Harley-Davidson Reports Record Second Quarter
MILWAUKEE, July 16 -- Harley-Davidson, Inc. today announced record revenue and earnings for its second quarter ended June 29, 2003. Revenue for the quarter was $1.22 billion compared with $1.00 billion in the year-ago quarter, a 21.8 percent increase. Second quarter diluted earnings per share (EPS) were 66 cents, a 40.4 percent increase compared with last year's 47 cents.
"We are pleased with our strong results for 2003 as we head into the second half of the year," said Jeffrey L. Bleustein, chairman and chief executive officer of Harley-Davidson, Inc. "Our U.S. dealer network sold more motorcycles in this quarter than in any other quarter in our 100-year history. Retail sales grew more than 14 percent compared with last year and outpaced our wholesale shipments by over 11,000 units," added Bleustein.
On Monday, July 14, the Company unveiled its 2004 Model Year motorcycles to its dealers at its summer meeting held in Las Vegas. "Our dealer network is enthusiastic about the new 2004 Model Year motorcycles which will be available to the public in September. They are particularly excited about the completely redesigned Sportster family, which the Company believes will be a significant factor in attracting new customers and driving demand for Harley-Davidson products well into the future," said Bleustein.
Motorcycles and Related Products Segment -- Second Quarter Results
Second quarter revenue from Harley-Davidson(R) motorcycles was $955.4 million, an increase of 25.7 percent over last year. Worldwide shipments of Harley-Davidson motorcycles in the second quarter totaled 76,025 units, up 10,485 units or 16.0 percent over last year. After exceeding its second quarter target by 600 units, the Company is increasing its full year 2003 target for Harley-Davidson motorcycles from 290,000 to 290,600. The new target represents a 10.2 percent increase over the prior year. The new factory in York, PA is scheduled to begin ramping up in the third quarter as assembly of the Softail(R) family of motorcycles is relocated to the new plant.
Second quarter revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $204.2 million, a 20.9 percent increase, or $35.4 million more than the year-ago quarter. Anniversary related sales accounted for $16.5 million and are not expected to be significant in the second half of the year. For the full year 2003, the Company expects P&A revenues to grow slightly faster than the motorcycle unit growth rate.
Second quarter revenue from General Merchandise, which consists of MotorClothes(TM) apparel and collectibles, totaled $43.7 million, down 14.9 percent or $7.6 million over the same period last year. During the second quarter of 2002, General Merchandise revenue benefited from $12 million in 100th Anniversary products. In 2003, shipments of 100th Anniversary merchandise were essentially completed in the first quarter. Given the strong prior year 100th Anniversary revenue, General Merchandise revenue for the full year 2003 is expected to be lower than in 2002.
Second quarter operating margin increased from 18.3 percent in 2002 to 21.9 percent. This increase was primarily driven by the second quarter gross margin, which was 36.4 percent of revenue compared with 33.5 percent in 2002. Gross margin was favorably impacted by wholesale motorcycle price increases, a richer product mix and foreign currency exchange rates. These positive factors were partially offset by higher retirement and health care costs.
The Company believes that gross margin during the second half of the year will be lower than that in the first half due to pricing, product mix and startup costs associated with the new factory for Softail motorcycles in York, PA. Pricing for the 2004 Model Year motorcycles will reflect the elimination of 100th Anniversary special edition features. The third quarter ramp up of the new factory will reduce the number of Softail motorcycles in the mix relative to other product families, while the redesigned Sportster(R) line of motorcycles will become a larger part of the product mix for the foreseeable future. Softail motorcycles are among the Company's highest margin motorcycles, while Sportster motorcycles have lower margins.
Retirement Plan Assumptions
During the quarter, the Company adjusted its discount rate for retirement plan calculations from 7.25 to 6.5 percent. The pre-tax impact of this change was a $4.5 million expense for the quarter.
