UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 26, 1995
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to
______________
Commission File Number 1-9183
Harley-Davidson, Inc.
(Exact name of registrant as specified in its Charter)
Wisconsin 39-1382325
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3700 West Juneau Avenue, Milwaukee, Wisconsin 53208
(Address of principal executive offices) (Zip Code)
(414) 342-4680
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock Outstanding as of May 5, 1995: 74,749,048 Shares
<PAGE>
HARLEY-DAVIDSON, INC.
Form 10-Q Index
For the Quarter Ended March 26, 1995
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
Three months ended
March 26, March 27,
1995 1994
Sales $389,689 $343,705
Cost of goods sold 285,092 253,416
------- ---------
Gross profit 104,597 90,289
Selling, administrative and
engineering expenses 65,585 57,169
-------- ---------
Income from operations 39,012 33,120
Interest expense - net (377) (311)
Other income (expense) - net (1,122) 1,343
--------- ---------
Income before provision
for income taxes 37,513 34,152
Provision for income taxes 13,875 13,320
---------- ---------
Net income $ 23,638 $ 20,832
========= =========
Weighted average common shares
outstanding 76,060 76,146
========= =========
Net income per common share $0.31 $0.27
========= =========
Cash dividends per share $0.04 $0.03
========= =========
<PAGE>
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
ASSETS
March 26, Dec. 31, March 27,
1995 1994* 1994
(Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 19,152 $ 59,285 $ 38,593
Accounts receivable, net 171,975 143,396 146,565
Inventories (Note 2) 199,263 173,420 147,097
Deferred income taxes 20,111 20,111 20,296
Prepaid expenses 8,877 9,424 7,882
-------- -------- --------
Total current assets 419,378 405,636 360,433
Property, plant and equipment, net 269,025 262,787 204,916
Deferred income taxes 22,924 22,924 11,676
Other assets 48,619 47,868 33,591
-------- -------- ---------
$759,946 $739,215 $610,616
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 47,351 $ 17,890 $ 23,985
Current maturities of
long-term debt 282 413 726
Accounts payable 69,035 63,988 55,366
Accrued expenses and other 134,100 133,987 113,648
--------- --------- ---------
Total current liabilities 250,768 216,278 193,725
Postretirement health care
benefits 61,273 60,283 56,356
Other long-term liabilities 31,602 29,422 14,307
Contingencies (Note 4)
Shareholders' equity:
Common stock 772 772 385
Additional paid-in capital 151,226 150,728 140,187
Retained earnings 303,593 283,010 207,960
Cumulative foreign currency
translation adjustment 3,380 1,174 599
-------- -------- --------
458,971 435,684 349,131
Less treasury stock, at cost (41,869) (1,581) (1,582)
Unearned compensation (799) (871) (1,321)
-------- ------- ---------
Total shareholders' equity 416,303 433,232 346,228
--------- -------- ---------
$759,946 $739,215 $610,616
======== ======== ==========
*Condensed from audited financial statements.
<PAGE>
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
March 26, March 27,
1995 1994
Cash flows from operating activities:
Net income $23,638 $20,832
Depreciation and amortization 9,994 9,644
Long-term employee benefits 1,805 2,091
(Gain) loss on disposal of long-term
assets (84) 11
Equity in net income of joint ventures (43) (432)
Change in current assets and current
liabilities:
Accounts receivable (28,579) (60,534)
Inventory (25,843) (6,946)
Prepaid expenses 547 1,689
Accounts payable and accrued liabilities 5,160 (379)
------- --------
Net cash used in operating activities (13,405) (34,024)
Cash flows from investing activities:
Purchase of property and equipment (16,204) (8,748)
Other - net 2,644 (688)
-------- ---------
Net cash used in investing activities (13,560) (9,436)
Cash flows from financing activities:
Increase (reduction) of long-term debt (48) 183
Net increase in notes payable 29,461 3,405
Dividends paid (3,055) (2,282)
Stock repurchases (39,972) -
Issuance of stock under employee stock
and option plans 446 3,038
--------- --------
Net cash provided by (used in) financing
activities (13,168) 4,344
-------- --------
Net decrease in cash and cash equivalents (40,133) (39,116)
Cash and cash equivalents:
At beginning of period 59,285 77,709
------- --------
At end of period $19,152 $38,593
======= ========
<PAGE>
HARLEY-DAVIDSON, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The condensed interim consolidated financial statements included herein
have been prepared by Harley-Davidson, Inc. (the "Company") without audit.
