-----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, Hr0lRo1SumQC6Ciwhp0m30hRZ1YMQzOizUSamGDCL7JWiOytKE64zvNvlskBTGF0 GscRDM2wO5B4EJnVE7G3gw== /in/edgar/work/20000809/0000897069-00-000403/0000897069-00-000403.txt : 20000921 0000897069-00-000403.hdr.sgml : 20000921 ACCESSION NUMBER: 0000897069-00-000403 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000625 FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEY DAVIDSON INC CENTRAL INDEX KEY: 0000793952 STANDARD INDUSTRIAL CLASSIFICATION: [3751 ] IRS NUMBER: 391382325 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09183 FILM NUMBER: 689687 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 0001.txt 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 June 25, 2000 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 August 4, 2000: 302,562,530 shares 1 HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended June 25, 2000 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 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-17 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 Note regarding forward looking statements 17 Part II. Other Information Item 1. Legal Proceedings 18 Item 4. Submission of Items to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 Exhibit Index 21 2 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 Six months ended ------------------ ---------------- Jun. 25, Jun. 27, Jun. 25, Jun. 27, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $754,973 $608,716 $1,436,086 $1,167,283 Cost of goods sold 497,827 395,722 947,635 765,155 ------- ------- ------- ------- Gross profit 257,146 212,994 488,451 402,128 Operating income from financial services 11,282 9,118 14,614 11,760 Operating expenses (132,177) (115,478) (253,847) (215,937) ------- ------- ------- ------- Income from operations 136,251 106,634 249,218 197,951 Interest income, net 3,424 1,992 6,296 3,481 Other, net 189 (641) 18,779 (463) ------- ------- ------- ------- Income before provision for income taxes 139,864 107,985 274,293 200,969 Provision for income taxes 49,277 39,415 103,479 73,355 ------- ------- ------- ------- Net income $ 90,587 $ 68,570 $ 170,814 $ 127,614 ======== ======== ========== ========== Earnings per common share: Basic $.30 $.22 $.56 $.42 ==== ==== ==== ==== Diluted $.29 $.22 $.55 $.41 ==== ==== ==== ==== Weighted-average common shares outstanding: Basic 303,337 306,162 303,123 306,128 ======= ======= ======= ======= Diluted 308,104 311,212 307,914 311,292 ======= ======= ======= ======= Cash dividends per share $.025 $.023 $.048 $.043 ===== ===== ===== =====
See accompanying notes. 3 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands)
Jun. 25, Dec. 31, Jun. 27, 2000 1999 1999 ---- ---- ---- -unaudited- -unaudited- ASSETS Current assets: Cash and cash equivalents $ 297,917 $ 183,415 $ 209,984 Accounts receivable, net 115,743 101,708 100,813 Finance receivables, net 451,983 440,951 369,218 Inventories (Note 2) 157,415 168,616 149,060 Other current assets 50,760 54,304 49,745 ---------- ---------- ---------- Total current assets 1,073,818 948,994 878,820 Finance receivables, net 329,082 354,888 426,000 Property, plant and equipment, net 677,785 681,741 629,941 Goodwill (Note 8) 38,834 55,408 51,182 Other assets 65,707 71,046 76,247 ---------- ---------- ---------- $2,185,226 $2,112,077 $2,062,190 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 185,637 $ 137,660 $ 112,521 Accrued and other liabilities 236,429 199,331 211,752 Current portion of finance debt 48,163 181,163 217,655 ---------- ---------- ---------- Total current liabilities 470,229 518,154 541,928 Finance debt 280,000 280,000 280,000 Other long-term liabilities 81,749 77,124 62,895 Post-retirement health care benefits 78,222 75,719 73,934 Contingencies (Note 6) Total shareholders' equity 1,275,026 1,161,080 1,103,433 ---------- ---------- ---------- $2,185,226 $2,112,077 $2,062,190 ========== ========== ==========
See accompanying notes. 4 Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Six months ended ---------------- Jun. 25, Jun. 27, 2000 1999 ---- ---- Cash flows from operating activities: Net income $170,814 $127,614 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 65,345 52,911 Gain of sale of credit card business (18,915) -- Provision for credit losses 499 9,712 Long-term employee benefits 7,483 (4,968) Other, net 2,182 1,474 Net change in other current assets and current liabilities 85,785 24,436 -------- -------- Net cash provided by operating activities 313,193 211,179 Cash flows from investing activities: Purchase of property and equipment (59,719) (54,789) Finance receivables acquired or originated (1,843,256) (1,638,283) Finance receivables collected/sold 1,720,155 1,513,121 Proceeds from sale of credit card business 176,391 -- Other, net (4,311) (7,794) -------- -------- Net cash used in investing activities (10,740) (187,745) Cash flows from financing activities: Net (decrease) increase in finance debt (133,000) 70,913 Dividends paid (14,658) (13,382) Purchase of common stock for treasury (64,367) (56,458) Issuance of stock under employee stock and option plans 24,074 20,307 -------- -------- Net cash (used in) provided by financing activities (187,951) 21,380 -------- -------- Net increase in cash and cash equivalents 114,502 44,814 Cash and cash equivalents: At beginning of period 183,415 165,170 -------- -------- At end of period $297,917 $209,984 ======== ========
