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Financial Analysis

Harley-Davidson Inc. (NYSE: HOG)


Matt Mielnik, Robert Bablak, Luke Peterson, Alex Hudock 4/2/2013

In the following report, we will analyze the financial position of Harley-Davidson Inc. to determine whether to invest in the company.

Contents
Company Profile..................................................................................................................................... 2 Industry Situation & Company Plans ..................................................................................................... 5 Accounting Policies ................................................................................................................................ 7 Measures of Liquidity ............................................................................................................................. 8 Common-Size Percentages for 2012 Current Assets........................................................................ 8 Current and Acid-Test Ratios ............................................................................................................. 9 Working Capital (in thousands of dollars) .......................................................................................... 9 Measures of Efficiency ......................................................................................................................... 10 Solvency ............................................................................................................................................... 12 Solvency (Cont.) ............................................................................................................................... 13 Profitability ............................................................................................................................................ 14 Cash Flows .......................................................................................................................................... 15 Comparative Industry Analysis ............................................................................................................ 16 Company Evaluation and Market Outlook ........................................................................................... 18 Recommendation ................................................................................................................................. 19 Works Cited.......................................................................................................................................... 20 Appendix .............................................................................................................................................. 21 Balance Sheet .................................................................................................................................. 21 Assets ........................................................................................................................................... 21 Liabilities ....................................................................................................................................... 22 Shareholder Equity ....................................................................................................................... 23 Ratios ............................................................................................................................................... 24 Liquidity and Efficiency ................................................................................................................. 24 Solvency ....................................................................................................................................... 24 Profitability .................................................................................................................................... 25 DuPont Analysis ........................................................................................................................... 25 Income Statement ............................................................................................................................ 26 Cash Flows ................................................................................................................................... 27 Yamaha Information ......................................................................................................................... 28 Yamaha Income Statement .......................................................................................................... 28 Yamaha Balance Sheet................................................................................................................ 29 Yamaha Ratios ............................................................................................................................. 30

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Company Profile
Chief Executive Officer (CEO) Mr. Keith E. Wandell, 63 Chairman of the Board, Chief Exec. Officer and President (2009-present) Corporate Headquarters 3700 West Juneau Avenue Milwaukee, WI 53208 United States - Map Phone: 414-342-4680 Fax: 414-343-4621 Website: http://www.harley-davidson.com Ending Date of Last Fiscal Year December 31, 2013 Net profit of $70.6 million History of Harley-Davidson In 1903, William S. Harley and Arthur Davidson opened up a motor-bicycle shop in Milwaukee, Wisconsin. By 1904, Harley and Davidson had manufactured their first motorcycle, which took 4th place in the Milwaukee motorcycle race. Surged with confidence, the two friends opened up a factory in 1906. As time went on, the duo continued to improve their designs. At the start of World War I, the government hired Harley-Davidson to produce motorcycles adapted for combat service. Altogether, Harley-Davidson produced 15,000 bikes for the military during the war. After WWI came the Great Depression, and with it came the closing of all but two motorcycle manufacturers. One of these two was Harley-Davidson, who was again contracted to produce bikes for the Allied Forces in World War II. Multiple mistakes after WWII led to dwindling sales, which plagued the company until its restructuring in 1981. Among other things, the restructuring focused production on the retro appeal of the motorcycles, which became hugely popular among American consumers. Since the companys revival in 1981, few things changed until 2009, when new CEO Keith Wandell took the reins and started another restructuring. This change sought to prepare Harley-Davidson for the future by focusing on innovation, customization, international market penetration, and broadening the customer base. Principal Products To the American consumer, Harley-Davidson Inc. is synonymous with motorcycles. For years, Harley-Davidson has developed a reputation for producing quality motorcycles with style. They design, manufacture, and sell new and classic models of bikes, including ones for sport, leisure, and distance. By producing a wide range of motorcycles, consumers can find exactly what they are looking for with Harley-Davidson. If they can't, Harley-Davidson allows customers

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to customize their bikes to fit exactly what they need. Harley-Davidson also offers financing to customers, making the bikes more affordable and easier to purchase. Target Consumer From the beginning, Harley-Davidsons core customers have primarily been white, young-middle aged men. Currently, Harley-Davidson has been executing a multi-generational and multi-cultural marketing strategy within the U.S. to expand its consumer base. New target consumer segments include young adults (men and women 18-34), Caucasian women 35+, and diverse men and women (African-American and Hispanic 35+). Their efforts have worked, as motorcycle registration results place Harley-Davidson as the segment leader in the U.S. for on-road motorcycle registrations, including heavyweight (651cc+) and all displacement (all cc) registrations, in their four targeted demographics (core, young adults, women, and diverse customers) [Investor Relations]. Main Geographic Area of Activity For years, Harley-Davidson has sold most of their products in the U.S. However, their sales are becoming increasingly international. In 2007, about 74% of sales were within the U.S. By 2011, only 65% of sales were within the U.S. Thus, total international sales increased by 9% [Investor Relations]. This change over the years reflects Harley-Davidson's commitment to expanding their business beyond core U.S. consumers to new international consumers. According to company estimates, international sales should account for 40% of all sales by 2014. Independent Auditors Ernst & Young LLP 875 E Wisconsin Ave Ste 500 Milwaukee, WI 53202 United States Phone: (414) 273-5900 Fax: (414) 223-7200 In 2010, Ernst & Young LLP expressed: "In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harley-Davidson, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. 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."

