HARLEY DAVIDSON

-STUDY CASE1. CORPORATE GOVERNANCE Excellent Corporate Governance has been a long standing business practice at Harley-Davidson, because it makes good business sense. Although the motorcycling business is fun, the firm takes corporate governance seriously. The Harley-Davidson Board of Directors is composed of accomplished leaders from a range of industries who meet regularly to review Company objectives and plan for future growth. These individuals draw on their diverse backgrounds and experiences. They are proud HarleyDavidson enthusiasts, and they work to ensure that the decisions made by HarleyDavidson promote fairness, financial transparency and accountability to all shareholders. The Company must maintain stakeholder confidence in its operating ethics and corporate governance practices. The Company believes it has a history of good corporate governance. Prior to the enactment of the Sarbanes-Oxley Act of 2002, the Company had in place many of the corporate governance procedures and processes now mandated by the Sarbanes-Oxley Act and related rules and regulations, such as Board Committee Charters and a Corporate Governance Policy. In 1992, the Company established a Code of Business Conduct that defines how employees interact with various Company stakeholders and addresses issues such as confidentiality, conflict of interest and fair dealing. Failure to maintain its reputation for good corporate governance may have a material adverse effect on the Companys business and results of operations. The Company has adopted the Harley-Davidson, Inc. Financial Code of Ethics applicable to the Companys chief executive officer, the chief financial officer, the principal accounting officer and the controller and other persons performing similar finance functions. The Company has posted a copy of the Harley-Davidson, Inc. Financial Code of Ethics on the Companys website at www.harley-davidson.com. The Company intends to satisfy the disclosure requirements under Item 5.05 of the Securities and Exchange Commissions Current Report on Form 8-K regarding amendments to, or waivers from, the Harley-Davidson, Inc. Financial Code of Ethics by posting such information on its website at www.harley-davidson.com. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K. The Harley-Davidson Board of Directors (the Board) 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 Companys 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 Companys
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leadership in this area. The Nominating and Corporate Governance Committee reports its findings and recommendations to the Board for action. All these actions undertaken by the different committees of the H-D company establish a transparent communication between them and with the employees. Because of the corporate governance, the company ensures that every value, law, custom and policy is respected by employees from the highest to the lowest level. Also through this type of governance, H-D can instate its own policies and laws to the employees. The Corporate Governance Committee ensures that all the decisions are made according to the values, the Ethic Code of the company and can hold meetings with shareholders, suppliers and other interested parties and can be an intermediate between them in matters of complaint or if there are any requests. In this way, all the parties can gain trust in each other and can go on with their business relationship.

2. H-D LEGEND AND POWER OF THE BRAND Harley Davidson Inc., has had a long standing tradition of nurturing relationships with customers of connecting with them on a personal level. This has led customers to view Harley Davidson Inc., not only as a company, but also as a family to whom they are very loyal. Harley Davidson as an example of company with a loyal brand following and their customers assist in future sales through customer-based marketing. This type of marketing is achieved through positive word of mouth about the brand among riders. The fact that many Harley-Davidson garments are worn on biking excursions further increase brand equity and loyalty. This loyalty is exhibited through its various groups and organizations such as the Harley Owners Group (H.O.G). Harley-Davidson created through the years a powerful brand which every customer acknowledge it and its power. Mention of Harley creates a vision of rugged individualism: American iron and passion. The passion runs so deep that many customers and admirers sport a Harley tattoo to express that passion. There arent many corporations that inspire that kind of following. Harleys heritage is symbolic of the American dream. Harleys workers and customers relate to and find motivation in this American dream that became reality. An extension of this concept of family is also a key to Harleys success. The HOG (Harley Owners Group) is a worldwide family of
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Harley owners that is a million strong. When one purchases a Harley, one becomes part of a family of owners that rides together and parties together, in locations on nearly every continent. Indeed, the Harley web site beckons riders to share the adventure. Aside from the shared experience, many Harley riders treasure taking in the back roads and the beauty of scenery unique to each locale. Nostalgia is also badge of Harleys success. Its unique potato- potato- potato sound created by its famous V-twin engine is still heard in the rumblings of its motorcycles on the road today and its legendary styling, overseen by Willie G Davidson, himself on icon, has created continuity over the decades. For these reasons and more, Harley remains an American icon more than 100 years after its formation. I think one of the reasons behind the powerful and successful H-D brand is the freedom that the company guaranteed to their clients. The firm stated that their clients could break free at times from the responsibilities at home and work and ride freely on a motorcycle on the highroads. H-D promoted their brand to a specific segment of customers: the ones who want to gather in groups and do everything together, partying and riding. Mostly by word of mouth the H-D brand became well-known among the potential customers on the statement that You must have an H-D motorcycle if you want to be in our gang. Also, the promotion that with a motorcycle you can ride anywhere, travel to different places with amazing landscapes and that the customers can forget about traffic jams made H-D brand a more powerful one in the eyes of their clients. The brand messages were developed through the years, from focusing on the bike and its impressive specs, nowadays the bike is an accessory to every clients life. This is a major shift in focus that suggests a far more independent buyer with a fully formed personality. In the advertisers they formed various concepts about their brand. Harley Davidson has always understood the power of storytelling. Their ads are like mini stories, pulling you in and leaving you yearning for more. The brilliance in their advertising lays the fact that theyve always managed to mirror American societys values, beliefs and rugged can-do attitude. Harley Davidson managed to become part of US history and heritage; all this thought the power of storytelling. From its inception, the brand has always been associated with motor racing. This began on July 4th 1905, when a Harley motorcycle won a 15 mile race in Chicago with a time of 19:02. Since then theyve always been there to publicly congratulate H-D bike winners in major biking events including the prestigious AMA. Harley-Davidson were early adopters of long form content marketing and even dabbled with publishing in 1916 with the publication of The Harley Davidson Enthusiast. Content marketing allowed the brand -very early on- to establish a position of authority in the industry. The Enthusiast Magazine went out of production but was soon replaced with Fan clubs such as the Harley Davidson Owners Club HOG which published its member-only magazine.

