UNITED STATES SECURITIES AND EXCHANGE COMMISSION ------------------------------------------------ Washington, D.C. 20549 Form 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2002 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______________ to ______________ Commission File Number 1-9183 Harley-Davidson, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its Charter) Wisconsin 39-1382325 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3700 West Juneau Avenue, Milwaukee, Wisconsin 53208 - --------------------------------------------- ------------- (Address of principal executive offices) (Zip Code) (414) 342-4680 -------------------------------------------------- (Registrant's telephone number, including area code) None ----------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes_X_ No__ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding as of April 30, 2002: 302,671,599 shares 1
HARLEY-DAVIDSON, INC. Form 10-Q Index For the Quarter Ended March 31, 2002 Page ---- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 Note regarding forward looking statements 16 Part II. Other Information Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 2
PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements - ----------------------------------------- Harley-Davidson, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share amounts) Three months ended March 31, March 25, 2002 2001 ---- ---- Net sales $927,845 $776,941 Cost of goods sold 612,568 523,043 ------- ------- Gross profit 315,277 253,898 Financial services income 41,691 32,934 Financial services interest and operating expense 29,540 27,955 ------- ------- Operating income from financial services 12,151 4,979 Operating expenses 145,705 121,144 ------- ------- Income from operations 181,723 137,733 Interest income, net 2,246 4,799 Other income (expense), net (765) (920) -------- -------- Income before provision for income taxes 183,204 141,612 Provision for income taxes 63,206 49,564 -------- -------- Net income $119,998 $ 92,048 ======== ======== Earnings per common share: Basic $.40 $.30 ==== ==== Diluted $.39 $.30 ==== ==== Weighted-average common shares outstanding: Basic 302,475 301,922 ======= ======= Diluted 305,618 306,063 ======= ======= Cash dividends per share $.030 $.025 ===== ===== See accompanying notes. 3
Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) (Unaudited) March 31, Dec. 31, March 25, 2002 2001 2001 ---- ---- ---- ASSETS - ------ Current assets: Cash and cash equivalents $ 378,535 $ 439,438 $ 399,339 Marketable securities 201,193 196,011 - Accounts receivable, net 152,083 118,843 162,618 Current portion of finance receivables, net 738,396 656,421 613,607 Inventories (Note 2) 183,632 181,115 187,982 Other current assets 78,475 73,436 56,888 ---------- ---------- ---------- Total current assets 1,732,314 1,665,264 1,420,434 Finance receivables, net 582,366 379,335 451,873 Property, plant and equipment, net 902,208 891,820 746,959 Goodwill, net 49,380 49,711 52,280 Other assets 133,036 132,365 96,206 ---------- ---------- ---------- $3,399,304 $3,118,495 $2,767,752 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - -------------------- Current liabilities: Accounts payable $ 218,229 $ 194,683 $ 189,911 Accrued expenses and other liabilities 313,954 304,376 252,971 Current portion of finance debt 366,286 217,051 293,553 ------- ------- ------- Total current liabilities 898,469 716,110 736,435 Finance debt 380,000 380,000 355,000 Other long-term liabilities 179,068 176,190 99,564 Postretirement health care benefits 94,744 89,912 83,122 Contingencies (Note 6) Total shareholders' equity 1,847,023 1,756,283 1,493,631 ---------- ---------- ---------- $3,399,304 $3,118,495 $2,767,752 ========== ========== ========== See accompanying notes. 4
Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended March 31, March 25, 2002 2001 ---- ---- Cash flows from operating activities: Net income $119,998 $92,048 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 42,601 35,624 Tax benefit of stock options 4,616 2,543 Provision for finance credit losses 4,229 3,865 Long-term employee benefits 6,774 4,159 Deferred income taxes (3,402) 473 Other, net 792 334 Net changes in current assets and current liabilities (6,723) (25,036) -------- ------- Net cash provided by operating activities 168,885 114,010 Cash flows from investing activities: Purchase of property and equipment (53,358) (27,566) Finance receivables acquired or originated (1,239,064) (953,660) Finance receivables collected 860,172 652,191 Finance receivables sold 93,324 - Purchase of marketable securities (256,712) - Sales and redemptions of marketable securities 251,530 - Other, net 722 (3,646) ---------- ---------- Net cash used in investing activities (343,386) (332,681) Cash flows from financing activities: Net increase in finance debt 149,235 204,044 Dividends paid (9,238) (7,701) Purchase of common stock for treasury (29,620) - Issuance of common stock under employee stock plans 3,221 1,931 -------- -------- Net cash provided by financing activities 113,598 198,274 Net decrease in cash and cash equivalents (60,903) (20,397) Cash and cash equivalents: At beginning of period 439,438 419,736 -------- -------- At end of period $378,535 $399,339 ======== ======== See accompanying notes. 5
