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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: DECEMBER 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
_______________ to ________________
Commission file number 1-9183
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HARLEY-DAVIDSON, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1382325
(State of organization) (I.R.S. Employer Identification No.)
3700 WEST JUNEAU AVENUE,
MILWAUKEE, WISCONSIN 53208
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (414) 342-4680
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
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COMMON STOCK, $.01 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such requirements for the
past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 21, 1995: $1,689,758,527.
Number of shares of the registrant's common stock outstanding at March 21, 1995:
74,739,769 shares.
Part III of this report incorporates information by reference from registrant's
Proxy Statement for the annual meeting of its shareholders to be held on May 6,
1995.
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PART I
ITEM 1. BUSINESS
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SUMMARY
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Harley-Davidson, Inc. was incorporated in 1981, at which time it purchased the
Harley-Davidson Motorcycle Business from AMF Incorporated (currently doing
business as Minstar) in a management buyout. In 1986, Harley-Davidson, Inc.
became publicly held. Unless the context otherwise requires, Harley-Davidson,
Inc. (the "Company") includes all of its subsidiaries and other wholly owned
affiliates. The Company operates in two segments: Motorcycles and Related
Products and Transportation Vehicles.
The Motorcycles and Related Products ("Motorcycles") segment consists
primarily of the Company's wholly owned subsidiary H-D Michigan, Inc. and its
wholly owned subsidiary Harley-Davidson Motor Company. The Motorcycles
segment designs, manufactures and sells primarily heavyweight (engine
displacement of 751cc or above) touring and custom motorcycles and a broad
range of related products which include motorcycle parts and accessories and
riding apparel. The Company, which is the only major American motorcycle
manufacturer, has held the largest share of the United States heavyweight
motorcycle market since 1986. The Company generally holds much smaller market
shares in international markets.
The Transportation Vehicles ("Holiday Rambler") segment consists of the
Company's wholly owned affiliate Holiday Rambler LLC (formerly Holiday Rambler
Corporation) and its Holiday World(R) store affiliates. Holiday Rambler
manufactures recreational vehicles, principally motorhomes and travel
trailers, and specialized commercial vehicles. Holiday Rambler was acquired
by the Company in December 1986. Holiday Rambler's Recreational Vehicles
division competes primarily in the mid to premium price segment of the
recreational vehicle market. Holiday Rambler's commercial vehicles (marketed
under the Utilimaster/(R)/ brand name), which include walk-in vans and parcel
delivery trucks, are built for a diverse range of specialized commercial uses.
Holiday Rambler's Commercial Vehicles division is one of a small number of
commercial vehicle manufacturers with the resources to satisfy the volume
requirements and specialized needs of fleet customers.
Revenue, operating income (loss) and identifiable assets attributable to each
of the Company's segments are as follows (in thousands):
Motorcycles
and Related Transportation
Products Vehicles Corporate
----------- ---------------- ----------
1994
----
Revenue $1,158,887 $382,909 $ -
Operating income (loss) 163,510 6,745 (9,948)
Identifiable assets 502,267 165,533 71,415
1993
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Revenue $ 933,262 $284,166 $ -
Operating income (loss) 136,217 (59,533)* (6,878)
Identifiable assets 367,794 134,699 80,792
1992
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Revenue $ 822,929 $282,355 $ -
Operating income (loss) 102,300 2,137 (7,240)
Identifiable assets 313,953 178,252 29,959
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*Includes $57.0 million charge related primarily to the write-off of goodwill.
2
The domestic heavyweight motorcycle market continued to expand in 1994. The
domestic recreational vehicle industry also reported volume increases during
1994. Worldwide quarterly revenue and operating income (loss) (in thousands),
by segment, and motorcycle shipment information, are as follows:
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- ----------
1994
Revenue by segment:
Motorcycles and Related Products $258,607 $296,843 $291,927 $311,510 $1,158,887
Transportation Vehicles 85,098 104,530 92,098 101,183 382,909
-------- -------- -------- -------- ----------
$343,705 $401,373 $384,025 $412,693 $1,541,796
Operating income (loss) by segment:
Motorcycles and Related Products $ 34,984 $ 47,134 $ 37,832 $ 43,560 $ 163,510
Transportation Vehicles 222 4,718 2,063 (258) 6,745
Corporate (2,086) (3,217) (2,128) (2,517) (9,948)
-------- -------- -------- -------- ----------
$ 33,120 $ 48,635 $ 37,767 $ 40,785 $ 160,307
Units:
Motorcycles 23,056 25,006 22,503 25,246 95,811
1993
Revenue by segment:
Motorcycles and Related Products $205,328 $256,870 $220,778 $250,286 $ 933,262
Transportation Vehicles 64,257 77,508 63,598 78,803 284,166
-------- -------- -------- -------- ----------
$269,585 $334,378 $284,376 $329,089 $1,217,428
Operating income (loss) by segment:
Motorcycles and Related Products $ 27,505 $ 41,604 $ 31,175 $ 35,933 $ 136,217
Transportation Vehicles (589) 301 (2,137) (57,108)* (59,533)
Corporate (1,746) (1,840) (1,183) (2,109) (6,878)
-------- -------- -------- -------- ----------
$ 25,170 $ 40,065 $ 27,855 $(23,284) $ 69,806
Units:
Motorcycles 19,502 22,951 17,963 21,280 81,696
*Includes $57.0 million charge related primarily to the write-off of goodwill.
1992
Revenue by segment:
Motorcycles and Related Products $179,010 $203,929 $201,408 $238,582 $ 822,929
Transportation Vehicles 68,412 70,020 70,342 73,581 282,355
-------- -------- -------- -------- ----------
$247,422 $273,949 $271,750 $312,163 $1,105,284
Operating income (loss) by segment:
Motorcycles and Related Products $ 18,292 $ 32,772 $ 25,311 $ 25,925 $ 102,300
Transportation Vehicles 138 1,144 106 749 2,137
Corporate (1,719) (2,270) (1,416) (1,835) (7,240)
-------- -------- -------- -------- ----------
$ 16,711 $ 31,646 $ 24,001 $ 24,839 $ 97,197
Units:
Motorcycles 17,186 18,771 17,977 22,561 76,495
3
MOTORCYCLES AND RELATED PRODUCTS
The primary business of the Motorcycles segment is to produce and sell premium
heavyweight motorcycles. The Company's motorcycle products emphasize
traditional styling, design simplicity, durability, ease of service and
evolutionary change. Studies by the Company indicate that the typical U.S.
Harley-Davidson/(R)/ motorcycle owner is a male in his early forties, with a
household income of approximately $65,200, who purchases a motorcycle for
recreational purposes rather than to provide transportation and who is an
experienced motorcycle rider. Over two-thirds of the Company's sales are to
buyers with at least one year of higher education beyond high school.
The heavyweight class of motorcycles is comprised of four types: standard,
which emphasizes simplicity and cost; performance, which emphasizes handling
and speed; touring, which emphasizes comfort and amenities for long-distance
travel; and custom, which emphasizes styling and individual owner
customization. Touring and custom models are the primary classes of
heavyweight motorcycles the Company manufactures. The Company presently
manufactures and sells 20 models of touring and custom heavyweight
motorcycles, with suggested retail prices ranging from approximately $5,000 to
$17,500. The touring segment of the heavyweight market was pioneered by the
Company and includes motorcycles equipped for long-distance touring with
fairings, windshields, saddlebags and Tour Paks/(R)/. The custom segment of
the market includes motorcycles featuring the distinctive styling associated
with certain classic Harley-Davidson motorcycles. These motorcycles are
highly customized through the use of trim and accessories. The Company's
motorcycles are based on variations of four basic chassis designs and are
powered by one of three air cooled, twin cylinder engines of "V" configuration
which have displacements of 883cc, 1200cc and 1340cc. The Company
manufactures its own engines and frames.
During 1993, the Company acquired a 49 percent interest in Buell Motorcycle
Company ("Buell"), a manufacturer of performance motorcycles. This investment
in Buell offers the Company the possibility of gradually gaining entry into
select niches within the performance motorcycle market. Buell began
distribution of a limited number of Buell motorcycles during 1994 to select
Harley-Davidson dealers.
Although there are some accessory differences between the Company's top-of-the
line touring motorcycles and those of its competitors', suggested retail
prices are generally comparable. The top of the Company's custom product line
is typically priced at almost twice that of 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
competitors' comparable motorcycles. The Company's surveys of retail
purchasers indicate that, historically, over three-quarters of the purchasers
of its Sportster model have come from competitive-brand motorcycles or are
people new to the sport of motorcycling. Since 1988, the Company's research
has consistently shown a repurchase intent in excess of 92% on the part of
purchasers of its motorcycles, and the Company expects to see sales of its
883cc Sportster model partially translated into sales of its higher-priced
products in the normal two to three year ownership cycle. Domestic motorcycle
sales generated 50.3%, 51.4% and 52.8% of revenues in the Motorcycles segment
during 1994, 1993 and 1992, respectively.
The major product categories for the Parts and Accessories business are
replacement parts, mechanical accessories, rider accessories (MotorClothes(R)
and collectibles) and specially formulated oil and other lubricants. The
Company's replacement parts include original equipment parts, generally made
in the United States, and a less expensive line of imported parts introduced
in 1983 to compete
4
against foreign-sourced aftermarket suppliers. Domestic motorcycle Parts and
Accessories sales comprised 17.8%, 17.4% and 15.3% of net sales in the
Motorcycles segment in 1994, 1993 and 1992, respectively. Net sales from
domestic motorcycle Parts and Accessories have grown 97.3% over the last
three years (since 1991).
The Company also provides a variety of services to its dealers and retail
customers including service training schools, delivery of its motorcycles,
motorcycling vacations, memberships in an owners club and customized software
packages for dealers. The Company has had success under a program emphasizing
modern store design and display techniques in the merchandising of parts and
accessories by its dealers. Currently, 375 domestic and 90 international
dealerships have completed store design renovation projects.
Licensing. In recent years, the Company has endeavored to create an awareness
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of the brand among the non-riding public by licensing its trademark "Harley-
Davidson(R)" and numerous related trademarks owned by the Company. The
Company currently has licensed the production and sale of a broad range of
consumer items, including t-shirts and other clothing, jewelry, small leather
goods and numerous other products and is expanding its licensing activity in
the toy category. Although the majority of licensing activity occurs in the
U.S., the Company has expanded into international markets.
This licensing activity provides the Company with a valuable source of
advertising. Licensing also has proven to be an effective means for enhancing
the Company's image with consumers and provides an important tool for policing
the unauthorized use of the Company's trademarks thereby protecting the brand
and its use by authorized motorcycle dealers. Royalty revenues from licensing
accounted for approximately 2% of the net sales from the Motorcycles segment
during 1994 (1% during 1993 and 1992). While royalty revenues from licensing
activities are small, the profitability of this business is relatively high.
Marketing and Distribution. The Company's basic channel of United States
--------------------------
distribution for its motorcycles and related products consists of
approximately 600 independently owned full-service dealerships to whom the
Company sells direct. With respect to sales of new motorcycles, approximately
75% of the dealerships sell Harley-Davidson motorcycles exclusively. All
dealerships carry Genuine Harley-Davidson replacement parts and aftermarket
accessories and perform servicing of Harley-Davidson motorcycle products.
The Company's marketing efforts are divided among dealer promotions, customer
events, magazine and direct mail advertising, public relations, and
cooperative programs with Harley-Davidson dealers. The Company also sponsors
racing activities and special promotional events and participates in all major
motorcycle consumer shows and rallies. In an effort to encourage Harley-
Davidson owners to become more actively involved in the sport of motorcycling,
the Company formed a riders club in 1983. The Harley Owners Group(R), or
"HOG(R)", currently has approximately 270,000 members worldwide and is the
industry's largest company-sponsored motorcycle enthusiast organization. In
1984, the Company became the first motorcycle manufacturer to use a national
program of demonstration rides. The Company's expenditures on domestic
marketing and advertising were approximately $65.6 million, $53.8 million and
$45.2 million during 1994, 1993 and 1992, respectively.
Retail Customer and Dealer Financing. Among the factors affecting the volume
------------------------------------
of the Company's motorcycle sales are the availability and cost of credit to
both retail purchasers and Harley-Davidson dealers.
5
In January, 1993, the Company invested $10 million for a 49% interest in
Eaglemark Financial Services, Inc., formerly Eagle Credit Corporation
("Eagle"). Eagle provides motorcycle floor planning and parts and accessories
financing arrangements to the Company's U.S. dealers. Eagle also offers
retail financing opportunities to the Company's domestic motorcycle customers.
In addition, Eagle has established a proprietary credit card for use in the
Company's independent dealerships.
A majority of dealer purchases of the Company's motorcycles are financed by
Eagle. Under the terms of the Company's agreement with Eagle, participating
dealers finance with Eagle 100% of the motorcycle invoice price. The Company
has agreed to indemnify Eagle for certain losses that might be incurred by
Eagle upon the sale or disposition of motorcycles repossessed by Eagle.
Historically, the Company has experienced insignificant losses under this
program.
The Company encourages its motorcycle dealers to purchase and maintain
adequate inventories of the Company's parts and accessories during the winter
months in anticipation of the Christmas and spring selling season by offering
its dealers special discounts and delayed billing terms. Under this program,
payments to Eagle by dealers are due on June 1. The Company enters into an
annual trade acceptance agreement with Eagle to provide the Company with the
ability to sell its receivables from dealers. Under the terms of the
agreement, the Company receives cash from Eagle in the amount of 100% of
certain eligible accounts receivable at the time of sale to the dealer. On
June 1 of each year, the date by which payments to Eagle are due from dealers,
the Company is obligated to repurchase all unpaid balances from Eagle.
Historically, the Company has experienced insignificant losses under this
program. For further information on dealer financing programs, see Notes 4
and 6 to the 1994 consolidated financial statements.
International Sales. International sales were $331 million, $263 million and
-------------------
$240 million, accounting for approximately 29%, 28% and 29% of net sales of
the Motorcycles segment, during 1994, 1993 and 1992, respectively. The
Company believes that the international heavyweight market is growing and is
significantly larger than the U.S. heavyweight market. The Company estimates,
using data reasonably available to the Company, that it holds an average
market share of approximately 15% in the heavyweight export markets in which
it competes.
The Company has wholly owned subsidiaries located in Germany, Japan and the
United Kingdom. The German subsidiary also serves Austria, France, Denmark,
Czech Republic, Hungary and Poland. The combined foreign subsidiaries have a
network of 135 dealers of which approximately 45% sell the Company's
motorcycles exclusively. Distribution through these subsidiaries allows the
Company flexibility in responding to changing economic conditions in a variety
of foreign markets. The Company is represented throughout the rest of the
world by an independent network of distributors and direct sales dealers. At
the end of 1994, this network included 15 distributors serving 16 country
markets with approximately 243 dealers. The remainder of the network includes
14 direct sales dealers serving 14 country markets. Germany, Japan, Canada
and Australia, in that order, represent the Company's largest export markets
and account for approximately 60% of export sales. See Note 11 to the
consolidated financial statements for additional information regarding foreign
operations.
