<PAGE>
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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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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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:
<TABLE>
<CAPTION>
Name of each Exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
COMMON STOCK, $.01 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
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 17, 2000:
$12,243,319,083
Number of shares of the registrant's common stock outstanding at March 17,2000:
151,648,808 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 April
29, 2000.
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1
<PAGE>
PART I
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 note 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,
targets 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(R) 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 group of
companies doing business as Harley-Davidson Motor Company (Motor Company), which
are subsidiaries 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 and ended
1999 with a domestic market share of 50.2%. On a broader measure of market
share, the Company also led the industry with a 26.9% share of the total U.S.
motorcycle market (all on- and off- highway motorcycles and scooters), at the
end of 1999 (registration data provided by the Motorcycle Industry Council).
The Financial Services segment consists of the Company's wholly owned
subsidiary, Harley-Davidson Financial Services, Inc. (HDFS) (formerly known as
Eaglemark Financial Services, Inc.). HDFS is engaged in the business of
financing and servicing wholesale inventory receivables and consumer retail
installment sales contracts (primarily motorcycles). Additionally, HDFS is an
agency for certain unaffiliated insurance carriers providing property/casualty
insurance and extended service contracts to motorcycle owners. HDFS conducts
business in the United States, Canada and Europe.
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, 1999, 1998 and 1997.
2
<PAGE>
Harley-Davidson, Inc.
Revenue and Operating Income 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>
1999
- --------------------------------------
Revenue by segment:
Motorcycles and Related Products $ 558,567 $ 608,716 $ 623,193 $ 662,463 $ 2,452,939
Financial services N/A N/A N/A N/A N/A
----------- ----------- ----------- ----------- -----------
$ 558,567 $ 608,716 $ 623,193 $ 662,463 $ 2,452,939
Operating income by segment:
Motorcycles and Related Products $ 91,477 $ 100,140 $ 95,907 $ 110,077 $ 397,601
Financial services 2,642 9,118 7,514 8,411 27,685
Corporate (2,802) (2,624) (2,024) (1,977) (9,427)
----------- ----------- ----------- ----------- -----------
$ 91,317 $ 106,634 $ 101,397 $ 116,511 $ 415,859
Units:
Harley-Davidson(R) motorcycles 41,181 44,771 42,615 48,620 177,187
Buell(R) motorcycles 2,013 1,512 1,984 2,258 7,767
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 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 motorcycles 34,482 37,753 36,428 42,155 150,818
Buell 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 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
</TABLE>
See note 12 to the 1999 consolidated financial statements for further
information about the Company's business segments.
3
<PAGE>
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(R) 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 31% of the buyers have college degrees.
Approximately 8% of the Company's Harley-Davidson U.S. retail motorcycle sales
are to female buyers.
The Company's Buell(R) 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 38
with a median household income of approximately $62,200. Approximately 80% of
U.S. Buell purchasers have some post high school education and 31% have a
college education. Approximately 4% 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 $18,630. 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(R) 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 manufactures and sells 4 models of Buell
performance motorcycles, with domestic manufacturer's suggested retail prices
ranging from approximately $8,599 to $12,799. 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.
During 1999, the Company also introduced the Custom Vehicle Operations (CVO)
program. The CVO program offers Harley-Davidson motorcycles in limited
quantities, which have been uniquely customized at the factory with the
Company's Genuine Motor Accessories. The limited edition Harley-Davidson
motorcycles are produced at the York, Pennsylvania manufacturing facility on a
separate, low volume assembly line that was formerly used for military contract
production. Approximately 2,700 vehicles representing three different customized
motorcycles were sold through this program during 1999. A fourth custom
motorcycle has recently been introduced and will be available during 2000, in
limited quantities.
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(R)) 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
4
<PAGE>
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 79.7%, 79.9% and 80.7% of revenues in the Motorcycles segment
during 1999, 1998 and 1997, respectively.
The major product categories for the Parts and Accessories (P&A) business are
replacement parts (Genuine Motor Parts) and mechanical and cosmetic accessories
(Genuine Motor Accessories). Worldwide net P&A sales comprised 14.8%, 14.4% and
13.7% of net sales in the Motorcycles segment in 1999, 1998 and 1997,
respectively.
Worldwide net sales of General Merchandise, which includes MotorClothes-TM-
apparel and collectibles, comprised 5.4%, 5.5% and 5.4% of net sales in the
Motorcycles segment in 1999, 1998 and 1997, respectively.
The Company also provides a variety of services to its dealers and retail
customers including service training schools, customized dealer software
packages, delivery of its motorcycles, an owners club membership and a
motorcycle rental program, which is now available in the U.S. through a limited
number of authorized dealers.
LICENSING. The Company endeavors to create an awareness of the "Harley-Davidson"
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 these activities in 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 $26 million, $24 million and $24
million during 1999, 1998 and 1997, 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
620 independently owned full-service Harley-Davidson dealerships to whom the
Company sells directly. This includes 223 combined Harley-Davidson and Buell
dealerships. With respect to sales of new motorcycles, approximately 76% of the
U.S. dealerships sell the Company's motorcycles exclusively. All dealerships
stock and sell the Company's genuine replacement parts, accessories, and
MotorClothes apparel and collectibles, and perform service for the Company's
motorcycles. The Company also sells a smaller portion of its parts and
accessories and general merchandise through "non-traditional" retail outlets.
The "non-traditional" outlets, which are extensions of the main dealership,
consist of service shops, called Secondary Retail Locations (SRL's), Alternate
Retail Outlets (ARO's), and Seasonal Retail Outlets (SRO'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,
accessories, MotorClothes apparel and collectibles, and the lifestyle
experience. In addition, service shops are 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 MotorClothes apparel
and collectibles, and Licensed Products. ARO's and SRO's are not authorized to
sell new motorcycles. Presently, there are approximately 39 ARO's and 36 SRL's
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. In 1999, the Company also entered
into a five-year strategic alliance with Ford Motor Company, which will bring
together resources to focus on a series of technical and marketing ventures.
5
<PAGE>
The Company also sponsors racing activities and special promotional events and
participates in all major motorcycle consumer shows and rallies.
The Harley Owners Group(R), or "H.O.G.(R)", currently has approximately 505,000
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.
The Buell Riders Adventure Group, or "BRAG(R)", was also formed in recent years
and has grown to approximately 10,000 members. BRAG sponsors events, including
national rallies and rides, across the U.S. for Buell motorcycle enthusiasts.
The Company's expenditures on domestic marketing, selling and advertising were
approximately $125.3, $102.1 million and $85.2 million during 1999, 1998 and
1997, respectively.
E-COMMERCE. The Company has established an online catalog featuring its Genuine
Motor Accessories and MotorClothes product lines. Currently, customers can not
make purchases at this web site; however, they can browse and create a wish
list, as well as use a dealer locator to aid in their next visit to an
independent Harley-Davidson/Buell dealership. The new online catalog and dealer
locator make up the first phase of the Company's E-Commerce program which is
currently in development. The Company expects that customers will be able to
make purchases at the web site, through its independent dealer network, sometime
during the first half of 2000.
RETAIL CUSTOMER AND DEALER FINANCING. The Company believes HDFS and other
financial services companies provide adequate retail and wholesale financing to
the Company's domestic and Canadian dealers and customers. In Europe, HDFS
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
HDFS.
INTERNATIONAL SALES. International sales were approximately $537 million, $497
million and $458 million, accounting for approximately 22%, 24% and 26% of net
sales of the Motorcycles segment, during 1999, 1998 and 1997, respectively. In
1999, Japan, Germany, and Canada, in that order, represented the Company's
largest international markets accounted for approximately 57% of international
sales. The international heavyweight (651+cc) market is growing and is
significantly larger than the U.S. heavyweight market. The Company ended 1999
with a 6.5% share of the European heavyweight (651+cc) market and a 19.6% 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 the European Region (Europe/Middle East/Africa), there are currently 349
independent Harley-Davidson dealerships serving 32 country markets. This
includes 181 combined Harley-Davidson and Buell dealerships. Buell is further
represented by 22 dealerships that do not sell Harley-Davidson motorcycles. In
addition, the Company has established 23 ARO's and service shops across the 32
European country markets. The Company has an established infrastructure in
Europe, based out of its headquarters in the United Kingdom, and operates
through a network of independent dealers served by 9 independent distributors
and four wholly owned sales and marketing subsidiaries in France, Germany, The
Netherlands and the United Kingdom. The European management team is continuing
to focus on the expansion and improvement of distributor and dealer
relationships. The Company expects to accomplish this through the creation of a
dealer development team, specialized training programs, retail financing
initiatives, ongoing product development and coordinated Europe-wide and local
marketing programs aimed at attracting new customers. Other initiatives include
the development of information systems linking European subsidiaries directly
with each of the major independent distributors and most of the dealers located
in the subsidiary markets.
6
<PAGE>
In the Asia/Pacific Region, there are currently 241 Harley-Davidson outlets
serving 8 country markets. This includes 48 Harley-Davidson dealerships, 79
combined Harley-Davidson/Buell dealerships, 5 Buell only dealerships, 81
Harley-Shops, and 28 service shops. The Company expects the majority of its
short-term sales and long-term growth opportunities in the Asia-Pacific Region
to come from its existing markets in Japan and Australia. The Company will
continue to support its objectives of maintaining and growing its business in
Southeast Asia, whose markets have begun to stabilize over the last year. The
Company remains cautiously optimistic about the long-term opportunities in these
and other new markets in the Asia-Pacific Region.
The Latin American market consists of 16 country markets managed from Milwaukee,
Wisconsin. The Latin American market has a diverse dealer network including 26
Harley-Davidson dealerships and 10 ARO's and mall stores focused on selling
General Merchandise. In the third quarter of 1999, the Company began production
of select models at its complete-knock-down (CKD) operation in Manuas, Brazil.
Production is intended solely for the Brazil market; see further discussion
under "Motorcycle Manufacturing." In the future, the Company plans to continue
developing its distribution in Brazil and Mexico, its two biggest Latin American
markets, as well as broaden brand management and marketing activities across the
entire region.
In Canada, there are currently 73 independent Harley-Davidson dealerships, one
independent stand-alone Buell 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(R) 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%,
79%, 80% of total heavyweight retail unit sales in the U.S. during 1999, 1998
and 1997, respectively. The custom and touring motorcycles are generally the
most expensive and most profitable vehicles in the market. During 1999, the
heavyweight segment including standard, performance, touring and custom
motorcycles represented approximately 53% of the total U.S. motorcycle market
(on- and off-highway motorcycles and scooters) in terms of new units registered.
For the last 12 years, the Company has led the industry in domestic (United
States) sales of heavyweight motorcycles. The Company's share of the heavyweight
market was 50.2% in 1999 compared to 49.5% in 1998. This is significantly
greater than the Company's largest competitor in the domestic market, which had
a 16.4% market share in 1999.
The following chart includes U.S. retail registration data for the Company and
its major competitors for 1995 - 1999.
7
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Market share of U.S. Heavyweight Motorcycles (1)
(Engine Displacement of 651+cc)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NEW U.S. REGISTRATIONS (THOUSANDS OF UNITS):
Total market new registrations 275.6 227.1 190.2 165.7 151.2
===== ===== ===== ===== =====
Harley-Davidson(R) new registrations 134.5 109.1 93.5 79.9 72.1
Buell(R) new registrations 3.9 3.2 1.9 1.7 .8
----- ----- ----- ----- -----
Total Company new registrations 138.4 112.3 95.4 81.6 72.9
===== ===== ===== ===== =====
PERCENTAGE MARKET SHARE:
Harley-Davidson motorcycles 48.8% 48.1% 49.2% 48.2% 47.7%
Buell motorcycles 1.4 1.4 1.0 1.0 0.5
----- ----- ----- ----- -----
Total Company 50.2 49.5 50.2 49.2 48.2
Honda 16.4 20.3 18.5 18.8 20.2
Suzuki 9.4 10.0 10.1 8.7 9.6
Kawasaki 10.3 10.1 10.4 12.2 10.6
Yamaha 7.0 4.2 5.4 5.9 5.8
Other 6.7 5.9 5.4 5.2 5.6
----- ----- ----- ----- -----
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 1997-1999
and from data published by R.L. Polk & Co. for the years 1995-1996.
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, 74% 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
with its Buell(R) motorcycles.
In the Asia/Pacific region, the Company benefited from double-digit market
growth during 1997 and 1998, which was driven by a change in licensing
requirements in Japan. While total market registrations have decreased in 1999,
registrations for the Company's motorcycles continued to show steady growth
resulting in a 14.2% increase over 1998.
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)
(Units in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NORTH AMERICA(1)
- ----------------------------------
Total market new registrations 297.9 246.2 205.4
===== ===== =====
Harley-Davidson(R) new registrations 142.1 116.1 99.3
Buell(R) new registrations 4.0 3.3 1.9
----- ----- -----
Total Company registrations 146.1 119.4 101.2
===== ===== =====
Total Company market share % 49.0% 48.5% 49.3%
EUROPE(2)
- ----------------------------------
Total market new registrations 306.7 270.2 250.3
===== ===== =====
Harley-Davidson new registrations 17.8 15.7 15.3
Buell new registrations 2.1 1.6 .8
----- ----- -----
Total Company registrations 19.9 17.3 16.1
===== ===== =====
Total Company market share % 6.5% 6.4% 6.4%
JAPAN/AUSTRALIA(3)
- ----------------------------------
Total market new registrations 63.1 69.2 58.9
===== ===== =====
Harley-Davidson new registrations 11.6 10.3 9.7
Buell new registrations .7 .5 .4
----- ----- -----
Total Company registrations 12.3 10.8 10.1
===== ===== =====
Total Company market share % 19.6% 15.6% 17.2%
TOTAL
- ----------------------------------
Total new registrations 667.7 585.6 514.6
===== ===== =====
Harley-Davidson new registrations 171.5 142.1 124.3
Buell new registrations 6.8 5.4 3.1
----- ----- -----
Total Company registrations 178.3 147.5 127.4
===== ===== =====
Total Company market share % 26.7% 25.2% 24.8%
</TABLE>
- --------------
(1) Includes the United States and Canada. Data provided by the Motorcycle
Industry Council.
(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, are designed to improve product quality, productivity and asset
utilization in the production of Harley-Davidson(R) 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(R) 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 Harley-Davidson(R) motorcycle
production capacity to have the capacity to be able to sustain its annual
double-digit growth rate for units shipped. For 2000, the Company's
production target is 196,000 Harley-Davidson units. Matters in this paragraph
are subject to the risks and uncertainties discussed with respect to this
topic under Item 7 "1999 Compared to 1998 -- Results of Operations" below.
The manufacturing techniques employed at BMC, which are similar to those of the
Motor Company, are designed to provide cost control and quality products in a
lower volume atmosphere. BMC 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.
The Company has recently established an assembly operation in Brazil that
imports U.S. made components and sub-assemblies for final assembly in Brazil.
Assembling imported U.S. made components increases the availability of the
Company's motorcycles in Brazil, and reduces duties and taxes, making them more
affordable to a larger group of Brazilian customers. The facility has been
operational since mid 1999 and currently assembles a limited number of select
motorcycle models for the Brazilian market.
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.
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. In the
past three years the Company has established a 218,000 square foot Motor Company
Product Development Center (PDC) and a 43,000 square foot Buell Motorcycle
Company research and development facility. 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 $70.3 million, $58.7 million and $53.3
million during 1999, 1998 and 1997, 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 and services, prevent the unauthorized use of those trademarks and
enhance its image and customer goodwill. The Company believes the
"Harley-Davidson" and Bar and Shield trademarks are highly recognizable by the
general public and very valuable assets. The "Buell" 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 been primarily 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, and is considering possible
reductions in its motorcycle noise standards, which already are lower than those
of the EPA. Similarly, motorcycle noise and emissions levels are being reduced
in Japan, as well as in certain emerging markets. Consequently, the Company will
continue to incur some level of research and development costs related to
motorcycle emissions and noise for the foreseeable future.
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
11
<PAGE>
vehicle safety standards and related regulations. In accordance with NHTSA
policies, the Company has from time to time initiated certain voluntary recalls.
During the last three years, the Company has initiated 20 voluntary recalls at a
total cost of approximately $14.3 million. This information includes the group
of 8 recalls related to approximately 18,600 Buell motorcycles which occurred
during 1999 and had a total cost of approximately $7.6 million. The Company
fully reserves for all estimated costs associated with recalls in the period
that the recalls 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, 1999, the Motorcycles segment had approximately
6,700 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
Harley-Davidson Financial Services, Inc. (formerly known as Eaglemark Financial
Services, Inc.) is the finance subsidiary of the Company. HDFS provides
financial services programs to Harley-Davidson(R) and Buell(R) dealers and
consumers in the United States and Canada. HDFS also provides financial services
programs for personal aircraft products. HDFS offers wholesale financing to the
Company's European motorcycle dealers through a joint venture with another
finance company.
HARLEY-DAVIDSON AND BUELL. HDFS, operating under the trade name Harley-Davidson
Credit and Insurance, provides wholesale financial services to Harley-Davidson
and Buell dealers and retail financing to consumers. Wholesale financial
services 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.
Wholesale financial services are offered by HDFS to all Harley-Davidson dealers
in the United States and Canada and during 1999 were utilized by approximately
92% of such dealers. European dealers are serviced by a joint venture with
another finance company. The wholesale finance operations of HDFS are located in
Plano, Texas.
Retail financial services include installment lending for new and used
Harley-Davidson and Buell motorcycles and the brokerage of a range of motorcycle
insurance policies and extended service warranty agreements. HDFS acts as an
insurance agent and does not assume underwriting risk with regard to insurance
policies and extended service warranty agreements. HDFS' retail financial
services are available through virtually all Harley-Davidson and Buell dealers
in the United States and Canada. HDFS' retail finance operations are located in
Carson City, Nevada. On January 19, 2000, HDFS entered into an agreement,
subject to regulatory approval, to sell its revolving charge receivables. The
purchase price is contingent upon the value and quality of the underlying
receivables and will be determined upon final regulatory approval. In addition
to the purchase price, the Company will also receive royalty payments in
exchange for the buyer's right to use the Harley-Davidson(R) Chrome Visa(R)
trade name.
OTHER MANUFACTURERS. HDFS also provides wholesale and retail financial services
to aircraft dealers and consumers. These programs are similar to programs for
Harley-Davidson and Buell dealers and consumers described above. During 1999,
HDFS ceased offering retail financial services to consumers of certain marine
and recreational vehicles.
12
<PAGE>
FUNDING. HDFS has been financed by operating cashflow, advances and loans from
the Company, asset-backed securitizations, commercial paper, revolving credit
facilities, senior subordinated debt, and redeemable preferred stock. Future
activity is expected to be financed by similar sources.
COMPETITION. The ability to offer a package of wholesale and retail financial
services is a significant competitive advantage of HDFS. Competitors compete for
business based largely on price and, to a lesser extent, service. HDFS competes
based on convenience, service, strong dealer relations, and, to a lesser extent,
price.
During 1999, HDFS financed 22% of new Harley-Davidson(R) motorcycles retailed in
the U.S., an increase of 1% from 1998. Conseco Bank is the only significant
national provider of retail financing that competes with HDFS offering
motorcycle installment loans for the Company's products. Competition to provide
retail financial services to aircraft consumers include manufacturers' captive
finance companies such as Textron Financial Corp. and Raytheon Aircraft Credit
Corp. and other financial entities including United Bank and MBNA. Credit
unions, banks, other financial institutions and insurance agencies also compete
for retail financial services business in segmented markets.
