-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BAm9Mj+RC/dgJdX0TtNwmYWPHfVgYi3VwFmXGG3WuASpPbaQIUKb2DqJ+DNXN9Vv cGi0NdNYDr3hCOMZB8GO6g== 0000897069-96-000380.txt : 19961115 0000897069-96-000380.hdr.sgml : 19961115 ACCESSION NUMBER: 0000897069-96-000380 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEY DAVIDSON INC CENTRAL INDEX KEY: 0000793952 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 391382325 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09183 FILM NUMBER: 96662170 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 HARLEY-DAVIDSON, INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 29, 1996 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ____________ Commission File Number 1-9183 Harley-Davidson, Inc. (Exact name of registrant as specified in its Charter) Wisconsin 39-1382325 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3700 West Juneau Avenue, Milwaukee, Wisconsin 53208 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (414) 342-4680 None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding as of November 1, 1996 75,624,357 Shares HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended September 29, 1996 Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-14 Part II. Other Information Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit Index 17 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Harley-Davidson, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share amounts)
Three months ended Nine months ended Sept. 29, Sept. 24, Sept. 29, Sept. 24, 1996 1995 1996 1995 Sales $385,843 $327,096 $1,149,698 $977,613 Cost of goods sold 265,375 230,317 788,592 680,702 -------- ------- --------- ------- Gross profit 120,468 96,779 361,106 296,911 Operating income from financial services 1,277 771 4,999 2,423 Selling, administrative and engineering expenses (71,290) (60,568) (198,516) (169,692) ------- ------- --------- -------- Income from operations 50,455 36,982 167,589 129,642 Interest income - net 1,251 858 1,681 916 Other income (expense) - net 980 19 (801) (2,812) ------- -------- --------- -------- Income from continuing operations before provision for income taxes 52,686 37,859 168,469 127,746 Provision for income taxes 19,482 14,416 62,323 47,295 ------- -------- --------- -------- Income from continuing operations 33,204 23,443 106,146 80,451 Gain from discontinued operations, net of tax - 247 - 251 ------- -------- --------- -------- Net income $ 33,204 $ 23,690 $ 106,146 $ 80,702 ======= ======== ========= ======== Weighted average common shares outstanding 75,555 74,776 75,381 75,173 ======= ======== ========= ======== Net income per common share: Income from continuing operations $0.44 $0.32 $1.41 $1.07 Gain from discontinued operations, net of tax - - - - ------- -------- -------- -------- Net income $0.44 $0.32 $1.41 $1.07 ======= ======== ========= ======== Cash dividends per share $0.06 $0.05 $0.16 $0.13 ======= ======== ========= ========
Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) ASSETS Sept. 29, Dec. 31, Sept. 24, 1996 1995 1995 (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 114,046 $ 31,462 $ 47,796 Accounts receivable, net 176,622 134,210 164,826 Inventories (Note 2) 91,480 84,427 98,973 Other current assets 32,230 30,591 25,350 Net assets from discontinued operations 11,830 56,548 43,424 --------- --------- -------- Total current assets 426,208 337,238 380,369 Finance receivables, net 312,329 213,444 - Property, plant and equipment, net 330,567 284,775 251,578 Goodwill 41,454 43,256 - Other assets 85,573 66,949 74,805 Net assets from discontinued operations 25,400 55,008 57,746 --------- --------- --------- $1,221,531 $1,000,670 $764,498 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 837 $ 2,327 $ 3,762 Current maturities of long-term debt 109 364 269 Accounts payable 107,455 102,563 87,313 Accrued expenses and other 150,286 127,956 103,330 --------- --------- -------- Total current liabilities 258,687 233,210 194,674 Finance debt 243,648 164,330 - Postretirement health care benefits 64,957 63,570 62,768 Other long-term liabilities 50,637 44,991 40,780 Contingencies (Note 5) Total shareholders' equity 603,602 494,569 466,276 --------- --------- -------- $1,221,531 $1,000,670 $764,498 ========= ========= ======== Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended Sept. 29, Sept. 24, 1996 1995 Cash flows from operating activities: Net income $ 106,146 $80,702 Depreciation and amortization 39,464 28,935 Long-term employee benefits 2,984 3,944 Other-net 5,155 647 Net change in discontinued operations 16,321 15,972 Net change in other current assets and current liabilities (31,196) (40,713) -------- -------- Net cash provided by operating activities 138,874 89,487 Cash flows from investing activities: Purchase of property