Harley-Davidson Inc (HOG) 2001 Q1 法說會逐字稿

1 HARLEY-DAVIDSON CONFERENCE CALL

Good day and welcome to today's Harley-Davidson first quarter 2001 financial results conference call. Today's call is being recorded. At this time I would like to turn the call over to the Vice President and Chief Financial Officer James L. Ziemer. Please go ahead sir.

Thank you. Good morning and welcome to Harley-Davidson's first quarter conference call. I would like to remind you that this call is being recorded and a replay will be available after 11 a.m. this morning. Phone number for the replay is 719-457-0820, and the confirmation code is 540958. The recording will be available through April 25, 2001. This is also being webcast live on the website at harley-davidson.com. The web cast will be available for replay throughout the next several weeks before being archived on the investor relations portion of our website. In compliance with regulation [FD], I have to make the following statement. This call will include forward-looking statements that are subject to risks; it could cause actual results to be 2 materially different. Those risks include among others matters we have noted in the latest earnings release and filings with the SEC. Harley-Davidson disclaims any obligation to update the information in this call. Now back to business. As Jeff said in the press release, we are announcing another outstanding quarter, in fact, a record quarter. This performance is driven by demand for Harley-Davidson products that remain strong. That statement is supported by our continuous monitoring of the Harley-Davidson retail environment through our field sales managers and internal monitoring of retail prices for both new and used motorcycles and our ongoing dealer communications. There is no doubt that the management of Harley-Davidson has the best understanding of the market for Harley-Davidson products and now I want to

reiterate that demand remains strong. As our typical approach, I will spend several minutes discussing some of the highlights of the quarter and then open it for questions. We have achieved records in many different categories for the first quarter and it's my pleasure to review with you some of the highlights. These include Harley-Davidson units 54154 are up 10.4%, revenue $767 million up 3 12.7%, and gross profit $263 million up 13.8%, with a growth profit margin of 34.3% we are up 30 basis points. Operating profit of a $137 million up 21.9% and net income of $92 million up 25.5%, we eliminated the positive income effect of our credit card sale from the first quarter results of last year. This performance is the same type of consistent performance we have delivered for over the last 15 years. For more details, we start out with the motorcycle and related product segment. As I mentioned, during the quarter we shipped 54154 Harley-Davidson motorcycles, slightly more than the announced target of 53000. Continued strong demand gave us the confidence to take advantage, some successes in manufacturing which allowed us to schedule some additional hours at each of our plants was a record for the quarter. Accumulation of those hours resulted in an additional equivalent workday essentially giving us 60 equivalent workdays for the quarter instead of our planned 59 workdays. Due to the continued strong demand for our brand and products as well as continued successful execution of our manufacturing

strategy, we have raised our calendar year 2001 production goal to 229,000 Harley-Davidson motorcycles. This represents 4 11.9% increase in production versus 2000. Overtime as a percent of total worked hour is 20% up compared in the fourth quarter of 2000, which was 19% but lower than the 23%, we have typically experienced in the first quarters of 2000 and in 1999. The average selling price of Harley-Davidson motorcycles was up 2.2% in the first quarter compared with the year ago first quarter. This was driven primarily by the model price increase and by some new model, and new feature enhancements. Since there is very little difference in the mix of motorcycle families when compared to last years mix in this quarter. In fact, Touring motorcycles were 26.9% of Harley-Davidson sales in the quarter versus 26.6% last year. Sportster motorcycles were 21.2% compared to 21.5% a year ago. Custom motorcycles, which consisted of Softail and the Dyna models were 50.1% versus 50.9% in 2000. Even the mix by geographic location was similar to 2000, at 74.4% of the mix was shipped domestic versus 70.0% in 2000. Moving on to the Buell motorcycles. Total Buell shipments for the quarter was 2447 units, up a 109 units or 4.7%

