UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JuneMarch 28, 20202021
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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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3700 West Juneau Avenue | Milwaukee | Wisconsin | 53208 |
(Address of principal executive offices) | | | (Zip code) |
Registrant's telephone 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:
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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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The registrant had outstanding 153,241,253153,665,546 shares of common stock as of July 31, 2020.April 30, 2021.
HARLEY-DAVIDSON, INC.
Form 10-Q
For The Quarter Ended JuneMarch 28, 20202021
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Part I | | |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
Part II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 5. | | |
Item 6. | | |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | Three months ended | | | Six months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | |
Motorcycles and Related Products | Motorcycles and Related Products | $ | 669,274 | | | $ | 1,434,004 | | | $ | 1,769,062 | | | $ | 2,629,641 | | Motorcycles and Related Products | $ | 1,232,107 | | | $ | 1,099,788 | | |
Financial Services | Financial Services | 195,953 | | | 198,615 | | | 394,409 | | | 387,358 | | Financial Services | 190,400 | | | 198,456 | | |
| | 865,227 | | | 1,632,619 | | | 2,163,471 | | | 3,016,999 | | | 1,422,507 | | | 1,298,244 | | |
Costs and expenses: | Costs and expenses: | | Costs and expenses: | | |
Motorcycles and Related Products cost of goods sold | Motorcycles and Related Products cost of goods sold | 561,646 | | | 979,266 | | | 1,342,514 | | | 1,827,464 | | Motorcycles and Related Products cost of goods sold | 811,622 | | | 780,868 | | |
Financial Services interest expense | Financial Services interest expense | 62,187 | | | 52,673 | | | 114,660 | | | 104,997 | | Financial Services interest expense | 55,707 | | | 52,473 | | |
Financial Services provision for credit losses | Financial Services provision for credit losses | 91,179 | | | 26,383 | | | 170,598 | | | 60,874 | | Financial Services provision for credit losses | (22,474) | | | 79,419 | | |
Selling, administrative and engineering expense | Selling, administrative and engineering expense | 224,365 | | | 307,617 | | | 502,336 | | | 576,242 | | Selling, administrative and engineering expense | 231,844 | | | 277,971 | | |
Restructuring expense | 41,949 | | | 10,423 | | | 41,949 | | | 24,053 | | |
Restructuring benefit | | Restructuring benefit | (366) | | | 0 | | |
| | 981,326 | | | 1,376,362 | | | 2,172,057 | | | 2,593,630 | | | 1,076,333 | | | 1,190,731 | | |
Operating (loss) income | (116,099) | | | 256,257 | | | (8,586) | | | 423,369 | | |
Operating income | | Operating income | 346,174 | | | 107,513 | | |
Other income, net | Other income, net | 156 | | | 4,037 | | | 311 | | | 8,697 | | Other income, net | 277 | | | 155 | | |
Investment income | 5,757 | | | 3,571 | | | 410 | | | 9,929 | | |
Investment income (loss) | | Investment income (loss) | 1,402 | | | (5,347) | | |
Interest expense | Interest expense | 7,769 | | | 7,784 | | | 15,524 | | | 15,515 | | Interest expense | 7,708 | | | 7,755 | | |
(Loss) income before provision for income taxes | (117,955) | | | 256,081 | | | (23,389) | | | 426,480 | | |
Income tax (benefit) provision | (25,738) | | | 60,450 | | | (867) | | | 102,904 | | |
Net (loss) income | $ | (92,217) | | | $ | 195,631 | | | $ | (22,522) | | | $ | 323,576 | | |
(Net loss) earnings per share: | | | | | | | | |
Income before provision for income taxes | | Income before provision for income taxes | 340,145 | | | 94,566 | | |
Provision for income taxes | | Provision for income taxes | 81,001 | | | 24,871 | | |
Net income | | Net income | $ | 259,144 | | | $ | 69,695 | | |
Earnings per share: | | Earnings per share: | | | | |
Basic | Basic | $ | (0.60) | | | $ | 1.23 | | | $ | (0.15) | | | $ | 2.03 | | Basic | $ | 1.69 | | | $ | 0.46 | | |
Diluted | Diluted | $ | (0.60) | | | $ | 1.23 | | | $ | (0.15) | | | $ | 2.03 | | Diluted | $ | 1.68 | | | $ | 0.45 | | |
Cash dividends per share | Cash dividends per share | $ | 0.020 | | | $ | 0.375 | | | $ | 0.400 | | | $ | 0.750 | | Cash dividends per share | $ | 0.15 | | | $ | 0.38 | | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
| | | Three months ended | | | Six months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | |
Net (loss) income | $ | (92,217) | | | $ | 195,631 | | | $ | (22,522) | | | $ | 323,576 | | |
Net income | | Net income | $ | 259,144 | | | $ | 69,695 | | |
Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | 21,443 | | | 11,270 | | | (13,012) | | | 11,601 | | Foreign currency translation adjustments | (17,338) | | | (34,455) | | |
Derivative financial instruments | Derivative financial instruments | (6,309) | | | (11,923) | | | (26,154) | | | (12,364) | | Derivative financial instruments | 17,530 | | | (19,845) | | |
| Pension and postretirement benefit plans | Pension and postretirement benefit plans | 11,958 | | | 7,743 | | | 23,917 | | | 15,486 | | Pension and postretirement benefit plans | 13,588 | | | 11,959 | | |
| | 27,092 | | | 7,090 | | | (15,249) | | | 14,723 | | | 13,780 | | | (42,341) | | |
Comprehensive (loss) income | $ | (65,125) | | | $ | 202,721 | | | $ | (37,771) | | | $ | 338,299 | | |
Comprehensive income | | Comprehensive income | $ | 272,924 | | | $ | 27,354 | | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
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| (Unaudited) | | | | (Unaudited) |
| June 28, 2020 | | December 31, 2019 | | June 30, 2019 |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 3,856,597 | | | $ | 833,868 | | | $ | 924,638 | |
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Accounts receivable, net | 271,431 | | | 259,334 | | | 325,306 | |
Finance receivables, net of allowance of $75,563, $43,006, and $40,446 | 1,901,620 | | | 2,272,522 | | | 2,362,125 | |
Inventories, net | 429,339 | | | 603,571 | | | 470,610 | |
Restricted cash | 189,712 | | | 64,554 | | | 82,248 | |
Other current assets | 163,135 | | | 168,974 | | | 147,234 | |
| 6,811,834 | | | 4,202,823 | | | 4,312,161 | |
Finance receivables, net of allowance of $335,452, $155,575, and $154,550 | 5,078,371 | | | 5,101,844 | | | 5,232,280 | |
Property, plant and equipment, net | 816,989 | | | 847,382 | | | 855,998 | |
Prepaid pension costs | 73,589 | | | 56,014 | | | — | |
Goodwill | 64,192 | | | 64,160 | | | 64,449 | |
Deferred income taxes | 141,566 | | | 101,204 | | | 134,639 | |
Lease assets | 53,031 | | | 61,618 | | | 54,913 | |
Other long-term assets | 116,580 | | | 93,114 | | | 85,876 | |
| $ | 13,156,152 | | | $ | 10,528,159 | | | $ | 10,740,316 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | $ | 317,462 | | | $ | 294,380 | | | $ | 324,464 | |
Accrued liabilities | 604,210 | | | 582,288 | | | 615,905 | |
Short-term debt | 1,547,388 | | | 571,995 | | | 405,695 | |
Current portion of long-term debt, net | 2,186,037 | | | 1,748,109 | | | 2,396,188 | |
| 4,655,097 | | | 3,196,772 | | | 3,742,252 | |
Long-term debt, net | 6,488,499 | | | 5,124,826 | | | 4,650,176 | |
Lease liabilities | 36,394 | | | 44,447 | | | 38,365 | |
Pension liabilities | 57,033 | | | 56,138 | | | 92,750 | |
Postretirement healthcare liabilities | 69,964 | | | 72,513 | | | 92,539 | |
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Other long-term liabilities | 225,460 | | | 229,464 | | | 213,593 | |
Commitments and contingencies (Note 17) | | | | | |
Shareholders’ equity: | | | | | |
Preferred stock, NaN issued | — | | | — | | | — | |
Common stock | 1,834 | | | 1,828 | | | 1,827 | |
Additional paid-in-capital | 1,494,259 | | | 1,491,004 | | | 1,474,819 | |
Retained earnings | 2,031,329 | | | 2,193,997 | | | 2,210,318 | |
Accumulated other comprehensive loss | (552,198) | | | (536,949) | | | (614,961) | |
Treasury stock, at cost | (1,351,519) | | | (1,345,881) | | | (1,161,362) | |
| 1,623,705 | | | 1,803,999 | | | 1,910,641 | |
| $ | 13,156,152 | | | $ | 10,528,159 | | | $ | 10,740,316 | |
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| (Unaudited) | | | | (Unaudited) |
| March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 2,320,645 | | | $ | 3,257,203 | | | $ | 1,465,061 | |
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Accounts receivable, net | 216,569 | | | 143,082 | | | 299,148 | |
Finance receivables, net of allowance of $64,139, $72,632, and $63,881 | 1,798,194 | | | 1,509,539 | | | 2,358,989 | |
Inventories, net | 470,997 | | | 523,497 | | | 610,924 | |
Restricted cash | 185,374 | | | 131,642 | | | 99,903 | |
Other current assets | 195,356 | | | 280,470 | | | 142,357 | |
| 5,187,135 | | | 5,845,433 | | | 4,976,382 | |
Finance receivables, net of allowance of $282,094, $318,304, and $271,615 | 4,958,583 | | | 4,933,469 | | | 4,933,418 | |
Property, plant and equipment, net | 718,968 | | | 743,784 | | | 826,845 | |
Pension and postretirement assets | 105,910 | | | 95,711 | | | 64,802 | |
Goodwill | 65,157 | | | 65,976 | | | 64,063 | |
Deferred income taxes | 135,387 | | | 158,538 | | | 127,856 | |
Lease assets | 44,765 | | | 45,203 | | | 56,496 | |
Other long-term assets | 123,083 | | | 122,487 | | | 90,085 | |
| $ | 11,338,988 | | | $ | 12,010,601 | | | $ | 11,139,947 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | $ | 402,764 | | | $ | 290,904 | | | $ | 333,411 | |
Accrued liabilities | 570,440 | | | 557,214 | | | 584,535 | |
Short-term deposits, net | 93,887 | | | 79,965 | | | 0 | |
Short-term debt | 765,263 | | | 1,014,274 | | | 1,335,664 | |
Current portion of long-term debt, net | 1,622,243 | | | 2,039,597 | | | 2,326,460 | |
| 3,454,597 | | | 3,981,954 | | | 4,580,070 | |
Long-term deposits, net | 58,766 | | | 0 | | | 0 | |
Long-term debt, net | 5,478,091 | | | 5,932,933 | | | 4,478,078 | |
Lease liabilities | 30,061 | | | 30,115 | | | 40,053 | |
Pension and postretirement liabilities | 103,854 | | | 114,206 | | | 128,054 | |
Deferred income taxes | 8,682 | | | 8,607 | | | 6,219 | |
Other long-term liabilities | 228,551 | | | 220,001 | | | 215,490 | |
Commitments and contingencies (Note 16) | 0 | | 0 | | 0 |
Shareholders’ equity: | | | | | |
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Common stock | 1,690 | | | 1,685 | | | 1,834 | |
Additional paid-in-capital | 1,517,129 | | | 1,507,706 | | | 1,495,141 | |
Retained earnings | 1,520,862 | | | 1,284,823 | | | 2,126,646 | |
Accumulated other comprehensive loss | (469,637) | | | (483,417) | | | (579,290) | |
Treasury stock, at cost | (593,658) | | | (588,012) | | | (1,352,348) | |
| 1,976,386 | | | 1,722,785 | | | 1,691,983 | |
| $ | 11,338,988 | | | $ | 12,010,601 | | | $ | 11,139,947 | |
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
| | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) |
| | June 28, 2020 | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
Balances held by consolidated variable interest entities (Note 13): | | | | | | |
Balances held by consolidated variable interest entities (Note 12): | | Balances held by consolidated variable interest entities (Note 12): | | | | | |
Finance receivables, net - current | Finance receivables, net - current | $ | 631,474 | | | $ | 291,444 | | | $ | 320,710 | | Finance receivables, net - current | $ | 567,887 | | | $ | 530,882 | | | $ | 381,904 | |
Other assets | Other assets | $ | 2,430 | | | $ | 2,420 | | | $ | 1,533 | | Other assets | $ | 4,027 | | | $ | 3,753 | | | $ | 2,262 | |
Finance receivables, net - non-current | Finance receivables, net - non-current | $ | 2,531,323 | | | $ | 1,027,179 | | | $ | 1,240,081 | | Finance receivables, net - non-current | $ | 2,113,344 | | | $ | 1,889,472 | | | $ | 1,435,832 | |
Restricted cash - current and non-current | Restricted cash - current and non-current | $ | 199,748 | | | $ | 63,812 | | | $ | 79,436 | | Restricted cash - current and non-current | $ | 196,946 | | | $ | 142,892 | | | $ | 99,235 | |
Current portion of long-term debt, net | Current portion of long-term debt, net | $ | 750,474 | | | $ | 317,607 | | | $ | 360,269 | | Current portion of long-term debt, net | $ | 692,903 | | | $ | 608,987 | | | $ | 437,488 | |
Long-term debt, net | Long-term debt, net | $ | 2,251,473 | | | $ | 937,212 | | | $ | 1,106,736 | | Long-term debt, net | $ | 1,757,003 | | | $ | 1,585,174 | | | $ | 1,319,357 | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | Six months ended | | | Three months ended |
| | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 |
Net cash provided by operating activities (Note 7) | $ | 610,203 | | | $ | 496,232 | | |
Net cash provided (used) by operating activities (Note 7) | | Net cash provided (used) by operating activities (Note 7) | $ | 162,781 | | | $ | (8,582) | |
Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Capital expenditures | Capital expenditures | (67,026) | | | (83,229) | | Capital expenditures | (18,813) | | | (32,928) | |
Origination of finance receivables | Origination of finance receivables | (1,869,569) | | | (2,064,899) | | Origination of finance receivables | (909,138) | | | (780,061) | |
Collections on finance receivables | Collections on finance receivables | 1,785,698 | | | 1,768,829 | | Collections on finance receivables | 900,485 | | | 841,261 | |
| Sales and redemptions of marketable securities | — | | | 10,007 | | |
Acquisition of business | — | | | (7,000) | | |
| Other investing activities | Other investing activities | (381) | | | 11,717 | | Other investing activities | 733 | | | 16 | |
Net cash used by investing activities | (151,278) | | | (364,575) | | |
Net cash (used) provided by investing activities | | Net cash (used) provided by investing activities | (26,733) | | | 28,288 | |
Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Proceeds from issuance of medium-term notes | 1,396,602 | | | 546,655 | | |
| Repayments of medium-term notes | Repayments of medium-term notes | (1,400,000) | | | (750,000) | | Repayments of medium-term notes | (1,050,000) | | | (600,000) | |
| Proceeds from securitization debt | Proceeds from securitization debt | 2,064,450 | | | 1,021,353 | | Proceeds from securitization debt | 597,411 | | | 522,694 | |
Repayments of securitization debt | Repayments of securitization debt | (369,613) | | | (113,806) | | Repayments of securitization debt | (291,346) | | | (130,918) | |
Borrowings of asset-backed commercial paper | Borrowings of asset-backed commercial paper | 225,187 | | | 23,373 | | Borrowings of asset-backed commercial paper | 0 | | | 225,187 | |
Repayments of asset-backed commercial paper | Repayments of asset-backed commercial paper | (143,306) | | | (155,286) | | Repayments of asset-backed commercial paper | (66,894) | | | (67,809) | |
Net increase (decrease) in unsecured commercial paper | 831,354 | | | (728,606) | | |
Net (decrease) increase in unsecured commercial paper | | Net (decrease) increase in unsecured commercial paper | (262,517) | | | 772,208 | |
Net increase in credit facilities | Net increase in credit facilities | 150,000 | | | — | | Net increase in credit facilities | 15,629 | | | 0 | |
Deposits | 17,995 | | | — | | |
Net increase in deposits | | Net increase in deposits | 72,664 | | | 0 | |
Dividends paid | Dividends paid | (61,917) | | | (120,841) | | Dividends paid | (23,105) | | | (58,817) | |
Repurchase of common stock | Repurchase of common stock | (7,156) | | | (104,621) | | Repurchase of common stock | (5,646) | | | (7,071) | |
| Issuance of common stock under share-based plans | Issuance of common stock under share-based plans | 41 | | | 833 | | Issuance of common stock under share-based plans | 1,085 | | | 34 | |
Net cash provided (used) by financing activities | 2,703,637 | | | (380,946) | | |
Net cash (used) provided by financing activities | | Net cash (used) provided by financing activities | (1,012,719) | | | 655,508 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (382) | | | 3,439 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5,163) | | | (5,732) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 3,162,180 | | | $ | (245,850) | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (881,834) | | | $ | 669,482 | |
| Cash, cash equivalents and restricted cash: | Cash, cash equivalents and restricted cash: | | Cash, cash equivalents and restricted cash: | |
Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | $ | 905,366 | | | $ | 1,259,748 | | Cash, cash equivalents and restricted cash, beginning of period | $ | 3,409,168 | | | $ | 905,366 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 3,162,180 | | | (245,850) | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | (881,834) | | | 669,482 | |
Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 4,067,546 | | | $ | 1,013,898 | | Cash, cash equivalents and restricted cash, end of period | $ | 2,527,334 | | | $ | 1,574,848 | |
| Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows: | Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows: | | Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 3,856,597 | | | $ | 924,638 | | Cash and cash equivalents | $ | 2,320,645 | | | $ | 1,465,061 | |
Restricted cash | Restricted cash | 189,712 | | | 82,248 | | Restricted cash | 185,374 | | | 99,903 | |
Restricted cash included in Other long-term assets | Restricted cash included in Other long-term assets | 21,237 | | | 7,012 | | Restricted cash included in Other long-term assets | 21,315 | | | 9,884 | |
Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows | Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows | $ | 4,067,546 | | | $ | 1,013,898 | | Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows | $ | 2,527,334 | | | $ | 1,574,848 | |
The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
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| Common Stock | | | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| Issued Shares | | Balance | | | | | | | | | | |
Balance, December 31, 2019 | 182,816,536 | | | $ | 1,828 | | | $ | 1,491,004 | | | $ | 2,193,997 | | | $ | (536,949) | | | $ | (1,345,881) | | | $ | 1,803,999 | |
Net income | — | | | — | | | — | | | 69,695 | | | — | | | — | | | 69,695 | |
Other comprehensive loss, net of tax (Note 18) | — | | | — | | | — | | | — | | | (42,341) | | | — | | | (42,341) | |
Dividends ($0.380 per share) | — | | | — | | | — | | | (58,817) | | | — | | | — | | | (58,817) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (7,071) | | | (7,071) | |
Share-based compensation | 585,053 | | | 6 | | | 4,137 | | | — | | | — | | | 604 | | | 4,747 | |
Cumulative effect of change in accounting (Note 2) | — | | | — | | | — | | | (78,229) | | | — | | | — | | | (78,229) | |
Balance, March 29, 2020 | 183,401,589 | | | 1,834 | | | 1,495,141 | | | 2,126,646 | | | (579,290) | | | (1,352,348) | | | 1,691,983 | |
Net loss | — | | | — | | | — | | | (92,217) | | | — | | | — | | | (92,217) | |
Other comprehensive income, net of tax (Note 18) | — | | | — | | | — | | | — | | | 27,092 | | | — | | | 27,092 | |
Dividends ($0.020 per share) | — | | | — | | | — | | | (3,100) | | | — | | | — | | | (3,100) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (85) | | | (85) | |
Share-based compensation | 9,615 | | | — | | | (882) | | | — | | | — | | | 914 | | | 32 | |
Balance, June 28, 2020 | 183,411,204 | | | $ | 1,834 | | | $ | 1,494,259 | | | $ | 2,031,329 | | | $ | (552,198) | | | $ | (1,351,519) | | | $ | 1,623,705 | |
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| Common Stock | | | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| Issued Shares | | Balance | | | | | | | | | | |
Balance, December 31, 2018 | 181,931,225 | | | $ | 1,819 | | | $ | 1,459,620 | | | $ | 2,007,583 | | | $ | (629,684) | | | $ | (1,065,389) | | | $ | 1,773,949 | |
Net income | — | | | — | | | — | | | 127,945 | | | — | | | — | | | 127,945 | |
Other comprehensive income, net of tax (Note 18) | — | | | — | | | — | | | — | | | 7,633 | | | — | | | 7,633 | |
Dividends ($0.375 per share) | — | | | — | | | — | | | (60,859) | | | — | | | — | | | (60,859) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (61,712) | | | (61,712) | |
Share-based compensation | 702,687 | | | 7 | | | 5,961 | | | — | | | — | | | 4,687 | | | 10,655 | |
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Balance, March 31, 2019 | 182,633,912 | | | 1,826 | | | 1,465,581 | | | 2,074,669 | | | (622,051) | | | (1,122,414) | | | 1,797,611 | |
Net income | — | | | — | | | — | | | 195,631 | | | — | | | — | | | 195,631 | |
Other comprehensive income, net of tax (Note 18) | — | | | — | | | — | | | — | | | 7,090 | | | — | | | 7,090 | |
Dividends ($0.375 per share) | — | | | — | | | — | | | (59,982) | | | — | | | — | | | (59,982) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (42,908) | | | (42,908) | |
Share-based compensation | 9,338 | | | 1 | | | 9,238 | | | — | | | — | | | 3,960 | | | 13,199 | |
Balance, June 30, 2019 | 182,643,250 | | | $ | 1,827 | | | $ | 1,474,819 | | | $ | 2,210,318 | | | $ | (614,961) | | | $ | (1,161,362) | | | $ | 1,910,641 | |
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| Issued Shares | | Balance | |
Balance, December 31, 2020 | 168,503,526 | | | $ | 1,685 | | | $ | 1,507,706 | | | $ | 1,284,823 | | | $ | (483,417) | | | $ | (588,012) | | | $ | 1,722,785 | |
Net income | — | | | — | | | — | | | 259,144 | | | — | | | — | | | 259,144 | |
Other comprehensive income, net of tax (Note 17) | — | | | — | | | — | | | — | | | 13,780 | | | — | | | 13,780 | |
Dividends ($0.15 per share) | — | | | — | | | — | | | (23,105) | | | — | | | — | | | (23,105) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (5,646) | | | (5,646) | |
Share-based compensation | 483,326 | | | 5 | | | 9,423 | | | — | | | — | | | — | | | 9,428 | |
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Balance, March 28, 2021 | 168,986,852 | | | $ | 1,690 | | | $ | 1,517,129 | | | $ | 1,520,862 | | | $ | (469,637) | | | $ | (593,658) | | | $ | 1,976,386 | |
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| Issued Shares | | Balance | |
Balance, December 31, 2019 | 182,816,536 | | | $ | 1,828 | | | $ | 1,491,004 | | | $ | 2,193,997 | | | $ | (536,949) | | | $ | (1,345,881) | | | $ | 1,803,999 | |
Net income | — | | | — | | | — | | | 69,695 | | | — | | | — | | | 69,695 | |
Other comprehensive loss, net of tax (Note 17) | — | | | — | | | — | | | — | | | (42,341) | | | — | | | (42,341) | |
Dividends ($0.38 per share) | — | | | — | | | — | | | (58,817) | | | — | | | — | | | (58,817) | |
Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (7,071) | | | (7,071) | |
Share-based compensation | 585,053 | | | 6 | | | 4,137 | | | — | | | — | | | 604 | | | 4,747 | |
Cumulative effect of change in accounting | — | | | — | | | — | | | (78,229) | | | — | | | — | | | (78,229) | |
Balance, March 29, 2020 | 183,401,589 | | | $ | 1,834 | | | $ | 1,495,141 | | | $ | 2,126,646 | | | $ | (579,290) | | | $ | (1,352,348) | | | $ | 1,691,983 | |
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The accompanying notes are an integral part ofto the consolidated financial statements.
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of Harley-Davidson, Inc. and its subsidiaries, all of which are wholly-owned (the Company), including the accounts of the groupgroups of companies the Company refersreferred to 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 operates in 2 reportable segments: Motorcycles and Related Products (Motorcycles) and Financial Services.
In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Consolidated balance sheets as of JuneMarch 28, 20202021 and June 30, 2019,March 29, 2020, the Consolidated statements of operations for the three and six month periods then ended, the Consolidated statements of comprehensive (loss) income for the three and six month periods then ended, the Consolidated statements of cash flows for the sixthree month periods then ended, and the Consolidated statements of shareholders' equity for the three and six month periods then ended.
Certain information and disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. The 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, 2019.2020.
The preparation of consolidated 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.
During the first quarter of 2020, the outbreak of a novel strain of coronavirus (COVID-19) spread throughout the world, and it was recognized as a pandemic in March 2020. The COVID-19 pandemic has severely restricted the level of economic activity in the U.S. and around the world. The COVID-19 pandemic has led to supply chain destabilization, facility closures, workforce disruption,world and volatility in the economy, andfull extent of its full impact is not yet known. These impacts may continue to expand in scope, type and severity.
The Company’s operations and demand for its products have been adversely impacted as a result of the COVID-19 pandemic. The Company acted quickly and in alignment with government efforts to protect the safety and health of its employees and the Harley-Davidson community. The Company implemented travel restrictions, enhanced sanitation practices, cancelled events and closed facilities including temporarily suspending its global manufacturing starting in March 2020. While the Company's global manufacturing has resumed and the impacts on demand, facility closures and other restrictions are expected to be temporary, the duration and financial impact to the Company are unknown at this time. This uncertainty could have an impact in future periods on certainCertain estimates used in the preparation of financial results for the period ending JuneMarch 28, 2020, including, but not limited to,2021 could be impacted in future periods as a result of the allowance for credit losses, goodwill, long-lived assets, fair value measurements, the provision for income tax and hedge accounting with respect to forecasted future transactions.COVID-19 pandemic.
2. New Accounting Standards
Accounting Standards Recently Adopted
In July 2016,December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 a company recognizes expected credit losses on financial instruments by requiring recognition of the full lifetime expected credit losses upon initial recognition of the financial instrument. ASU 2016-13 replaced the incurred loss methodology. The Company adopted ASU 2016-13 on January 1, 2020 using a modified retrospective approach for financial instruments measured at amortized cost.
On January 1, 2020, the Company remeasured the allowance for credit losses on financial instruments under the new accounting standard. The difference was recorded as a cumulative effect adjustment to Retained earnings, net of income taxes. The initial adoption of ASU 2016-13 did not impact the Company’s Consolidated statements of operations. The effect of adopting ASU 2016-13 on the Company’s Consolidated balance sheets was as follows (in thousands):
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| December 31, 2019 | | Effect of Adoption | | January 1, 2020 |
ASSETS | | | | | |
Finance receivables(a) | $ | 7,572,947 | | | $ | — | | | $ | 7,572,947 | |
Allowance for credit losses on finance receivables(a) | $ | (198,581) | | | $ | (100,604) | | | $ | (299,185) | |
Deferred income taxes | $ | 101,204 | | | $ | 22,484 | | | $ | 123,688 | |
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LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
Accrued liabilities | $ | 582,288 | | | $ | 109 | | | $ | 582,397 | |
Retained earnings | $ | 2,193,997 | | | $ | (78,229) | | | $ | 2,115,768 | |
(a)Reported as Finance receivables, net on the Consolidated balance sheets, allocated between current and non-current
Financial Statement Comparability to Prior Periods – Beginning in 2020, under ASU 2016-13, the Company recognized full lifetime expected credit losses upon initial recognition of the associated financial instrument. Under ASU 2016-13, changes in the allowance for credit losses and the impact on the provision for credit losses will be affected by the size and composition of the Company's finance receivables portfolios, economic conditions, reasonable and supportable forecasts, and other appropriate factors at each reporting period. Prior periods have not been restated and will continue to be reported in accordance with the previously applicable U.S. GAAP, which generally required that a credit loss be incurred before it was recognized.As such, prior periods will not be comparable to the current period. Additional information on the Company’s finance receivables is discussed further in Note 8.
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 simplified 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 recognized 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 adopted ASU 2017-04 on January 1, 2020 on a prospective basis. The adoption of ASU 2017-04 did not have a material impact to the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). ASU 2018-13 amended ASC 820 to eliminate, modify, and add certain disclosure requirements for fair value measurements. The amendments were required to be applied retrospectively, with the exception of a few disclosure additions, which were to be applied on a prospective basis. The Company adopted ASC 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) (ASU 2018-15). The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the existing internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The Company adopted ASU 2018-15 on January 1, 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company's consolidated financial statements.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (ASU No. 2019-12). The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. EarlyCompany adopted ASU 2019-12 on January 1, 2021 on a prospective basis. The adoption is permitted. The Company is currently evaluatingof ASU 2019-12 did not have a material impact on the impact of adopting ASU 2019-12.Company's consolidated financial statements.
3. Revenue
The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer. Revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue.
Disaggregated revenue by major source was as follows (in thousands):
| | | Three months ended | | | Six months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | |
Motorcycles and Related Products Revenue: | Motorcycles and Related Products Revenue: | | | | | | | | Motorcycles and Related Products Revenue: | | | | |
Motorcycles | Motorcycles | $ | 446,738 | | | $ | 1,128,063 | | | $ | 1,346,103 | | | $ | 2,092,638 | | Motorcycles | $ | 1,016,334 | | | $ | 899,365 | | |
Parts & accessories | 168,708 | | | 221,258 | | | 303,393 | | | 380,961 | | |
General merchandise | 37,805 | | | 64,644 | | | 86,965 | | | 120,045 | | |
Parts & Accessories | | Parts & Accessories | 149,859 | | | 134,685 | | |
General Merchandise | | General Merchandise | 50,323 | | | 49,160 | | |
Licensing | Licensing | 4,903 | | | 9,911 | | | 12,932 | | | 18,488 | | Licensing | 5,512 | | | 8,029 | | |
Other | Other | 11,120 | | | 10,128 | | | 19,669 | | | 17,509 | | Other | 10,079 | | | 8,549 | | |
| | 669,274 | | | 1,434,004 | | | 1,769,062 | | | 2,629,641 | | | 1,232,107 | | | 1,099,788 | | |
Financial Services Revenue: | Financial Services Revenue: | | | | | | | | Financial Services Revenue: | | | | |
Interest income | Interest income | 168,261 | | | 167,077 | | | 338,262 | | | 326,881 | | Interest income | 159,814 | | | 170,001 | | |
Other | Other | 27,692 | | | 31,538 | | | 56,147 | | | 60,477 | | Other | 30,586 | | | 28,455 | | |
| | 195,953 | | | 198,615 | | | 394,409 | | | 387,358 | | | 190,400 | | | 198,456 | | |
| | $ | 865,227 | | | $ | 1,632,619 | | | $ | 2,163,471 | | | $ | 3,016,999 | | | $ | 1,422,507 | | | $ | 1,298,244 | | |
The Company maintains certain deferred revenue balances related to payments received at contract inception in advance of the Company’s performance under the contract and generally relates to the sale of Harley Owners Group® memberships and extended service plan contracts. Deferred revenue is recognized as revenue as the Company performs under the contract. Deferred revenue, included in Accrued liabilities and Other long-term liabilities on the Consolidated balance sheets, was as follows (in thousands):
| | | June 28, 2020 | | | June 30, 2019 | | March 28, 2021 | | | March 29, 2020 |
Balance, beginning of period | Balance, beginning of period | $ | 29,745 | | | | $ | 29,055 | | Balance, beginning of period | $ | 36,614 | | | | $ | 29,745 | |
Balance, end of period | Balance, end of period | 31,143 | | | | 32,568 | | Balance, end of period | $ | 36,266 | | | | $ | 29,434 | |
Previously deferred revenue recognized as revenue in the three months ended JuneMarch 28, 2021 and March 29, 2020 and June 30, 2019 was $7.9$6.2 million and $6.2$6.9 million, respectively, and $14.7 million and $12.3 million in the six months ended June 28, 2020 and June 30, 2019.respectively. The Company expects to recognize approximately $16.3$14.9 million of the remaining unearned revenue over the next 12 months and $14.8$21.4 million thereafter.
4. Restructuring Activities
Expenses associated with theThe Company's restructuring activities are included in Restructuring expensebenefit on the Consolidated Statementsstatements of Operationsoperations.
2020 Restructuring Activities – In the second quarter of 2020, the Company initiated restructuring activities including a workforce reduction, and the termination of certain contracts.current and future products, facility changes, optimizing its global independent dealer network, exiting certain international markets, and discontinuing its sales and manufacturing operations in India. The workforce reduction will resultresulted in the elimination of approximately 700 positions globally, including the termination of approximately 500 employees.
Restructuring expenses related to 2020 restructuring activities initiated In addition, the India action resulted in the second quarter, by segment, were as follows (in millions):
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| | | | | Three and Six months ended June 28, 2020 | | | | |
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Motorcycles and Related Products | | | | | $ | 41.0 | | | | | |
Financial Services | | | | | 0.9 | | | | | |
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termination of approximately 70 employees.
Subsequent to JuneSince the inception of these restructuring activities in 2020 through the three months ended March 28, 2020,2021, the Company initiated additionalhas incurred cumulative restructuring actions related toexpenses of $129.6 million. This includes a restructuring benefit during the terminationthree months ended March 28, 2021 of certain current$0.4 million, consisting of a $0.6 million benefit in the Motorcycles segment and future products and facility changes.
Based onexpense of $0.2 millionin the actions approved as of the issuance date of this Form 10-Q, theFinancial Services segment. The Company expects total estimated restructuring expenses of approximately $94$150 million, in 2020 including $44 million related to actions initiated after June 28, 2020. This includes approximately $81$139 million and $13$11 million expected to be in incurred in the Motorcycles and Financial Services segments, respectively. Total expected restructuring expenses under the 2020 restructuring activities include approximately $30 million related to employee termination benefits, $38$90 million related to contract termination and other costs and $26$30 million related to non-current asset adjustments, including accelerated depreciation and other adjustments to the carrying value of non-current assets. The Company expects to incur the remaining estimated restructuring expenses of approximately $20 million in 2021.
