Mon. 4/19 AM Harley-Davidson, Inc. 2012 Third Quarter Update October 23, 2012 2013 CVO TM Breakout TM These slides support the material discussed in the corresponding conference call. Please see complete transcript for more details.
2 Agenda 2012 Third Quarter Update Introduction - Amy Giuffre, Director, Investor Relations Opening Remarks Keith Wandell, CEO Financial Results John Olin, CFO HDFS Business Results Larry Hund, President, HDFS Q&A This presentation will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings release and filings with the SEC. Harley- Davidson disclaims any obligation to update information in this presentation. Risk factors are included at the end of this presentation.
Q3 2012 Perspectives Keith Wandell, Chairman, President & CEO
Perspectives Achievements in Manufacturing Product Development Retail 4
5 Perspectives ERP Implementation at York
6 Perspectives U.S. Retail Motorcycle Sales Outreach Growing Faster Than Core #1 in Outreach & Core Market Share New Motorcycle Sales up 6.2% YTD
7 Perspectives 2013 Motorcycles Hard Candy Custom TM CVO TM Road King 110 th Anniversary
8 Perspectives International 16 New Dealerships YTD Latin America up Double Digits Japan, Australia, China, India, and Emerging Markets up Q3 and YTD EMEA up in Q3 Despite Macro-Economic Conditions Emerging Markets retail sales up 30% YTD
9 Perspectives Deliver Exceptional Products and Foster Deep Emotional Connections
Q3 2012 Financial Results John Olin, Senior Vice President & CFO
Consolidated Motorcycles and Related Products and Financial Services Segments 11 Harley-Davidson, Inc. Results Q3 2012 Vs. Q3 2011 Results Continuing Operations Revenue Income EPS $1.25 Billion $134.0 $0.59 Million 10.5% 27.0% 24.4% Earnings impacted by: Motorcycles Segment operating income fell 19.9% 11.6% decrease in revenue (14.5% decrease in motorcycle shipments) Higher gross margin percentage Favorable restructuring spending, partially offset by increased SG&A Financial Services Segment operating income up 16.7% Higher yr/yr tax rate
Motorcycles and Related Products Segment 12 Motorcycle Retail Sales - Worldwide Worldwide Harley-Davidson motorcycle retail sales were 61,053, down 785 units during Q3 compared to last year Worldwide Harley-Davidson Retail Sales Q3 12 YTD 12 WW -1.3% 6.0% US -5.2% 6.2% International 7.6% 5.4% U.S. retail sales impacted by limited product availability Challenging worldwide economic environment
Motorcycles and Related Products Segment 13 Motorcycle Retail Sales - U.S. U.S. H-D Retail Sales H-D U.S. New Retail Motorcycle Sales (Units) Harley-Davidson share of US 651+CC retail market 60% +5.4% -5.2% +4.7% +6.2% 58% 56% 54% 52% 50% 57.9% 57.7% +1.4 pts. 56.5% 55.1% Q3 '11 Q3 '12 YTD '11 YTD '12 YTD Industry sales +3.8% H-D +6.2% H-D U.S. New Retail Motorcycle Inventory (Units) U.S. Retail Inventory Up 3,100 units by end of Q3 vs. PY During the quarter, down significantly vs. PY (July/Aug.) Production down due to ERP launch New model year launch re-timed from July to August
Motorcycles and Related Products Segment 14 Motorcycle Retail Sales - International International H-D Retail Sales Q3 12 YTD 12 International 7.6% 5.4% - Canada 4.9% 2.6% - EMEA Region 1.8% -2.9% - Asia Pacific Region 9.8% 14.1% - Latin America Region 32.3% 47.5% Brazil dealer network momentum continued Asia Pacific emerging mkt growth; Japan up Q3 yr/yr Europe sales up in Q3, but remain under pressure from macro economic/debt concerns Europe 651+CC Industry Retail Sales International Growth Progress Harley-Davidson share of Europe 651+CC retail market Goal: Add 100-150 Intl. dealers 2009-2014 13.1% 13.1% 78 100-150 Aug YTD 2011 Aug YTD2012 H-D share flat at 13.1% through Aug. 12 Industry down 7.3% through Aug. 12 78 new dealers as of end of Q3 2012 Opened dealers in China, India, South Africa and Oman during Q3
Shipment & Mix Harley-Davidson motorcycle shipments were down 8,952 units during the third quarter compared to last year Harley-Davidson Motorcycle Shipments Q3 2012 Vs. PY Total Units Shipped 52,793-14.5% Touring 35.0% -1.2 pts. Custom 39.2% -2.3 pts. Sportster 25.8% 100.0% 3.5 pts. In Q3 2012, 37.2% of shipments were international compared to 33.5% in Q3 2011 Motorcycles and Related Products Segment 15
