Harley-Davidson Reports Broad Performance Improvement in Second Quarter

  • Earnings Climb to $0.81 Per Share on Motorcycle Shipment Growth, Improved Operating Margin for Motorcycles and Financial Services
  • Worldwide Harley-Davidson® Retail New Motorcycle Sales Rise, Driven by 7.5 Percent Growth in U.S.
  • Company Raises Guidance for Motorcycle Shipments

MILWAUKEE, WI – July 19, 2011 – (Motor Sports Newswire) – Harley-Davidson, Inc. (NYSE: HOG) generated broad performance improvements in the second quarter of 2011, with strong earnings growth, increased shipments and growth in its dealers’ new motorcycle sales both in the U.S. and globally.

Income from continuing operations in the second-quarter 2011 rose 36.8 percent to $190.6 million, or $0.81 per share, compared to income of $139.3 million, or $0.59 per share from continuing operations in the year-ago quarter. Second-quarter 2011 earnings results were led by operating income from the Motorcycles and Related Products, which grew 39.2 percent to $219.8 million on higher shipment volume and operating margin improvement. Operating income from the Financial Services grew 34.9 percent, compared to the second quarter of 2010.

Retail sales of new Harley-Davidson motorcycles grew 7.5 percent in the U.S. and 5.6 percent worldwide in the second quarter.

The Company raised its shipment forecast for 2011 and now expects to ship between 228,000 and 235,000 new Harley-Davidson motorcycles to dealers and distributors worldwide, an increase of 8 percent to 12 percent compared to 2010 shipments.

For the first six months of 2011, Harley-Davidson income from continuing operations was up 48.9 percent compared to the year-ago period to $309.8 million, or $1.31 per share.

“Harley-Davidson continues to make great progress as we transform our business and take our iconic brand to the many roads of the world,” said Keith Wandell, President and Chief Executive Officer of Harley-Davidson, Inc.

“While we are pleased by Harley-Davidson’s second-quarter results, including the strong jump at retail in the U.S., our focus remains squarely on sustaining this progress through the ongoing implementation of our business strategy.

“Through the transformation to best-in-class manufacturing, product development and retail capabilities, we are positioning Harley-Davidson to be customer-led in all we do. Our employees, dealers and suppliers deserve tremendous credit for their dedication to making customers’ dreams a reality by delivering remarkable products and extraordinary customer experiences,” Wandell said.

“We also believe the continued improvement in our results in the face of ongoing consumer and economic uncertainty speaks to the power of the Harley-Davidson brand globally,” Wandell said.

Retail Harley-Davidson Motorcycle Sales

On a worldwide basis, second-quarter retail Harley-Davidson new motorcycle sales grew 5.6 percent compared to last year’s second quarter. Dealers sold 53,599 new Harley-Davidson motorcycles in the U.S., a 7.5 percent increase compared to last year’s second quarter and the first year-over-year quarterly rise in U.S. Harley-Davidson new motorcycles sales since the fourth quarter of 2006. Retail sales of 29,797 new motorcycles in international markets in the second quarter marked an increase of 2.4 percent compared to the year-ago period. Industry-wide U.S. heavyweight new motorcycle (651cc-plus) retail unit sales increased 4.2 percent in the second quarter of 2011 compared to the year-ago period.

Through six months, worldwide retail sales of new Harley-Davidson motorcycles increased 4.8 percent to 132,991 units compared to the prior-year period. U.S. retail sales of new Harley-Davidson motorcycles increased 4.4 percent to 85,290 units for the first half of the year compared to the year-ago period. In international markets, retail sales of new Harley-Davidson motorcycles increased 5.6 percent to 47,701 units for the first six months of 2011 compared to 2010. Through six months, industry-wide U.S. heavyweight new motorcycle (651cc-plus) retail unit sales increased 3.8 percent, compared to the year-ago period.

Second-quarter and first-half data are listed in the accompanying tables.

Harley-Davidson Motorcycles and Related Products Segment Financial Results

Second-Quarter Segment Results: Revenue from Harley-Davidson Motorcycles during the second quarter of 2011 of $1.01 billion was up 20.9 percent compared to the year-ago period. The Company shipped 66,815 Harley-Davidson motorcycles to dealers and distributors worldwide during the quarter, compared to shipments of 59,046 motorcycles in the second quarter of 2010.

