-----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, O9OsPMf3axP+9vwox+cr3Rl0xbaR7aaAbW7fZodmitYCwgO+d7Pa+r7ngGJQpUe2 JIO2z/yPTb365IwKSqkAeQ== 0000897069-97-000452.txt : 19971114 0000897069-97-000452.hdr.sgml : 19971114 ACCESSION NUMBER: 0000897069-97-000452 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 001-09183 FILM NUMBER: 97714496 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 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 28, 1997 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to ______________ Commission File Number 1-9183 Harley-Davidson, Inc. (Exact name of registrant as specified in its Charter) Wisconsin 39-1382325 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3700 West Juneau Avenue, Milwaukee, Wisconsin 53208 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (414) 342-4680 None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding as of November 7, 1997 152,294,677 Shares HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended September 28, 1997 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. 28, Sept. 29, Sept. 28, Sept. 29, 1997 1996 1997 1996 Sales $444,222 $385,843 $1,315,403 $1,149,698 Cost of goods sold 299,044 265,375 881,687 788,592 ------- -------- ---------- --------- Gross profit 145,178 120,468 433,716 361,106 Operating income from financial services 3,460 1,277 9,025 4,999 Operating expenses (83,925) (71,290) (241,587) (198,516) -------- -------- ---------- --------- Income from operations 64,713 50,455 201,154 167,589 Interest income - net 1,928 1,251 5,594 1,681 Other income (expense) - net (1,404) 980 597 (801) -------- -------- ----------- ----------- Income before provision for income taxes 65,237 52,686 207,345 168,469 Provision for income taxes 24,138 19,482 76,719 62,323 -------- -------- ----------- ----------- Net income $ 41,099 $ 33,204 $ 130,626 $ 106,146 ======== ======== =========== =========== Weighted average common shares outstanding 151,938 151,110 151,629 150,762 ======== ======== =========== =========== Net income per common share $0.27 $0.22 $0.86 $0.70 ======== ======== =========== =========== Cash dividends per share $0.03 $0.03 $0.10 $0.08 ======== ======== =========== ===========
Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) ASSETS Sept. 28, Dec. 31, Sept. 29, 1997 1996 1996 (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 105,365 $ 142,479 $ 114,046 Accounts receivable, net (Note 2) 99,601 141,315 176,622 Finance receivables (Note 2) 274,259 183,808 149,647 Inventories (Note 3) 112,144 101,386 91,480 Other current assets 42,030 44,141 32,230 Net assets from discontinued operations - - 11,830 ----------- ----------- ----------- Total current assets 633,399 613,129 575,855 Finance receivables, net 242,810 154,264 162,682 Property, plant and equipment, net 473,699 409,434 330,567 Goodwill 39,254 40,900 41,454 Other assets 97,280 102,258 85,573 Net assets from discontinued operations - - 25,400 ----------- ----------- ----------- $1,486,442 $1,319,985 $1,221,531 ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ - $ 2,580 $ 946 Accounts payable 109,793 100,699 107,455 Accrued expenses and other 173,000 160,315 150,286 ---------- ---------- ---------- Total current liabilities 282,793 263,594 258,687 Finance debt 280,919 258,065 243,648 Postretirement health care benefits 67,819 65,801 64,957 Other long-term liabilities 66,764 69,805 50,637 Contingencies (Note 5) Total shareholders' equity 788,147 662,720 603,602 ---------- ---------- ---------- $1,486,442 $1,319,985 $1,221,531 ========== ========== ========== Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended Sept. 28, Sept. 29, 1997 1996 Cash flows from operating activities: Net income $ 130,626 $ 106,146 Depreciation and amortization 51,305 39,464 Long-term employee benefits 3,893 2,984 Other-net 4,173 5,155 Net change in discontinued operations - 16,321 Net change in other current assets and current liabilities 54,846 (29,137) ----------- ---------- Net cash provided by operating activities 244,843 140,933 Cash flows from investing activities: Purchase of property and equipment (112,886) (84,398) Finance receivables acquired or originated (1,075,482) (823,892) Finance receivables collected/sold 893,705 723,788 Proceeds from disposition of discontinued segment - 35,350 Net change in discontinued operations - (1,779) Other - net (5,778) (10,360) ---------- ---------- Net cash used in investing activities (300,441) (161,291) Cash flows from financing activities: Reduction of long-term debt (610) (255) Net increase in notes payable (2,580) (1,490) Net increase in finance debt 22,854 79,318 Dividends paid (15,569) (12,472) Issuance of stock under employee stock and option plans 14,389 16,407 Net change in discontinued operations - 21,434 ----------- ----------- Net cash provided by financing activities 18,484 102,942 ----------- ----------- Net increase (decrease) in cash and cash equivalents (37,114) 82,584 Cash and cash equivalents: At beginning of period 142,479 31,462 ----------- ---------- At end of period $ 105,365 $ 114,046 =========== ========== HARLEY-DAVIDSON, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation and Use of Estimates The condensed interim consolidated financial statements included herein have been prepared by Harley-Davidson, Inc. (the "Company") without audit. Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and generally accepted accounting principles for interim financial information. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the consolidated financial position as of September 28, 1997 and September 29, 1996, and the results of operations for the three- and nine-month periods then ended. Certain prior-year balances have been reclassified in order to conform to current- year presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. On August 20, 1997, the Company's Board of Directors declared a two-for- one stock split for shareholders of record on September 12, 1997, payable on September 26, 1997. Stock option agreements 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 have been adjusted to reflect the stock split on a retroactive basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Note 2 - Accounts receivable Effective September 1, 1997, Eaglemark Financial Services (Eaglemark), a majority-owned subsidiary, became responsible for all credit and collection activities for the Motorcycles segment's domestic receivables. As such, approximately $90 million of accounts receivable are classified as finance receivables as of September 28, 1997. The presentation of finance receivables has been changed to classify receivables representing wholesale motorcycle and parts and accessories receivables and retail finance receivables with maturities of less than one year as current. Note 3 - 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. 28, Dec. 31, Sept. 29, 1997 1996 1996 Components at the lower of cost, first-in, first-out (FIFO), or market: Raw material & work-in- process $ 36,969 $ 33,275 $ 29,887 Finished goods 30,240 22,015 22,770 Parts & accessories 67,538 66,818 60,402 --------- --------- --------- 134,747 122,108 113,059 Excess of FIFO over LIFO 22,603 20,722 21,579 --------- --------- --------- Inventories as reflected in the accompanying condensed consolidated balance sheets $112,144 $101,386 $ 91,480 ======== ======== ======== Note 4 - Supplemental noncash investing activities During 1996, the Company completed the sale of the Transportation Vehicles segment resulting in a $22.6 million gain, net of applicable income taxes, or $.15 per share, which was recorded in the fourth quarter. During the first quarter of 1996, a division of the Transportation Vehicles segment was sold for approximately $23 million in cash, $3 million in preferred stock of the buyer, Monaco Coach Corporation ("Monaco"), a $12 million note from a Monaco subsidiary guaranteed by Monaco and assumption by Monaco of certain liabilities of the acquired operations in the approximate amount of $47 million. The note was paid in full during the third quarter of 1996. Note 5 - 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's estimate of additional response costs is based on reports of environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response costs are expected to be incurred over a period of approximately 10 years. Note 6 - Pending Accounting Change - Earnings per share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement 128 on the calculation of basic and diluted earnings per share for the quarters ended September 29, 1997 and September 28, 1996 is not expected to be material. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such 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 or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of 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. Results of Operations for the Three Months Ended September 28, 1997 Compared to the Three Months Ended September 29, 1996 For the quarter ended September 28, 1997, consolidated net sales totaled $444.2 million, a $58.4 million or 15.1% increase over the same period last year. Net income and earnings per share for 1997 were $41.1 million and $.27 on 151.9 million shares outstanding versus $33.2 million and $.22 on 151.1 million shares outstanding in 1996, increases of 23.8% and 23.1%, respectively. All