Harley-Davidson Reports Record Fourth Quarter and 18th Consecutive Record Year
Company Sets Goal of 400,000 Motorcycles for 2007
MILWAUKEE, Jan. 21 -- Harley-Davidson, Inc. today announced record revenue and earnings for its fourth quarter and year ended December 31, 2003. Revenue for the quarter was $1.16 billion compared with $1.03 billion in the year-ago quarter, a 12.8 percent increase. Net income for the quarter was $182.4 million compared to $150.9 million, an increase of 20.9 percent over the year ago quarter. Fourth quarter diluted earnings per share (EPS) was 60 cents, a 22.4 percent increase compared with last year's 49 cents.
Revenue for the full year was $4.62 billion, compared with $4.09 billion in 2002, a 13.0 percent increase. Net income for the year was $760.9 million, a 31.1 percent increase versus last year's $580.2 million, while diluted EPS for the full year was $2.50, a 31.6 percent increase compared with $1.90 in 2002.
"This is the 18th consecutive year that Harley-Davidson has achieved records for both revenue and net income," said Jeffrey L. Bleustein, chairman and chief executive officer of Harley-Davidson, Inc. "We had a phenomenal year full of memorable once-in-a-lifetime experiences surrounding our 100th Anniversary. Introducing the Harley-Davidson brand to hundreds of thousands of potential customers has undoubtedly sparked the dream of ownership and created new excitement for our products."
"As we begin our 101st year, we expect to grow the business further with our proven ability to deliver a continuous stream of exciting new motorcycles, related products and services. We have set a new goal for the Company to be able to satisfy a yearly demand of 400,000 Harley-Davidson motorcycles in 2007. By offering innovative products and services, and by driving productivity gains in all facets of our business, we are confident that we can deliver an earnings growth rate in the mid-teens for the foreseeable future," said Bleustein.
Motorcycles and Related Products Segment -- Fourth Quarter Results
Revenue from Harley-Davidson(R) motorcycles was $945.3 million, an increase of $125.0 million or 15.2 percent over the same period last year. Shipments of Harley-Davidson motorcycles totaled 77,056 units, an increase of 11,086 units or 16.8 percent over last year's fourth quarter. The Company's shipment target remains 317,000 Harley-Davidson motorcycles for 2004.
Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $141.0 million, an increase of $11.1 million, or 8.5 percent over the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes(TM) apparel and collectibles, totaled $50.7 million, a decrease of $4.1 million or 7.4 percent. Excluding revenue from 100th Anniversary products in 2002's fourth quarter, the P&A growth rate would have been 20.3 percent over last year's fourth quarter and the General Merchandise growth rate would have been 20.0 percent over the same period.
Gross margin was 35.9 percent of revenue, down slightly from the prior year's 36.1 percent. Gross margin was negatively impacted by a higher proportion of Sportster(R) motorcycle shipments and higher manufacturing costs, but partially offset by favorable foreign currency exchange. Fourth quarter operating margin improved to 21.5 percent in 2003 from 20.7 percent in 2002.
Motorcycle Retail Sales Data
Retail sales of Harley-Davidson(R) motorcycles for the year 2003 grew 8.8 percent in the U.S., 6.7 percent in Europe, and 9.0 percent in Japan compared to 2002. Based on the information currently available, Harley-Davidson's full year market share for the 651cc and up segment is expected to grow in all of the Company's major markets. "Given the economic climate during the past year, we are pleased with our retail growth," said Bleustein.
"Although our U.S. dealer network experienced a modest decline in motorcycle sales in the fourth quarter as compared to last year's fourth quarter, we believe it is difficult to draw meaningful conclusions from this comparison. The urgency to buy a 100th Anniversary motorcycle prior to the celebrations, along with an unusually late shipment plan for '04 motorcycles, created two very different selling environments. We are confident that 2004 will be another strong year for Harley-Davidson due to current dealer confidence, momentum from the 100th Anniversary and improving economic indicators," Bleustein added.
For more motorcycle retail data, see the attached tables. Financial Services Segment
Harley-Davidson Financial Services, Inc. (HDFS), a subsidiary of Harley-Davidson, Inc., reported fourth quarter operating income of $33.8 million, up $8.5 million or 33.4 percent compared to the year-ago quarter.
