Harley-Davidson Announces 20th Record Year
Revenue, Earnings and Retail Motorcycle Sales reach all time highs
Select financial data reported in the text of this press release is presented on the basis described in the Stock Option Accounting section below.
MILWAUKEE, Jan. 19 -- Harley-Davidson, Inc. today announced record revenue and earnings for its fourth quarter and year ended December 31, 2005. Revenue for the quarter was $1.34 billion compared with $1.22 billion in the year-ago quarter, a 9.9 percent increase. Net income for the quarter was $230.0 million compared to $209.0 million, an increase of 10.1 percent over 2004. Fourth quarter diluted earnings per share (EPS) were 84 cents, an 18.3 percent increase compared with last year's 71 cents.
Revenue for the full year was $5.34 billion, compared with $5.02 billion in 2004, a 6.5 percent increase. Net income for the year was $959.6 million, a 7.8 percent increase versus last year's $889.8 million, while diluted EPS for the full year were $3.41, a 13.7 percent increase compared with $3.00 in 2004.
"Today Harley-Davidson is celebrating an exciting milestone of twenty consecutive years of record revenue, earnings and retail motorcycle sales," said Jim Ziemer, Chief Executive Officer. "As we reflect on our performance in 2005, we had many accomplishments. We shipped 329,000 motorcycles, which is a 3.7 percent increase over the previous year. Worldwide retail sales of Harley-Davidson(R) motorcycles increased 6.2 percent during 2005. Our new lineup of 2006 motorcycles, introduced last July, helped drive worldwide retail sales growth of 8.3 percent in the second half of the year. During 2005, our international motorcycle sales grew significantly and motorcycle sales to women continued to increase, demonstrating that our strategies in these areas are beginning to take hold," said Ziemer.
"We believe the prospects for retail growth remain strong and support a wholesale unit growth rate in the range of 5 to 9 percent annually and an annual EPS growth rate of 11 to 17 percent," said Ziemer. "Our Harley-Davidson motorcycle shipment target for 2006 remains in the range of 348,000 to 352,000 units, with planned wholesale shipments of 79,000 motorcycles during the first quarter," he said.
Motorcycles and Related Products Segment -- Fourth Quarter Results
Revenue from Harley-Davidson(R) motorcycles was $1.09 billion, an increase of $95.7 million, or 9.6 percent over the same period last year. Shipments of Harley-Davidson motorcycles totaled 87,588 units, an increase of 7,001 units, or 8.7 percent over last year's fourth quarter.
Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $169.9 million, an increase of $12.0 million, or 7.6 percent over the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes(TM) apparel and collectibles, totaled $60.5 million, an increase of $5.6 million, or 10.2 percent.
Growth rates for P&A and General Merchandise fluctuate from quarter to quarter. However, for the long term, the Company expects the growth rate for P&A revenue to be slightly higher than Harley-Davidson's motorcycle unit growth rate, and the General Merchandise growth rate is expected to be lower than the motorcycle unit growth rate.
Gross margin for the fourth quarter of 2005 was 38.3 percent of revenue, up from 37.8 percent for the same period in 2004. Consistent with the higher gross margin, operating margin increased from 23.0 percent in 2004 to 23.4 percent in 2005.
Motorcycle Retail Sales Data
Worldwide retail sales of Harley-Davidson motorcycles increased 3.0 percent for the fourth quarter of 2005 compared to the same period in 2004. For the full year, worldwide retail sales increased 6.2 percent compared to 2004.
U.S. retail sales of Harley-Davidson motorcycles increased 0.7 percent in the fourth quarter and 4.2 percent for the full year. For the second six months of the year, U.S. retail sales grew 7.3 percent compared to 1.9 percent for the first six months of 2005.
"We are pleased with retail sales growth in the U.S. market during the second half of the year. The extensive enhancements made to existing models, along with several brand new motorcycles for the 2006 model year, are certainly generating excitement," said Ziemer.
Internationally, retail sales of Harley-Davidson motorcycles grew 13.0 percent in the fourth quarter and 15.0 percent for the full year compared with 2004. Total retail sales for 2005 increased in all of the Company's major international markets.
Data is listed in the accompanying tables. Financial Services Segment
Harley-Davidson Financial Services (HDFS) reported fourth quarter operating income of $39.5 million, up 0.7 percent compared to the year-ago quarter.
A fourth quarter securitization of $325 million in motorcycle retail loans resulted in a gain of $4.2 million. The 1.3 percent gain on the securitization as a percentage of loans sold is consistent with management's prior guidance of 1.0 to 1.4 percent. Gains in the first quarter of 2006 are also expected to continue in that range. Given the relatively small percentage of HDI operating income that is generated by securitization gains, the Company is not providing guidance for periods beyond the first quarter of 2006. Income related to securitizations will continue to be reported in the Company's annual report and SEC filings.
