By James B. Kelleher

News of the layoffs and restructuring came as Harley reported a sharper-than-expected contraction in its fourth-quarter profit. The results, which were pulled down by a big loss at Harley's in-house finance unit, hammered its already battered shares, sending them to their lowest level in more than 10 years.

Harley said it was taking several actions to cut costs, including plant closures that would result in the elimination of 1,100 jobs over the next two years. The company employed about 9,000 workers at the start of this year, according to its most recent annual report.

This was Harley's second round of job cuts in the last nine months. In April, the company said it was laying off over 700 workers in response to a slump which, at that point, was largely confined to the United States.

But as that U.S. downturn spread globally, so, too, did Harley's problems.

In the most recent quarter, Harley said its net income fell 58 percent to $77.8 million, or 34 cents a share, from $186.1 million, or 78 cents a share, a year earlier.

That was well below the 57 cent a share profit analysts had expected it to report, according to Reuters Estimates.

Worldwide retail sales of Harley motorcycles fell 13.1 percent during the quarter, pulled down by a 19.6 percent drop in the U.S. But sales also fell in once-robust overseas markets, including Latin America, which saw a 28 percent decrease.

In response to the slowdown, Harley said it would slash its motorcycle production in 2009 by as much as 13 percent.

"We reduced our production levels prudently in 2008, helping our dealers achieve lower inventory levels," Jim Ziemer, the soon-to-retire chief executive, said in a statement, "and we're going to show similar discipline in 2009."

But Ed Aaron, an analyst at RBC Capital Markets wasn't sure. "It's not clear to us that this cut will be sufficient," he said.

Along with the production cuts, Harley said it would combine its two engine and transmission plants, consolidate paint frame operations into one facility and close its parts and accessories distribution center. In the future, Harley said it would use a third party to distribute those products.

The company said restructuring will cost between $110 million and $140 million over the next two years. But the savings may not begin paying off until 2011 at the earliest.

Dara Mohsenian, an analyst at JP Morgan, called the company's revamp "a surprisingly small cost-cutting program."

The contraction in consumer spending on bikes, boats, all-terrain vehicles and RVs isn't the only problem dogging Harley.

Over the last six weeks, the company announced the departure of two top executives, adding boardroom uncertainty to its challenges.

In mid-December Harley said Ziemer, 58, will retire as CEO sometime in 2009, after four years at the helm.

Then, in early January, it announced that Saiyid Naqvi, the head of its critical in-house finance unit, resigned after less than two years with the company.

Naqvi's abrupt departure was the latest trouble at the in-house lending unit, which helps more than half of Harley's customers finance the purchase of their bikes.

That unit, which accounted for about 15 percent of Harley's operating profit of $1.4 billion last year, relies on a healthy securitization market for both its operations and profits -- and that market has been largely paralyzed as a result of the credit crisis.

The economic downturn has added to its problems. In the fourth quarter, higher projected credit losses at the unit forced Harley to take writedowns of $35.1 million on retained securitization interests and $28.4 million on finance receivables held for sale.

"We are facing a lot of headwinds out there in the macroeconomy and at the consumer level, with rising unemployment," Tom Bergmann, chief finance officer and interim president of Harley's finance unit, said during the call.

"So I do anticipate we will still experience higher credit losses in 2009 and we're planning for that."

The company's shares, which have lost 75 percent of their value since September, fell another 10 percent in early trading to $11.20.

(Reporting by James Kelleher; Editing by Lisa Von Ahn, Derek Caney and Gunna Dickson)