-----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, NKY6g+UEToP+9fMFmDe9GbO5mlzGz0RW9UWBe3UmUPJlLg/LNyOl47bHU8ICFUva AlMwBdYzdT9eh11mAjP3cw== 0000897069-02-000575.txt : 20020812 0000897069-02-000575.hdr.sgml : 20020812 20020812171846 ACCESSION NUMBER: 0000897069-02-000575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEY DAVIDSON INC CENTRAL INDEX KEY: 0000793952 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 391382325 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09183 FILM NUMBER: 02727600 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 sdc169a.txt 10-Q QUARTERLY REPORT 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 30, 2002 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 7, 2002: 302,313,368 Shares HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended June 30, 2002 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 10-19 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 Note regarding forward looking statements 20 Part II. Other Information Item 1. Legal Proceedings 21 Item 4. Submission of Items to a Vote of Security Holders 21 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Exhibit Index 24 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 ------------------ ---------------- June 30, June 24, June 30, June 24, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net sales $1,001,094 $ 862,309 $1,928,939 $1,639,250 Cost of goods sold 666,006 573,614 1,278,574 1,096,657 ---------- ---------- ---------- ---------- Gross profit 335,088 288,695 650,365 542,593 Financial services income 60,149 52,020 101,840 84,954 Financial services interest and operating expense 23,109 28,934 52,649 56,889 ---------- ---------- ---------- ------ Operating income from financial services 37,040 23,086 49,191 28,065 Operating expenses 155,811 138,671 301,516 259,815 ---------- ---------- ---------- ---------- Income from operations 216,317 173,110 398,040 310,843 Interest income, net 4,415 4,794 6,661 9,593 Other income (expense), net (366) (17) (1,131) (937) ---------- ---------- ---------- ---------- Income before provision for income taxes 220,366 177,887 403,570 319,499 Provision for income taxes 76,025 62,260 139,231 111,824 ---------- ---------- ---------- ---------- Net income $ 144,341 $ 115,627 $ 264,339 $ 207,675 ========== ========== ========== ========== Earnings per common share: Basic $.48 $.38 $.87 $.69 ==== ==== ==== ==== Diluted $.47 $.38 $.87 $.68 ==== ==== ==== ==== Weighted-average common shares outstanding: Basic 302,209 302,621 302,341 302,285 ======= ======= ======= ======= Diluted 305,194 306,569 305,405 306,233 ======= ======= ======= ======= Cash dividends per share $.035 $.030 $.065 $.055 ===== ===== ===== =====
See accompanying notes. 3 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) June 30, Dec. 31, June 24, 2002 2001 2001 ----------- ---------- ----------- (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 524,049 $ 439,438 $ 546,656 Marketable securities 203,246 196,011 - Accounts receivable, net 150,728 118,843 136,781 Finance receivables, net 609,730 656,421 545,883 Inventories (Note 2) 203,255 181,115 177,678 Other current assets 88,371 73,436 63,025 ---------- ---------- ---------- Total current assets 1,779,379 1,665,264 1,470,023 Finance receivables, net 519,935 379,335 452,247 Property, plant and equipment, net 924,337 891,820 774,749 Goodwill 51,382 49,711 51,084 Other assets 130,823 132,365 94,198 ---------- ---------- ---------- $3,405,856 $3,118,495 $2,842,301 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 233,725 $ 194,683 $ 186,611 Accrued expenses and other liabilities 401,206 304,376 290,893 Current portion of finance debt 147,837 217,051 192,044 ---------- ---------- ---------- Total current liabilities 782,768 716,110 669,548 Finance debt 380,000 380,000 355,000 Other long-term liabilities 177,239 176,190 101,911 Post-retirement health care benefits 97,414 89,912 85,148 Contingencies (Note 6) - Total shareholders' equity 1,968,435 1,756,283 1,630,694 ---------- --------- ---------- $3,405,856 $3,118,495 $2,842,301 ========== ========== ========== See accompanying notes. 4 Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six-months Ended June 30, June 24, 2002 2001 ----------- ----------- Cash flows from operating activities: Net income $ 264,339 $ 207,675 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 87,514 72,811 Tax benefit of stock options 8,058 20,507 Provision for finance credit losses 3,207 7,678 Long-term employee benefits 12,266 7,137 Other, net 2,690 1,435 Net changes in current assets and current liabilities 49,084 40,063 ----------- ----------- Net cash provided by operating activities 427,158 357,306 Cash flows from investing activities: Purchase of property and equipment (122,461) (92,072) Finance receivables acquired or originated (2,697,748) (2,169,130) Finance receivables collected 1,930,046 1,567,981 Finance receivables sold 679,324 366,000 Purchase of marketable securities (474,572) - Sales and redemptions of marketable securities 467,337 - Other, net 13,804 (3,325) ----------- ----------- Net cash used in investing activities (204,270) (330,546) Cash flows from financing activities: Net increase (decrease) in finance debt (69,214) 102,535 Dividends paid (19,975) (16,963) Purchase of common stock for treasury (56,814) - Issuance of common stock under employee stock plans 7,726 14,588 ----------- ----------- Net cash provided by (used in) financing activities (138,277) 100,160 Net increase in cash and cash equivalents 84,611 126,920 Cash and cash equivalents: At beginning of period 439,438 419,736 ----------- ----------- At end of period $ 524,049 $ 546,656 =========== =========== 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 accounting principles generally accepted in the United States 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 30, 2002 and June 24, 2001 and the results of operations for the three- and six-month periods then ended. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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): June 30, Dec. 31, June 24, 2002 2001 2001 -------- -------- -------- Components at the lower of cost, first-in, First-out (FIFO), or market: Raw material & work-in-process $ 79,664 $ 80,363 $ 65,880 Motorcycle finished goods 53,228 36,418 42,929 Parts & accessories and general merchandise 87,976 81,447 88,194 -------- -------- -------- 220,868 198,228 197,003 Excess of FIFO over LIFO 17,613 17,113 19,325 -------- -------- -------- $203,255 $181,115 $177,678 ======== ======== ======== 6 Note 3 - Business Segments - -------------------------- The Company operates in two business segments: Motorcycles & Related Products (Motorcycles) and Financial Services, which consists of the Company's subsidiary, Harley-Davidson , 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 ------------------ ---------------- June 30, June 24, June 30, June 24, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net sales $1,001,094 $ 862,309 $1,928,939 $1,639,250 Gross profit 335,088 288,695 650,365 542,593 Operating expenses 152,167 134,697 294,317 253,039 ---------- ---------- ---------- ---------- Operating income from motorcycles & related products 182,921 153,998 356,048 289,554 Financial services income 60,149 52,020 101,840 84,954 Financial services interest and operating expense 23,109 28,934 52,649 56,889 ---------- ---------- ---------- ---------- Operating income from financial services 37,040 23,086 49,191 28,065 Corporate expenses 3,644 3,974 7,199 6,776 ---------- ---------- ---------- ---------- Income from operations $ 216,317 $ 173,110 $ 398,040 $ 310,843 ========== ========== ========== ========== 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 ------------------ ---------------- June 30, June 24, June 30, June 24, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Numerator - --------- Net income used in computing basic and diluted earnings per share $ 144,341 $ 115,627 $ 264,339 $ 207,675 ========== ========== ========== ========== Denominator Denominator for basic earnings per share - weighted-average common shares 302,209 302,621 302,341 302,285 Effect of dilutive securities - employee stock options and nonvested stock 2,985 3,948 3,064 3,948 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share - adjusted weighted-average shares 305,194 306,569 305,405 306,233 ========== ========== ========== ========== Basic earnings per share $.48 $.38 $.87 $.69 ==== ==== ==== ==== Diluted earnings per share $.47 $.38 $.87 $.68 ==== ==== ==== ====
