Harley-Davidson Announces 2008 Second Quarter Results

MILWAUKEE, July 17 /PRNewswire-FirstCall/ — Harley-Davidson, Inc. (NYSE:HOG) today announced its results for the second quarter ended June 29, 2008. Revenue for the quarter was $1.57 billion compared to $1.62 billion in the year ago quarter, a 2.9 percent decrease. Net income was $222.8 million compared to $290.5 million in the year ago quarter, a decrease of 23.3 percent. Second quarter diluted earnings per share (EPS) were $0.95, a 16.7 percent decrease compared to last year’s $1.14.

“During the second quarter we shipped 80,326 Harley-Davidson(R) motorcycles to our dealers and distributors around the world. While this result exceeds our guidance range of 76,000 to 80,000 units for the quarter, it is a decrease of 15.6 percent from the year-ago period. This decrease reflects the impact of the shipment reduction we announced April 17th in response to ongoing weakness in the U.S. economy,” said Jim Ziemer, Chief Executive Officer of Harley-Davidson, Inc.

“We expect U.S. economic conditions and ongoing consumer concerns to continue to create challenges at least through the end of the year,” said Ziemer. “We believe the actions we took to reduce shipments to our U.S. dealers and our related workforce reduction position us appropriately for the current economic environment. I am confident about our future as we continue to manage and reinvest in the business for the long-term.”

“Last week, we announced our planned acquisition of the MV Agusta Group and celebrated the grand opening of the Harley-Davidson Museum. Next Tuesday, we introduce our exciting new 2009 motorcycles. A month from today, we kick off our 105th Anniversary Celebration with the launch of the first of 105 motorcycle rides to Milwaukee from around the U.S. These are just some of the ways we are positioning the Company for the future, strengthening bonds with current customers and reaching out to new customers,” Ziemer said.

The Company expects to ship between 74,000 and 78,000 Harley-Davidson motorcycles during the third quarter of 2008. For the full year of 2008, Harley-Davidson still plans to ship between 303,500 and 307,500 units. The Company continues to expect full-year EPS of $3.00 to $3.18, a decrease of 15 to 20 percent compared to 2007.

Motorcycles and Related Products Segment – Second Quarter Results

Revenue from Harley-Davidson motorcycles was $1.19 billion, a decrease of $67.0 million or 5.3 percent versus the same period last year. Shipments of Harley-Davidson motorcycles totaled 80,326 units, a decrease of 14,791 units or 15.6 percent compared to last year’s second quarter.

Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $265.7 million, an increase of $2.3 million or 0.9 percent over the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes(R) apparel and collectibles, totaled $76.8 million, an increase of $4.1 million or 5.6 percent over the year-ago quarter.

Gross margin for the second quarter of 2008 was 35.7 percent of revenue compared to 37.4 percent for the second quarter last year. Second quarter operating margin decreased to 20.1 percent from 23.9 percent in the second quarter of 2007. The Company’s gross and operating margins were adversely impacted this quarter by the shipment volume reduction.

Motorcycle Retail Sales Data

During the second quarter, worldwide retail sales of Harley-Davidson motorcycles decreased 3.6 percent compared to the prior year second quarter. In the U.S., retail sales of Harley-Davidson motorcycles decreased 8.7 percent for the quarter. The heavyweight motorcycle market in the U.S. increased 0.8 percent for the same period.

Retail sales of Harley-Davidson motorcycles grew 11.2 percent in international markets during the second quarter of 2008 compared to the second quarter of 2007. Second quarter retail sales increased 8.7 percent in Canada; the Europe Region was up 9.0 percent; the Asia Pacific Region was up 7.3 percent; and the Latin America Region was up 67.1 percent.

Data is listed in the accompanying tables.

Financial Services Segment

Harley-Davidson Financial Services (HDFS) reported second quarter operating income of $37.1 million, a decrease of $28.1 million or 43.0 percent compared to the year-ago quarter. The decrease is primarily due to a $19.5 million reduction in securitization gain and a $6.3 million write-down of retained securitization interests. Last year’s second quarter benefited from a $950 million securitization transaction compared to no securitization transaction during the second quarter of 2008.

Income Tax Rate

The Company’s second 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, 2007. Assuming the retroactive reinstatement of this tax credit, the Company expects its full year effective tax rate in 2008 will be 35.5 percent.

Harley-Davidson, Inc. – Six Month Results

For the first six months of 2008, revenue totaled $2.88 billion, a 2.9 percent increase over the year-ago period. Earnings per share were $1.74, a decrease of 7.9 percent compared to the same period last year.