from last year. We sold 1593 Buell V-Twin motorcycles and 854 Buell Blast models in the 5 first quarter. The Buell V-Twins are for performance riding for the more aggressive rider and the Blast offers new riders, allow new riders to enter the sport with confidence. As I mentioned, total Buell revenue at $15.2 million, was down from the $16.8 million last year, to down about 9.5%. The lower revenue is primarily due to the impact of significantly lower average selling prices on the Blast motorcycle relative to a larger displacement V-Twin model. In fact at retail the average V-Twin Buell sells more than twice the Blast retail price. Total Buell production target for 2000 remains at 10,000 units. Parts and Accessories delivered another strong quarter with revenue of $108.2 million up 14.1% over the 2000 first quarter. This is the first $100 million first quarter in Parts and Accessories history. Strong sales in Parts and Accessories was particularly encouraging in light of the 26% increase in the fourth quarter of 2000. This shows that dealers are continuing to order motorcycle parts and accessories to support another great motorcycle season. Particularly strong areas of Parts and Accessories are performance parts, electrical and controls, and painted parts. General Merchandise sales for the first quarter was $29.2 million up 16.9% over the 6 last year, and we are helped by the timing of some MotorClothes shipments. Their use has been realized in the second quarter. We believe this will have an adverse impact on the second quarter of General Merchandise sales as well as the

timing of the summer dealer meeting that is now scheduled in midJuly versus typically early August. As the press release states, we are pleased with the outstanding performance in both Parts and Accessories and General Merchandise. We expect that the long-term Parts and Accessories growth to be slightly higher than the motorcycle growth rate and the long-term growth rate of General Merchandise to be slightly lower than the motorcycle growth rate. Moving on to gross margin, gross margin was 34.3% up 30 basis points from last year's first quarter. The most significant factor was a benefit of some feature changes on motorcycle products such as fuel injection, that is on our Softails which didn't have fuel injection prior to the 2001 model year and security systems. Security systems were first introduced for the 2001 model year and covers slightly more than half of our products. Moving on, operating margin for the motorcycle segment 17.7% compared to 16.5% in 2000, 7 improvement in the operating margin was largely driven by a strong gross margin improvement, and at the same time, operating expenses were up $9 million or 7.5%, but not as high as the revenue increase. Now turning to our financial services segment. Harley-Davidson Financial's operating income for the quarter was $5 million up $1.6 million over the last year's first quarter. HDFS benefited from strong overall performance in wholesale, retail, and insurance categories. Of particular note is the strong customer acceptance of our new performance pricing program. With performance pricing HDFS is able to offer more attractive interest rates for borrowers with

stronger credit rating. This has allowed us to increase our market share for Harley-Davidson retail loans. HDFS also benefited from declining interest rates during the quarter which helped HDFS on spreads as retail contracts that were originated over the last 3 months and has been typical HDFS did not securitize any of the retail loans during the quarter but it is planning to do securitizations during the remaining portion of the year. As mentioned in the press release, we expect Harley-Davidson Financial Services to grow operating income between 25 and 30% for the full year 2001. We will look at Harley-Davidson Inc., 8 corporate expenses for the first quarter, a $2.8 million, down approximately $200,000 from last years $3 million of expenses. Interest income was $4.8 million, approximately $2 million dollars higher than last years first quarter, strictly due to the higher average cash balances that we had and we have been successful in reducing our tax rate moving last years 35.5% to 35.0%. We believe that 35% will continue to be the rate for the remainder of 2001. We have been able to increase the tax efficiencies of our structure to obtain greater tax incentives as well as taking measures to increase federal and state tax credits. Some additional information on the quarter, depreciation and amortization expense for the quarter was $34.1 million. We still expect depreciation and amortization for

2001 between in the range of $150 to $155 million. Capital expenditures for the first quarter were just below $28 million. We are maintaining our expense for capital expenditures for 2001. It should be between $200 to $250 million as we continue to work on scenarios for adding capacity, as we plan to roll out our plans for sustainable growth. Looking at the balance sheet, we finished the quarter with $399 million 9 in cash on hand. This is right in line with our expectations for the first quarter, as it is traditionally a negative cash outflow quarter. Switching to our future focus let me now address 2001 production targets. As previously announced 2001 target of 227,000 units has been increased to 229000 units. Continued strength of Harley-Davidson demand and the ability of our employees, suppliers, and dealers in increasing our capacity gives us confidence in raising our targets for 2001. The 229,000 motorcycles represents 11.9% increase in units over 2000. This will allow us to continue our successful track record of controlled growth. Increase of 2000 Harley-Davidson units, accommodations for the 1000 units that we exceeded our first quarter goal, and a 1000 unit increase in our second quarter goal. Third quarter and fourth quarters, our plan of 55000 to 61000 units respectively, gives us the total of 229,000 units for the year. Turning to the heavyweight motorcycle market, which we defined as all motorcycles with the engine displacement greater than 650 cubic centimeters. I would like to mention a full year

