At this time, I would like to welcome everyone to theHarley-Davidson Inc. third quarter 2007 earnings conference call. (OperatorInstructions) It is now my pleasure toturn the floor over to your host, Mr. Mark Van Genderen, Director of InvestorRelations. Sir, you may begin your conference.

Thank you and good morning. Welcome to Harley-Davidson'sthird quarter 2007 conference call. Over the course of the next hour, we willcomment on our third quarter financial performance, Harley-Davidson motorcycleretail sales, and other thoughts about our business. Harley-Davidson's CEO, Jim Ziemer, will speak to you in amoment, followed by CFO, Tom Bergmann, who will share the financial highlightsof the quarter and the outlook for the rest of the year. Tom will be followedby Larry Hund, CFO of Harley-Davidson Financial Services, who will talk aboutthe performance of that business unit. Jim Ziemer will wrap up our preparedcomments, sharing his thoughts on our outlook for the future. We will then openup the phone lines for questions. Before we begin, I would like to remind you this call isbeing recorded and a replay will be available after 11:00 am Central time this morning. Please dial 973.341.3080and enter pin number 9246059#. The recording will be available through October26th. It is also being webcast live on Harley-Davidson.com. The webcast will beavailable for replay throughout the next several weeks before being archived onthe investor relations section of the Harley-Davidson website. Our comments today will include forward-looking statementsthat are subject to risks that could cause actual results to be materiallydifferent. Those risks include, among others, matters we have noted in ourlatest earnings release and filings with the SEC; Harley-Davidson disclaims anyobligation to update information in this call. Now I'd like to turn the call over to the CEO and Presidentof Harley-Davidson Inc., Jim Ziemer.

Good morning and welcome to our third quarter conferencecall. A lot has happened since our second quarter call, so let's all get on thesame page about what has transpired. At the beginning of this year, I made acommitment to our dealers that the company would maintain motorcycle shipmentsbelow what we anticipated they would retail this year. I made that commitmentbecause I believed then, and I continue to believe, that protecting our brandis one of management's greatest responsibilities. The key way to do that is tomanage supply in line with demand. Fast forward to our July conference call. At that time,based on our U.S.dealers' disappointing retail sales in the first half of the year, we said wewould monitor and reassess production plans moving forward. We did that and onour September 7th press release explained that we reduced our shipment guidancefor the remainder of the year, as a result of what we were seeing at retail inthe U.S. Bynow, you have seen our third quarter results and they reflect this reduction. Given current economic conditions, I'm sure we've made thecorrect decision, although it's been very difficult for our stakeholders. Itwas a necessary course correction which will make us stronger in a toughbusiness climate. I'll be back with you shortly with some additional insightsinto our business. But for now, I’ll turn the call over to Tom Bergmann.

Thanks, Jim. Good morning. Let's start with a brief overviewof the third quarter. Revenue for the quarter was $1.54 billion, down 5.8%compared to the year-ago quarter. Net income was $265 million, a decrease of15.3%. Diluted earnings per share were $1.07, or down 10.8%. The company boughtback a significant number of shares during the third quarter. Specifically, werepurchased 9.7 million shares of our common stock at a cost of $509 millionduring the quarter. In addition, during the third quarter we increased thequarterly dividend rate for the second time this year from $0.25 per share to$0.30 per share. Now turning to the third quarter 2007 results for themotorcycles and related product segment, compared to the third quarter of 2006.Wholesale Harley-Davidson motorcycle shipments were 86,535 units, a decrease of10.8%. Domestic shipments of 65,756 units for the quarter were down 18.2% fromthe third quarter of 2006. This shipment volume represented 76% of the totalvolume shipped to dealers, down from 82.8% from a year ago. International shipments of 20,779 units were up 24.8%compared to the same quarter last year. This international shipment mixrepresented 24% of our total third quarter shipment volumes compared to 17.2%in the third quarter 2006. For the first nine months of the year, domestic shipmentsrepresented 73.2% of the total shipments, down from 77.5% compared to the sameperiod last year. International shipments for the first nine months of the yearrepresented 26.8% of the mix, up from 22.5% in the first nine months of 2006. As we've previously stated, we expect that on an annualbasis, our international shipment growth rate will continue to increase at afaster rate than our domestic shipment growth rate to support our internationaldealers' anticipated strong retail growth. So, for the first nine months of2007, we shipped 249,413 Harley-Davidson motorcycles, a decrease of 2.7%compared to the first nine months of 2006.…

