Harley-Davidson Inc (HOG) 2002 Q1 法說會逐字稿

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Good morning, ladies and gentlemen. Welcome to Harley-Davidson's first quarter 2002 financial results conference call. At this time, all participants have been placed on a listen-mode, and the floor will be opened for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Jim Ziemer. Sir, you may begin.

Thank you. Good morning, and welcome to Harley-Davidson's first quarter conference call. I'd like to remind you that this call is being recorded, and a replay will be available after 11:00 AM this morning. Please call 973-341-3080, and enter pin number 3210469 and pound key. The recording will be available through April 24th. It's also being Web cast live on our Web site at wwww.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 Web site.

In compliance with Regulation FD, I will make the following statement. This will include forward-looking statements that are subject to risks that could cause the actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings release filings with the SEC. Harley-Davidson disclaims any obligation to update the information in this call. As Jeff said in the press release, we are very proud to be delivering another record quarter as we begin our 99th year of operation. As is our typical approach, I'll spend a few minutes discussing some of the highlights of the quarter, and then I'll open it up for questions.

We achieved records in many different categories for the first quarter, and it's my pleasure to review some of those highlights. These include: Harley-Davidson units, 64,669, up 19.4 percent; revenue $928 million, up 19.4 percent; gross profit of 315 million, up 24.2 percent; operating profit of 182 million, up 31.9 percent; and net income of 120 million, up 30.4 percent. For more detail I'll start out with the motorcycle and related products segment. During the quarter, as I mentioned, we shipped 64,669 Harley-Davidson Motorcycles. Overtime on the motorcycle assembly line during the quarter allowed to work an additional two equivalent workdays, thus giving us 64 workdays, even though we had planned on 62. This additional assembly time, coupled with strong retail demand, allowed us to exceed our guidance of 62,500 units this quarter.

The average selling price of Harley-Davidson motorcycles was up 3.3 percent in the first quarter, compared to a year-ago quarter. Although there are many variables that have an impact on the average selling price, this comparison was driven primarily by heavy

domestic versus international units. It was 79 percent this quarter, versus 74 percent last year's first quarter. A reduced mix of lower-priced Sportster models, 19 percent this quarter, versus 21 percent last quarter last year. And it was also helped by the 2002 model year price increase of 1.4 percent on U.S. models.

Response for the

continues to be strong as we continue to ramp-up production. This is an entirely new motorcycle, manufactured and assembled by new employees, new equipment, new processes, and new suppliers. There were some unforeseen challenges during the quarter, and we'll be adjusting our guidance for

in the 2002 model year; somewhat less than 10,000 units, in an initial range of 10,000 to 11,000. As mentioned in the press release, we've raised our calendar 2002 production goal 261,000 Harley-Davidson motorcycles. This represents an 11.3 percent increase in production, 26,500 more units, versus our 2001 calendar year performance. This increase is the result of the continued strong demand for our products, and some ongoing capacity increases.

Moving on to Buell, total Buell shipments for the quarter were 1,330 units, down from the 2,447 units from last year. We sold 901 Buells last year in the quarter, versus 854 last year. We sold only 429 Buell V-Twins, versus 1,593 last year. The lower sales comparison in the Buell V-Twins this quarter is from the discontinuance of production of the X-1, M-2, and S-3 models to make capacity available for the Buell Firebolt motorcycles in the second quarter. In fact, we're very pleased to announce that in April we've been shipping the brand new Buell Firebolt XB-9R motorcycles. This revolutionary sport fighter has received strong reviews from the motorcycle industry around the world. And we are very excited about this latest Buell offering, which is a powered by a 984cc air-cooled powertrain, and retails for about 9,995. Total Buell revenue for the quarter was 6.5 million, 8.6 million decrease over the last year's quarter. For 2002, our guidance remains the same, approximately 11,500 units, with about a third of those unites being

motorcycles.