6
Competition. The U.S. and international heavyweight motorcycle markets are
-----------
highly competitive. The Company's major competitors generally have financial
and marketing resources which are substantially greater than those of the
Company. The Company's principal competitors have larger overall sales
volumes and are more diversified than the Company. The Company believes that
the heavyweight motorcycle market is the most profitable segment of the U.S.
motorcycle market. During 1994, the heavyweight segment represented
approximately 35% of the total U.S. motorcycle market in terms of new units
registered.
The Company first began to experience significant competition in the domestic
heavyweight motorcycle market from Japanese manufacturers in the early 1970's,
and prior to 1984, the Company's U.S. market share declined almost
continuously. Domestically, the Company competes in the touring and custom
segments of the heavyweight motorcycle market, which together accounted for
76%, 75% and 73% of total heavyweight retail unit sales in the U.S. during
1994, 1993 and 1992, respectively. The custom and touring motorcycles are
generally the most expensive and most profitable vehicles in the market.
For the last 9 years, the Company has led the industry in domestic sales of
heavyweight motorcycles. The Company's share of the heavyweight market was
56.1% in 1994; down slightly from 58.4% in 1993. This is primarily a result
of constrained production capacity in a growing market. The Company has
implemented a manufacturing strategy to, among other things, increase capacity
to 100,000 and 115,000 units by 1995 and 1997, respectively.
Shares of U.S. Heavyweight Motorcycle Market*
(Above 750cc Engine Displacement)
Year Ended December 31,
--------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
New U.S. Registrations (thousands of units):
Total new registrations 116.2 101.4 86.4 74.3 78.5
Harley-Davidson new registrations 65.2 59.3 52.2 45.1 46.9
Percentage Market Share:
Harley-Davidson 56.1% 58.4% 60.4% 60.7% 59.7%
Honda 19.1 17.7 16.4 17.3 18.7
Suzuki 8.7 9.4 9.4 7.6 5.7
Kawasaki 7.1 6.2 5.6 6.4 6.5
Yamaha 3.9 4.4 4.1 4.7 6.9
Other 5.1 3.9 4.1 3.3 2.5
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
* Information in this report regarding motorcycle registrations and market
shares has been derived from data published by R.L. Polk & Co.
7
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:
Worldwide Heavyweight Motorcycle Registration Data
(Above 750cc Engine Displacement)
(Units in Thousands)
1994 1993 1992
------ ------ ------
North America/(1)/:
Total registrations 124.9 109.5 92.3
Harley-Davidson registrations 69.5 63.4 56.0
Harley-Davidson market share percentage 55.7% 57.9% 60.6%
Europe/(2)/:
Total registrations 128.7 129.8 128.0
Harley-Davidson registrations 14.2 13.1 12.5
Harley-Davidson market share percentage 11.0% 10.1% 9.7%
Japan/Australia/(3)/:
Total registrations 34.0 31.8 28.2
Harley-Davidson registrations 7.6 6.6 5.2
Harley-Davidson market share percentage 22.3% 20.9% 18.4%
(1) Includes the United States and Canada
(2) Includes Austria, Belgium, France, Germany, Italy,
Netherlands, Spain, Switzerland and United Kingdom.
(3) Data for Queensland, Northern Territory and South Australia
not available prior to 1993.
Competition in the heavyweight motorcycle market is based upon a number of
factors, including price, quality, reliability, styling, product features and
warranties. The Company emphasizes quality, reliability and styling in its
products and offers warranties which are generally comparable to those of its
competitors. In general, resale prices of Harley-Davidson motorcycles, as a
percentage of price when new, are significantly higher than resale prices of
motorcycles sold by the Company's competitors.
Domestic heavyweight registrations increased 15% and 17% during 1994 and 1993,
respectively, the Company doesn't expect the market to grow at these rates in
the future. The Company's ability to maintain its current domestic sales
levels will depend primarily on its ability to increase its annual production
capacity as discussed below.
To enhance international growth, the Company completed, in 1994, a study of
Europe, the world's largest heavyweight motorcycle market, and began
implementation of new strategies to improve the quality of its distribution
systems, dealer network and customer support activities there. In addition,
the Company will begin a similar study of our current and future potential in
the Asia/Pacific region, to determine the levels of commitment required to
adequately serve the needs of motorcycle customers in this region.
8
Motorcycle Manufacturing. In an effort to achieve cost and quality parity
------------------------
with its competitors, the Company has incorporated manufacturing techniques to
continuously improve its operations. These techniques, which include employee
involvement, just-in-time inventory principles and statistical process
control, have significantly improved quality, productivity and asset
utilization.
The Company's use of just-in-time inventory principles allows it to minimize
its inventories of raw materials and work in process, as well as scrap and
rework costs. This system also allows quicker reaction to engineering design
changes, quality improvements and market demands. The Company has trained the
majority of its manufacturing employees in problem solving and statistical
methods.
During 1993, the Company adopted a comprehensive motorcycle manufacturing
strategy designed to, among other things, achieve the goal of a 100,000 units
per year production rate in 1996. The strategy calls for the enhancement of
the Motorcycles segment's ability to increase capacity, adjust to changes in
the market place and further improve quality while reducing costs. The
strategy calls for the achievement of the increased capacity within the
existing facilities (with minor additions) without a significant change in
personnel. The Company began implementing the strategy in 1993 and estimates
that it will reach the production goal of 100,000 units in 1995, more than one
year ahead of schedule. In addition, the Company plans to increase annual
production capacity to 115,000 units by 1997.
Raw Material and Purchased Components. The Company has endeavored to
-------------------------------------
establish with its suppliers long-term informal "partnership" relationships,
directly assisting them in the implementation of the manufacturing techniques
employed by the Company through training sessions and plant evaluations. In
furtherance of the Company's "partnership" philosophy, the Company reduced the
number of its manufacturing suppliers in recent years and is conducting more
business with suppliers that have implemented these same manufacturing
techniques in their manufacturing operations.
The Company purchases all of its raw material, principally steel and aluminum
castings, forgings, sheet and bars, and certain motorcycle components,
including carburetors, batteries, tires, seats, electrical components and
instruments. Certain of these components are secured from one of a limited
number of suppliers. Interruptions from certain of these suppliers could
adversely affect the Company's production pending the establishment of
substitute supply arrangements. The Company anticipates no significant
difficulties in obtaining raw materials or components for which it relies upon
a limited source of supply.
Research and Development. The Company believes that research and development
------------------------
is a significant factor in the Company's ability to continuously improve its
competitive position. The Motorcycles segment incurred research and
development expenses of approximately $22.1 million, $19.3 million and $14.6
million during 1994, 1993 and 1992, respectively.
Patents and Trademarks. The Company owns certain patents which relate to its
-----------------------
motorcycles and related products and processes for their production. The
Company believes that the loss of any of its patents would not have a material
effect upon its business.
Trademarks are important to the Company's motorcycle business and licensing
activities. The Company has a vigorous program of trademark registration and
enforcement to prevent the unauthorized use of its trademarks, strengthen the
value of its trademarks and improve its image and customer goodwill. The
Company believes that its "Harley-Davidson(R)" registered United States
trademark is its most significant trademark. The Company's Bar and Shield
design is also highly recognizable by the general public. Additionally, the
Company has numerous other registered
9
trademarks, trade names and logos, both in the United States and abroad. The
Company has used the "Harley-Davidson" trademark continuously since 1903.
Seasonality. The Company, in general, does not experience seasonal
------------
fluctuations in production. This is primarily the result of a strong demand
for the Company's motorcycles and related products, as well as the
availability of floor plan financing arrangements for its independent dealers.
Floor plan financing allows many dealers to build their inventory levels in
anticipation of the spring and summer selling seasons.
Regulation. Both federal and state authorities have various environmental
-----------
control requirements relating to air, water and noise pollution which affect
the business and operations of the Company. The Company endeavors to ensure
that its facilities and products comply with all applicable environmental
regulations and standards.
To ensure compliance with lower European Union noise standards (80dba), which
took effect in calendar year 1994, the Company began a product development
program during late 1990. The design changes were implemented in July 1994
(1995 model year start-up) after European Union Certification procedures were
completed. Near the end of the decade there may be a further reduction of
European Union noise standards (to 77dba). Accordingly, the Company
anticipates that it will continue to incur some level of research and
development costs related to this matter over the next several years.
The Company's motorcycles are subject to certification by the U.S.
Environmental Protection Agency (EPA) for compliance with applicable emissions
and noise standards and by the State of California Air Resources Board (ARB)
with respect to the ARB's more stringent emissions standards. The Company's
motorcycle products have been certified to comply fully with all such
applicable standards. The Company's motorcycles are subject to additional ARB
tailpipe and evaporative emissions standards requiring that unique vehicles be
built for sale exclusively in California.
The Company, as a manufacturer of motorcycle products, is subject to the
National Traffic and Motor Vehicle Safety Act (Safety Act), which is
administered by the National Highway Traffic Safety Administration (NHTSA).
The Company has acknowledged to NHTSA that its motorcycle products comply
fully with all applicable federal motor vehicle safety standards and related
regulations.
In accordance with NHTSA policies the Company has from time to time initiated
certain voluntary recalls. During the last three years, the Company has
initiated 8 voluntary recalls at a total cost of approximately $6.0 million.
The Company fully reserves for all estimated costs associated with recalls in
the period that they are announced.
Federal, state, and local authorities have adopted various control standards
relating to air, water, and noise pollution which affect the business and
operations of the Motorcycles segment. Management does not anticipate that
any of these standards will have a materially adverse impact on its capital
expenditures, earnings, or competitive position.
Employees. As of December 31, 1994, the Motorcycles segment had approximately
---------
4,300 employees. Production workers at the motorcycle manufacturing
facilities in Wauwatosa and Tomahawk, Wisconsin, are represented principally
by the United Paperworkers International Union (UPIU) of the AFL-CIO, as well
as the International Association of Machinist and Aerospace Workers (IAM).
Production workers at the motorcycle manufacturing facility in York,
Pennsylvania, are represented principally by the IAM. The collective
bargaining agreement with the UPIU and the
10
Wisconsin-IAM will expire on April 14, 1997, and the collective bargaining
agreement with the Pennsylvania-IAM will expire on February 2, 1997.
TRANSPORTATION VEHICLES
RECREATIONAL VEHICLES
---------------------
The Recreational Vehicles division's motorhomes and travel trailers are
designed to appeal to people interested in travel and outdoor recreational
activities. These recreational vehicles are distinct from mobile homes, which
are manufactured housing designed for permanent and semipermanent dwelling.
Principal types of recreational vehicles produced by the Recreational Vehicles
division include Class A or "conventional" motorhomes and travel trailers.
Recreational vehicle classifications are based upon standards established by
the Recreation Vehicle Industry Association (RVIA).
A motorhome is a self-powered vehicle built on a motor vehicle chassis. The
interior typically includes a driver's area, kitchen, bathroom, dining, and
sleeping areas. Motorhomes are self-contained, with their own lighting,
heating, cooking, refrigeration, sewage holding and water storage facilities
so that they can be lived in without being attached to utilities. As such,
they generally qualify as second homes for income tax purposes. Although they
generally are not designed to provide complete facilities for permanent or
semipermanent living, motorhomes do provide comfortable living facilities for
short periods of time.
Class A motorhomes are constructed on medium-duty truck chassis, which are
purchased with engine and drive train components. The living area and
driver's compartment are designed, manufactured, and installed by the
Recreational Vehicles division.
Travel trailers are non-motorized vehicles which are designed to be towed by
passenger automobiles, pick-up trucks, sport utility vehicles or vans. They
are otherwise similar to motorhomes in features and use. The Company produces
both "conventional" and "fifth wheel" travel trailers. Conventional travel
trailers are towed by means of a bumper or frame hitch attached to the towing
vehicle. Fifth wheel trailers, designed to be towed by pick-up trucks, are
constructed with a raised forward section that is attached to the bed area of
the pick-up truck. This design allows a bi-level floor plan and additional
living space.
The Company's premium lines of recreational vehicles are marketed under the
Navigator(R) and Imperial(TM) brand names. Models in these lines are
manufactured with premium quality materials and components, including
entertainment centers, solid oak cabinetry and brass fixtures, and may be
equipped with luxury features such as microwave-convection ovens,
washer/dryers and built-in vacuum cleaner systems. These models are generally
purchased by persons who previously have owned recreational vehicles. The
Navigator is a bus-style motorhome that carries a suggested retail price of
$224,000 to $282,000. In the Company's Imperial line, suggested retail prices
of motorhomes generally range between $166,000 and $187,000, while travel
trailers retail between $46,800 and $72,500.
11
The Company also produces motorhomes under the Endeavor(R) and Vacationer(R)
brand names, and travel trailers under the Aluma-Lite(R) brand name, for the
mid-range market. These models are produced with fewer standard features than
the Navigator or Imperial. Suggested retail prices for the Endeavor and
Vacationer motorhomes range between $53,600 and $113,000 while Aluma-Lite
travel trailers range between $19,000 and $53,000. Models produced under the
Free Spirit(R) brand name were discontinued during 1994.
Holiday Rambler's product development is divided into three efforts: to
develop competitive floorplans; to update existing models; and to bring
innovation into the product line along with increased quality. In achieving
these goals, Holiday Rambler does not plan to vary from its traditional
aluminum frame construction or stray from its existing product boundaries.
The following table presents information regarding wholesale sales of the
Company's recreational vehicles during the periods indicated:
Wholesale Recreational Vehicles Sales
Year Ended December 31,
----------------------------
(in thousands)
1994 1993 1992
-------- -------- --------
Premium lines $ 69,197 $ 53,041 $ 58,460
Mid-range lines 135,696 83,677 89,601
-------- -------- --------
Total $204,893 $136,718 $148,061
======== ======== ========
In addition to wholesale sales of the recreational vehicle products shown
above, sales by the Recreational Vehicles division also include retail sales
by its wholly owned Holiday World stores, discussed below.
The Recreational Vehicles division's sales (including retail, wholesale and
other sales) were $274.5 million, $192.7 million and $202.1 million in 1994,
1993 and 1992, respectively. Sales of the Recreational Vehicles division
accounted for 71.7%, 67.8% and 71.6% of the Transportation Vehicles segment's
revenues for the years ended December 31, 1994, 1993 and 1992, respectively.
Competition and Other Business Considerations. The recreational vehicle
----------------------------------------------
market is highly competitive with a number of other manufacturers selling
products in competition with the Company. Competition is based upon price,
design, quality and service. The Company believes that it provides service
comparable to that provided by its competitors and that the design and quality
of its products compare favorably with similarly priced products of its
competitors.
The Company believes that the primary external factors affecting the
recreational vehicle industry are the consumer's perception of the health of
the economy, interest rates, price of fuel and the availability of retail
financing.
12
During 1994, ten manufacturers accounted for approximately 85% and 80% of
total units registered in the Class A and Towable markets, respectively. The
remaining units included products manufactured by approximately twenty-six
Class A and sixty-four Towable manufacturers. During 1994, Fleetwood
Enterprises, Inc. (Fleetwood) accounted for approximately 30% and 25% of the
Class A and Towable markets, respectively. During the same period, the
Company's shares of the Class A and Towable markets were 5.5% and 2.2%,
respectively. The Company ranks fourth in Class A market share and tenth in
Towable market share.
