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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number  1-9183

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    X       No         

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).    Yes    X       No         

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock Outstanding as of April 30, 2004: 295,145,463 shares.

HARLEY-DAVIDSON, INC.

Form 10-Q IndexFor
the Quarter Ended March 28, 2004

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PART I — FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

See accompanying notes.

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Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)

See accompanying notes.

4

Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

See accompanying notes.

5

HARLEY-DAVIDSON, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1 — Basis of Presentation and Use of Estimates

The condensed interim consolidated financial statements included herein have been prepared by Harley-Davidson, Inc. (the “Company”) without audit. Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States for interim financial information. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the condensed consolidated balance sheets as of March 28, 2004 and March 30, 2003, the condensed consolidated statements of income for the three-month periods then ended and the condensed consolidated statements of cash flows for the three-month periods then ended. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Note 2 — Inventories

The Company values its inventories at the lower of cost, principally using the last-in, first-out (LIFO) method, or market. Inventories consisted of the following (in thousands):

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Note 3 — Product Warranty

The Company provides a standard limited warranty on all new motorcycles sold. The warranty coverage includes parts and labor and begins when the motorcycle is sold to a retail customer. During September 2003 (beginning with shipments of 2004 model year motorcycles) the Company extended its warranty coverage from one year to two years in all of its markets except Europe, where the term had already been extended in 2002 to comply with European regulations. The Company maintains reserves for future warranty claims using an estimated cost per unit sold, which is based on historical Company claim information. Changes in the Company’s warranty liability were as follows (in thousands):

Note 4 — Business Segments

The Company operates in two business segments: Motorcycles and Related Products (Motorcycles) and Financial Services (Financial Services) which consists of the Company’s subsidiary, Harley-Davidson Financial Services, Inc (HDFS). 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. Selected segment information is set forth below (in thousands):

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Note 5 — Earnings Per Share

The following table sets forth the computation for basic and diluted earnings per common share (in thousands, except per share amounts):

Note 6 — Comprehensive Income

Total comprehensive income was $212.3 million and $192.4 million for the three-month periods ended March 28, 2004 and March 30, 2003, respectively. Total comprehensive income is comprised of net income, foreign currency translation adjustments and changes in net unrealized gains and losses related to: investment in retained securitization interests, derivative financial instruments designated as cash flow hedges and marketable securities. The following is a reconciliation of net income to comprehensive income (in thousands):

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Note 7 – Employee Benefit Plans

The Company has several defined benefit pension plans and several postretirement health care benefit plans, which cover substantially all employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. Components of net periodic benefit costs were as follows (in thousands):

As disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2003, the Company has no minimum required pension plan contributions in 2004 and currently does not plan to make a contribution in 2004. Postretirement healthcare claims are paid as incurred.

On December 8, 2003, a bill was signed into law that expands Medicare, primarily adding a prescription drug benefit for Medicare-eligible retirees starting in 2006. The Company anticipates that the benefits it pays after 2006 will be lower as a result of the new Medicare provisions; however, the retiree medical obligations and costs reported do not reflect the impact of this legislation. Deferring the recognition of the new Medicare provisions’ impact is permitted by Financial Accounting Standards Board Staff Position 106-1 due to open questions about some of the new Medicare provisions and a lack of authoritative accounting guidance about certain matters. The final accounting guidance could require changes to previously reported information.

Note 8 — Stock Options

The Company has stock option plans under which the Board of Directors may grant to employees nonqualified stock options with or without appreciation rights. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. For purposes of pro forma disclosures under SFAS No. 123, “Accounting for Stock-Based Compensation,” the estimated fair value of the options, using the Black-Scholes options pricing model, is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per share amounts):

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Note 8 — Stock Options (continued)

Note 9 — 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 cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reserves are monitored on an on-going basis and are updated based on new developments or new information in each matter.

