Harley-Davidson, Inc. Q3 2008 Earnings Call Transcript

 |  About: Harley-Davidson, Inc. (HOG)
by: SA Transcripts


Welcome everyone to the Harley-Davidson third quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the call over to Amy Guiffre.

Amy Guiffre

Today Harley-Davidson’s CEO Jim Ziemer will provide his thoughts on the current global economy and the outlook for our business. CFO Tom Bergmann will share the financial results for the third quarter and the President of Harley-Davidson Financial Services Saiyid Naqvi will talk about the performance of that business unit. At the close of our prepared comments we will open the call for questions.

Before we begin please note that this call is being webcast live on Harley-Davidson.com and will be available for replay throughout the next several weeks before being archived. It will also be accessed until October 23 by calling 706-645-9291 or 800-642-1687 in the U.S. The pin number is 64882373#.

Our comments today will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include among others matters we have noted in our latest earnings release and filings with the SEC. Harley-Davidson disclaims any obligation to update information in this call.

Now I would like to introduce the CEO and President of Harley-Davidson, Inc., Jim Ziemer.

James L. Ziemer

To state the obvious, there’s no doubt that these are difficult economic times in the U.S. and globally and every business is feeling some impact. Harley-Davidson continues to be fortunate to be operating in the current environment from a position of strength. I can assure you that everyone in the organization is working hard and smart to produce results but we can’t control external forces at work in the economy and the credit market, earlier underlining causes.

Harley-Davidson is extremely focused on appropriately managing the many aspects of the business that we do control. Let me start off by thanking our employees, our dealers and our suppliers for all their contributions.

As I look at our third quarter results and everything that’s gone on in the markets since the end of September, I believe there are three key factors to keep in mind. First, although the economic turmoil in the U.S. to an increasing extent in the international markets makes this a very tough business environment, we believe we have positioned Harley-Davidson appropriately for current conditions. We are on track with our business plan for the year.

Second, during these turbulent times in the credit market we’ve been able to maintain Harley-Davidson Financial Services position as a stable, consistent source for financing for dealers and consumers. That’s been no small feat. I believe it reflects the underlying strength of the HDFS business model as well as the broader stapability of the Motor Company in Harley-Davidson, Inc.

And third, while Harley-Davidson’s business in certain international markets is also under some pressure due to the global economic downturn, we believe that the international markets will continue to play a growing role in the overall picture for Harley-Davidson. Before I turn it over to Tom, let me also reiterate something that you hear me say often. Harley-Davidson has always managed the business for the long term. We will continue to do so. As the company continues to navigate the current business environment, we believe a long term focus is more important than ever before for the brand.

So with that as the background in context, I’ll hand it off to Tom for the financials and I’ll be back a bit later in the call.

Thomas E. Bergmann

I want to take a moment to reiterate Jim’s comment that while the current economic environment is challenging we continue to take the necessary steps to insure we are maintaining our strong financial position and protecting our premium brand for the long term.

As I rode back to Milwaukee from Bend, Oregon, to celebrate the 105th anniversary it occurred to me day after day, mile after mile just how powerful the Harley-Davidson brand really is. Riders from around the world joined our group as we rode towards Milwaukee. Experiencing the Harley-Davidson brotherhood as we pulled into Milwaukee to join thousands of other riders was powerful and emotional. There is no question in my mind that only Harley-Davidson can offer these once-in-a-lifetime experiences and solidify deep emotional connections to a brand.

Now here are a few thoughts before jumping into the financial details. Worldwide retail sales and dealer inventory are in line with our expectations. The decision we made back in April to reduce shipments is playing our very well and has proven to be the right course of action.

Second, and I’ll be more specific later, HDFS management continues to do a good job managing through a very difficult credit and market capital environment. Year-to-date, HDFS has generated over $100 million of operating income demonstrating that even in these market conditions it has a solid business model. Furthermore, we have put considerable time and energy into developing alternative funding plans for HDFS that give me a high degree of confidence that we’ll have adequate financial flexibility and liquidity to fund HDFS through 2009.

Third, we are taking a realistic view that the near term global economic environment will be challenging for our business and that the worldwide motorcycle market growth may slow somewhat in the near term. We will continue to make the appropriate decisions to manage through the current environment will continuing to invest in those activities that will strengthen the brand and support our long term growth potential.

With that, let me now turn to the third quarter of 2008 results for the motorcycle and related products segment compared to the third quarter of 2007. First let’s take a look at retail sales. Our 2009 model year product started shipping into all markets during the third quarter. Overall the response has been very positive. Our industry leading touring family features a completely redesigned chassis. Customers are impressed when they experience a new level of comfort and responsiveness.

Tri Glide, our new three wheel motorcycle, has also been very strongly received. Many dealers have already taken deposits on their expected annual allotment and dealers tell us demand is high. We believe Tri Glide is meeting the strategic objectives to keep riders riding longer and bringing in new customers who are not comfortable with a traditional two wheel motorcycle.

Feedback on the new V-Rod Muscle has also been very positive. Last week we launched a campaign that will give the new V-Rod Muscle a lot of exposure among the target audience and beyond. It features Sports Illustrated and Victoria’s Secret model Marisa Miller. So far the campaign is getting a lot of attention and plenty of hits to the behind the scenes video on YouTube. You should check it out.

Now looking at our dealers’ retail performance on a worldwide basis retail sales of Harley-Davidson motorcycles were down 9.6% for the quarter compared to a year ago. Retail sales of new Harley-Davidson motorcycles in the U.S. decreased 15.5% in the third quarter of 2008 compared to the same period in 2007. Overall the U.S. 651+cc motorcycle market decreased 3.1% in the third quarter.

To understand our performance relative to the U.S. heavyweight motorcycle market in the third quarter, you need to keep two factors in mind. One, the Stick It To The Man finance promotion that ran during June and July of last year, making year-over-year comparisons more difficult. And second, the Japanese manufacturers were still busy implementing lower financing offers and more extreme promotional activities than last year. These tactics appeared to drive unit sales in the U.S. industry this quarter, particularly of non-current model year products.

The percentage of non-current model year motorcycles sold by Japanese manufacturers was up considerably compared to last year. For example, 50% of one manufacturer’s sales in the quarter were prior model year motorcycles.

Our international dealers’ growth continued as retail sales increased 11.3% in the third quarter compared to the same quarter last year. This double digit increase was driven by a 12.4% increase in retail sales of Harley-Davidson motorcycles in Canada, a 17.5% increase in the Asia Pacific region, and a 41.6% growth in the Latin America region.