HARLEY-DAVIDSON, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation and Use of Estimates - --------------------------------------------------- The condensed interim consolidated financial statements included herein have been prepared by Harley-Davidson, Inc. (the "Company") without audit. Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States for interim financial information. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the consolidated financial position as of March 31, 2002 and March 25, 2001, and the results of operations for the three-month periods then ended. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Note 2 - Inventories - -------------------- The Company values its inventories at the lower of cost, principally using the last-in, first-out (LIFO) method, or market. Inventories consist of the following (in thousands): March 31, Dec. 31, March 25, 2002 2001 2001 ---- ---- ---- Components at the lower of FIFO cost or market: Raw material & work-in-process $ 74,702 $ 80,363 $ 67,574 Finished goods 45,602 36,418 41,930 Parts and accessories and general merchandise 80,691 81,447 97,553 -------- ------- -------- 200,995 198,228 207,057 Excess of FIFO over LIFO 17,363 17,113 19,075 -------- -------- --------- $183,632 $181,115 $187,982 ======== ======== ======== 6
Note 3 - Business Segments - -------------------------- The Company operates in two business segments: Motorcycles and Related Products (Motorcycles) and Financial Services which consists of the Company's subsidiary, Harley-Davidson Financial Services, Inc (HDFS). The Company's reportable segments are strategic business units that offer different products and services. They are managed separately based on the fundamental differences in their operations. Selected segment information is set forth below (in thousands): Three Months Ended ------------------ March 31, March 25, 2002 2001 ---- ---- Net sales $927,845 $776,941 Gross profit 315,277 253,898 Operating expenses 142,150 118,342 ------- ------- Operating income from motorcycles and related products 173,127 135,556 Financial services income 41,691 32,934 Financial services interest and operating expense 29,540 27,955 -------- ------- Operating income from financial services 12,151 4,979 Corporate expenses 3,555 2,802 ---------- ---------- Income from operations $181,723 $137,733 ======== ======== Note 4 - Earnings Per Share - --------------------------- The following table sets forth the computation for basic and diluted earnings per common share (in thousands, except per share amounts). Three months ended March 31, March 25, 2002 2001 ---- ---- Numerator Net income used in computing basic and diluted earnings per common share $119,998 $92,048 ======== ======= Denominator Denominator for basic earnings per common share- Weighted-average common shares 302,475 301,922 Effect of dilutive securities - employee Stock options and nonvested stock 3,143 4,141 -------- -------- Denominator for diluted earnings per common share - Adjusted weighted-average common shares outstanding 305,618 306,063 ======= ======= Basic earnings per common share $.40 $.30 ==== ==== Diluted earnings per common share $.39 $.30 ==== ==== 7
Note 5 - Comprehensive Income - ----------------------------- Total comprehensive income amounted to approximately $121.7 million and $91.2 million for the three month periods ended March 31, 2002 and March 25, 2001, respectively. Total comprehensive income is comprised of net income, foreign currency translation adjustments, the change in net unrealized gains on investment in retained securitization interests and the change in the fair market value of derivative instruments designated as hedges of forecasted cash flows. Note 6 - Contingencies - ---------------------- The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility (the Facility). The Facility was formerly used by the U.S. Navy and AMF (the predecessor corporation of Minstar). The Company purchased the Facility from AMF in 1981. Although the Company is not certain as to the extent of the environmental contamination at the Facility, it has been working with the Pennsylvania Department of Environmental Protection in undertaking certain investigation and remediation activities, including a site-wide remedial investigation/feasibility study. In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with investigation and remediation activities at the Facility (response costs). The trust administers the payment of the response costs at the Facility as covered by the Agreement. Recently, the United States Environmental Protection Agency (EPA) advised the Company that it considers some of the Company's remediation activities at the Facility to be subject to the EPA's corrective action programs and has offered the Company the option of addressing corrective action under a facility lead agreement. The objectives and procedures for facility lead corrective action are consistent with the investigation and remediation already being conducted under the Agreement with the Navy. 