Annual Statements Open main menu

HARLEY-DAVIDSON, INC. - Quarter Report: 2019 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2019
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)
Registrant's telephone number, including area code: (414342-4680
None
(Former name, former address and former fiscal year, if changed since last report)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock Par Value $.01 PER SHARE
HOG
New York Stock Exchange
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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 

Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No  
The registrant had outstanding 154,292,388 shares of common stock as of November 1, 2019.




Harley-Davidson, Inc.

Form 10-Q

For The Quarter Ended September 29, 2019
 
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.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
Three months ended
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
1,068,942

 
$
1,123,945

 
$
3,698,583

 
$
4,013,013

Financial Services
203,577

 
191,724

 
590,935

 
558,000

 
1,272,519

 
1,315,669

 
4,289,518

 
4,571,013

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
748,878

 
776,530

 
2,576,342

 
2,659,740

Financial Services interest expense
53,390

 
44,696

 
158,387

 
145,089

Financial Services provision for credit losses
33,747

 
23,530

 
94,621

 
72,462

Selling, administrative and engineering expense
309,031

 
306,665

 
885,273

 
909,898

Restructuring expense
7,629

 
14,832

 
31,682

 
74,044

 
1,152,675

 
1,166,253

 
3,746,305

 
3,861,233

Operating income
119,844

 
149,416

 
543,213

 
709,780

Other income (expense), net
3,160

 
644

 
11,857

 
1,509

Investment income (loss)
2,041

 
(1,106
)
 
11,970

 
2,630

Interest expense
7,789

 
7,762

 
23,304

 
23,180

Income before provision for income taxes
117,256

 
141,192

 
543,736

 
690,739

Provision for income taxes
30,693

 
27,337

 
133,597

 
159,783

Net income
$
86,563

 
$
113,855

 
$
410,139

 
$
530,956

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.55

 
$
0.69

 
$
2.59

 
$
3.18

Diluted
$
0.55

 
$
0.68

 
$
2.58

 
$
3.17

Cash dividends per share
$
0.375

 
$
0.370

 
$
1.125

 
$
1.110

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


3

Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three months ended
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Net income
$
86,563

 
$
113,855

 
$
410,139

 
$
530,956

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(15,321
)
 
(2,212
)
 
(3,720
)
 
(21,779
)
Derivative financial instruments
6,284

 
123

 
(6,080
)
 
24,808

Pension and postretirement benefit plans
7,744

 
12,401

 
23,230

 
110,568

 
(1,293
)
 
10,312

 
13,430

 
113,597

Comprehensive income
$
85,270

 
$
124,167

 
$
423,569

 
$
644,553

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



4

Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
862,381

 
$
1,203,766

 
$
926,992

Marketable securities

 
10,007

 
10,011

Accounts receivable, net
307,616

 
306,474

 
332,309

Finance receivables, net
2,210,001

 
2,214,424

 
2,116,386

Inventories
489,098

 
556,128

 
516,247

Restricted cash
79,115

 
49,275

 
36,471

Other current assets
140,786

 
144,368

 
151,042

 
4,088,997

 
4,484,442

 
4,089,458

Finance receivables, net
5,305,579

 
5,007,507

 
5,187,176

Property, plant and equipment, net
844,446

 
904,132

 
884,960

Prepaid pension costs

 

 
140,763

Goodwill
63,727

 
55,048

 
55,318

Deferred income taxes
132,019

 
141,464

 
63,559

Lease assets
55,905

 

 

Other long-term assets
85,557

 
73,071

 
82,566

 
$
10,576,230

 
$
10,665,664

 
$
10,503,800

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
348,951

 
$
284,861

 
$
310,967

Accrued liabilities
556,990

 
601,130

 
564,832

Short-term debt
1,013,137

 
1,135,810

 
1,373,859

Current portion of long-term debt, net
1,779,673

 
1,575,799

 
1,526,156

 
3,698,751

 
3,597,600

 
3,775,814

Long-term debt, net
4,607,041

 
4,887,667

 
4,196,517

Lease liabilities
39,408

 

 

Pension liabilities
82,561

 
107,776

 
54,138

Postretirement healthcare liabilities
89,032

 
94,453

 
112,798

Other long-term liabilities
223,218

 
204,219

 
211,561

Commitments and contingencies (Note 17)

 

 

Shareholders’ equity:
 
 
 
 
 
Preferred stock, none issued

 

 

Common stock
1,827

 
1,819

 
1,819

Additional paid-in-capital
1,482,669

 
1,459,620

 
1,453,035

Retained earnings
2,238,313

 
2,007,583

 
1,958,445

Accumulated other comprehensive loss
(616,254
)
 
(629,684
)
 
(386,452
)
Treasury stock, at cost
(1,270,336
)
 
(1,065,389
)
 
(873,875
)
 
1,836,219

 
1,773,949

 
2,152,972

 
$
10,576,230

 
$
10,665,664

 
$
10,503,800



5

Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Balances held by consolidated variable interest entities (Note 13):
 
 
 
 
 
Finance receivables, net - current
$
308,568

 
$
175,043

 
$
128,005

Other assets
$
1,618

 
$
1,563

 
$
1,408

Finance receivables, net - non-current
$
1,175,086

 
$
591,839

 
$
331,415

Restricted cash - current and non-current
$
78,334

 
$
47,203

 
$
33,726

Current portion of long-term debt, net
$
346,350

 
$
189,693

 
$
140,189

Long-term debt, net
$
1,079,278

 
$
488,191

 
$
253,329

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

6

Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
Net cash provided by operating activities (Note 8)
$
848,649

 
$
1,122,555

Cash flows from investing activities:
 
 
 
Capital expenditures
(121,161
)
 
(119,845
)
Origination of finance receivables
(3,141,626
)
 
(3,039,160
)
Collections on finance receivables
2,695,918

 
2,564,695

Sales and redemptions of marketable securities
10,007

 

Acquisition of business
(7,000
)
 

Other investing activities
12,388

 
(21,753
)
Net cash used by investing activities
(551,474
)
 
(616,063
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of medium-term notes
546,655

 
1,144,018

Repayments of medium-term notes
(1,350,000
)
 
(877,488
)
Proceeds from securitization debt
1,021,353

 

Repayments of securitization debt
(244,250
)
 
(224,507
)
Borrowings of asset-backed commercial paper
177,950

 
120,903

Repayments of asset-backed commercial paper
(240,008
)
 
(156,258
)
Net (decrease) increase in credit facilities and unsecured commercial paper
(120,707
)
 
102,154

Dividends paid
(179,409
)
 
(186,105
)
Repurchase of common stock
(217,454
)
 
(195,998
)
Issuance of common stock under employee stock option plans
2,180

 
3,157

Net cash used by financing activities
(603,690
)
 
(270,124
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(4,110
)
 
(12,567
)
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(310,625
)
 
$
223,801

 
 
 
 
Cash, cash equivalents and restricted cash:
 
 
 
Cash, cash equivalents and restricted cash, beginning of period
$
1,259,748

 
$
746,210

Net (decrease) increase in cash, cash equivalents and restricted cash
(310,625
)
 
223,801

Cash, cash equivalents and restricted cash, end of period
$
949,123

 
$
970,011

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows:
 
 
 
Cash and cash equivalents
$
862,381

 
$
926,992

Restricted cash
79,115

 
36,471

Restricted cash included in Other long-term assets
7,627

 
6,548

Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows
$
949,123

 
$
970,011

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


7

Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
 
 
Issued
Shares
 
Balance
 
Balance, December 31, 2018
 
181,931,225

 
$
1,819

 
$
1,459,620

 
$
2,007,583

 
$
(629,684
)
 
$
(1,065,389
)
 
$
1,773,949

Net income
 

 

 

 
127,945

 

 

 
127,945

Other comprehensive income, net of tax (Note 18)
 

 

 

 

 
7,633

 

 
7,633

Dividends ($0.375 per share)
 

 

 

 
(60,859
)
 

 

 
(60,859
)
Repurchase of common stock
 

 

 

 

 

 
(61,712
)
 
(61,712
)
Share-based compensation
 
702,687

 
7

 
5,961

 

 

 
4,687

 
10,655

Balance, March 31, 2019
 
182,633,912

 
1,826

 
1,465,581

 
2,074,669

 
(622,051
)
 
(1,122,414
)
 
1,797,611

Net income
 

 

 

 
195,631

 

 

 
195,631

Other comprehensive income, net of tax (Note 18)
 

 

 

 

 
7,090

 

 
7,090

Dividends ($0.375 per share)
 

 

 

 
(59,982
)
 

 

 
(59,982
)
Repurchase of common stock
 

 

 

 

 

 
(42,908
)
 
(42,908
)
Share-based compensation
 
9,338

 
1

 
9,238

 

 

 
3,960

 
13,199

Balance, June 30, 2019
 
182,643,250

 
1,827

 
1,474,819

 
2,210,318

 
(614,961
)
 
(1,161,362
)
 
1,910,641

Net income
 

 

 

 
86,563

 

 

 
86,563

Other comprehensive loss, net of tax (Note 18)
 

 

 

 

 
(1,293
)
 

 
(1,293
)
Dividends ($0.375 per share)
 

 

 

 
(58,568
)
 

 

 
(58,568
)
Repurchase of common stock
 

 

 

 

 

 
(112,834
)
 
(112,834
)
Share-based compensation
 
80,249

 

 
7,850

 

 

 
3,860

 
11,710

Balance, September 29, 2019
 
182,723,499

 
$
1,827

 
$
1,482,669

 
$
2,238,313

 
$
(616,254
)
 
$
(1,270,336
)
 
$
1,836,219

 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
 
 
Issued
Shares
 
Balance
 
Balance, December 31, 2017
 
181,286,547

 
$
1,813

 
$
1,422,808

 
$
1,607,570

 
$
(500,049
)
 
$
(687,865
)
 
$
1,844,277

Net income
 

 

 

 
174,763

 

 

 
174,763

Other comprehensive income, net of tax (Note 18)
 

 

 

 

 
93,445

 

 
93,445

Dividends ($0.370 per share)
 

 

 

 
(62,731
)
 

 

 
(62,731
)
Repurchase of common stock
 

 

 

 

 

 
(72,968
)
 
(72,968
)
Share-based compensation
 
489,896

 
5

 
9,884

 

 

 
3,250

 
13,139

Cumulative effect of change in accounting
 

 

 

 
6,024

 

 

 
6,024

Balance, April 1, 2018
 
181,776,443

 
1,818

 
1,432,692

 
1,725,626

 
(406,604
)
 
(757,583
)
 
1,995,949

Net income
 

 

 

 
242,338

 

 

 
242,338

Other comprehensive income, net of tax (Note 18)
 

 

 

 

 
9,840

 

 
9,840

Dividends ($0.370 per share)
 

 

 

 
(61,949
)
 

 

 
(61,949
)
Repurchase of common stock
 

 

 

 

 

 
(38,259
)
 
(38,259
)
Share-based compensation
 
13,644

 

 
9,888

 

 

 
3,719

 
13,607

Balance, July 1, 2018
 
181,790,087

 
1,818

 
1,442,580

 
1,906,015

 
(396,764
)
 
(792,123
)
 
2,161,526

Net income
 

 

 

 
113,855

 

 

 
113,855

Other comprehensive income, net of tax (Note 18)
 

 

 

 

 
10,312

 

 
10,312

Dividends ($0.370 per share)
 

 

 

 
(61,425
)
 

 

 
(61,425
)
Repurchase of common stock
 

 

 

 

 

 
(84,771
)
 
(84,771
)
Share-based compensation
 
90,208

 
1

 
10,455

 

 

 
3,019

 
13,475

Balance, September 30, 2018
 
181,880,295

 
$
1,819

 
$
1,453,035

 
$
1,958,445

 
$
(386,452
)
 
$
(873,875
)
 
$
2,152,972

The accompanying notes are an integral part of the consolidated financial statements.
HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Use of Estimates
The 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 have been eliminated.
The Company operates in two reportable segments: Motorcycles and Related Products (Motorcycles) and Financial Services.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Consolidated balance sheets as of September 29, 2019 and September 30, 2018, the Consolidated statements of income for the three and nine month periods then ended, the Consolidated statements of comprehensive income for the three and nine month periods then ended, the Consolidated statements of cash flows for the nine month periods then ended, and the Consolidated statements of shareholders' equity for the three and nine month periods then ended.
Certain information and 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
2. New Accounting Standards
Accounting Standards Recently Adopted
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02 Leases (Topic 842) (ASU 2016-02). ASU 2016-02 amends the lease accounting model by requiring a lessee to recognize the rights and obligations resulting from certain leases as assets and liabilities on the balance sheet. ASU 2016-02 also requires a company to disclose key information about their leasing arrangements. The Company adopted ASU 2016-02 on January 1, 2019 using a modified retrospective approach. Pursuant to ASU 2018-11, Leases (Topic 842): Targeted Improvements, the Company applied the new leases standard at the adoption date and recognized a cumulative effect adjustment to the opening balance sheet on January 1, 2019.
The Company elected the package of practical expedients upon transition that allows entities not to reassess lease identification, classification and initial direct costs for leases that existed prior to adoption. The Company also elected the short-term lease practical expedient that allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company has elected the practical expedient allowing entities to not separate non-lease components from lease components, but instead account for such components as a single lease component for all leases except leases involving assets operated by a third-party.
The adoption of ASU 2016-02 resulted in the initial recognition of lease assets and lease liabilities related to the Company's leasing arrangements totaling approximately $60 million on January 1, 2019. The adoption of ASU 2016-02 had no impact on opening retained earnings on January 1, 2019 and is not expected to materially impact consolidated net income or cash flows on an ongoing basis.
In August 2017, the FASB issued ASU No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 amends Accounting Standards Codification (ASC) 815, Derivatives and Hedging to improve the financial reporting of hedging relationships and to simplify the application of the hedge accounting guidance. The ASU makes various updates to the hedge accounting model, including changing the recognition and presentation of changes in the fair value of the hedging instrument and amending disclosure requirements,

8

Table of Contents

among other things. The Company adopted ASU 2017-12 on January 1, 2019. The adoption of ASU 2017-12 did not have a material impact on its financial statements.
Accounting Standards Not Yet Adopted
In July 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. The Company is required to adopt ASU 2016-13 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019 on a modified retrospective basis. Adoption of this standard will impact how the Company recognizes credit losses on its financial instruments. An entity will apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. The Company is continuing its implementation plan which includes model development, documentation and validation as well as the evaluation of associated processes, data sources, internal controls and policies. The Company anticipates that the adoption of ASU 2016-13 will result in an initial increase in the allowance for credit losses, with a decrease in retained earnings. The initial change in the allowance for credit losses at adoption and the ongoing effect of ASU 2016-13 on the provision for credit losses will be impacted by the size and composition of the Company's finance receivables portfolio at each reporting period, as well as other items including economic conditions and forecasts at that time.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill. Rather, the goodwill impairment is calculated by comparing the fair value of a reporting unit to its carrying value, and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. All reporting units apply the same impairment test under the new standard. The Company is required to adopt ASU 2017-04 for its annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). ASU 2018-13 amends ASC 820 to eliminate, modify, and add certain disclosure requirements for fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption is permitted in any period, for either the whole standard or only the provisions that eliminate or modify requirements. The amendments are required to be applied retrospectively, with the exception of a few disclosure additions, which are to be applied on a prospective basis. The Company is currently evaluating the impact of adopting ASU 2018-13, but does not believe that it will have a significant impact on its disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) (ASU 2018-15). The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the existing internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe the adoption of ASU 2018-15 will have a material impact on its financial statements.

9

Table of Contents

3. Revenue
The following table includes revenue disaggregated by major source (in thousands):
 
 
Three months ended
 
Nine months ended
 
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Motorcycles and Related Products Revenue:
 
 
 
 
 
 
 
 
Motorcycles
 
$
779,344

 
$
821,670

 
$
2,871,982

 
$
3,144,796

Parts & Accessories
 
203,173

 
212,406

 
584,134

 
612,495

General Merchandise
 
60,334

 
58,266

 
180,379

 
183,520

Licensing
 
8,611

 
10,680

 
27,099

 
29,445

Other
 
17,480

 
20,923

 
34,989

 
42,757

 
 
1,068,942

 
1,123,945

 
3,698,583

 
4,013,013

Financial Services Revenue:
 
 
 
 
 
 
 
 
Interest income
 
175,840

 
166,013

 
502,721

 
478,693

Securitization and servicing fee income
 
137

 
260

 
489

 
916

Other income
 
27,600

 
25,451

 
87,725

 
78,391

 
 
203,577

 
191,724

 
590,935

 
558,000

 
 
$
1,272,519

 
$
1,315,669

 
$
4,289,518

 
$
4,571,013


Deferred revenue relates to payments received at contract inception in advance of the Company’s performance under the contract and generally relates to the sale of Harley Owners Group memberships and extended service plan contracts. Deferred revenue is recognized as revenue as the Company performs under the contract. Deferred revenue, included in Accrued liabilities and Other long-term liabilities on the Consolidated balance sheets, was as follows (in thousands):
 
 
September 29,
2019
 
September 30,
2018
Balance, beginning of year
 
$
29,055

 
$
23,441

Balance, end of period
 
32,374

 
30,514


Previously deferred revenue recognized as revenue in the three months ended September 29, 2019 and September 30, 2018 was $6.0 million and $6.9 million, respectively, and $18.3 million and $16.0 million in the nine months ended September 29, 2019 and September 30, 2018. The Company expects to recognize approximately $17.1 million of the remaining unearned revenue over the next 12 months and $15.3 million thereafter.
4. Restructuring Expenses
In January 2018, the Company initiated a plan to further improve its manufacturing operations and cost structure by commencing a multi-year manufacturing optimization plan which included the consolidation of its motorcycle assembly plant in Kansas City, Missouri, into its plant in York, Pennsylvania, and the closure of its wheel operations in Adelaide, Australia (Manufacturing Optimization Plan). The consolidation of operations included the elimination of approximately 800 jobs at the Kansas City facility and the addition of approximately 450 jobs at the York facility through 2019. The Adelaide facility closure included the elimination of approximately 90 jobs. Through September 29, 2019, the Motorcycles segment incurred $144.5 million of restructuring expenses and other consolidation costs under the Manufacturing Optimization Plan since its inception in 2018.
The Company's estimated range for cumulative restructuring expenses and other consolidation costs is $142 million to $152 million under the Manufacturing Optimization Plan through 2019, of which approximately 70% are expected to be cash charges. The estimate includes $119 million to $124 million of restructuring expense and $23 million to $28 million of costs related to temporary inefficiencies. The Company expects restructuring expenses to include the cost of employee termination benefits, accelerated depreciation, and other project implementation costs of $38 million to $40 million, $48 million to $49 million, and $33 million to $35 million, respectively.
In November 2018, the Company implemented a reorganization of its workforce (Reorganization Plan). As a result, approximately 70 employees left the Company on an involuntary basis.