7 Note 5 - Comprehensive Income - ----------------------------- Total comprehensive income was approximately $151.4 million and $115.7 million for the three-month periods ended June 30, 2002 and June 24, 2001, respectively. Total Comprehensive income is comprised of net income, foreign currency translation adjustments, the change in net unrealized gains on investment in retained securitization interests and the change in the fair market value of derivative instruments designated as hedges of forecasted cash flows. Total comprehensive income for the six-month periods ended June 30, 2002 and June 24, 2001 was $273.1 million and $206.9 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 full extent of the environmental contamination at the Facility, it has been working with the Pennsylvania Department of Environmental Protection in undertaking certain environmental investigation and remediation activities, including a site-wide remedial investigation/feasibility study. In January 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 environmental investigation and remediation activities at the Facility (response costs). The trust administers the payment of the response costs at the Facility as covered by the Agreement. Recently, the United States Environmental Protection Agency (EPA) advised the Company that it considers some of the Company's remediation activities at the Facility to be subject to the EPA's corrective action program and has offered the Company the option of addressing corrective action under a facility lead agreement. The objectives and procedures for facility lead corrective action are consistent with the investigation and remediation already being conducted under the Agreement with the Navy, and the Company has agreed to participate in EPA's corrective action program. 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 Agreement with the Navy, the Company estimates that it will incur approximately $5.0 million of future response costs at the Facility. The Company has established reserves for this amount. The Company's estimate of future response costs is based on reports of independent 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 several years, ending in 2009. Note 7 - Pension Plans - ---------------------- The Company has several noncontributory defined benefit pension plans which cover substantially all employees of the Motorcycles segment. During the second quarter of 2002, the Company adjusted its long-term expected rate of return on pension assets from 10.5% to 8.5% as a result of current and projected market conditions. This change resulted in a $3 million pre-tax charge to operations in the second quarter of 2002. The remaining impact of this change in 2002 is approximately $3 million and will be charged to operations over the last six-months of 2002. 8 Note 8- Goodwill - ---------------- In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets," which became effective for the Company January 1, 2002. Under the new standard, goodwill is no longer amortized but is subject to annual impairment tests in accordance with the Statement. The Company has assessed the impact of the new standard on its goodwill balances in accordance with the provisions of the standard. There were no adjustments recorded as a result of the Company's review of goodwill balances. At December 31, 2001, total goodwill related to the Company's Motorcycles and Related Products and Financial Services segments was approximately $20.9 million and $28.8 million, respectively. Total goodwill amortization for 2001 was approximately $3.5 million, of which approximately $1.8 million was recorded as of June 24, 2001. Note 9 - Reclassifications - --------------------------- Certain prior year amounts have been reclassified to conform to the current year presentation. Prior year shipping and handling fees totaling $17.0 million for the second quarter and $31.1 million for the six-months ended June 24, 2001 were reclassified from cost of sales to net sales. Sales incentive expense totaling $6.3 million for the second quarter of 2001 and $15.5 million for the six-months ended June 24, 2001 were reclassified from operating expense to net sales and cost of sales. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------- ----------------------------------------------------------------------- of Operations -------------- Results of Operations for the Three-months Ended June 30, 2002 Compared to the Three-months Ended June 24, 2001 For the quarter ended June 30, 2002, consolidated net sales totaled $1.0 billion, a $138.8 million or 16.1% increase over the same period last year. Net income and diluted earnings per share for the second quarter of 2002 were $144.3 million and $.47 on 305.2 million weighted average shares outstanding versus $115.6 million and $.38 on 306.6 million weighted average shares outstanding in 2001, increases of 24.8% and 25.4%, respectively. Motorcycle Unit Shipments and Net Sales For the Three-Month Periods Ended June 30, 2002 and June 24, 2001 =============================================================================== 2002 2001 Change % Change =============================================================================== Motorcycle Unit Shipments =============================================================================== Harley-Davidson(R)motorcycle units 65,540 60,161 5,379 8.9% - ---------------------------------- -------- ------ ------ -------- Buell(R)motorcycle units 3,309 2,468 841 34.1 - ---------------------------------- -------- ------ ------ -------- Total motorcycle units 68,849 62,629 6,220 9.9% =============================================================================== Net sales (in millions) =============================================================================== Harley-Davidson motorcycles $760.1 $674.7 $85.4 12.7% - ---------------------------------- -------- ------ ------ -------- Buell motorcycles 20.0 15.7 4.3 26.9 - ---------------------------------- -------- ------ ------ -------- Total motorcycles 780.1 690.4 89.7 13.0 - ---------------------------------- -------- ------ ------ -------- Motorcycle Parts and Accessories 168.8 138.6 30.2 21.8 - ---------------------------------- -------- ------ ------ -------- General Merchandise 51.3 33.2 18.1 54.7 - ---------------------------------- -------- ------ ------ -------- Other .9 .1 .8 N/A - ---------------------------------- -------- ------ ------ -------- Total Motorcycles and Related Products $1,001.1 $862.3 $138.8 16.1% =============================================================================== The second quarter increase in net sales of $138.8 million was driven primarily by an 8.9% increase in Harley-Davidson motorcycle unit shipments. During the second quarter of 2002, the Company increased its Harley-Davidson motorcycle unit shipments to 65,540 units, 5,379 units higher than the same period last year. This increase in units is primarily the result of continued demand for Harley-Davidson motorcycles combined with 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 shipment and production levels achieved in the second quarter of 2002, the Company has increased its 2002 annual production target to 262,000 Harley-Davidson units and set a third quarter production target of 67,000 units.(1) Second quarter 2002 Buell motorcycle net sales were up $4.3 million compared to the same period last year, on 841 additional unit shipments. In April 2002, the Company began production of its new Buell Firebolt(TM) XB9R and, in July 2002, announced plans for a second new model, the XB9S Lightning(R), which the Company expects to commence shipping sometime in the fourth quarter of 2002. The new XB models combined with the Blast(R) will complete the Buell 2003 model year line up. In the second quarter of 2002, approximately 39% of Buell unit shipments consisted of the lower priced Blast motorcycles, compared to 29% in the same quarter last year. The Company expects the annual mix of Buell unit shipments to consist of approximately 33% Blast motorcycles in 2002 and maintains its total calendar year Buell production target of 11,500 units.(1) 10 Parts and Accessories (P&A) net sales in the second quarter of 2002 were up $30.2 million or 21.8% compared to the second quarter of 2001. P&A net sales increases were driven by strong motorcycle shipments, with especially strong results in the accessories line. The Company expects that the long-term growth rate for P&A will be slightly higher than the growth rate for Harley-Davidson motorcycle units.(1) Second quarter 2002 General Merchandise sales, which include clothing and collectibles, were up $18.1 million, or 54.7%, compared to the second quarter of 2001. General Merchandise results were positively impacted during the second quarter of 2002 by the sale of items related to the Company's upcoming 100th Anniversary, which accounted for over $10 million in sales during the quarter. The Company expects that the long-term growth rate for General Merchandise will be slightly lower than the growth rate for Harley-Davidson motorcycle units.(1) The Company's ability to reach the 2002 annual and quarterly production targets 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 and services, (iv) avoid unexpected supplier delays including P&A and general merchandise backorders, (v) sell all of the motorcycles it has the capacity to produce, (vi) continue to develop the capacity of its distributor and dealer network, (vii) avoid unexpected changes in the regulatory environment for its products, (viii) successfully adjust to foreign currency exchange rate fluctuations, (ix) successfully adjust to interest rate fluctuations, and (x) successfully manage changes in the credit quality of HDFS's loan portfolio. In addition, the Company could experience delays in the operation of manufacturing facilities, work stoppages, difficulties with suppliers, natural causes or other factors. These risks, potential delays and uncertainties could also adversely impact the Company's capital expenditure estimates (see "Liquidity and Capital Resources" section). Gross Profit Gross profit in the second quarter of 2002 of $335.1 million was $46.4 million or 16.1% higher than gross profit in the same quarter last year. The increase in gross profit is primarily related to the increase in net sales. Gross margin was 33.5% in the second quarter of 2002, even with gross margin in the second quarter of 2001. As discussed below, gross margin in the second quarter of 2002 was positively impacted by motorcycle product mix and the 2002 model year wholesale price increase. However, these positive impacts were offset by the negative impact of new model launch costs and higher pension costs. Motorcycle product mix was favorable in the second quarter of 2002 with a higher percentage of shipments consisting of the more profitable custom motorcycles and a lower percentage of shipments consisting of Sportster models, when compared to the second quarter of 2001. Wholesale price increases related to the 2002 model year provided for higher average selling prices on units sold in the second quarter of 2002 when compared to the same period last year. The Company's gross margin was negatively impacted in the second quarter by costs associated with the new model year start up, which began late in the second quarter of 2002. Historically, the Company has not produced new model year motorcycles until the beginning of the third quarter. The Company also experienced lower margins on the V-Rod in the second quarter of 2002, relative to its other existing custom motorcycles, due to the manufacturing ramp up on this recently introduced model. Cost of goods sold was also negatively impacted in the second quarter of 2002 by pension expense as a result of the Company's decision to adjust the long-term expected rate of return on pension assets (See Note 7 of the Notes to Condensed Consolidated Financial Statements). The pre-tax impact of this change was a $3 million expense in the second quarter of 2002, of which $2.3 million was included in cost of goods sold. The remaining expense impact of this change of approximately $3 million will be charged to cost of goods sold and operating expenses over the last six-months of 2002. 