UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.D.C. 20549
FORM 10-Q
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 24, 2017
March 31, 2023 |
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-9183
Harley-Davidson, Inc.
(Exact name of registrant as specified in its charter)
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Wisconsin | | | 39-1382325 |
(State of organization) |
| | (I.R.S. Employer Identification No.) |
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Wisconsin | | 39-1382325 |
(State of organization) | | (I.R.S. Employer Identification No.) |
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3700 West Juneau Avenue Milwaukee, Wisconsin
| Milwaukee | Wisconsin | 53208 |
(Address of principal executive offices) | | | (Zip code) |
RegistrantsRegistrant's telephone number:number, including area code: (414) 342-4680
None
(Former name, former address and former fiscal year, if changed since last report)
Securities Registered Pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock Par Value $.01 PER SHARE | HOG | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yesx☒No¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx☒ No¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company,” and emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filerAccelerated Filer | ☒ | x | Accelerated filer | | ¨☐ |
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Non-accelerated filer | ☐ | ¨ | Smaller reporting company | | ¨☐ |
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| | | Emerging growth company | | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ¨Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company as(as defined in Rule 12b-2 of the Exchange Act.Act). Yes ¨☐No x☒
Number ofThe registrant had outstanding 143,760,258 shares of the registrant’s common stock outstanding at October 27, 2017: 168,295,171 sharesas of April 28, 2023.
Harley-Davidson, Inc.
HARLEY-DAVIDSON, INC.
Form 10-Q
For The Quarter Ended September 24, 2017
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Part I | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Part II | | |
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Item 1. | | |
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Item 2. | | |
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Item 6. | | |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Revenue: | | | | | | | |
Motorcycles and Related Products | $ | 962,136 |
| | $ | 1,091,630 |
| | $ | 3,867,982 |
| | $ | 4,338,353 |
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Financial Services | 189,059 |
| | 183,183 |
| | 550,314 |
| | 547,505 |
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Total revenue | 1,151,195 |
| | 1,274,813 |
| | 4,418,296 |
| | 4,885,858 |
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Costs and expenses: | | | | | | | |
Motorcycles and Related Products cost of goods sold | 685,161 |
| | 724,611 |
| | 2,537,899 |
| | 2,773,496 |
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Financial Services interest expense | 46,169 |
| | 42,573 |
| | 133,866 |
| | 131,387 |
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Financial Services provision for credit losses | 29,253 |
| | 36,543 |
| | 99,059 |
| | 97,127 |
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Selling, administrative and engineering expense | 293,904 |
| | 292,710 |
| | 857,704 |
| | 904,322 |
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Total costs and expenses | 1,054,487 |
| | 1,096,437 |
| | 3,628,528 |
| | 3,906,332 |
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Operating income | 96,708 |
| | 178,376 |
| | 789,768 |
| | 979,526 |
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Investment income | 1,083 |
| | 2,300 |
| | 2,539 |
| | 3,754 |
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Interest expense | 7,896 |
| | 7,706 |
| | 23,295 |
| | 21,968 |
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Income before provision for income taxes | 89,895 |
| | 172,970 |
| | 769,012 |
| | 961,312 |
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Provision for income taxes | 21,686 |
| | 58,905 |
| | 255,567 |
| | 316,327 |
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Net income | $ | 68,209 |
| | $ | 114,065 |
| | $ | 513,445 |
| | $ | 644,985 |
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Earnings per common share: | | | | | | | |
Basic | $ | 0.40 |
| | $ | 0.64 |
| | $ | 2.96 |
| | $ | 3.57 |
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Diluted | $ | 0.40 |
| | $ | 0.64 |
| | $ | 2.95 |
| | $ | 3.55 |
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Cash dividends per common share | $ | 0.365 |
| | $ | 0.350 |
| | $ | 1.095 |
| | $ | 1.050 |
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| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
Revenue: | | | | | | | |
Motorcycles and related products | | | | | $ | 1,565,591 | | | $ | 1,303,171 | |
Financial services | | | | | 223,095 | | | 192,015 | |
| | | | | 1,788,686 | | | 1,495,186 | |
Costs and expenses: | | | | | | | |
Motorcycles and related products cost of goods sold | | | | | 1,007,301 | | | 895,536 | |
Financial services interest expense | | | | | 73,549 | | | 42,099 | |
Financial services provision for credit losses | | | | | 52,364 | | | 28,822 | |
Selling, administrative and engineering expense | | | | | 285,863 | | | 239,625 | |
Restructuring benefit | | | | | — | | | (128) | |
| | | | | 1,419,077 | | | 1,205,954 | |
Operating income | | | | | 369,609 | | | 289,232 | |
Other income, net | | | | | 20,096 | | | 11,030 | |
Investment income (loss) | | | | | 10,025 | | | (1,979) | |
Interest expense | | | | | 7,720 | | | 7,711 | |
Income before income taxes | | | | | 392,010 | | | 290,572 | |
Income tax provision | | | | | 90,181 | | | 68,070 | |
Net income | | | | | 301,829 | | | 222,502 | |
Less: Loss attributable to noncontrolling interests | | | | | 2,261 | | | — | |
Net income attributable to Harley-Davidson, Inc. | | | | | $ | 304,090 | | | $ | 222,502 | |
Earnings per share: | | | | | | | |
Basic | | | | | $ | 2.08 | | | $ | 1.46 | |
Diluted | | | | | $ | 2.04 | | | $ | 1.45 | |
Cash dividends per share | | | | | $ | 0.1650 | | | $ | 0.1575 | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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| Three months ended | | Nine months ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Net income | $ | 68,209 |
| | $ | 114,065 |
| | $ | 513,445 |
| | $ | 644,985 |
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Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | 25,013 |
| | 3,853 |
| | 50,207 |
| | 19,174 |
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Derivative financial instruments | (17,407 | ) | | (2,031 | ) | | (36,871 | ) | | (7,374 | ) |
Marketable securities | — |
| | (11 | ) | | 1,194 |
| | (88 | ) |
Pension and postretirement benefit plans | 7,257 |
| | 7,572 |
| | 21,769 |
| | 22,715 |
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Total other comprehensive income, net of tax | 14,863 |
| | 9,383 |
| | 36,299 |
| | 34,427 |
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Comprehensive income | $ | 83,072 |
| | $ | 123,448 |
| | $ | 549,744 |
| | $ | 679,412 |
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| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
Net income | | | | | $ | 301,829 | | | $ | 222,502 | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Foreign currency translation adjustments | | | | | 10,121 | | | (4,121) | |
Derivative financial instruments | | | | | (21,882) | | | 9,928 | |
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Pension and postretirement benefit plans | | | | | (962) | | | 5,502 | |
| | | | | (12,723) | | | 11,309 | |
Comprehensive income | | | | | 289,106 | | | 233,811 | |
Less: Comprehensive loss attributable to noncontrolling interests | | | | | 2,261 | | | — | |
Comprehensive income attributable to Harley-Davidson, Inc. | | | | | $ | 291,367 | | | $ | 233,811 | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands) | | | | | | | | | | | | | | | | | |
| (Unaudited) | | | | (Unaudited) |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
ASSETS | | | | | |
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Cash and cash equivalents | $ | 1,561,200 | | | $ | 1,433,175 | | | $ | 1,393,731 | |
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Accounts receivable, net | 333,533 | | | 252,225 | | | 254,286 | |
Finance receivables, net of allowance of $62,706, $62,488, and $60,889 | 2,245,628 | | | 1,782,631 | | | 1,699,642 | |
Inventories, net | 830,521 | | | 950,960 | | | 714,259 | |
Restricted cash | 164,965 | | | 135,424 | | | 142,812 | |
Other current assets | 154,660 | | | 196,238 | | | 182,527 | |
Current assets | 5,290,507 | | | 4,750,653 | | | 4,387,257 | |
Finance receivables, net of allowance of $295,725, $296,223, and $279,584 | 5,328,095 | | | 5,355,807 | | | 5,121,911 | |
Property, plant and equipment, net | 690,051 | | | 689,886 | | | 663,807 | |
Pension and postretirement assets | 336,569 | | | 320,133 | | | 399,029 | |
Goodwill | 62,426 | | | 62,090 | | | 62,607 | |
Deferred income taxes | 141,208 | | | 135,041 | | | 71,926 | |
Lease assets | 43,540 | | | 43,931 | | | 45,073 | |
Other long-term assets | 137,189 | | | 134,935 | | | 143,030 | |
| $ | 12,029,585 | | | $ | 11,492,476 | | | $ | 10,894,640 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
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Accounts payable | $ | 404,414 | | | $ | 378,002 | | | $ | 476,917 | |
Accrued liabilities | 625,296 | | | 620,945 | | | 597,924 | |
Short-term deposits, net | 144,854 | | | 79,710 | | | 65,049 | |
Short-term debt | 501,243 | | | 770,468 | | | 816,016 | |
Current portion of long-term debt, net | 1,408,777 | | | 1,684,782 | | | 1,327,357 | |
Current liabilities | 3,084,584 | | | 3,533,907 | | | 3,283,263 | |
Long-term deposits, net | 224,457 | | | 237,665 | | | 283,034 | |
Long-term debt, net | 5,275,169 | | | 4,457,052 | | | 4,470,086 | |
Lease liabilities | 26,674 | | | 26,777 | | | 27,633 | |
Pension and postretirement liabilities | 66,968 | | | 67,955 | | | 93,792 | |
Deferred income taxes | 31,032 | | | 29,528 | | | 9,578 | |
Other long-term liabilities | 224,852 | | | 232,784 | | | 218,153 | |
Commitments and contingencies (Note 14) | | | | | |
Shareholders’ equity: | | | | | |
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Common stock | 1,711 | | | 1,704 | | | 1,704 | |
Additional paid-in-capital | 1,707,214 | | | 1,688,159 | | | 1,554,840 | |
Retained earnings | 2,770,616 | | | 2,490,649 | | | 2,040,867 | |
Accumulated other comprehensive loss | (354,652) | | | (341,929) | | | (229,610) | |
Treasury stock, at cost | (1,031,831) | | | (935,064) | | | (858,700) | |
Total Harley-Davidson, Inc. shareholders' equity | 3,093,058 | | | 2,903,519 | | | 2,509,101 | |
Noncontrolling interest | 2,791 | | | 3,289 | | | — | |
Total equity | 3,095,849 | | | 2,906,808 | | | 2,509,101 | |
| $ | 12,029,585 | | | $ | 11,492,476 | | | $ | 10,894,640 | |
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| (Unaudited) | | | | (Unaudited) |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 683,134 |
| | $ | 759,984 |
| | $ | 790,284 |
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Marketable securities | — |
| | 5,519 |
| | 5,038 |
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Accounts receivable, net | 343,124 |
| | 285,106 |
| | 346,176 |
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Finance receivables, net | 2,058,168 |
| | 2,076,261 |
| | 2,205,644 |
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Inventories | 469,091 |
| | 499,917 |
| | 426,547 |
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Restricted cash | 52,209 |
| | 52,574 |
| | 65,088 |
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Deferred income taxes | — |
| | — |
| | 123,609 |
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Other current assets | 182,416 |
| | 174,491 |
| | 139,958 |
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Total current assets | 3,788,142 |
| | 3,853,852 |
| | 4,102,344 |
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Finance receivables, net | 5,042,857 |
| | 4,759,197 |
| | 4,944,322 |
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Property, plant and equipment, net | 934,615 |
| | 981,593 |
| | 954,475 |
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Goodwill | 55,898 |
| | 53,391 |
| | 54,663 |
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Deferred income taxes | 180,575 |
| | 167,729 |
| | 80,831 |
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Other long-term assets | 86,272 |
| | 74,478 |
| | 75,591 |
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| $ | 10,088,359 |
| | $ | 9,890,240 |
| | $ | 10,212,226 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | $ | 277,117 |
| | $ | 235,318 |
| | $ | 291,594 |
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Accrued liabilities | 573,958 |
| | 486,652 |
| | 506,533 |
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Short-term debt | 834,875 |
| | 1,055,708 |
| | 1,055,428 |
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Current portion of long-term debt, net | 1,530,401 |
| | 1,084,884 |
| | 700,152 |
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Total current liabilities | 3,216,351 |
| | 2,862,562 |
| | 2,553,707 |
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Long-term debt, net | 4,607,791 |
| | 4,666,975 |
| | 5,170,609 |
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Pension liability | 52,471 |
| | 84,442 |
| | 120,494 |
|
Postretirement healthcare liability | 162,925 |
| | 173,267 |
| | 182,825 |
|
Other long-term liabilities | 192,001 |
| | 182,836 |
| | 192,223 |
|
Commitments and contingencies (Note 16) |
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Shareholders’ equity: | | | | | |
Preferred stock, none issued | — |
| | — |
| | — |
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Common stock | 1,813 |
| | 1,806 |
| | 3,454 |
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Additional paid-in-capital | 1,413,254 |
| | 1,381,862 |
| | 1,364,694 |
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Retained earnings | 1,660,997 |
| | 1,337,673 |
| | 9,416,583 |
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Accumulated other comprehensive loss | (529,082 | ) | | (565,381 | ) | | (580,778 | ) |
Treasury stock, at cost | (690,162 | ) | | (235,802 | ) | | (8,211,585 | ) |
Total shareholders’ equity | 1,856,820 |
| | 1,920,158 |
| | 1,992,368 |
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| $ | 10,088,359 |
| | $ | 9,890,240 |
| | $ | 10,212,226 |
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HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
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| (Unaudited) | | | | (Unaudited) |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Balances held by consolidated variable interest entities (Note 10) | | | | | |
Current finance receivables, net | $ | 204,873 |
| | $ | 225,289 |
| | $ | 236,561 |
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Other assets | $ | 2,440 |
| | $ | 2,781 |
| | $ | 3,043 |
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Non-current finance receivables, net | $ | 579,936 |
| | $ | 643,047 |
| | $ | 754,970 |
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Restricted cash - current and non-current | $ | 55,307 |
| | $ | 57,057 |
| | $ | 69,364 |
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Current portion of long-term debt, net | $ | 225,267 |
| | $ | 241,396 |
| | $ | 261,188 |
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Long-term debt, net | $ | 484,874 |
| | $ | 554,879 |
| | $ | 664,431 |
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| (Unaudited) | | | | (Unaudited) |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
Balances held by consolidated variable interest entities (Note 10): | | | | | |
Finance receivables, net - current | $ | 597,952 | | | $ | 559,651 | | | $ | 455,638 | |
Other assets | $ | 10,738 | | | $ | 9,805 | | | $ | 4,373 | |
Finance receivables, net - non-current | $ | 2,463,095 | | | $ | 2,317,956 | | | $ | 1,487,650 | |
Restricted cash - current and non-current | $ | 171,285 | | | $ | 141,128 | | | $ | 156,297 | |
Current portion of long-term debt, net | $ | 684,180 | | | $ | 619,683 | | | $ | 551,305 | |
Long-term debt, net | $ | 1,946,435 | | | $ | 1,825,525 | | | $ | 1,075,787 | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| Nine months ended |
| September 24, 2017 | | September 25, 2016 |
Net cash provided by operating activities (Note 3) | $ | 949,075 |
| | $ | 927,809 |
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Cash flows from investing activities: | | | |
Capital expenditures | (114,022 | ) | | (162,726 | ) |
Origination of finance receivables | (2,927,372 | ) | | (3,009,479 | ) |
Collections on finance receivables | 2,480,122 |
| | 2,440,466 |
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Proceeds from finance receivables sold | — |
| | 312,571 |
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Sales and redemptions of marketable securities | 6,916 |
| | 40,014 |
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Other | 356 |
| | 251 |
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Net cash used by investing activities | (554,000 | ) | | (378,903 | ) |
Cash flows from financing activities: | | | |
Proceeds from issuance of medium-term notes | 893,668 |
| | 1,193,396 |
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Repayments of medium-term notes | (400,000 | ) | | (451,336 | ) |
Repayments of securitization debt | (367,298 | ) | | (535,616 | ) |
Borrowings of asset-backed commercial paper | 371,253 |
| | 33,428 |
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Repayments of asset-backed commercial paper | (129,690 | ) | | (55,170 | ) |
Net decrease in credit facilities and unsecured commercial paper | (225,038 | ) | | (146,328 | ) |
Net change in restricted cash | 3,767 |
| | 30,981 |
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Dividends paid | (190,121 | ) | | (190,387 | ) |
Purchase of common stock for treasury | (465,167 | ) | | (374,234 | ) |
Excess tax benefits from share-based payments | — |
| | 1,291 |
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Issuance of common stock under employee stock option plans | 7,884 |
| | 6,444 |
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Net cash used by financing activities | (500,742 | ) | | (487,531 | ) |
Effect of exchange rate changes on cash and cash equivalents | 28,817 |
| | 6,700 |
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Net (decrease) increase in cash and cash equivalents | $ | (76,850 | ) | | $ | 68,075 |
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Cash and cash equivalents: | | | |
Cash and cash equivalents—beginning of period | $ | 759,984 |
| | $ | 722,209 |
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Net (decrease) increase in cash and cash equivalents | (76,850 | ) | | 68,075 |
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Cash and cash equivalents—end of period | $ | 683,134 |
| | $ | 790,284 |
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| Three months ended |
| March 31, 2023 | | March 27, 2022 |
Net cash provided by operating activities (Note 6) | $ | 46,677 | | | $ | 139,321 | |
Cash flows from investing activities: | | | |
Capital expenditures | (45,114) | | | (27,999) | |
Origination of finance receivables | (917,145) | | | (1,058,461) | |
Collections on finance receivables | 890,852 | | | 965,190 | |
| | | |
| | | |
| | | |
| | | |
Other investing activities | 821 | | | 135 | |
Net cash used by investing activities | (70,586) | | | (121,135) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of medium-term notes | 693,276 | | | 495,785 | |
Repayments of medium-term notes | (350,000) | | | (550,000) | |
| | | |
| | | |
Proceeds from securitization debt | 547,706 | | | — | |
Repayments of securitization debt | (310,640) | | | (271,499) | |
Borrowings of asset-backed commercial paper | — | | | 62,455 | |
Repayments of asset-backed commercial paper | (62,634) | | | (56,634) | |
Net (decrease) increase in unsecured commercial paper | (270,119) | | | 64,521 | |
| | | |
Net increase in deposits | 51,822 | | | 57,660 | |
| | | |
Dividends paid | (24,123) | | | (24,056) | |
Repurchase of common stock | (96,767) | | | (261,737) | |
Other financing activities | 69 | | | — | |
Net cash provided (used) by financing activities | 178,590 | | | (483,505) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 3,820 | | | (1,743) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 158,501 | | | $ | (467,062) | |
| | | |
Cash, cash equivalents and restricted cash: | | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 1,579,177 | | | $ | 2,025,219 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 158,501 | | | (467,062) | |
Cash, cash equivalents and restricted cash, end of period | $ | 1,737,678 | | | $ | 1,558,157 | |
| | | |
Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows: | | | |
Cash and cash equivalents | $ | 1,561,200 | | | $ | 1,393,731 | |
Restricted cash | 164,965 | | | 142,812 | |
Restricted cash included in Other long-term assets | 11,513 | | | 21,614 | |
Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows | $ | 1,737,678 | | | $ | 1,558,157 | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share amounts)
(Unaudited)
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| Equity Attributable to Harley-Davidson, Inc. | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total | | Equity Attributable to Noncontrolling Interests | | Total Equity |
| Issued Shares | | Balance | | | |
Balance, December 31, 2022 | 170,400,212 | | | $ | 1,704 | | | $ | 1,688,159 | | | $ | 2,490,649 | | | $ | (341,929) | | | $ | (935,064) | | | $ | 2,903,519 | | | $ | 3,289 | | | $ | 2,906,808 | |
Net income | — | | | — | | | — | | | 304,090 | | | — | | | — | | | 304,090 | | | (2,261) | | | $ | 301,829 | |
Other comprehensive income, net of tax (Note 15) | — | | | — | | | — | | | — | | | (12,723) | | | — | | | (12,723) | | | — | | | $ | (12,723) | |
Dividends ($0.1650 per share) | — | | | — | | | — | | | (24,123) | | | — | | | — | | | (24,123) | | | — | | | $ | (24,123) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (96,767) | | | (96,767) | | | — | | | $ | (96,767) | |
Share-based compensation | 733,658 | | | 7 | | | 19,055 | | | — | | | — | | | — | | | 19,062 | | | 1,763 | | | $ | 20,825 | |
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Balance, March 31, 2023 | 171,133,870 | | | 1,711 | | | 1,707,214 | | | 2,770,616 | | | (354,652) | | | (1,031,831) | | | 3,093,058 | | | 2,791 | | | 3,095,849 | |
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Balance, December 31, 2021 | 169,364,686 | | | $ | 1,694 | | | $ | 1,547,011 | | | $ | 1,842,421 | | | $ | (240,919) | | | $ | (596,963) | | | $ | 2,553,244 | | | $ | — | | | $ | 2,553,244 | |
Net income | — | | | — | | | — | | | 222,502 | | | — | | | — | | | 222,502 | | | — | | | $ | 222,502 | |
Other comprehensive income, net of tax (Note 15) | — | | | — | | | — | | | — | | | 11,309 | | | — | | | 11,309 | | | — | | | $ | 11,309 | |
Dividends ($0.1575 per share) | — | | | — | | | — | | | (24,056) | | | — | | | — | | | (24,056) | | | — | | | $ | (24,056) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (261,737) | | | (261,737) | | | — | | | $ | (261,737) | |
Share-based compensation | 976,062 | | | 10 | | | 7,829 | | | — | | | — | | | — | | | 7,839 | | | — | | | $ | 7,839 | |
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Balance, March 27, 2022 | 170,340,748 | | | 1,704 | | | 1,554,840 | | | 2,040,867 | | | (229,610) | | | (858,700) | | | 2,509,101 | | | — | | | 2,509,101 | |
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The accompanying notes are integral to the consolidated financial statements.
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Use of Estimates
Principles of Consolidation and Basis of Presentation – The consolidated financial statements include the accounts of Harley-Davidson, Inc. and its wholly-owned subsidiaries (the Company), including the accounts of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). In addition, certain variable interest entities (VIEs) related to secured financing are consolidated as the Company is the primary beneficiary. All intercompany accounts and material intercompany transactions have been eliminated. The Company has a controlling equity interest in LiveWire Group, Inc. As the controlling shareholder, the Company consolidates LiveWire Group, Inc. results with additional adjustments to recognize non-controlling shareholder interests.
The Company operates in three reportable segments: Harley-Davidson Motor Company (HDMC), LiveWire and Harley-Davidson Financial Services (HDFS). The Company changed its segments in the period ended December 31, 2022. The change has been retrospectively reflected in the periods presented below.
Substantially all of the Company’s international subsidiaries use their respective local currency as their functional currency. Assets and liabilities of international subsidiaries have been translated at period-end exchange rates, and revenues and expenses have been translated using average exchange rates for the period. Monetary assets and liabilities denominated in a currency that is different from an entity's functional currency are eliminated.remeasured from the transactional currency to the entity's functional currency on a monthly basis. The aggregate transaction gain resulting from foreign currency remeasurements was $3.3 million and $1.6 million for the three month periods ended March 31, 2023 and March 27, 2022, respectively.
In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments, (consistingconsisting only of normal recurring adjustments)adjustments, necessary to present fairly the consolidatedConsolidated balance sheets as of September 24, 2017March 31, 2023 and September 25, 2016,March 27, 2022, the consolidated Consolidated statements of incomeoperations for the three and nine month periods then ended, the consolidatedConsolidated statements of comprehensive income for the three and ninemonth periods then ended, the Consolidated statements of cash flows for the three month periods then ended, and the consolidatedConsolidated statements of cash flowsshareholders' equity for the ninethree month periods then ended.ended March 31, 2023 and March 27, 2022.
Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. TheseThe consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022.
The Company operates in two reportable segments: Motorcycles & Related Products (Motorcycles) and Financial Services.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires the Company's management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Fair Value Measurements – The Company assesses the inputs used to measure fair value using a three-tier hierarchy. Level 1 inputs include quoted prices for identical instruments and are the most observable.
Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity prices, and yield curves. The Company uses the market approach to derive the fair value for its Level 2 fair value measurements. Foreign currency contracts, commodity contracts, and cross-currency swaps are valued using quoted forward rates and prices; interest rate caps are valued using quoted interest rates and yield curves.
Level 3 inputs are not observable in the market and include the Company's judgments about the assumptions market participants would use in pricing the asset or liability.
2. New Accounting Standards
Accounting Standards Recently Adopted
In March 2016,2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09 Compensation – Stock Compensation2022-02, Financial Instruments-Credit Losses (Topic 718)326): Improvements to Employee Share-Based Payment AccountingTroubled Debt Restructurings and Vintage Disclosures (ASU 2016-09)2022-02). ASU 2016-09 amends2022-02 addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard (ASU 2016-13) that introduced the current expected credit losses (CECL) model. ASU 2022-02
eliminates the accounting guidance on several aspectsfor troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification onorigination in the statement of cash flows.vintage disclosures. The Company adopted ASU 2016-092022-02 on January 1, 2017.2023. The Company elected to apply the amendments related to the classification of excess tax benefits on the statement of cash flows on a prospective basis, and prior periods were not adjusted. The adoption of ASU 2016-09 did not have a material impact on the Company's consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value. ASU 2015-11 does not apply to inventory measured using the last-in, first-out method.
3. Revenue
The Company adopted ASU 2015-11 on January 1, 2017. The adoptionrecognizes revenue when it satisfies a performance obligation by transferring control of ASU 2015-11 did not have a material impactgood or service to a customer. Revenue is measured based on the Company’s consolidated financial statements.
Accounting Standards Not Yet Adopted
In May 2014,consideration that the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the companyCompany expects to be entitled to in exchange for thosethe goods or services. In August 2015, the FASB issued ASU No. 2015-14 Revenueservices transferred. Taxes that are collected from Contractsa customer concurrent with Customers: Deferral of Effective Date (ASU 2015-14)revenue-producing activities are excluded from revenue.
Disaggregated revenue by major source was as follows (in thousands): | | | | | | | | | | | | | | | |
| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
HDMC: | | | | | | | |
Motorcycles | | | | | $ | 1,302,378 | | | $ | 1,057,005 | |
Parts and accessories | | | | | 167,671 | | | 165,320 | |
Apparel | | | | | 71,391 | | | 51,404 | |
Licensing | | | | | 6,210 | | | 6,497 | |
Other | | | | | 10,179 | | | 12,544 | |
| | | | | 1,557,829 | | | 1,292,770 | |
LiveWire | | | | | 7,762 | | | 10,401 | |
Motorcycles and related products revenue | | | | | 1,565,591 | | | 1,303,171 | |
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HDFS: | | | | | | | |
Interest income | | | | | 182,270 | | | 161,734 | |
Other | | | | | 40,825 | | | 30,281 | |
Financial services revenue | | | | | 223,095 | | | 192,015 | |
| | | | | $ | 1,788,686 | | | $ | 1,495,186 | |
The Company maintains certain deferred revenue balances related to defer the effective datepayments received at contract inception in advance of the newCompany’s performance under the contract and generally relates to the sale of Harley Owners Group® memberships and various financial services products. Deferred revenue recognition standard by one year to fiscal years beginning after December 15, 2017is recognized as revenue as the Company performs under the contract. Deferred revenue, included in Accrued liabilities and interim periods therein. The guidance may be adopted using either a full retrospective or modified retrospective approach.Other long-term liabilities on the Consolidated balance sheets, was as follows (in thousands): | | | | | | | | | | | | | |
| March 31, 2023 | | | | March 27, 2022 |
Balance, beginning of period | $ | 44,100 | | | | | $ | 40,092 | |
Balance, end of period | $ | 43,176 | | | | | $ | 38,842 | |
Previously deferred revenue recognized as revenue in the three months ended March 31, 2023 and March 27, 2022 was $6.8 million and $7.7 million, respectively. The Company expects to adopt the new revenue recognition guidance using the modified retrospective method. The Company's efforts to evaluate the impactrecognize approximately $17.8 million of the standardremaining unearned revenue over the next 12 months and to prepare for its adoption on January 1, 2018 are well underway. Based on the work completed to date (which includes the review of significant revenue sources), the Company expects the recognition of revenue for sales of motorcycles, parts and accessories and general$25.4 million thereafter.
merchandise products under the new revenue recognition guidance will occur at a point in time. Interest income, which makes up the vast majority of revenue in the Financial Services segment, is not within the scope of the new standard. The Company is also assessing its process for accumulating the required information for enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from its contracts with customers.
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 enhances the existing financial instruments reporting model by modifying fair value measurement tools, simplifying impairment assessments for certain equity instruments and modifying overall presentation and disclosure requirements. The Company is required to adopt ASU 2016-01 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a prospective basis. The Company does not expect the adoption of ASU 2016-01 to have a material impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (ASU 2016-02). ASU 2016-02 amends the existing lease accounting model by requiring a lessee to recognize the rights and obligations resulting from certain leases as assets and liabilities on the balance sheet. ASU 2016-02 also requires a company to disclose key information about their leasing arrangements. The Company is required to adopt ASU 2016-02 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the impact of adoption of ASU 2016-02.
In July 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. The Company is required to adopt ASU 2016-13 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019 on a modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2018. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. Adoption of this standard will impact how the Company recognizes credit losses on its financial instruments. The Company is currently evaluating the impact of adoption of ASU 2016-13 but anticipates the adoption of ASU 2016-13 will result in an increase in the annual provision for credit losses and the related allowance for credit losses.
In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement of cash flows. The standard provides guidance on the classification of the following items: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows. The Company is required to adopt ASU 2016-15 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a retrospective basis. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its financial statements.
In October 2016, the FASB issued ASU No. 2016-164. Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). ASU 2016-16 states that an entity should recognize the
The Company’s effective income tax consequencesrate for the three months ended March 31, 2023 was 23.0% compared to 23.4% for the three months ended March 27, 2022.
5. Earnings Per Share
The computation of an asset other than inventory when the transfer occurs. Twobasic and diluted earnings per share was as follows (in thousands, except per share amounts): | | | | | | | | | | | | | | | |
| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
Net income attributable to Harley-Davidson, Inc. | | | | | $ | 304,090 | | | $ | 222,502 | |
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Basic weighted-average shares outstanding | | | | | 146,048 | | | 152,820 | |
Effect of dilutive securities – employee stock compensation plan | | | | | 2,883 | | | 1,104 | |
Diluted weighted-average shares outstanding | | | | | 148,931 | | | 153,924 | |
Net earnings per share: | | | | | | | |
Basic | | | | | $ | 2.08 | | | $ | 1.46 | |
Diluted | | | | | $ | 2.04 | | | $ | 1.45 | |
Shares of common assetsstock related to share-based compensation that were not included in the scopeeffect of dilutive securities because the ASU are intellectual propertyeffect would have been anti-dilutive include 1.3 million and property, plant and equipment. The Company is required to adopt ASU 2016-16 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 using a modified retrospective approach with a cumulative-effect adjustment to retained earnings. The Company does not expect the adoption of ASU 2016-16 to have a material impact on its financial statements.
In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As such, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company is required to adopt ASU 2016-18 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a retrospective basis. Early adoption is permitted, including adoption in an interim period. Subsequent to the adoption of ASU 2016-18, the change in
restricted cash would be excluded from the change in cash flows from financing activities and included in the change in total cash, restricted cash and cash equivalents as reported in the statement of cash flows.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill. Rather, the goodwill impairment is calculated by comparing the fair value of a reporting unit to its carrying value, and an impairment loss is recognized0.5 million shares for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. All reporting units apply the same impairment test under the new standard. The Company is required to adopt ASU 2017-04 for its annualthree months ended March 31, 2023 and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.March 27, 2022, respectively.
In March 2017, the FASB issued ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 amends ASC 715, Compensation - Retirement Benefits by requiring employers to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost will be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. The guidance also limits the components that are eligible for capitalization in assets. The Company is required to adopt ASU 2017-07 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which interim or annual financial statements have not been issued or made available for issuance. The amendments related to the presentation of the components of net periodic benefit cost should be applied retrospectively. The amendments related to the capitalization of certain components in assets should be applied prospectively. The Company's net periodic benefit cost components are disclosed in Note 14.
In August 2017, the FASB issued ASU No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 amends ASC 815, Derivatives and Hedging to improve the financial reporting of hedging relationships and to simplify the application of the hedge accounting guidance. The ASU makes various updates to the hedge accounting model, including changing the recognition and presentation of changes in the fair value of the hedging instrument and amending disclosure requirements, among other things. The Company is required to adopt ASU 2017-12 for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the ASU. For cash flow and net investment hedges existing at the date of adoption, the Company must apply a cumulative-effect adjustment as of the beginning of the fiscal year in which the standard is adopted. The amendments related to presentation and disclosure are required prospectively. The Company is currently evaluating the impact of adoption of ASU 2017-12.
3.6. Additional Balance Sheet and Cash Flow Information
Investments in Marketable Securities
– The Company’s investments in marketable securities consisted of the following (in thousands): | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
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Mutual funds | $ | 34,017 | | | $ | 33,071 | | | $ | 45,189 | |
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| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Available-for-sale securities: corporate bonds | $ | — |
| | $ | 5,519 |
| | $ | 5,038 |
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Trading securities: mutual funds | 45,726 |
| | 38,119 |
| | 39,063 |
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Total marketable securities | $ | 45,726 |
| | $ | 43,638 |
| | $ | 44,101 |
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The Company’s available-for-sale securities are carried at fair value with any unrealized gains or losses reportedMutual funds, included in other comprehensive income. DuringOther long-term assets on the first nine months of 2017 and 2016, unrealized losses were not material. There were no available-for-sale securities outstanding at September 24, 2017.
The Company's trading securities relate to investments held by the Company to fund certain deferred compensation obligations. The trading securitiesConsolidated balance sheets, are carried at fair value with gains and losses recorded in income. Mutual funds are held to support certain deferred compensation obligations.
Inventories, net income, and investments are included in other long-term assets on the consolidated balance sheets.
Inventories
– Substantially all inventories located in the United StatesU.S. are valued using the last-in, first-out (LIFO) method. Other inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Motorcycle finished goods inventories include motorcycles that are ready for sale and motorcycles that are substantially complete but awaiting installation of certain components affected by global supply chain constraints. Inventories, net consisted of the following (in thousands): | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
Raw materials and work in process | $ | 387,466 | | | $ | 331,380 | | | $ | 376,600 | |
Motorcycle finished goods | 380,083 | | | 549,041 | | | 291,623 | |
Parts and accessories and apparel | 182,905 | | | 187,039 | | | 130,156 | |
Inventory at lower of FIFO cost or net realizable value | 950,454 | | | 1,067,460 | | | 798,379 | |
Excess of FIFO over LIFO cost | (119,933) | | | (116,500) | | | (84,120) | |
| $ | 830,521 | | | $ | 950,960 | | | $ | 714,259 | |
Deposits –HDFS offers brokered certificates of deposit to customers indirectly through contractual arrangements with third-party banks and/or securities brokerage firms through its bank subsidiary. The Company had $369.3 million, $317.4 million and $348.1 million, net of fees, of interest-bearing brokered certificates of deposit outstanding as of March 31, 2023, December 31, 2022, and March 27, 2022, respectively. The liabilities for deposits are included in Short-term deposits, net or Long-term deposits, net on the Consolidated balance sheets based upon the term of each brokered certificate of deposit issued.Each separate brokered certificate of deposit is issued under a master certificate, and as such, all outstanding brokered certificates of deposit are considered below the Federal Deposit Insurance Corporation insurance coverage limits.