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Investor Snapshot As of March 28 - Close (from Google Finance) Price: 53.30 Year to Date % Change: Jan 2 2013 - Mar 28 2013: +4.47 (9.15%) P/E: 19.65 Beta: 2.14 52 Week: 37.84 - 55.51 Market Cap: 12.06B Earnings Per Share: 2.71

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Industry Situation & Company Plans


Harley Davidson is the dominant player in the American motorcycle industry. Although they do not act as a monopoly (demand for motorcycles is elastic, so the company cannot price fix), Harley still holds just over 50.2% of the total motorcycle market share in the U.S. Aside from their efforts to maintain control in North America, the company has been focusing on penetrating foreign markets to expand the brand. The push for this came in 2009 when Keith Wandell became CEO. As part of his tenure at Harley-Davidson, he planned to restructure the company. For years, Harley-Davidson had embraced a brand image of the American ideals of individuality, freedom, and adventure. When Keith Wandell planned to restructure, he wanted to innovate, penetrate global markets, and adapt to cultural differences all while maintaining the brands image. Harley-Davidsons restructuring revolved mostly around the companys image and the definition of a Harley. From the companys perspective, they dont sell bikes; they sell adventure. To help convey this message to customers, the management and employees were pushed to embrace Harley-Davidson as a producer of adventure. Because Harley-Davidson has been around for over a century, many people began to view them as an aging fad from the baby-boomer generation. By pushing for motorcycles as a means of transformation rather than transportation, the consumer idea of what a Harley is has begun to change. This repositioning has helped Harley-Davidson maintain sales and growth in recent years. In international markets, Harley-Davidsons restructuring has focused on ensuring brand loyalty while increasing international adaptation without losing authenticity. Currently, Harleys are sold in 67 different countries. Innovative marketing strategies and research have helped Harley-Davidson solidify its brand image of selling adventure across all of its markets. One example of Harley-Davidson connecting with its loyal customers is the Harley Owners Group (H.O.G.), which is a bi-monthly magazine that lists all types of services, new bikes, and discounted products. Ensuring that loyal customers remain such allows Harley-Davidson to continue to expand without losing past customers. Along with ensuring brand loyalty, Harley-Davidson has spent much time looking at how to improve advertising. By expanding market research, Harley-Davidson has been able to study all sorts of facts such as owners demographics, their typical jobs, and their typical incomes. Armed with such vital knowledge has allowed Harley-Davidson to know exactly how and where to advertise to reach their typical customer. As a whole, Harley-Davidsons restructuring was a huge success. When the company seemed to be losing business, they bounced back and experienced huge growth. While this growth is certainly impressive, will it continue in the future? According to Harley-Davidsons website, 43% of global purchases were by customers who had either never owned a motorcycle or previously owned a competitors product. This percentage is huge considering the establishment of other international motorcycle companies. Harley-Davidsons expansion into international markets has clearly been a success. Currently, Harley-Davidson motorcycles are considered luxury products. Over the years, this has become increasingly true, especially considering recent economic issues. The company claims that the median income of purchasers from 2007 to 2011 increased from $83,000 to $99,000. In just five years, customers of Harley-Davidson seemingly shifted to be much richer Page | 5

rather than they had in the past. However, these numbers probably come from HarleyDavidsons identification of their core customers. Market research revealed most Harley owners are lawyers, doctors, and teachers. Lawyers and doctors tend to earn a lot of money while teachers tend to be married to someone who also works. By focusing on reaching core customers with advertising, Harley-Davidson has honed its business on its most loyal customers. As time goes on, Harley-Davidson plans to expand into more international markets. This process will be slow, but it seems promising. Selling a customizable, affordable adventure is great business model when looking to expand to areas where Harley-Davidson may be completely unknown. If past marketing and advertising methods are continued (obviously with continued tweaking and polishing), Harley-Davidson will most likely continue growing and claiming market share. Anything can happen, however, so only time will tell Harley-Davidsons fate.

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Accounting Policies
Harley Davidson Follows the typical accounting procedures when compiling annual reports for investors. However, there are some exceptions that they make for certain portions of the industry. To start, Harley essentially has two receivable accounts. The actual accounts receivable is used for the credit sale of bikes to independent dealers, while their finance receivables is used for bikes sold to customers through Harley Davidson and its dealers. For inventories, Harley Davidson uses the Last In, First Out (LIFO) method of inventory. Goods are valued at the lower of cost or market. The 10K also provides the 2011 and 2012 figures of inventory calculated under FIFO in addition. Harley Davidson has a two year warranty program for all bikes bought (three years in Japan) and a one year warranty on parts. Because of this, the company holds future reserves for the use of paying warranty liabilities. Revenue is split into two categories, motorcycle revenue and financial services. Motorcycle revenue recognized when a sale is made and ownership is transferred to the dealer from Harley. Additionally, discounts and sales incentive programs are accrued later. Interest is recorded as earned. Research and Development expenses are distributed amongst sales expense, administrative and engineering expense. The formal numbers for R&D are available in the 10K.

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Measures of Liquidity
Harley Davidson, Inc. is currently doing well to ensure that they have enough liquid assets to pay off their short-term debts, with a current ratio of 2.695 and an acid-test ratio of 2.114. With both of these figures lying above 2, Harley seems to be able to effectively pay off any short-term liabilities, even without selling off inventory. Harley would instead be able to use Finance Receivables held for sale to pay off most of their immediate debt, since receivables comprise over 43% of their current assets. Upon further thought, it makes sense that receivables would count for such a large portion of Harleys assets, since last year, they financed 50.9% of the motorcycles they sold [Form 10-K]. It is also important to realize that Harleys sales reach their lowest point seasonally around the time when the 10k is filed at the end of December. Therefore, inventory will most likely make up a smaller percentage of current assets than it would during the spring, which is the peak season for motorcycle sales. Polaris, one of Harleys larger competitors, is in a different situation regarding liquidity that is worth noting. Polaris has a current ratio of 1.61 and an acid-test ratio of .88, but inventory makes up 33.89% of their current assets, as opposed to 9.71% [Polaris Industries]. These figures mean that Polaris would have to start depleting inventory to pay off debt sooner than Harley, reflecting that their sales may be less seasonally dependent, which is understandable, since they also sell snowmobiles.

