Harley-Davidson Reports Broad Improvement in Full-Year Results From Continuing Operations for 2010

  • Company Generates Full-Year EPS of $1.11 from Continuing Operations
  • Performance Reflects Strong Rebound at HDFS, Progress on Business Strategy and at Retail
  • Company Forecasts 2011 Shipment Growth

MILWAUKEE, WI – January 25, 2011 – (Motor Sports Newswire) – Harley-Davidson, Inc. (NYSE: HOG) reported full-year 2010 income from continuing operations of $259.7 million, or $1.11 per share, compared to income of $70.6 million, or $0.30 per share, from continuing operations in 2009. For the fourth quarter of 2010, Harley-Davidson recorded a loss from continuing operations of $42.1 million, or $0.18 per share, which includes the impact of a one-time, $85.2 million charge from the Company’s early repurchase of senior unsecured notes during the quarter.

Retail sales of new Harley-Davidson motorcycles in the fourth quarter were nearly level with the year-ago period, decreasing 1.0 percent worldwide and 0.2 percent in the U.S.

The Company’s financial services unit, Harley-Davidson Financial Services, was a key contributor to 2010 earnings, with operating income from financial services of $181.9 million for the full year, including $43.5 million in the fourth quarter. Operating income from motorcycles and related products was $378.8 million for the full year, including an operating loss of $6.8 million in the fourth quarter.

“We feel good about our 2010 results,” said Keith Wandell, President and Chief Executive Officer of Harley-Davidson, Inc. “Through the hard work of a lot of very dedicated and talented employees and dealers, we have made strong progress at transforming our business to be leaner, more agile and even more effective at delivering great products and customer experiences.

“In 2010, we expanded our international footprint, saw improvement in our motorcycle segment results driven by the restructuring of our operations and returned HDFS to solid profitability. A strong, financially sound Harley-Davidson is key to our ability to invest in the business and grow. While there is still hard work ahead and we remain cautious in our outlook, I am confident that we are positioning Harley-Davidson to succeed and deliver value for all our stakeholders into the future,” Wandell said.

2010 Retail Harley-Davidson Motorcycle Sales

Fourth Quarter: During the fourth quarter of 2010, retail sales of new Harley-Davidson motorcycles decreased 1.0 percent worldwide, down 0.2 percent in the U.S. and down 2.1 percent in international markets, compared to the prior-year quarter. Industry-wide U.S. heavyweight motorcycle (651cc-plus) retail unit sales decreased 14.8 percent in the fourth quarter compared to the year-ago period.

Full Year: For the full year 2010, worldwide retail sales of Harley-Davidson motorcycles decreased 8.5 percent compared to 2009. U.S. retail sales of Harley-Davidson motorcycles decreased 11.7 percent for the full year, while the U.S. heavyweight market segment was down 14.6 percent, compared to 2009. In international markets, retail sales of new Harley-Davidson motorcycles decreased 1.9 percent for the full year compared to 2009. For the full year, dealers sold 222,110 new Harley-Davidson motorcycles worldwide at retail, including 143,391 in the U.S.

“In the U.S., we are the market share leader in new on-road motorcycle sales, not only to Boomers but to young adults, women, African-American and Hispanic riders. In Europe, we moved into the number two market share spot for heavyweight motorcycles in 2010. For 2011, we plan to build on our position as one of the strongest brands in the world through our continued focus on customer-led products and experiences,” said Wandell.

Fourth quarter and full year data are listed in the accompanying tables.

Harley-Davidson Motorcycles and Related Products Segment Financial Results

Fourth Quarter: Revenue from Harley-Davidson motorcycles in the fourth quarter of 2010 was $697.8 million, up 26.4 percent compared to the year-ago period. The Company shipped 44,481 Harley-Davidson motorcycles to dealers and distributors worldwide during the quarter, compared to shipments of 35,938 motorcycles in the fourth quarter of 2009.

Revenue from Parts and Accessories totaled $149.4 million during the quarter, up 3.3 percent, and revenue from General Merchandise, which includes MotorClothes® apparel, was $61.5 million, down 7.9 percent compared to the year-ago period.