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| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Raw materials and work in process | $ | 155,947 |
| | $ | 140,639 |
| | $ | 159,209 |
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Motorcycle finished goods | 232,141 |
| | 285,281 |
| | 182,019 |
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Parts and accessories and general merchandise | 129,270 |
| | 122,264 |
| | 134,587 |
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Inventory at lower of FIFO cost or net realizable value | 517,358 |
| | 548,184 |
| | 475,815 |
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Excess of FIFO over LIFO cost | (48,267 | ) | | (48,267 | ) | | (49,268 | ) |
Total inventories, net | $ | 469,091 |
| | $ | 499,917 |
| | $ | 426,547 |
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Future maturities of the Company's certificates of deposit as of March 31, 2023 were as follows (in thousands): | | | | | |
2023 | $ | 81,167 | |
2024 | 115,491 | |
2025 | 39,740 | |
2026 | 79,742 | |
2027 | 54,158 | |
Thereafter | — | |
Future maturities | 370,298 | |
Unamortized fees | (987) | |
| $ | 369,311 | |
Operating Cash Flow
– The reconciliation of netNet income to netNet cash provided by operating activities is was as follows (in thousands): | | | | | | | | | | | |
| Three months ended |
| March 31, 2023 | | March 27, 2022 |
Cash flows from operating activities: | | | |
Net income | $ | 301,829 | | | $ | 222,502 | |
Adjustments to reconcile Net income to Net cash provided by operating activities: | | | |
Depreciation and amortization | 34,352 | | | 39,258 | |
Amortization of deferred loan origination costs | 21,858 | | | 22,995 | |
Amortization of financing origination fees | 3,011 | | | 3,701 | |
Provision for long-term employee benefits | (16,939) | | | (5,050) | |
Employee benefit plan contributions and payments | (1,739) | | | (2,143) | |
Stock compensation expense | 23,628 | | | 8,903 | |
Net change in wholesale finance receivables related to sales | (487,314) | | | (205,727) | |
Provision for credit losses | 52,364 | | | 28,822 | |
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Deferred income taxes | 5,648 | | | 6,307 | |
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Other, net | (21,671) | | | (5,408) | |
Changes in current assets and liabilities: | | | |
Accounts receivable, net | (77,993) | | | (74,993) | |
Finance receivables – accrued interest and other | 2,252 | | | 3,115 | |
Inventories, net | 123,047 | | | (2,630) | |
Accounts payable and accrued liabilities | 43,787 | | | 106,969 | |
| | | |
Other current assets | 40,557 | | | (7,300) | |
| (255,152) | | | (83,181) | |
Net cash provided by operating activities | $ | 46,677 | | | $ | 139,321 | |
|
| | | | | | | |
| Nine months ended |
| September 24, 2017 | | September 25, 2016 |
Cash flows from operating activities: | | | |
Net income | $ | 513,445 |
| | $ | 644,985 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of intangibles | 163,974 |
| | 154,565 |
|
Amortization of deferred loan origination costs | 62,052 |
| | 65,445 |
|
Amortization of financing origination fees | 6,112 |
| | 7,212 |
|
Provision for long-term employee benefits | 22,427 |
| | 28,508 |
|
Employee benefit plan contributions and payments | (43,060 | ) | | (47,658 | ) |
Stock compensation expense | 25,581 |
| | 24,909 |
|
Net change in wholesale finance receivables related to sales | 36,678 |
| | (169,599 | ) |
Provision for credit losses | 99,059 |
| | 97,127 |
|
Gain on off-balance sheet asset-backed securitization | — |
| | (9,269 | ) |
Loss on debt extinguishment | — |
| | 118 |
|
Deferred income taxes | (5,151 | ) | | (11,261 | ) |
Other, net | (11,122 | ) | | (23,270 | ) |
Changes in current assets and liabilities: | | | |
Accounts receivable, net | (29,167 | ) | | (86,796 | ) |
Finance receivables - accrued interest and other | 317 |
| | 364 |
|
Inventories | 50,016 |
| | 173,975 |
|
Accounts payable and accrued liabilities | 88,758 |
| | 97,190 |
|
Derivative instruments | 2,752 |
| | (1,992 | ) |
Other | (33,596 | ) | | (16,744 | ) |
Total adjustments | 435,630 |
| | 282,824 |
|
Net cash provided by operating activities | $ | 949,075 |
| | $ | 927,809 |
|
4.7. Finance Receivables
Finance receivables include both retail and wholesale finance receivables, including amounts held by consolidated VIEs. Finance receivables are recorded in the financial statements at amortized cost net of an allowance for credit losses.
The Company provides retail financial services to customers of the Company’s independentits dealers in the United StatesU.S. and Canada. The origination of retail loans is a separate and distinct transaction between the Company and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment sales contracts.contracts and are primarily related to dealer sales of motorcycles to retail customers. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.
The Company offers wholesale financing to its dealers in the Company’s independentU.S. and Canada. Wholesale finance receivables are related primarily to the Company's sale of motorcycles and related parts and accessories to dealers. Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada.property.
Finance receivables, net consisted were as follows (in thousands): | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
Retail finance receivables | $ | 6,708,103 | | | $ | 6,748,201 | | | $ | 6,511,845 | |
Wholesale finance receivables | 1,224,051 | | | 748,948 | | | 650,181 | |
| 7,932,154 | | | 7,497,149 | | | 7,162,026 | |
Allowance for credit losses | (358,431) | | | (358,711) | | | (340,473) | |
| $ | 7,573,723 | | | $ | 7,138,438 | | | $ | 6,821,553 | |
The Company’s finance receivables are reported at amortized cost, net of the following (in thousands):
|
| | | | | | | | | | | |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Retail | $ | 6,336,447 |
| | $ | 5,982,211 |
| | $ | 6,165,999 |
|
Wholesale | 960,160 |
| | 1,026,590 |
| | 1,155,483 |
|
Total finance receivables | 7,296,607 |
| | 7,008,801 |
| | 7,321,482 |
|
Allowance for credit losses | (195,582 | ) | | (173,343 | ) | | (171,516 | ) |
Finance receivables, net | $ | 7,101,025 |
| | $ | 6,835,458 |
| | $ | 7,149,966 |
|
A provisionallowance for credit losses. Amortized cost includes the principal outstanding, accrued interest, and deferred loan fees and costs. The Company's allowance for credit losses reflects expected lifetime credit losses on its finance receivables. Based on differences in the nature of the finance receivables is charged or credited to earnings in amounts thatand the Company believes are sufficient to maintainunderlying methodology for calculating the allowance for credit losses, at a level that is adequate to cover losses of principal inherent in the existing portfolio. The allowance for credit losses represents management’s estimate of probable losses inherent in the finance receivable portfolio as of the balance sheet date. However, due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company could differ from the amounts estimated.
Changes in the allowance for credit losses onsegments its finance receivables into the retail and wholesale portfolios. The Company further disaggregates each portfolio by portfolio were as follows (in thousands):
|
| | | | | | | | | | | |
| Three months ended September 24, 2017 |
| Retail | | Wholesale | | Total |
Balance, beginning of period | $ | 185,899 |
| | $ | 7,629 |
| | $ | 193,528 |
|
Provision for credit losses | 30,964 |
| | (1,711 | ) | | 29,253 |
|
Charge-offs | (37,783 | ) | | — |
| | (37,783 | ) |
Recoveries | 10,584 |
| | — |
| | 10,584 |
|
Balance, end of period | $ | 189,664 |
| | $ | 5,918 |
| | $ | 195,582 |
|
| | | | | |
| Three months ended September 25, 2016 |
| Retail | | Wholesale | | Total |
Balance, beginning of period | $ | 152,998 |
| | $ | 8,355 |
| | $ | 161,353 |
|
Provision for credit losses | 38,143 |
| | (1,600 | ) | | 36,543 |
|
Charge-offs | (35,749 | ) | | — |
| | (35,749 | ) |
Recoveries | 9,369 |
| | — |
| | 9,369 |
|
Balance, end of period | $ | 164,761 |
| | $ | 6,755 |
| | $ | 171,516 |
|
| | | | | |
| Nine months ended September 24, 2017 |
| Retail | | Wholesale | | Total |
Balance, beginning of period | $ | 166,810 |
| | $ | 6,533 |
| | $ | 173,343 |
|
Provision for credit losses | 99,674 |
| | (615 | ) | | 99,059 |
|
Charge-offs | (114,081 | ) | | — |
| | (114,081 | ) |
Recoveries | 37,261 |
| | — |
| | 37,261 |
|
Balance, end of period | $ | 189,664 |
| | $ | 5,918 |
| | $ | 195,582 |
|
| | | | | |
| Nine months ended September 25, 2016 |
| Retail | | Wholesale | | Total |
Balance, beginning of period | $ | 139,320 |
| | $ | 7,858 |
| | $ | 147,178 |
|
Provision for credit losses | 98,230 |
| | (1,103 | ) | | 97,127 |
|
Charge-offs | (101,853 | ) | | — |
| | (101,853 | ) |
Recoveries | 32,355 |
| | — |
| | 32,355 |
|
Other (a) | (3,291 | ) | | — |
| | (3,291 | ) |
Balance, end of period | $ | 164,761 |
| | $ | 6,755 |
| | $ | 171,516 |
|
| |
(a) | Related to the sale of finance receivables with a principal balance of $301.8 million through an off-balance sheet asset-backed securitization transaction (see Note 10 for additional information). |
Finance receivables are considered impaired when management determines it is probable thatcredit quality indicators. As the credit risk varies between the retail and wholesale portfolios, the Company will be unable to collect all amounts due according to the terms of the loan agreement. Portions of the allowanceutilizes different credit quality indicators for credit losses are established to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance for credit losses covers estimated losses on finance receivables which are collectively reviewed for impairment.each portfolio.
The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes a vintage-based loss forecast models which considermethodology that includes decompositions for probability of default, exposure at default, attrition rate, and recovery balance rate. Reasonable and supportable economic forecasts for a varietytwo-year period are incorporated into the methodology to reflect the estimated impact of changes in future economic conditions, such as unemployment rates, household obligations or other relevant factors, including, but not limitedover the two-year reasonable and supportable period. For periods beyond the Company’s reasonable and supportable forecasts, the Company reverts to its average historical loss experience using a mean-reversion process over a three-year period. Adjustments to historical loss trends, origination or vintage analysis, known and inherent risksinformation are made for differences in the portfolio, the value of the underlying collateral, recovery rates, and current economic conditions including itemsloan-specific risk characteristics such as unemployment rates. Retail finance receivables are not evaluated individually for impairment prior to charge-off and, therefore, are not reporteddifferences in underwriting standards, portfolio mix, or term as impaired loans.well as other relevant factors.
The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s evaluation for the wholesale allowance for credit losses is first based on a loan-by-loan review. Areview to determine whether the loans share similar risk characteristics. The Company individually evaluates loans that do not share risk characteristics. Loans identified as those for which foreclosure is probable are classified as Non-Performing, and a specific allowance for credit losses is established for wholesale finance receivableswhen appropriate. The specific allowance is determined to be individually impaired when management concludes that the borrower will not be able to make full payment of the contractual amounts due based on the original termsamortized cost of the loan
agreement. The impairment is determined based onrelated finance receivable and the estimated fair value of the collateral, less selling costs and the cash that the Company expects to receive discounted at the loan’s original interest rate or the fair value of the collateral, if the loan is collateral-dependent.receive. Finance receivables in the wholesale portfolio thatnot individually assessed are not considered impaired on an individual basis are segregated,aggregated, based on similar risk characteristics, according to the Company’s internal risk rating system and collectively evaluated for impairment.measured collectively. The related allowance for credit losses is based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past loancredit loss experience, currentreasonable and supportable economic conditions,forecasts, and the value of the underlying collateral.collateral and expected recoveries.
Generally, it isThe Company considers various third-party economic forecast scenarios as part of estimating the allowance for expected credit losses and applies a probability-weighting to those economic forecast scenarios. Each quarter, the Company’s policyoutlook on economic conditions impacts the Company's retail and wholesale estimates for expected credit losses. During the first quarter of 2023, the overall macro-economic conditions remained uncertain as near-term recession concerns did not abate, elevated levels of inflation continued to changechallenge the termsU.S. and global economies, and muted consumer confidence persisted, among other factors. As such, at the end the first quarter of 2023, the Company’s outlook on economic conditions and its probability weighting of finance receivables. However, to minimizeits economic forecast scenarios were weighted towards a near-term recession.
Additionally, the economic loss,historical experience incorporated into the portfolio-specific models does not fully reflect the Company's comprehensive expectations regarding the future. As such, the Company may modify certain finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant.
Theincorporated qualitative factors to establish an appropriate allowance for credit losses balance. These factors include motorcycle recovery value considerations, delinquency adjustments, specific problem loan trends, and changes in other portfolio-specific loan characteristics.
Due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company in either portfolio could differ from the amounts estimated. Further, the Company’s allowance for credit losses incorporates known conditions at the balance sheet date and the Company’s expectations surrounding the economic
forecasts. The Company will continue to monitor future economic trends and conditions. Expectations surrounding the Company's economic forecasts may change in future periods as additional information becomes available.
Changes in the Company's allowance for credit losses on its finance receivables by portfolio segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, waswere as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, 2023 |
| | | | | | | Retail | | Wholesale | | Total |
Balance, beginning of period | | | | | | | $ | 345,275 | | | $ | 13,436 | | | $ | 358,711 | |
Provision for credit losses | | | | | | | 50,969 | | | 1,395 | | | 52,364 | |
Charge-offs | | | | | | | (68,008) | | | — | | | (68,008) | |
Recoveries | | | | | | | 15,364 | | | — | | | 15,364 | |
Balance, end of period | | | | | | | $ | 343,600 | | | $ | 14,831 | | | $ | 358,431 | |
| | | Three months ended March 27, 2022 |
| | | | | | | Retail | | Wholesale | | Total |
Balance, beginning of period | | | | | | | $ | 326,320 | | | $ | 13,059 | | | $ | 339,379 | |
Provision for credit losses | | | | | | | 28,614 | | | 208 | | | 28,822 | |
Charge-offs | | | | | | | (41,804) | | | — | | | (41,804) | |
Recoveries | | | | | | | 14,076 | | | — | | | 14,076 | |
Balance, end of period | | | | | | | $ | 327,206 | | | $ | 13,267 | | | $ | 340,473 | |
|
| | | | | | | | | | | |
| September 24, 2017 |
| Retail | | Wholesale | | Total |
Allowance for credit losses, ending balance: | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated for impairment | 189,664 |
| | 5,918 |
| | 195,582 |
|
Total allowance for credit losses | $ | 189,664 |
| | $ | 5,918 |
| | $ | 195,582 |
|
Finance receivables, ending balance: | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated for impairment | 6,336,447 |
| | 960,160 |
| | 7,296,607 |
|
Total finance receivables | $ | 6,336,447 |
| | $ | 960,160 |
| | $ | 7,296,607 |
|
| | | | | |
| December 31, 2016 |
| Retail | | Wholesale | | Total |
Allowance for credit losses, ending balance: | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated for impairment | 166,810 |
| | 6,533 |
| | 173,343 |
|
Total allowance for credit losses | $ | 166,810 |
| | $ | 6,533 |
| | $ | 173,343 |
|
Finance receivables, ending balance: | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated for impairment | 5,982,211 |
| | 1,026,590 |
| | 7,008,801 |
|
Total finance receivables | $ | 5,982,211 |
| | $ | 1,026,590 |
| | $ | 7,008,801 |
|
| | | | | |
| September 25, 2016 |
| Retail | | Wholesale | | Total |
Allowance for credit losses, ending balance: | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated for impairment | 164,761 |
| | 6,755 |
| | 171,516 |
|
Total allowance for credit losses | $ | 164,761 |
| | $ | 6,755 |
| | $ | 171,516 |
|
Finance receivables, ending balance: | | | | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated for impairment | 6,165,999 |
| | 1,155,483 |
| | 7,321,482 |
|
Total finance receivables | $ | 6,165,999 |
| | $ | 1,155,483 |
| | $ | 7,321,482 |
|
There were no wholesale finance receivables at September 24, 2017, December 31, 2016, or September 25, 2016 that were individually deemed to be impaired under ASC Topic 310, “Receivables.”
Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed or the receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until either
collected or charged-off. Accordingly, as of September 24, 2017, December 31, 2016 and September 25, 2016, all retail finance receivables were accounted for as interest-earning receivables, of which $32.7 million, $40.4 million and $31.3 million, respectively, were 90 days or more past due.
Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Wholesale finance receivables are written down once management determines that the specific borrower does not have the ability to repay the loan in full. Interest continues to accrue on past due finance receivables until the date the finance receivable becomes uncollectible and the finance receivable is placed on non-accrual status. The Company will resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured. While on non-accrual status, all cash received is applied to principal or interest as appropriate. There were no wholesale receivables on non-accrual status at September 24, 2017, December 31, 2016 or September 25, 2016. At September 24, 2017, December 31, 2016 and September 25, 2016, $1.3 million, $0.3 million, and $0.4 million of wholesale finance receivables were 90 days or more past due and accruing interest, respectively.
An analysis of the aging of past due finance receivables was as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 24, 2017 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total Finance Receivables |
Retail | $ | 6,132,997 |
| | $ | 126,705 |
| | $ | 44,083 |
| | $ | 32,662 |
| | $ | 203,450 |
| | $ | 6,336,447 |
|
Wholesale | 958,429 |
| | 329 |
| | 95 |
| | 1,307 |
| | 1,731 |
| | 960,160 |
|
Total | $ | 7,091,426 |
| | $ | 127,034 |
| | $ | 44,178 |
| | $ | 33,969 |
| | $ | 205,181 |
| | $ | 7,296,607 |
|
| | | | | | | | | | | |
| December 31, 2016 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total Finance Receivables |
Retail | $ | 5,760,818 |
| | $ | 131,302 |
| | $ | 49,642 |
| | $ | 40,449 |
| | $ | 221,393 |
| | $ | 5,982,211 |
|
Wholesale | 1,024,995 |
| | 1,000 |
| | 319 |
| | 276 |
| | 1,595 |
| | 1,026,590 |
|
Total | $ | 6,785,813 |
| | $ | 132,302 |
| | $ | 49,961 |
| | $ | 40,725 |
| | $ | 222,988 |
| | $ | 7,008,801 |
|
| | | | | | | | | | | |
| September 25, 2016 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total Finance Receivables |
Retail | $ | 5,973,108 |
| | $ | 119,709 |
| | $ | 41,866 |
| | $ | 31,316 |
| | $ | 192,891 |
| | $ | 6,165,999 |
|
Wholesale | 1,154,617 |
| | 366 |
| | 114 |
| | 386 |
| | 866 |
| | 1,155,483 |
|
Total | $ | 7,127,725 |
| | $ | 120,075 |
| | $ | 41,980 |
| | $ | 31,702 |
| | $ | 193,757 |
| | $ | 7,321,482 |
|
A significant part of managing the Company's finance receivable portfolios includes the assessment of credit risk associated with each borrower. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit risk indicators for each portfolio.
The Company manages retail credit risk through its credit approval policyprocess and ongoing collection efforts. The Company uses FICO scores, a standard credit rating measurement, to differentiate the expected default rates of retail credit applicants, enabling the Company to better evaluate credit applicants for approval and to tailor pricing according to this assessment. RetailFor the Company’s U.S. and Canadian retail finance receivables, the Company determines the credit quality indicator for each loan at origination and does not update the credit quality indicator subsequent to the loan origination date.
As loan performance by credit quality indicator differs between the U.S. and Canadian retail loans, the Company’s credit quality indicators vary for the two portfolios. For U.S. retail finance receivables, those with a FICO score of 740 or above at origination are generally considered super prime, loans with a FICO score between 640 and 740 are generally categorized as prime, and loans with FICO score below 640 are generally considered sub-prime. For Canadian retail finance receivables, those with a FICO score of 640700 or above at origination are generally considered super prime, and loans with a FICO score between 620 and 700 are generally categorized as prime, and loans with FICO score below 640620 are generally considered sub-prime. These credit quality indicators are determined at
The amortized cost of the time of loan originationCompany's U.S. and are not updated subsequent to the loan origination date.
The recorded investment inCanadian retail finance receivables by
vintage and credit quality indicator was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 & Prior | | Total |
U.S. Retail: | | | | | | | | | | | | | |
Super prime | $ | 284,656 | | | $ | 1,007,543 | | | $ | 547,008 | | | $ | 240,495 | | | $ | 133,205 | | | $ | 72,247 | | | $ | 2,285,154 | |
Prime | 314,959 | | | 1,317,733 | | | 799,814 | | | 378,539 | | | 224,682 | | | 170,944 | | | 3,206,671 | |
Sub-prime | 86,541 | | | 379,206 | | | 264,358 | | | 145,132 | | | 94,898 | | | 85,829 | | | 1,055,964 | |
| 686,156 | | | 2,704,482 | | | 1,611,180 | | | 764,166 | | | 452,785 | | | 329,020 | | | 6,547,789 | |
Canadian Retail: | | | | | | | | | | | | | |
Super prime | 10,428 | | | 44,213 | | | 26,550 | | | 15,250 | | | 9,921 | | | 4,668 | | | 111,030 | |
Prime | 3,650 | | | 14,850 | | | 9,711 | | | 6,482 | | | 4,439 | | | 3,917 | | | 43,049 | |
Sub-prime | 579 | | | 2,013 | | | 1,237 | | | 1,033 | | | 754 | | | 619 | | | 6,235 | |
| 14,657 | | | 61,076 | | | 37,498 | | | 22,765 | | | 15,114 | | | 9,204 | | | 160,314 | |
| $ | 700,813 | | | $ | 2,765,558 | | | $ | 1,648,678 | | | $ | 786,931 | | | $ | 467,899 | | | $ | 338,224 | | | $ | 6,708,103 | |
Current-period gross charge-offs: | | | | | | | | | | | | | |
US Retail | $ | — | | | $ | 23,440 | | | $ | 22,535 | | | $ | 10,215 | | | $ | 5,818 | | | $ | 5,100 | | | $ | 67,108 | |
Canadian Retail | — | | | 300 | | | 245 | | | 150 | | | 33 | | | 172 | | | 900 | |
| $ | — | | | $ | 23,740 | | | $ | 22,780 | | | $ | 10,365 | | | $ | 5,851 | | | $ | 5,272 | | | $ | 68,008 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 & Prior | | Total |
U.S. Retail: | | | | | | | | | | | | | |
Super prime | $ | 1,118,198 | | | $ | 612,890 | | | $ | 276,492 | | | $ | 159,550 | | | $ | 69,652 | | | $ | 26,701 | | | $ | 2,263,483 | |
Prime | 1,433,141 | | | 887,817 | | | 425,401 | | | 260,458 | | | 135,454 | | | 79,611 | | | 3,221,882 | |
Sub-prime | 420,660 | | | 298,153 | | | 164,946 | | | 108,372 | | | 57,993 | | | 46,827 | | | 1,096,951 | |
| 2,971,999 | | | 1,798,860 | | | 866,839 | | | 528,380 | | | 263,099 | | | 153,139 | | | 6,582,316 | |
Canadian Retail: | | | | | | | | | | | | | |
Super prime | 49,033 | | | 30,090 | | | 17,553 | | | 12,215 | | | 4,975 | | | 1,527 | | | 115,393 | |
Prime | 16,094 | | | 10,705 | | | 7,283 | | | 5,098 | | | 3,068 | | | 1,787 | | | 44,035 | |
Sub-prime | 2,223 | | | 1,402 | | | 1,173 | | | 869 | | | 475 | | | 315 | | | 6,457 | |
| 67,350 | | | 42,197 | | | 26,009 | | | 18,182 | | | 8,518 | | | 3,629 | | | 165,885 | |
| $ | 3,039,349 | | | $ | 1,841,057 | | | $ | 892,848 | | | $ | 546,562 | | | $ | 271,617 | | | $ | 156,768 | | | $ | 6,748,201 | |
| | | | | | | | | | March 27, 2022 |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 & Prior | | Total |
U.S. Retail: | | U.S. Retail: | | | | | | | | | | | | | |
Super prime | | Super prime | $ | 311,114 | | | $ | 890,413 | | | $ | 422,454 | | | $ | 268,692 | | | $ | 139,540 | | | $ | 68,682 | | | $ | 2,100,895 | |
Prime | $ | 5,107,718 |
| | $ | 4,768,420 |
| | $ | 4,900,752 |
| Prime | 394,793 | | | 1,247,764 | | | 627,102 | | | 407,242 | | | 233,630 | | | 176,018 | | | 3,086,549 | |
Sub-prime | 1,228,729 |
| | 1,213,791 |
| | 1,265,247 |
| Sub-prime | 125,280 | | | 427,813 | | | 240,999 | | | 159,968 | | | 91,444 | | | 91,610 | | | 1,137,114 | |
Total | $ | 6,336,447 |
| | $ | 5,982,211 |
| | $ | 6,165,999 |
| |
| | | 831,187 | | | 2,565,990 | | | 1,290,555 | | | 835,902 | | | 464,614 | | | 336,310 | | | 6,324,558 | |
Canadian Retail: | | Canadian Retail: | | | | | | | | | | | | | |
Super prime | | Super prime | 14,015 | | | 47,025 | | | 29,382 | | | 23,367 | | | 11,524 | | | 4,515 | | | 129,828 | |
Prime | | Prime | 4,228 | | | 15,842 | | | 11,513 | | | 8,349 | | | 5,454 | | | 4,391 | | | 49,777 | |
Sub-prime | | Sub-prime | 506 | | | 2,180 | | | 1,961 | | | 1,401 | | | 861 | | | 773 | | | 7,682 | |
| | | 18,749 | | | 65,047 | | | 42,856 | | | 33,117 | | | 17,839 | | | 9,679 | | | 187,287 | |
| | | $ | 849,936 | | | $ | 2,631,037 | | | $ | 1,333,411 | | | $ | 869,019 | | | $ | 482,453 | | | $ | 345,989 | | | $ | 6,511,845 | |
The Company's credit risk on the wholesale portfolio is different from that of the retail portfolio. Whereas the retail portfolio represents a relatively homogeneous pool of retail finance receivables that exhibit more consistent loss patterns, the wholesale portfolio exposures are less consistent. The Company utilizes an internal credit risk rating system to manage credit risk exposure consistently across wholesale borrowers and individually evaluates credit risk factors for each borrower. The Company uses the following internal credit quality indicators, based on an internal risk rating system, listed from highest level of risk to lowest level of risk for the wholesale portfolio: Doubtful, Substandard, Special Mention, Medium Risk and Low Risk. Based upon management’sthe Company’s review, the dealers classified in the Doubtful category are the dealers with the greatest likelihood of being charged-off, while the dealers classified as Low Risk are least likely to be charged-off. Additionally, the Company classifies dealers identified as those in which foreclosure is probable as Non-Performing. The internal rating system considers factors such as the specific borrower's ability to repay and the estimated value of any collateral. Dealer risk rating classifications are reviewed and updated by the Company on a quarterly basis.
The recorded investment inamortized cost of the Company's wholesale financefinancial receivables, by internalvintage and credit quality indicator, was as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 & Prior | | Total |
Non-Performing | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Medium Risk | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Low Risk | 857,152 | | | 335,247 | | | 9,123 | | | 6,191 | | | 11,130 | | | 5,208 | | | 1,224,051 | |
| $ | 857,152 | | | $ | 335,247 | | | $ | 9,123 | | | $ | 6,191 | | | $ | 11,130 | | | $ | 5,208 | | | $ | 1,224,051 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 & Prior | | Total |
Non-Performing | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Medium Risk | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Low Risk | 714,238 | | | 11,478 | | | 6,646 | | | 8,457 | | | 7,938 | | | 191 | | | 748,948 | |
| $ | 714,238 | | | $ | 11,478 | | | $ | 6,646 | | | $ | 8,457 | | | $ | 7,938 | | | $ | 191 | | | $ | 748,948 | |
| | | | | | | | | | March 27, 2022 |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 & Prior | | Total |
Non-Performing | | Non-Performing | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Doubtful | $ | 4,666 |
| | $ | 1,333 |
| | $ | — |
| Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | 8,724 |
| | 1,773 |
| | 16,244 |
| Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Special Mention | 5,261 |
| | 30,152 |
| | — |
| Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Medium Risk | 4,987 |
| | 14,620 |
| | 7,667 |
| Medium Risk | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Low Risk | 936,522 |
| | 978,712 |
| | 1,131,572 |
| Low Risk | 489,283 | | | 127,797 | | | 9,108 | | | 11,147 | | | 9,893 | | | 2,953 | | | 650,181 | |
Total | $ | 960,160 |
| | $ | 1,026,590 |
| | $ | 1,155,483 |
| |
| | | $ | 489,283 | | | $ | 127,797 | | | $ | 9,108 | | | $ | 11,147 | | | $ | 9,893 | | | $ | 2,953 | | | $ | 650,181 | |
5. Fair Value Measurements
Certain assetsRetail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables at amortized cost, excluding accrued interest, are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed, or the receivable is otherwise deemed uncollectible. The Company reverses accrued interest related to charged-off accounts against Financial Services interest income when the account is charged-off. The Company reversed $7.2 million and liabilities are recorded at fair value in$4.9 million of accrued interest against Financial Services interest income during the financial statements; somethree months ended March 31, 2023 and March 27, 2022, respectively. All retail finance receivables accrue interest until either collected or charged-off. Due to the timely write-off of these are measured on a recurring basis while others are measured on a non-recurring basis. Assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when required by particular events or circumstances. In determining the fair value of assets and liabilities,accrued interest, the Company uses various valuation techniques. The availability of inputs observable inmade the market varieselection provided under Accounting Standards Codification (ASC) Topic 326, Financial Instruments - Credit Losses to exclude accrued interest from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable.
Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates and commodity prices. The Company uses the market approach to derive the fair value for its Level 2 fair value measurements. Forward contracts for foreign currency and commodities are valued using current quoted forward rates and prices; investments in marketable securities and cash equivalents are valued using publicly quoted prices.
Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the following tables.
Recurring Fair Value Measurements
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
|
| | | | | | | | | | | | | | | |
| September 24, 2017 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Cash equivalents | $ | 425,000 |
| | $ | 425,000 |
| | $ | — |
| | $ | — |
|
Marketable securities | 45,726 |
| | 45,726 |
| | — |
| | — |
|
Derivatives | 724 |
| | — |
| | 724 |
| | — |
|
Total | $ | 471,450 |
| | $ | 470,726 |
| | $ | 724 |
| | $ | — |
|
Liabilities: | | | | | | | |
Derivatives | $ | 32,414 |
| | $ | — |
| | $ | 32,414 |
| | $ | — |
|
| | | | | | | |
| December 31, 2016 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Cash equivalents | $ | 531,519 |
| | $ | 426,266 |
| | $ | 105,253 |
| | $ | — |
|
Marketable securities | 43,638 |
| | 38,119 |
| | 5,519 |
| | — |
|
Derivatives | 29,034 |
| | — |
| | 29,034 |
| | — |
|
Total | $ | 604,191 |
| | $ | 464,385 |
| | $ | 139,806 |
| | $ | — |
|
Liabilities: | | | | | | | |
Derivatives | $ | 142 |
| | $ | — |
| | $ | 142 |
| | $ | — |
|
| | | | | | | |
| September 25, 2016 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Cash equivalents | $ | 526,228 |
| | $ | 372,850 |
| | $ | 153,378 |
| | $ | — |
|
Marketable securities | 44,101 |
| | 39,063 |
| | 5,038 |
| | — |
|
Derivatives | 6,606 |
| | — |
| | 6,606 |
| | — |
|
Total | $ | 576,935 |
| | $ | 411,913 |
| | $ | 165,022 |
| | $ | — |
|
Liabilities: | | | | | | | |
Derivatives | $ | 1,388 |
| | $ | — |
| | $ | 1,388 |
| | $ | — |
|
Nonrecurring Fair Value Measurements
Repossessed inventory is recorded at the lower of cost or net realizable value through a nonrecurring fair value measurement. Repossessed inventory was $21.3 million, $19.3 million and $18.5 million at September 24, 2017, December 31, 2016 and September 25, 2016, respectively, for which the fair value adjustment was $9.0 million, $9.3 million and $8.2 million, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.
6. Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, finance receivables, net, debt, foreign currency exchange and commodity contracts (derivative instruments are discussed further in Note 7).
The following table summarizes the fair value and carrying value of the Company’s financial instruments (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Assets: | | | | | | | | | | | |
Cash and cash equivalents | $ | 683,134 |
| | $ | 683,134 |
| | $ | 759,984 |
| | $ | 759,984 |
| | $ | 790,284 |
| | $ | 790,284 |
|
Marketable securities | $ | 45,726 |
| | $ | 45,726 |
| | $ | 43,638 |
| | $ | 43,638 |
| | $ | 44,101 |
| | $ | 44,101 |
|
Derivatives | $ | 724 |
| | $ | 724 |
| | $ | 29,034 |
| | $ | 29,034 |
| | $ | 6,606 |
| | $ | 6,606 |
|
Finance receivables, net | $ | 7,159,632 |
| | $ | 7,101,025 |
| | $ | 6,921,037 |
| | $ | 6,835,458 |
| | $ | 7,233,923 |
| | $ | 7,149,966 |
|
Restricted cash | $ | 63,380 |
| | $ | 63,380 |
| | $ | 67,147 |
| | $ | 67,147 |
| | $ | 79,661 |
| | $ | 79,661 |
|
Liabilities: | | | | | | | | | | | |
Derivatives | $ | 32,414 |
| | $ | 32,414 |
| | $ | 142 |
| | $ | 142 |
| | $ | 1,388 |
| | $ | 1,388 |
|
Unsecured commercial paper | $ | 834,875 |
| | $ | 834,875 |
| | $ | 1,055,708 |
| | $ | 1,055,708 |
| | $ | 1,055,428 |
| | $ | 1,055,428 |
|
Asset-backed U.S. commercial paper conduit facilities | $ | 280,308 |
| | $ | 280,308 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Asset-backed Canadian commercial paper conduit facility | $ | 122,130 |
| | $ | 122,130 |
| | $ | 149,338 |
| | $ | 149,338 |
| | $ | 140,488 |
| | $ | 140,488 |
|
Medium-term notes | $ | 4,612,083 |
| | $ | 4,564,124 |
| | $ | 4,139,462 |
| | $ | 4,064,940 |
| | $ | 4,199,753 |
| | $ | 4,063,510 |
|
Senior unsecured notes | $ | 774,693 |
| | $ | 741,797 |
| | $ | 744,552 |
| | $ | 741,306 |
| | $ | 800,818 |
| | $ | 741,144 |
|
Asset-backed securitization debt | $ | 430,038 |
| | $ | 429,833 |
| | $ | 797,688 |
| | $ | 796,275 |
| | $ | 929,775 |
| | $ | 925,619 |
|
Cash and Cash Equivalents and Restricted Cash – With the exception of certain cash equivalents, the carrying value of these items in the financial statements is based on historical cost. The historical cost basis for these amounts is estimated to approximate their respective fair values due to the short maturity of these instruments. Fair value is based on Level 1 or Level 2 inputs.
Marketable Securities – The carrying value of marketable securities in the financial statements is based on fair value. The fair value of marketable securities is determined primarily based on quoted prices for identical instruments or on quoted market prices of similar financial assets. Fair value is based on Level 1 or Level 2 inputs.
Finance Receivables, Net – The carrying value of retail and wholesale finance receivables in the financial statements is amortized cost less an allowance for credit losses. The fair valueAccordingly, as of March 31, 2023, December 31, 2022 and March 27, 2022, all retail finance receivables were accounted for as interest-earning receivables.
Wholesale finance receivables are delinquent if the minimum payment is generally calculatednot received by discountingthe contractual due date. Wholesale finance receivables are written down once the Company determines that the specific borrower does not have the ability to repay the loan in full. Interest continues to accrue on past due finance receivables until the date the Company determines that foreclosure is probable, and the finance receivable is placed on non-accrual status. The Company will resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured. While on non-accrual status, all cash flows usingreceived is applied to principal or interest as appropriate. Once an estimated discount rate that reflects currentaccount is charged-off, the Company will reverse the associated accrued interest against interest income. As the Company follows a non-accrual policy for interest, the allowance for credit losses excludes accrued interest for the wholesale portfolio.
There were no charged-off accounts during the three months ended March 31, 2023 and March 27, 2022. As such, the Company did not reverse any wholesale accrued interest in those periods. There were no dealers on non-accrual status at March 31, 2023, December 31, 2022, and March 27, 2022.
The aging analysis of the Company's finance receivables was as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,488,892 | | | $ | 125,327 | | | $ | 44,748 | | | $ | 49,136 | | | $ | 219,211 | | | $ | 6,708,103 | |
Wholesale finance receivables | 1,223,752 | | | 298 | | | — | | | 1 | | | 299 | | | 1,224,051 | |
| $ | 7,712,644 | | | $ | 125,625 | | | $ | 44,748 | | | $ | 49,137 | | | $ | 219,510 | | | $ | 7,932,154 | |
| | | | | | | | | | | |
| December 31, 2022 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,473,462 | | | $ | 152,343 | | | $ | 60,446 | | | $ | 61,950 | | | $ | 274,739 | | | $ | 6,748,201 | |
Wholesale finance receivables | 748,682 | | | 222 | | | 44 | | | — | | | 266 | | | 748,948 | |
| $ | 7,222,144 | | | $ | 152,565 | | | $ | 60,490 | | | $ | 61,950 | | | $ | 275,005 | | | $ | 7,497,149 | |
| | | | | | | | | | | |
| March 27, 2022 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,343,673 | | | $ | 99,705 | | | $ | 32,521 | | | $ | 35,946 | | | $ | 168,172 | | | $ | 6,511,845 | |
Wholesale finance receivables | 649,948 | | | 178 | | | 27 | | | 28 | | | 233 | | | 650,181 | |
| $ | 6,993,621 | | | $ | 99,883 | | | $ | 32,548 | | | $ | 35,974 | | | $ | 168,405 | | | $ | 7,162,026 | |
Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize economic loss, the Company may modify certain finance receivables in troubled loan modifications. Total finance receivables in troubled loan modifications were not significant as of March 31, 2023, December 31, 2022 and March 27, 2022. In accordance with its policies, in certain situations, the Company may offer short-term adjustments to customer payment due dates without affecting the associated interest rate and prepayment risks associated with similar types of instruments. Fair value is determined based on Level 3 inputs. The amortized cost basis of wholesale finance receivables approximates fair value because they either are short-term or have interest rates that adjust with changes in market interest rates.loan term.
