<PAGE>
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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 For the fiscal year ended: DECEMBER 31, 1996
[ ] 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
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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, 1997:
$2,632,485,263.
Number of shares of the registrant's common stock outstanding at March 21, 1997:
75,733,097 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 3,
1997.
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<PAGE>
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Annual Report on Form 10-K are "forward-
looking statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects", "estimates" or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this report. Shareholders, potential investors
and other readers are urged to consider these factors in evaluating the forward-
looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
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, all references to
the "Company" include Harley-Davidson, Inc., all of its subsidiaries and all of
its majority-owned affiliates. The Company operates in two segments:
Motorcycles and Related Products, and Financial Services.
The Motorcycles and Related Products ("Motorcycles") segment consists primarily
of the Company's wholly-owned subsidiary Harley-Davidson Motor Company (the
"Motor Company"). The Motorcycles segment designs, manufactures and sells
primarily heavyweight (engine displacement of 651+cc) touring and custom
motorcycles and a broad range of related products which include motorcycle parts
and accessories, riding apparel and collectibles. The Company, which is the
only major American-based motorcycle manufacturer, has held the largest share of
the United States heavyweight motorcycle market since 1987. The Company ended
1996 with an approximate 7% share of the European heavyweight (651+cc) market
and an approximate 22% share of the Pacific Rim (Japan and Australia)
heavyweight (651+cc) market.
The Financial Services segment consists of the Company's majority-owned
subsidiary, Eaglemark Financial Services, Inc. and its subsidiaries
("Eaglemark"). Eaglemark provides motorcycle floor planning and parts and
accessories financing to the Company's participating North American dealers.
Eaglemark also offers retail financing opportunities to the Company's domestic
retail motorcycle customers. In addition, Eaglemark has established a
proprietary credit card for use in the Company's authorized dealerships.
Eaglemark also provides property and casualty insurance for motorcycles as well
as extended service contracts. A smaller portion of its customers are in other
leisure products businesses.
The Company holds a 49% interest in, and is the exclusive distributor for, Buell
Motorcycle Company, which manufactures motorcycles for select niches within the
sport/performance market.
In January 1996, the Company announced its strategic decision to dispose of its
Transportation Vehicles segment in order to concentrate on its core motorcycle
business. During 1996, the Company completed the sale of the Transportation
Vehicles segment for an aggregate sales price of approximately $105 million.
The results of the Transportation Vehicles segment have been reported separately
as discontinued operations. See Note 3 to the 1996 consolidated financial
statements for further information.
2
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Revenue, operating income (loss) and identifiable assets attributable to each of
the Company's segments are as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Motorcycles
and Related Transportation Financial
Products Vehicles(1) Services(2) Corporate
----------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
1996
----
Revenue $1,531,227 $ n/a $ n/a $ n/a
Operating income (loss) 228,093 n/a 7,801 (7,448)
Identifiable assets as of December 31 790,271 n/a 387,666 142,048
1995
----
Revenue $1,350,466 $ n/a $ n/a $ n/a
Operating income (loss) 184,475 n/a 3,620 (7,299)
Identifiable assets as of December 31 595,118 111,556 269,461 24,535
1994
----
Revenue $1,158,887 $ n/a $ n/a $ n/a
Operating income (loss) 163,510 n/a n/a (9,948)
Identifiable assets as of December 31 494,362 110,886 n/a 71,415
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Transportation Vehicles segment was reported as discontinued operations
commencing in 1995. Prior year results have been reclassified in order to
conform to this presentation. See note 3 to the 1996 consolidated financial
statements for further information.
(2) The Financial Services segment's 1996 and 1995 results of operations are
included in operating income. During 1994, the equity in earnings of the
Financial Services subsidiary was included in other income. See note 4 to the
1996 consolidated financial statements for further information.
3
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Worldwide quarterly revenue and operating income (loss) (in thousands), by
segment, and motorcycle shipment information (excluding Buell), are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1996
Revenue by segment:
Motorcycles and Related Products $371,051 $392,804 $385,843 $381,529 $1,531,227
Financial Services n/a n/a n/a n/a n/a
-------- -------- -------- -------- ----------
$371,051 $392,804 $385,843 $381,529 $1,531,227
Operating income (loss) by segment:
Motorcycles and Related Products $ 54,771 $ 63,144 $ 50,853 $ 59,325 $ 228,093
Financial Services 1,732 1,990 1,277 2,802 7,801
Corporate (2,477) (2,025) (1,675) (1,271) (7,448)
-------- -------- -------- -------- ----------
$ 54,026 $ 63,109 $ 50,455 $ 60,856 $ 228,446
Units:
Harley-Davidson Motorcycles 30,071 30,852 28,013 29,835 118,771
- ----------------------------------------------------------------------------------------------------------------------------------
1995
Revenue by segment:
Motorcycles and Related Products $294,886 $355,631 $327,096 $372,853 $1,350,466
Financial Services n/a n/a n/a n/a n/a
-------- -------- -------- -------- ----------
$294,886 $355,631 $327,096 $372,853 $1,350,466
Operating income (loss) by segment:
Motorcycles and Related Products $ 40,473 $ 53,732 $ 38,421 $ 51,849 $ 184,475
Financial Services 651 1,001 771 1,197 3,620
Corporate (1,867) (1,330) (2,210) (1,892) (7,299)
-------- -------- -------- -------- ----------
$ 39,257 $ 53,403 $ 36,982 $ 51,154 $ 180,796
Units:
Harley-Davidson Motorcycles 23,651 28,167 25,012 28,274 105,104
- --------------------------------------------------------------------------------------------------------------------------------
1994
Revenue by segment:
Motorcycles and Related Products $258,607 $296,843 $291,927 $311,510 $1,158,887
Financial Services n/a n/a n/a n/a n/a
-------- -------- -------- -------- ----------
$258,607 $296,843 $291,927 $311,510 $1,158,887
Operating income (loss) by segment:
Motorcycles and Related Products $ 34,984 $ 47,134 $ 37,832 $ 43,560 $ 163,510
Financial Services n/a n/a n/a n/a n/a
Corporate (2,086) (3,217) (2,128) (2,517) (9,948)
-------- -------- -------- -------- ----------
$ 32,898 $ 43,917 $ 35,704 $ 41,043 $ 153,562
Units:
Harley-Davidson Motorcycles 23,056 25,006 22,503 25,246 95,811
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</TABLE>
4
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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-Registered Trademark- motorcycle owner is a male in his mid
forties, with a household income of approximately $68,000, 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, and 34% of the buyers have college degrees. Approximately 9% of the
Company's U.S. retail sales are to female buyers.
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 23 models of touring and custom heavyweight
motorcycles, with suggested domestic retail prices ranging from approximately
$5,200 to $18,500. 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-Registered
Trademark-. 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 sold 2,762
units and 1,407 units in 1996 and 1995, respectively. Buell motorcycles were
introduced in Japan during the second quarter of 1996 and are being
introduced in Europe during the first quarter of 1997.
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 as much as 50% more than 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-Registered
Trademark-) 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, are people completely new to
the sport of motorcycling or have not participated in the sport for at least
five years. 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 53.0%, 49.3% and 50.3% of revenues in the Motorcycles segment
during 1996, 1995 and 1994, respectively.
5
<PAGE>
The major product categories for the Parts and Accessories business are
replacement parts (Genuine Motor Parts-TM-), mechanical accessories (Genuine
Motor Accessories-TM-) and specially formulated oil and other lubricants.
Worldwide motorcycle Parts and Accessories sales comprised 13.7%, 14.2% and
14.0% of net sales in the Motorcycles segment in 1996, 1995 and 1994,
respectively. Net sales from worldwide motorcycle Parts and Accessories have
grown 64.5% over the last three years (since 1993).
Net sales from the worldwide General Merchandise business, which includes
MotorClothes-Registered Trademark- clothing and collectibles, comprised 5.9%,
7.4% and 8.1% of net sales in the Motorcycles segment in 1996, 1995 and
1994, respectively.
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, 462 domestic and 149
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 and provide a wide range
of product for enthusiasts by licensing its trademark
"Harley-Davidson-Registered Trademark-" 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. In 1993, the licensed
Harley-Davidson Cafe opened in Manhattan, New York. In 1995, the Company
entered into an agreement for licensing three additional restaurants with the
Cafe owners. Under this agreement, the Company anticipates the opening of a
new Cafe in Las Vegas, Nevada during 1997. Although the majority of
licensing activity occurs in the U.S., the Company has started to expand into
international markets.
This licensing activity provides the Company with a valuable source of
advertising and goodwill. 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. Royalty revenues from licensing, included
in Parts and Accessories revenue, were approximately $19 million, $24 million
and $22 million during 1996, 1995 and 1994, respectively. While royalty
revenues from licensing activities are relatively 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-Registered Trademark-, or "HOG-Registered Trademark-", currently has
approximately 330,000 members
6
<PAGE>
worldwide and is the industry's largest company-sponsored motorcycle enthusiast
organization. The Company's expenditures on domestic marketing, selling and
advertising were approximately $75.4 million, $71.5 million and $65.6 million
during 1996, 1995 and 1994, respectively.
RETAIL CUSTOMER AND DEALER FINANCING. The Motor Company believes that Eaglemark
and other financial services companies provide adequate retail and wholesale
financing to the Motor Company's dealers and customers. In addition, to
encourage its dealers to carry sufficient parts and accessories inventories and
to counteract the seasonality of the parts and accessories business, the Motor
Company from time to time offers its domestic dealers quarterly special
discounts and/or 120 day delayed billing terms through Eaglemark.
INTERNATIONAL SALES. International sales were $413 million, $395 million and
$331 million, accounting for approximately 27%, 29% and 29% of net sales of the
Motorcycles segment, during 1996, 1995 and 1994, respectively. The Company
believes the international heavyweight market is growing and is significantly
larger than the U.S. heavyweight market. The Company ended 1996 with an
approximate 7% share of the European heavyweight (651+cc) market and an
approximate 22% share of the Pacific Rim (Japan and Australia) heavyweight
(651+cc) market. See Note 12 to the consolidated financial statements for
additional information regarding foreign operations.
The Company has five wholly owned foreign subsidiaries located in France,
Germany, Japan, The Netherlands and the United Kingdom. The combined foreign
subsidiaries have a network of 160 dealers of which approximately one-half 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 as well as being able to focus on value-added
customer services in these 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 1996, this network included 12 distributors serving 17
country markets with approximately 255 dealers. The remainder of the network
includes 13 direct sales dealers serving 17 country markets. Japan, Germany,
Canada and Australia, in that order, represent the Company's largest export
markets and account for approximately 60% of export sales.
During 1994, the Company established its European Distribution Centre in
Rotterdam, The Netherlands, which consolidated the motorcycle and Parts and
Accessories distribution. In 1995, the Company established Harley-Davidson's
European headquarters in the United Kingdom which created a management team
dedicated to improving the relationships between the Company and its
distributors, dealers and customers. The management team's focus is on
expansion of the dealer network, improved management information systems, better
product development and the opening of new markets.
During 1996, the Company completed a strategic plan for the Asia/Pacific region
outlining growth objectives for the region and strategies for achieving them.
Short-term growth opportunities continue to come from existing markets, led by
Japan and Australia, while long-term growth will come from new markets.
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.
7
<PAGE>
During 1996, the heavyweight segment represented approximately 45% of the total
U.S. motorcycle market in terms of new units registered.
Domestically, the Company competes in the touring and custom segments of the
heavyweight motorcycle market, which together accounted for 80%, 78% and 76% of
total heavyweight retail unit sales in the U.S. during 1996, 1995 and 1994,
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 (United
States) sales of heavyweight motorcycles. The Company's share of the
heavyweight market was 48.2% in 1996; up from 47.7% in 1995.
The construction of a new manufacturing facility in Kansas City, Missouri is
currently in process and is on schedule to be operational in 1998. In addition,
expansion is also taking place at the Company's existing facilities to enable it
to achieve its long-term goal of being able to produce more than 200,000
motorcycles per year by 2003. The Company currently estimates it will have the
capacity to produce at least 130,000 motorcycles in 1997, more than 145,000
motorcycles in 1998 and more than 160,000 motorcycles in 1999, subject to the
risks and uncertainties discussed with respect to this topic under Item 7 below.
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Shares of U.S. Heavyweight Motorcycle Market*
(Engine Displacement of 651+cc)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
New U.S. Registrations (thousands
of units):
Total new registrations 165.7 151.2 140.8 123.8 104.2
Harley-Davidson new registrations 79.9 72.1 65.2 59.3 52.2
Percentage Market Share:
Harley-Davidson 48.2% 47.7% 46.3% 47.9% 50.1%
Honda 18.8 20.2 22.5 20.1 17.9
Suzuki 8.7 9.6 10.6 12.1 13.1
Kawasaki 12.2 10.6 9.8 9.7 9.1
Yamaha 5.9 5.8 5.6 5.8 5.3
Other 6.2 6.1 5.2 4.4 4.5
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
* Information in this report regarding motorcycle registrations and market
shares has been derived from data published by R.L. Polk & Co.
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8
<PAGE>
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:
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Worldwide Heavyweight Motorcycle Registration Data
(Engine Displacement of 651+cc)
<TABLE>
<CAPTION>
(Units in Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
North America(1):
Total registrations 178.5 163.1 150.4
Harley-Davidson registrations 85.1 77.0 69.5
Harley-Davidson market share percentage 47.6% 47.2% 46.2%
Europe(2):
Total registrations 224.7 207.2 201.9
Harley-Davidson registrations 15.4 15.4 14.4
Harley-Davidson market share percentage 6.9% 7.4% 7.1%
Japan/Australia(3):
Total registrations 37.4 39.8 38.8
Harley-Davidson registrations 8.2 7.9 7.6
Harley-Davidson market share percentage 21.9% 19.8% 19.6%
</TABLE>
(1) Includes the United States and Canada
(2) Includes Austria, Belgium, France, Germany, Italy, The Netherlands, Spain,
Switzerland and United Kingdom. (Data provided by Giral S.A.)
(3) Data provided by JAMA and ABS.
- --------------------------------------------------------------------------------
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 10% and 7% during 1996 and 1995,
respectively. The Company believes its ability to maintain its current market
share will depend primarily on its ability to increase its annual production
capacity as discussed below.
9
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MOTORCYCLE MANUFACTURING. In an effort to further control costs and maintain
quality, the Company has incorporated manufacturing techniques to continuously
improve its operations. These techniques, which include employee involvement,
just-in-time inventory principles, partnering agreements with the local unions,
high performance work organizations 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. The
York, Pennsylvania facility is transitioning to a high performance work
organization which increases manufacturing flexibility through the maximization
of employee involvement in planning and decision making.
The Company is implementing a comprehensive motorcycle manufacturing strategy
designed to, among other things, enable further increases in annual motorcycle
production in order to be able to produce more than 200,000 motorcycles per year
by 2003. "Plan 2003" calls for the enhancement of the Motorcycles segment's
ability to increase capacity, increase flexibility to adjust to changes in the
market place, improve quality and reduce costs. The strategy calls for the
achievement of the increased capacity at the existing facilities (with some
additions), the acquisition of a new engine plant and the construction of a new
assembly plant in Kansas City, Missouri which is currently in process and is on
schedule to be operational in 1998. The Company began implementing Plan 2003 in
1996 and exceeded its production goal of 115,000 units (118,771 units). In
addition, the Company currently estimates it will have the capacity to produce
at least 130,000 units in 1997, more than 145,000 units in 1998 and more than
160,000 units in 1999, subject to the risks and uncertainties discussed with
respect to this topic under Item 7 below.
RAW MATERIAL AND PURCHASED COMPONENTS. The Company is proceeding aggressively
to establish with its suppliers long term mutually beneficial relationships.
Through these relationships the Company is gaining access to technical and
commercial resources for application directly to product design, development and
manufacturing initiatives. This strategy is resulting in improved product
technical integrity, application of new features and innovations, reduced lead
times for product development, and smoother/faster manufacturing ramp-up of new
vehicle introductions.