The Company concentrates on the mid-range to premium segment of the market.
While definitive market share statistics with respect to this segment do not
exist, the Company's Recreational Vehicles division is one of the largest
producers of this segment of recreational vehicles. The Holiday Rambler line
of recreational vehicles consists of four model brands of both trailers and
motorhomes.
Marketing and Distribution. The Recreational Vehicles division markets its
---------------------------
recreational vehicle products through a network of over 120 dealers located
throughout the continental United States, including fourteen company-owned
Holiday World dealers. Holiday World dealers also stock previously owned
vehicles and new recreational vehicles manufactured by certain of Holiday
Rambler's competitors. The Holiday World dealers provide Holiday Rambler with
valuable knowledge regarding consumer preferences and information regarding
products of its competitors, as well as other marketing information. Holiday
Rambler's sales and service agreements require dealers to maintain a service
department and a supply of recreational vehicle parts, supplies and
accessories. These agreements are subject to renewal on an annual basis.
Holiday Rambler's new owner research indicates that approximately 66% of
purchasers of Holiday Rambler's new recreational vehicles are 56 years or
older, a growing segment of the U.S. population.
Customer loyalty is reinforced by Holiday Rambler's sponsorship of the Holiday
Rambler Recreational Vehicles Club, Inc., a not-for-profit Indiana
corporation. The club is open only to owners of Holiday Rambler's
recreational vehicles and has approximately 11,600 members. The club holds 31
club-sponsored rallies and caravans each year and is provided with
administrative and promotional assistance by Holiday Rambler. Holiday Rambler
receives valuable feedback from its customers at these events.
Dealer Financing. Substantially all of the Recreational Vehicles division's
-----------------
recreational vehicle sales to dealers are made on terms requiring payment
within ten days of the dealer's receipt of the unit. Most dealers are
financed under "floor plan" arrangements with banks or finance companies under
which the lender advances all, or substantially all, of the purchase price of
the vehicle being purchased. The loan is collateralized by a lien on the
vehicle. In certain instances, consistent with industry practice, Holiday
Rambler has entered into repurchase agreements with these lenders which
provide that, in the event of default by the dealer in repaying the loan,
Holiday Rambler will either repay the loan or repurchase the financed
vehicles. In general, the repurchase agreements provide that, for up to
twelve months after a unit is financed, Holiday Rambler will repurchase the
unit upon a determination by the lender to repossess the unit. Holiday
Rambler's loss exposure on repurchase is limited to the difference between the
net realizable resale value of the vehicle and the amount required to be paid
the lending institution at the time of repurchase. The Company's losses over
the last five years under these programs have been less than $100,000 in the
aggregate. For further information on dealer financing programs, see Notes 4
and 6 to the 1994 consolidated financial statements.
13
COMMERCIAL VEHICLES
-------------------
The Company, through its Utilimaster division, builds a variety of commercial
body configurations for special uses. Sales of the Commercial Vehicles
division accounted for 24.8%, 27.8% and 24.0% of the Transportation Vehicles
segment's revenues in 1994, 1993 and 1992, respectively.
Utilimaster currently installs its bodies on chassis of various sizes supplied
by third parties. The Company's products are offered in aluminum or
fiberglass reinforced plywood (FRP) construction and are available in lengths
of 9 to 28 feet. The Company's products (excluding chassis) range in price
from $2,800 to $35,000 although special service vehicles can sell as high as
$60,000.
The principal types of commercial bodies are as follows:
Parcel Delivery Vans - Aluminum or FRP parcel delivery van bodies are
--------------------
installed on chopped van chassis supplied by the major Detroit truck
manufacturers. These parcel delivery van bodies range in length from 10 to
16 feet and are primarily used for local delivery of parcels, freight and
perishables.
Standard Walk-In Vans - Utilimaster manufactures its standard walk-in vans
---------------------
(step-vans) on a truck chassis supplied with engine and drive train
components, but without a cab. The Company fabricates the driver's
compartment and body using aluminum panels. Uses for these vans include
the distribution of food products and small packages.
Truck Bodies - Utilimaster's truck bodies are typically fabricated up to 28
------------
feet in length with prepainted aluminum or FRP panels, aerodynamic front
and side corners, hardwood floors, and various door configurations to
accommodate end-user loading and unloading requirements. These products
are used for diversified dry freight transportation. The Company installs
its truck bodies on chassis supplied with a finished cab.
Mobile Rescue and Special Use Emergency Vehicles - Utilimaster builds a
------------------------------------------------
variety of high cube and walk-in specialty use vehicles for the fire and
rescue industry. These vehicles range in lengths from 10 to 22 feet and
usually require extensive customization to meet the needs of the local
emergency agencies.
Marketing and Distribution. Utilimaster markets its products directly to 450
---------------------------
fleet accounts and to single commercial vehicle purchasers through a network
of 900 automobile and truck dealers. This network is distinct from the
Company's recreational vehicle dealer network. The Company does not provide
financing to these dealers or fleet accounts.
Competition. While the Commercial Vehicles division experiences some
------------
competition from the large automotive manufacturers, which traditionally have
offered a narrow selection of standardized commercial vehicle body options for
their truck chassis, its principal competition is from a small number of
manufacturers with the resources to satisfy the volume requirements and
specialized needs of commercial vehicle fleet customers. These manufacturers
include Grumman-Olsen Corp., Union City Body Company, Inc., and Supreme Corp.
Competition among manufacturers is based upon price, quality, and
responsiveness to customer requirements both in design and timing of delivery.
Sales of commercial vehicles to fleet customers generally are either the
result of direct competition with other manufacturers or a competitive bidding
process. Because of the specialized needs of each customer, the relative
importance of each individual factor varies from customer to customer. The
Company believes that it has been able to compete successfully on the basis of
all of these factors.
14
OTHER PRODUCTS
--------------
The Transportation Vehicles segment's Creative Dimensions division produces a
broad line of contemporary office furniture. Creative Dimensions products are
marketed through a network of approximately 750 office suppliers and designers
nationwide. The Transportation Vehicles segment's Nappanee Wood Products
division is a custom cabinetmaker which produces high quality, solid wood
components primarily for the Company's recreational vehicles. In the fourth
quarter of 1994, the custom kitchen product line at the Nappanee Wood Products
division was discontinued. The Transportation Vehicles segment's B & B
Molders division designs and manufactures a diverse range of custom or
standard tooling and injection molded plastic pieces.
Other products accounted for 3.5%, 4.4% and 4.4% of the Transportation
Vehicles segment revenues for the years ended December 31, 1994, 1993 and
1992, respectively.
ALL DIVISIONS
-------------
Production - Holiday Rambler's products are built utilizing an assembly line
----------
process. Holiday Rambler has designed and built its own fabricating and
assembly equipment for the majority of its manufacturing processes. Holiday
Rambler believes that the manufacturing systems and technology enable it to
produce high quality products on an efficient basis. In addition to
assembling its products and installing various options and accessories,
Holiday Rambler manufactures a majority of its plastic components and other
installed products, such as draperies, bathtubs, holding tanks, wheel covers,
and wiring harnesses.
The manufacturing processes, facilities, and equipment used to make Holiday
Rambler's recreational vehicles and commercial vehicles are similar and, in
most respects, interchangeable. The required employee skills are applicable
to the production of either type of vehicle. As a result, the Company has the
flexibility to shift employees and resources in order to meet changing demands
in its markets. A portion of production employees' compensation consists of
production group incentives, which can permit an employee to increase his
total compensation by increasing productivity and meeting quality standards.
Production Materials. The principal raw materials and other components used
---------------------
in the production of recreational and commercial vehicles are purchased from
third parties. With the exception of the chassis, these materials, including
aluminum, plywood, lumber, plastic and fiberglass, are generally available
from numerous sources.
Holiday Rambler obtains its chassis from several automobile or truck
manufacturers under either consignment agreements or secured financing
agreements with interest subsidies by the manufacturers. Subject to certain
time limitations, Holiday Rambler pays for a recreational vehicle chassis upon
making an alteration or addition to the chassis. Upon sale of a recreational
vehicle to a dealer, Holiday Rambler invoices the purchasing dealer for the
completed vehicle, including the chassis.
15
The agreements relating to commercial vehicle chassis contemplate that Holiday
Rambler will make alterations or additions to a chassis upon the order of
dealers affiliated with the chassis manufacturer. In this situation, Holiday
Rambler delivers completed vehicles to the purchasing dealer and invoices the
dealer for Holiday Rambler's additions and alterations only. The dealer is
invoiced for the chassis directly by the chassis manufacturer (which has
reacquired title to the chassis from Holiday Rambler under an interest
subsidized secured financing arrangement). The commercial vehicle chassis
agreements also permit Holiday Rambler to purchase the chassis from the
manufacturer through an affiliated dealer, in which case Holiday Rambler takes
title, and is obligated to pay for the chassis.
Holiday Rambler's Class A motorhomes are generally built on Chevrolet, Ford
and Spartan chassis, and its commercial vehicles are generally built on GM and
Ford chassis. If any of these manufacturers were to cease manufacturing or
otherwise reduce the availability of these chassis, the business of Holiday
Rambler could be adversely affected. Class A chassis could be resourced from
other suppliers such as Oshkosh Truck Corporation. In general, Holiday
Rambler has not experienced any substantial shortages of raw materials or
components. However, the industry has occasionally experienced short-term
chassis shortages.
Patents and Trademarks. The Transportation Vehicles segment owns various
-----------------------
patents and know-how which relate to its recreational vehicles and other
products and the processes for their production. The Company believes that
the loss of any of these patents would not have a material effect upon its
business.
Trademarks are important to the Transportation Vehicles segment's recreational
and commercial vehicle business. The Transportation Vehicles segment's
"Holiday Rambler(R)" trademark is its most significant trademark.
Additionally, the Transportation Vehicles segment has numerous other valuable
registered trademarks, trade names, and logos used in its business.
Seasonality. The recreational vehicle market is generally subject to seasonal
------------
fluctuations. Retail sales are generally stronger during the spring and late
summer months. The availability of retail floor plan financing to the
Recreational Vehicles division's independent dealers helps to mitigate some of
the effects of seasonality on the Recreational Vehicles division's production
schedule. The market for Commercial Vehicles generally does not experience
seasonal fluctuations.
Regulation. The manufacture, distribution, and sale of the Transportation
-----------
Vehicles segment's vehicles are subject to governmental regulations in the
United States at the federal, state, and local levels. The most extensive
regulations are promulgated under the Safety Act which, among other things,
enables the NHTSA to require a manufacturer to remedy vehicles containing
"defects related to motor vehicle safety" or vehicles which fail to conform to
all applicable federal motor vehicle safety standards. Pursuant to the Safety
Act and related regulations, the Transportation Vehicles segment from time to
time has initiated voluntary recalls of its recreational and commercial
vehicles. Since the beginning of 1992, recalls by the Transportation Vehicles
segment initiated under the Safety Act, all of which have been voluntary, have
involved an aggregate cost to the Company of approximately $3.5 million.
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 Transportation Vehicles 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, 1994, the Transportation Vehicles segment
----------
employed approximately 2,400 people. None of the segment's personnel are
represented by labor unions.
16
Item 2. Properties
------- ----------
The following is a summary of the principal properties of the Company as of
March 21, 1995.
Motorcycles and Related Products Segment
----------------------------------------
Type of Facility Location Square Feet Status
---------------------------- ------------------- ----------- ---------------
Executive Offices,
Engineering & Warehouse Milwaukee, WI 512,100 Owned
Manufacturing Wauwatosa, WI 407,780 Owned
Manufacturing Tomahawk, WI 75,744 Owned
Manufacturing York, PA 998,185 Owned
Motorcycle Testing Talladega, AL 23,500 Leases expiring
1998-1999
Office Ann Arbor, MI 800 Lease expiring
1997
Office and Warehouse Morfelden-Walldorf, 50,859 Lease expiring
Germany 2001
Office Tokyo, Japan 7,015 Lease expiring
1995
Warehouse Yokohama, Japan 7,460 Lease expiring
1995
Office Brackley, England 2,845 Lease expiring
2005
Warehouse Brackley, England 1,122 Lease expiring
2005
The Motorcycles segment has three facilities that perform manufacturing
operations: Wauwatosa, Wisconsin, a suburb of Milwaukee (motorcycle power
train production); Tomahawk, Wisconsin (fiberglass parts production and
painting); and York, Pennsylvania (motorcycle parts fabrication, painting and
assembly).
As a result of the implementation of a comprehensive manufacturing strategy
(which was begun during 1993), the Company estimates that generally the size
of the existing facilities, with minor additions, would be adequate to meet
its current goal of being able to produce 115,000 motorcycles annually by
1997.
17
Transportation Vehicles Segment
-------------------------------
Type of Facility Location Square Feet Status
-------------------------------- ------------- ----------- ------
Executive Offices Wakarusa, IN 51,178 Owned
Manufacturing and Warehouse Wakarusa, IN 842,367 Owned
Factory Service Center Wakarusa, IN 41,138 Owned
Data Processing Wakarusa, IN 23,850 Owned
Research and Development/
Purchasing Wakarusa, IN 38,120 Owned
Sales Facilities Various 2,069 Owned
Manufacturing and Offices Nappanee, IN 169,711 Owned
Manufacturing Mishawaka, IN 16,180 Owned
Retail Dealership Facilities Various 201,900 Owned
Retail Dealership Facilities Various 18,328 Leased
The Transportation Vehicles segment's units are manufactured in approximately
30 separate buildings. Additionally, the Segment owns 20 buildings used for
administrative, storage, and other purposes. Substantially all of the
facilities are located on three sites at or near the Transportation Vehicles
segment's corporate headquarters in Wakarusa, Indiana. The Company owns all
of the production facilities and the underlying parcels of land. Because
recreational and commercial vehicles are produced largely through a labor-
intensive assembly process, the facilities do not house extensive capital
equipment. The Transportation Vehicles segment's present facilities are
generally adequate for their current intended use; however, planning has begun
for a new Class A motorhome facility to increase manufacturing capacity. In
addition, plans are in place to relocate the towables production to a newly
expanded existing facility in 1997. To increase the paint capacity and
eliminate a production bottleneck, Utilimaster is in the process of expanding
its paint facility which is expected to be completed during the second quarter
of 1995.
Item 3. Legal proceedings
------- -----------------
The Company is involved with government agencies in various environmental
matters, including a matter involving soil and groundwater contamination at
its York, Pennsylvania facility (the Facility). The Facility was formerly used
by the U.S. Navy and AMF (the predecessor corporation of Minstar). The Company
purchased the facility from AMF in 1981. Although the Company is not certain
as to the extent of the environmental contamination at the Facility, it is
working with the Pennsylvania Department of Environmental Resources in
undertaking certain investigation and remediation activities. Subsequent to
the end of the year, 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. The Navy has also
agreed to reimburse the Company for response costs the Company had incurred up
to the date of the Agreement. In addition, in March 1991 the Company entered
into a settlement agreement with Minstar related to certain indemnification
obligations assumed by Minstar in connection with the Company's purchase of
the Facility. Pursuant to this settlement, Minstar is obligated to reimburse
the Company for a portion of its response costs at the Facility. Although
substantial uncertainty exists concerning the nature and scope of the
environmental remediation that will ultimately be required at the Facility,
based on preliminary information currently available to the Company and taking
into account the Company's settlement agreement with the Navy and the
settlement agreement with Minstar, the Company estimates that it will incur
approximately $6 million of net additional response
18
costs at the Facility. The Company has established reserves for this amount.
