Harley-Davidson, Inc. is the parent company ofHarley-Davidson Motor Company (HDMC) andHarley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the "Company" includeHarley-Davidson, Inc. and all of its subsidiaries. The Company operates in two segments: Motorcycles and Related Products (Motorcycles) and Financial Services. The "% Change" figures included in the Results of Operations sections were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented. (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" or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption "Cautionary Statements" in this Item 2 and in Item 1A. Risk Factors, as well as in Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 . Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the "Overview" and "Outlook" sections in this Item 2 are only made as ofApril 28, 2020 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (May 7, 2020 ), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Overview(1) During the first quarter of 2020, the Company's operations and financial results and independent dealer retail sales results were significantly hindered as consumer and governmental concerns over a novel strain of coronavirus (COVID-19) spread throughout most of the Company's worldwide markets. The Company's net income was$69.7 million , or$0.45 per diluted share, in the first quarter of 2020, compared to$127.9 million , or$0.80 per diluted share, in the first quarter of 2019. Operating income from the Motorcycles segment decreased$23.8 million compared to the prior year first quarter behind a 10% decline in wholesale motorcycle shipments. Motorcycles segment shipments and revenue were down in the first quarter compared to the prior year reflecting the Company's temporary suspension of its global manufacturing operations inMarch 2020 and lower demand resulting from the COVID-19 pandemic. Motorcycles segment operating income was also impacted by unfavorable foreign currency, partially offset by favorable manufacturing costs and the positive impact of not incurring restructuring expenses in 2020. Operating income from the Financial Services segment in the first quarter of 2020 was$22.9 million , down 60.9% compared to the year-ago quarter due primarily to a higher provision for credit losses, partially offset by an increase in net interest income. The provision for credit losses was adversely affected by the impact of the COVID-19 pandemic and also reflects the impact of a new accounting standard that changes how companies recognize expected credit losses on financial instruments. The new standard requires recognition of full lifetime expected credit losses upon initial recognition of a financial instrument, replacing the prior, incurred loss methodology. The Company adopted the new accounting standard onJanuary 1, 2020 using a modified retrospective approach. As a result, prior period results were not restated. Worldwide independent dealer retail sales of new Harley-Davidson motorcycles in the first quarter of 2020 were down 17.7% compared to the first quarter of 2019. During the first quarter of 2020, worldwide retail sales results started strong compared to the prior year, but were significantly hindered by the impact of the COVID-19 pandemic as it spread throughout most of the Company's markets. During the first quarter of 2020, retail sales were down 20.7% in international markets and down 15.5% in theU.S. , compared to the prior year first quarter. As ofApril 2020 approximately 59% of the independent dealer network was closed for motorcycle sales. Month-to-date retail sales throughlate-April 2020 were down compared to the prior year in line with the percentage of dealers closed for motorcycle sales, suggesting that open dealers are selling at year-ago levels. 42
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Table of Contents Outlook(1) As a result of the uncertainty surrounding the magnitude and duration of the COVID-19 pandemic, the Company withdrew all of its forward-looking guidance onMarch 26, 2020 . The Company's operations and demand for its products have already been adversely impacted as a result of the COVID-19 pandemic. While the impact on demand, facility closures and other restrictions are expected to be temporary, the duration and financial impact to the Company are unknown at this time. To the extent these impacts continue, they will have an adverse effect on the Company's results of operations, financial condition and liquidity. COVID-19 Response and Recovery Actions(1) The Company is executing a plan to address the impacts of the COVID-19 pandemic and to begin its recovery through a multitude of recent actions across the following areas: Cash Preservation - The Company has reduced planned capital and planned non-capital spending across every part of the organization through actions including freezing hiring, temporarily reducing salaries and eliminating merit compensation increases for employees in 2020. The Company also implemented other aggressive cost management efforts such as re-timing the model year change-over fromAugust 2020 to the first quarter of 2021. In total, the Company expects that its efforts to reduce spending will preserve approximately$250 million of cash in 2020, including approximately 15% related to capital spending. Also, the Company has suspended discretionary share repurchases, and the Company's Board of Directors approved a cash dividend of$0.02 per share for the second quarter of 2020, down from the amount of the first quarter 2020 dividend of$0.38 per share. Liquidity - At the end of the first quarter of 2020, the Company had cash, cash equivalents and availability under its credit and conduit facilities of$2.47 billion and remains compliant with all covenants under its debt agreements. Subsequent to the end of the first quarter, the Company secured additional liquidity