UNITED STATES SECURITIES AND EXCHANGE COMMISSION
------------------------------------------------
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 26, 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)
(414) 342-4680
-------------------------------------------
(Registrant's telephone number, including area code)
None
-----------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding as of May 5, 2000: 303,594,931 shares
1
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HARLEY-DAVIDSON, INC.
Form 10-Q Index
For the Quarter Ended March 26, 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 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Note regarding forward looking statements 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
2
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
- -----------------------------------------
Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
Three months ended
------------------
Mar. 26, Mar. 28,
2000 1999
---- ----
Net sales $681,113 $558,567
Cost of goods sold 449,808 369,433
-------- --------
Gross profit 231,305 189,134
Operating income from financial services 3,332 2,642
Operating expenses (121,670) (100,459)
-------- --------
Income from operations 112,967 91,317
Interest income, net 2,872 1,489
Gain on sale of credit card business 18,915 -
Other income (expense), net (325) 178
-------- --------
Income before provision for income taxes 134,429 92,984
Provision for income taxes 54,202 33,940
-------- --------
Net income $ 80,227 $ 59,044
======== ========
Earnings per common shares:
Basic $.26 $.19
==== ====
Diluted $.26 $.19
==== ====
Weighted-average common shares outstanding:
Basic 302,898 306,092
======= =======
Diluted 307,712 311,372
======= =======
Cash dividends per share $.023 $.020
===== =====
See accompanying notes.
3
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<TABLE>
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
(Unaudited) (Unaudited)
Mar. 26, Dec. 31, Mar. 28,
2000 1999 1999
---- ---- ----
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 208,996 $ 183,415 $ 145,238
Accounts receivable, net 151,544 101,708 139,633
Finance receivables, net (Note 8) 471,780 440,951 401,746
Inventories (Note 2) 168,560 168,616 154,127
Other current assets 49,703 54,304 46,909
---------- ---------- ----------
Total current assets 1,050,583 948,994 887,653
Finance receivables, net 371,386 354,888 427,076
Property, plant and equipment, net 672,980 681,741 627,499
Goodwill (Note 8) 39,501 55,408 50,406
Other assets 67,867 71,046 75,486
---------- ---------- ----------
$2,202,317 $2,112,077 $2,068,120
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 171,702 $ 137,660 $ 130,759
Accrued expenses and other 226,774 199,331 193,792
Current portion of finance debt 123,815 181,163 238,288
---------- ---------- ----------
Total current liabilities 522,291 518,154 562,839
Finance debt 280,000 280,000 280,000
Other long-term liabilities 80,740 77,124 59,351
Postretirement health care benefits 76,900 75,719 73,152
Contingencies (Note 6)
Total shareholders' equity 1,242,386 1,161,080 1,092,778
---------- ---------- ----------
$2,202,317 $2,112,077 $2,068,120
========== ========== ==========
</TABLE>
See accompanying notes.
4
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Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
------------------
Mar. 26, Mar. 28,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 80,227 $ 59,044
Adjustments to reconcile net income to net cash
provided by operating activities
Gain on sale of credit card business (18,915) -
Depreciation and amortization 32,345 26,335
Provision for credit losses (358) 4,269
Long-term employee benefits 4,662 (6,207)
Other, net 2,071 602
Net change in other current assets and
current liabilities 16,306 (17,012)
-------- --------
Net cash provided by operating activities 116,338 67,031
Cash flows from investing activities:
Purchase of property and equipment (22,590) (25,794)
Finance receivables acquired or originated (881,337) (737,744)
Finance receivables collected/sold 693,854 584,421
Proceeds from sale of credit card business 176,391 -
Other, net (1,422) (3,896)
-------- --------
Net cash used in investing activities (35,104) (183,013)
Cash flows from financing activities:
Net (decrease) increase in finance debt (57,348) 91,546
Dividends (6,959) (6,264)
Purchase of common stock for treasury (8,870) -
Issuance of stock under employee stock
and option plans 17,524 10,768
-------- --------
Net cash (used in) provided by financing activities (55,653) 96,050
-------- --------
Net increase (decrease) in cash and cash equivalents 25,581 (19,932)
Cash and cash equivalents:
At beginning of period 183,415 165,170
-------- --------
At end of period $208,996 $145,238
======== ========
See accompanying notes.
