NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of Harley-Davidson, Inc. and its wholly-owned subsidiaries (the Company), including the accounts of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). In addition, certain variable interest entities (VIEs) related to secured financing are consolidated as the Company is the primary beneficiary. All intercompany accounts and material intercompany transactions are eliminated.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated balance sheets as of
September 24, 2017
and
September 25, 2016
, the consolidated statements of income for the
three and nine
month periods then ended, the consolidated statements of comprehensive income for the
three and nine
month periods then ended and the consolidated statements of cash flows for the
nine
month periods then ended.
Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. These consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
.
The Company operates in
two
reportable segments: Motorcycles & Related Products (Motorcycles) and Financial Services.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
2. New Accounting Standards
Accounting Standards Recently Adopted
In March 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 guidance may be adopted using either a full retrospective or modified retrospective approach. The Company expects to adopt the new revenue recognition guidance using the modified retrospective method. The Company's efforts to evaluate the impact of the standard and to prepare for its adoption on January 1, 2018 are well underway. Based on the work completed to date (which includes the review of significant revenue sources), the Company expects the recognition of revenue for sales of motorcycles, parts and accessories and general
merchandise products under the new revenue recognition guidance will occur at a point in time. Interest income, which makes up the vast majority of revenue in the Financial Services segment, is not within the scope of the new standard. The Company is also assessing its process for accumulating the required information for enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from its contracts with customers.
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 adopt ASU 2016-02 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the impact of adoption of ASU 2016-02.
In July 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. The Company is required to adopt ASU 2016-13 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019 on a modified retrospective basis. 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. The Company is currently evaluating the impact of adoption of ASU 2016-13 but anticipates the adoption of ASU 2016-13 will result in an increase in the annual provision for credit losses 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 classification 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, and (8) separately identifiable cash flows. The Company is required to adopt ASU 2016-15 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. 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 would be excluded from the change in cash flows from financing activities and included in the change in total cash, restricted cash and cash equivalents as reported in the statement of cash flows.
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, the FASB issued ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 amends ASC 715, Compensation - Retirement Benefits by requiring employers 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 cost and outside of any subtotal of operating income. 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 14.
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 2017-12 for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the ASU. For cash flow and net investment hedges existing at 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. The amendments related to presentation and disclosure are required prospectively. The Company is currently evaluating the impact of adoption of ASU 2017-12.
3. Additional Balance Sheet and Cash Flow Information
Marketable Securities
The Company’s marketable securities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2017
|
|
December 31,
2016
|
|
September 25,
2016
|
Available-for-sale securities: corporate bonds
|
$
|
—
|
|
|
$
|
5,519
|
|
|
$
|
5,038
|
|
Trading securities: mutual funds
|
45,726
|
|
|
38,119
|
|
|
39,063
|
|
Total marketable securities
|
$
|
45,726
|
|
|
$
|
43,638
|
|
|
$
|
44,101
|
|
The Company’s available-for-sale securities are carried at fair value with any unrealized gains or losses reported in other comprehensive income. During the first
nine months
of
2017
and
2016
, unrealized losses were not material. There were
no
available-for-sale securities outstanding at
September 24, 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.
Inventories
Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2017
|
|
December 31,
2016
|
|
September 25,
2016
|
Raw materials and work in process
|
$
|
155,947
|
|
|
$
|
140,639
|
|
|
$
|
159,209
|
|
Motorcycle finished goods
|
232,141
|
|
|
285,281
|
|
|
182,019
|
|
Parts and accessories and general merchandise
|
129,270
|
|
|
122,264
|
|
|
134,587
|
|
Inventory at lower of FIFO cost or net realizable value
|
517,358
|
|
|
548,184
|
|
|
475,815
|
|
Excess of FIFO over LIFO cost
|
(48,267
|
)
|
|
(48,267
|
)
|
|
(49,268
|
)
|
Total inventories, net
|
$
|
469,091
|
|
|
$
|
499,917
|
|
|
$
|
426,547
|
|
Operating Cash Flow
The reconciliation of net income to net cash provided by operating activities is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
September 24,
2017
|
|
September 25,
2016
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
513,445
|
|
|
$
|
644,985
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization of intangibles
|
163,974
|
|
|
154,565
|
|
Amortization of deferred loan origination costs
|
62,052
|
|
|
65,445
|
|
Amortization of financing origination fees
|
6,112
|
|
|
7,212
|
|
Provision for long-term employee benefits
|
22,427
|
|
|
28,508
|
|
Employee benefit plan contributions and payments
|
(43,060
|
)
|
|
(47,658
|
)
|
Stock compensation expense
|
25,581
|
|
|
24,909
|
|
Net change in wholesale finance receivables related to sales
|
36,678
|
|
|
(169,599
|
)
|
Provision for credit losses
|
99,059
|
|
|
97,127
|
|
Gain on off-balance sheet asset-backed securitization
|
—
|
|
|
(9,269
|
)
|
Loss on debt extinguishment
|
—
|
|
|
118
|
|
Deferred income taxes
|
(5,151
|
)
|
|
(11,261
|
)
|
Other, net
|
(11,122
|
)
|
|
(23,270
|
)
|
Changes in current assets and liabilities:
|
|
|
|
Accounts receivable, net
|
(29,167
|
)
|
|
(86,796
|
)
|
Finance receivables - accrued interest and other
|
317
|
|
|
364
|
|
Inventories
|
50,016
|
|
|
173,975
|
|
Accounts payable and accrued liabilities
|
88,758
|
|
|
97,190
|
|
Derivative instruments
|
2,752
|
|
|
(1,992
|
)
|
Other
|
(33,596
|
)
|
|
(16,744
|
)
|
Total adjustments
|
435,630
|
|
|
282,824
|
|
Net cash provided by operating activities
|
$
|
949,075
|
|
|
$
|
927,809
|
|
4. Finance Receivables
The Company provides retail financial services to customers of the Company’s independent dealers in the United States and Canada. The origination of retail loans is a separate and distinct transaction between the Company and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment sales contracts. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.
The Company offers wholesale financing to the Company’s independent dealers. Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada.
Finance receivables, net, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2017
|
|
December 31,
2016
|
|
September 25,
2016
|
Retail
|
$
|
6,336,447
|
|
|
$
|
5,982,211
|
|
|
$
|
6,165,999
|
|
Wholesale
|
960,160
|
|
|
1,026,590
|
|
|
1,155,483
|
|
Total finance receivables
|
7,296,607
|
|
|
7,008,801
|
|
|
7,321,482
|
|
Allowance for credit losses
|
(195,582
|
)
|
|
(173,343
|
)
|
|
(171,516
|
)
|
Finance receivables, net
|
$
|
7,101,025
|
|
|
$
|
6,835,458
|
|
|
$
|
7,149,966
|
|
A provision for credit losses on finance receivables is charged or credited to earnings in amounts that the Company believes are sufficient to maintain the allowance for credit losses at a level that is adequate to cover losses of principal inherent in the existing portfolio. The allowance for credit losses represents management’s estimate of probable losses inherent in the finance receivable portfolio as of the balance sheet date. However, due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company could differ from the amounts estimated.
Changes in the allowance for credit losses on finance receivables by portfolio were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 24, 2017
|
|
Retail
|
|
Wholesale
|
|
Total
|
Balance, beginning of period
|
$
|
185,899
|
|
|
$
|
7,629
|
|
|
$
|
193,528
|
|
Provision for credit losses
|
30,964
|
|
|
(1,711
|
)
|
|
29,253
|
|
Charge-offs
|
(37,783
|
)
|
|
—
|
|
|
(37,783
|
)
|
Recoveries
|
10,584
|
|
|
—
|
|
|
10,584
|
|
Balance, end of period
|
$
|
189,664
|
|
|
$
|
5,918
|
|
|
$
|
195,582
|
|
|
|
|
|
|
|
|
Three months ended September 25, 2016
|
|
Retail
|
|
Wholesale
|
|
Total
|
Balance, beginning of period
|
$
|
152,998
|
|
|
$
|
8,355
|
|
|
$
|
161,353
|
|
Provision for credit losses
|
38,143
|
|
|
(1,600
|
)
|
|
36,543
|
|
Charge-offs
|
(35,749
|
)
|
|
—
|
|
|
(35,749
|
)
|
Recoveries
|
9,369
|
|
|
—
|
|
|
9,369
|
|
Balance, end of period
|
$
|
164,761
|
|
|
$
|
6,755
|
|
|
$
|
171,516
|
|
|
|
|
|
|
|
|
Nine months ended September 24, 2017
|
|
Retail
|
|
Wholesale
|
|
Total
|
Balance, beginning of period
|
$
|
166,810
|
|
|
$
|
6,533
|
|
|
$
|
173,343
|
|
Provision for credit losses
|
99,674
|
|
|
(615
|
)
|
|
99,059
|
|
Charge-offs
|
(114,081
|
)
|
|
—
|
|
|
(114,081
|
)
|
Recoveries
|
37,261
|
|
|
—
|
|
|
37,261
|
|
Balance, end of period
|
$
|
189,664
|
|
|
$
|
5,918
|
|
|
$
|
195,582
|
|
|
|
|
|
|
|
|
Nine months ended September 25, 2016
|
|
Retail
|
|
Wholesale
|
|
Total
|
Balance, beginning of period
|
$
|
139,320
|
|
|
$
|
7,858
|
|
|
$
|
147,178
|
|
Provision for credit losses
|
98,230
|
|
|
(1,103
|
)
|
|
97,127
|
|
Charge-offs
|
(101,853
|
)
|
|
—
|
|
|
(101,853
|
)
|
Recoveries
|
32,355
|
|
|
—
|
|
|
32,355
|
|
Other
(a)
|
(3,291
|
)
|
|
—
|
|
|
(3,291
|
)
|
Balance, end of period
|
$
|
164,761
|
|
|
$
|
6,755
|
|
|
$
|
171,516
|
|
|
|
(a)
|
Related to the sale of finance receivables with a principal balance of
$301.8 million
through an off-balance sheet asset-backed securitization transaction (see Note 10 for additional information).
|
Finance receivables are considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement. Portions of the allowance for credit losses are established to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance for credit losses covers estimated losses on finance receivables which are collectively reviewed for impairment.
The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes loss forecast models which consider a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates, and current economic conditions including items such as unemployment rates. Retail finance receivables are not evaluated individually for impairment prior to charge-off and, therefore, are not reported as impaired loans.
The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s evaluation for the wholesale allowance for credit losses is first based on a loan-by-loan review. A specific allowance for credit losses is established for wholesale finance receivables determined to be individually impaired when management concludes that the borrower will not be able to make full payment of the contractual amounts due based on the original terms of the loan
agreement. The impairment is determined based on the cash that the Company expects to receive discounted at the loan’s original interest rate or the fair value of the collateral, if the loan is collateral-dependent. Finance receivables in the wholesale portfolio that are not considered impaired on an individual basis are segregated, based on similar risk characteristics, according to the Company’s internal risk rating system and collectively evaluated for impairment. The related allowance for credit losses is based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past loan loss experience, current economic conditions, and the value of the underlying collateral.
Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize the economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant.
The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
Retail
|
|
Wholesale
|
|
Total
|
Allowance for credit losses, ending balance:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Collectively evaluated for impairment
|
189,664
|
|
|
5,918
|
|
|
195,582
|
|
Total allowance for credit losses
|
$
|
189,664
|
|
|
$
|
5,918
|
|
|
$
|
195,582
|
|
Finance receivables, ending balance:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Collectively evaluated for impairment
|
6,336,447
|
|
|
960,160
|
|
|
7,296,607
|
|
Total finance receivables
|
$
|
6,336,447
|
|
|
$
|
960,160
|
|
|
$
|
7,296,607
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
|
|
|
|
|
|
September 25, 2016
|
|
Retail
|
|
Wholesale
|
|
Total
|
Allowance for credit losses, ending balance:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Collectively evaluated for impairment
|
164,761
|
|
|
6,755
|
|
|
171,516
|
|
Total allowance for credit losses
|
$
|
164,761
|
|
|
$
|
6,755
|
|
|
$
|
171,516
|
|
Finance receivables, ending balance:
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Collectively evaluated for impairment
|
6,165,999
|
|
|
1,155,483
|
|
|
7,321,482
|
|
Total finance receivables
|
$
|
6,165,999
|
|
|
$
|
1,155,483
|
|
|
$
|
7,321,482
|
|
There were
no
wholesale finance receivables at
September 24, 2017
,
December 31, 2016
, or
September 25, 2016
that were individually deemed to be impaired under ASC Topic 310, “Receivables.”
Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is
120
days or more delinquent, the related asset is repossessed or the receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until either
collected or charged-off. Accordingly, as of
September 24, 2017
,
December 31, 2016
and
September 25, 2016
, all retail finance receivables were accounted for as interest-earning receivables, of which
$32.7 million
,
$40.4 million
and
$31.3 million
, respectively, were 90 days or more past due.
Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Wholesale finance receivables are written down once 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. There were
no
wholesale receivables on non-accrual status at
September 24, 2017
,
December 31, 2016
or
September 25, 2016
. At
September 24, 2017
,
December 31, 2016
and
September 25, 2016
,
$1.3 million
,
$0.3 million
, and
$0.4 million
of wholesale finance receivables were 90 days or more past due and accruing interest, respectively.
An analysis of the aging of past due finance receivables was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 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
|
$
|
6,132,997
|
|
|
$
|
126,705
|
|
|
$
|
44,083
|
|
|
$
|
32,662
|
|
|
$
|
203,450
|
|
|
$
|
6,336,447
|
|
Wholesale
|
958,429
|
|
|
329
|
|
|
95
|
|
|
1,307
|
|
|
1,731
|
|
|
960,160
|
|
Total
|
$
|
7,091,426
|
|
|
$
|
127,034
|
|
|
$
|
44,178
|
|
|
$
|
33,969
|
|
|
$
|
205,181
|
|
|
$
|
7,296,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, 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
|
$
|
5,973,108
|
|
|
$
|
119,709
|
|
|
$
|
41,866
|
|
|
$
|
31,316
|
|
|
$
|
192,891
|
|
|
$
|
6,165,999
|
|
Wholesale
|
1,154,617
|
|
|
366
|
|
|
114
|
|
|
386
|
|
|
866
|
|
|
1,155,483
|
|
Total
|
$
|
7,127,725
|
|
|
$
|
120,075
|
|
|
$
|
41,980
|
|
|
$
|
31,702
|
|
|
$
|
193,757
|
|
|
$
|
7,321,482
|
|
A significant part of managing the Company's finance receivable portfolios includes the assessment of credit risk associated with each borrower. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit risk indicators for each portfolio.
The Company manages retail credit risk through its credit approval policy and ongoing collection efforts. The Company uses FICO scores, a standard credit rating measurement, to differentiate the expected default rates of retail credit applicants, enabling the Company to better evaluate credit applicants for approval and to tailor pricing according to this assessment. Retail loans with a FICO score of
640
or above at origination are considered prime, and loans with a FICO score below
640
are considered sub-prime. These credit quality indicators are determined at the time of loan origination and are not updated subsequent to the loan origination date.
The recorded investment in retail finance receivables, by credit quality indicator, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
December 31, 2016
|
|
September 25, 2016
|
Prime
|
$
|
5,107,718
|
|
|
$
|
4,768,420
|
|
|
$
|
4,900,752
|
|
Sub-prime
|
1,228,729
|
|
|
1,213,791
|
|
|
1,265,247
|
|
Total
|
$
|
6,336,447
|
|
|
$
|
5,982,211
|
|
|
$
|
6,165,999
|
|
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 in wholesale finance receivables, by internal credit quality indicator, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
December 31, 2016
|
|
September 25, 2016
|
Doubtful
|
$
|
4,666
|
|
|
$
|
1,333
|
|
|
$
|
—
|
|
Substandard
|
8,724
|
|
|
1,773
|
|
|
16,244
|
|
Special Mention
|
5,261
|
|
|
30,152
|
|
|
—
|
|
Medium Risk
|
4,987
|
|
|
14,620
|
|
|
7,667
|
|
Low Risk
|
936,522
|
|
|
978,712
|
|
|
1,131,572
|
|
Total
|
$
|
960,160
|
|
|
$
|
1,026,590
|
|
|
$
|
1,155,483
|
|
5. Fair Value Measurements
Certain assets and liabilities are recorded at fair value in the financial statements; some of these are measured on a recurring basis while others are measured on a non-recurring basis. Assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when required by particular events or circumstances. In determining the fair value of assets and liabilities, the Company uses various valuation techniques. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable.
Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates and commodity prices. The Company uses the market approach to derive the fair value for its Level 2 fair value measurements. Forward contracts for foreign currency and commodities are valued using current quoted forward rates and prices; investments in marketable securities and cash equivalents are valued using publicly quoted prices.
Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the following tables.
Recurring Fair Value Measurements
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
Balance
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
425,000
|
|
|
$
|
425,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities
|
45,726
|
|
|
45,726
|
|
|
—
|
|
|
—
|
|
Derivatives
|
724
|
|
|
—
|
|
|
724
|
|
|
—
|
|
Total
|
$
|
471,450
|
|
|
$
|
470,726
|
|
|
$
|
724
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivatives
|
$
|
32,414
|
|
|
$
|
—
|
|
|
$
|
32,414
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Balance
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
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
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
September 25, 2016
|
|
Balance
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
526,228
|
|
|
$
|
372,850
|
|
|
$
|
153,378
|
|
|
$
|
—
|
|
Marketable securities
|
44,101
|
|
|
39,063
|
|
|
5,038
|
|
|
—
|
|
Derivatives
|
6,606
|
|
|
—
|
|
|
6,606
|
|
|
—
|
|
Total
|
$
|
576,935
|
|
|
$
|
411,913
|
|
|
$
|
165,022
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivatives
|
$
|
1,388
|
|
|
$
|
—
|
|
|
$
|
1,388
|
|
|
$
|
—
|
|
Nonrecurring Fair Value Measurements
Repossessed inventory is recorded at the lower of cost or net realizable value through a nonrecurring fair value measurement. Repossessed inventory was
$21.3 million
,
$19.3 million
and
$18.5 million
at
September 24, 2017
,
December 31, 2016
and
September 25, 2016
, respectively, for which the fair value adjustment was
$9.0 million
,
$9.3 million
and
$8.2 million
, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.
6. Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, finance receivables, net, debt, foreign currency exchange and commodity contracts (derivative instruments are discussed further in Note 7).
The following table summarizes the fair value and carrying value of the Company’s financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
December 31, 2016
|
|
September 25, 2016
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
683,134
|
|
|
$
|
683,134
|
|
|
$
|
759,984
|
|
|
$
|
759,984
|
|
|
$
|
790,284
|
|
|
$
|
790,284
|
|
Marketable securities
|
$
|
45,726
|
|
|
$
|
45,726
|
|
|
$
|
43,638
|
|
|
$
|
43,638
|
|
|
$
|
44,101
|
|
|
$
|
44,101
|
|
Derivatives
|
$
|
724
|
|
|
$
|
724
|
|
|
$
|
29,034
|
|
|
$
|
29,034
|
|
|
$
|
6,606
|
|
|
$
|
6,606
|
|
Finance receivables, net
|
$
|
7,159,632
|
|
|
$
|
7,101,025
|
|
|
$
|
6,921,037
|
|
|
$
|
6,835,458
|
|
|
$
|
7,233,923
|
|
|
$
|
7,149,966
|
|
Restricted cash
|
$
|
63,380
|
|
|
$
|
63,380
|
|
|
$
|
67,147
|
|
|
$
|
67,147
|
|
|
$
|
79,661
|
|
|
$
|
79,661
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
32,414
|
|
|
$
|
32,414
|
|
|
$
|
142
|
|
|
$
|
142
|
|
|
$
|
1,388
|
|
|
$
|
1,388
|
|
Unsecured commercial paper
|
$
|
834,875
|
|
|
$
|
834,875
|
|
|
$
|
1,055,708
|
|
|
$
|
1,055,708
|
|
|
$
|
1,055,428
|
|
|
$
|
1,055,428
|
|
Asset-backed U.S. commercial paper conduit facilities
|
$
|
280,308
|
|
|
$
|
280,308
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Asset-backed Canadian commercial paper conduit facility
|
$
|
122,130
|
|
|
$
|
122,130
|
|
|
$
|
149,338
|
|
|
$
|
149,338
|
|
|
$
|
140,488
|
|
|
$
|
140,488
|
|
Medium-term notes
|
$
|
4,612,083
|
|
|
$
|
4,564,124
|
|
|
$
|
4,139,462
|
|
|
$
|
4,064,940
|
|
|
$
|
4,199,753
|
|
|
$
|
4,063,510
|
|
Senior unsecured notes
|
$
|
774,693
|
|
|
$
|
741,797
|
|
|
$
|
744,552
|
|
|
$
|
741,306
|
|
|
$
|
800,818
|
|
|
$
|
741,144
|
|
Asset-backed securitization debt
|
$
|
430,038
|
|
|
$
|
429,833
|
|
|
$
|
797,688
|
|
|
$
|
796,275
|
|
|
$
|
929,775
|
|
|
$
|
925,619
|
|
Cash and Cash Equivalents and Restricted Cash
– With the exception of certain cash equivalents, the carrying value of these items in the financial statements is based on historical cost. The historical cost basis for these amounts is estimated to approximate their respective fair values due to the short maturity of these instruments. Fair value is based on Level 1 or Level 2 inputs.
Marketable Securities
– The carrying value of marketable securities in the financial statements is based on fair value. The fair value of marketable securities is determined primarily based on quoted prices for identical instruments or on quoted market prices of similar financial assets. Fair value is based on Level 1 or Level 2 inputs.
Finance Receivables, Net
– The carrying value of retail and wholesale finance receivables in the financial statements is amortized cost less an allowance for credit losses. The fair value of retail finance receivables is generally calculated by discounting future cash flows using an estimated discount rate that reflects current credit, interest rate and prepayment risks associated with similar types of instruments. Fair value is determined based on Level 3 inputs. The amortized cost basis of wholesale finance receivables approximates fair value because they either are short-term or have interest rates that adjust with changes in market interest rates.
Derivatives
– Forward contracts for foreign currency exchange and commodities are derivative financial instruments and are carried at fair value on the balance sheet. The fair value of these contracts is determined using quoted forward rates and prices. Fair value is calculated using Level 2 inputs.
Debt
– The carrying value of debt in the financial statements is generally amortized cost, net of discounts and debt issuance costs. The carrying value of unsecured commercial paper approximates fair value due to its short maturity. Fair value is calculated using Level 2 inputs.
The carrying value of debt provided under the U.S. conduit facilities and Canadian conduit facility approximates fair value since the interest rates charged under the facility are tied directly to market rates and fluctuate as market rates change. Fair value is calculated using Level 2 inputs.
The fair values of the medium-term notes and senior unsecured notes are estimated based upon rates available at the end of the period for debt with similar terms and remaining maturities. Fair value is calculated using Level 2 inputs.
The fair value of the debt related to on-balance sheet asset-backed securitization transactions is estimated based on pricing available at the end of the period for transactions with similar terms and maturities. Fair value is calculated using Level 2 inputs.
7. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks such as foreign currency exchange rate risk, interest rate risk and commodity price risk. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes.
All derivative instruments are recognized on the balance sheet at fair value (see Note 6). In accordance with ASC Topic 815, “Derivatives and Hedging,” the accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative instruments that are designated as cash flow hedges, the effective portion of gains and losses that result from changes in the fair value of derivative instruments is initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative instruments that do not qualify for hedge accounting are recorded at fair value, and any changes in fair value are recorded in current period earnings.
The Company sells its products internationally, and in most markets those sales are made in the foreign country’s local currency. As a result, the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. The Company utilizes foreign currency exchange contracts to mitigate the effects of the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollar 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.
During the second quarter of 2017, the Company entered into a treasury rate lock to fix the interest rate on a portion of the principal related to its anticipated issuance of medium-term notes during the second quarter of 2017. The treasury rate lock contract was settled in June 2017. The loss at settlement was recorded in accumulated other comprehensive loss and will be reclassified into earnings over the life of the debt.
During the second quarter of 2015, the Company entered into treasury rate locks to fix the interest rate on a portion of the principal related to its anticipated issuance of senior unsecured debt during the third quarter of 2015. The treasury rate lock contracts were settled in July 2015. The loss at settlement was recorded in accumulated other comprehensive loss and will be reclassified into earnings over the life of the debt.
The following tables summarize the fair value of the Company’s derivative financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
December 31, 2016
|
|
September 25, 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)
|
|
Notional
Value
|
|
Asset
Fair Value
(a)
|
|
Liability
Fair Value
(b)
|
Foreign currency contracts
(c)
|
|
$
|
746,378
|
|
|
$
|
439
|
|
|
$
|
32,352
|
|
|
$
|
554,551
|
|
|
$
|
28,528
|
|
|
$
|
142
|
|
|
$
|
615,251
|
|
|
$
|
6,337
|
|
|
$
|
1,193
|
|
Commodity
contracts
(c)
|
|
1,273
|
|
|
—
|
|
|
62
|
|
|
992
|
|
|
177
|
|
|
—
|
|
|
1,154
|
|
|
110
|
|
|
—
|
|
Total
|
|
$
|
747,651
|
|
|
$
|
439
|
|
|
$
|
32,414
|
|
|
$
|
555,543
|
|
|
$
|
28,705
|
|
|
$
|
142
|
|
|
$
|
616,405
|
|
|
$
|
6,447
|
|
|
$
|
1,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
December 31, 2016
|
|
September 25, 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)
|
|
Notional
Value
|
|
Asset
Fair Value
(a)
|
|
Liability
Fair Value
(b)
|
Commodity contracts
|
|
$
|
4,234
|
|
|
$
|
285
|
|
|
$
|
—
|
|
|
$
|
5,025
|
|
|
$
|
329
|
|
|
$
|
—
|
|
|
$
|
4,488
|
|
|
$
|
159
|
|
|
$
|
195
|
|
Total
|
|
$
|
4,234
|
|
|
$
|
285
|
|
|
$
|
—
|
|
|
$
|
5,025
|
|
|
$
|
329
|
|
|
$
|
—
|
|
|
$
|
4,488
|
|
|
$
|
159
|
|
|
$
|
195
|
|
|
|
(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 related to derivative financial instruments designated as cash flow hedges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in OCI, before tax
|
|
|
Three months ended
|
|
Nine months ended
|
Cash Flow Hedges
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
Foreign currency contracts
|
|
$
|
(35,687
|
)
|
|
$
|
(938
|
)
|
|
$
|
(59,335
|
)
|
|
$
|
(5,445
|
)
|
Commodity contracts
|
|
(5
|
)
|
|
43
|
|
|
(191
|
)
|
|
(30
|
)
|
Treasury rate locks
|
|
—
|
|
|
—
|
|
|
(719
|
)
|
|
—
|
|
Total
|
|
$
|
(35,692
|
)
|
|
$
|
(895
|
)
|
|
$
|
(60,245
|
)
|
|
$
|
(5,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Reclassified from AOCL into Income
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
Expected to be Reclassified
|
Cash Flow Hedges
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
|
Over the Next Twelve Months
|
Foreign currency contracts
(a)
|
|
$
|
(7,901
|
)
|
|
$
|
2,399
|
|
|
$
|
(1,428
|
)
|
|
$
|
6,806
|
|
|
$
|
(31,324
|
)
|
Commodity contracts
(a)
|
|
(16
|
)
|
|
21
|
|
|
49
|
|
|
(298
|
)
|
|
(62
|
)
|
Treasury rate locks
(b)
|
|
(126
|
)
|
|
(90
|
)
|
|
(315
|
)
|
|
(271
|
)
|
|
(506
|
)
|
Total
|
|
$
|
(8,043
|
)
|
|
$
|
2,330
|
|
|
$
|
(1,694
|
)
|
|
$
|
6,237
|
|
|
$
|
(31,892
|
)
|
|
|
(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
three and nine
months ended
September 24, 2017
and
September 25, 2016
, 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 related to derivative financial instruments not designated as hedging instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in Income on Derivative
|
|
|
Three months ended
|
|
Nine months ended
|
Derivatives Not Designated As Hedges
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
Commodity contracts
(a)
|
|
$
|
433
|
|
|
$
|
45
|
|
|
$
|
259
|
|
|
$
|
(179
|
)
|
Total
|
|
$
|
433
|
|
|
$
|
45
|
|
|
$
|
259
|
|
|
$
|
(179
|
)
|
|
|
(a)
|
Gain/(loss) recognized in income is included in cost of goods sold
|
The Company is exposed to credit loss risk in the event of non-performance by counterparties to these derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to these derivative financial instruments to fail to meet its obligations. To manage credit loss risk, the Company evaluates counterparties based on credit ratings and, on a quarterly basis, evaluates each hedge’s net position relative to the counterparty’s ability to cover its position.