HDFS faces little national competition for the Company's wholesale motorcycle
finance business. Competitors are primarily banks and other financial
institutions providing wholesale financing to Harley-Davidson and Buell dealers
in their local markets. Competition to provide wholesale financial services to
aircraft dealers consists of manufacturers' captive finance companies such as
Textron Financial Corp. and Raytheon Aircraft Credit Corp., and regional
competitors including First Source Bank, Summit Bank and First Bank of Pryor.
PATENTS AND TRADEMARKS. HDFS utilizes various trademarks and trade names
licensed from the Company. Additionally, HDFS has a registered trademark for the
"Eaglemark and Design" logo utilized in aircraft financing programs.
SEASONALITY. In the northern United States and Canada motorcycles are primarily
used during warmer months, generally March through August. Accordingly, HDFS
experiences significant seasonal variations. Retail customers typically do not
buy motorcycles until they can use them. From mid-March through August, retail
financing volume increases and wholesale financing volume decreases as dealers
deplete their inventories. From September through mid-March, there is a decrease
in retail financing volume while dealer inventories build and turnover more
slowly, substantially increasing wholesale financing volume.
EMPLOYEES. As of December 31, 1999, the Financial Services segment had
approximately 520 employees. No employees of HDFS 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, 2000.
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 218,000 Owned
Manufacturing Wauwatosa, WI 422,000 Owned
Manufacturing Menomonee Falls, WI 479,000 Owned
Manufacturing Tomahawk, WI 116,000 Owned
Manufacturing York, PA 1,033,000 Owned
Manufacturing Kansas City, MO 330,000 Owned
Manufacturing East Troy, WI 40,000 Lease expiring
2003
Product Development East Troy, WI 43,000 Lease expiring
and office 2003
Distribution Center Franklin, WI 250,000 Owned
Distribution Center York, PA 86,000 Lease expiring
2006
Motorcycle Testing Talladega, AL 24,000 Leases expiring
2004
Office Ann Arbor, MI 3,000 Lease expiring
2004
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
2001
Warehouse Yokohama, Japan 11,000 Lease expiring
2001
</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(R) assembly); and East Troy,
Wisconsin (Buell(R) motorcycles assembly).
14
<PAGE>
FINANCIAL SERVICES SEGMENT
<TABLE>
<CAPTION>
Approximate
Type of Facility Location Square Feet Status
- ---------------- -------- ----------- ------
<S> <C> <C> <C>
Office Chicago, IL 25,000 Lease expiring
2007
Office Carson City, NV 90,000 Lease expiring
2004
Office Plano, TX 16,000 Lease expiring
2007
</TABLE>
The Financial Services segment has three office facilities: Chicago, Illinois
(corporate headquarters); Carson City, Nevada (retail 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 Protection in undertaking
certain investigation and remediation activities, including a site-wide remedial
investigation/feasibility study. In January 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 was obligated to reimburse the Company for a portion of
its response costs at the Facility. In the first quarter of 1999, the Company
received final payment of Minstar's portion of the 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, 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, ending in 2009.
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 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, as of December 31,1999, 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.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age
---- ---
<S> <C>
Jeffrey L. Bleustein 60
Chairman and Chief Executive Officer
James M. Brostowitz 48
Vice President, Controller and Treasurer
Garry S. Berryman 47
Vice President, Materials Management/ Product Cost - Motor Company
Jon R. Flickinger 42
Vice President, North American Sales - Motor Company
John A. Hevey 42
Vice President, General Manager, Asia/Pacific and
Latin America Regions - Motor Company
Ronald M. Hutchinson 53
Vice President, Parts, Accessories-Motor Company
Gail A. Lione 50
Vice President, General Counsel and Secretary
James A. McCaslin 51
Vice President, Dealer Services-Motor Company
Jerry G. Wilke 48
President and Chief Operating Officer-
Buell Motorcycle Company
James L. Ziemer 50
Vice President and Chief Financial Officer
Donna F. Zarcone 42
President and Chief Operating Officer
Harley-Davidson Financial Services, Inc.
</TABLE>
16
<PAGE>
The following of these individuals have not been employed by the Company in an
executive officer capacity, as defined above, for more than five years: Garry S.
Berryman, Jon R. Flickinger, John A. Hevey, Ronald A. Hutchinson, Gail A. Lione,
James A. McCaslin, Jerry G. Wilke and Donna F. Zarcone.
Mr. Berryman has served as Vice President of Materials Management/Product
Cost of the Motor Company since April 1999. He served as Vice President,
Purchasing of the Motor Company from September 1997 to March 1999. From
July 1995 to August 1997, Mr. Berryman served as Director of Purchasing for the
Motor Company.
Mr. Flickinger has served as Vice President, North American Sales of the Motor
Company since April 1999. From July 1997 until March 1999, Mr. Flickinger
served as General Sales Manager. From June 1996 until June 1997, Mr. Flickinger
served as Field Sales Manager and from January 1995 until May 1996 Mr.
Flickinger served as Director, Field Operations
Mr. Hevey has served as Vice President, General Manager Asia-Pacific and
Latin America Regions of the Motor Company since January 1998. From June 1997
to December 1997, Mr. Hevey served as General Manager Asia Pacific and Latin
America of the Motor Company and from June 1991 to May 1997 Mr. Hevey served
as General Manager Asia Pacific of the Company.
Mr. Hutchinson has served as Vice President, Parts and Accessories 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, the
Atlantic Monthly Company and Applied Printing Technologies, L.P. and General
Counsel of Applied Graphics Technologies, Inc.
Mr. McCaslin has served as Vice President, Dealer Services of the Motor
Company since April 1999. From October 1997 to March 1999 he served as Vice
President, Continuous Improvement for the Motor Company. From 1994 to
September 1997 he served as Vice President and General Manager, York Operations
of the Motor Company.
Mr. Wilke has served as President and Chief Operating Officer of Buell
Motorcycle Company since July 1997. From 1995 to June 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.
Ms. Zarcone has served as President and Chief Operating Officer of HDFS, a
subsidiary of the Company since August 1998. From June 1994 to August 1998, Ms.
Zarcone served as Vice President and Chief Financial Officer of HDFS.
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>
1999 LOW HIGH
---- --- ----
<S> <C> <C>
First quarter $42-1/2 $62-1/4
Second quarter 50-1/2 64-1/16
Third quarter 45-1/16 62-7/16
Fourth quarter 48-3/8 64-1/16
</TABLE>
<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
</TABLE>
The Company paid the following dividends per share:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
First quarter $.040 $.035 $.030
Second quarter .045 .040 .035
Third quarter .045 .040 .035
Fourth quarter .045 .040 .035
</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 1999 and 1998, the Company repurchased 2,428,000 and 600,000 shares,
respectively, of its common stock under the latter authorization.
As of March 17, 2000 there were 64,963 shareholders of record of
Harley-Davidson, Inc. common stock.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $ 2,452,939 $ 2,063,956 $ 1,762,569 $ 1,531,227 $ 1,350,466
Cost of goods sold 1,617,253 1,373,286 1,176,352 1,041,133 939,067
----------- ----------- ----------- ----------- -----------
Gross profit 835,686 690,670 586,217 490,094 411,399
Operating income from financial services 27,685 20,211 12,355 7,801 3,620
Selling, administrative and engineering (447,512) (377,265) (328,569) (269,449) (234,223)
----------- ----------- ----------- ----------- -----------
Income from operations 415,859 333,616 270,003 228,446 180,796
Interest income, net 8,014 3,828 7,871 3,309 96
Other, net (3,080) (1,215) (1,572) (4,133) (4,903)
----------- ----------- ----------- ----------- -----------
Income from continuing operations before
provision for income taxes 420,793 336,229 276,302 227,622 175,989
Provision for income taxes 153,592 122,729 102,232 84,213 64,939
----------- ----------- ----------- ----------- -----------
Income from continuing operations 267,201 213,500 174,070 143,409 111,050
Income from discontinued
operations, net of tax - - - 22,619 1,430
----------- ----------- ----------- ----------- -----------
Net income $ 267,201 $ 213,500 $ 174,070 $ 166,028 $ 112,480
=========== =========== =========== =========== ===========
Weighted average common shares:
Basic 152,374 152,227 151,650 150,683 149,972
=========== =========== =========== =========== ===========
Diluted 154,857 154,703 153,948 152,925 151,900
=========== =========== =========== =========== ===========
Earnings per common share
from continuing operations:
Basic $ 1.75 $ 1.40 $ 1.15 $ .95 $ .74
=========== =========== =========== =========== ===========
Diluted $ 1.73 $ 1.38 $ 1.13 $ .94 $ .73
=========== =========== =========== =========== ===========
Dividends paid $ .175 $ .155 $ .135 $ .11 $ .09
=========== =========== =========== =========== ===========
Balance sheet data:
Working capital $430 840 $ 376,448 $ 342,333 $ 362,031 $ 288,783
Current finance receivables, net 440,951 360,341 293,329 183,808 169,615
Long-term finance receivables, net 354,888 319,427 249,346 154,264 43,829
Total assets 2,112,077 1,920,209 1,598,901 1,299,985 980,670
Short-term debt, including current
maturities of long-term debt - - - 2,580 2,691
Long-term debt, less current maturities 10,078 14,145 20,934 25,122 18,207
Short-term finance debt 181,163 146,742 90,638 8,065 -
Long-term finance debt 280,000 280,000 280,000 250,000 164,330
----------- ----------- ----------- ----------- -----------
Total debt 471,241 440,887 391,572 285,767 185,228
Shareholders' equity 1,161,080 1,029,911 826,668 662,720 494,569
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1999 COMPARED TO 1998
OVERALL
Net sales for 1999 totaled $2,452.9 million, a $388.9 million, or 18.8%,
increase over 1998. Net income and diluted earnings per share for 1999 were
$267.2 million and $1.73 compared to $213.5 million and $1.38 for 1998,
increases of 25.2% and 25.0%, respectively.
The Company increased its quarterly dividend payment in June 1999 from $.04 per
share to $.045 per share which resulted in a total year payout of $.175 per
share.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
(Dollars in millions)
<TABLE>
<CAPTION>
============================================ ============= ============= ============= ===========
Increase
1999 1998 (Decrease) % Change
============================================ ============= ============= ============= ===========
MOTORCYCLE UNIT SHIPMENTS
==================================================================================================
<S> <C> <C> <C> <C>
Harley-Davidson(R) motorcycle units 177,187 150,818 26,369 17.5%
- -------------------------------------------- ------------- ------------- ------------- -----------
Buell(R) motorcycle units 7,767 6,334 1,433 22.6
- -------------------------------------------- ------------- ------------- ------------- -----------
Total motorcycle units 184,954 157,152 27,802 17.7%
==================================================================================================
NET SALES
==================================================================================================
Harley-Davidson motorcycles $1,890.9 $1,595.4 $295.5 18.5%
- -------------------------------------------- ------------- ------------- ------------- -----------
Buell motorcycles 63.5 53.5 10.0 18.6
- -------------------------------------------- ------------- ------------- ------------- -----------
Total motorcycles 1,954.4 1,648.9 305.5 18.5%
- -------------------------------------------- ------------- ------------- ------------- -----------
Motorcycle Parts and Accessories 362.6 297.1 65.5 22.0
- -------------------------------------------- ------------- ------------- ------------- -----------
General Merchandise 132.7 114.5 18.2 15.9
- -------------------------------------------- ------------- ------------- ------------- -----------
Other 3.2 3.5 (.3) (8.6)
- -------------------------------------------- ------------- ------------- ------------- -----------
Total Motorcycles and Related Products $2,452.9 $2,064.0 $388.9 18.8%
============================================ ============= ============= ============= ===========
</TABLE>
The Motorcycles and Related Products (Motorcycles) segment recorded an 18.8%
increase in net sales driven primarily by a 17.5% increase in Harley-Davidson
unit shipments. During 1999, the Company increased its Harley-Davidson
motorcycle unit shipments and production to almost 177,200 units, approximately
26,400 units higher than in 1998. This production increase was accomplished
while executing an extensive model year 2000 product launch that included a
completely redesigned Softail(R) family and the new Twin Cam88B(TM)
counterbalanced engine.
1999 unit shipments were also positively impacted by the sale of 2,700 FXR
models, which are limited edition big twin Harley-Davidson motorcycles. The
FXR's were produced at the York, Pennsylvania manufacturing facility on a
separate, low volume assembly line that was formerly used for military contract
production.
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. Based on the production and shipment levels achieved
in 1999, the Company has increased its 2000 annual production target to 196,000
Harley-Davidson units. (1)
20
<PAGE>
In 1999, Buell(R) motorcycle revenue was up $10.0 million over 1998 on 1,433
additional unit shipments. The average revenue per unit, however, was down
slightly from prior year as a result of the high demand for Buell's lower priced
M2 Cyclone model. The Company expects 2000 Buell unit production to be
approximately 25% higher than the units produced in 1999. (1)
The Company's ability to reach the 2000 targeted production levels and to attain
growth rates in other areas will depend upon, among other factors, the Company's
ability to (i) continue to realize production efficiencies at its production
facilities through the implementation of innovative manufacturing techniques and
other means, (ii) successfully implement production capacity increases in its
facilities, (iii) successfully introduce new products, (iv) avoid unexpected
supplier delays and (v) sell all of the motorcycles it has the capacity to
produce. In addition, the Company could experience delays in making changes to
facilities as a result of risks normally associated with the operation of
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 could also adversely impact the
Company's capital expenditure estimates (see "Liquidity and Capital Resources"
section).
During 1999, the worldwide heavyweight (651+cc) motorcycle market grew 14.0%,
while retail registrations for the Company's motorcycles grew 20.9%, resulting
in a worldwide market share (Harley-Davidson(R) and Buell) of 26.7% compared to
25.2% in 1998 (worldwide information is derived from the individual market
information below).
Industry registrations of domestic (United States) heavyweight motorcycles were
up 21.3% (data provided by the Motorcycle Industry Council) over 1998, while
domestic retail registrations for the Company's motorcycles increased 23.2%. The
Company ended 1999 with a domestic market share of 50.2% compared to 49.5% in
1998.
International revenues totaled $537.3 million during 1999, an increase of $39.9
million or 8.0% over 1998. The Company exported approximately 23.5% of its
Harley-Davidson motorcycle shipments in 1999 compared to 26.5% during 1998. In
order to support the continued strong demand in the U.S. market, the Company
expects to allocate approximately 25% of its unit shipments to international
customers, in 2000.
In Europe, the Company ended 1999 with a 6.5% share of the heavyweight (651+cc)
market, up from 6.4% in 1998 (data provided by Giral S.A.). The European market
grew at a 13.5% rate in 1999, while retail registrations for the Company's
motorcycles were up 15.4%. 1999 marks the first year in four years that the
Company has increased its market share in this region. The positive results can
be attributed to the continuing efforts to grow in this market, which have
included a new management team, an expanded distribution network, special
marketing programs and new products with added European market appeal.
Asia/Pacific (Japan and Australia) data for 1999 (provided by JAMA and ABS)
showed the Company with a 19.6% share of the heavyweight (651+cc) market, up
from 15.6% in 1998. In 1999, retail registrations for the Company's motorcycles
increased 14.2%, while registrations for the Asia/Pacific market in total
decreased 8.8%.
During 1999, Parts and Accessories (P & A) sales totaled $362.6 million, up
$65.5 million, or 22.0%, compared to 1998. Key factors that contributed to the
strong growth in P & A included custom painted motor parts, which were offered
in limited quantities, new accessories offered in connection with the redesigned
Softail family, and strong chrome accessory sales. The Company expects that the
long-term growth rate for P & A will be slightly higher than the growth rate for
Harley-Davidson motorcycle revenue. (1)
21
<PAGE>
General Merchandise sales for 1999, which include clothing and collectibles, of
$132.7 million were up $18.2 million, or 15.9%, compared to 1998. General
Merchandise sales have been positively impacted by a significant number of
independent dealer upgrades and relocations during 1999. The Company expects
that the growth rate for General Merchandise sales, going forward, will be
slightly lower than the growth rate for Harley-Davidson(R) motorcycle revenue.
(1)
GROSS PROFIT
In 1999, gross profit was $145.0 million or 21.0% higher than gross profit in
1998. The increase in gross profit is primarily related to the increase in net
sales. The gross profit margin was 34.1% in 1999 compared to 33.5% in 1998. The
increase in gross profit margin resulted from a combination of items, including
a higher percentage of shipments to domestic customers, a higher average revenue
per unit related to a modest price increase and the absence of facilities start
up costs incurred in the prior year. These items were partially offset by the
negative impact of additional costs related to the extensive model year 2000
product launch and a higher proportion of lower margin Sportster motorcycle
sales in 1999.
OPERATING EXPENSES
(Dollars in Millions)
<TABLE>
<CAPTION>
==================================================================================================
Increase
1999 1998 (Decrease) %Change
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Motorcycles and Related Products $438.1 $366.2 $71.9 19.6%
- --------------------------------------------------------------------------------------------------
Corporate 9.4 11.0 (1.6) (14.6)
- --------------------------------------------------------------------------------------------------
Total operating expenses $447.5 $377.2 $70.3 18.6%
==================================================================================================
</TABLE>
Total operating expenses for 1999 increased $70.3 million, or 18.6%, over 1998
and were 18.2% and 18.3% of net sales in 1999 and 1998, respectively. Operating
expenses in 1999 were higher than the same period a year ago primarily in the
areas of sales, marketing and product development. Operating expenses in 1999
also included a $7.6 million charge related to a recall of Buell(R) motorcycles.
OPERATING INCOME FROM FINANCIAL SERVICES
For 1999, Harley-Davidson Financial Services, Inc. (HDFS) reported operating
income of $27.7 million, an increase of $7.5 million, or 37.0%, over 1998. HDFS
experienced growth in all of its business lines during 1999. Growth was
particularly strong in retail installment lending where HDFS benefited from the
increase in the Company's U.S. motorcycle retail sales and an increase in the
percentage of those sales financed by HDFS, which was 22%, up from 21% in 1998.
In addition, increased activity in the wholesale lending business and commission
revenue growth from the insurance agency business contributed to operating
income increases during 1999.
On January 19, 2000, HDFS entered into an agreement, subject to regulatory
approval, to sell its revolving charge receivables. The purchase price is
contingent upon the value and quality of the underlying receivables and will be
determined upon final regulatory approval. Currently, the Company expects to
realize an after tax gain on the sale which, net of transaction costs, will not
be material to the consolidated results of operations of the Company. In
addition, the Company will also receive royalty payments in exchange for the
buyer's right to use the Harley-Davidson(R) Chrome Visa(R) trade name.
OTHER
Other expense for 1999 was $1.9 million higher than 1998. 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. Other
non-operating expense items, including foreign currency exchange losses,
remained consistent from 1998 to 1999.
22
<PAGE>
INTEREST INCOME
1999 interest income was higher than in the prior year primarily due to higher
levels of cash available for short-term investing when compared to 1998.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 36.5% in 1999 and 1998.
1998 COMPARED TO 1997
OVERALL
Net sales for 1998 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(R) motorcycle units 150,818 132,285 18,533 14.0%
- -------------------------------------------- ------------- ------------- ------------- -----------
Buell(R) 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(R) 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 producing the powertrains for all of the Company's larger
custom and touring models.
23
<PAGE>
During 1998, the worldwide heavyweight (651+cc) motorcycle market grew 13.8%,
while the Company's market share (Harley-Davidson(R) and Buell(R)) was 25.2%
compared to 24.8% in 1997 (worldwide information is derived from the individual
market information following).
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 26.5% 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.) showed 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%.
