10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: DECEMBER 31, 1994 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 of organization) (I.R.S. Employer Identification No.) 3700 WEST JUNEAU AVENUE, MILWAUKEE, WISCONSIN 53208 (Address of principal executive offices) (Zip code) Registrant's telephone number: (414) 342-4680 Securities registered pursuant to Section 12(b) of the Act: Name of each Exchange Title of each class on which registered -------------------------------------- --------------------------- COMMON STOCK, $.01 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE 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 and (2) has been subject to such requirements for the past 90 days. Yes X No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by nonaffiliates of the registrant at March 21, 1995: $1,689,758,527. Number of shares of the registrant's common stock outstanding at March 21, 1995: 74,739,769 shares. Part III of this report incorporates information by reference from registrant's Proxy Statement for the annual meeting of its shareholders to be held on May 6, 1995. ================================================================================ PART I ITEM 1. BUSINESS ------- -------- SUMMARY ------- Harley-Davidson, Inc. was incorporated in 1981, at which time it purchased the Harley-Davidson Motorcycle Business from AMF Incorporated (currently doing business as Minstar) in a management buyout. In 1986, Harley-Davidson, Inc. became publicly held. Unless the context otherwise requires, Harley-Davidson, Inc. (the "Company") includes all of its subsidiaries and other wholly owned affiliates. The Company operates in two segments: Motorcycles and Related Products and Transportation Vehicles. The Motorcycles and Related Products ("Motorcycles") segment consists primarily of the Company's wholly owned subsidiary H-D Michigan, Inc. and its wholly owned subsidiary Harley-Davidson Motor Company. The Motorcycles segment designs, manufactures and sells primarily heavyweight (engine displacement of 751cc or above) touring and custom motorcycles and a broad range of related products which include motorcycle parts and accessories and riding apparel. The Company, which is the only major American motorcycle manufacturer, has held the largest share of the United States heavyweight motorcycle market since 1986. The Company generally holds much smaller market shares in international markets. The Transportation Vehicles ("Holiday Rambler") segment consists of the Company's wholly owned affiliate Holiday Rambler LLC (formerly Holiday Rambler Corporation) and its Holiday World(R) store affiliates. Holiday Rambler manufactures recreational vehicles, principally motorhomes and travel trailers, and specialized commercial vehicles. Holiday Rambler was acquired by the Company in December 1986. Holiday Rambler's Recreational Vehicles division competes primarily in the mid to premium price segment of the recreational vehicle market. Holiday Rambler's commercial vehicles (marketed under the Utilimaster/(R)/ brand name), which include walk-in vans and parcel delivery trucks, are built for a diverse range of specialized commercial uses. Holiday Rambler's Commercial Vehicles division is one of a small number of commercial vehicle manufacturers with the resources to satisfy the volume requirements and specialized needs of fleet customers. Revenue, operating income (loss) and identifiable assets attributable to each of the Company's segments are as follows (in thousands):
Motorcycles and Related Transportation Products Vehicles Corporate ----------- ---------------- ---------- 1994 ---- Revenue $1,158,887 $382,909 $ - Operating income (loss) 163,510 6,745 (9,948) Identifiable assets 502,267 165,533 71,415 1993 ---- Revenue $ 933,262 $284,166 $ - Operating income (loss) 136,217 (59,533)* (6,878) Identifiable assets 367,794 134,699 80,792 1992 ---- Revenue $ 822,929 $282,355 $ - Operating income (loss) 102,300 2,137 (7,240) Identifiable assets 313,953 178,252 29,959
---------- *Includes $57.0 million charge related primarily to the write-off of goodwill. 2 The domestic heavyweight motorcycle market continued to expand in 1994. The domestic recreational vehicle industry also reported volume increases during 1994. Worldwide quarterly revenue and operating income (loss) (in thousands), by segment, and motorcycle shipment information, are as follows:
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year -------- -------- -------- -------- ---------- 1994 Revenue by segment: Motorcycles and Related Products $258,607 $296,843 $291,927 $311,510 $1,158,887 Transportation Vehicles 85,098 104,530 92,098 101,183 382,909 -------- -------- -------- -------- ---------- $343,705 $401,373 $384,025 $412,693 $1,541,796 Operating income (loss) by segment: Motorcycles and Related Products $ 34,984 $ 47,134 $ 37,832 $ 43,560 $ 163,510 Transportation Vehicles 222 4,718 2,063 (258) 6,745 Corporate (2,086) (3,217) (2,128) (2,517) (9,948) -------- -------- -------- -------- ---------- $ 33,120 $ 48,635 $ 37,767 $ 40,785 $ 160,307 Units: Motorcycles 23,056 25,006 22,503 25,246 95,811 1993 Revenue by segment: Motorcycles and Related Products $205,328 $256,870 $220,778 $250,286 $ 933,262 Transportation Vehicles 64,257 77,508 63,598 78,803 284,166 -------- -------- -------- -------- ---------- $269,585 $334,378 $284,376 $329,089 $1,217,428 Operating income (loss) by segment: Motorcycles and Related Products $ 27,505 $ 41,604 $ 31,175 $ 35,933 $ 136,217 Transportation Vehicles (589) 301 (2,137) (57,108)* (59,533) Corporate (1,746) (1,840) (1,183) (2,109) (6,878) -------- -------- -------- -------- ---------- $ 25,170 $ 40,065 $ 27,855 $(23,284) $ 69,806 Units: Motorcycles 19,502 22,951 17,963 21,280 81,696 *Includes $57.0 million charge related primarily to the write-off of goodwill. 1992 Revenue by segment: Motorcycles and Related Products $179,010 $203,929 $201,408 $238,582 $ 822,929 Transportation Vehicles 68,412 70,020 70,342 73,581 282,355 -------- -------- -------- -------- ---------- $247,422 $273,949 $271,750 $312,163 $1,105,284 Operating income (loss) by segment: Motorcycles and Related Products $ 18,292 $ 32,772 $ 25,311 $ 25,925 $ 102,300 Transportation Vehicles 138 1,144 106 749 2,137 Corporate (1,719) (2,270) (1,416) (1,835) (7,240) -------- -------- -------- -------- ---------- $ 16,711 $ 31,646 $ 24,001 $ 24,839 $ 97,197 Units: Motorcycles 17,186 18,771 17,977 22,561 76,495
3 MOTORCYCLES AND RELATED PRODUCTS The primary business of the Motorcycles segment is to produce and sell premium heavyweight motorcycles. The Company's motorcycle products emphasize traditional styling, design simplicity, durability, ease of service and evolutionary change. Studies by the Company indicate that the typical U.S. Harley-Davidson/(R)/ motorcycle owner is a male in his early forties, with a household income of approximately $65,200, who purchases a motorcycle for recreational purposes rather than to provide transportation and who is an experienced motorcycle rider. Over two-thirds of the Company's sales are to buyers with at least one year of higher education beyond high school. The heavyweight class of motorcycles is comprised of four types: standard, which emphasizes simplicity and cost; performance, which emphasizes handling and speed; touring, which emphasizes comfort and amenities for long-distance travel; and custom, which emphasizes styling and individual owner customization. Touring and custom models are the primary classes of heavyweight motorcycles the Company manufactures. The Company presently manufactures and sells 20 models of touring and custom heavyweight motorcycles, with suggested retail prices ranging from approximately $5,000 to $17,500. The touring segment of the heavyweight market was pioneered by the Company and includes motorcycles equipped for long-distance touring with fairings, windshields, saddlebags and Tour Paks/(R)/. The custom segment of the market includes motorcycles featuring the distinctive styling associated with certain classic Harley-Davidson motorcycles. These motorcycles are highly customized through the use of trim and accessories. The Company's motorcycles are based on variations of four basic chassis designs and are powered by one of three air cooled, twin cylinder engines of "V" configuration which have displacements of 883cc, 1200cc and 1340cc. The Company manufactures its own engines and frames. During 1993, the Company acquired a 49 percent interest in Buell Motorcycle Company ("Buell"), a manufacturer of performance motorcycles. This investment in Buell offers the Company the possibility of gradually gaining entry into select niches within the performance motorcycle market. Buell began distribution of a limited number of Buell motorcycles during 1994 to select Harley-Davidson dealers. Although there are some accessory differences between the Company's top-of-the line touring motorcycles and those of its competitors', suggested retail prices are generally comparable. The top of the Company's custom product line is typically priced at almost twice that of its competitors' custom motorcycles. The custom portion of the product line represents the Company's highest unit volumes and continues to command a premium price because of its features, styling and high resale value. The Company's smallest displacement custom motorcycle (the 883cc Sportster(R)) is directly price competitive with competitors' comparable motorcycles. The Company's surveys of retail purchasers indicate that, historically, over three-quarters of the purchasers of its Sportster model have come from competitive-brand motorcycles or are people new to the sport of motorcycling. Since 1988, the Company's research has consistently shown a repurchase intent in excess of 92% on the part of purchasers of its motorcycles, and the Company expects to see sales of its 883cc Sportster model partially translated into sales of its higher-priced products in the normal two to three year ownership cycle. Domestic motorcycle sales generated 50.3%, 51.4% and 52.8% of revenues in the Motorcycles segment during 1994, 1993 and 1992, respectively. The major product categories for the Parts and Accessories business are replacement parts, mechanical accessories, rider accessories (MotorClothes(R) and collectibles) and specially formulated oil and other lubricants. The Company's replacement parts include original equipment parts, generally made in the United States, and a less expensive line of imported parts introduced in 1983 to compete 4 against foreign-sourced aftermarket suppliers. Domestic motorcycle Parts and Accessories sales comprised 17.8%, 17.4% and 15.3% of net sales in the Motorcycles segment in 1994, 1993 and 1992, respectively. Net sales from domestic motorcycle Parts and Accessories have grown 97.3% over the last three years (since 1991). The Company also provides a variety of services to its dealers and retail customers including service training schools, delivery of its motorcycles, motorcycling vacations, memberships in an owners club and customized software packages for dealers. The Company has had success under a program emphasizing modern store design and display techniques in the merchandising of parts and accessories by its dealers. Currently, 375 domestic and 90 international dealerships have completed store design renovation projects. Licensing. In recent years, the Company has endeavored to create an awareness --------- of the brand among the non-riding public by licensing its trademark "Harley- Davidson(R)" and numerous related trademarks owned by the Company. The Company currently has licensed the production and sale of a broad range of consumer items, including t-shirts and other clothing, jewelry, small leather goods and numerous other products and is expanding its licensing activity in the toy category. Although the majority of licensing activity occurs in the U.S., the Company has expanded into international markets. This licensing activity provides the Company with a valuable source of advertising. Licensing also has proven to be an effective means for enhancing the Company's image with consumers and provides an important tool for policing the unauthorized use of the Company's trademarks thereby protecting the brand and its use by authorized motorcycle dealers. Royalty revenues from licensing accounted for approximately 2% of the net sales from the Motorcycles segment during 1994 (1% during 1993 and 1992). While royalty revenues from licensing activities are small, the profitability of this business is relatively high. Marketing and Distribution. The Company's basic channel of United States -------------------------- distribution for its motorcycles and related products consists of approximately 600 independently owned full-service dealerships to whom the Company sells direct. With respect to sales of new motorcycles, approximately 75% of the dealerships sell Harley-Davidson motorcycles exclusively. All dealerships carry Genuine Harley-Davidson replacement parts and aftermarket accessories and perform servicing of Harley-Davidson motorcycle products. The Company's marketing efforts are divided among dealer promotions, customer events, magazine and direct mail advertising, public relations, and cooperative programs with Harley-Davidson dealers. The Company also sponsors racing activities and special promotional events and participates in all major motorcycle consumer shows and rallies. In an effort to encourage Harley- Davidson owners to become more actively involved in the sport of motorcycling, the Company formed a riders club in 1983. The Harley Owners Group(R), or "HOG(R)", currently has approximately 270,000 members worldwide and is the industry's largest company-sponsored motorcycle enthusiast organization. In 1984, the Company became the first motorcycle manufacturer to use a national program of demonstration rides. The Company's expenditures on domestic marketing and advertising were approximately $65.6 million, $53.8 million and $45.2 million during 1994, 1993 and 1992, respectively. Retail Customer and Dealer Financing. Among the factors affecting the volume ------------------------------------ of the Company's motorcycle sales are the availability and cost of credit to both retail purchasers and Harley-Davidson dealers. 5 In January, 1993, the Company invested $10 million for a 49% interest in Eaglemark Financial Services, Inc., formerly Eagle Credit Corporation ("Eagle"). Eagle provides motorcycle floor planning and parts and accessories financing arrangements to the Company's U.S. dealers. Eagle also offers retail financing opportunities to the Company's domestic motorcycle customers. In addition, Eagle has established a proprietary credit card for use in the Company's independent dealerships. A majority of dealer purchases of the Company's motorcycles are financed by Eagle. Under the terms of the Company's agreement with Eagle, participating dealers finance with Eagle 100% of the motorcycle invoice price. The Company has agreed to indemnify Eagle for certain losses that might be incurred by Eagle upon the sale or disposition of motorcycles repossessed by Eagle. Historically, the Company has experienced insignificant losses under this program. The Company encourages its motorcycle dealers to purchase and maintain adequate inventories of the Company's parts and accessories during the winter months in anticipation of the Christmas and spring selling season by offering its dealers special discounts and delayed billing terms. Under this program, payments to Eagle by dealers are due on June 1. The Company enters into an annual trade acceptance agreement with Eagle to provide the Company with the ability to sell its receivables from dealers. Under the terms of the agreement, the Company receives cash from Eagle in the amount of 100% of certain eligible accounts receivable at the time of sale to the dealer. On June 1 of each year, the date by which payments to Eagle are due from dealers, the Company is obligated to repurchase all unpaid balances from Eagle. Historically, the Company has experienced insignificant losses under this program. For further information on dealer financing programs, see Notes 4 and 6 to the 1994 consolidated financial statements. International Sales. International sales were $331 million, $263 million and ------------------- $240 million, accounting for approximately 29%, 28% and 29% of net sales of the Motorcycles segment, during 1994, 1993 and 1992, respectively. The Company believes that the international heavyweight market is growing and is significantly larger than the U.S. heavyweight market. The Company estimates, using data reasonably available to the Company, that it holds an average market share of approximately 15% in the heavyweight export markets in which it competes. The Company has wholly owned subsidiaries located in Germany, Japan and the United Kingdom. The German subsidiary also serves Austria, France, Denmark, Czech Republic, Hungary and Poland. The combined foreign subsidiaries have a network of 135 dealers of which approximately 45% sell the Company's motorcycles exclusively. Distribution through these subsidiaries allows the Company flexibility in responding to changing economic conditions in a variety of foreign markets. The Company is represented throughout the rest of the world by an independent network of distributors and direct sales dealers. At the end of 1994, this network included 15 distributors serving 16 country markets with approximately 243 dealers. The remainder of the network includes 14 direct sales dealers serving 14 country markets. Germany, Japan, Canada and Australia, in that order, represent the Company's largest export markets and account for approximately 60% of export sales. See Note 11 to the consolidated financial statements for additional information regarding foreign operations. 6 Competition. The U.S. and international heavyweight motorcycle markets are ----------- highly competitive. The Company's major competitors generally have financial and marketing resources which are substantially greater than those of the Company. The Company's principal competitors have larger overall sales volumes and are more diversified than the Company. The Company believes that the heavyweight motorcycle market is the most profitable segment of the U.S. motorcycle market. During 1994, the heavyweight segment represented approximately 35% of the total U.S. motorcycle market in terms of new units registered. The Company first began to experience significant competition in the domestic heavyweight motorcycle market from Japanese manufacturers in the early 1970's, and prior to 1984, the Company's U.S. market share declined almost continuously. Domestically, the Company competes in the touring and custom segments of the heavyweight motorcycle market, which together accounted for 76%, 75% and 73% of total heavyweight retail unit sales in the U.S. during 1994, 1993 and 1992, respectively. The custom and touring motorcycles are generally the most expensive and most profitable vehicles in the market. For the last 9 years, the Company has led the industry in domestic sales of heavyweight motorcycles. The Company's share of the heavyweight market was 56.1% in 1994; down slightly from 58.4% in 1993. This is primarily a result of constrained production capacity in a growing market. The Company has implemented a manufacturing strategy to, among other things, increase capacity to 100,000 and 115,000 units by 1995 and 1997, respectively. Shares of U.S. Heavyweight Motorcycle Market* (Above 750cc Engine Displacement)
Year Ended December 31, -------------------------------------- 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ New U.S. Registrations (thousands of units): Total new registrations 116.2 101.4 86.4 74.3 78.5 Harley-Davidson new registrations 65.2 59.3 52.2 45.1 46.9 Percentage Market Share: Harley-Davidson 56.1% 58.4% 60.4% 60.7% 59.7% Honda 19.1 17.7 16.4 17.3 18.7 Suzuki 8.7 9.4 9.4 7.6 5.7 Kawasaki 7.1 6.2 5.6 6.4 6.5 Yamaha 3.9 4.4 4.1 4.7 6.9 Other 5.1 3.9 4.1 3.3 2.5 ----- ----- ----- ----- ----- Total 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
* Information in this report regarding motorcycle registrations and market shares has been derived from data published by R.L. Polk & Co. 7 On a worldwide basis, the Company measures its market share using the heavyweight classification. Although definitive market share information does not exist for many of the smaller foreign markets, the Company estimates its worldwide competitive position, using data reasonably available to the Company, to be as follows: Worldwide Heavyweight Motorcycle Registration Data (Above 750cc Engine Displacement)
(Units in Thousands) 1994 1993 1992 ------ ------ ------ North America/(1)/: Total registrations 124.9 109.5 92.3 Harley-Davidson registrations 69.5 63.4 56.0 Harley-Davidson market share percentage 55.7% 57.9% 60.6% Europe/(2)/: Total registrations 128.7 129.8 128.0 Harley-Davidson registrations 14.2 13.1 12.5 Harley-Davidson market share percentage 11.0% 10.1% 9.7% Japan/Australia/(3)/: Total registrations 34.0 31.8 28.2 Harley-Davidson registrations 7.6 6.6 5.2 Harley-Davidson market share percentage 22.3% 20.9% 18.4%
(1) Includes the United States and Canada (2) Includes Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Switzerland and United Kingdom. (3) Data for Queensland, Northern Territory and South Australia not available prior to 1993. Competition in the heavyweight motorcycle market is based upon a number of factors, including price, quality, reliability, styling, product features and warranties. The Company emphasizes quality, reliability and styling in its products and offers warranties which are generally comparable to those of its competitors. In general, resale prices of Harley-Davidson motorcycles, as a percentage of price when new, are significantly higher than resale prices of motorcycles sold by the Company's competitors. Domestic heavyweight registrations increased 15% and 17% during 1994 and 1993, respectively, the Company doesn't expect the market to grow at these rates in the future. The Company's ability to maintain its current domestic sales levels will depend primarily on its ability to increase its annual production capacity as discussed below. To enhance international growth, the Company completed, in 1994, a study of Europe, the world's largest heavyweight motorcycle market, and began implementation of new strategies to improve the quality of its distribution systems, dealer network and customer support activities there. In addition, the Company will begin a similar study of our current and future potential in the Asia/Pacific region, to determine the levels of commitment required to adequately serve the needs of motorcycle customers in this region. 8 Motorcycle Manufacturing. In an effort to achieve cost and quality parity ------------------------ with its competitors, the Company has incorporated manufacturing techniques to continuously improve its operations. These techniques, which include employee involvement, just-in-time inventory principles and statistical process control, have significantly improved quality, productivity and asset utilization. The Company's use of just-in-time inventory principles allows it to minimize its inventories of raw materials and work in process, as well as scrap and rework costs. This system also allows quicker reaction to engineering design changes, quality improvements and market demands. The Company has trained the majority of its manufacturing employees in problem solving and statistical methods. During 1993, the Company adopted a comprehensive motorcycle manufacturing strategy designed to, among other things, achieve the goal of a 100,000 units per year production rate in 1996. The strategy calls for the enhancement of the Motorcycles segment's ability to increase capacity, adjust to changes in the market place and further improve quality while reducing costs. The strategy calls for the achievement of the increased capacity within the existing facilities (with minor additions) without a significant change in personnel. The Company began implementing the strategy in 1993 and estimates that it will reach the production goal of 100,000 units in 1995, more than one year ahead of schedule. In addition, the Company plans to increase annual production capacity to 115,000 units by 1997. Raw Material and Purchased Components. The Company has endeavored to ------------------------------------- establish with its suppliers long-term informal "partnership" relationships, directly assisting them in the implementation of the manufacturing techniques employed by the Company through training sessions and plant evaluations. In furtherance of the Company's "partnership" philosophy, the Company reduced the number of its manufacturing suppliers in recent years and is conducting more business with suppliers that have implemented these same manufacturing techniques in their manufacturing operations. The Company purchases all of its raw material, principally steel and aluminum castings, forgings, sheet and bars, and certain motorcycle components, including carburetors, batteries, tires, seats, electrical components and instruments. Certain of these components are secured from one of a limited number of suppliers. Interruptions from certain of these suppliers could adversely affect the Company's production pending the establishment of substitute supply arrangements. The Company anticipates no significant difficulties in obtaining raw materials or components for which it relies upon a limited source of supply. Research and Development. The Company believes that research and development ------------------------ is a significant factor in the Company's ability to continuously improve its competitive position. The Motorcycles segment incurred research and development expenses of approximately $22.1 million, $19.3 million and $14.6 million during 1994, 1993 and 1992, respectively. Patents and Trademarks. The Company owns certain patents which relate to its ----------------------- motorcycles and related products and processes for their production. The Company believes that the loss of any of its patents would not have a material effect upon its business. Trademarks are important to the Company's motorcycle business and licensing activities. The Company has a vigorous program of trademark registration and enforcement to prevent the unauthorized use of its trademarks, strengthen the value of its trademarks and improve its image and customer goodwill. The Company believes that its "Harley-Davidson(R)" registered United States trademark is its most significant trademark. The Company's Bar and Shield design is also highly recognizable by the general public. Additionally, the Company has numerous other registered 9 trademarks, trade names and logos, both in the United States and abroad. The Company has used the "Harley-Davidson" trademark continuously since 1903. Seasonality. The Company, in general, does not experience seasonal ------------ fluctuations in production. This is primarily the result of a strong demand for the Company's motorcycles and related products, as well as the availability of floor plan financing arrangements for its independent dealers. Floor plan financing allows many dealers to build their inventory levels in anticipation of the spring and summer selling seasons. Regulation. Both federal and state authorities have various environmental ----------- control requirements relating to air, water and noise pollution which affect the business and operations of the Company. The Company endeavors to ensure that its facilities and products comply with all applicable environmental regulations and standards. To ensure compliance with lower European Union noise standards (80dba), which took effect in calendar year 1994, the Company began a product development program during late 1990. The design changes were implemented in July 1994 (1995 model year start-up) after European Union Certification procedures were completed. Near the end of the decade there may be a further reduction of European Union noise standards (to 77dba). Accordingly, the Company anticipates that it will continue to incur some level of research and development costs related to this matter over the next several years. The Company's motorcycles are subject to certification by the U.S. Environmental Protection Agency (EPA) for compliance with applicable emissions and noise standards and by the State of California Air Resources Board (ARB) with respect to the ARB's more stringent emissions standards. The Company's motorcycle products have been certified to comply fully with all such applicable standards. The Company's motorcycles are subject to additional ARB tailpipe and evaporative emissions standards requiring that unique vehicles be built for sale exclusively in California. The Company, as a manufacturer of motorcycle products, is subject to the National Traffic and Motor Vehicle Safety Act (Safety Act), which is administered by the National Highway Traffic Safety Administration (NHTSA). The Company has acknowledged to NHTSA that its motorcycle products comply fully with all applicable federal motor vehicle safety standards and related regulations. In accordance with NHTSA policies the Company has from time to time initiated certain voluntary recalls. During the last three years, the Company has initiated 8 voluntary recalls at a total cost of approximately $6.0 million. The Company fully reserves for all estimated costs associated with recalls in the period that they are announced. Federal, state, and local authorities have adopted various control standards relating to air, water, and noise pollution which affect the business and operations of the Motorcycles segment. Management does not anticipate that any of these standards will have a materially adverse impact on its capital expenditures, earnings, or competitive position. Employees. As of December 31, 1994, the Motorcycles segment had approximately --------- 4,300 employees. Production workers at the motorcycle manufacturing facilities in Wauwatosa and Tomahawk, Wisconsin, are represented principally by the United Paperworkers International Union (UPIU) of the AFL-CIO, as well as the International Association of Machinist and Aerospace Workers (IAM). Production workers at the motorcycle manufacturing facility in York, Pennsylvania, are represented principally by the IAM. The collective bargaining agreement with the UPIU and the 10 Wisconsin-IAM will expire on April 14, 1997, and the collective bargaining agreement with the Pennsylvania-IAM will expire on February 2, 1997. TRANSPORTATION VEHICLES RECREATIONAL VEHICLES --------------------- The Recreational Vehicles division's motorhomes and travel trailers are designed to appeal to people interested in travel and outdoor recreational activities. These recreational vehicles are distinct from mobile homes, which are manufactured housing designed for permanent and semipermanent dwelling. Principal types of recreational vehicles produced by the Recreational Vehicles division include Class A or "conventional" motorhomes and travel trailers. Recreational vehicle classifications are based upon standards established by the Recreation Vehicle Industry Association (RVIA). A motorhome is a self-powered vehicle built on a motor vehicle chassis. The interior typically includes a driver's area, kitchen, bathroom, dining, and sleeping areas. Motorhomes are self-contained, with their own lighting, heating, cooking, refrigeration, sewage holding and water storage facilities so that they can be lived in without being attached to utilities. As such, they generally qualify as second homes for income tax purposes. Although they generally are not designed to provide complete facilities for permanent or semipermanent living, motorhomes do provide comfortable living facilities for short periods of time. Class A motorhomes are constructed on medium-duty truck chassis, which are purchased with engine and drive train components. The living area and driver's compartment are designed, manufactured, and installed by the Recreational Vehicles division. Travel trailers are non-motorized vehicles which are designed to be towed by passenger automobiles, pick-up trucks, sport utility vehicles or vans. They are otherwise similar to motorhomes in features and use. The Company produces both "conventional" and "fifth wheel" travel trailers. Conventional travel trailers are towed by means of a bumper or frame hitch attached to the towing vehicle. Fifth wheel trailers, designed to be towed by pick-up trucks, are constructed with a raised forward section that is attached to the bed area of the pick-up truck. This design allows a bi-level floor plan and additional living space. The Company's premium lines of recreational vehicles are marketed under the Navigator(R) and Imperial(TM) brand names. Models in these lines are manufactured with premium quality materials and components, including entertainment centers, solid oak cabinetry and brass fixtures, and may be equipped with luxury features such as microwave-convection ovens, washer/dryers and built-in vacuum cleaner systems. These models are generally purchased by persons who previously have owned recreational vehicles. The Navigator is a bus-style motorhome that carries a suggested retail price of $224,000 to $282,000. In the Company's Imperial line, suggested retail prices of motorhomes generally range between $166,000 and $187,000, while travel trailers retail between $46,800 and $72,500. 11 The Company also produces motorhomes under the Endeavor(R) and Vacationer(R) brand names, and travel trailers under the Aluma-Lite(R) brand name, for the mid-range market. These models are produced with fewer standard features than the Navigator or Imperial. Suggested retail prices for the Endeavor and Vacationer motorhomes range between $53,600 and $113,000 while Aluma-Lite travel trailers range between $19,000 and $53,000. Models produced under the Free Spirit(R) brand name were discontinued during 1994. Holiday Rambler's product development is divided into three efforts: to develop competitive floorplans; to update existing models; and to bring innovation into the product line along with increased quality. In achieving these goals, Holiday Rambler does not plan to vary from its traditional aluminum frame construction or stray from its existing product boundaries. The following table presents information regarding wholesale sales of the Company's recreational vehicles during the periods indicated: Wholesale Recreational Vehicles Sales