Motorcycles and Related Products Segment 16 Revenue Motorcycle Segment revenue was down $143 million, or 11.6%, in Q3 versus prior year Motorcycle Segment - Revenue ($ Millions) Q3 2012 % Change Motorcycle $774.0-16.1% P&A 233.7-0.8% General Merchandise 75.6 9.1% Other 6.0 13.2% Total Revenue $1,089.3-11.6% Q3 2012 average motorcycle revenue per unit decreased $279 compared to Q3 2011
Restructuring 2012 Restructuring Expectations Q1 Q2 Q3 Q4 Australia Wheel Manufacturing Exit Implement Kansas City Contract Activities GM/P&A Distribution consolidation Implement WI Contract York ERP Implementation York Flex. Mfg Prep 2012 Total Temporary Inefficiencies (Millions) $7 Actual $9 Actual $11 Actual $5-8 $32-35 Motorcycle and Related Products Segment 17
Restructuring Motorcycle Segment Restructuring Summary as of 10/23/12 $ Millions 2009 2010 2011 2012 2013 Total Cost $221 Actual $164 Actual $68 Actual $35-$45 Estimated $5-$10 Estimated $490-$510 Estimated % Cash 65% 52% 93% Approx. 75% Approx. 60% Approx. 65% Annual Savings $91 Actual $172 Actual $217 Actual $275-$295 Estimated $300-$320 Estimated $315-$335 Estimated % SG&A 91% 64% 51% 35-45% 30-40% 30-40% All 2009-2011 costs and savings within expected ranges Retimed $5 million costs from 2012 to 2013 Actual restructuring expense 2012: Q1 - $11.5 million vs. $23.0 million Q1 2011 Q2 - $ 6.2 million vs. $13.6 million Q2 2011 Q3 - $ 9.2 million vs. $12.4 million Q3 2011 Motorcycle and Related Products Segment 18
Gross Margin Q3 gross margin was down $37.5 million behind lower volume and unfavorable mix, partially offset by improved manufacturing costs, favorable pricing and lower raw materials costs Motorcycle Segment Gross Margin ($ Millions) Q3 YTD 2011 Gross Margin $415.4 $1,235.5 % of revenue 33.7% 34.0% - Volume (47.5) 105.6 - Motorcycle Pricing 5.7 23.8 - Mix (12.7) (12.2) - Currency 1.2 (3.5) - Raw Materials 2.5 5.6 - Manufacturing 13.3 43.4 2012 Gross Margin $377.9 $1,398.2 % of revenue 34.7% 35.6% Motorcycle and Related Products Segment 19
Operating Income Q3 operating income was down $35.9 million behind lower gross margin Motorcycle Segment Operating Income ($ Millions) Q3 YTD 2011 Operating Income $ 180.7 $525.6 Operating Margin (% of revenue) 14.7% 14.5% - Gross Margin (37.5) 162.7 - Restructuring 3.3 22.2 - SG&A (1.7) (48.1) 2012 Operating Income $144.8 $662.4 Operating Margin (% of revenue) 13.3% 16.8% Motorcycle and Related Products Segment 20
HDFS Operating Income Financial Services Segment operating income was up $10.4 million driven by higher net interest income. HDFS - Operating Income ($ Millions) Q3 YTD 2011 Operating Income $62.0 $212.0 - Net interest 12.4 16.3 - Provision for retail motorcycle loan losses 1.3 (6.1) - Provision for wholesale loan losses (4.8) (5.6) - Operating expenses 1.1 1.2 - All Other 0.4 3.9 2012 Operating Income $72.4 $221.7 Financial Services Segment 21
Financial Services Segment 22 HDFS Results Q3 2012 HDFS Originated $636.2 million in new/used retail motorcycle loans (+2.5% yr/yr) 52.3% share of U.S. Harley-Davidson new retail sales (+0.1 pt.) $6.03 billion in finance receivables outstanding (-0.2% yr/yr) $5.24 billion retail $785.0 million wholesale Q3 2012 originations approximately 80% prime
Financial Services Segment 23 HDFS Results Retail 30+ Day Delinquencies Managed Retail Motorcycle Loans Annualized Loss Experience Managed Retail Motorcycle Loans
Consolidated Motorcycles and Related Products and Financial Services Segments 24 Harley-Davidson, Inc. Cash Cash/Liquidity Position As of the end of Q3 2012 ($ Billions) Cash & Marketable Securities H-D, Inc. $1.18 HDFS $0.75 Total $1.93 Availability Bank Credit Facilities $0.95 Asset-Backed Conduit $0.60 Total Availability $1.55 2012 Liquidity Strategy Maintain a minimum of 12 months of projected liquidity in cash and/or committed credit facilities Obtain cost-effective funding through diversified sources Balance long-term and short-term funding vehicles Balance unsecured and secured funding Extension of debt maturities (MTNs) Q3 2012 $675 million securitization transaction; weighted avg. interest rate 0.81% $600 million 3 yr. MTN; interest rate 1.15% Established a new $200 million Canadian conduit facility Renewed existing $600 million U.S. conduit facility $85 million in share repurchases (1.9 million shares)