Thanks, Tom. Harley-Davidson Financial Services deliveredthird quarter operating income of $49.5 million, a decrease of $5.7 million or10.4%, compared to last year's third quarter. This decrease is primarily due toa lower securitization gain in the third quarter of 2007, versus the prioryear. For the first nine months of 2007, HDFS originated $2.6 billionin retail motorcycle loans, an increase of 13% over the same period in theprior year. Our retail market share in the United States related to new Harley-Davidsonmotorcycles grew to approximately 56% for the first nine months of 2007,compared to approximately 49% for the first nine months of 2006. Our dealer loyalty program, called Performance Network,which rewards dealers for doing more business with HDFS in our wholesale,retail, and insurance products continues to be very popular and has been asignificant factor in driving this market share growth. In addition, the Harley-Davidson Motor Company sponsoredpromotional campaign on remaining 2007 model year motorcycles, which ran duringthe months of June and July, also contributed to the higher market share. As you are aware, this has been a challenging time in thesecuritization market, given the troubles in the sub-prime mortgage sector.Securitization issuance has been significantly reduced and costs ofsecuritization funding have increased in all asset classes and for all issuers.Despite these market conditions, we successfully completed our third quartersecuritization in late August, and demonstrated the solid reputation that wehave built with securitization investors over the last ten years. In the third quarter of 2007, HDFS sold $782 million ofretail motorcycle loans through securitization, and realized a gain of $3.5million. This gain is $9.3 million lower than the gain reported on thesecuritization of $800 million of retail motorcycle loans in the third quarterof 2006. The gain as a percentage of loans sold decreased to 0.45%for the third quarter 2007 securitization from 1.6% for the third…

Thanks, Larry. You've heard from both Larry and Tom aboutthe headwinds Harley-Davidson is current facing. We're continuing toproactively manage this more challenging environment. We expect that theactions we're taking now will have a significant positive impact on ourbusiness as we move forward. Let me share some of these with you. As I've previouslymentioned, late last year we began a major transformation of our North Americansales organization to improve the focus of that group on providing greaterdealer support and driving retail excellence. Those organizational and systemchanges are virtually completed at this time. A new allocation system is inplace for the 2008 model year across the U.S. dealer network. We also announced an organizational change last week. The motorcompany has been restructured on the operations side of the business with fournew Senior Vice President positions. Those senior functions are: manufacturing,worldwide sales, product development and marketing. We believe this restructurewill be instrumental in creating stronger alignment towards our growth goals,both short and long term. Speaking of which, we've had good success developing ourinternational business and we're taking some additional steps to accelerate thegrowth in those markets. For example, we recently established a wholly-ownedsubsidiary in Mexicoto provide a more consistent sales experience for our customers and grow ourdistribution there. We just announced last week we were establishing a fieldsales office in South Africa.We have also split up the Asia Pacific and Latin Americasales responsibilities and assigned each of those regions their own seniorsales leaders. These markets represent significant future growth opportunitiesfor Harley-Davidson. As you've heard me say, based on our longer-term prospects,we believe we are undervalued at our current share price. With our exceptionalcash flow, the company has continued to repurchase a significant number ofshares. As Tom mentioned, we repurchased 9.7 million shares of our common stockat a cost of $509 million for the quarter. For the first nine months of 2007,the company repurchased 17.3 million shares for a total of $1 billion. Returning value to the shareholders through share repurchaseis not a new activity. In fact, since the beginning of 2005, we repurchased 58million shares for over $3 billion. Returning value to the shareholders is notlimited to share repurchases. In September, we once again increased thedividend, the second increase this year. In fact, we've increased the quarterlydividend 43% in 2007 alone. At our current stock price, our dividend yield isroughly 2.4%. Clearly, we've committed to returning value to our shareholders. So to conclude, this is a challenging time for consumers inthe U.S. But all in all, I am optimistic about everything we've got going forus. The opportunities in the international markets are impressive, and we havegreat things in store for our 105th anniversary next year, including theopening of the Harley-Davidson Museum. At the same time, we're developing newproducts and experiences which will continue our leadership position and drivefuture growth and strength in the Harley-Davidson brand. Now I'd like to turn the floor back over to Tom for onefinal announcement.

