<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES 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, 1998
[ ] 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)
Registrants 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. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant at March 15, 1999:
$8,847,300,558
Number of shares of the registrant's common stock outstanding at March 15, 1999:
153,186,506 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 8,
1999.
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<PAGE>
PART I
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company intends that 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" or "estimates" or words of similar meaning.
Similarly, statements that describe the Company's future plans, objectives or
goals are also forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated as of the date of this report. Certain
of such risks and uncertainties are described in close proximity to such
statements or elsewhere in 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-Registered Trademark- 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 Company's reportable segments are strategic business
units that offer different products and services. They are managed separately
based on the fundamental differences in their operations.
The Motorcycles and Related Products (Motorcycles) segment includes the
Harley-Davidson Motor Company (Motor Company), a subsidiary of H-D Michigan,
Inc., and the Buell Motorcycle Company (BMC), which was acquired in February of
1998, when the Company purchased substantially all of the remaining shares of
BMC it did not already own. The Motorcycles segment designs, manufactures and
sells heavyweight (engine displacement of 651+cc) touring, custom and
performance motorcycles as well as a complete line of motorcycle parts,
accessories and general merchandise. The Company, which is the only major
American motorcycle manufacturer, has held the largest share of the United
States heavyweight (651+cc) motorcycle market since 1986. The Company ended 1998
with a domestic market share of approximately 49.5%.
The Financial Services segment consists of the Company's wholly owned
subsidiary, Eaglemark Financial Services, Inc (Eaglemark). Eaglemark provides
motorcycle floor planning and parts and accessories financing to the
Company's participating North American dealers and beginning in 1998 to
European dealers, through a joint venture agreement with another finance
company. Eaglemark also offers retail financing opportunities to the
Company's domestic motorcycle customers. In addition, Eaglemark has
established The Harley-Davidson-Registered Trademark- Chrome VISA-Registered
Trademark- Card For customers in the United States. Eaglemark also provides
property and casualty insurance and extended service contracts for
motorcycles through a group of unaffiliated insurance underwriters. A smaller
portion of its customers are in other leisure products businesses.
The following table includes quarterly and year to date revenue and operating
income by segment, as well as motorcycle units shipped for each of the three
years ended December 31, 1998, 1997 and 1996.
2
<PAGE>
Harley-Davidson, Inc.
Revenue and Operating Income (Loss) and
Motorcycle Shipments by Segment
(Dollars in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1998
Revenue by segment:
Motorcycles and related products $466,527 $517,164 $517,198 $563,067 $2,063,956
Financial services n/a n/a n/a n/a n/a
-------- -------- -------- -------- ----------
$466,527 $517,164 $517,198 $563,067 $2,063,956
Operating income (loss) by segment:
Motorcycles and related products $ 71,051 $ 83,246 $ 79,870 $ 90,281 $ 324,448
Financial services 2,585 6,355 3,599 7,672 20,211
Corporate (2,829) (2,362) (3,330) (2,522) (11,043)
------ ------ ------ ------ -------
$ 70,807 $ 87,239 $ 80,139 $ 95,431 $ 333,616
Units:
Harley-Davidson-Registered Trademark-
motorcycles 34,482 37,753 36,428 42,155 150,818
Buell-Registered Trademark-motorcycles 1,350 1,497 1,069 2,418 6,334
1997
Revenue by segment:
Motorcycles and related products $427,095 $444,085 $444,222 $447,167 $1,762,569
Financial services n/a n/a n/a n/a n/a
-------- -------- -------- -------- ----------
$427,095 $444,085 $444,222 $447,167 $1,762,569
Operating income (loss) by segment:
Motorcycles and related products $ 63,016 $ 72,465 $ 62,750 $ 67,255 $ 265,486
Financial services 2,219 3,346 3,002 3,788 12,355
Corporate (2,587) (2,021) (1,497) (1,733) (7,838)
-------- -------- -------- -------- ----------
$ 62,648 $ 73,790 $ 64,255 $ 69,310 $ 270,003
Units:
Harley-Davidson motorcycles 32,860 33,965 31,503 33,957 132,285
Buell motorcycles 1,087 1,020 1,014 1,294 4,415
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
Buell motorcycles 522 899 846 495 2,762
</TABLE>
See Note 12 to the 1998 consolidated financial statements for further
information about the Company's business segments.
3
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MOTORCYCLES AND RELATED PRODUCTS
The primary business of the Motorcycles segment is to design, produce and
sell premium heavyweight motorcycles. The Company's
Harley-Davidson-Registered Trademark- 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 motorcycle purchaser is a married male in his mid-forties,
with a household income of approximately $73,000, 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 of
Harley-Davidson motorcycles are to buyers with at least one year of higher
education beyond high school, and 32% of the buyers have college degrees.
Approximately 7% of the Company's Harley-Davidson U.S. retail motorcycle
sales are to female buyers.
The Company's Buell-Registered Trademark- motorcycle products are designed to
compete in the performance segment of the market and emphasize innovative
design, responsive handling and overall performance. Company studies indicate
that the typical U.S. purchaser of the Company's Buell motorcycle is a male
at the median age of 40 with a median household income of approximately
$59,000. Approximately 80% of U.S. Buell purchasers have some post high
school education and 32% have a college education. Approximately 3% of all
Buell U.S. retail motorcycle sales are to females.
The heavyweight class of motorcycles is comprised of four segments: standard,
which emphasizes simplicity and cost; performance, which emphasizes handling
and acceleration; touring, which emphasizes comfort and amenities for
long-distance travel; and custom, which emphasizes styling and individual
owner customization. The Company presently manufactures and sells 24 models
of Harley-Davidson touring and custom heavyweight motorcycles, with domestic
manufacturer's suggested retail prices ranging from approximately $5,350 to
$18,500. The Company also manufactures and sells 3 models of Buell
performance motorcycles, with domestic manufacturer's suggested retail prices
ranging from approximately $8,599 to $11,999. 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 Pak-Registered Trademark- luggage carriers. The custom segment of the
market includes motorcycles featuring the distinctive styling associated with
classic Harley-Davidson motorcycles. These motorcycles are highly customized
through the use of trim and accessories. The performance segment of the
market is served by the Company's Buell motorcycle line, which offers sport
and sport-touring models. The Company's motorcycles are based on variations
of five basic chassis designs and are powered by one of four air cooled, twin
cylinder engines of "V" configuration, which have displacements of 883cc,
1200cc, 1340cc and 1450cc. The Company manufactures its own engines and
frames.
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 prices for the high-end of the
Company's custom product line range from being competitive to 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
comparable motorcycles available in the market. The Company's surveys of
retail purchasers indicate that, historically, over three-quarters of the
purchasers of its Sportster model have come from either competitive-brand
motorcycles or 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 purchasers of Harley-Davidson
motorcycles have a repurchase intent in excess of 92%, 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. The Company's worldwide motorcycle sales generated 79.9%, 80.7% and
79.8% of revenues in the Motorcycles segment during 1998, 1997 and 1996,
respectively.
The major product categories for the Parts and Accessories (P&A) business are
replacement parts (Genuine Motor Parts-TM-) and mechanical and cosmetic
accessories (Genuine Motor Accessories-TM-). Worldwide net P&A sales comprised
14.4%, 13.7% and 13.7% of net sales in the Motorcycles segment in 1998, 1997 and
1996, respectively.
4
<PAGE>
Worldwide net sales of General Merchandise, which includes
MotorClothes-Registered Trademark-apparel and collectibles, comprised 5.5%,
5.4% and 5.9% of net sales in the Motorcycles segment in 1998, 1997 and 1996,
respectively.
The Company also provides a variety of services to its dealers and retail
customers including service training schools, customized software packages
for dealers, delivery of its motorcycles, membership in an owners club
(Harley Owners Group-Registered Trademark-) and a Fly and Ride-TM- program
which allows members to rent motorcycles from dealers at vacation
destinations.
LICENSING. In recent years, the Company has endeavored to create an awareness
of the Harley-Davidson-Registered Trademark- brand among the non-riding
public and provide a wide range of product for enthusiasts by licensing the
name "Harley-Davidson" 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, jewelry, small leather goods, toys and
numerous other products. The Company also licenses the use of its name in
connection with two cafes located in New York and Las Vegas. Although the
majority of licensing activity occurs in the U.S., the Company continues to
expand into international markets.
The Company's licensing activity provides it 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 Harley-Davidson brand and its use. Royalty revenues from licensing, included
in motorcycle revenue, were approximately $24 million, $24 million and $19
million during 1998, 1997 and 1996, 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
615 independently owned full-service Harley-Davidson dealerships to whom the
Company sells direct. This includes 205 combined Harley-Davidson and Buell
dealerships. With respect to sales of new motorcycles, approximately 70% of the
U.S. dealerships sell the Company's motorcycles exclusively. All dealerships
carry the Company's genuine replacement parts and after-market accessories and
perform servicing of the Company's motorcycles. The Company also sells a smaller
portion of its parts & accessories and general merchandise through
non-traditional retail outlets. The non-traditional outlets, which are
extensions of existing dealerships, consist of service shops and Alternative
Retail Outlets (ARO's). Service shops are satellites of the main dealership and
are being developed to meet the service needs of the Company's riding customers
and provide replacement parts and accessories. In addition, service shops have
recently been authorized to sell new motorcycles. ARO's are located primarily in
high traffic areas such as airports or popular vacation destinations and focus
on selling the Company's general merchandise. ARO's are not authorized to sell
new motorcycles. Presently there are approximately 51 ARO's and service shops
located in the United States.
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/Buell dealers. The Company also sponsors racing
activities and special promotional events and participates in all major
motorcycle consumer shows and rallies.
The Harley Owners Group, or "H.O.G.-Registered Trademark-", currently has
approximately 430,000 members worldwide and is the industry's largest
company-sponsored motorcycle enthusiast organization. The Company formed this
riders club in 1983, in an effort to encourage Harley-Davidson owners to
become more actively involved in the sport of motorcycling.
5
<PAGE>
The Buell Riders Adventure Group, or "BRAG-TM-", was also formed in recent years
and has grown to approximately 8,000 members. BRAG sponsors events, including
national rallies and rides, across the U.S. for Buell motorcycle enthusiasts.
In 1998, the Company successfully organized a major marketing initiative which
focused on the celebration of its 95th anniversary. Domestically, this
initiative culminated in an event that brought over 150,000 enthusiasts from
around the world to Milwaukee, Wisconsin. A European event, which followed the
U.S. celebration, brought together over 15,000 riders for a celebration in
Faaker See, Austria.
The Company's expenditures on domestic marketing, selling and advertising were
approximately $102.1 million, $85.2 million and $75.4 million during 1998, 1997
and 1996, respectively.
RETAIL CUSTOMER AND DEALER FINANCING. The Company believes Eaglemark and other
financial services companies provide adequate retail and wholesale financing to
the Company's domestic and Canadian dealers and customers. In Europe, Eaglemark
provides wholesale financing to dealers through a joint venture agreement with
Transamerica Distribution Finance Corporation. To encourage its dealers to carry
sufficient parts and accessories inventories and to counteract the seasonality
of the parts and accessories business, the Company from time to time offers its
domestic dealers special discounts and/or 120 day delayed payment terms through
Eaglemark.
INTERNATIONAL SALES. International sales were approximately $497 million, $458
million and $421 million, accounting for approximately 24%, 26% and 27% of net
sales of the Motorcycles segment, during 1998, 1997 and 1996, respectively. The
international heavyweight (651+cc) market is growing and is significantly larger
than the U.S. heavyweight market. The Company ended 1998 with a 6.4% share of
the European heavyweight (651+cc) market and a 15.6% share of the Asia/Pacific
(Japan and Australia) heavyweight (651+cc) market. See Note 12 to the
consolidated financial statements for additional information regarding foreign
operations.
In total, the Company is represented internationally by 586 independent
Harley-Davidson-Registered Trademark- dealerships in 60 countries. There are
also 272 independent Buell-Registered Trademark- dealerships, 247 of which
are combined with existing Harley-Davidson dealerships. Japan, Germany, and
Canada, in that order, represent the Company's largest international markets
and account for approximately 52% of international sales.
In the European Region (Europe/Middle East/Africa), there are currently 298
independent Harley-Davidson dealerships serving 32 country markets. This
includes 154 combined Harley-Davidson and Buell dealerships. Buell is further
represented by 24 dealerships that do not sell Harley-Davidson motorcycles. In
addition, the Company has established 51 ARO's and service shops across the 32
European country markets. The network of dealers is served by 9 independent
distributors and four wholly owned sales and marketing subsidiaries in France,
Germany, The Netherlands and the United Kingdom. The Company now has an
established infrastructure in Europe, based out of its headquarters in the
United Kingdom. Information systems link European headquarters directly with
each of the sales and marketing subsidiaries and are currently being developed
to link with the major independent distributors and most of the dealers located
in the subsidiary markets. The European management team is continuing to build
and develop distributor, dealer and customer relationships. The Company's focus
is to expand the European distribution network and improve the quality of the
existing network. The Company expects to accomplish this through specialized
training programs, financing initiatives, tailored product development and
coordinated Europe-wide and local marketing programs aimed at attracting new
customers.
In the Asia-Pacific Region, there are currently 190 independent Harley-Davidson
dealers serving 11 country markets. This includes 73 combined Harley-Davidson
and Buell dealerships. The Company expects both short and long-term growth
opportunities in the Asia Pacific Region to come from its existing markets in
Japan and Australia. In the wake of the economic crisis in Southeast Asia the
Company has outlined its objectives to maintain and grow its business in that
region. While the Company does not expect short-term growth in Southeast Asia it
does anticipate long-term opportunities will come from these and other new
markets in the Asia-Pacific Region.
6
<PAGE>
The Latin American market consists of 16 country markets managed from
Milwaukee. The Latin American market has diverse dealer network including 26
independent Harley-Davidson-Registered Trademark- dealers and 8 (ARO's)
resort and mall stores focusing on selling General Merchandise. In 1998, the
Company announced plans to set-up a CKD (complete-knock-down) operation in
Manuas, Brazil to assemble motorcycles; see further discussion under
"Motorcycle Manufacturing." In the future, the Company plans to continue to
develop its distribution network in its two biggest Latin American markets,
Mexico and Brazil, as well as expand brand management and marketing
activities across the entire region.
In Canada, there are currently 72 independent Harley-Davidson dealerships,
one independent stand-alone Buell-Registered Trademark- dealership, and 3
ARO's, all served by a single independent distributor. This network includes
20 combined Harley-Davidson and Buell dealerships resulting in a total of 21
Buell dealerships in Canada.
COMPETITION. The U.S. and international heavyweight (651+cc) motorcycle markets
are highly competitive. The Company's major competitors generally have financial
and marketing resources that are substantially greater than those of the
Company. They also have larger overall sales volumes and are more diversified
than the Company. In addition to established competitors, a growing segment of
competition has recently emerged in the U.S. The new source of competition is
driven by several new entrants into the domestic heavyweight motorcycle market,
offering heavyweight motorcycles with traditional styling. These competitors
currently have production and sales volumes much lower than the Company's, and
do not hold a significant market share.
Competition in the heavyweight motorcycle market is based upon a number of
factors, including price, quality, reliability, styling, product features,
customer preference and warranties. The Company emphasizes quality,
reliability and styling in its products and offers a one-year warranty for
its motorcycles. The Company regards its support of a motorcycling lifestyle
in the form of events, rides, rallies and HOG-Registered Trademark- as a
competitive advantage. In general, resale prices for used Harley-Davidson
motorcycles, as a percentage of prices when new, are significantly higher
than resale prices for used motorcycles of the Company's competitors
Domestically, the Company competes most heavily in the touring and custom
segments of the heavyweight motorcycle market, which together accounted for 79%,
80%, 80% of total heavyweight retail unit sales in the U.S. during 1998, 1997
and 1996, respectively. The custom and touring motorcycles are generally the
most expensive and most profitable vehicles in the market. During 1998, the
heavyweight segment including standard, performance, touring and custom
motorcycles represented approximately 54% of the total U.S. motorcycle market
(on- and off-highway motorcycles and scooters) in terms of new units registered.
For the last 11 years, the Company has led the industry in domestic (United
States) sales of heavyweight motorcycles. The Company's share of the heavyweight
market was 49.5% in 1998 compared to 50.2% in 1997. This is significantly
greater than the Company's largest competitor in the domestic market, which had
a 20.3% market share in 1998.
The following chart includes U.S. retail registration data for the Company and
its major competitors for 1994 - 1998.
7
<PAGE>
Market share of U.S. Heavyweight Motorcycles (1)
(Engine Displacement of 651+cc)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NEW U.S. REGISTRATIONS (THOUSANDS OF UNITS):
Total market new registrations 227.1 190.2 165.7 151.2 140.8
------ ----- ----- ------ ------
------ ----- ----- ------ ------
Harley-Davidson-Registered Trademark-
new registrations 109.1 93.5 79.9 72.1 65.2
Buell-Registered Trademark-new registrations 3.2 1.9 1.7 .8 .2
------ ----- ----- ------ ------
Total Company new registrations 112.3 95.4 81.6 72.9 65.4
------ ----- ----- ------ ------
------ ----- ----- ------ ------
PERCENTAGE MARKET SHARE:
Harley-Davidson motorcycles 48.1% 49.2% 48.2% 47.7% 46.3%
Buell motorcycles 1.4 1.0 1.0 0.5 0.1
------ ----- ----- ------ ------
Total Company 49.5 50.2 49.2 48.2 46.4
Honda 20.3 18.5 18.8 20.2 22.5
Suzuki 10.0 10.1 8.7 9.6 10.6
Kawasaki 10.1 10.4 12.2 10.6 9.8
Yamaha 4.2 5.4 5.9 5.8 5.6
Other 5.9 5.4 5.2 5.6 5.1
------ ----- ----- ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
------ ----- ----- ------ ------
------ ----- ----- ------ ------
</TABLE>
(1) Motorcycle registration and market share information has been derived from
data published by the Motorcycle Industry Council for the years 1997-1998
and from data published by R.L. Polk & Co. for the years 1994-1996.
The Company faces unique competitive challenges in the international markets. In
Europe, the Company must consider the unique tastes of many individual country
markets that together represent a market that is larger than any other
individual market. In addition, 70% of the European heavyweight (651+cc)
motorcycle market is comprised of the standard and performance segments. The
Company has only recently started to compete in the performance market segment.
In the Asia/Pacific, the Company has been benefiting from double-digit market
growth over the past two years, driven by a change in licensing requirements in
Japan. The less restrictive requirements have made it easier for individuals to
obtain a heavyweight motorcycle driver's license. This change has had the
greatest impact on the performance segment of the motorcycle market.
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:
8
<PAGE>
Worldwide Heavyweight Motorcycle Registration Data
(Engine Displacement of 651+cc)
<TABLE>
<CAPTION>
(Units in Thousands)
1998 1997 1996
<S> <C> <C> <C>
NORTH AMERICA(1):
Total market new registrations 246.2 205.4 178.5
------ ------ -----
------ ------ -----
Harley-Davidson-Registered Trademark-new registrations 116.1 99.3 85.1
Buell-Registered Trademark-new registrations 3.3 1.9 1.7
------ ------ -----
Total Company registrations 119.4 101.2 86.8
------ ------ -----
------ ------ -----
Total Company market share % 48.5% 49.3% 48.6%
EUROPE(2):
Total market new registrations 270.2 250.3 224.7
------ ------ -----
------ ------ -----
Harley-Davidson new registrations 15.7 15.3 15.3
Buell new registrations 1.6 .8 .-
------ ------ -----
Total Company registrations 17.3 16.1 15.3
------ ------ -----
------ ------ -----
Total Company market share % 6.4% 6.4% 6.8%
JAPAN/AUSTRALIA(3):
Total market new registrations 69.2 58.9 37.4
------ ------ -----
------ ------ -----
Harley-Davidson new registrations 10.3 9.7 8.2
Buell new registrations .5 .4 .2
------ ------ -----
Total Company registrations 10.8 10.1 8.4
------ ------ -----
------ ------ -----
Total Company market share % 15.6% 17.2% 22.4%
TOTAL
Total new registrations 585.6 514.6 440.6
------ ------ -----
------ ------ -----
Harley-Davidson new registrations 142.1 124.3 108.6
Buell new registrations 5.4 3.1 1.9
----- ------ ------
Total Company registrations 147.5 127.4 110.5
----- ------ ------
----- ------ ------
Total Company market share % 25.2% 24.8% 25.1%
</TABLE>
(1) Includes the United States and Canada (1997-1998 Data provided by the
Motorcycle Industry Council, 1996 Data provided by R.L. Polk & Company)
(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.
9
<PAGE>
MOTORCYCLE MANUFACTURING. In an effort to further control costs and maintain
quality, the Motor 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
in the production of Harley-Davidson-Registered Trademark- motorcycles.
The Motor 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 Motor Company has trained
the majority of its manufacturing employees in problem solving and statistical
methods.
For the past several years, the Company has been executing a comprehensive
motorcycle manufacturing strategy designed to, among other things,
significantly increase its Harley-Davidson motorcycle production capacity.
The plan is designed to increase capacity, improve product quality, reduce
costs and increase flexibility to respond to changes in the market place. The
Company has successfully completed a critical portion of this plan with the
construction of a new assembly plant in Kansas City, Missouri, and the
transition into a new powertrain plant in the Milwaukee area. In 1998, the
Company successfully completed the transition of all Sportster-Registered
Trademark- assembly from its York, Pennsylvania facility to the new
manufacturing facility in Kansas City. The former Sportster capacity at the
Company's York facility was converted to production capacity for larger
custom motorcycle models.
The Company believes the worldwide heavyweight (651+cc) market will continue
to grow and plans to continue to increase its motorcycle production to be
able to sustain its annual double-digit growth rate for units shipped. For
1999, the Company's production target is 167,000 Harley-Davidson units,
subject to the risks and uncertainties discussed with respect to this topic
under Item 7 below.