Asia/Pacific (Japan and Australia) data for 1998 (provided by JAMA and ABS)
showed 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% in 1998, the Asia/Pacific market increased 17.5%, in 1998.
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(TM) 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.
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>
24
<PAGE>
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
In 1998, HDFS reported operating income of $20.2 million up $7.8 million, or
63%, over 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 HDFS increased both its market share and its
profitability in this business. During 1998, HDFS financed 21% of new
Harley-Davidson(R) 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
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 the rebate of harbor
maintenance fees. During 1997, the Company recorded a $1.6 million one-time
benefit related to the sale of Monaco Coach Corporation preferred stock, which
the Company 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.
25
<PAGE>
OTHER MATTERS
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and for Hedging Activities," effective
for fiscal years beginning after June 15, 2000. 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, then depending on the nature of the hedge, changes
in the fair value will either be offset through earnings, against the change in
fair value of hedged assets, liabilities or firm commitments 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 implemented a comprehensive Year 2000 initiative to identify and
address issues associated with the Year 2000. As a result of the Company's
efforts, there were no adverse effects on the Company related to the Year 2000.
Approximately $4.2 million of expense was incurred in 1999 to address Year 2000
issues, and $10.7 million since the initiative began in 1997. The Company does
not expect additional expense to be incurred in 2000.
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, ending in 2009. 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 1999, 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 2000. 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)
26
<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 such as accounts receivable, inventory,
prepaid expenses and accounts payable.
The Company generated $416.1 million of cash from operating activities during
1999 compared to $318.1 million in 1998. The largest component of cash from
operating activities is net income adjusted for depreciation and provision for
credit losses, which contributed $398.9 million in 1999 compared to $311.3
million in 1998.
Changes in other current assets and liabilities increased/(decreased) operating
cash flows by approximately $12.5 million and $(2.9) million during 1999 and
1998, respectively. Changes in working capital during 1999 and 1998 consisted of
the following (in millions):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------
WORKING CAPITAL ITEM 1999 1998
-------------------- ----- -----
<S> <C> <C>
Accounts receivable, net $11.7 $(8.6)
Inventories (13.0) (33.9)
Prepaid expenses (3.5) (3.3)
Accounts payable and accrued expenses 17.3 42.9
----- ------
Total $12.5 $(2.9)
===== =====
</TABLE>
Accounts receivable decreased $11.7 million during 1999 due to a lower mix of
shipments to international distributors in the fourth quarter of 1999 compared
to 1998. International distributor acccounts receivable have longer payment
terms than U.S. dealer accounts receivable. During 1999, inventories increased
by approximately $13.0 million, primarily due to the growth in the Company's
business. During 1998, inventory levels increased approximately $33.9 million,
largely due to the ramp up of two new production facilities. The increase in
accounts payable and accrued expenses in 1999 and 1998 is due primarily to the
increase in production volumes over the prior year. The increase in 1998 was
further impacted by an increase in income taxes payable during 1998.
Capital expenditures amounted to $165.8 million and $182.8 million during 1999
and 1998, respectively. The Company's capital expenditures have continued to
focus on capacity expansion at its new and previously existing facilities but
have also focused on other areas such as product development, systems
development and continuing operations. The Company estimates that capital
expenditures required in 2000 will be in the range of $150-$170 million.(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 HDFS) currently has nominal levels of long-term debt and
has available lines of credit of approximately $41.3 million, of which
approximately $41.2 million remained available at year-end.
27
<PAGE>
HDFS is financed by operating cashflow, asset-backed securitizations and the
issuance of commercial paper, revolving credit facilities, senior subordinated
debt, and redeemable preferred stock. During 1999, HDFS securitized and sold
approximately $575 million of retail installment loans retaining servicing
rights and limited recourse. Approximately $373 million of commercial paper was
outstanding at December 31, 1999. Subject to limitations discussed below, HDFS
may issue up to $600 million of short-term commercial paper with maturities up
to 270 days.
HDFS has a $250 million revolving credit facility due in 2002 and a $350 million
364-day revolving credit facility due September 2000 with approximately $58
million outstanding at December 31, 1999. The Company expects the $350 million
credit facility expiring in September 2000 will be renewed and believes that
suitable alternatives exist. The primary uses of the credit facilities are to
provide liquidity to the unsecured commercial paper program and to fund foreign
business operations. Commercial paper outstanding cannot exceed liquidity
support provided by the unused portion of the combined $600 million credit
facilities. In addition, HDFS has $30 million of senior subordinated notes,
expiring in 2007, outstanding at December 31, 1999.
In connection with various debt agreements, HDFS has met various operating and
financial covenants and remains in compliance at December 31, 1999. The Company
has a support agreement with HDFS whereby, if required, the Company agrees to
provide HDFS with certain financial support in order to maintain certain
financial covenants. Support may be provided at the Company's option as capital
contributions or loans. Accordingly, certain debt covenants may restrict the
Company's ability to withdraw funds from HDFS outside the normal course of
business.
At December 31, 1999, unused lines of credit extended to the HDFS' wholesale
finance customers totaled $306 million. Unused lines of credit extended to the
HDFS' revolving charge customers totaled $841 million at December 31, 1999.
The Company expects future activities of HDFS will be financed from internally
generated funds, capital contributions from the Company, revolving credit
facilities, and continuation of its subordinated debt, redeemable preferred
stock, commercial paper and securitization programs.
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. The Company repurchased 2,428,000 and
600,000 shares of its common stock during 1999 and 1998, respectively, under
this authorization.
28
<PAGE>
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, 1999 and 1998, these contracts represented a
combined U.S. dollar equivalent of approximately $4 million and $118 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 have resulted in a foreign currency loss of
approximately $1 million and $15 million at December 31, 1999 and 1998,
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)
HDFS' 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. HDFS has entered into interest rate swap agreements to reduce the impact
of fluctuations in interest rates on its floating rate debt. The differential
paid or received under the agreements is recognized as an adjustment to interest
expense. Based on 1999 and 1998 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,
targets 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.
29
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, independent auditors 31
Consolidated statements of operations 32
Consolidated balance sheets 33
Consolidated statements of cash flows 34
Consolidated statements of shareholders' equity 35
Notes to consolidated financial statements 36
Supplementary data
Quarterly financial data (unaudited) 54
</TABLE>
30
<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, 1999 and 1998, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 15, 2000, except for Note 13
as to which the date is January 19, 2000
31
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
Net sales $ 2,452,939 $ 2,063,956 $ 1,762,569
Cost of goods sold 1,617,253 1,373,286 1,176,352
----------- ----------- -----------
Gross profit 835,686 690,670 586,217
Operating income from financial services 27,685 20,211 12,355
Selling, administrative and engineering (447,512) (377,265) (328,569)
----------- ----------- -----------
Income from operations 415,859 333,616 270,003
Interest income, net 8,014 3,828 7,871
Other, net (3,080) (1,215) (1,572)
----------- ----------- -----------
Income before provision for income taxes 420,793 336,229 276,302
Provision for income taxes 153,592 122,729 102,232
----------- ----------- -----------
Net income $ 267,201 $ 213,500 $ 174,070
=========== =========== ===========
Basic earnings per common share $ 1.75 $ 1.40 $ 1.15
=========== =========== ===========
Diluted earnings per common share $ 1.73 $ 1.38 $ 1.13
=========== =========== ===========
Cash dividends per common share $ .175 $ .155 $ .135
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
32
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 183,415 $ 165,170
Accounts receivable, net 101,708 113,417
Current portion of finance receivables, net 440,951 360,341
Inventories 168,616 155,616
Deferred income taxes 29,434 29,076
Prepaid expenses 24,870 21,343
----------- -----------
Total current assets 948,994 844,963
Finance receivables, net 354,888 319,427
Property, plant, and equipment, net 681,741 627,759
Goodwill, net 55,408 51,197
Other assets 71,046 76,863
----------- -----------
$ 2,112,077 $ 1,920,209
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 137,660 $ 122,722
Accrued and other liabilities 199,331 199,051
Current portion of finance debt 181,163 146,742
----------- -----------
Total current liabilities 518,154 468,515
Finance debt 280,000 280,000
Long-term liabilities 65,093 67,376
Postretirement health care benefits 75,719 72,083
Deferred income taxes 12,031 2,324
Commitments and contingencies (Note 7)
Shareholders' equity:
Series A Junior Participating preferred stock, none issued - -
Common stock, 159,293,072 and 158,405,584 shares issued
in 1999 and 1998, respectively 1,592 1,584
Additional paid-in capital 236,540 211,960
Retained earnings 1,113,376 873,171
Accumulated other comprehensive income (loss) (2,067) 1,128
----------- -----------
1,349,441 1,087,843
Less:
Treasury stock (7,931,759 and 5,473,969 shares in 1999
and 1998, respectively), at cost (187,992) (57,133)
Unearned compensation (369) (799)
----------- -----------
Total shareholders' equity 1,161,080 1,029,911
----------- -----------
$ 2,112,077 $ 1,920,209
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
33
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 267,201 $ 213,500 $ 174,070
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,822 87,422 70,178
Provision for credit losses 17,919 10,338 6,547
Deferred income taxes 11,393 1,190 2,748
Long-term employee benefits (8,480) 5,302 1,275
Other 1,781 3,180 1,766
Net changes in current assets
and current liabilities 12,502 (2,870) 53,151
----------- ----------- -----------
Total adjustments 148,937 104,562 135,665
----------- ----------- -----------
Net cash provided by operating activities 416,138 318,062 309,735
Cash flows from investing activities:
Net capital expenditures (165,786) (182,770) (186,171)
Finance receivables acquired or originated (3,321,382) (2,722,768) (1,618,307)
Finance receivables collected 2,616,857 2,105,684 1,107,157
Finance receivables sold 574,997 469,653 300,000
Other, net (4,308) (9,952) (9,189)
----------- ----------- -----------
Net cash used in investing activities (299,622) (340,153) (406,510)
Cash flows from financing activities:
Net decrease in notes payable - (773) (2,580)
Net increase in finance debt 34,421 56,104 112,573
Dividends paid (26,996) (24,153) (21,028)
Purchase of common stock for treasury (130,284) (15,175) -
Issuance of common stock under employee stock plans 24,588 23,796 12,793
----------- ----------- -----------
Net cash (used in) provided by financing activities (98,271) 39,799 101,758
----------- ----------- -----------
Net increase in cash and cash equivalents 18,245 17,708 4,983
Cash and cash equivalents:
At beginning of year 165,170 147,462 142,479
----------- ----------- -----------
At end of year $ 183,415 $ 165,170 $ 147,462
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
34
<PAGE>
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock
-------------- Additional
Issued paid-in Retained
shares balance capital earnings
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balance December 31, 1996 156,252,182 $ 1,562 $ 174,371 $ 530,782
Comprehensive income:
Net income - - - 174,070
Other comprehensive loss -
Foreign currency translation
adjustment, net of taxes of $1,332 - - - -
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
Comprehensive income:
Net income - - - 213,500
Other comprehensive income -
Foreign currency translation
adjustment, net of taxes of ($2,278) - - - -
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
Comprehensive income:
Net income - - - 267,201
Other comprehensive income (loss):
Foreign currency translation
adjustment, net of tax benefit of $355 - - - -
Change in net unrealized gains on investment
in retained securitzation interests,
net of taxes of ($1,562) - - - -
Minimum pension liability adjustment,
net of tax benefit of $3,606 - - - -
Comprehensive income
Dividends - - - (26,996)
Repurchase of common stock - - - -
Cancellation of nonvested stock - - - -
Amortization of unearned compensation - - - -
Exercise of stock options 887,488 8 9,076 -
Tax benefit of stock options - - 15,504 -
------ ------- ------- --------
Balance December 31, 1999 159,293,072 $ 1,592 $ 236,540 $ 1,113,376
</TABLE>
<TABLE>
<CAPTION>
Accumulated
other comp-
rehensive Unearned
income Treasury comp-
(Loss) Stock ensation Total
------ ----- -------- -----
<S> <C> <C> <C> <C>
Balance December 31, 1996 $ (566) $ (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) - - (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 (2,835) (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 - - 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 1,128 (57,133) (799) 1,029,911
Comprehensive income:
Net income - - - 267,201
Other comprehensive income (loss):
Foreign currency translation
adjustment, net of tax benefit of - (618) - - (618)
Change in net unrealized gains on investment
in retained securitzation interests,
net of taxes of ($1,562) 2,900 - - 2,900
Minimum pension liability adjustment,
net of tax benefit of $3,606 (5,477) - - (5,477)
Comprehensive income 264,006
Dividends - - - (26,996)
Repurchase of common stock - (130,284) - (130,284)
Cancellation of nonvested stock - (575) 230 (345)
Amortization of unearned compensation - - 200 200
Exercise of stock options - - - 9,084
Tax benefit of stock options - - - 15,504
----------------------------------------------------------------------
Balance December 31, 1999 $ (2,067) $ (187,992) $ (369) $ 1,161,080
======================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1999
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 the group of companies doing business as
Harley-Davidson Motor Company (HDMC), Buell Motorcycle Company (BMC)
and Harley-Davidson Financial Services, Inc. (HDFS), formerly known as
Eaglemark Financial Services, Inc.
The Company operates in two principal business segments: Motorcycles
and Related Products (Motorcycles) and Financial Services. All
inter-company accounts and transactions are eliminated, with the
exception of certain intersegment transactions occurring between the
Motorcycles and Financial Services segments. The uneliminated
intersegment transactions which occur between HDMC and HDFS relate to
interest and fees on wholesale finance receivables; see further
discussion of these items in Note 4.
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.
REVENUE RECOGNITION - In accordance with the contract terms between the
Company and its independent dealers and independent distributors,
revenue is recorded by the Company when products are shipped.
Provisions for sales incentive programs are recognized as sales
reductions at the time of revenue recognition.
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. Loan origination
payments made to dealers for certain retail installment sales contracts
are deferred and amortized over the estimated life of the contract.
Fees earned on revolving charge transactions are recognized upon
assessment. Insurance commissions are recognized as received and
commissions on the sale of extended service contracts are recognized
when the contract is written.
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 accrued
interest in the existing portfolio. HDFS' wholesale and other large
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. Repossessed inventory is recorded at net
realizable value at time of repossession and any deficiency is charged
off at that time.
36
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECEIVABLE SECURITIZATIONS - During 1999, 1998 and 1997, HDFS sold $575
million, $450 million and $300 million of its retail installment loans
through securitization transactions retaining servicing rights and
limited recourse. Gain is recognized equal to the difference between
the allocated cost basis of the receivables sold and the adjusted sales
price. Adjusted sales price is determined based on a present value
estimate of future cash flows on each loan pool sold. The resulting
gain is reduced by applicable securitization costs and the unamortized
loan origination fees relating to the receivables sold. Gain is a
component of the investment in retained securitization interests.
Defaults and prepayments in excess of anticipated amounts can result in
a reduction to investment in retained securitization interests and a
charge to income in future periods.
Investment in retained securitization interests consists of
interest-only strip receivables and reserve account deposits and are
included in finance receivables. Interest-only strip receivables
represent the present value of the projected excess servicing income of
the securitized loans, taking into consideration estimated prepayments,
defaults, and servicing costs. The receivables are reported at market
value with unrealized gains and losses, net of tax, included as a
component of shareholders' equity. As of December 31, 1999, the change
in unrealized gain is $4.5 million, or $2.9 million, net of taxes.
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
$40.9 million in 1999 and $43.7 million in 1998, are valued at the
lower of cost or market using the first-in, first-out (FIFO) method.
DEPRECIATION - Depreciation of plant and equipment is determined on the
straight-line basis over the estimated useful lives of the assets.
Accelerated methods are used for income tax purposes.
PRODUCT WARRANTY - Product warranty costs are charged to operations
based upon the estimated warranty cost per unit sold.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses
were approximately $70.3 million, $58.7 million, and $53.3 million for
1999, 1998 and 1997, respectively.
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 $15.2
million and $9.1 million of costs associated with internal-use software
were capitalized during 1999 and 1998, respectively.
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 amounts have been reclassified
in order to conform to current-year presentation.
37
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
HDFS enters into various interest rate contracts including interest
rate swap agreements to reduce the impact of fluctuations in interest
rates. The credit risk is the amount of uncollected interest related to
these agreements. The differential paid or received under these
agreements is recognized as an adjustment to interest expense. The cost
of interest rate contracts is amortized over the life of the contract.
The unamortized cost of interest rate contracts is included in other
assets. The fair values of interest rate swap agreements and forward
foreign exchange contracts are discussed in Note 11.
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," effective for fiscal years beginning after June 15, 2000.
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,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Accounts receivable:
Domestic $ 12,455 $ 17,328
Foreign 89,253 96,089
--------- --------
$ 101,708 $ 113,417
</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.
The allowance for doubtful accounts deducted from accounts receivable
was $1.8 million and $1.9 million at December 31, 1999 and 1998,
respectively.
38
<PAGE>
2. ADDITIONAL BALANCE SHEET AND CASH FLOWS INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Inventories:
Components at the lower of FIFO cost or market:
Raw materials and work in process $ 61,893 $ 55,336
Motorcycle finished goods 29,977 27,295
Parts and accessories and general merchandise 97,422 93,710
-------- --------
189,292 176,341
Excess of FIFO over LIFO cost 20,676 20,725
-------- --------
$168,616 $155,616
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Property, plant and equipment, at cost:
Land and land improvements $ 13,828 $ 12,633
Buildings and improvements 216,575 213,058
Machinery and equipment 893,129 699,362
Construction in progress 112,618 151,328
---------- ----------
1,236,150 1,076,381
Less accumulated depreciation 554,409 448,622
---------- ----------
$ 681,741 $ 627,759
========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Accrued and other liabilities:
Payroll, performance incentives, and related expenses $ 77,311 $ 75,507
Warranty/recalls 14,655 13,853
Dealer incentive programs 40,322 35,302
Product liability 4,521 5,040
Income taxes payable 26,460 33,502
Other 36,062 35,847
-------- --------
$199,331 $199,051
======== ========
</TABLE>
39
<PAGE>
2. ADDITIONAL BALANCE SHEET AND CASH FLOWS INFORMATION (CONTINUED)
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net changes in other current assets and current liabilities:
Accounts receivable $ 11,709 $ (8,606) $ 38,518
Inventories (13,000) (33,888) (16,089)
Prepaid expenses (3,527) (3,295) 125
Accounts payable and accrued liabilities 17,320 42,919 30,597
--------- --------- ---------
$ 12,502 $ (2,870) $ 53,151
========= ========= =========
Cash paid during the period for interest and income taxes is as follows (in thousands):
Interest $ 28,803 $ 23,795 $ 17,355
========= ========= =========
Income taxes $ 130,937 $ 89,493 $ 86,773
========= ========= =========
</TABLE>
Of the interest paid in 1997 approximately $3.5 million was
capitalized. No interest was capitalized in 1999 or 1998. Interest paid
includes the interest payments of HDFS which is included in operating
income from financial services.
3. BUSINESS ACQUISITIONS
In 1999, the Company acquired all of the remaining common stock of HDFS
from its minority shareholders. The purchase of the minority interest
was completed with cash on hand, and resulted in an increase in
goodwill of approximately $7.5 million.
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.
