UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

MILWAUKEE DIVISION

X

Civil Action No . 05-C-0579-CNCIN RE HARLEY-DAVIDSON, INC .SECURITIES LITIGATION : CONSOLIDATED CLASS ACTION

COMPLAINT FOR SECURITIES FRAUD

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TABLE OF CONTENTS

PAGE

SUMMARY OF THE ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A. Plaintiffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

B. Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

CLASS ACTION ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1

CONFIDENTIAL WITNESSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3

SUBSTANTIVE ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

A. Background and History of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

B . Demand for Harley-Davidson Motorcycles Wanes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

C. Harley-Davidson Drops Credit Standards to Artificially Boost Demand . . . . . . . . . . . . 28

THE FALSE AND MISLEADING STATEMENTS ISSUES DURING THE CLASSPERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

THE TRUTH BEGINS TO EMERGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

POST-CLASS PERIOD REVELATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

ACCOUNTING CONTROLS AND FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

SCIENTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

LOSS CAUSATION/ECONOMIC LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

APPLICABILITY OF PRESUMPTION OF RELIANCE FRAUD ON TH EMARKET DOCTRINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

NO SAFE HARBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

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COUNT I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74

For Violations of Section 10(b) of the 1934 Act and Rule 10(b)(5) PromulgatedThereunder Against Harley-Davidson and the Individual Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74

COUNT II

For Violations of Section 20(a) of the 1934 Act Against the Individual Defendants . . . . . . . . . . . . . . .78

PRAYER FOR RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

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Lead Plaintiffs Deka International S .A. Luxembourg, Construction Laborers Pension Trus t

of Greater St . Louis, the Iron Workers Local No . 25 Pension Fund, and the City of Sterling Height s

Police & Fire Retirement System (collectively, "Plaintiffs"), individually and on behalf of a

proposed class (the "Class") of all purchasers of the publicly traded securities of Harley-Davidson ,

Inc. ("Harley-Davidson" or the "Company") between January 21, 2004 and April 12, 2005 ,

inclusive (the "Class Period"), by and through its undersigned counsel, alleges the followin g

against Harley-Davidson and certain of its top officers upon personal knowledge as to thos e

allegations concerning Plaintiffs and, as to all other matters, upon the investigation of counsel ,

which included, without limitation : (a) review and analysis of public filings made by Harley-

Davidson and other related parties and non-parties with the Securities and Exchange Commission

("SEC") ; (b) review and analysis of press releases and other publications disseminated by certain o f

the Defendants and other related non-parties ; (c) review of news articles, shareholder

communications, and postings on Harley-Davidson's website concerning the Company's public

statements ; (d) review of other publicly available information concerning Harley-Davidson, the

other Defendants and related non-parties ; (e) consultation with experts, and ; (f) interviews with

factual sources, including individuals formerly employed by Harley-Davidson and industr y

participants .

SUMMARY OF THE ACTION

1 . This is a federal securities class action against Harley-Davidson and certain of it s

officers and/or directors for violations of the federal securities laws . Plaintiffs bring this action on

behalf of themselves and the Class pursuant to Sections 10(b) and 20(a) of the Securities Exchang e

Act of 1934 (the "1934 Act"), 15 U.S.C . §§78j(b) and 78t(a), and the regulations promulgated

thereunder by the SEC, including Rule I Ob-5, 17 C .F.R. §240.1 Ob-5 .

2. Harley-Davidson is the parent company for the group of companies doing business as

Harley-Davidson Motor Company ("Motor Company"), Buell Motorcycle Company ("BMC") and

Harley-Davidson Financial Services ("HDFS") . The Motor Company produces heavyweight

motorcycles and offers a line of motorcycle parts, accessories, apparel and general merchandise .

The Motor Company manufactures five families of motorcycles: Touring, Dyna Glide, Softail,

VRSC ("V-Rod") and Sportster . BMC produces spo rt motorcycles, including five v-twin XB

models and the single-cylinder Buell Blast . BMC also offers a line of motorcycle parts ,

accessories, apparel and general merchandise . HDFS provides wholesale and retail financin g

and insurance programs primarily to Harley-Davidson/Buell dealers and customers . HDFS is a

profitable segment for Harley-Davidson, as 70% of the motorcycles purchased are financed .

Harley-Davidson recognizes revenue on motorcycle sales when they are delivered to dealers rather

than when they are sold . Once the motorcycles are sold by the dealers and HDFS has provided

financing, HDFS sells securitized loan packages at the assumed present worth based on th e

estimated present value of the repayment stream .

3 . Harley-Davidson, the only U. S . manufacturer of motorcycles, has long dominated th e

U.S . motorcycle market, although Honda Motor Co . is the world's largest producer . With its

motorcycles intentionally kept in short supply, by 2000, Harley-Davidson's dealers were able t o

charge 20% premiums over MSRP and to keep some customers waiting up to 18 months fo r

delivery. Harley-Davidson's deliberate shortages, coupled with its aggressive marketing program ,

allowed Harley-Davidson to prop up customer demand .

4. Through its strict control of supply, and the opportunity for premium

sales , Harley-Davidson also had strong control over its dealers . Dealers who did not toe the lin e

faced falling out of grace with Harley-Davidson and could see their allotment of new and ho t

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selling models shrink . For instance, when Harley-Davidson released its new V-Rod in 2002, dealer s

were forced to accept shipments despite the model's lackluster sales . During 2003 and certainly by th e

beginning of the Class Period, showroom inventories exploded .

5. As dealers' showroom floors became crammed to full capacity, the premium markups o n

motorcycle prices dealers had become accustomed to receiving dried up. Dealers were forced to

slash prices. In order to relieve growing dealer inventories and to facilitate additional deliveries,

Harley-Davidson began reducing credit standards . In short, HDFS began loaning to riskier borrowers

in order to sell motorcycles to younger, less-affluent customers as Harley-Davidson's traditional ,

reasonably affluent baby-boomer clientele aged . As Harley-Davidson artificially boosted demand

for its motorcycles, repossessions and credit losses mounted .

6. Defendants left analysts with little reason to doubt the Company's ability to "know"

retail inventory levels and sales . As late as January 2005, Defendants explained to the investment

community that they maintained a "good" internal Company system to track dealer inventory .

Using this information, the Company stated itsplans to increase dealer inventories . However, at

no time did Defendants signal to investors that retail distribution channels were "saturated," wit h

the excess of motorcycles shipped over retail registrations having run as high as 63,000

motorcycles for calendar year 2003 and 37,000 for calendar year 2004 .

7. Because of declining demand and skyrocketing dealer inventories, Harley-

Davidson began to engage in high-risk lending, providing credit to customers with low credit

scores. Declining credit standards for customer financing also deteriorated the value of HDFS' s

securitized loan portfolio packages . Annualized credit losses on a managed portfolio basis gre w

during the first quarter of 2005 by almost 40% due to a higher incidence of losses and lower

recovery rates on repossessed motorcycles . During the first quarter 2005, Harley-Davidson sold

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$730 million in retail motorcycle loans and recorded a gain of $19 .2 million, compared with a gain of

$25.2 million on the sale of only $625 million of loans securitized during the first quarter of 2004.

And, as HDFS faced a thinning market for wholesaling repossessed motorcycles back to dealers ,

credit losses spiraled .

8. Meanwhile, Defendants continued reporting quarter after quarter of "record" revenue s

and earnings, promising mid-teen earnings per share (`BPS") growth rates in fiscal 2005 .

Defendants also promised Harley-Davidson would break the psychological barrier of shippin g

400,000 new motorcycles by 2007 . As a result of the Defendants ' false statements , Harley-

Davidson's stock price traded at inflated levels during the Class Period, increasing to as high a s

$63 .75 on July 14, 2004 . Defendants caused Harley-Davidson to repurchase 10.6 million shares for

$564 million in fiscal 2004 and another 2 .9 million shares for over $175 million during the firs t

quarter of 2005, further driving up the Company's stock price . At the same time , the Company' s

top officers and directors sold almost $92 million worth of their own shares . In fact, as the

Company's stock price soared during 2004, Harley-Davidson's Chairman and Chief Executive

Officer sold over $51 million worth of Harley-Davidson stock himself.

9. Suddenly, on April 13, 2005 , Defendants shocked the market by disclosing :

• Harley-Davidson would be forced to trim production of new 2005motorcycles - cutting 10,000 motorcycles in the second quarter of 2005 alone -due to declining demand and burgeoning inventories at its dealers .

• The Company's first quarter 2005 U .S. sales declined by almost 1% versushaving grown 12.9% in fiscal 2004 .

• Harley-Davidson would be forced to halve its 2005 EPS growth forecast fromthe mid-teens to between 5%-8% .

• Harley-Davidson would halve its 2005 production growth forecasts to 3 .7% from

7%-9%.

• HDFS's operating income in 2005 was expected to be lower than in fiscal 2004 .

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Annualized credit loses on a managed portfolio basis increased to 1 .07 % from.77% .

Harley-Davidson's second quarter 2005 earnings would be lower than itssecond quarter 2004 results .

The Company was all but abandoning its ambitious goals of shipping400,000 motorcycles in 2007 .

10. On this news the Company's stock price plummeted by 16 .7% in a single trading

session, or $9.84 per share, and would fall a total of 22 % by April 15, 2005 . Over $3 .6 billion in

market capitalization was erased and several analysts downgraded Harley-Davidson's stock price.

Merrill Lynch lamented that it would take time for Harley-Davidson to reestablish credibility wit h

investors.

11 . The true facts, which were known by each of the Defendants but concealed from th e

investing public during the Class Period, were as follows :

(a) During 2003 and certainly by the beginning of the Class Period, demand fo r

Harley-Davidson motorcycles was declining and the Company's market share was shrinking;

(b) The number of unsold 2004 and 2005 model year motorcycles in dealer

inventories was growing exponentially;

(c) Over-stocked inventories were driving down the price dealers could obtai n

for new motorcycles, causing, for instance, BMC to decrease its average selling price by 4 .3%

during the first quarter of 2005, European price reductions ranging from 2%-9% in the first quarter o f

2005 and prices on used motorcycles to decrease by 10% in the first quarter of 2005 ;

(d) Retail inventories on showroom floors had climbed to over 47,000

motorcycles, or approximately 72 motorcycles per U .S. retailer unit, by the end of the first quarter o f

2005;

(e) The glut of new motorcycles on showroom floors, coupled with the decrease i n

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the price of new motorcycles, was putting pressure on dealers' efforts to sell used motorcycles ,

damaging the resale value which buyers take into consideration when purchasing new Harley-

Davidson motorcycles, cutting into dealers' profits, and increasing HDFS's credit losses as it wa s

forced to wholesale repossessed motorcycles at lower prices ;

(f) Dealers were complaining that they were being forced to attempt to sel l

Harley-Davidson motorcycles with smaller engines at higher retail prices than the competition's with

bigger engines ;

(g) As a result of (a)-(f) above, dealers were growing unwilling to accept mor e

motorcycles into inventory than current demand would support ;

(h) The credit quality of HDFS's C and D credit customers was declining,

eroding the value of its loan portfolio, increasing the number of defaults and adding to the number

of unprofitable repossessions;

(i) HDFS was being forced to offer 0% financing to its A and B credit

purchasers to maintain sales, eroding the value of its loan portfolio ; and

(j) As a result of (h) and (i) above, the value of HDFS's securitized loa n

portfolio package was declining .

JURISDICTION AND VENUE

12. This Court has jurisdiction over the subject matter of this action pursu ant to Section

27 of the 1934 Act, 15 U.S .C. § 78aa, and pursuant to 28 U.S.C. §§ 1331 and 1337 . The claims

asserted herein arise under §§10(b) and 20(a) of the 1934 Act and Rule IOb-5 .

13 . Venue is proper in this District pursuant to §27 of the 1934 Act . Many of the fals e

and misleading statements were made in or issued from this District .

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14. The Company' s principal executive offices are located at 3700 West Juneau Avenue,

Milwaukee, Wisconsin, where the day-to-day operations of the Company are directed and managed .

15. In connection with the acts, conduct, and other wrongs alleged in this Complaint,

Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce ,

including, but not limited to, the United States mails, interstate telephone communications, and th e

facilities of the national securities markets, such as the NYSE .

PARTIES

A. Plaintiffs

16 . Plaintiff Deka International S.A. Luxembourg ("Deka") purchased Harley-Davidson

common stock on the open market during the Class Period, as set forth in the certification alread y

filed with the Court and incorporated herein by reference . The Court's February 14, 2006 Orde r

appointed Deka as a Co-Lead Plaintiff in this consolidated action .

17. Plaintiff Construction Laborers Pension Trust of Greater St . Louis ("Construction

Laborers") purchased Harley-Davidson common stock on the open market during the Class Period ,

as set forth in the certi fication already filed with the Court and incorporated herein by reference .

The Court's February 14, 2006 Order appointed the Construction Laborers as a Co-Lead Plaintiff i n

this consolidated action .

18. Plaintiff Iron Workers Local No. 25 Pension Fund ("Iron Workers") purchased

Harley-Davidson common stock on the open market during the Class Period, as set forth in the

certification already filed with the Court and incorporated herein by reference . The Court' s

February 14, 2006 Order appointed the Iron Workers as a Co-Lead Plaintiff in this consolidated

action.

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19. Plaintiff City of Sterling Heights Police & Fire Retirement System ("Sterlin g

Heights") purchased Harley-Davidson common stock on the open market during the Class Period ,

as set forth in the certification already filed with the Court and incorporated herein by reference .

The Court's February 14, 2006 Order appointed Sterling Heights as a Co-Lead Plaintiff in thi s

consolidated action .

B. Defendant s

20. Defendant Harley-Davidson, headquartered in Milwaukee, Wisconsin, produce s

heavyweight motorcycles and offers a line of motorcycle parts, accessories, apparel and genera l

merchandise . Harley-Davidson has over 284 million shares issued and outstanding, and now trades o n

the New York Stock Exchange ("NYSE") under the ticker symbol "HOG ." During the Class

Period Harley-Davidson traded under the ticker symbol "HDI ."

21 . Defendant Jeffrey L . Bleustein (`Bleustein") was the Chairman of the Board and a

director of Harley-Davidson. Bleustein also served as Harley-Davidson's Chief Executive Officer

("CEO") until April 30, 2005 . During the Class Period, Bleustein sold more than $51 .2 million

worth of his Harley-Davidson stock .

22. Defendant James L. Ziemer ("Ziemer") is the Chief Executive Officer and a director o f

Harley-Davidson and served as its Chief Financial Officer until April 30, 2005 . During the Clas s

Period, Ziemer sold more than $5 .8 million worth of his Harley-Davidson stock .

23 . Defendant James M. Brostowitz ("Brostowitz") is the Acting Chief Financial Officer,

Vice President and Treasurer of Harley-Davidson . Brostowitz previously served as Harle y

Davidson's Controller from 1990 until April 30, 2004 . During the Class Period, Brostowitz sold

more than $8.8 million worth of his Harley-Davidson stock.

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24. The individuals named as Defendants in ¶¶21-23 are referred to herein as the

"Individual Defendants ." The Individual Defendants, because of their positions with the Company ,

possessed the power and authority to control the contents of Harley-Davidson's quarterly reports ,

press releases and presentations to securities analysts, money and portfolio managers an d

institutional investors, i.e., the market. Each Defendant was provided with copies of th e

Company's reports and press releases alleged herein to be misleading prior to or shortly after thei r

issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected .

Because of their positions and access to material non-public information available to them but not t o

the public, each of these Defendants knew that the adverse facts specified herein had not bee n

disclosed to and were being concealed from the public and that the positive representations whic h

were being made were then materially false and misleading. The Individual Defendants are

liable for the false statements pleaded herein at ¶¶74-75, 77-78, 81-83, 86-88, 90, 92-93, and

96, as those statements were each "group-published" information, the result of the collective

actions of the Individual Defendants.

25 . The Individual Defendants, as officers and controlling shareholders, respectively, o f

a company registered with the SEC under the federal securities laws, the common stock of which

was registered with the SEC, traded on the NYSE, and governed by the provisions of the federa l

securities laws, were, during the time relevant to this Complaint, "controlling persons" of Harley-

Davidson within the meaning of Section 20(a) of the Exchange Act, and had the power an d

influence, which they exercised, to cause Harley-Davidson to engage in the unlawful conduc t

complained of herein . By reason of their direct and substantial management positions an d

responsibilities and/or controlling ownership of Harley-Davidson and its affiliates, the Individua l

Defendants were able to and did, directly and/or indirectly, in whole or in material part, control th e

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conduct of Harley-Davidson and the information about those businesses contained in Harley-

Davidson's public statements and filings with the SEC. Throughout the Class Period, the

Individual Defendants were provided with copies of, reviewed and approved, and/or signed press

releases and other reports prior to or shortly after their issuance, and had the ability and opportunit y

to prevent their issuance or to cause them to be corrected . As a result, each of these Individual

Defendants was responsible for the accuracy of the public reports and releases detailed herein, an d

is therefore responsible and liable for the representations contained therein . The Individual

Defendants knew or severely recklessly disregarded that adverse information had not been

disclosed to, and was being concealed from, the public, and that the positive representations tha t

were being made were materially false and misleading .

26 . It is appropriate to treat the Individual Defendants as a group for pleading purpose s

and to presume that the false and misleading information conveyed in the Company's publi c

filings, press releases and other publications as alleged herein are the collective actions of th e

Individual Defendants identified above. Each Individual Defendant, by virtue of his high leve l

position within the Company and/or controlling ownership of Harley-Davidson and its affiliates ,

directly participated in the management of the Company, was directly involved in the day-to-da y

operations of the Company at the highest levels, and was privy to confidential proprietar y

information concerning the Company and its operations, finances, financial condition, products an d

business prospects, as alleged herein. The Individual Defendants were involved in drafting ,

producing, reviewing and/or disseminating the false and misleading statements alleged herein, wer e

aware or were severely reckless in not being aware that the false and misleading statements wer e

being issued regarding the Company, and approved or ratified these statements .

