Harley-Davidson (NYSE:HOG) revenue, income, earnings per share down in 2008- company announces strategy for 2009 including lower shipments

Three-Part Strategy Includes Workforce Reductions to Address Volume Slow-Down

Harley-Davidson Inc. (NYSE:HOG) reported decreased revenue, net income and earnings per share for the fourth quarter of 2008 compared to the year-ago quarter. The Company said it plans lower motorcycle shipments in 2009 and made public its overall strategy to deal with the current economic environment.

"We have a strong core business anchored by a uniquely powerful brand, but we are certainly not immune to the current economic conditions," said Jim Ziemer, Chief Executive Officer, Harley-Davidson Inc. "We have a clear strategy to not only deal with the economic conditions, but also strengthen our long-term operations and financial results. We are executing that strategy with confidence and conviction."

Fourth-Quarter and Full-Year Results
Revenue for the quarter was $1.29 billion compared to $1.39 billion in the year-ago quarter, a 6.8 percent decrease. Net income for the quarter was $77.8 million compared to $186.1 million in the fourth quarter 2007, a decrease of 58.2 percent. Fourth quarter diluted earnings per share were $0.34, a 56.4 percent decrease compared to last year's $0.78.

Revenue for the full year 2008 was $5.59 billion compared to $5.73 billion in 2007, a 2.3 percent decline. Full-year net income was $654.7 million, compared to $933.8 million in 2007. Diluted earnings per share were $2.79, a decrease of 25.4 percent compared to $3.74 in 2007. The full-year results are below the previously provided company guidance.

For the full year, wholesale shipments of Harley-Davidson motorcycles were 303,479 units, an 8.2 percent decrease compared to 330,619 units in 2007.

2009 Shipment Plan, Gross Margins
In the first quarter of 2009, the Company plans to ship between 74,000 and 78,000 new Harley-Davidson motorcycles, a 3.0 percent to 8.5 percent increase versus the first quarter of 2008. However, for the full year 2009, the Company plans to ship between 264,000 and 273,000 new Harley-Davidson motorcycles, a 10 percent to 13 percent reduction from 2008.

"We reduced our production levels prudently in 2008, helping our dealers achieve lower inventory levels," said Ziemer, "and we're going to show similar discipline in 2009. That's not only critical for the health of our business, but for our dealers' businesses, as well."

For the full year 2009, the Company expects gross margins to be between 30.5 percent and 31.5 percent, which compares to 34.5 percent for the full year 2008. The decrease is primarily due to an expected unfavorable shipment mix versus 2008, the allocation of fixed costs over fewer units, and expected unfavorable foreign currency exchange rates versus 2008. Given the volatility of the current economic environment, the Company also indicated it would not provide EPS guidance for 2009.

Strategy for the Current Economic Environment
The Company is executing a three-part strategy that includes a number of measures to deal with the impact of the recession and worldwide slowdown in consumer demand, with the intent of strengthening its operations and financial results going forward.

"Our strategy is focused on three critical areas: to invest in the Harley-Davidson brand, get our cost-structure right, and obtain funding for HDFS to help our dealers sell motorcycles and our retail customers to buy them," said Ziemer

Investing in the Brand
The Company is reinforcing its support of the Harley-Davidson brand, accelerating its ongoing marketing efforts to reach out to emerging rider groups, including younger and diverse riders. In addition, the Company will continue to focus on product innovations targeted at specific growth opportunities with its strong core customer base and new riders.

In the U.S., the Company said its Sportster® motorcycle trade-up program is being well-received by dealers and consumers and is generating new floor traffic during the winter months. The program lets riders who already own a qualifying Sportster motorcycle, or who buy a new Sportster motorcycle, receive back the original Manufacturer's Suggested Retail Price value when they trade up to a Harley-Davidson Big Twin or VRSC motorcycle at participating dealerships.

Outside the U.S., the Company will continue to support the product, dealer development and marketing activities which, during the last several years, have helped drive strong retail sales growth.

"Among other things, the Harley-Davidson brand stands for strength and resilience, and we're managing the business in this economic climate in ways that we believe will build long-term value into the brand," said Ziemer.

Adjusting the Cost Structure
As a result of motorcycle volume reduction and the Company's commitment to improve its cost structure, Harley-Davidson plans to:

• Consolidate its two engine and transmission plants in the Milwaukee area into its facility in Menomonee Falls, Wis.
• Consolidate paint and frame operations at its assembly facility in York, Pa.
• Close its distribution facility in Franklin, Wis., consolidating Parts and Accessories and General Merchandise distribution through a third party.
• Discontinue its domestic transportation fleet operation.