For the long term, HDFS expects operating income to be slightly higher than the Company's wholesale unit shipment growth rate.
Harley-Davidson, Inc. -- Twelve Month Results
For the fiscal year ended 2005, total Harley-Davidson motorcycle shipments were 329,017 units compared with 317,289 units in 2004, a 3.7 percent increase. Harley-Davidson motorcycle revenue was $4.18 billion, an increase of $255.3 million, or 6.5 percent.
P&A revenue totaled $815.7 million, a $34.1 million, or a 4.4 percent increase, while General Merchandise revenue totaled $247.9 million, a $24.1 million or a 10.8 percent increase, compared with 2004.
Full year operating income for HDFS was $191.6 million, an increase of $3.0 million or 1.6 percent compared to 2004.
Cash Flow -- Twelve Month Results
As of December 31, 2005, cash and marketable securities were $1.05 billion, down from $1.61 billion at December 31, 2004. During the year the Company invested $198.4 million in capital expenditures, repurchased 21.4 million shares of Company stock for $1.05 billion, paid $173.8 million in dividends and contributed $296.8 million to its retirement plans.
Stock Option Accounting
On January 1, 2005, the Company began recognizing expense related to its employee stock option awards before the required implementation date of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 as revised in 2004. The Company accounted for these stock options as equity instruments. However, SFAS No. 123 (revised 2004) requires that stock options that may be settled for cash instead of stock at the election of the holder upon the occurrence of a change in control event be accounted for as a liability regardless of the probability of the change in control event occurring.
The Company recently became aware of the applicability of the contingent cash settlement feature of SFAS No. 123 (revised 2004) to its employee stock compensation plans. Had the Company used the liability method to account for stock option awards during 2005, operating income would have increased by $37.8 million. Accordingly, income before accounting changes net of tax would have been $983.0 million for the year, an increase of $23.4 million compared to the Company's reported amount of $959.6 million. In addition, on the January 1, 2005 adoption date of this accounting method, the Company would have recorded a cumulative charge to income of $120.9 million or $74.8 million net of tax for its adoption of the liability method.
On January 11, 2006, FASB voted to seek public comment on a proposed FASB Staff Position (FSP) to require companies to classify employee stock options with contingent cash settlement features as equity awards provided the contingent event, such as a change in control event, is not considered probable of occurring. This classification would be consistent with the amounts reported with respect to outstanding stock options in connection with the Company's original adoption of SFAS No. 123 (revised 2004) on January 1, 2005, and in subsequent interim periods.
The Company believes that the proposed FSP is a strong indication that classification of its stock option awards as equity instruments will be appropriate upon finalization of the FSP. As a result, all financial data reported in this press release is presented on a U.S. GAAP basis adjusted for the anticipated ratification of the proposed FSP. In the event the FSP is not finalized as expected, the Company will reflect such effects on the year and the quarters in its annual report and 10-K filing for the year ended December 31, 2005.
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. 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 motorcycles. Harley-Davidson Financial Services provides wholesale and retail financing and insurance programs to Harley-Davidson dealers and their retail customers.
Harley-Davidson, Inc. Condensed Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended Twelve Months Ended (Unaudited) (Unaudited) (Unaudited) Dec 31, Dec 31, Dec 31, Dec 31, 2005 2004 2005 2004 Net revenue $1,342,335 $1,220,997 $5,342,214 $5,015,190 Gross profit 514,510 461,422 2,040,499 1,899,535 Operating expenses 199,854 180,672 740,634 710,016 Operating income from motorcycles & related products 314,656 280,750 1,299,865 1,189,519 Financial services income 76,060 66,224 331,618 305,262 Financial services expense 36,595 27,018 139,998 116,662 Operating income from financial services 39,465 39,206 191,620 188,600 Corporate expenses 3,473 3,757 21,474 16,628 Total operating income 350,648 316,199 1,470,011 1,361,491 Investment income and other, net 6,009 7,775 17,748 17,995 Income before provision for taxes 356,657 323,974 1,487,759 1,379,486 Provision for income taxes 126,613 115,012 528,155 489,720 Net income $ 230,044 $ 208,962 $ 959,604 $ 889,766 Earnings per common share: Basic $0.84 $0.71 $3.42 $3.02 Diluted $0.84 $0.71 $3.41 $3.00 Weighted-average common shares: Basic 