Before I open the floor up for questions, I'd like toannounce a change within the Investor Relations department. Mark Van Genderen,who has been the Director of Investor Relations at Harley-Davidson for the lastseveral years, has been promoted to Managing Director, Latin America. In thisnew role, Mark will be responsible for the revenue, sales objectives, andongoing development of the Latin American markets for all motorcycles, partsand accessories, and general merchandise. Mark's ten-year career at Harley-Davidson has included anumber of leadership roles, and his experience and knowledge of the businesshave prepared him well to help deliver continued international growth andexpansion in his new position. He will now have an opportunity to leadfirsthand our efforts in profitably growing a strategically important region ofthe world for Harley-Davidson. Amy Giuffre will replace Mark as Harley-Davidson's Directorof Investor Relations. Amy is an avid rider and has been with Harley-Davidsonfor nearly 15 years in various marketing, product, and strategic planningroles. For the last two years, she has been Harley-Davidson's Director ofStrategic Planning. Amy earned her BA in Journalism from the University of Wisconsin Madison, and an MBAfrom Northwestern University'sKellogg School of Management. You may have met Amy at either our analyst day inMilwaukee last February or at Sturgisin August, as she assisted Mark in the production of both of these events. Markand Amy will be transitioning into their respective new roles over the nextseveral months. With that, I would now like to open up the phone lines forquestions.

Your first question comes from Patrick Archambault - GoldmanSachs.

A quick question on SG&A. It looks like from the grossmargin perspective, things were in pretty good shape, but SG&A rose fairlysubstantially year on year and as a percentage of sales. I was wondering whether that was just fixedcost absorption or whether there was stepped up marketing that might have hadan impact in there as well?

There's a couple things going on. Obviously, with the lowerrevenue, the percentage of SG&A jumped up. But in addition, operatingexpenses were up slightly. We had increased spending in some IT-related areas. Inaddition, we had a little higher spending in some of our worldwide marketingactivities, which led to a little higher spending and SG&A percentage forthe quarter.

In terms of thinking about it going forward, are some ofthese factors likely to trail off in subsequent quarters? Or is that a run ratewe should be thinking about on a go-forward basis?

SG&A will bounce around quarter to quarter, depending ondifferent initiatives and what's happening in the quarter. I think over thelong run, we've given guidance of lower operating margin for 2007/2008. We aredoing a nice job of controlling our SG&A expenses and really reallocatingresources to where we can help build the brand or drive market growth or retailsales. I think if you look over time, we'll see continued increasesin SG&A, but they're going to be mainly focused on driving growth and drivingour international development.

On residual values, can you just give us maybe a little bitmore color on why they've been declining? I'd also be interested to know, is this morefrom a P&L point of view, a credit loss issue, or is that also somethingyou see maybe impacting demand?

If you look at residual values on motorcycles, you've got togo back really to last year and the launch of our 2007 motorcycles, and we cameout with the 6-speed transmission and the larger engine with that model yearlaunch. We did see a decline in residual values of motorcycles related to thoseimprovements in technology in the new models. We have seen now over time a stabilization of residualvalues, so as we've had another year of development and the market stabilizedand we've had strong used bike sales, we started to see residual valuesstabilizing. For the impact on HDFS and credit losses, I'll ask Larry tocomment.

As you know, when we have trouble with a borrower weoftentimes repossess that motorcycle and then sell it back to a dealerbasically at wholesale. Yes, beginning after the introduction of the 2007models, we had seen a decrease. The impact of that obviously is an increase in ourcredit losses per unit. Consistent with Tom's comments, we have seen that dropstabilize as we have gone through 2007 and with the introduction of the 2008models.

Just in terms of the impact though, is it more of an issueagain on the credit loss side or is that something that should get worseassociated with also cheaper prices on the securitizations?

I would say for themost part it is a credit loss issue. I think our losses as far as thesecuritization marketplace are within a manageable range. But certainly theimpact would be on the credit losses.

Your next question comes from Craig Kennison - Robert W.Baird.

Congratulations, Mark and Amy. A couple quick housekeepingquestions, first of all. Do you have the share count as of the end of thequarter? Do you plan to securitize and sell the portfolio in Q4?

Craig, the share count at the end of the quarter is 241.5million shares. If you need the absolute specific down to the last share, I canget that for you later.

Regarding securitization in the fourth quarter, we have notfinalized our liquidity planning for the fourth quarter. We were pleased to getthe transaction we got done in the third quarter, and I think that's given us alot of flexibility around liquidity. We used securitization. We also usedmedium-term notes and commercial paper to finance ourselves. So we haven't madea final decision on that. If we did do a fourth securitization, it wouldcertainly be smaller than the ones we've done in the first three quarters ofthe year.

As it relates to the new allocation process, can you talkabout how that's working and whether you still need to tweak it?

