Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Harley-Davidson First Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Ms. Amy Giuffre, Director of Investor Relations. You may begin your conference.

Thank you, and good morning, everyone. Welcome to Harley-Davidson's First Quarter 2011 Earnings Conference Call. Today’s call is being webcast live on harley-davidson.com, where you will also find slides containing supporting details. The slides can be accessed by clicking on Investor Relations, then Events and Presentations. 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. This morning, you'll hear Harley-Davidson's CEO, Keith Wandell; CFO, John Olin; and President of Harley-Davidson Financial Services, Larry Hund. At the close of prepared comments, we will open the call for questions. [Operator Instructions] So let's get started. Keith?

Well, thank you, Amy. And good morning, everyone, and thanks for joining us on the call today. It's been nearly 2 years since I joined Harley-Davidson as CEO. And in that time, through the hard work and dedication of all of our employees, we've undertaken one of the biggest transformations in the company's history. From a foundation as one of the most iconic brands in the world, we are transforming Harley-Davidson to be leaner, more agile and more effective than ever at delivering great products and experiences to an increasingly global community of customers. We are making great progress, and today, we reported further evidence of this renewal with earnings per share up more than 75% from the year-ago period and worldwide retail new motorcycle sales turning positive, up 3.5%. Dealer new retail motorcycle sales in international markets grew more than 11% during the quarter, with Europe in particular, showing strength and the U.S. was nearly level with the year ago. And while it's good to see this overall retail improvement, we have said all along that we would have a cautious outlook for the year, particularly in the United States. We now have the market share data for new on-road motorcycle sales for 2010 and again Harley-Davidson was the #1 seller in the U.S. to young adults, ages 18 to 34. In fact, we increased our market share among these customers to more than 30%. And just to be clear, that's in sales to young adults across all sizes of on-road motorcycles. In just the heavyweight category, we had nearly 1/2 of all young adults sales last year. The story is similar for on-road, new motorcycle sales among other demographic groups as well. We increased our market share among U.S. women, selling more than 1/2 of all new motorcycles…

Thanks, Keith, and good morning, everyone. I'll review the financial results starting on Slide 10 with the first quarter results. During the quarter, Harley-Davidson, Inc. consolidated revenue was up 1.5% behind the 0.3% increase in shipments of Harley-Davidson motorcycles. Our first quarter income from continuing operations improved to $119.3 million, an increase of 73.5%. Similarly, diluted earnings per share rose to $0.51 per share, up from the year-ago quarter, which was $0.29 per share. Our improved financial performance for the quarter was driven by strong operating income at HDFS and lower year-over-year interest expense as a result of last December's repurchase of $297 million of high interest notes and a lower effective tax rate than last year's first quarter. Operating income from the Motorcycle business was flat to last year's first quarter as lower gross margin, largely impacted by the inefficiencies at York, was offset by lower spending and our ongoing restructuring activities. We are pleased with the quarter's results and our continued progress against our growth strategies and transformation of our business. Moving on to retail sales on Slide 11. Worldwide retail sales of new Harley-Davidson motorcycles were up 3.5% in the first quarter, driven by strength of international sales, which were up 11.3% in the quarter compared to last year. In the U.S., retail sales in the quarter were down 0.5% and market share was 53.4%, down 1.9 percentage points from year ago and down slightly from the historical high we reached at the end of last year. I would like to recognize the continued efforts and progress of our U.S. dealers despite the impact of challenging macroeconomic conditions, which include persistently high unemployment, falling home values and low consumer confidence. The U.S. dealer network is facing fierce price competition from deep competitive discounting and from strong values…

