Harley-Davidson, Inc. is the parent company ofHarley-Davidson Motor Company (HDMC) andHarley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the "Company" includeHarley-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 section 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," "intend" 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 and 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 endedDecember 31, 2020 . 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 "Overview" and "Guidance" sections in this Item 2 are only made as ofApril 19, 2021 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (May 6, 2021 ), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Overview(1) The Company's net income was$259.1 million , or$1.68 per diluted share, in the first quarter of 2021, compared to$69.7 million , or$0.45 per diluted share, in the first quarter of 2020. The Motorcycles segment reported operating income of$227.5 million for the first quarter of 2021 which was up$143.0 million over the first quarter of 2020. Operating income from the Motorcycles segment for the first quarter of 2021 was favorably impacted by a 3.5% increase in wholesale motorcycle shipments, favorable product mix, lower sales incentives and reduced selling, administrative and engineering expenses. Operating income from the Financial Services segment in the first quarter of 2021 was$118.6 million , up 417.0% compared to the year-ago quarter due primarily to a lower provision for credit losses. Worldwide independent dealer retail sales of new Harley-Davidson motorcycles in the first quarter of 2021 were up 9.4% compared to the first quarter of 2020 led by a 30.6% increase in theU.S. , partially offset by declines inEurope /Middle East /Africa (EMEA) andLatin America . Refer to the Motorcycles Retail Sales and Registration Data section for further discussion of retail sales results. The Company is pleased with the pace of recovery that it has experienced across the business as compared to prior year when the Company's results were adversely impacted by the onset of the COVID-19 pandemic. The Company continues to manage through the impacts of the COVID-19 pandemic keeping safety and community well-being at the forefront. The Company believes its actions during 2020 to reshape the business through The Rewire and its initial execution of TheHardwire 5-year strategic plan are having a positive impact on the Company's results. Refer to the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 for more information on The Rewire and TheHardwire . 37
--------------------------------------------------------------------------------
Table of Contents Guidance(1) Given the strong 2021 first quarter performance, the Company has increased its guidance for the full year. The decision to increase guidance was based on several key factors. First, the Company has better clarity on the cost impact of supply chain challenges and its ability to adapt to those challenges. Also, the economic outlook has improved with falling unemployment numbers, recent federal stimulus in theU.S. and continued progress on the global COVID-19 vaccine roll-out. The Company also has a better read on demand for its new model year 2021 motorcycles, which has been stronger than it had anticipated, particularly in the most profitable segments of Touring and Large Cruiser motorcycles. As a result, for the full-year 2021, the Company now expects: •Motorcycles segment revenue growth of 30% to 35%, an increase from the previous guidance of 20% to 25%. •Motorcycles segment operating income margin of 7% to 9%, up from the previous guidance of 5% to 7%, assuming the Company can successfully mitigate the impact of the additionalEuropean Union (EU) tariffs discussed below. This increase reflects an improved demand outlook and confidence in the Company's ability to continue navigating through the global supply chain headwinds. •If the Company is unable to mitigate the impact of the additional EU tariffs to any extent in 2021, the Company expects Motorcycles segment operating income margin of 5% to 7%, in line with the original guidance. •Financial Services segment operating income growth of 50% to 60%, an increase from the previous guidance of 10% to 15%, driven primarily by a favorable provision for credit losses. Additionally, for the full-year 2021, the Company continues to expect capital expenditures of$190 million to$220 million . Within 2021, the Company expects (a) approximately 60% of the total annual Motorcycles segment revenue to occur in the first half of the year driven by momentum from the model year 2021 launch through the riding season and (b) assuming the Company can successfully mitigate the impact of the additional EU tariffs discussed below, Motorcycles segment operating margin percent to be in the mid-teens during the first half of 2021 and near break-even in the second half of 2021. In the second half of 2021, the Company expects retail inventory to decrease from its expected peak level at the end of the second quarter. In the fourth quarter the Company will prepare its manufacturing facilities to begin production of model year 2022 motorcycles. The Company believes the pattern for inventory and shipments in the second half of 