Annual Statements Open main menu
  1. Annual Statements
  2. » Companies
  3. » HARLEY-DAVIDSON, INC.
  4. » Quarter Report: 2015 June (Form 10-Q)

HARLEY-DAVIDSON, INC. - Quarter Report: 2015 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2015
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number 1-9183
 
 
Harley-Davidson, Inc.
(Exact name of registrant as specified in its charter)
 
Wisconsin
 
39-1382325
(State of organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3700 West Juneau Avenue
Milwaukee, Wisconsin
 
53208
(Address of principal executive offices)
 
(Zip code)
Registrants telephone number: (414) 342-4680
None
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x   No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
Accelerated filer
 
¨
 
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x
Number of shares of the registrant’s common stock outstanding at July 31, 2015: 205,966,792 shares


Harley-Davidson, Inc.

Form 10-Q

For The Quarter Ended June 28, 2015
 
Part I
 
 
 
Item 1.
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
HARLEY-DAVIDSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
Three months ended
 
Six months ended
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
1,650,783

 
$
1,834,285

 
$
3,161,353

 
$
3,405,973

Financial Services
173,609

 
166,414

 
335,984

 
320,774

Total revenue
1,824,392

 
2,000,699

 
3,497,337

 
3,726,747

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
1,003,569

 
1,110,146

 
1,923,864

 
2,089,703

Financial Services interest expense
41,188

 
40,741

 
79,724

 
79,598

Financial Services provision for credit losses
15,175

 
15,961

 
41,422

 
36,292

Selling, administrative and engineering expense
301,944

 
286,156

 
579,693

 
562,577

Total costs and expenses
1,361,876

 
1,453,004

 
2,624,703

 
2,768,170

Operating income
462,516

 
547,695

 
872,634

 
958,577

Investment income
1,450

 
1,772

 
2,772

 
3,431

Interest expense
9

 
393

 
18

 
4,070

Income before provision for income taxes
463,957

 
549,074

 
875,388

 
957,938

Provision for income taxes
164,147

 
194,921

 
305,724

 
337,868

Net income
$
299,810

 
$
354,153

 
$
569,664

 
$
620,070

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
1.44

 
$
1.63

 
$
2.72

 
$
2.84

Diluted
$
1.44

 
$
1.62

 
$
2.71

 
$
2.82

Cash dividends per common share
$
0.310

 
$
0.275

 
$
0.620

 
$
0.550

The accompanying notes are an integral part of the consolidated financial statements.


3
Table of Contents

HARLEY-DAVIDSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three months ended
 
Six months ended
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Net income
$
299,810

 
$
354,153

 
$
569,664

 
$
620,070

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
     Foreign currency translation adjustments
4,251

 
5,733

 
(22,770
)
 
8,681

     Derivative financial instruments
(13,286
)
 
3,150

 
(2,214
)
 
2,923

     Marketable securities
(128
)
 
(74
)
 
(195
)
 
(116
)
     Pension and postretirement benefit plans
8,798

 
6,069

 
17,596

 
12,137

Total other comprehensive (loss) income, net of tax
$
(365
)
 
$
14,878

 
$
(7,583
)
 
$
23,625

Comprehensive income
$
299,445

 
$
369,031

 
$
562,081

 
$
643,695

The accompanying notes are an integral part of the consolidated financial statements.



4
Table of Contents

HARLEY-DAVIDSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
June 28,
2015
 
December 31,
2014
 
June 29,
2014
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
1,247,579

 
$
906,680

 
$
999,346

Marketable securities
52,516

 
57,325

 
57,814

Accounts receivable, net
277,569

 
247,621

 
289,940

Finance receivables, net
2,331,723

 
1,916,635

 
2,281,512

Inventories
395,044

 
448,871

 
371,597

Restricted cash
136,760

 
98,627

 
154,681

Deferred income taxes
94,778

 
89,916

 
90,348

Other current assets
160,421

 
182,420

 
128,460

Total current assets
4,696,390

 
3,948,095

 
4,373,698

Finance receivables, net
4,816,772

 
4,516,246

 
4,537,405

Property, plant and equipment, net
873,007

 
883,077

 
826,467

Prepaid pension costs
—

 
—

 
256,279

Goodwill
26,105

 
27,752

 
30,252

Deferred income taxes
66,755

 
77,835

 
2,915

Other long-term assets
85,843

 
75,092

 
49,280

 
$
10,564,872

 
$
9,528,097

 
$
10,076,296

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
407,636

 
$
196,868

 
$
388,342

Accrued liabilities
448,737

 
449,317

 
500,769

Short-term debt
114,983

 
731,786

 
619,622

Current portion of long-term debt
1,551,368

 
1,011,315

 
944,915

Total current liabilities
2,522,724

 
2,389,286

 
2,453,648

Long-term debt
4,560,349

 
3,761,528

 
3,794,396

Pension liability
66,786

 
76,186

 
38,174

Postretirement healthcare liability
196,369

 
203,006

 
209,312

Deferred income taxes
—

 
—

 
38,919

Other long-term liabilities
195,017

 
188,805

 
175,587

Commitments and contingencies (Note 16)

 

 

Shareholders’ equity:
 
 
 
 
 
Preferred stock, none issued
—

 
—

 
—

Common stock
3,448

 
3,442

 
3,439

Additional paid-in-capital
1,304,855

 
1,265,257

 
1,231,913

Retained earnings
8,898,959

 
8,459,040

 
8,352,168

Accumulated other comprehensive loss
(522,526
)
 
(514,943
)
 
(309,051
)
Treasury stock, at cost
(6,661,109
)
 
(6,303,510
)
 
(5,912,209
)
Total shareholders' equity
3,023,627

 
2,909,286

 
3,366,260

 
$
10,564,872

 
$
9,528,097

 
$
10,076,296




5
Table of Contents

HARLEY-DAVIDSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
June 28,
2015
 
December 31,
2014
 
June 29,
2014
Balances held by consolidated variable interest entities (Note 5)
 
 
 
 
 
Current finance receivables, net
$
409,198

 
$
312,645

 
$
359,085

Other assets
$
3,067

 
$
3,409

 
$
2,521

Non-current finance receivables, net
$
1,740,420

 
$
1,113,801

 
$
1,495,171

Restricted cash - current and non-current
$
149,418

 
$
110,017

 
$
141,146

Current portion of long-term debt
$
462,008

 
$
366,889

 
$
403,891

Long-term debt
$
1,555,071

 
$
904,644

 
$
1,308,964

The accompanying notes are an integral part of the consolidated financial statements.

6
Table of Contents

HARLEY-DAVIDSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six months ended
 
June 28,
2015
 
June 29,
2014
Net cash provided by operating activities (Note 3)
$
613,944

 
$
570,592

Cash flows from investing activities:
 
 
 
Capital expenditures
(85,180
)
 
(74,523
)
Origination of finance receivables
(1,976,563
)
 
(1,904,577
)
Collections on finance receivables
1,570,431

 
1,518,186

Sales and redemptions of marketable securities
4,500

 
41,010

Other
5,111

 
145

Net cash used by investing activities
(481,701
)
 
(419,759
)
Cash flows from financing activities:
 
 
 
Repayments of senior unsecured notes
—

 
(303,000
)
Proceeds from issuance of medium-term notes
595,386

 
—

Repayments of medium-term notes
—

 
(7,220
)
Proceeds from securitization debt
1,195,668

 
847,126

Repayments of securitization debt
(454,332
)
 
(393,655
)
Net decrease in credit facilities and unsecured commercial paper
(616,586
)
 
(48,134
)
Borrowings of asset-backed commercial paper
40,209

 
36,800

Repayments of asset-backed commercial paper
(35,730
)
 
(37,317
)
Net change in restricted cash
(40,159
)
 
(9,874
)
Dividends paid
(129,745
)
 
(120,631
)
Purchase of common stock for treasury
(358,425
)
 
(223,736
)
Excess tax benefits from share-based payments
2,401

 
8,652

Issuance of common stock under employee stock option plans
15,664

 
27,907

Net cash provided by (used by) financing activities
214,351

 
(223,082
)
Effect of exchange rate changes on cash and cash equivalents
(5,695
)
 
4,983

Net increase (decrease) in cash and cash equivalents
$
340,899

 
$
(67,266
)
Cash and cash equivalents:
 
 
 
Cash and cash equivalents—beginning of period
$
906,680

 
$
1,066,612

Net increase (decrease) in cash and cash equivalents
340,899

 
(67,266
)
Cash and cash equivalents—end of period
$
1,247,579

 
$
999,346

The accompanying notes are an integral part of the consolidated financial statements.


7
Table of Contents

HARLEY-DAVIDSON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Use of Estimates
The condensed consolidated financial statements include the accounts of Harley-Davidson, Inc. and its wholly-owned subsidiaries (the Company), including the accounts of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). In addition, certain variable interest entities (VIEs) related to secured financing are consolidated as the Company is the primary beneficiary. All intercompany accounts and material intercompany transactions are eliminated.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the condensed consolidated balance sheets as of June 28, 2015 and June 29, 2014, the condensed consolidated statements of income for the three and six month periods then ended, the condensed consolidated statements of comprehensive income for the three and six month periods then ended and the condensed consolidated statements of cash flows for the six month periods then ended.
Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
The Company operates in two principal reportable segments: Motorcycles & Related Products (Motorcycles) and Financial Services.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
2. New Accounting Standards
Accounting Standards Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 Revenue from Contracts with Customers (ASU No. 2014-09). ASU No. 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB decided to defer the effective date of the new revenue recognition standard by one year to fiscal years beginning after December 15, 2017 and for interim periods therein. The Company is currently evaluating the impact of adoption.
In February 2015, the FASB issued ASU No. 2015-02 Amendments to the Consolidation Analysis (ASU 2015-02). ASU No. 2015-02 amends the guidance within Accounting Standards Codification (ASC) Topic 810, "Consolidation,” to change the analysis that a reporting entity must perform to determine whether it should consolidate certain legal entities. The Company is required to adopt ASU No, 2015-02 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company believes the adoption of ASU No. 2015-02 will not have an impact on its financial results and will only impact the content of the current disclosure.
In April 2015, the FASB issued ASU No. 2015-03 Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU No. 2015-03 amends the guidance within ASC Topic 835, "Interest", to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt premiums and discounts. The Company is required to adopt ASU No, 2015-03 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015 on a retrospective basis. Upon adoption, the Company will reclassify its debt issuance costs from other assets to debt on the balance sheet. At June 28, 2015, the Company had $18.4 million of debt issuance costs recorded as assets on the balance sheet.


8
Table of Contents

3. Additional Balance Sheet and Cash Flow Information
Marketable Securities
The Company’s marketable securities consisted of the following (in thousands):
 
June 28,
2015
 
December 31,
2014
 
June 29,
2014
Available-for-sale: Corporate bonds
$
52,516

 
$
57,325

 
$
57,814

Trading securities: Mutual funds
37,698

 
33,815

 
33,567

 
$
90,214

 
$
91,140

 
$
91,381

The Company’s available-for-sale securities are carried at fair value with any unrealized gains or losses reported in other comprehensive income. During the first half of 2015 and 2014, the Company recognized gross unrealized losses of approximately $310,000 and $184,000, respectively, or $195,000 and $116,000 net of taxes, respectively, to adjust amortized cost to fair value. The marketable securities have contractual maturities that generally come due over the next 3 to 22 months.
The Company's trading securities relate to investments held by the Company to fund certain deferred compensation obligations. The trading securities are carried at fair value with gains and losses recorded in net income and investments are included in other long-term assets on the consolidated balance sheets.
Inventories
Inventories are valued at the lower of cost or market. Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist of the following (in thousands):
 
June 28,
2015
 
December 31,
2014
 
June 29,
2014
Components at the lower of FIFO cost or market
 
 
 
 
 
Raw materials and work in process
$
137,151

 
$
151,254

 
$
118,720

Motorcycle finished goods
186,326

 
230,309

 
179,314

Parts and accessories and general merchandise
121,469

 
117,210

 
122,289

Inventory at lower of FIFO cost or market
444,946

 
498,773

 
420,323

Excess of FIFO over LIFO cost
(49,902
)
 
(49,902
)
 
(48,726
)
 
$
395,044

 
$
448,871

 
$
371,597


9
Table of Contents

Operating Cash Flow
The reconciliation of net income to net cash provided by operating activities is as follows (in thousands):
 
Six months ended
 
June 28,
2015
 
June 29,
2014
Cash flows from operating activities:
 
 
 
Net income
$
569,664

 
$
620,070

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
93,640

 
87,123

Amortization of deferred loan origination costs
47,524

 
45,713

Amortization of financing origination fees
4,820

 
4,284

Provision for employee long-term benefits
24,635

 
16,854

Contributions to pension and postretirement plans
(12,725
)
 
(14,035
)
Stock compensation expense
16,734

 
20,768

Net change in wholesale finance receivables related to sales
(418,969
)
 
(510,200
)
Provision for credit losses
41,422

 
36,292

Loss on debt extinguishment
—

 
1,145

Deferred income taxes
(1,195
)
 
(3,894
)
Foreign currency adjustments
11,041

 
(5,084
)
Other, net
(1,964
)
 
9,332

Changes in current assets and liabilities:
 
 
 
Accounts receivable, net
(43,309
)
 
(25,643
)
Finance receivables—accrued interest and other
(270
)
 
(993
)
Inventories
38,012

 
58,741

Accounts payable and accrued liabilities
232,357

 
226,233

Derivative instruments
1,185

 
968

Other
11,342

 
2,918

Total adjustments
44,280

 
(49,478
)
Net cash provided by operating activities
$
613,944

 
$
570,592

4. Finance Receivables
The Company provides retail financial services to customers of the Company’s independent dealers in the United States and Canada. The origination of retail loans is a separate and distinct transaction between the Company and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment sales contracts. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.
The Company offers wholesale financing to the Company’s independent dealers. Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada.
Finance receivables, net, consisted of the following (in thousands):
 
June 28,
2015
 
December 31,
2014
 
June 29,
2014
Retail
$
5,962,685

 
$
5,607,924

 
$
5,603,187

Wholesale
1,325,041

 
952,321

 
1,338,085

 
7,287,726

 
6,560,245

 
6,941,272

Allowance for credit losses
(139,231
)
 
(127,364
)
 
(122,355
)
 
$
7,148,495

 
$
6,432,881

 
$
6,818,917


10
Table of Contents

A provision for credit losses on finance receivables is charged or credited to earnings in amounts that the Company believes are sufficient to maintain the allowance for credit losses at a level that is adequate to cover losses of principal inherent in the existing portfolio. The allowance for credit losses represents management’s estimate of probable losses inherent in the finance receivable portfolio as of the balance sheet date. However, due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company could differ from the amounts estimated.
Changes in the allowance for credit losses on finance receivables by portfolio were as follows (in thousands):
 
Three months ended June 28, 2015
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
123,777

 
$
9,043

 
$
132,820

Provision for credit losses
16,890

 
(1,715
)
 
15,175

Charge-offs
(21,003
)
 
—

 
(21,003
)
Recoveries
12,239

 
—

 
12,239

Balance, end of period
$
131,903

 
$
7,328

 
$
139,231

 
Three months ended June 29, 2014
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
106,776

 
$
7,753

 
$
114,529

Provision for credit losses
16,258

 
(297
)
 
15,961

Charge-offs
(19,018
)
 
—

 
(19,018
)
Recoveries
10,883

 
—

 
10,883

Balance, end of period
$
114,899

 
$
7,456

 
$
122,355

 
Six months ended June 28, 2015
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
122,025

 
$
5,339

 
$
127,364

Provision for credit losses
39,433

 
1,989

 
41,422

Charge-offs
(53,736
)
 
—

 
(53,736
)
Recoveries
24,181

 
—

 
24,181

Balance, end of period
$
131,903

 
$
7,328

 
$
139,231

 
Six months ended June 29, 2014
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
106,063

 
$
4,630

 
$
110,693

Provision for credit losses
33,466

 
2,826

 
36,292

Charge-offs
(46,361
)
 
—

 
(46,361
)
Recoveries
21,731

 
—

 
21,731

Balance, end of period
$
114,899

 
$
7,456

 
$
122,355

Finance receivables are considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement. Portions of the allowance for credit losses are established to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance for credit losses covers estimated losses on finance receivables which are collectively reviewed for impairment.
The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes loss forecast models which consider a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates, and current economic conditions including items such as unemployment rates. Retail finance receivables are not evaluated individually for impairment prior to charge-off and therefore are not reported as impaired loans.
The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s evaluation for the wholesale allowance for credit losses is first based on a loan-by-loan review. A specific allowance for credit losses is established for wholesale finance receivables determined to be individually impaired when management concludes that the

11
Table of Contents

borrower will not be able to make full payment of the contractual amounts due based on the original terms of the loan agreement. The impairment is determined based on the cash that the Company expects to receive discounted at the loan’s original interest rate or the fair value of the collateral, if the loan is collateral-dependent. Finance receivables in the wholesale portfolio that are not considered impaired on an individual basis are segregated, based on similar risk characteristics, according to the Company’s internal risk rating system and collectively evaluated for impairment. The related allowance for credit losses is based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past loan loss experience, current economic conditions, and the value of the underlying collateral.
Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize the economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant.
The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, was as follows (in thousands):
 
