Overview
The Company's income from continuing operations for 2012 was $623.9 million, or $2.72 per diluted share compared to $548.1 million, or $2.33 per diluted share, in 2011. The increase in 2012 income from continuing operations was driven by strong financial performance in both the Motorcycles and the Financial Services segments. Operating income from the Motorcycles segment was up $154.3 million over 2011 on a 6.2% increase in wholesale shipments of Harley-Davidson motorcycles, lower manufacturing costs and a decrease in restructuring expense. Operating income from the Financial Services segment was also up over the prior year, increasing $15.9 million, or 5.9%, driven primarily by a decrease in interest expense.
In 2012, worldwide independent dealer retail sales of new Harley-Davidson motorcycles grew 6.2% compared to 2011, including a 6.6% increase in the U.S. and a 5.6% increase in international markets. The Company believes the improvement in retail sales of new Harley-Davidson motorcycles reflects the strength of the Harley-Davidson brand and the appeal of model- year 2012 and 2013 products, worldwide dealer efforts and continued investment in growth opportunities around the world.
Please refer to the "Results of Operations 2012 Compared to 2011" for additional details concerning the results for 2012.

(1) Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor 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 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 (February 22, 2013), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Outlook(1)
On January 29, 2013 the Company announced the following expectations for 2013. The Company expects to ship 259,000 to 264,000 Harley-Davidson motorcycles during 2013, with 71,000 to 76,000 Harley-Davidson motorcycles expected to ship in the first quarter of 2013. The 2013 shipment estimates take several factors into consideration, including new model-year 2013 and 2014 products, the continued success of outreach efforts in the U.S., the improved product availability in the U.S., continued expansion of the international distribution network and the strong appeal of the Harley-Davidson brand. At the same time, the Company remains cautious on the world economies, in particular in the U.S. and Europe.
Shipment expectations for the first quarter of 2013 reflect an increase of approximately 10% to 18% compared to the first quarter of 2012. This increase is expected to be supported by the new surge manufacturing capability launched at the York, Pennsylvania (York) facility at the start of 2013. The surge manufacturing capabilities at York will rely on a new seasonal workforce and will be supported by similar efforts at the Company's Wisconsin manufacturing facilities that supply York. The surge manufacturing capability is expected to enable the Company to increase manufacturing capacity in the first half of 2013 to more closely match retail demand. As a result, U.S. retail inventory is expected to increase by the end of the first quarter as dealers replenish inventory to prepare for the 2013 selling season.
The Company expects to implement surge manufacturing capabilities at its Kansas City, Missouri (Kansas City) facility in 2014. Consequently, the Company expects U.S. retail inventory to be slightly lower on a year over year basis at the end of 2013 as dealers more closely align inventory with the seasonal low point for retail sales in advance of the expected surge manufacturing capability at the Kansas City facility.
In addition, the Company expects full year 2013 gross margin to be between 35.25% and 36.25%. In 2013 gross margin is expected to be positively impacted by approximately $25 million in incremental restructuring savings, approximately $16 million less in temporary inefficiencies, a lower fixed cost per unit on higher production and higher pricing. To a lesser extent, gross margin is also expected to be favorably impacted by changes in product mix. However, these positive benefits are expected to be offset by unfavorable currency impacts due in part to less favorable hedge positions, higher pension expense and pressure on material costs.
The Company believes operating income from financial services in 2013 will be modestly lower than 2012 as the business benefited from $17 million in credit loss allowance releases which may not repeat in 2013. In addition, the Company expects changing consumer behavior, HDFS' funding of additional prudently structured loans in the near-prime and sub-prime segments and lower recoveries resulting from lower charge-offs in prior periods to result in modestly higher credit losses in 2013.
The Company's capital expenditure estimates for 2013 are between $200 million and $220 million. The Company anticipates it will have the ability to fund all capital expenditures in 2013 with cash flows generated by operations. The Company also announced on January 29, 2013 that it expects the full year 2013 effective income tax rate to be approximately 34.8% for continuing operations which includes the impact of the reinstatement of the Federal Research and Development tax credit with the enactment of the American Taxpayer Relief Act of 2012. This guidance excludes the effect of any potential future adjustments such as changes in tax legislation or audit settlements which are recorded as discrete items in the period in which they are settled.