10

Table of Contents

Restructuring expense related to these plans is presented as a line item in the Consolidated statements of income and the accrued restructuring liability is recorded in Accrued liabilities on the Consolidated balance sheets. Changes in the accrued restructuring liability were as follows (in thousands):
 
Three months ended September 29, 2019
 
Manufacturing Optimization Plan
 
Reorganization Plan
 
 
 
Employee Termination Benefits
 
Accelerated Depreciation
 
Other
 
Total
 
Employee Termination Benefits
 
Total
Balance, beginning of period
$
9,661

 
$

 
$
23

 
$
9,684

 
$
144

 
$
9,828

Restructuring (benefit) expense
(1
)
 
719

 
6,850

 
7,568

 
61

 
7,629

Utilized - cash
(6,617
)
 

 
(6,535
)
 
(13,152
)
 
(205
)
 
(13,357
)
Utilized - non cash
(2
)
 
(719
)
 
(336
)
 
(1,057
)
 

 
(1,057
)
Foreign currency changes
(26
)
 

 

 
(26
)
 

 
(26
)
Balance, end of period
$
3,015

 
$

 
$
2

 
$
3,017

 
$

 
$
3,017

 
Three months ended September 30, 2018
 
Manufacturing Optimization Plan
 
Reorganization Plan
 
 
 
Employee Termination Benefits
 
Accelerated Depreciation
 
Other
 
Total
 
Employee Termination Benefits
 
Total
Balance, beginning of period
$
36,758

 
$

 
$
77

 
$
36,835

 
$

 
$
36,835

Restructuring (benefit) expense
(649
)
 
9,420

 
6,061

 
14,832

 

 
14,832

Utilized - cash
(5,402
)
 

 
(6,053
)
 
(11,455
)
 

 
(11,455
)
Utilized - non cash

 
(9,420
)
 

 
(9,420
)
 

 
(9,420
)
Foreign currency changes
(140
)
 

 
(2
)
 
(142
)
 

 
(142
)
Balance, end of period
$
30,567

 
$

 
$
83

 
$
30,650

 
$

 
$
30,650


 
Nine months ended September 29, 2019
 
Manufacturing Optimization Plan
 
Reorganization Plan
 
 
 
Employee Termination Benefits
 
Accelerated Depreciation
 
Other
 
Total
 
Employee Termination Benefits
 
Total
Balance, beginning of period
$
24,958

 
$

 
$
79

 
$
25,037

 
$
3,461

 
$
28,498

Restructuring expense (benefit)
16

 
14,684

 
17,316

 
32,016

 
(334
)
 
31,682

Utilized - cash
(21,951
)
 

 
(16,357
)
 
(38,308
)
 
(3,101
)
 
(41,409
)
Utilized - non cash
(2
)
 
(14,684
)
 
(1,032
)
 
(15,718
)
 

 
(15,718
)
Foreign currency changes
(6
)
 

 
(4
)
 
(10
)
 
(26
)
 
(36
)
Balance, end of period
$
3,015

 
$

 
$
2

 
$
3,017

 
$

 
$
3,017



11

Table of Contents

 
Nine months ended September 30, 2018
 
Manufacturing Optimization Plan
 
Reorganization Plan
 
 
 
Employee Termination Benefits
 
Accelerated Depreciation
 
Other
 
Total
 
Employee Termination Benefits
 
Total
Balance, beginning of period
$

 
$

 
$

 
$

 
$

 
$

Restructuring expense
38,956

 
24,779

 
10,309

 
74,044

 

 
74,044

Utilized - cash
(7,835
)
 

 
(10,220
)
 
(18,055
)
 

 
(18,055
)
Utilized - non cash

 
(24,779
)
 

 
(24,779
)
 

 
(24,779
)
Foreign currency changes
(554
)
 

 
(6
)
 
(560
)
 

 
(560
)
Balance, end of period
$
30,567

 
$

 
$
83

 
$
30,650

 
$

 
$
30,650


The Company incurred incremental Motorcycles and Related Products cost of goods sold due to temporary inefficiencies resulting from implementing the Manufacturing Optimization Plan during the three months ended September 29, 2019 and September 30, 2018 of $2.5 million and $6.2 million, respectively, and $10.0 million and $9.3 million, respectively, during the nine months ended September 29, 2019 and September 30, 2018.
5. Income Taxes
The Company’s effective income tax rate for the nine months ended September 29, 2019 was 24.6% compared to 23.1% for the nine months ended September 30, 2018.
6. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
 
Three months ended
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Net income
$
86,563

 
$
113,855

 
$
410,139

 
$
530,956

 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
156,239

 
165,927

 
158,117

 
166,885

Effect of dilutive securities - employee stock compensation plan
705

 
737

 
677

 
796

Diluted weighted-average shares outstanding
156,944

 
166,664

 
158,794

 
167,681

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.55

 
$
0.69

 
$
2.59

 
$
3.18

Diluted
$
0.55

 
$
0.68

 
$
2.58

 
$
3.17


Outstanding options to purchase 1.1 million and 0.8 million shares of common stock for the three months ended September 29, 2019 and September 30, 2018, respectively, and 1.2 million and 1.1 million shares of common stock for the nine months ended September 29, 2019 and September 30, 2018, respectively, were not included in the effect 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 restricted stock units (RSUs). Non-forfeitable dividend equivalents are paid on unvested RSUs. As such, 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 calculations for the three and nine month periods ended September 29, 2019 and September 30, 2018.

12

Table of Contents

7. Acquisition
On March 4, 2019, the Company purchased certain assets and liabilities of StaCyc, Inc. for total consideration of $14.9 million including cash paid at acquisition of $7.0 million. StaCyc produces electric-powered two-wheelers specifically designed for children and supports the Company’s plans to expand its portfolio of electric two-wheeled vehicles.
The Company has completed an allocation of the purchase consideration and valuation of acquired assets and liabilities. The primary assets acquired and included in the Motorcycles segment were goodwill of $9.5 million, which is tax deductible, and intangible assets of $5.3 million.
8. Additional Balance Sheet and Cash Flow Information
Investments in Marketable Securities
The Company’s marketable securities consisted of the following (in thousands):
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Debt securities
$

 
$
10,007

 
$
10,011

Mutual funds
49,821

 
44,243

 
49,832

 
$
49,821

 
$
54,250

 
$
59,843


Debt securities, which were included in Marketable securities on the Consolidated balance sheets, were carried at fair value with unrealized gains or losses reported in other comprehensive income. Mutual funds, which are included in Other long-term assets on the Consolidated balance sheets, are carried at fair value with gains and losses recorded in net income. The mutual funds are held to support certain deferred compensation obligations.
Inventories
Substantially all inventories located in the U.S. are valued using the last-in, first-out (LIFO) method. Other inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consisted of the following (in thousands):
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Raw materials and work in process
$
189,144

 
$
177,110

 
$
174,891

Motorcycle finished goods
206,324

 
301,630

 
251,794

Parts & accessories and general merchandise
152,269

 
136,027

 
141,918

Inventory at lower of FIFO cost or net realizable value
547,737

 
614,767

 
568,603

Excess of FIFO over LIFO cost
(58,639
)
 
(58,639
)
 
(52,356
)
 
$
489,098

 
$
556,128

 
$
516,247



13

Table of Contents

Operating Cash Flow
The reconciliation of net income to net cash provided by operating activities is as follows (in thousands):
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
Cash flows from operating activities:
 
 
 
Net income
$
410,139

 
$
530,956

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
174,609

 
196,461

Amortization of deferred loan origination costs
57,303

 
61,213

Amortization of financing origination fees
7,032

 
6,207

Provision for long-term employee benefits
10,888

 
28,162

Employee benefit plan contributions and payments
(11,166
)
 
(11,035
)
Stock compensation expense
25,323

 
29,122

Net change in wholesale finance receivables related to sales
683

 
(18,400
)
Provision for credit losses
94,621

 
72,462

Deferred income taxes
3,535

 
1,457

Other, net
7,839

 
29,340

Changes in current assets and liabilities:
 
 
 
Accounts receivable, net
(7,833
)
 
(14,784
)
Finance receivables - accrued interest and other
(4,574
)
 
1,374

Inventories
62,870

 
8,270

Accounts payable and accrued liabilities
13,138

 
183,606

Derivative instruments
2,537

 
1,227

Other
1,705

 
16,917

 
438,510

 
591,599

Net cash provided by operating activities
$
848,649

 
$
1,122,555


9. Finance Receivables
The Company provides retail financial services to customers of the Company’s independent dealers in the U.S. 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 and are primarily related to sales of motorcycles to the dealers' customers. 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. Wholesale finance receivables are related primarily to the sale of motorcycles and related parts and accessories to dealers.
Finance receivables, net, consisted of the following (in thousands):
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Retail finance receivables
$
6,642,809

 
$
6,328,201

 
$
6,508,670

Wholesale finance receivables
1,071,347

 
1,083,615

 
988,339

 
7,714,156

 
7,411,816

 
7,497,009

Allowance for credit losses
(198,576
)
 
(189,885
)
 
(193,447
)
 
$
7,515,580

 
$
7,221,931

 
$
7,303,562



14

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 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 September 29, 2019
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
186,722

 
$
8,274

 
$
194,996

Provision for credit losses
35,071

 
(1,324
)
 
33,747

Charge-offs
(41,076
)
 

 
(41,076
)
Recoveries
10,909

 

 
10,909

Balance, end of period
$
191,626

 
$
6,950

 
$
198,576

 
 
 
 
 
 
 
Three months ended September 30, 2018
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
187,502

 
$
6,428

 
$
193,930

Provision for credit losses
23,629

 
(99
)
 
23,530

Charge-offs
(33,689
)
 
(8
)
 
(33,697
)
Recoveries
9,684

 

 
9,684

Balance, end of period
$
187,126

 
$
6,321

 
$
193,447

 
 
 
 
 
 
 
Nine months ended September 29, 2019
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
182,098

 
$
7,787

 
$
189,885

Provision for credit losses
95,458

 
(837
)
 
94,621

Charge-offs
(121,538
)
 

 
(121,538
)
Recoveries
35,608

 

 
35,608

Balance, end of period
$
191,626

 
$
6,950

 
$
198,576

 
 
 
 
 
 
 
Nine months ended September 30, 2018
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
186,254

 
$
6,217

 
$
192,471

Provision for credit losses
72,350

 
112

 
72,462

Charge-offs
(107,717
)
 
(8
)
 
(107,725
)
Recoveries
36,239

 

 
36,239

Balance, end of period
$
187,126

 
$
6,321

 
$
193,447


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.

15

Table of Contents

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 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):
 
September 29, 2019
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
191,626

 
6,950

 
198,576

 
$
191,626

 
$
6,950

 
$
198,576

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
6,642,809

 
1,071,347

 
7,714,156

 
$
6,642,809

 
$
1,071,347

 
$
7,714,156

 
 
 
 
 
 
 
December 31, 2018
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
182,098

 
7,787

 
189,885

 
$
182,098

 
$
7,787

 
$
189,885

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
6,328,201

 
1,083,615

 
7,411,816

 
$
6,328,201

 
$
1,083,615

 
$
7,411,816

 
 
 
 
 
 
 
September 30, 2018
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
187,126

 
6,321

 
193,447

 
$
187,126

 
$
6,321

 
$
193,447

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
6,508,670

 
988,339

 
7,497,009

 
$
6,508,670

 
$
988,339

 
$
7,497,009


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 finance receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until

16

Table of Contents

either collected or charged-off. Accordingly, as of September 29, 2019December 31, 2018 and September 30, 2018, all retail finance receivables were accounted for as interest-earning receivables, of which $35.6 million, $41.2 million and $31.6 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. Wholesale finance receivables are written down once the Company determines that the specific borrower does not have the ability to repay the loan in full. 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. There were no wholesale receivables on non-accrual status at September 29, 2019, December 31, 2018 or September 30, 2018. At September 29, 2019December 31, 2018 and September 30, 2018, $2.0 million, $1.1 million, and $0.2 million of wholesale finance receivables were 90 days or more past due and accruing interest, respectively.
The aging analysis of finance receivables was as follows (in thousands):
 
September 29, 2019
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail finance receivables
$
6,425,097

 
$
134,074

 
$
48,033

 
$
35,605

 
$
217,712

 
$
6,642,809

Wholesale finance receivables
1,068,510

 
615

 
209

 
2,013

 
2,837

 
1,071,347

 
$
7,493,607

 
$
134,689

 
$
48,242

 
$
37,618

 
$
220,549

 
$
7,714,156

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail finance receivables
$
6,100,186

 
$
136,945

 
$
49,825

 
$
41,245

 
$
228,015

 
$
6,328,201

Wholesale finance receivables
1,081,729

 
522

 
273

 
1,091

 
1,886

 
1,083,615

 
$
7,181,915

 
$
137,467

 
$
50,098

 
$
42,336

 
$
229,901

 
$
7,411,816

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail finance receivables
$
6,304,096

 
$
128,123

 
$
44,808

 
$
31,643

 
$
204,574

 
$
6,508,670

Wholesale finance receivables
987,563

 
500

 
115

 
161

 
776

 
988,339

 
$
7,291,659

 
$
128,623

 
$
44,923

 
$
31,804

 
$
205,350

 
$
7,497,009

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 generally considered prime, and loans with a FICO score below 640 are generally 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 in retail finance receivables, by credit quality indicator, was as follows (in thousands):
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Prime
$
5,454,920

 
$
5,183,754

 
$
5,321,464

Sub-prime
1,187,889

 
1,144,447

 
1,187,206

 
$
6,642,809

 
$
6,328,201

 
$
6,508,670


17

Table of Contents

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 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 the Company’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 borrower's 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 in wholesale finance receivables, by internal credit quality indicator, was as follows (in thousands):
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Doubtful
$
4,964

 
$
2,210

 
$

Substandard
752

 
9,660

 
8,953

Special Mention
14,813

 
10,299

 
25,459

Medium Risk
11,544

 
25,802

 
15,825

Low Risk
1,039,274

 
1,035,644

 
938,102

 
$
1,071,347

 
$
1,083,615

 
$
988,339


10. Derivative Instruments and Hedging Activities
The Company is exposed to risks from fluctuations in foreign currency exchange rates, interest rates and commodity prices. 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.
The Company sells products in foreign currencies and utilizes foreign currency exchange contracts to mitigate the effects of foreign currency exchange rate fluctuations related to the Euro, Australian dollar, Japanese yen, Brazilian real, Canadian dollar, Mexican peso, Indian rupee, and Pound sterling. The foreign currency exchange contracts generally have maturities of less than one year.
The Company utilizes commodity contracts to mitigate the effects of commodity price fluctuations related to metals and fuel consumed in the Company’s motorcycle production and distribution processes. The commodity contracts generally have maturities of less than one year.
The Company periodically utilizes treasury rate lock contracts to fix the interest rate on a portion of the principal related to the anticipated issuance of long-term debt as well as interest rate swaps to reduce the impact of fluctuations in interest rates on floating rate medium-term notes. The Company also utilizes interest rate caps to facilitate certain asset-backed securitization transactions.
All derivative instruments are recognized on the Consolidated balance sheets at fair value. 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 derivative instruments that are designated as cash flow hedges are 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 ongoing basis, whether the derivative instruments that are used in cash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative instruments not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign currency, commodity risks, and interest rate risks. Changes in the fair value of derivative instruments not designated in hedging relationships are recorded directly in earnings.

18

Table of Contents

The following tables summarize the notional and recorded fair values of the Company’s derivative financial instruments (in thousands):
 
 
Derivatives Designated as Cash Flow Hedging
Instruments Under ASC Topic 815
 
 
September 29, 2019
 
December 31, 2018
 
September 30, 2018
 
 
Notional
Value
 
Other Current Assets
 
Accrued Liabil-ities
 
Notional
Value
 
Other Current Assets
 
Accrued Liabil-ities
 
Notional
Value
 
Other Current Assets
 
Accrued Liabil-ities
Foreign currency contracts
 
$
441,131

 
$
11,459

 
$
790

 
$
442,976

 
$
15,071

 
$
313

 
$
512,071

 
$
11,687

 
$
718

Commodity contracts
 
744

 

 
56

 
827

 

 
46

 
925

 
9

 

Treasury rate locks
 

 

 

 

 

 

 
50,000

 
52

 

Interest rate swaps
 
900,000

 

 
11,164

 
900,000

 

 
4,494

 
450,000

 
550

 

 
 
$
1,341,875

 
$
11,459

 
$
12,010


$
1,343,803

 
$
15,071

 
$
4,853


$
1,012,996

 
$
12,298

 
$
718

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives Not Designated as Hedging
Instruments Under ASC Topic 815
 
 
September 29, 2019
 
December 31, 2018
 
September 30, 2018
 
 
Notional
Value
 
Other Current Assets
 
Accrued Liabil-ities
 
Notional
Value
 
Other Current Assets
 
Accrued Liabil-ities
 
Notional
Value
 
Other Current Assets
 
Accrued Liabil-ities
Foreign currency contracts
 
$
193,959

 
$
278

 
$
219

 
$

 
$

 
$

 
$

 
$

 
$

Commodity contracts
 
9,485

 
230

 
360

 
5,239

 

 
463

 
5,207

 
233

 
213

Interest rate cap
 
427,530

 
4

 

 

 

 

 

 

 

 
 
$
630,974


$
512

 
$
579

 
$
5,239

 
$

 
$
463

 
$
5,207

 
$
233

 
$
213


The following tables summarize the amounts of gains and losses related to derivative financial instruments designated as cash flow hedges (in thousands):
 
 
Amount of Gain/(Loss) Recognized in OCI
 
Amount of Gain/(Loss) Reclassified from AOCL
 
Location of Gain/(Loss) Reclassified from AOCL
 
Amounts shown on the Consolidated Statements of Income
 
 
Three months ended
 
Consolidated Statements of Income
line item
 
Three months ended
 
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
 
 
September 29,
2019
 
September 30,
2018
Foreign currency contracts
 
$
13,135

 
$
4,508

 
$
5,826

 
$
5,695

 
Motorcycles cost of goods sold
 
$
748,878

 
$
776,530

Commodity contracts
 
(15
)
 
5

 
(28
)
 

 
Motorcycles cost of goods sold
 
$
748,878

 
$
776,530

Treasury rate locks
 

 

 
(91
)
 
(90
)
 
Interest expense
 
$
7,789

 
$
7,762

Treasury rate locks
 

 
52

 
(33
)
 
(33
)
 
Financial Services interest expense
 
$
53,390

 
$
44,696

Interest rate swaps
 
(708
)
 
486

 
(1,463
)
 
(661
)
 
Financial Services interest expense
 
$
53,390

 
$
44,696

 
 
$
12,412

 
$
5,051

 
$
4,211

 
$
4,911

 
 
 
 
 
 


19

Table of Contents

 
 
Amount of Gain/(Loss) Recognized in OCI
 
Amount of Gain/(Loss) Reclassified from AOCL
 
Location of Gain/(Loss) Reclassified from AOCL
 
Amounts shown on the Consolidated Statements of Income
 
 
Nine months ended
 
Consolidated Statements of Income
line item
 
Nine months ended
 
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
 
 
September 29,
2019
 
September 30,
2018
Foreign currency contracts
 
$
14,422

 
$
31,253

 
$
15,947

 
$
(58
)
 
Motorcycles cost of goods sold
 
$
2,576,342

 
$
2,659,740

Commodity contracts
 
(55
)
 
(7
)
 
(45
)
 
(85
)
 
Motorcycles cost of goods sold
 
$
2,576,342

 
$
2,659,740

Treasury rate locks
 

 

 
(272
)
 
(271
)
 
Interest expense
 
$
23,304

 
$
23,180

Treasury rate locks
 

 
93

 
(97
)
 
(103
)
 
Financial Services interest expense
 
$
158,387

 
$
145,089

Interest rate swaps
 
(9,569
)
 
(400
)
 
(2,899
)
 
(950
)
 
Financial Services Interest expense
 
$
158,387

 
$
145,089

 
 
$
4,798

 
$
30,939


$
12,634


$
(1,467
)
 
 
 
 
 
 

As of September 29, 2019, the Company estimates a $4.4 million net gain currently recorded in Accumulated other comprehensive loss (AOCL) will be reclassified into income over the next twelve months.
The following table summarizes the amount of gains and losses recognized in income related to derivative financial instruments not designated as hedging instruments (in thousands). Foreign currency contracts and commodity contracts were recorded in Motorcycles cost of goods sold and the interest rate cap was recorded in Financial services interest expense.
 