data for 2000 is listed in the press release for US, Canada, Europe, and the Asia Pacific markets. This data has already been 10 reported in our 10-K and annual reports. So, I will not go over that information on the phone call. I would like to point that the US did surpass Europe as the largest overall heavyweight motorcycle market in the world for 2000, and though we lost some share in the US, our overall growth rate in the world was approximately 13.8%, while the world market grew at 7.6%. So we gained share in the world heavyweight motorcycle market for the third year in a row. We have historically not released any retailer distribution data during the first quarter press release. For the first several months, the number are small, small changes, small numbers, in your big percentage changes they are not projectable. However, since the US retail registrations for January and February for Harley-Davidson motorcycles have been made public through other sources, we felt that it was worthwhile to update this data with March retail sales. We are encouraged by the 6.3% increase for the first 3 months in retail registrations over 2000. This increase comes on top of first quarter increases of 25.9% in 2000 and 32.8% in 1999, which makes two years of very tough comparisons. Although the first quarter data is 11 not projectable, we believe the data is additional support for our confidence in continued demand. An additional highlight of the quarter is not financial, but strategic. As mentioned in the press release, Wisconsin based unions have ratified a 7 year agreement. We believe this agreement is a great example of the collaborative relationship that exists with the

represented employees. We have a very formal combination of strengths that we have reviewed on many occasions, but it is important to repeat them. They are so important that you will find them in our annual report, on the web site, and discussed during our company presentations, and everything we do. These drivers in success will continue to sustain our growth. They are our unique and very powerful brands, which is supported by the passion and commitment of our customers and our dealers, and our employees. Number two, our unique products and services. In the last two years we have redesigned virtually 2/3rd of our product lines of the motorcycles. We are continuing to come up with new programs like Harley-Davidson authorized rentals, and rider's education. And of course there is the world's most successful rider club, the Harley Owners Group or HOG, which has over 600,000 members. Number three; we participate in 12 the growing heavyweight motorcycle market, with the US leading the way. Fourthly, we have a very strong and mutually beneficial relationship with all our stake owners. This was exhibited in the new long-term agreement signed with Pennsylvania, Wisconsin Unions during the past several months. Finally, we have a solid and capable management team supported by an empowered work force. Right now I would like to open up the phone lines for questions.

Thank you Mr. Ziemer. Today's question and answer session will be conducted electronically. If you like to pose a question, you may do so by pressing the star or asterisk key followed by the digit one on your touch tone telephone. If you find that your question has been answered you may remove yourself from the queue by pressing the pound key. Once again if you like to ask a question, please press star one. We will pause for a moment to assemble our roster. We will take our first question from Tim Conder with AG Edwards.

Good morning gentleman. Congratulations both to you, your workers and the dealers. 13

Thanks Tim.

Couple of things here Jim. In the operating expenses again, a very good improvement there. Are there any one time items in there or any timing issues that, again, this is about 80 basis points better than what we were looking for?

Tim there are no one time items in the operating expenses, but I can say that operating expenses are not totally correlated with increases in revenue, we have said all along that we will improve operating margins, with that will be the combination of as we look at gross margins and operating expenses, but there is no one time item in operating expenses.

Okay. And, again Jim, nothing related to timing either?

Like I said, timing and operative expenses, they are not strictly related to increases in revenue, so they will not exactly go lockstep with that.

Okay. Switching over to Europe, could you just refresh us where you are 14 hedged on the Euro for the year and then also give us, may be an early indication of what you are hearing from your dealer base in Europe as far as the outlook this year over there, given, I think there is also some overall economic softening over there, as a kind of flow through from the US.

As for the euro, we are hedged pretty much through this current model year, which has typically been our strategy to lock in foreign exchange with our pricing strategy. As for the outlook, yes there are many things going on in the European economy, as we look at what is in place, with John [_______________] and his team has put in place, with the expanding of the dealer network and the quality of the dealers, the dealer network and the management team there are very encouraged of not only what they have accomplished in the past several years in gaining market share, even last year in the down market, but also for this year.

Okay, so overall you still remain very confident in the European outlook for this year.

That is true. 15

Okay. And then again is there a certain level Jim, are you willing to share where your head start on the Europe for this year?

No we are not going to share the level, but again we are pretty well locked in with our model year requirements through the current 2001 model year which basically takes us more than half way through the year.

Okay, final question here. When would you anticipate that making some type of announcement regarding your new capacity as we look out?

That one is a hard one, the call and the timing, as we work through many different scenarios, we work with different municipalities, and we work with all our stakeholders who are involved. That is a time issue, I mean definitely, it is going to be sometime this year, hopefully sooner than later, but we are working on many alternative scenarios. It is just a difficult one to call, Tim.