Gross margin was 29.6 percent in the fourth quarter, compared to 20.3 percent in the year-ago period. Fourth-quarter 2010 gross margin benefited from favorability on product mix and foreign currency, while fourth-quarter 2009 gross margin was adversely affected by higher fixed costs spread over fewer units and the impact of exiting the Buell product line. The Company had an operating loss in the fourth quarter from motorcycles and related products of $6.8 million compared to an operating loss of $221.8 million in the year-ago period.

Full Year: In 2010, the Company shipped 210,494 Harley-Davidson motorcycles, in line with its target range of 207,000 to 212,000 motorcycles. Full-year 2010 shipments were 5.6 percent lower than 2009, when the Company shipped 223,023 units. Revenue from Harley-Davidson motorcycles for the full year was $3.14 billion, a 1.2 percent decrease compared to 2009. Full-year P&A revenue was $749.2 million, a 2.4 percent decrease from the year-ago period. General Merchandise revenue was $259.1 million, an 8.2 percent decrease compared to 2009. Gross margin for the full year 2010 was 34.2 percent and operating margin was 9.1 percent, compared to 32.3 percent and 7.3 percent respectively in 2009.

Financial Services Segment

Fourth Quarter: The financial services segment recorded operating income of $43.5 million in the quarter, compared to an operating loss of $7.1 million in the year-ago quarter. The improvement in year-over-year operating income is largely the result of higher net interest income and lower provision for credit losses.

Full Year: For the full year 2010, operating income from financial services was $181.9 million, compared to an operating loss of $118.0 million in 2009. Full-year 2009 results were affected by two non-recurring, non-cash charges totaling $101.1 million.

Guidance

In 2011, the Company expects to ship 221,000 to 228,000 Harley-Davidson motorcycles to dealers and distributors worldwide, an approximate five percent to eight percent increase compared to 2010. The Company expects to ship more motorcycles to U.S. dealers than it anticipates dealers will sell at retail in 2011, to return aggregate U.S. dealer inventory to what the Company believes is an appropriate level. In the first quarter of 2011, Harley-Davidson expects to ship 51,000 to 56,000 motorcycles.

The Company expects 2011 gross margin to be between 34.0 percent and 35.0 percent. Harley-Davidson expects full-year capital expenditures of between $210 million and $230 million, including $60 million to $75 million to support restructuring activities.

Restructuring Update

The Company is lowering its cost estimates for previously announced restructuring activities which began in 2009 by $10 million to $25 million, and now expects the restructuring to result in total one-time charges of $495 million to $510 million into 2012, including charges of $85 million to $95 million in 2011. The Company expects to realize savings of $210 million to $230 million in 2011, and $275 million to $295 million in 2012, from restructuring activities initiated since early 2009. Upon completion of the restructuring activities, Harley-Davidson continues to expect to realize annual ongoing savings of $290 million to $310 million, beginning in 2013. In 2010, the Company incurred restructuring charges of $164 million and realized savings of $172 million.

The Company and the unions representing its production employees in Kansas City, Mo. are scheduled to begin negotiations this week on a new labor agreement to replace the current contract which is set to expire in July 2012. The Company has advised the unions that the Kansas City operations must become more competitive and flexible if those operations are to remain viable. The Company expects to make a decision on the future of the Kansas City operations in early March 2011, and will provide any updated cost and savings information at such time as it discloses a final decision.

Income Tax Rate

For the full year 2010, the Company’s effective income tax rate from continuing operations was 33.5 percent, compared to 60.5 percent in 2009. The 2009 effective tax rate was unfavorably impacted by a one-time tax charge related to a Wisconsin tax law change and a non-deductible goodwill charge. In 2011, the Company expects its full-year effective tax rate from continuing operations to be approximately 35.0 percent.