Year Ended December 31, ---------------------------- (in thousands) 1994 1993 1992 -------- -------- -------- Premium lines $ 69,197 $ 53,041 $ 58,460 Mid-range lines 135,696 83,677 89,601 -------- -------- -------- Total $204,893 $136,718 $148,061 ======== ======== ========
In addition to wholesale sales of the recreational vehicle products shown above, sales by the Recreational Vehicles division also include retail sales by its wholly owned Holiday World stores, discussed below. The Recreational Vehicles division's sales (including retail, wholesale and other sales) were $274.5 million, $192.7 million and $202.1 million in 1994, 1993 and 1992, respectively. Sales of the Recreational Vehicles division accounted for 71.7%, 67.8% and 71.6% of the Transportation Vehicles segment's revenues for the years ended December 31, 1994, 1993 and 1992, respectively. Competition and Other Business Considerations. The recreational vehicle ---------------------------------------------- market is highly competitive with a number of other manufacturers selling products in competition with the Company. Competition is based upon price, design, quality and service. The Company believes that it provides service comparable to that provided by its competitors and that the design and quality of its products compare favorably with similarly priced products of its competitors. The Company believes that the primary external factors affecting the recreational vehicle industry are the consumer's perception of the health of the economy, interest rates, price of fuel and the availability of retail financing. 12 During 1994, ten manufacturers accounted for approximately 85% and 80% of total units registered in the Class A and Towable markets, respectively. The remaining units included products manufactured by approximately twenty-six Class A and sixty-four Towable manufacturers. During 1994, Fleetwood Enterprises, Inc. (Fleetwood) accounted for approximately 30% and 25% of the Class A and Towable markets, respectively. During the same period, the Company's shares of the Class A and Towable markets were 5.5% and 2.2%, respectively. The Company ranks fourth in Class A market share and tenth in Towable market share. The Company concentrates on the mid-range to premium segment of the market. While definitive market share statistics with respect to this segment do not exist, the Company's Recreational Vehicles division is one of the largest producers of this segment of recreational vehicles. The Holiday Rambler line of recreational vehicles consists of four model brands of both trailers and motorhomes. Marketing and Distribution. The Recreational Vehicles division markets its --------------------------- recreational vehicle products through a network of over 120 dealers located throughout the continental United States, including fourteen company-owned Holiday World dealers. Holiday World dealers also stock previously owned vehicles and new recreational vehicles manufactured by certain of Holiday Rambler's competitors. The Holiday World dealers provide Holiday Rambler with valuable knowledge regarding consumer preferences and information regarding products of its competitors, as well as other marketing information. Holiday Rambler's sales and service agreements require dealers to maintain a service department and a supply of recreational vehicle parts, supplies and accessories. These agreements are subject to renewal on an annual basis. Holiday Rambler's new owner research indicates that approximately 66% of purchasers of Holiday Rambler's new recreational vehicles are 56 years or older, a growing segment of the U.S. population. Customer loyalty is reinforced by Holiday Rambler's sponsorship of the Holiday Rambler Recreational Vehicles Club, Inc., a not-for-profit Indiana corporation. The club is open only to owners of Holiday Rambler's recreational vehicles and has approximately 11,600 members. The club holds 31 club-sponsored rallies and caravans each year and is provided with administrative and promotional assistance by Holiday Rambler. Holiday Rambler receives valuable feedback from its customers at these events. Dealer Financing. Substantially all of the Recreational Vehicles division's ----------------- recreational vehicle sales to dealers are made on terms requiring payment within ten days of the dealer's receipt of the unit. Most dealers are financed under "floor plan" arrangements with banks or finance companies under which the lender advances all, or substantially all, of the purchase price of the vehicle being purchased. The loan is collateralized by a lien on the vehicle. In certain instances, consistent with industry practice, Holiday Rambler has entered into repurchase agreements with these lenders which provide that, in the event of default by the dealer in repaying the loan, Holiday Rambler will either repay the loan or repurchase the financed vehicles. In general, the repurchase agreements provide that, for up to twelve months after a unit is financed, Holiday Rambler will repurchase the unit upon a determination by the lender to repossess the unit. Holiday Rambler's loss exposure on repurchase is limited to the difference between the net realizable resale value of the vehicle and the amount required to be paid the lending institution at the time of repurchase. The Company's losses over the last five years under these programs have been less than $100,000 in the aggregate. For further information on dealer financing programs, see Notes 4 and 6 to the 1994 consolidated financial statements. 13 COMMERCIAL VEHICLES ------------------- The Company, through its Utilimaster division, builds a variety of commercial body configurations for special uses. Sales of the Commercial Vehicles division accounted for 24.8%, 27.8% and 24.0% of the Transportation Vehicles segment's revenues in 1994, 1993 and 1992, respectively. Utilimaster currently installs its bodies on chassis of various sizes supplied by third parties. The Company's products are offered in aluminum or fiberglass reinforced plywood (FRP) construction and are available in lengths of 9 to 28 feet. The Company's products (excluding chassis) range in price from $2,800 to $35,000 although special service vehicles can sell as high as $60,000. The principal types of commercial bodies are as follows: Parcel Delivery Vans - Aluminum or FRP parcel delivery van bodies are -------------------- installed on chopped van chassis supplied by the major Detroit truck manufacturers. These parcel delivery van bodies range in length from 10 to 16 feet and are primarily used for local delivery of parcels, freight and perishables. Standard Walk-In Vans - Utilimaster manufactures its standard walk-in vans --------------------- (step-vans) on a truck chassis supplied with engine and drive train components, but without a cab. The Company fabricates the driver's compartment and body using aluminum panels. Uses for these vans include the distribution of food products and small packages. Truck Bodies - Utilimaster's truck bodies are typically fabricated up to 28 ------------ feet in length with prepainted aluminum or FRP panels, aerodynamic front and side corners, hardwood floors, and various door configurations to accommodate end-user loading and unloading requirements. These products are used for diversified dry freight transportation. The Company installs its truck bodies on chassis supplied with a finished cab. Mobile Rescue and Special Use Emergency Vehicles - Utilimaster builds a ------------------------------------------------ variety of high cube and walk-in specialty use vehicles for the fire and rescue industry. These vehicles range in lengths from 10 to 22 feet and usually require extensive customization to meet the needs of the local emergency agencies. Marketing and Distribution. Utilimaster markets its products directly to 450 --------------------------- fleet accounts and to single commercial vehicle purchasers through a network of 900 automobile and truck dealers. This network is distinct from the Company's recreational vehicle dealer network. The Company does not provide financing to these dealers or fleet accounts. Competition. While the Commercial Vehicles division experiences some ------------ competition from the large automotive manufacturers, which traditionally have offered a narrow selection of standardized commercial vehicle body options for their truck chassis, its principal competition is from a small number of manufacturers with the resources to satisfy the volume requirements and specialized needs of commercial vehicle fleet customers. These manufacturers include Grumman-Olsen Corp., Union City Body Company, Inc., and Supreme Corp. Competition among manufacturers is based upon price, quality, and responsiveness to customer requirements both in design and timing of delivery. Sales of commercial vehicles to fleet customers generally are either the result of direct competition with other manufacturers or a competitive bidding process. Because of the specialized needs of each customer, the relative importance of each individual factor varies from customer to customer. The Company believes that it has been able to compete successfully on the basis of all of these factors. 14 OTHER PRODUCTS -------------- The Transportation Vehicles segment's Creative Dimensions division produces a broad line of contemporary office furniture. Creative Dimensions products are marketed through a network of approximately 750 office suppliers and designers nationwide. The Transportation Vehicles segment's Nappanee Wood Products division is a custom cabinetmaker which produces high quality, solid wood components primarily for the Company's recreational vehicles. In the fourth quarter of 1994, the custom kitchen product line at the Nappanee Wood Products division was discontinued. The Transportation Vehicles segment's B & B Molders division designs and manufactures a diverse range of custom or standard tooling and injection molded plastic pieces. Other products accounted for 3.5%, 4.4% and 4.4% of the Transportation Vehicles segment revenues for the years ended December 31, 1994, 1993 and 1992, respectively. ALL DIVISIONS ------------- Production - Holiday Rambler's products are built utilizing an assembly line ---------- process. Holiday Rambler has designed and built its own fabricating and assembly equipment for the majority of its manufacturing processes. Holiday Rambler believes that the manufacturing systems and technology enable it to produce high quality products on an efficient basis. In addition to assembling its products and installing various options and accessories, Holiday Rambler manufactures a majority of its plastic components and other installed products, such as draperies, bathtubs, holding tanks, wheel covers, and wiring harnesses. The manufacturing processes, facilities, and equipment used to make Holiday Rambler's recreational vehicles and commercial vehicles are similar and, in most respects, interchangeable. The required employee skills are applicable to the production of either type of vehicle. As a result, the Company has the flexibility to shift employees and resources in order to meet changing demands in its markets. A portion of production employees' compensation consists of production group incentives, which can permit an employee to increase his total compensation by increasing productivity and meeting quality standards. Production Materials. The principal raw materials and other components used --------------------- in the production of recreational and commercial vehicles are purchased from third parties. With the exception of the chassis, these materials, including aluminum, plywood, lumber, plastic and fiberglass, are generally available from numerous sources. Holiday Rambler obtains its chassis from several automobile or truck manufacturers under either consignment agreements or secured financing agreements with interest subsidies by the manufacturers. Subject to certain time limitations, Holiday Rambler pays for a recreational vehicle chassis upon making an alteration or addition to the chassis. Upon sale of a recreational vehicle to a dealer, Holiday Rambler invoices the purchasing dealer for the completed vehicle, including the chassis. 15 The agreements relating to commercial vehicle chassis contemplate that Holiday Rambler will make alterations or additions to a chassis upon the order of dealers affiliated with the chassis manufacturer. In this situation, Holiday Rambler delivers completed vehicles to the purchasing dealer and invoices the dealer for Holiday Rambler's additions and alterations only. The dealer is invoiced for the chassis directly by the chassis manufacturer (which has reacquired title to the chassis from Holiday Rambler under an interest subsidized secured financing arrangement). The commercial vehicle chassis agreements also permit Holiday Rambler to purchase the chassis from the manufacturer through an affiliated dealer, in which case Holiday Rambler takes title, and is obligated to pay for the chassis. Holiday Rambler's Class A motorhomes are generally built on Chevrolet, Ford and Spartan chassis, and its commercial vehicles are generally built on GM and Ford chassis. If any of these manufacturers were to cease manufacturing or otherwise reduce the availability of these chassis, the business of Holiday Rambler could be adversely affected. Class A chassis could be resourced from other suppliers such as Oshkosh Truck Corporation. In general, Holiday Rambler has not experienced any substantial shortages of raw materials or components. However, the industry has occasionally experienced short-term chassis shortages. Patents and Trademarks. The Transportation Vehicles segment owns various ----------------------- patents and know-how which relate to its recreational vehicles and other products and the processes for their production. The Company believes that the loss of any of these patents would not have a material effect upon its business. Trademarks are important to the Transportation Vehicles segment's recreational and commercial vehicle business. The Transportation Vehicles segment's "Holiday Rambler(R)" trademark is its most significant trademark. Additionally, the Transportation Vehicles segment has numerous other valuable registered trademarks, trade names, and logos used in its business. Seasonality. The recreational vehicle market is generally subject to seasonal ------------ fluctuations. Retail sales are generally stronger during the spring and late summer months. The availability of retail floor plan financing to the Recreational Vehicles division's independent dealers helps to mitigate some of the effects of seasonality on the Recreational Vehicles division's production schedule. The market for Commercial Vehicles generally does not experience seasonal fluctuations. Regulation. The manufacture, distribution, and sale of the Transportation ----------- Vehicles segment's vehicles are subject to governmental regulations in the United States at the federal, state, and local levels. The most extensive regulations are promulgated under the Safety Act which, among other things, enables the NHTSA to require a manufacturer to remedy vehicles containing "defects related to motor vehicle safety" or vehicles which fail to conform to all applicable federal motor vehicle safety standards. Pursuant to the Safety Act and related regulations, the Transportation Vehicles segment from time to time has initiated voluntary recalls of its recreational and commercial vehicles. Since the beginning of 1992, recalls by the Transportation Vehicles segment initiated under the Safety Act, all of which have been voluntary, have involved an aggregate cost to the Company of approximately $3.5 million. Federal, state, and local authorities have adopted various control standards relating to air, water, and noise pollution which affect the business and operations of the Transportation Vehicles segment. Management does not anticipate that any of these standards will have a materially adverse impact on its capital expenditures, earnings, or competitive position. Employees. As of December 31, 1994, the Transportation Vehicles segment ---------- employed approximately 2,400 people. None of the segment's personnel are represented by labor unions. 16 Item 2. Properties ------- ---------- The following is a summary of the principal properties of the Company as of March 21, 1995. Motorcycles and Related Products Segment ----------------------------------------
Type of Facility Location Square Feet Status ---------------------------- ------------------- ----------- --------------- Executive Offices, Engineering & Warehouse Milwaukee, WI 512,100 Owned Manufacturing Wauwatosa, WI 407,780 Owned Manufacturing Tomahawk, WI 75,744 Owned Manufacturing York, PA 998,185 Owned Motorcycle Testing Talladega, AL 23,500 Leases expiring 1998-1999 Office Ann Arbor, MI 800 Lease expiring 1997 Office and Warehouse Morfelden-Walldorf, 50,859 Lease expiring Germany 2001 Office Tokyo, Japan 7,015 Lease expiring 1995 Warehouse Yokohama, Japan 7,460 Lease expiring 1995 Office Brackley, England 2,845 Lease expiring 2005 Warehouse Brackley, England 1,122 Lease expiring 2005
The Motorcycles segment has three facilities that perform manufacturing operations: Wauwatosa, Wisconsin, a suburb of Milwaukee (motorcycle power train production); Tomahawk, Wisconsin (fiberglass parts production and painting); and York, Pennsylvania (motorcycle parts fabrication, painting and assembly). As a result of the implementation of a comprehensive manufacturing strategy (which was begun during 1993), the Company estimates that generally the size of the existing facilities, with minor additions, would be adequate to meet its current goal of being able to produce 115,000 motorcycles annually by 1997. 17 Transportation Vehicles Segment -------------------------------
Type of Facility Location Square Feet Status -------------------------------- ------------- ----------- ------ Executive Offices Wakarusa, IN 51,178 Owned Manufacturing and Warehouse Wakarusa, IN 842,367 Owned Factory Service Center Wakarusa, IN 41,138 Owned Data Processing Wakarusa, IN 23,850 Owned Research and Development/ Purchasing Wakarusa, IN 38,120 Owned Sales Facilities Various 2,069 Owned Manufacturing and Offices Nappanee, IN 169,711 Owned Manufacturing Mishawaka, IN 16,180 Owned Retail Dealership Facilities Various 201,900 Owned Retail Dealership Facilities Various 18,328 Leased
The Transportation Vehicles segment's units are manufactured in approximately 30 separate buildings. Additionally, the Segment owns 20 buildings used for administrative, storage, and other purposes. Substantially all of the facilities are located on three sites at or near the Transportation Vehicles segment's corporate headquarters in Wakarusa, Indiana. The Company owns all of the production facilities and the underlying parcels of land. Because recreational and commercial vehicles are produced largely through a labor- intensive assembly process, the facilities do not house extensive capital equipment. The Transportation Vehicles segment's present facilities are generally adequate for their current intended use; however, planning has begun for a new Class A motorhome facility to increase manufacturing capacity. In addition, plans are in place to relocate the towables production to a newly expanded existing facility in 1997. To increase the paint capacity and eliminate a production bottleneck, Utilimaster is in the process of expanding its paint facility which is expected to be completed during the second quarter of 1995. Item 3. 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 (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. Subsequent to the end of the year, 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 18 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 self-insures its product liability loss exposure. The Company accrues for claim exposures which are probable of occurrence and reasonably estimable. 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. 19 Item 4. Submission of matters to a vote of security holders ------- --------------------------------------------------- No matters were submitted to a vote of shareholders of the Company in the fourth quarter of 1994. Executive officers of the registrant ------------------------------------ The following sets forth, as of March 21, 1995, the name, age and business experience for the last five years of each of the executive officers of Harley-Davidson. Executive Officers ------------------
Name Age ----------------------------------------------- --- Richard F. Teerlink 58 President and Chief Executive Officer Jeffrey L. Bleustein 55 President and Chief Operating Officer - Motor Company James M. Brostowitz 43 Vice President, Controller and Treasurer Thomas A. Gelb 59 Vice President, Continuous Improvement C. William Gray 53 Vice President, Human Resources Timothy K. Hoelter 48 Vice President, General Counsel and Secretary Martin R. Snoey 51 President & Chief Operating Officer, Holiday Rambler James L. Ziemer 45 Vice President, Chief Financial Officer and Assistant Treasurer
All of these individuals have been employed by the Company in an executive capacity for more than five years, except C. William Gray and Martin R. Snoey. Mr. Gray has been Vice President, Human Resources of the Company since December 1994 and was Vice President, Human Resources of the Motorcycle Division from 1990 to November 1994. Prior to that time, he was Senior Vice President, Human Resources for Champion International Corp., a manufacturer of paper products. 20 Mr. Snoey has been President and Chief Operating Officer of Holiday Rambler since joining the Company in January 1993. Prior to that time, he held, from January 1992 to December 1992, a general management consulting assignment with Precision Castparts Corporation, a specialty manufacturer supplying the transportation industry. From July 1989 to March 1991, he was the President and CEO of Geostar Corporation, an entrepreneurial, global satellite communications company, serving the transportation industry. From March 1984 to July 1989, he was an executive with the Kenworth Truck Division of PACCAR, Inc., a leading manufacturer of transportation equipment, where his last position was General Manager for U.S. Operations. 21 PART II ------- Item 5. Market for Harley-Davidson, Inc. common stock and related shareholder ------- --------------------------------------------------------------------- matters ------- Harley-Davidson, Inc. common stock is traded on the New York Stock Exchange. The high and low market prices for the common stock, reported as New York Stock Exchange Composite Transactions, were as follows:
1994 Low High ---- -------- -------- First quarter $ 21-5/8 $25-1/16 Second quarter 21-7/8 25-1/2 Third quarter 22-9/16 29-7/8 Fourth quarter 24-1/2 28-3/8 1993 ---- First quarter $ 15-3/4 $ 19-3/8 Second quarter 16-5/8 19-3/4 Third quarter 19-1/8 23-3/8 Fourth quarter 19-7/8 23-3/4
The Company paid the following dividends:
1994 1993 -------- -------- First quarter $ .03 $ - Second quarter 03 - Third quarter .04 .03 Fourth quarter .04 .03
Prior to the declaration of its first quarterly dividends during 1993, the Company had not paid cash dividends on its common stock. On March 9, 1995, the Company announced plans to repurchase up to 4 million shares of its common stock pursuant to authority previously granted by its Board of Directors and, subsequently, has made repurchases pursuant to this announcement. The repurchases are authorized to be made from time to time in the open market or in privately negotiated transactions. As of March 21, 1995, there were approximately 28,135 shareholders of record of Harley-Davidson, Inc. common stock. 22
Item 6. Selected financial data ------- ----------------------- 1994 1993 1992 1991 1990 ---------- ----------- ----------- --------- --------- (In thousands, except per share amounts) Income statement data: Net sales $1,541,796 $1,217,428 $1,105,284 $939,863 $864,600 Cost of goods sold 1,120,332 880,269 808,871 706,140 635,551 ---------- ---------- ---------- -------- -------- Gross profit 421,464 337,159 296,413 233,723 229,049 Selling, administrative, and engineering 261,157 267,353* 199,216 165,078 145,674 ---------- ---------- ---------- -------- -------- Income from operations 160,307 69,806 97,197 68,645 83,375 Interest income (expense), net 44 (831) (4,912) (7,312) (9,701) Other income (expense), net 1,718 (2,460) (3,476) (3,239) (11,057) ---------- ---------- ---------- -------- -------- Income before provision for income taxes, extraordinary items and accounting changes 162,069 66,515 88,809 58,094 62,617 Provision for income taxes 57,797 48,072 34,636 21,122 24,309 ---------- ---------- ---------- -------- -------- Income before extraordinary items and accounting changes 104,272 18,443 54,173 36,972 38,308 Extraordinary items, net of tax - - (388) - (478) ---------- ---------- ---------- -------- -------- Income before accounting changes 104,272 18,443 53,785 36,972 37,830 Cumulative effect of accounting changes, net of tax** - (30,328) - - - ---------- ---------- ---------- -------- -------- Net income (loss) $ 104,272 $ (11,885) $ 53,785 $ 36,972 $ 37,830 ========== ========== ========== ======== ======== Weighted average common shares assuming no dilution 76,198 75,900 71,778 71,160 71,152 ========== ========== ========== ======== ======== Per common share: Income before extraordinary items and accounting changes $1.37 $ .24 $ .76 $.52 $.54 Extraordinary items, net of tax - - (.01) - (.01) Accounting changes, net of tax - ( .40) - - - ---------- ---------- ---------- -------- -------- Net income (loss) $1.37 $ ( .16) $ .75 $.52 $.53 ========== ========== ========== ======== ======== Dividends paid $.14 $ .14 $ .06 $ - $ - ========== ========== ========== ======== ======== Balance sheet data: Working capital $ 189,358 $ 142,996 $ 96,232 $ 64,212 $ 50,152 Total assets 739,215 583,285 522,164 474,233 407,467 Short-term debt, including current maturities of long-term debt 18,303 21,369 16,965 41,089 23,859 Long-term debt, less current maturities 9,410 3,429 2,360 46,906 48,339 ---------- ---------- ---------- -------- -------- Total debt 27,713 24,798 19,325 87,995 72,198 Shareholders' equity 433,232 324,912 335,380 238,000 198,775
*Includes a $57.0 million charge related primarily to the write-off of goodwill at the Transportation Vehicles segment (Holiday Rambler). **During 1993, the Company adopted accounting standards related to postretirement health care benefits and income taxes. 23 Item 7. Management's discussion and analysis of financial condition and ------- --------------------------------------------------------------- results of operations --------------------- RESULTS OF OPERATIONS 1994 COMPARED TO 1993 OVERALL Net sales and earnings were at record levels in 1994, driven by improvements at both Harley-Davidson Motor Company and Holiday Rambler. Consolidated net sales for 1994 of $1.5 billion were $324.4 million, or 26.6% higher than net sales for 1993. Net income and earnings per share were $104.3 million and $1.37, respectively, for 1994 as compared with $74.1 million and $.98, respectively, for 1993, excluding the $57.0 million Write-down of goodwill ($55.6 million after tax) at Holiday Rambler and a $30.3 million (after tax) one-time charge for accounting changes in 1993. As a result of the improved performance and to share its financial success with its investors, the Company increased its dividend in September from $.03 per share to $.04 per share which resulted in a total year payout of $.14 per share. MOTORCYCLE UNIT SHIPMENTS AND CONSOLIDATED NET SALES
1994 1993 Change %Change -------- -------- ------- ------- Motorcycle unit shipments 95,811 81,696 14,115 17.3% Net sales (in millions): Motorcycles $ 902.6 $ 734.3 $ 168.3 22.9% Motorcycle Parts and Accessories 256.3 199.0 57.3 28.8 Total Motorcycles and Related Products 1,158.9 933.3 225.6 24.2 Recreational Vehicles 274.5 192.7 81.8 42.4 Commercial Vehicles 95.1 78.9 16.2 20.5 Other 13.3 12.5 0.8 6.1 Total Transportation Vehicles 382.9 284.1 98.8 34.7 Consolidated Harley-Davidson, Inc. $1,541.8 $1,217.4 $ 324.4 26.6%
The Motorcycles and Related Products (Motorcycles) segment's net sales increased 24.2% over 1993 due to a 14,115 unit (17.3%) increase in motorcycle shipments, as well as a 28.8% increase in its Parts and Accessories business. The increase in motorcycle shipments is the result of ongoing implementation of the Company's manufacturing strategy to increase capacity, adjust to changes in the market place and further improve product quality while reducing costs. The Company began 1994 at a scheduled production rate of 365 units per day. As the implementation of the manufacturing strategy continued, the rate increased to 395 units per day by the end of the year. The Company plans on producing 100,000 units during 1995, more than one year ahead of the original schedule. Year-end data indicates that the domestic (United States) motorcycle market continued to grow throughout 1994. Compared to 1993, industry registrations of heavyweight (engine displacements in excess of 750cc) motorcycles were up 14.5% (data provided by R.L. Polk). The Company ended 1994 with a market share of 56.1% compared to 58.4% in 1993. This decrease is a reflection of the Company's constrained capacity in a growing motorcycle market. Demand for the Company's motorcycles continues to exceed supply with nearly all of the Company's independent domestic 24 dealers reporting retail orders on all of their remaining 1995 model year motorcycle allocations (production through June, 1995). Overall, international demand remains strong. Export revenues totaled $331.2 million during 1994, an increase of approximately $68.4 million (26.0%) over 1993. The Company exported approximately 30% of motorcycle units in both 1994 and 1993 and expects to maintain approximately the same percentage during 1995. The Company distributes approximately one-half of exported units through its wholly owned subsidiaries in Germany, Japan and England, which allows the Company flexibility in responding to changing economic conditions in a variety of foreign markets. While definitive market share information does not exist in many foreign countries, the Company believes that it generally holds an approximate 15% overall market share in the foreign markets in which it competes. During 1994, the Parts and Accessories business generated $256.3 million in revenues, an increase of 28.8% over 1993. The MotorClothes line increased 32.6% due in part to the introduction of the Biker Blues denim clothing line which contributed an incremental $3.7 million. Sales of Genuine Parts and Accessories, which outpaced aftermarket competitors, increased 26.8% over 1993. To continue to grow the Parts and Accessories business, the Company is working towards improving distribution and increasing the scope and quality of the product offerings. During the fourth quarter of 1994, the company established a relationship with a distribution facility operated by a third party in Rotterdam, Holland. The facility will receive all motorcycles, parts and accessories shipped to Europe and is expected, among other things, to reduce response time on international dealer orders. The Transportation Vehicles segment's net sales increased 34.7% over 1993 due primarily to a 42.4% increase in the Recreational Vehicles division. "Class A" (motorized) motorhome retail sales outperformed the growing market and resulted in an increased market share for the Company of 5.5% as compared to 4.8% in the prior period. Sales of towable products (fifth wheel and travel trailers) grew, but less than the industry and, therefore, dropped slightly to 2.2% in 1994 from 2.4% in 1993. Based on February 1995 internally generated data, Holiday Rambler sales are currently on track to result in 1995 Recreational Vehicles sales at the same level as 1994. The Commercial Vehicles division had a 20.5% revenue increase in 1994 due primarily to large fleet contracts such as Federal Express, Frito Lay, Inc. and Ryder Truck Rental, Inc. The Commercial Vehicles division is in the process of significantly increasing the size and output of its paint facility, as well as running some second shifts to keep up with demand and positioning itself for future growth. CONSOLIDATED GROSS PROFIT (Dollars in Millions)