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 asserted 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. On February 27, 2002, the Company’s motion to dismiss the amended complaint was granted by the Court and the amended complaint was dismissed in its entirety. An appeal was filed with the Wisconsin Court of Appeals. On April 12, 2002, the same attorneys filed a second putative nationwide class action against the Company in state court in Milwaukee County, Wisconsin relating to this cam bearing issue and asserting different legal theories than in the first action. The complaint sought unspecified compensatory damages, an order compelling the Company to repair the engines and other relief. On September 23, 2002, the Company’s motion to dismiss was granted by the Court, the complaint was dismissed in its entirety, and no appeal was taken. On January 14, 2003, the Wisconsin Court of Appeals reversed the trial court’s February 27, 2002 dismissal of the complaint in the first action, and the Company petitioned the Wisconsin Supreme Court for review. On March 26, 2004 the Wisconsin Supreme Court reversed the Court of Appeals and dismissed the remaining claims in the action. On April 12, 2004, the same attorneys filed a third action on behalf of the same plaintiffs from the action just dismissed by the Wisconsin Supreme Court. The Company intends to continue to vigorously defend this matter. The Company believes that the 5 year/50,000 mile warranty extension it announced in January 2001 adequately addresses the condition for affected owners.

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The Company is involved with government agencies and groups of potentially responsible parties in various environmental matters, including a matter involving the clean up of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection since 1986 in undertaking environmental investigation and remediation activities, including an on-going site-wide remedial investigation/feasibility study (RI/FS).

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 environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.

In February 2002, the Company was advised by the U.S. Environmental Protection Agency (EPA) that it considers some of the Company’s remediation activities at the York facility to be subject to the EPA’s corrective action program under the Resource Conservation and Recovery Act (RCRA) and offered the Company the option of addressing corrective action under a RCRA facility lead agreement. The objectives and procedures for facility lead corrective action under RCRA are consistent with the investigation and remediation already being conducted under the Agreement with the Navy, and the Company agreed to participate in EPA’s corrective action program under a RCRA facility lead agreement.

Although the RI/FS is still underway and substantial uncertainty exists concerning the nature and scope of the additional environmental investigation and remediation that will ultimately be required at the York facility, the Company estimates that its share of the future Response Costs at the York facility will be approximately $7.6 million. The Company has established reserves for this amount, which are included in Accrued expenses and other liabilities in the consolidated balance sheets.

The estimate of the Company’s future Response Costs that will be incurred at the York facility 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 2010.

Under the terms of the sale of the Commercial Vehicles Division in 1996, the Company has agreed to indemnify Utilimaster Corporation, until 2008, for certain claims related to environmental contamination present at the date of sale, up to $20 million. Based on the environmental studies performed as part of the sale of the Transportation Vehicles segment, the Company does not expect to incur any material expenditures under this indemnification.

Additionally, the Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures which are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability will not have a material adverse effect on the Company’s consolidated financial statements.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company and Buell Motorcycle Company and Harley-Davidson Financial Services. Harley-Davidson Motor Company produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel and general merchandise. Harley-Davidson Motor Company manufactures five families of motorcycles: Touring, Dyna Glide, Softail^®, VRSC and Sportster^®. Buell Motorcycle Company produces sport motorcycles, including four big-twin XB models and the single-cylinder Buell^® Blast^®. Buell also offers a line of motorcycle parts, accessories, apparel and general merchandise. Harley-Davidson Financial Services provides wholesale and retail financing and insurance programs primarily to Harley-Davidson/Buell dealers and customers.

Overview⁽¹⁾

Management believes that the Company’s performance during the first quarter of 2004 is in line with both its short and long-term performance objectives. During the first quarter of 2004 the Company shipped 74,090 Harley-Davidson units, grew revenue by 4.7% and increased diluted earnings per share by 11.5%, over the same quarter last year. These results, are on track to meet the Company’s 2004 objectives to ship 317,000 Harley-Davidson units and to achieve an earnings growth rate in the mid-teens. These results, in combination with the Company’s continuing effort to offer innovative products and services and to drive productivity gains in all facets of the business, are in line with the Company’s longer-term goals to ship 400,000 Harley-Davidson units in 2007 and to achieve earnings growth rates in the mid-teens for the foreseeable future.

Results of Operations for the Three Months Ended March 28, 2004
Compared to the Three Months Ended March 30, 2003

The “% Change” figures included in the “Results of Operations” section have been calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented.

Overall

The Company’s net revenue for the first quarter of 2004 totaled $1.17 billion, a $52.0 million, or 4.7%, increase over the first quarter of 2003. First quarter net income for 2004 was $204.6 million compared to $186.2 million in 2003, an increase of 9.9%. Diluted earnings per share for the first quarter of 2004 was $.68, representing an 11.5% increase over 2003 first quarter earnings per share of $.61. Diluted earnings per share was positively impacted during the first quarter of 2004 by a decrease in the weighted-average shares outstanding, which were 299.9 million in the first quarter of 2004 compared to 304.6 million in the same quarter last year. The decrease in weighted-average shares outstanding was primarily due to the Company’s repurchase of 7.8 million shares of common stock during the first quarter of 2004. The Company’s share repurchases are discussed in further detail under “Liquidity and Capital Resources.”