Cash Flow

Cash and marketable securities totaled $1.16 billion as of Dec. 31, 2010, compared to $1.67 billion at year-end 2009. For the full year 2010, cash provided by operating activities from continuing operations was $1.16 billion, compared to $609.0 million in 2009, and capital expenditures were $170.8 million in 2010, compared to $116.7 million in 2009. In December 2010, Harley-Davidson repurchased $297.0 million (face value) of senior unsecured notes more than three years ahead of their Feb. 14, 2014 maturity date, at a price of $380.8 million, using cash on hand, and subsequently retired the debt. If held to maturity, Harley-Davidson would have incurred approximately $438 million in principal and interest payments over the remaining life of the notes.

Discontinued Operations

In the third quarter, the Company completed the divesture of its MV Agusta subsidiary. For the full year, Harley-Davidson incurred a $113.1 million loss, net of tax, from discontinued operations, comprised of operating losses as well as fair value adjustments. Including discontinued operations, the Company reported earnings per share of $0.62 for the full year.

Company Background

Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company (HDMC), Harley-Davidson Financial Services (HDFS) and Buell Motorcycle Company (Buell).

Conference Call and Webcast Presentation

Harley-Davidson will discuss fourth-quarter results on a Webcast at 8:00 a.m. CT today. The Webcast presentation will be posted prior to the call and can be accessed at http://investor.harley-davidson.com/. Click “Events and Presentations” under “Resources.”

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) execute its business strategy, (ii) effectively execute the Company’s restructuring plans within expected costs and timing, (iii) successfully achieve with our labor unions flexible and cost-effective agreements to accomplish restructuring goals and long-term competitiveness, (iv) manage the risks that our independent dealers may have difficulty obtaining capital and managing through unfavorable economic conditions and consumer demand, (v) manage supply chain issues, (vi) anticipate the level of consumer confidence in the economy, (vii) continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, (viii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio, (ix) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (x) manage production capacity and production changes, (xi) provide products, services and experiences that are successful in the marketplace, (xii) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (xiii) sell all of its motorcycles and related products and services to its independent dealers, (xiv) continue to develop the capabilities of its distributor and dealer network, (xv) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xvi) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xvii) adjust to healthcare inflation and reform, pension reform and tax changes, (xviii) retain and attract talented employees, (xix) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation, and (xx) implement and manage enterprise-wide information technology solutions and secure data contained in those systems.

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 manage through unfavorable economic conditions.

