Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company (HDMC), Buell Motorcycle Company (Buell), MV Agusta (MV) and Harley-Davidson Financial Services (HDFS). HDMC produces heavyweight custom, touring and cruiser motorcycles. HDMC manufactures five families: Touring, Dyna®, Softail®, Sportster ® and VRSC. Buell produces American sport performance motorcycles. MV produces premium, high-performance sport motorcycles sold under the MV Agusta® brand and lightweight sport motorcycles sold under the Cagiva® brand. HDFS provides wholesale and retail financing and insurance programs primarily to Harley-Davidson and Buell dealers and customers.

The Company operates in two business segments: Motorcycles & Related Products (Motorcycles) and Financial Services (Financial Services). The Company's reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations.

The "% Change" figures included in the "Results of Operations" section were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented.

Overview

The Company's financial results continue to be impacted by the difficult economic environment. Net income and diluted earnings per share for the second quarter of 2009 were down 91.1% and 91.6%, respectively, compared to the second quarter of 2008. Net income during the second quarter was affected by the 27.6% reduction in wholesale shipments of Harley-Davidson motorcycles compared to last year's second quarter and by charges related to HDFS, including a $72.7 million credit loss provision related to a one-time reclassification of finance receivables held for sale to finance receivables held for investment and a $28.4 million goodwill impairment charge to write off goodwill related to the Financial Services segment.

Retail sales of Harley-Davidson motorcycles by independent dealers also continued to be impacted by the difficult economy, with worldwide retail sales of Harley-Davidson motorcycles down 30.1% in the second quarter of 2009 as compared to the prior year quarter. In the second quarter of 2009 U.S. retail sales of Harley-Davidson motorcycles were down 35.1% and international retail sales were down 18.2% as compared to the second quarter of 2008. On an industry-wide basis, retail sales of heavyweight motorcycles in the United States declined 48.1% during the second quarter.

Guidance(1)

In light of the decline in retail motorcycle sales, the Company lowered its 2009 shipment expectations for Harley-Davidson motorcycles. The Company announced on July 16, 2009, plans to ship between 212,000 and 228,000 Harley-Davidson motorcycles to dealers and distributors worldwide in 2009, and 52,000 to 57,000 in the third quarter of 2009. The Company's prior 2009 guidance was for shipments of 264,000 to 273,000 Harley-Davidson motorcycles. The Company remains committed to shipping fewer Harley-Davidson motorcycles to its worldwide dealer network than it expects they will sell at retail.

(1) Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company "believes," "anticipates," "expects," "plans," or "estimates" or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption "Cautionary Statements" included in this report, and in Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2008. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date of the filing of this report (July 31, 2009), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

In addition, on July 16, 2009, the Company re-affirmed its expectation for full-year 2009 gross margin of between 30.5% and 31.5%. The Company expects that the negative pressure on margins resulting from the additional shipment reduction will be offset by a product mix that is more favorable than previously anticipated and by increased productivity coming from manufacturing operations. On a full year basis, the gross margin expectations include the anticipated benefits of increased manufacturing productivity, favorable raw materials and a more favorable product mix which will be offset by higher anticipated fixed costs per unit and the anticipated negative impact of foreign currency exchange rate changes.

Also on July 16, 2009, the Company revised its expected capital expenditures for 2009 to approximately $145 million to $175 million including approximately $20 million to $30 million for capital expenditures made in connection with its restructuring activities in 2009. In the aggregate, this represents an approximately $77 million to $107 million decrease from the Company's 2008 capital expenditures. The Company anticipates it will have the ability to fund all capital expenditures in 2009 with internally generated funds.(1)

Outlook(1)

The Company continues to follow its three-part strategy for managing through the global economic downturn and strengthening its operations and financial results going forward. That strategy consists of: 1) continuing to invest in the Harley-Davidson brand; 2) creating the appropriate cost structure; and 3) obtaining funding to support the lending activities of HDFS.