We rolled out the new allocation system back in July at thedealer show. Overall, the reception of it has been very strong from the dealernetwork and very positive. It's now in the field and our regional salesorganizations are working closer with our dealers. As I talked about before,it's more forward-looking and it's more retail-driven and it's really going togive us more flexibility of getting the right products in the right place atthe right time. It's in the field, we're working with it. I think it's alittle bit early to start seeing the real benefits from it. But the good newsis I think that the dealers are excited about it, and everybody is embracingit. I think over time, it will really help us drive retail sales as we makesure the dealers have got the right bikes that the customers are demanding.

Lastly, could you talk about the strategy and maybe customerprofile behind the XR-1200 and when dealers should expect to receive some ofthat product? Thanks.

The XR-1200, we've announced that it's going to come out in Europenext year, so the product is designed for the European marketplace. It's gothigher horsepower and more sport performance features to it. I think it's agreat example of keeping true to the Harley-Davidson tradition in a moreperformance-oriented motorcycle. We believe it's going to be very well acceptedin the European marketplace. Our dealers are real excited about it. So we'relooking forward to the launch of it.

Your next questioncomes from Tim Conder - Wachovia.

Tom, could you give us a little color on the forex impact inthe quarter, whether that be sales, EBITDA, or net income line? The rawmaterials that you mentioned, what was that surcharge on a year-over-yearbasis? Those are the housekeeping items. Then the startup issues that you're experiencing, is that asupplier issue? Is that an internal issue? Some of both? Maybe a little bitmore color on that.

Sure, Tim. I'llstart. Regarding the foreign exchange benefit or impact for the quarter, if youlook for the motorcycles and related products segment, the impact on revenue offoreign exchange was positive $17.9 million. The foreign exchange benefit onEBIT was about $7.3 million. Raw material surcharges still continue to hit us. Wecontinue to face increasing pressure on commodity charges. So we had a negativeraw material cost impact of just over $7 million during the quarter.

As for startup,there's no doubt that startups are always a challenge. The 2008 model year was aparticular challenge. That affected a lot of parts of the business. But yourquestion was, what caused it? There are many different things. As we bring innew technologies and new models, it's a combination of learning curves andsupplier issues and some of the internal issues, too. So some of the stuff thatwe were doing was truly new R&D, new inventions, whether on our part orsome of the suppliers' parts. So we had a little bit of both.

Your cashand marketable securities are down to about roughly $450 million, the lowest inrecent history. Definitely you had said that $1 billion was too much, andyou've brought it down over time. Where is your minimum comfort level? And then maybe a little bit more color on cost measures. Giventhe lower production volumes it appears going forward and more uncertainty,what type of flexibility do you have in both cost of sales and on the SG&Aside?

I'll start first addressing your question on the balancesheet and our cash position. As we talked about, Tim, we were pretty aggressivethis year in the third quarter repurchasing shares. We really thought it was agreat opportunity to go in and buy back a significant number of shares wherewe're at. So we went in and bought over $500 million in the quarter and we'reup to $1 billion for the year. I have said over time, there's no magical number of cash onthe balance sheet. We've always taken a conservative position and even at $500million, I think that is plenty of flexibility to give us to make sure we'vegot the right flexibility for whatever we need to do to invest in the businessor return value to shareholders. I don't think there's a magical number regarding cash. Butwe're going to do the right thing, either to return value at the right time orto invest in the business properly. As you go forward and you start thinking about the marketenvironment and your question around cost control, cost competitiveness andcost control is a major area of focus for the company. We have initiativesgoing on where we're focused on everything. You've really got to start at the verybeginning of our product development cycle and take it all the way down throughour SG&A expenses, whether it's IT or marketing, or so forth and makingsure we're getting the right return on our investment dollars. So I think we have a lot of tools and I think we've got theorganization really starting to focus on it. We'll continue to do that as we goforward the rest of this year and into 2008 in this challenging business environment that we have.

There's no doubt, Timthat as we continue to plan the business, when we have changes in productionthe cost impact is not as severe when you can plan for those things. It's whenyou have reductions in your production, or even increases in production over ashort period of time, that has a more dramatic impact. As for SG&A, whether we're talking about engineering ormarketing, as I mentioned in the preamble, I've got a lot of confidence in thisbusiness. We're going to continue to invest in marketing and engineeringinitiatives because we've got a lot of opportunity to continue to grow. Sothere may be some ability to be flexible, but I think we're continuing toinvest in the business.

Jim or Tom, do you think the flexibility, I mean again, asyou mentioned, it's a process that takes a couple years because of your R&Dplanning and the whole pipeline there. Overall, would a goal be to have anyparameters? 10% to 15% type of flexibility, or 5%, in either of those majorcost lines?