The manufacturing techniques employed at Buell Motorcycle Company, which are
similar to those of the Motor Company, are designed to provide cost control and
quality products in a lower volume atmosphere. Buell Motorcycle Company must
also maintain high levels of flexibility in its manufacturing processes to
accommodate a quick-to-market product development cycle. The manufacturing
techniques employed include employee involvement with an emphasis on a highly
flexible and participative workforce.
The Company continues to invest in its joint venture with Porsche AG of
Stuttgart, Germany, formed in 1997, to source and assemble powertrain components
for use in potential new motorcycle products.
In 1998, the Company announced plans to establish an assembly operation in
Brazil that will import U.S. made components and sub-assemblies for final
assembly in Brazil. Assembling imported U.S. made components will increase the
availability of the Company's motorcycles in Brazil, and reduce duties and
taxes, making them more affordable to a larger group of Brazilian customers. The
Company expects to begin assembling select motorcycle models in Brazil during
1999. In model year 2000, the Company expects to assemble approximately 1,000
motorcycles.
RAW MATERIAL AND PURCHASED COMPONENTS. The Company continues to proceed
aggressively to establish long-term mutually beneficial relationships with its
suppliers. Through these relationships the Company gains 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.
10
<PAGE>
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.
See the "Impact of Year 2000" section, included in Item 7 of this report, for a
discussion of Year 2000 risk factors.
RESEARCH AND DEVELOPMENT. The Company believes research and development are
significant factors in its ability to lead the market definition of touring and
custom motorcycling and to develop products for the performance segment. The
Company's dedication to product development is marked by the new 43,000 square
foot Buell Motorcycle Company research and development facility and the existing
213,000 square foot Motor Company Product Development Center (PDC). The
innovative design of the PDC brings together employees from styling, purchasing
and manufacturing with regulatory professionals and supplier representatives to
create a concurrent product and process development methodology. The Company
incurred research and development expenses of approximately $58.7 million, $53.3
million and $37.7 million during 1998, 1997 and 1996, respectively.
PATENTS AND TRADEMARKS. The Company owns certain patents which relate to its
motorcycles and related products and processes for their production. The Company
has increased its efforts to patent its technology and to enforce those patents.
The Company sees such actions as important as it moves forward with new
technologies.
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 the trademarks
associated with its products, prevent the unauthorized use of those
trademarks and enhance its image and customer goodwill. The Company believes
the "Harley-Davidson-Registered Trademark-" trademark is highly recognizable
by the general public and a very valuable asset. The Bar and Shield Design
trademark is also highly recognizable by the general public. The
"Buell-Registered Trademark-" trademark is well-known in Sport bike circles,
as is the Pegasus logo, and will become more well known as the Buell business
expands. Additionally, the Company uses numerous other trademarks, trade
names and logos, which are registered both in the United States and abroad.
The "Harley-Davidson" trademark has been used since 1903 and the Bar and
Shield trademark since 1907. The "Buell" trademark has been used since 1984.
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 Motor Company's motorcycles and related products, as well
as the availability of floor plan financing arrangements for its North American
and European independent dealers. Floor plan financing allows dealers to build
their inventory levels in anticipation of the spring and summer selling seasons.
REGULATION. Federal, state and local 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.
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 (CARB) with respect
to CARB's more stringent emissions standards. Company motorcycles sold in
California are also subject to certain tailpipe and evaporative emissions
standards that are unique to California. The Company's motorcycle products have
been certified to comply fully with all such applicable standards. There will be
further reductions in CARB's motorcycle emissions standards in 2003 and 2008,
respectively. Additionally, the European Union is also considering further
reductions in its motorcycle emissions standards. Accordingly, the Company will
continue to incur some level of research and development costs related to
motorcycle noise emissions for the foreseeable future.
11
<PAGE>
The European Union's motorcycle noise standards (80dBa) are lower than those of
the EPA, and may be reduced further. Accordingly, the Company expects that it
will continue to incur some level of research and development costs related to
motorcycle noise emissions over the next several years.
The Company, as a manufacturer of motorcycle products, is subject to the
National Traffic and Motor Vehicle Safety Act, which is administered by the
National Highway Traffic Safety Administration (NHTSA). The Company has
certified 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 Motor Company has from time to time initiated certain
voluntary recalls. During the last three years, the Motor Company has initiated
9 voluntary recalls at a total cost of approximately $8.3 million. The Company
fully reserves for all estimated costs associated with recalls in the period
that they are announced.
As previously stated, federal, state, and local authorities have adopted various
control standards relating to air, water, and noise pollution which affect the
business and operations of the Motorcycles segment. Management does not
anticipate that any of these standards will have a materially adverse impact on
its capital expenditures, earnings, or competitive position.
EMPLOYEES. As of December 31, 1998, the Motorcycles segment had approximately
6,200 employees. Production workers at the motorcycle manufacturing facilities
in Wauwatosa, Menomonee Falls, and Tomahawk, Wisconsin and Kansas City, Missouri
are represented principally by the Paper Allied-Industrial Chemical and Energy
Workers International Union (PACE) 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
Wisconsin-PACE and IAM will expire on March 31, 2001, the collective bargaining
agreement with the Kansas City-PACE and IAM will expire on December 31, 2003,
and the collective bargaining agreement with the Pennsylvania-IAM will expire on
February 2, 2002.
FINANCIAL SERVICES
Eaglemark Financial Services, Inc. (Eaglemark) is the finance subsidiary of
the Company. Eaglemark provides financial services programs to
Harley-Davidson-Registered Trademark-and Buell-Registered Trademark- dealers
and customers in the United States and Canada. Eaglemark also provides
financial services programs on other leisure products including personal
aircraft, marine products and recreational vehicles. In January 1998,
Eaglemark entered the European market through a joint venture agreement with
another finance company to provide wholesale financing to dealers supported
by the Company's European subsidiaries.
HARLEY-DAVIDSON AND BUELL. Eaglemark provides wholesale and retail financial
services to Harley-Davidson and Buell dealers and customers, operating under the
trade name Harley-Davidson Credit and Insurance. Wholesale financial services
provided to Harley-Davidson and Buell dealers include floorplan and open account
financing of motorcycles and motorcycle parts and accessories, real estate
loans, 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 1998 were utilized by approximately 95% of such dealers. The
European dealers are serviced through the financial services joint venture noted
above. Eaglemark's wholesale finance operations are located in Plano, Texas.
Retail financial services include installment lending for new and used
Harley-Davidson and Buell motorcycles, the Harley-Davidson-Registered
Trademark- Chrome VISA-Registered Trademark-Card, the brokerage of a range of
motorcycle insurance products, including liability, property, credit life and
disability insurance policies, and extended service warranty agreements.
Eaglemark acts only as an insurance agent and does not assume any
underwriting risk with regard to the various insurance policies and extended
service warranty agreements that it sells. Eaglemark's retail financial
services are available through virtually all Harley-Davidson and Buell
dealers in the United States and Canada. Eaglemark's retail finance
operations are located in Carson City, Nevada.
12
<PAGE>
OTHER MANUFACTURERS. Eaglemark also provides wholesale and retail financial
services to certain aircraft dealers and customers and retail financial services
to certain marine and recreational vehicle dealers and customers. These programs
are similar to the Harley-Davidson and Buell program described above. In 1998,
Eaglemark sold its wholesale recreational vehicle portfolio and liquidated its
wholesale marine portfolio.
FUNDING. Eaglemark's growth has been funded through a combination of capital
contributions from the Company, unsecured commercial paper, revolving credit
facilities, senior subordinated notes and the securitization of its retail
installment loans. Future growth is expected to be financed by similar funding
sources as well as internally generated funds.
COMPETITION. Eaglemark believes that its ability to offer a package of wholesale
and retail financial services is 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.
Greentree Financial is the only significant national provider of retail
financing that competes with Eaglemark in connection with the motorcycle
installment loans relating to sales of the Company's products. During 1998,
Eaglemark financed 21% of new Harley-Davidson-Registered Trademark-
motorcycles retailed in the U.S., up from 19% in 1997. In contrast,
competition to provide retail financial services to aircraft, recreational
vehicle and marine customers is substantial, with many competitors being much
larger than Eaglemark. These competitors include The CIT Group, Nations
Credit, BankOne, Bombardier and Key Bank USA. Credit unions, banks, other
financial institutions and insurance agencies also compete for retail
financial services business in segmented markets.
Eaglemark faces little national competition for the Company's wholesale
finance business. Competitors are primarily banks and other financial
institutions who provide wholesale financing to Harley-Davidson and
Buell-Registered Trademark- dealers in their local markets. Competition to
provide wholesale financial services to aircraft dealers is regional in
scope. The main competitors include First Source Bank, Summit Bank and Bank
of Pryor.
PATENTS AND TRADEMARKS. Eaglemark has a registered trademark for the "Eaglemark
and Design" logo. The Harley-Davidson trademarks or trade names used by
Eaglemark, such as Harley-Davidson Credit and Insurance, are licensed from the
manufacturer.
SEASONALITY. The products for which Eaglemark currently provides financial
services are primarily used 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 turnover 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, 1998, the Financial Services segment had
approximately 440 employees. None of Eaglemark's personnel are represented by
labor unions.
13
<PAGE>
ITEM 2. PROPERTIES
The following is a summary of the principal properties of the Company as of
March 15, 1999.
MOTORCYCLES AND RELATED PRODUCTS SEGMENT
<TABLE>
<CAPTION>
Approximate
Type of Facility Location Square Feet Status
- ---------------- -------- ----------- ------
<S> <C> <C> <C>
Corporate office Milwaukee, WI 512,000 Owned
Product Development Center Wauwatosa, WI 213,000 Owned
Manufacturing Wauwatosa, WI 422,000 Owned
Manufacturing Menomonee Falls, WI 479,000 Owned
Manufacturing Tomahawk, WI 112,000 Owned
Manufacturing York, PA 1,033,000 Owned
Manufacturing Kansas City, MO 330,000 Owned
Manufacturing East Troy, WI 40,000 Lease expiring
1999
Product Development East Troy, WI 43,000 Lease expiring
and office 2003
Distribution Center Franklin, WI 250,000 Owned
Distribution Center York, PA 84,000 Lease expiring
2004
Motorcycle Testing Talladega, AL 24,000 Leases expiring
1999
Office Mukwonago, WI 5,000 Lease expiring
1999
Office Ann Arbor, MI 2,000 Lease expiring
1999
Office and Service Area Morfelden-Waldorf, 26,000 Lease expiring
Germany 2001
Office Brackley, England 3,000 Lease expiring
2005
Warehouse Brackley, England 1,000 Lease expiring
2005
Office Windsor, England 10,000 Lease expiring
2006
Office Liederdorp, The Netherlands 8,000 Lease expiring
2001
Office Paris, France 6,000 Lease expiring
2005
Office Tokyo, Japan 14,000 Lease expiring
2000
Warehouse Yokohama, Japan 11,000 Lease expiring
2000
</TABLE>
The Company has six facilities that perform manufacturing operations: Wauwatosa
and Menomonee Falls, Wisconsin, suburbs of Milwaukee (motorcycle powertrain
production); Tomahawk, Wisconsin (fiberglass parts production and painting);
York, Pennsylvania (motorcycle parts fabrication, painting and big-twin
assembly); Kansas City, Missouri (Sportster assembly); and East Troy, Wisconsin
(Buell-Registered Trademark- motorcycles assembly).
14
<PAGE>
FINANCIAL SERVICES SEGMENT
<TABLE>
<CAPTION>
Approximate
Type of Facility Location Square Feet Status
- ---------------- -------- ----------- ------
<S> <C> <C> <C>
Office Chicago, IL 17,000 Lease expiring 2007
Office Carson City, NV 50,000 Lease expiring 2001
Office Carson City, NV 22,000 Lease Expiring 2003
Office Plano, TX 16,000 Lease expiring 2007
</TABLE>
The Financial Services segment has four office facilities: Chicago, Illinois
(corporate headquarters); Carson City, Nevada (one location for retail
operations (non-bankcard) and one location for bankcard 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.
15
<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 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, as of December 31,1998, the name, age and business
experience for the last five years for each of the executive officers of
Harley-Davidson, Inc. Executive officers are defined by the Company as Corporate
Officers of Harley-Davidson, Inc. plus all members of the Leadership and
Strategy Council (LSC). The LSC, which is comprised of elected members of senior
management from various areas within the Company, makes high-level resource
decisions, develops policies, and acts as an advisory group to the Chief
Executive Officer.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
------------------
NAME AGE
---- ---
<S> <C>
Jeffrey L. Bleustein (1) 59
Chairman and Chief Executive Officer
James M. Brostowitz 47
Vice President, Controller and Treasurer
C. William Gray (2) 57
Vice President, Human Resources
Ronald M. Hutchinson 52
Vice President, Parts, Accessories and
Customer Service-Motor Company
Gail A. Lione 49
Vice President, General Counsel and Secretary
James A. McCaslin 50
Vice President, Continuous Improvement-
Motor Company
David J. Storm 54
Vice President, Planning and Information
Services-Motor Company
Richard F. Teerlink (1) 62
Chairman
Earl K. Werner 53
Vice President, Engineering-
Motor Company
Jerry G. Wilke 47
Vice President-Motor Company
President and Chief Operating Officer-
Buell Motorcycle Company
James L. Ziemer 49
Vice President, Chief Financial Officer
</TABLE>
16
<PAGE>
All of these individuals have been employed by the Company in an executive
officer capacity for more than five years, except Ronald A. Hutchinson, Gail A.
Lione, James A. McCaslin, David J. Storm, Earl K. Werner and Jerry G. Wilke.
Mr. Hutchinson has served as Vice President, Parts, Accessories and Customer
Service of the Motor Company since May 1996. He served as Vice President,
Customer Service and Parts of the Motor Company from 1993 to 1996.
Ms. Lione has served as Vice President, General Counsel and Secretary since
joining the Company in November 1997. From May 1990 to October 1997, Ms. Lione
served as General Counsel and Secretary for U.S. News & World Report L.P.
Mr. McCaslin has served as Vice President, Continuous Improvement of the Motor
Company since October 1997. From 1994 to October 1997 he served as Vice
President and General Manager, York Operations of the Motor Company.
Mr. Storm has served as Vice President, Planning and Information Services of the
Motor Company since 1996. From 1994 to 1996 he served as Vice President,
Planning, Logistics and Information Systems of the Motor Company.
Mr. Werner has served as Vice President, Engineering of the Motor Company since
1995. From 1993 to 1995 he served as Director, Engineering of the Motor Company.
Mr. Wilke has served as Vice President of the Motor Company and President and
Chief Operating Officer of Buell Motorcycle Company since July 1997. From 1995
to July 1997 he served as Vice President, Marketing and Sales, the Americas of
the Motor Company. From 1994 to 1995 he served as Vice President, Market
Development/Sales, the Americas of the Motor Company.
(1) Mr.Teerlink served as Chairman of the Board of the Company until December
9, 1998 at which time Mr. Bleustein was elected Chairman of the Board.
(2) Mr. Gray retired from the Company in 1999.
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>
1998 Low High
---- --- ----
<S> <C> <C>
First quarter $24-15/16 $33-3/4
Second quarter 30-5/8 38
Third quarter 29-5/8 42
Fourth quarter 26-1/8 47-1/2
1997 Low High
---- --- ----
First quarter $16-7/8 $23-3/16
Second quarter 16-11/16 24-23/32
Third quarter 23-1/2 29-7/8
Fourth quarter 23-3/16 31-1/4
</TABLE>
The Company paid the following dividends per share:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
First quarter $.035 $.030 $.025
Second quarter .040 .035 .025
Third quarter .040 .035 .030
Fourth quarter .040 .035 .030
</TABLE>
The Company has authorization from the Board of Directors to repurchase up to
4,700,000 shares of its common stock. In addition, the Company has continuing
authorization from its Board of Directors to repurchase shares of the Company's
common stock under which the cumulative number of shares repurchased, at the
time of any repurchase, shall not exceed the sum of (1) the number of shares
issued in connection with the exercise of stock options occurring on or after
January 1, 1998 plus (2) one percent of the issued and outstanding common stock
of the Company on January 1 of the current year, adjusted for any stock splits.
During 1998, the Company repurchased 600,000 shares of its common stock, with
cash on hand, under the latter authorization.
As of March 15, 1999 there were approximately 62,330 shareholders of record of
Harley-Davidson, Inc. common stock.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $2,063,956 $1,762,569 $1,531,227 $1,350,466 $1,158,887
Cost of goods sold 1,373,286 1,176,352 1,041,133 939,067 800,548
--------- ---------- ---------- ---------- ----------
Gross profit 690,670 586,217 490,094 411,399 358,339
Operating income from financial services(1) 20,211 12,355 7,801 3,620 -
Selling, administrative and engineering (377,265) (328,569) (269,449) (234,223) (204,777)
---------- ----------- ----------- ---------- ----------
Income from operations 333,616 270,003 228,446 180,796 153,562
Interest income, net 3,828 7,871 3,309 96 1,682
Other income (expense), net (1,215) (1,572) (4,133) (4,903) 1,196
---------- ------------- ------------ ----------- -----------
Income from continuing operations before
provision for income taxes 336,229 276,302 227,622 175,989 156,440
Provision for income taxes 122,729 102,232 84,213 64,939 60,219
--------- ----------- ----------- ---------- ----------
Income from continuing operations 213,500 174,070 143,409 111,050 96,221
Income from discontinued
operations, net of tax - - 22,619 1,430 8,051
---------- ----------- ----------- ---------- ----------
Net income $ 213,500 $ 174,070 $ 166,028 $ 112,480 $ 104,272
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
Weighted average common shares:
Basic 152,227 151,650 150,683 149,972 150,440
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Diluted 154,703 153,948 152,925 151,900 153,365
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings per common share from continuing operations:
Basic $1.40 $1.15 $.95 $.74 $.64
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Diluted $1.38 $1.13 $.94 $.73 $.63
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Dividends paid $.155 $.135 $.11 $.09 $.07
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Balance sheet data:
Working capital $376,448 $ 342,333 $ 362,031 $ 288,783 $189,358
Current finance receivables, net(1) 360,341 293,329 183,808 169,615 -
Long-term finance receivables, net(1) 319,427 249,346 154,264 43,829 -
Total assets 1,920,209 1,598,901 1,299,985 980,670 676,663
Short-term debt, including current
maturities of long-term debt - - 2,580 2,691 1,431
Long-term debt, less current maturities 14,145 20,934 25,122 18,207 9,021
Short-term finance debt(1) 146,742 90,638 8,065 - -
Long-term finance debt(1) 280,000 280,000 250,000 164,330 -
------- ---------- ---------- --------- -------------
Total debt 440,887 391,572 285,767 185,228 10,452
Shareholders' equity 1,029,911 826,668 662,720 494,569 433,232
</TABLE>
(1)Due to the acquisition of Eaglemark Financial Services, Inc. in 1995.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1998 COMPARED TO 1997
OVERALL
For 1998 net sales totaled $2,064.0 million, a $301.4 million, or 17.1%,
increase over 1997. Net income and diluted earnings per share for 1998 were
$213.5 million and $1.38 compared to $174.1 million and $1.13 for 1997,
increases of 22.7% and 22.1%, respectively.
The Company increased its quarterly dividend payment in June 1998 from $.035 per
share to $.04 per share which resulted in a total year payout of $.155 per
share.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
(Dollars in millions)
<TABLE>
<CAPTION>
- -------------------------------------------- ------------- ------------- ----------- -----------
1998 1997 Increase %Change
- -------------------------------------------- ------------- ------------- ----------- -----------
MOTORCYCLE UNIT SHIPMENTS
- -------------------------------------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Harley-Davidson-Registered Trademark-
motorcycle units 150,818 132,285 18,533 14.0%
- -------------------------------------------- ------------- ------------- ----------- -----------
Buell-Registered Trademark-motorcycle units 6,334 4,415 1,919 43.5
- -------------------------------------------- ------------- ------------- ----------- -----------
Total motorcycle units 157,152 136,700 20,452 15.0%
- -------------------------------------------- ------------- ------------- ----------- -----------
NET SALES
- -------------------------------------------- ------------- ------------- ----------- -----------
Harley-Davidson motorcycles $1,595.4 $1,382.8 $212.6 15.4%
- -------------------------------------------- ------------- ------------- ----------- -----------
Buell motorcycles 53.5 40.3 13.2 32.8
- -------------------------------------------- ------------- ------------- ----------- -----------
Total motorcycles 1,648.9 1,423.1 225.8 15.9%
- -------------------------------------------- ------------- ------------- ----------- -----------
Motorcycle Parts and Accessories 297.1 241.9 55.2 22.8
- -------------------------------------------- ------------- ------------- ----------- -----------
General Merchandise 114.5 95.1 19.4 20.4
- -------------------------------------------- ------------- ------------- ----------- -----------
Other 3.5 2.5 1.0 37.8
- -------------------------------------------- ------------- ------------- ----------- -----------
Total Motorcycles and related products $2,064.0 $1,762.6 $301.4 17.1%
- -------------------------------------------- ------------- ------------- ----------- -----------
</TABLE>
The Motorcycles segment recorded a 17.1% increase in net sales driven
primarily by a 14.0% increase in Harley-Davidson unit shipments. During 1998,
the Company produced approximately 151,000 Harley-Davidson units. The
increase in production during 1998 is a direct result of the progress made by
the Company on its capacity expansion plans. In 1998, the Company
successfully completed the transition of all Sportster-Registered Trademark-
production from its York, Pennsylvania facility to its new manufacturing
facility in Kansas City. In connection with the Kansas City transition, the
former Sportster capacity at the Company's York facility was converted to
production capacity for larger custom motorcycle models. In the Milwaukee
area, the Company completed its ramp up of a second powertrain facility,
which is now producing the powertrains for all of the Company's larger custom
and touring models.
