Accounting & Tax

SEC Probing Harley Statements

One lawsuit that may have attracted the attention of the SEC accuses the motorcycle maker of ''channel stuffing.''
Stephen TaubJuly 13, 2005

Harley-Davidson Inc. announced that the Securities and Exchange Commission has launched an investigation into claims recently made in shareholder lawsuits against the motorcycle maker.

The Milwaukee-based company, which claimed that the lawsuits “are without merit,” also stated that it is cooperating with the SEC.

The class-action lawsuits were filed after the company announced on April 13 that it was limiting short-term production growth and planned to increase motorcycle shipments from last year’s 317,000 units to a target of 329,000 units, 10,000 fewer than the company’s original target.

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One lawsuit, filed by Murray, Frank & Sailer LLP, alleged that Harley and certain executive officers issued “materially false and misleading financial statements.” The filing also added that “the much touted gap between the consumer demand for Harley’s products and the available supply had disappeared.”

The suit also accused the company of engaging in “channel stuffing.” In other words, alleged the plaintiffs, Harley-Davidson intentionally shipped excess inventory to dealers at an unsustainable rate, given the actual demand for the company’s motorcycles, to create the appearance of continued strong demand. Channel-stuffing accusations have also been raised against companies including Bristol-Myers Squibb Co., Krispy Kreme Doughnuts Inc., and Coca-Cola Co.

The plaintiffs also asserted that the financial performance of the Harley-Davidson’s financial-services division was “materially negatively impacted” by interest-rate fluctuations, and as a result, the financial results were “materially inflated at all relevant times.”

In addition, the lawsuit alleged that the company lacked “any reasonable basis” for the financial projections it provided concerning its future growth.

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