UNITED STATES SECURITIES AND EXCHANGE COMMISSION
------------------------------------------------
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 24, 2000
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission File Number 1-9183
Harley-Davidson, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its Charter)
Wisconsin 39-1382325
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3700 West Juneau Avenue, Milwaukee, Wisconsin 53208
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code) (414) 342-4680
--------------
None
-----------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding as of November 3, 2000: 303,037,994 shares
1
<PAGE>
HARLEY-DAVIDSON, INC.
Form 10-Q Index
For the Quarter Ended September 24, 2000
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Note regarding forward-looking statements 18
Part II. Other Information
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
-----------------------------------------
<TABLE>
Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
Sep. 24, Sep. 26, Sep. 24, Sep. 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $714,119 $623,193 $2,150,205 $1,790,476
Cost of goods sold 474,505 418,535 1,422,140 1,183,690
------- ------- --------- ----------
Gross profit 239,614 204,658 728,065 606,786
Operating income from financial services 9,609 7,514 24,223 19,274
Operating expenses (125,194) (110,775) (379,041) (326,712)
-------- -------- ---------- ----------
Income from operations 124,029 101,397 373,247 299,348
Interest income, net 5,323 2,090 11,619 5,571
Other, net (612) (556) 18,167 (1,019)
-------- -------- ---------- ----------
Income before provision for income taxes 128,740 102,931 403,033 303,900
Provision for income taxes 45,702 37,569 149,181 110,924
-------- -------- ---------- ----------
Net income $ 83,038 $ 65,362 $ 253,852 $ 192,976
======== ======== ========== ==========
Earnings per common share:
Basic $.27 $.21 $.84 $.63
==== ==== ==== ====
Diluted $.27 $.21 $.82 $.62
==== ==== ==== ====
Weighted-average common shares outstanding:
Basic 302,674 304,392 302,969 305,540
Diluted 307,612 309,208 307,809 310,588
Cash dividends per share $.025 $.023 $.073 $.065
===== ===== ===== =====
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
Sep. 24, Dec. 31, Sep. 26,
2000 1999 1999
---- ---- ----
-unaudited- -unaudited-
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 410,785 $ 183,415 $ 163,833
Accounts receivable, net 125,965 101,708 125,554
Finance receivables, net 467,896 440,951 419,955
Inventories (Note 2) 178,920 168,616 166,812
Other current assets 56,414 54,304 53,370
---------- -------- ----------
Total current assets 1,239,980 948,994 929,524
Finance receivables, net 287,363 354,888 389,263
Property, plant and equipment, net 688,597 681,741 640,841
Goodwill (Note 8) 38,167 55,408 50,368
Other assets 62,017 71,046 75,782
---------- ---------- ----------
$2,316,124 $2,112,077 $2,085,778
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 179,269 $ 137,660 $ 180,939
Accrued and other liabilities 240,026 199,331 207,488
Current portion of finance debt 104,451 181,163 173,974
------- ------- -------
Total current liabilities 523,746 518,154 562,401
Finance debt 280,000 280,000 280,000
Other long-term liabilities 81,002 77,124 66,652
Postretirement health care benefits 79,410 75,719 74,183
Contingencies (Note 6)
Total shareholders' equity 1,351,966 1,161,080 1,102,542
---------- ---------- ----------
$2,316,124 $2,112,077 $2,085,778
========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Nine months ended
-----------------
Sep. 24, Sep. 26,
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 253,852 $ 192,976
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 98,598 82,443
Gain on sale of credit card business (18,915) --
Provision for credit losses 1,214 14,541
Long-term employee benefits 9,900 (957)
Tax benefit of stock options 20,026 14,168
Other, net 3,272 608
Net change in other current assets and current liabilities 45,633 42,472
---------- ----------
Net cash provided by operating activities 413,580 346,251
Cash flows from investing activities:
Purchase of property and equipment (103,864) (93,415)
Finance receivables acquired or originated (2,693,390) (2,482,752)
Finance receivables collected/sold 2,596,217 2,338,761
Proceeds from sale of credit card business 176,391 --
Other, net (7,414) (2,168)
---------- ----------
Net cash used in investing activities (32,060) (239,574)
Cash flows from financing activities:
Net (decrease) increase in finance debt (76,712) 27,232
Dividends paid (22,354) (13,382)
Purchase of common stock for treasury (64,367) (130,284)
Issuance of stock under employee stock option plans 9,283 8,420
---------- ----------