In the Europe region, retail sales were up 2.9%. Now there’s a lot going on in the European market. While we continued to see weakness in the UK and Spain, we still saw strong performance in many of the remaining European countries including France and Germany. However, during the latter part of the third quarter we did start seeing slowing in a few additional European countries such as Switzerland and Italy.

While we remain pleased with the implementation of our international growth strategies and confident that our international growth will continue, we do expect the growth rate to slow as overall global economic conditions deteriorate.

Now looking at wholesale motorcycle shipments for the quarter, worldwide Harley-Davidson motorcycle shipments were 74,704 units which was a decrease of 11,831 units or 13.7% from the third quarter of 2007 and within our shipment guidance of 74,000 to 78,000 units. Domestic shipments of 49,953 units for the quarter were down 24% from the third quarter of 2007. The domestic shipment volume represented 67% of the total volume shipped to worldwide dealers, down from 76% a year ago.

International shipments of 24,751 units were up 19.1% compared to the same quarter last year. International shipments increased to 33% of our total worldwide third quarter shipment volume compared to 24% in the third quarter of 2007. For the full year of 2008, we have narrowed our shipment expectations to between 303,500 and 306,000 from a prior range of 303,500 and 307,500 motorcycles.

As we enter the fourth quarter we are pleased that the overall level of inventory in the U.S. dealer network is significantly lower than one year ago, and we believe is appropriate in these uncertain times. However we still have a lot of work to do to improve our U.S. allocations system in order to deliver the right motorcycle to the right dealer at the right time. We are continuing to work with our dealer network to improve this system.

In our major international markets, we are also comfortable with motorcycle inventory levels. Based on the potential slowdown we expect in some international markets, we will continue to monitor inventory levels closely and be prepared to take action to maintain appropriate inventory levels.

Now let’s turn to mix. Touring volume was 32.1% of total shipments in the third quarter of 2008 compared to 32.9% in 2007. Custom shipment volume, representing our Softail, Dyna and VRSC motorcycles was 45.9% in the third quarter 2008 compared to 45.6% for the third quarter of 2007. And Sportster motorcycle mix was 21.9% of the mix for the third quarter of 2008 compared to 21.5% during the third quarter last year.

Going forward, to the extent our customer base changes, we will accommodate their preferences and balance the mix between our motorcycle families according to their needs.

Now turning to revenue, revenue from Harley-Davidson motorcycles was $1.05 billion, down 11.1% from the third quarter 2007. This decrease was a result of 11,831 fewer units shipped and was partially offset by a $402 or 2.9% increase in average revenue for Harley-Davidson unit from the year ago quarter. The increase in average revenue per unit can be primarily attributed to favorable impact of currency.

Revenue from parts and accessories was $259 million for the quarter, which was up 3% or

$7.5 million over the year ago quarter. This increase was largely driven by increased sales of genuine parts, specifically consumables such as oil and tires. General merchandise revenue for the third quarter of 2008 was $84 million, an increase of 1% or $800,000 compared to the third quarter of 2007.

Let’s take a look at gross and operating margins. Gross margin in the quarter was 34.0% of revenue, down from 38.4% in third quarter of 2007. During the quarter there were a number of factors that negatively affected gross margin. The primary drivers were increased product costs and the allocation of fixed costs over 11,831 fewer units.

Operating margin for the third quarter of 2008 decreased to 16.4% from 23.2% during the third quarter of 2007. Operating margin for the third quarter of 2008 was impacted by the one time

$16.6 million expense related to the value of acquired in process research and development at [Ambia Gusta].

Now turning to HDFS, before I review the Harley-Davidson Financial Services segment results for the third quarter, let me give you a little more detail around my perspective and opening comments regarding HDFS. Our priority at HDFS during these stormy times is to continue to balance the availability of credit to qualified customers to facilitate the sale of motorcycles while delivering appropriate returns and profitability.

HDFS is doing well amidst the turmoil in the current market. I have said all year that profitability would be under pressure, but even in this environment HDFS has produced over $100 million of operating income for the first nine months, which is really a reflection of the strength of the business model and the excellent job the team at HDFS is doing.

Next, I would like to spend a few minutes discussing HDFS’s funding needs and our plans to insure we obtain all the necessary liquidity and financial flexibility we need at HDFS to fund their ongoing operations in the most cost effective manner. In addition to cash on hand at HDFS today, they presently have over $700 million of availability under our $1.9 billion committed credit facility to support their funding needs.

During the fourth quarter of 2008 we are targeting an additional $300 to $500 million of funding for HDFS through the debt capital market. The fourth quarter funding needs include the repayment of $400 million of medium term notes that mature in December of this year. Our primary funding task during the fourth quarter is to access the unsecured capital debt market. However, given the unprecedented volatility in the market we have prudently planned several funding alternatives.

Our first alternative is to fund HDFS through the commercial paper market. HDFS has continued to access the commercial paper markets throughout all this volatility and we expect continued access. However, if for whatever reason the commercial paper market would not be available, we have the committed bank credit facility in place that we could utilize if needed. We are also working on establishing an asset back commercial paper facility to supplement our existing unsecured commercial paper program, which we expect will provide us with another funding source.

Again, these are just backup plans in the event we are not able to access the medium note market during the fourth quarter or early first quarter of 2009. Looking at 2009, we estimate HDFS funding needs to be approximately $1.5 billion for the full year. Our primary funding path in 2009 will be a combination of the unsecured term debt and the asset backed securitization market, depending on market conditions. However, if these funding paths are unavailable, we have developed contingency plans that we expect will provide HDFS with the needed liquidity to fund its operations.

One such contingency plan is monetizing HDFS’s wholesale loan portfolio to provide additional liquidity if the need arises. Again, these are only contingency plans at this point. And beyond these contingency plans, other funding alternatives include the utilization of cash from the motorcycle segment, or the Harley-Davidson balance sheet. I emphasize, we do not at this time plan to utilize motor company cash or the Harley-Davidson balance sheet but given the current unprecedented, tumultuous times in the debt capital market, we need to be prudent and consider all possible scenarios.

So to wrap up the funding discussion, I feel as comfortable as possible under the circumstances knowing we have several alternatives and have spent a lot of time and energy developing solid contingency plans in the event conditions worsen in the capital markets. With that, let me now review HDFS’s financial results for the third quarter.