 
Amount of Gain/(Loss) Recognized in Income
 
 
Three months ended
 
Nine months ended
 
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Foreign currency contracts
 
$
1,719

 
$

 
$
1,602

 
$

Commodity contracts
 
(15
)
 
(85
)
 
(8
)
 
59

Interest rate cap
 
(1
)
 

 
(142
)
 

 
 
$
1,703

 
$
(85
)
 
$
1,452

 
$
59


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.
11. Leases
The Company determines if an arrangement is or contains a lease at contract inception. Right-of-use (ROU) assets related to leases are recorded in Lease assets and lease liabilities are recorded in Accrued liabilities and Lease liabilities on the Consolidated balance sheets
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. The ROU asset also includes prepaid lease payments and initial direct costs and is reduced for lease incentives paid by the lessor. The discount rate used to determine the present value is generally the Company's incremental borrowing rate because the implicit rate in the lease is not readily determinable. The lease term used to calculate the ROU asset and lease liabilities includes periods covered by options to extend or terminate when the Company is reasonably certain the lease term will include these optional periods.

20

Table of Contents

The Company has lease arrangements for sales and administrative offices, manufacturing and distribution facilities, product testing facilities, equipment and vehicles. All of the Company’s lease arrangements are accounted for as operating leases. The Company’s leases have remaining lease terms ranging from 1 to 13 years, some of which include options to extend the leases for periods generally not greater than 5 years and some of which include options to terminate the leases within 1 year. Certain leases also include options to purchase the leased asset. Leases do not contain any material residual value guarantees or material restrictive covenants.
Operating lease expense for the three and nine months ended September 29, 2019 was $7.4 million and $20.1 million, respectively. This includes variable lease costs related to leases involving assets operated by a third-party of approximately $1.6 million and $4.8 million for the three and nine months ended September 29, 2019, respectively. Other variable and short-term lease costs were not material.
Balance sheet information related to the Company's leases was as follows (in thousands):
 
September 29,
2019
Lease assets
$
55,905

 
 
Accrued liabilities
$
18,421

Lease liabilities
39,408

 
$
57,829


Future maturities of the Company's lease liabilities as of September 29, 2019 were as follows (in thousands):
 
Operating Leases
2019
$
5,421

2020
18,781

2021
15,743

2022
10,507

2023
4,396

Thereafter
6,649

Future lease payments
61,497

Less present value discount
3,668

Lease liability
$
57,829


Other lease information was as follows (dollars in thousands):
 
Three months ended
 
Nine months ended
 
September 29, 2019
 
September 29, 2019
Operating cash outflows for amounts included in the measurement of lease liabilities
$
6,073

 
$
15,944

Right-of-use assets obtained in exchange for lease obligations
$
6,724

 
$
10,986


 
September 29,
2019
Weighted-average remaining lease term (in years)
4.23

Weighted-average discount rate
3.3
%


21

Table of Contents

12. Debt
Debt with a contractual term of one year or less is generally classified as short-term and consisted of the following (in thousands):
 
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Unsecured commercial paper
 
$
1,013,137

 
$
1,135,810

 
$
1,373,859


Debt with a contractual term greater than one year is generally classified as long-term and consisted of the following (in thousands): 
 
 
 
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
Secured debt (Note 13):
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
 
 
 
$
128,368

 
$
155,951

 
$
149,418

Asset-backed U.S. commercial paper conduit facilities
 
 
 
552,757

 
582,717

 
265,044

Asset-backed securitization debt
 
 
 
875,966

 
95,216

 
128,577

Less: unamortized discounts and debt issuance costs
 
 
 
(3,095
)
 
(49
)
 
(103
)
 
 
 
 
1,553,996

 
833,835

 
542,936

Unsecured debt (at par value):
 
 
 
 
 
 
 
 
Medium-term notes:
 
 
 
 
 
 
 
 
Due in 2019, issued January 2016
 
2.25
%
 

 
600,000

 
600,000

Due in 2019, issued March 2017
 
LIBOR + 0.35%

 

 
150,000

 
150,000

Due in 2019, issued September 2014
 
2.40
%
 

 
600,000

 
600,000

Due in 2020, issued February 2015
 
2.15
%
 
600,000

 
600,000

 
600,000

Due in 2020, issued May 2018
 
LIBOR + 0.50%

 
450,000

 
450,000

 
450,000

Due in 2020, issued March 2017
 
2.40
%
 
350,000

 
350,000

 
350,000

Due in 2021, issued January 2016
 
2.85
%
 
600,000

 
600,000

 
600,000

Due in 2021, issued November 2018
 
LIBOR + 0.94%

 
450,000

 
450,000

 

Due in 2021, issued May 2018
 
3.55
%
 
350,000

 
350,000

 
350,000

Due in 2022, issued February 2019
 
4.05
%
 
550,000

 

 

Due in 2022, issued June 2017
 
2.55
%
 
400,000

 
400,000

 
400,000

Due in 2023, issued February 2018
 
3.35
%
 
350,000

 
350,000

 
350,000

Less: unamortized discounts and debt issuance costs
 
 
 
(10,409
)
 
(12,993
)
 
(12,721
)
 
 
 
 
4,089,591

 
4,887,007

 
4,437,279

Senior notes:
 
 
 
 
 
 
 
 
Due in 2025, issued July 2015
 
3.50
%
 
450,000

 
450,000

 
450,000

Due in 2045, issued July 2015
 
4.625
%
 
300,000

 
300,000

 
300,000

Less: unamortized discounts and debt issuance costs
 
 
 
(6,873
)
 
(7,376
)
 
(7,542
)
 
 
 
 
743,127

 
742,624

 
742,458

 
 
 
 
4,832,718

 
5,629,631

 
5,179,737

Long-term debt
 
 
 
6,386,714

 
6,463,466

 
5,722,673

Less: Current portion of long-term debt, net
 
 
 
(1,779,673
)
 
(1,575,799
)
 
(1,526,156
)
Long-term debt, net
 
 
 
$
4,607,041

 
$
4,887,667

 
$
4,196,517



22

Table of Contents

13. Asset-Backed Financing
The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing. The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE.
In transactions where the Company has power over the significant activities of the VIE and has an obligation to absorb losses or the right to receive benefits from the VIE that are potentially significant to the VIE, the Company is the primary beneficiary of the VIE and consolidates the VIE within its consolidated financial statements. On a consolidated basis, the asset-backed financing is treated as a secured borrowing in this type of transaction and is referred to as an on-balance sheet asset-backed financing.
In transactions where the Company is not the primary beneficiary of the VIE, the Company must determine whether it can achieve a sale for accounting purposes under ASC Topic 860, Transfers and Servicing. To achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond the Company’s control. If the Company does not meet all of these criteria for sale accounting, then the transaction is accounted for as a secured borrowing and is referred to as an on-balance sheet asset-backed financing.
If the Company meets all three of the sale criteria above, the transaction is recorded as a sale for accounting purposes and is referred to as an off-balance sheet asset-backed financing. Upon sale, the retail motorcycle finance receivables are removed from the Company’s Consolidated balance sheets and a gain or loss is recognized for the difference between the cash proceeds received, the assets derecognized, and the liabilities recognized as part of the transaction. The gain or loss on sale is included in Financial Services revenue in the Consolidated statements of income.
The Company is not required, and does not currently intend, to provide any additional financial support to the on- or off-balance sheet VIEs associated with these transactions. Investors and creditors in these transactions only have recourse to the assets held by the VIEs.
The following tables show the assets and liabilities related to the on-balance sheet asset-backed financings included in the Consolidated balance sheets (in thousands):
 
September 29, 2019
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securitizations
$
929,773

 
$
(27,517
)
 
$
45,096

 
$
469

 
$
947,821

 
$
872,871

Asset-backed U.S. commercial paper conduit facilities
599,099

 
(17,701
)
 
33,238

 
1,149

 
615,785

 
552,757

Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
242,244

 
(3,182
)
 
8,408

 
258

 
247,728

 
128,368

 
$
1,771,116

 
$
(48,400
)
 
$
86,742

 
$
1,876

 
$
1,811,334

 
$
1,553,996

 
 
 
 
 
 
 
 
 
 
 
 


23

Table of Contents

 
December 31, 2018
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securitizations
$
158,718

 
$
(4,691
)
 
$
17,191

 
$
329

 
$
171,547

 
$
95,167

Asset-backed U.S. commercial paper conduit facilities
631,588

 
(18,733
)
 
30,012

 
1,234

 
644,101

 
582,717

Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
181,774

 
(3,130
)
 
8,779

 
343

 
187,766

 
155,951

 
$
972,080

 
$
(26,554
)
 
$
55,982

 
$
1,906

 
$
1,003,414

 
$
833,835

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securitizations
$
190,461

 
$
(5,634
)
 
$
18,508

 
$
437

 
$
203,772

 
$
128,474

Asset-backed U.S. commercial paper conduit facilities
282,986

 
(8,393
)
 
15,218

 
971

 
290,782

 
265,044

Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
173,395

 
(3,115
)
 
9,293

 
324

 
179,897

 
149,418

 
$
646,842

 
$
(17,142
)
 
$
43,019

 
$
1,732

 
$
674,451

 
$
542,936


On-Balance Sheet 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 on-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the 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 have various contractual maturities ranging from 2020 to 2026.
The Company is the primary beneficiary of its on-balance sheet asset-backed securitization VIEs because it retains servicing rights and a residual interest in the VIEs in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.
There were no on-balance sheet asset-backed securitization transactions during the third quarter of 2019. During the second quarter of 2019, the Company issued $500.0 million and $525.0 million, or $498.7 million and $522.6 million net of discounts and issuance costs, respectively, of secured notes through on-balance sheet asset-backed securitization transactions. There were no on-balance sheet asset-backed securitization transactions during the first quarter of 2019 or the nine months ended September 30, 2018.
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE
The Company has two separate agreements with third-party bank-sponsored asset-backed U.S. commercial paper conduits under which it may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party bank-sponsored asset-backed U.S. commercial paper conduits. In November 2018, the Company renewed its existing $600.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper

24

Table of Contents

conduits. Also at that time, the Company amended its existing $300.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits, increasing the aggregate commitment to $600.0 million. The aggregate commitment under this agreement is reduced monthly as collections on the related finance receivables are applied to the outstanding principal until the outstanding principal balance is less than or equal to $300.0 million, at which point the aggregate commitment will equal $300.0 million. In May 2019, the Company further amended this revolving facility agreement to allow for incremental borrowings, at the lenders' discretion, of up to an additional $300.0 million in excess of the $300.0 million commitment. Availability under the revolving facilities (together, the U.S. Conduit Facilities) is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the SPE as collateral.
Under the U.S. Conduit Facilities, 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 based on prevailing commercial paper rates or LIBOR to the extent the advance is not funded by a conduit lender through the issuance of commercial paper plus, in each case, a program fee based on outstanding principal. The U.S. Conduit Facilities also provide for an unused commitment fee based on the unused portion of the total aggregate commitment. 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 Facilities, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of September 29, 2019, the U.S. Conduit Facilities have an expiration date of November 29, 2019.
The Company is the primary beneficiary of its U.S. Conduit Facilities VIE because it retains servicing rights and a residual interest in the VIE in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.
The following table includes quarterly transfers of U.S. retail motorcycle finance receivables to the U.S. Conduit Facilities and the respective proceeds (in thousands):
 
2019
 
2018
 
Transfers
 
Proceeds
 
Transfers
 
Proceeds
First quarter
$

 
$

 
$
32,900

 
$
29,300

Second quarter

 

 
59,100

 
53,300

Third quarter
174,400

 
154,600

 

 

 
$
174,400

 
$
154,600

 
$
92,000

 
$
82,600


On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility
In June 2019, the Company renewed 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$220.0 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$220.0 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. The expected remaining term of the related receivables is approximately 5 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of September 29, 2019, the Canadian Conduit has an expiration date of June 26, 2020.
The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company does not consolidate the 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.
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

25

Table of Contents

receivables and underlying collateral have no residual value, was $119.4 million at September 29, 2019. The maximum exposure is not an indication of the Company's expected loss exposure.
The following table includes quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds (in thousands):
 
2019
 
2018
 
Transfers
 
Proceeds
 
Transfers
 
Proceeds
First quarter
$

 
$

 
$
7,600

 
$
6,200

Second quarter
28,200

 
23,400

 
38,900

 
32,200

Third quarter

 

 

 

 
$
28,200

 
$
23,400

 
$
46,500

 
$
38,400


Off-Balance Sheet Asset-Backed Securitization VIE
There were no off-balance sheet asset-backed securitization transactions during the nine months ended September 29, 2019 or September 30, 2018. During the second quarter of 2016, the Company sold retail motorcycle finance receivables with a principal balance of $301.8 million into a securitization VIE that was not consolidated, recognized a gain of $9.3 million and received cash proceeds of $312.6 million. Similar to an on-balance sheet asset-backed securitization, the Company transferred U.S. retail motorcycle finance receivables to an SPE which in turn issued secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. The off-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitization are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors. In an on-balance sheet asset-backed securitization, the Company retains a financial interest in the VIE in the form of a debt security. As part of this off-balance sheet securitization, the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants.
The Company is not the primary beneficiary of the off-balance sheet asset-backed securitization VIE because it only retained servicing rights and does not have the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. Accordingly, this transaction met the accounting sale requirements under ASC Topic 860 and was recorded as a sale for accounting purposes. Upon the sale, the retail motorcycle finance receivables were removed from the Company’s Consolidated balance sheets and a gain was recognized for the difference between the cash proceeds received, the assets derecognized and the liabilities recognized as part of the transaction. The gain on sale was included in Financial Services revenue in the Consolidated statements of income.
At September 29, 2019, the assets of this off-balance sheet asset-backed securitization VIE were $43.9 million and represented the current unpaid principal balance of the retail motorcycle finance receivables, which was the Company’s maximum exposure to loss in the off-balance sheet VIE at September 29, 2019. This is based on the unlikely event that all the receivables have underwriting defects or other defects that trigger a violation of certain covenants and that the underlying collateral has no residual value. This maximum exposure is not an indication of expected losses.
Servicing Activities
The Company services all retail motorcycle finance receivables that it originates. When the Company transfers retail motorcycle finance receivables to SPEs through asset-backed financings, the Company retains the right to service the finance receivables and receives servicing fees based on the securitized finance receivables balance and certain ancillary fees. In on-balance sheet asset-backed financings, servicing fees are eliminated in consolidation and therefore are not recorded on a consolidated basis. In off-balance sheet asset-backed financings, servicing fees and ancillary fees are recorded in Financial Services revenue in the Consolidated statements of income. The fees the Company is paid for servicing represent adequate compensation, and consequently, the Company does not recognize a servicing asset or liability. The Company recognized servicing fee income of $0.5 million and $0.9 million during the nine months ended September 29, 2019 and September 30, 2018, respectively.

26

Table of Contents

The unpaid principal balance of retail motorcycle finance receivables serviced by the Company was as follows (in thousands):
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
On-balance sheet serviced retail motorcycle finance receivables
$
6,500,938

 
$
6,185,350

 
$
6,360,907

Off-balance sheet serviced retail motorcycle finance receivables
43,938

 
79,613

 
93,147

 
$
6,544,876

 
$
6,264,963

 
$
6,454,054

The unpaid principal balance of retail motorcycle finance receivables serviced by the Company 30 days or more delinquent was as follows (in thousands):
 
September 29,
2019
 
December 31,
2018
 
September 30,
2018
On-balance sheet serviced retail motorcycle finance receivables
$
217,712

 
$
228,015

 
$
204,574

Off-balance sheet serviced retail motorcycle finance receivables
954

 
1,658

 
1,767

 
$
218,666

 
$
229,673

 
$
206,341

Credit losses, net of recoveries for the retail motorcycle finance receivables serviced by the Company were as follows (in thousands):
 
Three months ended
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
On-balance sheet serviced retail motorcycle finance receivables
$
30,167

 
$
24,005

 
$
85,930

 
$
71,478

Off-balance sheet serviced retail motorcycle finance receivables
(18
)
 
230

 
375

 
729

 
$
30,149

 
$
24,235

 
$
86,305

 
$
72,207


14. Fair Value
The Company assesses the inputs used to measure fair value using a three-tier hierarchy.
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, commodity prices, and yield curves. The Company uses the market approach to derive the fair value for its Level 2 fair value measurements. Foreign currency contracts, commodity contracts and treasury rate locks are valued using quoted forward rates and prices; interest rate swaps and caps are valued using quoted interest rates and yield curves; investments in marketable debt securities and cash equivalents are valued using quoted prices.
Level 3 inputs are not observable in the market and include the Company's judgments about the assumptions market participants would use in pricing the asset or liability.