Okay thank you and 16 congratulations again gentlemen.

Thanks Tim.

We will take our next question from Felicia Kantor with Lehman Bothers.

Good morning. Congratulations.

Good morning Felicia. Thank you.

You are welcome. First just getting quickly back to the margin question, you also beat our estimates by that 90 basis points, and you know, specifically on the motor company operating on margin level and the year-over-year improvement of about 120 basis points. Can you discuss a little bit in detail about where that improvement came from, but going forward in terms of future performance, I am wondering what kind of growth rate you are more comfortable with, and then also where else do you think improvements can come from? And then I have some other questions after that.

Over the long term we have many opportunities to improve operating 17 margins both on gross margin and on, operating expenses as we go forward, but from a short term perspective, we continue to look at opportunities to invest in the business, so it is somewhat difficult to project on the short term basis. We have said all along that we will improve operating margins year-over-year. In the long run that will be driven by many opportunities we have on our gross margins, as we look at, as we continue to grow, and work with all stakeholders, whether it be suppliers, our employees, etc., and as we bring out new product offerings.

Great. And I was wondering, I know it is a little bit early, but I was wondering if you could give us any insight into what you are seeing for next year, for 2002.

In terms of?

In terms of unit shipments.

You are correct. It is a little early, next year we are going to start going into the 2003 model year for [_______________] that year and we are still putting together those plans. It is premature to put anything on projections out on the next year. 18 But we have got great hopes as the excitement continues to build for the 100th anniversary.

Okay, I am assuming that you still are comfortable with our estimates of low double-digit growth going forward.

Although we don't comment on any estimates, we are accountable with lower double digit unit growth rates, better revenue and better earnings for the foreseeable future.

Great. Did you guys buy back any stock this quarter?

No we did not. We do plan on buying back stock during the year; we are committed to offset the dilution size by the exercise of options. But we did not participate in the market during the first quarter.

So I was just wondering how you could account for the lower year-over-year share count number, quarter to quarter?

The average number of shares outstanding are actually the result of the 19 significant share repurchase that happened in the tail end of the fourth quarter. So on an average basis, that full impact was not felt in the fourth quarter, the full impact is reflected in the first quarter of this year.

Great, that is fair. And then finally, I was wondering we talked about market share numbers for the year end, I know, we have just have the first three months in the overdue, can you give us an insight as to where market share numbers are for the quarter?

Industry data has not been released for the quarter, so we don't really know how the market is, the industry is doing in the US and our international markets have even a larger lag in that information, we only have I believe to January right now.

And how is that?

It is such a such small number, small changes, and small numbers I wouldn't even reflect on that.

Okay, great. Thank you very much, congratulations again.

Thanks a lot Felicia. 20

We will take our next question from Gary Cooper with Banc of America Securities.

Good morning gentlemen.

Good morning Gary.

I add my congratulations as well.

THANK YOU.

A couple of questions here. Jim if I am doing the math correctly, I take your unit production for Q1, and then we adjust it for what is shipped into the US, in a year 74.4% number and then compare that to the retail shipments, and it appears as if there is an inventory build up of about 590 bikes in total, which is you know less than a unit per dealer. Is that, am I doing the math right there?

I think it is, no actually, we have looked at, what we have for retail sales at the moment, and what we have for wholesale shipments to the US and the inventory went down slightly. So... 21

Inventories...

So you are not too far off, the inventory didn't change significantly but it was down.

Okay. Can you give us, two more questions, can you give us some idea of what the inventory looks like if it was down in the US, can you give us some idea of what it looks like in Europe, and then lastly, you mentioned the retail sales number there in the press release, can you give us some idea if any particular parts of the country, geographically are performing better than others?

On Europe our inventories are right where we had, we don't give our retail inventories out, but I mean, the European inventories are just about where we had projected them to be. So we are happy with the position of the retail inventory, global wide whether it be Europe or US. On the retail sales for the US on a geographic basis, the whole US, experienced strength through March. So I mean, if you question particular strength, it is pretty much overall, as compared to prior years. Obviously, may be in the south it is a little 22 more robust in March than it is in the north, that is comparing region to region. If you compare region to where it was same time in the last year, it is still about the same.

Thank you.

Our next question comes from Michael [_______________] with Salomon Smith Barney.