4. HARLEY-DAVIDSON FINANCIAL SERVICES, INC.
HDFS is a wholly owned subsidiary of the Company engaged in the
business of financing and servicing wholesale inventory receivables,
consumer retail installment sales contracts (primarily motorcycles) and
revolving charge receivables. HDFS is responsible for all credit and
collection activities for the Motorcycles segment's domestic dealer
receivables. Additionally, HDFS is an agency for certain unaffiliated
insurance carriers providing property/casualty insurance and extended
service contracts to motorcycle owners. HDFS conducts business in the
United States, Canada and Europe. The condensed statements of
operations relating to the Financial Services segment are as follows:
(in thousands):
40
<PAGE>
4. HARLEY-DAVIDSON FINANCIAL SERVICES, INC. (CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income $ 78,502 $ 65,203 $ 42,118
Securitization and servicing fee income 36,378 24,380 14,948
Other income 17,861 13,339 9,932
-------- -------- -------
Total income 132,741 102,922 66,998
Interest expense 28,686 24,008 17,764
Provision for credit losses 17,919 10,338 6,547
Operating expenses 58,451 48,365 30,332
-------- ------ ------
Total expenses 105,056 82,711 54,643
------- -------- --------
Operating income from financial services $27,685 $20,211 $12,355
======= ======= =======
</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 $6.3 million, $5.3 million and $4.7 million of interest
on wholesale finance receivables paid by HDMC to HDFS in 1999, 1998,
and 1997, respectively. This interest is paid on behalf of HDMC's
independent dealers as an incentive to hold inventory during the winter
months. Included in other income is approximately $1.5 million, $1.3
million and $.5 million of fees HDMC paid to HDFS for credit and
collection activities on receivables purchased from HDMC during 1999,
1998, and 1997, respectively. The offsetting transactions recorded by
HDMC are included in selling, administrative and engineering in the
consolidated statement of operations.
Finance receivables, included in the current and non-current sections
of the consolidated balance sheets, originated or purchased by HDFS and
owned at December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- -----
<S> <C> <C>
Wholesale $358,052 $295,138
Retail 228,433 204,257
Retail revolving charge 149,818 138,163
Investment in retained securitization interests 73,481 52,188
-------- --------
809,784 689,746
Allowance for credit losses 13,945 9,978
---------- ----------
$795,839 $679,768
======== ========
</TABLE>
Finance receivables include wholesale loans to dealers and retail loans
to consumers. Wholesale loans to dealers are generally secured by
financed inventory or property. Consumer loans consist of secured
installment sales contracts and revolving charge receivables. Title to
vehicles financed by installment sales contracts are held by HDFS.
Where possible, revolving charge receivables are cross-collateralized
by vehicles financed by HDFS. HDFS owns finance receivables originated
in the United States and Canada.
41
<PAGE>
4. HARLEY-DAVIDSON FINANCIAL SERVICES, INC.(CONTINUED)
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, 1999, contractual maturities of
finance receivables were as follows (in thousands):
<TABLE>
<S> <C>
2000 $421,415
2001 60,784
2002 52,343
2003 49,042
2004 47,486
Thereafter 178,714
-------
Total $809,784
========
</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>
1999 1998
-------- --------
<S> <C> <C>
Balance at beginning of year $ 9,978 $ 6,867
Provision for credit losses 17,919 10,338
Charge-offs (13,952) (7,227)
-------- --------
Balance at end of year $ 13,945 $ 9,978
======== ========
</TABLE>
HDFS serviced with limited recourse $847.6 million and $612.4 million
of retail installment loans as of December 31, 1999 and 1998,
respectively.
See Note 13 for further information regarding finance receivables.
HDFS' debt as of December 31, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Commercial paper $373,212 $356,677
Revolving credit facility 57,951 40,065
Senior subordinated notes 30,000 30,000
-------- --------
Total finance debt $461,163 $426,742
======== ========
</TABLE>
HDFS may issue commercial paper of up to $600 million. Maturities may
range up to 270 days from the issuance date. Outstanding commercial
paper may not 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 6.01% and
5.28% at December 31, 1999 and 1998, respectively.
Prior to December 31, 1999, HDFS entered into agreements with a group
of financial institutions providing bank credit facilities ("Credit
Facilities") of $600 million. The Credit Facilities consist of a $350
million, 364-day revolving loan due September 2000 and a $250 million,
five-year revolving loan due November 2002. At December 31, 1998, HDFS
had Credit Facilities of $500 million. The primary uses of the Credit
Facilities are to provide liquidity to the unsecured commercial paper
program and to fund foreign business operations. Subject to certain
limitations, HDFS has the option to borrow in various currencies.
Interest is based on London interbank offered rates ("LIBOR") or other
short-term rate indices, depending on the type of advance.
42
<PAGE>
4. HARLEY-DAVIDSON FINANCIAL SERVICES, INC.(CONTINUED)
At December 31, 1999, and 1998, HDFS had $30 million of 6.79% Senior
Subordinated Notes ("Notes") outstanding due in 2007. The Notes provide
for semi-annual interest payments, and principal at maturity. HDFS has
tendered various operating and financial covenants and remains in
compliance at December 31, 1999.
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, 1999. 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.
The Company and HDFS have entered into a support agreement wherein, if
required, the Company agrees to provide HDFS certain financial support
to maintain certain financial covenants. Support may be provided either
as capital contributions or loans at the Company's option.
5. NOTES PAYABLE AND LETTERS OF CREDIT
As of December 31, 1999 and 1998, the Company had unsecured lines of
credit totaling approximately $41.3 million and $43.9 million,
respectively, of which approximately $41.2 million and $43.6 million,
respectively, remained available.
At December 31, 1999 and 1998, the Company had outstanding letters of
credit of $7.5 million and $13.3 million, respectively. The letters of
credit typically act as a guarantee of payment to certain third parties
in accordance with specified terms and conditions.
6. INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 117,612 $ 99,567 $ 85,237
State 15,890 13,325 9,612
Foreign 8,697 8,647 4,634
--------- --------- ---------
142,199 121,539 99,483
Deferred:
Federal 9,899 979 85
State 1,788 282 2,215
Foreign (294) (71) 449
--------- --------- ---------
11,393 1,190 2,749
--------- --------- ---------
Total $ 153,592 $ 122,729 $ 102,232
========= ========= =========
</TABLE>
43
<PAGE>
6. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount which would be
provided by applying the statutory U.S. corporate income tax rate due
to the following items:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Provision at statutory rate 35.0% 35.0% 35.0%
Foreign income taxes .6 .8 .7
Foreign tax credits (.6) (.8) (.7)
State taxes, net of federal benefit 2.8 2.9 2.9
Foreign sales corporation (.9) (.7) (1.1)
Other (.4) (.7) .2
------ ------ ------
Provision for income taxes 36.5% 36.5% 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>
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accruals not yet tax deductible $ 37,470 $ 35,192
Postretirement health care benefit obligation 32,298 30,212
Other, net 120 502
-------- --------
69,888 65,906
Deferred tax liabilities:
Depreciation, tax in excess of book (31,567) (24,392)
Pension obligation (10,460) (4,198)
Other, net (10,458) (10,564)
-------- --------
(52,485) (39,154)
-------- --------
Net deferred tax asset $ 17,403 $ 26,752
======== ========
</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 Protection in undertaking
certain investigation and remediation activities, including a site-wide
remedial investigation/feasibility study. In January 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 was obligated to reimburse the Company for a portion
of its response costs at the Facility. In the first quarter of 1999, the
Company received final payment of Minstar's portion of the 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, 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, ending in 2009.
Under the terms of the sale of the Commercial Vehicles Division, the
Company has agreed to indemnify Utilimaster Corporation, until 2008, 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.
The Company self-insures its product liability losses in the United
States up to $2.5 million per occurrence. Catastrophic coverage is
maintained for occurrences in excess of $2.5 million up to $100 million.
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.
45
<PAGE>
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. The Company also has unfunded
supplemental executive retirement plan (SERP) agreements with certain
executive officers which was instituted to replace benefits lost under
the Tax Revenue Reconciliation Act of 1993.
<TABLE>
<CAPTION>
Pension and Postretirement Health
SERP Benefits Care Benefits
1999 1998 1999 1998
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of year $253,620 $213,393 $60,942 $52,892
Service cost 12,215 9,954 2,921 2,438
Interest cost 19,763 17,449 4,774 4,261
Actuarial losses 19,682 17,736 5,086 3,726
Plan participant's contributions 3,875 3,218 - -
Benefits paid (17,970) (8,130) (3,126) (2,375)
--------- -------- ------ ------
Benefit obligation, September 30 291,185 253,620 70,597 60,942
Change in plan assets:
Fair value of plan assets, beginning of year 187,205 180,640 - -
Actual return on plan assets 51,095 (1,897) - -
Company contributions 39,955 13,374 3,126 2,375
Plan participant contributions 3,875 3,218 - -
Benefits paid (17,970) (8,130) (3,126) (2,375)
--------- -------- ------ ------
Fair value of plan assets, September 30 264,160 187,205 - -
Funded status of the plans:
Benefit obligation over plan assets 27,025 66,415 70,597 60,942
Unrecognized transition asset 131 467 - -
Unrecognized prior service cost (22,051) (24,648) 1,650 1,888
Unrecognized net gain (loss) (21,889) (38,478) 4,291 9,739
--------- ------ ------- -------
(Prepaid) accrued benefit cost, September 30 (16,784) 3,756 76,538 72,569
Fourth quarter contributions - (709) (819) (486)
--------- --------- --------- --------
(Prepaid) accrued benefit cost, December 31 $(16,784) $ 3,047 $75,719 $72,083
======== ======== ======= =======
</TABLE>
Amounts recognized in the Statement of Financial Position, December 31:
<TABLE>
<S> <C> <C> <C> <C>
Accrued benefit liability $ 17,423 $ 26,762 $75,719 $72,083
Prepaid benefit cost (22,132) - - -
Intangible asset (2,992) (23,715) - -
Accumulated other comprehensive income (9,083) - - -
-------- -------- ------- -------
Net amount recognized $(16,784) $ 3,047 $75,719 $72,083
======== ======== ======= =======
</TABLE>
Amounts applicable to the Company's pension and SERP plan(s) with
accumulated benefit obligations in excess of plan assets (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------ ----
<S> <C> <C>
Projected benefit obligation $21,266 $159,927
Accumulated benefit obligation $15,166 $144,009
Fair value of plan assets $ 112 $117,586
</TABLE>
46
<PAGE>
8. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
Pension and Postretirement Health
SERP Benefits Care Benefits
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(In thousands)
Components of net periodic benefit cost:
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 12,215 $ 9,954 $ 8,442 $ 2,921 $ 2,438 $ 1,990
Interest cost 19,763 17,449 15,764 4,774 4,261 3,967
Expected return on plan assets (19,457) (16,864) (14,052) - - -
Amortization of unrecognized:
Net transition asset (336) (349) (349) - - -
Prior service cost 2,668 2,664 2,488 (238) (238) (239)
Net (gain) loss 4,563 421 696 (362) (624) (602)
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 19,416 $ 13,275 $ 12,989 $ 7,095 $ 5,837 $ 5,116
======== ======== ======== ======== ======== ========
Weighted-average assumptions as of
September 30:
Discount rate 8.0% 8.0% 8.3% 8.0% 8.0% 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 shares of the Company's
common stock at December 31, 1999 and 1998. The market value of these
shares at December 31, 1999 and 1998 was $40.8 million and $30.2
million, respectively. Dividends paid on shares of the Company's stock
were approximately $111,000 and $99,000 during 1999 and 1998,
respectively.
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 assumption used in
determining the accumulated postretirement benefit obligation of the
health care plans was 6.0% in 1999, which is the trend rate going
forward. 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 1999 $1,145 $ (940)
Effect on postretirement benefit obligation
as of September 30, 1999 $7,311 $(6,524)
</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 $3.2 million, $2.9 million and $2.9 million for
matching contributions during 1999, 1998 and 1997, respectively.
47
<PAGE>
9. CAPITAL STOCK
The Company has 400 million authorized shares of $.01 par value common
stock.
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. The Company repurchased 2,428,000 and 600,000
shares of its common stock during 1999 and 1998, respectively, under
this authorization.
In addition, the Board of Directors has authorized the Company to
repurchase up to 8 million shares of the Company's outstanding common
stock. To date, the Company has repurchased 3,300,000 shares of its
common stock and as a result the Company has 4,700,000 shares available
to repurchase under this authorization.
The Company has designated .5 million of the 2.0 million authorized
shares of preferred stock as Series A Junior Participating preferred
stock (Preferred Stock). The Preferred Stock has a par value of $1 per
share. Each share of Preferred Stock, none of which is outstanding, is
entitled to 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), the
agreement with respect to which was amended effective February 19,
1999. 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 $800, 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, Preferred Stock having a
market value of two times the exercise price. In addition, prior to the
acquisition of 50% or more of the outstanding common stock by an
acquiring party, the Board of Directors of the Company may exchange the
Rights (other than the rights of an acquiring party which have become
void), in whole or in part, at an exchange ratio of eight shares of
common stock or one one-hundredth of a share of Preferred Stock (or a
share of the Company's preferred stock having equivalent rights,
privileges, and preferences) per Right, subject to adjustment.
48
<PAGE>
9. CAPITAL STOCK (CONTINUED)
The Company has a nonvested stock plan under 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.
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 or reversed upon cancellation. 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year at
$2.37 to $17.53 per share 152,800 152,800 167,800
Nonvested shares vested at
$2.37 to $13.47 per share - - (15,000)
Nonvested shares cancelled at
$17.53 per share (32,800) - -
------- ------- -------
Total shares outstanding at end of year at
$11.53 to $13.47 per share 120,000 152,800 152,800
======= ======= =======
</TABLE>
Income (expense) in 1999, 1998 and 1997 associated with this nonvested
stock plan was $.1 million, $(.3) 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 vest ratably over a four year period
with the first 25 percent becoming exercisable one year after the date
of grant. 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 4.1 million and 4.7 million at December 31, 1999 and 1998,
respectively.
The following table summarizes the transactions of the Stock Option
Plan for the three-year period ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ---------------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 6,053,803 $15.86 6,242,401 $12.23 6,398,292 $10.04
Options granted 753,570 51.63 1,030,061 29.26 1,058,178 20.86
Options exercised (887,488) 9.59 (1,164,143) 8.04 (989,259) 6.51
Options cancelled (161,605) 26.03 (54,516) 21.18 (224,810) 15.88
---------- ---------- ---------
Options outstanding at
end of year 5,758,280 21.24 6,053,803 15.86 6,242,401 12.23
========= ========= =========
Weighted-average fair value
of options granted during
the year $20.45 $11.28 $8.13
====== ====== =====
Number of options
exercisable at end of
year 3,778,727 $14.06 3,523,630 $10.85 3,653,421 $ 8.45
========= ====== ========= ====== ========= ======
</TABLE>
49
<PAGE>
9. CAPITAL STOCK (CONTINUED)
Options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
1999
----------------------------
Weighted-Average
Options Exercise Price
------- --------------
<S> <C> <C>
Price range $2.30 to $10;
weighted-average contractual
life of 2.2 years 1,004,780 $ 6.52
Price range $10.01 to $20;
weighted-average contractual
life of 5.2 years 2,253,974 $14.66
Price range $20.01 to $30;
weighted-average contractual
life of 7.6 years 1,712,559 $24.90
Price range $30.01 to $40;
weighted-average contractual
life of 8.3 years 24,900 $35.91
Price range $40.01 to $50;
weighted-average contractual
life of 8.9 years 19,961 $42.38
Price range $50.01 to $60;
weighted-average contractual
life of 9.1 years 742,106 $51.63
---------
5,758,280
=========
</TABLE>
As is permitted under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," (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 employee 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 is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $260,459 $207,857 $169,883
Pro forma earnings per share:
Basic $1.71 $1.37 $1.12
Diluted $1.68 $1.35 $1.11
</TABLE>
In determining the effect of SFAS No. 123, the Black-Scholes option
pricing model was used with the following weighted-average assumptions
for 1999, 1998 and 1997: risk-free interest rate of approximately 6%;
dividend yield of .3%, .5% and .5%, respectively; 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 (In thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NUMERATOR
Net income used in computing basic and
diluted earnings per share $267,201 $213,500 $174,070
======== ======== ========
DENOMINATOR
Denominator for basic earnings per share -
weighted-average common shares 152,374 152,227 151,650
Effect of dilutive securities - employee
stock options and nonvested stock 2,483 2,476 2,298
-------- -------- --------
Denominator for diluted earnings per share -
adjusted weighted-average shares 154,857 154,703 153,948
======= ======= =======
Basic earnings per share $1.75 $1.40 $1.15
===== ===== =====
Diluted earnings per share $1.73 $1.38 $1.13
===== ===== =====
</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, 1999, 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
$4 million and $118 million at December 31, 1999 and 1998,
respectively. 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, 1999 or 1998, are
deferred and recognized at the time the hedged transaction is settled.
HDFS has utilized interest rate swap agreements to reduce the impact of
fluctuations in interest rates. At December 31, 1999 and 1998, HDFS had
approximately $28 million and $38 million, respectively, in interest
rate swaps outstanding. The fair value of the swaps, if HDFS were to
terminate the agreements, was not material at December 31, 1999 and
1998.
51
<PAGE>
12. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
(a) Business segments
The Company operates in two business 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 segment consists primarily of the
Company's wholly owned subsidiary, H-D Michigan, Inc., its wholly owned
subsidiaries doing business as 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, Harley-Davidson Financial Services, Inc. (formerly known as
Eaglemark Financial Services, Inc.). HDFS is engaged in the business of
financing and servicing wholesale inventory receivables, consumer
retail installment sales contracts (primarily motorcycles) and
revolving charge receivables. Additionally, HDFS is an agency for
certain unaffiliated insurance carriers providing property/casualty
insurance and extended service contracts to motorcycle owners. HDFS
conducts business in the United States, Canada and Europe.
Information by industry segment is set forth below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales:
Motorcycles and Related Products $2,452,939 $2,063,956 $1,762,569
Financial Services (1) N/A N/A N/A
-------- -------- ---------
$2,452,939 $2,063,956 $1,762,569
======== ======== =========
Income from operations:
Motorcycles and Related Products $397,601 $324,448 $265,486
Financial Services (1) 27,685 20,211 12,355
General corporate expenses (9,427) (11,043) (7,838)
-------- -------- --------
$415,859 $333,616 $270,003
======== ======== ========
</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>
1999
Identifiable assets $1,058,934 $868,711 $184,432 $2,112,077
Depreciation and amortization 107,737 5,813 272 113,822
Net capital expenditures 162,071 3,565 150 165,786
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
</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>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues (1):
United States $1,915,631 $1,566,559 $1,304,748
Canada 80,271 73,908 62,717
Germany 88,814 84,436 81,541
Japan 135,589 102,245 90,243
Other foreign countries 232,634 236,808 223,320
---------- ---------- ----------
$2,452,939 $2,063,956 $1,762,569
========== ========== ==========
Long-lived assets (2):
United States $775,764 $722,854 $607,363
Other foreign countries 8,948 6,676 7,073
--------- --------- ---------
$784,712 $729,530 $614,436
======== ======== ========
</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>
13. SALE OF HARLEY-DAVIDSON(R) CHROME VISA(R) Card
On January 19, 2000, HDFS entered into an agreement, subject to
regulatory approval, to sell its revolving charge receivables. The
purchase price is contingent upon the value and quality of the
underlying receivables and will be determined upon final regulatory
approval. Currently, the Company expects to realize an after tax gain
on the sale which, net of transaction costs, will not be material to
the consolidated results of operations of the Company. In addition, the
Company will also receive royalty payments in exchange for the buyer's
right to use the Harley-Davidson Chrome Visa(R) trade name.