Through the first six months of this year, shipments of Harley-Davidson motorcycles were 152,194 units, a 6.6 percent decrease compared to last year’s 162,878 units. Harley-Davidson motorcycle revenue was $2.20 billion, up 2.7 percent compared to last year’s $2.15 billion. P&A revenue totaled $447.6 million, a 0.9 percent decrease from last year’s $451.6 million. General Merchandise revenue totaled $160.8 million, an 8.0 percent increase compared to $148.8 million during the same period in 2007.

HDFS operating income was $72.1 million, a 42.0 percent decrease from last year’s $124.1 million.

Cash Flow

Cash and marketable securities totaled $803.9 million as of June 29, 2008. Cash used by operations was $39.0 million during the first six months of 2008 compared to $1.06 billion of cash provided during the first half of 2007. This decrease in cash flows from operations was a result of net proceeds from securitization being $1.27 billion less than the same period in 2007. During the first half of 2008, HDFS funded a greater percentage of its business with proceeds from commercial paper and medium term notes than in the same period last year. Capital expenditures were $99.6 million during the first six months of 2008. For the full year of 2008, capital expenditures are expected to be between $235 million and $250 million.

Stock Repurchase

The Company repurchased 1.3 million shares of its common stock at a cost of $50.0 million during the second quarter of 2008. On June 29, 2008, the Company had 235.3 million shares of common stock outstanding.

As of June 29, 2008, there were 19.3 million shares remaining on a board- approved share repurchase authorization. An additional board-approved share repurchase authorization is in place to offset option exercises.

Bank Credit Facilities

On July 16, 2008, Harley-Davidson, Inc. and Harley-Davidson Financial Services entered into new bank credit facilities totaling $1.9 billion which replace existing bank credit facilities of $1.7 billion. The new facilities are comprised of a $950 million, 364-day facility and a $950 million, 3-year facility.

Company Background

Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company (HDMC), Buell Motorcycle Company (Buell) and Harley-Davidson Financial Services (HDFS). Harley-Davidson Motor Company produces heavyweight motorcycles and offers a line of motorcycle parts, accessories, general merchandise and related services. HDMC manufactures five families of motorcycles: Touring, Dyna(R), Softail(R), Sportster(R) and VRSC(TM). Buell produces premium sport performance motorcycles and offers a line of motorcycle parts, accessories, and apparel. HDFS provides wholesale and retail financing and insurance programs primarily to Harley-Davidson and Buell dealers and customers.

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) 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, (vii) continue to develop the capabilities 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) manage access to reliable sources of capital and adjust to fluctuations in the cost of capital, (xi) adjust to regional and worldwide demographic trends and economic and political conditions, including healthcare inflation, pension reform and tax changes, (xii) anticipate consumer confidence in the economy, (xiii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio, (xiv) retain and attract talented employees, (xv) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation and (xvi) implement and manage enterprise-wide information technology solutions and secure data contained in those systems. Assuming the agreement to purchase MV Agusta Group is consummated in a timely manner, Harley-Davidson may have challenges successfully integrating and profitably operating it.

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 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 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
(In thousands, except per share amounts)
(Unaudited)

Three months ended Six months ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007

Net revenue $1,572,569 $1,620,218 $2,878,882 $2,799,093
Gross profit 561,924 605,167 1,038,061 1,028,213
Operating expenses 245,841 218,641 460,374 406,444
Operating income from
motorcycles & related
products 316,083 386,526 577,687 621,769

Financial services income 106,840 112,330 200,129 221,493
Financial services expense 69,693 47,121 128,075 97,347
Operating income from
financial services 37,147 65,209 72,054 124,146

Corporate expenses 7,367 6,532 12,825 11,471
Income from operations 345,863 445,203 636,916 734,444
Investment income, net 2,240 5,164 4,282 14,079
Income before provision
for income taxes 348,103 450,367 641,198 748,523
Provision for income taxes 125,316 159,877 230,830 265,723
Net income $222,787 $290,490 $410,368 $482,800

Earnings per common share:
Basic $0.95 $1.15 $1.74 $1.89
Diluted $0.95 $1.14 $1.74 $1.89

Weighted-average common
shares:
Basic 235,067 253,155 236,067 255,240
Diluted 235,314 254,017 236,277 256,087

Cash dividends per common
share $0.33 $0.25 $0.63 $0.46

Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)

(Unaudited) (Unaudited)
June 29, December 31, July 1,
2008 2007 2007

ASSETS
Current Assets:
Cash and cash equivalents $803,400 $402,854 $416,084
Marketable securities 524 2,475 307,347
Accounts receivable, net 290,139 181,217 163,369
Finance receivables held for sale 1,617,817 781,280 381,927
Finance receivables held for
investment, net 1,246,325 1,575,283 1,318,025
Inventories 341,396 349,697 344,969
Other current assets 206,624 174,508 122,342
Total current assets 4,506,225 3,467,314 3,054,063