Net cash used in financing activities (154,150) (108,014)
---------- ----------
Net increase (decrease) in cash and cash equivalents 227,370 (1,337)
Cash and cash equivalents:
At beginning of period 183,415 165,170
---------- ----------
At end of period $ 410,785 $ 163,833
=========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
HARLEY-DAVIDSON, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation and Use of Estimates
---------------------------------------------------
The condensed interim consolidated financial statements included herein have
been prepared by Harley-Davidson, Inc. (the Company) without audit. Certain
information and footnote disclosures normally included in complete financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission and generally accepted accounting
principles for interim financial information. However, the foregoing statements
contain all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of Company management, necessary to present fairly the
consolidated financial position as of September 24, 2000 and September 26, 1999,
and the results of operations for the three- and nine-month periods then ended.
Certain prior year amounts have been reclassified to conform to current year
presentation. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
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.
Note 2 - Inventories
--------------------
The Company values its inventories at the lower of cost, principally using the
last-in, first-out (LIFO) method, or market. Inventories consist of the
following (in thousands):
Sep. 24, Dec. 31, Sep. 26,
2000 1999 1999
---- ---- ----
Components at the lower of cost, first-in,
first-out (FIFO), or market:
Raw material & work-in-process $ 77,702 $ 61,893 $ 62,182
Finished goods 36,180 29,977 33,899
Parts & accessories and general merchandise 86,464 97,422 92,206
-------- -------- ------
200,346 189,292 188,287
Excess of FIFO over LIFO 21,426 20,676 21,475
-------- -------- --------
Inventories as reflected in the accompanying
condensed consolidated balance sheets $178,920 $168,616 $166,812
======== ======== ========
6
<PAGE>
Note 3 - Business Segments
--------------------------
The Company operates in two business segments: Motorcycles and Related Products
(Motorcycles) and Financial Services, which consists of the Company's
subsidiary, Harley-Davidson Financial Services, Inc. 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. Selected segment information is set forth below (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
Sep. 24, Sep. 26, Sep. 24, Sep. 26,
2000 1999 2000 1999
---- ---- ---- ----
Net sales:
<S> <C> <C> <C> <C>
Motorcycles and Related Products $714,119 $623,193 $2,150,205 $1,790,476
Financial Services n/a n/a n/a n/a
-------- -------- ---------- ----------
$714,119 $623,193 $2,150,205 $1,790,476
======== ======== ========== ==========
Income from operations:
Motorcycles and Related Products $116,438 $ 95,907 $ 356,306 $ 287,524
Financial Services 9,609 7,514 24,223 19,274
General corporate expenses (2,018) (2,024) (7,282) (7,450)
-------- -------- ---------- ----------
$124,029 $101,397 $ 373,247 $ 299,348
======== ======== ========== ==========
</TABLE>
Note 4 - Earnings Per Share
---------------------------
The following table sets forth the computation for basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
Sep. 24, Sep. 26, Sep. 24, Sep. 26,
2000 1999 2000 1999
---- ---- ---- ----
Numerator
---------
<S> <C> <C> <C> <C>
Net income used in computing
basic and diluted earnings per share $ 83,038 $ 65,362 $253,852 $192,976
======== ======== ======== ========
Denominator
-----------
Denominator for basic earnings per share -
weighted-average common shares 302,674 304,392 302,969 305,540
Effect of dilutive securities - employee stock
options and nonvested stock 4,938 4,816 4,840 5,048
-------- -------- -------- --------
Denominator for diluted earnings per share-
adjusted weighted-average shares 307,612 309,208 307,809 310,588
======= ======= ======= =======
Basic earnings per share $.27 $.21 $.84 $.63
==== ==== ==== ====
Diluted earnings per share $.27 $.21 $.82 $.62
==== ==== ==== ====
</TABLE>
7
<PAGE>
Note 5 - Comprehensive Income
-----------------------------
Total comprehensive income, which was comprised of net income, foreign currency
translation adjustments and the change in net unrealized gains on investment in
retained securitization interests, amounted to approximately $79.3 million and
$70.6 million for the three months ended September 24, 2000 and September 26,
1999, respectively. Total comprehensive income for the nine months ended
September 24, 2000 and September 26, 1999 was $248.2 million and $193.9 million,
respectively.