Thanks, John, and good morning. During the first quarter, HDFS originated $453.7 million in retail motorcycle loans, up 21.2% compared to the same period last year, primarily due to higher used Harley-Davidson motorcycle loan originations. This corresponds to the increasing number of used Harley-Davidson motorcycle sales being made by the dealer network. HDFS also increased its share of new Harley-Davidson loan originations, growing retail market share by 5.3 percentage points to 47.4% during the first quarter compared to the same period last year. At the end of the first quarter of the approximately $6.2 billion of finance receivables, $5.2 billion were retail and $1 billion were wholesale. At the end of the quarter, over 50% of the retail portfolio was comprised of loans originated after underwriting changes were made in January 2009. Consistent with recent quarters, retail loan originations were 80% to 85% prime. The 30-day delinquency rate for managed retail motorcycle loans at the end of the first quarter was 3.68% or 89 basis points better than the same period last year. Annual retail credit losses improved by 125 basis points to 1.58% in the first quarter compared to the first quarter last year. This improvement was driven by the impact of changes in underwriting, as well as lower frequency of loss and improvement in the recovery values of repossessed motorcycles. We are pleased with the continued improvement in credit performance during the first quarter, but we'll continue to monitor the unemployment picture, motorcycle recovery values and the pace of the recovery in the U.S. consumer environment. During the first quarter, HDFS delivered increased profits, maintained a strong liquidity position and reduced our cost of funds. We remain focused on enabling retail sales of Harley-Davidson motorcycles while providing an appropriate return to Harley-Davidson, Inc. Now let me turn it back to John.

Thanks, Larry. Now let's take a look at cash and liquidity on Slide 21. As we mentioned during the Q4 conference call, HDFS paid $125 million dividend to H-D, Inc. during the first quarter, reflective of HDFS's reduced capital needs on a lower receivables balance. HDFS remains focused on delivering an appropriate return on equity and prudently managing its debt-to-equity ratio. Also during the quarter, H-D, Inc. made a $200 million contribution to our qualified pension plans, which reduced our pension and postretirement liability to $354 million. You'll see at the end of the quarter, we had $1.05 billion of cash and marketable securities. In addition, HDFS had approximately $1.24 billion of available liquidity through bank credit and conduit facilities. For our cash and liquidity strategy, we continued to maintain a minimum of 12 months of projected liquidity needs in cash and/or committed credit facilities. Now I'll review the remaining Harley-Davidson, Inc. financials on Slide 22. I would like to highlight 2 items on this slide: First, with regards to continuing operations, the company used operating cash of $105 million during the first quarter, driven by the $200 million contribution to our pension plans. And second, our effective income tax rate from continuing operations was 34.8% compared to 47.2% in 2010. The Q1 2010 tax rate was negatively impacted by a onetime tax charge of $13.3 million associated with the federal health care reform legislation. In 2011, we continue to expect full year effective income tax rate will be approximately 35%. Now turning to guidance on Slide 23. Based on what we know today about the anticipated subcomponent supply issue related to the aftermath of the earthquake in Japan, we have made a modest adjustment by reducing the low end of our shipment guidance to account for the uncertainty. We…

[Operator Instructions] And your first question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia - William Blair & Company L.L.C.: John, I was hoping you could give us some kind of incremental color on the cadence of the inefficiencies, I presume, at York that is pressuring gross margin. I think it was $21 million or so in the quarter, if I'm not mistaken. Is that something that becomes less pronounced as the year goes on? Or if you could help us think about that.

Yes, Sharon. The inefficiencies of York during the quarter -- well, let's take a step back. Let's look at overall gross margin and let's step back to what we had discussed last quarter when we issued initial gross margin guidance of 34% to 35%. Sure, we said several things would happen. First, 3 things that would positively affect gross margin: First was that gross margin would benefit from continued productivity and restructuring savings in the neighborhood of $50 million. And that's on the restructuring slide and certainly in line to deliver that. Next, we said we expected incremental margin from higher shipment volumes behind our initial guidance of up 5% to 8%. And finally, we said we expected modest mix favorability that would largely hit in the first half before we lap the benefits of the power-pack introduction. We then said that these positive impacts to gross margin would be partially offset by headwinds from foreign currency exchange, higher raw material costs. And finally, we said that we would incur temporary inefficiencies at our York facility as we continued to outsource non-core parts and cut assembly operations over to a single line. Now let's look at the first quarter results and how we did against that. First, currency was unfavorable by $6 million in the quarter or 6/10 of a gross margin point. Next, mix was favorable despite higher shipment mix of Sportsters. This was more than offset by the favorable mix within families and take rate on the power-pack option. Raw materials were unfavorable by nearly $6 million, and that was driven by -- largely by steel, aluminum and copper. And then we had significantly higher fuel costs. And finally, manufacturing costs were unfavorable despite the fact that volumes were flat. When we look at that -- when we…

Your next question comes from the line of Ed Aaron with RBC Capital.

