Harley-Davidson (HOG) 10-Q 6 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 28, 2010	Apr. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-28
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	HOG
Entity Registrant Name	HARLEY DAVIDSON INC
Entity Central Index Key	0000793952
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		235,451,951

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data	3 Months Ended Mar. 28, 2010	3 Months Ended Mar. 29, 2009
Revenue:
Motorcycles and related products	$1,037,335	$1,278,432
Financial services	169,837	104,667
Total revenue	1,207,172	1,383,099
Costs and expenses:
Motorcycles and related products cost of goods sold	657,788	804,386
Financial services interest expense	81,203	53,700
Financial services provision for credit losses	31,806	5,911
Selling, administrative and engineering expense	235,350	242,022
Restructuring expense	48,236	34,862
Total costs and expenses	1,054,383	1,140,881
Operating income	152,789	242,218
Investment income	876	1,953
Interest expense	23,455	9,746
Income before provision for income taxes	130,210	234,425
Provision for income taxes	61,469	106,372
Income from continuing operations	68,741	128,053
Loss from discontinued operations, net of tax	(35,416)	(10,706)
Net income	$33,325	$117,347
Earnings per common share from continuing operations:
Basic	0.3	0.55
Diluted	0.29	0.55
Loss per common share from discontinued operations:
Basic	-0.15	-0.05
Diluted	-0.15	-0.05
Earnings per common share:
Basic	0.14	0.51
Diluted	0.14	0.5
Cash dividends per common share	0.1	0.1

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands	3 Months Ended Mar. 28, 2010	3 Months Ended Mar. 29, 2009	12 Months Ended Dec. 31, 2009
Current assets:
Cash and cash equivalents	$1,442,798	$884,623	$1,630,433
Marketable securities	39,416		39,685
Accounts receivable, net	286,518	284,853	269,371
Finance receivables held for sale		2,086,920
Finance receivables held for investment, net	1,252,420	1,677,355	1,436,114
Restricted finance receivables held by variable interest entities, net	809,779
Inventories	322,238	421,577	323,029
Assets of discontinued operations	151,175	231,421	181,211
Restricted cash held by variable interest entities	401,275
Other current assets	315,890	243,054	462,106
Total current assets	5,021,509	5,829,803	4,341,949
Finance receivables held for sale		580,736
Finance receivables held for investment, net	1,274,734	796,732	3,621,048
Restricted finance receivables held by variable interest entities, net	3,299,070
Property, plant and equipment, net	847,480	1,016,043	906,906
Goodwill	29,818	59,046	31,400
Other long-term assets	230,292	337,234	254,215
Assets, Total	10,702,903	8,619,594	9,155,518
Current liabilities:
Accounts payable	265,905	363,282	162,515
Accrued liabilities	599,820	568,767	514,084
Liabilities of discontinued operations	61,726	74,488	69,535
Short-term debt	160,837	1,724,375	189,999
Current portion of long-term debt	396,169		1,332,091
Current portion of long-term debt held by variable interest entities	898,935
Total current liabilities	2,383,392	2,730,912	2,268,224
Long-term debt	2,862,725	2,757,185	4,114,039
Long-term debt held by variable interest entities	2,707,748
Pension liability	239,445	484,006	245,332
Postretirement healthcare liability	265,117	260,453	264,472
Other long-term liabilities	157,077	154,225	155,333
Commitments and contingencies (Note 17)
Total shareholders' equity	2,087,399	2,232,813	2,108,118
Liabilities and Stockholders' Equity, Total	$10,702,903	$8,619,594	$9,155,518

1_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands	3 Months Ended Mar. 28, 2010	3 Months Ended Mar. 29, 2009
Net cash provided by (used by) operating activities of continuing operations (Note 3)	$200,842	($227,026)
Cash flows from investing activities of continuing operations:
Capital expenditures	(14,558)	(20,009)
Origination of finance receivables held for investment	(455,879)	(98,976)
Collections on finance receivables held for investment	653,983	110,637
Collection of retained securitization interests		1,358
Net cash provided by (used by) investing activities of continuing operations	183,546	(6,990)
Cash flows from financing activities of continuing operations:
Proceeds from issuance of senior unsecured notes		595,731
Repayments of securitization debt	(445,215)
Net (decrease) increase in credit facilities and unsecured commercial paper	(50,703)	48,442
Repayments of asset-backed commercial paper		(67,194)
Net change in restricted cash	(34,734)
Dividends	(23,488)	(23,455)
Purchase of common stock for treasury	(1,191)
Excess tax benefits from share-based payments	34	147
Issuance of common stock under employee stock option plans	1,101	10
Net cash (used by) provided by financing activities of continuing operations	(554,196)	553,681
Effect of exchange rate changes on cash and cash equivalents of continuing operations	(606)	6,253
Net (decrease) increase in cash and cash equivalents of continuing operations	(170,414)	325,918
Cash flows from discontinued operations:
Cash flows from operating activities of discontinued operations	(13,723)	(18,294)
Cash flows from investing activities of discontinued operations	(393)	(4,433)
Effect of exchange rate changes on cash and cash equivalents of discontinued operations	(635)	2,549
Net Cash Provided by (Used in) Discontinued Operations, Total	(14,751)	(20,178)
Net (decrease) increase in cash and cash equivalents	(185,165)	305,740
Cash and cash equivalents:
Cash and cash equivalents-beginning of period	1,630,433	568,894
Cash and cash equivalents of discontinued operations-beginning of period	6,063	24,664
Net (decrease) increase in cash and cash equivalents	(185,165)	305,740
Less: Cash and cash equivalents of discontinued operations-end of period	(8,533)	(14,675)
Cash and cash equivalents-end of period	$1,442,798	$884,623

