UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

For the fiscal year ended: December 31, 2001

For the transition period from                      to______________

Commission file number 1-9183

Harley-Davidson, Inc.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:          NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such requirements for the past 90 days.

Yes  ý   No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Aggregate market value of the voting stock held by non-affiliates of the registrant at March 18, 2002:

$16,128,312,865

Number of shares of the registrant’s common stock outstanding at March 18, 2002:

302,766,939 shares.

Part III of this report incorporates information by reference from registrant’s Proxy Statement for the annual meeting of its shareholders to be held on May 4, 2002.

Harley-Davidson, Inc.

Form 10-K

For The Year Ended December 31, 2001

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Part I

Note regarding forward-looking statements

The Company intends that certain matters discussed are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995.  These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects” or  “estimates” or words of similar meaning.  Similarly, statements that describe the Company’s future plans, objectives, targets or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report.  Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including Item 7 “Management’s discussion and analysis of financial condition and results of operation — 2001 Compared to 2000.”  Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.  The forward-looking statements included herein are only made as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Item 1.Business Summary

Harley-Davidson, Inc. was incorporated in 1981, at which time it purchased the Harley-Davidson^®motorcycle business from AMF Incorporated (currently doing business as Minstar) in a management buyout.  In 1986, Harley-Davidson, Inc. became publicly held. Unless the context otherwise requires, all references to the “Company” include Harley-Davidson, Inc., all of its subsidiaries and all of its majority-owned affiliates.  The Company operates in 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), subsidiaries of H-D Michigan, Inc., and Buell Motorcycle Company (BMC), which was acquired in February of 1998, when the Company purchased substantially all of the remaining shares of BMC it did not already own.  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 and general merchandise. 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 2001 with a domestic market share of 45.0% (Harley-Davidson models only) (Data provided by the Motorcycle Industry Council).

The Financial Services segment consists of the Company’s wholly owned subsidiary, Harley-Davidson Financial Services, Inc. (HDFS). HDFS is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail installment sales contracts (primarily motorcycles and non-commercial aircraft). 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.

See Note 12, “Business segments and foreign operations,” to the 2001 consolidated financial statements for financial information on the Company’s business segments.

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Motorcycles and Related Products

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 Company’s worldwide motorcycle sales generated 80.0%, 79.4% and 79.7% of the total net sales in the Motorcycles segment during 2001, 2000 and 1999, respectively.

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 deviated slightly from its traditional approach to styling, with the introduction of the V-Rod™ motorcycle.  The new, liquid cooled, V-Rod, inspired by Harley-Davidson’s drag racing heritage, combines the characteristics of a performance motorcycle with the styling of a custom.

Studies by the Company indicate that the average U.S. Harley-Davidson motorcycle purchaser is a married male in his mid-forties, with a household income of approximately $78,300, who purchases a motorcycle for recreational purposes rather than to provide transportation and is an experienced motorcycle rider. 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.  The Buell motorcycle product line has traditionally consisted of heavyweight performance models, powered by the Company’s 1200cc V-Twin engine. However, in 2000, the Company introduced the Buell Blast^®, a new vehicle designed specifically to attract new customers into the sport of motorcycling.  This vehicle is considerably smaller, lighter and less expensive than the traditional Buell heavyweight models and is powered by a 492 cc single-cylinder engine.

Company studies indicate that the average U.S. purchaser of the Company’s Buell heavyweight motorcycle is a male at the median age of 39 with a median household income of approximately $61,600.  Approximately 3% of all Buell heavyweight U.S. retail motorcycle sales are to females. The Company’s studies indicate that half of Buell Blast purchasers have never owned a motorcycle before, and in excess of 95% of them had never owned a Buell motorcycle before.  The median age of Blast purchasers is 38, with over one-half of them being female.

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 Company presently manufactures and sells 28 models of Harley-Davidson touring and custom heavyweight motorcycles, with domestic manufacturer’s suggested retail prices ranging from approximately $5,695 to $24,995.  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.  These motorcycles are highly customized through the use of trim and accessories.

The standard and performance segments of the market are served by the Company’s Buell motorcycle line. The Company manufactures and sells four Buell heavyweight performance motorcycle models, with domestic manufacturer’s suggested retail prices ranging from approximately $8,995 to $13,395. The Blast competes in the standard market segment and has a domestic manufacturer’s suggested retail price of $4,395.

The Company’s traditional heavyweight motorcycles are based on variations of five basic chassis designs and are

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powered by one of four air-cooled, twin cylinder engines with a 45-degree “V” configuration, which have displacements of 883cc, 1200cc, 1450cc and 1550cc.  The recently introduced V-Rod™ has its own unique chassis design and is equipped with the new Revolution™ powertrain, a new liquid-cooled, twin-cylinder, 1130cc engine, with a 60-degree “V” configuration.

Although there are some accessory differences 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 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 directly price competitive with comparable motorcycles available in the market.  The Company’s surveys of retail purchasers indicate that, historically, over three-quarters of the purchasers of its Sportster model either have previously owned competitive-brand motorcycles or are completely new to the sport of motorcycling or have not participated in the sport for at least five years.  Since 1988, the Company’s research has consistently shown purchasers of Harley-Davidson motorcycles have a repurchase intent in excess of 90%, and the Company expects to see sales of its 883cc Sportster model partially translated into sales of its higher-priced products in the normal two to three year ownership cycle.

The major Parts and Accessories (P&A) products are replacement parts (Genuine Motor Parts) and mechanical and cosmetic accessories (Genuine Motor Accessories).  Worldwide P&A net sales comprised 15.1%, 15.4% and 14.8% of net sales in the Motorcycles segment in 2001, 2000 and 1999, respectively.

Worldwide net sales of General Merchandise, which includes MotorClothes^TM apparel and collectibles, comprised 4.9%, 5.2% and 5.4% of net sales in the Motorcycles segment in 2001, 2000 and 1999, respectively.

The Company also provides a variety of services to its dealers and retail customers including service training schools, customized dealer software packages, delivery of its motorcycles, an owners club membership, a motorcycle rental program and a rider training program that is available in the U.S. through a limited number of authorized dealers.

Licensing. The Company endeavors to create an awareness of the “Harley-Davidson” brand among the non-riding public and provides a wide range of product for enthusiasts by licensing the name “Harley-Davidson” and numerous related trademarks owned by the Company.  The Company currently has licensed the production and sale of a broad range of consumer items, including t-shirts, jewelry, small leather goods, toys and numerous other products (Licensed Products).  The Company also licenses the use of its name in connection with a cafe located in Las Vegas.  Although the majority of licensing activity occurs in the U.S., the Company continues to expand these activities in international markets.

The Company’s licensing activity provides a valuable source of advertising and goodwill.  Licensing also has proven to be an effective means for enhancing the Company’s image with consumers, and it provides an important tool for policing the unauthorized use of the Company’s trademarks, thereby protecting the Harley-Davidson brand and its use.  Royalty revenues from licensing, included in motorcycle segment net sales, were approximately $32 million, $31 million and $26 million during 2001, 2000 and 1999, respectively.  While royalty revenues from licensing activities are relatively small, the profitability of this business is relatively high.

Patents and Trademarks.  The Company owns certain patents that relate to its motorcycles and related products and processes for their production. The Company has increased its efforts to patent its technology and certain motorcycle related designs and to enforce those patents. The Company sees such actions as important as it moves forward with new products, designs and technologies.

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Trademarks are important to the Company’s motorcycle business and licensing activities.  The Company has a vigorous global program of trademark registration and enforcement to strengthen the value of the trademarks associated with its products and services, prevent the unauthorized use of those trademarks and enhance its image and customer goodwill. The Company believes the HARLEY-DAVIDSON trademark and the Company’s Bar and Shield trademark  are each highly recognizable by the public and are very valuable assets. The BUELL trademark is well-known in performance motorcycle circles, as is the associated Pegasus logo. The Company is making efforts to ensure that each of these brands will become better known as the Buell business expands. Additionally, the Company uses numerous other trademarks, trade names and logos, which are registered both in the United States and abroad. The following are among the trademarks of H-D Michigan, Inc.:  Harley- Davidson, H-D, Harley, the Bar & Shield Logo, MotorClothes, the MotorClothes Logo, Rider’s Edge, Harley Owners Group, H.O.G., the H.O.G. Logo, Softail, Sportster and V-Rod.  The HARLEY-DAVIDSON trademark has been used since 1903 and the Bar and Shield trademark since 1910. The following are among the trademarks of Buell Motorcycle Company:  Buell, the Pegasus Logo and B.R.A.G. The BUELL trademark has been used since 1984.

