Part I

Note regarding forward-looking statements

Certain matters discussed by the Company 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,” “plans,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption “Risk Factors” in Item 1A of this report and under “Cautionary Statements” in Item 7 of this report. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date of the filing of this report (March 3, 2006), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Motorcycles and Related Products

Motorcycles . The primary business of the Motorcycles segment is to design, manufacture and sell premium motorcycles at wholesale 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% of the total net revenue in the Motorcycles segment during each of the years 2005, 2004 and 2003, respectively.

The Motor Company’s Harley-Davidson branded motorcycle products emphasize traditional styling, design simplicity, durability and quality. The Motor Company manufactures five families of motorcycles: Sportster ^® , Dyna™, Softail ^® , Touring and VRSC™. The first four of these motorcycle families are powered by an air-cooled, twin-cylinder engine with a 45-degree “V” configuration. The VRSC family is powered by a liquid-cooled, twin-cylinder engine with a 60-degree “V” configuration. The Motor Company’s Harley-Davidson engines range in size from 883cc’s to 1690cc’s.

The Motor Company’s 2006 model year line up includes 33 models of Harley-Davidson heavyweight motorcycles, with domestic manufacturer’s suggested retail prices ranging from $6,595 to $20,685. The Motor Company also offers limited-edition, factory-custom motorcycles through its Custom Vehicle Operation (CVO) program. Motorcycles sold through the CVO program are available in limited quantities and offer unique features, paint schemes and accessories. The Motor Company currently has three motorcycle model offerings available through the CVO program with domestic manufacturer’s suggested retail prices ranging from $26,495 to $31,995.

Research that the Company completed in 2005 shows the following: The average retail purchaser of a new Harley-Davidson motorcycle in the United States is in their mid-forties (two-thirds of these purchasers are between the ages of 35 and 54) and has a household income of approximately $83,000. These customers generally purchase a motorcycle for recreational purposes rather than to provide transportation. Over two-thirds of retail sales of new Harley-Davidson motorcycles in the United States are to buyers with at least one year of education beyond high school and 31% of the buyers have college degrees. Approximately 11% of retail sales of new Harley-Davidson motorcycles in the United States are to female buyers.

The Company’s Buell ^® motorcycle products emphasize innovative design, responsive handling and overall performance. Buell Motorcycle Company currently manufactures and sells eight models, including seven heavyweight models in its XB family, and the Blast ^® . The Buell XB motorcycles focus on superior handling and are powered by either a 984cc (XB9) or a 1203cc (XB12) air-cooled, twin-cylinder engine with a 45-degree “V” configuration. The Buell XB motorcycle models have domestic manufacturer’s suggested retail prices ranging from $8,695 to $11,495. The Buell Blast is smaller and less expensive than the Buell XB models and is powered by a 492cc single-cylinder engine. The Blast, which competes in the standard market segment, has a domestic manufacturer’s suggested retail price of $4,695.

Research that the Company completed in 2004 shows the following: The average retail purchaser of a new Buell XB motorcycle in the United States is 37 years old with a household income of approximately $78,500. Approximately 9% of retail sales of new Buell XB’s in the United States are to women. The average age of a retail purchaser of a new Buell Blast in the United States is 37 years old, with over one-half of them being women. Approximately 57% of new Buell Blast purchasers have never owned a motorcycle before and in excess of 97% of them had never owned a Buell motorcycle before.

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The total motorcycle market, including the heavyweight portion of the market, is comprised of the following four segments:

The touring segment of the market was pioneered by the Company and includes the Harley-Davidson Touring family of motorcycles which are equipped 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 and includes the Company’s Dyna, Softail, VRSC and Sportster families of motorcycles. The Company serves the standard and performance segments of the market primarily with its Buell motorcycle line.

In the United States, suggested retail prices for the Company’s Harley-Davidson motorcycles generally range from being comparable to moderately higher than suggested retail prices for competing motorcycles available in the market. Although there are some differences in accessories between the Company’s top-of-the line touring motorcycles and those of its competitors, suggested retail prices for these motorcycles are generally comparable. The Company’s larger-displacement custom motorcycles (Dyna, Softail and VRSC) represent its highest unit volumes. The Company believes its larger-displacement custom products continue to command retail prices that are higher than retail prices of its competitors’ motorcycles because of the features, styling and higher resale value associated with Harley-Davidson custom products. The Company’s smaller-displacement custom motorcycles (the Sportster family) are generally price competitive with comparable motorcycles available in the market.

The Company’s 2005 surveys of retail purchasers in the United States indicate that 82% of the retail purchasers of its Sportster models either have previously owned competitive-brand motorcycles, are completely new to the sport of motorcycling or have not participated in the sport for at least five years. The Company believes that sales of its Sportster models will lead to future sales of its higher-priced models.

Since 1988, the Company’s research has consistently shown that purchasers of new Harley-Davidson motorcycles in the United States have a repurchase intent at or in excess of 90%. Research completed by the Company in 2005 shows that approximately 51% of all retail purchasers of new Harley-Davidson motorcycles in the United States had previously owned a Harley-Davidson motorcycle.