The Company's ongoing manufacturing strategy is designed to increase capacity,
improve product quality, reduce costs and increase flexibility to respond to
changes in the marketplace. The Company plans to continue to increase its
motorcycle production to be able to sustain its annual double-digit growth rate
for units shipped.
20
<PAGE>
For 1999, the Company's production target is 167,000 Harley-Davidson units. (1)
The Company increased its shipments of Buell-Registered Trademark-
motorcycles by 1,919 units in 1998. Buell Motorcycle Company, now a majority
owned subsidiary of the Company, expects to produce approximately 7,500 units
in 1999. (1)
The Company's ability to reach the 1999 targeted production 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 in its facilities, and
(iii) sell all of the motorcycles it has the capacity to produce. In addition,
the Company could experience delays in making changes to existing facilities and
the new manufacturing facilities as a result of risks normally associated with
the operation of new and existing manufacturing facilities, including 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 adversely impact the Company's capital
expenditure estimates.
During 1998, the worldwide heavyweight (651+cc) motorcycle market grew 13.8%,
while the Company's market share(Harley-Davidson-Registered Trademark- and
Buell) was 25.2% compared to 24.8% in 1997. Industry registrations of
domestic (United States) heavyweight motorcycles were up 19.4% (data provided
by the Motorcycle Industry Council) over 1997, while domestic retail
registrations for the Company's motorcycles increased 17.8%. The Company
ended 1998 with a domestic market share of 49.5% compared to 50.2% in 1997.
Although the Company exceeded its production goals in 1998 it was unable to
keep pace with the expansion that occurred in the U.S. market, and as a
result the Company's U.S. market share was down slightly from 1997.
International revenues totaled $497.4 million during 1998, an increase of
approximately $39.6 million or 8.7% over 1997. The Company exported
approximately 27% of its Harley-Davidson motorcycle shipments in 1998, which is
approximately the same percentage exported in 1997.
European data for 1998 (provided by Giral S.A.) shows the Company with a 6.4%
share of the heavyweight (651+cc) market, unchanged from 6.4% in 1997. The
European market grew at an 8.0% rate in 1998, while retail registrations for the
Company's motorcycles were up 7.3%. The European market remains a focus for the
Company, with its new management team and information systems in place the
Company continues to work on improving the distribution network and implementing
European focused marketing programs.
Asia/Pacific (Japan and Australia) data for 1998 (provided by JAMA and ABS)
shows the Company with a 15.6% share of the heavyweight (651+cc) market, down
from 17.2% in 1997. While retail registrations for the Company's motorcycles
increased 6.4%, the Asia/Pacific market increased 17.5%, in 1998. The
Asia/Pacific market continues to be positively affected by a change in the
licensing requirements in Japan, during 1997, which made it easier for an
individual to obtain a heavyweight motorcycle driver's license. The greatest
impact has occurred in the performance motorcycle market segment.
During 1998, Motorcycle Parts and Accessories (P&A) sales totaled $297.1
million, a $55.2 million, or 22.8% increase over 1997. General Merchandise
sales, which consists of MotorClothes-Registered Trademark- apparel and
collectibles, totaled $114.5 million, up 20.4% compared to 1997. During 1998,
both P&A and General Merchandise benefited from increased dealer floor
traffic due to Harley-Davidson's 95th anniversary celebration. Going forward,
the growth rate for P&A and General Merchandise should approximate the
Company's motorcycle unit growth rate. (1)
21
<PAGE>
GROSS PROFIT
In 1998, gross profit was $104.5 million or 17.8% higher than gross profit in
1997. This increase is primarily related to the increase in motorcycle unit
shipments. The gross profit margin was 33.5% in 1998 compared to 33.3% in 1997.
The 1998 gross profit margin was positively affected by increased manufacturing
efficiencies achieved in connection with the ongoing implementation of the
Company's manufacturing strategy and lower facilities start-up costs. The
Company incurred approximately $8.5 million in start-up costs in 1998 compared
to $19.3 million in 1997. However, these positive impacts on gross margin were
somewhat offset by higher costs in 1998 in relation to the introduction of the
Twin Cam 88-TM- engine and higher depreciation expense as a result of the
Company's significant investment in capacity expansion.
OPERATING EXPENSES
(Dollars in Millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1998 1997 Increase %Change
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Motorcycles and Related Products $366.2 $320.7 $45.5 14.2%
- --------------------------------------------------------------------------------------------------
Corporate 11.0 7.8 3.2 41.0
- --------------------------------------------------------------------------------------------------
Total operating expenses $377.2 $328.5 $48.7 14.8%
- --------------------------------------------------------------------------------------------------
</TABLE>
Total operating expenses for 1998 increased $48.7 million, or 14.8%, over 1997.
The Company experienced increases in selling, engineering, and warranty expense
in line with the additional motorcycle volume and corresponding 17.1% increase
in net sales. Other operating expense increases, related to the Company's actual
and expected future growth, included product development and information
services. These increases were partially offset by lower expenses for product
liability.
OPERATING INCOME FROM FINANCIAL SERVICES
The 1998 Financial Services segment operating income of $20.2 million was
$7.8 million, or 63% higher than 1997. This increase was primarily due to the
growth experienced in its main business lines during 1998. The growth was
particularly strong in retail installment lending, as Eaglemark Financial
Services, Inc. (Eaglemark) increased both its market share and its
profitability in this business. During 1998, Eaglemark financed 21% of new
Harley-Davidson-Registered Trademark-motorcycles retailed in the U.S., up
from 19% in 1997. In addition, increased loan volumes and amounts outstanding
on the wholesale lending business as well as commission revenue growth from
the insurance agency business, contributed to operating income for 1998.
OTHER INCOME (EXPENSE)
Other expense for 1998 was $.4 million lower than 1997. Included in 1998 other
expense is a $1.8 million one-time benefit related to a rebate of harbor
maintenance fees. The levy of these fees was found unconstitutional by the U.S.
Supreme Court and related to fees collected over the previous five years. During
1997, the Company recorded a $1.6 million one-time benefit related to the sale
of the Monaco Coach Corporation preferred stock, which was acquired in
connection with the sale of the Transportation Vehicles segment. Other
non-operating expense items, including foreign currency exchange losses,
remained consistent from 1997 to 1998.
INTEREST INCOME
The Company capitalized approximately $3.5 million of interest during 1997 in
connection with its manufacturing expansion initiatives. No interest was
capitalized during 1998.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 36.5% and 37.0% in 1998 and 1997,
respectively.
22
<PAGE>
1997 COMPARED TO 1996
OVERALL
Net sales for 1997 of $1,762.6 million were $231.4 million, or 15.1%, higher
than net sales for 1996. Net income and diluted earnings per share from
continuing operations were $174.1 million and $1.13, respectively, for 1997
compared to $143.4 million and $.94, respectively, for 1996. The 1996 gain on
disposition and diluted earnings per share from discontinued operations were
$22.6 million and $.15, respectively.
The Company increased its quarterly dividend payment in June 1997 from $.03 per
share to $.035 per share which resulted in a total year payout of $.135 per
share.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
(Dollars in millions)
<TABLE>
<CAPTION>
- -------------------------------------------- ------------- ------------- -------------------------
Increase
1997 1996 (Decrease) %Change
- -------------------------------------------- ------------- ------------- -------------------------
MOTORCYCLE UNITS SHIPMENTS
- -------------------------------------------- ------------- ------------- -------------------------
<S> <C> <C> <C> <C>
Harley-Davidson-Registered Trademark-
motorcycle units 132,285 118,771 13,514 11.4%
- -------------------------------------------- ------------- ------------- -------------------------
Buell-Registered Trademark-motorcycle units 4,415 2,762 1,653 59.8
- -------------------------------------------- ------------- ------------- -------------------------
Total motorcycle units 136,700 121,533 15,167 12.5%
- -------------------------------------------- ------------- ------------- -------------------------
NET SALES
- -------------------------------------------- ------------- ------------- -------------------------
Harley-Davidson motorcycles $1,382.8 $1,199.2 $183.6 15.3%
- -------------------------------------------- ------------- ------------- -------------------------
Buell motorcycles 40.3 23.3 17.0 72.9
- -------------------------------------------- ------------- ------------- -------------------------
Total motorcycles 1,423.1 1,222.5 200.6 16.4%
- -------------------------------------------- ------------- ------------- -------------------------
Motorcycle Parts and Accessories 241.9 211.2 30.7 14.5
- -------------------------------------------- ------------- ------------- -------------------------
General Merchandise 95.1 90.7 4.4 4.8
- -------------------------------------------- ------------- ------------- -------------------------
Other 2.5 6.8 (4.3) (62.6)
- -------------------------------------------- ------------- ------------- -------------------------
Total Motorcycles and related products $1,762.6 $1,531.2 $231.4 15.1%
- -------------------------------------------- ------------- ------------- -------------------------
</TABLE>
The Motorcycles and Related Products (Motorcycles) segment's net sales increased
15.1% over 1996 primarily due to an 11.4% increase in Harley-Davidson unit
shipments. The increase in Harley-Davidson motorcycle shipments is the result of
improved productivity and investment in additional capacity in connection with
the ongoing implementation of the Company's manufacturing strategy. The
Company's manufacturing strategy is designed to increase capacity, improve
product quality, reduce costs and increase flexibility to respond to changes in
the marketplace.
The Company began 1997 at a scheduled motorcycle production rate of 520
Harley-Davidson units per day. As the implementation of the manufacturing
strategy continued, the rate increased to 565 units per day by the end of the
year.
23
<PAGE>
During 1997, the worldwide heavyweight (651+cc) motorcycle market grew 16.8%
and the Company's share of the market was 24.8% compared to 25.1% in 1996.
Compared to 1996, industry registrations of domestic (United States)
heavyweight motorcycles were up 14.8% (data provided by the Motorcycle
Industry Council), while retail registrations for the Company's motorcycles
(Harley-Davidson-Registered Trademark- and Buell-Registered Trademark-)
increased 16.9%. The Company ended 1997 with a domestic market share of 50.2%
compared to 49.3% in 1996. This increase was driven by higher shipments of
the Company's Harley-Davidson motorcycles made possible by the additional
capacity and the higher allocation of motorcycles to the domestic market.
Export revenues totaled $457.8 million during 1997, an increase of approximately
$37.1 million or 8.8% over 1996. The Company exported approximately 27% of its
traditional motorcycle shipments in 1997, down from approximately 30% in 1996.
The Company adjusted the international allocation of motorcycles during 1997 due
primarily to the combination of continued strong demand in the United States and
softening demand in Europe.
European data for 1997 (provided by Giral S.A.) shows the Company with a 6.4%
share of the heavyweight (651+cc) market, down from 6.8% in 1996. The European
market grew at an 11.4% rate in 1997, while retail registrations for the
Company's motorcycles were up approximately 5.0% over 1996.
Asia/Pacific (Japan and Australia) data for 1997 (provided by JAMA and ABS)
shows the Company with a 17.2% share of the heavyweight (651+cc) market, down
from 22.4% in 1996. While retail registrations for the Company's motorcycles
increased 20.8%, the Asia/Pacific market increased 57.5% in 1997. The increase
in the Asia/Pacific market was primarily due to a change in the licensing
requirements in Japan which made it easier for an individual to obtain a
heavyweight motorcycle driver's license. The greatest increase occurred in the
performance motorcycle segment.
During 1997, Motorcycle Parts and Accessories (P&A) sales totaled $241.9
million, a $30.7 million, or 14.5% increase over 1996. General Merchandise
sales, which consists of MotorClothes-Registered Trademark- apparel and
collectibles, totaled $95.1 million, up 4.8% compared to 1996.
GROSS PROFIT
In 1997, gross profit increased $96.1 million, or 19.6%, as compared with
1996 primarily due to an increase in volume. The gross profit margin was
33.3% in 1997 as compared with 32.0% in 1996. The 1997 gross profit margin
was positively affected by a shift in mix away from the entry level
Sportster-Registered Trademark- models to the higher-margin custom and
touring models and increased efficiencies in manufacturing arising from the
implementation of the Company's manufacturing strategy over the past two
years. However, the Company incurred approximately $19.3 million in start-up
and plant rearrangement costs in 1997, compared to $12.8 million in 1996.
OPERATING EXPENSES
(Dollars in Millions)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1997 1996 Increase %Change
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Motorcycles and Related Products $320.7 $262.0 $58.7 22.4%
- ----------------------------------------------------------------------------------------------
Corporate 7.8 7.4 .4 5.2
- ----------------------------------------------------------------------------------------------
Total operating expenses $328.5 $269.4 $59.1 21.9%
- ----------------------------------------------------------------------------------------------
</TABLE>
Total operating expenses for 1997 increased $59.1 million, or 21.9%, over 1996.
The increase was primarily related to new product development, information
systems, international operations development, product liability expenses and
other increases due to motorcycle volume when compared to 1996.
24
<PAGE>
OPERATING INCOME FROM FINANCIAL SERVICES
The operating income of the Financial Services segment was $12.4 million and
$7.8 million in 1997 and 1996, respectively. This increase was due to
increased wholesale and retail origination volume, corresponding increases in
outstanding wholesale and retail receivables and an increase in insurance
service revenues. During 1997, Eaglemark Financial Services, Inc. (Eaglemark)
financed 19% of new Harley-Davidson-Registered Trademark- motorcycles
retailed in the U.S., up from 17% in 1996.
OTHER INCOME (EXPENSE)
Other expense for 1997 decreased $2.5 million as compared to 1996. 1997 includes
a $1.3 million loss on the equity investment in Buell Motorcycle Company
compared to a $3.5 million loss in 1996. During 1997, a foreign currency
exchange loss of approximately $1.9 million (compared to an exchange gain of
approximately $1.8 million in 1996) was offset by a $1.6 million one-time
benefit related to the sale of preferred stock that was acquired from the sale
of the Transportation Vehicles segment.
INTEREST INCOME
The Company capitalized approximately $3.5 million and $2.1 million of interest
during 1997 and 1996, respectively, in connection with its manufacturing
expansion initiatives.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 37.0% in 1997 and 1996.
DISCONTINUED OPERATIONS
The operations for the Transportation vehicles segment have been classified as
discontinued operations. In 1996, the sale of the Transportation Vehicles
segment resulted in a $22.6 million gain, net of applicable income taxes, or
$.15 per share.
25
<PAGE>
OTHER MATTERS
ACCOUNTING CHANGES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. The Company elected to adopt SFAS No. 131 effective December
31, 1997. Adoption of the Statement required the Company to change the
disclosure of geographic information but did not require significant changes in
the way segments were disclosed.
The Company adopted Statement 130, "Reporting Comprehensive Income," effective
January 1, 1998. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, adoption in 1998
had no impact on the Company's net income or shareholders' equity. Statement 130
requires foreign currency translation adjustments to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130.
Effective January 1, 1998, the Company adopted the Statement of Position (SOP)
98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use." The SOP requires the Company to capitalize certain costs incurred
in connection with developing or obtaining internal-use software. Approximately
$9.1 million of costs associated with internal-use software were capitalized
during 1998. Had the Company adopted the SOP in 1997, approximately $9.0 million
of costs would have been capitalized.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and for Hedging Activities," which is
required to be adopted by the Company effective January 1, 2000; earlier
adoption is also permitted. The statement will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through earnings. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value will
either be offset against the change in fair value of hedged assets, liabilities
or firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
hedge's change in fair value will be immediately recognized in earnings. Based
on the information available at this time the adoption of this statement is not
expected to have a material impact on the Company's financial statements.
IMPACT OF YEAR 2000
The Company has implemented a comprehensive Year 2000 initiative to identify and
address issues associated with the Year 2000. A team of internal staff is
managing the initiative with the assistance of some outside consultants. The
team's activities are designed to ensure that there are no material adverse
effects on the Company.
The Company has completed the assessment phase of its internal information
services computer systems associated with the Year 2000. The assessment
indicated that many of the Company's internal computer systems were vulnerable
to Year 2000 issues. The Company is in the process of remediating the affected
systems identified in the assessment by modifying or replacing portions of its
software and hardware so that these computer systems will function properly with
respect to dates in the year 2000 and thereafter. In addition, the Company is
currently assessing Year 2000 issues related to its non-information technology
systems used in product development, engineering, manufacturing, and facilities.
The Company anticipates these assessments will be completed no later than the
first quarter of 1999.(1)
The Company is also working with its significant suppliers and financial
institutions to ensure that those parties have appropriate plans to remediate
Year 2000 issues where their systems interface with the Company's systems or
otherwise impact its operations. The Company has communicated in writing or in
person with all of its principal suppliers to confirm their status in regards to
Year 2000 issues. The Company is assessing the extent to which its operations
are vulnerable should those organizations fail to properly remediate their
computer systems.
26
<PAGE>
The Company will also be communicating with its dealers and distributors
regarding their potential Year 2000 issues. The Company does not anticipate that
potential Year 2000 issues at its dealers and distributors would have a material
adverse effect on its ability to deliver its products and services to its
dealers and ultimately to its customers.(1)
The Company's Year 2000 initiative is well under way and, based on the results
of its assessment to date, is expected to be complete by mid-1999 .(1) While the
Company believes its planning efforts are adequate to address its Year 2000
concerns, there can be no assurance that the systems of other companies on which
the Company's systems and operations rely will be converted on a timely basis
and will not have a material adverse effect on the Company. However, based on
the progress the Company has made on its internal initiative and the information
available from third parties, the Company has not identified a need to develop
an extensive contingency plan for non-remediation issues at this time. The need
for such a plan is evaluated on an on-going basis as part of the Company's
overall Year 2000 initiative.
Based on the Company's assessments to date, the costs of the Year 2000
initiative (which are expensed as incurred) are estimated to be approximately
$11 million.(1) Approximately $4.5 million of Year 2000 expense has been
incurred in 1998 and $6.5 million since the initiative began in 1997.
The costs of the project and the date on which the Company believes it will
complete its Year 2000 initiative are forward-looking statements and are based
on management's best estimates, according to information available through the
Company's assessments to date. However, there can be no assurance that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the retention of these professionals, the ability to locate and
correct all relevant computer codes, and similar uncertainties. At present the
Company has not experienced any significant problems in these areas.
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 soil and 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.(1) 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 have not been 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 that has the sole purpose of meeting
environmental compliance obligations. During 1998, the Company spent
approximately $1 million on equipment used to limit hazardous
substances/pollutants, and the Company anticipates approximately the same level
of spending in 1999. The Company does not expect that these expenditures related
to environmental matters will have a material effect on future operating results
or cash flows.(1)
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's main source of liquidity is cash from operating activities which
consists of net income adjusted for non-cash operating activities and changes in
other current assets and liabilities. The Company generated $318.1 million of
cash from operating activities during 1998 compared to $309.7 million in 1997.
The net increase over prior year consists primarily of an increase in net income
adjusted for depreciation and credit loss provisions partially offset by changes
in working capital. Net income adjusted for depreciation and credit loss
provisions contributed $311.3 million in 1998 compared to $250.8 million in
1997.
Accounts receivable increased $8.6 million in 1998 and decreased $38.5 million
in 1997. Effective September 1, 1997, Eaglemark became responsible for all
credit and collection activities for the Motorcycles segment's domestic dealer
accounts receivable, and as a result domestic dealer accounts receivable have
been classified as finance receivables since September 1, 1997. The decrease in
accounts receivable in 1997 includes the initial transfer of domestic dealer
accounts receivable to finance receivables, while the increase in 1998
represents the normal change in non-domestic dealer accounts receivable. As a
result of the initial transfer of accounts receivable to finance receivables,
the 1997 cash from operating activities was approximately $60 million higher,
offset by lower cash from investing activities in the same amount.
The Company's inventories increased $33.9 million during 1998, compared to $16.1
million in 1997. The higher inventory is primarily related to (i) higher parts
and accessories inventory in connection with the growth in that business, and
(ii) additional raw material and work in process inventories on hand, in
connection with the ramp up of two new production facilities and the acquisition
of Buell Motorcycle Company, in February 1998.
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.
Capital expenditures amounted to approximately $183 million and $186 million
during 1998 and 1997, respectively. For the past several years, the Company
has been implementing a manufacturing strategy to, among other things,
increase its motorcycle production capacity. In the past two years this
strategy included expansion in and near the Company's existing facilities,
construction of a new manufacturing facility in Kansas City, Missouri, the
addition of a new powertrain plant in the Milwaukee area, and reconfiguration
at the York, Pennsylvania facility in order to convert former
Sportster-Registered Trademark- production space into big-twin capacity.
Although the Company does not know the exact amount of capital expenditures
it will incur, it estimates the capital required in 1999 will be in the range
of $150-$170 million.(1) The Company plans to continue to increase its
motorcycle production to be able to sustain its annual double-digit growth
rate for units shipped. For 1999, the Company's production target is 167,000
Harley-Davidson-Registered Trademark-units shipped. (1) The Company
anticipates it will have the ability to fund all capital expenditures with
internally generated funds and short-term financing.(1)
The Company (excluding Eaglemark) currently has nominal levels of long-term debt
and has available lines of credit of approximately $44 million, of which
approximately $43 million remained available at year-end.
28
<PAGE>
Eaglemark finances its business through an unsecured commercial paper program,
revolving credit facilities, senior subordinated debt and asset-backed
securitizations. Eaglemark issues short-term commercial paper with maximum
issuance available of $600 million of which approximately $357 million was
outstanding at year-end. Maturities of commercial paper issued range from 1 to
270 days. Eaglemark has in place a $326.5 million 364-day revolving credit
facility with an option to increase to $350 million and a $250 million five-year
revolving credit facility of which approximately $40 million was outstanding at
December 31, 1998. The primary uses of the credit facilities are to provide
liquidity to the unsecured commercial paper program and to fund normal business
operations. Eaglemark has also issued $30 million of senior subordinated notes
which expire in 2007. During 1998, Eaglemark securitized and sold approximately
$450 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 subordinated debt, commercial
paper and securitization programs. The Company has a support agreement with
Eaglemark, whereby the Company agrees to provide Eaglemark with certain
financial support payments if required. The payments may be provided at the
Company's option either as a capital contribution or as a loan.