The Company has also put certain of its insurance carriers on notice that it
intends to make claims relating to the environmental contamination at the
Facility. However, the Company is currently unable to determine the probable
amount of recovery available, if any, under insurance policies.
The Company self-insures its product liability loss exposure. The Company
accrues for claim exposures which are probable of occurrence and reasonably
estimable.
The Company has been named as a defendant in a lawsuit filed in late February
1995 by Lorillard Tobacco Company ("Lorillard") in the United States District
Court for the Southern District of New York. Lorillard alleges that the
Company acted in "bad faith" by attempting to terminate a 1986 license
agreement that grants Lorillard the right to use the Harley-Davidson name in
the marketing of cigarettes. Lorillard seeks rescission and claims
restitutionary damages of $70 million, unspecified lost profits and punitive
damages of $250 million; alternatively, it seeks injunctive relief to prevent
termination of the license agreement. The Company has denied any wrongdoing
and is vigorously contesting Lorillard's claims in this action. The Company
filed an answer to the complaint on March 21, 1995, together with a
counterclaim seeking to terminate the license agreement. The Company asserts
that Lorillard breached the license agreement by failing to verify its
financial condition as contractually required, and depleted its assets through
dividends to its parent company, Loews, Inc., thereby compromising Lorillard's
ability to meet its indemnification obligations to the Company. The Company
also disputes Lorillard's entitlement to punitive damages under governing law
and to restitutionary damages, based on a release of damage claims amounting
to approximately $50 million, which release Lorillard gave to the Company in
1993. As this litigation is in a very preliminary stage, the Company cannot
predict the outcome of this matter with a reasonable degree of certainty.
19
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 1994.
Executive officers of the registrant
------------------------------------
The following sets forth, as of March 21, 1995, the name, age and business
experience for the last five years of each of the executive officers of
Harley-Davidson.
Executive Officers
------------------
Name Age
----------------------------------------------- ---
Richard F. Teerlink 58
President and Chief Executive Officer
Jeffrey L. Bleustein 55
President and Chief Operating Officer -
Motor Company
James M. Brostowitz 43
Vice President, Controller and Treasurer
Thomas A. Gelb 59
Vice President, Continuous Improvement
C. William Gray 53
Vice President, Human Resources
Timothy K. Hoelter 48
Vice President, General Counsel and
Secretary
Martin R. Snoey 51
President & Chief Operating Officer,
Holiday Rambler
James L. Ziemer 45
Vice President, Chief Financial Officer and
Assistant Treasurer
All of these individuals have been employed by the Company in an executive
capacity for more than five years, except C. William Gray and Martin R. Snoey.
Mr. Gray has been Vice President, Human Resources of the Company since
December 1994 and was Vice President, Human Resources of the Motorcycle
Division from 1990 to November 1994. Prior to that time, he was Senior Vice
President, Human Resources for Champion International Corp., a manufacturer of
paper products.
20
Mr. Snoey has been President and Chief Operating Officer of Holiday Rambler
since joining the Company in January 1993. Prior to that time, he held, from
January 1992 to December 1992, a general management consulting assignment with
Precision Castparts Corporation, a specialty manufacturer supplying the
transportation industry. From July 1989 to March 1991, he was the President
and CEO of Geostar Corporation, an entrepreneurial, global satellite
communications company, serving the transportation industry. From March 1984
to July 1989, he was an executive with the Kenworth Truck Division of PACCAR,
Inc., a leading manufacturer of transportation equipment, where his last
position was General Manager for U.S. Operations.
21
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:
1994 Low High
---- -------- --------
First quarter $ 21-5/8 $25-1/16
Second quarter 21-7/8 25-1/2
Third quarter 22-9/16 29-7/8
Fourth quarter 24-1/2 28-3/8
1993
----
First quarter $ 15-3/4 $ 19-3/8
Second quarter 16-5/8 19-3/4
Third quarter 19-1/8 23-3/8
Fourth quarter 19-7/8 23-3/4
The Company paid the following dividends:
1994 1993
-------- --------
First quarter $ .03 $ -
Second quarter 03 -
Third quarter .04 .03
Fourth quarter .04 .03
Prior to the declaration of its first quarterly dividends during 1993, the
Company had not paid cash dividends on its common stock.
On March 9, 1995, the Company announced plans to repurchase up to 4 million
shares of its common stock pursuant to authority previously granted by its
Board of Directors and, subsequently, has made repurchases pursuant to this
announcement. The repurchases are authorized to be made from time to time in
the open market or in privately negotiated transactions.
As of March 21, 1995, there were approximately 28,135 shareholders of record
of Harley-Davidson, Inc. common stock.
22
Item 6. Selected financial data
------- -----------------------
1994 1993 1992 1991 1990
---------- ----------- ----------- --------- ---------
(In thousands, except per share amounts)
Income statement data:
Net sales $1,541,796 $1,217,428 $1,105,284 $939,863 $864,600
Cost of goods sold 1,120,332 880,269 808,871 706,140 635,551
---------- ---------- ---------- -------- --------
Gross profit 421,464 337,159 296,413 233,723 229,049
Selling, administrative, and engineering 261,157 267,353* 199,216 165,078 145,674
---------- ---------- ---------- -------- --------
Income from operations 160,307 69,806 97,197 68,645 83,375
Interest income (expense), net 44 (831) (4,912) (7,312) (9,701)
Other income (expense), net 1,718 (2,460) (3,476) (3,239) (11,057)
---------- ---------- ---------- -------- --------
Income before provision for
income taxes, extraordinary items
and accounting changes 162,069 66,515 88,809 58,094 62,617
Provision for income taxes 57,797 48,072 34,636 21,122 24,309
---------- ---------- ---------- -------- --------
Income before extraordinary items
and accounting changes 104,272 18,443 54,173 36,972 38,308
Extraordinary items, net of tax - - (388) - (478)
---------- ---------- ---------- -------- --------
Income before accounting changes 104,272 18,443 53,785 36,972 37,830
Cumulative effect of accounting changes,
net of tax** - (30,328) - - -
---------- ---------- ---------- -------- --------
Net income (loss) $ 104,272 $ (11,885) $ 53,785 $ 36,972 $ 37,830
========== ========== ========== ======== ========
Weighted average common
shares assuming no dilution 76,198 75,900 71,778 71,160 71,152
========== ========== ========== ======== ========
Per common share:
Income before extraordinary items
and accounting changes $1.37 $ .24 $ .76 $.52 $.54
Extraordinary items, net of tax - - (.01) - (.01)
Accounting changes, net of tax - ( .40) - - -
---------- ---------- ---------- -------- --------
Net income (loss) $1.37 $ ( .16) $ .75 $.52 $.53
========== ========== ========== ======== ========
Dividends paid $.14 $ .14 $ .06 $ - $ -
========== ========== ========== ======== ========
Balance sheet data:
Working capital $ 189,358 $ 142,996 $ 96,232 $ 64,212 $ 50,152
Total assets 739,215 583,285 522,164 474,233 407,467
Short-term debt, including current
maturities of long-term debt 18,303 21,369 16,965 41,089 23,859
Long-term debt, less current maturities 9,410 3,429 2,360 46,906 48,339
---------- ---------- ---------- -------- --------
Total debt 27,713 24,798 19,325 87,995 72,198
Shareholders' equity 433,232 324,912 335,380 238,000 198,775
*Includes a $57.0 million charge related primarily to the write-off of goodwill
at the Transportation Vehicles segment (Holiday Rambler).
**During 1993, the Company adopted accounting standards related to
postretirement health care benefits and income taxes.
23
Item 7. Management's discussion and analysis of financial condition and
------- ---------------------------------------------------------------
results of operations
---------------------
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
OVERALL
Net sales and earnings were at record levels in 1994, driven by improvements
at both Harley-Davidson Motor Company and Holiday Rambler. Consolidated net
sales for 1994 of $1.5 billion were $324.4 million, or 26.6% higher than net
sales for 1993. Net income and earnings per share were $104.3 million and
$1.37, respectively, for 1994 as compared with $74.1 million and $.98,
respectively, for 1993, excluding the $57.0 million Write-down of goodwill
($55.6 million after tax) at Holiday Rambler and a $30.3 million (after tax)
one-time charge for accounting changes in 1993.
As a result of the improved performance and to share its financial success
with its investors, the Company increased its dividend in September from $.03
per share to $.04 per share which resulted in a total year payout of $.14 per
share.
MOTORCYCLE UNIT SHIPMENTS AND CONSOLIDATED NET SALES
1994 1993 Change %Change
-------- -------- ------- -------
Motorcycle unit shipments 95,811 81,696 14,115 17.3%
Net sales (in millions):
Motorcycles $ 902.6 $ 734.3 $ 168.3 22.9%
Motorcycle Parts and Accessories 256.3 199.0 57.3 28.8
Total Motorcycles and Related Products 1,158.9 933.3 225.6 24.2
Recreational Vehicles 274.5 192.7 81.8 42.4
Commercial Vehicles 95.1 78.9 16.2 20.5
Other 13.3 12.5 0.8 6.1
Total Transportation Vehicles 382.9 284.1 98.8 34.7
Consolidated Harley-Davidson, Inc. $1,541.8 $1,217.4 $ 324.4 26.6%
The Motorcycles and Related Products (Motorcycles) segment's net sales
increased 24.2% over 1993 due to a 14,115 unit (17.3%) increase in motorcycle
shipments, as well as a 28.8% increase in its Parts and Accessories business.
The increase in motorcycle shipments is the result of ongoing implementation
of the Company's manufacturing strategy to increase capacity, adjust to
changes in the market place and further improve product quality while reducing
costs.
The Company began 1994 at a scheduled production rate of 365 units per day.
As the implementation of the manufacturing strategy continued, the rate
increased to 395 units per day by the end of the year. The Company plans on
producing 100,000 units during 1995, more than one year ahead of the original
schedule.
Year-end data indicates that the domestic (United States) motorcycle market
continued to grow throughout 1994. Compared to 1993, industry registrations of
heavyweight (engine displacements in excess of 750cc) motorcycles were up
14.5% (data provided by R.L. Polk). The Company ended 1994 with a market share
of 56.1% compared to 58.4% in 1993. This decrease is a reflection of the
Company's constrained capacity in a growing motorcycle market. Demand for the
Company's motorcycles continues to exceed supply with nearly all of the
Company's independent domestic
24
dealers reporting retail orders on all of their remaining 1995 model year
motorcycle allocations (production through June, 1995).
Overall, international demand remains strong. Export revenues totaled $331.2
million during 1994, an increase of approximately $68.4 million (26.0%) over
1993. The Company exported approximately 30% of motorcycle units in both 1994
and 1993 and expects to maintain approximately the same percentage during
1995. The Company distributes approximately one-half of exported units through
its wholly owned subsidiaries in Germany, Japan and England, which allows the
Company flexibility in responding to changing economic conditions in a variety
of foreign markets. While definitive market share information does not exist
in many foreign countries, the Company believes that it generally holds an
approximate 15% overall market share in the foreign markets in which it
competes.
During 1994, the Parts and Accessories business generated $256.3 million in
revenues, an increase of 28.8% over 1993. The MotorClothes line increased
32.6% due in part to the introduction of the Biker Blues denim clothing line
which contributed an incremental $3.7 million. Sales of Genuine Parts and
Accessories, which outpaced aftermarket competitors, increased 26.8% over
1993. To continue to grow the Parts and Accessories business, the Company is
working towards improving distribution and increasing the scope and quality of
the product offerings. During the fourth quarter of 1994, the company
established a relationship with a distribution facility operated by a third
party in Rotterdam, Holland. The facility will receive all motorcycles, parts
and accessories shipped to Europe and is expected, among other things, to
reduce response time on international dealer orders.
The Transportation Vehicles segment's net sales increased 34.7% over 1993 due
primarily to a 42.4% increase in the Recreational Vehicles division. "Class A"
(motorized) motorhome retail sales outperformed the growing market and
resulted in an increased market share for the Company of 5.5% as compared to
4.8% in the prior period. Sales of towable products (fifth wheel and travel
trailers) grew, but less than the industry and, therefore, dropped slightly to
2.2% in 1994 from 2.4% in 1993. Based on February 1995 internally generated
data, Holiday Rambler sales are currently on track to result in 1995
Recreational Vehicles sales at the same level as 1994.
The Commercial Vehicles division had a 20.5% revenue increase in 1994 due
primarily to large fleet contracts such as Federal Express, Frito Lay, Inc.
and Ryder Truck Rental, Inc. The Commercial Vehicles division is in the
process of significantly increasing the size and output of its paint facility,
as well as running some second shifts to keep up with demand and positioning
itself for future growth.
CONSOLIDATED GROSS PROFIT
(Dollars in Millions)
Percent Percent
of Sales of Sales
1994 1993 Change 1994 1993
------ ------ ------ -------- --------
Motorcycles and Related Products $358.4 $292.0 $66.4 30.9% 31.3%
Transportation Vehicles 63.1 45.2 17.9 16.4 15.9
------ ------ ----- ---- ----
Consolidated Harley-Davidson, Inc. $421.5 $337.2 $84.3 27.3% 27.7%
Consolidated gross profit increased $84.3 million, or 25% in 1994 as compared
with 1993 primarily due to an increase in volume. The consolidated gross
profit margin was 27.3% in 1994 as compared with 27.7% in 1993.
25
The Motorcycles segment's gross profit margin was negatively affected by the
continued investment (approximately $10 million) in the manufacturing strategy
designed to increase capacity, improve quality, and reduce costs. In addition,
approximately 28% of 1994 unit shipments were lower-margin Sportster models
compared to approximately 27% in 1993. The Company's long-term goal is a
product mix consisting of approximately 25% Sportsters.
The Transportation Vehicles segment's gross profit margin increased due to
additional volume in both the Recreational Vehicles and Commercial Vehicles
divisions. Gross profit margin in the Recreational Vehicles division increased
primarily on volume increases which were offset, somewhat, by additional
volume of higher-priced diesel motorhomes which generally carry a smaller
mark-up. The Commercial Vehicles division also benefited from volume
increases as well as a shift in mix toward higher margin walk-in units.