Parts & Accessories . 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 revenue comprised 15.3%, 15.6% and 15.4% of net revenue in the Motorcycles segment in 2005, 2004 and 2003, respectively.

General Merchandise . Worldwide General Merchandise net revenue, which includes MotorClothes ^TM apparel and collectibles, comprised 4.6%, 4.5% and 4.6% of net revenue in the Motorcycles segment in 2005, 2004 and 2003, respectively.

Licensing . The Company creates an awareness of the Harley-Davidson brand among its customers and the non-riding public through a wide range of products for enthusiasts by licensing the name “Harley-Davidson” and other trademarks owned by the Company. The Company’s licensed products include t-shirts, jewelry, small leather goods, toys and numerous other products. The Company also licenses the use of its name in connection with a cafe located in Las Vegas, Nevada. Although the majority of licensing activity occurs in the U.S., the Company continues to expand these activities in international markets. Royalty revenues from licensing, included in Motorcycles segment net revenue, were approximately $43 million, $41 million and $38 million in 2005, 2004 and 2003, respectively.

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Other Services . The Company also provides a variety of services to its independent dealers including service and business management training programs, customized dealer software packages, delivery of its motorcycles, a motorcycle rental and tour program and Riders Edge ^® , the Company’s rider training program.

Patents and Trademarks . The Company owns certain patents that relate to its motorcycles and related products and processes for their production. The Company diligently protects its intellectual property and its rights to innovative and proprietary technology. This protection, including enforcement, is important as the Company moves forward with investments in new products, designs and technologies.

Trademarks are important to the Company’s motorcycle business and licensing activities. The Company has a vigorous worldwide program of trademark registration and enforcement to maintain and strengthen the value of the trademarks and prevent the unauthorized use of those trademarks. The Company believes the HARLEY-DAVIDSON trademark and the Company’s Bar and Shield trademark are each highly recognizable to the public and are very valuable assets. The BUELL trademark is well-known in performance motorcycle circles, as is the associated Pegasus logo. Additionally, the Company uses numerous other trademarks, trade names and logos, which are registered worldwide, where the Company conducts business. The following are among the Company’s trademarks: 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, V-Rod, Buell, the Pegasus Logo and BRAG. The HARLEY-DAVIDSON trademark has been used since 1903 and the Bar and Shield trademark since at least 1910. The BUELL trademark has been used since 1984. All of the Company’s trademarks are owned by H-D Michigan, Inc, a subsidiary of the Company.

Marketing . The Company’s products are marketed to retail customers primarily through dealer promotions, customer events and advertising through national television, print, radio and direct mailings. Many of the Company’s marketing efforts are accomplished through a cooperative program with its independent dealers. The Company also sponsors racing activities and special promotional events and participates in many major motorcycle consumer shows and rallies.

On an ongoing basis, the Company promotes its products and the related lifestyle through the Harley Owners Group ^® , or H.O.G. ^® H.O.G. has over one million members worldwide and is the industry’s largest company-sponsored motorcycle enthusiast organization. The Company formed the Harley Owners Group in 1983 in an effort to encourage Harley-Davidson owners to become more actively involved in the sport of motorcycling. The Company has also formed the Buell Riders Adventure Group, or BRAG ^® , which has approximately 11,000 members. These groups sponsor many motorcycle events, including world wide rallies and rides for Harley-Davidson and Buell motorcycle enthusiasts.

The Company website (www.harley-davidson.com) is also utilized to market its products and services. The Web site features an online catalog which allows customers to create and share product wish lists, utilize a dealer locator and place catalog orders. Internet orders are sold and fulfilled by the participating authorized Harley-Davidson dealer selected by the customer. Dealers also handle any after-sale services that customers may require.

International Sales . The Company’s revenue from the sale of motorcycles and related products to independent dealers and distributors located outside of the United States was approximately $1.04 billion, $917 million and $816 million, or approximately 19%, 18% and 18% of net revenue of the Motorcycles segment, during 2005, 2004 and 2003, respectively.

Distribution-United States . In the United States the Company sells its motorcycles and related products at wholesale to a network of approximately 667 independently-owned full-service Harley-Davidson dealerships. In addition, the Company sells at wholesale to the Overseas Military Sales Corporation, an entity that retails the Company’s products to members of the U.S. military. The U.S. independent dealer network includes 318 combined Harley-Davidson and Buell dealerships. With respect to sales of new motorcycles, approximately 82% of the U.S. dealerships sell the Company’s motorcycles exclusively. All independent dealerships stock and sell the Company’s P&A, general merchandise and licensed products, and perform service for the Company’s motorcycles. The Company’s independent dealers also sell a smaller portion of P&A, general merchandise and licensed products through “non-traditional” retail outlets. The “non-traditional” outlets, which are extensions of

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the main dealership, consist of Secondary Retail Locations (SRLs), Alternate Retail Outlets (AROs), and Seasonal Retail Outlets (SROs). SRLs are satellites of the main dealership and are developed to meet the service needs of the Company’s riding customers. SRLs also provide P&A, general merchandise and licensed products and are authorized to sell and service new motorcycles. AROs are located primarily in high traffic locations such as malls, airports or popular vacation destinations and focus on selling the Company’s general merchandise and licensed products. SROs are located in similar high traffic areas, but operate on a seasonal basis out of temporary locations such as vendor kiosks. AROs and SROs are not authorized to sell new motorcycles. There are approximately 90 SRLs, 65 AROs, and 10 SROs located in the United States.