Common-Size Percentages for 2012 Current Assets


2.74% 4.48% 4.64%

Cash and cash equivalents marketable securities 26.37%

9.71%

accounts receivable, net Finance receivables held for sale Inventories Restricted cash held by variable interest entities Deffered income taxes

3.35% 5.68% 43.03%

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Harleys liquidity ratios have remained greater than 1 over the last 5 years, in spite of a turbulent economic climate. It is easy to see that Harley was more conservative when managing their liquidity in 2007, because they did not feel the need to invest in new operations that would require more leverage. However, since the recession, Harley has been using more leverage to expand their company abroad, ensuring that they also expand their product line to appeal to a younger demographic. Their working capital has followed the same trend, which follows logically, because in 2008, Harley was forced to temporarily ship fewer motorcycles to dealers than it had in previous years. This took away some of Harleys long-term assets by forcing them to decrease production, but temporarily added to their current assets, which peaked along with working capital in 2008 [Form 10-K].

Current and Acid-Test Ratios


4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2006 2007 2008 2009 2010 2011 2012 Current Ratio Acid_Test Ratio

Working Capital (in thousands of dollars)


$3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 2006 2007 2008 2009 2010 2011 2012 Working Capital (In Thousands of Dollars)

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Measures of Efficiency
Needless to say, efficiency is one of Harleys highest priorities. With competitors like Honda relocating their manufacturers to Asia, Harley is forced to deal with the pricier, unionized, U.S. labor force to preserve its Made in America image. To deal with this issue, the Company has restructured plants to hire seasonal workers in York, PA and Kansas City, MO to match changes in seasonal demand, and consolidate more manufacturing tasks under one roof. The graph below shows that the rate at which Harley is turning over its inventory has not returned to pre-recession levels, which reflects the need for such restructuring [Form 10-K]. Currently, Harley Davidson turns over their inventory 7.942 times per year, which is very comparable to competitors like Polaris, who currently turn over their inventory at 7.105 times per year [Polaris Industries]. So, although Harleys performance does not live up to their previous standards regarding efficiency, they are still keeping par with their competitors in terms of inventory management.

Inventory Turnover (Times per Year)


12.000 10.000 8.000 6.000 4.000 2.000 0.000 2007 2008 2009 2010 2011 2012 Inventory Turnover (Times per Year)

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As was stated earlier, a great percentage of Harley Davidsons current assets are tied up in Accounts Receivable, making collection efficiency extremely important. The figures themselves show that Harley is exhibiting a positive trend in collection efficiency, bringing their accounts receivable turnover rate up from 17.887 times per year in 2009 to 24.851 times per year in 2012. Not surprisingly, the rate at which Harley has been able to collect on its accounts directly coincides with many of the other trends exhibited by the Company due to the recession. However, even at their low point of 17.887 times per year, they still fell ahead of the current average AR turnover rate for the S&P 500, which is 14.4 [Accounts Receivable Turnover]. This positive trend must continue if the company wants to expand and minimize bad debt and maintain a good relationship with their shareholders into the future.

Accounts Receivable Turnover


40 35 30 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 Accounts Receivable Turnover

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Solvency
Solvency is the ability of a company to pay back its long term debts in the future. Currently, Harley Davidsons Debt-to-Equity ratio is 2.586, which means that Harley essentially has two and a half times as many liabilities to creditors as it does to commitments to shareholders. On top of this, Harley Davidsons debt ratio in 2012 was .721, or in laymans terms, 72 cents per every dollar of assets. Initially, this may seem like a major concern since Harley has much more debt than equity, but due to the recession in 2007 that extended through 2009, interest rates were (and still are) at or near zero. This allows for money to be borrowed and repaid very easily, with less risk for the company, creating less risk borrowing as opposed to using equity to finance activities. This trend is apparent when looking at horizontal analysis as displayed by this graph.

Debt-to Equity
4.000 3.500 3.000 2.500 2.000 1.500 1.000 0.500 0.000 2006 2007 2008 2009 2010 2011 2012 Debt-to Equity

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Solvency (Cont.)
As you can see, Harley started taking on more debt in between 2007 and 2008, just as the Federal Government was lowering interest rates. If there were to be a major spike in interest rates, the effect would hit Harley Davidson more so than other companies in the industry such as Yamaha and Polaris who do not have as much long term debt. Much of this long term debt is being used to finance Harley Davidsons long term business strategy of growth in international markets. Harleys plan is to grow their brand in other international markets and hope to capitalize on a new market. This business strategy relies on using long term debt to grow. The major concerns with this long term debt would be if Harley cannot capture international markets, where the Harley Davidson brand (All American) will not hold the same pull as it does here in America [HOG 2012 10K , 13]. The other concern with long term debt would be liabilities to employee pensions and healthcare. Many of the factors regarding the future success of pensions and healthcare are outside of Harleys control, with federal mandates being the main driver of these. The implementation of the Affordable Care Act is something to watch when looking at debts from healthcare. Another major concern regarding Harley Davidsons debt is credit ratings. If Harley Davidsons credit rating were to experience a drop, a major earnings reduction would occur since Harley relies heavily on capital markets and the ability to easily borrow. Harley Davidson had all-time lows on losses on credit last year; however, their management believes that this is unlikely to occur again this year and in the future due to changes in consumer credit behavior. The one key for Harley Davidson (along with anyone in retail sales) is the return in certainty of the economy, which would very much alleviate the risk of repaying long term debts in the future. Despite several of the long term concerns, Harley has managed to leverage their debt more effectively in recent history. When looking at Times Interest Earned, Harley Davidsons financial team has managed to increase the ratio over the past five years. This shows that they have been able to handle more and more of their long term debt effectively and reduce the amount of interest percent of total income.