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27. Each of the Individual Defendants and Harley-Davidson knew or severely recklessl y

disregarded the facts that the misleading statements and omissions complained of herein woul d

adversely affect the integrity of the market for the Company's securities, and would cause the price

of the Company's common stock to become artificially inflated . Each of the Individual Defendants

and Harley-Davidson acted knowingly or in such a severely reckless manner as to constitute a fraud

and deceit upon Plaintiffs and the Class . Moreover, the Individual Defendants were also motivated

to engage in and conceal the fraud alleged herein to reap enormous proceeds in insider trading .

28. As direct participants in the wrongs complained of herein and/or as control person s

of Harley-Davidson, Harley-Davidson and the Individual Defendants are jointly and severally

liable for the damages suffered by Plaintiffs and other purchasers of Harley-Davidson commo n

stock during the Class Period for their violations of Sections 10(b) and 20(a) of the Exchange Act,

and Rule IOb-5 promulgated thereunder .

CLASS ACTION ALLEGATION S

29. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civi l

Procedure 23 (a) and 23(b)(3) on behalf of themselves and the Class of all purchasers of the publicl y

traded securities of Harley-Davidson between January 21, 2004 and April 12, 2005, inclusive, wh o

were damaged thereby. Excluded from the Class are Defendants, the officers and directors of th e

Company, members of the immediate family of each of the Defendants and other related non-

parties, any person, firm, trust, corporation, officer, director or other individual or entity in whic h

any Defendant or other related non-party has a controlling interest or which is related to o r

affiliated with any of the Defendants or other related non-parties, and the legal representatives ,

agents, affiliates, heirs, successors-in-interest or assigns of any such excluded party or other related

non-party .

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30. The members of the Class are so numerous that joinder of all members i s

impracticable . Throughout the Class Period, Harley-Davidson securities were actively traded on

the NYSE. Shortly after the close of the Class Period, Harley-Davidson had more than 284 million

shares issued and outstanding. While the precise number of Class members is unknown t o

Plaintiffs at this time and can only be ascertained through appropriate discovery (i.e., the books and

records of Harley-Davidson or its transfer agent), Plaintiffs believe that there are thousands o f

members of the proposed Class . Notice can be provided to such record owners by a combination o f

published notice and first-class mail, using techniques and a form of notice similar to thos e

customarily used in class actions arising under the federal securities laws .

31 . Plaintiffs will fairly and adequately represent and protect the interests of th e

members of the Class and have retained competent counsel experienced in class action litigatio n

under the federal securities laws to further ensure such protection and intends to prosecute thi s

action vigorously.

32 . Plaintiffs' claims are typical of the claims of the other members of the Class becaus e

Plaintiffs' and all Class members' damages arise from and were caused by the same false an d

misleading representations and omissions made by or chargeable to Defendants . Plaintiffs do not

have any interests antagonistic to, or in conflict with, the Class .

33 . A class action is superior to other available methods for the fair and efficien t

adjudication of this controversy, as joinder of all members is impracticable . Furthermore, becaus e

the damages suffered by individual Class members maybe relatively small, the expense and burde n

of individual litigation make it virtually impossible for the Class members to seek redress for th e

wrongful conduct alleged . Plaintiffs know of no difficulty that will be encountered in th e

management of this litigation that would preclude its maintenance as a class action.

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34. Common questions of law and fact exist as to all members of the Class an d

predominate over any questions affecting individual members of the Class . Among the questions

of law and fact common to the Class are :

(a) whether the federal securities laws were violated by Defendants' acts and/o r

omissions as alleged herein ;

(b) whether the Company's Class Period public statements and filings during th e

Class Period misrepresented and/or omitted material facts ;

(c) whether Defendants acted with knowledge or with reckless disregard for th e

truth in misrepresenting and/or omitting material facts;

(d) whether Defendants participated in and pursued the common course of

conduct complained of herein ;

(e) whether the market price of Harley-Davidson securities was inflated

artificially as a result of Defendants' material misrepresentations and/or omissions during the Class

Period complained of herein; and

(f) whether the members of the Class have sustained damages as a result of the

decline in value of Harley-Davidson's stock when the truth was revealed and the artificial inflation

came out and, if so, what is the appropriate measure of damages .

CONFIDENTIAL WITNESSE S

35 . Plaintiffs' allegations herein, concerning the falsity of Defendants' statements and

the scienter of the Individual Defendants, are based upon, in part, interviews with dozens of former

Harley-Davidson employees . Throughout the course of the investigation of Defendants' fraud ,

many confidential former insiders provided information regarding the various methods employe d

by Defendants in furtherance of their scheme to defraud shareholders . Indeed, among those

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confidential former insiders interviewed in the course of the investigation of the fraudulent schem e

and wrongful business practices complained of herein were vice presidents, a director of deale r

systems, a district manager, two controllers of Harley-Davidson dealerships, two general manager s

of dealerships, a sales consultant of a dealership, several former credit analysts and underwritin g

associates for HDFS, including two team leaders, a manager in the HDFS collections department ,

three senior financial analysts, a staff accountant, an HDFS accounting manager, two HDFS team

leaders in collections, and two senior collections associates .

36. One confidential witness served as a Vice President for Engineering and then as a

Vice President for Continuous Improvements at Harley-Davidson headquarters from 1993 to 200 4

("CWl") . This witness was responsible for rebuilding Harley-Davidson's technical design tea m

and updating its design facilities and equipment, and executing and delivering the company's new

production plan in order to develop new products and expand the Company's presence in th e

market after a decade of poor sales and major cost-cutting efforts in the 1980s .

37. In 2002, CW 1 was promoted to Vice President of Continuous Improvements . This

was an enterprise-wide role whereby the witness examined all aspects of the Company's business ,

including manufacturing, purchasing, and marketing, to identify efficiencies that could be improve d

upon and prepare a plan for accomplishing those items . CW 1 was also in charge of the Company' s

overarching production plan for motorcycles and the component parts used to build them . Because

of the latter role, this witness regularly attended meetings of the Leadership and Strategy Counci l

(called the "LSC" internally), which was essentially Harley-Davidson's version of an executiv e

committee. The LSC was ultimately the decision-making authority for all strategic issue s

concerning production scheduling, such as which models to build and how many in the short-term,

i.e., from one month to the next. Harley-Davidson Motor Company President and Chief Operatin g

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Officer James A. McCaslin ("McCaslin") chaired the LSC, which met monthly, or "more often in

difficult times ." The members of the LSC were the leaders of each major department/functional

group within the Company . Each of the Individual Defendants was a member of the LSC durin g

2002-2004, when this witness attended the meetings, with the exception of Defendant Bleustei n

who, while not a standing member of the LSC, occasionally attended the meetings .

38. Importantly, this witness stated that Vice President and General Counsel Gail A .

Lione's ("Lione") role on the LSC was to serve "as the guardian" of the Board of Directors '

interests (Lione acted as the Board's Secretary), as well as to evaluate and advise the LSC on ho w

the decisions it wanted to make compared with the Company's public statements . Lione took the

decisions made by the LSC to Defendant Bleustein and helped him "position the issue" fo r

presentation to the Board or to the public in press releases .

39. Beginning in 2003, according to this former insider, there was excess inventory o n

dealership floors for the first time since the witness had been with the Company, and by 2004 i t

was "absolutely evident" that dealers were carrying excess inventory . The main models that

remained in inventory were the V-Rod, the Sportster, and Dyna models . The poor sales of the V-

Rod were largely due to the aging of the Company's customer base, which consisted primarily of

baby boomers . The custom and performance models are, generally speaking, less comfortable t o

ride than the touring models, which grew in popularity around this time . This witness believes the

Company overestimated how many V-Rods it could sell in 2003, and as a result there were exces s

inventories of V-Rods remaining at the end of the 2003 model year . CW 1 explained that Harley-

Davidson was motivated to produce large quantities of V-Rods because it had an investmen t

relationship with Porsche pursuant to a partnership agreement between the two companies . Per the

agreement, Porsche funded certain aspects of the V-Rod engine development, and the agreemen t

-15-

had certain financial performance criteria and minimum production levels that had to be met b y

Harley-Davidson. As a result, the Company produced larger numbers of V-Rods than the market

could bear .

40. In addition to declining sales of Harley' s "performance" models like the V-Rod, the

Sportster and the Dyna models, CW 1 identified other factors that led to excess dealer inventorie s

beginning in 2003 and even more so in 2004 . These factors included that the Company had been

ramping up its production levels for several years, and had always "intentionally managed" it s

growth so that supply was lower than demand, but by 2003-04, supply actually exceeded demand .

In addition to the fact that the Company's production growth hit its stride in the early 2000s, deale r

inventories also ballooned in that same time frame because Harley-Davidson expanded its dealer

system by adding more dealer locations around the United States . This, combined with a

tremendous influx of competitors in 2004, led to decreasing demand even as production number s

swelled. CW 1 stated that while Harley-Davidson executives were aware that competitors were

encroaching on the Company's market share in 2004, executives were "pretty much oblivious" and

"didn't take it seriously." Eventually the Company did acquiesce and create its own Custo m

Vehicle Operations group to compete with these small custom manufacturers .

41 . In terms of excess inventory quantities at the dealers by 2004, CW1 said the

Company measured dealer inventories in terms of "day's supply ." This witness stated that ther e

were about 3,000 to 5,000 units per day of excess inventory at many dealerships during 2003-2004 .

Members of the LSC, including the Individual Defendants, regularly monitored this day's suppl y

metric on a computer screen called the "Dashboard ." The Dashboard was a customized, home-

grown software program that reported on a set of metrics considered to be the best gauges for th e

health of the Company. The metrics included, in addition to "day's supply" of inventories, deale r

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inventory levels, revenues generated per 10-day period for bikes, accessories, and clothes ,

production levels, the number of days behind schedule production ran (which happened frequently) ,

and departmental headcounts .

42. This witness stated that the issue of whether to cut motorcycle production occurre d

in the LSC meetings during 2004 . Before the April 2005 announcement, no decision to actually cu t

back on production levels was ever actually made by the LSC, but the prospect was heavily debate d

internally . This witness explained that several factors led the LSC to avoid production cuts unti l

April 2005, including pressure from the manufacturing organization to continue increasing

production and, most important, because production translated into revenues each quarter .

Production cuts occurred when the Company could no longer deny the obvious - demand wa s

sinking, and inventory levels were rising .

43. Another confidential witness, a former Director of Harley-Davidson Dealer

Systems, worked for the Company from 1988 until early 2004 ("CW2") . This witness reported to

Jon R. Flickinger, Vice President of the Motor Company (and later President of BMC), wh o

reported to Motor Company President McCaslin. Until 2001, CW2 worked on a Strategic Plannin g

Team with two or three other managers, which was developed to come up with a plan for th e

Company heading into its 100th Anniversary in 2003 . The plan, dubbed "Strategy 2003," mainl y

focused on developing and implementing a "demand chain integration" strategy to improve deale r

performance and thereby increase the Company's profitability . To accomplish this, the Strategic

Planning Team developed several "Performance Consulting Groups" comprised of about 15-2 0

dealerships per group. The Strategic Planning group then worked with these PCGs over a two-year

period on intense retail training and individual dealership performance data gathering and analysis .

By the time this witness left Harley-Davidson in January 2004, there were six to eight PCGs .

-17-

44. From 2001 until early 2004, this witness was in charge of and ran the dealer

management computer system that was utilized by most dealers . The system, called Talon, was a

set of proprietary software programs .

45. Like CW 1, this witness confirmed that dealer-level inventories began building up in

2003 and increased again in 2004, ultimately leading to the production cuts announced in Apri l

2005. Each dealer that was on a PCG had to submit, via Talon or on other management systems ,

information including inventory on-hand, inventory sold, revenues generated, and other details .

The data were submitted to the Company, which then compiled reports summarizing th e

data, prepared averages for each PCG, and then ranked each dealer based on the data points

submitted . CW2 said the reports were distributed to the PCGs and their respective "sponsors ." The

witness explained that each PCG had a "sponsor," who were department heads from the differen t

corporate divisions. McCaslin, for example, was the sponsor for a PCG .

46 . In addition to the PCG reports, the Company's senior executives also received a

"flash" report every two weeks which included data on "key indicators" of the Company' s

business, including production levels (actual versus forecasted), inventory levels at the dealers, an d

other data . According to CW2, McCaslin personally created the key indicators that were on thi s

single-page report. McCaslin and Defendants Bleustein, Ziemer, and Brostowitz received th e

reports .

47. CW2 stated that motorcycle inventories started building up on dealer floors even

before the launch of the 100th Anniversary models in July 2002. The witness explained that

Harley-Davidson prepared annual budgets each September for motorcycles, clothes, an d

accessories, and then prepared forecasts based on those budgets every three months . Every three

months, the forecasts were revised based on the preexisting budgets . However, CW2 stated "to re-

-18-

forecast downward was the kiss of death." Rather than reduce projected production levels o r

revenues , there existed "a lot of pressure to make it up somewhere else." CW2 said the pressure in

this regard came from the Company's top executives and trickled downward .

48. Like other former insiders , CW2 explained that V-Rod and Buell sales did not go as

well as had been forecasted, and that dealers in the PCGs felt "almost forced to take Buel l

inventory." CW2 stated that the Buell engines had tremendous quality problems, were overpriced ,

and sold poorly . The Buell, this confidential witness said, "was like an albatross around Harley' s

neck."

49. Another confidential witness worked for Harley-Davidson as a district manager for

approximately 15 years ("CW3") . As a Harley-Davidson district manager, this witness acted as th e

gateway between the corporate offices and, depending on the year, between 16 and 30 dealerships .

District managers are evaluated based on how much inventory they sold to dealerships, and coul d

earn sizeable bonuses by pushing more motorcycles and parts onto dealerships . This confidential

witness described how dealerships were squeezed into accepting extra inventory because th e

dealerships would only be entitled to the same number of bikes the following year . For example ,

according to this insider, if a dealer did not take 300 motorcycles in year 2003, it would be unabl e

to receive that many in 2004. As a result, dealerships accepted more motorcycles than deman d

called for so as to guarantee additional bikes in future years. CW3 also reported to Harley-

Davidson executive Richard Teerlink that dealers were purchasing an inordinate amount parts i n

order to win a Company sponsored trip to Australia, leaving a glut in the inventory for motorcycl e

parts .

50. Another confidential witness was the controller for a Harley-Davidson dealershi p

from 2004-2006 ("CW4") . This confidential witness explained how Harley-Davidson force d

-19-

dealerships to accept more motorcycles than the dealerships wanted . If the dealerships refused, thi s

witness, as with CW3, stated that the dealership's allotment of motorcycles for the following year

would be slashed. CW4 explained that, from the start of his employment in 2004, his dealership

had ever increasing inventory levels . In 2005, this witness's dealership had approximately 30 bike s

left over at the end of the year. By 2006, that number ballooned to 60 . Likewise, parts also

accumulated at an increased pace . This witness explained that he prepared repo rts on a monthly

basis detailing the dealership's sales figures. These reports were sent to Harley-Davidson' s

corporate office through the Company's intranet site . This witness also attended several "Town

Meetings" wherein corporate executives listened to dealership complaints, including complaint s

related to inventory levels . The witness also attended two "Performance Group" meetings where

inventory allocation among dealerships was a hot topic .

51 . One confidential witness worked for a Harley-Davidson dealership as a manager i n

2005 ("CW5") . CW5 confirmed that Harley-Davidson forced dealerships to accept mor e

motorcycles than they would otherwise want by tying their allotment to next year's shipment. That

is, this witness explained, if his dealership did not accept 400 motorcycles this year, it would b e

precluded from receiving additional motorcycles the following year. This witness's dealership

required a warehouse to store all of its extra bikes . This witness also stated that Harley-Davidson

approved loans, at exorbitant interest rates, for potential buyers with lower credit ratings . As a

result, according to this witness, many buyers defaulted on their loans .

52. Another confidential witness worked as a sales manager and general manager o f

several Harley-Davidson dealerships from 1993 until December 2004 ("CW6") . In July 2003 ,

CW6 stated that Harley-Davidson dealerships started to become inundated with extra inventory a s

demand for motorcycles cooled . According to this witness, in July 2004, there were more

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motorcycles left in inventory than there had been in 2003, and in 2005 there were mor e

motorcycles remaining than in 2004 . During this witness' 11-year employment, CW6 attende d

numerous "Town Hall" meetings , "New Model Year " meetings , "Winter Dealer" meetings, and

"Performance Group" meetings . Beginning in early 2003 and continuing until this witness left

Harley-Davidson at the end of 2004, CW6 stated that at Town Hall meetings attended by Company

executives, dealers expressed their strong desire to have fewer motorcycles produced . One

particular meeting became especially heated as dealerships demanded that fewer motorcycles be

produced so they could maintain high margins in the face of waning demand . According to CW6 ,

Harley-Davidson, however, rejected the dealerships' call for fewer bikes, and continued to push

more and more motorcycles on the dealerships that ended up unsold at the end of the year .