Thank you. I guess I have several questions as well. In terms of the guidance on production, does the second quarter include an extra day and also is kind of curious in that in effect you slightly reduced the second half guidance with the numbers. I also wanted, may be, you could talk a little bit about the 50% increase in construction under progress year end and what that seems to be suggesting was close to $200 million where it might be now. I would also be interested in what at the end of the first quarter the flooring balances look like year-over-year, may be could break that down into market share gains and volume, and whether, how much that might be overseas, and account receivables were up, I guess this is up seasonally, is that primarily 23 showing shipments to Europe?

I expected no less than the machine gun approach on questions by its own. I'll try to answer those.

We were hoping these were more rifle approaches.

You've got a lot of ammunition in your rifle then. On the question for the extra day in the second quarter, no, I've got the number of days. The number of days in the second quarter are 63, in fact, I'll go through the whole year, 63 days in the second quarter, 59 days in the third quarter, 61 days in the fourth quarter. So, we have not changed production days. It's just that, I think, we've got through some bottlenecks and we had planned to achieve a higher production rate anyway. So, I think 59,000 units is consistent with where we are going. Your question was on second half guidance, in reality, our guidance on the last conference call was in fact, 55,000 units for the third quarter and 61,000 units for the fourth quarter. Now, if you add the three quarters up obviously and you take the actual figure, first quarter has actually come up to 229,154, I guess 24 I'm guilty of rounding when I gave the target out of 229,000 units but that was pretty small, a 154 units compared to the 229,000. So, that's rounding another change in second half guidance. A 50% increase in construction under progress at the end of 2000, as we're all aware, we had significant capital expenditures that occurred at the fourth quarter, approximately a $100 million, more than half our capital expenditures of the total year 2000. Although that when it comes on, it still needs to be proved out to make sure that the machinery was in case maybe and according to the specifications and until that point of time, it will be recorded in construction under progress. I don't have an up-to-date with it since at the start of the first quarter, but I would assume that it has somewhat worked its way down as the 3 months of test. In terms of HDFS, first the accounts receivable, accounts receivable on the balance sheet did increase as you pointed out and speculated. Number one, essentially it was not a big increase. Last year. Accounts receivable were a $151 million. This year it is a $162 million, not a big increase. There is a significant increase over year-end, which was at $98 million. There is some seasonality and it all has to do with 25 shipments outside the US with that account, the accounts receivable is primarily export shipments. So, that is right in line, and in finance subsidiary receivables, I don't see it a question that, that was fiscally up and basically that's a combination of such that they experienced in the quarter, as well as the receivables of a function of from the last securitization, the last securitization was done earlier in the third quarter than the prior year, and so therefore, those receivables have built up over a longer a period of time.

Could you also talk a little bit, Jim, about the gross margin sequentially. Sequentially, the gross margin was down a bit, and yet, at least looking at the obvious factors, the mix was much improved first quarter, and fourth quarter.

Well, I have been spending a lot of time Mike, looking at the first quarter versus fourth quarter. There is some seasonality. There are, you know, different things that occur during the quarters. That is a harder one, when you compare the two quarters, there is going to be changes in domestic versus 26 international mix, and obviously, the fourth quarter had a better domestic mix. So, I guess, at the end of the day, I'd have to spend some time looking at those changes. The biggest thing is always, seasonally there are some differences in those quarters.

Okay, can we get back to you on that once you've had a chance to look at it?

Certainly.

Thank you Jim.

We go next to Greg Salchow with Raymond James.

Hi, good morning.

Good morning Greg.

I was wondering if you could give us a little bit of an outlook for what you expect in terms of selling and administrative expense growth, corporate expense growth for the rest of the year? Do you think that's going to continue lagging the rate of revenue growth?

As for expense growth, 27 expense growth, as I mentioned before in earlier questions, it is not tagged to revenue growth, these programs that drive some of that. So, it's not totally a variable cost that will, sometimes be higher than revenue growth. We expect that at the end of the year, our operating margins will be improved over the last year, and that's going to be a combination of gross profit and improvements in operating expenses.

Okay. I don't know if I missed this one at some point, but on your other expense line, are you sure about $920,000? Could you tell what that was related to?

Have you really dug in to that? At this moment, Greg, we can get back to you, it was fairly small numbers, so I didn't look into that before this call.

Okay, the last thing is the Parts and Accessories sales. I am wondering if that performed pretty much in line with your expectations for the quarter?

Yes, is that a question or a statement, if it is a question it was right in line with our expectations as I mentioned, 28 fourth quarter Parts and Accessories sales were up about 26%, a very strong and dealers anticipation getting ready for the first quarter. I have a 40% increase. On top of that there is again, substantiation that there is strong demand on the field.