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 Agreement with the Navy, the Company estimates that it will incur approximately $5.0 million of future response costs at the Facility. The Company has established reserves for this amount. The Company's estimate of future response costs is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response costs are expected to be incurred over a period of several years, ending in 2009. Note 7 - Reclassifications - -------------------------- Certain prior year amounts have been reclassified to conform to the current year presentation. Approximately $14.1 million of shipping and handling fees were reclassified from cost of sales to net sales and approximately $9.2 million of sales incentive expense was reclassified from operating expenses to net sales ($4.4 million) and cost of sales ($4.8 million). 8
Note 8 - Goodwill - ----------------- In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets," which became effective for the Company January 1, 2002. Under the new standard, goodwill is no longer amortized but is subject to annual impairment tests in accordance with the Statement. The Company is currently assessing the impact the new standard will have on its goodwill in accordance with the provisions of the standard. Based on preliminary reviews, the Company does not expect that the required impairment tests on goodwill balances will result in any adjustments material to the earnings and financial position of the Company. At December 31, 2001, total goodwill related to the Company's Motorcycles and Related Products and Financial Services segments was approximately $20.9 million and $28.8 million, respectively. Total goodwill amortization for 2001 was approximately $3.5 million, of which approximately $.9 million was recorded in the first quarter. 9
Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations --------------------- Results of Operations for the Three Months Ended March 31, 2002 --------------------------------------------------------------- Compared to the Three Months Ended March 25, 2001 ------------------------------------------------- For the quarter ended March 31, 2002, consolidated net sales totaled $927.8 million, a $150.9 million or 19.4% increase over the same period last year. Net income and diluted earnings per share for the first quarter of 2002 were $120.0 million and $.39 on 305.6 million weighted-average shares outstanding versus $92.0 million and $.30 on 306.1 million weighted-average shares outstanding in the first quarter of 2001, increases of 30.4% and 30.6%, respectively. Motorcycle Unit Shipments and Net Sales For the Three Month Periods Ended March 31, 2002 and March 25, 2001 ================================================================================ Increase 2002 2001 (decrease) %Change ================================================================================ Motorcycle Unit Shipments ================================================================================ Harley-Davidson(R)motorcycle units 64,669 54,154 10,515 19.4% - -------------------------------------------------------------------------------- Buell(R)motorcycle units 1,330 2,447 (1,117) (45.6) - -------------------------------------------------------------------------------- Total motorcycle units 65,999 56,601 9,398 16.6% ================================================================================ Net Sales (in millions) ================================================================================ Harley-Davidson motorcycles $747.7 $613.5 $134.2 21.9% - -------------------------------------------------------------------------------- Buell motorcycles 6.5 15.3 (8.8) (57.5) - -------------------------------------------------------------------------------- Total motorcycles 754.2 628.8 125.4 19.9 - -------------------------------------------------------------------------------- Motorcycle Parts and Accessories 131.1 108.9 22.2 20.4 - -------------------------------------------------------------------------------- General Merchandise 42.3 39.2 3.1 7.9 - -------------------------------------------------------------------------------- Other .2 - .2 - - -------------------------------------------------------------------------------- Total Motorcycles and Related Products $927.8 $776.9 $150.9 19.4% ================================================================================ The Company's first quarter 2002 financial results benefited from five percent more scheduled workdays, when