Harley-Davidson Financial Services delivered third quarter operating income of $35.6 million, a decrease of $13.9 million or 28% compared to last year’s third quarter. This decrease is primarily due to lower securitization income and the write down of finance receivables held for sale to fair value. Lower securitization income resulted from the fact that last year’s third quarter results benefited from a $782 million securitization transaction which generated a $3.5 million securitization gain, compared to no securitization transaction or corresponding gain in the third quarter of 2008.

For receivables held for sale, HDFS completes a discounted cash flow analysis each quarter to determine the held value of the held for sale portfolio. The third quarter discounted cash flow analysis resulted in a fair value lower than the carrying value and therefore required a

$9.4 million write down. This third quarter write down was primarily due to the significant volatility and widening of credit spreads resulting in higher estimated costs of financing at the end of the third quarter relative to prior periods.

With that, I would now like to invite Sy to provide his insight on HDFS’s operations and portfolio performance.

Saiyid T. Naqvi

As Tom and Jim both mentioned, at HDFS we have focused on insuring that we successfully navigate through these turbulent waters. Tom outlined the solid funding plan we have in place for HDFS, so I’m going to spend the next few minutes on our operating results and the actions we are taking to address the current market environment.

For the first nine months of 2008, HDFS originated $2.4 billion in retail motorcycle loans compared to $2.6 billion during the first nine months of 2007. HDFS’s retail market share on new motorcycles sold in the U.S. was 54.1% for the first nine months of 2008 compared to 56.3% in the prior year period.

Now if you exclude the impact of the Stick It To The Man promotion that ran during June and July of 2007, HDFS’s market share actually increased by a little over 1%. As Tom mentioned we continue to balance the need to provide credit to qualified customers to facilitate the sales of motorcycles with the need to maintain appropriate returns and profitability. With this in mind we have taken several actions throughout 2008 to adjust our underwriting standards to today’s market conditions and we continue to adjust our underwriting criteria as warranted.

As a result, the overall quality of our portfolio remains high with approximately 70 to 75% of our portfolio classified as prime, which is consistent with our historical spread between prime and sub-prime. In addition to the underwriting changes we have made, we have also implemented a retail price increase that went into effect in October.

The price increase reflects the increase in costs of financing and takes into account the credit risk associated with today’s economic realities. We feel this increase appropriately balances the inherent trade-off between credit availability to support motorcycle sales and profitability of HDFS.

Now in terms of credit performance, the 30 plus day delinquency rate for managed retail motorcycle loans was 5.6% compared to 4.9% at the end of the third quarter of 2007. Delinquency rates continue to reflect the financial pressures on U.S. consumers. We believe our experience is in line with that of others in the financial services industry.

Analyzed credit losses and managed retail motorcycle loans were 1.97% for the first nine months of 2008 compared to 1.65% for the same period in 2007. The year-over-year increase in losses was driven by a higher incidence of loss, primarily due to the higher year-over-year delinquencies.

On the positive side, improved recovery values on Harley-Davidson motorcycles partially offset the higher incidence of loss. In fact, our recovery level in the third quarter were at levels last seen back in 2005.

We continued to improve our loan origination and collections capabilities during the third quarter. Recently we hired a new VP of Operations who has over 20 years of financial services experience. We’ve also added collections staff to reduce the number of accounts for collector and improve the effectiveness of our collections efforts overall.

And finally just this week we announced our plan to open an additional collections facility in Chicago land area to mitigate future losses. Overall, HDFS continues to solidify its relationship with the Harley-Davidson dealer network. Even in these difficult economic conditions, HDFS remains committed to providing a full range of financial services to our dealers.

Clearly today’s economic environment remains challenging for HDFS, as it does for most companies in the financial services sector. However, HDFS continues to take appropriate actions and manage the business to make credit available while remaining profitable.

With that, I’ll turn it back to you Tom.

Thomas E. Bergmann

Now I’ll get back to the numbers and review Harley-Davidson, Inc.’s consolidated financial results.

Cash and marketable securities totaled $504.9 million as of September 28, 2008. Cash used by operations was $221.2 million during the first nine months of 2008 compared to $1.37 billion of cash provided during the first nine months of 2007. This decrease in cash flows from operations of $1.59 billion was primarily the result of net proceeds from securitization being $2.02 billion less than in the same period in 2007.

During the first nine months of 2008, HDFS funded a greater percentage of its business with proceeds from commercial paper and medium term notes than in the same period last year. While HDFS’s decision to fund more of its business through commercial paper and medium term notes does have an impact on our operating cash flow, it does not impact the overall cash flows of the company.

Cash flows related to HDFS borrowing activity, which are included in financing cash flows, were $1.44 billion higher in the first nine months of 2008 than in the same period last year. During the first nine months of 2008, depreciation was $154.4 million and capital expenditures were $153.7 million. For the full year of 2008 we continue to expend capital expenditures to be between $235 and $250 million.

Turning to our share repurchases for the quarter, we’ve said that we would not leverage Harley-Davidson’s balance sheet to repurchase shares and would only repurchase shares with available free cash flow. During the third quarter we repurchased 2.5 million shares for $100.1 million compared to 9.7 million shares for $509 million during the third quarter of last year.

Because of the extreme volatility in the credit markets during the last few weeks and in keeping with our conservative management of the balance sheet, we do not plan to repurchase shares during the fourth quarter until HDFS has successfully executed a capital market transaction and obtains additional financial flexibility.

As of September 28, 2008 there were 232.8 million shares of common stock outstanding and 16.7 million shares remaining on a board approved share repurchase authorization. An additional board approved authorization is in place to offset option exercises.

Our third quarter effective income tax rate was 38.2% compared to 35.5% in the same quarter last year. This increase was due primarily to the nondeductible in process research and development charge for the Ambia Gusta group and the expiration of the Federal Research and Development tax credit as of December 31, 2007.

Earlier this month, the Federal Research and Development tax credit was reinstated retroactive to January 1, 2008 continuing through December 31, 2009. We expect the 2008 full year effective income tax rate will be approximately 35.5%.

So all in all, net income was $166.5 million in the third quarter down $98.4 million or 37.1% from the same period last year. Diluted earnings per share for the quarter were $0.71, a decrease of 33.6% from the year ago period.

As I said earlier we are in line with our expectations for the first nine months of the year and based on our view of the remainder of the year we have narrowed our earnings per share guidance for the full year of 2008 to between $3.00 and $3.10 from our previous range of $3.00 to $3.18.

With that, I’ll turn it back over to Jim for some closing comments.