and equipment (84,398) (66,234) Finance receivables acquired or originated (816,578) - Finance receivables collected/sold 723,788 - Proceeds from disposition of discontinued segment 35,350 - Net change in discontinued operations (1,779) (7,377) Other - net (15,615) 989 -------- -------- Net cash used in investing activities (159,232) (72,622) Cash flows from financing activities: Reduction of long-term debt (255) (912) Net increase (decrease) in notes payable (1,490) 2,676 Net increase in finance debt 79,318 - Dividends paid (12,472) (9,784) Stock repurchases - (39,972) Issuance of stock under employee stock and option plans 16,407 2,062 Net change in discontinued operations 21,434 1,121 --------- --------- Net cash provided by (used in) financing activities 102,942 (44,809) --------- --------- Net increase (decrease) in cash and cash equivalents 82,584 (27,944) Cash and cash equivalents: At beginning of period 31,462 75,740 --------- ------- At end of period $ 114,046 $47,796 ========= ======= HARLEY-DAVIDSON, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation and Use of Estimates The condensed interim consolidated financial statements included herein have been prepared by Harley-Davidson, Inc. (the "Company") without audit. Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and generally accepted accounting principles for interim financial information. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the consolidated financial position as of September 29, 1996 and September 24, 1995, and the results of operations for the three- and nine-month periods then ended. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. The operations of Holiday Rambler are classified as discontinued operations. As such, certain prior-year balances have been reclassified in order to conform to current-year presentation. On November 14, 1995, the Company acquired substantially all of the common stock and common stock equivalents of Eaglemark Financial Services, Inc. (Eaglemark) that it did not already own. The Company has included the results of operations of Eaglemark in its statement of income for the nine months ended September 24, 1995 as though it had been acquired at the beginning of the year and deducted the preacquisition earnings as part of non-operating expense. Prior to December 31, 1995, the Company accounted for its investment in Eaglemark using the equity method. The carrying value of its investment in Eaglemark was approximately $9.8 million and is included in other assets at September 24, 1995. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Note 2 - Inventories The Company values its inventories at the lower of cost, principally using the last-in, first-out (LIFO) method, or market. Inventories consist of the following (in thousands): Sept. 29, Dec. 31, Sept. 24, 1996 1995 1995 Components at the lower of cost, first-in, first-out (FIFO), or market: Raw material & work-in-process $ 29,887 $ 32,284 $ 33,238 Finished goods 27,874 19,290 29,126 Parts & accessories 55,298 52,182 56,248 ------- ------- ------- 113,059 103,756 118,612 Excess of FIFO over LIFO 21,579 19,329 19,639 ------- ------- ------- Inventories as reflected in the accompanying condensed consolidated balance sheets $ 91,480 $ 84,427 $ 98,973 ======= ======= ======= Note 3 - Capital Stock The Company has continuing authorization from its Board of Directors to repurchase up to 4 million shares of the Company's outstanding common stock. During the first quarter of 1995, the Company repurchased 1,650,000 shares of its common stock with cash on hand and short-term borrowings. As a result, the Company has 2,350,000 million shares available to repurchase under this authorization. Note 4 - Supplemental noncash investing activities On March 6, 1996, the Company sold substantially all of the assets of its Holiday Rambler Recreational Vehicles Division to Monaco Coach Corporation ("Monaco"). Total consideration consisted of approximately $23 million in cash, $3 million in preferred stock of Monaco, a $12 million note from a Monaco subsidiary guaranteed by Monaco and assumption by Monaco of certain liabilities of the acquired operations in the approximate amount of $47 million. The note was paid in full during the third quarter of 1996. Note 5 - Contingencies The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility (the Facility). The Facility was formerly used by the U.S. Navy and AMF (the predecessor corporation of Minstar). The Company purchased the Facility from AMF in 1981. Although the Company is not certain as to the extent of the environmental contamination at the Facility, it is working with the Pennsylvania Department of Environmental Resources in undertaking certain investigation and remediation activities. In March 1995, the Company entered into a settlement agreement (the Agreement) with the Navy. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with investigation and remediation activities at the Facility (response costs). The trust will administer the payment of the future response costs at the Facility as covered by the Agreement. In addition, in March 1991 the Company entered into a settlement agreement with Minstar related to certain indemnification obligations assumed by Minstar in connection with the Company's purchase of the Facility. Pursuant to this settlement, Minstar is obligated to reimburse the Company for a portion of its response costs at the Facility. Although substantial uncertainty exists concerning the nature and scope of the environmental remediation that will ultimately be required at the Facility, based on preliminary information currently available to the Company and taking into account the Company's settlement agreement with the Navy and the settlement agreement with Minstar, the Company estimates that it will incur approximately $5 million of net additional response costs at the Facility. The Company has established reserves for this amount. The Company's estimate of additional response costs is based on reports of environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response costs are expected to be incurred over a period of approximately 10 years. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section, "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition to those statements specifically identified as forward looking statements, statements that state the Company "expects," "plans," "anticipates," or "estimates" are forward looking statements. Actual results might differ materially from those projected in such forward looking statements. Actual results might be adversely affected by, among other things, the factors identified on page 14 of this quarterly report. Results of Operations for the Three Months Ended September 29, 1996 Compared to the Three Months Ended September 24, 1995 For the quarter ended September 29, 1996, consolidated net sales totaled $385.8 million, a $58.7 million or 18.0% increase over the same period last year. Net income and earnings per share for 1996 were $33.2 million and $.44 on 75.6 million shares outstanding versus $23.7 million and $.32 on 74.8 million shares outstanding in 1995, increases of 40.1% and 37.5%, respectively. All 1995 financial data have been restated to reflect the classification of the Company's Transportation Vehicles segment to that of a discontinued operation, as announced on January 22, 1996. Certain 1995 balances have also been reclassified to reflect the acquisition of substantially all of the stock of Eaglemark Financial Services not previously owned by the Company. All Harley-Davidson, Inc. sales are generated by the Motorcycles and Related Products ("Motorcycles") segment. Motorcycle Unit Shipments and Net Sales For the Three-Month Periods Ended September 29, 1996 and September 24, 1995 Incr 1996 1995 (Decr) % Motorcycle units (excluding Buell) 28,013 25,012 3,001 12.0% Net sales (in millions): Motorcycles (excluding Buell) $285.9 $247.3 $38.6 15.6% Motorcycle Parts and Accessories 90.5 75.9 14.6 19.3 Other 9.4 3.9 5.5 141.0 Total Motorcycles and Related Products $385.8 $327.1 $58.7 18.0% The Motorcycles segment reported record third quarter net sales driven by a 12.0% increase in motorcycle unit shipments and a 19.3% increase in Parts and Accessories. The increase in motorcycle unit shipments over the third quarter of 1995 was due to higher average daily production rates. During the third quarter of 1996, motorcycle production averaged 490 units per day versus 430 units per day in the same period last year. The Company announced that it expects daily motorcycle production to average approximately 510 units per day in the fourth quarter. Third quarter 1996 revenue from the Company's foreign subsidiaries was negatively impacted by the strengthening of the U.S. dollar, resulting in revenue decreases totaling approximately $4 million from the year-ago quarter. The potential negative effect on earnings was largely offset by the favorable impact of foreign exchange rates on foreign subsidiary operating expenses and foreign currency hedging programs. Sales of Buell motorcycles (which are distributed in the U.S. and Japan through select Harley-Davidson dealers) increased to $7.4 million (846 units) in 1996 as compared to $2.5 million (222 units) in 1995. (Included in "Other" in the above table.) Buell motorcycles were introduced in the Japan market during the second quarter of 1996. Introduction into the European market is planned during the first quarter of 1997. The Company experienced a build-up of inventory (approximately 900 units) at its wholly owned French and German distributors primarily due to pricing