See accompanying notes. 5 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 June 25, 2000 and June 27, 1999, and the results of operations for the three- and six-month periods then ended. Certain prior-year balances have been reclassified in order to conform to current-year presentation. 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, 1999. 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 or market. Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Inventories consist of the following (in thousands): Jun. 25, Dec. 31, Jun. 27, 2000 1999 1999 ---- ---- ---- Components at the lower of cost, first-in, first-out (FIFO), or market: Raw material & work-in-process $ 66,642 $ 61,893 $ 59,499 Finished goods 27,798 29,977 20,564 Parts & accessories and general merchandise 83,901 97,422 90,472 -------- -------- -------- 178,341 189,292 170,535 Excess of FIFO over LIFO 20,926 20,676 21,475 -------- -------- -------- Inventories as reflected in the accompanying condensed consolidated balance sheets $157,415 $168,616 $149,060 ======== ======== ======== 6 Note 3 - Business Segments - -------------------------- The Company operates in two business segments: Motorcycles and Related Products (Motorcycles) and Financial Services, which consists of the Company's subsidiary, Harley-Davidson Financial Services, Inc. (HDFS). The Company's reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations. Selected segment information is set forth below (in thousands):
Three months ended Six months ended ------------------ ---------------- Jun. 25, Jun. 27, Jun. 25, Jun. 27, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales: Motorcycles and Related Products $754,973 $608,716 $1,436,086 $1,167,283 Financial Services n/a n/a n/a n/a -------- -------- ---------- ---------- $754,973 $608,716 $1,436,086 $1,167,283 ======== ======== ========== ========== Income from operations: Motorcycles and Related Products $127,228 $100,140 $239,868 $191,617 Financial Services 11,282 9,118 14,614 11,760 General corporate expenses (2,259) (2,624) (5,264) (5,426) -------- -------- ---------- ---------- $136,251 $106,634 $249,218 $197,951 ======== ======== ======== ========
Note 4 - Earnings Per Share - --------------------------- The following table sets forth the computation for basic and diluted earnings per share (in thousands, except per share amounts):
Three months ended Six months ended ------------------ ---------------- - Jun. 25, Jun. 27, Jun. 25, Jun. 27, 2000 1999 2000 1999 ---- ---- ---- ---- Numerator - --------- Net income used in computing basic and diluted earnings per share $90,587 $68,570 $170,814 $127,614 ======= ======= ======== ======== Denominator - ----------- Denominator for basic earnings per share - weighted-average common shares 303,337 306,162 303,123 306,128 Effect of dilutive securities - employee stock options and nonvested stock 4,767 5,050 4,791 5,166 ------- ------- ------- ------- Denominator for diluted earnings per share- adjusted weighted-average shares 308,104 311,212 307,914 311,292 ======= ======= ======= ======= Basic earnings per share $.30 $.22 $.56 $.42 ==== ==== ==== ==== Diluted earnings per share $.29 $.22 $.55 $.41 ==== ==== ==== ====
7 Note 5 - Comprehensive Income - ----------------------------- Total comprehensive income, which was comprised of net income, foreign currency translation adjustments and the change in net unrealized gains on investment in retained securitization interests, amounted to approximately $89.3 million and $64.6 million for the three months ended June 25, 2000 and June 27, 1999, respectively. Total comprehensive income for the six months ended June 25, 2000 and June 27, 1999 was $168.9 million and $123.3 million, respectively. Note 6 - 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 Protection in undertaking certain investigation and remediation activities, including a site-wide remedial investigation/feasibility study. 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. 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, the Company estimates that it will incur approximately $6 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, ending in 2009. Note 7 - Capital Stock - ---------------------- On February 17, 2000, the Company's Board of Directors approved a two-for-one split of the Company's common stock effective for shareholders of record on March 22, 2000 and payable on April 7, 2000 (Stock Split). All share and per share information included in this report has been adjusted to reflect the April 7, 2000 Stock Split. During the first six months of 2000, the Company repurchased 1,772,200 shares of its outstanding common stock with $64.4 million of cash on hand. Approximately 1.5 million of these shares were repurchased in the second quarter of 2000. Note 8 - Sale of Credit Card Business - ------------------------------------- In March 2000, the Company sold its Harley-Davidson(R) Chrome Visa(R) Card business, which included approximately $142 million of revolving charge receivables. The sale resulted in a pre-tax gain of approximately $18.9 million after a $15 million write-off of goodwill, which related to the business sold. Net of taxes, the transaction resulted in a net gain of approximately $6.9 million. Proceeds from the sale have been used to reduce finance debt. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - ------------- Results of Operations for the Three Months Ended June 25, 2000 -------------------------------------------------------------- Compared to the Three Months Ended June 27, 1999 ------------------------------------------------ For the quarter ended June 25, 2000 consolidated net sales totaled $755 million, a $146 million or 24% increase over the same period last year. Net income and diluted earnings per share for the second quarter of 2000 were $90.6 million and $.29 on 308.1 million weighted average shares outstanding versus $68.6 million and $.22 on 311.2 million weighted average shares outstanding in 1999, increases of 32.1% and 33.4%, respectively. Motorcycle Unit Shipments and Net Sales For the Three Month Periods Ended June 25, 2000 and June 27, 1999 =============================================================================== 2000 1999 Change %Change =============================================================================== Motorcycle Unit Shipments =============================================================================== Harley-Davidson(R)motorcycle units 53,329 44,771 8,558 19.1% - ------------------------------------------------------------------------------- Buell(R)motorcycle units 3,280 1,512 1,768 116.9 - ------------------------------------------------------------------------------- Total motorcycle units 56,609 46,283 10,326 22.3% =============================================================================== Net sales (in millions) =============================================================================== Harley-Davidson motorcycles $576.9 $468.6 $108.3 23.1% - ------------------------------------------------------------------------------- Buell motorcycles 20.2 12.5 7.7 61.3 - ------------------------------------------------------------------------------- Total motorcycles 597.1 481.1 116.0 24.1 - ------------------------------------------------------------------------------- Motorcycle Parts and Accessories 121.1 99.7 21.4 21.4 - ------------------------------------------------------------------------------- General Merchandise 36.1 27.2 8.9 32.3 - ------------------------------------------------------------------------------- Other .7 .7 0.0 0.0 - ------------------------------------------------------------------------------- Total Motorcycles and Related Products $755.0 $608.7 $146.3 24.0% =============================================================================== The second quarter increase in net sales of $146.3 million, or 24.0%, was driven primarily by a 19.1% increase in Harley-Davidson motorcycle unit shipments. During the second quarter of 2000, the Company increased its Harley-Davidson motorcycle unit shipments and production to 53,329 units, 8,558 units higher than the same period last year. This increase in unit production is primarily the result of the Company's ongoing success with its manufacturing strategy which is designed to increase capacity, improve product quality, reduce costs and increase flexibility to respond to changes in the marketplace. Based on the production levels achieved in the second quarter, the Company has increased its 2000 annual production target to 202,000 Harley-Davidson units and set a third quarter production target of 48,500 units. (1) The Company has also set an annual production target of 223,000 units for 2001. (1) Shipments of Buell motorcycle units in the second quarter of 2000 totaled 3,280 compared to 1,512 in the second quarter of 1999. This includes 1,325 units of the Company's newest Buell offering, the Blast(R), which were produced and shipped in the second quarter of 2000. Comparatively, 1999 second quarter production and shipments were negatively impacted by a five week interruption related to the 9 recall announced in April of 1999. In June 2000, Buell announced a voluntary recall of certain Buell motorcycle models produced for the 1999 and 2000 model years. The recall related to the shock absorber on the 1999 and 2000 Cyclone(R)M2, the 2000 Lightning(R)X1 and the 2000 Thunderbolt(TM)S3T. Approximately 11,000 units are affected by the recall. The Company established a pretax reserve of approximately $3 million, which was charged to operating expenses in June 2000. Production of the affected Buell models (which includes all of Buell's V Twin models) has been temporarily interrupted while validation testing is completed on the replacement components. As a result of the temporary interruption of production of some Buell models, Buell is diverting the unused assembly capacity to increasing Blast production. The Company expects the net result to yield an increase in 2000 Buell production to a target of 11,000 units, up from the prior target of 10,000.