The Company believes the reductions to its Harley-Davidson's motorcycle shipment plans for 2009 reflect the Company's focus on maintaining brand strength. At the same time, the Company continues to focus on marketing and product development while working to reduce complexity and improve efficiency throughout the product development and manufacturing processes.

The Company continues to work on lowering its cost structure and is proceeding with its previously announced plans which have been adjusted for the additional shipment reductions. As a result of the shipment reductions announced on July 16, 2009, the Company will implement an additional reduction of approximately 700 positions in the hourly production workforce in 2009. The Company will also be reducing the non-production, primarily salaried headcount by approximately 300 additional positions in 2009, including a reduction of approximately 100 positions at HDFS. Earlier this year, the Company had announced workforce reductions totaling about 1,100 to 1,200 hourly production positions in 2009 and 2010 and about 300 non-production, primarily salaried positions in 2009.

In addition to the workforce reductions and decrease in selling, administrative and engineering spending, the Company is moving forward with its plans to reduce excess capacity and exit ancillary business operations. This includes the consolidation of its two Milwaukee-area powertrain plants into one facility. As a result of anticipated production shutdowns and line-rate reductions required to achieve the most recently announced volume reduction, the Company expects it will be able to accelerate and substantially complete the powertrain plant consolidation by mid-2010. The Company is also working to consolidate paint and frame operations at its York, Pennsylvania facilities into one plant and close its Franklin, Wisconsin Parts and Accessories distribution center and consolidate those operations with General Merchandise distribution through a third-party logistics company. Finally, in April 2009, the Company completed the transition of its U.S. transportation fleet operations to a third-party.

On a combined basis, the Company now expects the volume reductions and restructuring activities to result in one-time restructuring charges of approximately $160 million to $190 million over the course of 2009 and 2010, an increase of $40 million from previous estimates, including $50.0 million incurred during the first half of 2009. The Company now estimates ongoing annual savings of approximately $140 million to $150 million, or $70 million greater than previously estimated, upon completion of the announced restructuring actions. Savings in 2009 are now estimated to be $70 million to $85 million.

Since the announcement of the original cost reduction plans in January 2009, the Company has determined that its York, Pennsylvania manufacturing operations are not currently competitive or sustainable. The Company has undertaken a study to determine whether major, additional restructuring at York can achieve cost and efficiency targets to make the operations viable or, alternatively, whether the Company will relocate the York operations to another U.S. location. The Company expects to make a

decision on the status of the York operations later this year. The potential costs associated with an additional potential restructuring at York are not included in the previously discussed costs and savings related to 2009 restructuring activities.

The Company continues to focus on the funding needs of HDFS and believes it has secured the funding required for HDFS lending activities through the end of 2009 and into 2010. The Company continues to evaluate additional funding alternatives to lower its cost of funding and to further diversify its funding sources. The Company's funding plans and requirements are discussed in greater detail under "Liquidity and Capital Resources."

         Results of Operations for the Three Months Ended June 28, 2009

                Compared to the Three Months Ended June 29, 2008

                              Consolidated Results



                                                       Three months ended
                                                    June 28,       June 29,    (Decrease)         %
(in thousands, except earnings per share)             2009           2008       Increase        Change
Operating income from motorcycles & related
products                                            $ 167,566      $ 316,083   $  (148,517 )     (47.0 )%

Operating (loss) income from financial services
before goodwill impairment                            (62,119 )       37,147       (99,266 )    (267.2 )
Goodwill impairment                                    28,387             -         28,387         N/M

Operating (loss) income from financial services       (90,506 )       37,147      (127,653 )    (343.6 )

Corporate expense                                       6,312          7,367        (1,055 )     (14.3 )

Consolidated income from operations                    70,748        345,863      (275,115 )     (79.5 )
Investment income                                         317          2,240        (1,923 )     (85.8 )
Interest expense                                        1,538             -          1,538         N/M