Motorcycle Retail Data -- Six Month Results
Retail sales of Harley-Davidson motorcycles in the United States were up 6.3 percent for the period January through June 2003, when compared to the same period last year. Harley-Davidson retail sales in Europe and Japan were up 4.2 and 7.6 percent, respectively, when compared with 2002. Retail sales of Harley-Davidson motorcycles have outpaced the heavyweight motorcycle industry in all of the Company's major markets. Market data is listed in the accompanying tables.
Financial Services Segment -- Second Quarter Results
Harley-Davidson Financial Services, Inc. (HDFS) reported second quarter operating income of $44.5 million, up from $37.0 million in the year-ago quarter. The subsidiary's performance was driven primarily by strong loan originations and a favorable interest rate environment.
The Company's second quarter securitization of $425 million of motorcycle retail loans resulted in a gain of $22.2 million, which compares to a securitization of $586 million and gain of $21.4 million during the second quarter of 2002. The net gain as a percentage of the amount of loans securitized went from 3.65 percent in the second quarter of 2002 to 5.22 percent in the second quarter of 2003, as HDFS continued to benefit in this declining interest rate environment.
Annualized credit losses on a managed portfolio basis increased slightly in the first half of the year from 0.68 percent in 2002 to 0.75 percent in 2003.
The Company is raising its expectation for HDFS's total year 2003 operating income to be approximately 40 percent higher than in 2002. Over the long term, the Company expects the HDFS growth rate to be slightly higher than the Company's motorcycle unit growth rate.
Share Repurchase
During the quarter, the Company repurchased 250,000 shares of its common stock. This brings the share repurchase amount to 750,000 shares on a year-to-date basis.
Cash Flow -- Six Month Results
Operations generated cash of $609.9 million. The Company invested $82.6 million in capital expenditures, paid dividends of $22.7 million and repurchased shares valued at $30.6 million.
Harley-Davidson, Inc. -- Six Month Results
For the six month period, revenue totaled $2.33 billion, a 20.9 percent increase over the year-ago period. Diluted earnings per share were $1.28, an increase of 47.1 percent compared to the same period last year.
Through the first six months of this year, shipments of Harley-Davidson motorcycle units were 146,633, a 12.6 percent increase over last year's 130,209. Harley-Davidson motorcycle revenue was $1.83 billion, a 21.5 percent increase over $1.51 billion in revenue in 2002. P&A revenue totaled $364.0 million, a 21.4 percent increase over last year's $300.0 million. General Merchandise revenue totaled $100.1 million, a 7.0 percent increase compared with $93.6 million during the same period in 2002.
For the first six months, HDFS operating income was $87.8 million, a $38.6 million increase over last year's first six months.
Company Background
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 and sport-touring motorcycles. Harley-Davidson Financial Services 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) (Unaudited)
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
Net revenue $1,218,872 $1,001,094 $2,332,563 $1,928,939
Gross profit 443,218 335,088 846,250 650,365
Operating expenses 176,465 152,167 339,872 294,317
Operating income from
motorcycles & related
products 266,753 182,921 506,378 356,048
Financial services income 71,287 60,149 142,056 101,840
Financial services operating
expense 26,821 23,109 54,233 52,649
Operating income from
financial services 44,466 37,040 87,823 49,191
Corporate expenses 4,183 3,644 8,656 7,199
Total operating income 307,036 216,317 585,545 398,040
Interest income, net 6,388 4,415 12,345 6,661
Other income (expense), net (4,659) (366) (4,875) (1,131)
Income before provision
for taxes 308,765 220,366 593,015 403,570
Provision for income taxes 106,523 76,025 204,589 139,231