(1) Parts and Accessories (P&A) sales were up $21.4 million or 21.4% compared to the second quarter of 1999. P&A sales increases were driven by strong motorcycle shipments and solid growth in existing products. General Merchandise sales, which include clothing and collectibles, were up $8.9 million, or 32.3%, compared to the second quarter of 1999. General Merchandise sales were positively impacted in the second quarter of 2000 by shipments of various seasonal products. In the prior year, similar seasonal products were shipped in the third quarter. The Company anticipates that long term sales growth targets for P&A revenues will continue to increase slightly faster than Harley-Davidson's motorcycle unit growth rate, and General Merchandise revenues will grow slightly slower than the motorcycle unit growth rate. (1) The Company's ability to reach the 2000 quarterly production levels and 2000 and 2001 annual targeted production levels and to attain growth rates in other areas will depend upon, among other factors, the Company's ability to (i) continue to produce quality products and realize production efficiencies at its production facilities through the implementation of innovative manufacturing techniques and other means, (ii) successfully implement production capacity increases in its facilities, (iii) successfully introduce new products, (iv) avoid unexpected product backorders and (v) sell all of the motorcycles it has the capacity to produce. In addition, the Company could experience delays in making changes to facilities as a result of risks normally associated with the operation of manufacturing facilities, including 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 costs could also adversely impact the Company's capital expenditure estimates (see "Liquidity and Capital Resources" section). Gross Profit Gross profit increased $44.2 million, or 20.7%, in the second quarter of 2000 compared to the same period in 1999 primarily due to an increase in overall sales volume. The gross profit margin in the second quarter was 34.1% in 2000 compared to 35.0% in 1999. The decrease in gross profit margin related primarily to the negative impact of foreign currency exchange in connection with weakening European currencies. This unfavorable foreign exchange impact was approximately $7 million in the second quarter of 2000. The Company intends to adjust pricing on its 2001 models in Europe and will continue to utilize forward foreign exchange contracts to mitigate the negative impacts of foreign exchange rate fluctuations. (1) 10 Operating Expenses For the Three-Month Periods Ended June 25, 2000 and June 27, 1999 (Dollars in Millions) =============================================================================== 2000 1999 Change %Change - ------------------------------------------------------------------------------- Motorcycles and Related Products $129.9 $112.9 $17.0 15.1 - ------------------------------------------------------------------------------- Corporate 2.3 2.6 (.3) (11.5) =============================================================================== Total operating expenses $132.2 $115.5 $16.7 14.5 =============================================================================== Total operating expenses increased $16.7 million, or 14.5%, during the second quarter of 2000 compared to the same period in 1999 and were 17.5% and 19.0% of net sales in the respective second quarters of 2000 and 1999. Operating expenses continued to grow in connection with the Company's increase in net sales. However, these increases were partially offset by lower spending for certain marketing programs, lower European selling expenses, and lower Buell recall expenses. Second quarter 2000 operating expenses include a $3.0 million charge related to the current recall of Buell motorcycles. Comparatively, the second quarter of 1999 includes a $5.0 million charge for the 1999 recall of certain Buell motorcycles. Operating income from financial services For the three months ended June 25, 2000, HDFS reported operating income of $11.3 million, an increase of $2.2 million, or 23.7%, over the same period in 1999. The favorability is primarily due to an increase in loan volume at generally higher rates of interest, partially offset by an increase in interest expense and operating expenses. In addition, the second quarter of the prior year was negatively impacted by operating losses related to the credit card business, which was sold in the first quarter of 2000. Interest income Interest income was higher in the second quarter of 2000 primarily due to higher interest rates and higher levels of cash available for short-term investing, compared to the second quarter of 1999. Consolidated income taxes The Company's effective income tax rate was 35.2% for the second quarter of 2000, compared with 36.5% for the same period of 1999. The change in rates is a direct result of various tax minimization programs. The Company expects an effective income tax rate of 35.5% going forward. 11 Results of Operations for the Six Months Ended June 25, 2000 ------------------------------------------------------------ Compared to the Six Months Ended June 27, 1999 ---------------------------------------------- For the six month period ended June 25, 2000, the Company recorded net sales of $1,436.2 million, a $268.9 million or 23.0% increase over the same period last year. Net income and diluted earnings per share were $170.8 million and $.55 on 307.9 million weighted average shares outstanding versus $127.6 million and $.41 on 311.3 million weighted average shares, increases of 33.9% and 35.3%, respectively. First quarter 2000 net income includes a one-time after tax gain of $6.9 million which resulted from the sale of the Harley-Davidson(R) Chrome Visa(R) Card business. Excluding the one-time gain, net income and diluted earnings per share