Harley-Davidson Reports First Quarter Results

MILWAUKEE, April 19 /PRNewswire-FirstCall/ — Harley-Davidson, Inc. (NYSE:HOG) today announced its results for the first quarter ended April 1, 2007. During the quarter, a 3-week strike occurred at the Company’s York, Pennsylvania manufacturing plant. The impact of the strike is included in the following results.

Revenue for the quarter was $1.18 billion compared to $1.29 billion in the year-ago quarter, an 8.3 percent decrease. Net income for the quarter was $192.3 million compared to $234.6 million, a decrease of 18.0 percent compared to the first quarter of 2006. First quarter diluted earnings per share (EPS) were $0.74, a 14.0 percent decrease compared to last year’s $0.86.

“We anticipated that first quarter results would be lower than last year due to the strike,” said Jim Ziemer, Chief Executive Officer of Harley- Davidson, Inc. “Nobody wants a strike and no one wins in a strike. Not our employees, dealers, customers, suppliers, or our shareholders. Now that the strike is behind us, our employees are focused on moving ahead, and with the new contract, we are better positioned for the future,” he said.

“In 2007 Harley-Davidson expects EPS growth in the range of 4 – 6 percent compared to 2006 based on moderate revenue growth, lower operating margin, and the benefits of our strong free cash flow. Looking ahead to 2008 and 2009, we expect solid revenue growth, operating margin improvement and the continued benefits of our strong free cash flow to drive EPS growth in the range of 11 – 17 percent,” said Ziemer.

The Company expects to ship between 94,000 and 97,000 Harley-Davidson(R) motorcycles in the second quarter of 2007.

Motorcycles and Related Products Segment – First Quarter Results

Revenue from Harley-Davidson motorcycles was $891.5 million, a decrease of $117.0 million or 11.6 percent versus the same period last year. Shipments of Harley-Davidson motorcycles totaled 67,761 units, a decrease of 11,745 units or 14.8 percent compared to last year’s first quarter.

Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $188.2 million, an increase of $5.3 million or 2.9 percent over the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes(R) apparel and collectibles, totaled $76.1 million, an increase of $7.6 million or 11.0 percent over the year-ago quarter.

Gross margin for the first quarter of 2007 was 35.9 percent of revenue compared to 38.4 percent for the first quarter last year. First quarter operating margin decreased to 20.0 percent from 24.3 percent in the first quarter of 2006. The changes in both gross margin and operating margin are primarily due to the strike.

Motorcycle Retail Sales Data

During the first quarter, worldwide retail sales of Harley-Davidson motorcycles decreased 1.3 percent compared to the prior year quarter. In the U.S., retail sales of Harley-Davidson motorcycles decreased 5.9 percent for the quarter while the heavyweight motorcycle industry in the U.S. decreased 0.7 percent. “We never like to see a retail sales decline,” said Ziemer, “but first quarter sales are not necessarily indicative of sales for the full year. We continue to expect positive worldwide retail sales growth for 2007.”

Retail sales of Harley-Davidson motorcycles grew 16.5 percent in international markets during the first quarter of 2007 compared to the first quarter of 2006. First quarter retail sales increased 25.7 percent in Europe; Canada was up 14.0 percent, and Japan was down 7.7 percent. All other international markets combined were up 16.7 percent.

  Data is listed in the accompanying tables.

Financial Services Segment

Harley-Davidson Financial Services (HDFS) reported first quarter operating income of $58.9 million, an increase of $7.3 million or 14.2 percent compared to the year-ago quarter. The increase is primarily due to higher wholesale and retail net interest income and higher fee income.

Income Tax Rate

The Company’s first quarter effective income tax rate was 35.5 percent compared to 36.0 percent in the same quarter last year. This decrease primarily reflects the reinstatement of the federal research and development tax credit.

Cash Flow

Cash and marketable securities totaled $929 million as of April 1, 2007. Cash flow from operations was $520 million and capital expenditures were $41 million during the first quarter of 2007. For the full year of 2007, capital expenditures are expected to be between $300 million and $325 million.

Stock Repurchase

The Company repurchased 870,000 shares of its common stock at a cost of $61.2 million during the first quarter of 2007. On April 1, 2007, the Company had 257,470,381 shares of common stock outstanding.

As of April 1, 2007, there are 21.9 million shares remaining on two board- approved share repurchase authorizations. An additional board-approved share repurchase authorization is in place to offset option exercises.

Company Background

Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services. Harley-Davidson Motor Company, the only major U.S.-based motorcycle manufacturer, produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel, and general merchandise. Buell Motorcycle Company produces sport motorcycles. Harley- Davidson Financial Services provides wholesale and retail financing and insurance programs to Harley-Davidson dealers and their retail customers.

Forward-Looking Statements

The Company intends that certain matters discussed in this release are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Certain of such risks and uncertainties are described below. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward- looking statements and cautioned not to place undue reliance on such forward- looking statements. The forward-looking statements included in this release are only made as of the date of this release, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The Company’s ability to meet the targets and expectations noted depends upon, among other factors, the Company’s ability to (i) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (ii) manage production capacity and production changes, (iii) manage supply chain issues, (iv) provide products, services and experiences that are successful in the marketplace, (v) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (vi) sell all of its motorcycles and related products and services to its independent dealers and distributors, (vii) continue to develop the capacity of its distributor and dealer network, (viii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (ix) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (x) manage regional and worldwide demographic trends and economic and political conditions, including healthcare inflation, pension reform and tax changes, (xi) manage the credit quality and recovery rates of HDFS’s loan portfolio, (xii) retain and attract talented employees and (xiii) detect any defects in our motorcycles to minimize delays in new model launches, recall campaigns, increased warranty costs or litigation. In addition, the Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Other factors are described in risk factors that the Company has disclosed in documents previously filed with the Securities and Exchange Commission.