Distribution-Europe . In the European region, the Company sells its motorcycles and related products at wholesale to independent dealers and distributors. The Company’s European management team is located in Oxford, England and is responsible for all of the Company’s sales, marketing and distribution activities in Europe, the Middle East and Africa and is further represented by the Company’s sales offices in the United Kingdom, France, Germany, Italy, the Netherlands, Spain and Switzerland. In the European region, there are seven independent distributors and 359 independent Harley-Davidson dealerships serving 32 country markets. This includes 292 combined Harley-Davidson and Buell dealerships. Buell is further represented by 7 dealerships that do not sell Harley-Davidson motorcycles. In addition, the Company’s dealer network includes 23 ARO’s across Europe.

Distribution-Asia/Pacific. In the Asia/Pacific region, the Company sells its motorcycles and related products at wholesale to independent dealers and distributors. In Japan, the Company’s sales, marketing, and distribution of product is managed from its subsidiary in Tokyo, which sells motorcycles and related products at wholesale to a network of 118 independent Harley-Davidson dealers. This includes 51 combined Harley-Davidson and Buell dealerships. Buell is further represented by 3 dealerships that do not sell Harley-Davidson motorcycles.

In Australia and New Zealand, the distribution of Harley-Davidson products is currently managed by independent distributors that purchase product at wholesale directly from the Company’s U.S. operation. In 2005, the Company’s subsidiary in Sydney, Australia began managing the Company’s sales, marketing, and distribution of Buell products in this market and is expected to begin managing the distribution of Harley-Davidson products in the later part of 2006. The Australia/New Zealand market is served at retail by a network of 51 independent Harley-Davidson dealerships, including 26 that sell both Harley-Davidson and Buell products.

The Company supplies product directly from its U.S. operations to the remaining Asia/Pacific dealers, which includes 10 Harley-Davidson dealers located in East and Southeast Asia.

Distribution-Latin America . In the Latin America region the Company sells its motorcycles and related products at wholesale to independent dealers. The Company supplies all products sold in the Latin America region directly to independent dealers from its U.S. operations, with the exception of certain motorcycles sold in Brazil which are assembled and distributed by the Company’s subsidiary in Manaus, Brazil. In Latin America, 12 countries are served by 31 independent dealers. Brazil is the Company’s largest market in Latin America and is served by 10 independent dealers. Mexico, the region’s second largest market has 11 independent dealers. In the remaining countries in the Latin America region there are 10 independent dealers.

Distribution-Canada. In Canada the Company sells its motorcycles and related products at wholesale to a single independent distributor, Deeley Harley-Davidson Canada/Fred Deeley Imports Ltd . In Canada, there are approximately 75 independent Harley-Davidson dealerships   and three AROs. In Canada, 43 of the 75 dealerships are combined Harley-Davidson and Buell dealerships.

Seasonality . In general, the Motor Company has not experienced seasonal fluctuations in its wholesale sales. The Company’s independent dealers typically build their inventory levels in the late fall and winter in anticipation of the spring and summer selling seasons. The availability of floor plan financing helps allow dealers to manage these seasonal increases in inventory. The Company also offers financing assistance to its dealers in the United States as a way to manage seasonal increases in inventory..

The Company believes its efforts to increase the availability of its motorcycles has resulted in an increase in

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seasonality at its independent dealers. Over the last several years the Company has been working to increase the availability of its motorcycles at dealers to improve the customer experience. The Company also believes that increased availability will lead to independent dealers providing wider selections of motorcycles at manufacturer’s suggested retail prices so that the Company will be better positioned to attract retail buyers that are new to the brand or new to the sport of motorcycling. The Company understands that improving the availability of its motorcycles to customers may result in the timing of retail purchases tracking more closely with the riding season, requiring the Company and its independent dealers to balance the economies of level production with a more seasonal retail sales pattern.

Retail Customer and Dealer Financing . The Company believes that HDFS, as well as other financial services companies, provide adequate financing to the Company’s independent distributors, dealers and their retail customers. HDFS provides financing to the Company’s independent distributors, dealers and to the retail customers of those dealers in the U.S. and Canada. HDFS also provides wholesale financing to many of the Company’s independent dealers in Europe. The Company’s customers in the Asia/Pacific and Latin America regions are not serviced by HDFS, but have access to financing though other established financial services companies.

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 revenue and are more diversified than the Company and compete in all four segments of the market. In addition to these larger, established competitors, the Company has competitors headquartered in the United States. These 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 have considerably lower market share than the Company.

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 two-year warranty for its motorcycles. The Company regards its support of the motorcycling lifestyle in the form of events, rides, rallies and H.O.G. ^® and its financing through HDFS as competitive advantages. In general, the Company believes that resale values for used Harley-Davidson motorcycles, measured by reflecting the used motorcycle price as a percentage of the manufacturer’s suggested retail price when new, are higher than resale values for used motorcycles of its competitors (source: 2005 Company data).

