. Harley-Davidson do our part in supporting all environmental laws in every country we do business. Determination and commitment is the place where Harley-Davidson intends to stay.

16.2 Vision: H-D vision is to provide an unsurpassed experience for all motorcycle enthusiasts while providing fulfilling, worthwhile work and growth opportunities for our team of trained professionals. We strive for continuous improvement in everything we do Vision Statement says: “Harley-Davidson is an action-oriented, international company, a leader in its commitment to continuously improve [its] mutually beneficial relationships with stakeholders (customers, suppliers, employees, shareholders, Government, and society). Harley-Davidson believes the key to success is to balance stakeholders’ interests through the empowerment of all employees to focus on value-added activities.

16.3 H-D Work Values: Integrity; Loyalty; Fairness; Competence; sharing knowledge; Accomplishment

17. ADVERTISEMENTS Harley-Davidson uses advertising and personnel selling for their promotional mix. The advertising that Harley-Davidson utilizes nationally are four to five television commercials a year. These commercials are institutional because they are advertising the company and not a specific product. They also have institutional advertisements in national magazines such as Road & Track, Popular Science, and Fortune as well as specific motorcycle magazines as Easy Rider. Locally, individual Harley-Davidson dealers advertise on the radio and through direct mail. Harley-Davidson uses personnel through their 595 dealerships located throughout the United States. A customer has to go to a dealership in order to purchase a motorcycle. While they are there they are attended to by sales people that answer any questions they have and help them pick out the motorcycle they want. The mass media advertising implemented by Harley-Davidson is intended to reach as many members of the general public as possible. Generally, this type of advertisement is used because of its depth in effectively reaching people. These ads are intended to target both potential repeat customers as well as first time buyers. Locally, C&S Harley-Davidson uses direct mailings to specifically target previous owners of their motorcycles as well as owners of competing brands. The mailings are directed towards specific customers depending on what the message the dealership wants to convey. For instance, when C&S has a benefit picnic, they mail to previous Harley owners, but when a new model year comes out, they mail to their full list which includes both past Harley customers and customers of competing brands. Similar to marketing to the public, dealerships promote their models to institutional buyers through direct mailings. However, they also employ personal selling because it is cost effective to send a sales rep to the institutional buyer's headquarters due to the possibility of generating multiple sales at one time. Harley-Davidson's promotion is designed to move customers from ignorance to awareness. Harley-Davidson's advertisements contain very little if any persuasive material on specific models or comparisons between other brands. Instead, they simply show the product in use in a typical setting. Because Harley-Davidson has built such a strong reputation over the years, much of their promotion occurs through word of mouth. At this stage in the company's long history their main promotional goal is simply to inform customers that the company still exists. The purpose of Harley-Davidson's mass media advertising is to inform and remind. Harley-Davidson's advertisements are not usually geared towards a specific model such as the FXDS-CONV Dyna Convertible, but instead they focus on the allure and mystique of Harley ownership. For those who are unfamiliar with Harley-Davidson, these ads inform customers about the existence of the company and its main product. For those who have purchased Harley products in the past, these ads serve to remind them of the benefits they enjoy through their ownership. The purpose of Harley-Davidson's personal selling is to persuade customers to purchase their motorcycles, parts, and accessories.

A direct response is generated through the contact between the sales representative and the customer. The advertising copy instituted by Harley-Davidson is particularly limited. Beyond simply mentioning the name of the company and the location of the nearest dealership, no other written message is conveyed. Instead, the company focuses the customer's attention on the art portion of the advertisement. Generally, this portion of the ad shows a shiny new bike standing alone, or someone riding along in a picturesque setting. Also, some Harley ads have shown the company logo and nothing else.

These print ads were created for Harley Davidson by their advertising agency, Carmichael Lynch, who also do spectacular work for companies like Porsche, A.G. Edwards and Northwest Airlines.