Marketing.  The Company’s marketing efforts are divided among dealer promotions, customer events, magazine and direct mail advertising, public relations, cooperative programs with Harley-Davidson/Buell dealers and beginning in 2002, television advertising.  In 1999, the Motor Company began a five-year strategic alliance with the Ford Motor Company which brings together resources to focus on a series of technical and marketing ventures.  The Company also sponsors racing activities and special promotional events and participates in all major motorcycle consumer shows and rallies.

The Harley Owners Group^®, or “H.O.G.^®”, currently has approximately 660,000 members worldwide and is the industry’s largest company-sponsored motorcycle enthusiast organization.  The Company formed this riders club in 1983, in an effort to encourage Harley-Davidson owners to become more actively involved in the sport of motorcycling.  The Buell Riders Adventure Group, or “BRAG^®”, was formed in recent years and has grown to approximately 10,000 members.  BRAG sponsors events, including national rallies and rides, across the U.S. for Buell motorcycle enthusiasts.

The Company’s expenditures on worldwide marketing, selling and advertising were approximately $203.1 million, $189.8 million and $164.3 million during 2001, 2000 and 1999, respectively.

E-Commerce. Harley-Davidson’s e-commerce capability had its first full year of operation in 2001. The Company’s model is unique in the industry in that, while the online catalog is viewed from the Harley-Davidson web site, orders are actually distributed to the participating authorized Harley-Davidson dealer that the customer selects. In turn, those dealers fill the order and handle any after-sale services that the customer may require. In addition to purchasing, customers actively browse the site, create and share product wish lists, and utilize the dealer locator.

International Sales.  International sales were approximately $597 million, $585 million and $537 million, accounting for approximately 18%, 20% and 22% of net sales of the Motorcycles segment, during 2001, 2000 and 1999 respectively.  In 2001, Japan, Canada, and Germany, in that order, represented the Company’s largest international markets and together accounted for approximately 56% of international sales.  The Company ended 2001 with a 6.7% share of the European heavyweight (651+cc) market and a 20.4% share of the Asia/Pacific (Japan and Australia) heavyweight (651+cc) market.  See Note 12 to the consolidated financial statements for additional information regarding foreign operations. Market share date provided Giral S.A. (Europe), JAMA and ABS (Japan/Australia).

Distribution.  The Company’s basic channel of distribution in the United States for its motorcycles and related products consists of approximately 633 independently owned full-service Harley-Davidson dealerships to whom the Company sells directly.  This includes 412 combined Harley-Davidson and Buell dealerships.  There are no Buell only dealerships.  With respect to sales of new motorcycles, approximately 82% of the U.S. dealerships sell the Company’s motorcycles exclusively.  All dealerships stock and sell the Company’s genuine replacement parts,

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accessories, and MotorClothes™ apparel and collectibles, and perform service for the Company’s motorcycles.

The Company also sells a smaller portion of its parts and accessories and general merchandise through “non-traditional” retail outlets.  The “non-traditional” outlets, which are extensions of the main dealership, consist of Secondary Retail Locations (SRL’s), Alternate Retail Outlets (ARO’s), and Seasonal Retail Outlets (SRO’s).  SRL’s, also known as Harley Shops, are satellites of the main dealership and are developed to meet the service needs of the Company’s riding customers.  Harley Shops also provide replacement parts and accessories and MotorClothes apparel and collectibles and are authorized to sell new motorcycles.  ARO’s are located primarily in high traffic areas such as malls, airports or popular vacation destinations and focus on selling the Company’s MotorClothes apparel and collectibles and Licensed Products. SRO’s are located in similar high traffic areas, but operate on a seasonal basis out of temporary locations such as vendor kiosks.  ARO’s and SRO’s are not authorized to sell new motorcycles.  Presently, there are approximately 65 SRL’s, 50 ARO’s, and under 20 SRO’s located in the United States.

In the European Region  (Europe/Middle East/Africa), there are currently 381 independent Harley-Davidson dealerships serving 32 country markets.  This includes 280 combined Harley-Davidson and Buell dealerships.  Buell is further represented by 10 dealerships that do not sell Harley-Davidson motorcycles.  In addition, the Company’s dealer network includes 26 ARO’s across the 32 European country markets. The Company has an established infrastructure in Europe, based out of its headquarters in the United Kingdom, and operates through a network of independent dealers served by 8 independent distributors and by five wholly owned sales and marketing subsidiaries in France, Germany, Italy, the Netherlands and the United Kingdom. The European management team is continuing to focus on the expansion and improvement of distributor and dealer relationships. The Company is achieving this through its dealer development team, specialized training programs, retail financing initiatives, ongoing product development and coordinated Europe-wide and local marketing programs aimed at attracting new customers. Other initiatives include the development of information systems linking European subsidiaries directly with each of the major independent distributors and most of the dealers located in the subsidiary markets.

In the Asia/Pacific Region, there are currently 240 Harley-Davidson outlets serving 8 country markets of which 82 are combined Harley-Davidson/Buell dealerships, and 27 are service only outlets. In addition there are currently 2 Buell only dealerships.  The Company expects the majority of its growth opportunities in the Asia-Pacific Region to come from its existing markets in Japan and Australia.  The Company will continue to support its objectives of maintaining and growing its business in Southeast Asia, where markets have continued to stabilize over recent years.

The Latin American market consists of 15 country markets managed from Milwaukee, Wisconsin. The Latin American market has a diverse dealer network including 28 Harley-Davidson dealerships and 12 ARO’s/SRO’s focused on selling General Merchandise.  The Company plans to continue developing its distribution in Brazil and Mexico, its two biggest Latin American markets, as well as broaden brand management and marketing activities across the entire region.

In Canada, there are currently 75 independent Harley-Davidson dealerships, one independent stand-alone Buell dealership, and 2 ARO’s, all served by a single independent distributor.  This network includes 25 combined Harley-Davidson and Buell dealerships resulting in a total of 26 Buell dealerships in Canada.

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Seasonality.  In general, the Motor Company has not experienced significant seasonal fluctuations in its sales.  This has been primarily the result of a strong demand for the Company’s Harley-Davidson motorcycles and related products, as well as the availability of floor plan financing arrangements for its North American and European independent dealers.  Floor plan financing allows dealers to build their inventory levels in anticipation of the spring and summer selling seasons.

Retail Customer and Dealer Financing.  The Company believes HDFS and other financial services companies provide adequate retail and wholesale financing to the Company’s domestic and Canadian dealers and customers.  In Europe, HDFS currently provides wholesale financing to dealers through a joint venture agreement with Transamerica Distribution Finance Corporation. HDFS has exercised its option to terminate the joint venture effective August 2002 and will begin serving the wholesale financing needs of the Company’s European dealers at that time.

Competition.  The heavyweight (651+cc) motorcycle market is highly competitive.  The Company’s major competitors are based outside the U.S. and generally have financial and marketing resources that are substantially greater than those of the Company.  They also have larger worldwide sales volumes and are more diversified than the Company.  In addition to these larger, established competitors, a growing segment of competition has emerged in the U.S. The new U.S. competitors generally offer heavyweight motorcycles with traditional styling that compete directly with many of the Company’s products.  These competitors currently have production and sales volumes that are lower than the Company’s and do not hold a significant market share.

Competition in the heavyweight motorcycle market is based upon a number of factors, including price, quality, reliability, styling, product features, customer preference and warranties.  The Company emphasizes quality, reliability and styling in its products and offers a one-year warranty for its motorcycles.  The Company regards its support of the motorcycling lifestyle in the form of events, rides, rallies, H.O.G.^® and its financing through HDFS, as a competitive advantage. In general, resale prices for used Harley-Davidson motorcycles, as a percentage of prices when new, are significantly higher than resale prices for used motorcycles of the Company’s competitors.

Domestically, the Company competes most heavily in the touring and custom segments of the heavyweight motorcycle market, which together accounted for 79%, 78% and 79% of total heavyweight retail unit sales in the U.S. during 2001, 2000 and 1999, respectively.  The custom and touring motorcycles are generally the most expensive vehicles in the market and the most profitable for the Company. During 2001, the heavyweight segment including standard, performance, touring and custom motorcycles represented approximately 50% of the total U.S. motorcycle market (on- and off-highway motorcycles and scooters) in terms of new units registered (Motorcycle Industry Council).

