S&P Raises Corporate Credit Rating on Harley-Davidson to 'A'
31 July 1997
S&P Raises Corporate Credit Rating on Harley-Davidson to 'A'
NEW YORK, July 31 -- Standard & Poor's today has raised its
corporate credit rating of Harley-Davidson Inc. to single-'A' from single-'A'-
minus reflecting improving profitability from the core motorcycle business,
expectations of continued improvement in operational and geographic diversity,
and the maintenance of a conservative capital structure as motorcycle
production capacity is gradually expanded. The corporate credit rating is an
indication of the company's general credit strength, and is not assigned to a
specific debt issue.
Harley-Davidson, the only American motorcycle manufacturer, holds a
dominant competitive position in the custom and touring segments of the
domestic heavyweight market. Operating performance has been steadily
improving, despite intensified competitive efforts from Japanese
manufacturers, due to steady increases in motorcycle production and enhanced
productivity. Demand has exceeded supply for many years, even as capacity
levels have been augmented. Additionally, modest geographic diversity is
provided by strong growth in export sales, which comprise about 28% of
shipments. Modest operational diversity is also supplied by the consistently
growing parts and accessories business, and high-margin licensing revenues.
Management's financial policies and capital structure are conservative,
with minimal debt used to support manufacturing operations and moderate
surplus cash balances maintained to maximize flexibility. Proceeds of about
$100 million from the 1996 sale of the underperforming nonmotorcycle,
transportation segment have been added to cash balances, which totaled
$144 million at June 30, 1997. The firm has a sufficiently strong financial
profile to accommodate its ongoing expansion strategy. The company's goal is
to gradually increase production capacity at about an 8% average annual rate
to over 200,000 units by 2003 from 131,000 in 1997. Expansionary capital
spending is expected to be funded with free cash flow. Harley-Davidson plans
to spend a total of about $370 million for its 1997-1998 capital expenditures
program. This spending, which substantially exceeds depreciation and
amortization, is being used to complete construction of a second motorcycle
assembly plant that will begin operating in 1998, and continue adding to
production capacity.
The company's captive finance subsidiary, Eaglemark Financial Services
Inc., provides wholesale and retail financing for Harley-Davidson motorcycles
and similar programs for boat and recreational vehicle dealers and consumers.
Eaglemark's conservative underwriting policies, a fairly good retail credit
profile, and high motorcycle resale values are expected to result in continued
low delinquencies, repossessions, and credit losses. Additionally,
nonmotorcycle financing, which has a higher risk of credit losses, currently
accounts for less than 15% of finance receivables, and is not expected to
meaningfully increase over the intermediate term.
OUTLOOK: Stable.
Profitability is expected to remain strong over the near-to-intermediate
term as motorcycle production remains capacity constrained and worldwide
demand is expected to remain robust. Longer-term, Harley-Davidson is expected
to continue to maintain a conservative capital structure, which should enable
it to withstand fluctuations in demand, Standard & Poor's said. -- CreditWire
SOURCE Standard & Poor's CreditWire