Note 6 - 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 March 1995, the Company entered into a
settlement agreement (the Agreement) with the Navy. The Agreement calls for the
Navy and the Company to contribute amounts into a trust equal to 53% and 47%,
respectively, of future costs associated with investigation and remediation
activities at the Facility (response costs). The trust will administer the
payment of the future response costs at the Facility as covered by the
Agreement. 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.
Note 7 - Capital Stock
----------------------
On February 17, 2000, the Company's Board of Directors approved a two-for-one
split of the Company's common stock effective for shareholders of record on
March 22, 2000 and payable on April 7, 2000 (Stock Split). All share and per
share information included in this report has been adjusted to reflect the April
7, 2000 Stock Split.
During the first nine months of 2000, the Company repurchased a total of
1,772,200 shares with a total of $64.4 million of cash on hand. None of these
shares were repurchased during the third quarter of 2000.
Note 8 - Sale of Credit Card Business
-------------------------------------
In March 2000, the Company sold its Harley-Davidson-> Chrome Visa-> Card
business, which included approximately $142 million of revolving charge
receivables. The sale resulted in a pre-tax gain of approximately $18.9 million
after a $15 million write-off of goodwill, which related to the business sold.
Net of taxes, the transaction resulted in a net gain of approximately $6.9
million. Proceeds from the sale have been used to reduce finance debt.
8
<PAGE>
Note 9 - Subsequent Event- Purchase of Italian Distributor
----------------------------------------------------------
On September 29, 2000, the Company acquired the net assets of the
Harley-Davidson/Buell motorcycle distribution business of Numero Uno, S.r.l.,
the sole Italian distributor of the Company's products, located near Milan,
Italy. The new wholly owned subsidiary will distribute the Company's products
through a network of independent dealers in Italy. The transaction, to be
accounted for under the purchase method, is expected to result in the Company
recording approximately $14 million of goodwill, to be amortized over twenty
years.
Note 10- Recent Pronouncements
------------------------------
In June 1998, Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities" was issued and is effective for
the Company January 1, 2001. SFAS 133, as amended, requires the Company to
recognize all derivatives as either assets or liabilities and to measure those
instruments at fair value. It further provides criteria for derivative
instruments to be designated as fair value, cash flow and foreign currency
hedges and establishes respective accounting standards for reporting changes in
the fair value of the derivative instruments. Upon adoption, the Company will be
required to adjust hedging instruments to fair value in the balance sheet and
recognize the offsetting gains or losses as adjustments to be reported in net
income or other comprehensive income, as appropriate. The Company does not
expect adoption of SFAS 133 to have a material impact on its consolidated
financial position or results of operations.
In December of 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements", effective for the Company January 1, 2001. This staff accounting
bulletin summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company does not expect adoption of SAB 101 to have a material impact on its
consolidated financial position or results of operations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Three Months Ended September 24, 2000
-------------------------------------------------------------------
Compared to the Three Months Ended September 26, 1999
-----------------------------------------------------
For the quarter ended September 24, 2000, consolidated net sales totaled $714.1
million, a $90.9 million or 14.6% increase over the same period last year. Net
income and diluted earnings per share for the third quarter of 2000 were $83.0
million and $.27, respectively, on 307.6 million weighted average shares
outstanding versus $65.4 million and $.21, respectively, on 309.2 million
weighted average shares outstanding in 1999, increases of 27.0% and 27.7%,
respectively.
