HarleyDavidson Presentation

• Company Profile

HARLEY‐DAVIDSON, INC.

• Marketing Analysis

• Accounting Analysis

• Financial Analysis

• Recommendations

• Conclusion


Company Profile

• World’s leading designer and manufacturer of heavyweight (651+cc) motorcycles and related products and merchandise

• Key Operations: Harley‐Davidson Motor Company and Harley‐Davidson Financial Services

• Recent Milestoneso 2008: 105th Anniversary of Harley‐Davidsono 2009: Keith E. Wandell named President and CEO; Restructuring

Plan launchedo 2010: India selected as second international o assembly site

• Company Profile





• Recommendations

• Conclusion


Accounting Analysis – Performance MetricsHOG ACAT BC MPX PII

as of 9/30/10

EPS 0.65 0.34 ‐1.48 0.02 4.02

P/E 47.88 43.38 N/A 404.31 18.06

Price/Sales 1.46 0.39 0.44 2.51 1.07

Inventory T/O 9.20 5.40 5.10 3.30 6.80

A/R Turnover 15.70 13.40 8.00 52.70 23.80

Current Ratio 1.83 2.19 1.77 3.54 1.60

Debt/Equity 280.24 0.00 384.20 0.00 67.13

LT Debt/Assets 61.12 0.00 30.53 0.00 20.57

ROE 17.37 41.38 ‐13.82 4.71 70.45

ROA 3.71 26.00 ‐1.05 3.78 21.12

Gross Margin 36.65 29.16 22.48 16.96 25.98

Net Margin 7.44 10.13 ‐0.88 4.16 8.14

as of 12/31/10

Price/Book 3.48 1.62 6.84 2.95 11.76

Beta 2.32 2.08 3.04 1.11 1.77

EBITD Margin 15.18 5.35 ‐15.36 ‐45.16 13.00


Accounting Analysis – Performance Metrics

0.0x

4.0x

8.0x

12.0x

16.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Multip

le

Year

Inventory Turnover

• Inventory Turnover: increasing amount of funds tied up in inventory



0.0x

10.0x

20.0x

30.0x

40.0x

50.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Multip

le

Year

Accounts Receivable Turnover

• Accounts Receivable Turnover: decrease due to drop in Revenues in recent years



• LT Debt to Assets: high reliance on debt financing, increasing over time

0%

10%

20%

30%

40%

50%

60%

70%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Multip

le

Year

Debt to Assets Ratio


Accounting Analysis – Methodology and Disclosures

• Inventory Valuation: combination of both LIFO and FIFO, dependent on where materials/goods are sourced; decreasing LIFO Reserve indicates a trend to source more inventory from abroad

‐45‐40‐35‐30‐25‐20‐15‐10‐50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

$ in M

illions

Year

LIFO Reserve



Goodwill • Impairment of $28.4 million in 2009, due to significant losses and

write‐downs in HDFS’s loan portfolio; • HDFS was acquired as Eaglemark Financial Services in 1995 for $43.0

million in excess of fair value



• Safety Recall Campaign Liabilities: increases over last three years due to possible increased use of foreign parts and components of lesser quality

$3.7$4.6

$6.7

0

1

2

3

4

5

6

7

8

2007 2008 2009

$ in M

illions

Year

Safety Recall Campaign Liability

• Company Profile





• Recommendations

• Conclusion


Financial Analysis—Overview (2010 Q3 vs. 2009 Q3)

Key Metrics B/W

Revenue (HDMC + HDFS) 1%

Revenue (HDMC) (2%)

Gross Profit 25%

Operating Expense 11%

EBITDA 35%

Net Income (Excl. UnusualItems) 66%

Diluted EPS (Excl. Unusual Items) 66%

0%

10%

20%

30%

40%

2005 2007 2009 2010Q2

EBITDA & EBIT Margins

EBITDA Margin (Excl Abnornal Items)EBIT Margin (Excl Abornmal Items)