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Net Revenue

The following table includes net revenue by product line for the Motorcycles segment for the three months ended March 28, 2004 and March 30, 2003 (in millions):

The increase in net revenue during the first quarter of 2004 was led by a $42.3 million, or 4.8%, increase in revenue from the sale of Harley-Davidson motorcycles. Harley-Davidson motorcycle revenue was higher primarily as a result of the 4.9% increase in units shipped (see “Motorcycle Unit Shipments” below). During the first quarter of 2004 Harley-Davidson motorcycle revenue also benefited from changes in foreign currency exchange rates partially offset by lower revenue due to changes in product mix and lower wholesale prices as discussed below.

During the first quarter of 2004 changes in foreign currency exchange rates, when compared to the same period last year, resulted in an increase in Harley-Davidson motorcycle revenue of approximately $17.0 million. Offsetting the higher revenue from changes in exchange rates was lower revenue resulting from changes in product mix and lower wholesale pricing.

Motorcycle revenue in the first quarter of 2004 was negatively impacted by an increase in the percentage of shipments consisting of lower priced Sportster motorcycles and a decrease in the percentage of shipments consisting of more expensive custom motorcycles. This shift in mix was driven by increased production of Sportster motorcycles that began with the introduction of the completely redesigned 2004 Sportster models in September 2003. The redesigned Sportster motorcycles are an important part of the Company’s strategy to attract new customers to the Harley-Davidson family. The Company expects that Sportster motorcycles will continue to be in the range of 20% to 25% of total units shipped over the longer term. ⁽¹⁾

Finally, Harley-Davidson motorcycle revenue in the first quarter of 2004 was negatively impacted by the lower wholesale prices associated with the 2004 model year motorcycles. Wholesale prices on the 2004 models reflect the elimination of 100^th Anniversary special edition features and as a result are slightly lower than the wholesale prices for the 100^th Anniversary models sold during the first quarter of 2003.

During the first quarter of 2004 net revenue from Parts and Accessories (P&A) totaled $169.2 million, a 5.8% increase over the first quarter of 2003. Total P&A revenue in the first quarter of last year included $13.9 million from sales of 100th Anniversary P&A products. Excluding the 100th Anniversary revenue from 2003, the P&A revenue growth rate for the first quarter of 2004 was 15.9%. On a longer-term basis the Company expects that the growth rate for P&A revenue will be slightly higher than the growth rate for Harley-Davidson^® motorcycle units.⁽¹⁾

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General Merchandise net revenue during the first quarter of 2004 was $54.4 million, down 3.7% from the same period last year. Revenue from 100th Anniversary General Merchandise products accounted for $8.3 million of total General Merchandise revenue during the first quarter of last year. Excluding the revenue from the sale of 100^th Anniversary products from the first quarter of 2003, the General Merchandise revenue growth rate for the first quarter of 2004 was 12.7%. The Company expects that the longer-term growth rate for General Merchandise revenue will be lower than the growth rate for Harley-Davidson motorcycle units. ⁽¹⁾

Motorcycle Unit Shipments

The following table includes worldwide motorcycle unit shipments for the three months ended March 28, 2004 and March 30, 2003:

*Custom motorcycle units, as used in this table, includes Softail^®, Dyna Glide, VRSC and other custom models.

During the first quarter of 2004 the Company shipped 74,090 Harley-Davidson motorcycle units, 3,482 more units than in 2003. This increase in units was driven by strong retail demand for the Company’s 2004 model year motorcycles.

