-----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, SUbhIaWzCi0cpDYhTvOiDc0i6faboaWDONCs+md7qqWRanU2sKsbeoHfiMfwzgIB VinNFyCEsttzMLpeXkAKZQ== /in/edgar/work/0000897069-00-000550/0000897069-00-000550.txt : 20001109 0000897069-00-000550.hdr.sgml : 20001109 ACCESSION NUMBER: 0000897069-00-000550 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000924 FILED AS OF DATE: 20001108 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: 755952 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 September 24, 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 November 3, 2000: 303,037,994 shares 1 HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended September 24, 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 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-17 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 Note regarding forward-looking statements 18 Part II. Other Information Item 1. Legal Proceedings 19 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 Nine months ended ------------------ ----------------- Sep. 24, Sep. 26, Sep. 24, Sep. 26, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $714,119 $623,193 $2,150,205 $1,790,476 Cost of goods sold 474,505 418,535 1,422,140 1,183,690 ------- ------- --------- ---------- Gross profit 239,614 204,658 728,065 606,786 Operating income from financial services 9,609 7,514 24,223 19,274 Operating expenses (125,194) (110,775) (379,041) (326,712) -------- -------- ---------- ---------- Income from operations 124,029 101,397 373,247 299,348 Interest income, net 5,323 2,090 11,619 5,571 Other, net (612) (556) 18,167 (1,019) -------- -------- ---------- ---------- Income before provision for income taxes 128,740 102,931 403,033 303,900 Provision for income taxes 45,702 37,569 149,181 110,924 -------- -------- ---------- ---------- Net income $ 83,038 $ 65,362 $ 253,852 $ 192,976 ======== ======== ========== ========== Earnings per common share: Basic $.27 $.21 $.84 $.63 ==== ==== ==== ==== Diluted $.27 $.21 $.82 $.62 ==== ==== ==== ==== Weighted-average common shares outstanding: Basic 302,674 304,392 302,969 305,540 Diluted 307,612 309,208 307,809 310,588 Cash dividends per share $.025 $.023 $.073 $.065 ===== ===== ===== =====
See accompanying notes. 3 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands)
Sep. 24, Dec. 31, Sep. 26, 2000 1999 1999 ---- ---- ---- -unaudited- -unaudited- ASSETS Current assets: Cash and cash equivalents $ 410,785 $ 183,415 $ 163,833 Accounts receivable, net 125,965 101,708 125,554 Finance receivables, net 467,896 440,951 419,955 Inventories (Note 2) 178,920 168,616 166,812 Other current assets 56,414 54,304 53,370 ---------- -------- ---------- Total current assets 1,239,980 948,994 929,524 Finance receivables, net 287,363 354,888 389,263 Property, plant and equipment, net 688,597 681,741 640,841 Goodwill (Note 8) 38,167 55,408 50,368 Other assets 62,017 71,046 75,782 ---------- ---------- ---------- $2,316,124 $2,112,077 $2,085,778 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 179,269 $ 137,660 $ 180,939 Accrued and other liabilities 240,026 199,331 207,488 Current portion of finance debt 104,451 181,163 173,974 ------- ------- ------- Total current liabilities 523,746 518,154 562,401 Finance debt 280,000 280,000 280,000 Other long-term liabilities 81,002 77,124 66,652 Postretirement health care benefits 79,410 75,719 74,183 Contingencies (Note 6) Total shareholders' equity 1,351,966 1,161,080 1,102,542 ---------- ---------- ---------- $2,316,124 $2,112,077 $2,085,778 ========== ========== ==========
See accompanying notes. 4 Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine months ended ----------------- Sep. 24, Sep. 26, 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 253,852 $ 192,976 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 98,598 82,443 Gain on sale of credit card business (18,915) -- Provision for credit losses 1,214 14,541 Long-term employee benefits 9,900 (957) Tax benefit of stock options 20,026 14,168 Other, net 3,272 608 Net change in other current assets and current liabilities 45,633 42,472 ---------- ---------- Net cash provided by operating activities 413,580 346,251 Cash flows from investing activities: Purchase of property and equipment (103,864) (93,415) Finance receivables acquired or originated (2,693,390) (2,482,752) Finance receivables collected/sold 2,596,217 2,338,761 Proceeds from sale of credit card business 176,391 -- Other, net (7,414) (2,168) ---------- ---------- Net cash used in investing activities (32,060) (239,574) Cash flows from financing activities: Net (decrease) increase in finance debt (76,712) 27,232 Dividends paid (22,354) (13,382) Purchase of common stock for treasury (64,367) (130,284) Issuance of stock under employee stock option plans 9,283 8,420 ---------- ---------- Net cash used in financing activities (154,150) (108,014) ---------- ---------- Net increase (decrease) in cash and cash equivalents 227,370 (1,337) Cash and cash equivalents: At beginning of period 183,415 165,170 ---------- ---------- At end of period $ 410,785 $ 163,833 =========== ==========