P&A -- parts and accessories -- built another strong quarter with sales of 131.1 million, up 20.4 percent over 2001 first quarter. The solid double digit growth was led by strong accessories performance, and it was also helped by five percent more shipping days. General merchandise sales for the first quarter were 42.3 million, up 7.9 percent over last year. A very limited amount of 100th anniversary merchandise helped this increase. There are always quarter-to-quarter fluctuations in pricing accessories and general merchandise growth rates. But in the long term we continue to expect that the growth rates for P&A revenues will be slightly higher than Harley-Davidson's motorcycle unit growth rate, and that general merchandise is expected to grow slower than the motorcycle unit growth rate.

As you probably noticed in the press release, there were some minor changes in net sales, gross profit, and operating expenses lines in our first quarter of 2001. To comply with the guideline set forth from FASB's Emerging Issues Task Force on Accounting for Shipping and Handling Fees and Costs, and Accounting for Certain Sales Incentives, we're updating our classification of some costs related to sales incentives, and shipping and handling of motorcycles. The amounts associated with these classification updates are listed below the income statement on the press release. The net sales were increased 9.7 million; the reduction of gross profit was 9.2 million; and there was an offsetting reduction of operating expenses of 9.2 million. These changes are minimal, and result in no change in operating profit or earnings for 2001.

Moving on to gross margin, gross margin was 130 basis points over last year's 32.7 percent. This is due to the motorcycle product mix, favorable geographic mix, and the modest increase that was introduced for the 2002 model year motorcycles. If you include the

family into the custom mix, you see that customs were up approximately two percent, while the touring bikes were unchanged as a percent, and Sportsters were down about two percent. Geographic mix I refer to is the heavy mix of U.S. motorcycles, 79 percent in the quarter, versus 74 percent in last year's first quarter. The modest price increase was 1.4 percent, as I mentioned, in the U.S. motorcycles.

Moving on, operating margins for the motorcycle segment was 18.7 percent, compared to 17.4 percent in 2001. The gross margin improvement drove the operating margin improvement, as our operating margin is also up about 130 basis points. Additionally, as we discussed before, the nature of our operating expenses means they won't necessarily move in line with revenues. This is especially true when we add two equivalent assembly workdays in the quarter, and it results in additional production.

Now, turning to our financial services segment. Harley-Davidson Finance reported another great quarter with operating income of 12.2 million, up 7.2 million over last year's first quarter. HDFS continues to benefit from strong overall performance, wholesale, retail, and insurance categories. As you recall, in December HDFS went to market with a $315 million securitization, our largest-ever fourth quarter offering. As in our past securitizations, this deal occurred in two parts. As we discussed during the question-and-answer portion of our fourth quarter conference call, the majority of the securitization sold in December, while the remaining 93 million was sold early in the first quarter. During the first quarter, we recorded a securitization gain of approximately $5 million. This is an unusually high gain on the $93 million securitization, but was favorably impacted by the enhanced spreads that HDFS experienced throughout 2001, all due to a declining interest rates market.

Last week, HDFS went to the ABS market with 586 million in retail

in an offering that was two to four times oversubscribed. We expect the entire offering to be sold during he second quarter, and we also expect two more securitizations before the end of the year, one each in the third and fourth quarters. Due to the potential for higher interest rates, we expect that both gross and net spreads will be significantly lower in 2001 on securitizations than they were in 2000 -- excuse me, lower in 2002, versus 2001. In fact, we already experienced this in the April securitization.

Speaking of the April securitization, hopefully you noticed on the balance sheet of the press release that finance receivables -- long-term finance receivables -- were up significantly compared to the end of the year. Again, as this business grew significantly, and we didn't do the securitization until the first of April, those receivables built up. When you do the comparison in December, during the middle of the fourth quarter, we did the securitization, so it didn't have the receivables from the fourth quarter in the balance at the end of the year. HDFS continues to benefit from the performance program, which is now just over a year old. Not only in terms of greater retail volume, but also in terms of greater credit quality.

