HOG 10-Q Quarterly Report June 26, 2022 | Alphaminr
HARLEY-DAVIDSON, INC.
ALPHAMINR

HOG 10-Q Quarter ended June 26, 2022

Balance Sheet
Cash Flow
Income Statement
Debt
HARLEY-DAVIDSON, INC.
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hog-20220626
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 2022
☐ 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)
Wisconsin 39-1382325
(State of organization) (I.R.S. Employer Identification No.)
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:
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.
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 146,161,850 shares of common stock as of July 29, 2022.


HARLEY-DAVIDSON, INC.
Form 10-Q
For The Quarter Ended June 26, 2022
Part I
Item 1.
Item 2.
Item 3.
Item 4.
Part II
Item 1.
Item 1A.
Item 2.
Item 6.


Table of Contents
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
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Revenue:
Motorcycles and Related Products $ 1,266,471 $ 1,331,500 $ 2,569,642 $ 2,563,607
Financial Services 202,616 200,558 394,631 390,958
1,469,087 1,532,058 2,964,273 2,954,565
Costs and expenses:
Motorcycles and Related Products cost of goods sold 879,721 924,449 1,775,257 1,736,071
Financial Services interest expense 47,649 48,621 89,748 104,328
Financial Services provision for credit losses 29,133 16,201 57,955 ( 6,273 )
Selling, administrative and engineering expense 235,233 261,509 474,858 493,353
Restructuring (benefit) expense ( 264 ) 918 ( 392 ) 552
1,191,472 1,251,698 2,397,426 2,328,031
Operating income 277,615 280,360 566,847 626,534
Other income, net 10,055 690 21,085 967
Investment (loss) income ( 3,530 ) 2,731 ( 5,509 ) 4,133
Interest expense 7,720 7,722 15,431 15,430
Income before provision for income taxes 276,420 276,059 566,992 616,204
Provision for income taxes 60,571 69,719 128,641 150,720
Net income $ 215,849 $ 206,340 $ 438,351 $ 465,484
Earnings per share:
Basic $ 1.47 $ 1.34 $ 2.92 $ 3.03
Diluted $ 1.46 $ 1.33 $ 2.91 $ 3.01
Cash dividends per share $ 0.1575 $ 0.1500 $ 0.3150 $ 0.3000
The accompanying notes are integral to the consolidated financial statements.

3
Table of Contents
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Net income $ 215,849 $ 206,340 $ 438,351 $ 465,484
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments ( 31,021 ) 1,415 ( 35,142 ) ( 15,923 )
Derivative financial instruments 12,852 ( 502 ) 22,780 17,028
Pension and postretirement benefit plans 5,503 13,587 11,005 27,175
( 12,666 ) 14,500 ( 1,357 ) 28,280
Comprehensive income $ 203,183 $ 220,840 $ 436,994 $ 493,764
The accompanying notes are integral to the consolidated financial statements.


4
Table of Contents
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Unaudited)
June 26,
2022 		December 31,
2021 		June 27,
2021
ASSETS
Current assets:
Cash and cash equivalents $ 2,194,259 $ 1,874,745 $ 1,741,968
Accounts receivable, net 302,049 182,148 263,453
Finance receivables, net of allowance of $ 59,851 , $ 60,734 , and $ 64,099
1,674,970 1,465,544 1,629,636
Inventories, net 726,586 712,942 457,648
Restricted cash 226,488 128,935 152,411
Other current assets 183,816 185,777 224,488
5,308,168 4,550,091 4,469,604
Finance receivables, net of allowance of $ 292,286 , $ 278,645 , and $ 294,712
5,428,714 5,106,377 5,259,318
Property, plant and equipment, net 652,153 683,984 694,378
Pension and postretirement assets 411,906 386,152 120,542
Goodwill 61,890 63,177 65,395
Deferred income taxes 69,394 82,922 131,534
Lease assets 44,247 49,625 41,210
Other long-term assets 145,146 128,727 127,245
$ 12,121,618 $ 11,051,055 $ 10,909,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 416,703 $ 374,978 $ 430,876
Accrued liabilities 592,259 601,981 587,740
Short-term deposits, net 78,005 72,146 101,672
Short-term debt 701,384 751,286 749,037
Current portion of long-term debt, net 1,887,552 1,542,496 1,581,826
3,675,903 3,342,887 3,451,151
Long-term deposits, net 267,785 218,180 157,701
Long-term debt, net 5,204,317 4,595,617 4,745,024
Lease liabilities 26,697 29,904 21,708
Pension and postretirement liabilities 91,362 95,299 105,833
Deferred income taxes 9,189 9,261 8,913
Other long-term liabilities 211,213 206,663 234,624
Commitments and contingencies (Note 16)
Shareholders’ equity:
Common stock 1,704 1,694 1,693
Additional paid-in-capital 1,564,364 1,547,011 1,531,456
Retained earnings 2,233,626 1,842,421 1,704,098
Accumulated other comprehensive loss ( 242,276 ) ( 240,919 ) ( 455,137 )
Treasury stock, at cost ( 922,266 ) ( 596,963 ) ( 597,838 )
2,635,152 2,553,244 2,184,272
$ 12,121,618 $ 11,051,055 $ 10,909,226
5
Table of Contents
HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
(Unaudited) (Unaudited)
June 26,
2022 		December 31,
2021 		June 27,
2021
Balances held by consolidated variable interest entities (Note 12):
Finance receivables, net - current $ 704,048 $ 493,543 $ 506,069
Other assets $ 4,214 $ 2,982 $ 3,248
Finance receivables, net - non-current $ 3,198,752 $ 1,734,428 $ 1,777,060
Restricted cash - current and non-current $ 245,730 $ 144,284 $ 164,816
Current portion of long-term debt, net $ 834,104 $ 569,145 $ 606,117
Long-term debt, net $ 2,584,445 $ 1,330,586 $ 1,412,916
The accompanying notes are integral to the consolidated financial statements.
6
Table of Contents
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
June 26,
2022 		June 27,
2021
Net cash provided by operating activities (Note 7) $ 244,186 $ 644,300
Cash flows from investing activities:
Capital expenditures ( 55,015 ) ( 37,568 )
Origination of finance receivables ( 2,511,193 ) ( 2,294,500 )
Collections on finance receivables 2,071,952 1,944,364
Other investing activities 797 2,425
Net cash used by investing activities ( 493,459 ) ( 385,279 )
Cash flows from financing activities:
Proceeds from issuance of medium-term notes 495,785 —
Repayments of medium-term notes ( 950,000 ) ( 1,400,000 )
Proceeds from securitization debt 1,826,891 597,411
Repayments of securitization debt ( 610,205 ) ( 664,685 )
Borrowings of asset-backed commercial paper 425,253 —
Repayments of asset-backed commercial paper ( 133,159 ) ( 143,256 )
Net decrease in unsecured commercial paper ( 50,672 ) ( 262,452 )
Net increase in credit facilities — 84
Net increase in deposits 55,255 179,329
Dividends paid ( 47,146 ) ( 46,209 )
Repurchase of common stock ( 325,828 ) ( 10,911 )
Other financing activities ( 1,237 ) 4,324
Net cash provided (used) by financing activities 684,937 ( 1,746,365 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 14,413 ) ( 6,878 )
Net increase (decrease) in cash, cash equivalents and restricted cash $ 421,251 $ ( 1,494,222 )
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash, beginning of period $ 2,025,219 $ 3,409,168
Net increase (decrease) in cash, cash equivalents and restricted cash 421,251 ( 1,494,222 )
Cash, cash equivalents and restricted cash, end of period $ 2,446,470 $ 1,914,946
Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows:
Cash and cash equivalents $ 2,194,259 $ 1,741,968
Restricted cash 226,488 152,411
Restricted cash included in Other long-term assets 25,723 20,567
Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows $ 2,446,470 $ 1,914,946
The accompanying notes are integral to the consolidated financial statements.


7
Table of Contents
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share amounts)
(Unaudited)
Common Stock Additional
Paid-in
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Loss 		Treasury
Stock 		Total
Issued
Shares 		Balance
Balance, December 31, 2021 169,364,686 $ 1,694 $ 1,547,011 $ 1,842,421 $ ( 240,919 ) $ ( 596,963 ) $ 2,553,244
Net income — — — 222,502 — — 222,502
Other comprehensive income, net of tax (Note 17) — — — — 11,309 — 11,309
Dividends ($ 0.1575 per share)
— — — ( 24,056 ) — — ( 24,056 )
Repurchase of common stock — — — — — ( 261,737 ) ( 261,737 )
Share-based compensation 976,062 10 7,829 — — — 7,839
Balance, March 27, 2022 170,340,748 1,704 1,554,840 2,040,867 ( 229,610 ) ( 858,700 ) 2,509,101
Net income — — — 215,849 — — 215,849
Other comprehensive loss, net of tax (Note 17) — — — — ( 12,666 ) — ( 12,666 )
Dividends ($ 0.1575 per share)
— — — ( 23,090 ) — — ( 23,090 )
Repurchase of common stock — — — — — ( 64,091 ) ( 64,091 )
Share-based compensation 23,479 — 9,524 — — 525 10,049
Balance, June 26, 2022 170,364,227 1,704 1,564,364 2,233,626 ( 242,276 ) ( 922,266 ) 2,635,152
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 ($ 0.1500 per share)
— — — ( 23,105 ) — — ( 23,105 )
Repurchase of common stock — — — — — ( 5,646 ) ( 5,646 )
Share-based compensation 483,326 5 9,423 — — — 9,428
Balance, March 28, 2021 168,986,852 1,690 1,517,129 1,520,862 ( 469,637 ) ( 593,658 ) 1,976,386
Net loss — — — 206,340 — — 206,340
Other comprehensive income, net of tax (Note 17) — — — — 14,500 — 14,500
Dividends ($ 0.1500 per share)
— — — ( 23,104 ) — — ( 23,104 )
Repurchase of common stock — — — — — ( 5,265 ) ( 5,265 )
Share-based compensation 322,015 3 14,327 — — 1,085 15,415
Balance, June 27, 2021 169,308,867 1,693 1,531,456 1,704,098 ( 455,137 ) ( 597,838 ) 2,184,272
The accompanying notes are integral to the consolidated financial statements.
8
Table of Contents
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Use of Estimates
Principles of Consolidation and Basis of Presentation – The consolidated financial statements include the accounts of Harley-Davidson, Inc. and its subsidiaries, all of which are wholly-owned (the Company), including the accounts of the groups of companies referred to as Harley-Davidson Motor Company and Harley-Davidson Financial Services. 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 two 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 June 26, 2022 and June 27, 2021, the Consolidated statements of operations for the three and six month periods then ended, the Consolidated statements of comprehensive income for the three and six month periods then ended, the Consolidated statements of cash flows for the six month periods then ended, and the Consolidated statements of shareholders' equity for the three month periods within the six month periods ended June 26, 2022 and June 27, 2021.
Certain information and disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. 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, 2021.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires the Company's management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
2. New Accounting Standards
Accounting Standards Not Yet Adopted
In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02). ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard (ASU 2016-13) that introduced the current expected credit losses (CECL) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has already adopted ASU 2016-13, the new guidance is effective for the fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a material impact on the 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.
9
Table of Contents
Disaggregated revenue by major source was as follows (in thousands):
Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Motorcycles and Related Products Revenue:
Motorcycles $ 940,046 $ 1,029,709 $ 1,999,159 $ 2,046,043
Parts and accessories 214,540 222,670 380,065 372,529
Apparel 77,327 55,631 128,734 105,954
Licensing 11,781 8,872 18,278 14,384
Other 22,777 14,618 43,406 24,697
1,266,471 1,331,500 2,569,642 2,563,607
Financial Services Revenue:
Interest income 168,707 167,728 330,441 327,542
Other 33,909 32,830 64,190 63,416
202,616 200,558 394,631 390,958
$ 1,469,087 $ 1,532,058 $ 2,964,273 $ 2,954,565
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 various financial services products. 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 26,
2022 		June 27,
2021
Balance, beginning of period $ 40,092 $ 36,614
Balance, end of period $ 47,061 $ 38,934
Previously deferred revenue recognized as revenue in the three months ended June 26, 2022 and June 27, 2021 was $ 7.7 million and $ 5.7 million, respectively, and $ 15.4 million and $ 11.8 million in the six months ended June 26, 2022 and June 27, 2021, respectively. The Company expects to recognize approximately $ 19.3 million of the remaining unearned revenue over the next 12 months and $ 27.7 million thereafter.
4. Restructuring Activities
The Company's restructuring activities are included in Restructuring (benefit) expense on the Consolidated statements of operations .
In 2020, the Company initiated restructuring activities including a workforce reduction, the termination of certain current and future products, facility changes, optimizing its global dealer network, exiting certain international markets, and discontinuing its sales and manufacturing operations in India. The workforce reduction resulted in the termination of approximately 500 employees. In addition, the India action resulted in the termination of approximately 70 employees. These restructuring activities are essentially complete, and the Company does not expect restructuring expenses of any significance in 2022.
Since the inception of the restructuring activities in 2020 through the six months ended June 26, 2022, the Company has incurred cumulative restructuring expenses of $ 133.0 million, including $ 121.5 million and $ 11.5 million in the Motorcycles and Financial Services segments, respectively. This includes restructuring (benefit) expense for the three and six month periods ended June 26, 2022 and June 27, 2021 by segment as follows (in thousands):
Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Motorcycles and Related Products $ ( 264 ) $ 807 $ ( 392 ) $ 214
Financial Services — 111 — 338
$ ( 264 ) $ 918 $ ( 392 ) $ 552
10
Table of Contents
Changes in accrued restructuring expenses, which are included in Accrued liabilities on the Consolidated balance sheets, were as follows (in thousands):
Three months ended June 26, 2022
Employee Termination Benefits Contract Terminations
& Other 		Non-Current Asset Adjustments Total
Balance, beginning of period $ 100 $ 1,133 $ — $ 1,233
Restructuring benefit — ( 264 ) — ( 264 )
Utilized – cash
( 18 ) ( 114 ) — ( 132 )
Utilized – non cash
— — — —
Foreign currency changes ( 3 ) ( 11 ) — ( 14 )
Balance, end of period $ 79 $ 744

$ — $ 823
Three months ended June 27, 2021
Employee Termination Benefits Contract Terminations
& Other 		Non-Current Asset Adjustments Total
Balance, beginning of period $ 3,007 $ 4,467 $ — $ 7,474
Restructuring (benefit) expense ( 22 ) 664 276 918
Utilized – cash
( 1,685 ) ( 3,008 ) — ( 4,693 )
Utilized – non cash
— — ( 276 ) ( 276 )
Foreign currency changes ( 54 ) ( 39 ) — ( 93 )
Balance, end of period $ 1,246 $ 2,084

$ — $ 3,330
Six months ended June 26, 2022
Employee Termination Benefits Contract Terminations
& Other 		Non-Current Asset Adjustments Total
Balance, beginning of period $ 121 $ 2,874 $ — $ 2,995
Restructuring benefit — ( 392 ) — ( 392 )
Utilized – cash
( 36 ) ( 1,728 ) — ( 1,764 )
Utilized – non cash
— — — —
Foreign currency changes ( 6 ) ( 10 ) — ( 16 )
Balance, end of period $ 79 $ 744

$ — $ 823
Six months ended June 27, 2021
Employee Termination Benefits Contract Terminations
& Other 		Non-Current Asset Adjustments Total
Balance, beginning of period $ 7,724 $ 16,196 $ — $ 23,920
Restructuring (benefit) expense ( 966 ) 1,769 ( 251 ) 552
Utilized – cash
( 5,346 ) ( 15,790 ) — ( 21,136 )
Utilized – non cash
— — 251 251
Foreign currency changes ( 166 ) ( 91 ) — ( 257 )
Balance, end of period $ 1,246 $ 2,084