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Profitability
40% 35% 30% 25% 20% 15% 10% 5% 0% -5% 2006 2007 2008 2009 2010 2011 2012 Profit Margin Return On Assets Return On Equity

Harley-Davidson has historically been a profitable company, with the exception of when the United States was in the midst of the 2007-2009 Recession. As the chart above illustrates, during those years, the company faced diminishing profit margins as sales slid (costs of goods sold fell as sales fell, however selling and administrative expenses did not fall during the period, thus explaining the fall in the companys profit margin). Due to lower sales, Harley-Davidson also faced diminishing returns on assets, which increased throughout the recession. Sales fell faster than the equity value of the company from 2007 to 2009, which caused diminishing returns on equity for shareholders. However, in recognition of falling profitability ratios, one must note that even during the recession, Harley Davidson managed to maintain a sizable profit margin and returns on assets and equity, with the exception of in 2009 the only year when the company lost money. Emerging from the recession, Harley-Davidson quickly recovered its profitability indexes to nearly pre-recession levels. Sales have increased steadily since 2009, but the company has also worked to decrease the costs of products (as exemplified by the COGS decrease in 2010 in juxtaposition to increased sales of motorcycles). Additionally, administrative and selling expenses have not grown in proportion to the recovery of sales, thus creating more profit for the company. As of 2012, Harley-Davidson is operating with a profit margin of 11.2%, meaning that for every dollar of sales, the company keeps 11.2 cents, after expenses, interest, and taxes. This is roughly the same as what it was at the end of 2011 (11.3%), which is a good thing, considering that revenues grew in 2012. The companys 2012 Return on Assets was 6.6%, which is mediocre compared to its pre-recession measure. In Harleys restructuring, the company acquired a great amount of long term debt to spur encourage returns similar to past years. While the current ROA is lower than it has been historically, this is not of immediate concern considering the ROAs consistent growth along with the companys strong liquidity factors. Harley Davidsons Return on Equity quickly recovered after the recession and is currently at 25.1%. This means that the company earns back about a quarter of its net worth over the course of a year. Page | 14

Cash Flows
As of recent years, Harley Davidson has had an Operating Cash Flows (OCF) to Sales ratio of greater than 100%, suggesting that the companys income comes primarily from operating activities, as one would expect from a manufacturer with one primary division of products. The company also generally has a Free Cash Flow ratio between 70% and 85%. This means that, of the companys operating cash flow, around three fourths are not tied up in expenditures that maintain the companys competitiveness and efficiency, so the company has a large portion of its cash available for other uses. Harley Davidson has a low OCF to Current Debt ratio, suggesting that they may not be able to meet their short term obligations through strictly its Operating Cash Flows. However, the company has a high amount of liquidity that can cover its obligations, so its consistently low OCF to Current Debt ratio is not a concern. Conversely, Harley has a high Capital Expenditure Coverage ratio, meaning that they are more than capable of covering its Capital Expenditures with its Operating Cash Flows. With the exception of in 2008, when Harley net-used cash in its OCF, the company has had a CapEx ratio of between 3.3 and 6.8.

Cash Flow Ratios


160% 140% 120% 100% 80% 60% 40% 20% 0% -20% -40% 2006 2007 2008 2009 2010 2011 2012 FCF/OCF Short Term Debt Coverage

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Comparative Industry Analysis

As a Company traded on the New York Stock Exchange, Harley Davidson is a part of the Recreational Vehicles industry, which is a subset of consumer goods. Its main American competitors include Polaris Industries Inc., Thor Industries Inc., and Drew Industries Inc. The latter two companies actually produce what are closer to mobile homes, but they still share similarities with Harley, due to their consumer demographics [Polaris Industries, Inc.]. Polaris is Harleys closest American competitor, producing two motorcycle lines (Victory and Indian) that directly compete with Harleys large road bikes. With regards to foreign competition, Hondas motorcycle line and Yamahas Star line also compete with Harley, but for the sake of simplicity, a comparison with other American manufacturers should suffice. The graph shown above represents the stock price of Harley Davidson relative to the average stock price of companies in the recreational vehicles industry over time. Since 2012, Harleys stock prices have outperformed their largest American competitors by a growing margin. Given that Harley motorcycles account for 81% of all new heavyweight motorcycle registrations in the US, Harley still seems to be poised to remain the industry leader in motorcycle production and sales(cite). As a whole, the Recreational Vehicles industry has a market cap of $33.5B, which is distributed among the different competitors as shown below [Polaris Industries, Inc.]. Harley remains the decisive leader of that industry as far as size is concerned, but they do not perform quite as well as some of their competitors in other performance categories. For instance, Polaris Return on Equity for the past year was 52.46%, which was over two times Harleys rate of 24.65% [Polaris Industries]. This may signify that Polaris is currently doing a better job of growing their return to stockholders, in spite of Harleys comfortable hold on the Heavy Page | 16

Motorcycle market (which represents 62% of all U.S. motorcycle sales), which still leaves them at the forefront of the industry, struggling as it may be. The fact of the matter is that motorcycles are luxury goods, purchased mainly by those who are older and have more disposable income. Given the recent scarcity of this disposable income for many Americans, the Recreational Vehicles has struggled to stay above water, as it will continue to do until the situation gets dramatically better.