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Quarterly Financial Data (Unaudited)
------------------------------------
(In millions, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $558.6 $466.5 $608.7 $517.2 $623.2 $517.2 $662.5 $563.1
Gross profit 189.1 149.9 213.0 177.5 204.7 171.1 228.9 192.2
Net income 59.0 44.7 68.6 55.4 65.4 52.4 74.2 61.0
Earnings per common share:
Basic $.39 $.29 $.45 $.36 $.43 $.34 $.49 $.40
Diluted $.38 $.29 $.44 $.36 $.42 $.34 $.48 $.39
</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 2000 annual meeting of shareholders, which will be filed
within 120 days after the close of the Company's fiscal year ended December 31,
1999 (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, 1999 32
Consolidated balance sheets at December 31, 1999 and 1998 33
Consolidated statements of cash flows for each of the three years in the period ended
December 31, 1999 34
Consolidated statements of shareholders' equity for each of the three years
in the period ended December 31, 1999 35
Notes to consolidated financial statements 36
Consolidated financial statement schedules for each of the three years in the period
ended December 31, 1999
II - Valuation and qualifying accounts 60
</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)]
<TABLE>
<CAPTION>
Exhibit No Description
- ---------- -----------
<S> <C>
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 Amendment to Rights Agreement dated as of February 18, 1999
4.5 New form of Rights Agreement between the Registrant and
Firstar Bank, N.A. dated February 17, 2000
10.1* Form of Employment Agreement between the Registrant and
Mr. Bleustein
10.2* 1988 Stock Option Plan
10.3* 1990 Stock Option Plan
10.4* 1995 Stock Option Plan as amended through May 8, 1999
10.5* 1998 Director Stock Plan
</TABLE>
* 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)]
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.6* Form of Transition Agreement between the Registrant and each
of Messrs. Berryman, Bleustein, Brostowitz, Hevey, Hutchinson,
McCaslin, Wilke, Ziemer and Ms. Lione and Ms. Zarcone
10.7* Deferred Compensation Plan
10.8* Form of Life Insurance Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Hutchinson, McCaslin,
Wilke and Ziemer and Ms. Lione
10.9* Harley-Davidson, Inc. Corporate Short Term Incentive Plan
10.10* Form of Restricted Stock Agreement between the Registrant and
each of Messrs. Bleustein and McCaslin
10.11* Form of Severance Benefits Agreement between the Registrant
and each of Messrs. Bleustein, Brostowitz, Hutchinson, Hevey,
McCaslin, Wilke and Ziemer and Ms. Lione
10.12* Form of Supplemental Executive Retirement Plan Agreement
between the Registrant and each of Messrs. Bleustein, McCaslin
and Ziemer.
10.13* Harley-Davidson Pension Benefit Restoration Plan
</TABLE>
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated
58
<PAGE>
LIST OF EXHIBITS
----------------
[Items 14(a)(3) and 14(c)]
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.14* Description of post-retirement life insurance equivalent
10.15* 1998 Stock Option Plan
10.16* Employment Agreement between the Registrant and Ms. Zarcone
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule for 1999
</TABLE>
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated
59
<PAGE>
SCHEDULE II
HARLEY-DAVIDSON, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998 and 1997
(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:
1999 $1,866 $ 16 $ (86) $1,796
====== ==== ====== ======
1998 $1,548 $481 $(163) $1,866
====== ==== ====== =======
1997 $1,918 $ 0 $(370) $1,548
====== ===== ====== ======
Finance receivables -
Allowance for doubtful accounts:
1999 $9,978 $17,919 $(13,952) $13,945
====== ======= ======== =======
1998 $6,867 $10,338 $(7,227) $9,978
====== ======= ======= ======
1997 $4,133 $ 6,547 $(3,813) $6,867
====== ======= ======= ======
Inventories -
Allowance for obsolescence and loss (2):
1999 $8,301 $4,887 $(2,520) $10,668
====== ====== ======== =======
1998 $3,758 $5,190 $ (647) $8,301
====== ====== ======== ======
1997 $4,634 $1,642 $(2,518) $3,758
====== ====== ======= ======
</TABLE>
(1) Represents amounts written off to the reserve, net of recoveries.
(2) Stated in last-in, first-out (LIFO) cost.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13, or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 27, 2000.
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 27, 2000.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/S/ Jeffrey L. Bleustein
-------------------------------- Chairman, Chief Executive Officer and Director
Jeffrey L. Bleustein (Principal executive officer)
/S/ James L. Ziemer
-------------------------------- Vice-President and Chief Financial Officer
James L. Ziemer (Principal financial officer)
/S/ James M. Brostowitz
-------------------------------- Vice-President/Controller and Treasurer
James M. Brostowitz (Principal accounting officer)
/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>
61
<PAGE>
INDEX TO EXHIBITS
--------------------------
[Items 14(a)(3) and 14(c)]
<TABLE>
<CAPTION>
Exhibit No Description
- ---------- -----------
<S> <C>
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))
4.5 New form of Rights Agreement between the Registrant and
Firstar Bank, N.A. dated February 17, 2000 (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-A dated February 18, 2000 (File No. 1-9183))
10.1* Form of Employment Agreement between the Registrant and
Mr. Bleustein (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. 1-91830))
10.4* Harley-Davidson, Inc. 1995 Stock Option Plan as amended
through May 8, 1999
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))
</TABLE>
* 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)]
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.6* Form of Transition Agreement between the Registrant and each
of Messrs. Berryman, Bleustein, Brostowitz, Hevey, Hutchinson,
McCaslin, Wilke and Ziemer and Ms. Lione and Ms. Zarcone
(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, Hutchinson, McCaslin,
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
(incorporated herein by reference to Exhibit 10.9 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-9183))
10.10* Form of Restricted Stock Agreement between the Registrant and
each of Messrs. Bleustein 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, Hutchinson, Hevey,
McCaslin, 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, McCaslin
and Ziemer. (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))
</TABLE>
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated
63
<PAGE>
INDEX TO EXHIBITS
-----------------
[Items 14(a)(3) and 14(c)]
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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))
10.15* 1998 Stock Option Plan (incorporated by reference to Exhibit
4.1 to the Registrants' Registration Statement on Form S-8
(File No. 333-75347))
10.16* Employment Agreement between the Registrant and Ms. Zarcone
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule for 1999
</TABLE>
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated
64
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION, as amended through March 22, 2000
* * * * *
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 eight hundred two million
(802,000,000), consisting of (i) eight hundred million (800,000,000) 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.
At the close of business on March 22, 2000, the effective date of this Amendment
(the "Record Date"), each share of Common Stock outstanding or held in treasury
immediately prior to the Record Date shall be changed into two shares of said
Common Stock (the "Stock Split"). Stock certificates evidencing shares of Common
Stock outstanding or held in treasury on the Record Date shall continue to
evidence the same number of shares that such certificates evidenced prior to the
Record Date and the additional shares issuable as a result of such change of
each share into two shares shall be evidenced by new certificates distributed on
April 7, 2000 to persons who are at the close of business on the Record Date the
holders of record of Common Stock.
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.
<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
Stock represented by the surrendered certificate (and the Corporation
forthwith shall cancel such surrendered certificate), subject to the
requirements of applicable securities laws. Each such new certificate
shall be registered in such name and shall represent such number of
shares as shall be requested by the holder of the surrendered
certificate and shall be substantially identical in form to the
surrendered certificate.
(iii) Replacement.
(A) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder without bond shall
be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of Common
Stock and, in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation, or,
in the case of any such mutilation, upon surrender of such
certificate, the Corporation shall, at the expense of the registered
holder, execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of Common
Stock represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
(B) The term "outstanding" when used in this ARTICLE IV with
reference to the shares of Common Stock as of any particular time
shall not include any such shares represented by any certificate in
lieu of which a new certificate has been executed and delivered by the
Corporation in accordance with paragraph (ii) or this paragraph (iii),
but shall include only those shares represented by such new
certificate.
(iv) DISSOLUTION. Upon the dissolution of the Corporation, after
there shall have been paid to or set aside for the holders of shares
of Preferred Stock the full preferential amounts to which they are
entitled, if any, the holders of outstanding shares of Common Stock
shall be entitled to receive pro rata the remaining net assets of the
Corporation.
(b) PREFERRED STOCK. The Preferred Stock may be issued from time
to time in one or more series in any manner permitted by law and the
provisions of the Restated Articles of Incorporation of the Corporation, as
determined from time to time by the Board of Directors and stated in the
resolution or resolutions providing for the issuances thereof, prior
-2-
<PAGE>
to the issuances of any shares thereof. Unless otherwise provided in the
resolution establishing a series of Preferred Stock, prior to the issue of
any shares of a series so established or to be established, the Board of
Directors may, by resolution, amend the relative rights and preferences of
the shares of such series.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each class of stock
shall be governed by the following provisions:
(i) The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred Stock
in one or more series, with such voting powers, full or limited, or without
voting powers and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in
the resolution or resolutions providing for the issue thereof adopted by
the Board of Directors, including (but not limiting the generality thereof)
the following:
(A) The number of shares to constitute each such series, and the
designation of each such series.
(B) The dividend rate of each such series, the conditions and
dates upon which such dividends shall be payable, the relation which
such dividends shall bear to the dividends payable on any other class
or classes or on any other series of any class or classes of stock,
and whether such dividends shall be cumulative or non-cumulative.
(C) Whether the shares of each such series shall be subject to
redemption by the Corporation and if made subject to such redemption,
the times, prices and other terms and conditions of such redemption.
(D) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of each such series.
(E) Whether or not the shares of each such series shall be
convertible into or exchangeable for shares of any other class or
classes or any other series of any other class or classes of stock of
the Corporation, and, if provision be made for conversion or exchange,
the times, prices, rates of exchange, adjustments, and other terms and
conditions of such conversion or exchange.
(F) The extent, if any, to which the holders of the shares of
each such series shall be entitled to vote with respect to the
election of directors or otherwise.
(G) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock.
-3-
<PAGE>
(H) The rights of the holders of the shares of each such series
upon the dissolution of, or upon the distribution of the assets of,
the Corporation.
(ii) Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters as may be
stated in the resolutions of the Board of Directors creating any series of
Preferred Stock, the holders of any such series shall have no voting powers
whatsoever.
(c) SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. Pursuant to the
authority vested in the Board of Directors of the Corporation in accordance with
the provisions of the Restated Articles of Incorporation, a series of shares of
Preferred Stock, par value $1.00 per share, of the Corporation be and it hereby
is created, and the designation and amount thereof and the voting powers,
preferences and relative, participating, optional or other special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" ("SERIES A
PREFERRED STOCK") and the number of shares constituting such series shall be
500,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the provisions for adjustment hereinafter set forth,
the holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount per share (rounded to
the nearest cent) equal to 100 times the aggregate per share amount of all cash
dividends declared or paid on the Common Stock, presently $0.01 par value per
share, of the Corporation ("COMMON STOCK") and (ii) a preferential cash dividend
("PREFERENTIAL DIVIDENDS"), if any, on the fifteenth day of January, April, July
and October of each year (each a "QUARTERLY DIVIDEND PAYMENT DATE") commencing
on the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Preferred Stock, in an amount equal to $1.00
per share of Series A Preferred Stock less the per share amount of all cash
dividends declared on the Series A Preferred Stock pursuant to clause (i) of
this sentence since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall, at any time after the issuance of any share or
fraction of a share of Series A Preferred Stock, make any distribution on the
shares of Common Stock of the Corporation, whether by way of a dividend or a
reclassification of stock, a recapitalization, reorganization or partial
liquidation of the Corporation or otherwise, which is payable in cash or any
debt security, debt instrument, real or personal property or any other property
(other than cash dividends subject to clause (i) of the immediately preceding
sentence and other than a distribution of shares of Common Stock or other
capital stock of the Corporation and other than a distribution of rights or
warrants to acquire any such share, including any debt security convertible into
or
-4-
<PAGE>
exchangeable for any such share, at a price less than the Current Market Price
of such share), then and in each such event the Corporation shall simultaneously
pay on each then outstanding share of Series A Preferred Stock of the
Corporation a distribution, in like kind, of 100 times (subject to the
provisions for adjustment hereinafter set forth) such distribution paid on a
share of Common Stock. The dividends and distributions on the Series A Preferred
Stock to which holders thereof are entitled pursuant to clause (i) of the first
sentence of this paragraph and pursuant to the second sentence of this paragraph
are hereinafter referred to as "PARTICIPATING DIVIDENDS" and the multiple of
such cash and non-cash dividends on the Common Stock applicable to the
determination of the Participating Dividends, which shall be 100 initially but
shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "DIVIDEND MULTIPLE". In the event the Corporation shall at
any time after June 1, 1991 declare or pay any dividend or make any distribution
on Common Stock payable in shares of Common Stock, or effect a subdivision or
split or a combination, consolidation or reverse split of the outstanding shares
of Common Stock into a greater or lesser number of shares of Common Stock, then
in each such case the Dividend Multiple thereafter applicable to the
determination of the amount of Participating Dividends which holders of shares
of Series A Preferred Stock shall be entitled to receive shall be the Dividend
Multiple applicable immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare each Participating Dividend at the
same time it declares any cash or non-cash dividend or distribution on the
Common Stock in respect of which a Participating Dividend is required to be
paid. No cash or noncash dividend or distribution on the Common Stock in respect
of which a Participating Dividend is required to be paid shall be paid or set
aside for payment on the Common Stock unless a Participating Dividend in respect
of such dividend or distribution on the Common Stock shall be simultaneously
paid, or set aside for payment, on the Series A Preferred Stock.
(C) Preferential Dividends shall begin to accrue on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issuance of any shares of Series A Preferred Stock.
Accrued but unpaid Preferential Dividends shall cumulate but shall not bear
interest. Preferential Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the shareholders of the Corporation.
The number of votes which a holder of Series A Preferred Stock is entitled to
cast, as the same may be adjusted from time to
-5-
<PAGE>
time as hereinafter provided, is hereinafter referred to as the "VOTE MULTIPLE".
In the event the Corporation shall at any time after June 1, 1991 declare or pay
any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Vote Multiple thereafter applicable to
the determination of the number of votes per share to which holders of shares of
Series A Preferred Stock shall be entitled after such event shall be the Vote
Multiple immediately prior to such event multiplied by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(C) In the event that the Preferential Dividends accrued on the Series
A Preferred Stock for six or more consecutive quarterly dividend periods shall
not have been declared and paid or set apart for payment, the holders of record
of the Series A Preferred Stock, voting together with the holders of record of
any other series of preferred stock of the Corporation who shall have been
granted voting rights to elect directors upon a default in the payments of
dividends by the Corporation, shall have the right, at the next meeting of
shareholders called for the election of directors, voting as a class, to elect
up to two members to the Board of Directors, which directors shall be in
addition to the number provided for under the Corporation's Restated Articles of
Incorporation prior to such event, to serve until the expiration of their
respective terms and until their successors are elected and qualified or their
earlier resignation, removal or incapacity or until such earlier time as all
accrued and unpaid Preferential Dividends upon the outstanding shares of Series
A Preferred Stock shall have been paid (or set aside for payment) in full
(PROVIDED, HOWEVER, that after giving effect to the exercise of such right,
under no circumstances shall the number of members of the Board of Directors
exceed the maximum number of directors, if any, then specified in the Restated
Articles of Incorporation). The holders of shares of Series A Preferred Stock
shall continue to have the right to elect directors as provided by the
immediately preceding sentence until all accrued and unpaid Preferential
Dividends upon the outstanding shares of Series A Preferred Stock shall have
been paid (or set aside for payment) in full. Such directors may be removed and
replaced by such shareholders, and vacancies in such directorships may be filled
only by such shareholders (or by the remaining director elected by such
shareholders, if there be one) in the manner permitted by law.
(D) Except as otherwise required by law or set forth herein, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for the taking of any
corporate action.
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Section 4. CERTAIN RESTRICTIONS.
(A) Whenever Preferential Dividends are in arrears or the Corporation
shall be in default in payment thereof, thereafter and until all accrued and
unpaid Preferential Dividends, whether or not earned or declared, on shares of
Series A Preferred Stock outstanding shall have been paid or set aside for
payment in full, and in addition to any and all other rights which any holder of
shares of Series A Preferred Stock may have in such circumstances, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to, the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity as to dividends with the Series A
Preferred Stock, unless dividends are paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) except as permitted by subparagraph (iv) of this paragraph 4
(A), redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock; PROVIDED that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (both as to dividends and upon liquidation,
dissolution or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock (either as to dividends or upon liquidation,
dissolution or winding up), except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
(C) The Corporation shall not issue any shares of Series A Preferred
Stock except upon exercise of rights (the "RIGHTS") issued pursuant to that
certain Rights Agreement dated as of August 6, 1990 between the Corporation (as
successor to Harley-Davidson, Inc., a
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Delaware corporation) and First Wisconsin Trust Company (the RIGHTS AGREEMENT"),
a copy of which is on file with the Secretary of the Corporation at its
principal executive office and shall be made available to shareholders of record
without charge upon written request therefor addressed to said Secretary.
Notwithstanding the foregoing sentence, nothing contained in the provisions
hereof shall prohibit or restrict the Corporation from issuing for any purpose
any series of preferred stock with rights and privileges similar to, different
from, or greater than, those of the Series A Preferred Stock.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. The
Corporation shall cause all such shares upon their retirement and cancellation
to become authorized but unissued shares of Preferred Stock, without designation
as to series, and such shares may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the holders of shares of stock ranking junior
to the Series A Preferred Stock (upon liquidation, dissolution or winding up)
unless the holders of shares of Series A Preferred Stock shall have received,
subject to adjustment as hereinafter provided, the greater of either (A) $1.00
per share plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not earned or declared, to the date of such payment, or (B)
the amount equal to 100 times the aggregate amount to be distributed per share
to holders of Common Stock, or (ii) to the holders of stock ranking on a parity
upon liquidation, dissolution or winding up with the Series A Preferred Stock,
unless simultaneously therewith distributions are made ratably on the Series A
Preferred Stock and all other shares of such parity stock in proportion to the
total amounts to which the holders of shares of Series A Preferred Stock are
entitled under clause (i) (A) of this sentence and to which the holders of such
parity shares are entitled, in each case upon such liquidation, dissolution or
winding up. The amount to which holders of Series A Preferred Stock shall be
entitled upon liquidation, dissolution or winding up of the Corporation pursuant
to clause (i) (B) of the foregoing sentence is hereinafter referred to as the
"PARTICIPATING LIQUIDATION AMOUNT" and the multiple of the amount to be
distributed to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the Corporation applicable pursuant to said clause
to the determination of the Participating Liquidation Amount, which shall be 100
initially but shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "LIQUIDATION MULTIPLE". In the event the
Corporation shall at any time after June 1, 1991 declare or pay any dividend on
Common Stock payable in shares of Common Stock, or effect a subdivision or split
or a combination, consolidation or reverse split of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common Stock, then in
each such case the Liquidation Multiple thereafter applicable to the
determination of the Participating Liquidation Amount to which holders of Series
A Preferred Stock shall be entitled after such event shall be the Liquidation
Multiple applicable immediately prior to such event multiplied by a fraction the
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numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. CERTAIN RECLASSIFICATIONS AND OTHER EVENTS.