Motorcycle Unit Shipments and Net Sales
For the Three-Month Periods Ended
September 24, 2000 and September 26, 1999
===============================================================================
Increase
2000 1999 (Decrease) %Change
===============================================================================
Motorcycle Unit Shipments
===============================================================================
Harley-Davidson(R)motorcycle units 48,077 42,615 5,462 12.8%
-------------------------------------------------------------------------------
Buell(R)motorcycle units 2,631 1,984 647 32.6
-------------------------------------------------------------------------------
Total motorcycle units 50,708 44,599 6,109 13.7%
===============================================================================
Net sales (in millions)
===============================================================================
Harley-Davidson motorcycles $528.1 $455.7 $72.4 15.9%
-------------------------------------------------------------------------------
Buell motorcycles 10.4 16.7 (37.7) (6.3)
-------------------------------------------------------------------------------
Total motorcycles 538.5 472.4 66.1 14.0
-------------------------------------------------------------------------------
Motorcycle Parts and Accessories 133.4 109.6 23.8 21.7
-------------------------------------------------------------------------------
General Merchandise 41.2 40.9 .3 .7
-------------------------------------------------------------------------------
Other 1.0 .3 .7 233.3
-------------------------------------------------------------------------------
Total Motorcycles and Related Products $714.1 $623.2 $90.9 14.6%
===============================================================================
The 2000 third quarter increase in net sales of $90.9 million, or 14.6%, was
driven primarily by the 12.8% increase in Harley-Davidson motorcycle unit
shipments. During the third quarter of 2000, the Company increased its
Harley-Davidson motorcycle unit shipments and production to 48,077 units, 5,462
units higher than the same period last year. This increase in unit production is
primarily the result of the Company's ongoing success with its manufacturing
strategy, which 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 through nine months, the
Company has increased its 2000 annual production target to 203,000
Harley-Davidson units and has established a production target of 225,000 units
for the year 2001.(1)
Shipments of Buell motorcycle units in the third quarter of 2000 totaled 2,631
compared to 1,984 in the third quarter of 1999. Buell V-Twin production was
temporarily interrupted in the third quarter
10
<PAGE>
due to parts availability issues and a voluntary recall in June of this year. As
a result, the Company diverted the unused V-Twin assembly capacity to production
of the Buell Blast. The Company shipped 2,404 Blast models and 227 Buell V-Twin
models during the third quarter of 2000. The Blast model has a significantly
lower average selling price relative to the larger displacement V-Twin models,
which resulted in an overall $6.3 million decrease in Buell revenue in the third
quarter of 2000 compared to the same period last year. Buell V-Twin production
resumed early in the fourth quarter. The Company has decreased its 2000 Buell
motorcycle production target to 10,000 units. (1)
Parts and Accessories (P&A) sales of $133.4 million were up $23.8 million, or
21.7%, compared to the third quarter of 1999. The increase in P&A sales was
driven by strong motorcycle shipments in the third quarter, and was led by
higher sales for Performance parts, wheels, custom paint, seats and saddlebags.
General Merchandise sales for the third quarter of 2000 were up .7% over the
same period last year. The third quarter growth rate for General Merchandise was
negatively impacted by the timing of shipments of seasonal products. Various
seasonal products were shipped in the second quarter of this year, while similar
products were shipped in the third quarter of last year, resulting in a
difficult comparison between the third quarters of 2000 and 1999. The Company
anticipates that the long-term growth rate for P&A revenue will be slightly
higher than the Harley-Davidson motorcycle unit growth rate. The growth rate for
General Merchandise revenue is expected to be slightly lower than the
Harley-Davidson motorcycle unit growth rate, as reflected in the year to date
growth rate of 13.5%.(1)
The Company's ability to reach the 2000 and 2001 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 P&A /general merchandise supplier backorders, 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 regarding the costs could also adversely impact the Company's
capital expenditure estimates (see "Liquidity and Capital Resources" section).