Restructuring Activities(1)
2011 Restructuring Plans
In December 2011, the Company made a decision to cease operations at New Castalloy, its Australian subsidiary and producer of cast motorcycle wheels and wheel hubs, and source those components through other existing suppliers. The Company expects the transition of supply from New Castalloy to be complete in 2013. The decision to close New Castalloy comes as part of the Company's overall long term strategy to develop world-class manufacturing capability throughout the Company by restructuring and consolidating operations for greater competitiveness, efficiency and flexibility. In connection with the 2011 New Castalloy restructuring plan, the Company will reduce its workforce by approximately 200 employees by the end of 2013.
In February 2011, the Company's unionized employees at its facility in Kansas City, Missouri ratified a new seven-year labor agreement. The new agreement took effect on August 1, 2011. The new contract is similar to the labor agreements ratified

at the Company's Wisconsin facilities in September 2010 and its York facility in December 2009, and allows for similar flexibility, increased production efficiency and the addition of a flexible workforce component. The 2011 Kansas City restructuring plan results in approximately 145 fewer full-time hourly unionized employees in its Kansas City facility than would be required under the previous contract.
2010 Restructuring Plan
In September 2010, the Company's unionized employees in Wisconsin ratified three separate new seven-year labor agreements which took effect in April 2012 when the prior contracts expired. The new contracts are similar to the labor agreement ratified at York in December 2009 and allow for similar flexibility, increased production efficiency and the addition of a flexible workforce component.
The 2010 restructuring plan results in approximately 250 fewer full-time hourly unionized employees in its Milwaukee-area facilities than would be required under the previous contract and approximately 75 fewer full-time hourly unionized employees in its Tomahawk facility than would be required under the previous contract.
2009 Restructuring Plan
During 2009, in response to the U.S. economic recession and worldwide slowdown in consumer demand, the Company committed to a volume reduction and a combination of restructuring actions that were expected to be completed at various dates between 2009 and 2012. The actions were designed to reduce administrative costs, eliminate excess capacity and exit non-core business operations. The Company's announced actions include the restructuring and transformation of its York production facility including the implementation of a new more flexible unionized labor agreement which allows for the addition of a flexible workforce component; consolidation of facilities related to engine and transmission production; outsourcing of certain distribution and transportation activities and exiting the Buell product line. In addition, the Company implemented projects under this plan involving the outsourcing of select information technology activities and the consolidation of an administrative office in Michigan into its corporate headquarters in Milwaukee, Wisconsin. The 2009 restructuring plan results in a reduction of approximately 2,700 to 2,900 hourly production positions and approximately 800 non-production, primarily salaried positions within the Motorcycles segment and approximately 100 salaried positions in the Financial Services segment. Restructuring Costs and Savings
During 2012, the Company incurred $28.5 million in restructuring expense related to its combined restructuring plan activities. This is in addition to $455.8 million in restructuring and impairment expense incurred in prior years since its restructuring activities were initiated in 2009. On January 29, 2013, the Company provided an estimate for restructuring expenses related to its combined restructuring plan activities that it expects to incur from 2009 to 2013 of approximately $495 million which is within the range of expected cost of $490 million to $510 million that the Company previously provided. The Company continues to expect approximately 35% of the amounts to be non-cash. The estimated restructuring expense includes an estimate of $13 million in 2013, which was revised up from the previous estimate of $5 million to $10 million reflecting a shift in expected expense from 2012 to 2013.
The Company anticipates annual ongoing total savings from restructuring activities initiated since early 2009 of approximately $320 million upon completion of all announced restructuring activities. The Company has realized or estimates that it will realize cumulative savings from these restructuring activities, measured against 2008, as follows:

• 2009 - $91 million (91% operating expense and 9% cost of sales) (actual);

• 2010 - $172 million (64% operating expense and 36% cost of sales) (actual);

• 2011 - $217 (51% operating expense and 49% cost of sales) (actual);

• 2012 - $280 million (42% operating expense and 58% cost of sales) (actual);

• 2013 - $305 million (approximately 40% operating expense and approximately 60% cost of sales) (estimated);

• Ongoing annually upon completion - $320 million (approximately 35% operating expense and approximately 65% cost of sales) (estimated).

Results of Operations 2012 Compared to 2011

Consolidated Results

(in thousands, except earnings per                                        Increase           %
share)                                       2012            2011        (Decrease)       Change
Operating income from motorcycles &
related products                         $   715,489     $  561,176     $   154,313         27.5  %
Operating income from financial
services                                     284,687        268,791          15,896          5.9  %
Operating income                           1,000,176        829,967         170,209         20.5  %
Investment income                              7,369          7,963            (594 )       (7.5 )%
Interest expense                              46,033         45,266             767          1.7  %
Income before income taxes                   961,512        792,664         168,848         21.3  %
Provision for income taxes                   337,587        244,586          93,001         38.0  %
Income from continuing operations            623,925        548,078          75,847         13.8  %
Income from discontinued operations,
net of taxes                                       -         51,036         (51,036 )         NM
Net income                               $   623,925     $  599,114     $    24,811          4.1  %
Diluted earnings per share from
continuing operations                    $      2.72     $     2.33     $      0.39         16.7  %
Diluted earnings per share from
discontinued operations                  $         -     $     0.22     $     (0.22 )         NM
Diluted earnings per share               $      2.72     $     2.55     $      0.17          6.7  %