Finance receivables held for
investment, net 934,534 845,044 817,027
Other long-term assets 1,342,994 1,344,248 1,250,504
$6,783,753 $5,656,606 $5,121,594

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable & accrued
liabilities $841,263 $785,124 $872,283
Current portion of finance debt 927,934 1,119,955 204,817
Total current liabilities 1,769,197 1,905,079 1,077,100

Finance debt 2,050,000 980,000 975,000
Postretirement healthcare benefits 205,848 192,531 205,767
Other long-term liabilities 225,871 203,505 205,883

Total shareholders’ equity 2,532,837 2,375,491 2,657,844
$6,783,753 $5,656,606 $5,121,594

Note: On January 1, 2008 the Company recorded a reduction to
shareholders’ equity of $18.1 million ($11.2 million, net of tax) to adopt
provisions of Statement of Financial Accounting Standard No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132( R )” that require sponsors of defined benefit pension and
postretirement plans to measure the funded status of those plans as of the
date of the year-end statement of financial position.

Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Six months ended
June 29, July 1,
2008 2007

Net cash (used by) provided by
operating activities ($39,016) $1,062,455

Cash flows from investing activities:
Capital expenditures (99,597) (86,016)
Finance receivables held for
investment, net (73,365) (70,128)
Collection of retained
securitization interests 18,607 43,241
Net change in marketable securities 2,019 352,477
Other, net 1,193 3,582
Net cash (used by) provided by
investing activities (151,143) 243,156

Cash flows from financing activities:
Proceeds from issuance of medium
term notes 993,550 –
Net decrease in finance-credit
facilities and commercial paper (116,621) (535,990)
Dividends (148,591) (116,650)
Purchase of common stock for
treasury (150,134) (491,103)
Excess tax benefits from share-
based payments 252 2,932
Issuance of common stock under
employee stock option plans 736 20,621
Net cash provided by (used by)
financing activities 579,192 (1,120,190)

Effect of exchange rate changes on
cash and cash equivalents 11,513 (7,734)

Net increase in cash and cash
equivalents 400,546 177,687

Cash and cash equivalents:
At beginning of period 402,854 238,397
At end of period $803,400 $416,084

Net Revenue and Motorcycle
Shipment Data
(Unaudited)

Three months ended Six months ended
June 29, July 1, June 29, July 1,
2008 2007 2008 2007
NET REVENUE (in thousands)
Harley-Davidson( R )
motorcycles $1,187,146 $1,254,163 $2,204,364 $2,145,681
Buell( R ) motorcycles 41,518 28,613 63,593 50,268
Parts & Accessories 265,665 263,373 447,607 451,608
General Merchandise 76,790 72,714 160,796 148,826
Other 1,450 1,355 2,522 2,710
$1,572,569 $1,620,218 $2,878,882 $2,799,093

HARLEY-DAVIDSON UNITS
Motorcycle shipments:
United States 51,449 67,951 99,275 116,691
International 28,877 27,166 52,919 46,187
Total 80,326 95,117 152,194 162,878

Motorcycle product mix:
Touring 25,248 34,671 51,683 56,473
Custom 41,922 39,320 70,994 70,088
Sportster( R ) 13,156 21,126 29,517 36,317
Total 80,326 95,117 152,194 162,878

BUELL UNITS
Motorcycle shipments:
Buell 4,072 3,179 6,464 5,737

Retail Sales of Harley-Davidson Motorcycles
Year to Date June

2008 2007

North America Region
United States 130,437 145,282
Canada 10,870 9,578
Total North America Region 141,307 154,860

Europe Region (Includes Middle East
and Africa)
Europe* 25,803 24,293
Other 2,477 1,755
Total Europe Region 28,280 26,048

Asia Pacific Region
Japan 6,805 6,220
Other 5,412 4,660
Total Asia Pacific Region 12,217 10,880

Latin America Region 4,258 2,648

Total Worldwide Retail Sales 186,062 194,436

Data Source (subject to update)
Data source for all 2007 and 2008 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.

Only Harley-Davidson(R) motorcycles are included in the Harley-Davidson
Motorcycle Sales data.

* Data for Europe include Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland, and the United Kingdom.

Heavyweight Market Data
Data Through Month Indicated

2008 2007

United States(1) (June) 294,141 307,755
Europe(2) (May) 212,627 205,041

1 – United States industry data includes 651+cc models, derived from
submission of motorcycle retail sales by each major manufacturer to an
independent third party.

2 – 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.

First Call Analyst:
FCMN Contact: [email protected]

Source: Harley-Davidson, Inc.