Income before provision for income taxes               69,527        348,103      (278,576 )     (80.0 )
Provision for income taxes                             49,777        125,316       (75,539 )     (60.3 )

Net income                                          $  19,750      $ 222,787   $  (203,037 )     (91.1 )%


Diluted earnings per share                          $    0.08      $    0.95   $     (0.87 )     (91.6 )%

The Company's second quarter net income was $19.8 million, a decrease of $203.0 million, or 91.1%, from the same period last year. Diluted earnings per share also decreased as a result of lower net income, down 91.6% from the second quarter of 2008. As discussed in Overview, net income for the second quarter of 2009 was affected by the 27.6% reduction in wholesale shipments of Harley-Davidson motorcycles and by charges related to HDFS, including a $72.7 million provision for credit losses as well as a $28.4 million goodwill impairment charge to write off goodwill related to HDFS.

The effective income tax rate for the second quarter of 2009 was 71.6% compared to 36.0% for the second quarter of 2008. The increase was primarily due to the $28.4 million goodwill impairment charge which was non-deductible, as well as tax implications associated with MV. The Company expects its full-year 2009 effective tax rate to be approximately 55% due to the items listed above as well as the previously reported one-time tax charge of $22.5 million in the first quarter of 2009 and the implications of reduced shipments on earnings for the remainder of the year.(1)

Harley-Davidson Motorcycle Retail Sales

Worldwide independent dealer retail sales of Harley-Davidson motorcycles decreased 30.1% during the second quarter of 2009 compared to the second quarter of 2008. Retail sales results continue to be impacted on a global basis by difficult economic conditions. Retail sales of Harley-Davidson motorcycles decreased 35.1% in the United States and 18.2% internationally in the quarter. On an industry-wide basis, the heavyweight (651+cc) portion of the market was down 48.1% in the United States and down 16.8% in Europe when compared to the same periods in 2008. The following table includes retail unit sales of Harley-Davidson motorcycles:

                   Harley-Davidson Motorcycle Retail Sales(a)

                              Heavyweight (651+cc)



                                                    Three months ended
                                                   June 28,     June 29,                   %
                                                     2009         2008     Decrease      Change

North America Region
United States                                         54,410      83,865    (29,455 )     (35.1 )%
Canada                                                 5,015       8,187     (3,172 )     (38.7 )

Total North America Region                            59,425      92,052    (32,627 )     (35.4 )

Europe Region (Includes Middle East and Africa)
Europe(b)                                             15,327      16,728     (1,401 )      (8.4 )
Other                                                    971       1,403       (432 )     (30.8 )

Total Europe Region                                   16,298      18,131     (1,833 )     (10.1 )

Asia Pacific Region
Japan                                                  4,022       4,067        (45 )      (1.1 )
Other                                                  2,403       2,850       (447 )     (15.7 )

Total Asia Pacific Region                              6,425       6,917       (492 )      (7.1 )

Latin America Region                                   1,420       2,401       (981 )     (40.9 )


Total Worldwide Retail Sales                          83,568     119,501    (35,933 )     (30.1 )%

(a) Data source for retail sales figures shown above is sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning retail sales and this information is subject to revision. Only Harley-Davidson motorcycles are included in the Harley-Davidson Motorcycle Retail Sales data.

(b) Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

Motorcycle Unit Shipments

The following table includes wholesale motorcycle unit shipments for the
Motorcycles segment:



                                                   Three months ended
                                              June 28,            June 29,         (Decrease)        %
                                                2009                2008            Increase       Change

United States                              35,194    60.5 %    51,449    64.1 %       (16,255 )     (31.6 )%
International                              22,985    39.5 %    28,877    35.9 %        (5,892 )     (20.4 )

Harley-Davidson motorcycle units           58,179   100.0 %    80,326   100.0 %       (22,147 )     (27.6 )


