-----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, S/bXfx2WxwDJg6qcYu/ppSxuOC/MGunDTXyzZ1V1Ulcv1xuSxM/LRX/zQ14P0/GH /3SJSe1f8ziKxobOlWFk9w== 0000897069-95-000159.txt : 19951030 0000897069-95-000159.hdr.sgml : 19951030 ACCESSION NUMBER: 0000897069-95-000159 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950924 FILED AS OF DATE: 19951027 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: 95585146 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 HARLEY DAVIDSON FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 24, 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) (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 October 20, 1995 77,269,617 Shares HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended September 24, 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 9-15 Part II. Other Information Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Exhibit Index 18 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Harley-Davidson, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share amounts) Three months ended Nine months ended Sept 24, Sept 25, Sept 24, Sept 25, 1995 1994 1995 1994 Sales $427,005 $384,026 $1,303,242 $1,129,103 Cost of goods sold 316,205 277,514 958,758 818,943 ------- -------- ---------- ---------- Gross profit 110,800 106,512 344,484 310,160 Selling, administrative and engineering expenses 74,497 68,745 215,448 190,638 -------- ------- --------- ---------- Income from operations 36,303 37,767 129,036 119,522 Interest income (expense) - net 198 137 (1,213) (230) Other income - net 1,276 61 379 2,021 -------- --------- ---------- --------- Income before provision for income taxes 37,777 37,965 128,202 121,313 Provision for income taxes 14,064 14,192 47,500 42,106 -------- -------- ---------- --------- Net income $ 23,713 $ 23,773 $ 80,702 $ 79,207 ======== ========= ========== ========== Weighted average common shares outstanding 74,776 76,249 75,173 76,160 ====== ====== ====== ====== Net income per common share $0.32 $0.31 $1.07 $1.04 ===== ===== ===== ===== Cash dividends per share $0.05 $0.04 $0.13 $0.10 ===== ===== ===== ===== Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) ASSETS Sept 24, Dec. 31, Sept 25, 1995 1994* 1994 (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 25,514 $ 59,285 $ 63,293 Accounts receivable, net 191,714 143,396 156,754 Inventories (Note 2) 180,329 173,420 159,473 Deferred income taxes 20,111 20,111 20,296 Prepaid expenses 11,168 9,424 8,261 -------- ------- ------- Total current assets 428,836 405,636 408,077 Property, plant and equipment, net 303,286 262,787 228,339 Deferred income taxes 22,924 22,924 16,276 Other assets 58,777 47,868 43,393 ------- ------- ------- $813,823 $739,215 $696,085 ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 21,794 $ 17,890 $ 15,103 Current maturities of long-term debt 314 413 433 Accounts payable 85,903 63,988 64,083 Accrued expenses and other 135,130 133,987 133,015 ------- ------- ------- Total current liabilities 243,141 216,278 212,634 Postretirement health care benefits 62,768 60,283 58,985 Other long-term liabilities 41,638 29,422 22,230 Contingencies (Note 4) Stockholders' equity: Common stock 778 772 771 Additional paid-in capital 153,131 150,728 141,565 Retained earnings 353,928 283,010 260,997 Cumulative foreign currency translation adjustment 1,781 1,174 1,500 -------- ------- ------- 509,618 435,684 404,833 Less: Treasury stock, at cost (41,899) (1,581) (1,581) Unearned compensation (1,443) (871) (1,016) ------- ------- -------- Total stockholders' equity 466,276 433,232 402,236 ------- ------- ------- $813,823 $739,215 $696,085 ======== ======== ======== * Condensed from audited financial statements. Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended Sept 24, Sept 25, 1995 1994 Cash flows from operating activities: Net income $80,702 $79,207 Depreciation and amortization 31,862 26,846 Long-term employee benefits 3,944 5,661 Loss on disposal of long-term assets 233 21 Equity in net loss of joint ventures 414 141 Deferred income taxes - (4,600) Change in current assets and current liabilities: Accounts receivable (48,318) (70,723) Inventories (6,909) (19,322) Prepaid expenses (1,744) 1,310 Accounts payable and accrued liabilities 23,058 27,705 ------- ------ Net cash provided by operating activities 83,242 46,246 Cash flows from investing activities: Purchase of property and equipment (73,443) (49,090) Other - net 617 (3,076) ------ ------ Net cash used in investing activities (72,826) (52,166) Cash flows from financing activities: Proceeds from issuance of long-term debt 441 - Reduction of long-term debt (838) (328) Net increase (decrease) in notes payable 3,904 (5,477) Dividends paid (9,784) (7,620) Stock repurchases (40,318) - Issuance of stock under employee stock and option plans 2,408 4,929 ----- ------ Net cash used in financing activities (44,187) (8,496) ------- ------ Net decrease in cash and cash equivalents (33,771) (14,416) Cash and cash equivalents: At beginning of period 59,285 77,709 ------- ------ At end of period $25,514 $63,293 ======= ======= 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. Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and generally accepted accounting principles for interim financial information. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the consolidated financial position as of September 24, 1995 and September 25, 1994, and the results of operations for the three- and nine-month periods then ended. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 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): Sept 24, Dec. 31, Sept 25, 1995 1994 1994 Components at the lower of cost, first-in, first-out (FIFO), or market: Raw material & work-in-process $ 73,984 $ 70,685 $ 60,910 Finished goods 69,423 69,745 68,607 Parts & accessories 60,305 52,554 49,069 ------- ------- ------- 203,712 192,984 178,586 Excess of FIFO over LIFO 23,383 19,564 19,113 ------- ------- ------- Inventories as reflected in the accompanying condensed consolidated balance sheets $180,329 $173,420 $159,473 ======== ======== ======== 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 which was repaid in full in 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. 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 and Lorillard Tobacco Company settled their trademark license dispute by agreeing to discontinue the use of Harley-Davidson trademarks on cigarettes by September 2001. The lawsuit brought by Lorillard in which the Company had filed counterclaims was also dismissed. The settlement does not involve the payment of compensatory amounts. The Company (including its wholly-owned subsidiaries Harley-Davidson Motor Company and H-D Michigan, Inc.), filed a lawsuit in May, 1995 against Motorcycle Equities, Inc. ("MEI") in the United States District court for the Eastern District of Wisconsin. The Company seeks a determination of the parties' respective rights and obligations under a license agreement with MEI for the Harley-Davidson Cafe in New York City. MEI has asserted numerous counterclaims in the action and seeks damages of $500 million, contending, among other things, that the Company breached the license agreement and acted in bad faith by exercising its contractual right to decide against expansion of the restaurant business in the continental United States. The Company will vigorously contest MEI's counterclaims and continue to seek a judgment declaring the parties rights and obligations from the Court. 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 September 24, 1995 Compared to the Three Months Ended September 25, 1994 Motorcycle Units and Consolidated Net Sales For the Three-Month Periods Ended September 24, 1995 and September 25, 1994 Incr % 1995 1994 (Decr) Change Motorcycle units (excluding Buell) 25,012 22,503 2,509 11.1% Net sales (in millions): Motorcycles $247.3 $209.8 $37.5 17.9% Motorcycle Parts and Accessories 75.9 78.3 (2.4) (3.2) Other 3.9 3.8 .1 2.6 Total Motorcycles and Related Products 327.1 291.9 35.2 12.0 Recreational Vehicles 65.3 68.0 (2.6) (3.9) Commercial Vehicles 33.2 20.8 12.4 59.8 Other 1.4 3.3 (2.0) (59.3) Total Transportation Vehicles 99.9 92.1 7.8 8.5 Harley-Davidson, Inc. Consolidated Net Sales $427.0 $384.0 $43.0 11.2% The Company reported consolidated net sales of $427.0 million during the third quarter of 1995, a $43.0 million (11.2%) increase over the third quarter of 1994. 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 driven primarily by motorcycle production and shipment increases. Motorcycle unit shipments increased 11.1% compared to the same quarter in 1994 due to an average production rate for the quarter of 430 units per day (compared to approximately 380 units in 1994). The manufacturing capacity improvements at the two major facilities continue to be ahead of schedule. Accordingly, the Company announced that it plans to increase daily motorcycle production to an average of 455 units per day for the remainder of the year and attain 1995 and 1996 shipments of at least 104,000 and 115,000 units, respectively. Parts and Accessories sales totaled $75.9 million during the third quarter of 1995, a $2.4 million (3.2%) decrease from the same period last year. MotorClothes (and collectibles) sales were down $5.6 million or 18.7%. While orders for Genuine Motor Accessories (mechanical accessories) during the third quarter of 1995 were in line with expectations, revenue growth was below expectations. Genuine Motor Parts (service parts) revenues during the third quarter of 1995 were in line with expectations. MotorClothes has