# Harley-Davidson, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Harley-Davidson, Inc.](/companies/hog.md) (CIK 793952)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 15:39 ET
- Period: 2023-09-30
- Accession: 0000793952-23-000180
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/793952/000079395223000180/hog-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/793952/000079395223000180/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.31bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $4.08bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $893.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $2.69bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $301.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $877.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $209.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $800.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $7.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $23.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $42.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $190.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $198.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $680.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.38 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.65 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.40 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.74 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 144,321,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 146,330,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $706.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $138.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $72.8m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $239.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $1.88bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $5.42bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $12.46bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $2.67bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $5.86bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $638.5m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2023-09-30 | $815.1m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-09-30 | $3.31bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 80,910 characters.

Unless the context otherwise requires, all references to the “Company” include Harley-Davidson, Inc. and all its subsidiaries. Harley-Davidson, Inc. operates in three segments: Harley-Davidson Motor Company (HDMC), LiveWire and Harley-Davidson Financial Services (HDFS).

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,” "forecasts," “is on-track,” "sees," "feels," or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption "Cautionary Statements" in this Item 2, as well as in *Item 1A. Risk Factors* of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the "Key Factors Impacting the Company" and the “Guidance” sections in this Item 2 are only made as of October 26, 2023 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (November 8, 2023), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

**Overview**(1)

During the third quarter of 2023, the Company continued to experience a challenging macro-economic environment as it worked through the effects of the previously disclosed unplanned mid-2023 production suspension that occurred in late June and the first part of July 2023. Net income attributable to Harley-Davidson, Inc. was $198.6 million, or $1.38 per diluted share, in the third quarter of 2023 compared to $261.2 million, or $1.78 per diluted share, in the third quarter of 2022.

In the third quarter of 2023, HDMC segment operating income was $175.3 million, down $103.9 million from the third quarter of 2022. The decrease in operating income from the HDMC segment for the third quarter of 2023 was driven primarily by lower motorcycle shipments, increased operating expenses and unfavorable foreign currency exchange impacts partially offset by price increases, reduced raw material costs and favorable product mix compared to the same quarter last year. Operating loss from the LiveWire segment in the third quarter of 2023 was $25.3 million compared to an operating loss of $21.3 million in the prior year quarter due primarily to lower electric balance bike shipments and increased operating expenses. Operating income from the HDFS segment in the third quarter of 2023 was $59.4 million, down $21.6 million compared to the prior year quarter due primarily to higher interest expense and an increase in the provision for credit losses partially offset by higher interest income.

Retail sales of Harley-Davidson motorcycles declined during the third quarter behind higher consumer interest rates and reduced availability of certain models following the mid-2023 production suspension. Retail sales of new Harley-Davidson motorcycles in the third quarter of 2023 decreased 15.6% compared to the third quarter of 2022, including a decrease of 15.1% and 16.5% in U.S. and international markets, respectively. Refer to the Harley-Davidson Motorcycles Retail Sales and Registration Data section for further discussion of retail sales results.

### Key Factors Impacting the Company(1)

*Supply Chain Challenges –* Starting in 2020, the Company began to experience disruption and increasing costs related to global supply chain challenges, including global semiconductor chip shortages. During the second half of 2022, these cost increases began to moderate primarily through the normalization of logistics inflation and to a lesser extent raw materials inflation which slowed as metal markets improved. In addition, during the second half of 2022, the Company began to reduce its reliance on expedited shipping. During the first nine months of 2023, the Company continued to experience a moderate level of cost inflation, primarily related to labor and warehousing costs, partially offset by deflation related to freight and raw materials. The Company also continued to reduce its use of expedited modes of freight during the first nine months of 2023. The Company continues to expect overall supply-chain cost inflation to moderate for the 2023 full year as compared to 2022.

*Supply Matters –* During the second quarter of 2022, the Company received information from a Tier 2 supplier, Proterial Cable America, Inc. ("PCA" f/k/a Hitachi Cable America, Inc.), concerning a potential regulatory compliance matter relating to PCA's brake hose assemblies. As a result, out of an abundance of caution, the Company suspended all vehicle assembly and shipments for approximately two weeks during the second quarter of 2022. Since then, the Company has been working through the regulatory compliance matter with PCA, the Company’s relevant Tier-1 suppliers, and the National Highway Traffic Safety Administration (NHTSA), the agency responsible for brake hose assembly compliance in the United States.

In connection with this matter, in July 2022, PCA notified NHTSA of a population of brake hose assemblies manufactured between May and July of 2022 that were non-compliant with select NHTSA laboratory test standards. Based on that filing, in August 2022, the Company notified NHTSA of the corresponding population of Harley-Davidson motorcycles containing those brake hose assemblies. In October 2022, PCA amended its original notification, expanding its population of non-compliant brake hose assemblies to include units produced by PCA for use in Harley-Davidson motorcycles beginning as early as model year 2008. In December 2022, the Company amended its August notification, expanding the population to also include Harley-Davidson motorcycles that contained PCA's newly identified brake hose assemblies. In March 2023, PCA again amended its NHTSA notification, identifying additional compliance issues with the previously identified brake hose assemblies. The Company followed PCA's March amendment with a derivative amended notification to NHTSA in May 2023.

In June 2023, the Company received a letter from PCA advising that PCA was investigating a new, separate potential quality issue with brake hose assemblies produced by PCA after the Company’s 2022 production suspension. Due to this issue, the Company was forced to suspend production of most of the motorcycles manufactured at its York facility and run limited motorcycle manufacturing operations there for approximately two weeks. The Company continued to manufacture, among other motorcycles, the recently launched 2023 CVO Road Glide and Street Glide, which do not use PCA's brake hose assemblies. It also continued its normal motorcycle manufacturing operations at its international facilities. In connection with this matter, in late June 2023 PCA filed a new and separate NHTSA notification, identifying certain brake hose assemblies produced between June of 2022 and June of 2023 as noncompliant with select NHTSA laboratory test standards. The Company followed PCA’s June 2023 notification by filing a derivative notification with NHTSA in early July 2023.

As permitted by federal law, both PCA and the Company have utilized NHTSA’s standard process to petition the agency to determine that these compliance issues are inconsequential to motor vehicle safety (“Inconsequentiality Determinations”). If NHTSA makes the Inconsequentiality Determinations requested, the Company will be exempt from conducting a field action or recall of its motorcycles related to these matters.

In its inconsequentiality petitions, the Company has presented NHTSA with: (1) extensive independent, third-party and internal testing demonstrating that the brake hose assemblies at issue are robust to extreme conditions - which far exceed maximum expected motorcycle lifetime demands - with no impact to brake performance; and (2) real-world field safety data showing no documented crashes or injuries attributable to the identified compliance issues for the relevant affected populations. The Company believes its petitions are closely comparable to inconsequentiality petitions that have resulted in successful inconsequentiality determinations in the past. The Company is also confident that its position that the compliance issues are inconsequential to motor vehicle safety is strong and, therefore, no field action or recall will be necessary.