compared to the first quarter of 2001. The 2002 first quarter increase in net sales of $150.9 million, or 19.4%, was driven primarily by the 19.4% increase in Harley-Davidson motorcycle unit shipments. During the first quarter of 2002, the Company increased its Harley-Davidson motorcycle unit shipments and production to 64,669 units, 10,515 units higher than the same period last year. These results were driven by the Company's ongoing success with its manufacturing strategy, combined with strong retail demand for its Harley-Davidson motorcycles. Based on the results achieved in the first quarter, the Company has increased its 2002 annual production target to 261,000 Harley-Davidson units and set a second quarter production target of 65,000 Harley-Davdison units.(1) 10
In the first quarter of 2002 Buell(R) motorcycle net sales were down $8.8 million compared to the same period last year, on 1,117 fewer unit shipments. During the first quarter of 2002, the Company discontinued production of its three existing Buell V-Twin models to make capacity available for the April launch of the new Buell Firebolt(TM) XB9R. The Firebolt is a high performance motorcycle powered by a 984 cc air-cooled V-Twin powertrain. The Firebolt and the Blast(R) will complete the Buell 2003 model year line up. The Company maintains its total calendar year 2002 Buell production target of 11,500 units.(1) Parts and Accessories (P&A) net sales of $131.1 million for the first quarter of 2002 were up $22.2 million, or 20.4%, compared to the first quarter of 2001. The increase in P&A sales, driven by strong motorcycle shipments, was led by higher accessories sales. The Company expects that the long-term growth rate for P&A net sales will be somewhat higher than the growth rate for Harley-Davidson motorcycle units.(1) General Merchandise net sales, which include clothing and collectibles, of $42.3 million for the first quarter of 2002 were up $3.1 million, or 7.9%, compared to the first quarter of 2001. The Company expects that the long-term growth rate for General Merchandise will be slightly lower than the growth rate for Harley-Davidson motorcycle units.(1) The Company's ability to reach the 2002 annual and quarterly production targets and to attain growth rates in other areas will depend upon, among other factors, the Company's ability to (i) continue to realize production efficiencies at its production facilities through the implementation of innovative manufacturing techniques and other means, (ii) successfully implement production capacity increases in its facilities, (iii) successfully introduce new products, (iv) avoid unexpected supplier delays, (v) sell all of the motorcycles it has the capacity to produce, (vi) continue to develop the capacity of its distributor and dealer network, (vii) avoid unexpected changes in the regulatory environment for its products, and (viii) successfully adjust to foreign currency exchange rate fluctuations. In addition, the Company could experience delays in the operation of manufacturing facilities, work stoppages, difficulties with suppliers, natural causes or other factors. These risks, potential delays and uncertainties could also adversely impact the Company's capital expenditure estimates (see "Liquidity and Capital Resources" section). Gross Profit Gross profit in the first quarter of 2002 of $315.3 million was $61.4 million, or 24.2%, higher than gross profit in the same quarter last year. The increase in gross profit is primarily related to the increase in net sales. The gross margin was 34.0% in the first quarter of 2002 compared to 32.7% in the first quarter of 2001. The increase in gross margin in the first quarter of 2002 was driven by favorable motorcycle product mix, favorable geographic mix, and the model year wholesale price increase. Motorcycle product mix was favorable in the first quarter of 2002 with a higher percentage of shipments consisting of the more profitable custom motorcycles and a lower percentage of shipments consisting of Sportster models, when compared to the first quarter of 2001. In addition, approximately 79.4% of the first quarter 2002 Harley-Davidson unit shipments were to U.S. dealers compared to 74.3% in the first quarter of 2001. Shipments to U.S. dealers generally have a higher average selling price per unit than international shipments. Finally, wholesale price increases related to the 2002 model year provided for higher average selling prices on units sold in the first quarter of 2002 when compared to the same period last year. 11