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 September 24, 2000 and September 26, 1999, and the results of operations for the three- and nine-month periods then ended. Certain prior year amounts have been reclassified 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, principally using the last-in, first-out (LIFO) method, or market. Inventories consist of the following (in thousands): Sep. 24, Dec. 31, Sep. 26, 2000 1999 1999 ---- ---- ---- Components at the lower of cost, first-in, first-out (FIFO), or market: Raw material & work-in-process $ 77,702 $ 61,893 $ 62,182 Finished goods 36,180 29,977 33,899 Parts & accessories and general merchandise 86,464 97,422 92,206 -------- -------- ------ 200,346 189,292 188,287 Excess of FIFO over LIFO 21,426 20,676 21,475 -------- -------- -------- Inventories as reflected in the accompanying condensed consolidated balance sheets $178,920 $168,616 $166,812 ======== ======== ======== 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. 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 Nine months ended ------------------ ----------------- Sep. 24, Sep. 26, Sep. 24, Sep. 26, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales: Motorcycles and Related Products $714,119 $623,193 $2,150,205 $1,790,476 Financial Services n/a n/a n/a n/a -------- -------- ---------- ---------- $714,119 $623,193 $2,150,205 $1,790,476 ======== ======== ========== ========== Income from operations: Motorcycles and Related Products $116,438 $ 95,907 $ 356,306 $ 287,524 Financial Services 9,609 7,514 24,223 19,274 General corporate expenses (2,018) (2,024) (7,282) (7,450) -------- -------- ---------- ---------- $124,029 $101,397 $ 373,247 $ 299,348 ======== ======== ========== ==========
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 Nine months ended ------------------ ----------------- Sep. 24, Sep. 26, Sep. 24, Sep. 26, 2000 1999 2000 1999 ---- ---- ---- ---- Numerator - --------- Net income used in computing basic and diluted earnings per share $ 83,038 $ 65,362 $253,852 $192,976 ======== ======== ======== ======== Denominator - ----------- Denominator for basic earnings per share - weighted-average common shares 302,674 304,392 302,969 305,540 Effect of dilutive securities - employee stock options and nonvested stock 4,938 4,816 4,840 5,048 -------- -------- -------- -------- Denominator for diluted earnings per share- adjusted weighted-average shares 307,612 309,208 307,809 310,588 ======= ======= ======= ======= Basic earnings per share $.27 $.21 $.84 $.63 ==== ==== ==== ==== Diluted earnings per share $.27 $.21 $.82 $.62 ==== ==== ==== ====
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 $79.3 million and $70.6 million for the three months ended September 24, 2000 and September 26, 1999, respectively. Total comprehensive income for the nine months ended September 24, 2000 and September 26, 1999 was $248.2 million and $193.9 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 nine months of 2000, the Company repurchased a total of 1,772,200 shares with a total of $64.4 million of cash on hand. None of these shares were repurchased during the third quarter of 2000. Note 8 - Sale of Credit Card Business - ------------------------------------- In March 2000, the Company sold its Harley-Davidson-> Chrome Visa-> 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 Note 9 - Subsequent Event- Purchase of Italian Distributor - ---------------------------------------------------------- On September 29, 2000, the Company acquired the net assets of the Harley-Davidson/Buell motorcycle distribution business of Numero Uno, S.r.l., the sole Italian distributor of the Company's products, located near Milan, Italy. The new wholly owned subsidiary will distribute the Company's products through a network of independent dealers in Italy. The transaction, to be accounted for under the purchase method, is expected to result in the Company recording approximately $14 million of goodwill, to be amortized over twenty years. Note 10- Recent Pronouncements - ------------------------------ In June 1998, Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" was issued and is effective for the Company January 1, 2001. SFAS 133, as amended, requires the Company to recognize all derivatives as either assets or liabilities and to measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow and foreign currency hedges and establishes respective accounting standards for reporting changes in the fair value of the derivative instruments. Upon adoption, the Company will be required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate. The Company does not expect adoption of SFAS 133 to have a material impact on its consolidated financial position or results of operations. In December of 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements", effective for the Company January 1, 2001. This staff accounting bulletin summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company does not expect adoption of SAB 101 to have a material impact on its consolidated financial position or results of operations. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Three Months Ended September 24, 2000 ------------------------------------------------------------------- Compared to the Three Months Ended September 26, 1999 ----------------------------------------------------- For the quarter ended September 24, 2000, consolidated net sales totaled $714.1 million, a $90.9 million or 14.6% increase over the same period last year. Net income and diluted earnings per share for the third quarter of 2000 were $83.0 million and $.27, respectively, on 307.6 million weighted average shares outstanding versus $65.4 million and $.21, respectively, on 309.2 million weighted average shares outstanding in 1999, increases of 27.0% and 27.7%, respectively. Motorcycle Unit Shipments and Net Sales For the Three-Month Periods Ended September 24, 2000 and September 26, 1999 =============================================================================== Increase 2000 1999 (Decrease) %Change =============================================================================== Motorcycle Unit Shipments =============================================================================== Harley-Davidson(R)motorcycle units 48,077 42,615 5,462 12.8% - ------------------------------------------------------------------------------- Buell(R)motorcycle units 2,631 1,984 647 32.6 - ------------------------------------------------------------------------------- Total motorcycle units 50,708 44,599 6,109 13.7% =============================================================================== Net sales (in millions) =============================================================================== Harley-Davidson motorcycles $528.1 $455.7 $72.4 15.9% - ------------------------------------------------------------------------------- Buell motorcycles 10.4 16.7 (37.7) (6.3) - ------------------------------------------------------------------------------- Total motorcycles 538.5 472.4 66.1 14.0 - ------------------------------------------------------------------------------- Motorcycle Parts and Accessories 133.4 109.6 23.8 21.7 - ------------------------------------------------------------------------------- General Merchandise 41.2 40.9 .3 .7 - ------------------------------------------------------------------------------- Other 1.0 .3 .7 233.3 - ------------------------------------------------------------------------------- Total Motorcycles and Related Products $714.1 $623.2 $90.9 14.6% =============================================================================== The 2000 third quarter increase in net sales of $90.9 million, or 14.6%, was driven primarily by the 12.8% increase in Harley-Davidson motorcycle unit shipments. During the third quarter of 2000, the Company increased its Harley-Davidson motorcycle unit shipments and production to 48,077 units, 5,462 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 and shipment levels achieved through nine months, the Company has increased its 2000 annual production target to 203,000 Harley-Davidson units and has established a production target of 225,000 units for the year 2001.(1) Shipments of Buell motorcycle units in the third quarter of 2000 totaled 2,631 compared to 1,984 in the third quarter of 1999. Buell V-Twin production was temporarily interrupted in the third quarter 10 due to parts availability issues and a voluntary recall in June of this year. As a result, the Company diverted the unused V-Twin assembly capacity to production of the Buell Blast. The Company shipped 2,404 Blast models and 227 Buell V-Twin models during the third quarter of 2000. The Blast model has a significantly lower average selling price relative to the larger displacement V-Twin models, which resulted in an overall $6.3 million decrease in Buell revenue in the third quarter of 2000 compared to the same period last year. Buell V-Twin production resumed early in the fourth quarter. The Company has decreased its 2000 Buell motorcycle production target to 10,000 units. (1) Parts and Accessories (P&A) sales of $133.4 million were up $23.8 million, or 21.7%, compared to the third quarter of 1999. The increase in P&A sales was driven by strong motorcycle shipments in the third quarter, and was led by higher sales for Performance parts, wheels, custom paint, seats and saddlebags. General Merchandise sales for the third quarter of 2000 were up .7% over the same period last year. The third quarter growth rate for General Merchandise was negatively impacted by the timing of shipments of seasonal products. Various seasonal products were shipped in the second quarter of this year, while similar products were shipped in the third quarter of last year, resulting in a difficult comparison between the third quarters of 2000 and 1999. The Company anticipates that the long-term growth rate for P&A revenue will be slightly higher than the Harley-Davidson motorcycle unit growth rate. The growth rate for General Merchandise revenue is expected to be slightly lower than the Harley-Davidson motorcycle unit growth rate, as reflected in the year to date growth rate of 13.5%.(1) The Company's ability to reach the 2000 and 2001 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 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 P&A /general merchandise supplier 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 for the third quarter of 2000 increased $35.0 million, or 17.1%, compared to the third quarter of 1999, primarily due to an increase in overall sales volume. The gross profit margin was 33.6% in the third quarter of 2000 compared to 32.8% in 1999. The improvement in gross profit margin was driven primarily by favorable product line mix, favorable motorcycle product mix and a 2001 model year price increase. In the third quarter of 2000, product line mix was favorable due to strong growth in P&A, which yields a higher profit margin than motorcycles and general merchandise. The third quarter of 2000 also showed a favorable motorcycle mix with a higher percentage of shipments consisting of touring motorcycles and a slightly lower percentage of Sportster models, when compared to the same quarter last year. Finally, the 2001 model year price increase provided for higher average selling prices on all 2001 models in the third quarter. These factors more than offset the negative effects of the weaker European currencies and certain manufacturing inefficiencies experienced in the third quarter of 2000. 