Harley-Davidson Reports First Quarter 2010 Results

Company Generates Earnings per Share of $0.29 from ContinuingOperations Harley-Davidson Financial Services Returns to ProfitabilityRetail Harley-Davidson(R) Motorcycle Sales Decline Moderates

MILWAUKEE, April 20 — Harley-Davidson, Inc.reported first-quarter 2010 income from continuing operations of $68.7million, or $0.29 per share. first quarter earnings included operatingincome from Financial Services of $26.7 million, marking a return toprofitability for the Company’s Harley-Davidson Financial Services (HDFS)subsidiary. Revenue from Motorcycles and Related Products was $1.04 billionin the first quarter.

Worldwide retail sales of new Harley-Davidson motorcycles declined 18.2percent in the quarter compared to the first quarter of 2009, animprovement in the rate of decline from the prior three quarters. in theU.S., retail Harley-Davidson motorcycle sales were down 24.3 percent and ininternational markets, retail sales declined 2.8 percent, compared to lastyear’s first quarter.

“We are encouraged by our progress in the first quarter,” said KeithWandell, President and Chief Executive Officer of Harley-Davidson, Inc. “Weare seeing directional improvement in our dealers’ retail motorcycle salesas we enter the key selling season. At the same time, given the globaleconomic uncertainty that still exists, we believe conditions will remainchallenging throughout this year, and we will continue to factor that intohow we manage the business.

“Our entire team is moving with great purpose and speed as we implementour go-forward business strategy, with its focus on global growth throughmarket and demographic outreach, commitment to core customers, anddeveloping motorcycles that inspire and fulfill dreams. we also continue tobe intensely focused on continuous improvement, looking at allopportunities to drive cost-competitiveness and efficiency throughout ouroperations,” Wandell said.

Harley-Davidson Motorcycles and Related Products Segment

Revenue from Harley-Davidson motorcycles during the first quarter of2010 of $808.8 million was down 20.0 percent compared to the year-agoperiod. in line with guidance, the Company shipped 53,674 Harley-Davidsonmotorcycles to dealers and distributors worldwide during the quarter,compared to shipments of 74,670 motorcycles in the first quarter of2009.

Revenue from parts and Accessories totaled $149.1 million during thequarter, down 12.1 percent, and revenue from General Merchandise, whichincludes MotorClothes apparel, was $66.3 million, down 11.9 percentcompared to the year-ago period.

Gross margin was 36.6 percent in the first quarter, compared to 37.1percent in the year-ago period. First-quarter operating margin decreasedto 12.2 percent from 18.1 percent in the first quarter of 2009, driven byhigher restructuring costs and the impact of lower revenue in the firstquarter of 2010 compared to the year-ago period.

Motorcycle Retail Sales Data

During the first quarter of 2010, worldwide dealer retail sales of newHarley-Davidson motorcycles decreased 18.2 percent compared to theprior-year quarter. in the U.S., retail sales of new Harley-Davidsonmotorcycles declined 24.3 percent for the quarter and industry-wideheavyweight motorcycle (651cc-plus) retail unit sales declined 21.4percent.

International retail sales of new Harley-Davidson motorcycles decreased2.8 percent during the quarter, compared to the year-ago period, afterdouble-digit declines in each of the prior four quarters. in the firstquarter of 2010, the Europe region was up 1.2 percent, Canada was up 1.5percent, the Asia Pacific region was down 9.8 percent and the Latin Americaregion was down 7.8 percent, compared to the year-ago period.

The Company reiterated its expectation to ship 201,000 to 212,000Harley-Davidson motorcycles to dealers and distributors worldwide in 2010,a reduction of five to ten percent from 2009. in the second quarter of2010, the Company expects to ship 55,000 to 60,000 Harley-Davidsonmotorcycles. The Company continues to expect gross margin to be between32.0 percent and 33.5 percent for the full year. The Company also continuesto expect full-year capital expenditures of between $235 million and $255million, including $95 million to $110 million to support restructuringactivities.

Financial Services Segment

First-quarter operating income from Financial Services was $26.7million, an increase of $15.5 million compared to the year-ago quarter. Thereturn to profitability for HDFS after three consecutive quarters ofoperating losses was primarily driven by improved credit performance in theretail motorcycle loan portfolio and by a lower cost of funds.

Previously announced restructuring activities that began in 2009 areproceeding on schedule and on budget. The Company continues to expect thoseactivities to result in total one-time charges of $430 million to $460million into 2012, including charges of $175 million to $195 million in2010. in 2010, the Company continues to expect savings of $135 million to$155 million from previously announced restructuring activities, increasingto expected annual ongoing savings of approximately $240 million to $260million upon completion of the restructuring.

