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. During 2020, the Company executed a set of actions, referred to as The Rewire. The Rewire was a critical overhaul of the Company's business to set the Company on a new course and provide a solid foundation to execute its 2021-2025 strategic plan, TheHardwire . 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 . 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," "intends" 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 this report are made as of the date of the filing of this report (August 5, 2021 ), 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$206.3 million , or$1.33 per diluted share, in the second quarter of 2021, compared to a net loss of$92.2 million , or$0.60 per diluted share, in the second quarter of 2020 when the Company's results were adversely impacted by the onset of the COVID-19 pandemic. In the second quarter of 2021, Motorcycles segment operating income was$185.8 million , up$306.8 million over the second quarter of 2020. The increase in operating income from the Motorcycles segment for the second quarter of 2021 was driven by a 99.8% increase in wholesale motorcycle shipments over the same quarter last year when wholesale shipments were impacted by the suspension of the Company's global manufacturing as a result of the COVID-19 pandemic. Operating income from the Financial Services segment in the second quarter of 2021 was$94.5 million , up$89.6 million compared to the year-ago quarter due primarily to a lower provision for credit losses and lower interest expense. The provision for credit losses in the second quarter of 2020 was significantly higher reflecting a deterioration of the Company's economic outlook which incorporated the then expected impact of the COVID-19 pandemic. Given the impact of the COVID-19 pandemic on 2020 results, the Company has also assessed its performance relative to 2019. The Company's revenue in the second quarter of 2021 was down 6.2%, on approximately 12,000 fewer wholesale shipments, compared to the second quarter of 2019. The lower revenue and shipments reflect actions taken by the Company under The Rewire in 2020 to streamline its product offering and to exit certain international markets where volumes and profitability did not support continued investment. Despite lower revenue and shipments, operating income in the second quarter of 2021 was up 9.4% compared to the second quarter of 2019 with growth in both the Motorcycles and Financial Services segments. Motorcycles segment operating income in the second quarter of 2021 was 2.8% higher than in the second quarter of 2019 benefiting from improved product mix, lower sales incentives, lower tariff and restructuring costs and a reduced cost structure behind 2020 restructuring actions. Operating income from Financial Services was up 25.2% compared to the second quarter of 2019 due primarily to a lower provision for credit losses and lower interest expense. Worldwide independent dealer retail sales of new Harley-Davidson motorcycles in the second quarter of 2021 were up 23.8% compared to the second quarter of 2020 led by a 42.8% increase in theU.S. , partially offset by declines in the Company's markets outside ofNorth America . Refer to the Motorcycles Retail Sales and Registration Data section for further discussion of retail sales results. 40 -------------------------------------------------------------------------------- Table of Contents Additional European Union Tariffs(1) InApril 2021 , the Company received notification from theEconomic Ministry of Belgium that, following a request from theEuropean Union (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 that 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, became subject to a total tariff rate of 31% onApril 19, 2021 . At that time it was expected to increase to 56% effectiveJune 1, 2021 . However, inMay 2021 , the EU made a decision to suspend the previously scheduled increase in the tariff rate to 56% while negotiations take place between theU.S. and the EU. If theU.S. and the EU do not reach a resolution, as it stands, the tariffs would increase again to 56% inDecember 2021 . The additional EU tariff, whether at a rate of 31% or a rate of 56%, will significantly disadvantage the Company from competing effectively in the EU. Based on the EU's decision to suspend the previously scheduled increase fromJune 2021 toDecember 2021 , the Company now estimates the impact of the additional EU tariffs in 2021, if unmitigated, to be approximately$80 million , including approximately$19 million recognized in the first six months of 2021. InMay 2021 , the Company applied for temporary extended reliance on the 6% tariff rate for motorcycles produced inThailand and ordered prior toApril 19, 2021 ; however, that application was rejected onJuly 30, 2021 . The Company estimates it could have avoided approximately$50 million of additional EU tariffs in 2021 if the application for extended reliance had been granted. The Company continues its appeals of the revocation of the BOIs and plans to appeal the denial of temporary extended reliance although there is no assurance that these appeals will be successful. The impact of the EU tariffs in 2021 are included in the Company's full-year guidance discussed below. COVID-19 Pandemic The Company continues to manage through the impacts of the COVID-19 pandemic keeping safety and community well-being a priority. 