Basis of Presentation and Use o

Basis of Presentation and Use of Estimates
	3 Months Ended Mar. 28, 2010
Basis of Presentation and Use of Estimates	1. Basis of Presentation and Use of Estimates The condensed consolidated financial statements include the accounts of Harley-Davidson, Inc. and its wholly-owned subsidiaries (the Company), including the accounts of the groups of companies doing business as Harley-Davidson Motor Company (HDMC), Buell Motorcycle Company (Buell), MV Agusta (MV) and Harley-Davidson Financial Services (HDFS). In addition, certain variable interest entities (VIEs) related to secured financing are consolidated as the Company is the primary beneficiary. All intercompany accounts and material transactions are eliminated. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the condensed consolidated balance sheets as of March28, 2010 and March29, 2009, the condensed consolidated statements of operations for the three month periods then ended and the condensed consolidated statements of cash flows for the three month periods then ended. Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December31, 2009. The Company operates in two business segments: Motorcycles Related Products (Motorcycles) and Financial Services (Financial Services). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. During 2008, the Company acquired Italian motorcycle manufacturer MV and the results of MV were included in the Motorcycles segment. On October15, 2009, the Company announced its intent to divest MV. The Motorcycles segment financial information has been adjusted to reflect MV as a discontinued operation for all periods presented.

New Accounting Standards

New Accounting Standards
	3 Months Ended Mar. 28, 2010
New Accounting Standards	2. New Accounting Standards Accounting Standards Recently Adopted In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No.166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No.140. SFAS No.166 amended the guidance within Accounting Standards Codification (ASC) Topic 860, Transfers and Servicing, primarily by removing the concept of a qualifying special purpose entity as well as removing the exception from applying FASB Interpretation No.46(R), Consolidation of Variable Interest Entities. Upon the effective adoption date, formerly qualifying special purpose entities (QSPEs), as defined under prior U.S. GAAP had to be evaluated for consolidation within an entitys financial statements. Additionally, the guidance within ASC Topic 860 requires enhanced disclosures about the transfer of financial assets as well as an entitys continuing involvement, if any, in transferred financial assets. In connection with term asset-backed securitization transactions prior to 2009, HDFS utilized QSPEs as defined under prior U.S. GAAP which were not subject to consolidation in the Companys financial statements. In June 2009, the FASB issued SFAS No.167, Amendments to FASB Interpretation No.46(R). SFAS No.167 amended the guidance within ASC Topic 810, Consolidations, by adding formerly off-balance sheet QSPEs to its scope (the concept of these entities was eliminated by SFAS No.166). In addition, companies must perform an analysis to determine whether the companys variable interest or interests give it a controlling financial interest in a variable interest entity (VIE). Companies must also reassess on an ongoing basis whether they are the primary beneficiary of a VIE. Effects of Adoption on January1, 2010 The Company was required to adopt the new guidance within ASC Topic 810 and ASC Topic 860 as of January1, 2010. The Company determined that the formerly unconsolidated QSPEs that HDFS utilized were VIEs, of which the Company was the primary beneficiary, and consolidated them into the Companys financial statements beginning January1, 2010. In accordance with ASC Topic 810, the Company measured the initial carrying values of the assets and liabilities of the VIEs by determining what those values would currently be as if the new guidance had been in effect when the Company first met the conditions as the primary beneficiary. The Companys VIEs are discussed in further detail in Note 6. The initial adoption of the new accounting guidance within ASC Topic 810 and ASC Topic 860 did not impact the Companys statement of operations. The following table summarizes the effects on the Companys balance sheet of adopting the new guidance within ASC Topic 810 and ASC Topic 860 on January1, 2010 (in thousands): As of December31,2009 Effect of consolidation As of January1,2010 Finance receivables held for investment(1) $ 4,961,894 $ 1,922,833 $ 6,884,727 Allowance for finance credit losses(1) $ (150,082 ) $ (49,424 ) $ (199,506 ) Investment in retained securitization interests(1) $ 245