Percent Percent of Sales of Sales 1994 1993 Change 1994 1993 ------ ------ ------ -------- -------- Motorcycles and Related Products $358.4 $292.0 $66.4 30.9% 31.3% Transportation Vehicles 63.1 45.2 17.9 16.4 15.9 ------ ------ ----- ---- ---- Consolidated Harley-Davidson, Inc. $421.5 $337.2 $84.3 27.3% 27.7%
Consolidated gross profit increased $84.3 million, or 25% in 1994 as compared with 1993 primarily due to an increase in volume. The consolidated gross profit margin was 27.3% in 1994 as compared with 27.7% in 1993. 25 The Motorcycles segment's gross profit margin was negatively affected by the continued investment (approximately $10 million) in the manufacturing strategy designed to increase capacity, improve quality, and reduce costs. In addition, approximately 28% of 1994 unit shipments were lower-margin Sportster models compared to approximately 27% in 1993. The Company's long-term goal is a product mix consisting of approximately 25% Sportsters. The Transportation Vehicles segment's gross profit margin increased due to additional volume in both the Recreational Vehicles and Commercial Vehicles divisions. Gross profit margin in the Recreational Vehicles division increased primarily on volume increases which were offset, somewhat, by additional volume of higher-priced diesel motorhomes which generally carry a smaller mark-up. The Commercial Vehicles division also benefited from volume increases as well as a shift in mix toward higher margin walk-in units. CONSOLIDATED OPERATING EXPENSES (Dollars in Millions)
1994 1993 Change %Change ------ ------ ------ ------- Motorcycles and Related Products $194.8 $155.8 $ 39.0 25.1% Transportation Vehicles 56.4 47.7 8.7 18.3 Corporate 10.0 6.9 3.1 44.6 Consolidated Harley-Davidson, Inc. before unusual charges 261.2 210.4 50.8 24.2 Goodwill and restructuring charges - 57.0 (57.0) (100.0) Consolidated Harley-Davidson, Inc. $261.2 $267.4 $ (6.2) (2.3)%
Consolidated operating expenses for 1994, increased $50.8 million, or 24.2%, over 1993, excluding the $57.0 million charge to operations in 1993 related to the Transportation Vehicles segment. The Motorcycles segment's increase was primarily volume related. MotorClothes advertising costs, variable compensation, and product liability were other areas of increased spending in the Motorcycles segment. The Transportation Vehicles segment's increase was also primarily volume related in both the Recreational Vehicles and Commercial Vehicles divisions. The increase in the Corporate charges is primarily due to a one-time charge related to the legal reorganization of Harley-Davidson, Inc. and its Holiday Rambler subsidiaries. CONSOLIDATED OTHER EXPENSES Consolidated other expense for 1994 decreased $4.2 million as compared to 1993 due primarily to a $2.0 million contribution in 1993 for the initial funding of the Harley-Davidson Foundation which administers the Company's charitable contributions. CONSOLIDATED INCOME TAXES ------------------------- The Company's effective tax rate decreased in 1994 to 35.7% from 40.0% in 1993, excluding the effect of the $53.5 million goodwill write-off at Holiday Rambler that was not deductible during 1993. The decrease is attributable primarily to a one-time benefit of $4.6 million related to the legal reorganization of the Transportation Vehicles segment. Excluding the effect of the reorganization, the effective rate would have been 38.5% in 1994. 26 RESULTS OF OPERATIONS 1993 COMPARED TO 1992 OVERALL The Company's Motorcycles and Related Products segment was responsible for virtually all of the growth in 1993 revenue and earnings. Demand for the segment's motorcycles exceeded supply during 1993 and its Parts and Accessories business generated a 27.8% revenue increase over 1992. The motorcycle business also significantly benefitted from a more predictable and efficient manufacturing process. The Transportation Vehicles segment, in total, recorded disappointing results in 1993. The segment's Recreational Vehicles business did not participate, to the extent of other recreational vehicles manufacturer, in the industry recovery. During the fourth quarter of 1993, the Company determined that an impairment of goodwill related to the Transportation Vehicles segment had occurred, and accordingly, recorded a %57.0 million ($.74 per share) write-off of goodwill and certain other assets. In addition to the goodwill write-off, the Company changed its methods of accounting both for postretirement health care benefits and for income taxes during 1993, resulting in a $30.3 million ($.0 per share) charge to earnings, net of tax. Excluding the effect of the goodwill write-off and accounting changes, the Company would have reported earnings during 1993 of $74.1 million ($.98 per share) compared to $53.8 million ($.75 per share) during 1992. MOTORCYCLE UNIT SHIPMENTS AND CONSOLIDATED NET SALES
1993 1992 Change %Change -------- -------- ------ ------- Motorcycle unit shipments 81,696 76,495 5,201 6.8% Net sales (in millions): Motorcycles $ 734.3 $ 667.2 $ 67.1 10.0% Motorcycle Parts and Accessories 199.0 155.7 43.3 27.8 Total Motorcycles and Related Products 933.3 822.9 110.4 13.4 Recreational Vehicles 192.7 202.1 (9.4) (4.6) Commercial Vehicles 78.9 67.9 11.0 16.2 Other 12.5 12.4 0.1 1.1 Total Transportation Vehicles 284.1 282.4 1.7 0.6 Consolidated Harley-Davidson, Inc. $1,217.4 $1,105.3 $112.1 10.1%
The Company reported record consolidated revenue during 1993 of $1.2 billion compared to $1.1 billion during 1992. The Motorcycles segment was responsible for virtually all of the change in consolidated revenue as the result of increases in both motorcycle unit shipments and Parts and Accessories sales. During 1992, the motorcycle production schedule began the year at 280 units per day and increased throughout the year to a scheduled rate of 345 units per day in December (increased to 365 units effective January 3, 1994). The scheduled motorcycle production rate remained steady at 345-350 units per day throughout 1993. Accordingly, the Company reported only a 6.8% increase in unit shipments compared to 1992. 27 Year-end data indicate that the domestic motorcycle market continued to grow throughout 1993. Compared to 1992, industry registrations of heavyweight motorcycles were up 17.4%. The Company ended 1993 with a market share of 58.4% compared to 60.4% in 1992. This decrease is a reflection of the Company's constrained capacity in a growing motorcycle market. Overall, international demand remained strong. Export revenues totaled $262.8 million during 1993, an increase of approximately $23.4 million (9.8%) over 1992. The Company exported approximately 30% of motorcycle units in both 1993 and 1992. The Company distributes approximately one-half of exported units through its wholly owned subsidiaries. Parts and Accessories revenues exceeded management's expectations during 1993, increasing 27.8% over 1992. Fourth quarter results were especially strong, with revenues increasing 39.7% compared to the same period in 1992. Several factors including media exposure surrounding the Company's 90th anniversary celebration in June 1993, the popularity of the MotorClothes line and a strong holiday selling season contributed to the growth. The Transportation Vehicles segment's Recreational Vehicles division did not realize the same level of improvement as the overall recreational vehicle industry. During 1993, industry registrations increased 13.1% overall, while the division's wholesale unit shipments decreased in both Class A and towable product lines compared to 1992. The division's 1993 market shares for Class A motorhomes and towables were 4.8% and 2.4%, respectively, compared to 5.3% and 2.9% during 1992. Much of the industry improvement (especially with respect to travel trailers) has occurred in the lower end of the market, where the division generally does not compete. The Company replaced, in January 1993, the President and Chief Operating Officer of the Transportation Vehicles segment. Also during 1993, the Recreational Vehicles division added several employees from outside of the organization to fill key leadership positions in product development, marketing and sales areas. A 16.2% revenue increase in the Commercial Vehicles division was primarily the result of large fleet contracts completed during 1993. The Commercial Vehicles division's ability to attract large fleet contracts in a competitive market positions it well for future growth. CONSOLIDATED GROSS PROFIT (Dollars in Millions)
Percent Percent of Sales of Sales 1993 1992 Change 1993 1992 ------ ------ ------ -------- -------- Motorcycles and Related Products $292.0 $250.0 $42.0 31.3% 30.4% Transportation Vehicles 45.2 46.4 (1.2) 15.9 16.4 Consolidated Harley-Davidson, Inc. $337.2 $296.4 $40.8 27.7% 26.8%
The $40.8 million increase in consolidated gross profit was generated entirely by the Motorcycles segment. Volume increases in both motorcycle units and parts and accessories provided the majority of the increase. The improvement in gross profit as a percent of sales reflects, primarily, efficiencies realized in the manufacturing process. Motorcycle volume increases realized during 1992 resulted in substantial overtime and caused significant manufacturing inefficiencies. Accordingly, the manufacturing focus in 1993 was on process improvement rather than on dramatic production increases. The result was a more predictable manufacturing process, a substantial decrease in overtime 28 and an efficient transition to production of 1994 models. The improvement in gross profit percentage occurred despite a shift in mix toward lower-margin Sportster models. Approximately 27% of 1993 motorcycle unit shipments were Sportster models compared to approximately 23% during 1992. Gross profit at the Transportation Vehicles segment decreased slightly during 1993. Volume decreases in the Recreational Vehicles division were largely offset by volume increases in the Commercial Vehicles division. However, most of the volume increase at the Commercial Vehicles division was the result of fleet contracts which generally carry lower margins. CONSOLIDATED OPERATING EXPENSES (Dollars in Millions)
1993 1992 Change %Change ------ ------ ------ ------- Motorcycles and Related Products $155.8 $147.7 $ 8.1 5.5% Transportation Vehicles 47.7 44.3 3.4 7.6 Corporate 6.9 7.2 (0.3) (5.0) Consolidated Harley-Davidson, Inc. before unusual charges 210.4 199.2 11.2 5.6 Goodwill and restructuring charges 57.0 - 57.0 - Consolidated Harley-Davidson, Inc. $267.4 $199.2 $68.2 34.2%
The Motorcycles segment's operating expenses increased approximately 5.5% during 1993, although 1992's operating expenses included a $5.5 million charge in the Motorcycle division related to two voluntary recalls. In general, the increase in operating expense was the result of spending required to support the growing business, including international operations. Other areas of increase in 1993 include incentive compensation and engineering costs, while areas of decrease included product liability and warranty costs. During the fourth quarter of 1993, the Company recorded a $57.0 million charge to operations related to its Transportation Vehicles segment. $53.5 million ($.71 per share) of the charge related to goodwill associated with the Company's purchase of Holiday Rambler LLC (formerly Holiday Rambler Corporation) during 1986. Since the acquisition, the markets in which the Transportation Vehicles segment operates have become increasingly competitive, and the segment itself did not react appropriately to changes in market conditions, resulting in lower profit than initially anticipated. The Company considered these and other factors in concluding that an impairment of the goodwill asset had occurred. The Company measured the impairment by discounting estimated future cash flows of the Transportation Vehicles segment over the remaining goodwill amortization period, using a targeted cost of capital discount rate. In addition, the Company recorded a $3.5 million pretax ($0.03 per share) restructuring charge related to strategic decisions made with respect to certain operating units of the Transportation Vehicles segment. Excluding the effect of the goodwill and restructuring charge, the Transportation Vehicles segment recorded a $3.4 million (7.6%) increase in operating expenses related primarily to increased marketing costs, rising fringe benefit costs and incremental costs generated by two new Holiday World retail showroom and service centers. 1993 operating expenses included goodwill amortization of $2.2 million. 29 CONSOLIDATED OTHER EXPENSES Consolidated other expense decreased $3.2 million during 1993 compared to 1992, primarily as the result of approximately $3.7 million of net foreign exchange gain recognized during 1993. In addition, the third quarter of 1992 included an unusual $1.9 million product recall in the Recreational Vehicles division related to units that had been produced eight to ten years earlier, prior to the purchase of Holiday Rambler by the Company. During the fourth quarter of 1993, the Company contributed $2.0 million toward the initial funding of the Harley-Davidson Foundation. CONSOLIDATED NET INTEREST EXPENSE Consolidated net interest expense of $.8 million decreased $4.1 million (83.1%) compared to 1992. The conversion of the Company's 7 1/4% convertible subordinated debentures during the fourth quarter of 1992 and generally lower short-term debt levels were the primary factors in the decrease of consolidated interest expense. CONSOLIDATED INCOME TAXES The Company's effective tax rate during 1993 was 72.3% due primarily to the effect of a $53.5 million goodwill write-off that was not deductible during 1993. Excluding the effect of the write-off, the Company's effective tax rate would have been 40.0% compared to 39.0% during 1992. 30 OTHER MATTERS ACCOUNTING CHANGES On January 1, 1993, the Company adopted the provisions of Statements of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" and No. 109 "Accounting for Income Taxes." The adoption of SFAS No. 106 resulted in the recognition of a $32.1 million charge (net of tax) representing the cumulative effect of adopting the standard. The adoption of SFAS No. 109 resulted in the recognition of a cumulative effect adjustment of $1.8 million. The adoption of these standards had no impact on cash flows. NET DEFERRED TAX ASSET The Company had a net deferred tax asset of approximately $43 million and $32 million at December 31, 1994 and 1993, respectively. In considering the necessity of establishing a valuation allowance on deferred tax assets, management considered: the levels of taxes paid in prior years that would be available for carryback; its ability to offset reversing deferred tax assets against reversing deferred tax liabilities; and, the Company's prospects for future earnings. Accordingly, it is the opinion of management that it is more likely than not that the gross deferred tax assets included in the consolidated balance sheet at December 31, 1994 will be realized in their entirety. It is the intent of management to evaluate the realizability of deferred tax assets on a quarterly basis. FOREIGN CURRENCY As discussed in Note 6 of the notes to the consolidated financial statements, the Company attempts to limit its foreign currency exposure (primarily against European currencies) by entering into forward exchange contracts. The recent decline in the dollar against the German Deutsche Mark is not expected to have a material impact on 1995 earnings. ENVIRONMENTAL MATTERS 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. 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. During 1994, the Company spent approximately $1 million on equipment used to limit hazardous substances/pollutants and anticipates approximately the same in 1995. The Company does not expect that expenditures related to environmental matters will have a material effect on future operating results or cash flows. 31 LIQUIDITY AND CAPITAL RESOURCES The Company recorded cash flows from operating activities of $80.8 million in 1994 compared to $96.2 million during 1993. Cash flow from higher earnings during 1994 was largely offset by a net increase in working capital items, primarily accounts receivable and inventories. Accounts receivable at December 31, 1994 increased approximately $57.4 million, or 66.7% over the balance at December 31, 1993. This increase is primarily the result of a 26.6% increase in consolidated revenues and additional foreign receivables which generally have longer terms. Additionally, during 1994, the Motorcycles segment discontinued the granting of a 2% cash discount on domestic parts and accessories sales which has resulted in the slower collection of these balances. In addition, the Transportation Vehicles segment reported an increase in December sales from $23 million in 1993 to $42 million in 1994 increasing receivables accordingly. Inventories at December 31, 1994 increased approximately $33.3 million, or 23.7% over the balance at December 31, 1993. The primary increase is a result of the increase in demand for parts and accessories (revenues up 28.8%) and the Company's effort to increase fill rates on dealer orders. Fill rates have increased to 95% and the Company is evaluating the appropriate parts and accessories inventory mix required to continue to meet this fill rate. In addition, the Recreational Vehicles division reported increases in work-in-process inventories due to minor part shortages that prevented the shipment of some units at year-end. Finished goods inventories at the Transportation Vehicles segment's Holiday World retail stores increased compared to 1993 due primarily to the recent introduction of '95 model-year Imperial units. Capital expenditures amounted to $94.7 million and $55.2 million during 1994 and 1993, respectively. The Company anticipates 1995 capital expenditures will approximate $100-$110 million. As discussed earlier, the Company's Board of Directors approved a manufacturing strategy during the third quarter of 1993. The Company estimated the cost of capital expenditures for new initiatives under this plan would be approximately $80 million through 1996 of which approximately $37 million has been incurred as of December 31, 1994. An estimated additional $30 million of capital expenditures during 1995 and 1996 should increase annual production capacity to 115, 000 units by 1997. These estimates are in addition to capital expenditures to maintain existing equipment and for new product development. The Company anticipates funding all capital expenditures with internally generated funds. The Company currently has nominal levels of long-term debt and has available lines of credit of approximately $46 million, of which approximately $29 million remained available at year-end. The Company's Board of Directors declared quarterly cash dividends during 1994 totaling $.14 per share and two quarterly cash dividends totaling $.06 per share during 1993 (adjusted for the 1994 stock split). 32 Item 8. Consolidated financial statements and supplementary data ------- -------------------------------------------------------- Report of Ernst & Young LLP, independent auditors Consolidated statements of operations Consolidated balance sheets Consolidated statements of cash flows Consolidated statements of shareholders' equity Notes to consolidated financial statements Supplementary data Quarterly financial data (unaudited) 33 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Harley-Davidson, Inc. We have audited the accompanying consolidated balance sheets of Harley- Davidson, Inc. as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the index at item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harley-Davidson, Inc. at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in notes 5 and 8 to the consolidated financial statements, effective January 1, 1993, the Company changed its methods of accounting for income taxes and postretirement benefits other than pensions. ERNST & YOUNG LLP Milwaukee, Wisconsin January 21, 1995 34 HARLEY-DAVIDSON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1994, 1993 and 1992 (In thousands, except per share amounts)
1994 1993 1992 ----------- ----------- ----------- Net sales $1,541,796 $1,217,428 $1,105,284 Cost of goods sold 1,120,332 880,269 808,871 ---------- ---------- ---------- Gross profit 421,464 337,159 296,413 Selling, administrative and engineering 261,157 210,329 199,216 Goodwill and restructuring charges - 57,024 - ---------- ---------- ---------- Income from operations 160,307 69,806 97,197 Interest income 2,430 1,214 956 Interest expense (2,386) (2,045) (5,868) Other - net 1,718 (2,460) (3,476) ---------- ---------- ---------- Income before provision for income taxes, extraordinary item and accounting changes 162,069 66,515 88,809 Provision for income taxes 57,797 48,072 34,636 ---------- ---------- ---------- Income before extraordinary item and accounting changes 104,272 18,443 54,173 Extraordinary item, loss on debt repurchases, net of tax - - (388) ---------- ---------- ---------- Income before accounting changes 104,272 18,443 53,785 Cumulative effect of accounting changes: Postretirement health care benefits, net of tax - (32,124) - Income taxes - 1,796 - ---------- ---------- ---------- Net income (loss) $ 104,272 $ (11,885) $ 53,785 ========== ========== ========== Earnings (loss) per common share assuming no dilution: Income before extraordinary item and accounting changes $1.37 $ .24 $ .76 Extraordinary item - - (.01) Accounting changes - (.40) - ----- ----- ----- Net income (loss) $1.37 $(.16) $ .75 ===== ===== ===== Earnings (loss) per common share assuming full dilution: Income before extraordinary item and accounting changes $1.37 $ .24 $ .73 Extraordinary item - - (.01) Accounting changes - (.40) - ----- ----- ----- Net income (loss) $1.37 $(.16) $ .72 ===== ===== ===== Cash dividends per common share $ .14 $ .06 $ - ===== ===== =====
The accompanying notes are an integral part of the consolidated financial statements. 35 HARLEY-DAVIDSON, INC. CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993 (In thousands, except share amounts)
ASSETS 1994 1993 ------ --------- --------- Current assets: Cash and cash equivalents $ 59,285 $ 77,709 Accounts receivable, net of allowance for doubtful accounts 143,396 86,031 Inventories 173,420 140,151 Deferred income taxes 20,111 20,296 Prepaid expenses 9,424 9,571 -------- -------- Total current assets 405,636 333,758 Property, plant, and equipment, net 262,787 205,768 Deferred income taxes 22,924 11,676 Other assets 47,868 32,083 -------- -------- $739,215 $583,285 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY -------------------------------- Current liabilities: Notes payable $ 17,890 $ 20,580 Accounts payable 63,988 56,350 Accrued expenses and other 133,987 113,043 Current maturities of long-term debt 413 789 -------- -------- Total current liabilities 216,278 190,762 Long-term liabilities 29,422 12,612 Postretirement health care benefits 60,283 54,999 Commitments and contingencies (Note 6) Shareholders' equity: Series A Junior Participating preferred stock, none issued - - Common stock, 77,156,252 and 38,452,490 shares issued in 1994 and 1993, respectively 772 385 Additional paid-in capital 150,728 137,150 Retained earnings 283,010 189,410 Cumulative foreign currency translation adjustment 1,174 186 -------- -------- 435,684 327,131 Less: Treasury stock (836,328 and 456,464 shares in 1994 and 1993, respectively), at cost (1,581) (1,583) Unearned compensation (871) (636) -------- -------- Total shareholders' equity 433,232 324,912 -------- -------- $739,215 $583,285 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 36 HARLEY-DAVIDSON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993 and 1992 (In thousands)
1994 1993 1992 --------- --------- --------- Cash flows from operating activities: Net income (loss) $104,272 $(11,885) $ 53,785 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Goodwill and restructuring charges - 57,024 - Depreciation and amortization 36,942 33,272 29,410 Deferred income taxes (11,063) (25,922) (993) Long-term employee benefits 11,993 57,386 1,369 Loss on disposal of long-term assets 611 626 1,164 Equity in net (income) loss of joint ventures (56) 1,427 - Other - - (7,200) Net changes in other current assets and current liabilities (61,905) (15,756) 10,380 -------- -------- -------- Total adjustments (23,478) 108,057 34,130 -------- -------- -------- Net cash provided by operating activities 80,794 96,172 87,915 Cash flows from investing activities: Net capital expenditures (94,670) (55,202) (47,229) Investment in joint ventures - (10,350) - Other - net (1,907) (1,484) (2,727) -------- -------- -------- Net cash used in investing activities (96,577) (67,036) (49,956) Cash flows from financing activities: Net increase (decrease) in notes payable (2,690) 4,647 (23,593) Payments on long-term debt (1,481) (1,183) (9,420) Dividends paid (10,672) (4,555) - Issuance of stock under employee stock plans 12,202 5,542 8,257 -------- -------- -------- Net cash provided by (used in) financing activities (2,641) 4,451 (24,756) -------- -------- -------- Net increase (decrease) in cash and cash equivalents (18,424) 33,587 13,203 Cash and cash equivalents: At beginning of year 77,709 44,122 30,919 -------- -------- -------- At end of year $ 59,285 $ 77,709 $ 44,122 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 37 HARLEY-DAVIDSON, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 1994, 1993 and 1992 (In thousands, except share amounts)
Cumulative Common Stock foreign ------------------- Additional currency Issued paid-in Retained translation Treasury Unearned shares Balance capital earnings adjustment stock compensation ---------- ------- ----------- --------- ------------ --------- ------------- Balance December 31, 1991 18,310,000 $183 $ 87,730 $152,065 $1,566 $ (984) $(2,560) Two-for-one common stock split 18,310,000 183 (183) - - - - Net income - - - 53,785 - - - Amortization of unearned compensation, net of cancellations - - - - - (73) 923 Exercise of stock options - - 2,757 - - 29 - Tax benefit of restricted shares and stock options - - 5,471 - - - - Conversions of subordinated debentures 1,832,490 19 35,278 - - - - Foreign currency translation adjustment - - - - (809) - - ---------- ------- -------- -------- ----------- -------- ------------ Balance December 31, 1992 38,452,490 385 131,053 205,850 757 (1,028) (1,637) Net loss - - - (11,885) - - - Dividends - - - (4,555) - - - Amortization of unearned compensation, net of cancellations - - - - - (566) 1,001 Exercise of stock options - - 2,044 - - 11 - Tax benefit of restricted shares and stock options - - 4,053 - - - - Foreign currency translation adjustment - - - - (571) - - ---------- ------- -------- -------- ----------- -------- ------------ Balance December 31, 1993 38,452,490 385 137,150 189,410 186 (1,583) (636) Two-for-one common stock split 38,452,490 385 (385) - - - - Net income - - - 104,272 - - - Dividends - - - (10,672) - - - Restricted stock issuance - - 1,763 - - 2 (1,765) Amortization of unearned compensation - - - - - - 1,530 Exercise of stock options 251,272 2 1,870 - - - - Tax benefit of restricted shares and stock options - - 10,330 - - - - Foreign currency translation adjustment - - - - 988 - - ---------- ------- -------- -------- ----------- -------- ------------ Balance December 31, 1994 77,156,252 $772 $150,728 $283,010 $1,174 $(1,581) $ (871) ========== ======= ======== ======== =========== ======== ============
The accompanying notes are an integral part of the consolidated financial statements. 38 HARLEY-DAVIDSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 1994 1. Summary of significant accounting policies ------------------------------------------ Principles of consolidation - The consolidated financial statements include --------------------------- the accounts of Harley-Davidson, Inc. and all of its wholly owned subsidiaries (the Company), including the accounts of Harley-Davidson Motor Company (HDMC) and Holiday Rambler LLC (Holiday Rambler). All significant intercompany accounts and transactions are eliminated. The Company has investments in certain entities which are accounted for using the equity method. Accordingly, the Company's share of the net earnings (losses) of these entities is included in consolidated net income (loss). Cash and cash equivalents - The Company considers all highly liquid ------------------------- investments purchased with an original maturity of three months or less to be cash equivalents. Inventories - Inventories are valued at the lower of cost or market. ----------- Motorcycle and new transportation vehicle inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories, $33.3 million in 1994 and $26.5 million in 1993, are valued at the lower of cost or market using the first-in, first-out (FIFO) method. Depreciation - Depreciation of plant and equipment is determined on the ------------ straight-line basis over the estimated useful lives of the assets. Accelerated methods are used for income tax purposes. Product warranty - Product warranty costs are charged to operations based ---------------- upon the estimated warranty cost per unit sold. Research and development expenses - Research and development expenses were --------------------------------- approximately $29.5 million, $22.7 million and $17.6 million for 1994, 1993 and 1992, respectively. Environmental - The Company accrues for environmental loss contingencies ------------- when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company does not use discounting in determining its environmental liabilities. See Note 6. Earnings (loss) per share - Earnings (loss) per common share assuming no ------------------------- dilution is calculated by dividing elements of net income (loss) by the weighted average number of common shares outstanding during the period, as adjusted for the stock split described in Note 9. The weighted average number of common shares outstanding during 1994, 1993 and 1992 were 76.2 million, 75.9 million and 71.8 million, respectively. Earnings (loss) per common share assuming full dilution includes shares generated by the assumed conversion of convertible debt at the beginning of the period as well as the dilutive effect of stock options in 1992. Shares used in computing earnings per common share assuming full dilution during 1992 were 76.5 million. Stock options were not materially dilutive during 1994 or 1993. 39 2. Additional balance sheet and cash flows information --------------------------------------------------- Accounts receivable consist of the following:
December 31 ----------------- 1994 1993 -------- ------- (In thousands) Motorcycles and Related Products segment: Domestic $ 58,107 $27,854 Foreign 58,154 46,686 Transportation Vehicles segment 27,135 11,491 -------- ------- $143,396 $86,031 ======== =======
Domestic motorcycle and transportation vehicle sales are generally floor planned by the purchasing dealers. Foreign motorcycle sales are sold on open account except for sales to European distributors, which are typically backed by letters of credit. The allowance for doubtful accounts deducted from accounts receivable was $2.0 million and $1.8 million at December 31, 1994 and 1993, respectively.