Changes in accrued restructuring expenses, for the 2020 restructuring activities initiated in the second quarter of 2020 which are included in Accrued liabilities on the Consolidated balance sheets, were as follows (in thousands):
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| Three and Six months ended June 28, 2020 | | | | | | | | | | | | | | |
| Employee Termination Benefits | | Contract Terminations & Other | | Non-Current Asset Adjustments | | Total | | | | | | | | |
Balance, beginning of period | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | |
Restructuring expense | 25,321 | | | 14,270 | | | 2,358 | | | 41,949 | | | | | | | | | |
Utilized – cash | — | | | — | | | — | | | — | | | | | | | | | |
Utilized – non cash | — | | | — | | | (2,358) | | | (2,358) | | | | | | | | | |
Foreign currency changes | (23) | | | — | | | — | | | (23) | | | | | | | | | |
Balance, end of period | $ | 25,298 | | | $ | 14,270 | |
| $ | — | | | $ | 39,568 | | | | | | | | | |
2018 Restructuring Activities – In 2018, the Company initiated a plan to further improve its manufacturing operations and cost structure by commencing a multi-year manufacturing optimization plan which included the consolidation of its motorcycle assembly plant in Kansas City, Missouri, into its plant in York, Pennsylvania, and the closure of its wheel operations in Adelaide, Australia (Manufacturing Optimization Plan). The consolidation of operations included the elimination of approximately 800 jobs at the Kansas City facility and the addition of approximately 450 jobs at the York facility through 2019. The Adelaide facility closure included the elimination of approximately 90 jobs. Through December 31, 2019, the Motorcycles segment incurred cumulative restructuring expenses of $122.2 million and other costs related to temporary inefficiencies of $23.2 million under the Manufacturing Optimization Plan. The plant consolidation and closuresThere were completed in 2019. NaN expenses were recorded under the Manufacturing Optimization Plan in the six months ended June 28, 2020, and no additional expenses are expected under the plan.
In 2018, the Company initiated a reorganization of its workforce (Reorganization Plan), which was completed in 2019. As a result, approximately 70 employees left the Company on an involuntary basis.
Changes in accrued restructuring expenses for the 2018 restructuring activities which are included in Accrued liabilities on the Consolidated balance sheets during 2019 were as follows (in thousands). The changes in accrued restructuring expenses for the 2018 restructuring activities during the three and six months ended June 28, 2020 were immaterial.March 29, 2020.
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| Three months ended June 30, 2019 | | | | | | | | | | |
| Manufacturing Optimization Plan | | | | | | | | Reorganization Plan | | |
| Employee Termination Benefits | | Accelerated Depreciation | | Other | | Total | | Employee Termination Benefits | | Total |
Balance, beginning of period | $ | 22,401 | | | $ | — | | | $ | 187 | | | $ | 22,588 | | | $ | 1,051 | | | $ | 23,639 | |
Restructuring expense (benefit) | 8 | | | 5,586 | | | 4,830 | | | 10,424 | | | (1) | | | 10,423 | |
Utilized – cash | (12,734) | | | — | | | (4,294) | | | (17,028) | | | (882) | | | (17,910) | |
Utilized – non cash | — | | | (5,586) | | | (696) | | | (6,282) | | | — | | | (6,282) | |
Foreign currency changes | (14) | | | — | | | (4) | | | (18) | | | (24) | | | (42) | |
Balance, end of period | $ | 9,661 | | | $ | — | | | $ | 23 | | | $ | 9,684 | | | $ | 144 | | | $ | 9,828 | |
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| Six months ended June 30, 2019 | | | | | | | | | | |
| Manufacturing Optimization Plan | | | | | | | | Reorganization Plan | | |
| Employee Termination Benefits | | Accelerated Depreciation | | Other | | Total | | Employee Termination Benefits | | Total |
Balance, beginning of period | $ | 24,958 | | | $ | — | | | $ | 79 | | | $ | 25,037 | | | $ | 3,461 | | | $ | 28,498 | |
Restructuring expense (benefit) | 17 | | | 13,965 | | | 10,466 | | | 24,448 | | | (395) | | | 24,053 | |
Utilized – cash | (15,334) | | | — | | | (9,822) | | | (25,156) | | | (2,896) | | | (28,052) | |
Utilized – non cash | — | | | (13,965) | | | (696) | | | (14,661) | | | — | | | (14,661) | |
Foreign currency changes | 20 | | | — | | | (4) | | | 16 | | | (26) | | | (10) | |
Balance, end of period | $ | 9,661 | | | $ | — | | | $ | 23 | | | $ | 9,684 | | | $ | 144 | | | $ | 9,828 | |
The Company incurred incremental Motorcycles and Related Products cost of goods sold due to temporary inefficiencies resulting from implementing the Manufacturing Optimization Plan during the three and six months ended June 30, 2019 of $4.0 million and $7.6 million, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 28, 2021 | | |
| Employee Termination Benefits | | Contract Terminations & Other | | Non-Current Asset Adjustments | | Total | | | | | | | | |
Balance, beginning of period | $ | 7,724 | | | $ | 16,196 | | | $ | 0 | | | $ | 23,920 | | | | | | | | | |
Restructuring (benefit) expense | (944) | | | 1,106 | | | (528) | | | (366) | | | | | | | | | |
Utilized – cash | (3,661) | | | (12,781) | | | 0 | | | (16,442) | | | | | | | | | |
Utilized – non cash | 0 | | | 0 | | | 528 | | | 528 | | | | | | | | | |
Foreign currency changes | (112) | | | (54) | | | 0 | | | (166) | | | | | | | | | |
Balance, end of period | $ | 3,007 | | | $ | 4,467 | |
| $ | 0 | | | $ | 7,474 | | | | | | | | | |
5. Income Taxes
The Company’s effective income tax rate for the sixthree months ended JuneMarch 28, 20202021 was 3.7%23.8% compared to 24.1%26.3% for the sixthree months ended June 30, 2019.March 29, 2020. The decrease in the 2020first quarter 2021 effective income tax rate as compared to 2019from 2020 was due primarily to the increase in Income before provision for income taxes, resulting in discrete income tax expenses recorded duringadjustments having a reduced impact on the six months ended June 28, 2020, including adjustments related to the reassessment of the realizability of certain deferred tax assets, which reduced the Company'seffective income tax benefitrate for the period.quarter. The effective income tax rate for the sixthree months ended JuneMarch 28, 20202021 was determined based on the Company's current projectionprojections for full-year 20202021 financial results. Given uncertainty surrounding the impact of the COVID-19 pandemic, the Company's projection for full-year 2020 financial results, in total and across its numerous tax jurisdictions, may evolve and ultimately impact the Company's 2020 full-year effective income tax rate.
6. Earnings Per Share
The computation of basic and diluted earnings per share was as follows (in thousands, except per share amounts):
| | | Three months ended | | | Six months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | |
Net (loss) income | $ | (92,217) | | | $ | 195,631 | | | $ | (22,522) | | | $ | 323,576 | | |
Net income | | Net income | $ | 259,144 | | | $ | 69,695 | | |
| Basic weighted-average shares outstanding | Basic weighted-average shares outstanding | 153,199 | | | 158,813 | | | 153,103 | | | 159,061 | | Basic weighted-average shares outstanding | 153,478 | | | 153,004 | | |
Effect of dilutive securities – employee stock compensation plan | Effect of dilutive securities – employee stock compensation plan | — | | | 612 | | | — | | | 664 | | Effect of dilutive securities – employee stock compensation plan | 1,012 | | | 740 | | |
Diluted weighted-average shares outstanding | Diluted weighted-average shares outstanding | 153,199 | | | 159,425 | | | 153,103 | | | 159,725 | | Diluted weighted-average shares outstanding | 154,490 | | | 153,744 | | |
(Net loss) earnings per share: | | | | | | | | |
Net earnings per share: | | Net earnings per share: | | | | |
Basic | Basic | $ | (0.60) | | | $ | 1.23 | | | $ | (0.15) | | | $ | 2.03 | | Basic | $ | 1.69 | | | $ | 0.46 | | |
Diluted | Diluted | $ | (0.60) | | | $ | 1.23 | | | $ | (0.15) | | | $ | 2.03 | | Diluted | $ | 1.68 | | | $ | 0.45 | | |
Shares of common stock related to share-based compensation that were not included in the effect of dilutive securities because the effect would have been anti-dilutive include 2.40.6 million and 1.21.7 million shares for the three months ended JuneMarch 28, 20202021 and June 30, 2019, respectively, and 2.4 million and 1.2 million shares for the six months ended June 28,March 29, 2020, and June 30, 2019, respectively.
7. Additional Balance Sheet and Cash Flow Information
Investments in Marketable Securities – The Company’s investments in marketable securities consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| June 28, 2020 | | December 31, 2019 | | June 30, 2019 |
| | | | | |
Mutual funds | $ | 48,725 | | | $ | 52,575 | | | $ | 51,543 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
| | | | | |
Mutual funds | $ | 50,239 | | | $ | 52,061 | | | $ | 44,144 | |
| | | | | |
Mutual funds, included in Other long-term assets on the Consolidated balance sheets, are carried at fair value with gains and losses recorded in net income. Mutual funds are held to support certain deferred compensation obligations.
Inventories, net – Substantially all inventories located in the U.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. Inventories, net consisted of the following (in thousands):
| | | June 28, 2020 | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
Raw materials and work in process | Raw materials and work in process | $ | 199,300 | | | $ | 235,433 | | | $ | 161,828 | | Raw materials and work in process | $ | 251,199 | | | $ | 211,979 | | | $ | 245,384 | |
Motorcycle finished goods | Motorcycle finished goods | 180,895 | | | 280,306 | | | 218,069 | | Motorcycle finished goods | 185,590 | | | 281,132 | | | 272,648 | |
Parts & accessories and general merchandise | 105,570 | | | 144,258 | | | 149,352 | | |
Parts & Accessories and General Merchandise | | Parts & Accessories and General Merchandise | 88,291 | | | 84,469 | | | 149,318 | |
Inventory at lower of FIFO cost or net realizable value | Inventory at lower of FIFO cost or net realizable value | 485,765 | | | 659,997 | | | 529,249 | | Inventory at lower of FIFO cost or net realizable value | 525,080 | | | 577,580 | | | 667,350 | |
Excess of FIFO over LIFO cost | Excess of FIFO over LIFO cost | (56,426) | | | (56,426) | | | (58,639) | | Excess of FIFO over LIFO cost | (54,083) | | | (54,083) | | | (56,426) | |
| | $ | 429,339 | | | $ | 603,571 | | | $ | 470,610 | | | $ | 470,997 | | | $ | 523,497 | | | $ | 610,924 | |
Deposits –Beginning in 2020, HDFS began offering 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 $152.7 million and $80.0 million, net of fees, of interest-bearing brokered certificates of deposit outstanding as of March 28, 2021 and December 31, 2020, respectively. There were 0 deposits as of March 29, 2020. 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.
Future maturities of the Company's certificates of deposit as of March 28, 2021 were as follows (in thousands):
| | | | | |
2021 | $ | 80,000 | |
2022 | 14,000 | |
2023 | 7,000 | |
2024 | 22,000 | |
2025 | 0 | |
Thereafter | 30,000 | |
Unamortized fees | (347) | |
| $ | 152,653 | |
Operating Cash Flow – The reconciliation of Net (loss) income to Net cash provided (used) by operating activities was as follows (in thousands):
| | | Six months ended | | | Three months ended |
| | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net (loss) income | $ | (22,522) | | | $ | 323,576 | | |
Adjustments to reconcile Net (loss) income to Net cash provided by operating activities: | | |
Net income | | Net income | $ | 259,144 | | | $ | 69,695 | |
Adjustments to reconcile Net income to Net cash provided (used) by operating activities: | | Adjustments to reconcile Net income to Net cash provided (used) by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 95,454 | | | 125,386 | | Depreciation and amortization | 40,221 | | | 47,427 | |
Amortization of deferred loan origination costs | Amortization of deferred loan origination costs | 33,796 | | | 38,036 | | Amortization of deferred loan origination costs | 19,200 | | | 16,739 | |
Amortization of financing origination fees | Amortization of financing origination fees | 6,661 | | | 4,522 | | Amortization of financing origination fees | 3,614 | | | 2,999 | |
Provision for long-term employee benefits | Provision for long-term employee benefits | 15,704 | | | 6,936 | | Provision for long-term employee benefits | 7,090 | | | 7,852 | |
Employee benefit plan contributions and payments | Employee benefit plan contributions and payments | (3,678) | | | (3,637) | | Employee benefit plan contributions and payments | (9,885) | | | (1,608) | |
Stock compensation expense | Stock compensation expense | 4,568 | | | 17,285 | | Stock compensation expense | 8,968 | | | 3,896 | |
Net change in wholesale finance receivables related to sales | Net change in wholesale finance receivables related to sales | 166,049 | | | (167,594) | | Net change in wholesale finance receivables related to sales | (308,532) | | | (208,183) | |
Provision for credit losses | Provision for credit losses | 170,598 | | | 60,874 | | Provision for credit losses | (22,474) | | | 79,419 | |
| Deferred income taxes | Deferred income taxes | (19,461) | | | 5,368 | | Deferred income taxes | 13,192 | | | (3,803) | |
| Other, net | Other, net | (9,294) | | | (10,477) | | Other, net | 1,171 | | | 3,579 | |
Changes in current assets and liabilities: | Changes in current assets and liabilities: | | Changes in current assets and liabilities: | |
Accounts receivable, net | Accounts receivable, net | (15,747) | | | (17,592) | | Accounts receivable, net | (79,012) | | | (47,272) | |
Finance receivables – accrued interest and other | Finance receivables – accrued interest and other | (2,985) | | | (4,963) | | Finance receivables – accrued interest and other | 8,947 | | | 4,007 | |
Inventories, net | Inventories, net | 163,700 | | | 88,146 | | Inventories, net | 45,086 | | | (23,943) | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 10,664 | | | 34,370 | | Accounts payable and accrued liabilities | 153,597 | | | 10,562 | |
Derivative financial instruments | Derivative financial instruments | 1,538 | | | 4,352 | | Derivative financial instruments | (3,309) | | | 2,812 | |
Other | Other | 15,158 | | | (8,356) | | Other | 25,763 | | | 27,240 | |
| | 632,725 | | | 172,656 | | | (96,363) | | | (78,277) | |
Net cash provided by operating activities | $ | 610,203 | | | $ | 496,232 | | |
Net cash provided (used) by operating activities | | Net cash provided (used) by operating activities | $ | 162,781 | | | $ | (8,582) | |
8. Finance Receivables
The Company provides retail financial services to customers of its independent dealers in the U.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 and are primarily related to independent 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 independent dealers in the U.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.
Finance receivables, net, consisted of the following were as follows (in thousands):
| | | June 28, 2020 | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
Retail finance receivables | Retail finance receivables | $ | 6,520,919 | | | $ | 6,416,428 | | | $ | 6,549,707 | | Retail finance receivables | $ | 6,310,982 | | | $ | 6,344,195 | | | $ | 6,269,247 | |
Wholesale finance receivables | Wholesale finance receivables | 870,087 | | | 1,156,519 | | | 1,239,694 | | Wholesale finance receivables | 792,028 | | | 489,749 | | | 1,358,656 | |
| | 7,391,006 | | | 7,572,947 | | | 7,789,401 | | | 7,103,010 | | | 6,833,944 | | | 7,627,903 | |
Allowance for credit losses | Allowance for credit losses | (411,015) | | | (198,581) | | | (194,996) | | Allowance for credit losses | (346,233) | | | (390,936) | | | (335,496) | |
| | $ | 6,979,991 | | | $ | 7,374,366 | | | $ | 7,594,405 | | | $ | 6,756,777 | | | $ | 6,443,008 | | | $ | 7,292,407 | |
On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires an entity to recognize expected lifetime losses on finance receivables upon origination. The allowance for credit losses as of June 28, 2020 represents the Company’s estimate of lifetime losses for its finance receivables. Prior to the adoption of ASU 2016-13, the Company maintained an allowance for credit losses based on the Company’s estimate of probable losses inherent in the finance receivable portfolio as of the balance sheet date.
Under ASU 2016-13, the Company’s finance receivables are reported at amortized cost, net of the allowance for credit losses. Amortized cost includes the principal outstanding, accrued interest, and deferred loan fees and costs. Based on differences in the nature of the finance receivables and the underlying methodology for calculating the allowance for loan losses, the Company segments its finance receivables into the retail and wholesale portfolios. The Company further disaggregates each portfolio by credit quality indicators. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit quality indicators for each portfolio. Prior to the adoption of ASU 2016-13, the Company’s investment in finance receivables included the same components as the amortized cost under the new accounting guidance.
The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a collective evaluation of the adequacy of the retail allowance for credit losses. For periods after January 1, 2020, theThe Company utilizes a vintage-based loss forecast methodology that includes decompositions for probability of default, exposure at default, attrition rate, and recovery balance rate. Reasonable and supportable economic forecasts for a two-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, over the expected life of the retail portfolio.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 for a three-year period using a mean-reversion process.process over a three-year period. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, or term as well as other relevant factors. For periods prior to January 1, 2020, the Company performed a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilized loss forecast models which considered a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates and current economic conditions.
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 to determine whether the loans share similar risk characteristics. The Company classifiesindividually evaluates loans that do not share risk characteristicscharacteristics. Loans identified as those for which foreclosure is probable are classified as Non-Performing, and evaluates these loans individually. Aa specific allowance for credit losses is established for these finance receivables when foreclosure is probable.appropriate. The specific allowance is determined based on the amortized cost of the related finance receivable and the estimated fair value of the collateral, less selling costs and the cash that the Company expects to receive. Finance receivables in the wholesale portfolio not individually assessed are aggregated, based on similar risk characteristics, according to the Company’s internal risk rating system and measured collectively. For periods after January 1, 2020, theThe 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 loan loss experience, reasonable and supportable economic forecasts, and the value of the underlying collateral and expected recoveries. For periods prior to January 1, 2020,
The Company considers various economic forecast scenarios as part of estimating the related allowance for expected credit losses was based on factors such as the specific borrower’s financial performance and abilityapplies a probability-weighting to repay, the Company’s past loan loss experience, currentthose economic conditions, and the value of the underlying collateral.
forecast scenarios. Changes in the Company’s outlook on economic conditions impacted the retail and wholesale estimates for expected credit losses at JuneMarch 28, 2020. As part of the January 1, 2020 adoption of ASU 2016-13, the Company expected to be operating in a negative economic environment throughout 2020, the Company’s economic forecast worsened during2021. During the first quarter of 2020 as a result of2021, the impact of the COVID-19 pandemic. During the second quarter of 2020,U.S. economy and the Company’s outlook on economic conditions further deteriorated drivenimproved from the fourth quarter of 2020; however, there is uncertainty surrounding the pace of economic recovery as demonstrated by the impact ofunemployment levels above those experienced prior to the COVID-19 pandemic with recessionaryand continuing COVID-19 pandemic-related challenges across the U.S., among other factors. As such, at the end of the first quarter of 2021, the Company’s economic outlook on economic conditions continuing to restrainincluded economic improvement; however, given the U.S. economy, including continued high unemployment rates and a slow U.S. Gross Domestic Product (GDP) recovery.uncertainty surrounding the pace of economic recovery, the Company also included some adverse economic conditions in its economic scenario weighting.
TheAdditionally, the historical experience incorporated into the portfolio-specific models does not fully reflect the Company's comprehensive expectations regarding the future. As such, the Company incorporated qualitative factors to produce reasonable and supportableestablish an appropriate allowance balances.balance. These factors include motorcycle recovery value considerations, delinquency adjustments, associated with COVID-19 payment extensions and specific problem loan trends.trends, and others, as appropriate.
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 management’s expectations surrounding the economic forecasts and known conditions at the balance sheet date.date and the Company's management’s expectations surrounding the economic forecasts. The Company’s expectations surrounding its economic forecasts may change in future periods as additional information becomes available.
Changes in the allowance for credit losses on finance receivables by portfolio were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Three months ended June 28, 2020 | | | | |
| Retail | | Wholesale | | Total |
Balance, beginning of period | $ | 311,368 | | | $ | 24,128 | | | $ | 335,496 | |
Provision for credit losses | 94,050 | | | (2,871) | | | 91,179 | |
Charge-offs | (29,859) | | | — | | | (29,859) | |
Recoveries | 14,199 | | | — | | | 14,199 | |
Balance, end of period | $ | 389,758 | | | $ | 21,257 | | | $ | 411,015 | |
| Three months ended June 30, 2019 | | | | |
| Retail | | Wholesale | | Total |
Balance, beginning of period | $ | 181,426 | | | $ | 9,446 | | | $ | 190,872 | |
Provision for credit losses | 27,555 | | | (1,172) | | | 26,383 | |
Charge-offs | (35,741) | | | — | | | (35,741) | |
Recoveries | 13,482 | | | — | | | 13,482 | |
Balance, end of period | $ | 186,722 | | | $ | 8,274 | | | $ | 194,996 | |
| Six months ended June 28, 2020 | | | | |
| Retail | | Wholesale | | Total |
Balance, beginning of period | $ | 188,501 | | | $ | 10,080 | | | $ | 198,581 | |
Cumulative effect of change in accounting(a) | 95,558 | | | 5,046 | | | 100,604 | |
Provision for credit losses | 164,467 | | | 6,131 | | | 170,598 | |
Charge-offs | (85,074) | | | — | | | (85,074) | |
Recoveries | 26,306 | | | — | | | 26,306 | |
Balance, end of period | $ | 389,758 | | | $ | 21,257 | | | $ | 411,015 | |
| | | | | |
| | | Six months ended June 30, 2019 | | | Three months ended March 28, 2021 |
| | Retail | | Wholesale | | Total | | Retail | | Wholesale | | Total |
Balance, beginning of period | Balance, beginning of period | $ | 182,098 | | | $ | 7,787 | | | $ | 189,885 | | Balance, beginning of period | $ | 371,738 | | | $ | 19,198 | | | $ | 390,936 | |
Provision for credit losses | Provision for credit losses | 60,387 | | | 487 | | | 60,874 | | Provision for credit losses | (22,449) | | | (25) | | | (22,474) | |
Charge-offs | Charge-offs | (80,462) | | | — | | | (80,462) | | Charge-offs | (34,589) | | | 0 | | | (34,589) | |
Recoveries | Recoveries | 24,699 | | | — | | | 24,699 | | Recoveries | 12,360 | | | 0 | | | 12,360 | |
Balance, end of period | Balance, end of period | $ | 186,722 | | | $ | 8,274 | | | $ | 194,996 | | Balance, end of period | $ | 327,060 | | | $ | 19,173 | | | $ | 346,233 | |
| | | Three months ended March 29, 2020 |
| | | Retail | | Wholesale | | Total |
Balance, beginning of period | | Balance, beginning of period | $ | 188,501 | | | $ | 10,080 | | | $ | 198,581 | |
Cumulative effect of change in accounting(a) | | Cumulative effect of change in accounting(a) | 95,558 | | | 5,046 | | | 100,604 | |
Provision for credit losses | | Provision for credit losses | 70,417 | | | 9,002 | | | 79,419 | |
Charge-offs | | Charge-offs | (55,215) | | | 0 | | | (55,215) | |
Recoveries | | Recoveries | 12,107 | | | 0 | | | 12,107 | |
Balance, end of period | | Balance, end of period | $ | 311,368 | | | $ | 24,128 | | | $ | 335,496 | |
| | | |
(a)On January 1, 2020, the Company adopted ASU 2016-13 and increased the allowance for loan loss through Retained earnings, net of income taxes, to establish an allowance that represents expected lifetime credit losses on the finance receivable portfolios at date of adoption.
The Company manages retail credit risk through its credit approval process 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. For 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 700 or above at origination are generally considered super prime, loans with a FICO score between 620 and 700 are generally categorized as prime, and loans with FICO score below 620 are generally considered sub-prime.
The amortized cost of the Company's U.S. and Canadian retail finance receivables by credit quality indicatorvintage and vintage, as of June 28, 2020, was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 & Prior | | Total |
U.S. Retail: | | | | | | | | | | | | | |
Super prime | $ | 486,327 | | | $ | 737,419 | | | $ | 474,280 | | | $ | 234,239 | | | $ | 114,496 | | | $ | 54,661 | | | $ | 2,101,422 | |
Prime | 670,363 | | | 973,046 | | | 644,846 | | | 388,039 | | | 223,960 | | | 131,367 | | | 3,031,621 | |
Sub-prime | 271,843 | | | 360,812 | | | 217,720 | | | 138,998 | | | 95,630 | | | 79,754 | | | 1,164,757 | |
| 1,428,533 | | | 2,071,277 | | | 1,336,846 | | | 761,276 | | | 434,086 | | | 265,782 | | | 6,297,800 | |
Canadian Retail: | | | | | | | | | | | | | |
Super prime | 34,715 | | | 57,818 | | | 35,786 | | | 19,265 | | | 8,508 | | | 3,687 | | | 159,779 | |
Prime | 11,548 | | | 15,741 | | | 11,598 | | | 7,932 | | | 4,093 | | | 3,187 | | | 54,099 | |
Sub-prime | 1,970 | | | 2,720 | | | 1,881 | | | 1,289 | | | 782 | | | 599 | | | 9,241 | |
| 48,233 | | | 76,279 | | | 49,265 | | | 28,486 | | | 13,383 | | | 7,473 | | | 223,119 | |
| $ | 1,476,766 | | | $ | 2,147,556 | | | $ | 1,386,111 | | | $ | 789,762 | | | $ | 447,469 | | | $ | 273,255 | | | $ | 6,520,919 | |
Prior to the adoption of ASU 2016-13, retail loans with a FICO score of 640 or above at origination were generally considered prime, and loans with a FICO score below 640 were generally considered sub-prime. These credit quality indicators were determined at the time of loan origination and were not updated subsequent to the loan origination date. The recorded investment in retail finance receivables, by credit quality indicator was as follows (in thousands):
| | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 |
| | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 & Prior | | Total |
U.S. Retail: | | U.S. Retail: | | | | | | | | | | | | | |
Super prime | | Super prime | $ | 260,359 | | | $ | 725,383 | | | $ | 502,847 | | | $ | 301,839 | | | $ | 134,213 | | | $ | 74,086 | | | $ | 1,998,727 | |
Prime | Prime | | $ | 5,278,093 | | | $ | 5,372,712 | | Prime | 349,662 | | | 1,026,080 | | | 706,940 | | | 445,201 | | | 249,327 | | | 183,217 | | | 2,960,427 | |
Sub-prime | Sub-prime | | 1,138,335 | | | 1,176,995 | | Sub-prime | 130,389 | | | 395,495 | | | 263,203 | | | 156,368 | | | 96,998 | | | 100,827 | | | 1,143,280 | |
| | $ | 6,416,428 | | | $ | 6,549,707 | | | 740,410 | | | 2,146,958 | | | 1,472,990 | | | 903,408 | | | 480,538 | | | 358,130 | | | 6,102,434 | |
Canadian Retail: | | Canadian Retail: | | | | | | | | | | | | | |
Super prime | | Super prime | 13,938 | | | 48,309 | | | 42,993 | | | 24,549 | | | 11,116 | | | 4,831 | | | 145,736 | |
Prime | | Prime | 4,245 | | | 17,350 | | | 13,055 | | | 9,263 | | | 5,808 | | | 4,178 | | | 53,899 | |
Sub-prime | | Sub-prime | 601 | | | 2,949 | | | 2,227 | | | 1,407 | | | 951 | | | 778 | | | 8,913 | |
| | | 18,784 | | | 68,608 | | | 58,275 | | | 35,219 | | | 17,875 | | | 9,787 | | | 208,548 | |
| | | $ | 759,194 | | | $ | 2,215,566 | | | $ | 1,531,265 | | | $ | 938,627 | | | $ | 498,413 | | | $ | 367,917 | | | $ | 6,310,982 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 & Prior | | Total |
U.S. Retail: | | | | | | | | | | | | | |
Super prime | $ | 822,631 | | | $ | 575,977 | | | $ | 355,529 | | | $ | 165,436 | | | $ | 71,360 | | | $ | 29,181 | | | $ | 2,020,114 | |
Prime | 1,133,637 | | | 794,058 | | | 508,713 | | | 293,358 | | | 156,688 | | | 77,046 | | | 2,963,500 | |
Sub-prime | 435,875 | | | 295,403 | | | 177,598 | | | 111,163 | | | 72,556 | | | 52,060 | | | 1,144,655 | |
| 2,392,143 | | | 1,665,438 | | | 1,041,840 | | | 569,957 | | | 300,604 | | | 158,287 | | | 6,128,269 | |
Canadian Retail: | | | | | | | | | | | | | |
Super prime | 53,465 | | | 48,692 | | | 28,581 | | | 13,818 | | | 5,018 | | | 2,011 | | | 151,585 | |
Prime | 18,568 | | | 14,257 | | | 10,269 | | | 6,727 | | | 3,198 | | | 2,025 | | | 55,044 | |
Sub-prime | 3,172 | | | 2,498 | | | 1,560 | | | 1,095 | | | 607 | | | 365 | | | 9,297 | |
| 75,205 | | | 65,447 | | | 40,410 | | | 21,640 | | | 8,823 | | | 4,401 | | | 215,926 | |
| $ | 2,467,348 | | | $ | 1,730,885 | | | $ | 1,082,250 | | | $ | 591,597 | | | $ | 309,427 | | | $ | 162,688 | | | $ | 6,344,195 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 29, 2020 |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 & Prior | | Total |
U.S. Retail: | | | | | | | | | | | | | |
Super prime | $ | 204,937 | | | $ | 825,176 | | | $ | 539,296 | | | $ | 275,621 | | | $ | 140,284 | | | $ | 62,924 | | | $ | 2,048,238 | |
Prime | 265,365 | | | 1,065,132 | | | 717,234 | | | 441,284 | | | 262,421 | | | 155,338 | | | 2,906,774 | |
Sub-prime | 108,068 | | | 394,291 | | | 239,571 | | | 155,391 | | | 108,531 | | | 98,124 | | | 1,103,976 | |
| 578,370 | | | 2,284,599 | | | 1,496,101 | | | 872,296 | | | 511,236 | | | 316,386 | | | 6,058,988 | |
Canadian Retail: | | | | | | | | | | | | | |
Super prime | 12,819 | | | 61,889 | | | 39,516 | | | 22,186 | | | 10,565 | | | 4,989 | | | 151,964 | |
Prime | 3,968 | | | 16,479 | | | 12,389 | | | 8,441 | | | 4,549 | | | 3,929 | | | 49,755 | |
Sub-prime | 768 | | | 2,827 | | | 1,919 | | | 1,348 | | | 921 | | | 757 | | | 8,540 | |
| 17,555 | | | 81,195 | | | 53,824 | | | 31,975 | | | 16,035 | | | 9,675 | | | 210,259 | |
| $ | 595,925 | | | $ | 2,365,794 | | | $ | 1,549,925 | | | $ | 904,271 | | | $ | 527,271 | | | $ | 326,061 | | | $ | 6,269,247 | |
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 the 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. TheAdditionally, 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 on a quarterly basis.
The amortized cost of wholesale financial receivables, by credit quality indicatorvintage and vintage, was as follows as of June 28, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 & Prior | | Total |
Non-Performing | $ | — | | | $ | 2,376 | | | $ | 1,774 | | | $ | 107 | | | $ | 25 | | | $ | 43 | | | $ | 4,325 | |
Doubtful | 579 | | | 1,009 | | | 188 | | | — | | | — | | | — | | | 1,776 | |
Substandard | 944 | | | 966 | | | 53 | | | — | | | — | | | — | | | 1,963 | |
Special Mention | 5,345 | | | 5,281 | | | 564 | | | — | | | — | | | 1,805 | | | 12,995 | |
Medium Risk | 6,690 | | | 3,587 | | | 301 | | | 63 | | | — | | | — | | | 10,641 | |
Low Risk | 517,708 | | | 273,408 | | | 29,301 | | | 8,965 | | | 6,006 | | | 2,999 | | | 838,387 | |
| $ | 531,266 | | | $ | 286,627 | | | $ | 32,181 | | | $ | 9,135 | | | $ | 6,031 | | | $ | 4,847 | | | $ | 870,087 | |
Dealer risk rating categories prior to the adoption of ASU 2016-13 were consistent with the current risk rating categories with the exception of the Non-Performing category for dealers identified as those in which foreclosure is probable, which was established in connection with the January 1, 2020 adoption of the new accounting guidance. The recorded investment in wholesale finance receivables, by internal credit quality indicator, was as follows (in thousands):
| | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 |
| | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 & Prior | | Total |
Non-Performing | | Non-Performing | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Doubtful | Doubtful | | $ | 11,664 | | | $ | 6,850 | | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Substandard | Substandard | | 6,122 | | | 7,643 | | Substandard | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Special Mention | Special Mention | | 16,125 | | | 12,642 | | Special Mention | 567 | | | 530 | | | 262 | | | 17 | | | 0 | | | 0 | | | 1,376 | |
Medium Risk | Medium Risk | | 16,800 | | | 6,170 | | Medium Risk | 0 | | | 728 | | | 417 | | | 0 | | | 0 | | | 0 | | | 1,145 | |
Low Risk | Low Risk | | 1,105,808 | | | 1,206,389 | | Low Risk | 600,144 | | | 122,970 | | | 44,614 | | | 12,568 | | | 6,392 | | | 2,819 | | | 789,507 | |
| | $ | 1,156,519 | | | $ | 1,239,694 | | | $ | 600,711 | | | $ | 124,228 | | | $ | 45,293 | | | $ | 12,585 | | | $ | 6,392 | | | $ | 2,819 | | | $ | 792,028 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 & Prior | | Total |
Non-Performing | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Substandard | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Special Mention | 658 | | | 365 | | | 31 | | | 0 | | | 0 | | | 0 | | | 1,054 | |
Medium Risk | 1,925 | | | 242 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,167 | |
Low Risk | 388,568 | | | 71,441 | | | 13,412 | | | 7,887 | | | 2,297 | | | 2,923 | | | 486,528 | |
| $ | 391,151 | | | $ | 72,048 | | | $ | 13,443 | | | $ | 7,887 | | | $ | 2,297 | | | $ | 2,923 | | | $ | 489,749 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 29, 2020 |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 & Prior | | Total |
Non-Performing | $ | 0 | | | $ | 2,376 | | | $ | 1,774 | | | $ | 107 | | | $ | 25 | | | $ | 43 | | | $ | 4,325 | |
Doubtful | 478 | | | 4,169 | | | 529 | | | 51 | | | 0 | | | 726 | | | 5,953 | |
Substandard | 5,375 | | | 6,374 | | | 391 | | | 131 | | | 0 | | | 0 | | | 12,271 | |
Special Mention | 5,239 | | | 8,001 | | | 977 | | | 6 | | | 0 | | | 1,268 | | | 15,491 | |
Medium Risk | 8,307 | | | 10,996 | | | 1,091 | | | 23 | | | 0 | | | 826 | | | 21,243 | |
Low Risk | 658,137 | | | 574,401 | | | 47,101 | | | 10,997 | | | 6,323 | | | 2,414 | | | 1,299,373 | |
| $ | 677,536 | | | $ | 606,317 | | | $ | 51,863 | | | $ | 11,315 | | | $ | 6,348 | | | $ | 5,277 | | | $ | 1,358,656 | |
Retail 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 interest income when the account is charged-off. The Company reversed $5.0$5.2 million and $11.4$6.4 million of accrued interest against interest income during the three and six months ended JuneMarch 28, 2021 and March 29, 2020, respectively. All retail finance receivables accrue interest until either collected or charged-off. Due to the timely write-off of accrued interest, the Company made the election provided under ASU 2016-13Accounting Standards Codification (ASC) Topic 326, Financial Instruments - Credit Losses (ASC Topic 326) to exclude accrued interest from its allowance for credit losses. Accordingly, as of JuneMarch 28, 2020,2021, December 31, 20192020 and June 30, 2019,March 29, 2020, all retail finance receivables were accounted for as interest-earning receivables, of which $16.0 million, $48.0 million and $30.4 million, respectively, were 90 days or more past due.receivables.
