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Harley-Davidson Reports Second Quarter 2009 Results, Lowers Full-Year Shipment Plans, and Provides Restructuring Update

PHOTO (select to view enlarged photo)

Earnings Drop Reflects Impact of Lower Shipments, One-Time Reclassification of Finance Receivables and Goodwill Write-Off Related to HDFS Decline in Retail Motorcycle Sales Prompts Shipment Reduction, Additional Workforce Reduction

MILWAUKEE, July 16 -- Harley-Davidson, Inc. reported decreased revenue, net income and diluted earnings per share for the second quarter of 2009 compared to the year-ago period.

Net income of $19.8 million and diluted earnings per share of $0.08 were primarily affected by the planned 27.6 percent reduction in motorcycle shipments compared to the year-ago period and by two non-cash charges related to HDFS: a $72.7 million credit loss provision for a one-time reclassification of motorcycle loan receivables; and a one-time $28.4 million charge to write off the total goodwill associated with HDFS.

Worldwide retail unit sales of new Harley-Davidson motorcycles were down 30.1 percent compared to the year-ago quarter. Retail new Harley-Davidson motorcycle sales in the U.S. were down 35.1 percent and declined 18.2 percent in international markets compared to last year's second quarter. Industry-wide retail sales of heavyweight motorcycles in the U.S. declined 48.1 percent for the same period.

"While the underlying fundamentals of the Harley-Davidson brand remain strong and our dealers' retail motorcycle sales declined less than our competitors, it is obviously a very tough environment for us right now, given the continued weak consumer spending in the overall economy for discretionary purchases," said Harley-Davidson, Inc. President and CEO Keith Wandell.

In light of the decline in retail motorcycle sales, the Company also lowered its 2009 shipment expectations for Harley-Davidson motorcycles. The Company now plans to ship between 212,000 and 228,000 Harley-Davidson motorcycles to dealers and distributors worldwide in 2009, or 25 percent to 30 percent fewer than the 303,479 shipped in 2008. Prior 2009 guidance was for shipments of 264,000 to 273,000 motorcycles. In the third quarter of 2009, the Company expects to ship 52,000 to 57,000 Harley-Davidson motorcycles.

As a result of the lowered shipment volume, the Company will implement a further reduction this year of approximately 700 positions in the hourly production workforce. Harley-Davidson will also be reducing the non-production, primarily salaried headcount by an approximate 300 additional positions, including a reduction at HDFS. The Company plans to offer a voluntary separation incentive package to eligible salaried employees. Earlier this year, the Company had announced workforce reductions totaling about 1,400 to 1,500 hourly production positions in 2009 and 2010 and about 300 non-production, primarily salaried positions.

"We continue to take these difficult actions to manage through the current challenges and we also continue to take major steps in creating the operational effectiveness that is essential to our long-term future," said Wandell. "We are committed to doing what is required to enable Harley-Davidson to operate as a competitive business and employer over the long haul."

The Company continues to expect full-year gross margins to be between 30.5 percent and 31.5 percent.

Details of Harley-Davidson, Inc. Second-Quarter and Six-Month Results

Second Quarter. Net income for the quarter was $19.8 million, compared to $222.8 million in the second quarter of 2008, on revenue of $1.15 billion compared to $1.57 billion in the year-ago period. Diluted earnings per share for the second quarter were $0.08, compared to diluted earnings per share of $0.95 in last year's second quarter.

A key factor affecting earnings was the one-time reclassification of finance receivables from held-for-sale to held-for-investment and the related $72.7 million non-cash provision to establish the related initial credit loss allowance.

In addition, as a result of Harley-Davidson's lower shipment volume projections, the Company recorded a non-cash, one-time $28.4 million impairment charge to write off the goodwill recorded in connection with the 1995 purchase of HDFS.

The Company believes HDFS continues to have significant strategic value despite the write-off of remaining goodwill caused by the current economic environment.

Six Months. For the first six months of 2009, Company revenue totaled $2.44 billion, a 15.1 percent decrease from the year-ago period. Diluted earnings per share were $0.59, a decrease of 66.1 percent compared to the same period last year. Net income was $137.1 million, compared to $410.4 million in the first half of 2008.

Strategy for the Current Economic Environment

In early 2009, Harley-Davidson announced a three-part strategy for managing through the global economic downturn and strengthening its operations and financial results going forward. That strategy consists of: 1) investing in the brand; 2) creating the appropriate cost structure; and 3) obtaining funding to support the lending activities of HDFS.