The Company has authorization from its Board of Directors to repurchase up to
4,700,000 shares of the Company's outstanding common stock. In addition, the
Company has continuing authorization from its Board of Directors to repurchase
shares of the Company's outstanding common stock under which the cumulative
number of shares repurchased, at the time of any repurchase, shall not exceed
the sum of (i) the number of shares issued in connection with the exercise of
stock options occurring on or after January 1, 1998 plus (ii) one percent of the
issued and outstanding common stock of the Company on January 1 of the current
year, adjusted for any stock split. In 1998, the Company repurchased 600,000
shares of its common stock under the latter authorization with cash on hand of
approximately $15 million.
The Company's Board of Directors declared quarterly cash dividends during 1998
and 1997 totaling $.155 and $.135 per share, respectively.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange and
interest rates. To reduce such risks, the Company selectively uses financial
instruments. All hedging transactions are authorized and executed pursuant to
regularly reviewed policies and procedures, which prohibit the use of financial
instruments for trading purposes. Sensitivity analysis is used to manage and
monitor foreign exchange and interest rate risk.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Summary of Significant Accounting Policies in the
notes to the consolidated financial statements, and further disclosure relating
to financial instruments is included in Note 11, Fair Value of Financial
Instruments.
The Company's earnings are affected by fluctuations in the value of the U.S.
dollar against foreign currencies, predominately in European countries and
Japan, as a result of the sales of its products in foreign markets. Forward
foreign exchange contracts are used to hedge against the earnings effects of
such fluctuations. At December 31, 1998 and 1997, these contracts represented a
combined U.S. dollar equivalent of approximately $118 million and $70 million,
respectively, and substantially all have maturities of less than one year. A
uniform 10% strengthening in the value of the dollar relative to the currencies
underlying these contracts would result in a foreign currency loss of
approximately $15 million and $7 million, at December 31, 1998 and 1997,
respectively. As noted above, the Company's policy prohibits the trading of
financial instruments for profit. It is important to note that the loss
indicated above would be offset by gains on receivables originating from the
firm commitments for the sale of products to foreign customers. In addition, the
Company's foreign currency exposure to the Japanese Yen is somewhat mitigated by
the existence of a natural hedge, which is sustained through offsetting Yen cash
inflows from sales, with Yen cash outflows for motorcycle component purchases
and other operating expenses.(1)
29
<PAGE>
Eaglemark's earnings are affected by changes in short-term interest rates as a
result of its borrowings under a bank credit facility and the issuance of
commercial paper. Eaglemark has entered into interest rate swap agreements to
reduce the impact of fluctuations in interest rates on its floating rate debt.
The differential to be paid or received under these agreements is recognized as
an adjustment to interest expense. Also, certain finance receivables of
Eaglemark carry a variable rate of interest tied to short-term rate indices
which will further limit the effect of interest rate changes. Based on 1998 and
1997 year-end balances, it is estimated that a 1% increase in short-term
interest rates would not have a material impact on interest expense or income
before taxes. This analysis does not take into effect other changes that might
occur in the economic environment as a whole due to such changes in short-term
interest rates.(1)
(1)NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company intends that certain matters discussed 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 by reference to this footnote or
because the context of the statement will include words such as the Company
"believes," "anticipates," "expects" or "estimates" or words of similar meaning.
Similarly, statements that describe the Company's future plans, objectives or
goals are also forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated as of the date of this report. Certain
of such risks and uncertainties are described in close proximity to such
statements or elsewhere in 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.
30
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, independent auditors 32
Consolidated statements of operations 33
Consolidated balance sheets 34
Consolidated statements of cash flows 35
Consolidated statements of shareholders' equity 36
Notes to consolidated financial statements 37
Supplementary data
Quarterly financial data (unaudited) 54
</TABLE>
31
<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, 1998 and 1997, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, 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.
Milwaukee, Wisconsin ERNST & YOUNG LLP
January 16, 1999
32
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- ----
<S> <C> <C> <C>
Net sales $2,063,956 $1,762,569 $1,531,227
Cost of goods sold 1,373,286 1,176,352 1,041,133
--------- ---------- ----------
Gross profit 690,670 586,217 490,094
Operating income from financial services 20,211 12,355 7,801
Selling, administrative and engineering (377,265) (328,569) (269,449)
---------- ---------- ----------
Income from operations 333,616 270,003 228,446
Interest income, net 3,828 7,871 3,309
Other, net (1,215) (1,572) (4,133)
---------- ----------- -----------
Income from continuing operations before
provision for income taxes 336,229 276,302 227,622
Provision for income taxes 122,729 102,232 84,213
--------- ---------- -----------
Income from continuing operations 213,500 174,070 143,409
Discontinued operations:
Gain on disposition of discontinued operations,
net of applicable income taxes - - 22,619
-------------- ------------- ----------
Net income $ 213,500 $ 174,070 $ 166,028
---------- ----------- -----------
---------- ----------- -----------
Basic earnings per common share:
Income from continuing operations $1.40 $1.15 $ .95
Income from discontinued operations - - .15
------- ------- ------
Net income $1.40 $1.15 $1.10
----- ----- -----
----- ----- -----
Diluted earnings per common share:
Income from continuing operations $1.38 $1.13 $ .94
Income from discontinued operations - - .15
------- ------- ------
Net income $1.38 $1.13 $1.09
----- ----- -----
----- ----- -----
Cash dividends per common share $.155 $.135 $ .11
----- ----- -----
----- ----- -----
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
33
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 165,170 $ 147,462
Accounts receivable, net 113,417 102,797
Finance receivables, net 360,341 293,329
Inventories 155,616 117,475
Deferred income taxes 29,076 24,941
Prepaid expenses 21,343 18,017
---------- -----------
Total current assets 844,963 704,021
Finance receivables, net 319,427 249,346
Property, plant, and equipment, net 627,759 528,869
Deferred income taxes - 3,001
Goodwill 51,197 38,707
Other assets 76,863 74,957
----------- -----------
$1,920,209 $1,598,901
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 122,722 $ 106,112
Accrued and other liabilities 199,051 164,938
Current portion of finance debt 146,742 90,638
---------- -----------
Total current liabilities 468,515 361,688
Finance debt 280,000 280,000
Long-term liabilities 67,376 62,131
Postretirement health care benefits 72,083 68,414
Deferred income taxes 2,324 -
Commitments and contingencies (Note 7)
Shareholders' equity:
Series A Junior Participating preferred stock, none issued - -
Common stock, 158,405,584 and 157,241,441 shares issued
in 1998 and 1997, respectively 1,584 1,572
Additional paid-in capital 211,960 187,180
Retained earnings 873,171 683,824
Accumulated other comprehensive income (loss) 1,128 (2,835)
----------- -----------
1,087,843 869,741
Less:
Treasury stock (5,473,969 and 4,916,488 shares in 1998
and 1997, respectively), at cost (57,133) (41,959)
Unearned compensation (799) (1,114)
----------- -----------
Total shareholders' equity 1,029,911 826,668
--------- ----------
$1,920,209 $1,598,901
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
34
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 213,500 $ 174,070 $ 166,028
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 87,422 70,178 55,282
Provision for credit losses 10,338 6,547 1,382
Gain on disposition of discontinued operations - - (22,619)
Deferred income taxes 1,190 2,748 (8,470)
Long-term employee benefits 5,302 1,275 7,089
Equity in net (income) loss of joint ventures (27) 1,290 3,486
Other 3,207 476 3,419
Net change in discontinued operations - - 28,862
Net changes in other current assets and current
liabilities (2,870) 53,151 (6,180)
-------- -------- ---------
Total adjustments 104,562 135,665 62,251
-------- -------- ---------
Net cash provided by operating activities 318,062 309,735 228,279
Cash flows from investing activities:
Net capital expenditures (182,770) (186,171) (178,771)
Investment in joint venture (2,290) (1,526) (8,778)
Finance receivables acquired or originated (2,722,768) (1,618,307) (1,086,949)
Finance receivables collected 2,105,684 1,107,157 722,825
Finance receivables sold 469,653 300,000 238,114
Proceeds from disposition of discontinued operations - - 100,313
Other, net (7,662) (7,663) (519)
-------- -------- ---------
Net cash used in investing activities (340,153) (406,510) (213,765)
Cash flows from financing activities:
Net decrease in notes payable (773) (2,580) (111)
Net increase in finance debt 56,104 112,573 93,735
Dividends paid (24,153) (21,028) (17,143)
Repurchase of common stock (15,175) - -
Issuance of stock under employee stock plans 23,796 12,793 20,022
-------- -------- ---------
Net cash provided by financing activities 39,799 101,758 96,503
-------- -------- ---------
Net increase in cash and cash equivalents 17,708 4,983 111,017
Cash and cash equivalents:
At beginning of year 147,462 142,479 31,462
-------- -------- ---------
At end of year $ 165,170 $ 147,462 $ 142,479
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
35
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Stock other comp-
---------------------- Additional rehensive
Issued paid-in Retained income
Shares Balance Capital Earnings (Loss)
------ ------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 154,713,376 $ 1,547 $ 153,759 $ 381,897 $ 593
Comprehensive income:
Net income -- -- -- 166,028 --
Other comprehensive loss -
Foreign currency translation
adjustment, net of taxes of $680 -- -- -- -- (1,159)
Comprehensive income
Dividends -- -- -- (17,143) --
Nonvested stock issuance -- -- 574 -- --
Amortization of unearned compensation,
net of cancellations -- -- -- -- --
Exercise of stock options 1,538,806 15 12,204 -- --
Tax benefit of nonvested shares and
stock options -- -- 7,834 -- --
- ----------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 156,252,182 1,562 174,371 530,782 (566)
Comprehensive income:
Net income -- -- -- 174,070 --
Other comprehensive loss -
Foreign currency translation
adjustment, net of taxes of $1,332 -- -- -- -- (2,269)
Comprehensive income
Dividends -- -- -- (21,028) --
Amortization of unearned compensation,
net of cancellations -- -- -- -- --
Exercise of stock options 989,259 10 6,433 -- --
Tax benefit of nonvested shares and
stock options -- -- 6,376 -- --
- ----------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 157,241,441 1,572 187,180 683,824 (2,835)
Comprehensive income:
Net income -- -- -- 213,500 --
Other comprehensive income -
Foreign currency translation
adjustment, net of taxes of ($2,278) -- -- -- -- 3,963
Comprehensive income
Dividends -- -- -- (24,153) --
Repurchase of common stock -- -- -- -- --
Acquisition of Buell Motorcycle Company -- -- 996 -- --
Amortization of unearned compensation -- -- -- -- --
Exercise of stock options 1,164,143 12 11,121 -- --
Tax benefit of stock options -- -- 12,663 -- --
Balance December 31, 1998 158,405,584 $ 1,584 $ 211,960 $ 873,171 $ 1,128
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Unearned
Treasury comp-
Stock ensation Total
----- -------- -----
<S> <C> <C> <C>
Balance December 31, 1995 $ (41,903) $ (1,324) $ 494,569
Comprehensive income:
Net income -- -- 166,028
Other comprehensive loss -
Foreign currency translation
adjustment, net of taxes of $680 -- -- (1,159)
-----------
Comprehensive income 164,869
Dividends -- -- (17,143)
Nonvested stock issuance 1 (575) --
Amortization of unearned compensation,
net of cancellations (31) 403 372
Exercise of stock options -- -- 12,219
Tax benefit of nonvested shares and
stock options -- -- 7,834
- ------------------------------------------------------------------------------------------
Balance December 31, 1996 (41,933) (1,496) 662,720
Comprehensive income:
Net income -- -- 174,070
Other comprehensive loss -
Foreign currency translation
adjustment, net of taxes of $1,332 -- -- (2,269)
-----------
Comprehensive income 171,801
Dividends -- -- (21,028)
Amortization of unearned compensation,
net of cancellations (26) 382 356
Exercise of stock options -- -- 6,443
Tax benefit of nonvested shares and
stock options -- -- 6,376
- ------------------------------------------------------------------------------------------
Balance December 31, 1997 (41,959) (1,114) 826,668
Comprehensive income:
Net income -- -- 213,500
Other comprehensive income -
Foreign currency translation
adjustment, net of taxes of ($2,278) -- -- 3,963
-----------
Comprehensive income 217,463
Dividends -- -- (24,153)
Repurchase of common stock (15,175) -- (15,175)
Acquisition of Buell Motorcycle Company 1 -- 997
Amortization of unearned compensation -- 315 315
Exercise of stock options -- -- 11,133
Tax benefit of stock options -- -- 12,663
- ------------------------------------------------------------------------------------------
Balance December 31, 1998 $ (57,133) $ (799) $ 1,029,911
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
36
<PAGE>
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1998
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 subsidiaries (the Company), including the accounts of Harley-Davidson
Motor Company (HDMC), Buell Motorcycle Company (BMC), Eaglemark Financial
Services, Inc. (Eaglemark) and Holiday Rambler LLC (Holiday Rambler).
The Company operates in two principal business segments: Motorcycles and
Related Products (Motorcycles) and Financial Services. As disclosed in Note
3, the operations of Holiday Rambler are classified as discontinued
operations. All intercompany accounts and transactions are eliminated, with
the exception of certain intersegment transactions occurring between the
Motorcycle and Financial Services segments. The uneliminated intersegment
transactions which occur between HDMC and Eaglemark relate to interest and
fees on wholesale finance receivables; see further discussion of these items
in Note 4.
The Company has investments which are accounted for using the equity method.
Accordingly, the Company's share of the net earnings (losses) from these
entities 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 to be
cash equivalents.
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 management believes is
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 at
120 days contractually past due.
RETAIL INSTALLMENT LOANS SOLD WITH LIMITED RECOURSE; SECURITIZATION AND
SERVICING INCOME - During 1998, 1997 and 1996, Eaglemark securitized and sold
approximately $450 million, $300 million and $238 million, respectively, of
its retail installment loans through securitization transactions. Eaglemark
retained limited recourse and also the servicing rights to these contracts.
Eaglemark recognizes a gain for the difference between the carrying value of
the receivables sold 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 adopted 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 had an immaterial effect.
37
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES - Inventories are valued at the lower of cost or market.
Substantially all inventories located in the United States are valued using
the last-in, first-out (LIFO) method. Other inventories totaling $43.7
million in 1998 and $33.3 million in 1997, 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 1998, 1997 and 1996, the Company incurred approximately $8.5
million, $19.3 million and $7.3 million in start-up costs, respectively.
PRODUCT WARRANTY - Product warranty costs are charged to operations based
upon the estimated warranty cost per unit sold.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company uses forward foreign exchange
contracts to mitigate the risk that cash flows resulting from the Company's
firm commitments for the sale of products to foreign customers will be
adversely affected by changes in exchange rates. Realized and unrealized
gains and losses on forward foreign exchange contracts resulting from changes
in the spot exchange rate are deferred and recognized at the time the hedged
transaction is settled.
Eaglemark enters into interest rate cap and swap agreements to reduce the
impact of fluctuations in interest rates on its floating rate debt.
Eaglemark's credit risk is the amount of uncollected interest related to
these agreements. The differential to be paid or received under these
agreements is recognized as an adjustment to interest expense. The
unamortized cost of the interest rate cap agreements is included in other
assets. The fair values of interest rate cap agreements and forward foreign
currency contracts are discussed in Note 11.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses were
approximately $58.7 million, $53.3 million, and $37.7 million for 1998, 1997
and 1996, respectively.
COMPREHENSIVE INCOME - The Company adopted Statement 130, "Reporting
Comprehensive Income," effective January 1, 1998. Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, adoption in 1998 had no impact on the Company's net
income or shareholder's equity. Statement 130 requires foreign currency
translation adjustments to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of Statement 130.
INTERNAL-USE SOFTWARE - Effective January 1, 1998, the Company adopted
Statement of Position (SOP) 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." The SOP requires the Company to
capitalize certain costs incurred in connection with developing or obtaining
internal-use software. Approximately $9.1 million of costs associated with
internal-use software were capitalized during 1998. Had the Company adopted
the SOP in 1997, approximately $9.0 million of costs would have been
capitalized.
GOODWILL - Goodwill represents the excess of the acquisition cost over the
fair value of the net assets purchased. Goodwill is amortized on a
straight-line basis over a 15-20 year period.
RECLASSIFICATIONS - Certain prior year balances have been reclassified in
order to conform to current-year presentation.
38
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND FOR HEDGING ACTIVITIES - In June
1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and for Hedging Activities," which is
required to be adopted by the Company effective January 1, 2000; earlier
adoption is also permitted. The statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value will either be offset against the change in fair value of hedged
assets, liabilities or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a hedge's change in fair value will be immediately
recognized in earnings. Based on the information available at this time, the
adoption of this statement is not expected to have a material impact on the
Company's financial statements.
2. ADDITIONAL BALANCE SHEET AND CASH FLOWS INFORMATION
Balance sheet information is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Accounts receivable:
Domestic $ 17,328 $ 15,189
Foreign 96,089 87,608
-------- --------
$113,417 $102,797
-------- --------
-------- --------
</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 or floor planned by the purchasing dealers.
Effective September 1, 1997, Eaglemark became responsible for all credit and
collection activities for the Motorcycles segment's domestic dealer
receivables. As such, approximately $98 million and $69 million of accounts
receivable are classified as finance receivables as of December 31, 1998 and
1997, respectively. Finance receivables representing wholesale motorcycle and
parts and accessories receivables and retail finance receivables with
maturities of less than one year have been classified as current (See Note
4).
The allowance for doubtful accounts deducted from accounts receivable was
$1.9 million and $1.5 million at December 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Inventories:
Components at the lower of FIFO cost or market:
Raw materials and work in process $ 55,336 $ 37,597
Finished goods 27,295 26,756
Parts and accessories 93,710 75,735
-------- --------
176,341 140,088
Excess of FIFO over LIFO cost 20,725 22,613
-------- --------
$155,616 $117,475
-------- --------
-------- --------
</TABLE>
39
<PAGE>
2. ADDITIONAL BALANCE SHEET AND CASH FLOWS INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Property, plant and equipment, at cost:
Land and land improvements $ 12,633 $ 10,448
Buildings and improvements 213,058 148,694
Machinery and equipment 699,362 542,486
Construction in progress 151,328 189,832
---------- --------
1,076,381 891,460
Less accumulated depreciation 448,622 362,591
---------- --------
$ 627,759 $528,869
---------- --------
---------- --------
Accrued and other liabilities:
Payroll, performance incentives, and related expenses $ 75,507 $ 69,337
Warranty/recalls 13,853 9,384
Dealer incentive programs 35,302 29,220
Product liability 5,040 7,229
Income taxes payable 33,502 15,767
Other 35,847 34,001
---------- --------
$199,051 $164,938
</TABLE>
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net changes in other current assets and current liabilities:
Accounts receivable $(8,606) $38,518 $(12,360)
Inventories (33,888) (16,089) (16,959)
Prepaid expenses (3,295) 125 (7,356)
Accounts payable and accrued liabilities 42,919 30,597 30,495
------ ------- --------
$(2,870) $53,151 $ (6,180)
------ ------- --------
------ ------- --------
Cash paid during the period for interest and income taxes is as follows
(in thousands):
Interest $23,795 $17,355 $ 14,400
-------- ------- --------
-------- ------- --------
Income taxes $89,493 $86,773 $ 71,029
-------- ------- --------
-------- ------- --------
</TABLE>
Of the interest paid in 1997 and 1996, approximately $3.5 million and $2.1
million was capitalized, respectively. No interest was capitalized in 1998.
Interest paid includes the interest payments of Eaglemark for which the
related expense is classified as part of operating income from financial
services.
40
<PAGE>
3. BUSINESS ACQUISITION AND DISCONTINUED OPERATIONS
In February 1998, the Company acquired substantially all of the remaining
common stock of Buell Motorcycle Company, a company in which it held a 49%
interest since 1993. The acquisition was a stock-for-stock transaction
accounted for as a purchase in which 37,640 shares of the Company's common
stock (valued at approximately $1 million) were exchanged for the BMC
interest. Prior to the acquisition, the Company accounted for its investment
in BMC using the equity method. Pro forma financial information would not be
materially different from the financial statements as reported and as a
result has not been presented.
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. Included in the 1996 gain on disposition of discontinued
operations is a net tax benefit of $2.0 million, including benefits related
to the Company's 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 in 1996.
4. EAGLEMARK FINANCIAL SERVICES, INC.
Eaglemark is a wholly owned subsidiary of the Company which provides
wholesale and retail financing to the Company's participating dealers and
customers. In addition, Eaglemark provides motorcycle insurance and extended
service contracts through a group of unaffiliated insurance underwriters. In
1998, Eaglemark also established a credit card program available to customers
in the United States. The condensed statements of operations relating to the
Financial Services segment are presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Interest income $ 65,203 $42,118 $31,520
Other income 37,719 24,880 14,990
-------- ------- -------
Total income 102,922 66,998 46,510
Interest expense 24,008 17,764 13,012
Allowance for credit losses 10,338 6,547 1,382
Operating expenses 48,365 30,332 24,315
------- ------- -------
Total expenses 82,711 54,643 38,709
------- ------- -------
Operating income from financial services $20,211 $12,355 $ 7,801
------- ------- -------
------- ------- -------
</TABLE>
Certain transactions between the Motorcycles and Financial Services segments
are not eliminated and are reflected in the condensed statements of
operations, above. Included in interest income is approximately $5.3 million,
$4.7 million and $5.5 million of interest on wholesale finance receivables
paid by HDMC to Eaglemark in 1998, 1997, and 1996, respectively. Included in
other income is approximately $1.3 million and $.5 million of fees HDMC paid
to Eaglemark for credit and collection activities on domestic receivables
purchased from HDMC during 1998 and 1997, respectively. The offsetting
transactions recorded by HDMC are included in selling, administrative and
engineering in the consolidated statement of operations.