53 . Another confidential witness served as the controller of a Harley-Davidso n

dealership from 2004-2005 ("CW7") . As part of this witness' job duties, CW7 tracked an d

recorded sales revenues and expenses for the dealership and was responsible for monthly reportin g

between the dealership and Harley-Davidson. This witness prepared two monthly reports : a

"Dashboard" report and the "Management Group Report," each addressing revenue, sales, and

inventory figures . This witness stated that in July 2004, several 2003 V-Rod motorcycles remaine d

unsold. Because dealerships did not want to have future shipments reduced, they were forced t o

accept poorly-selling motorcycles .

54. A confidential witness worked as a senior financial analyst for Harley-Davidson

from 2000-2002 ("CW8"). This witness, who reported directly to the director of finance, stated

that a monthly report was prepared by the analysts in charge of the insurance division, th e

wholesale division, and the retail division . Each report was approximately four pages in length and

provided a 13-month rolling summary on revenues and expenses . These reports were sent to top

-21-

Harley-Davidson executives, including Ziemer . Each of the three divisions also prepared quarterly

forecasting reports, which forecasted expenses and revenue for the current quarter and th e

remainder of the calendar year . As with the monthly reports, these reports were sent to top

executives, including Ziemer . The financial analysts were tasked with preparing reports containin g

quantitative information to be used by Ziemer on analyst conference calls .

55 . Another confidential witness also worked as a senior financial analyst for Harley-

Davidson from 1998-2002 ("CW9"). This witness, like CW8, reported directly to the director o f

finance and confirmed that a monthly report was prepared by the analysts in charge of the insuranc e

division, the wholesale division, and the retail division .

56. Another confidential witness also worked as a financial analyst for Harley-Davidson

from 1999-2004 ("CW 10") . This witness confirmed the existence of the monthly financial repo rts

and described the process whereby Harley-Davidson 's annual budget was prepared .

57. Three confidential witnesses served as credit analysts/underwriting associates fo r

HDFS. The first of these witnesses , ("CW l 1 "), worked at the Company from 2004-2005 . Another,

("CW 12"), worked from 1994-2005 in the underwriting department . The third, ("CW 13"), worked

for HDFS from 1997-2004. These insiders were responsible for processing retail loan applications

that were submitted by Harley-Davidson dealerships nationwide . The witnesses described a 3 0

percent jump in the number of loans processed from 2003 to 2004 . According to CW11 and

CW 12 , the number of loans also increased dramatically in 2005 .

58 . Also during this time period, CW 11 and CW12 stated that the number of so-called

"Delta" loans (also called "D-paper" loans) increased substantially, from 20% of all loans in th e

spring of 2004 to 40-50% by October 2005 . According to these former insiders, "Delta" loans wer e

loans extended to customers with poor credit ratings (typically with a credit score below 570), ofte n

-22-

carrying annual interest rates ranging from 19-21 percent . CW 11 stated that as the proportion o f

Delta loans increased, the underwriting department's lending guidelines "went out the window . "

This was particularly true, CW 11 stated, with respect to customers purchasing Buell motorcycles .

Lending standards for purchasers of Buell motorcycles were so lax that underwriting associate s

referred to the lowered lending standards as the "Save the Buell Program ." Even when applicants

did not meet the lowered credit standards necessary to secure a "Delta" loan, CW 11 stated tha t

underwriting manager Pete Cope ("Cope") would almost always approve the loan anyway. During

department meetings, CW 11 described how Cope would explain that he approved loans that did no t

meet HDFS credit standards because he was working with Harley-Davidson to ensure a goo d

financial year. According to CW 11, the decline in credit standards led to an incre ase in the number

of defaults and repossessions of motorcycles . This, in turn, increased supply to Harley-Davidson' s

detriment. Donna F. Zarcone ("Zarcone"), the President and Chief Operating Officer of HDFS

who, during the Class Period, sold more than $5 million worth of her Harley-Davidson stock,

explained to CW 11 during a town hall meeting that in 2005 HDFS was only recouping 60 to 6 5

cents on the dollar for repossessed motorcycles it was forced to sell at auction . This compared with

80 cents on the dollar in 2004 .

59. CW 12 also described the increase in "Delta" loans and stated that while HDFS ha d

established lending criteria, the criteria were not always adhered to . During 2004 and 2005,

according to CW12, compliance with the lending criteria became very lenient . Underwriting

managers wanted to get as many loans as possible approved in order to lessen inventories an d

create artificial demand. During 2004 and 2005, CW12 explained, dealers also seemed more

"desperate" to have loans approved, so much so that dealers co-signed loans for motorcycle

purchasers . These loans, called "Recourse loans," were provided to lenders with either low credi t

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scores or an excessive number of charge-offs, or a combination thereof According to CW12, these

loans would never be approved unless the dealership co-signed the loan, often without th e

knowledge of the purchaser.

60. Another confidential witness worked as a former staff accountant in the retai l

accounting department for HDFS from 2002 until January 2005 ("CW 14") . This former insider' s

department was responsible for the preparation of several daily and weekly financial reports .

Among those reports: a daily "Bank Reconciliation" report that detailed retail loan payments

received by the bank ; a daily "Vendors Payables" report that detailed payments made to vendors ,

including credit bureaus used by the underwriting department and repossession companies used b y

the collections department ; a "Loan Reconciliation" report that detailed all new retail loan s

approved for a particular day; and a weekly "Dealer Recourse Loan Reconciliation" report that

documented the "Recourse loans," co-signed by dealerships, that were provided to motorcycl e

purchasers with poor credit histories .

61 . Another confidential witness worked as a former accounting manager for HDF S

from August 2003 until 2005 ("CW 15") . This former insider's daily duties including reconciling

the general ledger on a daily basis to ensure money collected was posted to the proper accounts .

CW 15' s department was responsible for preparing a Daily Activity Report . This report include d

details on how many new loans were funded for the day, how many repossessions were initiated ,

and how many telephone calls were received by the collections department from both customer s

and dealers . The confidential witness also described a monthly collections/repossessions report ,

which detailed overdue loans, the amount of money that went uncollected in the month, the number

of motorcycles repossessed in the month, and the number and amount of loans that were writte n

-24-

off. CW15 stated that these repo rts , which showed increased loans and defaults, were sent to top

executives at Harley-Davidson, including Zarcone .

62. Four confidential witnesses served as senior collections associates for HDFS, thre e

of whom were team leaders . The first of these informers, ("CW 16"), worked at the Company fro m

1998-2005 . Another, ("CW 17"), was at Harley-Davidson from 1997-2005 . The third, ("CW 18") ,

also worked for HDFS from 1997-2005 . The fourth former collections associate , a former team

leader, worked for HDFS from 1998 until September 2005 ("CW 19") . These former insiders were

responsible for collecting on outstanding and delinquent loans .

63 . The former collections associates all confirmed the rapidly growing number o f

"Delta" loans issued by HDFS to purchasers with lower credit ratings . According to CW16 ,

collections associates often complained about the increasing number of accounts requirin g

collections and the increasing number of Delta loans . This confidential witness recounted that

associates voiced concerns over how certain customers were able to obtain approval from the

underwriting department, and questioned why HDFS would fund so many loans knowing there was

a high likelihood of default. CW 16 confirmed details provided by CW 11 and CW 12 regarding the

high interest rates and the surge in the number of "Delta" loans green-lighted in 2004 and 2005 .

Likewise, CW16 described increases in the number of loan accounts that were past due . CW1 6

also confirmed that the number of repossessions swelled during the Class Period, flooding th e

market with extra motorcycles .

64. CW18, a former team leader in the collections department, noted that her team

handled approximately 3,000 outgoing and incoming calls per month in 2001 . By 2005, this former

insider's team handled as many as 9,000 calls per month, in large measure caused by HDF S

approving too many loans to unqualified customers with poor credit ratings . This witness reviewed

-25-

monthly reports listing past due accounts . According to this witness, in the middle of 2004, the

total amount of outstanding debt was approximately $250-$300 million . In September 2005, the

outstanding past due debt had mushroomed to $430 million . CW18 also confirmed the dramatic

increase in "Delta" loans to lesser qualified buyers and stated that these loans were to blame for the

huge spike in necessary collections activity . Corroborating the information provided by other

cooperating former insiders, CW 18 explained how the number of motorcycle repossessions surged

in 2005, totaling as many as 600 repossessions per month . The result of these repossessions wa s

that the "market was flooded" with new and used motorcycles . The overabundance of bikes drove

down prices, often leading to unpaid balances of $3,000 to $8,000 for HDFS on each repossessed

motorcycle . According to CW 18, in 2005 HDFS executives expressed that they wanted the numbe r

of repossessions reduced because of the amount lost on each transaction .

65. CW19, also a former collections associate and team leader , described both the

increase in "Delta" (or D-paper) loans and the uncollected "Recourse loans ." Interest rates on Full

Recourse loans, which were co-signed by the dealership selling the motorcycle being financed ,

were approximately 24%. According to CW 19, Harley-Davidson often failed to collect the secured

balance of the loan from the dealership, particularly those dealerships that generated a large sale s

volume . This confidential witness explained that weekly and monthly collections meetings wer e

held wherein collections associates complained about the increased number of collections cases and

the common sentiment among the associates and supervisors that HDFS credit standards ha d

become too lenient. The result of this practice : a spike in defaults, growing repossessions, and a

flooded market for Harley-Davidson motorcycles that only served to drive down demand .

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SUBSTANTIVE ALLEGATION S

A. Background and History of the Company

66. Harley-Davidson, through its wholly-owned subsidiaries, Motor Company, BMC an d

HDFS, produces heavyweight and sport motorcycles, offers a line of motorcycle parts, accessories ,

apparel and general merchandise, and provides wholesale and retail financing and insuranc e

programs primarily to Harley-Davidson/Buell dealers and customers . Harley-Davidson make s

approximately half of all motorcycles with 650cc or larger engines sold in the U.S., and one in four

sold worldwide .

67. Harley-Davidson, founded over 100 years ago, introduced its popular Sportster i n

1952 and dominated the American motorcycle market through the late 1970s when its sales bega n

to decline . After suffering damning sales and market-share losses, resulting in a 1981 management-

led buyout, the Company was brought back from the brink of failure through a gallant marketing

effort in the mid-1980s which Forbes magazine has characterized "the stuff of B-school case

studies ." By 1997, the biggest challenge Harley-Davidson was understood to face was meetin g

rather than generating demand for its motorcycles .

68. By September 2001, Harley-Davidson's factories were said to be straining to kee p

up with demand. Harley-Davidson's motorcycle inventory shortfalls were no accident, but wer e

instead engineered to permit demand to outpace supply to support the ever-increasing pric e

of the motorcycles . Some dealers were able to charge 20% premiums over MSRP and forc e

customers to wait up to 18 months to take delivery .

B. Demand for Harley-Davidson Motorcycles Wanes

69. However, despite Defendants' best efforts to maintain the illusion that Harley-

Davidson motorcycles were in short supply, the Company once again began to lose market share ,

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as described by CW 1 and CW2 . In 2000, new U . S. registrations of heavyweight motorcycles rose

22%, but Harley-Davidson's own sales declined from 50 .2% to 47.4% of those new registrations .

Low-cost competitors like Honda were taking the impatient customers away from Harley-

Davidson.

70. By 2003, Harley-Davidson, which recognizes and reports revenue on motorcycl e

sales when they are shipped to retailers rather than when they are sold, shipped 63,000 more

motorcycles than were actually sold . That gap ballooned to 127,000 more shipped than sold in 2004 .

During the first quarter of fiscal 2005 alone, Harley-Davidson shipped 76,000 more motorcycles into it s

sales channel - the retailers - than its dealers sold .

71 . Those ambitious shipments to dealers, coupled with income from the Company' s

historically profitable finance division, had helped Harley-Davidson regularly meet and beat Wal l

Street estimates . Meanwhile, while pushing too many motorcycles onto its dealers ' showroom

floors - who were afraid to tell Harley-Davidson "no" for fear of falling out of favor and not receivin g

allotments of future shipments as desc ribed by CW2, CW3, CW4, CW5, CW6, and CW7 - HDFS

reduced credit standards for C and D credit customers .

C. Harley-Davidson Drops Credit Standards to Artificially Boost Demand

72. As a result, and as described by numerous former insiders in ¶¶ 3 5-65 above, credi t

losses increased from .77% to 1 .07% in the first quarter of 2005 . Had Harley-Davidson not been

lowering credit standards, dealers' sales would have declined even more than reported and th e

dealers would have rejected the bloated shipments .

73. Thus , while the investment community was being led to believe Harley-Davidson was

selling record numbers of motorcycles, its baby-boomer generation of customers was actuall y

drastically slowing down their purchases . The falling sales combined with Harley-Davidson' s

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excessive shipments of inventory to give the false appearance of increasing sales and revenue, and

put tremendous pressure on dealers . Demographics of customers went from reasonably affluen t

baby-boomers to younger, poorer, and less credit-worthy buyers . Dealers were forced to slash price s

and sell to less credit-worthy purchasers (extending HDFS credit), cutting into their profit margins an d

drastically lowering the dealers' incentive to bend to Harley-Davidson's demand that they continu e

accepting the ever-increasing number of bikes being forced upon them. This process was

exacerbated as defaults mounted and repossessions added additional motorcycles to an alread y

saturated market .

THE FALSE AND MISLEADING STATEMENTS ISSUED DURINGTHE CLASS PERIOD

74. On January 21, 2004, the Company issued a press release entitled "Harley-Davidson

Reports Record Fourth Quarter and 18th Consecutive Record Year ." The press release stated in

relevant part:

Harley-Davidson, Inc. today announced record revenue and earnings for itsfourth quarter and year ended December 31, 2003 . Revenue for the quarterwas $1 .16 billion compared with $1 .03 billion in the year-ago quarter, a 12 .8percent increase. Net income for the quarter was $ 182.4 million compared to $ 150 .9million, an increase of 20.9 percent over the year ago quarter . Fourth quarter dilutedearnings per share (EPS) was 60 cents, a 22 .4 percent increase compared with lastyear's 49 cents .

Revenue for the full year was $4.62 billion, compared with $4 .09 billion in2.002, a 13 .0 percent increase . Net income for the year was $760 .9 million, a31 .1 percent increase versus last year's $580 .2 million, while diluted EPS for the fullyear was $2 .50, a 31 .6 percent increase compared with $1 .90 in 2002 .

"This is the 18th consecutive year that Harley-Davidson has achievedrecords for both revenue and net income," said Jeffrey L. Bleustein, chairmanand chief executive officer of Harley-Davidson, Inc. "We had a phenomenalyear full of memorable once-in-a-lifetime experiences surrounding our 100thAnniversary. Introducing the Harley-Davidson brand to hundreds ofthousands of potential customers has undoubtedly sparked the dream ofownership and created new excitement for our products. "

-29-

"As we begin our 101st year, we expect to grow the business further withour proven ability to deliver a continuous stream of exciting new motorcycles,related products and services. We have set a new goal for the Company to be ableto satisfy a yearly demand of 400, 000 Harley Davidson motorcycles in 2007. Byoffering innovative products and services, and by driving productivity gains in allfacets of our business, we are confident that we can deliver an earnings growthrate in the mid-teens for theforeseeablefuture," said Bleustein.

Motorcycles and Related Products Segment - Fourth Quarter Result s

Revenue from Harley Davidson @ motorcycles was $945.3 million, anincrease of $125. 0 million or 15.2 percent over the same period lastyear. Shipmentsof HarleyDavidson motorcycles totaled 77,056 units , an increase of 11,086 unitsor 16.8 percent over last year's fourth quarter . The Company 's shipment targetremains 317,000 Harley-Davidson motorcycles for 2004.

Motorcycle Retail Sales Data

Retail sales of Harley-Davidson@ motorcycles for the year 2003 grew8.8 percent in the U.S., 6.7percent in Europe, and 9.0 percent in Japan compared to2002. Based on the information currently available, Harley-Davidson 'sfull yearmarket share for the 651 cc and up segment is expected to grow in all of theCompany's major markets. "Given the economic climate during the past year, weare pleased with our retail growth," said Bleustein .

"Although our U.S. dealer network experienced a modest decline inmotorcycle sales in the fourth quarter as compared to lastyear'sfourth quarter, webelieve it is difficult to draw meaningful conclusions from this comparison . Theurgency to buy a 100th Anniversary motorcycle prior to the celebrations, along withan unusually late shipment plan for `04 motorcycles, created two very differentselling environments. We are confident that 2004 will be another strong year forHarley-Davidson due to current dealer confidence, momentum from the 100thAnniversary and improving economic indicators, " Bleustein added.

Financial Services Segment

Harley-Davidson FinancialServices, Inc. (HDFS), a subsidiary ofHarley-Davidson, Inc., reported fourth quarter operating income of $33. 8 million, up$8.5 million or 33.4 percent compared to the year-ago quarter.

"Harley-Davidson Financial Services had another strong quarter in bothfinancial performance and in helping to make the dream of owning a Harley-Davidson motorcycle a reality," said Bleustein . The segment's performance wasdriven by continued strong marketplace acceptance of its finance and insuranceproducts.

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The Company's fourth quarter securitization of $300 million of motorcycleretail loans resulted in a gain of $11 .4 million, which represents 3 .8 percent of loanssold. Annualized credit losses on a managed portfolio basis increased during theyear from 0.72 percent in 2002 to 0 .85 percent in 2003, which is within the 5-yearhistorical range of credit losses of 0 .72 to 0 .90 percent .

2004 and Beyond

In addition to the previously stated motorcycle unitgoal, the Company planson growth in all of its product lines. Harley-Davidson expects the growth rate forP&A revenues to be slightly higher than the motorcycle unitgrowth rate, and theGeneral Merchandise growth rate is expected to be lower than the motorcycleunit growth rate. The Company expects the HDFSgrowth rate to be slightly higherthan the Company's motorcycle unit growth rate.