I just wanted to go back to your comments earlier about the market share performance in the quarter and kind of slipping back down a little bit. I think you mentioned competitive discounting and strong values in used, did you use comments, does that mean to imply that the pricing on used bikes is still relatively low and that's affecting new bike sales? Did I interpret that correctly? Because the demand there seems pretty good, so I'm wondering why pricing might not be firming more.

Well, Ed, prices are firming and we've seen prices firm over the next several quarters, and they continue to firm in the first quarter. Overall, sales though of used bikes and as we look at registrations, those are a month delayed. Through February, used bikes did sell very briskly. They were up from February 23.4%. And that drove our total demand for Harley-Davidson motorcycles. When you look at both new and used motorcycles, total demand was up 18%. So if we step back and look at what happened last year, on a full year basis, total demand was up 3.1%, which was driven by used bike sales up 11.8% and new bikes down 11.7%. And obviously, the new bike sales rate of decline improved as we went through last year. And so now into the first quarter, or into the first two months of the year, used bikes continue to sell well. So we are clearing a lot of used bikes from the market should, which is good and in line with our strategy to narrow the gap between new and used pricing. And so we do have brisk sales as well as rising prices on used bikes.

Okay. And then just maybe one more follow-up on the market share question. Dealers are getting to be kind of concerned about the limited availability of product out there. And I'm kind of wondering if maybe we're at of point where production is almost starting to lead retail instead of retail leading production. Would you agree with that statement?

Well, it's in line with our strategy to aggressively manage supply in line with demand. So when we look at the first quarter, inventories are low. They're 10,500 lower than they were a year ago. And in aggregate, on an ongoing basis, we do believe that they're lower than what we would like to see moving forward, and we will fix that by the end of the year by putting a little bit more inventory in or ultimately shipping in a little bit more than our dealers retail for the year.

Thanks for taking the question.

Your next question comes from the line of James Hardiman with Longbow Research.

Thanks for taking my call. I'm going to ask Ed's question in a slightly different way and then I had a question about second quarter guidance. But ultimately, when you think about the disruptions taking place at York, do you think that a lack of product hurt retail sales during the quarter? I mean when you look at, certainly your shipment numbers, Touring shipments were down although overall retail was up a little bit. Do you think the retail numbers -- certainly in our conversations with dealers, it seems like these guys are clamoring for Touring bikes. Anecdotally, are you seeing that?

Yes. Overall, dealers are certainly clamoring for product, and I think more acute on the Touring side. And again this is in line, James, with our strategy of limiting new bike supply to improve the price gap between new and used. And we're seeing that happen in the quarter. So the question is: are we missing any sales because of tight inventories? I don't think that is significant. And if we are, we don't believe we're losing them to the competition. What we would do is we are seeing some customers wait to get the exact model and color that they've wanted. And it's going to take a little bit of time to get that as the dealers go through all the dealer network or they wait for the bike to be shipped. The second thing that we're seeing and it's certainly in line with our strategy is that a lot of customers are opting to buy used bikes. And again that is firming up used bike prices, and until we get that relationship a little bit tighter, then we'll start to see a shift toward more new bike sales versus used bikes. So everything is moving as we expected and as we hoped in the first quarter. And again overall total demand through February is up over 18%.

Thanks. And to that point, second quarter guidance up basically 5% to 13% in terms of shipments. You've talked about a little bit of inventory fill this year. Is the second quarter increase in shipments more about inventory fill or is it more about better strength that you're seeing at retail? And I guess also related to that, when you talk about the Japanese disruption, is that a second quarter event? In other words, would your guidance have been higher in the second quarter had it not been for the Japanese disruption? Or is that a "later on in the year" type of an event?

Given -- with regards to your first question, James, is most of the inventory fill, we're getting inventories a little bit more in line with an ongoing steady state of inventory will happen more in the back half of the year, not in the second quarter. And with regards to the second question, it's no. Our guidance has not been affected by the supply disruption in Japan. We would expect that to be more in the second half.

Your next question comes from the line of Craig Kennison with Robert W. Baird. Craig Kennison - Robert W. Baird & Co. Incorporated: Thanks for taking my question. I want to focus on the tragedy in Japan as well. You mentioned a supply chain impact, but what do you see as the demand impact? I think you sold about 11,000 bikes in that market at retail last year. And then secondly, how do you see the supply chain impact affecting your mix? Is it more severe for Touring bikes, for example, than for Sportsters?

