Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company
(HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context
otherwise requires, all references to the "Company" include Harley-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 ended December 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 of April 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 in March 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 on January 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 the U.S., compared to the prior year first quarter. As of
April 2020 approximately 59% of the independent dealer network was closed for
motorcycle sales. Month-to-date retail sales through late-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.

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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 on
March 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
from August 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 in March 2020. In support
of relief efforts, the Harley-Davidson Foundation donated $150,000 to the United
Way's COVID-19 relief fund. Also, through its "United We Will 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 Plan
The 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 ended December 31, 2019), but
will focus more on
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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 the U.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.
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