-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kv+wQIa6sSHSWn1fh2McAIxw6CqV20OnMjbCaDPLE15dEjyiVZTNgDgpsMIvSrJh XpWU+0SwWbb+t7My39WnbA== 0000897069-95-000047.txt : 19950511 0000897069-95-000047.hdr.sgml : 19950511 ACCESSION NUMBER: 0000897069-95-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950326 FILED AS OF DATE: 19950509 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEY DAVIDSON INC CENTRAL INDEX KEY: 0000793952 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 391382325 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09183 FILM NUMBER: 95535590 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 HARLEY-DAVISON, INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 26, 1995 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) (414) 342-4680 (Registrant's telephone number, including area code) 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 May 5, 1995: 74,749,048 Shares HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended March 26, 1995 Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II. Other Information Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit Index 15 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 March 26, March 27, 1995 1994 Sales $389,689 $343,705 Cost of goods sold 285,092 253,416 ------- --------- Gross profit 104,597 90,289 Selling, administrative and engineering expenses 65,585 57,169 -------- --------- Income from operations 39,012 33,120 Interest expense - net (377) (311) Other income (expense) - net (1,122) 1,343 --------- --------- Income before provision for income taxes 37,513 34,152 Provision for income taxes 13,875 13,320 ---------- --------- Net income $ 23,638 $ 20,832 ========= ========= Weighted average common shares outstanding 76,060 76,146 ========= ========= Net income per common share $0.31 $0.27 ========= ========= Cash dividends per share $0.04 $0.03 ========= ========= Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) ASSETS March 26, Dec. 31, March 27, 1995 1994* 1994 (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 19,152 $ 59,285 $ 38,593 Accounts receivable, net 171,975 143,396 146,565 Inventories (Note 2) 199,263 173,420 147,097 Deferred income taxes 20,111 20,111 20,296 Prepaid expenses 8,877 9,424 7,882 -------- -------- -------- Total current assets 419,378 405,636 360,433 Property, plant and equipment, net 269,025 262,787 204,916 Deferred income taxes 22,924 22,924 11,676 Other assets 48,619 47,868 33,591 -------- -------- --------- $759,946 $739,215 $610,616 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 47,351 $ 17,890 $ 23,985 Current maturities of long-term debt 282 413 726 Accounts payable 69,035 63,988 55,366 Accrued expenses and other 134,100 133,987 113,648 --------- --------- --------- Total current liabilities 250,768 216,278 193,725 Postretirement health care benefits 61,273 60,283 56,356 Other long-term liabilities 31,602 29,422 14,307 Contingencies (Note 4) Shareholders' equity: Common stock 772 772 385 Additional paid-in capital 151,226 150,728 140,187 Retained earnings 303,593 283,010 207,960 Cumulative foreign currency translation adjustment 3,380 1,174 599 -------- -------- -------- 458,971 435,684 349,131 Less treasury stock, at cost (41,869) (1,581) (1,582) Unearned compensation (799) (871) (1,321) -------- ------- --------- Total shareholders' equity 416,303 433,232 346,228 --------- -------- --------- $759,946 $739,215 $610,616 ======== ======== ========== *Condensed from audited financial statements. Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three months ended March 26, March 27, 1995 1994 Cash flows from operating activities: Net income $23,638 $20,832 Depreciation and amortization 9,994 9,644 Long-term employee benefits 1,805 2,091 (Gain) loss on disposal of long-term assets (84) 11 Equity in net income of joint ventures (43) (432) Change in current assets and current liabilities: Accounts receivable (28,579) (60,534) Inventory (25,843) (6,946) Prepaid expenses 547 1,689 Accounts payable and accrued liabilities 5,160 (379) ------- -------- Net cash used in operating activities (13,405) (34,024) Cash flows from investing activities: Purchase of property and equipment (16,204) (8,748) Other - net 2,644 (688) -------- --------- Net cash used in investing activities (13,560) (9,436) Cash flows from financing activities: Increase (reduction) of long-term debt (48) 183 Net increase in notes payable 29,461 3,405 Dividends paid (3,055) (2,282) Stock repurchases (39,972) - Issuance of stock under employee stock and option plans 446 3,038 --------- -------- Net cash provided by (used in) financing activities (13,168) 4,344 -------- -------- Net decrease in cash and cash equivalents (40,133) (39,116) Cash and cash equivalents: At beginning of period 59,285 77,709 ------- -------- At end of period $19,152 $38,593 ======= ======== HARLEY-DAVIDSON, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation The condensed interim consolidated financial statements included herein have been prepared by Harley-Davidson, Inc. (the "Company") without audit. 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 March 26, 1995 and March 27, 1994, and the results of operations for the three month periods then ended. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. 