Additional Balance Sheet and Ca

Additional Balance Sheet and Cash Flow Information
	3 Months Ended Mar. 28, 2010
Additional Balance Sheet and Cash Flow Information	3. Additional Balance Sheet and Cash Flow Information Marketable Securities The Companys marketable securities consisted of the following (in thousands): March28, December31, March29, 2010 2009 2009 Available-for-sale: Corporate bond investments $ 39,416 $ 39,685 $ The Companys available-for-sale securities are carried at fair value with any unrealized gains or losses reported in other comprehensive income, and have maturities less than one year. During the first quarter of 2010, the Company recognized gross unrealized losses of $0.8 million, or $0.5 million net of tax, to adjust amortized cost to fair value. There were no marketable securities held at March29, 2009. Finance Receivables Finance receivables held for investment, net, consisted of the following (in thousands): March28, December31, March29, 2010 2009 2009 Wholesale $ 1,061,183 $ 870,001 $ 1,499,819 Retail 5,766,920 4,091,893 699,259 6,828,103 4,961,894 2,199,078 Allowance for finance credit losses 192,100 150,082 40,534 6,636,003 4,811,812 2,158,544 Investment in retained securitization interests 245,350 315,543 $ 6,636,003 $ 5,057,162 $ 2,474,087 At March28, 2010, the allowance for finance credit losses on finance receivables held for investment was $192.1 million which consisted of $175.7 million for retail finance receivables and $16.4 million for wholesale finance receivables. Of the $175.7 million allowance for finance credit losses on retail finance receivables, $128.3 million related to retail finance receivables held by VIEs. At March29, 2009, the Company classified $2.67 billion of finance receivables as held for sale, which were carried at the lower of cost or estimated fair value. As such, no amount of the allowance for credit losses was related to the finance receivables held for sale at March29, 2009. As part of the January1, 2010 adoption of the new accounting guidance within ASC Topic 810 and ASC Topic 860, the Company established an initial $49.4 million allowance for credit losses related to the previously unconsolidated securitized finance receivables. The initial allowance was recorded through the adoption adjustment to retained earnings. During the second quarter of 2009, the Company reclassified $3.14 billion of finance receivables held for sale at the lower of cost or fair value to finance receivables held for investment due to the structure of its May 2009 term asset-backed securitization transaction and the Companys intent to structure subsequent securitization transactions in a manner that did not qualify for accounting sale treatment under prior U.S. GAAP. As a result of the reclassification, the Company recorded a $72.7 million increase to the allowance for credit losses during the second quarter of 2009 in order to establish the initial reserve for the reclassified receivables. Inventories Inventories are valued at the lower of cost or market. S

MV Planned Divestiture

MV Planned Divestiture
	3 Months Ended Mar. 28, 2010
MV Planned Divestiture	4. MV Planned Divestiture In October 2009, the Company unveiled a new business strategy to drive growth through a focus of efforts and resources on the unique strengths of the Harley-Davidson brand and to enhance productivity and profitability through continuous improvement. The Companys Board of Directors approved and the Company committed to the divestiture of MV as part of this strategy. The Company engaged a third party investment bank to assist with the marketing and sale of MV at a price that is reasonable relative to its fair value. The Company expects to complete its divestiture of MV during 2010. As a result, MV is presented as a discontinued operation for all periods presented. The following table summarizes the net revenue, pre-tax loss and loss per common share from discontinued operations for the periods noted (in thousands except per share amounts): Three months ended March28, March29, 2010 2009 Revenue $ 22,551 $ 12,216 Loss before income taxes $ (41,809 ) $ (10,686 ) Loss per common share $ (0.15 ) $ (0.05 ) During the first quarter of 2010, the Company incurred a $41.8 million pre-tax loss from discontinued operations, or $35.4 million net of tax. Included in the first quarter 2010 operating loss was an impairment charge of $35.0 million, or $28.6 million net of tax, which represented the excess of net book value of the held-for-sale assets over the fair value less selling costs. The impairment charge is included in loss from discontinued operations and consisted of $22.7 million fixed asset impairment and $12.3 million intangible asset impairment. At March28, 2010, assets of discontinued operations consisted of $40.1 million of accounts receivable, net; $31.7 million of inventories; $6.3 million of property, plant and equipment, net; and $73.1 million of other assets. At March28, 2010, liabilities of discontinued operations consisted $49.9 million of accounts payable and accrued liabilities and $11.8 million of other liabilities.