December 31 ------------------ 1994 1993 -------- -------- (In thousands) Inventories: Components at the lower of FIFO cost or market: Raw materials and work in process $ 70,685 $ 54,155 Finished goods 69,745 66,865 Parts and accessories 52,554 35,366 -------- -------- 192,984 156,386 Excess of FIFO over LIFO inventories 19,564 16,235 -------- -------- $173,420 $140,151 ======== ======== Property, plant and equipment, at cost: Land and land improvements $ 11,587 $ 11,260 Buildings and improvements 93,725 79,666 Machinery and equipment 329,679 252,857 -------- -------- 434,991 343,783 Less accumulated depreciation 172,204 138,015 -------- -------- $262,787 $205,768 ======== ========
40 2. Additional balance sheet and cash flows information (continued) ---------------------------------------------------------------
December 31 ------------------ 1994 1993 -------- -------- (In thousands) Accrued expenses and other: Payroll, bonuses, and related expenses $ 51,659 $ 41,226 Warranty/recalls 15,856 16,446 Dealer incentive programs 14,653 14,614 Product liability 9,941 11,408 Other taxes payable 2,131 3,729 Income taxes payable 18,136 3,960 Other 21,611 21,660 -------- -------- $133,987 $113,043 ======== ========
Supplemental cash flow information is as follows:
1994 1993 1992 --------- --------- --------- (In thousands) Net changes in other current assets and current liabilities: Receivables $(57,365) $ 7,147 $(21,661) Inventories (33,269) (37,980) 12,255 Prepaid expenses 147 46 (940) Accounts payable and accrued expenses 28,582 15,031 20,726 -------- -------- -------- $(61,905) $(15,756) $ 10,380 ======== ======== ======== Cash paid during the period for interest and income taxes is as follows: Interest $ 2,308 $ 1,959 $ 5,940 ======== ======== ======== Income taxes $47,612 $53,277 $28,092 ======= ======= =======
In December 1992, the Company issued approximately 3.6 million shares of its common stock in exchange for the remaining $36.3 million of Harley-Davidson, Inc. 7-1/4% convertible subordinated debentures. 3. Investments ----------- On January 5, 1993, the Company invested $10.0 million for a 49% interest in Eaglemark Financial Services, Inc., formerly Eagle Credit Corporation, (Eagle). Eagle was formed to provide wholesale and retail financing to the Company's dealer networks and customers. Upon the completion of its capitalization on January 5, 1993, Eagle purchased all of Holiday Rambler's floor plan obligations (Notes payable) from a third party finance company. Eagle also began providing wholesale financing to the Company's independent dealers on that date, by purchasing a wholesale motorcycle floor plan financing portfolio from the third party finance company. The Company accounts for this and another investment using the equity method. As of December 31, 1994 and 1993, respectively, the Company's carrying value of its investments in these unconsolidated affiliates totaled $9.0 and $8.9 million which is included in other assets. In addition, accounts receivable includes a $16.8 million and $9.4 million amount due from Eagle as of December 31, 1994 and 1993, respectively. 41 4. Notes payable ------------- Notes payable primarily represent floor plan obligations of Holiday Rambler which are secured by specific units held for sale (approximately $23 million of the finished goods inventory at December 31, 1994). As of December 31, 1994, the Company had unsecured lines of credit totaling approximately $45.7 million, of which approximately $28.5 million remained available after consideration of borrowings and outstanding letters of credit. 5. Income taxes ------------ In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The Company adopted this standard on a prospective basis effective January 1, 1993. The adoption resulted in additional income of $1.8 million related primarily to the accounting treatment applied to inventory. Details of income before provision for income taxes are as follows:
1994 1993 1992 -------- --------- -------- (In thousands) Income before taxes, extraordinary item and accounting changes: Domestic $147,638 $ 55,709 $77,802 Foreign 14,431 10,806 11,007 Extraordinary item - - (644) Accounting changes - (52,661) - -------- -------- ------- $162,069 $ 13,854 $88,165 ======== ======== =======
Provision for income taxes consists of the following:
Income tax (benefit) applicable to: Income before taxes, extraordinary item and accounting changes $ 57,797 $ 48,072 $34,636 Extraordinary item - - (256) Accounting changes - (22,333) - -------- -------- ------- $ 57,797 $ 25,739 $34,380 ======== ======== ======= Provision for income taxes: Current: Federal $ 50,356 $ 38,031 $22,968 State 11,380 9,368 6,981 Foreign 7,124 4,262 5,424 -------- -------- ------- 68,860 51,661 35,373 Deferred: Federal (9,292) (24,780) (1,140) State (1,457) (2,573) (121) Foreign (314) 1,431 268 -------- -------- ------- (11,063) (25,922) (993) -------- -------- ------- Total $ 57,797 $ 25,739 $34,380 ======== ======== =======
42 5. Income taxes (continued) ------------------------ The provision for income taxes differs from the amount which would be provided by applying the statutory U.S. corporate income tax rate due to the following items:
1994 1993 1992 -------- -------- -------- (In thousands) Provision at statutory rate $56,724 $ 4,849 $29,976 Write-off of goodwill - 18,746 - Foreign income taxes 1,618 1,484 2,033 Foreign tax credits (1,560) (1,100) (1,600) State taxes, net of federal benefit 6,563 3,687 4,171 Legal reorganization (4,600) - - Foreign sales corporation (1,549) (1,405) (613) Other 601 (522) 413 ------- ------- ------- Provision for income taxes $57,797 $25,739 $34,380 ======= ======= =======
The Company's 1994 tax provision includes a one-time benefit of $4.6 million related to the legal reorganization of the Transportation Vehicles segment. Deferred income taxes result from temporary differences between the recognition of revenues and expenses for financial statements and income tax returns. The principal components of the Company's deferred tax assets and liabilities as of December 31 include the following:
1994 1993 -------- --------- (In thousands) Deferred tax assets: Accruals not yet tax deductible $23,785 $ 29,874 Postretirement health care benefit obligation 23,932 21,834 Other, net 3,271 956 ------- -------- 50,988 52,664 Deferred tax liabilities: Depreciation, tax in excess of book (4,463) (12,124) Inventory adjustments (2,461) (6,453) Pension obligation (1,029) (2,115) ------- -------- (7,953) (20,692) ------- -------- Net deferred tax asset $43,035 $ 31,972 ======= ========
6. Commitments and 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. Subsequent to the end of the year, 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 43 6. Commitments and contingencies (continued) -- ----------------------------------------- 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 self-insures its product liability loss exposure. The Company accrues for claim exposures which are probable of occurrence and can be reasonably estimated. The Company enters into forward exchange contracts to hedge against sales transactions denominated principally in European currencies. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash flows resulting from the sale of products to foreign subsidiaries will be adversely affected by changes in exchange rates. At December 31, 1994, the Company had forward exchange contracts that required it to convert these foreign currencies, at a variety of rates, into U.S. Dollars or German Deutsche Marks. These contracts represent a combined U.S. dollar equivalent commitment of approximately $59.2 million and $45.5 million at December 31, 1994 and 1993, respectively. The current contracts mature at various dates through August, 1995. Unrealized gains and losses associated with these contracts are deferred and recognized at the time of, and as part of, the hedged sale transaction. At December 31, 1994 and 1993, these contracts had a deferred contract loss of approximately $.2 million and a deferred contract gain of approximately $1.0 million, respectively, based on published exchange rates. In the event of nonperformance by counterparties on foreign exchange contracts, the Company could be exposed to credit loss; however, the Company does not anticipate nonperformance by any of these counterparties. The amount of such exposure is generally the unrealized gains on such contracts. At December 31, 1994, the Motorcycles and Related Products segment (the Motorcycles segment) and the Transportation Vehicles segment (the Transportation segment) estimated that they were contingently liable under repurchase agreements for a maximum of $39.2 million and $42.2 million, respectively, to lending institutions, principally Eagle, that provide wholesale floor plan financing to their dealers. These agreements are customary in both the motorcycle and recreational vehicle industry. The Company's loss exposure on repurchase is limited to the difference between the resale value of the vehicle and the amount required to be paid the lending institution at the time of repurchase. The Motorcycles segment has a trade acceptance agreement with Eagle (see Note 3) that expires on June 1, 1995, and is subject to annual renewal. Under the terms of the agreement, the Motorcycle segment receives cash from Eagle in the amount of 100% of certain eligible accounts receivable at the time of sale. On June 1, 1995, the Motorcycle segment is obligated to repurchase all unpaid balances from Eagle. At December 31, 1994, trade acceptances of $19.9 million were subject to this agreement. The Company has not incurred any material losses from the foregoing repurchase agreements and currently anticipates no material losses. 44 6. Commitments and contingencies (continued) ----------------------------------------- At December 31, 1994, the Company was contingently liable for $17.2 million related to letters of credit. The letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. 7. Employee benefit plans ---------------------- The Company has several noncontributory defined benefit pension plans or profit sharing plans covering substantially all employees of the Motorcycles segment. The Company's policy with respect to the pension plans is to fund pension benefits to the extent contributions are deductible for tax purposes. The following data is provided for the pension plans for the years indicated:
Year Ended December 31, ------------------------------------- 1994 1993 1992 ------------ ------------ --------- Components of net periodic pension cost: Service cost - benefits earned during the year $ 5,324 $ 3,384 $ 2,580 Interest cost on projected benefit obligations 10,284 8,188 7,364 Actual return on plan assets (2,028) (7,327) (3,367) Net amortization and deferral (5,208) (606) (4,173) -------- -------- -------- Net periodic pension cost $ 8,372 $ 3,639 $ 2,404 ======== ======== ======== Reconciliation of funded status: September 30, 1994 September 30, 1993 ------------------------- ------------------------ Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets ----------- ----------- ----------- ---------- Actuarial present value of benefit obligations: Vested benefit obligation $ 34,790 $ 59,562 $ 29,687 $ 50,877 Nonvested benefit obligation 4,622 6,050 4,058 5,363 -------- -------- -------- -------- Accumulated benefit obligation $ 39,412 $ 65,612 $ 33,745 $ 56,240 ======== ======== ======== ======== Projected benefit obligations for service rendered to date $ 56,214 $ 81,271 $ 48,015 $ 72,096 Plan assets at fair value, consisting primarily of debt securities, bank common trust funds, common stock, and an immediate participation guarantee contract 40,427 52,825 38,805 51,662 -------- -------- -------- -------- Projected benefit obligation in excess of plan assets 15,787 28,446 9,210 20,434 Unrecognized net loss from past experience different from that assumed and changes in assumptions (14,062) (16,724) (15,271) (17,200) Unrecognized prior service cost (5,783) (7,675) (50) (2,602) Unrecognized transition asset 743 1,119 866 1,344 Additional minimum liability - 7,620 - 2,602 -------- -------- -------- -------- Accrued (prepaid) pension cost, September 30 (3,315) 12,786 (5,245) 4,578 Fourth quarter contribution (482) (222) (482) (159) -------- -------- -------- -------- Accrued (prepaid) pension cost, December 31 $ (3,797) $ 12,564 $ (5,727) $ 4,419 ======== ======== ======== ========
45 7. Employee benefit plans (continued) ---------------------------------- In 1993, the Company elected to change the measurement date for pension plan assets and liabilities from December 31 to September 30. The change in measurement date had no effect on 1993, or prior years', pension expense. The provisions of Financial Accounting Standards Board Statement No. 87, "Employers' Accounting for Pensions," require the recognition of an additional minimum liability and related intangible asset to the extent that accumulated benefits exceed plan assets. At December 31, 1994, the adjustment required to reflect the Company's minimum pension liability was $7.6 million. The Company has recorded an intangible asset in the same amount. The assumptions used in determining pension expense (for the following year) and funded status information shown above were as follows:
1994 1993 1992 ----- ----- ----- Discount rate 8.3% 7.8% 8.5% Rate of increase in future compensation levels 5.0% 5.0% 5.0% Assumed long-term rate of return on plan assets 10.3% 10.3% 10.3%
Certain of the Company's plans relating to hourly employees were amended during 1994, 1993 and 1992 to increase the scheduled benefits. The Company's plan relating to salaried employees was also amended during 1994 to increase the scheduled benefits. The Company has various defined contribution benefit plans which in total cover substantially all full-time employees. Employees can make voluntary contributions in accordance with the provisions of their respective plan, which includes a 401(k) tax deferral option. The Company accrued $2.7, $1.2 and $.4 million for matching contributions during 1994, 1993 and 1992, respectively. 8. Postretirement health care benefits ----------------------------------- The Company has several postretirement health care benefit plans covering substantially all employees of the Motorcycles segment. Employees are eligible to receive benefits upon attaining age 55 after rendering at least 10 years of service to the Company. On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires companies to accrue the cost of postretirement benefits during the employees' active service period. The Company elected to immediately recognize the accumulated postretirement benefit obligation upon adoption of SFAS 106. The Company recorded a cumulative effect adjustment of $32.1 million, net of tax, related to the transition obligation. In prior years, the Company accounted for postretirement benefits on a cash basis. The Company uses September 30 as the measurement date for valuing its postretirement health care obligation. 46 8. Postretirement health care benefits (continued) ---------------------------------------------- The Company's postretirement health care plans are currently funded as claims are submitted ($1.6 million in 1994 and 1993). Some of the plans require employee contributions to offset benefit costs. The status of the plans was as follows:
September 30 ------------------ 1994 1993 -------- -------- (In thousands) Accumulated postretirement benefit obligation: Retirees $16,759 $19,538 Fully eligible active plan participants 8,501 12,776 Other active plan participants 22,580 26,640 ------- ------- 47,840 58,954 Unrecognized net gain (loss) 10,033 (3,528) Unrecognized prior service cost 2,860 - Fourth quarter contribution (450) (427) ------- ------- Accrued postretirement benefit liability, December 31 $60,283 $54,999 ======= =======
The net periodic postretirement benefit cost includes the following:
Year Ended December 31 ----------------------- 1994 1993 ------- ------- (In thousands) Service cost - benefits earned during the year $ 2,384 $ 1,967 Interest cost on projected benefit obligation 4,504 4,277 ------- ------- Net periodic postretirement benefit cost $ 6,888 $ 6,244 ======= =======
The weighted average health care cost trend rate used in determining the accumulated postretirement benefit obligation of the health care plans was 10%. The per capita health care cost trend rate was assumed to decrease gradually to 6% for 1999 and remain at that level thereafter. This assumption can have a significant effect on the amounts reported. If the weighted average health care cost trend rate were to increase by 1%, the accumulated postretirement benefit obligation as of September 30, 1994 and the aggregate of service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1995 would increase by $3.5 million and $.5 million, respectively. The weighted average discount rate used to determine the accumulated postretirement benefit obligation of the health care plan as of September 30, 1994 and 1993 was 8.25% and 7.75%, respectively. The Company used a weighted average discount rate of 8.5% in establishing the transition obligation at January 1, 1993. Pretax postretirement benefits expense was $1.6 million for the year ended December 31, 1992. 9. Capital stock ------------- The Company has 100 million authorized shares of $.01 par value common 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 amended 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, in the notes to the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis. 47 9. Capital stock (continued) ------------------------- The Company has designated .5 million of the authorized shares of preferred stock as Series A Junior Participating preferred stock (Preferred Stock). The Preferred Stock has a par value of $1 per share. Each share of Preferred Stock, none of which is outstanding, is entitled to 400 votes per share (subject to adjustment) and other rights such that the value of a one one-hundredth interest in a share of Preferred Stock should approximate the value of four shares of common stock. The Preferred Stock is reserved for issuance in connection with the Company's outstanding Preferred Stock purchase rights (Rights). Each outstanding share of common stock entitles its holder to one-quarter Right. Under certain conditions, each Right entitles the holder to purchase one one-hundredth of a share of Preferred Stock at an exercise price of $100, subject to adjustment. The Rights are only exercisable if a person or group has acquired 15% or more of the outstanding common stock or has announced an intention to acquire 25% or more of the outstanding common stock. If there is a 15% acquiring party, each holder of a Right, other than the acquiring party, will be entitled to purchase, at the exercise price, common stock having a market value of two times the exercise price. The Company has a restricted stock plan in which plan participants are entitled to cash dividends and voting rights on their respective shares. Restrictions generally limit the sale or transfer of shares during a restricted period, not exceeding eight years. Participants may vest in certain amounts of the restricted stock upon death, disability or retirement as described in the plan. Unearned compensation was charged for the market value of the restricted shares on the date of grant and is being amortized over the restricted period. The unamortized unearned compensation value is shown as a reduction of shareholders' equity in the accompanying consolidated balance sheets. Information with respect to restricted stock outstanding is as follows:
1994 1993 1992 -------- --------- -------- Outstanding at beginning of year at $4.46 to $5.05 per share 966,074 1,424,568 1,916,576 Restricted shares vested at $4.46 to $5.05 per share (931,874) (341,822) (476,864) Restricted shares cancelled at $4.65 to $5.03 per share - (116,672) (15,144) -------- --------- --------- Total shares outstanding at end of year at $4.73 to $5.05 per share 34,200 966,074 1,424,568 ======== ========= =========
Expense in 1994, 1993 and 1992 associated with this restricted stock plan was $.6 million, $.4 million and $.9 million, respectively. 48 9. Capital stock (continued) ------------------------- The Company has Stock Option Plans under which the Board of Directors may grant to employees nonqualified stock options with or without appreciation rights. The options may be exercised one year after the date of grant, not to exceed 25 percent of the shares in the first year with an additional 25 percent to be exercisable in each of the three following years. The options expire ten years from the date of grant. The maximum number of shares of common stock available for grants under such plans are 6.0 million at December 31, 1994 of which 1.2 million shares remain available for future grants. The exercise price of outstanding options at December 31, 1994 ranged from $1.48 to $26.16. A summary of option activity is as follows:
1994 1993 1992 ---------- ---------- ----------- Options outstanding at beginning of year 2,583,482 3,021,780 3,447,420 Options granted 728,410 16,000 629,044 Options exercised or cancelled (293,834) (454,298) (1,054,684) --------- --------- ---------- Options outstanding at end of year 3,018,058 2,583,482 3,021,780 ========= ========= ========== Number of options exercisable at end of year 1,806,038 1,468,712 1,022,756 ========= ========= ==========
Historically, the Company granted stock options in December of each year. In order to review all elements of compensation at the same time, the Human Resources Committee of the Board of Directors decided in February 1993 to consider annual stock option grants in February of each year, beginning with February 1994. Stock options issued during 1993 represent grants to certain new executives. 10. Goodwill and restructuring charges ---------------------------------- During the fourth quarter of 1993, the Company recorded a $53.5 million charge to operations resulting from the write-off of the remaining goodwill associated with the Company's purchase of Holiday Rambler in 1986. Since 1986, the markets in which Holiday Rambler operates have become increasingly competitive, resulting in lower profitability than initially anticipated. The Company considered these factors, as well as estimated future operating results, during the fourth quarter of 1993 in concluding that an impairment had occurred. The Company measured the impairment and, based on the results of that measurement, recorded a $53.5 million charge against earnings. In measuring the impairment, the Company calculated the discounted value of estimated Holiday Rambler cash flows, over the approximate remaining goodwill amortization period, using a targeted cost of capital discount rate. In 1993, the Company also recorded a pretax restructuring charge of approximately $3.5 million related to strategic decisions made with respect to certain operating units of Holiday Rambler. Goodwill and restructuring charges, in total, had the effect of reducing 1993 earnings per share by $.74. 49 11. Business segments and foreign operations ---------------------------------------- (a) BUSINESS SEGMENTS The Company operates in two business segments: Motorcycles and Related Products and Transportation Vehicles. Information by industry segment is set forth below (in thousands):
1994 1993 1992 ---------- ---------- ---------- Net sales: Motorcycles and Related Products $1,158,991 $ 933,262 $ 822,929 Transportation Vehicles 382,805 284,166 282,355 ---------- ---------- ---------- $1,541,796 $1,217,428 $1,105,284 ========== ========== ========== Income (loss) from operations: Motorcycles and Related Products $ 163,510 $ 136,217 $ 102,300 Transportation Vehicles (1) 6,745 (59,533) 2,137 General corporate expenses (9,948) (6,878) (7,240) ---------- ---------- ---------- 160,307 69,806 97,197 Interest income (expense), net 44 (831) (4,912) Other: Motorcycles and Related Products 1,196 (3,249) (1,611) Transportation Vehicles 522 789 (1,865) ---------- ---------- ---------- 1,718 (2,460) (3,476) ---------- ---------- ---------- Income before provision for income taxes, extraordinary item and accounting changes $ 162,069 $ 66,515 $ 88,809 ========== ========== ==========
(1) Includes a $57.0 million charge related primarily to the write-off of goodwill in 1993.
