Harley-Davidson Reports First Quarter Results

Harley-Davidson Reports First Quarter Results

Three Week Strike Affects Company Performance

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 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 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.