Derivatives – Forward contracts for foreign currency exchange and commodities are derivative financial instruments and are carried at fair value on the balance sheet. The fair value of these contracts is determined using quoted forward rates and prices. Fair value is calculated using Level 2 inputs.
Debt – The carrying value of debt in the financial statements is generally amortized cost, net of discounts and debt issuance costs. The carrying value of unsecured commercial paper approximates fair value due to its short maturity. Fair value is calculated using Level 2 inputs.
The carrying value of debt provided under the U.S. conduit facilities and Canadian conduit facility approximates fair value since the interest rates charged under the facility are tied directly to market rates and fluctuate as market rates change. Fair value is calculated using Level 2 inputs.
The fair values of the medium-term notes and senior unsecured notes are estimated based upon rates available at the end of the period for debt with similar terms and remaining maturities. Fair value is calculated using Level 2 inputs.
The fair value of the debt related to on-balance sheet asset-backed securitization transactions is estimated based on pricing available at the end of the period for transactions with similar terms and maturities. Fair value is calculated using Level 2 inputs.
7.8. Derivative Financial Instruments and Hedging Activities
The Company is exposed to certain risks such asfrom fluctuations in foreign currency exchange rate risk,rates, interest rate riskrates and commodity price risk.prices. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures which prohibit the use of financial instruments for speculative trading purposes.
The Company sells products in foreign currencies and utilizes foreign currency exchange contracts to mitigate the effects of foreign currency exchange rate fluctuations related to the Euro, Australian dollar, Japanese yen, Brazilian real, Canadian dollar, Mexican peso, Chinese yuan, Singapore dollar, Thai baht, and Pound sterling. The Company's foreign currency exchange contracts generally have maturities of less than one year.
The Company utilizes commodity contracts to mitigate the effects of commodity price fluctuations related to metals and fuel consumed in its motorcycle operations. The Company's commodity contracts generally have maturities of less than one year.
The Company periodically utilizes treasury rate and swap rate lock contracts to fix the interest rate on a portion of the principal related to an anticipated issuance of long-term debt and cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on its foreign currency-denominated debt. The Company also utilizes interest rate caps to facilitate certain asset-backed securitization transactions.
All derivative financial instruments are recognized on the Consolidated balance sheetsheets at fair value (see Note 6).value. In accordance with ASC Topic 815, “DerivativesDerivatives and Hedging”(ASC Topic 815), the accounting for changes in the fair value of a derivative financial instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.
Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative financial instruments that are designated as cash flow hedges the effective portion of gains and losses that result from changes in the fair value of derivative instruments isare initially recorded in otherOther comprehensive (loss) income (OCI) and subsequently reclassified into earningsincome when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an on-goingongoing basis, whether the derivativesderivative financial instruments that are used in itsdesignated as cash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a designated hedging derivative financial instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative financial instruments that do not qualify for hedge accountingdesignated as hedges are recorded at fair value,not speculative and any changes in fair value are recorded in current period earnings.
The Company sells its products internationally, and in most markets those sales are made in the foreign country’s local currency. As a result,used to manage the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relativeexposure to foreign currency. The Company utilizes foreign currency, exchange contracts to mitigate the effects of the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollarcommodity risks, and the Mexican peso. The foreign currency exchange contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate.
The Company utilizes commodity contracts to hedge portions of the cost of certain commodities consumed in the Company’s motorcycle production and distribution operations.
The Company’s foreign currency exchange contracts and commodity contracts generally have maturities of less than one year.
During the second quarter of 2017, the Company entered into a treasury rate lock to fix the interest rate on a portion of the principal related to its anticipated issuance of medium-term notes during the second quarter of 2017. The treasury rate lock contract was settledrisks. Changes in June 2017. The loss at settlement was recorded in accumulated other comprehensive loss and will be reclassified into earnings over the life of the debt.
During the second quarter of 2015, the Company entered into treasury rate locks to fix the interest rate on a portion of the principal related to its anticipated issuance of senior unsecured debt during the third quarter of 2015. The treasury rate lock contracts were settled in July 2015. The loss at settlement was recorded in accumulated other comprehensive loss and will be reclassified into earnings over the life of the debt.
The following tables summarize the fair value of the Company’s derivative financial instruments not designated as hedging instruments are recorded directly in income. Cash flow activity associated with the Company's derivative financial instruments is recorded in Cash flows from operating activities on the Consolidated statement of cash flow.
The notional and fair values of the Company's derivative financial instruments under ASC Topic 815 were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Financial Instruments Designated as Cash Flow Hedging Instruments |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
| Notional Value | | Assets(a) | | Liabilities(b) | | Notional Value | | Assets(a) | | Liabilities(b) | | Notional Value | | Assets(a) | | Liabilities(b) |
Foreign currency contracts | $ | 530,175 | | | $ | 3,134 | | | $ | 12,659 | | | $ | 550,160 | | | $ | 6,054 | | | $ | 13,440 | | | $ | 585,451 | | | $ | 18,832 | | | $ | 3,576 | |
Commodity contracts | 906 | | | — | | | 339 | | | 1,361 | | | — | | | 410 | | | 964 | | | 316 | | | — | |
Cross-currency swaps | 2,127,240 | | | — | | | 34,685 | | | 1,367,460 | | | — | | | 36,101 | | | 1,367,460 | | | 18,835 | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Swap rate lock contracts | 324,843 | | | — | | | 1,780 | | | — | | | — | | | — | | | — | | | — | | | — | |
| $ | 2,983,164 | | | $ | 3,134 | | | $ | 49,463 | | | $ | 1,918,981 | | | $ | 6,054 | | | $ | 49,951 | | | $ | 1,953,875 | | | $ | 37,983 | | | $ | 3,576 | |
| | | | | | | | | | | | | | | | | |
| Derivative Financial Instruments Not Designated as Hedging Instruments |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
| Notional Value | | Assets(a) | | Liabilities(b) | | Notional Value | | Assets(a) | | Liabilities(b) | | Notional Value | | Assets(a) | | Liabilities(b) |
Foreign currency contracts | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 230,336 | | | $ | 587 | | | $ | 722 | |
Commodity contracts | 11,229 | | | 99 | | | 755 | | | 10,803 | | | 310 | | | 310 | | | 11,866 | | | 2,435 | | | — | |
Interest rate caps | 938,768 | | | 1,414 | | | — | | | 1,058,827 | | | 2,373 | | | — | | | 412,478 | | | 2,060 | | | — | |
| $ | 949,997 | | | $ | 1,513 | | | $ | 755 | | | $ | 1,069,630 | | | $ | 2,683 | | | $ | 310 | | | $ | 654,680 | | | $ | 5,082 | | | $ | 722 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Derivatives Designated As Hedging Instruments Under ASC Topic 815 | | Notional Value | | Asset Fair Value(a) | | Liability Fair Value(b) | | Notional Value | | Asset Fair Value(a) | | Liability Fair Value(b) | | Notional Value | | Asset Fair Value(a) | | Liability Fair Value(b) |
Foreign currency contracts(c) | | $ | 746,378 |
| | $ | 439 |
| | $ | 32,352 |
| | $ | 554,551 |
| | $ | 28,528 |
| | $ | 142 |
| | $ | 615,251 |
| | $ | 6,337 |
| | $ | 1,193 |
|
Commodity contracts(c) | | 1,273 |
| | — |
| | 62 |
| | 992 |
| | 177 |
| | — |
| | 1,154 |
| | 110 |
| | — |
|
Total | | $ | 747,651 |
| | $ | 439 |
| | $ | 32,414 |
|
| $ | 555,543 |
| | $ | 28,705 |
| | $ | 142 |
|
| $ | 616,405 |
| | $ | 6,447 |
| | $ | 1,193 |
|
| | | | | | | | | | | | | | | | | | |
| | September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Derivatives Not Designated As Hedging Instruments Under ASC Topic 815 | | Notional Value | | Asset Fair Value(a) | | Liability Fair Value(b) | | Notional Value | | Asset Fair Value(a) | | Liability Fair Value(b) | | Notional Value | | Asset Fair Value(a) | | Liability Fair Value(b) |
Commodity contracts | | $ | 4,234 |
| | $ | 285 |
| | $ | — |
| | $ | 5,025 |
| | $ | 329 |
| | $ | — |
| | $ | 4,488 |
| | $ | 159 |
| | $ | 195 |
|
Total | | $ | 4,234 |
|
| $ | 285 |
| | $ | — |
| | $ | 5,025 |
| | $ | 329 |
| | $ | — |
| | $ | 4,488 |
| | $ | 159 |
| | $ | 195 |
|
19
| |
(a) | Included in other current assets |
| |
(b) | Included in accrued liabilities |
| |
(c) | Derivative designated as a cash flow hedge |
(a)Includes $1.4 million and $2.4 million of interest rate caps recorded in Other long-term assets as of March 31, 2023 and December 31, 2022, respectively, with all remaining amounts recorded in Other current assets.
(b)Includes $27.9 million and $24.2 million of cross-currency swaps recorded in Other long-term liabilities as of March 31, 2023 and December 31, 2022, respectively, with all remaining amounts recorded in Accrued liabilities.
The following tables summarize the amountamounts of gains and losses related to the Company's derivative financial instruments designated as cash flow hedges were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Gain/(Loss) Recognized in OCI | | | | | | Gain/(Loss) Reclassified from AOCL into Income |
| | | Three months ended | | | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 | | | | | | March 31, 2023 | | March 27, 2022 |
Foreign currency contracts | | | | | $ | (1,706) | | | $ | 8,444 | | | | | | | $ | 6,290 | | | $ | 5,655 | |
Commodity contracts | | | | | (309) | | | 562 | | | | | | | (379) | | | 226 | |
Cross-currency swaps | | | | | 1,416 | | | (16,236) | | | | | | | 21,625 | | | (25,800) | |
Treasury rate lock contracts | | | | | 1,139 | | | — | | | | | | | (66) | | | (127) | |
Swap rate lock contracts | | | | | (1,780) | | | — | | | | | | | (5) | | | — | |
| | | | | $ | (1,240) | | | $ | (7,230) | | | | | | | $ | 27,465 | | | $ | (20,046) | |
|
| | | | | | | | | | | | | | | | |
| | Amount of Gain/(Loss) Recognized in OCI, before tax |
| | Three months ended | | Nine months ended |
Cash Flow Hedges | | September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Foreign currency contracts | | $ | (35,687 | ) | | $ | (938 | ) | | $ | (59,335 | ) | | $ | (5,445 | ) |
Commodity contracts | | (5 | ) | | 43 |
| | (191 | ) | | (30 | ) |
Treasury rate locks | | — |
| | — |
| | (719 | ) | | — |
|
Total | | $ | (35,692 | ) | | $ | (895 | ) | | $ | (60,245 | ) | | $ | (5,475 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain/(Loss) Reclassified from AOCL into Income | | |
| | Three months ended | | Nine months ended | | Expected to be Reclassified |
Cash Flow Hedges | | September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 | | Over the Next Twelve Months |
Foreign currency contracts(a) | | $ | (7,901 | ) | | $ | 2,399 |
| | $ | (1,428 | ) | | $ | 6,806 |
| | $ | (31,324 | ) |
Commodity contracts(a) | | (16 | ) | | 21 |
| | 49 |
| | (298 | ) | | (62 | ) |
Treasury rate locks(b) | | (126 | ) | | (90 | ) | | (315 | ) | | (271 | ) | | (506 | ) |
Total | | $ | (8,043 | ) | | $ | 2,330 |
| | $ | (1,694 | ) | | $ | 6,237 |
| | $ | (31,892 | ) |
| |
(a) | Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL)The location and amount of gains and losses recognized in income related to income is included in cost of goods sold |
| |
(b) | Gain/(loss) reclassified from AOCL to income is included in interest expense |
For the
three and nine months ended September 24, 2017 and September 25, 2016, theCompany's derivative financial instruments designated as cash flow hedges were
highly effective and, as
a result, thefollows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Motorcycles and related products cost of goods sold | | Selling, administrative & engineering expense | | Interest expense | | Financial services interest expense |
| Three months ended March 31, 2023 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,007,301 | | | $ | 285,863 | | | $ | 7,720 | | | $ | 73,549 | |
| | | | | | | |
Gain/(loss) reclassified from AOCL into income: | | | | | | | |
Foreign currency contracts | $ | 6,290 | | | $ | — | | | $ | — | | | $ | — | |
Commodity contracts | $ | (379) | | | $ | — | | | $ | — | | | $ | — | |
Cross-currency swaps | $ | — | | | $ | 21,625 | | | $ | — | | | $ | — | |
Treasury rate lock contracts | $ | — | | | $ | — | | | $ | (91) | | | $ | 25 | |
| | | | | | | |
Swap rate lock contracts | $ | — | | | $ | — | | | $ | — | | | $ | (5) | |
| Three months ended March 27, 2022 |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 895,536 | | | $ | 239,625 | | | $ | 7,711 | | | $ | 42,099 | |
| | | | | | | |
Gain/(loss) reclassified from AOCL into income: | | | | | | | |
Foreign currency contracts | $ | 5,655 | | | $ | — | | | $ | — | | | $ | — | |
Commodity contracts | $ | 226 | | | $ | — | | | $ | — | | | $ | — | |
Cross-currency swaps | $ | — | | | $ | (25,800) | | | $ | — | | | $ | — | |
Treasury rate lock contracts | $ | — | | | $ | — | | | $ | (91) | | | $ | (36) | |
| | | | | | | |
The amount of hedge ineffectivenessnet loss included in Accumulated other comprehensive loss (AOCL) at March 31, 2023, estimated to be reclassified into income over the next 12 months was not material. No amounts were excluded from effectiveness testing.$17.6 million.
The following table summarizes the amount of gains and losses recognized in income related to derivative financial instruments not designated as hedging instruments were as follows (in thousands):. Gains and losses on foreign currency contracts and commodity contracts were recorded in Motorcycles and related products cost of goods sold. Gains and losses on interest rate caps were recorded in Selling, administrative & engineering expense.
| | | | | | | | | | | | | | | |
| | | | | Amount of Gain/(Loss) Recognized in Income |
| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
Foreign currency contracts | | | | | $ | (627) | | | $ | (3,506) | |
Commodity contracts | | | | | (99) | | | 2,387 | |
Interest rate caps | | | | | (958) | | | 1,700 | |
| | | | | $ | (1,684) | | | $ | 581 | |
|
| | | | | | | | | | | | | | | | |
| | Amount of Gain/(Loss) Recognized in Income on Derivative |
| | Three months ended | | Nine months ended |
Derivatives Not Designated As Hedges | | September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Commodity contracts(a) | | $ | 433 |
| | $ | 45 |
| | $ | 259 |
| | $ | (179 | ) |
Total | | $ | 433 |
| | $ | 45 |
| | $ | 259 |
| | $ | (179 | ) |
| |
(a) | Gain/(loss) recognized in income is included in cost of goods sold |
The Company is exposed to credit loss risk in the event of non-performance by counterparties to theseits derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to theseits derivative financial instruments to fail to meet itstheir obligations. To manage credit loss risk, the Company evaluates counterparties based on credit ratings and, on a quarterly basis, evaluates each hedge’s net position relative to the counterparty’s ability to cover itstheir position.
8. Accumulated Other Comprehensive Loss
The following tables set forth the changes in accumulated other comprehensive loss (AOCL) (in thousands): |
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 24, 2017 |
| | Foreign currency translation adjustments | | Marketable securities | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | | $ | (42,938 | ) | | $ | — |
| | $ | (6,940 | ) | | $ | (494,067 | ) | | $ | (543,945 | ) |
Other comprehensive income (loss) before reclassifications | | 26,754 |
| | — |
| | (35,692 | ) | | — |
| | (8,938 | ) |
Income tax (benefit) expense | | (1,741 | ) | | — |
| | 13,220 |
| | — |
| | 11,479 |
|
Net other comprehensive income (loss) before reclassifications | | 25,013 |
| | — |
| | (22,472 | ) | | — |
| | 2,541 |
|
Reclassifications: | | | | | | | | | | |
Realized (gains) losses - foreign currency contracts(a) | | — |
| | — |
| | 7,901 |
| | — |
| | 7,901 |
|
Realized (gains) losses - commodities contracts(a) | | — |
| | — |
| | 16 |
| | — |
| | 16 |
|
Realized (gains) losses - treasury rate locks(b) | | — |
| | — |
| | 126 |
| | — |
| | 126 |
|
Prior service credits(c) | | — |
| | — |
| | — |
| | (287 | ) | | (287 | ) |
Actuarial losses(c) | | — |
| | — |
| | — |
| | 11,813 |
| | 11,813 |
|
Total reclassifications before tax | | — |
| | — |
| | 8,043 |
| | 11,526 |
| | 19,569 |
|
Income tax benefit | | — |
| | — |
| | (2,978 | ) | | (4,269 | ) | | (7,247 | ) |
Net reclassifications | | — |
| | — |
| | 5,065 |
| | 7,257 |
| | 12,322 |
|
Other comprehensive income (loss) | | 25,013 |
| | — |
| | (17,407 | ) | | 7,257 |
| | 14,863 |
|
Balance, end of period | | $ | (17,925 | ) | | $ | — |
| | $ | (24,347 | ) | | $ | (486,810 | ) | | $ | (529,082 | ) |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 25, 2016 |
| | Foreign currency translation adjustments | | Marketable securities | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | | $ | (43,523 | ) | | $ | (1,171 | ) | | $ | 543 |
| | $ | (546,010 | ) | | $ | (590,161 | ) |
Other comprehensive income (loss) before reclassifications | | 3,574 |
| | (18 | ) | | (895 | ) | | — |
| | 2,661 |
|
Income tax expense | | 279 |
| | 7 |
| | 332 |
| | — |
| | 618 |
|
Net other comprehensive income (loss) before reclassifications | | 3,853 |
| | (11 | ) | | (563 | ) | | — |
| | 3,279 |
|
Reclassifications: | | | | | | | | | | |
Realized (gains) losses - foreign currency contracts(a) | | — |
| | — |
| | (2,399 | ) | | — |
| | (2,399 | ) |
Realized (gains) losses - commodities contracts(a) | | — |
| | — |
| | (21 | ) | | — |
| | (21 | ) |
Realized (gains) losses - treasury rate locks(b) | | — |
| | — |
| | 90 |
| | — |
| | 90 |
|
Prior service credits(c) | | — |
| | — |
| | — |
| | (446 | ) | | (446 | ) |
Actuarial losses(c) | | — |
| | — |
| | — |
| | 12,472 |
| | 12,472 |
|
Total reclassifications before tax | | — |
| | — |
| | (2,330 | ) | | 12,026 |
| | 9,696 |
|
Income tax expense (benefit) | | — |
| | — |
| | 862 |
| | (4,454 | ) | | (3,592 | ) |
Net reclassifications | | — |
| | — |
| | (1,468 | ) | | 7,572 |
| | 6,104 |
|
Other comprehensive income (loss) | | 3,853 |
| | (11 | ) | | (2,031 | ) | | 7,572 |
| | 9,383 |
|
Balance, end of period | | $ | (39,670 | ) | | $ | (1,182 | ) | | $ | (1,488 | ) | | $ | (538,438 | ) | | $ | (580,778 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 24, 2017 |
| | Foreign currency translation adjustments | | Marketable securities | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | | $ | (68,132 | ) | | $ | (1,194 | ) | | $ | 12,524 |
| | $ | (508,579 | ) | | $ | (565,381 | ) |
Other comprehensive income (loss) before reclassifications | | 51,834 |
| | 1,896 |
| | (60,245 | ) | | — |
| | (6,515 | ) |
Income tax (benefit) expense | | (1,627 | ) | | (702 | ) | | 22,307 |
| | — |
| | 19,978 |
|
Net other comprehensive income (loss) before reclassifications | | 50,207 |
| | 1,194 |
| | (37,938 | ) | | — |
| | 13,463 |
|
Reclassifications: | | | | | | | | | | |
Realized (gains) losses - foreign currency contracts(a) | | — |
| | — |
| | 1,428 |
| | — |
| | 1,428 |
|
Realized (gains) losses - commodities contracts(a) | | — |
| | — |
| | (49 | ) | | — |
| | (49 | ) |
Realized (gains) losses - treasury rate locks(b) | | — |
| | — |
| | 315 |
| | — |
| | 315 |
|
Prior service credits(c) | | — |
| | — |
| | — |
| | (865 | ) | | (865 | ) |
Actuarial losses(c) | | — |
| | — |
| | — |
| | 35,439 |
| | 35,439 |
|
Total reclassifications before tax | | — |
| | — |
| | 1,694 |
| | 34,574 |
| | 36,268 |
|
Income tax benefit | | — |
| | — |
| | (627 | ) | | (12,805 | ) | | (13,432 | ) |
Net reclassifications | | — |
| | — |
| | 1,067 |
| | 21,769 |
| | 22,836 |
|
Other comprehensive income (loss) | | 50,207 |
| | 1,194 |
| | (36,871 | ) | | 21,769 |
| | 36,299 |
|
Balance, end of period | | $ | (17,925 | ) | | $ | — |
| | $ | (24,347 | ) | | $ | (486,810 | ) | | $ | (529,082 | ) |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 25, 2016 |
| | Foreign currency translation adjustments | | Marketable securities | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | | $ | (58,844 | ) | | $ | (1,094 | ) | | $ | 5,886 |
| | $ | (561,153 | ) | | $ | (615,205 | ) |
Other comprehensive income (loss) before reclassifications | | 20,661 |
| | (140 | ) | | (5,475 | ) | | — |
| | 15,046 |
|
Income tax (benefit) expense | | (1,487 | ) | | 52 |
| | 2,028 |
| | — |
| | 593 |
|
Net other comprehensive income (loss) before reclassifications | | 19,174 |
| | (88 | ) | | (3,447 | ) | | — |
| | 15,639 |
|
Reclassifications: | | | | | | | | | | |
Realized (gains) losses - foreign currency contracts(a) | | — |
| | — |
| | (6,806 | ) | | — |
| | (6,806 | ) |
Realized (gains) losses - commodities contracts(a) | | — |
| | — |
| | 298 |
| | — |
| | 298 |
|
Realized (gains) losses - treasury rate locks(b) | | — |
| | — |
| | 271 |
| | — |
| | 271 |
|
Prior service credits(c) | | — |
| | — |
| | — |
| | (1,338 | ) | | (1,338 | ) |
Actuarial losses(c) | | — |
| | — |
| | — |
| | 37,416 |
| | 37,416 |
|
Total reclassifications before tax | | — |
| | — |
| | (6,237 | ) | | 36,078 |
| | 29,841 |
|
Income tax expense (benefit) | | — |
| | — |
| | 2,310 |
| | (13,363 | ) | | (11,053 | ) |
Net reclassifications | | — |
| | — |
| | (3,927 | ) | | 22,715 |
| | 18,788 |
|
Other comprehensive income (loss) | | 19,174 |
| | (88 | ) | | (7,374 | ) | | 22,715 |
| | 34,427 |
|
Balance, end of period | | $ | (39,670 | ) | | $ | (1,182 | ) | | $ | (1,488 | ) | | $ | (538,438 | ) | | $ | (580,778 | ) |
| |
(a) | Amounts reclassified to net income are included in Motorcycles and Related Products cost of goods sold. |
| |
(b) | Amounts reclassified to net income are included in interest expense. |
| |
(c) | Amounts reclassified are included in the computation of net periodic benefit cost. See Note 14 for information related to pension and postretirement benefit plans. |
9. Debt
Debt with a contractual term of one year or less than 12 months is generally classified as short-term debt and consisted of the following (in thousands): | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
Unsecured commercial paper | $ | 501,243 | | | $ | 770,468 | | | $ | 816,016 | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | | |
| | September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Unsecured commercial paper | | $ | 834,875 |
| | $ | 1,055,708 |
| | $ | 1,055,428 |
|
Total short-term debt | | $ | 834,875 |
| | $ | 1,055,708 |
| | $ | 1,055,428 |
|
Debt with a contractual term greater than one year12 months is generally classified as long-term debt and consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
Secured debt: | | | | | | |
Asset-backed Canadian commercial paper conduit facility | | $ | 62,195 | | | $ | 71,785 | | | $ | 95,664 | |
Asset-backed U.S. commercial paper conduit facility | | 372,816 | | | 425,794 | | | 269,534 | |
Asset-backed securitization debt | | 2,267,516 | | | 2,028,155 | | | 1,363,254 | |
Unamortized discounts and debt issuance costs | | (9,717) | | | (8,741) | | | (5,696) | |
| | 2,692,810 | | | 2,516,993 | | | 1,722,756 | |
Unsecured notes (at par value): | | | | | | |
Medium-term notes: | | | | | | |
| | | | | | |
Due in 2022, issued June 2017 | 2.55 | % | — | | | — | | | 400,000 | |
Due in 2023, issued February 2018 | 3.35 | % | — | | | 350,000 | | | 350,000 | |
Due in 2023, issued May 2020(a) | 4.94 | % | 706,972 | | | 695,727 | | | 723,886 | |
Due in 2024, issued November 2019(b) | 3.14 | % | 652,590 | | | 642,210 | | | 668,202 | |
Due in 2025, issued June 2020 | 3.35 | % | 700,000 | | | 700,000 | | | 700,000 | |
Due in 2027, issued February 2022 | 3.05 | % | 500,000 | | | 500,000 | | | 500,000 | |
Due in 2028, issued March 2023 | 6.50 | % | 700,000 | | | — | | | — | |
Unamortized discounts and debt issuance costs | | (13,971) | | | (8,464) | | | (12,243) | |
| | 3,245,591 | | | 2,879,473 | | | 3,329,845 | |
| | | | | | |
|
| | | | | | | | | | | | |
| | September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
Secured debt (Note 10) | | | | | | |
Asset-backed Canadian commercial paper conduit facility | | $ | 122,130 |
| | $ | 149,338 |
| | $ | 140,488 |
|
Asset-backed U.S. commercial paper conduit facilities | | 280,308 |
| | — |
| | — |
|
Asset-backed securitization debt | | 430,457 |
| | 797,755 |
| | 927,539 |
|
Less: unamortized discount and debt issuance costs | | (624 | ) | | (1,480 | ) | | (1,920 | ) |
Total secured debt | | 832,271 |
| | 945,613 |
| | 1,066,107 |
|
| | | | | | |
Unsecured notes | | | | | | |
2.70% Medium-term notes due in 2017 par value, issued January 2012 | | — |
| | 400,000 |
| | 400,000 |
|
1.55% Medium-term notes due in 2017 par value, issued November 2014 | | 400,000 |
| | 400,000 |
| | 400,000 |
|
6.80% Medium-term notes due in 2018 par value, issued May 2008 | | 877,488 |
| | 877,488 |
| | 877,488 |
|
2.25% Medium-term notes due in 2019 par value, issued January 2016 | | 600,000 |
| | 600,000 |
| | 600,000 |
|
Floating-rate Medium-term notes due in 2019 par value, issued March 2017 | | 150,000 |
| | — |
| | — |
|
2.40% Medium-term notes due in 2019 par value, issued September 2014 | | 600,000 |
| | 600,000 |
| | 600,000 |
|
2.15% Medium-term notes due in 2020 par value, issued February 2015 | | 600,000 |
| | 600,000 |
| | 600,000 |
|
2.40% Medium-term notes due in 2020 par value, issued March 2017 | | 350,000 |
| | — |
| | — |
|
2.85% Medium-term notes due in 2021 par value, issued January 2016 | | 600,000 |
| | 600,000 |
| | 600,000 |
|
2.55% Medium-term notes due in 2022 par value, issued June 2017 | | 400,000 |
| | — |
| | — |
|
3.50% Senior unsecured notes due in 2025 par value, issued July 2015 | | 450,000 |
| | 450,000 |
| | 450,000 |
|
4.625% Senior unsecured notes due in 2045 par value, issued July 2015 | | 300,000 |
| | 300,000 |
| | 300,000 |
|
Less: unamortized discount and debt issuance costs | | (21,567 | ) | | (21,242 | ) | | (22,834 | ) |
Gross long-term debt | | 6,138,192 |
| | 5,751,859 |
| | 5,870,761 |
|
Less: current portion of long-term debt, net of unamortized discount and debt issuance costs | | (1,530,401 | ) | | (1,084,884 | ) | | (700,152 | ) |
Total long-term debt | | $ | 4,607,791 |
| | $ | 4,666,975 |
| | $ | 5,170,609 |
|
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
Senior notes: | | | | | | |
Due in 2025, issued July 2015 | 3.50 | % | 450,000 | | | 450,000 | | | 450,000 | |
Due in 2045, issued July 2015 | 4.625 | % | 300,000 | | | 300,000 | | | 300,000 | |
Unamortized discounts and debt issuance costs | | (4,455) | | | (4,632) | | | (5,158) | |
| | 745,545 | | | 745,368 | | | 744,842 | |
| | 3,991,136 | | | 3,624,841 | | | 4,074,687 | |
Long-term debt | | 6,683,946 | | | 6,141,834 | | | 5,797,443 | |
Current portion of long-term debt, net | | (1,408,777) | | | (1,684,782) | | | (1,327,357) | |
Long-term debt, net | | $ | 5,275,169 | | | $ | 4,457,052 | | | $ | 4,470,086 | |
(a)€650.0 million par value remeasured to U.S. dollar at March 31, 2023, December 31, 2022, and March 27, 2022, respectively (b)€600.0 million par value remeasured to U.S. dollar at March 31, 2023, December 31, 2022, and March 27, 2022, respectively
Future principal payments of the Company's debt obligations as of March 31, 2023 were as follows (in thousands): | | | | | |
2023 | $ | 1,783,948 | |
2024 | 1,302,020 | |
2025 | 1,857,244 | |
2026 | 606,941 | |
2027 | 663,172 | |
Thereafter | 1,000,007 | |
Future principal payments | 7,213,332 | |
Unamortized discounts and debt issuance costs | (28,143) | |
| $ | 7,185,189 | |
10. Asset-Backed Financing
The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing. The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE.
In transactions where the Company has power over the significant activities of the VIE and has an obligation to absorb losses or the right to receive benefits from the VIE that are potentially significant to the VIE, the Company is the primary beneficiary of the VIE and consolidates the VIE within its consolidated financial statements. On a consolidated basis, the asset-backed financing is treated as a secured borrowing in this type of transaction and is referred to as an on-balance sheet asset-backed financing.
In transactions where the Company is not the primary beneficiary of the VIE, the Company must determine whether it can achieve a sale for accounting purposes under ASC Topic 860, "TransfersTransfers and Servicing."Servicing. To achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond the Company’s control. If the Company does not meet all of these criteria for sale accounting, then the transaction is accounted for as a secured borrowing and is referred to as an on-balance sheet asset-backed financing.
If the Company meets all three of the sale criteria above, the transaction is recorded as a sale for accounting purposes and is referred to as an off-balance sheet asset-backed financing. Upon sale, the retail motorcycle finance receivables are removed from the Company’s Consolidated balance sheetsheets and a gain or loss is recognized for the difference between the cash proceeds received, the
assets derecognized, and the liabilities recognized as part of the transaction. The gain or loss on sale is included in Financial Services revenue in on the Consolidated Statementstatements of Income.operations.
The Company is not required, and does not currently intend, to provide any additional financial support to the onon- or off-balance sheet VIEs associated with these transactions. Investors and creditors in these transactions only have recourse to the assets held by the VIEs.
The following tables show the assets and liabilities related to the on-balance sheet asset-backed financings included in the financial statementsConsolidated balance sheets were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt, net |
On-balance sheet assets and liabilities: | | | | | | | | | | | |
Consolidated VIEs: | | | | | | | | | | | |
Asset-backed securitizations | $ | 2,815,885 | | | $ | (144,336) | | | $ | 142,265 | | | $ | 8,799 | | | $ | 2,822,613 | | | $ | 2,257,799 | |
Asset-backed U.S. commercial paper conduit facility | 410,529 | | | (21,031) | | | 29,020 | | | 1,939 | | | 420,457 | | | 372,816 | |
Unconsolidated VIEs: | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 70,485 | | | (2,980) | | | 5,193 | | | 151 | | | 72,849 | | | 62,195 | |
| $ | 3,296,899 | | | $ | (168,347) | | | $ | 176,478 | | | $ | 10,889 | | | $ | 3,315,919 | | | $ | 2,692,810 | |
| | | | | | | | | | | |
| December 31, 2022 |
| Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt, net |
On-balance sheet assets and liabilities: | | | | | | | | | | | |
Consolidated VIEs: | | | | | | | | | | | |
Asset-backed securitizations | $ | 2,558,450 | | | $ | (130,774) | | | $ | 114,254 | | | $ | 7,899 | | | $ | 2,549,829 | | | $ | 2,019,414 | |
Asset-backed U.S. commercial paper conduit facility | 474,167 | | | (24,236) | | | 26,874 | | | 1,906 | | | 478,711 | | | 425,794 | |
Unconsolidated VIEs: | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 82,375 | | | (3,452) | | | 4,873 | | | 130 | | | 83,926 | | | 71,785 | |
| $ | 3,114,992 | | | $ | (158,462) | | | $ | 146,001 | | | $ | 9,935 | | | $ | 3,112,466 | | | $ | 2,516,993 | |
| | | | | | | | | | | |
| March 27, 2022 |
| Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt, net |
On-balance sheet assets and liabilities: | | | | | | | | | | | |
Consolidated VIEs: | | | | | | | | | | | |
Asset-backed securitizations | $ | 1,755,446 | | | $ | (88,090) | | | $ | 131,992 | | | $ | 3,724 | | | $ | 1,803,072 | | | $ | 1,357,558 | |
Asset-backed U.S. commercial paper conduit facility | 290,481 | | | (14,549) | | | 24,305 | | | 649 | | | 300,886 | | | 269,534 | |
Unconsolidated VIEs: | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 108,052 | | | (4,457) | | | 8,129 | | | 43 | | | 111,767 | | | 95,664 | |
| $ | 2,153,979 | | | $ | (107,096) | | | $ | 164,426 | | | $ | 4,416 | | | $ | 2,215,725 | | | $ | 1,722,756 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 24, 2017 |
| Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt |
On-balance sheet assets and liabilities | | | | | | | | | | | |
Consolidated VIEs | | | | | | | | | | | |
Asset-backed securitizations | $ | 511,643 |
| | $ | (15,798 | ) | | $ | 40,385 |
| | $ | 1,513 |
| | $ | 537,743 |
| | $ | 429,833 |
|
Asset-backed U.S. commercial paper conduit facilities | 298,197 |
| | (9,233 | ) | | 14,922 |
| | 927 |
| | 304,813 |
| | 280,308 |
|
Unconsolidated VIEs | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 139,413 |
| | (2,560 | ) | | 8,073 |
| | 350 |
| | 145,276 |
| | 122,130 |
|
Total on-balance sheet assets and liabilities | $ | 949,253 |
| | $ | (27,591 | ) | | $ | 63,380 |
| | $ | 2,790 |
| | $ | 987,832 |
| | $ | 832,271 |
|
| | | | | | | | | | | |
| December 31, 2016 |
| Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt |
On-balance sheet assets and liabilities | | | | | | | | | | | |
Consolidated VIEs | | | | | | | | | | | |
Asset-backed securitizations | $ | 893,804 |
| | $ | (25,468 | ) | | $ | 57,057 |
| | $ | 2,452 |
| | $ | 927,845 |
| | $ | 796,275 |
|
Asset-backed U.S. commercial paper conduit facilities | — |
| | — |
| | — |
| | 329 |
| | 329 |
| | — |
|
Unconsolidated VIEs | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 165,719 |
| | (3,573 | ) | | 10,090 |
| | 426 |
| | 172,662 |
| | 149,338 |
|
Total on-balance sheet assets and liabilities | $ | 1,059,523 |
| | $ | (29,041 | ) | | $ | 67,147 |
| | $ | 3,207 |
| | $ | 1,100,836 |
| | $ | 945,613 |
|
| | | | | | | | | | | |
| September 25, 2016 |
| Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt |
On-balance sheet assets and liabilities | | | | | | | | | | | |
Consolidated VIEs | | | | | | | | | | | |
Asset-backed securitizations | $ | 1,019,378 |
| | $ | (27,847 | ) | | $ | 69,364 |
| | $ | 2,893 |
| | $ | 1,063,788 |
| | $ | 925,619 |
|
Asset-backed U.S. commercial paper conduit facilities | — |
| | — |
| | — |
| | 150 |
| | 150 |
| | — |
|
Unconsolidated VIEs | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 155,130 |
| | (3,244 | ) | | 10,297 |
| | 351 |
| | 162,534 |
| | 140,488 |
|
Total on-balance sheet assets and liabilities | $ | 1,174,508 |
| | $ | (31,091 | ) | | $ | 79,661 |
| | $ | 3,394 |
| | $ | 1,226,472 |
| | $ | 1,066,107 |
|
On-Balance Sheet Asset-Backed Securitization VIEs
– The Company transfers U.S. retail motorcycle finance receivables to SPEs which in turn issue secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. Each on-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transactiontransactions and are not available to pay other obligations or claims of
the Company’s creditors until the associated secured debt and other obligations are satisfied. Restricted cash balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual livesnotes currently have various contractual maturities ranging from 20192024 to 2022.2030.
