Accounting & Tax

HOG Clean on Channel-Stuffing: SEC

Harley-Davidson had been charged by shareholders of shipping excess inventory to dealers at an unsustainable rate to create the appearance of conti...
Stephen TaubJune 11, 2007

Harley-Davidson announced that the Securities and Exchange Commission has terminated a probe linked to claims of channel-stuffing made in shareholder lawsuits against the company. The SEC recommended no enforcement action.

On July 11, 2005, Harley, whose ticker symbol later became HOG, had reported that the SEC’s enforcement division was looking into its April 13 announcement of certain production and shipment plans and into charges contained in the class-action complaints. The lawsuits were filed after the company announced on April 13, 2005 that it was limiting short-term production growth and planned to increase motorcycle shipments from the past year’s 317,000 units to a target of 329,000 units, 10,000 fewer than the company’s original target.

One lawsuit, filed by Murray, Frank & Sailer LLP, alleged that Harley and certain of its 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.”

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The suit also accused the company of engaging in “channel stuffing.” In other words, plaintiffs charged, Harley 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.

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

The lawsuit also charged that the company lacked “any reasonable basis” for the financial projections it provided concerning its future growth.