Annualized credit losses are down in the first quarter, year-over-year, currently at 76 basis points, down from 94 basis points last year. Although this was deemed counterintuitive in a recession, our losses remain lower, due to the better credit quality of the portfolio since performance pricing has been implemented, and the continued emphasis on our collection efforts. Retail delinquencies, defined as greater than 30 days delinquent, are tracking at approximately 3.5 percent, up slightly from 3.45 percent at the end of the first quarter last year. Now, there is some level of seasonality in delinquencies. That is, delinquencies tend to come down in the spring, the start of the motorcycle riding season, and move back up in the winter months.

Finally, while performance pricing was introduced during the first quarter of last year, the full impact was not really felt until late in the first quarter. Thus, the first quarter comparison of this year versus last year looks even better, since this year's first quarter was done with performance pricing already in place for the entire quarter. For the remainder of the year we believe HDFS will perform well, but HDFS cannot be expected to repeat the first quarter increase of 100-plus percent. The first comparison reflects small changes in small numbers. We are raising our full year operating income guidance to an earnings growth rate of approximately 25 percent.

Moving on, Harley-Davidson, Inc. corporate expenses for the first quarter were 3.5 million, up slightly from last year's 2.8 million of expenses. Interest income was 2.2 million, approximately 2.6 million lower than last year's worst quarter. This is due entirely due to lower interest rates, as the average cash plus marketable security balances were higher than the first quarter of 2001. Somme additional information on the quarter. Depreciation expense for the quarter was 42.6 million. Our estimate for the total year is in the range of 175 million. There was no impairment of goodwill this quarter; none is expected for the year. Capital expenditures for the first quarter were 53.4 million. Capital expenditures 2002 are expected to be in the range of 270 to $300 million for this year.

Looking at the balance sheet, we finished the quarter with 580 million in cash and marketable securities on-hand, up nearly 190 million from last year's first quarter, but down slightly from last year's $636 million at the end of the year. This was expected, as the first quarter is usually a negative cash flow quarter.

Switching to the topic of production, it's also important to understand our production shipping schedule. In fact, it's so important I'm going to cover it again in more detail, just as I did in the fourth quarter conference call. Due to the cutoff for our fiscal quarters, we had an additional three scheduled days in the first quarter. We also had one day in the third quarter, an additional day, compared to last year. And we'll have four fewer days in the fourth quarter of 2002, versus 2001. This means that the quarter-to-quarter comparisons become significantly impacted, shipping days for the year are the same as the shipping days for last year, both 242 workdays. As I mentioned before, scheduled production days for 2002 by quarter are somewhat different than 2001. Scheduled days -- I'll go through them again -- 2002, second quarter 64 days, third quarter is 59 days, fourth quarter is 57 days. The total of our scheduled workdays for this year were 242.

Now, this is all a big deal, as the analysts of the world try to model the financial outcome of our operations, as they have an impact since our production typically equates very closely to sales. Now, there's this speculation and rumor on Harley-Davidson's ending the production of the 2002 models early. The official word is that only a few days of production of the 2003 model year will occur in the second quarter, and that that will only be on the

and

models

. For the remainder of 2002, we plan to ship 65,000 units in the second quarter, 66,500 for the third quarter, 64,500 units for the fourth quarter.

Now, as we stated in the press release, our dynamic motorcycle family is no longer being assembled in

. Movement is nearly complete as Kansas City continues to work out the learning curves, and will be fully ramped up in the third quarter. Now

motorcycle markets, which we define as all motorcycles having a displacement greater than 650cc's. The U.S. market has stayed strong for the first three months of the year. While Harley-Davidson retail registrations through our authorized dealer network were strong, as evidenced by the 21.2 percent growth in the U.S. We're also experiencing movement in our other major markets; Europe up 16.6 percent, and Japan up 3.7 percent. While we are encouraged and excited by these interim sales results, it's still early in the year and the second quarter is always the strongest quarter of the year.

We're proud of the financial results of our first quarter. Again, they are the result of our progress to success. Going through those drivers again, it's our exciting products and services, our strong brand, the worldwide demand for heavy motorcycles which continues to grow, and last thing, the strong relationships with all our stakeholders, and the experienced management team supported by all our employees. These drivers will continue to support our success in the future.