Wholesale finance receivables are delinquent if the minimum payment is not received by the 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 received is applied to principal or interest as appropriate. Once an account 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 and six months ended JuneMarch 28, 2021 and March 29, 2020. As such, the Company did not reverse any accrued interest in that period. At Junethose periods. There were no dealers on non-accrual status at March 28, 2020,2021 and December 31, 2019 and June 30, 2019, $3.52020. At March 29, 2020, $4.3 million $2.6 million, and $2.1 million, respectively, of wholesale finance receivables outstanding on non-accrual status, and of this, $2.6 million were over 90 days or more past due and accruing interest.due.
Additional information related to the wholesale finance receivables on non-accrual status was as followsat March 29, 2020 includes (in thousands):
| | | Amortized Cost | | | Amortized Cost | | Interest Income | | Amortized Cost, Beginning of Period | | Amortized Cost, End of Period | | Interest Income Recognized |
| January 1, 2020 | | | June 28, 2020 | | Recognized | |
Wholesale: | | | | | | | |
No related allowance recorded | No related allowance recorded | $ | — | | | | $ | — | | | $ | — | | No related allowance recorded | $ | 0 | | | $ | 0 | | | $ | 0 | |
Related allowance recorded | Related allowance recorded | 4,994 | | | | 4,325 | | | — | | Related allowance recorded | 4,994 | | | 4,325 | | | 0 | |
| | $ | 4,994 | | | | $ | 4,325 | | | $ | — | | | $ | 4,994 | | | $ | 4,325 | | | $ | 0 | |
The aging analysis of finance receivables was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 28, 2020 | | | | | | | | | | |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,425,078 | | | $ | 63,190 | | | $ | 16,631 | | | $ | 16,020 | | | $ | 95,841 | | | $ | 6,520,919 | |
Wholesale finance receivables | 864,911 | | | 1,261 | | | 413 | | | 3,502 | | | 5,176 | | | 870,087 | |
| $ | 7,289,989 | | | $ | 64,451 | | | $ | 17,044 | | | $ | 19,522 | | | $ | 101,017 | | | $ | 7,391,006 | |
| | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,171,930 | | | $ | 142,479 | | | $ | 53,995 | | | $ | 48,024 | | | $ | 244,498 | | | $ | 6,416,428 | |
Wholesale finance receivables | 1,152,416 | | | 1,145 | | | 384 | | | 2,574 | | | 4,103 | | | 1,156,519 | |
| $ | 7,324,346 | | | $ | 143,624 | | | $ | 54,379 | | | $ | 50,598 | | | $ | 248,601 | | | $ | 7,572,947 | |
| | | | | | | | | | | |
| June 30, 2019 | | | | | | | | | | |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,359,499 | | | $ | 119,770 | | | $ | 40,015 | | | $ | 30,423 | | | $ | 190,208 | | | $ | 6,549,707 | |
Wholesale finance receivables | 1,236,747 | | | 577 | | | 320 | | | 2,050 | | | 2,947 | | | 1,239,694 | |
| $ | 7,596,246 | | | $ | 120,347 | | | $ | 40,335 | | | $ | 32,473 | | | $ | 193,155 | | | $ | 7,789,401 | |
Prior to the Company's January 1, 2020 adoption of ASU 2016-13, finance receivables were considered impaired when management determined it was probable that the Company would not be able to collect all amounts due according to the terms of the loan agreement. Portions of the allowance for credit losses were established to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance for credit losses covered estimated losses on finance receivables which were collectively reviewed for impairment.
The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that were individually evaluated for impairment and those that were collectively evaluated for impairment, were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | |
| Retail | | Wholesale | | Total |
Allowance for credit losses, ending balance: | | | | | |
Individually evaluated for impairment | $ | — | | | $ | 2,100 | | | $ | 2,100 | |
Collectively evaluated for impairment | 188,501 | | | 7,980 | | | 196,481 | |
| $ | 188,501 | | | $ | 10,080 | | | $ | 198,581 | |
Finance receivables, ending balance: | | | | | |
Individually evaluated for impairment | $ | — | | | $ | 4,601 | | | $ | 4,601 | |
Collectively evaluated for impairment | 6,416,428 | | | 1,151,918 | | | 7,568,346 | |
| $ | 6,416,428 | | | $ | 1,156,519 | | | $ | 7,572,947 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | |
| Retail | | Wholesale | | Total |
Allowance for credit losses, ending balance: | | | | | |
Individually evaluated for impairment | $ | — | | | $ | — | | | $ | — | |
Collectively evaluated for impairment | 186,722 | | | 8,274 | | | 194,996 | |
| $ | 186,722 | | | $ | 8,274 | | | $ | 194,996 | |
Finance receivables, ending balance: | | | | | |
Individually evaluated for impairment | $ | — | | | $ | — | | | $ | — | |
Collectively evaluated for impairment | 6,549,707 | | | 1,239,694 | | | 7,789,401 | |
| $ | 6,549,707 | | | $ | 1,239,694 | | | $ | 7,789,401 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2021 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,196,345 | | | $ | 69,032 | | | $ | 23,420 | | | $ | 22,185 | | | $ | 114,637 | | | $ | 6,310,982 | |
Wholesale finance receivables | 791,826 | | | 128 | | | 22 | | | 52 | | | 202 | | | 792,028 | |
| $ | 6,988,171 | | | $ | 69,160 | | | $ | 23,442 | | | $ | 22,237 | | | $ | 114,839 | | | $ | 7,103,010 | |
| | | | | | | | | | | |
| December 31, 2020 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,164,369 | | | $ | 106,818 | | | $ | 39,933 | | | $ | 33,075 | | | $ | 179,826 | | | $ | 6,344,195 | |
Wholesale finance receivables | 489,556 | | | 166 | | | 23 | | | 4 | | | 193 | | | 489,749 | |
| $ | 6,653,925 | | | $ | 106,984 | | | $ | 39,956 | | | $ | 33,079 | | | $ | 180,019 | | | $ | 6,833,944 | |
| | | | | | | | | | | |
| March 29, 2020 |
| Current | | 31-60 Days Past Due | | 61-90 Days Past Due | | Greater than 90 Days Past Due | | Total Past Due | | Total |
Retail finance receivables | $ | 6,091,319 | | | $ | 101,412 | | | $ | 37,816 | | | $ | 38,700 | | | $ | 177,928 | | | $ | 6,269,247 | |
Wholesale finance receivables | 1,352,084 | | | 2,051 | | | 1,437 | | | 3,084 | | | 6,572 | | | 1,358,656 | |
| $ | 7,443,403 | | | $ | 103,463 | | | $ | 39,253 | | | $ | 41,784 | | | $ | 184,500 | | | $ | 7,627,903 | |
At June 30, 2019, there were no wholesale receivables that were individually deemed to be impaired under ASC Topic 310, Receivables. Additional information related to the wholesale finance receivables that were individually deemed to be impaired at December 31, 2019 included the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
Wholesale: | | | | | | | | | |
No related allowance recorded | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Related allowance recorded | 4,994 | | | 4,601 | | | 2,100 | | | 4,976 | | | — | |
| $ | 4,994 | | | $ | 4,601 | | | $ | 2,100 | | | $ | 4,976 | | | $ | — | |
Retail finance receivables were not evaluated individually for impairment prior to charge-off at December 31, 2019 or June 30, 2019.
Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize the economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total troubled restructured finance receivables arein troubled debt restructurings were not significantsignificant as of JuneMarch 28, 2020,2021, December 31, 20192020 and June 30, 2019.March 29, 2020. Additionally, in certain situations, the Company may offer short-term adjustments to customer payment due dates without affecting the associated interest rate or loan term. During 2020 and into the secondfirst quarter of 2020,2021, the Company offered an increased amount of short-term payment due date extensions on eligible retail loans to help retail customers get through short-term financial difficulties associated with the COVID-19 pandemic. During the first quarter of 2021, the volume of payment extensions granted for eligible retail loans declined from the levels experienced during the second quarter and into the third quarter of 2020 but had not yet returned to pre-COVID-19 pandemic levels. The Company continues to grant payment extensions to customers in accordance with its policies.
9. Goodwill, Intangible and Long-Lived Assets
Goodwill is tested for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company also periodically evaluates whether there are indicators that the carrying value of long-lived assets to be held and used may not be recoverable. The Company has assessed the changes in events and circumstances related to the COVID-19 pandemic and determined there was no impairment of goodwill or long-lived assets during the three and six months ended June 28, 2020.
On March 4, 2019, the Company purchased certain assets and liabilities of StaCyc, Inc. for total consideration of $14.9 million including cash paid at acquisition of $7.0 million. The primary assets acquired and included in the Motorcycles segment were goodwill of $9.5 million, which was tax deductible, and intangible assets of $5.3 million.
10. Derivative Financial Instruments and Hedging Activities
The Company is exposed to risks from fluctuations in foreign currency exchange rates, interest rates and commodity 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, Thai baht, Indian rupee, Singapore dollar, 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 the Company’s motorcycle operations. The Company's commodity contracts generally have maturities of less than one year.
The Company periodically utilizes treasury rate lock contracts to fix the interest rate on a portion of the principal related to an anticipated issuance of long-term debt, interest rate swaps to reduce the impact of fluctuations in interest rates on medium-term notes with floating interest rates, and cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on 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 sheets at fair value. In accordance with ASC Topic 815, Derivatives 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 derivative financial instruments that are designated as cash flow hedges are initially recorded in otherOther comprehensive income (loss) (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an ongoing basis, whether the derivative financial instruments that are designated as cash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. No component of a designated hedging derivative financial instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative financial instruments not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign currency, commodity risks, and interest rate risks. Changes in the fair value of derivative financial instruments not designated as hedging instruments are recorded directly in income.
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 | | | Derivative Financial Instruments Designated as Cash Flow Hedging Instruments |
| | June 28, 2020 | | | December 31, 2019 | | | June 30, 2019 | | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
| | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities |
Foreign currency contracts | Foreign currency contracts | $ | 359,754 | | | $ | 3,108 | | | $ | 1,537 | | | $ | 434,321 | | | $ | 3,505 | | | $ | 3,661 | | | $ | 495,736 | | | $ | 6,638 | | | $ | 3,490 | | Foreign currency contracts | $ | 402,814 | | | $ | 6,356 | | | $ | 6,071 | | | $ | 533,925 | | | $ | 11 | | | $ | 21,927 | | | $ | 414,753 | | | $ | 12,108 | | | $ | 575 | |
Commodity contracts | Commodity contracts | 581 | | | — | | | 49 | | | 616 | | | — | | | 80 | | | 627 | | | — | | | 69 | | Commodity contracts | 668 | | | 3 | | | 20 | | | 671 | | | 0 | | | 52 | | | 482 | | | 0 | | | 74 | |
Cross-currency swap | 1,367,460 | | | 24,288 | | | 29,975 | | | 660,780 | | | 8,326 | | | — | | | — | | | — | | | — | | |
Cross-currency swaps | | Cross-currency swaps | 1,367,460 | | | 73,449 | | | 0 | | | 1,367,460 | | | 138,622 | | | 0 | | | 660,780 | | | 0 | | | 41,283 | |
| Interest rate swaps | Interest rate swaps | 450,000 | | | — | | | 9,120 | | | 900,000 | | | — | | | 9,181 | | | 900,000 | | | — | | | 11,920 | | Interest rate swaps | 0 | | | 0 | | | 0 | | | 450,000 | | | 0 | | | 3,086 | | | 900,000 | | | 0 | | | 11,398 | |
| | $ | 2,177,795 | | | $ | 27,396 | | | $ | 40,681 | | | $ | 1,995,717 | | | $ | 11,831 | | | $ | 12,922 | | | $ | 1,396,363 | | | $ | 6,638 | | | $ | 15,479 | | | $ | 1,770,942 | | | $ | 79,808 | | | $ | 6,091 | | | $ | 2,352,056 | | | $ | 138,633 | | | $ | 25,065 | | | $ | 1,976,015 | | | $ | 12,108 | | | $ | 53,330 | |
| | | Derivative Financial Instruments Not Designated as Hedging Instruments | | | Derivative Financial Instruments Not Designated as Hedging Instruments |
| | June 28, 2020 | | | December 31, 2019 | | | June 30, 2019 | | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
| | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities | | Notional Value | | Other Current Assets | | Accrued Liabilities |
Foreign currency contracts | Foreign currency contracts | $ | 173,805 | | | $ | 1,295 | | | $ | 247 | | | $ | 220,139 | | | $ | 721 | | | $ | 865 | | | $ | 317,344 | | | $ | 273 | | | $ | 1,816 | | Foreign currency contracts | $ | 214,337 | | | $ | 670 | | | $ | 595 | | | $ | 245,494 | | | $ | 737 | | | $ | 435 | | | $ | 182,642 | | | $ | 2,573 | | | $ | 2,194 | |
Commodity contracts | Commodity contracts | 7,401 | | | 214 | | | 491 | | | 8,270 | | | 95 | | | 147 | | | 7,710 | | | 5 | | | 260 | | Commodity contracts | 8,172 | | | 1,193 | | | 40 | | | 6,806 | | | 849 | | | 21 | | | 7,769 | | | 0 | | | 1,452 | |
Interest rate cap | 1,277,389 | | | 152 | | | — | | | 375,980 | | | 2 | | | — | | | 481,509 | | | 4 | | | — | | |
Interest rate caps | | Interest rate caps | 844,673 | | | 170 | | | 0 | | | 978,058 | | | 47 | | | 0 | | | 326,976 | | | 2 | | | 0 | |
| | $ | 1,458,595 | | | $ | 1,661 | | | $ | 738 | | | $ | 604,389 | | | $ | 818 | | | $ | 1,012 | | | $ | 806,563 | | | $ | 282 | | | $ | 2,076 | | | $ | 1,067,182 | | | $ | 2,033 | | | $ | 635 | | | $ | 1,230,358 | | | $ | 1,633 | | | $ | 456 | | | $ | 517,387 | | | $ | 2,575 | | | $ | 3,646 | |
The amounts of gains and losses related to 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 | | | Gain/(Loss) Recognized in OCI | | Gain/(Loss) Reclassified from AOCL into Income |
| | Three months ended | | | Six months ended | | | Three months ended | | | Six months ended | | | Three months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | | | March 28, 2021 | | March 29, 2020 | |
Foreign currency contracts | Foreign currency contracts | $ | (4,062) | | | $ | (2,865) | | | $ | 12,837 | | | $ | 1,287 | | | $ | 5,305 | | | $ | 7,668 | | | $ | 8,705 | | | $ | 10,121 | | Foreign currency contracts | $ | 14,037 | | | $ | 16,899 | | | | $ | (4,953) | | | $ | 3,400 | | |
Commodity contracts | Commodity contracts | (28) | | | (70) | | | (157) | | | (40) | | | (53) | | | (7) | | | (188) | | | (17) | | Commodity contracts | 3 | | | (129) | | | | (32) | | | (135) | | |
Cross-currency swap | 35,595 | | | — | | | (14,014) | | | — | | | 36,915 | | | — | | | 24,009 | | | — | | |
Treasury rate locks | — | | | — | | | — | | | — | | | (122) | | | (123) | | | (246) | | | (245) | | |
Cross-currency swaps | | Cross-currency swaps | (65,174) | | | (49,609) | | | | (65,788) | | | (12,906) | | |
Treasury rate lock contracts | | Treasury rate lock contracts | 0 | | | 0 | | | | (124) | | | (124) | | |
Interest rate swaps | Interest rate swaps | (1,176) | | | (5,856) | | | (6,509) | | | (8,861) | | | (3,453) | | | (830) | | | (6,569) | | | (1,436) | | Interest rate swaps | 397 | | | (5,333) | | | | (2,689) | | | (3,116) | | |
| | $ | 30,329 | | | $ | (8,791) | | | $ | (7,843) | | | $ | (7,614) | | | $ | 38,592 | | | $ | 6,708 | | | $ | 25,711 | | | $ | 8,423 | | | $ | (50,737) | | | $ | (38,172) | | | | $ | (73,586) | | | $ | (12,881) | | |
The location and amount of gains and losses recognized in income related to derivative financial instruments designated as cash flow hedges were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Motorcycles cost of goods sold | | Selling, administrative & engineering expense | | Interest expense | | Financial Services interest expense |
| Three months ended June 28, 2020 | | | | | | |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 561,646 | | | $ | 224,365 | | | $ | 7,769 | | | $ | 62,187 | |
| | | | | | | |
Gain/(loss) reclassified from AOCL into income: | | | | | | | |
Foreign currency contracts | $ | 5,305 | | | $ | — | | | $ | — | | | $ | — | |
Commodity contracts | $ | (53) | | | $ | — | | | $ | — | | | $ | — | |
Cross-currency swap | $ | — | | | $ | 36,915 | | | $ | — | | | $ | — | |
Treasury rate locks | $ | — | | | $ | — | | | $ | (90) | | | $ | (32) | |
Interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | (3,453) | |
| Three months ended June 30, 2019 | | | | | | |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 979,266 | | | $ | 307,617 | | | $ | 7,784 | | | $ | 52,673 | |
| | | | | | | |
Gain/(loss) reclassified from AOCL into income: | | | | | | | |
Foreign currency contracts | $ | 7,668 | | | $ | — | | | $ | — | | | $ | — | |
Commodity contracts | $ | (7) | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
Treasury rate locks | $ | — | | | $ | — | | | $ | (91) | | | $ | (32) | |
Interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | (830) | |
| | | | | | | |
| | | | Motorcycles cost of goods sold | | Selling, administrative & engineering expense | | Interest expense | | Financial Services interest expense |
| | | | | | | Motorcycles cost of goods sold | | Selling, administrative & engineering expense | | Interest expense | | Financial Services interest expense | |
| | Six months ended June 28, 2020 | | | Three months ended March 28, 2021 |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,342,514 | | | $ | 502,336 | | | $ | 15,524 | | | $ | 114,660 | | Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 811,622 | | | $ | 231,844 | | | $ | 7,708 | | | $ | 55,707 | |
| Gain/(loss) reclassified from AOCL into income: | Gain/(loss) reclassified from AOCL into income: | | Gain/(loss) reclassified from AOCL into income: | |
Foreign currency contracts | Foreign currency contracts | $ | 8,705 | | | $ | — | | | $ | — | | | $ | — | | Foreign currency contracts | $ | (4,953) | | | $ | — | | | $ | — | | | $ | — | |
Commodity contracts | Commodity contracts | $ | (188) | | | $ | — | | | $ | — | | | $ | — | | Commodity contracts | $ | (32) | | | $ | — | | | $ | — | | | $ | — | |
Cross-currency swaps | Cross-currency swaps | $ | — | | | $ | 24,009 | | | $ | — | | | $ | — | | Cross-currency swaps | $ | — | | | $ | (65,788) | | | $ | — | | | $ | — | |
Treasury rate locks | $ | — | | | $ | — | | | $ | (181) | | | $ | (65) | | |
Interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | (6,569) | | |
Treasury rate lock contracts | | Treasury rate lock contracts | $ | — | | | $ | — | | | $ | (91) | | | $ | (33) | |
Interest rate swap | | Interest rate swap | $ | — | | | $ | — | | | $ | — | | | $ | (2,689) | |
| | Six months ended June 30, 2019 | | | Three months ended March 29, 2020 |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,827,464 | | | $ | 576,242 | | | $ | 15,515 | | | $ | 104,997 | | Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 780,868 | | | $ | 277,971 | | | $ | 7,755 | | | $ | 52,473 | |
| Gain/(loss) reclassified from AOCL into income: | Gain/(loss) reclassified from AOCL into income: | | | | | | | | Gain/(loss) reclassified from AOCL into income: | |
Foreign currency contracts | Foreign currency contracts | $ | 10,121 | | | $ | — | | | $ | — | | | $ | — | | Foreign currency contracts | $ | 3,400 | | | $ | — | | | $ | — | | | $ | — | |
Commodity contracts | Commodity contracts | $ | (17) | | | $ | — | | | $ | — | | | $ | — | | Commodity contracts | $ | (135) | | | $ | — | | | $ | — | | | $ | — | |
| Treasury rate locks | $ | — | | | $ | — | | | $ | (181) | | | $ | (64) | | |
Cross-currency swaps | | Cross-currency swaps | $ | — | | | $ | (12,906) | | | $ | — | | | $ | — | |
Treasury rate lock contracts | | Treasury rate lock contracts | $ | — | | | $ | — | | | $ | (91) | | | $ | (33) | |
Interest rate swaps | Interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | (1,436) | | Interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | (3,116) | |
The amount of net loss included in Accumulated other comprehensive loss (AOCL) at JuneMarch 28, 2020,2021, estimated to be reclassified into income over the next 12 months was $16.8$17.1 million.
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 cost of goods sold and the interest rate cap wascaps were recorded in Financial Services interest expense.
| | | Amount of Gain/(Loss) Recognized in Income | | | Amount of Gain/(Loss) Recognized in Income |
| | Three months ended | | | Six months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | |
Foreign currency contracts | Foreign currency contracts | $ | (522) | | | $ | (1,004) | | | $ | 1,672 | | | $ | (117) | | Foreign currency contracts | $ | (3,629) | | | $ | 2,194 | | |
Commodity contracts | Commodity contracts | 558 | | | (310) | | | (993) | | | 7 | | Commodity contracts | 703 | | | (1,551) | | |
Interest rate cap | (427) | | | (141) | | | (427) | | | (141) | | |
Interest rate caps | | Interest rate caps | 123 | | | 0 | | |
| | $ | (391) | | | $ | (1,455) | | | $ | 252 | | | $ | (251) | | | $ | (2,803) | | | $ | 643 | | |
The Company is exposed to credit loss risk in the event of non-performance by counterparties to its derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to its derivative financial instruments to fail to meet their 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 their position.
11.10. Leases
The Company determines if an arrangement is or contains a lease at contract inception. Right-of-use (ROU) assets related to the Company's leases are recorded in Lease assets and lease liabilities are recorded in Accrued liabilities and Lease liabilities on the Consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset over the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. The ROU asset also
includes prepaid lease payments and initial direct costs and is reduced for lease incentives paid by the lessor. The discount rate used to determine the present value is generally the Company's incremental borrowing rate because the implicit rate in the lease is not readily determinable. The lease term used to calculate the ROU asset and lease liabilities includes periods covered by options to extend or terminate when the Company is reasonably certain the lease term will include these optional periods.
In accordance with ASC Topic 842, Leases (ASC Topic 842), the Company elected the short-term lease practical expedient that allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company has also elected the practical expedient under ASC Topic 842 allowing entities to not separate non-lease components from lease components, but instead account for such components as a single lease component for all leases except leases involving assets operated by a third-party.
The Company has operating lease arrangements for sales and administrative offices, manufacturing and distribution facilities, product testing facilities, equipment and vehicles. The Company’s leases have remaining lease terms ranging from 1 to 1211 years, some of which include options to extend the lease term for periods generally not greater than 5 years and some of which include options to terminate the leases within 1 year. Certain leases also include options to purchase the leased asset. The Company's leases do not contain any material residual value guarantees or material restrictive covenants.
Operating lease expense for the three months ended JuneMarch 28, 2021 and March 29, 2020 and June 30, 2019 was $6.5$8.2 million and $6.4$7.3 million, respectively, and $13.8 million and $12.7 million for the six months ended June 28, 2020 and June 30, 2019, respectively. This includes variable lease costs related to leases involving assets operated by a third party of approximately $1.3$3.1 million and $2.0$1.9 million for the three months ended JuneMarch 28, 20202021 and June 30, 2019, respectively, and $3.2 million and $3.2 million for the six months ended June 28,March 29, 2020, and June 30, 2019, respectively. Other variable and short-term lease costs were not material.
Balance sheet information related to the Company's leases was as follows (in thousands):
| | | June 28, 2020 | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
Lease assets | Lease assets | $ | 53,031 | | | $ | 61,618 | | | $ | 54,913 | | Lease assets | $ | 44,765 | | | $ | 45,203 | | | $ | 56,496 | |
| Accrued liabilities | Accrued liabilities | $ | 18,154 | | | $ | 19,013 | | | $ | 18,133 | | Accrued liabilities | $ | 17,021 | | | $ | 17,081 | | | $ | 17,939 | |
Lease liabilities | Lease liabilities | 36,394 | | | 44,447 | | | 38,365 | | Lease liabilities | 30,061 | | | 30,115 | | | 40,053 | |
| | $ | 54,548 | | | $ | 63,460 | | | $ | 56,498 | | | $ | 47,082 | | | $ | 47,196 | | | $ | 57,992 | |
Future maturities of the Company's operating lease liabilities as of JuneMarch 28, 20202021 were as follows (in thousands):
| | | Operating Leases | | Operating Leases |
2020 | $ | 10,146 | | |
2021 | 2021 | 18,388 | | 2021 | $ | 13,805 | |
2022 | 2022 | 13,410 | | 2022 | 14,466 | |
2023 | 2023 | 6,543 | | 2023 | 6,511 | |
2024 | 2024 | 4,556 | | 2024 | 4,518 | |
2025 | | 2025 | 6,816 | |
Thereafter | Thereafter | 4,825 | | Thereafter | 3,677 | |
Future lease payments | Future lease payments | 57,868 | | Future lease payments | 49,793 | |
Present value discount | Present value discount | (3,320) | | Present value discount | (2,711) | |
Lease liabilities | Lease liabilities | $ | 54,548 | | Lease liabilities | $ | 47,082 | |
Other lease information surrounding the Company's operating leases was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | Six months ended | | |
| June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 |
Cash outflows for amounts included in the measurement of lease liabilities | $ | 5,242 | | | $ | 4,510 | | | $ | 10,619 | | | $ | 9,871 | |
Right-of-use assets obtained in exchange for lease obligations | $ | 1,096 | | | $ | 3,964 | | | $ | 1,653 | | | $ | 4,262 | |
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 28, 2021 | | March 29, 2020 | | | | |
Cash outflows for amounts included in the measurement of lease liabilities | $ | 4,947 | | | $ | 5,378 | | | | | |
ROU assets obtained in exchange for lease obligations, net of modifications | $ | 5,305 | | | $ | 557 | | | | | |
| | | June 28, 2020 | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
Weighted-average remaining lease term (in years) | Weighted-average remaining lease term (in years) | 4.03 | | 4.68 | | 4.44 | Weighted-average remaining lease term (in years) | 3.81 | | 3.78 | | 4.20 |
Weighted-average discount rate | Weighted-average discount rate | 3.3 | % | | 2.1 | % | | 3.2 | % | Weighted-average discount rate | 2.9 | % | | 3.1 | % | | 3.3 | % |
12.11. Debt
Debt with a contractual term less than 12 months is generally classified as short-term and consisted of the following (in thousands):
| | | June 28, 2020 | | December 31, 2019 | | June 30, 2019 | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
Unsecured commercial paper | Unsecured commercial paper | $ | 1,397,388 | | | $ | 571,995 | | | $ | 405,695 | | Unsecured commercial paper | $ | 749,801 | | | $ | 1,014,274 | | | $ | 1,335,664 | |
364-day credit facility borrowings | 150,000 | | | — | | | — | | |
Global credit facility borrowings | | Global credit facility borrowings | 15,462 | | | 0 | | | 0 | |
| | $ | 1,547,388 | | | $ | 571,995 | | | $ | 405,695 | | | $ | 765,263 | | | $ | 1,014,274 | | | $ | 1,335,664 | |
Debt with a contractual term greater than 12 months is generally classified as long-term and consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | June 28, 2020 | | December 31, 2019 | | June 30, 2019 |
Secured debt: | | | | | | |
Asset-backed Canadian commercial paper conduit facility | | $ | 144,661 | | | $ | 114,693 | | | $ | 148,740 | |
Asset-backed U.S. commercial paper conduit facilities | | 540,840 | | | 490,427 | | | 464,136 | |
Asset-backed securitization debt | | 2,472,529 | | | 766,965 | | | 1,006,410 | |
Unamortized discounts and debt issuance costs | | (11,422) | | | (2,573) | | | (3,541) | |
| | 3,146,608 | | | 1,369,512 | | | 1,615,745 | |
Unsecured notes (at par value): | | | | | | |
Medium-term notes: | | | | | | |
| | | | | | |
| | | | | | |
Due in 2019, issued September 2014 | 2.40 | % | — | | | — | | | 600,000 | |
Due in 2020, issued February 2015 | 2.15 | % | — | | | 600,000 | | | 600,000 | |
Due in 2020, issued May 2018 | LIBOR + 0.50% | — | | | 450,000 | | | 450,000 | |
Due in 2020, issued March 2017 | 2.40 | % | — | | | 350,000 | | | 350,000 | |
Due in 2021, issued January 2016 | 2.85 | % | 600,000 | | | 600,000 | | | 600,000 | |
Due in 2021, issued November 2018 | LIBOR + 0.94% | 450,000 | | | 450,000 | | | 450,000 | |
Due in 2021, issued May 2018 | 3.55 | % | 350,000 | | | 350,000 | | | 350,000 | |
Due in 2022, issued February 2019 | 4.05 | % | 550,000 | | | 550,000 | | | 550,000 | |
Due in 2022, issued June 2017 | 2.55 | % | 400,000 | | | 400,000 | | | 400,000 | |
Due in 2023, issued February 2018 | 3.35 | % | 350,000 | | | 350,000 | | | 350,000 | |
Due in 2023, issued May 2020(a) | 4.94 | % | 729,885 | | | — | | | — | |
Due in 2024, issued November 2019(b) | 3.14 | % | 673,740 | | | 672,936 | | | — | |
Due in 2025, issued June 2020 | 3.35 | % | 700,000 | | | — | | | — | |
Unamortized discounts and debt issuance costs | | (19,332) | | | (12,809) | | | (12,340) | |
| | 4,784,293 | | | 4,760,127 | | | 4,687,660 | |
| | | | | | |
| | | | March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
Secured debt: | | Secured debt: | | | | | | |
Asset-backed Canadian commercial paper conduit facility | | Asset-backed Canadian commercial paper conduit facility | | $ | 102,543 | | | $ | 116,678 | | | $ | 155,243 | |
Asset-backed U.S. commercial paper conduit facilities | | Asset-backed U.S. commercial paper conduit facilities | | 350,648 | | | 402,205 | | | 600,000 | |
Asset-backed securitization debt | | Asset-backed securitization debt | | 2,109,046 | | | 1,800,393 | | | 1,161,047 | |
Unamortized discounts and debt issuance costs | | Unamortized discounts and debt issuance costs | | (9,788) | | | (8,437) | | | (4,202) | |
| | | 2,552,449 | | | 2,310,839 | | | 1,912,088 | |
Unsecured notes (at par value): | | Unsecured notes (at par value): | | | | | | |
Medium-term notes: | | Medium-term notes: | |
| Due in 2020, issued May 2018 | | Due in 2020, issued May 2018 | LIBOR + 0.50% | 0 | | | 0 | | | 450,000 | |
Due in 2020, issued March 2017 | | Due in 2020, issued March 2017 | 2.40 | % | 0 | | | 0 | | | 350,000 | |
Due in 2021, issued January 2016 | | Due in 2021, issued January 2016 | 2.85 | % | 0 | | | 600,000 | | | 600,000 | |
Due in 2021, issued November 2018 | | Due in 2021, issued November 2018 | LIBOR + 0.94% | 0 | | | 450,000 | | | 450,000 | |
Due in 2021, issued May 2018 | | Due in 2021, issued May 2018 | 3.55 | % | 350,000 | | | 350,000 | | | 350,000 | |
Due in 2022, issued February 2019 | | Due in 2022, issued February 2019 | 4.05 | % | 550,000 | | | 550,000 | | | 550,000 | |
Due in 2022, issued June 2017 | | Due in 2022, issued June 2017 | 2.55 | % | 400,000 | | | 400,000 | | | 400,000 | |
Due in 2023, issued February 2018 | | Due in 2023, issued February 2018 | 3.35 | % | 350,000 | | | 350,000 | | | 350,000 | |
Due in 2023, issued May 2020(a) | | Due in 2023, issued May 2020(a) | 4.94 | % | 762,996 | | | 797,206 | | | 0 | |
Due in 2024, issued November 2019(b) | | Due in 2024, issued November 2019(b) | 3.14 | % | 704,304 | | | 735,882 | | | 660,030 | |
Due in 2025, issued June 2020 | | Due in 2025, issued June 2020 | 3.35 | % | 700,000 | | | 700,000 | | | 0 | |
Unamortized discounts and debt issuance costs | | Unamortized discounts and debt issuance costs | | (13,564) | | | (15,374) | | | (11,046) | |
| | | | | | | | | | | | | | | | | | | | 3,803,736 | | | 4,917,714 | | | 4,148,984 | |
| | June 28, 2020 | | December 31, 2019 | | June 30, 2019 | |
Senior notes: | Senior notes: | | Senior notes: | |
Due in 2025, issued July 2015 | Due in 2025, issued July 2015 | 3.50 | % | 450,000 | | | 450,000 | | | 450,000 | | Due in 2025, issued July 2015 | 3.50 | % | 450,000 | | | 450,000 | | | 450,000 | |
Due in 2045, issued July 2015 | Due in 2045, issued July 2015 | 4.625 | % | 300,000 | | | 300,000 | | | 300,000 | | Due in 2045, issued July 2015 | 4.625 | % | 300,000 | | | 300,000 | | | 300,000 | |
Unamortized discounts and debt issuance costs | Unamortized discounts and debt issuance costs | | (6,365) | | | (6,704) | | | (7,041) | | Unamortized discounts and debt issuance costs | | (5,851) | | | (6,023) | | | (6,534) | |
| | 743,635 | | | 743,296 | | | 742,959 | | | 744,149 | | | 743,977 | | | 743,466 | |
| | 5,527,928 | | | 5,503,423 | | | 5,430,619 | | | 4,547,885 | | | 5,661,691 | | | 4,892,450 | |
Long-term debt | Long-term debt | | 8,674,536 | | | 6,872,935 | | | 7,046,364 | | Long-term debt | | 7,100,334 | | | 7,972,530 | | | 6,804,538 | |
Current portion of long-term debt, net | Current portion of long-term debt, net | | (2,186,037) | | | (1,748,109) | | | (2,396,188) | | Current portion of long-term debt, net | | (1,622,243) | | | (2,039,597) | | | (2,326,460) | |
Long-term debt, net | Long-term debt, net | | $ | 6,488,499 | | | $ | 5,124,826 | | | $ | 4,650,176 | | Long-term debt, net | | $ | 5,478,091 | | | $ | 5,932,933 | | | $ | 4,478,078 | |
(a)Euro denominated, €650.0 million par value remeasured to U.S. dollar at JuneMarch 28, 2021 and December 31, 2020, respectively
(b)Euro denominated, €600.0 million par value remeasured to U.S. dollar at JuneMarch 28, 2021, December 31, 2020, and December 31, 2019,March 29, 2020, respectively
13.The Company's future principal payments on debt obligations as of March 28, 2021 were as follows (in thousands):
| | | | | |
2021 | $ | 1,670,913 | |
2022 | 1,685,613 | |
2023 | 1,829,349 | |
2024 | 1,120,828 | |
2025 | 1,287,560 | |
Thereafter | 300,537 | |
| $ | 7,894,800 | |
12. 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, Transfers and Servicing (ASC Topic 860). 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 sheets 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 on the Consolidated statements of operations.