Domestically, the Company competes most heavily in the touring and custom segments of the heavyweight motorcycle market. According to the Motorcycle Industry Council, these segments accounted for 81%, 81% and 82% of total heavyweight retail unit registrations in the United States during 2005, 2004 and 2003, respectively. The larger-displacement custom and touring motorcycles are generally the most expensive vehicles in the market and the most profitable for the Company. During 2005, the heavyweight portion of the market represented approximately one-half of the total U.S. motorcycle market (on- and off-highway motorcycles and scooters) in terms of new units registered.

For the last 18 years, the Company has led the industry in the United States for retail unit registrations of new heavyweight motorcycles. The Company’s (Harley-Davidson motorcycles only) share of the heavyweight market was 48.9% and 49.5% in 2005 and 2004, respectively. This share is significantly greater than that of the Company’s largest competitor in the domestic market which had a 16.6% market share in 2005.

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The following chart includes U.S. retail registration data for the Company and its major competitors for the years 2001 through 2005.

(a)           Motorcycle registration data provided by the Motorcycle Industry Council. The Company must rely on data compiled by independent agencies to obtain industry-wide retail registration data necessary for calculating market share. The retail registration data for Harley-Davidson motorcycles presented in this table may differ slightly from the Harley-Davidson retail sales data presented in Item 7 of this report. The Company’s source for retail sales data in Item 7 of this report is sales and warranty registrations provided by Harley-Davidson dealers as compiled by the Company. The differences are not significant and generally relate to the timing of data submissions to the independent sources.

The European heavyweight motorcycle market (as defined below) is roughly two-thirds of the size of the U.S. market; but unlike the domestic market, it is comprised of the unique tastes of many individual countries. In addition, the standard and performance segments represented over 75% of the European heavyweight (651+cc) motorcycle market in 2005. The Company continues to expand its product offerings to compete in these segments with motorcycles like the VRSC and the Buell XB. The Company’s traditional Harley-Davidson products compete primarily in the custom and touring segments. The following chart includes European retail registration data for the Company for the years 2003 through 2005.

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(a)                 Europe data, provided by Giral S.A., includes retail sales in Austria, Belgium, France, Germany, Italy, The Netherlands, Spain, Switzerland, United Kingdom, Denmark, Finland, Greece, Norway, Portugal and Sweden. The Company must rely on data compiled by independent agencies to obtain industry-wide retail registration data necessary for calculating market share. The retail registration data for Harley-Davidson motorcycles presented in this table may differ slightly from the Harley-Davidson retail sales data presented in Item 7 of this report. The Company’s source for retail sales data in Item 7 of this report is sales and warranty registrations provided by Harley-Davidson dealers as compiled by the Company. The differences are not significant and generally relate to the timing of data submissions to the independent sources.

The Company also competes internationally in several other markets around the world. The most significant of these markets, based on Company data, are Canada, Japan and Australia. In Canada the Company’s market share based on registrations was 32.7%, 30.7% and 28.7% during 2005, 2004 and 2003 respectively (Source: Moped and Motorcycle Industry of Canada). Market share information for the remaining international markets has not been presented because the Company does not believe that definitive and reliable registration data is available at this time.

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 continuous improvement. These techniques, which include employee involvement, just-in-time inventory and lean manufacturing 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, and minimize scrap and rework costs. This system also allows quicker reaction to engineering design changes, quality improvements and market demands. The Motor Company continues to train the majority of its manufacturing employees in problem solving and statistical methods.

Raw Material and Purchased Components . The Company continues to establish and/or reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, the Company gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives and gains commitment from suppliers to advance Company interests efficiently and effectively. This strategy has resulted in improved product quality, 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’s continuing initiative to improve supplier productivity and component cost has been instrumental in delivering improvement in cost and in offsetting raw material commodity price pressures. The Company anticipates that its focus on collaboration and strong supplier relationships will be beneficial to achieving cost improvement over the long-term.

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The Company purchases all of its raw materials, principally steel and aluminum castings, forgings, steel sheets and bars, and certain motorcycle components, including carburetors, batteries, tires, seats, electrical components and instruments. Given current economic conditions in certain raw material commodity markets, and pressure on certain suppliers due to difficulties in the automotive industry, the Company is closely monitoring supply, availability and pricing for both its suppliers and in-house operations. However, at this time, the Company does not anticipate any significant difficulties in obtaining raw materials or components.

Research and Development . The Company believes research and development are significant factors in its ability to lead the custom and touring motorcycling market and to develop products for the performance segment. The Company’s Product Development Center (PDC) brings employees from styling, purchasing and manufacturing together with regulatory professionals and supplier representatives to create a concurrent product and process development team. The Company incurred research and development expenses of $178.5 million, $170.7 million and $150.3 million during 2005, 2004 and 2003, 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 strives 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 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 with model year 2008. The EPA has finalized new tail pipe emission standards for 2006 and 2010, respectively, which are harmonized with the California emissions standards. Harley-Davidson motorcycle products have been certified to the new EPA standards for 2006 and the Company believes it will comply with future requirements when they go into effect. Additionally, the European Union, Japan and certain emerging markets are considering making motorcycle emissions and noise standards more stringent, which in the European Union are already more stringent than those of the EPA. 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 does not anticipate that any of these standards will have a materially adverse impact on its capital expenditures, earnings or competitive position.

