0000793952 us-gaap:DefinedBenefitPlanCashAndCashEquivalentsMember us-gaap:FairValueInputsLevel2Member us-gaap:PensionPlansDefinedBenefitMember 2019-12-31





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 20172019
¨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
MilwaukeeWisconsin53208
(Address of principal executive offices) (Zip code)
RegistrantsRegistrant's telephone number: (414) number, including area code: (414342-4680
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
COMMON STOCK,Common Stock Par value, $.01 PAR VALUE PER SHAREHOGNEW YORK STOCK EXCHANGENew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whetherif the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yesý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨Noý
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 filing requirements for the past 90 days. Yesý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
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.Act
Large accelerated filer ý Accelerated filer ¨Emerging growth company
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 ¨Act.
Indicate by check mark whether the registrant is a shell company as(as defined in Rule 12b-2 of the Exchange Act.Act). Yes  ¨    No  ý
Aggregate market value of the voting stock held by non-affiliates of the registrant at June 25, 2017: $9,561,795,78130, 2019: 5,637,424,248
Number of shares of the registrant’s common stock outstanding at February 2, 2018: 168,413,679January 31, 2020: 152,807,930 shares




Documents Incorporated by Reference
Part III of this report incorporates information by reference from registrant’s Proxy Statement for the annual meeting of its shareholders to be held on May 10, 2018.21, 2020





Harley-Davidson, Inc.
Form 10-K
For The Year Ended December 31, 20172019
  Page
Part I  
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II  
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III  
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV  
Item 15.
Item 16.








PART I
(1) Note regarding forward-looking statements
The Company intends that certain matters discussed by the Companyin this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” “may,” “will,” “estimates,” “is on-track” 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 “Risk Factors” in Item 1A 1A. Risk Factors of this report and under “Cautionary Statements”the Cautionary Statements section in Item 7 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the Overview and Outlook sectionsections ofItem 7. Management's Discussion and Analysisof Financial Condition and Results of Operations are only made as of January 30, 201828, 2020 and the remaining forward-looking statements in this report are made as of the date indicated or, if a date is not indicated, as of the date of the filing of this report (February 21, 2018)(February 19, 2020), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. 
Item 1. Business
General
Harley-Davidson Motor Company was founded in 1903. Harley-Davidson, Inc. was incorporated in 1981, at which time it purchased the Harley-Davidson® motorcycle business from AMF Incorporated in a management buyout. In 1986, Harley-Davidson, Inc. became publicly held. Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the “Company” include Harley-Davidson, Inc. and all of its subsidiaries. Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company hasoperates in two reportable segments: the Motorcycles &and Related Products (Motorcycles) segment and the Financial Services segment.
See Note 18 of the Notes to Consolidated Financial Statements for financial information related to the Company’sServices. 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.
Strategy
The Company's long-term strategy to build the next generation of Harley-Davidson riders globally includes the following 2027 objectives:
Expand total Harley-Davidson riders to 4 million in the U.S.
Grow international business to 50% of annual HDMC revenue
Launch 100 new, high-impact Harley-Davidson motorcycles beginning in 2017
Deliver superior return on invested capital for HDMC that falls within the top quartile of the S&P® 500
Grow the business without growing its environmental impact
The “More Roads to Harley-Davidson” (More Roads) plan is designed to accelerate the Company's progress toward building riders globally from 2018 to 2022. The More Roads plan includes four growth catalysts:
New products – keeping riders inspired by geographic area. extending the Company's leadership in the market segments it has shaped and defined while unlocking new market opportunities
Broader access – creating new pathways to Harley-Davidson, expanding access and appeal to more people around the world
Stronger dealers – working side-by-side with the Company's global dealers to build stronger capabilities that lead to improved channel performance, greater profitability and a Harley-Davidson experience that exceeds riders' expectations
Amplify brand – enhancing the Harley-Davidson experience to inspire interest in riding, foster moto-culture and build an even bigger, more passionate community of Harley-Davidson riders


Motorcycles and Related Products Segment
The Motorcycles segment consists of HDMC which designs, manufactures and sells at wholesale on-road Harley-Davidson motorcycles as well as motorcycle parts, accessories, general merchandise and related services. The Company’sCompany'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 United States (U.S.), Canada, Latin America, Europe/Middle East/Africa (EMEA), Asia Pacific, and Asia Pacific.Latin America.
The following table includes Motorcycles segment revenue by product line as a percent of total revenue for the last three fiscal years was as follows:
 2017 2016 20152019 2018 2017
Motorcycles 77.8% 78.2% 77.8%77.4% 78.1% 76.6%
Parts & Accessories 16.4% 16.0% 16.2%15.6% 15.2% 16.3%
General Merchandise 5.3% 5.4% 5.5%5.2% 4.9% 5.3%
Other 0.5% 0.4% 0.5%
Licensing0.8% 0.8% 0.8%
Other products and services1.0% 1.0% 1.0%
 100.0% 100.0% 100.0%100.0% 100.0% 100.0%
Motorcycles - The Company's current Harley-Davidson motorcycles includemotorcycle offering includes cruiser and touring models that feature classicunique styling, innovative design, distinctive sound, and superior quality with the ability to customize. Harley-Davidson motorcycles generally havefeature engines with displacements that are greater than 601cc's,600cc, up to a maximum displacement of approximately 1900cc's.


1900cc. In addition, the Company introduced LiveWire™, its first electric motorcycle, in 2019.
The Company's motorcycles compete in the cruiser and touring categories of the market which were pioneered by the Company. The total on-road motorcycle marketindustry is comprised of the following categories:segments:
Cruiser (emphasizes– emphasizes styling, customization and owner customization);casual riding
Touring (emphasizes– emphasizes rider comfort and load capacity and incorporates features such as fairings and luggage compartments);compartments ideal for long rides
Standard (a– a basic motorcycle which usually featurestypically featuring upright seating for one or two passengers);passengers
Sportbike (incorporates– incorporates racing technology and performance and aerodynamic styling low handlebars with a “sport”and riding position and high performance tires); and
Dual (designed– designed with the capability for use on public roadson-road as well as for some off-highwayoff-road recreational use).use
The Company's current lineup of motorcycles competes primarily in the cruiser and touring segments. Competition in the categoriessegments of the motorcycle market in whichindustry where the Company currently competes is based upon a number of factors including product capabilities and features, styling, price, quality, reliability, warranty, availability of financing, and quality of the dealer network.networks that sell the products. The Company believes its motorcycles continue to generally command a premium price at retail relative to competitors’ motorcycles. The Company emphasizesHarley-Davidson motorcycles feature remarkable styling, customization, innovation, sound, quality and reliability in its products and include a warranty that is generally offers a two-year warranty for its motorcycles.two years. The Company considers the availability of a line of motorcycle parts and& accessories and general merchandise, the availability of financing through HDFS and its global network of premiumindependent dealers to be competitive advantages.
Under the More Roads plan, the Company intends to introduce new products, including additional electric motorcycles; new middleweight motorcycles that include adventure touring, custom and streetfighter models with engine displacements ranging from 750cc to 1250cc; and smaller displacement motorcycles for certain emerging markets. In 20172019, the Company announced a collaboration with Zhejiang Qianjiang Motorcycle Co., Ltd. that will support the launch of a smaller, more accessible Harley-Davidson motorcycle planned for the China market in 2020 with additional Asian markets expected to follow. The Company plans to introduce these new motorcycles between 2020 and 2022.
Motorcycle Industry Data – In 2019, the U.S. and European markets accounted for approximately 77%75% of the total annual independent dealer retail sales of new Harley-Davidson motorcycles. The most significant other markets for the Company, based on the Company's 20172019 retail sales data, were Japan, Australia, Japan and Canada.
The Company's market includes on-road motorcycles with internal combustion engines with displacements greater than 600cc and electric motorcycles with kilowatt (kW) peak power equivalents greater than 600cc (601+cc). In the U.S., sales in the 601+cc portion of the motorcycle market represented approximately 76% of the total motorcycle market in 2019, based on new units registered. The cruiser and touring segments accounted for approximately 70% of the sales in U.S. 601+cc portion of the motorcycle market in 2019, consistent with 2018. Harley-Davidson has been the historical market share leader in the U.S. 601+cc portion of the motorcycle market. According to themarket (U.S. industry data source: Motorcycle Industry Council (MIC), the cruiser and touring categories accounted for approximately 73% of total 2017 601+cc retail unit registrations in the Council).


U.S. During 2017, the 601+cc portion of the market represented approximately 82% of the total U.S. motorcycle market in terms of new units registered.Motorcycle Registration Data(a)(b)
The following chart includes U.S. retail registration data for 601+cc motorcycles for the years 2015 through 2017:
U.S. Motorcycle Registration Data(a)(b)
601+cc (Units in thousands)was as follows:
  2017 2016 2015
Total new motorcycle registrations 288.8
 311.7
 328.8
Harley-Davidson new registrations 146.5
 159.5
 165.1
  50.7% 51.2% 50.2%

 2019 2018 2017
Industry new motorcycle registrations252,842
 263,750
 288,802
Harley-Davidson new motorcycle registrations124,040
 131,064
 146,493
Harley-Davidson U.S. market share49.1% 49.7% 50.7%
(a)
Data includes on-road 601+cc models.models and electric motorcycles with kW peak power equivalents greater than 600cc's. On-road 601+cc models include dual purpose models, three-wheeled vehiclesmotorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table.
(b)
U.S. industry data is derived from information provided by the Motorcycle Industry Council (MIC).Council. This third-party data is subject to revision and update. The retail registration data for Harley-Davidson motorcycles presented in this table will differ from the Harley-Davidson retail sales data presented in Item 7 of this report.7. Management's Discussion and Analysis. The Company’s source for retail sales data in Item 7 of this report7. Management's Discussion and Analysis is sales and warranty registrations provided by independent Harley-Davidson dealers as compiled by the Company. The retail sales data in Item 77. Management's Discussion and Analysis includes sales of Harley-Davidson Street® 500 motorcycles which are excluded from the 601+cc units included in the retail registration data in this table. In addition, small differences may arise related to the timing of data submissions to the independent sources.
The European 601+cc motorcycle market is larger than the U.S. market and customer preferences differ from those of U.S. customers. The cruiser and touring and cruiser categoriessegments represented approximately 52%20% of the sales in the 601+cc portion of the European 601+cc market in 20172019 compared to approximately 73%70% of the 601+cc portion of the motorcycle market in the U.S.

European Motorcycle Registration Data(a)(b)

The following chart includes European retail registration data for 601+cc motorcycles for the years 2015 through 2017:
European Motorcycle Registration Data(a)(b)
601+cc (Units in thousands)was as follows:
  2017 2016 2015
Total new motorcycle registrations 390.6
 391.9
 351.8
Harley-Davidson new registrations 38.1
 42.3
 37.0
  9.8% 10.8% 10.5%
 2019 2018 2017
Industry new motorcycle registrations425,998
 397,669
 390,619
Harley-Davidson new motorcycle registrations37,813
 40,930
 38,115
Harley-Davidson European market share8.9% 10.3% 9.8%
(a)
Data includes on-road 601+cc models. On-road 601+cc models include dual purpose models, three-wheeled vehiclesmotorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table.
(b)
Europe industry data includes retail sales in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data is derived from information provided by the Association des Constructeurs Europeens de Motocycles, (ACEM), an independent agency. This third-party data is subject to revision and update. The retail registration data for Harley-Davidson motorcycles presented in this table will differ from the Harley-Davidson retail sales data presented in Item 7 of this report.7. Management's Discussion and Analysis. The Company’s source for retail sales data in Item 7 of this report7. Management's Discussion and Analysis is sales and warranty registrations provided by Harley-Davidson dealers as compiled by the Company. The retail sales data in Item 77. Management's Discussion and Analysis includes sales of Harley-Davidson Street® 500 motorcycles which are excluded from the 601+cc units included in the retail registration data in this table. In addition, some differences may arise related to the timing of data collected bysubmissions to the independent sources.
Parts and& Accessories (P&A) and General Merchandise – The Company offers a complete line of Harley-Davidson P&Aparts & accessories (P&A) and General Merchandise.general merchandise. P&A products are comprised of Genuine Motor Parts and Genuine Motor Accessories. Genuine Motor Parts include replacement parts (Genuineand Genuine Motor Parts) andAccessories includes mechanical and cosmetic accessories (Genuine Motor Accessories).accessories. General Merchandisemerchandise includes riding gear and apparel, including Genuine MotorClothes® apparel and riding gear..
Licensing – The Company creates anreach and awareness of the Harley-Davidson brand among its customers and the non-riding public through a wide range of products for enthusiasts by licensing the name “Harley-Davidson” and other trademarks owned by the Company. Royalty revenues from licensing, included in Motorcycles revenue, were $35.5 million, $38.1 million and $46.5 million in 2017, 2016 and 2015, respectively.Company for use on a range of products.
Patents and Trademarks – The Company strategically manages its portfolio of patents, trade secrets, copyrights, trademarks and other intellectual property.
The Company owns, and its subsidiaries own, and continuecontinues to obtain, patent rights that relate to its motorcycles and related products and processes for their production. Certain technology-related intellectual property is also protected, where appropriate, by license agreements, confidentiality agreements or other agreements with suppliers, employees and other third parties. The Company diligently protects its intellectual property, including patents and trade secrets, and its rights to innovative and proprietary technologytechnologies and designs. This protection, including enforcement, is important as the Company moves forward with investments in new products, designs and technologies. While the Company believes patents are important to its business


operations and in the aggregate constitute a valuable asset, the success of the business is not dependent on any one patent or group of patents. The Company’s active patent portfolio has an average age for patents of approximately seven and a halfsix years. A patent review committee manages the patent strategy and portfolio of the Company.
Trademarks are important to the Company’s motorcycle business and licensing activities. The Company has a vigorous worldwide program of trademark registration and enforcement to maintain and strengthen the value of the trademarks and prevent the unauthorized use of those trademarks. The HARLEY-DAVIDSON trademark and the Bar and Shield trademark are each highly recognizable to the public and are very valuable assets. Additionally, the Company uses numerous other trademarks, trade names and logos which are registered worldwide. The following are among the Company’s trademarks: HARLEY-DAVIDSON, H-D, HARLEY, the Bar & Shield Logo, MOTORCLOTHES, the MotorClothes Logo, the Willie G Skull Logo, HARLEY OWNERS GROUP, H.O.G., the H.O.G. Logo, LIVEWIRE, SOFTAIL SPORTSTER and V-ROD.SPORTSTER. The HARLEY-DAVIDSON trademark has been used since 1903 and the Bar and Shield trademark since at least 1910. Substantially all of the Company’s trademarks are owned by H-D U.S.A., LLC, a subsidiary of the Company, which also manages the Company’s global trademark strategy and portfolio.
Marketing and Customer Experiences– The Company’s brand, products and the riding experience are marketed to retail customers worldwideconsumers worldwide. Marketing occurs primarily through digital and experiential activities as well as through more traditional promotional and advertising activities. Additionally, the Company'sCompany’s independent dealers engage in a wide range of local marketing and experiential activitiesevents in part supported by cooperative programs with the Company.


Customer experiencesExperiences that build community and connect consumers with the Harley-Davidson brand and with one another have traditionally been at the center of much of the Company’s marketing.marketing efforts. To attract customersdevelop, engage and achieve its goals,retain committed riders, the Company participates in and sponsors motorcycle rallies, around the world and also in major motorcycle consumer shows, racing activities, music festivals, mixed martial arts activitiessports events and other special promotional events.
The This includes events sponsored by the Harley Owners Group (H.O.G.®) also promotes Harley-Davidson productsto build community and the related lifestyle and sponsors motorcycle events, including rallies and rides forconnect Harley-Davidson motorcycle enthusiasts throughoutriders around the world. These activities help inspire interest in riding, foster moto-culture and build a passionate community of Harley-Davidson riders.
The Company's Harley-Davidson® Riding Academy offers a series of rider education experiences that provide both neweliminates barriers and experienced riders with deeper engagement in the sport of motorcycling by teaching basiccreates opportunities for learning and advanced motorcycling skills and knowledge. Thebuilding rider confidence. Harley-Davidson® Riding Academy courses are conducted by a network of participating independent Harley-Davidson dealerships in the U.S., Canada, China, and Mexico,select international locations, enabling students to experience the Harley-Davidson lifestyle, environment, peoplebrand, products and productscommunity as they learn.
Through the Company'sThe Company also promotes its brand, products and community through a variety of other activities and experiences. Motorcycle rentals and tours are offered through an agreement with EagleRider riders inat select independent dealerships across the U.S. can rent Harley-Davidson motorcycles and participate in motorcycle tours. EagleRider is the exclusive provider of Harley-Davidson touring and cruiser motorcycle rentals and has locations throughout the U.S., including at select Harley-Davidson dealerships. Outside the U.S., riders can rent Harley-Davidson motorcycles from participating dealers through the Company'sCompany’s Authorized Rental Program outside of the U.S. Factory tours at select locations offer a chance to see Harley-Davidson employees channel their passion and participate in tours through the Company's Harley-Davidson Authorized Tours Program.
pride into building Harley-Davidson’s extraordinary motorcycles. The Company's Harley-Davidson Museum (Museum) in Milwaukee, Wisconsin is a unique destination that the Company believes builds and strengthens bondsthe connection between riders and Harley-Davidsonthe brand and enhances the perception of Harley-Davidson brand among the public at large.
Distribution – The Company’s products are retailed primarily through a network of independent dealers, of which the majority sell Harley-Davidson motorcycles exclusively. These dealerships stock and sell the Company’s motorcycles, P&A, general merchandise and licensed products, and perform service on Harley-Davidson motorcycles. The Company believes the quality retail experience that its independent dealers provide is a differentiating and strategic advantage for the Company.
The Company distributessells its motorcycles and related products to a network of independent Harley-Davidson dealers located in approximately 100 countries worldwide. The following table includes the number of worldwideWorldwide Harley-Davidson independent dealershipsdealership points by geographic location as of December 31, 2017:2019 were as follows:
  United States Canada Latin America EMEA Asia Pacific Total
Dealerships 698
 68
 58
 398
 276
 1,498
 U.S. Canada EMEA Asia Pacific Latin America Total
Independent dealership points698
 69
 423
 313
 66
 1,569
P&A, general merchandise and licensed products are also retailed through eCommerce channels in certain markets. In the U.S., the Company operates an eCommerce model is operated by the Companysite that offers products sold through participating authorized U.S. independent Harley-Davidson dealers.dealers and also sells directly to consumers through a well-known third-party eCommerce website. In China and India,select international markets, the Company utilizes additional third-party eCommerce sites are operated by third-parties.websites.
Retail Customer and Dealer Financing – The Company believes that HDFS, as well as other third-party financial institutions, provide access to financing for independent Harley-Davidson dealers and their retail customers. HDFS provides financing to independent Harley-Davidson independent dealers and their retail customers of independent dealers in the U.S. and Canada. The Company’s independent dealers and their retail customers in EMEA, Asia Pacific and Latin America are not directly financed by HDFS, butgenerally have access to financing through other establishedthird-party financial services companies,institutions, some of which have licensing or branding agreements with HDFS.


Seasonality – The timing of retail sales made by the Company’s independent dealers tracks closely with regional riding seasons. The seasonality of the Company’s wholesale motorcycle shipments primarilygenerally correlates with the timing of retail sales. The Company utilizes flexible or surge manufacturing capabilities to help align the production and wholesale shipment of motorcycles with the retail selling season. This provides the Company the ability to optimize inventory levels in the U.S. and Canada. In EMEA, Asia Pacific and Latin America, the Company utilizes a distribution process whereby Company-owned inventory is maintained locally at a level sufficient to fulfill dealer orders as needed.
Motorcycle ManufacturingThe Company has a flexible manufacturing processcapabilities designed to help ensure it is well-positioned to meet customer demand in a timely and cost-effective manner.(1) This flexible or surge manufacturing capability allows These capabilities allow the Company to increase the production of motorcycles ahead of and during the peak retail selling season to more closely correlate the timing of production and wholesale shipments to the retail selling season. It also allows the Company to respond to the desired model mix to meet customer demand.
The majority of the Company's motorcyclesmanufacturing processes are manufacturedperformed at facilities located in the U.S. The Company's U.S. manufacturing facilities supply the U.S. market as well as certain international markets. Additionally, the Company operates


facilities in Thailand, Brazil, India and Australia.India. The Company's Thailand facility manufactures motorcycles for certain Asian markets and, commencing in late 2019, the European Union. In Brazil and India, the Company operates a CKD (Complete Knock Down)complete knock down assembly facility,facilities, which assemblesassemble motorcycles sold in Brazilfor those respective markets from component kits sourced from the Company’s U.S. plantsfacilities and its suppliers. InAdditionally, in India, the Company operates a manufacturing facility that includes both CKD assembly of certain motorcycles for sale in India and production of the Company’s Street 750produces Harley-Davidson®Street motorcycles for distribution to markets outside of North America. Like its U.S.The Company's global manufacturing facilities, the Company’s Brazil and India operations are focused on driving world-class quality and performance. The motorcycles assembled at the Company's international facilities have the same authentic look, sound, feel and quality of a motorcycle manufactured by the Company's U.S. facilities. These international facilities enableA global manufacturing footprint enables the Company to be close to the customer,customers, provide quality products at a competitive price and grow its overall international business. The Company also operates a manufacturing facility in Australia for the purpose of producing certain complex, high-finish wheels for its motorcycles.
Raw Materials and Purchased Components – The Company continues to establish and reinforce long-term, mutually beneficial relationships with its suppliers. Through these collaborative relationships, the Company gains access to technical and commercial resources for application directly to product design, development and manufacturing initiatives. In addition, through a continued focus on collaboration and strong supplier relationships, the Company believes it will be positioned to achieve its strategic objectives and deliver cost and quality improvements over the long-term.(1) 
The Company's principal raw materials that are purchased include steel and aluminum castings, forgings, steel sheet and bar. The Company also purchases certain motorcycle components including, but not limited to, electronic fuel injection systems, batteries, certain wheels, tires, seats, electrical components, instruments and instruments.wheels. The Company closely monitors the overall viability of its supply base. At this time, theThe Company does not anticipate difficulties in obtaining raw materials or components.(1) 
Research and Development – The Company incurred research and development expenses of $175.2 million, $172.3 million and $161.2 million during 2017, 2016 and 2015, respectively.
Regulation – International, federal, state and local authorities have various environmental control requirements relating to air, water and noise that affect the business and operations of the Company. The Company strives to ensure that its facilities and products comply with all applicable environmental regulations and standards.
The Company’s motorcycles and certain other products that are sold in the United StatesU.S. are subject to certification by the U.S.United States Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) for compliance with applicable emissions and noise standards. Certain Harley-Davidson products are designed to comply with EPA and CARB standards and the Company believes it will comply with future requirements when they go into effect.(1) Additionally, certain of the Company’s products must comply with the motorcycle emissions, noise and safety standards of Canada, the European Union, Japan, Brazil and certain other foreign markets where they are sold, and the Company believes its products currently comply with those standards. BecauseAs the Company expects that environmental standards will become more stringent over time, the Company will continue to incur research, development and production costs in this area for the foreseeable future.(1) 
The Company, as a manufacturer of motorcycle products, is subject to the U.S. National Traffic and Motor Vehicle Safety Act, which is administered by the U.S. National Highway Traffic Safety Administration (NHTSA). The Company has certified to NHTSA that certain of its motorcycle products comply fully with all applicable federal motor vehicle safety standards and related regulations. The Company has from time to time initiated certain voluntary recalls. During the last three years ending in 2019, the Company has accrued $86.8$83.4 million associated with 1213 voluntary recalls related to Harley-Davidson motorcycles. This includes $29.4 million recorded in 2017 associated with the previously disclosed NHTSA investigation opened in 2016 related to certain motorcycles equipped with anti-lock breaking systems.
Employees – As of December 31, 2017,2019, the Motorcycles segment had approximately 5,200 employees.

Approximately 2,1005,000 employees, including approximately 2,000 unionized employees at theits U.S. manufacturing facilitiesfacilities. Unionized employees are represented with collective bargaining agreements as follows:
York, Pennsylvania - represented by International Association of Machinist and Aerospace Workers (IAM), and the collective bargaining agreement will expire on October 15, 2022
Kansas City, Missouri - represented byMilwaukee, Wisconsin – United Steelworkers of America (USW) and IAM, and the respective collective bargaining agreements will expire on July 31, 2018
Milwaukee, Wisconsin - represented by USW and IAM, and the respective collective bargaining agreements will expire on March 31, 20192024
Tomahawk, Wisconsin - represented by USW, and the collective bargaining agreement will expire on March 31, 20192024




Financial Services Segment
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 Company’s independent dealers and their retail customers in EMEA, Asia Pacific and Latin America are not financed by HDFS, butgenerally have access to financing through other third-party financial institutions, some of which have licensing or branding agreements with the Company or HDFS.
Wholesale Financial Services – HDFS provides wholesale financial services to U.S. and Canadian independent Harley-Davidson dealers, including floorplan and open account financing of motorcycles and motorcycle partsP&A. All U.S. and accessories. HDFS offers wholesale financial services to Harley-Davidson dealers in the United States and Canada, and during 2017, all of suchCanadian independent dealers utilized those servicesHDFS' financing programs at some point during the year.2019.
Retail Financial Services – HDFS provides retail financing to consumers, consisting primarily of installment lending for the purchase of new and used Harley-Davidson motorcycles. HDFS’ retail financial services are available through most independent Harley-Davidson dealerships in the United StatesU.S. and Canada.
Insurance Services – HDFS works with certain unaffiliated insurance companies which offer point-of-sale protection products through most independent Harley-Davidson dealers in both the U.S. and Canada, including motorcycle insurance, extended service contracts and motorcycle maintenance protection. HDFS also direct-markets motorcycle insurance and extended service contracts to owners of Harley-Davidson motorcycles. In addition, HDFS markets a comprehensive package of business insurance coverages and services to owners of independent Harley-Davidson dealerships.
Licensing HDFS has licensing arrangements with third-party financial institutions that issue credit cards bearing the Harley-Davidson brand in the U.S. and certain international markets. Internationally, HDFS licenses the Harley-Davidson brand to local third-party financial institutions that offer products to the Company’s retail customers such as financing and insurance.
Funding – The Company believes a diversified and cost-effective funding strategy is important to meet HDFS’ goal of providing credit while delivering appropriate returns and profitability. Financial Services operations have beenin 2019 were funded with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities and asset-backed securitizations.
Competition – The Company regards its ability to offer a package of wholesale and retail financial services in the U.S. and Canada as a significant competitive advantage. Competitors in the financial services industry compete for business based largely on price and, to a lesser extent, service. HDFS competes on convenience, service, brand association, dealer relations, industry experience, terms and price.
In the United States,U.S. and Canada, HDFS financed 61.2%65.9% and 45.0% of new Harley-Davidson motorcycles retailed by independent dealers during 2017,2019, respectively, compared to 61.7%64.9% and 39.9%, respectively, in 2016. In Canada, HDFS financed 41.9% of new Harley-Davidson motorcycles retailed by independent dealers during 2017, compared to 45.3% in 2016.2018. Competitors for retail motorcycle finance business are primarily banks, credit unions and other financial institutions. In the motorcycle insurance business, competition primarily comes from national insurance companies and from insurance agencies serving local or regional markets. For insurance-related products such as extended service contracts, HDFS faces competition from certain regional and national industry participants as well as dealer in-house programs. Competition for the wholesale motorcycle finance business primarily consists of banks and other financial institutions providing wholesale financing to independent Harley-Davidson dealers in their local markets.
Trademarks – HDFS uses various trademarks and trade names for its financial services and products, which are licensed from H-D U.S.A., LLC, including HARLEY-DAVIDSON, H-D and the Bar & Shield logo.
Seasonality – HDFS experiences seasonal variations in retail financing activities based on the timing of regional riding seasons in the U.S. and Canada. In general, from mid-March through August, retail financing volume is greatest. HDFS wholesale financing volume is affected by inventory levels at independent Harley-Davidson dealers. DealersIndependent dealers generally have higher inventory levels of new and used motorcycles in the winter than duringfirst half of the spring and summer riding season.year. As a result, outstanding wholesale financing volume isfinance receivables are generally higher during the winter as compared to the rest of the year.same period.
RegulationOperations of HDFS (both U.S. and foreign)operations are generally subject in certain instances, to supervision and regulation by statefederal and federalstate administrative agencies and various foreign governmental authorities. Many of the requirements imposed by such entities are in place to provide consumer protection as it pertains to the selling and servicing of financial products and services. Therefore, HDFS operations may be subject to limitations imposed by regulations, laws and judicial and/or


administrative decisions. In the U.S.,


for example, applicable laws include the federal Truth-in-Lending Act, Equal Credit Opportunity Act and Fair Credit Reporting Act.
Depending on the specific facts and circumstances involved, non-compliance with these laws may result in consequences such as limitinglimit the ability of HDFS to collect all or part of the principal or interest on applicable loans, entitling the borrower to rescind the loan or to obtain a refund of amounts previously paid, or could subject HDFS to the payment of damages or penalties and administrative sanctions, including “cease and desist” orders, and could limit the number of loans eligible for HDFSHDFS' securitization programs.
The Dodd-Frank Wall Street Reform and Consumer Protection Act granted the federal Consumer Financial Protection Bureau (CFPB)(the Bureau) significant supervisory, enforcement and rule-making authority in the area of consumer financial products and services. Certain CFPBBureau actions and regulations will directly impact HDFS and its operations. For example, the CFPBBureau has supervisory authority over non-bank larger participants in the vehicle financing market, which includes a non-bank subsidiary of HDFS.
Such regulatory requirements and associated supervision also could limit the discretion of HDFS in operating its business. Noncompliance with applicable statutes or regulations could result in the suspension or revocation of any charter, license or registration at issue, as well as the imposition of civil fines, criminal penalties and administrative sanctions.
A subsidiary of HDFS, Eaglemark Savings Bank (ESB), a subsidiary of HDFS, is a Nevada state thrift chartered as an Industrial Loan Company (ILC).Company. The activities of this subsidiaryESB are governed by federal laws and regulations as well asand State of Nevada banking laws, and arelaws. ESB is subject to examination by the Federal Deposit Insurance Corporation (FDIC) and Nevada state bank examiners. ESB originates retail loans and sells the loans to a non-banking subsidiary of HDFS. This process allows HDFS to offer retail products with many common characteristics across the United StatesU.S. and to similarly service loans to U.S. retail customers.
Employees – As of December 31, 20172019, the Financial Services segment had approximately 600 employees.
Internet Access
The Company’s website address is http://www.harley-davidson.com. The Company’s website address for investor relations is http://investor.harley-davidson.com/.
The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports, are available on its investor relations website free of charge as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the United States Securities and Exchange Commission (SEC).
In addition, the Company makes available, through its investor relations website, the following corporate governance materials: (a)(i) the Company’s Corporate Governance Policy; (b)(ii) Committee Charters approved by the Company’s Board of Directors for the Audit and Finance Committee, Human Resources Committee, Nominating and Corporate Governance Committee and Brand and Sustainability Committee; (c)(iii) the Company’s Financial Code of Ethics; (d)(iv) the Company’s Code of Business Conduct (the Code of Conduct) in nine languages including English; (e); (v) the Conflict of Interest Process for Directors, Executive Officers and Other Employees (the Conflict Process); (f)(vi) a list of the Company’s Board of Directors; (g)(vii) the Company’s Bylaws; (h)(viii) the Company’s Environmental and Energy Policy; (i)(ix) the Company’s Policy for Managing Disclosure of Material Information; (j)(x) the Company’s Supplier Code of Conduct in four languages including English; (k)Conduct; (xi) the Sustainability Strategy Report; (l) the list of compensation survey participants used as market reference points for various components of compensation as reported in the Company’s Notice of Annual Meeting and Proxy Statement filed with the SEC on March 20, 2017, which compensation relates to the Company’s named executive officers; (m)(xii) the California Transparency in Supply Chain Act Disclosure; (n)(xiii) the Statement on Conflict Minerals; (o)(xiv) the Political Engagement and Contributions 2016-2017;2018-2019; and (p)(xv) the Company's Clawback Policy. The Company's Notice of Annual Meeting and Proxy Statement for its 2020 annual meeting of shareholders, which will include information related to the compensation of the Company's named executive officers, will be made available through its investor relations website.
The Company satisfies the disclosure requirements under the Code of Conduct, the Conflict Process and applicable New York Stock Exchange listing requirements regarding waivers of the Code of Conduct or the Conflict Process by disclosing the information in the Company’s proxy statement for its annual meeting of shareholders or on the Company’sits investor relations website. The Company is not including the information contained on or available through any of its websitewebsites as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.


Item 1A. Risk Factors
An investment in Harley-Davidson, Inc. involves risks, including those discussed below. These risk factors should be considered carefully before deciding whether to invest in the Company.
The Company may not be able to successfully execute its short-term and long-term business plans and strategies. There is no assurance that the Company will be able to execute its business plans and strategies, including the elements of the More Roads plan for growth that the Company disclosed on July 30, 2018 and updated September 24, 2019, and strengthen its existing business while enabling growth. The Company’s ability to meet the objectives, milestones, outlooks, and goals in the More Roads plan depends upon, among other factors, the Company’s ability to: (i) realize expectations concerning market demand for electric, middleweight, and small-displacement models, which may depend in part on the building of necessary infrastructure, (ii) develop and introduce products on a timely basis that the market accepts, that enable the Company to generate desired sales levels and that provide the desired financial returns, (iii) successfully carry out its global manufacturing and assembly operations, (iv) manage risks that arise through expanding international manufacturing, operations and sales, (v) effectively implement changes relating to its dealers and distribution methods, (vi) accurately analyze, predict and react to changing market conditions, (vii) perform in a manner that enables the Company to benefit from market opportunities while competing against existing and new competitors, (viii) reduce other costs to offset costs of the More Roads plan and redirect capital without adversely affecting its existing operations, and (ix) avoid adverse impacts to its operations and/or demand for its products that may result from widespread infectious disease, in particular as it relates to its small displacement plans in Asia. Without limitation, the Company sees 2020 as the pivotal year in the transformation of the Company under the More Roads plan, and the Company faces challenges, risks and uncertainties in executing the plan. As a result, the Company may not realize its expectation of significant growth in 2021 or its goals for 2022 under the plan. The Company also may not be able to achieve the 2027 objectives under the Company's long-term strategy to build the next generation of Harley-Davidson riders globally.
The Company’s strategy to grow ridership may not be successful. The Company has been successful in marketing its products in large part by promoting the experience of Harley-Davidson motorcycling. To sustain and grow the business over the long-term, the Company must grow the sport of motorcycling and continue to be successful selling products and promoting the experience of motorcycling to new customers, including new riders, competitive riders and those who have motorcycle licenses but do not currently ride. The Company’s efforts toward expanding to 4 million total Harley-Davidson riders in the U.S. through 2027 and growing ridership internationally may not be successful, and achieving such growth in ridership may still not adequately meet the desired result of driving unit sales growth. Further, growing ridership in the U.S. may be challenging because the motorcycle market in the U.S. has been stagnant or declining, and the Company expects those conditions to continue. Failure to successfully drive demand for the Company's products may have a material adverse effect on the Company's business and results of operations.
The Company’s ability to remain competitive is dependent upon its capability to develop and successfully introduce new, innovative and compliant products. The motorcycle market continues to change in terms of styling preferences and advances in new technologies, and at the same time, it is subject to increasing regulations related to safety and emissions. The Company must continue to distinguish its products from its competitors’ products with unique styling and new technologies that consumers desire. The Company may not be able to achieve its goal of introducing 100 new, high-impact motorcycle models between 2017 and 2027, and introducing those models may still not lead to the desired result of driving unit sales growth. As the Company incorporates new and different features and technology into its products, the Company must protect its intellectual property from imitators and ensure its products do not infringe the intellectual property of other companies. In addition, these new products must comply with applicable regulations worldwide and satisfy the potential demand for products that produce lower emissions and achieve better fuel economy. The Company must make product advancements to respond to changing consumer preferences and market demands. The Company must also be able to design and manufacture these products and deliver them to a global marketplace in an efficient and timely manner and at prices that are attractive to customers. There can be no assurances that the Company will be successful in these endeavors or that existing and prospective customers will like or want the Company’s new products.
Changes in general economic and business conditions, tightening of credit and retail markets, political events or other factors may adversely impact independent dealers’ retail sales. The motorcycle industry is impacted by general economic conditions over which motorcycle manufacturers have little control. These factors can weaken the retail environment and lead to weaker demand for discretionary purchases such as motorcycles. Weakened economic conditions in certain business sectors and geographic areas can also result in reduced demand for the Company's products. Tightening of credit can limit the availability of funds from financial institutions and other lenders and sources of capital which could adversely affect the ability of retail consumers to obtain loans for the purchase of




The Company may not be able to successfully execute its long-term business strategy. There is no assurance that the Company will be able to drive growth and increase ridership to the extent desired through its focus of efforts and resources on its long-term business strategy and the Harley-Davidson brand, or to enhance productivity and profitability to the extent desired through pricing and continuous improvement.

The Company’s strategy to grow ridership may not be successful. The Company has been successful in marketing its products in large part by promoting the experience of Harley-Davidson motorcycling. To sustain and grow the business over the long-term, the Company must grow the sport of motorcycling and continue to be successful selling products and promoting the experience of motorcycling to new customers, including new riders, competitive riders and those who have motorcycle licenses but do not currently ride. The Company’s efforts toward building two million riders in the U.S. between 2017 and 2027 and growing ridership internationally may not be successful, and achieving such growth in ridership may still not adequately meet the desired result of driving unit sales growth. Further, growing ridership in the U.S. may be challenging because the motorcycle market in the U.S. has been stagnant or declining, and the Company expects those conditions to continue. Failure to successfully drive demand for the Company's products may have a material adverse effect on the Company's business and results of operations.

The Company must effectively execute its manufacturing optimization plan within expected costs and timing. In January 2018, the Company announced a multi-year manufacturing optimization plan anchored by the consolidation of its final assembly plant in Kansas City, Missouri, into its York, Pennsylvania plant, and the closure of its wheel operations in Australia. These actions are designed to eliminate excess capacity and reduce production costs and component supply costs. Effectively executing these plans within expected costs and realizing expected benefits will depend upon a number of factors, including the time required to complete planned actions and effective collaboration with the unions representing the Company’s employees, the absence of material issues associated with workforce reductions, availability of and effective use of third-party service providers to assist in implementing the actions, the ability and effectiveness of current suppliers to take on additional component production volume, avoidance of unexpected disruptions in production, retention of key employees involved in implementing the restructuring plans and the ability of the Company to dispose of vacated facilities in a cost effective manner.

The Company’s ability to remain competitive is dependent upon its capability to develop and successfully introduce new, innovative and compliant products. The motorcycle market continues to change in terms of styling preferences and advances in new technology and, at the same time, be subject to increasing regulations related to safety and emissions. The Company must continue to distinguish its products from its competitors’ products with unique styling and new technologies. The Company may not be able to achieve its goal of introducing 100 new, high-impact motorcycle models between 2017 and 2027, and introducing those models may still not lead to the desired result of driving unit sales growth. As the Company incorporates new and different features and technology into its products, the Company must protect its intellectual property from imitators and ensure its products do not infringe the intellectual property of other companies. In addition, these new products must comply with applicable regulations worldwide and satisfy the potential demand for products that produce lower emissions and achieve better fuel economy. The Company must make product advancements to respond to changing consumer preferences and market demands while maintaining the classic look, sound and feel associated with Harley-Davidson products, and development of electric vehicles will present challenges to the Company’s ability to maintain such look, sound and feel. The Company must also be able to design and manufacture these products and deliver them to a global marketplace in an efficient and timely manner and at prices that are attractive to customers. There can be no assurances that the Company will be successful in these endeavors or that existing and prospective customers will like or want the Company’s new products.

Increased supply of and/or declining prices for used motorcycles and excess supply of new motorcycles may adversely impact retail sales of new motorcycles by the Company’s independent dealers. The Company has observed that when the supply of used motorcycles increases or the prices for used Harley-Davidson motorcycles decline, there can be reduced demand among retail purchasers for new Harley-Davidson motorcycles (at or near manufacturer’s suggested retail prices). Further, the Company and its independent dealers can and do take actions that influence the markets for new and used Harley-Davidson motorcycles. For example, introduction of new motorcycle models with significantly different functionality, technology or other customer satisfiers can result in increased supply of used motorcycles, which could result in declining prices for used motorcycles and prior model-year new motorcycles. Also, while the Company has taken steps designed to balance production volumes for its new motorcycles with demand, those steps may not be effective, or the Company’s competitors could choose to supply new motorcycles to the market in excess of demand at reduced prices which could also have the effect of reducing demand for new Harley-Davidson motorcycles (at or near manufacturer’s suggested retail prices). Ultimately, reduced demand among retail purchasers for new Harley-Davidson motorcycles leads to reduced shipments by the Company.



The motorcycle industry has become increasingly competitive. Many of the Company’s competitors are more diversified than the Company, and they may compete in all segments of the motorcycle market, other powersports markets and/or the automotive market. Certain competitors appear to be increasing their investment in products that compete with the Company's products. Also, the Company’s manufacturer’s suggested retail price for its motorcycles is generally higher than its competitors, and as price becomes a more important competitive factor for consumers in the markets in which the Company competes, the Company may be at a competitive disadvantage. Furthermore, many competitors headquartered outside the U.S. experience a financial benefit from a strengthening in the U.S. dollar relative to their home currency that can enable them to reduce prices to U.S. consumers. In addition, the Company’s financial services operations face competition from various banks, insurance companies and other financial institutions that may have access to additional sources of capital at more competitive rates and terms, particularly for borrowers in higher credit tiers. The Company's responses to these competitive pressures, or its failure to adequately address and respond to these competitive pressures, may have a material adverse effect on the Company’s business and results of operations.

Changes in general economic and business conditions, tightening of credit and retail markets, political events or other factors may adversely impact dealers’ retail sales. The motorcycle industry is impacted by general economic conditions over which motorcycle manufacturers have little control. These factors can weaken the retail environment and lead to weaker demand for discretionary purchases such as motorcycles. Weakened economic conditions in certain business sectors and geographic areas, such as oil-dependent areas, can also result in reduced demand for the Company's products. Tightening of credit can limit the availability of funds from financial institutions and other lenders and sources of capital which could adversely affect the ability of retail consumers to obtain loans for the purchase of motorcycles from lenders, including HDFS. Should general economic conditions or motorcycle industry demand decline, the Company’s results of operations and financial condition may be substantially adversely affected. The motorcycle industry can also be affected by political conditions and other factors over which motorcycle manufacturers have little control.
Increased supply of and/or declining prices for used motorcycles and excess supply of new motorcycles may adversely impact retail sales of new motorcycles by the Company’s independent dealers. The Company has observed that when the supply of used motorcycles increases or the prices for used Harley-Davidson motorcycles decline, there can be reduced demand among retail purchasers for new Harley-Davidson motorcycles (at or near manufacturer’s suggested retail prices). Further, the Company and its independent dealers can and do take actions that influence the markets for new and used Harley-Davidson motorcycles. For example, introduction of new motorcycle models with significantly different functionality, technology or other customer satisfiers can result in increased supply of used motorcycles, which could result in declining prices for used motorcycles and prior model-year new motorcycles. Also, while the Company has taken steps designed to balance production volumes for its new motorcycles with demand, those steps may not be effective, or the Company’s competitors could choose to supply new motorcycles to the market in excess of demand at reduced prices which could also have the effect of reducing demand for new Harley-Davidson motorcycles (at or near manufacturer’s suggested retail prices). Ultimately, reduced demand among retail purchasers for new Harley-Davidson motorcycles leads to reduced shipments by the Company.
The financial services operations are exposed to credit risk on its retail and wholesale finance receivables. Credit risk is the risk of loss arising from a failure by a customer, including the Company's independent dealers, to meet the terms of any contract with the Company’s financial services operations. Credit losses are influenced by general business and economic conditions, including unemployment rates, bankruptcy filings and other factors that negatively affect household incomes, as well as contract terms and customer credit profiles. Credit losses are also influenced by the markets for new and used motorcycles, and the Company and its independent dealers can and do take actions that impact those markets. For example, the introduction of new models by the Company that represent significant upgrades on previous models may result in increased supply or decreased demand in the market for used Harley-Davidson branded motorcycles, including those motorcycles that serve as collateral or security for credit that HDFS has extended. This in turn could adversely impact the prices at which repossessed motorcycles may be sold, which may lead to increased credit losses for HDFS. Negative changes in general business, economic or market factors may have an additional adverse impact on the Company’s financial services credit losses and future earnings. The Company believes HDFS' retail credit losses may continue to increase over time due to changing consumer credit behavior, HDFS' efforts to increase prudently structured loan approvals to sub-prime borrowers, and new financing programs that may result in different loan performance than our existing programs.
The motorcycle industry has become increasingly competitive. Many of the Company’s competitors are more diversified than the Company, and they may compete in all segments of the motorcycle market, other powersports markets and/or the automotive market. Also, the Company’s manufacturer’s suggested retail price for its motorcycles is generally higher than its competitors, and as price becomes a more important factor for consumers in the markets in which the Company competes, the Company may be at a competitive disadvantage. Furthermore, many competitors headquartered outside the U.S. experience a financial benefit from a strengthening in the U.S. dollar relative to their home currency that can enable them to reduce prices to U.S. consumers. In addition, the Company’s financial services operations face competition from various banks, insurance companies and other financial institutions that may have access to additional sources of capital at more competitive rates and terms, particularly for borrowers in higher credit tiers. The Company's responses to these competitive pressures, or its failure to adequately address and respond to these competitive pressures, may have a material adverse effect on the Company’s business and results of operations.
Expanding international sales and operations subjects the Company to risks that may have a material adverse effect on its business. Expanding international sales and operations is a part of the Company’s long-term business strategy, particularly in light of the U.S. market conditions. There is no assurance that the Company will accomplish this international expansion. Further, to support that strategy, the Company must increase its presence outside the U.S., including additional employees and investment in business infrastructure and operations. International operations and sales are subject to various risks, including political and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade barriers, the impact of foreign government laws and regulations and U.S. laws and regulations that apply to international operations, the effects of income and withholding taxes, governmental expropriation and differences in business practices. The Company may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international operations and sales that could cause loss of revenues and earnings. Unfavorable changes in the political, regulatory and business climate could have a material adverse effect on the Company’s net sales, financial condition, profitability and cash flows. This includes, for example, the uncertainty related to the impact of United Kingdom’s withdrawal from the European Union (EU)


Expanding international sales and operations subjects the Company to risks that may have a material adverse effect on its business. Expanding international sales and operations is a part of the Company’s long-term business strategy, particularly in light of the U.S. market conditions. There is no assurance that the Company will accomplish this successfully. Further, to support that strategy, the Company must increase its presence outside the U.S., including additional employees and investment in business infrastructure and operations. International operations and sales are subject to various risks, including political and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade barriers, the impact of foreign government laws and regulations and U.S. laws and regulations that apply to international operations, and the effects of income and withholding taxes, governmental expropriation and differences in business practices. The Company may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international operations and sales that could cause loss of revenues and earnings. Unfavorable changes in the political, regulatory and business climate could have a material adverse effect on the Company’s net sales, financial condition, profitability or cash flows.(commonly known as “Brexit”). Business practices that may be accepted in other countries can violate U.S. or other laws that apply to the Company. Violations of laws that apply to the Company's foreign operations, such as the U.S. Foreign Corrupt Practices Act, could result in severe criminal or civil sanctions, could disrupt the Company's business and result in an adverse effect on the Company's reputation, business and results of operations.
Changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences, may continue to have a material adverse impact on our business, results of operations and outlook. Tariffs and/or other developments with respect to trade policies, trade agreements and government regulations could have a material adverse impact on the Company's business, financial condition and results of operations. Recent tariffs imposed by the EU and China resulted in material increases to the Company’s operating costs in 2018 and 2019. In 2018, the EU placed a 25% incremental tariff (31% total tariff) on motorcycles imported into the EU from the U.S., which is scheduled to increase to a 50% incremental tariff (56% total tariff) effective June 1, 2021. In addition, the U.S. government has imposed increased tariffs on imports from China (Section 301 tariffs), which has resulted in higher costs for components and products sourced from China.
In 2019, the Company obtained regulatory approvals that allow it to supply its EU markets with Touring, Softail® and Sportster® motorcycles produced at its Thailand operations at reduced tariff rates of 6%. These motorcycles will not be subject to the current 31% or future 56% tariffs that apply to motorcycles sourced from the Company's U.S. facilities. The Company expects wholesale shipments of Thailand-sourced lower-tariff motorcycles in the EU to begin early in the second quarter of 2020(1). Certain Trike and CVO™ models will continue to be sourced from the U.S. and will remain subject to the higher EU tariffs.

Recent U.S. tariffs on imports from China remain largely unmitigated and are expected to cost the Company approximately $15 million in 2020(1). The on-going impact of these tariffs will depend on future trade discussions between the U.S. and China or the Company’s ability to avoid or offset these costs should the tariffs remain in place.
Without limitation, (i) tariffs currently in place, (ii) the imposition by the U.S. government of new tariffs on imports to the U.S. and/or (iii) the imposition by foreign countries of tariffs on U.S. products, including tariffs imposed in response to U.S. tariffs, could materially increase: (a) the cost of Harley-Davidson products that the Company is offering for sale in relevant countries, (b) the cost of certain products that the Company sources from foreign manufacturers and (c) the prices of certain raw materials that the Company utilizes. The Company may not be able to successfully execute its manufacturing strategy. The Company’s manufacturing strategy is designedpass such increased costs on to continuously improve product qualityindependent dealers or their customers, and increase productivity, while reducing costs and increasing flexibility to respond to ongoing changes in the marketplace. Based on the Company’s strategy, the Company may from timenot be able to time, open, close, expand, contract or restructure one or moresecure sources of its manufacturing facilities. The Company believes flexible manufacturing, including flexible supply chains and flexible labor agreements, is the key element to enable improvements in the Company’s ability to respond to customers in a cost effective manner. To execute this strategy, the Company must be successful in its implementation of facility changes and in its continuous improvement efforts, all of which are dependent on the involvement of management, production employees and suppliers. To execute this strategy, the Company must be successful in its continuous improvement efforts which are dependent on the involvement of management, production employees and suppliers. Any inability to achieve these objectives could adversely impact the profitability of the Company’scertain products and its ability to deliver the right product at the right time to the customer.

The Company must prevent and detect issues with its products, components purchased from suppliers, and its suppliers’ manufacturing processes to reduce the risk of recall campaigns, increased warranty costs or


litigation, increased product liability claims or litigation, delays in new model launches, and inquiries or investigations by regulatory agencies. The Company must also complete any recall campaigns within cost expectations. The Company must continually improve and adhere to product development and manufacturing processes, and ensure that its suppliers and their sub-tier suppliers adhere to product development and manufacturing processes, to ensure high quality products are sold to retail customers. If product designs or manufacturing processes are defective, the Company could experience delays in new model launches, field actions such as product programs and product recalls, inquiries or investigations from regulatory agencies, warranty claims, and product liability claims, which may involve purported class actions. While the Company uses reasonable methods to estimate the cost of warranty, recall and product liability costs and appropriately reflects those in its financial statements, there is a risk the actual costs could exceed estimates and result in damagesmaterials that are not covered by insurance. Further, selling products with poor quality, the announcement of recalls, and the filing of product liability claims (whether or not successful), may also adversely affect the Company’s reputation and brand strength.

The Company’s Motorcycles segment is dependent upon unionized labor. Substantially all of the hourly production employees working in the Motorcycles segment are represented by unions and covered by collective bargaining agreements. Harley-Davidson Motor Company is currentlysubject to tariffs on a party to five collective bargaining agreements with local affiliates of the International Association of Machinists and Aerospace Workers and the United Steelworkers of America. Current collective bargaining agreements with hourly employees in Missouri, Wisconsin and Pennsylvania will expire in 2018, 2019 and 2022, respectively. There is no certainty that the Company will be successful in negotiating new agreements with these unions that extend beyond the current expiration dates or that these new agreements will be on terms that will allow the Company to be competitive or that allow the Company to execute its manufacturing optimization as planned. The Company’s decisions regarding opening, closing, expanding, contracting or restructuring its facilities may require changes to existing or new bargaining agreements. The Company will need to negotiate an extension of its bargaining agreements covering its Kansas City, Missouri facility as part of its manufacturing optimization plan. Failure to extend the KC bargaining agreements, or renew other agreements when they expire or to establish new collective bargaining agreements on terms acceptable to the Company and the unionstimely basis. Such developments could result in the relocation of production facilities, work stoppages or other labor disruptions which may have a material adverse effectimpact on the Company’sCompany's business, financial condition and results of operations.
The Company may not be able to successfully execute its manufacturing strategy. The Company’s manufacturing strategy is designed to continuously improve product quality and increase productivity, while reducing costs and increasing flexibility to respond to ongoing changes in the marketplace. Based on the Company’s strategy, the Company may, from time to time, open, close, expand, contract or restructure one or more of its manufacturing facilities. The Company believes flexible manufacturing, including flexible supply chains and flexible labor agreements, is a key element to enable improvements in the Company’s ability to respond to customers in a cost effective manner(1). To execute this strategy, the Company must be successful in its implementation of facility changes and in its continuous improvement efforts, all of which are dependent on the involvement of management, production employees and suppliers. Any inability to achieve these objectives could adversely impact the profitability of the Company’s products and its ability to deliver the right product at the right time to the customer.
The Company must prevent and detect issues with its products, components purchased from suppliers and its suppliers’ manufacturing processes to reduce recall campaigns, warranty costs, litigation, product liability claims, delays in new model launches and regulatory investigations. The Company must also complete any recall campaigns within cost expectations. The Company must continually improve and adhere to product development and manufacturing processes and ensure that its suppliers and their sub-tier suppliers adhere to product development and manufacturing processes, to ensure high quality products are sold to retail customers. If product designs or manufacturing processes are defective, the Company could experience delays in new model launches, field actions such as product programs and product recalls, inquiries or investigations from regulatory agencies, and warranty claims and product liability claims, which may involve purported class actions. While the Company uses reasonable methods to estimate the cost of warranty, recall and product liabilities and appropriately reflects those in its financial statements, there is a risk the actual costs could exceed estimates and result in damages that are not covered by insurance. Further, selling products with poor quality, the announcement of recalls and the filing of product liability claims (whether or not successful), may also adversely affect the Company’s reputation and brand strength.

The Company is exposed to market risk from changes in foreign exchange rates, commodity prices and interest rates. The Company sells its products internationally and in most markets those sales are made in the foreign country’s local currency. As a result, a weakening in those foreign currencies relative to the U.S. dollar can adversely affect the Company's revenue and margin, and cause volatility in results of operations. Furthermore, many competitors headquartered outside the U.S. experience a financial benefit from a strengthening in the U.S. dollar relative to their home currency that can enable them to reduce prices to U.S. consumers. The Company is also subject to risks associated with changes in prices of commodities. Earnings from the Company’s financial services business are affected by changes in interest rates. Although the Company uses derivative financial instruments to some extent to attempt to manage a portion of its exposure to foreign currency exchange rates and commodity prices, the Company does not attempt to manage its entire expected exposure, and these instruments generally do not extend beyond one year and may expose the Company to credit risk in the event of counterparty default to the derivative financial instruments. There can be no assurance that in the future the Company will successfully manage these risks.
A cybersecurity breach may adversely affect the Company’s reputation, revenue and earnings. The Company and certain of its third-party service providers and vendors receive, store and transmit digital personal information in connection with the Company’s human resources operations, financial services operations, e-commerce, the Harley Owners Group, dealer management, mobile applications, planned connected vehicle services offerings and other aspects of its business. The Company’s information systems, and those of its third-party service providers and vendors, are vulnerable to continually evolving cybersecurity risks. The Company's plan to offer connected vehicle services will heighten these risks. Unauthorized parties have attempted to and may attempt in the future to gain access to these systems or the information the Company and its third-party service providers and vendors maintain and use through fraud or other means of deceiving our employees and third-party service providers and vendors. Hardware, software or applications the Company develops or obtains from third-parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security and/or the Company’s operations. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or detect. The Company has implemented and regularly reviews and updates processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean the Company and third-party service providers and vendors must continually evaluate and adapt systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. The Company has experienced information security attacks, but to date they have not materially compromised the Company’s computing environment or resulted in a material impact on the Company’s business or operations or the release of confidential information about employees, customers, dealers, suppliers or other third parties. Any future significant compromise or breach of the Company’s data security, whether external or internal, or misuse of customer, employee, dealer, supplier or Company data could result in disruption to the Company’s operations, significant costs, lost sales, fines and lawsuits and/or damage to the Company’s reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous with new and evolving requirements, compliance could also result in the Company being required to incur additional costs.
The Company is exposed to market risk from changes in foreign currency exchange rates, commodity prices and interest rates. The Company sells its products internationally and in most markets those sales are made in the foreign country’s local currency. As a result, a weakening in those foreign currencies relative to the U.S. dollar can adversely affect the Company's revenue margin, and cause volatility in results of operations. Furthermore, many competitors headquartered outside the U.S. experience a financial benefit from a strengthening in the U.S. dollar relative to their home currency that can enable them to reduce prices to U.S. consumers. The Company is also subject to risks associated with changes in prices of commodities. Earnings from the Company’s financial services business are affected by changes in interest rates. Although the Company uses derivative financial instruments to some extent to attempt to manage a portion of its exposure to foreign currency exchange rates, commodity prices, and interest rate risks, the Company does not attempt to manage its entire expected exposure, and these derivative financial instruments generally do not extend beyond one year and may expose the Company to credit risk in the event of counterparty default to the derivative financial instruments. There can be no assurance that in the future the Company will successfully manage these risks.
The Company’s success depends upon the continued strength of the Harley-Davidson brand. The Company believes that the Harley-Davidson brand has significantly contributed to the success of its business and that maintaining and enhancing the brand is critical to expanding its customer base. Failure to protect the brand from infringers or to grow the value of the Harley-Davidson brand may have a material adverse effect on the Company’s business and results of operations.
The Company relies on third-party suppliers to obtain raw materials and provide component parts for use in the manufacture of its motorcycles. The Company may experience supply problems relating to raw materials and components such as unfavorable pricing, poor quality or untimely delivery. In certain circumstances, the Company relies on a single supplier to provide the entire requirement of a specific part, and a change in this established supply relationship may cause disruption in the Company’s production schedule. In addition, the price and availability of raw materials and component parts from suppliers can be adversely affected by factors outside of the Company’s control such as the supply of a necessary raw material, natural disasters or widespread infectious disease. Further, the Company's suppliers may experience difficulty in funding their day-to-day cash flow needs because of tightening credit caused by financial market disruption. In addition, adverse economic conditions and related pressure on select suppliers due to difficulties in the global manufacturing arena could adversely affect their ability to supply the Company. Changes in laws and policies relating to trade and taxation may also adversely impact the Company's foreign suppliers. These supplier risks may have a material adverse effect on the Company’s business and results of operations.

The Financial Services operations are exposed to credit risk on its retail and wholesale receivables. Credit risk is the risk of loss arising from a failure by a customer, including the Company's independent dealers, to meet the terms of any contract with the Company’s financial services operations. Credit losses are influenced by general business and economic conditions, including unemployment rates, bankruptcy filings and other factors that negatively affect household incomes, as well as contract terms and customer credit profiles. Credit losses are also influenced by the markets for new and used motorcycles, and the Company and its independent dealers can and do take actions that impact those markets. For example, the introduction of new models by the Company that represent significant upgrades on previous models may result in increased supply or decreased demand in the market for used Harley-Davidson branded motorcycles, including those motorcycles that serve as collateral or security for credit that HDFS has extended. This in turn could adversely impact the prices at which those motorcycles may be sold, which may lead to increased credit losses for HDFS. Negative changes in general business, economic or market factors may have an additional adverse impact on the Company’s financial services credit losses and future earnings. The Company believes HDFS' retail credit losses may continue to 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. Increases in the frequency of loss and decreases in the value of repossessed Harley-Davidson branded motorcycles also adversely impact credit losses. If there are adverse circumstances that involve a material decline in values of Harley-Davidson branded motorcycles, those
The Company’s operations are dependent upon attracting and retaining skilled employees, including skilled labor, executive officers and other senior leaders. The Company’s future success depends on its continuing ability to identify, hire, develop, motivate, retain and promote skilled personnel for all areas of its organization and to effectively execute reorganization actions within expected costs and realize the expected benefits of those actions. The Company’s current and future total compensation arrangements, which include benefits and incentive awards, may not be successful in attracting new employees and retaining and motivating the Company’s existing employees. In addition, the Company must cultivate and sustain a work environment where employees are engaged and energized in their jobs to maximize their performance, and the Company must effectively execute reorganization actions. If the Company does not succeed in attracting new personnel, retaining existing personnel, implementing effective succession plans and motivating and engaging personnel, including executive officers, the Company may be unable to develop and distribute products and services and effectively execute its plans and strategies.
The Company primarily sells its products at wholesale and must rely on a network of independent dealers to manage the retail distribution of its products. The Company depends on the capability of its independent dealers to develop and implement effective retail sales plans to create demand among retail purchasers for the motorcycles and related products and services that the dealers purchase from the Company. If the Company’s independent dealers are not successful in these endeavors, then the Company will be unable to maintain or grow its revenues and meet its financial expectations. Further, independent dealers may experience difficulty in funding their day-to-day cash flow needs and paying their obligations resulting from adverse business conditions, such as weakened retail sales and tightened credit. If independent dealers are unsuccessful, they may exit or be forced to exit the business or, in some cases, the Company may seek to terminate relationships with certain independent dealerships. As a result, the Company could face additional adverse consequences related to the termination of independent dealer relationships. Additionally, liquidating a former independent dealer’s inventory of new and used motorcycles can add downward pressure on new and used motorcycle prices. Further, the unplanned loss of any of the Company’s independent dealers may lead to inadequate market coverage for retail sales of new motorcycles and for servicing previously sold motorcycles, create negative impressions of the Company with its retail customers, and adversely impact the Company’s ability to collect wholesale receivables that are associated with that independent dealer.
The financial services operations are highly dependent on accessing capital markets to fund operations at competitive interest rates, the Company’s access to capital and its cost of capital are highly dependent upon its credit ratings, and any negative credit rating actions will adversely affect its earnings and results of operations. Liquidity is essential to the Company’s financial services business. Disruptions in financial markets may cause lenders and institutional investors to reduce or cease to loan money to borrowers, including financial institutions. The Company’s financial services operations may be negatively affected by difficulty in raising capital in the long-term and short-term capital markets. These negative consequences may in turn adversely affect the Company’s business and results of operations in various ways, including through higher costs of capital and reduced funds available through its financial services operations to provide loans to independent dealers and their retail customers. Additionally, the ability of the Company and its financial services operations to access unsecured capital markets is influenced by their short-term and long-term credit ratings. If the Company’s credit ratings are downgraded or its ratings outlook is negatively changed, then the Company’s cost of borrowing could increase, which may result in reduced earnings and reduced interest margins, and the Company’s access to capital may be disrupted or impaired.
The Company must invest in and successfully implement new information systems and technology. The Company is continually modifying and enhancing its systems and technology to increase productivity and efficiency and to mitigate failure risks from older/aged technologies currently in its portfolio. The Company has several large, strategic information system projects in process. As new systems and technologies (and related strategies) are implemented, the Company could experience unanticipated difficulties resulting in unexpected costs and adverse impacts to its manufacturing and other business processes. When implemented, the systems and technology may not provide the benefits anticipated and could add costs and complications to ongoing operations. Also, older technologies may fail, which may have a material adverse effect on the Company’s business and results of operations. In the case of the Company's planned electronic vehicle services offering, these risks are heightened because these services are dependent on (i) the successful implementation of complex third-party cloud solutions, (ii) the ability of a rider's motorcycle and mobile application to successfully connect to each other and (iii) the support of cellular carriers.
The Company must comply with governmental laws and regulations that are subject to change and involve significant costs. The Company’s sales and operations in areas outside the U.S. may be subject to foreign laws, regulations and the legal systems of foreign courts or tribunals. These laws and policies governing operations of foreign-based companies may result in increased costs or restrictions on the ability of the Company to sell its products in certain countries. U.S. laws and policies affecting foreign trade and taxation may also adversely affect the Company's international sales operations.


circumstances or any related decline in resale values for Harley-Davidson branded motorcycles could contribute to increased delinquencies and credit losses.

The Company’s operations are dependent upon attracting and retaining skilled employees, including skilled labor, executive officers and other senior leaders. The Company’s future success depends on its continuing ability to identify, hire, develop, motivate, retain and promote skilled personnel for all areas of its organization, and to effectively execute reorganization actions within expected costs and realize the expected benefits of those actions. The Company’s current and future total compensation arrangements, which include benefits and incentive awards, may not be successful in attracting new employees and retaining and motivating the Company’s existing employees. In addition, the Company must cultivate and sustain a work environment where employees are engaged and energized in their jobs to maximize their performance, and the Company must effectively execute reorganization actions. If the Company does not succeed in attracting new personnel, retaining existing personnel, implementing effective succession plans and motivating and engaging personnel, including executive officers, the Company may be unable to develop and distribute products and services and effectively execute its plans and strategies.

A cybersecurity breach may adversely affect the Company’s reputation, revenue and earnings. The Company and certain of its third-party service providers and vendors receive, store, and transmit digital personal information in connection with the Company’s human resources operations, financial services operations, e-commerce, the Harley Owners Group, dealer management, and other aspects of its business. The Company’s information systems, and those of its third-party service providers and vendors, are vulnerable to the increasing threat of continually evolving cybersecurity risks. Unauthorized parties have attempted to and may attempt in the future to gain access to these systems or the information the Company and its third-party service providers and vendors maintain and use through fraud or other means of deceiving our employees and third-party service providers and vendors. Hardware, software or applications the Company develops or obtains from third-parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security and/or the Company’s operations. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or detect. The Company has implemented and regularly reviews and updates processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean the Company and third-party service providers and vendors must continually evaluate and adapt systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. The Company has experienced information security attacks, but to date they have not compromised the Company’s computing environment or resulted in a material impact on the Company’s business or operations or the release of confidential information about employees, customers, dealers, suppliers or other third parties. Any future significant compromise or breach of the Company’s data security, whether external or internal, or misuse of customer, employee, dealer, supplier or Company data could result in disruption to the Company’s operations, significant costs, lost sales, fines and lawsuits, and/or damage to the Company’s reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and evolving requirements, compliance could also result in the Company being required to incur additional costs.

The Company sells its products at wholesale and must rely on a network of independent dealers to manage the retail distribution of its products. The Company depends on the capability of its independent dealers to develop and implement effective retail sales plans to create demand among retail purchasers for the motorcycles and related products and services that the dealers purchase from the Company. If the Company’s independent dealers are not successful in these endeavors, then the Company will be unable to maintain or grow its revenues and meet its financial expectations. Further, independent dealers may experience difficulty in funding their day-to-day cash flow needs and paying their obligations resulting from adverse business conditions such as weakened retail sales and tightened credit. If dealers are unsuccessful, they may exit or be forced to exit the business or, in some cases, the Company may seek to terminate relationships with certain dealerships. As a result, the Company could face additional adverse consequences related to the termination of dealer relationships. Additionally, liquidating a former dealer’s inventory of new and used motorcycles can add downward pressure on new and used motorcycle prices. Further, the unplanned loss of any of the Company’s independent dealers may lead to inadequate market coverage for retail sales of new motorcycles and for servicing previously sold motorcycles, create negative impressions of the Company with its retail customers, and adversely impact the Company’s ability to collect wholesale receivables that are associated with that dealer.

The Company must comply with governmental laws and regulations that are subject to change and involve significant costs. The Company’s sales and operations in areas outside the U.S. may be subject to foreign laws, regulations and the legal systems of foreign courts or tribunals. These laws and policies governing operations of foreign-based companies may result in increased costs or restrictions on the ability of the Company to sell its products


in certain countries. U.S. laws and policies affecting foreign trade and taxation may also adversely affect the Company's international sales operations.


The Company’s domestic sales and operations are subject to governmental policies and regulatory actions of agencies of the United States Government, including the Environmental Protection Agency (EPA), SEC,Securities and Exchange Commission (SEC), National Highway Traffic Safety Administration, Department of Labor and Federal Trade Commission. In addition, the Company’s sales and operations are also subject to laws and actions of state legislatures and other local regulators, including independent dealer statutes and licensing laws. Changes in regulations or the imposition of additional regulations may have a material adverse effect on the Company’s business and results of operations.operations
Tax - The Company is subject to income and non-income based taxes in the U.S. federal and state jurisdictions and in various foreign jurisdictions. Significant judgment is required in determining the Company's worldwide income tax liabilities and other tax liabilities including the impact of the 2017 Tax Cuts and Jobs Act (2017 Tax Act). The Company believes that it complies with applicable tax law.laws. If the governing tax authorities have a different interpretation of the applicable lawlaws or if there is a change in tax law,laws, the Company's financial condition and/or results of operations may be adversely affected. To the extent there are considerable changes to tax laws, the Company may need to readjust its tax strategy, and may not be able to take full advantage of such changes. Furthermore, given the complexity and timing
Environmental The majority of the 2017 Tax Act, future guidance, interpretations and pronouncements may add clarity to the numerous aspects of the 2017 Tax Act that impact the Company. Future clarifications may give rise to additional unanticipated matters that could impact the Company’s tax liabilities and effective tax rate that result in revisions to the Company’s provisional estimates related to the 2017 Tax Act included in the Company’s 2017 income tax provision, which could in turn adversely impact future operating results.
Environmental - The Company’s motorcycle products use internal combustion engines. These motorcycle products are subject to statutory and regulatory requirements governing emissions and noise, including standards imposed by the EPA, state regulatory agencies, such as the California Air Resources Board and regulatory agencies in certain foreign countries where the Company’s motorcycle products are sold. The Company is also subject to statutory and regulatory requirements governing emissions and noise in the conduct of the Company’s manufacturing operations. Any significant change to the regulatory requirements governing emissions and noise may substantially increase the cost of manufacturing the Company’s products. If the Company fails to meet existing or new requirements, then the Company may be unable to sell certain products or may be subject to fines or penalties. Further, in response to concerns about global climate changes and related changes in consumer preferences, the Company may face greater regulatory or customer pressure to develop products that generate less emissions. This may require the Company to spend additional funds on research, product development and implementation costs and subject the Company to the risk that the Company’s competitors may respond to these pressures in a manner that gives them a competitive advantage.
Financial Services - The Company’s financial services operations are governed by a wide range of foreign,U.S. federal and state and foreign laws that regulate financial and lending institutions, and financial services activities. In the U.S. for example, these laws include the federal Truth-in-Lending Act, Equal Credit Opportunity Act and Fair Credit Reporting Act. The financial services operations originate the majority of its consumer loans through its subsidiary, Eaglemark Savings Bank, a Nevada state thrift chartered as an industrial loan company. FederalIndustrial Loan Company. U.S. federal and state bodies may in the future impose additional laws, regulation and supervision over the financial services industry.
Violations of, or non-compliance with, relevant laws and regulations may limit the ability of HDFS to collect all or part of the principal or interest on applicable loans, may entitle the borrower to rescind the loan or obtain a refund of amounts previously paid, could subject HDFS to payment of damages, civil fines, or criminal penalties and administrative sanctions and could limit the number of loans eligible for HDFS securitizations programs. Such regulatory requirements and associated supervision also could limit the discretion of HDFS in operating its business, such as through the suspension or revocation of any charter, license or registration at issue, as well as the imposition of administrative sanctions, including "cease and desist" orders. The Company cannot assure that the applicable laws or regulations will not be amended or construed in ways that are adverse to HDFS, that new laws and regulations will not be adopted in the future, or that laws and regulations will not attempt to limit the interest rates or convenience fees charged by HDFS, any of which may adversely affect the business of HDFS or its results of operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) is a sweeping piece of legislation impacting financial services and the full effect will not be fully known for years,continues to evolve as regulations that are intended to implement the Dodd-Frank Act are adopted, and the text of the Dodd-Frank Act is analyzed by stakeholders and possibly the courts. The Dodd-Frank Act also created the Consumer Financial Protection Bureau (CFPB)(the Bureau). The CFPBBureau has significant enforcement and rule-making authority in the area of consumer financial products and services. The direction that the CFPBBureau will take, the regulations it will adopt, and its interpretation of existing laws


and regulations are all elements that are not yet fully known.known and subject to change. Compliance may be costly and could affect operating results as the implementation of new forms, processes, procedures and controls and infrastructure may be required. Compliance may create operational constraints and place limits on pricing. Failure to comply, as well as changes to laws and regulations, or the imposition of additional laws and regulations, could affect HDFS’ earnings, limit its access to capital, limit the number of loans eligible for HDFS securitization programs and have a material adverse effect on HDFS’ business and results of operations. The CFPBBureau also has supervisory authority over certain


non-bank larger participants in the vehicle financing market, which includes a non-bank subsidiary of HDFS, allowing the CFPBBureau to conduct comprehensive and rigorous on-site examinations that could result in enforcement actions, fines, changes to processes and procedures, product-related changes or consumer refunds, or other actions.
U.S. Public Company - The Company is also subject to policies and actions of the SEC and New York Stock Exchange (NYSE). Many major competitors of the Company are not subject to the requirements of the SEC or the NYSE rules. As a result, the Company may be required to disclose certain information that may put the Company at a competitive disadvantage to its principal competitors.
Weather may impact retail sales by the Company's independent dealers. The Company has observed that abnormally cold and/or wet conditions in a region, including impacts from hurricanes or unusual storms, could have the effect of reducing demand or changing the timing for purchases of new Harley-Davidson motorcycles. Reduced demand for new Harley-Davidson motorcycles ultimately leads to reduced shipments by the Company.
The Company’s Motorcycles segment is dependent upon unionized labor. A substantial portion of the hourly production employees working in the Motorcycles segment are represented by unions and covered by collective bargaining agreements. HDMC is currently a party to three collective bargaining agreements with local affiliates of the International Association of Machinists and Aerospace Workers and the United Steelworkers of America. Current collective bargaining agreements with hourly employees in Wisconsin will expire in 2024, and the agreement with employees in Pennsylvania will expire in 2022. There is no certainty that the Company will be successful in negotiating new agreements with these unions that extend beyond the current expiration dates or that these new agreements will be on terms that will allow the Company to be competitive. The Company's decisions regarding opening, closing, expanding, contracting or restructuring its facilities may require changes to existing or new bargaining agreements. Failure to renew agreements when they expire or to establish new collective bargaining agreements on terms acceptable to the Company and the unions could result in the relocation of production facilities, work stoppages or other labor disruptions which may have a material adverse effect on the Company’s business and results of operations.
The ability of the Company to expand international sales may be impacted by existing or new laws and regulations that impose motorcycle licensing restrictions and limit access to roads and highways. Expanding international sales is a part of the Company’s long-term business strategy. A number of countries have tiered motorcycle licensing requirements that limit the ability of new and younger riders to obtain licenses to operate the Company’s motorcycles, and many countries are considering the implementation of such requirements. These requirements only allow new and/or younger riders to operate smaller displacement motorcycles for certain periods of time. Riders typically are only permitted to obtain a license to ride larger displacement motorcycles upon reaching certain ages and/or having been licensed to ride smaller displacement motorcycles for a certain period of time, and only after passing additional tests and paying additional fees. These requirements pose obstacles to large displacement motorcycle ownership. Other countries have laws and regulations that prohibit motorcycles from being operated on certain roads and highways. These types of laws and regulations could adversely impact the Company’s plans to expand international sales.
The Company is and may in the future become subject to legal proceedings and commercial or contractual disputes. The uncertainty associated with substantial unresolved claims and lawsuits may harm the Company’s business, financial condition, reputation and brand. The defense of the lawsuits may result in the expenditures of significant financial resources and the diversion of management’s time and attention away from business operations. In addition, although the Company is unable to determine the amount, if any, that it may be required to pay in connection with the resolution of the lawsuits by settlement or otherwise, any such payment may have a material adverse effect on the Company’s business and results of operations. Refer to Item 3. Legal Proceedings in this Form 10-K and in the other periodic reports that the Company files with the SEC for additional detail regarding lawsuits and other claims against the Company.
The Company, its suppliers and its independent dealers must successfully accommodate a seasonal retail motorcycle sales pattern. The Company records the wholesale sale of a motorcycle when it is shipped to the Company’s independent dealers. The Company's flexible production capability allows it to more closely correlate motorcycle production and wholesale shipments with the retail selling season. Any difficulties in executing flexible production could result in lost production or sales. The Company, its suppliers and its independent dealers must be able to successfully manage changes in production rates, inventory levels and other business processes associated with flexible production. Failure by the Company, its suppliers or its independent dealers to make such adjustments may have a material adverse effect on the Company’s business and results of operations.

Weather may impact retail sales by the Company's independent dealers. The Company has observed that abnormally cold and/or wet conditions in a region, including impacts from hurricanes or unusual storms, could have the effect of reducing demand or changing the timing for purchases of new Harley-Davidson motorcycles. Reduced demand for new Harley-Davidson motorcycles ultimately leads to reduced shipments by the Company.

The Company relies on third party suppliers to obtain raw materials and provide component parts for use in the manufacture of its motorcycles. The Company may experience supply problems relating to raw materials and components such as unfavorable pricing, poor quality, or untimely delivery. In certain circumstances, the Company relies on a single supplier to provide the entire requirement of a specific part, and a change in this established supply relationship may cause disruption in the Company’s production schedule. In addition, the price and availability of raw materials and component parts from suppliers can be adversely affected by factors outside of the Company’s control such as the supply of a necessary raw material or natural disasters. Further, Company suppliers may experience difficulty in funding their day-to-day cash flow needs because of tightening credit caused by financial market disruption. In addition, adverse economic conditions and related pressure on select suppliers due to difficulties in the global manufacturing arena could adversely affect their ability to supply the Company. Changes in laws and policies relating to trade and taxation may also adversely impact the Company's foreign suppliers. These supplier risks may have a material adverse effect on the Company’s business and results of operations.

The Company must invest in and successfully implement new information systems and technology. The Company is continually modifying and enhancing its systems and technology to increase productivity and efficiency and to mitigate failure risks from older/aged technologies currently in its portfolio. The Company has several large, strategic information system projects in process. As new systems and technologies (and related strategies) are implemented, the Company could experience unanticipated difficulties resulting in unexpected costs and adverse impacts to its manufacturing and other business processes. When implemented, the systems and technology may not provide the benefits anticipated and could add costs and complications to ongoing operations and older technologies may fail, which may have a material adverse effect on the Company’s business and results of operations.

The ability of the Company to expand international sales may be impacted by existing or new laws and regulations that impose motorcycle licensing restrictions and limit access to roads and highways. Expanding international sales is a part of the Company’s long-term business strategy. A number of countries have tiered motorcycle licensing requirements that limit the ability of new and younger riders to obtain licenses to operate the Company’s motorcycles, and many countries are considering the implementation of such requirements. These requirements only allow new and/or younger riders to operate smaller motorcycles for certain periods of time. Riders typically are only permitted to obtain a license to ride larger motorcycles upon reaching certain ages and/or having been licensed to ride smaller motorcycles for a certain period of time, and only after passing additional tests and paying additional fees. These requirements pose obstacles to large displacement motorcycle ownership. Other countries have laws and regulations that prohibit motorcycles from being operated on certain roads and highways. These types of laws and regulations could adversely impact the Company’s plans to expand international sales.

The Company is and may in the future become subject to legal proceedings and commercial or contractual disputes. The uncertainty associated with substantial unresolved claims and lawsuits may harm the Company’s business, financial condition, reputation and brand. The defense of the lawsuits may result in the expenditures of significant financial resources and the diversion of management’s time and attention away from business operations.


In addition, although the Company is unable to determine the amount, if any, that it may be required to pay in connection with the resolution of the lawsuits by settlement or otherwise, any such payment may have a material adverse effect on the Company’s business and results of operations. Refer to the Company’s disclosures concerning legal proceedings in this Form 10-K and in the other periodic reports that the Company files with the Securities and Exchange Commission (SEC) for additional detail regarding lawsuits and other claims against the Company.

The Company, its suppliers, and its independent dealers must successfully accommodate a seasonal retail motorcycle sales pattern. The Company records the wholesale sale of a motorcycle when it is shipped to the Company’s independent dealers. The Company's flexible production capability allows it to more closely correlate motorcycle production and wholesale shipments with the retail selling season. Any difficulties in executing flexible production could result in lost production or sales. The Company, its suppliers, and its independent dealers must be able to successfully manage changes in production rates, inventory levels and other business processes associated with flexible production. Failure by the Company, its suppliers, or its independent dealers to make such adjustments may have a material adverse effect on the Company’s business and results of operations.

The Financial Services operations rely on external sources to finance a significant portion of its operations. Liquidity is essential to the Company’s Financial Services business. Disruptions in financial markets may cause lenders and institutional investors to reduce or cease to loan money to borrowers, including financial institutions. The Company’s Financial Services operations may be negatively affected by difficulty in raising capital in the long-term and short-term capital markets. These negative consequences may 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 share value through the use of alternative sources of capital.

The Financial Services operations are highly dependent on accessing capital markets to fund their operations at competitive interest rates, the Company’s access to capital and its cost of capital are highly dependent upon its credit ratings, and any negative credit rating actions will adversely affect its earnings and results of operations. The ability of the Company and its Financial Services operations to access unsecured capital markets is influenced by their short-term and long-term credit ratings. If the Company’s credit ratings are downgraded or its ratings outlook is negatively changed, the Company’s cost of borrowing could increase, resulting in reduced earnings and interest margins, or the Company’s access to capital may be disrupted or impaired. The Company borrowed $750,000,000 in 2015 to fund the repurchase of its Common Stock, which increased the Company's leverage. Having increased leverage increases the risk of a downgrade in the Company's credit ratings.

The Company incurs substantial costs with respect to employee pension and healthcare benefits. The Company’s cash funding requirements and its estimates of liabilities and expenses for pensions and healthcare benefits for both active and retired employees are based on several factors that are outside the Company’s control. These factors include funding requirements of the Pension Protection Act of 2006, the rate used to discount the future estimated liability, the rate of return on plan assets, current and projected healthcare costs, healthcare reform or legislation, retirement age and mortality. Changes in these factors can impact the expense, liabilities and cash requirements associated with these benefits which could have a material adverse effect on future results of operations, liquidity or shareholders’ equity. In addition, costs associated with these benefits put the Company under significant cost pressure as compared to its competitors that may not bear the costs of similar benefit plans. Furthermore, costs associated with complying with the Patient Protection and Affordable Care Act may produce additional cost pressure on the Company and its health care plans.

The Company’s success depends upon the continued strength of the Harley-Davidson brand. The Company believes that the Harley-Davidson brand has significantly contributed to the success of its business and that maintaining and enhancing the brand is critical to expanding its customer base. Failure to protect the brand from infringers or to grow the value of the Harley-Davidson brand may have a material adverse effect on the Company’s business and results of operations.

The Company must maintain stakeholder confidence in its operating ethics and corporate governance practices. The Company believes it has a history of good corporate governance and operating ethics.The Company has a Code of Business Conduct that defines how employees interact with various Company stakeholders and addresses issues such as confidentiality, conflict of interest and fair dealing. Failure to maintain its reputation for good corporate governance and strong operating ethics may have a material adverse effect on the Company’s business and results of operations.



The Company’s operations may be affected by greenhouse emissions and climate change and related regulations. Climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. Congress has previously considered and may in the future implement restrictions on greenhouse gas emissions. In addition, several states, including states where the Company has manufacturing plants, have previously considered and may in the future implement greenhouse gas registration and reduction programs. Energy security and availability and its related costs affect all aspects of the Company’s manufacturing operations in the United States, including the Company’s supply chain. The Company’s manufacturing plants use energy, including electricity and natural gas, and certain of the Company’s plants emit amounts of greenhouse gas that may be affected by these legislative and regulatory efforts. Greenhouse gas regulation could increase the price of the electricity the Company purchases, increase costs for use of natural gas, potentially restrict access to or the use of natural gas, require the Company to purchase allowances to offset the Company’s own emissions or result in an overall increase in costs of raw materials, any one of which could increase the Company’s costs, reduce competitiveness in a global economy or otherwise negatively affect the Company’s business, operations or financial results. Many of the Company’s suppliers face similar circumstances. Physical risks to the Company’s business operations as identified by the Intergovernmental Panel on Climate Change and other expert bodies include scenarios such as sea level rise, extreme weather conditions and resource shortages. Extreme weather may disrupt the production and supply of component parts or other items such as natural gas, a fuel necessary for the manufacture of motorcycles and their components. Supply disruptions would raise market rates and jeopardize the continuity of motorcycle production.

Regulations related to conflict minerals and other materials that the Company purchases to use in its products will cause the Company to incur additional expenses and may have other adverse consequences. The SEC adopted inquiry, diligence and disclosure requirements related to certain minerals sourced from the Democratic Republic of Congo and surrounding countries, or "conflict minerals," that are necessary to the functionality of a product manufactured, or contracted to be manufactured, by an SEC reporting company. Compliance with the disclosure requirements could affect the sourcing and availability of some of the minerals that the Company uses in the manufacturing of its products. The Company's supply chain is complex, and if it is not able to determine the source and chain of custody for all conflict minerals used in its products that are sourced from the Democratic Republic of Congo and surrounding countries or determine that its products are "conflict free," then the Company may face reputational challenges with customers, investors or others. Additionally, as there may be only a limited number of suppliers offering "conflict free" minerals, if the Company chooses to use only conflict minerals that are "conflict free," the Company cannot be sure that it will be able to obtain necessary materials from such suppliers in sufficient quantities or at competitive prices. Further, other laws or regulations impacting our supply chain, such as the UK Modern Slavery Act, may have similar consequences. For example, many countries in which the Company distributes its products are beginning to introduce regulations that require knowledge and disclosure of virtually all materials and chemicals in the Company’s products. Accordingly, the Company could incur significant costs related to the process of complying with these laws, including potential difficulty or added costs in satisfying the disclosure requirements.

The Company relies on third parties to perform certain operating and administrative functions for the Company. Similar to suppliers of raw materials and components, the Company may experience problems with outsourced services, such as unfavorable pricing, untimely delivery of services, or poor quality. Also, these suppliers may experience adverse economic conditions due to difficulties in the global economy that could lead to difficulties supporting the Company's operations. In light of the amount and types of functions that the Company has outsourced, these service provider risks may have a material adverse effect on the Company's business and results of operations.
The Company incurs substantial costs with respect to employee pension and healthcare benefits. The Company’s cash funding requirements and its estimates of liabilities and expenses for pensions and healthcare benefits for both active and retired employees are based on several factors that are outside the Company’s control. These factors include funding requirements of the Pension Protection Act of 2006, the rate used to discount the future estimated liabilities, the rate of return on plan assets, current and projected healthcare costs, healthcare reform or legislation, retirement age and mortality. Changes in these factors can impact the expense, liabilities and cash requirements associated with these benefits which could have a material adverse effect on future results of operations, liquidity or shareholders’ equity. In addition, costs associated with these benefits put the Company under significant cost pressure as compared to its competitors that may not bear the costs of similar benefit plans. Furthermore, costs associated with complying with the Patient Protection and Affordable Care Act may produce additional cost pressure on the Company and its health care plans.
The Company must maintain stakeholder confidence in its corporate governance practices and operating ethics. The Company believes it has a history of good corporate governance and operating ethics. The Company has a Code of Business Conduct that defines how employees interact with various Company stakeholders and addresses issues such as confidentiality, conflict of interest and fair dealing. Failure to maintain its reputation for good corporate governance and strong operating ethics may have a material adverse effect on the Company’s business and results of operations.
The Company’s operations may be affected by greenhouse emissions and climate change and related regulations. Climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. The U.S. Congress has previously considered and may in the future implement restrictions on greenhouse gas emissions. In addition, several U.S. states, including states where the Company has manufacturing facilities, have previously considered and may in the future implement greenhouse gas registration and reduction programs. Energy security and availability and its related costs affect all aspects of the Company’s manufacturing operations in the U.S., including the Company’s supply chain. The Company’s manufacturing facilities use energy, including electricity and natural gas, and certain of the Company’s facilities emit amounts of greenhouse gas that may be affected by these legislative and regulatory efforts. Greenhouse gas regulation could increase the price of the electricity the Company purchases, increase costs for use of natural gas, potentially restrict access to or the use of natural gas, require the Company to purchase allowances to offset the Company’s own emissions or result in an overall increase in costs of raw materials, any one of which could increase the Company’s costs, reduce competitiveness in a global economy or otherwise negatively affect the Company’s business, operations or financial results. Many of the Company’s suppliers face similar circumstances. Physical risks to the Company’s business operations as identified by the Intergovernmental Panel on Climate Change and other expert bodies include scenarios such as sea level rise, extreme weather conditions and resource shortages. Extreme weather may disrupt the production and supply of component parts or other items such as natural gas, a fuel necessary for the manufacture of motorcycles and their components. Supply disruptions would raise market rates and jeopardize the continuity of motorcycle production.
Regulations related to materials that the Company purchases to use in its products could cause the Company to incur additional expenses and may have other adverse consequences. Laws or regulations impacting the Company's supply chain, such as the UK Modern Slavery Act, could affect the sourcing and availability of some of the raw materials that the Company uses in the manufacturing of its products. The Company's supply chain is complex, and if it is not able to fully understand its supply chain, then the Company may face reputational challenges with customers, investors or others and other adverse consequences. For example, many countries in which the Company distributes its products are beginning to introduce regulations that require knowledge and disclosure of virtually all materials and chemicals in the Company’s products. Accordingly, the Company could incur significant costs related to the process of complying with these laws, including potential difficulty or added costs in satisfying the disclosure requirements.
The Company relies on third parties to perform certain operating and administrative functions for the Company. Similar to suppliers of raw materials and components, the Company may experience problems with outsourced services, such as unfavorable pricing, untimely delivery of services, or poor quality. Also, these suppliers may experience adverse economic conditions due to difficulties in the global economy that could lead to difficulties supporting the Company's operations. In light of the amount and types of functions that the Company has outsourced, these service provider risks may have a material adverse effect on the Company's business and results of operations.
The Company disclaims any obligation to update these Risk Factorsrisk factors or any other forward-looking statements. The Company assumes no obligation, (andand specifically disclaims any such obligation)obligation, to update these Risk Factorsrisk factors or any other


forward-looking statements to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements. 
Item 1B. Unresolved Staff Comments
None.


Item 2. Properties
The following is aA summary of the principal operating properties of the Company as of December 31, 2017:
Motorcycles & Related Products Segment2019 is as follows:
Type of Facility Location 
Approximate
Square Feet
Status
Motorcycle and Related Products: Status
Corporate Officeoffice Milwaukee, WI 515,000Owned

Product development center
 Owned
MuseumMilwaukee,Wauwatosa, WI130,000
 Owned
Manufacturing(1)(a)
 Menomonee Falls, WI 915,000
Owned
Product Development CenterWauwatosa, WI409,000
Owned
Manufacturing(2)(b)
 Tomahawk, WI 226,000
Owned
Manufacturing(3)(c)
 York, PA 571,000Owned
Manufacturing(d)

Rayong, Thailand Owned
Manufacturing(4)(e)
Kansas City, MO456,000
Owned
Manufacturing(5)
 Manaus, Brazil 108,000
Lease expiring 2019
Regional OfficeOxford, England39,000
Lease expiring 2022Leased
Manufacturing(6)(f)
 Bawal, India 68,000Leased

 Lease expiring 2019
Regional Office Singapore
Financial Services: 24,000
 Lease expiring 2020
Manufacturing(7)
Corporate office
 Adelaide, AustraliaChicago, IL 485,000Leased

Wholesale and retail operations office
 Lease expiring 2020Plano, TXLeased
Retail operations officeCarson City, NVOwned

(1)(a)Motorcycle powertrain production.production
(2)(b)PlasticProduction and painting of motorcycle component parts production and painting.
(3)(c)
Motorcycle parts fabrication, painting and Softail® and touring model assembly.
assembly
(4)(d)
Motorcycle parts fabrication, paintingProduction of select models for certain Asian and Dyna®, Sportster®, Softail® and Street platform assembly.
European markets
(5)(e)Assembly of select models for the Brazilian market.market
(6)(f)
Assembly of select models for the Indian market and production of theHarley-Davidson® Street platformmotorcycles for non-North American markets.markets outside of North America
(7)Motorcycle wheel production.
Financial Services Segment
Type of FacilityLocation
Approximate
Square Feet
Status
OfficeChicago, IL26,000
Lease expiring 2022
OfficePlano, TX69,000
Lease expiring 2025
OfficeCarson City, NV100,000
Owned
The Financial Services segment has three office facilities: Chicago, Illinois (corporate headquarters); Plano, Texas (wholesale and retail operations); and Carson City, Nevada (retail operations). 
Item 3. Legal Proceedings
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:
NoticeIn 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 anticipatesis awaiting the court will make acourt's decision on whether or not to finalize the Settlement, inand on February 8, 2019 the following months.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 which is includedrecorded in accruedAccrued liabilities in on the Consolidated Balance Sheets,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 Matters:
Matter The Company is involved with government agencies and groups of potentially responsible partiesthe U.S. Navy 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. Although theThe Company is not certain as to the full extent of the environmental contamination at the York facility, it has been workingan agreement with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including a site-wide remedial investigation/feasibility study (RI/FS).
In January 1995, the Company entered into a settlement agreement (the Agreement) with theU.S. Navy and the parties amended the Agreement in 2013 to address ordnance and explosive waste. The Agreementwhich calls for the U.S. 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). The trust administers the payment of the Response Costs incurred atA site wide remedial investigation/feasibility study and a proposed final remedy for the York facility as coveredhas been completed and approved by the Agreement.
Pennsylvania Department of Environmental Protection and the EPA. The associated cleanup plan documents were submitted for approval in December 2019 and remaining cleanup activities will begin in mid-2020. The Company has an accrual for its estimate of its share of the estimated future Response Costs at the York facility which is includedrecorded in otherOther long-term liabilities in the Consolidated Balance Sheets. While much of the work on the RI/FS is complete, it is still under agency review and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS that is finally approved or otherwise at the York facility, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.Consolidated balance sheets.
The estimate of the Company's future Response Costs that will be incurred at the York facility is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities.
Product Liability Matters:
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 consolidatedConsolidated financial statements.statements.(1)
National Highway Traffic Safety Administration Matters:
In July 2016, the National Highway Traffic Safety Administration (NHTSA) began an investigation into certain of the Company's motorcycles equipped with anti-lock braking systems (ABS). NHTSA’s investigation is in response to rider complaints related to brake failures and applies to model-year 2008-2013 Touring and model-year 2008-2017 V-ROD® motorcycles. NHTSA noted that Harley-Davidson has a two-year brake fluid replacement interval that owners either are unaware of or ignore. During 2017, the Company estimated and recorded a $29.4 million accrual associated with the NHTSA matter which is included in accrued liabilities. On January 30, 2018, the Company announced a voluntary recall which offers a free brake fluid flush for model-year 2008-2011 Touring and V-ROD® motorcycles. The Company believes the accrued liability it has recorded will adequately cover the cost of the recall.


Item 4. Mine Safety Disclosures    
Not ApplicableApplicable.


PART II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Harley-Davidson, Inc. common stock is traded on the New York Stock Exchange Inc. The high and low market prices forunder the common stock, reported as New York Stock Exchange, Inc. Composite Transactions, were as follows:
2017 Low High 2016 Low High
First quarter $54.75
 $63.40
 First quarter $36.36
 $49.99
Second quarter $51.61
 $62.95
 Second quarter $42.99
 $52.00
Third quarter $45.53
 $56.55
 Third quarter $41.63
 $57.33
Fourth quarter $44.52
 $52.30
 Fourth quarter $48.55
 $62.35
The Company paid the following dividends per share:
  2017 2016 2015
First quarter $0.365
 $0.350
 $0.310
Second quarter 0.365
 0.350
 0.310
Third quarter 0.365
 0.350
 0.310
Fourth quarter 0.365
 0.350
 0.310
Total $1.460
 $1.400
 $1.240
trading symbol HOG. As of February 2, 2018,January 31, 2020, there were 72,28568,506 shareholders of record of Harley-Davidson, Inc. common stock.
The Company’s share repurchases include discretionary share repurchases and shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock awards. The following table contains detailunits. Detail related to the Company's repurchaserepurchases of its common stock based on the date of trade during the quarter ended December 31, 2017:2019 is as follows:
2017 Fiscal Month 
Total Number of
Shares Purchased
 
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
September 25 to October 29 635
 $49
 635
 10,594,144
October 30 to November 26 731
 $49
 731
 10,594,144
November 27 to December 31 619
 $49
 619
 10,594,144
Total 1,985
 $49
 1,985
  
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
September 30 to November 3569,959
 $35
 569,959
 9,851,678
November 4 to December 1438,496
 $36
 438,496
 9,414,221
December 2 to December 311,167,849
 $37
 1,167,849
 8,246,721
 2,176,304
 $36
 2,176,304
  
(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 2016,2018, the Company's Board of Directors authorized the Company to repurchase up to 20.015.0 million shares of its common stock with no dollar limit or expiration date. As of December 31, 2017, 10.62019, 8.2 million shares remained under this authorization. In February 2018, the Company's Board of Directors authorized the Company to repurchase up to 15.0 million additional shares of its common stock with no dollar limit or expiration date.
Under the share repurchase authorizations,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)(i) have the Company withhold shares otherwise issuable under the award, (b)(ii) tender back shares received in connection with such award or (c)(iii) deliver other previously owned shares, in each case having a value equal to the amount to be withheld.


During the fourth quarter of 20172019, the Company acquired 1,9859,548 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock awards.units.
Item 1212. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this Annual Report on Form 10-K contains certain information relating to the Company’s equity compensation plans.
The following information in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such a filing: the SEC requires the Company to include a line graph presentation comparing cumulative five year Common Stockcommon stock returns with a broad-based stock index and either a nationally recognized industry index or an index of peer companies selected by the Company. The Company has chosen to use the Standard & Poor’s (S&P) 500 Index as the broad-based index and the Standard & Poor’sS&P MidCap 400 Index as a more specific comparison. The Standard & Poor’sS&P MidCap 400 Index was chosen becauseas the Company does not believe that any other published industry or line-of-business index adequately represents the current operations of the Company. The graph assumes a beginning investment of $100 on December 31, 20122014 and that all dividends are reinvested.


chart-696b8e6693f75d47b22.jpg
  2012 ($) 2013 ($) 2014 ($) 2015 ($) 2016 ($) 2017 ($)
Harley-Davidson, Inc. 100
 144
 139
 98
 130
 116
Standard & Poor’s MidCap 400 Index 100
 132
 142
 137
 165
 192
Standard & Poor’s 500 Index 100
 132
 151
 153
 171
 208
 2014 2015 2016 2017 2018 2019
Harley-Davidson, Inc.$100
 $70
 $93
 $84
 $58
 $66
S&P’s MidCap 400 Index$100
 $96
 $116
 $135
 $120
 $152
S&P’s 500 Index$100
 $101
 $113
 $138
 $132
 $174




Item 6. Selected Financial Data
(in thousands, except per share amounts)2019 2018 2017 2016 2015
Revenue:         
Motorcycles and Related Products$4,572,678
 $4,968,646
 $4,915,027
 $5,271,376
 $5,308,744
Financial Services789,111
 748,229
 732,197
 725,082
 686,658
 $5,361,789
 $5,716,875
 $5,647,224
 $5,996,458
 $5,995,402
          
Net income$423,635
 $531,451
 $521,759
 $692,164
 $752,207
          
Weighted-average shares:         
Basic157,054
 165,672
 171,995
 179,676
 202,681
Diluted157,804
 166,504
 172,932
 180,535
 203,686
          
Earnings per share:         
Basic$2.70
 $3.21
 $3.03
 $3.85
 $3.71
Diluted$2.68
 $3.19
 $3.02
 $3.83
 $3.69
          
Dividends paid per share$1.50
 $1.48
 $1.46
 $1.40
 $1.24
          
Assets(a)(c)
$10,528,159
 $10,665,664
 $9,972,672
 $9,890,240
 $9,972,977
Debt(a)
$7,444,930
 $7,599,276
 $6,988,009
 $6,807,567
 $6,872,198
Lease obligations(c)
$63,460
 $
 $
 $
 $
Shareholders' equity(b)
$1,803,999
 $1,773,949
 $1,844,277
 $1,920,158
 $1,839,654
(In thousands, except per share amounts) 2017 2016 2015 2014 2013
Statement of income data:          
Revenue:          
Motorcycles & Related Products $4,915,027
 $5,271,376
 $5,308,744
 $5,567,681
 $5,258,290
Financial Services 732,197
 725,082
 686,658
 660,827
 641,582
Total revenue $5,647,224
 $5,996,458
 $5,995,402
 $6,228,508
 $5,899,872
Net income $521,759
 $692,164
 $752,207
 $844,611
 $733,993
Weighted-average common shares:          
Basic 171,995
 179,676
 202,681
 216,305
 222,475
Diluted 172,932
 180,535
 203,686
 217,706
 224,071
Earnings per common share:          
Basic $3.03
 $3.85
 $3.71
 $3.90
 $3.30
Diluted $3.02
 $3.83
 $3.69
 $3.88
 $3.28
Dividends paid per common share $1.46
 $1.40
 $1.24
 $1.10
 $0.84
Balance sheet data:          
Total assets(a)
 $9,972,672
 $9,890,240
 $9,972,977
 $9,515,870
 $9,394,765
Total debt(a)
 $6,988,009
 $6,807,567
 $6,872,198
 $5,492,402
 $5,248,895
Total equity $1,844,277
 $1,920,158
 $1,839,654
 $2,909,286
 $3,009,486
(a)The Company adopted ASUAccounting Standards Update (ASU) No. 2015-03 and ASU No. 2015-15 on January 1, 2016. Upon adoption, the Company reclassified debt issuance cost, other than debt issuance coststhose related to line of credit arrangements, (which include its asset-backed commercial paper and commercial paper programs and its credit facilities), from other assets to debt.
(b)
The Company adopted ASU No. 2014-09 on January 1, 2018. Upon adoption, the Company recorded a net increase to the opening balance of Retained earnings of $6.0 million, net of income taxes, to recognize the cumulative effect of the adoption.
(c)
The Company adopted ASU No. 2016-02 on January 1, 2019. Upon adoption, the Company recorded Lease assets and related lease liabilities related to the Company's leasing arrangements totaling approximately $60 million.




Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Harley-Davidson, Inc. is the parent company of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the "Company" include Harley-Davidson, Inc. and all its subsidiaries. The Company operates in two reportable segments: Motorcycles &and Related Products (Motorcycles) and Financial Services.
The “% Change” figures included in the “Results of Operations” section were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented. 

Certain "% Change" deemed not meaningful (NM) have been excluded.
(1) Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” or “estimates”“may,” “will,” “estimates,” “is on-track” or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption “Risk Factors” in Item 1A1A. Risk Factors and underin “Cautionary Statements” in this Item 7 of this report.7. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the Outlook section“Overview” and “Outlook” sections are only made as of January 30, 201828, 2020 and the remaining forward-looking statements in this report are only made as of the date of the filing of this report (February 21, 2018)19, 2020), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Overview(1) 
The Company’s net income for 20172019 was $521.8$423.6 million, or $3.02$2.68 per diluted share, compared to $692.2$531.5 million, or $3.83$3.19 per diluted share, in 2016. 2018.
Operating income from the Motorcycles segment in 2019 was down $157.4$132.7 million compared to 20162018 due primarily due to a 7.9% decrease inlower wholesale motorcycle shipments. shipments, a less favorable product mix and higher costs related to the impact of recent European Union (EU) and China tariffs, partially offset by lower recall costs and lower restructuring expenses.
Operating income from the Financial Services segment in 20172019 was slightly lower than the prior year, decreasing $0.2down $25.2 million or 0.1%.8.6% compared to 2018 due primarily to an increase in the provision for credit losses.
Worldwide independent dealer retail sales of new Harley-Davidson motorcycles decreased 6.7%4.3% in 20172019 compared to 2018. Retail sales were down 5.2% in the prior year. U.S. and decreased 3.0% in international markets compared to 2018. Internationally, retail sales fell 8.5% and international retailgrowth in emerging markets was more than offset by declines in developed markets. Retail sales decreased 3.9%in the U.S. continued to be impacted by a weak U.S. industry; however, the rate of decline for the U.S. industry moderated in 2019. The U.S. 601+cc industry declined 4.1% in 2019 compared to 2018, which was the industry's lowest rate of decline since 2016. InThe Company expects continued headwinds in 2020 in the U.S., and developed international markets.
The Company plans to continue to address these market challenges by focusing on its strategy to build the 601+cc motorcycle industry continuednext generation of riders globally and executing its “More Roads to face significant challenges and international retail sales finished belowHarley-Davidson” (More Roads) plan. The More Roads plan, which extends from 2018 to 2022, is designed to accelerate the Company's expectations.
In 2017,progress towards building committed riders globally and deliver significant growth starting in 2021. One of the Company remained committedCompany's objectives is to a disciplined supply management approach focused on allowing U.S. dealers to achieve the right quantity and model-year mix of motorcycle inventory. The Company also focused on positioning its cost structure to better compete in the current environment. At the same time, the Company remained grounded in its long-term strategy and made good progress on its long-term objective to build riders globally. In 2017, the Company finished the year with a net increase of over 32,000expand total Harley-Davidson riders in the U.S. compared to 4 million by the priorend of 2027. This objective is focused on both attracting and retaining more riders each year. (Source:
At the end of 2019, there were 3.1 million Harley-Davidson riders in the U.S., 55,000 more total riders than at the end of 2018. During 2019, 527,000 riders joined the Harley-Davidson brand in the U.S., 25,000 more than the number that joined Harley-Davidson in 2018.* (*Data and analysis based on IHS Markit Motorcycles in Operation (MIO) data for On-Highway and Dual Purposepurpose bikes in the U.S. Snapshot based on data as of January 1, 2018)
In 2018,Dec. 31, 2019 compared to Dec. 31, 2018. IHS Markit reports, data and information referenced herein (the “IHS Markit Materials”) are the Company expects new Harley-Davidson motorcycle retail sales to grow internationally, but continues to expect challenges incopyrighted property of IHS Markit Ltd. and its subsidiaries (“IHS Markit”). The IHS Markit Materials are from sources considered reliable; however, the U.S.accuracy and completeness thereof are not warranted, nor are the opinions and analyses published by IHS Markit representations of fact. The Company's global retail expectations and disciplined supply strategy are reflected in its expectation for reduced wholesale shipments in 2018. In addition, to further improve its cost structure and maintain its world-class manufacturing operations, the Company is commencing 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. As the operations are consolidated, the Company expects approximately 800 jobs will be eliminated with the closure of Kansas City operations and approximately 450 jobs will be added in York by 2019. As part of this manufacturing optimization plan the Company will also close its wheel operations in Adelaide, Australia. Refer to the "Manufacturing Optimization Costs and Savings" below for further information.

As
IHS Markit Materials speak as of the original publication date thereof and are subject to change without notice. IHS Markit and other trademarks appearing in the IHS Markit Materials are the property of IHS Markit or their respective owners.)
The Company looks forward, it willaims to continue to focus onimprove annual progress towards building committed riders to reach its long-term strategy of growing ridership in the U.S.2027 objective and growingis executing its reach and impact internationally, while growing market share and profitability globally. In 2018, the Company will continueMore Roads plan to expand its independent dealer network outside the U.S. In addition, operations will begin at the Company's new facility in Thailand. This plant, like the Company's facility in Brazil, will support more competitive retail pricing in some of the


emerging markets that this plant will serve by reducing the tax and tariff burden that fully assembled imports carry in those markets.

In 2018, the Company will also continue to invest in new products. A portion of the benefit from the 2017 Tax Cuts and Jobs Act (2017 Tax Act) enacted in the U.S. in late 2017 will support the Company's objective to invest in high-impact product by redefining product in traditional spaces and expanding into new spaces such as the rapidly evolving electric vehicle landscape.do so. The Company plansbelieves it advanced its More Roads plan during 2019 and is on-track to bring Project Livewire, an electric Harley-Davidson motorcycle, to market within 18 months and will increaserealize its investmentexpectation of significant growth in electric motorcycle technology, products and infrastructure in 2018 and beyond. The Company expects its increased commitment and investment will help accelerate the development of this market and assure its leadership in electric motorcycles.2021.

Outlook(1)
On January 30, 201828, 2020, the Company announced the following expectations for 2018.2020.

Motorcycles and Related Products Segment – In 2020, the Company expects Motorcycles segment revenue to be approximately $4.53 billion to $4.66 billion, or down 1% to up 2% compared to 2019. Beginning in 2020, the Company is providing revenue guidance in place of motorcycle shipment guidance. The Company believes revenue is a more comprehensive view of the business given the breadth of revenue growth drivers included in the More Roads plan that would not be reflected in motorcycle shipments. These include things such as small displacement motorcycles, electric bicycles, electric two-wheelers for kids and an expanded focus on broadening access to general merchandise products. As the Company transitions from motorcycle shipment guidance to revenue guidance. it provided the following outlook for motorcycle shipments. The Company expects 2020 worldwide motorcycle shipments, including its 601+cc and LiveWire™ motorcycles, to be down modestly, to up slightly, compared to 2019.
The Company expects to ship between 231,000 and 236,000U.S. retail sales of new Harley-Davidson motorcycles to dealersbe lower in 2018, which is down approximately 2%2020 compared to 4% from 2017. The Company's shipment expectation assumes that2019 behind lower U.S. dealer retailindustry sales, will be down, partially offset by growth in international retail sales. Thebut expects the rate of decline to continue to temper during 2020.
During 2020, the Company expects 2018 year-end U.S. retail inventory to be flat to 2017 and flat to up in international markets as it continues to add new dealers.

During 2018, the Company expectsworldwide retail sales to be positively impacted by:
IncreasedIts focus on increasing committed riders and investment on growing global ridership
New product momentum with model-year 2018 motorcycles andin the additionStronger Dealers growth catalyst of new high-impact models yet to be introducedthe More Roads plan
A rebound in emerging-market retail sales performance
Its model year 2020 and 2021 motorcycles, including the Pan America™ and Harley-Davidson® Bronx™ middleweight models in late 2020
Expansion of the international independent dealer network

However, the Company expects these positive sales impacts are expectedto continue to be more than offsetmet by strong headwinds, including:
A very weakdeclining U.S. motorcycle industry for new motorcycles driven
A relative shift in rider preference toward market segments in which the Company does not currently compete, but plans to enter by flat to declining total demand for combined newthe end of 2020
A marketplace crowded with highly competitive promotions, incentives and used motorcycles and soft, but improving, Harley-Davidson used motorcycle pricesdiscounts
Competitive pressure from continued new product introductions throughout markets globally, particularly in lower price, smaller displacement motorcycles
Operating income as a percent of revenue for theIn 2020, Motorcycles segment is expected to be approximately 9.5% to 10.5% for the full year 2018. This reduction of approximately 2 to 3 percentage points compared to 2017, is primarily due to expected manufacturing optimization plan costs of $120 to $140 million. Also, operating margin will be reduced by approximately 0.2 percentage points due to the adoption of an accounting standard update that will require the Company to present the non-service cost components of its pension and postretirement plan expense as non-operating income. The Company estimates this will result in approximately $10 million of non-operating income in 2018 that would have been included in operating income under existing accounting standards. The new presentation will be applied retrospectively to prior periods in the Company's results for 2018 and forward.

Gross margin as a percent of revenue in 2018 is expected to benefitbe between 7% and 8%, up from pricing on model-year 20182019 operating margin of 6.3%.
Gross margin is expected to increase in 2020 behind lower year-over-year EU and 2019 motorcycles, a more favorable foreign currency exchange environment than 2017China tariffs and positivestrong operational productivity, including approximately $23 million in incremental Manufacturing Optimization Plan savings, partially offset by unfavorable changes in product mix. However,Refer to the “Restructuring Plan Costs and Savings” section below for further information regarding the Manufacturing Optimization Plan.
During 2020, the Company expects these positive impactsthe impact of recent EU and China tariffs to be more thanapproximately $35 million, which is down significantly from the 2019 impact of recent EU and China tariffs of $97.9 million. The 2020 estimate includes EU tariffs of approximately $20 million resulting from the shipment of remaining high-tariff inventory in Europe and continued tariffs on Trike and CVO™ models which the Company will continue to produce in the U.S. In addition, the Company expects to incur approximately $15 million from U.S. tariffs on imports from China (Section 301 tariffs).
While the Company plans to drive cost out of Selling, administrative and engineering expense, it expects operating expenses to be higher in 2020 due to increased investment in the More Roads plan and the absence of benefits recorded in 2019 related to recalls. In 2019, the Company recognized approximately $34 million of recall benefits primarily driven by supplier recoveries that are not expected to repeat in 2020. In 2020, investment in the More Roads plan is expected to peak as the Company finalizes product development and plans to launch:
New middleweight motorcycles
Electric bicycles
A small displacement motorcycle in China
Finally, the Company does not expect to incur restructuring expense in 2020, which will compare favorably to $32.4 million of restructuring expense in 2019.


Looking to the first quarter of 2020, the Company expects Motorcycles segment revenue to be between $1.09 billion and $1.17 billion, down 2% to 9% compared to the first quarter of 2019. First quarter 2020 Motorcycles segment operating margin as a percent of revenue is also expected to be down approximately 2.5 percentage points compared to the prior year. First quarter 2020 Motorcycles segment gross margin is expected to be flat to the prior year driven by favorable tariff impacts and increased productivity, which are expected to be offset by rising steelunfavorable mix. Selling, administrative and aluminum costs and increased manufacturing expense.

Manufacturingengineering expense is expected to be higher than in 2017,the first quarter of 2020 compared to the first quarter of 2019 due primarily to the recall benefit of approximately $28.0 million recorded in 2019.
Financial Services Segment – The Company expects 2020 Financial Services segment operating income to be approximately flat compared to 2019 driven by modestly higher interest income largely offset by an increased provision for credit losses and higher interest expense as some lower rate debt matured during 2019. Credit losses are expected to be slightly higher due in part to increased depreciation from recent capital investmentsexpected loss experience on certain financing programs. 
Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). Adoption of this standard will impact how the Company recognizes credit losses on its financial instruments. The Company has completed its work surrounding model development, documentation and validation as well as its evaluation of associated processes, data sources, internal controls and policies. The Company is working through its remaining steps for the adoption of ASU 2016-13, which includes finalizing assumptions related to economic forecasts and appropriate qualitative factors and their associated processes and internal controls. The impact of adoption is expected to result in an initial increase in the new model-year 2018 Softail motorcycles. However,allowance for credit losses in the larger driverrange of increased manufacturing costs$70.0 million to $110.0 million, with a decrease in 2018, as compared to 2017, will be higher costsretained earnings net of $20 to $25 million due to temporary inefficiencies related to the manufacturing optimization plan.

taxes.
The Company expects selling, administrative and engineering expense to be higher in 2018 compared to 2017, but level with 2017 when expressed as a percent of revenue. The Company expects selling, administrative and engineering expense to be up behind increased investments in marketing and product development as the Company works to grow ridership globally.
In the first quarter of 2018, the Company expects to ship 60,000 to 65,000 motorcycles to dealers, which is down approximately 8% to 15% percent from 2017. While the Company expects U.S. retail inventory will be tighter thaninitial change in the first quarterallowance for credit losses at adoption and the ongoing effect of 2017, it believesASU 2016-13 on the composition of previous and current model-year motorcycles will be considerably improved from last year. The Company expects Motorcycles segment operating income as a percent of revenue in the first quarter of


2018 to be down approximately 5 percentage points due to approximately $57 million of restructuring expense related to the manufacturing optimization plan, lost absorption from lower production and higher selling, administrative and engineering expense as marketing and product development expenses increase.

Additionally, as the Company increases its investment in electric motorcycle technology, products and infrastructure it expects to spend an incremental $25 to $50 million per year over the next several years.

The Company expects operating income from Financial Services to be down in 2018 compared to 2017 due to lower net interest income, partially offset by a lower provision for credit losses.losses will be impacted by the size and composition of the Company's finance receivables portfolio, economic conditions, reasonable and supportable forecasts, and other appropriate factors at each reporting period. Favorable or unfavorable changes in these key factors may cause additional volatility in the provision for credit losses and, therefore, Financial Services segment operating income.


Harley-Davidson, Inc. Capital expenditures in 20182020 are expected to be $250 to $270 million, which includes approximately $50$215 million to support the manufacturing optimization plan.$235 million. The Company anticipates it will have the ability to fund all capital expenditures in 20182020 with cash flows generated by operations.

Finally, theThe Company expects its 2020 full year effective tax rate will be approximately 23.5%24% to 25%, down approximately 10 percentage points from the rate that would have been expected excluding the impact of the 2017 Tax Act.. This guidance excludes the effect of potential future adjustments, including items associated with revisions to the $53.1 million tax expense recorded in the fourth quarter of 2017 related to the 2017 Tax Act, otherany potential new tax legislation or audit settlements. Given the complexity and timing of the 2017 Tax Act, the Company has recorded the impact of the 2017 Tax Act in the fourth quarter of 2017 based on reasonable estimates and considers these estimates to be provisional under SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118). Future guidance, interpretations and pronouncements may add clarity to the numerous aspects of the 2017 Tax Act. This future clarification may give rise to additional unanticipated considerations and revisions to the Company’s provisional estimates related to the 2017 Tax Act included in the Company’s 2017 income tax provision. Any such adjustments will be recorded as discrete income tax expenses or benefits in future periods.

Manufacturing OptimizationRestructuring Plan Costs and Savings(1) 
In January 2018, the Company commenced a significant, multi-year manufacturing optimization plan anchored by the consolidation of its plant in Kansas City, Missouri into its plant in York, Pennsylvania and the closure of the Company's wheel operations in Adelaide, Australia (Manufacturing Optimization Plan). The consolidation of U.S. operations included the elimination of approximately 800 jobs at the Kansas City facility and the addition of approximately 450 jobs at the York facility. The Adelaide facility closure resulted in the elimination of approximately 90 jobs.
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.


The following table summarizesCompany does not expect to incur any additional costs under the expectedrestructuring plans in 2020. The actual costs and estimated savings associated with the Company's manufacturing optimization plan which is describedrestructuring plans were as follows (dollars in more detail in the "Overview" above. The restructuring costs relate to employee termination benefits, accelerated depreciation and other project implementation costs.

millions):
(in millions)2018 2019 2020 Total
        
Cost related to temporary inefficiencies$ 20 - $ 25 $15 - $20 n/a $ 35 - $ 45
Restructuring expenses$100 - $115 $35 - $40 n/a $135 - $155
 $120 - $140 $50 - $60   $170 - $200
% cash70% 75%   70%
 2018 2019 2020 
Annual
On-going
Annual cash savings- $25 - $30 $45 - $50 $65 - $75
 2018 Actual 2019 Actual 2020 Estimated Total
Manufacturing Optimization Plan:       
Costs related to temporary inefficiencies$12.9
 $10.3
 $
 $23.2
Restructuring expenses89.5
 32.7
 
 122.2
 $102.4
 $43.0
 $
 $145.4
Approximate cash expenditures      60%
Reorganization Plan:       
Restructuring expenses (benefits)$3.9
 $(0.3) $
 $3.6
Approximate cash expenditures      100%
   2019 Actual 2020 Estimated Annual Ongoing Estimated
Annual cash savings:       
Manufacturing Optimization Plan  $32.2 $50 - $60 $65 - $75
Reorganization Plan  $ 7.0 $7 $7

The Company expects total capital expendituresRefer to Note 3 of $75 million associated with the manufacturing optimization plan through 2019.Notes to Consolidated financial statements for additional information regarding restructuring expenses.





Results of Operations 20172019 Compared to 20162018
Consolidated Results
(in thousands, except earnings per share) 2017 2016 
(Decrease)
Increase
 
%
Change
2019 2018 
(Decrease)
Increase
 % Change
Operating income from Motorcycles & Related Products $615,958
 $773,406
 $(157,448) (20.4)%
Operating income from Motorcycles and Related Products$289,620
 $422,363
 $(132,743) (31.4)%
Operating income from Financial Services 275,305
 275,530
 (225) (0.1)265,988
 291,160
 (25,172) (8.6)
Operating income 891,263
 1,048,936
 (157,673) (15.0)555,608
 713,523
 (157,915) (22.1)
Other income (expense), net16,514
 3,039
 13,475
 443.4
Investment income 3,580
 4,645
 (1,065) (22.9)16,371
 951
 15,420
 NM
Interest expense 31,004
 29,670
 1,334
 4.5
31,078
 30,884
 194
 0.6
Income before income taxes 863,839
 1,023,911
 (160,072) (15.6)
Income before provision for income taxes557,415
 686,629
 (129,214) (18.8)
Provision for income taxes 342,080
 331,747
 10,333
 3.1
133,780
 155,178
 (21,398) (13.8)
Net income $521,759
 $692,164
 $(170,405) (24.6)%$423,635
 $531,451
 $(107,816) (20.3)%
Diluted earnings per share $3.02
 $3.83
 $(0.81) (21.1)%$2.68
 $3.19
 $(0.51) (16.0)%
Consolidated operating income was down 15.0%22.1% in 20172019 compared to 2018 driven by a decrease in operating income from the Motorcycles segment which was down $157.4of $132.7 million compared to 2016. Operating and a decrease in operating income forfrom the Financial Services segment decreased by $0.2 million during 2017 as compared to 2016. Please referof $25.2 million. Refer to the “MotorcyclesMotorcycles and Related Products Segment”Segment and “FinancialFinancial Services Segment”Segment discussions following for a more detailed discussionanalysis of the factors affecting operating income.
Other income in 2019 was favorably impacted by lower amortization of actuarial losses related to the Company's defined benefit plans. Investment income increased in 2019 as compared to 2018 due to favorable changes in the fair value of the Company's marketable securities and cash equivalents.
The effective income tax rate for 20172019 was 39.6%24.0% compared to 32.4%22.6% for 2016.2018. The higher effective income tax rate was primarily due to the impact of the 2017 Tax Act enacted in December 2017. The 2017 Tax Act reduces the federal corporatefavorable discrete income tax rate beginningadjustments recorded in 2018 from 35% to 21%; however, because the 2017 Tax Act was enacted in 2017, the Company was required to remeasure its net deferred tax assets in the fourth quarter. The impact of remeasuring the deferred tax asset balances combined with other adjustments related to the 2017 Tax Act resulted in a non-cash income tax charge of $53.1 million in the fourth quarter of 2017.2018.


Diluted earnings per share were $3.02$2.68 in 2017,2019, down 21.1%16.0% compared to 2016.2018. Diluted earnings per share were adversely impacted by the 24.6%20.3% decrease in net income, but benefited from lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 180.5166.5 million in 20162018 to 172.9157.8 million in 20172019 driven by the Company's repurchases of common stock. Please referRefer to "LiquidityLiquidity and Capital Resources"Resources for additional information concerning the Company's share repurchase activity.


Motorcycle Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a) 
The following table includes retailRetail unit sales of new Harley-Davidson motorcycles:motorcycles were as follows:
 2019 2018 
(Decrease)
Increase
 % Change
United States125,960
 132,868
 (6,908) (5.2)%
        
Europe(b)
38,441
 41,179
 (2,738) (6.6)
EMEA - Other5,645
 5,423
 222
 4.1
Total EMEA44,086
 46,602
 (2,516) (5.4)
        
Asia Pacific(c)
17,753
 18,429
 (676) (3.7)
Asia Pacific - Other11,760
 10,295
 1,465
 14.2
Total Asia Pacific29,513
 28,724
 789
 2.7
        
Latin America9,768
 10,167
 (399) (3.9)
Canada8,946
 9,690
 (744) (7.7)
Total international retail sales92,313
 95,183
 (2,870) (3.0)
Total worldwide retail sales218,273
 228,051
 (9,778) (4.3)%
  2017 2016 Decrease 
%
Change
United States 147,972
 161,658
 (13,686) (8.5)%
         
Europe(b)
 39,773
 39,942
 (169) (0.4)
EMEA - Other 5,162
 5,896
 (734) (12.4)
      Total EMEA 44,935
 45,838
 (903) (2.0)
         
Japan 9,506
 10,279
 (773) (7.5)
Asia Pacific - Other 20,842
 22,610
 (1,768) (7.8)
Total Asia Pacific 30,348
 32,889
 (2,541) (7.7)
         
Latin America 9,452
 9,701
 (249) (2.6)
Canada 10,081
 10,203
 (122) (1.2)
     Total International Retail Sales 94,816
 98,631
 (3,815) (3.9)
     Total Worldwide Retail Sales 242,788
 260,289
 (17,501) (6.7)%
(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 independent dealers supply concerning new retail sales, and the Company does not regularly verify the information that its independent dealers supply. This information is subject to revision.
(b)IncludesEurope data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.Kingdom
(c)Asia Pacific data includes Japan, Australia, New Zealand and Korea
InRetail sales of new Harley-Davidson motorcycles in the U.S., were down 5.2% in 2019 compared to 2018 behind continued declines in the 601+cc U.S. industry, which was down 4.1% compared to 2018. However, the Company was encouraged by the tempering rates of decline experienced from 2018 to 2019. In 2018, retail sales of new Harley-Davidson motorcycles were lower than in 2016 driven by ongoingdown 10.2% and the 601+cc U.S. industry weakness and limited availability of model-year 2018 product.was down 8.7%, compared to 2017. The Company believes the industryretail sales trends for new motorcycles continued to be adversely impacted by soft used motorcycle prices, although prices did improve in the fourth quarter of 2017 on a year-over-year basis. In addition, retail sales of used Harley-Davidson motorcycles in the U.S., which the Company believes is an important indicatorhave benefited from a tempered rate of overall demand for the Company's motorcycles, were up through November 2017 year-to-date. Combined retail sales of new and used Harley-Davidson motorcyclesdecline in the U.S. were down slightly on a year-to-date basis through November 2017, as compared to the same period in 2016. However, the Company's 2017 November year-to-date share of combined new and used motorcycles registered increased for the ninth consecutive year. (Source for used data: IHS Markit Used Registrations for On-Highway and Dual Purpose motorcycles with engines 601 and greater in the U.S. from 2008 through November 2017).

Strong prices for used Harley-Davidson motorcycles in the U.S. are key toindustry, the Company's focus on driving value for its riders, dealersStronger Dealers growth catalyst of the More Roads plan and the brand. In the fourth quarter of 2017, positive momentum in used motorcycle pricing continued from the third quarter. Used Harley-Davidson motorcycle wholesale prices at auction remained above year-ago levels, and third-party pricing services continued to publish higher retail values year-over-year for used Harley-Davidson motorcycles. Finally, for the second consecutive quarter, dealership data in the fourth quarter indicated that prices for used Harley-Davidson motorcycles in the broader used motorcycle market were up in aggregate, particularly in the Harley-Davidson dealer network.

increased marketing investments.
The Company's U.S. market share of new 601+cc motorcycles for 20172019 was 50.7%49.1%, down 0.50.6 percentage points compared to 20162018. 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 cruiser and touring segments, which represent approximately 70% of the 601+cc market and where the Company currently competes, its market share was up 2.5 percentage points on a full-year basis (Source: Motorcycle Industry Council).
International retail sales of new Harley-Davidson motorcycles were down 3.0% in 2017 were below expectations; however, the Company continues to believe that its strong brand, products and expanded distribution will drive growth in international markets over time. In EMEA, retail2019. Retail sales in Europedeveloped markets were down slightly from 2016 while other EMEA markets decreased 12.4% behind softness in emerging markets including Russia, Middle East and South Africa. In Asia Pacific, retail sales were down compared to 2016 on softness in Japan and Australia and lower6.0% during 2019 partially offset by higher retail sales in emerging markets, compared to 2016.which increased 5.0%. Retail sales increases in Latin Americaemerging markets during 20172019 were driven by growth in various markets, including China and the Company's Association of Southeast Asian Nations (ASEAN) markets. The Company's Thailand manufacturing facility, which enables lower tariffs, was a key factor supporting growth in the Company's ASEAN markets.


In developed international markets, retail sales across most European markets were down on softness in Mexico partially offset2019 given strong 2018 initial retail sales of the Company's new Softail® motorcycles and due to lower Street sales, which were adversely impacted by an increasea recall initiated in Brazil. Canadaearly 2019. Additionally, retail sales were down slightly fromin Japan and Australia in 2019 compared to 2018 behind contracting industry sales and for Japan competitive new product introductions outside of the priortouring and cruiser segments.
The Company's European market share of new 601+cc motorcycles for 2019 was 8.9%, down 1.4 percentage points compared to 2018 (Source: Association des Constructeurs Europeens de Motocycles).
The international independent dealer network expanded during 2019, adding 27 new independent dealer points during the year.


Despite The Company remains confident in and committed to the difficult year insignificant potential that international markets there were positive developments.offer Harley-Davidson. The Company believes its new model-year 2018 Softail motorcycles are being very well received by customers internationally. Init has the fourth quarter of 2017, the Company experienced strong sell-through rates with limited availability throughout the quarter. The Company believes the strong customer responsebrand, products and distribution network to the new Softail models, coupled with the fact that international retail sales generally include a greater mix of Softail models than in the U.S., is a good early indicator of the potential impact of these new models.(1) Additionally, in line with the Company's strategy to increase brand access internationally, it continued to expand the international dealer network. The Company added 57 and 40 new international dealers during 2017 and 2016, respectively. The Company plans to add a total of 150 to 200 new international dealerships from 2016 through 2020.(1) The Company remains committed to its long-term international growth strategy and expects to return to international retail salesdrive sustainable growth in 2018.international markets.(1) 
Motorcycle Registration Data - 601+cc(a) 
The following table includes industryIndustry retail motorcycle registration data:data for new motorcycles was as follows:
 2017 2016 Decrease 
%
Change
2019 2018 
(Decrease)
Increase
 % Change
United States(b)
 288,802
 311,710
 (22,908) (7.3)%252,842
 263,750
 (10,908) (4.1)%
Europe(c)
 390,619
 391,936
 (1,317) (0.3)%425,998
 397,669
 28,329
 7.1 %
(a)
Data includes on-road 601+cc models.models with internal combustion engines with displacements greater than 600cc's and in the United States electric motorcycles with kilowatt (kW) peak power equivalents greater than 600cc's (601+cc). 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 (MIC).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, (ACEM), 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:
  2017 2016 Unit Unit
  Units Mix % Units Mix % Decrease %
Change
United States 144,893
 60.0% 161,839
 61.7% (16,946) (10.5)%
International 96,605
 40.0% 100,382
 38.3% (3,777) (3.8)
Harley-Davidson motorcycle units 241,498
 100.0% 262,221
 100.0% (20,723) (7.9)%
Touring motorcycle units 99,745
 41.3% 107,410
 41.0% (7,665) (7.1)%
Cruiser motorcycle units 87,344
 36.2% 93,422
 35.6% (6,078) (6.5)
Sportster® / Street motorcycle units
 54,409
 22.5% 61,389
 23.4% (6,980) (11.4)
Harley-Davidson motorcycle units 241,498
 100.0% 262,221
 100.0% (20,723) (7.9)%
During 2017, wholesale shipments of Harley-Davidson motorcycles were down 7.9% compared to the prior year, slightly more than the 6.7% decrease in dealer retail sales of new Harley-Davidson motorcycles. International shipments as a percentage of the total were up slightly in 2017 as compared to 2016. Shipments of Cruiser motorcycles increased as a percentage of total shipments in 2017 behind the launch of the new model-year 2018 Softail motorcycles. The Softail motorcycle platform was completely redesigned for model-year 2018 and merged the former Softail and Dyna platforms.
Dealer inventory of new Harley-Davidson motorcycles in the U.S. at the end of 2017 was down approximately 3,000 motorcycles compared to the end of 2016. The Company believes its supply management discipline delivered the intended results and the dealer network is well-positioned for 2018.(1)


Segment Results
The following table includes the condensed statement of operations for the Motorcycles segment (in thousands):
  2017 2016 
(Decrease)
Increase
 
%
Change
Revenue:        
Motorcycles $3,825,206
 $4,122,113
 $(296,907) (7.2)%
Parts & Accessories 804,363
 842,637
 (38,274) (4.5)
General Merchandise 262,776
 284,583
 (21,807) (7.7)
Other 22,682
 22,043
 639
 2.9
Total revenue 4,915,027
 5,271,376
 (356,349) (6.8)
Cost of goods sold 3,261,683
 3,419,710
 (158,027) (4.6)
Gross profit 1,653,344
 1,851,666
 (198,322) (10.7)
Selling & administrative expense 866,083
 907,059
 (40,976) (4.5)
Engineering expense 171,303
 171,201
 102
 0.1
Operating expense 1,037,386
 1,078,260
 (40,874) (3.8)
Operating income from Motorcycles $615,958
 $773,406
 $(157,448) (20.4)%
The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from 2016 to 2017 (in millions):
  
Net
Revenue
 
Cost of
Goods
Sold
 
Gross
Profit
2016 $5,272
 $3,420
 $1,852
Volume (435) (264) (171)
Price, net of related costs 120
 59
 61
Foreign currency exchange rates and hedging 13
 (3) 16
Shipment mix (55) (18) (37)
Raw material prices 
 17
 (17)
Manufacturing and other costs 
 51
 (51)
Total (357) (158) (199)
2017 $4,915
 $3,262
 $1,653
The following factors affected the comparability of net revenue, cost of goods sold and gross profit from 2016 to 2017:
The decrease in volume was due to lower wholesale motorcycle shipments, as well as lower P&A and general merchandise sales. P&A and general merchandise sales were down due in large part to lower motorcycle shipments and lower retail motorcycle sales.
On average, wholesale prices for motorcycles shipped in 2017 were higher than in the prior 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 2017 as compared to last year.
Revenue was positively impacted by slightly stronger weighted-average foreign currency rates, relative to the U.S. dollar, as compared to last year. In addition, cost was favorably impacted by a higher net gain resulting from the remeasurement of foreign-denominated balance sheet accounts net of losses incurred on hedging activities, as compared to last year.
Shipment mix changes resulted in a negative impact on gross profit resulting from unfavorable changes in the mix of
models within motorcycle families as well as changes in P&A product mix.
Raw material prices were higher due primarily to increased steel and aluminum costs.
Manufacturing costs were negatively impacted by lower fixed cost absorption due to lower production volumes, higher model-year startup costs and higher depreciation.
Operating expense which consists of selling, administrative and engineering expenses, was down compared to 2016. The decrease in spending was due in large part to aggressive cost management, lower employee costs following a 2016 reorganization and the non-recurrence of related employee termination costs recorded in the fourth quarter of 2016.


During the fourth quarter of 2017, the Company recorded a $29.4 million charge associated with the previously disclosed NHTSA investigation opened in 2016 related to certain motorcycles equipped with anti-lock breaking systems. In January 2018, the Company announced a voluntary recall of model-year 2008-2011 Touring and V-ROD® motorcycles which the Company believes addresses the NHTSA investigation. Despite this charge, overall warranty and recall costs in 2017 were favorable compared to 2016 driven by lower year-over-year warranty expense.
Financial Services Segment
Segment Results
The following table includes the condensed statement of operations for the Financial Services segment (in thousands):
  2017 2016 
Increase
(Decrease)
 
%
Change
Interest income $633,113
 $628,432
 $4,681
 0.7 %
Other income 97,151
 85,788
 11,363
 13.2
Securitization and servicing income 1,933
 10,862
 (8,929) (82.2)
Financial services revenue 732,197
 725,082
 7,115
 1.0
Interest expense 180,193
 173,756
 6,437
 3.7
Provision for credit losses 132,444
 136,617
 (4,173) (3.1)
Operating expenses 144,255
 139,179
 5,076
 3.6
Financial Services expense 456,892
 449,552
 7,340
 1.6
Operating income from Financial Services $275,305
 $275,530
 $(225) (0.1)%
Interest income was favorable in 2017 due to higher average retail receivables partially offset by lower average wholesale receivables and lower average yields across the portfolios. Other income was favorable due to increased licensing revenue and investment income. Securitization and servicing income was lower primarily due to a $9.3 million gain on the sale of finance receivables recognized as a result of the second quarter 2016 off-balance sheet asset-backed securitization. There was no comparable transaction in the current year.
Interest expense increased due to a higher cost of funds, partially offset by lower average outstanding debt.
The provision for credit losses decreased $4.2 million compared to 2016. The retail motorcycle provision decreased $6.5 million during 2017 as a result of a smaller increase in the retail reserve rate and lower receivables partially offset by higher retail credit losses. Credit losses were higher as a result of unfavorable performance across the retail motorcycle portfolio. The wholesale provision increased $1.0 million due to a smaller decrease in the wholesale reserve rate compared to 2016.
Annual losses on the Company's retail motorcycle loans were 1.90% during 2017 compared to 1.83% in 2016. The 30-day delinquency rate for retail motorcycle loans at December 31, 2017 decreased to 4.21% from 4.25% at December 31, 2016.
Changes in the allowance for credit losses on finance receivables were as follows (in thousands):
  2017 2016
Balance, beginning of period $173,343
 $147,178
Provision for credit losses 132,444
 136,617
Charge-offs, net of recoveries (113,316) (107,161)
Other (a)
 
 (3,291)
Balance, end of period $192,471
 $173,343

(a)Related to the sale of finance receivables during the second quarter of 2016 with a principal balance of $301.8 million through an off-balance sheet asset-backed securitization transaction (see Note 10 of the Notes to Consolidated Financial Statements for additional information).
At December 31, 2017, the allowance for credit losses on finance receivables was $186.3 million for retail receivables and $6.2 million for wholesale receivables. At December 31, 2016, the allowance for credit losses on finance receivables was $166.8 million for retail receivables and $6.5 million for wholesale receivables.


The Company's periodic evaluation of the adequacy of the allowance for credit losses on finance receivables is generally based on the Company's past loan loss experience, known and inherent risks in the portfolio, current economic conditions and the estimated value of any underlying collateral. Please refer to Note 5 of the Notes to Consolidated Financial Statements for further discussion regarding the Company’s allowance for credit losses on finance receivables.
Results of Operations 2016 Compared to 2015
Consolidated Results
(in thousands, except earnings per share) 2016 2015 
(Decrease)
Increase
 
%
Change
Operating income from Motorcycles & Related Products $773,406
 $875,490
 $(102,084) (11.7)%
Operating income from Financial Services 275,530
 280,205
 (4,675) (1.7)
Operating income 1,048,936
 1,155,695
 (106,759) (9.2)
Investment income 4,645
 6,585
 (1,940) (29.5)
Interest expense 29,670
 12,117
 17,553
 144.9
Income before income taxes 1,023,911
 1,150,163
 (126,252) (11.0)
Provision for income taxes 331,747
 397,956
 (66,209) (16.6)
Net income $692,164
 $752,207
 $(60,043) (8.0)%
Diluted earnings per share $3.83
 $3.69
 $0.14
 3.8 %
Consolidated operating income was down 9.2% in 2016 driven by a decrease in operating income from the Motorcycles segment which decreased by $102.1 million compared to 2015. Operating income for the Financial Services segment decreased by $4.7 million during 2016 as compared to 2015. Please refer to the “Motorcycles and Related Products Segment” and “Financial Services Segment” discussions following for a more detailed discussion of the factors affecting operating income.

Corporate interest expense was higher in 2016 compared to 2015 due to the issuance of corporate debt in the third quarter of 2015. The Company issued $750.0 million of senior unsecured notes in the third quarter of 2015 and utilized the proceeds to fund the repurchase of common stock in the third and fourth quarters of 2015.
The effective income tax rate for 2016 was 32.4% compared to 34.6% for 2015. The lower effective income tax rate was primarily driven by the successful closure of various tax audits in 2016.
Diluted earnings per share were $3.83 in 2016, up 3.8% compared to 2015. Diluted earnings per share were adversely impacted by the 8.0% decrease in net income, but benefited from lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from 203.7 million in 2015 to 180.5 million in 2016 driven by the Company's repurchases of common stock. Please refer to "Liquidity and Capital Resources" for additional information concerning the Company's share repurchase activity.


Motorcycles Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a)
The following table includes retail unit sales of Harley-Davidson motorcycles:
  2016 2015 
(Decrease)
Increase
 
%
Change
United States 161,658
 168,240
 (6,582) (3.9)%
         
Europe(b)
 39,942
 36,894
 3,048
 8.3
EMEA - Other 5,896
 6,393
 (497) (7.8)
      Total EMEA 45,838
 43,287
 2,551
 5.9
         
Japan 10,279
 9,700
 579
 6.0
Asia Pacific - Other 22,610
 22,558
 52
 0.2
Total Asia Pacific 32,889
 32,258
 631
 2.0
         
Latin America 9,701
 11,173
 (1,472) (13.2)
Canada 10,203
 9,669
 534
 5.5
     Total International Retail Sales 98,631
 96,387
 2,244
 2.3
     Total Worldwide Retail Sales 260,289
 264,627
 (4,338) (1.6)%

(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.
Worldwide independent dealer retail sales of Harley-Davidson motorcycles decreased 1.6% during 2016 compared to 2015. Retail sales of Harley-Davidson motorcycles decreased 3.9% in the United States and increased 2.3% internationally in 2016. The Company believes its spending to drive demand mitigated the effects of the intense global competitive environment, including the expanded price gaps to the competition in the U.S. and the impact of new product introductions. For example, the positive response to its Milwaukee-EightTM engine drove significantly improved touring motorcycle sales and U.S. Harley-Davidson market share gains in the fourth quarter of 2016.
The Company believes 2016 U.S. retail sales of its motorcycles were negatively impacted by intense competitive activity behind discounting and new competitor products. The Company believes the U.S. industry was also adversely affected by weakness in oil-dependent areas and soft used motorcycle values, compounded by economic uncertainty. The Company also believes 2016 retail sales in the U.S. were negatively impacted by lower wholesale shipments of Harley-Davidson motorcycles in the fourth quarter. The Company's shipments of its model-year 2017 motorcycles were limited during the fourth quarter as U.S. dealers focused on selling model-year 2016 motorcycles.
The Company's U.S. market share of 601+cc motorcycles for 2016 was 51.2%, up 1.0 percentage point compared to 2015 (Source: Motorcycle Industry Council). The Company believes its U.S. market share growth was driven by its demand driving spending focused on growing product awareness and ridership and the favorable response to its model-year 2016 S-model cruisers and its new model-year 2017 motorcycles featuring the Milwaukee-EightTM engine.

In EMEA, retail sales of Harley-Davidson motorcycles for 2016 increased 5.9% compared to the prior year due in part to a positive reception to its model-year 2016 S-model cruisers and its new model-year 2017 motorcycles featuring the Milwaukee-EightTM engine.
In Asia Pacific, retail sales of Harley-Davidson motorcycles for 2016 increased 2.0% compared to the prior year. Overall growth in Asia Pacific was partially offset by lower sales in India and Indonesia. In India, the Company believes retail sales of Harley-Davidson motorcycles were negatively impacted by India's currency demonetization in the fourth quarter of 2016. In


Indonesia, retail sales of Harley-Davidson motorcycles were lower as the Company is reestablishing its dealer network in that market. 

Retail sales of Harley-Davidson motorcycles in Latin America for 2016 decreased 13.2% compared to the prior year. The Company believes retail sales in Brazil continued to be negatively impacted by a price increase on its motorcycles initiated in the first quarter of 2016 and by a slowing economy, consumer uncertainty and aggressive price competition.
Retail sales of Harley-Davidson motorcycles in Canada increased 5.5% in 2016 compared to 2015. The Company believes the market responded favorably to the change to a direct distribution model implemented in July 2015 and pricing adjustments that were implemented with the model-year 2016 motorcycles.

International retail sales as a percent of total retail sales in 2016 were 37.9% compared to 36.4% in 2015.
Motorcycle Registration Data - 601+cc(a)
The following table includes industry retail motorcycle registration data:
  2016 2015 
(Decrease)
Increase
 
%
Change
United States(b)
 311,710
 328,818
 (17,108) (5.2)%
Europe(c)
 391,936
 351,773
 40,163
 11.4 %
(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 (MIC). This third-party data is subject to revision and update.
(c)Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data includes 601+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. This third-party data is subject to revision and update.


Motorcycles and Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesaleWholesale Harley-Davidson motorcycle unit shipments for the Motorcycles segment:were as follows:
 2016 2015 Unit Unit2019 2018 Unit Unit
 Units Mix % Units Mix % 
(Decrease)
Increase
 %
Change
Units Mix % Units Mix % Decrease % Change
Motorcycle Units:           
United States 161,839
 61.7% 170,688
 64.1% (8,849) (5.2)%124,326
 58.1% 132,433
 57.9% (8,107) (6.1)%
International 100,382
 38.3% 95,694
 35.9% 4,688
 4.9
89,613
 41.9% 96,232
 42.1% (6,619) (6.9)
Harley-Davidson motorcycle units 262,221
 100.0% 266,382
 100.0% (4,161) (1.6)%
213,939
 100.0% 228,665
 100.0% (14,726) (6.4)%
Motorcycle Units:           
Touring motorcycle units 107,410
 41.0% 114,768
 43.1% (7,358) (6.4)%91,018
 42.5% 101,942
 44.6% (10,924) (10.7)%
Cruiser motorcycle units 93,422
 35.6% 89,207
 33.5% 4,215
 4.7
Cruiser motorcycle units(a)
76,052
 35.6% 78,529
 34.3% (2,477) (3.2)
Sportster® / Street motorcycle units
 61,389
 23.4% 62,407
 23.4% (1,018) (1.6)46,869
 21.9% 48,194
 21.1% (1,325) (2.7)
Harley-Davidson motorcycle units 262,221
 100.0% 266,382
 100.0% (4,161) (1.6)%
213,939
 100.0% 228,665
 100.0% (14,726) (6.4)%
(a)
Includes Softail®, CVOTM,and LiveWireTM
During 2016, wholesale2019, Harley-Davidson motorcycle shipments of Harley-Davidson motorcycles were down 1.6%6.4% compared to the prior year and in line with the 1.6% decrease in dealer retail sales of new Harley-Davidson motorcycles. International shipments as a percentage of the total were up in 2016 as compared to 2015. In addition, shipments of Cruiser motorcycles as a percentage of total shipments increased in 2016 compared to the prior year driven by the strong acceptance of the model-year 2016 S-model motorcycles. Touring motorcycle shipments were down in 2016; however, in the fourth quarter of 2016, the shipmentCompany's guidance. The mix of Touring motorcycles decreased as a percent of total shipments while the mix of Cruiser and Sportster®/Street motorcycles increased reflectingcompared to 2018.     


At the high demand for the new 2017 Touring motorcycles featuring the Milwaukee-EightTM engine. Dealerend of 2019, U.S. independent dealer retail inventory of new Harley-Davidson motorcycles in the U.S. at the end of 2016 was down approximately flat1,500 motorcycles compared to the end of 2015.



2018. The Company plans to continue to aggressively manage supply in line with demand. However, the Company does expect 2020 year-end worldwide retail inventory to increase moderately compared to 2019 behind dealer fill of the Company's new middleweight motorcycles and with the replenishment of European dealer inventory, which was reduced at the end of 2019 in anticipation of low-tariff motorcycles sourced from the Company's Thailand facility.(1)
Segment Results
The following table includes the condensed statementCondensed statements of operations for the Motorcycles segment were as follows (in thousands):
 2016 2015 
(Decrease)
Increase
 
%
Change
2019 2018 
(Decrease)
Increase
 
%
Change
Revenue:               
Motorcycles $4,122,113
 $4,127,739
 $(5,626) (0.1)%$3,538,269
 $3,882,963
 $(344,694) (8.9)%
Parts & Accessories 842,637
 862,645
 (20,008) (2.3)713,400
 754,663
 (41,263) (5.5)
General Merchandise 284,583
 292,310
 (7,727) (2.6)237,566
 241,964
 (4,398) (1.8)
Licensing35,917
 38,676
 (2,759) (7.1)
Other 22,043
 26,050
 (4,007) (15.4)47,526
 50,380
 (2,854) (5.7)
Total revenue 5,271,376
 5,308,744
 (37,368) (0.7)
4,572,678
 4,968,646
 (395,968) (8.0)
Cost of goods sold 3,419,710
 3,356,284
 63,426
 1.9
3,229,798
 3,351,796
 (121,998) (3.6)
Gross profit 1,851,666
 1,952,460
 (100,794) (5.2)1,342,880
 1,616,850
 (273,970) (16.9)
Operating expenses:       
Selling & administrative expense 907,059
 916,669
 (9,610) (1.0)808,415
 914,900
 (106,485) (11.6)
Engineering expense 171,201
 160,301
 10,900
 6.8
212,492
 186,186
 26,306
 14.1
Operating expense 1,078,260
 1,076,970
 1,290
 0.1
Operating income from Motorcycles $773,406
 $875,490
 $(102,084) (11.7)%
Restructuring expense32,353
 93,401
 (61,048) (65.4)
1,053,260
 1,194,487
 (141,227) (11.8)
Operating income$289,620
 $422,363
 $(132,743) (31.4)%
Operating margin6.3% 8.5% (2.2) pts.
The following table includes the estimated impactimpacts of the significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from 20152018 to 20162019 were as follows (in millions):
 
Net
Revenue
 
Cost of
Goods
Sold
 
Gross
Profit
Revenue Cost of Goods Sold Gross Profit
2015 $5,309
 $3,357
 $1,952
2018$4,969
 $3,352
 $1,617
Volume (109) (62) (47)(307) (202) (105)
Price, net of related costs 93
 39
 54
67
 34
 33
Foreign currency exchange rates and hedging (3) 45
 (48)(67) (40) (26)
Shipment mix (18) (5) (13)(89) (8) (82)
Raw material prices 
 (18) 18

 (1) 1
Manufacturing and other costs 
 64
 (64)
 95
 (95)
Total (37) 63
 (100)
2016 $5,272
 $3,420
 $1,852
(396) (122) (274)
2019$4,573
 $3,230
 $1,343
The following factors affected the comparability of net revenue, cost of goods sold and gross profit from 20152018 to 2016:2019:
Volume decreases were driven byThe decrease in volume was due to lower wholesale motorcycle shipments as well as decreases in sales of parts and accessorieslower P&A and general merchandise.merchandise sales.
On average, wholesale prices on the Company’s 2016 and 2017 model-yearfor motorcycles areshipped in 2019 were higher than in the prior model-yearsyear resulting in thea favorable impact on revenue during the period.revenue. The positive impact ofon revenue favorability resulting from model-year price increases on gross profit was partially offset by increases in costincreased costs related to the additional content added to motorcycles shipped in 2019 as compared to the 2016prior year.
Revenue was adversely impacted by weaker foreign currency exchange rates, relative to the U.S. dollar, as compared to the prior year. The unfavorable revenue impact was partially offset by favorable net foreign currency gains associated with hedging and 2017 model-year motorcycles.balance sheet remeasurements, as compared to the prior year.
Gross

Shipment mix adversely impacted gross profit wasdriven by unfavorable changes in the mix of motorcycle families, as well as the mix of models within motorcycle families.
Manufacturing and other costs were negatively impacted by foreign currency due to lower hedge gains, given the significant gains experiencedfixed cost absorption and an increase in the prior year,impact of recent EU and China tariffs. The impact of recent EU and China tariffs was $97.9 million or $74.2 million higher in 2019 compared to 2018.
Operating expenses in 2019 were lower compared to 2018 driven by lower restructuring expenses and favorable net warranty and recall costs. In 2019, net warranty and recall costs were approximately $96 million lower than in 2018 driven by higher than normal supplier recoveries and lower revenues behind a slightly stronger U.S. dollar relative to its foreign currency exposures.
Shipment mix changes negativelywarranty and recall costs. Operating expenses were also impacted gross profit primarily due to changesby increased investments in motorcycle family mix, driventhe More Roads plan and higher marketing expenses in 2019. However, these increases were partially offset by strong customer demand for the Company's model-year 2016 S-model cruiser motorcycles, and model mix within its motorcycle families.
Manufacturing costs for 2016 were negatively impacted by higher costs related to retooling and start-up costs at its Pilgrim Road manufacturing facility associated with the Milwaukee-EightTM engine, the implementation of the Company's ERP system at the Company's Kansas City manufacturing facility and a higher fixed cost per unit due to lower volumes, partially offset by favorable costs related to parts and accessories.

Operating expense, which consists of selling, administrative and engineering expenses, was largely flatlower spending in 2016 compared to 2015. In 2016,other areas as the Company significantly increased spending on marketing and product development to drive demand.


However, these expense increases were mostly offset by decreases related to other items, including lower employee costs on fewer employees and lower reorganization costs. Reorganization costs, included in selling and administrative expenses, in the fourth quarters of 2016 and 2015, were $18.2 million and $23.3 million, respectively.aggressively managed cost.
Financial Services Segment
Segment Results
The following table includes the condensedCondensed statements of operations for the Financial Services segment were as follows (in thousands):
 2016 2015 
Increase
(Decrease)
 
%
Change
2019 2018 
Increase
(Decrease)
 % Change
Interest income $628,432
 $605,770
 $22,662
 3.7 %$678,205
 $645,985
 $32,220
 5.0 %
Other income 85,788
 80,888
 4,900
 6.1
110,307
 101,108
 9,199
 9.1
Securitization and servicing income 10,862
 
 10,862
 
599
 1,136
 (537) (47.3)
Financial services revenue 725,082
 686,658
 38,424
 5.6
Financial Services revenue789,111
 748,229
 40,882
 5.5
Interest expense 173,756
 161,983
 11,773
 7.3
210,438
 193,187
 17,251
 8.9
Provision for credit losses 136,617
 101,345
 35,272
 34.8
134,536
 106,870
 27,666
 25.9
Operating expense 139,179
 143,125
 (3,946) (2.8)
Financial Services expense 449,552
 406,453
 43,099
 10.6
Operating expenses178,149
 157,012
 21,137
 13.5
Financial Services expenses523,123
 457,069
 66,054
 14.5
Operating income from Financial Services $275,530
 $280,205
 $(4,675) (1.7)%$265,988
 $291,160
 $(25,172) (8.6)%
Interest income was favorable in 20162019 due to higher average receivables in the retail and wholesale portfolios. Other income was favorable primarily due to increased revenue from credit card licensing, insurance and protection products and international licensing revenue. Securitization and servicing income was higher primarily due to a $9.3 million gain on the sale ofoutstanding finance receivables with a principal balance of $301.8 million through an off-balance sheet asset-backed securitization during the second quarter of 2016. There was no comparable transaction in the prior year.

at higher average yields. Interest expense increased due to higher average outstanding debt at a higher cost of funds and higher average debt outstanding, partially offset by a lower loss on the extinguishment of a portion of the Company's 6.80% medium-term notes than in 2015.funds.

The provision for credit losses increased $35.3$27.7 million compared to 2015.2018. The retail motorcycle provision increased $39.8$27.2 million during 2016 as a result oflargely driven by higher retail credit losses and increasesan increase in the retail reserve rate. Creditrate compared to a decrease in the retail reserve rate during 2018. The Company believes the increase in credit losses were higher aswas due to inefficiencies resulting from the implementation of a result of deteriorating performance across the portfolio, lowernew loan management system early in 2019, softer used motorcycle valuesprices at auction, and continued unfavorable performance in oil-dependent areas.

the impact of the Company's strategic efforts to build riders, which includes programs such as first-time buyer and dealer-paid no-money down. While these loans may increase the Company's credit losses, the increased revenue from these programs is expected to offset the risk(1).
Annual losses on the Company's retail motorcycle loans were 1.83%2.00% during 20162019 compared to 1.42%1.76% in 2015.2018. The 30-day delinquency rate for retail motorcycle loans at December 31, 20162019 increased to 4.25%4.39% from 3.78%4.12% at December 31, 2015.2018.
Operating expenses increased $21.1 million compared to 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):
  2016 2015
Balance, beginning of period $147,178
 $127,364
Provision for credit losses 136,617
 101,345
Charge-offs, net of recoveries (107,161) (81,531)
Other (a)
 (3,291) 
Balance, end of period $173,343
 $147,178

(a)Related to the sale of finance receivables during the second quarter of 2016 with a principal balance of $301.8 million through an off-balance sheet asset-backed securitization transaction (see Note 10 of the Notes to Consolidated Financial Statements for additional information).

