MILWAUKEE, Jan. 23 /PRNewswire-FirstCall/ -- Harley-Davidson Inc.
(NYSE: HOG) reported decreased revenue, net income and earnings per share for
the fourth quarter of 2008 compared to the year-ago quarter. The Company said
it plans lower motorcycle shipments in 2009 and made public its overall
strategy to deal with the current economic environment.
"We have a strong core business anchored by a uniquely powerful brand, but
we are certainly not immune to the current economic conditions," said Jim
Ziemer, Chief Executive Officer, Harley-Davidson Inc. "We have a clear
strategy to not only deal with the economic conditions, but also strengthen
our long-term operations and financial results. We are executing that strategy
with confidence and conviction."
Fourth-Quarter and Full-Year Results
Revenue for the quarter was $1.29 billion compared to $1.39 billion in the
year-ago quarter, a 6.8 percent decrease. Net income for the quarter was $77.8
million compared to $186.1 million in the fourth quarter 2007, a decrease of
58.2 percent. Fourth quarter diluted earnings per share were $0.34, a 56.4
percent decrease compared to last year's $0.78.
Revenue for the full year 2008 was $5.59 billion compared to $5.73 billion
in 2007, a 2.3 percent decline. Full-year net income was $654.7 million,
compared to $933.8 million in 2007. Diluted earnings per share were $2.79, a
decrease of 25.4 percent compared to $3.74 in 2007. The full-year results are
below the previously provided company guidance.
For the full year, wholesale shipments of Harley-Davidson(R) motorcycles
were 303,479 units, an 8.2 percent decrease compared to 330,619 units in 2007.
2009 Shipment Plan, Gross Margins
In the first quarter of 2009, the Company plans to ship between 74,000 and
78,000 new Harley-Davidson motorcycles, a 3.0 percent to 8.5 percent increase
versus the first quarter of 2008. However, for the full year 2009, the Company
plans to ship between 264,000 and 273,000 new Harley-Davidson motorcycles, a
10 percent to 13 percent reduction from 2008.
"We reduced our production levels prudently in 2008, helping our dealers
achieve lower inventory levels," said Ziemer, "and we're going to show similar
discipline in 2009. That's not only critical for the health of our business,
but for our dealers' businesses, as well."
For the full year 2009, the Company expects gross margins to be between
30.5 percent and 31.5 percent, which compares to 34.5 percent for the full
year 2008. The decrease is primarily due to an expected unfavorable shipment
mix versus 2008, the allocation of fixed costs over fewer units, and expected
unfavorable foreign currency exchange rates versus 2008. Given the volatility
of the current economic environment, the Company also indicated it would not
provide EPS guidance for 2009.
Strategy for the Current Economic Environment
The Company is executing a three-part strategy that includes a number of
measures to deal with the impact of the recession and worldwide slowdown in
consumer demand, with the intent of strengthening its operations and financial
results going forward.
"Our strategy is focused on three critical areas: to invest in the Harley-
Davidson brand, get our cost-structure right, and obtain funding for HDFS to
help our dealers sell motorcycles and our retail customers to buy them," said
Ziemer
Investing in the Brand
The Company is reinforcing its support of the Harley-Davidson brand,
accelerating its ongoing marketing efforts to reach out to emerging rider
groups, including younger and diverse riders. In addition, the Company will
continue to focus on product innovations targeted at specific growth
opportunities with its strong core customer base and new riders.
In the U.S., the Company said its Sportster(R) motorcycle trade-up program
is being well-received by dealers and consumers and is generating new floor
traffic during the winter months. The program lets riders who already own a
qualifying Sportster motorcycle, or who buy a new Sportster motorcycle,
receive back the original Manufacturer's Suggested Retail Price value when
they trade up to a Harley-Davidson Big Twin or VRSC motorcycle at
participating dealerships.
Outside the U.S., the Company will continue to support the product, dealer
development and marketing activities which, during the last several years,
have helped drive strong retail sales growth.
"Among other things, the Harley-Davidson brand stands for strength and
resilience, and we're managing the business in this economic climate in ways
that we believe will build long-term value into the brand," said Ziemer.