11 Operating Expenses For the Three-Month Periods Ended September 24, 2000 and September 26, 1999 =============================================================================== 2000 1999 Increase %Change - ------------------------------------------------------------------------------- Motorcycles and Related Products $123.2 $108.8 $14.4 13.3% - ------------------------------------------------------------------------------- Corporate 2.0 2.0 0.0 0.0% =============================================================================== Total operating expenses $125.2 $110.8 $14.4 13.0% =============================================================================== Total operating expenses increased $14.4 million, or 13.0%, compared to the third quarter of 1999. Operating expenses increased at a slightly lower rate than the corresponding increase in net sales as the Company continues to invest in its future growth. Operating expenses were 17.5% and 17.8% of net sales in the third quarters of 2000 and 1999, respectively. Operating income from Financial Services For the three months ended September 24, 2000, HDFS reported operating income of $9.6 million, an increase of $2.1 million, or 27.9%, over the same period in 1999. The increase is primarily due to lower credit losses and an increase in loan volume at generally higher rates of interest, partially offset by higher operating expenses. Interest income Third quarter 2000 interest income was higher than in the prior year primarily due to higher levels of cash available for short-term investing when compared to the same period in 1999. Consolidated income taxes The Company's effective income tax rate was 35.5% for the third quarter of 2000, compared to 36.5% for the same period of 1999. The change in rates is a direct result of various tax minimization programs implemented by the Company. The Company expects an effective income tax rate of 35.5% going forward. (1) 12 Results of Operations for the Nine Months Ended September 24, 2000 ------------------------------------------------------------------ Compared to the Nine Months Ended September 26, 1999 ---------------------------------------------------- For the nine-month period ended September 24, 2000, the Company recorded net sales of $2.2 billion, a $359.7 million, or 20.1%, increase over the same period last year. Net income and diluted earnings per share were $253.8 million and $.82, respectively, on 307.8 million weighted average shares outstanding versus $193.0 million and $ .62, respectively, on 310.6 million weighted average shares outstanding in the first nine months of 1999, increases of 31.5% and 32.7%, 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-> Chrome Visa-> Card business. Excluding the one-time gain, net income and diluted earnings per share for the nine month period increased 28.0% and 28.8%, respectively, over the same period last year. Motorcycle Unit Shipments and Net Sales For the Nine-Month Periods Ended September 24, 2000 and September 26, 1999 =============================================================================== 2000 1999 Increase %Change =============================================================================== Motorcycle Unit Shipments =============================================================================== Harley-Davidson(R)motorcycle units 150,463 128,567 21,896 17.0% - ------------------------------------------------------------------------------- Buell(R)motorcycle units 8,249 5,509 2,740 49.7 - ------------------------------------------------------------------------------- Total motorcycle units 158,712 134,076 24,636 18.4% =============================================================================== Net sales (in millions) =============================================================================== Harley-Davidson motorcycles $1,640.3 $1,360.7 $279.6 20.5% - ------------------------------------------------------------------------------- Buell motorcycles 47.4 45.3 2.1 4.6 - ------------------------------------------------------------------------------- Total motorcycles 1,687.7 1,406.0 281.7 20.0 - ------------------------------------------------------------------------------- Motorcycle Parts and Accessories 349.4 284.4 65.0 22.9 - ------------------------------------------------------------------------------- General Merchandise 110.8 97.6 13.2 13.5 - ------------------------------------------------------------------------------- Other 2.3 2.5 (.2) (8.0) =============================================================================== Total Motorcycles and Related Products $2,150.2 $1,790.5 $359.7 20.1% =============================================================================== The 20.1% increase in revenue was primarily attributable to additional motorcycle unit shipments as demand for the Company's motorcycles continued to grow. The most recent information available (through August) indicates that the Company had a combined U.S. heavyweight (651+cc) market share of 43.7% (for Harley-Davidson and Buell), compared to 46.1% for the same period in 1999. This same market has grown at a 25.6% rate year to date, while retail registrations for the Company's motorcycles (Harley-Davidson and Buell) increased 19.1%. The Company believes the lower retail registration growth rate for its motorcycles, as compared to the growth rate for the U.S. heavyweight market in total, is the result of the Company's ongoing capacity constraints. 