CONSOLIDATED OPERATING EXPENSES
(Dollars in Millions)
1994 1993 Change %Change
------ ------ ------ -------
Motorcycles and Related Products $194.8 $155.8 $ 39.0 25.1%
Transportation Vehicles 56.4 47.7 8.7 18.3
Corporate 10.0 6.9 3.1 44.6
Consolidated Harley-Davidson, Inc.
before unusual charges 261.2 210.4 50.8 24.2
Goodwill and restructuring charges - 57.0 (57.0) (100.0)
Consolidated Harley-Davidson, Inc. $261.2 $267.4 $ (6.2) (2.3)%
Consolidated operating expenses for 1994, increased $50.8 million, or 24.2%,
over 1993, excluding the $57.0 million charge to operations in 1993 related to
the Transportation Vehicles segment. The Motorcycles segment's increase was
primarily volume related. MotorClothes advertising costs, variable
compensation, and product liability were other areas of increased spending in
the Motorcycles segment.
The Transportation Vehicles segment's increase was also primarily volume
related in both the Recreational Vehicles and Commercial Vehicles divisions.
The increase in the Corporate charges is primarily due to a one-time charge
related to the legal reorganization of Harley-Davidson, Inc. and its Holiday
Rambler subsidiaries.
CONSOLIDATED OTHER EXPENSES
Consolidated other expense for 1994 decreased $4.2 million as compared to 1993
due primarily to a $2.0 million contribution in 1993 for the initial funding
of the Harley-Davidson Foundation which administers the Company's charitable
contributions.
CONSOLIDATED INCOME TAXES
-------------------------
The Company's effective tax rate decreased in 1994 to 35.7% from 40.0% in
1993, excluding the effect of the $53.5 million goodwill write-off at Holiday
Rambler that was not deductible during 1993. The decrease is attributable
primarily to a one-time benefit of $4.6 million related to the legal
reorganization of the Transportation Vehicles segment. Excluding the effect
of the reorganization, the effective rate would have been 38.5% in 1994.
26
RESULTS OF OPERATIONS
1993 COMPARED TO 1992
OVERALL
The Company's Motorcycles and Related Products segment was responsible for
virtually all of the growth in 1993 revenue and earnings. Demand for the
segment's motorcycles exceeded supply during 1993 and its Parts and
Accessories business generated a 27.8% revenue increase over 1992. The
motorcycle business also significantly benefitted from a more predictable and
efficient manufacturing process.
The Transportation Vehicles segment, in total, recorded disappointing results
in 1993. The segment's Recreational Vehicles business did not participate, to
the extent of other recreational vehicles manufacturer, in the industry
recovery. During the fourth quarter of 1993, the Company determined that an
impairment of goodwill related to the Transportation Vehicles segment had
occurred, and accordingly, recorded a %57.0 million ($.74 per share) write-off
of goodwill and certain other assets.
In addition to the goodwill write-off, the Company changed its methods of
accounting both for postretirement health care benefits and for income taxes
during 1993, resulting in a $30.3 million ($.0 per share) charge to earnings,
net of tax. Excluding the effect of the goodwill write-off and accounting
changes, the Company would have reported earnings during 1993 of $74.1 million
($.98 per share) compared to $53.8 million ($.75 per share) during 1992.
MOTORCYCLE UNIT SHIPMENTS AND CONSOLIDATED NET SALES
1993 1992 Change %Change
-------- -------- ------ -------
Motorcycle unit shipments 81,696 76,495 5,201 6.8%
Net sales (in millions):
Motorcycles $ 734.3 $ 667.2 $ 67.1 10.0%
Motorcycle Parts and Accessories 199.0 155.7 43.3 27.8
Total Motorcycles and Related Products 933.3 822.9 110.4 13.4
Recreational Vehicles 192.7 202.1 (9.4) (4.6)
Commercial Vehicles 78.9 67.9 11.0 16.2
Other 12.5 12.4 0.1 1.1
Total Transportation Vehicles 284.1 282.4 1.7 0.6
Consolidated Harley-Davidson, Inc. $1,217.4 $1,105.3 $112.1 10.1%
The Company reported record consolidated revenue during 1993 of $1.2 billion
compared to $1.1 billion during 1992. The Motorcycles segment was responsible
for virtually all of the change in consolidated revenue as the result of
increases in both motorcycle unit shipments and Parts and Accessories sales.
During 1992, the motorcycle production schedule began the year at 280 units
per day and increased throughout the year to a scheduled rate of 345 units per
day in December (increased to 365 units effective January 3, 1994). The
scheduled motorcycle production rate remained steady at 345-350 units per day
throughout 1993. Accordingly, the Company reported only a 6.8% increase in
unit shipments compared to 1992.
27
Year-end data indicate that the domestic motorcycle market continued to grow
throughout 1993. Compared to 1992, industry registrations of heavyweight
motorcycles were up 17.4%. The Company ended 1993 with a market share of 58.4%
compared to 60.4% in 1992. This decrease is a reflection of the Company's
constrained capacity in a growing motorcycle market.
Overall, international demand remained strong. Export revenues totaled $262.8
million during 1993, an increase of approximately $23.4 million (9.8%) over
1992. The Company exported approximately 30% of motorcycle units in both 1993
and 1992. The Company distributes approximately one-half of exported units
through its wholly owned subsidiaries.
Parts and Accessories revenues exceeded management's expectations during 1993,
increasing 27.8% over 1992. Fourth quarter results were especially strong,
with revenues increasing 39.7% compared to the same period in 1992. Several
factors including media exposure surrounding the Company's 90th anniversary
celebration in June 1993, the popularity of the MotorClothes line and a strong
holiday selling season contributed to the growth.
The Transportation Vehicles segment's Recreational Vehicles division did not
realize the same level of improvement as the overall recreational vehicle
industry. During 1993, industry registrations increased 13.1% overall, while
the division's wholesale unit shipments decreased in both Class A and towable
product lines compared to 1992. The division's 1993 market shares for Class A
motorhomes and towables were 4.8% and 2.4%, respectively, compared to 5.3% and
2.9% during 1992. Much of the industry improvement (especially with respect
to travel trailers) has occurred in the lower end of the market, where the
division generally does not compete.
The Company replaced, in January 1993, the President and Chief Operating
Officer of the Transportation Vehicles segment. Also during 1993, the
Recreational Vehicles division added several employees from outside of the
organization to fill key leadership positions in product development,
marketing and sales areas.
A 16.2% revenue increase in the Commercial Vehicles division was primarily the
result of large fleet contracts completed during 1993. The Commercial Vehicles
division's ability to attract large fleet contracts in a competitive market
positions it well for future growth.
CONSOLIDATED GROSS PROFIT
(Dollars in Millions)
Percent Percent
of Sales of Sales
1993 1992 Change 1993 1992
------ ------ ------ -------- --------
Motorcycles and Related Products $292.0 $250.0 $42.0 31.3% 30.4%
Transportation Vehicles 45.2 46.4 (1.2) 15.9 16.4
Consolidated Harley-Davidson, Inc. $337.2 $296.4 $40.8 27.7% 26.8%
The $40.8 million increase in consolidated gross profit was generated entirely
by the Motorcycles segment. Volume increases in both motorcycle units and
parts and accessories provided the majority of the increase. The improvement
in gross profit as a percent of sales reflects, primarily, efficiencies
realized in the manufacturing process. Motorcycle volume increases realized
during 1992 resulted in substantial overtime and caused significant
manufacturing inefficiencies. Accordingly, the manufacturing focus in 1993 was
on process improvement rather than on dramatic production increases. The
result was a more predictable manufacturing process, a substantial decrease in
overtime
28
and an efficient transition to production of 1994 models. The improvement in
gross profit percentage occurred despite a shift in mix toward lower-margin
Sportster models. Approximately 27% of 1993 motorcycle unit shipments were
Sportster models compared to approximately 23% during 1992.
Gross profit at the Transportation Vehicles segment decreased slightly during
1993. Volume decreases in the Recreational Vehicles division were largely
offset by volume increases in the Commercial Vehicles division. However, most
of the volume increase at the Commercial Vehicles division was the result of
fleet contracts which generally carry lower margins.
CONSOLIDATED OPERATING EXPENSES
(Dollars in Millions)
1993 1992 Change %Change
------ ------ ------ -------
Motorcycles and Related Products $155.8 $147.7 $ 8.1 5.5%
Transportation Vehicles 47.7 44.3 3.4 7.6
Corporate 6.9 7.2 (0.3) (5.0)
Consolidated Harley-Davidson, Inc.
before unusual charges 210.4 199.2 11.2 5.6
Goodwill and restructuring charges 57.0 - 57.0 -
Consolidated Harley-Davidson, Inc. $267.4 $199.2 $68.2 34.2%
The Motorcycles segment's operating expenses increased approximately 5.5%
during 1993, although 1992's operating expenses included a $5.5 million charge
in the Motorcycle division related to two voluntary recalls. In general, the
increase in operating expense was the result of spending required to support
the growing business, including international operations. Other areas of
increase in 1993 include incentive compensation and engineering costs, while
areas of decrease included product liability and warranty costs.
During the fourth quarter of 1993, the Company recorded a $57.0 million charge
to operations related to its Transportation Vehicles segment. $53.5 million
($.71 per share) of the charge related to goodwill associated with the
Company's purchase of Holiday Rambler LLC (formerly Holiday Rambler
Corporation) during 1986. Since the acquisition, the markets in which the
Transportation Vehicles segment operates have become increasingly competitive,
and the segment itself did not react appropriately to changes in market
conditions, resulting in lower profit than initially anticipated. The Company
considered these and other factors in concluding that an impairment of the
goodwill asset had occurred. The Company measured the impairment by
discounting estimated future cash flows of the Transportation Vehicles segment
over the remaining goodwill amortization period, using a targeted cost of
capital discount rate. In addition, the Company recorded a $3.5 million pretax
($0.03 per share) restructuring charge related to strategic decisions made
with respect to certain operating units of the Transportation Vehicles
segment.
Excluding the effect of the goodwill and restructuring charge, the
Transportation Vehicles segment recorded a $3.4 million (7.6%) increase in
operating expenses related primarily to increased marketing costs, rising
fringe benefit costs and incremental costs generated by two new Holiday World
retail showroom and service centers. 1993 operating expenses included goodwill
amortization of $2.2 million.
29
CONSOLIDATED OTHER EXPENSES
Consolidated other expense decreased $3.2 million during 1993 compared to
1992, primarily as the result of approximately $3.7 million of net foreign
exchange gain recognized during 1993. In addition, the third quarter of 1992
included an unusual $1.9 million product recall in the Recreational Vehicles
division related to units that had been produced eight to ten years earlier,
prior to the purchase of Holiday Rambler by the Company. During the fourth
quarter of 1993, the Company contributed $2.0 million toward the initial
funding of the Harley-Davidson Foundation.
CONSOLIDATED NET INTEREST EXPENSE
Consolidated net interest expense of $.8 million decreased $4.1 million
(83.1%) compared to 1992. The conversion of the Company's 7 1/4% convertible
subordinated debentures during the fourth quarter of 1992 and generally lower
short-term debt levels were the primary factors in the decrease of
consolidated interest expense.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate during 1993 was 72.3% due primarily to the
effect of a $53.5 million goodwill write-off that was not deductible during
1993. Excluding the effect of the write-off, the Company's effective tax rate
would have been 40.0% compared to 39.0% during 1992.
30
OTHER MATTERS
ACCOUNTING CHANGES
On January 1, 1993, the Company adopted the provisions of Statements of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" and No. 109 "Accounting for
Income Taxes." The adoption of SFAS No. 106 resulted in the recognition of a
$32.1 million charge (net of tax) representing the cumulative effect of
adopting the standard. The adoption of SFAS No. 109 resulted in the
recognition of a cumulative effect adjustment of $1.8 million. The adoption of
these standards had no impact on cash flows.
NET DEFERRED TAX ASSET
The Company had a net deferred tax asset of approximately $43 million and $32
million at December 31, 1994 and 1993, respectively. In considering the
necessity of establishing a valuation allowance on deferred tax assets,
management considered: the levels of taxes paid in prior years that would be
available for carryback; its ability to offset reversing deferred tax assets
against reversing deferred tax liabilities; and, the Company's prospects for
future earnings. Accordingly, it is the opinion of management that it is more
likely than not that the gross deferred tax assets included in the
consolidated balance sheet at December 31, 1994 will be realized in their
entirety. It is the intent of management to evaluate the realizability of
deferred tax assets on a quarterly basis.
FOREIGN CURRENCY
As discussed in Note 6 of the notes to the consolidated financial statements,
the Company attempts to limit its foreign currency exposure (primarily against
European currencies) by entering into forward exchange contracts. The recent
decline in the dollar against the German Deutsche Mark is not expected to have
a material impact on 1995 earnings.
ENVIRONMENTAL MATTERS
The Company's policy is to comply with all applicable environmental laws and
regulations and has a compliance program in place to monitor, and report on,
environmental issues. The Company has reached settlement agreements with its
former parent (Minstar) and the U.S. Navy regarding the remediation of the
Company's manufacturing facility in York, PA and currently estimates that it
will incur approximately $6 million of net additional costs related to the
remediation of the York facility. The Company has established reserves for
this amount.
Recurring costs associated with managing hazardous substances and pollution in
on-going operations are not material.
The Company regularly invests in equipment to support and improve its various
manufacturing processes. While the Company considers environmental matters in
capital expenditure decisions, and while some capital expenditures also act to
improve environmental compliance, only a small portion of the Company's annual
capital expenditures relate to equipment which has the sole purpose of
environmental compliance. During 1994, the Company spent approximately $1
million on equipment used to limit hazardous substances/pollutants and
anticipates approximately the same in 1995. The Company does not expect that
expenditures related to environmental matters will have a material effect on
future operating results or cash flows.
31
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash flows from operating activities of $80.8 million in
1994 compared to $96.2 million during 1993. Cash flow from higher earnings
during 1994 was largely offset by a net increase in working capital items,
primarily accounts receivable and inventories. Accounts receivable at
December 31, 1994 increased approximately $57.4 million, or 66.7% over the
balance at December 31, 1993. This increase is primarily the result of a
26.6% increase in consolidated revenues and additional foreign receivables
which generally have longer terms. Additionally, during 1994, the Motorcycles
segment discontinued the granting of a 2% cash discount on domestic parts and
accessories sales which has resulted in the slower collection of these
balances. In addition, the Transportation Vehicles segment reported an
increase in December sales from $23 million in 1993 to $42 million in 1994
increasing receivables accordingly. Inventories at December 31, 1994
increased approximately $33.3 million, or 23.7% over the balance at December
31, 1993. The primary increase is a result of the increase in demand for
parts and accessories (revenues up 28.8%) and the Company's effort to increase
fill rates on dealer orders. Fill rates have increased to 95% and the Company
is evaluating the appropriate parts and accessories inventory mix required to
continue to meet this fill rate. In addition, the Recreational Vehicles
division reported increases in work-in-process inventories due to minor part
shortages that prevented the shipment of some units at year-end. Finished
goods inventories at the Transportation Vehicles segment's Holiday World
retail stores increased compared to 1993 due primarily to the recent
introduction of '95 model-year Imperial units.
Capital expenditures amounted to $94.7 million and $55.2 million during 1994
and 1993, respectively. The Company anticipates 1995 capital expenditures will
approximate $100-$110 million. As discussed earlier, the Company's Board of
Directors approved a manufacturing strategy during the third quarter of 1993.