Brand Investment

Reductions in Harley-Davidson's motorcycle shipment plans for 2009 reflect the Company's intense focus on maintaining brand strength. "When it comes to protecting and enhancing the brand, managing supply in line with demand is one of the most important things we can do. We plan to ship fewer Harley-Davidson motorcycles worldwide this year than we anticipate dealers will sell at retail," Wandell said.

At the same time, Harley-Davidson continues to make significant investments in product development and marketing, and the Company is more focused than ever on making those investments work harder and smarter, according to Wandell. "We've got a great lineup of motorcycles and one of our top priorities is to reduce complexity and improve efficiency throughout our product development and manufacturing processes," said Wandell.

On July 25, 2009, Harley-Davidson Motor Company introduces 2010 model year motorcycles at its Summer Dealer Meeting in Denver.

Cost Structure

The Company earlier this year announced plans to consolidate its two Milwaukee-area powertrain (engine and transmission) plants into one facility; consolidate paint and frame operations at its York, Pa. facilities into one plant; and close its Franklin, Wis. Parts and Accessories distribution center and consolidate those operations with General Merchandise distribution through a third-party logistics company. In April, the Company completed the transition of its U.S. transportation fleet operations to a third-party provider as part of its restructuring initiatives.

Powertrain Consolidation Accelerated. Production shutdowns and line rate adjustments will be implemented at Harley-Davidson powertrain operations in Menomonee Falls and Wauwatosa, Wis., and at motorcycle assembly operations in York, Pa. and Kansas City, Mo., to achieve the newly-announced unit volume reduction. As a result of the volume reduction and production shutdowns, the Company expects to accelerate and substantially complete the planned consolidation of the powertrain operations by mid-2010.

Sportster and V-Rod motorcycle final assembly operations and V-Rod motorcycle powertrain production in Kansas City, and production of Sportster motorcycle powertrains in Wauwatosa will be shut down for approximately 14 weeks in 2009, including the entire fourth quarter. The Company anticipates that other production operations will be shut down for a total of approximately five weeks over the rest of 2009.

On a combined basis, Harley-Davidson now expects the volume reductions and restructuring activities to result in one-time charges of approximately $160 million to $190 million over the course of 2009 and 2010, an increase of $40 million from earlier estimates, including $50.0 million incurred during the first half of 2009. The Company now estimates ongoing annual savings of approximately $140 million to $150 million, or $70 million greater than previously estimated, upon completion of the announced restructuring actions. Savings in 2009 are now estimated to be $70 million to $85 million.

York Study Underway. Since the announcement of the original consolidation plans in January, Harley-Davidson has determined that the Company's York operations are not currently competitive or sustainable. The Company has undertaken a "two path" study to determine whether major, additional restructuring at York can achieve cost and efficiency targets to make the operations viable, or alternatively, whether the Company will relocate the York operations to another U.S. location. The Company expects to make a decision on the status of the York operations later this year.

HDFS Funding

Harley-Davidson continues to focus intently on the funding needs of HDFS and, utilizing a variety of funding paths, has provided liquidity for expected HDFS lending activities through the end of this year and into 2010. The Company continues to evaluate additional funding actions to diversify funding sources and balance long-and short-term HDFS debt needs, as well as provide sufficient liquidity for new loan originations.

  Business Segment Second-Quarter and Six-Month Results

  Motorcycles and Related Products Segment

Second Quarter. Revenue from Harley-Davidson motorcycles during the second quarter of 2009 was $808.7 million, a decrease of $375.7 million or 31.7 percent versus the same period last year. The Company shipped 58,179 Harley-Davidson motorcycles in the second quarter of 2009 compared to 80,326 motorcycles shipped in the year-ago period and within the Company's guidance for this year's first quarter.

Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $231.5 million, a decrease of $34.2 million or 12.9 percent versus the year-ago quarter. Revenue from General Merchandise, which includes MotorClothes apparel, totaled $69.6 million, a decrease of $7.2 million or 9.4 percent from the year-ago quarter.

Gross margin for the second quarter of 2009 was 33.5 percent of revenue compared to 35.7 percent for the second quarter last year. Operating margin was 14.5 percent, compared to 20.1 percent in the second quarter of 2008. Gross and operating margins were adversely affected during the quarter by the shipment volume reduction.