5
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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 March 26, 2000 and March 28, 1999, and the
results of operations for the three-month periods then ended. 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):
Mar. 26, Dec. 31, Mar. 28,
2000 1999 1999
---- ---- ----
Components at the lower of cost,
first-in, first-out (FIFO), or market:
Raw material & work-in-process $ 64,818 $ 61,893 $ 55,596
Finished goods 32,752 29,977 26,880
Parts and accessories and general merchandise 91,916 97,422 93,126
-------- ------- --------
189,486 189,292 175,602
Excess of FIFO over LIFO 20,926 20,676 21,475
-------- -------- --------
Inventories $168,560 $168,616 $154,127
======== ======== ========
6
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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 (HDFS). 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):
Three months ended
------------------
Mar. 26 Mar. 28
2000 1999
---- ----
Net sales:
Motorcycles and Related Products $681,113 $558,567
Financial Services n/a n/a
-------- --------
$681,113 $558,567
======== ========
Income from operations:
Motorcycles and Related Products $112,640 $ 91,477
Financial Services 3,332 2,642
General corporate expenses (3,005) (2,802)
-------- --------
$112,967 $ 91,317
======== ========
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). Share and per share data
have been adjusted for the two-for-one common stock split discussed in Note 7:
Three months ended
------------------
Mar. 26 Mar. 28,
2000 1999
Numerator
- ---------
Net income used in computing
basic and diluted earnings per share $80,227 $59,044
======= =======
Denominator
- -----------
Denominator for basic earnings per share -
weighted-average common shares 302,898 306,092
Effect of dilutive securities - employee stock
options and nonvested stock 4,814 5,280
------- -------
Denominator for diluted earnings per share-
adjusted weighted-average shares 307,712 311,372
======= =======
Basic earnings per share $.26 $.19
==== ====
Diluted earnings per share $.26 $.19
==== ====
7
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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 $79.6 million and
$58.7 million for the three months ended March 26, 2000 and March 28, 1999,
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 Resources in undertaking
certain investigation and remediation activities. In March 1995, the Company
entered into a settlement agreement (the Agreement) with the Navy. The Agreement
calls for the Navy and the Company to contribute amounts into a trust equal to
53% and 47%, respectively, of future costs associated with investigation and
remediation activities at the Facility (response costs). The trust will
administer the payment of the future response costs at the Facility as covered
by the Agreement. 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.
8
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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). The Board of
Directors also approved a quarterly cash dividend of 4.5 cents per share (2.25
cents per share adjusted for the Stock Split) for shareholders of record on
March 15, 2000 and payable on March 27, 2000.
During the first quarter of 2000, the Company repurchased 130,600 (261,200
adjusted for the Stock Split) shares of its outstanding common stock with $8.9
million of cash on hand.
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. As of the
effectiveness of the Stock Split, each share of Preferred Stock, none of which
is outstanding, is entitled to 1,600 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 sixteen 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. As of the effectiveness of the
Stock Split, each, outstanding share of common stock entitles its holder to
one-sixteenth 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 (i) acquired 15% or more of the outstanding common stock or (ii) has
announced an intention to acquire 25% or more of the outstanding common stock
(either (i) or (ii), a "Triggering Event"). 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 sixteen
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. The Rights expire upon the close
of business on August 20, 2000.
On February 17, 2000, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "2000 Right") for each outstanding
share of Common Stock payable upon the close of business on August 20, 2000 to
the shareholders of record on that date. The Common Shares outstanding on August
20, 2000 will include the Common Shares the Company issued in connection with
the Stock Split. Each 2000 Right will entitle the registered holder to purchase
from the Company on ten-thousandth of a share of Preferred Stock at a price of
$175 per one ten-thousandth of a share of Preferred Stock, subject to
adjustment. At that time, the terms of the Preferred Stock will be amended so
that the Preferred Stock will have rights such that the value of a one
ten-thousandth of a share of Preferred Stock should approximate the value of one
share of Common Stock.