$ — $ 3,330
5. Income Taxes
The Company’s effective income tax rate for the six months ended June 26, 2022 was 22.7 % compared to 24.5 % for the six months ended June 27, 2021. The decrease in the effective income tax rate was due primarily to favorable discrete income tax benefits recognized during 2022.
11
Table of Contents
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
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Net income $ 215,849 $ 206,340 $ 438,351 $ 465,484
Basic weighted-average shares outstanding 147,211 153,748 149,936 153,616
Effect of dilutive securities – employee stock compensation plan
624 1,345 876 1,178
Diluted weighted-average shares outstanding 147,835 155,093 150,812 154,794
Net earnings per share:
Basic $ 1.47 $ 1.34 $ 2.92 $ 3.03
Diluted $ 1.46 $ 1.33 $ 2.91 $ 3.01
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 1.3 million and 0.5 million shares for the three months ended June 26, 2022 and June 27, 2021, respectively, and 2.4 million and 0.5 million shares for the six months ended June 26, 2022 and June 27, 2021, 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 26,
2022 		December 31,
2021 		June 27,
2021
Mutual funds $ 38,779 $ 49,650 $ 52,434
Mutual funds, included in Other long-term assets on the Consolidated balance sheets , are carried at fair value with gains and losses recorded in income. Mutual funds are held to support certain deferred compensation obligations.
Inventories, net – 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. Motorcycle finished goods inventories include motorcycles that are ready for sale and motorcycles that are substantially complete but awaiting installation of certain components affected by global supply chain constraints. Inventories, net consisted of the following (in thousands):
June 26,
2022 		December 31,
2021 		June 27,
2021
Raw materials and work in process $ 384,658 $ 347,915 $ 245,562
Motorcycle finished goods 277,614 345,956 187,708
Parts and accessories and apparel 152,221 103,191 78,461
Inventory at lower of FIFO cost or net realizable value 814,493 797,062 511,731
Excess of FIFO over LIFO cost ( 87,907 ) ( 84,120 ) ( 54,083 )
$ 726,586 $ 712,942 $ 457,648
Deposits – Harley-Davidson Financial Services offers brokered certificates of deposit to customers indirectly through contractual arrangements with third-party banks and/or securities brokerage firms through its bank subsidiary. The Company had $ 345.8 million, $ 290.3 million and $ 259.4 million , net of fees, of interest-bearing brokered certificates of deposit outstanding as of June 26, 2022, December 31, 2021, and June 27, 2021, respectively. The liabilities for deposits are included in Short-term deposits, net or Long-term deposits, net on the Consolidated balance sheets based upon the term of each brokered certificate of deposit issued. Each separate brokered certificate of deposit is issued under a master certificate, and as such, all outstanding brokered certificates of deposit are considered below the Federal Deposit Insurance Corporation insurance coverage limits.
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Future maturities of the Company's certificates of deposit as of June 26, 2022 were as follows (in thousands):
2022 $ 28,475
2023 80,281
2024 80,378
2025 24,006
2026 79,742
Thereafter 54,158
Future maturities 347,040
Unamortized fees ( 1,250 )
$ 345,790
Operating Cash Flow – The reconciliation of Net income to Net cash provided by operating activities was as follows (in thousands):
Six months ended
June 26,
2022 		June 27,
2021
Cash flows from operating activities:
Net income $ 438,351 $ 465,484
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization 77,389 81,323
Amortization of deferred loan origination costs 47,101 40,089
Amortization of financing origination fees 7,637 7,224
Provision for long-term employee benefits ( 9,844 ) 13,366
Employee benefit plan contributions and payments ( 5,466 ) ( 11,055 )
Stock compensation expense 19,765 23,340
Net change in wholesale finance receivables related to sales ( 201,326 ) ( 129,819 )
Provision for credit losses 57,955 ( 6,273 )
Deferred income taxes 2,475 12,732
Other, net 11,102 ( 2,065 )
Changes in current assets and liabilities:
Accounts receivable, net ( 134,605 ) ( 124,738 )
Finance receivables – accrued interest and other
4,255 9,691
Inventories, net ( 33,986 ) 58,366
Accounts payable and accrued liabilities ( 4,239 ) 196,606
Other current assets ( 32,378 ) 10,029
( 194,165 ) 178,816
Net cash provided by operating activities $ 244,186 $ 644,300
8. Finance Receivables
The Company provides retail financial services to customers of its 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 dealer sales of motorcycles to retail customers. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.
The Company offers wholesale financing to its dealers in the 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.
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Finance receivables, net were as follows (in thousands):
June 26,
2022 		December 31,
2021 		June 27,
2021
Retail finance receivables $ 6,847,651 $ 6,493,519 $ 6,663,518
Wholesale finance receivables 608,170 417,781 584,247
7,455,821 6,911,300 7,247,765
Allowance for credit losses ( 352,137 ) ( 339,379 ) ( 358,811 )
$ 7,103,684 $ 6,571,921 $ 6,888,954
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. The Company's allowance for credit losses reflects expected lifetime credit losses on its finance receivables. Based on differences in the nature of the finance receivables and the underlying methodology for calculating the allowance for credit 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.
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. 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 two-year reasonable and supportable period. For periods beyond the Company’s reasonable and supportable forecasts, the Company reverts to its average historical loss experience using a mean-reversion process over a three-year period. Adjustments to historical loss 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.
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 individually evaluates loans that do not share risk characteristics. Loans identified as those for which foreclosure is probable are classified as Non-Performing, and a specific allowance for credit losses is established when 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. The related allowance for credit losses is based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past credit loss experience, reasonable and supportable economic forecasts, and the value of the underlying collateral and expected recoveries.
The Company considers various third-party economic forecast scenarios as part of estimating the allowance for expected credit losses and applies a probability-weighting to those economic forecast scenarios. Each quarter, the Company’s outlook on economic conditions impacts the Company's retail and wholesale estimates for expected credit losses. During the second quarter of 2022, the U.S. economy and the Company’s outlook on economic conditions remained largely unchanged from the first quarter of 2022. The pace of economic recovery remained uncertain as demonstrated by rising inflation, muted consumer confidence, continued global supply chain disruptions, and the conflict in Ukraine, among other factors. As such, at the end of the second quarter of 2022, the Company’s outlook on economic conditions included slow economic improvement with risk of a near-term recession in its economic scenario weighting.
Additionally, 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 establish an appropriate allowance for credit losses balance. These factors include motorcycle recovery value considerations, delinquency adjustments, specific problem loan 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 known conditions at the balance sheet date and the Company’s expectations surrounding the economic forecasts. The Company will continue to monitor future economic trends and conditions. Expectations surrounding the Company's economic forecasts may change in future periods as additional information becomes available.
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Changes in the Company's allowance for credit losses on its finance receivables by portfolio were as follows (in thousands):
Three months ended June 26, 2022 Six months ended June 26, 2022
Retail Wholesale Total Retail Wholesale Total
Balance, beginning of period $ 327,206 $ 13,267 $ 340,473 $ 326,320 $ 13,059 $ 339,379
Provision for credit losses 32,954 ( 3,821 ) 29,133 61,568 ( 3,613 ) 57,955
Charge-offs ( 32,058 ) — ( 32,058 ) ( 73,862 ) — ( 73,862 )
Recoveries 14,589 — 14,589 28,665 — 28,665
Balance, end of period $ 342,691 $ 9,446 $ 352,137 $ 342,691 $ 9,446 $ 352,137
Three months ended June 27, 2021 Six months ended June 27, 2021
Retail Wholesale Total Retail Wholesale Total
Balance, beginning of period $ 327,060 $ 19,173 $ 346,233 $ 371,738 $ 19,198 $ 390,936
Provision for credit losses 19,053 ( 2,852 ) 16,201 ( 3,396 ) ( 2,877 ) ( 6,273 )
Charge-offs ( 17,107 ) — ( 17,107 ) ( 51,696 ) — ( 51,696 )
Recoveries 13,484 — 13,484 25,844 — 25,844
Balance, end of period $ 342,490 $ 16,321 $ 358,811 $ 342,490 $ 16,321 $ 358,811
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 vintage and credit quality indicator was as follows (in thousands):
June 26, 2022
2022 2021 2020 2019 2018 2017 & Prior Total
U.S. Retail:
Super prime $ 703,972 $ 780,335 $ 364,514 $ 225,193 $ 111,097 $ 50,527 $ 2,235,638
Prime 923,272 1,107,587 546,653 348,801 194,109 134,420 3,254,842
Sub-prime 287,448 379,189 211,288 139,507 78,111 73,359 1,168,902
1,914,692 2,267,111 1,122,455 713,501 383,317 258,306 6,659,382
Canadian Retail:
Super prime 35,811 40,084 24,426 18,702 8,819 3,085 130,927
Prime 11,623 13,831 9,767 7,022 4,458 3,267 49,968
Sub-prime 1,415 1,844 1,628 1,186 743 558 7,374
48,849 55,759 35,821 26,910 14,020 6,910 188,269
$ 1,963,541 $ 2,322,870 $ 1,158,276 $ 740,411 $ 397,337 $ 265,216 $ 6,847,651
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December 31, 2021
2021 2020 2019 2018 2017 2016 & Prior Total
U.S. Retail:
Super prime $ 1,010,636 $ 484,479 $ 316,390 $ 171,763 $ 65,753 $ 27,424 $ 2,076,445
Prime 1,391,385 712,858 470,177 277,206 142,288 82,169 3,076,083
Sub-prime 476,688 273,787 182,002 105,330 61,923 51,035 1,150,765
2,878,709 1,471,124 968,569 554,299 269,964 160,628 6,303,293
Canadian Retail:
Super prime 51,779 32,724 27,073 13,984 4,619 1,614 131,793
Prime 16,882 12,675 9,244 6,230 3,628 1,779 50,438
Sub-prime 2,356 2,134 1,571 947 606 381 7,995
71,017 47,533 37,888 21,161 8,853 3,774 190,226
$ 2,949,726 $ 1,518,657 $ 1,006,457 $ 575,460 $ 278,817 $ 164,402 $ 6,493,519
June 27, 2021
2021 2020 2019 2018 2017 2016 & Prior Total
U.S. Retail:
Super prime $ 632,627 $ 634,661 $ 429,884 $ 250,679 $ 106,124 $ 53,347 $ 2,107,322
Prime 876,007 911,265 619,597 380,662 208,176 140,807 3,136,514
Sub-prime 313,302 352,221 233,934 137,060 83,886 81,538 1,201,941
1,821,936 1,898,147 1,283,415 768,401 398,186 275,692 6,445,777
Canadian Retail:
Super prime 38,562 42,967 37,461 20,709 8,625 3,374 151,698
Prime 12,468 15,872 11,990 8,254 5,007 3,182 56,773
Sub-prime 1,856 2,727 1,998 1,263 819 607 9,270
52,886 61,566 51,449 30,226 14,451 7,163 217,741
$ 1,874,822 $ 1,959,713 $ 1,334,864 $ 798,627 $ 412,637 $ 282,855 $ 6,663,518
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. Additionally, the Company classifies dealers identified as those in which foreclosure is probable as Non-Performing. The internal rating system considers factors such as the specific borrower's ability to repay and the estimated value of any collateral. Dealer risk rating classifications are reviewed and updated by the Company on a quarterly basis.
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The amortized cost of the Company's wholesale financial receivables, by vintage and credit quality indicator, was as follows (in thousands):
June 26, 2022
2022 2021 2020 2019 2018 2017 & Prior Total
Non-Performing $ — $ — $ — $ — $ — $ — $ —
Doubtful — — — — — — —
Substandard — — — — — — —
Special Mention — — — — — — —
Medium Risk — — — — — — —
Low Risk 540,284 45,976 7,871 4,153 9,247 639 608,170
$ 540,284 $ 45,976 $ 7,871 $ 4,153 $ 9,247 $ 639 $ 608,170
December 31, 2021
2021 2020 2019 2018 2017 2016 & Prior Total
Non-Performing $ — $ — $ — $ — $ — $ — $ —
Doubtful — — — — — — —
Substandard — — — — — — —
Special Mention — — — — — — —
Medium Risk — — — — — — —
Low Risk 380,211 11,379 11,047 10,565 3,662 917 417,781
$ 380,211 $ 11,379 $ 11,047 $ 10,565 $ 3,662 $ 917 $ 417,781
June 27, 2021
2021 2020 2019 2018 2017 2016 & Prior Total
Non-Performing $ — $ — $ — $ — $ — $ — $ —
Doubtful — — — — — — —
Substandard — — — — — — —
Special Mention — — — — — — —
Medium Risk — — — — — — —
Low Risk 500,490 38,408 26,449 11,888 4,581 2,431 584,247
$ 500,490 $ 38,408 $ 26,449 $ 11,888 $ 4,581 $ 2,431 $ 584,247
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 Financial Services interest income when the account is charged-off. The Company reversed $ 4.2 million and $ 3.3 million of accrued interest against Financial Services interest income during the three months ended June 26, 2022 and June 27, 2021, respectively, and $ 9.1 million and $ 8.5 million during the six months ended June 26, 2022 and June 27, 2021, 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 Accounting Standards Codification (ASC) Topic 326, Financial Instruments - Credit Losses to exclude accrued interest from its allowance for credit losses. Accordingly, as of June 26, 2022, December 31, 2021 and June 27, 2021, all retail finance receivables were accounted for as interest-earning 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
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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 June 26, 2022 and June 27, 2021. As such, the Company did not reverse any accrued interest in those periods. There were no dealers on non-accrual status at June 26, 2022, December 31, 2021, and June 27, 2021.
The aging analysis of the Company's finance receivables was as follows (in thousands):
June 26, 2022
Current 31-60 Days
Past Due 		61-90 Days
Past Due 		Greater than
90 Days
Past Due 		Total
Past Due 		Total
Retail finance receivables $ 6,660,108 $ 117,436 $ 38,855 $ 31,252 $ 187,543 $ 6,847,651
Wholesale finance receivables 608,169 — 1 — 1 608,170
$ 7,268,277 $ 117,436 $ 38,856 $ 31,252 $ 187,544 $ 7,455,821
December 31, 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 $ 6,298,485 $ 115,942 $ 44,326 $ 34,766 $ 195,034 $ 6,493,519
Wholesale finance receivables 417,720 9 1 51 61 417,781
$ 6,716,205 $ 115,951 $ 44,327 $ 34,817 $ 195,095 $ 6,911,300
June 27, 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 $ 6,531,560 $ 87,853 $ 27,300 $ 16,805 $ 131,958 $ 6,663,518
Wholesale finance receivables 584,154 39 — 54 93 584,247
$ 7,115,714 $ 87,892 $ 27,300 $ 16,859 $ 132,051 $ 7,247,765
Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total finance receivables in troubled debt restructurings were not significant as of June 26, 2022, December 31, 2021 and June 27, 2021. 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. From the second quarter of 2020 through the end of the second quarter of 2021, in response to the impact of the COVID-19 pandemic, the Company granted an increased amount of short-term payment due date extensions on eligible retail loans to help retail customers get through financial difficulties associated with the COVID-19 pandemic. The Company continues to grant standard payment extensions to customers in accordance with its policies.
9. 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, Singapore dollar, Thai baht, and Pound sterling. The Company's foreign currency exchange contracts generally have maturities of less than one year.
The Company utilizes commodity contracts to mitigate the effects of commodity price fluctuations related to metals and fuel consumed in its motorcycle operations. The Company's commodity contracts generally have maturities of less than one year.
The Company periodically utilizes treasury rate lock contracts to fix the interest rate on a portion of the principal related to an anticipated issuance of long-term debt and cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on its foreign currency-denominated debt. The Company also utilizes interest rate caps to facilitate certain asset-backed securitization transactions.
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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 Other comprehensive (loss) income (OCI) and subsequently reclassified into income 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. Cash flow activity associated with the Company's derivative financial instruments is recorded in Cash flows from operating activities on the Consolidated statement of cash flow.
The notional and fair values of the Company's derivative financial instruments under ASC Topic 815 were as follows (in thousands):
Derivative Financial Instruments
Designated as Cash Flow Hedging Instruments
June 26, 2022 December 31, 2021 June 27, 2021
Notional
Value 		Other Current Assets Accrued Liabilities Notional
Value 		Other Current Assets Accrued Liabilities Notional
Value 		Other Current Assets Accrued Liabilities
Foreign currency contracts $ 435,208 $ 18,960 $ 1,004 $ 562,262 $ 14,644 $ 1,388 $ 493,919 $ 7,015 $ 3,433
Commodity contracts 834 228 — 996 19 39 735 134 —
Cross-currency swaps 1,383,390 386 54,954 1,367,460 35,071 — 1,396,542 88,730 —
$ 1,819,432 $ 19,574 $ 55,958 $ 1,930,718 $ 49,734 $ 1,427 $ 1,891,196 $ 95,879 $ 3,433
Derivative Financial Instruments
Not Designated as Hedging Instruments
June 26, 2022 December 31, 2021 June 27, 2021
Notional
Value 		Other Current Assets Accrued Liabilities Notional
Value 		Other Current Assets Accrued Liabilities Notional
Value 		Other Current Assets Accrued Liabilities
Foreign currency contracts $ — $ — $ — $ 241,935 $ 1,299 $ 916 $ 151,252 $ 215 $ 401
Commodity contracts 9,857 1,107 987 10,631 641 18 9,112 1,219 2
Interest rate caps 1,286,262 1,860 — 504,526 360 — 721,850 151 —
$ 1,296,119 $ 2,967 $ 987 $ 757,092 $ 2,300 $ 934 $ 882,214 $ 1,585 $ 403
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The amounts of gains and losses related to the Company's derivative financial instruments designated as cash flow hedges were as follows (in thousands):
Gain/(Loss)
Recognized in OCI 		Gain/(Loss)
Reclassified from AOCL into Income
Three months ended Six months ended Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Foreign currency contracts $ 19,328 $ ( 1,861 ) $ 27,772 $ 12,176 $ 9,627 $ ( 7,594 ) $ 15,282 $ ( 12,547 )
Commodity contracts 166 153 728 156 254 3 480 ( 29 )
Cross-currency swaps ( 73,403 ) 15,282 ( 89,639 ) ( 49,892 ) ( 80,466 ) 21,613 ( 106,266 ) ( 44,175 )
Treasury rate lock contracts — — — — ( 117 ) ( 124 ) ( 244 ) ( 248 )
Interest rate swaps — — — 397 — — — ( 2,689 )
$ ( 53,909 ) $ 13,574 $ ( 61,139 ) $ ( 37,163 ) $ ( 70,702 ) $ 13,898 $ ( 90,748 ) $ ( 59,688 )
The location and amount of gains and losses recognized in income related to the Company's 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 26, 2022
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded $ 879,721 $ 235,233 $ 7,720 $ 47,649
Gain/(loss) reclassified from AOCL into income:
Foreign currency contracts $ 9,627 $ — $ — $ —
Commodity contracts $ 254 $ — $ — $ —
Cross-currency swaps $ — $ ( 80,466 ) $ — $ —
Treasury rate lock contracts $ — $ — $ ( 90 ) $ ( 27 )
Three months ended June 27, 2021
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded $ 924,449 $ 261,509 $ 7,722 $ 48,621
Gain/(loss) reclassified from AOCL into income:
Foreign currency contracts $ ( 7,594 ) $ — $ — $ —
Commodity contracts $ 3 $ — $ — $ —
Cross-currency swaps $ — $ 21,613 $ — $ —
Treasury rate lock contracts $ — $ — $ ( 90 ) $ ( 34 )
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Motorcycles
cost of goods sold 		Selling, administrative &
engineering expense 		Interest expense Financial Services interest expense
Six months ended June 26, 2022
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded $ 1,775,257 $ 474,858 $ 15,431 $ 89,748
Gain/(loss) reclassified from AOCL into income:
Foreign currency contracts $ 15,282 $ — $ — $ —
Commodity contracts $ 480 $ — $ — $ —
Cross-currency swaps $ — $ ( 106,266 ) $ — $ —
Treasury rate lock contracts $ — $ — $ ( 181 ) $ ( 63 )
Six months ended June 27, 2021
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded $ 1,736,071 $ 493,353 $ 15,430 $ 104,328
Gain/(loss) reclassified from AOCL into income:
Foreign currency contracts $ ( 12,547 ) $ — $ — $ —
Commodity contracts $ ( 29 ) $ — $ — $ —
Cross-currency swaps $ — $ ( 44,175 ) $ — $ —
Treasury rate lock contracts $ — $ — $ ( 181 ) $ ( 67 )
Interest rate swaps $ — $ — $ — $ ( 2,689 )
The amount of net loss included in Accumulated other comprehensive loss (AOCL) at June 26, 2022, estimated to be reclassified into income over the next 12 months was $ 4.7 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 . Gains on interest rate caps were recorded in Financial Services revenue and related losses were recorded in Selling, administrative & engineering expense.
Amount of Gain/(Loss)
Recognized in Income
Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Foreign currency contracts $ 9,793 $ ( 1,919 ) $ 6,287 $ ( 5,548 )
Commodity contracts ( 1,155 ) 722 1,232 1,426
Interest rate caps ( 1,682 ) ( 19 ) 18 104
$ 6,956 $ ( 1,216 ) $ 7,537 $ ( 4,018 )
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.
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 .
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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 used in manufacturing and distribution processes.
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 6 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 June 26, 2022 and June 27, 2021 was $ 6.3 million and $ 6.2 million, respectively, and $ 13.0 million and $ 13.8 million for the six months ended June 26, 2022 and June 27, 2021, respectively. This includes variable lease costs related to assets used in manufacturing and distribution processes of approximately $ 0.8 million and $ 1.3 million for the three months ended June 26, 2022 and June 27, 2021, respectively, and $ 1.8 million and $ 3.7 million for the six months ended June 26, 2022 and June 27, 2021, 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 26,
2022 		December 31,
2021 		June 27,
2021
Lease assets $ 44,247 $ 49,625 $ 41,210
Accrued liabilities $ 16,515 $ 17,369 $ 16,003
Lease liabilities 26,697 29,904 21,708
$ 43,212 $ 47,273 $ 37,711
Future maturities of the Company's operating lease liabilities as of June 26, 2022 were as follows (in thousands):
2022 $ 9,799
2023 13,715
2024 8,147
2025 5,972
2026 5,009
Thereafter 1,953
Future lease payments 44,595
Present value discount ( 1,383 )
Lease liabilities $ 43,212
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Other lease information surrounding the Company's operating leases was as follows (dollars in thousands):
Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Cash outflows for amounts included in the measurement of lease liabilities $ 4,637 $ 10,777 $ 9,594 $ 15,723
ROU assets obtained in exchange for lease obligations, net of modifications
$ 5,075 $ 895 $ 6,354 $ 6,200
June 26,
2022 		December 31,
2021 		June 27,
2021
Weighted-average remaining lease term (in years) 3.51 3.86 3.76
Weighted-average discount rate 2.0 % 1.9 % 2.7 %
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 26,
2022 		December 31,
2021 		June 27,
2021
Unsecured commercial paper $ 701,384 $ 751,286 $ 749,037
Debt with a contractual term greater than 12 months is generally classified as long-term and consisted of the following (in thousands):
June 26,
2022 		December 31,
2021 		June 27,
2021
Secured debt:
Asset-backed Canadian commercial paper conduit facility $ 77,984 $ 85,054 $ 87,439
Asset-backed U.S. commercial paper conduit facility 570,628 272,589 291,511
Asset-backed securitization debt 2,860,810 1,634,753 1,735,706
Unamortized discounts and debt issuance costs ( 12,889 ) ( 7,611 ) ( 8,184 )
3,496,533 1,984,785 2,106,472
Unsecured notes (at par value):
Medium-term notes:
Due in 2022, issued February 2019 4.05 % — 550,000 550,000
Due in 2022, issued June 2017 2.55 % — 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 % 681,837 737,302 773,825
Due in 2024, issued November 2019 (b)
3.14 % 629,388 680,586 714,300
Due in 2025, issued June 2020 3.35 % 700,000 700,000 700,000
Due in 2027, issued February 2022 3.05 % 500,000 — —
Unamortized discounts and debt issuance costs ( 10,905 ) ( 9,228 ) ( 12,068 )
2,850,320 3,408,660 3,476,057
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June 26,
2022 		December 31,
2021 		June 27,
2021
Senior notes:
Due in 2025, issued July 2015 3.50 % 450,000 450,000 450,000
Due in 2045, issued July 2015 4.625 % 300,000 300,000 300,000
Unamortized discounts and debt issuance costs ( 4,984 ) ( 5,332 ) ( 5,679 )
745,016 744,668 744,321
3,595,336 4,153,328 4,220,378
Long-term debt 7,091,869 6,138,113 6,326,850
Current portion of long-term debt, net ( 1,887,552 ) ( 1,542,496 ) ( 1,581,826 )
Long-term debt, net $ 5,204,317 $ 4,595,617 $ 4,745,024
(a) € 650.0 million par value remeasured to U.S. dollar at June 26, 2022, December 31, 2021, and June 27, 2021, respectively
(b) € 600.0 million par value remeasured to U.S. dollar at June 26, 2022, December 31, 2021, and June 27, 2021, respectively