Now, I'd like to open up the phone lines for questions.

, please.

Thank you, sir. The floor is now open for questions. If you do have a question or a comment, please press the numbers one followed by four on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your question, that you please pick up the handset to provide optimum sound quality. Once again, ladies and gentlemen, it is one then four on your touch-tone phone. Please hold while we poll for questions.

Once again, ladies and gentlemen, that is one then four on your touch-tone phone at this time.

Thank you. Our first question is coming from

of J.P. Morgan. Please state your question or comment.

Hi, just a couple of questions. First, are you going to refile and 8-K just to restate the next three quarters '01 for the sales adjustments? And then, secondly, can you just talk about what '03 merchandise was sent during the quarter? And just give us an idea of what exactly the sales incentives are?

The first question,

, no we're not filing 8-K. We're complying with the Emerging Task Force classification on a going-forward basis. The

comparability we gave you. The changes would have been in '02. Basically, as you can see, they were very immaterial, but Emerging Task Force thought for everybody to be

statements, that they suggested these changes. Once again,

.

I believe that -- actually, I have to get back to you what the sales incentives were. There are various different categories. I mean, there are multitude of things. They're not one single item. And on the '03 merchandise, it will be something less than $3 million dollars of '03 general merchandise that we ship as we begin to introduce some items in this quarter. And I forget your next question.

thanks a lot, good quarter.

Thank you.

Thank you. Our next question is coming from

of Lehman Brothers. Please state your question or comment.

Hi, there, I have a couple of questions, and one kind of refers

. Regarding your statement, I think you said you're not going to file an 8-K

'01 was about 34.2 or 3

. I'm just wondering if there's any kind of indications you're getting with what your gross margins might have looked like, and what you expect them to be

accounting rule?

Secondly, I was just wondering if you

...with five percent more days, I would almost --

, I'm assuming that the days are all similar, that you could almost pull off five percent off the 20 percent increase in the P&A to get through a comparable increase. It's somewhat speculative, but that's one way to look at it.

Gross margin was up significantly this quarter. As I mentioned earlier, drivers were geographic mix. Significantly the U.S. mix was quite a bit higher than the U.S. mix was last year by almost 500 basis points. As I look at the total year, the U.S. mix should be very similar to the U.S. mix on a total-year basis, as it was in 2001. So sometime during the year that mix will actually have a leaner comparability to 2001. And it'll probably happen in the fourth quarter, because that was such a strong mix comparison anyway.

When I look tat the product mix, Sportsters were I think at just about a recent history all-time low mix of 19 percent. But that will be somewhat for a total year greater than 20 percent. So there will be some quarters that are even than that to get it back on the total year basis. So we're not going to have this favorable bump. In fact, it'll be just the opposite as we look forward over the year.

OK, great. And just one other just final follow-up question as we're talking to mix. It looks like the registrations in Europe were improved nicely in the quarter. Is there any significant that happened there?

I mean, the reality is -- I have a little saying: A small change is in small numbers. It's a bit early to tell what's really going on in the European market. Their spring really doesn't start until the second quarter, and we've got a good comparison, but we're going to have to wait and see. Definitely we were probably a little slower to get out our shipments, as I pointed, in V-Rods. And we haven't got as many V-Rods into Europe as we would hope. So that's certainly is not driving that. In fact, the whole European market is doing well.

And in Japan?

Japan, again, it's early. Last year we were slightly up slightly, and we were better than the market. The market was down. And we expect to continue to grow in the market in Japan.

Great, thank you.

You're welcome.

Thank you. Our next question is coming from

of Robert Baird. Please state your question or comment.

Good morning, Jim, and congratulations.

Thank you, David.

With the model year changeover lead in Q-2 instead of early Q-3 for some models, will this result in some startup and changeover costs falling Q-2 that normally would be in Q-3? Is the impact on margins significant for these two quarters?