The Company purchases all of its raw material, principally steel and aluminum
castings, forgings, sheets and bars, and certain motorcycle components,
including carburetors, batteries, tires, seats, electrical components and
instruments. 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
are significant factors in the Company's ability to continuously improve its
competitive position. As a result, the Company completed construction of a new
210,000 square foot Product Development Center (PDC) in 1996. The PDC brings
together employees from all areas of the product development cycle to speed the
Company's time to market with new products. The Motorcycles segment incurred
research and development expenses of approximately $37.7 million, $27.2 million
and $22.1 million during 1996, 1995 and 1994, 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 protection the Company's patents afford
would not have a material effect upon its business.
10
<PAGE>
Trademarks are important to the Company's motorcycle business and licensing
activities. The Company has a vigorous global program of trademark
registration and enforcement to strengthen the value of its trademarks,
prevent the unauthorized use of its trademarks and improve its image and
customer goodwill. The Company believes that its "Harley-Davidson-Registered
Trademark-" trademark is highly recognizable by the general public and one of
its most valuable assets. The Company's Bar and Shield design trademark is
also highly recognizable by the general public. Additionally, the Company
has numerous trademarks, trade names and logos, registered both in the United
States and abroad. The Company has continuously used the "Harley-Davidson"
trademark since 1903 and the Bar and Shield trademark since 1910.
SEASONALITY. The Company, in general, has not experienced significant
seasonal fluctuations in motorcycle production. This has primarily been 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
North American independent dealers. Floor plan financing allows 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.
European Union Certification procedures ensure that the Company's motorcycles
comply with the lower European Union noise standards (80dba). At the
beginning of the next 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 motorcycles are
subjected to the additional ARB tailpipe and evaporative emissions standards
that require the Company to build unique vehicles for sale exclusively in
California. The Company's motorcycle products have been certified to comply
fully with all such applicable standards.
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 4 voluntary recalls at a total cost of approximately $3.0 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.
11
<PAGE>
EMPLOYEES. As of December 31, 1996, the Motorcycles segment had approximately
5,200 employees. Production workers at the motorcycle manufacturing facilities
in Wauwatosa, Menomonee Falls 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 Wisconsin-IAM will expire on March 31, 2001, and
the collective bargaining agreement with the Pennsylvania-IAM will expire on
February 2, 2002.
FINANCIAL SERVICES
Eaglemark provides private label financial services programs to leisure product
manufacturers, their dealers and customers in the United States and Canada. The
Company acquired a 49% interest in Eaglemark in 1993 and acquired substantially
all of the remaining shares in 1995. Eaglemark commenced doing business in 1993
with the purchase of the Harley-Davidson wholesale financing portfolio from ITT
Commercial Finance Corporation.
HARLEY-DAVIDSON. Eaglemark's largest division provides both wholesale and
retail financial services to Harley-Davidson dealers and customers and
operates under the trade names Harley-Davidson-Registered Trademark- Credit
and Harley-Davidson-Registered Trademark-Insurance. Wholesale financial
services include floorplan financing of motorcycles, trade acceptance
financing of motorcycle parts and accessories, computer loans, showroom
remodeling loans and the brokerage of a range of commercial insurance
products, including property and casualty, general liability and special
events insurance policies. Eaglemark's wholesale financial services are
offered to all Harley-Davidson dealers in the United States and Canada and
during 1996 were utilized one or more times by approximately 95% of such
dealers. Eaglemark's wholesale finance operations are located in Plano,
Texas.
Retail financial services include installment lending for new and used
Harley-Davidson motorcycles, the Harley Card-TM-, an exclusive credit card
for use only in Harley-Davidson dealerships, and the brokerage of a range of
motorcycle insurance products, including liability, casualty, and credit life
and disability insurance policies, and extended service agreements.
Eaglemark's retail financial services are available through virtually all
Harley-Davidson dealers in the United States and Canada. Eaglemark's retail
finance operations are located in Carson City, Nevada.
OTHER MANUFACTURERS. Eaglemark also provides private label wholesale and
retail financial services through manufacturer participation programs to
Holiday Rambler-Registered Trademark-, Boston Whaler-Registered Trademark-,
Skeeter-Registered Trademark-, Mastercraft-TM- and WetJet-TM- dealers and
customers. These programs are similar to the Harley-Davidson program
described above.
FUNDING. Eaglemark's growth has been funded through a combination of capital
contributions from the Company, secured commercial paper borrowings,
revolving credit facility borrowings, commercial paper conduit facility
borrowings and securitization of its retail installment loans. Future growth
is expected to be financed by using similar sources as well as internally
generated funds. Eaglemark acts only as an insurance agent and does not
assume any underwriting risk with regard to the various insurance policies
and extended service agreements that it sells.
COMPETITION. Eaglemark believes that its ability to offer a package of
wholesale and retail financial services utilizing the name of the manufacturer
provides a significant competitive advantage over its competitors. Its
competitors compete for business based largely on price and, to a lesser extent,
service. Eaglemark competes based on convenience, service and, to a lesser
extent, price.
12
<PAGE>
The only significant national retail financing competitor for Harley-Davidson
motorcycle installment loans is Greentree Financial. Greentree Financial does
not offer insurance products or extended service contracts and focuses primarily
on high volume Harley-Davidson dealers. In contrast, competition to provide
retail financial services to recreational vehicle and watercraft dealers is
substantial, with many competitors being much larger than Eaglemark. These
competitors include The CIT Group, Nations Credit, BankOne and Key Bank USA.
Credit unions, banks, other financial institutions and insurance agencies also
compete for retail financial services business in their local markets.
Eaglemark faces little national competition for the Harley-Davidson wholesale
finance business. Competitors are primarily banks and other financial
institutions who provide wholesale financing to Harley-Davidson dealers in their
local markets. In contrast, competition to provide wholesale financial services
to recreational vehicle and watercraft dealers is substantial, with many
competitors being much larger than Eaglemark. These competitors include
Deutsche Financial, Nations Credit, Bombardier and Transamerica. They typically
offer manufacturer sponsored programs similar to Eaglemark's programs.
PATENTS AND TRADEMARKS. Eaglemark has registered trademarks for the name
"Eaglemark" and the Eaglemark logo. All the other trademarks or trade names
used by Eaglemark, such as Harley-Davidson Credit and MasterCraft Credit, are
licensed from the manufacturer.
SEASONALITY. The leisure products for which Eaglemark currently provides
financial services are primarily used only during the warmer months of the year
in the northern United States and Canada, generally March through August. As a
result, the business experiences significant seasonal variations. From
September until mid-March dealer inventories build and turn more slowly,
increasing wholesale financing volume substantially. During this same time
there is a corresponding decrease in the retail financing volume. Customers
typically do not buy motorcycles, watercraft and recreational vehicles until
they can use them. From about mid-March through August retail financing volume
increases and wholesale financing volume decreases.
EMPLOYEES. As of December 31, 1996, the Financial Services segment had
approximately 270 employees. None of Eaglemark's personnel are represented by
labor unions.
13
<PAGE>
TRANSPORTATION VEHICLES (DISCONTINUED OPERATIONS)
As previously discussed, on January 22, 1996, the Company announced its
strategic decision to dispose of its Transportation Vehicles segment in order to
concentrate on its core motorcycle business. The Transportation Vehicles
segment was comprised of the Recreational Vehicles division, the Commercial
Vehicles division and B & B Molders, a manufacturer of custom or standard
tooling and injection molded plastic pieces. During 1996, the Company completed
the sale of the Transportation Vehicles segment for an aggregate sales price of
approximately $105 million and recorded a gain on disposition of $22.6 million.
The results of the Transportation Vehicles segment have been reported separately
as discontinued operations. See Note 3 to the 1996 consolidated financial
statements for further information.
RECREATIONAL VEHICLES
On March 6, 1996, the Company completed the sale of substantially all of the
assets of its Holiday Rambler Recreational Vehicles Division to Monaco Coach
Corporation ("Monaco"). Monaco acquired the Recreational Vehicles division's
manufacturing operations located in Wakarusa, Indiana and 10 of its 14 Holiday
World Recreational Vehicle Dealerships. During 1996, the remaining 4
dealerships were sold.
COMMERCIAL VEHICLES
On December 12, 1996, the Commercial Vehicles division was sold to senior
management together with an investment group led by Kirkland Messina, a firm
based in Los Angeles.
OTHER PRODUCTS
On December 12, 1996 B & B molders was sold to B & B management.
14
<PAGE>
ITEM 2. PROPERTIES
The following is a summary of the principal properties of the Company as of
March 21, 1997.
MOTORCYCLES AND RELATED PRODUCTS SEGMENT
<TABLE>
<CAPTION>
Type of Facility Location Square Feet Status
- ---------------- -------- ----------- ------
<S> <C> <C> <C>
Executive Offices,
Engineering & Warehouse Milwaukee, WI 512,100 Owned
Product Development Center Wauwatosa, WI 210,000 Owned
Manufacturing Wauwatosa, WI 443,000 Owned
Manufacturing Menomonee Falls, WI 448,000 Owned
Manufacturing Tomahawk, WI 112,250 Owned
Manufacturing York, PA 1,027,135 Owned
Distribution Center York, PA 84,000 Lease expiring 2004
Distribution Center Franklin, WI 250,000 Owned
Motorcycle Testing Talladega, AL 23,500 Leases expiring 1998-1999
Office Kansas City, MO 23,600 Lease expiring 1998
Office Mukwanago, WI 4,800 Lease expiring 1998
Office Ann Arbor, MI 2,300 Lease expiring 1999
Office and Service Area Morfelden-Walldorf, 25,840 Lease expiring 2001
Germany
Office Tokyo, Japan 7,145 Lease expiring 1997
Warehouse Yokohama, Japan 7,460 Lease expiring 1997
Office Brackley, England 2,845 Lease expiring 2005
Warehouse Brackley, England 1,122 Lease expiring 2005
Office Windsor, England 10,147 Lease expiring 2006
Office Liederdorp, 8,400 Lease expiring 2001
The Netherlands
Office Paris, France 5,650 Lease expiring 2005
</TABLE>
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). The
facility in Menomonee Falls, Wisconsin was purchased in 1996 and is expected to
begin producing motorcycle power train components in 1997.
15
<PAGE>
The construction of a new 330,000 square foot manufacturing facility in Kansas
City, Missouri is currently in process and is on schedule to be operational in
1998. In addition, expansion is also taking place at the Company's powertrain
operations in the Milwaukee area, its motorcycle assembly operations in York,
Pennsylvania, and its fiberglass products plant in Tomahawk, Wisconsin to enable
the Company to achieve its long-term goal of being able to produce more than
200,000 motorcycles per year by 2003, subject to the risks and uncertainties
discussed with respect to this topic under Item 7 below.
FINANCIAL SERVICES SEGMENT
<TABLE>
<CAPTION>
Type of Facility Location Square Feet Status
- ---------------- -------- ----------- ------
<S> <C> <C> <C>
Office Chicago, IL 12,723 Lease expiring 2007
Office Carson City, Nevada 50,367 Lease expiring 2001
Office Plano,TX 13,283 Lease expiring 2007
</TABLE>
The Financial Services segment has three office facilities: Chicago, Illinois
(corporate headquarters); Carson City, Nevada (retail and insurance operations);
and Plano, Texas (wholesale operations).
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. In March 1995, the Company
entered into a settlement agreement (the Agreement) with the Navy. The
Agreement calls for the Navy and the Company to contribute amounts into a trust
equal to 53% and 47%, respectively, of future costs associated with
investigation and remediation activities at the Facility (response costs). The
trust will administer the payment of the future response costs at the Facility
as covered by the Agreement. In addition, in March 1991 the Company entered
into a settlement agreement with Minstar related to certain indemnification
obligations assumed by Minstar in connection with the Company's purchase of the
Facility. Pursuant to this settlement, Minstar is obligated to reimburse the
Company for a portion of its response costs at the Facility. Although
substantial uncertainty exists concerning the nature and scope of the
environmental remediation that will ultimately be required at the Facility,
based on preliminary information currently available to the Company and taking
into account the Company's settlement agreement with the Navy and the settlement
agreement with Minstar, the Company estimates that it will incur approximately
$6 million of net additional response costs at the Facility. The Company has
established reserves for this amount. The Company's estimate of additional
response costs is based on reports of environmental consultants retained by the
Company, the actual costs incurred to date and the estimated costs to complete
the necessary investigation and remediation activities, Response costs are
expected to be incurred over a period of approximately 10 years.
16
<PAGE>
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 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, as of March 21, 1997, the name, age and business
experience for the last five years of each of the executive officers of Harley-
Davidson.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age
---- ---
<S> <C>
Richard F. Teerlink 60
Chairman, President and Chief Executive Officer
Jeffrey L. Bleustein 57
President and Chief Operating Officer -
Motor Company
James M. Brostowitz 45
Vice President, Controller and Treasurer
C. William Gray 55
Vice President, Human Resources
James L. Ziemer 47
Vice President, Chief Financial Officer and
Assistant Treasurer
</TABLE>
All of these individuals have been employed by the Company in an executive
capacity for more than five years.
17
<PAGE>
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:
<TABLE>
<CAPTION>
1996 Low High
---- --- ----
<S> <C> <C>
First quarter $26-3/8 $39-1/8
Second quarter 37-3/4 49-1/2
Third quarter 37-1/8 45-1/8
Fourth quarter 41-1/4 47
<CAPTION>
1995 Low High
---- --- ----
<S> <C> <C>
First quarter $22 $28
Second quarter 22-3/4 26-3/4
Third quarter 23 30-1/8
Fourth quarter 24 28-7/8
</TABLE>
The Company paid the following dividends per share:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
First quarter $.05 $.04 $.03
Second quarter .05 .04 .03
Third quarter .06 .05 .04
Fourth quarter .06 .05 .04
</TABLE>
The Company has continuing authorization from its Board of Directors to
repurchase up to 4 million shares of the Company's outstanding common stock.
The repurchases are authorized to be made from time to time in the open market
or in privately negotiated transactions. During 1995, the Company repurchased
1,650,000 shares of its common stock. As a result, the Company has 2,350,000
shares available to repurchase under this authorization.
As of March 21, 1997, there were approximately 44,540 shareholders of record of
Harley-Davidson, Inc. common stock.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $1,531,227 $1,350,466 $1,158,887 $ 933,262 $ 822,929
Cost of goods sold 1,041,133 939,067 800,548 641,248 572,927
---------- ---------- ---------- --------- ---------
Gross profit 490,094 411,399 358,339 292,014 250,002
Operating income from financial services* 7,801 3,620 - - -
Selling, administrative and engineering (269,449) (234,223) (204,777) (162,675) (154,942)
---------- ---------- ---------- --------- ---------
Income from operations 228,446 180,796 153,562 129,339 95,060
Interest income (expense), net 3,309 96 1,682 994 (2,259)
Other income (expense), net (4,133) (4,903) 1,196 (3,249) (1,611)
---------- ---------- ---------- --------- ---------
Income from continuing operations before
provision for income taxes, extraordinary
items and accounting changes 227,622 175,989 156,440 127,084 91,190
Provision for income taxes 84,213 64,939 60,219 50,765 34,530
---------- ---------- ---------- --------- ---------
Income from continuing operations before
extraordinary items and accounting changes 143,409 111,050 96,221 76,319 56,660
Income (loss) from discontinued
operations, net of tax** 22,619 1,430 8,051 (57,904) (2,487)
---------- ---------- ---------- --------- ---------
Income before extraordinary items
and accounting changes 166,028 112,480 104,272 18,415 54,173
Extraordinary items, net of tax - - - - (388)
---------- ---------- ---------- --------- ---------
Income before accounting changes 166,028 112,480 104,272 18,415 53,785
Cumulative effect of accounting changes,
net of tax*** - - - (30,300) -
---------- ---------- ---------- --------- ---------
Net income (loss) $ 166,028 $ 112,480 $ 104,272 $ (11,885) $ 53,785
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Weighted average common
shares assuming no dilution 75,457 75,085 76,198 75,900 71,778
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Per common share:
Income from continuing operations before
extraordinary items and accounting changes $1.90 $1.48 $1.26 $1.00 $ .79
Income (loss) from discontinued
operations, net of tax .30 .02 .11 (.76) (.03)
Extraordinary items, net of tax - - - - (.01)
Accounting changes, net of tax - - - (.40) -
----- ----- ----- ----- -----
Net income (loss) $2.20 $1.50 $1.37 $(.16) $ .75
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Dividends paid $ .22 $ .18 $ .14 $ .06 $ -
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Balance sheet data:
Working capital $ 165,727 $ 98,773 $ 189,358 $ 142,996 $ 96,232
Finance receivables, net* 338,072 213,444 - - -
Total assets 1,319,985 1,000,670 676,663 527,958 475,026
Short-term debt, including current
maturities of long-term debt 2,580 2,691 1,431 4,190 912
Long-term debt, less current maturities 25,122 18,207 9,021 2,919 1,453
Finance debt* 258,065 164,330 - - -
---------- ---------- ---------- --------- ---------
Total debt 285,767 185,228 10,452 7,109 2,365
Shareholders' equity 662,720 494,569 433,232 324,912 335,380
</TABLE>
*Due to the Acquisition of Eaglemark Financial Services, Inc. in 1995.