The Company’s wholesale motorcycle unit shipments are retailed through an independent worldwide dealer network. During the first quarter of 2004, retail sales of the Company’s Harley-Davidson motorcycles in the United States outpaced the heavyweight motorcycle (651+cc) industry, with an increase of 13.0%. In Europe and Japan retail sales for Harley-Davidson motorcycles during the first quarter of 2004 were flat and down, respectively, compared to the same quarter last year. Heavyweight (651+cc) motorcycle retail registrations data available to the Company, for the United States, Europe and Japan, through the month indicated, is as follows:

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Gross Profit

Gross profit of $440.1 million for the Motorcycles segment in the first quarter of 2004 was $37.1 million, or 9.2%, higher than gross profit in the same quarter last year. The $37.1 million increase in gross profit resulted primarily from the increase in net revenue. The gross margin was 37.8% in the first quarter of 2004 compared to 36.2% in the first quarter of 2003. The increase in gross margin in the first quarter of 2004 was driven primarily by favorable foreign currency exchange rates compared to the same quarter last year. The net impact of changes in foreign currency exchange rates on revenues and costs resulted in $10.0 million of higher gross profit during the first quarter of 2004 compared to the same quarter in 2003.

Financial Services

The following table includes the condensed statements of operations for the Financial Services segment, for the three months ended March 28, 2004 and March 30, 2003 (in millions):

Financial services income during the first quarter of 2004 was $80.5 million, an increase of $9.7 million over the first quarter of 2003. Operating income from financial services for the first quarter of 2004 was $50.3 million, an increase of $6.9 million over same quarter in 2003. The increase in operating income during the first quarter of 2004 was driven by continued strong marketplace acceptance of HDFS’ finance and insurance products as well as increased securitization related income.

During the first quarter of 2004, HDFS sold $625.0 million of retail motorcycle loans through securitization transactions resulting in gains of $25.2 million.  During the first quarter of 2003, HDFS sold approximately $550.0 million of retail motorcycle loans resulting in gains of $26.4 million.  The net gain as a percentage of the amount of loans securitized was 4.04% in 2004, which decreased from 4.80% in 2003, but is within the Company’s expectation of 3% to 4% for the current interest rate environment.⁽¹⁾

During 2004, income on investment in retained securitization interests increased $5.7 million over 2003 as the portfolio continued to perform better than anticipated.

15

Changes in HDFS’ allowance for credit losses during the three months ended March 28, 2004 and March 30, 2003 were as follows (in millions):

HDFS’ periodic evaluation of the adequacy of the allowance for credit losses is generally based on HDFS’ past loan loss experience, known and inherent risks in the portfolio, and current economic conditions.  HDFS believes the allowance is adequate to cover the losses of principal and accrued interest in the existing portfolio.

Operating Expenses

The following table includes operating expenses for the Motorcycles segment and Corporate for the three months ended March 28, 2004 and March 30, 2003 (in millions):

Total operating expenses during the first quarter of 2004 increased $9.6 million or 5.7% compared to the same period last year. Operating expenses as a percent of net revenue were 15.2% and 15.1% for first quarters of 2004 and 2003, respectively. Operating expenses, which include selling, administrative and engineering expense, are driven by the Company’s ongoing investment in various initiatives designed to support its current and longer-term growth objectives. In addition, during the first quarter of 2004, operating expenses were negatively impacted by $3.0 million due to changes in foreign currency exchange rates when compared to the first quarter of 2003.

Interest Income, net

Net interest income for the Motorcycles segment during the first quarter of 2004 was $5.0 million compared to $6.0 million in the same quarter last year. In connection with capacity expansion efforts, $1.1 million of interest cost was capitalized during the first quarter of 2003. No interest was capitalized in the first quarter of 2004.

Provision for Income Taxes

The Company’s effective income tax rate was 35.5% and 34.5% during the first quarters of 2004 and 2003, respectively. The Company’s effective income tax rate increased to 35.5% during the fourth quarter of 2003 as pre-tax income grew faster than certain permanent tax differences. The Company expects that the income tax rate will be 35.5% during the remainder of 2004.⁽¹⁾

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Other Matters

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 cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reserves are monitored on an on-going basis and are updated based on new developments or new information in each matter.

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 asserted 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. On February 27, 2002, the Company’s motion to dismiss the amended complaint was granted by the Court and the amended complaint was dismissed in its entirety. An appeal was filed with the Wisconsin Court of Appeals. On April 12, 2002, the same attorneys filed a second putative nationwide class action against the Company in state court in Milwaukee County, Wisconsin relating to this cam bearing issue and asserting different legal theories than in the first action. The complaint sought unspecified compensatory damages, an order compelling the Company to repair the engines and other relief. On September 23, 2002, the Company’s motion to dismiss was granted by the Court, the complaint was dismissed in its entirety, and no appeal was taken. On January 14, 2003, the Wisconsin Court of Appeals reversed the trial court’s February 27, 2002 dismissal of the complaint in the first action, and the Company petitioned the Wisconsin Supreme Court for review. On March 26, 2004 the Wisconsin Supreme Court reversed the Court of Appeals and dismissed the remaining claims in the action. On April 12, 2004, the same attorneys filed a third action on behalf of the same plaintiffs from the action just dismissed by the Wisconsin Supreme Court. The Company intends to continue to vigorously defend this matter. The Company believes that the 5 year/50,000 mile warranty extension it announced in January 2001 adequately addresses the condition for affected owners.