I mean there may be some startup, there's always startup as you change model years. But it's not going tot b e significant.

And then on the TV commercial that ran in Q-1, what type of feedback did you get, how are you measuring the success of the campaign, and what are your current plans for additional TV advertising?

Well, as your question goes, we will be measuring the cusses of that commercial. But I mean, the main thrust of that commercial was to get enough brand awareness as we roll into the 100th anniversary. And to let people know, because as we do the world tour, which is going to be over the U.S. and then over the globe in five different continents, trying to build brand awareness because we want non-customers to go to that. This is not so much to push product, although we want to see -- we are measuring what this has done to the people have purchased motorcycles. But it'll be kind of hard to tell. You know, most of the motorcycles were sold anyway. We are going to try to measure that. It's a little early in the game, as you pointed out, this was early in the first quarter. So but -- we will be attempting to measure that. Right now I don't have a measurement for you.

And last question, what are the pricing trends you've seeing on new and used bikes?

On the new bikes we've not seen a significant change in what new bikes are selling this year versus last year. If I'd have to put it in context, new bikes are probably selling between 97 percent and 100 percent of what they were last year at this time. And used bikes have not materially change either.

Thank you.

Thank you. Our next question is coming from

of AG Edwards. Please state your question or comment.

Good morning, and great quarter, gentlemen.

Thanks,

.

Couple of items. Jim, HDFS, could you update us on where your retail marketshare is at the end of the first quarter, relative to the same period last year? And then, where it was at the end of the fourth quarter?

Secondly, on a total basis -- percentage basis -- overtime first quarter this year, versus first quarter last year? And then, could you discuss -- I know you had changed a little bit of the timing and allocation of your shipping patterns in the October to February period. And had some plans to change those I guess to the U.S. dealers in the March to July period. Could you maybe just expand on that a little bit, and especially now that you're seeing a pickup in the foreign markets also?

Try to go in order. On HDFS and marketshare, we were finished the quarter probably in the mid-30s marketshare. Marketshare being defined as percentage in the Harley-Davidson dealers, the percent of those bikes being financed by HDFS as a percent of the total bikes sold in the dealer network. That was in the mid-30s for this first quarter. That compares to the mid-20s last year at this time. So the last year in the middle of the quarter, we first introduced Performance Pricing, so it was ramping up.

The total year last year we had said that we had finished the year around 30 percent. So last year for the total year basis we had gone from about 20 to 30, or an increase of 50 percent. And we see -- continue to have some favorable experience. Downside of that, and the downside of all our great disclosure between the 10-K annual report and on these conference calls, this will probably draw on competition, so I don't how high this can go. But I mean, there is a downside of all this disclosure that we give, and the favorable performance that HDFS is having.

On overtime, -- I got to look for my crib sheet here -- I do know that overtime for the first quarter this year was through all operations, all plants, averaged 16 percent, which is a favorable comparison to last year. I just don't have last year's number in front of me. You can probably get that from

later on .

OK.

And on ...

And that does incorporate the extra production equivalent dates, Jim?

That incorporates everything. So ...

Amazing, OK.

... a lot of that resulted in the two additional equivalent days. And a little additional side note on that, talking about the additional days, we're talking about accumulating those during the quarter, a half hour here, an hour there. It doesn't necessarily mean we tacked on a Sunday someplace. It's just working some extra time here and there, as we've broken through some bottlenecks someplace else that we've supplied the assembly line with whatever it needs.

In the timing of shipments, our timing as evidenced by the U.S. market in a heavier mix of U.S. shipments, we can see that we did load up in the fourth quarter. The first quarter

have a heavier allocation of shipments in the U.S., getting ready for our 2003 model year.

OK. And then, do you anticipate that U.S. allocation is -- it sounds like what you alluded to a little bit may lightening up in the second quarter?

During the next three quarters, we're going to get back to a more normal allocation. And probably having a bigger impact, I mean, comparing this year versus last year. That impact will occur in the fourth quarter, because the fourth quarter was fairly heavily SKUed domestically last year.