**1993 includes a $57.0 million charge related primarily to the write-off of
goodwill at Holiday Rambler.
***During 1993, the Company adopted accounting standards related to
postretirement health care benefits and income taxes.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
OVERALL
Net sales for 1996 of $1.53 billion were $180.7 million, or 13.4%, higher than
net sales for 1995. Net income and earnings per share from continuing
operations were $143.4 million and $1.90, respectively, for 1996 as compared
with $111.1 million and $1.48, respectively, for 1995. The gain on disposition
and earnings per share from discontinued operations were $22.6 million and $.30,
respectively, for 1996 as compared with net income and earnings per share from
discontinued operations of $1.4 million and $.02, respectively, for 1995.
On January 22, 1996, the Company announced its strategic decision to dispose of
the Transportation Vehicles segment in order to concentrate on its core
motorcycle business. During 1996, the Company completed the sale of the
Transportation Vehicles segment for an aggregate sales price of approximately
$105 million. The results of the Transportation Vehicles segment have been
reported separately as discontinued operations for each year presented.
The Company increased its quarterly dividend payment in September, 1996 from
$.05 per share to $.06 per share which resulted in a total year payout of $.22
per share.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
================================================================================
Increase/
1996 1995 (Decrease) %Change
---- ---- --------- -------
<S> <C> <C> <C> <C>
Motorcycle units (excluding Buell) 118,771 105,104 13,667 13.0%
================================================================================
Net sales (in millions):
Motorcycles (excluding Buell) $1,199.2 $1,038.3 $160.9 15.5%
Motorcycle Parts and Accessories 210.2 192.1 18.1 9.4
General Merchandise 90.7 100.2 (9.5) (9.5)
Other 31.1 19.9 11.2 56.3
- --------------------------------------------------------------------------------
Total Motorcycles and
Related Products $1,531.2 $1,350.5 $180.7 13.4%
================================================================================
</TABLE>
The Motorcycles and Related Products (Motorcycles) segment's net sales increased
13.4% over 1995 primarily due to a 13,667 unit (13.0%) increase in motorcycle
shipments. The increase in motorcycle shipments is the result of improved
productivity and investment in additional capacity from the ongoing
implementation of the Company's manufacturing strategy. The manufacturing
strategy is designed to increase capacity, increase flexibility to adjust to
changes in the market place, improve product quality and reduce costs.
Buell Distribution Corporation, a wholly-owned subsidiary of the Company, and
the exclusive distributor of Buell Motorcycle Company (a 49% owned subsidiary),
increased sales (included in "Other" in the above table) to approximately $24
million (2,762 units) in 1996 as compared to approximately $14 million (1,407
units) in 1995. Buell motorcycles were introduced in Japan during the second
quarter of 1996 which resulted in the sale of 291 units for the year. Buell
motorcycles are being introduced in Europe during the first quarter of 1997.
20
<PAGE>
The Company began 1996 at a scheduled motorcycle production rate of 470 units
per day. As the implementation of the manufacturing strategy continued, the
rate increased to 520 units per day by the end of the year. The Company
exceeded its scheduled production goal of 115,000 units in 1996 and anticipates
1997 production capacity will be at least 130,000 units. The construction of a
new manufacturing facility in Kansas City, Missouri is currently in process and
is on schedule to be operational in 1998. In addition, expansion is also taking
place at the Company's powertrain operations in the Milwaukee area, its
motorcycle assembly operations in York, Pennsylvania, and its fiberglass
products plant in Tomahawk, Wisconsin to enable the Company to achieve its long-
term goal of being able to produce more than 200,000 motorcycles per year by
2003.
The following are forward-looking statements: The Company currently estimates
it will have the capacity to produce at least 130,000 units in 1997, more than
145,000 units in 1998 and more than 160,000 units in 1999.
The Company's ability to reach these production capacity levels will depend
upon, among other factors, the Company's ability to (i) continue to realize
production efficiencies at its existing production facilities through
implementation of innovative manufacturing techniques and other means, (ii)
successfully implement production capacity increases to its existing facilities
and (iii) successfully construct and open the new manufacturing facility such
that it will be fully operational in 1998. However, there is no assurance that
the Company will continue to realize additional efficiencies. In addition, the
Company could experience delays in making additions and changes to existing
facilities and/or constructing the new manufacturing facility as a result of
risks normally associated with the construction and operation of new
manufacturing facilities, including unanticipated problems in construction,
delays in the delivery of machinery and equipment or difficulties in making such
machinery and equipment operational, work stoppages, difficulties with
suppliers, natural causes or other factors. These risks, potential delays and
uncertainties regarding the actual costs could also impact adversely the
Company's capital expenditure estimates. Moreover, there is no assurance that
the Company will have the ability to sell all of the motorcycles it has the
capacity to produce.
Year-end data indicates that the domestic (United States) motorcycle market
continued to grow throughout 1996. Compared to 1995, industry registrations of
domestic heavyweight (651+cc) motorcycles were up 9.6% (data provided by R.L.
Polk), while retail registrations for the Company's motorcycles (excluding Buell
motorcycles) increased 10.8%. The Company ended 1996 with a domestic market
share of 48.2% compared to 47.7% in 1995. This increase is a reflection of the
increased availability of the Company's motorcycles due to the increased
capacity. European data (provided by Giral S.A.) shows the Company with a 6.8%
share of the heavyweight (651+cc) market, down from 7.4% for the same period in
1995. The European market grew at an 8.4% rate in 1996, while retail
registrations for the Company's motorcycles were down slightly from last year.
Most of the growth in the European market occurred in the performance motorcycle
segment, an area in which the Company does not currently compete. Asia/Pacific
(Japan and Australia) data (provided by JAMA and ABS) shows the Company with a
21.9% share of the heavyweight (651+cc) market, up from 20.1% for the same
period in 1995. The Asia/Pacific market decreased 4.9% in 1996, while retail
registrations for the Company's motorcycles increased 3.4%.
Export revenues totaled $413.1 million during 1996, an increase of approximately
$18.3 million (4.6%) over 1995. The Company has exported approximately 30% of
its traditional motorcycle unit shipments since 1990. The Company has adjusted
the international allocation of 1997 model year motorcycles to 28% of total
production. The combination of continued strong demand in the United States and
softening demand in Europe were the primary factors driving the allocation
shift. In 1996, the Company distributed approximately 40% of its exported units
through its wholly owned subsidiaries in Germany, United Kingdom, France, The
Netherlands, and Japan.
21
<PAGE>
During 1996, Parts and Accessories (P&A) sales totaled $210.2 million, an $18.1
million or 9.4% increase over 1995. P&A sales were adversely affected late in
the fourth quarter by the transition to the new P&A distribution center and the
inability to bring to market some new product introductions on schedule. The
Company expects the long-term growth in P&A revenue to approximate the growth
rate in motorcycle revenue.
General Merchandise sales, which includes clothing and collectibles, totaled
$90.7 million, down 9.5% compared to 1995. The Company does not anticipate any
General Merchandise growth in 1997.
GROSS PROFIT
Gross profit increased $78.7 million, or 19.1%, in 1996 as compared with 1995
primarily due to an increase in volume. The gross profit margin was 32.0% in
1996 as compared with 30.5% in 1995. The 1996 gross profit margin was
positively affected by a shift in mix away from the entry level Sportster models
to the higher-margin models. 1996 margins were also positively impacted by the
reduction of overtime compared to 1995 and increasing efficiencies in
manufacturing. However, the Company incurred approximately $12.8 million in
start-up and plant rearrangement costs in 1996, compared to $10.6 million in
1995.
OPERATING EXPENSES
(Dollars in Millions)
<TABLE>
<CAPTION>
================================================================================
Increase/
1996 1995 (Decrease) %Change
---- ---- --------- -------
<S> <C> <C> <C> <C>
Motorcycles and Related Products $262.0 $226.9 $35.1 15.5%
Corporate 7.4 7.3 .1 2.0
- --------------------------------------------------------------------------------
Total operating expenses $269.4 $234.2 $35.2 15.0%
================================================================================
</TABLE>
Total operating expenses for 1996 increased $35.2 million, or 15.0%, over 1995.
The increase was primarily related to volume, engineering and information
services. During 1996, an early retirement program in connection with the new
Parts and Accessories Distribution Center resulted in a charge of $2.5 million
and a voluntary product recall on fuel valves resulted in a $1.1 million charge
for estimated repair costs.
OPERATING INCOME FROM FINANCIAL SERVICES
The operating income of the Financial Services segment was $7.8 million and $3.6
million in 1996 and 1995, respectively. This increase was due to increased
wholesale and retail origination volume with the greatest increase occurring in
retail.
OTHER EXPENSE
Other expense for 1996 decreased $.8 million as compared to 1995. 1996 includes
a $3.5 million loss on the equity investment in Buell Motorcycle Company
compared to a $1.2 million loss in 1995. Included in 1995 was $1.9 million of
Eaglemark Financial Services, Inc. (Eaglemark) preacquisition earnings arising
from the purchase of substantially all of the remaining interest in Eaglemark in
November, 1995.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 37.0% in 1996 and 1995.
22
<PAGE>
DISCONTINUED OPERATIONS
The operations for the Transportation Vehicles segment have been classified as
discontinued operations. The sale of the Transportation Vehicles segment
resulted in a $22.6 million gain, net of applicable income taxes, or $.30 per
share, which was recorded in the fourth quarter.
1995 COMPARED TO 1994
OVERALL
Net sales for 1995 of $1.35 billion were $191.6 million, or 16.5%, higher than
net sales for 1994. Net income and earnings per share from continuing
operations were $111.1 million and $1.48, respectively, for 1995 as compared
with $96.2 million and $1.26, respectively, for 1994. Net income and earnings
per share from discontinued operations were $1.4 million and $.02, respectively,
for 1995 as compared with $8.0 million and $.11, respectively, for 1994, which
included a $4.6 million, or $.06 per share, tax benefit related to the legal
reorganization of Holiday Rambler.
On November 14, 1995, the Company acquired substantially all of the common stock
and common stock equivalents of Eaglemark, a company in which it held a 49%
interest since 1993. The purchase price was approximately $45 million, which
was paid from internally generated funds and short-term borrowings. The Company
included the results of operations of the Financial Services segment ($3.6
million) in its statement of operations for the year ended December 31, 1995 as
though it had been acquired at the beginning of the year and deducted the
preacquisition earnings as part of non-operating expense.
The Company increased its quarterly dividend payment in September, 1995 from
$.04 per share to $.05 per share which resulted in a total year payout of $.18
per share.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
================================================================================
Increase/
1995 1994 (Decrease) %Change
---- ---- --------- -------
<S> <C> <C> <C> <C>
Motorcycle units (excluding Buell) 105,104 95,811 9,293 9.7%
================================================================================
Net sales (in millions):
Motorcycles (excluding Buell) $1,038.3 $ 890.6 $147.7 16.6%
Motorcycle Parts and Accessories 192.1 161.9 30.2 18.5
General Merchandise 100.2 94.4 5.8 6.2
Other 19.9 12.0 7.9 65.8
- --------------------------------------------------------------------------------
Total Motorcycles and
Related Products $1,350.5 $1,158.9 $191.6 16.5%
================================================================================
</TABLE>
The Motorcycles and Related Products (Motorcycles) segment's net sales increased
16.5% over 1994 primarily due to a 9,293 unit (9.7%) increase in motorcycle
shipments, as well as an 18.5% increase in its Parts and Accessories business.
The increase in motorcycle shipments was the result of ongoing implementation of
the Company's manufacturing strategy and efforts to satisfy demand.
Buell Distribution Corporation increased sales to approximately $14 million
(1,407 units) in 1995 as compared to approximately $6 million (576 units) in
1994. (Included in "Other" in the above table.)
The Company began 1995 at a scheduled motorcycle production rate of 395 units
per day. As the implementation of the manufacturing strategy continued, the
rate increased to 470 units per day by the end of the year.
23
<PAGE>
Year-end data indicates that the domestic (United States) motorcycle market
continued to grow throughout 1995. Compared to 1994, industry registrations of
domestic heavyweight motorcycles were up 7.4%, while retail registrations of the
Company's motorcycles increased 10.6%. The Company ended 1995 with a domestic
market share of 47.7% compared to 46.3% in 1994. European data shows the
Company with a 7.4% share of the heavyweight market, up from 7.1% for the same
period in 1994. The European market grew at a 2.6% rate in 1995, while retail
registrations for the Company's motorcycles increased 7.1%. Year-end data for
the Asia/Pacific (Japan and Australia) market shows the company with a 20.1%
share of the heavyweight market, up from 19.4% in 1994. The Asia/Pacific market
increased .7% in 1995, while retail registrations for the Company's motorcycles
increased 4.4%.
Export revenues totaled $394.8 million during 1995, an increase of approximately
$63.6 million (19.2%) over 1994. The Company has exported approximately 30% of
its traditional motorcycle unit shipments since 1990. The Company distributed
approximately one-half of its exported units through its wholly owned
subsidiaries.
During 1995, the Parts and Accessories business generated $192.1 million in
revenue, an increase of 18.5% over 1994. General Merchandise sales totaled
$100.2 million, an increase of 5.8% over 1994. The rate of increase was lower
than experienced in recent years. The Company initiated several promotional
programs in the fourth quarter of 1995 to increase dealer floor traffic in
response to a slowdown in floor traffic in the fourth quarter.
GROSS PROFIT
Gross profit increased $53.1 million, or 14.8%, in 1995 as compared with 1994
primarily due to an increase in volume. The gross profit margin was 30.5% in
1995 as compared with 30.9% in 1994. The gross profit margin was negatively
affected by the overtime incurred to produce additional motorcycle units and
make up for production time lost because production employees were involved in
numerous strategic planning sessions during 1995.
OPERATING EXPENSES
(Dollars in Millions)
<TABLE>
<CAPTION>
================================================================================
Increase/
1995 1994 (Decrease) %Change
---- ---- --------- -------
<S> <C> <C> <C> <C>
Motorcycles and Related Products $226.9 $194.8 $32.1 16.5%
Corporate 7.3 10.0 (2.7) (27.0)
- --------------------------------------------------------------------------------
Total operating expenses $234.2 $204.8 $29.4 14.4%
================================================================================
</TABLE>
Total operating expenses for 1995 increased $29.4 million, or 14.4%, over 1994.
The increase was primarily volume related. Engineering, information services
and international operations were other principal areas of increased spending.
The decrease in the Corporate charges was due to a one-time charge in 1994
related to the legal reorganization of Harley-Davidson, Inc. and its Holiday
Rambler subsidiaries.
OPERATING INCOME FROM FINANCIAL SERVICES
The results of operations of the Financial Services segment for the year ended
December 31, 1995 of $3.6 million were included in operating profit and the
preacquisition earnings were deducted as part of non-operating expense. Prior
to 1995, the Company accounted for its investment in Eaglemark using the equity
method and included its share of earnings in other income.