Restructuring Expense and Other

Restructuring Expense and Other Impairments
	3 Months Ended Mar. 28, 2010
Restructuring Expense and Other Impairments	5. Restructuring Expense and Other Impairments 2009 Restructuring Plan During 2009, in response to the U.S. economic recession and worldwide slowdown in consumer demand, the Company committed to a volume reduction and a combination of restructuring actions (2009 Restructuring Plan) in the Motorcycles and Financial Services segments which are expected to be completed by 2012. The 2009 Restructuring Plan was designed to reduce administrative costs, eliminate excess capacity and exit non-core business operations. The Companys planned actions include: consolidating its two engine and transmission plants in the Milwaukee area into its facility in Menomonee Falls, Wisconsin; closing its distribution facility in Franklin, Wisconsin and consolidating Parts and Accessories and General Merchandise distribution through a third party; discontinuing the domestic transportation fleet; consolidating its vehicle test facilities from three locations in Alabama, Arizona and Florida into one location in Arizona; restructuring its York, Pennsylvania motorcycle production facility to focus on the core operations of motorcycle assembly, metal fabrication and paint; and exiting the Buell product line. The Company ceased production of Buell motorcycles at the end of October 2009 and the sale of remaining Buell motorcycle inventory to independent dealers and/or distributors is expected to be completed during 2010. The 2009 Restructuring Plan included a reduction of approximately 2,700 to 2,900 hourly production positions and approximately 720 non-production, primarily salaried positions within the Motorcycles segment and approximately 100 salaried positions in the Financial Services segment. These reductions began in 2009 and are expected to be completed during 2011. Restructuring expenses consist of employee severance and termination costs, accelerated depreciation on the long-lived assets that will be exited as part of the 2009 Restructuring Plan and other related costs. The Company expects total costs related to the 2009 Restructuring Plan to result in restructuring and impairment expenses of approximately $430 million to $460 million from 2009 to 2012, of which approximately 30% are expected to be non-cash. On a cumulative basis, the Company has incurred $272.5 million of restructuring and impairment expense under the 2009 Restructuring Plan as of March28, 2010, of which $48.2 million was incurred during the first quarter of 2010. Approximately 2,400 employees have left the Company under the 2009 Restructuring Plan as of March28, 2010. The following table summarizes the Companys 2009 Restructuring Plan reserve recorded in accrued liabilities as of March28, 2010 (in thousands): Motorcycles Related Products Financial Services Employee Severanceand TerminationCosts Accelerated Depreciation Asset Impairment Other Total Employee Severanceand TerminationCosts Other Total Consolidated Total Restructuring expense $ 30,816 $ 3,786 $ $ 260 $

Asset-Backed Financing

Asset-Backed Financing
	3 Months Ended Mar. 28, 2010
Asset-Backed Financing	6. Asset-Backed Financing HDFS participates in asset-backed financing through both term asset-backed securitization transactions and its asset-backed commercial paper conduit facility. In both types of asset-backed financing programs, HDFS transfers U.S. retail motorcycle finance receivables to a consolidated special purpose entity (SPE) while retaining the servicing rights. Each SPE then converts those assets into cash, through the issuance of debt. These SPEs are considered VIEs under U.S. GAAP. HDFS is required to consolidate any VIEs in which it is deemed to be the primary beneficiary through having power over the significant activities of the entity and having an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE. HDFS is considered to have the power over the significant activities of its term asset-backed securitization and asset-backed commercial paper conduit facility VIEs due to its role as servicer. Servicing fees are typically not considered potentially significant variable interests in a VIE. However, HDFS retains a residual interest in the VIEs in the form of a debt security, which gives HDFS the right to receive benefits that could be potentially significant to the VIE. Therefore, the Company is the primary beneficiary and consolidates all of its VIEs within its consolidated financial statements. HDFS is not required, and does not currently intend, to provide any additional financial support to its VIEs. Investors and creditors only have recourse to the assets held by the VIEs. The Companys VIEs have been aggregated on the balance sheet due to the similarity of the nature of the assets involved as well as the purpose and design of the VIEs. Term Asset-Backed Securitization VIEs The Company transfers U.S. retail motorcycle finance receivables to SPEs which in turn issue secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. Each term asset-backed securitization SPE is a separate legal entity and the U.S. retail motorcycle finance receivables included in the term asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the term asset-backed securitization transactions and are not available to pay other obligations or claims of the Companys creditors until the associated secured debt and other obligations are satisfied. Cash and cash equivalent balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes contractual lives have various maturities ranging from 2010 to 2017. The assets of the consolidated term asset-backed securitization SPEs totaled $4.48 billion at March28, 2010 and were primarily included in restricted finance receivables held by VIEs, net and restricted cash held by variable interest entities in the Companys Condense