Tim, we really look at all cost lines but I'm not going togive any specific guidance around cost lines or specific targets. Clearly internally,we need to set targets and we strive for different targets but it's notsomething I want to discuss on a line by line basis.

Your next question comes from Robin Farley - UBS.

Your guidance is unchanged for '08, talking about revenuebeing up modestly, and that seems to imply flattish production. I guess there are a few ways to get your EPSguidance where you could use your balance sheet more aggressively to give youthat flexibility that could allow for a production cut in '08 and still hittingthat EPS guidance. But your comment about revenues being up moderately suggeststhat maybe you want to give yourself that flexibility to use share repurchasemore aggressively. I wonder if you could comment on that?

You're right, our guidance is unchanged for 2008. I think wehave balance sheet flexibility to dowhat we think is the right thing to do in how to use that balance sheetflexibility. We'll continue to manage the environment as we look in 2008, and asJim mentioned, we believe we're doing the right things around building thebrand strength and balancing supply and demand and so forth. So I think thisyear is a good example of using the balance sheet and being aggressive inbuying back shares, returning money to shareholders via dividends and so forth.So I think we're really looking at all the tools we have, including our balancesheet strength and our cash flow generation. We'll manage through 2008appropriately.

But, I mean, to putin your guidance that you expect revenues to increase modestly on your P&Lmust imply that you're expecting then moderate growth at the retail level aswell?

In revenue, there's many aspects of the business as we pointout, in this current quarter, general merchandise was up significantly. Partsand accessories was up. Then there's mix changes and pricing. So there are manydifferent things that drive revenue besides just absolute units.

It just doesn't seemto allow flexibility for a meaningful production cut in '08.

Robin, I think we'retaking a nice, cautious, prudent approach to 2008 and how we see themarketplace and balancing our strong international growth with the U.S.environment we have here. So I feel real good about how we're looking at 2008.

Then just the last question on the terms at HDFS, and I knowyou are not giving guidance specifically on what kind of gain on sales you expectgoing forward; but would it be fair to say that the factors that led to thegain on sale this quarter, those factors are going to continue in yourexpectations?

Robin, I'd say therewere two factors that caused the reduction in the gain. Obviously, one was theHarley-Davidson Motor Company sponsored promotion which drove a lot of shorterterm, lower yielding contracts in this securitization. That activity I wouldnot expect to continue in future transactions. The second, obviously is I think we'll see what happens. Ifyou have disruption in the market and it's caused the higher cost of funding traditionally,it's taken a little bit of time for credit spreads to come back in when youhave this type of disruption. So my guess is that second piece may be with usfor a little bit longer. We'll obviously see what the Fed does and what the impact ofthe markets is.

Your next question comes from Joe Hovorka - Raymond James.

One is going back on the HDFS, or a follow-up to thatquestion, how do you record promotions like the ones you did in the quarter onthe P&L for the motor company and then on the P&L for HDFS? Do you havean expense in cost of goods to account for those promos and then income onHDFS? Or how is that run through the P&L?

Joe, that was a motorcompany driven activity with our Stick it to the Man campaign we had. So it'srecorded on the motor company P&L. Promotional costs are primarily recordedas a contra revenue and most of that cost was reported during the secondquarter.

It's in income stream then on HDFS, correct?

The HDFS is slightly different, because what you have to dois take that amount you receive as a promotion and amortize it over the life ofthe loan. When you turn around and sell that loan through securitization, youthen accelerate whatever you received for that fee.

So that would have been netted against the lower gain onsale, basically?

That's right.

Can you comment a bit about your international salesoverall? The growth rate seems to have slowed now for the last three or fourquarters. I'm curious if there's anything behind that, particularly with theweak dollar in places like Canada,where we've actually seen a decline in unit sales this quarter.

Our international sales have been strong with the exceptionthis quarter in Canada,and that was getting some product to the right market at the right time issueand not getting them enough 2008. All of our markets in international are goingagainst tough comps. I mean last year, the year before, two years in a row, allhad double-digit increases. Again, we're maintaining the increase. Even Canadais up for the year in the third quarter. When we released the 2008s, we didn'tget enough to market on time. That had the big influence there. But we'reexperiencing great growth in our markets, as was gone through by Tom Bergmannin the preamble.

Going forward, we should expect high single-digit type ofunit growth rate that we're seeing in the third quarter?

We're not givingspecific guidance around the actual growth rate internationally. But as Jimmentioned, we feel pretty strong that we're well-positioned for good, solidinternational growth going forward.

Actually, the international will grow faster than domestic.