historically been the fastest growing part of the Parts and Accessories business. Management believes that the decrease in MotorClothes sales and a corresponding drop in MotorClothes orders taken at the July 1995 dealer show are largely attributable to declines in retail floor traffic in U.S. Harley-Davidson dealerships and customer buying habits that have led to the general slowdown in the U.S. retail apparel industry. Floor traffic has been negatively affected by the lack of new motorcycle inventory in the dealerships. Without new motorcycles on display, many potential customers are not being drawn into the dealerships. The maturation of the Company's designer store program is also having an impact on MotorClothes sales growth. The opening of new designer stores typically results in increased floor traffic and a substantial increase in MotorClothes orders. 414 domestic dealers out of 594 have already completed at least one designer store remodeling. The Company does not anticipate that the rate of new designer store openings will significantly increase for the foreseeable future. Sales of Genuine Motor Accessories (and to a lesser extent sales of MotorClothes) were constrained by shipping delays. Although the orders taken at the July 1995 dealer show met our expectations, some of the most popular products were not originally scheduled to be available for shipping until between 30 and 180 days after the show. In addition, in some cases the Company and its suppliers have been unable to meet the original schedule. Since many dealers were waiting for delivery of their July dealer show orders, reorder activity in the third quarter of 1995 was reduced. In the third quarter of 1994, substantially all of the products for which orders were taken at the July dealer show were immediately available for shipping. The Company initiated several promotional programs and product incentives in the third quarter of 1995 that will run through the fourth quarter to encourage dealers to build floor traffic. Management is developing an improved system to better monitor dealer inventories and retail traffic so that the Company can be more responsive to changes in retail demand and dealer needs. The Transportation Vehicles segment recorded 1995 third quarter net sales of $99.9 million, a $7.8 million (8.5%) increase over the same period during 1994. The Recreational Vehicles division's sales decreased $2.6 million (3.9%) primarily due to a shift in mix from the high end "Class A" motorhomes to the low end towables units. The Commercial Vehicles division recorded quarterly sales of $33.2 million during the third quarter of 1995, a $12.4 million (59.8%) increase over the third quarter of 1994. The increase is largely a result of the continuing work on the major contract with Federal Express Corporation. Although the Commercial Vehicles division had an excellent third quarter, the division is feeling the negative impact of the nearly five-week-long Teamsters strike against Ryder Automotive Carrier Group Inc., the trucking company that delivers truck chassis used to make walk-in vans, such as those built for Federal Express. The strike ended early in the fourth quarter and will have an effect on the Commercial Vehicles division's fourth quarter results since the division lost three weeks of production on its major product lines. Consolidated Gross Profit For the Three-Month Periods Ended September 24, 1995 and September 25, 1994 (Dollars in Millions) Percent Percent Incr of sale of sales 1995 1994 (Decr) 1995 1994 Motorcycles and Related Products $ 96.8 $ 90.3 $6.5 29.6% 30.9% Transportation Vehicles 14.0 16.2 (2.2) 14.0 17.6 Consolidated Harley- Davidson, Inc. $110.8 $106.5 $4.3 25.9% 27.7% Consolidated gross profit increased $4.3 million (4.0%) compared to the third quarter of 1994. The Motorcycles segment gross profit increased primarily due to volume increases in motorcycle unit shipments. Compared to the third quarter of 1994, the segment's gross profit percentage was negatively impacted by an additional $3 million in new model year start-up costs, approximately $3 million in lost margin from lower than anticipated Parts and Accessories sales and additional costs from the continuation of the manufacturing expansion strategy. The Transportation Vehicles segment's gross profit decreased $2.2 million (13.5%) and its gross profit percentage decreased to 14.0% during the third quarter of 1995 from 17.6% in the same quarter in 1994. Both the Recreational Vehicles division and the Commercial Vehicles division were responsible for the decrease in the gross profit percentage. The Commercial Vehicles division's gross margin decreased primarily due to operating inefficiencies incurred in adding production capacity. The Recreational Vehicles division incurred a shift in mix to