Gross Profit
Gross profit for the third quarter of 2000 increased $35.0 million, or 17.1%,
compared to the third quarter of 1999, primarily due to an increase in overall
sales volume. The gross profit margin was 33.6% in the third quarter of 2000
compared to 32.8% in 1999. The improvement in gross profit margin was driven
primarily by favorable product line mix, favorable motorcycle product mix and a
2001 model year price increase.
In the third quarter of 2000, product line mix was favorable due to strong
growth in P&A, which yields a higher profit margin than motorcycles and general
merchandise. The third quarter of 2000 also showed a favorable motorcycle mix
with a higher percentage of shipments consisting of touring motorcycles and a
slightly lower percentage of Sportster models, when compared to the same quarter
last year. Finally, the 2001 model year price increase provided for higher
average selling prices on all 2001 models in the third quarter. These factors
more than offset the negative effects of the weaker European currencies and
certain manufacturing inefficiencies experienced in the third quarter of 2000.
11
<PAGE>
Operating Expenses
For the Three-Month Periods Ended
September 24, 2000 and September 26, 1999
===============================================================================
2000 1999 Increase %Change
-------------------------------------------------------------------------------
Motorcycles and Related Products $123.2 $108.8 $14.4 13.3%
-------------------------------------------------------------------------------
Corporate 2.0 2.0 0.0 0.0%
===============================================================================
Total operating expenses $125.2 $110.8 $14.4 13.0%
===============================================================================
Total operating expenses increased $14.4 million, or 13.0%, compared to the
third quarter of 1999. Operating expenses increased at a slightly lower rate
than the corresponding increase in net sales as the Company continues to invest
in its future growth. Operating expenses were 17.5% and 17.8% of net sales in
the third quarters of 2000 and 1999, respectively.
Operating income from Financial Services
For the three months ended September 24, 2000, HDFS reported operating income of
$9.6 million, an increase of $2.1 million, or 27.9%, over the same period in
1999. The increase is primarily due to lower credit losses and an increase in
loan volume at generally higher rates of interest, partially offset by higher
operating expenses.
Interest income
Third quarter 2000 interest income was higher than in the prior year primarily
due to higher levels of cash available for short-term investing when compared to
the same period in 1999.
Consolidated income taxes
The Company's effective income tax rate was 35.5% for the third quarter of 2000,
compared to 36.5% for the same period of 1999. The change in rates is a direct
result of various tax minimization programs implemented by the Company. The
Company expects an effective income tax rate of 35.5% going forward. (1)
12
<PAGE>
Results of Operations for the Nine Months Ended September 24, 2000
------------------------------------------------------------------
Compared to the Nine Months Ended September 26, 1999
----------------------------------------------------
For the nine-month period ended September 24, 2000, the Company recorded net
sales of $2.2 billion, a $359.7 million, or 20.1%, increase over the same period
last year. Net income and diluted earnings per share were $253.8 million and
$.82, respectively, on 307.8 million weighted average shares outstanding versus
$193.0 million and $ .62, respectively, on 310.6 million weighted average shares
outstanding in the first nine months of 1999, increases of 31.5% and 32.7%,
respectively. First quarter 2000 net income includes a one-time after tax gain
of $6.9 million, which resulted from the sale of the Harley-Davidson->
Chrome Visa-> Card business. Excluding the one-time gain, net income and
diluted earnings per share for the nine month period increased 28.0% and 28.8%,
respectively, over the same period last year.