18. HARLEY AROUND THE GLOBE "For Tomorrow May Rain, so we’ll follow the Sun." The World's Most Traveled Motor Vehicle The 193 Countries the motorcycle has visited plus some other entities in brackets Afghanistan , Albania , Algeria , (American Samoa) , Andorra , Angola , Antigua & Barbuda ,Argentina , Armenia , Australia , Austria , Azerbaijan , Bahamas , Bahrain , Bangladesh ,Barbados , Belarus , Belgium , Belize , Benin , Bhutan , Bolivia , Bosnia & Herzegovina ,Botswana , Brazil , Brunei , Bulgaria , Burkina Faso , Burundi , Cambodia , Cameroon , Canada ,(Canary Islands) , Cape Verde , Central African Republic , Chad , Chile , China , Colombia ,Comoros , Congo Brazzaville , Congo Democratic Republic , Costa Rica , Cote d'Ivoire , Croatia ,Cuba , Cyprus , (Cyprus North) , Czech Republic , Denmark , Djibouti , Dominica , Dominican Republic , East Timor , Ecuador , Egypt , El Salvador , Equatorial Guinea , Eritrea , Estonia, Ethiopia, (Faroe Islands) , Fiji , Finland , France , (French Guiana) , Gabon , Gambia , (Gaza Strip) , Georgia , Germany , Ghana , (Gibraltar) , (Golan Heights) , Greece , Grenada , (Guam) ,Guatemala , (Guernsey) , Guinea , Guinea Bissau , Guyana , Haiti , Honduras , Hungary , Iceland, India , Indonesia , Iran , Iraq , Irish Republic , (Isle Of Man) , Israel , Italy , Jamaica , Japan,(Jersey) , Jordan , Kazakhstan , Kenya , Kiribati , Korea South , Korea North , (Kosovo) , Kuwait, Kyrgyzstan , Laos , Latvia , Lebanon , Lesotho , Liberia , Libya , Liechtenstein , Lithuania ,Luxembou rg , Macedonia (FYROM) ,

Madagascar , Malawi , Malaysia , Maldives , Mali , Malta ,Marshall Islands , Mauritania , Mauritius , Mexico , Micronesia , Moldova , Monaco , Mongolia , Montenegro , Morocco , Mozambique , Myanmar (Burma) , Namibia , Nauru , Nepal ,Netherlands , New Zealand , Nicaragua , Niger , Nigeria , Norway , Oman , Pakistan , Palau ,Panama , Papua New Guinea , Paraguay , Peru , Philippines , Poland , Portugal , (Puerto Rico) , Qatar , (Reunion Island) , Romania , Russia , Rwanda , Samoa , San Marino , Sao Tome & Principe , Saudi Arabia , Senegal , Serbia (Yugoslavia) , Seychelles , Sierra Leone , Singapore ,Slovakia , Slovenia , Solomon Islands , Somalia (Somaliland) , South Africa , Spain , (Spanish North Africa) , Sri Lanka , St Kitts & Nevis , St Lucia , St Vincents , Sudan , Suriname ,Swaziland , Sweden , Switzerland , Syria , (Taiwan) , Tajikistan , Tanzania , Thailand , Togo ,Tonga , Trinidad & Tobago , Tunisia , Turkey , Turkmenistan , Tuvalu , Uganda , Ukraine ,United Arab Emirates , United Kingdom , United States Of America , Uruguay , Uzbekistan , Vanuatu , Vatican City , Venezuela , Vietnam , (West Bank) , (Western Sahara) , Yemen, Zambia, Zimbabwe

.

EXTERNAL ANALYSIS PESTLE •

Harley-Davidson is one of the most admired and recognized companies in the world today.

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Academy of Motorcycling for those interested in learning to ride a motorcycle.

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“Riders-Edge” the motorcycling academy of Harley-Davidson introduced more than 1000 aspiring motorcyclists to the sport in 2000.

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Average purchaser of a U.S Harley-Davidson motorcycle is a married male in his midforties

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Average purchasers of a U.S Harley-Davidson have a household income of $78,600.

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Over two thirds of the sales of Harley-Davidson motorcycles are to buyers with at least one year of education beyond high school.

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30% of the Harley-Davidson buyers have college degrees.

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Only about 9% of Harley-Davidson U.S retail motorcycles are to women.

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Confidence in economy is directly proportional to the purchasing of consumer items.

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Repeat business is strong as about 42% of motorcycle purchasers have owned a HarleyDavidson previously.

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U.S Government and People are considering Harley-Davidson as an American icon.

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Opportunities in emerging economies [India, China] but uncertain operating situations.