June 28, 2015
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
131,903

 
7,328

 
139,231

Total allowance for credit losses
$
131,903

 
$
7,328

 
$
139,231

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
5,962,685

 
1,325,041

 
7,287,726

Total finance receivables
$
5,962,685

 
$
1,325,041

 
$
7,287,726

 
December 31, 2014
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
122,025

 
5,339

 
127,364

Total allowance for credit losses
$
122,025

 
$
5,339

 
$
127,364

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
5,607,924

 
952,321

 
6,560,245

Total finance receivables
$
5,607,924

 
$
952,321

 
$
6,560,245

 
June 29, 2014
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
114,899

 
7,456

 
122,355

Total allowance for credit losses
$
114,899

 
$
7,456

 
$
122,355

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
5,603,187

 
1,338,085

 
6,941,272

Total finance receivables
$
5,603,187

 
$
1,338,085

 
$
6,941,272

There were no wholesale finance receivables at June 28, 2015, December 31, 2014, or June 29, 2014 that were individually deemed to be impaired under ASC Topic 310, “Receivables.”
Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed or the receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until either

12
Table of Contents

collected or charged-off. Accordingly, as of June 28, 2015, December 31, 2014 and June 29, 2014, all retail finance receivables were accounted for as interest-earning receivables, of which $18.3 million, $28.7 million and $14.7 million, respectively, were 90 days or more past due.
Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Interest continues to accrue on past due finance receivables until the date the finance receivable becomes uncollectible and the finance receivable is placed on non-accrual status. The Company will resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured. While on non-accrual status, all cash received is applied to principal or interest as appropriate. Wholesale finance receivables are written down once management determines that the specific borrower does not have the ability to repay the loan in full. There were no wholesale receivables on non-accrual status at June 28, 2015, December 31, 2014 or June 29, 2014. At June 28, 2015, December 31, 2014 and June 29, 2014, $0.2 million, $0.2 million, and $0.03 million of wholesale finance receivables were 90 days or more past due and accruing interest, respectively.
An analysis of the aging of past due finance receivables was as follows (in thousands):
 
June 28, 2015
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,819,279

 
$
96,982

 
$
28,150

 
$
18,274

 
$
143,406

 
$
5,962,685

Wholesale
1,324,174

 
513

 
181

 
173

 
867

 
1,325,041

Total
$
7,143,453

 
$
97,495

 
$
28,331

 
$
18,447

 
$
144,273

 
$
7,287,726

 
December 31, 2014
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,427,719

 
$
113,007

 
$
38,486

 
$
28,712

 
$
180,205

 
$
5,607,924

Wholesale
951,660

 
383

 
72

 
206

 
661

 
952,321

Total
$
6,379,379

 
$
113,390

 
$
38,558

 
$
28,918

 
$
180,866

 
$
6,560,245

 
June 29, 2014
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,469,796

 
$
90,617

 
$
28,088

 
$
14,686

 
$
133,391

 
$
5,603,187

Wholesale
1,337,437

 
501

 
113

 
34

 
648

 
1,338,085

Total
$
6,807,233

 
$
91,118

 
$
28,201

 
$
14,720

 
$
134,039

 
$
6,941,272

A significant part of managing the Company's finance receivable portfolios includes the assessment of credit risk associated with each borrower. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit risk indicators for each portfolio.
The Company manages retail credit risk through its credit approval policy and ongoing collection efforts. The Company uses FICO scores, a standard credit rating measurement, to differentiate the expected default rates of retail credit applicants enabling the Company to better evaluate credit applicants for approval and to tailor pricing according to this assessment. Retail loans with a FICO score of 640 or above at origination are considered prime, and loans with a FICO score below 640 are considered sub-prime. These credit quality indicators are determined at the time of loan origination and are not updated subsequent to the loan origination date.
The recorded investment of retail finance receivables, by credit quality indicator, was as follows (in thousands):
 
June 28, 2015
 
December 31, 2014
 
June 29, 2014
Prime
$
4,718,363

 
$
4,435,352

 
$
4,407,364

Sub-prime
1,244,322

 
1,172,572

 
1,195,823

Total
$
5,962,685

 
$
5,607,924

 
$
5,603,187

The Company's credit risk on the wholesale portfolio is different from that of the retail portfolio. Whereas the retail portfolio represents a relatively homogeneous pool of retail finance receivables that exhibit more consistent loss patterns, the

13
Table of Contents

wholesale portfolio exposures are less consistent. The Company utilizes an internal credit risk rating system to manage credit risk exposure consistently across wholesale borrowers and individually evaluates credit risk factors for each borrower.
The Company uses the following internal credit quality indicators, based on an internal risk rating system, listed from highest level of risk to lowest level of risk for the wholesale portfolio: Doubtful, Substandard, Special Mention, Medium Risk and Low Risk. Based upon management’s review, the dealers classified in the Doubtful category are the dealers with the greatest likelihood of being charged off, while the dealers classified as Low Risk are least likely to be charged off. The internal rating system considers factors such as the specific borrowers’ ability to repay and the estimated value of any collateral. Dealer risk rating classifications are reviewed and updated on a quarterly basis.
The recorded investment of wholesale finance receivables, by internal credit quality indicator, was as follows (in thousands):
 
June 28, 2015
 
December 31, 2014
 
June 29, 2014
Doubtful
$
—

 
$
954

 
$
4,916

Substandard
7,739

 
7,025

 
4,192

Special Mention
15,343

 
—

 
—

Medium Risk
3,245

 
11,557

 
16,202

Low Risk
1,298,714

 
932,785

 
1,312,775

Total
$
1,325,041

 
$
952,321

 
$
1,338,085

5. Asset-Backed Financing
The Company participates in asset-backed financing through both term asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. The Company treats these transactions as secured borrowings because either they are transferred to consolidated variable interest entities (VIEs) or the Company maintains effective control over the assets and does not meet the accounting sale requirements under ASC Topic 860, "Transfers and Servicing" (ASC Topic 860). In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPE), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt.
The Company is required to consolidate any VIE in which it is deemed to be the primary beneficiary through having power over the significant activities of the entity and having an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE. The Company is considered to have the power over the significant activities of its term asset-backed securitization and asset-backed U.S. commercial paper conduit facility VIEs due to its role as servicer. Servicing fees are typically not considered potentially significant variable interests in a VIE. However, the Company retains a residual interest in the VIEs in the form of a debt security, which gives the Company the right to receive benefits that could be potentially significant to the VIE. Therefore, the Company is the primary beneficiary and consolidates all of these VIEs within its consolidated financial statements.
The Company is not the primary beneficiary of the asset-backed Canadian commercial paper conduit facility VIE; therefore, the Company does not consolidate this VIE. However, the Company treats the conduit facility as a secured borrowing as it maintains effective control over the assets transferred to the VIE and therefore does not meet the requirements for sale accounting under ASC Topic 860. As such, the Company retains the transferred assets and the related debt within its Consolidated Balance Sheet.
Servicing fees paid by VIEs to the Company are eliminated in consolidation and therefore are not recorded on a consolidated basis. The Company is not required, and does not currently intend, to provide any additional financial support to its VIEs. Investors and creditors only have recourse to the assets held by the VIEs.


14
Table of Contents

The following table shows the assets and liabilities related to the asset-backed financings that were included in the financial statements (in thousands):
 
June 28, 2015
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Term asset-backed securitizations
$
2,199,018

 
$
(49,400
)
 
$
149,418

 
$
2,857

 
$
2,301,893

 
$
2,017,079

Asset-backed U.S. commercial paper conduit facility
—

 
—

 
—

 
210

 
210

 
—

Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
176,730

 
(2,657
)
 
12,793

 
340

 
187,206

 
160,940

Total on-balance sheet assets and liabilities
$
2,375,748

 
$
(52,057
)
 
$
162,211

 
$
3,407

 
$
2,489,309

 
$
2,178,019

 
December 31, 2014
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Term asset-backed securitizations
$
1,458,602

 
$
(32,156
)
 
$
110,017

 
$
2,987

 
$
1,539,450

 
$
1,271,533

Asset-backed U.S. commercial paper conduit facility
—

 
—

 
—

 
422

 
422

 
—

Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
185,099

 
(2,965
)
 
12,035

 
262

 
194,431

 
166,912

Total on-balance sheet assets and liabilities
$
1,643,701

 
$
(35,121
)
 
$
122,052

 
$
3,671

 
$
1,734,303

 
$
1,438,445

 
June 29, 2014
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Term asset-backed securitizations
$
1,893,585

 
$
(39,329
)
 
$
141,146

 
$
2,342

 
$
1,997,744

 
$
1,712,855

Asset-backed U.S. commercial paper conduit facility
—

 
—

 
—

 
179

 
179

 
—

Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
203,800

 
(3,235
)
 
13,535

 
240

 
214,340

 
173,224

Total on-balance sheet assets and liabilities
$
2,097,385

 
$
(42,564
)
 
$
154,681

 
$
2,761

 
$
2,212,263

 
$
1,886,079

Term Asset-Backed Securitization VIEs
The Company transfers U.S. retail motorcycle finance receivables to SPEs which in turn issue secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. Each term asset-backed securitization SPE is a separate legal entity and the U.S. retail motorcycle finance receivables included in the term asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the term asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors until the associated secured debt and other obligations are satisfied. Restricted cash balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual lives have various maturities ranging from 2015 to 2022.
During the second quarter of 2015, the Company issued $500.0 million of secured notes through one term asset-backed securitization transaction. The Company also issued $700.0 million of secured notes through one term asset-backed securitization transaction during the first quarter of 2015. During the second quarter of 2014, the Company issued $850.0

15
Table of Contents

million of secured notes through one term asset-backed securitization transaction. There were no other term asset-backed securitization transactions during the six months ended June 29, 2014.
Asset-Backed U.S. Commercial Paper Conduit Facility VIE
In September 2014, the Company amended and restated its facility (U.S. Conduit) with a third-party bank sponsored asset-backed commercial paper conduit, which provides for a total aggregate commitment of $600.0 million based on, among other things, the amount of eligible U.S. retail motorcycle loans held by a SPE as collateral. Under the facility, the Company may transfer U.S. retail motorcycle finance receivables to a SPE, which in turn may issue debt to third-party bank-sponsored asset-backed commercial paper conduits.
The assets of the SPE are restricted as collateral for the payment of the debt or other obligations arising in the transaction and are not available to pay other obligations or claims of the Company’s creditors. The terms for this debt provide for interest on the outstanding principal generally based on prevailing commercial paper rates plus a program fee based on outstanding principal, or LIBOR plus a specified margin to the extent the advance is not funded by a conduit lender through the issuance of commercial paper. The U.S. Conduit also provides for an unused commitment fee based on the unused portion of the total aggregate commitment of $600.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the U.S. Conduit, any outstanding principal will continue to be reduced monthly through available collections. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, the U.S. Conduit has an expiration date of October 30, 2015.
The SPE had no borrowings outstanding under the U.S. Conduit at June 28, 2015, December 31, 2014 or June 29, 2014; therefore, U.S. Conduit assets are restricted as collateral for the payment of fees associated with the unused portion of the total aggregate commitment.
Asset-Backed Canadian Commercial Paper Conduit Facility
In June 2014, the Company amended its facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase eligible Canadian retail motorcycle finance receivables for proceeds up to C$200.0 million. The transferred assets are restricted as collateral for the payment of the debt. The terms for this debt provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment of C$200.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of June 28, 2015, the Canadian Conduit had an expiration date of June 30, 2015. The Canadian Conduit was renewed on June 30, 2015 with similar terms and a borrowing amount of up to C$240.0 million with an expiration date of June 30, 2016. The contractual maturity of the debt is approximately 5 years.
As the Company participates in and does not consolidate the Canadian bank-sponsored, multi-seller conduit VIE, the maximum exposure to loss associated with this VIE, which would only be incurred in the unlikely event that all the finance receivables and underlying collateral have no residual value, was $26.3 million at June 28, 2015. The maximum exposure is not an indication of the Company's expected loss exposure.
During the second and first quarters of 2015, the Company transferred $26.8 million and $19.2 million of Canadian retail motorcycle finance receivables to the Canadian Conduit for proceeds of $23.4 million and $16.8 million, respectively. During the second and first quarters of 2014, HDFS transferred $26.4 million and $15.7 million of Canadian retail motorcycle finance receivables to the Canadian Conduit for proceeds of $23.1 million and $13.8 million, respectively. The transferred assets are restricted as collateral for the payment of the debt.

16
Table of Contents

6. Fair Value Measurements
Certain assets and liabilities are recorded at fair value in the financial statements; some of these are measured on a recurring basis while others are measured on a non-recurring basis. Assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when required by particular events or circumstances. In determining the fair value of assets and liabilities, the Company uses various valuation techniques. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable.
Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates and commodity prices. The Company uses the market approach to derive the fair value for its level 2 fair value measurements. Forward contracts for foreign currency, commodities and interest rates are valued using current quoted forward rates and prices; and investments in marketable securities and cash equivalents are valued using publicly quoted prices.
Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the following tables.

17
Table of Contents

Recurring Fair Value Measurements
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
 
June 28, 2015
 
Balance
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
1,030,928

 
$
558,660

 
$
472,268

 
$
—

Marketable securities
90,214

 
37,698

 
52,516

 
—

Derivatives
26,501

 
—

 
26,501

 
—

 
$
1,147,643

 
$
596,358

 
$
551,285

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
986

 
$
—

 
$
986

 
$
—

 
December 31, 2014
 
Balance
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
737,024

 
$
482,686

 
$
254,338

 
$
—

Marketable securities
91,140

 
33,815

 
57,325

 
—

Derivatives
32,244

 
—

 
32,244

 
—

 
$
860,408

 
$
516,501

 
$
343,907

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
2,027

 
$
—

 
$
2,027

 
$
—

 
June 29, 2014
 
Balance
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
660,520

 
$
482,780

 
$
177,740

 
$
—

Marketable securities
91,381

 
33,567

 
57,814

 
—

Derivatives
3,159

 
—

 
3,159

 
—

 
$
755,060

 
$
516,347

 
$
238,713

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
1,478

 
$
—

 
$
1,478

 
$
—

Nonrecurring Fair Value Measurements
Repossessed inventory is recorded at the lower of cost or net realizable value through a nonrecurring fair value measurement. The nonrecurring fair value measurement represents the loss recognized to adjust the related finance receivable to the fair value of the repossessed inventory. Repossessed inventory was $13.1 million, $13.4 million and $11.2 million at June 28, 2015, December 31, 2014 and June 29, 2014, for which the fair value adjustment was $1.9 million, $5.0 million and $2.4 million at June 28, 2015, December 31, 2014 and June 29, 2014, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.

18
Table of Contents

7. Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, trade receivables, finance receivables, net, trade payables, debt, and foreign currency exchange and commodity contracts (derivative instruments are discussed further in Note 8).
The following table summarizes the fair value and carrying value of the Company’s financial instruments (in thousands):
 
June 28, 2015
 
December 31, 2014
 
June 29, 2014
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,247,579

 
$
1,247,579

 
$
906,680

 
$
906,680

 
$
999,346

 
$
999,346

Marketable securities
$
90,214

 
$
90,214

 
$
91,140

 
$
91,140

 
$
91,381

 
$
91,381

Derivatives
$
26,501

 
$
26,501

 
$
32,244

 
$
32,244

 
$
3,159

 
$
3,159

Finance receivables, net
$
7,251,671

 
$
7,148,495

 
$
6,519,500

 
$
6,432,881

 
$
6,917,698

 
$
6,818,917

Restricted cash
$
162,211

 
$
162,211

 
$
122,052

 
$
122,052

 
$
154,681

 
$
154,681

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivatives
$
986

 
$
986

 
$
2,027

 
$
2,027

 
$
1,478

 
$
1,478

Unsecured commercial paper
$
114,983

 
$
114,983

 
$
731,786

 
$
731,786

 
$
619,622

 
$
619,622

Asset-backed Canadian commercial paper conduit facility
$
160,940

 
$
160,940

 
$
166,912

 
$
166,912

 
$
173,224

 
$
173,224

Medium-term notes
$
4,077,952

 
$
3,933,698

 
$
3,502,536

 
$
3,334,398

 
$
3,049,735

 
$
2,853,232

Term asset-backed securitization debt
$
2,016,232

 
$
2,017,079

 
$
1,270,656

 
$
1,271,533

 
$
1,717,287

 
$
1,712,855

Cash and Cash Equivalents and Restricted Cash – With the exception of certain cash equivalents, the carrying values of these items in the financial statements are based on historical cost. The historical cost basis for these amounts is estimated to approximate their respective fair values due to the short maturity of these instruments. Fair value is based on Level 1 or Level 2 inputs.
Marketable Securities – The carrying value of marketable securities in the financial statements is based on fair value. The fair value of marketable securities is determined primarily based on quoted prices for identical instruments or on quoted market prices of similar financial assets. Fair value is based on Level 1 or Level 2 inputs.
Finance Receivables, Net – The carrying value of retail and wholesale finance receivables in the financial statements is amortized cost less an allowance for credit losses. The fair value of retail finance receivables is generally calculated by discounting future cash flows using an estimated discount rate that reflects current credit, interest rate and prepayment risks associated with similar types of instruments. Fair value is determined based on Level 3 inputs. The amortized cost basis of wholesale finance receivables approximates fair value because they either are short-term or have interest rates that adjust with changes in market interest rates.
Derivatives – Forward contracts for foreign currency exchange, interest rates and commodities are derivative financial instruments and are carried at fair value on the balance sheet. The fair value of these contracts is determined using quoted forward rates and prices. Fair value is calculated using Level 2 inputs.
Debt – The carrying value of debt in the financial statements is generally amortized cost. The carrying value of unsecured commercial paper approximates fair value due to its short maturity. Fair value is calculated using Level 2 inputs.
The carrying value of debt provided under the Canadian Conduit approximates fair value since the interest rates charged under the facility are tied directly to market rates and fluctuate as market rates change. Fair value is calculated using Level 2 inputs.
The fair values of the medium-term notes are estimated based upon rates currently available for debt with similar terms and remaining maturities. Fair value is calculated using Level 2 inputs.