24
<PAGE>
OTHER EXPENSE
Other expense for 1995 of $4.9 million was primarily comprised of Eaglemark
preacquisition earnings of $1.9 million, charitable donations of $1.9 million
and loss on sale of machinery and equipment due to the ongoing manufacturing
reorganization of $1.2 million.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate decreased in 1995 to 37.0% from 38.5% in 1994.
The decrease was attributable primarily to the full year effect of a 1994
corporate restructuring.
DISCONTINUED OPERATIONS
The operations for the Transportation Vehicles segment were classified as
discontinued operations. The results of operations, net of applicable income
taxes, were net income of $1.4 million and $8.0 million in 1995 and 1994,
respectively. 1994 included a tax benefit of $4.6 million related to the legal
reorganization of the Transportation Vehicles segment.
OTHER MATTERS
ACCOUNTING CHANGES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" which becomes effective
January 1, 1997. Adopting SFAS No. 125 will have an immaterial effect.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities," which becomes effective January 1,
1997. Adopting SOP 96-1 will have an immaterial effect.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" and SFAS No. 123,
"Accounting for Stock-Based Compensation," which became effective January 1,
1996. Adopting SFAS No. 121 had no effect. As is permitted under SFAS No. 123,
the Company continued to account for employee stock compensation under the APB
25 rules.
NET DEFERRED TAX ASSET
The Company had a net deferred tax asset of approximately $51 million and $42
million at December 31, 1996 and 1995, 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, 1996 will be realized in their entirety.
Management evaluates the realizability of deferred tax assets on a quarterly
basis.
FOREIGN CURRENCY
As discussed in Note 11 of the notes to the consolidated financial statements,
the Company attempts to limit its foreign currency exposure (primarily against
German Deutsche Marks and Canadian Dollars) by entering into forward exchange
contracts.
25
<PAGE>
ENVIRONMENTAL MATTERS
The Company's policy is to comply with all applicable environmental laws and
regulations, and the Company has a compliance program in place to monitor, and
report on, environmental issues. The Company has reached settlement agreements
with its former parent (Minstar, successor to AMF Incorporated) and the U.S.
Navy regarding groundwater remediation at the Company's manufacturing facility
in York, Pennsylvania and currently estimates that it will incur approximately
$6 million of net additional costs related to the remediation effort. The
Company has established reserves for this amount. The Company's estimate of
additional response costs is based on reports of environmental consultants
retained by the Company, the actual costs incurred to date, and the estimated
costs to complete the necessary investigation and remediation activities.
Response costs are expected to be incurred over a period of approximately 10
years. See Note 7 of the notes to the consolidated financial statements.
Recurring costs associated with managing hazardous substances and pollution in
ongoing operations are not material.
The Company regularly invests in equipment to support and improve its various
manufacturing processes. While the Company considers environmental matters in
capital expenditure decisions, and while some capital expenditures also act to
improve environmental compliance, only a small portion of the Company's annual
capital expenditures relate to equipment which has the sole purpose of meeting
environmental compliance obligations. During 1996, the Company spent
approximately $1 million on equipment used to limit hazardous substances/
pollutants and anticipates approximately the same level of spending in 1997. The
Company does not expect that these expenditures related to environmental matters
will have a material effect on future operating results or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash flows from operating activities of $228.3 million in
1996 compared to $171.9 million during 1995. Income from continuing operations
added approximately $32.4 million to cash flow from operating activities
compared to 1995. Depreciation and amortization increased approximately $13
million from continued investment in the manufacturing strategy. Accrued
liabilities and inventories had significant impacts on cash flow from operations
during 1996. Accrued liabilities at December 31, 1996 increased $32.4 million
over the balance at December 31, 1995 related primarily to income taxes.
Inventory levels at December 31, 1996 increased approximately $17 million over
the balance at December 31, 1995. Approximately $10 million of this increase
was due to an increase in Parts and Accessories inventory due to the 10.7%
decline in fourth quarter sales combined with a planned increase of inventory to
improve fill rates on forecasted sales. Also, inventory increased approximately
$4 million due to the purchase of the Company's distributor in The Netherlands.
In addition, inventory increased at the Company's wholly owned French and German
distributors primarily due to softening demand in Europe.
During 1996, the Company completed the sale of the Transportation Vehicles
segment for an aggregate sales price of approximately $105 million;
approximately $100 million in cash and $5 million in notes and preferred stock.
In addition, the discontinued operations contributed $28.9 million to cash flows
from operating activities during 1996 as compared to $4.0 million in 1995.
26
<PAGE>
Capital expenditures amounted to approximately $179 million and $113 million
during 1996 and 1995, respectively. The Company is pursuing a long-term
manufacturing strategy to increase its motorcycle production capacity with a
goal of having the capacity to manufacture in excess of 200,000 units per year
by 2003. The strategy includes expansion in and near the Company's existing
facilities and construction of a new manufacturing facility in Kansas City,
Missouri.
The following are forward looking statements: Due in part to this long-term
manufacturing strategy, the Company anticipates 1997 capital expenditures will
approximate $190-$210 million. Although the Company does not know the exact
range of capital it will incur, it estimates the capital required in 1998 and
1999 will be in the range of $160-$180 million and $120-$140 million per year,
respectively. The Company anticipates it will have the ability to fund all
capital expenditures with internally generated funds and short-term financing.
The Company (excluding Eaglemark) currently has nominal levels of long-term debt
and has available lines of credit of approximately $50 million, of which
approximately $46 million remained available at year-end.
On November 14, 1995, the Company acquired substantially all of the common stock
and common stock equivalents of Eaglemark, a company in which it held a 49%
interest since 1993. The purchase price was approximately $45 million, which
was paid from internally generated funds and short-term borrowings.
Eaglemark finances its business through a secured commercial paper program, a
revolving credit facility, a commercial paper conduit facility and asset-backed
securitizations. Eaglemark issues short-term commercial paper secured by either
wholesale or retail motorcycle finance receivables with maximum issuance
available of $175 million of which approximately $134 million was outstanding at
year-end. Maturities of commercial paper issued range from 1 to 60 days.
Eaglemark has in place a $150 million revolving credit facility, of which
approximately $104 million was outstanding at December 31, 1996, to fund
primarily United States and Canadian retail loan originations. Borrowings under
the facility are limited to 110% of the outstanding loan balance of eligible
receivables. The amount of net eligible receivables at December 31, 1996 was
approximately $132 million. Eaglemark also has a $75 million commercial paper
conduit facility, of which approximately $20 million was outstanding at December
31, 1996, secured by the outstanding loan balance of eligible retail motorcycle
receivables. The amount of net eligible receivables at December 31, 1996 was
approximately $28 million. During 1996, Eaglemark securitized and sold
approximately $238 million of its retail installment loans to investors with
limited recourse, with servicing rights being retained by Eaglemark. The
Company expects that the future growth of Eaglemark will be financed from
internally generated funds, additional capital contributions from the Company,
bank lines of credit, and continuation of its commercial paper and
securitization programs.
The Company has continuing authorization from its Board of Directors to
repurchase up to 4 million shares of the Company's outstanding common stock.
During 1995, the Company repurchased 1,650,000 shares of its common stock with
cash on hand and short-term borrowings of $40 million. As a result, the Company
has 2,350,000 shares available to repurchase under this authorization.
The Company's Board of Directors declared quarterly cash dividends during 1996
and 1995 totaling $.22 and $.18 per share, respectively.
27
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Ernst & Young LLP, independent auditors 29
Consolidated statements of operations 30
Consolidated balance sheets 31
Consolidated statements of cash flows 32
Consolidated statements of shareholders' equity 33
Notes to consolidated financial statements 34
Supplementary data
Quarterly financial data (unaudited) 49
28
<PAGE>
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, 1996 and 1995, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, 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.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 18, 1997
29
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $1,531,227 $1,350,466 $1,158,887
Cost of goods sold 1,041,133 939,067 800,548
---------- ---------- ----------
Gross profit 490,094 411,399 358,339
Operating income from financial services 7,801 3,620 -
Selling, administrative and engineering (269,449) (234,223) (204,777)
---------- ---------- ----------
Income from operations 228,446 180,796 153,562
Interest income 3,309 1,446 2,363
Interest expense - (1,350) (681)
Other - net (4,133) (4,903) 1,196
---------- ---------- ----------
Income from continuing operations before
provision for income taxes 227,622 175,989 156,440
Provision for income taxes 84,213 64,939 60,219
---------- ---------- ----------
Income from continuing operations 143,409 111,050 96,221
Discontinued operations:
Income from operations, net of applicable
income taxes - 1,430 8,051
Gain on disposition of discontinued operations,
net of applicable income taxes 22,619 - -
---------- ---------- ----------
Net income $ 166,028 $ 112,480 $ 104,272
---------- ---------- ----------
---------- ---------- ----------
Per common share:
Income from continuing operations $1.90 $1.48 $1.26
Income from discontinued operations .30 .02 .11
----- ----- -----
Net income $2.20 $1.50 $1.37
----- ----- -----
----- ----- -----
Cash dividends per common share $ .22 $ .18 $ .14
----- ----- -----
----- ----- -----
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
30
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 142,479 $ 31,462
Accounts receivable, net 141,315 128,955
Inventories 101,386 84,427
Deferred income taxes 25,999 19,805
Prepaid expenses 18,142 10,786
Net assets from discontinued operations - 56,548
---------- ----------
Total current assets 429,321 331,983
Finance receivables, net 338,072 213,444
Property, plant, and equipment, net 409,434 284,775
Deferred income taxes 24,691 22,415
Goodwill 40,900 43,256
Other assets 77,567 49,789
Net assets from discontinued operations - 55,008
---------- ----------
$1,319,985 $1,000,670
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,580 $ 2,691
Accounts payable 100,699 102,563
Accrued and other liabilities 160,315 127,956
---------- ----------
Total current liabilities 263,594 233,210
Finance debt 258,065 164,330
Long-term liabilities 69,805 44,991
Postretirement health care benefits 65,801 63,570
Commitments and contingencies (Note 7)
Shareholders' equity:
Series A Junior Participating preferred
stock, none issued - -
Common stock, 78,126,091 and 77,356,688 shares
issued in 1996 and 1995, respectively 781 773
Additional paid-in capital 175,152 154,533
Retained earnings 530,782 381,897
Cumulative foreign currency translation adjustment (566) 593
---------- ----------
706,149 537,796
Less:
Treasury stock (2,457,184 and 2,472,304 shares
in 1996 and 1995, respectively), at cost (41,933) (41,903)
Unearned compensation (1,496) (1,324)
---------- ----------
Total shareholders' equity 662,720 494,569
---------- ----------
$1,319,985 $1,000,670
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
31
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 166,028 $112,480 $104,272
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 55,282 42,329 32,863
Gain on disposition of discontinued operations (22,619) - -
Deferred income taxes (8,470) (6,284) (4,689)
Long-term employee benefits 7,089 4,201 11,993
Equity in net (income) loss of joint ventures 3,486 276 (56)
Other 4,801 1,413 611
Net change in discontinued operations 28,862 2,525 (25,025)
Net changes in other current assets and
current liabilities (6,180) 14,937 (35,620)
----------- -------- --------
Total adjustments 62,251 59,397 (19,923)
----------- -------- --------
Net cash provided by operating activities 228,279 171,877 84,349
Cash flows from investing activities:
Net capital expenditures (178,771) (112,985) (88,666)
Investment in joint ventures (8,778) (46,918) (1,386)
Finance receivables, net - (17,922) -
Finance receivables acquired or originated (1,086,949) - -
Finance receivables collected 722,825 - -
Finance receivables sold 238,114 - -
Proceeds from disposition of
discontinued operations 100,313 - -
Net change in discontinued operations - (8,449) (6,055)
Other - net (519) (1,547) (1,856)
----------- -------- --------
Net cash used in investing activities (213,765) (187,821) (97,963)
Cash flows from financing activities:
Net increase (decrease) in notes payable (111) 1,260 (2,759)
Net increase in finance debt 93,735 33,267 -
Payments on long-term debt - (750) (978)
Dividends paid (17,143) (13,593) (10,672)
Stock repurchases - (39,972) -
Issuance of stock under employee stock plans 20,022 2,716 12,202
Net change in discontinued operations - 6,594 (434)
----------- -------- --------
Net cash provided by (used in)
financing activities 96,503 (10,478) (2,641)
----------- -------- --------
Net increase (decrease) in cash
and cash equivalents 111,017 (26,422) (16,255)
Cash and cash equivalents:
At beginning of year 31,462 57,884 74,139
----------- -------- --------
At end of year $ 142,479 $ 31,462 $ 57,884
----------- -------- --------
----------- -------- --------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
32
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Cumulative
Common Stock foreign
------------------------ Additional currency
Issued paid-in Retained translation Treasury Unearned
shares Balance capital earnings adjustment stock compensation
---------- ------- ---------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Net income - - - 112,480 - - -
Dividends - - - (13,593) - - -
Restricted stock issuance - - 740 - - 1 (741)
Stock repurchase - - - - - (39,972) -
Amortization of unearned compensation,
net of cancellations - - - - - (351) 288
Exercise of stock options 200,436 1 1,715 - - - -
Tax benefit of restricted
shares and stock options - - 1,350 - - - -
Foreign currency translation
adjustment - - - - (581) - -
---------- ---- -------- -------- ------- -------- -------
Balance December 31, 1995 77,356,688 773 154,533 381,897 593 (41,903) (1,324)
Net income - - - 166,028 - - -
Dividends - - - (17,143) - - -
Restricted stock issuance - - 574 - - 1 (575)
Amortization of unearned compensation,
net of cancellations - - - - - (31) 403
Exercise of stock options 769,403 8 12,211 - - - -
Tax benefit of restricted
shares and stock options - - 7,834 - - - -
Foreign currency translation
adjustment - - - - (1,159) - -
---------- ---- -------- -------- ------- -------- -------
Balance December 31, 1996 78,126,091 $781 $175,152 $530,782 $ (566) $(41,933) $(1,496)
---------- ---- -------- -------- ------- -------- -------
---------- ---- -------- -------- ------- -------- -------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
33
<PAGE>
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION - 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), Holiday Rambler LLC (Holiday Rambler)
and Eaglemark Financial Services, Inc. (Eaglemark). All significant
intercompany accounts and transactions are eliminated. As disclosed in
Note 3, the operations of Holiday Rambler are classified as discontinued
operations. Certain prior year balances have been reclassified in order to
conform to current-year presentation.
The Company has an investment which is accounted for using the equity
method. Accordingly, the Company's share of the net earnings (losses) of
this entity is included in consolidated net income.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with an original maturity of three months or less and
restricted cash balances held in connection with commercial paper programs
to be cash equivalents. At December 31, 1996 and 1995, the Company had
$1.9 million and $1.1 million in restricted cash balances, respectively.
FINANCE RECEIVABLES INCOME RECOGNITION - Interest income on finance
receivables is recorded as earned and is based on the average outstanding
daily balance for wholesale and retail receivables. Accrued interest is
classified with finance receivables. Certain loan origination costs are
deferred and amortized over the estimated life of the related receivable as
a reduction in financing revenue.
FINANCE RECEIVABLES CREDIT LOSSES - The provision for credit losses on
finance receivables is charged to income in amounts sufficient to maintain
the allowance for uncollectible accounts at a level considered adequate to
cover the losses of principal and interest in the existing portfolio. The
Company's wholesale loan charge-off policy is based on a loan-by-loan
review. Retail revolving charge receivables are charged off at the earlier
of 180 days contractually past due or when otherwise deemed to be
uncollectible. Retail installment receivables are generally charged off
upon repossession and sale of the underlying collateral or at 120 days
contractually past due.
RETAIL INSTALLMENT LOANS SOLD WITH LIMITED RECOURSE; SECURITIZATION AND
SERVICING INCOME - During 1996, Eaglemark securitized and sold $238.1
million of its retail installment loans to investors with limited recourse,
with servicing rights being retained by Eaglemark. These transactions were
treated as sales. As such, the receivables are removed from the balance
sheet upon sale and a gain is recognized for the difference between the
carrying value of the receivables and the adjusted sales price. The
adjusted sales price is determined based on a present value estimate of
future cash flows on each loan pool sold.