share and per share data have been adjusted to reflect the two-for-one stock split effective September 12, 1997. All Harley- Davidson, Inc. sales are generated by the Motorcycles and Related Products ("Motorcycles") segment. Motorcycle Unit Shipments and Net Sales For the Three-Month Periods Ended September 28, 1997 and September 29, 1996 Incr 1997 1996 (Decr) % Motorcycle units (excluding Buell) 31,503 28,013 3,490 12.5% Net sales (in millions): Motorcycles (excluding Buell) $332.0 $285.9 $46.1 16.1% Motorcycle Parts and Accessories 74.1 62.1 12.0 19.3 General Merchandise 28.7 28.6 .1 .3 Other 9.4 9.2 .2 2.0 Total Motorcycles and Related Products $444.2 $385.8 $58.4 15.1% The Motorcycles segment reported record third quarter net sales driven by a 12.5% increase in motorcycle unit shipments and a 19.3% increase in Parts and Accessories. The increase in motorcycle unit shipments over the third quarter of 1996 was due to higher average daily production rates. The Company continues to ramp-up motorcycle production capacity according to plan. During the third quarter of 1997, motorcycle production averaged 540 units per day versus 490 units per day in the same period last year. The Company announced that it expects daily motorcycle production to average approximately 555 units per day in the fourth quarter. Revenue for the first nine months of 1997 from the Company's foreign subsidiaries was negatively impacted by the strengthening of the U.S. dollar resulting in revenue decreases totaling approximately $14 million compared to the same period of 1996. The third quarter impact alone accounted for approximately $5 milion of this decrease. The negative impact on pre-tax earnings, althouh lessened because of spending in foreign currency and hedging programs, was a decrease of approximately $9 million for the first nine months of 1997 compared to 1996 with the third quarter accounting for approximately $5 million of this decrease. Parts and Accessories (P&A) revenue, which consists of the Genuine Motor Parts and Genuine Motor Accessories brands, of $74.1 million was up $12.0 million or 19.3% compared to the third quarter of 1996. The record number of product introductions at the annual July dealer meeting contributed to the growth in the quarterly revenue. The Company anticipates that long- term P&A revenue growth will approximate the year-to-date growth rate of 13 percent. General Merchandise sales, which includes clothing and collectibles, totaled $28.7 million, approximately the same as the third quarter of 1996. Although the annual meeting generated better than expected orders for General Merchandise, many of the orders were forward-buys to be delivered in 1998. Buell Distribution Corporation, a wholly-owned subsidiary of the Company, and the exclusive distributor of Buell Motorcycle Company (a 49% owned subsidiary), increased sales (included in "Other" in the above table) to approximately $9 million (1,014 units) in the third quarter of 1997 as compared to approximately $7 million (846 units) during the same period in 1996. Buell motorcycles were introduced in Japan during the second quarter of 1996 and were introduced in Europe during the first quarter of 1997. Gross Profit Gross profit increased $24.7 million, or 20.5%, compared to the third quarter of 1996 primarily due to an increase in motorcycle volume. The gross profit margin was 32.7% in 1997 as compared with 31.2% in 1996. The increase in the gross profit percentage was primarily due to product mix and productivity improvements driven by continued investments in the manufacturing plants and by partnering efforts with the Company's employees and suppliers. In addition, the annual model year change-over went smoothly. Operating Expenses For the Three-Month Periods Ended September 28, 1997 and September 29, 1996 (Dollars in Millions) Incr 1997 1996 (Decr) % Motorcycles and Related Products $82.4 $69.6 $12.8 18.4% Corporate 1.5 1.7 (0.2) (10.6) Total operating expenses $83.9 $71.3 $12.6 17.7% Total operating expenses increased $12.6 million, or 17.7%, compared to the third quarter of 1996. The increase was largely related to increases in product development of approximately $4 million, information systems of approximately $1 million, international operations of approximately $3 million and other increases due to motorcycle volume when compared to the same period last year. An early retirement program in connection with the new Parts and Accessories Distribution Center resulted in a charge of $2.5 million in the third quarter of 1996. A product recall on fuel valves resulted in a $1.1 million charge in 1996 for estimated repair costs. Operating