Six Months. Through the first six months of this year, shipments of Harley-Davidson motorcycles were 132,849 units, a 12.7 percent decrease compared to last year's 152,194 units. Harley-Davidson motorcycle revenue through six months was $1.82 billion, down 17.2 percent compared to last year's $2.20 billion. Six-month P&A revenue totaled $401.2 million, a 10.4 percent decrease from last year's $447.6 million. General Merchandise revenue totaled $144.8 million, a 10.0 percent decrease compared to $160.8 million during the same period in 2008. Gross margin through six months was 35.3 percent and operating margin was 16.2 percent, compared to 36.1 percent and 20.1 percent respectively in last year's first half.

Motorcycle Retail Sales

Second Quarter. During the second quarter, worldwide retail sales of Harley-Davidson motorcycles decreased 30.1 percent compared to the prior-year quarter. In the U.S., retail sales of Harley-Davidson motorcycles decreased 35.1 percent from the year-ago period. Industry-wide retail sales of heavyweight motorcycles in the U.S. declined 48.1 percent during the quarter.

In international markets, retail sales of Harley-Davidson motorcycles decreased 18.2 percent during the second quarter of 2009 compared to the second quarter of 2008.

Six Months. For the first half of 2009, worldwide retail sales of Harley-Davidson motorcycles declined 23.6 percent compared to the prior year. U.S. retail sales of Harley-Davidson motorcycles declined 26.1 percent for the first half of the year while the U.S. heavyweight market segment was down 40.0 percent for the same period, compared to the year-ago period. International retail sales of Harley-Davidson motorcycles decreased 17.8 percent for the first six months of 2009 compared to 2008.

  First half data are listed in the accompanying tables.

  Financial Services Segment

Harley-Davidson Financial Services recorded an operating loss of $62.1 million for the second quarter, compared to operating income of $37.1 million in the year-ago quarter. In addition to the effects of the finance receivables reclassification HDFS recorded $15.0 million in writedowns on retained securitization interests due to expected higher credit losses compared to a $6.3 million write-down in the year ago period. For the first half of 2009, HDFS reported an operating loss of $50.9 million, compared to operating income of $72.1 million for the prior-year period. In addition, the Company wrote off $28.4 million of goodwill associated with HDFS.

Income Tax Rate

The Company's second-quarter effective income tax rate was 71.6 percent, compared to 36.0 percent in the same quarter last year. This increase was due primarily to the non-deductible goodwill write-off and the tax implications of MV Agusta, which the Company acquired in August 2008. The Company expects its full-year 2009 effective tax rate to be approximately 55 percent due to the items listed above as well as the previously reported one-time tax charge of $22.5 million in the first quarter of 2009 and the implications of reduced shipments on earnings for the remainder of the year.

Cash Flow

Cash and cash equivalents totaled $1.03 billion as of June 28, 2009, compared to $803.4 million at the end of the year-ago period. Cash used by operations was $164.4 million and capital expenditures were $57.3 million during the second quarter of 2009. For the full year, capital expenditures are now expected to be $145 million to $175 million, including $20 million to $30 million related to restructuring activities.

Company Background

Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company (HDMC), Buell Motorcycle Company (Buell), MV Agusta and Harley-Davidson Financial Services (HDFS). Harley-Davidson Motor Company produces heavyweight custom, touring and cruiser motorcycles. Buell produces American sport performance motorcycles. MV Agusta produces premium, high-performance sport motorcycles sold under the MV Agusta brand and lightweight sport motorcycles sold under the Cagiva brand. HDFS provides wholesale and retail financing and insurance programs primarily to Harley-Davidson and Buell dealers and customers.

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

                                Three months ended      Six months ended
                               June 28,    June 29,   June 28,    June 29,
                                 2009        2008       2009        2008
                                 ----        ----       ----        ----

  Net revenue                 $1,153,645  $1,572,569 $2,444,293  $2,878,882
  Gross profit                   386,278     561,924    863,061   1,038,061
  Selling, administrative and
   engineering expense           203,581     234,292    416,891     448,825
  Restructuring expense           15,131      11,549     49,993      11,549
                                  ------      ------     ------      ------
    Operating income from
     motorcycles & related
     products                    167,566     316,083    396,177     577,687

  Financial services income      123,967     106,840    228,634     200,129
  Financial services expense     186,086      69,693    279,548     128,075
                                 -------      ------    -------     -------
  Operating (loss) income
   from financial services       (62,119)     37,147    (50,914)     72,054