41
<PAGE>
4. EAGLEMARK FINANCIAL SERVICES, INC (CONTINUED)
Finance receivables, included in the current and non-current sections of the
consolidated balance sheets, originated or purchased by Eaglemark and owned
at December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
Wholesale $295,138 $243,765
Retail 342,420 268,893
Investment in retained securitization interests 52,188 36,884
-------- --------
689,746 549,542
Allowance for credit losses 9,978 6,867
--------- ----------
$679,768 $542,675
-------- --------
-------- --------
</TABLE>
Eaglemark's finance receivables include wholesale loans to dealers that are
generally secured by the inventory being financed, retail loans to consumers
in the form of installment sales contracts and revolving charge receivables.
Eaglemark holds titles to vehicles financed, and all 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, watercraft and revolving charges. On
December 31, 1998, contractual maturities of finance receivables were as
follows (in thousands):
<TABLE>
<S> <C>
1999 $360,341
2000 46,139
2001 39,243
2002 35,699
2003 34,999
Thereafter 173,325
-------
Total $689,746
--------
--------
</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, are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at beginning of year $ 6,867 $4,133
Provision 10,338 6,547
Charge-offs (7,227) (3,813)
------ -----
Balance at end of year $9,978 $6,867
------ ------
------ ------
</TABLE>
Eaglemark serviced with limited recourse $611.6 million and $405.6 million of
retail installment loans as of December 31, 1998 and 1997, respectively.
Eaglemark's debt as of December 31, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commercial paper $356,677 $306,677
Revolving credit facility 40,065 33,961
Senior subordinated notes 30,000 30,000
--------- ---------
Total finance debt $426,742 $370,638
--------- ---------
--------- ---------
</TABLE>
42
<PAGE>
4. EAGLEMARK FINANCIAL SERVICES, INC (CONTINUED)
During 1997, Eaglemark established a $500 million unsecured commercial paper
program operating under the name Harley-Davidson Funding Corp., replacing a
$175 million asset-backed commercial paper program. In November 1998, the
program size was increased to $600 million. Maturities under the unsecured
commercial paper program can range up to 270 days from the issuance date.
Commercial paper outstanding under the program cannot exceed the liquidity
support provided by the unused portion of the Credit Facilities noted below.
The weighted average interest rate on outstanding commercial paper balances
was 5.28% and 6.08% at December 31, 1998 and 1997, respectively.
Eaglemark entered into new bank credit facilities ("Credit Facilities")
during 1997 consisting of a $250 million 364-day revolving facility and a
$250 million five-year revolving facility provided by a group of financial
institutions, replacing a $150 million facility, which expired in 1997. In
November 1998, the Credit Facilities were amended to increase the 364-day
facility to $326.5 million, with an option to increase to a maximum of $350
million. The weighted average interest under the Credit Facilities was 5.87%
and 4.50% at December 31, 1998 and 1997, respectively. Eaglemark has the
option to borrow in various currencies up to set dollar amounts. Interest is
based on LIBOR or other short-term rate indices, depending on the type of
advance.
In December 1997, Eaglemark issued $30 million of 6.79% senior subordinated
notes due December 18, 2007. The notes provide for semi-annual interest
payments, with no principal payments due until final maturity. Eaglemark is
required to comply with various operating and financial covenants.
Long-term finance debt included on the balance sheet consists of the $250
million five-year revolving credit facility and the $30 million of senior
subordinated notes at December 31, 1998. The full amount of the five-year
credit facility has been excluded from current liabilities because the
Company intends that at least that amount would remain outstanding for an
uninterrupted period extending beyond one year from the balance sheet date.
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 payments may be provided at the Company's
option either as a capital contribution or as a loan.
5. NOTES PAYABLE
As of December 31, 1998 and 1997, the Company had unsecured lines of credit
totaling approximately $43.9 million and $42.7 million, respectively, of
which approximately $43.6 million and $40.8 million, respectively, remained
available.
43
<PAGE>
6. INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 99,567 $ 85,237 $73,537
State 13,325 9,612 10,524
Foreign 8,647 4,634 6,254
-------- --------- -------
121,539 99,483 90,315
Deferred:
Federal 979 85 (5,005)
State 282 2,215 (667)
Foreign (71) 449 (430)
-------- --------- -------
1,190 2,749 (6,102)
--------- --------- -------
Total $122,729 $102,232 $84,213
--------- --------- -------
--------- --------- -------
</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>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Provision at statutory rate 35.0% 35.0% 35.0%
Foreign income taxes .8 .7 1.0
Foreign tax credits (.8) (.7) (1.0)
State taxes, net of federal benefit 2.9 2.9 2.9
Foreign sales corporation (.7) (1.1) (1.3)
Other (.7) .2 .4
----- ----- -----
Provision for income taxes 36.5% 37.0% 37.0%
----- ----- -----
----- ----- -----
</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>
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accruals not yet tax deductible $35,192 $30,034
Postretirement health care benefit obligation 30,212 28,756
Other, net 502 -
--------- ---------
65,906 58,790
Deferred tax liabilities:
Depreciation, tax in excess of book (24,392) (18,730)
Inventory adjustments - (1,116)
Pension obligation (4,198) (2,830)
Other, net (10,564) (8,172)
------- -------
(39,154) (30,848)
------- -------
Net deferred tax asset $26,752 $27,942
------- -------
------- -------
</TABLE>
44
<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 performed 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 per occurrence ($3.0 million between June
1995 and June 1996). Catastrophic coverage is maintained for occurrences in
excess of $2.5 million ($3.0 million between June 1995 and June 1996) up to
$100 million ($25 million between June 1995 and June 1998). 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 losses up to $100 million ($25 million before June 1998) per
occurrence and in the aggregate. The Company accrues for claim exposures
which are probable of occurrence and can be reasonably estimated.
At December 31, 1998, the Company was contingently liable for $13.3 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.
45
<PAGE>
8. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS
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.
<TABLE>
<CAPTION>
Qualified
Pension Benefits Other Benefits
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of year $201,643 $176,619 $52,892 $49,289
Service cost 9,244 7,770 2,438 1,990
Interest cost 16,480 14,861 4,261 3,967
Amendments - 7,403 - 17
Actuarial (gains) losses 15,710 (137) 3,726 (81)
Plan participant's contributions 3,218 2,643 - -
Benefits paid (8,130) (7,516) (2,375) (2,290)
-------- -------- ------ ------
Benefit obligation, September 30 238,165 201,643 60,942 52,892
Change in plan assets:
Fair value of plan assets, beginning of year 180,640 137,914 - -
Actual return on plan assets (1,897) 36,075 - -
Company contributions 13,374 11,524 2,375 2,290
Plan participant contributions 3,218 2,643 - -
Benefits paid (8,130) (7,516) (2,375) (2,290)
-------- -------- ------ ------
Fair value of plan assets, September 30 187,205 180,640 - -
Funded status of the plans:
Benefit obligation over plan assets 50,960 21,003 60,942 52,892
Unrecognized transition asset 467 815 - -
Unrecognized prior service cost (20,582) (22,670) 1,888 2,126
Unrecognized net gain (loss) (33,192) 1,129 9,739 14,089
------- ------- ------- --------
(Prepaid) accrued benefit cost, September 30 (2,347) 277 72,569 69,107
Fourth quarter contributions (709) (773) (486) (693)
----------- -------- -------- --------
(Prepaid) accrued benefit cost, December 31 $ (3,056) $ (496) $72,083 $68,414
----------- --------- -------- --------
----------- --------- -------- --------
Amounts recognized in the Statement of Financial Position, December 31:
Accrued benefit liability $ 13,757 $ 191 $72,083 $68,414
Prepaid benefit cost - (687) - -
Intangible asset (16,813) - - -
----------- --------- -------- --------
Net amount recognized $ (3,056) $ (496) $72,083 $68,414
----------- --------- -------- --------
----------- --------- -------- --------
</TABLE>
Amounts applicable to the Company's pension plan(s) with accumulated benefit
obligations in excess of plan assets (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Projected benefit obligation $144,472 $71,567
Accumulated benefit obligation $131,004 $66,818
Fair value of plan assets $117,586 $66,319
</TABLE>
The projected benefit obligation exceeds the fair value of plan assets for
all plans at September 30, 1997 and 1998. The pension plans' funded status at
September 30, 1998 reflects the impact of the short-term decline of the
plans' investments in U.S. equity markets experienced during the third
quarter of 1998. The fair value of the plans' assets at June 30, 1998 and
December 31, 1998 were approximately $207 million and $223 million,
respectively.
46
<PAGE>
8. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
Qualified
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 9,244 $ 7,770 $ 6,243 $2,438 $1,990 $2,036
Interest cost 16,480 14,861 12,540 4,261 3,967 3,524
Expected return on plan assets (16,864) (14,052) (12,222) - - -
Amortization of unrecognized:
Net transition asset (349) (349) (349) - - -
Prior service cost 2,088 1,912 1,132 (238) (239) (239)
Net (gain) loss 151 509 772 (624) (602) (826)
------- ------- -------- ------- ------- -------
Net periodic benefit cost $10,750 $10,651 $ 8,116 $5,837 $5,116 $4,495
------- ------- -------- ------- ------- -------
------- ------- -------- ------- ------- -------
Weighted-average assumptions as of
September 30:
Discount rate 8.0% 8.3% 8.3% 8.0% 8.3% 8.3%
Expected return on plan assets 10.3% 10.3% 10.3% n/a n/a n/a
Rate of compensation increase 5.0% 5.0% 5.0% n/a n/a n/a
</TABLE>
Included in the pension plan assets are 636,796 and 453,906 shares of the
Company's common stock at December 31, 1998 and 1997, respectively. The
market value of these shares at December 31, 1998 and 1997 was $30.2 million
and $12.3 million, respectively. Dividends paid on shares of the Company's
stock were approximately $99,000 and $61,000 during 1998 and 1997,
respectively.
Certain of the Company's pension plans relating to hourly and salaried
employees have been 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 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. Some of the plans require
employee contributions to offset benefit costs.
The weighted average health care cost trend rate used in determining the
accumulated postretirement benefit obligation of the health care plans was 7%
in 1998. 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. A one-percentage-point
change in the assumed health care cost trend rate would have the following
effects (in thousands):
<TABLE>
<CAPTION>
1-Percent 1-Percent
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost
components in 1998 $1,000 $ (826)
Effect on postretirement benefit obligation
as of December 31, 1998 $6,541 $(5,836)
</TABLE>
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 $2.9
million, $2.9 million and $2.0 million for matching contributions during
1998, 1997 and 1996, respectively.
47
<PAGE>
8. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The Company also has unfunded supplemental executive retirement plan (SERP)
agreements with certain executive officers. The plan was instituted to
replace benefits lost under the Tax Revenue Reconciliation Act of 1993. The
Company has recorded a net liability of $7.2 million and $4.8 million for the
SERP at December 31, 1998 and 1997, respectively.
9. CAPITAL STOCK
The Company has 400 million authorized shares of $.01 par value common stock.
On August 20, 1997, the Company's Board of Directors declared a two-for-one
stock split for shareholders of record on September 12, 1997, payable on
September 26, 1997. Stock option agreements have been adjusted to reflect the
split. An amount equal to the par value of the shares issued has been
transferred from additional paid-in capital to the common stock account. All
references to number of shares have been adjusted to reflect the stock split
on a retroactive basis.
The Board of Directors authorized the Company to repurchase up to 8 million
shares of the Company's outstanding common stock. During 1995, the Company
repurchased 3,300,000 shares of its common stock with cash on hand and
short-term borrowings. As a result, the Company has 4,700,000 shares
available to repurchase under this authorization.
In addition, the Company has continuing authorization from its Board of
Directors to repurchase shares of the Company's outstanding common stock
under which the cumulative number of shares repurchased, at the time of any
repurchase, shall not exceed the sum of (1) the number of shares issued in
connection with the exercise of stock options occurring on or after January
1, 1998 plus (2) one percent of the issued and outstanding common stock of
the Company on January 1 of the current year, adjusted for any stock split.
During 1998, the Company repurchased 600,000 shares of its common stock, with
cash on hand, 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 800 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 eight 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-eighth 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 nonvested 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 nonvested stock upon death, disability or retirement as
described in the plan.
48
<PAGE>
9. CAPITAL STOCK (CONTINUED)
Unearned compensation was charged for the market value of the nonvested
shares on the date of grant and is being amortized over the restricted
period. The unamortized unearned compensation value is shown as a reduction
of shareholders' equity in the accompanying consolidated balance sheets.
Information with respect to nonvested stock outstanding is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year at
$2.37 to $17.53 per share 152,800 167,800 203,400
Nonvested shares granted at
$11.53 to $17.53 - - 32,800
Nonvested shares vested at
$2.37 to $13.47 per share - (15,000) (68,400)
------- ------- -------
Total shares outstanding at end of year at
$11.53 to $17.53 per share 152,800 152,800 167,800
------- ------- -------
------- ------- -------
Weighted-average fair value of
shares granted during the year N/A N/A $17.53
--- ---- ------
--- ---- ------
</TABLE>
Expense in 1998, 1997 and 1996 associated with this nonvested stock plan was
$.3 million, $.4 million, and $.4 million, respectively.
The Company has a Stock Option Plan 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 following three 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 4.7 million and 5.6 million
at December 31, 1998 and 1997, respectively.
The following table summarizes the transactions of the Company's Stock Option
Plan for the three-year period ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------- ---------------------------------------- -------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price Options
<S> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 6,242,401 12.23 6,398,292 $10.04 7,100,166
Options granted 1,030,061 29.26 1,058,178 20.86 1,097,080
Options exercised (1,164,143) 8.04 (989,259) 6.51 (1,538,806)
Options cancelled (54,516) 21.18 (224,810) 15.88 (260,148)
---------- --------- ---------
Options outstanding at
end of year 6,053,803 15.86 6,242,401 12.23 6,398,292
---------- --------- ---------
Weighted-average fair value
of options granted during
the year $11.28 $8.13 $ 7.13
------ ----- ------
------ ----- ------
Number of options exercisable
at end of year 3,523,630 $10.85 3,653,421 $ 8.45 3,649,876
--------- ------ --------- ------ ---------
--------- ------ --------- ------ ---------
</TABLE>
49
<PAGE>
9. CAPITAL STOCK (CONTINUED)
Options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
1998
-------------------------------
Weighted Average
Options Exercise Price
<S> <C> <C>
Price range $2.30 to $10;
weighted-average contractual
life of 2.7 years 1,499,596 $ 5.47
Price range $10.01 to $20;
weighted-average contractual
life of 6.2 years 2,566,059 $14.71
Price range $20.01 to $30;
weighted-average contractual
life of 8.6 years 1,942,166 $24.85
Price range $30.01 to $40;
weighted-average contractual
life of 9.3 years 24,900 $35.91
Price range $40.01 to $50;
weighted-average contractual
life of 9.9 years 21,082 $42.38
----------
6,053,803
----------
----------
</TABLE>
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., nonvested 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.
For purposes of pro forma disclosures under SFAS No. 123, the estimated fair
value of the options is amortized to expense over the options' vesting
period. The Company's pro forma information follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $207,857 $169,883 $162,733
Pro forma earnings per share:
Basic $1.37 $1.12 $1.08
Diluted 1.35 1.11 1.07
</TABLE>
In determining the effect of SFAS No. 123, the Black-Scholes option pricing
model was used with the following weighted-average assumptions for 1998, 1997
and 1996: risk-free interest rate of approximately 6%, 6% and 5%,
respectively; 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. Forfeitures are recognized as they occur. These
pro forma calculations only include the effects of grants made in 1995 and
thereafter.
50
<PAGE>
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share. All share and per share data have been adjusted to reflect the
stock split described in Note 9. (In thousands, except per share amounts).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NUMERATOR
Income from continuing operations
used in computing basic and
diluted earnings per share $213,500 $174,070 $143,409
-------- -------- --------
-------- -------- --------
DENOMINATOR
Denominator for basic earnings per share -
weighted-average common shares 152,227 151,650 150,683
Effect of dilutive securities - employee
stock options and nonvested stock 2,476 2,298 2,242
-------- -------- --------
Denominator for diluted earnings per share -
adjusted weighted-average shares 154,703 153,948 152,925
------- ------- -------
------- ------- -------
Basic earnings per share $1.40 $1.15 $.95
----- ----- ----
----- ----- ----
Diluted earnings per share $1.38 $1.13 $.94
----- ----- ----
----- ----- ----
</TABLE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, finance receivables, debt and forward foreign
exchange contracts. The book values of cash and cash equivalents, trade
receivables and finance receivables are considered to approximate their
respective fair values.
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 foreign exchange contracts to hedge against
sales transactions denominated in European currencies and Japanese Yen. At
December 31, 1998, the Company had forward foreign exchange contracts that
required it to convert these foreign currencies, at a variety of rates, into
U.S. Dollars. These contracts represent a combined U.S. dollar equivalent
commitment of approximately $118 million and $70 million at December 31, 1998
and 1997, respectively. Substantially all current contracts have maturities
of less than one year. Unrealized gains and losses on these forward foreign
exchange contracts, which were not material at December 31, 1998 or 1997, are
deferred and recognized at the time the hedged transaction is settled.
Eaglemark has interest rate cap and swap agreements to reduce the impact of
fluctuations in interest rates on its floating rate debt. Eaglemark had
approximately $63 million and $62 million in interest rate swaps outstanding
at December 31, 1998 and 1997, respectively. Eaglemark had approximately $20
million in interest rate caps outstanding at December 31, 1997, which expired
during 1998. The fair value of the caps and swaps, if Eaglemark were to
terminate the agreements, was not material at December 31, 1998 and 1997.
51
<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
Company's reportable segments are strategic business units that offer
different products and services. They are managed separately based on the
fundamental differences in their operations.
The Motorcycles and Related Products (Motorcycles) segment consists primarily
of the Company's wholly owned subsidiary, H-D Michigan, Inc., its wholly
owned subsidiary, Harley-Davidson Motor Company and Buell Motorcycle Company.
The Motorcycles segment designs, manufactures and sells primarily heavyweight
(engine displacement of 651+cc) touring, custom and sport 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, and in the Japanese market, which is a smaller market than the United
States.
The Financial Services segment consists of the Company's wholly owned
subsidiary, Eaglemark Financial Services, Inc. Eaglemark provides
motorcycle floor planning and parts and accessories financing to the
Company's participating North American and European dealers. Eaglemark
also offers retail financing opportunities to the Company's domestic
motorcycle customers. In addition, Eaglemark has established The
Harley-Davidson-Registered Trademark-Chrome VISA-Registered Trademark-
Card for customers in the United States. Eaglemark also provides property
and casualty insurance and extended service contracts for motorcycles
through a group of unaffiliated insurance underwriters. A smaller portion
of its customers are in other leisure products businesses.
The Company early adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective December 31, 1997. Adoption of
the Statement required the Company to change the disclosure of geographic
information but did not require significant changes in the way segments were
disclosed.
Information by industry segment is set forth below (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales:
Motorcycles and Related Products $2,063,956 $1,762,569 $1,531,227
Financial Services (1) n/a n/a n/a
---------- ---------- ----------
$2,063,956 $1,762,569 $1,531,227
---------- ---------- ----------
---------- ---------- ----------
Income from operations:
Motorcycles and Related Products $324,448 $265,486 $228,093
Financial Services (1) 20,211 12,355 7,801
General corporate expenses (11,043) (7,838) (7,448)
-------- --------- ---------
$333,616 $270,003 $228,446
-------- --------- ---------
-------- --------- ---------
</TABLE>
52
<PAGE>
12. BUSINESS SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
(a) Business segments (continued)
Information by industry segment is set forth below (in thousands):
<TABLE>
<CAPTION>
Motorcycles
and Related Financial
Products Services Corporate Consolidated
------------ -------- --------- ------------
<S> <C> <C> <C> <C>
1998
Identifiable assets $1,010,640 $743,585 $165,984 $1,920,209
Depreciation and amortization 80,663 6,488 271 87,422
Net capital expenditures 178,444 4,202 124 182,770
1997
Identifiable assets $856,779 $598,514 $143,608 $1,598,901
Depreciation and amortization 66,426 3,489 263 70,178
Net capital expenditures 183,194 2,834 143 186,171
1996
Identifiable assets $770,271 $387,666 $142,048 $1,299,985
Depreciation and amortization 51,657 3,367 258 55,282
Net capital expenditures 176,771 1,994 6 178,771
</TABLE>
(1) The results of operations for the financial services subsidiary are
included as operating income from financial
services in the statements of operations. See Note 4.
(b) Geographic information
Included in the consolidated financial statements are the following
amounts relating to geographic locations:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues (1):
United States $1,566,559 $1,304,748 $1,110,527
Canada 73,908 62,717 58,053
Germany 84,436 81,541 82,800
Japan 102,245 90,243 79,401
Other foreign countries 236,808 223,320 200,446
---------- ----------- -----------
$2,063,956 $1,762,569 $1,531,227
---------- ----------- -----------
---------- ----------- -----------
Long-lived assets (2):
United States $722,854 $607,363 $492,054
Other foreign countries 6,676 7,073 7,508
--------- --------- ---------
$729,530 $614,436 $499,562
--------- --------- ---------
--------- --------- ---------
</TABLE>
(1) Revenues are attributed to geographic regions based on location of customer.
(2) Long-lived assets include all long-term assets except those specifically
excluded under SFAS No. 131 such as deferred income taxes and financial
instruments, including finance receivables.
53
<PAGE>
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except per share data)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $466.5 $427.1 $517.2 $444.1 $517.2 $444.2 $563.1 $447.2
Gross profit 149.9 138.2 177.5 150.3 171.1 145.2 192.3 152.5
Net income 44.7 40.3 55.4 49.2 52.4 41.1 61.0 43.5
Earnings per common share
from continuing operations:
Basic .29 .27 .36 .32 .34 .27 .40 .29
Diluted .29 .26 .36 .32 .34 .27 .39 .28
</TABLE>
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 1999 annual meeting of shareholders, which will be filed
within 120 days after the close of the Company's fiscal year ended December 31,
1998 (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.
