Harley-Davidson is the largest market share holder of motorcycles over 750cc in the United States. After the expansion of our production and distribution capacity, we will be in the position to meet the increasing demand for our motorcycles and other products. Growth potential appears very good especially in the overseas market. Gaining a larger market share in these area may require a further increase in production and distribution capacities. We must plan for expansion now and continue to grow as a company.
In Milwaukee, William Harley, 21, and Arthur Davidson, 20, began experiments on taking the ork out of bicycling. They were soon joined by Arthurs brothers, Walter and William. Many changes were made to the engine design before its builders were satisfied. After the new looped from was finalized, they were ready to begin production. In 1903 they produced three motorcycles. Harley-Davidson erected its first building the current Juneau avenue site in 1906 and incorporated in 1907. In 1907 Harley-Davidson produced 150 motorcycles. The motorcycle market over 750cc has been increasing over the last five years.
The Harley-Davidson 1996 model year production line, sold though a world wide etwork of more than 1,000 dealers, includes 20 cruiser, factory custom and touring motorcycles, as well as police motorcycles. Harley-Davidson benefits form having one of the worlds most recognized and respected brand names and our motorcycle model names are among the best known in the industry: The Competition and Market share This chart shows the competition and market share for 1995 in the United States: Current Market Situation Overall Net sales for 1995 of $1. billion were $191. 6 million, or 16. 5%, higher than net sales for 1994. Net income and earnings per share from continuing operations ere $111. 1 million and $1. 48, for 1995 as compared with $96. 2 million and $1. 26, for 1994. Net income and earnings per share from discontinued operations were $1. 4 million and $. 02, for 1995 as compared with $8. 0 million and $. 11, for 1994, which included a $4. 6 million, or $. 06 per-share, one-time tax benefit related to the legal reorganization of Holiday Rambler.
On January 22, 1996, the Company announced its strategic decision to discontinue the operations of the Transportation Vehicles segment in order to concentrate its financial and human resources on its core motorcycle business. The Company does not anticipate a loss on the discontinuance of the Transportation Vehicles segment. The results of the Transportation Vehicles segment have been reported separately as discontinued operations for each year presented.
On November 14, 1995, the Company acquired substantially all of the common stock and common stock equivalents of Eaglemark Financial Services, Inc. hat it did not already own. The purchase price was approximately $45 million, which was paid from internally generated funds and short-term borrowings. The Company has included the results of operations of the Financial Services segment ($3. million) in its statement of operations for the year ended December 31, 1995 as though it had been acquired at the beginning of the year and deducted the preacquisition earnings as part of non-operating expense.
The Company increased its quarterly dividend in September from $. 04 per share to $. 05 per share which resulted in a total year pay out of $. 8 per share. Units Shipped and Net Sales The Motorcycles and Related Products (Motorcycles) segment’s net sales increased 16. 5% over 1994 due primarily to a 9,293 unit (9. 7%) increase in motorcycle shipments, as well as a 14. 0% increase n its Parts and Accessories business. The increase in motorcycle shipments is the result of ongoing implementation of the Company’s manufacturing strategy and efforts to satisfy demand. The manufacturing strategy is designed to increase capacity, adjust to changes in the market place and further improve product quality while reducing costs.
Sales of Buell motorcycles (which are distributed through select Harley-Davidson dealers) increased to $14 million in 1995 as compared to $6 million in 1994. The Company began 1995 at a scheduled motorcycle production rate of 395 units per day. As the implementation of the anufacturing strategy continued, the rate increased to 470 units per day by the end of the year. The Company exceeded its production goal of 100,000 units in 1995 and anticipates 1996 production will reach at least 115,000 units.
The Company is currently reviewing alternative sites for the construction of a new manufacturing facility to enable it to achieve its long-term goal of doubling motorcycle production by 2003. Year-end data indicates that the domestic (United States) motorcycle market continued to grow throughout 1995. Compared to 1994, industry registrations of domestic heavyweight (engine displacements n excess of 751cc) motorcycles were up 11. 3% . The Company ended 1995 with a domestic market share of 55. 8% compared to 56. 1% in 1994.
This decrease is a reflection of the Company’s constrained production capacity in a growing heavyweight motorcycle market. Demand for the Company’s motorcycles continues to exceed supply with nearly all of the Company’s independent domestic dealers reporting retail orders on all of their remaining 1996 model year motorcycle allocations (production through June, 1996). Export revenues totaled $394. 8 million during 1995, an increase of approximately $63. 6 million (19. 2%) over 994. The Company has exported approximately 30% of its motorcycle unit shipments since 1990 and expects to maintain approximately the same percentage during 1996.
The Company distributes approximately one-half of its exported units through its wholly owned subsidiaries in Germany, Japan and the United Kingdom, which allows the Company flexibility in responding to changing economic conditions in a variety of foreign markets. While definitive market share information (engine displacements in excess of 751cc) is not available in many foreign countries, the Company believes it holds an approximate 11% market share in he European markets in which it competes and a 22% market share in the Pacific Rim.
During 1995, the Parts and Accessories business generated $292. 3 million in revenues, an increase of 14. 0% over 1994. The rate of increase is lower than experienced in recent years, however, management believes the 1995 increase is more indicative of the long-term growth potential of the Parts and Accessories business. The Motorclothes business, which accounted for approximately $100 million of Parts and Accessories sales in 1995, is expected to remain stable in 1996, while the Motor Parts and Motor Accessories businesses are expected o increase.
The Parts and Accessories business is expected to grow at an annual rate similar to the annual growth rate in motorcycle shipments. The Company is developing an improved system to better monitor domestic dealer inventories and retail traffic. In addition, the Company initiated several promotional programs in the fourth quarter of 1995 to increase dealer floor traffic and plans to continue this promotional strategy in 1996. To further strengthen its ability to process and fill orders for the Parts and Accessories business, the Company plans to construct a new distribution center (at an approximate ost of $17 million).
Construction is scheduled to begin in the second quarter of 1996, and the facility should be fully operational by the first quarter of 1997. Gross Profit Gross profit increased $53. 1 million, or 14. 8%, in 1995 as compared with 1994 primarily due to an increase in volume. The gross profit margin was 30. 5% in 1995 as compared with 30. 9% in 1994. The gross profit margin was negatively affected by the overtime incurred to produce additional motorcycle units and make up for production time lost because production employees were involved in numerous strategic planning sessions during 1995.