James L. Ziemer

As I said in my opening comments, I believe there are three key perspectives to keep in mind when looking at the year so far. First, we believe Harley-Davidson is positioned corporately for the current environment of continued economic difficulties in the U.S. and growing economic problems globally.

Second, HDFS remains a stable, consistent source of financing for retail customers and dealers during these turbulent times in the credit market. The priority will be for HDFS to continue to balance the availability of credit to qualified customers while maintaining appropriate returns and profitability.

And third, while our business in some of the international markets is under increased economic pressure we believe that the international markets will continue to play a growing role in the overall picture for Harley-Davidson. Tom and Sy did the deep dive into HDFS.

Let me share some further thoughts on the current environment on the road ahead both in the U.S. and internationally. Key points of differentiation for Harley-Davidson are the brand and our business model. As the company proactively navigates the current economy, we believe a long term strategic focus is more important than ever. And the key part of that long term focus is maintaining a premium brand position.

Early in the year when it became obvious that the U.S. economy was going nowhere fast, we adjusted by reducing shipments, keeping with my pledge to ship pure Harley-Davidson motorcycles to our dealers worldwide in 2008 and we expect they will sell at retail. We believe the shipment reduction achieves its objective, position the company and the dealer network for the current climate.

As a result, many U.S. dealers entered the 2009 model year with fewer carryover models. In fact, new Harley-Davidson motorcycles in general are selling at or above MSRP and the used bike prices are stable and continue to rise. In fact some of our dealers feel they are light in inventory, which suggests we may have been somewhat conservative on shipments. It also suggests that the 2009 models have a wide appeal.

Speaking of new products, it goes without saying we’ll continue advancing in product development and marketing. New products are one of the most important keys to our future. We’ll also continue to deliver unparalleled customer experiences which are a real strategic advantage for Harley-Davidson. Our 105th anniversary celebration in late August was a huge success by just about every account was even bigger and better and drew a larger crowd than the milestone 100th anniversary.

When you consider the incredible pressure on the consumers’ discretionary dollars this summer, as well as the uncertainty generated by the economic climate, I believe the tremendous response to this event underscores the great appeal and the drawing power of the Harley-Davidson brand. I believe this bodes well for the future.

Sure our anniversary sells motorcycles, parts and accessories and general merchandise. But even more important anniversaries are great ways to build excitement and involvement with all that Harley-Davidson experience has to offer. We build the brand and we plant seeds for the future. And when it comes to experiences, the new Harley-Davidson museum opened in the third quarter and it’s just fantastic. Since I talked about the museum on the last conference call, I won’t go into detail today other than to say it’s an unbelievable experience that appeals widely to riders and non-riders alike.

Shifting gears to the international front, our strategic focus on the global markets continues with investments in international markets to drive future growth. Earlier this month, the third authorized Harley-Davidson dealership opened in mainline China. In addition, Taiwan recently joined the Harley-Davidson family of international markets. And we continue to pursue ways to enter the India market, to cite just a few examples of where Harley-Davidson is headed in the world.

Of course our acquisition of Ambia Gusta, which we completed in the third quarter, is a prime example of our global strategy in action. This acquisition expands our presence in Europe and deepens our credibility and penetration into performance motorcycles which represent over 70% in the European market.

At the time of the acquisition we stated our first priorities were to put a management team in place, restart production. We’re off to a great start. With most of the management team in place, headed by Matt [Levetridge], including Claudio [Castibrione], and I’m also pleased to report that on September 29, Ambia Gusta began producing motorcycles again. Over the coming months, we’ll continue to work on the normalization of production and making progress on the Ambia Gusta product and development front.

So we continue to be optimistic about our international growth potential. And we remain confident that international growth for Harley-Davidson will outpace U.S. growth going forward. Let me wrap it up by coming back around to the economy.

Since there’s no way of knowing when consumer confidence in the economy will rebound, we’ll continue to take what we believe is a measured approach to the marketplace. As always we are carefully monitoring the situation at retail around the globe. To the U.S. economy and consumer confidence starts to rebound or conditions continue to deteriorate further in the U.S. or internationally, we will respond appropriately.

Throughout our 105 year history, Harley-Davidson has been through many ups and downs. We are being realistic about the current disruption. At the same time, I’ve said it before and I’ll say it again, sooner or later the economy will turn around and consumer confidence will return. As we look down the road past the global economic disruptions, we are doing the right things to manage the business. And we believe we’ll be well positioned to capture future growth. With that, let’s open it up for questions.

Question-and-Answer Session


Your first question comes from Edward Aaron – RBC Capital Markets.

Edward Aaron – RBC Capital Markets

I was just hoping you could talk a little bit about further actions you might take to manage your cost structure. I realize you made some changes earlier in the year but your sales for 2008 aren’t actually down that much from where they were in the 2006 peak year and it seems like there’s potential for the rate of decline to accelerate in 2009 and just wanted to get a sense of further actions that you might need to consider to adjust to that. And also what limitations you might have in your ability to cut down your cost structure.

James L. Ziemer

On cost structure, we continue to have an ongoing program of operational excellence. Looking at both speed to market and quality and our cost structure throughout the organization it’s just not the cost to goods sold. Without going into specific actions we’re taking, but it’s just a continuous program and process that one of our strategic comparatives that we have constant attention on in all aspects of the business from manufacturing operations right through all our SG&A operations, marketing and engineering. It’s an important thing and it’s big on our plate. We’ll continue to address those issues.

Some of the cost structured things that those we’re currently seeing are some of the great enhancements we’ve seen. We’ve added to our product the redesign of our Tour line we have some new models and the V line Muscle and some other products. And so we continue to focus on the products. We certainly in this climate we did have a price increase on average going into the ’09 model year.

So with some of the commodity pricing and the metal prices plus there’s some future changes that add some compression on the margin as well as some of the actions to shut off production and some unplanned appropriations. We plan to address those as we continue to go further.

Edward Aaron – RBC Capital Markets

Then moving over to HDFS I guess a few questions there. First could you give us an order of magnitude of the retail price increase that you’re putting into effect? Second I realize it’s a moving target but do you have a sense of what the rates are on any incremental debt borrowing to fund those loans? And then third, as far as future funding needs are concerned you mentioned $1.5 billion in ’09. That seems like kind of a low number relative to what it’s been historically. And then finally, and I apologize for all the questions, but finally can you address just the strategy of buying back stock in light of the uncertainty in the capital markets and the funding needs for HDFS?