Future principal payments of the Company's debt obligations as of June 26, 2022 were as follows (in thousands):
2022 $ 1,196,321
2023 1,848,914
2024 1,391,946
2025 1,923,342
2026 556,601
Thereafter 904,907
Future principal payments 7,822,031
Unamortized discounts and debt issuance costs ( 28,778 )
$ 7,793,253
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 . 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.
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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 26, 2022
Finance receivables Allowance for credit losses Restricted cash Other assets Total assets Asset-backed debt, net
On-balance sheet assets and liabilities:
Consolidated VIEs:
Asset-backed securitizations $ 3,477,839 $ ( 173,853 ) $ 202,029 $ 3,432 $ 3,509,447 $ 2,847,921
Asset-backed U.S. commercial paper conduit facility 630,305 ( 31,491 ) 43,701 782 643,297 570,628
Unconsolidated VIEs:
Asset-backed Canadian commercial paper conduit facility 88,197 ( 3,598 ) 6,481 76 91,156 77,984
$ 4,196,341 $ ( 208,942 ) $ 252,211 $ 4,290 $ 4,243,900 $ 3,496,533
December 31, 2021
Finance receivables Allowance for credit losses Restricted cash Other assets Total assets Asset-backed debt, net
On-balance sheet assets and liabilities:
Consolidated VIEs:
Asset-backed securitizations $ 2,048,194 $ ( 102,779 ) $ 123,717 $ 2,328 $ 2,071,460 $ 1,627,142
Asset-backed U.S. commercial paper conduit facility 297,454 ( 14,898 ) 20,567 654 303,777 272,589
Unconsolidated VIEs:
Asset-backed Canadian commercial paper conduit facility 97,180 ( 3,990 ) 6,191 139 99,520 85,054
$ 2,442,828 $ ( 121,667 ) $ 150,475 $ 3,121 $ 2,474,757 $ 1,984,785
June 27, 2021
Finance receivables Allowance for credit losses Restricted cash Other assets Total assets Asset-backed debt, net
On-balance sheet assets and liabilities:
Consolidated VIEs:
Asset-backed securitizations $ 2,090,041 $ ( 107,174 ) $ 140,276 $ 2,522 $ 2,125,665 $ 1,727,522
Asset-backed U.S. commercial paper conduit facility 316,467 ( 16,205 ) 24,540 726 325,528 291,511
Unconsolidated VIEs:
Asset-backed Canadian commercial paper conduit facility 98,905 ( 4,236 ) 8,162 129 102,960 87,439
$ 2,505,413 $ ( 127,615 ) $ 172,978 $ 3,377 $ 2,554,153 $ 2,106,472
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 transactions 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 2023 to 2030.
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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 transfers of U.S. retail motorcycle finance receivables to SPEs, the respective proceeds, and the respective proceeds, net of discounts and issuance costs were as follows (in millions):
2022 2021
Transfers Proceeds Proceeds, net Transfers Proceeds Proceeds, net
First quarter $ — $ — $ — $ 663.1 $ 600.0 $ 597.4
Second quarter 2,176.4 1,836.3 1,826.9 — — —
$ 2,176.4 $ 1,836.3 $ 1,826.9 $ 663.1 $ 600.0 $ 597.4
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facility VIE – The Company has a $ 900.0 million revolving facility agreement (the U.S. Conduit Facility) with third-party banks and their asset-backed U.S. commercial paper conduits. 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 banks and their asset-backed U.S. commercial paper conduits. In addition to the $ 900.0 million aggregate commitment, the agreement allows for additional borrowings, at the lender’s discretion, of up to $ 300.0 million. Availability under the U.S. Conduit 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 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, with provisions for a transition to other benchmark rates, generally aligning to recommendations published by the Alternative Reference Rates Committee convened by the Federal Reserve Board and Federal Reserve Bank of New York. In each of these cases, a program fee is assessed based on the outstanding debt principal balance. The U.S. Conduit Facility also provides for an unused commitment fee based on the unused portion of the total aggregate commitment. When calculating the unused fee, the aggregate commitment does not include any unused portion of the $ 300.0 million additional 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 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 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of June 26, 2022, the U.S. Conduit Facility has an expiration date of November 18, 2022.
The Company is the primary beneficiary of its U.S. Conduit Facility 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.
During the second quarter of 2022, the Company transferred $ 420.8 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $ 362.8 million of debt under the U.S. Conduit Facility. During the first quarter of 2022, the Company transferred $ 47.1 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $ 41.3 million of debt under the U.S. Conduit Facility. There were no finance receivable transfers under the U.S. Conduit Facility during the first half of 2021.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility – In June 2022, 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$ 125.0 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$ 125.0 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
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monthly through available collections. The expected remaining term of the related receivables is approximately 4 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of June 26, 2022, the Canadian Conduit has an expiration date of June 30, 2023.
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 $ 13.2 million at June 26, 2022. The maximum exposure is not an indication of the Company's expected loss exposure.
There were no finance receivable transfers under the Canadian Conduit during the second quarter of 2022 or the first half of 2021. During the first quarter of 2022, the Company transferred $ 25.3 million of Canadian retail motorcycle finance receivables to the Canadian Conduit for proceeds of $ 21.2 million.
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, and cross-currency swaps are valued using quoted forward rates and prices; interest rate caps are valued using quoted interest rates and yield curves.
Level 3 inputs are not observable in the market and include the Company's judgments about the assumptions market participants would use in pricing the asset or liability.
Recurring Fair Value Measurements – The Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
June 26, 2022
Balance Level 1 Level 2
Assets:
Cash equivalents $ 1,936,000 $ 1,936,000 $ —
Marketable securities 38,779 38,779 —
Derivative financial instruments 22,541 — 22,541
$ 1,997,320 $ 1,974,779 $ 22,541
Liabilities:
Derivative financial instruments $ 56,945 $ — $ 56,945
December 31, 2021
Balance Level 1 Level 2
Assets:
Cash equivalents $ 1,617,887 $ 1,337,900 $ 279,987
Marketable securities 49,650 49,650 —
Derivative financial instruments 52,034 — 52,034
$ 1,719,571 $ 1,387,550 $ 332,021
Liabilities:
Derivative financial instruments $ 2,361 $ — $ 2,361
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June 27, 2021
Balance Level 1 Level 2
Assets:
Cash equivalents $ 1,439,400 $ 1,274,400 $ 165,000
Marketable securities 52,434 52,434 —
Derivative financial instruments 97,464 — 97,464
$ 1,589,298 $ 1,326,834 $ 262,464
Liabilities:
Derivative financial instruments $ 3,836 $ — $ 3,836
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 $ 16.1 million, $ 18.3 million and $ 16.6 million at June 26, 2022, December 31, 2021 and June 27, 2021, respectively, for which the fair value adjustment was an increase of $ 1.4 million, a decrease of $ 2.9 million and an increase of $ 0.6 million, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.
Fair Value of Financial Instruments Measured at Cost – The 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 26, 2022 December 31, 2021 June 27, 2021
Fair Value Carrying Value Fair Value Carrying Value Fair Value Carrying Value
Assets:
Finance receivables, net $ 7,329,371 $ 7,103,684 $ 6,794,499 $ 6,571,921 $ 7,141,608 $ 6,888,954
Liabilities:
Deposits, net $ 364,938 $ 345,790 $ 293,602 $ 290,326 $ 260,338 $ 259,373
Debt:
Unsecured commercial paper $ 701,384 $ 701,384 $ 751,286 $ 751,286 $ 749,037 $ 749,037
Asset-backed U.S. commercial paper conduit facility $ 570,628 $ 570,628 $ 272,589 $ 272,589 $ 291,511 $ 291,511
Asset-backed Canadian commercial paper conduit facility $ 77,984 $ 77,984 $ 85,054 $ 85,054 $ 87,439 $ 87,439
Asset-backed securitization debt $ 2,831,401 $ 2,847,921 $ 1,633,749 $ 1,627,142 $ 1,744,841 $ 1,727,522
Medium-term notes $ 2,762,208 $ 2,850,320 $ 3,513,815 $ 3,408,660 $ 3,651,957 $ 3,476,057
Senior notes $ 703,629 $ 745,016 $ 790,373 $ 744,668 $ 804,187 $ 744,321
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 3 inputs.
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Debt – The carrying value of debt is generally cost, net of unamortized discounts and debt issuance costs. The fair value of unsecured commercial paper is calculated using Level 2 inputs and approximates carrying value due to its short maturity. The fair value of debt provided under the U.S. Conduit Facility and the Canadian Conduit Facility is calculated using Level 2 inputs and approximates carrying value since the interest rates charged under the facilities are tied directly to market rates and fluctuate as market rates change. The fair values of the medium-term notes and senior notes are estimated based upon rates currently available for debt with similar terms and remaining maturities (Level 2 inputs). The fair value of the 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.
14. Product Warranty and Recall Campaigns
The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except in certain markets, where the Company currently provides a standard three-year limited warranty. The Company also provides a five-year unlimited warranty on the battery for electric motorcycles. In addition, the Company provides a one-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 shipment 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
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Balance, beginning of period $ 65,095 $ 72,427 $ 61,621 $ 69,208
Warranties issued during the period 9,744 12,818 20,455 24,490
Settlements made during the period ( 10,060 ) ( 10,378 ) ( 17,156 ) ( 18,963 )
Recalls and changes to pre-existing warranty liabilities ( 3,052 ) ( 1,241 ) ( 3,193 ) ( 1,109 )
Balance, end of period $ 61,727 $ 73,626 $ 61,727 $ 73,626
The liability for recall campaigns, included in the balance above, was $ 14.6 million, $ 16.9 million and $ 24.0 million at June 26, 2022, December 31, 2021 and June 27, 2021, respectively.
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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 (income) cost are presented in Other income, net . Components of net periodic benefit (income) cost for the Company's defined benefit plans were as follows (in thousands):
Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Pension and SERPA Benefits:
Service cost $ 4,763 $ 6,348 $ 9,525 $ 12,696
Interest cost 15,472 15,472 30,945 30,942
Expected return on plan assets ( 31,476 ) ( 32,720 ) ( 62,952 ) ( 65,440 )
Amortization of unrecognized:
Prior service credit ( 328 ) ( 312 ) ( 656 ) ( 624 )
Net loss 7,978 18,386 15,956 36,772
Settlement (gain) loss — — ( 256 ) 816
Net periodic benefit (income) cost $ ( 3,591 ) $ 7,174 $ ( 7,438 ) $ 15,162
Postretirement Healthcare Benefits:
Service cost $ 1,161 $ 1,288 $ 2,322 $ 2,576
Interest cost 1,904 1,626 3,808 3,252
Expected return on plan assets ( 3,809 ) ( 3,495 ) ( 7,618 ) ( 6,990 )
Amortization of unrecognized:
Prior service credit ( 581 ) ( 581 ) ( 1,162 ) ( 1,162 )
Net loss 122 264 244 528
Net periodic benefit income $ ( 1,203 ) $ ( 898 ) $ ( 2,406 ) $ ( 1,796 )
There are no required or planned voluntary qualified pension plan contributions for 2022. The Company expects it will continue to make ongoing benefit payments under the SERPA and postretirement healthcare plans.
16. Commitments and Contingencies
Litigation and Other Claims – The Company is subject to lawsuits and other claims related to product, product recall, commercial, employee, environmental 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. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and there are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters.
Supply Matter – During the second quarter of 2022, the Company received information from a third-party supplier concerning a regulatory compliance matter relating to the supplier's component part. As a result, out of an abundance of caution, the Company suspended all vehicle assembly and shipments (excluding LiveWire models) for approximately two weeks during the second quarter of 2022. The Company continues to work through the regulatory compliance matter with its relevant suppliers and at this time does not expect that this matter will result in additional costs or recall expenses that are material. Given the uncertainties related to this matter , the Company is currently unable to reasonably estimate any potential additional costs or recall expenses it may incur.
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LiveWire Transaction – On December 13, 2021, the Company and AEA-Bridges Impact Corp. (ABIC), a special purpose acquisition company (SPAC), announced that they have entered into a definitive business combination agreement under which LiveWire, the Company's electric motorcycle division, will become a separate business of the Company and combine with ABIC to create a new publicly traded company. The parties expect that the transaction will be financed by ABIC’s $ 400 million cash held in trust (assuming no redemptions by ABIC’s shareholders in the context of the transaction), a $ 100 million cash investment from the Company, and a $ 100 million investment from an independent strategic investor, Kwang Yang Motor Co., Ltd. (KYMCO). In addition, to the extent any shares of the SPAC are redeemed, the Company will invest an additional amount equal to the dollar value of such redemptions up to a maximum of $ 100 million.
The transaction, which has been approved by the boards of directors of both the Company and ABIC, is now expected to close at the beginning of the Company's 2022 fourth fiscal quarter. The consummation of the business combination is subject to the approval of ABIC’s shareholders and other conditions. Upon closing of the transaction, the Company will retain a controlling financial interest in LiveWire. As the controlling shareholder following the transaction, the Company will continue to consolidate LiveWire’s results, with additional adjustments to recognize non-controlling shareholder interests.
17. Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss were as follows (in thousands):
Three months ended June 26, 2022
Foreign currency translation adjustments Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ ( 48,522 ) $ 7,923 $ ( 189,011 ) $ ( 229,610 )
Other comprehensive loss, before reclassifications ( 31,600 ) ( 53,909 ) — ( 85,509 )
Income tax benefit 579 11,731 — 12,310
( 31,021 ) ( 42,178 ) — ( 73,199 )
Reclassifications:
Net loss on derivative financial instruments — 70,702 — 70,702
Prior service credits (a)
— — ( 909 ) ( 909 )
Actuarial losses (a)
— — 8,100 8,100
Reclassifications before tax — 70,702 7,191 77,893
Income tax expense — ( 15,672 ) ( 1,688 ) ( 17,360 )
— 55,030 5,503 60,533
Other comprehensive (loss) income ( 31,021 ) 12,852 5,503 ( 12,666 )
Balance, end of period $ ( 79,543 ) $ 20,775 $ ( 183,508 ) $ ( 242,276 )
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Three months ended June 27, 2021
Foreign currency translation adjustments Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ ( 24,927 ) $ ( 28,586 ) $ ( 416,124 ) $ ( 469,637 )
Other comprehensive income, before reclassifications 1,722 13,574 — 15,296
Income tax expense ( 307 ) ( 2,994 ) — ( 3,301 )
1,415 10,580 — 11,995
Reclassifications:
Net gain on derivative financial instruments — ( 13,898 ) — ( 13,898 )
Prior service credits (a)
— — ( 893 ) ( 893 )
Actuarial losses (a)
— — 18,650 18,650
Reclassifications before tax — ( 13,898 ) 17,757 3,859
Income tax benefit (expense) — 2,816 ( 4,170 ) ( 1,354 )
— ( 11,082 ) 13,587 2,505
Other comprehensive income (loss) 1,415 ( 502 ) 13,587 14,500
Balance, end of period $ ( 23,512 ) $ ( 29,088 ) $ ( 402,537 ) $ ( 455,137 )
Six months ended June 26, 2022
Foreign currency translation adjustments Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ ( 44,401 ) $ ( 2,005 ) $ ( 194,513 ) $ ( 240,919 )
Other comprehensive loss, before reclassifications ( 35,404 ) ( 61,139 ) — ( 96,543 )
Income tax benefit 262 13,224 — 13,486
( 35,142 ) ( 47,915 ) — ( 83,057 )
Reclassifications:
Net loss on derivative financial instruments — 90,748 — 90,748
Prior service credits (a)
— — ( 1,818 ) ( 1,818 )
Actuarial losses (a)
— — 16,200 16,200
Reclassifications before tax — 90,748 14,382 105,130
Income tax expense — ( 20,053 ) ( 3,377 ) ( 23,430 )
— 70,695 11,005 81,700
Other comprehensive (loss) income ( 35,142 ) 22,780 11,005 ( 1,357 )
Balance, end of period $ ( 79,543 ) $ 20,775 $ ( 183,508 ) $ ( 242,276 )
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Six months ended June 27, 2021
Foreign currency translation adjustments Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ ( 7,589 ) $ ( 46,116 ) $ ( 429,712 ) $ ( 483,417 )
Other comprehensive loss, before reclassifications ( 15,352 ) ( 37,163 ) — ( 52,515 )
Income tax (expense) benefit ( 571 ) 8,098 — 7,527
( 15,923 ) ( 29,065 ) — ( 44,988 )
Reclassifications:
Net loss on derivative financial instruments — 59,688 — 59,688
Prior service credits (a)
— — ( 1,786 ) ( 1,786 )
Actuarial losses (a)
— — 37,300 37,300
Reclassifications before tax — 59,688 35,514 95,202
Income tax expense — ( 13,595 ) ( 8,339 ) ( 21,934 )
— 46,093 27,175 73,268
Other comprehensive (loss) income ( 15,923 ) 17,028 27,175 28,280
Balance, end of period $ ( 23,512 ) $ ( 29,088 ) $ ( 402,537 ) $ ( 455,137 )
(a) Amounts reclassified are included in the computation of net periodic benefit (income) cost, discussed further in Note 15
18. Reportable Segments
Harley-Davidson, Inc. is the parent company for the groups of companies referred to as Harley-Davidson Motor Company and Harley-Davidson Financial Services. The Company operates in two 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 the activities of Harley-Davidson Motor Company which designs, manufactures and sells motorcycles. The Motorcycles segment also sells motorcycle parts, accessories, and apparel as well as licenses its trademarks. The Company's products are sold to retail customers primarily through a network of dealers.
The Financial Services segment consists of Harley-Davidson Financial Services 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. Harley-Davidson Financial Services also works with certain unaffiliated insurance companies to provide motorcycle insurance and protection products to motorcycle owners.
Selected segment information is set forth below (in thousands):
Three months ended Six months ended
June 26,
2022 		June 27,
2021 		June 26,
2022 		June 27,
2021
Motorcycles and Related Products:
Motorcycles revenue $ 1,266,471 $ 1,331,500 $ 2,569,642 $ 2,563,607
Gross profit 386,750 407,051 794,385 827,536
Selling, administrative and engineering expense 195,327 220,422 400,215 413,968
Restructuring (benefit) expense ( 264 ) 807 ( 392 ) 214
Operating income 191,687 185,822 394,562 413,354
Financial Services:
Financial Services revenue 202,616 200,558 394,631 390,958
Financial Services expense 116,688 105,909 222,346 177,440
Restructuring expense — 111 — 338
Operating income 85,928 94,538 172,285 213,180
Operating income $ 277,615 $ 280,360 $ 566,847 $ 626,534
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Total assets for the Motorcycles and Financial Services segments were $ 3.0 billion and $ 9.1 billion, respectively, as of June 26, 2022, $ 3.3 billion and $ 7.7 billion, respectively, as of December 31, 2021, and $ 2.8 billion and $ 8.2 billion, respectively, as of June 27, 2021.
19. Supplemental Consolidating Data
The supplemental consolidating legal entity data for Harley-Davidson Motor Company, Harley-Davidson Financial Services and related consolidating adjustments are presented for informational purposes. The legal entity income statement information presented below differs from reportable segment income statement information due to the allocation of legal entity consolidating adjustments to income for reportable segments. Supplemental consolidating data is as follows (in thousands):
Three months ended June 26, 2022
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Revenue:
Motorcycles and Related Products $ 1,269,592 $ — $ ( 3,121 ) $ 1,266,471
Financial Services — 203,386 ( 770 ) 202,616
1,269,592 203,386 ( 3,891 ) 1,469,087
Costs and expenses:
Motorcycles and Related Products cost of goods sold 879,721 — — 879,721
Financial Services interest expense — 47,649 — 47,649
Financial Services provision for credit losses — 29,133 — 29,133
Selling, administrative and engineering expense 195,939 43,028 ( 3,734 ) 235,233
Restructuring benefit ( 264 ) — — ( 264 )
1,075,396 119,810 ( 3,734 ) 1,191,472
Operating income 194,196 83,576 ( 157 ) 277,615
Other income, net 10,055 — — 10,055
Investment loss ( 3,530 ) — — ( 3,530 )
Interest expense 7,720 — — 7,720
Income before income taxes 193,001 83,576 ( 157 ) 276,420
Provision for income taxes 40,994 19,577 — 60,571
Net income $ 152,007 $ 63,999 $ ( 157 ) $ 215,849
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Six months ended June 26, 2022
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Revenue:
Motorcycles and Related Products $ 2,575,885 $ — $ ( 6,243 ) $ 2,569,642
Financial Services — 395,776 ( 1,145 ) 394,631
2,575,885 395,776 ( 7,388 ) 2,964,273
Costs and expenses:
Motorcycles and Related Products cost of goods sold 1,775,257 — — 1,775,257
Financial Services interest expense — 89,748 — 89,748
Financial Services provision for credit losses — 57,955 — 57,955
Selling, administrative and engineering expense 401,356 80,886 ( 7,384 ) 474,858
Restructuring benefit ( 392 ) — — ( 392 )
2,176,221 228,589 ( 7,384 ) 2,397,426
Operating income 399,664 167,187 ( 4 ) 566,847
Other income, net 21,085 — — 21,085
Investment loss ( 5,509 ) — — ( 5,509 )
Interest expense 15,431 — 15,431
Income before income taxes 399,809 167,187 ( 4 ) 566,992
Provision for income taxes 88,841 39,800 — 128,641
Net income $ 310,968 $ 127,387 $ ( 4 ) $ 438,351
Three months ended June 27, 2021
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Revenue:
Motorcycles and Related Products $ 1,336,970 $ — $ ( 5,470 ) $ 1,331,500
Financial Services — 199,637 921 200,558
1,336,970 199,637 ( 4,549 ) 1,532,058
Costs and expenses:
Motorcycles and Related Products cost of goods sold 924,449 — — 924,449
Financial Services interest expense — 48,621 — 48,621
Financial Services provision for credit losses — 16,201 — 16,201
Selling, administrative and engineering expense 223,512 42,091 ( 4,094 ) 261,509
Restructuring expense 807 111 — 918
1,148,768 107,024 ( 4,094 ) 1,251,698
Operating income 188,202 92,613 ( 455 ) 280,360
Other income, net 690 — — 690
Investment income 122,731 — ( 120,000 ) 2,731
Interest expense 7,722 — — 7,722
Income before income taxes 303,901 92,613 ( 120,455 ) 276,059
Provision for income taxes 49,570 20,149 — 69,719
Net income $ 254,331 $ 72,464 $ ( 120,455 ) $ 206,340
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Six months ended June 27, 2021
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Revenue:
Motorcycles and Related Products $ 2,575,437 $ — $ ( 11,830 ) $ 2,563,607
Financial Services — 388,387 2,571 390,958
2,575,437 388,387 ( 9,259 ) 2,954,565
Costs and expenses:
Motorcycles and Related Products cost of goods sold 1,736,071 — — 1,736,071
Financial Services interest expense — 104,328 — 104,328
Financial Services provision for credit losses — ( 6,273 ) — ( 6,273 )
Selling, administrative and engineering expense 419,872 82,366 ( 8,885 ) 493,353
Restructuring expense 214 338 — 552
2,156,157 180,759 ( 8,885 ) 2,328,031
Operating income 419,280 207,628 ( 374 ) 626,534
Other income, net 967 — — 967
Investment income 124,133 — ( 120,000 ) 4,133
Interest expense 15,430 — — 15,430
Income before income taxes 528,950 207,628 ( 120,374 ) 616,204
Provision for income taxes 105,566 45,154 — 150,720
Net income $ 423,384 $ 162,474 $ ( 120,374 ) $ 465,484