Operating income for the Motorcycles segment during 2012 improved by $154.3 million compared to 2011 driven by a 6.2% increase in motorcycle shipments, price increases, decreases in manufacturing costs and lower restructuring expenses compared to the prior year. Operating income for the Financial Services segment improved by $15.9 million during 2012 primarily due to lower interest expense. Please refer to the "Motorcycles and Related Products Segment" and "Financial Services Segment" discussions following for a more detailed discussion of the factors affecting operating income.
The effective income tax rate for 2012 was 35.1% compared to 30.9% for 2011. The lower 2011 effective tax rate was mainly driven by a change in the 2011 Wisconsin income tax law associated with certain net operating losses, the favorable settlement of an IRS audit and the impact of the federal Research and Development Tax Credit.
In 2011, the Company recognized a $51.0 million benefit on income from discontinued operations, driven by the reversal of tax amounts reserved in prior years related to the divestiture of the Company's MV Agusta subsidiaries. The amounts had been reserved pending an agreement that the Company and the IRS reached on the tax treatment of the transaction in December 2011. Diluted earnings per share from continuing operations was $2.72 in 2012, up 16.7% over 2011. The increase in diluted earnings per share was driven primarily by the 13.8% increase in income from continuing operations, but also benefited from lower diluted weighted average shares outstanding. Diluted weighted average share outstanding decreased from 234.9 million in 2011 to 229.2 million in 2012 driven by the Company's repurchase of common stock over the last two years. Please refer to "Liquidity and Capital Resources" for additional information concerning the Company's share repurchase activity.

Motorcycles and Related Products Segment Harley-Davidson Motorcycle Retail Sales
Worldwide independent dealer retail sales of Harley-Davidson motorcycles increased 6.2% during 2012 compared to 2011. Retail sales of Harley-Davidson motorcycles increased 6.6% in the United States and 5.6% internationally in 2012. International retail sales as a percent of total retail sales were down slightly compared to 2011 reflecting the tough market conditions in Europe. International retail sales represented 35.3% and 35.5% of total retail sales in 2012 and 2011, respectively. Given the fact that the Company's European business was down in 2012 and the economic concerns that remain in Europe for the near term, the Company no longer believes it will meet its goal of international retail sales exceeding 40% of total retail sales by 2014. However, the Company continues to believe international retail sales will grow at a faster rate than domestic sales through 2014(1).
The following table includes retail unit sales of Harley-Davidson motorcycles:
Harley-Davidson Motorcycle Retail Sales(a)

                              Heavyweight (651+cc)

                                                                      Increase        %
                                                 2012       2011     (Decrease)    Change
North America Region
United States                                  161,678    151,683        9,995      6.6  %
Canada                                          10,573     10,502           71      0.7
Total North America Region                     172,251    162,185       10,066      6.2
Europe, Middle East and Africa Region (EMEA)
Europe(b)                                       37,027     39,334       (2,307 )   (5.9 )
Other                                            6,000      5,006          994     19.9
Total EMEA Region                               43,027     44,340       (1,313 )   (3.0 )
Asia Pacific Region
Japan                                           10,642     10,401          241      2.3
Other                                           13,839     11,015        2,824     25.6
Total Asia Pacific Region                       24,481     21,416        3,065     14.3
Latin America Region                            10,090      7,247        2,843     39.2
Total Worldwide Retail Sales                   249,849    235,188       14,661      6.2  %

(a) Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning retail sales and this information is subject to revision.

(b) Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The following table includes industry retail motorcycle registration data:
Heavyweight Motorcycle Registration Data(a)

                                          Increase        %
                     2012       2011     (Decrease)    Change
United States(b)   281,974    271,029       10,945      4.0  %

(a) Heavyweight data includes street legal 651+cc models. Street legal 651+cc models include on-highway and dual purpose models and three-wheeled vehicles.

(b) United States industry data is derived from information provided by Motorcycle Industry Council (MIC). This third party data is subject to revision and update. Prior periods have been adjusted to include all dual purpose models that were previously excluded.

(c) Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data includes 651+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. This third-party data is subject to revision and update.