Based on its expectation that NHTSA will make Inconsequentiality Determinations, the Company does not expect that these regulatory noncompliance matters will result in material costs in the future, and no costs have been accrued to date. However, it is possible that a field action or recall could be required that could cause the Company to incur material costs. There are several variables and uncertainties associated with any potential field action or recall that are not yet fully known including, but not limited to, the population of brake hose assemblies and motorcycles, the specific field action or recall required, the complexity and cost of the required repair, the need for and availability of replacement parts, and the number of motorcycle owners that would participate. The Company estimates, based on its available information and assumptions, that the cost of a potential field action or recall in the aggregate, if any were to occur, could range from approximately $100 million to $400 million. The Company continues to evaluate and update its estimates as it learns more about these regulatory matters, including the variables and uncertainties discussed above. The Company also continues to maintain its expectation that NHTSA will make the requested Inconsequentiality Determinations and that these regulatory matters will not result in any material field action or recall costs. If a material field action or recall were to result, the Company would seek full recovery of those amounts.

*Interest Rates* - Interest rates increased significantly during 2022 and continued to increase in 2023 as central banks attempted to reduce inflation. Rising interest rates may adversely impact HDFS's interest income margin to the extent HDFS is unable to offset a higher cost of funds with increased interest rates on products it offers to its customers. Additionally, higher interest rates may make the Company’s motorcycles less affordable, adversely impact product mix or impact customers’ ability to obtain financing to purchase the Company’s motorcycles.

*Suspension of Additional European Union Tariffs –* In April 2021, the Company received notification from the Economic Ministry of Belgium that, following a request from the European Union (EU), the Company would be subject to revocation of the Binding Origin Information (BOI) decisions that allowed it to supply its EU markets with certain motorcycles produced at its Thailand manufacturing facility at tariff rates of 6%. As a result of the revocation, all non-electric motorcycles that Harley-Davidson imported into the EU, regardless of origin, were subject to a total tariff rate of 31% from April 19, 2021 through the end of 2021. On October 30, 2021, the U.S. and EU announced an agreement related to the Section 232 tariffs on steel and aluminum that were implemented in 2018 by the U.S. and the subsequent rebalancing tariff measures taken by the EU. This agreement suspended the additional tariffs initially imposed by the EU on the Company's motorcycles, reducing the total EU tariff rate on the Company’s motorcycles from 31% to 6%, effective January 1, 2022. The lower 6% tariff rate applies to all motorcycles imported by the Company into the EU, regardless of origin. Under the agreement between the U.S. and the EU, the lower tariff rate will remain in effect until December 31, 2023. While it is the Company's understanding that negotiations between the U.S. and the EU are ongoing, there are no assurances they will reach a resolution that concludes the trade conflict on steel and aluminum tariffs beyond December 31, 2023.

To date, the Company continues to pursue its appeals of the revocation of the BOI decisions and the denial of its application for temporary extended reliance on the 6% tariff rate (for motorcycles produced in Thailand and ordered prior to April 19, 2021), although there is no assurance that these appeals will continue or be successful.

### Guidance(1)

On October 26, 2023, the Company provided guidance for 2023, which reflects its results for the first nine months of 2023 and its outlook for the remainder of the year:

The Company expects HDMC revenue growth of 0% to 3% in 2023 compared to 2022. The Company's revenue expectation assumes the impact of a decline in wholesale unit shipments, offset by the impact of pricing actions intended to offset the impact of a moderated inflationary outlook and a beneficial product mix, as the Company focuses on its most profitable products.

The Company expects HDMC operating margin as a percent of revenue to be in the range of 13.9% to 14.3% in 2023. The Company continues to believe the anticipated positive impact of pricing and supply chain productivity will offset cost inflation and unfavorability related to foreign currency exchange rates. This guidance reflects productivity savings of approximately $70 million for 2023 which has been revised down from $100 million based on the Company's current production environment.

The Company expects LiveWire to sell 600 to 1,000 LiveWire motorcycle units in 2023. The Company expects a LiveWire operating loss of $115 million to $125 million in 2023.

The Company expects HDFS operating income to decline 20% to 25% in 2023 compared to 2022. HDFS continues to stay focused on several actions to effectively manage the business in the current credit environment, including increased investment behind collections and stronger repossession efforts. HDFS also expects to continue to grow other revenue sources such as licensing and insurance revenue.

The Company expects capital investments in 2023 of between $225 and $250 million. The Company plans to continue to invest behind product development and capability enhancement in support of The Hardwire strategy.

The Company's capital allocation priorities remain to fund growth through The Hardwire initiatives, pay dividends, and execute discretionary share repurchases.

### Results of Operations for the Three Months Ended September 30, 2023

### Compared to the Three Months Ended September 25, 2022

### Consolidated Results

*(in thousands, except earnings per share)*

|  | Three months ended September 30, 2023 | September 25, 2022 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Operating income - HDMC | $175,253 | $279,111 | $(103,858) | (37.2)% |
| Operating loss - LiveWire | (25,343) | (21,349) | (3,994) | 18.7 |
| Operating income - HDFS | 59,375 | 80,956 | (21,581) | (26.7) |
| Operating income | 209,285 | 338,718 | (129,433) | (38.2) |
| Other income, net | 26,814 | 9,358 | 17,456 | 186.5 |
| Investment income (loss) | 9,868 | 1,723 | 8,145 | 472.7 |
| Interest expense | 7,688 | 8,124 | (436) | (5.4) |
| Income before income taxes | 238,279 | 341,675 | (103,396) | (30.3) |
| Income tax provision | 42,176 | 80,489 | (38,313) | (47.6) |
| Net income | 196,103 | 261,186 | (65,083) | (24.9)% |
| Less: Loss attributable to noncontrolling interests | 2,546 | — | 2,546 | NM |
| Net income attributable to Harley-Davidson, Inc. | $198,649 | $261,186 | $(62,537) | (23.9)% |
| Diluted earnings per share | $1.38 | $1.78 | $(0.40) | (22.5)% |

The Company reported operating income of $209.3 million in the third quarter of 2023 compared to $338.7 million in the same period last year. The HDMC segment reported operating income of $175.3 million in the third quarter of 2023, a decrease of $103.9 million compared to the third quarter of 2022. Operating loss from the LiveWire segment increased $4.0 million compared to the third quarter of 2022. Operating income from the HDFS segment decreased $21.6 million compared to the third quarter of 2022. Refer to the HDMC Segment, LiveWire Segment and HDFS Segment sections for a more detailed discussion of the factors affecting operating results.

Other income in the third quarter of 2023 was higher than in the third quarter of 2022, impacted by higher non-operating income related to the Company's defined benefit plans as well as a benefit related to LiveWire's warrants, which decreased in fair value.

The Company's effective income tax rate for the third quarter of 2023 was 17.7% compared to 23.6% for the third quarter of 2022.

Diluted earnings per share was $1.38 in the third quarter of 2023, down 22.5% from the same period last year. Diluted weighted average shares outstanding decreased from 147.1 million in the third quarter of 2022 to 144.3 million in the third quarter of 2023, driven by the Company's discretionary repurchases of common stock. Refer to Liquidity and Capital Resources for additional information concerning the Company's share repurchase activity.

### Harley-Davidson Motorcycles Retail Sales and Registration Data

### Harley-Davidson Motorcycle Retail Sales(a)

Retail unit sales of new Harley-Davidson motorcycles were as follows:

|  | Three months ended September 30, 2023 | September 30, 2022 | (Decrease) Increase | % Change |
| --- | ---: | ---: | ---: | ---: |
| United States | 25,336 | 29,838 | (4,502) | (15.1)% |
| Canada | 2,010 | 2,153 | (143) | (6.6) |
| North America | 27,346 | 31,991 | (4,645) | (14.5) |
| Europe/Middle East/Africa (EMEA) | 7,847 | 9,002 | (1,155) | (12.8) |
| Asia Pacific | 5,784 | 7,629 | (1,845) | (24.2) |
| Latin America | 681 | 765 | (84) | (11.0) |
|  | 41,658 | 49,387 | (7,729) | (15.6)% |

(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 15.6% during the third quarter of 2023 compared to the same period last year, driven by a 14.5% decrease in North America, a 12.8% decrease in EMEA and a 24.2% decrease in Asia Pacific.