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A new assembly facility opens in Manaus, Brazil, the first operations outside of the U.S, reduces taxes, make them more affordable to a larger group of Brazilian customers.

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Harley-Davidson is one of the main manufacturer and user of V-ENGINE configuration.

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Harley-Davidson’s have a wide variety of products according to Standard, Performance, Touring & custom.

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Harley-Davidson is facing some legal problems in Asian countries, in India there is 60% tariff and various other taxes will cause the price of the bike to double.

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Noise pollution and some emission standards of Harley-Davidson bike is not up to the level of some countries across the globe.

Five Forces  Internal Rivalry. •

Four major competitors are mainly concentrated on these heavyweight motorcycle segments: in addition to Harley-Davidson the other three are Yamaha, Suzuki, Honda all are Japanese companies.

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Some of the major competitors of Harley-Davidson have larger financial and marketing resources and are more diversified (Example: Yamaha, half of its revenue is only from motorcycles).

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Polaris (American snowmobile/ATV manufacturer) producer of “Victory” motorcycles priced its motorcycles below the Harley-Davidson motorcycles.

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Strategic alliance between Suzuki and Kawazaki in the areas of product development, design, engineering, and manufacturing of motorcycles, this alliance strengthened both companies’ global motorcycle businesses.

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Honda, the main competitor of Harley-Davidson in U.S eat up some market share of Harley-Davidson.

 Potential entrants •

Entry barrier is very high is this segment, because this segment needs a lot of capital investment and the industry is on a maturity stage, so that there is only four main competitors.

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The economies of scale are low in this segment, which is the reason why there are only four major players.

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There is some small scale producers, who are making these custom made motor cycles but the amount of their production is not at all a threat for HarleyDavidson, and they are increasing the interest of motorcycles among the general public.

 Substitute products •

Harley-Davidson motorcycles are a luxury vehicle, so that there is only a few close substitutes for heavy weight motorcycles that could seriously affect the market.

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Passenger cars, sports bikes, scooter bikes are the main substitutes of HarleyDavidson motorcycles.

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The people who are thinking of buying a heavy weight motorcycle are not seriously considering one of these options, scooter, sports bike.

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In India Enfield can pose as a small substitute.

 Power of suppliers •

Steel, basic electrical equipments and shipping of final motorcycles are the main things Harley-Davidson seeks from suppliers.

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Harley-Davidson has a wide span of suppliers, so that if one supplier attempted to increase the price, they can easily switch to the alternate suppliers without any problem in production..

 Power of Customers •

Consumers of Harley-Davidson motorcycles are individual customers, so that they can’t seriously affect Harley’s financial position.

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The numbers of dealers around the globe are also less and they are also dependent to the individual customers, that can’t affect Harley-Davidson’s financial position.

OPPORTUNITIES  The European demand for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world.  Women and younger riders are increasing becoming interested in bikes  The international heavy weight market is growing and is now larger than the U. S. heavyweight market  Market share increasing in Europe and Asia for the last two years  Increasing demand in US markets for bikes  Customers value quality parts

STRENGTHS  Net income of 2003 was $760mn, its more than 30% as compared to the previous year 2002.  The standard and performance segments of Harley Davidson make up 70% of the European heavy weight motorcycle market  Harley-Davidson operates in two segments: Harley-Davidson motorcycles & related products and HDFS (Harley-Davidson Financial Services).  Harley-Davidson is the only major American heavyweight motorcycle manufacturer.  Strong brand name.  The HOG (Harley Owners Group), which have a 7,50,000 members world wide is the industry’s largest company sponsored motorcycle enthusiast organization.  Buell Riders Adventure Group (BRAG) was also formed recent  Customization of the bikes, this is Harley-Davidson’s major revenue maker.  Harley-Davidson have a good marketing division and its divided as dealer promotions, customer events, magazine and directmail advertising, and public relations. WEAKNESS  High price  Harley-Davidson has problems in gaining more market share in some European countries (That’s one of the main markets for Heavyweight motorcycles outside U.S).  They didn’t yet start its sales in India, one of the biggest markets.