Motorcycle Unit Shipments and Net Sales
For the Nine-Month Periods Ended
September 24, 2000 and September 26, 1999
===============================================================================
2000 1999 Increase %Change
===============================================================================
Motorcycle Unit Shipments
===============================================================================
Harley-Davidson(R)motorcycle units 150,463 128,567 21,896 17.0%
-------------------------------------------------------------------------------
Buell(R)motorcycle units 8,249 5,509 2,740 49.7
-------------------------------------------------------------------------------
Total motorcycle units 158,712 134,076 24,636 18.4%
===============================================================================
Net sales (in millions)
===============================================================================
Harley-Davidson motorcycles $1,640.3 $1,360.7 $279.6 20.5%
-------------------------------------------------------------------------------
Buell motorcycles 47.4 45.3 2.1 4.6
-------------------------------------------------------------------------------
Total motorcycles 1,687.7 1,406.0 281.7 20.0
-------------------------------------------------------------------------------
Motorcycle Parts and Accessories 349.4 284.4 65.0 22.9
-------------------------------------------------------------------------------
General Merchandise 110.8 97.6 13.2 13.5
-------------------------------------------------------------------------------
Other 2.3 2.5 (.2) (8.0)
===============================================================================
Total Motorcycles and Related Products $2,150.2 $1,790.5 $359.7 20.1%
===============================================================================
The 20.1% increase in revenue was primarily attributable to additional
motorcycle unit shipments as demand for the Company's motorcycles continued to
grow.
The most recent information available (through August) indicates that the
Company had a combined U.S. heavyweight (651+cc) market share of 43.7% (for
Harley-Davidson and Buell), compared to 46.1% for the same period in 1999. This
same market has grown at a 25.6% rate year to date, while retail registrations
for the Company's motorcycles (Harley-Davidson and Buell) increased 19.1%.
The Company believes the lower retail registration growth rate for its
motorcycles, as compared to the growth rate for the U.S. heavyweight market in
total, is the result of the Company's ongoing capacity constraints.
13
<PAGE>
European data (through July) showed the Company with a 7.1% share of the
heavyweight (651+cc) market, up from 6.3% for the same period in 1999. The
European market (651+cc) has declined at a rate of 4.3% year to date, while
retail registrations for the Company's motorcycles (Harley-Davidson and Buell)
increased 7.4% compared to last year. The Company continues to actively work on
improving its European distribution network and implementing European focused
marketing programs. Early in the fourth quarter, the Company completed a
transaction to acquire the net assets of the Harley-Davidson/Buell motorcycle
distribution business of Numero Uno, S.r.l. The new wholly owned subsidiary will
distribute the Company's products through a network of independent dealers in
Italy.
Asia/Pacific (Japan and Australia) data (through August) showed the Company with
a 20.0% share of the heavyweight (651+cc) market, up from 18.7% for the same
period in 1999. The Asia/Pacific market has declined at a rate of 2.5% year to
date, while retail registrations for the Company's motorcycles (Harley-Davidson
and Buell) increased 4.1%.
Parts and Accessories (P&A) sales of $349.4 million were up $65.0 million, or
22.9% for 2000, compared to the same period of 1999. General Merchandise sales
of $110.8 million were up $13.2 million, or 13.5%, compared to the first three
quarters of 1999.
Gross Profit
Gross profit for the first nine months of 2000 totaled $728.1 million, an
increase of $121.3 million, or 20.0%, over the same period in 1999. The gross
profit margin was 33.9% in the first nine months of 2000, which is level with
the gross profit margin for the first nine months of 1999. Although unchanged
from the prior year, gross profit margin was positively impacted in the first
nine months of 2000 by favorable product line mix, favorable motorcycle mix and
model year price increases. These factors, however, were offset by the negative
effect of weaker European currencies and certain manufacturing inefficiencies
experienced in the first nine months of 2000.
Operating Expenses
For the Nine-Month Periods Ended
September 24, 2000 and September 26, 1999
(Dollars in Millions)
===============================================================================
Increase
2000 1999 (Decrease) %Change
-------------------------------------------------------------------------------
Motorcycles and Related Products $371.8 $319.3 $52.5 16.4%
-------------------------------------------------------------------------------
Corporate 7.3 7.5 (.2) (2.6)
===============================================================================
Total operating expenses $379.1 $326.8 52.3 16.0%
===============================================================================
Total operating expenses increased $52.3 million, or 16.0% for 2000, compared to
the same period of 1999. Operating expenses increased at a slightly lower rate
than the corresponding increase in net sales as the Company continues to invest
in its future growth. Operating expenses were 17.6% and 18.2% of net sales in
the first three quarters of 2000 and 1999, respectively.