For the last 14 years, the Company has led the industry in domestic (United States) unit sales of heavyweight motorcycles.  The Company’s share of the heavyweight market was 45.7% in 2001 compared to 46.8% in 2000.  The Company’s market share decreased slightly in 2001 as a result of the Company’s ongoing capacity constraints, however, this share is still significantly greater than the Company’s largest competitor in the domestic market which ended 2001 with a 20.5% market share.

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The following chart includes U.S. retail registration data for the Company and its major competitors for 1997 — 2001.

Market share of U.S. Heavyweight Motorcycles (1)

(Engine Displacement of 651+cc)

(1)          Motorcycle registration and market share information has been derived from data published by the Motorcycle Industry Council (MIC).  MIC has revised its data for 1997 and 2000 and the above reflects the revised data.

The Company faces unique competitive challenges in the international markets.  The European heavyweight motorcycle market is approximately three-quarters the size of the U.S. market and unlike the domestic market it is comprised of the unique tastes of many individual countries that together represent the total European market.  In addition, 79% of the European heavyweight (651+cc) motorcycle market is comprised of the standard and performance segments.  The Company competes in these market segments with its Buell^® motorcycle product line, which is a relatively young brand with smaller unit volumes than the Company’s more well-known Harley-Davidson product line.

In the Asia/Pacific region, the Company benefited from double-digit market growth during 1997 and 1998, driven by a change in licensing requirements in Japan.  While total market registrations have been relatively flat since 1999, registrations for the Company’s Harley-Davidson motorcycles have continued to grow with increases  of 3.7%  and 4.9% increase in 2001 and 2000, respectively.

On a worldwide basis, the Company measures its market share using the heavyweight classification.  Although definitive market share information does not exist for many of the smaller foreign markets, the Company estimates its worldwide competitive position, using data reasonably available to the Company, to be as follows:

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Worldwide Heavyweight Motorcycle Registration Data

(Engine Displacement of 651+cc)

⁽¹⁾                                      Includes the United States and Canada.  Data provided by the Motorcycle Industry Council (MIC).  MIC has revised its data for 2000, and the above reflects the revised data.

⁽²⁾                                      Includes Austria, Belgium, France, Germany, Italy, The Netherlands, Spain, Switzerland and United Kingdom.  Data provided by Giral S.A.

⁽³⁾                                      Data provided by JAMA and ABS.

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Motorcycle Manufacturing. The Motor Company’s ongoing manufacturing strategy is designed to increase capacity, improve product quality, reduce costs and increase flexibility to respond to changes in the marketplace.  The Motor Company incorporates manufacturing techniques focused on the continuous improvement of its operations designed to control costs and maintain quality. These techniques, which include employee involvement, just-in-time inventory principles, partnering agreements with the local unions, high performance work organizations and statistical process control, are designed to improve product quality, productivity and asset utilization in the production of Harley-Davidson^® motorcycles.

The Motor Company’s use of just-in-time inventory principles allows it to minimize its inventories of raw materials and work in process, as well as scrap and rework costs.  This system also allows quicker reaction to engineering design changes, quality improvements and market demands.  The Motor Company has trained the majority of its manufacturing employees in problem solving and statistical methods.

The Company believes the worldwide heavyweight (651+cc) market will continue to grow and plans to continue to increase its Harley-Davidson motorcycle production capacity to have the capacity to sustain its growth for units shipped.  During 2001, the Company began work on plans for capacity expansion that will take place at two of the Company’s existing manufacturing facilities.  These plans include a 350,000 square foot expansion at the Company’s York, Pennsylvania assembly facility and a 60,000 square foot expansion at the Company’s Tomahawk, Wisconsin facility.  The company began its investment in these plans during 2001 and will continue to invest capital related to these plans during 2002 and 2003.  Based on the results achieved in 2001, the Company has increased its 2002 annual production target to 258,000 Harley-Davidson units.  Matters in this paragraph are subject to the risks and uncertainties discussed with respect to this topic under Item 7, “2001 Compared to 2000 - Results of Operations” on page 22.

The manufacturing techniques employed at BMC, which are similar to those of the Motor Company, are designed to provide cost control and quality products in a lower volume environment.  Its product development staff is located in close proximity to the production facilities to assure that new product and model year change activities are coordinated prior to and during launch. The manufacturing techniques employed include employee involvement with an emphasis on a highly flexible and participative workforce.

The Company’s new Revolution powertrain is produced at the Company’s manufacturing facility in Kansas City, MO through its joint venture with Porsche AG of Stuttgart, Germany, formed in 1997.

The Company operates an assembly operation in Brazil that imports U.S. made components and sub-assemblies for final assembly in Brazil.  Assembling imported U.S. made components increases the availability of the Company’s Harley-Davidson motorcycles in Brazil, and reduces duties and taxes, making them more affordable to a larger group of Brazilian customers.  The facility, which has been operational since mid-1999,  assembles select motorcycle models for the Brazilian market with current volumes less than 1,000 units per year.

Raw Material and Purchased Components.  The Company continues to proceed aggressively to establish long-term, mutually beneficial relationships with its suppliers.  Through these relationships, the Company gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives.  This strategy is resulting in improved product technical integrity, application of new features and innovations, reduced lead times for product development, and smoother/faster manufacturing ramp-up of new vehicle introductions.

The Company purchases all of its raw materials, principally steel and aluminum castings, forgings, sheets and bars, and certain motorcycle components, including carburetors, batteries, tires, seats, electrical components and instruments.  The Company anticipates no significant difficulties in obtaining raw materials or components for which it relies upon a limited source of supply.

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Research and Development.  The Company believes research and development are significant factors in its ability to lead the market definition of touring and custom motorcycling and to develop products for the performance segment.  In recent years, the Company has established a 218,000 square foot Motor Company Product Development Center (PDC), currently in the process of receiving a 165,000 square foot addition.  The Company also owns and operates a 43,000 square foot Buell research and development facility.  The innovative design of the PDC brings together employees from styling, purchasing and manufacturing with regulatory professionals and supplier representatives to create a concurrent product and process development methodology.  The Company incurred research and development expenses of approximately $80.7 million, $75.8 million and $70.3 million during 2001, 2000 and 1999, respectively.

Regulation. Federal, state and local authorities have various environmental control requirements relating to air, water and noise pollution that affect the business and operations of the Company.  The Company endeavors to ensure that its facilities and products comply with all applicable environmental regulations and standards.

The Company’s motorcycles are subject to certification by the U.S. Environmental Protection Agency (EPA) for compliance with applicable emissions and noise standards and by the State of California Air Resources Board (CARB) with respect to CARB’s more stringent emissions standards.  Company motorcycles sold in California are also subject to certain tailpipe and evaporative emissions standards that are unique to California. The Company’s motorcycle products have been certified to comply fully with all such applicable standards. CARB’s motorcycle emissions standards will become more stringent in model year 2004 and 2008, respectively.  Additionally, the European Union is considering making its motorcycle emissions standards more stringent and is considering making its motorcycle noise standards more stringent, which already are more stringent than those of the EPA.  Similarly, motorcycle noise and emissions levels are becoming more stringent in Japan, as well as in certain emerging markets.  Consequently, the Company will continue to incur some level of research and development and  production costs related to motorcycle emissions and noise for the foreseeable future.

The Company, as a manufacturer of motorcycle products, is subject to the National Traffic and Motor Vehicle Safety Act, which is administered by the 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 24 voluntary recalls at a total cost of approximately $16.5 million.  The Company fully reserves for all estimated costs associated with recalls in the period that the recalls are announced.

As previously stated, federal, state, and local authorities have adopted various control standards relating to air, water, and noise pollution that affect the business and operations of the Motorcycles segment.  The Company does not anticipate that any of these standards will have a materially adverse impact on its capital expenditures, earnings, or competitive position.  See further discussion of capital expenditures for equipment used to limit hazardous substances/pollutants under Item 7, “Environmental Matters”on page 29.

Employees.  As of December 31, 2001, the Motorcycles segment had approximately 8,100 employees.  Unionized employees at the motorcycle manufacturing and distribution facilities in Wauwatosa, Menomonee Falls, Franklin and Tomahawk, Wisconsin and Kansas City, Missouri are represented principally by the Paper Allied-Industrial Chemical and Energy Workers International Union (PACE) of the AFL-CIO, as well as the International Association of Machinist and Aerospace Workers (IAM).  Production workers at the motorcycle manufacturing facility in York, Pennsylvania, are represented principally by the IAM.  The collective bargaining agreement with the Wisconsin-PACE and IAM will expire on March 31, 2008, the collective bargaining agreement with the Kansas City-PACE and IAM will expire on August 1, 2007, and the collective bargaining agreement with the Pennsylvania-IAM will expire on February 2, 2007.

