Harley Davidson Inc's Business Segments

Harley-Davidson, Inc. was incorporated in 1981, at which time it purchased the Harley-Davidson' motorcycle business from AMF Incorporated in a management buyout.' In 1986, Harley-Davidson, Inc. became publicly held. The Company operates in two segments:'the Motorcycles & Related Products segment and the Financial Services segment.'The Company's reportable segments are strategic business units that offer different products and services.'They are managed separately based on the fundamental differences in their operations.

The Motorcycles & Related Products (Motorcycles) segment includes the group of companies doing business as Harley-Davidson Motor Company (Motor Company) and the group of companies doing business as Buell Motorcycle Company (BMC), all of which are subsidiaries of H-D Michigan, Inc. and the Company.'The Motorcycles segment designs, manufactures and sells primarily heavyweight (engine displacement of 651+cc) touring, custom and performance motorcycles as well as a complete line of motorcycle parts, accessories, clothing and collectibles. The Company, which is the only major American motorcycle manufacturer, has held the largest share of the United States heavyweight (651+cc) motorcycle market since 1986 and ended 2003 with a domestic market share of 49.5% (Harley-Davidson models only) (Data provided by the Motorcycle Industry Council).

Motorcycles and Related Products

Motorcycles. The primary business of the Motorcycles segment is to design, manufacture and sell premium motorcycles for the heavyweight market.'The Company is best known for its Harley-Davidson' motorcycle products, but also offers a line of motorcycles and related products under the Buell brand name.'

The majority of the Company's Harley-Davidson-branded motorcycle products emphasize traditional styling, design simplicity, durability, ease of service and evolutionary change.'In 2001, the Company expanded its traditional approach to styling, with the introduction of the V-Rod' motorcycle, the first member of a new family of Harley-Davidson motorcycles - the VRSC family.'The VRSC family of motorcycles was inspired by Harley-Davidson's racing heritage and combines the characteristics of a performance motorcycle with the styling of a custom motorcycle. The Company currently manufactures and sells 25 models of Harley-Davidson touring and custom heavyweight motorcycles, with domestic manufacturer's suggested retail prices ranging from approximately $6,495 to $28,595.

The Motor Company manufactures five families of motorcycles: Sportster', Dyna Glide, Softail', Touring and VRSC.'These motorcycles are powered by one of four air-cooled, twin-cylinder engines with a 45-degree 'V' configuration, or in the case of the VRSC family, a liquid-cooled, twin-cylinder engine with a 60-degree 'V' configuration. The Motor Company's Harley-Davidson engines range in size from 883cc's to 1650cc's.

Studies by the Company indicate that the average U.S. Harley-Davidson motorcycle purchaser is a married male in his mid-forties (over two-thirds of purchasers are between the ages of 35 and 54), with a household income of approximately $79,500. These customers generally purchase a motorcycle for recreational purposes rather than to provide transportation. Over two-thirds of the Company's U.S. sales of Harley-Davidson motorcycles are to buyers with at least one year of education beyond high school, and 31% of the buyers have college degrees.'Approximately 9% of the Company's Harley-Davidson U.S. retail motorcycle sales are to female buyers.

The Company's Buell' motorcycle products emphasize innovative design, responsive handling and overall performance.'During 2003, the Company expanded its Buell motorcycle line up with the introduction of two new motorcycles, the Firebolt' XB12R and the Lightning' XB12S.'These new motorcycles, along with the two existing XB9 models, and the Blast' complete the current Buell motorcycle family.'The Buell XB motorcycles focus on superior handling and are powered by either a 984cc (XB9) or a 1203cc (XB12) air-cooled, twin-cylinder engine with a 45-degree 'V' configuration.'The Buell Blast is considerably smaller, lighter and less expensive than the Buell XB models and is powered by a 492cc single-cylinder engine.'The Buell XB motorcycle models have domestic manufacturer's suggested retail prices of $9,195 to $10,995. The Blast, which competes in the standard market segment, has a domestic manufacturer's suggested retail price of $4,595.

The motorcycle market is comprised of four segments: standard, which emphasizes simplicity and cost; performance, which emphasizes handling and acceleration; touring, which emphasizes comfort and amenities for long-distance travel; and custom, which emphasizes styling and individual owner customization.'The touring segment of the heavyweight market was pioneered by the Company and includes motorcycles equipped for long-distance touring with fairings, windshields, saddlebags and Tour Pak' luggage carriers.'The custom segment of the market includes motorcycles featuring the distinctive styling associated with classic Harley-Davidson motorcycles. The standard and performance segments of the market are served primarily by the Company's Buell motorcycle line.

In the U.S., suggested retail prices for the Company's Harley-Davidson motorcycles range from being competitive to 50% higher than comparable motorcycles available in the market.'Although there are some differences in accessories between the Company's top-of-the line touring motorcycles and those of its competitors, suggested retail prices are generally comparable.'The prices for the high-end of the Company's Harley-Davidson custom product line range from being competitive to 50% more than its competitors' custom motorcycles.'The high-end of the custom portion of the Harley-Davidson product line represents the Company's highest unit volumes and continues to command a premium price because of the features, styling and high resale value associated with Harley-Davidson custom products.' The Company's smallest displacement custom motorcycle (the 883cc Sportster') is price competitive with comparable motorcycles available in the market. The Company expects to see sales of its 883cc Sportster model partially translated into sales of its higher-priced models.'The Company's surveys of retail purchasers in the U.S. indicate that 41% of the purchasers of its Sportster model either have previously owned competitive-brand motorcycles, are completely new to the sport of motorcycling or have not participated in the sport for at least five years.

Parts & Accessories. The major Parts and Accessories (P&A) products are replacement parts (Genuine Motor Parts) and mechanical and cosmetic accessories (Genuine Motor Accessories).'

Other Services.'The Company also provides a variety of services to its dealers including service and business management training schools, customized dealer software packages, delivery of its motorcycles, a motorcycle rental program and a rider training program.

The Financial Services (Financial Services) segment consists of the Company's subsidiary, Harley-Davidson Financial Services, Inc. and its subsidiaries (HDFS).' HDFS is engaged in the business of financing and servicing wholesale inventory receivables and retail loans, primarily for the purchase of motorcycles.'Additionally, HDFS is an agency for certain unaffiliated insurance carriers providing property/casualty insurance and extended service contracts to motorcycle owners. Prior to the sale of the Harley-Davidson Chrome Visa ' Card business in March'2000, HDFS was engaged in the business of financing and servicing revolving charge receivables. HDFS conducts business in the United States, Canada and Europe.