 Required production is not met, analyzing the future of Heavyweight motorcycle market

IFE MATRIX WEIGHTED KEY EXTERNAL FACTORS STRENGTHS

WEIGHT

RATING

SCORE

0.15

3

0.45

0.09

3

0.27

0.025

4

0.1

0.1

4

0.4

0.15

4

0.6

0.05

2

0.1

0.025

2

0.05

0.025

3

0.075

Net income of 2003 was $760mn, its more than 30% as compared to the previous year 2002 The standard and performance segments of Harley Davidson make up 70% of the European heavy weight motorcycle market Harley-Davidson operates in two segments: Harley-Davidson motorcycles & related products and HDFS (Harley-Davidson Financial Services) Harley-Davidson is the only major American heavyweight motorcycle manufacturer Strong brand name The HOG (Harley Owners Group), which have a 7,50,000 members world wide is the industry’s largest company sponsored motorcycle enthusiast organization Buell Riders Adventure Group (BRAG) was also formed recent Customization of the bikes, this is HarleyDavidson’s major revenue maker

Harley-Davidson have a good marketing division and its divided as dealer promotions, customer events, magazine and direct-mail advertising, and public relations

0.025

2

0.05

0.15

2

0.3

0.06

3

0.18

0.1

3

0.3

0.05 1

4

0.2 3.075

WEAKNESS

High price Harley-Davidson has problems in gaining more market share in some European countries (That’s one of the main markets for Heavyweight motorcycles outside U.S). They didn’t yet start its sales in India, one of the biggest markets Required production is not met, analyzing the future of Heavyweight motorcycle market TOTAL

GRAND STRATEGY MATRIX RAPID MARKET GROWTH

STRATEGY: MARKET DEVELOPMENT, MARKET PENETRATION, PRODUCT DEVELOPMENT, HORIZONTAL INTEGRATION, DIVESTITURE, LIQUIDATION.

SPACE Matrix Environmental 2 3 4 2

Stability (ES) Technological changes Rate of Inflation Demand variability Price range of competing products Barriers to entry into

-2

5

-6

3 3

market Competitive pressure Ease of exit from

-3

2

market Price elasticity

of

demand Risk involved

in

Financial Strength (FS) Return on Investment Leverage Liquidity Working Capital Cash Flow Inventory Turnover Earnings per Share Price Earnings Ratio

Total

24

Product quality

distributors

-4

-2 -2 -30

Strength

5

-1 -4

how Resource utilization Ease of entry into market Productivity, capacity

6

-1

utilization

4

Competition's capacity utilization Technological know-how Control over suppliers &

-6

(IS) Growth potential Financial stability Technological know

Product life cycle Customer Loyalty

-3

-1 -1 -3

Competitive Advantage (CA) Market share

business Total Industry

-2

-2

3 3

4

Total

-13

Total

25

Average value for FS = 3 Average value for CA = -1.85 Average value for IS = 4.17 Average value for ES = -3.33 Point on X axis = (-1.85+4.17)/2 = 1.16 Point on Y axis = (3-3.33)/2 = -0.165 Strategies: STRATEGY: BACKWARD INTEGRATION, FORWARD INTEGRATION, HORIZONTAL INTEGRATION, MARKET PENETRATION, MARKET DEVELOPMENT, PRODUCT DEVELOPMENT. STRATEGY RECOMMENDATION & IMPLEMENTATION:  MARKET PENETRATION  Get some more market share from the existing market, like U.S, U.K, and Japan etc through more marketing techniques like advertising. Harley-Davidson has a good brand name so it’s easy for them to eat up the competitor market share if they can provide some more customer benefit.  Competition is high in this segment mostly in U.S so market penetration can be a good choice for the company.  Expand the HOG (Harley Owners Group) to Asian countries, if the company can provide the customer satisfaction that they are providing to the U.S customers to the Asian customers they can increase the sales.  PRODUCT DEVELOPMENT  Younger generation and female are now coming to this segment so expand the motor cycle segments to younger generation and females.  In Europe they can increase or expand the Buell’s market share by introducing new motorcycles.  MARKET DEVELOPMENT