The Company estimated the cost of capital expenditures for new initiatives
under this plan would be approximately $80 million through 1996 of which
approximately $37 million has been incurred as of December 31, 1994. An
estimated additional $30 million of capital expenditures during 1995 and 1996
should increase annual production capacity to 115, 000 units by 1997. These
estimates are in addition to capital expenditures to maintain existing
equipment and for new product development. The Company anticipates funding all
capital expenditures with internally generated funds.
The Company currently has nominal levels of long-term debt and has available
lines of credit of approximately $46 million, of which approximately $29
million remained available at year-end.
The Company's Board of Directors declared quarterly cash dividends during 1994
totaling $.14 per share and two quarterly cash dividends totaling $.06 per
share during 1993 (adjusted for the 1994 stock split).
32
Item 8. Consolidated financial statements and supplementary data
------- --------------------------------------------------------
Report of Ernst & Young LLP, independent auditors
Consolidated statements of operations
Consolidated balance sheets
Consolidated statements of cash flows
Consolidated statements of shareholders' equity
Notes to consolidated financial statements
Supplementary data
Quarterly financial data (unaudited)
33
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, 1994 and 1993, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1994. Our audits also included
the financial statement schedule listed in the index at item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Harley-Davidson, Inc. at December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
As discussed in notes 5 and 8 to the consolidated financial statements,
effective January 1, 1993, the Company changed its methods of accounting for
income taxes and postretirement benefits other than pensions.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 21, 1995
34
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1994, 1993 and 1992
(In thousands, except per share amounts)
1994 1993 1992
----------- ----------- -----------
Net sales $1,541,796 $1,217,428 $1,105,284
Cost of goods sold 1,120,332 880,269 808,871
---------- ---------- ----------
Gross profit 421,464 337,159 296,413
Selling, administrative and engineering 261,157 210,329 199,216
Goodwill and restructuring charges - 57,024 -
---------- ---------- ----------
Income from operations 160,307 69,806 97,197
Interest income 2,430 1,214 956
Interest expense (2,386) (2,045) (5,868)
Other - net 1,718 (2,460) (3,476)
---------- ---------- ----------
Income before provision for income taxes,
extraordinary item and accounting changes 162,069 66,515 88,809
Provision for income taxes 57,797 48,072 34,636
---------- ---------- ----------
Income before extraordinary item and
accounting changes 104,272 18,443 54,173
Extraordinary item, loss on debt
repurchases, net of tax - - (388)
---------- ---------- ----------
Income before accounting changes 104,272 18,443 53,785
Cumulative effect of accounting changes:
Postretirement health care benefits, net of tax - (32,124) -
Income taxes - 1,796 -
---------- ---------- ----------
Net income (loss) $ 104,272 $ (11,885) $ 53,785
========== ========== ==========
Earnings (loss) per common share assuming no dilution:
Income before extraordinary item and accounting
changes $1.37 $ .24 $ .76
Extraordinary item - - (.01)
Accounting changes - (.40) -
----- ----- -----
Net income (loss) $1.37 $(.16) $ .75
===== ===== =====
Earnings (loss) per common share assuming full dilution:
Income before extraordinary item and accounting
changes $1.37 $ .24 $ .73
Extraordinary item - - (.01)
Accounting changes - (.40) -
----- ----- -----
Net income (loss) $1.37 $(.16) $ .72
===== ===== =====
Cash dividends per common share $ .14 $ .06 $ -
===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
35
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
(In thousands, except share amounts)
ASSETS 1994 1993
------ --------- ---------
Current assets:
Cash and cash equivalents $ 59,285 $ 77,709
Accounts receivable, net of
allowance for doubtful
accounts 143,396 86,031
Inventories 173,420 140,151
Deferred income taxes 20,111 20,296
Prepaid expenses 9,424 9,571
-------- --------
Total current assets 405,636 333,758
Property, plant, and
equipment, net 262,787 205,768
Deferred income taxes 22,924 11,676
Other assets 47,868 32,083
-------- --------
$739,215 $583,285
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------------------
Current liabilities:
Notes payable $ 17,890 $ 20,580
Accounts payable 63,988 56,350
Accrued expenses and other 133,987 113,043
Current maturities of
long-term debt 413 789
-------- --------
Total current liabilities 216,278 190,762
Long-term liabilities 29,422 12,612
Postretirement health care
benefits 60,283 54,999
Commitments and contingencies
(Note 6)
Shareholders' equity:
Series A Junior
Participating preferred
stock, none issued - -
Common stock, 77,156,252
and 38,452,490 shares
issued
in 1994 and 1993,
respectively 772 385
Additional paid-in capital 150,728 137,150
Retained earnings 283,010 189,410
Cumulative foreign currency
translation adjustment 1,174 186
-------- --------
435,684 327,131
Less:
Treasury stock (836,328
and 456,464 shares in
1994
and 1993,
respectively), at cost (1,581) (1,583)
Unearned compensation (871) (636)
-------- --------
Total shareholders' equity 433,232 324,912
-------- --------
$739,215 $583,285
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
36
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
(In thousands)
1994 1993 1992
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $104,272 $(11,885) $ 53,785
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Goodwill and restructuring charges - 57,024 -
Depreciation and amortization 36,942 33,272 29,410
Deferred income taxes (11,063) (25,922) (993)
Long-term employee benefits 11,993 57,386 1,369
Loss on disposal of long-term assets 611 626 1,164
Equity in net (income) loss of joint ventures (56) 1,427 -
Other - - (7,200)
Net changes in other current assets and current liabilities (61,905) (15,756) 10,380
-------- -------- --------
Total adjustments (23,478) 108,057 34,130
-------- -------- --------
Net cash provided by operating activities 80,794 96,172 87,915
Cash flows from investing activities:
Net capital expenditures (94,670) (55,202) (47,229)
Investment in joint ventures - (10,350) -
Other - net (1,907) (1,484) (2,727)
-------- -------- --------
Net cash used in investing activities (96,577) (67,036) (49,956)
Cash flows from financing activities:
Net increase (decrease) in notes payable (2,690) 4,647 (23,593)
Payments on long-term debt (1,481) (1,183) (9,420)
Dividends paid (10,672) (4,555) -
Issuance of stock under employee stock plans 12,202 5,542 8,257
-------- -------- --------
Net cash provided by (used in) financing activities (2,641) 4,451 (24,756)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (18,424) 33,587 13,203
Cash and cash equivalents:
At beginning of year 77,709 44,122 30,919
-------- -------- --------
At end of year $ 59,285 $ 77,709 $ 44,122
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
37
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1994, 1993 and 1992
(In thousands, except share amounts)
Cumulative
Common Stock foreign
------------------- Additional currency
Issued paid-in Retained translation Treasury Unearned
shares Balance capital earnings adjustment stock compensation
---------- ------- ----------- --------- ------------ --------- -------------
Balance December 31, 1991 18,310,000 $183 $ 87,730 $152,065 $1,566 $ (984) $(2,560)
Two-for-one common stock split 18,310,000 183 (183) - - - -
Net income - - - 53,785 - - -
Amortization of unearned compensation,
net of cancellations - - - - - (73) 923
Exercise of stock options - - 2,757 - - 29 -
Tax benefit of restricted shares and
stock options - - 5,471 - - - -
Conversions of subordinated
debentures 1,832,490 19 35,278 - - - -
Foreign currency translation
adjustment - - - - (809) - -
---------- ------- -------- -------- ----------- -------- ------------
Balance December 31, 1992 38,452,490 385 131,053 205,850 757 (1,028) (1,637)
Net loss - - - (11,885) - - -
Dividends - - - (4,555) - - -
Amortization of unearned compensation,
net of cancellations - - - - - (566) 1,001
Exercise of stock options - - 2,044 - - 11 -
Tax benefit of restricted shares and
stock options - - 4,053 - - - -
Foreign currency translation
adjustment - - - - (571) - -
---------- ------- -------- -------- ----------- -------- ------------
Balance December 31, 1993 38,452,490 385 137,150 189,410 186 (1,583) (636)
Two-for-one common stock split 38,452,490 385 (385) - - - -
Net income - - - 104,272 - - -
Dividends - - - (10,672) - - -
Restricted stock issuance - - 1,763 - - 2 (1,765)
Amortization of unearned compensation - - - - - - 1,530
Exercise of stock options 251,272 2 1,870 - - - -
Tax benefit of restricted shares and
stock options - - 10,330 - - - -
Foreign currency translation
adjustment - - - - 988 - -
---------- ------- -------- -------- ----------- -------- ------------
Balance December 31, 1994 77,156,252 $772 $150,728 $283,010 $1,174 $(1,581) $ (871)
========== ======= ======== ======== =========== ======== ============
The accompanying notes are an integral part
of the consolidated financial statements.
38
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1994
1. Summary of significant accounting policies
------------------------------------------
Principles of consolidation - The consolidated financial statements include
---------------------------
the accounts of Harley-Davidson, Inc. and all of its wholly owned
subsidiaries (the Company), including the accounts of Harley-Davidson Motor
Company (HDMC) and Holiday Rambler LLC (Holiday Rambler). All significant
intercompany accounts and transactions are eliminated.
The Company has investments in certain entities which are accounted for
using the equity method. Accordingly, the Company's share of the net
earnings (losses) of these entities is included in consolidated net income
(loss).
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.
Inventories - Inventories are valued at the lower of cost or market.
-----------
Motorcycle and new transportation vehicle inventories located in the United
States are valued using the last-in, first-out (LIFO) method. Other
inventories, $33.3 million in 1994 and $26.5 million in 1993, 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 $29.5 million, $22.7 million and $17.6 million for 1994, 1993
and 1992, respectively.
Environmental - The Company accrues for environmental loss contingencies
-------------
when it is probable that a liability has been incurred and the amount can be
reasonably estimated. The Company does not use discounting in determining
its environmental liabilities. See Note 6.
Earnings (loss) per share - Earnings (loss) per common share assuming no
-------------------------
dilution is calculated by dividing elements of net income (loss) by the
weighted average number of common shares outstanding during the period, as
adjusted for the stock split described in Note 9. The weighted average
number of common shares outstanding during 1994, 1993 and 1992 were 76.2
million, 75.9 million and 71.8 million, respectively.
Earnings (loss) per common share assuming full dilution includes shares
generated by the assumed conversion of convertible debt at the beginning of
the period as well as the dilutive effect of stock options in 1992. Shares
used in computing earnings per common share assuming full dilution during
1992 were 76.5 million. Stock options were not materially dilutive during
1994 or 1993.
39
2. Additional balance sheet and cash flows information
---------------------------------------------------
Accounts receivable consist of the following:
December 31
-----------------
1994 1993
-------- -------
(In thousands)
Motorcycles and Related Products segment:
Domestic $ 58,107 $27,854
Foreign 58,154 46,686
Transportation Vehicles segment 27,135 11,491
-------- -------
$143,396 $86,031
======== =======
Domestic motorcycle and transportation vehicle sales are generally floor
planned by the purchasing dealers. Foreign motorcycle sales are sold on open
account except for sales to European distributors, which are typically
backed by letters of credit.
The allowance for doubtful accounts deducted from accounts receivable was
$2.0 million and $1.8 million at December 31, 1994 and 1993, respectively.
December 31
------------------
1994 1993
-------- --------
(In thousands)
Inventories:
Components at the lower of FIFO cost or market:
Raw materials and work in process $ 70,685 $ 54,155
Finished goods 69,745 66,865
Parts and accessories 52,554 35,366
-------- --------
192,984 156,386
Excess of FIFO over LIFO inventories 19,564 16,235
-------- --------
$173,420 $140,151
======== ========
Property, plant and equipment, at cost:
Land and land improvements $ 11,587 $ 11,260
Buildings and improvements 93,725 79,666
Machinery and equipment 329,679 252,857
-------- --------
434,991 343,783
Less accumulated depreciation 172,204 138,015
-------- --------
$262,787 $205,768
======== ========
40
2. Additional balance sheet and cash flows information (continued)
---------------------------------------------------------------
December 31
------------------
1994 1993
-------- --------
(In thousands)
Accrued expenses and other:
Payroll, bonuses, and related expenses $ 51,659 $ 41,226
Warranty/recalls 15,856 16,446
Dealer incentive programs 14,653 14,614
Product liability 9,941 11,408
Other taxes payable 2,131 3,729
Income taxes payable 18,136 3,960
Other 21,611 21,660
-------- --------
$133,987 $113,043
======== ========
Supplemental cash flow information is as follows:
1994 1993 1992
--------- --------- ---------
(In thousands)
Net changes in other current assets and
current liabilities:
Receivables $(57,365) $ 7,147 $(21,661)
Inventories (33,269) (37,980) 12,255
Prepaid expenses 147 46 (940)
Accounts payable and accrued expenses 28,582 15,031 20,726
-------- -------- --------
$(61,905) $(15,756) $ 10,380
======== ======== ========
Cash paid during the period for interest and income taxes is as follows:
Interest $ 2,308 $ 1,959 $ 5,940
======== ======== ========
Income taxes $47,612 $53,277 $28,092
======= ======= =======
In December 1992, the Company issued approximately 3.6 million shares of its
common stock in exchange for the remaining $36.3 million of Harley-Davidson,
Inc. 7-1/4% convertible subordinated debentures.
3. Investments
-----------
On January 5, 1993, the Company invested $10.0 million for a 49% interest in
Eaglemark Financial Services, Inc., formerly Eagle Credit Corporation,
(Eagle). Eagle was formed to provide wholesale and retail financing to the
Company's dealer networks and customers. Upon the completion of its
capitalization on January 5, 1993, Eagle purchased all of Holiday Rambler's
floor plan obligations (Notes payable) from a third party finance company.
Eagle also began providing wholesale financing to the Company's independent
dealers on that date, by purchasing a wholesale motorcycle floor plan
financing portfolio from the third party finance company.
The Company accounts for this and another investment using the equity
method. As of December 31, 1994 and 1993, respectively, the Company's
carrying value of its investments in these unconsolidated affiliates totaled
$9.0 and $8.9 million which is included in other assets. In addition,
accounts receivable includes a $16.8 million and $9.4 million amount
due from Eagle as of December 31, 1994 and 1993, respectively.
41
4. Notes payable
-------------
Notes payable primarily represent floor plan obligations of Holiday Rambler
which are secured by specific units held for sale (approximately $23 million
of the finished goods inventory at December 31, 1994).
As of December 31, 1994, the Company had unsecured lines of credit totaling
approximately $45.7 million, of which approximately $28.5 million remained
available after consideration of borrowings and outstanding letters of
credit.
5. Income taxes
------------
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The Company adopted this standard on a prospective basis effective January
1, 1993. The adoption resulted in additional income of $1.8 million related
primarily to the accounting treatment applied to inventory.