Adjusting the Cost Structure
As a result of motorcycle volume reduction and the Company's commitment to
improve its cost structure, Harley-Davidson plans to:
-- Consolidate its two engine and transmission plants in the Milwaukee
area into its facility in Menomonee Falls, Wis.
-- Consolidate paint and frame operations at its assembly facility in
York, Pa.
-- Close its distribution facility in Franklin, Wis., consolidating Parts
and Accessories and General Merchandise distribution through a third party.
-- Discontinue its domestic transportation fleet operation.
The planned volume reduction and restructuring actions are expected to
result in the elimination of about 1,100 jobs over 2009 and 2010, including
about 800 hourly production positions and about 300 non-production, primarily
salaried positions. About 70 percent of the workforce reduction is expected to
occur in 2009.
"We obviously need to make adjustments to address the current volume
declines," said Ziemer. "But we are also determined to do that in a way that
will make us more competitive for the long term. Our management group will
engage with union leaders, through our partnering relationship, regarding
these changes."
On a combined basis, Harley-Davidson expects the volume reduction and
changes to operations to result in one-time charges of approximately $110
million to $140 million over 2009 and 2010, and ongoing annual savings of
approximately $60 million to $70 million upon completion of the restructuring
actions.
Obtaining Additional Funding for HDFS
The Company said it is evaluating a range of options to provide the
necessary liquidity for the wholesale and retail lending activities of Harley-
Davidson Financial Services (HDFS).
"We're evaluating options in order to obtain the necessary funding to
support Harley-Davidson dealers and customers throughout the year," said Tom
Bergmann, Chief Financial Officer of Harley-Davidson, Inc. and interim
President of HDFS.
Additional Detail on 2008 Results
Motorcycles and Related Products Segment - Fourth Quarter Results
Revenue from Harley-Davidson motorcycles was $1.02 billion, a decrease of
$95.4 million or 8.5 percent versus the same period last year. Shipments of
Harley-Davidson motorcycles totaled 76,581 units, down 4,625 units or 5.7
percent compared to last year's fourth quarter.
Revenue from Parts and Accessories (P&A), which consists of Genuine Motor
Parts and Genuine Motor Accessories, totaled $152.1 million, lower by $13.1
million or 7.9 percent compared to the year-ago quarter. Revenue from General
Merchandise, which consists of MotorClothes(R) apparel and collectibles,
totaled $69.0 million, a decline of $4.4 million or 6.0 percent from the year-
ago quarter.
Gross margin for the fourth quarter of 2008 was 31.6 percent of revenue
compared to 35.7 percent for the fourth quarter last year. This decrease is
primarily due to unfavorable shipment mix versus last year's fourth quarter,
higher product costs and the cost of the Sportster motorcycle trade-up
promotion. Fourth quarter operating margin decreased to 12.0 percent from 18.1
percent in the fourth quarter of 2007, reflecting the impact of lower revenue
in the fourth quarter of 2008 compared to the year-ago period.
Motorcycle Retail Sales Data
During the fourth quarter, worldwide retail sales of Harley-Davidson
motorcycles decreased 13.1 percent compared to the fourth quarter of 2007.
U.S. retail sales of Harley-Davidson motorcycles were down 19.6 percent for
the quarter. The overall heavyweight motorcycle market in the U.S. decreased
25.5 percent for the same period.
Retail sales of Harley-Davidson motorcycles grew 0.7 percent in the
Company's international markets during the fourth quarter of 2008 compared to
the year-ago period. Fourth quarter retail sales increased 1.4 percent in
Canada; the Europe Region was up 3.4 percent; the Asia Pacific Region was down
8.9 percent; and the Latin America Region was up 28.0 percent.
For the full-year 2008, worldwide retail sales of Harley-Davidson
motorcycles declined 7.1 percent compared to the prior year. U.S. retail sales
of Harley-Davidson motorcycles declined 13.0 percent for the full year while
the U.S. heavyweight market was down 7.0 percent for the same period.
International retail sales of Harley-Davidson motorcycles increased 10.3
percent for the full year 2008.
Full year data are listed in the accompanying tables.