The Company is not required, and does not currently intend, to provide any additional financial support to the on- 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 assets and liabilities related to the on-balance sheet asset-backed financings included in the Consolidated balance sheets were as follows (in thousands):
| | | June 28, 2020 | | | March 28, 2021 |
| | Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt | | Finance receivables | | Allowance for credit losses | | Restricted cash | | Other assets | | Total assets | | Asset-backed debt |
On-balance sheet assets and liabilities: | On-balance sheet assets and liabilities: | | | | | | | | | | | | On-balance sheet assets and liabilities: | | | | | | | | | | | |
Consolidated VIEs: | Consolidated VIEs: | | Consolidated VIEs: | |
Asset-backed securitizations | Asset-backed securitizations | $ | 2,780,217 | | | $ | (166,635) | | | $ | 161,257 | | | $ | 1,235 | | | $ | 2,776,074 | | | $ | 2,461,107 | | Asset-backed securitizations | $ | 2,448,681 | | | $ | (126,053) | | | $ | 166,694 | | | $ | 2,852 | | | $ | 2,492,174 | | | $ | 2,099,258 | |
Asset-backed U.S. commercial paper conduit facilities | 584,153 | | | (34,938) | | | 38,491 | | | 1,195 | | | 588,901 | | | 540,840 | | |
Asset-backed U.S. commercial paper conduit facility | | Asset-backed U.S. commercial paper conduit facility | 378,035 | | | (19,432) | | | 30,252 | | | 1,175 | | | 390,030 | | | 350,648 | |
Unconsolidated VIEs: | Unconsolidated VIEs: | | Unconsolidated VIEs: | |
Asset-backed Canadian commercial paper conduit facility | Asset-backed Canadian commercial paper conduit facility | 220,286 | | | (7,669) | | | 11,201 | | | 142 | | | 223,960 | | | 144,661 | | Asset-backed Canadian commercial paper conduit facility | 115,742 | | | (5,388) | | | 9,743 | | | 206 | | | 120,303 | | | 102,543 | |
| | $ | 3,584,656 | | | $ | (209,242) | | | $ | 210,949 | | | $ | 2,572 | | | $ | 3,588,935 | | | $ | 3,146,608 | | | $ | 2,942,458 | | | $ | (150,873) | | | $ | 206,689 | | | $ | 4,233 | | | $ | 3,002,507 | | | $ | 2,552,449 | |
| | December 31, 2019 | | |
| 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 | $ | 826,047 | | | $ | (24,935) | | | $ | 36,037 | | | $ | 778 | | | $ | 837,927 | | | $ | 764,392 | | |
Asset-backed U.S. commercial paper conduit facilities | 533,587 | | | (16,076) | | | 27,775 | | | 1,642 | | | 546,928 | | | 490,427 | | |
Unconsolidated VIEs: | | |
Asset-backed Canadian commercial paper conduit facility | 232,699 | | | (2,786) | | | 7,686 | | | 296 | | | 237,895 | | | 114,693 | | |
| $ | 1,592,333 | | | $ | (43,797) | | | $ | 71,498 | | | $ | 2,716 | | | $ | 1,622,750 | | | $ | 1,369,512 | | |
| | June 30, 2019 | | |
| 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 | $ | 1,106,973 | | | $ | (32,426) | | | $ | 52,593 | | | $ | 277 | | | $ | 1,127,417 | | | $ | 1,002,869 | | |
Asset-backed U.S. commercial paper conduit facilities | 500,895 | | | (14,651) | | | 26,843 | | | 1,256 | | | 514,343 | | | 464,136 | | |
Unconsolidated VIEs: | | |
Asset-backed Canadian commercial paper conduit facility | 171,944 | | | (3,058) | | | 9,824 | | | 272 | | | 178,982 | | | 148,740 | | |
| $ | 1,779,812 | | | $ | (50,135) | | | $ | 89,260 | | | $ | 1,805 | | | $ | 1,820,742 | | | $ | 1,615,745 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| 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 | $ | 2,129,372 | | | $ | (124,627) | | | $ | 116,268 | | | $ | 2,622 | | | $ | 2,123,635 | | | $ | 1,791,956 | |
Asset-backed U.S. commercial paper conduit facility | 441,402 | | | (25,793) | | | 26,624 | | | 1,131 | | | 443,364 | | | 402,205 | |
Unconsolidated VIEs: | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 133,976 | | | (6,508) | | | 9,073 | | | 126 | | | 136,667 | | | 116,678 | |
| $ | 2,704,750 | | | $ | (156,928) | | | $ | 151,965 | | | $ | 3,879 | | | $ | 2,703,666 | | | $ | 2,310,839 | |
| | | | | | | | | | | |
| March 29, 2020 |
| 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 | $ | 1,250,382 | | | $ | (62,159) | | | $ | 61,945 | | | $ | 852 | | | $ | 1,251,020 | | | $ | 1,156,845 | |
Asset-backed U.S. commercial paper conduit facilities | 662,385 | | | (32,872) | | | 37,290 | | | 1,410 | | | 668,213 | | | 600,000 | |
Unconsolidated VIEs: | | | | | | | | | | | |
Asset-backed Canadian commercial paper conduit facility | 182,353 | | | (6,671) | | | 10,552 | | | 148 | | | 186,382 | | | 155,243 | |
| $ | 2,095,120 | | | $ | (101,702) | | | $ | 109,787 | | | $ | 2,410 | | | $ | 2,105,615 | | | $ | 1,912,088 | |
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 currently have various contractual maturities ranging from 20212022 to 2028.
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.
Quarterly transfersDuring the first quarter of 2021, the Company transferred $663.1 million of U.S. retail motorcycle finance receivables to SPEs, the respective proceeds, and the respective proceeds,an SPE which, in turn, issued $600.0 million, or $597.4 million net of discountsdiscount and issuance costs, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | |
| Transfers | | Proceeds | | Proceeds, net | | Transfers | | Proceeds | | Proceeds, net |
First quarter | $ | 580,200 | | | $ | 525,000 | | | $ | 522,700 | | | $ | — | | | $ | — | | | $ | — | |
Second quarter | 1,840,500 | | | 1,550,200 | | | $ | 1,541,800 | | | 1,120,000 | | | 1,025,000 | | | 1,021,300 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 2,420,700 | | | $ | 2,075,200 | | | $ | 2,064,500 | | | $ | 1,120,000 | | | $ | 1,025,000 | | | $ | 1,021,300 | |
of secured notes through an on-balance sheet asset-backed securitization transaction. During the first quarter of 2020, the Company transferred $580.2 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $525.0 million, or $522.7 million net of discount and issuance costs, of secured notes through an on-balance sheet asset-backed securitization transaction.On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE –The Until November 25, 2020, the Company hashad two separate agreements with third-party bank-sponsored asset-backed U.S. commercial paper conduits, a $300.0 million revolving facility agreement and a $600.0 million revolving facility agreement (together, the Former U.S. Conduit Facilities). On November 25, 2020, the Company amended each revolving facility agreement by consolidating the two agreements into one $900.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits under which itconduits. Under the revolving facility agreement, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party bank-sponsored asset-backed U.S. commercial paper conduits. In May 2019,addition to the Company amended its $300.0$900.0 million revolving facilityaggregate commitment, the agreement to allowallows for incrementaladditional borrowings, at the lender's lender’s
discretion, of up to an additional $300.0 million in excess ofmillion. Availability under the $300.0 million commitment. In November 2019, the Company renewed its existing $600.0 million and the amended $300.0$900.0 million revolving facility agreements with third-party bank-sponsored asset-backed U.S. commercial paper conduits. Availability under the revolving facilities (together, the(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 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 if funded by a conduit lender through the issuance of commercial paper. If not funded by a conduit lender through the issuance of commercial paper, the terms of the interest are based on LIBOR. In each of these cases, a program fee is assessed based on the outstanding principal. The U.S. Conduit FacilitiesFacility also provideprovides for an unused commitment fee based on the unused portion of the total aggregate commitment. When calculating the unused fee, the aggregate commitment for the $300.0 million agreement does not include any unused portion of the $300.0 million incrementaladditional borrowings allowed. 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 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 54 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of JuneMarch 28, 2020,2021, the U.S. Conduit Facilities haveFacility has an expiration date of November 25, 2020.19, 2021.
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.
QuarterlyThere were 0 finance receivable transfers under the U.S. Conduit Facility during the first quarter of 2021. During the first quarter of 2020, the Company transferred $195.3 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $163.6 million of debt under the Former U.S. Conduit Facilities and the respective proceeds were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | |
| Transfers | | Proceeds | | Transfers | | Proceeds |
First quarter | $ | 195,300 | | | $ | 163,600 | | | $ | — | | | $ | — | |
Second quarter | — | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| $ | 195,300 | | | $ | 163,600 | | | $ | — | | | $ | — | |
Facilities.On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility – In June 2020, the Company renewed its 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$220.0 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$220.0 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 54 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of JuneMarch 28, 2020,2021, the Canadian Conduit has an expiration date of June 25, 2021.
The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company does 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, does 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 $79.3$17.8 million at JuneMarch 28, 2020.2021. The maximum exposure is not an indication of the Company's expected loss exposure.
QuarterlyThere were 0 finance receivable transfers under the Canadian Conduit Facility during the first quarter of 2021. During the first quarter of 2020, the Company transferred $77.9 million of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respectivefor proceeds were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | |
| Transfers | | Proceeds | | Transfers | | Proceeds |
First quarter | $ | 77,900 | | | $ | 61,600 | | | $ | — | | | $ | — | |
Second quarter | — | | | — | | | 28,200 | | | 23,400 | |
| | | | | | | |
| | | | | | | |
| $ | 77,900 | | | $ | 61,600 | | | $ | 28,200 | | | $ | 23,400 | |
of $61.6 million.Off-Balance Sheet Asset-Backed Securitization VIE – There were 0 off-balance sheet asset-backed securitization transactions during the six months ended June 28, 2020first quarter of 2021 or June 30, 2019.2020. 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 cash proceeds of $312.6 million. The gain on sale was included in Financial Services revenue on the Consolidated statements of operations. In April 2020, the Company repurchased the finance receivables associated with this off-balance sheet asset-backed securitization VIE for $27.4 million.
Similar to an on-balance sheet asset-backed securitization, 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 collections of the purchased U.S. retail motorcycle finance receivables. The off-balance sheet asset-backed securitization SPE iswas a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitization arewere only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and arewere 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 iswas not the primary beneficiary of the off-balance sheet asset-backed securitization VIE because it only retained servicing rights and doesdid 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 in 2016, the retail motorcycle finance receivables were removed from the Company’s Consolidated balance sheets 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 on the Consolidated statements of operations. In April 2020, this off-balance sheet asset-backed securitization VIE was repurchased for $27.4 million.
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 recorded on a consolidated basis. In off-balance sheet asset-backed financings, servicing fees and ancillary fees are recorded in Financial Services revenue on the Consolidated statements of operations. 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 repurchased the finance receivables associated with the off-balance sheet securitization VIE in April 2020. As such, the Company did not recognize any servicing fee income in 2021. The Company recognized servicing fee income of $0.1 million and $0.3 million during the six months ended June 28, 2020 and June 30, 2019, respectively.
The unpaid principal balance of retail motorcycle finance receivables serviced by the Company was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| June 28, 2020 | | December 31, 2019 | | June 30, 2019 |
On-balance sheet retail motorcycle finance receivables | $ | 6,362,139 | | | $ | 6,274,551 | | | $ | 6,441,261 | |
Off-balance sheet retail motorcycle finance receivables | — | | | 35,197 | | | 54,699 | |
| $ | 6,362,139 | | | $ | 6,309,748 | | | $ | 6,495,960 | |
The unpaid principal balance of retail motorcycle finance receivables serviced by the Company 30 days or more delinquent was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| June 28, 2020 | | December 31, 2019 | | June 30, 2019 |
On-balance sheet retail motorcycle finance receivables | $ | 95,841 | | | $ | 244,498 | | | $ | 190,208 | |
Off-balance sheet retail motorcycle finance receivables | — | | | 885 | | | 1,065 | |
| $ | 95,841 | | | $ | 245,383 | | | $ | 191,273 | |
Credit losses, net of recoveries for theoff-balance sheet retail motorcycle finance receivables serviced by the Company were $27.4 million as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | Six months ended | | |
| June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 |
On-balance sheet retail motorcycle finance receivables | $ | 15,660 | | | $ | 22,259 | | | $ | 58,768 | | | $ | 55,763 | |
Off-balance sheet retail motorcycle finance receivables | — | | | 161 | | | 13 | | | 392 | |
| $ | 15,660 | | | $ | 22,420 | | | $ | 58,781 | | | $ | 56,155 | |
of March 29, 2020 of which $0.7 million were 30 days or more delinquent. Credit losses, net of recoveries for the off-balance sheet retail motorcycle finance receivables as of March 29, 2020 were $0.01 million. There was no unpaid principal balance or credit losses, net of recoveries associated with the off-balance sheet retail motorcycle finance receivables as of December 31, 2020 and March 28, 2021.
14.13. Fair Value
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, cross-currency swaps and treasury rate lockslock contracts are valued using quoted forward rates and prices; interest rate swaps and caps are valued using quoted interest rates and yield curves; investments in marketable securities and cash equivalents are valued using quoted prices.
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.
Recurring Fair Value Measurements – The Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
| June 28, 2020 | | | | | | |
| Balance | | Level 1 | | Level 2 | | |
Assets: | | | | | | | |
Cash equivalents | $ | 3,572,900 | | | $ | 3,522,900 | | | $ | 50,000 | | | |
Marketable securities | 48,725 | | | 48,725 | | | — | | | |
Derivative financial instruments | 29,057 | | | — | | | 29,057 | | | |
| $ | 3,650,682 | | | $ | 3,571,625 | | | $ | 79,057 | | | |
Liabilities: | | | | | | | |
Derivative financial instruments | $ | 41,419 | | | $ | — | | | $ | 41,419 | | | |
| | | December 31, 2019 | | | March 28, 2021 |
| | Balance | | Level 1 | | Level 2 | | | Balance | | Level 1 | | Level 2 | |
Assets: | Assets: | | | | | | | Assets: | | | | | | |
Cash equivalents | Cash equivalents | $ | 624,832 | | | $ | 459,885 | | | $ | 164,947 | | | Cash equivalents | $ | 2,069,400 | | | $ | 1,919,400 | | | $ | 150,000 | | |
Marketable securities | Marketable securities | 52,575 | | | 52,575 | | | — | | | Marketable securities | 50,239 | | | 50,239 | | | 0 | | |
Derivative financial instruments | Derivative financial instruments | 12,649 | | | — | | | 12,649 | | | Derivative financial instruments | 81,841 | | | 0 | | | 81,841 | | |
| | $ | 690,056 | | | $ | 512,460 | | | $ | 177,596 | | | | $ | 2,201,480 | | | $ | 1,969,639 | | | $ | 231,841 | | |
Liabilities: | Liabilities: | | | | | | | Liabilities: | | | | | | |
Derivative financial instruments | Derivative financial instruments | $ | 13,934 | | | $ | — | | | $ | 13,934 | | | Derivative financial instruments | $ | 6,726 | | | $ | 0 | | | $ | 6,726 | | |
| | June 30, 2019 | | | December 31, 2020 |
| | Balance | | Level 1 | | Level 2 | | | Balance | | Level 1 | | Level 2 | |
Assets: | Assets: | | | | | | | Assets: | | | | | | |
Cash equivalents | Cash equivalents | $ | 619,600 | | | $ | 619,600 | | | $ | — | | | Cash equivalents | $ | 3,019,884 | | | $ | 2,819,884 | | | $ | 200,000 | | |
Marketable securities | Marketable securities | 51,543 | | | 51,543 | | | — | | | Marketable securities | 52,061 | | | 52,061 | | | 0 | | |
Derivative financial instruments | Derivative financial instruments | 6,920 | | | — | | | 6,920 | | | Derivative financial instruments | 140,266 | | | 0 | | | 140,266 | | |
| | $ | 678,063 | | | $ | 671,143 | | | $ | 6,920 | | | | $ | 3,212,211 | | | $ | 2,871,945 | | | $ | 340,266 | | |
Liabilities: | Liabilities: | | | | | | | Liabilities: | | | | | | |
Derivative financial instruments | Derivative financial instruments | $ | 17,555 | | | $ | — | | | $ | 17,555 | | | Derivative financial instruments | $ | 25,521 | | | $ | 0 | | | $ | 25,521 | | |
| | | March 29, 2020 |
| | | Balance | | Level 1 | | Level 2 | |
Assets: | | Assets: | | | | | | |
Cash equivalents | | Cash equivalents | $ | 1,207,799 | | | $ | 1,144,800 | | | $ | 62,999 | | |
Marketable securities | | Marketable securities | 44,144 | | | 44,144 | | | 0 | | |
Derivative financial instruments | | Derivative financial instruments | 14,683 | | | 0 | | | 14,683 | | |
| | | $ | 1,266,626 | | | $ | 1,188,944 | | | $ | 77,682 | | |
Liabilities: | | Liabilities: | | | | | | |
Derivative financial instruments | | Derivative financial instruments | $ | 56,976 | | | $ | 0 | | | $ | 56,976 | | |
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 $15.8$18.6 million, $21.4$17.7 million and $19.4$22.2 million at JuneMarch 28, 2020,2021, December 31, 20192020 and June 30, 2019,March 29, 2020, respectively, for which the fair value adjustment was $2.6$2.4 million, $11.9$4.2 million and $5.9$10.9 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 carrying value of the Company's Cash 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 28, 2020 | | | | December 31, 2019 | | | | June 30, 2019 | | |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Assets: | | | | | | | | | | | |
Finance receivables, net | $ | 7,143,575 | | | $ | 6,979,991 | | | $ | 7,419,627 | | | $ | 7,374,366 | | | $ | 7,672,939 | | | $ | 7,594,405 | |
Liabilities: | | | | | | | | | | | |
Deposits | $ | 17,996 | | | $ | 17,996 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Debt: | | | | | | | | | | | |
Unsecured commercial paper | $ | 1,397,388 | | | $ | 1,397,388 | | | $ | 571,995 | | | $ | 571,995 | | | $ | 405,695 | | | $ | 405,695 | |
364-day credit facility borrowings | $ | 150,000 | | | $ | 150,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
Asset-backed U.S. commercial paper conduit facilities | $ | 540,840 | | | $ | 540,840 | | | $ | 490,427 | | | $ | 490,427 | | | $ | 464,136 | | | $ | 464,136 | |
Asset-backed Canadian commercial paper conduit facility | $ | 144,661 | | | $ | 144,661 | | | $ | 114,693 | | | $ | 114,693 | | | $ | 148,740 | | | $ | 148,740 | |
Asset-backed securitization debt | $ | 2,484,956 | | | $ | 2,461,107 | | | $ | 768,094 | | | $ | 764,392 | | | $ | 1,007,205 | | | $ | 1,002,869 | |
Medium-term notes | $ | 4,805,766 | | | $ | 4,784,293 | | | $ | 4,816,153 | | | $ | 4,760,127 | | | $ | 4,719,053 | | | $ | 4,687,660 | |
Senior notes | $ | 790,355 | | | $ | 743,635 | | | $ | 774,949 | | | $ | 743,296 | | | $ | 756,243 | | | $ | 742,959 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2021 | | December 31, 2020 | | March 29, 2020 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Assets: | | | | | | | | | | | |
Finance receivables, net | $ | 6,930,531 | | | $ | 6,756,777 | | | $ | 6,586,348 | | | $ | 6,443,008 | | | $ | 7,391,948 | | | $ | 7,292,407 | |
Liabilities: | | | | | | | | | | | |
Deposits, net | $ | 152,715 | | | $ | 152,653 | | | $ | 79,965 | | | $ | 79,965 | | | $ | 0 | | | $ | 0 | |
Debt: | | | | | | | | | | | |
Unsecured commercial paper | $ | 749,801 | | | $ | 749,801 | | | $ | 1,014,274 | | | $ | 1,014,274 | | | $ | 1,335,664 | | | $ | 1,335,664 | |
Global credit facility borrowings | $ | 15,462 | | | $ | 15,462 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | |
Asset-backed U.S. commercial paper conduit facilities | $ | 350,648 | | | $ | 350,648 | | | $ | 402,205 | | | $ | 402,205 | | | $ | 600,000 | | | $ | 600,000 | |
Asset-backed Canadian commercial paper conduit facility | $ | 102,543 | | | $ | 102,543 | | | $ | 116,678 | | | $ | 116,678 | | | $ | 155,243 | | | $ | 155,243 | |
Asset-backed securitization debt | $ | 2,120,855 | | | $ | 2,099,258 | | | $ | 1,817,892 | | | $ | 1,791,956 | | | $ | 1,139,076 | | | $ | 1,156,845 | |
Medium-term notes | $ | 3,955,743 | | | $ | 3,803,736 | | | $ | 5,118,928 | | | $ | 4,917,714 | | | $ | 4,013,409 | | | $ | 4,148,984 | |
Senior notes | $ | 789,967 | | | $ | 744,149 | | | $ | 828,141 | | | $ | 743,977 | | | $ | 685,805 | | | $ | 743,466 | |
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 that reflects current credit, 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 are generally either short-term or have interest rates that adjust with changes in market interest rates.
Deposits, net – The carrying value of deposits is amortized cost. The fair value of deposits is estimated based upon rates currently available for deposits with similar terms and maturities. Fair value is calculated using Level 2 inputs and approximates carrying value due to its short maturity.3 inputs.
Debt – The carrying value of debt is generally amortized cost, net of discounts and debt issuance costs. The fair value of unsecured commercial paper and credit facility borrowings are 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 Facilities and Canadian Conduit Facility is calculated using Level 2 inputs and approximates carrying value since the interest rates charged under the facilityfacilities 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 fixed-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 floating-rate debt related to on-balance sheet asset-backed securitization transactions is calculated using Level 2 inputs and approximates carrying value since the interest rates charged are tied directly to market rates and fluctuate as market rates change.
15.14. Product Warranty and Recall Campaigns
The Company currently provides a standard two-yeartwo-year limited warranty on all new motorcycles sold worldwide, except in Japan, where the Company currently provides a standard three-yearthree-year limited warranty. The Company also provides a five-yearfive-year unlimited warranty on the battery for new electric motorcycles. In addition, the Company provides a one-yearone-year warranty for parts and accessories. The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company accrues for future warranty claims at the time of sale using an estimated cost based primarily on historical Company claim information.
Additionally, the Company has from time to time initiated certain voluntary recall campaigns. The Company records estimated recall costs when the liability 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 Consolidated balance sheets. Changes in the Company’s warranty and recall liabilities were as follows (in thousands):
| | | Three months ended | | | Six months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | |
Balance, beginning of period | Balance, beginning of period | $ | 86,308 | | | $ | 122,387 | | | $ | 89,793 | | | $ | 131,740 | | Balance, beginning of period | $ | 69,208 | | | $ | 89,793 | | |
Warranties issued during the period | Warranties issued during the period | 6,232 | | | 17,350 | | | 17,257 | | | 28,967 | | Warranties issued during the period | 11,672 | | | 11,025 | | |
Settlements made during the period | Settlements made during the period | (10,737) | | | (26,768) | | | (24,894) | | | (46,385) | | Settlements made during the period | (8,585) | | | (14,157) | | |
Recalls and changes to pre-existing warranty liabilities | Recalls and changes to pre-existing warranty liabilities | 1,710 | | | (4,165) | | | 1,357 | | | (5,518) | | Recalls and changes to pre-existing warranty liabilities | 132 | | | (353) | | |
Balance, end of period | Balance, end of period | $ | 83,513 | | | $ | 108,804 | | | $ | 83,513 | | | $ | 108,804 | | Balance, end of period | $ | 72,427 | | | $ | 86,308 | | |
The liability for recall campaigns, included in the balance above, was $32.0$25.3 million, $36.4$24.7 million and $47.6$33.6 million at JuneMarch 28, 2020,2021, December 31, 20192020 and June 30, 2019,March 29, 2020, respectively. Additionally, during the six months ended June 30, 2019 the Company recorded supplier recoveries within operating expenses separate from the amounts disclosed above of $28.0 million.
16.15. Employee Benefit Plans
The Company has a qualified pension plan and postretirement healthcare benefit plans. The plans cover certain eligible employees and retirees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees. Service cost is allocated among Selling, administrative and engineering expense, Motorcycles cost of goods sold and Inventories, net. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit cost are presented in Other income, net. Components of net periodic benefit cost for the Company's defined benefit plans were as follows (in thousands):
| | | Three months ended | | | Six months ended | | | Three months ended | |
| | June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 | |
Pension and SERPA Benefits: | Pension and SERPA Benefits: | | | | | | | | Pension and SERPA Benefits: | | | | |
Service cost | Service cost | $ | 6,806 | | | $ | 6,632 | | | $ | 13,612 | | | $ | 13,264 | | Service cost | $ | 6,348 | | | $ | 6,806 | | |
Interest cost | Interest cost | 19,111 | | | 21,371 | | | 38,223 | | | 42,742 | | Interest cost | 15,470 | | | 19,112 | | |
Expected return on plan assets | Expected return on plan assets | (33,764) | | | (35,581) | | | (67,528) | | | (71,162) | | Expected return on plan assets | (32,720) | | | (33,764) | | |
Amortization of unrecognized: | Amortization of unrecognized: | | Amortization of unrecognized: | | |
Prior service credit | Prior service credit | (272) | | | (483) | | | (544) | | | (966) | | Prior service credit | (312) | | | (272) | | |
Net loss | Net loss | 16,372 | | | 11,128 | | | 32,744 | | | 22,256 | | Net loss | 18,386 | | | 16,372 | | |
| Settlement loss | | Settlement loss | 816 | | | 0 | | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 8,253 | | | $ | 3,067 | | | $ | 16,507 | | | $ | 6,134 | | Net periodic benefit cost | $ | 7,988 | | | $ | 8,254 | | |
| Postretirement Healthcare Benefits: | Postretirement Healthcare Benefits: | | | | | | | | Postretirement Healthcare Benefits: | | | | |
Service cost | Service cost | $ | 1,202 | | | $ | 1,185 | | | $ | 2,403 | | | $ | 2,369 | | Service cost | $ | 1,288 | | | $ | 1,201 | | |
Interest cost | Interest cost | 2,336 | | | 2,938 | | | 4,672 | | | 5,876 | | Interest cost | 1,626 | | | 2,336 | | |
Expected return on plan assets | Expected return on plan assets | (3,467) | | | (3,507) | | | (6,934) | | | (7,014) | | Expected return on plan assets | (3,495) | | | (3,467) | | |
Amortization of unrecognized: | Amortization of unrecognized: | | Amortization of unrecognized: | | |
Prior service credit | Prior service credit | (595) | | | (595) | | | (1,190) | | | (1,190) | | Prior service credit | (581) | | | (595) | | |
Net loss | Net loss | 123 | | | 69 | | | 246 | | | 138 | | Net loss | 264 | | | 123 | | |
Special retirement benefit cost | — | | | 1,583 | | | — | | | 1,583 | | |
Curtailment gain | — | | | (960) | | | — | | | (960) | | |
| Net periodic benefit cost | Net periodic benefit cost | $ | (401) | | | $ | 713 | | | $ | (803) | | | $ | 802 | | Net periodic benefit cost | $ | (898) | | | $ | (402) | | |
There are no required or planned voluntary qualified pension plan contributions for 2020.2021. The Company expects it will continue to make ongoing benefit payments under the SERPA and postretirement healthcare plans.
17.
16. Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining costs 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. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as 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 in July 2017 (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. In December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the Settlement with the U.S. District Court for the District of Columbia for the purpose of obtaining court approval of the Settlement. Three amicus briefs opposing portions of the Settlement were filed with the court by the deadline of January 31, 2018. On March 1, 2018, the Company and the DOJ each filed separate response briefs. The Company is awaiting the court's decision on whether or not to finalize the Settlement, and on February 8, 2019 the DOJ filed a status update reminding the court of the current status of the outstanding matter. The Company has an accrual associated with this matter recorded in Accrued liabilities on 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 Matter – The Company is involved with government agencies and the U.S. Navy 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. The Company has an agreement with the U.S. Navy which calls for the U.S. 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). A site wide remedial investigation/feasibility study and a proposed final remedy for the York facility have been completed and approved by the Pennsylvania Department of Environmental Protection and the EPA.United States Environmental Protection Agency (EPA). The associated cleanup plan documents were approved in February 2020 and the remaining cleanup activities are expected to begin later in late 2020 or early 2021. The Company has an accrual for its share of the estimated future Response Costs recorded in Other long-term liabilities on the Consolidated balance sheets.
Product Liability Matters – The Company is periodically 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 Consolidatedconsolidated financial statements.statements.