Details of income before provision for income taxes are as follows:
1994 1993 1992
-------- --------- --------
(In thousands)
Income before taxes, extraordinary
item and accounting changes:
Domestic $147,638 $ 55,709 $77,802
Foreign 14,431 10,806 11,007
Extraordinary item - - (644)
Accounting changes - (52,661) -
-------- -------- -------
$162,069 $ 13,854 $88,165
======== ======== =======
Provision for income taxes consists of the following:
Income tax (benefit) applicable to:
Income before taxes, extraordinary
item and accounting changes $ 57,797 $ 48,072 $34,636
Extraordinary item - - (256)
Accounting changes - (22,333) -
-------- -------- -------
$ 57,797 $ 25,739 $34,380
======== ======== =======
Provision for income taxes:
Current:
Federal $ 50,356 $ 38,031 $22,968
State 11,380 9,368 6,981
Foreign 7,124 4,262 5,424
-------- -------- -------
68,860 51,661 35,373
Deferred:
Federal (9,292) (24,780) (1,140)
State (1,457) (2,573) (121)
Foreign (314) 1,431 268
-------- -------- -------
(11,063) (25,922) (993)
-------- -------- -------
Total $ 57,797 $ 25,739 $34,380
======== ======== =======
42
5. 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:
1994 1993 1992
-------- -------- --------
(In thousands)
Provision at statutory rate $56,724 $ 4,849 $29,976
Write-off of goodwill - 18,746 -
Foreign income taxes 1,618 1,484 2,033
Foreign tax credits (1,560) (1,100) (1,600)
State taxes, net of federal benefit 6,563 3,687 4,171
Legal reorganization (4,600) - -
Foreign sales corporation (1,549) (1,405) (613)
Other 601 (522) 413
------- ------- -------
Provision for income taxes $57,797 $25,739 $34,380
======= ======= =======
The Company's 1994 tax provision includes a one-time benefit of $4.6
million related to the legal reorganization of the Transportation Vehicles
segment.
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:
1994 1993
-------- ---------
(In thousands)
Deferred tax assets:
Accruals not yet tax deductible $23,785 $ 29,874
Postretirement health care benefit obligation 23,932 21,834
Other, net 3,271 956
------- --------
50,988 52,664
Deferred tax liabilities:
Depreciation, tax in excess of book (4,463) (12,124)
Inventory adjustments (2,461) (6,453)
Pension obligation (1,029) (2,115)
------- --------
(7,953) (20,692)
------- --------
Net deferred tax asset $43,035 $ 31,972
======= ========
6. Commitments and contingencies
-----------------------------
The Company is involved with government agencies in various environmental
matters, including a matter involving soil and groundwater contamination at
its York, Pennsylvania facility (the Facility). The Facility was formerly
used by the U.S. Navy and AMF (the predecessor corporation of Minstar). The
Company purchased the Facility from AMF in 1981. Although the Company is not
certain as to the extent of the environmental contamination at the Facility,
it is working with the Pennsylvania Department of Environmental Resources in
undertaking certain investigation and remediation activities. Subsequent to
the end of the year, 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
43
6. Commitments and contingencies (continued)
-- -----------------------------------------
Agreement. The Navy has also agreed to reimburse the Company for response
costs the Company had incurred up to the date of the Agreement. In
addition, in March 1991 the Company entered into a settlement agreement with
Minstar related to certain indemnification obligations assumed by Minstar in
connection with the Company's purchase of the Facility. Pursuant to this
settlement, Minstar is obligated to reimburse the Company for a portion of
its response costs at the Facility. Although substantial uncertainty exists
concerning the nature and scope of the environmental remediation that will
ultimately be required at the Facility, based on preliminary information
currently available to the Company and taking into account the Company's
settlement agreement with the Navy and the settlement agreement with
Minstar, the Company estimates that it will incur approximately $6 million
of net additional response costs at the Facility. The Company has
established reserves for this amount. The Company has also put certain of
its insurance carriers on notice that it intends to make claims relating to
the environmental contamination at the Facility. However, the Company is
currently unable to determine the probable amount of recovery available, if
any, under insurance policies.
The Company self-insures its product liability loss exposure. The Company
accrues for claim exposures which are probable of occurrence and can be
reasonably estimated.
The Company enters into forward exchange contracts to hedge against sales
transactions denominated principally in European currencies. The purpose of
the Company's foreign currency hedging activities is to protect the Company
from the risk that the eventual dollar cash flows resulting from the sale of
products to foreign subsidiaries will be adversely affected by changes in
exchange rates. At December 31, 1994, the Company had forward exchange
contracts that required it to convert these foreign currencies, at a variety
of rates, into U.S. Dollars or German Deutsche Marks. These contracts
represent a combined U.S. dollar equivalent commitment of approximately
$59.2 million and $45.5 million at December 31, 1994 and 1993, respectively.
The current contracts mature at various dates through August, 1995.
Unrealized gains and losses associated with these contracts are deferred and
recognized at the time of, and as part of, the hedged sale transaction. At
December 31, 1994 and 1993, these contracts had a deferred contract loss of
approximately $.2 million and a deferred contract gain of approximately $1.0
million, respectively, based on published exchange rates. In the event of
nonperformance by counterparties on foreign exchange contracts, the Company
could be exposed to credit loss; however, the Company does not anticipate
nonperformance by any of these counterparties. The amount of such exposure
is generally the unrealized gains on such contracts.
At December 31, 1994, the Motorcycles and Related Products segment (the
Motorcycles segment) and the Transportation Vehicles segment (the
Transportation segment) estimated that they were contingently liable under
repurchase agreements for a maximum of $39.2 million and $42.2 million,
respectively, to lending institutions, principally Eagle, that provide
wholesale floor plan financing to their dealers. These agreements are
customary in both the motorcycle and recreational vehicle industry. The
Company's loss exposure on repurchase is limited to the difference between
the resale value of the vehicle and the amount required to be paid the
lending institution at the time of repurchase.
The Motorcycles segment has a trade acceptance agreement with Eagle (see
Note 3) that expires on June 1, 1995, and is subject to annual renewal.
Under the terms of the agreement, the Motorcycle segment receives cash from
Eagle in the amount of 100% of certain eligible accounts receivable at the
time of sale. On June 1, 1995, the Motorcycle segment is obligated to
repurchase all unpaid balances from Eagle. At December 31, 1994, trade
acceptances of $19.9 million were subject to this agreement. The Company has
not incurred any material losses from the foregoing repurchase agreements
and currently anticipates no material losses.
44
6. Commitments and contingencies (continued)
-----------------------------------------
At December 31, 1994, the Company was contingently liable for $17.2 million
related to letters of credit. The letters of credit typically act as a
guarantee of payment to certain third parties in accordance with specified
terms and conditions.
7. Employee benefit plans
----------------------
The Company has several noncontributory defined benefit pension plans or
profit sharing plans covering substantially all employees of the Motorcycles
segment. The Company's policy with respect to the pension plans is to fund
pension benefits to the extent contributions are deductible for tax
purposes.
The following data is provided for the pension plans for the years
indicated:
Year Ended December 31,
-------------------------------------
1994 1993 1992
------------ ------------ ---------
Components of net periodic pension cost:
Service cost - benefits earned during the year $ 5,324 $ 3,384 $ 2,580
Interest cost on projected benefit obligations 10,284 8,188 7,364
Actual return on plan assets (2,028) (7,327) (3,367)
Net amortization and deferral (5,208) (606) (4,173)
-------- -------- --------
Net periodic pension cost $ 8,372 $ 3,639 $ 2,404
======== ======== ========
Reconciliation of funded status:
September 30, 1994 September 30, 1993
------------------------- ------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- ----------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 34,790 $ 59,562 $ 29,687 $ 50,877
Nonvested benefit obligation 4,622 6,050 4,058 5,363
-------- -------- -------- --------
Accumulated benefit obligation $ 39,412 $ 65,612 $ 33,745 $ 56,240
======== ======== ======== ========
Projected benefit obligations for service rendered to date $ 56,214 $ 81,271 $ 48,015 $ 72,096
Plan assets at fair value, consisting primarily of debt
securities, bank common trust funds, common stock,
and an immediate participation guarantee contract 40,427 52,825 38,805 51,662
-------- -------- -------- --------
Projected benefit obligation in excess of plan assets 15,787 28,446 9,210 20,434
Unrecognized net loss from past experience different
from that assumed and changes in assumptions (14,062) (16,724) (15,271) (17,200)
Unrecognized prior service cost (5,783) (7,675) (50) (2,602)
Unrecognized transition asset 743 1,119 866 1,344
Additional minimum liability - 7,620 - 2,602
-------- -------- -------- --------
Accrued (prepaid) pension cost, September 30 (3,315) 12,786 (5,245) 4,578
Fourth quarter contribution (482) (222) (482) (159)
-------- -------- -------- --------
Accrued (prepaid) pension cost, December 31 $ (3,797) $ 12,564 $ (5,727) $ 4,419
======== ======== ======== ========
45
7. Employee benefit plans (continued)
----------------------------------
In 1993, the Company elected to change the measurement date for pension
plan assets and liabilities from December 31 to September 30. The change in
measurement date had no effect on 1993, or prior years', pension expense.
The provisions of Financial Accounting Standards Board Statement No. 87,
"Employers' Accounting for Pensions," require the recognition of an
additional minimum liability and related intangible asset to the extent
that accumulated benefits exceed plan assets. At December 31, 1994, the
adjustment required to reflect the Company's minimum pension liability was
$7.6 million. The Company has recorded an intangible asset in the same
amount.
The assumptions used in determining pension expense (for the following year)
and funded status information shown above were as follows:
1994 1993 1992
----- ----- -----
Discount rate 8.3% 7.8% 8.5%
Rate of increase in future compensation
levels 5.0% 5.0% 5.0%
Assumed long-term rate of return on plan
assets 10.3% 10.3% 10.3%
Certain of the Company's plans relating to hourly employees were amended
during 1994, 1993 and 1992 to increase the scheduled benefits. The
Company's plan relating to salaried employees was also amended during 1994
to increase the scheduled benefits.
The Company has various defined contribution benefit plans which in total
cover substantially all full-time employees. Employees can make voluntary
contributions in accordance with the provisions of their respective plan,
which includes a 401(k) tax deferral option. The Company accrued $2.7, $1.2
and $.4 million for matching contributions during 1994, 1993 and 1992,
respectively.
8. Postretirement health care benefits
-----------------------------------
The Company has several postretirement health care benefit plans covering
substantially all employees of the Motorcycles segment. Employees are
eligible to receive benefits upon attaining age 55 after rendering at least
10 years of service to the Company.
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement
Benefits Other Than Pensions," which requires companies to accrue the cost
of postretirement benefits during the employees' active service period.
The Company elected to immediately recognize the accumulated postretirement
benefit obligation upon adoption of SFAS 106. The Company recorded a
cumulative effect adjustment of $32.1 million, net of tax, related to the
transition obligation. In prior years, the Company accounted for
postretirement benefits on a cash basis.
The Company uses September 30 as the measurement date for valuing its
postretirement health care obligation.
46
8. Postretirement health care benefits (continued)
----------------------------------------------
The Company's postretirement health care plans are currently funded as
claims are submitted ($1.6 million in 1994 and 1993). Some of the plans
require employee contributions to offset benefit costs. The status of the
plans was as follows:
September 30
------------------
1994 1993
-------- --------
(In thousands)
Accumulated postretirement benefit obligation:
Retirees $16,759 $19,538
Fully eligible active plan participants 8,501 12,776
Other active plan participants 22,580 26,640
------- -------
47,840 58,954
Unrecognized net gain (loss) 10,033 (3,528)
Unrecognized prior service cost 2,860 -
Fourth quarter contribution (450) (427)
------- -------
Accrued postretirement benefit liability,
December 31 $60,283 $54,999
======= =======
The net periodic postretirement benefit cost includes the following:
Year Ended December 31
-----------------------
1994 1993
------- -------
(In thousands)
Service cost - benefits earned during
the year $ 2,384 $ 1,967
Interest cost on projected benefit obligation 4,504 4,277
------- -------
Net periodic postretirement benefit cost $ 6,888 $ 6,244
======= =======
The weighted average health care cost trend rate used in determining the
accumulated postretirement benefit obligation of the health care plans was
10%. The per capita health care cost trend rate was assumed to decrease
gradually to 6% for 1999 and remain at that level thereafter. This
assumption can have a significant effect on the amounts reported. If the
weighted average health care cost trend rate were to increase by 1%, the
accumulated postretirement benefit obligation as of September 30, 1994 and
the aggregate of service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1995 would
increase by $3.5 million and $.5 million, respectively. The weighted
average discount rate used to determine the accumulated postretirement
benefit obligation of the health care plan as of September 30, 1994 and
1993 was 8.25% and 7.75%, respectively. The Company used a weighted average
discount rate of 8.5% in establishing the transition obligation at January
1, 1993.
Pretax postretirement benefits expense was $1.6 million for the year ended
December 31, 1992.
9. Capital stock
-------------
The Company has 100 million authorized shares of $.01 par value common
stock.
On August 17, 1994 the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100 percent stock dividend to
shareholders of record on August 29, 1994, payable on September 12, 1994.
Outstanding stock options and shares available under option plans have been
amended to reflect the split. An amount equal to the par value of the
shares issued has been transferred from additional paid-in capital to the
common stock account. All references to number of shares, except shares
authorized, in the notes to the consolidated financial statements have been
adjusted to reflect the stock split on a retroactive basis.
47
9. Capital stock (continued)
-------------------------
The Company has designated .5 million of the authorized shares of preferred
stock as Series A Junior Participating preferred stock (Preferred Stock).
The Preferred Stock has a par value of $1 per share. Each share of
Preferred Stock, none of which is outstanding, is entitled to 400 votes per
share (subject to adjustment) and other rights such that the value of a one
one-hundredth interest in a share of Preferred Stock should approximate the
value of four shares of common stock.
The Preferred Stock is reserved for issuance in connection with the
Company's outstanding Preferred Stock purchase rights (Rights). Each
outstanding share of common stock entitles its holder to one-quarter Right.
Under certain conditions, each Right entitles the holder to purchase one
one-hundredth of a share of Preferred Stock at an exercise price of $100,
subject to adjustment. The Rights are only exercisable if a person or group
has acquired 15% or more of the outstanding common stock or has announced
an intention to acquire 25% or more of the outstanding common stock. If
there is a 15% acquiring party, each holder of a Right, other than the
acquiring party, will be entitled to purchase, at the exercise price,
common stock having a market value of two times the exercise price.
The Company has a restricted stock plan in which plan participants are
entitled to cash dividends and voting rights on their respective shares.
Restrictions generally limit the sale or transfer of shares during a
restricted period, not exceeding eight years. Participants may vest in
certain amounts of the restricted stock upon death, disability or
retirement as described in the plan.
Unearned compensation was charged for the market value of the restricted
shares on the date of grant and is being amortized over the restricted
period. The unamortized unearned compensation value is shown as a reduction
of shareholders' equity in the accompanying consolidated balance sheets.
Information with respect to restricted stock outstanding is as follows:
1994 1993 1992
-------- --------- --------
Outstanding at beginning of year at
$4.46 to $5.05 per share 966,074 1,424,568 1,916,576
Restricted shares vested at
$4.46 to $5.05 per share (931,874) (341,822) (476,864)
Restricted shares cancelled at
$4.65 to $5.03 per share - (116,672) (15,144)
-------- --------- ---------
Total shares outstanding at end of year at
$4.73 to $5.05 per share 34,200 966,074 1,424,568
======== ========= =========
Expense in 1994, 1993 and 1992 associated with this restricted stock plan
was $.6 million, $.4 million and $.9 million, respectively.
