Harley-Davidson,
Inc. started as a partnership between a draftsman and a pattern maker
in Milwaukee, Wisconsin in
1903. William Harley and Arthur Davidson intrigued by the newly
invented motorcycles began experimenting with ideas to design and build their own motorcycle.
They enlisted Arthur's brothers, Walter a skilled mechanic and William a machinist which gave
live to the Harley-Davidson Motor Company. That early partnership has evolved into a family
of millions of
Harley-Davidson, Inc. stakeholders throughout
the world. Besides the motorcycle division, the company also has a
recreational vehicle division,
Holiday Rambler Corporation, and its subsidiary of commercial vehicles,
Ultimaster Corporation. For the year 1993, net sales were $1.2 billion, a
$112 million or 10% increase over 1992. The company posted a total
year net loss of $12 million or $.31 per share. The reason for this is the write-down of
goodwill at Holiday Rambler and accounting changes related to post retirement benefits, if
this would not have been the case net income and earnings per share would have totaled record
levels of $74 million and $1.95 on 38 million shares outstanding. During 1993, the working
capital was $143 million and total assets amounts to $583 million. The number of shareholders
are 19,300, an increase of 6,300 in a year, with a total stockholders' equity of $325 million
and dividends declared at $.12.
In the consolidated statement of cash
flows, the company recorded cash flows from
operating activities of $96.2 million in 1993 compared to $87.9 million during 1992. Investing
activities utilized around $67.0 million and net cash provided by financing activities amount
to $4.5 million. The company reported record consolidated revenue during 1993 of $1.2 billion
compared to $1.1 billion during 1992. The Motorcycles and Related Products
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. Year end data indicate
that the domestic motorcycle market continued
to grow throughout 1993 and demand for the
company's motorcycles continues to exceed supply. International demand remains strong with
export revenues totaling $262.8 million during 1993, an increase of approximately $23.4
million over 1992. The Board of Directors approved a comprehensive manufacturing strategy
designed to achieve the goal of a 100,000 units per year production rate in
1996. Basically, it is an enhancement of the Motorcycle
division's ability to increase capacity, adjust to changes in the marketplace
and improve quality while reducing costs. The company estimates the costs of
capital expenditure incurred for this plan was $5.0 million in 1993. The
company anticipates funding all capital expenditures with internally
generated funds.
Harley-Davidson values
inventories at the lower of cost or market. Motorcycles and
new transportation vehicle inventories located in the United States are valued
using the LIFO method. Other inventories are valued at the lower of cost or
market using FIFO method, which in 1993 was $26.5 million. Total inventories
for 1993 was $140 million, the adoption of Financial
Accounting Standard No. 109 resulted in a $7.7 million increase in the
company's LIFO inventory
valuation. This increase was the result of breaking out the effect of an
embedded deferred tax liability as required by the standard. In
investments,
Harley-Davidson invested $10.0 million for a noncontrolling interest in
Eagle
Credit Corporation. The company accounts for its investment in Eagle
using
the equity method. Upon completion of its capitalization, Eagle purchased all
of Holiday Rambler's floor plan obligations (Notes payable) from a third party
finance company. The company accounts for its investments using the equity
method. As of December 31, 1993, the company's carrying value of its
investments in these unconsolidated affiliates totaled $8.9 million which
is included in other assets. In addition, accounts receivable includes a
$9.4 million amount due from Eagle. The company recorded a $53.5 million
nondeductible charge to operations resulting from the write-off of the
remaining goodwill associated with the company's purchase of Holiday Rambler.
Goodwill represented the excess of the purchase price over the fair value of
tangible net assets acquired. Goodwill was amortized principally over 25
years using straight line method. Accumulated amortization was $18.3 million
at December 31,1992. Goodwill and restructuring charges, in total, had the
effect of reducing 1993 earnings per share by $1.46.
The non-current assets which are classified as property, plant and equipment, goodwill,
deferred income taxes and
other assets totaled $249.5 million. The 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. Under current liabilities,
notes payable ($20.5 million) represent primarily floor plan obligations of Holiday Rambler
which are secured by specific units held for sale. Accounts payable were $56.3 million and
other liabilities and current maturities were $113.8 million for 1993. The annual report does
not go into details about the current maturities, it is very superficial covering topics like
assets and liabilities due to the fact of the simplicity of the company. Under long term
liabilities, it does not itemize or says the type of debts which totaled $12.6 million . As
of December 31, 1993, the company had unsecured lines of credit available totaling $44.0
million, of which approximately $40.0 million remained available. There was no major
refinancing or extinguishment.
In commitments and contingencies the company stipulates that they are
involved with government agencies
in various environmental matters, including a matter involving soil and groundwater contamination at
its York, Pennsylvania
facility. The facility was formerly used
by the U.S.