Revenue from Motorcycle Parts and Accessories (P&A) totaled $255.4 million during the quarter, up 10.2 percent, and revenue from General Merchandise, which includes MotorClothes® Apparel and Accessories, was $72.9 million, up 8.2 percent compared to the year-ago period.

Gross margin was 35.0 percent in the second quarter, flat to the year-ago period.  Second-quarter operating margin was 16.4 percent, compared to 13.9 percent in the second quarter of 2010.

Six-Month Segment Results: Through the first six months of 2011, the Company shipped 120,642 new Harley-Davidson motorcycles to dealers and distributors, a 7.0 percent increase compared to last year’s 112,720 units for the period. Revenue from Harley-Davidson Motorcycles through six months was $1.84 billion, a 12.1 percent increase compared to the year-ago period. Six-month P&A revenue was $419.7 million, a 10.2 percent increase from the first half of 2010. General Merchandise revenue was $135.5 million, a 1.4 percent increase compared to the same period in 2010. Gross margin through six months was 34.1 percent and operating margin was 14.4 percent, compared to 35.7 percent and 13.1 percent respectively in last year’s first half.

Financial Services Segment

The Financial Services segment recorded operating income of $82.0 million in the second quarter, compared to operating income of $60.8 million in the year-ago quarter. The increase in year-over-year operating income was largely the result of continued improvement in credit performance. Through six months, operating income from financial services was $150.0 million, compared to operating income of $87.5 million in the first half of 2010.

Guidance

The Company raised shipment guidance for 2011 and now expects to ship 228,000 to 235,000 Harley-Davidson motorcycles to dealers and distributors worldwide, compared to guidance provided April 19, 2011 of 215,000 to 228,000 motorcycles. In the third quarter of 2011, the Company expects to ship 60,000 to 65,000 motorcycles. For all of 2010, the Company shipped 210,494 motorcycles.

The change in shipment guidance reflects ongoing efforts to manage supply in line with demand following strong second-quarter retail sales, as well as the Company’s increased confidence in its ability to minimize the impact of potential supply chain interruptions resulting from the March earthquake in Japan.

Harley-Davidson now expects gross margin to be between 34.0 percent and 35.0 percent for the full year, versus the prior estimate of 33.5 percent to 35.0 percent. The Company continues to expect full-year capital expenditures of between $210 million and $230 million, which includes $70 million to $85 million to support restructuring activities.

Restructuring Update

Harley-Davidson has reduced the cost estimates for restructuring activities and now expects all previously announced company-wide restructuring activities to result in one-time charges of $490 million to $505 million, including 2011 charges of $80 million to $90 million. The Company continues to expect to realize savings on a cumulative basis in 2011 of $210 million to $230 million from restructuring activities initiated since early 2009, and annual ongoing savings of $305 million to $325 million when the restructuring is fully implemented. Through the first six months of 2011, the Company incurred restructuring charges of $36.6 million, including $13.6 million in the second quarter.

Income Tax Rate

Through six months, the Company’s effective tax rate was 34.8 percent, compared to 36.4 percent in the year-ago period. The 2010 effective tax rate through the second quarter was negatively impacted by the healthcare reform legislation offset by a favorable settlement of an IRS audit.  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 $1.22 billion as of June 26, 2011, compared to $1.50 billion at the end of last year’s second quarter. During the first six months of 2011, Harley-Davidson generated $473.0 million of cash from operating activities, which included a $200.0 million contribution to company pension plans. In the first half of 2010, the Company generated $726.0 million of cash from operating activities. Capital expenditures were $69.3 million for the six months ended in June 2011.

Company Background

Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Harley-Davidson Motor Company produces heavyweight custom, cruiser and touring motorcycles and offers a complete line of Harley-Davidson motorcycle parts, accessories, riding gear and apparel, and general merchandise. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, extended service and other protection plans and credit card programs to Harley-Davidson dealers and riders in the U.S., Canada and select European countries. For more information, visit Harley-Davidson’s Web site at www.harley-davidson.com.

Conference Call and Webcast Presentation

Harley-Davidson will discuss second-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) implement and manage enterprise-wide information technology solutions, including solutions at its manufacturing facilities, and secure data contained in those systems (iv) anticipate the level of consumer confidence in the economy, (v) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (vi) successfully implement with our labor unions the agreements that we have executed with them that we believe will provide flexibility and cost-effectiveness to accomplish restructuring goals and long-term competitiveness, (vii) manage supply chain issues, including the ability of several Company suppliers to execute short-term and long-term contingency plans for maintaining supply, or obtaining alternate supply, of certain components and sub-components currently manufactured in Japan, (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) manage the risks that our independent dealers may have difficulty obtaining capital and managing through unfavorable economic conditions and consumer demand, (xii) continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, (xiii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio, (xiv) sell all of its motorcycles and related products and services to its independent dealers, (xv) continue to develop the capabilities of its distributor and dealer network, (xvi) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xvii) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xviii) adjust to healthcare inflation and reform, pension reform and tax changes, (xix) retain and attract talented employees, and (xx) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation.

