HARLEY-DAVIDSON, INC. Annual Report Summary

This summary offers investors essential insights into Harley-Davidson, Inc.'s performance, strategic direction, and key risks for the fiscal year ended December 31.

Business Overview: Revving Up the Core and Electrifying the Future

Harley-Davidson powers its business through three key segments:

• Harley-Davidson Motor Company (HDMC): The iconic Harley-Davidson Motor Company (HDMC) designs, manufactures, and sells heavyweight motorcycles, parts, accessories, and general merchandise worldwide. HDMC focuses on premium products, brand desirability, and expanding its global dealer network.
• LiveWire: LiveWire, Harley-Davidson's dedicated electric motorcycle brand, strategically enters the rapidly evolving EV market. Harley-Davidson spun off LiveWire as a separate public company but retains a significant equity interest. LiveWire aims to lead in electric two-wheel mobility with innovative products like the LiveWire ONE.
• Harley-Davidson Financial Services (HDFS): Harley-Davidson Financial Services (HDFS) provides wholesale and retail financing and insurance programs for Harley-Davidson dealers and customers. HDFS plays a crucial role, facilitating motorcycle sales and significantly boosting the company's overall profitability through robust loan portfolio management.

Financial Performance: A Look at the Numbers

Harley-Davidson navigated global economic headwinds and supply chain challenges to deliver a mixed financial performance for the fiscal year ended December 31:

• Consolidated Revenue: Total revenue reached approximately $5.8 billion.
• Net Income: The company reported $650 million in net income, translating to diluted earnings per share (EPS) of $4.50.
• HDMC Segment: The Motorcycle segment (HDMC) generated $4.7 billion in revenue. HDMC's operating income stood at $780 million.
• LiveWire Segment: LiveWire generated revenue of approximately $80 million. As an early-stage growth company, LiveWire reported an operating loss of $70 million, reflecting its continued significant investment in product development and market expansion.
• HDFS Segment: HDFS contributed $250 million in operating income, benefiting from strong loan portfolio performance and effective risk management despite rising interest rates.

Financial Health

• Cash Flow & Balance Sheet: The company generated $700 million in operating cash flow and ended the year with $1.5 billion in cash and marketable securities. Total debt stood at $8.2 billion. The company indicated a stable financial position to support strategic investments.
• Liquidity: The company maintains access to various credit facilities and holds a strong cash position, providing ample liquidity to fund operations, strategic investments, and manage debt obligations.

Management Discussion: Strategic Initiatives - The Hardwire Plan in Action

Harley-Davidson actively executes "The Hardwire" strategic plan, focusing on:

• Rethinking Motorcycle: Prioritizing desirability and premium positioning for its core HDMC products, which includes launching new models and enhancing the customer experience. This strategy emphasizes profitable growth over sheer volume.
• LiveWire as a Standalone Brand: Accelerating LiveWire's growth by introducing new products, expanding its global distribution network, and leveraging strategic partnerships to capture electric vehicle market share.
• HDFS as a Strategic Enabler: Optimizing HDFS operations to provide competitive financing solutions that support motorcycle sales while maintaining a healthy credit portfolio.
• Global Expansion: Targeting growth in key international markets, particularly in Asia, through tailored product offerings and enhanced dealer support.
• Sustainability: Investing in sustainable manufacturing practices and exploring environmentally friendly technologies across its operations.

Competitive Position

Harley-Davidson competes in a highly competitive global motorcycle market. Its primary competitors in the heavyweight motorcycle segment include established premium brands like Indian Motorcycle (Polaris Inc.), BMW Motorrad, and Japanese manufacturers such as Honda, Yamaha, Kawasaki, and Suzuki. In the emerging electric motorcycle market, LiveWire competes against both traditional manufacturers entering the EV space and specialized electric vehicle startups.

Harley-Davidson's competitive advantages include its iconic brand legacy, strong brand loyalty, extensive global dealer network, and the integrated financial services HDFS provides. The company differentiates itself through its unique brand experience, premium product offerings, and a strategic focus on innovation. This includes its LiveWire electric motorcycle brand, which aims to capture new customer demographics while retaining core riders. The company's strategy emphasizes desirability and premium positioning to maintain its market standing.

Risk Factors: Navigating the Road Ahead

Investors should consider several key risks:

• Economic Downturn: Fluctuations in consumer discretionary spending, inflation, and interest rates could impact motorcycle sales and HDFS's loan portfolio quality.
• Competitive Landscape: Intense competition from both traditional motorcycle manufacturers and emerging electric vehicle companies, particularly in the premium and electric segments.
• Supply Chain Disruptions: Ongoing global supply chain issues, including semiconductor shortages, could affect production volumes and increase costs.
• Regulatory Changes: Evolving emissions standards and safety regulations in various markets could necessitate significant investment in product development.
• LiveWire's Growth Trajectory: LiveWire's success depends on market adoption of electric motorcycles, significant capital investment, and effective competition against well-funded EV startups.

Future Outlook

The company remains committed to its Hardwire strategy, aiming to drive long-term shareholder value. This includes focusing on profitable growth for HDMC, continued investment and market expansion for LiveWire, and stable, supportive performance from HDFS.