9
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As with the Rights, the 2000 Rights only become exercisable upon the occurrence
of a Triggering Event and, if there is a 15% acquiring party, each holder of a
2000 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.
Note 8 - Sale of Credit Card Business
- -------------------------------------
In March 2000, the Company sold its Harley-Davidson(R) Chrome Visa(R) 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 will be used to reduce finance debt.
10
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Results of Operations for the Three Months Ended March 26, 2000
---------------------------------------------------------------
Compared to the Three Months Ended March 28, 1999
-------------------------------------------------
For the quarter ended March 26, 2000, consolidated net sales totaled $681.1
million, a $122.5 million or 21.9% increase over the same period last year. Net
income and diluted earnings per share for 2000 were $80.2 million and $.26 on
307.7 million weighted-average shares outstanding versus $59.0 million and $.19
on 311.3 million weighted-average shares outstanding in 1999, increases of 35.9%
and 37.5%, 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 increased 24.2% and 25.7%, respectively, over the same
quarter last year.
Motorcycle Unit Shipments and Net Sales
For the Three Month Periods Ended
March 26, 2000 and March 28, 1999
================================================================================
2000 1999 Increase %Change
================================================================================
Motorcycle Unit Shipments
================================================================================
Harley-Davidson(R)motorcycle units 49,057 41,181 7,876 19.1%
- --------------------------------------------------------------------------------
Buell(R)motorcycle units 2,338 2,013 325 16.1
- --------------------------------------------------------------------------------
Total motorcycle units 51,395 43,194 8,201 19.0%
================================================================================
Net sales (in millions)
================================================================================
Harley-Davidson motorcycles $535.3 $436.5 $98.8 22.6%
- --------------------------------------------------------------------------------
Buell motorcycles 16.8 16.1 .7 4.5
- --------------------------------------------------------------------------------
Total motorcycles 552.1 452.6 99.5 22.0%
- --------------------------------------------------------------------------------
Motorcycle Parts and Accessories 94.9 75.0 19.9 26.4
- --------------------------------------------------------------------------------
General Merchandise 33.5 29.5 4.0 13.7
- --------------------------------------------------------------------------------
Other .6 1.5 (.9) (60.0)
- --------------------------------------------------------------------------------
Total Motorcycles and Related Products $681.1 $558.6 $122.5 21.9%
================================================================================
The 2000 first quarter increase in net sales of $122.5 million, or 21.9%, was
driven primarily by the 19.1% increase in Harley-Davidson motorcycle unit
shipments. During the first quarter of 2000, the Company increased its
Harley-Davidson motorcycle unit shipments and production to approximately 49,000
units, almost 8,000 units higher than the same period last year. Based on the
production and shipment levels achieved in the first quarter, the Company has
increased its 2000 annual production target to 198,500 Harley-Davidson units.(1)
First quarter Buell motorcycle revenue was up $.7 million over the same period
last year on 325 additional unit shipments. Buell shipments in the first quarter
included initial shipments of
11
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the Blast(R) (491 units), which retails for $4,395, or about half the price of
the next lowest priced Buell. The Blast is a single cylinder, 492 cc motorcycle
that is targeted towards new riders. Buell's annual motorcycle production target
for 2000, including the Blast, has been increased to 10,000 units.(1)
Parts and Accessories (P&A) sales of $94.9 million were up $19.9 million or
26.4% compared to the first quarter of 1999. P&A sales were driven by strong
motorcycle shipments and stocking orders in anticipation of a strong riding
season. The Company expects that long-term growth rates for P&A will be slightly
higher than the growth rate for Harley-Davidson motorcycle units.(1)
General Merchandise sales, which include clothing and collectibles, of $33.5
million were up $4.0 million, or 13.7%, compared to the first quarter of 1999.
The Company expects that long-term growth rates for General Merchandise will be
slightly lower than the growth rate for Harley-Davidson motorcycle units.(1)
The Company's ability to reach the 2000 annual 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).