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 18 voluntary recalls at a total cost of $12.5 million. The Company reserves for all estimated costs associated with recalls in the period that the recalls are announced.

Employees . As of December 31, 2005, the Motorcycles segment had approximately 9,000 employees. Unionized employees at the motorcycle manufacturing facilities in Wauwatosa and Menomonee Falls, Wisconsin and Kansas City, Missouri are represented by the United Steelworkers of America (USW), as well as the International Association of Machinist and Aerospace Workers (IAM). Unionized employees at the distribution and manufacturing facilities in Franklin and Tomahawk, Wisconsin are represented by the USW. Production workers at the motorcycle manufacturing facility in York, Pennsylvania, are represented principally by the IAM. The collective bargaining agreement with the Pennsylvania-IAM will expire on February 2, 2007, the collective bargaining agreement with the Kansas City-USW and IAM will expire on August 1, 2007, and the collective bargaining agreement with the Wisconsin-USW and IAM will expire on March 31, 2008.

Internet Access . The Company’s Internet address is www.harley-davidson.com. The Company makes available free of charge (other than an investor’s own Internet access charges) through its Internet website the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after it electronically files such material with, or furnishes such

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material to, the Securities and Exchange Commission. In addition, the Company makes available, through its website, the following corporate governance materials: (a) the Harley-Davidson, Inc. Corporate Governance Policy, (b) Committee Charters approved by the Harley-Davidson, Inc. Board of Directors for the Audit Committee, Human Resources Committee and Nominating and Corporate Governance Committee, (c) the Company’s Financial Code of Ethics, (d) the Company’s Code of Business Conduct (the “Code of Conduct”) in seven languages including English, (e) the Conflict of Interest Process for Directors and Executive Officers of Harley-Davidson, Inc. (the “Conflict Process”), (f) a list of the Company’s Board of Directors and (g) the Company’s By-laws. This information is also available from the Company upon request. The Company satisfies the disclosure requirements under the Code of Conduct, the Conflict Process and applicable New York Stock Exchange listing requirements regarding waivers of the Code of Conduct or the Conflict Process by posting such information on its website at www.harley-davidson.com and by disclosing the information in the Company’s proxy statement for its annual meeting of shareholders. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

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Financial Services

HDFS is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail loans (primarily for the purchase of motorcycles). Additionally HDFS is an agent for certain unaffiliated insurance carriers providing property/casualty insurance and also sells extended service contracts, gap coverage and debt protection products 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, provides wholesale financial services to Harley-Davidson and Buell dealers and retail financing to consumers. HDFS, operating under the trade name Harley-Davidson Insurance, is an agent for the sale of motorcycle insurance policies and also sells extended service warranty agreements, gap contracts and debt protection products.

Wholesale financial services include floorplan and open account financing of motorcycles and motorcycle parts and accessories, real estate loans, computer loans and showroom remodeling loans. HDFS offers wholesale financial services to Harley-Davidson dealers in the U.S., Canada, and Europe and during 2005, approximately 97% of such dealers utilized those services. Prior to August 2002, HDFS offered wholesale financing to some of the Company’s European motorcycle dealers through a joint venture with Transamerica Distribution Finance. In August 2002, HDFS terminated this joint venture relationship and began directly serving the wholesale financing needs of some European dealers. The wholesale finance operations of HDFS are located in Plano, Texas and Oxford, England.

Retail financial services include installment lending for new and used Harley-Davidson and Buell motorcycles. HDFS’ retail financial services are available through most Harley-Davidson and Buell dealers in the United States and Canada. HDFS’ retail finance operations are located in Carson City, Nevada and Plano, Texas.

Motorcycle insurance, extended service contracts, gap coverage and debt protection products are available through most Harley-Davidson and Buell dealers in the United States and Canada. Motorcycle insurance is also marketed on a direct basis to motorcycle riders. HDFS insurance operations are located in Carson City, Nevada and Plano, Texas.

Other Manufacturers . HDFS’ retail aircraft financial service programs are similar to programs for Harley-Davidson and Buell consumers described above. HDFS’ aircraft business is a small portion of its total business and made up less than 4% of total managed loans as of the end of 2005.

Funding . HDFS is financed by operating cash flow, asset-backed securitizations, the issuance of commercial paper, revolving credit facilities, medium term notes, senior subordinated debt and the availability of advances and loans from the Company. In asset-backed securitizations, HDFS sells retail motorcycle loans and records a gain on the sale of those loans. HDFS also retains an interest in the excess cash flows from the receivable and recognizes income on this retained interest. After the sale HDFS performs billing and portfolio management services for these loans and receives a servicing fee for providing these services.