lower margin towables units from "Class A" motorhomes which had a negative impact on gross margins. In addition, the previously announced travel trailer recall resulted in a charge of approximately $1 million in the third quarter. Consolidated Operating Expenses For the Three-Month Periods Ended September 24, 1995 and September 25, 1994 (Dollars in Millions) Incr % 1995 1994 (Decr) Change Motorcycles and Related Products $58.9 $52.5 $6.4 12.3% Transportation Vehicles 13.5 14.1 (.6) (4.1) Corporate 2.1 2.1 - - Consolidated Harley- Davidson, Inc. $74.5 $68.7 $5.8 8.4% Consolidated operating expenses increased $5.8 million, or 8.4%, compared to the third quarter of 1994. Increases in the Motorcycles segment were primarily volume related. Other areas of increased spending included engineering, information services, international operations and product warranty. The Transportation Vehicles segment operating expenses decreased slightly during the third quarter of 1995 compared to the third quarter of 1994. Promotional programs covering the high end "Class A" motorhomes will be in place for the fourth quarter and are expected to result in higher promotional expenses for the fourth quarter of 1995 compared to the same quarter last year. Results of Operations for the Nine Months Ended September 24, 1995 Compared to the Nine Months Ended September 25, 1994 Motorcycle Units and Consolidated Net Sales For the Nine-Month Periods Ended September 24, 1995 and September 25, 1994 Incr % 1995 1994 (Decr) Change Motorcycle units (excluding Buell) 76,830 70,565 6,265 8.9% Net sales (in millions): Motorcycles $747.0 $648.2 $98.8 15.2% Motorcycle Parts and Accessories 216.5 192.3 24.2 12.6 Other 14.1 6.9 7.2 104.3 Total Motorcycles and Related Products 977.6 847.4 130.2 15.4 Recreational Vehicles 218.1 202.2 15.9 7.9 Commercial Vehicles 101.1 69.9 31.2 44.6 Other 6.4 9.6 (3.2) (33.3) Total Transportation Vehicles 325.6 281.7 43.9 15.6 Harley-Davidson, Inc. Consolidated Net Sales $1,303.2 $1,129.1 $174.1 15.4% The Company reported record net sales for the first nine months of $1.3 billion, an increase of $174.1 million (15.4%) compared to the first nine months of 1994. Net sales increases were generated by both the Motorcycles segment and the Transportation Vehicles segment. Worldwide demand within the Motorcycles segment continues to outweigh supply in virtually all markets in which the Company competes. The most recent information available (through July) indicates a U.S. heavyweight (751cc+) market share of 52.6% compared to 54.2% for the same period in 1994. The decrease in market share is attributable to the Company's capacity constraints in a growing market. The U.S. heavyweight market is up 12% through July and is continuing to grow faster than the Company's production capacity. Sales of Buell motorcycles (which have been distributed to select Harley- Davidson dealers through the Company's wholly-owned subsidiary, Buell Distribution Corporation, beginning in the third quarter of 1994) contributed approximately $8 million of additional revenues in the first nine months of 1995 as compared to the same period in 1994. (Included in the "Other" category). Overall, net sales of the Parts and Accessories business increased 12.6% compared to the first nine months of 1994. The rate of increase is lower than experienced last year due to the same factors that affected the third quarter results described above. Management believes that the Parts and Accessories business, in the aggregate, should grow at a rate similar to the annual growth in motorcycle unit shipments for the foreseeable future. The Transportation Vehicles segment recorded net sales of $325.6 million during the first nine months of 1995, an increase of $43.9 million (15.6%) compared to the first nine months of 1994. The Recreational Vehicles division's net sales increased primarily due to volume increases in the first and second quarters. The Recreational Vehicles division's retail sales are outperforming the recreational vehicle industry in a difficult year. Industry-wide, Class A motorhome registrations are down 5.8% and towable registrations are down .8% through July. During the same period, Holiday Rambler's Class A unit retail sales are up 6.0% and market share is 6.2% versus 5.5% in 1994. Holiday Rambler's towable retail unit sales are up 15.4% and market share is 2.5% versus 2.1% in 1994. The Commercial Vehicles division recorded a $31.2 million (44.6%) increase in net sales during the first nine months of 1995 compared to the same period in 1994. The division benefited from a shift in mix to its higher priced walk-in units as a result of several large fleet contracts (including Federal Express Corporation). Consolidated Gross Profit For the Nine-Month Periods Ended September 24, 1995 and September 