Harley Revs Up Credit-Risk Boilerplate

Tuesday's trash:

Harley hotline: In its 10-Q filed Monday with the SEC, Harley-Davidson(HDI) added a few words to the risks it might face in reaching production targets and maintaining growth rates.

As always, Harley rattles off a whole host of boilerplate risks. These include the company's potential failure to: continue to realize production efficiencies, successfully implement innovative manufacturing techniques, successfully introduce new products and services, avoid unexpected supplier delays and sell all the motorcycles it has the capacity to produce.

The new language includes Harley's possible inability to "successfully adjust to interest rate fluctuations, and ... successfully manage changes in the credit quality" of Harley Davidson Finance's loan portfolio.

Just more boilerplate?

Possibly. But as one longtime Harley watcher points out, the first half of the new warning language could be priming the pumps for this reality: If and when interest rates rise (I know, I know, they're gonna fall first!), Harley will be hit from several angles. It'll take in fewer sales, receive fewer loan-origination fees and recognize fewer gains on sales through securitizations. That last item has directly helped earnings meet expectations in recent quarters.

The real eye-opener, though, is the added language on credit quality. "Harley has maintained that it manages credit quality better than anyone, while we have maintained that quality has deteriorated -- often masked by the new-origination game played by many in the subprime business of old," says our Harley watcher, who has no position in the stock right now. "Should the performance of their loan portfolios start to evidence significant credit issues, the whole Banco de Harley could come tumbling down."

Not that anybody cares ... yet!

Contacts, the saga continues: A sign of desperation is when a company, already under siege, stretches the truth or doesn't tell the whole truth. Such is the case with 1-800 Contacts(CTAC), which recently announced that it has acquired IGEL, a contract manufacturer of contact lenses.

In the announcement of the deal, Contacts CEO Jonathan Coon is quoted as saying, "IGEL currently produces two-week disposable lenses for a major global manufacturer to its exacting specifications and quality standards. Clinical trials publicized by this manufacturer show that IGEL's lenses are preferred to the top two brands of two-week disposable contacts for visual clarity, comfort, handling and overall preference."

IGEL's lenses are preferred to the top two brands? That's nice, but unfortunately for Contacts, the lenses in question are not sold as IGEL lenses. They were made by IGEL for Ciba Vision. So it's not like Contacts has added a flagship brand to its offerings, which already include Ciba's Focus brand.

But wait, there's more: Did you know that IGEL was bought out of bankruptcy? Of course not, because Contacts left that for its subsequent 8-K filing with the SEC. In that filing, Contacts said that IGEL is owned by Singapore-based Alliance Technology, which is in "judicial management," which in Singapore is the equivalent of bankruptcy.

Finally, in its press release, Contacts touted that IGEL's manufacturing prowess was the result of "proprietary technology" developed by Stephen Newman, IGEL's chief scientist and CEO. It's not until last week's 8-K that we learn that on Jan. 31, "in contemplation of the acquisition," Contacts lent Newman $550,000. In contemplation of the acquisition? In January? Nice, timely disclosure, guys!

Contacts, in keeping with its no-Greenberg policy, didn't return calls seeking comment.

Finally: As noted in the Columnist Conversation Monday, those falling same-store sales at Buca(BUCA) and a chain it acquired turned out, after all, to be bad news for Buca. Not that Buca, which has 89 restaurants, thinks it's bad. The company still says it can open 500 units.