(A) In the event that holders of shares of Common Stock of the
Corporation receive after June 1, 1991 in respect of their shares of Common
Stock any share of capital stock of the Corporation (other than any share of
Common Stock of the Corporation), whether by way of reclassification,
recapitalization, reorganization, dividend or other distribution or otherwise (a
"TRANSACTION"), then and in each such event the dividend rights, voting rights
and rights upon the liquidation, dissolution or winding up of the Corporation of
the shares of Series A Preferred Stock shall be adjusted so that after such
event the holders of Series A Preferred Stock shall be entitled, in respect of
each share of Series A Preferred Stock held, in addition to such rights in
respect thereof to which such holder was entitled immediately prior to such
adjustment, to (i) such additional dividends as equal the Dividend Multiple in
effect immediately prior to such Transaction multiplied by the additional
dividends which the holder of a share of Common Stock shall be entitled to
receive by virtue of the receipt in the Transaction of such capital stock, (ii)
such additional voting rights as equal the Vote Multiple in effect immediately
prior to such Transaction multiplied by the additional voting rights which the
holder of a share of Common Stock shall be entitled to receive by virtue of the
receipt in the Transaction of such capital stock and (iii) such additional
distributions upon liquidation, dissolution or winding up of the Corporation as
equal the Liquidation Multiple in effect immediately prior to such Transaction
multiplied by the additional amount which the holder of a share of Common Stock
shall be entitled to receive upon liquidation, dissolution or winding up of the
Corporation by virtue of the receipt in the Transaction of such capital stock,
as the case may be, all as provided by the terms of such capital stock.
(B) In the event that holders of shares of Common Stock of the
Corporation receive after June 1, 1991 in respect of their shares of Common
Stock any right or warrant to purchase Common Stock (including as such a right,
for all purposes of this paragraph, any security convertible into or
exchangeable for Common Stock) at a purchase price per share less than the
Current Market Price (as hereinafter defined) of a share of Common Stock on the
date of issuance of such right or warrant, then and in each such event the
dividend rights, voting rights and rights upon the liquidation, dissolution or
winding up of the Corporation of the shares of Series A Preferred Stock shall
each be adjusted so that after such event the Dividend Multiple, the Vote
Multiple and the Liquidation Multiple shall each be the product of the Dividend
Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in
effect immediately prior to such event multiplied by a fraction the numerator of
which shall be the number of shares of Common Stock outstanding immediately
before such issuance of rights or warrants plus the maximum number of shares of
Common Stock which could be acquired upon exercise in full of all such rights or
warrants and the denominator of which shall be the number of shares of Common
Stock outstanding immediately before such issuance of rights or warrants plus
the number of shares of Common Stock which could be purchased, at the
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Current Market Price of the Common Stock at the time of such issuance, by the
maximum aggregate consideration payable upon exercise in full of all such rights
or warrants.
(C) In the event that holders of shares of Common Stock of the
Corporation receive after June 1, 1991 in respect of their shares of Common
Stock any right or warrant (except for the Rights) to purchase capital stock of
the Corporation (other than shares of Common Stock), including as such a right,
for all purposes of this paragraph, any security convertible into or
exchangeable for capital stock of the Corporation (other than Common Stock), at
a purchase price per share less than the Current Market Price of such shares of
capital stock on the date of issuance of such right or warrant, then and in each
such event the dividend rights, voting rights and rights upon liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall each be adjusted so that after such event each holder of a share of
Series A Preferred Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such event, to receive (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such event multiplied, first, by the additional dividends to which the holder
of a share of Common Stock shall be entitled upon exercise of such right or
warrant by virtue of the capital stock which could be acquired upon such
exercise and multiplied again by the Discount Fraction (as hereinafter defined)
and (ii) such additional voting rights as equal the Vote Multiple in effect
immediately prior to such event multiplied, first, by the additional voting
rights to which the holder of a share of Common Stock shall be entitled upon
exercise of such right or warrant by virtue of the capital stock which could be
acquired upon such exercise and multiplied again by the Discount Fraction and
(iii) such additional distributions upon liquidation, dissolution or winding up
of the Corporation as equal the Liquidation Multiple in effect immediately prior
to such event multiplied, first, by the additional amount which the holder of a
share of Common Stock shall be entitled to receive upon liquidation, dissolution
or winding up of the Corporation upon exercise of such right or warrant by
virtue of the capital stock which could be acquired upon such exercise and
multiplied again by the Discount Fraction. For purposes of this paragraph, the
"DISCOUNT FRACTION" shall be a fraction the numerator of which shall be the
difference between the Current Market Price (as hereinafter defined) of a share
of the capital stock subject to a right or warrant distributed to holders of
shares of Common Stock of the Corporation as contemplated by this paragraph
immediately after the distribution thereof and the purchase price per share for
such share of capital stock pursuant to such right or warrant and the
denominator of which shall be the Current Market Price of a share of such
capital stock immediately after the distribution of such right or warrant.
(D) For purposes of this Section 7, the "CURRENT MARKET PRICE" of a
share of capital stock of the Corporation (including a share of Common Stock) on
any date shall be deemed to be the average of the daily closing prices per share
thereof over the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; PROVIDED, HOWEVER, that, in the event
that such Current Market Price of any such share of capital stock is determined
during a period which includes any date that is within 30 Trading Days after the
ex-dividend date for (i) a dividend or distribution on stock payable in shares
of such stock or
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securities convertible into shares of such stock, or (ii) any subdivision,
split, combination, consolidation, reverse stock split or reclassification of
such stock, then, and in each such case, the Current Market Price shall be
appropriately adjusted by the Board of Directors of the Corporation to reflect
the Current Market Price of such stock to take into account ex-dividend trading.
The closing price for any day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the shares are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares are
listed or admitted to trading or, if the shares are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") or such other system then in use, or if on
any such date the shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the shares selected by the Board of Directors of the
Corporation. The term "TRADING Day" shall mean a day on which the principal
national securities exchange on which the shares are listed or admitted to
trading is open for the transaction of business or, if the shares are not listed
or admitted to trading on any national securities exchange, on which the New
York Stock Exchange or such other national securities exchange as may be
selected by the Board of Directors of the Corporation is open. If the shares are
not publicly held or not so listed or traded on any day within the period of 30
Trading Days applicable to the determination of Current Market Price thereof as
aforesaid, "Current Market Price" shall mean the fair market value thereof per
share as determined in good faith by the Board of Directors of the Corporation.
In either case referred to in the foregoing sentence, the determination of
Current Market Price shall be described in a statement filed with the Secretary
of the Corporation.
Section 8. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination, share exchange or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any such
case each outstanding share of Series A Preferred Stock shall at the same time
be similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and/or other property (payable in like kind), as the case may
be, for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote Multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event.
Section 9. EFFECTIVE TIME OF ADJUSTMENTS.
(A) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event requiring
such adjustments occurs.
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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:
(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
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consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Shareholder; or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or in a series of transactions)
to or with any Interested Shareholder or any Affiliate of any
Interested Shareholder of all or a Substantial Part of the assets of
the Corporation (including, without limitation, any securities of a
Subsidiary) or any Subsidiary; or
(C) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or in a series of transactions) of any securities
of the Corporation or any Subsidiary to any Interested Shareholder or
any Affiliate of any Interested Shareholder in exchange for cash,
securities or other property (or a combination thereof); or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested Shareholder;
or
(E) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger of
the Corporation with any of its Subsidiaries or any share exchange to
which the Corporation is a party or any self tender offer for or
repurchase of securities of the Corporation by the Corporation or any
Subsidiary or any other transaction (whether or not with or into or
otherwise involving an Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of
the Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Shareholder or any Affiliate of any Interested
Shareholder, shall require the affirmative vote of the holders of at
least 66-2/3% of the voting power of the then outstanding shares of
stock of the Corporation entitled to vote generally in the election of
directors (the "Voting Stock") (it being understood that for purposes
of this ARTICLE V, each share of the Voting Stock shall have the
number of votes granted to it pursuant to ARTICLE IV of these Restated
Articles of Incorporation), which vote shall include the affirmative
vote of at least a majority of the voting power of the then
outstanding shares of Voting Stock held by shareholders other than the
Interested Shareholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law or by these Restated
Articles of Incorporation or in any agreement with any national
securities exchange or otherwise.
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(ii) The term "Business Combination" as used in this ARTICLE V shall
mean any transaction which is referred to in any one or more of
subparagraphs (A) through (E) of paragraph (i) of this Section (a).
(b) WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section (a) of
this ARTICLE V shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative vote as is
required by law, any other provision of these Restated Articles of Incorporation
or any agreement with any national securities exchange, if, in the case of a
Business Combination that does not involve any cash or other consideration being
received by the shareholders of the Corporation, solely in their respective
capacities as shareholders of the Corporation, the condition specified in the
following paragraph (i) is met, or, in the case of any other Business
Combination, the conditions specified in either of the following paragraphs (i)
and (ii) are met:
(i) The Business Combination shall have been approved by a majority of
the Disinterested Directors (as hereinafter defined).
(ii) Each of the five conditions specified in the following
subparagraphs (A) through (E) shall have been met:
(A) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of consummation of the
Business Combination of consideration other than cash to be received
per share by holders of each class of Voting Stock in such Business
Combination shall be at least equal to the higher of the following:
(I) (if applicable) the Highest Per Share Price (as
hereinafter defined) (including the brokerage commissions,
transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Stock beneficially
owned by the Interested Shareholder which were acquired
beneficially by such Interested Shareholder (x) within the
two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the
"Announcement Date") or (y) in the transaction in which it became
an Interested Shareholder, whichever is higher; or
(II) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the date on which the
Interested Shareholder became an Interested Shareholder (such
latter date is referred to in this ARTICLE V as the
"Determination Date"), whichever is higher; or
(III) an amount which bears the same or greater percentage
relationship to the Fair Market Value of such class of Voting
Stock on the Announcement Date as the Highest Per Share Price
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determined in (ii) (A) (I) above bears to the Fair Market Value
of such class of Voting Stock on the date of the commencement of
the acquisition of Voting Stock by such Interested Shareholder.
(B) The consideration to be received by holders of the
outstanding Voting Stock shall be in cash or in the same form as was
previously paid in order to acquire beneficially shares of Voting
Stock that are beneficially owned by the Interested Shareholder. If
the Interested Shareholder beneficially owns shares of Voting Stock
that were acquired with varying forms of consideration, the form of
consideration to be received by holders of Voting Stock shall be
either cash or the form used to acquire beneficially the largest
number of shares of Voting Stock beneficially acquired by it prior to
the Announcement Date.
(C) After such Interested Shareholder has become an Interested
Shareholder and prior to consummation of such Business Combination:
(I) there shall have been (x) no reduction in the annual rate of
dividends paid on the Voting Stock (except as necessary to reflect any
subdivision of the Voting Stock), except as approved by a majority of
the Disinterested Directors, and (y) an increase in such annual rate
of dividends as necessary to reflect any reclassification (including
any reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number of
outstanding shares of the Voting Stock, unless the failure so to
increase such annual rate is approved by a majority of the
Disinterested Directors; and (II) such Interested Shareholder shall
have not become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which resulted in such
Interested Shareholder becoming an Interested Shareholder.
(D) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(E) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to shareholders of the Corporation at
least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
(c) CERTAIN DEFINITIONS. For the purposes of this ARTICLE V:
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(i) A "person" shall mean any individual, firm, corporation, group (as
such term is defined in Section 13(d) (3) of the Securities Exchange Act of
1934, as in effect on March l, 1991) or other entity.
(ii) "Interested Shareholder" shall mean any person (other than the
Corporation, any Subsidiary or any compensation or retirement plan of the
Corporation) who or which, as of the record date for the determination of
shareholders entitled to notice of and to vote on such Business Combination
or immediately prior to the consummation of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more than
10% of the voting power of the outstanding Voting Stock; or
(B) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock; or
(C) is an assignee of or has otherwise succeeded to beneficial
ownership of any shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in question
beneficially owned by any Interested Shareholder, if such assignment
or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(iii) A person shall be a "beneficial owner" of any Voting Stock:
(A) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(B) which such person or any of its Affiliates or Associates has
(I) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise
or (II) the right to vote or direct the vote pursuant to any
agreement, arrangement or understanding; or
(C) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purposes of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(iv) For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph (ii) of this Section (c), the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through
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application of paragraph (iii) of this Section (c) but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding or upon exercise of conversion
rights, warrants or options, or otherwise.
(v) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 as in effect on March 1, 1991.
(vi) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation or by a Subsidiary or by the Corporation and one or more
subsidiaries; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in paragraph (ii) of this Section (c), the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
(vii) "Substantial Part" means more than 10% of the book value of the
total assets of the person or entity in question, as of the end of its most
recent fiscal year ending prior to the time of the determination.
(viii) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with, and not a nominee
of, the Interested Shareholder and was a member of the Board of Directors
prior to the time that the Interested Shareholder became an Interested
Shareholder, and any successor of a Disinterested Director who is
unaffiliated with, and not a nominee of, the Interested Shareholder and who
is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
(ix) "Fair Market Value" means: (A) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the Composite Tape for American Stock
Exchange-Listed Stocks, or if such stock is not quoted on such Composite
Tape, on the American Stock Exchange or on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sales price or bid quotation with respect to
a share of stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by a majority of the Disinterested Directors in good faith; and
(B) in the case of stock of any class or series which is not traded on any
United States registered securities exchange nor in the over-the-counter
market or in the case of property other
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<PAGE>
than cash or stock, the fair market value of such property on the date in
question as determined by a majority of the Disinterested Directors in good
faith.
(x) References to "Highest Per Share Price" shall reflect an
appropriate adjustment for any dividend or distribution in shares of Voting
Stock or any stock split or reclassification of outstanding shares of such
stock into a greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller number
of shares of such stock.
(xi) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in subparagraph (A) of paragraph (ii) of Section (b) of this ARTICLE V
shall include the shares of Voting Stock retained by the holders of such
shares.
(d) POWERS OF THE BOARD OF DIRECTORS. A majority of the Disinterested
Directors of the Corporation shall have the power and duty to determine for the
purposes of this ARTICLE V on the basis of information known to them after
reasonable inquiry, all facts necessary to determine compliance with this
ARTICLE V, including, without limitation, (i) whether a person is an Interested
Shareholder, (ii) whether a Business Combination is proposed by or on behalf of
an Interested Shareholder or an Affiliate of an Interested Shareholder, (iii)
the number of shares of Voting Stock beneficially owned by any person, (iv)
whether a person is an Affiliate or Associate of another person, (v) whether the
requirements of Section (b) (ii) of this ARTICLE V have been met with respect to
any Business Combination, and (vi) whether any Business Combination involves all
or a Substantial Part of the assets of the Corporation or any Subsidiary. The
good faith determination of a majority of the Disinterested Directors shall be
conclusive and binding for all purposes of this ARTICLE V.
(e) NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS.
Nothing contained in this ARTICLE V shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
(f) AMENDMENT OR REPEAL. Notwithstanding any other provision of these
Restated Articles of Incorporation or the By-laws of the Corporation to the
contrary (and notwithstanding the fact that a lesser percentage may be specified
by law, these Restated Articles of Incorporation or the By-laws of the
Corporation), the affirmative vote of the holders of at least 66-2/3% of the
voting power of the then outstanding shares of Voting Stock shall be required to
alter, amend or repeal this ARTICLE V or to adopt any provision inconsistent
therewith provided, however, that if there is an Interested Shareholder on the
record date for the meeting at which such action is submitted to the
shareholders for this consideration, such 66-2/3% vote must include the
affirmative vote of at least a majority of the voting power of the then
outstanding shares of Voting Stock held by shareholders other than the
Interested Shareholder.
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<PAGE>
ARTICLE VI
(a) BOARD OF DIRECTORS.
(i) NUMBER, TERM AND QUALIFICATION. The authorized number of directors
of the Corporation which shall constitute the entire Board of Directors
shall be such as from time to time shall be determined by a majority of the
then authorized number of directors, but in no case shall the authorized
number of directors be less than six nor more than fifteen. The directors
shall be divided with respect to the time for which they severally hold
office into three classes, as nearly equal in number as possible (but with
not less than two directors in each class), as determined by the Board of
Directors, with the members of each class to hold office until their
successors have been elected and qualified. At each annual meeting of
shareholders, the successors of the members of the class of directors whose
term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of shareholders held in the third year
following the year of their election. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(ii) REMOVAL. Any director may be removed from office by the
shareholders, but only for cause and only by the affirmative vote of a
majority of the votes then entitled to be cast in an election of directors.
(iii) VACANCIES. Any vacancy occurring in the Board of Directors,
including, but not limited to, a vacancy created by an increase in the
number of directors or the removal of a director, shall be filled only by
the affirmative vote of a majority of the directors then in office, even if
such majority is less than a quorum of the Board of Directors, or by a sole
remaining director. If no director remains in office, any vacancy may be
filled by the shareholders. Any director elected to fill a vacancy shall
serve until the next election of the class for which such director shall
have been chosen.
(b) NOMINATIONS AND QUALIFICATIONS OF DIRECTORS. Nominations for the
election of directors may be made by the Board of Directors or a committee
appointed by the Board of Directors or by any shareholder entitled to vote
generally in the election of directors. However, any shareholder entitled to
vote generally in the election of directors may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nominations has been given, either by personal delivery or
by United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual meeting of
shareholders, 60 calendar days in advance of the date in the current fiscal year
of the Corporation corresponding to the date the Corporation released its proxy
statement to shareholders in connection with the annual meeting for the
immediately preceding year and (ii) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders. Each such notice shall set forth: (A) the name
and address of the shareholder who intends to make the
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<PAGE>
nomination and of the person or persons to be nominated, (B) a representation
that the shareholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice, (C) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder, (D) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the then current proxy rules of the Securities and
Exchange Commission, if the nominee were to be nominated by the Board and (E)
the consent of each nominee to serve as a director of the Corporation if so
elected. The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure. The directors
shall be at least twenty-one years of age. Directors need not be shareholders.
At each meeting of shareholders for the election of directors at which a quorum
is present, the persons receiving a plurality of the votes cast shall be elected
directors.
ARTICLE VII
The shareholders shall not be entitled to take action without a
meeting by less than unanimous consent. Except as otherwise required by law and
subject to the express rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
annual and special meetings of the shareholders shall be called, the record date
or dates shall be determined and notice shall be sent as set forth in the
By-laws of the Corporation. Notwithstanding any other provisions of these
Restated Articles of Incorporation or the By-laws of the Corporation (and
notwithstanding the fact that a lesser affirmative vote may be specified by
law), the affirmative vote of shareholders possessing at least eighty percent of
the voting power of the then outstanding shares of all classes of stock of the
Corporation generally possessing voting rights in elections of directors,
considered for this purpose as one class, shall be required to amend, alter,
change or repeal, or to adopt any provision inconsistent with, sections 1.02,
1.04 and 1.05 of Article I of the By-laws, or this ARTICLE VII or any provision
thereof or hereof; provided, however, that the Board of Directors, may amend,
alter, change or repeal, or adopt any provision inconsistent with, sections
1.02, 1.04 and 1.05 of Article I of the By-laws, or any provision thereof,
without a vote of shareholders.
ARTICLE VIII
Unless a greater number is required by law or by these Restated
Articles of Incorporation, (a) action on a matter, other than the election of
directors, by a voting group of shareholders is approved only if a majority of
the votes within the voting group represented (in person or by proxy) at a
meeting at which a quorum is present are cast in favor of the action and (b)
notwithstanding Section (a) of this Article VIII, these Restated Articles of
Incorporation may only be amended by the affirmative vote of a majority of the
votes entitled to be cast by each voting group of shareholders entitled to vote
on the amendment.
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<PAGE>
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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<PAGE>
EXHIBIT 10.4
HARLEY-DAVIDSON, INC.