 2019 2018
Balance, beginning of period$189,885
 $192,471
Provision for credit losses134,536
 106,870
Charge-offs, net of recoveries(125,840) (109,456)
Balance, end of period$198,581
 $189,885
At December 31, 2016,2019, the allowance for credit losses on finance receivables was $166.8$188.5 million for retail receivables and $6.5$10.1 million for wholesale receivables. At December 31, 2015,2018, the allowance for credit losses on finance receivables was $139.3$182.1 million for retail receivables and $7.9$7.8 million for wholesale receivables.



The Company's periodic evaluation of the adequacy of the allowance for credit losses on finance receivables is generally based on the Company's past loan loss experience, known and inherent risks in the portfolio, current economic conditions and the estimated value of any underlying collateral. Please referRefer to Note 57 of the Notes to Consolidated Financial Statementsfinancial statements for further discussion regarding the Company’s allowance for credit losses on finance receivables.

Results of Operations 2018 Compared to 2017
Refer to Item 7. Management's Discussion and Analysis of the Company's Form 10-K for the year ended December 31, 2018 filed with the SEC on February 28, 2019 for a detailed discussion of the results of operations for 2018 compared to 2017 and liquidity and capital resources for 2018 compared to 2017.
Other Matters
New Accounting Standards Not Yet Adopted
Refer to Note 1. Summary of Significant Accounting Policies1 of the Notes to the Financial StatementsConsolidated financial statements for a discussion of new accounting standards that will become effective for the Company in 2018, 20192020 and 2020.2021.
Critical Accounting Estimates
The Company’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Management believes that the following are some of the more critical judgment areas in the application of accounting policies that currently affect the Company’s financial condition and results of operations. Management has discussed the development and selection of these critical accounting estimates with the Audit and Finance Committee of the Company's Board of Directors.
Allowance for Credit Losses on Retail Finance Receivables – The allowance for uncollectible accounts is maintained at a level management believes is adequate to cover the losses of principal in the existing retail finance receivables portfolio.
The retail portfolio 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. 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.
The wholesale portfolio is primarily composed of large balance, non-homogeneous finance receivables. The Company's wholesale allowance evaluation is first based on a loan-by-loan review. A specific allowance 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 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 individually evaluated for impairment are segregated, based on similar risk characteristics, according to the Company’s internal risk rating system and collectively evaluated for impairment. The related allowance is based on factors such as the Company’s past loan loss experience, the specific borrower’s financial performance as well as ability to repay, current economic conditions as well as the value of the underlying collateral.
Product Warranty and Recalls – Estimated warranty costs are accruedrecorded at the time of sale and are based on a combination of historical claim cost data and other known factors that may affect future warranty claims. The estimated costs associated with voluntary recalls are accrued inrecorded when the period that management approvesliability is both probable and commits to the recall.estimable. The accrued cost of a recall is based on an estimate of the cost to repair each affected motorcycle and the number of motorcycles expected to be repaired based on historical data concerning the percentage of affected customers that take advantage of recall offers. In the case of both warranty and recall costs, as actual experience becomes available it is used to update the accruals.
The factors affecting actual warranty and recall costs can be volatile. As a result, actual warranty claims experience and recall costs may differ from estimates, which could lead to material changes in the Company’s accrued warranty and recall costs. The Company’s warranty and recall liabilities are discussed further in Note 114 of the Notes to Consolidated Financial Statements.financial statements.
Pensions and Other Postretirement Healthcare Benefits – The Company has a defined benefit pension plan and several postretirement healthcare benefit plans, which cover certain eligible employees and retirees 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.
U.S. GAAP requires that companies recognize in their statement of financial position a liability for defined benefit pension and postretirement plans that are underfunded or an asset for defined benefit pension and postretirement benefit plans that are overfunded.


Pension, SERPA and postretirement healthcare obligations and costs are calculated through actuarial valuations. The valuation of benefit obligations and net periodic benefit costs relies on key assumptions including discount rates, mortality, long-term expected return on plan assets, future compensation and healthcare cost trend rates.


The Company determines its discount rate assumptions by referencing high-quality long-term bond rates that are matched to the duration of its own benefit obligations. Based on this analysis, the Company decreased the weighted-average discount rate for pension and SERPA obligations from 4.30%4.38% as of December 31, 20162018 to 3.71%3.49% as of December 31, 2017.2019. The Company decreased the weighted-average discount rate for postretirement healthcare obligations from 4.03%4.23% as of December 31, 2018 to 3.52%.3.26% as of December 31, 2019. The Company determines its healthcare trend assumption for the postretirement healthcare obligation by considering factors such as estimated healthcare inflation, the utilization of healthcare benefits and changes in the health of plan participants. Based on the Company’s assessment of this data as of December 31, 2017,2019, the Company set its healthcare cost trend rate at 7.00%7.25% as of December 31, 2017.2019. The Company expects the healthcare cost trend rate to reach its ultimate rate of 5.00% by 2026.2029.(1) These assumption changes were reflected immediately in the benefit obligation and will be amortized into net periodic benefit costs over future periods.
Plan assets are measured at fair value and are subject to market volatility. In estimating the expected return on plan assets, the Company considers the historical returns on plan assets, adjusted to reflect the current view of the long-term investment market.
Changes in the funded status of defined benefit pension and postretirement benefit plans resulting from the difference between assumptions and actual results are initially recognized in other comprehensive income and amortized to expense over future periods. The following information is providedSensitivity to illustratechanges in major assumptions used in the sensitivity of pension and postretirement healthcare obligations and costs to changes in these major assumptionswas as follows (in thousands):
 
Amounts based
on current
assumptions
 
Impact of a 1%
decrease in the
discount rate
 
Impact of a 1%
decrease in the
expected
return on assets
 
Impact of a 1%
increase in the
healthcare
cost trend rate
Amounts based
on current
assumptions
 
Impact of a 1%
decrease in the
discount rate
 
Impact of a 1%
decrease in the
expected
return on assets
 
Impact of a 1%
increase in the
healthcare
cost trend rate
2017 Net periodic benefit costs        
2019 Net periodic benefit cost:       
Pension and SERPA $20,286
 $27,460
 $19,507
 n/a
$11,149
 $32,638
 n/a
 $20,054
Postretirement healthcare $9,615
 $1,162
 $1,741
 $1,687
$68
 $(540) $587
 $1,938
2017 Benefit obligations        
2019 Benefit obligations:       
Pension and SERPA $2,201,021
 $358,953
 n/a
 n/a
$2,212,012
 $363,249
 n/a
 n/a
Postretirement healthcare $338,488
 $31,824
 n/a
 $11,984
$293,505
 $25,816
 $8,768
 n/a
The amounts based on current assumptions above exclude the impact of settlements, curtailments and special early retirement benefits. This information should not be viewed as predictive of future amounts. The analysis of the impact of a 1% change in the table above does not take into account the cost related to special termination benefits. The calculationcalculations of pension, SERPA and postretirement healthcare obligations and costs isare based on many factors in addition to those discussed here. This information should be considered in combination with the information provided in Note 1215 of the Notes to Consolidated Financial Statements.financial statements.
Income Taxes – The Company accounts for income taxes in accordance with ASCAccounting Standards Codification Topic 740, Income Taxes (Topic 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. These tax laws and regulations are complex and significant judgment is required in determining the Company’s worldwide provision for income taxes and recording the related deferred tax assets and liabilities. In December 2017, the 2017 Tax Act was enacted into law introducing significant changes to the U.S. tax code including a reduction in the U.S. corporate income tax rate from 35% to 21%. In accordance with Topic 740, the Company's 2017 financial statements reflect the impacts of the 2017 Tax Act based on reasonable estimates, and the Company considers these estimates to be provisional under SAB 118. Future guidance, interpretations and pronouncements may add clarity to the numerous aspects of the 2017 Tax Act that may impact the Company. Future clarifications may give rise to additional unanticipated impacts on the Company's tax liabilities or effective tax rate and revisions to the Company’s provisional estimates related to the 2017 Tax Act included in the Company’s 2017 income tax provision. Any such adjustments will be recorded as discrete income tax expenses or benefits in future periods. The provisional amount recorded in the 2017 provision for income taxes related to the enactment of the 2017 Tax Act was $53.1 million.


In the ordinary course of the Company’s business, there are transactions and calculations where the ultimate tax determination is uncertain. Accruals for unrecognized tax benefits are provided for in accordance with the requirements of Topic 740. An unrecognized tax benefit represents the difference between the recognition of benefits related to items for income tax reporting purposes and financial reporting purposes. The unrecognized tax benefit is included within otherOther long-term liabilities in on the Consolidated Balance Sheets.balance sheets. The Company has a liability for interest and penalties on exposure items, if applicable, which is recorded as a component of the overall income tax provision. The Company is regularly audited by tax authorities as a normal course of business. Although the outcome of tax audits is always uncertain, the Company believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provision includes amounts sufficient to pay any assessments.assessments(1). Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.


Contractual Obligations
A summary of the Company’s expected payments for significant contractual obligations as of December 31, 20172019 is as follows (in thousands):
  2018 2019-2020 2021-2022 Thereafter Total
Principal payments on debt $2,405,569
 $2,693,007
 $1,159,715
 $750,000
 $7,008,291
Interest payments on debt 160,265
 182,093
 79,803
 366,375
 788,536
Operating lease payments 15,074
 23,826
 14,715
 8,379
 61,994
  $2,580,908
 $2,898,926
 $1,254,233
 $1,124,754
 $7,858,821
 2020 2021-2022 2023-2024 Thereafter Total
Debt:         
Principal$2,326,688
 $3,102,410
 $1,287,918
 $750,000
 $7,467,016
Interest187,544
 199,978
 102,435
 307,125
 797,082
Leases20,755
 31,240
 11,177
 4,589
 67,761
 $2,534,987
 $3,333,628
 $1,401,530
 $1,061,714
 $8,331,859
Interest for floating rate instruments, as calculated above, assumes rates in effect at December 31, 2017 rates2019 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 unamortized discounts and debt issuance costs.
As of December 31, 2017,2019, the Company generally had no significant purchase obligations, other than those created in the ordinary course of business. Purchase orders issued for inventory and supplies used in product manufacturing generally do not become firm commitments until 90 days prior to expected delivery and can be modified to a certain extent until 30 days prior to expected delivery.
The Company has long-term obligations related to its pension, SERPA and postretirement healthcare plans at December 31, 2017.2019. The Company’s retirement plan obligations and expected future contributions and payments related to these plans are provided in Note 1215 of the Notes to Consolidated Financial Statements.financial statements.
As described in Note 114 of the Notes to Consolidated Financial Statements,financial statements, the Company has unrecognized tax benefits of $72.2$60.1 million and accrued interest and penalties of $30.9$27.6 million as of December 31, 2017.2019. However, the Company cannot make a reasonably reliable estimate of the period of cash settlement for either the liability for unrecognized tax benefits or accrued interest and penalties.
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:
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 anticipatesis awaiting the court will make acourt's decision on whether or not to finalize the Settlement, inand on February 8, 2019, the following months.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 which is includedrecorded in accruedAccrued liabilities in on the Consolidated Balance Sheets,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 Matters:
Matter The Company is involved with government agencies and groups of potentially responsible partiesthe U.S. Navy 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. Although theThe Company is not certain as to the full extent of the environmental contamination at the York facility, it has been workingan agreement with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including a site-wide remedial investigation/feasibility study (RI/FS).
In January 1995, the Company entered into a settlement agreement (the Agreement) with theU.S. Navy and the parties amended the Agreement in 2013 to address ordnance and explosive waste. The Agreementwhich calls for the U.S. 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). The trust administers the payment of the Response Costs incurred atA site wide remedial investigation/feasibility study and a proposed final remedy for the York facility as coveredhave been completed and approved by the Agreement.
Pennsylvania Department of Environmental Protection and the EPA. The associated cleanup plan documents were submitted for approval in December 2019 and remaining cleanup activities will begin in mid-2020. The Company has an accrual for its estimate of its share of the estimated future Response Costs at the York facility which is includedrecorded in otherOther long-term liabilities in the Consolidated Balance Sheets. While much of the work on the RI/FS is complete, it is still under agency review and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS that is finally approved or otherwise at the York facility, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.Consolidated balance sheets.
The estimate of the Company's future Response Costs that will be incurred at the York facility is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities.
Product Liability Matters:
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 consolidatedConsolidated financial statements.statements.(1) 
National Highway Traffic Safety Administration Matters:
In July 2016, the National Highway Traffic Safety Administration (NHTSA) began an investigation into certain of the Company's motorcycles equipped with anti-lock braking systems (ABS). NHTSA’s investigation is in response to rider complaints related to brake failures and applies to model-year 2008-2013 Touring and model-year 2008-2017 V-ROD® motorcycles. NHTSA noted that Harley-Davidson has a two-year brake fluid replacement interval that owners either are unaware of or ignore. During 2017, the Company estimated and recorded a $29.4 million accrual associated with the NHTSA matter which is included in accrued liabilities. On January 30, 2018, the Company announced a voluntary recall, which offers a free brake fluid flush for model-year 2008-2011 Touring and V-ROD® motorcycles. The Company believes the accrued liability it has recorded will adequately cover the cost of the recall.


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 (SPE)(SPEs), which are considered Variable Interest Entities (VIE)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 because,as the Company, 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.
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 becauseas the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants. Upon sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet and a gain of $9.3 million was recognized in Financial Services Revenue. For more information see Refer to Note 1012 of the Notes to Consolidated Financial Statements.financial statements for additional information.
Liquidity and Capital Resources as of December 31, 20172019
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 continue to 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’sCompany expects the Financial Services segment operations willto 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 cash equivalents and availability under its credit and conduit facilities at December 31, 2019 were as follows (in thousands):
  December 31,
2017
Cash and cash equivalents $687,521
   
Credit facilities (a)
 291,518
Asset-backed U.S. commercial paper conduit facilities (a)
 620,543
Asset-backed Canadian commercial paper conduit facility (a)
 491
Total availability under credit and conduit facilities 912,552
Total $1,600,073

Cash and cash equivalents$833,868
  
Availability under credit and conduit facilities: 
Credit facilities1,168,005
Asset-backed U.S. commercial paper conduit facilities(a)
600,000
Asset-backed Canadian commercial paper conduit facility(a)
54,318
 1,822,323
 $2,656,191
(a)
Includes facilities expiring in the next twelve months some of which the Company expects to renew prior to expiration.(1) 
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 the increased difficulty of raising, or potential inabilityunsuccessful 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 cashCash flow activity of continuing operationsactivities for the years ended December 31, 2017, 2016 and 2015were as follows (in thousands):
 2017 2016 20152019 2018
Net cash provided by operating activities $1,005,061
 $1,174,339
 $1,100,118
$868,272
 $1,205,921
Net cash used by investing activities (562,468) (392,731) (915,848)(508,126) (662,269)
Net cash used by financing activities (541,803) (734,390) (354,064)(712,223) (14,763)
Effect of exchange rate changes on cash and cash equivalents 26,747
 (9,443) (14,677)
Net (decrease) increase in cash and cash equivalents $(72,463) $37,775
 $(184,471)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,305) (15,351)
Net (decrease) increase in cash, cash equivalents and restricted cash$(354,382) $513,538
Operating Activities
The decrease in operating cash flow in 20172019 compared to 20162018 was primarily due primarily to lower net income,sales and unfavorable changes in working capital and higher retirement plan contributions. These negative impacts were partially offset by lower net cash outflows for wholesale lending.
The increase in operating cash flow in 2016 compared to 2015 was due primarily to lower net cash outflows from wholesale lending and favorable changes in working capital driven by a reduction in inventory during 2016. These favorable impacts were partially offset byincluding the impact of a retirement plan contributionutilizing restructuring and lower net income.recall liabilities in 2019.
During 2017, the Company voluntarily contributed $25.0 million to itsThere are no required qualified pension plan and $15.0 million to its postretirement healthcare plans. This compares to a qualified pension plan contribution of $25.0 millioncontributions expected in 2016 and no contributions in 2015. 2020.(1) The Company expects that no qualified pension contributions will be required in 2018.(1) The Company also expects that 20182020 postretirement healthcare plan benefits and benefits due under the SERPA will be paid by the Company or, in the case of postretirement healthcare plan benefits, partially funded with plan assets.(1) The Company’s expected future contributions and benefit payments related to these plans are provideddiscussed further in Note 1215 of the Notes to Consolidated Financial Statements.(1)financial statements.
Investing Activities
The Company’s most significant investing activities consist primarily of capital expenditures net changes inand retail finance receivablesreceivable originations and short-term investment activity.collections. Capital expenditures were $206.3181.4 million, $256.3 million and $260.0213.5 million during 2017, 20162019 and 20152018, respectively. The Company anticipates it will continue to have the ability to fund all planned capital expenditures in 2020 with cash flows generated by operations.(1)
Net cash outflows for finance receivables in 2017,2019, which consisted primarily of retail finance receivables, were $125.8$79.5 million lower than 2016in 2018 primarily as a result of a decrease indue to higher retail motorcycle loan originationscollections during 2017. Similarly, 2016 net cash outflows for finance receivables were $125.5 million lower than 2015 primarily due to lower retail motorcycle loan originations during 2016.
Cash inflows from maturities of marketable securities were $6.9 million, $40.0 million and $11.5 million in 2017, 2016 and 2015, respectively.
During 2016, the Company completed a sale of finance receivables through an off-balance sheet asset-backed securitization. The proceeds from the sale of finance receivables, which positively impacted cash flow, were $312.6 million. There were no comparable transactions in 2017 or 2015.
During 2015, the Company purchased certain assets and liabilities from Fred Deeley Imports, Ltd. resulting in a $59.9 million cash outflow. There were no business acquisitions in 2017 or 2016.2019.


Financing Activities
The Company’s financing activities consist primarily of dividend payments, share repurchases and debt activity.
The Company paid dividends of $1.46$1.50 per share totaling $251.9$237.2 million during 2017, $1.402019 and $1.48 per share totaling $252.3$245.8 million during 2016 and $1.24 per share totaling $249.3 million during 2015.2018.
Cash outflows from share repurchases were $465.3 million, $465.3$296.5 million and $1,537.0$390.6 million for 2017, 20162019 and 2015,2018, respectively. Discretionary share repurchases during the years ended December 31, 2019 and 2018 were $286.7 million or 8.2 million shares and $382.0 million or 9.2 million shares, respectively. Share repurchases during 2017, 2016 and 2015 included 8.8 million, 9.9 million and 28.0 million shares of


common stock, respectively, related to discretionary share repurchases and shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock awards. In February 2016, the Company's Board of Directors separately authorized the Company to buy back up to an additional 20.0units were $9.8 million or 0.3 million shares of its common stock with no dollar limitand $8.6 million or expiration date of which 10.60.2 million shares remained available atduring the years ended December 31, 2017. In February2019 and 2018, the Company's Boardrespectively. As of Directors authorized the Company toDecember 31, 2019, there were 8.2 million shares remaining on a board-approved share repurchase up to 15.0 million additional shares of its common stock with no dollar limit or expiration date.authorization.
Financing cash flows related to debt activity resulted in net cash (outflows)/inflows / (outflows) of $155.5 million , ($78.3)$(182.1) million and $1.40 billion$618.1 million for 2017, 20162019 and 20152018, respectively. The Company’s total outstanding debt consisted of the following as of December 31, 2017, 2016 and 2015 (in thousands):
 2017 2016 20152019 2018
Unsecured commercial paper $1,273,482
 $1,055,708
 $1,201,380
$571,995
 $1,135,810
Asset-backed Canadian commercial paper conduit facility 174,779
 149,338
 153,839
114,693
 155,951
Asset-backed U.S. commercial paper conduit facilities 279,457
 
 
490,427
 582,717
Asset-backed securitization debt, net764,392
 95,167
Medium-term notes, net 4,165,706
 4,064,940
 3,316,949
4,760,127
 4,887,007
Senior unsecured notes, net 741,961
 741,306
 740,653
Asset-backed securitization debt, net 352,624
 796,275
 1,459,377
Total debt $6,988,009
 $6,807,567
 $6,872,198
Senior notes, net743,296
 742,624
$7,444,930
 $7,599,276
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 January 2018December 31, 2019 were as follows:
 Short-Term Long-Term  Outlook
Moody’sP2  A3Baa1  Stable
Standard & Poor’sA2  A-BBB+  Negative
FitchF1  A  StableNegative
Credit Facilities – In May 2017,2019, the Company entered into a $100.0$195.0 million 364-day credit facility which matures in April 2018.May 2020. The Company also has a $675.0$780.0 million five-year credit facility which matures in April 20192023 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 interest rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based on the average daily unused portion of the aggregate commitments under the Global Credit Facilities. The Global Credit Facilities are committed facilities primarily used to support the Company's unsecured commercial paper program. Additionally, during the second quarter of 2017, the Company renewed its $25.0 million credit facility which had expired in May 2017. The $25.0 million credit facility bears interest at variable interest rates, and the Company must pay a fee based on the unused portion of the $25.0 million commitment. The credit facility expires in May 2018.
Unsecured Commercial Paper – Subject to limitations, the Company could issue unsecured commercial paper of up to $1.54$1.74 billion as of December 31, 20172019 supported by the Global Credit Facilities, as discussed above.Facilities. 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 has the following unsecured medium-term notes (collectively, the Notes) issued and outstanding at December 31, 20172019 (in thousands):
Principal Amount Rate Issue Date Maturity Date Rate Issue Date Maturity Date
$877,488 6.80% May 2008 June 2018
$600,000 2.25% January 2016 January 2019 2.15% February 2015 February 2020
$150,000 
Floating-rate(a)
 March 2017 March 2019
$600,000 2.40% September 2014 September 2019
$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 2.40% March 2017 June 2020
$600,000 2.85% January 2016 January 2021 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 2.55% June 2017 June 2022
$350,000 3.35% February 2018 February 2023
$672,936(a)
 3.14% November 2019 November 2024

(a)    Floating interest rate based on LIBOR plus 35 bps.
(a)Euro denominated €600.0 million par value remeasured to U.S. dollar at December 31, 2019
The Notesfixed-rate medium-term notes provide for semi-annual interest payments and principalthe floating-rate medium-term notes provide for quarterly interest payments. Principal on the medium-term notes is due at maturity. Unamortized discount and debt issuance costs on medium-term notes reduced the outstanding balance by $12.8 million and $13.0 million at December 31, 2019 and 2018, respectively.
Senior Unsecured Notes – In July 2015, the Company issued $750.0 million of unsecured 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 ofbetween the Company and the lenders, as of December 31, 2017,2019, the Canadian Conduit has an expiration date of June 30, 2018. The contractual maturity of the debt is approximately 5 years.26, 2020.

During 2017 and 2016, the Company transferred $105.4 million and $71.1 million, respectively,Quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds include the following for proceeds of $87.0 million and $62.4 million, respectively.    the years ended December 31, (in thousands):
 2019 2018
 Transfers Proceeds Transfers Proceeds
First quarter$
 $
 $7,600
 $6,200
Second quarter28,200
 23,400
 38,900
 32,200
Third quarter
 
 
 
Fourth quarter
 
 39,000
 32,200
 $28,200
 $23,400
 $85,500
 $70,600
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE On December 13, 2017, theThe Company renewed its existing $300.0 million and $600.0 million revolving facilityhas two separate agreements with a third-party bank-sponsored asset-backed U.S. commercial paper conduit.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 May 2019, the Company amended its $300.0 million revolving facility agreement to allow for incremental borrowings, at the lender's discretion, of up to an additional $300.0 million in excess of the $300.0 million commitment. 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. On November 27, 2019, the Company renewed its existing $600.0 million and amended $300.0 million revolving facility agreements with third-party bank-sponsored asset-backed U.S. commercial paper conduits. 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 relevant SPE as collateral.
During 2017, the Company transferred $429.7 millionQuarterly transfers of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $383.3 million of debt under the U.S. Conduit Facilities. The VIE did not borrow under the U.S. Conduit Facilities during 2016 and did not have an outstanding balance atthe respective proceeds include the following for the years ended December 31, 2016. The contractual maturity of the debt is approximately 5 years.(in thousands):
 2019 2018
 Transfers Proceeds Transfers Proceeds
First quarter$
 $
 $32,900
 $29,300
Second quarter
 
 59,100
 53,300
Third quarter174,400
 154,600
 
 
Fourth quarter
 
 400,200
 356,800
 $174,400
 $154,600
 $492,200
 $439,400
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 of $900.0 million.commitment. There is no amortization schedule; however, the debt will be 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, the U.S. Conduit Facilities have an expiration date of December 12, 2018.November 25, 2020.


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 asset-backed 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’ contractual livesnotes have various contractual maturities ranging from 2020 to 2026.
In 2019, the Company transferred $1.12 billion of U.S. retail motorcycle finance receivables to 2022.
two separate SPEs. The SPEs in turn issued $1.03 billion, or $1.02 billion net of discounts and issuance costs, of secured notes through two separate on-balance sheet asset-backed securitization transactions. There were no on oron-balance sheet asset-backed securitization transactions during 2018. There were no off-balance sheet asset-backed securitization transactions during 2017. During the second quarter 2016, the Company sold U.S. retail motorcycle finance receivables with a principal balance of $301.8 million into an asset-backed securitization VIE, and the transaction met the criteria to be accounted for as a sale because the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants. Upon the sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet and a gain of $9.3 million was recognized in Financial Services revenue.2019 or 2018.
For more information see Note 10 of the Notes to Consolidated Financial Statements.
Support Agreement - The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support to maintain HDFS’ fixed-charge coverage at 1.25 and minimum net worth of $40.0 million. Support may be provided at the Company’s option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company’s ability to withdraw funds from HDFS outside the normal course of business. No amount has ever been provided to HDFS under the support agreement.
Operating and Financial Covenants – HDFS and the Company are subject to various operating and financial covenants related to the credit facilities and various operating covenants under the Notesmedium-term and senior 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:
assumeAssume or incur certain liens;
participateParticipate in certain mergers or consolidations; and
purchasePurchase or hold margin stock.
Under the current financial covenants of the Global Credit Facilities, the ratio of HDFS’ consolidated debt, excluding secured debt, to HDFS’ consolidated shareholders' equity, ratio of HDFSexcluding accumulated other comprehensive loss (AOCL), cannot exceed 10.0010.0 to 1.001.0 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 excluding the debtexcludes that of HDFS and its subsidiaries, and the Company's consolidated shareholders’ equity excluding AOCL), cannot exceed 0.700.7 to 1.001.0 as of the end of any fiscal quarter. No financial covenants are required under the Notesmedium-term and senior notes or the U.S. or Canadian asset-backed commercial paper conduit facilities.
At December 31, 2017, 20162019 and 2015,2018, HDFS and the Company remained in compliance with all of the then existing covenants.
Cautionary Statements

The Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” “may,” “will,” “estimates,” “is on-track” or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this report. Certain of such risks and uncertainties are described below. 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 this report are only made as of the date of this report, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
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 strategy,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) manage and predict the impact that new or adjusted tariffs may have on the Company's ability to sell products internationally, and the cost of raw materials and components, (iii) execute its strategy of growing ridership, globally, (iii) effectively execute(iv) successfully carry out its global manufacturing optimization plan within expected costs and timing, (iv)assembly operations, (v) accurately analyze, predict and react to changing market conditions and successfully adjust to shifting global consumer needs and interests, (vi) develop and maintain a productive relationship with Zhejiang Qianjiang Motorcycle Co., Ltd. and launch related products in a timely manner, (vii) develop and introduce products, services and experiences that are successful in the marketplace, (v) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, (vi) balance production volumes for its new motorcycles with consumer demand, including in circumstances where competitors may be supplying new motorcycles toa 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 excessa 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 demand at reduced prices, (vii) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing political environment, (viii) manage risks that arise through expanding international manufacturing, operations and sales, (ix) successfully execute the Company's manufacturing strategy, including its flexible production strategy,necessary infrastructure, (x) prevent, detect, and detectremediate 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) continue tomanage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xii) manage the relationshipsimpact that prices for and agreementssupply 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 Company has withchanging 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 labor unionsmotorcycles to help drive long-term competitiveness, (xii)incremental tariffs, (xviii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xiii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio, (xiv) retain and attract talented employees, (xv) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or Company data and respond to evolving regulatory requirements regarding data security, (xvi)(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, (xvii)(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'sCompany’s business, (xviii)(xxiv) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xix) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xx)(xxv) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xxi)(xxvi) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xxii)(xxvii) manage its exposure to product liability claims and commercial or contractual disputes, and (xxiii)(xxviii) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the Company and within its expectations.

In addition,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) successfully launch a smaller displacement motorcycle in India.
The Company’s operations and/or demand for its products could experience delays or disruptions in its operations as a result ofbe adversely impacted by work stoppages, strikes, natural causes, widespread infectious disease, terrorism, or other factors. Other factors are described in Item 1A. Risk Factors of this report. Many of these risk factors thatare impacted by the Company has disclosed in documents previously filed withcurrent changing capital, credit and retail markets and the Securities and Exchange Commission. 

Company's ability to manage through inconsistent economic conditions.
The Company'sCompany’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'sCompany’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company. In addition, the Company'sCompany’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.
Item 7A. 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. Further disclosure relating to the fair value of derivative financial instruments is included in Note 9 of the Notes to Consolidated financial statements.
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 currency.currencies. The Company’s most significant foreign currency exchange rate risk relates to the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollar, the British poundMexican peso, Indian rupee, and the Mexican peso.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. At December 31, 20172019 and December 31, 2016,2018, the notional U.S. dollar value of outstanding Euro, Australian dollar, Japanese yen, Brazilian real, Canadian dollar, and Mexican peso, Indian rupee, and Pound sterling foreign currency contracts was $675.7$654.5 million and $554.6$443.0 million, respectively. The Company estimates that a uniform 10% weakening in the value of the U.S. dollar relative to the currencies underlying these contracts would result in a decrease in the fair value of the contracts of approximately $67.2$65.5 million and $52.2$39.9 million as of December 31, 20172019 and December 31, 2016,2018, respectively. Further disclosure relating to the fair value of derivative financial instruments is included in Note 7 of the Notes to Consolidated Financial Statements.

The Company's earnings are affected by changes in the prices of commodities used in the production of motorcycles. The Company uses derivative financial instruments on a limited basis to hedge the prices of certain commodities. At December 31, 2017,2019, the notional value of these instruments was $5.4$8.9 million and theirthe fair value was a net assetliability of $0.3$0.1 million. As of December 31, 2016,2018, the notional value of these instruments was $6.0$6.1 million and theirthe fair value was a net assetliability of $0.5 million. The potential decrease in fair value of these contracts from a 10% adverse change in the underlying commodity prices would not be significant.


HDFS’ earnings are affected by changes in interest rates. HDFS’ interest-rateinterest 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. WithAs of December 31, 2019, HDFS had interest rate swaps outstanding with a notional value of $900.0 million and interest rate caps outstanding with a notional value of $376.0 million. As of December 31, 2018, HDFS had interest rate swaps outstanding with a notional value of $900.0 million and no outstanding interest rate caps. HDFS estimates that a 10% decrease in interest rates would result in a decrease in the exceptionfair value of the interest rate swap and cap agreements of $10.2 million and $8.3 million as of December 31, 2019 and 2018, respectively.
HDFS has currency exposure related to financing in currencies other than the functional currency. HDFS utilizes cross-currency swaps to mitigate the effect of the foreign currency exchange rate fluctuations. At December 31, 2019, HDFS' exposure relates to the Euro. As of December 31, 2019, HDFS had a cross-currency swap outstanding with a notional value of $660.8 million. As of December 31, 2018, HDFS had no cross-currency swaps outstanding. HDFS estimates that a 10% adverse change in the underlying foreign currency exchange rate would result in a $4.6 million decrease in the fair value of the swap agreement.
HDFS has short-term commercial paper and debt issued through the commercial paper


conduit facilities the majority of HDFS' debt instruments at December 31, 2017 have fixedthat is subject to changes in interest rates. AHDFS estimates that a one-percentage point increase in the interest rate on commercial paper and debt issued through the commercial paper conduit facilities would increase Financial Services interest expense in 20182020 by approximately $15$10.4 million. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change in interest rates, HDFS may take actions to mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis does not account for these impacts.






Item 8. Consolidated Financial Statements and Supplementary Data





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Directors of Harley-Davidson, Inc.


Opinion on Internal Control over Financial Reporting


We have audited Harley-Davidson, Inc.’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). In our opinion, Harley-Davidson, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Harley-Davidson, Inc. as of December 31, 20172019 and 2016,2018, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and financial statement schedule listed in the Index at item 15(a) and our report dated February 21, 201819, 2020 expressed an unqualified opinion thereon.


Basis for Opinion


The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.


Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definitions and Limitations of Internal Control Over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 21, 201819, 2020











REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Directors of Harley-Davidson, Inc.


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of Harley-Davidson, Inc. as of December 31, 20172019 and 2016,2018, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and financial statement schedule listed in the Index at item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Harley-Davidson, Inc. at December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework),and our report dated February 21, 201819, 2020 expressed an unqualified opinion thereon.


Basis for Opinion


These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to frauderror or error.fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to frauderror or error,fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.



Allowance for Credit Losses - Retail Finance Receivables
Description of the Matter
The Company’s retail receivable portfolio totaled $6.4 billion as of December 31, 2019, and the associated allowance for credit losses (ACL) was $188.5 million. As discussed in Note 7 to the consolidated financial statements, management utilizes a loss forecast model to estimate losses of its retail receivable portfolio. The loss forecast model utilizes a variety of assumptions including, but not limited to, historical loss trends, known and inherent risk in the portfolio, the value of the underlying collateral, recovery rates and current economic conditions including items such as unemployment rates. Management applies judgment in determining appropriate parameters and assumptions when estimating incurred losses, including the assessment of historical loss experience, the percentage of borrowers that are expected to default, and the valuation of collateral.
Auditing management’s estimate of the ACL for retail finance receivables involved a high degree of judgment in evaluating management’s assumptions.
How We Addressed the Matter in Our Audit
We tested certain of the Company’s controls over the ACL process, which included, among others, management’s review and approval of the model used to calculate the ACL, management’s validation of data inputs as well as their review and approval of subjective model inputs. We also tested the Company’s controls over the computational accuracy of the output of the model.
To test the ACL, our audit procedures included, among others, assessing the appropriateness of the significant assumptions and parameters in the ACL model by evaluating whether historical data utilized within the model was representative of current circumstances, including giving consideration to current economic conditions and recent losses incurred in the portfolio. In performing this evaluation, we also considered any adjustments management made to historical data in response to current trends. Lastly, we tested the completeness and accuracy of data from underlying informational systems used in the model.
Product Recall Liability
Description of the Matter
The Company’s liability for product recalls, which represents a loss contingency, was $36.4 million as of December 31, 2019. As discussed in Note 14 to the consolidated financial statements, the Company records the estimated recall cost when the liability is both probable and estimable. The accrued cost of a recall is based on an estimate of the cost to repair each affected motorcycle and the number of motorcycles expected to be repaired based on historical data concerning the percentage of affected customers that take advantage of recall offers. Management applies judgment in determining when to initiate voluntary product recall campaigns. Management also applies judgment in determining assumptions that are in part based on historical experience when estimating the expected costs to repair the motorcycle and the percentage of customers expected to participate in the recall.
Auditing the completeness and valuation of the product recall liability involved a high degree of subjectivity in evaluating management’s assumptions.
How We Addressed the Matter in Our Audit
We tested certain of the Company’s controls over the product recall liability process, which included, among others, management’s review of claims and identification of claims trends, and development of the assumptions and inputs used to estimate the cost of the product recall, including the motorcycle population subject to the product recall, the cost per motorcycle to repair, and the estimated customer participation percentage. We also tested controls over the completeness of the recalls accrued and the accuracy of the liability calculation.
To test the product recall liability, our audit procedures included among others, assessing the appropriateness of the significant assumptions in the product recall calculation by evaluating whether the historical data was representative of current circumstances, including giving consideration to the nature of the current recalls as compared to prior recalls as well as the actual customer participation to-date activity for the identified recalls and the related actual repair costs incurred to-date. In performing the evaluation, we also considered any adjustments management made to historical data in response to current trends, as applicable. We performed sensitivity analyses to assess the impact of possible changes to inputs and assumptions. We reviewed third-party product recall announcements and tested the completeness and accuracy of motorcycle population and repair cost data from underlying systems used in the calculation. Lastly, we performed a lookback analysis of retro rate adjustments, which would be indicative of product performance concerns not captured in the form of a product recall.

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1982
Milwaukee, Wisconsin
February 21, 2018



19, 2020


HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 20172019, 20162018 and 20152017
(In thousands, except per share amounts)
 
 2017 2016 20152019 2018 2017
Revenue:           
Motorcycles and Related Products $4,915,027
 $5,271,376
 $5,308,744
$4,572,678
 $4,968,646
 $4,915,027
Financial Services 732,197
 725,082
 686,658
789,111
 748,229
 732,197
Total revenue 5,647,224
 5,996,458
 5,995,402
5,361,789
 5,716,875
 5,647,224
Costs and expenses:           
Motorcycles and Related Products cost of goods sold 3,261,683
 3,419,710
 3,356,284
3,229,798
 3,351,796
 3,272,330
Financial Services interest expense 180,193
 173,756
 161,983
210,438
 193,187
 180,193
Financial Services provision for credit losses 132,444
 136,617
 101,345
134,536
 106,870
 132,444
Selling, administrative and engineering expense 1,181,641
 1,217,439
 1,220,095
1,199,056
 1,258,098
 1,180,176
Total costs and expenses 4,755,961
 4,947,522
 4,839,707
Restructuring expense32,353
 93,401
 
4,806,181
 5,003,352
 4,765,143
Operating income 891,263
 1,048,936
 1,155,695
555,608
 713,523
 882,081
Other income (expense), net16,514
 3,039
 9,182
Investment income 3,580
 4,645
 6,585
16,371
 951
 3,580
Interest expense 31,004
 29,670
 12,117
31,078
 30,884
 31,004
Income before provision for income taxes 863,839
 1,023,911
 1,150,163
557,415
 686,629
 863,839
Provision for income taxes 342,080
 331,747
 397,956
133,780
 155,178
 342,080
Net income $521,759
 $692,164
 $752,207
$423,635
 $531,451
 $521,759
Earnings per common share:      
Earnings per share:     
Basic $3.03
 $3.85
 $3.71
$2.70
 $3.21
 $3.03
Diluted $3.02
 $3.83
 $3.69
$2.68
 $3.19
 $3.02
Cash dividends per common share $1.46
 $1.40
 $1.24
$1.50
 $1.48
 $1.46
The accompanying notes are an integral part of the consolidated financial statements.






HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 20172019, 20162018 and 20152017
(In thousands)


  2017 2016 2015
Net income $521,759
 $692,164
 $752,207
Other comprehensive income (loss), net of tax:      
  Foreign currency translation adjustments 46,280
 (9,288) (55,362)
  Derivative financial instruments (29,778) 6,638
 (13,156)
  Marketable securities 1,194
 (100) (394)
  Pension and postretirement benefit plans 47,636
 52,574
 (31,350)
Total other comprehensive income (loss), net of tax 65,332
 49,824
 (100,262)
Comprehensive income $587,091
 $741,988
 $651,945


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


HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
(In thousands, except share amounts)
  2017 2016
ASSETS    
Current assets:    
Cash and cash equivalents $687,521
 $759,984
Marketable securities 
 5,519
Accounts receivable, net 329,986
 285,106
Finance receivables, net 2,105,662
 2,076,261
Inventories 538,202
 499,917
Restricted cash 47,518
 52,574
Other current assets 175,853
 174,491
Total current assets 3,884,742
 3,853,852
Finance receivables, net 4,859,424
 4,759,197
Property, plant and equipment, net 967,781
 981,593
Prepaid pension costs 19,816
 
Goodwill 55,947
 53,391
Deferred income taxes 109,073
 167,729
Other long-term assets 75,889
 74,478
  $9,972,672
 $9,890,240
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $227,597
 $235,318
Accrued liabilities 529,822
 486,652
Short-term debt 1,273,482
 1,055,708
Current portion of long-term debt, net 1,127,269
 1,084,884
Total current liabilities 3,158,170
 2,862,562
Long-term debt, net 4,587,258
 4,666,975
Pension liability 54,606
 84,442
Postretirement healthcare liability 118,753
 173,267
Other long-term liabilities 209,608
 182,836
Commitments and contingencies (Note 14) 

 

Shareholders’ equity:    
Preferred stock, none issued 
 
Common stock, 181,286,547 and 180,595,054 shares issued, respectively 1,813
 1,806
Additional paid-in-capital 1,422,808
 1,381,862
Retained earnings 1,607,570
 1,337,673
Accumulated other comprehensive loss (500,049) (565,381)
Treasury stock (13,195,731 and 4,647,345 shares, respectively), at cost (687,865) (235,802)
Total shareholders’ equity 1,844,277
 1,920,158
  $9,972,672
 $9,890,240



HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
December 31, 2017 and 2016
(In thousands, except share amounts)
  2017 2016
Balances held by consolidated variable interest entities (Note 10)    
Current finance receivables, net $194,813
 $225,289
Other assets $2,148
 $2,781
Non-current finance receivables, net $521,940
 $643,047
Restricted cash - current and non-current $48,706
 $57,057
Current portion of long-term debt, net $209,247
 $241,396
Long-term debt, net $422,834
 $554,879

 2019 2018 2017
Net income$423,635
 $531,451
 $521,759
Other comprehensive income (loss), net of tax:     
Foreign currency translation adjustments8,795
 (25,010) 46,280
Marketable securities
 
 1,194
Derivative financial instruments(16,371) 20,009
 (29,778)
Pension and postretirement benefit plans100,311
 (16,286) 47,636
 92,735
 (21,287) 65,332
Comprehensive income$516,370
 $510,164
 $587,091
The accompanying notes are an integral part of the consolidated financial statements.





HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSBALANCE SHEETS
Years ended December 31, 2017, 20162019 and 2015
(In thousands)
  2017 2016 2015
Net cash provided by operating activities (Note 2) $1,005,061
 $1,174,339
 $1,100,118
Cash flows from investing activities:      
Capital expenditures (206,294) (256,263) (259,974)
Origination of finance receivables (3,591,948) (3,664,495) (3,751,830)
Collections on finance receivables 3,228,311
 3,175,031
 3,136,885
Proceeds from finance receivables sold 
 312,571
 
Sales and redemptions of marketable securities 6,916
 40,014
 11,507
Acquisition of business 
 
 (59,910)
Other 547
 411
 7,474
Net cash used by investing activities (562,468) (392,731) (915,848)
Cash flows from financing activities:      
Proceeds from issuance of medium-term notes 893,668
 1,193,396
 595,386
Repayments of medium-term notes (800,000) (451,336) (610,331)
Proceeds from issuance of senior unsecured notes 
 
 740,385
Proceeds from securitization debt 
 
 1,195,668
Repayments of securitization debt (444,671) (665,400) (1,008,135)
Borrowings of asset-backed commercial paper 469,932
 62,396
 87,442
Repayments of asset-backed commercial paper (176,227) (71,500) (72,727)
Net increase (decrease) in credit facilities and unsecured commercial paper 212,809
 (145,812) 469,473
Net change in restricted cash 8,458
 43,495
 11,410
Dividends paid (251,862) (252,321) (249,262)
Purchase of common stock for treasury (465,263) (465,341) (1,537,020)
Excess tax benefits from share-based payments 
 2,251
 3,468
Issuance of common stock under employee stock option plans 11,353
 15,782
 20,179
Net cash used by financing activities (541,803) (734,390) (354,064)
Effect of exchange rate changes on cash and cash equivalents 26,747
 (9,443) (14,677)
Net (decrease) increase in cash and cash equivalents $(72,463) $37,775
 $(184,471)
Cash and cash equivalents:      
Cash and cash equivalents—beginning of period $759,984
 $722,209
 $906,680
Net (decrease) increase in cash and cash equivalents (72,463) 37,775
 (184,471)
Cash and cash equivalents—end of period $687,521
 $759,984
 $722,209

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


HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended December 31, 2017, 2016 and 20152018
(In thousands, except share amounts)
  Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Balance
 Total
  
Issued
Shares
 Balance 
Balance December 31, 2014 344,174,653
 $3,442
 $1,265,257
 $8,459,040
 $(514,943) $(6,303,510) $2,909,286
Net income 
 
 
 752,207
 
 
 752,207
Total other comprehensive loss, net of tax (Note 8) 
 
 
 
 (100,262) 
 (100,262)
Dividends 
 
 
 (249,262) 
 
 (249,262)
Repurchase of common stock 
 
 
 
 
 (1,537,020) (1,537,020)
Share-based compensation and 401(k) match made with Treasury shares 
 
 39,457
 
 
 1,394
 40,851
Issuance of nonvested stock 162,193
 2
 (2) 
 
 
 
Exercise of stock options 518,858
 5
 20,174
 
 
 
 20,179
Tax benefit of equity awards 
 
 3,675
 
 
 
 3,675
Balance December 31, 2015 344,855,704
 $3,449
 $1,328,561
 $8,961,985
 $(615,205) $(7,839,136) $1,839,654
Net income 
 
 
 692,164
 
 
 692,164
Total other comprehensive income, net of tax (Note 8) 
 
 
 
 49,824
 
 49,824
Dividends 
 
 
 (252,321) 
 
 (252,321)
Repurchase of common stock 
 
 
 
 
 (465,341) (465,341)
Share-based compensation and 401(k) match made with Treasury shares 
 
 36,956
 
 
 2,870
 39,826
Issuance of nonvested stock 272,479
 2
 (2) 
 
 
 
Exercise of stock options 466,871
 5
 15,777
 
 
 
 15,782
Tax benefit of equity awards 
 
 570
 
 
 
 570
Retirement of treasury stock (165,000,000) (1,650) 
 (8,064,155) 
 8,065,805
 
Balance December 31, 2016 180,595,054
 $1,806
 $1,381,862
 $1,337,673
 $(565,381) $(235,802) $1,920,158
Net income 
 
 
 521,759
 
 
 521,759
Total other comprehensive income, net of tax (Note 8) 
 
 
 
 65,332
 
 65,332
Dividends 
 
 
 (251,862) 
 
 (251,862)
Repurchase of common stock 
 
 
 
 
 (465,263) (465,263)
Share-based compensation and 401(k) match made with Treasury shares 
 
 29,600
 
 
 13,200
 42,800
Issuance of nonvested stock 408,950
 4
 (4) 
 
 
 
Exercise of stock options 282,543
 3
 11,350
 
 
 
 11,353
Balance December 31, 2017 181,286,547
 $1,813

$1,422,808
 $1,607,570
 $(500,049) $(687,865) $1,844,277
 2019 2018
ASSETS   
Current assets:   
Cash and cash equivalents$833,868
 $1,203,766
Marketable securities
 10,007
Accounts receivable, net259,334
 306,474
Finance receivables, net2,272,522
 2,214,424
Inventories, net603,571
 556,128
Restricted cash64,554
 49,275
Other current assets168,974
 144,368
 4,202,823
 4,484,442
Finance receivables, net5,101,844
 5,007,507
Property, plant and equipment, net847,382
 904,132
Prepaid pension costs56,014
 
Goodwill64,160
 55,048
Deferred income taxes101,204
 141,464
Lease assets61,618
 
Other long-term assets93,114
 73,071
 $10,528,159
 $10,665,664
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$294,380
 $284,861
Accrued liabilities582,288
 601,130
Short-term debt571,995
 1,135,810
Current portion of long-term debt, net1,748,109
 1,575,799
 3,196,772
 3,597,600
Long-term debt, net5,124,826
 4,887,667
Lease liabilities44,447
 
Pension liabilities56,138
 107,776
Postretirement healthcare liabilities72,513
 94,453
Deferred income taxes8,135
 
Other long-term liabilities221,329
 204,219
Commitments and contingencies (Note 16)


 


Shareholders’ equity:   
Preferred stock, none issued
 
Common stock (Note 5)1,828
 1,819
Additional paid-in-capital1,491,004
 1,459,620
Retained earnings2,193,997
 2,007,583
Accumulated other comprehensive loss(536,949) (629,684)
Treasury stock, at cost (Note 5)(1,345,881) (1,065,389)
 1,803,999
 1,773,949
 $10,528,159
 $10,665,664



HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
December 31, 2019 and 2018
(In thousands, except share amounts)
 2019 2018
Balances held by consolidated variable interest entities (Note 12)   
Finance receivables, net - current$291,444
 $175,043
Other assets$2,420
 $1,563
Finance receivables, net - non-current$1,027,179
 $591,839
Restricted cash - current and non-current$63,812
 $47,203
Current portion of long-term debt, net$317,607
 $189,693
Long-term debt, net$937,212
 $488,191

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






HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2019, 2018 and 2017
(In thousands)
 2019 2018 2017
Net cash provided by operating activities (Note 6)$868,272
 $1,205,921
 $1,005,061
Cash flows from investing activities:     
Capital expenditures(181,440) (213,516) (206,294)
Origination of finance receivables(3,847,322) (3,752,817) (3,591,948)
Collections on finance receivables3,499,717
 3,325,669
 3,228,311
Purchases of marketable securities
 (10,007) 
Sales and redemptions of marketable securities10,007
 
 6,916
Acquisition of business(7,000) 
 
Other investing activities17,912
 (11,598) 547
Net cash used by investing activities(508,126) (662,269) (562,468)
Cash flows from financing activities:     
Proceeds from issuance of medium-term notes1,203,236
 1,591,828
 893,668
Repayments of medium-term notes(1,350,000) (877,488) (800,000)
Proceeds from securitization debt1,021,453
 
 
Repayments of securitization debt(353,251) (257,869) (444,671)
Borrowings of asset-backed commercial paper177,950
 509,742
 469,932
Repayments of asset-backed commercial paper(318,006) (212,729) (176,227)
Net (decrease) increase in credit facilities and unsecured commercial paper(563,453) (135,356) 212,809
Dividends paid(237,221) (245,810) (251,862)
Repurchase of common stock(296,520) (390,606) (465,263)
Issuance of common stock under employee stock option plans3,589
 3,525
 11,353
Net cash used by financing activities(712,223) (14,763) (550,261)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,305) (15,351) 26,747
Net (decrease) increase in cash, cash equivalents and restricted cash$(354,382) $513,538
 $(80,921)
      
Cash, cash equivalents and restricted cash:     
Cash, cash equivalents and restricted cash, beginning of period$1,259,748
 $746,210
 $827,131
Net (decrease) increase in cash, cash equivalents and restricted cash(354,382) 513,538
 (80,921)
Cash, cash equivalents and restricted cash, end of period$905,366
 $1,259,748
 $746,210
      
Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows:     
Cash and cash equivalents$833,868
 $1,203,766
 $687,521
Restricted cash64,554
 49,275
 47,518
Restricted cash included in Other long-term assets6,944
 6,707
 11,171
Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows$905,366
 $1,259,748
 $746,210
The accompanying notes are an integral part of the consolidated financial statements.


HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended December 31, 2019, 2018 and 2017
(In thousands, except share amounts)
 Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 Treasury Stock Total
 
Issued
Shares
 Balance 
Balance, December 31, 2016180,595,054
 $1,806
 $1,381,862
 $1,337,673
 $(565,381) $(235,802) $1,920,158
Net income
 
 
 521,759
 
 
 521,759
Other comprehensive income, net of tax (Note 18)
 
 
 
 65,332
 
 65,332
Dividends
 
 
 (251,862) 
 
 (251,862)
Repurchase of common stock
 
 
 
 
 (465,263) (465,263)
Share-based compensation
 
 29,600
 
 
 13,200
 42,800
Issuance of nonvested stock408,950
 4
 (4) 
 
 
 
Exercise of stock options282,543
 3
 11,350
 
 
 
 11,353
Balance, December 31, 2017181,286,547
 1,813
 1,422,808
 1,607,570
 (500,049) (687,865) 1,844,277
Net income
 
 
 531,451
 
 
 531,451
Other comprehensive loss, net of tax (Note 18)
 
 
 
 (21,287) 
 (21,287)
Dividends
 
 
 (245,810) 
 
 (245,810)
Repurchase of common stock
 
 
 
 
 (390,606) (390,606)
Share-based compensation
 
 33,293
 
 
 13,082
 46,375
Issuance of nonvested stock485,005
 4
 (4) 
 
 
 
Exercise of stock options159,673
 2
 3,523
 
 
 
 3,525
Cumulative effect of change in accounting
 
 
 6,024
 
 
 6,024
Reclassification of certain tax effects
 
 
 108,348
 (108,348) 
 
Balance, December 31, 2018181,931,225
 1,819
 1,459,620
 2,007,583
 (629,684) (1,065,389) 1,773,949
Net income
 
 
 423,635
 
 
 423,635
Other comprehensive income, net of tax (Note 18)
 
 
 
 92,735
 
 92,735
Dividends
 
 
 (237,221) 
 
 (237,221)
Repurchase of common stock
 
 
 
 
 (296,520) (296,520)
Share-based compensation
 
 27,804
 
 
 16,028
 43,832
Issuance of nonvested stock715,579
 7
 (7) 
 
 
 
Exercise of stock options169,732
 2
 3,587
 
 
 
 3,589
Balance, December 31, 2019182,816,536
 $1,828

$1,491,004
 $2,193,997
 $(536,949) $(1,345,881) $1,803,999
The accompanying notes are an integral part of the consolidated financial statements.



HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation All of the Company’s subsidiaries are wholly-owned. 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 arehave been eliminated.
All of the Company’s subsidiaries are wholly ownedThe Company operates in 2 reportable segments: Motorcycles and are included in the consolidated financial statements. Related Products (Motorcycles) and Financial Services.
Substantially all of the Company’s international subsidiaries use their respective local currency as their functional currency. Assets and liabilities of international subsidiaries have been translated at period-end exchange rates, and revenues and expenses have been translated using average exchange rates for the period. Monetary assets and liabilities denominated in a currency that is different from an entity's functional currency are remeasured from the transactional currency to the entity's functional currency on a monthly basis. The effect of this remeasurement is reported in Motorcycle and Related Products cost of goods sold. The pre-tax gain foraggregate transaction gain/(loss) resulting from foreign currency remeasurements was $15.0$18.0 million, for the year ended 2017. The pre-tax loss for foreign currency remeasurements was $15.1$(19.9) million, and $21.5$15.0 million for the years ended 2016December 31, 2019, 2018 and 2015,2017, respectively.
The Company operates in two reportable segments: Motorcycles & Related Products (Motorcycles) and Financial Services.
Use of Estimates – The preparation of financial statements in conformity with U.S. generally accepted accounting principles (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.
Cash and Cash Equivalents – The Company considers all highly liquid investments with a maturity of three months90 days or less when purchased to be cash equivalents.
Marketable Securities – The Company’s marketable securities consisted of the following at December 31 (in thousands):
  2017 2016
Available-for-sale securities: corporate bonds $
 $5,519
Trading securities: mutual funds 48,006
 38,119
Total marketable securities $48,006
 $43,638
The Company’s available-for-sale securities were carried at fair value with any unrealized gains or losses reported in other comprehensive income. During 2017 and 2016, unrealized losses were not material. There were no available-for-sale securities outstanding at December 31, 2017.
The Company's trading securities relate to investments held by the Company to fund certain deferred compensation obligations. The trading securities are carried at fair value with gains and losses recorded in net income and investments are included in other long-term assets on the consolidated balance sheets.
Accounts Receivable, Netnet – The Company’s motorcycles and related products are sold to independent dealers outside the U.S. and Canada generally on open account and the resulting receivables are included in accountsAccounts receivable, innet on the Company’s consolidatedConsolidated balance sheets.sheets. The allowance for doubtful accounts deducted from total accounts receivable was $4.1$4.9 million and $2.7$4.0 million as of December 31, 20172019 and 2016,2018, respectively. Accounts receivable are written down once management determines that the specific customer does not have the ability to repay the balance in full. The Company’s sales of motorcycles and related products in the U.S. and Canada are financed through HDFS by the purchasing independent dealers through HDFS and the related receivables are included in financeFinance receivables, net on the Consolidated balance sheets.
Inventories, net – Substantially all inventories located in the consolidated balance sheets.
Finance Receivables, Net – Finance receivables include both retailU.S. are valued using the last-in, first-out (LIFO) method. Other inventories totaling $326.5 million and wholesale finance receivables, net, including amounts held by consolidated VIEs. Finance receivables$247.6 million at December 31, 2019 and 2018, respectively, are recorded in the financial statements at amortized cost net of an allowance for credit losses. The provision for credit losses on finance receivables is charged to earnings in amounts sufficient to maintain the allowance for credit losses at a level that is adequate to cover estimated losses of principal inherent in the existing portfolio. Portions of the allowance for credit losses are specified to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance covers estimated losses on finance receivables which are collectively reviewed for impairment. 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.


The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes loss forecast models which consider a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates and current economic conditions including items such as unemployment rates. Retail finance receivables are not evaluated individually for impairment prior to charge-off and therefore are not reported as impaired loans.
The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s wholesale allowance evaluation 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 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 discountedvalued at the loan’s original interest ratelower of cost or net realizable value using the fair value of the collateral, if the loan is collateral-dependent. Finance receivables in the wholesale portfolio that are not individually evaluated for impairment are segregated, based on similar risk characteristics, according to the Company’s internal risk rating system and collectively evaluated for impairment. The related allowance is based on factors such as the Company’s past loan loss experience, the specific borrower’s financial performance as well as ability to repay, current economic conditions as well as the value of the underlying collateral.first-in, first-out (FIFO) method.
Impaired finance receivables also include loans that have been modified in troubled debt restructurings as a concession to borrowers experiencing financial difficulty. 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 impaired finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant.
Repossessed Inventory Repossessed inventory representing recovered collateral on impaired finance receivables is recorded at the lower of cost or net realizable value.value through a fair value remeasurement. In the period during which the collateral is repossessed, the related finance receivable is adjusted to the fair value of the collateral through a chargechange to the allowance for credit losses and reclassified to repossessed inventory. Repossessed inventory, is included in otherOther current assets and was $19.6 million and $19.3 million at December 31, 2017 and 2016, respectively.
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 (SPE), 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.Consolidated balance sheets.
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 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 balance sheet 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 Statement 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.


Inventories – Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories totaling $234.9 million at December 31, 2017 and $221.7 million at December 31, 2016 are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method.
Property, Plant and Equipment, net – Property, plant and equipment is recorded at cost.cost, net of accumulated depreciation and amortization. Depreciation is determined onusing the straight-line basismethod over the estimated useful lives of the assets. The followingestimated useful lives are used to depreciate the various classesof each class of property, plant and equipment:equipment generally consist of 30 years for buildings, 30 years;7 years for building equipment and land improvements, 7 years;3 to 10 years for machinery and equipment, and 3 to 10 years; furniture and fixtures – 5 years; and software – 3 to 7 years. years for software. Accelerated methods of depreciation are used for income tax purposes.
Goodwill – Goodwill represents the excess of acquisition cost over the fair value of the net assets purchased. Goodwill is tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment test involves comparing the estimated fair value of the reporting unit associated with the goodwill to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, goodwill must be adjusted to its implied fair value. During 20172019 and 20162018, the Company performed a quantitative test on its goodwill balances for impairment and no adjustments were recorded to goodwill as a result of those reviews.


Long-lived Assets – The Company periodically evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such review. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset for assets to be held and used. The Company also reviews the useful life of its long-lived assets when events and circumstances indicate that the actual useful life may be shorter than originally estimated. In the event that the actual useful life is deemed to be shorter than the original useful life, depreciation is adjusted prospectively so that the remaining book value is depreciated over the revised useful life. Refer to Note 3 for additional details surrounding the Company's restructuring activities impacting long-lived assets.
Asset groups classified as held for sale are measured at the lower of carrying amount or fair value less cost to sell, and a loss is recognized for any initial adjustment required to reduce the carrying amount to the fair value less cost to sell in the period the held for sale criteria are met. The fair value less cost to sell must be assessed each reporting period that the asset group remains classified as held for sale. Gains or losses not previously recognized resulting from the sale of an asset group will be recognized on the date of sale.
Product Warranty and Recall – The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except for Japan, where the Company provides a standard three-year limited warranty on all new motorcycles sold. In addition, the Company offers a one-year warranty for Parts & Accessories (P&A). The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company 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 liability were as follows (in thousands):
  2017 2016 2015
Balance, beginning of period $79,482
 $74,217
 $69,250
Warranties issued during the period 57,834
 60,215
 59,259
Settlements made during the period (82,554) (99,298) (96,529)
Recalls and changes to pre-existing warranty liabilities 39,438
 44,348
 42,237
Balance, end of period $94,200
 $79,482
 $74,217
The liability associated with recalls, including the amount recorded in 2017 in connection with the NHTSA matter discussed in Note 14, was $35.3 million, $13.6 million and $10.2 million at December 31, 2017, 2016 and 2015, respectively.
Derivative Financial Instruments – The Company is exposed to certain risks such as foreign currency exchange rate risk, interest rate risk and commodity price risk. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes.
All derivative instruments are recognized on the balance sheet at fair value (see Note 6). In accordance with ASC Topic 815, “Derivatives and Hedging,” the accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Changes in


the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative instruments that are designated as cash flow hedges, the effective portion of gains and losses that result from changes in the fair value of derivative instruments is initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, at both the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative instruments that do not qualify for hedge accounting are recorded at fair value and any changes in fair value are recorded in current period earnings. Refer to Note 7 for a detailed description of the Company’s derivative instruments.
Motorcycles and Related Products Revenue Recognition – Sales are recorded when title and ownership is transferred, which is generally when products are shipped to wholesale customers (independent dealers). The Company may offer sales incentive programs to both wholesale and retail customers designed to promote the sale of motorcycles and related products. The total costs of these programs are generally recognized as revenue reductions and are accrued at the later of the date the related sales are recorded or the date the incentive program is both approved and communicated.
Financial Services Revenue Recognition – Interest income on finance receivables is recorded as earned and is based on the average outstanding daily balance for wholesale and retail receivables. Accrued and uncollected interest is classified with finance receivables. Certain loan origination costs related to finance receivables, including payments made to dealers for certain retail loans, are deferred and recorded within finance receivables, and amortized over the estimated life of the contract.
Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed or the receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until either collected or charged-off. Accordingly, as of December 31, 2017 and 2016, all retail finance receivables are accounted for as interest-earning receivables.
Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Wholesale finance receivables are written down once management 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.
Insurance and protection product revenue, including revenue from the sale of extended service contracts, is recognized when contractually earned. Deferred revenue related to extended service contracts was $4.7 million and $4.5 million as of December 31, 2017 and 2016, respectively.
Research and Development Expenses – Expenditures for research activities relating to product development and improvementimprovements are charged against income as incurred and included within selling,Selling, administrative and engineering expenses inexpense on the consolidated statementConsolidated statements of income.income. Research and development expenses were $216.5 million, $191.6 million and $175.2 million for 2019, $172.3 million2018 and $161.2 million for 2017, 2016 and 2015, respectively.
Advertising Costs – The Company expenses the production cost of advertising the first time the advertising takes place.place within Selling, administrative and engineering expense. Advertising costs relate to the Company’s efforts to promote its products and brands through the use of media.media and other means. During 20172019, 20162018 and 20152017, the Company incurred $135.5$171.4 million, $137.4144.3 million and $119.8135.5 million in advertising costs, respectively.
Shipping and Handling Costs – The Company classifies shipping and handling costs as a component of Motorcycles and Related Products cost of goods sold.sold.
Share-Based Award Compensation Costs – The Company recognizes the cost of its share-based awards in its statement of income. The cost of each share-based equity award is based on the grant date fair value and the cost of each share-based cash-settled award is based on the settlement date fair value. Share-based award expense is recognized on a straight-line basis over the service or performance periods of the awards. The expense recognized reflects the number of awards that are ultimately expected to vest based on the service and, if applicable, performance requirements of each award. Total share-based award compensation expense recognized by the Company during 2017, 2016 and 2015 was $32.5 million, $32.3 million and $29.4 million, respectively, or $20.5 million, $20.4 million and $18.5 million net of taxes, respectively.
Income Tax Expense – The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.


New Accounting Standards
Accounting Standards Recently Adopted
In MarchFebruary 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09 Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 amends the guidance on several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The Company adopted ASU 2016-09 on January 1, 2017. The Company elected to apply the amendments related to the classification of excess tax benefits on the statement of cash flows on a prospective basis, and prior periods were not adjusted. The adoption of ASU 2016-09 did not have a material impact on the Company's consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value. ASU 2015-11 does not apply to inventory measured using the last-in, first-out method. The Company adopted ASU 2015-11 on January 1, 2017. The adoption of ASU 2015-11 did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers: Deferral of Effective Date (ASU 2015-14) to defer the effective date of the new revenue recognition standard by one year to fiscal years beginning after December 15, 2017 and interim periods therein. The Company will adopt the new revenue recognition guidance on January 1, 2018 using the modified retrospective method by recording the cumulative effect of initially applying the new standard as an increase of approximately $6 million to the opening balance of retained earnings. The on-going application of the new guidance is not expected to have a material impact on the Company's financial statements.
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 enhances the existing financial instruments reporting model by modifying fair value measurement tools, simplifying impairment assessments for certain equity instruments and modifying overall presentation and disclosure requirements. The Company is required to adopt ASU 2016-01 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a prospective basis. The Company does not expect the adoption of ASU 2016-01 to have a material impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (ASU 2016-02). ASU 2016-02 amends the existing 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 is required to adoptadopted ASU 2016-02 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018on January 1, 2019 using a modified retrospective approach. EarlyPursuant to ASU 2018-11, Leases (Topic 842): Targeted Improvements, the Company applied the new leases standard at the adoption is permitted. date and recognized a cumulative effect adjustment to the opening balance sheet on January 1, 2019.
The Company is currentlyelected 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 processinitial recognition of gatheringlease assets and analyzing information necessarylease liabilities related to quantify the impactCompany's leasing arrangements totaling approximately $60 million on January 1, 2019. The adoption of adopting ASU 2016-02 had no impact on opening retained earnings on January 1, 2019 and evaluatingis not expected to materially impact consolidated net income or cash flows on an ongoing basis.
In August 2017, the transition practical expedients it will apply upon adoption.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, among other things. The Company adopted ASU 2017-12 on January 1, 2019 on a prospective basis. 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-CreditInstruments - 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 towill adopt ASU 2016-13 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019effective January 1, 2020 on a modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2018. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. 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 has completed its work surrounding model development, documentation and validation as well as its evaluation of associated processes, data sources, internal controls and policies. The Company is currently evaluating the impact of adoption of ASU 2016-13 but anticipatesworking through its remaining steps for the adoption of ASU 2016-13, willwhich includes finalizing assumptions related to economic forecasts and appropriate qualitative factors and their associated processes and internal controls. The impact of adoption is expected to result in an initial increase in the annualallowance for credit losses, with a decrease in retained earnings net of taxes. 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 the related allowance for credit losses.
In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses eight specific cash flow issues with the objective of


reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement of cash flows. The standard provides guidance on the classificationcomposition of the following items: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investments, (7) beneficial interests in securitization transactions,Company's finance receivables portfolio, economic conditions, reasonable and (8) separately identifiable cash flows. The Company is required to adopt ASU 2016-15 for fiscal years,supportable forecasts, and for interim periods within those fiscal years, beginning after December 15, 2017 on a retrospective basis. Early adoption is permitted, including adoption in an interimother appropriate factors at each reporting period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its financial statements.
In October 2016, the FASB issued ASU No. 2016-16 Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). ASU 2016-16 states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Two common assets included in the scope of the ASU are intellectual property and property, plant and equipment. The Company is required to adopt ASU 2016-16 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 using a modified retrospective approach with a cumulative-effect adjustment to retained earnings. The Company does not expect the adoption of ASU 2016-16 to have a material impact on its financial statements.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As such, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company is required to adopt ASU 2016-18 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a retrospective basis. Early adoption is permitted, including adoption in an interim period. Subsequent to the adoption of ASU 2016-18, the change in restricted cash will be excluded from financing activities and included in the change in total cash which will include restricted cash in addition to cash and cash equivalents.

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. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

In March 2017,August 2018, the FASB issued ASU No. 2017-07 Compensation2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Retirement Benefits (Topic 715): ImprovingChanges to the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostDisclosure Requirements for Fair Value Measurement (ASU 2017-07)2018-13). ASU 2017-072018-13 amends ASC 715, Compensation - Retirement Benefits by requiring employers820 to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost will be presented separately from the line item that includes the service costeliminate, modify, and outside of any subtotal of operating income.add certain disclosure requirements for fair value measurements. The guidance also limits the components that are eligible for capitalization in assets. The Company is required to adopt ASU 2017-07 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which interim or annual financial statements have not been issued or made available for issuance. The amendments related to the presentation of the components of net periodic benefit cost should be applied retrospectively. The amendments related to the capitalization of certain components in assets should be applied prospectively. The Company's net periodic benefit cost components are disclosed in Note 12.

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 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, among other things. The Company is required to adopt ASU 2017-12effective for fiscal years beginning after December 15, 2018,2019 and for interim periods within those fiscal years. Early adoption is permitted in any interim period, after issuance offor either the ASU. For cash flow and net investment hedges existing atwhole standard or only the date of adoption, the Company must apply a cumulative-effect adjustment as of the beginning of the fiscal year in which the standard


is adopted.provisions that eliminate or modify requirements. The amendments related to presentation and disclosure are required prospectively.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 evaluatingdoes not expect the impact of adoption of ASU 2017-12.

2018-13 to have material impact on its disclosures.
In FebruaryAugust 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated2018-15, Intangibles - Goodwill and Other Comprehensive Income- Internal-Use Software (Subtopic 350-40) (ASU 2018-02)2018-15). UnderThe new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recordedinternal-use software guidance to determine which implementation costs to capitalize as a component of income taxassets or expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The amendments in this ASU also require certain disclosures about stranded tax effects.as incurred. The guidance is effective for fiscal years beginning after December 15, 2018,2019, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2018-15 to have a material impact on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (ASU No. 2019-12). The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. Early adoption in any period is permitted. The Company’s provisional adjustments recorded in 2017 to account for the impact of the 2017 Tax Cuts and Jobs Act resulted in stranded tax effects. The Company is currently evaluating the timing and impact of adopting ASU 2018-02.2019-12.
2. Revenue
The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer. Revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue.


Disaggregated revenue by major source was as follows for the years ended December 31, (in thousands):
 2019 2018
Motorcycles and Related Products Revenue:   
Motorcycles$3,538,269
 $3,882,963
Parts & accessories713,400
 754,663
General merchandise237,566
 241,964
Licensing35,917
 38,676
Other47,526
 50,380
 4,572,678
 4,968,646
Financial Services Revenue:   
Interest income678,205
 645,985
Securitization and servicing fee income599
 1,136
Other income110,307
 101,108
 789,111
 748,229
 $5,361,789
 $5,716,875

Motorcycles and Related Products
Motorcycles, Parts & Accessories, and General Merchandise – Revenues from the sale of motorcycles, parts & accessories, and general merchandise are recorded when control is transferred to the customer, generally at the time of shipment. The sale of products to independent dealers outside the U.S. and Canada is generally on open account with terms that approximate 30-120 days and the resulting receivables are included in Accounts receivable, net on the Consolidated balance sheets. The sale of products to independent dealers in the U.S. and Canada is financed through HDFS and the related receivables are included in Finance receivables, net on the Consolidated balance sheets.
The Company offers sales incentive programs to independent dealers and retail customers designed to promote the sale of motorcycles, parts & accessories, and general merchandise. The Company estimates its variable consideration sold under its sales incentive programs using the expected value method. The Company accounts for consideration payable to a customer as part of its sales incentives as a reduction of revenue, which is accrued at the later of the date the related sale is recorded or the date the incentive program is both approved and communicated.
The Company offers the right to return eligible parts & accessories and general merchandise. When the Company offers a right to return, it estimates returns based on an analysis of historical trends and records revenue on the initial sale only in the amount that it expects to be entitled. The remaining consideration is deferred in a refund liability account. The refund liability is remeasured for changes in the estimate at each reporting date with a corresponding adjustment to revenue.     
Variable consideration related to sales incentives and rights to return is adjusted at the earliest of when the amount of consideration the Company expects to receive changes or the consideration becomes fixed. Adjustments for variable consideration related to previously recognized sales were not material during 2019 and 2018.
Shipping and handling costs associated with freight after control of a product has transferred to a customer are accounted for as fulfillment costs. The Company accrues for the shipping and handling in the same period that the related revenue is recognized.
The Company offers standard, limited warranties on its motorcycles and parts & accessories. These warranties provide assurance that the product will function as expected and are not separate performance obligations. The Company accounts for estimated warranty costs as a liability when control of the product transfers to the customer.
Licensing – The Company licenses the Harley-Davidson name and other trademarks owned by the Company and collects royalties from its licensees. The trademark licenses are considered symbolic intellectual property, which grant the licensees a right to access the Company’s intellectual property. The Company satisfies its performance obligation over the license period, as the Company fulfills its promise to grant the licensees rights to use and benefit from the intellectual property as well as maintain the intellectual property.
Payment is typically due within thirty days of the end of each quarter for the royalties earned in that quarter. Revenue, in the form of sales-based royalties, is recognized when the licensees’ subsequent sales occur. The Company applies the practical expedient in ASC Topic 606, Revenue from Contracts with Customers, to recognize licensing revenues in the amount that the


Company has the right to invoice because the royalties due each period correspond directly with the value of the Company’s performance to date. Revenue will be recognized over the remaining contract terms which range up to 5 years.
Other Revenue – Other revenue consists primarily of revenue from Harley Owners Group (H.O.G.®) membership sales, motorcycle rental commissions, museum admissions and events, and other miscellaneous products and services.
Financial Services
Interest Income – Interest income on finance receivables is recorded as earned and is based on the average outstanding daily balance for wholesale and retail receivables. Accrued and uncollected interest is classified with Finance receivables, net. Certain loan origination costs related to finance receivables, including payments made to dealers for certain retail loans, are deferred and recorded within Finance receivables, net and amortized over the life of the contract.
Securitization and Servicing Fee Income – Securitization and servicing fee income consists of revenue from servicing and ancillary fees associated with HDFS' off-balance sheet asset-backed securitization transaction, discussed further in Note 12.
Other Income – Other income consists primarily of insurance and licensing revenues. HDFS works with certain unaffiliated insurance companies to offer motorcycle insurance and protection products through most Harley-Davidson independent dealers in the U.S. and Canada. HDFS also works with third-party financial institutions that issue credit cards or offer other financial products bearing the Harley-Davidson brand in the U.S. and internationally. For many of these contracts, the Company grants temporary rights to use the licensed trademarks owned by the Company and collects royalties from its customers in connection with sales of their products. The trademark licenses are considered symbolic intellectual property, which grant the customer a right to access the intellectual property. The Company satisfies its performance obligation over the license period, as it fulfills its promise to grant the customer rights to use and benefit from the intellectual property as well as maintain the intellectual property. Royalty and profit sharing amounts are received either quarterly or per annum, based upon the contract. Revenue, in the form of sales-based royalties, is recognized when the customers’ subsequent sales occur. Revenue will be recognized over the remaining contract terms which range up to 6 years. The Company is the primary obligor for certain other insurance related contracts and, as a result, revenue is recognized over the life of the contract as the Company fulfills its performance obligation.
Contract Liabilities
The Company also maintains certain deferred revenue balances related to payments received at contract inception in advance of the Company’s performance under the contract and generally relates to the sale of H.O.G. 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):
 2019 2018
Balance, beginning of period$29,055
 $23,441
Balance, end of period29,745
 29,055

Previously deferred revenue recognized as revenue in 2019 and 2018 was $26.3 million and $19.6 million, respectively. The Company expects to recognize approximately $15.8 million of the remaining unearned revenue in 2020 and $13.9 million thereafter.
3. 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 includes the consolidation of its 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 resulted in 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 resulted in the elimination of approximately 90 jobs.
The Motorcycles segment incurred $145.4 million of restructuring expenses and other consolidation costs under the Manufacturing Optimization Plan since its inception in 2018, including $43.0 million in 2019. Approximately 60% of total restructuring expenses and other consolidation costs under the Manufacturing Optimization Plan were cash charges.
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.


Restructuring expense related to the restructuring 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 during the years ended December 31, were as follows (in thousands):
 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 expense15
 14,684
 17,971
 32,670
 (317) 32,353
Utilized - cash(24,102) 
 (16,950) (41,052) (3,118) (44,170)
Utilized - non cash
 (14,684) (1,094) (15,778) 
 (15,778)
Foreign currency changes(6) 
 (4) (10) (26) (36)
Balance, end of period$865
 $
 $2
 $867
 $
 $867

 2018
 Manufacturing Optimization Plan Reorganization Plan  
 Employee Termination Benefits Accelerated Depreciation Other Total Employee Termination Benefits Total
Balance, beginning of period$
 $
 $
 $
 $
 $
Restructuring expense38,666
 34,654
 16,182
 89,502
 3,899
 93,401
Utilized - cash(13,060) 
 (16,095) (29,155) (444) (29,599)
Utilized - non cash
 (34,654) 
 (34,654) 
 (34,654)
Foreign currency changes(648) 
 (8) (656) 6
 (650)
Balance, end of period$24,958
 $
 $79
 $25,037
 $3,461
 $28,498

The Company incurred incremental Motorcycles and Related Products cost of goods sold due to temporary inefficiencies resulting from implementing the Manufacturing Optimization Plan during 2019 and 2018 of $10.3 million and $12.9 million, respectively.
4. Income Taxes
Provision for income taxes for the years ended December 31, consists of the following (in thousands):
 2019 2018 2017
Current:     
Federal$82,484
 $136,202
 $245,189
State6,421
 23,134
 24,898
Foreign23,328
 29,823
 21,138
 112,233
 189,159
 291,225
Deferred:     
Federal18,760
 (23,181) 47,046
State402
 (6,787) 2,688
Foreign2,385
 (4,013) 1,121
 21,547
 (33,981) 50,855
 $133,780
 $155,178
 $342,080

During 2017, the Company recorded income tax expense of $53.1 million in connection with the enactment of the “Tax Cuts and Jobs Act” (2017 Tax Act). The Company completed its accounting for all of the initial income tax effects of the 2017 Tax Act during 2018 which resulted in a reduction to income tax expense during 2018 of $1.5 million.


The 2017 Tax Act subjects U.S. shareholders to current tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries for which a company can elect to either recognize deferred taxes or to provide tax expense in the year incurred. The Company has elected to account for GILTI in the year the tax is incurred.
The components of Income before provision for income taxes for the years ended December 31, were as follows (in thousands):
 2019 2018 2017
Domestic$465,798
 $593,099
 $788,878
Foreign91,617
 93,530
 74,961
 $557,415
 $686,629
 $863,839

The Provision for income taxes differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate for the years ended December 31, due to the following items:
 2019 2018 2017
Provision at statutory rate21.0 % 21.0 % 35.0 %
State taxes, net of federal benefit2.5
 2.6
 1.9
Foreign rate differential0.3
 0.4
 (0.8)
Domestic manufacturing deduction
 
 (2.2)
Foreign derived intangible income(0.6) (1.2) 
Research and development credit(1.5) (1.1) (0.7)
Unrecognized tax benefits including interest and penalties0.1
 (0.6) 2.3
Valuation allowance adjustments1.4
 0.1
 (0.1)
State credits(0.8) 
 
Deferred tax balance remeasurement for rate change
 (1.2) 5.5
Territorial tax
 1.4
 (0.1)
Global intangible low-taxed income0.2
 0.4
 
Adjustments for previously accrued taxes(0.3) (1.0) (1.2)
Rate differential on intercompany transfers
 0.9
 
Executive compensation limitation0.5
 0.5
 
Other foreign inclusions0.8
 
 
Other0.4
 0.4
 
Provision for income taxes24.0 % 22.6 % 39.6 %



The principal components of the Company’s deferred income tax assets and liabilities as of December 31, include the following (in thousands):
 2019 2018
Deferred income tax assets:   
Accruals not yet tax deductible$95,746
 $108,284
Pension and postretirement healthcare plan obligations17,685
 48,347
Stock compensation11,867
 13,295
Net operating loss carryforward45,279
 34,842
Valuation allowance(29,024) (21,868)
Other, net64,833
 43,870
 206,386
 226,770
Deferred income tax liabilities:   
Depreciation, tax in excess of book(83,477) (79,326)
Other(29,840) (5,980)
 (113,317) (85,306)
 $93,069
 $141,464

The Company reviews its deferred income tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred income tax asset is considered, along with any positive or negative evidence including tax law changes. Since future financial results and tax law may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.
The Company's gross state operating loss carryforwards were as follows as of December 31, (in thousands):
Year of Expiration 2019
2031 $256,956
2033 166
2034 1,915
2038 4,460
2039 9,922
  $273,419

The Company also had Wisconsin research and development credit carryforwards of $18.1 million at December 31, 2019, expiring in 2024-2033.
At December 31, 2019, the Company had a deferred tax asset of $31.4 million related to its state operating loss and Wisconsin research and development credit carryforwards and a deferred tax asset of $13.8 million related to foreign net operating losses.
The Company's valuation allowance was $29.0 million at December 31, 2019 and included $9.6 million related to state operating loss and Wisconsin research and development credit carryforwards, $9.8 million related to foreign net operating losses and $9.6 million related to other deferred tax assets. The increase in the valuation allowance from prior year included $6.7 million related to state operating loss and Wisconsin research and development credit carryforwards and $0.4 million related to foreign net operating losses.


The Company recognizes interest and penalties related to unrecognized tax benefits in Provision for income taxes. Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows (in thousands):
 2019 2018
Unrecognized tax benefits, beginning of period$61,411
 $72,230
Increase in unrecognized tax benefits for tax positions taken in a prior period1,067
 940
Decrease in unrecognized tax benefits for tax positions taken in a prior period(5,608) (9,783)
Increase in unrecognized tax benefits for tax positions taken in the current period4,576
 3,355
Statute lapses(325) 
Settlements with taxing authorities(1,009) (5,331)
Unrecognized tax benefits, end of period$60,112
 $61,411

The amount of unrecognized tax benefits as of December 31, 2019 and 2018 that, if recognized, would affect the effective tax rate was $53.1 million and $53.7 million, respectively.
The total gross amount of benefit related to interest and penalties associated with unrecognized tax benefits recognized during 2019, 2018 and 2017 in the Consolidated statements of income was $0.1 million, $3.2 million and $2.8 million, respectively.
The total gross amount of interest and penalties associated with unrecognized tax benefits recognized at December 31, 2019 and 2018 in the Consolidated balance sheets was $27.6 million and $27.7 million, respectively.
The Company does not expect a significant change to the total amounts of unrecognized tax benefits related to continuing operations during the fiscal year ending December 31, 2020. However, the Company is under regular audit by tax authorities. The Company believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provision includes amounts sufficient to pay any assessments. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
The Company or one of its subsidiaries files income tax returns in the U.S. federal and Wisconsin state jurisdictions and various other state and foreign jurisdictions. The Company is no longer subject to income tax examinations for Wisconsin state income taxes before 2015 or for U.S. federal income taxes before 2014. The Company is currently under audit for U.S. federal income taxes for years 2015 and 2016.
5. Capital Stock and Earnings Per Share
Capital Stock – The Company is authorized to issue 2,000,000 shares of preferred stock of $1.00 par value, NaN of which is outstanding. The Company's common stock has a par value of $0.01 per share. Share information regarding the Company's common stock at December 31, was as follows:
 2019 2018
Common stock shares:   
Authorized800,000,000
 800,000,000
Issued182,816,536
 181,931,225
Outstanding152,468,442
 159,657,947
    
Treasury stock shares30,348,094
 22,273,278

Discretionary share repurchases during the years ended December 31, 2019, 2018 and 2017 were $286.7 million or 8.2 million shares, $382.0 million or 9.2 million shares, and $456.1 million or 8.7 million shares, respectively. Share repurchases of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units (RSUs) were $9.8 million or 0.3 million shares, $8.6 million or 0.2 million shares, and $9.2 million or 0.2 million shares during the years ended December 31, 2019, 2018 and 2017, respectively, discussed further in Note 17.
The Company paid cash dividends of $1.50, $1.48, and $1.46 per share during the years ended December 31, 2019, 2018, and 2017, respectively.


Earnings Per Share – The computation of basic and diluted earnings per share for the years ended December 31, was as follows (in thousands except per share amounts):
 2019 2018 2017
Net income$423,635
 $531,451
 $521,759
      
Basic weighted-average shares outstanding157,054
 165,672
 171,995
Effect of dilutive securities – employee stock compensation plan750
 832
 937
Diluted weighted-average shares outstanding157,804
 166,504
 172,932
Earnings per share:     
Basic$2.70
 $3.21
 $3.03
Diluted$2.68
 $3.19
 $3.02

Outstanding options to purchase 1.1 million, 1.1 million and 0.8 million shares of common stock during 2019, 2018 and 2017, 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 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 calculation as of December 31, 2019, 2018 and 2017.
6. Additional Balance Sheet and Cash Flow Information
The following information represents additional detail for selected line items includedCompany's investments in marketable securities consisted of the consolidated balance sheetsfollowing at December 31, and the statements of cash flows for the years ended December 31.
Balance Sheet Information:
Inventories, net (in thousands):
 2019 2018
Debt securities$
 $10,007
Mutual funds52,575
 44,243
 $52,575
 $54,250

  2017 2016
Raw materials and work in process $161,664
 $140,639
Motorcycle finished goods 289,530
 285,281
Parts and accessories and general merchandise 139,363
 122,264
Inventory at lower of FIFO cost or net realizable value 590,557
 548,184
Excess of FIFO over LIFO cost (52,355) (48,267)
Total inventories, net $538,202
 $499,917
Debt securities, 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, net consisted of the following as of December 31, (in thousands):
 2019 2018
Raw materials and work in process$235,433
 $177,110
Motorcycle finished goods280,306
 301,630
Parts & accessories and general merchandise144,258
 136,027
Inventory at lower of FIFO cost or net realizable value659,997
 614,767
Excess of FIFO over LIFO cost(56,426) (58,639)
 $603,571
 $556,128

Inventory obsolescence reserves deducted from FIFO cost were $38.749.3 million and $39.939.0 million as of December 31, 20172019 and 20162018, respectively.


Property, plant and equipment, at costnet consisted of the following as of December 31, (in thousands):
 2019 2018
Land and related improvements$75,798
 $73,025
Buildings and related improvements507,178
 483,965
Machinery and equipment1,609,582
 1,740,405
Software750,978
 733,180
Construction in progress148,805
 205,786
 3,092,341
 3,236,361
Accumulated depreciation(2,244,959) (2,332,229)
 $847,382
 $904,132

  2017 2016
Land and related improvements $70,256
 $65,533
Buildings and related improvements 464,454
 464,200
Machinery and equipment 1,890,126
 1,887,269
Software 660,090
 630,114
Construction in progress 200,396
 214,409
  3,285,322
 3,261,525
Accumulated depreciation (2,317,541) (2,279,932)
Total property, plant and equipment, net $967,781
 $981,593
Software, net of accumulated amortization, included in Property, plant and equipment, net, was $138.9 million and $159.0 million as of December 31, 2019 and 2018, respectively.
Accrued liabilities consisted of the following as of December 31, (in thousands):
 2019 2018
Payroll, employee benefits and related expenses$113,621
 $125,056
Sales incentive programs73,354
 57,525
Warranty and recalls57,068
 103,074
Accrued interest49,213
 47,977
Tax-related accruals29,871
 43,083
Leases19,013
 
Fair value of derivative financial instruments13,934
 5,316
Restructuring867
 28,498
Other225,347
 190,601
 $582,288
 $601,130



Accrued liabilities (in thousands):
  2017 2016
Payroll, employee benefits and related expenses $124,093
 $148,221
Warranty and recalls 75,089
 57,698
Sales incentive programs 48,309
 43,218
Tax-related accruals 25,944
 26,140
Fair value of derivative financial instruments 21,308
 142
Accrued interest 40,347
 42,788
Other 194,732
 168,445
Total accrued liabilities $529,822
 $486,652



Operating Cash Flow Information:
The reconciliation of netNet income to netNet cash provided by operating activities of continuing operations for the years ended December 31, is as follows (in thousands):
 2019 2018 2017
Cash flows from operating activities:     
Net income$423,635
 $531,451
 $521,759
Adjustments to reconcile Net income to Net cash provided by operating activities:     
Depreciation and amortization232,537
 264,863
 222,188
Amortization of deferred loan origination costs76,326
 81,315
 82,911
Amortization of financing origination fees9,823
 8,367
 8,045
Provision for long-term employee benefits13,344
 36,481
 29,900
Employee benefit plan contributions and payments(13,256) (10,544) (63,277)
Stock compensation expense33,733
 35,539
 32,491
Net change in wholesale finance receivables related to sales(5,822) (56,538) 35,172
Provision for credit losses134,536
 106,870
 132,444
Deferred income taxes21,547
 (33,981) 50,855
Other, net298
 37,554
 8,559
Changes in current assets and liabilities:     
Accounts receivable, net44,902
 9,143
 (18,149)
Finance receivables – accrued interest and other(11,119) 773
 (1,313)
Inventories, net(47,576) (31,059) (20,584)
Accounts payable and accrued liabilities(18,462) 196,192
 10,128
Derivative financial instruments1,936
 473
 1,866
Other(28,110) 29,022
 (27,934)
 444,637
 674,470
 483,302
Net cash provided by operating activities$868,272
 $1,205,921
 $1,005,061
Cash paid during the years ended December 31, for interest and income taxes was as follows (in thousands):
 2019 2018 2017
Interest$229,678
 $207,484
 $204,866
Income taxes$149,828
 $149,436
 $300,133

  2017 2016 2015
Cash flows from operating activities:      
Net income $521,759
 $692,164
 $752,207
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization of intangibles 222,188
 209,555
 198,074
Amortization of deferred loan origination costs 82,911
 86,681
 93,546
Amortization of financing origination fees 8,045
 9,252
 9,975
Provision for long-term employee benefits 29,900
 38,273
 60,824
Employee benefit plan contributions and payments (63,277) (55,809) (28,490)
Stock compensation expense 32,491
 32,336
 29,433
Net change in wholesale finance receivables related to sales 35,172
 (3,233) (113,970)
Provision for credit losses 132,444
 136,617
 101,345
Gain on off-balance sheet asset-backed securitization 
 (9,269) 
Loss on debt extinguishment 
 118
 1,099
Deferred income taxes 50,855
 (165) (16,484)
Other, net 8,559
 (6,907) 20,913
Changes in current assets and liabilities:      
Accounts receivable, net (18,149) (45,934) (13,665)
Finance receivables – accrued interest and other (1,313) (1,489) (3,046)
Inventories (20,584) 85,072
 (155,222)
Accounts payable and accrued liabilities 10,128
 38,237
 138,823
Derivative instruments 1,866
 (3,413) (5,615)
Other (27,934) (27,747) 30,371
Total adjustments 483,302
 482,175
 347,911
Net cash provided by operating activities $1,005,061
 $1,174,339
 $1,100,118
Cash paid during the period for interest and income taxes (in thousands):
  2017 2016 2015
Interest $204,866
 $185,804
 $148,654
Income taxes $300,113
 $356,553
 $371,547
Interest paid represents interest payments of HDFS (included in financial services interest expense) and interest payments of the Company, (includedincluded in Financial Services interest expense)expense and Interest expense on the Consolidated statements of income.
3.    Acquisition7. Finance Receivables
On August 4, 2015, the Company completed its purchase of certain assetsFinance receivables include both retail and liabilities from Fred Deeley Imports, Ltd. (Deeley Imports)wholesale finance receivables, including among other things, the acquisition of the exclusive right to distribute the Company's motorcycles and other products in Canada (Transaction) for total consideration of $59.9 million. The majority equity owner of Deeley Imports, prior to the transaction closing, was also a member of the Board of Directors of the Company. The acquisition of the Canadian distribution rights allowed the Company to align its distribution in Canada with its global go-to-market approach.
The financial impact of the acquisition, which was part of the Motorcycles segment, has been includedamounts held by consolidated VIEs. Finance receivables are recorded in the Company's consolidated financial statements from the dateat amortized cost net of acquisition. Proforma information reflecting this acquisition has not been disclosed as the proforma impact on consolidated net income was not material.


The following table summarizes the fair values of the Deeley Imports assets acquired and liabilities assumed at the date of acquisition (in thousands):
August 4, 2015
Current assets$11,088
Property, plant and equipment144
Intangible assets20,842
Goodwill28,567
   Total assets60,641
Current liabilities731
Net assets acquired$59,910
As noted above, in conjunction with the acquisition of certain assets and assumption of certain liabilities of Deeley Imports, the Company recorded goodwill of $28.6 million, all of which the Company believes is tax deductible, and intangible assets with an initial fair value of $20.8 million. Of the total intangible assets acquired, $13.3 million was assigned to reacquired distribution rights with a useful life of two years and $7.5 million was assigned to customer relationships with a useful life of twenty years. The Company agreed to reimburse Deeley Importsallowance for certain severance costs associated with the Transaction resulting in $3.3 million of expense included in selling, administrative and engineering expense in the third quarter of 2015. The Company did not acquire any cash as part of the Transaction.
4.    Goodwill and Intangible Assets
The following table summarizes changes in the carrying amount of goodwill in the Motorcycles segment for the following years ended December 31 (in thousands):
  2017 2016 2015
Balance, beginning of period $53,391
 $54,182
 $27,752
Business acquisitions 
 
 28,567
Currency translation 2,556
 (791) (2,137)
Balance, end of period $55,947
 $53,391
 $54,182
The following table summarizes the Motorcycles segment intangible assets other than goodwill at December 31 (in thousands):
  2017  
  Gross Carrying Amount Accumulated Amortization Net Estimated useful life (years)
Intangible assets other than goodwill        
   Reacquired distribution rights $13,933
 $(13,933) $
 2
   Customer relationships 7,860
 (950) 6,910
 20
Total other intangible assets $21,793
 $(14,883) $6,910
  
  2016  
  Gross Carrying Amount Accumulated Amortization Net Estimated useful life (years)
Intangible assets other than goodwill        
   Reacquired distribution rights $12,928
 $(9,157) $3,771
 2
   Customer relationships 7,293
 (517) 6,776
 20
Total other intangible assets $20,221
 $(9,674) $10,547
  

Intangible assets other than goodwill are included in other long-term assets on the Company's consolidated balance sheets. The gross carrying amounts at December 31 differ from the acquisition date amounts due to changes in foreign currency exchange rates.


Total amortization expense of other intangible assets was $4.2 million, $7.0 million and $2.8 million for 2017, 2016 and 2015, respectively. The Company estimates future amortization to be as follows (in thousands):
  Estimated Amortization
2018 $384
2019 384
2020 384
2021 384
2022 384
Thereafter 4,990
Total $6,910
The Financial Services segment had no goodwill or intangible assets at December 31, 2017 and 2016.
5.    Finance Receivables
Finance receivables, net at December 31 for the past five years were as follows (in thousands):
  2017 2016 2015 2014 2013
Wholesale          
United States $939,621
 $961,150
 $965,379
 $903,380
 $800,491
Canada 77,336
 65,440
 58,481
 48,941
 44,721
Total wholesale 1,016,957
 1,026,590
 1,023,860
 952,321
 845,212
Retail          
United States 5,901,002
 5,769,410
 5,803,071
 5,398,006
 5,051,245
Canada 239,598
 212,801
 188,400
 209,918
 213,799
Total retail 6,140,600
 5,982,211
 5,991,471
 5,607,924
 5,265,044
  7,157,557
 7,008,801
 7,015,331
 6,560,245
 6,110,256
Allowance for credit losses (192,471) (173,343) (147,178) (127,364) (110,693)
Total finance receivables, net $6,965,086
 $6,835,458
 $6,868,153
 $6,432,881
 $5,999,563
 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 motorcycles and related parts and accessories sales.credit losses.
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 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. As of December 31, 20172019 and 2016,2018, approximately 11% of gross outstanding retail finance receivables were originated in Texas; there were no other states that accounted for more than 10% of gross outstanding retail finance receivables.
The Company offers wholesale financing to the Company’s independent dealers. Wholesale loans to independent 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 motorcycles and related parts and accessories sales.


Finance receivables, net at December 31, were as follows (in thousands):
 2019 2018 2017 2016 2015
Retail finance receivables:         
United States$6,180,236
 $6,103,378
 $5,901,002
 $5,769,410
 $5,803,071
Canada236,192
 224,823
 239,598
 212,801
 188,400
 6,416,428
 6,328,201
 6,140,600
 5,982,211
 5,991,471
Wholesale finance receivables:         
United States1,067,880
 1,007,956
 939,621
 961,150
 965,379
Canada88,639
 75,659
 77,336
 65,440
 58,481

1,156,519
 1,083,615
 1,016,957
 1,026,590
 1,023,860
 7,572,947
 7,411,816
 7,157,557
 7,008,801
 7,015,331
Allowance for credit losses(198,581) (189,885) (192,471) (173,343) (147,178)
 $7,374,366
 $7,221,931
 $6,965,086
 $6,835,458
 $6,868,153

Approved but unfunded retail finance loans totaled $160.4 million and $154.8 million at December 31, 2019 and 2018, respectively. Unused lines of credit extended to the Company's wholesale finance customers totaled $1.27$1.14 billion and $1.32$1.21 billion at December 31, 20172019 and 2016, respectively. Approved but unfunded retail finance loans totaled $166.3 million and $177.9 million at December 31, 2017 and 2016,2018, respectively.


Wholesale finance receivables are generally contractually due within one year. On As of December 31, 20172019, contractual maturities of total finance receivables were as follows (in thousands):
 United States Canada Total
2020$2,177,277
 $138,251
 $2,315,528
20211,188,915
 52,390
 1,241,305
20221,329,148
 56,629
 1,385,777
20231,486,564
 61,211
 1,547,775
20241,061,450
 16,350
 1,077,800
Thereafter4,762
 
 4,762
 $7,248,116
 $324,831
 $7,572,947

  United States Canada Total
2018 $2,018,646
 $126,345
 $2,144,991
2019 1,160,372
 51,764
 1,212,136
2020 1,251,444
 56,173
 1,307,617
2021 1,250,821
 60,957
 1,311,778
2022 1,144,281
 21,695
 1,165,976
Thereafter 15,059
 
 15,059
Total $6,840,623
 $316,934
 $7,157,557
The 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 estimated 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.
The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes loss forecast models which consider a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates and current economic conditions including items such as unemployment rates. Retail finance receivables are not evaluated individually for impairment prior to charge-off and therefore are not reported as impaired loans
The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s evaluation for the wholesale allowance for credit losses is first based on a loan-by-loan review. A specific allowance for credit losses is established for wholesale finance receivables determined to be individually impaired when management concludes that the borrower will not be able to make full payment of 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.


The allowance for credit losses on finance receivables is comprised of individual components relating to wholesale and retail finance receivables. Changes in the allowance for credit losses on finance receivables by portfolio for the year ended December 31, were as follows (in thousands):
 2019
Retail Wholesale Total
Balance, beginning of period$182,098
 $7,787
 $189,885
Provision for credit losses132,243
 2,293
 134,536
Charge-offs(173,358) 
 (173,358)
Recoveries47,518
 
 47,518
Balance, end of period$188,501
 $10,080
 $198,581

 2018
Retail Wholesale Total
Balance, beginning of period$186,254
 $6,217
 $192,471
Provision for credit losses105,292
 1,578
 106,870
Charge-offs(154,433) (8) (154,441)
Recoveries44,985
 
 44,985
Balance, end of period$182,098
 $7,787
 $189,885

 2017
Retail Wholesale Total
Balance, beginning of period$166,810
 $6,533
 $173,343
Provision for credit losses132,760
 (316) 132,444
Charge-offs(160,972) 
 (160,972)
Recoveries47,656
 
 47,656
Balance, end of period$186,254
 $6,217
 $192,471

  2016
Retail Wholesale Total
Balance, beginning of period $139,320
 $7,858
 $147,178
Provision for credit losses 137,942
 (1,325) 136,617
Charge-offs (148,566) 
 (148,566)
Recoveries 41,405
 
 41,405
Other (a)
 (3,291) 
 (3,291)
Balance, end of period $166,810
 $6,533
 $173,343
  2015
Retail Wholesale Total
Balance, beginning of period $122,025
 $5,339
 $127,364
Provision for credit losses 98,826
 2,519
 101,345
Charge-offs (123,911) 
 (123,911)
Recoveries 42,380
 
 42,380
Balance, end of period $139,320
 $7,858
 $147,178

(a)Related to the sale of finance receivables during the second quarter of 2016 with a principal balance of $301.8 million through an off-balance sheet asset-backed securitization transaction (see Note 10 for additional information).



There were no finance receivables individually evaluated for impairment on December 31, 2017 or 2016. The allowance for credit losses and finance receivables by portfolio, collectively evaluated for impairment, at December 31 was as follows (in thousands):
  2017
  Retail Wholesale Total
Allowance for credit losses, ending balance:      
Individually evaluated for impairment $
 $
 $
Collectively evaluated for impairment 186,254
 6,217
 192,471
Total allowance for credit losses $186,254
 $6,217
 $192,471
Finance receivables, ending balance:      
Individually evaluated for impairment $
 $
 $
Collectively evaluated for impairment 6,140,600
 1,016,957
 7,157,557
Total finance receivables $6,140,600
 $1,016,957
 $7,157,557
  2016
  Retail Wholesale Total
Allowance for credit losses, ending balance:      
Individually evaluated for impairment $
 $
 $
Collectively evaluated for impairment 166,810
 6,533
 173,343
Total allowance for credit losses $166,810
 $6,533
 $173,343
Finance receivables, ending balance:      
Individually evaluated for impairment $
 $
 $
Collectively evaluated for impairment 5,982,211
 1,026,590
 7,008,801
Total finance receivables $5,982,211
 $1,026,590
 $7,008,801
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. As retailPortions 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.
Impaired finance receivables also include loans that have been modified in troubled debt restructurings as a concession to borrowers experiencing financial difficulty. 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 collectivelynot significant.


The allowance for credit losses and notfinance receivables by portfolio, segregated by those amounts that are individually reviewedevaluated for impairment this portfolio does not have specifically impaired finance receivables. At and those that are collectively evaluated for impairment, at December 31, 2017 and 2016, there were nowas as follows (in thousands):
 2019
 Retail Wholesale Total
Allowance for credit losses, ending balance:     
Individually evaluated for impairment$
 $2,100
 $2,100
Collectively evaluated for impairment188,501
 7,980
 196,481
 $188,501
 $10,080
 $198,581
Finance receivables, ending balance:     
Individually evaluated for impairment$
 $4,601
 $4,601
Collectively evaluated for impairment6,416,428
 1,151,918
 7,568,346
 $6,416,428
 $1,156,519
 $7,572,947
 2018
 Retail Wholesale Total
Allowance for credit losses, ending balance:     
Individually evaluated for impairment$
 $
 $
Collectively evaluated for impairment182,098
 7,787
 189,885
 $182,098
 $7,787
 $189,885
Finance receivables, ending balance:     
Individually evaluated for impairment$
 $
 $
Collectively evaluated for impairment6,328,201
 1,083,615
 7,411,816
 $6,328,201
 $1,083,615
 $7,411,816

Additional information related to the wholesale finance receivables that were on non-accrual status orare individually deemed to be impaired under ASC Topic 310, “Receivables.”Receivables at December 31, 2019 includes (in thousands):
 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized
Wholesale:         
No related allowance recorded$
 $
 $
 $
 $
Related allowance recorded4,994
 4,601
 2,100
 4,976
 
 $4,994
 $4,601
 $2,100
 $4,976
 $

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 either collected or charged-off.
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. The recorded investment of non-accrual status wholesale finance receivables at December 31, 2019 was $5.0 million. At December 31, 2019, $2.6 million of wholesale finance receivables were over 90 days or more past due and on non-accrual status. There were no wholesale receivables on non-accrual status at December 31, 2018.