18.17. Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss were as follows (in thousands):
| | | Three months ended June 28, 2020 | | | Three months ended March 28, 2021 |
| | Foreign currency translation adjustments | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total | | Foreign currency translation adjustments | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | Balance, beginning of period | $ | (75,268) | | | | $ | (34,431) | | | $ | (469,591) | | | $ | (579,290) | | Balance, beginning of period | $ | (7,589) | | | | $ | (46,116) | | | $ | (429,712) | | | $ | (483,417) | |
Other comprehensive income, before reclassifications | 22,056 | | | | 30,329 | | | — | | | 52,385 | | |
Income tax expense | (613) | | | | (6,686) | | | — | | | (7,299) | | |
Other comprehensive loss, before reclassifications | | Other comprehensive loss, before reclassifications | (17,074) | | | | (50,737) | | | 0 | | | (67,811) | |
Income tax (expense) benefit | | Income tax (expense) benefit | (264) | | | | 11,092 | | | 0 | | | 10,828 | |
| | 21,443 | | | | 23,643 | | | — | | | 45,086 | | | (17,338) | | | | (39,645) | | | 0 | | | (56,983) | |
Reclassifications: | Reclassifications: | | | | Reclassifications: | | | |
| Net gains on derivative financial instruments | — | | | | (38,592) | | | — | | | (38,592) | | |
Net loss on derivative financial instruments | | Net loss on derivative financial instruments | — | | | | 73,586 | | | — | | | 73,586 | |
Prior service credits(a) | Prior service credits(a) | — | | | | — | | | (867) | | | (867) | | Prior service credits(a) | — | | | | — | | | (893) | | | (893) | |
Actuarial losses(a) | Actuarial losses(a) | — | | | | — | | | 16,495 | | | 16,495 | | Actuarial losses(a) | — | | | | — | | | 18,650 | | | 18,650 | |
Reclassifications before tax | Reclassifications before tax | — | | | | (38,592) | | | 15,628 | | | (22,964) | | Reclassifications before tax | 0 | | | | 73,586 | | | 17,757 | | | 91,343 | |
Income tax benefit (expense) | — | | | | 8,640 | | | (3,670) | | | 4,970 | | |
Income tax expense | | Income tax expense | 0 | | | | (16,411) | | | (4,169) | | | (20,580) | |
| | — | | | | (29,952) | | | 11,958 | | | (17,994) | | | 0 | | | | 57,175 | | | 13,588 | | | 70,763 | |
Other comprehensive income (loss) | 21,443 | | | | (6,309) | | | 11,958 | | | 27,092 | | |
Other comprehensive (loss) income | | Other comprehensive (loss) income | (17,338) | | | | 17,530 | | | 13,588 | | | 13,780 | |
Balance, end of period | Balance, end of period | $ | (53,825) | | | | $ | (40,740) | | | $ | (457,633) | | | $ | (552,198) | | Balance, end of period | $ | (24,927) | | | | $ | (28,586) | | | $ | (416,124) | | | $ | (469,637) | |
|
| | | Three months ended June 30, 2019 | | | Three months ended March 29, 2020 |
| | Foreign currency translation adjustments | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total | | Foreign currency translation adjustments | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | Balance, beginning of period | $ | (49,277) | | | | $ | 1,344 | | | $ | (574,118) | | | $ | (622,051) | | Balance, beginning of period | $ | (40,813) | | | | $ | (14,586) | | | $ | (481,550) | | | $ | (536,949) | |
Other comprehensive income (loss), before reclassifications | 11,152 | | | | (8,791) | | | — | | | 2,361 | | |
Other comprehensive loss, before reclassifications | | Other comprehensive loss, before reclassifications | (35,821) | | | | (38,172) | | | 0 | | | (73,993) | |
Income tax benefit | Income tax benefit | 118 | | | | 1,990 | | | — | | | 2,108 | | Income tax benefit | 1,366 | | | | 8,267 | | | 0 | | | 9,633 | |
| | 11,270 | | | | (6,801) | | | — | | | 4,469 | | | (34,455) | | | | (29,905) | | | 0 | | | (64,360) | |
Reclassifications: | Reclassifications: | | | | Reclassifications: | | | |
| Net gains on derivative financial instruments | — | | | | (6,708) | | | — | | | (6,708) | | |
Net loss on derivative financial instruments | | Net loss on derivative financial instruments | — | | | | 12,881 | | | — | | | 12,881 | |
Prior service credits(a) | Prior service credits(a) | — | | | | — | | | (1,078) | | | (1,078) | | Prior service credits(a) | — | | | | — | | | (867) | | | (867) | |
Actuarial losses(a) | Actuarial losses(a) | — | | | | — | | | 11,197 | | | 11,197 | | Actuarial losses(a) | — | | | | — | | | 16,495 | | | 16,495 | |
Reclassifications before tax | Reclassifications before tax | — | | | | (6,708) | | | 10,119 | | | 3,411 | | Reclassifications before tax | 0 | | | | 12,881 | | | 15,628 | | | 28,509 | |
Income tax benefit (expense) | — | | | | 1,586 | | | (2,376) | | | (790) | | |
Income tax expense | | Income tax expense | 0 | | | | (2,821) | | | (3,669) | | | (6,490) | |
| | — | | | | (5,122) | | | 7,743 | | | 2,621 | | | 0 | | | | 10,060 | | | 11,959 | | | 22,019 | |
Other comprehensive income (loss) | 11,270 | | | | (11,923) | | | 7,743 | | | 7,090 | | |
Other comprehensive (loss) income | | Other comprehensive (loss) income | (34,455) | | | | (19,845) | | | 11,959 | | | (42,341) | |
Balance, end of period | Balance, end of period | $ | (38,007) | | | | $ | (10,579) | | | $ | (566,375) | | | $ | (614,961) | | Balance, end of period | $ | (75,268) | | | | $ | (34,431) | | | $ | (469,591) | | | $ | (579,290) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 28, 2020 | | | | | | | | |
| Foreign currency translation adjustments | | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | $ | (40,813) | | | | | $ | (14,586) | | | $ | (481,550) | | | $ | (536,949) | |
Other comprehensive loss, before reclassifications | (13,765) | | | | | (7,843) | | | — | | | (21,608) | |
Income tax benefit | 753 | | | | | 1,582 | | | — | | | 2,335 | |
| (13,012) | | | | | (6,261) | | | — | | | (19,273) | |
Reclassifications: | | | | | | | | | |
| | | | | | | | | |
Net gains on derivative financial instruments | — | | | | | (25,711) | | | — | | | (25,711) | |
Prior service credits(a) | — | | | | | — | | | (1,734) | | | (1,734) | |
Actuarial losses(a) | — | | | | | — | | | 32,990 | | | 32,990 | |
Reclassifications before tax | — | | | | | (25,711) | | | 31,256 | | | 5,545 | |
Income tax benefit (expense) | — | | | | | 5,818 | | | (7,339) | | | (1,521) | |
| — | | | | | (19,893) | | | 23,917 | | | 4,024 | |
Other comprehensive (loss) income | (13,012) | | | | | (26,154) | | | 23,917 | | | (15,249) | |
Balance, end of period | $ | (53,825) | | | | | $ | (40,740) | | | $ | (457,633) | | | $ | (552,198) | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2019 | | | | | | | | |
| Foreign currency translation adjustments | | | | Derivative financial instruments | | Pension and postretirement benefit plans | | Total |
Balance, beginning of period | $ | (49,608) | | | | | $ | 1,785 | | | $ | (581,861) | | | $ | (629,684) | |
Other comprehensive income (loss), before reclassifications | 11,758 | | | | | (7,614) | | | — | | | 4,144 | |
Income tax (expense) benefit | (157) | | | | | 1,676 | | | — | | | 1,519 | |
| 11,601 | | | | | (5,938) | | | — | | | 5,663 | |
Reclassifications: | | | | | | | | | |
| | | | | | | | | |
Net gains on derivative financial instruments | — | | | | | (8,423) | | | — | | | (8,423) | |
Prior service credits(a) | — | | | | | — | | | (2,156) | | | (2,156) | |
Actuarial losses(a) | — | | | | | — | | | 22,394 | | | 22,394 | |
Reclassifications before tax | — | | | | | (8,423) | | | 20,238 | | | 11,815 | |
Income tax benefit (expense) | — | | | | | 1,997 | | | (4,752) | | | (2,755) | |
| — | | | | | (6,426) | | | 15,486 | | | 9,060 | |
Other comprehensive income (loss) | 11,601 | | | | | (12,364) | | | 15,486 | | | 14,723 | |
Balance, end of period | $ | (38,007) | | | | | $ | (10,579) | | | $ | (566,375) | | | $ | (614,961) | |
(a)Amounts reclassified are included in the computation of net periodic benefit cost, discussed further in Note 1615
19.18. Business Segments
Harley-Davidson, Inc. is the parent company for the groups of companies referred to as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in 2 business segments: Motorcycles and Related Products (Motorcycles) and Financial Services. 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.
The Motorcycles segment consists of HDMC which designs, manufactures and sells Harley-Davidson motorcycles as well as motorcycle parts, accessories, general merchandise and services. The Company's products are sold to retail customers primarily through a network of independent dealers.
The Financial Services segment consists of HDFS which is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans, primarily for the purchase of Harley-Davidson motorcycles. HDFS also works with certain unaffiliated insurance companies to provide motorcycle insurance and protection products to motorcycle owners.
Select segment information is set forth below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | Six months ended | | |
| June 28, 2020 | | June 30, 2019 | | June 28, 2020 | | June 30, 2019 |
Motorcycles and Related Products: | | | | | | | |
Motorcycles revenue | $ | 669,274 | | | $ | 1,434,004 | | | $ | 1,769,062 | | | $ | 2,629,641 | |
Gross profit | 107,628 | | | 454,738 | | | 426,548 | | | 802,177 | |
Selling, administrative and engineering expense | 187,647 | | | 263,587 | | | 422,000 | | | 489,015 | |
Restructuring expense | 41,005 | | | 10,423 | | | 41,005 | | | 24,053 | |
Operating (loss) income | (121,024) | | | 180,728 | | | (36,457) | | | 289,109 | |
Financial Services: | | | | | | | |
Financial Services revenue | 195,953 | | | 198,615 | | | 394,409 | | | 387,358 | |
Financial Services expense | 190,084 | | | 123,086 | | | 365,594 | | | 253,098 | |
Restructuring expense | 944 | | | — | | | 944 | | | — | |
Operating income | 4,925 | | | 75,529 | | | 27,871 | | | 134,260 | |
Operating (loss) income | $ | (116,099) | | | $ | 256,257 | | | $ | (8,586) | | | $ | 423,369 | |
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 28, 2021 | | March 29, 2020 | | | | |
Motorcycles and Related Products: | | | | | | | |
Motorcycles revenue | $ | 1,232,107 | | | $ | 1,099,788 | | | | | |
Gross profit | 420,485 | | | 318,920 | | | | | |
Selling, administrative and engineering expense | 193,546 | | | 234,353 | | | | | |
Restructuring benefit | (593) | | | 0 | | | | | |
Operating income | 227,532 | | | 84,567 | | | | | |
Financial Services: | | | | | | | |
Financial Services revenue | 190,400 | | | 198,456 | | | | | |
Financial Services expense | 71,531 | | | 175,510 | | | | | |
Restructuring expense | 227 | | | 0 | | | | | |
Operating income | 118,642 | | | 22,946 | | | | | |
Operating income | $ | 346,174 | | | $ | 107,513 | | | | | |
20.Total assets for the Motorcycles and Financial Services segments were $2.4 billion and $8.9 billion, respectively, as of March 28, 2021, $2.5 billion and $9.5 billion, respectively, as of December 31, 2020, and $2.5 billion and $8.6 billion, respectively, as of March 29, 2020.
19. Supplemental Consolidating Data
The supplemental consolidating data is presented for informational purposes and is different than segment information due to the allocation of consolidating reporting adjustments to the reportable segments. Supplemental consolidating data is as follows (in thousands):
| | | Three months ended June 28, 2020 | | | Three months ended March 28, 2021 |
| | HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated | | HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Motorcycles and Related Products | Motorcycles and Related Products | $ | 670,905 | | | $ | — | | | $ | (1,631) | | | $ | 669,274 | | Motorcycles and Related Products | $ | 1,238,468 | | | $ | 0 | | | $ | (6,361) | | | $ | 1,232,107 | |
Financial Services | Financial Services | — | | | 194,872 | | | 1,081 | | | 195,953 | | Financial Services | 0 | | | 188,750 | | | 1,650 | | | 190,400 | |
| | 670,905 | | | 194,872 | | | (550) | | | 865,227 | | | 1,238,468 | | | 188,750 | | | (4,711) | | | 1,422,507 | |
Costs and expenses: | Costs and expenses: | | Costs and expenses: | |
Motorcycles and Related Products cost of goods sold | Motorcycles and Related Products cost of goods sold | 561,646 | | | — | | | — | | | 561,646 | | Motorcycles and Related Products cost of goods sold | 811,622 | | | 0 | | | 0 | | | 811,622 | |
Financial Services interest expense | Financial Services interest expense | — | | | 62,187 | | | — | | | 62,187 | | Financial Services interest expense | 0 | | | 55,707 | | | 0 | | | 55,707 | |
Financial Services provision for credit losses | Financial Services provision for credit losses | — | | | 91,179 | | | — | | | 91,179 | | Financial Services provision for credit losses | 0 | | | (22,474) | | | 0 | | | (22,474) | |
Selling, administrative and engineering expense | Selling, administrative and engineering expense | 190,300 | | | 34,690 | | | (625) | | | 224,365 | | Selling, administrative and engineering expense | 196,359 | | | 40,275 | | | (4,790) | | | 231,844 | |
Restructuring expense | 41,005 | | | 944 | | | — | | | 41,949 | | |
Restructuring (benefit) expense | | Restructuring (benefit) expense | (593) | | | 227 | | | 0 | | | (366) | |
| | 792,951 | | | 189,000 | | | (625) | | | 981,326 | | | 1,007,388 | | | 73,735 | | | (4,790) | | | 1,076,333 | |
Operating (loss) income | (122,046) | | | 5,872 | | | 75 | | | (116,099) | | |
Operating income | | Operating income | 231,080 | | | 115,015 | | | 79 | | | 346,174 | |
Other income, net | Other income, net | 156 | | | — | | | — | | | 156 | | Other income, net | 277 | | | 0 | | | 0 | | | 277 | |
Investment income | Investment income | 5,757 | | | — | | | — | | | 5,757 | | Investment income | 1,402 | | | 0 | | | 0 | | | 1,402 | |
Interest expense | Interest expense | 7,769 | | | — | | | — | | | 7,769 | | Interest expense | 7,708 | | | 0 | | | 0 | | | 7,708 | |
(Loss) income before income taxes | (123,902) | | | 5,872 | | | 75 | | | (117,955) | | |
Income tax (benefit) provision | (26,938) | | | 1,200 | | | — | | | (25,738) | | |
Net (loss) income | $ | (96,964) | | | $ | 4,672 | | | $ | 75 | | | $ | (92,217) | | |
Income before income taxes | | Income before income taxes | 225,051 | | | 115,015 | | | 79 | | | 340,145 | |
Provision for income taxes | | Provision for income taxes | 55,996 | | | 25,005 | | | 0 | | | 81,001 | |
Net income | | Net income | $ | 169,055 | | | $ | 90,010 | | | $ | 79 | | | $ | 259,144 | |
| | | Six months ended June 28, 2020 | | |
| | HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated | |
Revenue: | | | | | | | | |
Motorcycles and Related Products | $ | 1,774,163 | | | $ | — | | | $ | (5,101) | | | $ | 1,769,062 | | |
Financial Services | — | | | 390,758 | | | 3,651 | | | 394,409 | | |
| | 1,774,163 | | | 390,758 | | | (1,450) | | | 2,163,471 | | |
Costs and expenses: | | |
Motorcycles and Related Products cost of goods sold | 1,342,514 | | | — | | | — | | | 1,342,514 | | |
Financial Services interest expense | — | | | 114,660 | | | — | | | 114,660 | | |
Financial Services provision for credit losses | — | | | 170,598 | | | — | | | 170,598 | | |
Selling, administrative and engineering expense | 428,046 | | | 76,129 | | | (1,839) | | | 502,336 | | |
Restructuring expense | 41,005 | | | 944 | | | — | | | 41,949 | | |
| | 1,811,565 | | | 362,331 | | | (1,839) | | | 2,172,057 | | |
Operating (loss) income | (37,402) | | | 28,427 | | | 389 | | | (8,586) | | |
Other income, net | 311 | | | — | | | — | | | 311 | | |
Investment income | 100,410 | | | — | | | (100,000) | | | 410 | | |
Interest expense | 15,524 | | | — | | | | | 15,524 | | |
Income (loss) before income taxes | 47,795 | | | 28,427 | | | (99,611) | | | (23,389) | | |
Income tax (benefit) provision | (7,667) | | | 6,800 | | | — | | | (867) | | |
Net income (loss) | $ | 55,462 | | | $ | 21,627 | | | $ | (99,611) | | | $ | (22,522) | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2019 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and Related Products | $ | 1,439,685 | | | $ | — | | | $ | (5,681) | | | $ | 1,434,004 | |
Financial Services | — | | | 196,197 | | | 2,418 | | | 198,615 | |
| 1,439,685 | | | 196,197 | | | (3,263) | | | 1,632,619 | |
Costs and expenses: | | | | | | | |
Motorcycles and Related Products cost of goods sold | 978,761 | | | — | | | 505 | | | 979,266 | |
Financial Services interest expense | — | | | 52,673 | | | — | | | 52,673 | |
Financial Services provision for credit losses | — | | | 26,383 | | | — | | | 26,383 | |
Selling, administrative and engineering expense | 267,777 | | | 43,586 | | | (3,746) | | | 307,617 | |
Restructuring expense | 10,423 | | | — | | | — | | | 10,423 | |
| 1,256,961 | | | 122,642 | | | (3,241) | | | 1,376,362 | |
Operating income | 182,724 | | | 73,555 | | | (22) | | | 256,257 | |
Other income, net | 4,037 | | | — | | | — | | | 4,037 | |
Investment income | 48,571 | | | — | | | (45,000) | | | 3,571 | |
Interest expense | 7,784 | | | — | | | — | | | 7,784 | |
Income before provision for income taxes | 227,548 | | | 73,555 | | | (45,022) | | | 256,081 | |
Provision for income taxes | 43,348 | | | 17,102 | | | — | | | 60,450 | |
Net income | $ | 184,200 | | | $ | 56,453 | | | $ | (45,022) | | | $ | 195,631 | |
| | | | | | | |
| Six months ended June 30, 2019 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Revenue: | | | | | | | |
Motorcycles and Related Products | $ | 2,639,694 | | | $ | — | | | $ | (10,053) | | | $ | 2,629,641 | |
Financial Services | — | | | 382,950 | | | 4,408 | | | 387,358 | |
| 2,639,694 | | | 382,950 | | | (5,645) | | | 3,016,999 | |
Costs and expenses: | | | | | | | |
Motorcycles and Related Products cost of goods sold | 1,827,464 | | | — | | | — | | | 1,827,464 | |
Financial Services interest expense | — | | | 104,997 | | | — | | | 104,997 | |
Financial Services provision for credit losses | — | | | 60,874 | | | — | | | 60,874 | |
Selling, administrative and engineering expense | 495,769 | | | 86,174 | | | (5,701) | | | 576,242 | |
Restructuring expense | 24,053 | | | — | | | — | | | 24,053 | |
| 2,347,286 | | | 252,045 | | | (5,701) | | | 2,593,630 | |
Operating income | 292,408 | | | 130,905 | | | 56 | | | 423,369 | |
Other income, net | 8,697 | | | — | | | — | | | 8,697 | |
Investment income | 99,929 | | | — | | | (90,000) | | | 9,929 | |
Interest expense | 15,515 | | | — | | | — | | | 15,515 | |
Income before provision for income taxes | 385,519 | | | 130,905 | | | (89,944) | | | 426,480 | |
Provision for income taxes | 71,905 | | | 30,999 | | | — | | | 102,904 | |
Net income | $ | 313,614 | | | $ | 99,906 | | | $ | (89,944) | | | $ | 323,576 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 28, 2020 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 446,425 | | | $ | 3,410,172 | | | $ | — | | | $ | 3,856,597 | |
| | | | | | | |
Accounts receivable, net | 564,922 | | | — | | | (293,491) | | | 271,431 | |
Finance receivables, net | — | | | 1,901,620 | | | — | | | 1,901,620 | |
Inventories, net | 429,339 | | | — | | | — | | | 429,339 | |
Restricted cash | — | | | 189,712 | | | — | | | 189,712 | |
Other current assets | 119,591 | | | 66,387 | | | (22,843) | | | 163,135 | |
| 1,560,277 | | | 5,567,891 | | | (316,334) | | | 6,811,834 | |
Finance receivables, net | — | | | 5,078,371 | | | — | | | 5,078,371 | |
Property, plant and equipment, net | 766,546 | | | 50,443 | | | — | | | 816,989 | |
Prepaid pension costs | 73,589 | | | — | | | — | | | 73,589 | |
Goodwill | 64,192 | | | — | | | — | | | 64,192 | |
Deferred income taxes | 48,326 | | | 94,215 | | | (975) | | | 141,566 | |
Lease assets | 47,754 | | | 5,277 | | | — | | | 53,031 | |
Other long-term assets | 176,358 | | | 33,840 | | | (93,618) | | | 116,580 | |
| $ | 2,737,042 | | | $ | 10,830,037 | | | $ | (410,927) | | | $ | 13,156,152 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 272,996 | | | $ | 337,957 | | | $ | (293,491) | | | $ | 317,462 | |
Accrued liabilities | 446,819 | | | 179,478 | | | (22,087) | | | 604,210 | |
Short-term debt | — | | | 1,547,388 | | | — | | | 1,547,388 | |
Current portion of long-term debt, net | — | | | 2,186,037 | | | — | | | 2,186,037 | |
| 719,815 | | | 4,250,860 | | | (315,578) | | | 4,655,097 | |
Long-term debt, net | 743,635 | | | 5,744,864 | | | — | | | 6,488,499 | |
Lease liabilities | 31,652 | | | 4,742 | | | — | | | 36,394 | |
Pension liabilities | 57,033 | | | — | | | — | | | 57,033 | |
Postretirement healthcare liabilities | 69,964 | | | — | | | — | | | 69,964 | |
| | | | | | | |
Other long-term liabilities | 178,210 | | | 44,873 | | | 2,377 | | | 225,460 | |
Commitments and contingencies (Note 17) | | | | | | | |
Shareholders’ equity | 936,733 | | | 784,698 | | | (97,726) | | | 1,623,705 | |
| $ | 2,737,042 | | | $ | 10,830,037 | | | $ | (410,927) | | | $ | 13,156,152 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2021 |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 607,941 | | | $ | 1,712,704 | | | $ | 0 | | | $ | 2,320,645 | |
| | | | | | | |
Accounts receivable, net | 603,273 | | | 0 | | | (386,704) | | | 216,569 | |
Finance receivables, net | 0 | | | 1,798,194 | | | 0 | | | 1,798,194 | |
Inventories, net | 470,997 | | | 0 | | | 0 | | | 470,997 | |
Restricted cash | 0 | | | 185,374 | | | 0 | | | 185,374 | |
Other current assets | 81,559 | | | 113,797 | | | 0 | | | 195,356 | |
| 1,763,770 | | | 3,810,069 | | | (386,704) | | | 5,187,135 | |
Finance receivables, net | 0 | | | 4,958,583 | | | 0 | | | 4,958,583 | |
Property, plant and equipment, net | 687,086 | | | 31,882 | | | 0 | | | 718,968 | |
Pension and postretirement assets | 105,910 | | | 0 | | | 0 | | | 105,910 | |
Goodwill | 65,157 | | | 0 | | | 0 | | | 65,157 | |
Deferred income taxes | 56,911 | | | 79,206 | | | (730) | | | 135,387 | |
Lease assets | 36,559 | | | 8,206 | | | 0 | | | 44,765 | |
Other long-term assets | 184,876 | | | 33,929 | | | (95,722) | | | 123,083 | |
| $ | 2,900,269 | | | $ | 8,921,875 | | | $ | (483,156) | | | $ | 11,338,988 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 355,722 | | | $ | 433,746 | | | $ | (386,704) | | | $ | 402,764 | |
Accrued liabilities | 443,529 | | | 125,768 | | | 1,143 | | | 570,440 | |
Short-term deposits, net | 0 | | | 93,887 | | | 0 | | | 93,887 | |
Short-term debt | 0 | | | 765,263 | | | 0 | | | 765,263 | |
Current portion of long-term debt, net | 0 | | | 1,622,243 | | | 0 | | | 1,622,243 | |
| 799,251 | | | 3,040,907 | | | (385,561) | | | 3,454,597 | |
Long-term deposits, net | 0 | | | 58,766 | | | 0 | | | 58,766 | |
Long-term debt, net | 744,149 | | | 4,733,942 | | | 0 | | | 5,478,091 | |
Lease liabilities | 22,461 | | | 7,600 | | | 0 | | | 30,061 | |
Pension and postretirement liabilities | 103,854 | | | 0 | | | 0 | | | 103,854 | |
Deferred income taxes | 7,166 | | | 1,516 | | | 0 | | | 8,682 | |
Other long-term liabilities | 179,525 | | | 46,920 | | | 2,106 | | | 228,551 | |
Commitments and contingencies (Note 16) | 0 | | 0 | | 0 | | 0 |
Shareholders’ equity | 1,043,863 | | | 1,032,224 | | | (99,701) | | | 1,976,386 | |
| $ | 2,900,269 | | | $ | 8,921,875 | | | $ | (483,156) | | | $ | 11,338,988 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 470,649 | | | $ | 363,219 | | | $ | — | | | $ | 833,868 | |
| | | | | | | |
Accounts receivable, net | 369,717 | | | — | | | (110,383) | | | 259,334 | |
Finance receivables, net | — | | | 2,272,522 | | | — | | | 2,272,522 | |
Inventories, net | 603,571 | | | — | | | — | | | 603,571 | |
Restricted cash | — | | | 64,554 | | | — | | | 64,554 | |
Other current assets | 110,145 | | | 59,665 | | | (836) | | | 168,974 | |
| 1,554,082 | | | 2,759,960 | | | (111,219) | | | 4,202,823 | |
Finance receivables, net | — | | | 5,101,844 | | | — | | | 5,101,844 | |
Property, plant and equipment, net | 794,131 | | | 53,251 | | | — | | | 847,382 | |
Prepaid pension costs | 56,014 | | | — | | | — | | | 56,014 | |
Goodwill | 64,160 | | | — | | | — | | | 64,160 | |
Deferred income taxes | 62,768 | | | 39,882 | | | (1,446) | | | 101,204 | |
Lease assets | 55,722 | | | 5,896 | | | — | | | 61,618 | |
Other long-term assets | 166,972 | | | 19,211 | | | (93,069) | | | 93,114 | |
| $ | 2,753,849 | | | $ | 7,980,044 | | | $ | (205,734) | | | $ | 10,528,159 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 266,710 | | | $ | 138,053 | | | $ | (110,383) | | | $ | 294,380 | |
Accrued liabilities | 463,491 | | | 119,186 | | | (389) | | | 582,288 | |
Short-term debt | — | | | 571,995 | | | — | | | 571,995 | |
Current portion of long-term debt, net | — | | | 1,748,109 | | | — | | | 1,748,109 | |
| 730,201 | | | 2,577,343 | | | (110,772) | | | 3,196,772 | |
Long-term debt, net | 743,296 | | | 4,381,530 | | | — | | | 5,124,826 | |
Lease liabilities | 38,783 | | | 5,664 | | | — | | | 44,447 | |
Pension liabilities | 56,138 | | | — | | | — | | | 56,138 | |
Postretirement healthcare liabilities | 72,513 | | | — | | | — | | | 72,513 | |
| | | | | | | |
Other long-term liabilities | 186,252 | | | 40,609 | | | 2,603 | | | 229,464 | |
Commitments and contingencies (Note 17) | | | | | | | |
Shareholders’ equity | 926,666 | | | 974,898 | | | (97,565) | | | 1,803,999 | |
| $ | 2,753,849 | | | $ | 7,980,044 | | | $ | (205,734) | | | $ | 10,528,159 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 28, 2021 |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net income | $ | 169,055 | | | $ | 90,010 | | | $ | 79 | | | $ | 259,144 | |
Adjustments to reconcile Net income to Net cash (used) provided by operating activities: | | | | | | | |
Depreciation and amortization | 37,778 | | | 2,443 | | | 0 | | | 40,221 | |
Amortization of deferred loan origination costs | 0 | | | 19,200 | | | 0 | | | 19,200 | |
Amortization of financing origination fees | 172 | | | 3,442 | | | 0 | | | 3,614 | |
Provision for long-term employee benefits | 7,090 | | | 0 | | | 0 | | | 7,090 | |
Employee benefit plan contributions and payments | (9,885) | | | 0 | | | 0 | | | (9,885) | |
Stock compensation expense | 8,174 | | | 794 | | | 0 | | | 8,968 | |
Net change in wholesale finance receivables related to sales | 0 | | | 0 | | | (308,532) | | | (308,532) | |
Provision for credit losses | 0 | | | (22,474) | | | 0 | | | (22,474) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Deferred income taxes | 3,811 | | | 9,812 | | | (431) | | | 13,192 | |
| | | | | | | |
Other, net | 476 | | | 775 | | | (80) | | | 1,171 | |
Changes in current assets and liabilities: | | | | | | | |
Accounts receivable, net | (388,688) | | | 0 | | | 309,676 | | | (79,012) | |
Finance receivables – accrued interest and other | 0 | | | 8,947 | | | 0 | | | 8,947 | |
Inventories, net | 45,086 | | | 0 | | | 0 | | | 45,086 | |
Accounts payable and accrued liabilities | 104,486 | | | 354,507 | | | (305,396) | | | 153,597 | |
Derivative financial instruments | (3,219) | | | (90) | | | 0 | | | (3,309) | |
Other | 18,222 | | | 11,271 | | | (3,730) | | | 25,763 | |
| (176,497) | | | 388,627 | | | (308,493) | | | (96,363) | |
Net cash (used) provided by operating activities | (7,442) | | | 478,637 | | | (308,414) | | | 162,781 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | (18,427) | | | (386) | | | 0 | | | (18,813) | |
Origination of finance receivables | 0 | | | (1,923,911) | | | 1,014,773 | | | (909,138) | |
Collections on finance receivables | 0 | | | 1,606,844 | | | (706,359) | | | 900,485 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other investing activities | 733 | | | 0 | | | 0 | | | 733 | |
Net cash used by investing activities | (17,694) | | | (317,453) | | | 308,414 | | | (26,733) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 560,446 | | | $ | 364,192 | | | $ | — | | | $ | 924,638 | |
| | | | | | | |
Accounts receivable, net | 671,719 | | | — | | | (346,413) | | | 325,306 | |
Finance receivables, net | — | | | 2,362,125 | | | — | | | 2,362,125 | |
Inventories, net | 470,610 | | | — | | | — | | | 470,610 | |
Restricted cash | — | | | 82,248 | | | — | | | 82,248 | |
Other current assets | 102,956 | | | 44,278 | | | — | | | 147,234 | |
| 1,805,731 | | | 2,852,843 | | | (346,413) | | | 4,312,161 | |
Finance receivables, net | — | | | 5,232,280 | | | — | | | 5,232,280 | |
Property, plant and equipment, net | 801,871 | | | 54,127 | | | — | | | 855,998 | |
| | | | | | | |
Goodwill | 64,449 | | | — | | | — | | | 64,449 | |
Deferred income taxes | 96,914 | | | 38,928 | | | (1,203) | | | 134,639 | |
Lease assets | 48,415 | | | 6,498 | | | — | | | 54,913 | |
Other long-term assets | 157,061 | | | 20,159 | | | (91,344) | | | 85,876 | |
| $ | 2,974,441 | | | $ | 8,204,835 | | | $ | (438,960) | | | $ | 10,740,316 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 302,137 | | | $ | 368,740 | | | $ | (346,413) | | | $ | 324,464 | |
Accrued liabilities | 497,019 | | | 118,256 | | | 630 | | | 615,905 | |
Short-term debt | — | | | 405,695 | | | — | | | 405,695 | |
Current portion of long-term debt, net | — | | | 2,396,188 | | | — | | | 2,396,188 | |
| 799,156 | | | 3,288,879 | | | (345,783) | | | 3,742,252 | |
Long-term debt, net | 742,959 | | | 3,907,217 | | | — | | | 4,650,176 | |
Lease liabilities | 31,809 | | | 6,556 | | | — | | | 38,365 | |
Pension liabilities | 92,750 | | | — | | | — | | | 92,750 | |
Postretirement healthcare liabilities | 92,539 | | | — | | | — | | | 92,539 | |
| | | | | | | |
Other long-term liabilities | 171,509 | | | 39,314 | | | 2,770 | | | 213,593 | |
Commitments and contingencies (Note 17) | | | | | | | |
Shareholders’ equity | 1,043,719 | | | 962,869 | | | (95,947) | | | 1,910,641 | |
| $ | 2,974,441 | | | $ | 8,204,835 | | | $ | (438,960) | | | $ | 10,740,316 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 28, 2021 |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from financing activities: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Repayments of medium-term notes | 0 | | | (1,050,000) | | | 0 | | | (1,050,000) | |
| | | | | | | |
Proceeds from securitization debt | 0 | | | 597,411 | | | 0 | | | 597,411 | |
Repayments of securitization debt | 0 | | | (291,346) | | | 0 | | | (291,346) | |
| | | | | | | |
Repayments of asset-backed commercial paper | 0 | | | (66,894) | | | 0 | | | (66,894) | |
Net decrease in unsecured commercial paper | 0 | | | (262,517) | | | 0 | | | (262,517) | |
Net increase in credit facilities | 0 | | | 15,629 | | | 0 | | | 15,629 | |
Net increase in deposits | 0 | | | 72,664 | | | 0 | | | 72,664 | |
| | | | | | | |
Dividends paid | (23,105) | | | 0 | | | 0 | | | (23,105) | |
Repurchase of common stock | (5,646) | | | 0 | | | 0 | | | (5,646) | |
| | | | | | | |
Issuance of common stock under share-based plans | 1,085 | | | 0 | | | 0 | | | 1,085 | |
Net cash used by financing activities | (27,666) | | | (985,053) | | | 0 | | | (1,012,719) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5,418) | | | 255 | | | 0 | | | (5,163) | |
Net decrease in cash, cash equivalents and restricted cash | $ | (58,220) | | | $ | (823,614) | | | $ | 0 | | | $ | (881,834) | |
| | | | | | | |
Cash, cash equivalents and restricted cash: | | | | | | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 666,161 | | | $ | 2,743,007 | | | $ | 0 | | | $ | 3,409,168 | |
Net decrease in cash, cash equivalents and restricted cash | (58,220) | | | (823,614) | | | 0 | | | (881,834) | |
Cash, cash equivalents and restricted cash, end of period | $ | 607,941 | | | $ | 1,919,393 | | | $ | 0 | | | $ | 2,527,334 | |
20. Subsequent Event
41
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 28, 2020 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net income (loss) | $ | 55,462 | | | $ | 21,627 | | | $ | (99,611) | | | $ | (22,522) | |
Adjustments to reconcile Net income (loss) to Net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 91,298 | | | 4,156 | | | — | | | 95,454 | |
Amortization of deferred loan origination costs | — | | | 33,796 | | | — | | | 33,796 | |
Amortization of financing origination fees | 339 | | | 6,322 | | | — | | | 6,661 | |
Provision for long-term employee benefits | 15,704 | | | — | | | — | | | 15,704 | |
Employee benefit plan contributions and payments | (3,678) | | | — | | | — | | | (3,678) | |
Stock compensation expense | 4,019 | | | 549 | | | — | | | 4,568 | |
Net change in wholesale finance receivables related to sales | — | | | — | | | 166,049 | | | 166,049 | |
Provision for credit losses | — | | | 170,598 | | | — | | | 170,598 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Deferred income taxes | 5,602 | | | (24,592) | | | (471) | | | (19,461) | |
| | | | | | | |
Other, net | (12,635) | | | 3,730 | | | (389) | | | (9,294) | |
Changes in current assets and liabilities: | | | | | | | |
Accounts receivable, net | (198,855) | | | — | | | 183,108 | | | (15,747) | |
Finance receivables - accrued interest and other | — | | | (2,985) | | | — | | | (2,985) | |
Inventories, net | 163,700 | | | — | | | — | | | 163,700 | |
Accounts payable and accrued liabilities | (1,001) | | | 214,864 | | | (203,199) | | | 10,664 | |
Derivative financial instruments | 1,622 | | | (84) | | | — | | | 1,538 | |
Other | (9,999) | | | 3,150 | | | 22,007 | | | 15,158 | |
| 56,116 | | | 409,504 | | | 167,105 | | | 632,725 | |
Net cash provided by operating activities | 111,578 | | | 431,131 | | | 67,494 | | | 610,203 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | (65,677) | | | (1,349) | | | — | | | (67,026) | |
Origination of finance receivables | — | | | (3,033,567) | | | 1,163,998 | | | (1,869,569) | |
Collections on finance receivables | — | | | 3,117,190 | | | (1,331,492) | | | 1,785,698 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other investing activities | (381) | | | — | | | — | | | (381) | |
Net cash (used) provided by investing activities | (66,058) | | | 82,274 | | | (167,494) | | | (151,278) | |
| | | | | | | |
Belgium that, following a request from the European Union (EU), the Company would be subject to the revocation of Binding Origin Information (BOI) rulings, effective April 19, 2021. Beginning in 2019, the Company has operated under BOIs which allowed it to supply its EU markets with certain motorcycles produced at its Thailand manufacturing facility at tariff rates of 6%. Following the revocation, all non-electric motorcycles that Harley-Davidson imports into the EU, regardless of origin, will be subject to a total tariff rate of 31% from April 19, 2021 through May 31, 2021. This rate is expected to increase to 56% effective June 1, 2021. This ruling will effectively prohibit the Company from functioning competitively in the EU. The Company estimates the impact of the additional EU tariffs in 2021, if unmitigated, to be approximately $135 million and expects the impact to be approximately $200 million to $225 million on annual basis in future years. The Company is appealing the revocation of the BOIs. It has also sought temporary extended reliance on the 6% tariff rate for motorcycles produced in Thailand, ordered prior to April 19, 2021. There is no assurance that the appeal will be successful or that the Company will receive the extended reliance.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 28, 2020 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from financing activities: | | | | | | | |
| | | | | | | |
| | | | | | | |
Proceeds from issuance of medium-term notes | — | | | 1,396,602 | | | — | | | 1,396,602 | |
Repayments of medium-term notes | — | | | (1,400,000) | | | — | | | (1,400,000) | |
| | | | | | | |
Proceeds from securitization debt | — | | | 2,064,450 | | | — | | | 2,064,450 | |
Repayments of securitization debt | — | | | (369,613) | | | — | | | (369,613) | |
Borrowings of asset-backed commercial paper | — | | | 225,187 | | | — | | | 225,187 | |
Repayments of asset-backed commercial paper | — | | | (143,306) | | | — | | | (143,306) | |
Net increase in unsecured commercial paper | — | | | 831,354 | | | — | | | 831,354 | |
Net increase in credit facilities | — | | | 150,000 | | | — | | | 150,000 | |
Deposits | — | | | 17,995 | | | — | | | 17,995 | |
| | | | | | | |
Dividends paid | (61,917) | | | (100,000) | | | 100,000 | | | (61,917) | |
Repurchase of common stock | (7,156) | | | — | | | — | | | (7,156) | |
| | | | | | | |
Issuance of common stock under share-based plans | 41 | | | — | | | — | | | 41 | |
Net cash (used) provided by financing activities | (69,032) | | | 2,672,669 | | | 100,000 | | | 2,703,637 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (712) | | | 330 | | | — | | | (382) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (24,224) | | | $ | 3,186,404 | | | $ | — | | | $ | 3,162,180 | |
| | | | | | | |
Cash, cash equivalents and restricted cash: | | | | | | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 470,649 | | | $ | 434,717 | | | $ | — | | | $ | 905,366 | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (24,224) | | | 3,186,404 | | | — | | | 3,162,180 | |
Cash, cash equivalents and restricted cash, end of period | $ | 446,425 | | | $ | 3,621,121 | | | $ | — | | | $ | 4,067,546 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2019 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net income | $ | 313,614 | | | $ | 99,906 | | | $ | (89,944) | | | $ | 323,576 | |
Adjustments to reconcile Net income to Net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 121,026 | | | 4,360 | | | — | | | 125,386 | |
Amortization of deferred loan origination costs | — | | | 38,036 | | | — | | | 38,036 | |
Amortization of financing origination fees | 335 | | | 4,187 | | | — | | | 4,522 | |
Provision for long-term employee benefits | 6,936 | | | — | | | — | | | 6,936 | |
Employee benefit plan contributions and payments | (3,637) | | | — | | | — | | | (3,637) | |
Stock compensation expense | 15,672 | | | 1,613 | | | — | | | 17,285 | |
Net change in wholesale finance receivables related to sales | — | | | — | | | (167,594) | | | (167,594) | |
Provision for credit losses | — | | | 60,874 | | | — | | | 60,874 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Deferred income taxes | 5,928 | | | (236) | | | (324) | | | 5,368 | |
| | | | | | | |
Other, net | (8,545) | | | (1,876) | | | (56) | | | (10,477) | |
Changes in current assets and liabilities: | | | | | | | |
Accounts receivable, net | (244,752) | | | — | | | 227,160 | | | (17,592) | |
Finance receivables - accrued interest and other | — | | | (4,963) | | | — | | | (4,963) | |
Inventories, net | 88,146 | | | — | | | — | | | 88,146 | |
Accounts payable and accrued liabilities | 21,336 | | | 221,959 | | | (208,925) | | | 34,370 | |
| | | | | | | |
Derivative financial instruments | 4,291 | | | 61 | | | — | | | 4,352 | |
Other | (15,573) | | | 13,091 | | | (5,874) | | | (8,356) | |
| (8,837) | | | 337,106 | | | (155,613) | | | 172,656 | |
Net cash provided by operating activities | 304,777 | | | 437,012 | | | (245,557) | | | 496,232 | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures | (81,698) | | | (1,531) | | | — | | | (83,229) | |
Origination of finance receivables | — | | | (3,936,208) | | | 1,871,309 | | | (2,064,899) | |
Collections on finance receivables | — | | | 3,484,581 | | | (1,715,752) | | | 1,768,829 | |
| | | | | | | |
| | | | | | | |
Sales and redemptions of marketable securities | 10,007 | | | — | | | — | | | 10,007 | |
Acquisition of business | (7,000) | | | — | | | — | | | (7,000) | |
Other investing activities | 11,717 | | | — | | | — | | | 11,717 | |
Net cash used by investing activities | (66,974) | | | (453,158) | | | 155,557 | | | (364,575) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2019 | | | | | | |
| HDMC Entities | | HDFS Entities | | Consolidating Adjustments | | Consolidated |
Cash flows from financing activities: | | | | | | | |
| | | | | | | |
| | | | | | | |
Proceeds from issuance of medium-term notes | — | | | 546,655 | | | — | | | 546,655 | |
Repayments of medium-term notes | — | | | (750,000) | | | — | | | (750,000) | |
| | | | | | | |
Proceeds from securitization debt | — | | | 1,021,353 | | | — | | | 1,021,353 | |
Repayments of securitization debt | — | | | (113,806) | | | — | | | (113,806) | |
Borrowings of asset-backed commercial paper | — | | | 23,373 | | | — | | | 23,373 | |
Repayments of asset-backed commercial paper | — | | | (155,286) | | | — | | | (155,286) | |
Net decrease in unsecured commercial paper | — | | | (728,606) | | | — | | | (728,606) | |
Dividends paid | (120,841) | | | (90,000) | | | 90,000 | | | (120,841) | |
Repurchase of common stock | (104,621) | | | — | | | — | | | (104,621) | |
| | | | | | | |
Issuance of common stock under share-based plans | 833 | | | — | | | — | | | 833 | |
Net cash used by financing activities | (224,629) | | | (246,317) | | | 90,000 | | | (380,946) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 2,724 | | | 715 | | | — | | | 3,439 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 15,898 | | | $ | (261,748) | | | $ | — | | | $ | (245,850) | |
| | | | | | | |
Cash, cash equivalents and restricted cash: | | | | | | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 544,548 | | | $ | 715,200 | | | $ | — | | | $ | 1,259,748 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 15,898 | | | (261,748) | | | — | | | (245,850) | |
Cash, cash equivalents and restricted cash, end of period | $ | 560,446 | | | $ | 453,452 | | | $ | — | | | $ | 1,013,898 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the "Company"“Company” include Harley-Davidson, Inc. and all of its subsidiaries. The Company operates in two segments: Motorcycles and Related Products (Motorcycles) and Financial Services.