19
Table of Contents

The fair value of the debt related to term asset-backed securitization transactions is estimated based on pricing currently available for transactions with similar terms and maturities. Fair value is calculated using Level 2 inputs.
8. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks such as foreign currency exchange rate risk, interest rate risk and commodity price risk. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes.
All derivative instruments are recognized on the balance sheet at fair value (see Note 6). In accordance with ASC Topic 815, “Derivatives and Hedging,” the accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative instruments that are designated as cash flow hedges, the effective portion of gains and losses that result from changes in the fair value of derivative instruments is initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative instruments that do not qualify for hedge accounting are recorded at fair value, and any changes in fair value are recorded in current period earnings.
The Company sells its products internationally and in most markets those sales are made in the foreign country’s local currency. As a result, the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. The Company’s most significant foreign currency risk relates to the Euro, the Australian dollar, the Japanese yen and the Brazilian real. The Company utilizes foreign currency exchange contracts to mitigate the effects of these currencies’ fluctuations on earnings. The foreign currency exchange contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate.
The Company utilizes commodity contracts to hedge portions of the cost of certain commodities consumed in the Company’s motorcycle production and distribution operations.
The Company’s foreign currency exchange contracts and commodity contracts generally have maturities of less than one year.
During the second quarter of 2015, the Company entered into treasury rate locks to hedge the underlying U.S. treasury rate related to its anticipated issuance of senior unsecured debt during the third quarter of 2015. To the extent effective, gains and losses on the fair value of the treasury rate locks will be deferred until the forecasted debt is issued and will be amortized to earnings over the life of the debt.

20
Table of Contents

The following table summarizes the fair value of the Company’s derivative financial instruments (in thousands):
 
June 28, 2015
 
December 31, 2014
 
June 29, 2014
Derivatives Designated As Hedging
Instruments Under ASC Topic 815
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
Foreign currency contracts(c)
$
367,309

 
$
23,136

 
$
—

 
$
339,077

 
$
32,244

 
$
—

 
$
398,338

 
$
3,091

 
$
1,461

Commodity
contracts(c)
1,166

 
—

 
98

 
1,728

 
—

 
414

 
1,411

 
—

 
17

Treasury rate locks(c)
300,000

 
3,365

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
668,475

 
$
26,501

 
$
98


$
340,805

 
$
32,244

 
$
414


$
399,749

 
$
3,091

 
$
1,478

 
June 28, 2015
 
December 31, 2014
 
June 29, 2014
Derivatives Not Designated As Hedging
Instruments Under ASC Topic 815
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
Commodity contracts
$
8,218

 
$
—

 
$
888

 
$
11,804

 
$
—

 
$
1,613

 
$
7,754

 
$
68

 
$
—

 
$
8,218


$
—

 
$
888

 
$
11,804

 
$
—

 
$
1,613

 
$
7,754

 
$
68

 
$
—

 
(a)
Foreign currency and commodity contract fair value included in other current assets and Treasury rate lock fair value included in other long-term assets
(b)
Included in accrued liabilities
(c)
Derivative designated as a cash flow hedge
The following tables summarize the amount of gains and losses related to derivative financial instruments designated as cash flow hedges (in thousands):
 
Amount of Gain/(Loss) Recognized in OCI, before tax
 
Three months ended
 
Six months ended
Cash Flow Hedges
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Foreign currency contracts
$
(4,458
)
 
$
3,931

 
$
28,210

 
$
2,493

Commodity contracts
(3
)
 
(24
)
 
(123
)
 
191

Treasury rate locks
3,365

 
—

 
3,365

 
—

Total
$
(1,096
)
 
$
3,907

 
$
31,452

 
$
2,684

 
Amount of Gain/(Loss) Reclassified from AOCL into Income
 
 
 
Three months ended
 
Six months ended
 
Expected to be Reclassified
Cash Flow Hedges
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
 
Over the Next Twelve Months
Foreign currency contracts(a)
$
20,131

 
$
(1,183
)
 
$
35,407

 
$
(2,241
)
 
$
23,461

Commodity contracts(a)
(125
)
 
87

 
(439
)
 
283

 
(98
)
Treasury rate locks(b)
—

 
—

 
—

 
—

 
191

Total
$
20,006

 
$
(1,096
)
 
$
34,968

 
$
(1,958
)
 
$
23,554

(a)
Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) to income is included in cost of goods sold
(b)
Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) to income will be included in interest expense
For the three and six months ended June 28, 2015 and June 29, 2014, the cash flow hedges were highly effective and, as a result, the amount of hedge ineffectiveness was not material. No amounts were excluded from effectiveness testing.


21
Table of Contents

The following tables summarize the amount of gains and losses related to derivative financial instruments not designated as hedging instruments (in thousands):
 
Amount of Gain/(Loss) Recognized in Income on Derivative
 
Three months ended
 
Six months ended
Derivatives Not Designated As Hedges
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Commodity contracts(a)
$
14

 
$
184

 
$
(526
)
 
$
(144
)
Total
$
14

 
$
184

 
$
(526
)
 
$
(144
)
(a)
Gain/(loss) recognized in income is included in cost of goods sold.
The Company is exposed to credit loss risk in the event of non-performance by counterparties to these derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to these derivative financial instruments to fail to meet its obligations. To manage credit loss risk, the Company evaluates counterparties based on credit ratings and, on a quarterly basis, evaluates each hedge’s net position relative to the counterparty’s ability to cover its position.

22
Table of Contents

9. Accumulated Other Comprehensive Loss
The following tables set forth the changes in accumulated other comprehensive loss (AOCL) (in thousands):
 
 
Three months ended June 28, 2015
 
 
Foreign currency translation adjustments
 
Marketable securities
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
(30,503
)
 
$
(767
)
 
$
30,114

 
$
(521,005
)
 
$
(522,161
)
Other comprehensive income (loss) before reclassifications
 
5,040

 
(204
)
 
(1,096
)
 
—

 
3,740

Income tax
 
(789
)
 
76

 
406

 
—

 
(307
)
Net other comprehensive income (loss) before reclassifications
 
4,251

 
(128
)
 
(690
)
 
—

 
3,433

Reclassifications:
 
 
 
 
 
 
 
 
 
 
Realized (gains) losses - foreign currency contracts(a)
 
—

 
—

 
(20,131
)
 
—

 
(20,131
)
Realized (gains) losses - commodities contracts(a)
 
—

 
—

 
125

 
—

 
125

Prior service credits(b)
 
—

 
—

 
—

 
(695
)
 
(695
)
Actuarial losses(b)
 
—

 
—

 
—

 
14,670

 
14,670

Total before tax
 
—

 
—

 
(20,006
)
 
13,975

 
(6,031
)
Income tax expense (benefit)
 
—

 
—

 
7,410

 
(5,177
)
 
2,233

Net reclassifications
 
—

 
—

 
(12,596
)
 
8,798

 
(3,798
)
Other comprehensive income (loss)
 
4,251

 
(128
)
 
(13,286
)
 
8,798

 
(365
)
Balance, end of period
 
$
(26,252
)
 
$
(895
)
 
$
16,828

 
$
(512,207
)
 
$
(522,526
)
 
 
Three months ended June 29, 2014
 
 
Foreign currency translation adjustments
 
Marketable securities
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
36,274

 
$
(318
)
 
$
(1,907
)
 
$
(357,978
)
 
$
(323,929
)
Other comprehensive income (loss) before reclassifications
 
6,945

 
(117
)
 
3,907

 
—

 
10,735

Income tax
 
(1,212
)
 
43

 
(1,448
)
 
—

 
(2,617
)
Net other comprehensive income (loss) before reclassifications
 
5,733

 
(74
)
 
2,459

 
—

 
8,118

Reclassifications:
 
 
 
 
 
 
 
 
 
 
Realized (gains) losses - foreign currency contracts(a)
 
—

 
—

 
1,183

 
—

 
1,183

Realized (gains) losses - commodities contracts(a)
 
—

 
—

 
(87
)
 
—

 
(87
)
Prior service credits(b)
 
—

 
—

 
—

 
(684
)
 
(684
)
Actuarial losses(b)
 
—

 
—

 
—

 
10,323

 
10,323

Total before tax
 
—

 
—

 
1,096

 
9,639

 
10,735

Income tax benefit
 
—

 
—

 
(405
)
 
(3,570
)
 
(3,975
)
Net reclassifications
 
—

 
—

 
691

 
6,069

 
6,760

Other comprehensive income (loss)
 
5,733

 
(74
)
 
3,150

 
6,069

 
14,878

Balance, end of period
 
$
42,007

 
$
(392
)
 
$
1,243

 
$
(351,909
)
 
$
(309,051
)

23
Table of Contents

 
 
Six months ended June 28, 2015
 
 
Foreign currency translation adjustments
 
Marketable securities
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
(3,482
)
 
$
(700
)
 
$
19,042

 
$
(529,803
)
 
$
(514,943
)
Other comprehensive (loss) income before reclassifications
 
(24,951
)
 
(310
)
 
31,452

 
—

 
6,191

Income tax
 
2,181

 
115

 
(11,650
)
 
—

 
(9,354
)
Net other comprehensive (loss) income before reclassifications
 
(22,770
)
 
(195
)
 
19,802

 
—

 
(3,163
)
Reclassifications:
 
 
 
 
 
 
 
 
 
 
Realized (gains) losses - foreign currency contracts(a)
 
—

 
—

 
(35,407
)
 
—

 
(35,407
)
Realized (gains) losses - commodities contracts(a)
 
—

 
—

 
439

 
—

 
439

Prior service credits(b)
 
—

 
—

 
—

 
(1,390
)
 
(1,390
)
Actuarial losses(b)
 
—

 
—

 
—

 
29,340

 
29,340

Total before tax
 
—

 
—

 
(34,968
)
 
27,950

 
(7,018
)
Income tax expense (benefit)
 
—

 
—

 
12,952

 
(10,354
)
 
2,598

Net reclassifications
 
—

 
—

 
(22,016
)
 
17,596

 
(4,420
)
Other comprehensive (loss) income
 
(22,770
)
 
(195
)
 
(2,214
)
 
17,596

 
(7,583
)
Balance, end of period
 
$
(26,252
)
 
$
(895
)
 
$
16,828

 
$
(512,207
)
 
$
(522,526
)
 
 
Six months ended June 29, 2014
 
 
Foreign currency translation adjustments
 
Marketable securities
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
33,326

 
$
(276
)
 
$
(1,680
)
 
$
(364,046
)
 
$
(332,676
)
Other comprehensive income (loss) before reclassifications
 
8,700

 
(184
)
 
2,684

 
—

 
11,200

Income tax
 
(19
)
 
68

 
(994
)
 
—

 
(945
)
Net other comprehensive income (loss) before reclassifications
 
8,681

 
(116
)
 
1,690

 
—

 
10,255

Reclassifications:
 
 
 
 
 
 
 
 
 
 
Realized (gains) losses - foreign currency contracts(a)
 
—

 
—

 
2,241

 
—

 
2,241

Realized (gains) losses - commodities contracts(a)
 
—

 
—

 
(283
)
 
—

 
(283
)
Prior service credits(b)
 
—

 
—

 
—

 
(1,368
)
 
(1,368
)
Actuarial losses(b)
 
—

 
—

 
—

 
20,645

 
20,645

Total before tax
 
—

 
—

 
1,958

 
19,277

 
21,235

Income tax benefit
 
—

 
—

 
(725
)
 
(7,140
)
 
(7,865
)
Net reclassifications
 
—

 
—

 
1,233

 
12,137

 
13,370

Other comprehensive income (loss)
 
8,681

 
(116
)
 
2,923

 
12,137

 
23,625

Balance, end of period
 
$
42,007

 
$
(392
)
 
$
1,243

 
$
(351,909
)
 
$
(309,051
)
(a)
Amounts reclassified to net income are included in Motorcycles and Related Products cost of goods sold.
(b)
Amounts reclassified are included in the computation of net periodic period cost. See Note 14 for information related to pension and postretirement benefit plans.

24
Table of Contents

10. Debt
Debt with contractual terms less than one year is generally classified as short-term debt and consisted of the following (in thousands): 
 
 
June 28,
2015
 
December 31,
2014
 
June 29,
2014
Unsecured commercial paper
 
$
114,983

 
$
731,786

 
$
619,622

Debt with a contractual term greater than one year is generally classified as long-term debt and consisted of the following (in thousands): 
 
 
June 28,
2015
 
December 31,
2014
 
June 29,
2014
Secured debt
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
 
$
160,940

 
$
166,912

 
$
173,224

Term asset-backed securitization debt
 
2,017,079

 
1,271,533

 
1,712,855

Unsecured notes
 
 
 
 
 
 
5.75% Medium-term notes due in 2014 ($500.0 million par value)
 
—

 
—

 
499,946

1.15% Medium-term notes due in 2015 ($600.0 million par value)
 
599,954

 
599,817

 
599,680

3.88% Medium-term notes due in 2016 ($450.0 million par value)
 
449,964

 
449,937

 
449,910

2.70% Medium-term notes due in 2017 ($400.0 million par value)
 
399,972

 
399,963

 
399,955

1.55% Medium-term notes due in 2017 ($400.0 million par value)
 
399,557

 
399,464

 
—

6.80% Medium-term notes due in 2018 ($888.0 million par value)
 
887,467

 
887,381

 
903,741

2.40% Medium-term notes due in 2019 ($600.0 million par value)
 
598,066

 
597,836

 
—

2.15% Medium-term notes due in 2020 ($600.0 million par value)
 
598,718

 
—

 
—

Gross long-term debt
 
6,111,717

 
4,772,843

 
4,739,311

Less: current portion of long-term debt
 
(1,551,368
)
 
(1,011,315
)
 
(944,915
)
Long-term debt
 
$
4,560,349

 
$
3,761,528

 
$
3,794,396

During the first and second quarters of 2015, the Company issued $700.0 million and $500.0 million, respectively, of secured notes through term asset-backed securitization transactions. During the second quarter of 2014, the Company issued $850.0 million of secured notes through one term asset-backed securitization transaction. There were no other term asset-backed securitization transactions during the six months ended June 29, 2014. The term asset-backed securitization transactions are further discussed in Note 5.
There were no medium-term notes issued or repurchased during the second quarter of 2015. During the first quarter of 2015, the Company issued $600.0 million of medium-term notes which mature in February 2020 and have an annual interest rate of 2.15%. There were no medium-term notes issued during the six months ended June 29, 2014. During the second quarter of 2014, HDFS repurchased an aggregate of $6.1 million of its 6.80% medium-term notes which mature in June 2018. As a result, HDFS recognized in financial services interest expense $1.1 million of loss on the extinguishment of debt, which included unamortized discounts and fees.
11. Income Taxes
The Company’s 2015 income tax rate for the six months ended June 28, 2015 was 34.9% compared to 35.3% for the same period last year.
12. Product Warranty and Recall Campaigns
The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except for Japan, where the Company currently provides a standard three-year limited warranty on all new motorcycles sold. In addition, the Company provides a one-year warranty for Parts & Accessories (P&A). The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company maintains reserves for future warranty claims using an estimated cost, which is based primarily on historical Company claim information. Additionally, the Company has from time to time initiated voluntary recall campaigns. The Company reserves for all estimated costs associated with recalls in the period that management approves and commits to the recall.

25
Table of Contents

Changes in the Company’s warranty and recall liability were as follows (in thousands):
 
Three months ended
 
Six months ended
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Balance, beginning of period
$
71,073

 
$
69,336

 
$
69,250

 
$
64,120

Warranties issued during the period
21,843

 
19,824

 
36,954

 
37,186

Settlements made during the period
(23,554
)
 
(16,921
)
 
(37,119
)
 
(28,494
)
Recalls and changes to pre-existing warranty liabilities
14,054

 
3,798

 
14,331

 
3,225

Balance, end of period
$
83,416

 
$
76,037

 
$
83,416

 
$
76,037

The liability for recall campaigns was $16.6 million, $9.8 million and $6.8 million as of June 28, 2015, December 31, 2014 and June 29, 2014, respectively.
13. Earnings Per Share
The following table sets forth the computation for basic and diluted earnings per share (in thousands, except per share amounts):
 
Three months ended
 
Six months ended
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Numerator:
 
 
 
 
 
 
 
Net income used in computing basic and diluted earnings per share
$
299,810

 
$
354,153

 
$
569,664

 
$
620,070

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share - weighted-average common shares
207,650

 
217,762

 
209,115

 
218,367

Effect of dilutive securities - employee stock compensation plan
940

 
1,399

 
1,050

 
1,453

Denominator for diluted earnings per share - adjusted weighted-average shares outstanding
208,590

 
219,161

 
210,165

 
219,820

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
1.44

 
$
1.63

 
$
2.72

 
$
2.84

Diluted
$
1.44

 
$
1.62

 
$
2.71

 
$
2.82

Outstanding options to purchase 1.0 million and 0.4 million shares of common stock for the three months ended June 28, 2015 and June 29, 2014, respectively and 0.8 million and 0.5 million shares of common stock for the six months ended June 28, 2015 and June 29, 2014 were not included in the Company’s computation of dilutive securities because the exercise price was greater than the market price and therefore the effect would have been anti-dilutive.
The Company has a share-based compensation plan under which employees may be granted share-based awards including shares of restricted stock and restricted stock units (RSUs). Non-forfeitable dividends are paid on unvested shares of restricted stock and non-forfeitable dividend equivalents are paid on unvested RSUs. As such, shares of restricted stock and RSUs are considered participating securities under the two-class method of calculating earnings per share as described in ASC Topic 260, “Earnings per Share.” The two-class method of calculating earnings per share did not have a material impact on the Company’s earnings per share calculation for the three and six month periods ended June 28, 2015 and June 29, 2014, respectively.