“During the first quarter, we implemented the new labor agreement at ourYork facility and are on track with our restructuring of York forbest-in-class production capability. I have been impressed by the effortsof our York employees to move forward together with this importanttransformation,” said Wandell.

The Company’s first quarter effective income tax rate from continuingoperations was 47.2 percent compared to 45.4 percent in the same quarterlast year. The rate increase was generally due to the tax impact of therecently enacted federal healthcare reform legislation and the expirationof the federal research and development tax credit, partially offset by thenon-recurrence of a one-time tax charge related to a change in Wisconsintax law in the first quarter of 2009. Relative to the tax impact ofhealthcare reform, the Company incurred a one-time tax charge of $13.3million in the first quarter of 2010 associated with the taxation ofMedicare Part D retiree prescription drug reimbursements. The Company nowexpects its 2010 full-year effective tax rate from continuing operations tobe approximately 40.5 percent.

Cash and marketable securities totaled $1.48 billion as of March 28,2010, compared to $884.6 million at the end of last year’s first quarter.Cash provided by operating activities of continuing operations was $200.8million and capital expenditures were $14.6 million during the firstquarter of 2010.

Discontinued Operations

The Company is in discussions with potential buyers regarding itspreviously announced intention to sell MV Agusta. for the first quarter of2010, Harley-Davidson, Inc. incurred a $35.4 million loss from discontinuedoperations, comprised of operating losses as well as a fair valueadjustment of $28.6 million net of taxes. Including discontinuedoperations, the Company reported earnings per share of $0.14.

Harley-Davidson, Inc. is the parent company for the group of companiesdoing business as Harley-Davidson Motor Company (HDMC), Harley-DavidsonFinancial Services (HDFS), Buell Motorcycle Company (Buell), and MVAgusta.

Conference call and Webcast Presentation

Harley-Davidson will discuss first-quarter results on a Webcast at 8:00a.m. CT today. The Webcast presentation will be posted prior to the calland can be accessed at http://investor.harley-davidson.com/. Click “Eventsand Presentations” under “Resources.”

Forward-Looking Statements

The Company intends that certain matters discussed in this release are”forward-looking statements” intended to qualify for the safe harbor fromliability established by the Private Securities Litigation Reform Act of1995. These forward-looking statements can generally be identified as suchbecause the context of the statement will include words such as the Company”believes,” “anticipates,” “expects,” “plans,” or “estimates” or words ofsimilar meaning. Similarly, statements that describe future plans,objectives, outlooks, targets, guidance or goals are also forward-lookingstatements. such forward-looking statements are subject to certain risksand uncertainties that could cause actual results to differ materially fromthose anticipated as of the date of this release. certain of such risks anduncertainties are described below. Shareholders, potential investors, andother readers are urged to consider these factors in evaluating theforward-looking statements and cautioned not to place undue reliance onsuch forward-looking statements. The forward-looking statements included inthis release are only made as of the date of this release, and the Companydisclaims any obligation to publicly update such forward-looking statementsto reflect subsequent events or circumstances.

The Company’s ability to meet the targets and expectations noted dependsupon, among other factors, the Company’s ability to (i) execute itsbusiness strategy and successfully exit certain product lines and divestcertain company assets, (ii) effectively execute the Company’srestructuring plans within expected costs and timing, (iii) successfullyachieve with our labor unions flexible and cost-effective agreements toaccomplish restructuring goals and long-term competitiveness, (iv) managethe risks that our independent dealers may have difficulty obtainingcapital, and adjusting to the recession and slowdown in consumer demand,(v) manage supply chain issues, (vi) anticipate the level of consumerconfidence in the economy, (vii) continue to have access to reliablesources of capital funding and adjust to fluctuations in the cost ofcapital, (viii) manage the credit quality, the loan servicing andcollection activities, and the recovery rates of HDFS’ loan portfolio, (ix)continue to realize production efficiencies at its production facilitiesand manage operating costs including materials, labor and overhead, (x)manage production capacity and production changes, (xi) provide products,services and experiences that are successful in the marketplace, (xii)develop and implement sales and marketing plans that retain existing retailcustomers and attract new retail customers in an increasingly competitivemarketplace, (xiii) sell all of its motorcycles and related products andservices to its independent dealers, (xiv) continue to develop thecapabilities of its distributor and dealer network, (xv) manage changes andprepare for requirements in legislative and regulatory environments for itsproducts, services and operations, (xvi) adjust to fluctuations in foreigncurrency exchange rates, interest rates and commodity prices, (xvii) adjustto healthcare inflation and reform, pension reform and tax changes, (xviii)retain and attract talented employees, (xix) detect any issues with ourmotorcycles or manufacturing processes to avoid delays in new modellaunches, recall campaigns, increased warranty costs or litigation, and(xx) implement and manage enterprise-wide information technology solutionsand secure data contained in those systems.