The Company is the primary beneficiary of its on-balance sheet asset-backed securitization VIEs because it retains servicing rights and a residual interest in the VIEs in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.
During the first quarter of 2023, the Company transferred $628.5 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $550.0 million, or $547.7 million net of discount and issuance costs, of secured notes through an on-balance sheet asset-backed securitization transaction. There were no on-balance sheet asset-backed securitization transactions during the nine months ended September 24, 2017 or September 25, 2016.first quarter of 2022.
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit FacilitiesFacility VIE
On December 14, 2016, the – The Company entered intohas a new$1.50 billion revolving facility agreement (the U.S. Conduit Facility) with a third party bank-sponsoredthird-party banks and their asset-backed U.S. commercial paper conduit,conduits. Under the revolving facility agreement, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which providesin turn may issue debt to those third-party banks and their asset-backed U.S. commercial paper conduits. In November 2022, the Company renewed the U.S. Conduit Facility. As a result of the renewal, the agreement no longer allows for a total commitmentuncommitted additional borrowings, at the lender's discretion, of up to $300.0 million. Also on that date,million in addition to the $1.50 billion aggregate commitment. Prior to the November 2022 renewal, the Company renewed its existing $600.0drew against the $300.0 million revolving facility agreement, which had expired on December 14, 2016, withof uncommitted additional borrowings that were available prior to the same third party bank-sponsored asset-backed U.S. commercial paper conduit.renewal and, at March 31, 2023, $72.8 million of the amount drawn remained outstanding. Availability under the revolving facilities (together, the U.S. Conduit Facilities)Facility is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the SPE as collateral.
Under the U.S. Conduit Facilities,Facility, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to the third party bank-sponsored asset-backed commercial paper conduit. The assets of the SPE are restricted as collateral for the payment of the debt or other obligations arising in the transaction and are not available to pay other obligations or claims of the Company’s creditors. The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates or LIBORif funded by a conduit lender through the issuance of commercial paper. Subsequent to the extentNovember 2022 renewal, the advance isinterest rate on all outstanding debt and future borrowings, if not funded by a conduit lender through the issuance of commercial paper, plus,is based on the Secured Overnight Financing Rate (SOFR), with provisions for a transition to other benchmark rates in each case,the future, if necessary. Prior to the renewal, if not funded by a conduit lender through the issuance of commercial paper, the terms of the interest were based on LIBOR or SOFR, as appropriate, with provisions for a transition to other benchmark rates. In addition to interest, a program fee is assessed based on the outstanding principal.debt principal balance. The U.S. Conduit FacilitiesFacility also provideprovides for an unused commitment fee based on the unused portion of the total aggregate commitment of $900.0 million.commitment. There is no amortization schedule; however, the debt will beis reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the U.S. Conduit Facilities,Facility, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately 4 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of September 24, 2017,March 31, 2023, the U.S. Conduit Facilities haveFacility has an expiration date of December 13, 2017.
November 17, 2023.
The Company is the primary beneficiary of its U.S. Conduit FacilitiesFacility VIE because it retains servicing rights and a residual interest in the VIE in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.
In January, April, and July 2017,There were no finance receivable transfers under the U.S. Conduit Facility during the first quarter of 2023. During the first quarter of 2022, the Company transferred $333.4$47.1 million $28.2 million, and $34.1 million, respectively, of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $300.0$41.3 million $24.0 million, and $29.6 million, respectively, of debt under the U.S. Conduit Facilities. The contractual maturity of the debt is approximately 5 years. The VIE had no borrowings outstanding under the U.S. Conduit Facilities at December 31, 2016 or September 25, 2016.Facility.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility
In June 2017, the – The Company amended itshas a revolving facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase eligible Canadian retail motorcycle finance receivables for proceeds up to C$220.0125.0 million. The transferred assets are restricted as collateral for the payment of the associated debt. The terms for this debt provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment of C$220.0125.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. The contractual maturityexpected remaining term of the debtrelated receivables is approximately 54 years.
Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of September 24, 2017,March 31, 2023, the Canadian Conduit has an expiration date of June 30, 2018.
2023.
The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company doesn’tdoes not consolidate the VIE. However, the Company treats the conduit facility as a secured borrowing as it maintains effective control over the assets transferred to the VIE and, therefore, doesn’tdoes not meet the requirements for sale accounting.
As the Company participates in and does not consolidate the Canadian bank-sponsored, multi-seller conduit VIE, the maximum exposure to loss associated with this VIE, which would only be incurred in the unlikely event that all the finance receivables and underlying collateral have no residual value, was $23.1$10.7 million at September 24, 2017.March 31, 2023. The maximum exposure is not an indication of the Company's expected loss exposure.
The following table includes quarterlyThere were no finance receivable transfers under the Canadian Conduit Facility during the first quarter of 2023. During the first quarter of 2022, the Company transferred $25.3 million of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds (in thousands):
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Transfers | | Proceeds | | Transfers | | Proceeds |
First quarter | $ | 6,300 |
| | $ | 5,500 |
| | $ | 6,600 |
| | $ | 5,800 |
|
Second quarter | 14,200 |
| | 12,400 |
| | 31,400 |
| | 27,500 |
|
Third quarter | — |
| | — |
| | — |
| | — |
|
| $ | 20,500 |
| | $ | 17,900 |
| | $ | 38,000 |
| | $ | 33,300 |
|
Off-Balance Sheet Asset-Backed Securitization VIE
There were no off-balance sheet asset-backed securitization transactions during the nine months ended September 24, 2017. During the second quarter of 2016, the Company sold retail motorcycle finance receivables with a principal balance of $301.8 million into a securitization VIE that was not consolidated, recognized a gain of $9.3 million and received cashfor proceeds of $312.6$21.2 million. Similar to an on-balance sheet asset-backed securitization,
11. Fair Value
The following tables present the Company transferred U.S. retail motorcycle finance receivables to an SPE which in turn issued secured notes to investors, with various maturities and interest rates, secured by future collectionsfair values of certain of the purchased U.S. retail motorcycle finance receivables. Company's assets and liabilities within the fair value hierarchy as defined in Note 1.
Recurring Fair Value Measurements – The off-balance sheet asset-backed securitization SPE is a separate legal entity,Company’s assets and the U.S. retail motorcycle finance receivables included in the asset-backed securitization are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors. In an on-balance sheet asset-backed securitization, the Company retains a financial interest in the VIE in the form of a debt security. As part of this off-balance sheet securitization, the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants.
The Company is not the primary beneficiary of the off-balance sheet asset-backed securitization VIE because it only retained servicing rights and does not have the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. Accordingly, this transaction met the accounting sale requirements under ASC Topic 860 and was recorded as a sale for accounting purposes. Upon the sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet and a gain was recognized for the difference between the cash proceeds received, the assets derecognized and the liabilities recognized as part of the transaction. The gain on sale was included in Financial Services revenue in the Consolidated Statement of Income.
At September 24, 2017, the assets of this off-balance sheet asset-backed securitization VIE were $165.2 million and represented the current unpaid principal balance of the retail motorcycle finance receivables, which was the Company’s maximum exposure to loss in the off-balance sheet VIEmeasured at September 24, 2017. This is based on the unlikely event that all the receivables have underwriting defects or other defects that trigger a violation of certain covenants and that the underlying collateral has no residual value. This maximum exposure is not an indication of expected losses.
Servicing Activities
The Company services all retail motorcycle finance receivables that it originates. When the Company transfers retail motorcycle finance receivables to SPEs through asset-backed financings, the Company retains the right to service the finance receivables and receives servicing fees based on the securitized finance receivables balance and certain ancillary fees. In on-balance sheet asset-backed financings, servicing fees are eliminated in consolidation and therefore are not recordedfair value on a consolidated basis. In off-balance sheet asset-backed financings, servicing fees and ancillary fees are recorded in Financial Services revenue in the Consolidated Statement of Income. The fees the Company is paid for servicing represent adequate compensation, and consequently, the Company does not recognize a servicing asset or liability. The Company recognized servicing fee income of $1.5 million and $1.0 million during the nine months ended September 24, 2017 and September 25, 2016, respectively.
The unpaid principal balance of retail motorcycle finance receivables serviced by the Company was as follows (in thousands):
|
| | | | | | | | | | | |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
On-balance sheet retail motorcycle finance receivables | $ | 6,185,144 |
| | $ | 5,839,467 |
| | $ | 6,017,065 |
|
Off-balance sheet retail motorcycle finance receivables | 165,169 |
| | 236,706 |
| | 262,583 |
|
Total serviced retail motorcycle finance receivables | $ | 6,350,313 |
| | $ | 6,076,173 |
| | $ | 6,279,648 |
|
The unpaid principal balance of retail motorcycle finance receivables serviced by the Company 30 days or more delinquent was as follows (in thousands):
|
| | | | | | | | | | | |
| Amount 30 days or more past due: |
| September 24, 2017 | | December 31, 2016 | | September 25, 2016 |
On-balance sheet retail motorcycle finance receivables | $ | 203,450 |
| | $ | 221,393 |
| | $ | 192,891 |
|
Off-balance sheet retail motorcycle finance receivables | 1,720 |
| | 1,858 |
| | 1,235 |
|
Total serviced retail motorcycle finance receivables | $ | 205,170 |
| | $ | 223,251 |
| | $ | 194,126 |
|
Credit losses, net of recoveries for the retail motorcycle finance receivables serviced by the Companyrecurring basis were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Balance | | Level 1 | | Level 2 | | |
Assets: | | | | | | | |
Cash equivalents | $ | 1,030,696 | | | $ | 858,000 | | | $ | 172,696 | | | |
Marketable securities | 34,017 | | | 34,017 | | | — | | | |
Derivative financial instruments | 4,647 | | | — | | | 4,647 | | | |
| $ | 1,069,360 | | | $ | 892,017 | | | $ | 177,343 | | | |
Liabilities: | | | | | | | |
Derivative financial instruments | $ | 50,218 | | | $ | — | | | $ | 50,218 | | | |
LiveWire warrants | 7,320 | | | 4,800 | | | 2,520 | | | |
| $ | 57,538 | | | $ | 4,800 | | | $ | 52,738 | | | |
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
On-balance sheet retail motorcycle finance receivables | $ | 27,199 |
| | $ | 26,380 |
| | $ | 76,820 |
| | $ | 69,498 |
|
Off-balance sheet retail motorcycle finance receivables | 299 |
| | 270 |
| | 865 |
| | 285 |
|
Total serviced retail motorcycle finance receivables | $ | 27,498 |
| | $ | 26,650 |
| | $ | 77,685 |
| | $ | 69,783 |
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Balance | | Level 1 | | Level 2 | | |
Assets: | | | | | | | |
Cash equivalents | $ | 805,629 | | | $ | 594,000 | | | $ | 211,629 | | | |
Marketable securities | 33,071 | | | 33,071 | | | — | | | |
Derivative financial instruments | 8,737 | | | — | | | 8,737 | | | |
| $ | 847,437 | | | $ | 627,071 | | | $ | 220,366 | | | |
Liabilities: | | | | | | | |
Derivative financial instruments | $ | 50,261 | | | $ | — | | | $ | 50,261 | | | |
LiveWire warrants | 8,388 | | | 5,500 | | | 2,888 | | | |
| $ | 58,649 | | | $ | 5,500 | | | $ | 53,149 | | | |
| March 27, 2022 |
| Balance | | Level 1 | | Level 2 | | |
Assets: | | | | | | | |
Cash equivalents | $ | 968,395 | | | $ | 803,400 | | | $ | 164,995 | | | |
Marketable securities | 45,189 | | | 45,189 | | | — | | | |
Derivative financial instruments | 43,065 | | | — | | | 43,065 | | | |
| $ | 1,056,649 | | | $ | 848,589 | | | $ | 208,060 | | | |
Liabilities: | | | | | | | |
Derivative financial instruments | $ | 4,298 | | | $ | — | | | $ | 4,298 | | | |
LiveWire warrants | — | | | $ | — | | | $ | — | | | |
| $ | 4,298 | | | $ | — | | | $ | 4,298 | | | |
Nonrecurring Fair Value Measurements – Repossessed inventory is recorded at the lower of cost or net realizable value through a nonrecurring fair value measurement. Repossessed inventory was $24.9 million, $20.7 million and 17.9 million as of March 31, 2023, December 31, 2022 and March 27, 2022, respectively, for which the fair value adjustment was a decrease of $6.8 million, $7.5 million and $0.6 million, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.
Fair Value of Financial Instruments Measured at Cost – The Company’s 2017 income tax rate for the nine months ended September 24, 2017 was 33.2% compared to 32.9% for the nine months ended September 25, 2016. In the third quartercarrying value of 2017, the Company's income taxCash and cash equivalents and Restricted cash approximates their fair values. The fair value and carrying value of the Company’s remaining financial instruments that are measured at cost or amortized cost were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | March 27, 2022 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Assets: | | | | | | | | | | | |
Finance receivables, net | $ | 7,611,579 | | | $ | 7,573,723 | | | $ | 7,248,353 | | | $ | 7,138,438 | | | $ | 6,920,395 | | | $ | 6,821,553 | |
Liabilities: | | | | | | | | | | | |
Deposits, net | $ | 391,238 | | | $ | 369,311 | | | $ | 339,981 | | | $ | 317,375 | | | $ | 359,995 | | | $ | 348,083 | |
Debt: | | | | | | | | | | | |
Unsecured commercial paper | $ | 501,243 | | | $ | 501,243 | | | $ | 770,468 | | | $ | 770,468 | | | $ | 816,016 | | | $ | 816,016 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Asset-backed U.S. commercial paper conduit facility | $ | 372,816 | | | $ | 372,816 | | | $ | 425,794 | | | $ | 425,794 | | | $ | 269,534 | | | $ | 269,534 | |
Asset-backed Canadian commercial paper conduit facility | $ | 62,195 | | | $ | 62,195 | | | $ | 71,785 | | | $ | 71,785 | | | $ | 95,664 | | | $ | 95,664 | |
Asset-backed securitization debt | $ | 2,240,966 | | | $ | 2,257,799 | | | $ | 1,996,550 | | | $ | 2,019,414 | | | $ | 1,343,706 | | | $ | 1,357,558 | |
Medium-term notes | $ | 3,153,175 | | | $ | 3,245,591 | | | $ | 2,760,093 | | | $ | 2,879,473 | | | $ | 3,326,310 | | | $ | 3,329,845 | |
Senior notes | $ | 665,665 | | | $ | 745,545 | | | $ | 661,630 | | | $ | 745,368 | | | $ | 724,089 | | | $ | 744,842 | |
Finance Receivables, net – The carrying value of retail and wholesale finance receivables is amortized cost less an allowance for credit losses. The fair value of retail finance receivables is generally calculated by discounting future cash flows using an estimated discount rate was favorably impacted by increased researchthat reflects current credit, interest rate and development tax credits, as well as benefits recognized in connection with the release of tax reservesprepayment risks associated with tax auditssimilar types of instruments. Fair value is determined based on Level 3 inputs. The amortized cost basis of wholesale finance receivables approximates fair value because they are generally either short-term or have interest rates that were closed.adjust with changes in market interest rates.
Deposits, net – The tax provisioncarrying value of deposits is amortized cost, net of fees. The fair value of deposits is estimated based upon rates currently available for income taxesdeposits with similar terms and maturities. Fair value is calculated using Level 3 inputs.
Debt – The carrying value of debt is generally cost, net of unamortized discounts and debt issuance costs. The fair value of unsecured commercial paper is calculated using Level 2 inputs and approximates carrying value due to its short maturity. The fair value of debt provided under the U.S. Conduit Facility and the Canadian Conduit Facility is calculated using Level 2 inputs and approximates carrying value since the interest rates charged under the facilities are tied directly to market rates and fluctuate as market rates change. The fair values of the medium-term notes and senior notes are estimated based upon rates currently available for debt with similar terms and remaining maturities (Level 2 inputs). The fair value of the nine months ended September 25, 2016 included discrete benefits also associatedfixed-rate debt related to on-balance sheet asset-backed securitization transactions is estimated based on pricing currently available for transactions with similar terms and maturities (Level 2 inputs). The fair value of the closing of tax audits duringfloating-rate debt related to on-balance sheet asset-backed securitization transactions is calculated using Level 2 inputs and approximates carrying value since the period.interest rates charged are tied directly to market rates and fluctuate as market rates change.
12. Product Warranty and Recall Campaigns
The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except for Japan,in certain markets, where the Company currently provides a standard three-year limited warranty. The Company also provides a five-year limited warranty on all new motorcycles sold.the battery for electric motorcycles. In addition, the Company provides a one-year warranty for Parts & Accessories (P&A).parts and accessories. The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company maintains reservesaccrues for future warranty claims at the time of shipment using an estimated cost which is based primarily on historical Company claim information maintained by the Company. information.
Additionally, the Company has from time to time initiated certain voluntary recall campaigns. The Company reserves for allrecords estimated recall costs associated with recalls inwhen the period thatliability is both probable and estimable. This generally occurs when the Company's management approves and commits to a recall. The warranty and recall liability is included in Accrued liabilities and Other long-term liabilities on the recall.
Consolidated balance sheets. Changes in the Company’s warranty and recall liabilityliabilities were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
Balance, beginning of period | | | | | $ | 75,960 | | | $ | 61,621 | |
Warranties issued during the period | | | | | 11,927 | | | 10,711 | |
Settlements made during the period | | | | | (12,051) | | | (7,096) | |
Recalls and changes to pre-existing warranty liabilities | | | | | (1,168) | | | (141) | |
Balance, end of period | | | | | $ | 74,668 | | | $ | 65,095 | |
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Balance, beginning of period | $ | 80,681 |
| | $ | 82,480 |
| | $ | 79,482 |
| | $ | 74,217 |
|
Warranties issued during the period | 11,802 |
| | 11,107 |
| | 46,638 |
| | 49,321 |
|
Settlements made during the period | (22,322 | ) | | (30,512 | ) | | (62,855 | ) | | (71,354 | ) |
Recalls and changes to pre-existing warranty liabilities | 646 |
| | 22,448 |
| | 7,542 |
| | 33,339 |
|
Balance, end of period | $ | 70,807 |
| | $ | 85,523 |
| | $ | 70,807 |
| | $ | 85,523 |
|
The liability for recall campaigns, was $6.2 million, $13.6 million and $19.5 million as of September 24, 2017, December 31, 2016 and September 25, 2016, respectively.
13. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Numerator: | | | | | | | |
Net income used in computing basic and diluted earnings per share | $ | 68,209 |
| | $ | 114,065 |
| | $ | 513,445 |
| | $ | 644,985 |
|
Denominator: | | | | | | | |
Denominator for basic earnings per share - weighted-average common shares | 169,850 |
| | 178,438 |
| | 173,362 |
| | 180,779 |
|
Effect of dilutive securities - employee stock compensation plan | 838 |
| | 882 |
| | 941 |
| | 803 |
|
Denominator for diluted earnings per share - adjusted weighted-average shares outstanding | 170,688 |
| | 179,320 |
| | 174,303 |
| | 181,582 |
|
Earnings per common share: | | | | | | | |
Basic | $ | 0.40 |
| | $ | 0.64 |
| | $ | 2.96 |
| | $ | 3.57 |
|
Diluted | $ | 0.40 |
| | $ | 0.64 |
| | $ | 2.95 |
| | $ | 3.55 |
|
Outstanding options to purchase 0.9 million and 1.2 million shares of common stock for the three months ended September 24, 2017 and September 25, 2016, respectively, and 0.8 million and 1.5 million shares of common stock for the nine months ended September 24, 2017 and September 25, 2016, respectively, were not included in the Company’s computation of dilutive securities because the exercise pricebalance above, was greater than the market price,$26.6 million, $29.7 million and therefore, the effect would have been anti-dilutive.$16.7 million at March 31, 2023, December 31, 2022 and March 27, 2022, respectively.
13. Employee Benefit Plans
The Company has a share-based compensation plan under which employees may be granted share-based awards including restricted stock units (RSUs). Non-forfeitable dividend equivalents are paid on unvested RSUs. As such, RSUs are considered participating securities under the two-class method of calculating earnings per share as described in ASC Topic 260, “Earnings per Share.” The two-class method of calculating earnings per share did not have a material impact on the Company’s earnings per share calculation for the three and nine month periods ended September 24, 2017 and September 25, 2016.
14. Employee Benefit Plans
The Company has a defined benefit qualified pension plan and postretirement healthcare benefit
plans. The plans
that cover certain
eligible employees
and retirees of the
MotorcyclesHDMC segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain
employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. Net periodic benefit costs areemployees. Service cost is allocated among
selling,Selling, administrative and engineering expense, Motorcycles and related products cost of goods sold and inventory. Inventories, net. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit (income) cost are presented in Other income, net. Components of net periodic benefit costs(income) cost for the Company's defined benefit plans were as follows (in thousands): | | | | | | | | | | | | | | | |
| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
Pension and SERPA Benefits: | | | | | | | |
Service cost | | | | | $ | 1,294 | | | $ | 4,763 | |
Interest cost | | | | | 20,476 | | | 15,472 | |
Expected return on plan assets | | | | | (36,519) | | | (31,476) | |
Amortization of unrecognized: | | | | | | | |
Prior service cost (credit) | | | | | 188 | | | (328) | |
Net (gain) loss | | | | | (181) | | | 7,978 | |
Settlement gain | | | | | (222) | | | (256) | |
| | | | | | | |
Net periodic benefit income | | | | | $ | (14,964) | | | $ | (3,847) | |
| | | | | | | |
| | | | | | | |
Postretirement Healthcare Benefits: | | | | | | | |
Service cost | | | | | $ | 797 | | | $ | 1,161 | |
Interest cost | | | | | 2,772 | | | 1,904 | |
Expected return on plan assets | | | | | (4,281) | | | (3,809) | |
Amortization of unrecognized: | | | | | | | |
Prior service credit | | | | | (166) | | | (581) | |
Net (gain) loss | | | | | (1,097) | | | 122 | |
| | | | | | | |
| | | | | | | |
Net periodic benefit income | | | | | $ | (1,975) | | | $ | (1,203) | |
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Pension and SERPA Benefits | | | | | | | |
Service cost | $ | 7,896 |
| | $ | 8,359 |
| | $ | 23,688 |
| | $ | 25,077 |
|
Interest cost | 21,269 |
| | 22,707 |
| | 63,807 |
| | 68,121 |
|
Expected return on plan assets | (35,345 | ) | | (36,445 | ) | | (106,035 | ) | | (109,335 | ) |
Amortization of unrecognized: | | | | | | | |
Prior service cost | 256 |
| | 255 |
| | 764 |
| | 765 |
|
Net loss | 10,998 |
| | 11,588 |
| | 32,994 |
| | 34,764 |
|
Settlement loss | — |
| | 300 |
| | — |
| | 900 |
|
Net periodic benefit cost | $ | 5,074 |
| | $ | 6,764 |
| | $ | 15,218 |
| | $ | 20,292 |
|
Postretirement Healthcare Benefits | | | | | | | |
Service cost | $ | 1,875 |
| | $ | 1,870 |
| | $ | 5,625 |
| | $ | 5,610 |
|
Interest cost | 3,412 |
| | 3,704 |
| | 10,236 |
| | 11,112 |
|
Expected return on plan assets | (3,156 | ) | | (3,017 | ) | | (9,468 | ) | | (9,051 | ) |
Amortization of unrecognized: | | | | | | | |
Prior service credit | (543 | ) | | (701 | ) | | (1,629 | ) | | (2,103 | ) |
Net loss | 815 |
| | 884 |
| | 2,445 |
| | 2,652 |
|
Net periodic benefit cost | $ | 2,403 |
| | $ | 2,740 |
| | $ | 7,209 |
| | $ | 8,220 |
|
During the first nine months of 2017, the Company voluntarily contributed $25.0 million in cash to further fund its qualified pension plan. There are no required or planned contributions to thevoluntary qualified pension plan contributions for the remainder of 2017.2023. The Company expects it will continue to make ongoing benefit payments under the SERPA and postretirement healthcare plans.
15. Business Segments
Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in two segments: the Motorcycles & Related Products (Motorcycles) segment and the Financial Services segment. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. Selected segment information is set forth below (in thousands):
|
| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Motorcycles net revenue | $ | 962,136 |
| | $ | 1,091,630 |
| | $ | 3,867,982 |
| | $ | 4,338,353 |
|
Gross profit | 276,975 |
| | 367,019 |
| | 1,330,083 |
| | 1,564,857 |
|
Selling, administrative and engineering expense | 257,327 |
| | 258,090 |
| | 751,946 |
| | 800,722 |
|
Operating income from Motorcycles | 19,648 |
| | 108,929 |
| | 578,137 |
| | 764,135 |
|
Financial Services revenue | 189,059 |
| | 183,183 |
| | 550,314 |
| | 547,505 |
|
Financial Services expense | 111,999 |
| | 113,736 |
| | 338,683 |
| | 332,114 |
|
Operating income from Financial Services | 77,060 |
| | 69,447 |
| | 211,631 |
| | 215,391 |
|
Operating income | $ | 96,708 |
| | $ | 178,376 |
| | $ | 789,768 |
| | $ | 979,526 |
|
16.14. Commitments and Contingencies
Litigation and Other Claims – The Company is subject to lawsuits and other claims related to product, commercial, employee, environmental product and other matters. In determining required reservescosts to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reservesCompany accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information inas it becomes available for each matter.
Environmental Protection Agency Notice:
In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses to the EPA’s inquiry and has engaged in information exchanges and discussions with the EPA. In August 2016, the Company entered into a consent decree with the EPA regarding these issues, and the consent decree was subsequently revised (the Settlement). In the Settlement, the Company agreed to, among other things, pay a fine, and not sell tuning products unless they are approved by the EPA or California Air Resources Board. Following the required public comment period, the Company anticipates the EPA will move the court to finalize the Settlement in the coming months. The Company has a reserve associated with this matter which is included in accrued liabilities in the Consolidated Balance Sheets, and as a result, if it is finalized, the Settlement would not have a material adverse effect on the Company's financial condition or results of operations. The Settlement is not final until it is approved by the court, and if it is not approved by the court, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter.
York Environmental Matters:
The Company is involved with government agencies and groups of potentially responsible parties related to a matter involving the cleanup of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including a site-wide remedial investigation/feasibility study (RI/FS).
In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy, and the parties amended the Agreement in 2013 to address ordnance and explosive waste. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of costs associated with environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.
The Company has a reserve for its estimate of its share of the future Response Costs at the York facility which is included in other long-term liabilities in the Consolidated Balance Sheets. While much of the work on the RI/FS is complete, it is still under agency review and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS that is finally approved or otherwise at the York facility, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.
The estimate of the Company's future Response Costs that will be incurred at the York facility is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities.
Product Liability Matters:
The Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability suits willthere are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters.
Supply Matter – During the second quarter of 2022, the Company received information from a third-party sub-supplier concerning a potential regulatory compliance matter relating to the sub-supplier’s brake hose assemblies. As a result, out of an abundance of caution, the Company suspended all vehicle assembly and shipments (excluding LiveWire models, which did not have a material adverse effect onutilize the brake hose assemblies at issue) for approximately two weeks during the second quarter of 2022. Since then, the Company has been working through the regulatory compliance matter with the sub-supplier, the Company’s consolidated financial statements.
National Highway Traffic Safety Administration Matters:
In July 2016,relevant Tier-1 suppliers, and the National Highway Traffic Safety Administration (NHTSA) began an investigation into certain, which is the agency responsible for brake hose assembly compliance in the United States.
In connection with this matter, in July 2022, the sub-supplier notified NHTSA of a population of brake hose assemblies that were non-compliant with select NHTSA laboratory test standards. Based on that filing, in August 2022, the Company notified NHTSA of the Company'scorresponding population of Harley-Davidson motorcycles equippedcontaining those brake hose assemblies. In October 2022, the sub-supplier amended its original notification, expanding its population of non-compliant brake hose assemblies to include units produced by the sub-supplier for use in Harley-Davidson motorcycles beginning as early as model year 2008. In December 2022, the Company amended its August notification, expanding the population to also include Harley-Davidson motorcycles that contained the sub-supplier’s newly identified brake hose assemblies. On March 30, 2023, the sub-supplier again amended its notification to NHTSA, identifying additional compliance issues with anti-lock braking systems (ABS)its brake hose assemblies. The Company is currently evaluating the sub-supplier’s latest amended notification and plans to again amend its notification to NHTSA to align with the sub-supplier’s amended notification.
As permitted by federal law, both the sub-supplier and the Company have leveraged NHTSA’s standard process to petition the agency for a determination that these compliance issues are inconsequential to motor vehicle safety (an “Inconsequentiality Determination”). NHTSA’s investigation is in response to rider complaintsIf NHTSA makes the Inconsequentiality Determination requested, the Company will be exempt from conducting a field action or a recall of its motorcycles related to this matter.
In its inconsequentiality petition, the Company has presented (and plans to further present) NHTSA with: (1) extensive independent, third-party and internal testing demonstrating that the brake failureshose assemblies at issue are robust to extreme conditions - which far exceed maximum expected motorcycle lifetime demands - with no impact to brake performance; and applies(2) real-world field safety data showing no documented crashes or injuries attributable to model year 2008-2013 Touringthe identified compliance issues. The Company believes its petition is closely comparable to inconsequentiality petitions which have resulted in successful Inconsequentiality Determinations in the past. The Company is also confident that its position that the compliance issues are inconsequential to motor vehicle safety is strong and, model year 2008-2017 V-ROD® motorcycles.therefore, no field action or recall will be necessary.
Based on its expectation that NHTSA noted that Harley-Davidson has a two-year brake fluid replacement interval that owners either are unaware of or ignore. Thewill make an Inconsequentiality Determination, the Company does not believeexpect that a loss related to this matter is probablewill result in material costs in the future and no reserve hassuch costs have been established.accrued to date. However, it is possible that a field action or recall could be required that could cause the outcome of NHTSA’s investigation could result in future costsCompany to incur material costs. There are several variables and uncertainties associated with any potential field action or recall that are not yet known including, but not limited to, the Company. Givenpopulation of brake hose assemblies and motorcycles, the uncertaintyspecific field action or recall required, the complexity of the required repair, and the number of motorcycle owners that still exists concerningwould participate. Based on the resolutionCompany’s information and assumptions, it estimates the cost of a potential field action or recall, if it were to occur, could range from approximately $200 million to $400 million. While the Company anticipates this matter,estimated range to change based on information most recently provided by the sub-supplier, the Company cannot reasonablymake a reasonable updated estimate these possible futureat this time. The Company maintains its expectation that NHTSA will make an Inconsequentiality Determination and that this matter will not result in any material field action or recall costs. If material field action or recall costs if any.