Right. So, would you thus attribute that to the timing of dealer orders? Was there anything regarding the timing of product introductions that would really have any impact this quarter?

We're always coming out, to the credit of our Parts and Accessories, they are always coming out with new products every single quarter but there is nothing significant that I'm aware of.

Okay. All right. Well, very good. Thank you.

Thank you.

We go next to David Cumberland with Robert W. Baird.

Good morning. Well done in the quarter Jim. 29

Thanks David.

The finance business, was the gross higher in the retail side with the new rates, and was there any real change in the loss experienced there?

The growth, we obtained a significantly higher market share in our retail consumer contracts. So, there was significant growth in retail, and as I mentioned before, we also had the benefit of declining interest rates which helped our operating margins. The contracts were obviously written at one rate but not securitized, and then, so, we had the benefit of some lowering interest rates that helped us out. As for losses, our delinquencies are right in line with the same period of time, first quarter of the last year, right on the same level.

Thanks. Could you elaborate on the impact of the timing of the MotorClothes shipments that you mentioned? What impact might that have on second quarter?

I won't quantify it but there was some caution in that, in that, some of the, there was some special shipments of 30 MotorClothes. I just had a question on Parts and Accessories, MotorClothes; some of the products are seasonal. There was a product line that particularly goes up in the second quarter and that's just a time issue that went out in the first quarter this year. So, I have some comparability, difficulty next quarter, and then, we're only speculating but with the dealer meeting being be moved up to early to midJuly versus later in August, the dealers could hold off anticipating some exciting new products. So, we need to see what that impact is, but it could have somewhat of an impact on MotorClothes. It's still a small number but it's just something we're looking at.

Okay, thank you.

You're welcome.

Our next question comes from Robert [_______________] with Edward Jones.

Yes, there has been one or two things in the press about, I guess, confusion. I wanted to kind of ask about, and as far as registrations in the US, like a year ago you started a rental program and kind of 31 looking through the numbers on your press release, it looks like you took out about 3000 bikes this year or, excuse me, in the 2000 figure for the first quarter to get up to that 6.4% or, otherwise, it may have been down a percent. Can you kindly go over that?

Well you certainly have a lot more data than anybody else has, including myself.

Well I'm just looking at the 139,000 bikes for the year, it was earlier reported at 162.

: Are you talking about 2000. I thought you said it was the first quarter.

No, I'm talking about 2000 because you say your comparison is up 6.4%.

6.4% relates to the first quarter of this year.

Right, but last year, were bikes excluded from the rental program on the salethrough or not. 32

Not at all, I mean, when we're comparing to the 159,000 units that you say, number one, has our Buell motorcycle units in there total of the year. When we talk about the first quarter, this year versus last year, I would say we are talking about, I think, I don't remember what the first quarter retail sales, I don't have that in front of me, but it's probably like 37,000 units or so in retail sales last year and it was higher this year, up 6.4% higher this year.

Well, has there been any adjustments in last year's figure on the rental program, that's what I'm asking.

It's probably the most appropriate question and the answer to that is no, with the exception of, actually I'll have to adjust my answer, in February data that was released through the different sources about a month ago. The February data did show that there was approximately 800 units that was in last year's February data, that were rentals and some other units; it was not just rentals; it was rentals and some other units. That is excluded from our comparison, we are only talking 800 33 units.

Okay, what about March.

March is a strict comparison to what was reported versus what we have now, that's a one for one comparison.

So how many bikes?

Last year in February, it was actually February, the 800 units, that was a discrepancy. That was basically a year worth of sales that was included in one month, and that's why it was pulled out to make it comparative. That only was the one time occurrence of happening.

In March?

In March what?

I am saying that in March where there any adjustments. I was trying to figure out how many bikes were registered in March, I guess, that's what I am saying.

Till that is public 34 data, we can't really give that out.

Okay. The second question that the [_______________] are kind of surrounding has to do with prices over MSRP. There has been a lot of talk about Bartels in California selling the Badboys closer to MSRP and delivering out of state, is that just one dealer or are there more dealers doing that?

I'm certainly not going to comment on a dealer to anybody. With regard to MSRP, many of are dealers in this with demand exceeding supply are market pricing and although we wish they didn't but they do, we don't know of any dealer that would be selling under MSRP. So, our evidence is as we look at, we monitor the information from our Harley-Davidson Financial Services on all of our retail contracts on what the new and the used motorcycles are selling for, and there is a consistent premium on market pricing that's going on this year versus last year on the new and the used bikes that hasn't changed for a long period of time.