274,182 294,014 280,303 295,008 Diluted 274,837 295,406 281,035 296,852 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) Dec 31, Dec 31, 2005 2004 ASSETS Current assets: Cash and cash equivalents $ 140,975 $ 275,159 Marketable securities 905,197 1,336,909 Accounts receivable, net 122,087 121,333 Finance receivables, net 1,641,766 1,624,038 Inventories 221,418 226,893 Other current assets 122,319 98,854 Total current assets 3,153,762 3,683,186 Finance receivables, net 600,831 488,262 Other long-term assets 1,509,141 1,311,845 Total assets $5,263,734 $5,483,293 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable & accrued expenses $ 668,139 $ 677,255 Current portion of finance debt 204,973 495,441 Total current liabilities 873,112 1,172,696 Finance debt 1,000,000 800,000 Other long-term liabilities 246,042 142,278 Postretirement health care benefits 60,975 149,848 Shareholders' equity 3,083,605 3,218,471 Total liabilities and shareholders' equity $5,263,734 $5,483,293 Note: Certain prior year balances have been reclassified in order to conform with the current year presentation. Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) Twelve months ended (Unaudited) Dec 31, Dec 31, Dec 31, 2005 2004 2003 Cash flows from operating activities: Net income $ 959,604 $ 889,766 $ 760,928 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 205,705 214,112 196,918 Provision for long-term employee benefits 94,328 62,806 76,422 Gain on current year securitizations (46,581) (58,302) (82,221) Proceeds from securitizations 2,450,920 1,847,895 1,724,060 Finance receivables (held for sale) acquired or originated (2,447,320) (2,069,713) (1,897,719) Finance receivables (held for sale) collected 124,462 84,310 107,510 Net change in wholesale finance receivables (161,342) (154,124) (154,788) Contributions to pension & postretirement plans (296,859) - (192,000) Tax benefit from the exercise of stock options - 51,476 13,805 Other 82,678 (11,142) 62,232 Net changes in current assets and current liabilities (5,085) (24,866) (18,644) Total adjustments 906 (57,548) (164,425) Net cash provided by operating activities 960,510 832,218 596,503 Cash flows from investing activities: Capital expenditures (198,389) (213,550) (227,230) Finance receivables, net (156,438) (134,571) (47,287) Collection of retained securitization interests 115,346 125,732 118,113 Net change in marketable securities 431,075 (349,042) (393,548) Other, net (14,497) 1,189 9,690 Net cash provided by (used in) investing activities 177,097 (570,242) (540,262) Cash flows from financing activities: Net increase in finance debt (80,720) 305,047 224,118 Dividends (173,785) (119,232) (58,986) Purchase of common stock for treasury (1,054,615) (564,132) (103,880) Excess tax benefits from share based payments 6,065 Issuance of common stock under employee stock plans 31,264 62,171 19,378 Net cash used in financing activities (1,271,791) (316,146) 80,630 Net increase in cash and cash equivalents (134,184) (54,170) 136,871 Cash and cash equivalents: At beginning of period 275,159 329,329 192,458 At end of period $ 140,975 $ 275,159 $ 329,329 Note: Certain prior year balances have been reclassified in order to conform with the current year presentation. Harley-Davidson, Inc. Net Revenue and Motorcycle Shipment Data (unaudited) Three Months Ended Twelve Months Ended Dec 31, Dec 31, Dec 31, Dec 31, 2005 2004 2005 2004 NET REVENUE (in thousands) Harley-Davidson(R) motorcycles $1,088,286 $ 992,611 $4,183,515 $3,928,232 Buell(R) motorcycles 21,828 15,519 93,069 79,029 Parts & Accessories 169,859 157,906 815,678 781,621 General Merchandise 60,486 54,884 247,861 223,712 Other 1,876 77 2,091 2,596 $1,342,335 $1,220,997 $5,342,214 $5,015,190 HARLEY-DAVIDSON UNITS Motorcycle shipments: United States 74,383 68,902 266,507 260,607 Export 13,205 11,685 62,510 56,682 Total 87,588 80,587 329,017 317,289 Motorcycle product mix: Touring 29,090 25,052 110,193 93,305 Custom 38,233 38,035 148,609 154,163 Sportster(R) 20,265 17,500 70,215 69,821 Total 87,588 80,587 329,017 317,289 BUELL UNITS Motorcycle shipments: Buell 2,716 2,064 11,166 9,857 Retail Sales of Harley-Davidson Motorcycles Full Year 2005 2005 2004 United States 253,414 243,160 Europe* 29,482 24,594 Japan 11,420 10,283 Canada 11,660 11,200 All other markets 11,193 9,373 Total Harley-Davidson Sales 317,169 298,610 Data Source (subject to update) Data source for all 2005 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 * Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom Only Harley-Davidson(R) motorcycles are included in the Harley-Davidson Motorcycle Sales data. Heavyweight (651+ cc) Market Industry Data Data Through Month Indicated 2005 2004 United States (December) 517,562 494,045 Europe* (November) 330,726 332,706 Data Source (subject to update) United States: Motorcycle Industry Council Europe: Giral S.A. * Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom