10-K: Harley-Davidson Awards Performance Shares and Restricts Stock Unit Awards

Harley-Davidson grants performance shares and restricted stock units to employees under its 2020 Incentive Stock Plan, subject to performance goals and vesting schedules.

Summary

• Harley-Davidson, Inc. (HDI) awarded performance shares and restricted stock units (RSUs) to eligible employees under its 2020 Incentive Stock Plan.
• Performance shares will vest based on HDI's average achievement of performance goals for each fiscal year during the 2024-2026 performance period.
• The performance goals will be weighted and approved by the Human Resources Committee during the first quarter of each fiscal year.
• A Total Shareholder Return (TSR) modifier, ranging from -15% to +15%, will be applied to the performance score based on HDI's TSR ranking relative to a peer group.
• RSUs will vest in three equal tranches on the first, second, and third anniversaries of the grant date.
• Both performance shares and RSUs are subject to forfeiture conditions, including termination of employment before vesting.
• The agreement includes confidentiality provisions and restrictions on competitive employment and solicitation of employees and customers.
• For 2023, Harley-Davidson reported net income of $706.6 million, or $4.87 per diluted share, compared to $741.4 million, or $4.96 per diluted share, in 2022.
• The company expects HDMC revenue to be flat to down 9% in 2024, with wholesale unit shipments down between 1% and 10%.
• LiveWire is expected to sell 1,000 to 1,500 units in 2024, with an operating loss of $115 million to $125 million.
• HDFS operating income is expected to be flat to up 5% in 2024.

Sentiment

Score: 6

Explanation: While the company achieved profitability and is returning capital to shareholders through dividends and share repurchases, the decline in net income, retail sales, and market share, coupled with ongoing supply chain challenges and regulatory uncertainties, warrants a cautious outlook.

Positives

• Performance-based incentives align employee goals with company performance.
• The TSR modifier encourages focus on shareholder value creation.
• RSU vesting schedule promotes employee retention.
• Confidentiality and non-compete provisions protect company interests.

Negatives

• Performance share vesting is contingent upon achieving performance goals, which may not be met.
• The TSR modifier can negatively impact vesting if HDI underperforms its peer group.
• RSUs are forfeited if employment terminates before the vesting date.
• The restrictions on competitive employment and solicitation may limit career opportunities for former employees.

Risks

• Failure to achieve performance goals may demotivate employees and impact retention.
• Underperformance relative to the peer group could lead to lower than expected payouts for performance shares.
• The confidentiality and non-compete provisions may be challenged in court.
• The company faces risks related to supply chain disruptions, macroeconomic conditions, and competition in the motorcycle and electric vehicle markets.

Future Outlook

Harley-Davidson expects a challenging economic environment in 2024, with flat to declining revenue in the HDMC segment and continued losses for LiveWire. However, HDFS operating income is expected to stabilize and potentially grow. The company plans to continue investing in product development and cost reduction initiatives.

Management Comments

• The Hardwire is the Company's 2021-2025 strategic plan guided by its mission and vision, which the Company introduced on February 2, 2021.
• The plan targets long-term profitable growth through focused efforts that extend and strengthen the brand and drive value for its shareholders.
• The Company's ambition is to enhance its position as the most desirable motorcycle brand in the world.

Industry Context

The motorcycle industry is highly competitive and subject to changing consumer preferences, technological advancements, and increasing regulations. Harley-Davidson faces competition from both established motorcycle manufacturers and emerging electric vehicle companies. The electric vehicle market is rapidly evolving, with increasing competition and regulatory uncertainty.

Comparison to Industry Standards

• In 2023, Harley-Davidson's U.S. market share of new 601+cc motorcycles was 37.9%, down 3.3 percentage points compared to 2022.
• In Europe, Harley-Davidson's market share of new 601+cc motorcycles was 4.8%, down 1.3 percentage points compared to 2022.

Legal Proceedings

• The company is involved in legal proceedings related to product, commercial, employee, environmental, and other matters, as discussed in Note 15 of the Notes to Consolidated Financial Statements.

Stakeholder Impact

• Shareholders may be impacted by the decline in net income and share price.
• Employees may be impacted by performance-based compensation and potential restructuring efforts.
• Customers may be impacted by product recalls and pricing adjustments.
• Dealers may be impacted by changing retail sales and inventory levels.

Next Steps

• The company will continue to execute on The Hardwire strategy, focusing on profitable growth, electric vehicle leadership, and enhancing the customer experience.
• Harley-Davidson will continue to monitor and address the regulatory compliance matter related to brake hose assemblies.
• The company plans to invest in product development, manufacturing enhancements, and LiveWire.

Key Dates

Keywords

Harley-Davidson, Incentive Stock Plan, Performance Shares, Restricted Stock Units, Executive Compensation, Employee Benefits, Corporate Governance, Financial Results, Motorcycle Industry, Electric Vehicles