75. Following the earnings release, Defendants held an earnings conference durin g

which Bleustein stated, "[W]e continue to have confidence that our business can achieve a n

earnings growth rate in the mid-teens for the foreseeable future." Ziemer dismissed the already

apparent reduction in sell through at dealers by stating that the drop was due both to a surge i n

demand a year earlier, commemorating Harley-Davidson's 100th anniversary, and the lat e

introduction of 2004 model motorcycles . On this news the Company's stock price increased from a n

opening price of $45 .75 on January 21, 2004 to close at $47 .41 on January 22, 2004 .

76 . The above statements contained in the January 21, 2004 press release and earnings

conference call were false and misleading when issued . The true facts, concealed from the

investing public, but known by all Defendants through their regular attendance to LSC meetings,

receipt of multiple internal reports, including, but not limited to, Dashboard reports, Managemen t

Group Reports, PCG reports, "flash" reports, and periodic financial reports detailing the

Company's lending activities during the Class Period, were that: (a) the Company's quarterly and

annual product shipment numbers were "padded," in that the quantity of motorcycles shipped ofte n

exceeded retail demand; (b) over-stocked inventories were running down the price dealers could

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obtain for new motorcycles ; (c) the Company's shipment numbers provided a false measure fo r

Company sales and prospects ; (d) the Company's annual shipment numbers would significantly

overstate the Company' s progress and prospects when compared against the Company's 2007

demand goal of retail sales of 400,000 units ; (e) the 1H04 result of 16,000 retail sales in excess of

wholesale shipments would not correct the Company's inventory problems ; (f) the planned 20%

increase in wholesale shipments for 2004 could only worsen the Company's inventory problems ;

(g) the glut of new motorcycles on showroom floors, coupled with the decrease in the price of ne w

motorcycles, was putting pressure on dealers' efforts to sell used motorcycles, damaging the resal e

value which buyers take into consideration when purchasing new Harley-Davidson motorcycles ,

cutting into dealers' profits, and increasing HDFS's credit losses as it was forced to wholesal e

repossessed motorcycles at lower prices ; (h) the credit quality of HDFS's C and D credit customer s

was declining, eroding the value of its loan portfolio ; and (i) HDFS was being forced to offer 0%

financing to it's A and B credit purchasers to maintain sales, eroding the value of its loan portfolio .

See, e.g., ¶135-65.

77. On March 12, 2004, Harley-Davidson filed its annual report with the SEC on Form

10-K, signed by Individual Defendants, reaffirming the financial results it announced on Januar y

21, 2004 .

78. On April 14, 2004, the Company issued a press release entitled "Harley-Davidso n

Roars Into Its Second Century With Another Record Quarter ." The press release stated, in relevant

part:

Harley-Davidson, Inc. today announced record revenue and earnings for itsfirst quarter ended March 28, 2004 . Revenue for the quarter was $1 .17 billioncompared with $1 .11 billion in the year-ago quarter, a 4.7 percent increase . Firstquarter diluted earnings per share (EPS) was 68 cents, an 11 .5 percent increasecompared with last year's 61 cents .

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"Harley-Davidson 's first quarter performance clearly demonstrates thatthe Company is on track to deliver both the short and long-term performanceobjectives which we established earlier this year , " said Jeffrey L. Bleustein,chairman and chief executive officer of Harley-Davidson, Inc.

"By almost any measure, we are off to a very strong start in 2004continuing the momentum of our 100th Anniversary. We delivered solidfinancial performance this quarter, and our U.S. dealer network posted thehighest first quarter retail salesfor Harley-Davidson motorcycles in its history -13 percent ahead of last year. In addition, we achieved our first quartermotorcycle production target, setting the pace to reach our goal of 317,000Harley-Davidson motorcycles by year-end. "

"The Company's continuing strong performance supports our longer-range objectives to satisfy demand for 400,000 Harley-Davidson motorcycles in2007 and to deliver an annual earnings growth rate in the mid-teens. Harley-Davidson 's Board of Directors demonstrated their confidence in our stateddirection by approving the repurchase of 7.8 million shares of stock during thequarter, " said Bleustein.

Motorcycles and Related Products Segment

First quarter revenue from Harley Davidson@ motorcycles was $919 million,an increase of 4.8 percent over the first quarter last year. Shipments of Harley-Davidson motorcycles totaled 74,090 , up 3,482 units or 4.9 percent over last year.

Motorcycle Retail Sales Data

Harley-Davidson retail motorcycle salesfor the quarter were up 11.6percentworldwide driven by strong performance in the U.S. which was up 13.0 percent.

Financial Services Segment

Harley-Davidson Financial Services, Inc . (HDFS), a subsidiary of Harley-Davidson, Inc., reported operating income of $50 million, up $7 million compared tothe year-ago quarter, or 16 .0 percent. The subsidiary continued to experiencestrong customer acceptance of its finance and insuranceproducts.

HDFS sold $625 million in retail motorcycle loans during the quarter andrecorded a gain of $25 .2 million. This compares with a gain of $26 .4 million on$550 million of loans securitized during the first quarter of 2003 . The gain as apercentage of loans sold is within management's expectations of 3 to 4 percent in thecurrent interest rate environment .

Annualized credit losses on a managed portfolio basis decreased during thequarter from 0.84 percent in 2003 to 0 .77 percent in 2004 .

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For the longer term, the Company expects the HDFS operating incomegrowth rate to be slightly higher than the Company's motorcycle unitgrowth rate .

79. The above statements contained in the April 14, 2004 press release were false and

misleading when issued . The true facts, concealed from the investing public, but known by al l

Defendants through their regular attendance to LSC meetings, receipt of multiple internal reports ,

including, but not limited to, Dashboard reports, Management Group Reports, PCG reports, "flash"

reports, and periodic financial reports detailing the Company's lending activities during the Clas s

Period, were that : (a) the Company's quarterly and annual product shipment numbers wer e

"padded," in that the quantity of motorcycles shipped often exceeded retail demand ; (b) over-

stocked inventories were running down the price dealers could obtain for new motorcycles; (c) the

Company's shipment numbers provided a false measure for Company sales and prospects ; (d) the

Company's annual shipment numbers would significantly overstate the Company's progress and

prospects when compared against the Company's 2007 demand goal of retail sales of 400,00 0

units; (e) the 1 H04 result of 16,000 retail sales in excess of wholesale shipments would not correct

the Company's inventory problems; (f) the planned 20% increase in wholesale shipments for 200 4

could only worsen the Company's inventory problems ; (g) the glut of new motorcycles on

showroom floors, coupled with the decrease in the price of new motorcycles, was putting pressur e

on dealers' efforts to sell used motorcycles, damaging the resale value which buyers take int o

consideration when purchasing new Harley-Davidson motorcycles, cutting into dealers' profits, and

increasing HDFS's credit losses as it was forced to wholesale repossessed motorcycles at lower

prices ; (h) the credit quality of HDFS's C and D credit customers was declining, eroding the value

of its loan portfolio ; and (i) HDFS was being forced to offer 0% financing to it's A and B credi t

purchasers to maintain sales, eroding the value of its loan portfolio . See, e.g., ¶¶35-65 .

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80. Harley-Davidson's stock prices, which had opened at $55 .50 on April 14, 2004 ,

closed at $59.50 that day. On April 15, 2004, Defendant Bleustein sold 192,000 shares for

$11,149,833 in proceeds ; Defendant Brostowitz sold 29,056 shares for $1,687,341 in proceeds ;

corporate executive Ronald M . Hutchinson ("Hutchinson") sold 42,234 shares for $2,466,634 in

proceeds; and on April 16, 2004, McCaslin sold 176,934 shares for $10,284,545 in proceeds .

81 . On May 6, 2004, Harley-Davidson filed its quarterly report with the SEC on Form 10-Q,

signed by Defendants Ziemer and Brostowitz, reaffirming the financial results announced on April 14,

2004 .

82. On July 14, 2004, the Company issued a press release entitled "Harley-Davidson' s

Second Century Momentum Builds With Another Record Quarter ." The press release stated in

relevant part :

Harley-Davidson, Inc. today announced record revenue and earnings for itssecond quarter ended June 27, 2004. Revenue for the quarter was $1 .33 billioncompared with $1 .22 billion in the year-ago quarter, an 8 .9 percent increase . Secondquarter diluted earnings per share (EPS) were 83 cents , a 25.8 percent increasecompared with last year's 66 cents .

"We are pleased to report another excellent quarter for Harley-Davidson, "said Jeffrey L. Bleustein, Chairman and Chief Executive Officer of Harley-Davidson, Inc. "The record results we have delivered through the first six monthsof this year are in line with the Company's previously stated long-term direction ofsustainable growth. "

U.S. retail sales of HarleyDavidson® motorcycles were 18.8 percent aheadof last year for the quarter and up 16.5 percent for the first six months. "Ourdealers report that floor traffic is brisk, driven by keen interest in the entireHarley-Davidson experience and in particular, the Sportster® motorcycle familywhich was completely redesigned for the 2004 model year . The redesign, whichwas intended to broaden the appeal of that product line, is clearly achieving itspurpose. Tomorrow we will bring even more excitement to our customers when the2005 model year motorcycles and related new products will be unveiled to ourworldwide dealer network at our summer dealer meeting in San Diego," saidBleustein .

Motorcycles and Related Products Segment - Second Quarter Result s

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Second quarter revenue from Harley-Davidson motorcycles was$1.02 billion, an increase of 6.8 percent over last year. Worldwide shipments ofHarley-Davidson motorcycles in the second quarter totaled 82,034 units, up6,009 units or 7.9 percent over last year. The Company's shipment target remains317,000 Harley-Davidson motorcycles for 2004.

Motorcycle Retail Data - Six Month Results

Retail sales of Harley-Davidson motorcycles in the United States were up16.5 percent, or nearly 20,000 units for the period January through June 2004, whencompared to the same period last year . Harley-Davidson retail sales were upapproximately 100 units in Europe or 0 .7 percent and down approximately 380 unitsin Japan or 7 .3 percent, respectively, when compared with 2003 . Harley-Davidsonretail sales changes in Europe and Japan are generally tracking with motorcycle sales inthe heavyweight markets in those locations .

Financial Services Segment - Second Quarter Result s

Harley-Davidson Financial Services, Inc. (HDFS) reported second quarteroperating income of $49. 0 million, up $4.5 million or 10.2 percent from the year-agoquarter. The Company's second quarter securitization of $626 million in motorcycleretail loans resulted in a gain of $19.3 million, which compares to a securitization of$425 million and a gain of $22.2 million during the second quarter of2003. The gainas a percentage of the amount of loans securitized was lower when compared withlastyear's gain due to the costs of a new enhanced dealer participation program andrising market interest rates, Based on the current competitive market and interestrateenvironment, the Company believes the full impact of these changes will result in

future securitization gains in the range of 2.0 to 2.5 percent

Annualized credit losses on a managed portfolio basis as of the end of thesecond quarter were lower at 0 .63 percent in 2004, down from 0 .75 percent in 2003 .

Over the long term, the Company expects the HDFSgrowth rate to be slightlyhigher than the Company's motorcycle unit growth rate .

Harley-Davidson, Inc . - Six Month Results

For the six month period, revenue was $2 .49 billion compared with$2.33 billion, a 6.9 percent increase over the year ago period . Diluted earnings pershare were $ 1 .52, compared with $ 1 .28, an increase of 18 .8 percent compared to thesame period last year .

Through the first six months of this year, shipments of Harley-Davidsonmotorcycle units were 156,124, a 6 .5 percent increase over last year's 146,633 .

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Harley-Davidson motorcycle revenue was $1 .94 billion, a 5 .8 percent increase over $1.83 billion in revenue in 2003 . P&A revenue totaled $399.3 million, a 9 .7 percentincrease over last year's $364 .0 million. General Merchandise revenue totaled $107.5 million, a 7 .3 percent increase compared with $ 100.1 million during the sameperiod in 2003 .

During the same period, HDFS operating income was $99 .3 million, a13.1 percent increase over last year's $87 .8 million during the first six months .

83 . During the conference call on July 14, 2004, following the press release, Defendants

were asked a number of pointed questions related to product inventory, shipments and other ke y

issues :

Jim Ziemer - Harley-Davidson, Inc - VP & CF O

Our shipment target for the quarter was 82, 000 units of Harley Davidsonmotorcycles and we achieved that We still expect to ship our target of 317,000Harley-Davidson m otorcycles for 2004 with 850,000 units in the third quarter and800 - excuse me, let me back up. We still expect to ship our target of 317,000Harley-Davidson motorcycles for 2004 with 80,500 units in the third quarter and80,500 units for the fourth quarter. Turning to retail data, I would like to reviewour performance in the heavyweight motorcycle market which we define as allmotorcycles with an engine displacement greater than 650 cubic centimeters . Forthe quarter our U.S. dealers experienced an 18.8% increase in retail sales. Thisbrings the 6 month year-to-date retail increase of 16 .5% over 2003. In fact, retailsales have exceeded wholesale shipments by over 16,000 units in the first 6months of 2004 in the U.S.

David Cumberland - Robert W Baird - Analys t

On Sportsters, might those be more of the mix in Q3 than they were in thefirst half due to the early release and another question on the Sportsters . Of the1200C model seems most popular within the family, will the '05 model emphasizethat model more than the '04 model year did?

Jim Ziemer - Harley-Davidson , Inc . - VP & CF O

Number one, your comment on the earlier release of Sportsters and let megive a little background to all the listeners . We released the old - typically newmodels go out right after the dealer meeting . So our dealer meeting is starting

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tomorrow. We would typically, in the middle of July, release the new model year .This year the redesigned Sportster coming out lastyear, it was a very hot model,some ofour dealers reporting that they would be running out of inventory beforewe got to the dealer meeting. We responded with letting out the Sportsters startingJune 28th, which by the way is in our fiscal third quarter . Our second quarter endedon June 27th, so in the U.S . market none of those `05s got out to the market in thesecond quarter . So, therefore, that does not skew the mix that you were referring toof Sportsters being a higher mix . Production that we would experience in the thirdquarter does go to the market in the third quarter and that mix stays the same. youhad a question on the 1200s . There's no doubt that the 1200s are a very popularmodel, especially the 12000, but we've been recognizing that all along and thatshould not be a significant change in our mix between the 1200s and 83s versus the'04 models .

Carole Buyers - RBC Capital Markets - Analyst

Okay. And then when you look at the strength in the market, I guess, I wassurprised that you didn't - you're not raising prices greater than the average point0.5%. Can you comment on what went into that decision and can you alsocomment on commodity prices?

Jim Ziemer - Harley-Davidson, Inc. - VP & CFO

There is no doubt that we have pricing leverage . There's evidence bydealers in charging above MSRP. I mean, I know of no other product third yearinto recession where dealers are charging above MSRP on a product that costs anaverage of over $10,000. And, in fact, on the new vehicles that are - that aregoingfor more than their original MSRP. So, there is no doubt that we havepricing leverage. At the same time, this is a balance. We're trying to grow thebusiness for the next hundred years . It's a balance with the customers and thedealers. Not all of the dealers charge above MSRP, so we're, you know, we're nottrying to get every last dime out of the customers, we're trying to run this businessfor the long run, and that's the reason for our pricing strategy . Also, looking at thecompetition, not trying to have a big gap between where we are in the competition .The last thing we ever want to do is run into a position where the automobilecompanies have run into where you end up discounting your product. So, ourpricing strategy has always been conservative, has always been less than inflation,and we're going to maintain that .

Dean Gianoukos - JP Morgan - Analyst

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Hi, just a couple of quick questions . First, you mentioned putting theSportster out a little earlier . In the past, if we go back four or five years, you usedto have wait lists on pretty much all of your models and you never moved, or I don'trecall you back then moving production up like this, and I'm, wondering is this aneffort to take some of the seasonality out of the business? Maybe you can - canyou discussion what drove you to move production up this time ?

Jim Ziemer - Harley-Davidson, Inc - VP & CFO

Number one, we didn't move production up . What we did is we -

Dean Gianoukos - JP Morgan - Analyst

Real estate , sorry .

Jim Ziemer - Harley-Davidson , Inc - VP & CFO

We moved shipments up. To put this is in context, we would have typicallyshipped these out tomorrow, which is the 15th, so basically we moved it up 2weeks . Now, 2 weeks is certainly not going to take seasonality. But really what weare trying to do, the Sportster is the entry level vehicle to get into Harley-Davidson .And last year, and the year before, it was the 100th anniversary, we sparked a lot ofdreams with people that want to get in a Harley-Davidson and you want to nurtureand cultivate those dreams and the best way to do it is to have some product outthere. So, as those people responding to all of the media impressions and the thingsthat we did last year, the coming in and why have a lull in that? So we discontinuethat momentum, and sense the 100th anniversary doesn't come along that often, it'skind of hard to draw back on history to say that this is what we typically have doneor not done . This is really responding to all of these new dreamers.

Dick Henderson - Pershing, LLC - Analyst

Yes, good morning, Jim. Again, a really terrific quarter . A question on theinternational . I'm a little confused here. Your exports were up 20% in the secondquarter and up 13% for the first half and the markets were flat . You made somecomments about Canada and you made some about mix . Could you put a littlecolor? Is the inventories rising and therefore exports kind of will grow moreslowly in the future, which would enhance your domestic mix and margins?Could you -?

Jim Ziemer - Harley-Davidson , Inc - VP & CFO

We don't comment on dealer inventory, whether it be US, internationalmarkets, but really to get a good handle on, you know, to get to where you're going

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is you need to look at, and I don't it have in front of me, a model year's shipments .We're trying to -- number one, European markets are more seasonal than U .S .markets, so as we try to recognize that shipping patterns do change, so a better way,like I said I don't it have in front of me, would be to look at our model yearshipments including late last year . I think you'll see that those were skinnied downand we 've responded to getting the motorcycles closer to when they need it byincreasing the shipments this year, so I think that we're in tune with the retailsales. I think that's the best way I can answer that for you .