Saiyid T. Naqvi

Let me take the first one on the price increase. We have a pricing structure that is tied to the credit profile of the customer. So we don’t have one number to give out in terms of what the amount of the price increase is because it depends on whether the customer is a tier one customer or tier seven customer. Having said that, our price increase has been in the range of 50 to 100 basis points depending on the customer’s profile. With that, Tom, do you want to take the other one?

Thomas E. Bergmann

Yes. Looking at funding needs for 2009 and going forward from here, Ed, based on our forecast for growth next year in the U.S. marketplace and the funding needs for HDFS yes it’s approximately that $1.5 billion. One thing to remember is we don’t have any debt coming due next year compared to the $400 million medium term notes that we have coming due this December. So that’s probably the best forecast we have at this point and this time given our outlook for next year.

Regarding share repurchase as you know we’ve been very good users of capital and returning capital to shareholders and have run the share repurchase program for a number of years, but we also believe fundamentally in running a conservative balance sheet. And that conservative financial philosophy really goes throughout the company.

And we just think in times like this and given the turmoil in the capital markets and it’s in everybody’s best interests that we wait and hold back on the share repurchase program until after HDFS executes another capital markets transaction. So at this point in time we’re just going to hold back in this capital market environment. But we are committed long term to continue to return money to shareholders and we think share repurchase is a good way to do it.


Your next question comes from Craig Kennison – Robert W. Baird & Co., Inc.

Craig Kennison – Robert W. Baird & Co., Inc.

Following up on Ed’s question on the cost of funds I know you raised your prices for consumer loans but how does that compare to the increase in your cost of funds?

Thomas E. Bergmann

If you look at cost of funding for the year it’s actually pretty interesting. Clearly everybody knows about what’s happening in credit spreads and the volatility in the marketplace but you’ve got to also remember a lot of the base rates have gone down significantly. So overall we have not seen a dramatic increase in our cost of funding this year given the trade off between those two elements.

So clearly we expect costs of funding to continue to go up as we look forward and that’s really part of the proactive management that Sy and his team are doing at HDFS. We needed to take the pricing action both to reflect the credit performance in the portfolio as well as slightly higher costs of funding as well as higher than anticipated costs of funding going forward.

Craig Kennison – Robert W. Baird & Co., Inc.

And also following up on the $1.5 million or billion dollar question from Ed, is that a net number, net of outflows as loans and inflows from payments? Or is that a gross number?

Thomas E. Bergmann

That’s a net number. That would be the net cash flow need for HDFS for 2009.

Craig Kennison – Robert W. Baird & Co., Inc.

And then lastly with respect to your inventory status and your shipment plans this year as you said you plan to ship fewer than you sell at retail, would you expect to ship more or less in line with retail for the next 12 months? Or would you like to add or deplete inventory?

James L. Ziemer

Right now again we were well positioned for this year to ship fewer units against sold at the dealers’ retail. In the next 12 months with this uncertain economic climate we’re certainly keeping track of what’s going on market by market. And we’ll have to see what really comes out right now. But right now with the current economic environment we’re comfortable with the current inventory levels.


Your next question comes from Robin Farley – UBS.

Robin Farley – UBS

I just wanted to re-clarify some of the numbers you were going through looking at HDFS and kind of what their funding needs might be. And to just return for a moment to the $1.5 billion in funding that you mentioned for ’09. As you look at the last couple of years you’ve securitized about $2.5 billion and I think that’s maybe the question others are getting at, too. Why

$1.5 billion not $2.5 billion? Is that because of either a reduction in the sales expected or a reduction in the funding that HDFS would provide for those sales?

Thomas E. Bergmann

Yes. Looking at the $1.5 billion net cash flow needs we take the whole business of HDFS into account so you can’t just look at the retail part of the business. You’ve got to look at what also is happening in the wholesale business, and what’s happening with dealer inventories, and the wholesale financing needs of the business, as well as the other business operations that HDFS runs as well as the cash generated from ongoing operations.

So we feel pretty good based on our outlook for 2009 and going through and looking at all the different cash flow needs as well as the cash inflow for HDFS that $1.5 is going to be right in the ballpark of what we need next year.

Robin Farley – UBS

Is that assuming that you securitize or monetize in some way the $1 billion plus of wholesale receivables on your balance sheet? Is that assumption in that $1.5 billion?

Thomas E. Bergmann

Securitization is a financing activity so it’s separate. This is just looking at the net cash flow needed to fund the new business, originations of HDFS obviously less the collections we anticipate to come in as well as all the other operating cash flow items. So it doesn’t address how we decide to finance HDFS.

Robin Farley – UBS

And then just that $1.5 billion you’ve got the $400 million due in the fourth quarter. I guess what I want to do is get your rate of what the funding gap is at this point because of your financing needs. And then we look at cash and the credit facility available just to get a sense of what kind of funding you’d be looking to do in the medium term note market or again the other alternatives you mentioned. What do you see as a sort of funding gap that you have going into fourth quarter?

Thomas E. Bergmann

Yes. Just to reiterate my comments and clarify them for you. As we said in the fourth quarter our plan is to access the unsecured debt capital markets for $300 to $500 million. That’s our primary path. That amount includes the repayment of the $400 million of MTM’s that are due in December. So that’s our all in cash flow need for the fourth quarter. Our primary path again is to access the unsecured debt market.

Currently we have about $700 million of unutilized capacity on our bank credit facility so we can issue additional commercial paper under that bank credit line. That is a good and another alternative for us to fund HDFS here through the fourth quarter. And then we can go into some of the other funding alternatives. But bottom line is we’ve got plenty of alternatives here to fund the business of HDFS through the fourth quarter of this year and into 2009.

And then as we look at the full year of 2009 it is our expectation that they’ll need about $1.5 billion and again our plan is at this point in time, depending on how the markets unfold, is either to do a combination of asset backed issuances or unsecured debt issuances before we go into some of our backup contingency plans around monetizing the wholesale loan portfolio or other activities.

Robin Farley – UBS

You commented that the allocations in the U.S., the dealer allocation system needs some more changes to get the bikes where they need to be. Can you just give a little more color on what changes you’re making in that system?

James L. Ziemer

Well, what we had said earlier was that as we experience the great 2009 model year we have experienced in some areas that we’re probably light on some models in different areas of the country. In which case it was a combination of great demand and in some cases where the allocation system is not working as well as we’d like, we’re working on those areas of both in terms of a mix and in terms of looking at how we distribute our product on a better basis.

But total our inventory is about where we for the U.S. dealer network is about where we need to be. We do have to focus on the regional allocation of both on the seasonal needs as well as regionally.