1995 STOCK OPTION PLAN
(as amended through May 8, 1999)
ARTICLE I
PURPOSE
The purpose of the Harley-Davidson, Inc. 1995 Stock Option Plan is
to provide favorable opportunities for certain selected employees of
Harley-Davidson, Inc. and its subsidiaries to purchase or receive shares of
Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation
thereof. Such opportunities should provide an increased incentive for these
employees to contribute to the future success and prosperity of
Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit
of the shareholders, and increase the ability of Harley-Davidson, Inc. to
attract and retain individuals of exceptional skill upon whom, in large
measure, its sustained progress, growth and profitability depend.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the respective
meanings set forth in this Article:
2.1. BOARD: The Board of Directors of Harley-Davidson, Inc.
2.2. CODE: The Internal Revenue Code of 1986, as amended.
2.3. COMMITTEE: The human Resources Committee of the Board; provided
that if any member of the Human Resources Committee is not both a
Disinterested Person and Outside Director, the Committee shall be comprised
of only those members of the Human Resources Committee who are both
Disinterested Persons and Outside Directors.
2.4. COMMON STOCK: The common stock of Harley-Davidson, Inc.
2.5. COMPANY: Harley-Davidson, Inc. and any of its Subsidiaries.
2.6. DISABILITY: Disability within the meaning of Section 22(e)(3)
of the Code, as determined by the Committee.
2.7. DISINTERESTED PERSONS: Non-employee directors within the
meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of
1934, as amended.
2.8. EMPLOYER: The entity that employs the employee or Optionee.
<PAGE>
2.9. FAIR MARKET VALUE: The average of the high and low reported
sales prices of Common Stock on the New York Exchange Composite Tape on the
date for which fair market value is being determined.
2.10. ISO: An incentive stock option within the meaning of Section
422 of the Code and which is designated as an incentive option by the
Committee.
2.11. NON-ISO: A stock option which is not an ISO.
2.12. OPTION: A stock option granted under the Plan. Options include
both ISOs and Non-ISOs.
2.13. OPTION PRICE: The purchase price of a share of Common Stock
under an Option.
2.14. OPTIONEE: A person who has been granted one or more Options.
2.15. OUTSIDE DIRECTORS: Outside Directors within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder.
2.16. PARENT CORPORATION: The parent corporation, as define in
Section 424(e) of the Code.
2.17. PLAN: The Harley-Davidson, Inc. 1990 Stock Option Plan.
2.18. RETIREMENT: Retirement on or after age sixty-two or, with the
consent of the Committee, at an earlier age.
2.19. SUBSIDIARY: A corporation, limited partnership, general
partnership, limited liability company, business trust or other entity of
which more than fifty percent (50%) of the voting power or ownership
interest is directly and/or indirectly held by the Harley-Davidson, Inc.
2.20. TERMINATION DATE: A date fixed by the Committee but not later
than the day preceding the tenth anniversary of the date on which the
Option is granted.
ARTICLE III
ADMINISTRATION
3.1. The Committee shall administer the Plan and shall have full
power to grant Options, construe and interpret the Plan, establish and amend
rules and regulations for its administration, and perform all other acts
relating to the Plan, including the delegation of administrative
responsibilities, which it believes reasonable and proper.
3.2. Subject to the provisions of the Plan, the Committee shall, in
its discretion, determine who shall be granted Options, the number of shares
subject to option under any
<PAGE>
such Options, the dates after which Options, the dates after which Options
may be exercise, in whole or in part, whether Options shall be ISOs, and the
terms and conditions of the Options.
3.3. Any decision made, or action taken, by the Committee arising
out of or in connection with the interpretation and administration of the
Plan shall be final and conclusive.
3.4 To the extent permitted by applicable law, the Committee may, in
its discretion, delegate to the Chief Executive Officer of the Company any
or all of the authority and responsibility of the Committee under the Plan
to grant Options to employees of the Company or its affiliates and/or
persons who have been engaged to become employees of the Company or its
affiliates, in each case other than employees who are, or persons engaged to
become employees who upon employment will be, subject to the provisions of
Section 16 of the Securities and Exchange Act of 1934, as amended, at the
time any such delegated authority or responsibility is exercised. To the
extent that the committee has delegated to the Chief Executive Officer the
authority and responsibility of the Committee, all references to the
Committee in the Plan other than in this Section 3.4 shall include the Chief
Executive Officer with respect to the matters delegated. No such delegation
shall preclude the Committee from exercising the authority and
responsibility delegated.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.1. The total number of shares of Common Stock available for grants of
Options under the Plan shall be 15,200,000; provided that Options for not
more than 800,000 shares of Common Stock shall be granted to an Optionee in
any calendar year under the Plan, which amount shall be reduced by the
amount of Common Stock subject to options granted to such Optionee in such
calendar year under any other stock option plan of the Company. The
foregoing amounts shall be subject to adjustment in accordance with Article
VIII of the Plan. If an Option or portion thereof shall expire, be canceled
or terminate for any reason without having been exercised in full, the
unpurchased shares covered by such Option shall be available for future
grants of Options. An Option, or portion thereof, exercised through the
exercise of a stock appreciation right pursuant to Section 6.7 of the Plan
shall be treated, for the purposes of this Article, as though the Option, or
portion thereof, had been exercised through the purchase, that was so
exercised shall not be available for future grants of Options.
ARTICLE V
ELIGIBILITY
5.1. Options may be granted to key employees of the Company or to
persons who have been engaged to become key employees of the Company. Key
employees will comprise, in general, those who contribute to the management,
direction and overall success of the Company, including those who are
members of the Board. Members of the Board who are not employees of the
Company shall not be eligible for Option grants.
<PAGE>
ARTICLE VI
TERM OF OPTIONS
6.1. OPTION AGREEMENTS: All Options shall be evidenced by written
agreements executed by the Company. Such Options shall be subject to the
applicable provisions of the Plan, and shall contain such provisions as are
required by the Plan and any other provisions the Committee may prescribe.
All agreements evidencing Options shall specify the total number of shares
subject to each grant, the Option Price and the Termination Date. Those
Options that comply with the requirements for an ISO set forth in Section
422 of the Code and are designated ISOs by the Committee shall be ISOs and
all other Options shall be Non-ISOs.
6.2. OPTION PRICE: The Option Price shall be set by the Committee;
provided, however, that the price per share shall not be less than the Fair
Market Value of a share of Common Stock on the date the Option is granted.
6.3. PERIOD OF EXERCISE: The Committee shall determine the dates after
which Options may be exercised in whole or in part. If Options are
exercisable in installments, installments or portions thereof that are
exercisable and not exercised shall accumulate and remain exercisable. The
Committee may also amend an Option to accelerate the dates after which
Options may be exercised in whole or in part. How ever, no Option or portion
thereof shall be exercisable after the Termination Date.
6.4. SPECIAL RULES REGARDING ISOS GRANTED TO CERTAIN EMPLOYEES:
Notwithstanding any contrary provisions of Sections 6.2 and 6.3 of the Plan,
no ISO shall be granted to any employee who, at the time the Option is
granted, owns (directly or indirectly, within the meaning of Section 424(d)
of the Code) more than ten percent of the total combined voting power of al
classes of stock of the Employer or of any Subsidiary or Parent Corporation
thereof, unless (a) the Option Price under such Option is at least 110
percent of the Fair Market Value of a share of Common Stock on the date the
Option is granted and (b) the Termination Date of such Option is a date not
later than the day preceding the fifth anniversary of the date on which the
Option is granted.
6.5. MANNER OF EXERCISE AND PAYMENT: An Option, or portion thereof,
shall be exercised by delivery of a written notice of exercise to the
Company and payment of the full price of the shares being purchased pursuant
to the Option. An Optionee may exercise an Option with respect to less than
the full number of shares for which the Option may then be exercised, but an
Optionee must exercise the Option in full shares of Common Stock. The price
of Common Stock purchased pursuant to an Option, or portion thereof, may be
paid:
a. in United States dollars in cash or by check, bank draft
or money order payable to the order of the Company.
b. through the delivery of shares of Common Stock with an
aggregate Fair Market Value on the date of exercise equal to the Option
Price, or
<PAGE>
c. by any combination of the above methods of payment.
The Committee shall determine acceptable methods for tendering Common Stock
as payment upon exercise of an Options and may impose such limitations and
prohibitions on the use of Common Stock to exercise an Option as it deems
appropriate, including, without, limitation, any limitation or prohibition
designed to avoid certain accounting consequences which may result from the
use of Common Stock as payment upon exercise of an Option.
6.6. WITHHOLDING TAXES: The Company may, in its discretion, require an
Optionee to pay to the Company at the time of exercise the amount that the
Company deems necessary to satisfy its obligation to withhold Federal, state
or local income or other taxes incurred by reason of the exercise. Upon or
prior to the exercise of an Option by the Company from the shares otherwise
to be received. The number of shares so withheld shall have an aggregate
Fair Market Value on the date of exercise sufficient to satisfy the
applicable withholding taxes. The exercise of an Option does not give rise
to an obligation to withhold Federal income taxes on the date of exercise,
the Company may, in it discretion, require an Optionee to pay to the Company
the amount that the Company deems necessary to satisfy its obligation to
withhold Federal, state or local income or other taxes incurred by reason of
the exercise of the Option, in which case the shares of Common Stock will be
released from escrow to a written election to have shares of Common Stock
held in escrow applied toward the Company's obligation to withhold Federal,
state or local income or other taxes incurred by reason of the exercise of
the Option, based on the Fair Market Value of the shares on the date of the
termination of the escrow arrangement. Upon application of such shares
toward the Company's withholding obligation, any shares of Common Stock held
in escrow and not, in the judgement of the Committee, necessary to satisfy
such obligation shall be released from escrow to the Optionee.
6.7. STOCK APPRECIATION RIGHTS: At or after the grant of an Option, the
Committee, in its discretion, may provide an Optionee with an alternate
means of exercising an Option, or a designated portion thereof, by granting
the Optionee a stock appreciation right. A "stock appreciation right: is a
right to receive, upon exercise of an Option or any portion thereof, in the
Committee's sole discretion, an amount of cash equal to, and/or shares of
Common Stock having a Fair Market Value on the date of exercise equal to,
the excess of the Fair Market Value of a share of Common Stock on the date
of exercise over the Option Price, multiplied by the number of shares of
Common Stock that the Optionee would have received had the Option or portion
thereof been exercised through the purchase of shares of Common Stock at the
Option Price, provided that (a) such Option or portion thereof has been
designated as exercisable in this alternative manner, (s) such Option or
portion thereof is otherwise exercisable, and (c) the Fair Market Value of a
share of Common Stock on the date of exercise exceeds the Option Price.
6.8. NONTRANSFERABILITY OF OPTIONS: Except as may otherwise be provided
by the Committee, each Option shall, during the Optionee's lifetime, be
exercisable only by the Optionee, and neither it nor any right hereunder
shall be transferable otherwise than by will or the laws of descent and
distribution or be subject to attachment, execution or other similar
process. In the event of any attempt by the Optionee to alienate, assign,
pledge, hypothecate or
<PAGE>
other wise dispose of an Option or of any right hereunder, except as provided
for herein, or in the event of any levy or any attachment, execution or
similar process upon the rights or interest hereby conferred, the Company may
terminate the Option by notice to the Optionee and the Option shall thereupon
become null and void.
6.9. CESSATION OF EMPLOYMENT OF OPTIONEE:
a. CESSATION OF EMPLOYMENT OTHER THAN BY REASON OF RETIREMENT,
DISABILITY OR DEATH. Except as may be otherwise provided by the
Committee, if an Optionee shall cease to be employed by the Company
otherwise than by reason of Retirement, Disability, or death, (i) each
Option held by the Optionee, together with all rights thereunder, that
is not vested shall terminate on the date of cessation of employment,
to the extent not previously exercised and (ii) the Optionee shall have
a period of 90 days from the date of cessation of employment to
exercise each Option held by the Optionee that is vested on the date of
cessation of employment. At the end of such 90-day period, each such
Option that has not been exercised, together with all rights
thereunder, shall terminate, to the extent not previously exercised.
b. CESSATION OF EMPLOYMENT BY REASON OF RETIREMENT OR
DISABILITY. If an Optionee shall cease to be employed by the Company by
reason of Retirement or Disability, each Option held by the Optionee
shall remain exercisable, to the extent it was exercisable at the time
of cessation of employment, until the earliest of:
i. the Termination Date,
ii. the death of the Optionee, or such later date not more
than one year after the death of the Optionee as the Committee,
in its discretion, may provide pursuant to Section 6.9(c) of the
Plan,
iii. the third anniversary of the date of the cessation of
the Optionee's employment, if employment ceased by reason of
Retirement, or
iv. the first anniversary of the date of the cessation of
the Optionee's employment by reason of Disability;
and thereafter all such Options shall terminate together with all
rights hereunder, to the extent not previously exercised.
c. CESSATION OF EMPLOYMENT BY REASON OF DEATH. In the event of
the death of the Optionee, while employed by the Company, an Option may
be exercised at any time or from time to time prior to the earlier of
the Termination Date or the first anniversary of the date of the
Optionee's death, by the person or persons to whom the Optionee's
rights under each Option shall pass by will or by the applicable laws
of descent and death. In the event of the death of the Optionee while
entitled to exercise an Option pursuant to Section 6.9(b), the
Committee, in its discretion, may permit such Option to be exercised at
any time or from time to time prior to the Termination Date during a
period of up to
<PAGE>
one year from the death of the Optionee, as shall pass by will of by
the applicable laws of descent and distribution, to the extent that
the Option was exercisable at the time of cessation of the
Optionee's employment. Any person or person to whom an Optionee's
rights under an Option have passed by will or by the applicable laws
of descent and distribution shall be subject to all terms and
condition of the plan and the Option applicable to the Optionee.
6.10. NOTIFICATION OF SALES OF COMMON STOCK: Any Optionee who disposes
of shares of Common Stock acquired upon the exercise of an ISO either (a)
within two years after the date of the grant of the ISO under which the
stock was acquired or (b) within one year after the transfer of such shares
to the Optionee, shall notify the Company of such disposition and of the
amount realized upon such disposition.
ARTICLE VII
LIMITATIONS AND ACCELERATIONS ON EXERCISABILITY
7.1. Notwithstanding any other provision of this Plan, in the case of
an ISO, the aggregate Fair Market Value (determined at the time the ISO is
granted) of the shares of Common Stock with respect to which all "incentive
stock options" (within the meaning of Section 422 of the Code) are first
exercisable by the Optionee during any calendar year (under this Plan and
under all other incentive stock option plans of the Employer, any Subsidiary
and any Parent Corporation) shall not exceed $100,000.
7.2. Each Option granted under the Plan shall have a limited right of
surrender allowing the Optionee to surrender that Option within the 30-day
period following a Change of Control Event and to receive cash, in lieu of
exercising the Option, in the amount by which the highest "COC Fair Market
Value" (as hereinafter defined) of the number of shares of Common Stock
covered by the Option during the 60 days preceding the date on which the
Change of Control Event occurs exceeds the exercise price for the shares of
Common Stock covered by the Option. For this purpose, the "COC Fair Market
Value" of the Common Stock means the closing price of one share of Common
Stock as reported on the New York Stock Exchange Composite Tape. If the
Common Stock is not listed or admitted to trading on the New York Stock
Exchange, the COC Fair Market Value of the Common Stock shall be the closing
price of one share of Common Stock on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange, the last quoted sale price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market
of the Common Stock, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system
then in use, or, if on any such date the Common Stock is not quoted by any
such organization, the average of the closing bid and asked prices of the
Common Stock as furnished by a professional market making a market in the
Common Stock selected by the Board. If on any such date no market maker is
making a market in the Common Stock or other Stock, the COC Fair Market
Value shall be determined in good faith by the Continuing Directors who are
not Disinterested Persons. For purposes of this Section 7.2:
<PAGE>
(a) "Change of Control Event" means any one of the following:
(i) Continuing Directors no longer constitute at least two-thirds of
the Directors constituting the Board; (ii) any person or groups (as
defined in Rule 13d-5_ under the Securities Exchange Act of 1934, as
amended ("Exchange Act")), together with its affiliates, becomes the
beneficial owner, directly or indirectly, of 20% or more of
Harley-Davidson, Inc.'s then outstanding Common Stock or 20% or more of
the voting power of Harley-Davidson, Inc.'s Directors; (iii) the
approval by Harley-Davidson, Inc.'s stockholders of the merger or
consolidation of Harley-Davidson, Inc. with any other corporation, the
sale of substantially all of Harley-Davidson, Inc.'s assets or the
liquidation or dissolution of Harley-Davidson, inc., unless, in the
case of a merger or consolidation, the Continuing Directors in office
immediately prior to such merger or consolidation constitute at least
two-thirds of the directors constituting the board of directors of the
surviving corporation of such merger or consolidation and any parent
(as defined in Rule 12b-2 under the Exchange Act) of such corporation;
or (iv) at least two-thirds of the Continuing Directors who are
Disinterested Persons in office immediately prior to any other action
proposed to be taken by Harley-Davidson, Inc.'s stockholders or by the
Board determine that such proposed action, if taken, would constitute a
change of control of Harley-Davidson, Inc. and such action is taken;
and
(b) "Continuing Director" means any individual who is either
(i) a member of the Board on the date hereof or (ii) a member of the
Board whose election or nomination to the Board was approved by a vote
of at least two-thirds (2/3) of the Continuing Directors (other than a
person whose election was as a result of an actual or threatened proxy
or other control contest).
ARTICLE VIII
ADJUSTMENTS
8.1. If (a) the Company shall at any time be involved in a transaction
to which Section 424(a) of the Code is applicable; (b) the Company shall
declare a dividend payable in, or shall subdivide or combine, its Common
Stock; or (c) any other event shall occur which in the judgement of the
Committee necessitates an adjustment to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan, then the Committee may, in such manner as it may deem equitable, adjust
any or all of (i) the number and type of securities subject to the Plan and
which thereafter may be the subject of Options; (ii) the number and type of
securities subject to outstanding Options; (iii) the Option Price with
respect to any Option; and (iv) the number of shares of Common Stock that may
be issued pursuant to Options granted to an Optionee in any calendar year;
provided, however, that each such adjustment, in the case of ISOs, shall be
made in such manner as not to constitute a "modification" within the meaning
of Section 424(h)(3) of the Code. The judgement of the Committee with respect
to any matter referred to in this Article shall be conclusive and binding
upon each Optionee.
<PAGE>
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1. The Board may at any time, or from time to time, suspend or
terminate the Plan in whole or in part or amend it in such respects as the
Board may deem appropriate, provided, however, that no such amendment shall
be made, which would, without approval of the shareholders:
a. materially modify the eligibility requirements for
receiving Options;
b. increase the aggregate number of Shares of Common Stock
which may be issued pursuant to Options granted under the Plan,
except as is provided for in accordance with Article VIII of the
Plan;
c. increase the number of shares of Common Stock which may
be issued pursuant to Options granted to an Optionee in any
calendar year, except as is provided for in accordance with Article
VIII of the plan;
d. reduce the minimum Option Price, except as is provided
for in accordance with Article VIII of the Plan;
e. extend the period of granting Options; or
f. materially increase in any other way the benefits
accruing to Optionees.
9.2. No Amendment, suspension or termination of this Plan shall,
without the Optionee's consent, alter or impair any of the rights or
obligations under any Option theretofore granted to an Optionee under the
Plan.
9.3. The Board may amend this Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Options
meeting the requirements of future amendments or issued regulations, if any,
to the Code.