11 Financial Services For the Three-month Periods Ended June 30, 2002 and June 24, 2001 (Dollars in Millions) =============================================================================== Increase 2002 2001 (Decrease) %Change - ------------------------------------------------------------------------------- Financial services income $60.1 $52.0 $8.1 15.6% - ------------------------------------------------------------------------------- Financial services interest & operating expense 23.1 28.9 (5.8) (20.1) =============================================================================== Operating income from financial services $37.0 $23.1 $13.9 60.4% =============================================================================== In the second quarter of 2002, financial services income was $60.1 million, an increase of $8.1 million over the same period in 2001. Operating income from financial services was $37.0 million, an increase of $13.9 million over the second quarter of 2001. The increase in operating income was driven by strong overall performance in Harley-Davidson Financial Services, Inc.'s (HDFS) wholesale, retail, and insurance lines combined with lower borrowing costs. The increase in the retail business was led by the strong customer acceptance of HDFS' consumer financing program introduced in 2001. This program is based on tiered pricing offering lower rates to borrowers with stronger credit ratings. During the second quarter of 2002, HDFS securitized and sold approximately $586.0 million of retail installment loans resulting in a gain of $21.4 million. During the second quarter of 2001, HDFS securitized and sold approximately $366.0 million of retail installment loans resulting in a gain of $16.8 million. The Company expects HDFS operating income to grow at a rate of approximately 50% for 2002.(1) Operating Expenses For the Three-Month Periods Ended June 30, 2002 and June 24, 2001 (Dollars in Millions) =============================================================================== Increase 2002 2001 (Decrease) %Change - ------------------------------------------------------------------------------- Motorcycles & Related Products $152.2 $134.7 $17.5 13.0% - ------------------------------------------------------------------------------- Corporate 3.6 4.0 (0.4) (8.3) =============================================================================== Total operating expenses $155.8 $138.7 $17.1 12.4% =============================================================================== Total operating expenses increased $17.1 million, or 12.4%, during the second quarter of 2002 compared to the same period in 2001. Operating expenses were 15.6% and 16.1% of net sales in second quarter of 2002 and 2001, respectively. Operating expenses continued to grow in connection with the Company's increase in net sales, but at a slightly slower pace when compared to the same quarter last year. The increase in operating expenses, which includes selling, administrative and engineering expenses, was driven by the Company's ongoing investment in various initiatives designed to support its current and future growth objectives. In addition, during the second quarter of 2002, the Company also experienced higher employee benefit costs driven by the higher cost of health care and pensions (See Note 7 of the Notes to Condensed Consolidated Financial Statements for further discussion of pension expense). 12 Interest income Interest income in the second quarter of 2002 was $4.4 million compared to $4.8 million in the same period last year. The decrease in interest income is due to the impact of lower interest rates in the second quarter of 2002 when compared to the same period in 2001. In connection with the Company's capacity expansion plans (See "Liquidity and Capital Resources"), approximately $ .7 million of interest was capitalized during the second quarter of 2002. Consolidated income taxes The Company's effective income tax rate was 34.5% and 35.0% during the second quarters of 2002 and 2001, respectively. The Company expects that 34.5% will continue to be the effective rate through the remainder of 2002.(1) 13 Results of Operations for the Six-months Ended June 30, 2002 Compared to the Six-months Ended June 24, 2001 For the six-month period ended June 30, 2002, the Company recorded net sales of $1.93 billion, a $289.6 million or 17.7% increase over the same period last year. Net income and diluted earnings per share were $264.3 million and $.87 on 305.4 million weighted average shares outstanding versus $207.7 million and $.68 on 306.3 million weighted average shares, increases of 27.3% and 27.7%, respectively. Motorcycle Unit Shipments and Net Sales For the Six-Month Periods Ended June 30, 2002 and June 24, 2001 ================================================================================ 2002 2001 Change % Change ================================================================================ Motorcycle Unit Shipments ================================================================================ Harley-Davidson(R)motorcycle units 130,209 114,315 15,894 13.9% - ---------------------------------- -------- -------- ------ ------- Buell(R)motorcycle units 4,639 4,915 (276) (5.6) - ---------------------------------- -------- -------- ------ ------- Total motorcycle units 134,848 119,230 15,618 13.1% ================================================================================ Net sales (in millions) ================================================================================ Harley-Davidson motorcycles $1,508.0 $1,288.5 $219.5 17.0% - ---------------------------------- -------- -------- ------ ------- Buell motorcycles 26.3 30.7 (4.4) (14.5) - ---------------------------------- -------- -------- ------ ------- Total motorcycles 1,534.3 1,319.2 215.1 16.3 - ---------------------------------- -------- -------- ------ ------- Motorcycle Parts and Accessories 300.0 247.5 52.5 21.2 - ---------------------------------- -------- -------- ------ ------- General Merchandise 93.6 72.3 21.3 29.4 - ---------------------------------- -------- -------- ------ ------- Other 1.0 .3 .7 N/A - ---------------------------------- -------- -------- ------ ------- Total Motorcycles and Related Products $1,928.9 $1,639.3 $289.6 17.7% ================================================================================ The 17.7% increase in net sales was primarily attributable to the increase in Harley-Davidson motorcycle unit shipments as demand for the Company's Harley-Davidson motorcycles continued to grow. The most recent U.S. market information available (through June 2002) indicates that the Company had a U.S. heavyweight (651+cc) market share of 44.3% (Harley-Davidson models only) compared to 41.4% for the same period in 2001. Through June 2002, this same market has grown at a 13.3% rate year-to-date, while retail registrations for the Company's motorcycles (Harley-Davidson models only) increased 21.3%. Available data relating to the European market (through June 2002) shows the Company with a 5.7% share (Harley-Davidson models only) of the heavyweight (651+cc) market, up from 5.6% for the same period in 2001. Through June 2002, retail registrations for the Company's motorcycles (Harley-Davidson models only) were up 6.3%, while the European heavyweight market in total increased 4.7%. Available data relating to the Japanese market (through June 2002) showed the Company with a 21.9% share (Harley-Davidson models only) of the heavyweight (651+cc) market, up from 17.6% for the same period in 2001. The Japanese market remained even with prior year through June 2002, while retail registrations for the Company's motorcycles (Harley-Davidson models only) increased 9.5%. 14 Industry retail registration data for was provided by the Motorcycle Industry Council for the United States, Giral S.A. for Europe and JAMA for Japan. Parts and Accessories (P&A) sales of $300.0 million were up $52.5 million or 21.2% compared to the first half of 2001. General Merchandise sales, which include clothing and collectibles, were up $21.3 million, or 29.4%, compared to the first half of 2001. Gross Profit Gross profit for the first six-months of 2002 totaled $650.4 million, an increase of $107.8 million or 19.9% over the same period in 2001. The increase in gross profit was primarily related to the increase in net sales. The gross profit margin was 33.7% in 2002 compared to 33.1% for the same period of 2001. The increase in gross margin in the first half of 2002 was driven by favorable motorcycle product mix, favorable geographic mix, and the 2002 model year wholesale price increase. However, these positive impacts were partially offset by the negative impact of new model launch costs and higher pension costs. Financial Services For the Six-Month Periods Ended June 30, 2002 and June 24, 2001 (Dollars in Millions) =============================================================================== Increase 2002 2001 (Decrease) %Change - ------------------------------------------------------------------------------- Financial services income $101.8 $85.0 $16.8 19.9% - ------------------------------------------------------------------------------- Financial services interest & operating expense 52.6 56.9 (4.3) (7.5) =============================================================================== Operating income from financial services $49.2 $28.1 $21.1 75.3% =============================================================================== For the six-months ended June 30, 2002, financial services income was $101.8 million, an increase of $16.8 million over the same period in 2001. Operating income from financial services was $49.2 million, an increase of $21.1 million over the same period in 2001. The increase in operating income was driven by strong overall performance in HDFS' wholesale, retail, and insurance lines combined with lower borrowing costs. The increase in the retail business was led by continuing strong acceptance of HDFS' consumer financing program offering lower interest rates to borrowers with stronger credit ratings. During the six-months ended June 30, 2002, HDFS securitized and sold approximately $679.3 million of retail installment loans resulting in a gain of $26.4 million. During the six-months ended June 24, 2001, HDFS securitized and sold approximately $366.0 million of retail installment loans resulting in a gain of $16.8 million. 