Eaglemark is required to adopt Statement of Financial Accounting Standards
(SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," effective January 1, 1997. Adopting
SFAS No. 125 will have an immaterial effect.
34
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES - Inventories are valued at the lower of cost or market.
Inventories located in the United States are valued using the last-in,
first-out (LIFO) method. Other inventories, $25.5 million in 1996 and $16.9
million in 1995, 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.
FACILITIES START-UP COSTS - Facilities start-up costs are expensed as
incurred. During 1996, the Company incurred approximately $7.3 million in
start-up costs at the Kansas City and Menomonee Falls facilities.
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 $37.7 million, $27.2 million, and $22.1 million for 1996,
1995 and 1994, 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 is required to adopt SOP 96-1, "Environmental Remediation
Liabilities," effective January 1, 1997. Adopting SOP 96-1 will have an
immaterial effect.
EARNINGS PER SHARE - Earnings per common share assuming no dilution is
calculated by dividing elements of net income by the weighted average
number of common shares outstanding during the period. The weighted average
number of common shares outstanding during 1996, 1995 and 1994 were 75.5
million, 75.1 million, and 76.2 million, respectively. Stock options were
not materially dilutive during 1996, 1995 or 1994.
IMPAIRMENT- The Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," effective January 1, 1996. Adopting SFAS No. 121 had no effect.
2. ADDITIONAL BALANCE SHEET AND CASH FLOWS INFORMATION
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Motorcycles and Related Products segment:
Domestic $ 49,888 $ 53,621
Foreign 91,427 75,334
-------- --------
$141,315 $128,955
-------- --------
-------- --------
</TABLE>
Domestic motorcycle sales are generally floor planned by the purchasing
dealers. Foreign motorcycle sales are sold on open account, letter of
credit, draft and payment in advance.
The allowance for doubtful accounts deducted from accounts receivable was
$1.9 million and $1.5 million at December 31, 1996 and 1995, respectively.
35
<PAGE>
2. ADDITIONAL BALANCE SHEET AND CASH FLOWS INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Inventories:
Components at the lower of FIFO cost or market:
Raw materials and work in process $ 33,275 $ 32,284
Finished goods 26,331 19,290
Parts and accessories 62,502 52,182
-------- --------
122,108 103,756
Excess of FIFO over LIFO inventories 20,722 19,329
-------- --------
$101,386 $ 84,427
-------- --------
-------- --------
Property, plant and equipment, at cost:
Land and land improvements $ 3,727 $ 2,139
Buildings and improvements 92,328 72,752
Machinery and equipment 406,062 312,535
Construction in progress 138,612 80,585
-------- --------
640,729 468,011
Less accumulated depreciation 231,295 183,236
-------- --------
$409,434 $284,775
-------- --------
-------- --------
Accrued and other liabilities:
Payroll, performance incentives, and related expenses $ 58,926 $ 47,001
Warranty/recalls 11,221 12,058
Dealer incentive programs 21,268 16,153
Product liability 8,888 8,338
Income taxes payable 29,416 8,978
Eaglemark acquisition cost - 9,400
Other 30,596 26,028
-------- --------
$160,315 $127,956
-------- --------
-------- --------
</TABLE>
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net changes in other current assets and current liabilities:
Accounts receivable $(12,360) $(35,623) $(40,335)
Inventories (16,959) 5,453 (13,137)
Prepaid expenses (7,356) (2,287) 481
Accounts payable and accrued liabilities 30,495 47,394 17,371
-------- -------- --------
$ (6,180) $ 14,937 $(35,620)
-------- -------- --------
-------- -------- --------
Cash paid during the period for interest and income taxes is as follows (in thousands):
Interest $ 14,400 $ 1,143 $ 702
-------- -------- --------
-------- -------- --------
Income taxes $ 71,029 $ 60,444 $ 47,612
-------- -------- --------
-------- -------- --------
</TABLE>
Of the interest paid in 1996, approximately $2.1 million was
capitalized.
36
<PAGE>
3. DISCONTINUED OPERATIONS
On January 22, 1996, the Company announced its strategic decision to
discontinue the operations of the Transportation Vehicles segment in order
to concentrate its financial and human resources on its core motorcycle
business. The Transportation Vehicles segment was comprised of the
Recreational Vehicles division, the Commercial Vehicles division and B & B
Molders, a manufacturer of custom or standard tooling and injection molded
plastic pieces. During 1996, the Company completed the sale of the
Transportation Vehicles segment for an aggregate sales price of
approximately $105 million; approximately $100 million in cash and $5
million in notes and preferred stock.
The components of net assets of discontinued operations included in the
balance sheet at December 31, 1995 are as follows:
<TABLE>
<S> <C>
Current assets (mainly trade
receivables and inventory) $105,459
Accounts payable, accrued
liabilities and other (48,911)
--------
Net current assets $ 56,548
--------
--------
Property, plant and equipment, net $ 51,982
Other non-current assets 3,026
--------
Net long-term assets $ 55,008
--------
--------
</TABLE>
The condensed statements of operations relating to discontinued operations
are presented below:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994
---- ----
<S> <C> <C>
Net sales $443,950 $382,805
Costs and expenses 441,388 377,176
-------- --------
Income before income taxes 2,562 5,629
Provision (benefit) for income taxes 1,132 (2,422)
-------- --------
Net income $ 1,430 $ 8,051
-------- --------
-------- --------
</TABLE>
In 1994, the Company's tax provision included a benefit of $4.6 million
related to its legal reorganization. Included in the 1996 gain on
disposition of discontinued operations is a net tax benefit of $2.0
million, including benefits related to the 1994 legal reorganization.
It is the Company's policy to allocate interest on debt (to be assumed by
the buyer) to discontinued operations, which was approximately $.7 million,
$2.5 million, and $1.6 million for 1996, 1995 and 1994, respectively.
4. EAGLEMARK FINANCIAL SERVICES, INC.
On November 14, 1995, the Company acquired substantially all of the common
stock and common stock equivalents of Eaglemark, a company in which it held
a 49% interest since 1993. The transaction was accounted for as a step
acquisition under the purchase method. The purchase price for the shares
and equivalents was approximately $45 million, which was paid from
internally generated funds and short-term borrowings. The excess of the
acquisition cost over the fair value of the net assets purchased resulted
in approximately $43 million of goodwill which is being amortized on a
straight-line basis over twenty years.
37
<PAGE>
4. EAGLEMARK FINANCIAL SERVICES, INC. (CONTINUED)
The Company has included the results of operations of Eaglemark in its
statement of operations for the year ended December 31, 1995 as though it
had been acquired at the beginning of the year and deducted the
preacquisition earnings as part of non-operating expense. Prior to 1995,
the Company accounted for its investment in Eaglemark using the equity
method. The results of operations for 1995 and 1994 on a pro forma basis,
would not have been materially different from the reported amounts for 1995
or 1994 if the acquisition were assumed to have taken place at the
beginning of 1994.
Finance receivables originated or purchased by Eaglemark were as follows at
December 31, (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Wholesale $147,925 $119,817
Retail 169,432 84,574
Other 24,848 12,412
-------- --------
342,205 216,803
Allowance for credit losses 4,133 3,359
-------- --------
$338,072 $213,444
-------- --------
-------- --------
</TABLE>
Eaglemark's finance receivables include wholesale loans to dealers for the
purpose of inventory financing and retail loans to consumers in the form of
installment sales contracts and revolving charge receivables. Eaglemark
holds titles to vehicles financed, and certain revolving charge receivables
are cross-collateralized when the customer also has an installment
contract. Eaglemark generates finance receivables in the United States and
Canada and has a geographically diversified loan portfolio.
Wholesale finance receivables are primarily motorcycles and related parts
and accessories which are contractually due within one year. Retail
finance receivables are primarily motorcycles and personal watercraft. On
December 31, 1996, contractual maturities of finance receivables were as
follows (in thousands):
<TABLE>
<S> <C>
1997 $183,808
1998 24,143
1999 21,220
2000 20,423
2001 20,996
Thereafter 71,615
--------
Total $342,205
--------
--------
</TABLE>
The allowance for credit losses is comprised of individual components
relating to wholesale and retail finance receivables. Changes in the
allowance for credit losses for the year ended December 31, is as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance at beginning of year $3,359 $2,638
Provision 1,382 1,275
Charge-offs (608) (554)
------ ------
Balance at end of year $4,133 $3,359
------ ------
------ ------
</TABLE>
Eaglemark serviced with limited recourse $283.8 million and $160.2 million
of retail installment loans as of December 31, 1996 and 1995, respectively.
38
<PAGE>
4. EAGLEMARK FINANCIAL SERVICES, INC. (CONTINUED)
Eaglemark's debt as of December 31, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commercial paper $153,802 $131,830
Revolving credit facility 104,263 32,500
-------- --------
Total finance debt $258,065 $164,330
-------- --------
-------- --------
</TABLE>
As of December 31, 1996, Eaglemark has in place a $150.0 million revolving
credit facility provided by a diversified financial institutions group to
primarily fund retail loan originations. This facility expires on October
31, 1997. Borrowings under this facility are limited to 110% of the
outstanding loan balance of eligible receivables. The amount of net
eligible receivables at December 31, 1996 was approximately $132.3 million.
As of December 31, 1995, Eaglemark had in place a $60.0 million revolving
credit facility provided by a syndicate of banks to fund primarily the
United States and Canadian retail loan originations. This facility expired
on October 31, 1996.
During 1996, Eaglemark entered into a $75.0 million commercial paper
conduit program with a large multi-national bank. The conduit issues
commercial paper on behalf of the Company to provide short-term warehouse
financing for United States retail motorcycle loan originations. This
facility expires in March, 1997. Commercial paper borrowings under the
facility are secured by the outstanding loan balance of eligible retail
motorcycle receivables. The amount of net eligible receivables at December
31, 1996 was approximately $28.4 million.
Eaglemark also issues short-term commercial paper secured by wholesale
motorcycle finance receivables with maximum issuance available of $175.0
million. Maturities of commercial paper issued range from 1 to 60 days,
and the current commercial paper program expires in December, 1997. The
weighted average interest rate on outstanding commercial paper balances was
5.51% at December 31, 1996.
During 1996, the Company entered into a support agreement with Eaglemark,
whereby, the Company agrees to provide Eaglemark with certain financial
support payments if required. The payment may be provided at the Company's
option either as a capital contribution or as a loan.
5. NOTES PAYABLE
As of December 31, 1996, the Company had unsecured lines of credit totaling
approximately $50.0 million, of which approximately $45.7 million remained
available after consideration of borrowings and outstanding letters of
credit.
39
<PAGE>
6. INCOME TAXES
Details of income from continuing operations before provision for income
taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income from continuing operations
before taxes:
Domestic $217,700 $159,046 $142,009
Foreign 9,922 16,943 14,431
-------- -------- --------
$227,622 $175,989 $156,440
-------- -------- --------
-------- -------- --------
Provision for income taxes
consists of the following:
Current:
Federal $73,537 $56,384 $46,442
State 10,524 7,308 10,682
Foreign 6,254 8,279 7,124
------- ------- -------
90,315 71,971 64,248
Deferred:
Federal (5,005) (5,895) (3,275)
State (667) (780) (440)
Foreign (430) (357) (314)
------- ------- -------
(6,102) (7,032) (4,029)
------- ------- -------
Total $84,213 $64,939 $60,219
------- ------- -------
------- ------- -------
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision at statutory rate 35.0% 35.0% 35.0%
Foreign income taxes 1.0 1.2 1.0
Foreign tax credits (1.0) (1.2) (1.0)
State taxes, net of federal benefit 2.9 2.6 4.0
Foreign sales corporation (1.3) (.8) (1.0)
Other .4 .2 .5
---- ---- ----
Provision for income taxes 37.0% 37.0% 38.5%
---- ---- ----
---- ---- ----
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accruals not yet tax deductible $ 30,921 $ 25,409
Postretirement health care benefit obligation 27,719 25,935
Other, net 8,319 6,116
-------- --------
66,959 57,460
Deferred tax liabilities:
Depreciation, tax in excess of book (13,923) (10,665)
Inventory adjustments (1,206) (2,808)
Pension obligation (1,140) (1,767)
-------- --------
(16,269) (15,240)
-------- --------
Net deferred tax asset $ 50,690 $ 42,220
-------- --------
-------- --------
</TABLE>
40
<PAGE>
7. 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. In March
1995, the Company entered into a settlement agreement (the Agreement)
with the Navy. The Agreement calls for the Navy and the Company to
contribute amounts into a trust equal to 53% and 47%, respectively, of
future costs associated with investigation and remediation activities
at the Facility (response costs). The trust will administer the
payment of the future response costs at the Facility as covered by the
Agreement. In addition, in March 1991 the Company entered into a
settlement agreement with Minstar related to certain indemnification
obligations assumed by Minstar in connection with the Company's
purchase of the Facility. Pursuant to this settlement, Minstar is
obligated to reimburse the Company for a portion of its response costs
at the Facility. Although substantial uncertainty exists concerning
the nature and scope of the environmental remediation that will
ultimately be required at the Facility, based on preliminary
information currently available to the Company and taking into account
the Company's settlement agreement with the Navy and the settlement
agreement with Minstar, the Company estimates that it will incur
approximately $6 million of net additional response costs at the
Facility. The Company has established reserves for this amount. The
Company's estimate of additional response costs is based on reports of
environmental consultants retained by the Company, the actual costs
incurred to date and the estimated costs to complete the necessary
investigation and remediation activities. Response costs are expected
to be incurred over a period of approximately 10 years.
Under the terms of the sale of the Commercial Vehicles Division, the
Company has agreed to indemnify Utilimaster Corporation, for 12 years, for
certain claims related to environmental contamination present at the date
of sale, up to $20 million. Based on the environmental studies done as
part of the sale of the Transportation Vehicles segment, the Company does
not expect to incur any material expenditure under this indemnification.
Since June, 1996, the Company self-insures its product liability
losses in the United States up to $2.5 million ($3.0 million between
June, 1995 and June, 1996). Catastrophic coverage is maintained for
individual claims in excess of $2.5 million ($3.0 million between
June, 1995 and June, 1996) up to $25 million. Prior to June, 1995,
the Company was self-insured for all product liability losses in the
United States. Outside the United States, the Company is insured for
product liability up to $25 million per individual claim and in the
aggregate. The Company accrues for claim exposures which are probable
of occurrence and can be reasonably estimated.
At December 31, 1996, the Company was contingently liable for $18.3 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.
41
<PAGE>
8. EMPLOYEE BENEFIT PLANS
The Company has several noncontributory defined benefit pension plans
covering substantially all employees of the Motorcycles segment.
Benefits are based primarily on years of service and, for certain
plans, levels of compensation. 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 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost - benefits earned during the year $ 6,243 $ 5,184 $ 5,324
Interest cost on projected benefit obligations 12,540 11,237 10,284
Actual return on plan assets (15,912) (16,547) (2,028)
Net amortization and deferral 5,245 7,523 (5,208)
-------- -------- -------
Net periodic pension cost $ 8,116 $ 7,397 $ 8,372
-------- -------- -------
-------- -------- -------
</TABLE>
Reconciliation of funded status:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
-------------------------- --------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $42,716 $ 82,185 $ 38,648 $ 69,003
Nonvested benefit obligation 5,473 12,117 5,706 7,071
------- -------- -------- --------
Accumulated benefit obligation $48,189 $ 94,302 $ 44,354 $ 76,074
------- -------- -------- --------
------- -------- -------- --------
Projected benefit obligations for
service rendered to date 68,785 107,834 $ 63,611 $ 90,010
Plan assets at fair value, consisting primarily
of debt securities, bank common trust funds,
common stock, and an immediate participation
guarantee contract 54,345 83,569 46,899 68,012
------- -------- -------- --------
Projected benefit obligation in excess
of plan assets 14,440 24,265 16,712 21,998
Unrecognized net loss from past experience
different from that assumed and changes
in assumptions (9,952) (11,589) (13,033) (13,711)
Unrecognized prior service cost (4,871) (12,309) (5,327) (6,999)
Unrecognized transition asset 495 669 619 894
Additional minimum liability - 9,696 - 5,880
------- -------- -------- --------
Accrued (prepaid) pension cost, September 30 112 10,732 (1,029) 8,062
Fourth quarter contribution - (403) - (510)
------- -------- -------- --------
Accrued (prepaid) pension cost, December 31 $ 112 $ 10,329 $ (1,029) $ 7,552
------- -------- -------- --------
------- -------- -------- --------
</TABLE>
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, 1996, the
adjustment required to reflect the Company's minimum pension liability was
$9.7 million. The Company has recorded an intangible asset in the same
amount.