Robin Farley – UBS

So can you give some color on that allocation system? Changes you’re making to it?

James L. Ziemer

I mean it’s not just the allocation system. It’s what we look at in the formulas as we forecast our future on demand.


Your next question comes from Timothy Conder – Wachovia Capital Markets, LLC.

Timothy Conder – Wachovia Capital Markets, LLC

You touched on this in some of your prepared comments but if you could just remind us how the sales tracked July, August and September on the year-over-year basis at retail. I know there was a Stick It To The Man and, Tom, that you had in July and you said that things in September fell off. If you could just give us a little bit more color on the monthly year-over-year as it tracked through the quarter.

Secondly it’s been touched on a couple of different ways but if you could give us a range of the rates that are charged to consumers? I know it varies by credit tier, but maybe you want to say the rates that are available for consumers for maybe the top four tiers at HDFS.

And then finally if you could give us any color on where you would view as an inflection point as far as where you would feel hey, we need to cut back a little more on production. Looking at that from a perspective of trailing 12 months, shipments compared to trailing 12 months retail sales on a global basis, where do you feel comfortable? Maybe that’s a question, Jim, for you of that spread. Where do you feel comfortable with the gap in that spread?

Thomas E. Bergmann

I’ll start with the first one Tim in retail sales during the quarter. Generally we don’t really speak to activity month-to-month during the quarter. I did mention in my comments about the Stick It To The Man promotion because that was a major driver of sales during July of 2007. So it was a difficult comp for the month of July for us, which obviously is part of our third quarter results. So that’s about all I have to say regarding U.S. retail sales.

Looking at international sales in particular in Europe, Europe again overall we’re very happy with the execution that the team is carrying out there. We did see, we still see strong performance in many of the big markets. I reiterated what we’ve seen all year that the UK and Spain have been challenging markets for us. We did see a slowdown in the last part of the third quarter in a couple of other bigger markets such as Italy or Switzerland. But there are still other markets that are showing strong performance in the European region.

But I just wanted to caution that in the later part of the quarter we did see a slowdown in parts of Europe that we hadn’t seen earlier in the year.

James L. Ziemer

I’ll take the question on the wholesale shipment rate versus retail sales. Number one, it depends on market-by-market. It certainly depends on demand. The big thing it has is to do with mix also. It depends on what the mix of products is out there. At the end of the day, we’re going to look at dealer inventory, we’re going to look at what the average sales price is versus MSRP. Because at the end of the day what we’re trying to do is guard the brand.

The brand is the biggest thing we’ve got to go with. We’ve got a premium brand and we’ve got to make sure that we don’t encourage wrong behaviors. Now we may err from time to time on the conservative side and I think that there are some signs that maybe we did that and the results of that came in the third quarter. That is okay. Again on the big driving, what we’re looking for is protecting the brand and we certainly did that. And a little more demand is always a good thing.

So it’s not an exact science. But as we looked at two years ago, I made the statement that in 2007 retail sales would exceed wholesale shipments because as we were looking at the market we were looking at comparison of what bikes were selling versus MSRP. We were concerned. And then this year it was the economic climate we were going through. We said it was not a good idea to have inventories grow. And so it’s always going to depend on as we look at demand and as we see mix and as we see the economy.

And certainly right now the economy gives everybody concern. And certainly no one knows if we’re at the bottom yet or not. So we’re going to be conservative going forward. I think that as we look at market-by-market we’re in good positions for what we see.

Saiyid T. Naqvi

I will take the question on the rates. I’ll give you a range that we post but keep in mind that the dealers can add to that rate. So our range for the best customer is about 7% and goes all the way up to 22% on the sub-prime. So that’s our range, between 7 and 22%. But if you look at the rates that may be available to consumers from one market to another it’ll depend on what the dealer adds to that. We generally allow them to add to the rates in the lower tiers. We don’t allow them at the top tier.

Timothy Conder – Wachovia Capital Markets, LLC

Inside these rates reflect the incremental 50 to 100 basis points that you commented on earlier?

Saiyid T. Naqvi

Yes. That range is pretty close to that. Yes.

Timothy Conder – Wachovia Capital Markets, LLC

And Jim just as a clarify on your answer as you said you look at many different factors but if you kind of just said to say okay, I’d like a gap of is it 5%? Where do you really start to lose sleep at night to where you’re saying hey, we don’t have enough cushion here if something happens and we could get into a situation we don’t want to be in, therefore we need to trim back production? Is it, I mean is there a range of a number? Is it 4%, 5%, 8%? Somewhere in that area?

James L. Ziemer

There’s certainly no range. It really depends on if you’ve got a great economy or if you’ve got an economy that’s uncertain. If you have an uncertain economy we’re going to be looking for some cushion. And I think we looked for some cushion when we made the call in April this year. And we’re looking for cushion right now as we go forward. And if we were in it several years ago, it’s a different story when you can’t meet demand.

It all depends where you exceeded demand. Demand comes in many different indicators, whether it be our price per unit and our dealer profitability, so we look at many things and there is no one magic number.


Your next question comes from Dara Mohsenian – J.P. Morgan.

Dara Mohsenian – J.P. Morgan

Tom can you tell us what your assumptions are for originations and collections at HDFS in 2009? I mean in order to get to that net $1.5 billion funding number.

Thomas E. Bergmann

We don’t give that kind of specific guidance down to the HDFS level. Yes we looked at, obviously we look at what’s been happening in the business. We look at market share. We’re looking at future new motorcycle and used motorcycle sales expectations as we go into next year. So there’s a lot of variables that go into the number.

But we have a whole obviously FP&A group, Financial Planning group that spends a lot of time looking at this and based on our assessment of the marketplace and the visibility we have as best we can for 2009 we’re comfortable with that estimate of $1.5 billion.

Dara Mohsenian – J.P. Morgan

Can you guys give us a sense of U.S. retail trends so far here in October and if you’ve seen a big incremental impact from the recent financial market dislocation and then economic woes over the last few weeks here?

James L. Ziemer

As we release earnings we give a retail status through in this case nine months or the third quarter and we do not give updates for the current financial period, which is the fourth quarter right now.

Dara Mohsenian – J.P. Morgan

Well what about within the third quarter? Did you see any changes sequentially within the third quarter itself in terms of retail sales in the U.S.?