  Corporate expense                6,312       7,367     14,082      12,825
  Goodwill impairment             28,387           -     28,387           -
                                  ------         ---     ------         ---
  Income from operations          70,748     345,863    302,794     636,916
  Investment income                  317       2,240      2,270       4,282
  Interest expense (1)             1,538           -     11,798           -
                                   -----         ---     ------         ---
  Income before provision for
   income taxes                   69,527     348,103    293,266     641,198
  Provision for income taxes      49,777     125,316    156,169     230,830
                                  ------     -------    -------     -------
  Net income                     $19,750    $222,787   $137,097    $410,368
                                 =======    ========   ========    ========

  Earnings per common share:
    Basic                          $0.08       $0.95      $0.59       $1.74
    Diluted                        $0.08       $0.95      $0.59       $1.74

  Weighted-average common
    Basic                        232,616     235,067    232,442     236,067
    Diluted                      233,520     235,314    233,088     236,277

  Cash dividends per common
   share                           $0.10       $0.33      $0.20       $0.63

  (1) Interest expense for the six months ended June 28, 2009 includes $8.0
      million related to the Company's $600.0 million senior unsecured
      notes (Notes) issued in February 2009. This interest expense
      represents a portion of the total interest incurred on the Notes
      during the first quarter and corresponds to the initial temporary
      investment of proceeds at corporate.  Prior to the end of the first
      quarter, the full proceeds were transferred to HDFS and, as a result,
      the balance of interest expense on the Notes for the period has been
      included in financial services expense.

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

                                   (Unaudited)              (Unaudited)
                                     June 28,   December 31,  June 29,
                                       2009         2008        2008
                                       ----         ----        ----

  Current assets:
      Cash and cash equivalents     $1,031,194     $593,558    $803,400
      Marketable securities                  -            -         524
      Accounts receivable, net         287,494      296,258     290,139
      Finance receivables held for
       sale (2)                              -    2,443,965   1,617,817
      Finance receivables held for
       investment, net               1,651,700    1,378,461   1,246,325
      Inventories                      435,043      400,908     341,396
      Other current assets             358,663      264,731     206,624
                                       -------      -------     -------
  Total current assets               3,764,094    5,377,881   4,506,225

  Finance receivables held for
   investment, net                   3,472,325      817,102     934,534
  Other long-term assets             1,528,267    1,633,642   1,342,994
                                     ---------    ---------   ---------
                                    $8,764,686   $7,828,625  $6,783,753
                                    ==========   ==========  ==========

  Current liabilities:
      Accounts payable & accrued
       liabilities                    $852,543     $865,108    $841,263
      Short-term debt                1,690,910    1,738,649     526,898
      Current portion of long-term
       debt                                  -            -     401,036
                                           ---          ---     -------
  Total current liabilities          2,543,453    2,603,757   1,769,197

  Long-term debt                     3,038,387    2,176,238   2,050,000
  Pension liability and
   postretirement healthcare
   benefits                            754,733      758,411     269,928
  Other long-term liabilities          175,330      174,616     161,791

  Total shareholders' equity         2,252,783    2,115,603   2,532,837
                                     ---------    ---------   ---------
                                    $8,764,686   $7,828,625  $6,783,753
                                    ==========   ==========  ==========

  (2) During the second quarter of 2009, the Company reclassified its
      finance receivables held for sale to finance receivables held for
      investment, net due to a change in the Company's intent to structure
      future securitization transactions in a manner that does not qualify
      for accounting sale treatment under the provisions of Statement of
      Financial Accounting Standards No. 140, "Accounting for Transfers and
      Servicing of Financial Assets and Extinguishment of Liabilities."

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

                                                          Six months ended
                                                        June 28,    June 29,
                                                          2009        2008
                                                          ----        ----

  Net cash used by operating activities                 ($164,442) ($39,016)

  Cash flows from investing activities:
    Capital expenditures                                  (57,323)  (99,597)
    Finance receivables held for investment, net          (26,099)  (73,365)
    Collection of retained securitization interests        26,904    18,607
    Net change in marketable securities                         -     2,019
    Other, net                                             (3,598)    1,193
                                                           ------     -----
  Net cash used by investing activities                   (60,116) (151,143)

  Cash flows from financing activities:
    Proceeds from issuance of medium term notes                 -   993,550
    Proceeds from issuance of senior unsecured notes      589,255         -
    Net borrowings of securitization debt                 483,864         -
    Net decrease in credit facilities and unsecured
     commercial paper                                    (392,366) (116,621)
    Net borrowings of asset-backed commercial paper        87,706         -
    Net change in restricted cash                         (76,658)        -
    Dividends                                             (46,913) (148,591)
    Purchase of common stock for treasury                    (296) (150,134)
    Excess tax benefits from share-based payments             147       252
    Issuance of common stock under employee stock option
     plans                                                     10       736
                                                               --       ---
  Net cash provided by financing activities               644,749   579,192