disparities. In September, the Company adjusted prices in each European market to move toward more consistent country-to-country pricing and anticipates it will spend approximately $1.5 million on market specific promotions in the fourth quarter of 1996. The Company has adjusted the U.S. allocation of 1997 model year motorcycles to 72% of total production, up from 70% in previous years, to take advantage of the European inventory build-up to shorten the wait that many of its U.S. customers have to endure. Parts and Accessories revenue of $90.5 million increased $14.6 million or 19.3% compared to the third quarter of 1995. The combined sales of Genuine Motor Parts and Genuine Motor Accessories totaled $61.9 million, a $10.5 million or 20.4% increase compared to last year. MotorClothes clothing and collectibles sales totaled $28.6 million, a $4.2 million or 17.1% increase. These increases are a result of well executed product introductions, improved product delivery and shipping seasonal MotorClothes products earlier than in previous years. The new product offerings and price points introduced in the third quarter were well received. The third quarter of 1995 was hindered by a decline in demand for MotorClothes clothing and collectibles and backorder delays on Genuine Motor Parts and Genuine Motor Accessories. A comparison of Parts and Accessories sales for the fourth quarter of 1996 to the same period in 1995 will be unfavorable since the 1995 fourth quarter was favorably impacted by the reduction of the unusually high backlog carried over from the third quarter of 1995 and by four fewer shipping days in the fourth quarter of 1996. However, the Company anticipates that long-term Parts and Accessories revenue growth will approximate the growth rate in motorcycle unit shipments. Gross Profit Gross profit increased $23.7 million, or 24.5%, compared to the third quarter of 1995 primarily due to an increase in motorcycle volume. The gross profit margin was 31.2% in 1996 as compared with 29.6% in 1995. The increase in the gross profit percentage was due primarily to a shift in mix from the entry level Sportster models to the higher-margin custom models. In addition, the annual model year change-over was the smoothest in recent memory and overtime was considerably lower than in the third quarter of 1995. Operating Expenses For the Three-Month Periods Ended September 29, 1996 and September 24, 1995 (Dollars in Millions) Incr 1996 1995 (Decr) % Motorcycles and Related Products $69.6 $58.4 $ 11.2 19.3% Corporate 1.7 2.2 (0.5) (24.2) Total operating expenses $71.3 $60.6 $10.7 17.7% Operating expenses increased $10.7 million, or 17.7%, compared to the third quarter of 1995. An early retirement program in connection with the new Parts and Accessories Distribution Center resulted in a charge of $2.5 million in the third quarter of 1996. A product recall on fuel valves resulted in a $1.1 million charge in 1996 for estimated repair costs. The remaining increase was related to increased motorcycle volumes and increases in engineering and information services expenses when compared to the same period last year. Operating income from financial services The operating income of the Financial Services (Eaglemark Financial Services) segment was $1.3 million and $.8 million in 1996 and 1995, respectively. This increase was primarily due to increased wholesale and retail origination volume and corresponding increases in outstanding wholesale and retail receivables. Capitalized interest The Company capitalized approximately $900,000 of interest during the third quarter of 1996 in connection with its manufacturing expansion initiatives. The Company anticipates approximately $1 million of capitalized interest will be incurred in the fourth quarter of 1996. Results of Operations for the Nine Months Ended September 29, 1996 Compared to the Nine Months Ended September 24, 1995 For the nine month period ended September 29, 1996, the Company recorded net sales of $1.2 billion, a $172.1 million or 17.6% increase over the same period last year. Net income and earnings per share were $106.1 million and $1.41 on 75.4 million shares outstanding versus $80.7 million and $1.07 on 75.2 million shares, increases of 31.5% and 31.8%, respectively. All 1995 financial data have been restated to reflect the reclassification of the Company's Transportation Vehicles segment to that of a discontinued operation. Certain 1995 balances have also been reclassified to reflect the acquisition of substantially all of the stock of Eaglemark Financial Services not previously owned by the Company. Motorcycle Unit Shipments and Net Sales For the Nine-Month Periods Ended September 29, 1996 and September 24, 1995 Incr 1996 1995 (Decr) % Motorcycle units (excluding Buell) 88,936 76,830 12,106 15.8% Net