0

1000

2000

3000

4000

5000

6000

7000

‐1.00

0.00

1.00

2.00

3.00

4.00

5.00

2005 2007 2009 2010Q2

Millions

Profitability

EPS EPS Before Abnormal Items Sales (Revenue in $MM)


Financial Analysis – Profitability

• Sales decreased to $5B, lowest since 2006

• Earnings per share has been declining, hit the lowest point in 2009

• EBITDA and EBIT margin have been declining over the years


Financial Analysis – Leverage

• H‐D is highly levered o The Debt to Equity is at

246% in 2010 Q3

o The Debt to Asset Ratio is at 78% in 2010 Q3

• H‐D has been maintaining free cash flow; with a dip in 2009

0%

50%

100%

150%

200%

250%

300%

350%

0%

20%

40%

60%

80%

100%

2005 2007 2009 2010Q2

Leverage Ratio

Debt to Asset ratio Debt to Equity ratio

‐1000

‐500

0

500

1000

2005 2007 2009 2010Q2

Free Cash Flow

Free Cash Flow ($MM)


Financial Analysis – Liquidity Standing

• The Current ratio has been falling since 2005. As of 2010 Q3 it was 1.8

• H‐D has been utilizing its line of credit lately: utilization rate jumped to 72% in 2009

0.000.501.001.502.002.503.003.504.00

2005 2007 2009 2010Q2

Current Ratio

Current ratio

0

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400

600

800

1000

1200

1400

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005 2006 2007 2008 2009

Line of Credit Utilization

Total Available Line Of Credit ($MM) Line of credit utilization

HARLEY‐DAVIDSON, INC.Financial Analysis ‐ Valuation

• Discounted Cash Flow o Discounted by ~11% WACC o Projected Sales growth of 8.8% CAGR from 2010‐2015o Terminal growth rate of 4%o Sensitivity Analysis of the stock Price ‐ $31‐35

• As of Dec 11th , 2010 H‐D stock closed at $33.69

• The Stock is priced within acceptable range by the market

• Company Profile





• Recommendations

• Conclusion


Harley‐DavidsonFinancial Services(20% Revenue)

Harley‐Davidson Motorcycles

(80% Revenue)

Bikes Trikes Parts Merchandise

Wholesale Financing Insurance Retail Financing

Marketing Analysis – Products and Services


Marketing Analysis – Customer Segmentation

35

40

45

50

55

2004 2005 2006 2007 2008

Med

ian Ag

e

Year

Customer Demographics by Age

0%

20%

40%

60%

80%

100%

2007 2006 2005 2004 2003

Custom

ers (%)

Year

Customer Demographics by Gender

Male

Female

• Median Age: 47 (in 2008) Has increased by 6 months per year for last 20 years

• Consistent 88‐89% male ownership rate


Marketing Analysis – Market Share

• International shipments have been increasing as percentage of total H‐D motorcycle shipments

2008: 32%2009: 35.2%

0

50000

100000

150000

200000

250000

2008 2009

Units

Year

Unit Shipments

United States

International


DistributionNorth America Europe Asia Pacific Latin America

US Canada Region Region Region

Independent Distributors 0 1 3 0 0

Full Service DealershipsHD Only 389 25 52 110 16

Buell only 0 0 2 2 0

HD and Buell 282 46 315 86 18

Total 671 71 369 198 34

Non‐Traditional RetailersSecondary Retail Locations 87 3 2 4 6

Alternate Retail Outlets 83 5 8 6 15

Seasonal Retail Outlets 10 1 0 0 1

Total 180 9 10 10 22

Marketing Analysis – Distribution Channels


Marketing Analysis – Competitive Positioning Strategy

Quality

Value

ASPIRATIONAL

EMOTIONAL

FUNCTIONAL

BASIC PRODUCT

• Harley Davidson Lifestyle• Freedom, Rebellion

• 1MM in HOG Brand‐Community• Sense of belonging

• High quality design and product

The HOG Mission: Making the Harley‐Davidson Dream a Way of Life

Laddered Hierarchy of customer needs


Marketing Analysis – Historic Brand Meaning


• Down from # 74 to # 98 in global brand ranking (Interbrand) due to:

o Aging market problemo Loss of rebellious brand imageo Negative company presso Mass‐marketing strategies

have diluted the brand

Marketing Analysis – Loss of Brand Equity


REBEL

RELEVANCE

STRETCH

DIFFERENTIATION

CREDIBILITY

Symantec Brand Opportunity Framework

• Relevance: Attractive to a wider market

• Stretch: Rebellion means a wide range of things to different consumers

• Credibility: H‐D has historically stood for rebellion; category

• Differentiation: H‐D is therebel motorcycle brand

Freedom

Bad‐boy

Authenticity

American

Recommendation – Refocus Marketing Strategy around Brand


• For all print, TV, and on‐line messaging channels—eliminate any images that contradict a rebellious image

• H‐D should limit the amount of low‐end apparel sold in the U.S. market

• H‐D should abandon the WE RIDEMagazine, or any other obvious “female‐oriented” marketing

Recommendation – Refocus Marketing Strategy around Brand


• Rely on underground media channels, such as the Vice Magazine blog

• Avoid using TV or large‐scale events which could appear too “main‐stream”

• Utilize retro‐Americana rebellious images, which could give the brand a more classic vintage feel (i.e. James Dean more than a Hell’s Angel).

Recommendation – Market to Younger Demographic

• PBR sales are now growing at about 30% per year

• Only large‐scale domestic brewery to grow during the recession

• PBR currently priced at over $250 million dollars


“Soft‐Touch” Marketing

Underground Media

Core Values

• Credibility/Authenticity

• Cynicism

• Anti‐Mainstream

• Brand Adoption

• Rebellion• Retro‐Americana

Recommendation – Market to Younger Demographic


Counter Loss of Brand Equity

Manage image of consumersReduce mass‐marketing

Refocus Brand

Return to core attributes: rebellion, freedom

Market to Younger

Demographic

Utilize anti‐marketing strategiesFocus on retro models and advertising

Recommendations – Future Marketing Strategy


China 56%

India24%

Japan11%

South Korea1%

Other8%

Asian Motorcycle Market Share(2009)

INDIA

Recommendation – Increase Footprint in India

• High growth potential

• Existing capital commitment

• Brand awareness

Harley‐Davidson, Inc.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Units Sold

Year

Motorcycle Sales Volume(India)

2005 ‐ 2009 CAPR5.5%

2010 ‐ 2014 CAPR5.1%

Projected Unit Sales(thousands)2010 = 9,849 2011 = 10,351 2012 = 10,879 2013 = 11,434 2014 = 12,017



0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Unit Sales

India Expansion

International

Domestic

Year 2010 2011 2012 2013 2014

Unit Sales 200 500 2,000 5,000 8,000



HARLEY‐DAVIDSON, INC. India

CurrentChandigarhNew DelhiMumbai

Hyderabad Bengaluru

ProposedKolkataChennai

AhmedabadPuneSuratKanpurJaipur

LucknowNagpurPatna


Grow Market Share

Grow dealer networkSmaller bikes, lower cost

Source Locally

Market research to protect brandPurchase parts/materials locally

Build On Production Capability

Expand CKD facility as demand growsFeasibility of manufacturing locally, brand and costs

Recommendations – Future in India

• Company Profile





• Recommendations

• Conclusion

HARLEY‐DAVIDSON, INC.Conclusion – The road ahead…

Refocus Brand => Harley‐Davidson’s core asset

Strategic Expansion to India

Short and Long Term Growth


Questions?


Appendices

HARLEY‐DAVIDSON, INC.DCF Sensitivity Analysis

HARLEY‐DAVIDSON, INC.Weighted Average Cost of Capital


Documents

HarleyDavidson Presentation