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 ofJuly 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 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 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 ofApril 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. 46
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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 . 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, TheHardwire , 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 47
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Table of Contents 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 inNorth America ,Europe and parts ofAsia 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. 48
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