Harley Davidson 2008 Annual Report Download - page 3

While our durability is being tested by one of the
most challenging economic times since the
Great Depression, we are taking the actions required
to deal with today’s challenges and sustain the
long-term vitality of Harley-Davidson.
Our 2008 nancial results clearly reect the
signicant pressures being brought to bear on our
business by this severe economic downturn.
Revenue decreased 2.3 percent to $5.59 billion,
primarily on an 8.2 percent decline in shipments
of Harley-Davidson® motorcycles as we lowered
our shipments in response to deteriorating market
conditions. Net income fell 29.9 percent to
$654.7 million, reecting both the performance of
the motorcycles business and lower protability
at Harley-Davidson Financial Services (HDFS).
Diluted earnings per share declined 25.4 percent
to $2.79. And at year-end, our share price was
63.7 percent lower than when the year started.
While these are disappointing results, it’s
important to keep them in perspective. Despite
consumers watching their discretionary spending
more closely than at any time in recent history,
our dealers sold 313,769 new Harley-Davidson
motorcycles worldwide, a 7.1 percent decline
versus 2007, but more than a 217 percent increase
versus a decade ago.
Looking ahead, we have announced our plan to
ship 10–13 percent fewer Harley-Davidson
motorcycles in 2009 than last year, as we continue
to prudently manage our shipments consistent
with the expected slowing of consumer spending.
STRATEGY FOR THE CURRENT ECONOMIC
ENVIRONMENT > We know you rightly expect us to
manage the Company well in both good times
and bad. But even more so, we feel a strong sense
of stewardship, not just to guide Harley-Davidson
successfully through the current economic
challenges, but to do so in a way that best protects
and enhances the Harley-Davidson brand as
well as drives future growth over the long term.
We are determined to make wise choices in
the short term that will best equip Harley-Davidson
for long-term success.
Consequently, we have developed a clear
three-pronged strategy to guide Harley-Davidson
through this difcult recession and at the same
time strengthen our operations, our market
presence and our nancial results for the longer term.
Our three-pronged strategy is focused on:
1) getting our cost structure right; 2) obtaining
funding for HDFS to help our dealers sell
motorcycles and retail customers buy them; and
3) investing in the Harley-Davidson brand.
Our management team is executing this three-
pronged strategy with discipline and boldness.
GET THE COST STRUCTURE RIGHT > While we
carefully managed the expansion of our production
capacity during the vigorous growth of the 1990s
and early part of this decade, the past two years of
substantial shipment declines have altered the
economic dynamics of our business. Our xed cost
structure is simply too high
— especially in
this environment.
As a result, we have announced a number of
changes, including the planned consolidation
of some of our production facilities as well as our
parts, accessories and general merchandise
distribution operations. Our objective is to reduce
excess capacity, gain signicant efciencies and
substantially adjust our cost structure.
We have a fundamental belief in American
manufacturing, and we’re proud of the leading role
we have played in demonstrating that American
manufacturing can indeed compete and win on a
sustained basis. We believe American manufacturing
can thrive over the long term in a 21st century
global economy if it continues to evolve, and we
are determined to show the foresight required
to make that progress happen at Harley-Davidson.
OBTAIN FUNDING FOR HDFS > Harley-Davidson
Financial Services was protable in 2008 and
remains a consistent source of wholesale nancing
for dealers and retail nancing for customers.
This is especially important, given the reduced
access to credit from other sources that consumers
and dealers have faced.
As with most nance companies, the turmoil in
the credit markets has substantially disrupted
the access that HDFS has to the capital needed to
fund its lending activities. The asset-backed
securitization markets
— traditionally our most
prevalent source of funding
— were largely closed
for much of 2008 and into 2009.
As I write this letter, the credit markets are
progressing slowly and are still far from functioning
properly. We continue to work on putting various
alternatives in place to fund the lending activities
of HDFS and we believe we can continue to meet
HDFS’ liquidity needs.
INVEST IN THE BRAND > Great brands are built by
consistent investment in product development
and marketing, in both good times and bad. While
we are being careful to allocate our product
development and marketing dollars wisely, we are
strongly committed to properly supporting the brand.
The Harley-Davidson brand consistently ranks
among the strongest of the strong. It is built
on personal relationships and deep connections
with customers, unmatched riding experiences,
a proud history and, more than anything, the unique
ability of our products to fulll the dreams of every
generation that comes along.
For example, our 105th Anniversary Celebration
last August drew larger crowds than the milestone
100th Anniversary, despite lagging consumer
condence and falling discretionary spending.
The 105th underscores the enormous appeal and
drawing power of the Harley-Davidson brand and
I believe bodes well for the future. It demonstrates
how, even in a recession, people of all ages and from
all walks of life are connecting with the richness
of the Harley-Davidson experience. It also speaks to
something we’ve known for a long time: for many
people, a Harley-Davidson motorcycle is anything but
discretionary. It’s an essential statement of identity.