Financial Services Segment
Harley-Davidson Financial Services (HDFS) recorded an operating loss of
$24.9 million for the fourth quarter, $63.5 million lower than the operating
income in the year-ago quarter. The decrease is primarily due to a $35.1
million write-down of retained securitization interests and a $28.4 million
write-down to fair value of finance receivables held for sale. The write-downs
were due to higher projected credit losses and an increase in the discount
rate used for the valuation of receivables.
"Our priorities for HDFS in 2009 are to continue to obtain funding for its
lending activities, manage credit losses in this challenging environment and
provide support to the Harley-Davidson dealer network," said Bergmann.
Income Tax Rate
The Company's fourth quarter effective income tax rate was 36.9 percent
compared to 35.5 in the same quarter last year. The 2008 fourth quarter
increase was primarily related to the tax implications of MV Agusta, which the
Company acquired in August 2008.
Harley-Davidson, Inc. - Twelve Month Results
For the full year of 2008, revenue totaled $5.59 billion, down 2.3 percent
from last year's $5.73 billion. Shipments of Harley-Davidson motorcycles were
303,479 units, compared to last year's 330,619 units. Harley-Davidson
motorcycle revenue was $4.28 billion, down 3.8 percent compared to last year's
$4.45 billion. P&A revenue was $858.7 million, down 1.1 percent compared to
last year's $868.3 million. General Merchandise revenue increased to $313.8
million, a 2.8 percent increase compared to $305.4 million in the full year of
2007.
HDFS operating income was $82.8 million, a 61.0 percent decrease from last
year's $212.2 million.
Cash Flow
Cash and marketable securities totaled $593.6 million as of December 31,
2008. Cash used by operations was $684.6 million, and capital expenditures
were $232.2 million during the full year of 2008.
For the full year of 2009, capital expenditures, excluding those
associated with restructuring activities, are expected to be between $180
million and $200 million. The Company expects restructuring activities to
result in additional capital expenditures of $10 million to $20 million in
2009.
Stock Repurchase
The Company did not repurchase shares in the fourth quarter of 2008. For
the full year 2008, the Company repurchased 6.4 million shares of its common
stock at a cost of $250.4 million. On December 31, 2008, the Company had 232.8
million shares of common stock outstanding.
As of December 31, 2008, there were 16.7 million shares remaining on a
board-approved share repurchase authorization. An additional board-approved
share repurchase authorization is in place to offset option exercises.
Company Background
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 and Harley-Davidson Financial Services (HDFS).
Harley-Davidson Motor Company produces heavyweight custom, touring and cruiser
motorcycles. Buell produces American sport performance motorcycles. MV Agusta
produces premium, high-performance sport motorcycles sold under the MV
Agusta(R) brand and lightweight sport motorcycles sold under the Cagiva(R)
brand. HDFS provides wholesale and retail financing and insurance programs
primarily to Harley-Davidson and Buell dealers and customers.
Forward-Looking Statements
The Company intends that certain matters discussed in this release 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 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 release. Certain of such risks and uncertainties are
described below. 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 release are only made as of
the date of this release, and the Company disclaims any obligation to publicly
update such forward-looking statements to reflect subsequent events or
circumstances.
The Company's ability to meet the targets and expectations noted depends
upon, among other factors, the Company's ability to (i) effectively execute
the Company's restructuring plans within expected costs, (ii) manage the risks
that our independent dealers may have difficulty adjusting to the recession
and slowdown in consumer demand, (iii) manage supply chain issues, (iv)
anticipate the level of consumer confidence in the economy, (v) continue to
have access to reliable sources of capital funding and adjust to fluctuations
in the cost of capital, (vi) manage the credit quality, the loan servicing and
collection activities, and the recovery rates of HDFS' loan portfolio, (vii)
continue to realize production efficiencies at its production facilities and
manage operating costs including materials, labor and overhead, (viii) manage
production capacity and production changes, (ix) provide products, services
and experiences that are successful in the marketplace, (x) develop and
implement sales and marketing plans that retain existing retail customers and
attract new retail customers in an increasingly competitive marketplace, (xi)
sell all of its motorcycles and related products and services to its
independent dealers, (xii) continue to develop the capabilities of its
distributor and dealer network, (xiii) manage changes and prepare for
requirements in legislative and regulatory environments for its products,
services and operations, (xiv) adjust to fluctuations in foreign currency
exchange rates, interest rates and commodity prices, (xv) adjust to
healthcare inflation, pension reform and tax changes, (xvi) retain and
attract talented employees, (xvii) detect any issues with our motorcycles or
manufacturing processes to avoid delays in new model launches, recall
campaigns, increased warranty costs or litigation, (xvii) implement and manage
enterprise-wide information technology solutions and secure data contained in
those systems, and (xix) successfully integrate and profitably operate MV
Agusta Group.