25, 1994 (Dollars in Millions) Percent Percent Incr of sales of sales 1995 1994 (Decr) 1995 1994 Motorcycles and Related Products $296.9 $260.7 $36.2 30.4% 30.8% Transportation Vehicles 47.6 49.4 (1.8) 14.6 17.6 Consolidated Harley-Davidson, Inc. $344.5 $310.1 $34.4 26.4% 27.5% Consolidated gross profit for the first nine months of 1995 totaled $344.5 million, an increase of $34.4 million (11.1%) over the same period in 1994. The Motorcycles segment reported a $36.2 million (13.9%) increase for the period. The segment's gross profit percentage remained essentially unchanged at 30.4% for the period compared to the first nine months of 1994. Gross profit benefited primarily from the increase in volume. This benefit was offset by additional costs related to continued machinery rearrangement in the Company's three motorcycle manufacturing facilities in support of the production capacity and product quality increases, as well as a shift in mix toward touring models. The Transportation Vehicles segment recorded gross profit of $47.6 million during the first nine months of 1995 which was down slightly compared to the first nine months of 1994. The segment's gross profit margin was 14.6% for the nine-month period ended September 24, 1995 as compared with 17.6% for the same period last year. The Recreational Vehicles division's margin decreased primarily due to operating inefficiencies caused by previously announced production cutbacks in the first and second quarters of 1995. The Commercial Vehicles division's margin decreased due to production inefficiencies in preparation of the heavy production schedule due to the large contracts as well as lost production caused by the Teamsters strike. The inefficiencies (such as a new leased facility, new employees, training, etc.) offset the benefits from an increase in volume and a favorable shift in mix toward higher-margin walk-in units in the Commercial Vehicles division. Consolidated Operating Expenses For the Nine-Month Periods Ended September 24, 1995 and September 25, 1994 (Dollars in Millions) Incr % 1995 1994 (Decr) Change Motorcycles and Related $164.3 $140.8 $23.5 16.7% Products Transportation Vehicles 45.7 42.4 3.3 7.8 Corporate 5.4 7.4 (2.0) (27.1) Consolidated Harley- $215.4 $190.6 $24.8 13.0% Davidson, Inc. Consolidated Operating expenses of $215.4 million for the first nine months of 1995 increased $24.8 million (13.0%) compared to the first nine months of 1994. The Motorcycles segment generated the majority of the increase due to increases in volume, product warranty, information services, marketing and international operations. The Transportation Vehicles segment increase was generally the result of product development, quality, advertising and promotional program expenses. Consolidated income taxes The Company's effective income tax rate approximated 37.0% in 1995 compared to 38.5%, excluding a one-time benefit of $4.6 million related to the legal reorganization and recapitalization of the Transportation Vehicles segment, during 1994. The reorganization and recapitalization resulted in lower 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 as of September 24, 1995 The Company generated $83.2 million of cash from operating activities during the first nine months of 1995. Working capital items, primarily accounts receivable, had a negative impact on cash flows. Consolidated accounts receivable at September 24, 1995 increased approximately 34% over the balance at December 31, 1994. The increase is the result of an approximate increase of 15% in consolidated revenues and approximately $10 million of additional foreign receivables which generally have longer terms. Additionally, the Motorcycles segment, which was responsible for a majority of the increase, had a 35% increase in September shipments compared to December 31, 1994. This is significant because domestic motorcycle shipments generally have thirty-day terms. Capital expenditures amounted to $73.4 million and $49.1 million during the first nine months of 1995 and 1994, respectively. The Company anticipates 1995 capital expenditures will approximate $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 note was repaid in full in June, 1995. No purchases were made in the second or third quarters. The Company currently has nominal levels of long-term debt and has existing lines of credit of approximately $48 million, of which approximately $26 million remained available at September 24, 1995. The Company's Board of Directors declared three cash dividends during the first nine months of 1995 including, most recently, a $.05 cash dividend declared on August 23, 1995 payable September 11, 1995 to shareholders of record September 1 ( a 25% increase over the prior dividend). Part II - OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q