The planned volume reduction and restructuring actions are expected to result in the elimination of about 1,100 jobs over 2009 and 2010, including about 800 hourly production positions and about 300 non-production, primarily salaried positions. About 70 percent of the workforce reduction is expected to occur in 2009.

"We obviously need to make adjustments to address the current volume declines," said Ziemer. "But we are also determined to do that in a way that will make us more competitive for the long term. Our management group will engage with union leaders, through our partnering relationship, regarding these changes."

On a combined basis, Harley-Davidson expects the volume reduction and changes to operations to result in one-time charges of approximately $110 million to $140 million over 2009 and 2010, and ongoing annual savings of approximately $60 million to $70 million upon completion of the restructuring actions.

Obtaining Additional Funding for HDFS
The Company said it is evaluating a range of options to provide the necessary liquidity for the wholesale and retail lending activities of Harley-Davidson Financial Services (HDFS).

"We're evaluating options in order to obtain the necessary funding to support Harley-Davidson dealers and customers throughout the year," said Tom Bergmann, Chief Financial Officer of Harley-Davidson, Inc. and interim President of HDFS.

Additional Detail on 2008 Results

Motorcycles and Related Products Segment - Fourth Quarter Results
Revenue from Harley-Davidson motorcycles was $1.02 billion, a decrease of $95.4 million or 8.5 percent versus the same period last year. Shipments of Harley-Davidson motorcycles totaled 76,581 units, down 4,625 units or 5.7 percent compared to last year's fourth quarter.

Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $152.1 million, lower by $13.1 million or 7.9 percent compared to the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes apparel and collectibles, totaled $69.0 million, a decline of $4.4 million or 6.0 percent from the year-ago quarter.

Gross margin for the fourth quarter of 2008 was 31.6 percent of revenue compared to 35.7 percent for the fourth quarter last year. This decrease is primarily due to unfavorable shipment mix versus last year's fourth quarter, higher product costs and the cost of the Sportster motorcycle trade-up promotion. Fourth quarter operating margin decreased to 12.0 percent from 18.1 percent in the fourth quarter of 2007, reflecting the impact of lower revenue in the fourth quarter of 2008 compared to the year-ago period.

Motorcycle Retail Sales Data
During the fourth quarter, worldwide retail sales of Harley-Davidson motorcycles decreased 13.1 percent compared to the fourth quarter of 2007. U.S. retail sales of Harley-Davidson motorcycles were down 19.6 percent for the quarter. The overall heavyweight motorcycle market in the U.S. decreased 25.5 percent for the same period.

Retail sales of Harley-Davidson motorcycles grew 0.7 percent in the Company's international markets during the fourth quarter of 2008 compared to the year-ago period. Fourth quarter retail sales increased 1.4 percent in Canada; the Europe Region was up 3.4 percent; the Asia Pacific Region was down 8.9 percent; and the Latin America Region was up 28.0 percent.

For the full-year 2008, worldwide retail sales of Harley-Davidson motorcycles declined 7.1 percent compared to the prior year. U.S. retail sales of Harley-Davidson motorcycles declined 13.0 percent for the full year while the U.S. heavyweight market was down 7.0 percent for the same period. International retail sales of Harley-Davidson motorcycles increased 10.3 percent for the full year 2008.

Full year data are listed in the accompanying tables.

Financial Services Segment
Harley-Davidson Financial Services (HDFS) recorded an operating loss of $24.9 million for the fourth quarter, $63.5 million lower than the operating income in the year-ago quarter. The decrease is primarily due to a $35.1 million write-down of retained securitization interests and a $28.4 million write-down to fair value of finance receivables held for sale. The write-downs were due to higher projected credit losses and an increase in the discount rate used for the valuation of receivables.

"Our priorities for HDFS in 2009 are to continue to obtain funding for its lending activities, manage credit losses in this challenging environment and provide support to the Harley-Davidson dealer network," said Bergmann.

Income Tax Rate
The Company's fourth quarter effective income tax rate was 36.9 percent compared to 35.5 in the same quarter last year. The 2008 fourth quarter increase was primarily related to the tax implications of MV Agusta, which the Company acquired in August 2008.

Harley-Davidson, Inc. - Twelve Month Results
For the full year of 2008, revenue totaled $5.59 billion, down 2.3 percent from last year's $5.73 billion. Shipments of Harley-Davidson motorcycles were 303,479 units, compared to last year's 330,619 units. Harley-Davidson motorcycle revenue was $4.28 billion, down 3.8 percent compared to last year's $4.45 billion. P&A revenue was $858.7 million, down 1.1 percent compared to last year's $868.3 million. General Merchandise revenue increased to $313.8 million, a 2.8 percent increase compared to $305.4 million in the full year of 2007.