An aging analysis of the aging of past due finance receivables at December 31, was as follows (in thousands):
 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$6,171,930
 $142,479
 $53,995
 $48,024
 $244,498
 $6,416,428
Wholesale financial receivables1,152,416
 1,145
 384
 2,574
 4,103
 1,156,519
 $7,324,346
 $143,624
 $54,379
 $50,598
 $248,601
 $7,572,947
  2017
  Current 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail $5,913,473
 $139,629
 $47,539
 $39,959
 $227,127
 $6,140,600
Wholesale 1,016,000
 595
 245
 117
 957
 1,016,957
Total $6,929,473
 $140,224
 $47,784
 $40,076
 $228,084
 $7,157,557

 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 financial receivables1,081,729
 522
 273
 1,091
 1,886
 1,083,615
 $7,181,915
 $137,467
 $50,098
 $42,336
 $229,901
 $7,411,816

  2016
  Current 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail $5,760,818
 $131,302
 $49,642
 $40,449
 $221,393
 $5,982,211
Wholesale 1,024,995
 1,000
 319
 276
 1,595
 1,026,590
Total $6,785,813
 $132,302
 $49,961
 $40,725
 $222,988
 $7,008,801


The recorded investment of retail and wholesale finance receivables, excluding non-accrual status finance receivables, that were contractually past due 90 days or more at December 31, for the past five years was as follows (in thousands):
 2019 2018 2017 2016 2015
United States$47,138
 $41,285
 $39,051
 $39,399
 $31,677
Canada888
 1,051
 1,025
 1,326
 1,192
 $48,026
 $42,336
 $40,076
 $40,725
 $32,869
  2017 2016 2015 2014 2013
United States $39,051
 $39,399
 $31,677
 $27,800
 $23,770
Canada 1,025
 1,326
 1,192
 1,118
 1,031
Total $40,076
 $40,725
 $32,869
 $28,918
 $24,801

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 of retail finance receivables, by credit quality indicator at December 31, was as follows (in thousands):
 2019 2018
Prime$5,278,093
 $5,183,754
Sub-prime1,138,335
 1,144,447
 $6,416,428
 $6,328,201
  2017 2016
Prime $4,966,193
 $4,768,420
Sub-prime 1,174,407
 1,213,791
Total $6,140,600
 $5,982,211

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 management’s review, the dealers classified in the Doubtful category are the dealers with the greatest likelihood of being charged-off, while the dealers classified as Low Risk are least likely to be charged-off. The internal rating system considers factors such as the specific 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 of wholesale finance receivables, by internal credit quality indicator at December 31, was as follows (in thousands):
 2019 2018
Doubtful$11,664
 $2,210
Substandard6,122
 9,660
Special Mention16,125
 10,299
Medium Risk16,800
 25,802
Low Risk1,105,808
 1,035,644
 $1,156,519
 $1,083,615
  2017 2016
Doubtful $688
 $1,333
Substandard 3,837
 1,773
Special Mention 26,866
 30,152
Medium Risk 9,917
 14,620
Low Risk 975,649
 978,712
Total $1,016,957
 $1,026,590

6.     Fair Value8. Goodwill and Intangible Assets
TheOn March 4, 2019, 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 similarpurchased certain assets and observable inputs suchliabilities of StaCyc, Inc. 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. Total consideration of the transaction was $14.9 million including cash paid at acquisition of $7.0 million. 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.
Changes in the carrying amount of goodwill in the Motorcycles segment for the years ended December 31, was as interest rates,follows (in thousands):
 2019 2018 2017
Balance, beginning of period$55,048
 $55,947
 $53,391
Acquisitions9,520
 
 
Currency translation(408) (899) 2,556
Balance, end of period$64,160
 $55,048
 $55,947

Intangible assets, excluding goodwill, included in the Motorcycles segment consist primarily of customer relationships and trademarks with useful lives ranging from 5 to 20 years. Intangible assets are amortized on a straight-line basis over their estimated useful lives. Intangible assets are recorded in Other long-term assets on the Consolidated balance sheets. The gross carrying amounts at December 31, 2019 and 2018 differ from the acquisition date amounts due to changes in foreign currency exchange rates,rates. Intangible assets at December 31, were as follows (in thousands):
 2019 2018 2017
Gross carrying amount$12,837
 $7,234
 $7,860
Accumulated amortization(2,240) (1,236) (950)
 $10,597
 $5,998
 $6,910

Amortization of intangible assets, excluding goodwill, is recorded in Selling, administrative and commodity prices. The Company usesengineering expense on the market approach to deriveConsolidated statements of income and was $0.9 million, $0.4 million and $4.2 million for 2019, 2018 and 2017, respectively. Future amortization of the fair value for its level 2 fair value


measurements. Forward contracts for foreign currency and commodities are valued using current quoted forward rates and prices; and investments in marketable securities and cash equivalents are valued using publicly quoted prices.
Level 3 inputs are not observable in the market and include management's judgments about the assumptions market participants would use in pricing the asset or liability.
Recurring Fair Value Measurements
The following tables present information about the Company’sCompany's intangible assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 is as follows (in thousands):
2020$1,061
20211,061
20221,061
20231,061
2024820
Thereafter5,533
 $10,597

  2017 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:        
Cash equivalents $488,432
 $358,500
 $129,932
 $
Marketable securities 48,006
 48,006
 
 
Derivatives 1,769
 
 1,769
 
Total $538,207
 $406,506
 $131,701
 $
Liabilities:        
Derivatives $21,308
 $
 $21,308
 $
  2016 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:        
Cash equivalents $531,519
 $426,266
 $105,253
 $
Marketable securities 43,638
 38,119
 5,519
 
Derivatives 29,034
 
 29,034
 
Total $604,191
 $464,385
 $139,806
 $
Liabilities:        
Derivatives $142
 $
 $142
 $
Nonrecurring Fair Value Measurements
Repossessed inventory is recorded at the lower of costThe Financial Services segment had 0 goodwill or net realizable value through a nonrecurring fair value measurement. Repossessed inventory was $19.6 million and $19.3 millionintangible assets at December 31, 20172019 and 2016, for which the fair value adjustment was $9.0 million and $9.3 million at December 31, 2017 and 2016, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.
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 at December 31 (in thousands):
  2017 2016
  Fair Value Carrying Value Fair Value Carrying Value
Assets:        
Finance receivables, net $7,021,549
 $6,965,086
 $6,921,037
 $6,835,458
Liabilities:        
Unsecured commercial paper $1,273,482
 $1,273,482
 $1,055,708
 $1,055,708
Asset-backed U.S. commercial paper conduit facilities $279,457
 $279,457
 $
 $
Asset-backed Canadian commercial paper conduit facility $174,779
 $174,779
 $149,338
 $149,338
Medium-term notes $4,189,092
 $4,165,706
 $4,139,462
 $4,064,940
Senior unsecured notes $784,433
 $741,961
 $744,552
 $741,306
Asset-backed securitization debt $351,767
 $352,624
 $797,688
 $796,275
Finance Receivables, Net – The carrying value of retail and wholesale finance receivables in the financial statements is amortized cost less an allowance for credit losses. The fair value of retail finance receivables is generally calculated by discounting future cash flows using an estimated discount rate that reflects current credit, interest rate and prepayment risks associated with similar types of instruments. Fair value is determined based on Level 3 inputs. The amortized cost basis of wholesale finance receivables approximates fair value because they either are short-term or have interest rates that adjust with changes in market interest rates.
Debt – The carrying value of debt in the financial statements is generally amortized cost, net of discounts and debt issuance costs. The carrying value of unsecured commercial paper calculated using Level 2 inputs approximates fair value due to its short maturity. The carrying value of debt provided under the U.S. conduit facilities and Canadian conduit facility calculated using Level 2 inputs approximates fair 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).2018.
7.


9. Derivative Financial Instruments and Hedging Activities
The Company is exposed to certain risks such asfrom fluctuations in foreign currency exchange rate risk,rates, interest rate riskrates and commodity price risk.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 Company's 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 operations. The Company's 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 an anticipated issuance of long-term debt, interest rate swaps to reduce the impact of fluctuations in interest rates on medium-term notes with floating interest rates, as well as cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on foreign denominated debt. The Company also utilizes interest rate caps to facilitate certain asset-backed securitization transactions.
All derivative financial instruments are recognized on the Consolidated balance sheetsheets at fair value. In accordance with ASC Topic 815, "DerivativesDerivatives and Hedging"(ASC Topic 815), the accounting for changes in the fair value of a derivative financial instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.
Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative financial instruments that are designated as cash flow hedges the effective portion of gains and losses that result from changes in the fair value of derivative instruments isare initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an on-goingongoing basis, whether the derivativesderivative financial instruments that are used in itscash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a hedging derivative financial instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative financial instruments that do not qualify for hedge accountingdesignated as hedges are recorded at fair valuenot speculative and any changes in fair value are recorded in current period earnings.
The Company sells its products internationally, and in most markets those sales are made in the foreign country’s local currency. As a result,used to manage the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relativeexposure to foreign currency. The Company utilizes foreign currency, exchange contracts to mitigate the effects of the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollarcommodity risks, and the Mexican peso. The foreign currency exchange contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate.


The Company utilizes commodity contracts to hedge portions of the cost of certain commodities consumed in the Company’s motorcycle production and distribution operations.
The Company’s foreign currency exchange contracts and commodity contracts generally have maturities of less than one year.
The Company entered into treasury rate lock contracts to fix the interest rate on a portion of the principal related to the issuance of long-term debt. The treasury rate lock contracts have since settled and the loss at settlement was recordedrisks. Changes in accumulated other comprehensive loss which is being reclassified into earnings over the life of the debt.
The following tables summarize the fair value of the Company’s derivative financial instruments not designated as hedging instruments are recorded directly in earnings.
The notional and recorded fair values of the Company's derivative financial instruments under ASC Topic 815, at December 31, were as follows (in thousands):
   2017 2016
 
Derivatives Designated As Hedging
Instruments Under ASC Topic 815
 
Notional
Value
 
Asset
Fair Value(a)
 
Liability
Fair Value(b)
 
Notional
Value
 
Asset
Fair Value(a)
 
Liability
Fair Value(b)
 
 
Foreign currency contracts(c)
 $675,724
 $1,388
 $21,239
 $554,551
 $28,528
 $142
 
Commodities contracts(c)
 915
 
 69
 992
 177
 
 Total $676,639
 $1,388
 $21,308
 $555,543
 $28,705
 $142
   2017 2016
 
Derivatives Not Designated As Hedging
Instruments Under ASC Topic 815
 
Notional
Value
 
Asset
Fair Value(a)
 
Liability
Fair Value(b)
 
Notional
Value
 
Asset
Fair Value(a)
 
Liability
Fair Value(b)
 
 Commodities contracts $4,532
 $381
 $
 $5,025
 $329
 $
 Total $4,532
 $381
 $
 $5,025
 $329
 $
  
Derivative Financial Instruments
Designated as Cash Flow Hedging Instruments
  2019 2018
  
Notional
Value
 
Other
Current Assets
 Accrued Liabilities 
Notional
Value
 
Other
Current Assets
 Accrued Liabilities
 
 Foreign currency contracts$434,321
 $3,505
 $3,661
 $442,976
 $15,071
 $313
 Commodity contracts616
 
 80
 827
 
 46
 Cross-currency swap660,780
 8,326
 
 
 
 
 Interest rate swaps900,000
 
 9,181
 900,000
 
 4,494
  $1,995,717
 $11,831
 $12,922
 $1,343,803
 $15,071
 $4,853
  
Derivative Financial Instruments
Not Designated as Hedging Instruments
  2019 2018
  
Notional
Value
 
Other
Current Assets
 Accrued Liabilities 
Notional
Value
 
Other
Current Assets
 Accrued Liabilities
 
 Foreign currency contracts$220,139
 $721
 $865
 $
 $
 $
 Commodity contracts8,270
 95
 147
 5,239
 
 463
 Interest rate cap375,980
 2
 
 
 
 
  $604,389
 $818
 $1,012
 $5,239
 $
 $463

(a)Included in other current assets
(b)Included in accrued liabilities
(c)Derivative designated as a cash flow hedge

The following tables summarize the amount of gains and losses for the following years ended December 31 related to derivative financial instruments designated as cash flow hedges for the years ended December 31, were as follows (in thousands):
  
Amount of Gain/(Loss)
Recognized in OCI, before tax
Cash Flow Hedges 2017 2016 2015
Foreign currency contracts $(53,964) $28,099
 $45,810
Commodities contracts (246) 77
 (421)
Treasury rate locks (719) 
 (7,381)
Total $(54,929) $28,176
 $38,008
 
Gain/(Loss)
Recognized in OCI
 
Gain/(Loss)
Reclassified from AOCL into Income
 2019 2018 2017 2019 2018 2017
Foreign currency contracts$8,235
 $41,657
 $(53,964) $21,433
 $11,492
 $(7,202)
Commodity contracts(103) 34
 (246) (70) 24
 
Cross-currency swap8,326
 
 
 12,156
 
 
Treasury rate locks
 41
 (719) (492) (498) (442)
Interest rate swaps(9,981) (6,046) 
 (5,295) (1,552) 
 $6,477
 $35,686
 $(54,929) $27,732
 $9,466
 $(7,644)
   
Amount of Gain/(Loss)
Reclassified from AOCL into Income
 Cash Flow Hedges 2017 2016 2015 
Expected to be Reclassified
Over the Next Twelve Months
 
 
Foreign currency contracts(a)
 $(7,202) $18,253
 $59,730
 $(20,178)
 
Commodities contracts(a)
 
 (258) (677) (69)
 
Treasury rate locks(b)
 (442) (362) (151) (506)
 Total $(7,644) $17,633
 $58,902
 $(20,753)
(a)Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) to income is included in cost of goods sold
(b)Gain/(loss) reclassified from AOCL to income is included in interest expense
For the years ended December 31, 2017The location and2016, the cash flow hedges were highly effective and, as a result, the amount of hedge ineffectiveness was not material. No amounts were excluded from effectiveness testing.


The following table summarizes the amount of gains and losses recognized in income related to derivative financial instruments designated as cash flow hedges for the years ended December 31, were as follows (in thousands):
 
Motorcycles
cost of goods sold
 
Selling, administrative &
engineering expense
 Interest expense Financial Services interest expense
 2019
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded$3,229,798
 $1,199,056
 $31,078
 $210,438
        
Gain/(loss) reclassified from AOCL into income:       
Foreign currency contracts$21,433
 $
 $
 $
Commodity contracts$(70) $
 $
 $
Cross-currency swap$
 $12,156
 $
 $
Treasury rate locks$
 $
 $(362) $(130)
Interest rate swaps$
 $
 $
 $(5,295)
 2018
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded$3,351,796
 $1,258,098
 $30,884
 $193,187
        
Gain/(loss) reclassified from AOCL into income:       
Foreign currency contracts$11,492
 $
 $
 $
Commodity contracts$24
 $
 $
 $
Treasury rate locks$
 $
 $(362) $(136)
Interest rate swaps$
 $
 $
 $(1,552)
 2017
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded$3,272,330
 $1,180,176
 $31,004
 $180,193
        
Gain/(loss) reclassified from AOCL into income:       
Foreign currency contracts$(7,202) $
 $
 $
Treasury rate locks$
 $
 $(362) $(80)
The amount of net gain included in Accumulated other comprehensive loss (AOCL) at December 31, 2019, estimated to be reclassified into income over the next twelve months was $16.4 million.


The amount of gains and losses recognized in income related to derivative financial instruments not designated as hedging instruments were as follows (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
 2019 2018 2017
Foreign currency contracts$191
 $
 $
Commodity contracts17
 (430) 503
Interest rate cap(143) 
 
 $65
 $(430) $503
The Company is exposed to credit loss risk in the event of non-performance by counterparties to its derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to its derivative financial instruments to fail to meet their 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 their position.
10. 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 liability 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.
The Company has operating lease arrangements for sales and administrative offices, manufacturing and distribution facilities, product testing facilities, equipment and vehicles. The Company’s leases have remaining lease terms ranging from 1 to 13 years, some of which include options to extend the lease term 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 year ended December 31, 2019 was $27.4 million. This includes variable lease costs related to leases involving assets operated by a third-party of approximately $6.5 million. Other variable and short-term lease costs were not material.
Balance sheet information related to the Company's leases at December 31, was as follows (in thousands):
  
Amount of Gain/(Loss)
Recognized in Income on Derivative
Derivatives not Designated as Hedges 2017 2016 2015
Commodities contracts(a)
 $503
 $167
 $(648)
Total $503
 $167
 $(648)
 2019
Lease assets$61,618
  
Accrued liabilities$19,013
Lease liabilities44,447
 $63,460



Future maturities of the Company's operating lease liabilities at December 31, 2019 were as follows (in thousands):
2020$20,755
202117,972
202213,268
20236,590
20244,587
Thereafter4,589
Future lease payments67,761
Present value discount(4,301)
Lease liability$63,460

Other lease information surrounding the Company's operating leases as of December 31, was as follows (dollars in thousands):
 2019
Cash outflows for amounts included in the measurement of lease liabilities$21,491
Right-of-use assets obtained in exchange for lease obligations$21,759
(a)Gain/(loss) recognized in income is included in cost of goods sold2019
Weighted-average remaining lease term (in years)4.68
Weighted-average discount rate2.1%

8.    Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (AOCL) for the years ended December 31 (in thousands):
  2017
  Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $(68,132) $(1,194) $12,524
 $(508,579) $(565,381)
Other comprehensive income (loss) before reclassifications 52,145
 1,896
 (54,929) 24,321
 23,433
Income tax (5,865) (702) 20,338
 (5,711) 8,060
Net other comprehensive income (loss) before reclassifications 46,280
 1,194
 (34,591) 18,610
 31,493
Reclassifications:          
Realized (gains) losses - foreign currency contracts(a)
 
 
 7,202
 
 7,202
Realized (gains) losses - treasury rate locks(b)
 
 
 442
 
 442
Prior service credits(c)
 
 
 
 (1,153) (1,153)
Actuarial losses(c)
 
 
 
 47,254
 47,254
Total before tax 
 
 7,644
 46,101
 53,745
Income tax benefit 
 
 (2,831) (17,075) (19,906)
Net reclassifications 
 
 4,813
 29,026
 33,839
Other comprehensive income (loss) 46,280
 1,194
 (29,778) 47,636
 65,332
Balance, end of period $(21,852) $
 $(17,254) $(460,943) $(500,049)


  2016
  Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $(58,844) $(1,094) $5,886
 $(561,153) $(615,205)
Other comprehensive (loss) income before reclassifications (7,591) (159) 28,176
 33,937
 54,363
Income tax (1,697) 59
 (10,436) (12,570) (24,644)
Net other comprehensive (loss) income before reclassifications (9,288) (100) 17,740
 21,367
 29,719
Reclassifications:          
Realized (gains) losses - foreign currency contracts(a)
 
 
 (18,253) 
 (18,253)
Realized (gains) losses - commodities contracts(a)
 
 
 258
 
 258
Realized (gains) losses - treasury rate lock(b)
 
 
 362
 
 362
Prior service credits(c)
 
 
 
 (1,784) (1,784)
Actuarial losses(c)
 
 
 
 49,888
 49,888
Curtailment and settlement losses(c)
 
 
 
 1,463
 1,463
Total before tax 
 
 (17,633) 49,567
 31,934
Income tax expense (benefit) 
 
 6,531
 (18,360) (11,829)
Net reclassifications 
 
 (11,102) 31,207
 20,105
Other comprehensive (loss) income (9,288) (100) 6,638
 52,574
 49,824
Balance, end of period $(68,132) $(1,194) $12,524
 $(508,579) $(565,381)
  2015
  Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $(3,482) $(700) $19,042
 $(529,803) $(514,943)
Other comprehensive (loss) income before reclassifications (48,309) (626) 38,008
 (106,059) (116,986)
Income tax (7,053) 232
 (14,079) 39,284
 18,384
Net other comprehensive (loss) income before reclassifications (55,362) (394) 23,929
 (66,775) (98,602)
Reclassifications:          
Realized (gains) losses - foreign currency contracts(a)
 
 
 (59,730) 
 (59,730)
Realized (gains) losses - commodities contracts(a)
 
 
 677
 
 677
Realized (gains) losses - treasury rate lock(b)
 
 
 151
 
 151
Prior service credits(c)
 
 
 
 (2,782) (2,782)
Actuarial losses(c)
 
 
 
 58,680
 58,680
Curtailment and settlement losses(c)
 
 
 
 368
 368
Total before tax 
 
 (58,902) 56,266
 (2,636)
Income tax expense (benefit) 
 
 21,817
 (20,841) 976
Net reclassifications 
 
 (37,085) 35,425
 (1,660)
Other comprehensive loss (55,362) (394) (13,156) (31,350) (100,262)
Balance, end of period $(58,844) $(1,094) $5,886
 $(561,153) $(615,205)

(a)Amounts reclassified to net income are included in Motorcycles and Related Products cost of goods sold.
(b)Amounts reclassified to net income are presented in interest expense.


(c)Amounts reclassified are included in the computation of net periodic benefit cost. See Note 12 for information related to pension and postretirement benefit plans.
9.11. Debt
Debt with a contractual term less than one year is generally classified as short-term debt and consisted of the following as ofat December 31, (in thousands):
 2019 2018
Unsecured commercial paper$571,995
 $1,135,810

  2017 2016
Unsecured commercial paper $1,273,482
 $1,055,708
Total short-term debt $1,273,482
 $1,055,708
Debt with a contractual term greater than one year is generally classified as long-term debt and consisted of the following as ofat December 31, (in thousands):
   2019 2018
Secured debt:     
Asset-backed Canadian commercial paper conduit facility  $114,693
 $155,951
Asset-backed U.S. commercial paper conduit facilities  490,427
 582,717
Asset-backed securitization debt  766,965
 95,216
Unamortized discounts and debt issuance costs  (2,573) (49)
   1,369,512
 833,835

  2017 2016
Secured debt (Note 10)    
Asset-backed Canadian commercial paper conduit facility $174,779
 $149,338
Asset-backed U.S. commercial paper conduit facilities 279,457
 
Asset-backed securitization debt 353,085
 797,755
Less: unamortized discount and debt issuance costs (461) (1,480)
Total secured debt 806,860
 945,613
     
Unsecured notes (at par value)    
2.70% Medium-term notes due in 2017, issued January 2012 
 400,000
1.55% Medium-term notes due in 2017, issued November 2014 
 400,000
6.80% Medium-term notes due in 2018, issued May 2008 877,488
 877,488
2.25% Medium-term notes due in 2019, issued January 2016 600,000
 600,000
       Floating-rate Medium-term notes due in 2019, issued March 2017(a)
 150,000
 
2.40% Medium-term notes due in 2019, issued September 2014 600,000
 600,000
2.15% Medium-term notes due in 2020, issued February 2015 600,000
 600,000
2.40% Medium-term notes due in 2020, issued March 2017 350,000
 
2.85% Medium-term notes due in 2021, issued January 2016 600,000
 600,000
2.55% Medium-term notes due in 2022, issued June 2017 400,000
 
3.50% Senior unsecured notes due in 2025, issued July 2015 450,000
 450,000
4.625% Senior unsecured notes due in 2045, issued July 2015 300,000
 300,000
Less: unamortized discount and debt issuance costs (19,821) (21,242)
Gross long-term debt 5,714,527
 5,751,859
Less: current portion of long-term debt, net of unamortized discount and issuance costs (1,127,269) (1,084,884)
Total long-term debt $4,587,258
 $4,666,975

(a)    Floating interest rate based on LIBOR plus 35 bps.
A summary of the
   2019 2018
Unsecured notes (at par value):     
Medium-term notes:     
Due in 2019, issued January 20162.25% 
 600,000
Due in 2019, issued March 2017LIBOR + 0.35%
 
 150,000
Due in 2019, issued September 20142.40% 
 600,000
Due in 2020, issued February 20152.15% 600,000
 600,000
Due in 2020, issued May 2018LIBOR + 0.50%
 450,000
 450,000
Due in 2020, issued March 20172.40% 350,000
 350,000
Due in 2021, issued January 20162.85% 600,000
 600,000
Due in 2021, issued in November 2018LIBOR + 0.94%
 450,000
 450,000
Due in 2021, issued May 20183.55% 350,000
 350,000
Due in 2022, issued February 20194.05% 550,000
 
Due in 2022, issued June 20172.55% 400,000
 400,000
Due in 2023, issued February 20183.35% 350,000
 350,000
Due in 2024, issued November 2019(a)
3.14% 672,936
 
Unamortized discounts and debt issuance costs  (12,809) (12,993)
   4,760,127
 4,887,007
Senior notes:     
Due in 2025, issued July 20153.50% 450,000
 450,000
Due in 2045, issued July 20154.625% 300,000
 300,000
Unamortized discounts and debt issuance costs  (6,704) (7,376)
   743,296
 742,624
   5,503,423
 5,629,631
Long-term debt  6,872,935
 6,463,466
Current portion of long-term debt, net  (1,748,109) (1,575,799)
Long-term debt, net  $5,124,826
 $4,887,667

(a)Euro denominated €600.0 million par value remeasured to U.S. dollar at December 31, 2019
The Company’s expectedfuture principal payments foron debt obligations as of December 31, 2017 is2019 were as follows (in thousands):


2020$2,326,688
20211,751,129
20221,351,281
2023614,982
2024672,936
Thereafter750,000
 $7,467,016

2018 $2,405,569
2019 1,594,518
2020 1,098,489
2021 721,705
2022 438,010
Thereafter 750,000
Total $7,008,291
Unsecured Commercial Paper Commercial paper maturities may range up to 365 days from the issuance date. The weighted-average interest rate of outstanding commercial paper balances was 1.48%1.94% and 0.93%2.79% at December 31, 20172019 and 2016,2018, respectively.
Credit Facilities In May 2017,2019, the Company entered into a $100.0$195.0 million 364-day credit facility which matures in April 2018.May 2020. The Company also has a $675.0$780.0 million five-year credit facility which matures in April 20192023 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 interest rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based on the average daily unused portion of the aggregate commitments under the Global Credit Facilities. The Global Credit Facilities are committed facilities and primarily used to support the Company's unsecured commercial paper program. Additionally, during the second quarter of 2017, the Company renewed its $25.0 million credit facility which expired in May 2017.


Unsecured Notes The $25.0 million credit facility bears interest at variable interest rates, and the Company must pay a fee based on the unused portion of the $25.0 million commitment. The credit facility expires in May 2018.
All of the Company'sfixed-rate unsecured notes provide for semi-annual interest payments and principalthe floating-rate unsecured notes provide for quarterly interest payments. Principal on the unsecured notes is due at maturity.
During 2017, the Company did not repurchase anyJanuary, March, and September of its medium-term notes. During 2016 and 2015, the Company repurchased an aggregate of $1.2 million and $9.3 million, respectively, of its 6.80% medium-term notes which mature in June 2018. As a result, the Company recognized in financial services interest expense $0.1 million and $1.12019, $600.0 million of loss on extinguishment of debt, respectively, which included unamortized discounts and fees. During March and November 2017, $400.02.25%, $150.0 million of 2.70%floating-rate, and $400.0$600.0 million of 1.55%2.40% medium-term notes matured, respectively, and the principal and accrued interest were paid in full. During June 2018, $877.5 million of 6.80% medium-term notes matured, and the principal and accrued interest were paid in full.
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 Notesmedium-term and senior 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’HDFS' ability to:
Assume or incur certain liens;
Participate in certain mergers or consolidations; and
Purchase or hold margin stock.
Under the current financial covenants of the Global Credit Facilities, the ratio of HDFS’ consolidated debt, excluding secured debt, to HDFS’ consolidated shareholders' equity, ratio of HDFSexcluding accumulated other comprehensive loss (AOCL), cannot exceed 10.0010.0 to 1.001.0 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 excluding the debtexcludes that of HDFS and its subsidiaries, and the Company's consolidated shareholders’ equity excluding AOCL), cannot exceed 0.700.7 to 1.001.0 as of the end of any fiscal quarter. No financial covenants are required under the Notesmedium-term and senior or the U.S. or Canadian asset-backed commercial paper conduit facilities.
At December 31, 20172019 and 2016,2018, HDFS and the Company remained in compliance with all of thesethe then existing covenants.
10.12. Asset-Backed Financing
The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. See Note 1 for more information onIn 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 (ASC Topic 860). 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 table shows the assets and liabilities related to the on-balance sheet asset-backed financings included in the financial statements Consolidated balance sheets at December 31, were as follows (in thousands):
 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$826,047
 $(24,935) $36,037
 $778
 $837,927
 $764,392
Asset-backed U.S. commercial paper conduit facilities533,587
 (16,076) 27,775
 1,642
 546,928
 490,427
Unconsolidated VIEs:           
Asset-backed Canadian commercial paper conduit facility232,699
 (2,786) 7,686
 296
 237,895
 114,693
 $1,592,333
 $(43,797) $71,498
 $2,716
 $1,622,750
 $1,369,512
 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 facilities631,588
 (18,733) 30,012
 1,234
 644,101
 582,717
Unconsolidated VIEs:           
Asset-backed Canadian commercial paper conduit facility181,774
 (3,130) 8,779
 343
 187,766
 155,951
 $972,080
 $(26,554) $55,982
 $1,906
 $1,003,414
 $833,835

 2017
 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$439,301
 $(13,686) $34,919
 $1,260
 $461,794
 $352,624
Asset-backed U.S. commercial paper conduit facilities300,530
 (9,392) 13,787
 888
 305,813
 279,457
Unconsolidated VIEs           
Asset-backed Canadian commercial paper conduit facility203,691
 (3,746) 9,983
 470
 210,398
 174,779
Total on-balance sheet assets and liabilities$943,522
 $(26,824) $58,689
 $2,618
 $978,005
 $806,860
            
 2016
 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$893,804
 $(25,468) $57,057
 $2,452
 $927,845
 $796,275
Asset-backed U.S. commercial paper conduit facilities
 
 
 329
 329
 
Unconsolidated VIEs           
Asset-backed Canadian commercial paper conduit facility165,719
 (3,573) 10,090
 426
 172,662
 149,338
Total on-balance sheet assets and liabilities$1,059,523
 $(29,041) $67,147
 $3,207
 $1,100,836
 $945,613
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 transactions and are not available to pay other obligations or claims of the Company’s creditors until the associated secured debt and other obligations are satisfied. Restricted cash balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual livesnotes have various contractual maturities ranging from 20192020 to 2022.2026.
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.
During 2019, the Company transferred $539.1 million and $580.2 million, respectively, of U.S. retail motorcycle finance receivables to SPEs. The SPEs in turn 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 no0 on-balance sheet asset-backed securitization transactions during 2017 or 2016.2018. At December 31, 2017,2019, the Company's consolidatedConsolidated balance sheetsheets included outstanding balances related to the following secured notes with the related maturity dates and interest rates (in thousands):
Issue Date 
Principal Amount
at Date of Issuance
 
Weighted-Average Rate
at Date of Issuance
 Contractual Maturity Date
June 2019 $525,000 2.37% July 2020 - November 2026
May 2019 $500,000 3.05% July 2026
Issue Date 
Principal
Amount at Date of Issuance
 
Weighted-Average
Rate at Date of
Issuance
 Contractual Maturity Date
May 2015 $500,000 0.88% May 2016 - December 2022
January 2015 $700,000 0.89% February 2016 - August 2022
April 2014 $850,000 0.66% April 2015 - October 2021




In addition, outstanding balances related to the following secured notes included in the Company's consolidatedConsolidated balance sheet sheets at December 31, 20162018 were repaid during 20172019 (in thousands):
Issue Date 
Principal Amount
at Date of Issuance
 
Weighted-Average Rate
at Date of Issuance
 Contractual Maturity Date
May 2015 $500,000 0.88% May 2016 - December 2022
January 2015 $700,000 0.89% February 2016 - August 2022

 Issue Date 
Principal
Amount at Date of Issuance
 
Weighted-Average
Rate at Date of
Issuance
 Contractual Maturity Date
 
 April 2013 $650,000 0.57% May 2014 - December 2020
For the years ended December 31, 20172019 and 20162018, interest expense on the secured notes was $7.913.3 million and $13.13.2 million, respectively, which is included in financial servicesFinancial Services interest expense.expense. The weighted average interest rate of the outstanding on-balance sheet asset-backed securitization transactions was 1.53%2.36% and 1.31%1.67% at December 31, 20172019 and 20162018, respectively.
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 May 2019, the Company amended its $300.0 million revolving facility agreement to allow for incremental borrowings, at the lender's discretion, of up to an additional $300.0 million in excess of the $300.0 million commitment. 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. On December 13, 2017,November 27, 2019, the Company renewed its existing $300.0$600.0 million and $600.0amended $300.0 million revolving facility agreements with a third partythird-party bank-sponsored asset-backed U.S. commercial paper conduit.conduits. 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 Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to the third party bank-sponsored asset-backed commercial paper conduit. 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 of $900.0 million.commitment. There is no amortization schedule; however, the debt will be 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, the U.S. Conduit Facilities have an expiration date of December 12, 2018.November 25, 2020.
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.

During 2017, the Company transferred $429.7 millionThe following table includes quarterly transfers of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $383.3 million of debt under the U.S. Conduit Facilities. The VIE did not borrowFacilities and the respective proceeds (in thousands):
 2019 2018
 Transfers Proceeds Transfers Proceeds
First quarter$
 $
 $32,900
 $29,300
Second quarter
 
 59,100
 53,300
Third quarter174,400
 154,600
 
 
Fourth quarter
 
 400,200
 356,800
 $174,400
 $154,600
 $492,200
 $439,400

For the years ended December 31, 2019 and 2018, interest expense under the U.S. Conduit Facilities during 2016was $18.5 million and did not have an outstanding balance at December 31, 2016. The contractual maturity of the debt$10.9 million, respectively, which is approximately 5 years.
For the year ended December 31, 2017, the Company recordedincluded in Financial Services interest expense of $7.1 million under the U.S. Conduit Facilities.. The weighted average interest rate of the outstanding U.S. Conduit Facilities was 2.33%2.63% and 3.26% at December 31, 20172019and 2018, respectively.For the year ended December 31, 2016, interest expense was $1.3 million related to the unused portion of the total aggregate commitment. Interest expense on the U.S. Conduit Facilities is included in financial services interest expense.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility
In June 2017,2019, the Company amendedrenewed 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 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 contractual maturityexpected remaining term of the debtrelated receivables is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, the Canadian Conduit expires on June 30, 2018.



During 2017 and 2016, the Company transferred $105.4 million and $71.1 million, respectively, of Canadian retail motorcycle finance receivables to the Canadian Conduit for proceeds of $87.0 million and $62.4 million, respectively.    

For the years ended December 31, 2017 and 2016, the Company recorded interest expense of $2.6 million and $2.7 million, respectively, on the secured notes. Interest expense on the Canadian Conduit is included in financial services interest expense. The weighted average interest rate of the outstanding Canadian Conduit was 1.96% and 1.84% at December 31, 2017 and 2016.26, 2020.
The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company doesn’tdoes 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 doesn’tdoes 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 receivables and underlying collateral have no residual value, is $35.6$123.2 million at December 31, 2017.2019. The maximum exposure is not an indication of the Company's expected loss exposure.
The following table includes quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds (in thousands):
 2019 2018
 Transfers Proceeds Transfers Proceeds
First quarter$
 $
 $7,600
 $6,200
Second quarter28,200
 23,400
 38,900
 32,200
Third quarter
 
 
 
Fourth quarter
 
 39,000
 32,200
 $28,200
 $23,400
 $85,500
 $70,600

For the years ended December 31, 2019 and 2018, interest expense on the Canadian Conduit was $3.6 million and $3.8 million, respectively, which is included in Financial Services interest expense. The weighted average interest rate of the outstanding Canadian Conduit was 2.68% at December 31, 2019 and 2018.
Off-Balance Sheet Asset-Backed Securitization VIE
There were no off-balance sheet asset-backed securitization transactions during the yearyears ended December 31, 2019, 2018 and 2017. 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 ana 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 term 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’sConsolidated balance sheetsheets 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 servicesFinancial Services revenue in the Consolidated Statementstatements of Income.income.


At December 31, 2017,2019, the assets of this off-balance sheet asset-backed securitization VIE were $146.4$35.2 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 December 31, 2017.2019. 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 financing,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 Statementstatements of Income.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 $1.9$0.6 million and $1.6$1.1 million for the years ended December 31, 20172019 and December 31, 2016,2018, respectively.


The unpaid principal balance of serviced retail motorcycle finance receivables serviced by the Company at December 31, was as follows (in thousands):
2017 20162019 2018
On-balance sheet retail motorcycle finance receivables$5,993,185
 $5,839,467
$6,274,551
 $6,185,350
Off-balance sheet retail motorcycle finance receivables146,425
 236,706
35,197
 79,613
Total serviced retail motorcycle finance receivables$6,139,610
 $6,076,173
$6,309,748
 $6,264,963
The unpaid principal balance of servicedretail motorcycle finance receivables serviced by the Company 30 days or more delinquent at December 31, was as follows (in thousands):
Amount 30 days or more past due:Amount 30 days or more past due
2017 20162019 2018
On-balance sheet retail motorcycle finance receivables$227,127
 $221,393
$244,498
 $228,015
Off-balance sheet retail motorcycle finance receivables2,106
 1,858
885
 1,658
Total serviced retail motorcycle finance receivables$229,233
 $223,251
$245,383
 $229,673
Credit losses, net of recoveries for the servicedretail motorcycle finance receivables serviced by the Company, for the years ended December 31, were as follows (in thousands):
 2019 2018
On-balance sheet retail motorcycle finance receivables$125,840
 $109,448
Off-balance sheet retail motorcycle finance receivables458
 907
 $126,298
 $110,355
 2017 2016
On-balance sheet retail motorcycle finance receivables$113,316
 $107,161
Off-balance sheet retail motorcycle finance receivables1,191
 820
Total serviced retail motorcycle finance receivables$114,507
 $107,981

11.    Income Taxes13. 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, cross-currency swaps, 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 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.

On
Recurring Fair Value Measurements The Company’s assets and liabilities measured at fair value on a recurring basis as of December 22, 2017, "H.R.1", also known as the "Tax Cuts31, (in thousands):
 2019
 Balance Level 1 Level 2
Assets:     
Cash equivalents$624,832
 $459,885
 $164,947
Marketable securities52,575
 52,575
 
Derivative financial instruments12,649
 
 12,649
 $690,056
 $512,460
 $177,596
Liabilities:     
Derivative financial instruments$13,934
 $
 $13,934
 2018
 Balance Level 1 Level 2
Assets:     
Cash equivalents$998,601
 $728,800
 $269,801
Marketable securities54,250
 44,243
 10,007
Derivative financial instruments15,071
 
 15,071
 $1,067,922
 $773,043
 $294,879
Liabilities:     
Derivative financial instruments$5,316
 $
 $5,316

Nonrecurring Fair Value Measurements – Repossessed inventory was $21.4 million and Jobs Act" (2017 Tax Act) was signed into law. The 2017 Tax Act resulted in an income tax charge of $53.1$20.2 million all ofat December 31, 2019 and 2018, respectively, for which the Company regards as provisional. Given the complexityfair value adjustment was $11.9 million and timing of the 2017 Tax Act, the Company has recorded the impact of the 2017 Tax Act based on reasonable estimates and considers these estimates to be provisional under SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118). The Company was impacted by the following aspects of the 2017 Tax Act: the remeasurement of net deferred tax assets resulting from the federal income tax rate change from 35% to 21%, a one-time transition tax related to the inclusion of deferred foreign earnings in U.S. taxable income, the write-off of foreign tax credit deferred tax assets related to withholding tax on foreign dividend payments, state tax estimates related to the conformity of federal tax law changes (notably the transition tax and 100% expensing of certain qualified property acquired and placed in service after September 27, 2017), and other smaller items.

The 2017 Tax Act requires companies to include in taxable income the earnings of certain foreign subsidiaries that were previously deferred for U.S. tax purposes. This inclusion results in a one-time transition tax and creates new deferred tax liabilities related to foreign earnings. The Company has made a reasonable estimate of the effects of this foreign inclusion in its 2017 U.S. taxable income and to its deferred tax balances$9.7 million, respectively. Fair value is estimated using Level 2 inputs based on the Company’s interpretationrecent market values of repossessed inventory.
Fair Value of Financial Instruments Measured at Cost – The carrying value of the computationsCompany’s Cash and intentcash equivalents and Restricted cash approximates their fair values. The fair value and carrying value of Congress as defined in the 2017 Tax Act. The one-time transition tax which is based on the Company’s accumulated post-1986 deferred foreign earnings did not have a significant impact on income tax expense. Uncertainty concerning the transition tax exists due to the lack of guidance within the 2017 Tax Act regarding certain highly technical aspects of the current year tax calculation as well as the deferred tax impacts. It is expectedremaining financial instruments that future guidance will be issued that will enable the Company to refine these calculations.
U.S. federal taxable income is the base starting point for determining most state jurisdictions’ taxable income. Each of the 50 states is free to individually adopt a potentially different level of conformity to federal tax law each time it changes. This variability creates significant uncertainty for state income tax purposes, especially with regard to states that do not have “rolling conformity” to follow enacted federal tax law. It is expected that each state will provide guidance related to their conformity to the Act in the future that will enable the Company to refine the state tax current year and deferred tax impacts.

Finally, the Company believes future guidance, interpretations and pronouncements will add clarity to the numerous aspects of the 2017 Tax Act that may impact the Company. Future clarifications may give rise to additional unanticipated


impacts on the Company’s tax liabilitiesare measured at cost or effective tax rate and revisions to the Company’s provisional estimates related to the impacts of the 2017 Tax Act on the Company’s income tax provision.
Provision for income taxes for the years ended December 31 consists of the following (in thousands):
  2017 2016 2015
Current:      
Federal $245,189
 $284,489
 $363,803
State 24,898
 28,406
 37,811
Foreign 21,138
 19,017
 12,826
  291,225
 331,912
 414,440
Deferred:      
Federal 47,046
 (4,250) (15,474)
State 2,688
 7,038
 (2,264)
Foreign 1,121
 (2,953) 1,254
  50,855
 (165) (16,484)
Total $342,080
 $331,747
 $397,956
The components of income before income taxes for the years endedamortized cost at December 31, were as follows (in thousands):
 2019 2018
 Fair Value Carrying Value Fair Value Carrying Value
Assets:       
Finance receivables, net$7,419,627
 $7,374,366
 $7,304,334
 $7,221,931
Liabilities:       
Debt:       
Unsecured commercial paper$571,995
 $571,995
 $1,135,810
 $1,135,810
Asset-backed U.S. commercial paper conduit facilities$490,427
 $490,427
 $582,717
 $582,717
Asset-backed Canadian commercial paper conduit facility$114,693
 $114,693
 $155,951
 $155,951
Medium-term notes$4,816,153
 $4,760,127
 $4,829,671
 $4,887,007
Senior notes$774,949
 $743,296
 $707,198
 $742,624
Asset-backed securitization debt$768,094
 $764,392
 $94,974
 $95,167

  2017 2016 2015
Domestic $788,878
 $954,138
 $1,101,427
Foreign 74,961
 69,773
 48,736
Total $863,839
 $1,023,911
 $1,150,163
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 provision for income taxes differs from the amount that would be provided by applying the statutory U.S. corporate income tax ratecarrying 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 following itemsU.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 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).
14. Product Warranty and Recall Campaigns
The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except in Japan, where the Company provides a standard three-year limited warranty. In addition, the Company provides a one-year warranty for parts and accessories. The warranty coverage for the years ended December 31:
  2017 2016 2015
Provision at statutory rate 35.0 % 35.0 % 35.0 %
State taxes, net of federal benefit 1.9
 1.8
 1.8
Foreign rate differential (0.8) (0.6) (0.4)
Domestic manufacturing deduction (2.2) (2.1) (2.1)
Research and development credit (0.7) (0.4) (0.4)
Unrecognized tax benefits including interest and penalties 2.3
 (1.3) 1.1
Valuation allowance adjustments (0.1) 0.1
 (0.1)
Deferred remeasurement for rate change 5.5
 
 
Tax reform territorial tax (0.1) 
 
Adjustments for previously accrued taxes (1.2) 0.2
 (0.1)
Other 
 (0.3) (0.2)
Provision for income taxes 39.6 % 32.4 % 34.6 %


The principal components ofretail customer generally begins when the Company’s deferred tax assets and liabilities as of December 31 include the following (in thousands):
  2017 2016
Deferred tax assets:    
Accruals not yet tax deductible $92,158
 $141,961
Pension and postretirement benefit plan obligations 37,357
 88,741
Stock compensation 12,669
 19,051
Net operating loss carryforward 33,171
 33,587
Valuation allowance (21,561) (30,953)
Other, net 52,422
 56,903
  206,216
 309,290
Deferred tax liabilities:    
Depreciation, tax in excess of book (88,989) (139,268)
Other (8,154) (2,293)
  (97,143) (141,561)
Total $109,073
 $167,729
product is sold to a retail customer. The Company reviews its deferred tax asset valuation allowancesaccrues for future warranty claims at the time of sale using an estimated cost based primarily on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with any positive or negative evidence including tax law changes. Since future financial results and tax law may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.
At December 31, 2017,Company claim information. Additionally, the Company had approximately $291.1 million gross state operating loss carryforwards expiring in 2031. At December 31, 2017 the Company also had Wisconsin research and development credit carryforwards of $11.3 million expiring in 2028.has from time to time initiated certain voluntary recall campaigns. The Company hadrecords estimated recall costs when the liability is both probable and estimable. This generally occurs when management approves and commits to a deferred tax asset of $27.1 million as of December 31, 2017 for the benefit of these losses and credits. A valuation allowance of $4.5 million has been established against the deferred tax asset, which is a decrease of $0.1 million from the prior year.
The Company has foreign net operating losses (NOL) totaling $6.1 million as of December 31, 2017. It has a valuation allowance of $17.1 million against both the NOLs and other deferred tax assets of $11.0 million. The valuation allowance on foreign net operating losses decreased by $9.2 million, reflecting movement related to realizability assessment on additional earnings and loss, as well as movements related to foreign currency rates.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.recall. Changes in the Company’s grosswarranty and recall liability for unrecognized tax benefits, excluding interest and penalties, were as follows (in thousands):
 2019 2018 2017
Balance, beginning of period$131,740
 $94,200
 $79,482
Warranties issued during the period50,470
 53,367
 57,834
Settlements made during the period(90,404) (79,300) (82,554)
Recalls and changes to pre-existing warranty liabilities(2,013) 63,473
 39,438
Balance, end of period$89,793
 $131,740
 $94,200

  2017 2016
Unrecognized tax benefits, beginning of period $55,539
 $73,100
Increase in unrecognized tax benefits for tax positions taken in a prior period 9,513
 2,828
Decrease in unrecognized tax benefits for tax positions taken in a prior period (3,749) (21,061)
Increase in unrecognized tax benefits for tax positions taken in the current period 13,779
 7,402
Statute lapses 
 (1,907)
Settlements with taxing authorities (2,852) (4,823)
Unrecognized tax benefits, end of period $72,230
 $55,539
The amount of unrecognized tax benefits as of liability for recall campaigns was $36.4 million, $73.3 million and $35.3 million at December 31, 2017 that, if recognized, would affect the effective tax rate was $63.1 million.
The total gross amount of expense related to interest2019, 2018 and penalties associated with unrecognized tax benefits recognized during 2017, in the Company’s Consolidated Statements of Income was $2.8 million.
The total gross amount of interest and penalties associated with unrecognized tax benefits recognized at December 31, 2017 in the Company’s Consolidated Balance Sheets was $30.9 million.


The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits related to continuing operations during the fiscal year ending December 31, 2018. However, respectively. Additionally, the Company is under regular audit by tax authorities. The Company believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provision includes amounts sufficient to pay any assessments. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materiallyrecorded supplier recoveries within operating expenses separate from the amounts accrued for each year.
The Company or onedisclosed above of its subsidiaries files income tax returns$28.0 million in the U.S. federal and Wisconsin state jurisdictions and various other state and foreign jurisdictions. The Company is no longer subject to income tax examinations for Wisconsin state income taxes before 2013 or for U.S. federal income taxes before 2014.2019.
12.15. Employee Benefit Plans and Other Postretirement Benefits
The Company has a qualified defined benefit pension plan and several postretirement healthcare benefit plans. The plans which cover certain eligible employees and retirees 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.
Pension benefits are based primarily on years of service and, for certain plans, levels of compensation. EmployeesPlan participants are eligible to receive postretirement healthcare benefits upon attaining age 55 after rendering at least 10 years of service to the Company. Some of the plans require employeeparticipant contributions to partially offset benefit costs.



Obligations and Funded Status:
The following table provides the changes in the benefit obligations,obligation, fair value of plan assets and the funded status of the Company’s pension and SERPA plans and the postretirement healthcare plans as of the Company’s measurement dates of December 31, 2017 and 2016 measurement dateswere as follows (in thousands):
 Pension and SERPA Benefits Postretirement Healthcare Benefits
 2019 2018 2019 2018
Change in benefit obligation:       
Benefit obligation, beginning of period$1,984,708
 $2,201,021
 $286,574
 $338,488
Service cost25,408
 32,340
 4,449
 7,180
Interest cost85,483
 82,778
 11,753
 11,556
Actuarial losses (gains)236,719
 (213,583) 9,590
 (42,039)
Plan participant contributions
 
 1,999
 2,492
Plan amendments8,371
 (12,926) 
 (4,710)
Special early retirement benefits1,583
 
 
 
Benefits paid(126,079) (106,280) (20,860) (23,448)
Net curtailments and settlements(4,181) 1,358
 
 (2,945)
Benefit obligation, end of period2,212,012
 1,984,708
 293,505
 286,574
        
Change in plan assets:       
Fair value of plan assets, beginning of period1,874,618
 2,162,885
 190,357
 217,537
Return on plan assets459,388
 (185,468) 41,717
 (13,287)
Plan participant contributions
 
 1,999
 2,492
Benefits paid(124,784) (102,799) (13,081) (16,385)
Fair value of plan assets, end of period2,209,222
 1,874,618
 220,992
 190,357
Funded status of the plan$(2,790) $(110,090) $(72,513) $(96,217)
        
Funded status as recognized on the Consolidated balance sheets:       
Prepaid pension costs$56,014
 $
 $
 $
Accrued liabilities(2,666) (2,314) 
 (1,764)
Pension liabilities(56,138) (107,776) 
 
Postretirement healthcare liabilities
 
 (72,513) (94,453)

$(2,790) $(110,090) $(72,513) $(96,217)
        
Amounts included in Accumulated other comprehensive loss, net of tax:       
Prior service credits$(6,489) $(14,371) $(7,559) $(9,381)
Actuarial losses (gains)496,919
 593,608
 (1,321) 12,005
 $490,430
 $579,237
 $(8,880) $2,624

  Pension and SERPA Benefits 
Postretirement
Healthcare Benefits
  2017 2016 2017 2016
Change in benefit obligation:        
Benefit obligation, beginning of period $1,986,435
 $2,009,000
 $346,431
 $354,739
Service cost 31,584
 33,437
 7,500
 7,478
Interest cost 85,076
 90,827
 13,648
 14,814
Actuarial losses (gains) 195,444
 13,481
 (8,408) (4,647)
Plan participant contributions 
 
 2,525
 2,669
Plan amendments (13,227) 
 
 
Benefits paid (84,291) (160,310) (23,208) (28,622)
Benefit obligation, end of period 2,201,021
 1,986,435
 338,488
 346,431
Change in plan assets:        
Fair value of plan assets, beginning of period 1,899,889
 1,841,967
 170,092
 156,765
Actual return on plan assets 320,144
 188,376
 32,445
 13,327
Company contributions 25,000
 25,000
 15,000
 
Plan participant contributions 
 
 2,525
 2,669
Benefits paid (82,148) (155,454) (2,525) (2,669)
Fair value of plan assets, end of period 2,162,885
 1,899,889
 217,537
 170,092
Funded status of the plans, December 31 $(38,136) $(86,546) $(120,951) $(176,339)
Amounts recognized in the Consolidated Balance Sheets, December 31:        
Prepaid benefit costs (long-term assets) $19,816
 $
 $
 $
Accrued benefit liability (current liabilities) (3,346) (2,104) (2,198) (3,072)
Accrued benefit liability (long-term liabilities) (54,606) (84,442) (118,753) (173,267)
Net amount recognized $(38,136) $(86,546) $(120,951) $(176,339)
During 2019, the actuarial losses related to the obligation for pension and SERPA benefits were due primarily to a decrease in the discount rate. Conversely, during 2018, the actuarial gains related to this obligation were due primarily to an increase in the discount rate.
During 2019, the actuarial losses related to the obligation for postretirement healthcare benefits were due primarily to a decrease in the discount rate partially offset by favorable claim cost adjustments. During 2018, the actuarial gains related to this obligation were due primarily to an increase in the discount rate, favorable claim cost experience and a change in the benefit delivery structure.