We are also expanding the brand and stimulating
consumer interest and demand in many other ways.
For example:
• We introduced the Tri Glide™ motorcycle last July,
which expands the Harley-Davidson experience
and extends the riding lifecycle. In fact, there is
a current waiting list for Tri Glide and we are
increasing its production.
• We introduced the Iron 883™ in January, broad-
ening the reach of Harley-Davidson authenticity
at a suggested retail price under $8,000.
• We rolled out our “Ride Free” Sportster®
motorcycle
trade-up program, which allows customers
to buy a Sportster model and then receive full
manufacturer’s suggested retail price when
they trade up later. “Ride Free” demonstrates our
disciplined approach to triggering consumer
purchases in ways that actually build brand value.
• We opened the Harley-Davidson Museum in
our hometown of Milwaukee, creating a
destination where riders and non-riders alike can
more fully experience our brand.
Of course, the best way to strengthen the
Harley-Davidson brand is to make our great motor-
cycles even greater. We have dedicated this
annual report to sharing with you how we are focused
more intensely than ever
— despite the external
challenges
— on expanding this core strength and
bringing products to market that resonate across
the spectrum of riders.
LONG-TERM POTENTIAL > While the current circum-
stances are difcult, the long-term growth potential
of our business remains substantial, and we see three
principal means for realizing that potential.
• BROADENING OUR BASE. We know that younger
generations aspire to the attitude, authenticity
and adventure that our motorcycles represent,
as do women and other diverse audiences. We are
heavily focused on converting that aspiration
into purchases, creating new generations of riders
for years to come.
• GROWING OUR CORE. We continue to develop new
ways for existing riders to ride more and get
more out of their experiences. We see solid growth
potential across a broad spectrum of customers,
not only as new people come into the
Harley-Davidson family, but also as we extend
their time in the saddle after years of riding.
• EXPANDING GLOBALLY. New Harley-Davidson
motorcycle retail sales outside the U.S. grew
10.3 percent in 2008, despite the global economic
slowdown. While we expect a modest decline in
overall international retail sales this year, we
believe our international opportunities remain
strong once the economy turns around. Our
acquisition of MV Agusta last August is an example
of our global strategy in action, representing a
great opportunity to expand our footprint in Europe
and deepen our offerings in high-performance
sport motorcycles, which account for more than
70 percent of the European market.
We have the unique resources required to turn
that long-term potential into reality.
• We have one of the world’s most recognized
and powerful brands. Our brand is one that has
been built on uniquely satisfying products.
• We have the best motorcycle dealer network in
the world, comprised of dedicated local entre-
preneurs who live and breathe Harley-Davidson
in their communities.
• We have an amazing heritage of resilience and
durability, which helps enable us to manage
through challenges with poise and boldness.
• And most important, we have a dedicated team of
talented employees who are incredibly passionate
about leading Harley-Davidson back to growth.
This is my 40th and nal year at Harley-Davidson.
As our Board of Directors moves through its
process to identify my successor, please know that
I am completely determined to make sure the
actions we take today will be judged 40 years from
now as disciplined, bold and effective. Working
at Harley-Davidson continues to be a great privilege
and, until the transition is fully completed,
I feel an intense personal obligation to provide the
strong leadership this great company deserves.
I want to thank our employees, dealers and
suppliers for their remarkable efforts in the face of
great challenges. Never has the Harley-Davidson
spirit been so apparent, and I am grateful to work
with so many exceptional people.
Most especially, I thank our shareholders. Our
styling chief, the legendary Willie G. Davidson,
often reminds Harley-Davidson riders that “We Ride
With You.” You should know we feel the same sense
of stewardship when it comes to our shareholders.
Even more important, please know how much
we appreciate the trust you show by riding with us.
We’re determined to reward that trust by making
sure Harley-Davidson will indeed ride with discipline
and boldness, both today and for the long term.
Sincerely,
JAMES L. ZIEMER
President and Chief Executive Ofcer
Harley-Davidson, Inc.
DEAR FELLOW SHAREHOLDERS: THESE ARE CHALLENGING TIMES FOR
HARLEY-DAVIDSON. BUT MAKE NO MISTAKE
—
WE ARE TAKING A BOLD AND
DISCIPLINED APPROACH TO MEETING THE CHALLENGES HEAD-ON. FOR 106
YEARS, THROUGH EVERY KIND OF ECONOMIC CYCLE, WE’VE BUILT AN ENDURING
BUSINESS. WE’VE BUILT IT THROUGH THE DETERMINATION AND TALENTS OF
MANY PEOPLE. WE’VE BUILT IT BY STAYING CLOSE TO OUR CUSTOMERS. AND AT
ITS CORE, WE’VE BUILT IT BY BUILDING THE WORLD’S GREATEST MOTORCYCLES.