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Financial Services

The Financial Services segment consists of the Company’s wholly owned subsidiary, Harley-Davidson Financial Services, Inc.  HDFS is engaged in the business of financing and servicing wholesale inventory receivables, consumer retail installment sales contracts (primarily motorcycles and non-commercial aircraft). Additionally, HDFS is an agency for certain unaffiliated insurance carriers providing property/casualty insurance and extended service contracts to motorcycle owners. HDFS conducts business in the United States, Canada and Europe

Harley-Davidson and Buell. HDFS, operating under the trade name Harley-Davidson Credit and Insurance, provides wholesale financial services to Harley-Davidson and Buell dealers and retail financing to consumers. Wholesale financial services include floorplan and open account financing of motorcycles and motorcycle parts and accessories, real estate loans, computer loans, showroom remodeling loans and the brokerage of a range of commercial insurance products. HDFS offers wholesale financial services to all Harley-Davidson dealers in the United States and Canada, and during 2001, approximately 96% of such dealers utilized those services. European dealers are currently serviced through a joint venture with another finance company. In August 2002, HDFS will begin serving the wholesale financing needs of the Company’s European dealers, as HDFS has exercised its option to terminate the joint venture effective August 2002.  The wholesale finance operations of HDFS are located in Plano, Texas.

Retail financial services include installment lending for new and used Harley-Davidson and Buell motorcycles and the brokerage of a range of motorcycle insurance policies and extended service warranty agreements. HDFS acts as an insurance agent and does not assume underwriting risk with regard to insurance policies and extended service warranty agreements. Prior to the sale of Harley-Davidson Chrome Visa® Card business in March 2000, HDFS financed and serviced revolving charge receivables. HDFS’ retail financial services are available through virtually all Harley-Davidson and Buell dealers in the United States and Canada. HDFS’ retail finance operations are located in Carson City, Nevada and Reno, Nevada.

Other Manufacturers.HDFS’ Retail and wholesale aircraft financial service programs are similar to programs for Harley-Davidson and Buell dealers and consumers described above. During 1999, HDFS ceased offering retail financial services to consumers of marine and recreational vehicles.

Funding. HDFS has been financed by operating cashflow, advances and loans from the Company, asset-backed securitizations, commercial paper, revolving credit facilities, senior subordinated debt, and redeemable preferred stock.

Competition. The ability to offer a package of wholesale and retail financial services is a significant competitive advantage of HDFS. Competitors compete for business based largely on price and, to a lesser extent, service. HDFS competes based on convenience, service, strong dealer relations, industry experience, terms, and price.

During 2001, HDFS financed 31% of new Harley-Davidson motorcycles retailed in the U.S., as compared to 21% in 2000. HDFS faces minimal national competition for the Company’s retail motorcycle finance business. Competitors are primarily banks and other financial institutions providing retail financing to local or regional markets. Competition to provide retail financial services to aircraft consumers include aircraft manufacturers’ captive finance companies such as Cessna Finance Corp. and Debis Financial Services and other financial entities including MBNA and First Source Bank. Credit unions, banks, other financial institutions and insurance agencies also compete for retail financial services business in segmented markets.

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HDFS faces little national competition for the Company’s wholesale motorcycle finance business. Competitors are primarily regional and local banks and other financial institutions providing wholesale financing to Harley-Davidson and Buell dealers in their local markets. Competition to provide wholesale financial services to aircraft dealers includes aircraft manufacturers’ captive finance companies.

Trademarks. HDFS utilizes various trademarks and trade names licensed from the Company. Additionally, HDFS has a registered trademark for the “Eaglemark and Design logo” utilized in aircraft financing programs.

Seasonality. In the northern United States and Canada, motorcycles are primarily used during warmer months, generally March through August. Accordingly, HDFS experiences significant seasonal variations. Retail customers typically do not buy motorcycles until they can ride them. From mid-March through August, retail financing volume increases and wholesale financing volume decreases as dealers deplete their inventories. From September through mid-March, there is a decrease in retail financing volume while dealer inventories build and turnover more slowly, substantially increasing wholesale financing volume.

Regulation. The operations of HDFS are subject, in certain instances, to supervision and regulation by state, federal, and various foreign governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which among other things, (i) regulate credit granting activities, including establishing licensing requirements, if any, in applicable jurisdictions, (ii) establish maximum interest rates, finance charges and other charges, (iii) regulate customers’ insurance coverages, (iv) require disclosure to customers, (v) govern secured transactions, (vi) set collection, foreclosure, repossession and claims handling procedures and other trade practices, (vii) prohibit discrimination in the extension of credit and administration of loans, and (viii) regulate the use and reporting of information related to a borrower’s credit experience.

Depending on the provisions of the applicable laws and regulations and the specific facts and circumstances involved, violations of these laws may limit the ability of HDFS to collect all or part of the principal or interest on applicable loans, may entitle the borrower to rescind the loan and any mortgage or to obtain a refund of amounts previously paid and, in addition, could subject HDFS to damages and administrative sanctions.

The above regulation and supervision could limit the discretion of HDFS in operating its business. For example, state laws often establish maximum allowable finance charges for certain consumer and commercial loans. Noncompliance with applicable statutes or regulations could result in the suspension or revocation of any license or registration at issue, as well as the imposition of civil fines and criminal penalties. No assurance can be given that the applicable laws or regulation will not be amended or construed differently, that new laws and regulations will not be adopted or that interest rates charged by HDFS will not rise to maximum levels permitted by law, the effect of any of which could be to adversely affect the business of HDFS or the results of operations.

A subsidiary of HDFS, Eaglemark Savings Bank, formerly known as Eaglemark Bank, N.A., is a Nevada state thrift. As such, the activities of this subsidiary are restricted by federal and State of Nevada banking laws and are subject to examination by federal and state examiners.

Employees. As of December 31, 2001, the Financial Services segment had approximately 550 employees. No employees of HDFS are represented by labor unions.

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Item 2.Properties

The following is a summary of the principal operating properties of the Company as of March 15, 2002.

Motorcycles and Related Products Segment

The Company has seven facilities that perform manufacturing operations:  Wauwatosa and Menomonee Falls, Wisconsin, suburbs of Milwaukee (motorcycle powertrain production); Tomahawk, Wisconsin (fiberglass parts production and painting); York, Pennsylvania (motorcycle parts fabrication, painting and big-twin assembly); Kansas City, Missouri (Sportster^®assembly); East Troy, Wisconsin (Buell^® motorcycles assembly); Manaus, Brazil (assembly of select models for Brazilian market).

Financial Services Segment

The Financial Services segment has four office facilities: Chicago, Illinois (corporate headquarters); Carson City, Nevada and Reno, Nevada (retail operations); and Plano, Texas (wholesale operations).

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Item 3. Legal proceedings

In January 2001, the Company, on its own initiative, notified each owner of 1999 and early-2000 model year Harley-Davidson motorcycles equipped with Twin Cam 88 and Twin Cam 88B engines that the Company was extending the warranty for a rear cam bearing to 5 years or 50,000 miles. Subsequently, on June 28, 2001, a putative nationwide class action was filed against the Company in state court in Milwaukee County, Wisconsin, which was amended by a complaint filed September 28, 2001. The complaint alleged that this cam bearing is defective and asserts various legal theories.  The complaint sought unspecified compensatory and punitive damages for affected owners, an order compelling the Company to repair the engines and other relief. The Company believes that the warranty extension it announced in January 2001 adequately addresses the condition for affected owners. The Company has established reserves for this extended warranty.  The Company filed a motion to dismiss the amended complaint and on February 27, 2002, the motion was granted by the court and the amended complaint was dismissed in its entirety.

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 has been working with the Pennsylvania Department of Environmental Protection in undertaking certain investigation and remediation activities, including a site-wide remedial investigation/feasibility study. In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy.  The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with investigation and remediation activities at the Facility (response costs). The trust administers the payment of the response costs at the Facility as covered by the Agreement.  Recently, the United States Environmental Protection Agency (EPA) has advised the Company that it considers some of the Company’s remediation activities at the Facility to be subject to the EPA’s corrective action programs and has offered the Company the option of addressing corrective action under a facility lead agreement.  The objectives and procedures for facility lead corrective action are consistent with the investigation and remediation already being conducted under the Agreement with the Navy.  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 Agreement with the Navy, the Company estimates that it will incur approximately $5.0 million of future response costs at the Facility. The Company has established reserves for this amount. The Company’s estimate of future response costs is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities.  Response costs are expected to be incurred over a period of several years, ending in 2009.