The overall impact on the quarter in Japan is you'll notice from the financials of the press release was down 9.3%. And clearly, the run rate or our sales rate changed dramatically from March 11 to the end of the month. Again as Keith has mentioned, our team is doing a wonderful job of keeping product flowing. We do expect that the events in Japan will have an impact on retail sales on a full year basis, but you got to keep in mind that it's only 5% of our overall sales. So while it will have an impact, we'll work through that. Secondly, Craig, your second question was on the supply chain disruption, and I believe mix. Craig Kennison - Robert W. Baird & Co. Incorporated: Right. How might that supply chain disruption impact mix? Is it disproportionately bad for your Touring line?

Yes. The -- well, let's start with what we know. Harley-Davidson is a direct supplier, supplier supports -- I’m sorry source a limited number of components including electronics. We've confirmed that all of our Tier 1 suppliers are up and running, and there's no issue. However, suppliers of our suppliers -- we have identified a supply issue, and that's with a chip used in our radios from a sub-tier supplier. So based on what we know today, we're looking at -- we have viable paths to resolve the radio issue, but we do expect the supply interruption of radios, that we anticipate could cause us to adjust the timing, the mix or the overall volume of shipments in the back half. So because it's a radio chip, Craig, it will affect only the -- a portion of our Touring motorcycle line. And again we've got an incredibly talented team of people working on it and we do have viable paths to resolve it, but we're taking a prudent and cautious approach in lowering volumes and letting everyone know that there is an issue and that we're working through it as expeditiously as we can.

Your next question comes from the line of Tim Conder with Wells Fargo.

Let me follow on the gross margin line of questioning with a couple of components there. John and Keith, it seemed worrying though in the press release and John just of what you said, you believe you have viable alternatives, it sounds largely though that you're going to be able to mitigate the Japanese supplier issue. I mean, is that the current feeling? And then as it relates to, I guess, cadence of impact on gross margin, the $50 million in cost savings, any direction you can give us with that from the first quarter? And then, it appeared obviously that, that's going to ramp throughout the year, but any additional color you could give there. And then finally on the gross margin, the FX headwind, was that -- is there some negative hedging impacts there that caused that to be negative? Just a little more color on that.

This is Keith. I'll start off with the supply issue. I'll let John talk about the gross margins. And again John mentioned it; we have a full court press on in terms of understanding the impact of everyone of our suppliers, subcomponent suppliers, et cetera. And we believe as we -- and this is a very fluid situation even 1.5 month or so after the tragedy. But we believe, as we sit here today, we have mitigation in place for all these issues. There could be a question around timing, say, giving a supply from a new supplier for a certain chip or whatever that might be. And that's why we're being very cautious in terms of changing our bottom end guidance because there could be some timing issues. We're looking at -- we mentioned the Touring bikes. We're looking at ways to mitigate that issue even at a retail sales level. So our level of confidence is very high. We're just like everything else we're doing. We're just being very cautious that we don't overstate the possible.

And Keith, on what you just commented on about to mitigate the overall sales impact, would that -- maybe I'm reaching a little bit here, but would that imply going ahead and shipping the bike and then putting in the radio afterwards so there'll be -- obviously, there'll be a little bit of a cost impact, but it wouldn't be as much as missing that sale potentially?

Right. Well, we're looking at several options around that, so we haven't really landed on one yet. And we have time here. We have time to make that decision. We're talking to our dealers. We're making sure that anything that we do is a value add for our customers instead of some perceived negative or takeaway.

All right. Tim, the second part of your question is gross margin, the $50 million. As I had mentioned, we certainly anticipate that we'll get all $50 million as the pieces of our restructuring largely at York. But other parts of restructuring that we've got going on, as they fall into place, those restructuring savings will ramp. And again as I'd mentioned, the temporary inefficiencies are at varying levels depending on the activities that are going on at York. And those will act to dampen some of the gross margin expansion. But the $50 million we'll continue to build each quarter as we work our way through the year.

And then John, a rough number -- maybe how much a rough guesstimate of how much was in the first quarter?

Of the temporary inefficiencies, it was $11 million.