The “% Change” figures included in the Results of Operations sections section were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented. Certain “% Change” deemed not meaningful (NM) have been excluded.
(1) Note Regarding Forward-Looking Statements
The Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” “may,” “will,” “estimates”“estimates,” “targets,” “intend” or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption “Cautionary Statements” in this Item 2 and in Item 1A. Risk Factors, as well as in Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the “Overview” and “Outlook”“Guidance” sections in this Item 2 are only made as of July 28, 2020April 19, 2021 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (August(May 6, 2020)2021), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Overview(1)
During the second quarter of 2020, theThe Company's operations and financial results were adversely impacted by the COVID-19 pandemic. The Company incurred a net loss of $92.2income was $259.1 million, or $0.60$1.68 per diluted share, in the secondfirst quarter of 2020,2021, compared to net income of $195.6$69.7 million, or $1.23$0.45 per diluted share, in the secondfirst quarter of 2019.2020. The Motorcycles segment reported an operating loss of $121.0 million, down $301.8 million from operating income of $180.7$227.5 million for the secondfirst quarter of 2019. The current year operating loss2021 which was due primarily toup $143.0 million over the first quarter of 2020. Operating income from the Motorcycles segment for the first quarter of 2021 was favorably impacted by a 58.7% decline3.5% increase in wholesale motorcycle shipments, reflecting the suspension of global manufacturing during the quarter resulting from the COVID-19 pandemic. Motorcycles segment operating results were also impacted by unfavorable foreign currency, unfavorable manufacturing costsfavorable product mix, lower sales incentives and higher restructuring expenses, partially offset by lowerreduced selling, administrative and engineering expenses.
Operating income from the Financial Services segment in the secondfirst quarter of 20202021 was $4.9$118.6 million, down 93.5%up 417.0% compared to the year-ago quarter due primarily to a higherlower provision for credit losses and higher interest expense. The provision for credit losses was adversely affected by unfavorable economic conditions and also reflects the impact of a new accounting standard that changed how companies recognize expected credit losses on financial instruments. The new standard requires recognition of full lifetime expected credit losses upon initial recognition of a financial instrument, replacing the prior, incurred loss methodology. The Company adopted the new accounting standard on January 1, 2020 using a modified retrospective approach. As a result, prior period results were not restated.losses.
Worldwide independent dealer retail sales of new Harley-Davidson motorcycles in the secondfirst quarter of 2021 were up 9.4% compared to the first quarter of 2020 were down 26.6%led by a 30.6% increase in the U.S., partially offset by declines in Europe/Middle East/Africa (EMEA) and Latin America. Refer to the Motorcycles Retail Sales and Registration Data section for further discussion of retail sales results.
The Company is pleased with the pace of recovery that it has experienced across the business as compared to prior year when the second quarterCompany's results were adversely impacted by the onset of 2019 reflecting the adverse impactCOVID-19 pandemic. The Company continues to manage through the impacts of the COVID-19 pandemic throughout mostkeeping safety and community well-being at the forefront. The Company believes its actions during 2020 to reshape the business through The Rewire and its initial execution of The Hardwire 5-year strategic plan are having a positive impact on the Company's markets. At the end of April 2020, nearly 60% ofresults. Refer to the Company's independent global dealer network was closed. Independent dealers began to re-open towardAnnual Report on Form 10-K for the end of Mayyear ended December 31, 2020 for more information on The Rewire and into early June resulting in a sequential improvement in the retail sales rate within the second quarter of 2020. By the end of the second quarter of 2020, 93% of global dealers had resumed normal operations.
The Hardwire.
OutlookGuidance(1)
Given the strong 2021 first quarter performance, the Company has increased its guidance for the full year. The decision to increase guidance was based on several key factors. First, the Company has better clarity on the cost impact of supply chain challenges and its ability to adapt to those challenges. Also, the economic outlook has improved with falling unemployment numbers, recent federal stimulus in the U.S. and continued progress on the global COVID-19 vaccine roll-out. The Company also has a better read on demand for its new model year 2021 motorcycles, which has been stronger than it had anticipated, particularly in the most profitable segments of Touring and Large Cruiser motorcycles. As a result, for the full-year 2021, the Company now expects:
•Motorcycles segment revenue growth of 30% to 35%, an increase from the previous guidance of 20% to 25%.
•Motorcycles segment operating income margin of 7% to 9%, up from the previous guidance of 5% to 7%, assuming the Company can successfully mitigate the impact of the uncertainty surroundingadditional European Union (EU) tariffs discussed below. This increase reflects an improved demand outlook and confidence in the magnitudeCompany's ability to continue navigating through the global supply chain headwinds.
•If the Company is unable to mitigate the impact of the additional EU tariffs to any extent in 2021, the Company expects Motorcycles segment operating income margin of 5% to 7%, in line with the original guidance.
•Financial Services segment operating income growth of 50% to 60%, an increase from the previous guidance of 10% to 15%, driven primarily by a favorable provision for credit losses.
Additionally, for the full-year 2021, the Company continues to expect capital expenditures of $190 million to $220 million.
Within 2021, the Company expects (a) approximately 60% of the total annual Motorcycles segment revenue to occur in the first half of the year driven by momentum from the model year 2021 launch through the riding season and duration(b) assuming the Company can successfully mitigate the impact of the additional EU tariffs discussed below, Motorcycles segment operating margin percent to be in the mid-teens during the first half of 2021 and near break-even in the second half of 2021.
In the second half of 2021, the Company expects retail inventory to decrease from its expected peak level at the end of the second quarter. In the fourth quarter the Company will prepare its manufacturing facilities to begin production of model year 2022 motorcycles. The Company believes the pattern for inventory and shipments in the second half of 2021 will be similar to what the Company experienced in the second half of 2020. In addition, during 2020, the Company benefited from cost reductions associated with COVID-19 pandemic cash preservation efforts, which started in the second quarter of 2020, and The Rewire restructuring savings, which started in the third quarter of 2020. Refer to "Restructuring Plan Costs and Savings" for additional discussion.
Additional EU Tariffs(1)
In April 2021, the Company received notification from the Economic Ministry of Belgium that, following a request from the EU, the Company would be subject to the revocation of Binding Origin Information (BOI) rulings, effective April 19, 2021. Beginning in 2019, the Company has operated under BOIs which allowed it to supply its EU markets with certain motorcycles produced at its Thailand manufacturing facility at tariff rates of 6%. Following the revocation, all non-electric motorcycles that Harley-Davidson imports into the EU, regardless of origin, will be subject to a total tariff rate of 31% from April 19, 2021 through May 31, 2021. This rate is expected to increase to 56% effective June 1, 2021. This ruling will effectively prohibit the Company from functioning competitively in the EU. The Company estimates the impact of the additional EU tariffs in 2021, if unmitigated, to be approximately $135 million and expects the impact to be approximately $200 million to $225 million on annual basis in future years. The Company is appealing the revocation of the BOIs. It has also sought temporary extended reliance on the 6% tariff rate for motorcycles produced in Thailand, ordered prior to April 19, 2021. There is no assurance that the appeal will be successful or that the Company will receive the extended reliance.
COVID-19 Pandemic
The full impact of the COVID-19 pandemic on future results depends on future developments, such as the Company withdrew all of its forward-looking guidance on March 26, 2020. While the impacts on demand, facility closures and other restrictions are expected to be temporary, theultimate duration and financialscope of the pandemic, the success of vaccination programs, and its impact toon the Company are unknown at this time. To the extent theseCompany's customers, independent dealers, distributors, and suppliers. Future impacts continue, they willand disruptions could have an adverse effect on production, supply chains, distribution, and demand for the Company's resultsproducts.
COVID-19 Response and Recovery Actions(1)
Cash PreservationSupply Chain – During the first quarter of 2021, the Company experienced some disruption and increased cost related to the adverse impacts of the COVID-19 pandemic on its global supply chain. To date, the Company has been successful in mitigating these disruptions to avoid material adverse impacts on its ability to produce and supply product. The Company is executing its previously disclosed plansexpects the global supply chain disruptions to reduce planned capitalcontinue through the remainder of 2021, and planned non-capital spending. In total, the Company continues to expect that these efforts will preserve approximately $250 million of cash in 2020 with approximately 15% related to capital spending. The planned spending reductions exclude the restructuring charges as discussed further under "Restructuring Plan Costs and Savings." Also, discretionary share repurchases continue to be suspended, and the Company's Board of Directors has approved a cash dividend of $0.02 per share for the third quarter of 2020, in line with the second quarter 2020 dividend.actively work to mitigate these impacts on its business.
Liquidity – The Company has further strengthenedcontinues to closely monitor its liquidity position duringin light of the second quarter of 2020.COVID-19 pandemic. At the end of the secondfirst quarter of 2020,2021, the Company had $4.0 billion of available liquidity through cash, cash equivalents and availability under its credit and conduit facilities of $4.7 billion.facilities. Liquidity is discussed in more detail underLiquidity and Capital Resources.
Supporting Dealers and Riders – The Company's response and recovery plans includehave included supporting global dealers and customers. Throughout the second quarter of 2020, the Company helped ease the burden of the COVID-19 pandemic on its independent dealers by providing support based on the unique needs of each region, including financial support for dealer motorcycle inventory, extending credit payment due dates on parts & accessories and general merchandise and adjusting dealer requirements for warranty and training. HDFS is also workingcontinues to work with qualified retail borrowers who have been impacted by the COVID-19 pandemic by offering short-term adjustments to customer payment due dates without affectingdates. These temporary extensions do not affect the associated interest rate or loan term. The volume of payment extensions on eligible retail loans has declined from the levels experienced during the second quarter and into the third quarter of 2020 but has not yet returned to pre-COVID-19 pandemic levels.
Community StrengthSafety – The Company continues to proactively manage through the COVID-19 pandemic and has implemented robust protocols to keep workers safe in its factories. The Company expects mostmanufacturing facilities. Most non-production workers continue to continue working from home until the endwork remotely in light of the year.COVID-19 pandemic.
The Rewire
The Company is executing a set of actions, referred to as The Rewire. The Rewire is expected to continue through the end of 2020, leading to a first look at the Company’s 2021-2025 strategic plan, The Hardwire, which the Company intends to disclose sometime in the fourth quarter of 2020. Building on the foundation and principles of The Rewire, the driver of the new plan will be Harley-Davidson as the most desirable motorcycle brand in the world for its customers, employees, community and investors. Key elements of The Rewire and progress to date include following:
New operating model with reduced complexity and increased speed – The Company is making substantial changes to its operating model under The Rewire affecting all areas of the business globally, from commercial operations to center-led support functions. Significant work has been undertaken to eliminate duplication, inefficiencies and complexity throughout the organization. As previously announced, the streamlined structure requires 700 fewer positions across the Company's global operations.
Refined motorcycle line-up and high-impact product launches – The Company plans to rewire its product offering to more precisely match customer desires and to strengthen the value of its products. The Company also plans to improve product timing and go-to-market plans to achieve the greatest market impact. Highlights of these plans include:
•Streamlining planned motorcycle models by approximately 30 percent; balancing investments between current stronghold categories and new, high-potential segments
•Expanding product offerings of its best-selling, iconic motorcycles
•Delivering its first Adventure Touring motorcycle - Pan America 1250 - in 2021
•Shifting annual product launch timing from August to early in the first quarter
•Reinvigorating launch efforts including collaborations with key influencers to bring the brand and new products to life and drive brand desirability
Growth through Parts & Accessories and General Merchandise – The Company is intensifying focus on its Parts & Accessories (P&A) and General Merchandise businesses, encouraging customers to customize their entire riding experience to match their own style. Now part of a new Commercial function, new leadership has designed strategies for each business aligned to the Company’s motorcycle and market priorities with the goal of delivering a holistic experience in the marketplace. The Company expects to reduce the number of P&A product SKUs it offers by at least 15%. Similarly, to enhance focus and reduce complexity, the Company expects SKU reductions in General Merchandise of at least 25%.
Reset global business and focus on high-potential markets – The Company plans to concentrate on approximately 50 markets primarily in North America, Europe and parts of Asia Pacific that represent the vast majority of the Company’s volume and growth potential. The Company is evaluating plans to exit international markets where volumes and profitability do not support continued investment in line with the future strategy.
The Company also plans to shift resources and marketing investments into the regions for maximum impact. As part of this effort, the Company has streamlined regional offices and created new groups of high potential countries that will have the autonomy, within a clearly defined framework, to drive the business. Additionally, the Company plans to optimize its dealer network to provide an improved and integrated customer experience.
Protecting value – The Company has revamped its approach to its supply and inventory management focusing on products and initiatives that add value, while significantly reducing discounting and price promotions. The Company expects this to continue to drive retail pricing to preserve the value and desirability of Harley-Davidson motorcycles for its customers.
All of the above efforts of The Rewire aim to provide a better starting point for the future and to build desirability for the Harley-Davidson brand and products.
Restructuring Plan Costs and Savings(1)
TheDuring 2020, the Company has initiated certain restructuring activities as part of The Rewire including a workforce reduction, the termination of certain current and future products, facility changes, optimizing its global independent dealer network, exiting certain international markets, and facility changes.discontinuing its sales and manufacturing operations in India. These actions will result inincluded restructuring expenses includingrelated to employee termination costs, contract termination costs and non-current asset adjustments. The workforce reduction will resultresulted in the elimination of approximately 700 positions globally, including the termination of approximately 500 employees. Based onIn addition, the India action resulted in the termination of approximately 70 employees. The Company incurred approximately $130 million of restructuring expense in connection with these actions which were initiated both during and subsequent to the second quarter of 2020, the2020. The Company expects to incur total restructuring expenses for these actions of approximately $94$150 million, including approximately $20 million in 2020, including $44 million related2021. The Company continues to actions initiated after the second quarter, andexpect annual ongoing gross savings resulting from these restructuring activities of approximately $115 million, including $15 million relatedmillion. Refer to actions initiated afterNote 4 of the second quarter. Annual savings are expectedNotes to begin in 2021.Consolidated financial statements for additional information regarding the Company's restructuring activities.
Results of Operations for the Three Months Ended JuneMarch 28, 20202021
Compared to the Three Months Ended June 30, 2019March 29, 2020
Consolidated Results
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | |
(in thousands, except (net loss) earnings per share) | June 28, 2020 | | June 30, 2019 | | (Decrease) Increase | | % Change |
Operating (loss) income from Motorcycles and Related Products | $ | (121,024) | | | $ | 180,728 | | | $ | (301,752) | | | (167.0) | % |
Operating income from Financial Services | 4,925 | | | 75,529 | | | (70,604) | | | (93.5) | |
Operating (loss) income | (116,099) | | | 256,257 | | | (372,356) | | | (145.3) | |
Other income, net | 156 | | | 4,037 | | | (3,881) | | | (96.1) | |
Investment income | 5,757 | | | 3,571 | | | 2,186 | | | 61.2 | |
Interest expense | 7,769 | | | 7,784 | | | (15) | | | (0.2) | |
(Loss) income before income taxes | (117,955) | | | 256,081 | | | (374,036) | | | (146.1) | |
Income tax (benefit) provision | (25,738) | | | 60,450 | | | (86,188) | | | (142.6) | |
Net (loss) income | $ | (92,217) | | | $ | 195,631 | | | $ | (287,848) | | | (147.1) | % |
Diluted (net loss) earnings per share | $ | (0.60) | | | $ | 1.23 | | | $ | (1.83) | | | (148.8) | % |
The Company reported an operating loss of $116.1 million in the second quarter of 2020 compared to operating income of $256.3 million in the same period last year. The Motorcycles segment incurred a $121.0 million operating loss in the second quarter of 2020, a decline of $301.8 million, or 167.0%, compared to the operating income reported in the second quarter of 2019. Operating income from the Financial Services segment decreased $70.6 million, or 93.5%, compared to the second quarter of 2019. Refer to the Motorcycles and Related Products Segment and Financial Services Segment sections for a more detailed discussion of the factors affecting operating (loss) income.
Other incomein the second quarter of 2020 was unfavorably impacted by lower non-operating income related to the Company's defined benefit plans. Investment income was up in the second quarter of 2020 compared to the same period last year driven by higher income from investments in marketable securities and cash equivalents.
The effective income tax rate for the second quarter of 2020 was a 21.8% benefit compared to a 23.6% expense for the second quarter of 2019.
Diluted net loss per share was $0.60 in the second quarter of 2020, down 148.8% from diluted earnings per share of $1.23 for the same period last year. Diluted weighted average shares outstanding decreased from 159.4 million in the second quarter of 2019 to 153.2 million in the second quarter of 2020, driven by the Company's discretionary repurchases of common stock during 2019. Refer to Liquidity and Capital Resources for additional information concerning the Company's share repurchase activity.
Harley-Davidson Motorcycle Retail Sales(a)
Retail unit sales of Harley-Davidson motorcycles were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | |
| June 30, 2020 | | June 30, 2019 | | Decrease | | % Change |
United States | 31,340 | | | 42,762 | | | (11,422) | | | (26.7) | % |
Canada | 2,287 | | | 3,279 | | | (992) | | | (30.3) | |
Total North America | 33,627 | | | 46,041 | | | (12,414) | | | (27.0) | |
| | | | | | | |
Europe(b) | 9,738 | | | 13,552 | | | (3,814) | | | (28.1) | |
EMEA - Other | 1,226 | | | 2,067 | | | (841) | | | (40.7) | |
Total EMEA | 10,964 | | | 15,619 | | | (4,655) | | | (29.8) | |
| | | | | | | |
Asia Pacific(c) | 4,364 | | | 4,544 | | | (180) | | | (4.0) | |
Asia Pacific - Other | 2,524 | | | 3,126 | | | (602) | | | (19.3) | |
Total Asia Pacific | 6,888 | | | 7,670 | | | (782) | | | (10.2) | |
| | | | | | | |
Latin America | 1,233 | | | 2,516 | | | (1,283) | | | (51.0) | |
Worldwide retail sales | 52,712 | | | 71,846 | | | (19,134) | | | (26.6) | |
(a)Data source for retail sales figures shown above is new sales warranty and registration information provided by independent Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its independent dealers supply concerning new retail sales, and the Company does not regularly verify the information that its independent dealers supply. This information is subject to revision.
(b)Includes Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. Retail sales for Greece and Portugal were reclassified from Europe to EMEA – Other for 2019 to be consistent with the 2020 presentation.
(c)Includes Japan, Australia, New Zealand and South Korea.
Worldwide retail sales of new Harley-Davidson motorcycles were down 26.6% during the second quarter of 2020 compared to the same period last year reflecting the adverse impact of the COVID-19 pandemic including the temporary closure of independent dealers. Retail sales declined across all of the Company's markets within North America, EMEA and Latin America. Retail sales also declined in most of the Company's markets within Asia Pacific; however, these declines were partially offset by retail sales growth in China and South Korea.
U.S. industry registrations of new 601+cc motorcycles were down 11.3% in the second quarter of 2020 compared to the second quarter of 2019. The Company's U.S. market share of new 601+cc motorcycles for the second quarter of 2020 was 38.5%, down 8.1 percentage points from the same period last year (source: Motorcycle Industry Council). The Company's U.S. market share was impacted by the Company's new approach to its supply and inventory management, growth in segments outside of the Company's stronghold (Touring and Cruiser) segments, increased promotions from competitors and a decline in the Company's fleet sales.
The Company is taking a new approach to its supply and inventory management, as discussed under "The Rewire." The new approach is focused on profitable and desirable volume aimed at helping drive retail pricing to preserve the value and desirability of Harley-Davidson motorcycles for customers. Under this approach, the Company will continue to aggressively manage the supply of motorcycles into the independent dealer network as it manages through the COVID-19 pandemic and beyond. The Company is encouraged by the value that it believes was driven by its new supply and inventory management in the second quarter of 2020. On average, new Harley-Davidson motorcycles were selling at Manufacturer Suggested Retail Prices in the U.S. during the second quarter. In addition, the Company observed a meaningful increase in used Harley-Davidson motorcycle pricing at retail and at auction in the U.S. during the second quarter of 2020.
At the end of the second quarter of 2020, worldwide independent dealer retail inventory of new Harley-Davidson motorcycles was down approximately 32%, or 22,300 motorcycles, including 17,000 fewer in the U.S., compared to the second quarter of 2019.
Motorcycles and Related Products Segment
Motorcycle Unit Shipments
Wholesale Harley-Davidson motorcycle unit shipments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | | | |
| June 28, 2020 | | | | June 30, 2019 | | | | Unit | | Unit |
| Units | | Mix % | | Units | | Mix % | | Decrease | | % Change |
| | | | | | | | | | | |
U.S. motorcycle shipments | 11,051 | | | 39.0 | % | | 41,404 | | | 60.2 | % | | (30,353) | | | (73.3) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Worldwide motorcycle shipments: | | | | | | | | | | | |
Touring motorcycle units | 9,709 | | | 34.2 | % | | 30,923 | | | 45.0 | % | | (21,214) | | | (68.6) | % |
Cruiser motorcycle units(a) | 11,874 | | | 41.9 | % | | 22,691 | | | 33.0 | % | | (10,817) | | | (47.7) | % |
Sportster® / Street motorcycle units | 6,786 | | | 23.9 | % | | 15,143 | | | 22.0 | % | | (8,357) | | | (55.2) | % |
| 28,369 | | | 100.0 | % | | 68,757 | | | 100.0 | % | | (40,388) | | | (58.7) | % |
(a)Includes Softail®, CVOTM, and LiveWireTM
The Company shipped 28,369 Harley-Davidson motorcycles worldwide during the second quarter of 2020, which was 58.7% lower than the second quarter of 2019. Motorcycle shipments in the second quarter of 2020 were lower than the same period last year due to the temporary suspension of the Company's global manufacturing operations resulting from the COVID-19 pandemic. During the second quarter of 2020, the Company's Thailand manufacturing facility was closed through April and U.S. manufacturing facilities were closed through May. The mix of Touring motorcycles shipped during the second quarter of 2020 decreased as a percent of total shipments while the mix of Cruiser motorcycles increased compared to the same period last year.
Segment Results
Condensed statements of operations for the Motorcycles segment were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | |
| June 28, 2020 | | June 30, 2019 | | (Decrease) Increase | | % Change |
Revenue: | | | | | | | |
Motorcycles | $ | 446,738 | | | $ | 1,128,063 | | | $ | (681,325) | | | (60.4) | % |
Parts & Accessories | 168,708 | | | 221,258 | | | (52,550) | | | (23.8) | |
General Merchandise | 37,805 | | | 64,644 | | | (26,839) | | | (41.5) | |
Licensing | 4,903 | | | 9,911 | | | (5,008) | | | (50.5) | |
Other | 11,120 | | | 10,128 | | | 992 | | | 9.8 | |
| 669,274 | | | 1,434,004 | | | (764,730) | | | (53.3) | |
Cost of goods sold | 561,646 | | | 979,266 | | | (417,620) | | | (42.6) | |
Gross profit | 107,628 | | | 454,738 | | | (347,110) | | | (76.3) | |
Operating expenses: | | | | | | | |
Selling & administrative expense | 141,929 | | | 208,925 | | | (66,996) | | | (32.1) | |
Engineering expense | 45,718 | | | 54,662 | | | (8,944) | | | (16.4) | |
Restructuring expense | 41,005 | | | 10,423 | | | 30,582 | | | 293.4 | |
| 228,652 | | | 274,010 | | | (45,358) | | | (16.6) | |
Operating (loss) income | $ | (121,024) | | | $ | 180,728 | | | $ | (301,752) | | | (167.0) | % |
Operating margin | (18.1) | % | | 12.6 | % | | (30.7) | | | pts. |
The estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the second quarter of 2019 to the second quarter of 2020 were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Net Revenue | | Cost of Goods Sold | | Gross Profit |
Three months ended June 30, 2019 | $ | 1,434.0 | | | $ | 979.3 | | | $ | 454.7 | |
Volume | (747.6) | | | (491.6) | | | (256.0) | |
Price, net of related cost | 3.5 | | | 0.3 | | | 3.2 | |
Foreign currency exchange rates and hedging | (11.4) | | | 4.0 | | | (15.4) | |
Shipment mix | (9.3) | | | 7.0 | | | (16.3) | |
Raw material prices | — | | | (2.9) | | | 2.9 | |
Manufacturing and other costs | — | | | 65.5 | | | (65.5) | |
| (764.8) | | | (417.7) | | | (347.1) | |
Three months ended June 28, 2020 | $ | 669.2 | | | $ | 561.6 | | | $ | 107.6 | |
Factors affecting the comparability of net revenue, cost of goods sold and gross profit from the second quarter of 2019 to the second quarter of 2020 were as follows:
•The decrease in volume was due to lower wholesale motorcycle shipments and lower parts & accessories and general merchandise sales, partially offset by lower sales incentive costs.
•On average, wholesale prices for motorcycles shipped in the current period were higher than in the same period last year resulting in a favorable impact on revenue. The positive impact on revenue was partially offset by increased costs related to the additional content added to motorcycles shipped in the current period as compared to the same period last year.
•Revenue and gross profit were adversely impacted by weaker foreign currency exchange rates, relative to the U.S. dollar, as compared to the same period last year.
•Changes in the shipment mix between motorcycle families had an adverse impact on revenue and gross profit in the current quarter compared to the same period last year. Additionally, unfavorable mix within parts and accessories contributed to the impact.
•Manufacturing and other costs were adversely impacted by lower fixed-cost absorption and productivity related to the temporary suspension of global manufacturing as a result of the COVID-19 pandemic. These unfavorable impacts were partially offset by a reduction in tariff costs and the absence of temporary inefficiencies related to the Company's restructuring activities that were incurred in the prior year. The impact of recent tariffs was $7.1 million in the second quarter of 2020 compared to $34.4 million in the second quarter of 2019 as the Company began to wholesale Thailand-sourced motorcycles in the European Union (EU) in the current year quarter. The impact of recent tariffs includes incremental EU and China tariffs imposed beginning in 2018 on the Company's products shipped from the U.S., as well as incremental U.S. tariffs imposed beginning in 2018 on certain items imported from China.
Operating expenses were lower in the second quarter of 2020 compared to the same period last year due to lower spending as the Company aggressively managed cost, partially offset by increases in restructuring expenses.
Financial Services Segment
Segment Results
Condensed statements of operations for the Financial Services segment were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | |
| June 28, 2020 | | June 30, 2019 | | Increase (Decrease) | | % Change |
Revenue: | | | | | | | |
Interest income | $ | 168,261 | | | $ | 167,077 | | | $ | 1,184 | | | 0.7 | % |
Other income | 27,692 | | | 31,538 | | | (3,846) | | | (12.2) | |
| 195,953 | | | 198,615 | | | (2,662) | | | (1.3) | |
Expenses: | | | | | | | |
Interest expense | 62,187 | | | 52,673 | | | 9,514 | | | 18.1 | |
Provision for credit losses | 91,179 | | | 26,383 | | | 64,796 | | | 245.6 | |
Operating expense | 36,718 | | | 44,030 | | | (7,312) | | | (16.6) | |
Restructuring expense | 944 | | | — | | | 944 | | | 100.0 | |
| 191,028 | | | 123,086 | | | 67,942 | | | 55.2 | |
Operating income | $ | 4,925 | | | $ | 75,529 | | | $ | (70,604) | | | (93.5) | % |
Interest income was favorable in the second quarter of 2020 due to a higher average retail yield, partially offset by lower average outstanding wholesale receivables at a lower average yield. Other income was unfavorable primarily due to a decrease in investment income and insurance related revenue.