8. Accumulated Other Comprehensive Loss
The following tables set forth the changes in accumulated other comprehensive loss (AOCL) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 24, 2017
|
|
|
Foreign currency translation adjustments
|
|
Marketable securities
|
|
Derivative financial instruments
|
|
Pension and postretirement benefit plans
|
|
Total
|
Balance, beginning of period
|
|
$
|
(42,938
|
)
|
|
$
|
—
|
|
|
$
|
(6,940
|
)
|
|
$
|
(494,067
|
)
|
|
$
|
(543,945
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
26,754
|
|
|
—
|
|
|
(35,692
|
)
|
|
—
|
|
|
(8,938
|
)
|
Income tax (benefit) expense
|
|
(1,741
|
)
|
|
—
|
|
|
13,220
|
|
|
—
|
|
|
11,479
|
|
Net other comprehensive income (loss) before reclassifications
|
|
25,013
|
|
|
—
|
|
|
(22,472
|
)
|
|
—
|
|
|
2,541
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
Realized (gains) losses - foreign currency contracts
(a)
|
|
—
|
|
|
—
|
|
|
7,901
|
|
|
—
|
|
|
7,901
|
|
Realized (gains) losses - commodities contracts
(a)
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
Realized (gains) losses - treasury rate locks
(b)
|
|
—
|
|
|
—
|
|
|
126
|
|
|
—
|
|
|
126
|
|
Prior service credits
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(287
|
)
|
|
(287
|
)
|
Actuarial losses
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,813
|
|
|
11,813
|
|
Total reclassifications before tax
|
|
—
|
|
|
—
|
|
|
8,043
|
|
|
11,526
|
|
|
19,569
|
|
Income tax benefit
|
|
—
|
|
|
—
|
|
|
(2,978
|
)
|
|
(4,269
|
)
|
|
(7,247
|
)
|
Net reclassifications
|
|
—
|
|
|
—
|
|
|
5,065
|
|
|
7,257
|
|
|
12,322
|
|
Other comprehensive income (loss)
|
|
25,013
|
|
|
—
|
|
|
(17,407
|
)
|
|
7,257
|
|
|
14,863
|
|
Balance, end of period
|
|
$
|
(17,925
|
)
|
|
$
|
—
|
|
|
$
|
(24,347
|
)
|
|
$
|
(486,810
|
)
|
|
$
|
(529,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 25, 2016
|
|
|
Foreign currency translation adjustments
|
|
Marketable securities
|
|
Derivative financial instruments
|
|
Pension and postretirement benefit plans
|
|
Total
|
Balance, beginning of period
|
|
$
|
(43,523
|
)
|
|
$
|
(1,171
|
)
|
|
$
|
543
|
|
|
$
|
(546,010
|
)
|
|
$
|
(590,161
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
3,574
|
|
|
(18
|
)
|
|
(895
|
)
|
|
—
|
|
|
2,661
|
|
Income tax expense
|
|
279
|
|
|
7
|
|
|
332
|
|
|
—
|
|
|
618
|
|
Net other comprehensive income (loss) before reclassifications
|
|
3,853
|
|
|
(11
|
)
|
|
(563
|
)
|
|
—
|
|
|
3,279
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
Realized (gains) losses - foreign currency contracts
(a)
|
|
—
|
|
|
—
|
|
|
(2,399
|
)
|
|
—
|
|
|
(2,399
|
)
|
Realized (gains) losses - commodities contracts
(a)
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
(21
|
)
|
Realized (gains) losses - treasury rate locks
(b)
|
|
—
|
|
|
—
|
|
|
90
|
|
|
—
|
|
|
90
|
|
Prior service credits
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(446
|
)
|
|
(446
|
)
|
Actuarial losses
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,472
|
|
|
12,472
|
|
Total reclassifications before tax
|
|
—
|
|
|
—
|
|
|
(2,330
|
)
|
|
12,026
|
|
|
9,696
|
|
Income tax expense (benefit)
|
|
—
|
|
|
—
|
|
|
862
|
|
|
(4,454
|
)
|
|
(3,592
|
)
|
Net reclassifications
|
|
—
|
|
|
—
|
|
|
(1,468
|
)
|
|
7,572
|
|
|
6,104
|
|
Other comprehensive income (loss)
|
|
3,853
|
|
|
(11
|
)
|
|
(2,031
|
)
|
|
7,572
|
|
|
9,383
|
|
Balance, end of period
|
|
$
|
(39,670
|
)
|
|
$
|
(1,182
|
)
|
|
$
|
(1,488
|
)
|
|
$
|
(538,438
|
)
|
|
$
|
(580,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 24, 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
|
|
51,834
|
|
|
1,896
|
|
|
(60,245
|
)
|
|
—
|
|
|
(6,515
|
)
|
Income tax (benefit) expense
|
|
(1,627
|
)
|
|
(702
|
)
|
|
22,307
|
|
|
—
|
|
|
19,978
|
|
Net other comprehensive income (loss) before reclassifications
|
|
50,207
|
|
|
1,194
|
|
|
(37,938
|
)
|
|
—
|
|
|
13,463
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
Realized (gains) losses - foreign currency contracts
(a)
|
|
—
|
|
|
—
|
|
|
1,428
|
|
|
—
|
|
|
1,428
|
|
Realized (gains) losses - commodities contracts
(a)
|
|
—
|
|
|
—
|
|
|
(49
|
)
|
|
—
|
|
|
(49
|
)
|
Realized (gains) losses - treasury rate locks
(b)
|
|
—
|
|
|
—
|
|
|
315
|
|
|
—
|
|
|
315
|
|
Prior service credits
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(865
|
)
|
|
(865
|
)
|
Actuarial losses
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,439
|
|
|
35,439
|
|
Total reclassifications before tax
|
|
—
|
|
|
—
|
|
|
1,694
|
|
|
34,574
|
|
|
36,268
|
|
Income tax benefit
|
|
—
|
|
|
—
|
|
|
(627
|
)
|
|
(12,805
|
)
|
|
(13,432
|
)
|
Net reclassifications
|
|
—
|
|
|
—
|
|
|
1,067
|
|
|
21,769
|
|
|
22,836
|
|
Other comprehensive income (loss)
|
|
50,207
|
|
|
1,194
|
|
|
(36,871
|
)
|
|
21,769
|
|
|
36,299
|
|
Balance, end of period
|
|
$
|
(17,925
|
)
|
|
$
|
—
|
|
|
$
|
(24,347
|
)
|
|
$
|
(486,810
|
)
|
|
$
|
(529,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 25, 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 income (loss) before reclassifications
|
|
20,661
|
|
|
(140
|
)
|
|
(5,475
|
)
|
|
—
|
|
|
15,046
|
|
Income tax (benefit) expense
|
|
(1,487
|
)
|
|
52
|
|
|
2,028
|
|
|
—
|
|
|
593
|
|
Net other comprehensive income (loss) before reclassifications
|
|
19,174
|
|
|
(88
|
)
|
|
(3,447
|
)
|
|
—
|
|
|
15,639
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
Realized (gains) losses - foreign currency contracts
(a)
|
|
—
|
|
|
—
|
|
|
(6,806
|
)
|
|
—
|
|
|
(6,806
|
)
|
Realized (gains) losses - commodities contracts
(a)
|
|
—
|
|
|
—
|
|
|
298
|
|
|
—
|
|
|
298
|
|
Realized (gains) losses - treasury rate locks
(b)
|
|
—
|
|
|
—
|
|
|
271
|
|
|
—
|
|
|
271
|
|
Prior service credits
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,338
|
)
|
|
(1,338
|
)
|
Actuarial losses
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,416
|
|
|
37,416
|
|
Total reclassifications before tax
|
|
—
|
|
|
—
|
|
|
(6,237
|
)
|
|
36,078
|
|
|
29,841
|
|
Income tax expense (benefit)
|
|
—
|
|
|
—
|
|
|
2,310
|
|
|
(13,363
|
)
|
|
(11,053
|
)
|
Net reclassifications
|
|
—
|
|
|
—
|
|
|
(3,927
|
)
|
|
22,715
|
|
|
18,788
|
|
Other comprehensive income (loss)
|
|
19,174
|
|
|
(88
|
)
|
|
(7,374
|
)
|
|
22,715
|
|
|
34,427
|
|
Balance, end of period
|
|
$
|
(39,670
|
)
|
|
$
|
(1,182
|
)
|
|
$
|
(1,488
|
)
|
|
$
|
(538,438
|
)
|
|
$
|
(580,778
|
)
|
|
|
(a)
|
Amounts reclassified to net income are included in Motorcycles and Related Products cost of goods sold.
|
|
|
(b)
|
Amounts reclassified to net income are included in interest expense.
|
|
|
(c)
|
Amounts reclassified are included in the computation of net periodic benefit cost. See Note 14 for information related to pension and postretirement benefit plans.
|
9. Debt
Debt with a contractual term of one year or less is generally classified as short-term debt and consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2017
|
|
December 31,
2016
|
|
September 25,
2016
|
Unsecured commercial paper
|
|
$
|
834,875
|
|
|
$
|
1,055,708
|
|
|
$
|
1,055,428
|
|
Total short-term debt
|
|
$
|
834,875
|
|
|
$
|
1,055,708
|
|
|
$
|
1,055,428
|
|
Debt with a contractual term greater than one year is generally classified as long-term debt and consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2017
|
|
December 31,
2016
|
|
September 25,
2016
|
Secured debt (Note 10)
|
|
|
|
|
|
|
Asset-backed Canadian commercial paper conduit facility
|
|
$
|
122,130
|
|
|
$
|
149,338
|
|
|
$
|
140,488
|
|
Asset-backed U.S. commercial paper conduit facilities
|
|
280,308
|
|
|
—
|
|
|
—
|
|
Asset-backed securitization debt
|
|
430,457
|
|
|
797,755
|
|
|
927,539
|
|
Less: unamortized discount and debt issuance costs
|
|
(624
|
)
|
|
(1,480
|
)
|
|
(1,920
|
)
|
Total secured debt
|
|
832,271
|
|
|
945,613
|
|
|
1,066,107
|
|
|
|
|
|
|
|
|
Unsecured notes
|
|
|
|
|
|
|
2.70% Medium-term notes due in 2017 par value, issued January 2012
|
|
—
|
|
|
400,000
|
|
|
400,000
|
|
1.55% Medium-term notes due in 2017 par value, issued November 2014
|
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
6.80% Medium-term notes due in 2018 par value, issued May 2008
|
|
877,488
|
|
|
877,488
|
|
|
877,488
|
|
2.25% Medium-term notes due in 2019 par value, issued January 2016
|
|
600,000
|
|
|
600,000
|
|
|
600,000
|
|
Floating-rate Medium-term notes due in 2019 par value, issued March 2017
|
|
150,000
|
|
|
—
|
|
|
—
|
|
2.40% Medium-term notes due in 2019 par value, issued September 2014
|
|
600,000
|
|
|
600,000
|
|
|
600,000
|
|
2.15% Medium-term notes due in 2020 par value, issued February 2015
|
|
600,000
|
|
|
600,000
|
|
|
600,000
|
|
2.40% Medium-term notes due in 2020 par value, issued March 2017
|
|
350,000
|
|
|
—
|
|
|
—
|
|
2.85% Medium-term notes due in 2021 par value, issued January 2016
|
|
600,000
|
|
|
600,000
|
|
|
600,000
|
|
2.55% Medium-term notes due in 2022 par value, issued June 2017
|
|
400,000
|
|
|
—
|
|
|
—
|
|
3.50% Senior unsecured notes due in 2025 par value, issued July 2015
|
|
450,000
|
|
|
450,000
|
|
|
450,000
|
|
4.625% Senior unsecured notes due in 2045 par value, issued July 2015
|
|
300,000
|
|
|
300,000
|
|
|
300,000
|
|
Less: unamortized discount and debt issuance costs
|
|
(21,567
|
)
|
|
(21,242
|
)
|
|
(22,834
|
)
|
Gross long-term debt
|
|
6,138,192
|
|
|
5,751,859
|
|
|
5,870,761
|
|
Less: current portion of long-term debt, net of unamortized discount and debt issuance costs
|
|
(1,530,401
|
)
|
|
(1,084,884
|
)
|
|
(700,152
|
)
|
Total long-term debt
|
|
$
|
4,607,791
|
|
|
$
|
4,666,975
|
|
|
$
|
5,170,609
|
|
10. Asset-Backed Financing
The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing. The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE.
In transactions where the Company has power over the significant activities of the VIE and has an obligation to absorb losses or the right to receive benefits from the VIE that are potentially significant to the VIE, the Company is the primary beneficiary of the VIE and consolidates the VIE within its consolidated financial statements. On a consolidated basis, the asset-backed financing is treated as a secured borrowing in this type of transaction and is referred to as an on-balance sheet asset-backed financing.
In transactions where the Company is not the primary beneficiary of the VIE, the Company must determine whether it can achieve a sale for accounting purposes under ASC Topic 860, "Transfers and Servicing." To achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond the Company’s control. If the Company does not meet all of these criteria for sale accounting, then the transaction is accounted for as a secured borrowing and is referred to as an on-balance sheet asset-backed financing.
If the Company meets all three of the sale criteria above, the transaction is recorded as a sale for accounting purposes and is referred to as an off-balance sheet asset-backed financing. Upon sale, the retail motorcycle finance receivables are removed from the Company’s 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.
The following tables show the assets and liabilities related to the on-balance sheet asset-backed financings included in the financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 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
|
$
|
511,643
|
|
|
$
|
(15,798
|
)
|
|
$
|
40,385
|
|
|
$
|
1,513
|
|
|
$
|
537,743
|
|
|
$
|
429,833
|
|
Asset-backed U.S. commercial paper conduit facilities
|
298,197
|
|
|
(9,233
|
)
|
|
14,922
|
|
|
927
|
|
|
304,813
|
|
|
280,308
|
|
Unconsolidated VIEs
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed Canadian commercial paper conduit facility
|
139,413
|
|
|
(2,560
|
)
|
|
8,073
|
|
|
350
|
|
|
145,276
|
|
|
122,130
|
|
Total on-balance sheet assets and liabilities
|
$
|
949,253
|
|
|
$
|
(27,591
|
)
|
|
$
|
63,380
|
|
|
$
|
2,790
|
|
|
$
|
987,832
|
|
|
$
|
832,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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 facility
|
165,719
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, 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
|
$
|
1,019,378
|
|
|
$
|
(27,847
|
)
|
|
$
|
69,364
|
|
|
$
|
2,893
|
|
|
$
|
1,063,788
|
|
|
$
|
925,619
|
|
Asset-backed U.S. commercial paper conduit facilities
|
—
|
|
|
—
|
|
|
—
|
|
|
150
|
|
|
150
|
|
|
—
|
|
Unconsolidated VIEs
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed Canadian commercial paper conduit facility
|
155,130
|
|
|
(3,244
|
)
|
|
10,297
|
|
|
351
|
|
|
162,534
|
|
|
140,488
|
|
Total on-balance sheet assets and liabilities
|
$
|
1,174,508
|
|
|
$
|
(31,091
|
)
|
|
$
|
79,661
|
|
|
$
|
3,394
|
|
|
$
|
1,226,472
|
|
|
$
|
1,066,107
|
|
On-Balance Sheet Asset-Backed Securitization VIEs
The Company transfers U.S. retail motorcycle finance receivables to SPEs which in turn issue secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. Each on-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of
the Company’s creditors until the associated secured debt and other obligations are satisfied. Restricted cash balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual lives have various maturities ranging from 2019 to 2022.
The Company is the primary beneficiary of its on-balance sheet asset-backed securitization VIEs because it retains servicing rights and a residual interest in the VIEs in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.
There were
no
on-balance sheet asset-backed securitization transactions during the nine months ended
September 24, 2017
or
September 25, 2016
.
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE
On
December 14, 2016
, the Company entered into a new revolving facility agreement with a third party bank-sponsored asset-backed U.S. commercial paper conduit, which provides for a total commitment of up to
$300.0 million
. Also on that date, the Company renewed its existing
$600.0 million
revolving facility agreement, which had expired on
December 14, 2016
, with the same third party bank-sponsored asset-backed U.S. commercial paper conduit. 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
. 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. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of
September 24, 2017
, the U.S. Conduit Facilities have an expiration date of
December 13, 2017
.
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.
In
January
,
April
, and
July
2017, the Company transferred
$333.4 million
,
$28.2 million
, and
$34.1 million
, respectively, of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued
$300.0 million
,
$24.0 million
, and
$29.6 million
, respectively, of debt under the U.S. Conduit Facilities. The contractual maturity of the debt is approximately
5 years
. The VIE had
no
borrowings outstanding under the U.S. Conduit Facilities at
December 31, 2016
or
September 25, 2016
.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility
In June 2017, the Company amended its facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase eligible Canadian retail motorcycle finance receivables for proceeds up to
C$220.0 million
. The transferred assets are restricted as collateral for the payment of the debt. The terms for this debt provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment of
C$220.0 million
. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. The contractual maturity of the debt is approximately
5 years
. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of
September 24, 2017
, the Canadian Conduit has an expiration date of
June 30, 2018
.
The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company doesn’t 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’t 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, was
$23.1 million
at
September 24, 2017
. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Transfers
|
|
Proceeds
|
|
Transfers
|
|
Proceeds
|
First quarter
|
$
|
6,300
|
|
|
$
|
5,500
|
|
|
$
|
6,600
|
|
|
$
|
5,800
|
|
Second quarter
|
14,200
|
|
|
12,400
|
|
|
31,400
|
|
|
27,500
|
|
Third quarter
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
20,500
|
|
|
$
|
17,900
|
|
|
$
|
38,000
|
|
|
$
|
33,300
|
|
Off-Balance Sheet Asset-Backed Securitization VIE
There were
no
off-balance sheet asset-backed securitization transactions during the nine months ended
September 24, 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 an SPE which in turn issued secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. The off-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitization are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors. In an on-balance sheet asset-backed securitization, the Company retains a financial interest in the VIE in the form of a debt security. As part of this off-balance sheet securitization, the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants.
The Company is not the primary beneficiary of the off-balance sheet asset-backed securitization VIE because it only retained servicing rights and does not have the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. Accordingly, this transaction met the accounting sale requirements under ASC Topic 860 and was recorded as a sale for accounting purposes. Upon the sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet and a gain was recognized for the difference between the cash proceeds received, the assets derecognized and the liabilities recognized as part of the transaction. The gain on sale was included in Financial Services revenue in the Consolidated Statement of Income.
At
September 24, 2017
, the assets of this off-balance sheet asset-backed securitization VIE were
$165.2 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
September 24, 2017
. This is based on the unlikely event that all the receivables have underwriting defects or other defects that trigger a violation of certain covenants and that the underlying collateral has no residual value. This maximum exposure is not an indication of expected losses.
Servicing Activities
The Company services all retail motorcycle finance receivables that it originates. When the Company transfers retail motorcycle finance receivables to SPEs through asset-backed financings, the Company retains the right to service the finance receivables and receives servicing fees based on the securitized finance receivables balance and certain ancillary fees. In on-balance sheet asset-backed financings, servicing fees are eliminated in consolidation and therefore are not recorded on a consolidated basis. In off-balance sheet asset-backed financings, servicing fees and ancillary fees are recorded in Financial Services revenue in the Consolidated Statement of Income. The fees the Company is paid for servicing represent adequate compensation, and consequently, the Company does not recognize a servicing asset or liability. The Company recognized servicing fee income of
$1.5 million
and
$1.0 million
during the nine months ended
September 24, 2017
and
September 25, 2016
, respectively.
The unpaid principal balance of retail motorcycle finance receivables serviced by the Company was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2017
|
|
December 31,
2016
|
|
September 25,
2016
|
On-balance sheet retail motorcycle finance receivables
|
$
|
6,185,144
|
|
|
$
|
5,839,467
|
|
|
$
|
6,017,065
|
|
Off-balance sheet retail motorcycle finance receivables
|
165,169
|
|
|
236,706
|
|
|
262,583
|
|
Total serviced retail motorcycle finance receivables
|
$
|
6,350,313
|
|
|
$
|
6,076,173
|
|
|
$
|
6,279,648
|
|
The unpaid principal balance of retail motorcycle finance receivables serviced by the Company 30 days or more delinquent was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount 30 days or more past due:
|
|
September 24,
2017
|
|
December 31,
2016
|
|
September 25,
2016
|
On-balance sheet retail motorcycle finance receivables
|
$
|
203,450
|
|
|
$
|
221,393
|
|
|
$
|
192,891
|
|
Off-balance sheet retail motorcycle finance receivables
|
1,720
|
|
|
1,858
|
|
|
1,235
|
|
Total serviced retail motorcycle finance receivables
|
$
|
205,170
|
|
|
$
|
223,251
|
|
|
$
|
194,126
|
|
Credit losses, net of recoveries for the retail motorcycle finance receivables serviced by the Company were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
On-balance sheet retail motorcycle finance receivables
|
$
|
27,199
|
|
|
$
|
26,380
|
|
|
$
|
76,820
|
|
|
$
|
69,498
|
|
Off-balance sheet retail motorcycle finance receivables
|
299
|
|
|
270
|
|
|
865
|
|
|
285
|
|
Total serviced retail motorcycle finance receivables
|
$
|
27,498
|
|
|
$
|
26,650
|
|
|
$
|
77,685
|
|
|
$
|
69,783
|
|
11. Income Taxes
The Company’s
2017
income tax rate for the
nine
months ended
September 24, 2017
was
33.2%
compared to
32.9%
for the
nine months ended
September 25, 2016
. In the third quarter of 2017, the Company's income tax rate was favorably impacted by increased research and development tax credits, as well as benefits recognized in connection with the release of tax reserves associated with tax audits that were closed. The tax provision for income taxes for the nine months ended September 25, 2016 included discrete benefits also associated with the closing of tax audits during the period.
12. Product Warranty and Recall Campaigns
The Company currently provides a standard
two
-year limited warranty on all new motorcycles sold worldwide, except for Japan, where the Company currently provides a standard
three
-year limited warranty on all new motorcycles sold. In addition, the Company provides a
one
-year warranty for Parts & Accessories (P&A). The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company maintains reserves for future warranty claims using an estimated cost, which is based primarily on historical Company claim information maintained by the Company. Additionally, the Company has from time to time initiated voluntary recall campaigns. The Company reserves for all estimated costs associated with recalls in the period that management approves and commits to the recall.
Changes in the Company’s warranty and recall liability were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
Balance, beginning of period
|
$
|
80,681
|
|
|
$
|
82,480
|
|
|
$
|
79,482
|
|
|
$
|
74,217
|
|
Warranties issued during the period
|
11,802
|
|
|
11,107
|
|
|
46,638
|
|
|
49,321
|
|
Settlements made during the period
|
(22,322
|
)
|
|
(30,512
|
)
|
|
(62,855
|
)
|
|
(71,354
|
)
|
Recalls and changes to pre-existing warranty liabilities
|
646
|
|
|
22,448
|
|
|
7,542
|
|
|
33,339
|
|
Balance, end of period
|
$
|
70,807
|
|
|
$
|
85,523
|
|
|
$
|
70,807
|
|
|
$
|
85,523
|
|
The liability for recall campaigns was
$6.2 million
,
$13.6 million
and
$19.5 million
as of
September 24, 2017
,
December 31, 2016
and
September 25, 2016
, respectively.
13. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
Numerator
:
|
|
|
|
|
|
|
|
Net income used in computing basic and diluted earnings per share
|
$
|
68,209
|
|
|
$
|
114,065
|
|
|
$
|
513,445
|
|
|
$
|
644,985
|
|
Denominator
:
|
|
|
|
|
|
|
|
Denominator for basic earnings per share - weighted-average common shares
|
169,850
|
|
|
178,438
|
|
|
173,362
|
|
|
180,779
|
|
Effect of dilutive securities - employee stock compensation plan
|
838
|
|
|
882
|
|
|
941
|
|
|
803
|
|
Denominator for diluted earnings per share - adjusted weighted-average shares outstanding
|
170,688
|
|
|
179,320
|
|
|
174,303
|
|
|
181,582
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.40
|
|
|
$
|
0.64
|
|
|
$
|
2.96
|
|
|
$
|
3.57
|
|
Diluted
|
$
|
0.40
|
|
|
$
|
0.64
|
|
|
$
|
2.95
|
|
|
$
|
3.55
|
|
Outstanding options to purchase
0.9 million
and
1.2 million
shares of common stock for the
three months ended September 24, 2017
and
September 25, 2016
, respectively, and
0.8 million
and
1.5 million
shares of common stock for the
nine months ended September 24, 2017
and
September 25, 2016
, 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 for the
three and nine
month periods ended
September 24, 2017
and
September 25, 2016
.
14. Employee Benefit Plans
The Company has a defined benefit qualified pension plan and postretirement healthcare benefit plans that cover certain employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. Net periodic benefit costs are allocated among selling, administrative and engineering expense, cost of goods sold and inventory. Amounts capitalized in inventory are not significant. Components of net periodic benefit costs were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
Pension and SERPA Benefits
|
|
|
|
|
|
|
|
Service cost
|
$
|
7,896
|
|
|
$
|
8,359
|
|
|
$
|
23,688
|
|
|
$
|
25,077
|
|
Interest cost
|
21,269
|
|
|
22,707
|
|
|
63,807
|
|
|
68,121
|
|
Expected return on plan assets
|
(35,345
|
)
|
|
(36,445
|
)
|
|
(106,035
|
)
|
|
(109,335
|
)
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
Prior service cost
|
256
|
|
|
255
|
|
|
764
|
|
|
765
|
|
Net loss
|
10,998
|
|
|
11,588
|
|
|
32,994
|
|
|
34,764
|
|
Settlement loss
|
—
|
|
|
300
|
|
|
—
|
|
|
900
|
|
Net periodic benefit cost
|
$
|
5,074
|
|
|
$
|
6,764
|
|
|
$
|
15,218
|
|
|
$
|
20,292
|
|
Postretirement Healthcare Benefits
|
|
|
|
|
|
|
|
Service cost
|
$
|
1,875
|
|
|
$
|
1,870
|
|
|
$
|
5,625
|
|
|
$
|
5,610
|
|
Interest cost
|
3,412
|
|
|
3,704
|
|
|
10,236
|
|
|
11,112
|
|
Expected return on plan assets
|
(3,156
|
)
|
|
(3,017
|
)
|
|
(9,468
|
)
|
|
(9,051
|
)
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
Prior service credit
|
(543
|
)
|
|
(701
|
)
|
|
(1,629
|
)
|
|
(2,103
|
)
|
Net loss
|
815
|
|
|
884
|
|
|
2,445
|
|
|
2,652
|
|
Net periodic benefit cost
|
$
|
2,403
|
|
|
$
|
2,740
|
|
|
$
|
7,209
|
|
|
$
|
8,220
|
|
During the first nine months of 2017, the Company voluntarily contributed
$25.0 million
in cash to further fund its qualified pension plan. There are no required or planned contributions to the qualified pension plan for the remainder of
2017
. The Company expects it will continue to make ongoing benefit payments under the SERPA and postretirement healthcare plans.
15. Business Segments
Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in
two
segments: the Motorcycles & Related Products (Motorcycles) segment and the Financial Services segment. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. Selected segment information is set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 24,
2017
|
|
September 25,
2016
|
|
September 24,
2017
|
|
September 25,
2016
|
Motorcycles net revenue
|
$
|
962,136
|
|
|
$
|
1,091,630
|
|
|
$
|
3,867,982
|
|
|
$
|
4,338,353
|
|
Gross profit
|
276,975
|
|
|
367,019
|
|
|
1,330,083
|
|
|
1,564,857
|
|
Selling, administrative and engineering expense
|
257,327
|
|
|
258,090
|
|
|
751,946
|
|
|
800,722
|
|
Operating income from Motorcycles
|
19,648
|
|
|
108,929
|
|
|
578,137
|
|
|
764,135
|
|
Financial Services revenue
|
189,059
|
|
|
183,183
|
|
|
550,314
|
|
|
547,505
|
|
Financial Services expense
|
111,999
|
|
|
113,736
|
|
|
338,683
|
|
|
332,114
|
|
Operating income from Financial Services
|
77,060
|
|
|
69,447
|
|
|
211,631
|
|
|
215,391
|
|
Operating income
|
$
|
96,708
|
|
|
$
|
178,376
|
|
|
$
|
789,768
|
|
|
$
|
979,526
|
|
16. Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining required reserves related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The required reserves are monitored on an ongoing basis and are updated based on new developments or new information in each matter.
Environmental Protection Agency Notice:
In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses to the EPA’s inquiry and has engaged in 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 (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. Following the required public comment period, the Company anticipates the EPA will move the court to finalize the Settlement in the coming months. The Company has a reserve associated with this matter which is included in accrued liabilities in the Consolidated Balance Sheets, and as a result, if it is finalized, the Settlement would not have a material adverse effect on the Company's financial condition or results of operations. The Settlement is not final until it is approved by the court, and if it is not approved by the court, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter.
York Environmental Matters:
The Company is involved with government agencies and groups of potentially responsible parties related to a matter involving the cleanup of soil and groundwater contamination at its York, Pennsylvania facility. The York facility was formerly used by the U.S. Navy and AMF prior to the purchase of the York facility by the Company from AMF in 1981. Although the Company is not certain as to the full extent of the environmental contamination at the York facility, it has been working with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 in undertaking environmental investigation and remediation activities, including a site-wide remedial investigation/feasibility study (RI/FS).
In January 1995, the Company entered into a settlement agreement (the Agreement) with the Navy, and the parties amended the Agreement in 2013 to address ordnance and explosive waste. The Agreement calls for the Navy and the Company to contribute amounts into a trust equal to
53%
and
47%
, respectively, of costs associated with environmental investigation and remediation activities at the York facility (Response Costs). The trust administers the payment of the Response Costs incurred at the York facility as covered by the Agreement.
The Company has a reserve for its estimate of its share of the future Response Costs at the York facility which is included in other 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.
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:
The Company is involved in product liability suits related to the operation of its business. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and that product liability suits will not have a material adverse effect on the Company’s consolidated financial statements.
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. The Company does not believe that a loss related to this matter is probable and no reserve has been established. However, it is possible that the outcome of NHTSA’s investigation could result in future costs to the Company. Given the uncertainty that still exists concerning the resolution of this matter, the Company cannot reasonably estimate these possible future costs, if any.
17. Supplemental Consolidating Data
The supplemental consolidating data for the periods noted is presented for informational purposes. The supplemental consolidating data may be different than segment information presented elsewhere due to the allocation of intercompany eliminations to reporting segments. All supplemental data is presented in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 24, 2017
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Motorcycles and Related Products
|
$
|
964,942
|
|
|
$
|
—
|
|
|
$
|
(2,806
|
)
|
|
$
|
962,136
|
|
Financial Services
|
—
|
|
|
189,932
|
|
|
(873
|
)
|
|
189,059
|
|
Total revenue
|
964,942
|
|
|
189,932
|
|
|
(3,679
|
)
|
|
1,151,195
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Motorcycles and Related Products cost of goods sold
|
685,161
|
|