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 changing capital, credit and retail markets and our ability to manage through inconsistent 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)
Three months ended Six months ended
June 26, June 27, June 26, June 27,
2011 2010 2011 2010
Motorcycles and related products revenue $ 1,339,744 $   1,135,101 $   2,402,788 $ 2,172,436
Gross profit 468,268 396,984 820,134 776,531
Selling, administrative and engineering expense 234,827 208,952 438,632 414,156
Restructuring expense 13,594 30,125 36,593 78,361
 Operating income from motorcycles & related products 219,847 157,907 344,909 284,014
Financial services revenue 165,853 173,705 327,739 343,542
Financial services expense 83,798 112,860 177,749 256,015
 Operating income from financial services 82,055 60,845 149,990 87,527
Operating income 301,902 218,752 494,899 371,541
Investment income 1,748 1,551 3,146 2,427
Interest expense 11,350 23,591 22,831 47,046
Income before income taxes 292,300 196,712 475,214 326,922
Provision for income taxes 101,720 57,425 165,374 118,894
Income from continuing operations 190,580 139,287 309,840 208,028
Loss from discontinued operations, net of tax (68,130) (103,546)
Net income $    190,580 $        71,157 $      309,840 $    104,482
Earnings per common share from continuing operations:
 Basic $          0.81 $            0.60 $            1.32 $          0.89
 Diluted $          0.81 $            0.59 $            1.31 $          0.89
Loss per common share from discontinued operations:
 Basic $              – $          (0.29) $                – $        (0.44)
 Diluted $              – $          (0.29) $                – $        (0.44)
Earnings per common share:
 Basic $          0.81 $            0.30 $            1.32 $          0.45
 Diluted $          0.81 $            0.30 $            1.31 $          0.45
Weighted-average common shares:
 Basic 234,336 233,314 234,086 233,094
 Diluted 236,168 234,853 236,044 234,493
Cash dividends per common share $        0.125 $            0.10 $          0.225 $          0.20
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited) (Unaudited)
June 26, December 31, June 27,
2011 2010 2010
ASSETS
Current assets:
   Cash and cash equivalents $    973,478 $   1,021,933 $   1,414,912
   Marketable securities 244,555 140,118 86,518
   Accounts receivable, net 265,663 262,382 248,620
   Finance receivables held for investment, net 1,144,886 1,080,432 1,061,598
   Restricted finance receivables held by variable interest entities, net 573,208 699,026 743,697
   Inventories 337,472 326,446 296,920
   Assets of discontinued operations 85,126
   Restricted cash held by variable interest entities 244,060 288,887 344,595
   Other current assets 217,656 247,402 304,015
Total current assets 4,000,978 4,066,626 4,586,001
Finance receivables held for investment, net 2,306,165 1,553,781 1,717,644
Restricted finance receivables held by variable interest entities, net 1,939,181 2,684,330 2,850,684
Other long-term assets 1,115,655 1,126,003 1,069,564
$ 9,361,979 $   9,430,740 $ 10,223,893
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
   Accounts payable & accrued liabilities $    867,491 $      782,017 $      833,904
   Liabilities of discontinued operations 61,501
   Short-term debt 694,137 480,472 322,941
   Current portion of long-term debt 341,452
   Current portion of long-term debt held by variable interest entities 635,604 751,293 817,602
Total current liabilities 2,197,232 2,013,782 2,377,400
Long-term debt 2,893,462 2,516,650 2,825,334
Long-term debt held by variable interest entities 1,217,778 2,003,941 2,227,025
Pension and postretirement healthcare liabilities 362,392 536,847 509,441
Other long-term liabilities 159,719 152,654 147,689
Total shareholders’ equity 2,531,396 2,206,866 2,137,004
$ 9,361,979 $   9,430,740 $ 10,223,893
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended
June 26, June 27,
2011 2010
Net cash provided by operating activities
 of continuing operations $    472,962 $      726,010
Cash flows from investing activities of continuing operations:
 Capital expenditures (69,267) (45,754)