17. Supplemental Consolidating Data
The supplemental consolidating data forwere to result, the periods noted is presented for informational purposes. The supplemental consolidating data may be different than segment information presented elsewhere due to the allocationCompany would seek full recovery of intercompany eliminations to reporting segments. All supplemental data is presented in thousands.those amounts.
|
| | | | | | | | | | | | | | | |
| Three months ended September 24, 2017 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and Related Products | $ | 964,942 |
| | $ | — |
| | $ | (2,806 | ) | | $ | 962,136 |
|
Financial Services | — |
| | 189,932 |
| | (873 | ) | | 189,059 |
|
Total revenue | 964,942 |
| | 189,932 |
| | (3,679 | ) | | 1,151,195 |
|
Costs and expenses: | | | | | | | |
Motorcycles and Related Products cost of goods sold | 685,161 |
| | — |
| | — |
| | 685,161 |
|
Financial Services interest expense | — |
| | 46,169 |
| | — |
| | 46,169 |
|
Financial Services provision for credit losses | — |
| | 29,253 |
| | — |
| | 29,253 |
|
Selling, administrative and engineering expense | 257,723 |
| | 39,383 |
| | (3,202 | ) | | 293,904 |
|
Total costs and expenses | 942,884 |
| | 114,805 |
| | (3,202 | ) | | 1,054,487 |
|
Operating income | 22,058 |
| | 75,127 |
| | (477 | ) | | 96,708 |
|
Investment income | 91,083 |
| | — |
| | (90,000 | ) | | 1,083 |
|
Interest expense | 7,896 |
| | — |
| | — |
| | 7,896 |
|
Income before provision for income taxes | 105,245 |
| | 75,127 |
| | (90,477 | ) | | 89,895 |
|
Provision for income taxes | (6,134 | ) | | 27,820 |
| | — |
| | 21,686 |
|
Net income | $ | 111,379 |
| | $ | 47,307 |
| | $ | (90,477 | ) | | $ | 68,209 |
|
| | | | | | | |
| Nine months ended September 24, 2017 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and Related Products | $ | 3,875,669 |
| | $ | — |
| | $ | (7,687 | ) | | $ | 3,867,982 |
|
Financial Services | — |
| | 552,201 |
| | (1,887 | ) | | 550,314 |
|
Total revenue | 3,875,669 |
| | 552,201 |
| | (9,574 | ) | | 4,418,296 |
|
Costs and expenses: | | | | | | | |
Motorcycles and Related Products cost of goods sold | 2,537,899 |
| | — |
| | — |
| | 2,537,899 |
|
Financial Services interest expense | — |
| | 133,866 |
| | — |
| | 133,866 |
|
Financial Services provision for credit losses | — |
| | 99,059 |
| | — |
| | 99,059 |
|
Selling, administrative and engineering expense | 753,232 |
| | 113,445 |
| | (8,973 | ) | | 857,704 |
|
Total costs and expenses | 3,291,131 |
| | 346,370 |
| | (8,973 | ) | | 3,628,528 |
|
Operating income | 584,538 |
| | 205,831 |
| | (601 | ) | | 789,768 |
|
Investment income | 198,539 |
| | — |
| | (196,000 | ) | | 2,539 |
|
Interest expense | 23,295 |
| | — |
| | — |
| | 23,295 |
|
Income before provision for income taxes | 759,782 |
| | 205,831 |
| | (196,601 | ) | | 769,012 |
|
Provision for income taxes | 179,058 |
| | 76,509 |
| | — |
| | 255,567 |
|
Net income | $ | 580,724 |
| | $ | 129,322 |
| | $ | (196,601 | ) | | $ | 513,445 |
|
15. Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
| Foreign currency translation adjustments | | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | $ | (80,271) | | | | | $ | (10,440) | | | $ | (251,218) | | | $ | (341,929) | |
Other comprehensive income (loss), before reclassifications | 10,976 | | | | | (1,240) | | | — | | | 9,736 | |
Income tax (expense) benefit | (855) | | | | | 374 | | | — | | | (481) | |
| 10,121 | | | | | (866) | | | — | | | 9,255 | |
Reclassifications: | | | | | | | | | |
| | | | | | | | | |
Net gain on derivative financial instruments | — | | | | | (27,465) | | | — | | | (27,465) | |
Prior service credits(a) | — | | | | | — | | | 22 | | | 22 | |
Actuarial gains(a) | — | | | | | — | | | (1,278) | | | (1,278) | |
Reclassifications before tax | — | | | | | (27,465) | | | (1,256) | | | (28,721) | |
Income tax benefit | — | | | | | 6,449 | | | 294 | | | 6,743 | |
| — | | | | | (21,016) | | | (962) | | | (21,978) | |
Other comprehensive (loss) income | 10,121 | | | | | (21,882) | | | (962) | | | (12,723) | |
Balance, end of period | $ | (70,150) | | | | | $ | (32,322) | | | $ | (252,180) | | | $ | (354,652) | |
| | | | | | | | | |
| Three months ended March 27, 2022 |
| Foreign currency translation adjustments | | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | $ | (44,401) | | | | | $ | (2,005) | | | $ | (194,513) | | | $ | (240,919) | |
Other comprehensive loss, before reclassifications | (3,804) | | | | | (7,230) | | | — | | | (11,034) | |
Income tax (expense) benefit | (317) | | | | | 1,493 | | | — | | | 1,176 | |
| (4,121) | | | | | (5,737) | | | — | | | (9,858) | |
Reclassifications: | | | | | | | | | |
| | | | | | | | | |
Net loss on derivative financial instruments | — | | | | | 20,046 | | | — | | | 20,046 | |
Prior service credits(a) | — | | | | | — | | | (909) | | | (909) | |
Actuarial losses(a) | — | | | | | — | | | 8,100 | | | 8,100 | |
Reclassifications before tax | — | | | | | 20,046 | | | 7,191 | | | 27,237 | |
Income tax expense | — | | | | | (4,381) | | | (1,689) | | | (6,070) | |
| — | | | | | 15,665 | | | 5,502 | | | 21,167 | |
Other comprehensive (loss) income | (4,121) | | | | | 9,928 | | | 5,502 | | | 11,309 | |
Balance, end of period | $ | (48,522) | | | | | $ | 7,923 | | | $ | (189,011) | | | $ | (229,610) | |
(a) Amounts reclassified are included in the computation of net periodic benefit (income) cost, discussed further in Note 13.
|
| | | | | | | | | | | | | | | |
| Three months ended September 25, 2016 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and Related Products | $ | 1,094,148 |
| | $ | — |
| | $ | (2,518 | ) | | $ | 1,091,630 |
|
Financial Services | — |
| | 183,706 |
| | (523 | ) | | 183,183 |
|
Total revenue | 1,094,148 |
| | 183,706 |
| | (3,041 | ) | | 1,274,813 |
|
Costs and expenses: | | | | | | | |
Motorcycles and Related Products cost of goods sold | 724,611 |
| | — |
| | — |
| | 724,611 |
|
Financial Services interest expense | — |
| | 42,573 |
| | — |
| | 42,573 |
|
Financial Services provision for credit losses | — |
| | 36,543 |
| | — |
| | 36,543 |
|
Selling, administrative and engineering expense | 258,541 |
| | 37,139 |
| | (2,970 | ) | | 292,710 |
|
Total costs and expenses | 983,152 |
| | 116,255 |
| | (2,970 | ) | | 1,096,437 |
|
Operating income | 110,996 |
| | 67,451 |
| | (71 | ) | | 178,376 |
|
Investment income | 2,300 |
| | — |
| | — |
| | 2,300 |
|
Interest expense | 7,706 |
| | — |
| | — |
| | 7,706 |
|
Income before provision for income taxes | 105,590 |
| | 67,451 |
| | (71 | ) | | 172,970 |
|
Provision for income taxes | 33,895 |
| | 25,010 |
| | — |
| | 58,905 |
|
Net income | $ | 71,695 |
| | $ | 42,441 |
| | $ | (71 | ) | | $ | 114,065 |
|
| | | | | | | |
| Nine months ended September 25, 2016 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and Related Products | $ | 4,346,166 |
| | $ | — |
| | $ | (7,813 | ) | | $ | 4,338,353 |
|
Financial Services | — |
| | 549,162 |
| | (1,657 | ) | | 547,505 |
|
Total revenue | 4,346,166 |
| | 549,162 |
| | (9,470 | ) | | 4,885,858 |
|
Costs and expenses: | | | | | | | |
Motorcycles and Related Products cost of goods sold | 2,773,496 |
| | — |
| | — |
| | 2,773,496 |
|
Financial Services interest expense | — |
| | 131,387 |
| | — |
| | 131,387 |
|
Financial Services provision for credit losses | — |
| | 97,127 |
| | — |
| | 97,127 |
|
Selling, administrative and engineering expense | 802,139 |
| | 111,414 |
| | (9,231 | ) | | 904,322 |
|
Total costs and expenses | 3,575,635 |
| | 339,928 |
| | (9,231 | ) | | 3,906,332 |
|
Operating income | 770,531 |
| | 209,234 |
| | (239 | ) | | 979,526 |
|
Investment income | 186,754 |
| | — |
| | (183,000 | ) | | 3,754 |
|
Interest expense | 21,968 |
| | — |
| | — |
| | 21,968 |
|
Income before provision for income taxes | 935,317 |
| | 209,234 |
| | (183,239 | ) | | 961,312 |
|
Provision for income taxes | 238,256 |
| | 78,071 |
| | — |
| | 316,327 |
|
Net income | $ | 697,061 |
| | $ | 131,163 |
| | $ | (183,239 | ) | | $ | 644,985 |
|
|
| | | | | | | | | | | | | | | |
| September 24, 2017 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 311,029 |
| | $ | 372,105 |
| | $ | — |
| | $ | 683,134 |
|
Accounts receivable, net | 690,152 |
| | — |
| | (347,028 | ) | | 343,124 |
|
Finance receivables, net | — |
| | 2,058,168 |
| | — |
| | 2,058,168 |
|
Inventories | 469,091 |
| | — |
| | — |
| | 469,091 |
|
Restricted cash | — |
| | 52,209 |
| | — |
| | 52,209 |
|
Other current assets | 146,012 |
| | 46,956 |
| | (10,552 | ) | | 182,416 |
|
Total current assets | 1,616,284 |
| | 2,529,438 |
| | (357,580 | ) | | 3,788,142 |
|
Finance receivables, net | — |
| | 5,042,857 |
| | — |
| | 5,042,857 |
|
Property, plant and equipment, net | 892,260 |
| | 42,355 |
| | — |
| | 934,615 |
|
Goodwill | 55,898 |
| | — |
| | — |
| | 55,898 |
|
Deferred income taxes | 109,116 |
| | 73,424 |
| | (1,965 | ) | | 180,575 |
|
Other long-term assets | 149,257 |
| | 22,499 |
| | (85,484 | ) | | 86,272 |
|
| $ | 2,822,815 |
| | $ | 7,710,573 |
| | $ | (445,029 | ) | | $ | 10,088,359 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 257,205 |
| | $ | 366,940 |
| | $ | (347,028 | ) | | $ | 277,117 |
|
Accrued liabilities | 479,753 |
| | 104,814 |
| | (10,609 | ) | | 573,958 |
|
Short-term debt | — |
| | 834,875 |
| | — |
| | 834,875 |
|
Current portion of long-term debt, net | — |
| | 1,530,401 |
| | — |
| | 1,530,401 |
|
Total current liabilities | 736,958 |
| | 2,837,030 |
| | (357,637 | ) | | 3,216,351 |
|
Long-term debt, net | 741,797 |
| | 3,865,994 |
| | — |
| | 4,607,791 |
|
Pension liability | 52,471 |
| | — |
| | — |
| | 52,471 |
|
Postretirement healthcare liability | 162,925 |
| | — |
| | — |
| | 162,925 |
|
Other long-term liabilities | 154,696 |
| | 34,071 |
| | 3,234 |
| | 192,001 |
|
Commitments and contingencies (Note 16) | | | | | | | |
Shareholders’ equity | 973,968 |
| | 973,478 |
| | (90,626 | ) | | 1,856,820 |
|
| $ | 2,822,815 |
| | $ | 7,710,573 |
| | $ | (445,029 | ) | | $ | 10,088,359 |
|
16. Reportable Segments
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 425,540 |
| | $ | 334,444 |
| | $ | — |
| | $ | 759,984 |
|
Marketable securities | 5,019 |
| | 500 |
| | — |
| | 5,519 |
|
Accounts receivable, net | 450,186 |
| | — |
| | (165,080 | ) | | 285,106 |
|
Finance receivables, net | — |
| | 2,076,261 |
| | — |
| | 2,076,261 |
|
Inventories | 499,917 |
| | — |
| | — |
| | 499,917 |
|
Restricted cash | — |
| | 52,574 |
| | — |
| | 52,574 |
|
Other current assets | 127,606 |
| | 46,934 |
| | (49 | ) | | 174,491 |
|
Total current assets | 1,508,268 |
| | 2,510,713 |
| | (165,129 | ) | | 3,853,852 |
|
Finance receivables, net | — |
| | 4,759,197 |
| | — |
| | 4,759,197 |
|
Property, plant and equipment, net | 942,634 |
| | 38,959 |
| | — |
| | 981,593 |
|
Goodwill | 53,391 |
| | — |
| | — |
| | 53,391 |
|
Deferred income taxes | 103,487 |
| | 66,152 |
| | (1,910 | ) | | 167,729 |
|
Other long-term assets | 132,835 |
| | 24,769 |
| | (83,126 | ) | | 74,478 |
|
| $ | 2,740,615 |
| | $ | 7,399,790 |
| | $ | (250,165 | ) | | $ | 9,890,240 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 219,353 |
| | $ | 181,045 |
| | $ | (165,080 | ) | | $ | 235,318 |
|
Accrued liabilities | 395,907 |
| | 90,910 |
| | (165 | ) | | 486,652 |
|
Short-term debt | — |
| | 1,055,708 |
| | — |
| | 1,055,708 |
|
Current portion of long-term debt, net | — |
| | 1,084,884 |
| | — |
| | 1,084,884 |
|
Total current liabilities | 615,260 |
| | 2,412,547 |
| | (165,245 | ) | | 2,862,562 |
|
Long-term debt, net | 741,306 |
| | 3,925,669 |
| | — |
| | 4,666,975 |
|
Pension liability | 84,442 |
| | — |
| | — |
| | 84,442 |
|
Postretirement healthcare liability | 173,267 |
| | — |
| | — |
| | 173,267 |
|
Other long-term liabilities | 150,391 |
| | 29,697 |
| | 2,748 |
| | 182,836 |
|
Commitments and contingencies (Note 16) | | | | | | | |
Shareholders’ equity | 975,949 |
| | 1,031,877 |
| | (87,668 | ) | | 1,920,158 |
|
| $ | 2,740,615 |
| | $ | 7,399,790 |
| | $ | (250,165 | ) | | $ | 9,890,240 |
|
|
| | | | | | | | | | | | | | | |
| September 25, 2016 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 438,875 |
| | $ | 351,409 |
| | $ | — |
| | $ | 790,284 |
|
Marketable securities | 5,038 |
| | — |
| | — |
| | 5,038 |
|
Accounts receivable, net | 751,770 |
| | — |
| | (405,594 | ) | | 346,176 |
|
Finance receivables, net | — |
| | 2,205,644 |
| | — |
| | 2,205,644 |
|
Inventories | 426,547 |
| | — |
| | — |
| | 426,547 |
|
Restricted cash | — |
| | 65,088 |
| | — |
| | 65,088 |
|
Deferred income taxes | 61,611 |
| | 61,998 |
| | — |
| | 123,609 |
|
Other current assets | 110,060 |
| | 41,305 |
| | (11,407 | ) | | 139,958 |
|
Total current assets | 1,793,901 |
| | 2,725,444 |
| | (417,001 | ) | | 4,102,344 |
|
Finance receivables, net | — |
| | 4,944,322 |
| | — |
| | 4,944,322 |
|
Property, plant and equipment, net | 917,984 |
| | 36,491 |
| | — |
| | 954,475 |
|
Goodwill | 54,663 |
| | — |
| | — |
| | 54,663 |
|
Deferred income taxes | 73,639 |
| | 9,066 |
| | (1,874 | ) | | 80,831 |
|
Other long-term assets | 133,441 |
| | 24,605 |
| | (82,455 | ) | | 75,591 |
|
| $ | 2,973,628 |
| | $ | 7,739,928 |
| | $ | (501,330 | ) | | $ | 10,212,226 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 268,945 |
| | $ | 428,243 |
| | $ | (405,594 | ) | | $ | 291,594 |
|
Accrued liabilities | 419,675 |
| | 98,268 |
| | (11,410 | ) | | 506,533 |
|
Short-term debt | — |
| | 1,055,428 |
| | — |
| | 1,055,428 |
|
Current portion of long-term debt, net | — |
| | 700,152 |
| | — |
| | 700,152 |
|
Total current liabilities | 688,620 |
| | 2,282,091 |
| | (417,004 | ) | | 2,553,707 |
|
Long-term debt, net | 741,144 |
| | 4,429,465 |
| | — |
| | 5,170,609 |
|
Pension liability | 120,494 |
| | — |
| | — |
| | 120,494 |
|
Postretirement healthcare liability | 182,825 |
| | — |
| | — |
| | 182,825 |
|
Other long-term liabilities | 160,784 |
| | 28,425 |
| | 3,014 |
| | 192,223 |
|
Commitments and contingencies (Note 16) | | | | | | | |
Shareholders’ equity | 1,079,761 |
| | 999,947 |
| | (87,340 | ) | | 1,992,368 |
|
| $ | 2,973,628 |
| | $ | 7,739,928 |
| | $ | (501,330 | ) | | $ | 10,212,226 |
|
|
| | | | | | | | | | | | | | | |
| Nine months ended September 24, 2017 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net income | $ | 580,724 |
| | $ | 129,322 |
| | $ | (196,601 | ) | | $ | 513,445 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization of intangibles | 158,938 |
| | 5,036 |
| | — |
| | 163,974 |
|
Amortization of deferred loan origination costs | — |
| | 62,052 |
| | — |
| | 62,052 |
|
Amortization of financing origination fees | 491 |
| | 5,621 |
| | — |
| | 6,112 |
|
Provision for long-term employee benefits | 22,427 |
| | — |
| | — |
| | 22,427 |
|
Employee benefit plan contributions and payments | (43,060 | ) | | — |
| | — |
| | (43,060 | ) |
Stock compensation expense | 23,223 |
| | 2,358 |
| | — |
| | 25,581 |
|
Net change in wholesale finance receivables related to sales | — |
| | — |
| | 36,678 |
| | 36,678 |
|
Provision for credit losses | — |
| | 99,059 |
| | — |
| | 99,059 |
|
Deferred income taxes | 3,450 |
| | (8,656 | ) | | 55 |
| | (5,151 | ) |
Other, net | (14,671 | ) | | 2,946 |
| | 603 |
| | (11,122 | ) |
Changes in current assets and liabilities: | | | | | | | |
Accounts receivable, net | (211,115 | ) | | — |
| | 181,948 |
| | (29,167 | ) |
Finance receivables - accrued interest and other | — |
| | 317 |
| | — |
| | 317 |
|
Inventories | 50,016 |
| | — |
| | — |
| | 50,016 |
|
Accounts payable and accrued liabilities | 75,957 |
| | 199,855 |
| | (187,054 | ) | | 88,758 |
|
Derivative instruments | 2,708 |
| | 44 |
| | — |
| | 2,752 |
|
Other | (45,830 | ) | | 1,731 |
| | 10,503 |
| | (33,596 | ) |
Total adjustments | 22,534 |
| | 370,363 |
| | 42,733 |
| | 435,630 |
|
Net cash provided by operating activities | 603,258 |
| | 499,685 |
| | (153,868 | ) | | 949,075 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Nine months ended September 24, 2017 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | (105,591 | ) | | (8,431 | ) | | — |
| | (114,022 | ) |
Origination of finance receivables | — |
| | (5,791,241 | ) | | 2,863,869 |
| | (2,927,372 | ) |
Collections on finance receivables | — |
| | 5,386,123 |
| | (2,906,001 | ) | | 2,480,122 |
|
Sales and redemptions of marketable securities | 6,916 |
| | — |
| | — |
| | 6,916 |
|
Other | 356 |
| | — |
| | — |
| | 356 |
|
Net cash used by investing activities | (98,319 | ) | | (413,549 | ) | | (42,132 | ) | | (554,000 | ) |
Cash flows from financing activities: | | | | | | | |
Proceeds from issuance of medium-term notes | — |
| | 893,668 |
| | — |
| | 893,668 |
|
Repayments of medium-term notes | — |
| | (400,000 | ) | | — |
| | (400,000 | ) |
Repayments of securitization debt | — |
| | (367,298 | ) | | — |
| | (367,298 | ) |
Borrowings of asset-backed commercial paper | — |
| | 371,253 |
| | — |
| | 371,253 |
|
Repayments of asset-backed commercial paper | — |
| | (129,690 | ) | | — |
| | (129,690 | ) |
Net decrease in credit facilities and unsecured commercial paper | — |
| | (225,038 | ) | | — |
| | (225,038 | ) |
Net change in restricted cash | — |
| | 3,767 |
| | — |
| | 3,767 |
|
Dividends paid | (190,121 | ) | | (196,000 | ) | | 196,000 |
| | (190,121 | ) |
Purchase of common stock for treasury | (465,167 | ) | | — |
| | — |
| | (465,167 | ) |
Issuance of common stock under employee stock option plans | 7,884 |
| | — |
| | — |
| | 7,884 |
|
Net cash used by financing activities | (647,404 | ) | | (49,338 | ) | | 196,000 |
| | (500,742 | ) |
Effect of exchange rate changes on cash and cash equivalents | 27,954 |
| | 863 |
| | — |
| | 28,817 |
|
Net (decrease) increase in cash and cash equivalents | $ | (114,511 | ) | | $ | 37,661 |
| | $ | — |
| | $ | (76,850 | ) |
Cash and cash equivalents: | | | | | | | |
Cash and cash equivalents—beginning of period | $ | 425,540 |
| | $ | 334,444 |
| | $ | — |
| | $ | 759,984 |
|
Net (decrease) increase in cash and cash equivalents | (114,511 | ) | | 37,661 |
| | — |
| | (76,850 | ) |
Cash and cash equivalents—end of period | $ | 311,029 |
| | $ | 372,105 |
| | $ | — |
| | $ | 683,134 |
|
|
| | | | | | | | | | | | | | | |
| Nine months ended September 25, 2016 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net income | $ | 697,061 |
| | $ | 131,163 |
| | $ | (183,239 | ) | | $ | 644,985 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization of intangibles | 148,851 |
| | 5,714 |
| | — |
| | 154,565 |
|
Amortization of deferred loan origination costs | — |
| | 65,445 |
| | — |
| | 65,445 |
|
Amortization of financing origination fees | 491 |
| | 6,721 |
| | — |
| | 7,212 |
|
Provision for long-term employee benefits | 28,508 |
| | — |
| | — |
| | 28,508 |
|
Employee benefit plan contributions and payments | (47,658 | ) | | — |
| | — |
| | (47,658 | ) |
Stock compensation expense | 23,056 |
| | 1,853 |
| | — |
| | 24,909 |
|
Net change in wholesale finance receivables related to sales | — |
| | — |
| | (169,599 | ) | | (169,599 | ) |
Provision for credit losses | — |
| | 97,127 |
| | — |
| | 97,127 |
|
Gain on off-balance sheet asset-backed securitization | — |
| | (9,269 | ) | | — |
| | (9,269 | ) |
Loss on extinguishment of debt | — |
| | 118 |
| | — |
| | 118 |
|
Deferred income taxes | (574 | ) | | (10,419 | ) | | (268 | ) | | (11,261 | ) |
Other, net | (24,157 | ) | | 648 |
| | 239 |
| | (23,270 | ) |
Changes in current assets and liabilities: | | | | | | | |
Accounts receivable, net | (348,996 | ) | | — |
| | 262,200 |
| | (86,796 | ) |
Finance receivables - accrued interest and other | — |
| | 364 |
| | — |
| | 364 |
|
Inventories | 173,975 |
| | — |
| | — |
| | 173,975 |
|
Accounts payable and accrued liabilities | 74,269 |
| | 277,142 |
| | (254,221 | ) | | 97,190 |
|
Derivative instruments | (1,992 | ) | | — |
| | — |
| | (1,992 | ) |
Other | (18,924 | ) | | 2,180 |
| | — |
| | (16,744 | ) |
Total adjustments | 6,849 |
| | 437,624 |
| | (161,649 | ) | | 282,824 |
|
Net cash provided by operating activities | 703,910 |
| | 568,787 |
| | (344,888 | ) | | 927,809 |
|
|
| | | | | | | | | | | | | | | |
| Nine months ended September 25, 2016 |
| HDMC Entities | | HDFS Entities | | Eliminations | | Consolidated |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | (155,967 | ) | | (6,759 | ) | | — |
| | (162,726 | ) |
Origination of finance receivables | — |
| | (6,297,040 | ) | | 3,287,561 |
| | (3,009,479 | ) |
Collections on finance receivables | — |
| | 5,566,139 |
| | (3,125,673 | ) | | 2,440,466 |
|
Proceeds from finance receivables sold | — |
| | 312,571 |
| | — |
| | 312,571 |
|
Sales and redemptions of marketable securities | 40,014 |
| | — |
| | — |
| | 40,014 |
|
Other | 251 |
| | — |
| | — |
| | 251 |
|
Net cash used by investing activities | (115,702 | ) | | (425,089 | ) | | 161,888 |
| | (378,903 | ) |
Cash flows from financing activities: | | | | | | | |
Proceeds from issuance of medium-term notes | — |
| | 1,193,396 |
| | — |
| | 1,193,396 |
|
Repayments of medium-term notes | — |
| | (451,336 | ) | | — |
| | (451,336 | ) |
Repayments of securitization debt | — |
| | (535,616 | ) | | — |
| | (535,616 | ) |
Borrowings of asset-backed commercial paper | — |
| | 33,428 |
| | — |
| | 33,428 |
|
Repayments of asset-backed commercial paper | — |
| | (55,170 | ) | | — |
| | (55,170 | ) |
Net decrease in credit facilities and unsecured commercial paper | — |
| | (146,328 | ) | | — |
| | (146,328 | ) |
Net change in restricted cash | — |
| | 30,981 |
| | — |
| | 30,981 |
|
Dividends paid | (190,387 | ) | | (183,000 | ) | | 183,000 |
| | (190,387 | ) |
Purchase of common stock for treasury | (374,234 | ) | | — |
| | — |
| | (374,234 | ) |
Excess tax benefits from share-based payments | 1,291 |
| | — |
| | — |
| | 1,291 |
|
Issuance of common stock under employee stock option plans | 6,444 |
| | — |
| | — |
| | 6,444 |
|
Net cash used by financing activities | (556,886 | ) | | (113,645 | ) | | 183,000 |
| | (487,531 | ) |
Effect of exchange rate changes on cash and cash equivalents | 7,110 |
| | (410 | ) | | — |
| | 6,700 |
|
Net increase in cash and cash equivalents | $ | 38,432 |
| | $ | 29,643 |
| | $ | — |
| | $ | 68,075 |
|
Cash and cash equivalents: | | | | | | | |
Cash and cash equivalents—beginning of period | $ | 400,443 |
| | $ | 321,766 |
| | $ | — |
| | $ | 722,209 |
|
Net increase in cash and cash equivalents | 38,432 |
| | 29,643 |
| | — |
| | 68,075 |
|
Cash and cash equivalents—end of period | $ | 438,875 |
| | $ | 351,409 |
| | $ | — |
| | $ | 790,284 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Harley-Davidson, Inc. is the parent company of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the "Company" include Harley-Davidson, Inc. and all its subsidiaries. The Company operates in twothree business segments: Motorcycles & Related Products (Motorcycles)HDMC, LiveWire and Financial Services.HDFS. The Company’sCompany's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations.
The Motorcycles segment consists of HDMC which designs, manufactures and sells at wholesale on-road Harley-Davidson motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services. The Company's products are sold to retail customers through a network of independent dealers. The Company conducts business on a global basis, with saleschanged its segments in the United States, Canada, Latin America, Europe/Middle East/Africa (EMEA)period ended December 31, 2022. The change has been retrospectively reflected in the periods presented below.
Selected segment information is set forth below (in thousands): | | | | | | | | | | | | | | | |
| | | Three months ended |
| | | | | March 31, 2023 | | March 27, 2022 |
HDMC: | | | | | | | |
Revenue | | | | | $ | 1,557,829 | | | $ | 1,292,770 | |
Gross profit | | | | | 557,026 | | | 407,582 | |
Selling, administrative and engineering expense | | | | | 221,290 | | | 188,776 | |
Restructuring benefit | | | | | — | | | (128) | |
Operating income | | | | | 335,736 | | | 218,934 | |
LiveWire: | | | | | | | |
Revenue | | | | | 7,762 | | | 10,401 | |
Gross profit | | | | | 1,264 | | | 53 | |
Selling, administrative and engineering expense | | | | | 25,811 | | | 16,112 | |
Operating loss | | | | | (24,547) | | | (16,059) | |
HDFS: | | | | | | | |
Financial services revenue | | | | | 223,095 | | | 192,015 | |
Financial services expense | | | | | 164,675 | | | 105,658 | |
| | | | | | | |
Operating income | | | | | 58,420 | | | 86,357 | |
Operating income | | | | | $ | 369,609 | | | $ | 289,232 | |
Total assets for the HDMC, LiveWire and the Asia Pacific region.HDFS segments were $3.1 billion, $325.8 million and $8.6 billion, respectively, as of March 31, 2023, $3.3 billion, $351.4 million and $7.9 billion, respectively, as of December 31, 2022, and $2.9 billion, $75.7 million and $7.9 billion, respectively, as of March 27, 2022.
17. Supplemental Consolidating Data
The supplemental consolidating data includes separate legal entity data for Harley-Davidson Financial Services, Inc. and its subsidiaries (Financial Services Entities) and all other Harley-Davidson, Inc. entities (Non-Financial Services Entities). This information is presented to highlight the separate financial statement impacts of the Company's Financial Services Entities and its Non-Financial Services Entities. The legal entity income statement information presented below differs from reportable segment consistsincome statement information due to the allocation of HDFS which primarily provides wholesalelegal entity consolidating adjustments to income for reportable segments. Supplemental consolidating data is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and related products | $ | 1,567,709 | | | $ | — | | | $ | (2,118) | | | $ | 1,565,591 | |
Financial services | — | | | 223,523 | | | (428) | | | 223,095 | |
| 1,567,709 | | | 223,523 | | | (2,546) | | | 1,788,686 | |
Costs and expenses: | | | | | | | |
Motorcycles and related products cost of goods sold | 1,007,301 | | | — | | | — | | | 1,007,301 | |
Financial services interest expense | — | | | 73,549 | | | — | | | 73,549 | |
Financial services provision for credit losses | — | | | 52,364 | | | — | | | 52,364 | |
Selling, administrative and engineering expense | 247,695 | | | 40,880 | | | (2,712) | | | 285,863 | |
| | | | | | | |
| 1,254,996 | | | 166,793 | | | (2,712) | | | 1,419,077 | |
Operating income | 312,713 | | | 56,730 | | | 166 | | | 369,609 | |
Other income, net | 20,096 | | | — | | | — | | | 20,096 | |
Investment income | 10,025 | | | — | | | — | | | 10,025 | |
Interest expense | 7,720 | | | — | | | — | | | 7,720 | |
Income before income taxes | 335,114 | | | 56,730 | | | 166 | | | 392,010 | |
Provision for income taxes | 78,729 | | | 11,452 | | | — | | | 90,181 | |
Net income | 256,385 | | | 45,278 | | | 166 | | | 301,829 | |
Less: (income) loss attributable to noncontrolling interests | 2,261 | | | — | | | — | | | 2,261 | |
Net income attributable to Harley-Davidson, Inc. | $ | 258,646 | | | $ | 45,278 | | | $ | 166 | | | $ | 304,090 | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Three months ended March 27, 2022 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and related products | $ | 1,306,293 | | | $ | — | | | $ | (3,122) | | | $ | 1,303,171 | |
Financial services | — | | | 192,390 | | | (375) | | | 192,015 | |
| 1,306,293 | | | 192,390 | | | (3,497) | | | 1,495,186 | |
Costs and expenses: | | | | | | | |
Motorcycles and related products cost of goods sold | 895,536 | | | — | | | — | | | 895,536 | |
Financial services interest expense | — | | | 42,099 | | | — | | | 42,099 | |
Financial services provision for credit losses | — | | | 28,822 | | | — | | | 28,822 | |
Selling, administrative and engineering expense | 205,417 | | | 37,858 | | | (3,650) | | | 239,625 | |
Restructuring benefit | (128) | | | — | | | — | | | (128) | |
| 1,100,825 | | | 108,779 | | | (3,650) | | | 1,205,954 | |
Operating income | 205,468 | | | 83,611 | | | 153 | | | 289,232 | |
Other income, net | 11,030 | | | — | | | — | | | 11,030 | |
Investment loss | (1,979) | | | — | | | — | | | (1,979) | |
Interest expense | 7,711 | | | — | | | — | | | 7,711 | |
Income before income taxes | 206,808 | | | 83,611 | | | 153 | | | 290,572 | |
Provision for income taxes | 47,847 | | | 20,223 | | | — | | | 68,070 | |
Net income | 158,961 | | | 63,388 | | | 153 | | | 222,502 | |
Less: (income) loss attributable to noncontrolling interests | — | | | — | | | — | | | — | |
Net income attributable to Harley-Davidson, Inc. | $ | 158,961 | | | $ | 63,388 | | | $ | 153 | | | $ | 222,502 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 876,248 | | | $ | 684,952 | | | $ | — | | | $ | 1,561,200 | |
| | | | | | | |
Accounts receivable, net | 798,728 | | | — | | | (465,195) | | | 333,533 | |
Finance receivables, net | — | | | 2,245,628 | | | — | | | 2,245,628 | |
Inventories, net | 830,521 | | | — | | | — | | | 830,521 | |
Restricted cash | — | | | 164,965 | | | — | | | 164,965 | |
Other current assets | 110,559 | | | 50,727 | | | (6,626) | | | 154,660 | |
| 2,616,056 | | | 3,146,272 | | | (471,821) | | | 5,290,507 | |
Finance receivables, net | — | | | 5,328,095 | | | — | | | 5,328,095 | |
Property, plant and equipment, net | 667,474 | | | 22,577 | | | — | | | 690,051 | |
Pension and postretirement assets | 336,569 | | | — | | | — | | | 336,569 | |
Goodwill | 62,426 | | | — | | | — | | | 62,426 | |
Deferred income taxes | 58,175 | | | 83,725 | | | (692) | | | 141,208 | |
Lease assets | 37,868 | | | 5,672 | | | — | | | 43,540 | |
Other long-term assets | 217,124 | | | 28,650 | | | (108,585) | | | 137,189 | |
| $ | 3,995,692 | | | $ | 8,614,991 | | | $ | (581,098) | | | $ | 12,029,585 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 375,395 | | | $ | 494,214 | | | $ | (465,195) | | | $ | 404,414 | |
Accrued liabilities | 488,814 | | | 142,192 | | | (5,710) | | | 625,296 | |
Short-term deposits, net | — | | | 144,854 | | | — | | | 144,854 | |
Short-term debt | — | | | 501,243 | | | — | | | 501,243 | |
Current portion of long-term debt, net | — | | | 1,408,777 | | | — | | | 1,408,777 | |
| 864,209 | | | 2,691,280 | | | (470,905) | | | 3,084,584 | |
Long-term deposits, net | — | | | 224,457 | | | — | | | 224,457 | |
Long-term debt, net | 745,545 | | | 4,529,624 | | | — | | | 5,275,169 | |
Lease liabilities | 21,160 | | | 5,514 | | | — | | | 26,674 | |
Pension and postretirement liabilities | 66,968 | | | — | | | — | | | 66,968 | |
Deferred income taxes | 28,180 | | | 2,852 | | | — | | | 31,032 | |
Other long-term liabilities | 155,487 | | | 67,626 | | | 1,739 | | | 224,852 | |
Commitments and contingencies (Note 14) | | | | | | | |
Shareholders’ equity | 2,114,143 | | | 1,093,638 | | | (111,932) | | | 3,095,849 | |
| $ | 3,995,692 | | | $ | 8,614,991 | | | $ | (581,098) | | | $ | 12,029,585 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 27, 2022 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 678,616 | | | $ | 715,115 | | | $ | — | | | $ | 1,393,731 | |
| | | | | | | |
Accounts receivable, net | 601,148 | | | — | | | (346,862) | | | 254,286 | |
Finance receivables, net | — | | | 1,699,642 | | | — | | | 1,699,642 | |
Inventories, net | 714,259 | | | — | | | — | | | 714,259 | |
Restricted cash | — | | | 142,812 | | | — | | | 142,812 | |
Other current assets | 149,955 | | | 61,455 | | | (28,883) | | | 182,527 | |
| 2,143,978 | | | 2,619,024 | | | (375,745) | | | 4,387,257 | |
Finance receivables, net | — | | | 5,121,911 | | | — | | | 5,121,911 | |
Property, plant and equipment, net | 636,216 | | | 27,591 | | | — | | | 663,807 | |
Pension and postretirement assets | 399,029 | | | — | | | — | | | 399,029 | |
Goodwill | 62,607 | | | — | | | — | | | 62,607 | |
Deferred income taxes | — | | | 75,185 | | | (3,259) | | | 71,926 | |
Lease assets | 38,126 | | | 6,947 | | | — | | | 45,073 | |
Other long-term assets | 210,157 | | | 37,595 | | | (104,722) | | | 143,030 | |
| $ | 3,490,113 | | | $ | 7,888,253 | | | $ | (483,726) | | | $ | 10,894,640 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 434,731 | | | $ | 389,048 | | | $ | (346,862) | | | $ | 476,917 | |
Accrued liabilities | 495,921 | | | 129,581 | | | (27,578) | | | 597,924 | |
Short-term deposits, net | — | | | 65,049 | | | — | | | 65,049 | |
Short-term debt | — | | | 816,016 | | | — | | | 816,016 | |
Current portion of long-term debt, net | — | | | 1,327,357 | | | — | | | 1,327,357 | |
| 930,652 | | | 2,727,051 | | | (374,440) | | | 3,283,263 | |
Long-term deposits, net | — | | | 283,034 | | | — | | | 283,034 | |
Long-term debt, net | 744,842 | | | 3,725,244 | | | — | | | 4,470,086 | |
Lease liabilities | 20,544 | | | 7,089 | | | — | | | 27,633 | |
Pension and postretirement liabilities | 93,792 | | | — | | | — | | | 93,792 | |
Deferred income taxes | 10,478 | | | 1,848 | | | (2,748) | | | 9,578 | |
Other long-term liabilities | 165,990 | | | 50,190 | | | 1,973 | | | 218,153 | |
Commitments and contingencies (Note 14) | | | | | | | |
Shareholders’ equity | 1,523,815 | | | 1,093,797 | | | (108,511) | | | 2,509,101 | |
| $ | 3,490,113 | | | $ | 7,888,253 | | | $ | (483,726) | | | $ | 10,894,640 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net income | $ | 256,385 | | | $ | 45,278 | | | $ | 166 | | | $ | 301,829 | |
Adjustments to reconcile Net income to Net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 32,120 | | | 2,232 | | | — | | | 34,352 | |
Amortization of deferred loan origination costs | — | | | 21,858 | | | — | | | 21,858 | |
Amortization of financing origination fees | 177 | | | 2,834 | | | — | | | 3,011 | |
Provision for long-term employee benefits | (16,939) | | | — | | | — | | | (16,939) | |
Employee benefit plan contributions and payments | (1,739) | | | — | | | — | | | (1,739) | |
Stock compensation expense | 22,494 | | | 1,134 | | | — | | | 23,628 | |
Net change in wholesale finance receivables related to sales | — | | | — | | | (487,314) | | | (487,314) | |
Provision for credit losses | — | | | 52,364 | | | — | | | 52,364 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Deferred income taxes | 4,261 | | | 1,717 | | | (330) | | | 5,648 | |
Other, net | (18,087) | | | (3,418) | | | (166) | | | (21,671) | |
Changes in current assets and liabilities: | | | | | | | |
Accounts receivable, net | (426,221) | | | — | | | 348,228 | | | (77,993) | |
Finance receivables – accrued interest and other | — | | | 2,252 | | | — | | | 2,252 | |
Inventories, net | 123,047 | | | — | | | — | | | 123,047 | |
Accounts payable and accrued liabilities | 14,610 | | | 379,094 | | | (349,917) | | | 43,787 | |
Other current assets | 25,342 | | | 13,131 | | | 2,084 | | | 40,557 | |
| (240,935) | | | 473,198 | | | (487,415) | | | (255,152) | |
Net cash provided by operating activities | 15,450 | | | 518,476 | | | (487,249) | | | 46,677 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | (44,894) | | | (220) | | | — | | | (45,114) | |
Origination of finance receivables | — | | | (2,100,019) | | | 1,182,874 | | | (917,145) | |
Collections on finance receivables | — | | | 1,586,477 | | | (695,625) | | | 890,852 | |
| | | | | | | |
Other investing activities | 821 | | | — | | | — | | | 821 | |
Net cash used by investing activities | (44,073) | | | (513,762) | | | 487,249 | | | (70,586) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from financing activities: | | | | | | | |
| | | | | | | |
| | | | | | | |
Proceeds from issuance of medium-term notes | — | | | 693,276 | | | — | | | 693,276 | |
Repayments of medium-term notes | — | | | (350,000) | | | — | | | (350,000) | |
Proceeds from securitization debt | — | | | 547,706 | | | — | | | 547,706 | |
Repayments of securitization debt | — | | | (310,640) | | | — | | | (310,640) | |
| | | | | | | |
Repayments of asset-backed commercial paper | — | | | (62,634) | | | — | | | (62,634) | |
Net decrease in unsecured commercial paper | — | | | (270,119) | | | — | | | (270,119) | |
| | | | | | | |
Net increase in deposits | — | | | 51,822 | | | — | | | 51,822 | |
| | | | | | | |
Dividends paid | (24,123) | | | — | | | — | | | (24,123) | |
Repurchase of common stock | (96,767) | | | — | | | — | | | (96,767) | |
| | | | | | | |
Other financing activities | 69 | | | — | | | — | | | 69 | |
Net cash (used) provided by financing activities | (120,821) | | | 299,411 | | | — | | | 178,590 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 3,894 | | | (74) | | | — | | | 3,820 | |
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (145,550) | | | $ | 304,051 | | | $ | — | | | $ | 158,501 | |
| | | | | | | |
Cash, cash equivalents and restricted cash: | | | | | | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 1,021,798 | | | $ | 557,379 | | | $ | — | | | $ | 1,579,177 | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (145,550) | | | 304,051 | | | — | | | 158,501 | |
Cash, cash equivalents and restricted cash, end of period | $ | 876,248 | | | $ | 861,430 | | | $ | — | | | $ | 1,737,678 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 27, 2022 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net income | $ | 158,961 | | | $ | 63,388 | | | $ | 153 | | | $ | 222,502 | |
Adjustments to reconcile Net income to Net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 37,106 | | | 2,152 | | | — | | | 39,258 | |
Amortization of deferred loan origination costs | — | | | 22,995 | | | — | | | 22,995 | |
Amortization of financing origination fees | 174 | | | 3,527 | | | — | | | 3,701 | |
Provision for long-term employee benefits | (5,050) | | | — | | | — | | | (5,050) | |
Employee benefit plan contributions and payments | (2,143) | | | — | | | — | | | (2,143) | |
Stock compensation expense | 8,233 | | | 670 | | | — | | | 8,903 | |
Net change in wholesale finance receivables related to sales | — | | | — | | | (205,727) | | | (205,727) | |
Provision for credit losses | — | | | 28,822 | | | — | | | 28,822 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Deferred income taxes | 6,176 | | | 665 | | | (534) | | | 6,307 | |
Other, net | (5,322) | | | 67 | | | (153) | | | (5,408) | |
Changes in current assets and liabilities: | | | | | | | |
Accounts receivable, net | (319,329) | | | — | | | 244,336 | | | (74,993) | |
Finance receivables – accrued interest and other | — | | | 3,115 | | | — | | | 3,115 | |
Inventories, net | (2,630) | | | — | | | — | | | (2,630) | |
Accounts payable and accrued liabilities | 86,546 | | | 289,876 | | | (269,453) | | | 106,969 | |
Other current assets | (47,418) | | | 14,467 | | | 25,651 | | | (7,300) | |
| (243,657) | | | 366,356 | | | (205,880) | | | (83,181) | |
Net cash (used) provided by operating activities | (84,696) | | | 429,744 | | | (205,727) | | | 139,321 | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | (27,149) | | | (850) | | | — | | | (27,999) | |
Origination of finance receivables | — | | | (2,023,861) | | | 965,400 | | | (1,058,461) | |
Collections on finance receivables | — | | | 1,724,863 | | | (759,673) | | | 965,190 | |
| | | | | | | |
Other investing activities | 135 | | | — | | | — | | | 135 | |
Net cash used by investing activities | (27,014) | | | (299,848) | | | 205,727 | | | (121,135) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 27, 2022 |
| Non-Financial Services Entities | | Financial Services Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from financing activities: | | | | | | | |
| | | | | | | |
Proceeds from issuance of medium-term notes | — | | | 495,785 | | | — | | | 495,785 | |
Repayments of medium-term notes | — | | | (550,000) | | | — | | | (550,000) | |
| | | | | | | |
Repayments of securitization debt | — | | | (271,499) | | | — | | | (271,499) | |
Borrowings of asset-backed commercial paper | — | | | 62,455 | | | — | | | 62,455 | |
Repayments of asset-backed commercial paper | — | | | (56,634) | | | — | | | (56,634) | |
Net decrease in unsecured commercial paper | — | | | 64,521 | | | — | | | 64,521 | |
| | | | | | | |
Net increase in deposits | — | | | 57,660 | | | — | | | 57,660 | |
Dividends paid | (24,056) | | | — | | | — | | | (24,056) | |
Repurchase of common stock | (261,737) | | | — | | | — | | | (261,737) | |
| | | | | | | |
Net cash used by financing activities | (285,793) | | | (197,712) | | | — | | | (483,505) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (2,086) | | | 343 | | | — | | | (1,743) | |
Net decrease in cash, cash equivalents and restricted cash | $ | (399,589) | | | $ | (67,473) | | | $ | — | | | $ | (467,062) | |
| | | | | | | |
Cash, cash equivalents and restricted cash: | | | | | | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 1,078,205 | | | $ | 947,014 | | | $ | — | | | $ | 2,025,219 | |
Net decrease in cash, cash equivalents and restricted cash | (399,589) | | | (67,473) | | | — | | | (467,062) | |
Cash, cash equivalents and restricted cash, end of period | $ | 678,616 | | | $ | 879,541 | | | $ | — | | | $ | 1,558,157 | |
18. Subsequent Event
In April 2023, the Company issued €700.0 million of medium-term notes that mature in April 2026 and retail financinghave an annual interest rate of 6.36%.