income from financial services The operating income of the Financial Services (Eaglemark) segment was $3.5 million and $1.3 million in 1997 and 1996, respectively. This increase was primarily due to increased wholesale and retail origination volume and corresponding increases in outstanding wholesale and retail receivables. During the third quarter of 1997, Eaglemark introduced the Harley-Davidson VISA Chrome card as a replacement for the private label Harley Card which could only be used at Harley-Davidson dealerships. As of September 28, 1997, approximately 105,000 cards have been issued. Results of Operations for the Nine Months Ended September 28, 1997 Compared to the Nine Months Ended September 29, 1996 For the nine month period ended September 28, 1997, the Company recorded net sales of $1.3 billion, a $165.7 million or 14.4% increase over the same period last year. Net income and earnings per share were $130.6 million and $.86 on 151.6 million shares outstanding versus $106.1 million and $.70 on 150.8 million shares, increases of 23.1% and 22.4%, respectively. Motorcycle Unit Shipments and Net Sales For the Nine-Month Periods Ended September 28, 1997 and September 29, 1996 Incr 1997 1996 (Decr) % Motorcycle units (excluding Buell) 98,328 88,936 9,392 10.6% Net sales (in millions): Motorcycles (excluding Buell) $1,020.8 $888.0 $132.8 15.0% Motorcycle Parts and Accessories 191.6 169.2 22.4 13.2 General Merchandise 72.5 68.1 4.4 6.6 Other 30.5 24.4 6.1 25.0 Total Motorcycles and Related Products $1,315.4 $1,149.7 $165.7 14.4% The 14.4% increase in revenue was primarily attributable to additional motorcycle unit shipments as worldwide demand for the Company's motorcycles continues to exceed supply. The most recent information available (through September) indicates a U.S. heavyweight (651+cc) market share of 46.5% compared to 44.9% for the same period in 1996. This same market has grown at a 12.0% rate year-to-date while retail registrations for the Company's motorcycles (excluding Buell motorcycles) increased 16.2%. European data (through September) show the Company with a 6.1% share of the heavyweight (651+cc) market, down from 6.6% for the same period in 1996. The European market (651+cc) has grown at a 8.3% rate year-to-date, while retail registrations for the Company's motorcycles were about the same as last year. The Company has focused, over the last two years, on upgrading the European infrastructure by installing new information systems, improving distribution, and developing a European management team. The Company does not expect near-term growth in Europe and is therefore, continuing to implement country specific marketing and sales promotions. In addition, the Company recently unveiled two new motorcycles styled specifically for the European markets, which will be introduced in early 1998. Asia/Pacific (Japan and Australia) data (through September) show the Company with a 15.4% share of the heavyweight (651+cc) market, down from 20.6% for the same period in 1996. The Asia/Pacific market has grown at a 54.6% rate year-to-date, while retail registrations for the Company's motorcycles increased 15.2%. Parts and Accessories and General Merchandise sales increased 13.2% and 6.6% respectively, compared to the first nine months of 1996. Buell Distribution Corporation increased sales (included in "Other" in the above table) to approximately $28 million (3,121 units) in the first nine months of 1997 as compared to approximately $19 million (2,267 units) in the same period in 1996. Gross Profit Gross profit for the first nine months of 1997 totaled $433.7 million, an increase of $72.6 million (20.1%) over the same period in 1996. The gross profit percentage was 33.0% in 1997 as compared with 31.4% for the first nine months of 1996. The increase in the gross profit percentage was primarily due to product mix and productivity improvements driven by continued investments in the manufacturing plants and by partnering efforts with the Company's employees and suppliers. Operating Expenses For the Nine-Month Periods Ended September 28, 1997 and September 29, 1996 (Dollars in Millions) Incr 1997 1996 (Decr) % Motorcycles and Related Products $235.5 $192.3 $43.2 22.4% Corporate 6.1 6.2 (.1) (1.2) Total operating expenses $241.6 $198.5 $43.1 21.7% Operating expenses of $241.6 million for the first nine months of 1997 increased $43.1 million (21.7%) compared to the first nine months of 1996. The increase was largely related to increases in product development of approximately $11 million, information systems of approximately $4 million, international operations of approximately $10 million, product liability of