 Harley-Davidson can bring in their vehicle to Asian countries like India and China, because these countries have a high population and the market potential is also high.  The cost to bring in the old vehicles (old product) to India is so much difficult because there are so much environmental laws are there which won’t allow that type of vehicles to come to India, and its difficult that taxes and levis are high in India so starting new plant in India can solve this problem. Negotiations with the Government can solve these problems.  DIVERSIFICATION  Bring in new vehicles to new markets like India and China is a good choice, but it’s too costly.  Bringing new types of recreational vehicles is a best choice. RECOMMENDATION  Expand European and Asian market.  Increase the sales of Buell sport bike and Harley-Davidson to younger customers and females.  Horizontal diversification: acquires or develops new products that could appeal to its current customer groups even though those new products may be technologically unrelated to the existing product lines.  Concentric diversification: Bring in new recreational vehicles. EVALUATION  REVIEW UNDERLYING BASES OF STRATEGY  Once again prepare all the internal and external analysis (eg: EFE & IFE)  Compare the already prepared analysis with the one which will be prepared after the new strategy implementation.  MEASURING ORGANIZATION PREFERENCES  Analyze all financial ratios (current and the future).  If any advantage, then implement the new strategy, otherwise continue with the present one.

19. EXTRA CURRICULAR ACTIVITIES OF HARLEY DAVIDSON

20 Culminations Harley-Davidson, Inc. operates in two segments: the Motorcycles & Related Products segment and the Financial Services segment. The Motorcycles & Related Products (Motorcycles) segment includes the group of companies doing business as HarleyDavidson Motor Company (Motor Company) and the group of companies doing business as Buell Motorcycle Company (Buell). The Motorcycles segment designs, manufactures and sells at wholesale primarily heavyweight (engine displacement of 651+cc) touring, custom and performance motorcycles, as well as a line of motorcycle parts, accessories, general merchandise and related services. The Financial Services (Financial Services) segment includes the group of companies doing business as Harley-Davidson Financial Services (HDFS). HDFS provides wholesale and retail financing and insurance and insurance-related programs primarily to Harley-Davidson and Buell dealers and their retail customers. HDFS conducts business in the United States, Canada and Europe. Aruvian Research presents Analysis of Harley Davidson Inc. A complete and comprehensive analysis of Harley Davidson includes an overview of the industry the company operates in, a PEST Framework Analysis of the industry, and then moves on to analyzing the company itself. Company analysis from Aruvian includes a history of Harley Davidson, a business segment analysis of the segments Harley Davidson operates through, a look at the organization structure of the company, a geographical operating segments analysis, an analysis of the company’s major competitors. A financial analysis of Harley Davidson is presented in the report which includes a ratio analysis, basic profit and loss analysis, presentation of the company balance sheet, and much more. A SWOT Framework Analysis of Harley Davidson completes this in-depth company analysis.

BIBILOGRAPHY

21. References • • • • •

Bach, Sharon, & Ostermann, Ken, eds. 1993. The Legend Begins: HarleyDavidson Motorcycles, 1903–1969 (Harley-Davidson, Inc.) Strategic Management Concepts and Cases; Fred R. David, 10th & 12th Edition. Mitchel, D. (1997). Harley-Davidson Chronicle - An American Original. Publications International Limited. ISBN 0-7853-2514-X. Wagner, Herbert, 2003. At the Creation: Myth, Reality, and the Origin of the Harley-Davidson Motorcycle, 1901–1909 (Wisconsin Historical Society Press) Wilson, H. "The Encyclopedia of the Motorcycle" Dorling-Kindersley Limited, 1995 ISBN 0 7513 0206 6

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www.harley-davidson.com harley-davidson.com/wcm/Content/Pages/2009_Motorcycles/... en.wikipedia.org/wiki/Harley_Davidson www.motorcycle.com/specs/harley-davidson www.harley-davidson-jakarta.com/events/upcoming.php?dt=1225126800 www.yogeshsarkar.com/blog/2009/06/17/harley-davidson-purse www.cubiccapacity.com/harley-davidson-launches-two-new-bikes-for-2009 money.cnn.com/magazines/fortune/fortune500/2009/snapshots/894.html www.harleydavidsonofoceancounty.com www.salemharley.com www.metacafe.com/watch/1544940/the_2009_harley_davidson_motorcycles

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www.eaglesnestharleydavidson.com/eshoplist_start.htm

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www.evisor.tv/tv/hersteller/harley/filme-15.htm

External links •

Official Harley-Davidson Inc. Corporate website