55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
[Item 14(a) 1 and 2]
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated statements of operations for each of the three years in the period ended
December 31, 1998 33
Consolidated balance sheets at December 31, 1998 and 1997 34
Consolidated statements of cash flows for each of the three years in the period ended
December 31, 1998 35
Consolidated statements of shareholders' equity for each of the three years
in the period ended December 31, 1998 36
Notes to consolidated financial statements 37
Consolidated financial statement schedules for each of the three years in the period
ended December 31, 1998
II - Valuation and qualifying accounts 59
</TABLE>
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.
56
<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
4.4 Amendments to Rights Agreement dated as of February 18, 1999
10.1* Form of Employment Agreement between the Registrant and each of
Messrs. Bleustein, Teerlink and Gray and Ms. Lione.
10.2* 1988 Stock Option Plan
10.3* 1990 Stock Option Plan
10.4* 1995 Stock Option Plan
10.5* 1998 Director Stock Plan
10.6* Form of Transition Agreement between the Registrant and each of
Messrs. Bleustein, Brostowitz, Gray, McCaslin, Teerlink, Werner,
Wilke and Ziemer and Ms. Lione.
10.7* Deferred Compensation Plan
10.8* Form of Life Insurance Agreement between the Registrant and each of
Messrs. Bleustein, Brostowitz, Gray, Hutchinson, McCaslin, Storm,
Teerlink, Werner, Wilke and Ziemer and Ms. Lione
10.9* Harley-Davidson, Inc. Corporate Short Term Incentive Plan, as
amended, subject to shareholder approval at the Company's 1999
Annual Meeting of Shareholders
10.10* Form of Restricted Stock Agreement between the Registrant and each
of Messrs. Bleustein, Gray and McCaslin
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated.
57
<PAGE>
LIST OF EXHIBITS
[Items 14(a)(3)and 14(c)]
EXHIBIT NO. DESCRIPTION
10.11* Form of Severance Benefits Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gray, Hutchinson, McCaslin,
Storm, Teerlink, Werner, Wilke and Ziemer and Ms. Lione
10.12* Form of Supplemental Executive Retirement Plan Agreement between
the Registrant and each of Messrs. Bleustein, Gray, Werner and
Teerlink
10.13* Harley-Davidson Pension Benefit Restoration Plan
10.14* Description of post-retirement life insurance equivalent
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule for 1998
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated.
58
<PAGE>
SCHEDULE II
HARLEY-DAVIDSON, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997 and 1996
(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:
1998 $1,548 $ 481 $ (163) $1,866
------ ------- ------- ------
1997 $1,918 $ 0 $ (370) $1,548
------ ------- ------- ------
1996 $1,541 $ 377 $ 0 $1,918
------ ------- ------- ------
Finance receivables Allowance for doubtful accounts:
1998 $6,867 $10,338 $(7,227) $9,978
------ ------- ------- ------
1997 $4,133 $ 6,547 $(3,813) $6,867
------ ------- ------- ------
1996 $3,359 $ 1,382 $ (608) $4,133
------ ------- ------- ------
Inventories -
Allowance for obsolescence
and loss (2):
1998 $3,758 $5,190 $ (647) $8,301
------ ------- ------- ------
1997 $4,634 $1,642 $ (2,518) $3,758
------ ------- ------- ------
1996 $2,232 $3,846 $ (1,444) $4,634
------ ------- ------- ------
</TABLE>
(1) Represents amounts written off to the reserve, net of recoveries.
(2) Stated in last-in, first-out (LIFO) cost.
59
<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 19,1999.
HARLEY-DAVIDSON, INC.
By:/s/ Jeffrey L. Bleustein
---------------------------------------
Jeffrey L. Bleustein
Chairman and 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 19, 1999.
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
/s/ Jeffrey L. Bleustein Chairman, Chief Executive Officer and Director
------------------------------ (Principal executive officer)
Jeffrey L. Bleustein
/s/ James L. Ziemer Vice-President and Chief Financial Officer
------------------------------ (Principal financial officer)
James L. Ziemer
/s/ James M. Brostowitz Vice-President/Controller and Treasurer
------------------------------ (Principal accounting officer)
James M. Brostowitz
/s/ Barry K. Allen Director
------------------------------
Barry K. Allen
/s/ Richard I. Beattie Director
------------------------------
Richard I. Beattie
/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
/s/ Richard F. Teerlink Director
------------------------------
Richard F. Teerlink
</TABLE>
60
<PAGE>
INDEX TO EXHIBITS
[Items 14(a)(3) and 14(c)]
EXHIBIT NO DESCRIPTION
3.1 Restated Articles of Incorporation
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
Registrant'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))
4.4 Amendment to Rights Agreement dated as of February 18, 1999
(incorporated by reference to Exhibit 4.4 to the Registrant's
Current Report on Form 8-K dated February 18, 1999 (File No.
1-9183))
10.1* Form of Employment Agreement between the Registrant and each of
Messrs. Bleustein, Teerlink and Gray and Ms. Lione (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. 1988 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, 1997 (File No. 1-9183)).
10.3* Harley-Davidson, Inc. 1990 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, 1997 (File No. 1-9183))
10.4* Harley-Davidson, Inc. 1995 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, 1997 (File No. 1-9183))
10.5* Harley-Davidson, Inc. 1998 Director Stock Plan (incorporated by
reference to Exhibit 4.1 to the Registrants' Registration
Statement on Form S-8 (File No. 333-51741))
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated
61
<PAGE>
INDEX TO EXHIBITS
[Items 14(a)(3) and 14(c)]
EXHIBIT NO. DESCRIPTION
10.6* Form of Transition Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gray, McCaslin,
Teerlink, Werner, Wilke and Ziemer and Ms. Lione
(incorporated herein by reference to Exhibit 10.7 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-9183))
10.7* 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))
10.8* Form of Life Insurance Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gray, Hutchinson,
McCaslin, Storm, Teerlink, Werner, Wilke and Ziemer and Ms.
Lione (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))
10.9* Harley-Davidson, Inc. Corporate Short Term Incentive Plan, as
amended, subject to shareholder approval at the Company's 1999
Annual Meeting of Shareholders
10.10* Form of Restricted Stock Agreement between the Registrant and
each of Messrs. Bleustein, Gray and McCaslin (incorporated
herein by reference to Exhibit 10.11 to the Registrants'
Annual Report on Form 10-K for the year ended December 31,
1996 (File No. 1-9183))
10.11* Form of Severance Benefits Agreement between the Registrant
and each of Messrs. Bleustein, Brostowitz, Gray, Hutchinson,
McCaslin, Storm, Teerlink, Werner, Wilke and Ziemer and Ms.
Lione (incorporated herein by reference to Exhibit 10.12 to
the Registrants' Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-9183))
10.12* Form of Supplemental Executive Retirement Plan Agreement
between the Registrant and each of Messrs. Bleustein, Gray,
Werner 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))
10.13* 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))
10.14* Description of post-retirement life insurance equivalent
(incorporated herein by reference to Exhibit 10.15 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1996 (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
62
<PAGE>
INDEX TO EXHIBITS
[Items 14(a)(3) and 14(c)]
EXHIBIT NO. DESCRIPTION
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule for 1998
63
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
****
ARTICLE I
The name of the Corporation is Harley-Davidson, Inc.
ARTICLE II
The registered agent and registered office of the Corporation is
CT Corporation System, 44 E. Mifflin St., Madison, Wisconsin 53703
ARTICLE III
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Wisconsin
Business Corporation Law.
ARTICLE IV
(a) AUTHORIZED SHARES. The total number of shares of all
classes of stock that the Corporation is authorized to issue is four hundred
two million (402,000,000), consisting of (i) four hundred million
(400,000,000) shares of Common Stock of $.01 par value ("Common Stock"), and
(ii) two million (2,000,000) shares of Preferred Stock of $1.00 par value.
All cross references in each Subdivision of this ARTICLE IV refer to other
paragraphs in such subdivision unless otherwise indicated.
(i) VOTING RIGHTS. The holders of Common Stock will be
entitled to one vote per share on all matters to be voted on by the
Corporation's shareholders.
-1-
<PAGE>
(ii) REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of Common Stock.
Upon the surrender of any certificate representing shares of Common Stock
at such place, the Corporation shall, at the request of the registered
holder of such certificate, execute and deliver (at the Corporation's
expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares of Common Stocks
represented by the surrendered certificate (and the Corporation forthwith
shall cancel such surrendered certificate), subject to the requirements of
applicable securities laws. Each such new certificate shall be registered
in such name and shall represent such number of shares as shall be
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
(iii) REPLACEMENT.
(A) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder without bond shall be
satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of Common
Stock and, in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation, or, in
the case of any such mutilation, upon surrender of such certificate, the
Corporation shall, at the expense of the registered holder, execute and
deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of Common Stock represented by such
lost, stolen, destroyed or multilated certificate and dated the date of
such lost, stolen, destroyed or multilated certificate.
(B) The term "outstanding" when used in this ARTICLE IV with
reference to the shares of Common Stock as of any particular time shall
not include any such shares represented by any certificate in lieu of
which a new certificate has been executed and delivered by the
Corporation in accordance with paragraph (ii) or this paragraph (iii),
but shall include only those shares represented by such new certificate
(iv) DISSOLUTION. Upon the dissolution of the Corporation, after
there shall have been paid to or set aside for the holders of shares of
Preferred Stock the full preferential amounts to which they are entitled,
if any, the holders of outstanding shares of Common Stock shall be
entitled to receive pro rata the remaining net assets of the Corporation.
-2-
<PAGE>
(b) PREFERRED STOCK. The Preferred Stock may be issued from
time to time in one or more series in any manner permitted by law and the
provisions of the Restated Articles of Incorporation of the Corporation, as
determined from time to time by the Board of Directors and stated in the
resolution or resolutions providing for the issuances thereof, prior to the
issuances of any shares thereof. Unless otherwise provided in the resolution
establishing a series of Preferred Stock, prior to the issue of any shares of
a series so established or to be established, the Board of Directors may, by
resolution, amend the relative rights and preferences of the shares of such
series.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each class of stock
shall be governed by the following provisions:
(i) The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, with such voting powers, full or limited, or
without voting powers and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue thereof adopted by the
Board of Directors, including (but not limiting the generality thereof) the
following:
(A) The number of share to constitute each such series,
and the designation of each such series.
(B) The dividend rate of each such series, the
conditions and dates upon which such dividends shall be payable, the
relation which such dividends shall bear to the dividends payable on
any other class or classes or on any other series of any class or
classes of stock, and whether such dividends shall be cumulative or
non-cumulative.
(C) Whether the shares of each such series shall be
subject to redemption by the Corporation and if made subject to
such redemption, the times, prices and other terms and conditions
of such redemption.
(D) The terms and amount of any sinking fund provided
for the purchase or redemption of the shares of each such series.
(E) Whether or not the shares of each such series shall
be convertible into or exchangeable for shares of any other class
or classes or any other series of any other class or classes of
stock of the Corporation, and, if provision be made for conversion
or exchange, the times, prices, rates of exchange, adjustments, and
other terms and conditions of such conversion or exchange.
-3-
<PAGE>
(F) The extent, if any, to which the holders of the
shares of each such series shall be entitled to vote with respect
to the election of directors or otherwise.
(G) The restrictions, if any, on the issue or reissue
of any additional Preferred Stock.
(H) The rights of the holders of the shares of each
such series upon the dissolution of, or upon the distribution of
the assets of, the Corporation.
(ii) Except as otherwise required by law and except for such
voting powers with respect to the election of directors or other matters
as may be stated in the resolutions of the Board of Directors creating
any series of Preferred Stock, the holders of any such series shall have
no voting powers whatsoever.
(c) SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. Pursuant to
the authority vested in the Board of Directors of the Corporation in
accordance with the provisions of the Restated Articles of Incorporation, a
series of shares of Preferred Stock, par value $1.00 per share, of the
Corporation be and it hereby is created, and the designation and amount
thereof and the voting powers, preferences and relative, participating,
optional or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock"
("SERIES A PREFERRED STOCK") and the number of shares constituting such
series shall be 500,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
-4-
<PAGE>
(A) Subject to the provisions for adjustment hereinafter set
forth, the holders of shares of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, (i) cash dividends in an amount per share
(rounded to the nearest cent) equal to 100 times the aggregate per share
amount of all cash dividends declared or paid on the Common Stock, presently
$0.01 par value per share, of the Corporation ("COMMON STOCK") and (ii) a
preferential cash dividend ("PREFERENTIAL DIVIDENDS"), if any, on the
fifteenth day of January, April, July, and October of each year (each a
"QUARTERLY DIVIDEND PAYMENT DATE") commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount equal to $1.00 per share of Series A
Preferred Stock less the per share amount of all cash dividends declared on
the Series A Preferred Stock pursuant to clause (i) of this sentence since
the immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall, at any time after the issuance of any share or fraction of
a share of Series A Preferred Stock, make any distribution on the shares of
Common Stock of the Corporation, whether by way of dividend or a
reclassification of stock, a recapitalization, reorganization or partial
liquidation of the Corporation or otherwise, which is payable in cash or any
debt security, debt instrument, real or personal property or any other
property (other than cash dividends subject to clause (i) of the immediately
preceding sentence and other than a distribution of shares of Common Stock or
other capital stock of the Corporation and other than a distribution of
rights or warrants to acquire any such share, including any debt security
convertible into or exchangeable for any such share, at a price less than the
Current Market Price of such share), then and in each such event the
Corporation shall simultaneously pay on each then outstanding share of Series
A Preferred Stock of the Corporation a distribution, in like kind, of 100
times (subject to the provisions for adjustment hereinafter set forth) such
distribution paid on a share of Common Stock. The dividends and distributions
on the Series A Preferred Stock to which holders thereof are entitled
pursuant to clause (i) of the first sentence of this paragraph and pursuant
to the second sentence of this paragraph are hereinafter referred to as
"PARTICIPATING DIVIDENDS" and the multiple of such cash and non-cash
dividends on the Common Stock applicable to the determination of the
Participating Dividends, which shall be 100 initially but shall be adjusted
from time to time as hereinafter provided, is hereinafter referred to as the
"DIVIDEND MULTIPLE". In the event the Corporation shall at any time after
June 1, 1991 declare or pay any dividend or make any distribution on Common
Stock payable in shares of Common Stock, or effect a subdivision or split or
a combination, consolidation or reverse split of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common Stock, then
in each such case the Dividend Multiple thereafter applicable to the
determination of the amount of Participating Dividends which holders of
shares of Series A Preferred Stock shall be entitled to receive shall be the
Dividend Multiple applicable immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
-5-
<PAGE>
(B) The Corporation shall declare each Participating Dividend
at the same time it declares any cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required to
be paid. No cash or noncash dividend or distribution on the Common Stock in
respect of which a Participating Dividend is required to be paid shall be
paid or set aside for payment on the Common Stock unless a Participating
Dividend in respect of such dividend or distribution on the Common Stock
shall be simultaneously paid, or set aside for payment, on the Series A
Preferred Stock.
(C) Preferential Dividends shall begin to accrue on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issuance of any shares of Series A Preferred Stock.
Accrued but unpaid Preferential Dividends shall cumulate but shall not bear
interest. Preferential Dividends paid on the shares Series A Preferred Stock
in an amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the shareholders
of the Corporation. The number of votes which a holder of Series A Preferred
Stock is entitled to cast, as the same may be adjusted from time to time as
hereinafter provided, is hereinafter referred to as the "VOTE MULTIPLE". In
the event the Corporation shall at any time after June 1, 1991 declare or pay
any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares
of Common Stock, then in each such case the Vote Multiple thereafter
applicable to the determination of the number of votes per share to which
holders of shares of Series A Preferred Stock shall be entitled after such
event shall be the Vote Multiple immediately prior to such event multiplied
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
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(C) In the event that the Preferential Dividends accrued on
the Series A Preferred Stock for six or more consecutive quarterly dividend
periods shall not have been declared and paid or set apart for payment, the
holders of record of the Series A Preferred Stock, voting together with the
holders of record of any other series of preferred stock of the Corporation
who shall have been granted voting rights to elect directors upon a default
in the payments of dividends by the Corporation, shall have the right, at the
next meeting of shareholders called for the election of directors, voting as
a class, to elect up to two members to the Board of Directors, which
directors shall be in addition to the number provided for under the
Corporation's Restated Articles of Incorporation prior to such event, to
serve until the expiration of their respective terms and until their
successors are elected and qualified or their earlier resignation, removal or
incapacity or until such earlier time as all accrued and unpaid Preferential
Dividends upon the outstanding shares of Series A Preferred Stock shall have
been paid (or set aside for payment) in full (PROVIDED, HOWEVER, that after
giving effect to the exercise of such right, under no circumstances shall the
number of members of the Board of Directors exceed the maximum number of
directors, if any, then specified in the Restated Articles of Incorporation).
The holders of shares of Series A Preferred Stock shall continue to have the
right to elect directors as provided by the immediately preceding sentence
until all accrued and unpaid Preferential Dividends upon the outstanding
shares of Series A Preferred Stock shall have been paid (or set aside for
payment) in full. Such directors may be removed and replaced by such
shareholders, and vacancies in such directorships may be filled only by such
shareholders (or by the remaining director elected by such shareholders, if
there be one) in the manner permitted by law.
(D) Except as otherwise required by law or set forth herein,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for the taking of
any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever Preferential Dividends are in arrears or the
Corporation shall be in default in payment thereof, thereafter and until all
accrued and unpaid Preferential Dividends, whether or not earned or declared,
on shares of Series A Preferred Stock outstanding shall have been paid or set
aside for payment in full, and in addition to any and all other rights which
any holder of shares of Series A Preferred Stock may have in such
circumstances, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to, the Series A Preferred Stock;
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(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity as to dividends with the
Series A Preferred Stock, unless dividends are paid ratably on the Series
A Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) except as permitted by subparagraph (iv) of this paragraph 4
(A), redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock; PROVIDED that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares
of any stock of the Corporation ranking junior (both as to dividends and
upon liquidation, dissolution or winding up) to the Series A Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock (either as to dividends or upon
liquidation, dissolution or winding up), except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
(C) The Corporation shall not issue any shares of Series A
Preferred Stock except upon exercise of rights (the "RIGHTS") issued pursuant
to that certain Rights Agreement dated as of August 6, 1990 between the
Corporation (as successor to Harley-Davidson, Inc., a Delaware corporation)
and First Wisconsin Trust Company (the RIGHTS AGREEMENT"), a copy of which is
on file with the Secretary of the Corporation at its principal executive
office and shall be made available to shareholders of record without charge
upon written request therefor addressed to said Secretary. Notwithstanding
the foregoing sentence, nothing contained in the provisions hereof shall
prohibit or restrict the Corporation from issuing for any purpose any series
of preferred stock with rights and privileges similar to, different from, or
greater than, those of the Series A Preferred Stock.
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Section 5. REACQUIRED SHARES. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. The Corporation shall cause all such shares upon their retirement
and cancellation to become authorized but unissued shares of Preferred Stock,
without designation as to series, and such shares may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of
stock ranking junior to the Series A Preferred Stock (upon liquidation,
dissolution or winding up) unless the holders of shares of Series A Preferred
Stock shall have received, subject to adjustment as hereinafter provided, the
greater of either (A) $1.00 per share plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, or (B) the amount equal to 100 times
the aggregate amount to be distributed per share to holders of Common Stock,
or (ii) to the holders of stock ranking on a parity upon liquidation,
dissolution or winding up with the Series A Preferred Stock, unless
simultaneously therewith distributions are made ratably on the Series A
Preferred Stock and all other shares of such parity stock in proportion to
the total amounts to which the holders of shares of Series A Preferred Stock
are entitled under clause (i) (A) of this sentence and to which the holders
of such parity shares are entitled, in each case upon such liquidation,
dissolution or winding up. The amount to which holders of Series A Preferred
Stock shall be entitled upon liquidation, dissolution or winding up of the
Corporation pursuant to clause (i) (B) of the foregoing sentence is
hereinafter referred to as the "PARTICIPATING LIQUIDATION AMOUNT" and the
multiple of the amount to be distributed to holders of shares of Common Stock
upon the liquidation, dissolution or winding up of the Corporation applicable
pursuant to said clause to the determination of the Participating Liquidation
Amount, which shall be 100 initially but shall be adjusted from time to time
as hereinafter provided, is hereinafter referred to as the "LIQUIDATION
MULTIPLE". In the event the Corporation shall at any time after June 1, 1991
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or split or a combination, consolidation or
reverse split of the outstanding shares of Common Stock into a greater or
lesser number of shares of Common Stock, then in each such case the
Liquidation Multiple thereafter applicable to the determination of the
Participating Liquidation Amount to which holders of Series A Preferred Stock
shall be entitled after such event shall be the Liquidation Multiple
applicable immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
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Section 7. CERTAIN RECLASSIFICATIONS AND OTHER EVENTS.
(A) In the event that holders of shares of Common Stock of the
Corporation receive after June 1, 1991 in respect of their shares of Common
Stock any share of capital stock of the Corporation (other than any share of
Common Stock of the Corporation), whether by way of reclassification,
recapitalization, reorganization, dividend or other distribution or otherwise
(a "TRANSACTION"), then and in each such event the dividend rights, voting
rights and rights upon the liquidation, dissolution or winding up of the
Corporation of the shares of Series A Preferred Stock shall be adjusted so
that after such event the holders of Series A Preferred Stock shall be
entitled, in respect of each share of Series A Preferred Stock held, in
addition to such rights in respect thereof to which such holder was entitled
immediately prior to such adjustment, to (i) such additional dividends as
equal the Dividend Multiple in effect immediately prior to such Transaction
multiplied by the additional dividends which the holder of a share of Common
Stock shall be entitled to receive by virtue of the receipt in the
Transaction of such capital stock, (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such Transaction
multiplied by the additional voting rights which the holder of a share of
Common Stock shall be entitled to receive by virtue of the receipt in the
Transaction of such capital stock and (iii) such additional distributions
upon liquidation, dissolution or winding up of the Corporation as equal the
Liquidation Multiple in effect immediately prior to such Transaction
multiplied by the additional amount which the holder of a share of Common
Stock shall be entitled to receive upon liquidation, dissolution or winding
up of the Corporation by virtue of the receipt in the Transaction of such
capital stock, as the case may be, all as provided by the terms of such
capital stock.