Item 2. Management’s Discussion and insurance-related programsAnalysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references to the “Company” include Harley-Davidson, dealersInc. and their retail customers. HDFS conducts business principallyall its subsidiaries. Harley-Davidson, Inc. operates in the United Statesthree segments: Harley-Davidson Motor Company (HDMC), LiveWire and Canada.Harley-Davidson Financial Services (HDFS).
The “% Change” figures included in the “ResultsResults of Operations” sectionOperationssections 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,” or “estimates”“may,” “will,” “estimates,” “targets,” “intends,” "forecasts," “is on-track,” "sees," "feels," 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” and"Cautionary Statements" in this Item 1A “Risk Factors”2, as well as in Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022. 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"Key Factors Impacting the Company" and Outlook sectionthe “Guidance” sections in this Item 2 are only made as of October 17, 2017,April 27, 2023 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (November 2, 2017)(May 10, 2023), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Overview(1)
The Company’s netOverview(1)
Net income attributable to Harley-Davidson, Inc. was $68.2$304.1 million, or $0.40 per diluted share, for the third quarter of 2017 compared to $114.1 million, or $0.64$2.04 per diluted share, in the thirdfirst quarter of 2016. Operating2023 compared to $222.5 million, or $1.45 per diluted share, in the first quarter of 2022.
In the first quarter of 2023, HDMC segment operating income was $335.7 million, up $116.8 million from the first quarter of 2022. The increase in operating income from the MotorcyclesHDMC segment decreased $89.3 million or 82.0% compared to last year’s thirdfor the first quarter on lower wholesaleof 2023 was driven primarily by higher motorcycle shipments. Motorcycle shipments, were down 14.3%price increases and favorable product mix partially offset by the impact of unfavorable foreign currency exchange rates and increased operating expenses compared to the same quarter last year. Operating loss from the LiveWire segment in the first quarter of 2023 was $24.5 million compared to an operating loss of $16.1 million in the prior year reflecting the Company's decisionquarter due primarily to slow productionlower electric motorcycle and electric balance bike shipments in response to the weak U.S. motorcycle industry.and increased operating expenses. Operating income from the Financial ServicesHDFS segment in the first quarter of 2023 was $58.4 million, down $27.9 million compared to the prior year quarter due primarily to higher interest expense and an increase in the provision for credit losses.
Retail sales of new Harley-Davidson motorcycles in the first quarter of 2023 were down 12.4% compared to the first quarter of 2022, including a decline of 17.3% and 3.3% in U.S. and international markets, respectively. Refer to the Harley-Davidson Motorcycles Retail Sales and Registration Datasection for further discussion of retail sales results.
Key Factors Impacting the Company(1)
Supply Chain Challenges – Starting in 2020, the Company began to experience disruption and increasing costs related to global supply chain challenges, including global semiconductor chip shortages. During the second half of 2022, these cost increases began to moderate primarily through the normalization of logistics inflation and to a lesser extent raw materials inflation which slowed as metal markets improved. In addition, during the second half of 2022, the Company began to reduce its reliance on expedited shipping. During the first quarter of 2023, the Company continued to experience a moderate level of cost inflation, primarily related to labor and warehousing costs, partially offset by deflation related to freight and raw materials. The Company also continued to reduce its use of expedited modes of freight during the first quarter of 2023. The Company continues to expect overall supply-chain cost inflation to moderate for the 2023 full year, as compared to 2022.
Supply Matter – During the second quarter of 2022, the Company received information from a third-party sub-supplier concerning a potential regulatory compliance matter relating to the sub-supplier’s brake hose assemblies. As a result, out of an abundance of caution, the Company suspended all vehicle assembly and shipments (excluding LiveWire models, which did not utilize the brake hose assemblies at issue) for approximately two weeks during the second quarter of 2022. Since then, the Company has been working through the regulatory compliance matter with the sub-supplier, the Company’s relevant Tier-1 suppliers, and the National Highway Traffic Safety Administration (NHTSA), which is the agency responsible for brake hose assembly compliance in the United States.
In connection with this matter, in July 2022, the sub-supplier notified NHTSA of a population of brake hose assemblies that were non-compliant with select NHTSA laboratory test standards. Based on that filing, in August 2022, the Company notified NHTSA of the corresponding population of Harley-Davidson motorcycles containing those brake hose assemblies. In October 2022, the sub-supplier amended its original notification, expanding its population of non-compliant brake hose assemblies to include units produced by the sub-supplier for use in Harley-Davidson motorcycles beginning as early as model year 2008. In December 2022, the Company amended its August notification, expanding the population to also include Harley-Davidson motorcycles that contained the sub-supplier’s newly identified brake hose assemblies. On March 30, 2023, the sub-supplier again amended its notification to NHTSA, identifying additional compliance issues with its brake hose assemblies. The Company is currently evaluating the sub-supplier’s latest amended notification and plans to again amend its notification to NHTSA to align with the sub-supplier’s amended notification.
As permitted by federal law, both the sub-supplier and the Company have leveraged NHTSA’s standard process to petition the agency for a determination that these compliance issues are inconsequential to motor vehicle safety (an “Inconsequentiality Determination”). If NHTSA makes the Inconsequentiality Determination requested, the Company will be exempt from conducting a field action or a recall of its motorcycles related to this matter.
In its inconsequentiality petition, the Company has presented (and plans to further present) NHTSA with: (1) extensive independent, third-party and internal testing demonstrating that the brake hose assemblies at issue are robust to extreme conditions - which far exceed maximum expected motorcycle lifetime demands - with no impact to brake performance; and (2) real-world field safety data showing no documented crashes or injuries attributable to the identified compliance issues. The Company believes its petition is closely comparable to inconsequentiality petitions which have resulted in successful Inconsequentiality Determinations in the past. The Company is also confident that its position that the compliance issues are inconsequential to motor vehicle safety is strong and, therefore, no field action or recall will be necessary.
Based on its expectation that NHTSA will make an Inconsequentiality Determination, the Company does not expect that this matter will result in material costs in the future and no such costs have been accrued to date. However, it is possible that a field action or recall could be required that could cause the Company to incur material costs. There are several variables and uncertainties associated with any potential field action or recall that are not yet known including, but not limited to, the population of brake hose assemblies and motorcycles, the specific field action or recall required, the complexity of the required repair, and the number of motorcycle owners that would participate. Based on the Company’s information and assumptions, it estimates the cost of a potential field action or recall, if it were to occur, could range from approximately $200 million to $400 million. While the Company anticipates this estimated range to change based on information most recently provided by the sub-supplier, the Company cannot make a reasonable updated estimate at this time. The Company maintains its expectation that NHTSA will make an Inconsequentiality Determination and that this matter will not result in any material field action or recall costs. If material field action or recall costs were to result, the Company would seek full recovery of those amounts.
Interest Rates - Interest rates increased significantly during 2022 and continued to increase in 2023 as central banks attempted to reduce inflation. Rising interest rates may adversely impact HDFS's interest income margin to the extent HDFS is unable to offset a higher cost of funds with increased interest rates on products it offers to its customers. Additionally, higher interest rates may make the Company’s motorcycles less affordable, adversely impact product mix or impact customers’ ability to obtain financing to purchase the Company’s motorcycles.
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) decisions 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. 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 BOI decisions 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 monitor the impact of the COVID-19 pandemic and government actions and measures taken to prevent its spread. 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 employees, 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.
Guidance(1)
On April 27, 2023, the Company shared the following guidance for 2023:
The Company expects HDMC revenue growth of between 4% and 7% in 2023 compared to 2022. The Company expects revenue to be positively impacted by modest unit growth, beneficial product mix as the Company focuses on its most profitable products, and pricing actions intended to offset a moderated inflationary outlook. Furthermore, the Company expects revenue growth from parts and accessories and apparel and licensing as it executes The Hardwire strategy.
The Company expects HDMC operating margin as a percent of revenue to be in the range of 14.1% to 14.6% in 2023. The Company believes the anticipated positive impact of pricing and supply chain productivity will offset cost inflation and unfavorability related to foreign currency exchange rates.
Considering the impact of the suspension of production and shipments for approximately two weeks during the second quarter of 2022, the Company expects the year-over-year HDMC revenue growth rate in the first half of 2023 to be in the high teens. In addition, the Company expects an HDMC operating income margin percent in the high teens for the first half of 2023. In the second half of 2023, the Company expects HDMC revenue and operating income to be down compared to 2022 based on more normalized production and seasonality as compared to 2022. For HDFS, the Company expects the forecasted year-over-year operating income decline to moderate in the second half of the year compared to the first half given the historical seasonality of credit losses and the impact of borrowing cost increases experienced by HDFS in the second half of 2022.
The Company expects to sell 750 to 2,000 LiveWire motorcycle units and a LiveWire operating loss of $115 million to $125 million in 2023. The LiveWire expectations assume a launch of LiveWire's Del Mar electric motorcycle in the third quarter of 2017 was $77.12023, consistent with the Company's current planned launch timeline.
The Company expects HDFS operating income to decline 20% to 25% in 2023 compared to 2022. This decline is largely a result of the higher interest rate environment causing the Company's borrowing costs to increase combined with an increase in credit losses. The Company recognizes there is risk that the current economic outlook and its expectation for credit losses
could deteriorate during the remainder of the year. HDFS has several actions underway to mitigate the impact of losses, including increased investment behind collections and stronger repossession efforts.
The Company has a cost productivity target to eliminate $400 million up 11.0%of incremental costs by 2025. The Company reduced costs by approximately $50 million during 2022 and expects to reduce an additional $140 million in 2023 through production efficiency and reduced waste which is reflected in the Company guidance above.
The Company expects capital investments in 2023 of between $225 and $250 million. 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, to pay dividends, and to execute discretionary share repurchases.
Results of Operations for the Three Months Ended March 31, 2023
Compared to the Three Months Ended March 27, 2022
Consolidated Results | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
(in thousands, except earnings per share) | March 31, 2023 | | March 27, 2022 | | Increase (Decrease) | | |
Operating income - HDMC | $ | 335,736 | | | $ | 218,934 | | | $ | 116,802 | | | |
Operating loss - LiveWire | (24,547) | | | (16,059) | | | (8,488) | | | |
Operating income - HDFS | 58,420 | | | 86,357 | | | (27,937) | | | |
Operating income | 369,609 | | | 289,232 | | | 80,377 | | | |
Other income, net | 20,096 | | | 11,030 | | | 9,066 | | | |
Investment income (loss) | 10,025 | | | (1,979) | | | 12,004 | | | |
Interest expense | 7,720 | | | 7,711 | | | 9 | | | |
Income before income taxes | 392,010 | | | 290,572 | | | 101,438 | | | |
Income tax provision | 90,181 | | | 68,070 | | | 22,111 | | | |
Net income | 301,829 | | | 222,502 | | | 79,327 | | | |
Less: Loss attributable to noncontrolling interests | 2,261 | | | — | | | 2,261 | | | |
Net income attributable to Harley-Davidson, Inc. | $ | 304,090 | | | $ | 222,502 | | | $ | 81,588 | | | |
Diluted earnings per share | $ | 2.04 | | | $ | 1.45 | | | $ | 0.59 | | | |
The Company reported operating income of $369.6 million in the first quarter of 2023 compared to $289.2 million in the same period last year. The HDMC segment reported operating income of $335.7 million in the first quarter of 2023, an increase of $116.8 million compared to the year-agofirst quarter due primarilyof 2022. Operating loss from the LiveWire segment increased $8.5 million compared to the first quarter of 2022. Operating income from the HDFS segment decreased $27.9 million compared to the first quarter of 2022. Refer to the HDMC Segment, LiveWire Segment and HDFS Segment sections for a lower provisionmore detailed discussion of the factors affecting operating results.
Other income in the first quarter of 2023 was higher than in the first quarter of 2022, impacted by higher non-operating income related to the Company's defined benefit plans.
The Company's effective income tax rate for credit losses.the first quarter of 2023 was 23.0% compared to 23.4% for the first quarter of 2022.
Diluted earnings per share was $2.04 in the first quarter of 2023, up 40.7% from the same period last year. Diluted weighted average shares outstanding decreased from 153.9 million in the first quarter of 2022 to 148.9 million in the first quarter of 2023, driven by the Company's discretionary repurchases of common stock. Refer to Liquidity and Capital Resources for additional information concerning the Company's share repurchase activity.
Harley-Davidson Motorcycles Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a)
Retail unit sales of new Harley-Davidson motorcycles were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| March 31, 2023 | | March 31, 2022 | | (Decrease) Increase | | % Change |
United States | 24,277 | | | 29,344 | | | (5,067) | | | (17.3) | % |
Canada | 1,744 | | | 1,869 | | | (125) | | | (6.7) | |
North America | 26,021 | | | 31,213 | | | (5,192) | | | (16.6) | |
Europe/Middle East/Africa (EMEA) | 5,917 | | | 6,290 | | | (373) | | | (5.9) | |
Asia Pacific | 6,881 | | | 6,699 | | | 182 | | | 2.7 | |
Latin America | 606 | | | 809 | | | (203) | | | (25.1) | |
| 39,425 | | | 45,011 | | | (5,586) | | | (12.4) | % |
(a)Data source for retail sales figures shown above is new sales warranty and registration information provided by dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning new retail sales, and the Company does not regularly verify the information that its dealers supply. This information is subject to revision.
Worldwide retail sales of new Harley-Davidson motorcycles were down 6.9% compared to12.4% during the thirdfirst quarter of 2016. In the U.S., retail sales were down 8.1%, while international markets declined 4.6%, compared to the prior year third quarter. The decline in the U.S. was substantial, but generally in line with the Company's expectations, as the U.S. industry continued to face significant headwinds. International performance was below the Company's expectations behind substantial weakness in Japan, Australia and Mexico. In this challenging environment, the Company will continue to take the actions necessary to position itself for strength. These actions include the following:
Addressing market issues in the U.S. through disciplined supply management
Managing cost aggressively in the near-term while continuing to invest in the future
Focusing relentlessly on long-term strategies
Outlook(1)
On October 17, 2017, the Company provided the following information concerning its expectations for the Company for 2017:
The Company continues to expect to ship 241,000 to 246,000 motorcycles to dealers worldwide in 2017, which is down approximately 6% to 8% from 2016 and takes into account the Company's expectation of lower U.S. year-end new Harley-Davidson motorcycle retail inventory as compared to 2016. In addition, the Company expects shipments of 46,700 to 51,700 motorcycles in the fourth quarter of 2017 compared to 42,414 motorcycles shipped in the fourth quarter of 2016.
Given the lower than expected gross margin (gross profit as a percent of revenue) results for the third quarter of 2017, the Company expects full-year gross margin for the Motorcycles segment to be down compared to 2016. It had previously expected gross margin to be down modestly compared to 2016. The Company continues to expect operating expenses for the Motorcycles segment, including selling, administrative and engineering expenses, to be down compared to 2016 and expects full-year operating expenses as a percent of revenue to be flat compared to 2016. The Company had previously expected operating expenses as a percent of revenue to be up slightly compared to 2016. The Company continues to expect operating income as a percent of revenue for the Motorcycles segment to be down approximately one percentage point, compared to 2016.
The Company continues to expect operating income for the Financial Services segment to be down in 2017 as compared to 2016 largely as a result of the 2016 off-balance sheet asset-backed securitization gain on sale of $9.3 million that it does not expect to recur in 2017.
The Company continues to estimate capital expenditures for 2017 to be between $200 million and $220 million. The Company anticipates it will have the ability to fund all capital expenditures in 2017 with cash flows generated by operations.
The Company expects its full-year 2017 effective income tax rate to be approximately 33.4%, down from its previous expectation of 34.5%. This guidance excludes the effect of any potential future adjustments such as new tax legislation or audit settlements which are recorded as discrete tax items in the period in which they are settled.
Results of Operations for the Three Months Ended September 24, 2017
Compared to the Three Months Ended September 25, 2016
Consolidated Results
|
| | | | | | | | | | | | | | |
| Three months ended | | | | |
(in thousands, except earnings per share) | September 24, 2017 | | September 25, 2016 | | (Decrease) Increase | | % Change |
Operating income from Motorcycles & Related Products | $ | 19,648 |
| | $ | 108,929 |
| | $ | (89,281 | ) | | (82.0 | )% |
Operating income from Financial Services | 77,060 |
| | 69,447 |
| | 7,613 |
| | 11.0 |
|
Operating income | 96,708 |
| | 178,376 |
| | (81,668 | ) | | (45.8 | ) |
Investment income | 1,083 |
| | 2,300 |
| | (1,217 | ) | | (52.9 | ) |
Interest expense | 7,896 |
| | 7,706 |
| | 190 |
| | 2.5 |
|
Income before income taxes | 89,895 |
| | 172,970 |
| | (83,075 | ) | | (48.0 | ) |
Provision for income taxes | 21,686 |
| | 58,905 |
| | (37,219 | ) | | (63.2 | ) |
Net income | $ | 68,209 |
| | $ | 114,065 |
| | $ | (45,856 | ) | | (40.2 | )% |
Diluted earnings per share | $ | 0.40 |
| | $ | 0.64 |
| | $ | (0.24 | ) | | (37.5 | )% |
Consolidated operating income was down $81.7 million in the third quarter of 2017, or 45.8%, compared to the same period last year. Operating income from the Motorcycles segment declined$89.3 million, or 82.0%, compared to the third quarter of 2016, and operating income from the Financial Services segment increased $7.6 million, or 11.0%, compared to the third quarter of 2016. Please refer to the “Motorcycles & Related Products Segment” and “Financial Services Segment” discussions following for a more detailed discussion of the factors affecting operating income.
The effective income tax rate for the third quarter of 2017 was 24.1% compared to 34.1% for the third quarter of 2016. In the third quarter of 2017, the Company’s income tax rate was favorably impacted by increased research and development tax credits as well as benefits recognized in connection with the release of tax reserves associated with tax audits that were closed.
Diluted earnings per share were $0.40 in the third quarter of 2017, down 37.5% from the same period in the prior year. Diluted earnings per share were adversely impacted by the 40.2% decrease in net income, but benefited from lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 179.3 million in the third quarter of 2016 to 170.7 million in the third quarter of 2017, driven by the Company's repurchases of common stock. Please refer to "Liquidity and Capital Resources" for additional information concerning the Company's share repurchase activity.
Harley-Davidson Motorcycle Retail Sales(a)
The following table includes retail unit sales of Harley-Davidson motorcycles:
|
| | | | | | | | | | | |
| Three months ended | | | | |
| September 30, 2017 | | September 30, 2016 | | (Decrease) Increase | | % Change |
United States | 41,793 |
| | 45,469 |
| | (3,676 | ) | | (8.1 | )% |
| | | | | | | |
Europe(b) | 8,970 |
| | 8,807 |
| | 163 |
| | 1.9 |
|
EMEA - Other | 1,108 |
| | 1,417 |
| | (309 | ) | | (21.8 | ) |
Total EMEA | 10,078 |
| | 10,224 |
| | (146 | ) | | (1.4 | ) |
| | | | | | |
|
|
Japan | 2,331 |
| | 2,762 |
| | (431 | ) | | (15.6 | ) |
Asia Pacific - Other | 5,126 |
| | 5,232 |
| | (106 | ) | | (2.0 | ) |
Total Asia Pacific | 7,457 |
| | 7,994 |
| | (537 | ) | | (6.7 | ) |
| | | | | | |
|
|
Latin America | 2,306 |
| | 2,605 |
| | (299 | ) | | (11.5 | ) |
Canada | 2,575 |
| | 2,663 |
| | (88 | ) | | (3.3 | ) |
Total International Retail Sales | 22,416 |
| | 23,486 |
| | (1,070 | ) | | (4.6 | ) |
Total Worldwide Retail Sales | 64,209 |
| | 68,955 |
| | (4,746 | ) | | (6.9 | )% |
| |
(a) | Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning new retail sales, and the Company does not regularly verify the information that its dealers supply. This information is subject to revision. |
| |
(b) | Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. |
The Company believes the U.S. retail sales decrease in the third quarter of 2017 was driven by very weak U.S. industry sales of new motorcycles, partially offset by market share gains. The Company believes the weak industry conditions were further adversely impacted by soft used motorcycle prices and the hurricanes in Texas and the Southeast during the quarter. The Company estimates the impact of the hurricanes accounted for approximately 1.5 to 2 percentage points of the Harley-Davidson retail sales decline during the quarter. The Company also believes its decision to limit wholesale shipments of model year 2018 motorcycles, which allowed dealers to reduce model year 2017 inventory, had an adverse impact on U.S. retail sales during the quarter.
Despite the disappointing industry trends for new motorcycle sales, there were positive market indicators related to the sale of used Harley-Davidson motorcycles. First, year-to-date sales of used Harley-Davidson motorcycles in the U.S. through August 2017 were higher compared to 2016. (Source: Based on IHS Markit Used 601+ cc On-Highway and Dual purpose Motorcycle Registrations for Jan - Aug 2016 and 2017). Second, during the third quarter of 2017, used wholesale motorcycle prices at auction in the U.S. remained firm compared to year-ago values and third-party pricing services continued to publish higher year-over-year retail values for used Harley-Davidson motorcycles. Finally, retail prices for used Harley-Davidson motorcycles in the U.S. also increased during the third quarter of 2017 in the broader market, particularly in our dealer network after being down year-over-year each quarter since the beginning of 2015.
The Company's U.S. market share of 601+cc new motorcycles for the third quarter of 2017 was 53.1%, up 0.8 percentage points2023 compared to the same period last year, (Source: Motorcycle Industry Council).driven primarily by a decline in North America. The Company believes that market share
gainsretail sales in North America were adversely impacted during the first quarter were drivenof 2023 by strong demand for its large Cruiser motorcycles behindthe timing of new model year shipments, which includes rollouts of the Company's anniversary models on a staggered basis and the introduction of theother new model year 2018 Softail motorcycles and salesproducts subsequent to the Company'sfirst quarter, as well as shifting macro-economic conditions.
Worldwide average retail inventory of new rental partnermotorcycles was up 70% and 24% during the first quarter of 2023 compared to establish its initial fleet. In May 2017, the Company announced a new rental partnership through which Harley-Davidson motorcycles can be rented at an expanded numberfirst quarter of U.S. locations including select Harley-Davidson dealerships.
International retail sales2022 and the fourth quarter of 2022, respectively. Improved production in the thirdfirst quarter of 2017 were down behind substantial weakness in Japan, Australiathis year and Mexico. With the exception of these markets, developed markets generally performed well and emerging markets were up over the prior quarter. However, given the lower than expected retail sales results in the third quarter of 2017, the Company no longer expects international retail sales growth in the second half of 2017.
While international sales were below expectations2022 has allowed for improved product availability in the third quarter of 2017, the Company believes that its strong brand, products and distribution network will drive sustainable growth in international markets over time. The Company remains committed to its long-term international growth strategy. Looking forward, it expects international retail sales will benefit from:
•Full availability of Street RodTM
•Increasing availability of MY 2018 motorcycles
•Expanding its dealer network and
•Relatively easier year-over-year comparisons
In EMEA, retail sales in the third quarter of 2017 were down modestly compared to the third quarter of 2016. Growth in Europe was offset by declines in the Middle East and Africa. The Company believes underlying demand remains strong in EMEA, especially for the Milwaukee-EightTM-powered motorcycles and Street RodTM motorcycles. Initial retail salesahead of the new model year 2018 Softail motorcycles have also been very positive.
riding season. Average retail inventory is calculated based on a four-point average including inventory on the first day of the quarter and each subsequent month-end within the quarter.
In the Asia Pacific region, retail sales during the third quarter of 2017 were adversely impacted by lower sales in Australia and Japan. Conversely, in the aggregate, emerging markets in the region have been gaining momentum and were strong in the third quarter of 2017.
Retail sales in Latin America were down in the third quarter of 2017 compared to 2016, driven by declines in Mexico, partially offset by gains in Brazil. Retail sales in Mexico have weakened significantly in 2017 due in part to the earthquakes near Mexico City.
Finally, retail sales in Canada were down in the third quarter of 2017 compared to the prior year in a highly competitive environment.
Motorcycles & Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesaleU.S., new motorcycle unit shipments for the Motorcycles segment:
|
| | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| September 24, 2017 | | September 25, 2016 | | Unit | | Unit |
| Units | | Mix % | | Units | | Mix % | | (Decrease) Increase | | % Change |
United States | 19,668 |
| | 47.2 | % | | 26,269 |
| | 54.0 | % | | (6,601 | ) | | (25.1 | )% |
International | 21,994 |
| | 52.8 | % | | 22,342 |
| | 46.0 | % | | (348 | ) | | (1.6 | ) |
Harley-Davidson motorcycle units | 41,662 |
| | 100.0 | % | | 48,611 |
| | 100.0 | % | | (6,949 | ) | | (14.3 | )% |
Touring motorcycle units | 14,674 |
| | 35.2 | % | | 23,295 |
| | 47.9 | % | | (8,621 | ) | | (37.0 | )% |
Cruiser motorcycle units | 17,292 |
| | 41.5 | % | | 13,986 |
| | 28.8 | % | | 3,306 |
| | 23.6 |
|
Sportster® / Street motorcycle units | 9,696 |
| | 23.3 | % | | 11,330 |
| | 23.3 | % | | (1,634 | ) | | (14.4 | ) |
Harley-Davidson motorcycle units | 41,662 |
| | 100.0 | % | | 48,611 |
| | 100.0 | % | | (6,949 | ) | | (14.3 | )% |
The Company shipped 41,662 Harley-Davidson motorcycles worldwide during the third quarter of 2017, which was 14.3% lower than the third quarter of 2016 and in line with the Company's expectations. In the third quarter of 2017, the Company reduced shipments to U.S. dealers which allowed them to focustransaction prices on selling model year 2017 motorcycles and reduce retail inventory levels as the Company launched its model year 2018 motorcycles. As a result, throughout the third quarter of 2017, U.S. retail inventory of new Harley-Davidson motorcycles was down 20% to 30% compared to the prior year and ended
the quarter down approximately 12,200 motorcycles compared to the same point last year. The Company expects 2017 year-end U.S. dealer inventory of new Harley-Davidson motorcycles will be down from prior year-end levels.(1)
Shipments of Cruiser motorcycles as a percentage of total shipments increased, while shipments of Touring motorcycles as a percentage of total shipments decreased in the third quarter of 2017 compared to the prior year. The higher shipment mix of Cruiser motorcycles reflected the initial dealer fill of the Company's new model year 2018 Softail motorcycles. The Softail motorcycle platform was completely redesigned for model year 2018 and merges the former Softail and Dyna platforms.
Segment Results
The following table includes the condensed statements of operations for the Motorcycles segment (in thousands):
|
| | | | | | | | | | | | | | |
| Three months ended | | | | |
| September 24, 2017 | | September 25, 2016 | | (Decrease) Increase | | % Change |
Revenue: | | | | | | | |
Motorcycles | $ | 653,345 |
| | $ | 788,856 |
| | $ | (135,511 | ) | | (17.2 | )% |
Parts & Accessories | 229,709 |
| | 231,279 |
| | (1,570 | ) | | (0.7 | ) |
General Merchandise | 72,687 |
| | 65,289 |
| | 7,398 |
| | 11.3 |
|
Other | 6,395 |
| | 6,206 |
| | 189 |
| | 3.0 |
|
Total revenue | 962,136 |
| | 1,091,630 |
| | (129,494 | ) | | (11.9 | ) |
Cost of goods sold | 685,161 |
| | 724,611 |
| | (39,450 | ) | | (5.4 | ) |
Gross profit | 276,975 |
| | 367,019 |
| | (90,044 | ) | | (24.5 | ) |
Selling & administrative expense | 212,919 |
| | 217,946 |
| | (5,027 | ) | | (2.3 | ) |
Engineering expense | 44,408 |
| | 40,144 |
| | 4,264 |
| | 10.6 |
|
Operating expense | 257,327 |
| | 258,090 |
| | (763 | ) | | (0.3 | ) |
Operating income from Motorcycles | $ | 19,648 |
| | $ | 108,929 |
| | $ | (89,281 | ) | | (82.0 | )% |
The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the third quarter of 2016 to the third quarter of 2017 (in millions):
|
| | | | | | | | | | | |
| Net Revenue | | Cost of Goods Sold | | Gross Profit |
Three months ended September 25, 2016 | $ | 1,091.6 |
| | $ | 724.6 |
| | $ | 367.0 |
|
Volume | (127.6 | ) | | (78.0 | ) | | (49.6 | ) |
Price, net of related cost | 23.5 |
| | 17.0 |
| | 6.5 |
|
Foreign currency exchange rates and hedging | 10.9 |
| | 6.4 |
| | 4.5 |
|
Shipment mix | (36.3 | ) | | (9.6 | ) | | (26.7 | ) |
Raw material prices | — |
| | 3.0 |
| | (3.0 | ) |
Manufacturing and other costs | — |
| | 21.7 |
| | (21.7 | ) |
Total | (129.5 | ) | | (39.5 | ) | | (90.0 | ) |
Three months ended September 24, 2017 | $ | 962.1 |
| | $ | 685.1 |
| | $ | 277.0 |
|
The following factors affected the comparability of net revenue, cost of goods sold and gross profit from the third quarter of 2016 to the third quarter of 2017:
The decrease in volume was due to lower wholesale motorcycle shipments. P&A sales were also down slightly but outperformed motorcycle revenue on a percentage basis driven by increased sales in international markets. General merchandise sales were up compared to prior year and benefited from the sale of new merchandise introduced to dealers in August 2017, including the 115th anniversary collection.
On average wholesale prices for the Company’s model year 2018 motorcycles were higher than the prior model year resulting in a favorable impact on revenue which was partially offset by increased cost related to the additional content added to the model year 2018 motorcycles. Weighted-average wholesale and suggested retail prices for new model year 2018 motorcycles increased approximately 3 percent. Adjusting for the cost of the new content, pricing net of costs increased approximately 1 percentage point expressed as a percent of revenue.
Revenue was positively impacted by stronger foreign currency rates,Manufacturer's Suggested Retail Prices were within the Company's targeted range of plus or minus 2% during the first quarter of 2023. As retail inventory levels of new motorcycles improved, the Company observed used motorcycle prices relative to the U.S. dollar, as compared to the same quarter last year. However, the favorable revenue impact was partially offset by the net unfavorable impactnew were lower on cost that resulted from hedging activities and remeasuring foreign-denominated balance sheet accounts, as compared to the same period last year.
Shipment mix changes had a negative impact on revenue and gross profit primarily driven by a decreased mix of Touring motorcycles and a higher mix of the Company's new Softail motorcycles.
Raw material prices were higher due primarily to increased steel and aluminum costs.
Manufacturing costs were negatively impacted by lower fixed cost absorption due to lower production and higher model year start up costs.
Operating expenses decreased slightly during the third quarter of 2017 despite increased marketing and product development investments which were offset by lower expenses in other areas due in large part to the Company's aggressive expense management.
Financial Services Segment
Segment Results
The following table includes the condensed statements of operations for the Financial Services segment (in thousands):
|
| | | | | | | | | | | | | | |
| Three months ended | | | | |
| September 24, 2017 | | September 25, 2016 | | Increase (Decrease) | | % Change |
Interest income | $ | 163,831 |
| | $ | 160,005 |
| | $ | 3,826 |
| | 2.4 | % |
Other income | 24,777 |
| | 22,472 |
| | 2,305 |
| | 10.3 |
|
Securitization and servicing income | 451 |
| | 706 |
| | (255 | ) | | (36.1 | ) |
Financial Services revenue | 189,059 |
| | 183,183 |
| | 5,876 |
| | 3.2 |
|
Interest expense | 46,169 |
| | 42,573 |
| | 3,596 |
| | 8.4 |
|
Provision for credit losses | 29,253 |
| | 36,543 |
| | (7,290 | ) | | (19.9 | ) |
Operating expenses | 36,577 |
| | 34,620 |
| | 1,957 |
| | 5.7 |
|
Financial Services expense | 111,999 |
| | 113,736 |
| | (1,737 | ) | | (1.5 | ) |
Operating income from Financial Services | $ | 77,060 |
| | $ | 69,447 |
| | $ | 7,613 |
| | 11.0 | % |
Interest income for the third quarter of 2017 increased due to higher average retail receivables, partially offset by lower average wholesale receivables and lower average yields across the portfolios. Other income was favorable primarily due to increased licensing revenue.