In addition, the Company could experience delays or disruptions in itsoperations as a result of work stoppages, strikes, natural causes,terrorism or other factors. other factors are described in risk factorsthat the Company has disclosed in documents previously filed with theSecurities and Exchange Commission. Many of these risk factors are impactedby the current turbulent capital, credit and retail markets and our abilityto adjust to the recession.

The Company’s ability to sell its motorcycles and related products andservices and to meet its financial expectations also depends on the abilityof the Company’s independent dealers to sell its motorcycles and relatedproducts and services to retail customers. The Company depends on thecapability and financial capacity of its independent dealers anddistributors to develop and implement effective retail sales plans tocreate demand for the motorcycles and related products and services theypurchase from the Company. in addition, the Company’s independent dealersand distributors may experience difficulties in operating their businessesand selling Harley-Davidson motorcycles and related products and servicesas a result of weather, economic conditions or other factors.

TABLES FOLLOW Harley-Davidson, Inc. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) three months ended March 28, March 29, 2010 2009 —- —- Net revenue from motorcycles and related products $1,037,335 $1,278,432 Gross profit 379,547 474,046 Selling, administrative and engineering expense 205,204 208,171 Restructuring expense 48,236 34,862 Operating income from motorcycles & related products 126,107 231,013 Financial services revenue 169,837 104,667 Financial services expense 143,155 93,462 Operating income from financial services 26,682 11,205 —— —— Operating income 152,789 242,218 Investment income 876 1,953 Interest expense 23,455 9,746 Income before income taxes 130,210 234,425 Provision for income taxes 61,469 106,372 Income from continuing operations 68,741 128,053 Loss from discontinued operations, net of tax (35,416) (10,706) ——- ——- Net income $33,325 $117,347 ======= ======== Earnings per common share from continuing operations: Basic $0.30 $0.55 Diluted $0.29 $0.55 Loss per common share from discontinued operations: Basic $(0.15) $(0.05) Diluted $(0.15) $(0.05) Earnings per common share: Basic $0.14 $0.51 Diluted $0.14 $0.50 Weighted-average common shares: Basic 232,864 232,263 Diluted 234,228 232,650 Cash dividends per common share $0.10 $0.10 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) (Unaudited) March 28, December 31, March 29, 2010 2009 2009 —- —- —- ASSETS —— Current assets: Cash and cash equivalents $1,442,798 $1,630,433 $884,623 Marketable securities 39,416 39,685 – Accounts receivable, net 286,518 269,371 284,853 Finance receivables held for sale (1) – - 2,086,920 Finance receivables held for investment, net 1,252,420 1,436,114 1,677,355 Restricted finance receivables held by variable interest 809,779 – - entities, net (2) Inventories 322,238 323,029 421,577 Assets of discontinued operations 151,175 181,211 231,421 Restricted cash held by variable interest entities (2) 401,275 – - other current assets 315,890 462,106 243,054 Total current assets 5,021,509 4,341,949 5,829,803 Finance receivables held for sale (1) – - 580,736 Finance receivables held for investment, net 1,274,734 3,621,048 796,732 Restricted finance receivables held by variable interest 3,299,070 – - entities, net (2) other long-term assets 1,107,590 1,192,521 1,412,323 ——— ——— ——— $10,702,903 $9,155,518 $8,619,594 =========== ========== ========== LIABILITIES AND SHAREHOLDERS’ EQUITY —————————– Current liabilities: Accounts payable & accrued liabilities $865,725 $676,599 $932,049 Liabilities of discontinued operations 61,726 69,535 74,488 Short-term debt 160,837 189,999 1,724,375 Current portion of long-term debt 396,169 1,332,091 – Current portion of long-term debt held by variable interest 1,792,389 – - entities (2) Total current liabilities 3,276,846 2,268,224 2,730,912 Long-term debt 2,862,725 4,114,039 2,757,185 Long-term debt held by variable interest entities (2) 1,814,294 – - Pension liability and postretirement healthcare benefits 504,562 509,804 744,459 other long-term liabilities 157,077 155,333 154,225 Total shareholders’ equity (2) 2,087,399 2,108,118 2,232,813 ——— ——— ——— $10,702,903 $9,155,518 $8,619,594 =========== ========== ========== (1) 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 Accounting Standards Codification (ASC) Topic 860, “Transfers and Servicing.” (2) on January 1, 2010, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140,” (codified within ASC Topic 860) and SFAS No. 167, “Amendments to FASB Interpretation No. 46( R )” (codified in ASC Topic 810, “Consolidations”). in accordance with ASC Topic 810, the Company determined that it is the primary beneficiary of its formerly unconsolidated variable interest entities. accordingly, the Company began consolidating the variable interest entities on January 1, 2010. As a result of the consolidation, the Company recorded a reduction to retained earnings of $40.6 million net of tax. Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) three months ended March 28, March 29, 2010 2009 —- —- Net cash provided by (used by) operating activities of $200,842 $(227,026) continuing operations Cash flows from investing activities of continuing operations: Capital expenditures (14,558) (20,009) Finance receivables held for investment, net 198,104 11,661 Collection of retained securitization interests – 1,358 Net cash provided by (used by) investing activities of continuing operations 183,546 (6,990) Cash flows from financing activities of continuing operations: Proceeds from issuance of senior unsecured notes – 595,731 Repayments of securitization debt (445,215) – Net (decrease) increase in credit facilities and unsecured (50,703) 48,442 commercial paper Repayments of asset-backed commercial paper – (67,194) Net change in restricted cash (34,734) – Dividends (23,488) (23,455) Purchase of common stock for treasury (1,191) – Excess tax benefits from share-based payments 34 147 Issuance of common stock under employee stock option plans 1,101 10 Net cash (used by) provided by financing activities of continuing operations (554,196) 553,681 Effect of exchange rate changes on cash and cash equivalents (606) 6,253 of continuing operations Net (decrease) increase in cash and cash equivalents of (170,414) 325,918 continuing operations Cash flows from discontinued operations: Cash flows from operating activities of discontinued operations (13,723) (18,294) Cash flows from investing activities of discontinued operations (393) (4,433) Effect of exchange rate changes on cash and cash equivalents of discontinued operations (635) 2,549 (14,751) (20,178) ——- ——- Net (decrease) increase in cash and cash equivalents $(185,165) $305,740 ========= ======== Cash and cash equivalents: Cash and cash equivalents -beginning of period $1,630,433 $568,894 Cash and cash equivalents of discontinued operations 6,063 24,664 – beginning of period Net (decrease) increase in cash and cash equivalents (185,165) 305,740 Less: Cash and cash equivalents of discontinued operations (8,533) (14,675) – end of period —— ——- Cash and cash equivalents -end of period $1,442,798 $884,623 ========== ======== Net Revenue and Motorcycle Shipment Data (Unaudited) (Unaudited) three months ended March 28, March 29, 2010 2009 —- —- NET REVENUE (in thousands) Harley-Davidson( R ) motorcycles $808,806 $1,010,809 Buell( R ) motorcycles 10,790 19,144 parts & Accessories 149,086 169,662 General Merchandise 66,255 75,190 other 2,398 3,627 —– —– $1,037,335 $1,278,432 ========== ========== MOTORCYCLE SHIPMENTS: Harley-Davidson ————— United States 35,668 52,710 International 18,006 21,960 —— —— Total Harley-Davidson 53,674 74,670 ====== ====== Buell 1,774 2,441 —– ===== ===== MOTORCYCLE PRODUCT MIX: Harley-Davidson ————— Touring 22,885 25,975 Custom 22,572 31,919 Sportster( R ) 8,217 16,776 —– —— Total Harley-Davidson 53,674 74,670 ====== ====== Retail Sales of Harley-Davidson Motorcycles three months ended March 31, March 31, 2010 2009 —- —- North America Region ——————– United States 31,845 42,041 Canada 1,895 1,867 Total North America Region 33,740 43,908 Europe Region (Includes Middle East and Africa) —————————— Europe* 7,558 7,567 other 931 821 Total Europe Region 8,489 8,388 Asia Pacific Region ——————- Japan 2,018 2,270 other 2,416 2,648 Total Asia Pacific Region 4,434 4,918 Latin America Region 1,262 1,369 ——————– —– —– Total Worldwide Retail Sales 47,925 58,583 ====== ====== Data Source (subject to update) ——————————- Data source for all 2009 and 2010 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 three months ended March 31, March 31, 2010 2009 —- —- United States(1) 57,007 72,572 two months ended February 28, February 28, 2010 2009 —- —- Europe(2) 27,763 31,268 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. Industry data includes three-wheeled vehicles. 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. Industry data includes three-wheeled vehicles.

Harley-Davidson Reports First Quarter 2010 Results