Consolidated Motorcycles and Related Products and Financial Services Segments 25 Harley-Davidson, Inc. Q3 2012 Harley-Davidson, Inc. Continuing Operations Cash & Marketable Securities end of Q3 - $1.93 billion vs. $1.61 billion as of 9/25/11 Operating cash flow first 9 mo. - $712.5 million vs. $901.6 million in 2011 Motorcycles & Related Products operating cash of $496.0 million vs. $523.5 million in 2011 $200.0 million voluntary cash contribution to pension plans in Q1 2011 and Q1 2012 Capital spending first 9 mo. - $95.3 million vs. $106.1 million in 2011 Depreciation expense first 9 mo. - $127.4 million vs. $131.9 million in 2011 Continuing operations tax rate 35.3% vs. 30.4% in 2011
Consolidated Motorcycles and Related Products and Financial Services Segments 26 Guidance 2012 Guidance (as of October 23, 2012) Ship 245,000 to 250,000 Motorcycles in 2012 (Q4 2012 44,500 to 49,500) Gross Margin of 34.75% to 35.75% Capital Expenditures of $190 to $210 million Includes approximately $35 million capital expenditures for restructuring activities
27 Harley-Davidson, Inc. Progress made along journey to growth with continued focus on the future Delivering results Strong margins / Strong returns Returning value to shareholders
28 Forward-Looking Statements (cont.) The Company intends that certain matters discussed in this presentation 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 presentation. 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 presentation are only made as of the date of this presentation, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. (cont.)
29 Forward-Looking Statements (cont.) The Company s ability to meet the targets and expectations noted depends upon, among other factors, the Company's ability to (i) execute its business strategy, (ii) effectively execute the Company s restructuring plans within expected costs and timing, (iii) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (iv) manage through inconsistent economic conditions, including changing capital, credit and retail markets, (v) implement and manage enterprise-wide information technology solutions, including solutions at its manufacturing facilities, and secure data contained in those systems, (vi) anticipate the level of consumer confidence in the economy, (vii) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (viii) manage production capacity and production changes, (ix) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (x) successfully implement with our labor unions the agreements that we have executed with them that we believe will provide flexibility and costeffectiveness to accomplish restructuring goals and long-term competitiveness, (xi) manage risks that arise through expanding international operations and sales, (xii) manage supply chain issues, including any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xiii) provide products, services and experiences that are successful in the marketplace, (xiv) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (xv) manage the risks that our independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xvi) continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, (xvii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS loan portfolio, (xviii) sell all of its motorcycles and related products and services to its independent dealers, (xix) continue to develop the capabilities of its distributor and dealer network, (xx) adjust to healthcare inflation and reform, pension reform and tax changes, (xxi) retain and attract talented employees, and (xxii) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation. (cont.)
30 Forward-Looking Statements 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 operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.