27

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):
 
September 29, 2019
 
Balance
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash equivalents
$
624,789

 
$
496,900

 
$
127,889

Marketable securities
49,821

 
49,821

 

Derivatives instruments
11,971

 

 
11,971

 
$
686,581

 
$
546,721

 
$
139,860

Liabilities:
 
 
 
 
 
Derivatives instruments
$
12,589

 
$

 
$
12,589

 
December 31, 2018
 
Balance
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash equivalents
$
998,601

 
$
728,800

 
$
269,801

Marketable securities
54,250

 
44,243

 
10,007

Derivatives instruments
15,071

 

 
15,071

 
$
1,067,922

 
$
773,043

 
$
294,879

Liabilities:
 
 
 
 
 
Derivatives instruments
$
5,316

 
$

 
$
5,316

 
September 30, 2018
 
Balance
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash equivalents
$
687,956

 
$
446,300

 
$
241,656

Marketable securities
59,843

 
49,832

 
10,011

Derivatives instruments
12,531

 

 
12,531

 
$
760,330

 
$
496,132

 
$
264,198

Liabilities:
 
 
 
 
 
Derivatives instruments
$
931

 
$

 
$
931


Nonrecurring Fair Value Measurements
Repossessed inventory is recorded at the lower of cost or net realizable value through a nonrecurring fair value measurement. Repossessed inventory was $19.4 million, $20.2 million and $19.5 million at September 29, 2019, December 31, 2018 and September 30, 2018, respectively, for which the fair value adjustment was $8.8 million, $9.7 million and $6.7 million, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.

28

Table of Contents

Fair Value of Financial Instruments Measured at Cost
The carrying value of the Company's Cash and cash equivalents and Restricted cash approximates their fair values.
The following table summarizes the fair value and carrying value of the Company’s remaining financial instruments that are measured at cost or amortized cost (in thousands):
 
September 29, 2019
 
December 31, 2018
 
September 30, 2018
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Assets:
 
 
 
 
 
 
 
 
 
 
 
Finance receivables, net
$
7,561,797

 
$
7,515,580

 
$
7,304,334

 
$
7,221,931

 
$
7,394,684

 
$
7,303,562

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Unsecured commercial paper
$
1,013,137

 
$
1,013,137

 
$
1,135,810

 
$
1,135,810

 
$
1,373,859

 
$
1,373,859

Asset-backed U.S. commercial paper conduit facilities
$
552,757

 
$
552,757

 
$
582,717

 
$
582,717

 
$
265,044

 
$
265,044

Asset-backed Canadian commercial paper conduit facility
$
128,368

 
$
128,368

 
$
155,951

 
$
155,951

 
$
149,418

 
$
149,418

Medium-term notes
$
4,138,941

 
$
4,089,591

 
$
4,829,671

 
$
4,887,007

 
$
4,386,030

 
$
4,437,279

Senior unsecured notes
$
773,434

 
$
743,127

 
$
707,198

 
$
742,624

 
$
707,252

 
$
742,458

Asset-backed securitization debt
$
877,423

 
$
872,871

 
$
94,974

 
$
95,167

 
$
127,906

 
$
128,474


Finance Receivables, Net – The carrying value of retail and wholesale finance receivables 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.
Debt – The carrying value of debt is generally amortized cost, net of discounts and debt issuance costs. The fair value of unsecured commercial paper is calculated using Level 2 inputs and approximates carrying value due to its short maturity. The fair value of debt provided under the U.S. Conduit Facilities and Canadian Conduit Facility is calculated using Level 2 inputs and approximates carrying value since the interest rates charged under the facility are tied directly to market rates and fluctuate as market rates change. The fair values of the medium-term notes and senior unsecured notes are estimated based upon rates currently available for debt with similar terms and remaining maturities (Level 2 inputs). The fair value of the debt related to on-balance sheet asset-backed securitization transactions is estimated based on pricing currently available for transactions with similar terms and maturities (Level 2 inputs).

29

Table of Contents

15. 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. The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company accrues for future warranty claims using an estimated cost based primarily on historical Company claim information. Additionally, the Company has from time to time initiated certain voluntary recall campaigns. The Company accrues for the estimated cost associated with voluntary recalls in the period that management approves and commits to the recall. Changes in the Company’s warranty and recall liabilities were as follows (in thousands):
 
Three months ended
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Balance, beginning of period
$
108,804

 
$
89,943

 
$
131,740

 
$
94,202

Warranties issued during the period
12,988

 
12,038

 
41,955

 
43,548

Settlements made during the period
(26,906
)
 
(21,550
)
 
(73,291
)
 
(59,965
)
Recalls and changes to pre-existing warranty liabilities
1,990

 
3,493

 
(3,528
)
 
6,139

Balance, end of period
$
96,876

 
$
83,924

 
$
96,876

 
$
83,924


The liability for recall campaigns was $40.5 million, $73.3 million and $23.9 million as of September 29, 2019, December 31, 2018 and September 30, 2018, respectively. The Company recorded supplier recoveries within operating expenses separate from the amounts disclosed above of $28.0 million for the nine months ended September 29, 2019.
16. Employee Benefit Plans
The Company has a defined benefit qualified 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. Service cost is allocated among Selling, administrative and engineering expense, Motorcycles cost of goods sold and Inventories. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit cost are presented in Other income (expense), net. Components of net periodic benefit cost were as follows (in thousands):
 
Three months ended
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Pension and SERPA Benefits:
 
 
 
 
 
 
 
Service cost
$
6,072

 
$
8,063

 
$
19,336

 
$
24,281

Interest cost
21,371

 
20,729

 
64,113

 
62,048

Expected return on plan assets
(35,581
)
 
(36,925
)
 
(106,743
)
 
(110,742
)
Amortization of unrecognized:
 
 
 
 
 
 
 
Prior service credit
(483
)
 
(105
)
 
(1,449
)
 
(316
)
Net loss
11,128

 
16,318

 
33,384

 
48,455

Settlement loss
1,500

 

 
1,500

 

Curtailment loss

 

 

 
1,018

Net periodic benefit cost
$
4,007

 
$
8,080

 
$
10,141

 
$
24,744

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


30

Table of Contents

 
Three months ended
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Postretirement Healthcare Benefits:
 
 
 
 
 
 
 
Service cost
$
1,040

 
$
1,789

 
$
3,409

 
$
5,390

Interest cost
2,938

 
2,886

 
8,814

 
8,669

Expected return on plan assets
(3,507
)
 
(3,541
)
 
(10,521
)
 
(10,623
)
Amortization of unrecognized:
 
 
 
 
 
 
 
Prior service credit
(595
)
 
(460
)
 
(1,785
)
 
(1,380
)
Net loss
69

 
454

 
207

 
1,362

Special retirement benefit cost

 

 
1,583

 

Curtailment gain

 

 
(960
)
 

Net periodic benefit cost
$
(55
)
 
$
1,128

 
$
747

 
$
3,418


During the nine months ended September 30, 2018, the qualified pension plan and certain postretirement healthcare plan assets and obligations were remeasured as a result of a curtailment of benefits related to the Company's restructuring activities, discussed further in Note 4. As a result of the remeasurement, the Company recorded a benefit of $96.4 million before income taxes in other comprehensive income during the nine months ended September 30, 2018.
There are no required or planned qualified pension plan contributions for 2019. The Company expects it will continue to make ongoing benefit payments under the SERPA and postretirement healthcare plans.
17. Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining costs to accrue 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. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for 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 information exchanges and discussions with the EPA. In August 2016, the Company entered into a consent decree with the EPA regarding these issues, and the consent decree was subsequently revised in July 2017 (the Settlement). In the Settlement, the Company agreed to, among other things, pay a fine, and not sell tuning products unless they are approved by the EPA or California Air Resources Board. In December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the Settlement with the U.S. District Court for the District of Columbia for the purpose of obtaining court approval of the Settlement. Three amicus briefs opposing portions of the Settlement were filed with the court by the deadline of January 31, 2018. On March 1, 2018, the Company and the DOJ each filed separate response briefs. The Company is awaiting the court's decision on whether or not to finalize the Settlement, and on February 8, 2019 the DOJ filed a status update reminding the court of the current status of the outstanding matter. The Company has an accrual associated with this matter recorded in Accrued liabilities on the Consolidated balance sheets, and as a result, if it is finalized, the Settlement would not have a material adverse effect on the Company's financial condition or results of operations. The Settlement is not final until it is approved by the court, and if it is not approved by the court, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter.
York Environmental Matter
The Company is involved with government agencies and groups of potentially responsible parties related to 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. The Company has an agreement with the Navy which calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of costs associated with environmental investigation and remediation activities at the York facility (Response Costs). A site wide remedial investigation/feasibility study at the York facility has been completed and approved by the Pennsylvania Department of Environmental Protection and the EPA. The Company has an accrual for its share of the estimated future Response Costs recorded in Other long-term liabilities on the Consolidated balance sheets.

31

Table of Contents

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.
18. Accumulated Other Comprehensive Loss
The following tables set forth the changes in Accumulated other comprehensive loss (AOCL) (in thousands):
 
 
Three months ended September 29, 2019
 
 
Foreign currency translation adjustments
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
(38,007
)
 
$
(10,579
)
 
$
(566,375
)
 
$
(614,961
)
Other comprehensive (loss) income before reclassifications
 
(15,451
)
 
12,412

 

 
(3,039
)
Income tax benefit (expense)
 
130

 
(2,923
)
 

 
(2,793
)
 
 
(15,321
)
 
9,489

 

 
(5,832
)
Reclassifications:
 
 
 
 
 
 
 
 
Net gain on derivative instruments
 

 
(4,211
)
 

 
(4,211
)
Prior service credits(a)
 

 

 
(1,078
)
 
(1,078
)
Actuarial losses(a)
 

 

 
11,197

 
11,197

Reclassifications before tax
 

 
(4,211
)
 
10,119

 
5,908

Income tax benefit (expense)
 

 
1,006

 
(2,375
)
 
(1,369
)
 
 

 
(3,205
)
 
7,744

 
4,539

Other comprehensive (loss) income
 
(15,321
)
 
6,284

 
7,744

 
(1,293
)
Balance, end of period
 
$
(53,328
)
 
$
(4,295
)
 
$
(558,631
)
 
$
(616,254
)
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2018
 
 
Foreign currency translation adjustments
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
(41,419
)
 
$
7,431

 
$
(362,776
)
 
$
(396,764
)
Other comprehensive (loss) income before reclassifications
 
(2,037
)
 
5,051

 

 
3,014

Income tax expense
 
(175
)
 
(1,180
)
 

 
(1,355
)
 
 
(2,212
)
 
3,871

 

 
1,659

Reclassifications:
 
 
 
 
 
 
 
 
Net gain on derivative instruments
 

 
(4,911
)
 

 
(4,911
)
Prior service credits(a)
 

 

 
(565
)
 
(565
)
Actuarial losses(a)
 

 

 
16,772

 
16,772

Reclassifications before tax
 

 
(4,911
)
 
16,207

 
11,296

Income tax benefit (expense)
 

 
1,163

 
(3,806
)
 
(2,643
)
 
 

 
(3,748
)
 
12,401

 
8,653

Other comprehensive (loss) income
 
(2,212
)
 
123

 
12,401

 
10,312

Balance, end of period
 
$
(43,631
)
 
$
7,554

 
$
(350,375
)
 
$
(386,452
)


32

Table of Contents

 
 
Nine months ended September 29, 2019
 
 
Foreign currency translation adjustments
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
(49,608
)
 
$
1,785

 
$
(581,861
)
 
$
(629,684
)
Other comprehensive (loss) income before reclassifications
 
(3,693
)
 
4,798

 

 
1,105

Income tax expense
 
(27
)
 
(1,247
)
 

 
(1,274
)
 
 
(3,720
)
 
3,551

 

 
(169
)
Reclassifications:
 
 
 
 
 
 
 
 
Net gain on derivative instruments
 

 
(12,634
)
 

 
(12,634
)
Prior service credits(a)
 

 

 
(3,234
)
 
(3,234
)
Actuarial losses(a)
 

 

 
33,591

 
33,591

Reclassifications before tax
 

 
(12,634
)
 
30,357

 
17,723

Income tax benefit (expense)
 

 
3,003

 
(7,127
)
 
(4,124
)
 
 

 
(9,631
)
 
23,230

 
13,599

Other comprehensive (loss) income
 
(3,720
)
 
(6,080
)
 
23,230

 
13,430

Balance, end of period
 
$
(53,328
)
 
$
(4,295
)
 
$
(558,631
)
 
$
(616,254
)
 
 
Nine months ended September 30, 2018
 
 
Foreign currency translation adjustments
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
(21,852
)
 
$
(17,254
)
 
$
(460,943
)
 
$
(500,049
)
Other comprehensive (loss) income before reclassifications
 
(21,604
)
 
30,939

 
96,374

 
105,709

Income tax expense
 
(175
)
 
(7,269
)
 
(22,629
)
 
(30,073
)
 
 
(21,779
)
 
23,670

 
73,745

 
75,636

Reclassifications:
 
 
 
 
 
 
 
 
Net loss on derivative instruments
 

 
1,467

 

 
1,467

Prior service credits(a)
 

 

 
(1,696
)
 
(1,696
)
Actuarial losses(a)
 

 

 
49,817

 
49,817

Reclassifications before tax
 

 
1,467

 
48,121

 
49,588

Income tax expense
 

 
(329
)
 
(11,298
)
 
(11,627
)
 
 

 
1,138

 
36,823

 
37,961

Other comprehensive (loss) income
 
(21,779
)
 
24,808

 
110,568

 
113,597

Balance, end of period
 
$
(43,631
)
 
$
7,554

 
$
(350,375
)
 
$
(386,452
)
(a)
Amounts reclassified are included in the computation of net periodic benefit cost, discussed further in Note 16

33

Table of Contents

19. Business Segments
The Company's Motorcycles and Financial Services 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
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
Motorcycles and Related Products:
 
 
 
 
 
 
 
Motorcycles revenue
$
1,068,942

 
$
1,123,945

 
$
3,698,583

 
$
4,013,013

Gross profit
320,064

 
347,415

 
1,122,241

 
1,353,273

Selling, administrative and engineering expense
265,464

 
266,921

 
754,479

 
797,323

Restructuring expense
7,629

 
14,832

 
31,682

 
74,044

Operating income
46,971

 
65,662

 
336,080

 
481,906

Financial Services:
 
 
 
 
 
 
 
Financial Services revenue
203,577

 
191,724

 
590,935

 
558,000

Financial Services expense
130,704

 
107,970

 
383,802

 
330,126

Operating income
72,873

 
83,754

 
207,133

 
227,874

Operating income
$
119,844

 
$
149,416

 
$
543,213

 
$
709,780



34

Table of Contents

20. 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 the reportable segments. All supplemental data is presented in thousands.
 
Three months ended September 29, 2019
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
1,074,397

 
$

 
$
(5,455
)
 
$
1,068,942

Financial Services

 
201,308

 
2,269

 
203,577

 
1,074,397

 
201,308

 
(3,186
)
 
1,272,519

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
748,878

 

 

 
748,878

Financial Services interest expense

 
53,390

 

 
53,390

Financial Services provision for credit losses

 
33,747

 

 
33,747

Selling, administrative and engineering expense
269,080

 
42,996

 
(3,045
)
 
309,031

Restructuring expense
7,629

 

 

 
7,629

 
1,025,587

 
130,133

 
(3,045
)
 
1,152,675

Operating income
48,810

 
71,175

 
(141
)
 
119,844

Other income (expense), net
3,160

 

 

 
3,160

Investment income
52,041

 

 
(50,000
)
 
2,041

Interest expense
7,789

 

 

 
7,789

Income before provision for income taxes
96,222

 
71,175

 
(50,141
)
 
117,256

Provision for income taxes
13,517

 
17,176

 

 
30,693

Net income
$
82,705

 
$
53,999

 
$
(50,141
)
 
$
86,563

 
 
 
 
 
 
 
 
 
Nine months ended September 29, 2019
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
3,714,091

 
$

 
$
(15,508
)
 
$
3,698,583

Financial Services

 
584,258

 
6,677

 
590,935

 
3,714,091

 
584,258

 
(8,831
)
 
4,289,518

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
2,576,342

 

 

 
2,576,342

Financial Services interest expense

 
158,387

 

 
158,387

Financial Services provision for credit losses

 
94,621

 

 
94,621

Selling, administrative and engineering expense
764,848

 
129,170

 
(8,745
)
 
885,273

Restructuring expense
31,682

 

 

 
31,682

 
3,372,872

 
382,178

 
(8,745
)
 
3,746,305

Operating income
341,219

 
202,080

 
(86
)
 
543,213

Other income (expense), net
11,857

 

 

 
11,857

Investment income
151,970

 

 
(140,000
)
 
11,970

Interest expense
23,304

 

 

 
23,304

Income before provision for income taxes
481,742

 
202,080

 
(140,086
)
 
543,736

Provision for income taxes
85,422

 
48,175

 

 
133,597

Net income
$
396,320

 
$
153,905

 
$
(140,086
)
 
$
410,139



35

Table of Contents

 
Three months ended September 30, 2018
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
1,126,977

 
$

 
$
(3,032
)
 
$
1,123,945

Financial Services

 
192,188

 
(464
)
 
191,724

 
1,126,977

 
192,188

 
(3,496
)
 
1,315,669

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
776,530

 

 

 
776,530

Financial Services interest expense

 
44,696

 

 
44,696

Financial Services provision for credit losses

 
23,530

 

 
23,530

Selling, administrative and engineering expense
267,316

 
42,776

 
(3,427
)
 
306,665

Restructuring expense
14,832

 