Market Cap Distribution

Harley Davidson, Inc. 36.60% 36.15% Polaris Industries, Inc. Thor Industries, Inc. Drew Industries, Inc. Other 2.47% 5.97% 18.81%

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Company Evaluation and Market Outlook


Although Harley-Davidson Inc. is prepared to face the challenges that could arise in the short term, there is evidence to suggest that they may have trouble in the long run. After reviewing the financial reports of Harley-Davidson, we have come to several conclusions about the health of the company. First, we have found that Harley is a highly liquid company. Its consistently high current and acid-test ratios prove that, in the short run, the company is in a strong position to meet its obligations, which would be especially useful in the case of another economic downturn. Second, Harley-Davidson has become less efficient with its inventory turnover. In the face of waning sales, the company has not scaled back inventory size to maintain the high level of efficiency that it had pre-recession. However, this problem is being addressed by management; several factories are being restructured to better meet seasonal demand. Third, we find the companys long term solvency to be of potential concern. So long as the company maintains its credit rating and can support its employee pensions and healthcare plans, none of these will be an issue. However, the problem remains that they do have liabilities that they have to repay, and if the economy were to fall into trouble once again, those liabilities would become a problem. On a positive note, Harley Davidson seems to be improving their ability to handle debt. Their Times Interest Earned has steadily increased over the past several years, which would imply Harleys financial department has figured out a way to effectively leverage their debt. Fourth, Harleys profitability is generally consistent, and its return on equity is impressive. When the company is not operating at a loss, the company produces high returns on its resources, which credits its merit as an investment. Harley does not waste its revenuegenerating potential. Fifth, the companys cash flows show that Harley-Davidson is equipped to manage the necessary expenses of remaining competitive in the motorcycle industry as well as manage the debt that it takes on to finance its expansions. A large portion of Harleys OCF is available for other expenses. Also, the companys OCF is nearly half of its short term obligations, which would be a problem if Harley-Davidson did not have as many liquid assets as it does. Even with an OCF to short term debt ratio of about one half, Harley should be more than capable of covering its short term obligations. With those five points considered, we have determined that Harley-Davidson is a healthy company with a strong asset base, a manageable amount of leverage, and well refined operations. We feel that the company itself has a strong financial foundation, but we are hesitant to encourage investment because of the industry in which they exist. The motorcycle industry is strongly correlated to the ebbs in the business cycle, so any decision regarding investment must take this into account. Motorcycles are luxury goods that people only buy with excess income. If the economy is not doing well, most people will not have the means to purchase a motorcycle. Instead, people will spend their money on necessities, like food, water, clothes, etc. As of right now, with the high level of unemployment in the United States along with the slow growth in the macro economy, despite the overall financial fortitude of many firms, we think that a cautious approach to investing is the most appropriate measure.

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Recommendation
We rate Harley-Davidson Inc. as a: HOLD With the companys solid financial position, one must respect the merit of the company as both a business and an investment, yet, with Harleys strong adhesion to the flow of the business cycle, one must be cautious investing in such a company in a time of economic uncertainty in the future. We feel that the risk of investing in Harley-Davidson Inc. is not worth the opportunity of investing in a different, equally strong company with more secure market prospects.

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Works Cited
"Accounts Receivable Turnover." Accounting Simplified. N.p., n.d. Web. 03 Apr. 2013. "An Analysis on Harley Davidson's International Business Strategy." Web log post. TDi Media. TDi Media, 1 Mar. 2010. Web. 30 Mar. 2013. <http://tdimedia.blogspot.com/2010/03/analysis-on-harley-davidsons.html>. Danova, Antonio. Motorcycle, Bike & Parts Manufacturing in the US. Publication no. 33699a. N.p.: n.p., n.d. IBISWorld. Web. <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=856>. "Ernst & Young Llp in Milwaukee, Wisconsin Branch Location."Www.findthecompany.com. Find The Company, n.d. Web. 30 Mar. 2013. <http://companies.findthecompany.com/l/8481855/Ernst-And-Young-Llp-in-MilwaukeeWI>. Form 10-K. 10-K. Washington D.C.: Security and Exchange Commission, 2012 et al. Investor.harley-davidson.com. Harley-Davidson Inc. Web. "Harley-Davidson Inc." Google.com/finance. Google, n.d. Web. 03 Apr. 2013. "Investor Relations." Investor.harley-davidson.com. Harley-Davidson Inc., n.d. Web. 3 Apr. 2013. "Polaris Industries." AnnualReports.com. N.p., n.d. Web. 03 Apr. 2013. "Polaris Industries, Inc." Finance.yahoo.com. Yahoo!, n.d. Web. 3 Apr. 2013. "Recreational Vehicles - Company List." Finance.yahoo.com. Yahoo!, n.d. Web. 03 Apr. 2013. "Yamaha Motor Co Ltd." Investing.businessweek.com. Businessweek, n.d. Web. 03 Apr. 2013.