The Company is involved with government agencies and groups of potentially responsible parties in various environmental matters, including a matter involving the clean up of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection since 1986 in undertaking environmental investigation and remediation activities, including an on-going site-wide remedial investigation/feasibility study (RI/FS).

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 environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.

17

In February 2002, the Company was advised by the U.S. Environmental Protection Agency (EPA) that it considers some of the Company’s remediation activities at the York facility to be subject to the EPA’s corrective action program under the Resource Conservation and Recovery Act (RCRA) and offered the Company the option of addressing corrective action under a RCRA facility lead agreement. The objectives and procedures for facility lead corrective action under RCRA are consistent with the investigation and remediation already being conducted under the Agreement with the Navy, and the Company agreed to participate in EPA’s corrective action program under a RCRA facility lead agreement.

Although the RI/FS is still underway and substantial uncertainty exists concerning the nature and scope of the additional environmental investigation and remediation that will ultimately be required at the York facility, the Company estimates that its share of the future Response Costs at the York facility will be approximately $7.6 million. The Company has established reserves for this amount, which are included in Accrued expenses and other liabilities in the consolidated balance sheets.

The estimate of the Company’s future Response Costs that will be incurred at the York facility 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 2010.

Additionally, the Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures which are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability will not have a material adverse effect on the Company’s consolidated financial statements.

Liquidity and Capital Resources

Operating Activities

The Company’s main source of liquidity is cash from operating activities which consists of net income adjusted for non-cash operating activities, collections of retained securitization interests, pension plan contributions, the tax benefit of stock option exercises and changes in current assets and liabilities.

The Company generated $350.9 million of cash from operating activities during the first quarter of 2004 compared to $292.1 million in the first quarter of 2003. The largest component of cash from operating activities is net income adjusted for depreciation, which was approximately $255.5 million in 2004 compared to $232.1 million in 2003. Other items impacting operating cash flows are detailed in the Condensed Consolidated Statements of Cash Flows on page 5 of this report.

Cash provided by operating activities is also impacted by changes in current assets and liabilities. Changes in these balances increased operating cash flows by approximately $50.0 million and $47.7 million in the first quarters of 2004 and 2003, respectively. Changes in current assets and liabilities for the three months ended March 28, 2004 and March 30, 2003 were as follows (in millions):

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Changes in accounts payable and accrued expenses resulted in an increase to operating cash flows of $90.4 million in the first quarter of 2004. This increase relates primarily to higher accrued income taxes and higher accounts payable related to increased unit volumes and during the first quarter of 2004. Similar factors contributed to the increase in 2003.

Consolidated inventories increased $15.1 million during the first quarter of 2004. This net increase includes a $25.8 million increase in finished goods motorcycle inventory offset by decreases in the Company’s other inventory categories (see Note 2 to the condensed consolidated financial statements). 2004 first quarter finished goods motorcycle inventory included a higher level of goods in-transit due to the timing of inventory transfers from the Company’s U.S. manufacturing facilities to its international subsidiaries. In addition, the Company has continued to improve its distribution to its dealers in Europe by eliminating some independent distributors and by continuing its effort to provide its dealers with a wider selection of product that can be quickly accessed from a Company controlled centralized warehouse. These changes have resulted in modest increases in Company inventory levels in Europe.

Investing Activities

The Company’s investing activities consist primarily of capital expenditures, finance receivables activity and net changes in marketable securities. Net cash used in investing activities was $20.3 million and $56.2 million during the first quarters of 2004 and 2003, respectively.

Capital expenditures were $31.0 million and $41.8 million through March of 2004 and 2003, respectively. The Company estimates that total capital expenditures required in 2004 will be in the range from $250 to $300 ^million.(1) The Company anticipates it will have the ability to fund all capital expenditures in 2004 with internally generated funds.⁽¹⁾

During the first quarters of 2004 and 2003, HDFS acquired and originated $1.64 billion and $1.51 billion of finance receivables, respectively. Proceeds from securitization transactions and collections resulted in cash inflows of $1.66 billion and $1.48 billion during the first quarters of 2004 and 2003, respectively.