(B) In the event that holders of shares of Common Stock of the
Corporation receive after June 1, 1991 in respect of their shares of Common
Stock any right or warrant to purchase Common Stock (including as such a
right, for all purposes of this paragraph, any security convertible into or
exchangeable for Common Stock) at a purchase price per share less than the
Current Market Price (as hereinafter defined) of a share of Common Stock on
the date of issuance of such right or warrant, then and in each such event
the dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Corporation of the shares of Series A
Preferred Stock shall each be adjusted so that after such event the Dividend
Multiple, the Vote Multiple and the Liquidation Multiple shall each be the
product of the Dividend Multiple, the Vote Multiple and the Liquidation
Multiple, as the case may be, in effect immediately prior to such event
multiplied by a fraction the numerator of which shall be the number of shares
of Common Stock outstanding immediately before such issuance of rights or
warrants plus the maximum number of shares of Common Stock which could be
acquired upon exercise in full of all such rights or warrants and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately before such issuance of rights or warrants plus the
number of shares of Common Stock which could be purchased, at the Current
Market Price of the Common Stock at the time of such issuance, by the maximum
aggregate consideration payable upon exercise in full of all such rights or
warrants.
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(C) In the event that holders of shares of Common Stock of the
Corporation receive after June 1, 1991 in respect of their shares of Common
Stock any right or warrant (except for the Rights) to purchase capital stock
of the Corporation (other than shares of Common Stock), including as such a
right, for all purposes of this paragraph, any security convertible into or
exchangeable for capital stock of the Corporation (other than Common Stock),
at a purchase price per share less than the Current Market Price of such
shares of capital stock on the date of issuance of such right or warrant,
then and in each such event the dividend rights, voting rights and rights
upon liquidation, dissolution or winding up of the Corporation of the shares
of Series A Preferred Stock shall each be adjusted so that after such event
each holder of a share of Series A Preferred Stock shall be entitled, in
respect of each share of Series A Preferred Stock held, in addition to such
rights in respect thereof to which such holder was entitled immediately prior
to such event, to receive (i) such additional dividends as equal the Dividend
Multiple in effect immediately prior to such event multiplied, first, by the
additional dividends to which the holder of a share of Common Stock shall be
entitled upon exercise of such right or warrant by virtue of the capital
stock which could be acquired upon such exercise and multiplied again by the
Discount Fraction (as hereinafter defined) and (ii) such additional voting
rights as equal the Vote Multiple in effect immediately prior to such event
multiplied, first, by the additional voting rights to which the holder of a
share of Common Stock shall be entitled upon exercise of such right or
warrant by virtue of the capital stock which could be acquired upon such
exercise and multiplied again by the Discount Fraction and (iii) such
additional distributions upon liquidation, dissolution or winding up of the
Corporation as equal the Liquidation Multiple in effect immediately prior to
such event multiplied, first, by the additional amount which the holder of a
share of Common Stock shall be entitled to receive upon liquidation,
dissolution or winding up of the Corporation upon exercise of such right or
warrant by virtue of the capital stock which could be acquired upon such
exercise and multiplied again by the Discount Fraction. For purposes of this
paragraph, the "DISCOUNT FRACTION" shall be a fraction the numerator of which
shall be the difference between the Current Market Price (as hereinafter
defined) of a share of the capital stock subject to a right or warrant
distributed to holders of shares of Common Stock of the Corporation as
contemplated by this paragraph immediately after the distribution thereof and
the purchase price per share for such share of capital stock pursuant to such
right or warrant and the denominator of which shall be the Current Market
Price of a share of such capital stock immediately after the distribution of
such right or warrant.
(D) For purposes of this Section 7, the "CURRENT MARKET PRICE"
of a share of capital stock of the Corporation (including a share of Common
Stock) on any date shall be deemed to be the average of the daily closing
prices per share thereof over the 30 consecutive Trading Days (as such term
is hereinafter defined) immediately prior to such date; PROVIDED, HOWEVER,
that, in the event that such Current Market Price of any such share of
capital stock is determined during a period which includes any date that is
within 30 Trading Days after the ex-dividend date for (i) a dividend or
distribution on stock payable in shares of such stock or securities
convertible into shares of such stock, or (ii) any subdivision, split,
combination, consolidation, reverse stock split or reclassification of such
stock, then, and in each such case,
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the Current Market Price shall be appropriately adjusted by the Board of
Directors of the Corporation to reflect the Current Market Price of such
stock to take into account ex-dividend trading. The closing price for any day
shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange or, if the shares are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the shares are listed
or admitted to trading or, if the shares are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other
system then in use, or if on any such date the shares are not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the shares
selected by the Board of Directors of the Corporation. The term "TRADING DAY"
shall mean a day on which the principal national securities exchange on which
the shares are listed or admitted to trading is open for the transaction of
business or, if the shares are not listed or admitted to trading on any
national securities exchange, on which the New York Stock Exchange or such
other national securities exchange as may be selected by the Board of
Directors of the Corporation is open. If the shares are not publicly held or
not so listed or traded on any day within the period of 30 Trading Days
applicable to the determination of Current Market Price thereof as aforesaid,
"Current Market Price" shall mean the fair market value thereof per share as
determined in good faith by the Board of Directors of the Corporation. In
either case referred to in the foregoing sentence, the determination of
Current Market Price shall be described in a statement filed with the
Secretary of the Corporation.
Section 8. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination, share exchange or
other transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then
in any such case each outstanding share of Series A Preferred Stock shall at
the same time be similarly exchanged for or changed into the aggregate amount
of stock, securities, cash and/or other property (payable in like kind), as
the case may be, for which or into which each share of Common Stock is
changed or exchanged multiplied by the highest of the Vote Multiple, the
Dividend Multiple or the Liquidation Multiple in effect immediately prior to
such event.
Section 9. EFFECTIVE TIME OF ADJUSTMENTS.
(A) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event
requiring such adjustments occurs.
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(B) The Corporation shall give prompt written notice to each
holder of a share of Series A Preferred Stock of the effect of any adjustment
to the voting rights, dividend rights or rights upon liquidation, dissolution
or winding up of the Corporation of such shares required by the provisions
hereof. Notwithstanding the foregoing sentence, the failure of the
Corporation to give such notice shall not affect the validity of or the force
or effect of or the requirement for such adjustment.
Section 10. NO REDEMPTION. The shares of Series A Preferred
Stock shall not be redeemable at the option of the Corporation or any holder
thereof. Notwithstanding the foregoing sentence of this Section, the
Corporation may acquire shares of Series A Preferred Stock in any other
manner permitted by law, the provisions hereof and the Restated Articles of
Incorporation of the Corporation.
Section 11. RANKING. Unless otherwise provided in the
Restated Articles of Incorporation of the Corporation or Articles of
Amendment relating to a subsequent series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to all other
series of the Corporation's preferred stock (as to the payment of dividends
and the distribution of assets on liquidation, dissolution or winding up) and
senior to the Common Stock.
Section 12. AMENDMENT. Subsequent to the Distribution Date
(as defined under the Rights Agreement), the provisions hereof and the
Restated Articles of Incorporation of the Corporation shall not be amended in
any manner which would adversely affect the rights, privileges or powers of
the Series A Preferred Stock without, in addition to any other vote of
shareholders required by law, the affirmative vote of the holders of eighty
percent or more of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
Section 13. FRACTIONAL SHARES. A holder of one or more
fractional shares of Series A Preferred Stock shall, to the extent of such
fractional shares held, be entitled to exercise voting rights, receive
dividends thereon, participate in any of the assets of the Corporation in the
event of liquidation and otherwise exercise the rights and receive the
benefits to which holders of Series A Preferred Stock are entitled.
ARTICLE V
(a) VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
(i) In addition to any affirmative vote required by law or
these Restated Articles of Incorporation, and except as otherwise
expressly provided in Section (b) of this ARTICLE V:
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(A) any merger of the Corporation or any Subsidiary (as
hereinafter defined), or any share exchange to which the
Corporation is a party with (I) any Interested Shareholder (as
hereinafter defined) or (II) any other corporation (whether or
not an Interested Shareholder) which is, or after such merger
or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
(B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or in a series of
transactions) to or with any Interested Shareholder or any
Affiliate of any Interested Shareholder of all or a
Substantial Part of the assets of the Corporation (including,
without limitation, any securities of a Subsidiary) or any
Subsidiary; or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or in a series of
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Shareholder or any Affiliate of
any Interested Shareholder in exchange for cash, securities or
other property (or a combination thereof); or
(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or
on behalf of an Interested Shareholder or any Affiliate of any
Interested Shareholder; or
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(E) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
of the Corporation with any of its Subsidiaries or any share
exchange to which the Corporation is a party or any self tender
offer for or repurchase of securities of the Corporation by the
Corporation or any Subsidiary or any other transaction (whether or
not with or into or otherwise involving an Interested Shareholder)
which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested
Shareholder or any Affiliate of any Interested Shareholder, shall
require the affirmative vote of the holders of at least 66-2/3% of
the voting power of the then outstanding shares of stock of the
Corporation entitled to vote generally in the election of directors
(the "Voting Stock") (it being understood that for purposes of this
ARTICLE V, each share of the Voting Stock shall have the number of
votes granted to it pursuant to ARTICLE IV of these Restated
Articles of Incorporation), which vote shall include the
affirmative vote of at least a majority of the voting power of the
then outstanding shares of Voting Stock held by shareholders other
than the Interested Shareholder. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law or by these
Restated Articles of Incorporation or in any agreement with any
national securities exchange or otherwise.
(ii) The term "Business Combination" as used in this ARTICLE V
shall mean any transaction which is referred to in any one or more of
subparagraphs (A) through (E) of paragraph (i) of this Section (a).
(b) WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section
(a) of this ARTICLE V shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such
affirmative vote as is required by law, any other provision of these Restated
Articles of Incorporation or any agreement with any national securities
exchange, if, in the case of a Business Combination that does not involve any
cash or other consideration being received by the shareholders of the
Corporation, solely in their respective capacities as shareholders of the
Corporation, the condition specified in the following paragraph (i) is met,
or, in the case of any other Business Combination, the conditions specified
in either of the following paragraphs (i) and (ii) are met:
(i) The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter defined).
(ii) Each of the five conditions specified in the following
subparagraphs (A) through (E) shall have been met:
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(A) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of consummation of the
Business Combination of consideration other than cash to be received
per share by holders of each class of Voting Stock in such Business
Combination shall be at least equal to the higher of the following:
(I) (if applicable) the Highest Per Share Price (as
hereinafter defined) (including the brokerage commissions,
transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Stock beneficially
owned by the Interested Shareholder which were acquired
beneficially by such Interested Shareholder (x) within the
two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the
"Announcement Date") or (y) in the transaction in which it
became an Interested Shareholder, whichever is higher; or
(II) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the date on which the
Interested Shareholder became an Interested Shareholder (such
latter date is referred to in this ARTICLE V as the
"Determination Date"), whichever is higher; or
(III) an amount which bears the same or greater percentage
relationship to the Fair Market Value of such class of Voting
Stock on the Announcement Date as the Highest Per Share Price
determined in (ii) (A) (I) above bears to the Fair Market Value of
such class of Voting Stock on the date of the commencement of the
acquisition of Voting Stock by such Interested Shareholder.
(B) The consideration to be received by holders of the
outstanding Voting Stock shall be in cash or in the same form as was
previously paid in order to acquire beneficially shares of Voting Stock
that are beneficially owned by the Interested Shareholder. If the
Interested Shareholder beneficially owns shares of Voting Stock that
were acquired with varying forms of consideration, the form of
consideration to be received by holders of Voting Stock shall be
either cash or the form used to acquire beneficially the largest number
of shares of Voting Stock beneficially acquired by it prior to the
Announcement Date.
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(C) After such Interested Shareholder has become an
Interested Shareholder and prior to consummation of such Business
Combination: (I) there shall have been (x) no reduction in the
annual rate of dividends paid on the Voting Stock (except as
necessary to reflect any subdivision of the Voting Stock), except
as approved by a majority of the Disinterested Directors, and (y)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
Voting Stock, unless the failure so to increase such annual rate is
approved by a majority of the Disinterested Directors; and (II)
such Interested Shareholder shall have not become the beneficial
owner of any additional shares of Voting Stock except as part of
the transaction which resulted in such Interested Shareholder
becoming an Interested Shareholder.
(D) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received
the benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(E) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to shareholders of the Corporation
at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
(c) CERTAIN DEFINITIONS. For the purposes of this ARTICLE V:
(i) A "person" shall mean any individual, firm, corporation,
group (as such term is defined in Section 13(d) (3) of the Securities
Exchange Act of 1934, as in effect on March 1, 1991) or other entity.
(ii) "Interested Shareholder" shall mean any person (other than
the Corporation, any Subsidiary or any compensation or retirement plan of the
Corporation) who or which, as of the record date for the determination of
shareholders entitled to notice of and to vote on such Business Combination
or immediately prior to the consummation of any such transaction:
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(A) is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting Stock; or
(B) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding Voting Stock; or
(C) is an assignee of or has otherwise succeeded to beneficial
ownership of any shares of Voting Stock which were at any time
within the two-year period immediately prior to the date in question
beneficially owned by any Interested Shareholder, if such assignment
or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(iii) A person shall be a "beneficial owner" of any Voting Stock:
(A) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly;
or
(B) which such person or any of its Affiliates or Associates
has (I) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise or (II) the right to vote or direct the vote pursuant to
any agreement, arrangement or understanding; or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purposes of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(iv) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (ii) of this Section (c), the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of paragraph (iii) of this Section
(c) but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding or upon
exercise of conversion rights, warrants or options, or otherwise.
(v) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 as in effect on March 1, 1991.
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(vi) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation or by a Subsidiary or by the Corporation and one or more
subsidiaries; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in paragraph (ii) of this Section (c), the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the Corporation.
(vii) "Substantial Part" means more than 10% of the book value of the
total assets of the person or entity in question, as of the end of its most
recent fiscal year ending prior to the time of the determination.
(viii) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with, and not a nominee of,
the Interested Shareholder and was a member of the Board of Directors prior
to the time that the Interested Shareholder became an Interested Shareholder,
and any successor of a Disinterested Director who is unaffiliated with, and
not a nominee of, the Interested Shareholder and who is recommended to
succeed a Disinterested Director by a majority of Disinterested Directors
then on the Board of Directors.
(ix) "Fair Market Value" means: (A) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the Composite Tape for American Stock Exchange-Listed Stocks, or
if such stock is not quoted on such Composite Tape, on the American Stock
Exchange or on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed, or,
if such stock is not listed on any such exchange, the highest closing sales
price or bid quotation with respect to a share of stock during the 30-day
period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in
use, or if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by a majority of the
Disinterested Directors in good faith; and (B) in the case of stock of any
class or series which is not traded on any United States registered
securities exchange nor in the over-the-counter market or in the case of
property other than cash or stock, the fair market value of such property on
the date in question as determined by a majority of the Disinterested
Directors in good faith.
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(x) References to "Highest Per Share Price" shall reflect an
appropriate adjustment for any dividend or distribution in shares of
Voting Stock or any stock split or reclassification of outstanding shares
of such stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such stock into
a smaller number of shares of such stock.
(xi) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in subparagraph (A) of paragraph (ii) of Section (b)
of this ARTICLE V shall include the shares of Voting Stock retained by
the holders of such shares.
(d) POWERS OF THE BOARD OF DIRECTORS. A majority of the
Disinterested Directors of the Corporation shall have the power and duty to
determine for the purposes of this ARTICLE V on the basis of information
known to them after reasonable inquiry, all facts necessary to determine
compliance with this ARTICLE V, including, without limitation, (i) whether a
person is an Interested Shareholder, (ii) whether a Business Combination is
proposed by or on behalf of an Interested Shareholder or an Affiliate of an
Interested Shareholder, (iii) the number of shares of Voting Stock
beneficially owned by any person, (iv) whether a person is an Affiliate or
Associate of another person, (v) whether the requirements of Section (b) (ii)
of this ARTICLE V have been met with respect to any Business Combination, and
(vi) whether any Business Combination involves all or a Substantial Part of
the assets of the Corporation or any Subsidiary. The good faith determination
of a majority of the Disinterested Directors shall be conclusive and binding
for all purposes of this ARTICLE V.
(e) NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS.
Nothing contained in this ARTICLE V shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
(f) AMENDMENT OR REPEAL. Notwithstanding any other provision of
these Restated Articles of Incorporation or the By-laws of the Corporation to
the contrary (and notwithstanding the fact that a lesser percentage may be
specified by law, these Restated Articles of Incorporation or the By-laws of
the Corporation), the affirmative vote of the holders of at least 66-2/3% of
the voting power of the then outstanding shares of Voting Stock shall be
required to alter, amend or repeal this ARTICLE V or to adopt any provision
inconsistent therewith provided, however, that if there is an Interested
Shareholder on the record date for the meeting at which such action is
submitted to the shareholders for this consideration, such 66-2/3% vote must
include the affirmative vote of at least a majority of the voting power of
the then outstanding shares of Voting Stock held by shareholders other than
the Interested Shareholder.
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ARTICLE VI
(a) BOARD OF DIRECTORS.
(i) NUMBER, TERM AND QUALIFICATION. The authorized number
of directors of the Corporation which shall constitute the entire
Board of Directors shall be such as from time to time shall be
determined by a majority of the then authorized number of directors,
but in no case shall the authorized number of directors be less than
six nor more than fifteen. The directors shall be divided with
respect to the time for which they severally hold office into three
classes, as nearly equal in number as possible (but with not less
than two directors in each class), as determined by the Board of
Directors, with the members of each class to hold office until their
successors have been elected and qualified. At each annual meeting
of shareholders, the successors of the members of the class of
directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of shareholders
held in the third year following the year of their election. No
decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(ii) REMOVAL. Any director may be removed from office by
the shareholders, but only for cause and only by the affirmative
vote of a majority of the votes then entitled to be cast in an
election of directors.
(iii) VACANCIES. Any vacancy occurring in the Board of
Directors, including, but not limited to, a vacancy created by an
increase in the number of directors or the removal of a director,
shall be filled only by the affirmative vote of a majority of the
directors then in office, even if such majority is less than a
quorum of the Board of Directors, or by a sole remaining director.
If no director remains in office, any vacancy may be filled by the
shareholders. Any director elected to fill a vacancy shall serve
until the next election of the class of which such director shall
have been chosen.
(b) NOMINATIONS AND QUALIFICATIONS OF DIRECTORS. Nominations
for the election of directors may be made by the Board of Directors or a
committee appointed by the Board of Directors or by any shareholder entitled
to vote generally in the election of directors. However, any shareholder
entitled to vote generally in the election of directors may nominate one or
more persons for election as directors at a meeting only if written notice of
such shareholder's intent to make such nominations has been given, either by
personal delivery or by United States mail, postage prepaid, to the Secretary
of the Corporation not later than (i) with respect to an election to be held
at any annual meeting of shareholders, 60 calendar days in advance of the
date in the current fiscal year of the Corporation corresponding to the date
the Corporation released its proxy statement to shareholders in connection
with the annual meeting for the immediately preceding year and (ii) with
respect to an election to be held at a special meeting of shareholders for
the election of directors, the close of business on the seventh day following
the date on which
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notice of such meeting is first given to shareholders. Each such notice shall
set forth: (A) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated, (B) a
representation that the shareholder is entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person
or persons specified in the notice, (C) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination
or nominations are to be made by the shareholder, (D) such other information
regarding each nominee proposed by such shareholder as would be required to
be included in a proxy statement filed pursuant to the then current proxy
rules of the Securities and Exchange Commission, if the nominee were to be
nominated by the Board and (E) the consent of each nominee to serve as a
director of the Corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure. The directors shall be at least twenty-one
years of age. Directors need not be shareholders. At each meeting of
shareholders for the election of directors at which a quorum is present, the
persons receiving a plurality of the votes cast shall be elected directors.
ARTICLE VII
The shareholders shall not be entitled to take action without a
meeting by less than unanimous consent. Except as otherwise required by law
and subject to the express rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, annual and special meetings of the shareholders shall be called,
the record date or dates shall be determined and notice shall be sent as set
forth in the By-laws of the Corporation. Notwithstanding any other provisions
of these Restated Articles of Incorporation or the By-laws of the Corporation
(and notwithstanding the fact that a lesser affirmative vote may be specified
by law), the affirmative vote of shareholders possessing at least eighty
percent of the voting power of the then outstanding shares of all classes of
stock of the Corporation generally possessing voting rights in elections of
directors, considered for this purpose as one class, shall be required to
amend, alter, change or repeal, or to adopt any provision inconsistent with,
sections 1.02, 1.04 and 1.05 of Article I of the By-laws, or this ARTICLE VII
or any provision thereof or hereof; provided, however, that the Board of
Directors, may amend, alter, change or repeal, or adopt any provision
inconsistent with, sections 1.02, 1.04 and 1.05 of Article I of the By-laws,
or any provision thereof, without a vote of shareholders.