Motorcycles and Related Transportation Products Vehicles Corporate Consolidated ----------- -------------- ---------- ------------ 1994 ---- Identifiable assets $ 502,267 $165,533 $ 71,415 $ 739,215 Depreciation and amortization 32,617 4,079 246 36,942 Net capital expenditures 88,542 6,004 124 94,670 1993 ---- Identifiable assets $ 367,794 $134,699 $ 80,792 $ 583,285 Depreciation and amortization 27,225 5,813 234 33,272 Net capital expenditures 52,324 2,766 112 55,202 1992 ---- Identifiable assets $ 313,953 $178,252 $ 29,959 $ 522,164 Depreciation and amortization 22,630 6,639 141 29,410 Net capital expenditures 42,276 4,754 199 47,229
There were no sales between business segments for the years ended December 31, 1994, 1993 or 1992. 50 11. Business segments and foreign operations (continued) ---------------------------------------------------- (b) FOREIGN OPERATIONS Included in the consolidated financial statements are the following amounts relating to foreign affiliates:
1994 1993 1992 -------- -------- -------- (In thousands) Assets $ 57,626 $ 49,109 $ 37,962 Net sales 176,521 144,639 132,557 Net income 7,621 5,113 5,315
Export sales of domestic subsidiaries to nonaffiliated customers were $155.2 million, $117.6 million and $106.9 million in 1994, 1993 and 1992, respectively. 51 SUPPLEMENTARY DATA ------------------ Quarterly financial data (unaudited) ------------------------------------ (In millions, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter --------------- -------------- -------------- --------------- 1994 1993 1994 1993 1994 1993 1994 1993 ------ ------- ------ ------ ------ ------ ------ ------- Net sales $343.7 $269.5 $401.4 $334.4 $384.0 $284.4 $412.7 $329.1 Gross profit 90.3 75.4 113.4 90.9 106.5 76.2 111.3 94.7 Income before accounting changes (a) 20.8 15.1 34.6 23.8 23.8 16.4 25.1 (36.9) Accounting changes - (30.3) - - - - - - Net income (loss) 20.8 (15.2) 34.6 23.8 23.8 16.4 25.1 (36.9) Earning (loss) per common share assuming no dilution: Income before accounting changes (a) .27 .20 .46 .31 .31 .22 .33 (.49) Accounting changes - (.40) - - - - - - Net income (loss) .27 (.20) .46 .31 .31 .22 .33 (.49)
(a) 1993 fourth quarter results include a $57.0 million charge related primarily to the write-off of goodwill, which reduced earnings per share by $.74. 52 Item 9. Changes in and disagreements with accountants on accounting and ------- --------------------------------------------------------------- financial disclosure -------------------- None. 53 PART III -------- Item 10. Directors and executive officers of the registrant ------- -------------------------------------------------- Information with respect to the Directors of the registrant will be included in the Company's definitive proxy statement for the 1995 annual meeting of shareholders (the "Proxy Statement"), which will be filed within 120 days after the close of the Company's fiscal year ended December 31, 1994, and is hereby incorporated by reference to such Proxy Statement. Certain information with respect to the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K will be included in the Company's proxy statement for 1995 which will be filed within 120 days after the close of the Company's fiscal year ended December 31, 1994, and is hereby incorporated by reference to such proxy statement. Item 11. Executive compensation ------- ---------------------- This information will be included in the Proxy Statement, which will be filed within 120 days after the close of the Company's fiscal year ended December 31, 1994, and is hereby incorporated by reference to such Proxy Statement. Item 12. Security ownership of certain beneficial owners and management ------- -------------------------------------------------------------- This information will be included in the Proxy Statement, which will be filed within 120 days after the close of the Company's fiscal year ended December 31,1994, and is hereby incorporated by reference to such Proxy Statement. Item 13. Certain relationships and related transactions ------- ---------------------------------------------- This information will be included in the Proxy Statement, which will be filed within 120 days after the close of the Company's fiscal year ended December 31, 1994, and is hereby incorporated by reference to such Proxy Statement. Item 14. Exhibits, financial statement schedules, and reports on Form 8-K ------- ---------------------------------------------------------------- (A) 1. Financial statements - The financial statements listed in the -------------------- accompanying Index to Consolidated Financial Statements and Financial Statement Schedules are filed as part of this annual report and such Index to Consolidated Financial Statements and Financial Statement Schedules is incorporated herein by reference. 2. Financial statement schedules - The financial statement schedule ----------------------------- listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedules is filed as part of this annual report and such Index to Consolidated Financial Statements and Financial Statement Schedules is incorporated herein by reference. 3. Exhibits - The exhibits listed on the accompanying List of -------- Exhibits are filed as part of this annual report and such List of Exhibits is incorporated herein by reference. 54 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ AND FINANCIAL STATEMENT SCHEDULES --------------------------------- [Item 14(A) 1 and 2] Consolidated statements of operations for each of the three years in the period ended December 31, 1994 Consolidated balance sheets at December 31, 1994 and 1993 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1994 Consolidated statements of shareholders' equity for each of the three years in the period ended December 31, 1994 Notes to consolidated financial statements Consolidated financial statement schedules for each of the three years in the period ended December 31, 1994 II - Valuation and qualifying accounts All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules. 55 LIST OF EXHIBITS ---------------- [Item 14(A)(3)] Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation 3.2 By-Laws 4.1 Form of Rights Agreement between the Registrant and Firstar Trust Company 4.2 Amendment to Rights Agreement 10.1* Form of Employment Agreement between the Registrant and each of Messrs. Bleustein, Gelb, Hoelter and Teerlink 10.2* 1986 Stock Option Plan 10.3* 1988 Stock Option Plan 10.4* 1990 Stock Option Plan 10.5* Consulting Agreement between the Registrant and Mr. Beals 10.6* Restated Long-Term Incentive Plan II, as amended 10.7* Form of Growth Unit Cancellation Agreement between the Registrant and each of Messrs. Bleustein, Brostowitz, Gelb, Teerlink and Ziemer 10.8* Form of Transition Agreement between the Registrant and each of Messrs. Bleustein, Gelb, Hoelter, Snoey and Ziemer 10.9* Transition Agreement between the Registrant and Mr. Teerlink 10.10* Deferred Compensation Plan 10.11* Description of supplemental executive retirement benefits 10.12* Form of Life Insurance Agreement between the Registrant and each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter, Teerlink and Ziemer 10.13* Form of Restricted Stock Agreement between the Registrant and each of Messrs. Bleustein and Gelb 10.14* Form of Severance Benefits Agreement between the Registrant and each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter, Snoey, Teerlink and Ziemer 56 LIST OF EXHIBITS ---------------- [Item 14(A)(3)] Exhibit No. Description ----------- ----------- 10.15* Harley-Davidson, Inc. Corporate Short Term Incentive Plan 11 Computation of Primary and Fully Diluted Earnings Per Share 21 List of Subsidiaries 23 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedule * Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated. 57 Schedule II ----------- HARLEY-DAVIDSON, INC. CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1994, 1993 and 1992 (In thousands)
Balance at Additions Balance beginning charged to at end Classification of year expense Deductions/(1)/ of year -------------- --------- ---------- -------------- -------- Receivables - Allowance for doubtful accounts: 1994 $1,786 $ 363 $ (122) $2,027 ====== ====== ======= ====== 1993 $1,611 $ 322 $ (147) $1,786 ====== ====== ======= ====== 1992 $1,643 $ 260 $ (292) $1,611 ====== ====== ======= ======
Inventories - Allowance for obsolescence and loss (2): 1994 $2,783 $1,608 $(1,971) $2,420 ====== ====== ======= ====== 1993 $2,736 $2,095 $(2,048) $2,783 ====== ====== ======= ====== 1992 $2,683 $1,790 $(1,797) $2,736 ====== ====== ======= ======
(1) Represents amounts written off to the reserve, net of recoveries. (2) Stated in last-in, first-out (LIFO) cost. 58 SIGNATURES ---------- Pursuant to the requirements of Section 13, or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 28, 1995. HARLEY-DAVIDSON, INC. By: /S/ Richard F. Teerlink ------------------------------------------- Richard F. Teerlink President, Chief Executive Officer (Principal executive officer) and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 28, 1995. Name Title ---- ----- /S/ Richard F. Teerlink President, Chief Executive Officer --------------------------------- (Principal executive officer) and Director Richard F. Teerlink /S/ James L. Ziemer Vice-President and Chief Financial Officer --------------------------------- (Principal financial officer) James L. Ziemer /S/ James M. Brostowitz Vice-President/Controller (Principal --------------------------------- accounting officer) and Treasurer James M. Brostowitz /S/ Vaughn L. Beals Chairman and Director --------------------------------- Vaughn L. Beals, Jr. /S/ Barry K. Allen Director --------------------------------- Barry K. Allen /S/ William F. Andrews Director --------------------------------- William F. Andrews /S/ Richard J. Hermon-Taylor Director --------------------------------- Richard J. Hermon-Taylor /S/ Donald A. James Director --------------------------------- Donald A. James --------------------------------- Director Richard G. LeFauve /S/ James A. Norling Director --------------------------------- James A. Norling /S/ William B. Potter Director --------------------------------- William B. Potter 59 INDEX TO EXHIBITS ----------------- [Item 14(A)(3)] Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation. 3.2 By-Laws. 4.1 Form of Rights Agreement between the Registrant and Firstar Trust Company (incorporated herein by reference to Exhibit 4.6 to the Registrants' Quarterly Report on Form 10-Q for the period ended September 30, 1990 (File No. 1-9183)). 4.2 Amendment to Rights Agreement (incorporated herein by reference to Exhibit 4.8 to the Registrants's Registration Statement on Form 8-B dated June 24, 1991 (File No. 1-9183 (the "Form 8-B")). 10.1* Form of Employment Agreement between the Registrant and each of Messrs. Bleustein, Gelb, Hoelter and Teerlink (incorporated by reference from Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File No. 33-5871)). 10.2* 1986 Stock Option Plan. 10.3* 1988 Stock Option Plan. 10.4* 1990 Stock Option Plan. 10.5* Consulting Agreement between the Registrant and Mr. Beals (incorporated herein by reference from Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 1-9183)). 10.6* Restated Long-Term Incentive Plan II, as amended (incorporated herein by reference from Exhibit 10.2 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 1-9183)). 10.7* Growth Unit Cancellation Agreement between the Registrant and each of Messrs. Bleustein, Brostowitz, Gelb, Teerlink and Ziemer (incorporated herein by reference from Exhibit 10.2 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 1-9183)). 10.8* Form of Transition Agreement between the Registrant and each of Messrs. Bleustein, Gelb, Hoelter, Snoey and Ziemer (incorporated herein by reference from Exhibit 10.2 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 1-9183)). * Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated. 60 INDEX TO EXHIBITS ----------------- [Item 14(A)(3)] Exhibit No. Description ----------- ----------- 10.9* Transition Agreement between the Registrant and Mr. Teerlink (incorporated herein by reference from Exhibit 10.2 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 1-9183)). 10.10* Deferred Compensation Plan (incorporated herein by reference from Exhibit 10.8 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-9183)). 10.11* Description of supplemental executive retirement benefits (incorporated herein by reference from Exhibit 10.9 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-9183)). 10.12* Form of Life Insurance Agreement between the Registrant and each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter, Teerlink and Ziemer (incorporated herein by reference from Exhibit 10.10 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-9183)). 10.13* Form of Restricted Stock Agreement between the Registrant and each of Messrs. Bleustein and Gelb. 10.14* Form of Severance Benefits Agreement between the Registrant and each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter, Snoey, Teerlink and Ziemer. 10.15* Harley-Davidson, Inc. Corporate Short Term Incentive Plan (incorporated herein by reference from Exhibit A to the Registrants' 1993 Proxy Statement for the May 14, 1994 Annual Meeting of Shareholders) 11 Computation of Primary and Fully Diluted Earnings Per Share. 21 List of Subsidiaries. 23 Consent of Ernst & Young LLP, Independent Auditors. 27 Financial Data Schedule. * Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated. 61 EX-3.1 2 RESTATED ARTICLES OF INC EXHIBIT 3.1 RESTATED ARTICLES OF INCORPORATION * * * * * ARTICLE I The name of the Corporation is Harley-Davidson, Inc. ARTICLE II The registered agent and registered office of the Corporation is CT Corporation System, 44 E. Mifflin St., Madison, Wisconsin 53703. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Wisconsin Business Corporation Law. ARTICLE IV (a) Authorized Shares. The total number of shares of all classes of stock ----------------- that the Corporation is authorized to issue is one hundred and two million (102,000,000), consisting of (i) one hundred million (100,000,000) shares of Common Stock of $.01 par value, and (ii) two million (2,000,000) shares of Preferred Stock of $1.00 par value. All cross references in each subdivision of this ARTICLE IV refer to other paragraphs in such subdivision unless otherwise indicated. (i) Voting Rights. The holders of Common Stock will be entitled to one vote per share on all matters to be voted on by the Corporation's shareholders. (ii) Registration of Transfer. The Corporation shall keep at its principal office (or such other place as the Corporation reasonably designates) a register for the registration of shares of Common Stock. Upon the surrender of any certificate representing shares of Common Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Common Stock represented by the surrendered certificate (and the Corporation forthwith shall cancel such surrendered certificate), subject to the requirements of applicable securities laws. Each such new certificate shall be registered in such name and shall represent such number of shares as shall be requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. (iii) Replacement. (A) Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder without bond shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of Common Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender of such certificate, the Corporation shall, at the expense of the registered holder, execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Common Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. (B) The term "outstanding" when used in this ARTICLE IV with reference to the shares of Common Stock as of any particular time shall not include any such shares represented by any certificate in lieu of which a new certificate has been executed and delivered by the Corporation in accordance with paragraph (ii) or this paragraph (iii), but shall include only those shares represented by such new certificate. (iv) Dissolution. Upon the dissolution of the Corporation, after ----------- there shall have been paid to or set aside for the holders of shares of Preferred Stock the full preferential amounts to which they are entitled, if any, the holders of outstanding shares of Common Stock shall be entitled to receive pro rata the remaining net assets of the Corporation. (b) Preferred Stock. The Preferred Stock may be issued from time to --------------- time in one or more series in any manner permitted by law and the provisions of the Restated Articles of Incorporation of the Corporation, as determined from time to time by the Board of Directors and stated in the resolution or resolutions providing for the issuances thereof, prior to the issuances of any shares thereof. Unless otherwise provided in the resolution establishing a series of Preferred Stock, prior to the issue of any shares of a series so established or to be established, the Board of Directors may, by resolution, amend the relative rights and preferences of the shares of such series. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of each class of stock shall be governed by the following provisions: (i) The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, including (but not limiting the generality thereof) the following: (A) The number of shares to constitute each such series, and the designation of each such series. (B) The dividend rate of each such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or on any other series of any class or classes of stock, and whether such dividends shall be cumulative or non-cumulative. (C) Whether the shares of each such series shall be subject to redemption by the Corporation and if made subject to such redemption, the times, prices and other terms and conditions of such redemption. (D) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of each such series. (E) Whether or not the shares of each such series shall be convertible into or exchangeable for shares of any other class or classes or any other series of any other class or classes of stock of the Corporation, and, if provision be made for conversion or exchange, the times, prices, rates of exchange, adjustments, and other terms and conditions of such conversion or exchange. (F) The extent, if any, to which the holders of the shares of each such series shall be entitled to vote with respect to the election of directors or otherwise. (G) The restrictions, if any, on the issue or reissue of any additional Preferred Stock. (H) The rights of the holders of the shares of each such series upon the dissolution of, or upon the distribution of the assets of, the Corporation. (ii) Except as otherwise required by law and except for such voting powers with respect to the election of directors or other matters as may be stated in the resolutions of the Board of Directors creating any series of Preferred Stock, the holders of any such series shall have no voting powers whatsoever. (c) Series A Junior Participating Preferred Stock. Pursuant to the --------------------------------------------- authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Restated Articles of Incorporation, a series of shares of Preferred Stock, par value $1.00 per share, of the Corporation be and it hereby is created, and the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall ---------------------- be designated as "Series A Junior Participating Preferred Stock" ("Series A -------- Preferred Stock") and the number of shares constituting such series shall be --------------- 500,000. Section 2. Dividends and Distributions. --------------------------- (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock, presently $0.01 par value per share, of the Corporation ("Common Stock") and (ii) a preferential ------------ cash dividend ("Preferential Dividends"), if any, on the fifteenth day of ---------------------- January, April, July and October of each year (each a "Quarterly Dividend ------------------ Payment Date") commencing on the first Quarterly Dividend Payment Date after the ------------ first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount equal to $1.00 per share of Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall, at any time after the issuance of any share or fraction of a share of Series A Preferred Stock, make any distribution on the shares of Common Stock of the Corporation, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Corporation or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to clause (i) of the immediately preceding sentence and other than a distribution of shares of Common Stock or other capital stock of the Corporation and other than a distribution of rights or warrants to acquire any such share, including any debt security convertible into or exchangeable for any such share, at a price less than the Current Market Price of such share), then and in each such event the Corporation shall simultaneously pay on each then outstanding share of Series A Preferred Stock of the Corporation a distribution, in like kind, of 100 times (subject to the provisions for adjustment hereinafter set forth) such distribution paid on a share of Common Stock. The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Participating Dividends" and the ----------------------- multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Participating Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Corporation shall at ----------------- any time after June 1, 1991 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Participating Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare each Participating Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Participating Dividend is required to be paid. No cash or noncash dividend or distribution on the Common Stock in respect of which a Participating Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Participating Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series A Preferred Stock. (C) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. Section 3. Voting Rights. The holders of shares of Series A ------------- Preferred Stock shall have the following voting rights: (A) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. The number of votes which a holder of Series A Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple". In the event the Corporation ------------- shall at any time after June 1, 1991 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series A Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. (C) In the event that the Preferential Dividends accrued on the Series A Preferred Stock for six or more consecutive quarterly dividend periods shall not have been declared and paid or set apart for payment, the holders of record of the Series A Preferred Stock, voting together with the holders of record of any other series of preferred stock of the Corporation who shall have been granted voting rights to elect directors upon a default in the payments of dividends by the Corporation, shall have the right, at the next meeting of shareholders called for the election of directors, voting as a class, to elect up to two members to the Board of Directors, which directors shall be in addition to the number provided for under the Corporation's Restated Articles of Incorporation prior to such event, to serve until the expiration of their respective terms and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full (provided, however, that after giving effect to the exercise of such right, --------- ------- under no circumstances shall the number of members of the Board of Directors exceed the maximum number of directors, if any, then specified in the Restated Articles of Incorporation). The holders of shares of Series A Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such shareholders, and vacancies in such directorships may be filled only by such shareholders (or by the remaining director elected by such shareholders, if there be one) in the manner permitted by law. (D) Except as otherwise required by law or set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. Section 4. Certain Restrictions. -------------------- (A) Whenever Preferential Dividends are in arrears or the Corporation shall be in default in payment thereof, thereafter and until all accrued and unpaid Preferential Dividends, whether or not earned or declared, on shares of Series A Preferred Stock outstanding shall have been paid or set aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to, the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) except as permitted by subparagraph (iv) of this paragraph 4 (A), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock; provided that -------- the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. (C) The Corporation shall not issue any shares of Series A Preferred Stock except upon exercise of rights (the "Rights") issued pursuant to that ------ certain Rights Agreement dated as of August 6, 1990 between the Corporation (as successor to Harley-Davidson, Inc., a Delaware corporation) and First Wisconsin Trust Company (the Rights Agreement"), a copy of which is on file with the ---------------- Secretary of the Corporation at its principal executive office and shall be made available to shareholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Corporation from issuing for any purpose any series of preferred stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock ----------------- purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. The Corporation shall cause all such shares upon their retirement and cancellation to become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. Section 6. Liquidation, Dissolution or Winding Up. Upon any -------------------------------------- voluntary or involuntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior to the Series A Preferred Stock (upon liquidation, dissolution or winding up) unless the holders of shares of Series A Preferred Stock shall have received, subject to adjustment as hereinafter provided, the greater of either (A) $1.00 per share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, or (B) the amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, or (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (i) (A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock shall be entitled upon liquidation, dissolution or winding up of the Corporation pursuant to clause (i) (B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the -------------------------------- multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Corporation applicable pursuant to said clause to the determination of the Participating Liquidation Amount, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". -------------------- In the event the Corporation shall at any time after June 1, 1991 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassifications and Other Events. ------------------------------------------ (A) In the event that holders of shares of Common Stock of the Corporation receive after June 1, 1991 in respect of their shares of Common Stock any share of capital stock of the Corporation (other than any share of Common Stock of the Corporation), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then and in each such event the dividend rights, voting rights ----------- and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares of Common Stock of the Corporation receive after June 1, 1991 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Current Market Price (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Current Market Price of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event that holders of shares of Common Stock of the Corporation receive after June 1, 1991 in respect of their shares of Common Stock any right or warrant (except for the Rights) to purchase capital stock of the Corporation (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Corporation (other than Common Stock), at a purchase price per share less than the Current Market Price of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Corporation of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount -------- Fraction" shall be a fraction the numerator of which shall be the difference -------- between the Current Market Price (as hereinafter defined) of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Corporation as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Current Market Price of a share of such capital stock immediately after the distribution of such right or warrant. (D) For purposes of this Section 7, the "Current Market Price" of a -------------------- share of capital stock of the Corporation (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing prices per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event -------- ------- that such Current Market Price of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after the ex-dividend date for (i) a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Current Market Price shall be appropriately adjusted by the Board of Directors of the Corporation to reflect the Current Market Price of such stock to take into account ex-dividend trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other ------ system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Corporation. The term "Trading Day" shall mean a day on which ----------- the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Corporation is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Current Market Price thereof as aforesaid, "Current Market Price" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Corporation. In either case referred to in the foregoing sentence, the determination of Current Market Price shall be described in a statement filed with the Secretary of the Corporation. Section 8. Consolidation, Merger, etc. In case the Corporation shall --------------------------- enter into any consolidation, merger, combination, share exchange or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. Section 9. Effective Time of Adjustments. ----------------------------- (A) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (B) The Corporation shall give prompt written notice to each holder of a share of Series A Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Corporation of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Corporation to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. Section 10. No Redemption. The shares of Series A Preferred Stock ------------- shall not be redeemable at the option of the Corporation or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Corporation may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Restated Articles of Incorporation of the Corporation. Section 11. Ranking. Unless otherwise provided in the Restated ------- Articles of Incorporation of the Corporation or Articles of Amendment relating to a subsequent series of preferred stock of the Corporation, the Series A Preferred Stock shall rank junior to all other series of the Corporation's preferred stock (as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up) and senior to the Common Stock. Section 12. Amendment. Subsequent to the Distribution Date (as --------- defined under the Rights Agreement), the provisions hereof and the Restated Articles of Incorporation of the Corporation shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of shareholders required by law, the affirmative vote of the holders of eighty percent or more of the outstanding shares of Series A Preferred Stock, voting together as a single class. Section 13. Fractional Shares. A holder of one or more fractional ----------------- shares of Series A Preferred Stock shall, to the extent of such fractional shares held, be entitled to exercise voting rights, receive dividends thereon, participate in any of the assets of the Corporation in the event of liquidation and otherwise exercise the rights and receive the benefits to which holders of Series A Preferred Stock are entitled. ARTICLE V (a) Vote Required for Certain Business Combinations. ----------------------------------------------- (i) In addition to any affirmative vote required by law or these Restated Articles of Incorporation, and except as otherwise expressly provided in Section (b) of this ARTICLE V: (A) any merger of the Corporation or any Subsidiary (as hereinafter defined), or any share exchange to which the Corporation is a party with (I) any Interested Shareholder (as hereinafter defined) or (II) any other corporation (whether or not an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or in a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of all or a Substantial Part of the assets of the Corporation (including, without limitation, any securities of a Subsidiary) or any Subsidiary; or (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or in a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof); or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger of the Corporation with any of its Subsidiaries or any share exchange to which the Corporation is a party or any self tender offer for or repurchase of securities of the Corporation by the Corporation or any Subsidiary or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder, shall require the affirmative vote of the holders of at least 66-2/3% of the voting power of the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") (it being understood that for purposes of this ARTICLE V, each share of the Voting Stock shall have the number of votes granted to it pursuant to ARTICLE IV of these Restated Articles of Incorporation), which vote shall include the affirmative vote of at least a majority of the voting power of the then outstanding shares of Voting Stock held by shareholders other than the Interested Shareholder. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by these Restated Articles of Incorporation or in any agreement with any national securities exchange or otherwise. (ii) The term "Business Combination" as used in this ARTICLE V shall mean any transaction which is referred to in any one or more of subparagraphs (A) through (E) of paragraph (i) of this Section (a). (b) When Higher Vote Is Not Required. The provisions of Section (a) -------------------------------- of this ARTICLE V shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law, any other provision of these Restated Articles of Incorporation or any agreement with any national securities exchange, if, in the case of a Business Combination that does not involve any cash or other consideration being received by the shareholders of the Corporation, solely in their respective capacities as shareholders of the Corporation, the condition specified in the following paragraph (i) is met, or, in the case of any other Business Combination, the conditions specified in either of the following paragraphs (i) and (ii) are met: (i) The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined). (ii) Each of the five conditions specified in the following subparagraphs (A) through (E) shall have been met: (A) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of consummation of the Business Combination of consideration other than cash to be received per share by holders of each class of Voting Stock in such Business Combination shall be at least equal to the higher of the following: (I) (if applicable) the Highest Per Share Price (as hereinafter defined) (including the brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Stock beneficially owned by the Interested Shareholder which were acquired beneficially by such Interested Shareholder (x) within the two- year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; or (II) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such latter date is referred to in this ARTICLE V as the "Determination Date"), whichever is higher; or (III) an amount which bears the same or greater percentage relationship to the Fair Market Value of such class of Voting Stock on the Announcement Date as the Highest Per Share Price determined in (ii) (A) (I) above bears to the Fair Market Value of such class of Voting Stock on the date of the commencement of the acquisition of Voting Stock by such Interested Shareholder. (B) The consideration to be received by holders of the outstanding Voting Stock shall be in cash or in the same form as was previously paid in order to acquire beneficially shares of Voting Stock that are beneficially owned by the Interested Shareholder. If the Interested Shareholder beneficially owns shares of Voting Stock that were acquired with varying forms of consideration, the form of consideration to be received by holders of Voting Stock shall be either cash or the form used to acquire beneficially the largest number of shares of Voting Stock beneficially acquired by it prior to the Announcement Date. (C) After such Interested Shareholder has become an Interested Shareholder and prior to consummation of such Business Combination: (I) there shall have been (x) no reduction in the annual rate of dividends paid on the Voting Stock (except as necessary to reflect any subdivision of the Voting Stock), except as approved by a majority of the Disinterested Directors, and (y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Voting Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (II) such Interested Shareholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which resulted in such Interested Shareholder becoming an Interested Shareholder. (D) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (E) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to shareholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). (c) Certain Definitions. For the purposes of this ARTICLE V: ------------------- (i) A "person" shall mean any individual, firm, corporation, group (as such term is defined in Section 13(d) (3) of the Securities Exchange Act of 1934, as in effect on March l, 1991) or other entity. (ii) "Interested Shareholder" shall mean any person (other than the Corporation, any Subsidiary or any compensation or retirement plan of the Corporation) who or which, as of the record date for the determination of shareholders entitled to notice of and to vote on such Business Combination or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or (B) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; or (C) is an assignee of or has otherwise succeeded to beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (iii) A person shall be a "beneficial owner" of any Voting Stock: (A) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (B) which such person or any of its Affiliates or Associates has (I) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise or (II) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding; or (C) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting or disposing of any shares of Voting Stock. (iv) For the purposes of determining whether a person is an Interested Shareholder pursuant to paragraph (ii) of this Section (c), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph (iii) of this Section (c) but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options, or otherwise. (v) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on March 1, 1991. (vi) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation or by a Subsidiary or by the Corporation and one or more subsidiaries; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph (ii) of this Section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (vii) "Substantial Part" means more than 10% of the book value of the total assets of the person or entity in question, as of the end of its most recent fiscal year ending prior to the time of the determination. (viii) "Disinterested Director" means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee of, the Interested Shareholder and was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Disinterested Director who is unaffiliated with, and not a nominee of, the Interested Shareholder and who is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors. (ix) "Fair Market Value" means: (A) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the Composite Tape for American Stock Exchange- Listed Stocks, or if such stock is not quoted on such Composite Tape, on the American Stock Exchange or on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing sales price or bid quotation with respect to a share of stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (B) in the case of stock of any class or series which is not traded on any United States registered securities exchange nor in the over-the-counter market or in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. (x) References to "Highest Per Share Price" shall reflect an appropriate adjustment for any dividend or distribution in shares of Voting Stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock. (xi) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in subparagraph (A) of paragraph (ii) of Section (b) of this ARTICLE V shall include the shares of Voting Stock retained by the holders of such shares. (d) Powers Of The Board Of Directors. A majority of the Disinterested -------------------------------- Directors of the Corporation shall have the power and duty to determine for the purposes of this ARTICLE V on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this ARTICLE V, including, without limitation, (i) whether a person is an Interested Shareholder, (ii) whether a Business Combination is proposed by or on behalf of an Interested Shareholder or an Affiliate of an Interested Shareholder, (iii) the number of shares of Voting Stock beneficially owned by any person, (iv) whether a person is an Affiliate or Associate of another person, (v) whether the requirements of Section (b) (ii) of this ARTICLE V have been met with respect to any Business Combination, and (vi) whether any Business Combination involves all or a Substantial Part of the assets of the Corporation or any Subsidiary. The good faith determination of a majority of the Disinterested Directors shall be conclusive and binding for all purposes of this ARTICLE V. (e) No Effect on Fiduciary Obligations of Interested Shareholders. ------------------------------------------------------------- Nothing contained in this ARTICLE V shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. (f) Amendment or Repeal. Notwithstanding any other provision of these ------------------- Restated Articles of Incorporation or the By-laws of the Corporation to the contrary (and notwithstanding the fact that a lesser percentage may be specified by law, these Restated Articles of Incorporation or the By-laws of the Corporation), the affirmative vote of the holders of at least 66-2/3% of the voting power of the then outstanding shares of Voting Stock shall be required to alter, amend or repeal this ARTICLE V or to adopt any provision inconsistent therewith provided, however, that if there is an Interested Shareholder on the record date for the meeting at which such action is submitted to the shareholders for this consideration, such 66-2/3% vote must include the affirmative vote of at least a majority of the voting power of the then outstanding shares of Voting Stock held by shareholders other than the Interested Shareholder. ARTICLE VI (a) Board of Directors. ------------------ (i) Number, Term and Qualification. The authorized number of ------------------------------ directors of the Corporation which shall constitute the entire Board of Directors shall be such as from time to time shall be determined by a majority of the then authorized number of directors, but in no case shall the authorized number of directors be less than six nor more than fifteen. The directors shall be divided with respect to the time for which they severally hold office into three classes, as nearly equal in number as possible (but with not less than two directors in each class), as determined by the Board of Directors, with the members of each class to hold office until their successors have been elected and qualified. At each annual meeting of shareholders, the successors of the members of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (ii) Removal. Any director may be removed from office by the ------- shareholders, but only for cause and only by the affirmative vote of a majority of the votes then entitled to be cast in an election of directors. (iii) Vacancies. Any vacancy occurring in the Board of Directors, --------- including, but not limited to, a vacancy created by an increase in the number of directors or the removal of a director, shall be filled only by the affirmative vote of a majority of the directors then in office, even if such majority is less than a quorum of the Board of Directors, or by a sole remaining director. If no director remains in office, any vacancy may be filled by the shareholders. Any director elected to fill a vacancy shall serve until the next election of the class for which such director shall have been chosen. (b) Nominations and Qualifications of Directors. Nominations for the ------------------------------------------- election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any shareholder entitled to vote generally in the election of directors. However, any shareholder entitled to vote generally in the election of directors may nominate one or more persons for election as directors at a meeting only if written notice of such shareholder's intent to make such nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 60 calendar days in advance of the date in the current fiscal year of the Corporation corresponding to the date the Corporation released its proxy statement to shareholders in connection with the annual meeting for the immediately preceding year and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (A) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated, (B) a representation that the shareholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (C) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder, (D) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the then current proxy rules of the Securities and Exchange Commission, if the nominee were to be nominated by the Board and (E) the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. The directors shall be at least twenty-one years of age. Directors need not be shareholders. At each meeting of shareholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes cast shall be elected directors. ARTICLE VII The shareholders shall not be entitled to take action without a meeting by less than unanimous consent. Except as otherwise required by law and subject to the express rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, annual and special meetings of the shareholders shall be called, the record date or dates shall be determined and notice shall be sent as set forth in the By- laws of the Corporation. Notwithstanding any other provisions of these Restated Articles of Incorporation or the By-laws of the Corporation (and notwithstanding the fact that a lesser affirmative vote may be specified by law), the affirmative vote of shareholders possessing at least eighty percent of the voting power of the then outstanding shares of all classes of stock of the Corporation generally possessing voting rights in elections of directors, considered for this purpose as one class, shall be required to amend, alter, change or repeal, or to adopt any provision inconsistent with, sections 1.02, 1.04 and 1.05 of Article I of the By-laws, or this ARTICLE VII or any provision thereof or hereof; provided, however, that the Board of Directors, may amend, alter, change or repeal, or adopt any provision inconsistent with, sections 1.02, 1.04 and 1.05 of Article I of the By-laws, or any provision thereof, without a vote of shareholders. ARTICLE VIII Unless a greater number is required by law or by these Restated Articles of Incorporation, (a) action on a matter, other than the election of directors, by a voting group of shareholders is approved only if a majority of the votes within the voting group represented (in person or by proxy) at a meeting at which a quorum is present are cast in favor of the action and (b) notwithstanding Section (a) of this Article VIII, these Restated Articles of Incorporation may only be amended by the affirmative vote of a majority of the votes entitled to be cast by each voting group of shareholders entitled to vote on the amendment. ARTICLE IX Annual meetings of shareholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of shareholders may be called only in accordance with the provisions of ARTICLE VII of these Restated Articles of Incorporation. At each meeting of shareholders only such business may be conducted as is (a) specified in the written notice of meeting given by or at the direction of the Board of Directors, (b) in the case of an annual meeting, brought before the meeting by the Board of Directors or by the chairman of the meeting or (c) in the case of an annual meeting, specified in a written notice given by or on behalf of a shareholder of record, provided that written notice of such shareholder's intent to make a proposal or proposals has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than 60 calendar days in advance of the date in the current fiscal year of the Corporation corresponding to the date the Corporation released its proxy statement to shareholders in connection with the annual meeting for the immediately preceding year. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the proposal and the number of shares of the Corporation's capital stock owned or controlled by such shareholder, (b) a representation that the shareholder is entitled to vote at such annual meeting and intends to appear in person or by proxy at the annual meeting to make the proposal specified in the notice and (c) such other information regarding each proposal made by such shareholder as would be required to be included in a proxy statement filed pursuant to the then current proxy rules of the Securities and Exchange Commission with respect to such proposals. The chairman of the meeting may refuse to acknowledge any proposal not made in compliance with the foregoing procedure. EX-3.2 3 BY-LAWS EXHIBIT 3.2 BY-LAWS OF HARLEY-DAVIDSON, INC. (a Wisconsin corporation) (as amended through August 17, 1994) ARTICLE I. SHAREHOLDERS 1.01. Annual Meeting. The annual meeting of the shareholders of the -------------- corporation (the "Annual Meeting") shall be held at such time and date as may be fixed by or under the authority of the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may properly come before the Annual Meeting. If the election of directors shall not be held on the day fixed as herein provided for any Annual Meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders (a "Special Meeting") as soon thereafter as conveniently may be. In fixing a meeting date for any Annual Meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. 1.02. Special Meetings. ---------------- (a) A Special Meeting may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors and shall be called by the Board of Directors upon the demand, in accordance with this Section 1.02, of the holders of record of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting. (b) In order that the corporation may determine the shareholders entitled to demand a Special Meeting, the Board of Directors may fix a record date to determine the shareholders entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than 10 days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareholder of record seeking to have shareholders demand a Special Meeting shall, by sending written notice to the Secretary of the corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within 10 days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within 10 days after the date on which such request is received by the Secretary, the Demand Record Date shall be the 10th day after the first day on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the Special Meeting is to be held, shall be signed by one or more shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative) and shall set forth all information about each such shareholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareholder's notice described in Article IX of the Restated Articles of Incorporation. (c) In order for a shareholder or shareholders to demand a Special Meeting, a written demand or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting must be delivered to the corporation. To be valid, each written demand by a shareholder for a Special Meeting shall set forth the specific purpose or purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the corporation pursuant to paragraph (b) of this Section 1.02), shall be signed by one or more persons who as of the Demand Record Date are shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative), and shall set forth the name and address, as they appear in the corporation's books, of each shareholder signing such demand and the class or series and number of shares of the corporation which are owned of record and beneficially by each such shareholder, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within 70 days after the Demand Record Date. (d) The corporation shall not be required to call a Special Meeting upon shareholder demand unless, in addition to the documents required by paragraph (c) of this Section 1.02, the Secretary receives a written agreement signed by each Soliciting Shareholder (as defined herein), pursuant to which each Soliciting Shareholder, jointly and severally, agrees to pay the corporation's costs of holding the Special Meeting, including the costs of preparing and mailing proxy materials for the corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareholder at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareholder for election as director at such meeting is elected, then the Soliciting Shareholders shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below: (i) "Affiliate" shall have the meaning assigned to such term in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (ii) "Participant" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a- 1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (vi) "Soliciting Shareholder" shall mean, with respect to any Special Meeting demanded by a shareholder or shareholders, any of the following Persons: (A) if the number of shareholders signing the demand or demands for a meeting delivered to the corporation pursuant to paragraph (c) of this Section 1.02 is 10 or fewer, each shareholder signing any such demand; (B) if the number of shareholders signing the demand or demands for a meeting delivered to the corporation pursuant to paragraph (c) of this Section 1.02 is more than 10, each Person who either (I) was a Participant in any Solicitation of such demand or demands or (II) at the time of the delivery to the corporation of the documents described in paragraph (c) of this Section 1.02, had engaged or intended to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the corporation); or (C) any Affiliate of a Soliciting Shareholder, if a majority of the directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 1.02 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 1.02 from being evaded. (e) Except as provided in the following sentence, any Special Meeting shall be held at such hour and day as may be designated by the Board of Directors. In the case of any Special Meeting called by the Board of Directors upon the demand of shareholders (a "Demand Special Meeting"), the date of the Demand Special Meeting shall be not more than 70 days after the Meeting Record Date (as defined in Section 1.05 of these by-laws); provided that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within 10 days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting are delivered to the corporation (the "Delivery Date"), then such meeting shall be held at 2:00 pm. (local time) on the 100th day after the Delivery Date or, if such 100th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any Special Meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting. (f) The corporation may engage independent inspectors of elections to act as an agent of the corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a Special Meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the corporation until the earlier of (i) 5 Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors certify to the corporation that the valid demands received by the Secretary represent at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting. Nothing contained in this paragraph shall in any way be construed to limit the ability of the Board of Directors or any shareholder to contest the validity of any demand, whether during or after such 5 Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (g) For purposes of these by-laws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close. 1.03. Place of Meeting. The Board of Directors may designate any place, ---------------- either within or without the State of Wisconsin, as the place of meeting for any Annual Meeting or for any Special Meeting, or for any postponement thereof. Any meeting may be adjourned to reconvene at any place designated by vote of the Board of Directors. 1.04. Notice of Meeting. Written notice stating the place, day and hour ----------------- of any Annual Meeting or Special Meeting shall be delivered not less than 10 (unless a longer period is required by law) nor more than 70 days before the date of such meeting. In the event of any Demand Special Meeting, such notice of meeting shall be sent not more than 30 days after the Delivery Date. Unless otherwise required by the law, a notice of an Annual Meeting need not include a description of the purpose for which the meeting is called. In the case of any Special Meeting, (a) the notice of meeting shall describe any business that the Board of Directors shall have theretofore determined to bring before the meeting and (b) in the case of a Demand Special Meeting, the notice of meeting shall describe any business set forth in the statement of purpose of the demands received by the corporation in accordance with Section 1.02 of these by-laws. 1.05. Fixing of Record Date. The Board of Directors may fix in advance a --------------------- date not less than 10 days and not more than 70 days prior to the date of any Annual Meeting or Special Meeting as the record date for the determination of shareholders entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within 30 days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date. The shareholders of record on the Meeting Record Date shall be the shareholders entitled to notice of and to vote at the meeting. 1.06. Adjournment. In the absence of a quorum, any officer entitled to ----------- preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present. 1.07. No Nominee Procedures. The corporation has not established, and --------------------- nothing in these by-laws shall be deemed to establish, any procedure by which a beneficial owner of the corporation's shares that are registered in the name of a nominee is recognized by the corporation as the shareholder under Section 180.0723 of the Wisconsin Business Corporation Law. ARTICLE II. BOARD OF DIRECTORS 2.01. Regular Meetings. Regular meetings of the Board of Directors shall ---------------- be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. 2.02. Special Meetings. Special meetings of the Board of Directors may be ---------------- held at any time upon the call of the Chief Executive Officer and shall be called by the Chief Executive Officer or Secretary if directed by the Board of Directors. 2.03. Quorum. Except as otherwise provided by law or by the Restated ------ Articles of Incorporation or these by-laws, one-half of the number of directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a majority of the directors present (though less than such quorum) may adjourn the meeting from time to time without further notice. 2.04. Manner of Acting. The act of the majority of the directors present ---------------- at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by law, the Restated Articles of Incorporation, these by-laws or any contract or agreement to which the corporation is a party. 2.05. Committees. There may be an Executive Committee. There shall be an ---------- Audit Committee composed of independent directors. There shall be a Compensation Committee composed of independent directors. The Board of Directors by resolution adopted by the affirmative vote of a majority of the number of directors then in office may create one or more additional committees. Each committee shall have two or more members who shall, unless otherwise provided by the Board of Directors, serve at the pleasure of the Board of Directors. Except as otherwise provided by law, each committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise such power and authority as the Board of Directors shall specify. 2.06. Telephonic Meetings. Except as herein provided and notwithstanding ------------------- any place set forth in the notice of the meeting or these by-laws, members of the Board of Directors (and any committee thereof) may participate in regular or special meetings by, or through the use of, any means of communication by which all participants may simultaneously hear each other, such as by conference telephone. 2.07. Retirement. Notwithstanding that directors are elected for a three ---------- year term, a director shall automatically cease to be a director of the corporation effective upon the commencement of the Annual Meeting immediately following such director's seventieth (70th) birthday. Each director, other than a director who is serving or has served as the Chief Executive Officer of the corporation, whose position of principal employment, occupation or affiliation changes substantially, and each director who develops a conflict of interest with the corporation as a result of changes in the business of the corporation, such director's personal interests or such director's principal employer, after his or her most recent election to the Board of Directors shall submit his or her resignation as a director of the corporation promptly following such change, and the Board of Directors (without such director present if the Board of Directors so chooses) shall consider whether to accept such resignation in the interests of the corporation. A director who has submitted his or her resignation shall not be entitled to vote upon the acceptance or rejection of such resignation by the Board of Directors. Resignations pursuant to this bylaw shall be effective immediately upon acceptance by the Board of Directors or such later date as determined by the Board of Directors. ARTICLE III. OFFICERS 3.01. Officers. The principal officers of the corporation shall be a -------- Chief Executive Officer, a President, one or more Vice-Presidents, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. The Board of Directors may also authorize any duly appointed officer to appoint one or more officers or assistant officers. All officers shall have the usual powers and shall have the usual duties incident to their respective offices. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer may be suspended by the Chief Executive Officer or President with or without cause. 3.02. Removal. The Board of Directors may remove any officer and, unless ------- restricted by the Board of Directors or these by-laws, an officer may remove any officer or assistant officer appointed by that officer, at any time, with or without cause. ARTICLE IV. GENERAL PROVISIONS 4.01. Notices. Whenever any statute, the Restated Articles of ------- Incorporation or these by-laws requires notice to be given to any director or shareholder, such notice may be given in writing by mail, addressed to such director or shareholder at his address as it appears on the records of the corporation, with postage thereon prepaid. Any such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to directors may also be given by telegram. 4.02. Fiscal Year. The fiscal year of the corporation shall be fixed by ----------- the Board of Directors. ARTICLE V. INDEMNIFICATION 5.01. Provision of Indemnification. The corporation shall, to the fullest ---------------------------- extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors and Officers against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceedings to which any such Director or Officer is a Party because he or she is or was a Director or Officer of the corporation. The corporation shall also indemnify an employee who is not a Director or Officer, to the extent that the employee has been successful on the merits or otherwise in defense of a Proceeding, for all Expenses incurred in the Proceeding if the employee was a Party because he or she is or was an employee of the corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer or employee may be entitled under any written agreement, Board of Directors resolution, vote of shareholders, the Wisconsin Business Corporation Law or otherwise. The corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 5.01 by the purchase of insurance on behalf of any one or more of such Directors, Officers or employees, whether or not the corporation would be obligated to indemnify or advance Expenses to such Director, Officer or employee under this Section 5.01. All capitalized terms used in this Section 5.01 and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. EX-10.2 4 1986 STOCK OPTION PLAN EXHIBIT 10.2 HARLEY-DAVIDSON, INC. 1986 STOCK OPTION PLAN (as amended through February 2, 1995) ARTICLE I PURPOSE The purpose of the Harley-Davidson, Inc. 1986 Stock Option Plan is to provide favorable opportunities for certain selected employees of Harley- Davidson, Inc. and its subsidiaries to purchase or receive shares of Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these employees to contribute to the future success and prosperity of Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit of the shareholders, and increase the ability of Harley-Davidson, Inc. to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained progress, growth and profitability depend. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1. Board: The Board of Directors of Harley-Davidson, Inc. 2.2. Code: The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. 2.3. Committee: The Human Resources Committee of the Board; provided that if any member of the Human Resources Committee is not both a Disinterested Person and Outside Director, the Committee shall be comprised of only those members of the Human Resources Committee who are both Disinterested Persons and Outside Directors. 2.4. Common Stock: The common stock of Harley-Davidson, Inc. 2.5. Company: Harley-Davidson, Inc. and any of its Subsidiaries. 2.6. Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. 2.7. Disinterested Persons: Disinterested persons within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended. 2.8. Employer: The entity that employs the employee or Optionee. 2.9. Fair Market Value: The average of the high and low reported sales prices of Common Stock on the New York Stock Exchange Composite Tape on the date for which fair market value is being determined. 2.10. ISO: An incentive stock option within the meaning of Section 422 of the Code and which is designated as an incentive stock option by the Committee. 2.11. Non-ISO: A stock option which is not an ISO. 2.12. Option: A stock option granted under the Plan. 2.13. Option Price: The purchase price of a share of Common Stock under an Option. 2.14. Optionee: A person who has been granted one or more Options. 2.15. Outside Directors: Outside Directors within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. 2.16. Parent Corporation: The parent corporation, as defined in Section 424(e) of the Code. 2.17. Plan: The Harley-Davidson, Inc. 1986 Stock Option Plan. 2.18. Retirement: Retirement on or after age sixty-two or, with the consent of the Committee, at an earlier age. 2.19. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by Harley-Davidson, Inc. 2.20. Termination Date: A date fixed by the Committee but not later than the day preceding the tenth anniversary of the date on which the Option is granted. ARTICLE III ADMINISTRATION 3.1. The Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. 3.2. Subject to the provisions of the Plan, the Committee shall, in its discretion, determine who shall be granted Options, the number of shares subject to option under any such Options, the dates after which Options may be exercised, in whole or in part, whether Options shall be ISOs, and the terms and conditions of the Options. 3.3. Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. ARTICLE IV SHARES SUBJECT TO THE PLAN 4.1. The total number of shares of Common Stock available for grants of Options under the Plan shall be 400,000; provided that Options for not more than 100,000 shares of Common Stock shall be granted to an Optionee in any calendar year under the Plan, which amount shall be reduced by the amount of Common Stock subject to options granted to such Optionee in such calendar year under any other stock option plan of the Company. The foregoing amounts shall be subject to adjustment in accordance with Article VIII of the Plan. These shares may be either authorized but unissued or reacquired shares of Common Stock. If an Option or portion thereof shall expire, be canceled or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. An Option, or portion thereof, exercised through the exercise of a stock appreciation right pursuant to Section 6.7 of the Plan shall be treated, for the purposes of this Article, as though the Option, or portion thereof, had been exercised through the purchase of Common Stock, with the result that the shares of Common Stock subject to the Option, or portion thereof, that was so exercised shall not be available for future grants of Options. ARTICLE V ELIGIBILITY 5.1. Options may be granted to key employees of the Company or to persons who have been engaged to become key employees of the Company. Key employees will comprise, in general, those who contribute to the management, direction and overall success of the Company, including those who are members of the Board. Members of the Board who are not employees of the Company shall not be eligible for Option grants. ARTICLE VI TERM OF OPTIONS 6.1. Option Agreements: All Options shall be evidenced by written agreements executed by the Company. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. Those Options that comply with the requirements for an ISO set forth in Section 422 of the Code and are designated ISOs by the Committee shall be ISOs and all other Options shall be Non-ISOs. 6.2. Option Price: The Option Price shall be set by the Committee; provided, however, that the price per share shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3. Period of Exercise: The Committee shall determine the dates after which Options may be exercised in whole or in part. If Options are exercisable in installments, installments or portions thereof that are exercisable and not exercised shall accumulate and remain exercisable. The Committee may also amend an Option to accelerate the dates after which Options may be exercised in whole or in part. However, no Option or portion thereof shall be exercisable after the Termination Date. 6.4. Special Rules Regarding ISOs Granted to Certain Employees: Notwithstanding any contrary provisions of Sections 6.2 and 6.3 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least 110 percent of the Fair Market Value of a share of Common Stock on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.5. Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: a. in United States dollars in cash or by check, bank draft or money order payable to the order of the Company. b. through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, or c. by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6. Withholding Taxes: The Company may, in its discretion, require an Optionee to pay to the Company at the time of exercise the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. Upon or prior to the exercise of an Option requiring tax withholding, an Optionee may make a written election to have shares of Common Stock withheld by the Company from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such election by an Optionee shall be at the sole discretion of the Committee. Where the exercise of an Option does not give rise to an obligation to withhold Federal income taxes on the date of exercise, the Company may, in its discretion, require an Optionee to place shares of Common Stock purchased under the Option in escrow for the benefit of the Company until such time as Federal income tax withholding is required on amounts included in the gross income of the Optionee as a result of the exercise of an Option. At such time, the Company, in its discretion, may require an Optionee to pay to the Company the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow to the Optionee. Alternatively, subject to acceptance by the Committee, in its sole discretion, an Optionee may make a written election to have shares of Common Stock held in escrow applied toward the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, based on the Fair Market Value of the shares on the date of the termination of the escrow arrangement. Upon application of such shares toward the Company's withholding obligation, any shares of Common Stock held in escrow and not, in the judgment of the Committee, necessary to satisfy such obligation shall be released from escrow to the Optionee. 6.7. Stock Appreciation Rights: At or after the grant of an Option, the Committee, in its discretion, may provide an Optionee with an alternate means of exercising an Option, or a designated portion thereof, by granting the Optionee a stock appreciation right. A "stock appreciation right" is a right to receive, upon exercise of an Option or any portion thereof, in the Committee's sole discretion, an amount of cash equal to, and/or shares of Common Stock having a Fair Market Value on the date of exercise equal to, the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Option Price, multiplied by the number of shares of Common Stock that the Optionee would have received had the Option or portion thereof been exercised through the purchase of shares of Common Stock at the Option Price, provided that (a) such Option or portion thereof has been designated as exercisable in this alternative manner, (b) such Option or portion thereof is otherwise exercisable, and (c) the Fair Market Value of a share of Common Stock on the date of exercise exceeds the Option Price. 6.8. Nontransferability of Options: Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 6.9. Cessation of Employment of Optionee: a. Cessation of Employment other than by Reason of Retirement, Disability or Death. If an Optionee shall cease to be employed by the Company otherwise than by reason of Retirement, Disability, or death, each Option held by the Optionee, together with all rights hereunder, shall terminate on the date of cessation of employment, to the extent not previously exercised. b. Cessation of Employment by Reason of Retirement or Disability. If an Optionee shall cease to be employed by the Company by reason of Retirement or Disability, each Option held by the Optionee shall remain exercisable, to the extent it was exercisable at the time of cessation of employment, until the earliest of: i. the Termination Date, ii. the death of the Optionee, or such later date not more than one year after the death of the Optionee as the Committee, in its discretion, may provide pursuant to Section 6.9(c) of the Plan, iii. the third anniversary of the date of the cessation of the Optionee's employment, if employment ceased by reason of Retirement, or iv. the first anniversary of the date of the cessation of the Optionee's employment by reason of Disability; and thereafter all such Options shall terminate together with all rights hereunder, to the extent not previously exercised. c. Cessation of Employment by Reason of Death. In the event of the death of the Optionee, while employed by the Company, an Option may be exercised at any time or from time to time prior to the earlier of the Termination Date or the first anniversary of the date of the Optionee's death, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Optionee was entitled to exercise such Option on the Optionee's date of death. In the event of the death of the Optionee while entitled to exercise an Option pursuant to Section 6.9(b), the Committee, in its discretion, may permit such Option to be exercised at any time or from time to time prior to the Termination Date during a period of up to one year from the death of the Optionee, as determined by the Committee, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Option was exercisable at the time of cessation of the Optionee's employment. Any person or persons to whom an Optionee's rights under an Option have passed by will or by the applicable laws of descent and distribution shall be subject to all terms and conditions of the Plan and the Option applicable to the Optionee. 6.10. Notification of Sales of Common Stock: Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an ISO either (a) within two years after the date of the grant of the ISO under which the stock was acquired or (b) within one year after the transfer of such shares to the Optionee, shall notify the Company of such disposition and of the amount realized upon such disposition. ARTICLE VII LIMITATIONS AND ACCELERATIONS ON EXERCISABILITY 7.1. Notwithstanding any other provision of this Plan, in the case of an ISO, the aggregate Fair Market Value (determined at the time the ISO is granted) of the shares of Common Stock with respect to which all "incentive stock options" (within the meaning of Section 422 of the Code) are first exercisable by the Optionee during any calendar year (under this Plan and under all other incentive stock option plans of the Employer, any Subsidiary and any Parent Corporation) shall not exceed $100,000. ARTICLE VIII ADJUSTMENTS 8.1. If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in such manner as it may deem equitable, adjust any or all of (i) the number and type of securities subject to the Plan and which thereafter may be the subject of Options; (ii) the number and type of securities subject to outstanding Options; (iii) the Option Price with respect to any Option; and (iv) the number of shares of Common Stock that may e issued pursuant to Options granted to an Optionee in any calendar year; provided, however, that each such adjustment, in the case of ISOs, shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1. The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate, provided, however, that no such amendment shall be made, which would, without approval of the shareholders: a. materially modify the eligibility requirements for receiving Options; b. increase the aggregate number of Shares of Common Stock which may be issued pursuant to Options granted under the Plan, except as is provided for in accordance with Article VIII of the Plan; c. increase the number of shares of Common Stock which may be issued pursuant to Options granted to an Optionee in any calendar year, except as is provided for in accordance with Article VIII of the Plan; d. reduce the minimum Option Price, except as is provided for in accordance with Article VIII of the Plan; e. extend the period of granting Options; or f. materially increase in any other way the benefits accruing to Optionees. 9.2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3. The Board may amend this Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code. ARTICLE X GOVERNMENT AND OTHER REGULATIONS 10.1. The obligation of the Company to issue or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Plan Does Not Confer Employment or Shareholder Rights: The right of the Employer to terminate (whether by dismissal, discharge, retirement or otherwise) the Optionee's employment with it at any time at will, or as otherwise provided by any agreement between the Company and the Optionee, is specifically reserved. Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a shareholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2. Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3. Use of Exercise Proceeds: Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company's treasury and reissued. 11.4. Indemnification: In addition to such other rights of indemnification as they may have as members of the Board, or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. ARTICLE XII SHAREHOLDER APPROVAL AND EFFECTIVE DATES 12.1. The Plan shall become effective when it is adopted by the Board. However, the Plan and all Options shall terminate after the passage of one year from the date the Plan was adopted by the Board unless: a. within such one year period, the Plan is approved by the vote at a meeting of the shareholders of Harley-Davidson, Inc. of the holders of a majority of the outstanding shares of Harley-Davidson, Inc. entitled to vote; provided that if at a meeting of such shareholders held within such one year period, the Plan is not so approved, the Plan and all Options shall terminate at the time of that meeting of shareholders; or b. within such one year period, the Plan is approved by the written consent of the holders of a majority of the outstanding shares of Harley- Davidson, Inc. entitled to vote. Options may not be granted under the Plan after May 16, 1996. EX-10.3 5 1988 STOCK OPTION PLAN EXHIBIT 10.3 HARLEY-DAVIDSON, INC. 1988 STOCK OPTION PLAN (as amended through February 2, 1995) ARTICLE I PURPOSE The purpose of the Harley-Davidson, Inc. 1988 Stock Option Plan is to provide favorable opportunities for certain selected employees of Harley- Davidson, Inc. and its subsidiaries to purchase or receive shares of Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these employees to contribute to the future success and prosperity of Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit of the shareholders, and increase the ability of Harley-Davidson, Inc. to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained progress, growth and profitability depend. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1. Board: The Board of Directors of Harley-Davidson, Inc. 2.2. Code: The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. 2.3. Committee: The Human Resources Committee of the Board; provided that if any member of the Human Resources Committee is not both a Disinterested Person and Outside Director, the Committee shall be comprised of only those members of the Human Resources Committee who are both Disinterested Persons and Outside Directors. 2.4. Common Stock: The common stock of Harley-Davidson, Inc. 2.5. Company: Harley-Davidson, Inc. and any of its Subsidiaries. 2.6. Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. 2.7. Disinterested Persons: Disinterested persons within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended. 2.8. Employer: The entity that employs the employee or Optionee. 2.9. Fair Market Value: The average of the high and low reported sales prices of Common Stock on the New York Stock Exchange Composite Tape on the date for which fair market value is being determined. 2.10. ISO: An incentive stock option within the meaning of Section 422 of the Code and which is designated as an incentive stock option by the Committee. 2.11. Non-ISO: A stock option which is not an ISO. 2.12. Option: A stock option granted under the Plan. Options include both ISOs and Non-ISOs. 2.13. Option Price: The purchase price of a share of Common Stock under an Option. 2.14. Optionee: A person who has been granted one or more Options. 2.15. Outside Directors: Outside Directors within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. 2.16. Parent Corporation: The parent corporation, as defined in Section 424(e) of the Code. 2.17. Plan: The Harley-Davidson, Inc. 1988 Stock Option Plan. 2.18. Retirement: Retirement on or after age sixty-two or, with the consent of the Committee, at an earlier age. 2.19. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by the Harley-Davidson, Inc. 2.20. Termination Date: A date fixed by the Committee but not later than the day preceding the tenth anniversary of the date on which the Option is granted. ARTICLE III ADMINISTRATION 3.1. The Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. 3.2. Subject to the provisions of the Plan, the Committee shall, in its discretion, determine who shall be granted Options, the number of shares subject to option under any such Options, the dates after which Options may be exercised, in whole or in part, whether Options shall be ISOs, and the terms and conditions of the Options. 3.3. Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. ARTICLE IV SHARES SUBJECT TO THE PLAN 4.1. The total number of shares of Common Stock available for grants of Options under the Plan shall be 800,000; provided that Options for not more than 100,000 shares of Common Stock shall be granted to an Optionee in any calendar year under the Plan, which amount shall be reduced by the amount of Common Stock subject to options granted to such Optionee in such calendar year under any other stock option plan of the Company. The foregoing amounts shall be subject to adjustment in accordance with Article VIII of the Plan. These shares may be either authorized but unissued or reacquired shares of Common Stock. If an Option or portion thereof shall expire, be canceled or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. An Option, or portion thereof, exercised through the exercise of a stock appreciation right pursuant to Section 6.7 of the Plan shall be treated, for the purposes of this Article, as though the Option, or portion thereof, had been exercised through the purchase of Common Stock, with the result that the shares of Common Stock subject to the Option, or portion thereof, that was so exercised shall not be available for future grants of Options. ARTICLE V ELIGIBILITY 5.1. Options may be granted to key employees of the Company or to persons who have been engaged to become key employees of the Company. Key employees will comprise, in general, those who contribute to the management, direction and overall success of the Company, including those who are members of the Board. Members of the Board who are not employees of the Company shall not be eligible for Option grants. ARTICLE VI TERM OF OPTIONS 6.1. Option Agreements: All Options shall be evidenced by written agreements executed by the Company. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. Those Options that comply with the requirements for an ISO set forth in Section 422 of the Code and are designated ISOs by the Committee shall be ISOs and all other Options shall be Non-ISOs. 6.2. Option Price: The Option Price shall be set by the Committee; provided, however, that the price per share shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3. Period of Exercise: The Committee shall determine the dates after which Options may be exercised in whole or in part. If Options are exercisable in installments, installments or portions thereof that are exercisable and not exercised shall accumulate and remain exercisable. The Committee may also amend an Option to accelerate the dates after which Options may be exercised in whole or in part. However, no Option or portion thereof shall be exercisable after the Termination Date. 6.4. Special Rules Regarding ISOs Granted to Certain Employees: Notwithstanding any contrary provisions of Sections 6.2 and 6.3 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least 110 percent of the Fair Market Value of a share of Common Stock on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.5. Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: a. in United States dollars in cash or by check, bank draft or money order payable to the order of the Company. b. through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, or c. by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6. Withholding Taxes: The Company may, in its discretion, require an Optionee to pay to the Company at the time of exercise the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. Upon or prior to the exercise of an Option requiring tax withholding, an Optionee may make a written election to have shares of Common Stock withheld by the Company from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such election by an Optionee shall be at the sole discretion of the Committee. Where the exercise of an Option does not give rise to an obligation to withhold Federal income taxes on the date of exercise, the Company may, in its discretion, require an Optionee to place shares of Common Stock purchased under the Option in escrow for the benefit of the Company until such time as Federal income tax withholding is required on amounts included in the gross income of the Optionee as a result of the exercise of an Option. At such time, the Company, in its discretion, may require an Optionee to pay to the Company the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow to the Optionee. Alternatively, subject to acceptance by the Committee, in its sole discretion, an Optionee may make a written election to have shares of Common Stock held in escrow applied toward the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, based on the Fair Market Value of the shares on the date of the termination of the escrow arrangement. Upon application of such shares toward the Company's withholding obligation, any shares of Common Stock held in escrow and not, in the judgment of the Committee, necessary to satisfy such obligation shall be released from escrow to the Optionee. 6.7. Stock Appreciation Rights: At or after the grant of an Option, the Committee, in its discretion, may provide an Optionee with an alternate means of exercising an Option, or a designated portion thereof, by granting the Optionee a stock appreciation right. A "stock appreciation right" is a right to receive, upon exercise of an Option or any portion thereof, in the Committee's sole discretion, an amount of cash equal to, and/or shares of Common Stock having a Fair Market Value on the date of exercise equal to, the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Option Price, multiplied by the number of shares of Common Stock that the Optionee would have received had the Option or portion thereof been exercised through the purchase of shares of Common Stock at the Option Price, provided that (a) such Option or portion thereof has been designated as exercisable in this alternative manner, (b) such Option or portion thereof is otherwise exercisable, and (c) the Fair Market Value of a share of Common Stock on the date of exercise exceeds the Option Price. 6.8. Nontransferability of Options: Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 6.9. Cessation of Employment of Optionee: a. Cessation of Employment other than by Reason of Retirement, Disability or Death. If an Optionee shall cease to be employed by the Company otherwise than by reason of Retirement, Disability, or death, each Option held by the Optionee, together with all rights hereunder, shall terminate on the date of cessation of employment, to the extent not previously exercised. b. Cessation of Employment by Reason of Retirement or Disability. If an Optionee shall cease to be employed by the Company by reason of Retirement or Disability, each Option held by the Optionee shall remain exercisable, to the extent it was exercisable at the time of cessation of employment, until the earliest of: i. the Termination Date, ii. the death of the Optionee, or such later date not more than one year after the death of the Optionee as the Committee, in its discretion, may provide pursuant to Section 6.9(c) of the Plan, iii. the third anniversary of the date of the cessation of the Optionee's employment, if employment ceased by reason of Retirement, or iv. the first anniversary of the date of the cessation of the Optionee's employment by reason of Disability; and thereafter all such Options shall terminate together with all rights hereunder, to the extent not previously exercised. c. Cessation of Employment by Reason of Death. In the event of the death of the Optionee, while employed by the Company, an Option may be exercised at any time or from time to time prior to the earlier of the Termination Date or the first anniversary of the date of the Optionee's death, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Optionee was entitled to exercise such Option on the Optionee's date of death. In the event of the death of the Optionee while entitled to exercise an Option pursuant to Section 6.9(b), the Committee, in its discretion, may permit such Option to be exercised at any time or from time to time prior to the Termination Date during a period of up to one year from the death of the Optionee, as determined by the Committee, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Option was exercisable at the time of cessation of the Optionee's employment. Any person or persons to whom an Optionee's rights under an Option have passed by will or by the applicable laws of descent and distribution shall be subject to all terms and conditions of the Plan and the Option applicable to the Optionee. 6.10. Notification of Sales of Common Stock: Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an ISO either (a) within two years after the date of the grant of the ISO under which the stock was acquired or (b) within one year after the transfer of such shares to the Optionee, shall notify the Company of such disposition and of the amount realized upon such disposition. ARTICLE VII LIMITATIONS AND ACCELERATIONS ON EXERCISABILITY 7.1. Notwithstanding any other provision of this Plan, in the case of an ISO, the aggregate Fair Market Value (determined at the time the ISO is granted) of the shares of Common Stock with respect to which all "incentive stock options" (within the meaning of Section 422 of the Code) are first exercisable by the Optionee during any calendar year (under this Plan and under all other incentive stock option plans of the Employer, any Subsidiary and any Parent Corporation) shall not exceed $100,000. ARTICLE VIII ADJUSTMENTS 8.1. If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in such manner as it may deem equitable, adjust any or all of (i) the number and type of securities subject to the Plan and which thereafter may be the subject of Options; (ii) the number and type of securities subject to outstanding Options; (iii) the Option Price with respect to any Option; and (iv) the number of shares of Common Stock that may e issued pursuant to Options granted to an Optionee in any calendar year; provided, however, that each such adjustment, in the case of ISOs, shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1. The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate, provided, however, that no such amendment shall be made, which would, without approval of the shareholders: a. materially modify the eligibility requirements for receiving Options; b. increase the aggregate number of Shares of Common Stock which may be issued pursuant to Options granted under the Plan, except as is provided for in accordance with Article VIII of the Plan; c. Increase the number of shares of Common Stock which may be issued pursuant to Options granted to an Optionee in any calendar year, except as is provided for in accordance with Article VIII of the Plan; d. reduce the minimum Option Price, except as is provided for in accordance with Article VIII of the Plan; e. extend the period of granting Options; or f. materially increase in any other way the benefits accruing to Optionees. 9.2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3. The Board may amend this Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code. ARTICLE X GOVERNMENT AND OTHER REGULATIONS 10.1. The obligation of the Company to issue or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Plan Does Not Confer Employment or Shareholder Rights: The right of the Employer to terminate (whether by dismissal, discharge, retirement or otherwise) the Optionee's employment with it at any time at will, or as otherwise provided by any agreement between the Company and the Optionee, is specifically reserved. Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a shareholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2. Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3. Use of Exercise Proceeds: Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company's treasury and reissued. 11.4. Indemnification: In addition to such other rights of indemnification as they may have as members of the Board, or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. ARTICLE XII SHAREHOLDER APPROVAL AND EFFECTIVE DATES 12.1. The Plan shall become effective when it is adopted by the Board. However, the Plan and all Options shall terminate after the passage of one year from the date the Plan was adopted by the Board unless: a. within such one year period, the Plan is approved by the vote at a meeting of the shareholders of Harley-Davidson, Inc. of the holders of a majority of the outstanding shares of Harley-Davidson, Inc. entitled to vote; provided that if at a meeting of such shareholders held within such one year period, the Plan is not so approved, the Plan and all Options shall terminate at the time of that meeting of shareholders; or b. within such one year period, the Plan is approved by the shareholders of Harley-Davidson, Inc. Options may not be granted under the Plan after March 7, 1998. EX-10.4 6 1990 STOCK OPTION PLAN EXHIBIT 10.4 HARLEY-DAVIDSON, INC. 1990 STOCK OPTION PLAN (as amended through February 2, 1995) ARTICLE I PURPOSE The purpose of the Harley-Davidson, Inc. 1990 Stock Option Plan is to provide favorable opportunities for certain selected employees of Harley- Davidson, Inc. and its subsidiaries to purchase or receive shares of Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these employees to contribute to the future success and prosperity of Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit of the shareholders, and increase the ability of Harley-Davidson, Inc. to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained progress, growth and profitability depend. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1. Board: The Board of Directors of Harley-Davidson, Inc. 2.2. Code: The Internal Revenue Code of 1986, as amended. 2.3. Committee: The Human Resources Committee of the Board; provided that if any member of the Human Resources Committee is not both a Disinterested Person and Outside Director, the Committee shall be comprised of only those members of the Human Resources Committee who are both Disinterested Persons and Outside Directors. 2.4. Common Stock: The common stock of Harley-Davidson, Inc. 2.5. Company: Harley-Davidson, Inc. and any of its Subsidiaries. 2.6. Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. 2.7. Disinterested Persons: Disinterested persons within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended. 2.8. Employer: The entity that employs the employee or Optionee. 2.9. Fair Market Value: The average of the high and low reported sales prices of Common Stock on the New York Stock Exchange Composite Tape on the date for which fair market value is being determined. 2.10. ISO: An incentive stock option within the meaning of Section 422 of the Code and which is designated as an incentive stock option by the Committee. 2.11. Non-ISO: A stock option which is not an ISO. 2.12. Option: A stock option granted under the Plan. Options include both ISOs and Non-ISOs. 2.13. Option Price: The purchase price of a share of Common Stock under an Option. 2.14. Optionee: A person who has been granted one or more Options. 2.15. Outside Directors: Outside Directors within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. 2.16. Parent Corporation: The parent corporation, as defined in Section 424(e) of the Code. 2.17. Plan: The Harley-Davidson, Inc. 1990 Stock Option Plan. 2.18. Retirement: Retirement on or after age sixty-two or, with the consent of the Committee, at an earlier age. 2.19. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by Harley-Davidson, Inc. 2.20. Termination Date: A date fixed by the Committee but not later than the day preceding the tenth anniversary of the date on which the Option is granted. ARTICLE III ADMINISTRATION 3.1. The Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. 3.2. Subject to the provisions of the Plan, the Committee shall, in its discretion, determine who shall be granted Options, the number of shares subject to option under any such Options, the dates after which Options may be exercised, in whole or in part, whether Options shall be ISOs, and the terms and conditions of the Options. 3.3. Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. ARTICLE IV SHARES SUBJECT TO THE PLAN 4.1. The total number of shares of Common Stock available for grants of Options under the Plan shall be 1,800,000; provided that Options for not more than 100,000 shares of Common Stock shall be granted to an Optionee in any calendar year under the Plan, which amount shall be reduced by the amount of Common Stock subject to options granted to such Optionee in such calendar year under any other stock option plan of the Company. The foregoing amounts shall be subject to adjustment in accordance with Article VIII of the Plan. If an Option or portion thereof shall expire, be canceled or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. An Option, or portion thereof, exercised through the exercise of a stock appreciation right pursuant to Section 6.7 of the Plan shall be treated, for the purposes of this Article, as though the Option, or portion thereof, had been exercised through the purchase of Common Stock, with the result that the shares of Common Stock subject to the Option, or portion thereof, that was so exercised shall not be available for future grants of Options. ARTICLE V ELIGIBILITY 5.1.Options may be granted to key employees of the Company or to persons who have been engaged to become key employees of the Company. Key employees will comprise, in general, those who contribute to the management, direction and overall success of the Company, including those who are members of the Board. Members of the Board who are not employees of the Company shall not be eligible for Option grants. ARTICLE VI TERM OF OPTIONS 6.1. Option Agreements: All Options shall be evidenced by written agreements executed by the Company. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. Those Options that comply with the requirements for an ISO set forth in Section 422 of the Code and are designated ISOs by the Committee shall be ISOs and all other Options shall be Non-ISOs. 6.2. Option Price: The Option Price shall be set by the Committee; provided, however, that the price per share shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3. Period of Exercise: The Committee shall determine the dates after which Options may be exercised in whole or in part. If Options are exercisable in installments, installments or portions thereof that are exercisable and not exercised shall accumulate and remain exercisable. The Committee may also amend an Option to accelerate the dates after which Options may be exercised in whole or in part. However, no Option or portion thereof shall be exercisable after the Termination Date. 6.4. Special Rules Regarding ISOs Granted to Certain Employees: Notwithstanding any contrary provisions of Sections 6.2 and 6.3 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least 110 percent of the Fair Market Value of a share of Common Stock on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.5. Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: a. in United States dollars in cash or by check, bank draft or money order payable to the order of the Company. b. through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, or c. by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6. Withholding Taxes: The Company may, in its discretion, require an Optionee to pay to the Company at the time of exercise the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. Upon or prior to the exercise of an Option requiring tax withholding, an Optionee may make a written election to have shares of Common Stock withheld by the Company from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such election by an Optionee shall be at the sole discretion of the Committee. Where the exercise of an Option does not give rise to an obligation to withhold Federal income taxes on the date of exercise, the Company may, in its discretion, require an Optionee to place shares of Common Stock purchased under the Option in escrow for the benefit of the Company until such time as Federal income tax withholding is required on amounts included in the gross income of the Optionee as a result of the exercise of an Option. At such time, the Company, in its discretion, may require an Optionee to pay to the Company the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow to the Optionee. Alternatively, subject to acceptance by the Committee, in its sole discretion, an Optionee may make a written election to have shares of Common Stock held in escrow applied toward the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, based on the Fair Market Value of the shares on the date of the termination of the escrow arrangement. Upon application of such shares toward the Company's withholding obligation, any shares of Common Stock held in escrow and not, in the judgment of the Committee, necessary to satisfy such obligation shall be released from escrow to the Optionee. 6.7. Stock Appreciation Rights: At or after the grant of an Option, the Committee, in its discretion, may provide an Optionee with an alternate means of exercising an Option, or a designated portion thereof, by granting the Optionee a stock appreciation right. A "stock appreciation right" is a right to receive, upon exercise of an Option or any portion thereof, in the Committee's sole discretion, an amount of cash equal to, and/or shares of Common Stock having a Fair Market Value on the date of exercise equal to, the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Option Price, multiplied by the number of shares of Common Stock that the Optionee would have received had the Option or portion thereof been exercised through the purchase of shares of Common Stock at the Option Price, provided that (a) such Option or portion thereof has been designated as exercisable in this alternative manner, (b) such Option or portion thereof is otherwise exercisable, and (c) the Fair Market Value of a share of Common Stock on the date of exercise exceeds the Option Price. 