26
Table of Contents

14. Employee Benefit Plans
The Company has a defined benefit pension plan and postretirement healthcare benefit plans that cover certain employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. Net periodic benefit costs are allocated among selling, administrative and engineering expense, cost of goods sold and inventory. Amounts capitalized in inventory are not significant. Components of net periodic benefit costs were as follows (in thousands):
 
Three months ended
 
Six months ended
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Pension and SERPA Benefits
 
 
 
 
 
 
 
Service cost
$
10,010

 
$
7,874

 
$
20,020

 
$
15,748

Interest cost
21,836

 
21,731

 
43,672

 
43,462

Expected return on plan assets
(36,232
)
 
(34,184
)
 
(72,465
)
 
(68,368
)
Amortization of unrecognized:
 
 
 
 
 
 
 
Prior service cost
109

 
279

 
218

 
558

Net loss
13,677

 
9,141

 
27,354

 
18,281

Net periodic benefit cost
$
9,400

 
$
4,841

 
$
18,799

 
$
9,681

Postretirement Healthcare Benefits
 
 
 
 
 
 
 
Service cost
$
2,065

 
$
1,754

 
$
4,130

 
$
3,508

Interest cost
3,541

 
4,220

 
7,082

 
8,439

Expected return on plan assets
(2,877
)
 
(2,607
)
 
(5,754
)
 
(5,215
)
Amortization of unrecognized:
 
 
 
 
 
 
 
Prior service credit
(804
)
 
(963
)
 
(1,608
)
 
(1,927
)
Net loss
993

 
1,182

 
1,986

 
2,364

Net periodic benefit cost
$
2,918

 
$
3,586

 
$
5,836

 
$
7,169

No pension contributions to qualified plans are required in 2015. The Company expects it will continue to make on-going contributions related to current benefit payments for SERPA and postretirement healthcare plans.
15. Business Segments
Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in two segments: the Motorcycles & Related Products (Motorcycles) segment and the Financial Services segment. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. Selected segment information is set forth below (in thousands):
 
Three months ended
 
Six months ended
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
Motorcycles net revenue
$
1,650,783

 
$
1,834,285

 
$
3,161,353

 
$
3,405,973

Gross profit
647,214

 
724,139

 
1,237,489

 
1,316,270

Selling, administrative and engineering expense
266,611

 
250,883

 
511,432

 
495,322

Operating income from Motorcycles
380,603

 
473,256

 
726,057

 
820,948

Financial Services revenue
173,609

 
166,414

 
335,984

 
320,774

Financial Services expense
91,696

 
91,975

 
189,407

 
183,145

Operating income from Financial Services
81,913

 
74,439

 
146,577

 
137,629

Operating income
$
462,516

 
$
547,695

 
$
872,634

 
$
958,577


27
Table of Contents

16. Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining required reserves related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reserves are monitored on an ongoing basis and are updated based on new developments or new information in each matter.
Environmental Protection Agency Notice
In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses to the EPA’s inquiry and has engaged in discussions with the EPA. Since that time, the EPA has delivered various additional requests for information to which the Company has responded. It is probable that a result of the EPA’s investigation will be some form of enforcement action by the EPA that will seek a fine and/or other relief. The Company has a reserve associated with this matter which is included in accrued liabilities in the Consolidated Balance Sheet. However, given the uncertainty that still exists concerning the resolution of this matter, there is a possibility that the actual loss incurred may be materially different than the Company’s current reserve. At this time, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter, if any.
York Environmental Matters:
The Company is involved with government agencies and groups of potentially responsible parties in various environmental matters, including a matter involving the cleanup of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including an ongoing site-wide remedial investigation/feasibility study (RI/FS). In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy, and the parties amended the Agreement in 2013 to address ordnance and explosive waste.
The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.
The Company has a reserve for its estimate of its share of the future Response Costs at the York facility which is included in accrued liabilities in the Condensed Consolidated Balance Sheets. As noted above, the RI/FS is still underway and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS or otherwise at the York facility, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.
The estimate of the Company’s future Response Costs that will be incurred at the York facility is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response Costs are expected to be paid primarily over a period of several years ending in 2017 although certain Response Costs may continue for some time beyond 2017.
Product Liability Matters:
The Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability suits will not have a material adverse effect on the Company’s consolidated financial statements.

28
Table of Contents

17. Supplemental Consolidating Data
The supplemental consolidating data for the periods noted is presented for informational purposes. The supplemental consolidating data may be different than segment information presented elsewhere due to the allocation of intercompany eliminations to reporting segments. All supplemental data is presented in thousands.
 
Three months ended June 28, 2015
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
1,653,759

 
$
—

 
$
(2,976
)
 
$
1,650,783

Financial Services
—

 
174,147

 
(538
)
 
173,609

Total revenue
1,653,759

 
174,147

 
(3,514
)
 
1,824,392

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
1,003,569

 
—

 
—

 
1,003,569

Financial Services interest expense
—

 
41,188

 
—

 
41,188

Financial Services provision for credit losses
—

 
15,175

 
—

 
15,175

Selling, administrative and engineering expense
267,149

 
38,309

 
(3,514
)
 
301,944

Total costs and expenses
1,270,718

 
94,672

 
(3,514
)
 
1,361,876

Operating income
383,041

 
79,475

 
—

 
462,516

Investment income
1,450

 
—

 
—

 
1,450

Interest expense
9

 
—

 
—

 
9

Income before provision for income taxes
384,482

 
79,475

 
—

 
463,957

Provision for income taxes
134,633

 
29,514

 
—

 
164,147

Net income
$
249,849

 
$
49,961

 
$
—

 
$
299,810

 
Six months ended June 28, 2015
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
3,166,641

 
$
—

 
$
(5,288
)
 
$
3,161,353

Financial Services
—

 
336,837

 
(853
)
 
335,984

Total revenue
3,166,641

 
336,837

 
(6,141
)
 
3,497,337

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
1,923,864

 
—

 
—

 
1,923,864

Financial Services interest expense
—

 
79,724

 
—

 
79,724

Financial Services provision for credit losses
—

 
41,422

 
—

 
41,422

Selling, administrative and engineering expense
512,284

 
73,550

 
(6,141
)
 
579,693

Total costs and expenses
2,436,148

 
194,696

 
(6,141
)
 
2,624,703

Operating income
730,493

 
142,141

 
—

 
872,634

Investment income
102,772

 
—

 
(100,000
)
 
2,772

Interest expense
18

 
—

 
—

 
18

Income before provision for income taxes
833,247

 
142,141

 
(100,000
)
 
875,388

Provision for income taxes
256,149

 
49,575

 
—

 
305,724

Net income
$
577,098

 
$
92,566

 
$
(100,000
)
 
$
569,664


29
Table of Contents

 
Three months ended June 29, 2014
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
1,836,974

 
$
—

 
$
(2,689
)
 
$
1,834,285

Financial Services
—

 
166,963

 
(549
)
 
166,414

Total revenue
1,836,974

 
166,963

 
(3,238
)
 
2,000,699

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
1,110,146

 
—

 
—

 
1,110,146

Financial Services interest expense
—

 
40,741

 
—

 
40,741

Financial Services provision for credit losses
—

 
15,961

 
—

 
15,961

Selling, administrative and engineering expense
251,432

 
37,962

 
(3,238
)
 
286,156

Total costs and expenses
1,361,578

 
94,664

 
(3,238
)
 
1,453,004

Operating income
475,396

 
72,299

 
—

 
547,695

Investment income
1,772

 
—

 
—

 
1,772

Interest expense
393

 
—

 
—

 
393

Income before provision for income taxes
476,775

 
72,299

 
—

 
549,074

Provision for income taxes
168,303

 
26,618

 
—

 
194,921

Net income
$
308,472

 
$
45,681

 
$
—

 
$
354,153

 
Six months ended June 29, 2014
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
3,410,941

 
$
—

 
$
(4,968
)
 
$
3,405,973

Financial Services
—

 
321,649

 
(875
)
 
320,774

Total revenue
3,410,941

 
321,649

 
(5,843
)
 
3,726,747

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
2,089,703

 
—

 
—

 
2,089,703

Financial Services interest expense
—

 
79,598

 
—

 
79,598

Financial Services provision for credit losses
—

 
36,292

 
—

 
36,292

Selling, administrative and engineering expense
496,197

 
72,223

 
(5,843
)
 
562,577

Total costs and expenses
2,585,900

 
188,113

 
(5,843
)
 
2,768,170

Operating income
825,041

 
133,536

 
—

 
958,577

Investment income
123,431

 
—

 
(120,000
)
 
3,431

Interest expense
4,070

 
—

 
—

 
4,070

Income before provision for income taxes
944,402

 
133,536

 
(120,000
)
 
957,938

Provision for income taxes
288,876

 
48,992

 
—

 
337,868

Net income
$
655,526

 
$
84,544

 
$
(120,000
)
 
$
620,070


30
Table of Contents

 
June 28, 2015
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
828,289

 
$
419,290

 
$
—

 
$
1,247,579

Marketable securities
52,516

 
—

 
—

 
52,516

Accounts receivable, net
743,341

 
—

 
(465,772
)
 
277,569

Finance receivables, net
—

 
2,331,723

 
—

 
2,331,723

Inventories
395,044

 
—

 
—

 
395,044

Restricted cash
—

 
136,760

 
—

 
136,760

Deferred income taxes
51,667

 
43,111

 
—

 
94,778

Other current assets
126,856

 
40,441

 
(6,876
)
 
160,421

Total current assets
2,197,713

 
2,971,325

 
(472,648
)
 
4,696,390

Finance receivables, net
—

 
4,816,772

 
—

 
4,816,772

Property, plant and equipment, net
841,361

 
31,646

 
—

 
873,007

Goodwill
26,105

 
—

 
—

 
26,105

Deferred income taxes
57,587

 
10,861

 
(1,693
)
 
66,755

Other long-term assets
121,264

 
43,842

 
(79,263
)
 
85,843

 
$
3,244,030

 
$
7,874,446

 
$
(553,604
)
 
$
10,564,872

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
306,335

 
$
567,073

 
$
(465,772
)
 
$
407,636

Accrued liabilities
369,467

 
87,839

 
(8,569
)
 
448,737

Short-term debt
—

 
114,983

 
—

 
114,983

Current portion of long-term debt
—

 
1,551,368

 
—

 
1,551,368

Total current liabilities
675,802

 
2,321,263

 
(474,341
)
 
2,522,724

Long-term debt
—

 
4,560,349

 
—

 
4,560,349

Pension liability
66,786

 
—

 
—

 
66,786

Postretirement healthcare benefits
196,369

 
—

 
—

 
196,369

Other long-term liabilities
168,043

 
26,974

 
—

 
195,017

Shareholders’ equity
2,137,030

 
965,860

 
(79,263
)
 
3,023,627

 
$
3,244,030

 
$
7,874,446

 
$
(553,604
)
 
$
10,564,872


31
Table of Contents

 
December 31, 2014
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
573,895

 
$
332,785

 
$
—

 
$
906,680

Marketable securities
57,325

 
—

 
—

 
57,325

Accounts receivable, net
658,735

 
—

 
(411,114
)
 
247,621

Finance receivables, net
—

 
1,916,635

 
—

 
1,916,635

Inventories
448,871

 
—

 
—

 
448,871

Restricted cash
—

 
98,627

 
—

 
98,627

Deferred income taxes
50,015

 
39,901

 
—

 
89,916

Other current assets
142,278

 
43,125

 
(2,983
)
 
182,420

Total current assets
1,931,119

 
2,431,073

 
(414,097
)
 
3,948,095

Finance receivables, net
—

 
4,516,246

 
—

 
4,516,246

Property, plant and equipment, net
848,661

 
34,416

 
—

 
883,077

Goodwill
27,752

 
—

 
—

 
27,752

Deferred income taxes
75,121

 
4,863

 
(2,149
)
 
77,835

Other long-term assets
113,727

 
39,309

 
(77,944
)
 
75,092

 
$
2,996,380

 
$
7,025,907

 
$
(494,190
)
 
$
9,528,097

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
171,098

 
$
436,884

 
$
(411,114
)
 
$
196,868

Accrued liabilities
370,652

 
83,797

 
(5,132
)
 
449,317

Short-term debt
—

 
731,786

 
—

 
731,786

Current portion of long-term debt
—

 
1,011,315

 
—

 
1,011,315

Total current liabilities
541,750

 
2,263,782

 
(416,246
)
 
2,389,286

Long-term debt
—

 
3,761,528

 
—

 
3,761,528

Pension liability
76,186

 
—

 
—

 
76,186

Postretirement healthcare benefits
203,006

 
—

 
—

 
203,006

Other long-term liabilities
164,060

 
24,745

 
—

 
188,805

Shareholders’ equity
2,011,378

 
975,852

 
(77,944
)
 
2,909,286

 
$
2,996,380

 
$
7,025,907

 
$
(494,190
)
 
$
9,528,097


32
Table of Contents

 
June 29, 2014
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
635,705

 
$
363,641

 
$
—

 
$
999,346

Marketable securities
57,814

 
—

 
—

 
57,814

Accounts receivable, net
1,317,297

 
—

 
(1,027,357
)
 
289,940

Finance receivables, net
—

 
2,281,512

 
—

 
2,281,512

Inventories
371,597

 
—

 
—

 
371,597

Restricted cash
—

 
154,681

 
—

 
154,681

Deferred income taxes
52,348

 
38,000

 
—

 
90,348

Other current assets
95,429

 
33,031

 
—

 
128,460

Total current assets
2,530,190

 
2,870,865

 
(1,027,357
)
 
4,373,698

Finance receivables, net
—

 
4,537,405

 
—

 
4,537,405

Property, plant and equipment, net
792,642

 
33,825

 
—

 
826,467

Prepaid pension costs
256,279

 
—

 
—

 
256,279

Goodwill
30,252

 
—

 
—

 
30,252

Deferred income taxes
2,915

 
—

 
—

 
2,915

Other long-term assets
111,229

 
14,506

 
(76,455
)
 
49,280

 
$
3,723,507

 
$
7,456,601

 
$
(1,103,812
)
 
$
10,076,296

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
316,707

 
$
1,098,992

 
$
(1,027,357
)
 
$
388,342

Accrued liabilities
423,312

 
79,205

 
(1,748
)
 
500,769

Short-term debt
—

 
619,622

 
—

 
619,622

Current portion of long-term debt
—

 
944,915

 
—

 
944,915

Total current liabilities
740,019

 
2,742,734

 
(1,029,105
)
 
2,453,648

Long-term debt
—

 
3,794,396

 
—

 
3,794,396

Pension liability
38,174

 
—

 
—

 
38,174

Postretirement healthcare liability
209,312

 
—

 
—

 
209,312

Deferred income taxes
35,597

 
1,574

 
1,748

 
38,919

Other long-term liabilities
152,862

 
22,725

 
—

 
175,587

Shareholders’ equity
2,547,543

 
895,172

 
(76,455
)
 
3,366,260

 
$
3,723,507

 
$
7,456,601

 
$
(1,103,812
)
 
$
10,076,296


33
Table of Contents

 
Six months ended June 28, 2015
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations &
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
577,098

 
$
92,566

 
$
(100,000
)
 
$
569,664

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation
88,996

 
4,644

 
—

 
93,640

Amortization of deferred loan origination costs
—

 
47,524

 
—

 
47,524

Amortization of financing origination fees
—

 
4,820

 
—

 
4,820

Provision for employee long-term benefits
24,635

 
—

 
—

 
24,635

Contributions to pension and postretirement plans
(12,725
)
 
—

 
—

 
(12,725
)
Stock compensation expense
15,415

 
1,319

 
—

 
16,734

Net change in wholesale finance receivables related to sales
—

 
—

 
(418,969
)
 
(418,969
)
Provision for credit losses
—

 
41,422

 
—

 
41,422

Deferred income taxes
5,832

 
(7,027
)
 
—

 
(1,195
)
Foreign currency adjustments
11,041

 
—

 
—

 
11,041

Other, net
(2,671
)
 
707

 
—

 
(1,964
)
Change in current assets and current liabilities:
 
 
 
 
 
 
 
Accounts receivable
(347,967
)
 
—

 
304,658

 
(43,309
)
Finance receivables—accrued interest and other
—

 
(270
)
 
—

 
(270
)
Inventories
38,012

 
—

 
—

 
38,012

Accounts payable and accrued liabilities
144,784

 
385,999

 
(298,426
)
 
232,357

Derivative instruments
1,185

 
—

 
—

 
1,185

Other
9,625

 
1,717

 
—

 
11,342

Total adjustments
(23,838
)
 
480,855

 
(412,737
)
 
44,280

Net cash provided by operating activities
553,260

 
573,421

 
(512,737
)
 
613,944


34
Table of Contents

 
Six months ended June 28, 2015
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations &
Adjustments
 
Consolidated
Cash flows from investing activities:
 
 
 
 
 
 
 
Capital expenditures
(83,282
)
 
(1,898
)
 
—

 
(85,180
)
Origination of finance receivables
—

 
(4,526,313
)
 
2,549,750

 
(1,976,563
)
Collections of finance receivables
—

 
3,707,444

 
(2,137,013
)
 
1,570,431

Sales and redemptions of marketable securities
4,500

 
—

 
—

 
4,500

Other
5,111

 
—

 
—

 
5,111

Net cash used by investing activities
(73,671
)
 
(820,767
)
 
412,737

 
(481,701
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from issuance of medium-term notes
—