15 Operating Expenses For the Six-Month Periods Ended June 30, 2002 and June 24, 2001 (Dollars in Millions) =============================================================================== Increase 2002 2001 (Decrease) %Change - ------------------------------------------------------------------------------- Motorcycles and Related Products $294.3 $253.0 $41.3 16.3% - ------------------------------------------------------------------------------- Corporate 7.2 6.8 .4 6.2 =============================================================================== Total operating expenses $301.5 $259.8 $41.7 16.1% =============================================================================== Total operating expenses increased $41.7 million, or 16.1%, during the first half of 2002 compared to the same period in 2001. Operating expenses were 15.6% and 15.9% of net sales in first six-months of 2002 and 2001, respectively. The increase in operating expenses, which includes selling, administrative and engineering expenses, was driven by the Company's ongoing investment in various initiatives designed to support its current and future growth objectives. In addition, during the first half of 2002 the Company also experienced higher employee benefit costs driven by the higher cost of health care and pensions. Interest income Interest income in the first half of 2002 was $6.7 million compared to $9.6 million in the same period last year. The decrease in interest income was due to the impact of lower interest rates in the first half of 2002 when compared to the same period in 2001. In connection with the Company's capacity expansion plans (See "Liquidity and Capital Resources") approximately $ 1.0 million of interest was capitalized during the fist six months of 2002. Consolidated income taxes The Company's effective income tax rate was 34.5% and 35.0% during the first six-months of 2002 and 2001, respectively. 16 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 entered into a settlement agreement with the U.S. Navy regarding soil and groundwater remediation at the Company's manufacturing facility in York, Pennsylvania and has been conducting environmental investigation and remediation activities at the facility working with the Pennsylvania Department of Environmental Protection. Recently, the United States Environmental Protection Agency (EPA) advised the Company that it considers some of the Company's remediation activities at the facility to be subject to the EPA's corrective action program and offered the Company the option of addressing corrective action under a facility lead agreement. The Company has agreed to participate in EPA's corrective action program. The Company currently estimates that it will incur approximately $5.0 million of future response costs related to all remediation efforts at the facility.(1) The Company has established reserves for this amount. The Company's estimate of future response costs is based on reports of independent 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 several 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 that has the sole purpose of meeting environmental compliance obligations. The Company anticipates that capital expenditures during 2002 for equipment used to limit hazardous substances/pollutants will be approximately $10.0 million. This estimate includes expenditures to be made in connection with the Company's current capacity expansion plans described in the "Liquidity and Capital Resources" section. 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) 17 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 $427.2 million of cash from operating activities during the first half of 2002 compared to $357.3 million in the first half of 2001. The largest component of cash from operating activities is net income, which was approximately $264.3 million in the first half of 2002 compared to $207.7 million in the first half of 2001. Cash provided by operating activities is also impacted by changes in other current assets and liabilities. Changes in these balances increased/(decreased) operating cash flows by approximately $49.1 million and $40.1 million during the first half of 2002 and 2001, respectively. First half changes in working capital during 2002 and 2001 consisted of the following (in millions): Six-months ended ------------------------------ June 30, June 24, 2002 2001 -------- -------- Accounts receivable, net $ (31.9) $ (38.5) Inventories (22.1) 14.3 Other (11.2) (5.0) Accounts payable/Accrued expenses 114.3 69.3 ------- ------- $ 49.1 $ 40.1 ======= ======= The 2002 first half change in accounts receivable of $31.9 million was driven primarily by higher accounts receivable balances in Europe. HDFS currently offers wholesale financing to the Company's European motorcycle dealers through a joint venture with another finance company. During 2001, HDFS exercised its option to terminate the joint venture effective August 2002 at which time HDFS will begin directly serving the wholesale financing needs of the Company's European dealers. As the Company prepares for the transition from the joint venture to HDFS, fewer accounts receivable have been financed through the joint venture in 2002 resulting in a temporary increase in European accounts receivable balances. Upon completion of this transition, HDFS' finance receivables are expected to increase and European accounts receivable are expected to decrease. Inventory balances increased in the first half of 2002 as a result of the Company's decision to begin production of its model year 2003 motorcycles earlier in the year. Historically, the Company has not produced new model year motorcycles until the beginning of the third quarter. At June 30, 2002, approximately 3,000 model year 2003 motorcycles were held in inventory and subsequently shipped following the introduction of the model year 2003 motorcycles at the Company's Dealer meeting in July. Accounts payable and accrued expenses increased $114.3 million in the first half of 2002. The increase relates primarily to increased unit volumes and higher accrued income taxes during the first half of 2002. Capital expenditures were $122.5 million and $92.1 million during the first half of 2002 and 2001, respectively. During 2002, the Company continued work on its capacity expansion efforts that are taking place at several of the Company's existing facilities. These plans include a 350,000 square foot expansion at the Company's York, Pennsylvania assembly facility; a 60,000 square foot expansion at the Company's Tomahawk, Wisconsin facility; and a 165,000 square foot addition to the Company's Product Development Center in Wauwatosa, Wisconsin. The Company began its investment in these plans during 2001 and will continue to invest capital related to these plans during 2002 and 2003. The Company estimates that total capital expenditures required in 2002 will be in the range of $270 to $300 million.(1) The Company anticipates it will have the ability to fund all capital expenditures in 2002 with internally generated funds.(1) 18 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 $437.2 million of commercial paper was outstanding at June 30, 2002. Subject to limitations discussed below, HDFS may issue up to $750 million of short-term commercial paper with maturities up to 270 days. HDFS has a $350 million revolving credit facility due in 2005 and a $400 million 364-day revolving credit facility due September 2002 with approximately $60.6 million outstanding at June 30, 2002. The Company expects the $400 million credit facility expiring in September 2002 will be renewed and believes that suitable financing alternatives exist should the facility not be renewed. The primary uses of the credit facilities are to provide liquidity to the unsecured commercial paper program and to fund HDFS' business operations. Under the terms of the credit facilities, commercial paper outstanding cannot exceed liquidity support provided by the unused portion of the combined $750 million credit facilities. Accordingly, at June 30, 2002, HDFS had aggregate remaining availability under these existing facilities of $252.1 million. At June 30, 2002, HDFS had $30 million of senior subordinated notes outstanding, expiring in 2007. In connection with its various debt agreements, HDFS has various operating and financial covenants and was in compliance with all such covenants at June 30, 2002. The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with certain financial support 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. HDFS currently offers wholesale financing to the Company's European motorcycle dealers through a joint venture with another finance company. The joint venture partner provides the majority of the capital for the European wholesale lending program. During 2001, HDFS exercised its option to terminate the joint venture effective August 2002 at which time HDFS will begin directly serving the wholesale financing needs of the Company's European dealers. Upon termination of the joint venture, HDFS has the option to purchase the then outstanding portfolio of dealer wholesale loans. Outstanding wholesale loans to European dealers held by the joint venture at June 30, 2002 were approximately $30 million. Outstanding European accounts receivable held by the Motorcycles segment at June 30, 2002 were approximately $97.9 million. During July 2002, HDFS entered into a three year $200 million revolving credit facility. The primary purpose of the $200 million credit facility is to fund HDFS' European business operations. The Company expects future activities of HDFS will be financed from internally generated funds, securitization programs, commercial paper, revolving credit facilities, continuation of its subordinated debt, redeemable preferred stock, and advances or loans from the Company.