42
<PAGE>
8. EMPLOYEE BENEFIT PLANS ( CONTINUED)
The assumptions used in determining pension expense (for the following
year) and funded status information shown above were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.3% 8.3% 8.3%
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%
</TABLE>
Certain of the Company's plans relating to hourly employees have been
amended to increase the scheduled benefits. The Company's plan relating to
salaried employees was also amended to increase the scheduled benefits.
During 1996, the Company accrued approximately $2.0 million related to
early retirement benefits offered to some hourly employees.
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 $2.0 million, $1.5 million and $1.4 million for
matching contributions during 1996, 1995 and 1994, respectively.
9. 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.
The Company's postretirement health care plans are currently funded as
claims are submitted ($2.3 million in 1996 and $1.8 million in 1995). Some
of the plans require employee contributions to offset benefit costs. The
status of the plans was as follows:
<TABLE>
<CAPTION>
September 30
-------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $16,134 $15,317
Fully eligible active plan participants 8,064 7,501
Other active plan participants 25,091 21,746
------- -------
49,289 44,564
Unrecognized net gain 14,611 16,843
Unrecognized prior service cost 2,382 2,621
Fourth quarter contribution (481) (458)
------- -------
Accrued postretirement benefit
liability, December 31 $65,801 $63,570
------- -------
------- -------
</TABLE>
The net periodic postretirement benefit cost includes the following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Service cost - benefits earned during the year $ 2,036 $1,751
Interest cost on projected benefit obligation 3,524 3,879
Net amortization and deferral (1,065) (589)
------- ------
Net periodic postretirement benefit cost $ 4,495 $5,041
------- ------
------- ------
</TABLE>
43
<PAGE>
The weighted average health care cost trend rate used in determining the
accumulated postretirement benefit obligation of the health care plans was
9% in 1996. The per capita health care cost trend rate is 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, 1996 and
the aggregate of service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1997 would
increase by $5.1 million and $.8 million, respectively. The weighted
average discount rate used to determine the accumulated postretirement
benefit obligation of the health care plans as of September 30, 1996 and
1995 was 8.25%.
10. CAPITAL STOCK
The Company has 200 million authorized shares of $.01 par value common
stock.
The Company has continuing authorization from its Board of Directors to
repurchase up to 4 million shares of the Company's outstanding common
stock. During 1995, the Company repurchased 1,650,000 shares of its
common stock with cash on hand and short-term borrowings. As a result, the
Company has 2,350,000 million shares available to repurchase under this
authorization.
The Company has designated .5 million of the 2.0 million 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 $300,
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 ten 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.
44
<PAGE>
10. CAPITAL STOCK (CONTINUED)
Information with respect to restricted stock outstanding is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year at
$4.73 to $26.94 per share 101,700 34,200 966,074
Restricted shares granted at
$23.0625 to $35.06 16,400 67,500 -
Restricted shares vested at
$4.46 to $5.05 per share (34,200) - (931,874)
------- ------- --------
Total shares outstanding at end of year at
$23.0625 to $35.06 per share 83,900 101,700 34,200
------- ------- --------
------- ------- --------
Weighted-average fair value of
shares granted during the year $35.06
------
------
</TABLE>
Expense in 1996, 1995 and 1994 associated with this restricted stock plan
was $.4 million, $.3 million, and $.7 million, respectively.
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 number of shares of common stock available for future
grants under such plans were 3.3 million and 3.8 million at December
31, 1996 and 1995, respectively.
The following table summarizes the transactions of the Company's Stock
Option Plans for the three-year period ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- --------- ---------
Weighted-Average
Options Exercise Price Options Options
--------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year 3,550,083 $16.32 3,018,058 2,583,482
Options granted 548,540 35.81 805,360 728,410
Options exercised (769,403) 13.05 (200,434) (252,772)
Options cancelled (130,074) 25.78 ( 72,901) (41,062)
--------- --------- ---------
Options outstanding at
end of year 3,199,146 20.07 3,550,083 3,018,058
--------- --------- ---------
--------- --------- ---------
Weighted-average fair value
of options granted during
the year $14.26 $10.89
------ ------
------ ------
Number of options exercisable
at end of year 1,824,938 $12.71 2,104,240 1,806,038
--------- ------ --------- ---------
--------- ------ --------- ---------
</TABLE>
Options outstanding at December 31, 1996:
<TABLE>
<S> <C> <C>
Price range $3.11 to $20; weighted
average contractual life of
4.2 years 1,450,709 $ 9.41
Price range $20.01 to $40;
weighted average contractual
life of 8.1 years 1,748,437 28.87
---------
3,199,146
---------
---------
</TABLE>
45
<PAGE>
10. CAPITAL STOCK (CONTINUED)
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," became effective January 1,
1996. As is permitted under SFAS No. 123, the Company elected to
continue to account for employee stock compensation (e.g., restricted
stock and stock options) in accordance with APB Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees." Under APB 25, the
total compensation expense recognized is equal to the difference
between the award's exercise price and the underlying stock's market
price at the measurement date. SFAS No. 123 calculates the total
compensation expense to be recognized as the fair value of the award
at the date of grant for effectively all awards. The Company's net
income would not have been materially different had compensation
expense for employee stock compensation been recognized consistent
with SFAS No. 123.
In determining the effect of SFAS No. 123, the Black-Scholes option pricing
model was used with the following weighted-average assumptions for 1996:
risk-free interest rate of approximately 5%, dividend yield of .5%;
expected common stock market volatility factor of .4; and a weighted-
average expected life of the options of two years from the vesting date.
These pro-forma calculations only include the effects of 1996 and 1995
grants.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, finance receivables, receivables from
retail installment loan sales, debt and foreign currency exchange
contracts. The book values of cash and cash equivalents, trade receivables
and finance receivables are considered to approximate their respective fair
values.
The book value of receivables from retail installment loan sales is $24.8
million and is included with finance receivables on the balance sheet. The
fair value of these receivables is estimated to be $26.0 million based on
discounting future excess cash flows associated with these transactions.
None of the Company's debt instruments have readily ascertainable market
values; however, the carrying values are considered to approximate their
respective fair values. See Note 4, for the terms and carrying values of
the Company's various debt instruments.
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, 1996, 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 $64.3 million and $29.4 million at December 31, 1996 and
1995, respectively. Eaglemark has also entered into Canadian forward
contracts to hedge the Canadian dollar in connection with their wholesale
finance program. At December 31, 1996 and 1995, respectively, Eaglemark
had $19.0 million and $17.4 million of Canadian forward contracts
outstanding. The current contracts have maturities of less than nine
months. Unrealized gains and losses on these forward exchange contracts,
which were not material at December 31, 1996 or 1995, are deferred and
recognized at the time the hedged transaction is settled.
Eaglemark has interest rate cap agreements to reduce the impact of
fluctuations in interest rates on its floating rate debt. At December 31,
1996 and 1995, Eaglemark had approximately $20 million in interest rate
caps outstanding. At December 31, 1996, the fair value of the caps, if
Eaglemark were to terminate the agreements, was not material.
46
<PAGE>
12. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
(a) BUSINESS SEGMENTS
The Company operates in two business segments (excluding discontinued
operations): Motorcycles and Related Products and Financial Services.
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 651+cc) 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 holds a smaller
market share in the European market, which is a larger market than the
United States.
The Financial Services ("Eaglemark") segment consists of the Company's
majority-owned subsidiary, Eaglemark Financial Services, Inc. Eaglemark
provides motorcycle floor planning and parts and accessories financing to
the Company's participating North American dealers. Eaglemark also offers
retail financing opportunities to the Company's domestic motorcycle
customers. In addition, Eaglemark has established a proprietary credit
card for use in the Company's independent dealerships. Eaglemark also
provides property and casualty insurance for motorcycles as well as
extended service contracts. A smaller portion of its customers are in
other leisure products businesses. Prior to 1995, Eaglemark carried on
business only in the United States. In 1995, Eaglemark expanded its
operations to include Canada.
47
<PAGE>
12. BUSINESS SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
Information by industry segment is set forth below (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales:
Motorcycles and Related Products $1,531,227 $1,350,466 $1,158,887
Financial Services (1) n/a n/a n/a
---------- ---------- ----------
$1,531,227 $1,350,466 $1,158,887
---------- ---------- ----------
---------- ---------- ----------
Income from operations:
Motorcycles and Related Products $228,093 $184,475 $163,510
Financial Services (1) 7,801 3,620 -
General corporate expenses (7,448) (7,299) (9,948)
-------- -------- --------
$228,446 $180,796 $153,562
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Motorcycles
and Related Transportation Financial
Products Vehicles (2) Services(1) Corporate Consolidated
----------- -------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
1996
Identifiable assets $790,271 n/a $387,666 $142,048 $1,319,985
Depreciation and amortization 51,657 n/a 3,367 258 55,282
Net capital expenditures 176,771 n/a 1,994 6 178,771
1995
Identifiable assets $595,118 $111,556 $269,461 $24,535 $1,000,670
Depreciation and amortization 41,754 n/a 320 255 42,329
Net capital expenditures 112,579 n/a 221 185 112,985
1994
Identifiable assets $494,362 $110,886 n/a $71,415 $676,663
Depreciation and amortization 32,617 n/a n/a 246 32,863
Net capital expenditures 88,542 n/a n/a 124 88,666
</TABLE>
(1) During 1996 and 1995, the results of operations for the majority-owned
financial services subsidiary are included in Income from operations
in the statements of operations. During 1994, the equity in earnings
of the financial services subsidiary was included in other income.
See Note 4.
(2) The results of operations for the Transportation Vehicles segment are
classified as discontinued operations in the statements of operations.
See Note 3.
There were no sales between business segments for the years ended
December 31, 1996, 1995 or 1994.
(b) FOREIGN OPERATIONS
Included in the consolidated financial statements are the following amounts
relating to foreign affiliates:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Assets $ 95,500 $ 66,658 $ 57,626
Net sales 216,957 221,193 176,521
Net income 4,098 9,021 7,621
</TABLE>
Export sales of domestic subsidiaries to nonaffiliated customers were
$196.0 million, $172.9 million and $155.2 million in 1996, 1995 and 1994,
respectively.
48
<PAGE>
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except per share data)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------ ------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $371.1 $294.9 $392.8 $355.6 $385.8 $327.1 $381.5 $372.9
Gross profit 115.8 90.4 124.8 109.7 120.5 96.8 129.0 114.5
Income from continuing operations 33.0 23.8 39.9 33.2 33.2 23.5 37.3 30.6
Income (loss) from discontinued
operations, net of tax - (.2) - .2 - .2 22.6 1.2
Net income 33.0 23.6 39.9 33.4 33.2 23.7 59.9 31.8
Per common share:
Income from continuing operations .44 .31 .53 .45 .44 .32 .49 .40
Income from discontinued
operations - - - - - - .30 .02
Net income .44 .31 .53 .45 .44 .32 .79 .42
</TABLE>
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
50
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included or to be included in the Company's definitive proxy
statement for the 1997 annual meeting of shareholders, which will be filed
within 120 days after the close of the Company's fiscal year ended December 31,
1996 (the "Proxy Statement"), under the captions "1-Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated by
reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information included or to be included in the Proxy Statement under the
caption "Executive Compensation" (except the information from and after the
caption "Board of Directors Human Resources Committee Report on Executive
Compensation") is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included or to be included in the Proxy Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management" is
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included or to be included in the Proxy Statement under the
caption "Certain Transactions" is incorporated by reference herein.
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.
51
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
[Item 14(a) 1 and 2]
Page
----
Consolidated statements of operations for each of the three years
in the period ended December 31, 1996 30
Consolidated balance sheets at December 31, 1996 and 1995 31
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1996 32
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1996 33
Notes to consolidated financial statements 34
Consolidated financial statement schedules for each of the
three years in the period ended December 31, 1996
II - Valuation and qualifying accounts 55
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.
52
<PAGE>
LIST OF EXHIBITS
[Items 14(a)(3) and 14(c)]
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 dated as of June 21, 1991
4.3 Amendment to Rights Agreement dated as of August 23, 1995
10.1* Form of Employment Agreement between the Registrant and each of
Messrs. Bleustein, and Teerlink
10.2* 1986 Stock Option Plan
10.3* 1988 Stock Option Plan
10.4* 1990 Stock Option Plan
10.5* 1995 Stock Option Plan
10.6* Consulting Agreement between the Registrant and Mr. Beals
10.7* Form of Transition Agreement between the Registrant and each of
Messrs. Bleustein, Brostowitz, Gray, Teerlink and Ziemer
10.8* Deferred Compensation Plan
10.9* Form of Life Insurance Agreement between the Registrant and each
of Messrs. Bleustein, Brostowitz, Gray, Teerlink and Ziemer
10.10* Harley-Davidson, Inc. Corporate Short Term Incentive Plan
10.11* Form of Restricted Stock Agreement between the Registrant and
each of Messrs. Bleustein and Gray
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated.
53
<PAGE>
LIST OF EXHIBITS
[Items 14(a)(3)and 14(c)]
Exhibit No. Description
- ----------- -----------
10.12* Form of Severance Benefits Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gray, Teerlink and Ziemer
10.13* Form of Supplemental Executive Retirement Plan Agreement between
the Registrant and each of Messrs. Bleustein, Gray and Teerlink
10.14* Harley-Davidson Pension Benefit Restoration Plan
10.15* Description of post-retirement life insurance equivalent
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.
54
<PAGE>
SCHEDULE II
HARLEY-DAVIDSON, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance
beginning charged to at end
Classification of year expense Deductions(1) of year
- -------------- ---------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Accounts receivable -
Allowance for doubtful accounts:
1996 $1,541 $ 377 $ 0 $1,918
------ ------ ------- ------
------ ------ ------- ------
1995 $1,750 $ (123) $ (86) $1,541
------ ------ ------- ------
------ ------ ------- ------
1994 $1,532 $ 253 $ (35) $1,750
------ ------ ------- ------
------ ------ ------- ------
Finance receivables -
Allowance for doubtful accounts:
1996 $3,359 $1,382 $ (608) $4,133
------ ------ ------- ------
------ ------ ------- ------
1995 $2,638 $1,275 $ (554) $3,359
------ ------ ------- ------
------ ------ ------- ------
Inventories -
Allowance for obsolescence
and loss (2):
1996 $2,232 $3,846 $(1,444) $4,634
------ ------ ------- ------
------ ------ ------- ------
1995 $1,961 $1,857 $(1,586) $2,232
------ ------ ------- ------
------ ------ ------- ------
1994 $2,783 $ 830 $(1,652) $1,961
------ ------ ------- ------
------ ------ ------- ------
</TABLE>
(1) Represents amounts written off to the reserve, net of recoveries.
(2) Stated in last-in, first-out (LIFO) cost.
55
<PAGE>
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 27, 1997.
HARLEY-DAVIDSON, INC.
By: /S/ Richard F. Teerlink
------------------------------
Richard F. Teerlink
Chairman, President, Chief Executive Officer
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 27, 1997.
Name Title
---- -----
/S/ Richard F. Teerlink Chairman, 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/ Barry K. Allen Director
----------------------------
Barry K. Allen
/S/ Vaughn L. Beals Director
----------------------------
Vaughn L. Beals, Jr.