Off-Balance Sheet Finance Recei

Off-Balance Sheet Finance Receivable Securitizations
	3 Months Ended Mar. 28, 2010
Off-Balance Sheet Finance Receivable Securitizations	7. Off-Balance Sheet Finance Receivable Securitizations During 2009, the Company entered into term asset-backed securitization transactions that did not satisfy the requirements for accounting sale treatment under prior U.S. GAAP. As such, the 2009 term asset-backed securitization transactions were accounted for as secured financings and the related assets and liabilities were consolidated in the Companys consolidated financial statements. The following disclosures apply to the Companys term asset-backed securitization activities prior to 2009, when pre-2009 term asset-backed securitization transactions utilized off-balance sheet QSPEs that qualified for accounting sale treatment under prior U.S. GAAP. As discussed in Note 2, the Company adopted new accounting guidance within ASC Topic 810 and ASC Topic 860 as of January1, 2010 that ultimately required the Company to consolidate these formerly off-balance sheet QSPEs. Prior to 2009, HDFS sold U.S. retail motorcycle finance receivables to securitization trusts through off-balance sheet term asset-backed securitization transactions. The securitization trust issued notes to investors, with various maturities and interest rates, secured by future collections of purchased retail loans. The proceeds from the issuance of the term asset-backed securities were utilized by the securitization trust to purchase retail loans from HDFS. Upon sale of the retail loans to the securitization trust, HDFS received cash, recorded a gain or loss on the transaction and also retained an interest in excess cash flows, subordinated securities, and the right to receive cash reserve account deposits in the future, collectively referred to as investment in retained securitization interests. The investment in retained securitization interests was included with finance receivables held for investment in the Condensed Consolidated Balance Sheets. In conjunction with prior year sales, the Company had investments in retained securitization interests of $315.5 million at March29, 2009. The interest in excess cash flows reflected the expected cash flows arising from U.S. retail motorcycle loans sold to the securitization trust less expected servicing fees, credit losses and contracted payment obligations owed to securitization trust investors. Reserve account deposits represented interest-earning cash deposits which collateralized the trust securities. The funds were not available for use by HDFS until the reserve account balances exceeded thresholds specified in the securitization agreements. HDFS retained servicing rights on the U.S. retail motorcycle loans that it sold to the securitization trust and received annual servicing fees approximating 1% of the outstanding securitized retail loans. HDFS serviced $2.89 billion of U.S. retail motorcycle loans securitized in off-balance sheet term asset-backed securitization transactions as of March29, 2009. The servicing fee paid to HDFS was considered adequate compensation for the services provided and was included in financial services revenue as earned. HDFS earned $11.7 million from contractually specified servicing fees, late fees, and ancillary fees

Fair Value of Financial Instrum

Fair Value of Financial Instruments
	3 Months Ended Mar. 28, 2010
Fair Value of Financial Instruments	8. Fair Value of Financial Instruments The Companys financial instruments consist primarily of cash and cash equivalents, marketable securities, trade receivables, finance receivables, net, trade payables, debt, foreign currency contracts and interest rate swaps (derivative instruments are discussed further in Note 10). Under U.S. GAAP, certain of these items are required to be recorded in the financial statements at fair value, while others are required to be recorded at historical cost. The following table summarizes the fair value and carrying value of the Companys financial instruments at March28, 2010 (in thousands): Fair Value Carrying Value Assets: Cash and cash equivalents $ 1,442,798 $ 1,442,798 Marketable securities $ 39,416 $ 39,416 Accounts receivable, net $ 286,518 $ 286,518 Finance receivables, net $ 6,624,864 $ 6,636,003 Derivatives $ 15,300 $ 15,300 Restricted cash held by variable interest entities $ 401,275 $ 401,275 Liabilities: Accounts payable $ 265,905 $ 265,905 Derivatives $ 12,889 $ 12,889 Unsecured commercial paper $ 286,837 $ 286,837 Credit facilities $ 430,740 $ 430,740 Medium-term notes $ 2,122,879 $ 2,102,154 Senior unsecured notes $ 790,398 $ 600,000 Finance receivable securitization debt $ 3,689,921 $ 3,606,683 Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Net and Accounts Payable With the exception of certain money-market investments, these items are recorded in the financial statements at historical cost. The historical cost basis for these amounts is estimated to approximate their respective fair values due to the short maturity of these instruments. Marketable Securities Marketable securities are recorded in the financial statements at fair value. The fair value of marketable securities is based primarily on quoted market prices. Changes in fair value are recorded, net of tax, as other comprehensive income and included as a component of shareholders equity. Finance Receivables, Net Finance receivables, net includes finance receivables held for investment, net and restricted finance receivables held by VIEs, net. Retail and wholesale finance receivables are recorded in the financial statements at historical cost less an allowance for finance credit losses. The fair value of retail finance receivables is generally calculated by discounting future cash flows using an estimated discount rate that reflects current credit, interest rate and prepayment risks associated with similar types of instruments. The historical cost basis of wholesale finance receivables approximates fair value because they either are short-term or have interest rates that adjust with changes in market interest rates. Debt Debt is generally recorded in the financial statements at historical cost. The carrying value of debt provided under credit facilities approximates fair value since the interest rates charged under the facilities are tied directly to market rates and fluctuate as market rates change. T

Fair Value Measurements

Fair Value Measurements
	3 Months Ended Mar. 28, 2010
Fair Value Measurements	9. Fair Value Measurements Certain assets and liabilities are recorded at fair value in the financial statements; some of these are measured on a recurring basis while others are measured on a non-recurring basis. Assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of assets and liabilities, the Company uses various valuation techniques. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include managements judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the following table. Recurring Fair Value Measurements The following tables present information about the Companys assets and liabilities measured at fair value on a recurring basis as of March28, 2010 and March29, 2009 (in thousands): Balance as of March28,2010 QuotedPricesin ActiveMarketsfor Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level3) Assets: Cash equivalents $ 1,093,653 $ 1,093,653 $ $ Marketable securities 39,416 39,416 Derivatives 15,300 15,300 $ 1,148,369 $ 1,093,653 $ 54,716 $ Liabilities: Derivatives $ 12,889 $ $ 12,889 $ Balance as of March29, 2009 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level3) Assets: Cash equivalents $ 706,171 $ 706,171 Derivatives 28,537 $ 28,537 Investment in retained securitization interests 315,543 $ 3