Navy and AMF, so
they are all involved in cost recovery litigation surrounding the
remediation of the company's manufacturing facility. The company currently estimates that it
will be responsible for approximately $4 million related to the remediation, but they have
established reserves for this amount. During 1993, Harley-Davidson spent approximately $1
million on equipment to limit hazardous substances and pollutants. The company enters into
forward exchange contracts to hedge against sales transactions denominated principally in
European currencies. At December 31,1993, these contracts represented a U.S. dollar equivalent
commitment of approximately $45.5 million and had a fair value of approximately $1.0 million
based on published exchange rates. Unrealized gains and losses associated with these
contracts are deferred and accounted for as part of the hedge transaction. The Motorcycle
division has a trade acceptance agreement with Eagle. The Motorcycle division
receives cash
from Eagle in the amount of 100% of certain eligible accounts receivable at the time of the
sale then the Motorcycle division is obligated to repurchase all unpaid balances from Eagle.
At December 31,1993, trade acceptances of $15.4 million were subject to this agreement and the
company has not incurred any material losses from the foregoing repurchase agreements and
currently anticipates no material losses. Also, the company was contingently liable for
$13.0 million related to letters of credit which typically act as a guarantee of payment to
certain third parties in accordance with specified terms and conditions.
Harley-Davidson
has several noncontributory defined benefit plans or profit sharing
plans covering all employees of the Motorcycle division. The policy is to
fund pension benefits to the extent contributions are deductible for tax
purposes. For 1993 the net periodic pension cost was $3.6 million and the
prepaid pension cost was $5.7 million. In 1993, the company elected to change
the measurement date for pension plan assets and liabilities from December to
September 30, the change had no effect on 1993 or prior years' pension
expense. At December 31, 1993, the company recorded an adjustment of $2.6 million which was
required to reflect the company's minimum pension liability and intangible asset was recorded
the same way to satisfy the provisions of Financial Accounting Standards Board Statement
No. 87. The company has thrift incentive plans to hourly and salaried employees at the
Motorcycle division which accrued for a matching contribution to the plan during 1993 of
$1.2 million. The Transportation division accrued for a discretionary matching contribution
$0.4 million during 1992 but nothing in 1993, the plan is funded partly by employee wage
deferrals. Employees are eligible to receive post-retirement health care 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,
which requires companies to accrue the cost of post-retirement benefits during the employees'
active service period. They recorded an accumulated obligation of $32.1 million, net of tax,
which in prior years it was accounted for post-retirement benefits on a cash basis. The
accrued post-retirement benefit liability for 1993 was $55.0 million and the net periodic
post-retirement benefit cost was $6.2 million. The weighted average health care cost trend
rate used in determining the accumulated post-retirement benefit obligation of the health care
plans was 15%.
In January 1,1993, the company adopted the Statement of
Financial Accounting Standards
No. 109. This adoption resulted in additional income of $1.8 million related primarily to the
accounting treatment applied to inventory LIFO reserves calculated at the date of the
company's initial purchase. The company's effective tax rate during 1993 was 72.3% due
primarily to the effect of a $53.5 million nondeductible goodwill write-off 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. Deferred income taxes resulted from temporary differences
between the recognition of revenues and expenses for financial statements and income tax
returns. The company's deferred tax assets as of December 31,1993, include: Accruals not
yet tax deductibles ($29.8), Post-retirement benefit obligation ($21.8) and Other, net
($956,000). The components for deferred tax liability were: Depreciation, tax in excess of
book ($12.1), Inventory adjustments ($6.4) and Pension obligation ($2.1). So the net
deferred tax asset was $31.9 million.
Upon approval to increase the number of authorized shares of common stock from 25 to 100 million, the Board of Directors declared a two-for-one stock split so stock options and all other agreements payable in the company's common stock were amended to reflect the split. Also, they approved an increase in the number of authorized Series A Junior Participating Preferred Stock from 1 million to 2 million. The Preferred Stock has a par value of $1 per share and is entitled to receive a quarterly dividend in an amount equal to the greater of $1 per share or 100 times the dividends declared on the company's common stock. The company has 1 million shares of Preferred Stock for issuance with Preferred Stock Purchase Rights and a Restricted stock plan in which plan participants are entitled to cash dividends and voting rights. The total shares outstanding at end of year at $8.92 to $10.09 per share was 483,037 vand the 1993 expense associated with the restricted stock plan was $0.4 million. The maximum number of shares of common stock available for Stock Option Plans are 3.0 million at December 31,1993 of which 1.0 million shares remain available for future grants. The exercise price of outstanding options ranged from $2.95 to $37.13. For 1993, the treasury stock was 456,464 at cost totaled $1.5 million. The weighted average number of common shares outstanding during 1993 was 38.0 million.. Earnings (loss) per common share assuming full dilution include shares generated by the assumed conversion of convertible debt at the beginning of the period as well as dilutive effect of stock options. Neither stock options nor convertible debt were materially dilutive, alone or in combination during 1993. The EPS value for 1993 was $.31. The market price per share (low - high) for the fourth quarter 39 3/4 - 47 1/2 and the cash dividends per common share were $.12. Therefore, the dividend yield is .30% to .25% and the price-earnings ratio 20.4. Comparing the information given in the 1993 Harley-Davidson, Inc. annual report to the Value Line analysis for 1994, it looks that for such a small company the market statistics for this company are very good. The timeliness number for the company is 1 which is the highest and safety is 3 (average). In the last 90 years this company has grown from a 10x15 foot shed in the Davidson family's backyard to sales monster of $1.2 billion with a total debt of only $39.0 million and a large cash flow. In conclusion, this is definitely a company to invest in.
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