Of the restructuring savings, I guess. I mean I didn't know -- I don't know if you can separate the two or...

Only provide that $50 million on a full year basis on the restructuring.

Hang on a second. Tim, this is Keith again. I just want jump in here and say, I know we keep talking about these inefficiencies at York. Nothing happened at York that was unexpected, at least from our perspective. And we have all the confidence in the world that we are on track with this restructuring. It's a major, major undertaking. No question. Our people are fully engaged, but we don't sit here today and say, wow, geez, we didn't expect this or that. And I think -- and as John mentioned, it'll be mitigated as we go forward. And what we've said all along is that by the end of 2012, this transition would be fully completed and will be into this whole new operating model that we've been implementing now for the last year, 1.5 year.

And so far through this process, I mean, you guys have been on or slightly ahead of your plan all the way along. It's been very clear.

Yes. And again as you think about the transition, now we're right in the heart of all the outsourcing of the 2000-some components. You can only imagine the implications of all that. And we're in the process now of moving into the new building. We're in the process of moving our assembly lines to a flexible assembly line where we can produce every product in every line. We had some issues with the implementation of that as you might expect for some programming issues or whatever. But those are things that while we would like them not to happen, are things that are not the usual-unusual, but sort of the usual issues that come along. So again I think in my mind, there was probably about $1 million of cost that occurred that were sort of out of what we might have expected. And that had to do with the start-up of some lines and things like that. But we are fully confident about where we're at and where we're going to end up here.

Finally, Tim, the last question you asked was on foreign exchange. So currency was -- revenue benefited from foreign currency exchange by about $9.9 million, and that was driven by a weakening dollar against the yen and the Australian dollar; we're largely flat versus the euro. Cost of goods sold, however, was unfavorable by $15.9 million, which is driving the $6 million of unfavorability that I spoke to in gross margin. And that is driven largely by the remeasurement of the euro debt that we had that actually produced a gain a year ago of about $13 million. So as you know, that debt was repurchased or that debt was extinguished when we sold MV Agusta in the third quarter of last year. So there's no comparable piece this year with that. And then again, we're left with a gain that we had a year ago of $13 million and that's what's driving the unfavorable currency exchange and gross margin of $6 million.

Your next question comes from the line of Rod Lache with Deutsche Bank.

I just was wondering since the York inefficiencies weren't unexpected, could you give us a ballpark of what you'd budgeted for the full year when you gave us the gross margin guidance?

We don't provide that, Rod. It's -- again the first quarter is the largest quarter that we had on the inefficiencies because of the tremendous amount of things that are cutting over in the first quarter. We do have other things that are going to happen throughout the year and into the second quarter of next year, and we expect them to taper off and then again we'll start to lap the inefficiencies that we had last year in the third and fourth quarter, which were about $10 million.

You said that they would taper off quarter-to-quarter going forward, is that correct?

Well, the inefficiencies will be at varying levels depending on the activities that are going on at York, but in general, the $11 million is a high watermark.

Right, okay. Yes. Because it sounds like it could be obviously a positive once those go away so it'd be helpful to get some quantification. And just related to that, did you say that there were $10 million of costs related to additional content that you're putting into the product?

No, I did not say that.

Because the rest of that is $21 million.

The other large piece of the overall manufacturing on Slide 16, I believe it was, would be the cost of higher product cost given the model year content that we added at the model year, and that includes the Road Glide Ultra Blackline that just came out, certainly the cost of power pack and ABS options. And the revenue associated with those obviously is captured in revenue and on Slide 16 would come out in the mix section. Again the mix was favorable as it bumped up against the unfavorable Sportster mix.

Right. It just looks like it could be mix positive is less than the cost negative associated with that. I'm not sure if I'm thinking about that right or wrong, but...

The mix favorability would be higher than that, Rod, but you've got the Sportster mix, which is a big negative coming in the mix as we had about 4.5 percentage points more of Sportster mix than our custom motorcycles.

And I was wondering if you can quantify raw material cost expectations for the year and whether there's any consideration being given to adjusting pricing to reflect that. And then lastly, on the mix, it's helpful that you give us the mix of production. Can you just give us a sense of whether the mix of your retail sales is similar to what you're producing currently?

I'm sorry, but the first question...

Raw materials.