Interest expense increased due to higher cost of funds and an increase in average outstanding debt.
The provision for credit losses decreased in the third quarter of 2017 as compared to the third quarter of 2016 driven by a decrease in the retail motorcycle provision. The retail motorcycle provision decreased $7.3 million as a result of a smaller increase in the retail reserve rates and a smaller increase in receivables partially offset by higher credit losses. Credit losses were higher as a result of unfavorable performance across the retail motorcycle portfolio.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
|
| | | | | | | |
| Three months ended |
| September 24, 2017 | | September 25, 2016 |
Balance, beginning of period | $ | 193,528 |
| | $ | 161,353 |
|
Provision for credit losses | 29,253 |
| | 36,543 |
|
Charge-offs, net of recoveries | (27,199 | ) | | (26,380 | ) |
Balance, end of period | $ | 195,582 |
| | $ | 171,516 |
|
Results of Operations for the Nine Months EndedSeptember 24, 2017
Compared to the Nine Months EndedSeptember 25, 2016
Consolidated Results
|
| | | | | | | | | | | | | | |
| Nine months ended | | | | |
(in thousands, except earnings per share) | September 24, 2017 | | September 25, 2016 | | (Decrease) Increase | | % Change |
Operating income from Motorcycles & Related Products | $ | 578,137 |
| | $ | 764,135 |
| | $ | (185,998 | ) | | (24.3 | )% |
Operating income from Financial Services | 211,631 |
| | 215,391 |
| | (3,760 | ) | | (1.7 | ) |
Operating income | 789,768 |
| | 979,526 |
| | (189,758 | ) | | (19.4 | ) |
Investment income | 2,539 |
| | 3,754 |
| | (1,215 | ) | | (32.4 | ) |
Interest expense | 23,295 |
| | 21,968 |
| | 1,327 |
| | 6.0 |
|
Income before income taxes | 769,012 |
| | 961,312 |
| | (192,300 | ) | | (20.0 | ) |
Provision for income taxes | 255,567 |
| | 316,327 |
| | (60,760 | ) | | (19.2 | ) |
Net income | $ | 513,445 |
| | $ | 644,985 |
| | $ | (131,540 | ) | | (20.4 | )% |
Diluted earnings per share | $ | 2.95 |
| | $ | 3.55 |
| | $ | (0.60 | ) | | (16.9 | )% |
Consolidated operating income was down 19.4% in the first nine monthsquarter of 2017 primarily due to a decrease in operating income from the Motorcycles segment of $186.0 million, or 24.3%,2023 compared to the first nine monthsquarter of 2016. Operating income from the Financial Services segment declined by $3.8 million in the first nine months of 2017 compared to the same period last year. Please refer to the “Motorcycles & Related Products Segment” and “Financial Services Segment” discussions following for a more detailed discussion of the factors affecting operating income.
The effective income tax rate for the first nine months of 2017 was 33.2% compared to 32.9% for same period in 2016.
Diluted earnings per share were $2.95 in the first nine months of 2017, down 16.9% from the same period in the prior year on lower net income partially offset by the positive impact of lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 181.6 million in the first nine months of 2016 to 174.3 million in the first nine months of 2017, driven by the Company's repurchases of common stock. Please refer to "Liquidity and Capital Resources" for additional information concerning the Company's share repurchase activity.
Motorcycles Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a)
The following table includes retail unit sales of Harley-Davidson motorcycles:
|
| | | | | | | | | | | |
| Nine months ended | | | | |
| September 30, 2017 | | September 30, 2016 | | (Decrease) Increase | | % Change |
United States | 124,777 |
| | 135,581 |
| | (10,804 | ) | | (8.0 | )% |
| | | | | | | |
Europe(b) | 33,311 |
| | 32,841 |
| | 470 |
| | 1.4 |
|
EMEA - Other | 4,164 |
| | 5,106 |
| | (942 | ) | | (18.4 | ) |
Total EMEA | 37,475 |
| | 37,947 |
| | (472 | ) | | (1.2 | ) |
| | | | | | | |
Japan | 6,994 |
| | 7,631 |
| | (637 | ) | | (8.3 | ) |
Asia Pacific - Other | 15,634 |
| | 16,510 |
| | (876 | ) | | (5.3 | ) |
Total Asia Pacific | 22,628 |
| | 24,141 |
| | (1,513 | ) | | (6.3 | ) |
| | | | | | | |
Latin America | 7,003 |
| | 7,064 |
| | (61 | ) | | (0.9 | ) |
Canada | 8,763 |
| | 8,946 |
| | (183 | ) | | (2.0 | ) |
Total International Retail Sales | 75,869 |
| | 78,098 |
| | (2,229 | ) | | (2.9 | ) |
Total Worldwide Retail Sales | 200,646 |
| | 213,679 |
| | (13,033 | ) | | (6.1 | )% |
| |
(a) | Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning new retail sales, and the Company does not regularly verify the information that its dealers supply. This information is subject to revision. |
| |
(b) | Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The EMEA Europe total for the nine months ended September 30, 2016 includes 251 units originally reported in the EMEA-Other total. |
2022. The Company believes 2017 U.S. retail salesused prices remain healthy relative to historical levels.
Motorcycle Registration Data and Market Share – 601+cc(a)
The Company's U.S. market share of new 601+cc motorcycles fordecreased during the first ninethree months of 2017 was 50.7%, down 0.1 percentage points compared to the same period last year (Source: Motorcycle Industry Council).
In EMEA, retail sales were down modestly2023 compared to the first ninethree months of 2016, with increased2022 on lower retail sales in Europe offset by lower sales inrelative to the Middle East and Africa.industry. The Company's European market share in Europe through September 2017 was 9.6%, down 0.6 percentage points from the prior year (Source: Association des Constructeurs Europeens de Motocycles).
In the Asia Pacific region, retail sales inof new 601+cc motorcycles for the first ninethree months of 2017 were lower compared to 2016 in Australia and Japan, as well as India where that market’s retail sales reflected the impact of the country's currency demonetization and a newly implemented national sales tax.
Latin America retail sales in the first nine months of 2017 were down slightly2023 increased compared to the first ninethree months of 2016 due2022. Industry retail registration data for new motorcycles and the Company's market share was as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| March 31, 2023 | | March 31, 2022 | | (Decrease) Increase | | % Change |
Industry new motorcycle registrations: | | | | | | | |
United States(b) | 59,262 | | | 62,207 | | | (2,945) | | | (4.7) | % |
Europe(c) | 121,574 | | | 107,786 | | | 13,788 | | | 12.8 | % |
| | | | | | | |
Harley-Davidson market share data: | | | | | | | |
United States(b) | 39.5 | % | | 47.1 | % | | (7.6) | | | pts. |
Europe(c) | 5.0 | % | | 4.9 | % | | 0.1 | | | pts. |
(a)Data includes on-road models with internal combustion engines with displacements greater than 600cc's and electric motorcycles with kilowatt (kW) peak power equivalents greater than 600cc's (601+cc). On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles. Registration data for Harley-Davidson Street®500 motorcycles is not included in this table.
(b)United States industry data is derived from information provided by Motorcycle Industry Council. This third-party data is subject to lower retail sales in Mexico, partially offsetrevision and update.
(c)Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom. Industry data is derived from information provided by strength in Brazil.Management Services Helwig Schmitt GmbH. This third-party data is subject to revision and update.
Retail sales in Canada were down in the first nine months of 2017 compared to 2016.
Motorcycle Registration Data(a)
The following table includes industry retail motorcycle registration data:
|
| | | | | | | | | | | |
| Nine months ended | | | | |
| September 30, 2017 | | September 30, 2016 | | (Decrease) Increase | | % Change |
United States(b) | 243,718 |
| | 263,479 |
| | (19,761 | ) | | (7.5 | )% |
Europe(c) | 345,701 |
| | 337,695 |
| | 8,006 |
| | 2.4 | % |
| |
(a) | Data includes on-road 601+cc models. On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table.
|
| |
(b) | United States industry data is derived from information provided by Motorcycle Industry Council (MIC). This third-party data is subject to revision and update. |
| |
(c) | Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data includes 601+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. This third-party data is subject to revision and update. |
Motorcycles & Related ProductsHDMC Segment
Harley-Davidson Motorcycle Unit Shipments
The following table includes wholesale motorcycleMotorcycle unit shipments for the Motorcycles segment:were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| March 31, 2023 | | March 27, 2022 | | Unit | | Unit |
| Units | | Mix % | | Units | | Mix % | | Increase (Decrease) | | % Change |
| | | | | | | | | | | |
U.S. motorcycle shipments | 42,588 | | | 68.4 | % | | 35,819 | | | 65.4 | % | | 6,769 | | | 18.9 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Worldwide motorcycle shipments: | | | | | | | | | | | |
Grand American Touring(a) | 32,219 | | | 51.8 | % | | 26,012 | | | 47.5 | % | | 6,207 | | | 23.9 | % |
Cruiser | 21,258 | | | 34.1 | % | | 15,563 | | | 28.5 | % | | 5,695 | | | 36.6 | |
Sportster® / Street | 5,544 | | | 8.9 | % | | 9,654 | | | 17.6 | % | | (4,110) | | | (42.6) | |
Lightweight | 1,041 | | | 1.7 | % | | — | | | — | % | | 1,041 | | | 100.0 | |
Adventure Touring | 2,175 | | | 3.5 | % | | 3,517 | | | 6.4 | % | | (1,342) | | | (38.2) | |
| 62,237 | | | 100.0 | % | | 54,746 | | | 100.0 | % | | 7,491 | | | 13.7 | % |
|
| | | | | | | | | | | | | | | | | |
| Nine months ended | | | | |
| September 24, 2017 | | September 25, 2016 | | | | Unit |
| Units | | Mix % | | Units | | Mix % | | Unit Decrease | | % Change |
United States | 118,418 |
| | 60.9 | % | | 141,708 |
| | 64.5 | % | | (23,290 | ) | | (16.4 | )% |
International | 75,882 |
| | 39.1 | % | | 78,099 |
| | 35.5 | % | | (2,217 | ) | | (2.8 | ) |
Harley-Davidson motorcycle units | 194,300 |
| | 100.0 | % | | 219,807 |
| | 100.0 | % | | (25,507 | ) | | (11.6 | )% |
Touring motorcycle units | 80,392 |
| | 41.4 | % | | 89,467 |
| | 40.7 | % | | (9,075 | ) | | (10.1 | )% |
Cruiser motorcycle units | 67,693 |
| | 34.8 | % | | 78,570 |
| | 35.7 | % | | (10,877 | ) | | (13.8 | ) |
Sportster® / Street motorcycle units | 46,215 |
| | 23.8 | % | | 51,770 |
| | 23.6 | % | | (5,555 | ) | | (10.7 | ) |
Harley-Davidson motorcycle units | 194,300 |
| | 100.0 | % | | 219,807 |
| | 100.0 | % | | (25,507 | ) | | (11.6 | )% |
(a)Includes CVOTM and TrikeThe Company shipped 194,300 Harley-Davidson62,237 motorcycles worldwide during the first three quartersquarter of 2017,2023, which was 11.6% lower13.7% higher than the first quarter of 2022. The Company's shipments to dealers were up compared to the same periodquarter last year on higher production as the Company launched its new 2023 model year motorcycles ahead of the riding season. The Company also began shipping Lightweight motorcycles to dealers in 2016. The shipmentChina during the first quarter of 2023.
During the first quarter of 2023, the Company shipped a higher mix of motorcycle families in the first three quartersGrand American Touring and Cruiser motorcycles as a percent of 2017 was consistent with the same period last year.total shipments and a lower mix of Sportster / Street and Adventure Touring motorcycles.
Segment Results
The following table includes the condensedCondensed statements of operations for the MotorcyclesHDMC segment (inwere as follows (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| March 31, 2023 | | March 27, 2022 | | Increase (Decrease) | | % Change |
Revenue: | | | | | | | |
Motorcycles | $ | 1,302,378 | | | $ | 1,057,005 | | | $ | 245,373 | | | 23.2 | % |
Parts and accessories | 167,671�� | | | 165,320 | | | 2,351 | | | 1.4 | |
Apparel | 71,391 | | | 51,404 | | | 19,987 | | | 38.9 | |
Licensing | 6,210 | | | 6,497 | | | (287) | | | (4.4) | |
Other | 10,179 | | | 12,544 | | | (2,365) | | | (18.9) | |
| 1,557,829 | | | 1,292,770 | | | 265,059 | | | 20.5 | |
Cost of goods sold | 1,000,803 | | | 885,188 | | | 115,615 | | | 13.1 | |
Gross profit | 557,026 | | | 407,582 | | | 149,444 | | | 36.7 | |
Operating expenses: | | | | | | | |
Selling & administrative expense | 197,439 | | | 163,014 | | | 34,425 | | | 21.1 | |
Engineering expense | 23,851 | | | 25,762 | | | (1,911) | | | (7.4) | |
Restructuring benefit | — | | | (128) | | | 128 | | | (100.0) | |
| 221,290 | | | 188,648 | | | 32,642 | | | 17.3 | |
Operating income | $ | 335,736 | | | $ | 218,934 | | | $ | 116,802 | | | 53.4 | % |
Operating margin | 21.6 | % | | 16.9 | % | | 4.6 | | | pts. |
|
| | | | | | | | | | | | | | |
| Nine months ended | | | | |
| September 24, 2017 | | September 25, 2016 | | (Decrease) Increase | | % Change |
Revenue: | | | | | | | |
Motorcycles | $ | 3,023,480 |
| | $ | 3,437,066 |
| | $ | (413,586 | ) | | (12.0 | )% |
Parts & Accessories | 636,232 |
| | 673,192 |
| | (36,960 | ) | | (5.5 | ) |
General Merchandise | 191,540 |
| | 211,664 |
| | (20,124 | ) | | (9.5 | ) |
Other | 16,730 |
| | 16,431 |
| | 299 |
| | 1.8 |
|
Total revenue | 3,867,982 |
| | 4,338,353 |
| | (470,371 | ) | | (10.8 | ) |
Cost of goods sold | 2,537,899 |
| | 2,773,496 |
| | (235,597 | ) | | (8.5 | ) |
Gross profit | 1,330,083 |
| | 1,564,857 |
| | (234,774 | ) | | (15.0 | ) |
Selling & administrative expense | 624,003 |
| | 670,086 |
| | (46,083 | ) | | (6.9 | ) |
Engineering expense | 127,943 |
| | 130,636 |
| | (2,693 | ) | | (2.1 | ) |
Operating expense | 751,946 |
| | 800,722 |
| | (48,776 | ) | | (6.1 | ) |
Operating income from Motorcycles | $ | 578,137 |
| | $ | 764,135 |
| | $ | (185,998 | ) | | (24.3 | )% |
The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first nine monthsquarter of 20162022 to the first nine monthsquarter of 20172023 were as follows (in millions): | | | | | | | | | | | | | | | | | |
| Net Revenue | | Cost of Goods Sold | | Gross Profit |
Three months ended March 27, 2022 | $ | 1,292.8 | | | $ | 885.2 | | | $ | 407.6 | |
Volume | 153.2 | | | 109.0 | | | 44.2 | |
Price and sales incentives | 103.8 | | | — | | | 103.8 | |
Foreign currency exchange rates and hedging | (28.6) | | | (6.1) | | | (22.5) | |
Shipment mix | 36.6 | | | 7.8 | | | 28.8 | |
Raw material prices | — | | | (6.8) | | | 6.8 | |
Manufacturing and other costs | — | | | 11.7 | | | (11.7) | |
| 265.0 | | | 115.6 | | | 149.4 | |
Three months ended March 31, 2023 | $ | 1,557.8 | | | $ | 1,000.8 | | | $ | 557.0 | |
|
| | | | | | | | | | | |
| Net Revenue | | Cost of Goods Sold | | Gross Profit |
Nine months ended September 25, 2016 | $ | 4,338.4 |
| | $ | 2,773.5 |
| | $ | 1,564.9 |
|
Volume | (508.4 | ) | | (306.8 | ) | | (201.6 | ) |
Price, net of related costs | 79.9 |
| | 41.0 |
| | 38.9 |
|
Foreign currency exchange rates and hedging | (1.2 | ) | | (3.7 | ) | | 2.5 |
|
Shipment mix | (40.7 | ) | | (14.8 | ) | | (25.9 | ) |
Raw material prices | — |
| | 12.8 |
| | (12.8 | ) |
Manufacturing and other costs | — |
| | 35.9 |
| | (35.9 | ) |
Total | (470.4 | ) | | (235.6 | ) | | (234.8 | ) |
Nine months ended September 24, 2017 | $ | 3,868.0 |
| | $ | 2,537.9 |
| | $ | 1,330.1 |
|
The following factors affectedFactors affecting the comparability of net revenue, cost of goods sold and gross profit from the first nine monthsquarter of 20162022 to the first nine monthsquarter of 2017:2023 were as follows:
•The decreaseincrease in volume was primarily due to lower wholesale motorcycle shipments, as well as lower P&A and general merchandise sales. P&A and general merchandise sales were down due in large part to lowerhigher motorcycle shipments and lower retail motorcyclehigher apparel sales.
On average, wholesale•Revenue benefited from higher prices for motorcycles shippedon new model year 2023 motorcycles.
•Revenue and gross profit were negatively impacted by weaker foreign currency exchange rates relative to the U.S. dollar, partially offset by favorable net foreign currency gains associated with hedging recorded in cost of goods sold.
•Changes in the current period were higher than in the same period last year resulting inshipment mix had a favorable impact on revenue. The positive impact on revenue wasgross profit.
•Raw material costs benefited from continued moderation in the rate of inflation related primarily to metals.
•Manufacturing and other costs increased due to supply chain cost inflation and other startup costs experienced in the quarter, partially offset by increased costs related to the additional content added to motorcycles shippedproductivity savings including reduced reliance on expedited freight.
Operating expenses were higher in the current period asfirst quarter of 2023 compared to the same period last year.year related to Hardwire initiatives and employee-related costs.
Revenue was negatively impacted
LiveWire Segment
Segment Results
Condensed statements of operations for the LiveWire segment were as follows (in thousands, except unit shipments): | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| March 31, 2023 | | March 27, 2022 | | Increase (Decrease) | | % Change |
Revenue | $ | 7,762 | | | $ | 10,401 | | | $ | (2,639) | | | (25.4) | % |
Cost of goods sold | 6,498 | | | 10,348 | | | (3,850) | | | (37.2) | % |
Gross profit | 1,264 | | | 53 | | | 1,211 | | | 2,284.9 | |
Selling, administrative and engineering expense | 25,811 | | | 16,112 | | | 9,699 | | | 60.2 | |
Operating loss | $ | (24,547) | | | $ | (16,059) | | | $ | (8,488) | | | 52.9 | % |
| | | | | | | |
LiveWire motorcycle unit shipments | 63 | | | 97 | | | (34) | | | (35.1) | |
During the first quarter of 2023, revenue decreased by slightly weaker weighted-average foreign currency rates, relative to the U.S. dollar, as$2.6 million, or 25.4%, compared to the same period last year. However, the unfavorable revenue impact was offset by the net favorable impact on cost that resulted from remeasuring foreign-denominated balance sheet accounts and hedging activities, as compared to the same period last year.
Shipment mix changes resulted in a negative impact on gross profit resulting from unfavorable changes in the mixfirst quarter of models within motorcycle families as well as changes in P&A product mix.
Raw material prices were higher due primarily to increased steel and aluminum costs.
Manufacturing costs were negatively impacted by lower fixed cost absorption, higher model year startup costs and higher depreciation.
2022. The decrease in operating expense during the first nine months of 2017 was primarily due to lower spending givenrevenue driven by lower volumes on electric motorcycles and electric balance bikes. Cost of sales decreased by $3.9 million, or 37.2%, during the Company's aggressive cost management efforts.first quarter of 2023 compared to the first quarter of 2022 on lower volumes.
During the first quarter of 2023, selling, administrative and engineering expense increased $9.7 million, or 60.2%, compared to the first quarter of 2022 driven by higher product development costs as well as higher costs associated with standing up the new organization. Financial Services
HDFS Segment
Segment Results
The following table includes the condensedCondensed statements of operations for the Financial ServicesHDFS segment were as follows (in thousands):
|
| | | | | | | | | | | | | | |
| Nine months ended | | | | |
| September 24, 2017 | | September 25, 2016 | | Increase (Decrease) | | % Change |
Interest income | $ | 471,988 |
| | $ | 469,539 |
| | $ | 2,449 |
| | 0.5 | % |
Other income | 76,790 |
| | 67,739 |
| | 9,051 |
| | 13.4 |
|
Securitization and servicing income | 1,536 |
| | 10,227 |
| | (8,691 | ) | | (85.0 | ) |
Financial Services revenue | 550,314 |
| | 547,505 |
| | 2,809 |
| | 0.5 |
|
Interest expense | 133,866 |
| | 131,387 |
| | 2,479 |
| | 1.9 |
|
Provision for credit losses | 99,059 |
| | 97,127 |
| | 1,932 |
| | 2.0 |
|
Operating expenses | 105,758 |
| | 103,600 |
| | 2,158 |
| | 2.1 |
|
Financial Services expense | 338,683 |
| | 332,114 |
| | 6,569 |
| | 2.0 |
|
Operating income from Financial Services | $ | 211,631 |
| | $ | 215,391 |
| | $ | (3,760 | ) | | (1.7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| March 31, 2023 | | March 27, 2022 | | Increase (Decrease) | | % Change |
Revenue: | | | | | | | |
Interest income | $ | 182,270 | | | $ | 161,734 | | | $ | 20,536 | | | 12.7 | % |
Other income | 40,825 | | | 30,281 | | | 10,544 | | | 34.8 | |
| 223,095 | | | 192,015 | | | 31,080 | | | 16.2 | |
Expenses: | | | | | | | |
Interest expense | 73,549 | | | 42,099 | | | 31,450 | | | 74.7 | |
Provision for credit losses | 52,364 | | | 28,822 | | | 23,542 | | | 81.7 | |
Operating expense | 38,762 | | | 34,737 | | | 4,025 | | | 11.6 | |
| | | | | | | |
| 164,675 | | | 105,658 | | | 59,017 | | | 55.9 | |
Operating income | $ | 58,420 | | | $ | 86,357 | | | $ | (27,937) | | | (32.4) | % |
Interest income was higher for the first ninethree months of 20172023 compared to the same period last year, primarily due to higher average retailoutstanding finance receivables partially offset by lowerat a higher average wholesale receivables and lower average yields across the portfolios.yield. Other income was favorable due to increased licensing revenue,largely driven by higher investment income and insurance commission revenue and investment income. Securitization and servicing income was lower primarily due to a $9.3 million gain on the sale of finance receivables recognized as a result of the second quarter 2016 off-balance sheet asset-backed securitization. There was no comparable transaction in the current year.
revenue. Interest expense increased due to higher cost of funds, partially offset by lower average outstanding debt.debt at a higher average interest rate.
The provision for credit losses increased $1.9$23.5 million compared to the first quarter of 2022, primarily driven by higher retail delinquencies and credit losses, which returned to pre-COVID-19 pandemic levels at the end of 2022. The Company experienced higher retail delinquencies and credit losses as consumers faced increased pressure from higher debt levels and the impacts of inflation, both more generally as well as through higher payments on larger retail motorcycle loans. Further, the Company continues to experience challenges with motorcycle repossessions as the repossession industry contracted
during the COVID-19 pandemic and has yet to expand to meet current demand. This has resulted in more motorcycle loans with larger loan balances that are in the first nine monthslater stages of 2017. delinquency being charged-off without a successful repossession. In the future, the Company anticipates recovering some portion of those charge-offs as the motorcycles are located, repossessed and sold at auction.
The retail motorcycle provision increased $0.6 million driven primarily by higherallowance for credit losses partially offset byat the end of the first quarter of 2023 was consistent with the balance at the end of 2022 as the overall macro-economic conditions remained uncertain given near-term recession concerns did not abate, elevated levels of inflation continued to challenge the U.S. and global economies, and muted consumer confidence persisted, among other factors. As such, at the end of the first quarter of 2023, the Company’s outlook on economic conditions and its probability weighting of its economic forecast scenarios were weighted towards a smaller increase in the retail reserve rates and a smaller increase in receivables. Creditnear-term recession.
Annualized losses were higher as a result of unfavorable performance across the retail motorcycle portfolio. The wholesale provision increased $0.5 million.
Annualized credit losses foron the Company's retail motorcycle loans were 1.73% through September 24, 20173.21% during the first quarter of 2023 compared to 1.59% through September 25, 2016.1.77% in the first quarter of 2022. The 30-day delinquency rate for on-balance sheet retail motorcycle loans at September 24, 2017 was 3.72%March 31, 2023 increased to 3.74% from 2.87% at March 27, 2022.
Operating expenses increased $4.0 million compared to 3.61% at September 25, 2016.the first quarter of 2022 due in part to higher employee and repossession related costs as well as a valuation loss on a securitization interest rate cap.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands): | | | | | | | | | | | |
| Three months ended |
| March 31, 2023 | | March 27, 2022 |
Balance, beginning of period | $ | 358,711 | | | $ | 339,379 | |
Provision for credit losses | 52,364 | | | 28,822 | |
Charge-offs, net of recoveries | (52,644) | | | (27,728) | |
| | | |
Balance, end of period | $ | 358,431 | | | $ | 340,473 | |
|
| | | | | | | |
| Nine months ended |
| September 24, 2017 | | September 25, 2016 |
Balance, beginning of period | $ | 173,343 |
| | $ | 147,178 |
|
Provision for credit losses | 99,059 |
| | 97,127 |
|
Charge-offs, net of recoveries | (76,820 | ) | | (69,498 | ) |
Other (a) | — |
| | (3,291 | ) |
Balance, end of period | $ | 195,582 |
| | $ | 171,516 |
|
| |
(a) | Related to the sale of finance receivables during the second quarter of 2016 through the off-balance sheet asset-backed securitization transaction. |
Other Matters
Contractual Obligations
The Company has updated the contractual obligations table under the caption “Contractual Obligations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as of September 24, 2017 to reflect the new projected principal and interest payments for the remainder of 2017 and beyond as follows (in thousands): |
| | | | | | | | | | | | | | | | | | | |
| 2017 | | 2018-2019 | | 2020-2021 | | Thereafter | | Total |
Principal payments on debt | $ | 1,237,080 |
| | $ | 2,792,073 |
| | $ | 1,784,454 |
| | $ | 1,181,651 |
| | $ | 6,995,258 |
|
Interest payments on debt | 41,423 |
| | 261,574 |
| | 120,269 |
| | 400,639 |
| | 823,905 |
|
| $ | 1,278,503 |
| | $ | 3,053,647 |
| | $ | 1,904,723 |
| | $ | 1,582,290 |
| | $ | 7,819,163 |
|
Interest obligations for floating rate instruments, as calculated above, assume rates in effect at September 24, 2017 remain constant. For purposes of the above, the principal payment balances for medium-term notes, on-balance sheet asset-backed securitizations and senior unsecured notes are shown gross of debt issuance costs. Refer to Note 9 for a breakout of the finance costs consistent with ASU No. 2015-03.
As of September 24, 2017, there have been no other material changes to the Company’s summary of expected payments for significant contractual obligations in the contractual obligations table in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
Commitments and Contingencies
The Company is subject to lawsuits and other claims related to product, product recall, commercial, employee, environmental product and other matters. In determining required reservescosts to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reservesAny amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information inas it becomes available for each matter.
Environmental Protection Agency Notice:
In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses Refer to the EPA’s inquiry and has engaged in information exchanges and discussions with the EPA. In August 2016, the Company entered into a consent decree with the EPA regarding these issues, and the consent decree was subsequently revised (the Settlement). In the Settlement, the Company agreed to, among other things, pay a fine, and not sell tuning products unless they are approved by the EPA or California Air Resources Board. Following the required public comment period, the Company anticipates the EPA will move the court to finalize the Settlement in the coming months. The Company has a reserve associated with this matter which is included in accrued liabilities in the Consolidated Balance Sheet, and as a result, if it is finalized, the Settlement would not have a material adverse effect on the Company's financial condition or results of operations. The Settlement is not final until it is approved by the court, and if it is not approved by the court, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter.
York Environmental Matters:
The Company is involved with government agencies and groups of potentially responsible parties related to a matter involving the cleanup of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchaseNote 14 of the York facility by the Company from AMF in 1981. Although the Company is not certain asNotes to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, includingConsolidated financial statements for a site-wide remedial investigation/feasibility study (RI/FS).
In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy, and the parties amended the Agreement in 2013 to address ordnance and explosive waste. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of costs associated with environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.
The Company has a reserve for its estimate of its share of the future Response Costs at the York facility which is included in other long-term liabilities in the Consolidated Balance Sheets. While much of the work on the RI/FS is complete, it is still under agency review and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS that is finally approved or otherwise at the York facility, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.
The estimatediscussion of the Company's future Response Costs that will be incurred at the York facility is based on reportscommitments and contingencies.
Product Liability Matters:
The Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability suits will not have a material adverse effect on the Company’s consolidated financial statements.(1)
National Highway Traffic Safety Administration Matters:
In July 2016, the National Highway Traffic Safety Administration (NHTSA) began an investigation into certain of the Company's motorcycles equipped with anti-lock braking systems (ABS). NHTSA’s investigation is in response to rider complaints related to brake failures and applies to model year 2008-2013 Touring and model year 2008-2017 V-ROD® motorcycles. NHTSA noted that Harley-Davidson has a two-year brake fluid replacement interval that owners either are unaware of or ignore. The Company does not believe that a loss related to this matter is probable and no reserve has been established. However, it is possible that the outcome of NHTSA’s investigation could result in future costs to the Company. Given the uncertainty that still exists concerning the resolution of this matter, the Company cannot reasonably estimate these possible future costs, if any.
Off-Balance Sheet Arrangements
The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing.
The SPEs are separate legal entities that assume the risks and rewards of ownership of the retail motorcycle finance receivables they hold. The assets of the VIEs are not available to pay other obligations or claims of the Company’s creditors. The Company’s economic exposure related to the VIEs is generally limited to restricted cash reserve accounts, retained interests and ordinary representations and warranties and related covenants. The VIEs have a limited life and generally terminate upon final distribution of amounts owed to investors.
The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE. Most of the Company’s asset-backed financings do not meet the criteria to be treated as a sale for accounting purposes because, in addition to retaining servicing rights, the Company retains a financial interest in the VIE in the form of a debt security. These transactions are treated as secured borrowings. As secured borrowings, the retail motorcycle finance receivables remain on the balance sheet with a corresponding obligation reflected as debt.
During the second quarter of 2016, the Company sold finance receivables with a principal balance of $301.8 million into a securitization VIE. The transaction met the criteria to be treated as a sale for accounting purposes and resulted in an off-balance sheet arrangement because the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants. Upon sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet, and a gain of $9.3 million was recognized in Financial Services revenue. For more information, see Note 10.
Liquidity and Capital Resources as of September 24, 2017(1)
Over the long-term, the Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities and return value to shareholders.(1) The Company will evaluate opportunities to enhance value for its shareholders through increasing dividends and repurchasing shares. The Company believes the Motorcycles operations will continue to be primarily funded through cash flows generated by operations.(1) The Financial Services operations have been funded with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities and asset-backed securitizations.
The Company’s strategy is to maintain a minimum of twelve months of its projected liquidity needs through a combination of cash and cash equivalents and availability under its credit facilities.
The following table summarizesCompany believes its current cash, cash equivalents and availability under its credit facilities are sufficient to meet its liquidity requirements, consistent with its strategy. The Company expects to fund its operations, excluding the origination of finance receivables, primarily with cash flows from operating activities and cash and cash equivalents on hand.(1) The Company expects to fund the origination of finance receivables primarily with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities, asset-backed securitizations and brokered certificates of deposit.(1)
The Company’s cash and
cash equivalents and availability under
its credit and conduit facilities
at March 31, 2023 were as follows (in thousands):
|
| | | |
| September 24, 2017 |
Cash and cash equivalents | $ | 683,134 |
|
| |
Credit facilities(a) | 730,125 |
|
Asset-backed U.S. commercial paper conduit facilities(a) | 619,692 |
|
Asset-backed Canadian commercial paper conduit facility(a) | 54,495 |
|
Total availability under credit and conduit facilities | 1,404,312 |
|
Total | $ | 2,087,446 |
|
| | | | | | | | |
(a) | | |
IncludesCash and cash equivalents(a)
| | $ | 1,561,200 | |
| | |
| | |
| | |
U.S. commercial paper conduit facility: | | |
Committed asset-backed U.S. commercial paper conduit facility(b) | 1,500,000 | | |
Borrowings against committed facility | (300,000) | | |
Net asset-backed U.S. commercial paper conduit committed facility availability | 1,200,000 | | |
| | |
Uncommitted asset-backed U.S. commercial paper conduit facility | 72,816 | | |
Borrowings against uncommitted facility | (72,816) | | |
Net asset-backed U.S. commercial paper conduit uncommitted facility availability | — | | |
Total net U.S. commercial paper conduit facility availability | | 1,200,000 | |
| | |
Asset-backed Canadian commercial paper conduit facility(b)(c) | | 92,295 | |
Borrowings against committed facility | | (62,195) | |
Net asset-backed Canadian commercial paper conduit facility | | 30,100 | |
| | |
Availability under credit and conduit facilities: | | |
Credit facilities expiring in the next twelve months which the Company expects to renew prior to expiration.(1) | | 1,420,000 | |
Commercial paper outstanding | | (501,243) | |
Net credit facility availability | | 918,757 | |
| | $ | 3,710,057 | |
(a)Includes $236.0 million of cash and cash equivalents held by LiveWire Group, Inc.
(b)Includes facilities expiring in the next 12 months which the Company expects to renew prior to expiration.(1)
(c)C$125.0 million Canadian Conduit facility agreement remeasured to U.S. dollars at March 31, 2023.
To access the debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings. Generally, lower credit ratings result in higher borrowing costs and reduced access to debt capital markets. A credit rating agency may change or withdraw the Company's ratings based on its assessment of the Company's current and future ability to meet interest and principal repayment obligations. The Company’s short-term debt ratings affect its ability to issue unsecured commercial paper. The Company’s short- and long-term debt ratings, as of March 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | |
| Short-Term | | Long-Term | | Outlook |
Moody’s | P3 | | Baa3 | | Stable |
Standard & Poor’s | A3 | | BBB- | | Stable |
Fitch | F2 | | BBB+ | | Stable |
The Company recognizes that it must continue to monitor and adjust its business to changes in the lending environment. The Company intends to continue with a diversified funding profile through a combination of short-term and long-term funding vehicles and to pursue a variety of sources to obtain cost-effective funding. The Financial Services operations(1) HDFS segment results could be negatively affected by higher costs of funding and increased difficulty of raising, or potential unsuccessful efforts to raise, funding in the short-term and long-term capital markets.(1) These negative consequences could in turn adversely affect the Company’s business and results of operations in various ways, including through higher costs of capital, reduced funds available through its Financial Services operationsHDFS to provide loans to independent dealers and their retail customers, and dilution to existing shareholders through the use of alternative sources of capital.
Cash Flow Activity
The following table summarizes theCompany's cash flow activity for the periods indicatedactivities were as follows (in thousands): | | | | | | | | | | | |
| Three months ended |
| March 31, 2023 | | March 27, 2022 |
Net cash provided by operating activities | $ | 46,677 | | | $ | 139,321 | |
Net cash used by investing activities | (70,586) | | | (121,135) | |
Net cash provided (used) by financing activities | 178,590 | | | (483,505) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 3,820 | | | (1,743) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 158,501 | | | $ | (467,062) | |
|
| | | | | | | |
| Nine months ended |
| September 24, 2017 | | September 25, 2016 |
Net cash provided by operating activities | $ | 949,075 |
| | $ | 927,809 |
|
Net cash used by investing activities | (554,000 | ) | | (378,903 | ) |
Net cash used by financing activities | (500,742 | ) | | (487,531 | ) |
Effect of exchange rate changes on cash and cash equivalents | 28,817 |
| | 6,700 |
|
Net (decrease) increase in cash and cash equivalents | $ | (76,850 | ) | | $ | 68,075 |
|
Operating Activities
The increase in cashCash flow provided by operating activities forin the first ninethree months of 20172023 compared to the same periodfirst three months of 2022 was adversely impacted by an increase in 2016wholesale finance receivables, partially offset by a benefit from changes in working capital. Working capital was primarily due to a decreasepositively impacted by favorable changes in cash outflows related to wholesale financinginventory, partially offset by less favorable changes in working capitalaccounts payable compared to the first three months of 2022.