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 Operations
(In thousands, except per share amounts)
(Unaudited) (Unaudited) (Unaudited)
Three months ended Twelve months ended
December 31, December 31, December 31, December 31,
2010 2009 2010 2009
Motorcycles and related products revenue $      917,076 $      764,499 $   4,176,627 $   4,287,130
Gross profit 271,066 154,821 1,427,403 1,386,196
Selling, administrative and engineering expense 260,153 256,387 885,137 851,165
Restructuring expense and other impairments 17,671 120,238 163,508 220,976
Operating (loss) income from motorcycles & related products (6,758) (221,804) 378,758 314,055
Financial services revenue 166,322 129,152 682,709 494,779
Financial services expense 122,844 134,178 500,836 581,059
Restructuring expense 2,098 3,302
Goodwill impairment 28,387
Operating income (loss) from financial services 43,478 (7,124) 181,873 (117,969)
Operating income (loss) 36,720 (228,928) 560,631 196,086
Investment income 1,776 1,037 5,442 4,254
Interest expense 20,209 10,212 90,357 21,680
Loss on debt extinguishment 85,247 85,247
(Loss) income before income taxes (66,960) (238,103) 390,469 178,660
(Benefit from) provision for income taxes (24,884) (90,933) 130,800 108,019
(Loss) income from continuing operations (42,076) (147,170) 259,669 70,641
Loss from discontinued operations, net of tax (4,690) (71,526) (113,124) (125,757)
Net (loss) income $      (46,766) $    (218,696) $      146,545 $      (55,116)
(Loss) earnings per common share from continuing operations:
Basic $          (0.18) $          (0.63) $            1.11 $            0.30
Diluted $          (0.18) $          (0.63) $            1.11 $            0.30
Loss per common share from discontinued operations:
Basic $          (0.02) $          (0.31) $          (0.48) $          (0.54)
Diluted $          (0.02) $          (0.31) $          (0.48) $          (0.54)
(Loss) earnings per common share:
Basic $          (0.20) $          (0.94) $            0.63 $          (0.24)
Diluted $          (0.20) $          (0.94) $            0.62 $          (0.24)
Weighted-average common shares:
Basic 233,535 232,720 233,312 232,577
Diluted 233,535 232,720 234,787 233,573
Cash dividends per common share $            0.10 $            0.10 $            0.40 $            0.40
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
December 31, December 31,
2010 2009
ASSETS
Current assets:
Cash and cash equivalents $   1,021,933 $   1,630,433
Marketable securities 140,118 39,685
Accounts receivable, net 262,382 269,371
Finance receivables held for investment, net 1,080,432 1,436,114
Restricted finance receivables held by variable interest entities, net (1) 699,026
Inventories 326,446 323,029
Assets of discontinued operations 181,211
Restricted cash held by variable interest entities (1) 288,887
Other current assets 247,402 462,106
Total current assets 4,066,626 4,341,949
Finance receivables held for investment, net 1,553,781 3,621,048
Restricted finance receivables held by variable interest entities, net (1) 2,684,330
Other long-term assets 1,126,003 1,192,521
$   9,430,740 $   9,155,518
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable & accrued liabilities $      782,017 $      676,599
Liabilities of discontinued operations 69,535
Short-term debt 480,472 189,999
Current portion of long-term debt 1,332,091
Current portion of long-term debt held by variable interest entities (1) 751,293
Total current liabilities 2,013,782 2,268,224
Long-term debt 2,516,650 4,114,039
Long-term debt held by variable interest entities (1) 2,003,941
Pension and postretirement healthcare liabilities 536,847 509,804
Other long-term liabilities 152,654 155,333
Total shareholders’ equity (1) 2,206,866 2,108,118
$   9,430,740 $   9,155,518
(1) On January 1, 2010, the Company adopted Statement of Financial Accounting Standard  (SFAS) No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140,” (codified within ASC Topic 860) and SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (codified in ASC Topic 810, “Consolidations”). In accordance with ASC Topic 810, the Company determined that it is the primary beneficiary of its formerly unconsolidated variable interest entities.  Accordingly, the Company began consolidating the variable interest entities on January 1, 2010.  As a result of the consolidation, the Company recorded a reduction to retained earnings of $40.6 million net of tax.
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twelve months ended
December 31, December 31, December 31,
2010 2009 2008
Net cash provided by (used by) operating activities
of continuing operations $   1,163,418 $      609,010 $    (608,029)
Cash flows from investing activities of continuing operations:
Capital expenditures (170,845) (116,748) (228,959)
Finance receivables held for investment, net 416,430 (771,058) (159,631)
Collection of retained securitization interests 61,170 93,747
Net change in marketable securities (100,148) (39,685) 2,543
Other, net 2,834 (2,575)