14
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Operating income from Financial Services
For the nine months ended September 24, 2000, HDFS reported operating income of
$24.2 million, an increase of $5.0 million, or 25.7%, over the same period in
1999. The increase is primarily due to lower credit losses and an increase in
loan volume at generally higher rates of interest, partially offset by an
increase in interest expense and operating expenses. In addition, the prior year
was impacted by operating losses related to the credit card portfolio, which was
sold in the first quarter of 2000.
Gain on sale of credit card business
In the first quarter of 2000, the Company sold its Harley-Davidson-> Chrome
Visa-> Card portfolio, which consisted of approximately $142 million of
revolving charge receivables. The sale resulted in a pre-tax gain of
approximately $18.9 million after a $15 million write-down of goodwill, which
related to the portfolio sold. Net of taxes, the transaction resulted in a net
gain of approximately $6.9 million. The majority of the proceeds from the sale
have been used to reduce finance debt.
Interest income
Interest income was $6.0 million higher than in the prior year primarily due to
higher levels of cash available for short-term investing in the first nine
months of 2000 compared to the same period in 1999.
Consolidated income taxes
The Company's effective income tax rate was 37.0% and 36.5% for the first nine
months of 2000 and 1999, respectively. The increase in the tax rate for the
first nine months of 2000 was due to the $15 million non-deductible write-off of
goodwill recorded in connection with the sale of the Harley-Davidson->
Chrome Visa-> Card business in the first quarter of 2000. This increase was
partially offset by a lower tax rate implemented in the second quarter of 2000
as a result of various tax minimization programs implemented by the Company. The
company expects an effective income tax rate of 35.5% going forward. (1)
Other Matters
-------------
Environmental
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 a settlement agreement
with the U.S. Navy regarding groundwater remediation at the Company's
manufacturing facility in York, Pennsylvania and currently estimates that it
will incur approximately $6 million of net additional costs related to the
remediation effort.(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 6 of the notes to condensed
consolidated financial statements.
Recurring costs associated with managing hazardous substances and pollution in
on-going 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
15
<PAGE>
the Company's annual capital expenditures relate to equipment which has the sole
purpose of meeting environmental compliance obligations. The Company anticipates
that capital expenditures for equipment used to limit hazardous
substances/pollutants during 2000 will approximate $1 million. 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)
Liquidity and Capital Resources as of September 24, 2000
--------------------------------------------------------
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 $413.6 million of cash from operating activities during
the first nine months of 2000 compared to $346.3 million in 1999. The largest
component of cash from operating activities is net income adjusted for non-cash
items, including depreciation, credit losses, tax benefit of stock options, and
the gain on sale of the credit card business. This was approximately $354.8
million in 2000 compared to $304.1 million in 1999.
Changes in other current assets and liabilities increased/(decreased) operating
cash flows by approximately $45.6 million and $42.5 million in the first nine
months of 2000 and 1999, respectively. Changes in working capital during the
first nine months of 2000 and 1999 consisted of the following (in millions):
Nine months ended
-----------------
Working capital item 2000 1999
-------------------- ---- ----
Accounts receivable, net ($24.3) ($12.1)
Inventories (10.3) (11.2)
Prepaid expenses (2.1) (2.9)
Accounts payable and accrued expenses 82.3 68.7
----- ----
Total $45.6 $42.5
===== =====
Capital expenditures amounted to approximately $103.9 million and $93.4 million
during the first nine months of 2000 and 1999, respectively. For the past
several years, the Company has been implementing a manufacturing strategy to,
among other things, increase its motorcycle production capacity. Going forward,
the Company's capital expenditures will continue to focus on capacity expansion
at its facilities and will also focus on other areas such as product
development, systems development and continuing operations. The Company
estimates the capital required in 2000 will approximate $170 million.(1) The
Company is currently in the process of developing its next strategic plan and
capacity planning will continue to be an area of focus in this plan.