However, the foregoing statements contain all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of Company
management, necessary to present fairly the consolidated financial
position as of March 26, 1995 and March 27, 1994, and the results of
operations for the three month periods then ended.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1994.
Note 2 - Inventories
The Company values its inventories at the lower of cost, principally using
the last-in, first-out (LIFO) method, or market. Inventories consist of
the following (in thousands):
March 26, Dec. 31, March 27,
1995 1994 1994
Components at the lower of cost,
first-in, first-out (FIFO), or
market:
Raw material & work-in-process $67,294 $70,685 $ 56,965
Finished goods 93,260 69,745 69,068
Parts & accessories 59,240 52,554 37,888
-------- -------- -------
219,794 192,984 163,921
Excess of FIFO over LIFO 20,531 19,564 16,824
-------- -------- -------
Inventories as reflected in the
accompanying condensed
consolidated balance sheets $199,263 $173,420 $147,097
======== ======== ========
Note 3 - Capital Stock
On August 17, 1994, The Company's Board of Directors declared a two-for-
one stock split effected in the form of a 100 percent stock dividend to
shareholders of record on August 29, 1994, payable on September 12, 1994.
Outstanding stock options and shares available under option plans have
been adjusted to reflect the split. An amount equal to the par value of
the shares issued has been transferred from additional paid-in capital to
the common stock account. All references to number of shares, except
shares authorized, have been adjusted to reflect the stock split on a
retroactive basis.
The Company announced on March 9, 1995 that it intended to repurchase up
to 4 million shares of its outstanding common stock pursuant to authority
previously granted by its Board of Directors. During the first quarter,
the Company repurchased 1,650,000 shares of its common stock for
approximately $40 million. Related to this purchase, the Company borrowed
$20 million under a note due June, 1995.
Note 4 - Contingencies
The Company is involved with government agencies in various environmental
matters, including a matter involving soil and groundwater contamination
at its York, Pennsylvania facility (the Facility). The Facility was
formerly used by the U.S. Navy and AMF (the predecessor corporation of
Minstar). The Company purchased the facility from AMF in 1981. Although
the Company is not certain as to the extent of the environmental
contamination at the Facility, it is working with the Pennsylvania
Department of Environmental Resources in undertaking certain investigation
and remediation activities. In March 1995, the Company entered into a
settlement agreement (the Agreement) with the Navy. The Agreement calls
for the Navy and the Company to contribute amounts into a trust equal to
53% and 47%, respectively, of future costs associated with investigation
and remediation activities at the Facility (response costs). The trust
will administer the payment of the future response costs at the Facility
as covered by the Agreement. The Navy has also agreed to reimburse the
Company for response costs the Company had incurred up to the date of the
Agreement. In addition, in March 1991 the Company entered into a
settlement agreement with Minstar related to certain indemnification
obligations assumed by Minstar in connection with the Company's purchase
of the Facility. Pursuant to this settlement, Minstar is obligated to
reimburse the Company for a portion of its response costs at the Facility.
Although substantial uncertainty exists concerning the nature and scope of
the environmental remediation that will ultimately be required at the
Facility, based on preliminary information currently available to the
Company and taking into account the Company's settlement agreement with
the Navy and the settlement agreement with Minstar, the Company estimates
that it will incur approximately $6 million of net additional response
costs at the Facility. The Company has established reserves for this
amount. The Company has also put certain of its insurance carriers on
notice that it intends to make claims relating to the environmental
contamination at the Facility. However, the Company is currently unable to
determine the probable amount of recovery available, if any, under
insurance policies.