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

During 2005, HDFS financed 45% of the new Harley-Davidson motorcycles retailed by independent dealers in the United States, as compared to 40% in 2004. Competitors for retail motorcycle finance business are primarily banks, credit unions, other financial institutions. In the motorcycle insurance business, competition primarily comes from national insurance companies and from insurance agencies serving local or regional markets. For insurance-related products such as extended service warranty agreements, HDFS faces competition from certain regional and national industry participants.

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HDFS faces limited national competition for 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.

Trademarks . HDFS uses various trademarks and trade names for its financial services and products which are licensed from H-D Michigan, Inc., including HARLEY-DAVIDSON, H-D and the Bar & Shield logo.

Seasonality . In the northern United States and Canada, motorcycles are primarily used during warmer months. Accordingly, HDFS experiences seasonal variations. From mid-March through August, retail financing volume increases and wholesale financing volume decreases as dealers inventories decline. From September through mid-March, there is a decrease in retail financing volume while dealer inventories build and turn over more slowly, substantially increasing wholesale financing volume.

Regulation . The operations of HDFS (both domestic and foreign) are subject, in certain instances, to supervision and regulation by state, federal, and various foreign governmental authorities. Many of the statutory and regulatory requirements imposed by such agencies are in place to provide consumer protection as it pertains to the selling of financial products and services. Therefore, operations may be subject to various laws and judicial and administrative decisions imposing requirements and restrictions, which among other things, (1) regulate credit granting activities, including establishing licensing requirements, in applicable jurisdictions, (2) establish maximum interest rates, finance charges and other charges, (3) regulate customers’ insurance coverage, (4) require disclosure of credit and insurance terms to customers, (5) govern secured transactions, (6) set collection, foreclosure, repossession and claims handling procedures and other trade practices, (7) prohibit discrimination in the extension of credit and administration of loans, (8) regulate the use and reporting of information related to a borrower, or (9) require certain periodic reporting.

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 or to obtain a refund of amounts previously paid, and in addition, could subject HDFS to damages and administrative sanctions, including “cease and desist” orders.

Such regulatory requirements and associated supervision could limit the discretion of HDFS in operating its business. 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, criminal penalties and administrative sanctions. The Company cannot assure that the applicable laws or regulations 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 its results of operations.

A subsidiary of HDFS, Eaglemark Savings Bank (ESB), is a Nevada state thrift chartered under an Industry Loan Charter. As such, the activities of this subsidiary are governed by federal and State of Nevada banking laws and are subject to examination by federal and state examiners. During 2002, ESB began to originate retail motorcycle and aircraft loans and sell the loans to a non-banking subsidiary of HDFS. This process allows HDFS to offer retail products with common characteristics across the United States and uniformly manage all domestic retail customers.

Employees . As of December 31, 2005, the Financial Services segment had approximately 700 employees. No employees of HDFS are represented by labor unions.

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Item 1A. Risk Factors

An investment in Harley-Davidson, Inc. involves risks, including those discussed below. These risk factors should be considered carefully before deciding whether to invest in the Company.

•             The Company has a number of competitors of varying sizes that are based both inside and outside the United States some of which have greater financial resources than the Company. Many of the Company’s competitors are more diversified than the Company, and they may compete in the automotive market or all segments of the motorcycle market.  Also, if price becomes a more important competitive factor for consumers in the heavyweight motorcycle market, the Company may have a competitive disadvantage.  Failure to adequately address and respond to these competitive pressures worldwide could have a material adverse effect on the Company’s business and results of operations.

•             The Company’s marketing strategy of associating its motorcycle products with a motorcycling lifestyle may not be successful with future customers.   The Company has been successful in marketing its products in large part by promoting the experience of motorcycling.  This lifestyle is now more typically associated with a retail customer base comprised of individuals who are, on average, in their mid-forties.  To sustain long-term growth, the Company must continue to be successful in promoting motorcycling to customers new to the sport of motorcycling including women, younger riders and more ethnically diverse riders. 

•             The Company’s success depends upon the continued strength of the Harley-Davidson brand . The Company believes that the Harley-Davidson brand has significantly contributed to the success of its business and that maintaining and enhancing the brand is critical to expanding its customer base.  Failure to protect the brand from infringers or to grow the value of the Harley-Davidson brand could have a material adverse effect on the Company’s business and results of operations.

•             The Company’s prospects for future growth are largely dependent upon its ability to develop and successfully introduce new, innovative and compliant products. The motorcycle market continues to advance in terms of cutting edge styling and new technology and, at the same time, be subject to increasing regulations related to safety and emissions.  The Company must continue to distinguish its products from its competitors’ products with unique styling and new technologies and to protect its intellectual property from imitators.  In addition, these new products must comply with applicable regulations worldwide.  The Company must make product advancements while maintaining the classic look, sound and feel associated with Harley-Davidson products. The Company must also be able to design and manufacture these products and deliver them to the marketplace in a timely manner.  There can be no assurances that the Company will be successful in these endeavors or that existing and prospective customers will favorably receive the Company’s new products.