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June 26, 2022
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ 600,091 $ 1,594,168 $ — $ 2,194,259
Accounts receivable, net 617,220 — ( 315,171 ) 302,049
Finance receivables, net — 1,674,970 — 1,674,970
Inventories, net 726,586 — — 726,586
Restricted cash — 226,488 — 226,488
Other current assets 148,632 48,079 ( 12,895 ) 183,816
2,092,529 3,543,705 ( 328,066 ) 5,308,168
Finance receivables, net — 5,428,714 — 5,428,714
Property, plant and equipment, net 626,230 25,923 — 652,153
Pension and postretirement assets 411,906 — — 411,906
Goodwill 61,890 — — 61,890
Deferred income taxes 16,640 75,754 ( 23,000 ) 69,394
Lease assets 37,616 6,631 — 44,247
Other long-term assets 209,006 41,616 ( 105,476 ) 145,146
$ 3,455,817 $ 9,122,343 $ ( 456,542 ) $ 12,121,618
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 383,994 $ 347,880 $ ( 315,171 ) $ 416,703
Accrued liabilities 447,055 156,995 ( 11,791 ) 592,259
Short-term deposits, net — 78,005 — 78,005
Short-term debt — 701,384 — 701,384
Current portion of long-term debt, net — 1,887,552 — 1,887,552
831,049 3,171,816 ( 326,962 ) 3,675,903
Long-term deposits, net — 267,785 — 267,785
Long-term debt, net 745,016 4,459,301 — 5,204,317
Lease liabilities 19,995 6,702 — 26,697
Pension and postretirement liabilities 91,362 — — 91,362
Deferred income taxes 30,092 1,458 ( 22,361 ) 9,189
Other long-term liabilities 153,846 55,164 2,203 211,213
Commitments and contingencies (Note 16)
Shareholders’ equity 1,584,457 1,160,117 ( 109,422 ) 2,635,152
$ 3,455,817 $ 9,122,343 $ ( 456,542 ) $ 12,121,618