ARTICLE X
GOVERNMENT AND OTHER REGULATIONS
10.1. The obligation of the Company to issue or transfer and deliver
shares for Options exercised under the plan shall be subject to all
applicable laws, regulations, rules, orders and approvals which shall then be
in effect and required by governmental entities and the stock exchanges on
which Common Stock is traded.
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1. PLAN DOES NOT CONFER EMPLOYMENT OR SHAREHOLDER RIGHTS: The right
of the Employer to terminate (whether by dismissal, discharge, retirement or
otherwise) the Optionee's employment with it at any time at will, or as
otherwise provided by any agreement between the Company and the Optionee, is
specifically reserved. Neither the Optionee nor any person entitled to
exercise the Optionee's rights in the event of the Optionee's death shall
have any rights of a shareholder with respect to the shares subject to each
Option, except to the extent that, and until, such shares shall have been
issued upon the exercise of each Option.
11.2. PLAN EXPENSES: Any expenses of administering this Plan shall be
borne by the Company.
11.3. USE OF EXERCISE PROCEEDS: Payments received from Optionees upon
the exercise of Options shall be used for the general corporate purposes of
the Company, except that any stock received in payment may be retired, or
retained in the Company's treasury and reissued.
11.4. INDEMNIFICATION: In addition to such other rights of
indemnification as they may have as members of the Board, or the Committee,
the members of the Committee and the Board shall be indemnified by the
Company against all costs and expenses reasonably incurred by them in
connection with nay action, suit or proceeding to which they or any of them
may be party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgement in any such action, suit or proceeding,
except a judgment based upon a finding of bad faith; provided that upon the
institution of any such action, suit or proceeding a Committee or Board
member shall, in writing, give the Company notice thereof and an Opportunity,
at its own expense, to handle and defend the same before such Committee or
Board member undertakes to handle and defend it on such member's own behalf.
ARTICLE XII
SHAREHOLDER APPROVAL AND EFFECTIVE DATES
12.1. The Plan shall become effective when it is approved by the
shareholders of Harley-Davidson, Inc. at a shareholders meeting by the
requisite vote under New York Stock Exchange Rules, Internal Revenue Code
Section 162(m) and Rule 16b-3 under the Securities Exchange Act of 1934.
Options may not be granted under the Plan after April 26, 2005.
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of January, 2000,
by and between Harley-Davidson Financial Services, Inc., a Delaware
corporation (the "Company"), and Donna F. Zarcone of Burr Ridge, Illinois
(the "Executive").
WHEREAS, the Company and the Executive are parties to an
existing employment agreement, dated as of November 14, 1995, the term of
which expires December 31, 1999;
WHEREAS, the Executive is willing to continue to perform
services for the Company for a longer term, and the Company wishes to have
the Executive render such services for such term; and
WHEREAS, the parties desire to set forth the terms and
conditions under which the Executive shall be employed and upon which the
Company shall compensate the Executive.
NOW, THEREFORE, in consideration of the premises and
promises contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive,
and the Executive hereby accepts employment with the Company, as the
President and Chief Operating Officer of the Company. In such capacity, the
Executive will participate in the establishment of the Company's strategies
and policies, as well as the management of the Company's operations and
perform such duties and services of an executive and administrative character
as shall be assigned to the Executive from time to time by the Chairman and
Chief Executive Officer of the Company (the "Services").
2. PERFORMANCE. The Executive agrees to devote the
Executive's best efforts, energies and skills on a full time basis during
normal working hours to performance of the Executive's duties hereunder
(except for vacations and reasonable periods of illness or incapacity).
During the term of this Agreement, the Executive shall not engage in any
other business or business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage; provided, however,
that the Executive shall be not prevented from (i) investing the Executive's
assets in such form or manner as will not require any substantial amount of
time or services on the part of the Executive in the operation of the affairs
of the enterprises in which such investments are made or (ii) engaging in
limited outside business activities, such as serving on the board of
directors of an entity or organization which will not conflict with the
Executive's duties hereunder. The principal place for performance of the
Services shall be Chicago, Illinois, and the Company will permit the
Executive to perform substantially all of the Services therefrom. The
Executive may be obliged, from time to time, and for reasonable periods of
time, to travel in the performance of the Services.
3. BASE SALARY. For all duties to be performed by the
Executive hereunder, the Executive shall receive an annual base salary (the
"Base Salary") of Three Hundred Six Thousand Seventy-Five Dollars ($306,075),
payable by the Company in equal semi-monthly
<PAGE>
installments (prorated for any partial year). The Base Salary shall be
subject to adjustment from time to time by the Chairman and Chief Executive
Officer of the Company.
4. BONUS. In addition to Base Salary, the Executive shall
be eligible to participate in incentive programs offered to senior management
of the Company, including consideration for an annual bonus (the "Bonus").
5. VACATION. The Executive shall be entitled to annual paid
vacation in accordance with the Company's policy applicable to executive
employees of the Company, which may be taken at such times as are consistent
with good business practices.
6. FRINGE BENEFITS. The Executive shall be entitled to receive
such fringe benefits as are available to executive employees of the Company
generally, including participation in the Company's retirement and deferred
compensation programs.
7. INSURANCE. The Executive shall be enrolled in the
Company's group insurance program, including life, accidental death and
officer group medical insurance program. The cost of all insurance coverage
shall be paid by the Company and the Executive in accordance with the
Company's standard practice.
8. EXPENSES. The Executive is authorized to incur reasonable
expenses in rendering Services hereunder and in the performance of the
Executive's duties hereunder. The Company will reimburse the Executive in a
timely manner at least monthly for all such expenses upon presentation of an
itemized written accounting therefor (together with such vouchers and other
verifications as the Company may require) within thirty (30) days after they
have been incurred.
9. CONFIDENTIAL INFORMATION. The Executive acknowledges that
(i) the Executive holds a senior management position with the Company, (ii) in
connection with the Services being rendered under this Agreement, the Executive
will acquire and make use of confidential information and trade secrets of the
Company and its affiliates ("Confidential Information"), including, but not
limited to, financial statements, client lists, project reports, software design
and documentation, internal memoranda, marketing programs, reports and other
materials or records of a proprietary nature which are not generally known to
the public, (iii) the Confidential Information constitutes a unique and valuable
asset of the Company, (iv) maintenance of the proprietary character of such
information, to the full extent feasible, is important to the Company, (v) the
Confidential Information is sufficiently secret as to derive economic value from
not being generally known to others who could obtain economic value from its
disclosure or use, and (vi) the Confidential Information is currently the
subject of efforts to maintain its secrecy or confidentiality. Therefore, in
order to protect the Confidential Information, the Executive agrees as follows:
(a) to hold the Confidential Information in strictest
confidence and not to use or disclose such Confidential
Information without the written authorization of the Company,
except in connection with the Services being rendered under
this Agreement, for so long as any such Confidential
Information may remain confidential, secret or otherwise
wholly or partially protectable;
-2-
<PAGE>
(b) to take all appropriate steps to safeguard any
Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft; and
(c) to return to the Company upon termination of
employment all materials relating to the Company or its
business, including all Confidential Information, coming into
the Executive's possession during the term of the Executive's
employment with the Company or while employed by a predecessor
to the Company's business.
10. COVENANTS NOT TO COMPETE OR SOLICIT.
10.1 So long as the Executive is employed by the Company and
for a period of one (1) year thereafter, the Executive shall not, directly or
indirectly, by or for the Executive or as the agent of another, or through
others as the Executive's agent:
(a) promote or sell leisure product financial
services anywhere in those states or territories (the
"Territory") in which the Company has rendered services or
provided financing within the eighteen (18) months immediately
preceding the termination of employment (the "Relevant
Period") in competition with those of the Company; or
(b) own, manage, operate, be compensated by,
participate in or have any right to or interest in any other
business that promotes or sells leisure product financial
services in the Territory in competition with those of the
Company.
10.2 So long as the Executive is employed by the Company and
for a period of one (1) year thereafter, the Executive shall not (except in
connection with the rendering of services hereunder), directly or indirectly, by
or for the Executive or as the agent of another, or through others as the
Executive's agent:
(a) solicit or accept any business from customers of
the Company, or request, induce or advise customers of the
Company to withdraw, curtail or cancel their business with the
Company;
(b) solicit for employment or employ or become
employed by any past, present or future employee of the
Company, or request, induce or advise any employee to leave
the employ of the Company; or
(c) use or disclose any nonpublic information
concerning the Company or its businesses and affairs,
including Confidential Information.
10.3 The Executive agrees that if the Executive shall violate
any of the provisions of this Section 10, the Company shall be entitled to an
accounting and repayment of all profits, compensation, commission, renumeration
or other benefits that the Executive, directly or indirectly, may realize
arising from or related to any such violation. These remedies shall be in
addition to, and not in limitation of, any injunctive relief or other rights to
which the Company may be entitled.
-3-
<PAGE>
10.4 The parties agree and acknowledge that the duration,
scope and geographic areas applicable to the covenant not to compete
described in this Section are fair, reasonable and necessary, that adequate
compensation has been received by the Executive for such obligations, and
that these obligations do not prevent the Executive from earning a
livelihood. If, however, for any reason any court determines that the
restrictions in this Section 10 are not reasonable, that consideration is
inadequate or that the Executive has been prevented from earning a
livelihood, such restrictions shall be interpreted, modified or rewritten to
include as much of the duration, scope and geographic area identified in this
Section as will render such restrictions valid and enforceable.
10.5 Nothing herein shall prohibit the Executive from owning
in the aggregate not more than 1% of the outstanding stock of any corporation
which is publicly traded, so long as the Executive has no active participation
in the business of such corporation.
11. REMEDIES. The Executive acknowledges that the Executive
has carefully read and considered the terms of this Agreement and knows them to
be essential to induce the Company to enter into this Agreement and that any
breach of the provisions contained herein will result in serious and irreparable
injury to the Company. The Executive further acknowledges that the Company's
business interests protected hereby are substantial and legitimate. Therefore,
in the event of a breach of any such provisions, the Company shall be entitled
to equitable relief against the Executive by way of injunction (in addition to,
but not in substitution for, any and all other relief to which the Company may
be entitled at law or in equity) to restrain the Executive from such breach and
to compel compliance by the Executive with the Executive's obligations
hereunder. The Company shall also be entitled to seek a protective order to
ensure the continued confidentiality of its trade secrets and proprietary
information. The Executive hereby waives any from such breach and to compel
compliance by the Executive with the Executive's obligations hereunder. The
Company shall also be entitled to seek a protective order to ensure the
continued confidentiality of its trade secrets and proprietary information. The
Executive hereby waives any requirement of proof that such breach will cause
serious or irreparable injury to the Company, or that there is an adequate
remedy at law.
12. TERMINATION.
12.1 TERM. Except as provided below, this Agreement shall
remain in full force and effect from the date hereof for an initial term ending
through December 31, 2000 (the "Initial Term"). Thereafter this Agreement shall
continue for successive one year renewal terms (each a "Renewal Term"), unless
either Executive or Company gives the other written notice, not less than ninety
(90) days prior to the end of the Initial Term or any Renewal Term, stating that
this Agreement shall expire at the end of the Initial Term or such Renewal Term,
as the case may be. As used in this Agreement "Term" means the Initial Term
together with any Renewal Term(s).
12.2 DEATH. In the event of the death of the Executive during
the term hereof, this Agreement shall terminate at the end of the month in which
the Executive dies. The Company shall pay within thirty (30) days of the date of
death to the Executive's legal representatives or, if the Executive shall have
filed with the Company a designation of a person to receive such payment, such
person, the sum of (i) any unpaid Base Salary through the date of termination,
(ii) any Bonus for the year in which such termination occurs prorated as of the
date of termination, (iii) accrued and unpaid vacation pay, (iv) proceeds,
benefits or other sums due
-4-
<PAGE>
under any of the Company's benefit, insurance, retirement or other plans, and
(v) any unreimbursed expenses incurred by the Executive on the Company's
behalf. Items (i) through (v) are hereinafter referred to as the "Termination
Payments".
12.3 DISABILITY. If, during the Term, the Executive comes
under such illness, physical or mental disability or other incapacity that the
Board of Directors of the Company determines that the Executive is unable to
perform the Executive's duties under this Agreement for a period in excess of
ninety (90) substantially consecutive days, the Company may terminate this
Agreement by giving notice to the Executive of its intention to terminate due to
disability and this Agreement shall terminate at the end of the month following
the month in which such notice was given. In the event of such termination, the
Company shall pay the Termination Payments to the Executive within thirty (30)
days of such termination and the Executive's Base Salary shall be continued
(offset by any amounts payable to the Executive under the Company's benefit
plans or short or long term disability insurance or social security payable)
until the earliest of (i) one (1) year after termination, (ii) the end of the
Term, or (iii) the death of the Executive.
12.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may
terminate this Agreement without cause upon thirty (30) days' prior notice in
accordance with the Company's policies and procedures generally applicable to
the managerial employees of the Company. In the event of such termination, the
Company shall (a) pay the Termination Payments to the Executive within thirty
(30) days of such termination and (b) pay severance pay in a lump sum within
thirty (30) days of such termination in amount equal to the aggregate amount of
the Executive's monthly Base Salary that would have been paid over the one-year
period immediately following termination at the rate in effect on the date of
termination. Additionally, in the event of such termination, during the twelve
(12) consecutive months immediately following the date of termination or the
period beginning on the date of termination and ending on the date the Executive
becomes employed on a substantially full-time basis, whichever is shorter, the
Company shall (a) make available to the Executive coverage under the Company's
medical, dental and life insurance plans on the same terms as such plans are
made available to the Company's managerial employees generally, and (b) maintain
any split-dollar life insurance on the Executive's life owned by the Company and
pay the premiums (for such period) due on any split-dollar life insurance on the
Executive's life owned by the Executive.
12.5 TERMINATION FOR CAUSE. Notwithstanding any other
provision hereof, the Company may terminate the Executive's employment under
this Agreement without prior notice at any time for "Cause". For purposes of
this Agreement, "Cause" shall mean dishonest, fraudulent or illegal conduct
(with the exception of minor misdemeanors such as traffic violations),
misappropriation of Company funds, substance abuse or the illegal use of
controlled substances, gross incompetence, breach of any statutory or common law
duty of loyalty to the Company, or any conduct that brings the Company into
public ridicule or disrepute. In the event of such termination, the Company
shall pay the Termination Payments to the Executive within thirty (30) days of
such termination; provided, however, that the Company shall have no obligation
to pay any Bonus to the Executive for the year in which such termination occurs.
12.6 EFFECT OF TERMINATION. Upon termination of this
Agreement, all obligations of the Company and rights of the Executive under
this Agreement shall cease, except as otherwise provided herein.
Notwithstanding anything to the contrary contained herein, the
-5-
<PAGE>
provisions of Sections 9 through 12 shall survive any termination of this
Agreement or employment and shall remain in full force and effect.
13. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The decision of such
arbitrator(s) shall be conclusive and binding upon the parties hereto. The
Company shall pay on a current basis all legal expenses (including reasonable
attorneys' fees) incurred by the Executive in connection with such
arbitration and the entering and enforcement of such award. Notwithstanding
the foregoing, the Company may, in its discretion, apply to a court of
competent jurisdiction for the purposes of obtaining any relief contemplated
by Section 11.
14. NOTICE. Any notice required to be given, served or
delivered to any of the parties hereto shall be sufficient if it is in writing
and sent by certified or registered mail, with proper postage prepaid, addressed
as follows:
TO EXECUTIVE:
Donna F. Zarcone
6002 South Grant
Burr Ridge, IL 60521
TO COMPANY:
Harley-Davidson Financial Services, Inc.
c/o Harley-Davidson Inc.
3700 West Juneau Avenue
Milwaukee, Wisconsin 53208
Attn: Chairman and Chief Executive Officer
with a copy to:
Harley-Davidson, Inc.
3700 West Juneau Avenue
Milwaukee, WI 53208
Attn: Vice President and General Counsel
or to such other address as a party from time to time may designate by
notice to the other. Notice shall be deemed effective on the date
deposited for delivery in the U.S. mail.
15. ASSIGNMENT. This Agreement shall inure to the benefit of
and be binding upon the Executive, the Executive's administrative executors and
heirs and the Company, its successors and assigns. This Agreement is for
personal services and may not be assigned or pledged by the Executive in any
manner, by operation of law or otherwise, without the written consent of the
Company. This Agreement may not be assigned by the Company; provided however,
that if substantially all of the business or assets of the Company are sold and
the Executive agrees to become an employee of the acquiror, then the Company may
assign this Agreement to such acquiror.
-6-
<PAGE>
16. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal substantive laws of the State of
Illinois, and the parties hereby consent to the jurisdiction of Illinois courts
over all matters relating to this Agreement.
17. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties in regard to the subject matter hereof, supersedes
all prior discussions, agreements and understandings of every kind between
the parties in regard to the subject matter hereof and may be changed only by
a written document signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. This
Agreement does not supersede the Transition Agreement dated December 1, 1999
between the Executive and Harley-Davidson, Inc. The waiver of any breach of
any provision of this Agreement shall be effective only in the specific
instance and for the specific purpose for which given and shall not operate
or be construed as a waiver of any subsequent breach hereof.
18. SEVERABILITY. If any provision of this Agreement shall be
prohibited by or invalid under applicable law, or otherwise determined to be
unenforceable, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first written above.
EXECUTIVE: COMPANY:
HARLEY-DAVIDSON FINANCIAL SERVICES, INC.
By:
- ------------------------------ -------------------------------------
Donna F. Zarcone Jeffrey L. Bleustein
Chairman and Chief Executive Officer
-7-
<PAGE>
EXHIBIT 21
HARLEY-DAVIDSON, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
State/Country
of
Name Incorporation
---- -------------
<S> <C>
H-D Michigan, Inc. Michigan
Harley-Davidson Motor Company Group, Inc. Wisconsin
Harley-Davidson Motor Company Operations, Inc. Wisconsin
Harley-Davidson Motor Company, Inc. Wisconsin
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
Harley-Davidson Financial Services, Inc. Nevada
Harley-Davidson Insurance Services, Inc. Nevada
Harley-Davidson Credit Corp. Nevada
Harley-Davidson Funding Corporation Nevada
Eaglemark Bank, N.A. Nevada
Harley-Davidson Leasing, Inc. Nevada
Harley-Davidson 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
</TABLE>
<PAGE>
EXHIBIT 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-33449, No. 33-35311, No. 33-48581, No. 333-07551, No. 333-51741
and No. 333-75347) 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; (e) the Harley-Davidson, Inc. 1998
Director Stock Plan; (f) the Harley-Davidson, Inc. 1998 Stock Option Plan of our
report dated January 15, 2000, except for Note 13 as to which the date is
January 19,2000, 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, 1999.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 27, 2000
<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, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 183,415
<SECURITIES> 0
<RECEIVABLES> 103,504
<ALLOWANCES> 1,796
<INVENTORY> 101,708
<CURRENT-ASSETS> 948,994
<PP&E> 1,236,150
<DEPRECIATION> 554,409
<TOTAL-ASSETS> 2,112,077
<CURRENT-LIABILITIES> 518,154
<BONDS> 0
0
0
<COMMON> 1,592
<OTHER-SE> 1,159,488
<TOTAL-LIABILITY-AND-EQUITY> 2,112,077
<SALES> 2,452,939
<TOTAL-REVENUES> 2,452,939
<CGS> 1,617,253
<TOTAL-COSTS> 1,617,253
<OTHER-EXPENSES> 3,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,014)
<INCOME-PRETAX> 420,793
<INCOME-TAX> 153,592
<INCOME-CONTINUING> 267,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267,201
<EPS-BASIC> 1.75
<EPS-DILUTED> 1.73
</TABLE>