Financial Services For the Three Month Periods Ended March 31, 2002 and March 25, 2001 (Dollars in Millions) ================================================================================ 2002 2001 Increase %Change - -------------------------------------------------------------------------------- Financial services income $41.7 $32.9 $8.8 26.6% - -------------------------------------------------------------------------------- Financial services interest & operating expense 29.5 27.9 1.6 5.7 ================================================================================ Operating income from financial services $12.2 $5.0 $7.2 144.1% ================================================================================ In the first quarter of 2002, financial services income was $41.7 million, an increase of $8.8 million over the same period in 2001. Operating income from financial services was $12.2 million, an increase of $7.2 million over the first quarter of 2001. The increase in financial services income was driven by strong overall performance in Harley-Davidson Financial Services, Inc.'s (HDFS) wholesale, retail, and insurance lines and a gain recorded in connection with a securitization transaction. The increase in the retail business was led by the strong acceptance of HDFS' consumer financing program offering lower rates to borrowers with stronger credit ratings. During the fourth quarter of 2001, HDFS entered into agreements to securitize and sell $315.0 million of retail installment loans. During the fourth quarter of 2001, HDFS sold $221.7 million under the agreements and during the first quarter of 2002, it sold $93.3 million of retail motorcycle installment loans resulting in a gain of $5.0 million in the first quarter of 2002. No securitization transactions were completed during the first quarter of 2001. The Company expects HDFS operating income to grow at a rate approaching 25% for 2002.(1) Operating Expenses For the Three Month Periods Ended March 31, 2002 and March 25, 2001 (Dollars in Millions) ================================================================================ 2002 2001 Increase %Change - -------------------------------------------------------------------------------- Motorcycles and Related Products $142.2 $118.3 $23.9 20.1% - -------------------------------------------------------------------------------- Corporate 3.6 2.8 .8 26.9 ================================================================================ Total operating expenses $145.8 $121.1 $24.7 20.4% ================================================================================ For the first quarter of 2002 total operating expenses increased $24.7 million, or 20.4%, compared to the first quarter of 2001 and were 15.7% and 15.6% of net sales in the first quarters of 2002 and 2001, respectively. The increase in operating expenses, which includes selling, administrative and engineering expenses, was driven by the Company's ongoing investment in various initiatives designed to support its current and future growth objectives. The Company also experienced higher employee benefit costs driven by the higher cost of health care in the first quarter of 2002 compared to the same period in 2001. 12
Interest income Interest income in the first quarter of 2002 was $2.2 million compared to $4.8 million in the same period last year. The decrease in interest income is due to the impact of lower interest rates in the first quarter of 2002 when compared to the same period in 2001. Consolidated income taxes The Company's effective income tax rate was 34.5% and 35.0% during the first quarters of 2002 and 2001, respectively. The Company expects that 34.5% will continue to be the rate through the remainder of 2002.(1) Other Matters ------------- The Company's policy is to comply with all applicable environmental laws and regulations, and the Company has a compliance program in place to monitor and report on environmental issues. The Company has reached a settlement agreement with the U.S. Navy regarding soil and groundwater remediation at the Company's manufacturing facility in York, Pennsylvania and is conducting investigation and remediation activities at the facility. Recently, the United States Environmental Protection Agency (EPA) advised the Company that it considers some of the Company's remediation activities at the facility to be subject to the EPA's corrective action programs and offered the company the option of addressing corrective action under a facility lead agreement. The Company currently estimates that it will incur approximately $5.0 million of future response costs related to all remediation efforts at the facility.(1) The Company has established reserves for this amount. The Company's estimate of future response costs is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response costs are expected to be incurred over a period of several years, ending in 2009. See Note 6 of the Notes to Consolidated Financial Statements. Recurring costs associated with managing hazardous substances and pollution in on-going operations have not been material. The Company regularly invests in equipment to support and improve its various manufacturing processes. While the Company considers environmental matters in capital expenditure decisions, and while some capital expenditures also act to improve environmental compliance, only a small portion of the Company's annual capital expenditures relate to equipment that has the sole purpose of meeting environmental compliance obligations. The Company anticipates that capital expenditures during 2002 for equipment used to limit hazardous substances/pollutants during 2002 will approximate $10.0 million. This estimate includes expenditures to be made in connection with the Company's current capacity expansion plans described in the "Liquidity and Capital Resources" section. The Company does not expect that these expenditures related to environmental matters will have a material effect on future operating results or cash flows.(1) 13