The Company has been named as a defendant in a lawsuit filed in late
February 1995 by Lorillard Tobacco Company ("Lorillard") in the United
States District Court for the Southern District of New York. Lorillard
alleges that the Company acted in "bad faith" by attempting to terminate a
1986 license agreement that grants Lorillard the right to use the Harley-
Davidson name in the marketing of cigarettes. Lorillard seeks rescission
and claims restitutionary damages of $70 million, unspecified lost profits
and punitive damages of $250 million; alternatively, it seeks injunctive
relief to prevent termination of the license agreement. The Company has
denied any wrongdoing and is vigorously contesting Lorillard's claims in
this action. The Company filed an answer to the complaint on March 21,
1995, together with a counterclaim seeking to terminate the license
agreement. The Company asserts that Lorillard breached the license
agreement by failing to verify its financial condition as contractually
required, and depleted its assets through dividends to its parent company,
Loews, Inc., thereby compromising Lorillard's ability to meet its
indemnification obligations to the Company. The Company also disputes
Lorillard's entitlement to punitive damages under governing law and to
restitutionary damages, based on a release of damage claims amounting to
approximately $50 million, which release Lorillard gave to the Company in
1993. As this litigation is in a very preliminary stage, the Company
cannot predict the outcome of this matter with a reasonable degree of
certainty.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended March 26, 1995
Compared to the Three Months Ended March 27, 1994
Motorcycle Units and Consolidated Net Sales
For the Three Month Periods Ended March 26, 1995 and March 27, 1994
Incr
1995 1994 (Decr) %
Motorcycle units 23,651 23,056 595 2.6%
Net sales (in millions):
Motorcycles $224.8 $207.3 $17.5 8.4%
Motorcycle Parts and
Accessories 65.5 49.5 16.0 32.1
Other 4.6 1.8 2.8 149.6
Total Motorcycles
and Related Products 294.9 258.6 36.3 14.0
Recreational Vehicles 62.6 59.3 3.3 5.6
Commercial Vehicles 29.6 22.8 6.8 29.5
Other 2.6 3.0 (0.4) (10.8)
Total Transportation
Vehicles 94.8 85.1 9.7 11.4
Harley-Davidson, Inc.
Consolidated Net Sales $389.7 $343.7 $46.0 13.4%
The Company reported record first quarter consolidated net sales. Both the
Motorcycles and Related Products segment (the "Motorcycles segment") and
the Transportation Vehicles segment contributed to the increase.
Net sales increases in the Motorcycles segment were primarily driven by a
32.1% increase in its Parts and Accessories business and a 2.6% increase
in motorcycle unit shipments. The increase in motorcycle unit shipments
over the first quarter of 1994 was due to production increases. An
increase in Buell motorcycle unit shipments also contributed approximately
$3.6 million in additional revenue (classified in "Other" in the above
table). The Company has a 49% interest in Buell Motorcycle Company, a
manufacturer of performance motorcycles. Buell motorcycles are
distributed, beginning in the third quarter of 1994, to select Harley-
Davidson dealers through the Company's wholly-owned subsidiary, Buell
Distribution Corporation.
During the first quarter of 1995, motorcycle production met or exceeded
the scheduled production rate of 395 units per day. Accordingly, the
Company announced that it plans to increase daily motorcycle production to
an average of 420 units per day for the second quarter and at least 420
units per day for the balance of the year. As a result, the Company plans
to attain 1995 shipments of at least 100,000 units.
The Parts and Accessories revenue grew 32.1% compared to the first quarter
of 1994, due primarily to the MotorClothes product line, which posted a
37.2% increase. The introduction of the women's Biker Blues denim clothing
line was the primary contributor to the $3 million of Biker Blues revenue
in the first quarter of 1995. The MotorClothes product line comprised
approximately 37% of all revenues generated by the Parts and Accessories
business during 1994 and was the fastest growing portion of the Parts and
Accessories product line during the first quarter of 1995.
The Transportation Vehicles segment's net sales increased 11.4% over the
first quarter of 1994. The Recreational Vehicles division's revenue
increased 5.6%, which was below management's initial expectations based on
1994 industry-wide recreational vehicle market growth. As a result, the
Company announced production adjustments and implemented promotional
programs in March, including rebates and interest rate buy-downs, to drive
retail demand. In addition to these programs, the Company is continuing
to invest in new product development in the Recreational Vehicles
division.