 

 
14,832

 
1,058,678

 
111,002

 
(3,427
)
 
1,166,253

Operating income
68,299

 
81,186

 
(69
)
 
149,416

Other income (expense), net
644

 

 

 
644

Investment loss
(1,106
)
 

 

 
(1,106
)
Interest expense
7,762

 

 

 
7,762

Income before provision for income taxes
60,075

 
81,186

 
(69
)
 
141,192

Provision for income taxes
10,613

 
16,724

 

 
27,337

Net income
$
49,462

 
$
64,462

 
$
(69
)
 
$
113,855

 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2018
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
4,021,268

 
$

 
$
(8,255
)
 
$
4,013,013

Financial Services

 
559,436

 
(1,436
)
 
558,000

 
4,021,268

 
559,436

 
(9,691
)
 
4,571,013

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
2,659,740

 

 

 
2,659,740

Financial Services interest expense

 
145,089

 

 
145,089

Financial Services provision for credit losses

 
72,462

 

 
72,462

Selling, administrative and engineering expense
798,544

 
120,830

 
(9,476
)
 
909,898

Restructuring expense
74,044

 

 

 
74,044

 
3,532,328

 
338,381

 
(9,476
)
 
3,861,233

Operating income
488,940

 
221,055

 
(215
)
 
709,780

Other income (expense), net
1,509

 

 

 
1,509

Investment income
112,630

 

 
(110,000
)
 
2,630

Interest expense
23,180

 

 

 
23,180

Income before provision for income taxes
579,899

 
221,055

 
(110,215
)
 
690,739

Provision for income taxes
110,529

 
49,254

 

 
159,783

Net income
$
469,370

 
$
171,801

 
$
(110,215
)
 
$
530,956



36

Table of Contents

 
September 29, 2019
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
482,106

 
$
380,275

 
$

 
$
862,381

Accounts receivable, net
635,997

 

 
(328,381
)
 
307,616

Finance receivables, net

 
2,210,001

 

 
2,210,001

Inventories
489,098

 

 

 
489,098

Restricted cash

 
79,115

 

 
79,115

Other current assets
109,724

 
46,013

 
(14,951
)
 
140,786

 
1,716,925

 
2,715,404

 
(343,332
)
 
4,088,997

Finance receivables, net

 
5,305,579

 

 
5,305,579

Property, plant and equipment, net
791,107

 
53,339

 

 
844,446

Goodwill
63,727

 

 

 
63,727

Deferred income taxes
92,921

 
40,411

 
(1,313
)
 
132,019

Lease assets
49,706

 
6,199

 

 
55,905

Other long-term assets
157,341

 
20,401

 
(92,185
)
 
85,557

 
$
2,871,727

 
$
8,141,333

 
$
(436,830
)
 
$
10,576,230

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
314,843

 
$
362,489

 
$
(328,381
)
 
$
348,951

Accrued liabilities
462,644

 
108,719

 
(14,373
)
 
556,990

Short-term debt

 
1,013,137

 

 
1,013,137

Current portion of long-term debt, net

 
1,779,673

 

 
1,779,673

 
777,487

 
3,264,018

 
(342,754
)
 
3,698,751

Long-term debt, net
743,127

 
3,863,914

 

 
4,607,041

Lease liabilities
33,296

 
6,112

 

 
39,408

Pension liability
82,561

 

 

 
82,561

Postretirement healthcare liability
89,032

 

 

 
89,032

Other long-term liabilities
180,103

 
40,261

 
2,854

 
223,218

Commitments and contingencies (Note 17)
 
 
 
 
 
 
 
Shareholders’ equity
966,121

 
967,028

 
(96,930
)
 
1,836,219

 
$
2,871,727

 
$
8,141,333

 
$
(436,830
)
 
$
10,576,230


37

Table of Contents

 
December 31, 2018
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
544,548

 
$
659,218

 
$

 
$
1,203,766

Marketable securities
10,007

 

 

 
10,007

Accounts receivable, net
425,727

 

 
(119,253
)
 
306,474

Finance receivables, net

 
2,214,424

 

 
2,214,424

Inventories
556,128

 

 

 
556,128

Restricted cash

 
49,275

 

 
49,275

Other current assets
91,172

 
59,070

 
(5,874
)
 
144,368

 
1,627,582

 
2,981,987

 
(125,127
)
 
4,484,442

Finance receivables, net

 
5,007,507

 

 
5,007,507

Property, plant and equipment, net
847,176

 
56,956

 

 
904,132

Goodwill
55,048

 

 

 
55,048

Deferred income taxes
105,388

 
37,603

 
(1,527
)
 
141,464

Other long-term assets
144,122

 
18,680

 
(89,731
)
 
73,071

 
$
2,779,316

 
$
8,102,733

 
$
(216,385
)
 
$
10,665,664

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
258,587

 
$
145,527

 
$
(119,253
)
 
$
284,861

Accrued liabilities
496,643

 
110,063

 
(5,576
)
 
601,130

Short-term debt

 
1,135,810

 

 
1,135,810

Current portion of long-term debt, net

 
1,575,799

 

 
1,575,799

 
755,230

 
2,967,199

 
(124,829
)
 
3,597,600

Long-term debt, net
742,624

 
4,145,043

 

 
4,887,667

Pension liability
107,776

 

 

 
107,776

Postretirement healthcare liability
94,453

 

 

 
94,453

Other long-term liabilities
164,243

 
37,142

 
2,834

 
204,219

Commitments and contingencies (Note 17)
 
 
 
 
 
 
 
Shareholders’ equity
914,990

 
953,349

 
(94,390
)
 
1,773,949

 
$
2,779,316

 
$
8,102,733

 
$
(216,385
)
 
$
10,665,664


38

Table of Contents

 
September 30, 2018
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
576,670

 
$
350,322

 
$

 
$
926,992

Marketable securities
10,011

 

 

 
10,011

Accounts receivable, net
640,416

 

 
(308,107
)
 
332,309

Finance receivables, net

 
2,116,386

 

 
2,116,386

Inventories
516,247

 

 

 
516,247

Restricted cash

 
36,471

 

 
36,471

Other current assets
106,259

 
44,783

 

 
151,042

 
1,849,603

 
2,547,962

 
(308,107
)
 
4,089,458

Finance receivables, net

 
5,187,176

 

 
5,187,176

Property, plant and equipment, net
833,279

 
51,681

 

 
884,960

Prepaid pension costs
140,763

 

 

 
140,763

Goodwill
55,318

 

 

 
55,318

Deferred income taxes
25,780

 
39,203

 
(1,424
)
 
63,559

Other long-term assets
151,815

 
19,799

 
(89,048
)
 
82,566

 
$
3,056,558

 
$
7,845,821

 
$
(398,579
)
 
$
10,503,800

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
291,395

 
$
327,679

 
$
(308,107
)
 
$
310,967

Accrued liabilities
483,964

 
80,427

 
441

 
564,832

Short-term debt

 
1,373,859

 

 
1,373,859

Current portion of long-term debt, net

 
1,526,156

 

 
1,526,156

 
775,359

 
3,308,121

 
(307,666
)
 
3,775,814

Long-term debt, net
742,458

 
3,454,059

 

 
4,196,517

Pension liability
54,138

 

 

 
54,138

Postretirement healthcare liability
112,798

 

 

 
112,798

Other long-term liabilities
170,464

 
38,003

 
3,094

 
211,561

Commitments and contingencies (Note 17)
 
 
 
 
 
 
 
Shareholders’ equity
1,201,341

 
1,045,638

 
(94,007
)
 
2,152,972

 
$
3,056,558

 
$
7,845,821

 
$
(398,579
)
 
$
10,503,800



39

Table of Contents

 
Nine months ended September 29, 2019
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
396,320

 
$
153,905

 
$
(140,086
)
 
$
410,139

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
168,013

 
6,596

 

 
174,609

Amortization of deferred loan origination costs

 
57,303

 

 
57,303

Amortization of financing origination fees
503

 
6,529

 

 
7,032

Provision for long-term employee benefits
10,888

 

 

 
10,888

Employee benefit plan contributions and payments
(11,166
)
 

 

 
(11,166
)
Stock compensation expense
22,869

 
2,454

 

 
25,323

Net change in wholesale finance receivables related to sales

 

 
683

 
683

Provision for credit losses

 
94,621

 

 
94,621

Deferred income taxes
5,514

 
(1,765
)
 
(214
)
 
3,535

Other, net
9,126

 
(1,372
)
 
85

 
7,839

Changes in current assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable, net
(216,961
)
 

 
209,128

 
(7,833
)
Finance receivables - accrued interest and other

 
(4,574
)
 

 
(4,574
)
Inventories
62,870

 

 

 
62,870

Accounts payable and accrued liabilities
8,729

 
207,971

 
(203,562
)
 
13,138

Derivative instruments
2,443

 
94

 

 
2,537

Other
(19,516
)
 
12,144

 
9,077

 
1,705

 
43,312

 
380,001

 
15,197

 
438,510

Net cash provided by operating activities
439,632

 
533,906

 
(124,889
)
 
848,649

Cash flows from investing activities:
 
 
 
 
 
 
 
Capital expenditures
(118,182
)
 
(2,979
)
 

 
(121,161
)
Origination of finance receivables

 
(5,757,384
)
 
2,615,758

 
(3,141,626
)
Collections on finance receivables

 
5,326,787

 
(2,630,869
)
 
2,695,918

Sales and redemptions of marketable securities
10,007

 

 

 
10,007

Acquisition of business
(7,000
)
 

 

 
(7,000
)
Other investing activities
12,388

 

 

 
12,388

Net cash used by investing activities
(102,787
)
 
(433,576
)
 
(15,111
)
 
(551,474
)


40

Table of Contents

 
Nine months ended September 29, 2019
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from issuance of medium-term notes

 
546,655

 

 
546,655

Repayments of medium-term notes

 
(1,350,000
)
 

 
(1,350,000
)
Proceeds from securitization debt

 
1,021,353

 

 
1,021,353

Repayments of securitization debt

 
(244,250
)
 

 
(244,250
)
Borrowings of asset-backed commercial paper

 
177,950

 

 
177,950

Repayments of asset-backed commercial paper

 
(240,008
)
 

 
(240,008
)
Net decrease in credit facilities and unsecured commercial paper

 
(120,707
)
 

 
(120,707
)
Dividends paid
(179,409
)
 
(140,000
)
 
140,000

 
(179,409
)
Repurchase of common stock
(217,454
)
 

 

 
(217,454
)
Issuance of common stock under employee stock option plans
2,180

 

 

 
2,180

Net cash used by financing activities
(394,683
)
 
(349,007
)
 
140,000

 
(603,690
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(4,604
)
 
494

 

 
(4,110
)
Net decrease in cash, cash equivalents and restricted cash
$
(62,442
)
 
$
(248,183
)
 
$

 
$
(310,625
)
 
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash:
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash, beginning of period
$
544,548

 
$
715,200

 
$

 
$
1,259,748

Net decrease in cash, cash equivalents and restricted cash
(62,442
)
 
(248,183
)
 

 
(310,625
)
Cash, cash equivalents and restricted cash, end of period
$
482,106

 
$
467,017

 
$

 
$
949,123



41

Table of Contents

 
Nine months ended September 30, 2018
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
469,370

 
$
171,801

 
$
(110,215
)
 
$
530,956

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
193,289

 
3,172

 

 
196,461

Amortization of deferred loan origination costs

 
61,213

 

 
61,213

Amortization of financing origination fees
497

 
5,710

 

 
6,207

Provision for long-term employee benefits
28,162

 

 

 
28,162

Employee benefit plan contributions and payments
(11,035
)
 

 

 
(11,035
)
Stock compensation expense
26,122

 
3,000

 

 
29,122

Net change in wholesale finance receivables related to sales

 

 
(18,400
)
 
(18,400
)
Provision for credit losses

 
72,462

 

 
72,462

Deferred income taxes
(2,991
)
 
4,343

 
105

 
1,457

Other, net
28,426

 
699

 
215

 
29,340

Changes in current assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable, net
(169,168
)
 

 
154,384

 
(14,784
)
Finance receivables - accrued interest and other

 
1,374

 

 
1,374

Inventories
8,270

 

 

 
8,270

Accounts payable and accrued liabilities
170,001

 
152,028

 
(138,423
)
 
183,606

Derivative instruments
1,124

 
103

 

 
1,227

Other
19,411

 
3,173

 
(5,667
)
 
16,917

 
292,108

 
307,277

 
(7,786
)
 
591,599

Net cash provided by operating activities
761,478

 
479,078

 
(118,001
)
 
1,122,555

Cash flows from investing activities:
 
 
 
 
 
 
 
Capital expenditures
(110,493
)
 
(9,352
)
 

 
(119,845
)
Origination of finance receivables

 
(5,845,799
)
 
2,806,639

 
(3,039,160
)
Collections on finance receivables

 
5,363,333

 
(2,798,638
)
 
2,564,695

Other investing activities
(21,753
)
 

 

 
(21,753
)
Net cash used by investing activities
(132,246
)
 
(491,818
)
 
8,001

 
(616,063
)


42

Table of Contents

 
Nine months ended September 30, 2018
 
HDMC Entities
 
HDFS Entities
 
Eliminations
 
Consolidated
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from issuance of medium-term notes

 
1,144,018

 

 
1,144,018

Repayments of medium-term notes

 
(877,488
)
 

 
(877,488
)
Repayments of securitization debt

 
(224,507
)
 

 
(224,507
)
Borrowings of asset-backed commercial paper

 
120,903

 

 
120,903

Repayments of asset-backed commercial paper

 
(156,258
)
 

 
(156,258
)
Net increase in credit facilities and unsecured commercial paper

 
102,154

 

 
102,154

Dividends paid
(186,105
)
 
(110,000
)
 
110,000

 
(186,105
)
Repurchase of common stock
(195,998
)
 

 

 
(195,998
)
Issuance of common stock under employee stock option plans
3,157

 

 

 
3,157

Net cash used by financing activities
(378,946
)
 
(1,178
)
 
110,000

 
(270,124
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(11,802
)
 
(765
)
 

 
(12,567
)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
238,484

 
$
(14,683
)
 
$

 
$
223,801

 
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash:
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash, beginning of period
$
338,186

 
$
408,024

 
$

 
$
746,210

Net increase (decrease) in cash, cash equivalents and restricted cash
238,484

 
(14,683
)
 

 
223,801

Cash, cash equivalents and restricted cash, end of period
$
576,670

 
$
393,341

 
$

 
$
970,011



43

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the "Company" include Harley-Davidson, Inc. and all its subsidiaries. The Company operates in two segments: Motorcycles and 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 on-road 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 primarily through a network of independent dealers. The Company conducts business on a global basis, with sales in the U.S., Canada, Latin America, Europe/Middle East/Africa (EMEA) and the Asia Pacific region.
The Financial Services segment consists of HDFS which is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans, primarily for the purchase of Harley-Davidson motorcycles. HDFS also works with certain unaffiliated insurance companies to provide motorcycle insurance and protection products to motorcycle owners. HDFS conducts business principally in the U.S. and Canada.
The “% Change” figures included in the Results of Operations sections were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented.
(1) Note Regarding Forward-Looking Statements
The Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” “may,” “will” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption Cautionary Statements and in Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the Overview and Outlook sections are only made as of October 22, 2019 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (November 7, 2019), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Overview(1) 
The Company’s net income was $86.6 million, or $0.55 per diluted share, for the third quarter of 2019 compared to $113.9 million, or $0.68 per diluted share, in the third quarter of 2018. Operating income from the Motorcycles segment decreased $18.7 million compared to the prior year third quarter and was impacted by lower shipments, unfavorable mix and higher tariff costs, partially offset by cost savings resulting from the Company's Manufacturing Optimization Plan and lower operating expenses. Refer to the Restructuring Plan Costs and Savings section below for further information regarding the Manufacturing Optimization Plan.
Operating income from the Financial Services segment in the third quarter of 2019 was $72.9 million, down 13.0% compared to the year-ago quarter on a higher provision for credit losses and higher operating expenses.
Worldwide dealer retail sales of new Harley-Davidson motorcycles in the third quarter of 2019 were down 1.2% compared to the third quarter of 2018. Retail sales were up 2.7% in international markets and down 3.6% in the U.S. compared to the prior year third quarter. The increase in international retail sales was driven by growth in both developed and emerging international markets. In the U.S., third-quarter dealer retail sales declines moderated compared to retail sales declines experienced in recent quarters, benefiting from a tempered U.S. industry rate of decline. The U.S. 601+cc motorcycle industry was down 1.7% in the third quarter of 2019 compared to the prior year reflecting the lowest year-over-year rate of decline in the last 14 consecutive quarters.