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, 1994. Note 2 - Inventories The Company values its inventories at the lower of cost, principally using the last-in, first-out (LIFO) method, or market. Inventories consist of the following (in thousands): March 26, Dec. 31, March 27, 1995 1994 1994 Components at the lower of cost, first-in, first-out (FIFO), or market: Raw material & work-in-process $67,294 $70,685 $ 56,965 Finished goods 93,260 69,745 69,068 Parts & accessories 59,240 52,554 37,888 -------- -------- ------- 219,794 192,984 163,921 Excess of FIFO over LIFO 20,531 19,564 16,824 -------- -------- ------- Inventories as reflected in the accompanying condensed consolidated balance sheets $199,263 $173,420 $147,097 ======== ======== ======== Note 3 - Capital Stock On August 17, 1994, The Company's Board of Directors declared a two-for- one stock split effected in the form of a 100 percent stock dividend to shareholders of record on August 29, 1994, payable on September 12, 1994. Outstanding stock options and shares available under option plans have been adjusted to reflect the split. An amount equal to the par value of the shares issued has been transferred from additional paid-in capital to the common stock account. All references to number of shares, except shares authorized, have been adjusted to reflect the stock split on a retroactive basis. The Company announced on March 9, 1995 that it intended to repurchase up to 4 million shares of its outstanding common stock pursuant to authority previously granted by its Board of Directors. During the first quarter, the Company repurchased 1,650,000 shares of its common stock for approximately $40 million. Related to this purchase, the Company borrowed $20 million under a note due June, 1995. Note 4 - Contingencies The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility (the Facility). The Facility was formerly used by the U.S. Navy and AMF (the predecessor corporation of Minstar). The Company purchased the facility from AMF in 1981. Although the Company is not certain as to the extent of the environmental contamination at the Facility, it is working with the Pennsylvania Department of Environmental Resources in undertaking certain investigation and remediation activities. In March 1995, the Company entered into a settlement agreement (the Agreement) with the Navy. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with investigation and remediation activities at the Facility (response costs). The trust will administer the payment of the future response costs at the Facility as covered by the Agreement. The Navy has also agreed to reimburse the Company for response costs the Company had incurred up to the date of the Agreement. In addition, in March 1991 the Company entered into a settlement agreement with Minstar related to certain indemnification obligations assumed by Minstar in connection with the Company's purchase of the Facility. Pursuant to this settlement, Minstar is obligated to reimburse the Company for a portion of its response costs at the Facility. Although substantial uncertainty exists concerning the nature and scope of the environmental remediation that will ultimately be required at the Facility, based on preliminary information currently available to the Company and taking into account the Company's settlement agreement with the Navy and the settlement agreement with Minstar, the Company estimates that it will incur approximately $6 million of net additional response costs at the Facility. The Company has established reserves for this amount. The Company has also put certain of its insurance carriers on notice that it intends to make claims relating to the environmental contamination at the Facility. However, the Company is currently unable to determine the probable amount of recovery available, if any, under insurance policies. The Company has been named as a defendant in a lawsuit filed in late February 1995 by Lorillard Tobacco Company ("Lorillard") in the United States District Court for the Southern District of New York. Lorillard alleges that the Company acted in "bad faith" by attempting to terminate a 1986 license agreement that grants Lorillard the right to use the Harley- Davidson name in the marketing of cigarettes. Lorillard seeks rescission and claims restitutionary damages of $70 million, unspecified lost profits and punitive damages of $250 million; alternatively, it seeks injunctive relief to prevent termination of the license agreement. The Company has denied any wrongdoing and is vigorously contesting Lorillard's claims in this action. The Company filed an answer to the complaint on March 21, 1995, together with a counterclaim seeking to terminate the license agreement. The Company asserts that Lorillard breached the license agreement by failing to verify its financial condition as contractually required, and depleted its assets through dividends to its parent company, Loews, Inc., thereby compromising Lorillard's ability to meet its indemnification obligations to the Company. The Company also disputes Lorillard's entitlement to punitive damages under governing law and to restitutionary damages, based on a release of damage claims amounting to approximately $50 million, which release Lorillard gave to the Company in 1993. As this litigation is in a very preliminary stage, the Company cannot predict the outcome of this matter with a reasonable degree of certainty. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Three Months Ended March 26, 1995 Compared to the Three Months Ended March 27, 1994 Motorcycle Units and Consolidated Net Sales For the Three Month Periods Ended March 26, 1995 and March 27, 1994 Incr 1995 1994 (Decr) % Motorcycle units 23,651 23,056 595 2.6% Net sales (in millions): Motorcycles $224.8 $207.3 $17.5 8.4% Motorcycle Parts and Accessories 65.5 49.5 16.0 32.1 Other 4.6 1.8 2.8 149.6 Total Motorcycles and Related Products 294.9 258.6 36.3 14.0 Recreational Vehicles 62.6 59.3 3.3 5.6 Commercial Vehicles 29.6 22.8 6.8 29.5 Other 2.6 3.0 (0.4) (10.8) Total Transportation Vehicles 94.8 85.1 9.7 11.4 Harley-Davidson, Inc. Consolidated Net Sales $389.7 $343.7 $46.0 13.4% The Company reported record first quarter consolidated net sales. Both the Motorcycles and Related Products segment (the "Motorcycles segment") and the Transportation Vehicles segment contributed to the increase. Net sales increases in the Motorcycles segment were primarily driven by a 32.1% increase in its Parts and Accessories business and a 2.6% increase in motorcycle unit shipments. The increase in motorcycle unit shipments over the first quarter of 1994 was due to production increases. An increase in Buell motorcycle unit shipments also contributed approximately $3.6 million in additional revenue (classified in "Other" in the above table). The Company has a 49% interest in Buell Motorcycle Company, a manufacturer of performance motorcycles. Buell motorcycles are distributed, beginning in the third quarter of 1994, to select Harley- Davidson dealers through the Company's wholly-owned subsidiary, Buell Distribution Corporation. During the first quarter of 1995, motorcycle production met or exceeded the scheduled production rate of 395 units per day. Accordingly, the Company announced that it plans to increase daily motorcycle production to an average of 420 units per day for the second quarter and at least 420 units per day for the balance of the year. As a result, the Company plans to attain 1995 shipments of at least 100,000 units. The Parts and Accessories revenue grew 32.1% compared to the first quarter of 1994, due primarily to the MotorClothes product line, which posted a 37.2% increase. The introduction of the women's Biker Blues denim clothing line was the primary contributor to the $3 million of Biker Blues revenue in the first quarter of 1995. The MotorClothes product line comprised approximately 37% of all revenues generated by the Parts and Accessories business during 1994 and was the fastest growing portion of the Parts and Accessories product line during the first quarter of 1995. The Transportation Vehicles segment's net sales increased 11.4% over the first quarter of 1994. The Recreational Vehicles division's revenue increased 5.6%, which was below management's initial expectations based on 1994 industry-wide recreational vehicle market growth. As a result, the Company announced production adjustments and implemented promotional programs in March, including rebates and interest rate buy-downs, to drive retail demand. In addition to these programs, the Company is continuing to invest in new product development in the Recreational Vehicles division. The Commercial Vehicles division had a 29.5% revenue increase compared to the first quarter of 1994 due primarily to large fleet contracts that were awarded during 1994. The Commercial Vehicles division was awarded a new fleet contract in the first quarter of 1995, the largest contract in the division's history, that is expected to generate revenues of approximately $35 million over the remainder of the year. Consolidated Gross Profit For the Three Month Periods Ended March 26, 1995 and March 27, 1994 (Dollars in Millions) Percent Percent of sales of sales 1995 1994 Change 1995 1994 Motorcycles and Related Products $90.4 $76.8 $13.6 30.7% 29.7% Transportation Vehicles 14.2 13.5 .7 15.0 15.9 Consolidated Harley- Davidson, Inc. $104.6 $90.3 $14.3 26.8% 26.3% Consolidated gross profit increased $14.3 million, or 15.8%, compared to the first quarter of 1994. The Motorcycles segment was responsible for a majority of the increase primarily due to increased volume in the Parts and Accessories business, motorcycle shipments and favorable foreign exchange. Foreign sales, especially in Europe, contributed to the increase due to the weakening U.S. dollar relative to European currencies. Offsetting these increases were expenses related to continued machinery rearrangement in the Company's three motorcycle manufacturing facilities in support of the production capacity and product quality increases. The Transportation Vehicles segment recorded a volume related increase in gross profit compared to the first quarter of 1994. The Recreational Vehicles division experienced a shift in product mix toward the lower margin towables units from the "Class A" motorhomes, as well as an increase in labor costs due to a new factory pay system initiated in the fourth quarter of 1994, largely offsetting its volume related increases. The Commercial Vehicles division's gross profit percentage increased compared to the first quarter of 1994 due primarily to volume increases and a shift in mix to higher margin walk-in units. Consolidated Operating Expenses For the Three Month Periods Ended March 26, 1995 and March 27, 1994 (Dollars in Millions) Incr 1995 1994 (Decr) % Motorcycles and Related Products $49.9 $41.8 $8.1 19.5% Transportation Vehicles 13.9 13.3 .6 4.4 Corporate 1.8 2.1 (.3) (14.1) Consolidated Harley- Davidson, Inc. $65.6 $57.2 $8.4 14.7% Consolidated operating expenses increased $8.4 million, or 14.7%, compared to the first quarter of 1994. Increases in the Motorcycles segment were largely related to increased motorcycle and parts and accessories volumes. Catalog costs, product warranty, engineering and other marketing costs were additional areas of increased spending during the period. Operating expenses in the Transportation Vehicles segment increased