James L. Ziemer

You know as Tom was telling you before there was a very difficult comparison between this year and last year because of Stick It To The Man, but I have to say that September came in maybe slightly disappointing in the international markets, but as for the third quarter for U.S. markets we’re pretty much right on forecast. So it was in the international markets we saw a little softening but didn’t see any real surprises that at the end of the third quarter in the U.S.


Your next question comes from [Anthony Powell] – Barclays Capital.

Anthony Powell – Barclays Capital

Just a couple questions mainly on inventory. Inventory increased at year end and in the international markets by about 2,700 bikes so what’s your sort of plan for inventory versus net retail sales in international markets going forward? Do you want to try to meet demand there? Or do you want to ship fewer than retail? What’s your sort of goal there?

Thomas E. Bergmann

Looking at inventory in the international market and I think Jim and I commented a little bit in the preamble that obviously inventory management is a very important aspect and one of our priorities because it has so much to do to maintain dealer profitability and maintain the premium positioning of the brand and so forth. You know the international markets are just like the U.S. markets. We look at the forecast of what we expect sales to be and we really work together with our international sales teams to make sure we’re providing the appropriate amount.

There was a slight increase in international inventory but as both Jim and I said we’re very comfortable with that. And put it in perspective the number of units yes have increased. You’re talking maybe a day or so of production. So you’re not talking that many units in the big picture. So we will keep a close eye on it given what we’re seeing in some of the international markets but at this point we’re actually in good shape.

Anthony Powell – Barclays Capital

Just a follow up on the U.S. situation. It looks like some dealers clearly want more bikes. Is there a way to sort of improve the dealer to dealer sort of interaction in transferring bikes from certain regions to other regions? Could you maybe find a way to help them move bikes with shipping costs and other things? Is there a way to sort of - it seems like you’ll be leaving some sales on the table with a lot of the inventory policies there.

James L. Ziemer

We have an active program that encourages dealers to ship between dealers, both identifying where the units and models are as well as helping that process. But the reality is, particularly when dealers get the product, they want to keep the product. They’re not in a hurry to get rid of the product that they have, because they know they’re going to sell it. So that is really the big issue. It’s not trying to accommodate or identify where it is. It’s really a dealer’s reluctance to give up the units where we run into a problem.

There is some trading back and forth as dealers know they can help one another out and when one customer – they can help one customer get a bike a little sooner, but in the long run it’s kind of difficult because the dealers know they’re going to sell the bike. It’s just a matter of timing.

Anthony Powell – Barclays Capital

Just one HDFS question. You mentioned that you need $300 to $500 million in the coming quarter, then you also say that if you don’t get that you could use your current credit facility. I’m guessing that you’re going to try to avoid using that facility at all this quarter if you can get the financing. Or is the financing that you’re trying to seek on top of using your credit facility?

Thomas E. Bergmann

No the $300 to $500 million we’d like to execute in the unsecured debt market during the fourth quarter. If market conditions don’t allow us or we decide not to go and execute in the unsecured debt market, our second preference would be to continue to issue commercial paper to fund that $300 to $500 million need. As I mentioned we’d continue to act as the commercial paper program, so –

Anthony Powell – Barclays Capital

So ideally you wouldn’t go back to the commercial paper market at all this quarter if you could avoid it?

Thomas E. Bergmann

No. We’ll continue to be active. Yes we have about $700 or so million of commercial paper outstanding at this point in time at HDFS. So we continue like we always have. We issue commercial paper as one of our funding vehicles for HDFS. So we will continue whether or not we use the $300 to $500 million or whether or not we do a $300 to $500 million capital market transaction we will still be using the commercial paper market.

And as I said we continue to have access to it. And although it’s early, the new Fed program looks like we may also be eligible for that program and so that even gives us a higher degree of confidence that we’ll have continued access to the commercial paper market as we go forward.


Your next question comes from James Hardiman – FTN Midwest Securities Corp.

James Hardiman – FTN Midwest Securities Corp.

Not to belabor the inventory point but pretty much every fourth quarter going back forever you’ve built inventory a little bit. You’ve shipped more bikes than are sold at retail. Year-to-date that’s you’ve shipped 40,000 fewer bikes. Is there any reason to think that this fourth quarter’s going to be different than any of the other ones? Meaning that you’re not going to build some level of inventory in the channel in the fourth quarter?

James L. Ziemer

Basically we produce on an even keel and we are very – since North America makes up a substantial part of our touring business it is seasonal. So with that we need to produce as we produce on an even keel the [inaudible] are building inventory so they can satisfy the spring and summer demand. That will happen. And although last year our year end inventory reduced from the prior – during the period of fourth quarter that you’re talking about, there is an increase.

There’s a natural increase as we continue to produce so that we can keep our costs down and keep our quality up. And that’s why 20 years ago we went to that process of not trying to produce to the seasonality of the market but produce on an even keel and then let the dealers accept the product and that’s well accepted.

James Hardiman – FTN Midwest Securities Corp.

On the average revenue per motorcycle that was up almost 3%. You said that currency was a big driver behind that. How should we look at that going forward assuming that currency is now going to turn well maybe if not against you at least be a neutral impact, sort of going forward. Certainly given the fact that you’re not raising prices on the bikes should that number be flat? Should it be down? What should we expect in terms of that number going forward?

Thomas E. Bergmann

Yes James a lot goes into that average revenue per unit as you know. Currency is just one element. As you mentioned, price is another. One mix between U.S. and international, mix between families, mix between models within families, and so forth. There’s a whole bunch of variables that go into it.

So I think it will depend as we look into 2009 and look at what we forecast customers demand will be throughout the various regions as well as by family and by models. That will obviously have a big impact on what that average revenue per unit is. But I can’t give you any specific guidance at this point in time on it.

James Hardiman – FTN Midwest Securities Corp.

Two real quick questions on HDFS. Sy I’m not sure if you can give us maybe quarterly credit losses this year versus last year? Obviously you give us year-to-date which is skewed given the fact that the numbers are really bad certainly during the first quarter. How does this quarter in terms of credit losses compare to the year ago quarter if you have that information?

Saiyid T. Naqvi

I think in the prepared remarks we gave you the two numbers.

James Hardiman – FTN Midwest Securities Corp.

I think they were year-to-date though, right? I’m just trying to figure out if the third quarter this year was meaning to the worse than third quarter last year in terms of –

Saiyid T. Naqvi

Yes. Delinquencies are at a point in time. It’s not like a cumulative thing. So when we talk about delinquencies at the end of the quarter, it’s a point in time situation. So we are 68 basis points higher at the end of September in ’08 than we were in ’07. And so we certainly do provide quarter-end delinquency numbers and I think Amy can give you those specifics as a follow-up. But we are seeing a trend that is consistent with what’s going on in the consumer market which is that delinquencies are up compared to last year. And with these other factors also playing into it.