OK, and then finally on the V-Rod, you said that you were adjusting production. Do you anticipate the '02 model production now on the V-Rod being somewhat less than 10,000 units? There's some issues with suppliers there. If you could maybe elaborate a little on that?

We're not going to talk about our suppliers on a conference call. There we some issues during the quarter, and as we worked through those we probably didn't get out as much production as we'd hoped. As evidenced by our initial guidance that we'd have for the '02 model year 10 to 11,000. We're going to be somewhat shy of that, biggest disappointment is being to the customers. But we continue to work on those issues.

OK. Then just looking somewhat less than 10,000 units now?

Yes.

Thank you.

Thank you.

Thank you. Our next question is coming from

of Bank of America. Please state your question or comment.

Thanks. Couple of questions, Jim, on the gross margin, if I could. I was wondering if you could maybe characterize the V-Rod? I know you're pretty low numbers, but you got a higher than average price point. So I'm wondering if that's having positive impact on your gross margin?

Secondly, maybe you could discuss the CVO operations in the quarter, and whether they had really any impact of what you impact of what you expect CVO operations going forward? And then lastly, the 9.2 million adjustment in your numbers that you talked about in terms of producing gross profit, and reducing operating expenses, is that somewhat similar to the floor plan assistance number that's detailed in the K? Does that have anything to do with the adjustment? Thanks.

OK, gross margins. On the V-Rod, V-Rods were a small number in the quarter, as we point out in the press release. We had shipped 3,160 motorcycles with set-up costs and issues, I can definitely say that the V-Rod did not have a positive impact on gross margins. In fact, it was the other way. The question on commercial vehicle -- I mean, the custom vehicle operations, the CVOs. We had slightly more CVOs this year versus last year. Basically just shy of 1,400 this year versus a little bit more than 1,000 in the quarter. Those, as we've pointed out, have a nice profit margin on those motorcycles, but at the volumes we're talking about, maybe 350 or so more this year than last year. If we put that in the scope of everything, just shy of 65,000 units, it's not a material difference.

And on question on the 9.2 changing classification and having anything to do with the floor planning. That could, but as I pointed out, there's several things in those adjustments, and this is just a one quarter adjustment. So I'd have to get back to you on that detail also.

OK, just one last question on the gross margin. And this might be meaningful either, but could you, if you have the numbers, could you remind us what percentage of your bikes you're now selling with the new fuel injected system, at least the one you introduced a couple of years ago? And whether that has had a significant impact on your margins?

Thanks.

Fuel injection, oh, that becomes continues to become a more popular on our motorcycles. I don't have the percent in front of me. We can get back to you on that,

. It has a slightly positive impact, but again, it's not a material item. But it is becoming a more popular feature on our motorcycles.

Thank you.

Thank you. Our next question is coming from

of Raymond James. Please state your question or comment.

Oh, thanks, good morning. Wondering the first thing is what the rationale is behind the model lineup changes over at Buell, and it looks like now you're only going to have two models. I was wondering if that was correct.

And the second thing is if you could just give us a brief update on where you think the dealer inventory situation stands? And what bikes or types of parts might be in that greater supply? Where you think that stands?

The first question was on the Buell lineup. The new XB that we're coming out with in the second quarter, as announced last year, has gotten acclaim from all the motorcycle magazines and experts, and many awards. I mean, it's just a far superior motorcycle. So as you point out, right now we have the Buell Blast and we have the XB Firebolt for the 2002 model year. Certainly I'm not going to comment on future products, but as we continue to grow this business, I think it's safe to say that we'll have additional products that complement these.

Dealer inventory. Dealer inventory is higher this time than it was this time last year. But in fact, it is lower than planned. We had planned to have dealer inventory a little higher. Number one, when you have 630 dealers this year and 630 dealers last year, and you increase production in 11 percent or so, you're units per dealer are just going to go. We're not adding -- you know, we're adding just a single digit dealers every single year. So it has no impact. So the number of motorcycles will grow, with the great retail activity that's been going on in the market, as I pointed out, that the inventory's actually lower than we had planned it would be. So we were quite pleased with a 20 percent retail growth that we're experiencing.