approximately $3 million and other increases due to motorcycle volume when compared to the same period last year. An early retirement program in connection with the new Parts and Accessories Distribution Center resulted in a charge of $2.5 million in the third quarter of 1996. Operating income from financial services The operating income of the Financial Services segment was $9.0 million and $5.0 million in 1997 and 1996, respectively. This increase was primarily due to increased wholesale and retail origination volume and corresponding increases in outstanding wholesale and retail receivables. Through nine months, Eaglemark financed 19 percent of new Harley-Davidson motorcycles sold in the U.S., versus 16 percent in the same period last year. Other income (expense) Included in other income is a one-time benefit related to the sale of the Monaco preferred stock which was acquired from the sale of the Transportation Vehicles segment. Capitalized interest The Company capitalized approximately $2.8 million of interest during the first nine months of 1997 in connection with its manufacturing expansion initiatives. The Company anticipates approximately $.8 million of capitalized interest will be incurred in the fourth quarter of 1997. Consolidated income taxes The Company's effective income tax rate approximated 37.0% in the first nine months of 1997 and 1996. Environmental The Company's policy is to comply with all applicable environmental laws and regulations, and the Company has a compliance program in place to monitor, and report on, environmental issues. The Company has reached settlement agreements with its former parent (Minstar, successor to AMF Incorporated) and the U.S. Navy regarding groundwater remediation at the Company's manufacturing facility in York, Pennsylvania and currently estimates that it will incur approximately $6 million of net additional costs related to the remediation effort. The Company has established reserves for this amount. See Note 5 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 meeting environmental compliance obligations. The Company anticipates that capital expenditures for equipment used to limit hazardous substances/pollutants during 1997 will approximate $1 million. The Company does not expect that these expenditures related to environmental matters will have a material effect on future operating results or cash flows. Liquidity and Capital Resources as of September 28, 1997 The Company generated $244.8 million of cash from operating activities during the first nine months of 1997 compared to $140.9 million in the same period in 1996. Net income adjusted for depreciation contributed $181.9 million. The Motorcycles segment's receivable balance at September 28, 1997 of $99.6 million was decreased by approximately $90 million due to the transfer of the Motorcycles segment's domestic receivables to Eaglemark (see Note 2). As such, finance receivables increased by this same amount. Capital expenditures amounted to $112.9 million and $84.4 million during the first nine months of 1996 and 1995, respectively. The Company is pursuing a long-term manufacturing strategy to increase its motorcycle production capacity with a goal of having the capacity to manufacture in excess of 200,000 units per year by 2003. The strategy includes expansion in and near the Company's existing facilities and construction of a new manufacturing facility in Kansas City, Missouri. Construction of the Kansas City facility is on schedule and the first production is expected to occur in the first quarter of 1998. The following are forward looking statements: Due in part to this long- term manufacturing strategy, the Company anticipates 1997 capital expenditures will approximate $190-$210 million. Although the Company does not know the exact range of capital it will spend, it estimated the capital required in 1998 and 1999 will be in the range of $160-$180 million and $120-$140 million per year, respectively. The Company currently estimates it will have the capacity to produce at least 131,000 motorcycles in 1997, more than 145,000 motorcycles in 1998 and more than 160,000 motorcycles in 1999. The Company anticipates it will have the ability to fund all capital expenditures with internally generated funds and short-term financing. The Company's ability to reach these production capacity levels will depend upon, among other factors, the Company's ability to (i) continue to realize efficiencies in the utilization of existing facilities through implementation of innovative manufacturing techniques and other means, (ii) implement additions and changes to existing facilities, (iii) construct the new manufacturing