North America retail sales were adversely impacted by macro-economic conditions and product availability. During the third quarter, the Company believes high interest rates continued to impact consumer discretionary purchases. Additionally, as the Company worked through the mid-2023 production suspension, shipments of certain higher-demand motorcycles in the third quarter were delayed, adversely affecting retail sales during the quarter. Finally, retail sales were also impacted by the discontinuation of legacy Sportster models at the end of 2022 as the Company shifted to more profitable Sport models in 2023. The decline in EMEA was primarily driven by a planned unit mix shift towards more profitable core motorcycle models, and lower retail unit sales in Asia Pacific were driven primarily by declines in China on weaker economic conditions.

Worldwide average retail inventory of new motorcycles was up 52% during the third quarter of 2023 compared to what the Company believes were tight inventory levels during the third quarter of 2022. Additionally, the Company believes the current challenging retail environment requires higher retail inventory levels relative to 2022 and 2021. Retail inventory remains below higher levels experienced during the third quarter of 2019. Average retail inventory is calculated based on a four-point average including inventory on the first day of the quarter and each subsequent month-end within the quarter.

In the U.S., 2023 year-to-date retail transaction prices for new motorcycles on average were broadly in line with the Company's targeted range of plus or minus 2% of the Manufacturer's Suggested Retail Prices.

### HDMC Segment

### Harley-Davidson Motorcycle Unit Shipments

Motorcycle unit shipments were as follows:

|  | Three months ended September 30, 2023 Units | Mix % | September 25, 2022 Units | Mix % | Unit Increase (Decrease) | Unit % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. motorcycle shipments | 30,167 | 66.6% | 36,997 | 65.1% | (6,830) | (18.5)% |
| Worldwide motorcycle shipments: |  |  |  |  |  |  |
| Grand American Touring(a) | 23,781 | 52.5% | 27,521 | 48.5% | (3,740) | (13.6)% |
| Cruiser | 17,142 | 37.9% | 17,197 | 30.2% | (55) | (0.3) |
| Sport and Lightweight | 3,103 | 6.9% | 10,079 | 17.7% | (6,976) | (69.2) |
| Adventure Touring | 1,243 | 2.7% | 2,058 | 3.6% | (815) | (39.6) |
|  | 45,269 | 100.0% | 56,855 | 100.0% | (11,586) | (20.4)% |

(a) Includes Trike

The Company shipped 45,269 motorcycles worldwide during the third quarter of 2023, which was 20.4% lower than the third quarter of 2022. Shipments to dealers in the third quarter of 2023 were adversely impacted by market conditions and the effects of the mid-2023 production suspension. In addition, Sport motorcycle shipments were lower following the discontinuation of legacy Sportster models in North America at the end of 2022 as the Company shifted to more profitable Sport models in 2023. Comparatively, during the third quarter of 2022, the Company's shipments were up 19% over 2021, as it recovered a majority of the volume lost as a result of a separate production suspension that occurred during the second quarter of 2022.

During the third quarter of 2023, the Company shipped a higher mix of Grand American Touring and Cruiser motorcycles as a percent of total shipments and a lower mix of Sport and Lightweight and Adventure Touring motorcycles.

### Segment Results

Condensed statements of operations for the HDMC segment were as follows (dollars in thousands):

| Revenue: | Three months ended September 30, 2023 | September 25, 2022 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Motorcycles | $1,023,090 | $1,128,920 | $(105,830) | (9.4)% |
| Parts and accessories | 184,809 | 200,708 | (15,899) | (7.9) |
| Apparel | 49,325 | 69,819 | (20,494) | (29.4) |
| Licensing | 9,586 | 10,662 | (1,076) | (10.1) |
| Other | 30,171 | 12,145 | 18,026 | 148.4 |
|  | 1,296,981 | 1,422,254 | (125,273) | (8.8) |
| Cost of goods sold | 886,291 | 932,913 | (46,622) | (5.0) |
| Gross profit | 410,690 | 489,341 | (78,651) | (16.1) |
| Operating expenses: |  |  |  |  |
| Selling & administrative expense | 208,609 | 179,753 | 28,856 | 16.1 |
| Engineering expense | 26,828 | 30,474 | (3,646) | (12.0) |
| Restructuring expense | — | 3 | (3) | (100.0) |
|  | 235,437 | 210,230 | 25,207 | 12.0 |
| Operating income | $175,253 | $279,111 | $(103,858) | (37.2)% |
| Operating margin | 13.5% | 19.6% | (6.1) | pts. |

48

The estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the third quarter of 2022 to the third quarter of 2023 were as follows (in millions):

|  | Net Revenue | Cost of Goods Sold | Gross Profit |
| --- | ---: | ---: | ---: |
| Three months ended September 25, 2022 | $1,422.3 | $932.9 | $489.3 |
| Volume | (259.7) | (167.6) | (92.1) |
| Price and sales incentives | 45.0 | — | 45.0 |
| Foreign currency exchange rates and hedging | 5.6 | 24.7 | (19.1) |
| Shipment mix | 83.8 | 43.0 | 40.8 |
| Raw material prices | — | (7.9) | 7.9 |
| Manufacturing and other costs | — | 61.1 | (61.1) |
|  | (125.3) | (46.7) | (78.6) |
| Three months ended September 30, 2023 | $1,297.0 | $886.2 | $410.7 |

Factors affecting the comparability of net revenue, cost of goods sold and gross profit from the third quarter of 2022 to the third quarter of 2023 were as follows:

- The decrease in volume was primarily due to lower motorcycle shipments.
- Revenue benefited from higher prices on new model year 2023 motorcycles.
- Revenue benefited from stronger currencies in some of the Company's international markets; however, gross profit was negatively impacted by unfavorable net foreign currency losses related primarily to hedging, recorded in cost of goods sold.
- Changes in the shipment mix had a favorable impact on gross profit.
- Raw material costs benefited from continued moderation in the rate of inflation related primarily to metals.
- Manufacturing and other costs were negatively impacted by continued moderate inflation and higher costs associated with producing fewer units than in the same period last year, partially offset by reduced reliance on expedited freight as well as reduced ocean freight rates.

Operating expenses were higher in the third quarter of 2023 compared to the same period last year related to The Hardwire initiatives, higher marketing expenses and higher employee-related costs.

### LiveWire Segment

### Segment Results

Condensed statements of operations for the LiveWire segment were as follows (in thousands, except unit shipments):

|  | Three months ended September 30, 2023 | September 25, 2022 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $8,144 | $14,708 | $(6,564) | (44.6)% |
| Cost of goods sold | 7,052 | 13,743 | (6,691) | (48.7) |
| Gross profit | 1,092 | 965 | 127 | 13.2 |
| Selling, administrative and engineering expense | 26,435 | 22,314 | 4,121 | 18.5 |
| Operating loss | $(25,343) | $(21,349) | $(3,994) | 18.7% |
| LiveWire motorcycle unit shipments | 50 | 206 | (156) | (75.7)% |

During the third quarter of 2023, revenue decreased by $6.6 million, or 44.6%, compared to the third quarter of 2022. The decrease was primarily due to lower revenue driven by lower volumes on electric motorcycles and electric balance bikes. Cost of sales decreased by $6.7 million, or 48.7%, during the third quarter of 2023 compared to the third quarter of 2022 on lower volumes.