And as for mix in the dealer network, you know, most of those bikes are actually that we see, we'll call dealer inventory, either are in transit to those dealers or are spoken for. So I mean, there is no -- I mean, I can go the opposite way and probably the motorcycles that are scarcest -- the greatest scarcity would probably be the Fat Boys and some other

and Harley

. But pretty much they are all doing quite well on the retail

.

OK, great. Sounds like it's the most popular things are continuing to be in short supply. So ...

No doubt.

OK, great. Nice quarter.

Thank you.

Thank you. Our next question is coming from

of Goldman Sachs. Please state your question or comment.

Thanks. Yes, the first question I had was just if you could remind us when 2003 models will actually be on most dealers' floors? When you expect them to hit?

The 2003 models will start to get shipped sometime around July 13th to 15th. We have a summer dealer show in Milwaukee for the worldwide dealer network on July 13th. And they will be shown the motorcycles for the first time. And then, we will start shipping those motorcycles to arrive at their dealership that Monday, Tuesday, Wednesday, whatever the case may be. But it's the middle of July.

OK. Second question is specific to HDFS. Can you give us a sense of what the gross spreads that you have realized on that $586 million securitization you did in April, earlier this month?

Typically don't give it out, but as I mentioned, they're significantly different. And in fact, as you could almost calculate from the spread from the first quarter, I said it was somewhat less than $5 million and the $93 million securitization. That tells you it's about 4.5 percent spread. And we're probably greater than a percent less than that on the securitization in the second quarter.

OK, and then just finally, you did -- this is following on a question that I think was just asked about retail inventories. You said they were a little bit higher. Does the fact that your growth rate in shipments for the second quarter seems to be moderating from what it had been the last three quarters, does that in any way change your plans for what you think retail inventories will be as of Q-2 end?

I mean, Q-2 end, I mean, our plan is they're going to be very low as we get ready for the '03 model year. That's been the plan all along, somewhat as we've shipped more units in the fourth quarter and first quarter on the U.S. side, and retail is responding quite favorably to the greater availability of the motorcycle, as we always thought they would. So I think that our inventories are inclined to be quite low, especially with the cutoff of '02 being in June, and not shipping any '03s out until the middle of July.

Great, thanks a lot.

You're welcome.

Thank you. Our next question is coming from

of William Blair & Company. Please state your question or comment.

My questions were all covered. Thank you.

Thanks, Rick.

Thank you. Our next question is coming from

of RBC Capital. Please state your question or comment.

Hi, good morning and congratulations. I was wondering -- I have two questions. First, I was wondering if you have any anecdotal feedback regarding the V-Rod, with respect to the average age of the customer purchasing these bikes. And then as a follow-up to Japan, I was wondering if you can expand as to why we saw Japan lag the industry just this quarter? Was it an allocation issue? Or I was wondering if you can expand on that?

Well, the V-Rod, you're right. I mean, it's a bit early to get some good data on it. What we see it goes all over the map. It is used to a very established, mature motorcycle riders that have been riding Harleys, but who also would like some performance in some of the rides. So we've seen the whole spectrum, but it is, as I mentioned here, we only shipped so far 4,800 motorcycles between the fourth and third quarter

. So it's a bit early to get an average.

On Japan, again as I mentioned, we're working with some real small changes with small numbers. If you look at Japan in the first quarter, I mean, the industry is only 5,400 units we're talking about for the total industry. So we'll get a better indication of what's going on in the second quarter. But for -- I forget the string of years, I think it's 17 consecutive years, we've continued to grow our motorcycle volume in Japan. And we expect to do that this year also.

OK, thank you.

You're welcome.

Thank our. Our final question is coming from

of Salomon Smith Barney. Please state your question or comment.

Thank you. Jim, for the last several quarters you've managed to always get some extra assembly time. Does it makes sense for us to assume that you'll continue to do this? And sort of relatedly, you've given us guidance that HDFS would be up about 25 percent their income.