Liquidity and Capital Resources ------------------------------- The Company's main source of liquidity is cash from operating activities, which consists of net income adjusted for non-cash operating activities and changes in other current assets and liabilities such as accounts receivable, inventory, prepaid expenses and accounts payable. The Company generated $168.9 million of cash from operating activities during the first quarter of 2002 compared to $114.0 million in the first quarter of 2001. The largest component of cash from operating activities is net income, which was approximately $120.0 million in 2002 compared to $92.0 million in 2001. Cash provided by operating activities is also impacted by changes in other current assets and liabilities. Changes in these balances decreased operating cash flows by approximately $6.7 million and $25.0 million during the first quarters of 2002 and 2001, respectively. First quarter changes in working capital during 2002 and 2001 consisted of the following (in millions): Three months ended March 31, March 25, 2002 2001 ---- ---- Working capital item -------------------- Accounts receivable, net $(33.2) $(64.3) Inventories (2.5) 3.9 Other current assets (4.1) .7 Accounts payable and accrued expenses 33.1 34.7 ---- ------ Total $ (6.7) $(25.0) ====== ====== The 2002 first quarter change in accounts receivable of $33.2 million was driven primarily by higher accounts receivable balances in Europe. European receivables typically increase during the first quarter of the year due to the increase in volume associated with the upcoming motorcycle riding season. Accounts receivable collection terms for sales in Europe are generally much longer than those for domestic sales and as a result, quarterly increases in European shipments will have a direct impact on quarter-ending accounts receivable balances. Accounts payable and accrued expenses increased $33.1 million in the first quarter of 2002. The increase relates primarily to increased volumes and higher accrued income taxes during the first quarter of 2002. Capital expenditures were $53.4 million and $27.6 million during the first quarters of 2002 and 2001, respectively. During 2002, the Company continued work on its capacity expansion plans that are taking place at several of the Company's existing facilities. These plans include a 350,000 square foot expansion at the Company's York, Pennsylvania assembly facility, a 60,000 square foot expansion at the Company's Tomahawk, Wisconsin facility and a 165,000 square foot addition to the Company's Product Development Center in Wauwatosa, Wisconsin. The Company began its investment in these plans during 2001 and will continue to invest capital related to these plans during 2002 and 2003. The Company estimates that total capital expenditures required in 2002 will be in the range of $270 to $300 million.(1) The Company anticipates it will have the ability to fund all capital expenditures in 2002 with internally generated funds.(1) 14
HDFS is financed by operating cash flow, the issuance of commercial paper, revolving credit facilities, senior subordinated debt, redeemable preferred stock and asset-backed securitizations. Approximately $651.6 million of commercial paper was outstanding at March 31, 2002. Subject to limitations discussed below, HDFS may issue up to $750 million of short-term commercial paper with maturities up to 270 days. HDFS has a $350 million revolving credit facility due in 2005 and a $400 million 364-day revolving credit facility due September 2002 with approximately $64.7 million outstanding at March 31, 2002. The Company expects the $400 million credit facility expiring in September 2002 will be renewed and believes that suitable financing alternatives exist should the facility not be renewed.