The Company’s ability to sell all of its motorcycles and related products and services also depends on the ability of the Company’s independent dealer network to sell them to retail customers. The Company depends on the capability of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company.

In addition, the Company’s independent dealers and distributors may experience difficulties in selling Harley-Davidson motorcycles and related products and services as 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) (Unaudited)
Three months ended
April 1, March 26,
2007 2006

Net revenue $1,178,875 $1,285,090
Gross profit 423,046 493,214
Operating expenses 187,632 180,902
Operating income from motorcycles &
related products 235,414 312,312

Financial services income 109,163 95,901
Financial services expense 50,226 44,270
Operating income from financial
services 58,937 51,631

Corporate expenses 4,939 4,757
Total operating income 289,412 359,186
Investment income and other, net 8,744 7,317
Income before provision for income
taxes 298,156 366,503
Provision for income taxes 105,846 131,940
Net income $192,310 $234,563

Earnings per common share:
Basic $0.75 $0.86
Diluted $0.74 $0.86

Weighted-average common shares:
Basic 257,326 272,966
Diluted 258,158 273,623

Cash dividends per common share $0.21 $0.18

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

(Unaudited) (Unaudited)
April 1, December 31, March 26,
2007 2006 2006

Current Assets:
Cash and cash equivalents $310,010 $238,397 $196,464
Marketable securities 618,502 658,133 915,434
Accounts receivable, net 147,732 143,049 148,561
Finance receivables held for sale 297,885 547,106 131,389
Finance receivables held for
investment, net 1,550,001 1,554,260 1,546,417
Inventories 369,418 287,798 256,788
Other current assets 122,627 121,890 103,953
Total current assets 3,416,175 3,550,633 3,299,006

Finance receivables held for
investment, net 767,529 725,957 625,664
Other long-term assets 1,262,794 1,255,560 1,475,177
$5,446,498 $5,532,150 $5,399,847

Current liabilities:
Accounts payable & accrued
liabilities $854,464 $763,186 $841,676
Current portion of finance debt 463,530 832,491 93,610
Total current liabilities 1,317,994 1,595,677 935,286

Finance debt 890,000 870,000 1,000,000
Postretirement healthcare benefits 203,514 201,126 64,573
Other long-term liabilities 199,503 108,610 235,400

Total shareholders’ equity 2,835,487 2,756,737 3,164,588
$5,446,498 $5,532,150 $5,399,847

* The Company’s adoption of Financial Accounting Standards Board
Interpretation No. 48 (FIN 48) effective 1/1/07 resulted in a
decrease to shareholders’ equity of $16.1 million.

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

(Unaudited) (Unaudited)
Three months ended
April 1, March 26,
2007 2006

Net cash provided by operating
activities $519,624 $365,714

Cash flows from investing activities:
Capital expenditures (40,775) (36,017)
Finance receivables held for
investment, net (12,940) (19,837)
Collection of retained
securitization interests 14,493 6,960
Net change in marketable securities 40,622 (9,626)
Other, net 4,545 4,373
Net cash provided (used) by investing
activities 5,945 (54,147)

Cash flows from financing activities:
Net decrease in finance-credit
facilities and commercial paper (353,540) (105,707)
Dividends (54,103) (48,955)
Purchase of common stock for
treasury (61,251) (107,065)
Excess tax benefits from share-
based payments 1,157 1,098
Issuance of common stock under
stock option plans 12,953 5,064
Net cash used by financing activities (454,784) (255,565)

Effect of exchange rate changes on
and cash equivalents 828 (513)

Net increase in cash and cash
equivalents 71,613 55,489

Cash and cash equivalents:
At beginning of period 238,397 140,975
At end of period $310,010 $196,464

Net Revenue and Motorcycle
Shipment Data

(Unaudited) (Unaudited)
Three months ended
April 1, March 26,
2007 2006
NET REVENUE (in thousands)
Harley-Davidson(R) motorcycles $891,518 $1,008,542
Buell(R) motorcycles 21,655 24,056
Parts & Accessories 188,235 182,949
General Merchandise 76,112 68,551
Other 1,355 992
$1,178,875 $1,285,090

Motorcycle shipments:
United States 48,740 60,270
Export 19,021 19,236
Total 67,761 79,506

Motorcycle product mix:
Touring 21,802 27,537
Custom 30,768 35,794
Sportster(R) 15,191 16,175
Total 67,761 79,506

Motorcycle shipments:
Buell 2,558 3,037

Retail Sales of Harley-Davidson Motorcycles
Year to Date (March 31)

2007 2006

United States 53,426 56,805
Europe* 8,686 6,910
Japan 2,292 2,482
Canada 2,047 1,796
All other markets 4,082 3,497

Total Retail Sales of Harley-Davidson
Motorcycles 70,533 71,490

Data Source (subject to update)
Data source for all 2006 and 2007 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 (651+ cc) Market Data
Data Through Month Indicated

2007 2006

United States (March) 108,337 109,141
Europe* (February) 39,785 34,742

Data Source
United States: Motorcycle Industry Council
Europe: Giral S.A.

*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 is derived from information provided by Giral S.A., an
independent agency. Data for 2006 has been adjusted to include
competitor motorcycles that had previously not been included by the
Company. The previously reported amount for 2006 was 33,278.

First Call Analyst:
FCMN Contact: travis.thatcher@harley-davidson.com

Source: Harley-Davidson, Inc.