sales (in millions): Motorcycles (excluding Buell) $888.0 $747.0 $141.0 18.9% Motorcycle Parts and Accessories 236.4 216.5 19.9 9.2 Other 25.3 14.1 11.2 79.4 Total Motorcycles and Related Products $1,149.7 $977.6 $172.1 17.6% The 17.6% increase in revenue was primarily attributable to additional motorcycle unit shipments as worldwide demand for the Company's motorcycles continues to exceed supply. The most recent information available (through August) indicates a U.S. heavyweight (751cc+) market share of 51.4% compared to 52.3% for the same period in 1995. This same market has grown at a 15.3% rate year-to-date. European data (through August) shows the Company with a 9.2% share of the heavyweight market, down from 10.6% for the same period in 1995. The European market (751cc+) has grown at a 13.3% rate year-to-date, while retail registrations for the Company's motorcycles are about the same as last year. While our year-to- date shipments in most European markets are up compared to last year, our shipments to Germany and France, which are two of our larger markets, are down, resulting in a 6.9% year-over-year increase in total European shipments. The Company experienced a build-up of inventory at its wholly owned French and German distributors primarily due to pricing disparities. In September, the Company adjusted prices in each European market to move toward more consistent country-to-country pricing and anticipates it will spend approximately $1.5 million on market specific promotions in the fourth quarter of 1996. The Company has adjusted the U.S. allocation of 1997 model year motorcycles to 72% of total production, up from 70% in previous years, to take advantage of the European inventory build-up to shorten the wait that many of its U.S. customers have to endure. Sales of Buell motorcycles (which are distributed in the U.S. and Japan through select Harley-Davidson dealers) contributed approximately $10 million of additional revenues in the first nine months of 1996 as compared to the same period in 1995. (Included in "Other" in the above table.) Overall, net sales of the Parts and Accessories business increased 9.2% compared to the first nine months of 1995. The combination of Genuine Motor Parts and Genuine Motor Accessories increased $23.1 million or 15.9% while MotorClothes clothing and collectibles was down $3.2 million or 4.4%. Gross Profit Gross profit for the first nine months of 1996 totaled $361.1 million, an increase of $64.2 million (21.6%) over the same period in 1995. The gross profit percentage was 31.4% in 1996 as compared with 30.4% for the first nine months of 1995. A shift in mix away from the lower-margin Sportster models to the higher-margin custom models and from MotorClothes clothing and collectibles to Genuine Motor Parts and Genuine Motor Accessories contributed to the increase. Operating Expenses For the Nine-Month Periods Ended September 29, 1996 and September 24, 1995 (Dollars in Millions) Incr 1996 1995 (Decr) % Motorcycles and Related Products $192.3 $164.3 $28.0 17.1% Corporate 6.2 5.4 .8 14.3 Total operating expenses $198.5 $169.7 $28.8 17.0% Operating expenses of $198.5 million for the first nine months of 1996 increased $28.8 million (17.0%) compared to the first nine months of 1995. The increase was largely related to increased motorcycle volumes, as well as increases in warranty, engineering, and information systems expenses. An early retirement program in connection with the new Parts and Accessories Distribution Center resulted in a charge of $2.5 million in the third quarter of 1996. Operating income from financial services The operating income of the Financial Services segment was $5.0 million and $2.4 million in 1996 and 1995, respectively. This increase was primarily due to increased wholesale and retail origination volume and corresponding increases in outstanding wholesale and retail receivables. Consolidated income taxes The Company's effective income tax rate approximated 37.0% in the first nine months of 1996 and 1995. Discontinued operations The operations for the Transportation Vehicles segment have been classified as discontinued operations. The sale of the Recreational Vehicles division and ten of the fourteen Holiday World stores was completed in the first quarter of 1996. The disposition of the remaining businesses (Commercial Vehicles division and B&B Molders) is expected to be finalized during 1996. The Company does not anticipate a loss on the discontinuance of the Transportation Vehicles segment. Environmental The Company's policy is to comply with all applicable environmental laws and regulations, and the Company has a compliance program in place to monitor, and report on, environmental issues. The Company has reached settlement agreements with its former parent (Minstar, successor to