 
595,386

 
—

 
595,386

Intercompany borrowing activity
250,000

 
(250,000
)
 
—

 
—

Proceeds from securitization debt
—

 
1,195,668

 
—

 
1,195,668

Repayments of securitization debt
—

 
(454,332
)
 
—

 
(454,332
)
Net decrease in credit facilities and unsecured commercial paper
—

 
(616,586
)
 
—

 
(616,586
)
Borrowings of asset-backed commercial paper
—

 
40,209

 
—

 
40,209

Repayments of asset-backed commercial paper
—

 
(35,730
)
 
—

 
(35,730
)
Net change in restricted cash
—

 
(40,159
)
 
—

 
(40,159
)
Dividends paid
(129,745
)
 
(100,000
)
 
100,000

 
(129,745
)
Purchase of common stock for treasury
(358,425
)
 
—

 
—

 
(358,425
)
Excess tax benefits from share-based payments
2,401

 
—

 
—

 
2,401

Issuance of common stock under employee stock option plans
15,664

 
—

 
—

 
15,664

Net cash (used by) provided by financing activities
(220,105
)
 
334,456

 
100,000

 
214,351

Effect of exchange rate changes on cash and cash equivalents
(5,090
)
 
(605
)
 
—

 
(5,695
)
Net increase in cash and cash equivalents
$
254,394

 
$
86,505

 
$
—

 
$
340,899

Cash and cash equivalents:
 
 
 
 
 
 
 
Cash and cash equivalents—beginning of period
$
573,895

 
$
332,785

 
$
—

 
$
906,680

Net increase in cash and cash equivalents
254,394

 
86,505

 
—

 
340,899

Cash and cash equivalents—end of period
$
828,289

 
$
419,290

 
$
—

 
$
1,247,579


35
Table of Contents

 
Six months ended June 29, 2014
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations &
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
655,526

 
$
84,544

 
$
(120,000
)
 
$
620,070

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation
83,348

 
3,775

 
—

 
87,123

Amortization of deferred loan origination costs
—

 
45,713

 


 
45,713

Amortization of financing origination fees
59

 
4,225

 
—

 
4,284

Provision for employee long-term benefits
16,854

 
—

 
—

 
16,854

Contributions to pension and postretirement plans
(14,035
)
 
—

 
—

 
(14,035
)
Stock compensation expense
19,393

 
1,375

 
—

 
20,768

Net change in wholesale finance receivables related to sales
—

 
—

 
(510,200
)
 
(510,200
)
Provision for credit losses
—

 
36,292

 
—

 
36,292

Loss on extinguishment of debt
—

 
1,145

 
—

 
1,145

Deferred income taxes
(3,894
)
 
—

 
—

 
(3,894
)
Foreign currency adjustments
939

 
(6,023
)
 
—

 
(5,084
)
Other, net
4,712

 
4,620

 
—

 
9,332

Change in current assets and current liabilities:
 
 
 
 
 
 
 
Accounts receivable
(363,817
)
 
—

 
338,174

 
(25,643
)
Finance receivables—accrued interest and other
—

 
(993
)
 
—

 
(993
)
Inventories
58,741

 
—

 
—

 
58,741

Accounts payable and accrued liabilities
189,117

 
375,290

 
(338,174
)
 
226,233

Derivative instruments
968

 
—

 
—

 
968

Other
4,962

 
(2,044
)
 
—

 
2,918

Total adjustments
(2,653
)
 
463,375

 
(510,200
)
 
(49,478
)
Net cash provided by operating activities
652,873

 
547,919

 
(630,200
)
 
570,592


36
Table of Contents

 
Six months ended June 29, 2014
 
Motorcycles & Related
Products Operations
 
Financial
Services Operations
 
Eliminations &
Adjustments
 
Consolidated
Cash flows from investing activities:
 
 
 
 
 
 
 
Capital expenditures
(71,395
)
 
(3,128
)
 
—

 
(74,523
)
Origination of finance receivables
—

 
(4,580,910
)
 
2,676,333

 
(1,904,577
)
Collections of finance receivables
—

 
3,684,319

 
(2,166,133
)
 
1,518,186

Sales and redemptions of marketable securities
41,010

 
—

 
—

 
41,010

Other
145

 
—

 
—

 
145

Net cash used by investing activities
(30,240
)
 
(899,719
)
 
510,200

 
(419,759
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Repayments of senior unsecured notes
(303,000
)
 
—

 
—

 
(303,000
)
Repayments of medium-term notes
—

 
(7,220
)
 
—

 
(7,220
)
Intercompany borrowing activity
(100,000
)
 
100,000

 
—

 
—

Proceeds from securitization debt
—

 
847,126

 
—

 
847,126

Repayments of securitization debt
—

 
(393,655
)
 
—

 
(393,655
)
Net decrease in credit facilities and unsecured commercial paper
—

 
(48,134
)
 
—

 
(48,134
)
Borrowings of asset-backed commercial paper
—

 
36,800

 
—

 
36,800

Repayments of asset-backed commercial paper
—

 
(37,317
)
 
—

 
(37,317
)
Net change in restricted cash
—

 
(9,874
)
 
—

 
(9,874
)
Dividends paid
(120,631
)
 
(120,000
)
 
120,000

 
(120,631
)
Purchase of common stock for treasury
(223,736
)
 
—

 
—

 
(223,736
)
Excess tax benefits from share-based payments
8,652

 
—

 
—

 
8,652

Issuance of common stock under employee stock option plans
27,907

 
—

 
—

 
27,907

Net cash (used by) provided by financing activities
(710,808
)
 
367,726

 
120,000

 
(223,082
)
Effect of exchange rate changes on cash and cash equivalents
4,968

 
15

 
—

 
4,983

Net (decrease) increase in cash and cash equivalents
$
(83,207
)
 
$
15,941

 
$
—

 
$
(67,266
)
Cash and cash equivalents:
 
 
 
 
 
 
 
Cash and cash equivalents—beginning of period
$
718,912

 
$
347,700

 
$
—

 
$
1,066,612

Net (decrease) increase in cash and cash equivalents
(83,207
)
 
15,941

 
—

 
(67,266
)
Cash and cash equivalents—end of period
$
635,705

 
$
363,641

 
$
—

 
$
999,346


37
Table of Contents

18. Subsequent Events
In July 2015, the Company issued $750.0 million of senior unsecured notes in an underwritten offering. The senior unsecured notes provided for semi-annual interest payments and principal due at maturity. Senior unsecured notes of $450.0 million mature in July 2025 and have an interest rate of 3.50%, and $300.0 million of the senior unsecured notes mature in July 2045 and have an interest rate of 4.625%. In June 2015, the Company announced that it would use the proceeds from the debt to repurchase shares of its common stock.
On August 4, 2015, the Company completed its previously announced purchase of certain assets from Fred Deeley Imports, Ltd. (Deeley Imports) and certain of its affiliates including, among other things, the acquisition of the exclusive right to distribute the Company's motorcycles and other products in Canada (Transaction). The Company will operate in Canada through a newly established, Company owned subsidiary (H-D Canada, L.P.) based in Concord, Ontario. H-D Canada, L.P. paid $62 million to Deeley Imports for the Canadian distribution rights, inventory and accounts receivable, net of amounts due, and other assets. H-D Canada, L.P. also indemnified Deeley Imports for certain expenses and liabilities, including employee severance costs.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Harley-Davidson, Inc. is the parent company of the groups of companies doing business as 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 its subsidiaries. The Company operates in two business segments: Motorcycles & Related Products (Motorcycles) and Financial Services. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations.
The Motorcycles segment consists of HDMC which designs, manufactures and sells at wholesale street-legal Harley-Davidson motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services. The Company's products are sold to retail customers through a network of independent dealers. The Company conducts business on a global basis, with sales in North America, Europe/Middle East/Africa (EMEA), Asia-Pacific and Latin America.
The Financial Services segment consists of HDFS which provides wholesale and retail financing and insurance-related programs primarily to Harley-Davidson dealers and their retail customers. HDFS conducts business primarily in the United States and Canada.
The “% Change” figures included in the “Results of Operations” section were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented.
Overview
The Company’s net income was $299.8 million, or $1.44 per diluted share, for the second quarter of 2015 compared to $354.2 million, or $1.62 per diluted share, in the second quarter of 2014. Operating income from Motorcycles decreased $92.7 million or 19.6% compared to last year’s second quarter driven by lower shipments, unfavorable foreign currency exchange rates and higher selling, administrative and engineering expenses. Operating income from Financial Services in the second quarter of 2015 was $81.9 million, up 10.0% compared to $74.4 million in the year-ago quarter driven by higher interest income.
During the second quarter of 2015, independent dealer retail sales of new Harley-Davidson motorcycles were lower compared to the prior year second quarter in both the U.S. and international markets. Worldwide retail sales of new Harley-Davidson motorcycles were down 1.4% in the second quarter of 2015 compared to the second quarter of 2014.
Although retail sales were lower, the Company believes that the second quarter 2015 worldwide retail sales continued to reflect a positive consumer response to its latest Rushmore models launched in August 2014 and its Street motorcycles.
In the second quarter of 2015, U.S. retail sales comparisons were impacted by challenging prior year results which included the enthusiastic consumer reception for the initial Project RushmoreTM models and sales of Street motorcycles related to rider-training fleets in the second quarter of 2014. The Company believes U.S. retail sales in the second quarter of 2015 were also impacted by foreign exchange-driven discounting by competitors. Internationally, the Company believes retail sales were negatively impacted primarily by new, low-priced models from competitors in Europe, currency-driven volume declines in markets where the Company sells in non-local currencies and challenging economic conditions in certain international markets.
During the second quarter of 2015, the company initiated a market action plan in the U.S. and certain international markets in an effort to counter the impacts of competitive activity in the market. The Company's market action plan includes

38
Table of Contents

lifestyle and brand advertising and marketing, targeted finance offers and a plan to leverage its other competitive advantages such as Riding Academy and its dealer network. The Company believes that these activities had a positive impact on its June retail sales resulting in its highest June retail sales in the U.S. since 2008.
(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,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance 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 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” and in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the Outlook section are only made as of July 21, 2015 and the remaining forward looking statements in this report are only made as of the date of the filing of this report (August 6, 2015) and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Outlook(1) 
On July 21, 2015, the Company provided the following information concerning its expectations for the remainder of 2015, which did not reflect the potential impact of the Canada Distributor Transaction discussed below. Please refer to the "Canada Distributor Transaction" section for additional information concerning 2015 expectations.
The Company reaffirmed its expectation to ship 276,000 to 281,000 Harley-Davidson motorcycles to dealers and distributors worldwide in 2015, an increase of approximately 2% to 4% over 2014. In addition, the Company announced that its full-year shipment estimate includes expected shipments of 54,000 to 59,000 motorcycles in the third quarter of 2015 compared to 50,670 motorcycles shipped in the third quarter of 2014. The Company will rely on its flexible manufacturing capabilities to balance production between the third and fourth quarters of 2015 to improve overall efficiencies.
As the Company exited the second quarter, its business remains under pressure from increased competitive activity, including aggressive price discounting in the U.S. enabled by the dramatic shift in world currencies. The Company continues to believe it is critical for it to support a healthy retail channel and protect its premium brand by aggressively managing supply in line with demand. The Company will not take a short-term view and compete with what it believes to be brand-damaging price discounting. The Company will continue to manage its brand for the long-term.
The Company believes it has taken appropriate action around the world to help mitigate the impact of competitive activity in a manner that will reinforce its premium brand. The Company believes retail sales of new Harley-Davidson motorcycles in the second half of 2015 will be driven by its continued demand-driving market actions that it initiated in various world markets, the continued worldwide roll-out of its Street motorcycles, ongoing international dealer expansion, the introduction of its 2016 model-year motorcycles in late August 2015 and the Company's brand strength.
The Company continues to expect 2015 operating margin percent for the Motorcycles segment to be between 18.0% and 19.0% compared to 18.0% in 2014. The Company now expects gross margin to be up modestly compared to 2014. The Company expects gross margin to be favorably impacted by motorcycle pricing and productivity gains, partially offset by unfavorable foreign currency exchange and increased pension expense. The Company now expects selling, administrative and engineering expenses to be up modestly in 2015 in absolute spending and as a percent of revenue due to recall expenses and expenses associated with its market action plan.
The Company’s earnings related to its operations outside the U.S. are impacted by changes in foreign currency exchange rates. The majority of the Company’s exposure relates to the Euro, the Australian dollar, the Japanese yen and the Brazilian real. The Company refers to these as its key foreign currencies. A weakening in foreign currencies relative to the U.S. dollar will generally have an adverse effect on revenue related to sales made in those foreign currencies offset by a corresponding positive impact from natural hedges created by the operating costs incurred in those same foreign currencies. In addition, to the extent the Company carries foreign-denominated cash, receivables or accounts payable, those amounts are also exposed to foreign currency revaluations that can impact the Company’s earnings.

39
Table of Contents

Since the majority of the Company’s manufacturing occurs in the U.S., the Company’s operating expenses paid in foreign currencies generally include limited manufacturing costs and the selling and administrative costs incurred at the Company’s international locations. The Company uses derivative financial instruments to hedge a portion of the forecasted cash flows in its key foreign currencies. These instruments generally have terms of up to 12 months and are purchased over time so that at any point in time some portion of the next 12 months of expected foreign currency exposure is hedged. The hedging instruments allow the Company to lock in the exchange rate on future foreign currency cash flows based on the forward rates available at the time of purchase.
If foreign currency exchange rates on July 20, 2015 remained constant throughout the remainder of 2015, the Company estimates the adverse impact to its expected Motorcycles segment full-year revenue from currency exchange would be approximately 4.25%. Taking into account the Company's natural hedges and the fact that it has a significant portion its 2015 foreign currency exposure hedged at favorable rates, it expects about half of the unfavorable revenue dollar impact to translate into lower gross profit for the full year and reduce gross margin by approximately 0.75 percentage points, which is reflected in the operating margin guidance above.
If foreign currency exchange rates on July 20, 2015 remained constant throughout the third quarter of 2015, the Company estimates the adverse impact to its expected Motorcycles segment revenue from currency exchange in the third quarter to be approximately 5%. Taking into account the Company's natural hedges and the fact that it has a significant portion its 2015 foreign currency exposure hedged at favorable rates, it expects about 40% of the unfavorable revenue dollar impact to translate into lower gross profit and reduce gross margin by approximately 1 percentage point for the third quarter.
The Company now expects operating income for the Financial Services segment to be up modestly in 2015 as compared to 2014.
The Company continues to estimate capital expenditures for 2015 to be between $240 million and $260 million as it increases its investment in product development focused on bringing exciting new products to market and as it continues to invest in its systems infrastructure. The Company anticipates it will have the ability to fund all capital expenditures in 2015 with cash flows generated by operations.
The Company continues to expect its full-year 2015 effective income tax rate will be approximately 35.5% compared to 34.2% in 2014. The higher effective tax rate in 2015 compared to 2014 primarily reflects the absence of the U.S. Federal Research and Development tax credit that expired at the end of 2014.
Canada Distributor Transaction
On August 4, 2015, the Company purchased the assets of Fred Deeley Imports, Ltd. (Deeley Imports) and certain of its affiliates (Transaction), including among other things, the exclusive right to distribute the Company’s motorcycles and other products in Canada. The Company expects the financial impact of the Transaction and the new direct distribution model to be dilutive to 2015 earnings per share by approximately $0.04, due to upfront transition costs, with most of the impact anticipated to occur in the third quarter.(1) The Company expects the impact of the new direct distribution model to be accretive to earnings per share beginning in 2016 and beyond.(1) The potential financial impact of the Transaction and the potential new direct distribution model in Canada is not reflected in the guidance included in the "Outlook" section above.