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Item 4.  Submission of matters to a vote of security holders

No matters were submitted to a vote of shareholders of the Company in the fourth quarter of 2001.

Executive officers of the registrant

The following sets forth, as of December 31, 2001, the name, age and business experience for the last five years for each of the executive officers of Harley-Davidson, Inc.  Executive officers are defined by the Company as Corporate Officers of Harley-Davidson, Inc. plus all members of the Leadership and Strategy Council (LSC).  The LSC, which is comprised of elected members of senior management from various areas within the Company, makes high-level resource decisions, develops policies, and acts as an advisory group to the Chief Executive Officer.

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Except for the following persons, all such executive officers have been employed by the Company in an executive officer capacity, as defined above, for more than five years: Garry S. Berryman, John A. Hevey, Ronald A. Hutchinson, Gail A. Lione, James A. McCaslin, John K. Russell, Kenneth Sutton and Donna F. Zarcone. The following is additional biographical information relating to these eight executive officers:

Mr. Berryman has served as Vice President of Materials Management/Product Cost of the Motor Company since April 1999.  He served as Vice President, Purchasing of the  Motor Company from September 1997 to March 1999.  From July 1995 to August 1997, Mr. Berryman served as Director of Purchasing for the Motor Company.

Mr. Hevey became the President and Chief Operating Officer of Buell Motorcycle Company in January 2001 prior to that he served as Vice President, General Manager Asia/Pacific and Latin America Regions of the Motor Company since January 1998.  From June 1997 to December 1997, Mr. Hevey served as General Manager Asia/Pacific and Latin America of the Motor Company, and from June 1991 to May 1997, Mr. Hevey served as General Manager Asia/Pacific of the Company.

Mr. Hutchinson has served as Vice President, Parts and Accessories of the Motor Company since May 1996.  He served as Vice President, Customer Service and Parts of the Motor Company from 1993 to 1996.

Ms. Lione has served as Vice President, General Counsel and Secretary since joining the Company in November 1997.  From February 1999 to November 2000, Ms. Lione also served as acting Vice President of Human Resources of the Motor Company.  From May 1990 to October 1997, Ms. Lione served as General Counsel and Secretary for U.S. News & World Report L.P., the Atlantic Monthly Company and Applied Printing Technologies, L.P. and General Counsel of Applied Graphics Technologies, Inc.

Mr. McCaslin became the President and Chief Operating Officer of the Motor Company in January 2001.  From April 1999 to December 2000, Mr. McCaslin served as Vice President, Dealer Services of the Motor Company.  From October 1997 to March 1999, he served as Vice President, Continuous Improvement for the Motor Company. From 1994 to September 1997, he served as Vice President and General Manager, York Operations of the Motor Company.

Mr. Russell has served as Vice President and Managing Director of the Motor Company’s European subsidiary since joining the Company in 1998.  Prior to joining the Company Mr. Russell served in various Marketing positions for the Land Rover Group of British Leyland.

Mr. Sutton became the Vice President, Continuous Improvement for the Motor Company in 2000.  From 1996 to 2000 Mr. Sutton served as Vice President, Powertrain Operations for the Motor Company.

Ms. Zarcone has served as President and Chief Operating Officer of HDFS since August 1998.  From June 1994 to August 1998, Ms. Zarcone served as Vice President and Chief Financial Officer of HDFS.

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PART II

Item 5.  Market for Harley-Davidson, Inc. common stock and related shareholder matters

Harley-Davidson, Inc. common stock is traded on the New York Stock Exchange.  The high and low market prices for the common stock, reported as New York Stock Exchange Composite Transactions, were as follows:

The Company paid the following dividends per share:

The Company has remaining authorization from its Board of Directors to repurchase up to 9,400,000 shares of the Company’s outstanding common stock.  In addition, the Company has continuing authorization from its Board of Directors to repurchase shares of the Company’s outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (i) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 1998 plus (ii) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. The Company repurchased 2,438,500 and 3,256,200 shares of its common stock during 2001 and 2000, respectively, under the latter authorization.

As of March 18, 2002 there were 76,935 shareholders of record of Harley-Davidson, Inc. common stock.

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Item 6.    Selected financial data

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Item 7.  Management’s discussion and analysis of financial condition and results of operations

2001 COMPARED TO 2000

OVERALL

Net sales for 2001 totaled $3.36 billion, a $457.0 million, or 15.7%, increase over 2000.  Net income and diluted earnings per share for 2001 were $437.7 million and $1.43 compared to $347.7 million and $1.13 for 2000, increases of 25.9% and 26.4%, respectively. Net income in 2000 included a one-time after tax gain of $6.9 million, which resulted from the sale of the Harley-Davidson^® Chrome Visa^® Card business.  Excluding the one-time gain from 2000 results, net income and diluted earnings per share for 2001 increased 28.4% and 28.9%, respectively, over 2000.

The Company increased its quarterly dividend payment in June 2001 from $.025 per share to $.03 per share, which resulted in an aggregate annual dividend of $.115 per share in 2001.

RESULTS OF OPERATIONS

Motorcycle Unit Shipments and Net Sales

(Dollars in millions)

The Motorcycles and Related Products (Motorcycles) segment recorded a 15.7% increase in net sales driven by a 14.6% increase in Harley-Davidson unit shipments. During 2001, the Company produced and shipped approximately 234,500 Harley-Davidson motorcycle units, approximately 29,900 units more than in 2000.  These increases were driven by the Company’s ongoing success with its manufacturing strategy combined with strong retail demand for the Company’s Harley-Davidson motorcycles.

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The Company’s ongoing manufacturing strategy is designed to increase capacity, improve product quality, reduce costs and increase flexibility to respond to changes in the marketplace.  Based on the results achieved in 2001, the Company has increased its 2002 annual production target to 258,000 Harley-Davidson^® units. ⁽¹⁾

In 2001, Buell^®motorcycle net sales were up $3.8 million from 2000 on 264 fewer unit shipments.  The average selling price per unit was higher in 2001 than in the prior year as a result of a shift in the mix of units sold.  In 2001, relatively fewer lower priced Buell Blast^® units were sold than the higher priced 1200cc V-Twin models.  The 492cc Blast was introduced during the first quarter of 2000 and was targeted at new riders.  In its introductory year, Blast shipments made up approximately 51% of the total Buell units shipped compared to 35% in 2001.  The Company expects the mix of Blast units in 2002 to be comparable to 2001 and has set a total Buell 2002 production target of 11,500 units.⁽¹⁾

The Company’s ability to reach the 2002 annual targeted production levels and to attain growth rates in other areas will depend upon, among other factors, the Company’s ability to (i) continue to realize production efficiencies at its production facilities through the implementation of innovative manufacturing techniques and other means, (ii) successfully implement production capacity increases in its facilities, (iii) successfully introduce new products and services, (iv) avoid unexpected parts and accessories /general merchandise supplier backorders, (v) sell all of the motorcycles it has the capacity to produce, (vi) continue to develop the capacity of its distributor and dealer network, (vii) avoid unexpected changes in political conditions and the regulatory environment for its products, and (viii) successfully adjust to foreign currency exchange rate and interest rate fluctuations.  In addition, the Company could experience delays in the operation of manufacturing facilities, work stoppages, difficulties with suppliers, natural causes or other factors.  These risks, potential delays and uncertainties regarding the costs could also adversely impact the Company’s capital expenditure estimates (see “Liquidity and Capital Resources” section).

During 2001, worldwide retail registrations in the heavyweight (651+cc) motorcycle market grew 7.9%, while worldwide retail registrations for the Company’s Harley-Davidson motorcycles grew 11.6%, resulting in a worldwide market share (Harley-Davidson models only) of 28.0% compared to 27.1% in 2000.

Retail registrations of domestic (United States) heavyweight motorcycles for the industry were up 16.0% (data provided by the Motorcycle Industry Council) over 2000, while domestic retail registrations for the Company’s Harley-Davidson motorcycles increased 14.4%.  The Company ended 2001 with a domestic market share (Harley-Davidson models only) of 45.0% compared to 45.6% in 2000.  The Company believes the loss of market share was due to the shortage of supply of its products in the market as a result of the Company’s ongoing capacity constraints.

