Harley-Davidson Sets Record for Quarterly Revenue and Earnings
Worldwide Retail Sales of Motorcycles Climb 8.9 Percent
New Share Repurchase Program Authorized
MILWAUKEE, Oct. 12 -- Harley-Davidson, Inc. today announced record revenue and earnings per share for its third quarter ended September 24, 2006. Revenue for the quarter was $1.64 billion compared to $1.43 billion in the year-ago quarter, a 14.3 percent increase. Net income for the quarter was $312.7 million compared to $265.0 million, an increase of 18.0 percent over the third quarter of 2005. Third quarter diluted earnings per share (EPS) were $1.20, a 25.0 percent increase compared to last year's $0.96.
"Harley-Davidson delivered record results for both revenue and earnings per share during the third quarter," said Jim Ziemer, Chief Executive Officer, Harley-Davidson, Inc. "In addition, worldwide retail sales of Harley- Davidson(R) motorcycles grew 8.9 percent during the quarter. With four new models and an all-new Twin Cam 96(TM) engine with 6-speed transmission on Big Twin motorcycles, the 2007 model line has been a big hit with customers," he said.
For the first nine months of 2006, the Company's worldwide wholesale shipments were 256,348 Harley-Davidson motorcycles. For the full year, the Company now expects to ship between 349,000 and 351,000 units.
During the first nine months of 2006, the Company repurchased 17.2 million shares of its common stock at a cost of $911.0 million. On October 11, 2006, the board of directors of Harley-Davidson, Inc. authorized a new share repurchase program for up to 20 million additional shares.
"As we look to the future, the Company believes it will continue to deliver EPS growth in the range of 11 - 17 % annually through 2009. We expect earnings growth to be driven by solid revenue growth, margin improvement and the benefits of strong free cash flow," said Ziemer.
Motorcycles and Related Products Segment - Third Quarter Results
Revenue from Harley-Davidson motorcycles was $1.29 billion, an increase of $183.2 million or 16.5 percent over the same period last year. Shipments of Harley-Davidson motorcycles totaled 97,046 units, an increase of 9,461 units or 10.8 percent over last year's third quarter.
Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $248.4 million, an increase of $17.3 million or 7.5 percent over the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes(R) apparel and collectibles, totaled $71.3 million, an increase of $6.7 million or 10.5 percent over the year-ago quarter.
Gross margin for the third quarter of 2006 was 39.9 percent of revenue compared to 39.2 percent gross margin for the third quarter last year. Third quarter operating margin increased to 26.5 percent from 25.6 percent in the third quarter of 2005.
Motorcycle Retail Sales Data
During the third quarter, worldwide retail sales of Harley-Davidson motorcycles increased 8.9 percent over the prior year quarter. In the U.S., retail sales of Harley-Davidson motorcycles increased 6.7 percent for the quarter. The heavyweight motorcycle industry in the U.S. increased 0.2 percent for the same period.
Retail sales of Harley-Davidson motorcycles grew 18.7 percent in international markets during the third quarter of 2006 compared to the third quarter of 2005. Third quarter retail sales increased 13.7 percent in Japan; Europe was up 9.9 percent; Canada was up 30.2 percent and all other international markets combined were up 35.4 percent.
During the first nine months of 2006, worldwide retail sales of Harley- Davidson motorcycles increased 8.9 percent compared to the same period in 2005.
Data is listed in the accompanying tables. Financial Services Segment
Harley-Davidson Financial Services (HDFS) reported third quarter operating income of $55.2 million, an increase of $7.6 million or 16.0 percent compared to the year-ago quarter. The increase is primarily due to higher net interest income and a higher securitization gain compared to the prior year.
Income Tax Rate
The Company's third quarter effective income tax rate was 36.0 percent compared to 35.5 percent in the same quarter last year. This increase was due to the expiration of the federal research and development tax credit as of December 31, 2005. Assuming the retroactive reinstatement of this tax credit, the Company expects its full year effective tax rate in 2006 will be 35.5 percent.
Harley-Davidson, Inc. - Nine Month Results
For the first nine months of 2006, revenue totaled $4.30 billion, a 7.5 percent increase over the year-ago period. EPS were $2.96, an increase of 15.2 percent compared to the same period last year.
Through the first nine months of this year, shipments of Harley-Davidson motorcycles were 256,348 units, a 6.2 percent increase compared to last year's 241,429 units. Harley-Davidson motorcycle revenue was $3.33 billion, up 7.6 percent compared to last year's $3.10 billion. P&A revenue totaled $683.1 million, a 5.8 percent increase over last year's $645.8 million. General Merchandise revenue totaled $206.9 million, a 10.4 percent increase compared to $187.4 million during the same period in 2005.
HDFS operating income was $163.1 million, a 7.2 percent increase over last year's $152.2 million.
Cash and marketable securities totaled $952.7 million as of September 24, 2006. Cash flow from operations was $1.29 billion and capital expenditures were $137.5 million during the first nine months of 2006.
The Company repurchased 7.4 million shares of its common stock at a cost of $411.4 million during the third quarter of 2006. For the first nine months of 2006, the Company has repurchased 17.2 million shares of its common stock at a cost of $911.0 million. On October 11, 2006, the board of directors authorized a new share repurchase program for up to 20 million shares, in addition to the 2.8 million shares outstanding under the previous authorization.
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.
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) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (ii) manage production capacity and production changes, (iii) manage supply chain issues, (iv) provide products, services and experiences that are successful in the marketplace, (v) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (vi) sell all of its motorcycles and related products and services to its independent dealers and distributors, (vii) continue to develop the capacity of its distributor and dealer network, (viii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (ix) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (x) adjust to worldwide economic and political conditions, including changes in fuel prices, (xi) manage the credit quality and recovery rates of HDFS's loan portfolio, (xii) retain and attract talented employees and (xiii) detect any defects in our motorcycles to minimize 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.