Michael Millman - Millman Research - Analyst

It looks like that shipments to dealers are going to be up on the order ofabout 20%, they're up kind of something like 8% in the first - in the secondquarter, and I was wondering what - if part of this is to make sure that there'smore stock on the floor for dealers throughout the year, and to what extent doyou have some initiative to help the dealers to both carry and to move thisincreased amount ofproduct?

Jim Ziemer - Harley-Davidson , Inc - VP & CFO

The reality is, Mike, what drives the biggest increase is that the way wedivide our fiscal quarters up, there was just more production days this year versuslast year, and I won't go into the number of production days, but, I mean, it's beingdriven by primarily production days than it is by a capacity increase, and so, Imean, year-over-year basis on selling days, the dealers will not see a 20% increase,there will be more normal increase, because this, again, is being driven byproduction days . And, therefore, I mean, this is just responding on a normal basis,and there is no need for anyparticular special promotion, as you questioned.

Robin Farley - UBS Warburg - Analys t

Thanks . I just wanted to clarify, Jim, two comments that you made . Youwere saying that this near 20% production increase in the third quarter, I don'tknow if I understood what you meant when you said it 16 the dealers won't see itor won't feel it as a 20% increase. If you could clarify that, and then also with theV-rod, you were talking about the introduction versus the Softail, but, I mean, theSoftail production has increased every year. It looks like just from Ql -- the Qlnumbers that you did break out that V-rod production was about half of what it waslast year. Is it - can we assume that will be roughly the case for all of `04 ?

Jim Ziemer - Harley-Davidson, Inc - VP & CF O

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Okay. On the clarification on the question asking about the 20% increase,again , 20% increase is year-over-year and is really driven by the, production days .Now, as the dealers see this, as they come in, it's based on selling days, or whatdays their open, and they will see an increase and it's going to be more in thearea, you know, of our growth rate. And it doesn 't come out to be 20 % becausethat's dictated on - depending on which plant is shutting down what period oftime during the third quarter. On V-rod, I was scribbling here. I'm trying to readmy own notes . Oh, your question was on actually the amount of production . Yes,the first quarter of this year on V-rods was lower than first quarter last year .Basically , in coming out with - number one, when the V-rod came out with all ofthe excitement, the magazine exposure, the media, I mentioned that many peoplewere paying up on V-rods considerably, with - you know, on the MSRP of$17,000, some people were paying $25,000, $30,000 . To respond to that, weneeded to increase our production of V-rods and quickly ramped it up to kind ofanswer that big bubble out there . At that point in time, as we addressed that we'veevened off or kind of brought back the production level, so it is lower than 2003 toa more stable level until we bring out more members of the family . V-rod willcontinue to grow, but right now, with only two members to that V-rod family, itreally doesn't - it's hard to support a family of motorcycles with two members .That will grow when we come out with more - more product in that family . I can'tobviously talk about our new products, but right now, to answer your question,2004 versus 2003, V-rod production is down, but, again, 2003 was responding tothe market .

84. The above statements contained in the July 14, 2004 press release and earnings

conference call were false and misleading when issued . The true facts, concealed from the

investing public, but known by all Defendants through their regular attendance to LSC meetings ,

receipt of multiple internal reports, including, but not limited to, Dashboard reports, Management

Group Reports, PCG reports, "flash" reports, and periodic financial reports detailing the

Company's lending activities during the Class Period, were that : (a) the Company's quarterly and

annual product shipment numbers were "padded," in that the quantity of motorcycles shipped ofte n

exceeded retail demand; (b) over-stocked inventories were running down the price dealers could

obtain for new motorcycles ; (c) the Company's shipment numbers provided a false measure fo r

Company sales and prospects; (d) the Company's annual shipment numbers would significantl y

-41-

overstate the Company' s progress and prospects when compared against the Company's 2007

demand goal of retail sales of 400,000 units ; (e) the I H04 result of 16,000 retail sales in excess o f

wholesale shipments would not correct the Company's inventory problems ; (f) although Defendant

Ziemer indicated during the conference call that the last thing Harley-Davidson wanted to do was

be in a position where it would "end up discounting" its product, in fact, Defendants knew tha t

dealers were offering deep discounts because of the glut of motorcycles on showroom floors an d

discounts offered by Harley-Davidson, (g) the planned 20% increase in wholesale shipments fo r

2004 could only worsen the Company's inventory problems ; (h) the glut of new motorcycles on

showroom floors, coupled with the decrease in the price of new motorcycles, was putting pressur e

on dealers' efforts to sell used motorcycles, damaging the resale value which buyers take int o

consideration when purchasing new Harley-Davidson motorcycles, cutting into dealers' profits, and

increasing HDFS' s credit losses as it was forced to wholesale repossessed motorcycles at lowe r

prices; (i) the credit quality of HDFS's C and D credit customers was declining, eroding the valu e

of its loan portfolio ; and (j) HDFS was being forced to offer 0% financing to it's A and B credit

purchasers to maintain sales, eroding the value of its loan portfolio . See, e.g., ¶¶35-65 .

85. Harley-Davidson's stock, which closed at $59 .60 on July 13, 2004, closed up a t

$62 .95 on July 14, 2004. Thereafter, in the ensuing days, Defendant Bleustein sold 656,000 mor e

shares for $40,084,024 in proceeds ; Defendant Brostowitz sold 30,672 shares for $1,917,907 i n

proceeds; Lione sold 29,696 shares for $1,536,617 in proceeds ; corporate executive W. Kenneth

Sutton, Jr. ("Sutton") sold 16,000 shares for $981,500 in proceeds ; Zarcone sold 82,108 shares for

$5,138,297 in proceeds ; and Ziemer sold 93,972 shares for $5,869,265 in proceeds . On August 26 ,

2004, corporate executive John A . Hevey ("Hevey") sold 19,756 shares for $1,209,265 in proceeds .

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86. On August 6, 2004, Harley-Davidson filed its quarterly report with the SEC o n

Form 10-Q, signed by Defendants Ziemer and Brostowitz, reaffirming the financial results

announced on July 14, 2004 .

87. On October 13, 2004, the Company issued a press release entitled "Harley-Davidson,

Inc. Reports Record Third Quarter; Company on Track to Achieve Record Year and Previously

Stated Long-term Targets ." The press release stated in relevant part :

Harley-Davidson, Inc . today announced record earnings for its third quarterended September 26, 2004. Third quarter diluted earnings per share (EPS) were 77cents, a 24.2 percent increase compared with last year's 62 cents . Revenue for thequarter was $1 .30 billion, which compares to $1 .13 billion in the year-ago quarter .

"We are pleased to report that Harley-Davidson has once again producedrecord revenue and earningsfor the quarter," said Jeffrey L. Bleustein, Chairmanand Chief Executive Officer of Harley-Davidson, Inc . "Our financial results for thefirst nine months of the year position us to deliver another record year and are inline with our previously stated long-term targets . "

"Retail sales of Harley-Davidson® motorcycles in the U .S. are up 7.1 percenton a year-to-date basis through September . As expected, third quarter retail saleswere down compared with last year's third quarter . In 2003, our dealers had aphenomenal third quarter as our 100th Anniversary celebration drove motorcyclesales up 27 percent versus the prior year's performance," added Bleustein .

"We are enthusiastic about the reception of our recently introduced 2005model year motorcycles, in particular the new Softail® Deluxe, the Screamin'Eagle® Custom Vehicles, the Sportster® 883 Low, and the redesigned Softail®Springer® Classic . Looking ahead to 2005, we expect demand for Harley-Davidson motorcycles to continue to grow and support a wholesale unit target of339,000 motorcycles, which represents a 7percent increase over this year's target, "said Bleustein.

Motorcycles and Related Products Segment - Third Quarter Result s

Third quarter revenue from Harley-Davidson motorcycles was $996.6million, an increase of $152.3 million or 18. 0 percent over last year. Worldwideshipments of Harley-Davidson motorcycles in the third quarter totaled 80,578units, consistent with the Company's previously announced target of80,500. TheCompany's 2004 shipment target for Harley-Davidson motorcycles remains317, 000.

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Motorcycle Retail Dat a

"U.S. Harley-Davidson motorcycle retail salesfor the third quarter weredown 9. 8 percent versus the same period last year , which was the largest retailsales quarter ever. Standing up to the challenge, our dealers recorded the secondlargest third quarter in Company history this year, even with the adverse weather-related issues that have plagued the Southeast during much of that time," saidBleustein. Retail sales ofHarley-Davidson motorcycles in the United States wereup 7.l percentfor the period January through September 2004 when compared tothe same period last year.

In markets outside the U .S., retail sales of Harley-Davidson motorcycleswere down slightly during the first nine months of 2004, declining 0 .9 percent or400 units from the same period last year . While retail sales of Harley-Davidsonmotorcycles are growing in many of the Company's international markets, dealersin select markets have seen decreases due to difficult economic and marketconditions . Harley-Davidson retail motorcycle sales were down 5 .1 percent inEurope, due largely to weakness in the German economy, and down 10 .2 percent inJapan.

Data is listed in the accompanying tables .

Financial Services Segment

Harley-Davidson Financial Services, Inc . (HDFS) reported third quarteroperating income of $50.1 million, up 8 .4 percent from $46 .2 million in the year-ago quarter . The segment 's performance was driven by continued strongmarketplace acceptance of its finance and insurance products.

The Company's third quarter securitization of $625 million of motorcycleretail loans resulted in a gain of $13 .8 million during the third quarter of 2004 . Thegain as a percentage of loans securitized was 2 .2 percent, in line with theCompany's previously stated guidance of 2 .0 to 2.5 percent in the currentcompetitive market and interest rate environment .

Annualized credit losses on a managed portfolio basis decreased during thefirst nine months of the year from 0 .73 percent in 2003 to 0.69 percent in 2004 .

Over the long term, the Company expects the HDFS growth rate inoperating income to be slightly higher than the Company's motorcycle unitgrowth rate.

Harley-Davidson, Inc. - Nine Month Results

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For the nine month period in 2004, revenue totaled $3.79 billion, a 9.5percent increase over the year-ago period Diluted earnings per share were $2.29,an increase of 20. 5 percent compared to the same period last year .

Through the first nine months of this year, shipments ofHarley Davidsonmotorcycles were 236,702, a 10.6 percent increase over last year's 214,091.Harley-Davidson motorcycle revenue was $2.94 billion, a 9.7 percent increaseover $2.68 billion in revenue in 2003. P&A revenue totaled $623.78 million, a 9.1percent increase over last year's $471 .8 million. General Merchandise revenuetotaled $168.8 million, a 5.1 percent increase compared with $160.7 millionduring the same period in 2003 .

HDFS operating income was $149.4 million, an 11.5 percent increasecompared with $134.0 million during last year's first nine months.

88. During the conference call on October 13, 2004, following the press release ,

analysts again asked pointed questions related to product inventory, shipments and other key issue s

similar to those addressed during the conference call for the previous quarter :

David Cumberland - Robert W . Baird - Analyst

Can you comment on any new steps you might be planning to help dealerscombat seasonality in colder weather markets in the up coming months ?

Jim Ziemer - Harley-Davidson - CFO, VP

A question on what to do, number one, I don 't think the seasons havechanged anything, but in terms of,, as we look at the markets we are adjustingsome of our allocations systems to make sure that on a colder month basis that wehave some more units in the South where previously we were allocating kind ofan equal basis whether the dealers were in the North or South . That created anunequal distribution versus retail sales. So we are trying to build that into ourallocation formula and allow for that. Allow for the fact that there is riding 12months of theyear in many of our Southern markets. I think that 's probably thebiggest thing we are doing is recognizing that

Tony Gikas - Pier Jaffray - Analyst

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Good morning, guys . A couple questions . If you said this, I apologize, butwhat were the industry retail sales during the September quarter? I wanted to knowif you actually took some share there. I can't imagine that was a particularly goodnumber. Second question, with the production increase of about 20% in thequarter and retail sales down 1 0, that would imply that there was some build ofinventory at the dealership level Did that play into your decision to increaseproduction nextyear by only 7%? Or as you indicated on the call, was this largelyjust due to the international business? And then I have a follow up .

Jan Ziemer - Harley-Davidson - CFO, VP

It was our comparisons with last year in the third quarter and the excitementof the 100th anniversary, coupled with that fact that last year we had a model yearthat went for 14 months and therefore carried into September, versus this yearwhere the model year 2005 started in July, creates some uncompare - some datathat's hard to compare. If you really look at the data for 9 months, going fromDecember through September, a bigger period of time . Although on a percentagebasis, retail increased 7 .1% and wholesale increased 10% . The reality is dealerinventories went down. I mean, retail sales since retail sales is a larger number,even with a small percent increase, retail sales increased absolute units more thanthe wholesale shipments. In fact retail sales were higher by over 10,000 units overwholesale shipments . So dealer inventoriesfor the first 9 months decreased fromthe beginning of the year. Over a period of time, we've always said that dealerinventories will increase year over year comparisons, just because of the fact that ifyou take a larger wholesale shipment number and divide it by dealer number thatdoesn't really change, the units per delaer increase . What we really look at is dealerturns and that's critical to use and we kind of have a range, a projection, and we'revery comfortable with where the dealer inventories are right now . As for yourquestion on industry retail registrations for 3 months, I don't have that in front ofme. We can easily get that for you .

Tony Gikas - Piper Jaffrey - Analyst

Okay. So you said that on a 9-month basis, there wasn't a build ininventories, but it would appear that in the last few months there was a little bit ofa build. Did that play into your decision to increase production by only 7% ?

Jim Ziemer - Harley-Davidson - CFO, VP

No. Absolutely not. As we said in the conference call, and, again, like Isaid, third quarter, it's kind of a hard comparison, we are looking at we are ontrack for the nine months year-to-date where we expected to be. As we said in thepress release and I also mentioned in the beginning of the conference call, is thatgreat enthusiasm for the U.S . - demand in U.S ., that is tempered by what is goingon in the international markets, especially as that pertains to economies which wedon't have a lot of control of. So on a shorter term basis, the next year we've

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tempered our look at the worldwide market, but certainly that's not an indication ofwhat we see for demand in the U .S.

Tony Gikas - Piper Jaffray - Analyst

Then do you expectsales at the dealership level to become more seasonalgoingforward? I think someone stressed that a little bit earlier, but in the upperhalf of the U.S . we are not going to probably have to take delivery of bikes as muchas we may have in previous years over the winter months . Do you expect that to bethe case , or not?

Jim Ziemer - Harley-Davidson - CFO, VP

Number one, as we looked at historical data, we've not seen a great changein seasonality being that what percent of our bikes are retailed in a particularseason . Going forward as the numbers become larger and as the gap betweensupply and demand gets to a more comfortable level where dealers are not chargingpremiums over MSRP, some of that urgency to pick up the bike in the winter maynot be there . We are addressing that . My answer to a previous question was byallocating some of the product during the year more to the South during thewinter months, so that we can recognize that retail demand does not slow down inthe South during the winter months.

Tony Gikas - Piper Jaffray - Analyst

And last question . Weather patterns in the last 3 or 4 weeks here have beenbetter. Have you seen - or been hearing from your dealer network that things havepicked up a little bit in recent weeks?

Jim Ziemer - Harley-Davidson -CFO, VP

We would not comment on the data besides what we put in the press release .But I think that at least in the Midwest, I think we 've experienced some greatweather, and there 's no doubt that we have constant contact with the dealers boththrough our dealer advisory counsel, with our district managers and the dealershave great confidence in the marke t.

89. The above statements contained in the October 13, 2004 press release and earnings

conference call were false and misleading when issued . The true facts, concealed from the

investing public, but known by all Defendants through their regular attendance to LSC meetings ,

receipt of multiple internal reports, including, but not limited to, Dashboard reports, Management

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Group Reports, PCG reports, "flash" reports, and periodic financial reports detailing th e

Company's lending activities during the Class Period, were that : (a) the Company's quarterly and

annual product shipment numbers were "padded," in that the quantity of motorcycles shipped often

exceeded retail demand; (b) over-stocked inventories were running down the price dealers could

obtain for new motorcycles ; (c) the Company's shipment numbers provided a false measure fo r

Company sales and prospects ; (d) the Company's annual shipment numbers would significantly

overstate the Company's progress and prospects when compared against the Company's 200 7

demand goal of retail sales of 400,000 units ; (e) the l H04 result of 16,000 retail sales in excess o f

wholesale shipments would not correct the Company's inventory problems; (f) the planned 20%

increase in wholesale shipments for 2004 could only worsen the Company's inventory problems ;

(g) the glut of new motorcycles on showroom floors, coupled with the decrease in the price of ne w

motorcycles, was putting pressure on dealers ' efforts to sell used motorcycles , damaging the resale

value which buyers take into consideration when purchasing new Harley-Davidson motorcycles ,

cutting into dealers' profits, and increasing HDFS's credit losses as it was forced to wholesale

repossessed motorcycles at lower prices ; (h) although Defendant Ziemer indicated during the

conference call that dealer inventories went down and that there was no buildup, in fact, by the end

of 2004, product shipments would exceed retail sales by as much as 37, 000 units; (i) although

Defendant Ziemer indicated during the conference call that dealers had great confidence in th e

market, in fact, dealers regularly voiced concern over the glut of motorcycles on showroom floors,

the decrease in the price of new motorcycles, and the cut in dealer profits, (j) the credit quality o f

HDFS's C and D credit customers was declining, eroding the value of its loan portfolio ; and (k)

HDFS was being forced to offer 0% financing to it's A and B credit purchasers to maintain sales ,

eroding the value of its loan portfolio . See, e .g., ¶¶35-65 .