44

Table of Contents

The Company expects its business to remain under pressure as U.S. and developed international markets continue to face substantial headwinds. The global competitive environment remains intense with aggressive promotional activity in the U.S. and new product introductions worldwide. The Company expects to address these market challenges by focusing on its intensified efforts to execute its More Roads to Harley-Davidson (More Roads) plan and build committed riders.
Strategy Update
During the third quarter of 2019, the Company sharpened its 2027 strategic objectives related to U.S. Harley-Davidson riders and international growth to better align these objectives with its expanded efforts to build committed riders.
The Company’s strategic objectives through 2027 are to: expand to 4 million total Harley-Davidson riders in the U.S., grow international business to 50% of annual HDMC revenue, launch 100 new high impact Harley-Davidson motorcycles and do so profitably and sustainably.
The Company’s objective to expand to 4 million total Harley-Davidson riders in the U.S. through 2027 reflects its broader efforts to attract new riders and also retain riders. The Company's original U.S. objective was to build 2 million new riders in the U.S. and measured only the riders who joined the brand, but did not account for riders who exited the brand.
Outside the U.S., the Company’s objective is to grow its international business to 50% of annual HDMC revenue. Previously, this growth objective was based on motorcycle unit volume, which did not reflect all the Company's efforts to grow internationally, including through electric-powered bicycles and apparel.
The Company has also added Amplify Brand as the fourth growth catalyst to its More Roads plan. The Company is focusing investment and building new capabilities to invigorate the Harley-Davidson brand to spark passion that deepens rider commitment. Amplify Brand will bolster the other More Roads growth catalysts of: New Products, Broader Access and Stronger Dealers.
Outlook(1) 
On October 22, 2019, the Company provided the following information concerning its expectations for the remainder of 2019:
Motorcycles and Related Products Segment
The Company expects the U.S. 601+cc industry to decline in 2019, but at a more tempered pace than in 2018. The Company also expects its international retail sales to decline during 2019. The Company plans to ship between 212,000 and 217,000 motorcycles to dealers in 2019 which is down approximately 5% to 7% from 2018. The Company expects year-end U.S. dealer inventory of new motorcycles to be down compared to 2018.
The Company has obtained regulatory approvals that allow it to supply its European Union (EU) markets with Touring, Softail® and Sportster® motorcycles produced at its Thailand operations at reduced tariff rates. This will result in a reduction in tariffs on these motorcycles, from the rate of 31% currently levied on motorcycles sourced from the Company's U.S. facilities to 6%. The Company began production of lower-tariff motorcycles for the EU markets at its Thailand operations in late October 2019. Allowing for transportation and the flow through of existing high-tariff inventory, the Company continues to expect wholesale shipments of lower-tariff motorcycles in the EU to begin early in the second quarter of 2020.
For the full year 2019, the Company now expects the impact of recent EU and China tariffs to be approximately $105 million, up from its previous estimate of $100 million. The impact of recent EU and China tariffs includes incremental European Union and China tariffs imposed beginning in 2018 on the Company's products shipped from the U.S., as well as incremental U.S. tariffs imposed beginning in 2018 on certain items imported from China. The impact of recent EU and China tariffs excludes higher metals cost resulting from the U.S. steel and aluminum tariffs. The $5 million increase in the Company's expected impact is driven by a 2019 increase in U.S. tariffs on imports from China, which remain very fluid as they continue to shift with global trade negotiations. In 2020, the Company expects the impact of U.S. tariffs on imports from China to be approximately $20 million. The Company is currently evaluating alternatives to help mitigate the impact of these tariffs.
The Company expects 2019 Motorcycles segment gross margin as a percent of revenue to be lower than 2018 driven by the significant increase in the impact of recent EU and China tariffs, lower shipment volumes, unfavorable product mix and unfavorable foreign currency exchange rates, partially offset by aggressive cost management, including the benefit of $25 million to $30 million of savings from the Company's Manufacturing Optimization Plan. Refer to the Restructuring Plan Costs and Savings section below for further information regarding the Manufacturing Optimization Plan.

45

Table of Contents

The Company expects selling, administrative and engineering expenses for the Motorcycles segment to be lower in 2019 compared to 2018 behind aggressive cost management and lower recall costs. The Company also expects 2019 selling, administrative and engineering expenses to be lower as a percentage of revenue.
The Company expects 2019 Motorcycles segment operating margin as a percent of revenue to be between 6% and 7%.
In the fourth quarter of 2019, the Company expects to ship between 38,500 and 43,500 motorcycles. The Company expects the 2019 fourth quarter Motorcycles segment operating margin to be a loss of approximately negative 5.5% of revenue, representing an improvement compared to last year’s fourth quarter loss, which was negative 6.2% of revenue. Operating margin in the fourth quarter of 2019, relative to the prior year, is expected to be adversely impacted by lower shipments, unfavorable mix, an increased impact of recent EU and China tariffs of approximately $14 million, and unfavorable foreign currency exchange rates offset by lower operating expenses due primarily to lower recall and restructuring costs.
Financial Services Segment
The Company expects Financial Services segment operating income in 2019 to be down compared to 2018 driven by higher credit losses and higher depreciation associated with its new loan management system which went into service in January 2019.
Harley-Davidson, Inc.
Capital expenditures in 2019 are expected to be $205 million to $225 million (including approximately $20 million to support the Manufacturing Optimization Plan). This represents a $20 million decrease from previous capital expenditure estimates. The Company anticipates it will have the ability to fund all capital expenditures in 2019 with cash flow provided by operations.
The Company expects its 2019 full year effective tax rate will be approximately 24% to 25%. This guidance excludes the effect of potential future adjustments, including items associated with any potential new tax legislation or audit settlements.
Restructuring Plan Costs and Savings(1) 
In January 2018, the Company commenced a significant, multi-year manufacturing optimization plan anchored by the consolidation of its final assembly plant in Kansas City, Missouri into its plant in York, Pennsylvania. The consolidation of operations included the elimination of approximately 800 jobs at the Kansas City facility and the addition of approximately 450 jobs at the York facility through 2019 (Manufacturing Optimization Plan). The Manufacturing Optimization Plan also included the closure of the Company's wheel operations in Adelaide, Australia, resulting in the elimination of approximately 90 jobs.
In November 2018, the Company implemented a workforce reorganization plan (Reorganization Plan). As a result, approximately 70 employees left the Company on an involuntary basis.
The following table summarizes the actual and expected costs and estimated savings associated with these plans as of October 22, 2019 (dollars in millions):
 
2018
Actual
 
2019
Estimated
 
2020
Estimated
 
Total
Manufacturing Optimization Plan:
 
 
 
 
 
 
 
Costs related to temporary inefficiencies
$12.9
 
$10 - $15
 
$—
 
$23 - $28
Restructuring expenses
$89.5
 
$30 - $35
 
$—
 
$119 - $124
 
$102.4
 
$40 - $50
 
$—
 
$142 - $152
Cash expenditures
70%
 
70%
 
 
 
70%
Reorganization Plan:
 
 
 
 
 
 
 
Restructuring expenses
$3.9
 
$—
 
 
 
$4
Cash expenditures
100%
 
 
 
 
 
100%
 
 
 
2019
Estimated
 
2020
Estimated
 
Annual
Ongoing
Annual cash savings:
 
 
 
 
 
 
 
Manufacturing Optimization Plan
 
 
$25 - $30
 
$45 - $50
 
$65 - $75
Reorganization Plan
 
 
$7
 
$7
 
$7

46

Table of Contents

Through the nine months ended September 29, 2019, the Motorcycles segment incurred restructuring expenses and other costs related to temporary inefficiencies of $32.0 million and $10.0 million, respectively, relating to the Manufacturing Optimization Plan.
The current estimated cost of the Manufacturing Optimization Plan of $142 million to $152 million includes the estimated cost of employee termination benefits, accelerated depreciation, and other project implementation costs of $38 million to $40 million, $48 million to $49 million and $33 million to $35 million, respectively. The timing of cash payments for restructuring costs may not occur in the same fiscal period that the Company records the expense.
Refer to Note 4 of the Notes to Consolidated Financial Statements for additional information concerning restructuring expenses.
Results of Operations for the Three Months Ended September 29, 2019
Compared to the Three Months Ended September 30, 2018
Consolidated Results
 
Three months ended
 
 
 
 
(in thousands, except earnings per share)
September 29,
2019
 
September 30,
2018
 
(Decrease)
Increase
 
% Change
Operating income from Motorcycles and Related Products
$
46,971

 
$
65,662

 
$
(18,691
)
 
(28.5
)%
Operating income from Financial Services
72,873

 
83,754

 
(10,881
)
 
(13.0
)
Operating income
119,844

 
149,416

 
(29,572
)
 
(19.8
)
Other income (expense), net
3,160

 
644

 
2,516

 
390.7

Investment income (loss)
2,041

 
(1,106
)
 
3,147

 
284.5

Interest expense
7,789

 
7,762

 
27

 
0.3

Income before provision for income taxes
117,256

 
141,192

 
(23,936
)
 
(17.0
)
Provision for income taxes
30,693

 
27,337

 
3,356

 
12.3

Net income
$
86,563

 
$
113,855

 
$
(27,292
)
 
(24.0
)%
Diluted earnings per share
$
0.55

 
$
0.68

 
$
(0.13
)
 
(19.1
)%
Consolidated operating income was down $29.6 million in the third quarter of 2019, or 19.8%, compared to the same period last year. Operating income from the Motorcycles segment declined $18.7 million, or 28.5%, compared to the third quarter of 2018, and operating income from the Financial Services segment decreased $10.9 million, or 13.0%, compared to the third quarter of 2018. Refer to the Motorcycles and Related Products Segment and Financial Services Segment discussions for a more detailed discussion of the factors affecting operating income.
Other income in the third quarter was favorably impacted by lower amortization of actuarial losses related to the Company's defined benefit plans. Investment income was up in the third quarter of 2019 compared to the same period last year driven by higher income from investments in marketable securities and cash equivalents.
The effective income tax rate for the third quarter of 2019 was 26.2% compared to 19.4% for the third quarter of 2018. The higher effective income tax rate was primarily due to favorable discrete income tax adjustments recorded in the third quarter of 2018. The effective income tax rate in the third quarter of 2019 was also impacted by the Company’s ongoing reassessment of the 2019 full year forecasted effective tax rate.
Diluted earnings per share were $0.55 in the third quarter of 2019, down 19.1% from the same period in the prior year. The decrease in diluted earnings per share was driven by a 24.0% decrease in net income offsetting the benefit of lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 166.7 million in the third quarter of 2018 to 156.9 million in the third quarter of 2019, driven by the Company's repurchases of common stock. Refer to Liquidity and Capital Resources for additional information concerning the Company's share repurchase activity.

47

Table of Contents

Harley-Davidson Motorcycle Retail Sales(a) 
The following table includes retail unit sales of Harley-Davidson motorcycles:
 
Three months ended
 
 
 
 
 
September 30,
2019
 
September 30,
2018
 
(Decrease)
Increase
 
%
Change
United States
34,903

 
36,220

 
(1,317
)
 
(3.6
)%
 
 
 
 
 
 
 
 
Europe(b)
9,115

 
9,239

 
(124
)
 
(1.3
)
EMEA - Other
1,368

 
1,304

 
64

 
4.9

Total EMEA
10,483

 
10,543

 
(60
)
 
(0.6
)
 
 
 
 
 
 
 


Asia Pacific(c)
4,889

 
4,578

 
311

 
6.8

Asia Pacific - Other
3,189

 
2,855

 
334

 
11.7

Total Asia Pacific
8,078

 
7,433

 
645

 
8.7

 
 
 
 
 
 
 


Latin America
2,498

 
2,577

 
(79
)
 
(3.1
)
Canada
2,560

 
2,453

 
107

 
4.4

Total international retail sales
23,619

 
23,006

 
613

 
2.7

Total worldwide retail sales
58,522

 
59,226

 
(704
)
 
(1.2
)%
(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 new retail sales, and the Company does not regularly verify the information that its dealers supply. 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.
(c)
Includes Japan, Australia, New Zealand and Korea.
Retail sales of new Harley-Davidson motorcycles in the U.S. were down 3.6% behind lower, but improved, industry retail sales performance and soft market share.
The U.S. industry was down 1.7% in the third quarter of 2019 compared to the same period last year reflecting a tempered rate of decline compared to recent quarters. While the Company is encouraged by the industry's tempered rate of decline, it believes the U.S. industry for new 601+cc motorcycles continues to be challenged by soft used motorcycle prices and a shift towards smaller displacement motorcycles(1).
The U.S. retail sales rate of decline for new Harley-Davidson motorcycles also tempered in the third quarter of 2019, compared to recent quarters and was in line with Company expectations. The Company believes the tempered rate of decline was driven by improved industry performance, the Company's focus on the Stronger Dealer growth catalyst and increased marketing investments. In the third quarter of 2019, the Company reduced its spending on sales incentives while increasing its investments in the Stronger Dealer growth catalyst and brand marketing, as compared to the prior year.
The Company's U.S. market share of new 601+cc motorcycles for the third quarter of 2019 was 49.8%, down 1.1 percentage points from the same period last year. The Company's U.S. market share reflected the adverse impact of relatively strong growth in market segments in which the Company does not currently compete. The Company plans to enter these segments starting next year under the More Roads plan(1). In the Touring and Cruiser segments, which represent approximately 70% of the 601+cc market and where the Company currently competes, its market share was up 2.2 percentage points during the third quarter of 2019 compared to the same period last year (Source: Motorcycle Industry Council).
International retail sales of new Harley-Davidson motorcycles were up 2.7% in the third quarter of 2019. Retail sales in emerging and developed markets were up 4.7% and 1.8%, respectively, during the third quarter 2019. Retail sales increases in emerging markets during the third quarter of 2019 were driven by growth in various markets, including the Company's Association of South East Asian Nations (ASEAN) markets, partially offset by softness in India and Mexico. The Company's new Thailand operations, which enable lower tariffs, was a key factor supporting growth in the Company's ASEAN markets during the third quarter of 2019.

48

Table of Contents

The increase in international retail sales in developed markets during the quarter was a significant improvement over the decline of 13.6% in the second quarter of 2019. The international retail sales increase in the third quarter of 2019 was driven by growth in Australia, Japan, and Canada, where retail sales have been down during the past several quarters. The Company believes the third quarter growth in Japan was due in part to an increase in a consumption tax that went into effect on October 1, 2019. The overall retail sales growth in developed international markets was offset slightly by a decline in European developed markets, which were down 1.3% in the third quarter of 2019 compared to the prior year.
The More Roads plan supports the strength of the Company's brand, products, and distribution to drive sustainable growth in international markets. The Company remains committed to the potential that international markets offer Harley-Davidson. The Company continued to expand its international dealer network, adding 8 new dealers during the third quarter of 2019.
Motorcycles and Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesale motorcycle unit shipments for the Motorcycles segment:
 
Three months ended
 
 
 
 
 
September 29, 2019
 
September 30, 2018
 
Unit
 
Unit
 
Units
 
Mix %
 
Units
 
Mix %
 
(Decrease)
Increase
 
% Change
Motorcycle Units:
 
 
 
 
 
 
 
 
 
 
 
United States
25,572

 
55.8
%
 
26,213

 
53.9
%
 
(641
)
 
(2.4
)%
International
20,265

 
44.2
%
 
22,426

 
46.1
%
 
(2,161
)
 
(9.6
)
 
45,837

 
100.0
%
 
48,639

 
100.0
%
 
(2,802
)
 
(5.8
)%
Motorcycle Units:
 
 
 
 
 
 
 
 
 
 
 
Touring motorcycle units
19,905

 
43.4
%
 
22,204

 
45.7
%
 
(2,299
)
 
(10.4
)%
Cruiser motorcycle units(a)
16,225

 
35.4
%
 
16,049

 
33.0
%
 
176

 
1.1

Sportster® / Street motorcycle units
9,707

 
21.2
%
 
10,386

 
21.3
%
 
(679
)
 
(6.5
)
 
45,837

 
100.0
%
 
48,639

 
100.0
%
 
(2,802
)
 
(5.8
)%
(a)
Includes Softail®, CVOTM, and LiveWireTM 
The Company shipped 45,837 Harley-Davidson motorcycles worldwide during the third quarter of 2019, which was 5.8% lower than the third quarter of 2018 and in line with the Company's expectations. Overall, the mix of motorcycles shipped during the third quarter of 2019 shifted from Touring motorcycles to Cruiser motorcycles compared to the same quarter last year.
At the end of the third quarter of 2019, U.S. dealer retail inventory of new Harley-Davidson motorcycles was down approximately 550 motorcycles compared to the end of the prior year third quarter. The Company was pleased with the U.S. dealer inventory levels and the mix of the new model year motorcycles in the dealer network at the end the third quarter 2019.

49

Table of Contents

Segment Results
The following table includes the condensed statements of operations for the Motorcycles segment (dollars in thousands):
 
Three months ended
 
 
 
 
 
September 29, 2019
 
September 30, 2018
 
(Decrease)
Increase
 
%
Change
Revenue:
 
 
 
 
 
 
 
Motorcycles
$
779,344

 
$
821,670

 
$
(42,326
)
 
(5.2
)%
Parts & Accessories
203,173

 
212,406

 
(9,233
)
 
(4.3
)
General Merchandise
60,334

 
58,266

 
2,068

 
3.5

Licensing
8,611

 
10,680

 
(2,069
)
 
(19.4
)
Other
17,480

 
20,923

 
(3,443
)
 
(16.5
)
 
1,068,942

 
1,123,945

 
(55,003
)
 
(4.9
)
Cost of goods sold
748,878

 
776,530

 
(27,652
)
 
(3.6
)
Gross profit
320,064

 
347,415

 
(27,351
)
 
(7.9
)
Operating expenses:
 
 
 
 
 
 
 
Selling & administrative expense
212,633

 
221,812

 
(9,179
)
 
(4.1
)
Engineering expense
52,831

 
45,109

 
7,722

 
17.1

Restructuring expense
7,629

 
14,832

 
(7,203
)
 
(48.6
)
 
273,093

 
281,753

 
(8,660
)
 
(3.1
)
Operating income
$
46,971

 
$
65,662

 
$
(18,691
)
 
(28.5
)%
Operating margin
4.4
%
 
5.8
%
 
(1.4
)
 
pts.
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 third quarter of 2018 to the third quarter of 2019 (in millions):
 
Net
Revenue
 
Cost of
Goods Sold
 
Gross
Profit
Three months ended September 30, 2018
$
1,123.9

 
$
776.5

 
$
347.4

Volume
(54.6
)
 
(39.7
)
 
(14.9
)
Price, net of related cost
14.3

 
12.4

 
1.9

Foreign currency exchange rates and hedging
(9.7
)
 
(5.9
)
 
(3.8
)
Shipment mix
(4.9
)
 
13.6

 
(18.5
)
Raw material prices

 
(0.8
)
 
0.8

Manufacturing and other costs

 
(7.2
)
 
7.2

 
(54.9
)
 
(27.6
)
 
(27.3
)
Three months ended September 29, 2019
$
1,069.0

 
$
748.9

 
$
320.1

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from the third quarter of 2018 to the third quarter of 2019:
The decrease in volume was due to lower wholesale motorcycle shipments and a decline in Parts & Accessories (P&A) sales.
On average, wholesale prices for motorcycles shipped in the current period were higher than in the same period last year resulting in a favorable impact on revenue. Increased revenue from higher prices was partially offset by increased costs for the additional motorcycle content as compared to motorcycles shipped in the prior period. The wholesale and manufacturer's suggested retail weighted-average pricing of the new model year 2020 motorcycles increased approximately 0.5% over model year 2019 pricing. Net of the cost for new content, the impact of the model year 2020 price increase is approximately 0.2 percentage points expressed as a percent of revenue.
Revenue was adversely impacted by weaker weighted-average foreign currency exchange rates, relative to the U.S. dollar, as compared to the same period last year. The unfavorable revenue impact was partially offset by favorable net foreign currency gains associated with hedging and balance sheet remeasurements, as compared to the prior year third quarter.