During the third quarter of 2023, selling, administrative and engineering expense increased $4.1 million, or 18.5%, compared to the third quarter of 2022 driven by higher product development costs as well as higher costs associated with standing up the new organization.

### HDFS Segment

### Segment Results

Condensed statements of operations for the HDFS segment were as follows (in thousands):

| Revenue: | Three months ended September 30, 2023 | September 25, 2022 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $207,673 | $179,261 | $28,412 | 15.8% |
| Other income | 36,261 | 32,352 | 3,909 | 12.1 |
|  | 243,934 | 211,613 | 32,321 | 15.3 |
| Expenses: |  |  |  |  |
| Interest expense | 84,123 | 60,740 | 23,383 | 38.5 |
| Provision for credit losses | 60,854 | 36,617 | 24,237 | 66.2 |
| Operating expense | 39,582 | 33,300 | 6,282 | 18.9 |
|  | 184,559 | 130,657 | 53,902 | 41.3 |
| Operating income | $59,375 | $80,956 | $(21,581) | (26.7)% |

Interest income was higher for the third quarter of 2023 compared to the same period last year, primarily due to higher average outstanding finance receivables at a higher average yield. Interest expense increased due to higher average interest rates on lower average outstanding debt.

The provision for credit losses increased $24.2 million compared to the third quarter of 2022, driven by higher actual credit losses and an increase in the allowance for credit losses. The increase in the allowance for credit losses was largely driven by a decline in the Company's outlook on economic conditions compared to the prior year.

The allowance for credit losses considers current economic conditions and the Company’s outlook on future conditions. During the third quarter of 2023, macro-economic conditions did not significantly change from the second quarter of 2023. Concerns surrounding elevated inflation levels, muted consumer confidence, challenging global conditions, and recession risk persisted. As such, at the end of the third quarter of 2023, the Company’s outlook on economic conditions and its probability weighting of its economic forecast scenarios were weighted towards a near-term recession. Refer to the Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 25, 2022 for a discussion of 2023 annualized credit losses.

Operating expenses increased $6.3 million compared to the third quarter of 2022 due in part to a valuation loss on a securitization interest rate cap versus a valuation gain in the third quarter of 2022, higher repossession costs, and increased employee-related expenses.

Changes in the allowance for credit losses on finance receivables were as follows (in thousands):

|  | Three months ended September 30, 2023 | September 25, 2022 |
| --- | ---: | ---: |
| Balance, beginning of period | $381,780 | $352,137 |
| Provision for credit losses | 60,854 | 36,617 |
| Charge-offs, net of recoveries | (49,920) | (28,658) |
| Balance, end of period | $392,714 | $360,096 |

50

### Results of Operations for the Nine Months Ended September 30, 2023

### Compared to the Nine Months Ended September 25, 2022

### Consolidated Results

*(in thousands, except earnings per share)*

|  | Nine months ended September 30, 2023 | September 25, 2022 | (Decrease) Increase | % Change |
| --- | ---: | ---: | ---: | ---: |
| Operating income - HDMC | $705,326 | $709,088 | $(3,762) | (0.5)% |
| Operating loss - LiveWire | (81,874) | (56,764) | (25,110) | 44.2 |
| Operating income - HDFS | 176,780 | 253,241 | (76,461) | (30.2) |
| Operating income | 800,232 | 905,565 | (105,333) | (11.6) |
| Other income, net | 54,136 | 30,443 | 23,693 | 77.8 |
| Investment (loss) income | 31,044 | (3,786) | 34,830 | NM |
| Interest expense | 23,104 | 23,555 | (451) | (1.9) |
| Income before income taxes | 862,308 | 908,667 | (46,359) | (5.1) |
| Provision for income taxes | 190,546 | 209,130 | (18,584) | (8.9) |
| Net income | $671,762 | $699,537 | $(27,775) | (4.0)% |
| Less: Loss attributable to noncontrolling interests | 9,016 | — | 9,016 | NM |
| Net income attributable to Harley-Davidson, Inc. | 680,778 | 699,537 | (18,759) | (2.7)% |
| Diluted earnings per share | $4.65 | $4.68 | $(0.03) | (0.6)% |

The Company reported operating income of $800.2 million in the first nine months of 2023 compared to $905.6 million in the same period last year. HDMC segment operating income was $705.3 million in the first nine months of 2023, down $3.8 million compared to the same period last year. Operating loss from the LiveWire segment increased $25.1 million compared to the first nine months of 2022. Operating income from the HDFS segment decreased $76.5 million compared to the first nine months of 2022. Refer to the HDMC Segment, LiveWire Segment and HDFS Segment discussions for a more detailed analysis of the factors affecting operating income.

Other income in the first nine months of 2023 was higher than the same period last year, impacted by higher non-operating income related to the Company's defined benefit plans.

The Company's effective income tax rate for the first nine months of 2023 was 22.1% compared to 23.0% for the same period in 2022.

Diluted earnings per share was $4.65 in the first nine months of 2023, down from diluted earnings per share of $4.68 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 149.5 million in the first nine months of 2022 to 146.3 million in the first nine months of 2023, 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.

### Harley-Davidson Motorcycles Retail Sales and Registration Data

### Harley-Davidson Motorcycle Retail Sales(a)

Retail unit sales of new Harley-Davidson motorcycles were as follows:

|  | Nine months ended September 30, 2023 | September 30, 2022 | (Decrease) Increase | % Change |
| --- | ---: | ---: | ---: | ---: |
| United States | 81,774 | 90,823 | (9,049) | (10.0)% |
| Canada | 6,653 | 7,108 | (455) | (6.4) |
| North America | 88,427 | 97,931 | (9,504) | (9.7) |
| Europe/Middle East/Africa (EMEA) | 21,884 | 23,948 | (2,064) | (8.6) |
| Asia Pacific | 20,190 | 20,373 | (183) | (0.9) |
| Latin America | 2,108 | 2,365 | (257) | (10.9) |
|  | 132,609 | 144,617 | (12,008) | (8.3)% |

(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 8.3% during the first nine months of 2023 compared to the same period last year driven primarily by a decline in North America. North America retail sales were adversely impacted during the first nine months of 2023 by macro-economic conditions impacting the consumer, the availability of certain models as the Company worked through the effects of the mid-2023 production suspension and the discontinuation of legacy Sportster models as the Company shifted to more profitable Sport models in 2023. In EMEA, results were impacted by a planned unit mix shift towards more profitable core motorcycle models.

### 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 nine months of 2023 compared to the first nine months of 2022 on lower retail sales relative to the industry. The Company's European market share of new 601+cc motorcycles for first nine months of 2023 was down compared to the first nine months of 2022. Industry retail registration data for new motorcycles and the Company's market share was as follows:

| Industry new motorcycle registrations: | Nine months ended September 30, 2023 | September 30, 2022 | (Decrease) Increase | % Change |
| --- | ---: | ---: | ---: | ---: |
| United States(b) | 215,744 | 220,432 | (4,688) | (2.1)% |
| Europe(c) | 405,953 | 346,027 | 59,926 | 17.3% |
| Harley-Davidson market share data: |  |  |  |  |
| United States(b) | 37.3% | 41.2% | (3.9) | pts. |
| Europe(c) | 4.8% | 6.1% | (1.3) | 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.