/S/ Richard I. Beattie Director
----------------------------
Richard I. Beattie
/S/ Jeffrey L. Bleustein Director
----------------------------
Jeffrey L. Bleustein
/S/ Richard J. Hermon-Taylor Director
----------------------------
Richard J. Hermon-Taylor
/S/ Donald A. James Director
----------------------------
Donald A. James
/S/ Richard G. LeFauve Director
----------------------------
Richard G. LeFauve
/S/ Sara L. Levinson Director
----------------------------
Sara L. Levinson
/S/ James A. Norling Director
----------------------------
James A. Norling
56
<PAGE>
INDEX TO EXHIBITS
[Items 14(a)(3) and 14(c)]
Exhibit No. Description
- ----------- -----------
3.1 Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9183)).
3.2 By-Laws (incorporated herein by reference to Exhibit 3.2 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9183)).
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 dated as of June 21,
1991(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")).
4.3 Amendment to Rights Agreement dated as of August 23, 1995
(incorporated herein by reference to Exhibit 4 to the
Registrants' Quarterly Report on Form 10-Q for the period ended
September 24, 1995 (File No. 1-9183)).
10.1* Form of Employment Agreement between the Registrant and each of
Messrs. Bleustein 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* Harley-Davidson, Inc. 1986 Stock Option Plan (incorporated herein
by reference to Exhibit 10.2 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9183)).
10.3* Harley-Davidson, Inc. 1988 Stock Option Plan (incorporated herein
by reference to Exhibit 10.3 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9183)).
10.4* Harley-Davidson, Inc. 1990 Stock Option Plan (incorporated herein
by reference to Exhibit 10.4 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9183)).
10.5* Harley-Davidson, Inc. 1995 Stock Option Plan.
10.6* 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)).
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated.
57
<PAGE>
INDEX TO EXHIBITS
[Items 14(a)(3) and 14(c)]
Exhibit No. Description
- ----------- -----------
10.7* Form of Transition Agreement between the Registrant and each of
Messrs. Bleustein, Brostowitz, Gray, Teerlink and Ziemer.
10.8* 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)).
10.9* Form of Life Insurance Agreement between the Registrant and each
of Messrs. Bleustein, Brostowitz, Gray, 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)).
10.10* 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).
10.11* Form of Restricted Stock Agreement between the Registrant and
each of Messrs. Bleustein, and Gray.
10.12* Form of Severance Benefits Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gray, Teerlink and Ziemer.
10.13* Form of Supplemental Executive Retirement Plan Agreement between
the Registrant and each of Messrs. Bleustein, Gray and Teerlink
(incorporated herein by reference from Exhibit 10.2 to the
Registrants' Quarterly Report on Form 10-Q for the period ended
March 31, 1996 (File No. 1-9183)).
10.14* Harley-Davidson Pension Benefit Restoration Plan (incorporated
herein by reference from Exhibit 10.1 to the Registrants'
Quarterly Report on Form 10-Q for the period ended March 31, 1996
(File No. 1-9183)).
10.15* Description of post-retirement life insurance equivalent.
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.
58
<PAGE>
EXHIBIT 10.5
HARLEY-DAVIDSON, INC.
1995 STOCK OPTION PLAN
(amended through February 19, 1997)
ARTICLE I
PURPOSE
The purpose of the Harley-Davidson, Inc. 1995 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: Non-employee directors 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.
<PAGE>
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. 1995 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 3,800,000 provided that Options for not more
than 200,000 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.
2
<PAGE>
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.
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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: Except as may be otherwise provided
by the Committee, 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.
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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 closing price of one share of Common Stock as reported on
the New
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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 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 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 who are Disinterested Persons 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 February 2, 1995, 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 a 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.
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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.
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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 approved by the
shareholders of Harley-Davidson, Inc. at a shareholders meeting by the requisite
vote under New York Stock Exchange Rules, Internal Revenue Code Section 162(m)
and Rule 16b-3 under the Securities Exchange Act of 1934. Options may not be
granted under the Plan after April 26, 2005.
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EXHIBIT 10.7
TRANSITION AGREEMENT
AGREEMENT dated the _____ day of _____________, 19__ between Harley-
Davidson, Inc., a Wisconsin corporation (the "Corporation") and _____________
(the "Executive"). Unless otherwise indicated, terms used herein and defined in
Schedule A shall have the meanings assigned to them in Schedule A.
WHEREAS, the HDI Group desires to continue to attract and retain
skilled and dedicated management employees, consistent with achieving the best
possible price for its stockholders in any transition period or change in
ownership and control of the Corporation;
WHEREAS, the Executive has specific duties and unique talents which
are of benefit to the HDI Group both presently and in any transition period;
WHEREAS, the HDI Group and the Executive desire that the Executive be
free of any conflict of interest with regard to the performance of the
Executive's duties in evaluating any proposed change in ownership or control;
NOW, THEREFORE, it is agreed as follows
1. The HDI Group currently employs the Executive as
____________________, Harley-Davidson, Inc. upon the terms and conditions
currently reflected in the Executive's personnel file or in various minutes of
the Board.
2. This Agreement shall become effective on the date hereof and
shall terminate on the second [third for Mr. Teerlink] anniversary of the
occurrence of a Change of Control Event; PROVIDED, HOWEVER, that no benefits
shall be payable or accrue pursuant to this Agreement prior to the occurrence of
a Change of Control Event.
3. During the two [three for Mr. Teerlink] year period following a
Change of Control Event, so long as the Executive remains employed by the HDI
Group he shall devote his full time, attention, and energies to the business of
the HDI Group and shall not engage in any other business activity whether or not
such business activity is pursued for gain, profit, or other pecuniary
advantage; but this shall not be construed as preventing the Executive from (a)
investing the Executive's assets in such form or manner as will not materially
affect the Executive's ability to perform his duties and obligations to the HDI
Group; or (b) continuing to serve as a director of any corporation of which he
was a director immediately prior to the Change of Control Event. The Executive
agrees that once a Change of Control Event occurs he will not voluntarily
terminate his
<PAGE>
2
employment with the HDI Group until ten days after such Change of Control Event
has occurred.
4. The HDI Group agrees that following a Change of Control Event no
termination of the Executive's employment with the HDI Group will be effective,
unless it provides the Executive ten days prior written notice of such
termination; PROVIDED, HOWEVER, that any Termination by the Executive shall
provide the HDI Group Employer with ten days prior written notice. The
Executive may waive the notice requirement for the HDI Group.
5. The Executive recognizes and acknowledges that the list of the
HDI Group's customers, its product plans, forecasts and financial information,
as well as other confidential information, as it may exist from time to time, is
valuable, special, and unique asset of the HDI Group's business. The Executive
will not, during or after the term of the Executive's employment, disclose any
such information or any part thereof to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever. In the event
of a breach or threatened breach by the Executive of the provisions of this
section, the HDI Group shall be entitled to an injunction restraining the
Executive from disclosing, in whole or in part, this information. The HDI Group
will be free to pursue any other remedies as may in its discretion be deemed
appropriate under the circumstances.
6. Upon the happening of a Change of Control Event, the HDI Group
agrees, while the Executive is employed hereunder, to continue the Compensation
of the Executive at a level, comparable in the aggregate, to that immediately
preceding the Change of Control Event.
7. (a) (i) The Executive shall be entitled to receive upon
Termination a lump-sum payment equal to the product of three multiplied by the
sum of:
(A) the Executive's highest annual rate of salary during the five year
period preceding the Executive's termination of employment with the HDI
Group;
(B) the highest annual bonus paid to or accrued for the benefit of the
Executive during the five year period preceding the Executive's termination
of employment with the HDI Group under any bonus plan, program, or
arrangement of the HDI Group which the HDI Group Employer maintains or has
adopted; and
(C) the product of 4 times the last quarterly payment, prior to the
Change of Control Event, paid to the Executive
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3
by the HDI Group, to the extent such payment was paid by the HDI Group in
lieu of providing the Executive with various fringe benefits (the
"Perquisite Payment").
In addition, if Executive has attained age 55 prior to the date of Termination,
the Executive shall receive an additional amount, in lieu of any post-retirement
life insurance, equal to his annual base salary, at its then current rate.
(ii) In addition, the HDI Group shall, at the time the 10 day
written notice prior to Termination is given, cause:
(A) the Executive to be fully and immediately vested in his accrued
benefit and any minimum years of service requirement will be deemed to have
been satisfied under: the Harley-Davidson Retirement Savings Plan for
Salaried Employees, the Retirement Annuity Plan for Salaried Employees of
Harley-Davidson, the Harley-Davidson Pension Benefit Restoration Plan, the
Harley-Davidson Supplemental Executive Retirement Plan, and any other
pension or retirement plan in which Executive was entitled to participate
at the time of the Change of Control Event or at any time prior to
Termination;
(B) all restricted stock awards made to the Executive to be fully and
immediately vested;
(C) all stock options granted pursuant to the Harley-Davidson, Inc.
1995 Stock Option Plan and any successor or predecessor plan, to be fully
vested and become immediately exercisable;
(D) all performance or other awards granted to the Executive pursuant
to any HDI long-term incentive plan to be fully and immediately vested, as
if all performance requirements have been satisfied; and
(E) the HDI Group Employer to pay to Executive an amount in respect of
any bonus under a short-term incentive or other annual bonus plan of the
HDI Group equal to the higher of (a) Executive's target bonus for the year
of Termination, or (b) the bonus Executive received in the year prior to
the Change of Control Event, which amount shall be pro-rated by a fraction,
the numerator of which is the number of days elapsed in the HDI Group's
fiscal year on the date of Termination and the denominator of which is 365.
(iii) The Executive will also receive, for a period of three
years from the date of Termination:
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4
(A) use of professional outplacement services by qualified consultants
retained at the expense of the HDI Group Employer; and
(B) continued coverage under HDI Group hospital, medical, life,
disability insurance and other welfare benefit plans.
(iv) Furthermore, unless the Perquisite Payment was substituted
for the following, the Executive shall also receive a cash lump sum payment,
calculated so as to equal the fair market value of three years of benefits, for:
(A) automobiles and vehicles (or allowance in respect thereof) to
which he was entitled either prior to the Change of Control Event or prior
to Termination; and
(B) all amounts in respect of club, association or similar fees and
dues covering such Executive to which he was entitled either prior to the
Change of Control Event or prior to Termination.
(v) The Executive shall also be entitled to all amounts earned or
accrued through the date of Termination but not paid as of such date, including
base salary, reimbursement for reasonable and necessary expenses incurred by the
Executive on behalf of the HDI Group during the period ending on the date of
Termination, vacation pay, and sick leave (collectively, "Accrued
Compensation").
(vi) All amounts payable pursuant to this Section 7(a) of this
Agreement shall be paid to the Executive within 10 days following the date of
Termination and all other benefits provided pursuant this Section 7(a) shall be
provided or begun, as the case may be, on the date of Termination.
(b) In the event the Executive's employment shall be terminated due
to death within the two [three for Mr. Teerlink] year period following a Change
of Control Event, for a period of one year following such termination (i) the
HDI Group shall be obligated to make payments under then existing employee
benefit programs, including, but not limited to, hospital, medical, life and
disability insurance; and (ii) except as provided in (i) above, all payments
under this Agreement shall cease, other than those payments which accrued, but
were not yet paid, on the date of an event described in this Section 7(b). In
addition, Executive shall also be entitled to all Accrued Compensation within 10
days of his date of termination.
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5
(c) Nothing in this Agreement shall be construed to prevent the HDI
Group Employer or the Board from terminating the Executive's employment under
this Agreement for Cause. Such termination shall relieve the HDI Group of its
obligation to make any other payments under this Agreement, except those that
may be payable under then existing employee benefit programs. In order for the
Executive to be terminated for Cause, the existence of Cause must be determined
by a written resolution adopted by the affirmative vote of not less than two-
thirds of all the Continuing Directors, excluding for this purpose the
Executive, or in the event there are no Continuing Directors, by a unanimous
vote of all the Directors, at a meeting duly called and held for that purpose
after reasonable notice to the Executive and opportunity for the Executive and
his counsel to be heard. Any such determination shall require that the
Continuing Directors (or the entire Board) find that in their reasonable good
faith judgment the conduct which was the basis for the hearing in fact occurred
and is sufficient to warrant a termination for Cause.
8. (a) If the Executive receives any payments under this Agreement
from the HDI Group which are "excess parachute payments" taxed under Section
4999 of the Code, the HDI Group Employer will pay, pursuant to subsection (b)
below, an amount sufficient to offset such tax effects.
(b) (i) In the event that the Executive becomes entitled to payments
in connection with a Change of Control Event under this Agreement or otherwise
("the Payments"), if any of the Payments will be subject to the tax imposed by
Section 4999 of the Code (the "Excise Tax") (or any similar tax that may
hereafter be imposed), the HDI Group Employer shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Payments and any federal
and state income or other taxes and Excise Tax upon Gross-Up Payments provided
for by this section, shall be equal to the Payment.
(ii) For purposes of determining whether any of the Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (A) any other
payments or benefits received or to be received by the Executive in connection
with a Change of Control Event shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the HDI
Group's independent auditors, and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such "excess parachute payments" (in whole or in part) represent reasonable
compensation for services actually
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6
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax, (B) the amount of the Payments which
shall be treated as subject to the Excise Tax shall be equal to the lesser of
(1) the total amount of the Payments or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after applying
clause (A), above), and (C) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the HDI Group's independent auditors
in accordance with the principles of Section 280G(b)(3) and (4) of the Code.
(iii) For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal and state income taxes at
the highest marginal rate of federal and state income taxation in the calendar
year in which the Gross-Up Payment is to be made.
(iv) A Gross-Up Payment and Tax Adjustment Amount, if any,
under subsection (v) shall be paid not later than the fifth day following the
Executive's date of Termination; PROVIDED, HOWEVER, that if the amounts of such
payment cannot be finally determined on or before such day, the HDI Group
Employer shall pay to the Executive on such day an estimate, as determined in
good faith by the HDI Group Employer of the minimum amount of such payments and
shall pay the remainder of such payment (together with interest at the rate
provided under Section 1274(b)(2)(B) of the Code) as soon as the amount can be
determined but no later than the thirtieth day after the Executive's date of
Termination. Notwithstanding the foregoing, a Gross-Up Payment and a Tax
Adjustment Amount, if any, shall be paid prior to Termination, if necessary, and
the event prompting such payment shall be substituted for "Termination" in this
subsection (iv) for purposes of determining the date by which payments must be
made.
(v) In addition to the Gross-Up Payments under this Section 8,
the HDI Group Employer shall pay to the Executive an additional amount (the "Tax
Adjustment Amount") in the event any portion of the Payments are taxed (for
state or federal income tax purposes) at income tax rates higher than the
highest marginal federal and state income tax rates otherwise applicable to the
Executive without considering the Payments ("Base Income Tax Rates"), such that
the net amount retained by the Executive, after deduction of state and federal
income taxes at their respective actual rates and any state and federal income
taxes upon the Tax Adjustment Amount provided by this subsection (v), shall be
equal to the Payments less state and federal income taxes thereon calculated at
the Base Income Tax Rates. In the event any payments are required under this
subsection (v), they
<PAGE>
7
shall be included as "Payments" under subsections (a) and (b) of this Section 8.
(vi) The Executive shall notify the HDI Group in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the HDI Group of a Gross-Up Payment. Such notification shall be
given as soon as practicable, but no later than 10 business days after the
Executive is informed in writing of such claim and shall apprise the HDI Group
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the 30
day period following the date on which the Executive gives such notice to the
HDI Group (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the HDI Group notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(A) give the HDI Group any information reasonably requested by the
HDI Group relating to such claim;
(B) take such action in connection with contesting such claim as the
HDI Group shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the HDI Group and reasonably
satisfactory to the Executive;
(C) cooperate with the HDI Group in good faith in order to
effectively contest such claim; and
(D) permit the HDI Group to participate in any proceedings related to
such claim;
PROVIDED, HOWEVER, that the HDI Group shall bear and pay directly all costs and
expenses (including, but not limited to, additional interest and penalties and
related legal, consulting or other similar fees) incurred in connection with
such contest and shall indemnify and hold the Executive harmless, on an after-
tax basis, for any Excise Tax or other tax (including interest and penalties
with respect thereto) imposed as a result of such representation and payment of
costs and expenses.