48
9. Capital stock (continued)
-------------------------
The Company has Stock Option Plans under which the Board of Directors may
grant to employees nonqualified stock options with or without appreciation
rights. The options may be exercised one year after the date of grant, not
to exceed 25 percent of the shares in the first year with an additional 25
percent to be exercisable in each of the three following years. The
options expire ten years from the date of grant. The maximum number of
shares of common stock available for grants under such plans are 6.0
million at December 31, 1994 of which 1.2 million shares remain available
for future grants. The exercise price of outstanding options at December
31, 1994 ranged from $1.48 to $26.16. A summary of option activity is as
follows:
1994 1993 1992
---------- ---------- -----------
Options outstanding at beginning of year 2,583,482 3,021,780 3,447,420
Options granted 728,410 16,000 629,044
Options exercised or cancelled (293,834) (454,298) (1,054,684)
--------- --------- ----------
Options outstanding at end of year 3,018,058 2,583,482 3,021,780
========= ========= ==========
Number of options exercisable at end of year 1,806,038 1,468,712 1,022,756
========= ========= ==========
Historically, the Company granted stock options in December of each year.
In order to review all elements of compensation at the same time, the Human
Resources Committee of the Board of Directors decided in February 1993 to
consider annual stock option grants in February of each year, beginning
with February 1994. Stock options issued during 1993 represent grants to
certain new executives.
10. Goodwill and restructuring charges
----------------------------------
During the fourth quarter of 1993, the Company recorded a $53.5 million
charge to operations resulting from the write-off of the remaining goodwill
associated with the Company's purchase of Holiday Rambler in 1986. Since
1986, the markets in which Holiday Rambler operates have become
increasingly competitive, resulting in lower profitability than initially
anticipated. The Company considered these factors, as well as estimated
future operating results, during the fourth quarter of 1993 in concluding
that an impairment had occurred. The Company measured the impairment and,
based on the results of that measurement, recorded a $53.5 million charge
against earnings. In measuring the impairment, the Company calculated the
discounted value of estimated Holiday Rambler cash flows, over the
approximate remaining goodwill amortization period, using a targeted cost
of capital discount rate.
In 1993, the Company also recorded a pretax restructuring charge of
approximately $3.5 million related to strategic decisions made with respect
to certain operating units of Holiday Rambler.
Goodwill and restructuring charges, in total, had the effect of reducing
1993 earnings per share by $.74.
49
11. Business segments and foreign operations
----------------------------------------
(a) BUSINESS SEGMENTS
The Company operates in two business segments: Motorcycles and Related
Products and Transportation Vehicles.
Information by industry segment is set forth below (in thousands):
1994 1993 1992
---------- ---------- ----------
Net sales:
Motorcycles and Related Products $1,158,991 $ 933,262 $ 822,929
Transportation Vehicles 382,805 284,166 282,355
---------- ---------- ----------
$1,541,796 $1,217,428 $1,105,284
========== ========== ==========
Income (loss) from operations:
Motorcycles and Related Products $ 163,510 $ 136,217 $ 102,300
Transportation Vehicles (1) 6,745 (59,533) 2,137
General corporate expenses (9,948) (6,878) (7,240)
---------- ---------- ----------
160,307 69,806 97,197
Interest income (expense), net 44 (831) (4,912)
Other:
Motorcycles and Related Products 1,196 (3,249) (1,611)
Transportation Vehicles 522 789 (1,865)
---------- ---------- ----------
1,718 (2,460) (3,476)
---------- ---------- ----------
Income before provision for
income taxes, extraordinary item and
accounting changes $ 162,069 $ 66,515 $ 88,809
========== ========== ==========
(1) Includes a $57.0 million charge related primarily to the write-off of
goodwill in 1993.
Motorcycles
and Related Transportation
Products Vehicles Corporate Consolidated
----------- -------------- ---------- ------------
1994
----
Identifiable assets $ 502,267 $165,533 $ 71,415 $ 739,215
Depreciation and amortization 32,617 4,079 246 36,942
Net capital expenditures 88,542 6,004 124 94,670
1993
----
Identifiable assets $ 367,794 $134,699 $ 80,792 $ 583,285
Depreciation and amortization 27,225 5,813 234 33,272
Net capital expenditures 52,324 2,766 112 55,202
1992
----
Identifiable assets $ 313,953 $178,252 $ 29,959 $ 522,164
Depreciation and amortization 22,630 6,639 141 29,410
Net capital expenditures 42,276 4,754 199 47,229
There were no sales between business segments for the years ended December 31,
1994, 1993 or 1992.
50
11. Business segments and foreign operations (continued)
----------------------------------------------------
(b) FOREIGN OPERATIONS
Included in the consolidated financial statements are the following
amounts relating to foreign affiliates:
1994 1993 1992
-------- -------- --------
(In thousands)
Assets $ 57,626 $ 49,109 $ 37,962
Net sales 176,521 144,639 132,557
Net income 7,621 5,113 5,315
Export sales of domestic subsidiaries to nonaffiliated customers were
$155.2 million, $117.6 million and $106.9 million in 1994, 1993 and
1992, respectively.
51
SUPPLEMENTARY DATA
------------------
Quarterly financial data (unaudited)
------------------------------------
(In millions, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------- -------------- -------------- ---------------
1994 1993 1994 1993 1994 1993 1994 1993
------ ------- ------ ------ ------ ------ ------ -------
Net sales $343.7 $269.5 $401.4 $334.4 $384.0 $284.4 $412.7 $329.1
Gross profit 90.3 75.4 113.4 90.9 106.5 76.2 111.3 94.7
Income before accounting changes (a) 20.8 15.1 34.6 23.8 23.8 16.4 25.1 (36.9)
Accounting changes - (30.3) - - - - - -
Net income (loss) 20.8 (15.2) 34.6 23.8 23.8 16.4 25.1 (36.9)
Earning (loss) per common share
assuming no dilution:
Income before accounting changes (a) .27 .20 .46 .31 .31 .22 .33 (.49)
Accounting changes - (.40) - - - - - -
Net income (loss) .27 (.20) .46 .31 .31 .22 .33 (.49)
(a) 1993 fourth quarter results include a $57.0 million charge related primarily
to the write-off of goodwill, which reduced earnings per share by $.74.
52
Item 9. Changes in and disagreements with accountants on accounting and
------- ---------------------------------------------------------------
financial disclosure
--------------------
None.
53
PART III
--------
Item 10. Directors and executive officers of the registrant
------- --------------------------------------------------
Information with respect to the Directors of the registrant will be included
in the Company's definitive proxy statement for the 1995 annual meeting of
shareholders (the "Proxy Statement"), which will be filed within 120 days
after the close of the Company's fiscal year ended December 31, 1994, and is
hereby incorporated by reference to such Proxy Statement.
Certain information with respect to the disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K will be included in the Company's proxy
statement for 1995 which will be filed within 120 days after the close of the
Company's fiscal year ended December 31, 1994, and is hereby incorporated by
reference to such proxy statement.
Item 11. Executive compensation
------- ----------------------
This information will be included in the Proxy Statement, which will be filed
within 120 days after the close of the Company's fiscal year ended December
31, 1994, and is hereby incorporated by reference to such Proxy Statement.
Item 12. Security ownership of certain beneficial owners and management
------- --------------------------------------------------------------
This information will be included in the Proxy Statement, which will be filed
within 120 days after the close of the Company's fiscal year ended December
31,1994, and is hereby incorporated by reference to such Proxy Statement.
Item 13. Certain relationships and related transactions
------- ----------------------------------------------
This information will be included in the Proxy Statement, which will be filed
within 120 days after the close of the Company's fiscal year ended December
31, 1994, and is hereby incorporated by reference to such Proxy Statement.
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.
54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AND FINANCIAL STATEMENT SCHEDULES
---------------------------------
[Item 14(A) 1 and 2]
Consolidated statements of operations for each of the three years in the
period ended December 31, 1994
Consolidated balance sheets at December 31, 1994 and 1993
Consolidated statements of cash flows for each of the three years in the
period ended December 31, 1994
Consolidated statements of shareholders' equity for each of the three years
in the period ended December 31, 1994
Notes to consolidated financial statements
Consolidated financial statement schedules for each of the three years in the
period ended December 31, 1994
II - Valuation and qualifying accounts
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.
55
LIST OF EXHIBITS
----------------
[Item 14(A)(3)]
Exhibit No. Description
----------- -----------
3.1 Restated Articles of Incorporation
3.2 By-Laws
4.1 Form of Rights Agreement between the Registrant and Firstar
Trust Company
4.2 Amendment to Rights Agreement
10.1* Form of Employment Agreement between the Registrant and each
of Messrs. Bleustein, Gelb, Hoelter and Teerlink
10.2* 1986 Stock Option Plan
10.3* 1988 Stock Option Plan
10.4* 1990 Stock Option Plan
10.5* Consulting Agreement between the Registrant and Mr. Beals
10.6* Restated Long-Term Incentive Plan II, as amended
10.7* Form of Growth Unit Cancellation Agreement between the
Registrant and each of Messrs. Bleustein, Brostowitz, Gelb,
Teerlink and Ziemer
10.8* Form of Transition Agreement between the Registrant and each of
Messrs. Bleustein, Gelb, Hoelter, Snoey and Ziemer
10.9* Transition Agreement between the Registrant and Mr. Teerlink
10.10* Deferred Compensation Plan
10.11* Description of supplemental executive retirement benefits
10.12* Form of Life Insurance Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter,
Teerlink and Ziemer
10.13* Form of Restricted Stock Agreement between the Registrant and
each of Messrs. Bleustein and Gelb
10.14* Form of Severance Benefits Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter,
Snoey, Teerlink and Ziemer
56
LIST OF EXHIBITS
----------------
[Item 14(A)(3)]
Exhibit No. Description
----------- -----------
10.15* Harley-Davidson, Inc. Corporate Short Term Incentive Plan
11 Computation of Primary and Fully Diluted Earnings Per Share
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated.
57
Schedule II
-----------
HARLEY-DAVIDSON, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1994, 1993 and 1992
(In thousands)
Balance at Additions Balance
beginning charged to at end
Classification of year expense Deductions/(1)/ of year
-------------- --------- ---------- -------------- --------
Receivables -
Allowance for doubtful accounts:
1994 $1,786 $ 363 $ (122) $2,027
====== ====== ======= ======
1993 $1,611 $ 322 $ (147) $1,786
====== ====== ======= ======
1992 $1,643 $ 260 $ (292) $1,611
====== ====== ======= ======
Inventories -
Allowance for obsolescence
and loss (2):
1994 $2,783 $1,608 $(1,971) $2,420
====== ====== ======= ======
1993 $2,736 $2,095 $(2,048) $2,783
====== ====== ======= ======
1992 $2,683 $1,790 $(1,797) $2,736
====== ====== ======= ======
(1) Represents amounts written off to the reserve, net of recoveries.
(2) Stated in last-in, first-out (LIFO) cost.
58
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 28, 1995.
HARLEY-DAVIDSON, INC.
By: /S/ Richard F. Teerlink
-------------------------------------------
Richard F. Teerlink
President, Chief Executive Officer
(Principal executive officer) and Director
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 28, 1995.
Name Title
---- -----
/S/ Richard F. Teerlink President, Chief Executive Officer
--------------------------------- (Principal executive officer) and Director
Richard F. Teerlink
/S/ James L. Ziemer Vice-President and Chief Financial Officer
--------------------------------- (Principal financial officer)
James L. Ziemer
/S/ James M. Brostowitz Vice-President/Controller (Principal
--------------------------------- accounting officer) and Treasurer
James M. Brostowitz
/S/ Vaughn L. Beals Chairman and Director
---------------------------------
Vaughn L. Beals, Jr.
/S/ Barry K. Allen Director
---------------------------------
Barry K. Allen
/S/ William F. Andrews Director
---------------------------------
William F. Andrews
/S/ Richard J. Hermon-Taylor Director
---------------------------------
Richard J. Hermon-Taylor
/S/ Donald A. James Director
---------------------------------
Donald A. James
--------------------------------- Director
Richard G. LeFauve
/S/ James A. Norling Director
---------------------------------
James A. Norling
/S/ William B. Potter Director
---------------------------------
William B. Potter
59
INDEX TO EXHIBITS
-----------------
[Item 14(A)(3)]
Exhibit No. Description
----------- -----------
3.1 Restated Articles of Incorporation.
3.2 By-Laws.
4.1 Form of Rights Agreement between the Registrant and Firstar
Trust Company (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 (incorporated herein by reference
to Exhibit 4.8 to the Registrants's Registration Statement on
Form 8-B dated June 24, 1991 (File No. 1-9183 (the "Form 8-B")).
10.1* Form of Employment Agreement between the Registrant and each
of Messrs. Bleustein, Gelb, Hoelter and Teerlink (incorporated
by reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 (File No. 33-5871)).
10.2* 1986 Stock Option Plan.
10.3* 1988 Stock Option Plan.
10.4* 1990 Stock Option Plan.
10.5* Consulting Agreement between the Registrant and Mr. Beals
(incorporated herein by reference from Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-9183)).
10.6* Restated Long-Term Incentive Plan II, as amended (incorporated
herein by reference from Exhibit 10.2 to the Registrants' Annual
Report on Form 10-K for the year ended December 31, 1989 (File
No. 1-9183)).
10.7* Growth Unit Cancellation Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gelb, Teerlink and Ziemer
(incorporated herein by reference from Exhibit 10.2 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-9183)).
10.8* Form of Transition Agreement between the Registrant and each
of Messrs. Bleustein, Gelb, Hoelter, Snoey and Ziemer
(incorporated herein by reference from Exhibit 10.2 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-9183)).
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated.
60
INDEX TO EXHIBITS
-----------------
[Item 14(A)(3)]
Exhibit No. Description
----------- -----------
10.9* Transition Agreement between the Registrant and Mr. Teerlink
(incorporated herein by reference from Exhibit 10.2 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-9183)).
10.10* 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)).
10.11* Description of supplemental executive retirement benefits
(incorporated herein by reference from Exhibit 10.9 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9183)).
10.12* Form of Life Insurance Agreement between the Registrant and
each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter,
Teerlink and Ziemer (incorporated herein by reference from
Exhibit 10.10 to the Registrants' Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-9183)).
10.13* Form of Restricted Stock Agreement between the Registrant and
each of Messrs. Bleustein and Gelb.
10.14* Form of Severance Benefits Agreement between the Registrant
and each of Messrs. Bleustein, Brostowitz, Gelb, Gray, Hoelter,
Snoey, Teerlink and Ziemer.
10.15* Harley-Davidson, Inc. Corporate Short Term Incentive Plan
(incorporated herein by reference from Exhibit A to the
Registrants' 1993 Proxy Statement for the May 14, 1994 Annual
Meeting of Shareholders)
11 Computation of Primary and Fully Diluted Earnings Per Share.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the Company
participated.
61