Your next question comes from Greg Badishkanian - Citigroup.

A question on inventories. The inventory in the balancesheet up 34%, where would you expect that to be by year end?

Inventory quarter to quarter moves around, again fordifferent reasons depending on what's happening. If you look at the thirdquarter, our inventory is up pretty significantly. It's up for probably a fewreasons. Finished goods inventory is up in a lot of our international markets,as we've talked about. Given the strong growth there, we've got to have higherinventory levels to support that strong growth and make sure we've got theright motorcycles in the market. So if you look at some of our inventory increases, a lot ofit is in Europe. We've got inventory increases in Australia,where sales are real strong. Brazilis another market where we've seen some inventory increase. All of thoseinventory increases are really there to support the strong growth that we'reseeing. We also have some increase in our U.S.factories and our raw materials and work in process inventories, variousissues. But as we've mentioned, some of the production startup delays, thatalso increased some of our inventory levels across the factories. But you'llalso notice we did have a pretty significant jump in accounts payable. So we'redoing a good job managing our working capital overall. But it is up prettysubstantially for this quarter.

When you talk to your dealers, how are they categorizingtheir inventory levels? Where would you like those to be at the end of theyear?

I mean, as I pointedout earlier in the conference call, it's my commitment to make sure thatworldwide retail sales exceed our shipments, which means that worldwideinventories will go down for the year. It won't be any higher than last year.As we talked to the dealers, they are certainly in a better spot than they werethe same time last year. We'll continue to monitor that. Inventories is not an absolute measure. As we look at it, welook at the market dynamics within each market, and we are really looking atwhat bikes are being sold for at MSRP. Our desire is for all bikes to be soldat posted MSRP. That is the benchmark that we're using. I would say inventory is afactor in getting there, but it's not an absolute number.

Do you think you'llbe in good shape by year end? Or maybe continue into 2008 with some morereduction?

We think we're in a good shape right now. This is why we'vetaken the current actions we have, so we make sure we don't get it out ofbalance. So I think we're in good shape right now.

So if it's in goodshape now, shipments should equal retail sales, basically, going forward?

Greg, as Jim said, we've given the commitment that we'regoing to be out there and we're going to wholesale less than we retail. As youknow, it is not an exact science. There's not one specific number withinventory levels. We took the action we took on September 7th, really in lightof the business environment we're seeing. We're just going to continue to takethe right actions and make sure we fulfill the commitment that Jim has made.

Your next question comes from Bob Simonson - William Blair.

On the share repurchase program, you did 9.7 million in thethird quarter. You've got 6.2 million left. That's about 300 million. It seemsto me you normally go for more. When you bought it back in the third quarter ata pace that's greater than what you've got left in the repurchase agreement doesthat determine the maximum amount that you would do in the fourth quarter? I think you normally wait until the directors meeting forthe annual meeting to reauthorize, bring it to the board again. Can you clearthat up? Lastly, if you were to use it all up and get a new one, andyou've been asked this before, would you leverage the company to buy sharesback?

You're right, we have 6.2 million shares left on our currentboard approved authorization. We also have another authorization in place tooffset option exercises. That gives us some more additional flexibility. Wehave, over time, gone to the board at different times throughout the year, sothere's not any one point in time. Clearly, the board is supportive of ourshare repurchase activity, so I don't see an authorization as an issue for usto continue to do the right thing and return value to shareholders. Regarding the balance sheet, as we talked about a little bitearlier, we used to be anywhere from $1 billion to $1.5 billion cash balances.I think you can see now, we're now just under $500 million this quarter. Ithink it shows that we're willing to do what we think is the right thing and beflexible with our balance sheet and use it appropriately. In this case, in thethird quarter, we thought a great use of the cash was to go in and be moreaggressive buying back shares. We'll continue to look at ways of using thebalance sheet to build the business and return value to shareholders.

Your next question comes from Dean Gianoukos of JP Morgan.

I just have a couple of questions about HDFS. Can you talkabout what's happened to your reserve for credit losses? Also when you giveyour guidance, what kind of gain are you looking for on the portfolio? Finally,if the securitization market were really to dry up, what would happen to yourbalance sheet if you couldn't get them done? Thanks.