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June 27, 2021
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ 923,505 $ 818,463 $ — $ 1,741,968
Accounts receivable, net 643,505 — ( 380,052 ) 263,453
Finance receivables, net — 1,629,636 — 1,629,636
Inventories, net 457,648 — — 457,648
Restricted cash — 152,411 — 152,411
Other current assets 91,735 132,753 — 224,488
2,116,393 2,733,263 ( 380,052 ) 4,469,604
Finance receivables, net — 5,259,318 — 5,259,318
Property, plant and equipment, net 663,549 30,829 — 694,378
Pension and postretirement assets 120,542 — — 120,542
Goodwill 65,395 — — 65,395
Deferred income taxes 48,710 83,615 ( 791 ) 131,534
Lease assets 33,433 7,777 — 41,210
Other long-term assets 188,535 35,427 ( 96,717 ) 127,245
$ 3,236,557 $ 8,150,229 $ ( 477,560 ) $ 10,909,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 394,792 $ 416,136 $ ( 380,052 ) $ 430,876
Accrued liabilities 483,470 103,131 1,139 587,740
Short-term deposits, net — 101,672 — 101,672
Short-term debt — 749,037 — 749,037
Current portion of long-term debt, net — 1,581,826 — 1,581,826
878,262 2,951,802 ( 378,913 ) 3,451,151
Long-term deposits, net — 157,701 — 157,701
Long-term debt, net 744,321 4,000,703 — 4,745,024
Lease liabilities 14,626 7,082 — 21,708
Pension and postretirement liabilities 105,833 — — 105,833
Deferred income taxes 7,166 1,747 — 8,913
Other long-term liabilities 183,600 48,521 2,503 234,624
Commitments and contingencies (Note 16)
Shareholders’ equity 1,302,749 982,673 ( 101,150 ) 2,184,272
$ 3,236,557 $ 8,150,229 $ ( 477,560 ) $ 10,909,226
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Six months ended June 26, 2022
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Cash flows from operating activities:
Net income $ 310,968 $ 127,387 $ ( 4 ) $ 438,351
Adjustments to reconcile Net income to Net cash (used) provided by operating activities:
Depreciation and amortization 73,098 4,291 — 77,389
Amortization of deferred loan origination costs — 47,101 — 47,101
Amortization of financing origination fees 348 7,289 — 7,637
Provision for long-term employee benefits ( 9,844 ) — — ( 9,844 )
Employee benefit plan contributions and payments ( 5,466 ) — — ( 5,466 )
Stock compensation expense 18,341 1,424 — 19,765
Net change in wholesale finance receivables related to sales — — ( 201,326 ) ( 201,326 )
Provision for credit losses — 57,955 — 57,955
Deferred income taxes 4,312 ( 1,431 ) ( 406 ) 2,475
Other, net 5,678 5,420 4 11,102
Changes in current assets and liabilities:
Accounts receivable, net ( 347,250 ) — 212,645 ( 134,605 )
Finance receivables – accrued interest and other
— 4,255 — 4,255
Inventories, net ( 33,986 ) — — ( 33,986 )
Accounts payable and accrued liabilities ( 5,423 ) 223,086 ( 221,902 ) ( 4,239 )
Other current assets ( 48,633 ) 6,592 9,663 ( 32,378 )
( 348,825 ) 355,982 ( 201,322 ) ( 194,165 )
Net cash (used) provided by operating activities ( 37,857 ) 483,369 ( 201,326 ) 244,186
Cash flows from investing activities:
Capital expenditures ( 53,694 ) ( 1,321 ) — ( 55,015 )
Origination of finance receivables — ( 4,379,674 ) 1,868,481 ( 2,511,193 )
Collections on finance receivables — 3,739,107 ( 1,667,155 ) 2,071,952
Other investing activities 797 — $ — 797
Net cash used by investing activities ( 52,897 ) ( 641,888 ) 201,326 ( 493,459 )
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Six months ended June 26, 2022
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Cash flows from financing activities:
Proceeds from issuance of medium-term notes — 495,785 — 495,785
Repayments of medium-term notes — ( 950,000 ) — ( 950,000 )
Proceeds from securitization debt — 1,826,891 — 1,826,891
Repayments of securitization debt — ( 610,205 ) — ( 610,205 )
Borrowings of asset-backed commercial paper — 425,253 — 425,253
Repayments of asset-backed commercial paper — ( 133,159 ) — ( 133,159 )
Net increase in unsecured commercial paper — ( 50,672 ) — ( 50,672 )
Net increase in deposits — 55,255 — 55,255
Dividends paid ( 47,146 ) — — ( 47,146 )
Repurchase of common stock ( 325,828 ) — — ( 325,828 )
Other financing activities ( 1,237 ) — — ( 1,237 )
Net cash (used) provided by financing activities ( 374,211 ) 1,059,148 — 684,937
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 13,149 ) ( 1,264 ) — ( 14,413 )
Net (decrease) increase in cash, cash equivalents and restricted cash $ ( 478,114 ) $ 899,365 $ — $ 421,251
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash, beginning of period $ 1,078,205 $ 947,014 $ — $ 2,025,219
Net (decrease) increase in cash, cash equivalents and restricted cash ( 478,114 ) 899,365 — 421,251
Cash, cash equivalents and restricted cash, end of period $ 600,091 $ 1,846,379 $ — $ 2,446,470
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Six months ended June 27, 2021
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Cash flows from operating activities:
Net income $ 423,384 $ 162,474 $ ( 120,374 ) $ 465,484
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization 76,749 4,574 — 81,323
Amortization of deferred loan origination costs — 40,089 — 40,089
Amortization of financing origination fees 344 6,880 — 7,224
Provision for long-term employee benefits 13,366 — — 13,366
Employee benefit plan contributions and payments ( 11,055 ) — — ( 11,055 )
Stock compensation expense 21,550 1,790 — 23,340
Net change in wholesale finance receivables related to sales — — ( 129,819 ) ( 129,819 )
Provision for credit losses — ( 6,273 ) — ( 6,273 )
Deferred income taxes 6,505 6,597 ( 370 ) 12,732
Other, net ( 2,092 ) ( 347 ) 374 ( 2,065 )
Changes in current assets and liabilities:
Accounts receivable, net ( 427,762 ) — 303,024 ( 124,738 )
Finance receivables – accrued interest and other
— 9,691 — 9,691
Inventories, net 58,366 — — 58,366
Accounts payable and accrued liabilities 182,066 313,178 ( 298,638 ) 196,606
Other current assets 8,615 5,145 ( 3,731 ) 10,029
( 73,348 ) 381,324 ( 129,160 ) 178,816
Net cash provided by operating activities 350,036 543,798 ( 249,534 ) 644,300
Cash flows from investing activities:
Capital expenditures ( 36,104 ) ( 1,464 ) — ( 37,568 )
Origination of finance receivables — ( 4,254,353 ) 1,959,853 ( 2,294,500 )
Collections on finance receivables — 3,774,683 ( 1,830,319 ) 1,944,364
Other investing activities 2,425 — — 2,425
Net cash used by investing activities ( 33,679 ) ( 481,134 ) 129,534 ( 385,279 )
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Six months ended June 27, 2021
Harley-Davidson Motor Company Harley-Davidson Financial Services Consolidating Adjustments Consolidated
Cash flows from financing activities:
Repayments of medium-term notes — ( 1,400,000 ) — ( 1,400,000 )
Proceeds from securitization debt — 597,411 — 597,411
Repayments of securitization debt — ( 664,685 ) — ( 664,685 )
Repayments of asset-backed commercial paper — ( 143,256 ) — ( 143,256 )
Net decrease in unsecured commercial paper — ( 262,452 ) — ( 262,452 )
Net increase in credit facilities — 84 — 84
Net increase in deposits — 179,329 — 179,329
Dividends paid ( 46,209 ) ( 120,000 ) 120,000 ( 46,209 )
Repurchase of common stock ( 10,911 ) — — ( 10,911 )
Other financing activities 4,324 — — 4,324
Net cash used by financing activities ( 52,796 ) ( 1,813,569 ) 120,000 ( 1,746,365 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 6,217 ) ( 661 ) — ( 6,878 )
Net increase (decrease) in cash, cash equivalents and restricted cash $ 257,344 $ ( 1,751,566 ) $ — $ ( 1,494,222 )
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash, beginning of period $ 666,161 $ 2,743,007 $ — $ 3,409,168
Net increase (decrease) in cash, cash equivalents and restricted cash 257,344 ( 1,751,566 ) — ( 1,494,222 )
Cash, cash equivalents and restricted cash, end of period $ 923,505 $ 991,441 $ — $ 1,914,946
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Harley-Davidson, Inc. is the parent company of the groups of companies referred to as Harley-Davidson Motor Company and Harley-Davidson Financial Services. Unless the context otherwise requires, all references to the “Company” include Harley-Davidson, Inc. and all its subsidiaries. The Company operates in two segments: Motorcycles and Related Products (Motorcycles) and Financial Services.
The “% Change” figures included in the Results of Operations sections were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented. Certain “% Change” deemed not meaningful (NM) have been excluded.
(1) Note Regarding Forward-Looking Statements
The Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” “may,” “will,” “estimates,” “targets,” “intends,” “is on-track,” “forecasting,” or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption "Cautionary Statements" in this Item 2, as well as in Item 1A. Risk Factors , as well as in Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the "Key Factors Impacting the Company" and the “Guidance” sections in this Item 2 are only made as of July 28, 2022 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (August 4, 2022), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Overview
The Company's net income was $215.8 million, or $1.46 per diluted share, in the second quarter of 2022, compared to $206.3 million, or $1.33 per diluted share, in the second quarter of 2021. In the second quarter of 2022, Motorcycles segment operating income was $191.7 million, up $5.9 million from the second quarter of 2021. The increase in operating income from the Motorcycles segment for the second quarter of 2022 was driven primarily by price increases and lower operating expenses partially offset by the impact of lower shipment volumes, higher supply chain costs and unfavorable foreign currency exchange rates compared to the same quarter last year. Operating income from the Financial Services segment in the second quarter of 2022 was $85.9 million, down $8.6 million compared to the prior year quarter due primarily to an increase in the provision for credit losses.
Retail sales of new Harley-Davidson motorcycles in the second quarter of 2022 were down 22.7% compared to the second quarter of 2021, including declines of 28.9% in the U.S. and 9.3% in international markets. Retail sales during the second quarter of 2022 were adversely impacted by low dealer inventory levels which were further impacted by a suspension of production and shipments for approximately two weeks during the second quarter. Refer to the Motorcycles Retail Sales and Registration Data section for further discussion of retail sales results.
Key Factors Impacting the Company (1)
Supply Chain Challenges – During the second quarter of 2022, the Company continued to experience disruption and increased costs related to global supply chain challenges including the continued global semiconductor chip shortages. As a result of these challenges, the Company experienced higher costs in the second quarter of 2022, although the rate of supply chain inflation experienced during the quarter declined as compared to the rate experienced during the first quarter of 2022. The decline in the inflation rate was primarily a result of normalization in logistics costs. While logistics costs continue to remain higher than a year ago, the Company did not experience volatile pricing and reduced its reliance on expedited shipping during the second quarter of 2022. The Company expects that inflation rates for logistics and materials costs will continue to improve during the balance of 2022. In the aggregate, the Company expects supply chain costs to continue to be inflationary during the second half of 2022, but the Company believes it will move beyond the peak levels of inflation experienced in 2021. Further, the Company expects year-over-year favorability for certain costs of raw materials as inflation in raw material markets decelerates.
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In addition, during the second quarter of 2022, the Company received information from a third-party supplier concerning a regulatory compliance matter relating to the supplier's component part. As a result, out of an abundance of caution, the Company suspended all vehicle assembly and shipments (excluding LiveWire models) for approximately two weeks during the second quarter of 2022. The Company continues to work through the regulatory compliance matter with its relevant suppliers and at this time does not expect that this matter will result in additional costs or recall expenses that are material. The Company expects that in the second half of 2022 it will make up production and shipments lost as a result of the suspension of production and shipments during the second quarter.
Suspension of Additional European Union Tariffs – In April 2021, the Company received notification from the Economic Ministry of Belgium that, following a request from the European Union (EU), the Company would be subject to revocation of the Binding Origin Information (BOI) rulings that allowed it to supply its EU markets with certain motorcycles produced at its Thailand manufacturing facility at tariff rates of 6%. As a result of the revocation, all non-electric motorcycles that Harley-Davidson imported into the EU, regardless of origin, were subject to a total tariff rate of 31% from April 19, 2021 through the end of 2021. On October 30, 2021, the U.S. and EU announced an agreement related to the Section 232 tariffs on steel and aluminum that were implemented in 2018 by the U.S. and the subsequent rebalancing tariff measures taken by the EU. This agreement suspended the additional tariffs initially imposed by the EU on the Company's motorcycles, reducing the total EU tariff rate on the Company’s motorcycles from 31% to 6%, effective January 1, 2022. The lower 6% tariff rate applies to all motorcycles imported by the Company into the EU, regardless of origin. Under the agreement between the U.S. and the EU, the lower tariff rate will remain in effect until December 31, 2023. During such time, the U.S. and EU will monitor and review the operation of the agreement, seeking to conclude the negotiations on steel and aluminum tariffs by December 31, 2023. These negotiations are ongoing, and there are no assurances the U.S. and EU will reach a resolution that concludes the trade conflict on steel and aluminum tariffs beyond December 31, 2023.
To date, the Company continues to pursue its appeals of the revocation of the BOIs and the denial of its application for temporary extended reliance on the 6% tariff rate (for motorcycles produced in Thailand and ordered prior to April 19, 2021), although there is no assurance that these appeals will continue or be successful.
COVID-19 Pandemic – The Company continues to manage through the impacts of the COVID-19 pandemic and its associated variants by keeping safety and community well-being a priority. The Company continues to proactively follow protocols to keep workers safe in its manufacturing facilities. The full impact of the COVID-19 pandemic on future results depends on future developments, such as the ultimate duration and scope of the pandemic including associated variants, the success of vaccination programs, the consequences of vaccine requirements, and its impact on the Company's employees, customers, dealers, distributors, and suppliers. Future impacts and disruptions could have an adverse effect on production, supply chains, distribution, and demand for the Company's products.
LiveWire Transaction – On December 13, 2021, the Company and AEA-Bridges Impact Corp. (ABIC), a special purpose acquisition company (SPAC), announced that they have entered into a definitive business combination agreement under which LiveWire, the Company's electric motorcycle division, will become a separate business of the Company and combine with ABIC to create a new publicly traded company. The parties expect that the transaction will be financed by ABIC’s $400 million cash held in trust (assuming no redemptions by ABIC’s shareholders in the context of the transaction), a $100 million cash investment from the Company, and a $100 million investment from an independent strategic investor, Kwang Yang Motor Co., Ltd. (KYMCO). In addition, to the extent any shares of the SPAC are redeemed, the Company will invest an additional amount equal to the dollar value of such redemptions up to a maximum of $100 million.
The transaction, which has been approved by the boards of directors of both the Company and ABIC, is now expected to close at the beginning of the Company's 2022 fourth fiscal quarter. The consummation of the business combination is subject to the approval of ABIC’s shareholders and other conditions. Upon closing of the transaction, the Company will retain a controlling financial interest in LiveWire. As the controlling shareholder following the transaction, the Company will continue to consolidate LiveWire’s results, with additional adjustments to recognize non-controlling shareholder interests.
Guidance (1)
On July 28, 2022, the Company provided the following guidance for 2022, which reflects its current outlook for the supply chain challenges discussed above.
The Company continues to expect Motorcycles segment revenue growth, compared to 2021, between 5% and 10%. This forecast incorporates the expectation that the Company will make up production and wholesale shipments lost as a result of the temporary suspension of production and shipments during the second quarter. In addition, this guidance incorporates the Company's information and expectations as of July 28, 2022 for the impact of supply chain challenges, including semiconductor chip availability. The Company's guidance also assumes a Euro exchange rate of $1.01. The Company estimates that every $0.01 change in the average Euro exchange rate equates to a revenue change of approximately $3 million in the
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second half of 2022. The Company continues to expect revenue in 2022 to be positively impacted by global pricing as the Company works to offset cost headwinds across its supply chain.
The Company continues to expect Motorcycles segment operating margin as a percent of revenue of 11% to 12%. The Company believes the anticipated positive impacts from pricing will more than offset the expected cost inflation across the supply chain. Also, the suspension of the additional EU tariffs is expected to contribute over a percentage point of margin growth.
Given the Company's plan to make up shipment volume lost as a result of the approximate two-week suspension of production and shipments during the second quarter, it now expects the Motorcycles segment revenue growth rate in the second half of 2022, compared to 2021, to be in the low- to mid-double digits. In addition, the Company now expects Motorcycles segment operating income margin percent to be in the mid-to-high single digits for the second half of 2022.