Gross Profit
Gross profit increased $42.2 million, or 22.3%, compared to the first quarter of
1999 and was driven primarily by the increase in net sales. The gross margin was
34.0% in 2000 compared to 33.9% in the first quarter of 1999. Gross margin in
the first quarter of 2000 was positively impacted by favorable product mix and
lower average unit costs achieved through higher than planned unit production
volumes. Favorable product mix was driven by a one percent shift away from lower
priced Sportster(R) motorcycle models into higher margin touring and custom
models.
The positive impact resulting from favorable product mix and lower costs was
partially offset by unfavorable foreign currency exchange rates. The
unfavorability relates primarily to the strengthening of the U.S. dollar against
the Euro, and reduced gross margins by approximately $2.0 million when compared
with the same quarter last year. Provided the U.S. dollar/Euro exchange rates
remain at levels consistent with those experienced in the first quarter of 2000,
the Company expects similar unfavorability in the second quarter of 2000. The
Company will continue to assess opportunities to mitigate exchange rate
fluctuations through pricing actions and hedging strategies.
12
<PAGE>
Operating Expenses
For the Three Month Periods Ended
March 26, 2000 and March 28, 1999
(Dollars in Millions)
================================================================================
2000 1999 Increase %Change
- --------------------------------------------------------------------------------
Motorcycles and Related Products $118.7 $97.7 $21.0 21.5%
- --------------------------------------------------------------------------------
Corporate 3.0 2.8 .2 7.2
================================================================================
Total operating expenses $121.7 $100.5 $21.2 21.1%
================================================================================
Total operating expenses increased $21.2 million, or 21.1%, compared to the
first quarter of 1999 and were 17.9% and 18.0% of net sales in the respective
first quarters of 2000 and 1999. Operating expense increases were driven by the
corresponding increase in net sales as well as specific marketing and product
development programs, such as E-Commerce and the Buell(R) Blast(R).
Operating income from financial services
For the three months ended March 26, 2000 HDFS reported operating income of $3.3
million, an increase of $0.7 million, or 26.1%, over the same period in 1999.
The favorability is attributable to an increase in loan volume at generally
higher rates of interest partially offset by an increase in interest expense,
credit losses, and operating expenses. HDFS loan volume benefited in the first
quarter of 2000 from the increase in the Company's motorcycle sales activity.
Gain on sale of credit card business
In the first quarter of 2000, the Company sold its Harley-Davidson(R) Chrome
Visa(R) Card business, 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 business sold. Net of taxes, the transaction resulted in a net
gain of approximately $6.9 million. Proceeds from the sale will be used to
reduce finance debt.
Interest income
Interest income was higher than the prior year primarily due to higher levels of
cash available for short-term investing in the first quarter of 2000 compared to
1999.
Consolidated income taxes
The Company's effective income tax rate was 40.3% and 36.5% for the first
quarters of 2000 and 1999, respectively. The increase in the tax rate in the
first quarter of 2000 was due to the $15 million non-deductible write-off of
goodwill, recorded in connection with the sale of the Harley-Davidson(R) Chrome
Visa(R) Card business.
13
<PAGE>
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 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
-------------------------------
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 $116.3 million of cash from operating activities during
the first quarter of 2000 compared to $67.0 million in the first quarter of
1999. The largest component of cash from operating activities is net income
adjusted for non-cash items, including depreciation, credit losses, and the gain
on sale of credit card business. This was approximately $93.3 million in 2000
compared to $89.6 million in 1999.
Changes in other current assets and liabilities increased/(decreased) operating
cash flows by approximately $16.3 million and $(17.0) million during the first
quarters of 2000 and 1999, respectively. First quarter changes in working
capital during 2000 and 1999 consisted of the following (in millions):
14
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Three months ended
------------------
Working capital item 2000 1999
-------------------- ---- ----
Accounts receivable, net $(49.8) $(26.2)
Inventories - 1.5
Prepaid expenses 4.6 3.5
Accounts payable and accrued expenses 61.5 4.2
------ ------
Total $ 16.3 $(17.0)
====== ======
The first quarter 2000 increase in accounts receivable of $49.8 million was
driven primarily by the first quarter increase in European unit shipments which
were up approximately 29% over the same quarter last year. Accounts receivable
collection terms for sales in Europe are generally much longer than those for
domestic sales, and as a result the quarterly increase in shipments had a direct
impact on quarter ending accounts receivable balances.