Let me take those in order. First, on the reserve position wehaven't disclosed our reserve for the third quarter yet, but what I can tellyou is if you have a second quarter 10-Q, it will be consistent with the secondquarter, around $27 million. One thing to remember is that that bad debt reservereally covers only the on-balance sheet held for investment receivables, themajority of which are wholesale receivables where we have very, very low creditlosses. So we feel very good about the on-balance sheet reserve that we have ataround $27 million. Secondly, obviously we aren't going to give guidance goingforward on the gain. We've talked about the factors that drove the gain to belower in this quarter. Third, we have a very strong credit rating. We're A+, A1with Standard & Poor’s and Moody's and we are AA- with Fitch, so we have alot of avenues that we can use if the securitization market were not availableto us. Certainly, accessing the term debt market would be one thing. I thinkusing certain other types of facilities. Obviously, our wholesale receivablesare very attractive assets that we currently finance with commercial paper. Wecould use a different financing source with them. With Harley's backing, we've got a very strong credit ratingand a lot of liquidity options out there.

Can you talk aboutthe impact on balance sheet and the income statement if you were forced to goto those other avenues? And then on the gain on sale, can we just assume thatyou're expecting a similar percent that you saw this quarter?

Well, a couplecomments. We're not going to get into hypotheticals. As Larry said, we're notgiving guidance on the actual gain percentage. I think Larry's done a nice jobof framing the various issues of why the gain was what it was in the third quarterand some of the factors that drove that. Regarding the impact of using some of those other liquiditymeasures and the impact on the balance sheet would really depend to the extentof what we use them and so forth. But in the big picture of it, if you look atthe profitability and the margins that we run at both the gross and operatinglevel, the overall impact of those different liquidity options would not havethat significant of an impact on the overall profitability of the company.

Your next question comes from Ed Aaron - RBC CapitalMarkets.

Thanks for taking my question. I don't mean to belabor thepoint on the buy back and the balance sheet flexibility, but I'm just curiousto get a little more direction on where you think that the limits lie in termsof how aggressive you can be with buying back stock, just given the linkbetween your business and the finance business that you need to support withyour balance sheet, to some extent, at least?

As Tom pointed out before, we've certainly gotten a lotmore aggressive than we were before. We've worked on what we need forflexibility. We previously had over $1 billion of cash and worked that down to about$0.5 billion. We continue to look at the business and balance our issues onflexibility and increasing our dividends and investing in the business. As we go along, we'll continue to always reexamine and lookat that. But with the $1 billion we've already used in repurchasing stock thisyear and significantly increasing dividends, we're comfortable where we aretoday, but we'll continue to revisit that.

Ed, clearly as we go forward, as Jim said, look at thatflexibility. Part of what we have to take into account is the capital structureof the company and the impact it has on HDFS and their operations and make surewe're cognizant that we leave them in a position of strong financial strengthwith strong credit ratings to make sure they've got the liquidity that theyneed to continue to grow their business, given some of the growth prospectsthey have.

When you look out over the next few quarters with thefinance business and just considering the current environment, do you expectthe need for any impairment charges or changes to assumptions on residualincome?

I guess all I'd say on that is we have a very disciplinedprocess we go through each quarter where we look at our assumptions on each ofour securitization transactions and we make appropriate adjustments at thattime. You may recall, we had a modest impairment charge in the first quarter.There was no impairment charge in the second or the third quarter. We'llcontinue with our process going forward of evaluating those assumptions andmaking adjustments as appropriate.

Finally, I just wanted to ask one follow-up question on theCanadian retail sales decline in the quarter. You mentioned the inability toget enough product out to that market. But I was also wondering if you've hadany instances of Canadian customers buying bikes from U.S.dealers instead of Canadian dealers in an effort to better capture the benefitof a weaker U.S. dollar?

I think, first of all to keep it in perspective, Canadais still having a very strong year on a year-to-date basis. When you look atthe decline, it's probably about 300 units for the quarter, just to give youperspective around it. So things are going overall very strong in Canada. To a great extent, no, I don't think it's a big issue ofCanadian customers coming into the U.S.and buying it. It really was more related to the issues we had related to someof our production delays and not having the right inventory up in that marketduring the third quarter.

Your next question comes from Felicia Hendrix - LehmanBrothers.

A question on corporate expense. It was significantly loweryear over year and also lower than we expected. Just wondering what was drivingthat? And if that's a run rate we should look at going forward?

It's primarily drivenby lower compensation expense and incentive expense this year versus last year.

So assuming you're heading into a more normalized type ofenvironment, we could look at historical levels?

Sure.

Regarding the change in CapEx and the cut there, I am just wondering whatyou're sacrificing?