"Harley-Davidson Financial Services had another strong quarter in both financial performance and in helping to make the dream of owning a Harley-Davidson motorcycle a reality," said Bleustein. The segment's performance was driven by continued strong marketplace acceptance of its finance and insurance products.
The Company's fourth quarter securitization of $300 million of motorcycle retail loans resulted in a gain of $11.4 million, which represents 3.8 percent of loans sold.
Annualized credit losses on a managed portfolio basis increased during the year from 0.72 percent in 2002 to 0.85 percent in 2003, which is within the 5-year historical range of credit losses of 0.72 to 0.90 percent.
During the quarter, the Company's tax rate was 35.5 percent, up from 34.5 percent in the first nine months of the year. The Company expects to maintain a rate of 35.5 percent throughout 2004.
During the fourth quarter, the Company invested $73.3 million in repurchasing 1.6 million shares of its stock.
Harley-Davidson, Inc. -- Twelve Month Results
For the fiscal year ended 2003, total Harley-Davidson motorcycle shipments were 291,147 units compared with 263,653 units in 2002, a 10.4 percent increase. Harley-Davidson motorcycle revenue was $3.62 billion, an increase of $460.4 million or 14.6 percent.
P&A revenue totaled $712.8 million, a 13.3 percent increase, while General Merchandise revenue totaled $211.4 million, an 8.7 percent decrease compared with 2002. Excluding revenue from 100th Anniversary products for both 2002 and 2003, the P&A growth rate would have been 14.4 percent and the General Merchandise growth rate would have been 12.7 percent.
Full year operating income for HDFS was $167.9 million, an increase of $63.6 million or 61.1 percent compared to 2002.
Cash Flow -- Twelve Month Results
Operations generated cash of $935.6 million in 2003, even after a $192.0 million contribution to the Company's pension plans. This cash provided the Company the ability to invest $227.2 million in capital expenditures, to repurchase 2.3 million shares of Company stock for $103.9 million, to pay $59.0 million in dividends and to increase cash and marketable securities by $526.9 million.
2004 and Beyond
In addition to the previously stated motorcycle unit goal, the Company plans on growth in all of its product lines. Harley-Davidson expects the growth rate for P&A revenues to be slightly higher than the motorcycle unit growth rate, and the General Merchandise growth rate is expected to be lower than the motorcycle unit growth rate. The Company expects the HDFS growth rate to be slightly higher than the Company's motorcycle unit growth rate.
Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services, Inc. Harley-Davidson Motor Company, the only major U.S.-based motorcycle manufacturer, produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel, and general merchandise. Buell Motorcycle Company produces sport and sport-touring motorcycles. Harley-Davidson Financial Services, Inc. provides wholesale and retail financing and insurance programs to Harley-Davidson dealers and customers.
Harley-Davidson, Inc. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2003 2002 2003 2002 Net revenue $1,158,070 $1,026,532 $4,624,274 $4,090,970 Gross profit 416,026 370,626 1,665,566 1,417,841 Operating expenses 167,488 157,768 668,677 626,720 Operating income from motorcycles & related products 248,538 212,858 996,889 791,121 Financial services income 62,743 53,991 279,458 211,500 Financial services operating expense 28,906 28,634 111,585 107,273 Operating income from financial services 33,837 25,357 167,873 104,227 Corporate expenses 3,475 3,027 15,498 12,646 Total operating income 278,900 235,188 1,149,264 882,702 Interest income, net 5,103 4,986 23,088 16,541 Other income (expense), net (1,167) (9,852) (6,317) (13,416) Income before provision for taxes 282,836 230,322 1,166,035 885,827 Provision for income taxes 100,406 79,461 405,107 305,610 Net income $182,430 $150,861 $760,928 $580,217 Earnings per common share: Basic $0.60 $0.50 $2.52 $1.92 Diluted $0.60 $0.49 $2.50 $1.90 Weighted-average common shares: Basic 302,244 302,395 