facility such that it will be operational in 1998 and (iv) work with existing and new suppliers to expand their capacity. However, there is no assurance that the Company will continue to find means to realize additional efficiencies. In addition, the Company could experience delays in making additions and changes to existing facilities and/or constructing the new manufacturing facility as a result of risks normally associated with the construction and operation of new manufacturing facilities, including unanticipated problems in construction, delays in the delivery of machinery and equipment or difficulties in making such machinery and equipment operational, work stoppages, difficulties with suppliers, natural causes or other factors. These risks, potential delays and uncertainties regarding the actual costs of the measures the Company intends to take to implement its strategy could also impact adversely the capital expenditure estimates referred to above. Moreover, there is no assurance that the Company will have the ability to sell all of the motorcycles it has the capacity to produce. The Company (excluding Eaglemark) currently has nominal levels of long- term debt and has lines of credit of approximately $46 million, of which approximately $40 million remained available at September 28, 1997. Eaglemark finances its business through a secured commercial paper program, a revolving credit facility, a commercial paper conduit facility and asset-backed securitizations. Eaglemark issues short-term commercial paper secured by wholesale motorcycle finance receivables with maximum issuance available of $175 million of which approximately $107 million was outstanding at September 28, 1997. Maturities of commercial paper issued range from 1 to 60 days. Eaglemark has in place a $150 million revolving credit facility, of which approximately $110 million was outstanding at September 28, 1997, to fund primarily United States and Canadian retail loan originations. Borrowings under the facility are limited to 110% of the outstanding loan balance of eligible receivables. The amount of net eligible receivables at September 28, 1997 was approximately $186 million. Eaglemark also has a $75 million commercial paper conduit facility, of which approximately $64 million was outstanding at September 28, 1997, secured by the outstanding loan balance of eligible retail motorcycle receivables. The amount of net eligible receivables at September 28, 1997 was approximately $67 million. During the third quarter, Eaglemark securitized and sold approximately $100 million of its retail motorcycle installment loans to investors with limited recourse with servicing rights being retained by Eaglemark. The Company expects that the future growth of Eaglemark will be primarily financed from internally generated funds, bank lines of credit, and continuation of its commercial paper and securitization programs. The Company has continuing authorization from its Board of Directors to repurchase up to 4,700,000 shares of the Company's outstanding common stock. The Company's Board of Directors declared three cash dividends during the first nine months of 1997 including, most recently, a $.07 per share ($.035 on a post-split basis) cash dividend declared on August 20, 1997, paid September 26, 1997 to shareholders of record on September 12. Part II - OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q September 28, 1997 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 5 to the accompanying condensed consolidated financial statements for additional information on the above proceedings. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule for September 28, 1997 (b) Reports on Form 8-K None Part II - Other Information HARLEY-DAVIDSON, INC. Form 10-Q September 28, 1997 Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARLEY-DAVIDSON, INC. Date: 11/12/97 by: /s/ James L. Ziemer James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) 11/12/97 by: /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 for September 28, 1997 18 EX-27 2
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 28,1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-28-1997 105,365 0 375,805 1,945 112,144 633,399 819,054 345,355 1,486,442 282,793 0 1,572 0 0 786,575 1,486,442 1,315,403 1,315,403 881,687 881,687 (597) 0 (5,594) 207,345 76,719 130,626 0 0 0 130,626 .86 .86 On August 20, 1997, the Company's Board of Directors declared a two- for-one stock split for shareholders of record on September 12, 1997, payable on September 26, 1997. Prior Financial Data Schedules have not been restated for the split.
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