Thank you so much. 35

: You are welcome.

We go next to Chris Cox with Goldman Sachs.

Good morning Jim, good job.

Good morning Chris.

I just wanted to say, even with your increased capex over the last year, the $200 to $250 million, which is based on your projections, it looks like cash is going to continue to build, and could you first update us on your share repurchase, specifically how much you've bought of your allocation, and can you comment on what you would plan to do with the excess cash?

As for share repurchase, we did not do any share repurchase during the quarter. We do plan to repurchase shares during the course of the year for, number one, to offset the exercise of stock options. We also have an additional authorization to go into the market from time to time. We didn't exercise you on those options in the first quarter, but plan to repurchase stock minimally to offset that exercise the stock options in the quarter. Right 36 now it will be premature to even forecast what that would be, but we will be in the market to accomplish that. As for cash, probably we'll deliver in the course of the year between dividends and share repurchases. Right now, the only plan is to continue to invest in the business and organically grow this business, and right now you know all the plans other than that.

Can you just specifically say how many shares you have left to repurchase in your allocation, or how many you'll have to purchase versus what you've been approved to purchase?

I mean, of the 9.4 million special allocations that still exists and then the other one is just open ended. It depends upon the exercise of stock options, I will say a small buffer, as we try to forecast that.

Okay, thanks a lot.

You're welcome.

We go next to Hailey [_______________] with Merrill Lynch. 37

Good morning Jim.

Good morning Hailey.

Thank you. Can you give us an update on Buell production targets for the year and also may be talk about the mix between Blast and the V-Twins for the year, and what the retail takeaway looks like on the V-Twins, and just how seasonal it is?

The production targets for Buell for the year? That remains at 10,000 units. In the last conference call we said that the Blast production would be somewhere between 30 to 50% of total Buell production for the year, and we'll monitor that depending on how that new program roles out. Right now, we're extremely encouraged on that. So this year we have some Blast inventory to begin in the selling season, which we were not in that position last year. If you look at the mix for the third quarter, approximately 35% of our total Buell production was Blast and we're right in that range, and if that would differ we'd let you know. For seasonality, since there is a great Buell seasonality, both in the V-twin Buell, as well as 38 the Blast, a new person to the sport, is strictly going to think about this sport when it's nice outside, so it's quite seasonal, and as the performance bike market has always been also quite seasonal from March to basically September.

And an update on rider's edge, how many dealers, or how many states, etc.?

Currently right now we have 13 dealers that are offering the riders education program. We plan to open it up for another 20 to 30 dealers this year. So significantly increasing that, the number of states, I don't have an update on, but that continues to grow. Last year it was only 9, but it's growing.

And then, one last question on the motorcycle operating expense number for the quarter. It is not so a pretty big differential up to 7.5% versus revenue up to 13%. Are we at the point now where we should start to look at motorcycle operating expense as something, that's more reflective of general growth and pricing, is it tied to inflation plus a little bit on top of that, or is it something 39 we should look at more, in terms of revenue growth?

Unfortunately, Hailey, I can't make it too easy on you, operating expenses as I commented before in the conference call, are not tied to revenue, or in fact tied to anything else. They're tied to, the possibility of the business and investment opportunities we have, operating expenses will fluctuate and not exactly in correspondence to revenue.

One of the majority of the costs in that line item relate to, CPI type pricing?

A majority of, trying to say majority, a good portion of the costs are in the sales and marketing. We spent over a $100 million in research and development, and then you have the typical administration [_______________] human resources, you've got warranty in there, you've got many different costs that fit into the SG&A line, and then you have the program cost, whether the rider's edge or other programs that we are rolling out, some of that is driven by programs where there is [step] functions. So I can't give you anything to correspondent it to. 40

Okay, thank you.

You are welcome.

We go next to Bill [_______________] with Schneider Capital Management.

Yeah, congratulations on another great quarter but, going to a little detail regarding Japan, given their economic problems, what are you seeing in the far east in terms of demand?

Japan's an interesting market, they regard Harley-Davidson very highly, the brand has a lot in Harley-Davidson. Japan's economy basically has been in the dumps for 10 years and we have continued to increase our unit shipments every single year for the last 10 years and in fact the last several years we have been gaining market share, which is particularly encouraging since that is in the backyard of our biggest competitors. So we expect to continue to grow even in the face of their economic uncertainty.