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. Supply Chain & Distribution - The global supply chain and logistics challenges linked to the COVID-19 pandemic continue to impact the Company and the industry. During the first half of 2021, the Company experienced disruption and increased costs related to the adverse impacts of the COVID-19 pandemic on its global supply chain. However, the Company has been successful in mitigating these disruptions to avoid material adverse impacts on its ability to produce and supply product. The Company has experienced cost inflation across all of its modes of freight, as well as within raw materials. To help offset these cost impacts, the Company has implemented an average 2% pricing surcharge on select models in theU.S. effective for models shipped on or afterJuly 1, 2021 for the remainder of model year 2021. 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. In addition, retail sales of new Harley-Davidson motorcycles have been negatively impacted by continued COVID-19 pandemic lockdowns in key international markets as well as logistics challenges that resulted in longer shipping times. Liquidity - The Company continues to closely monitor its liquidity in light of the COVID-19 pandemic. Starting in 2021, the Company began to gradually reduce its cash and cash equivalents from elevatedDecember 2020 levels. At the end of the second quarter of 2021, the Company had$3.0 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 Customers - Starting in the second quarter of 2020, the Company granted an increased amount of short-term payment due date extensions on eligible retail loans to help retail customers get through financial difficulties associated with the COVID-19 pandemic. During the first half of 2021, the volume of extensions declined from the levels experienced during 2020 as a result of the COVID-19 pandemic, but extensions did not return to pre-COVID-19 pandemic levels until the end of the second quarter of 2021. 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. 41 -------------------------------------------------------------------------------- Table of Contents Guidance(1) The Company has the following expectations for the remainder of 2021. Subsequent toJuly 21, 2021 , when the Company last provided its expectations for 2021, the Company has updated its expectations related to 2021 Motorcycles segment operating income given new information received onJuly 30, 2021 concerning its application for temporary extended reliance on the 6% tariff rate for motorcycles imported into the EU. The Company continues to expect 2021 Motorcycles segment revenue growth of 30% to 35% over 2020. The Company expects Motorcycles segment operating income to be adversely impacted by the additional EU tariffs resulting from the revocation of BOIs announced inApril 2021 , as described above under "Additional EU Tariffs". InApril 2021 , the Company provided two guidance scenarios for Motorcycles segment operating margin in 2021 given uncertainty about how the EU tariff situation would evolve. The Company's primary scenario was Motorcycles segment operating margin of 7% to 9% which assumed the impact of additional EU tariffs would be fully mitigated. The second guidance scenario was Motorcycles segment operating margin of 5% to 7% and included the full impact of additional EU tariffs. Based on developments since April, the expected impact of additional EU tariffs in 2021 is now more certain, but now is expected to be less than originally estimated. InMay 2021 , the EU made a decision to suspend a previously scheduled second increase in additional tariffs (from 31% to 56%) fromJune 2021 toDecember 2021 . As a result, the Company now estimates the 2021 impact of the additional EU tariffs, if unmitigated, will result in approximately$80 million of additional cost, down from the previous estimate of$135 million . Based on this, the Company's guidance for Motorcycles segment operating margin in 2021 is now 6% to 8% and includes the impact of the additional tariffs. As discussed above, the Company has taken actions in an effort to mitigate the impact of the tariffs; however, given that the Company's application for temporary extended reliance on the 6% tariff rate was rejected inJuly 2021 , the Company does not expect to materially mitigate the current estimated 2021 impact of the additional EU tariffs. The Company expects Financial Services segment operating income growth in 2021 over 2020 of 75% to 85%, up from the previously communicated range of 50% to 60%. The improved outlook takes into account the favorable credit loss experience through the first half of 2021, as well as the outlook for the remainder of the year. The Company continues to expect capital expenditures of$190 million to$220 million in 2021. Within 2021, the Company expects second-half Motorcycles segment revenue and operating income margin to be lower than it was in the first half of 2021. Motorcycles segment revenue for the first half of 2021 is expected to represent approximately 60% of total annual Motorcycles segment revenue. Assuming the additional EU tariffs are not materially mitigated in 2021, which is the Company's current assumption, Motorcycles segment operating income margin is expected to be in the negative mid-single digits for the second half of 2021. The second-half 2021 guidance also incorporates the impact of the shift in model-year launch timing to the first quarter, logistics and raw material inflation rates in line with what has been experienced during the second quarter of 2021, the approximate 2% pricing surcharge in theU.S. and an increase in operating expense as the Company invests in TheHardwire initiatives and prepares for the launch of model-year 2022. 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. 42
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