Accordingly, capital expenditures related to manufacturing capacity may be
increased in both the near and long-term. The Company anticipates it will have
the ability to fund all capital expenditures with internally generated funds and
short-term financing.(1)
16
<PAGE>
HDFS is financed by operating cash flow, asset-backed securitizations,
commercial paper, revolving credit facilities, senior subordinated debt, and
redeemable preferred stock. Approximately $307.6 million of commercial paper was
outstanding at September 24, 2000. Subject to limitations discussed below, as of
September 24, 2000, HDFS may issue up to $600 million of short-term commercial
paper with maturities up to 270 days.
At September 24, 2000, HDFS had a five year $250 million revolving credit
facility due in 2002 and a $350 million 364-day revolving credit facility due
September 29, 2000 with approximately $47.9 million outstanding at September 24,
2000. 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 credit facilities. Accordingly, at September 24,
2000, HDFS had aggregate remaining availability of $245.5 million.
Subsequent to September 24, 2000, the five-year revolving credit facility was
increased to $350 million and extended to September 2005 and the 364-day
revolving credit facility was extended to September 2001. The Company expects
the $350 million, 364-day credit facility expiring in September 2001 will be
renewed.
In connection with various debt agreements, HDFS has met various operating and
financial covenants in all material respects and remains in material compliance
as of September 24, 2000. The Company has a support agreement with HDFS whereby,
if required, the Company agrees to provide HDFS with 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.
During the third quarter, HDFS securitized and sold (with limited recourse)
approximately $228 million of retail installment loans with retained servicing
rights.
The Company expects future activities of HDFS will be financed from internally
generated funds, revolving credit facilities, continuation of its subordinated
debt, redeemable preferred stock, commercial paper, securitization programs and
capital contributions from the Company.
The Company has authorization from its Board of Directors to repurchase up to
9,400,000 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. During the first nine months of 2000, the
Company repurchased 1,772,200 shares of its common stock under the latter
authorization.
The Company's Board of Directors declared three cash dividends during the first
nine months of 2000 including,
most recently, a $.025 per share cash dividend declared on August 10, 2000, paid
September 19, 2000 to shareholders of record on September 8, 2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
------------------------------------------------------------------
17
<PAGE>
Refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1999 for a complete discussion of the Company's market risk. There have been
no material changes to the market risk information included in the Company's
1999 Annual Report on Form 10-K.
(1) Note regarding forward-looking statements
Certain matters discussed in this Quarterly Report on Form 10-Q 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, and disclaims any obligation, to publicly
update such forward-looking statements to reflect subsequent events or
circumstances.
18
<PAGE>
Part II - OTHER INFORMATION
HARLEY-DAVIDSON, INC.
FORM 10-Q
September 24, 2000
Item 1. Legal Proceedings
--------------------------
The Company is involved with government agencies in various environmental
matters, including a matter involving soil and groundwater contamination at its
York, Pennsylvania facility. See footnote 6 to the accompanying condensed
consolidated financial statements for additional information on the above
proceedings.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
-------------
27 Financial Data Schedule for September 24, 2000
(b) Reports on Form 8-K
------------------------
None
19
<PAGE>
Part II - Other Information
HARLEY-DAVIDSON, INC.
Form 10-Q
September 24, 2000
Signatures
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARLEY-DAVIDSON, INC.
Date: 11/8/00 by: /s/ James L. Ziemer
--------------- -----------------------------------
James L. Ziemer
Vice President and Chief Financial
Officer (Principal Financial Officer)
11/8/00 by: /s/ James M. Brostowitz
--------------- --------------------------------------
James M. Brostowitz
Vice President, Controller (Principal
Accounting Officer) and Treasurer
20
<PAGE>
Exhibit Index
Exhibit No. Description
----------- -----------
27 Financial Data Schedule for September 26, 1999
21