moderately compared to the first quarter of 1994. The favorable margin achieved from the higher sales volume was offset by increased spending related to research and development, dealer training and other marketing expenses in the Recreational Vehicles division. Increases in field and yard inventory in the Recreational Vehicles division are expected to result in higher promotional expenses for the second and third quarters. The first promotion program was introduced in March. Consolidated income taxes ------------------------- The Company's effective income tax rate for the first quarter of 1995 approximated 37.0% compared to 39.0% during the first quarter of 1994. The decrease is primarily due to a recent corporate restructuring which resulted in lower state income taxes. Environmental ------------- The Company's policy is to comply with all applicable environmental laws and regulations and has a compliance program in place to monitor, and report on, environmental issues. The Company has reached settlement agreements with its former parent (Minstar) and the U.S. Navy regarding the remediation of the Company's manufacturing facility in York, PA and currently estimates that it will incur approximately $6 million of net additional costs related to the remediation of the York facility. The Company has established reserves for this amount. See Note 4 of the notes to condensed consolidated financial statements. Recurring costs associated with managing hazardous substances and pollution in on-going operations are not material. The Company regularly invests in equipment to support and improve its various manufacturing processes. While the Company considers environmental matters in capital expenditure decisions, and while some capital expenditures also act to improve environmental compliance, only a small portion of the Company's annual capital expenditures relate to equipment which has the sole purpose of environmental compliance. The Company anticipates that capital expenditures for equipment used to limit hazardous substances/ pollutants during 1995 will approximate $1 million. The Company does not expect that expenditures related to environmental matters will have a material effect on future operating results or cash flows. Liquidity and Capital Resources The Company typically reports negative cash flows from operating activities during the first quarter. The Motorcycles segment generally experiences increases in receivable and inventory balances during the first quarter over prior year-end balances due to the annual holiday shut- downs. The Motorcycles segment's receivable balances also increased as a result of volume increases in both motorcycles and parts and accessories. Finished goods inventory in the Motorcycles segment increased due to higher in-transit inventory to our foreign subsidiaries. Parts and accessories inventory increased due to the increased demand for parts and accessories (revenues up 16%). The Transportation Vehicles segment had increases in both raw material and finished goods inventories. The Recreational Vehicles division's finished goods inventory increased approximately $18 million compared to December 31, 1994 to prepare for anticipated 1995 industry-wide recreational vehicle market growth. The Commercial Vehicles division had an increase in its raw material inventory as a result of preparation for the recently awarded $35 million fleet contract. Capital expenditures amounted to $16.2 million and $8.7 million during the first quarters of 1995 and 1994, respectively. The Company anticipates 1995 capital expenditures will approximate $100-$110 million. The Company anticipates funding these expenditures with internally generated funds. The Company announced on March 9, 1995 that it intended to repurchase up to 4 million shares of its outstanding common stock pursuant to authority previously granted by its Board of Directors. During the first quarter, the Company repurchased 1,650,000 shares of its common stock with cash on hand and short-term borrowings. The Company currently has nominal levels of long-term debt and has existing lines of credit of approximately $47 million, of which approximately $43 million remained available at year-end. On February 2, 1995, the Company's Board of Directors declared a cash dividend of $.04 per share payable March 5, 1995 to shareholders of record February 17. Part II - OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q March 26, 1995 Item 1. Legal Proceedings The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility. See footnote 4 to the accompanying condensed consolidated financial statements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K None. Part II - OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q March 26, 1995 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: May 9, 1995 /s/ James L. Ziemer James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) May 9, 1995 /s/ James M. Brostowitz James M. Brostowitz Vice President, Controller (Principal Accounting Officer) and Treasurer Exhibit Index Exhibit No. Description Page 27 Financial Data Schedule 16 EX-27 2 HARLEY-DAVIDSON, INC. EXHIBIT 27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARLEY-DAVIDSON, INC. AS OF AND FOR THE THREE MONTHS ENDED MARCH 26, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1995 JAN-01-1995 MAR-26-1995 19,152 0 174,118 2,143 199,263 419,378 517,962 248,937 759,946 250,768 0 772 0 0 415,531 759,946 389,689 389,689 285,092 285,092 66,707 0 377 37,513 13,875 23,638 0 0 0 23,638 .31 .31
-----END PRIVACY-ENHANCED MESSAGE-----