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Appendix
Balance Sheet
Assets

Assets Current Assets Year 2006 2007 2008 2009 2010 2011 2012

Cash and cash marketable equivalents accounts securities receivable, Finance receivables Restricted net Finance held finance for receivables sale receivables Inventories Assets held held for by of variable investment, discontinued Restricted interest Deffered cash net operations entities, heldincome Prepaid by variable nettaxes Expenses interest and entities Other 238397 658133 143049 547106 0 1554260 287798 0 0 73389 48501 402854 2475 181217 781280 0 1575283 349697 0 0 103278 71230 568894 0 265319 2443965 0 1378461 379141 238715 0 123327 128730 1630433 39685 269371 0 0 1436114 323029 181211 0 179685 282421 1021933 140118 262382 1080432 699026 0 326446 0 288887 146411 100991 1526950 153380 219039 1168603 591864 0 418006 0 229655 132331 102378 1068138 135634 230079 1743045 0 0 393524 0 188008 110853 181655

Columns (Current Assets): Cash and cash equivalents; Marketable securities; Accounts receivable, net; Finance receivables held for sale, net; Restricted finance receivables, net; Finance receivables held for investment, net; Inventories; Assets of discontinued operations; Restricted cash; Deferred income taxes; Prepaid Expenses

Other Assets

Total Assets

Total Current Finance Assets receivables RestrictedProperty, held finance for investment, receivables plant Prepaid and pension equipment, Goodwill held net by costs variable Deferred net interest income Other entities, long-term taxes Total net Assets assets 2006 3550633 725957 0 1024469 55351 58800 42986 73954 5532150 2007 3467314 854044 0 1060590 89881 61401 54376 78000 5656606 2008 5526552 817102 0 1056928 0 60131 288240 79672 7828625 2009 4341949 3621048 0 906906 0 31400 177504 76711 9155518 2010 4066626 1553781 2684330 815112 0 29590 213989 67312 9430740 2011 4542206 1754441 2271773 809459 0 29081 202439 64765 9674164 2012 4050936 4038807 0 815464 0 29530 171845 64191 9170773
Columns: Total Current Assets; Finance receivables held for investment, net; Restricted finance receivables; Property, plant and equipment; Prepaid pension costs; Goodwill; Deferred income taxes; Other long-term assets; Total assets

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Liabilities

Liabilities
Current Liabilities

Accounts Payable Accrued Liabilities Liabilities Short-term of Discontinued Debt Current Operations portion Current of Portion long-term of Long deb 2006 283477 479709 0 0 832491 0 2007 300188 484936 0 0 119955 0 2008 323736 541372 0 1738649 0 0 2009 162515 514084 69535 189999 1332091 0 2010 225346 556671 0 480472 0 751293 2011 255713 564172 0 838486 399916 640331 2012 257386 513591 0 294943 437162 0
Columns (Current Liabilities): Accounts Payable; Accrued liabilities; Liabilities of discontinued operations; Short-term debt; Current portion of long-term debt; Current portion of long-term debt held by variable interest entities

Other Liabilities

Total Liabilities

Total Current Long-term Liabilities Long-Term debt Pension Debt Held liability postretirement by Variable other Interest healthcare long-term Total Entities Liabilities liabilities liability 2006 1595677 870000 0 47916 201126 60694 2775413 2007 905079 980000 0 51551 192531 151954 2281115 2008 2603757 2176238 0 484003 274408 174616 5713022 2009 2268224 4114039 0 245332 264472 155333 7047400 2010 2013782 2516650 2003941 282085 254762 152654 7223874 2011 2698618 2396871 1447015 302483 268582 140339 7253908 2012 1503082 4370544 0 330294 278062 131167 6613149
Columns: Total current liabilities; Long-term debt; Long-term debt held by variable interest entities; Pension liability; Postretirement healthcare liability; Other long-term liabilities; Total liabilities

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Shareholder Equity

Shareholder's Equity
Shareholder's equity

Total Shareholder's Equit

Common Stock AdditionalRetained Paid-In-Capital Earnings Accumulated Equity Other Pre-Treasury Comprehensive <Less Treasury Cost TotalStock, Equity Loss at Cost> 2006 3343 766382 5460629 -206662 6023692 3266955 2756737 2007 3352 812224 6117567 -137258 6795885 4420394 2375491 2008 3357 846796 6458778 -522526 6786405 4670802 2115603 2009 3368 871100 6324268 -417898 6780838 4672720 2108118 2010 3382 908055 6336077 -366222 6881292 4674426 2206866 2011 3391 968392 6824180 -476733 7319230 4898974 2420256 2012 3413 1066069 7306424 -607678 7768228 5210604 2557624
Columns: Common Stock; Additional paid-in capital; Retained earnings; Accumulated other comprehensive loss; Equity pre-treasury cost; <Less treasury stock, at cost>; Total Equity

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Ratios
Liquidity and Efficiency
Ratio Analysis Liquidity and Efficiency Working Capital Current Ratio Acid-Test Ratio Inventory Turnover Accounts Receivable Days Sales Turnover Days Uncollected Sales Total in Inventory Asset Turnover 1954956 2.225 1.968 N/A N/A 8.441 29.443 N/A 2562235 3.831 3.252 11.334 37.889 10.767 35.330 1.098 2922795 2.123 1.788 10.008 26.674 16.261 37.942 0.883 2073725 1.914 1.488 8.263 17.887 20.561 40.644 0.563 2052844 2.019 1.244 8.466 18.277 19.708 43.341 0.523 1843588 1.683 1.137 8.345 22.067 15.051 49.117 0.556 2547854 2.695 2.114 7.942 24.851 15.049 44.574 0.592

2006 2007 2008 2009 2010 2011 2012

Columns: Working capital; Current ratio; Acid-test ratio; Inventory Turnover; Accounts receivable turnover; Days sales uncollected; Days sales in inventory; Total asset turnover Solvency

Solvency Debt RatioEquity Ratio Debt-Equity Times Ratio Interest Earned 2006 0.502 0.498 1.007 N/A 2007 0.403 0.420 0.960 N/A 2008 0.730 0.270 2.700 235.681 2009 0.770 0.230 3.343 9.241 2010 0.766 0.234 3.273 5.321 2011 0.750 0.250 2.997 18.511 2012 0.721 0.279 2.586 21.887
Columns: Debt ratio; Equity ratio; Debt-Equity ratio; Times interest earned

