Harley-Davidson, Inc. is the parent company of the groups of companies referred to as Harley-Davidson Motor Company and Harley-Davidson Financial Services. Unless the context otherwise requires, all references to the "Company" include Harley-Davidson, Inc. and all its subsidiaries. The Company operates in two segments: Motorcycles and Related Products (Motorcycles) and Financial Services.

The "% Change" figures included in the Results of Operations sections were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented. Certain "% Change" deemed not meaningful (NM) have been excluded.

(1) Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company "believes," "anticipates," "expects," "plans," "may," "will," "estimates," "targets," "intends," "is on-track," "forecasting," or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption "Cautionary Statements" in this Item 2, as well as in Item 1A. Risk Factors, as well as in Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the "Key Factors Impacting the Company" and the "Guidance" sections in this Item 2 are only made as of April 27, 2022 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (May 5, 2022), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Overview

The Company's net income was $222.5 million, or $1.45 per diluted share, in the first quarter of 2022, compared to $259.1 million, or $1.68 per diluted share, in the first quarter of 2021. In the first quarter of 2022, Motorcycles segment operating income was $202.9 million, down $24.7 million from the first quarter of 2021. The decrease in operating income from the Motorcycles segment for the first quarter of 2022 was driven by higher supply chain costs and a less favorable motorcycle product mix, partially offset by the favorable impact of model year price increases, compared to the same quarter last year. Operating income from the Financial Services segment in the first quarter of 2022 was $86.4 million, down $32.3 million compared to the prior year quarter due to an increase in the provision for credit losses, partially offset by lower interest expense.

Retail sales of new Harley-Davidson motorcycles in the first quarter of 2022 were up 2.1% compared to the first quarter of 2021. The increase in retail sales was driven by higher retail sales in international markets, partially offset by lower retail sales in the U.S. Retail sales in the first quarter of 2022 decreased 5.1% in the U.S. compared to the prior year quarter and were adversely impacted by production shortfalls associated with ongoing supply chain challenges. Refer to the Motorcycles Retail Sales and Registration Data section for further discussion of retail sales results.

Key Factors Impacting the Company(1)

Supply Chain Challenges - During the first quarter of 2022, the Company continued to experience disruption and increased costs related to global supply chain challenges. As a result of these challenges, the Company experienced higher costs as well as supply constraints related to certain components including those impacted by the continued global semiconductor chip shortages. In the first quarter of 2022, the Company's production was lower than what the Company had planned due to the lack of availability of certain components. The Company expects that year-over-year inflation rates for logistics and manufacturing costs, excluding raw materials and components, will improve in the second half of 2022 from the peak levels of inflation experienced in 2021 and that the supply of semiconductor chips will stabilize in the second half of 2022. However, given the macro global factors influencing raw materials, the Company now believes that raw materials and component cost inflation will continue for the remainder of 2022 at rates similar to those experienced by the Company in the first quarter of 2022.


                                       40

--------------------------------------------------------------------------------

Table of Contents

Suspension of Additional European Union Tariffs - In April 2021, the Company received notification from the Economic Ministry of Belgium that, following a request from the European Union (EU), the Company would be subject to revocation of the Binding Origin Information (BOI) rulings that allowed it to supply its EU markets with certain motorcycles produced at its Thailand manufacturing facility at tariff rates of 6%. As a result of the revocation, all non-electric motorcycles that Harley-Davidson imported into the EU, regardless of origin, were subject to a total tariff rate of 31% from April 19, 2021 through the end of 2021. On October 30, 2021, the U.S. and EU announced an agreement related to the Section 232 tariffs on steel and aluminum that were implemented in 2018 by the U.S. and the subsequent rebalancing tariff measures taken by the EU. This agreement suspended the additional tariffs initially imposed by the EU on the Company's motorcycles, reducing the total EU tariff rate on the Company's motorcycles from 31% to 6%, effective January 1, 2022. The lower 6% tariff rate applies to all motorcycles imported by the Company into the EU, regardless of origin. Under the agreement between the U.S. and the EU, the lower tariff rate will remain in effect until December 31, 2023. During such time, the U.S. and EU will monitor and review the operation of the agreement, seeking to conclude the negotiations on steel and aluminum tariffs by December 31, 2023. These negotiations are ongoing, and there are no assurances the U.S. and EU will reach a resolution that concludes the trade conflict on steel and aluminum tariffs beyond December 31, 2023.