The Company continues to expect that it will generate sufficient cash inflows from operating activities to fund its ongoing operating cash requirements excluding operating cash requirements related to the origination of finance receivables which the Company expects to fund through the issuance of debt. The Company's ongoing operating cash requirements include those related to existing contractual commitments. The Company's purchase orders for inventory used in manufacturing generally do not become firm commitments until 90 days prior to expected delivery. The Company's material contractual operating cash commitments at March 31, 2023 relate to leases, retirement plan obligations and lower net income. During eachincome taxes. The Company's long-term lease obligations and future payments are discussed further in Note 10 of the first quarters of 2017 and 2016,Notes to Consolidated financial statements in the Company made a $25.0 million voluntary contribution to its qualified pension plan. No furtherCompany's Annual Report on Form 10-K for the year ended December 31, 2022. There are no required qualified pension plan contributions in 2023. The Company’s expected future contributions and benefit payments related to its defined benefit retirement plans are expected discussed further in Note 15 of the Notes to Consolidated financial statements in the remainderCompany's Annual Report on Form 10-K for the year ended December 31, 2022. The Company has a liability for unrecognized tax benefits of 2017; however,$28.4 million and related accrued interest and penalties of $16.0 million as of March 31, 2023. The Company cannot reasonably estimate the Company expects it will continue to make benefit payments underperiod of cash settlement for either the SERPAliability for unrecognized tax benefits or accrued interest and postretirement healthcare plans.(1)penalties.
Investing Activities
The Company’s most significant investing activities consist primarily of capital expenditures and net changes inretail finance receivables.receivable originations and collections. Capital expenditures were $114.0$45.1 million in the first ninethree months of 20172023 compared to $162.7$28.0 million in the same period last year. The Company's 2023 plan includes estimated capital investments between $225 million and $250 million, all of which the Company expects to fund with net cash flow generated by operations.(1)
Net cash outflows for finance receivables forduring the first ninethree months of 20172023 were $121.8$67.0 million lower than incompared to the same period last year due primarily to a decrease inlower retail lending activity. In the second quarter of 2016, the Company completed a salefinance receivable originations, partially offset by lower collections of finance receivables. The Company funds its finance receivables net lending activity through an off-balance sheet asset-backed securitization transaction resultingthe issuance of debt, discussed in proceeds of $312.6 million. There was no comparable transaction in 2017."Financing Activities" below.
Financing Activities
The Company’s financing activities consist primarily of dividend payments, share repurchases, dividend payments and debt activity.
The Company paid dividends of $0.165 and $0.158 per share totaling $24.1 million and $24.1 million during the first three months of 2023 and 2022, respectively.
Cash outflows for share repurchases were $465.2$96.8 million in the first ninethree months of 20172023 compared to $374.2$261.7 million in the same period last year. Share repurchases during the first ninethree months of 2017 totaled 8.82023 include $84.0 million or 2.0 million shares of common stock related to discretionary share repurchases and $12.8 million or 0.3 million shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units.units and performance shares. As of September 24, 2017,March 31, 2023, there were 10.67.8 million shares remaining on a board-approved share repurchase authorization. The Company paid dividends
Financing cash flows related to debt and brokered certificates of deposit activity resulted in net cash inflows of $142.9 million$0.3 billion in the first ninethree months of 20172023 compared to a net cash inflowsoutflow of $38.4 million$0.2 billion in the first nine months of 2016.same period last year. The Company’s total outstanding debt and liability for brokered certificates of deposit consisted of the following (in thousands): | | | | | | | | | | | |
| March 31, 2023 | | March 27, 2022 |
Outstanding debt: | | | |
| | | |
Unsecured commercial paper | $ | 501,243 | | | $ | 816,016 | |
Asset-backed Canadian commercial paper conduit facility | 62,195 | | | 95,664 | |
Asset-backed U.S. commercial paper conduit facility | 372,816 | | | 269,534 | |
Asset-backed securitization debt, net | 2,257,799 | | | 1,357,558 | |
Medium-term notes, net | 3,245,591 | | | 3,329,845 | |
Senior notes, net | 745,545 | | | 744,842 | |
| $ | 7,185,189 | | | $ | 6,613,459 | |
| | | |
Deposits, net | $ | 369,311 | | | $ | 348,083 | |
|
| | | | | | | |
| September 24, 2017 | | September 25, 2016 |
Unsecured commercial paper | $ | 834,875 |
| | $ | 1,055,428 |
|
Asset-backed Canadian commercial paper conduit facility | 122,130 |
| | 140,488 |
|
Asset-backed U.S. commercial paper conduit facilities | 280,308 |
| | — |
|
Medium-term notes, net | 4,564,124 |
| | 4,063,510 |
|
Senior unsecured notes, net | 741,797 |
| | 741,144 |
|
Asset-backed securitization debt, net | 429,833 |
| | 925,619 |
|
Total debt | $ | 6,973,067 |
| | $ | 6,926,189 |
|
To access the debt capital markets, the Company relies on credit rating agenciesRefer to assign short-term and long-term credit ratings. Generally, lower credit ratings result in higher borrowing costs and reduced access to debt capital markets. A credit rating agency may change or withdraw the Company’s ratings based on its assessmentNote 9 of the Company’s currentNotes to Consolidated financial statements for a summary of future principal payments on the Company's debt obligations. Refer to Note 6 of the Notes to Consolidated financial statements for a summary of future maturities on the Company's certificates of deposit.
Deposits – HDFS offers brokered certificates of deposit to customers indirectly through contractual arrangements with third-party banks and/or securities brokerage firms through its bank subsidiary. The Company had $369.3 million and future ability to meet interest$348.1 million, net of fees, of interest-bearing brokered certificates of deposit outstanding as of March 31, 2023 and principal repayment obligations.March 27, 2022, respectively. The Company’s short-term debt ratings affect its ability to issue unsecured commercial paper. The Company’sdeposits are classified as short- and long-term debt ratingsliabilities based upon the term of each brokered certificate of deposit issued. Each separate brokered certificate of deposit is issued under a master certificate, and as such, all outstanding brokered certificates of September 24, 2017 were as follows:deposit are considered below the Federal Deposit Insurance Corporation insurance coverage limits.
|
| | | | | |
| Short-Term | | Long-Term | | Outlook |
Moody’s | P2 | | A3 | | Stable |
Standard & Poor’s | A2 | | A- | | Stable |
Fitch | F1 | | A | | Stable |
Credit Facilities – On May 1, 2017,In April 2022, the Company entered into a $100.0 million 364-day credit facility which matures on April 30, 2018. The Company also has a $675.0$710.0 million five-year credit facility which matures on April 7, 2019 and a $765.0to replace the $707.5 million five-year credit facility which matures onthat was due to mature in April 7, 2021.2023. The new 364-dayfive-year credit facility andmatures in April 2027. The Company also amended its other $707.5 million five-year credit facility to $710.0 million with no change to the maturity date of April 2025. The five-year credit facilities (together, the Global Credit Facilities) bear interest at variable interest rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based on the average daily unused portion of the aggregate commitments under the Global Credit Facilities.commitments. The Global Credit Facilities are committed facilities and primarily used to support the Company's unsecured commercial paper program. Additionally, during the second quarter of 2017, the Company renewed its $25.0 million credit facility which expired on May 24, 2017. The $25.0 million credit facility bears interest at variable interest rates, and the Company must pay a fee based on the unused portion of the $25.0 million commitment. The credit facility expires on May 23, 2018.
Unsecured Commercial Paper – Subject to limitations, the Company could issue unsecured commercial paper of up to $1.54$1.42 billion as of September 24, 2017March 31, 2023 supported by the Global Credit Facilities, as discussed above. Outstanding unsecured commercial paper may not exceed the unused portion of the Global Credit Facilities. Maturities may range up to 365 days from the issuance date. The Company intends to repay unsecured commercial paper as it matures with additional unsecured
commercial paper or through other means, such as borrowing under the Global Credit Facilities, borrowing under its asset-backed U.S. commercial paper conduit facility or through the use of operating cash flow and cash on hand.(1)
Medium-Term Notes – The Company had the following unsecured medium-term notes (collectively, the Notes) issued and outstanding at September 24, 2017March 31, 2023 (in thousands): | | | | | | | | | | | | | | | | | | | | |
Principal Amount | | Rate | | Issue Date | | Maturity Date |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
$706,972(a) | | 4.94% | | May 2020 | | May 2023 |
$652,590(b) | | 3.14% | | November 2019 | | November 2024 |
$700,000 | | 3.35% | | June 2020 | | June 2025 |
$500,000 | | 3.05% | | February 2022 | | February 2027 |
$700,000 | | 6.50% | | March 2023 | | March 2028 |
(a)€650.0 million par value remeasured to U.S. dollar at March 31, 2023
(b)€600.0 million par value remeasured to U.S. dollar at March 31, 2023
|
| | | | | | |
Principal Amount | | Rate | | Issue Date | | Maturity Date |
$400,000 | | 1.55% | | November 2014 | | November 2017 |
$877,488 | | 6.80% | | May 2008 | | June 2018 |
$600,000 | | 2.25% | | January 2016 | | January 2019 |
$150,000 | | Floating-rate(a) | | March 2017 | | March 2019 |
$600,000 | | 2.40% | | September 2014 | | September 2019 |
$600,000 | | 2.15% | | February 2015 | | February 2020 |
$350,000 | | 2.40% | | March 2017 | | June 2020 |
$600,000 | | 2.85% | | January 2016 | | January 2021 |
$400,000 | | 2.55% | | June 2017 | | June 2022 |
The U.S. dollar-denominated medium-term notes provide for semi-annual interest payments and the foreign currency-denominated medium-term notes provide for annual interest payments. Principal on the medium-term notes is due at maturity. Unamortized discounts and debt issuance costs on the medium-term notes reduced the outstanding balance by $14.0 million and $12.2 million at March 31, 2023 and March 27, 2022, respectively. During the first quarter of 2023, $350.0 million of 3.35% medium-term notes matured, and the principal and accrued interest were paid in full. During the first quarter of 2022, $550.0 million of 4.05% medium-term notes matured, and the principal and accrued interest were paid in full.
| |
(a) | Floating interest rate based on LIBOR plus 35 bps. |
Senior Notes – In July 2015, the Company issued $750.0 million of unsecured senior notes in an underwritten offering. The Notessenior notes provide for semi-annual interest payments and principal due at maturity. Unamortized discount and debt issuance costs on the Notes reduced the outstanding balance by $13.4 million and $14.0 million at September 24, 2017 and September 25, 2016, respectively. There were no medium-term note maturities during the second or third quarters of 2017 and 2016. During the first quarter of 2017 and 2016, $400.0 million of 2.70% and $450.0 million of 3.88% medium-termthe senior notes matured, respectively,mature in July 2025 and the principalhave an interest rate of 3.50%, and accrued interest were paid in full.
During the third quarter of 2016, the Company repurchased $1.2$300.0 million of its 6.80% medium-termthe senior notes which mature in June 2018. As a result,July 2045 and have an interest rate of 4.625%. The Company used the Company recognizedproceeds from the debt to repurchase shares of its common stock in financial services interest expense $0.1 million for losses on the extinguishment of debt, which included unamortized discounts and fees. There were no other repurchases made during the first nine months of 2017 or 2016.2015.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility – The Company has a revolving facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase from the Company eligible Canadian retail motorcycle finance receivables for proceeds up to C$220.0125.0 million. The transferred assets are restricted as collateral for the payment of the associated debt. The terms for this facilitydebt provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment of C$220.0125.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables is approximately 4 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of September 24, 2017,March 31, 2023, the Canadian Conduit has an expiration date of June 30, 2018.2023.
The following table includes quarterlyThere were no finance receivable transfers under the Canadian Conduit Facility during the first quarter of 2023. During the first quarter of 2022, the Company transferred $25.3 million of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respectivefor proceeds (in thousands):of $21.2 million.
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Transfers | | Proceeds | | Transfers | | Proceeds |
First quarter | $ | 6,300 |
| | $ | 5,500 |
| | $ | 6,600 |
| | $ | 5,800 |
|
Second quarter | 14,200 |
| | 12,400 |
| | 31,400 |
| | 27,500 |
|
Third quarter | — |
| | — |
| | — |
| | — |
|
| $ | 20,500 |
| | $ | 17,900 |
| | $ | 38,000 |
| | $ | 33,300 |
|
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE – On December 14, 2016, theThe Company entered intohas a new$1.50 billion revolving facility agreement (the U.S. Conduit Facility) with a third party bank-sponsoredthird-party banks and their asset-backed U.S. commercial paper conduit,conduits. Under the revolving facility agreement, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which providesin turn may issue debt to those third-party banks and their asset-backed U.S. commercial paper conduits. In November 2022, the Company renewed the U.S. Conduit Facility. As a result of the renewal, the agreement no longer allows for a total commitmentuncommitted additional borrowings, at the lender's discretion, of up to $300.0 million. Also on that date,million in addition to the $1.50 billion aggregate commitment. Prior to the November 2022 renewal, the Company renewed its existing $600.0drew against the $300.0 million revolving facility agreement, which had expiredof uncommitted additional borrowings that were available prior to the renewal and, at March 31, 2023, $72.8 million of the amount drawn remained outstanding. Availability under the U.S. Conduit Facility is based on, December 14, 2016 withamong other things, the same third party bank-sponsored asset-backedamount of eligible U.S. commercial paper conduit. In January 2017, April 2017, and July 2017,retail motorcycle finance receivables held by the SPE as collateral.
There were no finance receivable transfers under the U.S. Conduit Facility during the first quarter of 2023. During the first quarter of 2022, the Company transferred $333.4$47.1 million
$28.2 million, and $34.1 million, respectively, of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $300.0$41.3 million $24.0 million, and $29.6 million, respectively, of debt under the U.S. Conduit Facilities. The contractual maturity of the debt is approximately 5 years. The VIE had no borrowings outstanding under the U.S. Conduit Facilities at December 31, 2016 or September 25, 2016.Facility.
The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates or LIBORif funded by a conduit lender through the issuance of commercial paper. Subsequent to the extentNovember 2022 renewal, the advance isinterest rate on all outstanding debt and future borrowings, if not funded by a conduit lender through the issuance of commercial paper, plus,is based on the Secured Overnight Financing Rate (SOFR), with provisions for a transition to other benchmark rates in each case,the future, if necessary. Prior to the renewal, if not funded by a conduit lender through the issuance of commercial paper, the terms of the interest were based on LIBOR or SOFR, as appropriate, with provisions for a transition to other benchmark rates. In addition to interest, a program fee is assessed based on the outstanding principal.debt principal balance. The U.S. Conduit FacilitiesFacility also provideprovides for an unused commitment fee based on the unused portion of the total aggregate commitment of $900.0 million.commitment. There is no amortization schedule; however, the debt will beis reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the U.S. Conduit Facilities,Facility, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately 4 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of September 24, 2017,March 31, 2023, the U.S. Conduit Facilities haveFacility has an expiration date of December 13, 2017.November 17, 2023.
Asset-Backed Securitization VIEs – For all of its asset-backed securitization transactions, the Company transfers U.S. retail motorcycle finance receivables to separate VIEs, which in turn issue secured notes with various maturities and interest
rates to investors. All of the notes held by the VIEs are secured by future collections of the purchased U.S. retail motorcycle finance receivables. The U.S. retail motorcycle finance receivables included in the asset-backed securitization transactions are not available to pay other obligations or claims of the Company's creditors until the associated debt and other obligations are satisfied. Restricted cash balances held by the VIEs are used only to support the securitizations.
The accounting treatment for asset-backed securitizations depends on the terms of the related transaction and the Company’s continuing involvement with the VIE. Most of the Company’sThe Company's current outstanding asset-backed securitizations do not meet the criteria to be accounted for as a sale because, in addition to retaining servicing rights, the Company retains a financial interest in the VIE in the form of a debt security. These transactions are treated as secured borrowings. As secured borrowings, and as such, the retail motorcycle finance receivables remain on the balance sheet with a corresponding obligation reflected as debt. There is no amortization schedule for the secured notes; however, the debt is reduced monthly as available collections on the related retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual livesnotes currently have various contractual maturities ranging from 20192024 to 2022.2030.
There were no on or off-balance sheet asset-backed securitization transactions during the nine months ended September 24, 2017. During the secondfirst quarter of 2016,2023, the Company soldtransferred $628.5 million of U.S. retail motorcycle finance receivables with a principal balanceto an SPE which, in turn, issued $550.0 million, or $547.7 million net of $301.8 million intodiscount and issuance costs, of secured notes through an on-balance sheet asset-backed securitization VIE, and the transaction met the criteria to be accounted for as a sale because the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants. Upon the sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet and a gain of $9.3 million was recognized in Financial Services revenue.transaction. There were no on-balance sheet asset-backed securitization transactions during the nine months ended September 25, 2016.first quarter of 2022.
Support Agreement - The CompanyIntercompany Agreements – On January 27, 2023, Harley-Davidson, Inc. entered into a revolving line of credit with Harley-Davidson Financial Services, Inc. whereby Harley-Davidson Financial Services, Inc. may borrow up to $200.0 million at market interest rates with an expiration date of July 27, 2024. As of March 31, 2023, Harley-Davidson Financial Services, Inc. had no outstanding borrowings owed to Harley-Davidson, Inc. under this agreement.
Harley Davidson, Inc. also has a support agreement with HDFSHarley-Davidson Financial Services Inc. whereby, if required, the CompanyHarley-Davidson, Inc. agrees to provide HDFSHarley-Davidson Financial Services Inc. with financial support to maintain HDFS’Harley-Davidson Financial Services Inc.’s fixed-charge coverage at 1.25 and minimum net worth of $40.0 million. Support may be provided at the Company’sHarley-Davidson, Inc.'s option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company’s ability to withdraw funds from HDFS outside the normal course of business. No amount has ever been provided to HDFSHarley-Davidson Financial Services Inc. under the support agreement.
Operating and Financial Covenants – HDFSHarley-Davidson Financial Services Inc. and the Company are subject to various operating and financial covenants related to the credit facilities and various operating covenants under the Notesmedium-term and senior notes and the U.S. and Canadian asset-backed commercial paper conduit facilities. The more significant covenants are described below.
The operating covenants limit the Company’s and HDFS’Harley-Davidson Financial Services Inc’s ability to:
•Assume or incur certain liens;
•Participate in certain mergers or consolidations; and
•Purchase or hold margin stock.
Under the current financial covenants of the Global Credit Facilities, the ratio of Harley-Davidson Financial Services Inc.’s consolidated debt, excluding secured debt, to Harley-Davidson Financial Services' consolidated allowance for credit losses on finance receivables plus Harley-Davidson Financial Services Inc’s consolidated shareholders' equity, ratio of HDFSexcluding accumulated other comprehensive loss (AOCL), cannot exceed 1010.0 to 11.0 as of the end of any fiscal quarter. In addition, the ratio of the Company's consolidated debt to the Company's consolidated debt and consolidated shareholders’ equity (where the Company's consolidated debt in each case excluding the debtexcludes that of HDFSHarley-Davidson Financial Services Inc. and its subsidiaries, and the Company's consolidated shareholders’ equity excludes AOCL), cannot exceed 0.700.7 to 1.001.0 as of the end of any fiscal quarter. No financial covenants are required under the Notesmedium-term or senior notes or the U.S. or Canadian asset-backed commercial paper conduit facilities.
At September 24, 2017, HDFSAs of March 31, 2023, Harley-Davidson Financial Services Inc. and the Company remained in compliance with all of the then existing covenants.
Cautionary Statements
The Company’s abilityImportant factors that could affect future results and cause those results to meetdiffer materially from those expressed in the targets and expectations noted depends upon,forward-looking statements include, among other factors,others, the Company’s ability to (i)to: (a) execute its business strategy, (ii) drive demandplans and strategies, including The Hardwire, each of the pillars, and the evolution of LiveWire as a standalone brand, which includes the risks noted below; (b) manage supply chain and logistics issues, including quality issues, availability of semiconductor chip components and the ability to find alternative sources of those components in a timely manner, unexpected interruptions or price increases caused by executingsupplier volatility, raw material shortages, inflation, war or other hostilities, including the conflict in
Ukraine, or natural disasters and longer shipping times and increased logistics costs, including by successfully implementing pricing surcharges; (c) realize the expected business benefits from LiveWire operating as a separate public company, which may be affected by, among other things: (I) the ability of LiveWire to: (1) execute its marketing strategyplans to develop, produce, market and sell its electric vehicles; (2) achieve profitability, which is dependent on the successful development and commercial introduction and acceptance of appealingits electric vehicles, and its services, which may not occur; (3) adequately control the costs of its operations as a new entrant into a new space; (4) develop, maintain and strengthen its brand; (5) execute its plans to develop, produce, market and growing salessell its electric vehicles on expected timelines; and (6) effectively establish and maintain cooperation from its retail partners, largely drawn from the Company's traditional motorcycle dealer network, to multi-generationalbe able to effectively establish or maintain relationships with customers for electric vehicles; (II) competition; and multi-cultural customers worldwide(III) other risks and uncertainties indicated in an increasingly competitive marketplace, (iii)documents filed with the SEC by the Company or LiveWire Group, Inc., including those risks and uncertainties noted in Risk Factors under Item 1.A of LiveWire Group Inc.'s Annual Report on Form 10-K for the year ended December 31, 2022; (d) accurately analyze, predict and react to changing market conditions and successfully adjust to shifting global consumer needs and interests; (e) successfully access the capital and/or credit markets on terms that are acceptable to the Company and within its expectations; (f) successfully carry out its global manufacturing and assembly operations; (g) develop and introduce products, services and experiences on a timely basis that the market accepts, that enable the Company to generate desired sales levels and that provide the desired financial returns, including successfully implementing and executing plans to strengthen and grow its leadership position in Grand American Touring, large Cruiser and Trike, and grow its complementary businesses; (h) perform in a manner that enables the Company to benefit from market opportunities while competing against existing and new competitors; (i) manage ongoing risks related to the impact of the COVID-19 pandemic, such as supply chain disruptions, its ability to carry out business as usual, and government actions and restrictive measures implemented in response; (j) manage the regulatory compliance matter relating to a third-party supplier's component part in a manner that avoids additional costs or recall expenses that are successful inmaterial; (k) successfully appeal: (I) the marketplace, (iv)revocation of the Binding Origin Information (BOI) decisions that allowed the Company to supply its European Union (EU) market with certain of its motorcycles produced at its Thailand operations at a reduced tariff rate and (II) the denial of the Company's application for temporary relief from the effect of the revocation of the BOI decisions; (l) manage and predict the impact that prices for and supply of used motorcyclesnew, reinstated or adjusted tariffs may have on its business, including on retail sales of new motorcycles, (v) balance production volumes for its new motorcycles with consumer demand, including in circumstances where competitors may be supplying new motorcyclesthe Company's ability to the market in excess of demand at reduced prices, (vi) manage through changes in general economic and business conditions, including changing capital, credit and retail markets,sell products internationally, and the changing political environment, (vii) manage risks that arise through expanding international manufacturing, operationscost of raw materials and sales, (viii) accurately estimatecomponents, including the temporary lifting of the Section 232 steel and adjust to fluctuations in foreign currency exchange rates, interest ratesaluminum tariffs and commodity prices, (ix) manageincremental tariffs on motorcycles imported into the credit quality,EU from the loan servicingU.S., between the U.S. and collection activities,EU, which expires on December 31, 2023; (m) prevent, detect and the recovery rates of HDFS' loan portfolio, (x) prevent and detectremediate any issues with its motorcycles or any issues associated with the manufacturing processes to avoid delays in new model launches, recall campaigns, regulatory agency investigations, increased warranty costs or litigation and adverse effects on its reputation and brand strength, (xi) retain and attract talented employees, (xii) preventcarry out any product programs or recalls within expected costs and timing; (n) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles; (o) successfully manage and reduce costs throughout the business; (p) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, particularly with the recent turmoil in the banking industry, and the changing domestic and international political environments, including as a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (xiii)result of the conflict in Ukraine; (q) continue to develop the capabilities of its distributors and dealers, effectively implement changes relating to its dealers and distribution methods and manage the risks that its independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xiv)demand; (r) continue to develop and maintain a productive relationship with Zhejiang Qianjiang Motorcycle Co., Ltd. and launch related products in a timely manner; (s) maintain a productive relationship with Hero MotoCorp as a distributor and licensee of the Harley-Davidson brand name in India; (t) successfully maintain a manner in which to sell motorcycles in China and the Company’s Association of Southeast Asian Nations (ASEAN) countries that does not subject its motorcycles to incremental tariffs; (u) manage its Thailand corporate and manufacturing operation in a manner that allows the Company to avail itself of preferential free trade agreements and duty rates, and sufficiently lower prices of its motorcycles in certain markets; (v) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices; (w) retain and attract talented employees, and eliminate personnel duplication, inefficiencies and complexity throughout the organization; (x) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or Company data and respond to evolving regulatory requirements regarding data security; (y) manage the credit quality, the loan servicing and collection activities, and the recovery rates of Harley-Davidson Financial Services' loan portfolio; (z) adjust to tax reform, healthcare inflation and reform and pension reform, (xv)and successfully estimate the impact of any such reform on the Company's business; (aa) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xvi) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xvii)motorcycles; (bb) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xviii)facilities; (cc) manage changes, and prepare for, and respond to evolving requirements in legislative and regulatory environments forrelated to its products, services and operations, (xix)operations; (dd) manage its exposure to product liability claims and commercial or contractual disputes, (xx) execute its flexible production strategy, (xxi) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the Company and within its expectations, and (xxii)disputes; (ee) continue to manage the relationships and agreements that the Company has with its labor unions to help drive long-term competitiveness.
In addition,competitiveness; (ff) achieve anticipated results with respect to the Company could experience delays or disruptionsCompany's pre-owned motorcycle program, Harley-Davidson Certified, the Company's H-D1 Marketplace, and Apparel and Licensing; (gg) accurately predict the margins of its segments in its operations as a resultlight of, work stoppages, strikes, natural causes, terrorism oramong other factors. Further, actualthings, tariffs, inflation, foreign currency exchange rates, may vary from underlying assumptions. Other factors are described in risk factors that the Company has disclosed in documents previously filedcost associated with the Securities and Exchange Commission.
Many of these risk factors are impacted by the current changing capital, credit and retail marketsproduct development initiatives and the Company's ability tocomplex global supply chain; and (hh) optimize capital allocation in light of the Company's capital allocation
priorities; and (ii) manage through inconsistent economic conditions.the effects increased environmental, safety, emissions or other regulations or other influences may have on the business and its operating results.
The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company.
In addition, the Company’s independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions, the impact of the COVID-19 pandemic, or other factors.
In recent years, HDFS hasHarley-Davidson Financial Services (HDFS) experienced historically low levels of retail credit losses, but there is no assurance that this will continue. Thecredit losses have been normalizing to higher levels in recent quarters. Further, the Company believes that HDFS'HDFS's retail credit losses may increasewill continue to change over time due to changing consumer credit behavior, macroeconomic conditions including the impact of inflation, and HDFS'HDFS's efforts to increase prudently structured loan approvals to sub-prime borrowers,adjust underwriting criteria based on market and economic conditions, as well as actions that the Company has taken and could take that impact motorcycle values.
The Company's operations, demand for its products, and its liquidity could be adversely impacted by work stoppages, facility closures, strikes, natural causes, widespread infectious disease, terrorism, war or other hostilities, including the conflict in Ukraine, or other factors. Refer to “Risk Factors”Risk Factors under Item 1A1.A of the Company’s Annual Report on Form 10-K for the year ended December 31, 20162022 for a discussion of additional risk factors and a more complete discussion of some of the cautionary statements noted above.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
The Company’s earnings relatedCompany is exposed to its operations outside the U.S. are impacted bymarket risk from changes in foreign currency exchange rates, commodity prices and interest rates. The majorityTo reduce such risks, the Company selectively uses derivative financial instruments. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes. Sensitivity analysis is used to manage and monitor foreign currency exchange rate and interest rate risks. Further disclosure relating to the fair value of the Company's derivative financial instruments is included in Note 8 of the Notes to Consolidated financial statements.
HDMC Segment
The Company sells its motorcycles and related products internationally and in most markets those sales are made in the foreign country’s local currency. As a result, the HDMC segment operating results are affected by fluctuations in the value of the U.S. dollar relative to foreign currencies. The Company’s exposuremost significant foreign currency exchange rate risk resulting from the sale of motorcycles and related products relates to the Euro, the Australian dollar, the Japanese yen, Brazilian real, Canadian dollar, Mexican peso, Chinese yuan, Singapore dollar, Thai baht and the Brazilian real. A weakening in foreign currencies relative to the U.S. dollar will generally have an
adverse effect on revenue related to sales made in those foreign currencies offset by a corresponding positive impact from natural hedges created by the operating costs incurred in those same foreign currencies. As the majority of the Company’s manufacturing occurs in the U.S., the Company’s operating expenses paid in foreign currencies generally include limited manufacturing costs and the selling and administrative costs incurred at the Company’s international locations. In addition, to the extent thePound sterling. The Company carries foreign-denominated cash, receivables or accounts payable, those amounts are also exposed toutilizes foreign currency remeasurements that can impactcontracts to mitigate the Company’s earnings.
The Company also uses derivative financial instruments to hedge a portioneffect of the forecasted cash flows in its key foreign currencies. These instruments generally have terms of up to 12 months and are purchased over time so that at any point in time some portion of the next 12 months of expectedcertain currencies' fluctuations on HDMC segment operating results. The foreign currency exposure is hedged. The hedging instrumentscontracts are entered into with banks and allow the Company to lock in the exchange rate oncurrencies at a future foreign currency cash flowsdate, based on the forward rates available at the time of purchase. The level of gain or loss on these instruments will depend on the spread between the forward rate and the corresponding spot rate at the date the instruments are settled.
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2016 for further information concerning the Company's market risk.a fixed exchange rate. There have been no material changes to the foreign currency exchange rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2022.
The Company purchases commodities for the use in the production of motorcycles. As a result, HDMC segment operating income is affected by changes in commodity prices. The Company uses derivative financial instruments on a limited basis to hedge the prices of certain commodities. There have been no material changes to the commodity market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
LiveWire Segment
LiveWire has sold and expects to sell its electric motorcycles, electric balance bikes and related products internationally, and in most markets, those sales are made in the foreign country’s local currency. As a result, LiveWire’s operating results are affected by fluctuations in the values of the U.S. dollar relative to foreign currencies; however, the impact of such fluctuations on LiveWire’s operations to date have not been material given the majority of LiveWire’s sales are currently in the U.S. LiveWire plans to expand its business and operations internationally and expects its exposure to currency rate risk to increase as it grows its international presence.
HDFS Segment
The Company has interest rate sensitive financial instruments including financial receivables, debt and interest rate derivative financial instruments. As a result, HDFS operating income is affected by changes in interest rates. The Company
utilizes interest rate caps to reduce the impact of fluctuations in interest rates on its asset-backed securitization transactions. There have been no material changes to the interest rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
HDFS also has short-term commercial paper and debt issued through the commercial paper conduit facilities that is subject to changes in interest rates which it does not hedge. There have been no material changes to the interest rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
The Company has foreign denominated medium-term notes, and as a result, HDFS operating income is affected by fluctuations in the value of the U.S. dollar relative to foreign currencies and interest rates. At March 31, 2023, this exposure related to the Euro. The Company utilizes cross-currency swaps to mitigate the effect of the foreign currency exchange rate and interest rate fluctuations related to foreign denominated debt. There have been no material changes to the foreign currency exchange rate and interest rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further information concerning the Company's market risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
– In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer and the Senior Vice President, Treasurer, and Interim Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Senior Vice President, Treasurer, and Interim Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Senior Vice President, Treasurer, and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
Changes in Internal Controls
– There were no changes in the Company's internal control over financial reporting during the quarter ended September 24, 2017March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1 –1. Legal Proceedings
The information required under this Item 1 of Part II is contained in Item 1 of Part I of this Quarterly Report on Form 10-Q in Note 1614 of the Notes to Consolidated Financial Statements,financial statements, and such information is incorporated herein by reference in this Item 1 of Part II.
Item 2 –2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains detail related to the Company's repurchaseshare repurchases, which consisted of itsdiscretionary shares and shares of common stock based onthat employees surrendered to satisfy withholding taxes in connection with the datevesting of traderestricted stock units and performance shares, were as follows during the quarter ended September 24, 2017:March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | |
2023 Fiscal Month | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
January 1 to March 31 | | 331 | | | $ | 42 | | | 331 | | | 9,872,167 | |
February 1 to February 28 | | 259,229 | | | $ | 49 | | | 259,229 | | | 9,872,167 | |
March 1 to March 31 | | 2,040,212 | | | $ | 41 | | | 2,040,212 | | | 7,835,898 | |
| | 2,299,772 | | | $ | 42 | | | 2,299,772 | | | |
|
| | | | | | | | | | | | |
2017 Fiscal Month | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
June 26 to July 30 | 1,995,210 |
| | $ | 52 |
| | 1,995,210 |
| | 13,052,282 |
|
July 31 to August 27 | 2,192,535 |
| | $ | 48 |
| | 2,192,535 |
| | 10,860,646 |
|
August 28 to September 24 | 266,502 |
| | $ | 47 |
| | 266,502 |
| | 10,594,144 |
|
Total | 4,454,247 |
| | $ | 50 |
| | 4,454,247 |
| | |
| |
(a) | Includes discretionary share repurchases and shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units |
In February 2016,2020, the Company's Board of Directors authorized the Company to repurchase up to 20.010.0 million shares of its common stock on a discretionary basis with no dollar limit or expiration date which superseded the share repurchase authority granted by the Board of Directors in December 1997.date. The Company repurchased 4.52.0 million shares on a discretionary basis during the quarter ended September 24, 2017March 31, 2023 under this authorization.these authorizations. As of September 24, 2017, 10.6March 31, 2023, 7.8 million shares remained under thisthe 2020 authorization.
Under the share repurchase authorizations, the Company’s common stock may be purchased through any one or more of a Rule 10b5-1 trading plan and discretionary purchases on the open market, block trades, accelerated share repurchases, or privately negotiated transactions. The number of shares repurchased, if any, and the timing of repurchases will depend on a number of factors, including share price, trading volume, and general market conditions, as well as on working capital requirements, general business conditions, and other factors. The repurchase authority has no expiration date but may be suspended, modified, or discontinued at any time.
The Harley-Davidson, Inc. 20142020 Incentive Stock Plan and the 2022 Aspirational Incentive Stock Plan (Incentive Plans) and predecessor stock plans permit participants to satisfy all or a portion of the statutory federal, state, and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares otherwise issuable under the award, (b) tender back shares received in connection with such award, or (c) deliver other previously owned shares, in each case having a value equal to the amount to be withheld. During the thirdfirst quarter of 2017,2023, the Company acquired 1,471263,503 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock units.units and performance shares. At the Company's 2022 Annual Meeting of Shareholders held May 12, 2022, the shareholders of the Company approved an amendment to the 2020 Incentive Stock Plan to increase the authorized number of shares under the Incentive Plan by 3.1 million shares. As amended, the 2020 Incentive Stock Plan provides that up to a total of 8.5 million shares of the Company's common stock may be issued thereunder.
Item 6 –6. Exhibits
Refer to the Exhibit Indexexhibit index immediately following this page.
Harley-Davidson, Inc.
Exhibit Index to Form 10-Q
|
| | | | | | | |
Exhibit No. | | Description |
| | Officers' Certificate, dated March 10, 2023, pursuant to Sections 102 and 301 of the Indenture, dated December 18, 2020, with the form of 6.50% Medium-Term Notes due 2028 |
| | Officers' Certificate, dated April 3, 2023, pursuant to a fiscal agency agreement dated April 5, 2023, with the form of 5.125% Guaranteed Notes due 2026 |
| | Chief Executive Officer Certification pursuant to Rule 13a-14(a) |
| | Chief Financial Officer Certification pursuant to Rule 13a-14(a) |
| | Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. §1350 |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101 |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| HARLEY-DAVIDSON, INC. |
| |
Date: May 10, 2023 | HARLEY-DAVIDSON, INC./s/ David W. Viney |
| David W. Viney |
Date: November 2, 2017 | /s/ John A. Olin |
| John A. Olin |
| Senior Vice President, Treasurer, and |
| Interim Chief Financial Officer |
| (Principal financial officer) |
|
| | | | |
Date: November 2, 2017May 10, 2023 | /s/ Mark R. Kornetzke |
| Mark R. Kornetzke |
| Chief Accounting Officer |
| (Principal accounting officer) |