Interest expense increased in the second quarter of 2020 due to higher average outstanding debt, partially offset by a lower cost of funds.
The provision for credit losses increased $64.8 million compared to the second quarter of 2019. The retail motorcycle provision increased $66.5 million driven by an increase in the allowance for credit losses resulting from the deterioration of the Company’s outlook on economic conditions during the second quarter of 2020. The Company expects that existing recessionary economic conditions could be prolonged with a slow economic recovery. The Company’s expectations surrounding its economic forecasts may change in future periods as additional information becomes available.
This increase in the allowance for credit losses was partially offset by lower retail credit losses. Credit losses were favorably impacted by the high volume of COVID-19 related retail loan payment-due-date extensions for qualified customers, which resulted in fewer past due accounts and lower related losses during the second quarter.
The allowance for credit losses at June 28, 2020 was determined in accordance with ASU 2016-13, a new accounting standard adopted on January 1, 2020 that changed how companies recognize expected credit losses on financial instruments. The new standard requires recognition of full lifetime expected credit losses upon initial recognition of a financial instrument, replacing the prior, incurred loss methodology. The Company adopted the new accounting standard using a modified retrospective approach. As a result, prior period results were not restated.
Operating expenses decreased $7.3 million compared to the second quarter of 2019 in part driven by lower employee related costs and consulting expense.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
| | | | | | | | | | | |
| Three months ended | | |
| June 28, 2020 | | June 30, 2019 |
Balance, beginning of period | $ | 335,496 | | | $ | 190,872 | |
Provision for credit losses | 91,179 | | | 26,383 | |
Charge-offs, net of recoveries | (15,660) | | | (22,259) | |
| | | |
Balance, end of period | $ | 411,015 | | | $ | 194,996 | |
Results of Operations for the Six Months Ended June 28, 2020
Compared to the Six Months Ended June 30, 2019
Consolidated Results
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended | | | | | | |
(in thousands, except (net loss) earnings per share) | June 28, 2020 | | June 30, 2019 | | (Decrease) Increase | | % Change |
Operating (loss) income from Motorcycles and Related Products | $ | (36,457) | | | $ | 289,109 | | | $ | (325,566) | | | (112.6) | % |
Operating income from Financial Services | 27,871 | | | 134,260 | | | (106,389) | | | (79.2) | |
Operating (loss) income | (8,586) | | | 423,369 | | | (431,955) | | | (102.0) | |
Other income, net | 311 | | | 8,697 | | | (8,386) | | | (96.4) | |
Investment income | 410 | | | 9,929 | | | (9,519) | | | (95.9) | |
Interest expense | 15,524 | | | 15,515 | | | 9 | | | 0.1 | |
(Loss) income before income taxes | (23,389) | | | 426,480 | | | (449,869) | | | (105.5) | |
Income tax (benefit) provision | (867) | | | 102,904 | | | (103,771) | | | (100.8) | |
Net (loss) income | $ | (22,522) | | | $ | 323,576 | | | $ | (346,098) | | | (107.0) | % |
Diluted (net loss) earnings per share | $ | (0.15) | | | $ | 2.03 | | | $ | (2.18) | | | (107.4) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
(in thousands, except earnings per share) | March 28, 2021 | | March 29, 2020 | | Increase (Decrease) | | % Change |
Operating income from Motorcycles and Related Products | $ | 227,532 | | | $ | 84,567 | | | $ | 142,965 | | | 169.1 | % |
Operating income from Financial Services | 118,642 | | | 22,946 | | | 95,696 | | | 417.0 | |
Operating income | 346,174 | | | 107,513 | | | 238,661 | | | 222.0 | |
Other income, net | 277 | | | 155 | | | 122 | | | 78.7 | |
Investment income (loss) | 1,402 | | | (5,347) | | | 6,749 | | | (126.2) | |
Interest expense | 7,708 | | | 7,755 | | | (47) | | | (0.6) | |
Income before income taxes | 340,145 | | | 94,566 | | | 245,579 | | | 259.7 | |
Provision for income taxes | 81,001 | | | 24,871 | | | 56,130 | | | 225.7 | |
Net income | $ | 259,144 | | | $ | 69,695 | | | $ | 189,449 | | | 271.8 | % |
Diluted earnings per share | $ | 1.68 | | | $ | 0.45 | | | $ | 1.23 | | | 273.3 | % |
The Company reported an operating loss of $8.6 million inDuring the first halfquarter of 2020 compared to2021, operating income of $423.4increased $238.7 million, in the same period last year. Operating income from the Motorcycles segment fell $325.6 million from the same period last year resulting in an operating loss of $36.5 million for the first half of 2020. Operating income from Financial Services during the first half of 2020 was down $106.4 millionor 222.0%, compared to the same period last year.year, driven by strong performance in both the Motorcycles and the Financial Services segments. Refer to the Motorcycles and Related Products Segment and Financial Services Segment discussions for a more detailed analysis of the factors affecting operating (loss) income.
Other income in the first half
Investment income was downincreased $6.7 million in first half of2021 as compared to 2020, compared the same period last year driven by lowerhigher income from investments in marketable securities and cash equivalents.securities.
The Company's effective income tax rate for the first six monthsquarter of 20202021 was 3.7%23.8% compared to 24.1%26.3% for the same period in 2019.2020. The decrease in the 20202021 effective income tax rate as compared to 20192020 was due primarily to the increase in Income before provision for income taxes, resulting in discrete income tax expenses recorded duringadjustments having a reduced impact on the six months ended June 28, 2020, which included adjustments related to the reassessment of the realizability of certain deferred tax assets, which reduced the Company's income tax benefit for the period. The effective income tax rate for the six months ended June 28, 2020 was determined based on the Company's current projection for full-year 2020 financial results. Given uncertainty surrounding the impact of the COVID-19 pandemic, the Company's projections for full-year 2020 financial results, in total and across its numerous tax jurisdictions may evolve and ultimately impact the Company's 2020 full-year effective income tax rate(1).quarter.
Diluted net lossearnings per share was $0.15$1.68 in the first halfquarter of 2020, down 107.4%2021, up 273.3% from diluted earnings per share of $2.03$0.45 for the same period last year. Diluted weighted average shares outstanding decreasedincreased from 159.7153.7 million in the first halfthree months of 20192020 to 153.1154.5 million in the first halfthree months of 2020, driven by the Company's discretionary repurchases of common stock during 2019. 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)
Retail unit sales of new Harley-Davidson motorcycles were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended | | | | | | |
| June 30, 2020 | | June 30, 2019 | | Decrease | | % Change |
United States | 55,072 | | | 70,853 | | | (15,781) | | | (22.3) | % |
Canada | 3,753 | | | 5,227 | | | (1,474) | | | (28.2) | |
Total North America | 58,825 | | | 76,080 | | | (17,255) | | | (22.7) | |
| | | | | | | |
Europe(b) | 16,272 | | | 22,979 | | | (6,707) | | | (29.2) | |
EMEA – Other | 2,422 | | | 3,437 | | | (1,015) | | | (29.5) | |
Total EMEA | 18,694 | | | 26,416 | | | (7,722) | | | (29.2) | |
| | | | | | | |
Asia Pacific(c) | 8,073 | | | 8,330 | | | (257) | | | (3.1) | |
Asia Pacific – Other | 4,567 | | | 5,414 | | | (847) | | | (15.6) | |
Total Asia Pacific | 12,640 | | | 13,744 | | | (1,104) | | | (8.0) | |
| | | | | | | |
Latin America | 2,992 | | | 4,757 | | | (1,765) | | | (37.1) | |
Worldwide retail sales | 93,151 | | | 120,997 | | | (27,846) | | | (23.0) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | |
| March 31, 2021 | | March 31, 2020 | | Increase (Decrease) | | % Change |
United States | 30,983 | | | 23,732 | | | 7,251 | | | 30.6 | % |
Canada | 1,799 | | | 1,466 | | | 333 | | | 22.7 | |
North America | 32,782 | | | 25,198 | | | 7,584 | | | 30.1 | |
Europe/Middle East/Africa (EMEA) | 4,943 | | | 7,730 | | | (2,787) | | | (36.1) | |
Asia Pacific | 5,793 | | | 5,752 | | | 41 | | | 0.7 | |
Latin America | 717 | | | 1,759 | | | (1,042) | | | (59.2) | |
| 44,235 | | | 40,439 | | | 3,796 | | | 9.4 | % |
(a)Data source for retail sales figures shown above is new sales warranty and registration information provided by independent Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its independent dealers supply concerning new retail sales, and the Company does not regularly verify the information that its independent dealers supply. This information is subject to revision.
(b)Includes Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. Retail sales for Greece and Portugal were reclassified from Europe to EMEA – Other for 2019 to be consistent with the 2020 presentation.
(c)Includes Japan, Australia, New Zealand and South Korea.
Worldwide retail sales of new Harley-Davidson motorcycles were down 23.0%up 9.4% during the first halfquarter of 20202021 compared to the same period last year, reflectingwhen results were first impacted by the adverse impactinitial effects of the COVID-19 pandemic includingpandemic. The increase in retail sales during 2021 was led by the temporary closureU.S. market which was positively impacted by the Company's shift in new model year launch timing from August to the first quarter of independent dealers.2021 and strong demand for the Company's new model year Touring and Large Cruiser motorcycles. Retail sales declined across all of the Company's markets within North America,in EMEA and Latin America. Retail sales also declined in most of the Company's markets within Asia Pacific with exception of China and South Korea, which grew compared to prior year, and Japan where retail sales were level with prior year.
The Company's U.S. market share of new 601+cc motorcycles for the first half of 2020 was 42.4%, down 5.9 percentage points compared to the same periodquarter last year (source: Motorcycle Industry Council).due to the Company's decision not to continue selling Street or Sportster motorcycles in Europe, shipping delays, as well as continued COVID-19 pandemic lockdowns. Latin America retail sales were adversely impacted during the first quarter of 2021 by the reduction of independent dealers and pricing actions executed as part of The Company's U.S. market shareRewire actions in 2020 to restore profitability in those markets.
Across the independent dealer network, worldwide retail inventory of new Harley-Davidson motorcycles was impacted bydown approximately 50% at the end of March 2021 compared to March 2020 behind the Company's new approach to supply and inventory management stronger performancewhich was implemented in segments outsidethe second quarter of 2020. Retail inventory at the end of March 2021 was up approximately 60% over the end of December 2020, as the Company worked to build inventory ahead of the Company's stronghold (Touringriding season. The Company expects retail inventory at the end of the second and Cruiser) segments, increased promotions from competitorsthird quarters of 2021 to be lower than average historical levels. The Company believes its approach to inventory management is continuing to improve profitability and a declinestrengthen retail pricing, with 2021 first quarter retail motorcycle transaction pricing in the Company's fleet sales.
The Company's 2020 market shareU.S. up for all families, most of new 601+cc motorcycles in Europe was 7.9% through June, compared to 9.0% for the same period last year (Source: Management Services Helwig Schmitt GmbH). The Company's European market share was adversely impacted by better market performance in segments outside of the Company's stronghold (Touring and Cruiser) segments and increased price competition across all product segments.which are at or near Manufacturer's Suggested Retail Prices.
Motorcycle Registration Data and Market Share – 601+cc(a)
Industry retail motorcycle registration data for new motorcycles and the Company's market share was as follows:
| | | Six months ended | | | | | | | Three months ended | | | | |
| | June 30, 2020 | | June 30, 2019 | | Decrease | | % Change | | March 31, 2021 | | March 31, 2020 | | Increase (Decrease) | | % Change |
Industry new motorcycle registrations: | | Industry new motorcycle registrations: | | | | | | | |
United States(b) | United States(b) | 127,360 | | | 144,623 | | | (17,263) | | | (11.9) | % | United States(b) | 63,412 | | | 47,232 | | | 16,180 | | | 34.3 | % |
Europe(c) | Europe(c) | 220,472 | | | 260,301 | | | (39,829) | | | (15.3) | % | Europe(c) | 100,341 | | | 95,504 | | | 4,837 | | | 5.1 | % |
| Harley-Davidson market share data: | | Harley-Davidson market share data: | |
United States(b) | | United States(b) | 48.3 | % | | 48.9 | % | | (0.6) | | | pts. |
Europe(c) | | Europe(c) | 3.9 | % | | 7.6 | % | | (3.7) | | | 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 revision 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 Management Services Helwig Schmitt GmbH. Prior year registrations have been revised to exclude Greece and Portugal registrations. This third-party data is subject to revision and update.
Motorcycles and Related Products Segment
Motorcycle Unit Shipments
Wholesale Harley-Davidson motorcycle unit shipments were as follows:
| | | Six months ended | | | | | | | Three months ended | | | | |
| | June 28, 2020 | | | June 30, 2019 | | | Unit | | Unit | | March 28, 2021 | | March 29, 2020 | | Unit | | Unit |
| | Units | | Mix % | | Units | | Mix % | | Decrease | | % Change | | Units | | Mix % | | Units | | Mix % | | Increase (Decrease) | | % Change |
| U.S. motorcycle shipments | U.S. motorcycle shipments | 44,075 | | | 54.2 | % | | 75,909 | | | 59.5 | % | | (31,834) | | | (41.9) | % | U.S. motorcycle shipments | 40,153 | | | 73.3 | % | | 33,024 | | | 62.3 | % | | 7,129 | | | 21.6 | % |
| | Worldwide motorcycle shipments: | Worldwide motorcycle shipments: | | Worldwide motorcycle shipments: | |
Touring motorcycle units | Touring motorcycle units | 31,306 | | | 38.5 | % | | 55,966 | | | 43.8 | % | | (24,660) | | | (44.1) | % | Touring motorcycle units | 27,316 | | | 49.8 | % | | 21,597 | | | 40.8 | % | | 5,719 | | | 26.5 | % |
Cruiser motorcycle units(a) | Cruiser motorcycle units(a) | 32,005 | | | 39.3 | % | | 43,142 | | | 33.8 | % | | (11,137) | | | (25.8) | | Cruiser motorcycle units(a) | 20,468 | | | 37.3 | % | | 20,131 | | | 38.0 | % | | 337 | | | 1.7 | |
Sportster® / Street motorcycle units | Sportster® / Street motorcycle units | 18,031 | | | 22.2 | % | | 28,540 | | | 22.4 | % | | (10,509) | | | (36.8) | | Sportster® / Street motorcycle units | 7,026 | | | 12.9 | % | | 11,245 | | | 21.2 | % | | (4,219) | | | (37.5) | |
| | 81,342 | | | 100.0 | % | | 127,648 | | | 100.0 | % | | (46,306) | | | (36.3) | % | | 54,810 | | | 100.0 | % | | 52,973 | | | 100.0 | % | | 1,837 | | | 3.5 | % |
(a) Includes Softail®, CVOTM, and LiveWireTM
The Company shipped 81,34254,810 Harley-Davidson motorcycles worldwide during the first halfquarter of 2020,2021, which was 36.3% lower3.5% higher than the same period in 2019. Motorcycle shipments were lower than prior2020 reflecting the positive impact of the change in new model year duringlaunch timing from August to the first halfquarter of 2021. In addition, wholesale shipments in the first quarter of 2020 due towere adversely impacted by the temporary suspension of the Company's global manufacturing operations in March 2020 resulting from the COVID-19 pandemic. The mix of Touring and Cruiser motorcycles shipped during the first halfquarter of 2020 decreased2021 increased as a percent of total shipments while the mix of CruiserSportster/Street motorcycles increaseddecreased compared to the same period last year.
Segment Results
Condensed statements of operations for the Motorcycles segment were as follows (dollars in thousands):
| | | Six months ended | | | | | | | Three months ended | | | | |
| | June 28, 2020 | | June 30, 2019 | | (Decrease) Increase | | % Change | | March 28, 2021 | | March 29, 2020 | | Increase (Decrease) | | % Change |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Motorcycles | Motorcycles | $ | 1,346,103 | | | $ | 2,092,638 | | | $ | (746,535) | | | (35.7) | % | Motorcycles | $ | 1,016,334 | | | $ | 899,365 | | | $ | 116,969 | | | 13.0 | % |
Parts & accessories | 303,393 | | | 380,961 | | | (77,568) | | | (20.4) | | |
General merchandise | 86,965 | | | 120,045 | | | (33,080) | | | (27.6) | | |
Parts & Accessories | | Parts & Accessories | 149,859 | | | 134,685 | | | 15,174 | | | 11.3 | |
General Merchandise | | General Merchandise | 50,323 | | | 49,160 | | | 1,163 | | | 2.4 | |
Licensing | Licensing | 12,932 | | | 18,488 | | | (5,556) | | | (30.1) | | Licensing | 5,512 | | | 8,029 | | | (2,517) | | | (31.3) | |
Other | Other | 19,669 | | | 17,509 | | | 2,160 | | | 12.3 | | Other | 10,079 | | | 8,549 | | | 1,530 | | | 17.9 | |
| | 1,769,062 | | | 2,629,641 | | | (860,579) | | | (32.7) | | | 1,232,107 | | | 1,099,788 | | | 132,319 | | | 12.0 | |
Cost of goods sold | Cost of goods sold | 1,342,514 | | | 1,827,464 | | | (484,950) | | | (26.5) | | Cost of goods sold | 811,622 | | | 780,868 | | | 30,754 | | | 3.9 | |
Gross profit | Gross profit | 426,548 | | | 802,177 | | | (375,629) | | | (46.8) | | Gross profit | 420,485 | | | 318,920 | | | 101,565 | | | 31.8 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Selling & administrative expense | Selling & administrative expense | 327,506 | | | 385,469 | | | (57,963) | | | (15.0) | | Selling & administrative expense | 152,689 | | | 185,577 | | | (32,888) | | | (17.7) | |
Engineering expense | Engineering expense | 94,494 | | | 103,546 | | | (9,052) | | | (8.7) | | Engineering expense | 40,857 | | | 48,776 | | | (7,919) | | | (16.2) | |
Restructuring expense | 41,005 | | | 24,053 | | | 16,952 | | | 70.5 | | |
Restructuring benefit | | Restructuring benefit | (593) | | | — | | | (593) | | | NM |
| | 463,005 | | | 513,068 | | | (50,063) | | | (9.8) | | | 192,953 | | | 234,353 | | | (41,400) | | | (17.7) | |
Operating (loss) income | $ | (36,457) | | | $ | 289,109 | | | $ | (325,566) | | | (112.6) | % | |
Operating income | | Operating income | $ | 227,532 | | | $ | 84,567 | | | $ | 142,965 | | | 169.1 | % |
Operating margin | Operating margin | (2.1) | % | | 11.0 | % | | (13.1) | | | pts. | Operating margin | 18.5 | % | | 7.7 | % | | 10.8 | | | pts. |
The estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first sixthree months of 20192020 to the first sixthree months of 20202021 were as follows (in millions):
| | | Net Revenue | | Cost of Goods Sold | | Gross Profit | | Net Revenue | | Cost of Goods Sold | | Gross Profit |
Six months ended June 30, 2019 | $ | 2,629.6 | | | $ | 1,827.5 | | | $ | 802.1 | | |
Three months ended March 29, 2020 | | Three months ended March 29, 2020 | $ | 1,100 | | | $ | 781 | | | $ | 319 | |
Volume | Volume | (859.7) | | | (568.8) | | | (290.9) | | Volume | 35 | | | 25 | | | 10 | |
Price, net of related costs | 14.0 | | | 7.2 | | | 6.8 | | |
Price and sales incentives, net of related costs | | Price and sales incentives, net of related costs | 13 | | | (4) | | | 17 | |
Foreign currency exchange rates and hedging | Foreign currency exchange rates and hedging | (21.0) | | | 5.2 | | | (26.2) | | Foreign currency exchange rates and hedging | 19 | | | 11 | | | 8 | |
Shipment mix | Shipment mix | 6.1 | | | 25.8 | | | (19.7) | | Shipment mix | 65 | | | 8 | | | 57 | |
Raw material prices | Raw material prices | — | | | (3.9) | | | 3.9 | | Raw material prices | — | | | 1 | | | (1) | |
Manufacturing and other costs | Manufacturing and other costs | — | | | 49.5 | | | (49.5) | | Manufacturing and other costs | — | | | (11) | | | 11 | |
| | (860.6) | | | (485.0) | | | (375.6) | | | 132 | | | 30 | | | 102 | |
Six months ended June 28, 2020 | $ | 1,769.0 | | | $ | 1,342.5 | | | $ | 426.5 | | |
Three months ended March 28, 2021 | | Three months ended March 28, 2021 | $ | 1,232 | | | $ | 811 | | | $ | 421 | |
Factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first sixthree months of 20192020 to the first sixthree months of 20202021 were as follows:
•The decreaseincrease in volume was due to lowerhigher wholesale motorcycle shipments and lower P&A and general merchandise sales, partially offset by lower sales incentive costs.higher Parts & Accessories sales.
•On average, wholesale prices for motorcycles shipped inDuring the current period were higher than in the same period last year resulting in a favorable impact on revenue. The positive impact onfirst three months of 2021, revenue was partially offset by increased costs related to the additional content added to motorcycles shipped in the current period as compared to the same period last year.benefited from lower sales incentives.
•Revenue and gross profit were adverselywas favorably impacted by weakerstronger foreign currency exchange rates relative to the U.S. dollar, as compared to the same period last year.dollar. The favorable revenue benefit was partially offset by unfavorable net foreign currency losses associated with hedging and balance sheet remeasurements recorded in cost of goods sold.
•Changes in the shipment mix between motorcycle families had an adversea favorable impact on gross profit during the first six monthsquarter of 2020. Additionally, unfavorable mix within P&A contributed to2021 as the impact.increased contribution from Touring models more than offset the impact of unit declines of less profitable small Cruiser models.
•Manufacturing and other costs were adversely impacted bybenefited from cost savings resulting from the Company's 2020 restructuring actions and lower fixed cost absorption and productivity related to the temporary suspension of global manufacturing as a result of the COVID-19 pandemic. These unfavorable impacts weretariff costs, partially offset with a favorable reduction in tariff costs and the absence of temporary inefficienciesby higher COVID-19 pandemic related to thesupply chain costs.
Company's restructuring activities that were incurred in the prior year. The impact of recent tariffs was $19.7 million in the first half of 2020 compared to $55.4 million in the first half of 2019.
Operating expenses were lower in the first six monthsquarter of 20202021 compared to the same period in 20192020 due primarily to lower spendingcosts as a result of the Company aggressively managed costs, partially offset by an increaseCompany's 2020 restructuring actions and a shift in the timing of expenses, related to initiatives under The Hardwire, to subsequent quarters in 2021. Refer to Note 4 of the Notes to Consolidated financial statements for additional information regarding restructuring expenses.activities.
Financial Services Segment
Segment Results
Condensed statements of operations for the Financial Services segment were as follows (in thousands):
| | | Six months ended | | | | | | | Three months ended | | | | |
| | June 28, 2020 | | June 30, 2019 | | Increase (Decrease) | | % Change | | March 28, 2021 | | March 29, 2020 | | (Decrease) Increase | | % Change |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Interest income | Interest income | $ | 338,262 | | | $ | 326,881 | | | $ | 11,381 | | | 3.5 | % | Interest income | $ | 159,814 | | | $ | 170,001 | | | $ | (10,187) | | | (6.0) | % |
Other income | Other income | 56,147 | | | 60,477 | | | (4,330) | | | (7.2) | | Other income | 30,586 | | | 28,455 | | | 2,131 | | | 7.5 | |
| | 394,409 | | | 387,358 | | | 7,051 | | | 1.8 | | | 190,400 | | | 198,456 | | | (8,056) | | | (4.1) | |
Expenses: | Expenses: | | Expenses: | |
Interest expense | Interest expense | 114,660 | | | 104,997 | | | 9,663 | | | 9.2 | | Interest expense | 55,707 | | | 52,473 | | | 3,234 | | | 6.2 | |
Provision for credit losses | Provision for credit losses | 170,598 | | | 60,874 | | | 109,724 | | | 180.2 | | Provision for credit losses | (22,474) | | | 79,419 | | | (101,893) | | | (128.3) | |
Operating expense | Operating expense | 80,336 | | | 87,227 | | | (6,891) | | | (7.9) | | Operating expense | 38,298 | | | 43,618 | | | (5,320) | | | (12.2) | |
Restructuring expense | Restructuring expense | 944 | | | — | | | 944 | | | 100.0 | | Restructuring expense | 227 | | | — | | | 227 | | | NM |
| | 366,538 | | | 253,098 | | | 113,440 | | | 44.8 | | | 71,758 | | | 175,510 | | | (103,752) | | | (59.1) | |
Operating income | Operating income | $ | 27,871 | | | $ | 134,260 | | | $ | (106,389) | | | (79.2) | % | Operating income | $ | 118,642 | | | $ | 22,946 | | | $ | 95,696 | | | 417.0 | % |
Interest income was higher forunfavorable in the first six monthsquarter of 20202021, primarily due to lower average outstanding finance receivables, partially offset by a higher average retail yield. Other income decreasedincreased due in part to lower investmenthigher insurance income. Interest expense increased due to higher average outstanding debt, partially offset by a lower cost of funds.
The provision for credit losses increased $109.7decreased $101.9 million compared to the first halfquarter of 20192021 driven primarily by a $107.2 million increase inimproving economic conditions during the allowance forfirst quarter of 2021 and favorable retail credit losses.loss performance. The retail and wholesale allowanceprovision for credit losses increased $101.6 millionwas favorable as a result of improvement in the U.S. economy and $5.6 million, respectively,the Company’s outlook on future economic conditions. However, there is uncertainty surrounding the pace of economic recovery as compareddemonstrated by unemployment levels above those experienced prior to the first half of 2019 driven byCOVID-19 pandemic and continuing COVID-19 pandemic-related challenges across the U.S., among other factors. As such, the Company considered various third-party economic impactforecast scenarios and applied a probability-weighting to those economic forecast scenarios. At the end of the COVID-19 pandemic. The Company expects that existing recessionaryfirst quarter of 2021, the Company's outlook on economic conditions could be prolonged withincluded economic improvement; however, the pace of economic recovery remains uncertain. As a slowresult, the Company included some adverse economic recovery.conditions in its economic scenario weighting. The Company’s expectations surrounding its economic forecasts may change in future periods as additional information becomes available.
The allowance30-day delinquency rate for credit lossesretail motorcycle loans at JuneMarch 28, 2021 was 2.14% compared to 3.37% at March 29, 2020. The improved delinquency rate was primarily driven by the benefits provided by U.S. federal stimulus packages as well as continued COVID-19 pandemic-related extensions granted to help customers get through financial difficulties associated with the pandemic. During the first quarter of 2021, the volume of payment extensions declined from the levels experienced during the second quarter and into the third quarter of 2020 was determinedbut has not yet returned to pre-COVID-19 pandemic levels. The Company continues to grant payment extensions to customers in accordance with ASU 2016-13, a new accounting standard adopted on January 1, 2020 that changed how companies recognize expected credit losses on financial instruments. The new standard requires recognition of full lifetime expected credit losses upon initial recognition of a financial instrument, replacing the prior, incurred loss methodology. The Company adopted the new accounting standard using a modified retrospective approach. As a result, prior period results were not restated.
its policies. Annualized credit losses for the Company's retail motorcycle loans were 1.87%1.46% through JuneMarch 28, 20202021 compared to 1.82%2.73% through June 30, 2019.March 29, 2020. The 30-dayfavorable retail credit loss performance was due to the low delinquency rate for retaillevels as well as improved used motorcycle loansvalues at June 28, 2020 was 1.75% comparedauction due to 3.33% at June 30, 2019. The improved delinquency rate was primarily driven by a high volumelimited supply of COVID-19 related extensions during the second quarter of 2020 on eligible retail loans to help customers get through short-term financial difficulties associated with the pandemic.new and used motorcycles.
Operating expenses decreased $6.9$5.3 million compared to the first halfquarter of 2019 in part driven by lower employee related2020 as the Company aggressively managed costs and consulting expense.benefited from lower costs resulting from the Company's 2020 restructuring actions. Refer to Note 4 of the Notes to Consolidated financial statements for additional information regarding restructuring activities.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
| | | Six months ended | | | Three months ended |
| | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 |
Balance, beginning of period | Balance, beginning of period | $ | 198,581 | | | $ | 189,885 | | Balance, beginning of period | $ | 390,936 | | | $ | 198,581 | |
| Cumulative effect of change in accounting(a) | Cumulative effect of change in accounting(a) | 100,604 | | | — | | Cumulative effect of change in accounting(a) | — | | | 100,604 | |
Provision for credit losses | Provision for credit losses | 170,598 | | | 60,874 | | Provision for credit losses | (22,474) | | | 79,419 | |
Charge-offs, net of recoveries | Charge-offs, net of recoveries | (58,768) | | | (55,763) | | Charge-offs, net of recoveries | (22,229) | | | (43,108) | |
Balance, end of period | Balance, end of period | $ | 411,015 | | | $ | 194,996 | | Balance, end of period | $ | 346,233 | | | $ | 335,496 | |
(a)On January 1, 2020, the Company adopted ASU 2016-13 and increased the allowance for loan loss through retained earnings,Retained Earnings, net of income taxes, to establish an allowance that represents expected lifetime credit losses on the finance receivable portfolio at date of adoption.
Other Matters
Critical Accounting Estimates
As a result of the January 1, 2020 adoption ASU 2016-13, the Company has updated the Critical Accounting Estimate disclosure from 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, 2019 as follows:
Allowance for Credit Losses on Retail Finance Receivables – The allowance for credit losses represents the Company’s estimate of future lifetime losses for its retail finance receivables portfolio. The Company performs a collective evaluation of the adequacy of its retail allowance for credit losses. Subsequent to the January 1, 2020 adoption of ASU 2016-13, the Company utilizes a vintage-based loss forecast methodology that includes decompositions for probability of default, exposure at default, attrition rate, and recovery balance rate. Reasonable and supportable economic forecasts for a two-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, over the expected life of the retail portfolio. For periods beyond the Company’s reasonable and supportable forecasts, the Company reverts to its average historical loss experience for a three-year period using a mean-reversion process. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, or term as well as other relevant factors.
Contractual Obligations
As of June 28, 2020, the Company has updated the contractual obligations table from 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, 2019 to reflect the new projected principal and interest payments for the remainder of 2020 and beyond as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021-2022 | | 2023-2024 | | Thereafter | | Total |
Debt: | | | | | | | | | |
Principal payments on debt | $ | 1,934,840 | | | $ | 3,983,513 | | | $ | 2,890,690 | | | $ | 1,450,000 | | | $ | 10,259,043 | |
Interest payments on debt | 146,642 | | | 417,167 | | | 209,542 | | | 321,280 | | | 1,094,631 | |
| $ | 2,081,482 | | | $ | 4,400,680 | | | $ | 3,100,232 | | | $ | 1,771,280 | | | $ | 11,353,674 | |
Interest for floating rate instruments, as calculated above, assume rates in effect at June 28, 2020 remain constant. For purposes of the above, the principal payment balances for medium-term notes, on-balance sheet asset-backed securitizations, and senior notes are shown without reduction for unamortized discounts and debt issuance costs. Refer to Note 12 of the Notes to the Consolidated financial statements for a breakout of the finance costs.
As of June 28, 2020, 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, 2019.
Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining costs 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. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as 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 in July 2017 (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. In December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the Settlement with the U.S. District Court for the District of Columbia for the purpose of obtaining court approval of the Settlement. Three amicus briefs opposing portions of the Settlement were filed with the court by the deadline of January 31, 2018. On March 1, 2018, the Company and the DOJ each filed separate response briefs. The Company is awaiting the court's decision on whether or not to finalize the Settlement, and on February 8, 2019, the DOJ filed a status update reminding the court of the current status of the outstanding matter. The Company has an accrual associated with this matter recorded in Accrued liabilities on 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 Matter – The Company is involved with government agencies and the U.S. Navy 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. The Company has an agreement with the U.S. Navy which calls for the U.S. 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). A site wide remedial investigation/feasibility study and a proposed final remedy for the York facility have been completed and approved by the Pennsylvania Department of Environmental Protection and the EPA. The associated cleanup plan documents were approved in February 2020 and the remaining cleanup activities are expected to begin in late 2020 or early 2021. The Company has an accrual for its share of the estimated future Response Costs recorded in Other long-term liabilities on the Consolidated balance sheets.
Product Liability Matters – The Company is periodically 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)
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 variable interest entities (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 as the Company, in addition to retaining servicing rights, 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 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 as the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants. In April 2020, this off-balance sheet asset-backed securitization VIE was repurchased for $27.4 million. Refer to Note 1316 of the Notes to Consolidated financial statementsfor additional information.a discussion of the Company's commitments and contingencies.
Liquidity and Capital Resources as of June 28, 2020(1)
The Company's response to the COVID-19 pandemic includesincluded actions implemented during 2020 to preserve cash and secure additional liquidity. The Company has takencontinues to monitor its liquidity in light of uncertainty related to the potential impacts of the COVID-19 pandemic. Based on the Company's current outlook, for both the near and longer terms, it expects Motorcycles segment operations to continue to be funded primarily through cash flows generated by operations and Financial Services segment operations to continue to be funded with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities, asset-backed securitizations and deposits.(1)
The Company's cash allocation priorities are first to fund growth through The Hardwire initiatives, then to reward shareholders through dividends. In addition, given the Company’s strong cash position, it will be evaluating share repurchases and may choose to repurchase shares.