### HDMC Segment

### Motorcycle Unit Shipments

Motorcycle unit shipments were as follows:

|  | Nine months ended September 30, 2023 Units | Mix % | September 25, 2022 Units | Mix % | Unit (Decrease) Increase | Unit % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. motorcycle shipments | 96,984 | 64.5% | 100,997 | 63.3% | (4,013) | (4.0)% |
| Worldwide motorcycle shipments: |  |  |  |  |  |  |
| Grand American Touring(a) | 76,270 | 50.7% | 75,291 | 47.1% | 979 | 1.3% |
| Cruiser | 53,876 | 35.8% | 47,325 | 29.7% | 6,551 | 13.8 |
| Sport and Lightweight | 15,849 | 10.5% | 28,185 | 17.7% | (12,336) | (43.8) |
| Adventure Touring | 4,445 | 3.0% | 8,743 | 5.5% | (4,298) | (49.2) |
|  | 150,440 | 100.0% | 159,544 | 100.0% | (9,104) | (5.7)% |

(a) Includes Trike

The Company shipped 150,440 motorcycles worldwide during the first nine months of 2023, which was 5.7% lower than the same period in 2022. The Company's shipments during the first nine months of 2023 were adversely impacted by market conditions and the effects of the mid-2023 production suspension. In addition, Sport motorcycle shipments were lower following the discontinuation of legacy Sportster models in North America at the end of 2022 as the Company shifted to more profitable Sport models in 2023.

The motorcycles shipped during the first nine months of 2023 compared to the same period last year included a higher mix of Grand American Touring and Cruiser motorcycles shipped as a percent of total shipments and a lower mix of Sport and Lightweight and Adventure Touring motorcycles.

### Segment Results

Condensed statements of operations for the HDMC segment were as follows (dollars in thousands):

| Revenue: | Nine months ended September 30, 2023 | September 25, 2022 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Motorcycles | $3,216,387 | $3,121,097 | $95,290 | 3.1% |
| Parts and accessories | 568,001 | 580,295 | (12,294) | (2.1) |
| Apparel | 187,072 | 198,560 | (11,488) | (5.8) |
| Licensing | 20,912 | 28,940 | (8,028) | (27.7) |
| Other | 60,574 | 40,097 | 20,477 | 51.1 |
|  | 4,052,946 | 3,968,989 | 83,957 | 2.1 |
| Cost of goods sold | 2,667,756 | 2,684,926 | (17,170) | (0.6) |
| Gross profit | 1,385,190 | 1,284,063 | 101,127 | 7.9 |
| Operating expenses: |  |  |  |  |
| Selling & administrative expense | 601,399 | 489,781 | 111,618 | 22.8 |
| Engineering expense | 78,465 | 85,583 | (7,118) | (8.3) |
| Restructuring (benefit) expense | — | (389) | 389 | (100.0) |
|  | 679,864 | 574,975 | 104,889 | 18.2% |
| Operating income | $705,326 | $709,088 | $(3,762) | (0.5)% |
| Operating margin | 17.4% | 17.9% | (0.5) | pts. |

53

The estimated impacts of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first nine months of 2022 to the first nine months of 2023 were as follows (in millions):

|  | Net Revenue | Cost of Goods Sold | Gross Profit |
| --- | ---: | ---: | ---: |
| Nine months ended September 25, 2022 | $3,969.0 | $2,684.9 | $1,284.1 |
| Volume | (231.0) | (140.2) | (90.7) |
| Price and sales incentives | 199.4 | — | 199.4 |
| Foreign currency exchange rates and hedging | (31.8) | 22.6 | (54.4) |
| Shipment mix | 147.3 | 64.2 | 83.1 |
| Raw material prices | — | (22.2) | 22.2 |
| Manufacturing and other costs | — | 58.5 | (58.5) |
|  | 83.9 | (17.1) | 101.1 |
| Nine months ended September 30, 2023 | $4,052.9 | $2,667.8 | $1,385.2 |

Factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first nine months of 2022 to the first nine months of 2023 were as follows:

- The decrease in volume was primarily due to lower motorcycle shipments.
- Revenue benefited from higher prices on new model year 2023 motorcycles.
- Revenue and gross profit were negatively impacted by weaker foreign currency exchange rates relative to the U.S. dollar as well as a less favorable net foreign currency gain associated with hedging recorded in cost of goods sold.
- Changes in the shipment mix of motorcycles had a favorable impact on gross profit.
- Raw material costs benefited from continued moderation in the rate of inflation related primarily to metals.
- Manufacturing and other costs were negatively impacted by continued moderate inflation and higher costs associated with producing fewer units than in the same period last year, partially offset by reduced reliance on expedited freight as well as reduced ocean freight rates.

Operating expenses were higher in the first nine months of 2023 compared to the same period last year related to The Hardwire initiatives, higher marketing expenses and higher employee-related costs.

### LiveWire Segment

### Segment Results

Condensed statements of operations for the LiveWire segment were as follows (in thousands, except unit shipments):

|  | Nine months ended September 30, 2023 | September 25, 2022 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $22,932 | $37,615 | $(14,683) | (39.0)% |
| Cost of goods sold | 23,516 | 36,987 | (13,471) | (36.4) |
| Gross profit | (584) | 628 | (1,212) | (193.0) |
| Selling, administrative and engineering expense | 81,290 | 57,392 | 23,898 | 41.6 |
| Operating loss | $(81,874) | $(56,764) | $(25,110) | 44.2% |
| LiveWire motorcycle unit shipments | 146 | 528 | (382) | (72.3) |

During the first nine months of 2023, revenue decreased by $14.7 million, or 39.0%, compared to the first nine months of 2022. The decrease was primarily due to lower revenue driven by lower volumes on electric motorcycles and electric balance bikes. Cost of sales decreased by $13.5 million, or 36.4%, during the first nine months of 2023 compared to the first nine months of 2022 on lower volumes.

During the first nine months of 2023, selling, administrative and engineering expense increased $23.9 million, or 41.6%, compared to the first nine months of 2022 driven by higher product development costs as well as higher costs associated with standing up the new organization.

### HDFS Segment

### Segment Results

Condensed statements of operations for the HDFS segment were as follows (in thousands):

| Revenue: | Nine months ended September 30, 2023 | September 25, 2022 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $586,752 | $509,702 | $77,050 | 15.1% |
| Other income | 120,638 | 96,542 | 24,096 | 25.0 |
|  | 707,390 | 606,244 | 101,146 | 16.7 |
| Expenses: |  |  |  |  |
| Interest expense | 243,677 | 150,488 | 93,189 | 61.9 |
| Provision for credit losses | 170,496 | 94,572 | 75,924 | 80.3 |
| Operating expense | 116,437 | 107,943 | 8,494 | 7.9 |
|  | 530,610 | 353,003 | 177,607 | 50.3 |
| Operating income | $176,780 | $253,241 | $(76,461) | (30.2)% |

Interest income was higher for the first nine months of 2023, primarily due to higher average outstanding finance receivables at a higher average yield. Other income increased largely driven by higher investment income, insurance revenue, and licensing revenue. Interest expense increased due to higher average outstanding debt at higher average interest rates.