(vii) The HDI Group shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund
<PAGE>
8
or contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the HDI
Group shall determine; PROVIDED, HOWEVER, that if the HDI Group directs the
Executive to pay such claim and sue for a refund, the HDI Group shall advance
the amount of such payment to the Executive on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or other tax (including interest and penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and PROVIDED, FURTHER, that if the Executive is
required to extend the statute of limitation to enable the HDI Group to contest
such claim, the Executive may limit this extension solely to such contested
amount. The HDI Group's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be agreed to by the
HDI Group without the Executive's consent if such position or resolution could
reasonably be expected to adversely affect the Executive (including any other
tax position of the Executive unrelated to the matters covered hereby).
(viii) As a result of the uncertainty in the application of
Section 4999 of the Code, it is possible that Gross-Up Payments and Tax
Adjustment Amounts which will not have been made by the HDI Group should have
been made ("Underpayment"), consistent with the calculation required to be made
hereunder. In the event that the HDI Group exhausts its remedies and the
Executive thereafter is required to pay to the Internal Revenue Service an
additional amount in respect of any Excise Tax, the HDI Group shall determine
the amount of the Underpayment (including any Tax Adjustment Amount) that has
occurred and any such Underpayment shall promptly be paid by the HDI Group to or
for the benefit of the Executive.
(ix) If, after the receipt by the Executive of an amount
advanced by the HDI Group in connection with the contest of the Excise Tax
claim, the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall promptly pay to the HDI Group the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the HDI Group in connection with an Excise Tax claim, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the HDI Group does not notify the Executive in
writing of its intent to
<PAGE>
9
contest the denial of such refund prior to the expiration of 30 days after such
determination, such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall be offset, to the extent thereof, by
the amount of the Gross-Up Payment and the Tax Adjustment Amount.
9. The Executive agrees that during the term of his employment under
this Agreement, he shall not, directly or indirectly, engage or participate in
any business activity that is directly competitive with and likely to have a
material adverse effect on the business of the HDI Group without prior written
approval of the Board. In the event that, while employed by the HDI Group, the
Executive engages in practices that are directly competitive and that are likely
to have a material adverse effect on the HDI Group and the Executive fails to
cease such competitive practices within 30 days after written notice is received
from the Board, Executive shall be treated for purposes of this Agreement as
terminated for Cause as of such 30th day.
10. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Milwaukee,
Wisconsin or, at the option of the Executive, in the county where the Executive
resides, in accordance with the Rules of the American Arbitration Association
then in effect; PROVIDED, HOWEVER, that if the Executive institutes an action
relating to this Agreement the Executive may, at his option, bring such action
in a court of competent jurisdiction. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
11. The HDI Group shall pay all costs and expenses, including
attorneys' fees and disbursements, of the HDI Group and, at least monthly, the
Executive, in connection with any legal services or proceedings (including, but
not limited to, arbitration), whether or not instituted by the HDI Group or the
Executive, relating to the interpretation or enforcement of any provision of
this Agreement. The HDI Group also agrees to pay prejudgment interest on any
money judgment obtained by the Executive as a result of such proceedings,
calculated at the reference rate or prime rate, as the case may be, of First
Wisconsin National Bank of Milwaukee as in effect from time to time from the
date that payment should have been made to the Executive under this Agreement.
12. This Agreement shall be binding upon, inure to the benefit of and
be enforceable by the HDI Group and the Executive and their respective heirs,
legal representatives, successors and assigns. If the HDI Group or any member
of the HDI Group shall be merged into or consolidated with another entity, the
provisions of this Agreement shall be binding upon and inure to
<PAGE>
10
the benefit of the entity surviving such merger or resulting from such
consolidation. The HDI Group will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the HDI Group or any member of
the HDI Group, by agreement in form and substance satisfactory to the Executive,
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the HDI Group would be required to perform it if no such
succession had taken place. The provisions of this Section 12 shall continue to
apply to each subsequent employer of the Executive hereunder in the event of any
subsequent merger, consolidation or transfer of assets of such subsequent
employer.
13. The HDI Group Employer will indemnify the Executive against
expenses (including attorney's fees), amounts paid in settlement (whether with
or without court approval), judgments and fines actually and reasonably incurred
by him in connection with a threatened or actual action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the HDI Group, and with respect to any
criminal action or proceeding, if he had no reasonable cause to believe that his
conduct was unlawful, (and the HDI Group Employer will advance expenses for the
Executive) if he becomes a party or is threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigation (if
not by or in the right of the HDI Group Employer) by reason of the fact that he
is or was a director, officer, employee or agent of the HDI Group or is or was
serving at the request of the HDI Group as a director, officer, employee or
agent or in any other capacity or in another corporation, or a partnership,
joint venture, trust or other enterprise, or by reason of any action alleged to
have been taken or not taken by him while acting in any such capacity, to the
fullest extent permitted by the HDI Group Employer's Articles of Incorporation
and By-Laws.
14. Any provision of this Agreement which is held to be unenforceable
or invalid in any respect in any jurisdiction shall be ineffective in such
jurisdiction to the extent that it in unenforceable or invalid without affecting
the remaining provisions hereof, which shall continue in full force and effect.
The unenforceability or invalidity of a provision of this Agreement in one
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of Wisconsin applicable to contracts made and to be
performed therein, without regard to conflict of law principles.
<PAGE>
11
16. This instrument contains the entire agreement of the parties, and
supersedes any earlier agreement between them, relative to a transition period
or termination in the event of a Change of Control Event. It may not be changed
orally but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension, or discharge is
sought.
17. The Executive shall not be required to mitigate damages or the
amount of any payment to the Executive provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Executive as a result of employment by another employer after Termination.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HARLEY-DAVIDSON, INC.
By:
-----------------------------
ATTEST:
- ----------------------------
Assistant Secretary
--------------------------------
Executive
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"BASE INCOME TAX RATES" shall have the meaning ascribed to it in
Section 8(b)(v) of the Agreement.
"BOARD" means the Corporation's board of directors.
"CAUSE" means the commission by the Executive of one or more acts for
which the Executive is convicted of a felony under United States federal,
state or local criminal law, or willful and gross misconduct on the part of
the Executive that is materially and demonstrably detrimental to the HDI
Group taken as a whole.
"CHANGE OF CONTROL EVENT" means any one of the following: (a)
Continuing Directors no longer constitute at least 2/3 of the Directors;
(b) any person or group of persons (as defined in Rule 13d-5 under the
Securities Exchange Act of 1934), together with its affiliates, become the
beneficial owner, directly or indirectly, of 20% or more of the
Corporation's then outstanding Common Stock or 20% of more of the voting
power of the Corporation's then outstanding securities entitled generally
to vote for the election of the Corporation's Directors; (c) the approval
by the Corporation's stockholders of the merger or consolidation of the
Corporation with any other corporation, the sale of substantially all of
the assets of the Corporation or the liquidation or dissolution, of the
Corporation, unless, in the case of a merger or consolidation, the then
Continuing Directors in office immediately prior to such merger or
consolidation will constitute at least 2/3 of the Directors of the
surviving corporation of such merger or consolidation and any parent (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of
1934) of such corporation; or (d) at least 2/3 of the then Continuing
Directors in office immediately prior to any other action proposed to be
taken by the Corporation's stockholders or by the Board determines that
such proposed action, if taken, would constitute a change of control of
the Corporation and such action is taken.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPENSATION" means the sum of all remuneration to which the
Executive is entitled, including, but not limited to salary, participation
in HDI Group bonus and benefit
<PAGE>
2
plans, programs or arrangements and awards under any HDI Group bonus plans,
long-term incentive compensation plans, stock option plans, restricted
stock plans or any other deferred compensation plans in which the HDI Group
Employer maintained or adopted prior to the Change of Control Event or the
value to the Executive of the use of professional outplacement services by
qualified consultants and use of automobiles or vehicles, (or allowances in
respect thereof), and all amounts in respect of club, association or
similar fees and dues covering such Executive. In the event that the HDI
Group cannot provide the Executive with one or more benefits which it is
obligated to provide to the Executive, pursuant to this Agreement, under
its employee benefit plans, programs or arrangements then the HDI Group
shall provide the Executive with equivalent benefits at the expense of the
HDI Group Employer.
"CONTINUING DIRECTOR" means any individual who is either (i) a member
of the Board on the date hereof or (ii) a member of the Board whose
election or nomination to the Board was approved by a vote of at least two-
thirds of the Continuing Directors (other than a person whose election was
as a result of an actual or threatened proxy or other control contest).
"CORPORATION" means Harley-Davidson, Inc., a Wisconsin corporation.
"EXCISE TAX" has the meaning ascribed to it in Section 8(b)(i) of the
Agreement.
"GROSS-UP PAYMENT" has the meaning ascribed to it in Section 8(b)(i)
of the Agreement.
"HDI GROUP" means Harley-Davidson, Inc. and its affiliates.
"HDI GROUP EMPLOYER" means the member of the HDI Group that employed
the Executive immediately prior to the Change of Control Event.
"TAX ADJUSTMENT AMOUNT" has the meaning ascribed to it in Section
8(b)(v) of the Agreement.
"TERMINATION" means any termination of Executive's employment
following the occurrence of any Change of Control Event, and shall include
any voluntary termination by the Executive, any termination in connection
with retirement under any retirement plan of the HDI Group, or any
termination resulting from a disability; PROVIDED, HOWEVER,
<PAGE>
3
that such term shall not include any termination of the Executive's
employment by the Corporation for Cause or as a result of the death of the
Executive.
"UNDERPAYMENT" has the meaning ascribed to it in Section 8(b)(viii) of
the Agreement.
<PAGE>
EXHIBIT 10.11
HARLEY-DAVIDSON, INC.
RESTRICTED STOCK AGREEMENT
AGREEMENT made as of the_____ day of _____________, 19__, 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 ________________ (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.
<PAGE>
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
2
<PAGE>
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:
- ------------------------------- --------------------------------
- -------------------------------
3
<PAGE>
EXHIBIT 10.12
HARLEY-DAVIDSON MOTOR COMPANY
SEVERANCE BENEFITS AGREEMENT
THIS AGREEMENT, entered into as of the ____ day of __________, 199_,
by and between Harley-Davidson [Motor Company] [,Inc.], a Wisconsin corporation
("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
<PAGE>
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.
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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 [MOTOR COMPANY]
[,INC]
- ------------------------------- ------------------------------------
<PAGE>
Exhibit 10.15
Description of Post-Retirement Life Insurance Equivalent
Certain senior managers of the Registrant, including Messrs. Bleustein,
Brostowitz, Gray, Teerlink and Ziemer, are entitled to receive a lump sum
payment equal to one year's salary plus applicable taxes upon retirement at or
after age 55. This benefit has been adopted by the Registrant in lieu of
providing post-retirement life insurance.
<PAGE>
EXHIBIT 11
HARLEY-DAVIDSON, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
ASSUMING NO DILUTION
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
COMPUTATION OF NET INCOME
Income from continuing operations $143,409 $111,050 $ 96,221
Income from discontinued operations 22,619 1,430 8,051
-------- -------- --------
Net income used in computing earnings
per common share assuming no dilution $166,028 $112,480 $104,272
-------- -------- --------
-------- -------- --------
Weighted average common shares outstanding
and shares used in computing earnings
per common share assuming no dilution 75,457 75,085 76,198
------ ------ ------
------ ------ ------
Earnings per common share assuming no dilution:
Income from continuing operations $1.90 $1.48 $1.26
Income from discontinued operations .30 .02 .11
----- ----- -----
Net income $2.20 $1.50 $1.37
----- ----- -----
----- ----- -----
</TABLE>
<PAGE>
HARLEY-DAVIDSON, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
ASSUMING FULL DILUTION
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
COMPUTATION OF NET INCOME
Income from continuing operations $143,409 $111,050 $ 96,221
Income from discontinued operations 22,619 1,430 8,051
-------- -------- --------
Net income used in computing earnings per
common share assuming full dilution $166,028 $112,480 $104,272
-------- -------- --------
-------- -------- --------
COMPUTATION OF SHARES
Weighted average common shares outstanding 75,457 75,085 76,198
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 1,242 1,017 1,025
------ ------ ------
Shares used in computing earnings per common
share assuming full dilution 76,699 76,102 77,223
------ ------ ------
------ ------ ------
Earnings per common share assuming full dilution:
Income from continuing operations $1.87 $1.46 $1.25
Income from discontinued operations .29 .02 .10
----- ----- -----
Net income $2.16 $1.48 $1.35
----- ----- -----
----- ----- -----
</TABLE>
<PAGE>
EXHIBIT 21
HARLEY-DAVIDSON, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
State/Country
of
Name Incorporation
---- -------------
<S> <C>
H-D Michigan, Inc. Michigan
Harley-Davidson Motor Company Wisconsin
Harley-Davidson Transportation Co., Inc. Delaware
Harley-Davidson Foreign Sales Corporation Barbados
Harley-Davidson Dealer Systems, Inc. Ohio
Harley-Davidson Holding Co., Inc. Delaware
Harley-Davidson Benelux B.V. Netherlands
Harley-Davidson France SAS France
Harley-Davidson GmbH Germany
Harley-Davidson Japan, KK Japan
Harley-Davidson Europe Limited England
Buell Distribution Corporation Wisconsin
Renovation Realty Investment Services, Inc. Wisconsin
Trihawk, Inc. Wisconsin
Highland Insurance Service, Inc. Wisconsin
HR, 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
Eaglemark Financial Services, Inc. Nevada
Eaglemark Insurance Services, Inc. Nevada
Eaglemark, Inc. Nevada
Harley-Davidson Dealer Funding Corporation-I Nevada
Eaglemark Leasing, Inc. Nevada
Eaglemark Mortgage, Inc. Nevada
Eaglemark Customer Funding Corporation-II Nevada
Eaglemark Customer Funding Corporation-III Nevada
Eaglemark Customer Funding Corporation-IV Nevada
</TABLE>
<PAGE>
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, No. 33-48581 and No. 333-07551) pertaining
to (a) the Harley-Davidson, Inc. 1986 Stock Option Plan and the Harley-Davidson,
Inc. 1988 Stock Option Plan; (b) the Harley-Davidson Retirement Savings Plan for
Salaried Employees, the Harley-Davidson Retirement Savings Plan for Milwaukee
and Tomahawk Hourly Bargaining Unit Employees, and the Holiday Rambler LLC
Employees Retirement Plan; (c) the Harley-Davidson, Inc. 1990 Stock Option Plan;
and (d) the Harley-Davidson, Inc. 1995 Stock Option Plan of our report dated
January 18, 1997, with respect to the consolidated financial statements and
schedule of Harley-Davidson, Inc. included in this Annual Report (Form 10-K) for
the year ended December 31, 1996.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS 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, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 142,479
<SECURITIES> 0
<RECEIVABLES> 143,233
<ALLOWANCES> 1,918
<INVENTORY> 101,386
<CURRENT-ASSETS> 429,321
<PP&E> 707,550
<DEPRECIATION> 298,116
<TOTAL-ASSETS> 1,319,985
<CURRENT-LIABILITIES> 263,594
<BONDS> 0
781
0
<COMMON> 0
<OTHER-SE> 661,939
<TOTAL-LIABILITY-AND-EQUITY> 1,319,985
<SALES> 1,531,227
<TOTAL-REVENUES> 1,531,227
<CGS> 1,041,133
<TOTAL-COSTS> 1,041,133
<OTHER-EXPENSES> 4,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,309)
<INCOME-PRETAX> 227,622
<INCOME-TAX> 84,213
<INCOME-CONTINUING> 143,409
<DISCONTINUED> 22,619
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166,028
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.16
</TABLE>