increased 28.4% and 29.9%, respectively, over the same period last year. Motorcycle Unit Shipments and Net Sales For the Six-Month Periods Ended June 25, 2000 and June 27, 1999 =============================================================================== 2000 1999 Change %Change =============================================================================== Motorcycle Unit Shipments =============================================================================== Harley-Davidson(R)motorcycle units 102,386 85,952 16,434 19.1% Buell(R)motorcycle units 5,618 3,525 2,093 59.4 Total motorcycle units 108,004 89,477 18,527 20.7% =============================================================================== Net sales (in millions) =============================================================================== Harley-Davidson motorcycles $1,112.2 $905.1 207.1 22.7% - ------------------------------------------------------------------------------- Buell motorcycles 37.0 28.6 8.4 29.4 - ------------------------------------------------------------------------------- Total motorcycles 1,149.2 933.7 215.5 22.9 - ------------------------------------------------------------------------------- Motorcycle Parts and Accessories 216.0 174.7 41.3 23.6 - ------------------------------------------------------------------------------- General Merchandise 69.6 56.7 12.9 22.7 - ------------------------------------------------------------------------------- Other 1.4 2.2 (.8) (36.4) - ------------------------------------------------------------------------------- Total Motorcycles and Related Products $1,436.2 $1,167.3 268.9 23.0% =============================================================================== The 23.0% increase in revenue was largely attributable to additional motorcycle unit shipments as demand for the Company's motorcycles continued to grow. The most recent information available (through May) indicates a combined U.S. heavyweight (651+cc) market share of 45.0% (for Harley-Davidson and Buell) compared to 46.9% for the same period in 1999. This same market has grown at a 25.1% rate year-to-date, while retail registrations for the Company's motorcycles (Harley-Davidson and Buell motorcycles) increased 20.0%. The Company believes the faster growth rate in the U.S. heavyweight market as compared to retail registrations for the Company's motorcycles is due to the fact that the Company continues to experience capacity constraints. 12 European data (through April) shows the Company with a 6.4% share of the heavyweight (651+cc) market, up from 5.9% for the same period in 1999. The European market (651+cc) has remained relatively flat through April, while retail registrations for the Company's motorcycles (Harley-Davidson and Buell) increased 7.8% compared to last year. The Company continues to actively work on improving its European distribution network and implement European- focused marketing programs. Asia/Pacific (Japan and Australia) data (through April) show the Company with a 19.5% share of the heavyweight (651+cc) market, up from 18.2% for the same period in 1999. Asia/Pacific market registrations are 4.5% behind last year's year-to-date numbers, while registrations for the Company's motorcycles (Harley-Davidson and Buell) have increased 2.4% over 1999 year-to-date levels. Parts and Accessories (P&A) sales of $216.0 were up $41.3 million or 23.6% compared to the first half of 1999. General Merchandise sales, which include clothing and collectibles, were up $12.9 million, or 22.7%, compared to the first half of 1999. Gross Profit Gross profit for the first six months of 2000 totaled $488.5 million, an increase of $86.3 million or 21.5% over the same period in 1999. The gross profit margin was 34.0% in 2000 compared to 34.4% for the first six months of 1999. While gross margin was positively impacted by favorable product mix and lower average unit costs in the first quarter of 2000, this favorability was more than offset by the negative impact of foreign currency exchange related to European currencies in both the first and second quarters of 2000. Operating Expenses For the Six-Month Periods Ended June 25, 2000 and June 27, 1999 (Dollars in Millions) =============================================================================== 2000 1999 Change %Change - ------------------------------------------------------------------------------- Motorcycles and Related Products $248.6 $210.5 $38.1 18.1% - ------------------------------------------------------------------------------- Corporate 5.2 5.4 (.2) (3.0) =============================================================================== Total operating expenses $253.8 $215.9 $37.9 17.6% =============================================================================== Total operating expenses of $253.8 million for the first six months of 2000 increased $37.9 million or 17.6% compared to the first six months of 1999. Operating expenses as a percent of net sales were 17.7% and 18.5% for the first half of 2000 and 1999, respectively. Operating expenses continued to grow in connection with the Company's increase in net sales, however, they grew at a slower rate than net sales due to slightly lower spending for certain marketing programs, lower European selling expenses, and lower Buell recall expenses in the first half of 2000 versus the same period