International net sales totaled $597.0 million during 2001, an increase of $11.6 million, or 2.0%, over 2000.  The Company exported approximately 20.3% of its Harley-Davidson motorcycle shipments in 2001 compared to 22.4% during 2000.  In order to support the strong demand in the U.S. market, the Company allocated a higher percentage of production to the U.S. market. The Company expects to allocate similar percentages of unit shipments to U.S. and international customers in 2002⁽¹⁾.

In Europe, the Company ended 2001 with a 6.7% share of the heavyweight (651+cc) market (Harley-Davidson models only), down from 6.8% in 2000 (data provided by Giral S.A.).  Total 2001 retail registrations in the European market were approximately even with retail registrations in 2000, while European retail registrations for the Company’s Harley-Davidson motorcycles were down 1.5%.

Asia/Pacific (Japan and Australia) data for 2001 (provided by JAMA and ABS) showed the Company with a 20.4% share of the heavyweight (651+cc) market (Harley-Davidson models only), up from 19.5% in 2000.  In 2001, Asia/Pacific retail registrations for the Company’s Harley-Davidson motorcycles increased 3.7%, while registrations for the Asia/Pacific market in total decreased 1.0%.

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During 2001, Parts and Accessories (P&A) net sales totaled $507.3 million, up $59.4 million, or 13.3%, compared to 2000.  The increase in P&A sales was driven by higher motorcycle shipments and was led by strong performance in accessories sales. The Company expects that the long-term growth rate for P&A sales will be slightly higher than the growth rate for Harley-Davidson^® motorcycle units. ⁽¹⁾

General Merchandise net sales for 2001, which includes clothing and collectibles, of $163.9 million were up $12.5 million, or 8.2%, compared to 2000.  The Company expects that the long-term growth rate for General Merchandise sales will be lower than the growth rate for Harley-Davidson motorcycle units. ⁽¹⁾

Gross Profit

Gross profit in 2001 of $1.18 billion was $189.2 million or 19.1% higher than gross profit in 2000.  The increase in gross profit is primarily related to the increase in net sales.  The gross profit margin was 35.1% in 2001 compared to 34.1% in 2000.  The increase in gross profit margin resulted from several factors including a favorable motorcycle product mix, a higher percentage of U.S. shipments and wholesale price increases enacted in 2001.

Motorcycle mix was favorable in 2001 with a higher percentage of shipments consisting of the more profitable custom motorcycles and a slightly lower percentage of shipments consisting of Sportster models, when compared to 2000.  In addition, approximately 79.7% of the 2001 Harley-Davidson unit shipments were to U.S. dealers compared to 77.6% in 2000.  Shipments in the U.S. generally have a higher average selling price per unit than international shipments.  Finally, wholesale price increases related to the new model year as well as those enacted earlier in 2001, to offset the impact of weaker currencies in Europe, provided for higher average selling prices on units sold in the second half of 2001 as compared to the prior year.

Operating Expenses

(Dollars in Millions)

Total operating expenses for 2001 increased $65.8 million, or 12.8%, compared to a 15.7% increase in net sales over 2000.  Operating expenses were 17.2% of net sales in 2001 compared to 17.7% in 2000. Operating expenses, which consists of selling, administrative and engineering expense, grew slower than net sales.  The dollar increase in operating expenses was due to the Company’s ongoing investment in various initiatives designed to support the Company’s future growth objectives and employee benefit costs.

Financial Services

In 2001, Financial Services income was $181.5 million, an increase of $41.4 million, or 29.6% over 2000.  Operating income from Financial Services in 2001 was $61.3 million, an increase of $24.1 million, or 64.8%, over 2000.  The increase in financial services income was driven by strong overall performance in Harley-Davidson Financial Services, Inc.’s (HDFS) wholesale, retail, and insurance lines and gains recorded in connection with current year securitization transactions. The increase in the retail business was led by the strong acceptance of HDFS’ consumer financing program offering lower rates to borrowers with stronger credit ratings.

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During 2001 and 2000, HDFS sold $987.7 million and $724.0 million, respectively, of its retail motorcycle installment loans through securitization transactions utilizing special purpose entities.  In connection with the current year securitization transactions, HDFS recorded gains of $45.0 million and $21.5 million in 2001 and 2000, respectively. The 2001 gain on securitizations was favorably impacted by steadily decreasing market interest rates, however the Company does not expect this to continue into 2002.⁽¹⁾ Gains on securitization transactions are recorded as a component of financial services income and are based on certain assumptions (credit loss, prepayment, and discount rate) which are outlined in Note 4 to the financial statements.  The Company expects HDFS’ 2002 operating income to grow at rate slightly faster than the Company’s Harley-Davidson unit growth rate in 2002.⁽¹⁾

Gain on Sale of Credit Card Business

In the first quarter of 2000, the Company sold its Harley-Davidson^®Chrome Visa^® Card business, which consisted of approximately $142 million of revolving charge receivables. The sale resulted in a pre-tax gain of approximately $18.9 million after a $15 million write-down of goodwill, which related to the portfolio sold. Net of taxes, the transaction resulted in a gain of approximately $6.9 million. The proceeds from the sale have been used to reduce finance debt.

Other

Other expense was $6.5 million and $2.9 million in 2001 and 2000, respectively.  This increase is attributable to higher charitable contributions in 2001 as compared to 2000.  Some of the increase in charitable contributions in 2001 was driven by the Company’s $1.0 million contribution to the American Red Cross in connection with the terrorist attacks of September 11^th.

Interest Income

Interest income was $17.5 million and $17.6 million in 2001 and 2000, respectively.  Despite higher levels of cash available for investing in 2001, interest income was lower than in the prior year due to lower interest rates throughout 2001.

Consolidated Income Taxes

The Company’s effective income tax rate was 35.0% and 36.6% for 2001 and 2000, respectively. The higher tax rate for 2000 was due primarily to the $15 million non-deductible write-off of goodwill recorded in connection with the first quarter sale of the Harley-Davidson Chrome Visa Card business.  In addition, the Company’s 2001 effective tax rate decreased as a result of various tax minimization programs.

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2000 COMPARED TO 1999

OVERALL

Net sales for 2000 totaled $2.91 billion, a $453.5 million, or 18.5%, increase over 1999.  Net income and diluted earnings per share for 2000 were $347.7 million and $1.13 compared to $267.2 million and $.86 for 1999, increases of 30.1% and 31.1%, respectively. Net income in 2000 includes a one-time after tax gain of $6.9 million, which resulted from the sale of the Harley-Davidson^® Chrome Visa^® Card business.  Excluding the one-time gain, net income and diluted earnings per share for 2000 increased 27.6% and 28.5%, respectively, over last year.

The Company increased its quarterly dividend payment in June 2000 from $.0225 per share to $.025 per share, which resulted in an aggregate annual dividend of $.0975 per share.

RESULTS OF OPERATIONS

Motorcycle Unit Shipments and Net Sales

(Dollars in millions)

The Motorcycles segment recorded an 18.5% increase in net sales driven by a 15.5% increase in Harley-Davidson unit shipments. During 2000, the Company produced and shipped approximately 205,000 Harley-Davidson motorcycle units, approximately 27,400 units more than in 1999.

In 2000, Buell motorcycle net sales were down $5.4 million from 1999 on 2,422 additional unit shipments.  The average selling price per unit in 2000 was down from prior year due to a change in the mix of units sold, which resulted from the introduction of the new lower priced Buell Blast^®.  The Company shipped 5,146 Blast models and 5,043 Buell V-Twin models during 2000.

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During 2000, worldwide retail registrations in the heavyweight (651+cc) motorcycle market grew 8.1%, while worldwide retail registrations for the Company’s Harley-Davidson^®motorcycles grew 13.8%, resulting in a worldwide market share (Harley-Davidson models only) of 27.1% compared to 25.7% in 1999.

Retail registrations of domestic (United States) heavyweight motorcycles for the industry were up 23.4% (data provided by the Motorcycle Industry Council) over 1999, while domestic retail registrations for the Company’s Harley-Davidson motorcycles increased 15.3%.  The Company ended 2000 with a domestic market share (Harley-Davidson models only) of 45.6% compared to 48.8% in 1999.  The Company believes the loss of market share was due to the shortage of supply of its products in the market as a result of the Company’s ongoing capacity constraints.

International net sales totaled $585.6 million during 2000, an increase of $48.3 million, or 9.0%, over 1999.  The Company exported approximately 22.4% of its Harley-Davidson motorcycle shipments in 2000 compared to 23.5% during 1999.