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90. On November 4, 2004, Harley-Davidson filed its quarterly report with the SEC o n

Form 10-Q, signed by Defendants Ziemer and Brostowitz, reaffirming the financial results

announced on October 13, 2004 .

91 . In November 2004, . Flickinger sold 10,000 shares for $587,766 in proceeds .

92. On January 20, 2005, the Company issued a press release entitled "Harley-Davidson

Announces Record Fourth Quarter and 19th Consecutive Record Year ; Company Surpasses

$5 Billion In Revenue." The press release stated in relevant part :

Harley-Davidson, Inc . today announced record revenue and earnings for itsfourth quarter and year ended December 31, 2004 . Revenue for the quarterwas $1 .22 billion compared with $1 .16 billion in the year-ago quarter, a 5 .4percent increase. Net income for the quarter was $209 .0 million compared to $182 .4million, an increase of 14.5 percent over 2003 . Fourth quarter diluted earnings pershare (EPS) was 71 cents, an 18 .3 percent increase compared with last year's 60cents .

Revenue for the full year was $5 .02 billion, compared with $4 .62 billion in2003, an 8 .5 percent increase . Net income for the year was $889.8 million, a16.9 percent increase versus last year's $760 . 9 million, while diluted EPS for the fullyear was $3 .00, a 20.0 percent increase compared with $2.50 in 2003 .

"Once again Harley-Davidson achieved record revenue and earnings, making2004 the nineteenth consecutive record year for the Company," said Jeffrey L.Bleustein, Chairman and Chief Executive Officer. "Wefocused on exceeding theimpressive results of our 100th Anniversary year by increasing motorcycleavailability to improve customer satisfaction and by stimulating interest amongprospective customers. U.S. retail sales for Harley-Davidson motorcycles increasedmore than 7percent over lastyear, demonstrating that the dream of owning a Harley-Davidson® motorcycle remains extremely powerful,"said Bleustein .

"Our fourth quarter retail sales of HarleyDavidson motorcycles were up6.7 percent in the U.S. over the same period in 2003 and up 14 percent ininternational markets, " he said

"We expect to continue to grow in 2005 and ship 339,000 Harley-Davidsonmotorcycles during the year to support that growth . This is consistent with ourestablished goals of satisfying demand for 400,000 motorcycles in 2007 andgenerating an annual earnings growth rate in the mid-teens, " said Bleustein .

Motorcycles and Related Products Segment - Fourth Quarter Result s

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Revenue from Harley Davidson* motorcycles was $992.6 million, anincrease of $47.3 million or 5.0 percent over the same period last year. Shipmentsof Harley-Davidson motorcycles totaled 80,587 units, an increase of 3,531 unitsor 4.6 percent over last year's fourth quarter .

Motorcycle Retail Sales Data

Retail sales of Harley-Davidson motorcycles for the year 2004 grew 7 .1percent in the U .S. and 1 .5 percent internationally compared with the prior year .Retail sales of Harley-Davidson motorcycles grew in many of the Company'sinternational markets . However, overall retail sales in Europe decreased 5 .3percent .

"In response to the current market conditions and the strong Euro, Harley-Davidson is reducing suggested retail prices in 2005 on select motorcycle models inour European markets . This will make our motorcycles more affordable to abroader range of customers," said Bleustein .

Financial Services Segment

Harley-Davidson Financial Services, Inc . (HDFS), a subsidiary of Harley-Davidson, Inc ., reported fourth quarter operating income of $39 .2 million, up $5 .4million or 15.9 percent compared to the year ago quarter .

The segment's performance was driven by continued strong marketplaceacceptance of its finance and insurance products as well as positive foreigncurrency exchange.

Annualized credit losses net of recoveries on a managed portfolio basis were0.81 percent during the year. This is better than the Company's stated target of 1percent .

Harley-Davidson, Inc . - Twelve Month Results

For the fiscal year ended 2004, total Harley-Davidson motorcycleshipments were 317,289 units compared with 291,147 units in 2003, a 9.0 percentincrease. Harley-Davidson motorcycle revenue was $3 .93 billion, an increase of$306.7 million or 8.5 percen t.

Full year operating income for HDFS was $188 .6 million, an increase of$20.7 million or 12.3 percent compared to 2003 .

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2005 and Beyon d

In addition to the previously stated motorcycle unit shipment goal, theCompany expects growth in all of its product lines. Harley-Davidson expects thegrowth rate for P&A revenues to be slightly higher than the motorcycle unitgrowth rate, and the General Merchandise growth rate is expected to be lowerthan the motorcycle unit growth rate. The Company expects the HDFS growthrate to be slightly higher than the Company 's motorcycle unit growth rate.

93. During the conference call on January 20, 2005, following the press release, analyst s

again retraced product inventory questions and concerns :

Robin Farley - UBS - Analyst

If I could just elaborate on that question. When you look at Harley versusthe overall market, U.S. and international sales it looks like Harley actuallylagged overall market sales when you look at the U.S. and international marketscombined. And it looks like the first time - there have been years in the last tenyears when that happened when Harley 's production wasn't as great as theoverall market growth. But in this case, it looks like - I guess, what would youattribute the difference to this year?

Jim Ziemer - Harley-Davidson - CFO, VP, Director

I don't have the total worldwide numbers here, but with the U .S., which isthe biggest market in the world, growing at the same rate that we grew at, and ourgrowth rate was positive and many of the other countries like Japan have negativegrowth rate . I don't know if we went down. I won't dispute that but we 'd have toget back to that. I don't think we have - we went down during the year. I justhadn 't copied down questions so I lost track of that. What was it, again, Robin ?

Robin Farley - UBS - Analyst

Based on the markets you reported and the release that it had looked likeHarley's growth was not as much as the overall markets with all the marketscombined and I was just wondering if you felt there was anything particularaffecting that and how that might change over the next 12 months ?

Jim Ziemer - Harley-Davidson - CFO, VP, Director

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The biggest thing in all - I mean, we were - even in the U.S. market andwhen you go to Europe, as I point out, Germany was the largest market . I mean intotal in Europe, we performed so far we can see because we only have industry datathrough November, it looks like we were down and the industry was rather flat, thatwas driven by Germany where we actually declined more than the industry is as faras we can see, and that, I think, has something to do with the bad economy inGermany and how that affects our higher-priced products . I think we will bear abigger brunt in Germany than some of the other manufacturers . I don't think thatalthough not a robust year, I think comparing 2004 against the anniversary yearwe did rather well

David Cumberland - Robin W. Baird - Analyst

Good morning, Jim, two questions . First, you mentioned increased bikeavailability resulting in lower premiums at dealers in some cases, what was theapproximate change in retail pricing for new bikes on a year-over-year basis eitherduring Q4 or during 2004 as a whole? Second question : What was the foreignexchange impact on operating expenses in Q4 ?

Jim Ziemer - Harley-Davidson - CFO, VP, Director

Okay. By the way, good morning, David. Increased bike availability,we've pointed out, as I did in the commentary upfront of the phone call, that ourdesire has been to narrow the gap between supply and demand, our inventories -the motorcycle availability was not sufficient. Dealers were taking advantage ofthis and that's not a good model of customer satisfaction and therefore, not asustained growth model for any business. We've been increasing bike availabilityand that is gone through and created some of those good things, many morecustomers can walk in. They don't have to wait 18 months. They have much betterchance of getting the product that they want . Maybe even in the color that theywant . Looking at the retail prices, we monitored that off information we get fromHDFS. As an average on the new bikes, our new bikes are still selling aboveMSRP on average .

Our philosophy would be that we like most bikes to be sold at close toMSRP and we do understand when there's a bike that's in very hot demand, asthere may be a premium attached to that . As for the used bikes, our used bikes arestill selling for very close to what they were originally purchased for many yearsout. Just looking at some data yesterday. We don't disclose the exact premiums . Ithas come down somewhat. So even though I mention that there is an averagepremium being charged that is down from prior years but not a lot . For operatingexpenses and foreign exchange, we had negative, a negative impact with foreignexchange on those operating expenses in our subsidiaries holding onto subsidiarie s

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outside the U.S. and that impact is for about $2 million on the negative side inoperating expenses during the quarter. Next question?

Tony Gikas - Piper Jaffray - Analyst

Good morning, guys . A couple of quick questions for you . Could you justgive us your feedback on dealer level inventories, as they appear to be fairly highat the moment? If you have the data, what the number of bikes per dealer is rightnow? Also, what were the price reductions in Europe? Could you characterize thelevel of the pricing change?

Jim Ziemer - Harley-Davidson - CFO, VP, Director

Okay. Dealer inventory, we don't give out the dealer inventory, but I meanthere's no doubt dealer inventories are higher than they were this time last year, andthat has been intentional . It's been an intentional plan. We've been very vocal onthat for a long period of time . The dealer inventories were not sufficient to coverthe demand, which caused a power imbalance in the dealership and there weresome charges to the customer and not creating a lot ofgood satisfaction betweenhow that allocation process went. The only way to address that, the best way Ishould say to address that, is through creating more product availability. We'vebeen doing that for the last several years . Also, number - the other part is, we havea fixed number of dealers, and that's 00 the dealers are about 650 . The outlets areabout a little more than 700 outlets and when the number of bikes increases yearafter year, 19 years, the average bikes per dealer will increase every single year.So, not only does the average go up, but where we were at was far too low .

Tony Gikas - Piper Jaffray - Analyst

Would you say the inventory levels are then, within your expectations?What they would be at this point?

Jim Ziemer - Harley-Davidson - CFO, VP, Director

Yes, they are. Imean we monitor dealer inventory internally . We'vegotagood system ofwe track the bike once it leaves the factory. We have a warrantyregistration system. It's just a small item so we can tell what bike is what color,what model, at what dealer. We track that and we have expectations of what thatshould be. And we're within our expectations of the dealer inventories. Like Isaid, it's been a plan to increase dealer inventories and we're within ourexpectations. On your question on Europe, the prices . Now, the prices as Imentioned in the start of the phone call, the price adjustments downwardadjustments were on selected models. Were not on every model . And then, itdepended. The average price adjustment, depending on the model could b e

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anywhere from 2 to 9 percent, so certainly not as much as the Euro has strengthenedversus the dollar but it is an adjustment .

Dean Gianoukos - JP Morgan - Analys t

Hi, just a couple of questions. I understand you want to narrow the gapbetween supply and demand and it kind of looks like on retail inventories aredoing tha t. I guess the question is, is there any thought that doing that at a slowerpace so you don't have to offer discounts? And then secondly, maybe you canaddress that first .

Jim Ziemer - Harley-Davidson - CFO, VP , Director

Your question kind of goes on is there a possibility to manufacture ourproduct at the same pace of retail demand. And we did that 20 years ago. And itresults in a very inefficient manufacture, it drives cost. And it- has a detrimentalimpact on quality. So, what we're trying to do on this promotion is, number one, itdoes not discount the price of the motorcycle . It does give it incentive for the Hoggmember to come in and put some additional PA, parts and accessories, on themotorcycle . But what we're trying to do, is, again, the reality is, we're going tohave even or rather rising production continuously and the dealers sales pattern,there is some seasonality, there is a winter season in there where the floor trafficwhere people aren't riding motorcycles and the floor traffic goes down . We'retrying to spread that customer traffic out and we're seeing if this works, we don'tknow.

94. The above statements contained in the January 20, 2005 press release and earning s

conference call were false and misleading when issued . The true facts, concealed from the

investing public, but known by all Defendants through their regular attendance to LSC meetings ,

receipt of multiple internal reports, including, but not limited to, Dashboard reports, Managemen t

Group Reports, PCG reports, "flash" reports, and periodic financial reports detailing the

Company's lending activities during the Class Period, were that: (a) the Company's quarterly and

annual product shipment numbers were "padded," in that the quantity of motorcycles shipped ofte n

exceeded retail demand; (b) retail distribution channels were "saturated" with excess inventory ,

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having run as high as 63,000 motorcycles for calendar year 2003 and 37,000 for calendar year

2004, when measured as the gap between motorcycle shipments and retail motorcycle registrations ;

(c) dealer inventories were sufficient and no gap existed between supply and demand such that

dealers were in need of more inventory as evidenced by the fact that retail inventories on showroo m

floors had climbed to over 47,000 motorcycles, or approximately 72 motorcycles per U.S . retailer

unit, by the end of the first quarter of 2005 ; (d) the projected annual shipment number of 339,00 0

units for 2005 overstated Defendants' progress and prospects for attaining the lofty retail sales goa l

of 400,000 motorcycles in 2007; (e) the Company's shipment numbers provided a false measure for

Company sales and prospects ; (f) the Company's annual shipment numbers would significantly

overstate the Company's progress and prospects when compared against the Company's 2007

demand goal of retail sales of 400,000 units ; (g) the glut of new motorcycles on showroom floors ,

coupled with the decrease in the price of new motorcycles, was putting pressure on dealers' efforts

to sell used motorcycles, damaging the resale value which buyers take into consideration whe n

purchasing new Harley-Davidson motorcycles, cutting into dealers' profits, and increasing HDFS' s

credit losses as it was forced to wholesale repossessed motorcycles at lower prices ; (h) the credit

quality of HDFS's C and D credit customers was declining, eroding the value of its loan portfolio ;

and (i) HDFS was being forced to offer 0% financing to it's A and B credit purchasers to maintai n

sales, eroding the value of its loan portfolio . See, e .g., ¶¶35-65 .

95. During February 2005 Defendant Brostowitz sold 85,812 shares for $5,275,078 i n

proceeds and Flickinger sold 5,744 shares for $355,588 in proceeds .

96. On March 11, 2005, Harley-Davidson filed its annual report with the SEC on Form

10-K, signed by the Individual Defendants, reaffirming the financial results announced on Januar y

20, 2005 .

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THE TRUTH BEGINS TO EMERGE

97 . Suddenly, on April 13, 2005, before the markets opened , the Company issued a press

release entitled , "HARLEY-DAVIDSON REPORTS RECORD FIRST QUARTER -

MODERATES 2005 MOTORCYCLE SHIPMENT GROWTH FORECAST ." The press release

stated in part :

Milwaukee, Wis . (April 13, 2005) - Harley-Davidson, Inc . (NYSE:HDI)today announced record revenue and earnings for its first quarter ended March 27,2005. Revenue for the quarter was $1 .24 billion compared with $1 .17 billion in theyear-ago quarter, a 6 .0 percent increase . First quarter diluted earnings per share(EPS) were 77 cents, a 13 .2 percent increase compared with last year's 68 cents .

"As I prepare to take on the role of Chief Executive at Harley-Davidson, Iam pleased that the Company is on a strong footing, having achieved another recordquarter," said Jim Ziemer, Chief Financial Officer and CEO Elect, Harley-Davidson, Inc. "Looking ahead, we expect Harley-Davidson's business to continueto grow and 2005 to be our 20th consecutive record year . "

"At the same time, U.S. retail sales of Harley-Davidson motorcyclesduring the first quarter of 2005 have been relatively flat with the same period lastyear -falling short of our expectations. Despite our continued optimism for theyear, we feel it is prudent to limit short-term production growth, maintainingdemand in excess of supply. This action will result in a change to our previousguidancefor both shipments and earnings growth for 2005. Our shipments arenow planned to increase from last year's 317,000 units to a target of 329,000units compared to our original target of339,000 units. Our 2005 earnings areexpected to grow by approximately 5-8 percent in 2005 compared to our previousforecast of mid-teens earnings growth. "

"While this volume adjustment may prevent us from attaining ourprevious goal of 400,000 units in 2007, we see no reason to change our long-termunit growth projection of -9 percent annually based on just three winter monthsof sales data. Similarly, we are not changing our projection of mid-teensearnings growth other than for this year," Ziemer added.

"For nineteen consecutive years, this management has delivered recordresults, and I have the utmost confidence that the actions we are taking areappropriate and in our stakeholder's long-term interests ," said JeffBleustein,Chairman and ChiefExecutive Officer and Harley-Davidson, Inc.

Motorcycles and Related Products Segment

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First quarter revenue from Harley-Davidson® motorcycles was $979 .0million, an increase of 6 .5 percent over the first quarter last year. Shipments ofHarley-Davidson motorcycles totaled 76,716 units, up 2,626 units or 3 .5 percentover last year.

First quarter revenue from parts and Accessories (P&A), which consists ofGenuine Motor PartsTM and Genuine Motor AccessoriesTM, totaled $176.9 million, a4.6 percent increase over the year-ago quarter . For the longer term, the Companyexpects P&A revenue to grow at a rate slightly faster than the motorcycle unitgrowth rate.

General Merchandise revenue, which consists of MotorClothes® appareland collectibles, was $59 .5 million in the first quarter, up 9 .3 percent over the sameperiod last year . For the longer term, the Company expects General Merchandiserevenue to grow at a rate lower than the motorcycle unit growth rate .

First quarter gross margin for the Motorcycles and Related ProductsSegment was 37 .6 percent of revenue, approximately the same as the year-agoquarter of 37 .8 percent. Gross margin was negatively impacted by higher materialcosts, primarily metal surcharges ; it benefited from favorable foreign currencyexchange. Operating margin grew to 24.2 percent from 22 .9 percent due to loweroperating expenses .

Motorcycle Retail Sales Data

In the United States through March, Harley-Davidson retail motorcyclesales finished down approximately one percent compared to 2004. Similarly, theU.S. heavyweight motorcycle market declined 0.4 percent in the first quarter.