To date, the Company continues to pursue its appeals of the revocation of the BOIs and the denial of its application for temporary extended reliance on the 6% tariff rate (for motorcycles produced in Thailand and ordered prior to April 19, 2021), although there is no assurance that these appeals will continue or be successful.

COVID-19 Pandemic - The Company continues to manage through the impacts of the COVID-19 pandemic and its associated variants by keeping safety and community well-being a priority. The Company continues to proactively follow protocols to keep workers safe in its manufacturing facilities. The full impact of the COVID-19 pandemic on future results depends on future developments, such as the ultimate duration and scope of the pandemic including associated variants, the success of vaccination programs, the consequences of vaccine requirements, and its impact on the Company's customers, dealers, distributors, and suppliers. Future impacts and disruptions could have an adverse effect on production, supply chains, distribution, and demand for the Company's products.

LiveWire Transaction - On December 13, 2021, the Company and AEA-Bridges Impact Corp. (ABIC), a special purpose acquisition company (SPAC), announced that they have entered into a definitive business combination agreement under which LiveWire, the Company's electric motorcycle division, will become a separate business of the Company and ABIC will combine with LiveWire to create a new publicly traded company. The parties expect that the transaction will be financed by ABIC's $400 million cash held in trust (assuming no redemptions by ABIC's shareholders in the context of the transaction), a $100 million cash investment from the Company, and a $100 million investment from an independent strategic investor, Kwang Yang Motor Co., Ltd. (KYMCO). In addition, to the extent any shares of the SPAC are redeemed, the Company will invest an additional amount equal to the dollar value of such redemptions up to a maximum of $100 million.

The transaction, which has been approved by the boards of directors of both the Company and ABIC, is expected to close mid-2022. The consummation of the business combination is subject to the approval of ABIC's shareholders as well as other conditions and regulatory approvals. Upon closing of the transaction, the Company will retain a controlling financial interest in LiveWire. The expectation is that, upon closing of the transaction, the Company will retain an equity interest in the separate public company of approximately 74%. As the controlling shareholder following the transaction, the Company will continue to consolidate LiveWire's results, with additional adjustments to recognize non-controlling shareholder interests.

Guidance(1)

On April 27, 2022, the Company provided the following guidance for 2022, which reflects its current outlook for the supply chain challenges discussed above.

The Company continues to expect Motorcycles segment revenue growth, compared to 2021, between 5% and 10%. This revenue growth guidance incorporates the Company's information and expectations as of April 27, 2022 for the impact of supply chain challenges, including semiconductor chip availability, that the industry continues to face. The Company expects revenue to be positively impacted by global pricing actions as the Company works to offset cost headwinds across the supply chain and recovers its ability to produce motorcycles at levels necessary to meet demand. Furthermore, the Company expects revenue growth from parts and accessories and apparel and licensing as it executes The Hardwire strategy.

The Company continues to expect Motorcycles segment operating margin as a percent of revenue of 11% to 12%. The Company believes the anticipated positive impacts from higher motorcycle volume, product mix and pricing, combined with expected growth in revenue from higher-margin parts and accessories and apparel, will more than offset the expected cost inflation across the supply chain. Also, the suspension of the additional EU tariffs is expected to contribute over a percentage point of margin growth.


                                       41

--------------------------------------------------------------------------------

Table of Contents

Given the Company's estimated production cadence and the expected timing of supply chain stabilization, the Company expects the Motorcycles segment revenue growth rate in 2022, compared to 2021, to be in the mid-single digits for the first half of 2022 and in the high-single digits for the second half of 2022. In addition, given the expected seasonality of the business, the Company expects Motorcycles segment operating income margin percent to be in the mid-teens for the first half of 2022 and in the mid-to-high single digits for the second half of 2022.

The Company continues to expect Financial Services operating income to decline 20% to 25% in 2022 compared to 2021. This decline is largely a result of the favorable credit loss allowance reductions and lower actual credit losses in 2021 that are not expected to repeat in 2022.

The Company continues to expect capital investments between $190 and $220 million in 2022. The Company plans to continue to invest behind product development and capability enhancement in support of The Hardwire strategy.

The Company's capital allocation priorities are to fund growth through The Hardwire initiatives, pay dividends and execute discretionary share repurchases, which the Company plans to continue in 2022. At the end of the first quarter of 2022, the Company had 12.0 million shares remaining under its authorization to repurchase shares.

© Edgar Online, source Glimpses