The Company continues to expect Financial Services operating income to decline 20% to 25% in 2022 compared to 2021. This decline is largely a result of the favorable credit loss allowance reductions and lower actual credit losses in 2021 that are not expected to repeat in 2022.
The Company continues to expect capital investments between $190 and $220 million in 2022. The Company plans to continue to invest behind product development and capability enhancement in support of The Hardwire strategy.
The Company's capital allocation priorities remain to fund growth through The Hardwire initiatives, pay dividends and execute discretionary share repurchases.
Results of Operations for the Three Months Ended June 26, 2022
Compared to the Three Months Ended June 27, 2021
Consolidated Results
Three months ended
(in thousands, except earnings per share) June 26,
2022 		June 27,
2021 		Increase
(Decrease) 		% Change
Operating income from Motorcycles and Related Products $ 191,687 $ 185,822 $ 5,865 3.2 %
Operating income from Financial Services 85,928 94,538 (8,610) (9.1)
Operating income 277,615 280,360 (2,745) (1.0)
Other income, net 10,055 690 9,365 NM
Investment (loss) income (3,530) 2,731 (6,261) NM
Interest expense 7,720 7,722 (2) —
Income before income taxes 276,420 276,059 361 0.1
Provision for income taxes 60,571 69,719 (9,148) (13.1)
Net income $ 215,849 $ 206,340 $ 9,509 4.6 %
Diluted earnings per share $ 1.46 $ 1.33 $ 0.13 9.8 %
The Company reported operating income of $277.6 million in the second quarter of 2022 compared to $280.4 million in the same period last year. Motorcycles segment operating income was $191.7 million in the second quarter of 2022, an improvement of $5.9 million compared to the second quarter of 2021. Operating income from the Financial Services segment decreased $8.6 million compared to the second quarter of 2021. Refer to the Motorcycles and Related Products Segment and Financial Services Segment sections for a more detailed discussion of the factors affecting operating income.
Other income in the second quarter of 2022 was higher than in the second quarter of 2021, impacted by higher non-operating income related to the Company's defined benefit plans.
The Company's effective income tax rate for the second quarter of 2022 was 21.9% compared to 25.3% for the second quarter of 2021. The decrease in the effective income tax rate was due primarily to favorable discrete income tax benefits recognized during the second quarter of 2022.
Diluted earnings per share was $1.46 in the second quarter of 2022, up 9.8% from the same period last year. Diluted weighted average shares outstanding decreased from 155.1 million in the second quarter of 2021 to 147.8 million in the second quarter of 2022, driven by the Company's discretionary repurchases of common stock. Refer to Liquidity and Capital Resources for additional information concerning the Company's share repurchase activity.
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Motorcycle Retail Sales (a)
Retail unit sales of new Harley-Davidson and LiveWire motorcycles were as follows:
Three months ended
June 30,
2022 		June 30,
2021 		(Decrease)
Increase 		%
Change
United States 31,820 44,739 (12,919) (28.9) %
Canada 3,090 3,446 (356) (10.3)
North America
34,910 48,185 (13,275) (27.6)
Europe/Middle East/Africa (EMEA) 8,702 10,248 (1,546) (15.1)
Asia Pacific 6,049 5,986 63 1.1
Latin America 791 855 (64) (7.5)
50,452 65,274 (14,822) (22.7) %
(a) Data source for retail sales figures shown above is new sales warranty and registration information provided by dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning new retail sales, and the Company does not regularly verify the information that its dealers supply. This information is subject to revision.
Worldwide retail sales of new Harley-Davidson motorcycles were down 22.7% during the second quarter of 2022 compared to the same period last year. Retail sales during the second quarter of 2022 were adversely impacted by low dealer inventory levels which were further impacted by a suspension of production and shipments for approximately two weeks during the second quarter.
Retail sales in North America were down during the second quarter of 2022 behind a 28.9% decline in the U.S. Retail sales outside of North America were lower in the second quarter of 2022 compared to the same period last year, primarily driven by declines in EMEA.
Worldwide retail inventory of new motorcycles was at historical lows during the second quarter of 2022. During the second quarter of 2022, average worldwide retail inventory was down 13% compared to the same quarter last year. In the U.S., average retail inventory during the second quarter of 2022 was down 35% compared to the same period last year, and retail inventory fell below 10,000 units at end of the second quarter. Average retail inventory is based on the average of monthly inventory levels within the quarter.
The Company continued to observe strong retail pricing for both new and used motorcycles within the U.S. during the second quarter of 2022. In the U.S., new motorcycle transaction prices on average came in more than 1% above Manufacturer's Suggested Retail Prices during the second quarter of 2022. In addition, prices for used Harley-Davidson motorcycles in the U.S. continued to trend above historical levels and the gap between new and used motorcycle pricing continued to narrow.
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Motorcycles and Related Products Segment
Motorcycle Unit Shipments
Motorcycle unit shipments were as follows:
Three months ended
June 26, 2022 June 27, 2021 Unit Unit
Units Mix % Units Mix % (Decrease)
Increase 		% Change
U.S. motorcycle shipments 28,385 58.9 % 36,118 63.7 % (7,733) (21.4) %
Worldwide motorcycle shipments:
Grand American Touring (a)
21,758 45.2 % 27,163 47.9 % (5,405) (19.9) %
Cruiser (b)
14,790 30.7 % 18,136 32.1 % (3,346) (18.4)
Sportster® / Street
6,561 13.6 % 7,321 12.9 % (760) (10.4)
Adventure Touring 5,059 10.5 % 4,048 7.1 % 1,011 25.0
48,168 100.0 % 56,668 100.0 % (8,500) (15.0) %
(a) Includes CVO TM and Trike
(b) Includes Softail® and LiveWire TM
The Company shipped 48,168 motorcycles worldwide during the second quarter of 2022, which was 15.0% lower than the second quarter of 2021. The Company's shipments in the U.S. during the second quarter of 2022 were adversely impacted by a suspension of production and shipments for approximately two weeks related to a third-party supplier regulatory compliance matter.
During the second quarter of 2022, the Company shipped a slightly lower mix of Grand American Touring and Cruiser motorcycles as a percent of total shipments and a higher mix of Sportster/Street and Adventure Touring motorcycles.
Segment Results
Condensed statements of operations for the Motorcycles segment were as follows (dollars in thousands):
Three months ended
June 26, 2022 June 27, 2021 (Decrease)
Increase 		%
Change
Revenue:
Motorcycles
$ 940,046 $ 1,029,709 $ (89,663) (8.7) %
Parts and accessories
214,540 222,670 (8,130) (3.7)
Apparel
77,327 55,631 21,696 39.0
Licensing
11,781 8,872 2,909 32.8
Other
22,777 14,618 8,159 55.8
1,266,471 1,331,500 (65,029) (4.9)
Cost of goods sold 879,721 924,449 (44,728) (4.8)
Gross profit 386,750 407,051 (20,301) (5.0)
Operating expenses:
Selling & administrative expense
157,894 181,145 (23,251) (12.8)
Engineering expense
37,433 39,277 (1,844) (4.7)
Restructuring (benefit) expense
(264) 807 (1,071) NM
195,063 221,229 (26,166) (11.8)
Operating income $ 191,687 $ 185,822 $ 5,865 3.2 %
Operating margin 15.1 % 14.0 % 1.2 pts.
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The estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the second quarter of 2021 to the second quarter of 2022 were as follows (in millions):
Net
Revenue 		Cost of
Goods Sold 		Gross
Profit
Three months ended June 27, 2021 $ 1,331.5 $ 924.4 $ 407.1
Volume (134.9) (100.3) (34.6)
Price and sales incentives 89.2 — 89.2
Foreign currency exchange rates and hedging (40.8) (24.0) (16.8)
Shipment mix 21.5 15.9 5.6
Raw material prices — 10.2 (10.2)
Manufacturing and other costs — 53.5 (53.5)
(65.0) (44.7) (20.3)
Three months ended June 26, 2022 $ 1,266.5 $ 879.7 $ 386.8
Factors affecting the comparability of net revenue, cost of goods sold and gross profit from the second quarter of 2021 to the second quarter of 2022 were as follows:
• The decrease in volume was due to lower motorcycle shipments, partially offset by higher Apparel sales.
• During the second quarter of 2022, revenue benefited from higher prices on new model year 2022 motorcycles coupled with pricing surcharges in select markets.
• Revenue and gross profit were negatively impacted by weaker foreign currency exchange rates relative to the U.S. dollar, partially offset by favorable net foreign currency gains associated with hedging recorded in cost of goods sold.
• Changes in the shipment mix within motorcycle families had a favorable impact on gross profit during the second quarter of 2022.
• Raw material cost increases were driven by cost inflation primarily due to supply chain challenges.
• Manufacturing and other costs increased due primarily to higher costs associated with supply chain challenges and a higher fixed cost per unit due to lower volume compared to the second quarter of 2021. These higher costs were partially offset by lower EU tariff costs.
Operating expenses were lower in the second quarter of 2022 compared to the same period last year as the Company prudently managed spending and experienced lower employee-related costs.
Financial Services Segment
Segment Results
Condensed statements of operations for the Financial Services segment were as follows (in thousands):
Three months ended
June 26, 2022 June 27, 2021 Increase
(Decrease) 		%
Change
Revenue:
Interest income $ 168,707 $ 167,728 $ 979 0.6 %
Other income 33,909 32,830 1,079 3.3
202,616 200,558 2,058 1.0
Expenses:
Interest expense 47,649 48,621 (972) (2.0)
Provision for credit losses 29,133 16,201 12,932 79.8
Operating expense 39,906 41,087 (1,181) (2.9)
Restructuring expense — 111 (111) (100.0)
116,688 106,020 10,668 10.1
Operating income $ 85,928 $ 94,538 $ (8,610) (9.1) %
Total revenue was higher for the second quarter of 2022, compared to the same period last year, primarily due to higher average outstanding finance receivables at a lower average yield as well as higher licensing and investment income. Interest expense decreased due to lower average outstanding debt, partially offset by a higher cost of funds.
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The provision for credit losses increased $12.9 million compared to the second quarter of 2021, primarily driven by higher retail credit losses. The unfavorable retail credit loss performance was driven by higher delinquencies as charge-offs moved towards more normalized levels during the second quarter of 2022.
The overall allowance for loan loss considers current economic conditions and the Company’s outlook on future conditions. During the second quarter of 2022, economic conditions and the Company’s outlook were relatively unchanged from the first quarter of 2022. The pace of economic recovery continued to remain uncertain as demonstrated by rising inflation, muted consumer confidence, continued global supply chain disruptions, and the conflict in Ukraine, among other factors. As such, at the end of the second quarter of 2022, the Company's outlook on economic conditions and its probability weighting of its economic forecast scenarios included continued slow economic improvement with risk of a near-term recession. The Company’s expectations surrounding its economic forecasts may change in future periods as additional information becomes available. Refer to the Results of Operations for the Six Months Ended June 26, 2022 Compared to the Six Months Ended June 27, 2021 for a discussion of 2022 annualized credit losses.
Operating expenses decreased $1.2 million compared to the second quarter of 2021 due in part to lower employee-related and technology costs.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
Three months ended
June 26,
2022 		June 27,
2021
Balance, beginning of period $ 340,473 $ 346,233
Provision for credit losses 29,133 16,201
Charge-offs, net of recoveries (17,469) (3,623)
Balance, end of period $ 352,137 $ 358,811
Results of Operations for the Six Months Ended June 26, 2022
Compared to the Six Months Ended June 27, 2021
Consolidated Results
Six months ended
(in thousands, except earnings per share) June 26,
2022 		June 27,
2021 		(Decrease)
Increase 		%
Change
Operating income from Motorcycles and Related Products $ 394,562 $ 413,354 $ (18,792) (4.5) %
Operating income from Financial Services 172,285 213,180 (40,895) (19.2)
Operating income 566,847 626,534 (59,687) (9.5)
Other income, net 21,085 967 20,118 NM
Investment (loss) income (5,509) 4,133 (9,642) NM
Interest expense 15,431 15,430 1 —
Income before income taxes 566,992 616,204 (49,212) (8.0)
Provision for income taxes 128,641 150,720 (22,079) (14.6)
Net income $ 438,351 $ 465,484 $ (27,133) (5.8) %
Diluted earnings per share $ 2.91 $ 3.01 $ (0.10) (3.3) %
The Company reported operating income of $566.8 million in the first half of 2022 compared to $626.5 million in the same period last year. Motorcycles segment operating income was $394.6 million in the first half of 2022, down $18.8 million compared to the same period last year. Operating income from the Financial Services segment decreased $40.9 million compared to the first half of 2021. Refer to the Motorcycles and Related Products Segment and Financial Services Segment discussions for a more detailed analysis of the factors affecting operating income.
Other income in the first half of 2022 was higher than in the first half of 2021, impacted by higher non-operating income related to the Company's defined benefit plans.
The Company's effective income tax rate for the first quarter of 2022 was 22.7% compared to 24.5% for the same period in 2021. The decrease in the effective income tax rate was due primarily to favorable discrete income tax benefits recognized during the first half of 2022.
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Diluted earnings per share was $2.91 in the first half of 2022, down from diluted earnings per share of $3.01 for the same period last year on lower net income, partially offset by the impact of lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 154.8 million in the first half of 2021 to 150.8 million in the first half of 2022, driven by the Company's discretionary repurchases of common stock. Please refer to Liquidity and Capital Resources for additional information concerning the Company's share repurchase activity.
Motorcycles Retail Sales and Registration Data
Motorcycle Retail Sales (a)
Retail unit sales of new Harley-Davidson and LiveWire motorcycles were as follows:
Six months ended
June 30,
2022 		June 30,
2021 		(Decrease)
Increase 		% Change
United States 61,228 75,722 (14,494) (19.1) %
Canada 4,962 5,245 (283) (5.4)
North America 66,190 80,967 (14,777) (18.3)
Europe/Middle East/Africa (EMEA) 15,041 15,191 (150) (1.0)
Asia Pacific 12,773 11,779 994 8.4
Latin America 1,600 1,572 28 1.8
95,604 109,509 (13,905) (12.7) %
(a) Data source for retail sales figures shown above is new sales warranty and registration information provided by dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning new retail sales, and the Company does not regularly verify the information that its dealers supply. This information is subject to revision.
Worldwide retail sales of new Harley-Davidson motorcycles were down 12.7% during the first half of 2022 compared to the same period last year. Retail sales during the first half of 2022 were adversely impacted by low dealer inventory levels which were impacted by supply constraints and a suspension of production and shipments for approximately two weeks during the second quarter.
In North America, retail sales in the first half of 2022 were down compared to the same period last year led by a 19.1% decline in the U.S. where results were most heavily impacted by lower production and retail inventory levels. Retail sales were down slightly in EMEA and increased in Asia Pacific during the first half of 2022 compared to the same period last year.
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Motorcycle Registration Data and Market Share – 601+cc (a)
The Company's U.S. market share of new 601+cc motorcycles decreased during the first half of 2022 compared to the first half of last year on lower retail sales relative to the industry. However, despite the year-over-year decline in retail sales, the Company's market share within the touring and large cruiser segments of the U.S. market grew compared to the first half of last year as the Company performed better than its competition on a relative basis in these segments. The Company's European market share of new 601+cc motorcycles for first half of 2022 was up slightly compared to the first half of 2021. Industry retail registration data for new motorcycles and the Company's market share was as follows:
Six months ended
June 30,
2022 		June 30,
2021 		(Decrease)
Increase 		% Change
Industry new motorcycle registrations:
United States (b)
147,932 167,313 (19,381) (11.6) %
Europe (c)
247,312 263,714 (16,402) (6.2) %
Harley-Davidson market share data:
United States (b)
41.3 % 44.9 % (3.6) pts.
Europe (c)
5.7 % 4.9 % 0.8 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. This third-party data is subject to revision and update.
Motorcycles and Related Products Segment
Motorcycle Unit Shipments
Motorcycle unit shipments were as follows:
Six months ended
June 26, 2022 June 27, 2021 Unit Unit
Units Mix % Units Mix % (Decrease)
Increase 		% Change
U.S. motorcycle shipments 64,276 62.4 % 76,271 68.4 % (11,995) (15.7) %
Worldwide motorcycle shipments:
Grand American Touring (a)
47,770 46.4 % 57,497 51.6 % (9,727) (16.9) %
Cruiser (b)
30,450 29.6 % 35,586 31.9 % (5,136) (14.4)
Adventure Touring 8,579 8.3 % 4,048 3.6 % 4,531 111.9
Sportster® / Street
16,212 15.7 % 14,347 12.9 % 1,865 13.0
103,011 100.0 % 111,478 100.0 % (8,467) (7.6) %
(a) Includes CVO TM and Trike
(b) Includes Softail® and LiveWire TM
The Company shipped 103,011 motorcycles worldwide during the first half of 2022, which was 7.6% lower than the same period in 2021. The Company's shipments in the U.S. during the first half of 2022 were negatively impacted by lower than planned production related to a suspension of production and shipments for approximately two weeks during the second quarter related to a third-party supplier regulatory compliance matter and other component part availability constraints associated with ongoing global supply chain challenges.