50

Table of Contents

Revenue and gross profit were negatively impacted by a shift in the mix of motorcycle families and models within motorcycle families shipped in the current quarter compared to the same period last year. Additionally, unfavorable mix within P&A and General Merchandise contributed to the negative impact.
Manufacturing and other costs were favorable compared to prior year primarily due to $16.7 million of savings resulting from the Manufacturing Optimization Plan, partially offset by lower fixed cost absorption and the impact of recent EU and China tariffs. The impact of recent EU and China tariffs was $21.6 million in the third quarter of 2019, which was up $11.3 million compared to the prior year third quarter.
The decrease in operating expenses during the third quarter of 2019 compared to the same period in 2018 was driven by lower restructuring expenses related to the Manufacturing Optimization Plan.
Financial Services Segment
Segment Results
The following table includes the condensed statements of operations for the Financial Services segment (in thousands):
 
Three months ended
 
 
 
 
 
September 29, 2019
 
September 30, 2018
 
Increase
(Decrease)
 
%
Change
Revenue:
 
 
 
 
 
 
 
Interest income
$
175,840

 
$
166,013

 
$
9,827

 
5.9
 %
Other income
27,600

 
25,451

 
2,149

 
8.4

Securitization and servicing fee income
137

 
260

 
(123
)
 
(47.3
)
 
203,577

 
191,724

 
11,853

 
6.2

Financial Services expenses:
 
 
 
 
 
 
 
Interest expense
53,390

 
44,696

 
8,694

 
19.5

Provision for credit losses
33,747

 
23,530

 
10,217

 
43.4

Operating expense
43,567

 
39,744

 
3,823

 
9.6

 
130,704

 
107,970

 
22,734

 
21.1

Operating income
$
72,873

 
$
83,754

 
$
(10,881
)
 
(13.0
)%
Interest income was favorable in the third quarter of 2019 due to higher average outstanding receivables at a higher average yield. Interest expense increased due to higher cost of funds and higher average outstanding debt.
The provision for credit losses increased $10.2 million compared to the third quarter of 2018. The retail motorcycle provision increased $11.4 million driven by higher retail credit losses and an increase in the retail reserve rate as compared to a decrease in the reserve rate during the third quarter of 2018. The Company believes that the increased retail credit losses were due in part to inefficiencies resulting from the implementation of a new loan management system and, to a lesser extent, to lower recovery values on used motorcycles at auction. 
Operating expenses increased $3.8 million compared to the third quarter of 2018 driven in part by higher depreciation associated with the implementation of a new loan management system.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
 
Three months ended
 
September 29,
2019
 
September 30,
2018
Balance, beginning of period
$
194,996

 
$
193,930

Provision for credit losses
33,747

 
23,530

Charge-offs, net of recoveries
(30,167
)
 
(24,013
)
Balance, end of period
$
198,576

 
$
193,447


51

Table of Contents

Results of Operations for the Nine Months Ended September 29, 2019
Compared to the Nine Months Ended September 30, 2018
Consolidated Results
 
Nine months ended
 
 
 
 
(in thousands, except earnings per share)
September 29,
2019
 
September 30,
2018
 
(Decrease)
Increase
 
%
Change
Operating income from Motorcycles and Related Products
$
336,080

 
$
481,906

 
$
(145,826
)
 
(30.3
)%
Operating income from Financial Services
207,133

 
227,874

 
(20,741
)
 
(9.1
)
Operating income
543,213

 
709,780

 
(166,567
)
 
(23.5
)
Other income (expense), net
11,857

 
1,509

 
10,348

 
685.8

Investment income
11,970

 
2,630

 
9,340

 
355.1

Interest expense
23,304

 
23,180

 
124

 
0.5

Income before provision for income taxes
543,736

 
690,739

 
(147,003
)
 
(21.3
)
Provision for income taxes
133,597

 
159,783

 
(26,186
)
 
(16.4
)
Net income
$
410,139

 
$
530,956

 
$
(120,817
)
 
(22.8
)%
Diluted earnings per share
$
2.58

 
$
3.17

 
$
(0.59
)
 
(18.6
)%
Consolidated operating income was down 23.5% in the first nine months of 2019 due to a decrease in operating income from the Motorcycles segment of $145.8 million and a $20.7 million decrease in operating income from Financial Services compared to the same period last year. Refer to the Motorcycles and Related Products Segment and Financial Services Segment discussions for a more detailed analysis of the factors affecting operating income.
Other income in the first nine months of 2019 was favorably impacted by lower amortization of actuarial losses related to the Company's defined benefit plans. Investment income was up in the first nine months of 2019 compared to the same period last year driven by higher income from investments in marketable securities and cash equivalents.
The Company's effective income tax rate for the first nine months of 2019 was 24.6% compared to 23.1% for the same period in 2018. The higher effective income tax rate was primarily due to favorable discrete income tax adjustments recorded in 2018.
Diluted earnings per share were $2.58 in the first nine months of 2019, down 18.6% from the same period last year on lower net income offsetting the benefit of lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 167.7 million in the first nine months of 2018 to 158.8 million in the first nine months of 2019, driven by the Company's repurchases of common stock. Refer to Liquidity and Capital Resources for additional information concerning the Company's share repurchase activity.

52

Table of Contents

Motorcycles Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a) 
The following table includes retail unit sales of Harley-Davidson motorcycles:
 
Nine months ended
 
 
 
 
 
September 30,
2019
 
September 30,
2018
 
(Decrease)
Increase
 
%
Change
United States
105,756

 
112,019

 
(6,263
)
 
(5.6
)%
 
 
 
 
 
 
 
 
Europe(b)
32,326

 
34,967

 
(2,641
)
 
(7.6
)
EMEA - Other
4,573

 
4,282

 
291

 
6.8

Total EMEA
36,899

 
39,249

 
(2,350
)
 
(6.0
)
 
 
 
 
 
 
 
 
Asia Pacific(c)
13,219

 
14,126

 
(907
)
 
(6.4
)
Asia Pacific - Other
8,603

 
7,354

 
1,249

 
17.0

Total Asia Pacific
21,822

 
21,480

 
342

 
1.6

 
 
 
 
 
 
 
 
Latin America
7,255

 
7,652

 
(397
)
 
(5.2
)
Canada
7,787

 
8,340

 
(553
)
 
(6.6
)
Total international retail sales
73,763

 
76,721

 
(2,958
)
 
(3.9
)
Total worldwide retail sales
179,519

 
188,740

 
(9,221
)
 
(4.9
)%
 
(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 new retail sales, and the Company does not regularly verify the information that its dealers supply. 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.
(c)
Includes Japan, Australia, New Zealand and Korea.
Retail sales of new Harley-Davidson motorcycles in the U.S. were down 5.6% in the first nine months of 2019 compared to the same period last year behind lower, but improved, industry retail sales performance and soft market share.
The U.S. industry was down 3.9% in the first nine months of 2019 compared to the same period last year. This is an improvement over the rate of decline experienced in the first nine months of 2018 when the industry was down 8.7%. Similarly, the U.S. retail sales rate of decline for new Harley-Davidson motorcycles also tempered in the first nine months of 2019 compared to the prior year. In the prior year, U.S. retail sales for new Harley-Davidson motorcycles were down 10.2% through the first nine months.
The Company's U.S. market share of new 601+cc motorcycles for the first nine months of 2019 was 48.8%, down 0.9 percentage points compared to the same period last year. The Company's U.S. market share reflected the adverse impact of relatively strong growth in segments in which the Company does not currently compete. In the Touring and Cruiser segments, which represent approximately 70% of the 601+cc market and where the Company currently competes, its market share was up 2.2 percentage points during the first nine months of 2019 from the same period last year (Source: Motorcycle Industry Council).
International retail sales of new Harley-Davidson motorcycles were down 3.9% in the first nine months of 2019. Retail sales in developed markets were down 7.1% during the first nine months of 2019 partially offset by higher retail sales in emerging markets, which increased 5.9% during the same period. Retail sales increases in emerging markets during the first nine months of 2019 were driven by growth in various markets, including China and the Company's ASEAN markets.
In developed international markets, retail sales across most European markets were lower following last year's strong initial retail sales of the Company's new Softail motorcycles and lower Street sales which were adversely impacted by a recall initiated in early 2019. Additionally, retail sales were down in Japan and Australia in the first nine months of 2019 compared to prior year behind lower industry sales and competitive new product introductions in segments outside of the Touring and Cruiser segments.

53

Table of Contents

The Company's 2019 market share of new 601+cc motorcycles in Europe was 8.9% through September, compared to 10.4% for the same period last year (Source: Association des Constructeurs Europeens de Motocycles). The European market share declined given last year's strong initial retail sales of the Company's new Softail motorcycle and lower sales of Street motorcycles due to the impact of a Street recall initiated in early 2019.
Motorcycle Registration Data(a) 
The following table includes industry retail motorcycle registration data:
 
Nine months ended
 
 
 
 
 
September 30,
2019
 
September 30,
2018
 
(Decrease)
Increase
 
%
Change
United States(b)
213,877

 
222,468

 
(8,591
)
 
(3.9
)%
Europe(c)
371,412

 
347,884

 
23,528

 
6.8
 %
 
(a)
Data includes on-road 601+cc models. On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table.
(b)
United States industry data is derived from information provided by Motorcycle Industry Council. 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, an independent agency. This third-party data is subject to revision and update.
Motorcycles and Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesale motorcycle unit shipments for the Motorcycles segment:
 
Nine months ended
 
 
 
 
 
September 29, 2019
 
September 30, 2018
 
Unit
 
Unit
 
Units
 
Mix %
 
Units
 
Mix %
 
Decrease
 
% Change
Motorcycle Units:
 
 
 
 
 
 
 
 
 
 
 
United States
101,481

 
58.5
%
 
108,057

 
58.4
%
 
(6,576
)
 
(6.1
)%
International
72,004

 
41.5
%
 
77,119

 
41.6
%
 
(5,115
)
 
(6.6
)
 
173,485

 
100.0
%
 
185,176

 
100.0
%
 
(11,691
)
 
(6.3
)%
Motorcycle Units:
 
 
 
 
 
 
 
 
 
 
 
Touring motorcycle units
75,871

 
43.7
%
 
84,125

 
45.4
%
 
(8,254
)
 
(9.8
)%
Cruiser motorcycle units(a)
59,367

 
34.2
%
 
61,951

 
33.5
%
 
(2,584
)
 
(4.2
)
Sportster® / Street motorcycle units
38,247

 
22.1
%
 
39,100

 
21.1
%
 
(853
)
 
(2.2
)
 
173,485

 
100.0
%
 
185,176

 
100.0
%
 
(11,691
)
 
(6.3
)%
 
(a)
Includes Softail®, CVOTM, and LiveWireTM 
The Company shipped 173,485 Harley-Davidson motorcycles worldwide during the first nine months of 2019, which was 6.3% lower than the same period in 2018. The mix of Touring motorcycles decreased as a percent of total shipments while the mix of Cruiser and Sportster®/Street motorcycles increased compared to the same period last year.

54

Table of Contents

Segment Results
The following table includes the condensed statements of operations for the Motorcycles segment (dollars in thousands):
 
Nine months ended
 
 
 
 
 
September 29, 2019
 
September 30, 2018
 
(Decrease)
Increase
 
%
Change
Revenue:
 
 
 
 
 
 
 
Motorcycles
$
2,871,982

 
$
3,144,796

 
$
(272,814
)
 
(8.7
)%
Parts & Accessories
584,134

 
612,495

 
(28,361
)
 
(4.6
)
General Merchandise
180,379

 
183,520

 
(3,141
)
 
(1.7
)
Licensing
27,099

 
29,445

 
(2,346
)
 
(8.0
)
Other
34,989

 
42,757

 
(7,768
)
 
(18.2
)
 
3,698,583

 
4,013,013

 
(314,430
)
 
(7.8
)
Cost of goods sold
2,576,342

 
2,659,740

 
(83,398
)
 
(3.1
)
Gross profit
1,122,241

 
1,353,273

 
(231,032
)
 
(17.1
)
Operating expenses:
 
 
 
 
 
 
 
Selling & administrative expense
598,102

 
653,666

 
(55,564
)
 
(8.5
)
Engineering expense
156,377

 
143,657

 
12,720

 
8.9

Restructuring expense
31,682

 
74,044

 
(42,362
)
 
(57.2
)
 
786,161

 
871,367

 
(85,206
)
 
(9.8
)
Operating income
$
336,080

 
$
481,906

 
$
(145,826
)
 
(30.3
)%
Operating margin
9.1
%
 
12.0
%
 
(2.9
)
 
pts.
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 nine months of 2018 to the first nine months of 2019 (in millions):
 
Net
Revenue
 
Cost of
Goods Sold
 
Gross
Profit
Nine months ended September 30, 2018
$
4,013.0

 
$
2,659.7

 
$
1,353.3

Volume
(236.3
)
 
(155.1
)
 
(81.2
)
Price, net of related costs
59.6

 
27.2

 
32.4

Foreign currency exchange rates and hedging
(63.4
)
 
(45.2
)
 
(18.2
)
Shipment mix
(74.4
)
 
(2.5
)
 
(71.9
)
Raw material prices

 
1.1

 
(1.1
)
Manufacturing and other costs

 
91.1

 
(91.1
)
 
(314.5
)
 
(83.4
)
 
(231.1
)
Nine months ended September 29, 2019
$
3,698.5

 
$
2,576.3

 
$
1,122.2

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from the first nine months of 2018 to the first nine months of 2019:
The decrease in volume was due to lower wholesale motorcycle shipments and lower P&A and General Merchandise sales.
On average, wholesale prices for motorcycles shipped in the current period were higher than in the same period last year resulting in a favorable impact on revenue. The positive impact on revenue was partially offset by increased costs related to the additional content added to motorcycles shipped in the current period as compared to the same period last year.
Revenue was adversely impacted by weaker foreign currency exchange rates, relative to the U.S. dollar, as compared to the same period last year. The unfavorable revenue impact was partially offset by favorable net foreign currency gains associated with hedging and balance sheet remeasurements, as compared to the first nine months of the 2018.
Changes in the shipment mix of motorcycle families, as well as the mix of models within motorcycle families, had an adverse impact on revenue and gross profit during the first nine months of 2019. Additionally, unfavorable mix within P&A and General Merchandise contributed to the negative impact.

55

Table of Contents

Manufacturing and other costs were higher due to lower fixed cost absorption and an increase in the impact of recent EU and China tariffs. The impact of recent EU and China tariffs was $66.7 million higher during the first nine months of 2019 compared to the same period last year.
Operating expenses were lower in the first nine months of 2019 compared to the same period in 2018 driven by favorable net warranty and recall costs and lower restructuring expenses. In the first nine months of 2019, net warranty and recall costs were approximately $40 million lower than the first nine months of the prior year driven by higher than normal recoveries and lower warranty costs. Operating expenses also benefited in the first nine months of 2019 from lower spending as the Company aggressively managed cost. However, these decreases were mostly offset as the Company increased its investments in marketing and the More Roads plan.
Financial Services Segment
Segment Results
The following table includes the condensed statements of operations for the Financial Services segment (in thousands):
 
Nine months ended
 
 
 
 
 
September 29, 2019
 
September 30, 2018
 
Increase
(Decrease)
 
%
Change
Revenue:
 
 
 
 
 
 
 
Interest income
$
502,721

 
$
478,693

 
$
24,028

 
5.0
 %
Other income
87,725

 
78,391

 
9,334

 
11.9

Securitization and servicing fee income
489

 
916

 
(427
)
 
(46.6
)
 
590,935

 
558,000

 
32,935

 
5.9

Financial Services expenses:
 
 
 
 
 
 
 
Interest expense
158,387

 
145,089

 
13,298

 
9.2

Provision for credit losses
94,621

 
72,462

 
22,159

 
30.6

Operating expense
130,794

 
112,575

 
18,219

 
16.2

 
383,802

 
330,126

 
53,676

 
16.3

Operating income
$
207,133

 
$
227,874

 
$
(20,741
)
 
(9.1
)%
Interest income was higher for the first nine months of 2019 due to higher average outstanding receivables at a higher average yield. Interest expense increased due to higher average outstanding debt at a higher cost of funds.
The provision for credit losses increased $22.2 million compared to the first nine months of 2018. The retail motorcycle provision increased $23.2 million largely driven by higher retail credit losses which the Company believes was primarily due to inefficiencies resulting from the implementation of a new loan management system. The retail provision for credit losses was also adversely impacted by a smaller decrease in the reserve rate compared to the first nine months of 2018.
Annualized credit losses for the Company's retail motorcycle loans were 1.83% through September 29, 2019 compared to 1.55% through September 30, 2018. The 30-day delinquency rate for retail motorcycle loans at September 29, 2019 was 3.75% compared to 3.60% at September 30, 2018.
Operating expenses increased $18.2 million compared to the first nine months of 2018, which includes higher depreciation associated with the implementation of a new loan management system.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
 
Nine months ended
 
September 29,
2019
 
September 30,
2018
Balance, beginning of period
$
189,885

 
$
192,471

Provision for credit losses
94,621

 
72,462

Charge-offs, net of recoveries
(85,930
)
 
(71,486
)
Balance, end of period
$
198,576

 
$
193,447


56

Table of Contents

Other Matters
Contractual Obligations
As of September 29, 2019, the Company has updated the contractual obligations table 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, 2018 to reflect the new projected principal and interest payments for the remainder of 2019 and beyond as follows (in thousands):
 
2019
 
2020-2021
 
2022-2023
 
Thereafter
 
Total
Principal payments on debt
$
1,100,803

 
$
3,566,121

 
$
2,003,304

 
$
750,000

 
$
7,420,228

Interest payments on debt
44,977

 
299,017

 
115,679

 
336,750

 
796,423

 
$
1,145,780

 
$
3,865,138

 
$
2,118,983

 
$
1,086,750

 
$
8,216,651

Interest obligations for floating rate instruments, as calculated above, assume rates in effect at September 29, 2019 remain constant. For purposes of the above, the principal payment balances for medium-term notes, on-balance sheet asset-backed securitizations, and senior unsecured notes are shown without reduction for debt issuance costs. Refer to Note 12 of the Notes to the Consolidated Financial Statements for a breakout of the finance costs consistent with ASU No. 2015-03.
As of September 29, 2019, there have been no other material changes to the Company’s summary of expected payments for significant contractual obligations in the contractual obligations table in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining costs to accrue 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. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for 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 information exchanges and discussions with the EPA. In August 2016, the Company entered into a consent decree with the EPA regarding these issues, and the consent decree was subsequently revised in July 2017 (the Settlement). In the Settlement, the Company agreed to, among other things, pay a fine, and not sell tuning products unless they are approved by the EPA or California Air Resources Board. In December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the Settlement with the U.S. District Court for the District of Columbia for the purpose of obtaining court approval of the Settlement. Three amicus briefs opposing portions of the Settlement were filed with the court by the deadline of January 31, 2018. On March 1, 2018, the Company and the DOJ each filed separate response briefs. The Company is awaiting the court's decision on whether or not to finalize the Settlement, and on February 8, 2019, the DOJ filed a status update reminding the court of the current status of the outstanding matter. The Company has an accrual associated with this matter recorded in Accrued liabilities on the Consolidated balance sheets, and as a result, if it is finalized, the Settlement would not have a material adverse effect on the Company's financial condition or results of operations. The Settlement is not final until it is approved by the court, and if it is not approved by the court, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter.
York Environmental Matter
The Company is involved with government agencies and groups of potentially responsible parties related to 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. The Company has an agreement with the Navy which calls for the Navy and the Company to contribute amounts into a trust equal to 53% and 47%, respectively, of costs associated with environmental investigation and remediation activities at the York facility (Response Costs). A site wide remedial investigation/feasibility study at the York facility has been completed and approved by the Pennsylvania Department of Environmental Protection and the EPA. The Company has an accrual for its share of the estimated future Response Costs recorded in Other long-term liabilities on the Consolidated balance sheets.