The funded status of the qualified pension plan and the SERPA plans are combined above. Plan level information for plansPlans with projected benefit obligations (PBO) or accumulated benefit obligations (ABO) in excess of the fair value of plan assets at December 31, is presented below (in millions)thousands):
 2017 20162019 2018
Plans with PBOs in excess of fair value of plan assets:    
Plans with PBO in excess of fair value of plan assets:   
PBO $58.0
 $1,986.4
$58,804
 $1,984,708
Fair value of plan assets $
 $1,899.9
$
 $1,874,618
��      
Plans with ABOs in excess of fair value of plan assets:    
PBO $58.0
 $52.3
Plans with ABO in excess of fair value of plan assets:   
ABO $42.1
 $38.4
$44,232
 $40,085
Fair value of plan assets $
 $
$
 $

The total ABO for all the Company's pension and SERPA plans combined was $2.10$2.12 billion and $1.90$1.90 billion as of December 31, 20172019 and 2016,2018, respectively.



Benefit Costs:
Service costs are allocated among Selling, administrative and engineering expense, Motorcycles and Related Products cost of goods sold and Inventories, net. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit cost are presented in Other income (expense), netComponents of net periodic benefit costs for the years ended December 31, include the following (in thousands):
 Pension and SERPA Benefits Postretirement Healthcare Benefits
 2019 2018 2017 2019 2018 2017
Service cost$25,408
 $32,340
 $31,584
 $4,449
 $7,180
 $7,500
Interest cost85,483
 82,778
 85,076
 11,753
 11,556
 13,648
Expected return on plan assets(142,323) (147,671) (141,385) (14,030) (14,161) (12,623)
Amortization of unrecognized:           
Prior service (credit) cost(1,930) (420) 1,018
 (2,381) (1,842) (2,171)
Net loss44,511
 64,773
 43,993
 277
 1,817
 3,261
Special early retirement benefits1,583
 
 
 
 
 
Curtailment loss (gain)
 1,017
 
 (960) (886) 
Settlement loss1,503
 
 
 
 
 
Net periodic benefit cost$14,235
 $32,817
 $20,286
 $(892) $3,664
 $9,615
  
Pension and
SERPA Benefits
 
Postretirement
Healthcare Benefits
  2017 2016 2015 2017 2016 2015
Service cost $31,584
 $33,437
 $40,039
 $7,500
 $7,478
 $8,259
Interest cost 85,076
 90,827
 87,345
 13,648
 14,814
 14,166
Special early retirement benefits 
 
 10,563
 
 
 622
Expected return on plan assets (141,385) (145,781) (144,929) (12,623) (12,069) (11,506)
Amortization of unrecognized:            
Prior service cost (credit) 1,018
 1,019
 435
 (2,171) (2,803) (3,217)
Net loss 43,993
 46,351
 54,709
 3,261
 3,537
 3,971
Settlement loss 
 1,463
 368
 
 
 
Net periodic benefit cost $20,286
 $27,316
 $48,530
 $9,615
 $10,957
 $12,295
Net periodic benefit costs are allocated among selling, administrative and engineering expense, cost of goods sold and inventory.
The expected return on plan assets is calculated based on the market-relatedmarket related value of plan assets. The market-relatedmarket related value of plan assets is different from the fair value in that asset gains/gains and losses are smoothed over a five yearfive-year period. 
Unrecognized gains and losses related to plan obligations and assets are initially recorded in other comprehensive income and result from actual experience that differs from assumed or expected results, and the impacts of changes in assumptions. Unrecognized plan asset gains and losses not yet reflected in the market-relatedmarket related value of plan assets are not subject to amortization. Remaining unrecognized gains and losses that exceed 10% of the greater of the projected benefit obligation or the market-relatedmarket related value of plan assets are amortized to earnings over the estimated future service period of active plan participants. The impacts of plan amendments, if any, are amortized over the estimated future service period of plan participants at the time of the amendment.
Amounts included in accumulated other comprehensive loss, net of tax, at December 31, 2017 which have not yet been recognized in net periodic benefit cost are as follows (in thousands):
  
Pension and
SERPA Benefits
 
Postretirement
Healthcare Benefits
 Total
Prior service credit $(4,136) $(5,871) $(10,007)
Net actuarial loss 450,754
 20,196
 470,950
Total $446,618
 $14,325
 $460,943
Amounts expected to be recognized in net periodic benefit cost, net of tax, during the year ended December 31, 2018 are as follows (in thousands):
  
Pension and
SERPA Benefits
 
Postretirement
Healthcare Benefits
 Total
Prior service credit $(329) $(1,409) $(1,738)
Net actuarial loss 45,364
 1,391
 46,755
Total $45,035
 $(18) $45,017



Assumptions:
Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost at December 31, were as follows:
 Pension and SERPA Benefits Postretirement Healthcare Benefits
 2019 2018 2017 2019 2018 2017
Assumptions for benefit obligations:           
Discount rate3.49% 4.38% 3.71% 3.26% 4.23% 3.52%
Rate of compensation increase3.39% 3.38% 3.43% n/a
 n/a
 n/a
Assumptions for net periodic benefit cost:           
Discount rate4.38% 3.71% 4.30% 4.23% 3.52% 4.03%
Expected return on plan assets7.10% 7.25% 7.25% 7.25% 7.25% 7.25%
Rate of compensation increase3.38% 3.43% 3.50% n/a
 n/a
 n/a
  
Pension and
SERPA Benefits
 
Postretirement
Healthcare Benefits
  2017 2016 2015 2017 2016 2015
Assumptions for benefit obligations:            
Discount rate 3.71% 4.30% 4.53% 3.52% 4.03% 4.29%
Rate of compensation 3.43% 3.50% 3.50% n/a
 n/a
 n/a
Assumptions for net periodic benefit cost:            
Discount rate 4.30% 4.53% 4.21% 4.03% 4.29% 3.99%
Expected return on plan assets 7.25% 7.50% 7.75% 7.25% 7.50% 7.70%
Rate of compensation increase 3.50% 3.50% 4.00% n/a
 n/a
 n/a

Plan Assets:
Pension Plan Assets - The Company’s investment objective is to ensure assets are sufficient to pay benefits while mitigating the volatility of retirement plan assets or liabilities recorded in the balance sheet. The Company mitigates volatility through asset diversification and partial asset/liability matching. The investment portfolio for the Company's pension plan assets contains a diversified blend of equity and fixed-income investments. The Company’s current overall targeted asset allocation as a percentage of total market value was approximately 63%56% equities and 37%44% fixed-income and cash. Assets are rebalanced regularly to keep the actual allocation in line with targets. Equity holdings primarily include investments in small-, medium- and large-cap companies in the U.S. (including, including Company stock),stock, investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.
Postretirement Healthcare Plan Assets - The Company's investment objective is to maximize the return on assets to help pay the benefits by prudently investing in equities, fixed income and alternative assets. The Company's current overall targeted asset allocation as a percentage of total market value was approximately 69% equities and 31% fixed-income and cash. Equity holdings primarily include investments in small-, medium-, and large-cap companies in the U.S., investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.



The following tables present the fair values of the plan assets related to the Company’s pension and postretirement healthcare plans within the fair value hierarchy as defined in Note 6.
13. The fair values of the Company’s pension plan assets as of at December 31, 20172019 were as follows (in thousands):
 Balance Level 1 Level 2
Cash and cash equivalents$35,463
 $
 $35,463
Equity holdings:     
U.S. companies728,892
 707,276
 21,616
Foreign companies79,707
 77,275
 2,432
Harley-Davidson common stock47,365
 47,365
 
Pooled equity funds377,301
 377,301
 
Other72
 72
 
 1,233,337
 1,209,289
 24,048
Fixed-income holdings:     
U.S. Treasuries67,234
 67,234
 
Federal agencies15,434
 
 15,434
Corporate bonds583,475
 
 583,475
Pooled fixed income funds142,134
 48,674
 93,460
Foreign bonds103,439
 
 103,439
Municipal bonds12,339
 
 12,339
 924,055
 115,908
 808,147
Plan assets subject to fair value leveling2,192,855
 $1,325,197
 $867,658
      
Plan assets measured at net asset value:     
Limited partnership interests4,118
    
Real estate investment trusts12,249
    
 16,367
    
 $2,209,222
    

  Balance as of December 31, 2017 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
Cash and cash equivalents $51,082
 $1,057
 $50,025
Equity holdings:      
U.S. companies 722,527
 705,111
 17,416
Foreign companies 78,765
 78,765
 
Harley-Davidson common stock 64,800
 64,800
 
Pooled equity funds 416,881
 416,881
 
Other 119
 119
 
Total equity holdings 1,283,092
 1,265,676
 17,416
Fixed-income holdings:      
U.S. Treasuries 39,866
 39,866
 
Federal agencies 29,188
 
 29,188
Corporate bonds 462,563
 
 462,563
Pooled fixed income funds 189,361
 61,875
 127,486
Foreign bonds 81,732
 
 81,732
Municipal bonds 11,800
 
 11,800
Total fixed-income holdings 814,510
 101,741
 712,769
Total assets in the fair value hierarchy 2,148,684
 $1,368,474
 $780,210
Assets measured at net asset value as a practical expedient:      
Limited partnership interests 9,099
    
Real estate investment trust 5,102
    
Total pension plan assets $2,162,885
    
Included in the pension plan assets are 1,273,592 shares of the Company’s common stock with a market value of $64.847.4 million at December 31, 20172019.



The fair values of the Company’s postretirement healthcare plan assets as of at December 31, 20172019 were as follows (in thousands):
 Balance Level 1 Level 2
Cash and cash equivalents$2,458
 $
 $2,458
Equity holdings:     
U.S. companies104,399
 104,399
 
Foreign companies22,422
 21,744
 678
Pooled equity funds25,029
 25,029
 
Other7
 7
 
 151,857
 151,179
 678
Fixed-income holdings:     
U.S. Treasuries5,782
 5,782
 
Federal agencies7,986
 
 7,986
Corporate bonds8,425
 
 8,425
Pooled fixed income funds36,720
 36,720
 
Foreign bonds672
 
 672
Municipal bonds454
 
 454
 60,039
 42,502
 17,537
Plan assets subject to fair value leveling214,354
 $193,681
 $20,673
      
Plan assets measured at net asset value:     
Real estate investment trusts6,638
    
 $220,992
    

  Balance as of December 31, 2017 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
Cash and cash equivalents $19,317
 $
 $19,317
Equity holdings:      
U.S. companies 101,720
 101,720
 
Foreign companies 19,498
 19,495
 3
Pooled equity funds 23,563
 23,563
 
Other 14
 14
 
Total equity holdings 144,795
 144,792
 3
Fixed-income holdings:      
U.S. Treasuries 6,803
 6,803
 
Federal agencies 5,060
 
 5,060
Corporate bonds 6,756
 
 6,756
Pooled fixed income funds 27,461
 27,461
 
Foreign bonds 311
 
 311
Municipal bonds 284
 
 284
Total fixed-income holdings 46,675
 34,264
 12,411
Total assets in the fair value hierarchy 210,787
 $179,056
 $31,731
Assets measured at net asset value as a practical expedient:      
Real estate investment trust 6,750
    
Total postretirement healthcare plan assets $217,537
    





The fair values of the Company’s pension plan assets as of at December 31, 20162018 were as follows (in thousands):
 Balance Level 1 Level 2
Cash and cash equivalents$40,984
 $
 $40,984
Equity holdings:     
U.S. companies636,308
 621,459
 14,849
Foreign companies66,143
 66,143
 
Harley-Davidson common stock43,455
 43,455
 
Pooled equity funds330,476
 330,476
 
Other85
 85
 
 1,076,467
 1,061,618
 14,849
Fixed-income holdings:     
U.S. Treasuries45,102
 45,102
 
Federal agencies27,811
 
 27,811
Corporate bonds434,070
 
 434,070
Pooled fixed income funds140,630
 42,400
 98,230
Foreign bonds83,852
 266
 83,586
Municipal bonds9,276
 
 9,276
 740,741
 87,768
 652,973
Plan assets subject to fair value leveling1,858,192
 $1,149,386
 $708,806
      
Plan assets measured at net asset value:     
Limited partnership interests5,918
    
Real estate investment trust10,508
    
 16,426
    
 $1,874,618
    

  Balance as of December 31, 2016 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
Cash and cash equivalents $84,548
 $1,284
 $83,264
Equity holdings:      
U.S. companies 603,568
 586,302
 17,266
Foreign companies 50,256
 50,256
 
Harley-Davidson common stock 74,301
 74,301
 
Pooled equity funds 316,225
 316,225
 
Other 105
 105
 
Total equity holdings 1,044,455
 1,027,189
 17,266
Fixed-income holdings:      
U.S. Treasuries 41,089
 41,089
 
Federal agencies 36,210
 
 36,210
Corporate bonds 418,522
 
 418,522
Pooled fixed income funds 170,741
 57,543
 113,198
Foreign bonds 69,871
 
 69,871
Municipal bonds 12,509
 
 12,509
Total fixed-income holdings 748,942
 98,632
 650,310
Total assets in the fair value hierarchy 1,877,945
 $1,127,105
 $750,840
Assets measured at net asset value as a practical expedient:      
Limited partnership interests 9,321
    
Real estate investment trust 12,623
    
Total pension plan assets $1,899,889
    
Included in the pension plan assets are were 1,273,592 shares of the Company’s common stock with a market value of $74.3$43.5 million at December 31, 2016.2018.



The fair values of the Company’s postretirement healthcare plan assets as of at December 31, 20162018 were as follows (in thousands):
 Balance Level 1 Level 2
Cash and cash equivalents$5,276
 $
 $5,276
Equity holdings:     
U.S. companies86,975
 86,949
 26
Foreign companies16,342
 16,342
 
Pooled equity funds20,747
 20,747
 
Other9
 9
 
 124,073
 124,047
 26
Fixed-income holdings:     
U.S. Treasuries8,707
 8,707
 
Federal agencies5,445
 
 5,445
Corporate bonds6,590
 
 6,590
Pooled fixed income funds33,959
 33,959
 
Foreign bonds538
 
 538
Municipal bonds272
 
 272
 55,511
 42,666
 12,845
Plan assets subject to fair value leveling184,860
 $166,713
 $18,147
      
Plan assets measured at net asset value:     
Real estate investment trust5,497
    
 $190,357
    

  Balance as of December 31, 2016 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
Cash and cash equivalents $4,442
 $1,180
 $3,262
Equity holdings:      
U.S. companies 84,643
 84,643
 
Foreign companies 14,190
 13,995
 195
Pooled equity funds 19,132
 19,132
 
Other 9
 9
 
Total equity holdings 117,974
 117,779
 195
Fixed-income holdings:      
U.S. Treasuries 12,262
 12,262
 
Federal agencies 7,364
 
 7,364
Corporate bonds 11,750
 
 11,750
Pooled fixed income funds 9,690
 
 9,690
Foreign bonds 633
 
 633
Municipal bonds 459
 
 459
Total fixed-income holdings 42,158
 12,262
 29,896
Total assets in the fair value hierarchy 164,574
 $131,221
 $33,353
Assets measured at net asset value as a practical expedient:      
Real estate investment trust 5,518
    
Total postretirement healthcare plan assets $170,092
    
No plan assets are expected to be returned to the Company during the fiscal year ending December 31, 2018.
For 2018,2020, the Company’s overall expected long-term rate of return is 7.25%6.70% for pension assets and 7.25%7.00% for postretirement healthcare plan assets. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based on historical returns adjusted to reflect the current view of the long-term investment market.
Postretirement Healthcare Cost:
The weighted-average healthcare cost trend raterates used in determining the accumulated postretirement benefit obligation of the healthcare plans waswere as follows:
 2019 2018
Healthcare cost trend rate for next year7.25% 6.75%
Rate to which the cost trend rate is assumed to decline (the ultimate rate)5.00% 5.00%
Year that the rate reaches the ultimate trend rate2029
 2026
  2017 2016
Healthcare cost trend rate for next year 7.00% 7.25%
Rate to which the cost trend rate is assumed to decline (the ultimate rate) 5.00% 5.00%
Year that the rate reaches the ultimate trend rate 2026
 2021
This healthcare cost trend rate assumption can have a significant effect on the amounts reported. A one-percentage-point change in the assumed healthcare cost trend rate would have the following effects (in thousands):
  
One
Percent
Increase
 
One
Percent
Decrease
Total of service and interest cost components in 2017 $648
 $(623)
Accumulated benefit obligation as of December 31, 2017 $11,984
 $(10,940)



Future Contributions and Benefit Payments:
During 2017,2019, the Company voluntarily contributed $25.0 milliondid not make any voluntary contributions to its qualified pension plan and $15.0 million to itsor postretirement healthcare plans. No pension plan contributions are required in 2018.2020. The Company expects that 20182020 postretirement healthcare plan benefits and benefits due under the SERPA plans will be paid by the Company or, in the case of postretirement healthcare plan benefits, partially funded with plan assets.


The Company's future expected benefit payments for the next five years and thereafteras of December 31, 2019 were as follows (in thousands):
 Pension Benefits SERPA Benefits Postretirement Healthcare Benefits
2020$97,227
 $2,666
 $23,328
2021$98,376
 $3,000
 $23,501
2022$101,566
 $3,309
 $23,625
2023$104,864
 $4,176
 $23,307
2024$108,436
 $4,401
 $22,902
2025-2028$590,687
 $29,048
 $109,195
  
Pension
Benefits
 
SERPA
Benefits
 
Postretirement
Healthcare
Benefits
2018 $90,510
 $3,346
 $28,446
2019 $92,694
 $2,325
 $28,309
2020 $95,930
 $2,843
 $27,351
2021 $98,109
 $3,294
 $26,175
2022 $102,258
 $3,528
 $25,096
2023-2027 $574,745
 $27,719
 $120,438

Defined Contribution Plans:
The Company has various defined contribution benefit plans that in total cover substantially all full-time employees. Employees can make voluntary contributions in accordance with the provisions of their respective plan, which includes a 401(k) tax deferral option. The Company makes additional contributions to the plans on behalf of the employees and expensed $21.9 million, $20.1 million and $19.0 million $18.2 millionduring 2019, 2018 and $18.0 million for Company contributions during 2017, 2016 and 2015, respectively.respectively related to the contributions.
13.    Leases
The Company operates certain administrative, manufacturing, warehouse and testing facilities and equipment under lease arrangements that are accounted for as operating leases. Total rental expense was $15.1 million, $14.4 million and $15.0 million for 2017, 2016 and 2015, respectively.
Future minimum operating lease payments at December 31, 2017 were as follows (in thousands):
2018 $15,074
2019 14,225
2020 9,601
2021 8,523
2022 6,192
Thereafter 8,379
Total operating lease payments $61,994
14.16. 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:
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 anticipatesis awaiting the court will make acourt's decision on whether or not to finalize the Settlement, inand on February 8, 2019 the following months.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 which is includedrecorded in accruedAccrued liabilities in on the Consolidated Balance Sheets,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 Matters:
Matter The Company is involved with government agencies and groups of potentially responsible partiesthe U.S. Navy 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. Although theThe Company is not certain as to the full extent of the environmental contamination at the York facility, it has been workingan agreement with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including a site-wide remedial investigation/feasibility study (RI/FS).
In January 1995, the Company entered into a settlement agreement (the Agreement) with theU.S. Navy and the parties amended the Agreement in 2013 to address ordnance and explosive waste. The Agreementwhich calls for the U.S. 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). The trust administers the payment of the Response Costs incurred atA site wide remedial investigation/feasibility study and a proposed final remedy for the York facility as coveredhave been completed and approved by the Agreement.
Pennsylvania Department of Environmental Protection and the EPA. The associated cleanup plan documents were submitted for approval in December 2019 and remaining cleanup activities will begin in mid-2020. The Company has an accrual for its estimate of its share of the estimated future Response Costs at the York facility which is includedrecorded in otherOther long-term liabilities in the Consolidated Balance Sheets. While much of the work on the RI/FS is complete, it is still under agency review and given the uncertainty that exists concerning the nature and scope of additional environmental investigation and remediation that may ultimately be required under the RI/FS that is finally approved or otherwise at the York facility, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.Consolidated balance sheets.
The estimate of the Company's future Response Costs that will be incurred at the York facility is based on reports of independent environmental consultants retained by the Company, the actual costs incurred to date and the estimated costs to complete the necessary investigation and remediation activities.
Product Liability Matters:
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 consolidatedConsolidated financial statements.
National Highway Traffic Safety Administration Matters:
In July 2016, the National Highway Traffic Safety Administration (NHTSA) began an investigation into certain of the Company's motorcycles equipped with anti-lock braking systems (ABS)statements. NHTSA’s investigation is in response to rider complaints related to brake failures and applies to model-year 2008-2013 Touring and model-year 2008-2017 V-ROD® motorcycles. NHTSA noted that Harley-Davidson has a two-year brake fluid replacement interval that owners either are unaware of or ignore. During 2017, the Company estimated and recorded a $29.4 million accrual associated with the NHTSA matter which is included in accrued liabilities. On January 30, 2018, the Company announced a voluntary recall which offers a free brake fluid flush for model-year 2008-2011 Touring and V-ROD® motorcycles. The Company believes the accrued liability it has recorded will adequately cover the cost of the recall.


15.     Capital Stock
Common Stock:
The Company is authorized to issue 800,000,000 shares of common stock of $0.01 par value. There were 168.1 million and 175.9 million common shares outstanding as of December 31, 2017 and 2016, respectively. During 2016, the Company retired 165.0 million shares of its treasury stock.
During 2017, the Company repurchased 8.8 million shares of its common stock at a weighted-average price of $53. This includes 0.2 million shares of common stock that were repurchased from employees that surrendered stock to satisfy withholding taxes in connection with the vesting of restricted stock awards. The remaining repurchases were made pursuant to the following authorizations (in millions of shares):
   Shares Repurchased Authorization Remaining
at December 31, 2017
Board of Directors’ Authorization 2017 2016 2015 
1997 Authorization 
 
 0.9
 
2007 Authorization 
 
 0.9
 
2014 Authorization 
 
 20.0
 
2015 Authorization 
 9.0
 6.0
 
2016 Authorization 8.7
 0.7
 
 10.6
Total 8.7
 9.7
 27.8
 10.6
1997 Authorization – The Company had an authorization from its Board of Directors (originally adopted December 1997) to repurchase shares of its outstanding common stock under which the cumulative number of shares repurchased, at the time of any repurchase, shall not exceed the sum of (1) the number of shares issued in connection with the exercise of stock options occurring on or after January 1, 2004, and (2) 1% of the issued and outstanding common stock of the Company on January 1 of the current year, adjusted for any stock split.
2007 Authorization – In December 2007, the Company’s Board of Directors separately authorized the Company to buy back up to 20.0 million shares of its common stock with no dollar limit or expiration date.
2014 Authorization – In February 2014, the Company’s Board of Directors separately authorized the Company to buy back up to 20.0 million shares of its common stock with no dollar limit or expiration date.
2015 Authorization – In June 2015, the Company’s Board of Directors separately authorized the Company to buy back up to 15.0 million shares of its common stock with no dollar limit or expiration date.
2016 Authorization – In February 2016, the Company’s Board of Directors separately authorized the Company to buy back up to 20.0 million shares of its common stock with no dollar limit or expiration date.
Preferred Stock:
The Company is authorized to issue 2,000,000 shares of preferred stock of $1.00 par value, none of which is outstanding.
16.


17. Share-Based Awards
The Company has a share-based compensation plan which was approved by its shareholders in April 2014 (Plan)(the Plan) under which theits Board of Directors may grant to employees share-based awards including restricted stock units (RSUs), performance shares, and nonqualified stock options and stock appreciation rights (SARs).options. Performance shares include a three-year performance period with vesting based on achievement of internal performance targets. Forfeitures are estimated at the grant date and adjusted when it is likely to change. RSUs granted under the Plan vest ratably over a three-year period with the first one-third of the grant vesting one year after the date of grant. Dividends are paid on RSUs settled with stock and performance shares settled with stock. Dividend equivalents are paid on RSUs and performance shares settled with cash. TheStock options and SARs granted under the Plan have an exercise price equal to the fair market value of the underlying stock at the date of grant and vest ratably over a three-year period with the first one-third of the grant becoming exercisable one year after the date of grant. The options and SARs expire 10 years from the date of grant. At December 31, 2017,2019, there were 10.87.2 million shares of common stock available for future awards under the Plan.

The Company recognizes the cost of its share-based awards in the Consolidated statements of income. The cost of each share-based equity award is based on the grant date fair value and the cost of each share-based cash-settled award is based on the settlement date fair value. Forfeitures for share-based awards are estimated at the grant date and adjusted when it is likely to change. Share-based award expense is recognized on a straight-line basis over the service or performance periods of each separately vesting tranche within the awards. The expense recognized reflects the number of awards that are ultimately expected to vest based on the service and, if applicable, performance requirements of each award. Total share-based award compensation expense recognized by the Company during 2019, 2018 and 2017 was $33.7 million, $35.5 million and $32.5 million, respectively, or $25.8 million, $27.2 million and $20.5 million net of taxes, respectively.

Restricted Stock Units and Performance Shares - Settled in Stock:
Stock The fair value of RSUs and performance shares settled in stock is determined based on the market price of the Company’s shares on the grant date. The following table summarizes the activity for these awards for the year ended December 31, 20172019 was as follows (in thousands, except for per share amounts):
 Shares & Units Weighted-Average Fair Value Per Share
Nonvested, beginning of period1,894
 $48
Granted1,149
 $37
Vested(717) $46
Forfeited(315) $41
Nonvested, end of period2,011
 $43
  Shares / Units 
Grant Date
Fair Value
Per Share
Nonvested, beginning of period 1,371
 $46
Granted 730
 $56
Vested (408) $51
Forfeited (92) $50
Nonvested, end of period 1,601
 $49

As of December 31, 2017,2019, there was $33.9$31.1 million of unrecognized compensation cost related to RSUs and performance shares settled in stock (net of estimated forfeitures) that is expected to be recognized over a weighted-average period of 1.7 years.
Restricted Stock Units and Performance Shares - Settled in Cash:
Cash RSUs and performance shares that are settled in cash are recorded in the Company’s consolidatedConsolidated balance sheets as a liability until vested. The fair value is determined based on the market price of the Company’s stock and is remeasured at each balance sheet date. The following table summarizes the activity for these awards for the year ended December 31, 20172019 was as follows (in thousands, except for per share amounts):
 Units Weighted-Average Fair Value Per Share
Nonvested, beginning of period105
 $39
Granted94
 $38
Vested(48) $37
Forfeited(24) $35
Nonvested, end of period127
 $38

  Units 
Weighted-Average
Grant Date
Fair Value
Per Share
Nonvested, beginning of period 124
 $54
Granted 56
 $52
Vested (49) $60
Forfeited (30) $59
Nonvested, end of period 101
 $53


Stock Options:
Options There were no0 stock options granted in 2017 and 2016. In 2015, the Company estimated the grant date fair value2019, 2018 or 2017. All outstanding stock options were vested as of its option awards granted using a lattice-based option valuation model. The Company believes that the lattice-based option valuation model provided a more precise estimate of fair value than the Black-Scholes option pricing model. Lattice-based option valuation models utilize ranges of assumptions over the expected term of the options. The Company used implied volatility to determine the expected volatility of its stock. The Company used historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted was derived from the output of the option valuation model and represents the average period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.Assumptions used in calculating the lattice-based fair value of options granted during 2015 were as follows:
2015
Expected average term (in years)6.0
Expected volatility24% - 30%
Weighted average volatility28%
Expected dividend yield2.0%
Risk-free interest rate0.1% - 2.0%


The following table summarizes the stock option transactions for the year ended December 31, 2017 (in thousands except for per share amounts):
  Options 
Weighted-
Average Price
Options outstanding, beginning of period 1,878
 $49
Options exercised (282) $40
Options forfeited (192) $68
Options outstanding, end of period 1,404
 $48
Exercisable, end of period 1,309
 $47
The weighted-average fair value of options granted during the year ended December 31, 2015 was $13.
As of December 31, 2017, there was $0.1 million of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 0.1 year.
The following table summarizes the aggregate intrinsic value related to options outstanding, exercisable and exercised as of and for the years ended December 31 (in thousands):
  2017 2016 2015
Exercised $4,051
 $9,595
 $9,890
Outstanding $11,711
 $22,383
 $16,605
Exercisable $11,711
 $22,383
 $16,605
2018. The Company’s policy is to issue new shares of common stock upon the exercise of employee stock options.
Stock options outstanding at December 31, 2017 were as follows (options in thousands):
Price Range 
Weighted-Average
Contractual Life
 Options 
Weighted-Average
Exercise Price
$10.01 to $20 1.2 151
 $13
$20.01 to $30 2.1 145
 $24
$30.01 to $40 0.1 37
 $39
$40.01 to $50 3.6 239
 $44
$50.01 to $60 4.6 193
 $52
$60.01 to $70 5.2 639
 $63
Options outstanding 4.0 1,404
 $48
Options exercisable 3.7 1,309
 $47
Stock Appreciation Rights (SARs):
There were no SARs granted in 2017 or 2016. SARs vest under the same terms and conditions as options; however, they are settled in cash equal to their settlement date fair value. As a result, SARs are recorded in the Company’s consolidated balance sheets as a liability until the date of exercise. The fair value of each SAR award is estimated using a lattice-based valuation model. In accordance with ASC Topic 718, “Stock Compensation,” the fair value of each SAR award is recalculated at the end of each reporting period and the liability and expense adjusted based on the new fair value and the percent vested. The assumptions used to determine the fair value of the SAR awards at December 31, 2017 and 2016 were as follows:
  2017 2016
Expected average term (in years) 5.7
 5.2 - 5.7
Expected volatility 28% - 31%
 28% - 31%
Expected dividend yield 2.9% 2.4%
Risk-free interest rate 1.3% - 2.5%
 0.5% - 2.6%


The following table summarizes the SARstock option transactions for the year ended December 31, 20172019 were as follows (in thousands, except for per share amounts):
 Options Weighted-Average Exercise Price
Outstanding, beginning of period1,055
 $50
Exercised(168) $21
Forfeited(71) $54
Outstanding, end of period816
 $56
    
Exercisable, end of period816
 $56

  SARs 
Weighted-Average
Price
Outstanding, beginning of period 75
 $37
Granted 
 $
Exercised (32) $31
Forfeited (16) $62
Outstanding, end of period 27
 $30
Exercisable, end of period 27
 $30
The weighted-average fairaggregate intrinsic value related to stock options exercised, outstanding and exercisable as of SARs granted during the year ended December 31, 2015 was $13.

17.    Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the years ended December 31, was as follows (in thousands except per share amounts)thousands):
 2019 2018 2017
Exercised$2,614
 $3,855
 $4,051
Outstanding$52
 $2,366
 $11,711
Exercisable$52
 $2,366
 $11,711

Stock options outstanding at December 31, 2019 were as follows (options in thousands):
Price Range 
Weighted-Average
Contractual Life
 Options 
Weighted-Average
Exercise Price
$20.01 to $30 0.5 4
 $24
$40.01 to $50 1.6 207
 $44
$50.01 to $60 2.9 157
 $52
$60.01 to $70 4.3 448
 $63
Options outstanding 3.0 816
 $56
       
Options exercisable 3.0 816
 $56



18. Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss (AOCL) for the years ended December 31, were as follows (in thousands):
 2019
 Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period$(49,608) $
 $1,785
 $(581,861) $(629,684)
Other comprehensive income, before reclassifications9,229
 
 6,477
 90,071
 105,777
Income tax expense(434) 
 (1,541) (21,149) (23,124)
 8,795
 
 4,936
 68,922
 82,653
Reclassifications:         
Net gain on derivative instruments
 
 (27,732) 
 (27,732)
Prior service credits(a)

 
 
 (4,311) (4,311)
Actuarial losses(a)

 
 
 44,788
 44,788
Curtailment and settlement losses(a)

 
 
 543
 543
Reclassifications before tax
 
 (27,732) 41,020
 13,288
Income tax benefit (expense)
 
 6,425
 (9,631) (3,206)
 
 
 (21,307) 31,389
 10,082
Other comprehensive income (loss)8,795
 
 (16,371) 100,311
 92,735
Balance, end of period$(40,813) $
 $(14,586) $(481,550) $(536,949)

 2018
 Foreign currency translation adjustments Marketable securities 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(28,212) 
 35,686
 (84,725) (77,251)
Income tax benefit (expense)3,202
 
 (8,455) 19,893
 14,640
 (25,010) 
 27,231
 (64,832) (62,611)
Reclassifications:         
Net gain on derivative instruments
 
 (9,466) 
 (9,466)
Prior service credits(a)

 
 
 (2,262) (2,262)
Actuarial losses(a)

 
 
 66,590
 66,590
Curtailment and settlement gains(a)

 
 
 (886) (886)
Reclassifications before tax
 
 (9,466) 63,442
 53,976
Income tax benefit (expense)
 
 2,244
 (14,896) (12,652)
 
 
 (7,222) 48,546
 41,324
Other comprehensive (loss) income(25,010) 
 20,009
 (16,286) (21,287)
Reclassification of certain tax effects(2,746) 
 (970) (104,632) (108,348)
Balance, end of period$(49,608) $
 $1,785
 $(581,861) $(629,684)



  2017 2016 2015
Numerator:
      
Income used in computing basic and diluted earnings per share $521,759
 $692,164
 $752,207
Denominator:
      
Denominator for basic earnings per share-weighted-average common shares 171,995
 179,676
 202,681
Effect of dilutive securities – employee stock compensation plan 937
 859
 1,005
Denominator for diluted earnings per share- adjusted weighted-average shares outstanding 172,932
 180,535
 203,686
Earnings per common share:      
Basic $3.03
 $3.85
 $3.71
Diluted $3.02
 $3.83
 $3.69
 2017
 Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period$(68,132) $(1,194) $12,524
 $(508,579) $(565,381)
Other comprehensive income (loss), before reclassifications52,145
 1,896
 (54,929) 24,321
 23,433
Income tax (expense) benefit(5,865) (702) 20,338
 (5,711) 8,060
 46,280
 1,194
 (34,591) 18,610
 31,493
Reclassifications:         
Net loss on derivative instruments
 
 7,644
 
 7,644
Prior service credits(a)

 
 
 (1,153) (1,153)
Actuarial losses(a)

 
 
 47,254
 47,254
Reclassifications before tax
 
 7,644
 46,101
 53,745
Income tax expense
 
 (2,831) (17,075) (19,906)
 
 
 4,813
 29,026
 33,839
Other comprehensive income (loss)46,280
 1,194
 (29,778) 47,636
 65,332
Balance, end of period$(21,852) $
 $(17,254) $(460,943) $(500,049)
Options to purchase 0.8 million, 1.4 million and 1.0 million weighted-average shares of common stock outstanding during 2017, 2016 and 2015, respectively, were not included in the Company’s computation of dilutive securities because the exercise price was greater than the market price and therefore the effect would have been anti-dilutive.
The Company has a share-based compensation plan under which employees may be granted share-based awards, including 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 calculation as of December 31, 2017, 2016 and 2015.
(a)Amounts reclassified are included in the computation of net periodic benefit cost, discussed further in Note 15.
18.19. Reportable Segments and Geographic Information
Reportable Segments:
Segments Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in two2 segments: the Motorcycles &and Related Products (Motorcycles) segment and the Financial Services segment.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 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 United States,U.S., Canada, Latin America, Europe/Middle East/Africa (EMEA), Asia Pacific, and Asia Pacific.


Latin America.
The Financial Services segment consists of HDFS which providesis engaged in the business of financing and servicing wholesale inventory receivables and retail financing and providesconsumer loans, primarily for the purchase of Harley-Davidson motorcycles. HDFS also works with certain unaffiliated insurance companies to provide motorcycle insurance and insurance-related programs primarilyprotection products to Harley-Davidson dealers and their retail customers.motorcycle owners. HDFS conducts business principally in the United StatesU.S. and Canada.
Information bySelected segment information is set forth below for the years ended December 31, (in thousands):
 2019 2018 2017
Motorcycles and Related Products:     
Motorcycles revenue$4,572,678
 $4,968,646
 $4,915,027
Gross profit1,342,880
 1,616,850
 1,642,697
Selling, administrative and engineering expense1,020,907
 1,101,086
 1,035,921
Restructuring expense32,353
 93,401
 
Operating income289,620
 422,363
 606,776
Financial Services:     
Financial Services revenue789,111
 748,229
 732,197
Financial Services expense523,123
 457,069
 456,892
Operating income265,988
 291,160
 275,305
Operating income$555,608
 $713,523
 $882,081

  2017 2016 2015
Motorcycles net revenue $4,915,027
 $5,271,376
 $5,308,744
Gross profit 1,653,344
 1,851,666
 1,952,460
Selling, administrative and engineering expense 1,037,386
 1,078,260
 1,076,970
Operating income from Motorcycles 615,958
 773,406
 875,490
Financial Services revenue 732,197
 725,082
 686,658
Financial Services expense 456,892
 449,552
 406,453
Operating income from Financial Services 275,305
 275,530
 280,205
Operating income $891,263
 $1,048,936
 $1,155,695


Financial Services revenue includes $6.9$10.0 million, $4.4$9.0 million and $6.9 million of interest thatpaid by HDMC paid to HDFS on wholesale finance receivables in 20172019, 20162018 and 20152017, respectively. The offsetting cost of these interest incentives was recorded as a reduction to Motorcycles revenue.
Information byAdditional segment information is set forth below as of December 31, (in thousands):
 Motorcycles Financial Services Consolidated
2019:     
Assets$2,548,115
 $7,980,044
 $10,528,159
Depreciation and amortization$223,656
 $8,881
 $232,537
Capital expenditures$176,264
 $5,176
 $181,440
2018:     
Assets$2,562,931
 $8,102,733
 $10,665,664
Depreciation and amortization$260,707
 $4,156
 $264,863
Capital expenditures$197,905
 $15,611
 $213,516
2017:     
Assets$2,449,603
 $7,523,069
 $9,972,672
Depreciation and amortization$215,639
 $6,549
 $222,188
Capital expenditures$193,204
 $13,090
 $206,294

  Motorcycles 
Financial
Services
 Consolidated
2017      
Total assets $2,449,603
 $7,523,069
 $9,972,672
Depreciation and amortization $215,639
 $6,549
 $222,188
Capital expenditures $193,204
 $13,090
 $206,294
2016      
Total assets $2,490,450
 $7,399,790
 $9,890,240
Depreciation and amortization $202,122
 $7,433
 $209,555
Capital expenditures $245,316
 $10,947
 $256,263
2015      
Total assets $2,522,249
 $7,450,728
 $9,972,977
Depreciation and amortization $188,926
 $9,148
 $198,074
Capital expenditures $249,772
 $10,202
 $259,974


Geographic Information:
Information Included in the consolidatedConsolidated financial statements are the following amounts relating to geographic locations for the years ended December 31, (in thousands):
 2019 2018 2017
Motorcycles revenue(a):
     
United States$2,971,223
 $3,159,049
 $3,215,513
EMEA743,385
 893,589
 790,725
Canada210,381
 230,211
 232,883
Japan156,644
 161,370
 180,938
Australia and New Zealand117,525
 147,561
 168,670
Other countries373,520
 376,866
 326,298
 $4,572,678
 $4,968,646
 $4,915,027
Financial Services revenue(a):
     
United States$754,535
 $712,898
 $698,383
Canada22,799
 23,120
 22,580
Europe8,435
 8,411
 6,845
Other countries3,342
 3,800
 4,389
 $789,111
 $748,229
 $732,197
Long-lived assets(b):
     
United States$757,594
 $838,446
 $912,032
International:     
Thailand78,651
 50,331
 31,087
Other countries11,137
 15,355
 24,662
 89,788
 65,686
 55,749
 $847,382
 $904,132
 $967,781
  2017 2016 2015
Revenue from Motorcycles(a):
      
United States $3,215,513
 $3,579,129
 $3,768,069
EMEA 790,725
 798,489
 728,198
Japan 180,938
 200,309
 162,675
Canada 232,883
 212,099
 178,042
Australia and New Zealand 168,670
 181,809
 165,854
Other foreign countries 326,298
 299,541
 305,906
Total revenue from Motorcycles $4,915,027
 $5,271,376
 $5,308,744
Revenue from Financial Services(a):
      
United States $698,383
 $692,784
 $656,888
Europe 6,845
 6,528
 5,373
Canada 22,580
 21,626
 21,180
Other foreign countries 4,389
 4,144
 3,217
Total revenue from Financial Services $732,197
 $725,082
 $686,658
Long-lived assets(b):
      
United States $912,032
 $943,479
 $915,509
International 55,749
 38,114
 26,909
Total long-lived assets $967,781
 $981,593
 $942,418


(a)Revenue is attributed to geographic regions based on location of customer.
(b)
Long-lived assets include all long-term assets except those specifically excluded under ASC Topic 280, “SegmentSegment Reporting, such as deferred income taxes and finance receivables.
19.    Related Party Transactions

A former director of the Company was Chairman and Chief Executive Officer and an equity owner of Fred Deeley Imports Ltd. (Deeley Imports) when certain of its assets and liabilities were acquired by the Company in 2015. Deeley Imports was the exclusive distributor of the Company’s motorcycles in Canada until August 2015 when the Company completed its purchase of certain assets and liabilities from Deeley Imports including, among other things, the acquisition of the exclusive right to distribute the Company's motorcycles and other products in Canada. The Company recorded Motorcycles and Related Products revenue and Financial Services revenue from Deeley Imports during 2015 of $117.3 million prior to the acquisition. As a result of the acquisition, the Company no longer does business with Deeley Imports. Refer to Note 3 for further details.
Upon the termination of the distribution agreement between the Company and Deeley Imports, the Company entered into dealer agreements with approximately 66 dealers in Canada, all of which had preexisting dealer agreements with Deeley Imports. These new Canadian dealer agreements included an agreement with Trev Deeley Motorcycles for the operation of a Harley-Davidson dealership located in Richmond, British Columbia. Trev Deeley Motorcycles is owned by the Darren James 2014 Trust, of which a former director of the Company is the sole trustee and his son is the beneficiary. The former director of the Company retired from the Board of Directors in April 2017 at which time he was no longer considered a related party.
The Company recorded Motorcycles and Related Products revenue and Financial Services revenue from Trev Deeley Motorcycles during 2017 and 2016 of $5.8 million and $5.3 million, respectively, and had finance receivables balances due from Trev Deeley Motorcycles of $0.3 million and $0.5 million at December 31, 2017 and 2016, respectively.

20. Supplemental Consolidating Data
The supplemental consolidating data for the periods noted is presented for informational purposes. The supplemental consolidating data may bepurposes and is different than segment information presented elsewhere due to the allocation of intercompany eliminationsconsolidating reporting adjustments to reportingthe reportable segments. All supplementalSupplemental consolidating data is presented in thousands.


as follows (in thousands):
 Year Ended December 31, 2019
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Revenue:       
Motorcycles and Related Products$4,593,585
 $
 $(20,907) $4,572,678
Financial Services
 779,163
 9,948
 789,111
 4,593,585
 779,163
 (10,959) 5,361,789
Costs and expenses:       
Motorcycles and Related Products cost of goods sold3,229,798
 
 
 3,229,798
Financial Services interest expense
 210,438
 
 210,438
Financial Services provision for credit losses
 134,536
 
 134,536
Selling, administrative and engineering expense1,034,921
 175,258
 (11,123) 1,199,056
Restructuring expense32,353
 
 
 32,353
 4,297,072
 520,232
 (11,123) 4,806,181
Operating income296,513
 258,931
 164
 555,608
Other income (expense), net16,514
 
 
 16,514
Investment income196,371
 
 (180,000) 16,371
Interest expense31,078
 
 
 31,078
Income before provision for income taxes478,320
 258,931
 (179,836) 557,415
Provision for income taxes75,278
 58,502
 
 133,780
Net income$403,042
 $200,429
 $(179,836) $423,635
  Year Ended December 31, 2017
  
HDMC
Entities
 
HDFS
Entities
 Eliminations Consolidated
Revenue:        
Motorcycles and Related Products $4,925,003
 $
 $(9,976) $4,915,027
Financial Services 
 734,008
 (1,811) 732,197
Total revenue 4,925,003
 734,008
 (11,787) 5,647,224
Costs and expenses:        
Motorcycles and Related Products cost of goods sold 3,261,683
 
 
 3,261,683
Financial Services interest expense 
 180,193
 
 180,193
Financial Services provision for credit losses 
 132,444
 
 132,444
Selling, administrative and engineering expense 1,038,994
 154,232
 (11,585) 1,181,641
Total costs and expenses 4,300,677
 466,869
 (11,585) 4,755,961
Operating income 624,326
 267,139
 (202) 891,263
Investment income 199,580
 
 (196,000) 3,580
Interest expense 31,004
 
 
 31,004
Income before provision for income taxes 792,902
 267,139
 (196,202) 863,839
Provision for income taxes 214,175
 127,905
 
 342,080
Net income $578,727
 $139,234
 $(196,202) $521,759

 Year Ended December 31, 2018
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Revenue:       
Motorcycles and Related Products$4,981,445
 $
 $(12,799) $4,968,646
Financial Services
 747,432
 797
 748,229
 4,981,445
 747,432
 (12,002) 5,716,875
Costs and expenses:       
Motorcycles and Related Products cost of goods sold3,352,438
 
 (642) 3,351,796
Financial Services interest expense
 193,187
 
 193,187
Financial Services provision for credit losses
 106,870
 
 106,870
Selling, administrative and engineering expense1,104,919
 164,623
 (11,444) 1,258,098
Restructuring expense93,401
 
 
 93,401
 4,550,758
 464,680
��(12,086) 5,003,352
Operating income430,687
 282,752
 84
 713,523
Other income (expense), net3,039
 
 
 3,039
Investment income235,951
 
 (235,000) 951
Interest expense30,884
 
 
 30,884
Income before provision for income taxes638,793
 282,752
 (234,916) 686,629
Provision for income taxes85,153
 70,025
 
 155,178
Net income$553,640
 $212,727
 $(234,916) $531,451
  Year Ended December 31, 2016
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Revenue:        
Motorcycles and Related Products $5,281,355
 $
 $(9,979) $5,271,376
Financial Services 
 726,736
 (1,654) 725,082
Total revenue 5,281,355
 726,736
 (11,633) 5,996,458
Costs and expenses:        
Motorcycles and Related Products cost of goods sold 3,419,710
 
 
 3,419,710
Financial Services interest expense 
 173,756
 
 173,756
Financial Services provision for credit losses 
 136,617
 
 136,617
Selling, administrative and engineering expense 1,080,020
 149,157
 (11,738) 1,217,439
Total costs and expenses 4,499,730
 459,530
 (11,738) 4,947,522
Operating income 781,625
 267,206
 105
 1,048,936
Investment income 187,645
 
 (183,000) 4,645
Interest expense 29,670
 
 
 29,670
Income before provision for income taxes 939,600
 267,206
 (182,895) 1,023,911
Provision for income taxes 231,986
 99,761
 
 331,747
Net income $707,614
 $167,445
 $(182,895) $692,164

 



 Year Ended December 31, 2017
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Revenue:       
Motorcycles and Related Products$4,925,003
 $
 $(9,976) $4,915,027
Financial Services
 734,008
 (1,811) 732,197
 4,925,003
 734,008
 (11,787) 5,647,224
Costs and expenses:       
Motorcycles and Related Products cost of goods sold3,272,330
 
 
 3,272,330
Financial Services interest expense
 180,193
 
 180,193
Financial Services provision for credit losses
 132,444
 
 132,444
Selling, administrative and engineering expense1,037,529
 154,232
 (11,585) 1,180,176
 4,309,859
 466,869
 (11,585) 4,765,143
Operating income615,144
 267,139
 (202) 882,081
Other income (expense), net9,182
 
 
 9,182
Investment income199,580
 
 (196,000) 3,580
Interest expense31,004
 
 
 31,004
Income before provision for income taxes792,902
 267,139
 (196,202) 863,839
Provision for income taxes214,175
 127,905
 
 342,080
Net income$578,727
 $139,234
 $(196,202) $521,759
  Year Ended December 31, 2015
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Revenue:        
Motorcycles and Related Products $5,318,850
 $
 $(10,106) $5,308,744
Financial Services 
 688,211
 (1,553) 686,658
Total revenue 5,318,850
 688,211
 (11,659) 5,995,402
Costs and expenses:        
Motorcycles and Related Products cost of goods sold 3,356,284
 
 
 3,356,284
Financial Services interest expense 
 161,983
 
 161,983
Financial Services provision for credit losses 
 101,345
 
 101,345
Selling, administrative and engineering expense 1,078,525
 153,229
 (11,659) 1,220,095
Total costs and expenses 4,434,809
 416,557
 (11,659) 4,839,707
Operating income 884,041
 271,654
 
 1,155,695
Investment income 106,585
 
 (100,000) 6,585
Interest expense 12,117
 
 
 12,117
Income before provision for income taxes 978,509
 271,654
 (100,000) 1,150,163
Provision for income taxes 300,499
 97,457
 
 397,956
Net income $678,010
 $174,197
 $(100,000) $752,207




 December 31, 2019
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
ASSETS       
Current assets:       
Cash and cash equivalents$470,649
 $363,219
 $
 $833,868
Marketable securities
 
 
 
Accounts receivable, net369,717
 
 (110,383) 259,334
Finance receivables, net
 2,272,522
 
 2,272,522
Inventories, net603,571
 
 
 603,571
Restricted cash
 64,554
 
 64,554
Other current assets110,145
 59,665
 (836) 168,974
 1,554,082
 2,759,960
 (111,219) 4,202,823
Finance receivables, net
 5,101,844
 
 5,101,844
Property, plant and equipment, net794,131
 53,251
 
 847,382
Prepaid pension costs56,014
 
 
 56,014
Goodwill64,160
 
 
 64,160
Deferred income taxes62,768
 39,882
 (1,446) 101,204
Lease assets55,722
 5,896
 
 61,618
Other long-term assets166,972
 19,211
 (93,069) 93,114
 $2,753,849
 $7,980,044
 $(205,734) $10,528,159
LIABILITIES AND SHAREHOLDERS’ EQUITY       
Current liabilities:       
Accounts payable$266,710
 $138,053
 $(110,383) $294,380
Accrued liabilities463,491
 119,186
 (389) 582,288
Short-term debt
 571,995
 
 571,995
Current portion of long-term debt, net
 1,748,109
 
 1,748,109
 730,201
 2,577,343
 (110,772) 3,196,772
Long-term debt, net743,296
 4,381,530
 
 5,124,826
Lease liability38,783
 5,664
 
 44,447
Pension liability56,138
 
 
 56,138
Postretirement healthcare liability72,513
 
 
 72,513
Deferred income taxes6,219
 1,916
 
 8,135
Other long-term liabilities180,033
 38,693
 2,603
 221,329
Commitments and contingencies (Note 16)

 

 

 

Shareholders’ equity926,666
 974,898
 (97,565) 1,803,999
 $2,753,849
 $7,980,044
 $(205,734) $10,528,159
  December 31, 2017
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
ASSETS        
Current assets:        
Cash and cash equivalents $338,186
 $349,335
 $
 $687,521
Accounts receivable, net 483,709
 
 (153,723) 329,986
Finance receivables, net 
 2,105,662
 
 2,105,662
Inventories 538,202
 
 
 538,202
Restricted cash 
 47,518
 
 47,518
Other current assets 132,999
 48,521
 (5,667) 175,853
Total current assets 1,493,096
 2,551,036
 (159,390) 3,884,742
Finance receivables, net 
 4,859,424
 