Net cash provided by (used by) investing activities of continuing operations 145,437 (863,487) (294,875)
Cash flows from financing activities of continuing operations:
Proceeds from issuance of medium-term notes 496,514 993,550
Repayment of medium-term notes (200,000) (400,000)
Proceeds from issuance of senior unsecured notes 595,026
Repayment of senior unsecured notes (380,757)
Proceeds from securitization debt 598,187 2,413,192
Repayments of securitization debt (1,896,665) (263,083)
Net increase (decrease) in credit facilities and unsecured commercial paper 30,575 (1,083,331) 761,065
Net change in asset-backed commercial paper (845) (513,168) 490,000
Net change in restricted cash 77,654 (167,667)
Dividends (94,145) (93,807) (302,314)
Purchase of common stock for treasury (1,706) (1,920) (250,410)
Excess tax benefits from share-based payments 3,767 170 320
Issuance of common stock under employee stock option plans 7,845 11 1,179
Net cash (used by) provided by financing activities of continuing operations (1,856,090) 1,381,937 1,293,390
Effect of exchange rate changes on cash and cash equivalents
of continuing operations 4,940 6,789 (20,352)
Net (decrease) increase in cash and cash equivalents of continuing operations (542,295) 1,134,249 370,134
Cash flows from discontinued operations:
Cash flows from operating activities of discontinued operations (71,073) (71,298) (75,028)
Cash flows from investing activities of discontinued operations (18,805) (99,963)
Effect of exchange rate changes on cash and cash equivalents
of discontinued operations (1,195) (1,208) (4,439)
(72,268) (91,311) (179,430)
Net (decrease) increase in cash and cash equivalents $    (614,563) $   1,042,938 $      190,704
Cash and cash equivalents:
Cash and cash equivalents – beginning of period $   1,630,433 $      568,894 $      402,854
Cash and cash equivalents of discontinued operations – beginning of period 6,063 24,664
Net (decrease) increase in cash and cash equivalents (614,563) 1,042,938 190,704
Less: Cash and cash equivalents of discontinued operations – end of period (6,063) (24,664)
Cash and cash equivalents – end of period $   1,021,933 $   1,630,433 $      568,894
Motorcycles and Related Products Revenue and
Motorcycle Shipment Data
(Unaudited) (Unaudited) (Unaudited)
Three months ended Twelve months ended
December 31, December 31, December 31, December 31,
2010 2009 2010 2009
MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)
Harley-Davidson® motorcycles $      697,781 $      552,036 $   3,136,987 $   3,174,810
Buell® motorcycles 4,546 (3,962) 16,280 46,514
Parts & Accessories 149,395 144,626 749,240 767,275
General Merchandise 61,458 66,752 259,125 282,210
Other 3,896 5,047 14,995 16,321
$      917,076 $      764,499 $   4,176,627 $   4,287,130
MOTORCYCLE SHIPMENTS:
Harley-Davidson
United States 27,617 20,036 131,636 144,464
International 16,864 15,902 78,858 78,559
Total Harley-Davidson 44,481 35,938 210,494 223,023
Buell 63 3,026 2,614 9,572
MOTORCYCLE PRODUCT MIX:
Harley-Davidson
Touring 18,514 14,780 81,927 84,104
Custom 17,835 16,517 87,158 91,650
Sportster® 8,132 4,641 41,409 47,269
Total Harley-Davidson 44,481 35,938 210,494 223,023
Retail Sales of Harley-Davidson Motorcycles
Three months ended Twelve months ended
December 31, December 31, December 31, December 31,
2010 2009 2010 2009
North America Region
United States 21,246 21,284 143,391 162,385
Canada 1,022 1,030 10,376 11,406
Total North America Region 22,268 22,314 153,767 173,791
Europe Region (Includes Middle East and Africa)
Europe* 5,938 6,322 37,378 36,444
Other 731 997 3,810 3,560
Total Europe Region 6,669 7,319 41,188 40,004
Asia Pacific Region
Japan 2,951 2,865 11,405 13,105
Other 2,750 2,649 9,582 9,884
Total Asia Pacific Region 5,701 5,514 20,987 22,989
Latin America Region 1,752 1,607 6,168 5,850
Total Worldwide Retail Sales 36,390 36,754 222,110 242,634
Data Source (subject to update)
Data source for all retail sales figures shown above is new 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 new retail sales, and this information is subject to revision.
Only Harley-Davidson® 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 Motorcycle Registration Data(1)
Twelve months ended
December 31, December 31,
2010 2009
United States(2) 259,733 304,304
Eleven months ended
November 30, November 30,
2010 2009
Europe(3) 294,351 304,670
(1) – Heavyweight data includes street legal 651+cc models.  Street legal 651+cc models include both on-highway and dual purpose models and three-wheeled vehicles.
(2) – United States data is derived from information provided by Motorcycle Industry Council (MIC).  This third party data is subject to revision and update.  Prior periods have been adjusted to include all dual purpose models that were previously excluded.
(3) – 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 is derived from information provided by Giral S.A., an independent agency.  Europe market data is reported on a one-month lag.  This data is subject to revision and update.

SOURCE: Harley-Davidson, Inc.

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