The Company's strategy is to maintain a numberminimum of specific actions to reduce spending. The Company expectstwelve months of its planned reductions in spending will preserve approximately $250 millionprojected liquidity needs through a combination of cash in 2020 excludingand cash equivalents and availability under its credit facilities. In response to liquidity concerns related to the impact of restructuring charges.In addition,COVID-19 pandemic, the Company has made no discretionary share repurchases through Juneincreased its cash and cash equivalents during 2020. The Company's cash and cash equivalents remain elevated at the end of March 2021, but during the first quarter of 2021, the Company began to gradually reduce its cash and cash equivalents from December 2020 and does not intend to repurchase shares on a discretionary basis for the remainder of 2020.
levels. The Company’s cash and cash equivalents and availability under its credit and conduit facilities at JuneMarch 28, 20202021 were as follows (in thousands):
| | | | | |
| June 28, 2020 |
Cash and cash equivalents | $ | 3,856,5972,320,645 | |
| |
| |
| |
Availability under credit and conduit facilities: | |
Credit facilities | 217,612999,737 | |
Asset-backed U.S. commercial paper conduit facilitiesfacility(a) | 600,000 | |
Asset-backed Canadian commercial paper conduit facility(a) | 16,60171,895 | |
| $ | 4,690,8103,992,277 | |
(a)Includes facilities expiring in the next 12 months which the Company expects to renew prior to expiration.(1)
To access the debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings. The Company’s short-term debt ratings affect its ability to issue unsecured commercial paper. 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 creditshort-term debt ratings all remain investment grade allowing itaffect its ability to maintain access toissue unsecured commercial paper markets, which is an efficient source of funding for the Company.paper. The Company’s short- and long-term debt ratings, as of the issuance date of this Form 10-Q,March 28, 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| Short-Term | | Long-Term | | Outlook |
Moody’s | P2P3 | | Baa2Baa3 | | NegativeStable |
Standard & Poor’s | A2A3 | | BBBBBB- | | NegativeStable |
Fitch | F2 | | A-BBB+ | | Negative |
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 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.(1) The Financial Services operations 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 operations 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 Company's cash flow activities were as follows (in thousands):
| | | | | | | | | | | |
| Six months ended | | |
| June 28, 2020 | | June 30, 2019 |
Net cash provided by operating activities | $ | 610,203 | | | $ | 496,232 | |
Net cash used by investing activities | (151,278) | | | (364,575) | |
Net cash provided (used) by financing activities | 2,703,637 | | | (380,946) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (382) | | | 3,439 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 3,162,180 | | | $ | (245,850) | |
| | | | | | | | | | | |
| Three months ended |
| March 28, 2021 | | March 29, 2020 |
Net cash provided (used) by operating activities | $ | 162,781 | | | $ | (8,582) | |
Net cash (used) provided by investing activities | (26,733) | | | 28,288 | |
Net cash (used) provided by financing activities | (1,012,719) | | | 655,508 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5,163) | | | (5,732) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (881,834) | | | $ | 669,482 | |
Operating Activities
The increase in net cash from operating activities for the first halfthree months of 20202021 compared to the same period in 2019 was primarily due to the reduction in inventory levels2020 reflects benefits from improved net income and favorable changes in working capital, including lower inventory. The Company continues to expect that it will generate sufficient cash flowsinflows from wholesale financing activity, partially offset by lower net income. operations to fund its ongoing operating cash requirements including 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 relate to leases, retirement plan obligations and income taxes. The Company's long-term lease obligations and future payments are discussed further in Note 10 of the Notes to Consolidated financial statements. There wereare no voluntaryrequired qualified pension plan contributions in 2021. The Company’s expected future contributions and benefit payments related to its defined benefit retirement plans are discussed further in Note 15 of the first half of 2020 or 2019 and no contributions are plannedNotes to Consolidated financial statements in the Company's Annual Report on Form 10-K for the remainderyear ended December 31, 2020. The Company has a liability for unrecognized tax benefits of 2020.$51.4 million and related accrued interest and penalties of $26.1 million as of March 28, 2021. The Company cannot reasonably estimate the period of cash settlement for either the liability for unrecognized tax benefits or accrued interest and penalties.(1)
Investing Activities
The Company’s most significant investing activities consist of capital expenditures and retail finance receivable originations and collections. Capital expenditures were $67.0$18.8 million in the first halfthree months of 20202021 compared to $83.2$32.9 million in the same period last year. The Company's 2021 plan includes estimated capital expenditures between $190 million to $220 million, all of which the Company expects to fund with net cash flow generated by operations.(1)
Net cash outflows from finance receivables for the first halfquarter of 20202021 were $212.2$69.9 million lowerhigher compared to the same period last year due primarily to lowerhigher retail finance receivable originations. Other investing activities were $15.1 million unfavorableThe Company funds its finance receivables net lending activity through the issuance of debt, discussed in the first half"Financing Activities" below.
Financing Activities
The Company’s financing activities consist primarily of dividend payments, share repurchases, dividend payments, and debt activity. Cash outflows for
The Company paid dividends of $0.15 and $0.38 per share repurchases were $7.2totaling $23.1 million inand $58.8 million during the first halfthree months of 2021 and 2020, compared to $104.6 million in the same period last year. respectively.
In the first quarter of 2020, the Company temporarily suspended its discretionary share repurchase programrepurchases; as a result, there have been no discretionary share repurchases in 2021 or 2020. Share repurchases during the first six months of 2020 included $7.2 million or 0.2 million shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units.units during the first three months of 2021 and 2020 were $5.6 million or 0.2 million shares and $7.1 million or 0.2 million shares, respectively. As of JuneMarch 28, 2020,2021, there were 18.2 million shares remaining on board-approved share repurchase authorizations. The Company paid dividends of $0.40 and $0.75 per share totaling $61.9 million and $120.8 million during the first half of 2020 and 2019, respectively.
Financing cash flows related to debt and deposit activity resulted in net cash inflowsoutflows of $2.8 billion$985.1 million in the first sixthree months of 20202021 compared to net cash outflowsinflows of $156.3$721.4 million in the first sixthree months of 2019.2020. The Company’s total outstanding debt and deposits consisted of the following (in thousands):
| | | June 28, 2020 | | June 30, 2019 | | March 28, 2021 | | March 29, 2020 |
Outstanding debt: | | Outstanding debt: | | | |
Global credit facility borrowings | | Global credit facility borrowings | $ | 15,462 | | | $ | — | |
Unsecured commercial paper | | Unsecured commercial paper | 749,801 | | | 1,335,664 | |
| Unsecured commercial paper | $ | 1,397,388 | | | $ | 405,695 | | |
Asset-backed Canadian commercial paper conduit facility | Asset-backed Canadian commercial paper conduit facility | 144,661 | | | 148,740 | | Asset-backed Canadian commercial paper conduit facility | 102,543 | | | 155,243 | |
Asset-backed U.S. commercial paper conduit facilities | Asset-backed U.S. commercial paper conduit facilities | 540,840 | | | 464,136 | | Asset-backed U.S. commercial paper conduit facilities | 350,648 | | | 600,000 | |
Asset-backed securitization debt, net | Asset-backed securitization debt, net | 2,461,107 | | | 1,002,869 | | Asset-backed securitization debt, net | 2,099,258 | | | 1,156,845 | |
Medium-term notes, net | Medium-term notes, net | 4,784,293 | | | 4,687,660 | | Medium-term notes, net | 3,803,736 | | | 4,148,984 | |
364-day credit facility borrowings | 150,000 | | | — | | |
Senior notes, net | Senior notes, net | 743,635 | | | 742,959 | | Senior notes, net | 744,149 | | | 743,466 | |
| | $ | 10,221,924 | | | $ | 7,452,059 | | | $ | 7,865,597 | | | $ | 8,140,202 | |
| Deposits, net | | Deposits, net | $ | 152,653 | | | $ | — | |
Refer to Note 11 of the Notes to Consolidated financial statements for a summary of future principal payments on the Company's debt obligations. Refer to Note 7 of the Notes to Consolidated financial statements for a summary of future maturities on the Company's certificates of deposit.
Deposits – During 2020, HDFS began offering 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 $152.7 million, net of fees, of interest-bearing brokered certificates of deposit outstanding as of March 28, 2021. There were no deposits as of March 29, 2020. The deposits are classified as short- and long-term liabilities 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.
Credit Facilities – In April 2020, the Company entered into a $707.5 million five-year credit facility to replace the $765.0 million five-year credit facility that was due to mature in April 2021. The new five-year credit facility matures in April 2025. At March 28, 2021, andthe Company had borrowings of $15.5 million outstanding under this facility, which the Company repaid in full on April 7, 2021. The Company also amended theits $780.0 million five-year credit facility in April 2020 to $707.5 million with no change to the maturity date of April 2023. The new five-year credit facility matures in April 2025. Additionally, theThe Company also hadhas a $195.0$350.0 million 364-day credit facility which was due to maturematures in May 2020. In April 2020, the Company extended the maturity date of this credit facility to August 2020; however, this facility was terminated on May 18, 2020. At the time of termination, there were no outstanding borrowings under this 364-day credit facility. On June 1, 2020, the
Company entered into a new $350.0 million 364-day credit facility, and on June 4, 2020, the Company borrowed $150.0 million under this facility.2021. The five-year credit facilities (together, the Global Credit Facilities), as well as the $350.0 million 364-day credit facility, bear interest at variable rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities and the $350.0 million 364-day credit facility also require the Company to pay a fee based on the average daily unused portion of the aggregate commitments. The Global Credit Facilities are committed facilities primarily used to support the Company's unsecured commercial paper program.
Unsecured Commercial Paper – Subject to limitations, the Company could issue unsecured commercial paper of up to $1.42$1.40 billion as of JuneMarch 28, 20202021 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 or the $350.0 million 364-day credit facility, borrowing under its asset-backed U.S. commercial paper conduit facilitiesfacility 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 issued and outstanding at JuneMarch 28, 20202021 (in thousands):
| Principal Amount | Principal Amount | | Rate | | Issue Date | | Maturity Date | Principal Amount | | Rate | | Issue Date | | Maturity Date |
| $600,000 | | 2.85% | | January 2016 | | January 2021 | |
$450,000 | | LIBOR + 0.94% | | November 2018 | | March 2021 | |
$350,000 | $350,000 | | 3.55% | | May 2018 | | May 2021 | $350,000 | | 3.55% | | May 2018 | | May 2021 |
$550,000 | $550,000 | | 4.05% | | February 2019 | | February 2022 | $550,000 | | 4.05% | | February 2019 | | February 2022 |
$400,000 | $400,000 | | 2.55% | | June 2017 | | June 2022 | $400,000 | | 2.55% | | June 2017 | | June 2022 |
$350,000 | $350,000 | | 3.35% | | February 2018 | | February 2023 | $350,000 | | 3.35% | | February 2018 | | February 2023 |
$729,885(a) | | 4.94% | | May 2020 | | May 2023 | |
$673,740(b) | | 3.14% | | November 2019 | | November 2024 | |
$762,996(a) | | $762,996(a) | | 4.94% | | May 2020 | | May 2023 |
$704,304(b) | | $704,304(b) | | 3.14% | | November 2019 | | November 2024 |
$700,000 | $700,000 | | 3.35% | | June 2020 | | June 2025 | $700,000 | | 3.35% | | June 2020 | | June 2025 |
(a)Euro denominated, €650.0 million par value remeasured to U.S. dollar at JuneMarch 28, 20202021
(b)Euro denominated, €600.0 million par value remeasured to U.S. dollar at JuneMarch 28, 20202021
The fixed-rate U.S. dollar-denominated medium-term notes provide for semi-annual interest payments and the fixed-rate foreign currency-denominated medium-term notes provide for annual interest payments, and the floating-rate medium-term notes provide for quarterly 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 $19.3$13.6 million and $12.3$11.0 million at JuneMarch 28, 20202021 and June 30, 2019,March 29, 2020, respectively. During the secondfirst quarter of 2020,2021, $600.0 million of 2.85% medium-term notes and $450.0 million of floating rate and $350.0 million of 2.4%floating-rate medium-term notes matured, and the principal and accrued interest were paid in full. During the first quarter of 2020, $600.0 million of 2.15% medium-term notes matured, and the principal and accrued interest were paid in full. There were no medium-term note maturities during the second quarter of 2019. During the first quarter of 2019, $600.0 million of 2.25% and $150.0 million of floating-rate medium-term notes matured, and the principal and accrued interest were paid in full.
Senior Notes – In July 2015, the Company issued $750.0 million of unsecured senior notes in an underwritten offering. The senior notes provide for semi-annual interest payments and principal due at maturity. $450.0 million of the senior notes mature in July 2025 and have an interest rate of 3.50%, and $300.0 million of the senior notes mature in July 2045 and have an interest rate of 4.625%. The Company used the proceeds from the debt to repurchase shares of its common stock in 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$220.0 million. The transferred assets are restricted as collateral for the payment of the associated debt. The terms for this facility 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$220.0 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 Canadian Conduit was renewed on June 26, 2020 with similar terms and a borrowing amount of up to C$220.0 million. The expected remaining term of the related
receivables is approximately 54 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of JuneMarch 28, 2020,2021, the Canadian Conduit has an expiration date of June 25, 2021.
QuarterlyThere were no finance receivable transfers under the Canadian Conduit Facility during the first quarter of 2021. During the first quarter of 2020, the Company transferred $77.9 million of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respectivefor proceeds were as follows (in thousands):of $61.6 million.
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | |
| Transfers | | Proceeds | | Transfers | | Proceeds |
First quarter | $ | 77,900 | | | $ | 61,600 | | | $ | — | | | $ | — | |
Second quarter | — | | | — | | | 28,200 | | | 23,400 | |
| | | | | | | |
| | | | | | | |
| $ | 77,900 | | | $ | 61,600 | | | $ | 28,200 | | | $ | 23,400 | |
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE – TheUntil November 25, 2020, the Company hashad two separate agreements with third-party bank-sponsored asset-backed U.S. commercial paper conduits, a $300.0 million revolving facility agreement and a $600.0 million revolving facility agreement (together, the Former U.S. Conduit Facilities). On November 25, 2020, the Company amended each revolving facility agreement by consolidating the two agreements into one $900.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits under which itconduits. Under the revolving facility agreement, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party bank-sponsored asset-backed U.S. commercial paper conduits. In May 2019,addition to the Company amended its $300.0$900.0 million revolving facilityaggregate commitment, the agreement to allowallows for incrementaladditional borrowings, at the lender'slender’s discretion, of up to an additional $300.0 million in excess ofmillion. Availability under the $300.0 million commitment. In November 2019, the Company renewed its existing $600.0 million and the amended $300.0$900.0 million revolving facility agreements with third-party bank-sponsored asset-backed U.S. commercial paper conduits. Availability under the revolving facilities (together, the(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.
QuarterlyThere were no finance receivable transfers under the U.S. Conduit Facility during the first quarter of 2021. During the first quarter of 2020, the Company transferred $195.3 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $163.6 million of debt under the Former U.S. Conduit Facilities and the respective proceeds were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | |
| Transfers | | Proceeds | | Transfers | | Proceeds |
First quarter | $ | 195,300 | | | $ | 163,600 | | | $ | — | | | $ | — | |
Second quarter | — | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| $ | 195,300 | | | $ | 163,600 | | | $ | — | | | $ | — | |
Facilities.The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates if funded by a conduit lender through the issuance of commercial paper. If not funded by a conduit lender through the issuance of commercial paper, the terms of the interest are based on LIBOR. In each of these cases, a program fee is assessed based on the outstanding principal. The U.S. Conduit FacilitiesFacility also provideprovides for an unused commitment fee based on the unused portion of the total aggregate commitment. When calculating the unused fee, the aggregate commitment for the $300.0 million agreement does not include any unused portion of the $300.0 million incrementaladditional borrowings allowed. 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 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 54 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of JuneMarch 28, 2020,2021, the U.S. Conduit Facilities haveFacility has an expiration date of November 25, 2020.19, 2021.
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. The 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, 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 currently have various contractual maturities ranging from 20212022 to 2028.
Quarterly transfers2021, the Company transferred $663.1 million of U.S. retail motorcycle finance receivables to SPEs, the respective proceeds, and the respective proceeds,an SPE which, in turn, issued $600.0 million, or $597.4 million net of discountsdiscount and issuance costs, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | |
| Transfers | | Proceeds | | Proceeds, net | | Transfers | | Proceeds | | Proceeds, net |
First quarter | $ | 580,200 | | | $ | 525,000 | | | $ | 522,700 | | | $ | — | | | $ | — | | | $ | — | |
Second quarter | 1,840,500 | | | 1,550,200 | | | 1,541,800 | | | 1,120,000 | | | 1,025,000 | | | 1,021,300 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 2,420,700 | | | $ | 2,075,200 | | | $ | 2,064,500 | | | $ | 1,120,000 | | | $ | 1,025,000 | | | $ | 1,021,300 | |
of secured notes through an on-balance sheet asset-backed securitization transaction. During the first quarter of 2020, the Company transferred $580.2 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $525.0 million, or $522.7 million net of discount and issuance costs, of secured notes through an on-balance sheet asset-backed securitization transaction.Support Agreement – The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support to maintain HDFS’ fixed-charge coverage at 1.25 and minimum net worth of $40.0 million. Support may be provided at the Company’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 HDFS under the support agreement.
Operating and Financial Covenants – HDFS and the Company are subject to various operating and financial covenants related to the credit facilities and various operating covenants under the medium-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’ 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 HDFS’ consolidated debt, excluding secured debt, to HDFS' consolidated allowance for credit losses on finance receivables plus HDFS’ consolidated shareholders' equity, excluding accumulated other comprehensive loss (AOCL), cannot exceed 10.0 to 1.0 as of the end of any fiscal quarter. As of the end of the second quarter of 2020, the actual ratio was 5.1 to 1.0. 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 excludes that of HDFS and its subsidiaries, and the Company's consolidated shareholders’ equity excludes AOCL), cannot exceed 0.7 to 1.0 as of the end of any fiscal quarter. No financial covenants are required under the medium-term or senior notes or the U.S. or Canadian asset-backed commercial paper conduit facilities.
As of JuneMarch 28, 2020,2021, HDFS and the Company remained in compliance with all of the then existing covenants and expects to remain in compliance for the foreseeable future.covenants.
Cautionary Statements
Important factors that could affect future results and cause those results to differ materially from those expressed in the forward-looking statements include, among others, the following: (i) the COVID-19 pandemic, including the length and severity of the pandemic across the globe and the pace of recovery following the pandemic; and (ii) adverse economic, political or market conditions in the U.S. and international markets and other factors such as natural disasters; and (iii) the Company'sCompany’s ability to: (a) create and(A) execute its business plans and strategies, including The Hardwire, successfully execute its remodeled approach to supply and inventory management, and strengthen its existing business while allowing for desirable growth; (b) manage and predict(B) mitigate the impact of the revocation of the Binding Origin Information (BOI) decisions that new or adjusted tariffs may haveallowed 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 favorably resolve risks and uncertainties related to the revocation of the BOI decisions including, among other: (1) uncertainties regarding the quantity and mix of motorcycles that the Company imports into the EU; (2) uncertainties regarding the import prices of motorcycles; (3) whether the Company will be granted temporary relief from the effect of the revocation of the BOI decisions; (4) whether the Company will be successful in appealing the revocation of the BOI decisions; (5) uncertainties regarding the size and duration of the EU tariffs; and (6) whether and to what extent the Company determines to attempt to pass on the Company's abilityimpact of the revocation to sell products internationally,dealers and the cost of raw materials and components; (c) successfully carry out its global manufacturing and assembly operations; (d)success in doing so; (C) accurately analyze, predict and react to changing market conditions and successfully adjust to shifting global consumer needs and interests, including successfully implementing and executing plans to exit international markets where volumes and profitability do not support continued investment in line with future strategy; (e)interests; (D) successfully access the capital and/or credit markets on terms that are acceptable to the Company and within its expectations; (f) develop(E) successfully carry out its global manufacturing and maintain a productive relationship with Zhejiang Qianjiang Motorcycle Co., Ltd. and launch related products in a timely manner; (g)assembly operations; (F) 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; (h)returns, including successfully implementing and executing plans to strengthen and grow its leadership position in Touring, large Cruiser and Trike, and growing its complementary businesses; (G) perform in a manner that enables the Company to benefit from market opportunities while competing against existing and new competitors; (i) realize expectations concerning market demand for electric models, which will depend in part on the building of necessary infrastructure; (j)(H) prevent, detect, and remediate 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, and carry out any product programs or recalls within expected costs and timing; (k)(I) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters; (l)(J) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles; (m)(K) realize expectations concerning market demand for electric models, which will depend in part on the building of necessary infrastructure; (L) successfully
manage and reduce costs throughout the business; (n) balance production volumes for its new motorcycles with consumer demand; (o) manage risks that arise through expanding international manufacturing, operations and sales; (p)(M) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing political environment; (q) successfully determine, implement on a timely basis, and maintain a manner in which to sell motorcycles in the European Union, China, and the Company's ASEAN countries that does not subject its motorcycles to incremental tariffs; (r) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices; (s)(N) 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; (t) retain(O) develop and attract talented employeesmaintain a productive relationship with Zhejiang Qianjiang Motorcycle Co., Ltd. and eliminate personnel duplication, inefficiencies,launch related products in a timely manner; (P) develop and complexity throughoutmaintain a productive relationship with Hero MotoCorp as a distributor and licensee of the organization; (u) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or Company dataHarley-Davidson brand name in India; (Q) manage and respond to evolving regulatory requirements regarding data security; (v) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio; (w) adjust to tax reform, healthcare inflation and reform and pension reform, and successfully estimatepredict the impact of any such reform on the Company's business; (x) manage through the effects inconsistent and unpredictable weather patternsthat new or adjusted tariffs may have on retail salesthe Company’s ability to sell products internationally, and the cost of motorcycles; (y) implementraw materials and manage enterprise-wide information technology systems, including systems atcomponents; (R) 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 manufacturing facilities; (z) grow ridership, globally; (aa) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations; (bb) manage its exposuremotorcycles to product liability claims and commercial or contractual disputes; (cc)incremental tariffs; (S) 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; (dd)(T) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices; (U) retain and attract talented employees, and eliminate personnel duplication, inefficiencies and complexity throughout the organization; (V) prevent a cybersecurity breach involving consumer, employee, dealer, supplier,
or Company data and respond to evolving regulatory requirements regarding data security; (W) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio; (X) adjust to tax reform, healthcare inflation and reform and pension reform, and successfully estimate the impact of any such reform on the Company's business; (Y) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles; (Z) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities; (AA) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations; (BB) manage its exposure to product liability claims and commercial or contractual disputes; (CC) continue to manage the relationships and agreements that the Company has with its labor unions to help drive long-term competitiveness; and (ee)(DD) accurately predict the margins of its Motorcycles and Related Products segment in light of, among other things, tariffs, the cost associated with product development initiatives and the Company'sCompany’s complex global supply chain.chain; and (EE) successfully develop and launch the pre-owned motorcycle program, Harley-Davidson Certified.
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, or other factors. Other factors are described in Item 1A. Risk Factors and risk factors that the Company has disclosed in documents previously filed with the Securities and Exchange Commission. Many of these risk factors are impacted by the current changing capital, credit and retail markets and the Company's ability to manage through inconsistent economic conditions.
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 has experienced historically low levels of retail credit losses, but there is no assurance that this will continue. The Company believes that HDFS' retail credit losses may increase over time due to changing consumer credit behavior and HDFS' efforts to increase prudently structured loan approvals to sub-prime borrowers, as well as actions that the Company has taken and could take that impact motorcycle values.
Refer to Item 1A. Risk Factors of this report and Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 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 About Market Risk
The Company is exposed to market risk from changes in foreign currency exchange rates, commodity prices and interest rates. To 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 risk.risks. Further disclosure relating to the fair value of the Company's derivative financial instruments is included in Note 109 of the Notes to the Consolidated financial statements.
Motorcycles and Related Products 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 Company’s earningsMotorcycles segment operating results are affected by fluctuations in the value of the U.S. dollar relative to foreign currencies. The Company’s most significant foreign currency exchange rate risk resulting from the sale of motorcycles and related products relates to the Euro, Australian dollar, Japanese yen, Brazilian real, Canadian dollar, Mexican peso, Chinese yuan, Thai baht, Indian rupee, Singapore dollar and Pound sterling. The Company
utilizes foreign currency contracts to mitigate the effect of certain currencies' fluctuations on earnings.Motorcycles segment operating results. The foreign currency contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollarscurrencies at a future date, based on a fixed exchange rate.
The Company's earnings are affected by changes in the prices of commodities used in the production of motorcycles. The Company uses derivative financial instruments on a limited basis to hedge the prices of certain commodities.
HDFS’ earnings are affected by changes in interest rates. HDFS’ interest rate sensitive financial instruments include finance receivables, debt and interest rate derivatives. HDFS utilizes interest rate swaps and caps to reduce the impact of fluctuations in interest rates on its debt. HDFS also has currency exposure related to financing in currencies other than the functional currency. HDFS utilizes cross-currency swaps to mitigate the effect of the foreign currency exchange rate fluctuations.
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for further information concerning the Company's market risk. 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, 2019.2020.
The Company purchases commodities for the use in the production of motorcycles. As a result, Motorcycles segment operating results are 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, 2020.
Financial Services Segment
The Company has interest rate sensitive financial instruments including financial receivables, debt and interest rate derivative financial instruments. As a result, Financial Services 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, 2020.
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, 2020.
The Company has foreign denominated medium-term notes. As a result, Financial Services operating income is affected by fluctuations in the value of the U.S. dollar relative to foreign currencies and interest rates. At March 28, 2021, 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, 2020.
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2020 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 and 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 and 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 and 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 JuneMarch 28, 20202021 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
Item 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 1716 of the Notes to Consolidated financial statements, and such information is incorporated herein by reference in this Item 1 of Part II.
Item 1A. Risk Factors
An investment in Harley-Davidson, In.Inc. involves risks, including the risk factors discussed in Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2019,2020, which have not materially changed except as set forth below.
The COVID-19 pandemic has adversely impacted•Trade policies and changes in trade policies, including the Company'simposition of tariffs, their enforcement and downstream consequences, may continue to have a material adverse impact on our business, results of operations and mayoutlook. Tariffs and/or other developments with respect to trade policies, trade agreements and government regulations could have a material adverse impact on the Company's future business, results of operations, financial condition and liquidity.
Duringresults of operations. To date, the first quarter of 2020,European Union (EU) has placed a 25% incremental tariff (31% total tariff) on motorcycles imported into the outbreak of a novel strain of coronavirus (COVID-19) spread throughout the world and was subsequently recognized as a pandemic. The COVID-19 pandemic has severely restricted the level of economic activity inEU from the U.S. and aroundthat is scheduled to increase to a 50% incremental tariff (56% total tariff) effective June 1, 2021. Shipments of motorcycles to the world. The COVID-19 pandemic has ledEuropean Union are a significant portion of the Company’s total motorcycles sales. Beginning in 2019, the Company obtained regulatory approvals, reflected in five Binding Origin Information (BOI) rulings, that allowed it to supply chain destabilization, facility closures, workforce disruption, and volatilityits EU markets with certain of its motorcycles produced at its Thailand facilities at tariff rates of 6%. In April 2021, the Company received notification from the Economic Ministry of Belgium that, following a request from the European Union, the Company would be subject to the revocation of the BOI rulings, effective April 19, 2021. Following the revocation, non-electric motorcycles Harley-Davidson imports into the European Union, regardless of origin, will be subject to a total tariff rate of 31% from April 19, 2021 to May 31, 2021. This rate is expected to increase to 56% effective June 1, 2021. This ruling will effectively prohibit the Company from functioning competitively in the economy,European Union. The Company is appealing the revocation of the BOIs. It has also sought temporary extended reliance on the 6% tariff rate, for motorcycles produced in Thailand and ordered prior to April 19, 2021. There is no assurance that the appeal will be successful or that the Company will receive the extended reliance. The full impact of the revocation is subject to uncertainties that include the following, among other factors: (i) uncertainties regarding the quantity and mix of motorcycles that the Company imports into the EU; (ii) uncertainties regarding the import prices of motorcycles; (iii) whether the Company will be granted extended reliance on the 6% tariff rate for motorcycles ordered prior to April 19, 2021; (iv) whether the Company will be successful in appealing the revocation of the BOI rulings; (v) uncertainties regarding the size and duration of the EU tariffs; and (vi) whether and to what extent the Company determines to attempt to pass on the impact of the revocation to dealers and its full impactsuccess in doing so.
In addition, the U.S. government imposed increased tariffs on imports from China (Section 301 tariffs), which has resulted in higher costs for components and products sourced from China.
Without limitation, (i) tariffs currently in place, (ii) the imposition by the U.S. government of new tariffs on imports to the U.S. and/or (iii) the imposition by foreign countries of tariffs on U.S. products, including tariffs imposed in response to U.S. tariffs, could materially increase: (a) the cost of Harley-Davidson products that the Company is not yet known. These impacts may continue to expandoffering for sale in scope, typerelevant countries, (b) the cost of certain products that the Company sources from foreign manufacturers and severity.
The Company’s operations and demand for its products have been adversely impacted as a result(c) the prices of certain raw materials that the COVID-19 pandemic.Company utilizes. The Company acted quickly and in alignment with government effortsmay not be able to protect the safety and health of its employeespass such increased costs on to distributors, independent dealers or their customers, and the Harley-Davidson community. The Company implemented travel restrictions, enhanced sanitation practices, cancelled eventsmay not be able to secure sources of certain products and closed facilities including temporarily suspending global manufacturing starting in March 2020. While the Company's global manufacturing has resumed and thematerials that are not subject to tariffs on a timely basis. Such developments could have a material adverse impact on demand, facility closures and other restrictions are expected to be temporary, the duration and financial impact to the Company are unknown at this time. To the extent these impacts continue, they will have an adverse effect on the Company's future business, results of operations, financial condition and liquidity.
It is likely that the COVID-19 pandemic will continue to have the following adverse impacts, each of which could be material: (i) disruption of the Company’s supply chain; (ii) disruption of the Company's manufacturing and distribution capabilities; (iii) limitation of the ability of the Company’s global independent dealers to operate including their ability to purchase and sell the Company’s products and meet their loan obligations to the Company; (iv) delay or elimination of retail customer purchases, resulting in decreased demand for the Company’s products; (v) reduction of the Company’s retail credit customers' ability to meet their loan obligations on a timely basis or at all; (vi) disruption of global capital markets impacting the Company’s access to capital, cost of capital, and overall liquidity levels; (vii) delay of the Company’s new product development efforts; and/or (viii) other unpredictable impacts. The overall impact to the Company's future business, results of operations, financial condition and liquidity will depend on the duration and severity of the COVID-19 pandemic.operations.
The impacts that are listed aboveCompany disclaims any obligation to update these risk factors or any other forward-looking statements. The Company assumes no obligation, and specifically disclaims any such obligation, to update these risk factors or any other impactsforward-looking statements to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Detail related to theThe Company's share repurchases, which consisted of its common stock based on the date of trade during the quarter ended June 28, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
2020 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 |
March 30 to April 3 | | 1,621 | | | $ | 18 | | | 1,621 | | | 18,246,721 | |
April 4 to May 31 | | 1,764 | | | $ | 21 | | | 1,764 | | | 18,246,721 | |
June 1 to June 28 | | 758 | | | $ | 25 | | | 758 | | | 18,246,721 | |
| | 4,143 | | | $ | 20 | | | 4,143 | | | |
(a)Includes shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units and performance shares, were as follows during the quarter ended March 28, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
2021 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 January 31 | | 2,815 | | | $ | 36 | | | 2,815 | | | 18,246,721 | |
February 1 to February 28 | | 154,562 | | | $ | 36 | | | 154,562 | | | 18,246,721 | |
March 1 to March 28 | | 479 | | | $ | 36 | | | 479 | | | 18,246,721 | |
| | 157,856 | | | $ | 36 | | | 157,856 | | | |
In February 2018, the Company's Board of Directors authorized the Company to repurchase up to 15.0 million shares of its common stock on a discretionary basis with no dollar limit or expiration date. In February 2020, the Company's Board of Directors authorized the Company to repurchase up to 10.0 million additional shares of its common stock on a discretionary basis with no dollar limit or expiration date. As of JuneMarch 28, 2020,2021, 18.2 million shares remained under these authorizations. The Company repurchased no shares on a discretionary basis during the quarter ended JuneMarch 28, 2020.2021.
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. 2020 Incentive Stock Plan 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 secondfirst quarter of 2020,2021, the Company acquired 4,143157,856 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock units.
Item 5. Other Information
The Company is executing a set of actions, referred to as "The Rewire," which includes certain restructuring activities. The Company previously disclosed restructuring actions related to The Rewire that were approved through June 28, 2020. On August 5, 2020, the Company approved additional restructuring actions under The Rewire relating to facility changes. Subsequent to June 28, 2020 through August 5, 2020, the Company has approved other restructuring activities associated with The Rewire, including the termination of certain currentunits and future products.
As a result of the actions approved through August 5, 2020, the Company expects to incur restructuring expenses of approximately $44 million in 2020, of which approximately 50% are expected to be cash expenditures. The total estimated restructuring expenses include approximately $23 million related to contract termination and other costs and $21 million related to non-current asset adjustments, including accelerated depreciation and other adjustments to the carrying value of non-current assets. The Company expects to complete the restructuring activities approved through August 5, 2020 within the next 12 months.performance share units.
Item 6. Exhibits
Refer to the exhibit index immediately following this page.
Harley-Davidson, Inc.
Exhibit Index to Form 10-Q
| | | | | | | | |
Exhibit No. | | Description |
| | Fiscal Agency Agreement, datedRestated Articles of Incorporation of Harley-Davidson, Inc. as amended through May 19,28, 2020 relating to the 3.875% Medium Term Notes due May 2023, among certain subsidiaries of the Company, The Bank of New York Mellon, London Branch and The Bank of New York Mellon SA/NV, Luxembourg Branch |
| | Officers' Certificate, dated June 8, 2020, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 3.350% Medium-Term Notes due 2025 |
| | 364-Day Credit Agreement, dated June 1, 2020, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto, and Toronto Dominion (Texas) LLC., as, global administrative agent |
| | |
| | Harley-Davidson By-Laws, as amended through May 28, 2020 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated May 28, 2020 (File No. 1-9183)) |
| | Amended and Restated Harley-Davidson, Inc. 2020 IncentiveDirector Stock Plan as amended and restated effective May 10, 2018 (incorporated herein by reference to Appendix A to the Company’sCompany's definitive proxy statement on Schedule 14A for the Company’sCompany's Annual Meeting of Shareholders held on May 21, 202010, 2018 filed on April 9, 2020March 29, 2018 (File No. 1-9183)) |
| | 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 |
*Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated.
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: AugustMay 6, 20202021 | /s/ J. Darrell ThomasGina Goetter |
| J. Darrell ThomasGina Goetter |
| Vice President and Treasurer |
| Interim Chief Financial Officer |
| (Principal financial officer) |
| | | | | |
Date: AugustMay 6, 20202021 | /s/ Mark R. Kornetzke |
| Mark R. Kornetzke |
| Chief Accounting Officer |
| (Principal accounting officer) |