Worldwide retail sales of Harley-Davidson motorcycles grew 2 .8 percent forthe quarter, driven by strong performance in Europe and Japan, which increased20.6 and 10.6 percent respectively. On an industry-wide basis through February2005, the 651+cc segment grew slightly in Europe, while the heavyweight marketin Japan was down for the same period . Data is listed in the accompanying tables .

Financial Services Segment

Harley-Davidson Financial Services (HDFS) reported operating income of$43 .6 million, up $3.3 million or 6 .5 percent compared to the year-ago quarter.HDFS continued to experience strong customer acceptance of its financial products .

During the quarter, HDFS sold $730 million in retail motorcycle loans andrecorded a gain of $19.2 million. This compares with a gain of $25.2 million on$625 million of loans securitized during the first quarter of 2004 . The gain of 2 .6percent as a percentage of loans sold is slightly above management's guidancewhich is now 1 .7 to 2 .5 percent in the current interest rate environment.

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Annualized credit losses on a managedportfolio basis increased duringthe quarter to 1.076 percent in 2005 from 0.77 percent in 2004 due to thecombination of a higher incidence of losses and lower recovery rates. HDFS ismaintaining its credit loss target of 1 percent or less of managed receivables.

In 2005, HDFS operating income is expected to be slightly lower than thatachieved in 2004 primarily due to a highly competitive marketplace and anincreasing interest rate environment For the longer term, the Company expectsthe HDFS operating income growth rate to be slightly higher than the Company'smotorcycle unit growth rate.

Harley-Davidson is revising its previous guidance and now plans to ship329,000 Harley Davidson motorcycles in 2005. This 329,000 unit targetrepresents a 3.7percentgrowth rate over 2004 shipments. The Company believesthat this 10,000 unit reduction will occur almost entirely in the second quarterand will involve reducing planned production of 2005 Model Year motorcycles .Revised quarterly shipments are expected to be as follows : 77,000 units in thesecond quarter, 87,500 units in the third quarter and 87,500 units in the fourthquarter.

98. Ziemer also admitted during the Company's earnings conference that the Compan y

would not likely reach its lofty goals of shipping 400,000 motorcycles in 2007 .

99. As the market absorbed this major disappointment, Harley-Davidson's stock price,

which had closed at $58 .77 on April 12, 2005, plunged by over 22% in three trading sessions to

$45 .80 by April 15, 2005, a price it had not seen since January 2004. William Blair , RBC Capital

Markets, Lehman Bros, and Merrill Lynch all cut their ratings on Harley-Davidson's stock and over

$3 .6 billion in market capitalization simply evaporated overnight .

POST-CLASS PERIOD REVELATIONS

100. On April 19, 2005, Herb Greenberg of MarketWatch published an updated news

article entitled "Reality Checks on Harley, Open Text - Both surprise fans by cutting numbers ."

the article stated in part :

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(This updates an earlier version of the story, published on April 13, tocorrect the gap between shipments and registrations in the third paragraph . )

SAN DIEGO (MarketWatch) - Call me Mr. Skeptic, but why do I think thatHarley-Davidson, Inc .'s flat first-quarter sales, downward earnings guidance and"limit" in production just weeks before CEO Jeff Bleustein is set to retire - and justafter the year-end audit - stink of something worse than dead skunk ?

Maybe because for more quarters than I can recall the cry among critics ofthe motorcycle maker was that Harley (HDI : news, chart, profile) was stuffing itsdealer channel with more inventory than could possibly be sold at retail . Thetelltale sign, as one long-time Harley bear points out, was the relationship betweenHarley shipments and retail motorcycle registrations .

In 2003, there were 63,000 more shipments than registrations ; the gap wasaround 37,000 in 2004. "Now comes the first-quarter data," this bear says, "andHarley ships 76,000 units into the channel and only 66,000 came out the other end"in the form of retail sales .

As it turns out, those ambitious shipments to dealers, coupled with incomefrom the company's finance division in the heyday of low rates, helped Harleyroutinely meet and beat and beat Wall Street estimates . However, with rates rising,the finance division - dubbed by some as Banco de Harley - is no longer thegoldmine it once was . Even more troubling is a rise in credit losses to 1 .075% from0.77% a year ago as loans continue to rise . (Imagine how prior quarter financialresults would be had the company been less aggressive with its loans . )

It was only a matter of time before inventory had to come into parity withdemand. The company insists demand still outweighs supply. In fact, on thecompany's conference call Wednesday, CFO and CEO-elect Jim Ziemer saidseveral times that the production rollback is a "precautionary" move .

Regardless, "assuming that the numbers are straightforward as reported," thebear says, "Harley has at the minimum been unmasked as a slow growth, cyclicalmanufacturer of a durable good with significant brand loyalty but is no longer theiconic growth machine some previously thought ."

***

101 . The Greenberg news article of April 19, 2005, agreed with the conclusions o f

analysts following the stock, presenting a refined numerical analysis detailing Defendants' channel-

stuffing activities . Incredibly, Mr. Greenberg reported excess Harley-Davidson supply over retail

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sales, as measured by the gap between motorcycle shipments and motorcycle vehicle registrations ,

running as high as 63,000 motorcycles for the calendar year 2003 and 37,000 for the calendar year

2004.

102. Worse, the unsold motorcycle gap during 2004 was clearly about to track higher,

since that same measure produced an excess supply of 10,000 motorcycles for the first quarter o f

2005 . This quantitative measure served as an additional "channel check," confirming th e

Company's stuffing of its retail inventory channels .

103. Moreover, the Greenberg news article of April 19, 2005, explained how the

Company was able to conceal the impact of growing retail inventory on the bottom line . The

profitability of its finance division had carried the Company from quarter to quarter, until credit

losses began to rise to 1 .07% from 0.77% a year ago. In other words, the article suggested that

results from Defendants' financial services segment could no longer be counted on to offset th e

financial impact of continued growth of excess retail inventories .

ACCOUNTING CONTROLS AND FINANCIAL STATEMENT S

104. Defendants' financial statements issued during the Class Period and the statement s

about them were false and misleading, since they failed to properly and prudently account fo r

inventory in the distribution channel and use that information to properly adjust the Company' s

operations, assumptions and forecasts . Defendants' financial information thus did not provide a

fair presentation of the Company's operations due to the Company's imprudent and imprope r

accounting , in violation of Generally Accepted Accounting Principles ("GAAP") and SEC rules .

105. GAAP are those principles recognized by the accounting profession as th e

conventions, rules and procedures necessary to define accepted accounting practices at a particula r

time. SEC Regulation S-X (17 C .F.R. §210.4-01 (a)(1)) states that financial statements filed with

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the SEC which are not prepared in compliance with GAAP are presumed to be misleading and

inaccurate, despite footnote or other disclosure . Regulation S-X requires that interim financia l

statements must also comply with GAAP, with the exception that interim financial statements need

no include disclosure which would be duplicative of disclosures accompanying annual financial

statements . 17 C.F.R. §2 10 . 10-01 (a) .

106. Harley-Davidson's reported financial results were materially false as the Compan y

was reporting sales increases only by increasing the inventory on hand at its dealerships .

Defendants knew or recklessly disregarded the increase in retail inventory, measured as the gap

between motorcycle shipments and motorcycle vehicle registrations which ran as high as 63,00 0

motorcycles for calendar year 2003 and 37,000 for calendar year 2004 . Worse, the 2004 glut o f

unsold motorcycles was clearly about to track higher, since that same measure produced an exces s

10,000 additional motorcycles, for the first quarter of 2005 . Finally, the Company could no longer

rely on the past success of its financial services division to mitigate the impact of the continue d

growth of retail inventories .

107. The Company's concealment of the impact of year over year increases in it s

receivables and a resulting impairment to recognized revenues served to artificially inflated Harley-

Davidson's sales growth during the Class Period .

108. Due to these accounting improprieties, the Company presented its financial result s

and statements in a manner which violated GAAP, including the following fundamental accountin g

principles :

(a) the principle that interim financial reporting should be based upon the sam e

accounting principles and practices used to prepare annual financial statements was violated (APB

No. 28, ¶10) ;

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(b) The principle that financial reporting should provide information that i s

useful to present and potential investors and creditors and other users in making rationa l

investment , credit and similar decisions was violated (FASB Statement of Concepts No. 1, ¶34) ;

(c) The principle that financial reporting should provide information about how

management of an enterprise has discharged its stewardship responsibility to owners (stockholders )

for the use of enterprise resources entrusted to it was violated . To the extent that management

offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities fo r

accountability to prospective investors and to the public in general (FASB Statement of Concepts

No. 1, ¶50) ;

(e) The principle that financial reporting should provide information about a n

enterprise's financial performance during a period was violated . Investors and creditors often us e

information about the past to help in assessing the prospects of an enterprise. Thus, although

investment and credit decisions reflect investors' expectations about future enterprise performance ,

those expectations are commonly based, at least partly on evaluations of past enterpris e

performance (FASB Statement of Concepts No . 1, ¶42) ;

(f) The principle that financial reporting should be reliable in that it represent s

what it purports to represent was violated . That information should be reliable as well as relevant ,

is a notion that is central to accounting (FASB Statement of Concepts No . 2, ¶¶58-39) ;

(g) The principle of completeness, which means that nothing is left out of th e

information that may be necessary to ensure that it validly represents underlying events and

conditions was violated (FASB Statement of Concepts No . 2, ¶79); and

(h) The principle that conservatism be used as a prudent reaction to uncertaint y

to try to ensure that uncertainties and risks inherent in business situations are adequately considere d

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was violated. The best way to avoid injury to investors is to try to ensure that what is reported

represents what it purports to represent (FASB Statement of Concepts No. 2, ¶¶95, 97) .

109. Financial results should represent what they purport to represent. GAAP, as set

forth in FASB Statement of Concepts No. 2, ¶63 , states in part :

Representational faithfulness is correspondence or agreement between ameasure or description and the phenomenon it purports to represent .

110. GAAP, as set forth in FASB Statement of Concepts No . 5, ¶83, states the basic

criteria for revenue recognition, i.e ., that revenue must be both earned and realizable prior to

recognition :

Realized or realizable. Revenues and gains generally are not recognizeduntil realized or realizable . Revenues and gains are realized when products (goodsor services), merchandise, or other assets are exchanged for cash or claims to cash .Revenues and gains are realizable when related assets received or held are readilyconvertible to known amounts of cash or claims to cash . Readily convertible assetshave (i) interchangeable (fungible) units and (ii) quoted prices available in an activemarket that can rapidly absorb the quantity held by the entity without significantlyaffecting the price .

Earned. Revenues are not recognized until earned. An entity's revenue-earning activities involve delivering or producing goods, rendering services, orother activities that constitute its ongoing major or central operations, and revenuesare considered to have been earned when the entity has substantially accomplishedwhat it must do to be entitled to the benefits represented by the revenues . Gainscommonly result from transactions and other events that involve no "earningprocess," and for recognizing gains, being earned is generally less significant thanbeing realized or realizable .

111 . SFAS No. 48, Revenue Recognition When the Right of Return Exists, provides that

revenue should not be recognized where the right of return exists unless certain conditions are met .

one of these conditions is that the obligations to pay not be contingent on resale . See SFAS No . 48 ,

¶6.

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112. SFAS No. 5 Accounting for Contingencies , provides that losses from uncollectible

receivables should be accrued when the loss is probable and the amount can be reasonabl y

estimated, even if the particular receivable which will not be collected can not be identified.

113 . The following factors were known to or consciously and recklessly disregarded b y

Harley-Davidson and the Individual Defendants during the Class Period :

(a) Analysts' concerns that the Company was stuffing the distribution channel ,

serving to make the Company's numbers look better ;

(b) Retail inventory was in fact growing faster than sales , an indication it s

receivables would be negatively impacted ; and

(c) The profitability of its finance division was negatively impacted both b y

rising interest rates and an alarming rise in credit losses .

114. In fact, Harley-Davidson and the Individual Defendants intentionally ignored these

problems, in the hope that the inventory gap could be closed and that these problems could be

concealed indefinitely.

115. The undisclosed adverse information concealed by Defendants during the Clas s

Period is the type of information which, because of SEC regulations, regulations of the nationa l

stock exchanges and customary business practice, is expected by investors and securities analysts to

be disclosed and is known by corporate officials and their legal and financial advisors to be the typ e

of information which is expected to be and must be disclosed .

116. Further, the undisclosed adverse information concealed by Defendants during th e

Class Period is the type of information which, because of SEC regulations, regulations of th e

national stock exchanges and customary business practice, is expected by investors and securitie s

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analysts to be disclosed and is known by corporate officials and their legal and financial advisors t o

be the type of information which is expected to be, and must, be disclosed .

SCIENTER

117. As set forth elsewhere throughout this Complaint, including in ¶124-28 and 35-65 ,

and incorporated by reference herein, Defendants, through their regular attendance to LSC

meetings, receipt of multiple internal reports, including, but not limited to, Dashboard reports ,

Management Group Reports, PCG reports, "flash" reports, and periodic financial reports detailin g

the Company's lending activities during the Class Period, acted with scienter in that they knew o r

disregarded with severe recklessness that the public documents and statements, issued o r

disseminated in the name of the Company, were materially false and misleading ; knew that such

statements or documents would be issued or disseminated to the investing public ; and knowingly

and substantially participated or acquiesced in the issuance or dissemination of such statements o r

documents as primary violations of the federal securities laws . Defendants, by virtue of thei r

receipt of information reflecting the true facts regarding Harley-Davidson, their control over, and/o r

receipt and/or modification of Harley-Davidson's allegedly materially misleading misstatement s

and/or their associations with the Company which made them privy to confidential proprietar y

information concerning Harley-Davidson, participated in the fraudulent scheme alleged herein .

118. Defendants knew and/or disregarded with severe recklessness the falsity an d

misleading nature of the information that they caused to be disseminated to the investing public .

The ongoing fraudulent scheme described in this complaint could not have been perpetrated over a

substantial period of time, as has occurred, without the knowledge and complicity of the personnel

at the highest level of the Company, including each of the Individual Defendants .

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119. In addition to the foregoing and other facts alleged herein, the following fact s

provide compelling evidence that Defendants acted with intent to deceive Harley-Davidso n

investors .

120. Importantly, the Individual Defendants were motivated to perpetrate the fraudulen t

scheme and course of conduct described herein so that they could sell their personally-held share s

for gross proceeds of more than $65 million at artificially inflated prices before the truth of Harley-

Davidson's operations was revealed. When the Individual Defendants profits are combined wit h

other Harley-Davidson insider sales during the Class Period, more than $92 million in gross

proceeds was reaped through the fraudulent scheme . While these sales , in and of themselves, may

not show Defendants' scienter, when the complaint is viewed in its entirety, the insider sales further

support the strong inference of scienter raised in the complaint and such sales also provid e

important context from which to view Defendants' fraudulent scheme.

121 . Aided by their access to non-public information, the Individual Defendant s

improperly disposed of the following amounts of their stock during the Class Period :

Insider Date Shares ProceedsJeffrey L. Bleustein 7/20/2004 297,700 $18,152,179

7/19/2004 358,300 $21,927,2254/15/2004 192,000 $11,149,829

Total 848,000 $51,229,233

James M. Brostowitz 2/18/2005 51,000 $3,126,3252/17/2005 34,812 $2,148,7737/15/2004 30,672 $1,917,9074/15/2004 29,056 $1,687,34 1

Total 145,540 $8,880,346

James L. Ziemer 7/15/2004 93,972 $5,869,265

Total 93,972 $5,869,265

Sub Total 1,087,512 $65,978,844

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122. Further, notwithstanding their access to non-public informatio n

following Harley-Davidson insiders disposed of the following amounts of their stoc

Class Period :

Jon R. Flickinger 2/17/200511/9/2004

5,74410,000

$355,588$587,766

Total 15,744 $943,354

John A. Hevey 8/26/2004 19,756 $1,209,26 5Total 19,756 $1,209,265

Ronald M . Hutchinson 11/15/2004 3,783.97 $222,11 911/4/2004 59,700 $3,505,0494/15/2004 42,234 $2,466,634

Total 105,717 .97 $6,193,802

Gail A. Lione 7/15/2004 29,696 $1,536,61 7Total 29,696 $1,536,617

James A. McCaslin 4/16/2004 176,934 $10,284,545Total 176,934 $10,284,545

W. Kenneth Sutton, Jr. 7/27/2004 16,000 $981,500Total 16,000 $981,500

Donna F . Zarcone 7/15/2004 82,108 $5,138,29 7Total 82,108 $5,138,297

I Sub Total 445,955 $26,287,380

Grand Total 1,533,467.97 $92,266,22 4

123 . Both the timing and the amount of the sales during the Class period were unusua l

and suspicious . First, each of the Individual Defendants sold their shares following an increase i n

Harley Davidson's stock price due to the issuance of the false statements detailed above .

Additionally, the Individual Defendants' prior trading history confirms the unusual and suspicious

nature of the Class period insider sales . In no time prior to the Class Period had Bleustein ever sold

stock. Prior to the Class Period, Brostowitz only sold 11,400 shares of stock for proceeds in th e

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amount of $554,246 . Prior to the Class Period Ziemer only indirectly sold 4,600 shares of stock fo r

proceed in the amount of $230,000.

LOSS CAUSATION/ECONOMIC LOSS

124. During the Class Period, as detailed herein, Defendants engaged in a scheme t o

deceive the market and a course of conduct that artificially inflated Harley-Davidson's stock pric e

and operated as a fraud or deceit on Class Period purchasers of Harley-Davidson stock b y

misrepresenting the Company's business success and future business prospects . Defendants

achieved this facade of success, growth and strong future business prospects by blatantl y

misrepresenting the Company's results and business prospects . Later, however, when

Defendants' prior misrepresentations and fraudulent conduct were disclosed and becam e

apparent to the market, Harley-Davidson stock fell precipitously as the prior artificial inflatio n

came out of Harley-Davidson's stock price . As a result of their purchases of Harley-Davidson

stock during the Class Period, Plaintiffs and other members of the Class suffered economic loss ,

i.e ., damages, under the federal securities laws .