40
Table of Contents

Results of Operations for the Three Months Ended June 28, 2015
Compared to the Three Months Ended June 29, 2014
Consolidated Results
 
Three months ended
 
 
 
 
(in thousands, except earnings per share)
June 28,
2015
 
June 29,
2014
 
(Decrease) Increase
 
% Change
Operating income from Motorcycles & Related Products
$
380,603

 
$
473,256

 
$
(92,653
)
 
(19.6
)%
Operating income from Financial Services
81,913

 
74,439

 
7,474

 
10.0

Operating income
462,516

 
547,695

 
(85,179
)
 
(15.6
)
Investment income
1,450

 
1,772

 
(322
)
 
(18.2
)
Interest expense
9

 
393

 
(384
)
 
(97.7
)
Income before income taxes
463,957

 
549,074

 
(85,117
)
 
(15.5
)
Provision for income taxes
164,147

 
194,921

 
(30,774
)
 
(15.8
)
Net income
$
299,810

 
$
354,153

 
$
(54,343
)
 
(15.3
)%
Diluted earnings per share
$
1.44

 
$
1.62

 
$
(0.18
)
 
(11.1
)%
Consolidated operating income was down 15.6% in the second quarter of 2015 due to a decrease in operating income from the Motorcycles & Related Products segment which declined by $92.7 million, or 19.6%, compared to the second quarter of 2014. Operating income from the Financial Services segment was higher during the second quarter of 2015 compared to the second quarter of 2014, increasing $7.5 million or 10.0%. Please refer to the “Motorcycles and Related Products Segment” and “Financial Services Segment” discussions following for a more detailed discussion of the factors affecting operating income.
The effective income tax rate for the second quarter of 2015 was 35.4% compared to 35.5% for the second quarter of 2014.
Diluted earnings per share was $1.44 in the second quarter of 2015, down 11.1% compared to the same period in the prior year. Diluted earnings per share decreased following the 15.3% decrease in net income, but benefited from lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 219.2 million in the second quarter of 2014 to 208.6 million in the second quarter of 2015, driven by the Company's repurchases of common stock. Please refer to "Liquidity and Capital Resources" for additional information concerning the Company's share repurchase activity.
Harley-Davidson Motorcycle Worldwide Retail Sales(a) 
Worldwide independent dealer retail sales of Harley-Davidson motorcycles during the second quarter of 2015 decreased 1.4% compared to the second quarter of 2014. Retail sales of Harley-Davidson motorcycles decreased 0.7% in the United States and 2.7% internationally in the second quarter of 2015.
As the Company expected, it believes that U.S. retail sales growth comparison was negatively impacted by a challenging prior year due to the very enthusiastic consumer reception for the initial Project RushmoreTM launch. Retail sales of touring models in the second quarter of 2014 were up 31% compared to the second quarter of 2013. In addition, retail sales in the second quarter of 2014 included sales of Street 500 motorcycles sold to U.S. dealers for use in the Company's Riding Academy. The Company also believes U.S. retail sales continued to be negatively impacted by pressure from significant price discounting by most of the Company's competition. As a result of the dramatic strengthening in the U.S. dollar against world currencies, the Company believes its competitors located outside the U.S. have experienced a significant favorable financial impact allowing them to offer discounted prices to U.S. consumers. The Company expects aggressive discounting from its competition to continue for some time based on levels of competitive inventories in the retail channel coupled with foreign exchange rates that are favorable for its competitors(1).
Although retail sales were lower in the second quarter of 2015, the Company has continued to experience success from its latest Project RushmoreTM models launched in August 2014 and with sales of its Street motorcycles as the Company continued its global rollout of these models.
The Company's U.S. market share of 601+cc motorcycles for the second quarter of 2015 was 47.5%, down 2.8 percentage points compared to the same period last year (Source: Motorcycle Industry Council). The Company anticipated some level of market share loss following the 13.4 percentage point increase in recent years; however, the Company's market share over the last three quarters was more severely impacted than it expected, as a result of increased price discounting by its competition and

41
Table of Contents

the inclusion of autocycles in the industry numbers. The Company is pleased to see a moderation in market share loss from the first quarter of 2015 decline of 4.7 percentage points. The Company believes the improvement was driven by its strong brand strategy and its recent market actions to drive demand in this tough competitive environment.
Retail sales in Canada were 9.9% lower in the second quarter of 2015 compared to the second quarter of 2014 which the Company believes was driven by a highly competitive environment coinciding with the pending transition of the business from the independent distributor to direct distribution by the Company in the transaction that was completed August 4.
In the EMEA region, retail sales of Harley-Davidson motorcycles in the second quarter of 2015 decreased 8.9% compared to the prior year as the region experienced the impact of several low-priced models introduced by competitive brands and a challenging prior year comparison due to strong year-ago retail sales growth of 7.0%. The Company also experienced currency-driven volume declines in markets where it sold its motorcycles to dealers in non-local currencies, such as Russia. At the end of the second quarter of 2015, the Company's market share of 601+cc models in Europe was 10.4%, down 2.2 percentage points compared to the same period last year (Source: Association des Constructeurs Europeens de Motocycles). The Company believes the decline in its market share in Europe is due to the introduction of several low-priced models by some of its competition in the performance and standard segments, market segments where the Company's motorcycles do not compete.
Second quarter 2015 retail sales in the Asia Pacific region were up 16.6% compared to the second quarter of 2014. The region experienced growth in all major markets and, in particular, emerging markets led by India and China. The growth was driven by Street motorcycles, which were launched in several Asia Pacific markets in the first half of 2015. Retail sales in Japan were impacted by the restructuring of distribution in the market; including a new pipeline distribution process and rationalization of the dealer network to improve the customer experience. Under the new pipeline distribution process, dealer orders are fulfilled as needed through local Company-owned inventory allowing dealers to carry lower inventory levels.
The Latin America region retail sales were down 2.6% in the second quarter of 2015 compared to the prior year as a result of lower retail sales in Brazil partially offset by growth in Mexico. Retail sales in the Brazil market continued to be impacted by a slowing economy, consumer uncertainty and very aggressive price competition.
While the Company remains cautious in its near-term outlook given the economic challenges in some international markets, it is confident in its current market efforts and it remains focused on its long-term growth strategies. Despite the volatility in global retail sales, the Company believes it can continue to realize international growth by prudently expanding its distribution network, building its brand experience across the world, and delivering exceptional products that the Company believes will inspire riders.(1) 
The following table includes retail unit sales of Harley-Davidson motorcycles:
 
Three months ended
 
 
 
 
 
June 30,
2015
 
June 30,
2014
 
(Decrease)
Increase
 
%
Change
North America Region
 
 
 
 
 
 
 
United States
57,790

 
58,225

 
(435
)
 
(0.7
)%
Canada
3,737

 
4,146

 
(409
)
 
(9.9
)%
Total North America Region
61,527

 
62,371

 
(844
)
 
(1.4
)%
Europe, Middle East and Africa Region (EMEA)
 
 
 
 
 
 
 
Europe(b)
14,150

 
15,726

 
(1,576
)
 
(10.0
)%
Other
2,029

 
2,038

 
(9
)
 
(0.4
)%
Total EMEA Region
16,179

 
17,764

 
(1,585
)
 
(8.9
)%
Asia Pacific Region
 
 
 
 
 
 
 
Japan
2,580

 
2,510

 
70

 
2.8
 %
Other
5,937

 
4,792

 
1,145

 
23.9
 %
Total Asia Pacific Region
8,517

 
7,302

 
1,215

 
16.6
 %
Latin America Region
2,708

 
2,781

 
(73
)
 
(2.6
)%
Total Worldwide Retail Sales
88,931

 
90,218

 
(1,287
)
 
(1.4
)%
Total International Retail Sales
31,141

 
31,993

 
(852
)
 
(2.7
)%
 

42
Table of Contents

(a)
Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning retail sales and this information is subject to revision.
(b)
Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.


Motorcycles & Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesale motorcycle unit shipments for the Motorcycles segment:
 
Three months ended
 
 
 
 
 
June 28, 2015
 
June 29, 2014
 
Unit
 
Unit
 
Units
 
Mix %
 
Units
 
Mix %
 
(Decrease) Increase
 
%
Change
United States
55,128

 
64.7
%
 
63,043

 
68.4
%
 
(7,915
)
 
(12.6
)%
International
30,044

 
35.3
%
 
29,174

 
31.6
%
 
870

 
3.0

Harley-Davidson motorcycle units
85,172

 
100.0
%
 
92,217

 
100.0
%
 
(7,045
)
 
(7.6
)%
Touring motorcycle units
34,563

 
40.6
%
 
41,095

 
44.6
%
 
(6,532
)
 
(15.9
)%
Cruiser motorcycle units(a)
29,952

 
35.2
%
 
32,231

 
34.9
%
 
(2,279
)
 
(7.1
)
Sportster® / Street motorcycle units
20,657

 
24.2
%
 
18,891

 
20.5
%
 
1,766

 
9.3

Harley-Davidson motorcycle units
85,172

 
100.0
%
 
92,217

 
100.0
%
 
(7,045
)
 
(7.6
)%
 
(a)
Category previously referred to as "Custom" motorcycle units, as used in this table, include Dyna®, Softail®, V-Rod® and CVO models.
The Company shipped 85,172 Harley-Davidson motorcycles worldwide during the second quarter of 2015, which was 7.6% lower than the second quarter of 2014 and in line with Company expectations.
Shipments of Sportster® / Street motorcycles as a percentage of total shipments increased in the second quarter of 2015 compared to the prior year while shipments of Touring and Cruiser motorcycles as a percentage of total shipments decreased. The higher shipment mix of Sportster® / Street motorcycles was driven by shipments of the Company's Street models as it continues its global roll-out of these models.
U.S. dealer retail inventory of Harley-Davidson motorcycles was approximately 1,600 units lower at the end of the second quarter of 2015 compared to the same time last year. Excluding incremental retail dealer fill of Street motorcycles, second quarter 2015 retail inventory of Harley-Davidson motorcycles was down significantly, as the Company expected. The Company believes the overall U.S. retail inventory of Harley-Davidson motorcycles was appropriate and reflects its flexible manufacturing capabilities and its commitment to manage supply in line with demand.


43
Table of Contents

Segment Results
The following table includes the condensed statements of operations for the Motorcycles segment (in thousands):
 
Three months ended
 
 
 
 
 
June 28, 2015
 
June 29, 2014
 
(Decrease)
Increase
 
%
Change
Revenue:
 
 
 
 
 
 
 
Motorcycles
$
1,308,837

 
$
1,480,914

 
$
(172,077
)
 
(11.6
)%
Parts & Accessories
256,840

 
271,572

 
(14,732
)
 
(5.4
)
General Merchandise
77,518

 
76,386

 
1,132

 
1.5

Other
7,588

 
5,413

 
2,175

 
40.2

Total revenue
1,650,783

 
1,834,285

 
(183,502
)
 
(10.0
)
Cost of goods sold
1,003,569

 
1,110,146

 
(106,577
)
 
(9.6
)
Gross profit
647,214

 
724,139

 
(76,925
)
 
(10.6
)
Selling & administrative expense
228,148

 
218,410

 
9,738

 
4.5

Engineering expense
38,463

 
32,473

 
5,990

 
18.4

Operating expense
266,611

 
250,883

 
15,728

 
6.3

Operating income from Motorcycles
$
380,603

 
$
473,256

 
$
(92,653
)
 
(19.6
)%
The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the second quarter of 2014 to the second quarter of 2015 (in millions):
 
Net
Revenue
 
Cost of
Goods Sold
 
Gross
Profit
Three months ended June 29, 2014
$
1,834.3

 
$
1,110.2

 
$
724.1

Volume
(119.3
)
 
(73.3
)
 
(46.0
)
Price, net of related cost
20.4

 
1.8

 
18.6

Foreign currency exchange rates and hedging
(80.0
)
 
(43.9
)
 
(36.1
)
Shipment mix
(4.6
)
 
11.9

 
(16.5
)
Raw material prices
—

 
(4.3
)
 
4.3

Manufacturing and other costs
—

 
1.2

 
(1.2
)
Total
(183.5
)
 
(106.6
)
 
(76.9
)
Three months ended June 28, 2015
$
1,650.8

 
$
1,003.6

 
$
647.2

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from the second quarter of 2014 to the second quarter of 2015:

•
Volume decreases were driven by the planned decrease in wholesale motorcycle shipments and lower parts and accessories sales, partially offset by higher sales volumes for general merchandise.
•
On average, wholesale prices for the Company’s 2015 model-year motorcycles are higher than the prior model-year resulting in the favorable impact on revenue during the period. The impact of revenue favorability resulting from model-year price increases on gross profit was partially offset by an increase in cost related to the additional content added to the 2015 model-year motorcycles.
•
Gross profit was negatively impacted by changes in foreign currency exchange rates during the second quarter of 2015 compared to the second quarter of 2014. Revenue was negatively impacted by a devaluation in the Euro, Japanese yen, Brazilian real and Australian dollar. On a weighted average basis, these key currencies were weaker by 19% in the second quarter of 2015 compared to the second quarter of 2014. The negative impact to revenue was partially offset by a positive impact to cost of goods sold as a result of natural hedges, benefits of foreign currency exchange contracts and the revaluation of foreign-denominated assets on the balance sheet.
•
As expected, shipment mix changes negatively impacted net revenue and gross profit in the second quarter of 2015 primarily as a result of the shift in mix between motorcycle families.
•
Raw material prices were slightly lower in the second quarter of 2015 relative to the second quarter of 2014.

44
Table of Contents

•
Manufacturing costs in the second quarter of 2015 were higher primarily due to an increase in the cost per unit resulting from the lower production volumes partially offset by strong productivity gains and the absence of Street motorcycle start-up costs that were incurred in the second quarter of 2014.
The net increase in operating expenses was primarily due to increased marketing costs as the Company addressed the highly competitive environment. Operating expense in the second quarter of 2015 also included recall costs of $16.4 million.
Financial Services Segment
Segment Results
The following table includes the condensed statements of operations for the Financial Services segment (in thousands):
 
Three months ended
 
 
 
 
 
June 28, 2015
 
June 29, 2014
 
Increase
(Decrease)
 
%
Change
Interest income
$
150,284

 
$
145,202

 
$
5,082

 
3.5
 %
Other income
23,325

 
21,212

 
2,113

 
10.0

Financial Services revenue
173,609

 
166,414

 
7,195

 
4.3

Interest expense
41,188

 
40,741

 
447

 
1.1

Provision for credit losses
15,175

 
15,961

 
(786
)
 
(4.9
)
Operating expenses
35,333

 
35,273

 
60

 
0.2

Financial Services expense
91,696

 
91,975

 
(279
)
 
(0.3
)
Operating income from Financial Services
$
81,913

 
$
74,439

 
$
7,474

 
10.0
 %
Interest income for the second quarter of 2015 increased primarily due to higher average receivables in the wholesale and retail portfolios, partially offset by lower yields primarily on retail finance receivables due to increased competition. Other income was favorable primarily due to increased credit card licensing and insurance revenue. Other income now includes international income which had previously been reported in interest income. Prior period amounts, which were not material, have been adjusted for comparability.
Interest expense for the second quarter of 2015 increased slightly due to higher average outstanding debt, partially offset by a lower cost of funds and a $1.1 million loss on the extinguishment of medium-term notes recorded in the second quarter of 2014.
The provision for credit losses decreased $0.8 million in second quarter of 2015 as compared to the second quarter of 2014. The retail motorcycle provision increased $0.5 million in the second quarter of 2015 primarily as a result of higher credit losses. Credit losses were impacted by increased sub-prime originations in recent years, as well as changing consumer credit behavior. The wholesale provision decreased by $1.4 million due to a decrease in receivables and lower reserve rates.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
 
Three months ended
 
June 28,
2015
 
June 29,
2014
Balance, beginning of period
$
132,820

 
$
114,529

Provision for finance credit losses
15,175

 
15,961

Charge-offs
(21,003
)
 
(19,018
)
Recoveries
12,239

 
10,883

Balance, end of period
$
139,231

 
$
122,355



45
Table of Contents

Results of Operations for the Six Months Ended June 28, 2015
Compared to the Six Months Ended June 29, 2014
Consolidated Results
 
Six months ended
 
 
 
 
(in thousands, except earnings per share)
June 28,
2015
 
June 29,
2014
 
(Decrease)
Increase
 
%
Change
Operating income from Motorcycles & Related Products
$
726,057

 
$
820,948

 
$
(94,891
)
 
(11.6
)%
Operating income from Financial Services
146,577

 
137,629

 
8,948

 
6.5

Operating income
872,634

 
958,577

 
(85,943
)
 
(9.0
)
Investment income
2,772

 
3,431

 
(659
)
 
(19.2
)
Interest expense
18

 
4,070

 
(4,052
)
 
(99.6
)
Income before income taxes
875,388

 
957,938

 
(82,550
)
 
(8.6
)
Provision for income taxes
305,724

 
337,868

 
(32,144
)
 
(9.5
)
Net income
$
569,664

 
$
620,070

 
$
(50,406
)
 
(8.1
)%
Diluted earnings per share
$
2.71

 
$
2.82

 
$
(0.11
)
 
(3.9
)%
Consolidated operating income was down 9.0% in the first six months of 2015 led by a decrease in operating income from the Motorcycles segment which declined by $94.9 million, or 11.6%, compared to the first six months of 2014. Operating income for the Financial Services segment improved by $8.9 million in the first six months of 2015 compared to the first six months of 2014. Please refer to the “Motorcycles and Related Products Segment” and “Financial Services Segment” discussions following for a more detailed discussion of the factors affecting operating income.
Interest expense was lower in the first six months of 2015 compared to the first six months of 2014 due to the repayment of $303 million of senior unsecured long-term debt in February 2014.
The effective income tax rate for the first six months of 2015 was 34.9% compared to 35.3% for the first six months of 2014. The lower effective tax rate in 2015 primarily reflects a higher projected tax benefit from the U.S. manufacturing deduction.
Diluted earnings per share was $2.71 in the first six months of 2015, down 3.9% from the same period in the prior year. The decrease in diluted earnings per share was driven by the 8.1% decrease in net income. Diluted earnings per share benefited from lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 219.8 million in the first six months of 2014 to 210.2 million in the first six months of 2015, driven by the Company's repurchases of common stock. Please refer to "Liquidity and Capital Resources" for additional information concerning the Company's share repurchase activity.
Motorcycles Retail Sales and Registration Data
Worldwide independent dealer retail sales of Harley-Davidson motorcycles decreased 1.4% during the first half of 2015 compared to the first half of 2014, during which retail sales were up 4.2% compared to 2013. Retail sales of Harley-Davidson motorcycles decreased 0.7% in the United States and decreased 2.5% internationally in the first half of 2015.
U.S. retail sales were negatively impacted by continued pressure from significant price discounting by most of the Company's competition. As the Company expected, it also believes that the U.S. retail sales year-over-year growth comparison was negatively impacted by the very enthusiastic consumer reception in 2014 for the initial Project RushmoreTM launch.
The Company continued to experience success in the first half of 2015 with its latest Project RushmoreTM models launched in August 2014 and with U.S. retail sales of its Street motorcycles.
The Company's U.S. market share of 601+cc models at the end of the first six months of 2015 was 48.8%, down 3.5 percentage points compared to the same period last year (Source: Motorcycle Industry Council). The Company anticipated some level of market share loss following the 13.4 percentage point increase in recent years; however, the Company's market share over the last three quarters was more severely impacted than it expected, as a result of increased price discounting by its competition and the inclusion of autocycles in the industry numbers.
Retail sales in the first six months of 2015 in the EMEA region were down 7.7% compared to the first six months of 2014 due to a strong increase in 2014 which was up 7.5% compared to the first six months of 2013. The Company believes that the

46
Table of Contents

lower 2015 retail sales were primarily due to new low-priced models introduced by competitive brands and currency driven volume declines in markets where the Company sold its motorcycles to dealers in non-local currencies, such as in Russia. At the end of the first six months of 2015, the Company's market share of 601+cc models in Europe was 10.2%, down 1.9 percentage points compared to the same period last year (Source: Association des Constructeurs Europeens de Motocycles). The Company believes the decline in its market share in Europe is due to the introduction of several low-priced models by some of its competition in the standard and performance segments, market segments where the Company's motorcycles do not compete.
In the Asia-Pacific region, retail sales increased 7.8% in the first six months of 2015 compared to the same period last year following prior year retail sales growth of 10.1%. The increase in 2015 was driven by growth in emerging markets led by India and China. The increase was driven by Street motorcycles which launched in several Asia Pacific markets in the first half of 2015. Retail sales in Japan were impacted by the restructuring of distribution in the market.
Latin America region retail sales in the first six months of 2015 were down 1.2% compared to the first six months of 2014 primarily due to a decline in Brazil, largely offset by growth in Mexico. The Company believes retail sales in Brazil in the first six months of 2015 were negatively impacted by a slowing economy, consumer uncertainty and aggressive price competition.
Retail sales in Canada were down 4.8% in the first six months of 2015 compared to the same period last year. The Company believes the decrease is a result of a highly competitive environment coinciding with the pending transition of the business from the independent distributor to direct distribution by the Company that was completed on August 4.