Motorcycle Unit Shipments
The following table includes wholesale motorcycle unit shipments for the
Motorcycles segment:

                                                                                            %
                                          2012                 2011          Increase    Change
United States                      160,477     64.8 %   152,180     65.3 %      8,297      5.5 %
International                       87,148     35.2 %    80,937     34.7 %      6,211      7.7
Harley-Davidson motorcycle units   247,625    100.0 %   233,117    100.0 %     14,508      6.2 %
Touring motorcycle units            99,496     40.2 %    92,002     39.5 %      7,494      8.1 %
Custom motorcycle units*            96,425     38.9 %    91,459     39.2 %      4,966      5.4
Sportster motorcycle units          51,704     20.9 %    49,656     21.3 %      2,048      4.1
Harley-Davidson motorcycle units   247,625    100.0 %   233,117    100.0 %     14,508      6.2 %

* Custom motorcycle units, as used in this table, include Dyna, Softail, V-Rod and CVO models.

During 2012, wholesale shipments of Harley-Davidson motorcycles were up 6.2% compared to the prior year and within the Company's most recent expected shipment range of 245,000 to 250,000 motorcycles. As expected, wholesale motorcycle shipments in the fourth quarter of 2012 were down compared to the fourth quarter of 2011 in advance of the launch of seasonal surge manufacturing at the Company's York facility in early 2013. Consequently, retail inventory in the U.S. was approximately 1,200 units lower than at the end of 2011. Segment Results
The following table includes the condensed statement of operations for the Motorcycles segment (in thousands):

                                                                   (Decrease)       %
                                        2012           2011         Increase      Change
Revenue:
Motorcycles                         $ 3,764,794    $ 3,554,547    $  210,247       5.9  %
Parts & Accessories                     859,945        816,569        43,376       5.3
General Merchandise                     299,403        274,124        25,279       9.2
Other                                    18,440         17,024         1,416       8.3
Total revenue                         4,942,582      4,662,264       280,318       6.0
Cost of goods sold                    3,222,394      3,106,288       116,106       3.7
Gross profit                          1,720,188      1,555,976       164,212      10.6
Selling & administrative expense        846,894        788,565        58,329       7.4
Engineering expense                     129,330        138,243        (8,913 )    (6.4 )
Restructuring expense                    28,475         67,992       (39,517 )   (58.1 )
Operating expense                     1,004,699        994,800         9,899       1.0
Operating income from motorcycles   $   715,489    $   561,176    $  154,313      27.5  %

The following table includes the estimated impact of the significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from 2011 to 2012 (in millions):

                                                           Cost of
                                                 Net        Goods       Gross
                                               Revenue      Sold       Profit
                                       2011   $ 4,662     $ 3,106     $ 1,556
Volume                                            293         197          96
Price                                              30           -          30
Foreign currency exchange rates and hedging       (76 )       (59 )       (17 )
Shipment mix                                       34          29           5
Raw material prices                                 -          (7 )         7
Manufacturing costs                                 -         (43 )        43
Total                                             281         117         164
                                       2012   $ 4,943     $ 3,223     $ 1,720

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from 2011 to 2012:

• Volume increases were driven by the increase in wholesale shipments of motorcycle units as well as higher sales volumes for Parts & Accessories and General Merchandise.

• On average, wholesale prices on the Company's 2012 and 2013 model year motorcycles are higher than the preceding model years resulting in the favorable impact on revenue and gross profit during the period.

• Foreign currency exchange rates during 2012 resulted in a negative impact on net revenue, which was partially offset by the favorable impact of gains associated with foreign currency hedging included in cost of goods sold.

• Shipment mix changes resulted primarily from favorable product mix changes between motorcycle families.

• Raw material prices were lower in 2012 relative to 2011 primarily due to lower metal costs.

• Manufacturing costs were favorably impacted by savings related to restructuring initiatives. Temporary inefficiencies associated with the Company's restructuring and transformation at its York facility were $33 million in 2012 compared to $32 million in 2011.

The net increase in operating expense was primarily due to incremental investments to support the Company's growth initiatives and increases in employee costs including pension. These cost increases were partially offset by lower restructuring expense related to the Company's previously announced restructuring activities as well as lower engineering expense. For further information regarding the Company's previously announced restructuring activities, refer to Note 4 of Notes to Condensed Consolidated Financial Statements.

                           Financial Services Segment
Segment Results
The following table includes the condensed statements of operations for the
Financial Services segment (in thousands):

                                                                       Increase        %
                                              2012         2011       (Decrease)     Change
Interest income                            $ 583,700    $ 598,675    $  (14,975 )    (2.5 )%
Other income                                  54,224       50,774         3,450       6.8
Financial services revenue                   637,924      649,449       (11,525 )    (1.8 )
. . .