It's not really a matter of sacrificing. I think it's more amatter of us being proactive. If you look at our return metrics, whether it'sreturn on invested capital, return on assets, some asset productivity measures,Harley has got some really world-class metrics. A lot of that has been driventhrough the strong growth we've had over the years and smart use of ourcapital. As we look, going forward, at the business environment we'rein, we're just doing a better job of prioritizing and looking at how can wecontinue to drive those high return metrics and really utilize our investmentdollars most productively.

As Tom had pointedout earlier in the call, CapEx is higher this year than it was last year, evenwith a lower estimate for the year. At the same time, the two big drivers ofthat were the museum and expansion at the engine plant. The expansion at theengine plant has been, while we are still doing it, it is spread out over alonger period of time. That's had a big impact on that small reduction we didon the capital expenditures for the year.

When you look at your inventory levels in your internationalmarkets, that's a little bit more difficult for all of us to gauge. I waswondering if could you help characterize what those look like?

In almost all markets, we're in a very good inventoryposition. And with the strong growth we have in almost all of the markets, Ifeel very comfortable with the levels we have. Our biggest challenge is to makesure they've got enough motorcycles to fulfill the demand that they're facingin a lot of those markets. So we're doing a nice job of growing thosebusinesses and we just need to make sure we've got the right inventory there tosupport that growth.

Going back to the production hiccups, I'm still trying tounderstand that because obviously you guys have ramped up production with muchmore significant product changes in the past. So I'm just trying to understandwhat was happening this time that was different.

Like I said before,there was a lot of new products, and products with a lot of features. I'm notgoing to go into the different feature changes on the different product linesbut some of those were, again, new engineering whether it be internal, externaland it crossed many different product lines so it was not just one thing. Obviously, our Rocker Softail is one example where we'vechanged the timing of that introduction to early next year. But there are otherthings that went on in some of the other product lines. Some of it came as aresult of suppliers. Some were things that we just continued to test to makesure we've got a great introduction of the new models.

Your final question comes from James Hardiman - FTN MidwestSecurities.

First, can you talk a little bit about the momentum withinthe quarter as well as into October? As well as how much, at leastqualitatively, how much of it was due to the economic drop-off versus thereally difficult comparisons versus last year, significant product releases?

James, as I mentionedduring the preamble during the third quarter, it was different month by month. July started off real strong as we ran ourStick it to the Man promotion. We had strong July sales. Then we really saw afall-off starting in August and saw negative sales in both August andSeptember. I'm not really going to comment as we normally don't, goinginto the fourth quarter. But as we've said, on a worldwide basis, we'reexpecting negative retail sales for the second half of the year. So we don'tsee a real change happening in the fourth quarter. It is one of our lightersales quarters of the year, so we'll continue to monitor the situation. But weleft the third quarter with a down August and September, and we'll see where wego in the fourth quarter.

Then you talked about how the Rocker is not at retail, and youare not expecting that to be in retail until January. Can you talk a little bitmore about where we stand with some of the other new bikes, such as the FatBob, and how successful you've been getting those into the channel? Ultimately,what some of the late releases do to comparisons for the fourth quarter and thefirst quarter of next year?

Sure. When you lookat some of the other product that we put out there with this model year lineup,you mentioned Fat Bob. Fat Bob has had a really strong reception from ourdealer network and customer base. So that went into the marketplace startingabout in the late August timeframe. So we're real excited about what'shappening around that product and some of the other 2008 model year featuresand products that are out there. So overall, the rest of the launch, we're in good shape withproducts out there. We'll look forward to finishing up the year.

As I think about the Rocker not coming out until January,obviously your business has become a lot more seasonal. When you think abouthow that bike is going to sell in relation if you had gotten it out in August,as I assume you originally hoped; do you expect to sell just as many on thatbike in the year following that release? Are the sales of that bake ultimatelystunted to some degree?

No, I don't think so.I think that bike is so new in its silhouette and its feature and it's really agreat example of how Harley is leading that whole custom market. So I believeit's going to continue to be just a really strong product once it comes tomarket at the beginning of next year. So we're real excited about it. I think again, the customer reception on it is justtremendous. As executives, we've been out to many events over the summer monthshere and the reception and the attention it's gotten from the media as well asfirsthand with our customers, we think that's going to end up being a reallystrong product for us to help drive some of that custom sales volume next year.

Thank you for your time this morning. I appreciate yourinterest and your investment in Harley-Davidson. Now I'll turn it back over toMark for some final logistics.

Remember that a taped replay of this conference call can beheard by calling 973.341.3080 and entering pin number 9246059# until October26th or by accessing it on the Harley-Davidson website. If you have any questions, please contact me and Amy atHarley-Davidson's Office of Investor Relations at 414.343.8002. Thanks againand have a great day.