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Profitability

Profitability Profit Margin Return on Return Assets on Common Stockholder's Equity 2006 17% N/A N/A 2007 15.2% 16.7% 36.4% 2008 11.0% 9.7% 29.2% 2009 -1.2% -0.6% -2.6% 2010 3.0% 1.6% 6.8% 2011 11.3% 6.3% 25.9% 2012 11.2% 6.6% 25.1%
Columns: Profit margin; Return on assets; Return on equity

DuPont Analysis

DuPont Analysis Profit Margin Asset Turnover Leverage(EquityTotal Multiplier) Return on Equity 2006 17% N/A N/A N/A 2007 15% 1.098 2.180 36.391% 2008 11% 0.883 3.003 29.156% 2009 -1% 0.563 4.021 -2.610% 2010 3% 0.523 4.307 6.792% 2011 11% 0.556 4.129 25.896% 2012 11% 0.592 3.786 25.068%
Columns: Profit margin; Asset turnover; Leverage (equity multiplier); Total return on equity

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Income Statement
Revenues Year Costs and Expenses

Motorcycle Financial and Related Services Total Products Revenues Motorcycles Financial and related Services Financial products Interest Services Selling, cost Expense Administrative, Provision ofRestructuring goods sold for Goodwill Credit and Expense Losses Engineering Impairment Total and Costs Asset Expense and Impairment Expenses 2006 5800686 384891 6185577 3567839 174167 0 846418 0 0 4588424 2007 5726848 416196 6143044 3612748 204027 0 900708 0 0 4717483 2008 5578414 376970 5955384 3647270 136763 39555 1060154 12475 0 4896217 2009 4287130 494779 4781909 2900934 283634 169206 979384 224278 28387 4585823 2010 4176627 682709 4859336 2749224 272484 93118 1020371 163508 0 4298705 2011 4662264 649449 5311713 3106288 229492 17031 1060943 67992 0 4481746 2012 4942582 637924 5580506 3222394 195990 22239 1111232 28475 0 4580330

Columns: Motorcycles and related products; Financial services; Total revenues; Motorycles and related products cogs; Financial services interest expense; Financial services provision for credit loss; Selling, administrative, and engineering expenses; Restructuring expense and asset impairment; Goodwill; Total Costs and Expenses

Taxes

Net Income

OperatingInvestment Income Interest Income Expense Loss on Debt Income Extinguishment Before Provision Provision for Income Income forfrom Income Income Taxes Continuing Taxes (Loss) Net from Income Operations discontinued o 2006 1597153 27087 0 0 1624240 -581087 1043153 0 1043153 2007 1425561 22258 0 0 1447819 -513976 933843 0 933843 2008 1059167 11296 -4542 0 1065921 -381686 684235 -29517 654718 2009 196086 4254 -21680 0 178660 -108019 70641 -125757 -55116 2010 560631 5442 -90357 -85247 390469 -130800 259669 -113124 146545 2011 829967 7963 -45266 0 792664 -244586 548078 51036 599114 2012 1000176 7369 -46033 0 961512 -337587 623925 0 623925
Columns: Operating income; Investment income; Interest expense; Loss on debt extinguishment; Income before provision for income taxes; Provision for income taxes; Income from continuing operations, net of tax; Net income

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Cash Flows
Cash Flows Information Cash: Operating Cash:Activities Investing CapEx Cash: Financing 2006 761,780 -35,259 219,602 -637,023 2007 798,146 391,205 242,113 -1,037,803 2008 -608,029 -294,875 228,959 1,293,390 2009 609,010 -863,487 116,748 1,381,937 2010 1,163,418 145,437 170,845 -1,856,090 2011 885,291 -63,542 189,035 -308,944 2012 801,458 -261,311 189,002 -990,073

OCF/SalesFCF/OCF Short Term Capital Debt Coverage Expenditure Cover 73% 71% 48% 3.468912 85% 70% 88% 3.296585 -93% 138% -23% -2.65562 -1105% 81% 27% 5.216449 794% 85% 58% 6.809787 148% 79% 33% 4.683212 128% 76% 53% 4.240474

Columns: Cash: Operating activities; Cash: Investing activities; CapEx (Capital Expenditures); OCF/Sales; FCF/OCF; Short term debt coverage; Capital Expenditure Coverage

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Yamaha Information
Yamaha Income Statement TOTAL REVENUES Cost Of Goods Sold GROSS PROFIT Selling General & Admin Expenses, Total Other Operating Expenses OTHER OPERATING EXPENSES, TOTAL OPERATING INCOME Interest Expense Interest And Investment Income Other Non-Operating Expenses, Total Other Non-Operating Income (Expenses) Merger & Restructuring Charges Gain (Loss) On Sale Of Investments Gain (Loss) On Sale Of Assets Other Unusual Items, Total EBT, INCLUDING UNUSUAL ITEMS Income Tax Expense Minority Interest In Earnings Earnings From Continuing Operations NET INCOME NET INCOME TO COMMON INCLUDING EXTRA ITEMS NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 2009 2010 2011 2012 1153642 1294131 1276159 1207675 951350 998565 1000113 972607 202292 295566 276046 235068 251769 244256 211212 216470 13103 -11428 -264872 244256 222640 216470 -62580 51310 53406 18598 -9984 -8023 -6814 -6687 8899 9410 8849 6368 -1585 13775 7707 8987 -937 7187 7627 8693 -103764 -11 ---3067 -290 -81 -9 -1350 -563 -561 -1075 -239 -6662 -1301 -352 -173670 58946 61205 25830 39258 31797 26873 14015 -3220 -8849 -7372 -4326 -212928 27149 34332 11815 -216148 18300 26960 7489 -216148 -216148 18300 18300 26960 26960 7489 7489