Financing Activities

The Company’s financing activities consist primarily of stock transactions, dividend payments and finance debt activity. Net cash used in financing activities during the first quarters of 2004 and 2003 was $552.4 million and $120.9 million, respectively.

During the first quarter of 2004 the Company repurchased 7.8 million shares of its common stock at a total cost of $403.5 million, which represents a weighted-average price of $51.73 per share. This repurchase was made with the existing authority previously granted by the Board of Directors under which 7.8 million shares remained prior to the first quarter of 2004. On April 24, 2004 the Company’s Board of Directors authorized the Company to buyback up to an additional 20 million shares of its common stock.

The Company also 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 (1) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 1998 plus (2) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. During the first quarter of 2003, the Company repurchased .5 million shares of its common stock under this authorization at a weighted-average price of $40.33 per share. No shares were repurchased under this authorization during the first quarter of 2004.

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During the first quarter of 2004 the Company paid a dividend of $.08 per share or $23.6 million, compared to the 2003 first quarter dividend of $.035 per share or $10.6 million. On April 24, 2004 the Company’s Board of Directors approved a second quarter cash dividend of $0.10 per share, a 25% increase over the Company’s first quarter 2004 dividend, payable June 24, 2004 to shareholders of record as of June 3, 2004.

In addition to operating cash flow and asset-backed securitizations, HDFS is financed by the issuance of commercial paper, borrowings under revolving credit facilities, medium term notes, senior subordinated debt and borrowings from the Company. HDFS’ outstanding debt consisted of the following as of March 28, 2004 and March 30, 2003 (in thousands):

HDFS has agreements with financial institutions providing bank credit facilities totaling $750 million (Domestic Credit Facilities). The Domestic Credit Facilities consist of a $350 million revolving term facility due in 2005 and a $400 million 364-day revolving credit facility due September 2004. HDFS expects that the $400 million credit facility expiring in September 2004 will be renewed or that suitable alternatives exist.⁽¹⁾

The primary uses of the Domestic Credit Facilities are to provide liquidity to the unsecured commercial paper program and to fund HDFS’ business operations.

Subject to limitations, HDFS may issue up to $750 million of short-term commercial paper with maturities up to 270 days. Outstanding commercial paper may not exceed the unused portion of the Domestic Credit Facilities. As a result, the combined total of commercial paper and borrowings under the Domestic Credit Facilities was limited to $750 million as of March 28, 2004.

HDFS has a $200 million European revolving credit facility due July 2005. The primary purpose of the facility is to fund HDFS’ European business operations.

During November 2003, HDFS issued $400 million in medium term notes (Notes) due in December 2008. The Notes provide for semi-annual interest payments and principal due at maturity. At March 28, 2004, the Notes include a fair value adjustment of $10.9million due to interest rate swap agreements designated as fair value hedges. The effect of the interest rate swap agreements is to convert the interest rate on the Notes from a fixed to a floating rate.

HDFS has $30 million of ten year senior subordinated notes, expiring in 2007.

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HDFS has a revolving credit line with the Company whereby HDFS may borrow up to $210 million from the Company at a market interest rate. As of March 28, 2004, HDFS had no outstanding borrowings owed to the Company under this agreement. As of March 30, 2003, HDFS had $100 million in outstanding borrowings to the Company under this agreement. The $100 million loan was eliminated upon consolidation and therefore is not included in finance debt in table above or on the consolidated balance sheets.

In connection with debt agreements, HDFS has various operating and financial covenants and remains in compliance at March 28, 2004.  The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with 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.  No amount has ever been provided to HDFS under the support agreement.

The Company expects future activities of HDFS will be financed from funds internally generated by HDFS, sale of loans through securitization programs, issuance of commercial paper and medium term notes, borrowings under revolving credit facilities, advances or loans from the Company and subordinated debt. ⁽¹⁾

Risk Factors

The Company’s ability to meet the targets and expectations noted in this Form 10-Q depends 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 P&A/general merchandise supplier backorders, (v) sell all of the Harley-Davidson motorcycles it plans to produce, (vi) continue to develop the capacity of its distributor and dealer network, (vii) avoid unexpected changes in the regulatory environment for its products, (viii) successfully adjust to foreign currency exchange rate fluctuations, (ix) successfully adjust to interest rate fluctuations, and (x) successfully manage changes in the credit quality of HDFS’s loan portfolio. Also, given current economic conditions in the metal markets, 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 these raw materials or components. In addition, the Company could experience delays in the operation of manufacturing facilities as a result of work stoppages, difficulty with suppliers, natural causes, terrorism 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).