as discussed in more detail under Liquidity and Capital Resources. Supporting Dealers and Riders - The Company is helping ease the burden of the COVID-19 pandemic on its independent dealers by providing support based on the unique needs of each region, including financial support for dealer motorcycle inventory, extending credit payment due dates on parts & accessories and general merchandise and adjusting dealer requirements for warranty and training. The Company also offered dealer discounts on certain general merchandise products and is engaging with dealership staff via live chat sessions to share unique ways to stay connected during the COVID-19 crisis. To support retail consumers, many dealers remain open for service support, and the Company continues to sell parts & accessories and general merchandise online. In addition, the Company is working with dealers to offer home delivery of new motorcycles in states and countries where it is permitted. HDFS is also working with retail borrowers who have been impacted by the COVID-19 pandemic. In certain situations, HDFS may offer short-term adjustments to customer payment due dates without affecting the associated interest rate or loan term. Community Strength - The Company acted quickly and in alignment with government efforts to protect the safety and health of its employees and the Harley-Davidson community. The Company implemented travel restrictions, enhanced sanitation practices, cancelled events and closed facilities including temporarily suspending global manufacturing starting inMarch 2020 . In support of relief efforts, theHarley-Davidson Foundation donated$150,000 to theUnited Way's COVID-19 relief fund. Also, through its "United WeWill Ride " efforts, the Company is connecting riders who want to help provide relief through food drives, blood donations and other ways to make a difference in their communities. Recovery - As the Company focuses on recovery efforts for the business, it has prepared and started implementing rigorous protocols and procedures for employee safety and is working with its supply chain to be ready to resume operations. While the impact of the COVID-19 pandemic continues to evolve, the Company has restarted some manufacturing operations and will gradually ease work-at-home restrictions at the appropriate time, which will vary by region. Reevaluating the Business and Strategic PlanThe Company is executing a set of actions, referred to as The Rewire, that will be further developed over the coming months, leading to a new strategic plan. The Rewire will address top priority opportunities, drive consistent execution and reset the Company's operating model to reduce complexity, sharpen focus and increase the speed of decision making. The Company expects The Rewire actions, those already taken and those that will be implemented over the coming months, to lead to the definition of a new 5-year strategic plan that will incorporate key products and initiatives from the More Roads plan (discussed in the Company's Annual Report Form 10-K for the period endedDecember 31, 2019 ), but will focus more on 43
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Table of Contents the markets and products that can drive performance through profitability and long-term growth. Key elements of The Rewire include: Enhance core strengths and better balance expansion into new spaces •Return focus to the strength of the brand and the Company, starting with dealers, customers, stronghold products and committed employees globally. •Re-evaluate strategies to reach new riders and build ridership. Prioritize the markets that matter •Narrow focus and invest in the markets, products and customer segments that offer the most profit and potential. This includes building on Harley-Davidson's strong position in theU.S. •Establish a simplified market coverage model and take cost out of the process. Reset product launches and product line up for simplicity and maximum impact •Continue to be guided by the voice of customers and dealers to optimize value and profit delivery. •Simplify and retime launches to reflect the new reality, align with the start of the riding season and better suit the capacity of the Company and its independent dealers. •Expand profitable iconic motorcycles to excite existing customers. •Remain committed to Adventure Touring and Streetfighter motorcycles and advancing electric motorcycles. Build the parts & accessories (P&A) and general merchandise businesses to full potential •Develop a comprehensive strategy across P&A and general merchandise businesses that focuses on assortment and distribution opportunities, maximizes channels, improves ecommerce capabilities and grows revenue and margins for both the Company and dealers. •Align P&A and general merchandise strategies with motorcycle strategy for a holistic presentation to the market. Adjust and align the organizational structure, cost structure and operating model to reduce complexity and drive efficiency to set Harley-Davidson up for stability and success •Create a framework including an organization that is more focused, profitable and nimble; a cost structure that is adjusted to the new realities of the market post crisis; and an operating model designed to increase empowerment and accountability. •Establish commercially led central and new regional structures to gain a deeper understanding of customers and to return focus to dealers and selling. •Elevate the role of the Company's motorcycle management team and sharpen marketing strategy and execution to enable a bigger impact with an improved go-to-market process. Each of these key elements of The Rewire playbook includes actions that have been implemented or are currently being developed. The Company plans to share more about The Rewire later in 2020. 44
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