last year. 13 Operating income from financial services For the six months ended June 25, 2000, HDFS reported operating income of $14.6 million, an increase of $2.9 million, or 24.3%, over the same period in 1999. The favorability is primarily due to an increase in loan volume at generally higher rates of interest, partially offset by an increase in interest expense and operating expenses. In addition, the first half of the prior year was negatively impacted by operating losses related to the credit card business, which was sold in the first quarter of 2000. Gain on sale of credit card business In the first quarter of 2000, the Company sold its Harley-Davidson(R) Chrome Visa(R) Card business, which consisted of approximately $142 million of revolving charge receivables. The sale resulted in a pre-tax gain of approximately $18.9 million after a $15 million write-down of goodwill, which related to the business sold. Net of taxes, the transaction resulted in a net gain of approximately $6.9 million. The majority of the proceeds from the sale have been used to reduce finance debt. Interest income Interest income in the first half of 2000 was higher than the prior year due primarily to higher interest rates and higher levels of cash available for short-term investing. Consolidated income taxes The Company's effective income tax rate was 37.7% and 36.5% for the first six months of 2000 and 1999, respectively. The increase in the tax rate for the first half of 2000 was due to the $15 million non-deductible write-off of goodwill recorded in connection with the sale of the Harley-Davidson(R) Chrome Visa(R) Card business in the first quarter. This increase was partially offset by a lower tax rate implemented in the second quarter of 2000 as a result of various tax minimization programs. The Company expects an effective income tax rate of 35.5% going forward. Other Matters ------------- 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 a settlement agreement with the U.S. Navy regarding groundwater remediation at the Company's manufacturing facility in York, Pennsylvania and currently estimates that it will incur approximately $6 million of net additional costs related to the remediation effort.(1) 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, ending in 2009. See Note 6 of the notes to condensed consolidated financial statements. Recurring costs associated with managing hazardous substances and pollution in on-going operations have not been 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 14 equipment used to limit hazardous substances/pollutants during 2000 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.(1) Liquidity and Capital Resources ------------------------------- The Company's main source of liquidity is cash from operating activities, which consists of net income adjusted for non-cash operating activities and changes in other current assets and liabilities such as accounts receivable, inventory, prepaid expenses and accounts payable. The Company generated $313.2 million of cash from operating activities during the first half of 2000 compared to $211.2 million in the first half of 1999. The largest component of cash from operating activities is net income adjusted for non-cash items, including depreciation, credit losses, and the gain on sale of the credit card business. This was approximately $217.7 million in the first six months of 2000 compared to $190.2 million in the same period of 1999. Changes in other current assets and liabilities increased operating cash flows by approximately $85.8 million and $24.4 million in the first half of 2000 and 1999, respectively. Changes in working capital during the first six months of 2000 and 1999 consisted of the following (in millions): Six months ended ---------------- Working capital item 2000 1999 -------------------- ---- ---- Accounts receivable, net $(14.0) $12.6 Inventories 11.2 6.6 Prepaid expenses 3.5 .6 Accounts payable and accrued expenses 85.1 4.6 ------ ------ Total $ 85.8 $24.4 ====== ===== In the first half of 2000, accounts payable and accrued expenses increased $85.1 million. This increase relates primarily to the corresponding increase in production volume and the timing of cash disbursements for accounts payable. Capital expenditures were $59.7 million and $54.8 million during the first half of 2000 and 1999, respectively. The Company's capital expenditures have continued to focus on capacity expansion at its existing facilities but have also focused on other areas such as product development, systems development and continuing operations. The Company estimates that capital expenditures required in 2000 will be in the range of $160-$170 million.(1) The Company is currently in the initial stages of developing its next strategic plan and capacity planning will continue to be an area of focus in this plan. Accordingly, capital expenditures related to manufacturing capacity may be increased in both the near and long-term. The Company anticipates it will have the ability to fund all capital expenditures with internally generated funds and short-term financing.