(1) The primary uses of the credit facilities are to provide liquidity to the unsecured commercial paper program and to fund HDFS' business operations. Under the terms of the credit facilities, commercial paper outstanding cannot exceed liquidity support provided by the unused portion of the combined $750 million credit facilities. Accordingly, at March 31, 2002, HDFS had aggregate remaining availability under these existing facilities of $33.7 million. In addition, at March 31, 2002, HDFS has $30 million of senior subordinated notes outstanding, which mature in 2007. In connection with its various debt agreements, HDFS is subject to various operating and financial covenants and was in compliance at March 31, 2002. The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with certain financial support to maintain certain financial covenants. Support may be provided at the Company's option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company's ability to withdraw funds from HDFS outside the normal course of business. HDFS entered into agreements to securitize and sell $586.0 million of retail installment loans in the second quarter of 2002. The Company expects future activities of HDFS will be financed from internally generated funds, revolving credit facilities, continuation of its subordinated debt, redeemable preferred stock, commercial paper and securitization programs and advances or loans from the Company.(1) The Company has remaining authorization from its Board of Directors to repurchase up to 9,400,000 shares of the Company's outstanding common stock. In addition, the Company has continuing authorization from its Board of Directors to repurchase shares of the Company's outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (i) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 1998 plus (ii) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. The Company repurchased 575,000 shares of its common stock during the first quarter of 2002 under the latter authorization. There were no shares repurchased during the first quarter of 2001. The Company declared a $.03 per share dividend during the first quarter of 2002, payable March 22, 2002 to shareholders of record as of March 12, 2002. 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------ Refer to the Company's annual report on Form 10-K for the year ended December 31, 2001 for a complete discussion of the Company's market risk. There have been no material changes to the market risk information included in the Company's 2001 annual report on Form 10-K. (1) Note regarding forward-looking statements The Company intends that certain matters discussed are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or "estimates" or words of similar meaning. Similarly, statements that describe the Company's future plans, objectives, targets or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. 16
Part II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- In January 2001, the Company, on its own initiative, notified each owner of 1999 and early-2000 model year Harley-Davidson motorcycles equipped with Twin Cam 88 and Twin Cam 88B engines that the Company was extending the warranty for a rear cam bearing to 5 years or 50,000 miles. Subsequently, on June 28, 2001, a putative nationwide class action was filed against the Company in state court in Milwaukee County, Wisconsin, which was amended by a complaint filed September 28, 2001. The complaint alleged that this cam bearing is defective and asserted various legal theories. The complaint sought unspecified compensatory and punitive damages for affected owners, an order compelling the Company to repair the engines and other relief. The Company filed a motion to dismiss the amended complaint and on February 27, 2002, the motion was granted by the court and the amended complaint was dismissed in its entirety. An appeal has been filed and is currently pending in the Wisconsin Court of Appeals. On April 12, 2002, the same attorneys filed a second putative nationwide class action against the Company in state court in Milwaukee County, Wisconsin relating to this cam bearing issue and asserting different legal theories than in the first action. The complaint seeks unspecified compensatory damages, an order compelling the Company to repair the engines and other relief. The Company intends to vigorously oppose nationwide class certification and defend the action, including filing a motion to dismiss. The Company believes that the warranty extension it announced in January 2001 adequately addresses the condition for affected owners. The Company has established reserves for this extended warranty. The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility. See footnote 6 to the accompanying condensed consolidated financial statements for additional information on the environmental matters. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits ------------- None (b) Reports on Form 8-K ------------------------ None 17
Part II - Other Information Signatures ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARLEY-DAVIDSON, INC. Date: May 7, 2002 /s/ James L. Ziemer ------------------ ------------------------------------ James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) May 7, 2002 /s/ James M. Brostowitz ------------------ ------------------------------------ James M. Brostowitz Vice President, Controller and Treasurer (Principal Accounting Officer) 18