September 24, 1995 Item 1. Legal Proceedings The Company and Lorillard Tobacco Company settled their trademark license dispute by agreeing to discontinue the use of Harley-Davidson trademarks on cigarettes by September 2001. The lawsuit brought by Lorillard in which the Company had filed counterclaims was also dismissed. The settlement does not involve the payment of compensatory amounts. The Company (including its wholly-owned subsidiaries Harley-Davidson Motor Company and H-D Michigan, Inc.), filed a lawsuit in May, 1995 against Motorcycle Equities, Inc. ("MEI") seeking a determination of the parties' respective rights and obligations under a license agreement for the Harley-Davidson Cafe in New York City. 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 for additional information on the above proceedings. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4 Amendment to Rights Agreement 27 Financial Data Schedule (b) Reports on Form 8-K None. 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: 10/27/95 /s/ James L. Ziemer James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) 10/27/95 /s/ James M. Brostowitz James M. Brostowitz Vice President, Controller (Principal Accounting Officer) and Treasurer Exhibit Index Exhibit No. Description Page 4 Amendment to Rights Agreement 19 27 Financial Data Schedule 21 EX-4 2 HARLEY DAVIDSON EXHIBIT 4 Exhibit 4 AMENDMENT TO RIGHTS AGREEMENT This amendment ("Amendment"), dated as of August 23, 1995, between Harley-Davidson, Inc., a Wisconsin corporation (the "Company"), and Firstar Trust Company (formerly known as First Wisconsin Trust Company), as Rights Agent (the "Rights Agent"), to the Right Agreement, dated as of August 6, 1990, as amended, between the Company and the Rights Agent. W I T N E S S E T H : WHEREAS, the Company and the Rights Agent are parties to the Rights Agreement, and pursuant to Section 26 of the Rights Agreement, the Company may from time to time supplement or amend the Rights Agreement in accordance with the provisions of Section 26 thereof; WHEREAS, the Company wishes to amend the Rights Agreement to change the Purchase Price (as defined in the Rights Agreement); and WHEREAS, all acts and things necessary to make this amendment a valid agreement, enforceable according to its terms, have been done and performed, and the execution and delivery of this Amendment by the Company and the Rights Agent have been in all respects duly authorized by the Company and the Rights Agent. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: 1. Capitalized terms used herein and not otherwise defined are used as defined in the Rights Agreement. 2. The first sentence of Section 7(b) of the Rights Agreement is hereby amended effective as of the date hereof to read in its entirety as follows: "The Purchase Price shall initially be $300 for each one one- hundredth (1/100) of a share of Preferred Stock issued pursuant to the exercise of a Right." 3. The terms "Rights Agreement" and "Agreement" as used in the Rights Agreement shall be deemed to refer to the Rights Agreement as amended hereby. 4. This Amendment shall be deemed to be a contract made under the laws of the State of Wisconsin and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. 5. This Amendment may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. 6. In all respects not inconsistent with the terms and provisions of this Amendment, the Rights Agreement is hereby ratified, adopted, approved and confirmed. In executing and delivering this Amendment, the Rights Agent shall be entitled to all of the rights afforded to the Rights Agent under the terms and conditions of the Rights Agreement. 7. If any term, provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, illegal or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment, and of the Rights Agreement, shall remain in full force and effect and shall in no way be affected, impaired or invalidated. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. Attest: HARLEY-DAVIDSON, INC. By:_____________________________ By:_______________________________ Michael B. Weiss Richard F. Teerlink Assistant Secretary President and Chief Executive Officer Attest: FIRSTAR TRUST COMPANY (f/k/a First Wisconsin Trust Company) By:_____________________________ By:_________________________________ Name: Name: Title: Title: EX-27 3 HARLEY DAVIDSON FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARLEY-DAVIDSON, INC. AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 24, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-24-1995 25,514 0 194,000 2,286 180,329 428,836 572,884 269,598 813,823 243,141 0 778 0 0 465,498 813,823 1,303,242 1,303,242 958,758 958,758 215,069 0 1,213 128,202 47,500 80,702 0 0 0 80,702 1.07 1.07
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