In Europe, the Company ended 2000 with a 6.8% share of the heavyweight (651+cc) market (Harley-Davidson models only), up from 5.8% in 1999 (data provided by Giral S.A.).  Total retail registrations in the European market decreased 4.3% in 2000, while European retail registrations for the Company’s Harley-Davidson motorcycles were up 11.4%.  2000 marked the second consecutive year that the Company has increased its market share in Europe.  The positive results can be attributed to the continuing efforts to grow in this market, which have included accelerated dealer development, new product introductions and focused marketing programs.

Asia/Pacific (Japan and Australia) data for 2000 (provided by JAMA and ABS) showed the Company with a 19.5% share (Harley-Davidson models only) of the heavyweight (651+cc) market, up from 18.5% in 1999.  In 2000, Asia/Pacific retail registrations for the Company’s Harley-Davidson motorcycles increased 4.9%, while registrations for the Asia/Pacific market in total decreased 0.7%.

During 2000, Parts and Accessories (P&A) net sales totaled $447.9 million, up $85.3 million, or 23.5%, compared to 1999.  The increase in P&A sales was driven by strong motorcycle shipments and was led by higher sales for performance parts, custom paint, controls and electrical parts.

General Merchandise net sales for 2000, which include clothing and collectibles, of $151.4 million were up $18.7 million, or 14.1%, compared to 1999.

Gross Profit

Gross profit in 2000 of $990.8 million was $155.1 million or 18.6% higher than gross profit in 1999.  The increase in gross profit is primarily related to the increase in net sales.  The gross profit margin was 34.1% in both 2000 and 1999. Although unchanged from the prior year, gross profit margin was positively impacted in 2000 by favorable motorcycle mix and model year price increases.  These factors, however, were offset primarily by the negative effect of weaker European currencies during 2000.

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Operating Expenses

(Dollars in millions)

Total operating expenses for 2000 increased $65.5 million, or 14.6%, over 1999 and were 17.7% and 18.2% of net sales in 2000 and 1999, respectively. Operating expense consists of selling, administrative and engineering expense, which increased 15.5%,11.7% and 18.7%, respectively, over 1999. During 2000, the Company continued to invest in its future growth as it increased spending in areas such as marketing, product development and other initiatives.

Financial Services

In 2000, financial services income was $140.1 million, an increase of $7.4 million, or 5.6%, over 1999. Operating income from Financial Services was $37.2 million, an increase of $9.5 million, or 34.3%, over 1999. The increase in financial services revenue was driven by strong overall performance in HDFS’ wholesale, retail, and insurance lines and gains recorded in connection with current year securitization transactions.  The increase in financial services income was led by strong growth in wholesale lending where HDFS experienced increases in both market share and profitability.

During 2000 and 1999, HDFS sold $724.0 million and $575.0 million respectively, of its retail motorcycle installment loans through securitization transactions utilizing special purpose entities.  In connection with the current year securitization transactions, HDFS recorded gains of $21.5 million and $19.1 million in 2000 and 1999, respectively. Gains on securitization transactions are recorded as a component of financial services revenue and are based on certain assumptions (credit loss, prepayment, and discount rate) which are outlined in Note 4 to the financial statements.

Gain on Sale of Credit Card Business

In the first quarter of 2000, the Company sold its Harley-Davidson^®Chrome Visa^® Card business, which consisted of approximately $142 million of revolving charge receivables. The sale resulted in a pre-tax gain of approximately $18.9 million after a $15 million write-down of goodwill, which related to the portfolio sold. Net of taxes, the transaction resulted in a gain of approximately $6.9 million. The proceeds from the sale have been used to reduce finance debt.

Other

Other expense was $2.9 million and $3.1 million in 2000 and 1999, respectively.

Interest Income

Interest income in 2000 was higher than in the prior year primarily due to higher interest rates and higher levels of cash available for short-term investing when compared to 1999.

Consolidated Income Taxes

The Company’s effective income tax rate was 36.6% and 36.5% for 2000 and 1999, respectively.  The increase in the tax rate for 2000 was due to the $15 million non-deductible write-off of goodwill recorded in connection with the sale of the Harley-Davidson Chrome Visa Card business in the first quarter of 2000.  This increase was partially offset by a lower tax rate implemented in the second quarter of 2000 as a result of various tax minimization programs implemented by the Company.

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Other Matters

Critical Accounting Policies

The Company’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Management believes that the following are some of the more critical judgment areas in the application of the its accounting policies that currently affect the Company’s financial condition and results of operations.

Receivable Securitizations

The Company sells retail installment loans through securitization transactions utilizing special purpose entities. Gains on securitization transactions are recorded as a component of financial services revenue and are based on certain assumptions including expected credit losses, prepayment speed, and discount rate.  The gain on sale of the receivables also depends in part on the original carrying amount of the financial assets involved in the transfer, which is allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer.

Investment in Retained Securitization Interests

In the securitization transactions the Company retains interest-only strips, servicing rights, and cash reserve account deposits, all of which are retained interests in the securitized receivables. Retained interests are carried at fair value.  Market quotes are generally not available for retained interests, therefore the Company estimates fair value based on the present value of future expected cash flows using management’s best estimates of the key assumptions for credit losses, prepayment speeds and discount rates.

Finance Receivable Credit Losses

The allowance for uncollectible accounts is maintained at a level management believes is adequate to cover the losses of principal and accrued interest in the existing finance receivables portfolio. Management’s periodic evaluation of the adequacy of the allowance is generally based on HDFS’ past loan loss experience, known and inherent risks in the portfolio, current economic conditions, specific borrower’s ability to repay, and the estimated value of any underlying collateral.

Product Warranty Reserves

The Company maintains reserves for future warranty claims sufficient to cover management’s best estimate of the future cost of warranty claims for products sold.  The calculation of warranty reserves is based on the warranty coverage, the Company’s historical claims information and known or potential product failure data.

Pensions and Other Postretirement Benefits

The Company has significant pension and postretirement benefit liabilities and costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and medical trend rates.  Changes in these assumptions are primarily influenced by factors outside the Company’s control and can have a significant effect on the amounts reported in the financial statements.

Inventories

Inventories are valued at the lower of cost or market, using the last-in, first-out (LIFO) method and to a lesser extent, the first-in, first-out (FIFO) method. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

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Commitments and Contingencies

The Company is subject to lawsuits and other claims related to environmental, product and other matters.  In determining required reserves related to these items, the Company carefully analyzes each individual case, considers the likelihood of adverse judgments or outcomes, as well as the potential range of probable loss.  The required reserves are monitored on an on-going basis and are updated based on new developments or new information in each matter.

Accounting Changes

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations,” and No. 142 “Goodwill and Other Intangible Assets,” which became effective for the Company January 1, 2002.  Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements.  The application of the nonamortization provisions will have a positive effect on net income of approximately $3.5 million on an annual basis, starting in 2002.  The Company does not expect that the required impairment tests on goodwill balances will result in any adjustments material to the earnings and financial position of the Company.

Environmental Matters

The Company’s policy is to comply with all applicable environmental laws and regulations, and the Company has a compliance program in place to monitor and report on environmental issues. The Company has reached a settlement agreement with the U.S. Navy regarding soil and groundwater remediation at the Company’s manufacturing facility in York, Pennsylvania and is conducting investigation and remediation activities at the facility.  Recently, the United States Environmental Protection Agency (EPA) advised the Company that it considers some of the Company’s remediation activities at the facility to be subject to the EPA’s corrective action programs and offered the company the option of addressing corrective action under a facility lead agreement.  The Company currently estimates that it will incur approximately $5.0 million of future response costs related to all remediation efforts at the facility.(1) The Company has established reserves for this amount. The Company’s estimate of future response costs is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities.  Response costs are expected to be incurred over a period of several years, ending in 2009.  See Note 7 of the Notes to Consolidated Financial Statements.

Recurring costs associated with managing hazardous substances and pollution in on-going operations have not been material.

The Company regularly invests in equipment to support and improve its various manufacturing processes. While the Company considers environmental matters in capital expenditure decisions, and while some capital expenditures also act to improve environmental compliance, only a small portion of the Company’s annual capital expenditures relate to equipment that has the sole purpose of meeting environmental compliance obligations. The Company anticipates that capital expenditures during 2002 for equipment used to limit hazardous substances/pollutants during 2002 will approximate $10.0 million.  This estimate includes expenditures to be made in connection with the Company’s current capacity expansion plans described in the “Liquidity and Capital Resources” section.  The Company does not expect that these expenditures related to environmental matters will have a material effect on future operating results or cash flows.(1)

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Liquidity and Capital Resources

The Company’s main source of liquidity is cash from operating activities which consists of net income adjusted for non-cash operating activities and changes in other current assets and liabilities such as accounts receivable, inventory, prepaid expenses and accounts payable/accrued expenses.

The Company generated $757.3 million of cash from operating activities during 2001 compared to $565.5 million in 2000.  The largest component of cash from operating activities was net income, which increased $90.0 million in 2001 over the prior year.  Changes in other current assets and liabilities increased operating cash flows by approximately $77.8 million and $49.6 million in 2001 and 2000, respectively.  Changes in working capital during 2001 and 2000 consisted of the following (in thousands):

The increase in accounts payable and accrued expenses in 2001 was due primarily to higher accounts payable resulting from the increase in production and higher fourth quarter capital expenditures, combined with higher accrued income taxes (related to the timing of tax payments).

Capital expenditures amounted to $290.4 million and $203.6 million during 2001 and 2000, respectively. During 2001, the Company began work on its plans for capacity expansion that will take place at several of the Company’s existing facilities.  These plans include a 350,000 square foot expansion at the Company’s York, Pennsylvania assembly facility, a 60,000 square foot expansion at the Company’s Tomahawk, Wisconsin facility and a 165,000 square foot addition to the Company’s Product Development Center in Wauwatosa, Wisconsin.  The Company began its investment in these plans during 2001 and will continue to invest in capital related to these plans during 2002 and 2003. The Company estimates that total capital expenditures required in 2002 will be in the range of $270 to $300 million.⁽¹⁾  The Company anticipates it will have the ability to fund all capital expenditures in 2002 with internally generated funds.⁽¹⁾

The Company (excluding HDFS) currently has nominal levels of long-term debt and has available lines of credit of approximately $42.2 million, of which approximately $36.6 million remained available at year-end.

HDFS is financed by operating cash flow, asset-backed securitizations and the issuance of commercial paper, revolving credit facilities, senior subordinated debt, and redeemable preferred stock. During 2001, HDFS securitized and sold with limited recourse approximately $988 million of retail installment loans (see Note 4 to the consolidated financial statements for further discussion). Approximately $500 million of commercial paper was outstanding at December 31, 2001. Subject to limitations discussed below, HDFS may issue up to $730 million of short-term commercial paper with maturities up to 270 days.

HDFS has agreements with financial institutions providing bank credit facilities totaling $730 million.  The credit facilities consist of a $350 million revolving term facility due in 2005 and a $380 million 364-day revolving credit facility due September 2002 with approximately $67 million outstanding at December 31, 2001. The Company expects the $380 million credit facility expiring in September 2002 will be renewed or that suitable alternatives exist⁽¹⁾. The primary uses of the credit facilities are to provide liquidity to the unsecured commercial paper program and to fund business operations. Under the terms of the credit facilities, commercial paper outstanding cannot exceed liquidity support provided by the unused portion of the combined credit facilities. Accordingly, at December 31, 2001, HDFS has $163 million of availability under the commercial paper program. During January 2002, the $380 million 364-day revolving credit facility was increased $20 million to $400 million. In addition, HDFS also has $30 million of senior subordinated notes expiring in 2007, outstanding at December 31, 2001.

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In connection with various debt agreements, HDFS has met various operating and financial covenants and remains in compliance at December 31, 2001. The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with certain financial support in order to maintain certain financial covenants. Support may be provided at the Company’s option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company’s ability to withdraw funds from HDFS outside the normal course of business.

At December 31, 2001, unused lines of credit extended to the HDFS’ wholesale finance customers totaled $231 million.  Approved but unfunded retail finance loans totaled $167 million at December 31, 2001.

HDFS currently offers wholesalefinancing to the Company’s European motorcycle dealers through a joint venture with another finance company. The joint venture partner provides the majority of the capital for the European wholesale lending program. During 2001, HDFS exercised its option to terminate the joint venture effective August 2002 at which time HDFS will begin serving the wholesale financing needs of the Company’s European dealers. Upon termination of the joint venture, HDFS has the option to purchase the then outstanding portfolio of dealer wholesale loans. Outstanding wholesale loans to European dealers at December 31, 2001 were approximately $43 million.

The Company expects future activities of HDFS will be financed from internally generated funds at HDFS, advances or loans from the Company, revolving credit facilities, and continuation of its subordinated debt, redeemable preferred stock, commercial paper and securitization programs.

In connection with its securitization transactions, HDFS uses Special Purpose Entities (SPEs) considered Qualifying SPEs in accordance with Statement of Financial Accounting Standards (SFAS) 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, and, accordingly, are not consolidated.  Under the terms of the Company’s securitzation transactions HDFS sells retail installment loans to an independent securitization trust, with limited recourse (see Note 4 to the consolidated financial statements for further discussion).  The independent securitization trusts or SPEs hold legal title to these loans while HDFS retains servicing rights on the loans until maturity.

The Company has remaining authorization from its Board of Directors to repurchase up to 9,400,000 shares of the Company’s outstanding common stock.  In addition, the Company has continuing authorization from its Board of Directors to repurchase shares of the Company’s outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (i) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 1998 plus (ii) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. The Company repurchased 2,438,500 and 3,256,200 shares of its common stock during 2001 and 2000, respectively, under this latter authorization.

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Item 7a.  Quantitative and qualitative disclosures about market risk

The Company is exposed to market risk from changes in foreign exchange and interest rates.  To reduce such risks, the Company selectively uses financial instruments.  All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for trading purposes.  Sensitivity analysis is used to manage and monitor foreign exchange and interest rate risk.

A discussion of the Company’s accounting policies for derivative financial instruments is included in the Summary of Significant Accounting Policies in the notes to the consolidated financial statements, and further disclosure relating to financial instruments is included in Note 11, Fair Value of Financial Instruments.

The Company’s earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies, predominately in European countries and Japan, as a result of the sales of its products in foreign markets.  Forward foreign exchange contracts are used to hedge against the earnings effects of Euro fluctuations.  At December 31, 2001 and 2000, these contracts represented a combined U.S. dollar equivalent of approximately $124.9 million and $162.3 million, respectively, with maturities of less than one year.  A uniform 10% strengthening in the value of the dollar relative to the currencies underlying these contracts would have resulted in a decrease in the fair market value of the contracts of approximately $13.8 million and $26.2 million at December 31, 2001 and 2000, respectively. Prior to January 1, 2001, unrealized gains and losses on these contracts were deferred and recognized at the time the hedged transaction settled.  On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133 (as amended), “Accounting for Derivative Instruments and Hedging Activities.”  The effect of adoption was not material.  In accordance with SFAS No. 133, the Euro contracts are designated as cash flow hedges and gains and losses that result from changes in the fair value are initially recorded in other comprehensive income and subsequently reclassified into earnings when the hedged transaction affects income. As of December 31, 2001 $.7 million is recorded in other current assets related to the fair value of derivative financial instruments and a $.7 million gain, net of taxes, related to cash flow hedges is recorded in other comprehensive income.

The Company’s foreign currency exposure to the Japanese yen is offset by the existence of a natural hedge, which is sustained through offsetting yen cash inflows from sales with yen cash outflows for motorcycle component purchases and other operating expenses.⁽¹⁾

HDFS’ earnings are affected by changes in short-term interest rates as a result of its securitization transactions, its borrowings under a bank credit facility and the issuance of commercial paper. HDFS utilizes interest rate swap and treasury rate lock agreements to reduce the impact of fluctuations in interest rates. The differential paid or received under the agreements is recognized as an adjustment to financial services income or interest expense, as applicable.  At December 31, 2001 and 2000, HDFS had no interest rate swap or treasury rate lock agreements outstanding.  This analysis does not take into effect other changes that might occur in the economic environment as a whole due to such changes in short-term interest rates.

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(1) Note regarding forward looking statements

The Company intends that certain matters discussed are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities LitigationReform Act of 1995.  These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects” or  “estimates” or words of similar meaning.  Similarly, statements that describe the Company’s future plans, objectives, targets or goals are also forward-looking statements.  Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report.  Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report.  Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.  The forward-looking statements included herein are only made as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

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Item 8.  Consolidated financial statements and supplementary data

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and

Shareholders

Harley-Davidson, Inc.

We have audited the accompanying consolidated balance sheets of Harley-Davidson, Inc. as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001.  Our audits also included the financial statement schedule listed in the index at item 14(a).  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harley-Davidson, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.  Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

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HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2001, 2000 and 1999

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

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HARLEY-DAVIDSON, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2001 and 2000

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

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HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2001, 2000 and 1999

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

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HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years ended December 31, 2001, 2000 and 1999