(1) HDFS is financed by operating cash flow, asset-backed securitizations, the issuance of commercial paper, revolving credit facilities, senior subordinated debt, and redeemable preferred stock. Approximately $249.9 million of commercial paper was outstanding at June 25, 2000. Subject to limitations discussed below, HDFS may issue up to $600 million of short-term commercial paper with maturities up to 270 days. 15 HDFS has a $250 million revolving credit facility due in 2002 and a $350 million 364-day revolving credit facility due September 2000 with approximately $48.3 million outstanding at June 25, 2000. The Company expects the $350 million credit facility expiring in September 2000 will be renewed and believes that suitable alternatives exist. The primary uses of the credit facilities are to provide liquidity to the unsecured commercial paper program and to fund foreign business operations. Commercial paper outstanding cannot exceed liquidity support provided by the unused portion of the combined $600 million credit facilities. Accordingly, at June 25, 2000, HDFS had aggregate remaining availability of $301.7 million. In connection with various debt agreements, HDFS has met various operating and financial covenants and remains in compliance at June 25, 2000. The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support in order to maintain certain financial covenants. Support may be provided at the Company's option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company's ability to withdraw funds from HDFS outside the normal course of business. During the second quarter, HDFS securitized and sold approximately $285 million of retail installment loans retaining servicing rights and limited recourse. The Company expects future activities of HDFS will be financed from internally generated funds, revolving credit facilities, continuation of its subordinated debt, redeemable preferred stock, commercial paper, securitization programs and capital contributions from the Company. The Company has authorization from its Board of Directors to repurchase up to 9,400,000 shares of the Company's outstanding common stock. In addition, the Company has continuing authorization from its Board of Directors to repurchase shares of the Company's outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (i) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 1998 plus (ii) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. During the second quarter of 2000, the Company repurchased 1,511,000 shares of its common stock under the latter authorization and has purchased 1,772,200 shares year to date. 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------ Refer to the Company's annual report on Form 10-K for the year ended December 31, 1999 for a complete discussion of the Company's market risk. There have been no material changes to the market risk information included in the Company's 1999 annual report on Form 10-K. (1) Note regarding forward-looking statements ------------------------------------------ The Company intends that certain matters discussed are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or "estimates" or words of similar meaning. Similarly, statements that describe the Company's future plans, objectives, targets or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. 17 Part II - OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q June 25, 2000 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 6 to the accompanying condensed consolidated financial statements. Item 4. Submission of Items to a Vote of Security Holders - ---------------------------------------------------------- (a) The Company's Annual Meeting of Shareholders was held on April 29, 2000 (b) At the Company's Annual Meeting of Shareholders, the following directors were elected for terms expiring in 2003 by the vote indicated: Shares Shares Voted in Withholding Favor of Authority -------- --------- Jeffrey L. Bleustein 131,730,375 1,054,497 Donald A. James 125,519,535 7,265,337 James A. Norling 116,402,742 16,382,130 (c) Matters other than election of directors, brought for vote at the Company's Annual Meeting of Shareholders, passed by the vote indicated. Shares Voted ------------ For Against Abstained --- ------- --------- Ratification of Ernst & Young LLP as the Company's independent auditors 132,154,417 135,854 494,601 There were no broker non-votes with respect to the foregoing matters. 18 Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ (a) Exhibits ------------- 27 Financial Data Schedule for June 25, 2000 (b) Reports on Form 8-K ------------------------ None 19 Part II - Other Information HARLEY-DAVIDSON, INC. Form 10-Q June 25, 2000 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: 8/9/00 by: /s/ James L. Ziemer ------------------------------------- James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) Date: 8/9/00 by: /s/ James M. Brostowitz -------------------------------------- James M. Brostowitz Vice President, Controller (Principal Accounting Officer) and Treasurer 20 Exhibit Index Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule for June 25, 2000 21 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARLEY-DAVIDSON, INC. AS OF AND FOR THE SIX MONTHS ENDED JUNE 25, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-25-2000 297,917 0 117,071 1,328 157,415 1,073,818 1,294,330 616,545 2,185,226 470,229 0 0 0 3,200 1,271,826 2,185,226 1,436,086 1,436,086 947,635 947,435 (18,779) 0 (6,296) 274,293 103,479 170,814 0 0 0 170,814 .56 .55
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