13 European data (through July) showed the Company with a 7.1% share of the heavyweight (651+cc) market, up from 6.3% for the same period in 1999. The European market (651+cc) has declined at a rate of 4.3% year to date, while retail registrations for the Company's motorcycles (Harley-Davidson and Buell) increased 7.4% compared to last year. The Company continues to actively work on improving its European distribution network and implementing European focused marketing programs. Early in the fourth quarter, the Company completed a transaction to acquire the net assets of the Harley-Davidson/Buell motorcycle distribution business of Numero Uno, S.r.l. The new wholly owned subsidiary will distribute the Company's products through a network of independent dealers in Italy. Asia/Pacific (Japan and Australia) data (through August) showed the Company with a 20.0% share of the heavyweight (651+cc) market, up from 18.7% for the same period in 1999. The Asia/Pacific market has declined at a rate of 2.5% year to date, while retail registrations for the Company's motorcycles (Harley-Davidson and Buell) increased 4.1%. Parts and Accessories (P&A) sales of $349.4 million were up $65.0 million, or 22.9% for 2000, compared to the same period of 1999. General Merchandise sales of $110.8 million were up $13.2 million, or 13.5%, compared to the first three quarters of 1999. Gross Profit Gross profit for the first nine months of 2000 totaled $728.1 million, an increase of $121.3 million, or 20.0%, over the same period in 1999. The gross profit margin was 33.9% in the first nine months of 2000, which is level with the gross profit margin for the first nine months of 1999. Although unchanged from the prior year, gross profit margin was positively impacted in the first nine months of 2000 by favorable product line mix, favorable motorcycle mix and model year price increases. These factors, however, were offset by the negative effect of weaker European currencies and certain manufacturing inefficiencies experienced in the first nine months of 2000. Operating Expenses For the Nine-Month Periods Ended September 24, 2000 and September 26, 1999 (Dollars in Millions) =============================================================================== Increase 2000 1999 (Decrease) %Change - ------------------------------------------------------------------------------- Motorcycles and Related Products $371.8 $319.3 $52.5 16.4% - ------------------------------------------------------------------------------- Corporate 7.3 7.5 (.2) (2.6) =============================================================================== Total operating expenses $379.1 $326.8 52.3 16.0% =============================================================================== Total operating expenses increased $52.3 million, or 16.0% for 2000, compared to the same period of 1999. Operating expenses increased at a slightly lower rate than the corresponding increase in net sales as the Company continues to invest in its future growth. Operating expenses were 17.6% and 18.2% of net sales in the first three quarters of 2000 and 1999, respectively. 14 Operating income from Financial Services For the nine months ended September 24, 2000, HDFS reported operating income of $24.2 million, an increase of $5.0 million, or 25.7%, over the same period in 1999. The increase is primarily due to lower credit losses and 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 prior year was impacted by operating losses related to the credit card portfolio, 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-> Chrome Visa-> Card portfolio, 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 portfolio 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 was $6.0 million higher than in the prior year primarily due to higher levels of cash available for short-term investing in the first nine months of 2000 compared to the same period in 1999. Consolidated income taxes The Company's effective income tax rate was 37.0% and 36.5% for the first nine months of 2000 and 1999, respectively. The increase in the tax rate for the first nine months of 2000 was due to the $15 million non-deductible write-off of goodwill recorded in connection with the sale of the Harley-Davidson-> Chrome Visa-> Card business in the first quarter of 2000. 