James Hardiman – FTN Midwest Securities Corp.

And then just one quick follow-up question. I mean it sounds like going back to your analysts meeting a few months back it seemed like, or I think you stated that if you needed to get a securitization done those markets were available to you. It sounds like that’s no longer the case and I’m assuming that even the term debt markets are not necessarily available to you right now.

When we talked back at the analysts meeting it seemed like your priorities were really maximizing income and it just was too expensive to access those markets. Have those priorities changed meaning if you could get a securitization done now or access the term debt markets today even if the rates weren’t great, have your priorities shifted to the degree that you might just do that for the sake of liquidity?

Thomas E. Bergmann

I think one yes, since the beginning of the year, clearly the asset backed market in particular has deteriorated and yes we all read the papers over the last few weeks all the debt term markets have deteriorated in performance. Our number one priority is always to make sure that we can fund the business and have sufficient financial flexibility and liquidity. The asset backed market is even more difficult compared to the beginning of the year and so that really we don’t see that as an option here in the fourth quarter.

The unsecured debt market spreads it wide enough significantly for all issuers. It is a more difficult market. People are still accessing it. It really varies really at this point in time, day to day, on the tone in the marketplace. So clearly the cost of financing will be higher than recent history. But access to that market is really a day-by-day, week-by-week exercise that we’re monitoring closely.


Your next question comes from Patrick Archambault – Goldman Sachs.

Patrick Archambault – Goldman Sachs

Just really wanted to piggyback onto the most recent questions there. You know first on residual values, I guess Sy you’d said that the managed losses while up because of higher delinquencies were mitigated somewhat by residual values which were kind of holding in there. I was wondering whether you could just give us a little bit of an explanation why you think residual values are holding up. It just seems that given where we are in the cycle on the demand environment one would expect pricing to be softer. That was my first question.

Then the second follow-up would just be on FX. Sorry if I missed this but could you tell us what FX was both from a revenue impact and an EBIT impact as well if that’s possible.

Saiyid T. Naqvi

One of the things that we’ve noticed this year is a very strong demand for used motorcycles driven a lot by foreigners coming in and buying product. I think the weak dollar, we had a very attractive for people to come in and buy used motorcycles. We’ve seen as I mentioned in my prepared statements that when we’ve done our auctions of used motorcycles we’ve gotten very good prices for them. So I think that’s been a big factor. We don’t know how long that’s going to last but certainly that’s been the case right from the start of this year and it continues to be the case as recently as two weeks ago.

Thomas E. Bergmann

The other factor I would add onto that is used bikes, used Harley-Davidson bike sales have continued to be very strong throughout 2008 on a year-to-date basis through about the end of August. We’re seeing used bike sales increase almost 10%. So there’s a very strong demand out there which is really good news.

It tells you people are still coming to Harley-Davidson. They love the brand. They want the lifestyle. They want the experience. So maybe in this economic environment they’ve opted for a used purchase. But we’re still seeing good used bike sales this year which is also driving those residual values.

James L. Ziemer

That may be driven by a combination of better gas mileage and also a used bike does not cost as much as a new bike, so with those two driving factors that has helped drive it. Plus the absence of the product in the market where some of the product is going back overseas as it could be purchased by foreigners. I mean you put those three factors together and it’s very reasonable that the prices have firmed up if not increased.

Thomas E. Bergmann

And looking at foreign exchange the revenue impact for Q3 was about $22 million positive and the EBIT impact was about $14 million positive, Pat.

Patrick Archambault – Goldman Sachs

So clearly that’s a pretty huge margin on currency which sort of makes sense given the net you produce in the U.S. and you sell in Europe where year-on-year currencies have still been a tailwind. Could we expect something like a decremental margin and I guess on the opposite if, for instance, we go in the coming quarters the Euro actually starts being a headwind?

Thomas E. Bergmann

Yes clearly we’ve benefited here as the dollar weakened over the last several years, both on the revenue and EBIT line. So as it goes the other way we’ve got to make sure we find ways to hedge it or manage that exposure. But for example we run an active 12 month rolling hedging program.

So if I look out to 2009 we’re probably 75% more hedged up of our estimate exposures at an average rate that we’ve averaged into here over the last 12 months, as we roll in hedges on a regular basis. So it buys a little bit of time but longer term the right solution is to have a nice balance and a natural hedge of currency exposure and that’s part of our strategy of growing internationally.

Patrick Archambault – Goldman Sachs

So that means maybe potentially producing abroad at some point?

Thomas E. Bergmann

We’ve discussed manufacturing abroad at different levels. The first decision that always comes around is the brand and any potential implications for the brand. So our first thought is always looking at the marketing research and what the customer would think of that. We will not – I don’t ever see a day where we’re going to produce internationally and ship back into the U.S. marketplace but there could be a point in time that we may manufacture in market for market in certain countries if it would make sense, but you’ve got to get to the right scale and size to do that.


Your last question comes from Bob Simonson – William Blair & Company, LLC.

Bob Simonson – William Blair & Company, LLC

Jim if gross domestic product if GP is down in the low single digits in the United States next year and if it’s similar to that in many European economies can you grow your earnings next year?

James L. Ziemer

You know it’s going to depend on a lot of things. It depends on a mix. We’ll continue to do those things to grow the business and invest in the business and invest in the experiences of marketing and engineering. That’s a hard question to know without all the rest of the things. We have been in the past always been able to buck the trend. You know this is a pretty severe economic turmoil right now that we’re going through and obviously we had to go through a reduction in the workforce and production. You know, it depends. I’m not going to give you a straight yes or no answer but we’ll certainly look at trying to again it’s protecting the brand and doing those things to make sure that it’s a great product and demand so as we go forward.

Bob Simonson – William Blair & Company, LLC

Thanks for your thought.

James L. Ziemer

Thank you. Okay with that being the last question thank you for your time this morning. We appreciate your interest and your investment in Harley-Davidson. Now I’ll turn it back over to Amy for some final logistics.

Amy Guiffre

Thanks Jim. If you’d like to hear a replay of this conference call 706-645-9291 and enter pin number 64882373# until October 23. Or access the conference at Harley-Davidson.com. If you have any questions please contact Harley-Davidson’s office of Investor Relations at 414-343-8002. Have a great day.


This concludes today’s conference call.

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