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ARTICLE VIII
Unless a greater number is required by law or by these Restated
Articles of Incorporation, (a) action on a matter, other than the election of
directors, by a voting group of shareholders is approved only if a majority
of the votes within the voting group represented (in person or by proxy) at a
meeting at which a quorum is present are cast in favor of the action and (b)
notwithstanding Section (a) of this Article VIII, these Restated Articles of
Incorporation may only be amended by the affirmative vote of a majority of
the votes entitled to be cast by each voting group of shareholders entitled
to vote on the amendment.
ARTICLE IX
Annual meetings of shareholders shall be held, at a date, time and
place fixed by the Board of Directors and stated in the notice of meeting, to
elect a Board of Directors and to transact such other business as may
properly come before the meeting. Special meetings of shareholders may be
called only in accordance with the provisions of ARTICLE VII of these
Restated Articles of Incorporation. At each meeting of shareholders only such
business may be conducted as is (a) specified in the written notice of
meeting given by or at the direction of the Board of Directors, (b) in the
case of an annual meeting, brought before the meeting by the Board of
Directors or by the chairman of the meeting or (c) in the case of an annual
meeting, specified in a written notice given by or on behalf of a shareholder
of record, provided that written notice of such shareholder's intent to make
a proposal or proposals has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than 60 calendar days in advance of the date in the current fiscal year
of the Corporation corresponding to the date the Corporation released its
proxy statement to shareholders in connection with the annual meeting for
the immediately preceding year. Each such notice shall set forth: (a) the
name and address of the shareholder who intends to make the proposal and the
number of shares of the Corporation's capital stock owned or controlled by
such shareholder, (b) a representation that the shareholder is entitled to
vote at such annual meeting and intends to appear in person or by proxy at
the annual meeting to make the proposal specified in the notice and (c) such
other information regarding each proposal made by such shareholder as would
be required to be included in a proxy statement filed pursuant to the then
current proxy rules of the Securities and Exchange Commission with respect to
such proposals. The chairman of the meeting may refuse to acknowledge any
proposal not made in compliance with the foregoing procedure.
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EXHIBIT 10.9
HARLEY-DAVIDSON, INC.
CORPORATE SHORT TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of the Harley-Davidson, Inc. Corporate Short Term Incentive
Plan is to provide certain Executives an increased financial incentive to
contribute to the future success and prosperity of the Company.
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. CHANGE OF CONTROL EVENT: Change of Control Event as defined in
the Harley-Davidson, Inc. 1990 Stock Option Plan, as amended.
2.3. CODE: The Internal Revenue Code of 1986, as amended.
2.4. COMMITTEE: The Human Resources Committee of the Board (including
any successor committee thereto); provided, however, that if any member or
members of the Human Resources Committee of the Board would cause the Human
Resources Committee of the Board not to satisfy the administration
requirement of Code section 162(m)(4)(C) or the disinterested administration
requirement of Rule 16b-3 under the Exchange Act, the Committee shall be
comprised of the Human Resources Committee of the Board without such member
or members.
2.5. COMMON STOCK: The Common Stock of Harley-Davidson, Inc.
2.6. COMPANY: Harley-Davidson, Inc. and, unless the context otherwise
requires, its Subsidiaries.
2.7. CATEGORY PERCENTAGE: When two or more of the Performance
Categories are selected for a Participant or a group of Participants for any
Plan Year, the relative percentage weighting given to each selected
Performance Category.
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2.8. DISABILITY: Disability within the meaning of section 22(e)(3) of
the Code, as determined by the Committee.
2.9. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
2.10. EXCLUDED ITEMS: Any gains or losses from the sale of assets
outside the ordinary course of business, any gains or losses from
discontinued operations, any extraordinary gains or losses, the effects of
accounting changes, and any unusual, nonrecurring, transition, one-time or
similar items or charges.
2.11. EXECUTIVE: An executive officer of the Company within the
meaning of Rule 3b-7 under the Exchange Act, which may include members of the
Board.
2.12. 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 trading date immediately preceding the date on which the Performance
Award being paid in Common Stock, in whole or in part, is paid to the
Participant.
2.13. PARTICIPANT: With respect to a Plan Year, an Executive selected
by the Committee to participate in the Plan for such Plan Year.
2.14. PERFORMANCE AWARD: With respect to a Participant for a Plan
Year, an award made pursuant to the Plan in an amount equal to the Target
Award multiplied by the Total Performance Percentage, subject to
discretionary reduction pursuant to section 5.5 hereof and the limit of
section 5.6 hereof.
2.15. PERFORMANCE CATEGORIES: The following categories (in all cases
before Excluded Items):
a. Net sales for the Plan Year (i) for the Company on a
consolidated basis, (ii) for any one or more Subsidiaries or divisions of
the Company and/or (iii) for any other business unit or units of the
Company as defined by the Committee at the time of selection.
b. Cost of goods sold for the Plan Year (i) for the Company
on a consolidated basis, (ii) for any one or more Subsidiaries or divisions
of the Company and/or (iii) for any other business unit or units of the
Company as defined by the Committee at the time of selection.
c. Gross profit for the Plan Year (i) for the Company on a
consolidated basis, (ii) for any one or more Subsidiaries or divisions of
the Company and/or (iii) for any other business unit or units of the
Company as defined by the Committee at the time of selection.
d. Selling, administrative and engineering expenses for the
Plan Year (i) for the Company on a consolidated basis, (ii) for any one or
more Subsidiaries or divisions
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of the Company and/or (iii) for any other business unit or units of the
Company as defined by the Committee at the time of selection.
e. Income from operations for the Plan Year (i) for the Company on a
consolidated basis, (ii) for any one or more Subsidiaries or divisions of the
Company and/or (iii) for any other business unit or units of the
Company as defined by the Committee at the time of selection.
f. Income before interest and the provision for income taxes for the
Plan Year (i) for the Company on a consolidated basis, (ii) for any one or
more Subsidiaries or divisions of the Company and/or (iii) for any other
business unit or units of the Company as defined by the Committee at the time
of selection.
g. Income before provision for income taxes for the Plan Year (i)
for the Company on a consolidated basis, (ii) for any one or more
Subsidiaries or divisions of the Company and/or (iii) for any other business
unit or units of the Company as defined by the Committee at the time of
selection.
h. Net income for the Plan Year (i) for the Company on a
consolidated basis, (ii) for any one or more Subsidiaries or divisions of the
Company and/or (iii) for any other business unit or units of the Company as
defined by the Committee at the time of selection.
i. Basic earnings per common share for the Plan Year for the Company
on a consolidated basis.
j. Diluted earnings per common share for the Plan Year for the
Company on a consolidated basis.
k. Average accounts receivable during the Plan Year, calculated by
taking the average of accounts receivable at the end of each fiscal month
during the Plan Year, (i) for the Company on a consolidated basis, (ii) for
any one or more Subsidiaries or divisions of the Company and/or (iii) for any
other business unit or units of the Company as defined by the Committee at
the time of selection.
l. Average inventories during the Plan Year, calculated by taking
the average of inventories at the end of each fiscal month during the Plan
Year, (i) for the Company on a consolidated basis, (ii) for any one or more
Subsidiaries or divisions of the Company and/or (iii) for any other business
unit or units of the Company as defined by the Committee at the time of
selection.
m. Return on average equity for the Plan Year, with average equity
calculated by taking the average of equity at the end of each fiscal month
during the Plan Year, (i) for the Company on a consolidated basis, (ii) for
any one or more Subsidiaries or divisions of the Company and/or (iii) for any
other business unit or units of the Company as defined by the Committee at
the time of selection.
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n. Return on year-end equity for the Plan Year (i) for the Company on
a consolidated basis, (ii) for any one or more Subsidiaries or divisions of
the Company and/or (iii) for any other business unit or units of the
Company as defined by the Committee at the time of selection.
o. Return on average assets for the Plan Year, with average assets
calculated by taking the average of assets at the end of each fiscal month
during the Plan Year, (i) for the Company on a consolidated basis, (ii) for
any one or more Subsidiaries or divisions of the Company and/or (iii) for
any other business unit or units of the Company as defined by the Committee
at the time of selection.
p. Net cash provided by operating activites for the Plan Year (i) for
the Company on a consolidated basis, (ii) for any one or more Subsidiaries
or divisions of the Company and/or (iii) for any other business unit or
units of the Company as defined by the Committee at the time of selection.
q. Net cash provided by operating activities less net cash used in
investing activities for the Plan Year (i) for the Company on a consolidated
basis, (ii) for any one or more Subsidiaries or divisions of the Company
and/or (iii) for any other business unit or units of the Company as defined
by the Committee at the time of selection.
r. Net increase (decrease) in cash and cash equivalents for the
Plan Year (i) for the Company on a consolidated basis, (ii) for any one or
more Subsidiaries or divisions of the Company and/or (iii) for any other
business unit or units of the Company as defined by the Committee at the
time of selection.
2.16. PERFORMANCE LIMIT: A percentage relating to a Performance
Category that equals or exceeds one hundred percent (100%).
2.17. PERFORMANCE PERCENTAGE: The percentage between zero percent
(0%) and the Performance Limit derived from the Performance Scale for the
applicable Performance Category for a Plan Year, with the Performance Limit
representing maximum performance, one hundred percent (100%) representing
target performance and zero percent (0%) representing below minimum
performance in such Performance Category for the Plan Year.
2.18. PERFORMANCE SCALE: A performance scale from which a Performance
Percentage may be objectively calculated for any given level of actual
performance within that Performance Category during the Plan Year. The
Performance Scale may be a linear function, a step function or a combination.
2.19. PLAN: The Harley-Davidson, Inc. Corporate Short Term Incentive
Plan.
2.20. PLAN YEAR: The Company's full fiscal year (or, in the
discretion of the Committee, a period consisting of one or more full fiscal
months of the Company representing less than a full fiscal year that ends on
the last day of a fiscal year).
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2.21. RETIREMENT: Retirement on or after age sixty-five or, with the
consent of the Committee, at an earlier age.
2.22. SUBSIDIARY: A corporation, limited partnership, general
partnership, limited liability company, business trust or other entity of
which more than fifty percent (50%) of the voting power or ownership interest
is directly and/or indirectly held by the Company.
2.23. TARGET AWARD: With respect to a Participant in any Plan Year,
the amount of such Participant's base salary in such Plan Year multiplied by
the Target Percentage for such Plan Year.
2.24. TARGET PERCENTAGE: With respect to a Participant, a
percentage, between fifteen percent (15%) and one hundred percent (100%).
2.25. TOTAL PERFORMANCE PERCENTAGE: With respect to a Participant
for a Plan Year, the sum of the Performance Percentage multiplied by the
Category Percentage for each Performance Category applicable to such
Participant for such Plan Year. If there is only one Performance Category for
a Plan Year for a Participant, then the Performance Percentage is also the
Total Performance Percentage.
ARTICLE III
Administration
3.1. The Committee shall administer the Plan and shall have full
authority to set Target Percentages, Performance Categories, Category
Percentages, Performance Scales and Performance Limits, to determine which
Executives shall participate in the Plan, to interpret the Plan, to establish
and amend rules and regulations for its administration and to perform all
other acts relating to the Plan, including the delegation of administrative
responsibilities, which it believes reasonable and proper.
3.2. The actions and determinations of the Committee on all matters
relating to the Plan shall be final and conclusive.
ARTICLE IV
Eligibility and Participation
All Executives shall be eligible to participate in the Plan. The
Committee shall select in writing, in its sole discretion, the Executives who
shall participate in the Plan for a Plan Year prior to the commencement of
the Plan Year (or such later time as may be permitted under Code section
162(m)). Without limitation, the Committee may (a) select an Executive as a
Participant at any time during the course of a Plan Year and (b) take action
as a result of which there is an additional Target Award in respect of an
Executive who, as to a Plan Year that is in progress, is already a
Participant and as to whom a Target Award is already in effect where the
additional Target Award relates to the same Plan Year or a Plan Year ending
on the same date.
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Members of the Board who are not employees of the Company shall not be
eligible to participate in the Plan.
ARTICLE V
Performance Awards
5.1. TARGET PERCENTAGE: Prior to the commencement of each Plan Year
(or such later time as may be permitted under Code section 162(m)), the
Committee shall fix in writing a Target Percentage for each Target Award for
each Participant for each Plan Year. If the Committee does not fix a new
Target Percentage for a Participant for any Plan Year, the Target Percentage
for such Participant for such Plan Year shall be the same as such
Participant's Target Percentage for the prior Plan Year.
5.2. PERFORMANCE CATEGORIES: Prior to the commencement of each Plan
Year (or such later time as may be permitted under Code section 162(m)), the
Committee shall select in writing one or more of the Performance Categories
for each Target Award for each Participant or group of Participants for each
Plan Year. If more than one Performance Category is chosen for any
Participant or group of Participants, then the Committee shall assign a
Category Percentage to each Performance Category selected for such
Participant or group of Participants; provided that the total of the Category
Percentages for each Target Award must equal 100% for such Participant or
group of Participants. Performance Categories and/or Category Percentages
need not be the same for all Participants for any Plan Year.
5.3. PERFORMANCE SCALE: Prior to the commencement of each Plan Year
(or such later time as may be permitted under Code section 162(m)), the
Committee shall approve in writing a Performance Scale (including without
limitation a Performance Limit) for each Performance Category selected for
each Target Award for each Plan Year.
5.4. PAYMENT OF PERFORMANCE AWARDS: The amount of Performance Awards
for a Plan Year shall be calculated by the Company, certified in writing by
the Committee and, following such certification, paid to Participants for
such Plan Year as soon as reasonably practicable following the end of such
Plan Year. Payments of Performance Awards shall be made, in the sole
discretion of the Committee, in cash, Common Stock or a combination of cash
and Common Stock. If a Performance Award is paid in Common Stock, the Common
Stock shall be valued at Fair Market Value. To the extent paid in Common
Stock, Performance Awards may not be deferred by a Participant under the
terms of any deferred compensation or other plan of the Company. A
Participant whose employment with the Company terminates prior to the end of
a Plan Year shall not be entitled to receive any Performance Award hereunder
for such Plan Year. Notwithstanding the foregoing sentence:
a. The Committee may, in its sole discretion, provide for
payment, in whole or in part, of the Performance Award for such Plan Year
if the Participant's employment with the Company terminates by reason of
the Participant's death, Disability or Retirement; and
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b. Prior to, and for a period of ninety (90) days following, a
Change of Control Event during a Plan Year, the Committee may, in its sole
discretion and in lieu of any other payments under the Plan for such Plan
Year, provide for the payment to all Participants of either (i) Performance
Awards for such Plan Year based on annualizing the Company's actual
performance through the end of the Company's most recently completed fiscal
month prior to such Change of Control Event or (ii) Target Awards for such
Plan Year. Performance Awards or Target Awards payable under this section
5.4(b) shall be paid upon the occurrence of the Cnange of Control Event or
immediately following the Committee's decision to make such payment,
whichever is later.
5.5. DISCRETIONARY REDUCTION OF PERFORMANCE AWARD: The Committee may,
in its sole discretion, at any time prior to payment, reduce the amount of
any Performance Award by up to fifty percent (50%). Such reductions need not
be uniform among Participants. The Committee may, but shall not be required
to, give one or more reasons for any such reduction. This section 5.5 has
been included because the Board believes that even though the Company may
have performed well in the selected Performance Categories for the applicable
Plan Year, there is always a possibility that the Company's performance in
the selected Performance Categories will substantially exceed the Company's
overall financial and strategic performance for the Plan Year. In such a
case, the Board believes that the Committee must have the flexibility to
reduce the amount of the Performance Awards payable to one or more of the
Participants who, after all, are the Executives ultimately responsible for
the Company's performance. The Committee shall not have the discretionary
authority to increase the amount of any Performance Award above the amount
determined in accordance with the terms of the Plan. This section 5.5 shall
not apply following a Change of Control Event.
5.6. MAXIMUM PERFORMANCE AWARD: Notwithstanding anything in the Plan
to the contrary, no Participant shall be entitled to receive more than two
million dollars (before any withholding pursuant to section 6.2 hereof) in
the aggregate under Performance Awards in respect of one Plan Year or in
respect of more than one Plan Year where the Plan Years end on the same date.
5.7. MAXIMUM NUMBER OF SHARES: Not more than 2,000,000 shares of
Common Stock, subject to adjustment in the same manner as provided in the
Company's 1995 Stock Option Plan, as amended, shall be issued pursuant to the
Plan.
ARTICLE VI
Miscellaneous
6.1. NONASSIGNABILITY: Performance Awards shall not be assigned,
pledged or transferred, other than by the laws of descent and distribution,
and shall not be subject to levy, attachment, execution or other similar
process. If a Participant attempts to assign, pledge or transfer any right to
a Performance Award or in the event of any levy, attachment, execution or
similar process upon the rights or interests conferred by the Plan, the
Committee may
-7-
<PAGE>
terminate the participation of the Participant in the Plan effective as of
the date of such notice and the Participant shall have no further rights
hereunder.
6.2. WITHHOLDING TAXES: The Company shall withhold from the payment
of each Performance Award the amount that the Company deems necessary to
satisfy its obligation to withhold Federal, state and local income or other
taxes incurred by reason of the payment of the Performance Award.
6.3. AMENDMENT OR TERMINATION OF THE PLAN: The Board may from time
to time or at any time amend, suspend or terminate the Plan.
6.4. OTHER COMPENSATION: Nothing contained in this Plan shall be
deemed in any way to restrict or limit the Company from making any award or
payment to a Participant under any other plan, policy, program, understanding
or arrangement, whether now existing or hereinafter in effect.
6.5. PAYMENTS TO OTHER PERSONS: If payment of a Performance Award,
in whole or in part, is legally required to be made to any person other than
the applicable Participant, any such payment will be a complete discharge of
the liability of the Company to such Participant for such amount.
6.6. UNFUNDED PLAN: The Company shall have no obligation to purchase
assets, place assets in trust or otherwise take any action to fund, secure or
segregate any amounts to be paid under the Plan.
6.7. INDEMNIFICATION: In addition to any other rights of
indemnification they may have as members of the Board or the Committee, the
members of the Board and the Committee 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 a party by
reason of any action taken or failure to act under or in connection with the
Plan and against all amounts paid by them in settlement thereof (provided
that such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgement in any such action,
suit or proceeding, except a judgement based upon a finding of bad faith;
provided that upon the institution of any such action, suit or proceeding,
the Board or Committee member shall give the Company notice thereof in
writing and an opportunity, at the Company's expense, to handle and defend
such action, suit or proceeding before such Board or Committee member
undertakes to handle and defend such action, suit or proceeding on his or her
own behalf.
6.8. NO EMPLOYMENT RIGHTS: Nothing in this Plan shall confer upon
any Executive or Participant any right to continued employment with the
Company.
6.9. PLAN EXPENSES: Any expenses of administering the Plan shall be
borne by the Company.
-8-
<PAGE>
6.10. IN WRITING: For purposes of this Plan, actions taken by the
Committee "in writing" shall include, without limitation, actions recorded in
the minutes of any meeting of the Committee and any unanimous consent action
of the Committee in lieu of a meeting thereof.
6.11. SECTION HEADINGS: The section headings contained herein are
for convenience only, and in the event of any conflict between the text of
the Plan and the section headings, the text of the Plan shall control.
6.12. APPLICABLE LAW: The Plan shall be governed by the internal
laws of the State of Wisconsin without regard to the conflict of law
principles thereof.
6.13. EFFECTIVE DATE: The Plan has been effective since January 1,
1994. Amendments to the Plan approved by the Board on February 18, 1999 shall
be effective as of January 1, 1999. However, the Plan shall terminate and no
Performance Awards shall be paid hereunder in respect of any Plan Year ending
after December 31, 1998 if the Plan has not been approved by the requisite
vote of the Company's shareholders under Code section 162(m) at the first
meeting of the Company's shareholders held after December 31, 1998.
-9-
<PAGE>
Exhibit 21
----------
HARLEY-DAVIDSON, INC.
SUBSIDIARIES
STATE/COUNTRY
OF
NAME INCORPORATION
---- -------------
H-D Michigan, Inc. Michigan
Harley-Davidson Motor Company Wisconsin
Holiday Holding Corporation Texas
RPT, LLC Delaware
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
Harley-Davidson do Brazil Ltda. Brazil
HD Hong Kong Ltd. Hong Kong
Harley-Davidson Singapore, Inc. Delaware
Buell Motorcycle Company, Inc. Wisconsin
Buell Distribution Corporation Wisconsin
Renovation Realty Investment Services, Inc. Wisconsin
Highland Insurance Service, Inc. Wisconsin
HR, LLC Indiana
Eaglemark Financial Services, Inc. Nevada
Eaglemark Insurance Services, Inc. Nevada
Eaglemark, Inc. Nevada
Harley-Davidson Funding Corporation Nevada
Eaglemark Bank, N.A. 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
Eaglemark International, Inc. Delaware
ODBH Limited United Kingdom
<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 No. 333-07551 and No.
333-51741) 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; (d) the Harley-Davidson,
Inc. 1995 Stock Option Plan; and (e) the Harley-Davidson, Inc. 1998 Director
Stock Plan of our report dated January 16, 1999, 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, 1998.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 19, 1999
<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, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 165,170
<SECURITIES> 0
<RECEIVABLES> 115,283
<ALLOWANCES> 1,866
<INVENTORY> 155,616
<CURRENT-ASSETS> 844,963
<PP&E> 1,076,381
<DEPRECIATION> 448,622
<TOTAL-ASSETS> 1,920,209
<CURRENT-LIABILITIES> 468,515
<BONDS> 0
0
0
<COMMON> 1,584
<OTHER-SE> 1,028,327
<TOTAL-LIABILITY-AND-EQUITY> 1,920,209
<SALES> 2,063,956
<TOTAL-REVENUES> 2,063,956
<CGS> 1,373,286
<TOTAL-COSTS> 1,373,286
<OTHER-EXPENSES> 1,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,828)
<INCOME-PRETAX> 336,229
<INCOME-TAX> 122,729
<INCOME-CONTINUING> 213,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213,500
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.38
</TABLE>