AMF Incorporated) and the U.S. Navy regarding groundwater remediation at the Company's manufacturing facility in York, Pennsylvania and currently estimates that it will incur approximately $5 million of net additional costs related to the remediation effort. The Company has established reserves for this amount. There is no assurance that actual remediation costs to the Company will not exceed the Company's current estimate of such costs. While the Company believes that its current estimate of remediation costs is reasonable, this estimate is based on preliminary information and is subject to revision as the ongoing remediation effort moves forward. See Note 5 of the notes to condensed consolidated financial statements. Recurring costs associated with managing hazardous substances and pollution in on-going operations are not material. The Company regularly invests in equipment to support and improve its various manufacturing processes. While the Company considers environmental matters in capital expenditure decisions, and while some capital expenditures also act to improve environmental compliance, only a small portion of the Company's annual capital expenditures relate to equipment which has the sole purpose of meeting environmental compliance obligations. The Company anticipates that capital expenditures for equipment used to limit hazardous substances/pollutants during 1996 will approximate $1 million. The Company does not expect that these expenditures related to environmental matters will have a material effect on future operating results or cash flows. Liquidity and Capital Resources as of September 29, 1996 The Company generated $138.9 million of cash from operating activities during the first nine months of 1996 compared to $89.5 million in the same period in 1995. Net income adjusted for depreciation contributed $36.0 million of the increase in cash from operating activities. The Motorcycles segment's receivable balance at September 29, 1996 increased $42.4 million compared to December 31, 1995 ($48.6 million at September 24, 1995 compared to December 31, 1994) as a result of motorcycle volume increases and the end of the year has traditionally lower receivables due to the annual shutdown during the last week of December. The results of discontinued operations, especially the sale of the Recreational Vehicles Division, had a positive impact on total cash flows of approximately $56 million. This was partially offset by the Financial Services segment's activity which negatively impacted cash flow by approximately $15 million. Capital expenditures amounted to $84.4 million and $66.2 million during the first nine months of 1996 and 1995, respectively. The Company is pursuing a long-term manufacturing strategy to increase its motorcycle production capacity with a goal of having the capacity to manufacture in excess of 200,000 units per year by 2003. The strategy includes expansion in and near the Company's existing facilities and construction of a new manufacturing facility in Kansas City, Missouri. The fourth quarter is expected to have heavy capital spending as evidenced by the month of October in which the Company incurred approximately $36 million in capital expenditures for continued construction on its manufacturing facility in Kansas City, the purchase of a manufacturing facility in Menomonee Falls, Wisconsin to expand its powertrain operations and manufacturing expansion initiatives at its other facilities. The following are forward looking statements: Due in part to this long- term manufacturing strategy, the Company anticipates 1996 capital expenditures will approximate $170-$190 million, and the Company currently estimates that 1997 capital expenditures will be in the range of $180-$210 million and 1998 capital expenditures will be in the range of $120-$140 million. To the extent that 1996 spending levels are lower than currently anticipated, planned 1997 expenditures will be correspondingly higher. The Company currently estimates it will have the capacity to produce at least 118,000 motorcycles in 1996, 127,000-130,000 units in 1997 and 145,000-150,000 units in 1998. The Company anticipates it will have the ability to fund all capital expenditures with internally generated funds and short-term financing. The Company's ability to reach these production capacity levels will depend upon, among other factors, the Company's ability to (i) continue to realize production efficiencies at its existing production facilities through implementation of innovative manufacturing techniques and other means, (ii) successfully implement production capacity increases to its existing facilities and (iii) successfully construct and open the new manufacturing facility such that it will be fully operational in 1998. However, there is no assurance that