2021 will be similar to what the Company experienced in the second half of 2020. In addition, during 2020, the Company benefited from cost reductions associated with COVID-19 pandemic cash preservation efforts, which started in the second quarter of 2020, and The Rewire restructuring savings, which started in the third quarter of 2020. Refer to "Restructuring Plan Costs and Savings" for additional discussion. Additional EU Tariffs(1) InApril 2021 , the Company received notification from theEconomic Ministry of Belgium that, following a request from the EU, the Company would be subject to the revocation of Binding Origin Information (BOI) rulings, effectiveApril 19, 2021 . Beginning in 2019, the Company has operated under BOIs which allowed it to supply its EU markets with certain motorcycles produced at itsThailand manufacturing facility at tariff rates of 6%. Following the revocation, all non-electric motorcycles that Harley-Davidson imports into the EU, regardless of origin, will be subject to a total tariff rate of 31% fromApril 19, 2021 throughMay 31, 2021 . This rate is expected to increase to 56% effectiveJune 1, 2021 . This ruling will effectively prohibit the Company from functioning competitively in the EU. The Company estimates the impact of the additional EU tariffs in 2021, if unmitigated, to be approximately$135 million and expects the impact to be approximately$200 million to$225 million on annual basis in future years. The Company is appealing the revocation of the BOIs. It has also sought temporary extended reliance on the 6% tariff rate for motorcycles produced inThailand , ordered prior toApril 19, 2021 . There is no assurance that the appeal will be successful or that the Company will receive the extended reliance. COVID-19 Pandemic 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, the success of vaccination programs, and its impact on the Company's customers, independent 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. 38
--------------------------------------------------------------------------------
Table of Contents Supply Chain - During the first quarter of 2021, the Company experienced some disruption and increased cost related to the adverse impacts of the COVID-19 pandemic on its global supply chain. To date, the Company has been successful in mitigating these disruptions to avoid material adverse impacts on its ability to produce and supply product. The Company expects the global supply chain disruptions to continue through the remainder of 2021, and the Company will continue to actively work to mitigate these impacts on its business. Liquidity - The Company continues to closely monitor its liquidity in light of the COVID-19 pandemic. At the end the first quarter of 2021, the Company had$4.0 billion of available liquidity through cash, cash equivalents and availability under its credit and conduit facilities. Liquidity is discussed in more detail under Liquidity and Capital Resources. Supporting Dealers and Riders - The Company's response and recovery plans have included supporting global dealers and customers. HDFS continues to work with qualified retail borrowers who have been impacted by the COVID-19 pandemic by offering short-term adjustments to payment due dates. These temporary extensions do not affect the associated interest rate or loan term. The volume of payment extensions on eligible retail loans has declined from the levels experienced during the second quarter and into the third quarter of 2020 but has not yet returned to pre-COVID-19 pandemic levels. Safety - The Company continues to proactively manage through the COVID-19 pandemic and has implemented robust protocols to keep workers safe in its manufacturing facilities. Most non-production workers continue to work remotely in light of the COVID-19 pandemic. Restructuring Plan Costs and Savings(1) During 2020, the Company initiated certain restructuring activities as part of The Rewire including a workforce reduction, the termination of certain current and future products, facility changes, optimizing its global independent dealer network, exiting certain international markets, and discontinuing its sales and manufacturing operations inIndia . These actions included restructuring expenses related to employee termination costs, contract termination costs and non-current asset adjustments. The workforce reduction resulted in the elimination of approximately 700 positions globally, including the termination of approximately 500 employees. In addition, theIndia action resulted in the termination of approximately 70 employees. The Company incurred approximately$130 million of restructuring expense in connection with these actions during 2020. The Company expects to incur total restructuring expenses for these actions of approximately$150 million , including approximately$20 million in 2021. The Company continues to expect annual ongoing gross savings resulting from these restructuring activities of approximately$115 million . Refer to Note 4 of the Notes to Consolidated financial statements for additional information regarding the Company's restructuring activities.
Results of Operations for the Three Months Ended
Compared to the Three Months EndedMarch 29, 2020
© Edgar Online, source