|
—
|
|
|
—
|
|
|
685,161
|
|
Financial Services interest expense
|
—
|
|
|
46,169
|
|
|
—
|
|
|
46,169
|
|
Financial Services provision for credit losses
|
—
|
|
|
29,253
|
|
|
—
|
|
|
29,253
|
|
Selling, administrative and engineering expense
|
257,723
|
|
|
39,383
|
|
|
(3,202
|
)
|
|
293,904
|
|
Total costs and expenses
|
942,884
|
|
|
114,805
|
|
|
(3,202
|
)
|
|
1,054,487
|
|
Operating income
|
22,058
|
|
|
75,127
|
|
|
(477
|
)
|
|
96,708
|
|
Investment income
|
91,083
|
|
|
—
|
|
|
(90,000
|
)
|
|
1,083
|
|
Interest expense
|
7,896
|
|
|
—
|
|
|
—
|
|
|
7,896
|
|
Income before provision for income taxes
|
105,245
|
|
|
75,127
|
|
|
(90,477
|
)
|
|
89,895
|
|
Provision for income taxes
|
(6,134
|
)
|
|
27,820
|
|
|
—
|
|
|
21,686
|
|
Net income
|
$
|
111,379
|
|
|
$
|
47,307
|
|
|
$
|
(90,477
|
)
|
|
$
|
68,209
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 24, 2017
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Motorcycles and Related Products
|
$
|
3,875,669
|
|
|
$
|
—
|
|
|
$
|
(7,687
|
)
|
|
$
|
3,867,982
|
|
Financial Services
|
—
|
|
|
552,201
|
|
|
(1,887
|
)
|
|
550,314
|
|
Total revenue
|
3,875,669
|
|
|
552,201
|
|
|
(9,574
|
)
|
|
4,418,296
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Motorcycles and Related Products cost of goods sold
|
2,537,899
|
|
|
—
|
|
|
—
|
|
|
2,537,899
|
|
Financial Services interest expense
|
—
|
|
|
133,866
|
|
|
—
|
|
|
133,866
|
|
Financial Services provision for credit losses
|
—
|
|
|
99,059
|
|
|
—
|
|
|
99,059
|
|
Selling, administrative and engineering expense
|
753,232
|
|
|
113,445
|
|
|
(8,973
|
)
|
|
857,704
|
|
Total costs and expenses
|
3,291,131
|
|
|
346,370
|
|
|
(8,973
|
)
|
|
3,628,528
|
|
Operating income
|
584,538
|
|
|
205,831
|
|
|
(601
|
)
|
|
789,768
|
|
Investment income
|
198,539
|
|
|
—
|
|
|
(196,000
|
)
|
|
2,539
|
|
Interest expense
|
23,295
|
|
|
—
|
|
|
—
|
|
|
23,295
|
|
Income before provision for income taxes
|
759,782
|
|
|
205,831
|
|
|
(196,601
|
)
|
|
769,012
|
|
Provision for income taxes
|
179,058
|
|
|
76,509
|
|
|
—
|
|
|
255,567
|
|
Net income
|
$
|
580,724
|
|
|
$
|
129,322
|
|
|
$
|
(196,601
|
)
|
|
$
|
513,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 25, 2016
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Motorcycles and Related Products
|
$
|
1,094,148
|
|
|
$
|
—
|
|
|
$
|
(2,518
|
)
|
|
$
|
1,091,630
|
|
Financial Services
|
—
|
|
|
183,706
|
|
|
(523
|
)
|
|
183,183
|
|
Total revenue
|
1,094,148
|
|
|
183,706
|
|
|
(3,041
|
)
|
|
1,274,813
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Motorcycles and Related Products cost of goods sold
|
724,611
|
|
|
—
|
|
|
—
|
|
|
724,611
|
|
Financial Services interest expense
|
—
|
|
|
42,573
|
|
|
—
|
|
|
42,573
|
|
Financial Services provision for credit losses
|
—
|
|
|
36,543
|
|
|
—
|
|
|
36,543
|
|
Selling, administrative and engineering expense
|
258,541
|
|
|
37,139
|
|
|
(2,970
|
)
|
|
292,710
|
|
Total costs and expenses
|
983,152
|
|
|
116,255
|
|
|
(2,970
|
)
|
|
1,096,437
|
|
Operating income
|
110,996
|
|
|
67,451
|
|
|
(71
|
)
|
|
178,376
|
|
Investment income
|
2,300
|
|
|
—
|
|
|
—
|
|
|
2,300
|
|
Interest expense
|
7,706
|
|
|
—
|
|
|
—
|
|
|
7,706
|
|
Income before provision for income taxes
|
105,590
|
|
|
67,451
|
|
|
(71
|
)
|
|
172,970
|
|
Provision for income taxes
|
33,895
|
|
|
25,010
|
|
|
—
|
|
|
58,905
|
|
Net income
|
$
|
71,695
|
|
|
$
|
42,441
|
|
|
$
|
(71
|
)
|
|
$
|
114,065
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 25, 2016
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Motorcycles and Related Products
|
$
|
4,346,166
|
|
|
$
|
—
|
|
|
$
|
(7,813
|
)
|
|
$
|
4,338,353
|
|
Financial Services
|
—
|
|
|
549,162
|
|
|
(1,657
|
)
|
|
547,505
|
|
Total revenue
|
4,346,166
|
|
|
549,162
|
|
|
(9,470
|
)
|
|
4,885,858
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Motorcycles and Related Products cost of goods sold
|
2,773,496
|
|
|
—
|
|
|
—
|
|
|
2,773,496
|
|
Financial Services interest expense
|
—
|
|
|
131,387
|
|
|
—
|
|
|
131,387
|
|
Financial Services provision for credit losses
|
—
|
|
|
97,127
|
|
|
—
|
|
|
97,127
|
|
Selling, administrative and engineering expense
|
802,139
|
|
|
111,414
|
|
|
(9,231
|
)
|
|
904,322
|
|
Total costs and expenses
|
3,575,635
|
|
|
339,928
|
|
|
(9,231
|
)
|
|
3,906,332
|
|
Operating income
|
770,531
|
|
|
209,234
|
|
|
(239
|
)
|
|
979,526
|
|
Investment income
|
186,754
|
|
|
—
|
|
|
(183,000
|
)
|
|
3,754
|
|
Interest expense
|
21,968
|
|
|
—
|
|
|
—
|
|
|
21,968
|
|
Income before provision for income taxes
|
935,317
|
|
|
209,234
|
|
|
(183,239
|
)
|
|
961,312
|
|
Provision for income taxes
|
238,256
|
|
|
78,071
|
|
|
—
|
|
|
316,327
|
|
Net income
|
$
|
697,061
|
|
|
$
|
131,163
|
|
|
$
|
(183,239
|
)
|
|
$
|
644,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2017
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
311,029
|
|
|
$
|
372,105
|
|
|
$
|
—
|
|
|
$
|
683,134
|
|
Accounts receivable, net
|
690,152
|
|
|
—
|
|
|
(347,028
|
)
|
|
343,124
|
|
Finance receivables, net
|
—
|
|
|
2,058,168
|
|
|
—
|
|
|
2,058,168
|
|
Inventories
|
469,091
|
|
|
—
|
|
|
—
|
|
|
469,091
|
|
Restricted cash
|
—
|
|
|
52,209
|
|
|
—
|
|
|
52,209
|
|
Other current assets
|
146,012
|
|
|
46,956
|
|
|
(10,552
|
)
|
|
182,416
|
|
Total current assets
|
1,616,284
|
|
|
2,529,438
|
|
|
(357,580
|
)
|
|
3,788,142
|
|
Finance receivables, net
|
—
|
|
|
5,042,857
|
|
|
—
|
|
|
5,042,857
|
|
Property, plant and equipment, net
|
892,260
|
|
|
42,355
|
|
|
—
|
|
|
934,615
|
|
Goodwill
|
55,898
|
|
|
—
|
|
|
—
|
|
|
55,898
|
|
Deferred income taxes
|
109,116
|
|
|
73,424
|
|
|
(1,965
|
)
|
|
180,575
|
|
Other long-term assets
|
149,257
|
|
|
22,499
|
|
|
(85,484
|
)
|
|
86,272
|
|
|
$
|
2,822,815
|
|
|
$
|
7,710,573
|
|
|
$
|
(445,029
|
)
|
|
$
|
10,088,359
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
257,205
|
|
|
$
|
366,940
|
|
|
$
|
(347,028
|
)
|
|
$
|
277,117
|
|
Accrued liabilities
|
479,753
|
|
|
104,814
|
|
|
(10,609
|
)
|
|
573,958
|
|
Short-term debt
|
—
|
|
|
834,875
|
|
|
—
|
|
|
834,875
|
|
Current portion of long-term debt, net
|
—
|
|
|
1,530,401
|
|
|
—
|
|
|
1,530,401
|
|
Total current liabilities
|
736,958
|
|
|
2,837,030
|
|
|
(357,637
|
)
|
|
3,216,351
|
|
Long-term debt, net
|
741,797
|
|
|
3,865,994
|
|
|
—
|
|
|
4,607,791
|
|
Pension liability
|
52,471
|
|
|
—
|
|
|
—
|
|
|
52,471
|
|
Postretirement healthcare liability
|
162,925
|
|
|
—
|
|
|
—
|
|
|
162,925
|
|
Other long-term liabilities
|
154,696
|
|
|
34,071
|
|
|
3,234
|
|
|
192,001
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
Shareholders’ equity
|
973,968
|
|
|
973,478
|
|
|
(90,626
|
)
|
|
1,856,820
|
|
|
$
|
2,822,815
|
|
|
$
|
7,710,573
|
|
|
$
|
(445,029
|
)
|
|
$
|
10,088,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 16)
|
|
|
|
|
|
|
|
Shareholders’ equity
|
975,949
|
|
|
1,031,877
|
|
|
(87,668
|
)
|
|
1,920,158
|
|
|
$
|
2,740,615
|
|
|
$
|
7,399,790
|
|
|
$
|
(250,165
|
)
|
|
$
|
9,890,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, 2016
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
438,875
|
|
|
$
|
351,409
|
|
|
$
|
—
|
|
|
$
|
790,284
|
|
Marketable securities
|
5,038
|
|
|
—
|
|
|
—
|
|
|
5,038
|
|
Accounts receivable, net
|
751,770
|
|
|
—
|
|
|
(405,594
|
)
|
|
346,176
|
|
Finance receivables, net
|
—
|
|
|
2,205,644
|
|
|
—
|
|
|
2,205,644
|
|
Inventories
|
426,547
|
|
|
—
|
|
|
—
|
|
|
426,547
|
|
Restricted cash
|
—
|
|
|
65,088
|
|
|
—
|
|
|
65,088
|
|
Deferred income taxes
|
61,611
|
|
|
61,998
|
|
|
—
|
|
|
123,609
|
|
Other current assets
|
110,060
|
|
|
41,305
|
|
|
(11,407
|
)
|
|
139,958
|
|
Total current assets
|
1,793,901
|
|
|
2,725,444
|
|
|
(417,001
|
)
|
|
4,102,344
|
|
Finance receivables, net
|
—
|
|
|
4,944,322
|
|
|
—
|
|
|
4,944,322
|
|
Property, plant and equipment, net
|
917,984
|
|
|
36,491
|
|
|
—
|
|
|
954,475
|
|
Goodwill
|
54,663
|
|
|
—
|
|
|
—
|
|
|
54,663
|
|
Deferred income taxes
|
73,639
|
|
|
9,066
|
|
|
(1,874
|
)
|
|
80,831
|
|
Other long-term assets
|
133,441
|
|
|
24,605
|
|
|
(82,455
|
)
|
|
75,591
|
|
|
$
|
2,973,628
|
|
|
$
|
7,739,928
|
|
|
$
|
(501,330
|
)
|
|
$
|
10,212,226
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
268,945
|
|
|
$
|
428,243
|
|
|
$
|
(405,594
|
)
|
|
$
|
291,594
|
|
Accrued liabilities
|
419,675
|
|
|
98,268
|
|
|
(11,410
|
)
|
|
506,533
|
|
Short-term debt
|
—
|
|
|
1,055,428
|
|
|
—
|
|
|
1,055,428
|
|
Current portion of long-term debt, net
|
—
|
|
|
700,152
|
|
|
—
|
|
|
700,152
|
