Harley-Davidson, Inc. is the parent company of the group of companies referred to asHarley-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 ofOctober 27, 2020 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (November 5, 2020 ), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Overview(1) The Company's net income was$120.2 million , or$0.78 per diluted share, in the third quarter of 2020, compared to$86.6 million , or$0.55 per diluted share, in the third quarter of 2019. The Motorcycles segment reported operating income of$46.7 million for the third quarter of 2020 which was down slightly from$47.0 million for the third quarter of 2019. Current year operating income was impacted by a 6.2% decline in wholesale motorcycle shipments, unfavorable product mix and higher restructuring expenses which were mostly offset by lower manufacturing costs and reduced selling, administrative and engineering expenses. Operating income from the Financial Services segment in the third quarter of 2020 was$91.1 million , up 25.1% compared to the year-ago quarter due primarily to a lower provision for credit losses and lower operating expenses. The provision for credit losses benefited from lower credit losses and a modest improvement in the Company's outlook on economic conditions during the third quarter of 2020. The current year provision also reflects 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 third quarter of 2020 were down 8.1% compared to the third quarter of 2019, due primarily to a 10.3% decline in theU.S. The Company believesU.S. retail sales for the third quarter of 2020, compared to prior year, were adversely impacted by a shift in new model year launch timing from the third quarter to the first quarter. The Company believes its new approach to supply and inventory management also adversely impacted retail sales in theU.S. during the third quarter of 2020 compared to the third quarter of last year. Outlook(1) As a result of the uncertainty surrounding 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 resulting from the pandemic are expected to be temporary, the duration of the pandemic and its financial impact to the Company are unknown at this time. To the extent these impacts continue, they are likely to have an adverse effect on the Company's results of operations, financial condition and liquidity. 47
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Table of Contents COVID-19 Pandemic 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 impact of 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 approved a cash dividend of$0.02 per share for the fourth quarter of 2020, which was down from last year's fourth quarter, but in line with the 2020 second and third quarter dividends. Liquidity - At the end of the third quarter of 2020, the Company had$4.7 billion of available liquidity through cash, cash equivalents and availability under its credit and conduit facilities. Liquidity is discussed in more detail under Liquidity and Capital Resources. Supporting Dealers and Riders - The Company's response and recovery plans have included supporting global dealers and customers. HDFS continues to work with qualified retail borrowers who have been impacted by the COVID-19 pandemic by offering short-term adjustments to payment due dates. These temporary extensions do not affect 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 will continue working from home at least until the end of the year. The Rewire The Company is executing a set of actions, referred to as The Rewire. The Rewire is a critical overhaul of the Company's business setting a strong foundation for the Company. Key elements of The Rewire and highlights to date include the following: New operating model with reduced complexity and increased speed - The Company has implemented a new operating model to eliminate duplication and complexity across its global operations. The streamlined structure requires 700 fewer positions across the Company's global operations and is expected to result in significant annual ongoing savings as discussed further under "Restructuring Plan Costs and Savings." 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 a high percentage of the Company's expected volume and growth potential. The Company's international business has been significantly re-set and re-focused with investment and resources aligned with projected market potential. The 36 highest potential markets will remain with the resources and autonomy, within a clearly defined framework, to best drive growth and profitability. Approximately 17 markets will remain as or transition to a cost-effective dealer-direct or distributor model. This includes theIndia market where the Company will wholesale it products through a third-party distributor in the future. The Company will exit approximately 39 markets due to volume, profitability or potential that does not support continued investment. Refined motorcycle line-up and high-impact product launches - The Company has streamlined its planned product portfolio by approximately 30% and overhauled launch timing and go-to-market practices for maximum impact and success. Highlights of the new approach include: •Further streamlining the product portfolio to reduce complexity •Sharper focus - reducing complexity and directing resources toward highest priority and core, stronghold products •Seasonal alignment - plans underway for a virtual, new model year launch for dealers and consumers in the first quarter (shifted annual model year launch from August to the first quarter to be closer to the start of the riding season) •Marketing that drives desirability - the Company has executed new marketing campaigns featuring celebrities, generating significant leads and growing awareness, excitement and desirability for the Harley-Davidson brand and products Growth through Parts & Accessories (P&A) and General Merchandise (GM) - The P&A andGM businesses are now organized around dedicated leaders and business units with strategies poised for new growth as the Company invests in new channel strategies and better product assortments. 48
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Table of Contents Protecting value - The Company is operating with a remodeled approach to supply and inventory management with a focus on a strong dealer network to better preserve the value and desirability of Harley-Davidson motorcycles for customers. Some initial outcomes of this approach include: •A reduced gap between new and used Harley-Davidson motorcycles pricing in theU.S. during the third quarter of 2020 •Global dealer inventory reduced over 30% at the end ofSeptember 2020 compared to the same time last year •Essentially eliminated promotions and discounting with a focus on brand building in the third quarter of 2020 The Company is seeking to optimize its dealer network and believes an integrated customer experience driven by a strong network of profitable dealers is essential to delivering the most desirable Harley-Davidson experience. The Company reduced its global dealer network during the first nine months of 2020 and continues to seek to optimize its network of independent dealers to strengthen priority markets and provide and improve the customer experience. TheHardwire TheHardwire is the Company's forthcoming 5-year (2021-2025) strategic plan to deliver profitable, growth and shareholder value based on building and expanding the desirability of Harley-Davidson. The following is an initial look at the framework for TheHardwire : TheHardwire will be guided by Harley-Davidson's vision and mission. •Vision: To build on its legend and lead its industry through innovation, evolution and emotion •Mission: More than building machines, we stand for the timeless pursuit of adventure. Freedom for the soul. Both statements will keep the Company grounded in its authentic brand delivering adventure and freedom for the soul. Harley-Davidson as the most desirable motorcycle brand in the world and the Company that defines motorcycle culture globally is the basis of TheHardwire . Desirability provides the framework for the Company's work and for its success measures. TheHardwire framework will be organized around desirable: •Growth strategy for motorcycles, P&A andGM in priority markets •Customer focus inclusive of distinct products, brand and purchase experiences •Operations that are high-performance, lean and efficient •Impact with emphasis on inclusive stakeholder management and delivering long-term value •Workplace that is diverse, inclusive and built around top talent rooted in a high-performance, winning culture Desirability will also help define success measures. Through TheHardwire , the Company will target growth that is focused and profitable across the businesses, rooted in a clear understanding of sources of growth associated with value. The Company intends to set achievable targets and it will not pursue growth merely for growth sake. The Company believes its brand is powerful and recognized globally - backed by an incredible heritage and iconic products. The Rewire will set a strong foundation to execute the Company's forthcoming 2021-2025 strategic plan to achieve its ambition as the most desirable motorcycle brand in the world. Restructuring Plan Costs and Savings(1) During 2020, the Company initiated certain restructuring activities as part of The Rewire including a workforce reduction, the termination of certain current and future products, facility changes, optimizing its global independent dealer network, exiting certain international markets, and discontinuing its sales and manufacturing operations inIndia . 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. In addition, theIndia action will result in the termination of approximately 70 employees. Based on these actions, the Company expects restructuring expenses of approximately$169 million , primarily in 2020, and annual savings of approximately$115 million beginning in 2021. 49
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