6.8. Nontransferability of Options: Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 6.9. Cessation of Employment of Optionee: a. Cessation of Employment other than by Reason of Retirement, Disability or Death. If an Optionee shall cease to be employed by the Company otherwise than by reason of Retirement, Disability, or death, each Option held by the Optionee, together with all rights hereunder, shall terminate on the date of cessation of employment, to the extent not previously exercised. b. Cessation of Employment by Reason of Retirement or Disability. If an Optionee shall cease to be employed by the Company by reason of Retirement or Disability, each Option held by the Optionee shall remain exercisable, to the extent it was exercisable at the time of cessation of employment, until the earliest of: i. the Termination Date, ii. the death of the Optionee, or such later date not more than one year after the death of the Optionee as the Committee, in its discretion, may provide pursuant to Section 6.9(c) of the Plan, iii. the third anniversary of the date of the cessation of the Optionee's employment, if employment ceased by reason of Retirement, or iv. the first anniversary of the date of the cessation of the Optionee's employment by reason of Disability; and thereafter all such Options shall terminate together with all rights hereunder, to the extent not previously exercised. c. Cessation of Employment by Reason of Death. In the event of the death of the Optionee, while employed by the Company, an Option may be exercised at any time or from time to time prior to the earlier of the Termination Date or the first anniversary of the date of the Optionee's death, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Optionee was entitled to exercise such Option on the Optionee's date of death. In the event of the death of the Optionee while entitled to exercise an Option pursuant to Section 6.9(b), the Committee, in its discretion, may permit such Option to be exercised at any time or from time to time prior to the Termination Date during a period of up to one year from the death of the Optionee, as determined by the Committee, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Option was exercisable at the time of cessation of the Optionee's employment. Any person or persons to whom an Optionee's rights under an Option have passed by will or by the applicable laws of descent and distribution shall be subject to all terms and conditions of the Plan and the Option applicable to the Optionee. 6.10. Notification of Sales of Common Stock: Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an ISO either (a) within two years after the date of the grant of the ISO under which the stock was acquired or (b) within one year after the transfer of such shares to the Optionee, shall notify the Company of such disposition and of the amount realized upon such disposition. ARTICLE VII LIMITATIONS AND ACCELERATIONS ON EXERCISABILITY 7.1. Notwithstanding any other provision of this Plan, in the case of an ISO, the aggregate Fair Market Value (determined at the time the ISO is granted) of the shares of Common Stock with respect to which all "incentive stock options" (within the meaning of Section 422 of the Code) are first exercisable by the Optionee during any calendar year (under this Plan and under all other incentive stock option plans of the Employer, any Subsidiary and any Parent Corporation) shall not exceed $100,000. 7.2. Each Option granted under the Plan shall have a limited right of surrender allowing the Optionee to surrender that Option within the 30-day period following a Change of Control Event and to receive cash, in lieu of exercising the Option, in the amount by which the highest "COC Fair Market Value" (as hereinafter defined) of the number of shares of Common Stock covered by the Option during the 60 days preceding the date on which the Change of Control Event occurs exceeds the exercise price for the shares of Common Stock covered by the Option. For this purpose, the "COC Fair Market Value" of the Common Stock means the highest closing price of one share of Common Stock as reported on the New York Stock Exchange Composite Tape. If the Common Stock is not listed or admitted to trading on the New York Stock Exchange, the COC Fair Market Value of the Common Stock shall be the closing price of one share of Common Stock on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted sale price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market of the Common Stock, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such date the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices of the Common Stock as furnished by a professional market maker making a market in the Common Stock selected by the Board. If on any such date no market maker is making a market in the Common Stock or other Stock, the COC Fair Market Value shall be determined in good faith by the Continuing Directors who are not Disinterested Persons. For purposes of this Section 7.2: (a) "Change of Control Event" means any one of the following: (i) Continuing Directors no longer constitute at least two-thirds of the Directors constituting the Board; (ii) any person or groups (as defined in Rule 13d-5 under the Securities Exchange Act of 1934, as amended ("Exchange Act")), together with its affiliates, becomes the beneficial owner, directly or indirectly, of 20% or more of the Harley-Davidson, Inc.'s then outstanding Common Stock or 20% or more of the voting power of Harley-Davidson, Inc.'s then outstanding securities entitled generally to vote for the election of Harley-Davidson, Inc.'s Directors; (iii) the approval by Harley-Davidson, Inc.'s stockholders of the merger or consolidation of Harley-Davidson, Inc. with any other corporation, the sale of substantially all of Harley-Davidson, Inc.'s assets or the liquidation or dissolution of Harley-Davidson, Inc., unless in the case of a merger or consolidation, the Continuing Directors who are Disinterested Persons in office immediately prior to such merger or consolidation constitute at least two-thirds of the directors constituting the board of directors of the surviving corporation of such merger or consolidation and any parent (as defined in Rule 12b-2 under the Exchange Act) of such corporation; or (iv) at least two-thirds of the Continuing Directors in office immediately prior to any other action proposed to be taken by Harley-Davidson, Inc.'s stockholders or by the Board determine that such proposed action, if taken, would constitute a change of control of Harley-Davidson, Inc. and such action is taken; and (b) "Continuing Director" means any person who either (i) was a Director on November 1 1989, or (ii) was designated before such person's initial election as a Director as a Continuing Director by a majority of the Continuing Directors. ARTICLE VIII ADJUSTMENTS 8.1. If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in such manner as it may deem equitable, adjust any or all of (i) the number and type of securities subject to the Plan and which thereafter may be the subject of Options; (ii) the number and type of securities subject to outstanding Options; (iii) the Option Price with respect to any Option; and (iv) the number of shares of Common Stock that may be issued pursuant to Options granted to an Optionee in any calendar year; provided, however, that each such adjustment, in the case of ISOs, shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1. The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate, provided, however, that no such amendment shall be made, which would, without approval of the shareholders: a. materially modify the eligibility requirements for receiving Options; b. increase the aggregate number of Shares of Common Stock which may be issued pursuant to Options granted under the Plan, except as is provided for in accordance with Article VIII of the Plan; c. increase the number of shares of Common Stock which may be issued pursuant to Options granted to any Optionee in any calendar year, except as is provided for in accordance with Article VIII of the Plan; d. reduce the minimum Option Price, except as is provided for in accordance with Article VIII of the Plan; e. extend the period of granting Options; or f. materially increase in any other way the benefits accruing to Optionees. 9.2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3. The Board may amend this Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code. ARTICLE X GOVERNMENT AND OTHER REGULATIONS 10.1. The obligation of the Company to issue or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Plan Does Not Confer Employment or Shareholder Rights: The right of the Employer to terminate (whether by dismissal, discharge, retirement or otherwise) the Optionee's employment with it at any time at will, or as otherwise provided by any agreement between the Company and the Optionee, is specifically reserved. Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a shareholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2. Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3. Use of Exercise Proceeds: Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company's treasury and reissued. 11.4. Indemnification: In addition to such other rights of indemnification as they may have as members of the Board, or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. ARTICLE XII SHAREHOLDER APPROVAL AND EFFECTIVE DATES 12.1. The Plan shall become effective when it is adopted by the Board. However, the Plan and all Options shall terminate after the passage of one year from the date the Plan was adopted by the Board unless: a. within such one year period, the Plan is approved by the vote at a meeting of the shareholders of Harley-Davidson, Inc. of the holders of a majority of the outstanding shares of Harley-Davidson, Inc. entitled to vote; provided that if at a meeting of such shareholders held within such one year period, the Plan is not so approved, the Plan and all Options shall terminate at the time of that meeting of shareholders; or b. within such one year period, the Plan is approved by the written consent of the holders of a majority of the outstanding shares of Harley- Davidson, Inc. entitled to vote. Options may not be granted under the Plan after May 13, 2000. EX-10.13 7 RESTRICTED STOCK AGENT EXHIBIT 10.13 HARLEY-DAVIDSON, INC. RESTRICTED STOCK AGREEMENT AGREEMENT made as of the ____ day of __________, 199__, between Harley- Davidson, Inc. (the "Company"), and ___________________ (the "Participant"). Unless the context otherwise requires, as used herein the term "Company" shall include all subsidiaries of the Company. WHEREAS, on _______________, 199__ (the "Grant Date") the Company granted the Participant _______________________________ (_______) shares of restricted common stock of the Company subject to the terms of this Agreement (the "Restricted Stock"); and WHEREAS, the Participant desires to accept the grant of such restricted stock pursuant to the terms of this Agreement. NOW, THEREFORE, the parties agree as follows: 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms shall have the following definitions: a. "Cause" shall mean (1) Participant's conviction of a felony or a plea by the Participant of no contest to a felony, (2) willful misconduct on the part of the Participant that is materially and demonstrably detrimental to the Company or (3) Participant's willful refusal to perform requested duties consistent with his office, position or status with the Company (other than as a result of the Participant's physical or mental disability). With respect to subsections (2) and (3) of this paragraph, Cause shall be determined by a majority of the Committee at a meeting held after reasonable notice to the Participant and including an opportunity for the Participant and his counsel to be heard. All determinations of the Committee hereunder shall be final. b. "Committee" shall mean the Human Resources Committee of the Board of Directors of the Company, or any successor committee thereto. c. "Restricted Period" shall mean the period beginning on the Grant Date and ending on the __________ (____) anniversary of the Grant Date or such earlier time as provided herein. 2. ISSUANCE OF SHARES. Subject to the restrictions set forth herein, the Company agrees to issue the Restricted Stock for the benefit of the Participant effective as of the Grant Date. 3. RESTRICTIONS ON THE RESTRICTED STOCK. During the Restricted Period, the Restricted Stock may not be sold, transferred, pledged or otherwise alienated or hypothecated. 4. TERMINATION OF EMPLOYMENT. If during the Restricted Period the Company terminates the Participant's employment with the Company for Cause or the Participant terminates his employment with the Company, all shares of the Restricted Stock shall upon such termination of employment be forfeited and returned to the Company. If during the Restricted Period the Participant dies or the Company terminates the Participant's employment with the Company other than for Cause, the Restricted Period shall terminate upon such termination of employment and all of the shares of Restricted Stock shall become free of the restrictions set forth herein other than Section 7 hereof. 5. REGISTRATION AND HOLDING CERTIFICATE. The Participant hereby waives during the Restricted Period any right to receive a certificate for the Restricted Stock registered in the Participant's name and agrees instead that the Company shall have the right to deliver the Restricted Stock to Firstar Trust Company, as custodian, or to its nominee, and to cause a certificate to be registered in the name of such custodian or its nominee, provided that the custodian agrees to pay to the Participant the net amount of all cash dividends received by it in respect of the Restricted Stock, determined after deducting any taxes required to be withheld in respect of such dividends, as contemplated by Section 6 hereof, and to vote such shares in accordance with the instructions of the Participant. If the Restricted Stock is forfeited pursuant to the terms of this Agreement, the custodian is authorized to transfer the Restricted Stock back to the Company. During the Restricted Period the certificates issued in respect of the Restricted Stock (including any stock dividends thereon) shall bear the following legend: The transferability of this Certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in an Agreement entered into between the beneficial owner and Harley-Davidson, Inc. A copy of such Agreement is on file in the office of the Secretary of Harley-Davidson, Inc., 3700 West Juneau Avenue, Milwaukee, Wisconsin 53208. In addition, certificates issued in respect of the Restricted Stock may bear a legend in substantially the following form, as determined by the Committee, both during and after the Restricted Period: The shares represented by this Certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or under any state securities laws. These shares may not be sold or otherwise transferred except pursuant to an effective registration statement filed under the Act and any applicable state securities laws or pursuant to an exemption therefrom. 6. PROVISION FOR WITHHOLDING TAXES. Within thirty (30) days after (i) the Restricted Period terminates; or (ii) the Grant Date (if the Participant has elected, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in gross income an amount equal to the fair market value of the Restricted Stock), the Participant (or his legal representative, beneficiary or heir) shall pay to the Company in cash an amount equal to the Federal, state and local income taxes and all other taxes that the Company is required to withhold in respect of the Restricted Stock, or shall make such other arrangements for the proper payment of all such taxes as shall be satisfactory to the Company. Until such payment or other satisfactory arrangement shall have been made, the Company will not be required to make delivery of the Restricted Stock and, to the extent permitted by law, shall have the right (but not the obligation), without notice to the Participant, to retain or sell a sufficient number of shares of the Restricted Stock to cover the amount of any such taxes required to be withheld. In the event the Participant makes the election pursuant to Section 83(b) referred to above, the Participant shall submit to the Secretary of the Company within thirty (30) days after the Grant Date a copy of the statement required to be submitted by the Participant to the corporation pursuant to Treasury Regulation 1.83-2. In addition, the Company and the custodian shall have the right to withhold or deduct from any payment of any kind otherwise due to the Participant or any nominee (including any dividends payable with respect to the shares of Restricted Stock) the amount of any such taxes required to be withheld. 7. SALES SUBJECT TO RULE 144. If the Participant is an "affiliate" of the Company or the Restricted Stock constitutes "restricted securities", within the meaning of such quoted terms in Rule 144 promulgated under the Securities Act of 1933, as amended, at the time the Participant proposes to sell any shares of the Restricted Stock, the Participant will make any such sales only (i) in compliance with said Rule 144, including the requirement that, under certain circumstances, the Participant shall file a notice of such proposed sale on Form 144 with the Securities and Exchange Commission and the New York Stock Exchange, or (ii) pursuant to another applicable exemption from the registration requirements of the Securities Act of 1933, as amended. 8. NO EMPLOYMENT RIGHTS. The grant of Restricted Stock hereunder shall not confer on the Participant any right to be retained in the employ of the Company. The right of the Company to terminate (whether by dismissal, discharge or otherwise) the Participant's employment with it at any time or as otherwise provided in any agreement between the Company and the Participant is specifically reserved. 9. GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Wisconsin. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date written above. HARLEY-DAVIDSON, INC. ATTEST: __________________________ By: ___________________________ _______________________________ EX-10.14 8 SEVERENCE BENEFITS AGRMT EXHIBIT 10.14 SEVERANCE BENEFITS AGREEMENT THIS AGREEMENT, entered into as of the ____ day of ___________, 199_, by and between ______________________, a __________________________ ("Employer"), and _______________________________ ("Executive"). WHEREAS, Employer desires to continue to attract and retain skilled and dedicated management employees; WHEREAS, Executive is currently employed by Employer in an executive capacity and has unique skills and abilities that are of benefit to Employer; and WHEREAS, Employer desires to provide Executive certain assurances regarding severance pay and other benefits in the event of a Covered Termination (as defined below). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereby agree as follows: 1. Not an Employment Agreement. This Agreement is not an employment --------------------------- agreement and shall not change the employment relationship between Employer and Executive. Except as expressly provided herein, this Agreement shall not amend or alter the terms of, or limit the benefits to Executive under, any existing or future employment, transition, change of control or other agreement between Executive and Employer. This Agreement shall not be amended by any such future agreement unless such future agreement specifically provides that the terms of this Agreement shall be amended. Anything in this Agreement to the contrary notwithstanding and subject to any existing or future employment or other agreement between Employer and Executive, (a) Executive may terminate Executive's employment with Employer at any time and for any reason and (b) Employer may terminate Executive's employment with Employer at any time and for any reason. 2. Definitions. ----------- a. Affiliate. "Affiliate" shall mean any parent, subsidiary or other --------- affiliate of Employer. b. Base Salary Amount. "Base Salary Amount" shall mean (1) the ------------------ amount of Executive's average monthly base salary during either (i) if Executive has been employed by Employer for twelve (12) or more consecutive months immediately prior to the Termination Date, the twelve (12) consecutive months immediately prior to the Termination Date or (ii) if Executive has been employed by Employer for less than twelve (12) consecutive months immediately prior to the Termination Date, the consecutive months of Executive's employment with Employer immediately prior to the Termination Date, multiplied by (2) either (i) if Executive has been employed by Employer for twenty four (24) or more consecutive months immediately prior to the Termination Date, twelve (12) or (ii) if Executive has been employed by Employer for less than twenty four (24) consecutive months immediately prior to the Termination Date, six (6). c. Benefit Period. "Benefit Period" shall mean (1) if Executive has -------------- been employed by Employer for twenty four (24) or more consecutive months immediately prior to the Termination Date, the twelve (12) consecutive months immediately following the Termination Date or (2) if Executive has been employed by Employer for less than twenty four (24) consecutive months immediately prior to the Termination Date, the six (6) consecutive months immediately following the Termination date. d. Cause. "Cause" shall mean: ----- (1) the conviction of Executive of a felony or a crime involving moral turpitude, theft or fraud; or (2) Executive's refusal to perform duties as directed in good faith by Executive's supervisor, which failure is not cured within 10 days after written notice thereof from Employer to Executive; or (3) Executive's engaging in sexual harassment or any act involving theft or fraud with respect to Employer or any of its parents, subsidiaries or other affiliates, as determined by the Chief Executive Officer of Employer; or (4) Executive's reckless conduct or willful misconduct which results in substantial harm (in relation to Executive's annual compensation), as determined by the Chief Executive Officer of Employer, whether financial, reputational or otherwise, to Employer or any of its parents, subsidiaries or other affiliates. e. Covered Termination. "Covered Termination" shall mean Employer's ------------------- termination of Executive's employment with Employer other than (1) for Cause or (2) in connection with the death or Disability of Executive. Notwithstanding the foregoing, the transfer of Executive's employment to any Affiliate shall not be a Covered Termination. f. Disability. "Disability" shall have the meaning assigned to it in ---------- the long-term disability insurance policy then provided or made available to Executive by or through Employer. If there is then no such policy or such term is not defined therein, then "Disability" shall mean Executive's incapacity due to physical or mental illness causing Executive to be absent from the full-time performance of Executive's duties with Employer for sixty (60) consecutive days. g. Stock Plans. "Stock Plans" shall mean Employer's 1986 Stock ----------- Option Plan, Employer's 1988 Stock Option Plan, Employer's 1990 Stock Option Plan, Employer's Long Term Incentive Plan, Employer's Long Term Incentive Plan II and any other existing or future employee benefit plans of Employer providing for the issuance of stock options, stock appreciation rights or restricted stock. h. Termination Date. "Termination Date" shall mean the date on which ---------------- a Covered Termination is effective, which date shall not be less than twenty-five (25) days after the date the Termination Notice is delivered to Executive. i. Termination Notice Date. "Termination Notice Date" shall mean the ----------------------- date on which written notice is delivered by Employer to Executive stating that the Executive's employment is being terminated pursuant to a Covered Termination and setting forth the Termination Date. 3. Severance Benefits. In the event of a Covered Termination and in lieu ------------------ of any benefits or other amounts that would otherwise be payable by Employer to Executive as a result of, arising out of or following such Covered Termination, Executive shall be entitled to all of the following: a. a lump sum payment, payable within thirty (30) days following the Termination Date, equal to the Base Salary Amount. b. during the Benefit Period or the period beginning on the Termination Date and ending on the date Executive becomes employed on a substantially full-time basis, whichever is shorter, Employer shall make available to Executive coverage under Employer's medical, dental and life insurance plans on the same terms as such plans are made available to Employer's salaried employees generally. c. during the Benefit Period or the period beginning on the Termination Date and ending on the date Executive becomes employed on a substantially full-time basis, whichever is shorter, Employer shall maintain any split-dollar life insurance on Executive's life owned by Employer and shall pay the premiums (for such period) due on any split- dollar life insurance on Executive's life owned by Executive. d. any other benefits payable pursuant to the terms of the Stock Plans (and applicable agreements thereunder) and any incentive compensation, pension, 401(k), retirement, savings or deferred compensation plans. e. reimbursement of any expenses incurred by Executive in the ordinary course of employment prior to the Termination Date consistent with Employer's then existing expense reimbursement policy. 4. No Mitigation. Executive shall not be required to mitigate the amount ------------- of any payment or benefit provided for in Section 3 hereof by seeking other employment or otherwise, nor will the amount provided for in Section 3(a) hereof be reduced by any compensation earned by Executive as a result of employment by another employer after the Termination Date. 5. Exclusivity. ----------- a. The benefits provided for herein are intended to constitute a minimum, but noncumulative, benefit package for Executive in the event of a Covered Termination. If Executive has or claims to have any Claims (as defined below), Executive may elect to assert such Claims. If, however, Executive does formally assert one or more Claims in a writing submitted to Employer, or an appropriate body to determine such Claims, for the legal enforcement of such Claims, such writing shall constitute an irrevocable waiver and disclaimer of Executive's benefits and rights under this Agreement. b. As a condition of receiving the benefits provided for herein, Executive shall be required to execute, prior to receiving any benefits hereunder, a release of all other claims against Employer arising out of such Covered Termination (the "Claims"), including but not limited to any and all claims arising out of contract (written, oral, or implied in law or in fact), tort (including negligent and intentional acts), or state, federal or local law (including discrimination on any basis whatsoever), in a form reasonably satisfactory to Employer. c. If Executive has received benefits under this Agreement for a Covered Termination and thereafter asserts any Claims, Executive shall, notwithstanding any other agreement to the contrary, return to Employer all benefits received hereunder as a condition of being allowed to assert any such Claims. If for any reason Executive cannot legally be compelled to return such benefits, Employer shall be given, to the extent allowed by law, credit for all amounts received by Executive under this Agreement against any other amounts otherwise due to Executive arising out of any such Claims. Notwithstanding the foregoing, this Section 5(c) shall not be construed to limit or otherwise modify the terms of any release executed by Executive pursuant to Section 5(b) hereof or otherwise. 6. Other Termination. In the event Executive's employment with Employer ----------------- terminates other than pursuant to a Covered Termination, including without limitation, a termination for Cause, termination by reason of Executive's death, Disability or retirement or a voluntary termination by Executive, Executive shall be entitled to no benefits or rights under this Agreement. 7. Amendment, Termination and Assignment. This Agreement may be amended, ------------------------------------- terminated or superseded only by a written instrument signed by Executive and Employer. This Agreement may not be assigned by Executive. 8. Transfer of Employment. If Executive's employment is transferred to ---------------------- any Affiliate, such Affiliate shall assume Employer's obligations hereunder and following such transfer such Affiliate shall be deemed the "Employer" for purposes of this Agreement. 9. Headings. Headings used herein are for convenience only and shall not -------- constitute a part of or affect the meaning or interpretation of this Agreement. 10. Governing Law; Venue. This Agreement shall be deemed to have been -------------------- made and executed in the State of Wisconsin and the validity, interpretation and enforcement hereof shall be governed by the internal laws of the State of Wisconsin. In the event of any dispute arising from or in connection with this Agreement, Executive consents and agrees to in personam jurisdiction and to ----------- venue exclusively in either the Circuit Court for Milwaukee County, Wisconsin, or the United States District Court for the Eastern District of Wisconsin, located in Milwaukee, Wisconsin. IN WITNESS WHEREOF, the parties have executed this Agreement at Milwaukee, Wisconsin as of the date first above written. EXECUTIVE: EMPLOYER: HARLEY-DAVIDSON, INC. ____________________________________ By: ______________________________ EX-11 9 COMPUTATION OF EARNINGS EXHIBIT 11 HARLEY-DAVIDSON, INC. COMPUTATION OF EARNINGS PER COMMON SHARE ASSUMING NO DILUTION (Unaudited) (In thousands, except per share amounts)
Year Ended December 31, 1994 1993 1992 --------- --------- -------- Computation of net income (loss) --------------------------------------------------------------- Income before extraordinary item and accounting changes $104,272 $ 18,443 $54,173 Extraordinary item, net of tax - - (388) Accounting changes, net of tax - (30,328) - -------- -------- ------- Net income (loss) used in computing earnings per common share assuming no dilution $104,272 $(11,885) $53,785 ======== ======== ======= Weighted average common shares outstanding and shares used in computing earnings (loss) per common share assuming no dilution 76,198 75,900 71,778 ======== ======== ======= Earnings (loss) per common share assuming no dilution: Income before extraordinary item and accounting changes $ 1.37 $ .24 $ .76 Extraordinary item, net of tax - - (.01) Accounting changes, net of tax - (.40) - -------- -------- ------- Net income (loss) $ 1.37 $ (.16) $ .75 ======== ======== =======
HARLEY-DAVIDSON, INC. COMPUTATION OF EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION (Unaudited) (In thousands, except per share amounts)
Year Ended December 31, 1994 1993 1992 -------- --------- -------- Computation of net income (loss) --------------------------------------------------------------- Income before extraordinary item and accounting changes $104,272 $ 18,443 $54,173 Interest expense on Harley-Davidson, Inc. 7 1/4% convertible subordinated debentures outstanding, net of tax - - 1,538 -------- -------- ------- Income used in computing earnings per common share assuming full dilution before extraordinary item and accounting changes 104,272 18,443 55,711 Extraordinary item, net of tax - - (388) Accounting changes, net of tax - (30,328) - -------- -------- ------- Net income (loss) used in computing earnings per common share assuming full dilution $104,272 $(11,885) $55,323 ======== ======= Computation of shares --------------------------------------------------------------- Weighted average common shares outstanding 76,198 75,900 71,778 Incremental shares created assuming exercise at the beginning of the period of stock options outstanding at the end of the period using period-end market price when higher than average -** -* 1,222 Shares issuable upon conversion of outstanding Harley- Davidson, Inc. 7 1/4% convertible subordinated debentures - - 3,512 -------- -------- ------- Shares used in computing earnings (loss) per common share assuming full dilution 76,198 75,900 76,512 ======== ======== ======= Earnings (loss) per common share assuming full dilution: Income before extraordinary item $ 1.37 $ .24 $ .73 Extraordinary item, net of tax - - (.01) Accounting changes, net of tax - (.40) - -------- -------- ------- Net income (loss) $ 1.37 $ (.16) $ .72 ======== ======== =======
* Earnings (loss) per common share assuming full dilution generally includes the dilutive effect of outstanding stock options. During 1993, the effect of stock options had an antidilutive effect and, accordingly, was excluded from the calculations. **During 1994, the effect of stock options had an immaterial effect and, accordingly, was excluded from the calculations. EX-21 10 LIST OF SUBSIDIARIES EXHIBIT 21 ---------- HARLEY-DAVIDSON, INC. SUBSIDIARIES State/Country of Name Incorporation ---- ------------- H-D Michigan, Inc. Michigan Harley-Davidson Motor Company Wisconsin Harley-Davidson Transportation Co., Inc. Delaware Harley-Davidson Foreign Sales Corporation Barbados Cycom Business Systems, Inc. Ohio Harley-Davidson Holding Co., Inc. Delaware Harley-Davidson GmbH Germany Harley-Davidson Japan, KK Japan Harley-Davidson UK, Limited England Buell Distribution Corporation Wisconsin Renovation Realty Investment Services, Inc. Wisconsin Trihawk, Inc. Wisconsin Highland Insurance Service, Inc. Wisconsin Holiday Rambler LLC Indiana HR Holding Corporation Wisconsin HR Leasing Corporation Wisconsin State Road Properties L.P. Delaware Holiday Holding Corporation Texas Holiday World, Inc. Indiana Holiday World, Inc. Washington Holiday World, Inc. Texas Holiday World, Inc. Florida Holiday World, Inc. New Mexico Holiday World, Inc. Oregon Holiday World, Inc. California RV Holiday World, Inc. Massachusetts EX-23 11 AUDITORS CONSENT EXHIBIT 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-33449, No. 33-35311, and No. 33-48581) pertaining to (a) the Harley-Davidson, Inc. 1986 Stock Option Plan and the Harley-Davidson, Inc. 1988 Stock Option Plan; (b) the Harley-Davidson, Inc. Retirement Savings Plan for Salaried Employees, the Harley-Davidson, Inc. Retirement Savings Plan for Milwaukee and Tomahawk Hourly Bargaining Unit Employees, and the Holiday Rambler LLC Employees Retirement Plan; and (c) the Harley-Davidson, Inc. 1990 Stock Option Plan of our report dated January 21, 1995, with respect to the consolidated financial statements and schedules of Harley-Davidson, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1994. ERNST & YOUNG LLP Milwaukee, Wisconsin March 30, 1995 EX-27 12 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 TWELVE MONTHS ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 59,285 0 145,396 2,000 173,420 405,636 434,991 172,204 739,215 216,278 0 772 0 0 432,460 739,215 1,541,796 1,541,796 1,120,332 1,120,332 262,875 0 (44) 162,069 57,797 104,272 0 0 0 104,272 1.37 1.37