57

Table of Contents

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) 
Off-Balance Sheet Arrangements
The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered variable interest entities (VIEs) under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing.
The SPEs are separate legal entities that assume the risks and rewards of ownership of the retail motorcycle finance receivables they hold. The assets of the VIEs are not available to pay other obligations or claims of the Company’s creditors. The Company’s economic exposure related to the VIEs is generally limited to restricted cash reserve accounts, retained interests and ordinary representations and warranties and related covenants. The VIEs have a limited life and generally terminate upon final distribution of amounts owed to investors.
The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE. Most of the Company’s asset-backed financings do not meet the criteria to be treated as a sale for accounting purposes as the Company, in addition to retaining servicing rights, retains a financial interest in the VIE in the form of a debt security. These transactions are treated as secured borrowings. As secured borrowings, the retail motorcycle finance receivables remain on the balance sheet with a corresponding obligation reflected as debt.
During the second quarter of 2016, the Company sold finance receivables with a principal balance of $301.8 million into a securitization VIE. The transaction met the criteria to be treated as a sale for accounting purposes and resulted in an off-balance sheet arrangement as the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants. Refer to Note 13 of the Notes to the Consolidated Financial Statements for additional information.
Liquidity and Capital Resources as of September 29, 2019(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 return cash to its shareholders through increasing dividends and repurchasing shares. The Company believes the Motorcycles segment operations will continue to be primarily funded through cash flows generated by operations.(1) The Company expects the Financial Services segment operations to continue to be funded with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities, and asset-backed securitizations.(1) 
The Company’s strategy is to maintain a minimum of twelve months of its projected liquidity needs through a combination of cash and cash equivalents and availability under its credit facilities. The following table summarizes the Company’s cash and availability under its credit and conduit facilities (in thousands):
 
September 29, 2019
Cash and cash equivalents
$
862,381

 
 
 Availability under credit and conduit facilities:
 
Credit facilities
726,863

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

Asset-backed Canadian commercial paper conduit facility(a)
37,765

 
1,364,628

 
$
2,227,009

(a)
Includes facilities expiring in the next twelve months which the Company expects to renew prior to expiration.(1) 

58

Table of Contents

The Company recognizes that it must continue to monitor and adjust its business to changes in the lending environment. 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.(1) 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.(1) 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.
Cash Flow Activity
The following table summarizes the Company's cash flow activities (in thousands):
 
Nine months ended
 
September 29, 2019
 
September 30, 2018
Net cash provided by operating activities
$
848,649

 
$
1,122,555

Net cash used by investing activities
(551,474
)
 
(616,063
)
Net cash used by financing activities
(603,690
)
 
(270,124
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(4,110
)
 
(12,567
)
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(310,625
)
 
$
223,801

Operating Activities
The decrease in net cash provided by operating activities for the first nine months of 2019 compared to the same period in 2018 was primarily due to lower net income and unfavorable changes in working capital which includes the utilization of restructuring liabilities. There were no voluntary qualified pension plan contributions in the first nine months of 2019 or 2018 and no contributions are planned for the remainder of 2019.(1) 
Investing Activities
The Company’s most significant investing activities consist of capital expenditures and retail finance originations and collections. Capital expenditures were $121.2 million in the first nine months of 2019 compared to $119.8 million in the same period last year. Net cash outflows for finance receivables for the first nine months of 2019 were $28.8 million lower than the same period last year. Other investing cash inflows were $37.1 million higher in the first nine months of 2019 compared to the same period last year.
Financing Activities
The Company’s financing activities consist primarily of share repurchases, dividend payments, and debt activity. Cash outflows for share repurchases were $217.5 million in the first nine months of 2019 compared to $196.0 million in the same period last year. Share repurchases during the first nine months of 2019 included $208.0 million or 6.0 million shares of common stock related to discretionary share repurchases and $9.4 million or 0.3 million shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units. As of September 29, 2019, there were 10.4 million shares remaining on a board-approved share repurchase authorization. The Company paid dividends of $1.125 and $1.110 per share totaling $179.4 million and $186.1 million during the first nine of 2019 and 2018, respectively.

59

Table of Contents

Financing cash flows related to debt activities resulted in net cash outflows of $209.0 million in the first nine months of 2019 compared to net cash inflows of $108.8 million in the first nine months of 2018. The Company’s total outstanding debt consisted of the following (in thousands):
 
September 29,
2019
 
September 30,
2018
Unsecured commercial paper
$
1,013,137

 
$
1,373,859

Asset-backed Canadian commercial paper conduit facility
128,368

 
149,418

Asset-backed U.S. commercial paper conduit facilities
552,757

 
265,044

Asset-backed securitization debt, net
872,871

 
128,474

Medium-term notes, net
4,089,591

 
4,437,279

Senior unsecured notes, net
743,127

 
742,458

 
$
7,399,851

 
$
7,096,532

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 September 29, 2019 were as follows:
 
Short-Term
 
Long-Term
 
Outlook
Moody’s
P2
 
Baa1
 
Stable
Standard & Poor’s
A2
 
BBB+
 
Negative
Fitch
F1
 
A
 
Negative
Credit Facilities – In May 2019, the Company entered into a $195.0 million 364-day credit facility which matures in May 2020. The Company also has a $780.0 million five-year credit facility which matures in April 2023 and a $765.0 million five-year credit facility which matures in April 2021. The new 364-day credit facility and the five-year credit facilities (together, the Global Credit Facilities) bear interest at variable 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 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 $1.74 billion as of September 29, 2019 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 facilities 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 September 29, 2019 (in thousands):
Principal Amount
 
Rate
 
Issue Date
 
Maturity Date
$600,000
 
2.15%
 
February 2015
 
February 2020
$450,000
 
LIBOR + 0.50%
 
May 2018
 
May 2020
$350,000
 
2.40%
 
March 2017
 
June 2020
$600,000
 
2.85%
 
January 2016
 
January 2021
$450,000
 
LIBOR + 0.94%
 
November 2018
 
March 2021
$350,000
 
3.55%
 
May 2018
 
May 2021
$550,000
 
4.05%
 
February 2019
 
February 2022
$400,000
 
2.55%
 
June 2017
 
June 2022
$350,000
 
3.35%
 
February 2018
 
February 2023

60

Table of Contents

The fixed-rate Notes provide for semi-annual interest payments and the floating-rate Notes provide for quarterly interest payments. Principal on the Notes is due at maturity. Unamortized discounts and debt issuance costs on the Notes reduced the outstanding balance by $10.4 million and $12.7 million at September 29, 2019 and September 30, 2018, respectively. During the third quarter of 2019, $600.0 million of 2.40% medium-term notes matured, and the principal and accrued interest were paid in full. There were no medium-term note maturities during the second quarter of 2019. During the first quarter of 2019, $600.0 million of 2.25% and $150.0 million of floating-rate medium-term notes matured, and the principal and accrued interest were paid in full. There were no medium-term note maturities during the first or third quarter of 2018. During the second quarter of 2018, $877.5 million of 6.80% medium-term notes matured, and the principal and accrued interest were paid in full.
Senior Unsecured Notes – 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 used the proceeds from the debt to repurchase shares of its common stock in 2015.
On-Balance Sheet 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$220.0 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$220.0 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. The expected remaining term of the related receivables is approximately 5 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of September 29, 2019, the Canadian Conduit has an expiration date of June 26, 2020.
The following table includes quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds (in thousands):
 
2019
 
2018
 
Transfers
 
Proceeds
 
Transfers
 
Proceeds
First quarter
$

 
$

 
$
7,600

 
$
6,200

Second quarter
28,200

 
23,400

 
38,900

 
32,200

Third quarter

 

 

 

 
$
28,200

 
$
23,400

 
$
46,500

 
$
38,400

On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE – The Company has two separate agreements with third-party bank-sponsored asset-backed U.S. commercial paper conduits under which it may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party bank-sponsored asset-backed U.S. commercial paper conduits. In November 2018, the Company renewed its existing $600.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits. Also at that time, the Company amended its existing $300.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits, increasing the aggregate commitment to $600.0 million. The aggregate commitment under this agreement is reduced monthly as collections on the related finance receivables are applied to the outstanding principal until the outstanding principal balance is less than or equal to $300.0 million, at which point the aggregate commitment will equal $300.0 million. In May 2019, the Company further amended this revolving facility agreement to allow for incremental borrowings, at the lenders’ discretion, of up to an additional $300.0 million in excess of the $300.0 million commitment. Availability under the revolving facilities (together, the U.S. Conduit Facilities) is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the SPE as collateral.

61

Table of Contents

The following table includes quarterly transfers of U.S. retail motorcycle finance receivables to the U.S. Conduit Facilities and the respective proceeds (in thousands):
 
2019
 
2018
 
Transfers
 
Proceeds
 
Transfers
 
Proceeds
First quarter
$

 
$

 
$
32,900

 
$
29,300

Second quarter

 

 
59,100

 
53,300

Third quarter
174,400

 
154,600

 

 

 
$
174,400

 
$
154,600

 
$
92,000

 
$
82,600

The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates or LIBOR to the extent the advance is not funded by a conduit lender through the issuance of commercial paper plus, in each case, a program fee based on outstanding principal. The U.S. Conduit Facilities also provide for an unused commitment fee based on the unused portion of the total aggregate commitment. 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 Facilities, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of September 29, 2019, the U.S. Conduit Facilities have an expiration date of November 29, 2019.
Asset-Backed Securitization VIEs – For all of its asset-backed securitization transactions, the Company transfers U.S. retail motorcycle finance receivables to separate VIEs, which in turn issue 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 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.
The accounting treatment for asset-backed securitizations depends on the terms of the related transaction and the Company’s continuing involvement with the VIE. Most of the Company’s asset-backed securitizations do not meet the criteria to be accounted for as a sale because, in addition to retaining servicing rights, the Company retains a financial interest in the VIE in the form of a debt security. These transactions are treated as secured borrowings. As secured borrowings, the retail motorcycle finance receivables remain on the balance sheet with a corresponding obligation reflected as debt. 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 have various contractual maturities ranging from 2020 to 2026.
There were no on-balance sheet asset-backed securitization transactions during the third quarter of 2019. During the second quarter of 2019, the Company issued $500.0 million and $525.0 million, or $498.7 million and $522.6 million net of discounts and issuance costs, respectively, of secured notes through on-balance sheet asset-backed securitization transactions. There were no on-balance sheet asset-backed securitization transactions during the first quarter of 2019 or the nine months ended September 30, 2018. There were no off-balance sheet asset-backed securitization transactions during the nine months ended September 29, 2019 or September 30, 2018.
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 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 or consolidations; and
Purchase or hold margin stock.

62

Table of Contents

Under the current financial covenants of the Global Credit Facilities, the ratio of HDFS’ consolidated debt, excluding secured debt, to HDFS’ consolidated shareholders' equity, excluding accumulated other comprehensive loss (AOCL), 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 consolidated shareholders’ equity (where the Company's consolidated debt in each case excludes that of HDFS and its subsidiaries, and the Company's consolidated shareholders’ equity excluding AOCL), cannot exceed 0.7 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.
As of September 29, 2019, HDFS and the Company remained in compliance with all of the then existing covenants.
Cautionary Statements
The Company's ability to meet the targets and expectations noted above depends upon, among other factors, the Company's ability to (i) execute its business plans and strategies, including the elements of the More Roads to Harley-Davidson accelerated plan for growth that the Company disclosed on July 30, 2018 and updated September 24, 2019, and strengthen its existing business while enabling growth, (ii) execute its strategy of growing ridership, globally, (iii) effectively execute the Company’s Manufacturing Optimization Plan within expected costs and timing and successfully carry out its global manufacturing and assembly operations, (iv) accurately analyze, predict and react to changing market conditions and successfully adjust to shifting global consumer needs and interests, (v) manage and predict the impact that new or adjusted tariffs may have on the Company's ability to sell product internationally, and the cost of raw materials and components, (vi) successfully launch a smaller displacement motorcycle in India, (vii) develop and introduce products, services and experiences on a timely basis that the market accepts, that enable the Company to generate desired sales levels and that provide the desired financial returns, (viii) perform in a manner that enables the Company to benefit from market opportunities while competing against existing and new competitors, (ix) realize expectations concerning market demand for electric models, which will depend in part on the building of necessary infrastructure, (x) prevent, detect, and remediate any issues with its motorcycles or any issues associated with the manufacturing processes to avoid delays in new model launches, recall campaigns, regulatory agency investigations, increased warranty costs or litigation and adverse effects on its reputation and brand strength, and carry out any product programs or recalls within expected costs and timing, (xi) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xii) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, (xiii) reduce other costs to offset costs of the More Roads to Harley-Davidson plan and redirect capital without adversely affecting its existing business, (xiv) balance production volumes for its new motorcycles with consumer demand, (xv) manage risks that arise through expanding international manufacturing, operations and sales, (xvi) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing political environment, (xvii) successfully determine, implement on a timely basis, and maintain a manner in which to sell motorcycles in the European Union, China, and ASEAN countries that does not subject its motorcycles to incremental tariffs, (xviii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xix) continue to develop the capabilities of its distributors and dealers, effectively implement changes relating to its dealers and distribution methods and manage the risks that its independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xx) retain and attract talented employees, (xxi) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or Company data and respond to evolving regulatory requirements regarding data security, (xxii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio, (xxiii) adjust to tax reform, healthcare inflation and reform and pension reform, and successfully estimate the impact of any such reform on the Company’s business, (xxiv) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xxv) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xxvi) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xxvii) manage its exposure to product liability claims and commercial or contractual disputes, (xxviii) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the Company and within its expectations, (xxix) manage its Thailand corporate and manufacturing operations in a manner that allows the Company to avail itself of preferential free trade agreements and duty rates, and sufficiently lower prices of its motorcycles in certain markets, (xxx) continue to manage the relationships and agreements that the Company has with its labor unions to help drive long-term competitiveness, (xxxi) accurately predict the margins of its Motorcycles and Related Products segment in light of, among other things, tariffs, the cost associated with the More Roads to Harley-Davidson plan, the Company's Manufacturing Optimization Plan, and the Company's complex global supply chain, and (xxxii) develop and maintain a productive relationship with Zhejiang Qianjiang Motorcycle Co., Ltd. and launch related products in a timely manner.

63

Table of Contents

The Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. 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 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 to sub-prime borrowers, as well as actions that the Company has taken and could take that impact motorcycle values.
Refer to Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 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
The Company is exposed to market risk from changes in foreign currency exchange rates, commodity prices and interest rates. To reduce such risks, the Company selectively uses derivative financial instruments. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes. Sensitivity analysis is used to manage and monitor foreign currency exchange rate and interest rate risk.
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 are affected by fluctuations in the value of the U.S. dollar relative to foreign currencies. The Company’s most significant foreign currency exchange rate risk relates to the Euro, Australian dollar, Japanese yen, Brazilian real, Canadian dollar, Mexican peso, Indian rupee, and Pound sterling. The Company utilizes foreign currency contracts to mitigate the effect of certain currencies' fluctuations on earnings. The foreign currency 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's earnings are affected by changes in the prices of commodities used in the production of motorcycles. The Company uses derivative instruments on a limited basis to hedge the prices of certain commodities.
HDFS’ earnings are affected by changes in interest rates. HDFS’ interest rate sensitive financial instruments include finance receivables, debt and interest rate derivatives. HDFS utilizes interest rate swaps and caps to reduce the impact of fluctuations in interest rates on its debt.
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for further information concerning 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, 2018.

64

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 were no changes in the Company's internal control over financial reporting during the quarter ended September 29, 2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

65

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 17 of the Notes to 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 Company's repurchases of its common stock based on the date of trade during the quarter ended September 29, 2019:
2019 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
July 1 to August 4
 
1,350,812

 
$
36

 
1,350,812

 
12,361,451

August 5 to September 1
 
1,159,390

 
$
33

 
1,159,390

 
11,202,418

September 2 to September 29
 
789,508

 
$
34

 
789,508

 
10,413,477

 
 
3,299,710

 
$
34

 
3,299,710

 
 
 
(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 units
In February 2018, the Company's 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 repurchased 3.3 million shares on a discretionary basis during the quarter ended September 29, 2019 under this authorization. As of September 29, 2019, 10.4 million shares remained under this authorization.
Under the share repurchase authorization, 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 third quarter of 2019, the Company acquired 8,881 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock units.
Item 6. Exhibits
Refer to the Exhibit Index immediately following this page.


66

Table of Contents

Harley-Davidson, Inc.
Exhibit Index to Form 10-Q

Exhibit No.
 
Description
 
Chief Executive Officer Certification pursuant to Rule 13a-14(a)
 
Chief Financial Officer Certification pursuant to Rule 13a-14(a)
 
Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. §1350
101.INS
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
104
 
Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101






































67

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: November 7, 2019
/s/ John A. Olin
 
John A. Olin
 
Senior Vice President and
 
Chief Financial Officer
 
(Principal financial officer)
 
Date: November 7, 2019
/s/ Mark R. Kornetzke
 
Mark R. Kornetzke
 
Chief Accounting Officer
 
(Principal accounting officer)


68