(1) 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. The Company repurchased 1,089,000 shares of its common stock during the first half of 2002 under the latter authorization. There were no shares repurchased during the first half of 2001. The Company declared a $.035 per share dividend during the second quarter of 2002, payable June 21, 2002 to shareholders of record as of June 11, 2002. 19 Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------- ---------------------------------------------------------- The Company is exposed to market risk from changes in foreign exchange and interest rates. To reduce such risks, the Company selectively uses financial instruments. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for trading purposes. Sensitivity analysis is used to manage and monitor foreign exchange and interest rate risk. Refer to the notes to the consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2001 for a discussion of the Company's accounting policies and additional disclosure related to derivative financial instruments. The Company's earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies, predominately in European countries and Japan, as a result of the sales of its products in foreign markets. Forward foreign exchange contracts are used to hedge against the earnings effects of Euro fluctuations. At June 30, 2002 these contracts represented a combined U.S. dollar equivalent of approximately $255.1 million. A uniform 10% strengthening in the value of the dollar relative to the currency underlying these contracts would have resulted in a decrease in the fair market value of the contracts of approximately $27.0 million at June 30, 2002. In accordance with SFAS No. 133, the Euro contracts, which are highly effective at June 30, 2002, are designated as cash flow hedges, and gains and losses that result from changes in the fair value are initially recorded in other comprehensive income and subsequently reclassified into earnings when the hedged transaction affects income. HDFS' earnings are affected by changes in short-term interest rates as a result of securitization transactions, borrowings under bank credit facilities and the issuance of commercial paper. HDFS utilizes interest rate swap agreements to reduce the impact of fluctuations in interest rates. During the three-months ended June 30, 2002, HDFS entered into interest rate swap agreements with a notional value of $142.6 million. Based on June 30, 2002 balances, HFDS estimated that a 1% decrease in short-term interest rates would have resulted in a decrease in the fair market value of the agreements of approximately $3 million. In accordance with SFAS No. 133, the agreements, which are highly effective as of June 30, 2002, are designated as cash flow hedges, and gains and losses that result from changes in the fair value are initially recorded in other comprehensive income and subsequently reclassified into earnings when the hedged transaction affects income. (1) Note regarding forward-looking statements ------------------------------------------ The Company intends that certain matters discussed in this report 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. 20 Part II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- In January 2001, the Company, on its own initiative, notified each owner of 1999 and early-2000 model year Harley-Davidson motorcycles equipped with Twin Cam 88 and Twin Cam 88B engines that the Company was extending the warranty for a rear cam bearing to 5 years or 50,000 miles. Subsequently, on June 28, 2001, a putative nationwide class action was filed against the Company in state court in Milwaukee County, Wisconsin, which was amended by a complaint filed September 28, 2001. The complaint alleged that this cam bearing is defective and asserted various legal theories. The complaint sought unspecified compensatory and punitive damages for affected owners, an order compelling the Company to repair the engines and other relief. The Company filed a motion to dismiss the amended complaint, and on February 27, 2002, the motion was granted by the court and the amended complaint was dismissed in its entirety. An appeal has been filed and is currently pending in the Wisconsin Court of Appeals. On April 12, 2002, the same attorneys filed a second putative nationwide class action against the Company in state court in Milwaukee County, Wisconsin relating to this cam bearing issue and asserting different legal theories than in the first action. The complaint seeks unspecified compensatory damages, an order compelling the Company to repair the engines and other relief. The Company intends to vigorously oppose nationwide class certification and defend the action and has filed a motion to dismiss the complaint in its entirety. The Company believes that the warranty extension it announced in January 2001 adequately addresses the condition for affected owners. The Company has established reserves for this extended warranty. 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 Note 6 of the Notes to Condensed Consolidated Financial Statements for additional information on the environmental matters. Item 4. Submission of Items to a Vote of Security Holders - ---------------------------------------------------------- (a) The Company's Annual Meeting of Shareholders was held on May 4, 2002. (b) At the Company's Annual Meeting of Shareholders, the following directors were elected for terms expiring in 2005 by the vote indicated: Shares Shares Voted in Withholding Favor of Authority -------- ----------- George H. Conrades 261,654,693 1,410,016 Sara L. Levinson 258,378,883 4,685,826 (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 Withheld ----------- ---------- -------- Ratification of Ernst & Young LLP as the Company's independent auditors 249,493,004 13,072,254 499,451 There were no broker non-votes with respect to the foregoing matters. 21 Item 5. Other Information. - --------------------------- In each of 1999, 2000 and 2001, the Company's subsidiary HDFS paid premiums of $112,914 under a Split Dollar Agreement for the benefit of Donna F. Zarcone, who is currently the President and Chief Operating Officer of HDFS. In the Company's proxy statement for its annual meeting of shareholders held May 4, 2002, which the Company filed on Schedule 14A on March 25, 2002, the Company inadvertently failed to disclose HDFS' payment of these premiums as part of "All Other Compensation" paid to Ms. Zarcone in each of these years. The Split Dollar Agreement is filed as Exhibit 10.4 to this report. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits -------- 10.1 Deferred Long-Term Incentive Plan approved May 4, 2002 10.2 Director Compensation Policy effective May 4, 2002 10.3 1998 Director Stock Plan as amended May 4, 2002 10.4 Split Dollar Agreement between HDFS and the Donna Josephine Frett Zarcone Irrevocable Trust dated March 30, 1999 99.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. s.1350 99.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. s.1350 (b) Reports on Form 8-K ------------------- None 22 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: 8/12/02 by: /s/ James L. Ziemer --------------------------------------- James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) Date: 8/12/02 by: /s/ James M. Brostowitz --------------------------------------- James M. Brostowitz Vice President, Controller (Principal Accounting Officer) and Treasurer 23 HARLEY-DAVIDSON, INC. Exhibit Index to Form 10-Q Exhibit Number - ------- 10.1* Deferred Long-Term Incentive Plan approved May 4, 2002 10.2* Director Compensation Policy effective May 4, 2002 10.3* 1998 Director Stock Plan as amended May 4, 2002 10.4 Split Dollar Agreement between HDFS and the Donna Josephine Frett Zarcone Irrevocable Trust dated March 30, 1999 99.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. s.1350 99.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. s.1350 *Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participates. 24 EX-10.1 3 sdc169b.txt DEFERRED LONG-TERM INCENTIVE PLAN Exhibit 10.1 Deferred Long-Term Incentive Plan (the "Plan") 1. General. Mr. Bleustein will be entitled to receive up to $5,000,000 in the aggregate under the Plan (excluding the investment component discussed below) in respect of performance during years 2002 through 2006. (a) Subject to the maximum $5,000,000 aggregate award ("Maximum Aggregate Award"), there is no maximum amount that Mr. Bleustein may receive under the Plan in respect of any year. 2. Goals. Mr. Bleustein's entitlement to all or any portion of the Maximum Aggregate Award will be contingent upon performance relative to goals focusing on Company performance and/or individual performance. (a) The Human Resources Committee (the "Committee") will, in its discretion, establish the goals, determine the level of performance relative to the goals and determine the amount, if any, of the Maximum Aggregate Award to which Mr. Bleustein is entitled based on that performance. (b) The goals may be subjective or objective in nature. (c) The Committee will establish the goals and communicate them to Mr. Bleustein at its discretion. (d) At any time, and from time to time, the Committee will determine the level of performance relative to goals it has established and the amount, if any, of the Maximum Aggregate Award to which Mr. Bleustein is entitled and promptly communicate its determination to Mr. Bleustein. 