Worldwide Harley-Davidson Motorcycle Retail Sales(a) 
The following table includes retail unit sales of Harley-Davidson motorcycles:
 
Six months ended
 
 
 
 
 
June 30,
2015
 
June 30,
2014
 
(Decrease)
Increase
 
%
Change
North America Region
 
 
 
 
 
 
 
United States
93,278

 
93,955

 
(677
)
 
(0.7
)%
Canada
5,860

 
6,155

 
(295
)
 
(4.8
)
Total North America Region
99,138

 
100,110

 
(972
)
 
(1.0
)
Europe, Middle East and Africa Region (EMEA)
 
 
 
 
 
 
 
Europe(b)
22,279

 
24,121

 
(1,842
)
 
(7.6
)
Other
3,288

 
3,583

 
(295
)
 
(8.2
)
Total EMEA Region
25,567

 
27,704

 
(2,137
)
 
(7.7
)
Asia Pacific Region
 
 
 
 
 
 
 
Japan
4,552

 
5,403

 
(851
)
 
(15.8
)
Other
11,062

 
9,077

 
1,985

 
21.9

Total Asia Pacific Region
15,614

 
14,480

 
1,134

 
7.8

Latin America Region
5,273

 
5,339

 
(66
)
 
(1.2
)
Total Worldwide Retail Sales
145,592

 
147,633

 
(2,041
)
 
(1.4
)%
Total International Retail Sales
52,314

 
53,678

 
(1,364
)
 
(2.5
)%
 
(a)
Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning retail sales and this information is subject to revision.
(b)
Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.


47
Table of Contents

Motorcycle Registration Data(a) 
The following table includes industry retail motorcycle registration data:
 
Six months ended
 
 
 
 
 
June 30,
2015
 
June 30,
2014
 
Increase
 
%
Change
United States(b)
187,163

 
173,960

 
13,203

 
7.6
%
Europe(c)
229,469

 
209,218

 
20,251

 
9.7
%
 
(a)
Data includes on-road 601+cc models. On-road 601+cc models include on-highway, dual purpose models and three-wheeled vehicles. Registration data for Harley-Davidson Street 500TM motorcycles is not included in this table.
(b)
United States industry data is derived from information provided by Motorcycle Industry Council (MIC). This third party data is subject to revision and update.
(c)
Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data includes 601+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. This third-party data is subject to revision and update.
Motorcycles & Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesale motorcycle unit shipments for the Motorcycles segment:
 
Six months ended
 
 
 
 
 
June 28, 2015
 
June 29, 2014
 
Unit
 
Unit
 
Units
 
Mix %
 
Units
 
Mix %
 
(Decrease) Increase
 
%
Change
United States
111,792

 
67.9
%
 
117,334

 
67.9
%
 
(5,542
)
 
(4.7
)%
International
52,969

 
32.1
%
 
55,565

 
32.1
%
 
(2,596
)
 
(4.7
)
Harley-Davidson motorcycle units
164,761

 
100.0
%
 
172,899

 
100.0
%
 
(8,138
)
 
(4.7
)%
Touring motorcycle units
73,360

 
44.5
%
 
77,273

 
44.7
%
 
(3,913
)
 
(5.1
)%
Cruiser motorcycle units(a)
53,348

 
32.4
%
 
61,380

 
35.5
%
 
(8,032
)
 
(13.1
)
Sportster® / Street motorcycle units(b)
38,053

 
23.1
%
 
34,246

 
19.8
%
 
3,807

 
11.1

Harley-Davidson motorcycle units
164,761

 
100.0
%
 
172,899

 
100.0
%
 
(8,138
)
 
(4.7
)%
 
(a)
Category previously referred to as "Custom" motorcycle units, as used in this table, include Dyna®, Softail®, V-Rod® and CVO models.
(b)
Initial shipments of Street motorcycle units began during the first quarter of 2014.
The Company shipped 164,761 motorcycles worldwide during the first half of 2015, which was 4.7% lower than the first half of 2014. International shipments as a percent of total shipments was 32.1% in the first six months of 2015 and for the first six months of 2014. The Company continues to believe that international retail sales will grow at a faster rate than domestic retail sales over the next few years.(1) 
The shipment mix percentage of Touring motorcycles in the first six months of 2015 was largely flat while shipment mix percentage of Sportster® / Street motorcycles increased in the first six months of 2015 offset by a decrease in Cruiser motorcycles compared to the same period last year.

48
Table of Contents


Segment Results
The following table includes the condensed statements of operations for the Motorcycles segment (in thousands):
 
Six months ended
 
 
 
 
 
June 28, 2015
 
June 29, 2014
 
(Decrease)
Increase
 
%
Change
Revenue:
 
 
 
 
 
 
 
Motorcycles
$
2,563,958

 
$
2,785,953

 
$
(221,995
)
 
(8.0
)%
Parts & Accessories
440,712

 
469,707

 
(28,995
)
 
(6.2
)
General Merchandise
143,946

 
140,500

 
3,446

 
2.5

Other
12,737

 
9,813

 
2,924

 
29.8

Total revenue
3,161,353

 
3,405,973

 
(244,620
)
 
(7.2
)
Cost of goods sold
1,923,864

 
2,089,703

 
(165,839
)
 
(7.9
)
Gross profit
1,237,489

 
1,316,270

 
(78,781
)
 
(6.0
)
Selling & administrative expense
433,655

 
429,585

 
4,070

 
0.9

Engineering expense
77,777

 
65,737

 
12,040

 
18.3

Operating expense
511,432

 
495,322

 
16,110

 
3.3

Operating income from Motorcycles
$
726,057

 
$
820,948

 
$
(94,891
)
 
(11.6
)%
The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first half of 2014 to the first half of 2015 (in millions):
 
Net
Revenue
 
Cost of
Goods Sold
 
Gross
Profit
Six months ended June 29, 2014
$
3,406.0

 
$
2,089.7

 
$
1,316.3

Volume
(143.0
)
 
(88.7
)
 
(54.3
)
Price, net of related costs
38.6

 
4.0

 
34.6

Foreign currency exchange rates and hedging
(133.7
)
 
(58.2
)
 
(75.5
)
Shipment mix
(6.5
)
 
0.9

 
(7.4
)
Raw material prices
—

 
(6.4
)
 
6.4

Manufacturing and other costs
—

 
(17.4
)
 
17.4

Total
(244.6
)
 
(165.8
)
 
(78.8
)
Six months ended June 28, 2015
$
3,161.4

 
$
1,923.9

 
$
1,237.5

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from the first half of 2014 to first half of 2015:

•
Volume decreases were driven by the decrease in wholesale motorcycle shipments and parts and accessories sales, partially offset by higher sales volumes for general merchandise.
•
On average, wholesale prices for the Company’s 2015 model-year motorcycles are higher than the prior model-year resulting in the favorable impact on revenue during the period. The impact of revenue favorability resulting from model-year price increases on gross profit was partially offset by increases in costs related to the additional content added to the 2015 model-year motorcycles.
•
Gross profit was negatively impacted by changes in foreign currency exchange rates during the first six months of 2015 compared to the first six months of 2014. Revenue was negatively impacted by a devaluation in the Euro, Japanese yen, Brazilian real and Australian dollar. The negative impact to revenue was partially offset by a positive impact to cost of goods sold as a result of natural hedges and benefits of foreign currency exchange contracts, partially offset by an unfavorable impact due to the revaluation of foreign-denominated assets on the balance sheet.
•
Shipment mix changes negatively impacted gross profit primarily due to changes in motorcycle family mix, driven by higher shipments of Street motorcycles. The negative motorcycle family mix was partially offset by positive mix changes within parts and accessories and general merchandise.
•
Raw material prices were lower in the first half of 2015 relative to the first half of 2014.

49
Table of Contents

•
Manufacturing costs in the first six months of 2015 benefited from increased manufacturing efficiencies and the absence of Street motorcycle start-up costs that were incurred in the first six months of 2014, partially offset by a higher cost per unit resulting from lower production volumes.
The net increase in operating expense was primarily due to increased marketing costs as the Company responded to the highly competitive environment and higher recall costs.
Financial Services Segment
Segment Results
The following table includes the condensed statements of operations for the Financial Services segment (in thousands):
 
Six months ended
 
 
 
 
 
June 28, 2015
 
June 29, 2014
 
Increase
(Decrease)
 
%
Change
Interest income
$
293,852

 
$
284,254

 
$
9,598

 
3.4
%
Other income
42,132

 
36,520

 
5,612

 
15.4

Financial Services revenue
335,984

 
320,774

 
15,210

 
4.7

Interest expense
79,724

 
79,598

 
126

 
0.2

Provision for credit losses
41,422

 
36,292

 
5,130

 
14.1

Operating expenses
68,261

 
67,255

 
1,006

 
1.5

Financial Services expense
189,407

 
183,145

 
6,262

 
3.4

Operating income from Financial Services
$
146,577

 
$
137,629

 
$
8,948

 
6.5
%
Interest income was higher in the first six months of 2015 due to higher average receivables in the retail and wholesale portfolios compared to the first six months of 2014, partially offset by lower yields primarily due to increased competition. Other income was favorable primarily due to increased credit card licensing and insurance revenue. Other income now includes international income which had previously been reported in interest income. Prior period amounts, which were not material, have been adjusted for comparability.
Interest expense increased slightly primarily due to higher average outstanding debt, partially offset by a lower cost of funds and a $1.1 million loss on the extinguishment of medium-term notes recorded during the first six months of 2014.
The provision for credit losses increased $5.1 million in the first six months of 2015. The retail motorcycle provision increased $5.9 million in the first six months of 2015 primarily as a result of higher credit losses and an increase in retail receivables. Credit losses were higher as a result of increased sub-prime originations in recent years, as well as changing consumer credit behavior. The wholesale provision was favorable by $0.8 million due primarily to a smaller increase in receivables in the first six months of 2015 as compared to 2014.
On a year-to-date basis, retail loan originations were comprised of approximately 80% prime loans and 20% sub-prime. Sub-prime originations represent a significant amount of retail sales to the Company at attractive returns which further reinforces the competitive advantage that HDFS brings to the Company.
Annualized losses on HDFS' retail motorcycle loans were 1.08% through June 28, 2015 compared to 0.97% through June 29, 2014. The 30-day delinquency rate for retail motorcycle loans at June 28, 2015 was 2.71% compared to 2.68% at June 29, 2014.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
 
Six months ended
 
June 28,
2015
 
June 29,
2014
Balance, beginning of period
$
127,364

 
$
110,693

Provision for credit losses
41,422

 
36,292

Charge-offs
(53,736
)
 
(46,361
)
Recoveries
24,181

 
21,731

Balance, end of period
$
139,231

 
$
122,355


50
Table of Contents

Other Matters
Contractual Obligations
The Company has updated the contractual obligations table under the caption “Contractual Obligations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 as of June 28, 2015 to reflect the new projected principal and interest payments for the remainder of 2015 and beyond as follows (in thousands):
 
2015
 
2016 - 2017
 
2018 - 2019
 
Thereafter
 
Total
Principal payments on debt
$
1,216,387

 
$
1,951,101

 
$
2,367,006

 
$
692,206

 
$
6,226,700

Interest payments on debt
87,666

 
227,144

 
94,906

 
1,940

 
411,656

 
$
1,304,053

 
$
2,178,245

 
$
2,461,912

 
$
694,146

 
$
6,638,356

Interest obligations for floating rate instruments, as calculated above, assume rates in effect at June 28, 2015 remain constant.
As of June 28, 2015, there have been no other material changes to the Company’s summary of expected payments for significant contractual obligations in the contractual obligations table.
Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining required reserves related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reserves are monitored on an ongoing basis and are updated based on new developments or new information in each matter.
Environmental Protection Agency Notice
In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses to the EPA’s inquiry and has engaged in discussions with the EPA. Since that time, the EPA has delivered various additional requests for information to which the Company has responded. It is probable that a result of the EPA’s investigation will be some form of enforcement action by the EPA that will seek a fine and/or other relief. The Company has a reserve associated with this matter which is included in accrued liabilities in the Consolidated Balance Sheet. However, given the uncertainty that still exists concerning the resolution of this matter, there is a possibility that the actual loss incurred may be materially different from the Company’s current reserve. At this time, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter, if any.
York Environmental Matters:
The Company is involved with government agencies and groups of potentially responsible parties in various environmental matters, including a matter involving the cleanup of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including an ongoing site-wide remedial investigation/feasibility study (RI/FS). In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy, and the parties amended the Agreement in 2013 to address ordnance and explosive waste. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of future costs associated with environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.
The Company has a reserve for its estimate of its share of the future Response Costs at the York facility which is included in accrued liabilities in the Condensed Consolidated Balance Sheets. As noted above, the RI/FS is still underway and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS or otherwise at the York facility, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.

51
Table of Contents

The estimate of the Company’s future Response Costs that will be incurred at the York facility is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities. Response Costs are expected to be paid primarily over a period of several years ending in 2017 although certain Response Costs may continue for some time beyond 2017.
Product Liability Matters:
The Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability suits will not have a material adverse effect on the Company’s consolidated financial statements.(1) 
Liquidity and Capital Resources as of June 28, 2015(1) 
Over the long-term, the Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities and return value to shareholders(1). The Company will evaluate opportunities to enhance value for its shareholders through increasing dividends and repurchasing shares. The Company believes the Motorcycles operations will continue to be primarily funded through cash flows generated by operations(1). The Financial Services operations have been funded with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities, term asset-backed securitizations, and intercompany borrowings.
The Company’s strategy is to maintain a minimum of twelve months of its projected liquidity needs through a combination of cash and marketable securities and availability under credit facilities. The following table summarizes the Company’s cash and marketable securities and availability under credit facilities (in thousands):
 
June 28, 2015
Cash and cash equivalents
$
1,247,579

Current marketable securities
52,516

Total cash and cash equivalents and marketable securities
1,300,095

 
 
Global credit facilities
1,235,017

Asset-backed U.S. commercial paper conduit facility(a)
600,000

Asset-backed Canadian commercial paper conduit facility(b)
10

Total availability under credit facilities
1,835,027

Total
$
3,135,122

(a)
The U.S. commercial paper conduit facility expires on October 30, 2015. The Company anticipates that it will renew this facility prior to expiration(1).
(b)
The Canadian commercial paper conduit facility was due to expire on June 30, 2015 and is limited to Canadian-denominated borrowings. The Company renewed this facility and the new facility expires June 30, 2016.
The Company continues to monitor and adjust to changes in the lending environment for its Financial Services operations. The Company intends to continue with a diversified funding profile through a combination of short-term and long-term funding vehicles and to pursue a variety of sources to obtain cost-effective funding. The Financial Services operations could be negatively affected by higher costs of funding and increased difficulty of raising or potential unsuccessful efforts to raise funding in the short-term and long-term capital markets. These negative consequences could in turn adversely affect the Company’s business and results of operations in various ways, including through higher costs of capital, reduced funds available through its Financial Services operations to provide loans to independent dealers and their retail customers, and dilution to existing shareholders through the use of alternative sources of capital.