Net income $202,242 $144,341 $388,426 $264,339
Earnings per common share:
Basic $0.67 $0.48 $1.29 $0.87
Diluted $0.66 $0.47 $1.28 $0.87
Weighted-average common shares:
Basic 302,164 302,209 302,263 302,341
Diluted 304,339 305,194 304,448 305,405
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited) (Unaudited)
June 29, Dec. 31, June 30,
2003 2002 2002
ASSETS
Current assets:
Cash and cash equivalents $691,459 $280,928 $524,049
Marketable securities 500,669 514,800 203,246
Accounts receivable, net 113,025 108,694 150,728
Finance receivables, net 910,963 855,771 609,730
Inventories 206,574 218,156 203,255
Other current assets 73,169 88,237 88,371
Total current assets 2,495,859 2,066,586 1,779,379
Finance receivables, net 606,619 589,809 519,935
Other long-term assets 1,194,636 1,204,822 1,106,542
Total assets $4,297,114 $3,861,217 $3,405,856
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & accrued expenses $696,753 $607,473 $634,931
Current portion of finance debt 343,331 382,579 147,837
Total current liabilities 1,040,084 990,052 782,768
Finance debt 380,000 380,000 380,000
Other long-term liabilities 219,789 152,831 177,239
Post-retirement health care benefits 116,487 105,419 97,414
Shareholders' equity 2,540,754 2,232,915 1,968,435
Total liabilities and shareholders'
equity $4,297,114 $3,861,217 $3,405,856
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended
June 29, June 30,
2003 2002
Cash flows from operating activities:
Net income $388,426 $264,339
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 95,262 87,514
Non cash expenses 50,286 29,311
Gain on current year securitizations (48,587) (26,375)
Collection of retained securitization
interests 44,177 31,603
Contributions to pension plans (12,000) (3,090)
Net changes in current assets and
current liabilities 92,300 32,033
Net cash provided by operating activities 609,864 415,335
Cash flows from investing activities:
Capital expenditures (82,649) (122,461)
Finance receivables, net (34,032) (76,555)
Net change in marketable securities 13,267 (7,235)
Other, net 1,212 13,804
Net cash used in investing activities (102,202) (192,447)
Cash flows from financing activities:
Net (decrease) in finance debt (47,922) (69,214)
Dividends paid (22,739) (19,975)
Purchase of common stock for treasury (30,563) (56,814)
Issuance of common stock under employee
stock plans 4,093 7,726
Net cash used in financing activities (97,131) (138,277)
Net increase in cash and cash equivalents 410,531 84,611
Cash and cash equivalents:
At beginning of period 280,928 439,438
At end of period $691,459 $524,049
Note: Certain prior year amounts have been reclassified to conform to the
current year presentation.
Harley-Davidson, Inc.
Net Revenue and Motorcycle
Shipment Data
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
NET REVENUE (in thousands)
Harley-Davidson(R)
motorcycles $955,425 $760,107 $1,831,932 $1,508,033
Buell(R) motorcycles 15,016 19,966 35,514 26,275
Parts & Accessories 204,199 168,846 364,043 299,989
General Merchandise 43,663 51,309 100,138 93,578
Other 569 866 936 1,064
$1,218,872 $1,001,094 $2,332,563 $1,928,939
HARLEY-DAVIDSON UNITS
Motorcycle shipments:
United States 61,931 52,514 118,883 103,877
Export 14,094 13,026 27,750 26,332
Total 76,025 65,540 146,633 130,209
Motorcycle product mix:
Touring 20,912 17,102 39,400 34,420
Custom 36,906 29,751 71,219 61,614
VRSC 4,370 5,364 9,029 8,524
Sportster(R) 13,837 13,323 26,985 25,651
Total 76,025 65,540 146,633 130,209
BUELL UNITS
Motorcycle shipments:
Buell (excluding Blast) 1,804 2,006 4,160 2,435
Buell Blast 138 1,303 723 2,204
1,942 3,309 4,883 4,639
Year-to-date Heavyweight (651+ cc)
Motorcycle Retail Registrations (Units),
data through month indicated.
2003 2002 % change
United States
- H-D (June) 121,414 114,174 6.3%
- Industry (June) 257,929 258,031 0.0%
Europe
- H-D * (June) 14,875 14,278 4.2%
- Industry (May) 163,519 174,830 -6.5%
Japan
- H-D (June) 5,232 4,864 7.6%
- Industry (May) 19,611 21,089 -7.0%
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