•             The Company’s Motorcycles segment is dependent upon unionized labor.   Substantially all of the hourly employees working in the Motorcycles segment are represented by unions and covered by collective bargaining agreements.  Harley-Davidson Motor Company is currently a party to five collective bargaining agreements with local affiliates of the International Association of Machinists and Aerospace Workers and the United Steelworkers of America that expire during 2007 and 2008.  These collective bargaining agreements generally cover wages, healthcare benefits and retirement plans, seniority, job classes and

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work rules. There is no certainty that the Company will be successful in negotiating new agreements with these unions that extend beyond the current expiration dates or that these new agreements will be on terms as favorable to the Company as past labor agreements. Failure to renew these agreements when they expire or to establish new collective bargaining agreements on terms acceptable to the Company and the unions could result in work stoppages or other labor disruptions which could have a material adverse effect on customer relationships and the Company’s business and results of operations.

•              The Company’s operations are dependent upon attracting and retaining skilled employees. The Company’s future success depends on its continuing ability to identify, hire, develop, motivate and retain skilled personnel for all areas of its organization.   The current and future total compensation arrangements, which include benefits and cash bonuses, may not be successful in attracting new employees and retaining and motivating the Company’s existing employees. If the Company does not succeed in attracting personnel or retaining and motivating existing personnel, the Company may be unable to develop and distribute products and services and grow effectively.

•              The Company incurs substantial costs with respect to pension benefits and providing healthcare for its employees. The Company’s estimates of liabilities and expenses for pensions and other post-retirement healthcare benefits require the use of assumptions. They include the rate used to discount the future estimated liability, the rate of return on plan assets and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age and mortality). Actual results may differ which may have a material adverse effect on future results of operations, liquidity or shareholders’ equity. In addition, rising healthcare and retirement benefit costs in the United States may put the Company under significant cost pressure as compared to our competitors.

•              The Company manufactures products that create exposure to product liability claims and litigation. To the extent plaintiffs are successful in showing that personal injury or property damage result from defects in the design or manufacture of the Company’s products, the Company could be subject to claims for damages that are not covered by insurance. The costs associated with defending product liability claims, including frivolous lawsuits, and payment of damages could be substantial. The Company’s reputation could also be adversely affected by such claims, whether or not successful.

•              The Company sells its products at wholesale and must rely on a network of independent dealers and distributors to manage the retail distribution of its products. The Company depends on the capability of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company. If the Company’s independent dealers and distributors are not successful in these endeavors, then the Company will be unable to maintain or grow its revenues.

•              The Company and its independent dealers must balance the economies of level production with a more seasonal retail sales pattern . The Company generally records the sale of a motorcycle when it is shipped to the Company’s independent dealers and distributors. In the past, the Company has not experienced seasonal fluctuations in its wholesale motorcycle sales, and as a result, the Company has been able to maintain production that is relatively level. Over the last several years, the Company has been working to increase the availability of its motorcycles at dealerships to help improve the

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customer experience.  The increased availability of motorcycles has resulted in the timing of retail purchases tracking more closely with regional motorcycle riding seasons.  This requires the Company’s independent dealers and distributors to manage seasonal increases in inventory.  As a result, the Company and its independent dealers and distributors must balance the economies of level production with the inventory costs associated with a more seasonal retail sales pattern. Failure to balance the two could have a material adverse effect on the Company’s business and results of operations.

•              The Company relies on third party suppliers to obtain raw materials and provide component parts for use in the manufacture of its motorcycles .  The Company cannot be certain that it will not experience supply problems such as unfavorable pricing or untimely delivery of raw materials and components.   In certain circumstances, the Company relies on a single supplier to provide the entire requirement of a specific part and a change in this established supply relationship may cause disruption in the Company’s production schedule.  In addition, the price and availability of raw materials and component parts from suppliers can be adversely affected by factors outside of the Company’s control such as increased worldwide demand.   Further, Company suppliers who also serve the automotive industry may be experiencing financial difficulties due to a downturn in that industry.  These supplier risks may have a material adverse effect on the Company’s business and results of operations.

•              The Company must maintain its reputation of being a good corporate citizen and treating customers, employees, suppliers and other stakeholders fairly.  The Company has a history of good corporate governance.  Prior to the enactment of the Sarbanes-Oxley Act of 2002 (the “Act”), the Company had in place many of the corporate governance procedures and processes now mandated by the Act and related rules and regulations, such as Board Committee Charters and a Corporate Governance Policy.  In 1992, the Company established a Code of Business Conduct that defines how employees interact with various Company stakeholders and addresses issues such as confidentiality, conflict of interest and fair dealing.    Failure to maintain this reputation could have a material adverse effect on the Company’s business and results of operations.

•              The Company must invest in and successfully implement new information systems and technology . The Company is continually modifying and enhancing its systems and technology to increase productivity and efficiency. When implemented, the systems and technology may not provide the benefits anticipated and could add costs and complications to ongoing operations, which could have a material adverse effect on the Company’s business and results of operations.

•              The Company is the defendant in several class action and similar lawsuits .  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, putative nationwide class actions were filed against the Company relating to the cam bearing as discussed in Item 3. – Legal Proceedings.

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A number of shareholder class action lawsuits were filed between May 18, 2005 and July 1, 2005 against the Company and certain Company officers. The complaints allege securities law violations and seek unspecified damages relating generally to the Company’s April 13, 2005 announcement that it was reducing short-term production growth and planned increases of motorcycle shipments from 317,000 units in 2004 to a new 2005 target of 329,000 units compared to its original target of 339,000 units. 