|
Total current liabilities
|
688,620
|
|
|
2,282,091
|
|
|
(417,004
|
)
|
|
2,553,707
|
|
Long-term debt, net
|
741,144
|
|
|
4,429,465
|
|
|
—
|
|
|
5,170,609
|
|
Pension liability
|
120,494
|
|
|
—
|
|
|
—
|
|
|
120,494
|
|
Postretirement healthcare liability
|
182,825
|
|
|
—
|
|
|
—
|
|
|
182,825
|
|
Other long-term liabilities
|
160,784
|
|
|
28,425
|
|
|
3,014
|
|
|
192,223
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
Shareholders’ equity
|
1,079,761
|
|
|
999,947
|
|
|
(87,340
|
)
|
|
1,992,368
|
|
|
$
|
2,973,628
|
|
|
$
|
7,739,928
|
|
|
$
|
(501,330
|
)
|
|
$
|
10,212,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 24, 2017
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income
|
$
|
580,724
|
|
|
$
|
129,322
|
|
|
$
|
(196,601
|
)
|
|
$
|
513,445
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles
|
158,938
|
|
|
5,036
|
|
|
—
|
|
|
163,974
|
|
Amortization of deferred loan origination costs
|
—
|
|
|
62,052
|
|
|
—
|
|
|
62,052
|
|
Amortization of financing origination fees
|
491
|
|
|
5,621
|
|
|
—
|
|
|
6,112
|
|
Provision for long-term employee benefits
|
22,427
|
|
|
—
|
|
|
—
|
|
|
22,427
|
|
Employee benefit plan contributions and payments
|
(43,060
|
)
|
|
—
|
|
|
—
|
|
|
(43,060
|
)
|
Stock compensation expense
|
23,223
|
|
|
2,358
|
|
|
—
|
|
|
25,581
|
|
Net change in wholesale finance receivables related to sales
|
—
|
|
|
—
|
|
|
36,678
|
|
|
36,678
|
|
Provision for credit losses
|
—
|
|
|
99,059
|
|
|
—
|
|
|
99,059
|
|
Deferred income taxes
|
3,450
|
|
|
(8,656
|
)
|
|
55
|
|
|
(5,151
|
)
|
Other, net
|
(14,671
|
)
|
|
2,946
|
|
|
603
|
|
|
(11,122
|
)
|
Changes in current assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable, net
|
(211,115
|
)
|
|
—
|
|
|
181,948
|
|
|
(29,167
|
)
|
Finance receivables - accrued interest and other
|
—
|
|
|
317
|
|
|
—
|
|
|
317
|
|
Inventories
|
50,016
|
|
|
—
|
|
|
—
|
|
|
50,016
|
|
Accounts payable and accrued liabilities
|
75,957
|
|
|
199,855
|
|
|
(187,054
|
)
|
|
88,758
|
|
Derivative instruments
|
2,708
|
|
|
44
|
|
|
—
|
|
|
2,752
|
|
Other
|
(45,830
|
)
|
|
1,731
|
|
|
10,503
|
|
|
(33,596
|
)
|
Total adjustments
|
22,534
|
|
|
370,363
|
|
|
42,733
|
|
|
435,630
|
|
Net cash provided by operating activities
|
603,258
|
|
|
499,685
|
|
|
(153,868
|
)
|
|
949,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 24, 2017
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Capital expenditures
|
(105,591
|
)
|
|
(8,431
|
)
|
|
—
|
|
|
(114,022
|
)
|
Origination of finance receivables
|
—
|
|
|
(5,791,241
|
)
|
|
2,863,869
|
|
|
(2,927,372
|
)
|
Collections on finance receivables
|
—
|
|
|
5,386,123
|
|
|
(2,906,001
|
)
|
|
2,480,122
|
|
Sales and redemptions of marketable securities
|
6,916
|
|
|
—
|
|
|
—
|
|
|
6,916
|
|
Other
|
356
|
|
|
—
|
|
|
—
|
|
|
356
|
|
Net cash used by investing activities
|
(98,319
|
)
|
|
(413,549
|
)
|
|
(42,132
|
)
|
|
(554,000
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from issuance of medium-term notes
|
—
|
|
|
893,668
|
|
|
—
|
|
|
893,668
|
|
Repayments of medium-term notes
|
—
|
|
|
(400,000
|
)
|
|
—
|
|
|
(400,000
|
)
|
Repayments of securitization debt
|
—
|
|
|
(367,298
|
)
|
|
—
|
|
|
(367,298
|
)
|
Borrowings of asset-backed commercial paper
|
—
|
|
|
371,253
|
|
|
—
|
|
|
371,253
|
|
Repayments of asset-backed commercial paper
|
—
|
|
|
(129,690
|
)
|
|
—
|
|
|
(129,690
|
)
|
Net decrease in credit facilities and unsecured commercial paper
|
—
|
|
|
(225,038
|
)
|
|
—
|
|
|
(225,038
|
)
|
Net change in restricted cash
|
—
|
|
|
3,767
|
|
|
—
|
|
|
3,767
|
|
Dividends paid
|
(190,121
|
)
|
|
(196,000
|
)
|
|
196,000
|
|
|
(190,121
|
)
|
Purchase of common stock for treasury
|
(465,167
|
)
|
|
—
|
|
|
—
|
|
|
(465,167
|
)
|
Issuance of common stock under employee stock option plans
|
7,884
|
|
|
—
|
|
|
—
|
|
|
7,884
|
|
Net cash used by financing activities
|
(647,404
|
)
|
|
(49,338
|
)
|
|
196,000
|
|
|
(500,742
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
27,954
|
|
|
863
|
|
|
—
|
|
|
28,817
|
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(114,511
|
)
|
|
$
|
37,661
|
|
|
$
|
—
|
|
|
$
|
(76,850
|
)
|
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
|
(114,511
|
)
|
|
37,661
|
|
|
—
|
|
|
(76,850
|
)
|
Cash and cash equivalents—end of period
|
$
|
311,029
|
|
|
$
|
372,105
|
|
|
$
|
—
|
|
|
$
|
683,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 25, 2016
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income
|
$
|
697,061
|
|
|
$
|
131,163
|
|
|
$
|
(183,239
|
)
|
|
$
|
644,985
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles
|
148,851
|
|
|
5,714
|
|
|
—
|
|
|
154,565
|
|
Amortization of deferred loan origination costs
|
—
|
|
|
65,445
|
|
|
—
|
|
|
65,445
|
|
Amortization of financing origination fees
|
491
|
|
|
6,721
|
|
|
—
|
|
|
7,212
|
|
Provision for long-term employee benefits
|
28,508
|
|
|
—
|
|
|
—
|
|
|
28,508
|
|
Employee benefit plan contributions and payments
|
(47,658
|
)
|
|
—
|
|
|
—
|
|
|
(47,658
|
)
|
Stock compensation expense
|
23,056
|
|
|
1,853
|
|
|
—
|
|
|
24,909
|
|
Net change in wholesale finance receivables related to sales
|
—
|
|
|
—
|
|
|
(169,599
|
)
|
|
(169,599
|
)
|
Provision for credit losses
|
—
|
|
|
97,127
|
|
|
—
|
|
|
97,127
|
|
Gain on off-balance sheet asset-backed securitization
|
—
|
|
|
(9,269
|
)
|
|
—
|
|
|
(9,269
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
118
|
|
|
—
|
|
|
118
|
|
Deferred income taxes
|
(574
|
)
|
|
(10,419
|
)
|
|
(268
|
)
|
|
(11,261
|
)
|
Other, net
|
(24,157
|
)
|
|
648
|
|
|
239
|
|
|
(23,270
|
)
|
Changes in current assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable, net
|
(348,996
|
)
|
|
—
|
|
|
262,200
|
|
|
(86,796
|
)
|
Finance receivables - accrued interest and other
|
—
|
|
|
364
|
|
|
—
|
|
|
364
|
|
Inventories
|
173,975
|
|
|
—
|
|
|
—
|
|
|
173,975
|
|
Accounts payable and accrued liabilities
|
74,269
|
|
|
277,142
|
|
|
(254,221
|
)
|
|
97,190
|
|
Derivative instruments
|
(1,992
|
)
|
|
—
|
|
|
—
|
|
|
(1,992
|
)
|
Other
|
(18,924
|
)
|
|
2,180
|
|
|
—
|
|
|
(16,744
|
)
|
Total adjustments
|
6,849
|
|
|
437,624
|
|
|
(161,649
|
)
|
|
282,824
|
|
Net cash provided by operating activities
|
703,910
|
|
|
568,787
|
|
|
(344,888
|
)
|
|
927,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 25, 2016
|
|
HDMC Entities
|
|
HDFS Entities
|
|
Eliminations
|
|
Consolidated
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Capital expenditures
|
(155,967
|
)
|
|
(6,759
|
)
|
|
—
|
|
|
(162,726
|
)
|
Origination of finance receivables
|
—
|
|
|
(6,297,040
|
)
|
|
3,287,561
|
|
|
(3,009,479
|
)
|
Collections on finance receivables
|
—
|
|
|
5,566,139
|
|
|
(3,125,673
|
)
|
|
2,440,466
|
|
Proceeds from finance receivables sold
|
—
|
|
|
312,571
|
|
|
—
|
|
|
312,571
|
|
Sales and redemptions of marketable securities
|
40,014
|
|
|
—
|
|
|
—
|
|
|
40,014
|
|
Other
|
251
|
|
|
—
|
|
|
—
|
|
|
251
|
|
Net cash used by investing activities
|
(115,702
|
)
|
|
(425,089
|
)
|
|
161,888
|
|
|
(378,903
|
)
|
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
|
—
|
|
|
(535,616
|
)
|
|
—
|
|
|
(535,616
|
)
|
Borrowings of asset-backed commercial paper
|
—
|
|
|
33,428
|
|
|
—
|
|
|
33,428
|
|
Repayments of asset-backed commercial paper
|
—
|
|
|
(55,170
|
)
|
|
—
|
|
|
(55,170
|
)
|
Net decrease in credit facilities and unsecured commercial paper
|
—
|
|
|
(146,328
|
)
|
|
—
|
|
|
(146,328
|
)
|
Net change in restricted cash
|
—
|
|
|
30,981
|
|
|
—
|
|
|
30,981
|
|
Dividends paid
|
(190,387
|
)
|
|
(183,000
|
)
|
|
183,000
|
|
|
(190,387
|
)
|
Purchase of common stock for treasury
|
(374,234
|
)
|
|
—
|
|
|
—
|
|
|
(374,234
|
)
|
Excess tax benefits from share-based payments
|
1,291
|
|
|
—
|
|
|
—
|
|
|
1,291
|
|
Issuance of common stock under employee stock option plans
|
6,444
|
|
|
—
|
|
|
—
|
|
|
6,444
|
|
Net cash used by financing activities
|
(556,886
|
)
|
|
(113,645
|
)
|
|
183,000
|
|
|
(487,531
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
7,110
|
|
|
(410
|
)
|
|
—
|
|
|
6,700
|
|
Net increase in cash and cash equivalents
|
$
|
38,432
|
|
|
$
|
29,643
|
|
|
$
|
—
|
|
|
$
|
68,075
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
Cash and cash equivalents—beginning of period
|
$
|
400,443
|
|
|
$
|
321,766
|
|
|
$
|
—
|
|
|
$
|
722,209
|
|
Net increase in cash and cash equivalents
|
38,432
|
|
|
29,643
|
|
|
—
|
|
|
68,075
|
|
Cash and cash equivalents—end of period
|
$
|
438,875
|
|
|
$
|
351,409
|
|
|
$
|
—
|
|
|
$
|
790,284
|
|