The mix of motorcycles shipped during the first half of 2022 compared to the same period last year included a lower mix of Grand American Touring and Cruiser motorcycles shipped as a percent of total shipments and a higher mix of Sportster/
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Street and Adventure Touring motorcycles. The Company's Pan America™ Adventure Touring motorcycles were launched in the second quarter of 2021.
Segment Results
Condensed statements of operations for the Motorcycles segment were as follows (dollars in thousands):
Six months ended
June 26, 2022 June 27, 2021 (Decrease)
Increase 		%
Change
Revenue:
Motorcycles
$ 1,999,159 $ 2,046,043 $ (46,884) (2.3) %
Parts and accessories
380,065 372,529 7,536 2.0
Apparel
128,734 105,954 22,780 21.5
Licensing
18,278 14,384 3,894 27.1
Other
43,406 24,697 18,709 75.8
2,569,642 2,563,607 6,035 0.2
Cost of goods sold 1,775,257 1,736,071 39,186 2.3
Gross profit 794,385 827,536 (33,151) (4.0)
Operating expenses:
Selling & administrative expense
330,189 333,834 (3,645) (1.1)
Engineering expense
70,026 80,134 (10,108) (12.6)
Restructuring (benefit) expense
(392) 214 (606) (283.2)
399,823 414,182 (14,359) (3.5) %
Operating income $ 394,562 $ 413,354 $ (18,792)
Operating margin 15.4 % 16.1 % (0.7) pts.
The estimated impacts of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first six months of 2021 to the first three months of 2022 were as follows (in millions):
Net
Revenue 		Cost of
Goods Sold 		Gross
Profit
Six months ended June 27, 2021 $ 2,563.6 $ 1,736.1 $ 827.5
Volume (108.4) (87.5) (20.9)
Price and sales incentives 170.6 — 170.6
Foreign currency exchange rates and hedging (58.1) (37.8) (20.3)
Shipment mix 1.9 18.4 (16.5)
Raw material prices — 25.1 (25.1)
Manufacturing and other costs — 120.9 (120.9)
6.0 39.1 (33.1)
Six months ended June 26, 2022 $ 2,569.6 $ 1,775.2 $ 794.4
Factors affecting the comparability of net revenue, cost of goods sold and gross profit from the second quarter of 2021 to the second quarter of 2022 were as follows:
• The decrease in volume was due to lower motorcycle shipments, partially offset by higher Apparel sales.
• During the first half of 2022, revenue benefited from higher prices on new model year 2022 motorcycles coupled with pricing surcharges in select markets.
• Revenue and gross profit were negatively impacted by weaker foreign currency exchange rates relative to the U.S. dollar, partially offset by favorable net foreign currency gains associated with hedging recorded in cost of goods sold.
• Changes in the shipment mix had an unfavorable impact on gross profit during the first half of 2022 due primarily to a lower mix of Grand American Touring models.
• Raw material cost increases were driven by cost inflation primarily due to supply chain challenges.
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• Manufacturing and other costs increased due primarily to higher costs associated with supply chain challenges and a higher fixed cost per unit due to lower volume compared to 2021. These higher costs were partially offset by lower EU tariff costs compared to the first half of 2021.
Operating expenses were lower in the first half of 2022 compared to the same period last year as the Company prudently managed spending and experienced lower employee-related costs.
Financial Services Segment
Segment Results
Condensed statements of operations for the Financial Services segment were as follows (in thousands):
Six months ended
June 26,
2022 		June 27,
2021 		Increase
(Decrease) 		%
Change
Revenue:
Interest income $ 330,441 $ 327,542 $ 2,899 0.9 %
Other income 64,190 63,416 774 1.2
394,631 390,958 3,673 0.9
Expenses:
Interest expense 89,748 104,328 (14,580) (14.0)
Provision for credit losses 57,955 (6,273) 64,228 NM
Operating expense 74,643 79,385 (4,742) (6.0)
Restructuring expense — 338 (338) (100.0)
222,346 177,778 44,568 25.1
Operating income $ 172,285 $ 213,180 $ (40,895) (19.2) %
Interest income was higher for the first six months of 2022, primarily due to higher average outstanding finance receivables, partially offset by a lower average yield. Interest expense decreased due to lower average outstanding debt and a lower cost of funds.
The provision for credit losses was $64.2 million higher in the first six months of 2022 as compared to the prior year period primarily due to a reduction in the allowance for credit losses during the first half of 2021 and higher credit losses in the first half of 2022. The reduction in the allowance for credit losses in 2021 was largely driven by improvement in economic conditions and the Company's outlook on future conditions during the first six months of 2021. During the first six months of 2022, economic conditions and the Company’s outlook were relatively unchanged from the end of 2021. The pace of economic recovery continued to remain uncertain as demonstrated by rising inflation, muted consumer confidence, continued global supply chain disruptions, and the conflict in Ukraine, among other factors. As such, at the end of the second quarter of 2022, the Company's outlook on economic conditions and its probability weighting of its economic forecast scenarios included continued slow economic improvement with risk of a near-term recession in its economic scenario weighting. The Company’s expectations surrounding its economic forecasts may change in future periods as additional information becomes available.
Annualized credit losses on the Company's retail motorcycle loans were 1.40% during the second quarter of 2022 compared to 0.84% in the second quarter of 2021. The unfavorable retail credit loss performance was driven by higher delinquencies as charge-offs moved towards more normalized levels during the first six months of 2022. The 30-day delinquency rate for retail motorcycle loans at June 26, 2022 increased to 2.95% from 2.21% at June 27, 2021. The 30-day delinquency rate was elevated at June 26, 2022 as compared to June 27, 2021 as the delinquency rate in 2021 remained below levels experienced prior to the COVID-19 pandemic due to benefits to individuals provided under U.S. federal stimulus packages as well as the effects of COVID-19 pandemic-related retail payment extensions. Starting in the second quarter of 2020 through the end of the second quarter of 2021, the Company granted COVID-19 pandemic-related extensions to help customers get through financial difficulties associated with the pandemic. The Company continues to grant standard payment extensions to customers in accordance with its policies. The Company expects the delinquency rate and losses to continue to normalize to pre-COVID-19 pandemic levels over time. (1)
Operating expenses decreased $4.7 million in the first six months of 2022 compared to the first six months of 2021 in part due to lower employee-related and technology costs.
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Changes in t he allowance for credit losses on finance receivables were as follows (in thousands):
Six months ended
June 26,
2022 		June 27,
2021
Balance, beginning of period $ 339,379 $ 390,936
Provision for credit losses 57,955 (6,273)
Charge-offs, net of recoveries (45,197) (25,852)
Balance, end of period $ 352,137 $ 358,811
Other Matters
Commitments and Contingencies
The Company is subject to lawsuits and other claims related to product, product recall, commercial, employee, environmental 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. Refer to Note 16 of the Notes to Consolidated financial statements for a discussion of the Company's commitments and contingencies.
Liquidity and Capital Resources (1)
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 brokered certificates of deposit. (1)
The Company's capital allocation priorities are to fund growth through The Hardwire initiatives, to pay dividends, and to execute discretionary share repurchases.
The Company's strategy is to maintain a minimum of twelve months of its projected liquidity needs through a combination of cash and cash equivalents and availability under its credit facilities. In response to liquidity concerns related to the COVID-19 pandemic, the Company increased its cash and cash equivalents during 2020. Since the end of 2020, the Company has reduced its cash and cash equivalents; however, the Company's balances remained higher than pre-COVID-19 pandemic levels at the end of June 2022. The increase in cash and cash equivalents at the end of June 2022 compared to the end of 2021 related primarily to cash on hand at Harley-Davidson Financial Services following the issuance of asset-backed securitization debt in June 2022.
The Company’s cash and cash equivalents and availability under its credit and conduit facilities at June 26, 2022 were as follows (in thousands):
Cash and cash equivalents $ 2,194,259
Availability under credit and conduit facilities:
Credit facilities 718,616
Asset-backed U.S. commercial paper conduit facility (a)
600,000
Asset-backed Canadian commercial paper conduit facility (a)
19,095
$ 3,531,970
(a) Includes facilities expiring in the next 12 months which the Company expects to renew prior to expiration. (1)
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To access the debt capital markets, the Company relies on credit rating agencies to assign short- and long-term credit ratings. Generally, lower credit ratings result in higher borrowing costs and reduced access to debt capital markets. A credit rating agency may change or withdraw the Company's ratings based on its assessment of the Company's current and future ability to meet interest and principal repayment obligations. The Company’s short-term debt ratings affect its ability to issue unsecured commercial paper. The Company’s short- and long-term debt ratings, as of June 26, 2022 were as follows:
Short-Term Long-Term Outlook
Moody’s P3 Baa3 Stable
Standard & Poor’s A3 BBB- Stable
Fitch F2 BBB+ Stable
The Company recognizes that it must continue to monitor and adjust its business to changes in the lending environment. The Company intends to continue with a diversified funding profile through a combination of short-term and long-term funding vehicles and to pursue a variety of sources to obtain cost-effective funding. (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 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 26, 2022 June 27, 2021
Net cash provided by operating activities $ 244,186 $ 644,300
Net cash used by investing activities (493,459) (385,279)
Net cash provided (used) by financing activities 684,937 (1,746,365)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (14,413) (6,878)
Net increase (decrease) in cash, cash equivalents and restricted cash $ 421,251 $ (1,494,222)
Operating Activities
Operating cash flow in the first half of 2022 compared to the first half of 2021 was adversely impacted by changes in working capital as well as higher net cash outflows for wholesale financing. Working capital was negatively impacted by increasing inventory levels, related to supply chain challenges, and less favorable changes in accounts payable compared to the first half of 2021. Net cash outflows for wholesale financing activity were higher in the first half of 2022 driven by higher loan originations as compared to the first half of 2021.
The Company continues to expect that it will generate sufficient cash inflows from 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 at June 26, 2022 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 are no required qualified pension plan contributions in 2022. The Company’s expected future contributions and benefit payments related to its defined benefit retirement plans are discussed further in Note 15 of the Notes to Consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The Company has a liability for unrecognized tax benefits of $43.8 million and related accrued interest and penalties of $21.8 million as of June 26, 2022. The Company cannot reasonably estimate the period of cash settlement for either the liability for unrecognized tax benefits or accrued interest and penalties.
Investing Activities
The Company’s most significant investing activities consist of capital expenditures and retail finance receivable originations and collections. Capital expenditures were $55.0 million in the first six months of 2022 compared to $37.6 million in the same period last year. The Company's 2022 plan includes estimated capital investments between $190 million to $220 million, all of which the Company expects to fund with net cash flow generated by operations. (1)
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Net cash outflows from finance receivables for the first six months of 2022 were $89.1 million higher compared to the same period last year due primarily to higher retail finance receivable originations. The Company funds its finance receivables net lending activity through the issuance of debt, discussed in "Financing Activities" below.
Financing Activities
The Company’s financing activities consist primarily of dividend payments, share repurchases, and debt activity.
The Company paid dividends of $0.315 and $0.300 per share totaling $47.1 million and $46.2 million during the first half of 2022 and 2021, respectively.
Cash outflows for share repurchases were $325.8 million in the first half of 2022 compared to $10.9 million in the same period last year. Share repurchases during the first half of 2022 include $312.1 million or 8.0 million shares of common stock related to discretionary repurchases and $13.7 million or 0.4 million shares of common stock employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units and performance shares. As of June 26, 2022, there were 10.3 million shares remaining on board-approved share repurchase authorizations.
Financing cash flows related to debt and brokered certificates of deposit activity resulted in net cash inflows of $1.1 billion in the first six months of 2022 compared to a net cash outflow of $1.7 billion in the same period last year. The Company’s total outstanding debt and liability for brokered certificates of deposit consisted of the following (in thousands):
June 26,
2022 		June 27,
2021
Outstanding debt:
Unsecured commercial paper $ 701,384 $ 749,037
Asset-backed Canadian commercial paper conduit facility 77,984 87,439
Asset-backed U.S. commercial paper conduit facility 570,628 291,511
Asset-backed securitization debt, net 2,847,921 1,727,522
Medium-term notes, net 2,850,320 3,476,057
Senior notes, net 745,016 744,321
$ 7,793,253 $ 7,075,887
Deposits, net $ 345,790 $ 259,373
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 – Harley-Davidson Financial Services offers brokered certificates of deposit to customers indirectly through contractual arrangements with third-party banks and/or securities brokerage firms through its bank subsidiary. The Company had $345.8 million and $259.4 million, net of fees, of interest-bearing brokered certificates of deposit outstanding as of June 26, 2022 and June 27, 2021, respectively. 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 – On April 7, 2022, the Company entered into a $710.0 million five-year credit facility to replace the $707.5 million five-year credit facility that was due to mature in April 2023. The new five-year credit facility matures in April 2027. The Company also amended its other $707.5 million five-year credit facility to $710.0 million with no change to the maturity date of April 2025. The five-year credit facilities (together, the Global Credit Facilities) bear interest at variable rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based on the average daily unused portion of the aggregate commitments. 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 billion as of June 26, 2022 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
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commercial paper or through other means, such as borrowing under the Global Credit Facilities, borrowing under its asset-backed U.S. commercial paper conduit facility or through the use of operating cash flow and cash on hand. (1)
Medium-Term Notes – The Company had the following unsecured medium-term notes issued and outstanding at June 26, 2022 (in thousands):
Principal Amount Rate Issue Date Maturity Date
$350,000 3.35% February 2018 February 2023
$681,837 (a)
4.94% May 2020 May 2023
$629,388 (b)
3.14% November 2019 November 2024
$700,000 3.35% June 2020 June 2025
$500,000 3.05% February 2022 February 2027
(a) €650.0 million par value remeasured to U.S. dollar at June 26, 2022
(b) €600.0 million par value remeasured to U.S. dollar at June 26, 2022
The U.S. dollar-denominated medium-term notes provide for semi-annual interest payments and the foreign currency-denominated medium-term notes provide for annual interest payments. Principal on the medium-term notes is due at maturity. Unamortized discounts and debt issuance costs on the medium-term notes reduced the outstanding balance by $10.9 million and $12.1 million at June 26, 2022 and June 27, 2021, respectively. During the second quarter of 2022, $400.0 million of 2.55% medium-term notes matured, and the principal and accrued interest were paid in full. During the first quarter of 2022, $550.0 million of 4.05% medium-term notes matured, and the principal and accrued interest were paid in full. During the second quarter of 2021, $350.0 million of 3.55% medium-term notes matured, and the principal and accrued interest were paid in full. During the first quarter of 2021, $600.0 million of 2.85% medium-term notes and $450.0 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 – In June 2022, 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$125.0 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$125.0 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. T he expected remaining term of the related receivables is approximately 4 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of June 26, 2022, the Canadian Conduit has an expiration date of June 30, 2023.
There were no finance receivable transfers under the Canadian Conduit during the second quarter of 2022 or the first half of 2021. During the first quarter of 2022, the Company transferred $25.3 million of Canadian retail motorcycle finance receivables to the Canadian Conduit for proceeds of $21.2 million.
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facility VIE – The Company has a $900.0 million revolving facility agreement (the U.S. Conduit Facility) with third-party banks and their asset-backed U.S. commercial paper conduits. 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 banks and their asset-backed U.S. commercial paper conduits. In addition to the $900.0 million aggregate commitment, the agreement allows for additional borrowings, at the lender’s discretion, of up to $300.0 million. Availability under the U.S. Conduit Facility is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the SPE as collateral.