 Finance receivables held for investment, net (17,997) 162,376
 Net change in marketable securities (102,687) (47,144)
Net cash (used by) provided by investing activities of continuing operations (189,951) 69,478
Cash flows from financing activities of continuing operations:
 Proceeds from issuance of medium-term notes 447,076
 Repayments of securitization debt (901,851) (1,007,271)
 Net increase in credit facilities and unsecured commercial paper 131,039 38,235
 Net change in restricted cash 44,827 21,946
 Dividends (53,152) (47,033)
 Purchase of common stock for treasury (5,678) (1,191)
 Excess tax benefits from share-based payments 3,476 3,400
 Issuance of common stock under employee stock option plans 4,534 7,184
Net cash used by financing activities of continuing operations (329,729) (984,730)
Effect of exchange rate changes on cash and cash equivalents
 of continuing operations (1,702) (3,172)
Net decrease in cash and cash equivalents of continuing operations (48,420) (192,414)
Cash flows from discontinued operations:
 Cash flows from operating activities of discontinued operations (35) (22,010)
 Cash flows from investing activities of discontinued operations
 Effect of exchange rate changes on cash and cash equivalents
   of discontinued operations (1,856)
(35) (23,866)
Net decrease in cash and cash equivalents $    (48,455) $    (216,280)
Cash and cash equivalents:
 Cash and cash equivalents – beginning of period $ 1,021,933 $   1,630,433
 Cash and cash equivalents of discontinued operations – beginning of period 6,063
 Net decrease in cash and cash equivalents (48,455) (216,280)
 Less: Cash and cash equivalents of discontinued operations – end of period (5,304)
 Cash and cash equivalents – end of period $    973,478 $   1,414,912
Motorcycles and Related Products Revenue and
Motorcycle Shipment Data
(Unaudited)
Three months ended Six months ended
June 26, June 27, June 26, June 27,
2011 2010 2011 2010
MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)
 Harley-Davidson® motorcycles $ 1,005,729 $      831,631 $   1,839,117 $ 1,640,437
 Buell® motorcycles 864 116 977 10,906
 Parts & Accessories 255,378 231,784 419,711 380,870
 General Merchandise 72,910 67,360 135,476 133,615
 Other 4,863 4,210 7,507 6,608
$ 1,339,744 $   1,135,101 $   2,402,788 $ 2,172,436
MOTORCYCLE SHIPMENTS:
 Harley-Davidson
   United States 42,623 33,957 77,489 69,625
   International 24,192 25,089 43,153 43,095
     Total Harley-Davidson 66,815 59,046 120,642 112,720
 Buell 197 620 220 2,394
MOTORCYCLE PRODUCT MIX:
 Harley-Davidson
   Touring 25,557 20,486 48,053 43,371
   Custom 25,218 24,170 45,888 46,742
   Sportster® 16,040 14,390 26,701 22,607
     Total Harley-Davidson 66,815 59,046 120,642 112,720
Worldwide Retail Sales of Harley-Davidson Motorcycles
Three months ended Six months ended
June 26, June 27, June 26, June 27,
2011 2010 2011 2010
North America Region
 United States 53,599 49,841 85,290 81,686
 Canada 4,793 4,897 6,830 6,792
   Total North America Region 58,392 54,738 92,120 88,478
Europe Region (Includes Middle East and Africa)
 Europe* 16,106 15,909 25,273 23,467
 Other 1,458 1,207 2,704 2,138
   Total Europe Region 17,564 17,116 27,977 25,605
Asia Pacific Region
 Japan 3,128 3,237 4,959 5,255
 Other 2,696 2,222 5,125 4,638
   Total Asia Pacific Region 5,824 5,459 10,084 9,893
Latin America Region 1,616 1,633 2,810 2,895
   Total Worldwide Retail Sales 83,396 78,946 132,991 126,871
Data Source (subject to update)
Data source for 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.
* Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
Heavyweight Motorcycle Registration Data(1)
Six months ended
June 30, June 30,
2011 2010
United States(2) 157,602 151,865
Five months ended
May 31, May 31,
2011 2010
Europe(3) 164,156 158,212
1 – Heavyweight data includes street legal 651+cc models.  Street legal 651+cc models include on-highway, 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 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.  This third-party data is subject to revision and update.
SOURCE: Harley-Davidson, Inc.
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