 4,859,424
Property, plant and equipment, net 922,280
 45,501
 
 967,781
Prepaid pension costs 19,816
 
 
 19,816
Goodwill 55,947
 
 
 55,947
Deferred income taxes 66,877
 43,515
 (1,319) 109,073
Other long-term assets 138,344
 23,593
 (86,048) 75,889
  $2,696,360
 $7,523,069
 $(246,757) $9,972,672
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $214,263
 $167,057
 $(153,723) $227,597
Accrued liabilities 444,028
 90,942
 (5,148) 529,822
Short-term debt 
 1,273,482
 
 1,273,482
Current portion of long-term debt, net 
 1,127,269
 
 1,127,269
Total current liabilities 658,291
 2,658,750
 (158,871) 3,158,170
Long-term debt, net 741,961
 3,845,297
 
 4,587,258
Pension liability 54,606
 
 
 54,606
Postretirement healthcare liability 118,753
 
 
 118,753
Other long-term liabilities 171,200
 35,503
 2,905
 209,608
Commitments and contingencies (Note 14) 
 
 
 
Shareholders’ equity 951,549
 983,519
 (90,791) 1,844,277
  $2,696,360
 $7,523,069
 $(246,757) $9,972,672




 December 31, 2018
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
ASSETS       
Current assets:       
Cash and cash equivalents$544,548
 $659,218
 $
 $1,203,766
Marketable securities10,007
 
 
 10,007
Accounts receivable, net425,727
 
 (119,253) 306,474
Finance receivables, net
 2,214,424
 
 2,214,424
Inventories, net556,128
 
 
 556,128
Restricted cash
 49,275
 
 49,275
Other current assets91,172
 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, net847,176
 56,956
 
 904,132
Goodwill55,048
 
 
 55,048
Deferred income taxes105,388
 37,603
 (1,527) 141,464
Other long-term assets144,122
 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 liabilities496,643
 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, net742,624
 4,145,043
 
 4,887,667
Pension liability107,776
 
 
 107,776
Postretirement healthcare liability94,453
 
 
 94,453
Other long-term liabilities164,243
 37,142
 2,834
 204,219
Commitments and contingencies (Note 16)

 

 

 

Shareholders’ equity914,990
 953,349
 (94,390) 1,773,949
 $2,779,316
 $8,102,733
 $(216,385) $10,665,664
  December 31, 2016
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
ASSETS        
Current assets:        
Cash and cash equivalents $425,540
 $334,444
 $
 $759,984
Marketable securities 5,019
 500
 
 5,519
Accounts receivable, net 450,186
 
 (165,080) 285,106
Finance receivables, net 
 2,076,261
 
 2,076,261
Inventories 499,917
 
 
 499,917
Restricted cash 
 52,574
 
 52,574
Other current assets 127,606
 46,934
 (49) 174,491
Total current assets 1,508,268
 2,510,713
 (165,129) 3,853,852
Finance receivables, net 
 4,759,197
 
 4,759,197
Property, plant and equipment, net 942,634
 38,959
 
 981,593
Goodwill 53,391
 
 
 53,391
Deferred income taxes 103,487
 66,152
 (1,910) 167,729
Other long-term assets 132,835
 24,769
 (83,126) 74,478
  $2,740,615
 $7,399,790
 $(250,165) $9,890,240
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $219,353
 $181,045
 $(165,080) $235,318
Accrued liabilities 395,907
 90,910
 (165) 486,652
Short-term debt 
 1,055,708
 
 1,055,708
Current portion of long-term debt, net 
 1,084,884
 
 1,084,884
Total current liabilities 615,260
 2,412,547
 (165,245) 2,862,562
Long-term debt, net 741,306
 3,925,669
 
 4,666,975
Pension liability 84,442
 
 
 84,442
Postretirement healthcare liability 173,267
 
 
 173,267
Other long-term liabilities 150,391
 29,697
 2,748
 182,836
Commitments and contingencies (Note 14) 
 
 
 
Shareholders’ equity 975,949
 1,031,877
 (87,668) 1,920,158
  $2,740,615
 $7,399,790
 $(250,165) $9,890,240




 Year Ended December 31, 2019
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Cash flows from operating activities:       
Net income$403,042
 $200,429
 $(179,836) $423,635
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization223,656
 8,881
 
 232,537
Amortization of deferred loan origination costs
 76,326
 
 76,326
Amortization of financing origination fees672
 9,151
 
 9,823
Provision for long-term employee benefits13,344
 
 
 13,344
Employee benefit plan contributions and payments(13,256) 
 
 (13,256)
Stock compensation expense30,396
 3,337
 
 33,733
Net change in wholesale finance receivables related to sales
 
 (5,822) (5,822)
Provision for credit losses
 134,536
 
 134,536
Deferred income taxes20,952
 676
 (81) 21,547
Other, net4,425
 (3,963) (164) 298
Changes in current assets and liabilities:       
Accounts receivable, net53,772
 
 (8,870) 44,902
Finance receivables - accrued interest and other
 (11,119) 
 (11,119)
Inventories, net(47,576) 
 
 (47,576)
Accounts payable and accrued liabilities(43,211) (4,107) 28,856
 (18,462)
Derivative financial instruments1,808
 128
 
 1,936
Other(33,105) 10,033
 (5,038) (28,110)
 211,877
 223,879
 8,881
 444,637
Net cash provided by operating activities614,919
 424,308
 (170,955) 868,272
Cash flows from investing activities:       
Capital expenditures(176,264) (5,176) 
 (181,440)
Origination of finance receivables
 (7,053,898) 3,206,576
 (3,847,322)
Collections on finance receivables
 6,715,338
 (3,215,621) 3,499,717
Sales and redemptions of marketable securities10,007
 
 
 10,007
Acquisition of business(7,000) 
 
 (7,000)
Other investing activities17,912
 
 
 17,912
Net cash used by investing activities(155,345) (343,736) (9,045) (508,126)
  Year Ended December 31, 2017
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Cash flows from operating activities:        
Net income $578,727
 $139,234
 $(196,202) $521,759
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization of intangibles 215,639
 6,549
 
 222,188
Amortization of deferred loan origination costs 
 82,911
 
 82,911
Amortization of financing origination fees 655
 7,390
 
 8,045
Provision for long-term employee benefits 29,900
 
 
 29,900
Employee benefit plan contributions and payments (63,277) 
 
 (63,277)
Stock compensation expense 29,570
 2,921
 
 32,491
Net change in wholesale finance receivables related to sales 
 
 35,172
 35,172
Provision for credit losses 
 132,444
 
 132,444
Deferred income taxes 29,949
 21,497
 (591) 50,855
Other, net 4,858
 3,498
 203
 8,559
Changes in current assets and liabilities:        
Accounts receivable, net (6,792) 
 (11,357) (18,149)
Finance receivables—accrued interest and other 
 (1,313) 
 (1,313)
Inventories (20,584) 
 
 (20,584)
Accounts payable and accrued liabilities 9,753
 (11,497) 11,872
 10,128
Derivative instruments 1,785
 81
 
 1,866
Other (31,868) (1,684) 5,618
 (27,934)
Total adjustments 199,588
 242,797
 40,917
 483,302
Net cash provided by operating activities 778,315
 382,031
 (155,285) 1,005,061
Cash flows from investing activities:        
Capital expenditures (193,204) (13,090) 
 (206,294)
Origination of finance receivables 
 (7,109,624) 3,517,676
 (3,591,948)
Collections on finance receivables 
 6,786,702
 (3,558,391) 3,228,311
Sales and redemptions of marketable securities 6,916
 
 
 6,916
Other 547
 
 
 547
Net cash used by investing activities (185,741) (336,012) (40,715) (562,468)




 Year Ended December 31, 2019
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Cash flows from financing activities:       
Proceeds from issuance of medium-term notes
 1,203,236
 
 1,203,236
Repayments of medium-term notes
 (1,350,000) 
 (1,350,000)
Proceeds from securitization debt
 1,021,453
 
 1,021,453
Repayments of securitization debt
 (353,251) 
 (353,251)
Borrowings of asset-backed commercial paper
 177,950
 
 177,950
Repayments of asset-backed commercial paper
 (318,006) 
 (318,006)
Net decrease in credit facilities and unsecured commercial paper
 (563,453) 
 (563,453)
Dividends paid(237,221) (180,000) 180,000
 (237,221)
Repurchase of common stock(296,520) 
 
 (296,520)
Issuance of common stock under employee stock option plans3,589
 
 
 3,589
Net cash used by financing activities(530,152) (362,071) 180,000
 (712,223)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(3,321) 1,016
 
 (2,305)
Net decrease in cash, cash equivalents and restricted cash$(73,899) $(280,483) $
 $(354,382)
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(73,899) (280,483) 
 (354,382)
Cash, cash equivalents and restricted cash, end of period$470,649
 $434,717
 $
 $905,366

  Year Ended December 31, 2017
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Cash flows from financing activities:        
Proceeds from issuance of medium-term notes 
 893,668
 
 893,668
Repayments of medium-term notes 
 (800,000) 
 (800,000)
Repayments of securitization debt 
 (444,671) 
 (444,671)
Borrowings of asset-backed commercial paper 
 469,932
 
 469,932
Repayments of asset-backed commercial paper 
 (176,227) 
 (176,227)
Net increase in credit facilities and unsecured commercial paper 
 212,809
 
 212,809
Net change in restricted cash 
 8,458
 
 8,458
Dividends paid (251,862) (196,000) 196,000
 (251,862)
Purchase of common stock for treasury (465,263) 
 
 (465,263)
Issuance of common stock under employee stock option plans 11,353
 
 
 11,353
Net cash used by financing activities (705,772) (32,031) 196,000
 (541,803)
Effect of exchange rate changes on cash and cash equivalents 25,844
 903
 
 26,747
Net (decrease) increase in cash and cash equivalents $(87,354) $14,891
 $
 $(72,463)
Cash and cash equivalents:        
Cash and cash equivalents—beginning of period $425,540
 $334,444
 $
 $759,984
Net (decrease) increase in cash and cash equivalents (87,354) 14,891
 
 (72,463)
Cash and cash equivalents—end of period $338,186
 $349,335
 $
 $687,521




 Year Ended December 31, 2018
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Cash flows from operating activities:       
Net income$553,640
 $212,727
 $(234,916) $531,451
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization of intangibles260,707
 4,156
 
 264,863
Amortization of deferred loan origination costs
 81,315
 
 81,315
Amortization of financing origination fees663
 7,704
 
 8,367
Provision for long-term employee benefits36,481
 
 
 36,481
Employee benefit plan contributions and payments(10,544) 
 
 (10,544)
Stock compensation expense31,855
 3,684
 
 35,539
Net change in wholesale finance receivables related to sales
 
 (56,538) (56,538)
Provision for credit losses
 106,870
 
 106,870
Deferred income taxes(41,905) 7,716
 208
 (33,981)
Other, net36,840
 798
 (84) 37,554
Changes in current assets and liabilities:       
Accounts receivable, net43,613
 
 (34,470) 9,143
Finance receivables – accrued interest and other
 773
 
 773
Inventories, net(31,059) 
 
 (31,059)
Accounts payable and accrued liabilities152,930
 (1,778) 45,040
 196,192
Derivative financial instruments337
 136
 
 473
Other39,031
 (10,216) 207
 29,022
 518,949
 201,158
 (45,637) 674,470
Net cash provided by operating activities1,072,589
 413,885
 (280,553) 1,205,921
Cash flows from investing activities:       
Capital expenditures(197,905) (15,611) 
 (213,516)
Origination of finance receivables
 (7,192,063) 3,439,246
 (3,752,817)
Collections on finance receivables
 6,719,362
 (3,393,693) 3,325,669
Purchases of marketable securities(10,007) 
 
 (10,007)
Other investing activities(11,598) 
 
 (11,598)
Net cash used by investing activities(219,510) (488,312) 45,553
 (662,269)



  Year Ended December 31, 2016
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Cash flows from operating activities:        
Net income $707,614
 $167,445
 $(182,895) $692,164
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization of intangibles 202,122
 7,433
 
 209,555
Amortization of deferred loan origination costs 
 86,681
 
 86,681
Amortization of financing origination fees 654
 8,598
 
 9,252
Provision for long-term employee benefits 38,273
 
 
 38,273
Employee benefit plan contributions and payments (55,809) 
 
 (55,809)
Stock compensation expense 29,811
 2,525
 
 32,336
Net change in wholesale finance receivables related to sales 
 
 (3,233) (3,233)
Provision for credit losses 
 136,617
 
 136,617
Gain on off-balance sheet asset-backed securitization 
 (9,269) 
 (9,269)
Loss on debt extinguishment 
 118
 
 118
Deferred income taxes 7,772
 (7,705) (232) (165)
Other, net (7,041) 239
 (105) (6,907)
Changes in current assets and liabilities:        
Accounts receivable, net (67,621) 
 21,687
 (45,934)
Finance receivables – accrued interest and other 
 (1,489) 
 (1,489)
Inventories 85,072
 
 
 85,072
Accounts payable and accrued liabilities 26,005
 25,027
 (12,795) 38,237
Derivative instruments (3,413) 
 
 (3,413)
Other (25,415) (2,332) 
 (27,747)
Total adjustments 230,410
 246,443
 5,322
 482,175
Net cash provided by operating activities 938,024
 413,888
 (177,573) 1,174,339
Cash flows from investing activities:        
Capital expenditures (245,316) (10,947) 
 (256,263)
Origination of finance receivables 
 (7,420,177) 3,755,682
 (3,664,495)
Collections on finance receivables 
 6,936,140
 (3,761,109) 3,175,031
Proceeds from finance receivables sold 
 312,571
 
 312,571
Sales and redemptions of marketable securities 40,014
 
 
 40,014
Other 411
 
 
 411
Net cash used by investing activities (204,891) (182,413) (5,427) (392,731)
 Year Ended December 31, 2018
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Cash flows from financing activities:       
Proceeds from issuance of medium-term notes
 1,591,828
 
 1,591,828
Repayments of medium-term notes
 (877,488) 
 (877,488)
Repayments of securitization debt
 (257,869) 
 (257,869)
Borrowings of asset-backed commercial paper
 509,742
 
 509,742
Repayments of asset-backed commercial paper
 (212,729) 
 (212,729)
Net decrease in credit facilities and unsecured commercial paper
 (135,356) 
 (135,356)
Dividends paid(245,810) (235,000) 235,000
 (245,810)
Repurchase of common stock(390,606) 
 
 (390,606)
Issuance of common stock under employee stock option plans3,525
 
 
 3,525
Net cash (used by) provided by financing activities(632,891) 383,128
 235,000
 (14,763)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(13,826) (1,525) 
 (15,351)
Net increase in cash, cash equivalents and restricted cash$206,362
 $307,176
 $
 $513,538
Cash, cash equivalents and restricted cash:       
Cash, cash equivalents and restricted cash, beginning of period$338,186
 $408,024
 $
 $746,210
Net increase in cash, cash equivalents and restricted cash206,362
 307,176
 
 513,538
Cash, cash equivalents and restricted cash, end of period$544,548
 $715,200
 $
 $1,259,748




 Year Ended December 31, 2017
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Cash flows from operating activities:       
Net income$578,727
 $139,234
 $(196,202) $521,759
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization215,639
 6,549
 
 222,188
Amortization of deferred loan origination costs
 82,911
 
 82,911
Amortization of financing origination fees655
 7,390
 
 8,045
Provision for long-term employee benefits29,900
 
 
 29,900
Employee benefit plan contributions and payments(63,277) 
 
 (63,277)
Stock compensation expense29,570
 2,921
 
 32,491
Net change in wholesale finance receivables related to sales
 
 35,172
 35,172
Provision for credit losses
 132,444
 
 132,444
Deferred income taxes29,949
 21,497
 (591) 50,855
Other, net4,858
 3,498
 203
 8,559
Changes in current assets and liabilities:       
Accounts receivable, net(6,792) 
 (11,357) (18,149)
Finance receivables – accrued interest and other
 (1,313) 
 (1,313)
Inventories, net(20,584) 
 
 (20,584)
Accounts payable and accrued liabilities9,753
 (11,497) 11,872
 10,128
Derivative financial instruments1,785
 81
 
 1,866
Other(31,868) (1,684) 5,618
 (27,934)
 199,588
 242,797
 40,917
 483,302
Net cash provided by operating activities778,315
 382,031
 (155,285) 1,005,061
Cash flows from investing activities:       
Capital expenditures(193,204) (13,090) 
 (206,294)
Origination of finance receivables
 (7,109,624) 3,517,676
 (3,591,948)
Collections on finance receivables
 6,786,702
 (3,558,391) 3,228,311
Sales and redemptions of marketable securities6,916
 
 
 6,916
Other investing activities547
 
 
 547
Net cash used by investing activities(185,741) (336,012) (40,715) (562,468)
        
  Year Ended December 31, 2016
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Cash flows from financing activities:        
Proceeds from issuance of medium-term notes 
 1,193,396
 
 1,193,396
Repayments of medium-term notes 
 (451,336) 
 (451,336)
Repayments of securitization debt 
 (665,400) 
 (665,400)
Borrowings of asset-backed commercial paper 
 62,396
 
 62,396
Repayments of asset-backed commercial paper 
 (71,500) 
 (71,500)
Net decrease in credit facilities and unsecured commercial paper 
 (145,812) 
 (145,812)
Net change in restricted cash 
 43,495
 
 43,495
Dividends paid (252,321) (183,000) 183,000
 (252,321)
Purchase of common stock for treasury (465,341) 
 
 (465,341)
Excess tax benefits from share-based payments 2,251
 
 
 2,251
Issuance of common stock under employee stock option plans 15,782
 
 
 15,782
Net cash used by financing activities (699,629) (217,761) 183,000
 (734,390)
Effect of exchange rate changes on cash and cash equivalents (8,407) (1,036) 
 (9,443)
Net increase in cash and cash equivalents $25,097
 $12,678
 $
 $37,775
Cash and cash equivalents:        
Cash and cash equivalents – beginning of period $400,443
 $321,766
 $
 $722,209
Net increase in cash and cash equivalents 25,097
 12,678
 
 37,775
Cash and cash equivalents – end of period $425,540
 $334,444
 $
 $759,984




 Year Ended December 31, 2017
 HDMC Entities HDFS Entities Consolidating Adjustments Consolidated
Cash flows from financing activities:       
Proceeds from issuance of medium-term notes
 893,668
 
 893,668
Repayments of medium-term notes
 (800,000) 
 (800,000)
Repayments of securitization debt
 (444,671) 
 (444,671)
Borrowings of asset-backed commercial paper
 469,932
 
 469,932
Repayments of asset-backed commercial paper
 (176,227) 
 (176,227)
Net increase in credit facilities and unsecured commercial paper
 212,809
 
 212,809
Dividends paid(251,862) (196,000) 196,000
 (251,862)
Repurchase of common stock(465,263) 
 
 (465,263)
Issuance of common stock under employee stock option plans11,353
 
 
 11,353
Net cash used by financing activities(705,772) (40,489) 196,000
 (550,261)
Effect of exchange rate changes on cash, cash equivalents and restricted cash25,844
 903
 
 26,747
Net (decrease) increase in cash, cash equivalents and restricted cash$(87,354) $6,433
 $
 $(80,921)
Cash, cash equivalents and restricted cash:       
Cash, cash equivalents and restricted cash, beginning of period$425,540
 $401,591
 $
 $827,131
Net (decrease) increase in cash, cash equivalents and restricted cash(87,354) 6,433
 
 (80,921)
Cash, cash equivalents and restricted cash, end of period$338,186
 $408,024
 $
 $746,210
  Year Ended December 31, 2015
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Cash flows from operating activities:        
Net income $678,010
 $174,197
 $(100,000) $752,207
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization of intangibles 188,926
 9,148
 
 198,074
Amortization of deferred loan origination costs 
 93,546
 
 93,546
Amortization of financing origination fees 267
 9,708
 
 9,975
Provision for long-term employee benefits 60,824
 
 
 60,824
Employee benefit plan contributions and payments (28,490) 
 
 (28,490)
Stock compensation expense 26,775
 2,658
 
 29,433
Net change in wholesale finance receivables related to sales 
 
 (113,970) (113,970)
Provision for credit losses 
 101,345
 
 101,345
Loss on debt extinguishment 
 1,099
 
 1,099
Deferred income taxes (4,792) (11,692) 
 (16,484)
Other, net 19,625
 1,288
 
 20,913
Changes in current assets and liabilities:        
Accounts receivable, net 4,055
 
 (17,720) (13,665)
Finance receivables – accrued interest and other 
 (3,046) 
 (3,046)
Inventories (155,222) 
 
 (155,222)
Accounts payable and accrued liabilities 81,929
 18,539
 38,355
 138,823
Derivative instruments (5,615) 
 
 (5,615)
Other 33,658
 (3,287) 
 30,371
Total adjustments 221,940
 219,306
 (93,335) 347,911
Net cash provided by operating activities 899,950
 393,503
 (193,335) 1,100,118
Cash flows from investing activities:        
Capital expenditures (249,772) (10,202) 
 (259,974)
Origination of finance receivables 
 (7,836,279) 4,084,449
 (3,751,830)
Collections on finance receivables 
 7,127,999
 (3,991,114) 3,136,885
Sales and redemptions of marketable securities 11,507
 
 
 11,507
Acquisition of business (59,910) 
 
 (59,910)
Other 7,474
 
 
 7,474
Net cash used by investing activities (290,701) (718,482) 93,335
 (915,848)


  Year Ended December 31, 2015
  HDMC
Entities
 HDFS
Entities
 Eliminations Consolidated
Cash flows from financing activities:        
Proceeds from issuance of medium-term notes 
 595,386
 
 595,386
Repayments of medium-term notes 
 (610,331) 
 (610,331)
Proceeds from issuance of senior unsecured notes 740,385
 
 
 740,385
Intercompany borrowing activity 250,000
 (250,000) 
 
Proceeds from securitization debt 
 1,195,668
 
 1,195,668
Repayments of securitization debt 
 (1,008,135) 
 (1,008,135)
Borrowings of asset-backed commercial paper 
 87,442
 
 87,442
Repayments of asset-backed commercial paper 
 (72,727) 
 (72,727)
Net increase in credit facilities and unsecured commercial paper 
 469,473
 
 469,473
Net change in restricted cash 
 11,410
 
 11,410
Dividends paid (249,262) (100,000) 100,000
 (249,262)
Purchase of common stock for treasury (1,537,020) 
 
 (1,537,020)
Excess tax benefits from share-based payments 3,468
 
 
 3,468
Issuance of common stock under employee stock option plans 20,179
 
 
 20,179
Net cash (used by) provided by financing activities (772,250) 318,186
 100,000
 (354,064)
Effect of exchange rate changes on cash and cash equivalents (10,451) (4,226) 
 (14,677)
Net decrease in cash and cash equivalents $(173,452) $(11,019) $
 $(184,471)
Cash and cash equivalents:        
Cash and cash equivalents – beginning of period $573,895
 $332,785
 $
 $906,680
Net decrease in cash and cash equivalents (173,452) (11,019) 
 (184,471)
Cash and cash equivalents – end of period $400,443
 $321,766
 $
 $722,209

21. Supplementary Unaudited Quarterly Financial Data
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
(In millions, except per share data)March 31, 2019 April 1, 2018 June 30, 2019 July 1, 2018 Sep 29, 2019 Sep 30, 2018 Dec 31, 2019 Dec 31, 2018
Motorcycles:               
Revenue$1,195.6
 $1,363.9
 $1,434.0
 $1,525.1
 $1,068.9
 $1,123.9
 $874.1
 $955.6
Operating income (loss)$108.4
 $172.8
 $180.7
 $243.4
 $47.0
 $65.7
 $(46.5) $(59.5)
Financial Services:               
Revenue$188.7
 $178.2
 $198.6
 $188.1
 $203.6
 $191.7
 $198.2
 $190.2
Operating income$58.7
 $63.6
 $75.5
 $80.5
 $72.9
 $83.8
 $58.9
 $63.3
Consolidated:               
Income (loss) before taxes$170.4
 $230.2
 $256.1
 $319.4
 $117.3
 $141.2
 $13.7
 $(4.1)
Net income$127.9
 $174.8
 $195.6
 $242.3
 $86.6
 $113.9
 $13.5
 $0.5
Earnings per share:               
Basic$0.80
 $1.04
 $1.23
 $1.45
 $0.55
 $0.69
 $0.09
 $
Diluted$0.80
 $1.03
 $1.23
 $1.45
 $0.55
 $0.68
 $0.09
 $

22. Subsequent Events

On January 25, 2018, the Board of Directors of the Company approved a plan to further improve its manufacturing operations and cost structure by commencing a multi-year manufacturing optimization plan anchored by the consolidation of its motorcycle assembly plant in Kansas City, Missouri, into its plant in York, Pennsylvania. The Company expects to incur restructuring and other consolidation costs of $170 to $200 million related to this plan through 2019, of which approximately 70% will be cash charges.     

Event
In February 2018,January 2020, HDFS issued $350.0$525.0 million of medium-termsecured notes that mature in February 2023 and havethrough an annualon-balance sheet asset-backed securitization transaction at a weighted average interest rate of 3.35%1.83%.



SUPPLEMENTARY DATA
Quarterly financial data (unaudited)
(In millions, except per share data)
  
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
  Mar 26, 2017 Mar 27, 2016 June 25, 2017 June 26, 2016 Sep 24, 2017 Sep 25, 2016 Dec 31, 2017 Dec 31, 2016
Motorcycles:                
Revenue $1,328.7
 $1,576.6
 $1,577.1
 $1,670.1
 $962.1
 $1,091.6
 $1,047.0
 $933.0
Operating income $238.8
 $332.5
 $319.6
 $322.7
 $19.6
 $108.9
 $37.8
 $9.3
Financial Services:                
Revenue $173.2
 $173.4
 $188.0
 $191.0
 $189.1
 $183.2
 $181.9
 $177.6
Operating income $52.6
 $56.4
 $81.9
 $89.6
 $77.1
 $69.4
 $63.7
 $60.1
Consolidated:                
Income before taxes $284.7
 $382.4
 $394.4
 $405.9
 $89.9
 $173.0
 $94.8
 $62.6
Net income $186.4
 $250.5
 $258.9
 $280.4
 $68.2
 $114.1
 $8.3
 $47.2
Earnings per common share:                
Basic $1.06
 $1.37
 $1.48
 $1.55
 $0.40
 $0.64
 $0.05
 $0.27
Diluted $1.05
 $1.36
 $1.48
 $1.55
 $0.40
 $0.64
 $0.05
 $0.27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None. 


Item 9A. 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 Annual Report on Form 10-K, 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 Annual Report on Form 10-K 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 its Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control – Integrated Framework, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.2019. Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statementsfinancial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of the Company’s internal control over financial reporting.




Attestation Report of Independent Registered Public Accounting Firm
The attestation report required under this Item 9A is contained in Item 8 of Part II8. Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K under the heading “ReportReport of Independent Registered Public Accounting Firm.”Firm.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.     Other Information
On February 20, 2018, the Company entered into a Transition Agreement with Michelle A. Kumbier, who is the Chief Operating Officer of HDMC. The Transition Agreement becomes effective upon a change of control of the Company (as defined in the Transition Agreement). It provides for certain benefits upon the termination of Ms. Kumbier’s employment following a change of control. This agreement is substantially the same as the Transition Agreements to which the Company is a party with its Chief Executive Officer and its Chief Financial Officer.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information to be included in the Company’s definitive proxy statement for the 20182020 annual meeting of shareholders which will be filed on or about March 26, 2018 (the Proxy Statement), under the captions “QuestionsQuestions and Answers about the Company – Who are our Executive Officers for SEC Purposes?,” “Corporate Governance PrinciplesBoard Matters and Board MattersCorporate Governance – Audit and Finance Committee” “Proposal I –, Proposal 1: Election of Directors” “Section 16(a), Section 16(A) Beneficial Ownership Reporting Compliance,” “Audit, Audit and Finance Committee Report, and “Corporate Governance Principles and Board Matters and Corporate Governance – Independence of Directors”Directors is incorporated by reference herein.
The Company has adopted the Harley-Davidson, Inc. Financial Code of Ethics applicable to the Company’s chief executive officer, the chief financial officer, the principal accounting officer and the controllerChief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Controller and other persons performing similar finance functions. The Company has posted a copy of the Harley-Davidson, Inc. Financial Code of Ethics on the Company’s website at http://investor.harley-davidson.com/. The Company intends to satisfy the disclosure requirements under Item 5.05 of the Securities and Exchange Commission’s Current Report on Form 8-K regarding amendments to, or waivers from, the Harley-Davidson, Inc. Financial Code of Ethics by posting such information on its website at www.harley-davidson.com.www.harley-davidson.com. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K. 
Item 11. Executive Compensation
The information to be included in the Proxy Statement under the captions “Executive Compensation” Executive Compensation and “HumanHuman Resources Committee Report on Executive Compensation”Compensation is incorporated by reference herein. 


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information to be included in the Proxy Statement under the caption “CommonCommon Stock Ownership of Certain Beneficial Owners and Management”Management is incorporated by reference herein.









The following table provides information about the Company’s equity compensation plans (including individual compensation arrangements) as of December 31, 20172019:
Plan Category 
Number of securities
to be issued upon the
exercise of
outstanding options
 
Weighted-
average
exercise
price of
outstanding
options
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
the first column)
Equity compensation plans approved by shareholders:      
Management employees 1,404,287
 $48.13
 10,768,576
Equity compensation plans not approved by shareholders:      
Union employees:      
Kansas City, MO 
 $
 26,718
York, PA 
 $
 96,770
Non employees:      
Board of Directors 
 $
 33,466
  
 $
 156,954
Total all plans 1,404,287
 

 10,925,530
Plan Category Number of securities to be issued upon the exercise of outstanding options Weighted-average exercise price of outstanding options 
Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in the first column)
Plan approved by shareholders:      
Management employees 815,676
 $55.76
 7,196,998
Plan not approved by shareholders:      
Non-employee Board of Directors 
 $
 218,029
  815,676
 

 7,415,027
Plan documentsDocuments for each of the Company’s equity compensation plans have been filed with the Securities and Exchange Commission on a timely basis and are included in the list of exhibits to this annual reportAnnual Report on Form 10-K. Equity compensation plans not submitted to shareholders for approval were adopted prior to current regulations requiring such approval and have not been materially altered since adoption.
The material features of the union employees’ stock option awards are the same as those of the management employees’ stock option awards. Under the Company’s management plan the Board of Directors may grant to employees share-based awards including restricted stock units (RSUs), performance shares, and union plans,nonqualified stock options. Performance shares include a three-year performance period with vesting based on achievement of internal performance targets. RSUs vest ratably over a three-year period. Stock options granted under the Plan have an exercise price equal to the fair market value of the underlying stock at the date of grant and expire ten years from the date of grant. Stock options vest ratably over a three-year period with the first one-third of the grant becoming exercisable one year after the date of grant. Stock options expire 10 years from the date of grant.
The Company's Director Compensation Policy provides non-employee Directors with compensation that includes an annual retainer as well as a grant of share units. The payment of share units is deferred until a directorDirector ceases to serve as a directorDirector and the share units are payable at that time in actual shares of common stock. The Company's Director Compensation Policy also provides that a non-employee Director may elect to receive 50% or 100% of the annual retainer to be paid in each calendar year in the form of common stock based upon the fair market value of the common stock at the time of the annual meeting of shareholders. Each Director must receive a minimum of one-half of his or hertheir annual retainer in common stock until the Director reaches the Director stock ownership guidelines defined below.
In May 2016, the Company's Board of Directors approved the “Board of Directors and Senior Executive Stock Ownership Guidelines” (Ownership Guidelines). The Ownership Guidelines stipulate that all Directors hold five times their annual retainer in shares of Common Stockcommon stock and Vice Presidents, General Managers or higher (Senior Executives) hold from two times to six times of their base salary in shares of common stock, or certain rights to acquire common stock, depending on their level. The Directors and Senior Executives have five years from the date they are elected a Director or become a senior executiveSenior Executive to accumulate the appropriate number of shares of common stock. Restricted stock, restricted stock units, shares held in 401(k) accounts, shares issuable under vested unexercised stock options, performance shares and performance share units (at target amount), stock appreciation rights, deferred stock units and shares of common stock held directly count toward satisfying the guidelines for common stock ownership.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information to be included in the Proxy Statement under the captions Certain Transactions and Board Matters and Corporate Governance – Independence of Directors are incorporated by reference herein.
Item 14. Principal Accounting Fees and Services
The information to be included in the Proxy Statement under the caption “Certain Transactions” and “Corporate Governance Principles and Board Matters – IndependenceProposal 5: Ratification of Directors” is incorporated by reference herein.
Item 14.     Principal Accounting Fees and Services
The information to be included in the Proxy Statement under the caption “Ratification of Selection of Independent Registered Public Accounting Firm – Fees Paid to Ernst & Young LLP”LLP is incorporated by reference herein.





PART IV

Item 15. Exhibits and Financial Statements
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements 
  Consolidated statements of income for each of the three years in the period ended December 31, 2017
  Consolidated statements of comprehensive income for each of the three years in the period ended December 31, 2017
  Consolidated balance sheets at December 31, 2017 and December 31, 2016
  Consolidated statements of cash flows for each of the three years in the period ended December 31, 2017
  Consolidated statements of shareholders’ equity for each of the three years in the period ended December 31, 2017
  Notes to consolidated financial statements
(2) Financial Statement Schedule 
  Schedule II – Valuation and qualifying accounts
(3) Exhibits
(1)
Financial Statements under Item 8. Consolidated Financial Statements and Supplementary Data
 
 
 
 
 
 
 
 
(2)Financial Statement Schedule 
 
(3)
Reference is made to the separate Index to Exhibits contained on pages 114108 through 118111 filed herewith.
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules.
Item 16. Form 10-K Summary
None. 



Schedule II
HARLEY-DAVIDSON, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 20172019, 20162018 and 20152017
(In thousands)
 2017 2016 20152019 2018 2017
Accounts receivable – allowance for doubtful accounts      
Accounts receivable - Allowance for doubtful accounts     
Balance, beginning of period $2,741
 $2,905
 $3,458
$4,007
 $4,091
 $2,741
Provision charged to expense 1,328
 (101) 266
1,569
 731
 1,328
Reserve adjustments 99
 (63) (276)7
 (137) 99
Write-offs, net of recoveries (77) 
 (543)(655) (678) (77)
Balance, end of period $4,091
 $2,741
 $2,905
$4,928
 $4,007
 $4,091
Finance receivables – allowance for credit losses      
Finance receivables - Allowance for credit losses     
Balance, beginning of period $173,343
 $147,178
 $127,364
$189,885
 $192,471
 $173,343
Provision for credit losses 132,444
 136,617
 101,345
134,536
 106,870
 132,444
Charge-offs, net of recoveries (113,316) (107,161) (81,531)(125,840) (109,456) (113,316)
Other(a)
 
 (3,291) 
Balance, end of period $192,471
 $173,343
 $147,178
$198,581
 $189,885
 $192,471
Inventories – allowance for obsolescence(b)
      
Inventories - Allowance for obsolescence(a)
     
Balance, beginning of period $39,873
 $26,740
 $17,775
$39,015
 $38,669
 $39,873
Provision charged to expense 16,940
 21,137
 19,564
24,984
 25,722
 16,940
Reserve adjustments 306
 (88) (1,028)(39) (332) 306
Write-offs, net of recoveries (18,450) (7,916) (9,571)(14,611) (25,044) (18,450)
Balance, end of period $38,669
 $39,873
 $26,740
$49,349
 $39,015
 $38,669
Deferred tax assets – valuation allowance      
Deferred tax assets - Valuation allowance     
Balance, beginning of period $30,953
 $20,659
 $25,462
$21,868
 $21,561
 $30,953
Adjustments (9,392) 10,294
 (4,803)7,156
 307
 (9,392)
Balance, end of period $21,561
 $30,953
 $20,659
$29,024
 $21,868
 $21,561
(a)Related to the sale of finance receivables during the second quarter of 2016 with a principal balance of $301.8 million
through an off-balance sheet asset-backed securitization transaction (see Note 10 for additional information).
(b)Inventory obsolescence reserves deducted from cost determined on first-in, first-out (FIFO) basis, before deductions for last-in, first-out (LIFO) valuation reserves.














INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
   
Exhibit No. Description
 Asset Purchase Agreement, dated April 30, 2015, among Harley-Davidson Canada LP, Fred Deeley Imports Ltd. and Harley-Davidson Motor Company, Inc., as amended (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2015 (File No. 1-9183))
  Restated Articles of Incorporation as amended through April 27, 2015 (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
  Harley-Davidson, Inc. By-Laws, as amended through April 27, 2015 (incorporated herein by reference by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
Indenture to provide for the issuance of indebtedness dated as of November 21, 2003 between Harley-Davidson Funding Corp., Issuer, Harley-Davidson Financial Services, Inc. and Harley-Davidson Credit Corp., Guarantors, to BNY Midwest Trust Company, Trustee (incorporated herein by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9183))
  5-Year Credit Agreement, dated as of April 7, 2014,6, 2018, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto and JPMorgan Chase Bank, N.A., as among other things, global administrative agent 2020 (incorporated herein by reference to Exhibit 4.14.3 to the Registrant’s Quarterly CurrentReport on Form 10-Q for the quarter ended March 30, 2014July 1, 2018 (File No. 1-9183))
Officers’ Certificate, dated May 22, 2008, pursuant to Sections 102 and 301 of the Indenture, dated November 21, 2003, with the forms of 6.80% Medium-Term Notes, Series C due 2018 (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated May 15, 2008 (File No. 1-9183))
  Indenture, dated as of March 4, 2011, among Harley-Davidson Financial Services, Inc., Issuer, Harley-Davidson Credit Corp., Guarantor, and Bank of New York Mellon Trust Company, N.A., Trustee (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 1, 2011 (File No. 1-9183))
 Officers' Certificate, dated September 16, 2014, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the forms of 2.400% Medium-Term Notes due 2019 (incorporated herein by reference to Exhibit 4.14 to the Registrant’s Annual Report ofon Form 10-K for the year ended December 31, 2014 (File No. 1-9183))
 Officers' Certificate, dated February 26, 2015, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 2.150% Medium-Term Notes due 2020 (incorporated herein by reference to Exhibit 4.10 to the Registrant’s Annual Report ofon Form 10-K for the year ended December 31, 2015 (File No. 1-9183))
 Indenture, dated July 28, 2015, by and between Harley-Davidson, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee. (incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated July 28, 2015 (File No. 1-9183))
 Officers' Certificate, dated July 28, 2015 establishing the form of 3.500% Senior Notes due 2025 and 4.625% Senior Notes due 2045 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on From 8-K dates July 28, 2015 (File No. 1-9183))
 Officers' Certificate dated January 8, 2016, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 2.250% Medium-Term Notes due 2019 (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated January 5, 2016 (File No. 1-9183))
 Officers' Certificate, dated January 8, 2016, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 2.850% Medium-Term Notes due 2021 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated January 5, 2016 (File No. 1-9183))
 Amendment No. 21 to 5-Year Credit Agreement, dated as of April 7, 2014,6, 2018, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto and JPMorgan Chase Bank, N.A., as, among other things, global administrative agent, relating to the 5-Year Credit Agreement, datesdated as of April 13, 2012,7, 2016, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto and JPMorgan Chase Bank, N.A., as among other things, global administrative agent.agent (incorporated herein by reference to Exhibit 4.154.4 to the Registrant’s AnnualQuarterly Report ofon Form 10-K10-Q for the yearquarter ended December 31, 2015July 1, 2018 (File No. 1-9183))
 5-Year Credit Agreement, dated as of April 7, 2016 among the Company, certain subsidiaries of the Company, the financial institutions parties thereto and JPMorgan Chase Bank, N.A., as among other things, global administrative agent (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2016 (File No. 1-9183))

Various instruments relating to the Company’s long-term debt described in this report need not be filed herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, with a copy of any such instrument.

*Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated.
114



INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
Exhibit No.Description
 Amendment No. 1 5-year Credit Agreement, dated as of April 7, 2016, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto, and JPMorgan Chase Bank, N.A., as, among other things, global administrative agent, relating to the 5-year Credit Agreement, dated as of April 7, 2014 among the Company, certain subsidiaries of the Company, the financial institutions parties thereto and JPMorgan Chase Bank, N.A., as among other things, global administrative agent (incorporated herein by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 27, 2016 (File No. 1-9183))
 Officers' Certificate, dated March 10, 2017, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 2.400% Medium-Term Notes due 2020 (incorporated herein by reference to Exhibit 4.14 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 1-9183))
 Officers' Certificate, dated March 10, 2017, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of Floating Rate Medium-Term Notes due 2019 (incorporated herein by reference to Exhibit 4.15 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 1-9183))

Various instruments relating to the Company’s long-term debt described in this report need not be filed herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, with a copy of any such instrument.

*Represents a management contract or compensatory plan, contract or arrangement in which a Director or named executive officer of the Company participated.
108



INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
Exhibit No.Description
364-Day Credit Agreement, dated as of May 1, 2017, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto and JPMorgan Chase Bank, N.A., as, among other things, global administrative agent
 Officers' Certificate, dated June 9, 2017, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 2.550% Medium-Term Notes due 2022 (incorporated herein by reference to Exhibit 4.17 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 1-9183))
Officers' Certificate, dated February 9, 2018, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 3.350% Medium-Term Notes due 2023 (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2018 (File No. 1-9183))
Officers' Certificate, dated May 21, 2018, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 3.550% Medium-Term Notes due 2021(incorporated herein by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018 (File No. 1-9183))
Officers' Certificate, dated May 21, 2018, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of Floating Rate Medium-Term Notes due 2020 (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018 (File No. 1-9183))
Officers' Certificate, dated November 28, 2018, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of Floating Rate Medium-Term Notes due 2021 (incorporated herein by reference to Exhibit 4.20 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 1-9183))
Officers' Certificate, dated February 4, 2019, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 4.05% Medium-Term Notes due 2022 (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (File No. 1-9183))
Fiscal Agency Agreement, dated November 19, 2019, relating to the 0.9% Medium Term Notes due November 2024, among certain subsidiaries of the Company, The Bank of New York Mellon Trust Company, N.A. and The Bank of New York Mellon, London Branch
364-Day Credit Agreement, dated May 13, 2019, among the Company, certain subsidiaries of the Company, the financial institutions parties thereto, and JPMorgan Chase Bank, N.A., as, among other things, global administrative agent
Description of Registrants Securities
  Harley-Davidson, Inc. 2004 Incentive Stock Plan as amended through April 28, 2007 (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2007 (File No. 1-9183))
  Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Appendix A to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual Meeting of Shareholders held on April 25, 2009 filed on April 3, 2009 (File No. 1-9183))
 
Amended and Restated Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporatedas amended effective January 25, 2019 (incorporated herein by reference to Appendix AExhibit 10.3 to the Company’s definitive proxy statementRegistrant's Quarterly Report on Schedule 14AForm 10-Q for the Company’s Annual Meeting of Shareholders held on April 26, 2014 filed on March 14, 2014quarter ended June 30, 2019 (File No. 1-9183))
  Amended and Restated Harley-Davidson, Inc. Director Stock Plan as amended effective December 1, 2014 (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 1-9183))
  Director Compensation Policy approved April 29, 2016 (incorporated herein by reference from Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2016 (File No. 1-9183))
  Deferred Compensation Plan for Nonemployee Directors as amended and restated effective January 1, 2009 (incorporated herein by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 1-9183))
  Harley-Davidson Management Deferred Compensation Plan as amended and restated effective January 1, 2017 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2016 (File No. 1-9183))
  Harley-Davidson, Inc. Employee Incentive Plan (incorporated herein by reference to the Appendix to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual Meeting of Shareholders held April 25, 2015 (File No. 1-9183))
  Harley-Davidson, Inc. Short-Term Incentive Plan for Senior Executives (incorporated herein by reference to Appendix D to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual Meeting of Shareholders held April 30, 2011 (File No. 1-9183))
  Harley-Davidson Pension Benefit Restoration Plan as amended and restated effective January 1, 2009 (incorporated herein by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 1-9183))
  Form of Notice of Grant of Stock Options and Option Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))





*Represents a management contract or compensatory plan, contract or arrangement in which a Director or named executive officer of the Company participated.
109




INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
Exhibit No.Description
  Form of Notice of Grant of Stock Options and Option Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))
  Form of Notice of Special Grant of Stock Options and Option Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))
Form of Notice of Award of Restricted Stock and Restricted Stock Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))





*Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated.
115




INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
Exhibit No.Description
Form of Notice of Award of Restricted Stock and Restricted Stock Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))
  Form of Notice of Grant of Stock Appreciation Rights and Stock Appreciation Rights Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))
  Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))
  Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))
Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (International) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2010 (File No. 1-9183))
  Form of Notice of Grant of Stock Options and Option Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan to each of Messrs. Hund, Levatich and Olin (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May 1, 2009 (File No. 1-9183))
Form of Notice of Grant of Restricted Stock and Restricted Stock Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2009 Incentive Stock Plan to Mr. Hund (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated May 1, 2009 (File No. 1-9183))
  Form of Notice of Grant of Stock Options and Option Agreement of Harley-Davidson, Inc. under the Harley-Davidson Inc. 1995 Stock Option Plan and the Harley-Davidson, Inc. 2004 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9183))
  Form of Notice of Special Grant of Stock Options and Option Agreement of Harley-Davidson, Inc. under the Harley-Davidson Inc. 1995 Stock Option Plan and the Harley-Davidson, Inc. 2004 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9183))
Form of Notice of Award of Restricted Stock and Restricted Stock Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2004 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2009 (File No. 1-9183))
Form of Notice of Special Award of Restricted Stock and Restricted Stock Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2004 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2007 (File No. 1-9183))
Form of Notice of Award of Restricted Stock Unit and Restricted Stock Unit Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2004 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2007 (File No. 1-9183))
 Form of Notice of Grant Award of Stock Options and Stock Option Agreement (Standard) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
 Form of Notice of Grant Award of Stock Options and Stock Option Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
 
Form of Notice of Grant Award of Restricted Stock Units and Restricted Stock Unit Agreement (Deferred) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
Form of Notice of Grant Award of Restricted Stock Units and Restricted Stock Unit Agreement (International) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
Form of Notice of Grant Award of Restricted Stock Units and Restricted Stock Unit Agreement (Special) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
Form of Notice of Grant Award of Restricted Stock Units and Restricted Stock Unit Agreement (Standard) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))





*Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated.
116




INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
Exhibit No.Description
Form of Notice of Grant Award of Restricted Stock Units and Restricted Stock Unit Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
Form of Notice of Grant Award of Restricted Stock Units and Restricted Stock Unit Agreement (Deferred) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
Form of Notice of Grant Award of Stock Appreciation RightsRights and Stock Appreciation RightsRights Agreement of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015 (File No. 1-9183))
  Form of Executive Severance Plan between(incorporated herein by reference to Exhibit 10.36 to the Registrant and each of Messrs. Hund, Jones, Levatich and OlinRegistrant's Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 1-9183))
  Form of Transition Agreement between the Registrant and each of Messrs. Levatich and Olin (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 1-9183))
  Transition Agreement between the Registrant and Mr. Hund dated November 30, 2009 (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 1-9183))
  
Form of Aircraft Time Sharing Agreement between the Registrant and each of Messrs. Levatich, Olin, JonesMansfield and Hund and Madame Bischmann (incorporatedMses. Kumbier and Anding (incorporated herein by reference to Exhibit 10.1 to the Registrant’sRegistrant's Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 20122019 (File No. 1-9183))
 Form of Non-competition and Non-solicitation Agreement between Harley-Davidson Canada LP, Fred Deeley Imports Ltd. and Harley-Davidson Motor Company, Inc., as amended (incorporated herein by reference to exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 2015 (File No. 1-9183))
Form of Notice of Award of Performance Shares and Performance Shares Agreement (Standard) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 1-9183))
Form of Notice of Award of Performance Share Units and Performance Share Unit Agreement (Standard International)
 of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 1-9183))
Form of Notice of Award of Performance Shares and Performance Shares Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 1-9183))
 Harley-Davidson Retiree Insurance Allowance Plan, as amended and restated effective January 1, 2016 (incorporated herein by reference to Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016 (File No. 1-9183))
 Form of Notice of Award of Performance Shares and Performance Share Agreement (Standard) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2017 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-Q for the quarter ended March 26, 2017 (File No. 1-9183))





*Represents a management contract or compensatory plan, contract or arrangement in which a Director or named executive officer of the Company participated.
110




INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
Exhibit No.Description
 Form of Notice of Award of Performance SharesShare Units and Performance Share Unit Agreement (Standard International) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2017(incorporated2017 (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-Q for the quarter ended March 26, 2017 (File No. 1-9183))
 Form of Notice of Award of Performance Shares and Performance Share Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2017 (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-Q for the quarter ended March 26, 2017 (File No. 1-9183))
 Form of Notice of Award of Performance SharesRestricted Stock Units and Performance ShareRestricted Stock Unit Agreement (Special Retention) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2017 (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-Q for the quarter ended March 26, 2017 (File No. 1-9183))
 ListForm of Transition Agreement between the Registrant and each of Mr. Mansfield and Mses. Kumbier and Anding (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended April 1, 2018 (File No. 1-9183))
Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Standard), Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Standard International), Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Special), Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Special Retention), and Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2018 (incorporated herein by reference to Exhibit 10.43 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 1-9183))
Form of Notice of Award of Performance Shares and Performance Shares Agreement (Standard), Form of Notice of Award of Performance Share Units and Performance Share Unit Agreement (Standard International), and Form of Notice of Award of Performance Shares and Performance Shares Agreement (Transition Agreement) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2018 (incorporated herein by reference to Exhibit 10.44 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 1-9183))
Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Standard), Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Standard International), Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Special), and Form of Notice of Award of Restricted Stock Units and Restricted Stock Unit Agreement (Special Retention) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2019 (incorporated herein by reference to Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 1-9183))
Form of Notice of Award of Performance Shares and Performance Shares Agreement (Standard) and Form of Notice of Award of Performance Share Units and Performance Share Unit Agreement (Standard International) of Harley-Davidson, Inc. under the Harley-Davidson, Inc. 2014 Incentive Stock Plan first approved for use in February 2019 (incorporated herein by reference to Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 1-9183))
Separation Agreement and Release between the Registrant and Mr. Grimmer dated October 25, 2019
Harley-Davidson, Inc. Subsidiaries
  Consent of Independent Registered Public Accounting Firm
  Chief Executive Officer Certification pursuant to Rule 13a-14(a)
  Chief Financial Officer Certification pursuant to Rule 13a-14(a)





*Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated.
117




INDEX TO EXHIBITS
[Items 15(a)(3) and 15(c)]
Exhibit No.Description
  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
104Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101











































Various instruments relating to the Company’s long-term debt described in this report need not be filed herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, with a copy of any such instrument.










*Represents a management contract or compensatory plan, contract or arrangement in which a directorDirector or named executive officer of the Company participated.
118111







SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 21, 201819, 2020.
   
HARLEY-DAVIDSON, INC.
  
By: /S/ Matthew S. Levatich
  Matthew S. Levatich
  President and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 21, 201819, 2020.
   
Name Title
  
/S/ Matthew S. Levatich President and Chief Executive Officer
Matthew S. Levatich (Principal executive officer)
  
/S/ John A. Olin Senior Vice President and Chief Financial Officer
John A. Olin (Principal financial officer)
  
/S/ Mark R. Kornetzke Chief Accounting Officer
Mark R. Kornetzke (Principal accounting officer)
  
/S/ Troy Alstead Director
Troy Alstead  
   
/S/ R. John Anderson Director
R. John Anderson  
  
/S/ Michael J. Cave Non-Executive Chairman
Michael J. Cave   
   
/S/ Allan Golston  Director
Allan Golston   
  
/S/ Sara L. Levinson  Director
Sara L. Levinson   
  
/S/ N. Thomas Linebarger  Director
N. Thomas Linebarger   
  
/S/ Brian Niccol  Director
Brian Niccol   
   
/S/ Maryrose Sylvester  Director
Maryrose Sylvester   
  
/S/ Jochen Zeitz  Director
Jochen Zeitz   





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