The provision for credit losses was $75.9 million higher in the first nine months of 2023 as compared to the prior year primarily due to higher actual credit losses and an increase in the allowance during the first nine months of 2023. The increase in the allowance for credit losses in the first nine months of 2023 was largely driven by the Company's outlook on economic conditions and its probability weighting of its economic forecast scenarios which were weighted towards a near-term recession. 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 2.69% at the end of the third quarter of 2023 compared to 1.48% at the end of the third quarter of 2022. The 30-day delinquency rate for retail motorcycle loans at September 30, 2023 increased to 4.23% from 3.66% at September 25, 2022. The unfavorable retail credit loss performance was driven by higher retail delinquencies and credit losses as consumers faced increased pressure from higher debt levels and the impacts of inflation, both more generally as well as through higher payments on larger retail motorcycle loans. Further, the Company is experiencing downward pressure on auction recovery values and continued challenges with motorcycle repossessions.

Operating expenses increased $8.5 million in the first nine months of 2023 compared to the first nine months of 2022 due in part to higher repossession expenses, increased employee-related costs, and a valuation loss on a securitization interest rate cap versus a valuation gain in the same period in 2022. This was partially offset by favorable foreign currency rates.

Changes in the allowance for credit losses on finance receivables were as follows (in thousands):

|  | Nine months ended September 30, 2023 | September 25, 2022 |
| --- | ---: | ---: |
| Balance, beginning of period | $358,711 | $339,379 |
| Provision for credit losses | 170,496 | 94,572 |
| Charge-offs, net of recoveries | (136,493) | (73,855) |
| Balance, end of period | $392,714 | $360,096 |

### 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 14 of the Notes to Consolidated financial statements* for a discussion of the Company's commitments and contingencies.

### Liquidity and Capital Resources

The Company’s strategy is to maintain a minimum of twelve months of its projected liquidity needs through a combination of cash and cash equivalents and availability under its credit facilities.

The Company believes its current cash, cash equivalents and availability under its credit facilities are sufficient to meet its liquidity requirements, consistent with its strategy. The Company expects to fund its operations, excluding the origination of finance receivables, primarily with cash flows from operating activities and cash and cash equivalents on hand.(1) The Company expects to fund the origination of finance receivables primarily with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities, asset-backed securitizations and brokered certificates of deposit.(1)

The Company’s cash and cash equivalents and availability under its credit and conduit facilities at September 30, 2023 were as follows (in thousands):

|  |  |
| --- | ---: |
| Cash and cash equivalents(a) | $1,878,351 |
| U.S. commercial paper conduit facility: |  |
| Committed asset-backed U.S. commercial paper conduit facility(b) | 1,500,000 |
| Borrowings against committed facility | (272,766) |
| Net asset-backed U.S. commercial paper conduit committed facility availability | 1,227,234 |
| Asset-backed Canadian commercial paper conduit facility(b)(c) | 92,583 |
| Borrowings against committed facility | (79,755) |
| Net asset-backed Canadian commercial paper conduit facility | 12,828 |
| Availability under credit and conduit facilities: |  |
| Credit facilities | 1,420,000 |
| Commercial paper outstanding | (815,081) |
| Net credit facility availability | 604,919 |
|  | $3,723,332 |

(a) Includes $199.9 million of cash and cash equivalents held by LiveWire Group, Inc.

(b) Includes facilities expiring in the next 12 months which the Company expects to renew prior to expiration.(1)

(c) C$125.0 million Canadian Conduit facility agreement remeasured to U.S. dollars at September 30, 2023.

To access the debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings. Generally, lower credit ratings result in higher borrowing costs and reduced access to debt capital markets. A credit rating agency may change or withdraw the Company's ratings based on its assessment of the Company's current and future ability to meet interest and principal repayment obligations. The Company’s short-term debt ratings affect its ability to issue unsecured commercial paper. The Company’s short- and long-term debt ratings, as of September 30, 2023 were as follows:

|  | Short-Term | Long-Term | Outlook |
| --- | --- | --- | --- |
| Moody’s | P3 | Baa3 | Stable |
| Standard & Poor’s | A3 | BBB- | Stable |
| Fitch | F2 | BBB+ | Stable |

The Company recognizes that it must continue to monitor and adjust its business to changes in the lending environment. The Company intends to continue with a diversified funding profile through a combination of short-term and long-term funding vehicles and to pursue a variety of sources to obtain cost-effective funding.(1) HDFS segment results could be negatively affected by higher costs of funding and increased difficulty of raising, or potential unsuccessful efforts to raise, funding in the short-term and long-term capital markets.(1) These negative consequences could in turn adversely affect the Company’s business and results of operations in various ways, including through higher costs of capital, reduced funds available through HDFS 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):

|  | Nine months ended September 30, 2023 | September 25, 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $706,767 | $574,704 |
| Net cash used by investing activities | (511,133) | (745,736) |
| Net cash provided by financing activities | 253,576 | 221,464 |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (8,415) | (33,361) |
| Net increase in cash, cash equivalents and restricted cash | $440,795 | $17,071 |

### Operating Activities

Cash flow provided by operating activities in the first nine months of 2023 compared to the first nine months of 2022 benefited from changes in working capital partially offset by an increase in wholesale finance receivables. Working capital was positively impacted, primarily by favorable changes in inventory and accounts receivable compared to the first nine months of 2022.

The Company's ongoing operating cash requirements include those related to existing contractual commitments which it expects to fund with cash inflows from operating activities. 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 September 30, 2023 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* in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. There are no required qualified pension plan contributions in 2023. The Company’s expected future contributions and benefit payments related to its defined benefit retirement plans are 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, 2022. The Company has a liability for unrecognized tax benefits of $28.4 million and related accrued interest and penalties of $16.6 million as of September 30, 2023. The Company cannot reasonably estimate the period of cash settlement for either the liability for unrecognized tax benefits or accrued interest and penalties. The Company continues to expect that it will fund its ongoing operating cash requirements related to the origination of finance receivables with the issuance of debt.

### Investing Activities

The Company’s most significant investing activities consist of capital expenditures and retail finance receivable originations and collections. Capital expenditures were $138.9 million in the first nine months of 2023 compared to $84.9 million in the same period last year. The Company's 2023 plan includes estimated capital investments between $225 million and $250 million, all of which the Company expects to fund with net cash flow generated by operations.(1)

Net cash outflows for finance receivables during the first nine months of 2023 were $289.8 million lower compared to the same period last year due to lower retail finance receivable originations, partially offset by lower collections of finance receivables. 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 $0.495 and $0.473 per share totaling $72.8 million and $70.2 million during the first nine months of 2023 and 2022, respectively.

Cash outflows for share repurchases were $239.4 million in the first nine months of 2023 compared to $338.5 million in the same period last year. Share repurchases during the first nine months of 2023 include $225.7 million or 6.1 million shares of common stock related to discretionary repurchases and $13.7 million or 0.3 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 September 30, 2023, there were 13.7 million shares remaining on a board-approved share repurchase authorization.

Financing cash flows related to debt and brokered certificates of deposit activity resulted in net cash inflows of $0.6 billion in the first nine months of 2023 compared to net cash inflows of $0.5 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):

| Outstanding debt: | September 30, 2023 | September 25, 2022 |
| --- | ---: | ---: |
| Unsecured commercial paper | $815,081 | $692,551 |
| Asset-backed Canadian commercial paper conduit facility | 79,755 | 82,154 |
| Asset-backed U.S. commercial paper conduit facility | 272,766 | 489,074 |
| Asset-backed securitization debt, net | 2,138,684 | 2,405,406 |
| Medium-term notes, net | 3,257,396 | 2,756,830 |
| Senior notes, net | 745,900 | 745,192 |
|  | $7,309,582 | $7,171,207 |
| Deposits, net | $478,933 | $344,735 |

Refer to *Note 9 of the Notes to Consolidated financial statements* for a summary of future principal payments on the Company's debt obligations. Refer to *Note 6 of the Notes to Consolidated financial statements* for a summary of future maturities on the Company's certificates of deposit.