In addition, the Company could experience delays or disruptions in its
operations as a result of work stoppages, strikes, natural causes, terrorism
or other factors. Other factors are described in risk factors that the Company
has disclosed in documents previously filed with the Securities and Exchange
Commission. Many of these risk factors are impacted by the current turbulent
capital, credit and retail markets and our ability to adjust to the recession.
The Company's ability to sell its motorcycles and related products and
services and to meet its financial expectations also depends on the ability of
the Company's independent dealers to sell its motorcycles and related products
and services to retail customers. The Company depends on the capability and
financial capacity of its independent dealers and distributors to develop and
implement effective retail sales plans to create demand for the motorcycles
and related products and services they purchase from the Company. In addition,
the Company's independent dealers and distributors may experience difficulties
in operating their businesses and selling Harley-Davidson motorcycles and
related products and services as a result of weather, economic conditions or
other factors.
TABLES FOLLOW
Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited) (Unaudited) (Unaudited)
Three months ended Twelve months ended
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
Net revenue $1,292,591 $1,386,354 $5,594,307 $5,726,848
Gross profit 408,686 494,534 1,930,819 2,114,100
Operating expenses 254,009 243,945 964,429 883,457
Operating income from
motorcycles & related
products 154,677 250,589 966,390 1,230,643
Financial services income 64,875 96,232 376,970 416,196
Financial services expense 89,797 57,678 294,205 204,027
Operating (loss) income
from financial services (24,922) 38,554 82,765 212,169
Corporate expenses 5,649 3,488 20,131 17,251
Income from operations 124,106 285,655 1,029,024 1,425,561
Investment income 2,462 2,826 9,495 22,258
Interest expense 3,316 - 4,542 -
Income before provision
for income taxes 123,252 288,481 1,033,977 1,447,819
Provision for income taxes 45,443 102,404 379,259 513,976
Net income $77,809 $186,077 $654,718 $933,843
Earnings per common share:
Basic $0.34 $0.78 $2.80 $3.75
Diluted $0.34 $0.78 $2.79 $3.74
Weighted-average common
shares:
Basic 231,786 239,390 234,225 249,205
Diluted 232,037 239,845 234,477 249,882
Cash dividends per common
share $0.33 $0.30 $1.29 $1.06
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
December 31, December 31,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $593,558 $402,854
Marketable securities - 2,475
Accounts receivable, net 296,258 181,217
Finance receivables held for sale 2,443,965 781,280
Finance receivables held for
investment, net 1,378,461 1,575,283
Inventories 400,908 349,697
Other current assets 264,731 174,508
Total current assets 5,377,881 3,467,314
Finance receivables held for
investment, net 817,102 845,044
Other long-term assets 1,633,642 1,344,248
$7,828,625 $5,656,606
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & accrued
liabilities $865,108 $785,124
Short-term debt 1,738,649 722,447
Current portion of long-term debt - 397,508
Total current liabilities 2,603,757 1,905,079
Debt 2,176,238 980,000
Pension liability and postretirement
healthcare benefits 758,411 244,082
Other long-term liabilities 174,616 151,954
Total shareholders' equity 2,115,603 2,375,491
$7,828,625 $5,656,606
Note: On January 1, 2008 the Company recorded a reduction to
shareholders' equity of $18.1 million ($11.2 million, net of tax) to adopt
provisions of Statement of Financial Accounting Standard No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R)" that require sponsors
of defined benefit pension and postretirement plans to measure the funded
status of those plans as of the date of the year-end statement of financial
position.