3. Accounting / Investment. The Company will establish a bookkeeping account for Mr. Bleustein for purposes of the Plan (the "Account") the initial balance of which is zero (0). (a) At such time as the Committee determines that Mr. Bleustein is entitled to all or any portion of the Maximum Aggregate Award, the Company shall credit to the Account the amount that the Committee has so determined. The credit shall be deemed made as of the date of the Committee's determination or such other date that the Committee designates. (b) In addition, as of the end of each calendar quarter, the Company shall credit the Account with an amount equal to the product of (i) the average month-end Account balance over the course of that quarter and (ii) Moody's Long Term Bond Rate (the "Interest Rate") for the year applied on a quarterly basis. 4. Payment. As soon as practicable after commencement of the Company's taxable year following the taxable year in which Mr. Bleustein ceases to be an employee of the Company (or, if remuneration to Mr. Bleustein would be subject to the limitation set forth in Section 162(m) of the Internal Revenue Code as a result of payment at such time, then on the earliest later date on which the Company may make such payment such that no remuneration to Mr. Bleustein would be subject to such limitation), the Company shall pay to Mr. Bleustein, in cash, the amount of the balance in the Account. (a) Mr. Bleustein may elect, prior to January 1 of the year payments under the Plan are otherwise to commence, to receive payment in either equal [annual] installments up to a maximum of fifteen (15) years or in a single lump sum cash payment. Mr. Bleustein may similarly change his benefit payment election at any time prior to January 1 of the year payments under the Plan are otherwise to commence. If no valid election is in effect, then payment of the Account shall be made in a lump sum. (b) If payment is made in installments, then the amount to be distributed annually is determined by multiplying the aggregate balance of the Account by a fraction, the numerator of which is one (1) and the denominator of which is the number of years remaining for the payments to be made (e.g., 1/10, 1/9, 1/8 etc.). Additional earnings are to be credited to the Account during the installment payment period in the same way earnings are credited while Mr. Bleustein is employed. In the event of Mr. Bleustein's death before payment in full is completed, any remaining amount will be paid to his designated beneficiary, or as otherwise provided in paragraph 7(d), in accordance with the payment method in effect at death. The recipient may elect lump sum payment subject to Committee consent. 5. Termination of Employment Due to Death or Disability. Upon Mr. Bleustein's death or disability prior to termination of employment, and before any payments have been made, the Company will pay to Mr. Bleustein or his designated beneficiary, or as otherwise provided in paragraph 7(d), as compensation for services rendered prior to the date of his death or disability, a benefit equal to the balance in the Account measured as of the date his death or disability occurred. 6. Change in Control. The aggregate balance of the Account (whether he remains employed, his employment is terminated, or the Account is in payment status) shall be paid out to Mr. Bleustein within ten (10) business days after the occurrence of a Change of Control Event (as such term is defined in the Company's Deferred Compensation Plan). If payment is delayed beyond such payment deadline for any reason, then the balance to be paid out shall become fixed as of such tenth (10th) day, except that such amount shall be increased in an amount equivalent to interest on such fixed amount, to the date of actual payment, at a rate equal to two times the Interest Rate. 7. Miscellaneous. (a) The Company may deduct from non-deferred compensation any taxes it is required to withhold on amounts credited to the Account unless such amounts are withheld directly from the amount credited to the Account. The Company will withhold from all payments all required taxes. 2 (b) The Account is a means of measuring the value of Mr. Bleustein's compensation under the Plan. The Account does not create a trust fund of any kind. Any assets earmarked by the Company to pay benefits under the Plan do at all times remain assets of the Company. Mr. Bleustein has no property interest in specific assets of the Company because of the Plan. The rights of Mr. Bleustein, his beneficiary, or an estate to benefits under the Plan shall be solely those of an unsecured creditor of the Company. (c) Following the close of each year the Company will provide a statement of account to Mr. Bleustein. The Account shall be maintained, reported, and distributed in United States Dollars. (d) All payments by the Company will be made to Mr. Bleustein, if he is living. If Mr. Bleustein has died, then any payment under the Plan will be made to his designated beneficiary, which may include multiple beneficiaries. If such beneficiary dies before receiving all payments due such beneficiary, then any remaining payments will be made to the designated beneficiary's estate unless a contingent beneficiary was designated by Mr. Bleustein as to such amounts. If there is a contingent beneficiary, then payments will be made to the contingent beneficiary, and if such contingent beneficiary dies, then any remaining payments will be made to the contingent beneficiary's estate. If there is no beneficiary designation in force when amounts become payable upon Mr. Bleustein's death, then payment shall be to Mr. Bleustein's spouse, or if no spouse is then living, to Mr. Bleustein's estate. (e) The right of Mr. Bleustein to payment under the Plan shall not be assigned, transferred, pledged, or encumbered. (f) The Plan may not be construed as giving Mr. Bleustein the right to be retained as an employee of the Company or any of its subsidiaries or affiliates. 8. 401(k) Matching Contribution Make Up Amounts. The Company will not credit to the Account a Company matching contribution on amounts credited to the Account under paragraph 3(a) in the same relative amount as is made to Mr. Bleustein's pretax savings account in the Harley-Davidson Retirement Savings Plan on amounts Mr. Bleustein has elected to defer under that plan. 9. Status Under SERP and Pension Benefit Restoration Plan. Amounts credited to the Account under paragraph 3(a) shall be included in the determination of "earnings" and "Final Average Earnings" under the Supplemental Executive Retirement Plan and Pension Benefit Restoration Plan in effect for Mr. Bleustein as amounts "contributed as a pretax contribution to a nonqualified plan of deferred compensation maintained by" the Company, with such contribution deemed to occur as of the date of the credit. 3 EX-10.2 4 sdc169c.txt DIRECTOR COMPENSATION POLICY Exhibit 10.2 HARLEY-DAVIDSON, INC. Director Compensation Policy Effective May 4, 2002 I. Monetary Compensation Annual Retainer for Directors........................................ $30,000 Annual Retainer for Committee Chair.................................. $ 5,000 Regular Board Meeting (quarterly plus one telephonic) ............... $ 1,500 Special Board Meetings............................................... $ 750 Human Resources Committee Meetings................................... $ 750 Audit Committee Meetings............................................. $ 750 Nominating and Director Affairs Committee Meetings................... $ 750 The Annual Retainers, Regular Board Meeting fees and Committee Meeting fees are generally paid within one (1) month of the date of the Annual Meeting of Shareholders, the date of each Regular Board Meeting and the date of each Committee Meeting, respectively, unless the director has chosen to defer his/her compensation. Payment will be made for no more than two Committee meetings in connection with a Board meeting. No payment will be made for a written consent action in lieu of a meeting. No payment will be made for Committee meetings that last ten minutes or less when held in connection with a Board meeting. No payments will be made to directors who are employees of the Company or who have waived their right to receive the compensation described above. RESOLVED, that the Annual Retainer Fee and Committee Chair Retainer Fee paid by the Company to its Outside Directors be payable, in whole or in half, at the election of each Outside Director in shares of Common Stock, par value $.01 per share, of the Corporation pursuant to, and in accordance with, the terms of the 1998 Director Stock Plan.* II Additional Compensation a. Option Grants - Each Outside Director who serves as a member of the Board immediately following an annual meeting of shareholders of the Company shall automatically be granted on the first business day after such meeting an Option for the purchase of such number of shares of Common Stock (rounded up to the nearest multiple of 100) whose Fair Market Value on the Grant Date shall be three times the Optionee's Annual Retainer Fee for Directors.