*Deposits –* HDFS offers brokered certificates of deposit to customers indirectly through contractual arrangements with third-party banks and/or securities brokerage firms through its bank subsidiary. The Company had $478.9 million and $344.7 million, net of fees, of interest-bearing brokered certificates of deposit outstanding as of September 30, 2023 and September 25, 2022, 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 –* The Company has a $710.0 million five-year credit facility that matures in April 2027 and a $710.0 million five-year credit facility that matures in 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 September 30, 2023 supported by the Global Credit Facilities, as discussed above. Outstanding unsecured commercial paper may not exceed the unused portion of the Global Credit Facilities. Maturities may range up to 365 days from the issuance date. The Company intends to repay unsecured commercial paper as it matures with additional unsecured commercial paper or through other means, such as borrowing under the Global Credit Facilities, borrowing under its asset-backed U.S. commercial paper conduit facility or through the use of operating cash flow and cash on hand.(1)

*Medium-Term Notes –* The Company had the following unsecured medium-term notes issued and outstanding at September 30, 2023 (in thousands):

| Principal Amount | Rate | Issue Date | Maturity Date |
| ---: | ---: | --- | --- |
| $634,464(a) | 3.14% | November 2019 | November 2024 |
| $700,000 | 3.35% | June 2020 | June 2025 |
| $740,207(b) | 6.36% | April 2023 | April 2026 |
| $500,000 | 3.05% | February 2022 | February 2027 |
| $700,000 | 6.50% | March 2023 | March 2028 |

(a) €600.0 million par value remeasured to U.S. dollar at September 30, 2023

(b) €700.0 million par value remeasured to U.S. dollar at September 30, 2023

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 $17.3 million and $9.7 million at September 30, 2023 and September 25, 2022, respectively. There were no medium-term note maturities during the third quarter of 2023 or 2022. During the second quarter of 2023, $706.7 million of 4.94% medium-term notes matured, and the principal and accrued interest were paid in full. During the first quarter of 2023, $350.0 million of 3.35% medium-term notes matured, and the principal and accrued interest were paid in full. During the 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.

*Senior Notes –* In July 2015, the Company issued $750.0 million of unsecured senior notes in an underwritten offering. The senior notes provide for semi-annual interest payments and principal due at maturity. $450.0 million of the senior notes mature in July 2025 and have an interest rate of 3.50%, and $300.0 million of the senior notes mature in July 2045 and have an interest rate of 4.625%. The Company used the proceeds from the debt to repurchase shares of its common stock in 2015.

*On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility –* The Company has a revolving facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase 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. The expected remaining term of the related receivables is approximately 5 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of September 30, 2023, the Canadian Conduit has an expiration date of June 28, 2024.

Quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds were as follows (in millions):

|  | 2023 Transfers | Proceeds | 2022 Transfers | Proceeds |
| --- | ---: | ---: | ---: | ---: |
| First quarter | $— | $— | $25.3 | $21.2 |
| Second quarter | 40.5 | 33.5 | — | — |
| Third quarter | 10.8 | 8.9 | 27.8 | 23.0 |
|  | $51.3 | $42.4 | $53.1 | $44.2 |

*On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE –* The Company has a $1.50 billion 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 November 2022, the Company renewed the U.S. Conduit Facility. As a result of the renewal, the agreement no longer allows for uncommitted additional borrowings, at the lender's discretion, of up to $300.0 million in addition to the $1.50 billion aggregate commitment. Prior to the November 2022 renewal, the Company drew against the $300.0 million of uncommitted additional borrowings that were available prior to the renewal. The Company repaid the remaining balance of these uncommitted additional borrowings in full during the three months ended September 30, 2023. 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.

There were no finance receivable transfers under the U.S. Conduit Facility during the nine months ended September 30, 2023 or during the third quarter of 2022. 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.

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. Subsequent to the November 2022 renewal, the interest rate on all outstanding debt and future borrowings, if not funded by a conduit lender through the issuance of commercial paper, is based on the Secured Overnight Financing Rate (SOFR), with provisions for a transition to other benchmark rates in the future, if necessary. Prior to the renewal, if not funded by a conduit lender through the issuance of commercial paper, the terms of the interest were based on LIBOR or SOFR, as appropriate, with provisions for a transition to other benchmark rates. In addition to interest, a program fee is assessed based on the outstanding 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. 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 4 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of September 30, 2023, the U.S. Conduit Facility has an expiration date of November 17, 2023.

*Asset-Backed Securitization VIEs –* For all of its asset-backed securitization transactions, the Company transfers U.S. retail motorcycle finance receivables to separate VIEs, which in turn issue secured notes with various maturities and interest rates to investors. All of the notes held by the VIEs are secured by future collections of the purchased U.S. retail motorcycle finance receivables. The U.S. retail motorcycle finance receivables included in the asset-backed securitization transactions are not available to pay other obligations or claims of the Company's creditors until the associated debt and other obligations are satisfied. Restricted cash balances held by the VIEs are used only to support the securitizations.

The accounting treatment for asset-backed securitizations depends on the terms of the related transaction and the Company’s continuing involvement with the VIE. 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 2024 to 2031.

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):

|  | 2023 Transfers | Proceeds | Proceeds, net | 2022 Transfers | Proceeds | Proceeds, net |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| First quarter | $628.5 | $550.0 | $547.7 | $— | $— | $— |
| Second quarter | — | — | — | 2,176.4 | 1,836.3 | 1,826.9 |
| Third quarter | 576.0 | 500.0 | 497.8 | — | — | — |
|  | $1,204.5 | $1,050.0 | $1,045.5 | $2,176.4 | $1,836.3 | $1,826.9 |

*Intercompany Agreements –* On January 27, 2023, Harley-Davidson, Inc. entered into a revolving line of credit with Harley-Davidson Financial Services, Inc. whereby Harley-Davidson Financial Services, Inc. may borrow up to $200.0 million at market interest rates with an expiration date of July 27, 2024. As of September 30, 2023, Harley-Davidson Financial Services, Inc. had no outstanding borrowings owed to Harley-Davidson, Inc. under this agreement.

Harley Davidson, Inc. also has a support agreement with Harley-Davidson Financial Services Inc. whereby, if required, Harley-Davidson, Inc. agrees to provide Harley-Davidson Financial Services Inc. with financial support to maintain Harley-Davidson Financial Services Inc.’s fixed-charge coverage at 1.25 and minimum net worth of $40.0 million. Support may be provided at Harley-Davidson, Inc.'s option as capital contributions or loans. No amount has ever been provided to Harley-Davidson Financial Services Inc. under the support agreement.

*Operating and Financial Covenants –* Harley-Davidson Financial Services Inc. and the Company are subject to various operating and financial covenants related to the credit facilities and various operating covenants under the 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 Inc’s ability to:

- Assume or incur certain liens;
- Participate in certain mergers or consolidations; and
- Purchase or hold margin stock.

