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| HOG > SEC Filings for HOG > Form 10-Q on 30-Apr-2009 | All Recent SEC Filings |
30-Apr-2009
Quarterly Report
Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC), Buell Motorcycle Company (Buell), MV Agusta (MV) and Harley-Davidson Financial Services (HDFS). HDMC produces heavyweight custom and touring motorcycles. HDMC manufactures five families: Touring, DynaŽ, SoftailŽ, SportsterŽ and VRSC. Buell produces American sport performance motorcycles. MV produces premium, high-performance sport motorcycles sold under the MV AgustaŽ brand and lightweight sport motorcycles sold under the CagivaŽ brand. HDFS provides wholesale and retail financing and insurance programs primarily to Harley-Davidson and Buell dealers and customers.
The Company operates in two business segments: Motorcycles & Related Products (Motorcycles) and Financial Services (Financial Services). The Company's reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations.
The "% Change" figures included in the "Results of Operations" section were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented.
Overview
The Company's financial results continue to be impacted by the difficult economic environment and the related cost of restructuring its business. Net income and diluted earnings per share for the first quarter of 2009 were down 37.4% and 36.7%, respectively, compared to the first quarter of 2008. Net income during the quarter was affected by costs associated with restructuring activities; write-downs related to the fair value of finance receivables held for sale and the investment in retained securitization interests; and a one-time tax expense that resulted from an unanticipated change in Wisconsin tax law.
Retail sales of Harley-Davidson motorcycles also continued to be impacted by the difficult economy, with worldwide retail sales of Harley-Davidson motorcycles down 12.0% in the first quarter of 2009 as compared to the prior year quarter. In the U.S., retail sales of Harley-Davidson motorcycles in 2009 were down 9.7% and international retail sales were down 17.2% as compared to 2008. In the first quarter of 2009, the Company offered a motorcycle trade-up program as described below in Outlook. While the Company was mildly encouraged by the fact that the U.S. retail sales rate declined less in the first quarter than in the prior two quarters due in part to sales incentives offered by the Company during the period, it remains cautious and continues to expect 2009 to be an extremely challenging business environment.(1)
Outlook(1)
The Company continues to make good progress in executing its strategy for the economic downturn. On January 23, 2009, the Company announced a three-part strategy for managing through the global economic downturn and strengthening its operations and financial results going forward. That strategy consists of: 1) continuing to invest in the Harley-Davidson brand; 2) creating the appropriate cost structure; and 3) obtaining funding to support the lending activities of HDFS.
(1) Note Regarding Forward-Looking Statements
The Company intends that certain matters discussed in this report 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 by reference to this footnote or 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 report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption "Cautionary Statements" included in this report, and in Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2008. 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 report are made only as of the date of the filing of this report (April 29, 2009), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
In the first quarter of 2009, the Company's domestic "Ride Free" Sportster motorcycle trade-up program successfully created consumer interest and reinforced the brand value of Harley-Davidson motorcycles. In early April, the Company rolled out a national "Super Ride" program. This program provides an expanded opportunity for U.S. consumers to test ride a wide range of Harley-Davidson motorcycles at participating dealerships. The Company believes demo rides have proven to be one of the most effective ways to turn dreamers into customers and to get current customers excited about a new motorcycle.
The Company continues to work on adjusting its cost structure and is proceeding with its previously announced volume reduction and restructuring plans. In January 2009, the Company initially had estimated that the planned volume reduction and restructuring actions would result in the elimination of about 1,100 jobs over the course of 2009 and 2010, consisting of about 300 non-production, primarily salaried positions and about 800 hourly production positions. The Company now estimates that an additional 300 to 400 hourly production jobs will be eliminated. On a combined basis, the Company expects the restructuring activities to result in one-time charges of approximately $120 million to $150 million over the course of 2009 and 2010, compared to the original estimate of $110 million to $140 million. The Company expects to incur between $90 million and $110 million of these costs in 2009 including $34.9 million of restructuring costs incurred in the first quarter. The remaining restructuring costs, between $30 million and $40 million, are expected to be incurred in 2010. The Company continues to expect that approximately 75% of the restructuring costs will be paid in cash. The Company now estimates ongoing annual savings of approximately $70 million to $80 million upon completion of the restructuring actions, with 2009 savings estimated to be $20 million to $25 million and 2010 savings estimated to be $40 million to $55 million.
The Company continues to make progress towards obtaining the funding it believes is necessary to support the lending activities of HDFS. Since the end of 2008 the Company has accessed the unsecured debt market and extended its asset-backed commercial paper conduit facility. In the near-term, the Company also expects to increase the size of its existing asset-backed commercial paper conduit facility, renew a substantial portion of its $950.0 million 364-day senior unsecured bank credit facility which is due to expire in July 2009 and access the term asset-backed securitization market in the second quarter of 2009 with a transaction the Company expects will be eligible for the Federal Reserve Bank of New York's Term Asset-backed securities Loan Facility (TALF) program. The Company's funding plans and requirements are discussed in greater detail under "Liquidity and Capital Resources."
Guidance(1)
On April 16, 2009, the Company re-affirmed its plan to ship between 264,000 and 273,000 Harley-Davidson motorcycles in 2009, and announced plans to ship 55,000 to 59,000 Harley-Davidson motorcycles during the second quarter of 2009. The Company also reaffirmed on April 16, 2009 its expectation for full-year gross margin to be between 30.5% and 31.5%, which compares to 34.5% for the full year 2008. The Company's gross margin expectations include anticipated benefits of the restructuring activities affecting cost of sales in 2009 offset by higher anticipated fixed costs per unit resulting from the allocation of fixed costs over fewer units; lower anticipated gross margin resulting from an anticipated change in the motorcycle product mix; and lower anticipated gross margin resulting from an anticipated negative impact of foreign currency exchange rate changes.(1) Restructuring expenses are recorded as a separate line in the income statement below gross margin.
Also on April 16, 2009, the Company revised its expected capital expenditures for 2009 to $170 million to $200 million including $20 million to $30 million for capital expenditures made in connection with its restructuring activities in 2009. In the aggregate, this represents a $20 million reduction from the Company's previous capital expenditure estimates. The Company anticipates it will have the ability to fund all capital expenditures in 2009 with internally generated funds.(1)
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