Touring motorcycle units                   20,989    36.1 %    25,248    31.4 %        (4,259 )     (16.9 )
Custom motorcycle units*                   22,245    38.2 %    41,922    52.2 %       (19,677 )     (46.9 )
Sportster motorcycle units                 14,945    25.7 %    13,156    16.4 %         1,789        13.6

Harley-Davidson motorcycle units           58,179   100.0 %    80,326   100.0 %       (22,147 )     (27.6 )%


Buell and MV motorcycle units               3,774               4,072                    (298 )      (7.3 )%

* Custom motorcycle units, as used in this table, include Dyna, Softail, VRSC and CVO models.

The Company shipped 58,179 Harley-Davidson motorcycles worldwide during the second quarter of 2009 and announced on July 16, 2009 that it anticipates shipping between 52,000 to 57,000 Harley-Davidson motorcycle units in the third quarter of 2009.(1) The anticipated third quarter shipments are approximately 17,700 to 22,700 fewer units than the third quarter of 2008 and is consistent with the Company's July 16, 2009 announced plan to reduce 2009 annual shipments by 25% to 30% from 2008.

Segment Results

The following table includes the condensed statements of operations for the
Motorcycles segment (in thousands):



                                        Three months ended
                                      June 28,      June 29,     (Decrease)         %
                                        2009          2008        Increase        Change
 Net Revenue
 Harley-Davidson motorcycles         $   808,709   $ 1,184,369   $  (375,660 )     (31.7 )%
 Buell & MV motorcycles                   39,934        41,518        (1,584 )      (3.8 )

                                         848,643     1,225,887      (377,244 )     (30.8 )

 Parts & Accessories                     231,470       265,665       (34,195 )     (12.9 )
 General Merchandise                      69,601        76,790        (7,189 )      (9.4 )
 Other                                     3,931         4,227          (296 )      (7.0 )

 Net revenue                           1,153,645     1,572,569      (418,924 )     (26.6 )

 Cost of goods sold                      767,367     1,010,645      (243,278 )     (24.1 )

 Gross profit                            386,278       561,924      (175,646 )     (31.3 )

 Selling & administrative expense        179,194       186,913        (7,719 )      (4.1 )
 Engineering expense                      24,387        47,379       (22,992 )     (48.5 )
 Restructuring expense                    15,131        11,549         3,582        31.0

 Operating expense                       218,712       245,841       (27,129 )      11.0

 Operating income from motorcycles   $   167,566   $   316,083   $  (148,517 )     (47.0 )%

Net revenue declined $418.9 million, or 26.6%, primarily due to the Company's previously announced decision to lower Harley-Davidson wholesale motorcycle unit shipment volumes. The net decrease in sales volume across the Company's product lines resulted in lower revenue of approximately $354 million. Net revenue also decreased due to the impact of changes in foreign currency exchange rates of approximately $49 million and product mix changes of approximately $15 million. The Company's foreign currency revenues, primarily in Europe, were negatively impacted during the quarter by the strengthening of the U.S. dollar.

Cost of goods sold decreased $243.3 million, or 24.1%, primarily due to the net lower wholesale shipment volumes. Lower volumes reduced cost of goods sold by approximately $204 million while the impact of changes in foreign currency exchange rates and foreign currency hedging gains also reduced cost of goods sold by approximately $36 million. Favorability in raw material prices of approximately $16 million and product mix of approximately $2 million was offset by approximately $15 million of higher manufacturing cost. The higher manufacturing cost was driven by the allocation of fixed costs over fewer units and increased product cost due to increased product content, such as new features and options on the Company's motorcycles. These increased costs were partially offset by productivity gains.

The net decrease in operating expense was primarily due to the Company's ongoing cost reduction initiatives. For further information regarding the Company's previously announced restructuring activities refer to Notes 5 of Notes to Condensed Consolidated Financial Statements.