Today, and with the advent of the internet, fans are taking it upon themselves to create their own H-D content and forming their own communities producing the ultimate assets for any online brand; User generated content UGC. 3. BUSINESS SEGMENTS Harley-Davidson operates in two segments: financial services; motorcycles and related products. FINANCIAL SERVICES The financial services includes the group of companies doing business as Harley-Davidson Financial Services (HDFS) which 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 principally in the U.S. and Canada. HDFS is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans, primarily for the purchase of Harley-Davidson motorcycles. HDFS is an agent for certain unaffiliated insurance companies providing property/casualty insurance and also sells extended service contracts, gap coverage and debt protection products to motorcycle owners. HDFS conducts business principally in the United States and Canada, and primarily through certain subsidiaries such as Harley-Davidson Credit Corp., Eaglemark Savings Bank, Harley-Davidson Insurance Services, Inc., and Harley-Davidson Financial Services Canada, Inc. The services are: Wholesale Financial Services HDFS provides wholesale financial services to Harley-Davidson dealers and distributors, including floorplan and open account financing of motorcycles and motorcycle parts and accessories. HDFS offers wholesale financial services to Harley-Davidson dealers in the United States and Canada, and during 2012 approximately 97% of such dealers utilized those services. HDFS also offers financial services to the Harley-Davidson distributor in Canada. The wholesale finance operations of HDFS are located in Plano, Texas. Retail Financial Services HDFS provides retail financing to consumers, consisting primarily of installment lending for the purchase of new and used HarleyDavidson motorcycles. HDFS retail financial services are available through most Harley- Davidson dealers in the United States and Canada. HDFS retail finance operations are principally located in Carson City, Nevada and Plano, Texas. Insurance Services HDFS operates an insurance agency that offers point-ofsale protection products to Harley- Davidson dealers in both the U.S. and Canada, including motorcycle insurance, extended service contracts, credit protection and motorcycle maintenance protection. HDFS also direct-markets motorcycle insurance to owners of Harley-Davidson motorcycles. In addition, HDFS markets a comprehensive package of business insurance coverages and services to owners of Harley-Davidson dealerships. The HDFS insurance operations are located in Carson City, Nevada and Chicago, Illinois.