Raw materials. We don't provide a full year look at raw materials. Certainly, they rose higher than they were in the fourth quarter of last year. Metals drifted up a bit, but a lot of it in the newer news was on fuel cost. I don't know, the fuel costs were probably about $1.5 million to $2 million of the total. The rest was in steel, aluminum and I believe copper. But we don't have a full year -- we don't provide a full year estimate of raw material costs, but we do expect them, as I said last quarter in explaining the gross margin, that they will be higher on a year-over-year basis. And we expect that trend to continue. The mix of sales, production mix in the first quarter versus the back half is we don't provide production mix, but we could be affected by the mix of Touring bikes. Again as Keith mentioned, we've got viable paths to resolve the supply disruption, but that might affect our mix of Touring bikes as we move into the second half.

I was more asking about the mix of retail sales, whether it's kind of consistent with -- we see what your production mix is and then I understand that there obviously could be some production disruptions that presumably would be temporary. But are your retail sales kind of matching the mix of production that we're seeing right now?

Yes.

Your next question comes from the line of Patrick Archambault with Goldman Sachs.

Maybe just a couple on HDFS. Can you give us a sense, first of all, in terms of where you think your provisioning could go? I think you had said you had taken provisions down by -- I can't remember the exact number, there's maybe like $14 million or something? You ended the year at 2.8% in 2010. I'm not sure where that would put you now. But can you give us a sense of as a total kind of managed receivables, what kind of provisioning you would kind of shoot for coming down from that 2.8% neighborhood, I guess.

Patrick, this is Larry. A couple of comments. First, we're not going to give forward-looking guidance. What I can tell you is that the reserve at the end of the first quarter was 2.58%, down from 2.80% at the end of the year. And then obviously, we go through a very disciplined process every quarter, evaluating the delinquencies, evaluating the credit losses during that quarter and then looking -- trying to look forward sort of over the next, say, 12 to 15 months and figure out where we stand and then make adjustments to the allowance based on that outlook. So obviously, we don't want to give forward-looking guidance, but we did take it down 22 basis points during this quarter. And that made up almost the total of the $14 million that John mentioned for the reduction in the allowance.

I guess -- but just to ask it a different way. If you look back sort of the mid-part of the last decade, you got down to sort of 1.2%, 1.3% in terms of your allowance, which would suggest on paper that you still have some potential to go if credit trends continue to go the right way, which they clearly are. Is there something that would prevent you from taking provisions to that level? Or should we at least assume that if credit trends continue to behave well, there's definitely further upside from lower provisions in the HDFS bucket.

Well, I would look at it and say that our retail credit losses in the first quarter were 1.58%. And certainly we have a reserve that is higher than that at the moment. So there is at least the potential that there could be some additional reduction if credit trends continued to be positive, but that's going to depend on consumer behavior and how our portfolio performs and how our recovery values perform. So we'll evaluate that and record it as we go forward and obviously make adjustments in our allowance for losses as we do every quarter.

One more on HDFS's. You said your funding mix -- in terms of 2011, you've got a strategy of being a little bit more balanced, which means it sounds like you're going to look to do both unsecured as well as ABS. How should we think about the cost aspects of that? Because clearly, it's going to be a little bit more expensive obviously to do medium-term notes that ABS. So is that something that -- can you give us a sense of maybe order of magnitude, what kind of funding mix you might move to and whether that is something that could constrain net interest margins?

Sure. I mean obviously, once again we're not going to project where we're going to be in the future. But just to give you a sense, I think our last securitization we did in 2010, I think the all-in cost and everything was probably about 1.5%. We did our $450 million unsecured deal here in the quarter. The overall cost of that was a little below 4%. So you can see the difference in cost when you're dealing with that mix. Obviously, I think it is important for us to have diversified sources of funding in the business and we're going to try to balance that with having what we think is an appropriate overall cost of funds. Where we sit today, I think, on the term financing, we’re about half unsecured, half through securitization and we’ll continue to evaluate that mix going forward.

Okay, but it could be sort of broadly in that proportion going forward? Sort of half-and-half.

Broadly. But I would say, obviously, we're going to at different times try to take advantage of different market conditions. And if one market is more attractive, then we're going to maybe move a little heavier in that direction.