HDFS operating income was $82.8 million, a 61.0 percent decrease from last year's $212.2 million.

Cash Flow
Cash and marketable securities totaled $593.6 million as of December 31, 2008. Cash used by operations was $684.6 million, and capital expenditures were $232.2 million during the full year of 2008.

For the full year of 2009, capital expenditures, excluding those associated with restructuring activities, are expected to be between $180 million and $200 million. The Company expects restructuring activities to result in additional capital expenditures of $10 million to $20 million in 2009.

Stock Repurchase
The Company did not repurchase shares in the fourth quarter of 2008. For the full year 2008, the Company repurchased 6.4 million shares of its common stock at a cost of $250.4 million. On December 31, 2008, the Company had 232.8 million shares of common stock outstanding.

As of December 31, 2008, there were 16.7 million shares remaining on a board-approved share repurchase authorization. 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 (HDMC), Buell Motorcycle Company (Buell), MV Agusta and Harley-Davidson Financial Services (HDFS). Harley-Davidson Motor Company produces heavyweight custom, touring and cruiser motorcycles. Buell produces American sport performance motorcycles. MV Agusta produces premium, high-performance sport motorcycles sold under the MV Agusta® brand and lightweight sport motorcycles sold under the Cagiva® brand. HDFS provides wholesale and retail financing and insurance programs primarily to Harley-Davidson and Buell dealers and customers.

Women’s activities highlighted by Harley-Davidson at New York International Motorcycle Show

At the upcoming Cycle World International Motorcycle Show presented by Toyota in New York City, Jan. 16-18, Harley-Davidson will highlight details on recently announced exciting women's riding events, including open registration for the second annual Harley-Davidson Women's Ride for MDA on March 3 in Daytona Beach, Fla. and sponsoring the 2009 American Motorcyclist Association (AMA) International Women & Motorcycling Conference in Keystone, Colo. from Aug. 19-22.

Laura Scherr of Harley-Davidson Women's Outreach will discuss other unique women's riding initiatives during the media tour on Friday. Mike Morgan of Harley-Davidson Product Communication will review the new XR1200 motorcycle and other 2009 models, and be available to assist media during the show.

For more information on this and upcoming International Motorcycle Shows, please visit www.motorcycleshows.com.

Registration now open for Harley-Davidson’s 2nd annual Daytona Women’s Ride

 Last year in Daytona, hundreds of women riders joined together on the Harley-Davidson Daytona Women’s Day Ride and raised $67,000 for MDA. Registration for the 2009 ride on Tuesday, March 3, is now open with a limited number of spots available for women riders.

The Women’s Day Ride, designed to celebrate women riders, as well as generate funds for the MDA, is open to the first 500 eligible female Harley-Davidson or Buell riders who register at www.harley-davidson.com/womenriders before Friday, Feb. 13, 2009. Aside from riding together through the streets of Daytona, participating women riders are also encouraged to secure pledges and donations from their families and friends, which will be used to support the MDA’s Summer Camp programs across the country. For nearly 30 years, the Harley-Davidson family of dealers, employees, riders and suppliers has helped raise more than $65 million for the Muscular Dystrophy Association (MDA).

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Harley-Davidson flags bring encouraging messages to overseas soldiers

Soldiers stationed in countries around the world, away from the people and comforts of home, do not have it easy. Thousands of men and women risk their lives daily for their country and all of its freedoms. Harley-Davidson is helping let these soldiers know that Harley-Davidson motorcycle enthusiasts support them.

Harley-Davidson has coordinated flag signings at many motorcycle events throughout 2008. At select events, motorcycle enthusiasts are given the opportunity to write short, encouraging messages on Harley-Davidson flags. As soon as a flag is filled with messages, it is packaged for shipping to an overseas military location.

Nearly 100 flags have been collected and mailed to soldiers throughout the world. These flags have reached troops serving in such countries as Afghanistan, Iraq, Korea, Japan and Germany.

Throughout the year, Harley-Davidson supports veterans through donations and backing of veterans' organizations, including donations to the Disabled American Veterans and support for the Traveling Vietnam Wall, Rolling Thunder motorcycle rally and more. Harley-Davidson also supports our active duty troops deployed overseas by providing a quality of life benefit through our special overseas military sales purchase program through the base exchange systems.

H.O.G. rolls into Oklahoma for CLUB H.O.G. OKC

The Harley Owners Group (H.O.G.) announced Oklahoma City as the host of the 2009 CLUB H.O.G. OKC, the annual gathering for H.O.G. members worldwide, June 26-27, 2009, at the Oklahoma State Fair Park in Oklahoma City. Along with the national rally venue, H.O.G. also announced the dates and destinations of two touring rallies that celebrate motorized American muscle and the expansive history of the American West.

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