Derivative Instruments and Hedg

Derivative Instruments and Hedging Activities
	3 Months Ended Mar. 28, 2010
Derivative Instruments and Hedging Activities	10. Derivative Instruments and Hedging Activities The Company is exposed to certain risks relating to its ongoing business operations. The primary risks are foreign currency exchange rate risk, interest rate risk and commodity price risk. To reduce such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes. All derivative instruments are recognized on the balance sheet at fair value (see Note 9). In accordance with ASC Topic 815, the accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative instruments that are designated as cash flow hedges, the effective portion of gains and losses that result from changes in the fair value of derivative instruments is initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, at both the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a hedging derivative instruments gain or loss is excluded from the assessment of hedge effectiveness. Derivative instruments which do not qualify for hedge accounting are recorded at fair value and any changes in fair value are recorded in current period earnings. The Company sells its products internationally and in most markets those sales are made in the foreign countrys local currency. As a result, the Companys earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. The Companys most significant foreign currency risk relates to the Euro and the Australian dollar. The Company utilizes foreign currency contracts to mitigate the effect of the Euro and the Australian dollar fluctuations on earnings. The foreign currency contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate. The Company utilizes natural gas contracts to hedge portions of the cost of natural gas consumed in the Companys motorcycle production operations. The Companys earnings are affected by changes in interest rates. HDFS utilizes interest rate swaps to reduce the impact of fluctuations in interest rates on its unsecured commercial paper by converting a portion from a floating rate basis to a fixed rate basis. Similarly, HDFS utilizes interest rate swaps with its medium-term notes; however, the impact is to convert from a fixed rate basis to a floating rate basis. HDFS

Comprehensive Income

Comprehensive Income
	3 Months Ended Mar. 28, 2010
Comprehensive Income	11. Comprehensive Income The following tables set forth the reconciliation of net income to comprehensive income (in thousands): Three months ended March 28, 2010 March 29, 2009 Net income $ 33,325 $ 117,347 Other comprehensive income, net of tax: Foreign currency translation adjustment (8,818 ) (19,349 ) Investment in retained securitization interest: Unrealized net gains arising during the period 2,170 2,170 Derivative financial instruments: Unrealized net gains arising during period 4,163 15,180 Less: net gains reclassified into net income (985 ) 5,148 10,021 5,159 Marketable securities Unrealized losses on marketable securities (484 ) (484 ) Pension and postretirement benefit plans: Amortization of actuarial loss 4,969 2,800 Amortization of net prior service cost 317 739 Pension and postretirement plan funded status adjustment 4,147 Less: actuarial loss reclassified into net income due to settlement (1,625 ) (232 ) Less: actuarial loss reclassified into net income due to curtailment (8,352 ) Less: prior service credit (cost) reclassified into net income due to curtailment gain (loss) 644 6,267 (2,839 ) 19,109 $ 35,438 $ 124,436

Income Taxes

Income Taxes
	3 Months Ended Mar. 28, 2010
Income Taxes	12. Income Taxes During the first quarter of 2010, the Patient Protection and Affordable Care Act was signed into law. As a result of this Act, reimbursements the Company receives under Medicare Part D coverage for providing retiree prescription drug benefits would no longer be tax free beginning in 2011. At the beginning of second quarter of 2010, the Health Care and Education Reconciliation Act of 2010 delayed the impact of this change to 2013; however, the Company has accounted for both Acts in the first quarter of 2010. On April14, 2010, the SEC staff announced that the Office of the Chief Accountant would not object to a view that the two Acts should be considered together for accounting purposes. The Company recorded income tax expense of $13.3 million associated with this change. During the first quarter of 2009, an unanticipated change in Wisconsin tax law resulted in the Company establishing a valuation allowance of $22.5 million related to net operating loss carryforwards with a corresponding charge to income tax expense.

Product Warranty and Safety Rec

Product Warranty and Safety Recall Campaigns
	3 Months Ended Mar. 28, 2010
Product Warranty and Safety Recall Campaigns	13. Product Warranty and Safety Recall Campaigns The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except for Japan, where the Company currently provides a standard three-year limited warranty on all new motorcycles sold. The warranty coverage for the retail customer includes parts and labor and generally begins when the motorcycle is sold to a retail customer. The Company maintains reserves for future warranty claims using an estimated cost per unit sold, which is based primarily on historical Company claim information. Additionally, the Company has from time to time initiated certain voluntary safety recall campaigns. The Company reserves for all estimated costs associated with safety recalls in the period that the safety recalls are announced. Changes in the Companys warranty and safety recall liability were as follows (in thousands): Three months ended March28, 2010 March29, 2009 Balance, beginning of period $ 68,044 $ 64,543 Warranties issued during the period 9,903 12,688 Settlements made during the period (13,264 ) (16,111 ) Recalls and changes to pre-existing warranty liabilities 5,522 3,687 Balance, end of period $ 70,204 $ 64,807 The liability for safety recall campaigns was $4.2 million and $3.9 million as of March28, 2010 and March29, 2009, respectively.