the Company will continue to find means to realize additional efficiencies. In addition, the Company could experience delays in making additions and changes to existing facilities and/or constructing the new manufacturing facility as a result of risks normally associated with the construction and operation of new manufacturing facilities, including unanticipated problems in construction, delays in the delivery of machinery and equipment or difficulties in making such machinery and equipment operational, work stoppages, difficulties with suppliers, natural causes or other factors. These risks, potential delays and uncertainties regarding the actual costs of the measures the Company intends to take to implement its strategy could also impact adversely the capital expenditure estimates referred to above. Moreover, there is no assurance that the Company will have the ability to sell all of the motorcycles it has the capacity to produce. The Company (excluding Eaglemark) currently has nominal levels of long- term debt and has available lines of credit of approximately $49 million, of which approximately $39 million remained available at September 29, 1996. Eaglemark finances its business through commercial paper, through revolving credit facilities and by securitizing its retail installment loans. Eaglemark issues short-term commercial paper secured by either wholesale or retail motorcycle finance receivables with maximum issuance available of $225 million of which $145.5 million was outstanding at September 29, 1996. Maturities of commercial paper issued range from 1 to 60 days. Eaglemark has in place a $120 million revolving credit facility to fund primarily the United States and Canadian retail loan originations of which approximately $101.6 million was outstanding at September 29, 1996. Borrowings under the facility are secured by, and limited to, a percentage of eligible receivables ranging from 75% to 95% of the outstanding loan balances. The Company expects the future growth of Eaglemark will be financed from additional capital contributions from the Company and a continuation of its programs of commercial paper and securitizations. The Company has continuing authorization from its Board of Directors to repurchase up to 4 million shares of the Company's outstanding common stock. During the first quarter of 1995, the Company repurchased 1,650,000 shares of its common stock with cash on hand and short-term borrowings of $40 million. As a result, the Company has 2,350,000 million shares available to repurchase under this authorization. The Company's Board of Directors declared three cash dividends during the first nine months of 1996 including, most recently, a $.06 per share cash dividend declared on August 28, 1996 payable September 26, 1996 to shareholders of record September 16 (a 20% increase over the prior dividend). Part II - OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q September 29, 1996 Item 1. Legal Proceedings The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility. See footnote 5 to the accompanying condensed consolidated financial statements for additional information on the above proceedings. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule for September 29, 1996 27.2 Restated Financial Data Schedule for September 24, 1995 (b) Reports on Form 8-K None Part II - Other Information HARLEY-DAVIDSON, INC. Form 10-Q September 29, 1996 Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARLEY-DAVIDSON, INC. Date: 11/12/96 by: /s/ James L. Ziemer James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) 11/12/96 by: /s/ James M. Brostowitz James M. Brostowitz Vice President, Controller (Principal Accounting Officer) and Treasurer Exhibit Index Exhibit No. Description Page 27.1 Financial Data Schedule for September 29, 1996 18 27.2 Restated Financial Data Schedule for September 24, 1995 19 EX-27 2 EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE FOR 1996
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARLEY-DAVIDSON, INC. AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 29,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-29-1996 114,046 0 178,475 1,853 91,480 426,208 616,574 286,007 1,221,531 258,687 0 781 0 0 602,821 1,221,531 1,149,698 1,149,698 788,592 788,592 801 0 (1,681) 168,469 62,323 106,146 0 0 0 106,146 1.41 1.41
EX-27 3 EX 27.2 - RESTATED FDS FOR 1995
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARLEY-DAVIDSON, INC. AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 24, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-24-1995 47,796 0 166,613 1,787 98,973 380,369 492,503 240,925 764,498 194,674 0 778 0 0 465,498 764,498 977,613 977,613 680,702 680,702 2,812 0 (916) 127,746 47,295 80,451 251 0 0 80,702 1.07 1.07
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