The Company's ability to sell all of its motorcycles and related products and services also depends on the ability of the Company's independent dealer network to sell them to retail customers. The Company depends on the capability 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 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 Income (Unaudited) (In thousands, except per share amounts) Three months ended Nine months ended Sept 24, Sept 25, Sept 24, Sept 25, 2006 2005 2006 2005 Net revenue $1,635,916 $1,431,151 $4,298,053 $3,999,879 Gross profit 652,255 561,272 1,661,795 1,525,989 Operating expenses 218,243 194,270 590,503 540,780 Operating income from motorcycles & related products 434,012 367,002 1,071,292 985,209 Financial services income 97,344 81,444 291,812 255,558 Financial services expense 42,154 33,869 128,734 103,403 Operating income from financial services 55,190 47,575 163,078 152,155 Corporate expenses 5,215 3,715 16,723 18,001 Total operating income 483,987 410,862 1,217,647 1,119,363 Investment income and other, net 4,659 (79) 17,861 11,739 Income before provision for income taxes 488,646 410,783 1,235,508 1,131,102 Provision for income taxes 175,912 145,829 444,781 401,542 Net income $312,734 $264,954 $790,727 $729,560 Earnings per common share: Basic $1.20 $0.97 $2.96 $2.58 Diluted $1.20 $0.96 $2.96 $2.57 Weighted-average common shares: Basic 260,270 274,415 266,772 282,519 Diluted 261,229 275,460 267,525 283,406 Cash dividends per common share $0.21 $0.16 $0.60 $0.445 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) (Unaudited) Sept 24, December 31, Sept 25, 2006 2005 2005 ASSETS Current Assets: Cash and cash equivalents $506,139 $140,975 $437,007 Marketable securities 446,543 905,197 580,826 Accounts receivable, net 149,951 122,087 139,759 Finance receivables held for sale 100,109 299,373 223,758 Finance receivables held for investment, net 1,273,841 1,342,393 1,135,001 Inventories 281,536 221,418 232,240 Other current assets 124,837 113,794 114,568 Total current assets 2,882,956 3,145,237 2,863,159 Finance receivables held for investment, net 706,695 600,831 587,315 Other long-term assets 1,443,411 1,509,141 1,243,994 $5,033,062 $5,255,209 $4,694,468 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable & accrued expenses $880,294 $668,139 $863,210 Current portion of finance debt 96,374 204,973 0 Total current liabilities 976,668 873,112 863,210 Finance debt 900,000 1,000,000 776,626 Postretirement healthcare benefits 70,571 60,975 57,732 Other long-term liabilities 239,452 237,517 134,786 Total shareholders' equity 2,846,371 3,083,605 2,862,114 $5,033,062 $5,255,209 $4,694,468 Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended Sept 24, Sept 25, 2006 2005 Net cash provided by operating activities $1,286,474 $1,186,903 Cash flows from investing activities: Capital expenditures (137,468) (122,128) Finance receivables held for investment, net (75,710) (112,398) Collection of retained securitization interests 73,974 84,766 Net change in marketable securities 464,641 755,268 Other, net 2,512 (10,586) Net cash provided by investing activities 327,949 594,922 Cash flows from financing activities: Net decrease in finance-credit facilities and commercial paper (208,996) (510,720) Dividends (158,738) (124,330) Purchase of common stock for treasury (910,957) (1,014,645) Excess tax benefits from share- based payments 3,550 5,319 Issuance of common stock under employee stock option plans 25,882 24,399 Net cash used by financing activities (1,249,259) (1,619,977) Net increase in cash and cash equivalents 365,164 161,848 Cash and cash equivalents: At beginning of period 140,975 275,159 At end of period $506,139 $437,007 Net Revenue and Motorcycle Shipment Data (unaudited) Three Months Ended Nine Months Ended September 24, September 25, September 24, September 25, 2006 2005 2006 2005 NET REVENUE (in thousands) Harley-Davidson(R) motorcycles $1,293,358 $1,110,173 $3,329,700 $3,095,229 Buell(R) motorcycles 21,423 25,267 74,826 71,241 Parts & Accessories 248,448 231,161 683,100 645,819 General Merchandise 71,251 64,506 206,873 187,375 Other 1,436 44 3,554 215 $1,635,916 $1,431,151 $4,298,053 $3,999,879 HARLEY-DAVIDSON UNITS Motorcycle shipments: United States 80,398 72,249 198,720 192,124 Export 16,648 15,336 57,628 49,305 Total 97,046 87,585 256,348 241,429 Motorcycle product mix: Touring 36,041 29,492 90,914 81,103 Custom 44,096 40,730 116,604 110,376 Sportster(R) 16,909 17,363 48,830 49,950 Total 97,046 87,585 256,348 241,429 BUELL UNITS Motorcycle shipments: Buell 2,529 2,914 9,105 8,450 Retail Sales of Harley-Davidson Motorcycles Year to Date (September 30, 2006) 2006 2005 United States 225,623 210,790 Europe* 28,131 25,172 Japan 9,707 8,428 Canada 12,195 10,700 All other markets 10,989 8,177 Total Retail Sales of Harley-Davidson Motorcycles 286,645 263,267 Data Source (subject to update) Data source for all 2005 and 2006 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, and this information is subject to revision. *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 Data Data Through Month Indicated 2006 2005 United States (September) 463,940 437,575 Europe* (August) 306,334 290,239 *Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.