125. During the Class Period, the Defendants presented a misleading picture of Harley-

Davidson's business and prospects . Thus, instead of truthfully disclosing during the Class Perio d

that Harley-Davidson's business was not as healthy as represented, Defendants caused Harley-

Davidson to falsely represent the demand for its motorcycles and its forecasted revenues an d

earnings .

126. These false claims of strong future results and the demand for Harley-Davidson

motorcycles caused and maintained the artificial inflation in Harley-Davidson's stock pric e

throughout the Class Period and until the truth was revealed to the market .

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127. Defendants' false and misleading statements had the intended effect and caused

Harley-Davidson stock to trade at artificially inflated levels throughout the Class Period, permittin g

insiders to sell almost $92 million in their own Harley-Davidson stock, to justify the payment o f

millions of dollars in bonuses and other incentive compensation to themselves, and to maintain the

illusion among the Company's dealers that Harley-Davidson motorcycles were still in short supply .

128. On April 13, 2005, Defendants were forced to publicly disclose that : (a) Harley-

Davidson would be forced to cut production of new 2005 motorcycles - cutting 10,000 motorcycles

in the second quarter of 2005 alone - due to declining demand and burgeoning inventories at it s

dealers; (b) the Company's first quarter 2005 U .S. sales declined by almost 1% versus having

grown 12 .9% in fiscal 2004; (c) Harley-Davidson would be forced to halve its 2005 EPS growth

forecast from the mid-teens to between 5%-8% ; (d) Harley-Davidson would halve its 2005

production growth forecasts to 3 .7% from 7%-9%; (e) HDFS's operating income in 2005 wa s

expected to be lower than in fiscal 2004; (f) Annualized credit loses on a managed portfolio basi s

increased to 1 .07% from .77%, (g) Harley-Davidson' s second quarter 2005 earnings would be

lower than its second quarter 2004 results ; and (h) the Company would have to abandon its

ambitious goals of shipping 400,000 motorcycles in 2007 . As investors and the market becam e

aware that Harley-Davidson's actual business prospects were poorer than represented, which had

been obfuscated by defendants, the prior artificial inflation came out of Harley-Davidson's stoc k

price, damaging investors .

129. As a direct result of Defendants' admissions and the public revelations regarding the

truth about Harley-Davidson's previous representations and its actual business prospects going

forward, Harley-Davidson's stock price plummeted approximately 16 .7%, on unusually high

volume, falling from a closing p rice of $58.77 on April 12, 2005 to close at $48 .93 by April 13 ,

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2005, on volume of approximately 35 million shares traded . This drop removed the inflation from

Harley-Davidson's stock price, causing real economic loss to investors who had purchased the stock

during the Class Period. In sum, as the truth about Defendants' fraud and Harley-Davidson' s

business performance and prospects was revealed, the Company's stock price plummeted, th e

artificial inflation came out of the stock and Plaintiffs and other members of the Class were

damaged, suffering economic losses of at least $9.84 per share .

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]

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130. The chart below depicts the impact of these disclosures on Harley-Davidson's stock

pnce:

CLASS PERIOD: JANUARY 21, 2004 - APRIL 12, 2005

4/13/05 : Company announcement

Individual Defendant stock sales: slashing projected shipments and its

Bleustein 192,000 shares $11,149,829 proceeds production growth forecasts as well asBrostowitz 29,056 shares $ 1,687,341 proceeds the dramatic increase in annualized credit

losses .

5HOG D g i I 0

+41i

+357

+:307• ~~V ~ ~ if ~Vl ~ ~

tin~_IE-

lo o

Fe b Mar- Apr May Jun Jul Aug Sep 0, _ ±

Individual Defendant stock sales :Bleustein 656,000 shares $40,079,404 proceedsBrostowitz 30,672 shares $ 1,917,907 proceedsZiemer 93,972 shares $ 5,869,265 proceeds

4ii

30 C20

10

II

Mc "...' IIc _ U Feb Mar FI ^ . . . . .

Individual Defendant stock sales :Brostowitz 85,812 shares $ 5,275,098 proceeds

4/13/05 : Unusually high tradingvolume of 34,952,000 millionshares from day previous of3,459,000 million shares onCompany's disclosure of its trueoperational results and prospects.

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131 . The 16.7% decline in Harley-Davidson's stock price at the end of the Class Perio d

was a direct result of the nature and extent of Defendants' fraud finally being revealed to investors

and the market . The timing and magnitude of Harley-Davidson's stock price declines negate an y

inference that the loss suffered by plaintiff and other Class members was caused by changed marke t

conditions, macroeconomic or industry factors or Company-specific facts unrelated to the

defendants' fraudulent conduct. During the same period in which Harley-Davidson's stock price fel l

16.7% as a result of Defendants' fraud being revealed, the Standard & Poor's 500 securities index

was relatively flat . The economic loss, i. e ., damages, suffered by plaintiff and other members of the

Class was a direct result of Defendants' fraudulent scheme to artificially inflate Harley Davidson' s

stock price and the subsequent significant decline in the value of Harley-Davidson's stock whe n

Defendants' prior misrepresentations and other fraudulent conduct was revealed .

APPLICABILITY OF PRESUMPTION OF RELIANCE :FRAUD ON THE MARKET DOCTRINE

132 . At all relevant times, the market for Harley-Davidson's publicly traded securitie s

was an efficient market for the following reasons, among others :

(a) Harley-Davidson's stock met the requirements for listing and was listed an d

actively traded on the NYSE, a highly efficient and automated market ;

(b) as a regulated issuer, Harley-Davidson filed periodic public reports with the

SEC, including reports on Form S-3 ;

(c) Harley-Davidson communicated with public investors via established marke t

communication mechanisms, including through regular disseminations of press releases on th e

national circuits of major newswire services and through other wide-ranging public disclosures ,

such as communications with the financial press and other similar reporting services ; and

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(d) Harley-Davidson was followed by several securities analysts and employe d

by major brokerage firms who wrote reports that were distributed to the sales force and certain

customers of their respective brokerage firms . Each of these reports was publicly available and

entered the public marketplace .

133. As a result, the market for Harley-Davidson's publicly traded securities promptly

digested current information regarding Harley-Davidson from all publicly-available sources an d

reflected such information in Harley-Davidson's stock price . Under these circumstances, al l

purchasers of Harley-Davidson's publicly traded securities during the Class Period suffered simila r

injury through their purchase of Harley-Davidson's publicly traded securities at artificially inflate d

prices, and suffered damages when the artificial inflation was removed from Harley-Davidson's

stock as the truth was revealed, and a presumption of reliance applies .

NO SAFE HARBOR

134. The federal statutory safe harbor provided for forward- looking statements under

certain circumstances does not apply to any of the false statements pleaded in this Complaint .

Further, many of the statements pleaded herein were not identified as "forward-looking statements "

when made. To the extent there were any forward-looking statements, there was no meaningfu l

cautionary statements identifying important factors that could case actual results to differ materially

from those in the purportedly forward-looking statements .

135 . Alternatively, to the extent that the statutory safe harbor might apply to any forward-

looking statements pleaded herein, Defendants are liable for those false forward-looking statements

because at the time each of those forward-looking statements was made, the particular speake r

knew that the particular forward-looking statement was false, and/or the forward-looking statemen t

was authorized and/or approved by an executive officer of Harley-Davidson who knew that thos e

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statements were false when made. Moreover, to the extent that Defendants issued any disclosures

designed to "warn" or "caution" investors of certain "risks," those disclosures were also false an d

misleading because they did not disclose that Defendants were actually engaging in the very action s

about which they purportedly warned and/or had actual knowledge of material adverse fact s

undermining such disclosures.

136. In addition, to the extent that Defendants issued any disclosures designed to "warn "

or "caution" investors of certain "risks," those disclosures remained fixed even as the risks the y

purported to warn of changed. Defendants left both their forecasts and cautions as is throughout

the Class Period .

COUNT I

For Violations of Section 10(b) of the 1934 Act and Rule 10(b)(5) PromulgatedThereunder Against Harley-Davidson and the Individual Defendant s

137. Plaintiffs repeat and reallege the allegations set forth as though fully set forth herein .

138. This Count is brought pursuant to Section 10(b) of the 1934 Act, 15 U.S.C. §78j(b),

and Rule IOb -5 promulgated thereunder , 17 C.F.R. §240.10b-5, on behalf of Plaintiffs and the

Class, against Harley-Davidson and the Individual Defendants .

139. During the Class Period, Harley-Davidson and the Individual Defendants, and each

of them, carried out a plan, scheme and course of conduct which was intended to and, throughou t

the Class Period, did: (i) deceive the investing public, including Plaintiffs and other Class members ,

as alleged herein; (ii) artificially inflate and maintain the market price of Harley-Davidson' s

publicly traded securities ; and (iii) cause Plaintiffs and other members of the Class to purchase

Harley-Davidson stock at artificially inflated prices . In furtherance of this unlawful scheme, pla n

and course of conduct, Harley-Davidson and the Individual Defendants took the actions set forth

herein .

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140. Harley-Davidson and the Individual Defendants : (i) employed devices, schemes, and

artifices to defraud ; (ii) made untrue statements of material fact and/or omitted to state material

facts necessary to make the statements not misleading; and (iii) engaged in acts, practices and a

course of business which operated as a fraud and deceit upon the purchasers of the Company' s

common stock in an effort to maintain artificially high market p rices for Harley-Davidson common

stock in violation of Section 10(b) of the 1934 Act and Rule lOb-5 promulgated thereunder.

Harley-Davidson and the Individual Defendants are sued as primary participants in the wrongful

and illegal conduct charged herein, as alleged herein .

141 . In addition to the duties of full disclosure imposed on Harley-Davidson and th e

Individual Defendants as a result of their making of affirmative statements and reports, or

participation in the making of affirmative statements and reports, to the investing public, Harley-

Davidson and the Individual Defendants had a duty to promptly disseminate truthful informatio n

that would be material to investors in compliance with the integrated disclosure provisions of th e

SEC as embodied in SEC Regulation S-X (17 C .F.R. §210 .01 etseq.) and S-K (17 C .F.R. §229 .1 0

et seq.) and other SEC regulations, including accurate and truthful information with respect to the

Company's operations, financial condition and performance so that the market price of th e

Company's publicly traded securities would be based on truthful, complete and accurate

information. The undisclosed adverse information concealed by Harley-Davidson and the

Individual Defendants during the Class Period is the type of information which, because of SE C

regulations, regulations of the national stock exchanges and customary business practice, i s

expected by investors and securities analysts to be disclosed and is known by corporate official s

and their legal and financial advisors to be the type of information which is expected to be and mus t

be disclosed .

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142. Harley-Davidson and the Individual Defendants, individually and in concert ,

directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the

mails, engaged and participated in a continuous course of conduct to conceal adverse material

information about the business and operations of Harley-Davidson, as specified herein .

143 . Harley-Davidson and the Individual Defendants employed devices, schemes an d

artifices to defraud, while in possession of material adverse non-public information and engaged in

acts, practices, and a course of conduct as alleged herein in an effort to assure investors of Harley-

Davidson's value and performance and continued substantial growth, which included the making

of, or the participation in the making of, untrue statements of material facts and omitting to stat e

material facts necessary in order to make the statements made about Harley-Davidson and it s

business operations in the light of the circumstances under which they were made, not misleading ,

as set forth more particularly herein, and engaged in transactions, practices and a course of busines s

which operated as a fraud and deceit upon the purchasers of Harley-Davidson common stoc k

during the Class Period .

144. Harley-Davidson and the Individual Defendants had actual knowledge of th e

misrepresentations and omissions of material facts set forth herein, or acted with severe reckles s

disregard for the truth in that they failed to ascertain and to disclose such facts, even though suc h

facts were available to them. Harley-Davidson and the Individual Defendants' materia l

misrepresentations and/or omissions were done knowingly or severely recklessly and for the

purpose and effect of concealing Harley-Davidson's faulty and outdated security measures from the

investing public and supporting the artificially inflated price of its common stock. As demonstrated

by Harley-Davidson and the Individual Defendants ' misstatements of the Company 's business and

operations throughout the Class Period, Harley-Davidson and the Individual Defendants if they di d

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not have actual knowledge of the misrepresentations and omissions alleged, were severely reckles s

in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to

discover whether those statements were materially false or misleading

145. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of Harley-Davidso n

common stock was artificially inflated during the Class Period. In ignorance of the fact that the

market price of Harley-Davidson common stock was artificially inflated, and relying directly o r

indirectly on the materially false and misleading statements made by Harley-Davidson and th e

Individual Defendants, or upon the integrity of the market in which the securities trade, and/or o n

the absence of material adverse information that was known to or recklessly disregarded by Harley-

Davidson and the Individual Defendants but not disclosed in public statements by Harley-Davidson

and the Individual Defendants during the Class Period, Plaintiffs and the other members of th e

Class acquired Harley-Davidson common stock during the Class Period at artificially high price s

and were damaged thereby.

146. At the time of said misrepresentations and omissions, Plaintiffs and the othe r

members of the Class were ignorant of their falsity, and believed them to be true . Had Plaintiffs

and the other members of the Class and the marketplace known of the true nature of Harley-

Davidson's business results and prospects , which were not disclosed by Harley-Davidson and the

Individual Defendants, Plaintiffs and other members of the Class would not have purchased o r

otherwise acquired their Harley-Davidson common stock during the Class Period , or, if they had

acquired such common stock during the Class Period, they would not have done so at th e

artificially inflated prices which they paid .

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147. By virtue of the foregoing, Harley-Davidson and the Individual Defendants have

violated Section 10(b) of the 1934 Act, and Rule I Ob-5 promulgated thereunder.

148. As a direct and proximate result of Harley-Davidson and the Individual Defendants '

wrongful conduct, Plaintiffs and the other members of the Class suffered damages in connectio n

with their purchases of the Company's common stock during the Class Period .

COUNT II

For Violations of Section 20(a) of the 1934 Act Against the Individual Defendants

149. Plaintiffs repeat and reallege each and every allegation contained above as if allege d

in full herein.

150. This Count is brought pursuant to Section 20(a) of the 1934 Act, 15 U .S.C. §78t(a) ,

on behalf of the Plaintiffs and the Class against the Individual Defendants .

151 . The Individual Defendants acted as controlling persons of Harley-Davidson withi n

the meaning of Section 20(a) of the 1934 Act as alleged herein . By virtue of their high-level

positions and/or their ownership and contractual rights, participation in and/or awareness of th e

Company's operations and/or intimate knowledge of the Company's finances and business

prospects, the Individual Defendants had the power to influence and control and did influence an d

control, directly or indirectly, the decision-making of the Company, including the content an d

dissemination of the various statements which Plaintiff alleges were materially false and

misleading . The Individual Defendants were provided with or had unlimited access to copies of th e

Company's reports, press releases , public filings and other statements alleged by Plaintiff to be

misleading prior to and/or shortly after these statements were issued and had the ability to preven t

the issuance of the statements or cause the statements to be corrected .

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152. In particular, each of the Individual Defendants had direct and supervisor y

involvement in the day-to-day operations of the Company and/or control over major corporat e

decision and policy making, and therefore, is presumed to have had the power to control o r

influence the particular transactions giving rise to the securities violations as alleged herein, an d

exercised the same . The Individual Defendants culpably participated in the commission of th e

wrongs alleged herein .

153 . As set forth above, Harley-Davidson and the Individual Defendants each violated

Section 10(b) and Rule 1 Ob-5 by their acts and omissions as alleged in this Complaint . By virtue of

their positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a )

of the 1934 Act. As a direct and proximate result of the Individual Defendants ' wrongful conduct,

Plaintiffs and other members of the Section 10(b) Class suffered damages in connection with thei r

purchases of Harley-Davidson common stock during the Class Period .

154. By reason of such wrongful conduct, the Individual Defendants are liable pursuant

to Section 20(a) of the 1934 Act.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of themselves and the Class, pray for judgment as

follows:

(a) declaring this action to be a class action properly maintained pursuant to Rule 23(a )

and (b)(3) of the Federal Rules of Civil Procedure ;

(b) awarding Plaintiffs and other members of the Class damages together with interes t

thereon;

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(c) awarding Plaintiffs and other members of the Class their costs and expenses of thi s

litigation, including reasonable attorneys' fees, accountants' fees and experts' fees and other cost s

and disbursements ; and

(d) awarding Plaintiffs and other members of the Class such other and further relief a s

may be just and proper under the circumstances .

JURY TRIAL DEMANDE D

Plaintiffs hereby demand a trial by jury .

DATED: October 2, 2006 s /K. Scott WagnerK. Scott Wagner, SBN 1004668HALE & WAGNER, S .C.205 East Wisconsin Avenue, Suite 300Milwaukee, WI 53202Telephone: 414/278-7000Facsimile: 414/278-7590ksw@halewagner .com

Liaison Counsel

LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LL P

JACK REISE120 East Palmetto Park Road, Suite 500Boca Raton, FL 33432Telephone: 561/750-3000561/750-3364 (fax)

MURRAY, FRANK & SAILER LLPJACQUELINE SAILE R275 Madison Avenue, Suite 801New York, NY 10016Telephone : 212/682-1818212/682-1892 (fax)

Co-Lead Counselfor Plaintiffs

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