* b. Clothing Allowance - Each Outside Director shall receive an annual clothing allowance of $1,000 to purchase Harley-Davidson MotorClothes(R) apparel and accessories. c. Product Discount - Each Outside Director shall receive a discount on Company products that is the same discount available to all employees of the Company. - -------- * Capitalized terms not otherwise defined in this paragraph shall have the meanings given them in the 1998 Director Stock Plan. EX-10.3 5 sdc169d.txt 1998 DIRECTOR STOCK PLAN Exhibit 10.3 HARLEY-DAVIDSON, INC. 1998 DIRECTOR STOCK PLAN As Amended ARTICLE I Purpose The purpose of the Harley-Davidson, Inc. 1998 Director Stock Plan is to provide favorable opportunities for non-employee directors of Harley-Davidson, Inc. to purchase shares of Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these directors to contribute to the future success and prosperity of Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit of the shareholders, and increasing the ability of Harley-Davidson, Inc. to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained growth and profitability depend. ARTICLE II Definitions The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1. Annual Retainer Fee: The annual retainer fee then in effect for service on the Board as voted by the Board, exclusive of (a) any Board or committee meeting fees and (b) any Committee Chair Retainer Fees. 2.2. Board: The Board of Directors of the Company. 2.3. Code: The Internal Revenue Code of 1986, as amended. 2.4. Committee: The Human Resources Committee of the Board; provided that if any member of the Human Resources Committee is not a Disinterested Person, the Committee shall be comprised of only those members of the Human Resources Committee who are Disinterested Persons. 2.5. Committee Chair Retainer Fee: The annual retainer fee then in effect for service as chairman of a committee of the Board as voted by the Board. 2.6. Common Stock: The common stock of the Company. 2.7. Company: Harley-Davidson, Inc. 2.8. Disinterested Persons: Non-employee directors within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended. 2.9. Fair Market Value: The average of the high and low reported sales prices of Common Stock on the New York Stock Exchange Composite Tape on the date for which fair market value is being determined. 2.10. Option: A stock option granted under the Plan. 2.11. Option Price: The purchase price of a share of Common Stock under an Option. 2.12. Optionee: A person who has been granted one or more Options. 2.13. Outside Director: Each member of the Board who is not also an employee of the Company or any Subsidiary (including members of the Committee). 2.14. Plan: The Harley-Davidson, Inc. 1998 Director Stock Plan. 2.15. Share Election: An election by an Outside Director to receive either 0%, 50% or 100% of his or her Annual Retainer Fee and his or her Committee Chair Retainer Fee (if any) to be paid in each calendar year in the form of Common Stock, with the receipt of such shares of Common Stock to be in lieu of any cash payment for that portion of his or her Annual Retainer Amount and Committee Chair Retainer Fee (if any). 2.16. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by the Company. 2.17. Termination Date: The day preceding the tenth anniversary of the date on which the Option is granted. ARTICLE III Administration 3.1. The Committee: The Committee shall administer the Plan and shall have full power to construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. 2 3.2. Actions Final: Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. ARTICLE IV Shares Subject to the Plan 4.1. The total number of shares of Common Stock available for delivery under the plan shall be 200,000. The foregoing amount shall be subject to adjustment in accordance with Article VIII of the Plan. If an Option or portion thereof shall expire, be canceled or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Options shall be available for future grants of Options. Shares of Common Stock to be delivered under the Plan shall be made available solely from authorized and issued shares of Common Stock reacquired and held as treasury shares. In no event shall the Company be required to deliver fractional shares of Common Stock under the Plan. Whenever under the terms of the Plan a fractional share of Common Stock would otherwise be required to be delivered, there shall be delivered in lieu thereof one full share of Common Stock. ARTICLE V Eligibility 5.1. Only Outside Directors shall be entitled to participate in the Plan. ARTICLE VI Options 6.1. Option Grants: Each Outside Director who serves as a member of the Board immediately following an annual meeting of shareholders of the Company shall automatically be granted on the first business day after such meeting (the "Grant Date") an Option for the purchase of such number of shares of Common Stock (rounded up to the nearest multiple of 100) whose Fair Market Value on the Grant Date shall equal three (3) times the Optionee's Annual Retainer Fee. Each such Option shall be in addition to, and not in lieu of, the Optionee's Annual Retainer Fee and Committee Chair Retainer Fee (if any). 6.2. Option Agreements: All Options shall be evidenced by written agreements executed by the Company. Such options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. 3 6.3. Option Price: The Option Price shall be the Fair Market Value of a share of Common Stock on the Grant Date. 6.4. Period of Exercise: Options shall be exercisable from and after the Grant Date and shall terminate one year after the Optionee ceases to serve as a member of the Board for any reason, except that as to any Optionee who is removed from the Board for cause in accordance with the Company's Restated Articles of Incorporation, the Options held by the Optionee shall terminate immediately on such removal. In any event, no Option or portion thereof shall be exercisable after the Termination Date. 6.5. Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: a. in United States dollars in cash or check, bank draft or money order payable to the order of the Company, b. through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, c. by delivery (including by fax) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares of Common Stock and deliver the sale or margin loan proceeds directly to the Company to pay for the exercise price, or d. by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6. Nontransferability of Options: Except as may be otherwise provided by the Committee, each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 4 ARTICLE VII Share Election 7.1. Election:. At any time and from time to time each Outside Director may make a Share Election. An Outside Director's Share Election (i) must be in writing and delivered to the Secretary of the Company, (ii) shall be effective commencing on the date the Secretary receives the Share Election or such later date as may be specified in the Share Election, and (iii) shall remain in effect unless modified or revoked by a subsequent Share Election in accordance with the provisions hereof. If an Outside Director elects (or is deemed to have elected) to receive only 50% of his or her Annual Retainer Amount and Committee Chair Retainer Fee (if any) in the form of shares of Common Stock, then the remaining 50% shall be paid in cash. If an Outside Director has not made a Share Election, the Director will be deemed to have made a Share Election to receive 50% of his or her Annual Retainer Fee in the form of Common Stock. 7.2. Transfer of Shares: Shares of Common Stock issuable to an Outside Director pursuant to a Share Election shall be transferred to such Outside Director as of the first business day following each annual meeting of the shareholders of the Company. The total number of shares of Common Stock to be so transferred shall be determined by dividing (x) the dollar amount of the Annual Retainer Fee plus the Committee Chair Retainer Fee (if any) payable for the applicable year to which the Share Election applies, by (y) the Fair Market Value of a share of Common Stock on the first business day following each annual meeting of the shareholders of the Company. 7.3. Annual Retainer Fee Deferral: If an Outside Director has elected to defer receipt of some or all of his or her Annual Retainer Fee and/or Committee Chair Retainer Fee, then such election to defer receipt shall apply only to that portion, if any, of his or her Annual Retainer Fee and/or Committee Chair Retainer Fee payable in cash. ARTICLE VIII Adjustments 8.1. If (a) the Company shall at any time be involved in a merger or other transaction in which the Common Stock is changed or exchanged; or (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgement of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in such manner as it may deem equitable, adjust any or all of (i) the number and type of securities subject to the Plan; (ii) the number and type of securities subject to outstanding Options; and (iii) the Option Price with respect to any Option; provided, however, that Options subject to grant or previously granted to Optionees under the Plan at the 5 time of any such event shall be subject to only such adjustment as shall be necessary to maintain the proportionate interest of the Optionee and preserve, without exceeding, the value of such Options. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX Amendment and Termination of Plan 9.1. General Powers: The Board of Directors may at any time terminate or suspend the Plan. Subject to applicable limitations set forth in New York Stock Exchange rules, the Code or Rule 16b-3 under the Securities Exchange Act of 1934, the Board of Directors may amend the Plan as it shall deem advisable including (without limiting the generality of the foregoing) any amendments deemed by the Board of Directors to be necessary or advisable to assure conformity of the Plan with any requirements of state and federal laws or regulations now or hereafter in effect; provided, however, that the Board of Directors may not amend either the provisions of Section 6.1 or the amount of the Annual Retainer Fee more often than once in any six month period or more often than once in any calendar year. 9.2. No Impairment: No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. ARTICLE X Government and Other Regulations 10.1. The obligation of the Company to issue or transfer and deliver shares of Common Stock under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded. ARTICLE XI Miscellaneous Provisions 11.1. Plan Does Not Confer Shareholder Rights: Neither an Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a shareholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2. Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3. Use of Exercise Proceeds: Payment received from Optionees upon the 6 exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company's treasury and reissued. 11.4. Indemnification: In addition to such other rights of indemnification as they may have as members of the Board or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act in connection with the adoption, administration, amendment or termination of the Plan, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. 11.5. Withholding Taxes: The Company may, in its discretion, require an Outside Director to pay to the Company at the time of exercise of an Option or issuance of Common Stock under the Plan the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income, FICA or other taxes incurred by the reason of the exercise or issuance. Upon or prior to the exercise of an Option or receipt of Common Stock requiring tax withholding, an Outside Director may make a written election to have shares of Common Stock withheld by the Company from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such election by an Optionee shall be at the sole discretion of the Committee. ARTICLE XII Effective Date 12.1. The Plan became effective on May 2, 1998. Options may not be granted under the Plan after May 2, 2008. The Plan, as amended, shall become effective on May 4, 2002. 7 EX-10.4 6 sdc169g.txt SPLIT DOLLAR AGREEMENT SPLIT DOLLAR AGREEMENT THIS AGREEMENT is made and entered into this 30th day of March, 1999, by and between EAGLEMARK FINANCIAL SERVICES, INC., a Delaware corporation, of Chicago, Illinois (the "Company"), and PHILLIP CHARLES ZARCONE, not individually but as Trustee of the DONNA JOSEPHINE FRETT ZARCONE IRREVOCABLE TRUST DATED MARCH 30, 1999 (the "Owner"), of Burr Ridge, Illinois. WHEREAS, the Owner will become the owner of a policy of insurance on the life of Donna Josephine Frett Zarcone (the "Insured") issued by Pacific Life Insurance Company (the "Insurer") in the initial face amount of $2,700,000 with annual premiums of $112,914 (the "Policy"). WHEREAS, the Company will pay the premiums for the Policy as provided herein. WHEREAS, the Insured is a valuable employee of the Company, the Company wishes to continue this employment relationship and, as an inducement thereto, is willing to assist the Owner in the payment of future premiums on the Policy as provided herein. WHEREAS, in exchange for such premium assistance, the Owner is willing to return to the Company an amount equal to the cumulative total of the premiums paid by the Company on the Policy (its "Policy Interest") as provided herein. NOW THEREFORE, for value received it is mutually agreed as follows: 1. From the date of this Agreement until the third anniversary of the date of this Agreement (the "Initial Period"): A. The Company shall pay timely all premiums on the Policy and provide written evidence thereof to the Owner. B. If the insured dies during the Initial Period, an amount of the proceeds of the Policy equal to the Company's Policy Interest shall be paid to the Company and the balance of the proceeds shall be paid to the Owner. C. If the Insured leaves the employ of the Company during the Initial Period, within 90 days after the Insured leaves the employ of the Company the Owner shall: (1) Pay to the Company an amount equal to the Company's Policy Interest and the Company will release to the Owner its Collateral Interest (as defined in paragraph 3) in the Policy, or (2) Assign to the Company all of the Owner's ownership and other rights in the Policy. 2. From the date of the third anniversary of the date of this Agreement until the termination of this Agreement (the "Second Period"): A. The Company shall pay timely all premiums on the Policy and provide written evidence thereof to the Owner, provided, however, that the Company shall have no obligation to pay premiums after its payment of the seventh (7th) annual premium. B. If the Insured dies during the Second Period, an amount of the proceeds of the Policy equal to the Company's Policy Interest shall be paid to the Company and the balance of the proceeds shall be paid to the Owner. C. If the Insured leaves the employ of the Company during the Second Period, within 90 days after the Insured leaves the employ of the Company the Owner shall: (1) Provide written notice to the Company for the Company to, and the Company shall, execute a written release to the Owner of the Company's Collateral Interest in the Policy, or (2) Assign to the Company all of the Owner's ownership and other rights in the Policy. 3. In consideration of the Company's payment of premiums as provided herein and in consideration of the Company's other obligations hereunder, the Owner hereby assigns to the Company the following Collateral Interest: The right to realize against the proceeds of the Policy, to the extent of the Company's Policy Interest, in the event of the death of the Insured. The Owner shall execute such further documentation of this assignment (including documents filed with the Insurer) as reasonably requested by the Company. In the event of the death of the Insured, the benefits under the Policy may be paid by the Insurer either by separate checks to the Owner and to the Company, or by a joint check. In the latter instance, the Owner and the Company shall divide the proceeds as provided herein. 4. Except as otherwise provided in this Agreement, the Owner shall be the sole and exclusive owner of the Policy. This includes all the rights of "owner" under the terms of the Policy including, but not limited to, the right to designate beneficiaries, to select settlement and dividend options, and to surrender the Policy. All such rights may be exercised by the Owner without the Company's consent. Any provision of this paragraph to the contrary notwithstanding, the Owner shall not borrow the cash value of the Policy or borrow using the Policy as collateral. 5. The Owner shall have the right to assign any part or all of the Owner's retained interest in the Policy and this Agreement to any person, entity or trust by execution of a written assignment delivered to the Insurer and to the Company. 2 6. This Agreement shall terminate on the first to occur of the following: A. Surrender of the Policy by the Owner, who has the sole and exclusive right of surrender. B. Delivery by the Owner of written notice of termination to the Company. In the event of termination during the Initial Period, the provisions of the subparagraph 1.C shall apply. In the event of termination during the Second Period, the provisions of subparagraph 2.C shall apply. 7. This Agreement may be amended only in writing, signed by the Owner and an officer of the Company other than the Insured. 8. Any notice or writing hereunder shall be in writing and hand delivered or mailed, postage pre-paid, certified or registered mail, return receipt requested. Any notice that is mailed from the Company to the Owner shall be mailed to the most recent address of the Owner that is on file with the Company. The Owner shall promptly notify the Company of any change of address. Any notice that is mailed from the Owner to the Company shall be mailed to the Company's principal office. 9. This Agreement contains the entire understanding of the parties with regard to the subject matter, and the parties acknowledge that there are no representations, warranties or covenants of either party, express or implied, except as expressly set forth herein. 10. This Agreement shall bind and benefit the parties hereto and their successors and assigns. 11. The failure of either party to complain of any act or omission on the part of the other party or any waiver, express or implied, or any breach of any of the provisions of this Agreement, shall not be deemed a waiver of the party's right to complain of any subsequent act, omission or breach. 12. The invalidity of any provision of this Agreement, as determined by a court of competent jurisdiction, shall in no way affect any other provision of this Agreement as long as the performance by either party of its obligations under this Agreement is not eliminated by such determination. 13. This Agreement shall be executed in duplicate, and both copies of the Agreement shall be deemed originals. 3 14. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. IN WITNESS WHEREOF, the parties have signed this Agreement on the date first above written. EAGLEMARK FINANCIAL SERVICES, INC. By /s/ Steven F. Deli ---------------------------------- Its Chairman and CEO ----------------------------- DONNA JOSEPHINE FRETT ZARCONE IRREVOCABLE TRUST DATED MARCH 30, 1999 By /s/ Phillip Charles Zarcone ------------------------------------- Phillip Charles Zarcone, not individually, but as Trustee 4 EX-99.1 7 sdc169e.txt WRITTEN STATEMENT OF CEO Exhibit 99.1 Written Statement of the Chief Executive Officer Solely for the purpose of complying with 18 U.S.C. s.1350, I, the undersigned Chief Executive Officer of Harley-Davidson, Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated August 12, 2002. by: /s/ Jeffrey L. Bleustein -------------------------------------- Jeffrey L. Bleustein Chief Executive Officer EX-99.2 8 sdc169f.txt WRITTEN STATEMENT OF CFO Exhibit 99.2 Written Statement of the Vice President and Chief Financial Officer Solely for the purpose of complying with 18 U.S.C. s.1350, I, the undersigned Vice President and Chief Financial Officer of Harley-Davidson, Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated August 12, 2002. by: /s/ James L. Ziemer ------------------------------------ James L. Ziemer Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----