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 implemented by the Company. The company expects an effective income tax rate of 35.5% going forward. (1) 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 15 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 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 as of September 24, 2000 -------------------------------------------------------- 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 $413.6 million of cash from operating activities during the first nine months of 2000 compared to $346.3 million in 1999. The largest component of cash from operating activities is net income adjusted for non-cash items, including depreciation, credit losses, tax benefit of stock options, and the gain on sale of the credit card business. This was approximately $354.8 million in 2000 compared to $304.1 million in 1999. Changes in other current assets and liabilities increased/(decreased) operating cash flows by approximately $45.6 million and $42.5 million in the first nine months of 2000 and 1999, respectively. Changes in working capital during the first nine months of 2000 and 1999 consisted of the following (in millions): Nine months ended ----------------- Working capital item 2000 1999 -------------------- ---- ---- Accounts receivable, net ($24.3) ($12.1) Inventories (10.3) (11.2) Prepaid expenses (2.1) (2.9) Accounts payable and accrued expenses 82.3 68.7 ----- ---- Total $45.6 $42.5 ===== ===== Capital expenditures amounted to approximately $103.9 million and $93.4 million during the first nine months of 2000 and 1999, respectively. For the past several years, the Company has been implementing a manufacturing strategy to, among other things, increase its motorcycle production capacity. Going forward, the Company's capital expenditures will continue to focus on capacity expansion at its facilities and will also focus on other areas such as product development, systems development and continuing operations. The Company estimates the capital required in 2000 will approximate $170 million.(1) The Company is currently in the process 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) 16 HDFS is financed by operating cash flow, asset-backed securitizations, commercial paper, revolving credit facilities, senior subordinated debt, and redeemable preferred stock. Approximately $307.6 million of commercial paper was outstanding at September 24, 2000. Subject to limitations discussed below, as of September 24, 2000, HDFS may issue up to $600 million of short-term commercial paper with maturities up to 270 days. At September 24, 2000, HDFS had a five year $250 million revolving credit facility due in 2002 and a $350 million 364-day revolving credit facility due September 29, 2000 with approximately $47.9 million outstanding at September 24, 2000. 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 credit facilities. Accordingly, at September 24, 2000, HDFS had aggregate remaining availability of $245.5 million. Subsequent to September 24, 2000, the five-year revolving credit facility was increased to $350 million and extended to September 2005 and the 364-day revolving credit facility was extended to September 2001. The Company expects the $350 million, 364-day credit facility expiring in September 2001 will be renewed. In connection with various debt agreements, HDFS has met various operating and financial covenants in all material respects and remains in material compliance as of September 24, 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 third quarter, HDFS securitized and sold (with limited recourse) approximately $228 million of retail installment loans with retained servicing rights. 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 first nine months of 2000, the Company repurchased 1,772,200 shares of its common stock under the latter authorization. The Company's Board of Directors declared three cash dividends during the first nine months of 2000 including, most recently, a $.025 per share cash dividend declared on August 10, 2000, paid September 19, 2000 to shareholders of record on September 8, 2000. Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------ 17 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 Certain matters discussed in this Quarterly Report on Form 10-Q 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, and disclaims any obligation, to publicly update such forward-looking statements to reflect subsequent events or circumstances. 18 Part II - OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q September 24, 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 for additional information on the above proceedings. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits ------------- 27 Financial Data Schedule for September 24, 2000 (b) Reports on Form 8-K ------------------------ None 19 Part II - Other Information HARLEY-DAVIDSON, INC. Form 10-Q September 24, 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: 11/8/00 by: /s/ James L. Ziemer --------------- ----------------------------------- James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) 11/8/00 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 September 26, 1999 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 NINE MONTHS ENDED SEPTEMBER 24, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-24-2000 410,785 0 127,303 1,338 178,920 1,239,980 1,327,806 639,209 2,316,124 523,746 0 0 0 3,202 1,348,764 2,316,124 2,150,206 2,150,206 1,422,140 1,422,140 (18,167) 0 (11,169) 403,033 149,181 253,852 0 0 0 253,852 .84 .82
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