                           Financial Services Segment

Segment Results

The following table includes the condensed statements of operations for the
Financial Services segment (in thousands):



                                                    Three months ended
                                                 June 28,       June 29,     Increase          %
                                                   2009           2008      (Decrease)       Change
Interest income                                  $ 106,159      $  62,489   $    43,670        69.9 %
(Loss) income from securitizations                  (7,676 )       11,954       (19,630 )    (164.2 )
Other income                                        25,484         32,397        (6,913 )     (21.3 )

Financial services income                          123,967        106,840        17,127        16.0

Interest expense                                    79,118         27,971        51,147       182.9
Operating expenses                                 106,968         41,722        65,246       156.4

Financial services expense                         186,086         69,693       116,393       167.0

Operating (loss) income from financial
services before goodwill impairment                (62,119 )       37,147       (99,266 )    (267.2 )
Goodwill impairment                                 28,387             -         28,387         N/M

Operating (loss) income from financial
services                                         $ (90,506 )    $  37,147      (127,653 )    (343.6 )%

During the second quarter of 2009, interest income benefited from higher average retail and wholesale receivables, partially offset by lower wholesale lending rates. The increase in retail receivables outstanding was driven by a reduction in off-balance sheet term asset-backed securitization activity throughout 2008 and in the first half of 2009 due to capital market volatility and the Company's May 2009 securitization transaction which did not qualify for off-balance sheet treatment. The increase in wholesale outstanding receivables resulted from slower collections due in part to the Company's decision to extend winter financing terms for U.S. dealers from mid-March to the end of April 2009. Interest expense was higher in the second quarter of 2009 due to increased borrowings to support the growth in outstanding retail and wholesale receivables as well as an increased cost of borrowing as compared to the same period of 2008.

(Loss) income from securitizations in the second quarter of 2009 was $19.6 million lower as compared to second quarter of 2008 due to reduced income earned from the investment in retained securitization interests and a larger other-than-temporary impairment of retained securitizations interests. The income earned on the investment in retained securitization interests was $10.9 million lower in the second quarter of 2009 as compared to the second quarter of 2008 due to a reduction in outstanding off-balance sheet securitization transactions. In addition, HDFS recognized a $15.0 million write down of certain retained securitization interests due to higher actual and anticipated credit losses partially offset by a slowing in actual and expected prepayment speeds. This compares to an other-than-temporary impairment of $6.3 million in the second quarter of 2008.

Other income decreased primarily due to lower servicer fee income resulting from a reduction in active off-balance sheet securitization transactions in the second quarter of 2009 as compared to the second quarter of 2008. HDFS receives a fee for servicing the U.S. retail motorcycle loans that it has sold through off-balance sheet securitization transactions.

The increase in operating expenses in the second quarter of 2009 is primarily due to an increase in the provision for credit losses resulting from the reclassification of $3.14 billion of finance receivables held for sale to held for investment due to the structure of its May 2009 term asset-backed securitization transaction and management's intent to structure future securitization transactions in a manner that does not meet the requirements of accounting sale treatment under SFAS 140. The reclassification resulted in additional provision needs of $72.7 million in addition to normal finance receivable portfolio requirements.

Changes in the allowance for finance credit losses on finance receivables held for investment were as follows (in millions):

                                                    Three months ended
                                                 June 28,       June 29,
                                                   2009           2008

           Balance, beginning of period          $  40,534      $  30,075
           Provision for finance credit losses      75,474         10,392
           Charge-offs, net of recoveries           (1,673 )       (4,578 )

           Balance, end of period                $ 114,335      $  35,889

HDFS' periodic evaluation of the adequacy of the allowance for finance credit losses on finance receivables held for investment is generally based on HDFS' past loan loss experience, known and inherent risks in the portfolio and current economic conditions.

As discussed in Note 6 of Notes to Condensed Consolidated Financial Statements, during the three months ended June 28, 2009, the Company recorded an impairment charge of $28.4 million related to the goodwill associated with HDFS.

. . .