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twelve months ended
December December December
31, 31, 31,
2008 2007 2006
Net cash (used by) provided by
operating activities ($684,649) $798,146 $761,780
Cash flows from investing activities:
Capital expenditures (232,169) (242,113) (219,602)
Finance receivables held for
investment, net (159,631) (145,381) (151,624)
Collection of retained securitization
interests 93,747 118,175 101,641
Net change in marketable securities 2,543 657,735 253,512
Acquisition of business, net of cash
acquired (95,554) - -
Other, net (2,183) 2,789 (19,186)
Net cash (used by) provided by
investing activities (393,247) 391,205 (35,259)
Cash flows from financing activities:
Proceeds from issuance of medium term
notes 993,550 398,144 -
Repayment of medium term notes (400,000) - -
Net increase (decrease) in credit
facilities and unsecured commercial
paper 761,065 (16,247) 493,125
Net borrowings of asset-backed
commercial paper 490,000 - -
Repayment of senior subordinated debt - (30,000) -
Dividends (302,314) (260,805) (212,914)
Purchase of common stock for treasury (250,410) (1,153,439) (1,061,968)
Excess tax benefits from share-based
payments 320 3,066 18,933
Issuance of common stock under
employee
stock option plans 1,179 21,478 125,801
Net cash provided by (used by)
financing activities 1,293,390 (1,037,803) (637,023)
Effect of exchange rate changes on cash
and cash equivalents (24,790) 12,909 7,924
Net increase in cash and cash
equivalents 190,704 164,457 97,422
Cash and cash equivalents:
At beginning of period 402,854 238,397 140,975
At end of period $593,558 $402,854 $238,397
Net Revenue and Motorcycle
Shipment Data
(Unaudited) (Unaudited) (Unaudited)
Three months ended Twelve months ended
December December December December
31, 31, 31, 31,
2008 2007 2008 2007
NET REVENUE (in thousands)
Harley-Davidson( R )
motorcycles $1,022,908 $1,118,328 $4,278,241 $4,446,637
Buell( R ) motorcycles 33,382 27,739 123,086 100,534
Parts & Accessories 152,108 165,190 858,748 868,297
General Merchandise 69,005 73,424 313,835 305,435
Other 15,188 1,673 20,397 5,945
$1,292,591 $1,386,354 $5,594,307 $5,726,848
HARLEY-DAVIDSON UNITS
Motorcycle shipments:
United States 57,081 59,092 206,309 241,539
International 19,500 22,114 97,170 89,080
Total 76,581 81,206 303,479 330,619
Motorcycle product mix:
Touring 26,196 29,142 101,887 114,076
Custom 35,592 34,931 140,908 144,507
Sportster( R ) 14,793 17,133 60,684 72,036
Total 76,581 81,206 303,479 330,619
BUELL UNITS
Motorcycle shipments:
Buell 3,895 3,137 13,119 11,513
Retail Sales of Harley-Davidson Motorcycles
Three months Twelve months
ended ended
December December December December
31, 31, 31, 31,
2008 2007 2008 2007
North America Region
United States 29,502 36,680 218,939 251,772
Canada 1,950 1,924 16,502 14,779
Total North America Region 31,452 38,604 235,441 266,551
Europe Region (Includes Middle East
and Africa)
Europe* 6,441 6,272 40,725 38,866
Other 834 761 4,317 3,436
Total Europe Region 7,275 7,033 45,042 42,302
Asia Pacific Region
Japan 3,152 3,737 14,654 13,765
Other 2,873 2,873 10,595 9,689
Total Asia Pacific Region 6,025 6,610 25,249 23,454
Latin America Region 2,003 1,565 8,037 5,467
Total Worldwide Retail Sales 46,755 53,812 313,769 337,774
Data Source (subject to update)
Data source for all 2007 and 2008 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(R) motorcycles are included in the Harley-Davidson
Motorcycle Sales data.
* Data for Europe include Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland, and the United Kingdom.
Heavyweight Market Data
Twelve months ended
December 31, December 31,
2008 2007
United States(1) 479,776 516,083
Eleven months ended
November 30, November 30,
2008 2007
Europe(2) 383,526 372,117
1 - United States industry data includes 651+cc models, derived from
submission of motorcycle retail sales by each major manufacturer to an
independent third party.
2 - Europe data includes Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland, and the United Kingdom. Industry retail motorcycle registration
data includes 651+cc models, derived from information provided by Giral S.A.,
an independent agency. Europe market data is reported on a one-month lag.