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Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2003 for a complete discussion of the Company’s market risk. There have been no material changes to the market risk information included in the Company’s 2003 annual report on Form 10-K.

Item 4.   Controls and Procedures

(a)    Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management evaluated, with the participation of the Company’s Chairman and Chief Executive Officer and Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the Chairman and Chief Executive Officer and the Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the date of such evaluation to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

(b)    Changes in internal controls. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s first quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

⁽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 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. 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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Part II — OTHER INFORMATION

Item 1.   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 asserted 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. On February 27, 2002, the Company’s motion to dismiss the amended complaint was granted by the Court and the amended complaint was dismissed in its entirety. An appeal was filed with the Wisconsin Court of Appeals. On April 12, 2002, the same attorneys filed a second putative nationwide class action against the Company in state court in Milwaukee County, Wisconsin relating to this cam bearing issue and asserting different legal theories than in the first action. The complaint sought unspecified compensatory damages, an order compelling the Company to repair the engines and other relief. On September 23, 2002, the Company’s motion to dismiss was granted by the Court, the complaint was dismissed in its entirety, and no appeal was taken. On January 14, 2003, the Wisconsin Court of Appeals reversed the trial court’s February 27, 2002 dismissal of the complaint in the first action, and the Company petitioned the Wisconsin Supreme Court for review. On March 26, 2004 the Wisconsin Supreme Court reversed the Court of Appeals and dismissed the remaining claims in the action. On April 12, 2004, the same attorneys filed a third action on behalf of the same plaintiffs from the action just dismissed by the Wisconsin Supreme Court. The Company intends to continue to vigorously defend this matter. The Company believes that the 5 year/50,000 mile warranty extension it announced in January 2001 adequately addresses the condition for affected owners.

The Company is involved with government agencies and groups of potentially responsible parties in various environmental matters, including a matter involving the clean up of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection since 1986 in undertaking environmental investigation and remediation activities, including an on-going site-wide remedial investigation/feasibility study (RI/FS).

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 environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.

In February 2002, the Company was advised by the U.S. Environmental Protection Agency (EPA) that it considers some of the Company’s remediation activities at the York facility to be subject to the EPA’s corrective action program under the Resource Conservation and Recovery Act (RCRA) and offered the Company the option of addressing corrective action under a RCRA facility lead agreement. The objectives and procedures for facility lead corrective action under RCRA are consistent with the investigation and remediation already being conducted under the Agreement with the Navy, and the Company agreed to participate in EPA’s corrective action program under a RCRA facility lead agreement.

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Although the RI/FS is still underway and substantial uncertainty exists concerning the nature and scope of the additional environmental investigation and remediation that will ultimately be required at the York facility, the Company estimates that its share of the future Response Costs at the York facility will be approximately $7.6 million. The Company has established reserves for this amount, which are included in accrued expenses and other liabilities in the Company’s consolidated balance sheets.

The estimate of the Company’s future Response Costs that will be incurred at the York facility 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 2010.

Item 2.   Changes in Securities and Use of Proceeds

The following table contains detail related to the repurchase of common stock based on the date of trade during the first quarter ended March 28, 2004.

All of the shares repurchased by the Company during the first quarter of 2004 were completed under a publicly disclosed authorization from the Company’s Board of Directors originally approved in 1990. The original authorization provided for the repurchase of 16 million shares of common stock (adjusted for two 2-for-1 stock splits) and contained no dollar limit or expiration date.

On April 24, 2004, subsequent to the period covered by this report, the Company’s Board of Directors authorized the buyback of up to an additional 20 million shares of common stock with no dollar limit or expiration date.

Also, since 1998, 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 (1) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 1998 plus (2) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. No shares were repurchased under this authorization during the first quarter of 2004.

Item 6.   Exhibits and Reports on Form 8-K

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Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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HARLEY-DAVIDSON, INC.
Exhibit Index to Form 10-Q

* Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer will participate.

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