And you also have given us guidance that this will grow slightly faster than unit growth. Is there a disconnect here between 25 percent and 11 percent in terms of slightly? And I guess an answer to a spread question. You seem to be guiding us to spreads that are around the 2000 and 1999 level, is that correct?

Yes, let's see if I can answer your questions. On the extra days, I mean, several things. As things -- you know, number one, our guidance is always predicated on trying to give you something we've got into the 80 percent confidence that we're going to hit or beat, we're going to achieve or beat our guidance, then 20 percent of the time we're going to hit or miss that. And hopefully we can minimize those 20 percents. As I pointed out with those extra days are really a matter of an hour here, hour there.

First quarter, I mean, a point and example, we never know when there's going to be a snow day. I mean, a snow day can take one of those days that we put in, out in just a second snow day. So they're kind of unpredictable. Same thing with suppliers. And as we go forward, I would take just the production from the first quarter, divided by the number of equivalent days, and come with an average production.

You know, we're basically producing 1,000 a day. With 242 workdays that would suggest that we have the capacity to produce 242,000 motorcycles. But the fact is we've given guidance of 261,000 units, so what it says is that we've got plans in placed to continue to increase our capacity. Now, we've got to hit those on a daily, weekly, basis, and those got to be home runs, whether they're inside our manufacturing facilities, or with suppliers. Model year startups, everything. So those days and actually hours here and there, are always unpredictable. And that's about as much guidance on those I can give.

is it ...

Yes?

Can you just go back -- I think all four quarters last year had some of those unpredictable increases?

I can get back to you on that. I don't think that is a true statement. I don't have it in front of me, but I think the third quarter last year definitely did not. And I don't know what other quarters, but it would not be a fair statement to say that all four quarters did. I know there is at least one quarter that did not.

And as for HDFS on the guidance, on the fourth quarter press release, we did give guidance for HDFS to grow its operating earnings at a rate somewhat faster in the motorcycle units. We're changing that, due to several different things. Number one, some of the favorability we experienced in the first quarter. Also, with the success from its pricing. We have gained more marketshare than we anticipated.

Also, it's kind of hard to predict what interest rates are doing. Within all those parameters, we've changed the guidance and announced that our operating profit growth should approach 25 percent, not that guidance of somewhat faster than unit growth. So I want to put that guidance we gave a few months away, and the new guidance is that the operating profit that we showed in 2001 should be up somewhere approaching w5 percent for 2002.

Actually this guidance was in the 10-K, which just came out a couple of weeks ago. So basically we should disregard it.

Well, we'd be hard pressed to give some additional guidance until we did a press release. So it's kind of a timing of stuff.

OK, and then the question on the spread. So should we basically assume that the kind of spreads that you achieved in '99 and 2000, that we should look for those to be the normal spreads for this year? Or normal spreads generally?

On spreads you're talking about the HDFS?

Yes.

HDFS you know, in -- yes, in OK, putting it I context, sorry,

. Yes, in 2001 we definitely benefited from the declining interest rate market. I think that '99 and 2000 would be more indicative of the spreads that we will experience right now. As interest rates rise, those spreads may be a bit more difficult. Once you get to a more stable interest rate market, then I think we're back to '99 and 2000.

So it's possible that in this rising environment we could get below that?

Could be. I mean, it is really hard to predict on timing. I mean, it is really hard to predict on timing. I mean, as we hear from Greenspan today, or what he sees interest rates -- as if he'll give us any insight, but I mean it's how fast does it go up, how much does it go up? It's very difficult.

OK, thank you, Jim.

Thanks,

.

Mr. Ziemer, do you have any closing remarks?

Yes, I do, thank you. Thank everybody for their time this morning. Remember, a taped replay of this conference call can be heard by calling 973-341-3080 until April 24th, or by accessing on our Web site. If you have any questions, please contact Investor Relations, that's

, at 414-343-8000.

Thanks and have a great day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a lovely day.