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Yamaha Balance Sheet Assets Cash And Equivalents Short-Term Investments TOTAL CASH AND SHORT TERM INVESTMENTS Accounts Receivable TOTAL RECEIVABLES Inventory Deferred Tax Assets, Current Other Current Assets TOTAL CURRENT ASSETS Gross Property Plant And Equipment Accumulated Depreciation NET PROPERTY PLANT AND EQUIPMENT Long-Term Investments Loans Receivable, Long Term Deferred Tax Assets, Long Term Other Intangibles Other Long-Term Assets TOTAL ASSETS LIABILITIES Accounts Payable Accrued Expenses Short-Term Borrowings Current Portion Of Long-Term Debt/Capital Lease Current Income Taxes Payable Other Current Liabilities, Total TOTAL CURRENT LIABILITIES Long-Term Debt Minority Interest Pension & Other Post-Retirement Benefits Deferred Tax Liability Non-Current Other Non-Current Liabilities TOTAL LIABILITIES Equity Common Stock Additional Paid In Capital Retained Earnings Treasury Stock Page | 29 2009 137219 721 137940 193393 193393 223527 3276 62664 620800 792034 516478 275556 38110 32390 5707 4802 9712 987077 2010 203878 2016 205894 176208 176208 213634 3669 39623 639028 766196 515876 250320 35278 37034 3797 4247 8639 978343 2011 2012 133707 106462 --133707 106462 160234 185069 160234 185069 213558 233427 --53706 61839 561205 586797 ----248430 272942 51297 58088 36017 40560 --3469 3940 2 2 900420 962329

159475 8052 87574 30470 2480 91647 379698 281898 36796 34904 7024 34287 737811 48342 60824 180880 -677

160143 8800 35455

124827 9292 42919

117580 9230 102476

57576 69398 58158 8282 --94875 119979 103709 365131 366415 391153 229410 162403 166340 36454 29042 33595 35499 39611 44098 7009 6143 6107 30485 15933 13069 667534 590505 620767 85666 98147 199190 -681 85666 74582 249478 -683 85666 74582 249724 -686

Comprehensive Income And Other TOTAL COMMON EQUITY TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

-76899 212470 249266 987077

107967 274355 310809 978343

128170 280873 309915 900420

101319 307967 341562 962329

Yamaha Ratios 2009 Working Capital Current Ratio Acid Test Ratio Receivabl e Turnover Days' Sales Uncollect ed Inventory Turnover Days' Inventory On Hand Payables Turnover Days' Payable Operating Cycle Financing Period Current Assets - Current Liabilites Current Assets / Current Liabilities Cash+Short Term Investments+Accounts Recievable)/(Current Liabilities) 2010 2011 2012

241102 273897 194790 195644 1.6349 1.7501 1.5316 1.5001 84 34 1 73 0.8726 22 5.9652 73 1.0464 79 7.0028 54 0.8022 08 7.5862 05 0.7453 12 6.9948 71

Liquidity

Net Sales / Avg Accts Receivable

Days in Yr / Receivable Turnover COGS / Avg Inventory

61.187 48 4.2560 85 85.759 56 5.9655 12 61.185 03 146.94 7 85.762 01

52.121 6 4.5684 08 79.896 53 6.1865 85 58.998 62 132.01 81 73.019 52

48.113 65 4.6822 65 77.953 73 7.0185 42 52.005 1 126.06 74 74.062 28

52.181 09 4.3518 55 83.872 28 8.1885 09 44.574 66 136.05 34 91.478 71

Days in Yr / Inventory Turnover (COGS +/- Change in Inventory) / Avg Accts Payable Days in Yr / Payables Turnover Days' Payable + Financing Period or Days' Inventory on Hand + Days' Sales Uncollected Days' Inventory on Hand + Days Sales Uncollected - Days' Payable

Profitabil ity

Profit Margin Gross Margin Ratio

Net Income / Net Sales

18.736 1 0.8246 49

1.4140 76 0.7716 1

2.1125 89 0.7836 9

0.6201 17 0.8053 55

(Net Sales- COGS)/(Net Sales)

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General Gross Takeaway R&D Gross Takeaway Asset Turnover Return on Assets Return on Equity Long Term Solvency Liability to Equity Ratio Debt to Equity Interest Coverage Ratio

(Administrative,Selling,and General Expenses)/(Gross Profit) (Research and Development Expenses)/(Gross Profit) Net Sales / Avg Total Assets

1.2445 82

0.8264 01

0.7651 33

0.9208 82

Net Income / Avg Total Assets Net Income - Preferred Dividends / Avg Owner's Equity

NA NA NA NA 1.1687 1.3585 1.2966 46 1.3169 1 59 0.2189 0.0186 0.0080 8 22 0.0287 41 0.8671 0.0653 0.0868 0.0229 4 48 66 91

Total Liabilites / Owner's Equity Long term debt/ equity (Income before taxes + Interest Expense) / Interest Expense

2.9599 34 1.1309 12 17.717 35

2.1477 31 0.7381 06 3.2809 42

1.9053 77 0.5240 24 4.9565 6

1.8174 36 0.4869 98 2.1199 34

Cash Flow Yield Cash Flows to Sales Cash Flows to Assets Free Cash Flow

Net Cash Flows from Operating Activites / Net Income Net Cash Flows from Operating Activites / Net Sales Net Cash Flows from Operating Activities / Avg Total Assets

0.2895 24 0.0542 5 0.0634

2.8038 25 0.0396 48 0.0522 13

1.9809 35 0.0418 49 0.0568 52

2.4833 76

0.0154 0.0199 68

Net Cash Flows from Operating Activities - Dividends - Net Capital Expenditures

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