Earnings Per Share

Earnings Per Share
	3 Months Ended Mar. 28, 2010
Earnings Per Share	14. Earnings Per Share The Company has a share-based compensation plan under which employees may be granted share-based awards including shares of restricted stock and restricted stock units (RSUs). Non-forfeitable dividends are paid on unvested shares of restricted stock and non-forfeitable dividend equivalents are paid on unvested RSUs. As such, shares of restricted stock and RSUs are considered participating securities under the two-class method of calculating earnings per share as described in ASC Topic 260, Earnings per Share. The two-class method of calculating earnings per share did not have a material impact on the Companys earnings per share calculation as of March28, 2010 and March29, 2009. The following table sets forth the computation for basic and diluted earnings per share from continuing operations (in thousands, except per share amounts): Three months ended March28, 2010 March29, 2009 Numerator: Income from continuing operations used in computing basic and diluted earnings per share $ 68,741 $ 128,053 Denominator: Denominator for basic earnings per share - weighted-average common shares 232,864 232,263 Effect of dilutive securities - employee stock compensation plan 1,364 387 Denominator for diluted earnings per share - adjusted weighted-average shares outstanding 234,228 232,650 Earnings per common share from continuing operations: Basic $ 0.30 $ 0.55 Diluted $ 0.29 $ 0.55 Outstanding options to purchase 4.4million and 5.9million shares of common stock for the three months ended March28, 2010 and March29, 2009, respectively, were not included in the Companys computation of dilutive securities because the exercise price was greater than the market price and therefore the effect would have been anti-dilutive.

Employee Benefit Plans

Employee Benefit Plans
	3 Months Ended Mar. 28, 2010
Employee Benefit Plans	15. Employee Benefit Plans The Company has several defined benefit pension plans and several postretirement healthcare benefit plans, which cover substantially all employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. Components of net periodic benefit costs were as follows (in thousands): Three months ended March28, 2010 March29, 2009 Pension and SERPA Benefits Service cost $ 10,393 $ 12,024 Interest cost 19,457 18,629 Expected return on plan assets (24,344 ) (21,752 ) Amortization of unrecognized: Prior service cost 1,133 1,465 Net loss 5,642 3,027 Curtailment loss 4,164 Settlement loss 2,582 370 Net periodic benefit cost $ 14,863 $ 17,927 Postretirement Healthcare Benefits Service cost $ 2,517 $ 3,001 Interest cost 5,297 5,727 Expected return on plan assets (2,445 ) (2,794 ) Amortization of unrecognized: Prior service credit (629 ) (287 ) Net loss 2,251 1,442 Curtailment (gain) loss (1,023 ) 369 Net periodic benefit cost $ 5,968 $ 7,458 As disclosed in Note 5, the Company recorded restructuring expense of $48.2 million related to its Motorcycles segment during the first quarter of 2010. The restructuring action resulted in a postretirement healthcare plan curtailment gain of $1.0 million, which is included in the $48.2 million restructuring expense, and a decrease to equity of $1.0 million, or $0.6 million net of tax, which is included in accumulated other comprehensive income, during the first quarter of 2010. During the first quarter of 2009, the Company recorded restructuring expense of $34.9 million, which included a pension and postretirement healthcare plan curtailment loss of $4.5 million, and a decrease to equity of $13.3 million. During the first quarter of 2010, the Company incurred a $2.6 million settlement loss related to its SERPA plans compared to a settlement loss of $0.4 million during the first quarter of 2009. The settlement losses were the result of benefit payments made to former executives who have departed from the Company during 2009.

Business Segments

Business Segments
	3 Months Ended Mar. 28, 2010
Business Segments	16. Business Segments The Company operates in two business segments: Motorcycles and Financial Services. The Companys reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations. Selected segment information is set forth below (in thousands): Three months ended March28, 2010 March29, 2009 Motorcycles net revenue $ 1,037,335 $ 1,278,432 Gross profit 379,547 474,046 Selling, administrative and engineering expense 205,204 208,171 Restructuring expense and other impairments 48,236 34,862 Operating income from Motorcycles 126,107 231,013 Financial services revenue 169,837 104,667 Financial services expense 143,155 93,462 Operating income from Financial Services 26,682 11,205 Operating income $ 152,789 $ 242,218 As discussed in Note 2, Operating income from Financial Services for the three months ended March28, 2010 includes the effects of consolidating formerly unconsolidated QSPEs. As discussed in Note 7, Operating income from Financial Services for the three months ended March29, 2009 includes an impairment charge of $17.1 million. As discussed in Note 9, Operating income from Financial Services for the three months ended March29, 2009 includes a lower of cost or market adjustment related to finance receivables held for sale of $8.6 million.