Funding The Company believes a diversified and cost effective funding strategy is important to meet HDFS goal of providing credit while delivering appropriate returns and profitability. Financial Services operations have been funded with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities, term asset-backed securitizations and intercompany borrowings. Competition The Company regards its ability to offer a package of wholesale and retail financial services in the U.S. and Canada as a significant competitive advantage. Competitors in the financial services industry compete for business based largely on price and, to a lesser extent, service. HDFS competes on convenience, service, brand association, dealer relations, industry experience, terms and price. In the United States, HDFS financed 50.9% of the new Harley-Davidson motorcycles retailed by independent dealers during 2012, as compared to 51.0% in 2011. In Canada, HDFS financed 28.6% of the new Harley-Davidson motorcycles retailed by independent dealers during 2012, as compared to 30.4% in 2011. Competitors for retail motorcycle finance business are primarily banks, credit unions and other financial institutions. In the motorcycle insurance business, competition primarily comes from national insurance companies and from insurance agencies serving local or regional markets. For insurance-related products such as extended service contracts, HDFS faces competition from certain regional and national industry participants as well as dealer in-house programs. Competition for the wholesale motorcycle finance business primarily consists of banks and other financial institutions providing wholesale financing to Harley-Davidson dealers in their local markets. Trademarks HDFS uses various trademarks and trade names for its financial services and products which are licensed from H-D U.S.A., LLC, including HARLEY-DAVIDSON, H-D and the Bar & Shield logo. Seasonality In the U.S. and Canada, motorcycles are primarily used during warmer months. Accordingly, HDFS experiences seasonal variations in wholesale and retail financing activities. In general, from mid-March through August, retail financing volume increases while wholesale financing volume decreases as dealer inventories decline. From September through mid-March, there is generally a decrease in retail financing volume while dealer inventories generally build and turn over more slowly, thereby increasing wholesale finance receivables. As discussed under Motorcycle and Related - Products Seasonality, the Company is implementing flexible production capabilities which may reduce the seasonality of dealer inventory levels. Regulation The operations of HDFS (both U.S. and foreign) are subject, in certain instances, to supervision and regulation by state and federal administrative agencies and various foreign governmental authorities. Many of the statutory and regulatory requirements imposed by such entities are in place to provide consumer protection as it pertains to the selling and ongoing servicing of financial products and services.

MOTORCYCLES AND RELATED PRODUCTS

Motorcycles The primary business of the Motorcycles segment is to design and manufacture premium motorcycles for the heavyweight market and sell them at wholesale. The Companys worldwide motorcycle sales generated approximately 76%, 76% and 76% of the total net revenue in the Motorcycles segment during 2012, 2011 and 2010, respectively. Harley-Davidson branded motorcycle products feature classic styling, innovative design, durability and quality. The Company manufactures five families of motorcycles: Touring, Dyna, Softail, Sportster and V-Rod. The first four of these motorcycle families are powered by an air-cooled, twin-cylinder engine with a 45-degree V configuration. The V-Rod family is powered by a liquid-cooled, twin-cylinder engine with a 60-degree V configuration. The Company also offers limited-edition, factory-custom motorcycles through its Custom Vehicle Operation (CVOTM) program. The Companys Harley-Davidson engines range in displacement size from 883cc to 1802cc. Competition in the heavyweight motorcycle market is based upon a number of factors, including price, quality, reliability, styling, product features, customer preference, warranties and availability of financing. The Companys motorcycle products continue to generally command a premium price at retail relative to competitors comparable motorcycles. The Company emphasizes quality, reliability, customization and styling in its products and generally offers a two-year warranty for its motorcycles. The Company promotes a comprehensive motorcycling experience across a wide demographic range through events, rides, rallies including those sponsored by Harley Owners Group (H.O.G.). The Company considers the availability of a line of motorcycle parts and accessories and general merchandise and the availability of financing through HDFS as competitive advantages. In 2012, the U.S. and European regions accounted for approximately 80% of the total annual independent dealer retail sales of new Harley-Davidson motorcycles. The Company also competes in other markets around the world. The most significant other markets, based on the Company's retail sales data, are Canada, Japan, Australia and Brazil. Harley-Davidson has been the historical market share leader in the U.S. heavyweight motorcycle market. Competitors in the U.S. market offer heavyweight motorcycles in all categories of the market including products that compete directly with the Company's offerings in the touring and cruiser categories. According to the Motorcycle Industry Council, the touring and cruiser categories accounted for approximately 81%, 84% and 85% of total heavyweight retail unit registrations in the U.S. during 2012, 2011 and 2010, respectively. During 2012, the heavyweight portion of the market represented approximately 62% of the total U.S. motorcycle market (street legal models including both on-highway and dual purpose models and three-wheeled vehicles) in terms of new units registered. The following chart includes U.S. retail registration data for Harley-Davidson motorcycles for the years 2010 through 2012:

The European heavyweight motorcycle market (as defined below) is slightly smaller than the U.S. market; and customer preferences differ from those of U.S. customers. For example, in Europe, the sportbike category represented nearly 36% of the total heavyweight market in 2012 while the touring category represented 39% of the European heavyweight motorcycle market. The following chart includes European retail registration data for HarleyDavidson for the years 2010 through 2012:

The Companys revenue from the sale of motorcycles and related products to independent dealers and distributors located outside of the United States was approximately $1.58 billion, $1.51 billion and $1.36 billion, or approximately 32%, 32% and 33% of net revenue of the Motorcycles segment, during 2012, 2011 and 2010, respectively. U.S. retail purchasers of new Harley-Davidson motorcycles include both core and outreach customers and are diverse in terms of age, gender and ethnicity. The Company defines its U.S. core customer base as Caucasian men over the age of 35 and its U.S. outreach customers as women, young adults, African-American adults, and Latino adults. In 2011, which is the most recent data available, the Company was the market share leader in U.S. new motorcycle registrations of heavyweight motorcycles within its core and outreach customers. In the U.S., the Company was also the market share leader in 2011 across all (street legal) motorcycle registrations, regardless of engine displacement, within its core and outreach customers. In 2012, the average U.S. retail purchaser of a new Harley-Davidson motorcycle had a median household income of approximately $89,500. More than three-quarters of the U.S. retail sales of new Harley-Davidson motorcycles were to purchasers with at
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least one year of education beyond high school, and 34% of the buyers had college/graduate degrees. The Companys motorcycles that are sold in the United States are subject to certification by the U.S. Environmental Protection Agency (EPA) for compliance with applicable emissions and noise standards. Harley-Davidson motorcycle products have been designed to comply with EPA standards and the Company believes it will comply with future requirements when they go into effect. Additionally, the Companys motorcycle products must comply with the motorcycle emissions, noise and safety standards of Canada, the European Union, Japan, Brazil and certain other foreign markets where they are sold, and the Company believes its products currently comply with those standards. Because the Company expects that environmental standards will become even more stringent over time, the Company will continue to incur some level of research, development and production costs in this area for the foreseeable future. The Company, as a manufacturer of motorcycle products, is subject to the U.S. National Traffic and Motor Vehicle Safety Act, which is administered by the U.S. National Highway Traffic Safety Administration (NHTSA). The Company has certified to NHTSA that its motorcycle products comply fully with all applicable federal motor vehicle safety standards and related regulations. The Company has from time to time initiated certain voluntary recalls. During the last three years, the Company has initiated 12 voluntary recalls related to Harley-Davidson motorcycles at a total cost of $17.2 million. The Company reserves for all estimated costs associated with recalls in the period that the recalls are announced. The following table includes the number of worldwide Harley-Davidson independent dealerships by geographic region as of December 31, 2012:

Outside of the U.S., the Companys strategy calls for the international dealer network to open 100 to 150 new dealerships from the end of 2009 through the end of 2014. Through December 31, 2012, the Company added 93 new international dealers. This excludes international dealers closed in the normal course of business. 4. Functional competencies Harley-Davidson does this by integrating Computer-aided design and manufacturing to its plants. Its communication must have an involvement and commitment to working across different areas of the factory. This is something that Harley-Davidson does by performing formal organization. One of Harley-Davidson's trademarks is the sound of the throttle when accelerating. This makes it a core competency since it cannot be easily imitated by the competitors. Also, another key factor to providing a core competency must be that the product can be leveraged widely into many products and markets. Harley-Davidson
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keeps it simple but with a wide range of options where the customer cannot go wrong and the competitors will NOT be able to get the same quality. Harley-Davidson also contributes to the end of the consumers benefits by providing other opportunities to interact with other Harley-Davidson enthusiasts by creating events or hosting annual events at their factories and museums. Harley Davidsons mission is a true testament of who they are. They have made a name for itself because of its unique yet perfect craftsmanship of motorcycles. Harley Davidson follows a corporate growth strategy as it is continually focused on expanding its products and markets all over the world. They use a corporative strategy by working with Buell Motorcycle Company, as they were able to enter select niche markets. Lastly, they used a Materials As Needed (MAN) system to reduce inventories and stabilize its production schedule, which is part of their functional strategy. Harley Davidson has done a great job adapting to change. They understand that their target market is drastically changing. Because of this they have been forced to enter foreign markets all over the world in order to attract new clientele. The market is changing from what used to be rockers to women and younger individuals. This is one of H-Ds objectives, to recruit riders of a new generation. In order to affectively reach these markets H-D canceled the operations of the transportation vehicle segment so it could focus on its core competency of motorcycles.