The Commercial Vehicles division had a 29.5% revenue increase compared to
the first quarter of 1994 due primarily to large fleet contracts that were
awarded during 1994. The Commercial Vehicles division was awarded a new
fleet contract in the first quarter of 1995, the largest contract in the
division's history, that is expected to generate revenues of approximately
$35 million over the remainder of the year.
Consolidated Gross Profit
For the Three Month Periods Ended March 26, 1995 and March 27, 1994
(Dollars in Millions)
Percent Percent
of sales of sales
1995 1994 Change 1995 1994
Motorcycles and
Related Products $90.4 $76.8 $13.6 30.7% 29.7%
Transportation
Vehicles 14.2 13.5 .7 15.0 15.9
Consolidated Harley-
Davidson, Inc. $104.6 $90.3 $14.3 26.8% 26.3%
Consolidated gross profit increased $14.3 million, or 15.8%, compared to
the first quarter of 1994. The Motorcycles segment was responsible for a
majority of the increase primarily due to increased volume in the Parts
and Accessories business, motorcycle shipments and favorable foreign
exchange. Foreign sales, especially in Europe, contributed to the
increase due to the weakening U.S. dollar relative to European currencies.
Offsetting these increases were expenses related to continued machinery
rearrangement in the Company's three motorcycle manufacturing facilities
in support of the production capacity and product quality increases.
The Transportation Vehicles segment recorded a volume related increase in
gross profit compared to the first quarter of 1994. The Recreational
Vehicles division experienced a shift in product mix toward the lower
margin towables units from the "Class A" motorhomes, as well as an
increase in labor costs due to a new factory pay system initiated in the
fourth quarter of 1994, largely offsetting its volume related increases.
The Commercial Vehicles division's gross profit percentage increased
compared to the first quarter of 1994 due primarily to volume increases
and a shift in mix to higher margin walk-in units.
Consolidated Operating Expenses
For the Three Month Periods Ended March 26, 1995 and March 27, 1994
(Dollars in Millions)
Incr
1995 1994 (Decr) %
Motorcycles and Related
Products $49.9 $41.8 $8.1 19.5%
Transportation Vehicles 13.9 13.3 .6 4.4
Corporate 1.8 2.1 (.3) (14.1)
Consolidated Harley-
Davidson, Inc. $65.6 $57.2 $8.4 14.7%
Consolidated operating expenses increased $8.4 million, or 14.7%, compared
to the first quarter of 1994. Increases in the Motorcycles segment were
largely related to increased motorcycle and parts and accessories volumes.
Catalog costs, product warranty, engineering and other marketing costs
were additional areas of increased spending during the period.
Operating expenses in the Transportation Vehicles segment increased
moderately compared to the first quarter of 1994. The favorable margin
achieved from the higher sales volume was offset by increased spending
related to research and development, dealer training and other marketing
expenses in the Recreational Vehicles division. Increases in field and
yard inventory in the Recreational Vehicles division are expected to
result in higher promotional expenses for the second and third quarters.
The first promotion program was introduced in March.
Consolidated income taxes
-------------------------
The Company's effective income tax rate for the first quarter of 1995
approximated 37.0% compared to 39.0% during the first quarter of 1994.
The decrease is primarily due to a recent corporate restructuring which
resulted in lower state income taxes.
Environmental
-------------
The Company's policy is to comply with all applicable environmental laws
and regulations and has a compliance program in place to monitor, and
report on, environmental issues. The Company has reached settlement
agreements with its former parent (Minstar) and the U.S. Navy regarding
the remediation of the Company's manufacturing facility in York, PA and
currently estimates that it will incur approximately $6 million of net
additional costs related to the remediation of the York facility. The
Company has established reserves for this amount. See Note 4 of the notes
to condensed consolidated financial statements.
Recurring costs associated with managing hazardous substances and
pollution in on-going operations are not material.
