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 July 28, 2020 and the remaining forward-looking statements in
this report are made as of the date of the filing of this report (August 6,
2020), and the Company disclaims any obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
Overview(1)
During the second quarter of 2020, the Company's operations and financial
results were adversely impacted by the COVID-19 pandemic. The Company incurred a
net loss of $92.2 million, or $0.60 per diluted share, in the second quarter of
2020, compared to net income of $195.6 million, or $1.23 per diluted share, in
the second quarter of 2019. The Motorcycles segment reported an operating loss
of $121.0 million, down $301.8 million from operating income of $180.7 million
for the second quarter of 2019. The current year operating loss was due
primarily to a 58.7% decline in wholesale motorcycle shipments reflecting the
suspension of global manufacturing during the quarter resulting from the
COVID-19 pandemic. Motorcycles segment operating results were also impacted by
unfavorable foreign currency, unfavorable manufacturing costs and higher
restructuring expenses, partially offset by lower selling, administrative and
engineering expenses.
Operating income from the Financial Services segment in the second quarter of
2020 was $4.9 million, down 93.5% compared to the year-ago quarter due primarily
to a higher provision for credit losses and higher interest expense. The
provision for credit losses was adversely affected by unfavorable economic
conditions and also reflects the impact of a new accounting standard that
changed 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 second quarter of 2020 were down 26.6% compared to the second quarter of
2019 reflecting the adverse impact of the COVID-19 pandemic throughout most of
the Company's markets. At the end of April 2020, nearly 60% of the Company's
independent global dealer network was closed. Independent dealers began to
re-open toward the end of May and into early June resulting in a sequential
improvement in the retail sales rate within the second quarter of 2020. By the
end of the second quarter of 2020, 93% of global dealers had resumed normal
operations.

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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. While the impacts 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)
Cash Preservation - The Company is executing its previously disclosed plans to
reduce planned capital and planned non-capital spending. In total, the Company
continues to expect that these efforts will preserve approximately $250 million
of cash in 2020 with approximately 15% related to capital spending. The planned
spending reductions exclude the restructuring charges as discussed further under
"Restructuring Plan Costs and Savings." Also, discretionary share repurchases
continue to be suspended, and the Company's Board of Directors has approved a
cash dividend of $0.02 per share for the third quarter of 2020, in line with the
second quarter 2020 dividend.
Liquidity - The Company has further strengthened its liquidity position during
the second quarter of 2020. At the end of the second quarter of 2020, the
Company had cash, cash equivalents and availability under its credit and conduit
facilities of $4.7 billion. Liquidity is discussed in more detail under
Liquidity and Capital Resources.
Supporting Dealers and Riders - The Company's response and recovery plans
include supporting global dealers and customers. Throughout the second quarter
of 2020, the Company helped 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. HDFS is also working
with retail borrowers who have been impacted by the COVID-19 pandemic by
offering short-term adjustments to customer payment due dates without affecting
the associated interest rate or loan term.
Community Strength - The Company continues to proactively manage through the
COVID-19 pandemic and has implemented robust protocols to keep workers safe in
its factories. The Company expects most non-production workers to continue
working from home until the end of the year.
The Rewire
The Company is executing a set of actions, referred to as The Rewire. The Rewire
is expected to continue through the end of 2020, leading to a first look at the
Company's 2021-2025 strategic plan, The Hardwire, which the Company intends to
disclose sometime in the fourth quarter of 2020. Building on the foundation and
principles of The Rewire, the driver of the new plan will be Harley-Davidson as
the most desirable motorcycle brand in the world for its customers, employees,
community and investors. Key elements of The Rewire and progress to date include
following:
New operating model with reduced complexity and increased speed - The Company is
making substantial changes to its operating model under The Rewire affecting all
areas of the business globally, from commercial operations to center-led support
functions. Significant work has been undertaken to eliminate duplication,
inefficiencies and complexity throughout the organization. As previously
announced, the streamlined structure requires 700 fewer positions across the
Company's global operations.
Refined motorcycle line-up and high-impact product launches - The Company plans
to rewire its product offering to more precisely match customer desires and to
strengthen the value of its products. The Company also plans to improve product
timing and go-to-market plans to achieve the greatest market impact. Highlights
of these plans include:
•Streamlining planned motorcycle models by approximately 30 percent; balancing
investments between current stronghold categories and new, high-potential
segments
•Expanding product offerings of its best-selling, iconic motorcycles
•Delivering its first Adventure Touring motorcycle - Pan America 1250 - in 2021
•Shifting annual product launch timing from August to early in the first quarter
•Reinvigorating launch efforts including collaborations with key influencers to
bring the brand and new products to life and drive brand desirability
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Growth through Parts & Accessories and General Merchandise - The Company is
intensifying focus on its Parts & Accessories (P&A) and General Merchandise
businesses, encouraging customers to customize their entire riding experience to
match their own style. Now part of a new Commercial function, new leadership has
designed strategies for each business aligned to the Company's motorcycle and
market priorities with the goal of delivering a holistic experience in the
marketplace. The Company expects to reduce the number of P&A product SKUs it
offers by at least 15%. Similarly, to enhance focus and reduce complexity, the
Company expects SKU reductions in General Merchandise of at least 25%.
Reset global business and focus on high-potential markets - The Company plans to
concentrate on approximately 50 markets primarily in North America, Europe and
parts of Asia Pacific that represent the vast majority of the Company's volume
and growth potential. The Company is evaluating plans to exit international
markets where volumes and profitability do not support continued investment in
line with the future strategy.
The Company also plans to shift resources and marketing investments into the
regions for maximum impact. As part of this effort, the Company has streamlined
regional offices and created new groups of high potential countries that will
have the autonomy, within a clearly defined framework, to drive the business.
Additionally, the Company plans to optimize its dealer network to provide an
improved and integrated customer experience.
Protecting value - The Company has revamped its approach to its supply and
inventory management focusing on products and initiatives that add value, while
significantly reducing discounting and price promotions. The Company expects
this to continue to drive retail pricing to preserve the value and desirability
of Harley-Davidson motorcycles for its customers.
All of the above efforts of The Rewire aim to provide a better starting point
for the future and to build desirability for the Harley-Davidson brand and
products.
Restructuring Plan Costs and Savings(1)
The Company has initiated certain restructuring activities as part of The Rewire
including a workforce reduction, the termination of certain current and future
products, and facility changes. These actions will result in restructuring
expenses including employee termination costs, contract termination costs and
non-current asset adjustments. The workforce reduction will result in the
elimination of approximately 700 positions globally, including the termination
of approximately 500 employees. Based on these actions, which were initiated
both during and subsequent to the second quarter of 2020, the Company expects
restructuring expenses of approximately $94 million in 2020, including $44
million related to actions initiated after the second quarter, and annual
savings of approximately $115 million, including $15 million related to actions
initiated after the second quarter. Annual savings are expected to begin in
2021.
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