During the second quarter of 2022, the Company transferred $420.8 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $362.8 million of debt under the U.S. Conduit Facility. During the first quarter of 2022, the Company transferred $47.1 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $41.3 million of debt under the U.S. Conduit Facility. There were no finance receivable transfers under the U.S. Conduit Facility during the first half of 2021.
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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, with provisions for a transition to other benchmark rates, generally aligning to recommendations published by the Alternative Reference Rates Committee convened by the Federal Reserve Board and Federal Reserve Bank of New York. In each of these cases, a program fee is assessed based on the outstanding debt principal balance. The U.S. Conduit Facility also provides for an unused commitment fee based on the unused portion of the total aggregate commitment. When calculating the unused fee, the aggregate commitment does not include any unused portion of the $300.0 million additional 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 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 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of June 26, 2022, the U.S. Conduit Facility has an expiration date of November 18, 2022.
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, and as such, the retail motorcycle finance receivables remain on the balance sheet with a corresponding obligation reflected as debt. There is no amortization schedule for the secured notes; however, the debt is reduced monthly as available collections on the related retail motorcycle finance receivables are applied to outstanding principal. The secured notes currently have various contractual maturities ranging from 2023 to 2030.
Quarterly transfers of U.S. retail motorcycle finance receivables to SPEs, the respective proceeds, and the respective proceeds, net of discounts and issuance costs were as follows (in millions):
2022 2021
Transfers Proceeds Proceeds, net Transfers Proceeds Proceeds, net
First quarter $ — $ — $ — $ 663.1 $ 600.0 $ 597.4
Second quarter 2,176.4 1,836.3 1,826.9 — — —
$ 2,176.4 $ 1,836.3 $ 1,826.9 $ 663.1 $ 600.0 $ 597.4
Support Agreement – The Company has a support agreement with Harley-Davidson Financial Services whereby, if required, the Company agrees to provide Harley-Davidson Financial Services with financial support to maintain Harley-Davidson Financial Services’ 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. No amount has ever been provided to Harley-Davidson Financial Services under the support agreement.
Operating and Financial Covenants – Harley-Davidson Financial Services 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 Harley-Davidson Financial Services’ ability to:
• Assume or incur certain liens;
• Participate in certain mergers or consolidations; and
• Purchase or hold margin stock.
Under the current financial covenants of the Global Credit Facilities, the ratio of Harley-Davidson Financial Services’ consolidated debt, excluding secured debt, to Harley-Davidson Financial Services' consolidated allowance for credit losses on finance receivables plus Harley-Davidson Financial Services’ consolidated shareholders' equity, excluding accumulated other comprehensive loss (AOCL), cannot exceed 10.0 to 1.0 as of the end of any fiscal quarter. In addition, the ratio of the Company's consolidated debt to the Company's consolidated debt and consolidated shareholders’ equity (where the
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Company's consolidated debt in each case excludes that of Harley-Davidson Financial Services 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 June 26, 2022, Harley-Davidson Financial Services and the Company remained in compliance with all of the then existing 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) the Company’s ability to: (A) execute its business plans and strategies, including The Hardwire, including each of its pillars and the evolution of LiveWire as a standalone brand, including the proposed separation of LiveWire into a separate business of the Company through the combination of LiveWire with AEA-Bridges Impact Corp. (ABIC), which includes the risks noted below; (B) manage supply chain and logistic issues, including quality issues, availability of semiconductor chip components and the ability to find alternative sources of those components in a timely manner, unexpected interruptions or price increases caused by supplier volatility, raw material shortages, war or other hostilities, including the conflict in Ukraine, or natural disasters, and longer shipping times and increased logistics costs, including by successfully implementing pricing surcharges; (C) realize the expected business benefits from the combination of LiveWire with ABIC, which may be affected by, among other things: (i) the ability of LiveWire to: (1) execute its plans to develop, produce, market, and sell its electric vehicles; (2) achieve profitability, which is dependent on the successful development and commercial introduction and acceptance of its electric vehicles, and its services, which may not occur; (3) adequately control the costs of its operations as a new entrant into a new space; (4) develop, maintain, and strengthen its brand; (5) execute its plans to develop, produce, market, and sell its electric vehicles; and (6) effectively establish and maintain cooperation from its retail partners, largely drawn from the Company's traditional motorcycle dealer network, to be able to effectively establish or maintain relationships with customers for electric vehicles; (ii) competition; and (iii) other risks and uncertainties indicated from time to time in the final prospectus of ABIC, including those under "Risk Factors" therein, and other documents filed or to be filed with the SEC by the Company, LW EV Holdings, Inc. (HoldCo) or ABIC; (D) accurately analyze, predict and react to changing market conditions and successfully adjust to shifting global consumer needs and interests; (E) successfully access the capital and/or credit markets on terms that are acceptable to the Company and within its expectations; (F) successfully carry out its global manufacturing and assembly operations; (G) develop and introduce products, services and experiences on a timely basis that the market accepts, that enable the Company to generate desired sales levels and that provide the desired financial returns, including successfully implementing and executing plans to strengthen and grow its leadership position in Grand American Touring, large Cruiser and Trike, and grow its complementary businesses; (H) perform in a manner that enables the Company to benefit from market opportunities while competing against existing and new competitors; (I) manage the regulatory compliance matter relating to a third-party supplier's component in a manner that avoids additional costs or recall expenses that are material; (J) successfully appeal: (i) the revocation of the Binding Origin Information (BOI) decisions that allow the Company to supply its European Union (EU) market with certain of its motorcycles produced at its Thailand operations at a reduced tariff rate and (ii) the denial of the Company's application for temporary relief from the effect of the revocation of the BOI decisions; (K) manage and predict the impact that new, reinstated or adjusted tariffs may have on the Company's ability to sell products internationally, and the cost of raw materials and components, including the temporary lifting of the Section 232 steel and aluminum tariffs and incremental tariffs on motorcycles imported into the EU from the U.S., between U.S. and EU, which expires on December 31, 2023; (L) 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; (M) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles; (N) successfully manage and reduce costs throughout the business; (O) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing international political environment, including as a result of the conflict in Ukraine; (P) 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 dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand; (Q) continue to develop and maintain a productive relationship with Zhejiang Qianjiang Motorcycle Co., Ltd. and launch related products in a timely manner; (R) maintain a productive relationship with Hero MotoCorp as a distributor and licensee of the Harley-Davidson brand name in India; (S) successfully maintain a manner in which to sell motorcycles in China and the Company’s Association of Southeast Asian Nations (ASEAN) countries that does not subject its motorcycles to incremental tariffs; (T) 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
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prices of its motorcycles in certain markets; (U) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices; (V) retain and attract talented employees, and eliminate personnel duplication, inefficiencies and complexity throughout the organization; (W) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or Company data and respond to evolving regulatory requirements regarding data security; (X) manage the credit quality, the loan servicing and collection activities, and the recovery rates of Harley-Davidson Financial Services Inc.'s loan portfolio; (Y) 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; (Z) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles; (AA) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities; (BB) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations; (CC) manage its exposure to product liability claims and commercial or contractual disputes; (DD) continue to manage the relationships and agreements that the Company has with its labor unions to help drive long-term competitiveness; (EE) achieve anticipated results with respect to the Company's pre-owned motorcycle program, Harley-Davidson Certified, and the Company's H-D1 Marketplace; (FF) 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's complex global supply chain; and (GG) optimize capital allocation in light of the Company's capital allocation priorities.
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 dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its 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 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, Harley-Davidson Financial Services has experienced historically low levels of retail credit losses, but there is no assurance that this will continue. The Company believes that Harley-Davidson Financial Services' retail credit losses will increase over time due to among other things to factors that have contributed to recently low levels of losses, including the favorable impact of recent federal stimulus payments that will not recur and the conflict in Ukraine.
The Company's operations, demand for its products, and its liquidity could be adversely impacted by work stoppages, facility closures, strikes, natural causes, widespread infectious disease, terrorism, war or other hostilities, including the conflict in Ukraine, or other factors. Refer to Item 1A. Risk Factors and risk factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 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 risks. Further disclosure relating to the fair value of the Company's derivative financial instruments is included in Note 9 of the Notes to 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 Motorcycles 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, Singapore dollar, Thai baht and Pound sterling. The Company utilizes foreign currency contracts to mitigate the effect of certain currencies' fluctuations on Motorcycles segment operating results. The foreign currency contracts are entered into with banks and allow the Company to exchange currencies at a future date, based on a fixed exchange rate. There have been no material changes to the foreign currency exchange rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
The Company purchases commodities for the use in the production of motorcycles. As a result, Motorcycles segment operating income is affected by changes in commodity prices. The Company uses derivative financial instruments on a limited basis to hedge the prices of certain commodities. There have been no material changes to the commodity market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
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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, 2021.
Harley-Davidson Financial Services 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, 2021.
The Company has foreign denominated debt transactions, and 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 June 26, 2022, this exposure related to the Euro and Canadian dollar. 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, 2021.
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2021 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 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 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 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 June 26, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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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 16 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, 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, 2021, which have not materially changed except as set forth below.
• The ongoing conflict between Russia and Ukraine could adversely affect the Company's business, financial condition and operating results. On February 24, 2022, Russian military forces launched a military action in Ukraine, and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing military conflict in Ukraine are highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply and prices of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. Russia’s recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have led to an unprecedented expansion of sanction programs imposed by the United States, European Union, United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic, including, among others: (i) blocking sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system) and certain Russian businesses, some of which have significant financial and trade ties to the European Union; (ii) blocking sanctions against Russian and Belarusian individuals, including the Russian President, other politicians and those with government connections or involved in Russian military activities; and (iii) blocking of Russia’s foreign currency reserves as well as expansion of sectoral sanctions and export and trade restrictions, limitations on investments and access to capital markets and bans on various Russian imports. The Company has suspended its business in Russia. While the Company has not experienced any material interruptions to its infrastructure, supplies, technology systems or networks needed to support its operations or significant costs due to the conflict, the Company cannot provide assurance that will remain the case. The Company has no way to predict the progress or outcome of the conflict in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government reactions, are rapidly developing and beyond its control. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and the Company's business for an unknown period of time. Any of the factors mentioned above could affect the Company's business, financial condition and operating results. The conflict could also exacerbate other risks that the Company described in Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The Company 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 forward-looking statements to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company's share repurchases, which consisted of discretionary shares and 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 June 26, 2022:
2022 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
March 28 to May 1 885,146 $ 38 885,146 11,124,561
May 2 to May 29 419,252 $ 36 419,252 10,706,664
May 30 to June 26 451,878 $ 33 451,878 10,256,646
1,756,276 $ 36 1,756,276
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. The Company repurchased 1.7 million shares on a discretionary basis during the quarter ended June 26, 2022 under these authorizations. As of June 26, 2022, 10.3 million shares remained under these authorizations.
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 (Incentive 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 second quarter of 2022, the Company acquired 6,664 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock units and performance shares. At the Company's 2022 Annual Meeting of Shareholders held May 12, 2022, the shareholders of the Company approved an amendment to the Incentive Plan to increase the authorized number of shares under the Incentive Plan by 3.1 million shares. As amended, the Incentive Plan provides that up to a total of 8.5 million shares of the Company's common stock may be issued thereunder.
Item 6. Exhibits
Refer to the exhibit index immediately following this page.
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Harley-Davidson, Inc.
Exhibit Index to Form 10-Q
Exhibit No. Description
Amended and restated Harley-Davidson, Inc. 2020 Incentive Stock Plan (incorporated herein by reference to Appendix A to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual Meeting of Shareholders held on May 12, 2022 filed on April 1, 2022 (File No. 1-9183)). At the Company's 2022 Annual Meeting of Shareholders held May 12, 2022, the shareholders of the Company approved an amendment to the Incentive Plan to increase the authorized number of shares under the Incentive Plan by 3.1 million shares. As amended, the Incentive Plan provides that up to a total of 8.5 million shares of the Company's common stock may be issued thereunder.
Harley-Davidson, Inc. 2022 Aspirational Incentive Stock Plan (incorporated herein by reference to Appendix B to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual Meeting of Shareholders held on May 12, 2022 filed on April 1, 2022 (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.

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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: August 4, 2022 /s/ Gina Goetter
Gina Goetter
Chief Financial Officer
(Principal financial officer)
Date: August 4, 2022 /s/ Mark R. Kornetzke
Mark R. Kornetzke
Chief Accounting Officer
(Principal accounting officer)

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