And then, I guess, the last one I have is just changing gears a little bit. Can we just a little bit talk about Brazil? How much of that is just the impact of the distribution changeover in that market and when is that expected to resolve itself because -- and how is the underlying sort of market itself absent those issues behaving in terms of demand? And then also, maybe a little bit of color on how Europe was so strong. I know I guess there's an easy comp there because of the non-availability of product last year, but maybe we can talk about sort of how you would characterize the sort of end-market demand in Europe as well sort of x that item.

Patrick, the Latin America region was down 5.4%, and that was largely driven by Brazil. We entered into an agreement to exit our exclusive dealer in Brazil again in December. And basically what happened is in early February, the dealer network, they had 9 dealers that -- the exclusive distributor had 9 dealerships. They all closed. And we've been adding dealers back. But the dealers that we added back did not begin selling product in the first quarter and we expect them to be up by the second quarter selling product.

How would you characterize just the underlying sort of health of the market? Is it something that you would expect to be materially up year-on-year once you get your distribution back in place and how long could that take, I guess?

Hey, Patrick, this is Keith. And we think the underlying condition of the market is good. And moving on to your question about Europe, we're putting feet on the ground in Europe. We're putting an organization in place that's really driving our improvements there. We're putting dealers in place. And so it's all part of the strategy that we've been talking about for the last couple of years. And we really feel good about our team in Europe.

Last, on Brazil.

Patrick, we have to move on. I'll follow-up with you on Brazil though.

Your next question comes from the line of Robin Farley with UBS.

I just wanted to get a little clarification on your U.S. strategy. You had mentioned still wanting to build up inventory ahead of sales this year, and I guess that could mean one of two things: It could mean you're either expecting U.S. retail sales to be down for the year or that you're expecting to ship more than 8% increase to the U.S. And I'm just wondering if you clarify kind of which of those 2 things your strategy implies? And then I have a follow-up question as well.

Robin, this is John. I don't think it implies either of those. We're simply going to ship -- we expect to ship in a little bit more than we sell. So that means year-end inventories as we exit 2011 will be a little bit higher than they were in 2010. And other than that, it's not implying anything except for we believe that inventories are a little bit lower than they need to be on an ongoing basis for the health of the business. And we look to put back a little bit more inventory by the end of the year.

I guess to sort of understand what assumption you're factoring in for U.S. retail sales for the year may be helpful.

Robin, we don't provide retail sales guidance so we've got our shipment guidance out there, which is 215,000 to 228,000 or up 2% to 8%. And with that, we again expect to add a little bit -- sell in a little bit more than is retailed.

Okay. And then you talked earlier about used pricing as an indicator to -- or your shipment strategy for new bikes. Can you give us a sense of where used pricing is as a percent of new bike prices versus what your goal is or where you think that level should be?

The goal is to get back to the 2007, 2008 levels of used bike prices in relationship to MSRP. We don't provide an ongoing look at what we're at. There are so many models, different families, different motorcycles and all those pieces. But we are very confident of and happy, certainly to report, is that those used by prices have been firming up for several straight quarters and are certainly ahead of year-ago levels. We still have a way to go, Robin, to get to where our goal of being a 2007, 2008 used price levels.

Last question is previously you've talked about looking at the ratio of used to new bikes as kind of a guide to you of how you would think about new bike production. Is that still a way that you think about it or is that ratio not as important to you?

Well, I think the ratio is a fact that it went from 1:1 to 2.3:1 by the end of 2010 from 2007. Other than that, the real issue is the pricing dynamic between new and used and that's what we're focused on.

Your final question due to the time constraints comes from the line of Gregory Badishkanian with Citigroup.

My question is just with respect to the Japan crisis. Has that been -- what's been the impact on some of your competitors? Do you have any visibility into that?

Greg, we read all the stuff that's written about the competition. And certainly, they've had plants down. They've had plants up, they've had plants down. They are being affected. It's hard to tell exactly what's happening in terms of their shipments, though. Our competition has got a fair amount of old product in the network. Matter of fact, during the first quarter, our Japanese competition sold 75% to 90% of old bikes that they sold the first quarter were old model years. So while we know their plants have been down for varying periods between the various competitors, there still seems to be a fair amount of old inventory in the system.

This concludes your question-and-answer session.

Thank you for your time this morning. We appreciate your investment in Harley-Davidson.

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