Commitment and Contingencies

Commitment and Contingencies
	3 Months Ended Mar. 28, 2010
Commitment and Contingencies	17. Commitment and Contingencies The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining required reserves related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reserves are monitored on an ongoing basis and are updated based on new developments or new information in each matter. Environmental Protection Agency Notice The Company has received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i)certificates of conformity for motorcycle emissions and related designations and labels, (ii)aftermarket parts, and (iii)warranty claims on emissions related components. The Company has submitted written responses to the EPAs inquiry and has engaged in discussions with the EPA. It is possible that a result of the EPAs investigation will be some form of enforcement action by the EPA that will seek a fine or other relief. However, at this time the Company does not know and cannot reasonably estimate the impact of any remedies the EPA might seek. Shareholder Lawsuits: In re Harley-Davidson, Inc. Securities Litigation was a consolidated shareholder securities class action lawsuit filed in the United States District Court for the Eastern District of Wisconsin. On October2, 2006, the Lead Plaintiffs filed a Consolidated Class Action Complaint, which named the Company and certain former Company officers as defendants, that alleged securities law violations and sought unspecified damages relating generally to the Companys April13, 2005 announcement that it was reducing short-term production growth and planned increases of motorcycle shipments. In 2006, the defendants filed a motion to dismiss the Consolidated Complaint. On October8, 2009, the judge granted defendants motion to dismiss, and the clerk of court entered judgment dismissing the consolidated lawsuit. No appeal was taken from the final judgment and the dismissal of the case became final. Subsequently, on March18, 2010, a group of individuals who appear to be inmates in a federal correctional institution filed a motion to intervene which was immediately dismissed by the District Court because judgment had already been entered. On April5, 2010, two of the individuals filed notices of appeal of the dismissal, but all appellate activity has been stayed pending required filings by intervenors/appellants. Defendants will oppose the appeal and seek to have the Order dismissing the motion to intervene affirmed. In 2005, three shareholder derivative lawsuits were filed in the United States District Court for the Eastern District of Wisconsin (one of which was later voluntarily dismissed), and two shareholder derivative lawsuits were filed in Milwaukee County Circuit Court on July22, 2005 and November16, 2005, against some or all of the following current or former directors and officers of the Company: Jeffrey L. Bleustein, James L. Ziemer, James M. Brostowitz, Barry K. Allen, Richard I. Beattie, George H. Conrades, Judson C. Green,

Supplemental Consolidating Data

Supplemental Consolidating Data
	3 Months Ended Mar. 28, 2010
Supplemental Consolidating Data	18. Supplemental Consolidating Data The supplemental consolidating data for the periods noted is presented for informational purposes. The supplemental consolidating data may be different than segment information presented elsewhere due to the allocation of intercompany eliminations to reporting segments. All supplemental data is presented in thousands. Three months ended March28, 2010 MotorcyclesRelated Products Operations Financial ServicesOperations Eliminations Consolidated Revenue: Motorcycles and related products $ 1,037,335 $ $ $ 1,037,335 Financial services 169,525 312 169,837 Total revenue 1,037,335 169,525 312 1,207,172 Costs and expenses: Motorcycles and related products cost of goods sold 657,788 657,788 Financial services interest expense 81,203 81,203 Financial services provision for credit losses 31,806 31,806 Selling, administrative and engineering expense 204,892 30,146 312 235,350 Restructuring expense 48,236 48,236 Total costs and expenses 910,916 143,155 312 1,054,383 Operating income 126,419 26,370 152,789 Investment income 876 876 Interest expense 23,455 23,455 Income before provision for income taxes 103,840 26,370 130,210 Provision for income taxes 51,975 9,494 61,469 Income from continuing operations 51,865 16,876 68,741 Loss from discontinued operations, net of tax (35,416 ) (35,416 ) Net income $ 16,449 $ 16,876 $ $ 33,325 Three months ended March 29, 2009 Motorcycles Related Products Operations Financial Services Operations Eliminations Consolidated Revenue: Motorcycles and related products $ 1,278,432 $ $ $ 1,278,432 Financial services 104,192 475 104,667 Total revenue 1,278,432 104,192 475 1,383,099 Costs and expenses: Motorcycles and related products cost of goods sold 804,386 804,386 Financial services interest expense 53,700 53,700 Financial services provision for credit losses 5,911 5,911 Selling, administrative and engineering expense 207,696 33,851 475 242,022 Restructuring expense 34,862 34,862 Total costs and expenses 1,046,944 93,462 475 1,140,881 Operating income 231,488 10,730 242,218 Investment income 1,953 1,953 Interest expense 9,746

Subsequent Events

Subsequent Events
	3 Months Ended Mar. 28, 2010
Subsequent Events	19. Subsequent Events On April29, 2010, the Company and HDFS entered into new credit facilities totaling $1.35 billion. These facilities, a $675.0 million 364-day facility and a $675.0 million three-year facility, replaced the $1.58 billion in combined credit facilities previously available to the Company and HDFS. As a result of entering into the new credit facilities, the combined total of unsecured commercial paper and borrowings available to the Company and HDFS under the new credit facilities is limited to $1.35 billion, down from $1.58 billion. On April29, 2010, the 2009 Conduit Loan Agreement was extended by 90 days to July28, 2010 by mutual agreement of HDFS and its lenders. In addition, the total amount of borrowings available under 2009 Conduit Loan Agreement was reduced from $1.20 billion to $600.0 million.