302,271 302,297 Diluted 304,404 305,037 304,470 305,158 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) Dec. 31, Dec. 31, 2003 2002 ASSETS Current assets: Cash and cash equivalents $812,449 $280,928 Marketable securities 510,211 514,800 Accounts receivable, net 112,406 108,694 Finance receivables, net 1,001,990 855,771 Inventories 207,726 218,156 Other current assets 84,345 88,237 Total current assets 2,729,127 2,066,586 Finance receivables, net 735,859 589,809 Other long-term assets 1,458,102 1,204,822 Total assets $4,923,088 $3,861,217 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable & accrued expenses $631,468 $607,473 Current portion of finance debt 324,305 382,579 Total current liabilities 955,773 990,052 Finance debt 670,000 380,000 Other long-term liabilities 212,179 152,831 Postretirement health care benefits 127,444 105,419 Shareholders' equity 2,957,692 2,232,915 Total liabilities and shareholders' equity $4,923,088 $3,861,217 Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (In thousands, except per share amounts) Dec. 31, Dec. 31, 2003 2002 Cash flows from operating activities: Net income $760,928 $580,217 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 196,918 175,778 Non cash expenses 96,579 70,348 Deferred taxes 42,105 38,560 Current year gain on securitizations (82,221) (56,139) Collection of retained securitization interests 118,113 89,970 Contributions to the pension plans (192,000) (153,636) Other operating cash flows 13,775 14,452 Net changes in current assets and current liabilities (18,644) 16,089 Net cash provided by operating activities 935,553 775,639 Cash flows from investing activities: Capital expenditures (227,230) (323,866) Finance receivables, net (268,224) (394,861) Net decrease (increase) in marketable securities 1,102 (318,171) Other, net 9,690 22,813 Net cash used in investing activities (484,662) (1,014,085) Cash flows from financing activities: Net increase in finance debt 224,118 165,528 Dividends paid (58,986) (41,457) Purchase of common stock for treasury (103,880) (56,814) Issuance of common stock under employee stock plans 19,378 12,679 Net cash used in financing activities 80,630 79,936 Net (decrease) increase in cash and cash equivalents 531,521 (158,510) Cash and cash equivalents: At beginning of period 280,928 439,438 At end of period $812,449 $280,928 Harley-Davidson, Inc. Net Revenue and Motorcycle Shipment Data Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2003 2002 2003 2002 NET REVENUE (in thousands) Harley-Davidson(R) motorcycles $945,292 $820,287 $3,621,488 $3,161,046 Buell(R) motorcycles 20,079 21,523 76,064 66,949 Parts & Accessories 141,020 129,929 712,829 629,202 General Merchandise 50,730 54,788 211,388 231,503 Other 949 5 2,505 2,270 Total net sales $1,158,070 $1,026,532 $4,624,274 $4,090,970 HARLEY-DAVIDSON UNITS Motorcycle shipments: United States 63,944 54,235 237,656 212,833 Export 13,112 11,735 53,491 50,820 Total 77,056 65,970 291,147 263,653 Motorcycle product mix: Touring 22,106 17,911 82,577 70,713 Custom 34,954 30,753 135,954 123,761 VRSC 3,192 4,760 15,451 18,008 Sportster(R) 16,804 12,546 57,165 51,171 Total 77,056 65,970 291,147 263,653 BUELL UNITS Motorcycle shipments: Buell (excluding Blast) 2,231 2,519 8,784 6,887 Buell Blast 379 612 1,190 4,056 2,610 3,131 9,974 10,943 Year-to-date Heavyweight (651+ cc) Motorcycle Retail Registrations (Units), data through month indicated. 2003 2002 % change United States - H-D (December) 228,393 209,944 8.8% - Industry (December) 461,154 442,326 4.3% Europe - H-D * (December) 25,966 24,339 6.7% - Industry (November) 286,192 296,667 -3.5% Japan - H-D (December) 11,802 10,902 8.3% - Industry (December) 44,322 47,857 -7.4% Only Harley-Davidson(R) motorcycles are included in the Harley-Davidson (H-D) data. H-D * Includes Harley-Davidson sales in all European countries. Industry data for Europe includes sales only in Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Switzerland and United Kingdom. Data Sources: (Data subject to update) United States: Motorcycle Industry Council, Europe: Company reports, Giral S.A. Japan: Company reports, Industry sources