In addition, several shareholder derivative lawsuits have been filed against directors and officers of the Company.  The lawsuits also name the Company as a nominal defendant.  In general, the shareholder derivative complaints include factual allegations similar to those in the class action complaints and allegations that officers and directors breached their fiduciary duties to the Company. 

On August 25, 2005, a class action lawsuit alleging violations of the Employee Retirement Income Security Act ("ERISA") was filed against the Company, the Administrative Committee of the Company and Company officers, directors and certain employees.  In general, the ERISA complaint includes factual allegations similar to those in the shareholder class action lawsuits and alleges on behalf of participants in certain Harley-Davidson retirement savings plans that the plan fiduciaries breached their ERISA fiduciary duties.

The uncertainty associated with substantial unresolved lawsuits could harm the Company’s business, financial condition and reputation. The defense of the lawsuits could result in the diversion of management’s time and attention away from business operations and negative developments with respect to the lawsuits could cause a decline in the price of the Company’s common stock. In addition, although we are unable to determine the amount, if any, that we may be required to pay in connection with the resolution of the lawsuits by settlement or otherwise, any such payment could have a material adverse effect on the Company’s business and results of operations .

•              There is a Securities and Exchange Commission inquiry relating to the Company .  On July 11, 2005, the staff of the Enforcement Division of the United States Securities and Exchange Commission (“SEC”) advised the Company that it is inquiring into matters generally relating to the Company’s April 13, 2005 announcement and certain allegations contained in the shareholder complaints described above.  The Company is cooperating with the SEC.  An inquiry of this nature ultimately could require significant management attention and result in a formal investigation, other proceedings and penalties.  Any of these outcomes could damage the reputation of the Company and could have a material adverse effect on the Company’s business and results of operations.

•              The Company must comply with governmental laws and regulations that are subject to change and involve significant costs. The Company’s sales and operations in areas outside the U.S. may be subject to foreign laws, regulations and the legal systems of foreign courts or tribunals.  These laws and policies governing operations of foreign-based companies could result in increased costs or restrictions on the ability of the Company to sell its products in certain countries.  The Company’s international sales operations may also be adversely affected by United States laws affecting foreign trade and taxation.

The Company’s domestic sales and operations are subject to governmental policies and regulatory actions of agencies of the United States Government, including the Environmental Protection Agency, SEC, National Highway Traffic Safety Administration, Department of

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Labor and Federal Trade Commission.  In addition, the Company is subject to policies and actions of the New York Stock Exchange (“NYSE”) and laws and actions of state legislatures and other local regulators.    Changes in regulations or the imposition of additional regulations could have a material adverse effect on the Company’s business and results of operations.

The Company’s financial services operations are governed by various foreign, federal and state laws that more specifically affect general financial and lending institutions. The Company’s financial services operations originate the majority of its consumer loans through a subsidiary, Eaglemark Savings Bank, a Nevada thrift, which is regulated by the Federal Deposit Insurance Corporation.  Changes in regulations or the imposition of additional regulations could affect the earnings of the financial services operations and have a material adverse effect on the Company’s business and results of operations.  Any unauthorized release of consumer data could subject the Company to liability and adversely affect the Company’s reputation.

In addition, many major competitors of the Company are not subject to the requirements of the SEC or the NYSE rules.  As a result, the Company may be required to disclose certain information that could put the Company at a competitive disadvantage to its principal competitors.

•              The Company’s financial services operations are highly dependent on accessing capital markets to fund its operations at attractive interest rates.  The Company’s ability to access unsecured capital markets is influenced by its credit ratings.   The Company currently has very strong credit ratings; however, if its ratings were to be downgraded, its cost of borrowing could be adversely affected resulting in reduced earnings and interest margins.

•              The Company’s financial services operations are exposed to credit risk on its retail and wholesale receivables, receivables held for sale, and its investment in retained securitization interests . Credit risk is the risk of loss arising from a failure by a customer to meet the terms of any contract with the Company.  Credit losses are influenced by general business and economic conditions, as well as contract terms, customer credit profiles and the new and used motorcycle market.  Negative changes in general business, economic or market factors could adversely impact the Company’s credit losses and future earnings.  Credit exposure is significantly sensitive to any decline in new and used motorcycle prices.  In addition, the frequency of losses could be negatively influenced by adverse changes in macro-economic factors, such as unemployment rates and bankruptcy filings.

•              The Company is exposed to market risk from changes in foreign exchange rates and interest rates.   The Company sells its products internationally and in most markets those sales are made in the foreign country’s local currency.  Earnings from the Company’s financial services business are affected by changes in interest rates.  The Company uses derivative financial instruments to attempt to manage foreign currency exchange rates and interest rate risks.  There can be no assurance that in the future the Company will successfully manage these risks. 

The Company disclaims any obligation to update these Risk Factors or any other forward-looking statements.  The Company assumes no obligation (and specifically disclaims any such obligation) to update these Risk Factors or any other forward-looking statements to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements.

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