Under the current financial covenants of the Global Credit Facilities, the ratio of Harley-Davidson Financial Services Inc.’s consolidated debt, excluding secured debt, to Harley-Davidson Financial Services' consolidated allowance for credit losses on finance receivables plus Harley-Davidson Financial Services Inc’s consolidated shareholders' equity, 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 Company's consolidated debt in each case excludes that of Harley-Davidson Financial Services Inc. 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 September 30, 2023, Harley-Davidson Financial Services Inc. 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 Company’s ability to: (a) execute its business plans and strategies, including The Hardwire, each of the pillars, and the evolution of LiveWire as a standalone brand, which includes the risks noted below; (b) manage supply chain and logistics issues, including quality issues, availability of semiconductor chip components and the ability to find alternative sources of those components in a timely manner, unexpected interruptions or price increases caused by supplier volatility, raw material shortages, inflation, war or other hostilities, including the conflict in Ukraine, or natural disasters and longer shipping times and increased logistics costs, including by successfully implementing pricing surcharges; (c) accurately analyze, predict and react to changing market conditions and successfully adjust to shifting global consumer needs and interests; (d) realize the expected business benefits from LiveWire operating as a separate public company, which may be affected by, among other things: (I) the ability of LiveWire to: (1) execute its 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 on expected timelines; and (6) effectively establish and maintain cooperation from its retail partners, largely drawn from the Company's traditional motorcycle dealer network, to be able to effectively establish or maintain relationships with customers for electric vehicles; (II) competition; and (III) other risks and uncertainties indicated in documents filed with the SEC by the Company or LiveWire Group, Inc., including those risks and uncertainties noted in *Risk Factors* under *Item 1.A* of LiveWire Group Inc.'s Annual Report on Form 10-K for the year ended December 31, 2022; (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 quality and regulatory non-compliance issues relating to the brake hose assemblies provided to the Company by Proterial Cable America (PCA) in a manner that avoids future quality or non-compliance issues and additional costs or recall expenses that are material; (j) effectively mitigate the impact on the Company’s business of the production suspensions that were caused by the quality issues and regulatory non-compliances of PCA’s brake hose assemblies, including but not limited to the impact on wholesale and retail sales of new motorcycles; (k) manage ongoing risks related to the impact of the COVID-19 pandemic, such as supply chain disruptions, its ability to carry out business as usual, and government actions and restrictive measures implemented in response; (l) successfully appeal: (I) the revocation of the Binding Origin Information (BOI) decisions that allowed the Company to supply its European Union (EU) market with certain of its motorcycles produced at its Thailand operations at a reduced tariff rate and (II) the denial of the Company's application for temporary relief from the effect of the revocation of the BOI decisions; (m) 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 the U.S. and EU, which expires on December 31, 2023; (n) 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; (o) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles; (p) successfully manage and reduce costs throughout the business; (q) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, particularly with the recent turmoil in the banking industry, and the changing domestic and international political environments, including as a result of the conflict in Ukraine; (r) 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; (s) continue to develop and maintain a productive relationship with Zhejiang Qianjiang Motorcycle Co., Ltd. and launch related products in a timely manner; (t) maintain a productive relationship with Hero MotoCorp as a distributor and licensee of the Harley-Davidson brand name in India; (u) 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; (v) manage its Thailand corporate and manufacturing operation in a manner that allows the Company to avail itself of preferential free trade agreements and duty rates, and sufficiently lower prices of its motorcycles in certain markets; (w) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices; (x) retain and attract talented employees, and eliminate personnel duplication, inefficiencies and complexity throughout the organization; (y) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or Company data and respond to evolving regulatory requirements regarding data security; (z) manage the credit quality, the loan servicing and collection activities, and the recovery rates of Harley-Davidson Financial Services' loan portfolio; (aa) 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; (bb) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles; (cc) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities; (dd) manage changes, prepare for, and respond to evolving requirements in legislative and regulatory environments related to its products, services and operations; (ee) manage its exposure to product liability claims and commercial or contractual disputes; (ff) continue to manage the relationships and agreements that the Company has with its labor unions to help drive long-term competitiveness; (gg) achieve anticipated results with respect to the Company's pre-owned motorcycle program, Harley-Davidson Certified, the Company's H-D1 Marketplace, and Apparel and Licensing; (hh) accurately predict the margins of its segments in light of, among other things, tariffs, inflation, foreign currency exchange rates, the cost associated with product development initiatives and the Company's complex global supply chain; and (ii) optimize capital allocation in light of the Company's capital allocation priorities; and (jj) manage through the effects increased environmental, safety, emissions or other regulations or other influences may have on the business and its operating results.

The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s 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 (HDFS) experienced historically low levels of retail credit losses, but credit losses have been normalizing to higher levels in recent quarters. Further, the Company believes that HDFS's retail credit losses will continue to change over time due to changing consumer credit behavior, macroeconomic conditions including the impact of inflation, and HDFS's efforts to adjust underwriting criteria based on market and economic conditions, as well as actions that the Company has taken and could take that impact motorcycle values.

The Company's operations, demand for its products, and its liquidity could be adversely impacted by work stoppages, facility closures, strikes, natural causes, widespread infectious disease, terrorism, war or other hostilities, including the conflict in Ukraine, or other factors. Refer to *Risk Factors* under *Item 1.A* of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of additional risk factors and a more complete discussion of some of the cautionary statements noted above.

## Market risk

As filed, 4,589 characters.

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 8 of the Notes to Consolidated financial statements.*

### HDMC Segment

The Company sells its motorcycles and related products internationally and in most markets those sales are made in the foreign country’s local currency. As a result, the HDMC segment operating results are affected by fluctuations in the value of the U.S. dollar relative to foreign currencies. The Company’s 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 HDMC 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, 2022.

The Company purchases commodities for the use in the production of motorcycles. As a result, HDMC segment operating income is affected by changes in commodity prices. The Company uses derivative financial instruments on a limited basis to hedge the prices of certain commodities. There have been no material changes to the commodity market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

### LiveWire Segment

LiveWire sells its electric motorcycles, electric balance bikes and related products internationally, and in most markets, those sales are made in the foreign country’s local currency. As a result, LiveWire’s operating results are affected by fluctuations in the values of the U.S. dollar relative to foreign currencies; however, the impact of such fluctuations on LiveWire’s operations to date have not been material given the majority of LiveWire’s sales are currently in the U.S. LiveWire plans to expand its business and operations internationally and expects its exposure to currency rate risk to increase as it grows its international presence.

### HDFS Segment

The Company has interest rate-sensitive financial instruments including financial receivables, debt and interest rate derivative financial instruments. As a result, HDFS operating income is affected by changes in interest rates. The Company utilizes interest rate caps to reduce the impact of fluctuations in interest rates on its asset-backed securitization transactions.

There have been no material changes to the interest rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

HDFS also has short-term commercial paper and debt issued through the commercial paper conduit facilities that is subject to changes in interest rates, which it does not hedge. There have been no material changes to the interest rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

The Company has foreign denominated medium-term notes, and as a result, HDFS operating income is affected by fluctuations in the value of the U.S. dollar relative to foreign currencies and interest rates. At September 30, 2023, this exposure related to the Euro. The Company utilizes cross-currency swaps to mitigate the effect of the foreign currency exchange rate and interest rate fluctuations related to foreign denominated debt. There have been no material changes to the foreign currency exchange rate and interest rate market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further information concerning the Company's market risk.

## Controls and procedures

As filed, 1,706 characters.

*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 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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0000793952-23-000180. Last ingested by Listed: Oct 29, 2026, 06:53 ET. No prices; not investment advice.