  Effect of exchange rate changes on cash and cash
   equivalents                                             17,445    11,513

  Net increase in cash and cash equivalents               437,636   400,546

  Cash and cash equivalents:
    At beginning of period                                593,558   402,854
                                                          -------   -------
    At end of period                                   $1,031,194  $803,400
                                                       ==========  ========

                       Net Revenue and Motorcycle
                             Shipment Data

                               Three months ended       Six months ended
                               June 28,   June 29,    June 28,    June 29,
                                 2009       2008        2009        2008
                                 ----       ----        ----        ----
  NET REVENUE (in thousands)
  Harley-Davidson( R )
   motorcycles                 $808,709  $1,184,369  $1,819,518  $2,197,838
  Buell( R ) & MV Agusta( R )
   motorcycles                   39,934      41,518      71,199      63,593
  Parts & Accessories           231,470     265,665     401,226     447,607
  General Merchandise            69,601      76,790     144,792     160,796
  Other                           3,931       4,227       7,558       9,048
                                  -----       -----       -----       -----
                             $1,153,645  $1,572,569  $2,444,293  $2,878,882
                             ==========  ==========  ==========  ==========

      United States              35,194      51,449      87,904      99,275
      International              22,985      28,877      44,945      52,919
                                 ------      ------      ------      ------
        Total Harley-Davidson    58,179      80,326     132,849     152,194
                                 ======      ======     =======     =======

    Buell & MV Agusta             3,774       4,072       6,900       6,464
                                  =====       =====       =====       =====

      Touring                    20,989      25,248      46,964      51,683
      Custom                     22,245      41,922      54,164      70,994
      Sportster( R )             14,945      13,156      31,721      29,517
                                 ------      ------      ------      ------
        Total Harley-Davidson    58,179      80,326     132,849     152,194
                                 ======      ======     =======     =======

            Retail Sales of Harley-Davidson Motorcycles

                                  Three months ended  Six months ended
                                   June 28, June 29,  June 28, June 29,
                                     2009     2008      2009     2008
                                     ----     ----      ----     ----
  North America Region
    United States                   54,410   83,865    96,451  130,437
    Canada                           5,015    8,187     6,882   10,870
                                     -----    -----     -----   ------
      Total North America Region    59,425   92,052   103,333  141,307

  Europe Region (Includes Middle
   East and Africa)
    Europe*                         15,327   16,728    22,894   25,803
    Other                              971    1,403     1,792    2,477
                                       ---    -----     -----    -----
      Total Europe Region           16,298   18,131    24,686   28,280

  Asia Pacific Region
    Japan                            4,022    4,067     6,292    6,805
    Other                            2,403    2,850     5,051    5,412
                                     -----    -----     -----    -----
      Total Asia Pacific Region      6,425    6,917    11,343   12,217

  Latin America Region               1,420    2,401     2,789    4,258
  --------------------               -----    -----     -----    -----

      Total Worldwide Retail Sales  83,568  119,501   142,151  186,062
                                    ======  =======   =======  =======

  Data Source (subject to update)
  Data source for all 2008 and 2009 retail sales figures shown above is
  sales warranty and registration information provided by Harley-Davidson
  dealers and compiled by the Company.  The Company must rely on information
  that its dealers supply concerning retail sales, and this information is
  subject to revision.

  Only Harley-Davidson( R ) motorcycles are included in the
  Harley-Davidson Motorcycle Sales data.

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

             Heavyweight Market Data

                                    Six months ended
                                  June 28,      June 29,
                                    2009         2008
                                    ----         ----
  United States(1)                177,880       296,323

                                    Five months ended
                                   May 31,      May 31,
                                    2009         2008
                                    ----         ----
  Europe(2)                       164,844       202,872

  (1) - United States industry data includes 651+cc models, derived from
        submission of motorcycle retail sales by each major manufacturer to
        an independent third party.  This data is subject to revision and
        update. As of the second quarter 2009, industry data includes
        three-wheeled vehicles retroactive to 2008.

  (2) - Europe data includes Austria, Belgium, Denmark, Finland, France,
        Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain,
        Sweden, Switzerland, and the United Kingdom.  Industry retail
        motorcycle registration data includes 651+cc models, derived
        from information provided by Giral S.A., an independent agency.
        Europe market data is reported on a one-month lag. This data is
        subject to revision and update.