5Lehman Trikes Founded in 1984 Headquarters: Spearfish, South Dakota Publicly traded: TSX Canadian ExchangeCEO: Ken Hines, formerly VP Lockheed MartinEmployees: 140Operations: 5 days / week/ 2 shifts / day – capacity 5000 units per yearMarketing: 122 dealers worldwide, 112 in the U.S.Customer Loyalty: Pride Matters Magazine
6Lehman Trikes Revenue: 2008 - $22.6 million Revenue: 2009 (Q1-Q2) - $17 million ($35million annualized, a 51% increase)Net Income: 2008 – ($570K) lossNet Income: 2009 (Q1-Q2) - $597K ($1.2 million annualized, a 299% increase)
7Lehman Trike’s Business Model Sales of conversion kits to dealers - $13,000Factory assembly from new O.E.M. motorcycles – price range $18,000 - $33,995Factory conversions for dealer supplied-customer owned motorcycles - $13,000 +Conversion & assembly of the Tri Glide for Harley-Davidson – Retail price $29,999 - $32,339
11Harley-Davidson Founded in 1903 Publicly traded (NYSE: HOG) Market Cap $6.69 BillionHeadquarters in Milwaukee, WisconsinEmployees: 10,100Operations: eight unionized manufacturing facilities2007 machinists union strike - $27.89 maximum wageMarketing: 684 dealers in the U.S., 74 in Canada
12Harley-Davidson Performance Revenue: $5.594 billionRevenue: 2009 (Q2) - $808.7 million ($3.234 billion annualized, a 31.7% decrease to prior year Q2)Net Income: 2008 – $222.8 millionNet Income: 2009 (Q2) - $19.8 million ($79 million annualized, a 91.7% decrease to prior year Q2)
13Harley-Davidson Performance Share price declined from $78 per share in Dec to $7.99 in March a 102% declineCEO, COO, & CFO replaced April 20091500 jobs reduced (15%) April 2009
14Harley-Davidson - Lehman Trikes 2008 – Three year exclusive supply agreement for the Tri Glide, prices renegotiated annuallyLehman must maintain capacity to supply Harley ordersHarley currently selling “all the Tri Glides they can get”
15Harley-Davidson’s Expectations Low cost, low risk entry into a new market segmentNon-union production shopSatisfied enough to launch Street Glide Trike for 2010Allows a ‘wait & see’ strategy for next move
16Lehman Trike’s Expectations The Harley agreement will legitimize the trike segmentThe agreement is providing the cash flow & critical mass for Lehman to grow even during the recessionLehman continues to talk to other major motorcycle manufacturers but now with the Harley seal of approvalLehman continues product development with the 2009 launch of the Victory Cross Bow
17The Future For LehmanLehman’s product sales mix now favors the ‘Harley side’Will that reverse or become more balanced as the recession ends?Will the Harley agreement really legitimize and grow the three-wheel market?Can Lehman capitalize on the Harley agreement to sign supply agreements with other manufacturers?Has Lehman already become overly dependant on the Harley agreement?
18The Future For HarleyWith Harley’s ongoing financial difficulties are they at all focused on the developments in the trike market?Should Harley acquire Lehman to establish a non-union bridgehead?Will Harley use the Lehman agreement with their unions to negotiate more favorable terms?Will the new management’s new strategies include the trikes?
19Epilogue for Harley-Davidson Q sales down 21% net income down 84%Announced “go forward” strategyDiscontinue Buell line, divest MV Augusta businessAnnounced “two path” study of York, PA factoryMajor union concessions or relocate plant to Kentucky
20Epilogue for Harley-Davidson Dec. 3, 2009 announced a new union agreementJob cuts of 50% from 1950 hourly to 750 & 250 “casual” workersSavings of $150 million per yearAllows York to resize & become more flexibleJob classifications cut from 60 down to 5 allowing workers to do more & significantly different tasks
21Epilogue for Lehman Trikes Jan. 16, 2010 H-D announced Lehman will no longer assemble their trikes after 2010.H-D announced moving trike assembly to York, PA plant.Can Lehman effectively restructure to reflect loss of over half their volume?Will economic recovery occur in time to revitalize sales on the “Lehman Side”?