The Company regularly invests in equipment to support and improve its
various manufacturing processes. While the Company considers environmental
matters in capital expenditure decisions, and while some capital
expenditures also act to improve environmental compliance, only a small
portion of the Company's annual capital expenditures relate to equipment
which has the sole purpose of environmental compliance. The Company
anticipates that capital expenditures for equipment used to limit
hazardous substances/ pollutants during 1995 will approximate $1 million.
The Company does not expect that expenditures related to environmental
matters will have a material effect on future operating results or cash
flows.
Liquidity and Capital Resources
The Company typically reports negative cash flows from operating
activities during the first quarter. The Motorcycles segment generally
experiences increases in receivable and inventory balances during the
first quarter over prior year-end balances due to the annual holiday shut-
downs. The Motorcycles segment's receivable balances also increased as a
result of volume increases in both motorcycles and parts and accessories.
Finished goods inventory in the Motorcycles segment increased due to
higher in-transit inventory to our foreign subsidiaries. Parts and
accessories inventory increased due to the increased demand for parts and
accessories (revenues up 16%). The Transportation Vehicles segment had
increases in both raw material and finished goods inventories. The
Recreational Vehicles division's finished goods inventory increased
approximately $18 million compared to December 31, 1994 to prepare for
anticipated 1995 industry-wide recreational vehicle market growth. The
Commercial Vehicles division had an increase in its raw material inventory
as a result of preparation for the recently awarded $35 million fleet
contract.
Capital expenditures amounted to $16.2 million and $8.7 million during the
first quarters of 1995 and 1994, respectively. The Company anticipates
1995 capital expenditures will approximate $100-$110 million. The Company
anticipates funding these expenditures with internally generated funds.
The Company announced on March 9, 1995 that it intended to repurchase up
to 4 million shares of its outstanding common stock pursuant to authority
previously granted by its Board of Directors. During the first quarter,
the Company repurchased 1,650,000 shares of its common stock with cash on
hand and short-term borrowings.
The Company currently has nominal levels of long-term debt and has
existing lines of credit of approximately $47 million, of which
approximately $43 million remained available at year-end.
On February 2, 1995, the Company's Board of Directors declared a cash
dividend of $.04 per share payable March 5, 1995 to shareholders of record
February 17.
<PAGE>
Part II - OTHER INFORMATION
HARLEY-DAVIDSON, INC.
FORM 10-Q
March 26, 1995
Item 1. Legal Proceedings
The Company is involved with government agencies in various environmental
matters, including a matter involving soil and groundwater contamination
at its York, Pennsylvania facility. See footnote 4 to the accompanying
condensed consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
Part II - OTHER INFORMATION
HARLEY-DAVIDSON, INC.
FORM 10-Q
March 26, 1995
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HARLEY-DAVIDSON, INC.
Date: May 9, 1995 /s/ James L. Ziemer
James L. Ziemer
Vice President and Chief
Financial Officer (Principal
Financial Officer)
May 9, 1995 /s/ James M. Brostowitz
James M. Brostowitz
Vice President, Controller
(Principal Accounting Officer)
and Treasurer
<PAGE>
Exhibit Index
Exhibit No. Description Page
27 Financial Data Schedule 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HARLEY-DAVIDSON, INC. AS
OF AND FOR THE THREE MONTHS ENDED MARCH 26, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-26-1995
<CASH> 19,152
<SECURITIES> 0
<RECEIVABLES> 174,118
<ALLOWANCES> 2,143
<INVENTORY> 199,263
<CURRENT-ASSETS> 419,378
<PP&E> 517,962
<DEPRECIATION> 248,937
<TOTAL-ASSETS> 759,946
<CURRENT-LIABILITIES> 250,768
<BONDS> 0
<COMMON> 772
0
0
<OTHER-SE> 415,531
<TOTAL-LIABILITY-AND-EQUITY> 759,946
<SALES> 389,689
<TOTAL-REVENUES> 389,689
<CGS> 285,092
<TOTAL-COSTS> 285,092
<OTHER-EXPENSES> 66,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 377
<INCOME-PRETAX> 37,513
<INCOME-TAX> 13,875
<INCOME-CONTINUING> 23,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,638
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