52
Table of Contents

Cash Flow Activity
The following table summarizes the cash flow activity for the periods indicated (in thousands):
 
Six months ended
 
June 28, 2015
 
June 29, 2014
Net cash provided by operating activities
$
613,944

 
$
570,592

Net cash used by investing activities
(481,701
)
 
(419,759
)
Net cash provided by (used by) financing activities
214,351

 
(223,082
)
Effect of exchange rate changes on cash and cash equivalents
(5,695
)
 
4,983

Net increase (decrease) in cash and cash equivalents
$
340,899

 
$
(67,266
)
Operating Activities
The increase in cash provided by operating activities for the first six months of 2015 compared to the first six months of 2014 was due in part to lower net cash outflows for wholesale lending. No contributions to qualified pension plans are required or planned in 2015(1). The Company expects it will continue to make on-going contributions related to current benefit payments for SERPA and postretirement healthcare plans.
Investing Activities
The Company’s investing activities consist primarily of capital expenditures, net changes in finance receivables and short-term investment activity. Capital expenditures were $85.2 million in the first six months of 2015 compared to $74.5 million in the same period last year. Net cash outflows for finance receivables for the first six months of 2015 were $19.7 million higher than in the same period last year as a result of an increase in retail motorcycle loan originations during the first six months of 2014. A net decrease in marketable securities during the first six months of 2014 resulted in higher investing cash inflows of approximately $36.5 million compared to the first six months of 2015.
Financing Activities
The Company’s financing activities consist primarily of share repurchases, dividend payments and debt activity. Cash outflows for share repurchases were $358.4 million in the first six months of 2015 compared to $223.7 million in the same period last year. Share repurchases during the first six months of 2015 included 5.9 million shares of common stock related to discretionary share repurchases as well as shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock awards. As of June 28, 2015, there were 31.0 million shares remaining on board-approved share repurchase authorizations.
The Company paid dividends of $0.620 and $0.550 per share totaling $129.7 million and $120.6 million during the first six months of 2015 and 2014, respectively.
Financing cash flows related to debt activity resulted in net cash inflows of $724.6 million in the first six months of 2015 compared to net cash inflows of $94.6 million in the first six months of 2014. During the second quarter of 2015, the Company issued $500.0 million of secured notes through a term asset-backed securitization transaction. During the second quarter of 2014, the Company issued $850.0 million of secured notes through a term asset-backed securitization transaction. The Company’s total outstanding debt consisted of the following (in thousands):
 
June 28,
2015
 
June 29,
2014
Unsecured commercial paper
$
114,983

 
$
619,622

Asset-backed Canadian commercial paper conduit facility
160,940

 
173,224

Medium-term notes
3,933,698

 
2,853,232

Term asset-backed securitization debt
2,017,079

 
1,712,855

Total debt
$
6,226,700

 
$
5,358,933


53
Table of Contents

To access the debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings. Generally, lower credit ratings result in higher borrowing costs and reduced access to debt capital markets. A credit rating agency may change or withdraw the Company’s ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. The Company’s short-term debt ratings affect its ability to issue unsecured commercial paper. The Company’s short- and long-term debt ratings as of June 28, 2015 were as follows:
 
Short-Term
 
Long-Term
 
Outlook
Moody’s
P2
 
A3
 
Stable
Standard & Poor’s
A2
 
A-
 
Stable
Fitch
F1
 
A
 
Stable
Global Credit Facilities – On April 7, 2014, the Company entered into a new $675.0 million five-year credit facility to refinance and replace a $675.0 million four-year credit facility that was due to mature in April 2015. The new five-year credit facility matures in April 2019. The Company also has a $675.0 million five-year credit facility which matures in April 2017. The new five-year credit facility and the existing five-year credit facility (together, the Global Credit Facilities) bear interest at variable interest rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based on the average daily unused portion of the aggregate commitments under the Global Credit Facilities. The Global Credit Facilities are committed facilities and primarily used to support the Company's unsecured commercial paper program.
Unsecured Commercial Paper – Subject to limitations, the Company could issue unsecured commercial paper of up to $1.35 billion as of June 28, 2015 supported by the Global Credit Facilities, as discussed above. Outstanding unsecured commercial paper may not exceed the unused portion of the Global Credit Facilities. Maturities may range up to 365 days from the issuance date. The Company intends to repay unsecured commercial paper as it matures with additional unsecured commercial paper or through other means, such as borrowing under the Global Credit Facilities, borrowing under its asset-backed U.S. commercial paper conduit facility or through the use of operating cash flow and cash on hand.(1) 
Medium-Term Notes – The Company had the following medium-term notes (collectively, the Notes) issued and outstanding at June 28, 2015 (in thousands):
Principal Amount
 
Rate
 
Issue Date
 
Maturity Date
$600,000
 
1.15%
 
September 2012
 
September 2015
$450,000
 
3.88%
 
March 2011
 
March 2016
$400,000
 
2.70%
 
January 2012
 
March 2017
$400,000
 
1.55%
 
November 2014
 
November 2017
$887,958
 
6.80%
 
May 2008
 
June 2018
$600,000
 
2.40%
 
September 2014
 
September 2019
$600,000
 
2.15%
 
February 2015
 
February 2020
The Notes provide for semi-annual interest payments and principal due at maturity. Unamortized discounts on the Notes reduced the outstanding balance by $4.3 million and $1.2 million at June 28, 2015 and June 29, 2014, respectively.
There were no medium-term notes issued or repurchased during the second quarter of 2015. During the first quarter of 2015, the Company issued $600.0 million of medium-term notes which mature in 2020 and have an annual interest rate of 2.15%. There were no medium-term notes issued during the first half of 2014. During the second quarter of 2014, HDFS repurchased an aggregate of $6.1 million of its 6.80% medium-term notes which mature in June 2018. As a result, HDFS recognized in financial services interest expense $1.1 million in loss on the extinguishment of debt, which included unamortized discounts and fees.
Senior Unsecured Notes – In February 2009, the Company issued $600.0 million of senior unsecured notes in an underwritten offering. The senior unsecured notes provided for semi-annual interest payments and principal due at maturity. During the fourth quarter of 2010, the Company repurchased $297.0 million of the $600.0 million senior unsecured notes at a price of $380.8 million. The senior unsecured notes matured in February 2014 and the Company repaid the remaining senior unsecured notes outstanding.

54
Table of Contents

In July 2015, the Company issued $750.0 million of senior unsecured notes in an underwritten offering. The senior unsecured notes provide for semi-annual interest payments and principal due at maturity. $450.0 million of the senior unsecured notes mature in July 2025 and have an interest rate of 3.50%, and $300.0 million of the senior unsecured notes mature in July 2045 and have an interest rate of 4.625%. The Company intends to use the proceeds from the debt to repurchase shares of its common stock.(1) The Company expects to complete the share repurchases by the end of 2015.(1) The share repurchases will be in addition to repurchases under the Company's ongoing share repurchase plan which it expects to be in line with the second half of 2014 repurchases of $392 million.(1) 
Asset-Backed Canadian Commercial Paper Conduit Facility –The Company has a revolving facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase from the Company eligible Canadian retail motorcycle finance receivables for proceeds up to C$200 million. The transferred assets are restricted as collateral for the payment of the debt. The terms for this facility provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment of C$200 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of June 28, 2015, the Canadian Conduit had an expiration date of June 30, 2015. The Canadian Conduit was renewed on June 30, 2015 with similar terms and a borrowing amount of up to C$240 million with an expiration date of June 30, 2016. The contractual maturity of the debt is approximately 5 years.
During the first and second quarters of 2015, the Company transferred $19.2 million and $26.8 million of Canadian retail motorcycle finance receivables to the Canadian Conduit for proceeds of $16.8 million and $23.4 million, respectively. During the first and second quarters of 2014, HDFS transferred $15.7 million and $26.4 million of Canadian retail motorcycle finance receivables to the Canadian Conduit for proceeds of$13.8 million and $23.1 million, respectively.
Asset-Backed U.S. Commercial Paper Conduit Facility VIE – In September 2014, the Company amended and restated its revolving facility (U.S. Conduit) with an asset-backed U.S. commercial paper conduit, which provides for a total aggregate commitment of $600.0 million. At June 28, 2015 and June 29, 2014, the Company had no outstanding borrowings under the U.S. Conduit.
This debt provides for interest on outstanding principal based generally on prevailing commercial paper rates plus a program fee based on outstanding principal, or LIBOR plus a specified margin to the extent the advance is not funded by a conduit lender through the issuance of commercial paper. The U.S. Conduit also provides for an unused commitment fee based on the unused portion of the total aggregate commitment of $600.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivable collateral are applied to outstanding principal. Upon expiration of the U.S. Conduit, any outstanding principal will continue to be reduced monthly through available collections. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of June 28, 2015, the U.S. Conduit expires October 30, 2015.
Term Asset-Backed Securitization VIEs – For all of the term asset-backed securitization transactions, the Company transferred U.S. retail motorcycle finance receivables to separate VIEs, which in turn issued secured notes with various maturities and interest rates to investors. All of the notes held by the VIEs are secured by future collections of the purchased U.S. retail motorcycle finance receivables. The U.S. retail motorcycle finance receivables included in the term asset-backed securitization transactions are not available to pay other obligations or claims of the Company's creditors until the associated debt and other obligations are satisfied. Restricted cash balances held by the VIEs are used only to support the securitizations. There is no amortization schedule for the secured notes; however, the debt is reduced monthly as available collections on the related retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual lives have various maturities ranging from 2015 to 2022.
During the first quarter of 2015, the Company issued $700.0 million of secured notes through one term asset-backed securitization transaction. During the second quarter of 2015, the Company issued $500.0 million of secured notes through one term asset-backed securitization transaction. During the second quarter of 2014, the Company issued $850.0 million of secured notes through one term asset-backed securitization transaction. There were no other term asset-backed securitization transactions during the six months ended June 29, 2014.

55
Table of Contents

Intercompany Borrowing – HDFS and the Company have had in effect term loan agreements under which HDFS borrowed from the Company. During the six months ended June 28, 2015, there were no new intercompany loans made and the intercompany loan balance of $250 million outstanding as of December 31, 2014 was repaid. At June 29, 2014, the outstanding intercompany term loan balance was $550 million. The term loan balances and related interest are eliminated in the Company's consolidated financial statements.
Support Agreement - The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support to maintain HDFS’ fixed-charge coverage at 1.25 and minimum net worth of $40.0 million. Support may be provided at the Company’s option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company’s ability to withdraw funds from HDFS outside the normal course of business. No amount has ever been provided to HDFS under the support agreement.
Operating and Financial Covenants – HDFS and the Company are subject to various operating and financial covenants related to the Global Credit Facilities and various operating covenants under the Notes and the U.S. and Canadian asset-backed commercial paper conduit facilities. The more significant covenants are described below.
The operating covenants limit the Company’s and HDFS’ ability to:
•
assume or incur certain liens;
•
participate in certain mergers, consolidations, liquidations or dissolutions; and
•
purchase or hold margin stock.
Under the current financial covenants of the Global Credit Facilities, the consolidated debt to equity ratio of HDFS cannot exceed 10.0 to 1.0 as of the end of any fiscal quarter. In addition, the ratio of the Company's consolidated debt to the Company's consolidated debt and equity, in each case excluding the debt of HDFS and its subsidiaries, cannot exceed 0.65 to 1.0 as of the end of any fiscal quarter. No financial covenants are required under the Notes or the U.S. or Canadian asset-backed commercial paper conduit facilities.
At June 28, 2015, HDFS and the Company remained in compliance with all of the then existing covenants. There are no new covenants associated with the new senior unsecured debt issued in July 2015.
Cautionary Statements
The Company’s ability to meet the targets and expectations noted depends upon, among other factors, the Company’s ability to:
(i)
execute its business strategy,
(ii)
manage through changes in general economic conditions, including changing capital, credit and retail markets, and political events,
(iii)
accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices,
(iv)
balance production volumes for its new motorcycles with consumer demand, including in circumstances where competitors may be supplying new motorcycles to the market in excess of demand at reduced prices,
(v)
continue to develop the capabilities of its distributors and dealers and manage the risks that our independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand,
(vi)
successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the Company and within its expectations,
(vii)
effect repurchases of its common stock at share prices that are within its expectations,
(viii)
consummate the Canada Distributor Transaction and complete the transition to the new direct distribution model in Canada on the timing for the costs and at the foreign currency exchange rates that are within its expectations,
(ix)
prevent a cybersecurity breach involving digital consumer, employee or dealer personal data,
(x)
manage the impact that prices for used motorcycles may have on retail sales of new motorcycles,
(xi)
manage risks that arise through expanding international manufacturing, operations and sales,
(xii)
manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles,
(xiii)
manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations,
(xiv)
manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters,

56
Table of Contents

(xv)
prevent and detect any issues with the Company's products, components purchased from suppliers, and its suppliers' manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation, and adverse affects on the Company's reputation and brand strength,
(xvi)
develop and introduce products, services and experiences that are successful in the marketplace,
(xvii)
develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace,
(xviii)
implement and manage enterprise-wide information technology solutions, including solutions at its manufacturing facilities,
(xix)
continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead,
(xx)
execute its flexible production strategy,
(xxi)
continue to manage the relationships and agreements that it has with its labor unions to help drive long-term competitiveness,
(xxii)
adjust to healthcare inflation and reform, pension reform and tax changes,
(xxiii)
retain and attract talented employees,
(xxiv)
continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, and
(xxv)
manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio
In addition, the Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Further, actual foreign currency exchange rates may vary from underlying assumptions. Other factors are described in risk factors that the Company has disclosed in documents previously filed with the Securities and Exchange Commission.
Many of these risk factors are impacted by the current changing capital, credit and retail markets and the Company's ability to manage through inconsistent economic conditions.
The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company.
In addition, the Company’s independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.
In recent years, HDFS has experienced historically low levels of retail credit losses, but there is no assurance that this will continue. The Company believes that HDFS' retail credit losses may increase over time due to changing consumer credit behavior and HDFS' efforts to increase prudently structured loan approvals in the sub-prime lending environment.
Refer to “Risk Factors” under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for a discussion of additional risk factors and a more complete discussion of some of the cautionary statements noted above.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2014 for a complete discussion of the Company's market risk. There have been no material changes to the market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

57
Table of Contents

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
Changes in Internal Controls
There was no change in the Company’s internal control over financial reporting during the quarter ended June 28, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

58
Table of Contents

PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
The information required under this Item 1 of Part II is contained in Item 1 of Part I of this Quarterly report on Form 10-Q in Note 16 of the Notes to Condensed Consolidated Financial Statements, and such information is incorporated herein by reference in this Item 1 of Part II.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains detail related to the repurchase of common stock based on the date of trade during the quarter ended June 28, 2015:
2015 Fiscal Month
Total Number of
Shares Purchased (a)
 
Average Price
Paid per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
 
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
March 30 to May 3
1,448,410

 
60

 
1,448,410

 
17,200,902

May 4 to May 31
1,405,461

 
56

 
1,405,461

 
15,929,045

June 1 to June 28
—

 
—

 
—

 
30,952,335

Total
2,853,871

 
58

 
2,853,871

 
 
 
(a)
Includes discretionary share repurchases and shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock awards
The Company has an authorization (originally adopted in December 1997) by its Board of Directors to repurchase shares of its outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (1) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 2004 plus (2) one percent of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split. The Company made discretionary share repurchases of 0.1 million shares during the quarter ended June 28, 2015 under this authorization. As of June 28, 2015, 23,290 shares remained under this authorization.
In December 2007, the Company’s Board of Directors separately authorized the Company to buy back up to 20.0 million shares of its common stock with no dollar limit or expiration date. The Company made no discretionary share repurchases during the quarter ended June 28, 2015 under this authorization. As of June 28, 2015, no shares remained under this authorization.
In February 2014, the Company's Board of Directors authorized the Company to repurchase up to 20.0 million shares of its common stock with no dollar limit or expiration date. The Company made discretionary share repurchases of 2.7 million shares during the quarter ended June 28, 2015 under this authorization. As of June 28, 2015, 15.9 million shares remained under this authorization.
Additionally, in June 2015, the Company disclosed that its Board of Directors authorized the Company to repurchase up to 15.0 million shares of its common stock with no dollar limit or expiration date. The Company made no discretionary share repurchases during the quarter ended June 28, 2015 under this authorization. As of June 28, 2015, 15.0 million shares remained under this authorization.
Under the share repurchase authorizations, the Company’s common stock may be purchased through any one or more of a Rule 10b5-1 trading plan and discretionary purchases on the open market, block trades, accelerated share repurchases or privately negotiated transactions. The number of shares repurchased, if any, and the timing of repurchases will depend on a number of factors, including share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions and other factors. The repurchase authority has no expiration date but may be suspended, modified or discontinued at any time.
The Harley-Davidson, Inc. 2014 Incentive Stock Plan and predecessor stock plans permit participants to satisfy all or a portion of the statutory federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares otherwise issuable under the award, (b) tender back shares received in connection with such award or (c) deliver other previously owned shares, in each case having a value equal to the amount to be withheld. During the second quarter of 2015, the Company acquired 16,660 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock awards.

59
Table of Contents

Item 6 – Exhibits
Refer to the Exhibit Index on page 62 of this report.

60
Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
HARLEY-DAVIDSON, INC.
 
 
Date: 8/6/2015
/s/ John A. Olin
 
John A. Olin
 
Senior Vice President and
 
Chief Financial Officer
 
(Principal financial officer)
 
Date: 8/6/2015
/s/ Mark R. Kornetzke
 
Mark R. Kornetzke
 
Chief Accounting Officer
 
(Principal accounting officer)


61
Table of Contents

Harley-Davidson, Inc.
Exhibit Index to Form 10-Q
 
Exhibit No.
 
Description
2.1
 
Asset Purchase Agreement, dated April 30, 2015, among Harley-Davidson Canada LP, Fred Deeley Imports Ltd. and Harley-Davidson Motor Company, Inc., as amended.
10.1*
 
Form of Non-competition and Non-solicitation Agreement between Harley-Davidson Canada LP and each of Donald A. James and Fred Deeley Imports Ltd., effective August 4, 2015
31.1
 
Chief Executive Officer Certification pursuant to Rule 13a-14(a)
31.2
 
Chief Financial Officer Certification pursuant to Rule 13a-14(a)
32.1
 
Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. §1350
101
 
Financial statements from the quarterly report on Form 10-Q of Harley-Davidson, Inc. for the quarter ended June 28, 2015, filed on August 6, 2015, formatted in XBRL: (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.




































*
Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated.

62