Over. 41

Yeah, nothing more specific in terms of year-to-year growth and shipments.

No, our approach to Japan is similar to our approach to most of our large markets and that's controlled growth, as we continue to grow the dealer networks so we can support the customers, so it will be more on a controlled basis.

But you are not in anyway concerned by any demand functions there.

We are always concerned about every market and always looking at whatever signs, whether it be competition, economy, but we are some more than just a product, and then because it is unique and it is part of a lifestyle, whatever market, whether it is in the US, Europe, or Japan, we are concentrating on the customers and that seems to be doing pretty well.

Okay thanks.

We go next to Douglas Pratt with RS Investment Management. 42

Thanks very much, good quarter.

Thank you.

You said earlier, I believe that chargeoffs in the finance side was similar with the last year. I am not sure of that, do you mean the dollar amount or which I think it was about $1.8 million last year or you are referring to the provision.

No, I was referring, thanks for the clarification, as a percent, so the percentage is the same percentage as it was last year in the first quarter and that's after pulling out the credit card business, so that is a like for like comparison.

Okay, so I guess from what is said in the past it is about 90 basis points, can you tell us what was the provision for loan losses in the quarter again compared to last year and also, well I will go with that one?

I don't have that in front of me but if you can call back we can furnish that. 43

Okay, and then finally you had a deceleration in sales in the quarter down to just under 13 percent. To what extend do you feel that that was produced with may be more aggressive financing and do you think you are going to have to be more aggressive going forward to offset what ever slow down we get in demand just based on the economy?

For the reason we do have slightly a bad connection, could you just repeat the question?

Sure, looking at the deceleration in growth to about 13 percent when it was 18 or 18-1/2 in the prior quarter, to what extent do you think you were able to offset some of the economic decline with more aggressive financing of consumers and what you are feeling going forward given that we are probably [_______________] slowing in the economy, to what extent you will have to be more aggressive do you think in financing to offset that economic slowdown?

I mean, basically I think we are talking about the revenue side. Our 44 capacity really drives our growth in sales, 80% percent of our revenue is derived from motorcycles shipments and that is, what we produce is what we sell, so depending on what capacity level we are at and that is driven by our bottlenecks, whether it be our suppliers and internally, and it is also driven by the number of workdays, and so between capacity level we are at and number of workdays will pretty much dictate the revenue we will have in any one quarter, and then that will drive whatever comparison there is, there may be different number of production days from quarter to quarter, but we have a production constrain, so that is going to drive the revenue and that will drive any of the comparisons. We have not seen it as mentioned in the press release and I said in the conference call, our demand remains strong, our dealers as a whole, our market pricing, the new and the used units all suggest that demand still exceeds supply by quite a bit, and we look at all the signs, we have many different data points that we look at besides from talking to field managers, we have some internal reports that we look at, the Parts and Accessories sales and other data points, the dealer by dealer basis, we monitor what is going 45 on in the market and we are very confident on strong demand at this time.

But then it looks like based on the numbers for production prior on 14-1/2 percent, somewhere around in that ballpark in terms of sales growth. It sounds like, somewhat, some of the analysts have asked that you have plans for more production capacity, and I get that would drive the growth back to the higher teens level. What have you said in the past particularly about timing and the amount of production capacity increase?

Basically for the next several years we have enough floor space to continue to grow this business for the next couple of years. That being said we still need to add the machines and the people to continue to grow and we are working with suppliers to get through some of the bottlenecks, once you get past, maybe in the next 2 years or so, we will have to add some additional capacity outside our existing footprint, and we are working on those scenarios and alternatives to achieve that, and looking at what our core competencies are, so that process continues to go on but right now, as 46 we add capacity, we have even divided the production stage into our production targets, you can see that our average yearly production continues to grow every quarter and that's a matter of working with the suppliers and working with our employees who continue to get more efficient and productive and that's ongoing basis. I mean there are 3000 parts in a motorcycle and any single one can be a bottleneck.

Okay thanks, great quarter.

Thanks.

Our final question will come from Richard King with Kensington Management.

My question has been answered, thank you.

Thank you. Thank you for your time this morning, I remind you that a tape replay of this conference call can be heard by calling 719-457-0820 and that's after 11:00 a.m. today and by accessing our website. If you have any questions please contact Pat Davidson, Director of Investor Relations, 414-343-8002. Thanks again and have a great day.

This concludes today's Harley-Davidson conference call. We thank you for your participation.