Accounts payable and acccrued expenses increased $61.5 million in the first
quarter of 2000, primarily due to increased production volume. The Company also
recorded $6.9 million of dividends payable in the first quarter of 2000 in
connection with the first quarter dividend which is payable on March 27, 2000.
Capital expenditures were $22.6 million and $25.8 million during the first
quarters of 2000 and 1999, respectively. The Company's capital expenditures have
continued to focus on capacity expansion at its 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 $160-$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 is currently in the initial
stages of developing its next strategic plan. 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.
HDFS is financed by operating cash flow, asset-backed securitizations, the
issuance of commercial paper, revolving credit facilities, senior subordinated
debt, and redeemable preferred stock. Approximately $319.1 million of commercial
paper was outstanding at March 26, 2000. 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 $54.7
million outstanding at March 26, 2000. 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. Accordingly, at March 26, 2000, HDFS had aggregate remaining
availability of $226.2 million.
In connection with various debt agreements, HDFS has met various operating and
financial covenants and remains in compliance at March 26, 2000. The Company has
a support agreement with HDFS whereby, if required, the Company agrees to
provide HDFS with certain financial
15
<PAGE>
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.
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 and securitization programs
and capital contributions from the Company.
The Company has authorization from its Board of Directors to repurchase up to
4,700,000 shares (9,400,000 shares adjusted for the Stock Split) 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 quarter of 2000, the Company
repurchased 130,600 (261,200 adjusted for the Stock Split) shares of its common
stock under the latter authorization.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- ------------------------------------------------------------------
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
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.
17
<PAGE>
Part II - OTHER INFORMATION
HARLEY-DAVIDSON, INC.
FORM 10-Q
March 26, 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 March 26, 2000
(b) Reports on Form 8-K
------------------------
Rights Agreement dated as of February 17, 2000.
The Company filed a Current Report on Form 8-K dated February 17, 2000
reporting, under Item 5, on a dividend of preferred share purchase
rights under a Rights Agreement dated as of February 17, 2000.
18
<PAGE>
Part II - Other Information
HARLEY-DAVIDSON, INC.
Form 10-Q
March 26, 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: May 10, 2000 /s/ James L. Ziemer
------------------- ------------------------------------
James L. Ziemer
Vice President and Chief Financial
Officer (Principal Financial Officer)
May 10, 2000 /s/ James M. Brostowitz
------------------- ------------------------------------
James M. Brostowitz
Vice President, Controller and
Treasurer (Principal Accounting
Officer)
19
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule for March 26, 2000
20
<TABLE> <S> <C>
<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 THREE MONTHS ENDED MARCH 26, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-26-2000
<CASH> 208,996
<SECURITIES> 0
<RECEIVABLES> 152,875
<ALLOWANCES> 1,331
<INVENTORY> 168,560
<CURRENT-ASSETS> 1,050,583
<PP&E> 1,257,413
<DEPRECIATION> 584,433
<TOTAL-ASSETS> 2,202,317
<CURRENT-LIABILITIES> 522,291
<BONDS> 0
0
0
<COMMON> 3,174
<OTHER-SE> 1,239,212
<TOTAL-LIABILITY-AND-EQUITY> 2,202,317
<SALES> 681,113
<TOTAL-REVENUES> 681,113
<CGS> 449,808
<TOTAL-COSTS> 449,808
<OTHER-EXPENSES> (18,590)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,872)
<INCOME-PRETAX> 134,429
<INCOME-TAX> 54,202
<INCOME-CONTINUING> 80,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,227
<EPS-BASIC> 26
<EPS-DILUTED> 26
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