HARLEY DAVIDSON : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company
(HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context
otherwise requires, all references to the "Company" include Harley-Davidson,
Inc. and all its subsidiaries. The Company operates in two segments:
Motorcycles and Related Products (Motorcycles) and Financial Services.
The "% Change" figures included in the "Results of Operations" section were
calculated using unrounded dollar amounts and may differ from calculations using
the rounded dollar amounts presented. Certain "% Change" deemed not meaningful
(NM) have been excluded.
(1) Note Regarding Forward-Looking Statements
The Company intends that certain matters discussed in this report are
"forward-looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such by
reference to this footnote or because the context of the statement will include
words such as the Company "believes," "anticipates," "expects," "plans," "may,"
"will," "estimates," "is on-track" or words of similar meaning. Similarly,
statements that describe or refer to future expectations, future plans,
strategies, objectives, outlooks, targets, guidance, commitments or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially, unfavorably or favorably, from those anticipated as of the date of
this report. Certain of such risks and uncertainties are described in close
proximity to such statements or elsewhere in this report, including in Item 1A.
Risk Factors and in "Cautionary Statements" in this Item 7. Shareholders,
potential investors, and other readers are urged to consider these factors in
evaluating the forward-looking statements and cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements
included in the "Overview" and "Outlook" sections are only made as of
January 28, 2020 and the remaining forward-looking statements in this report are
only made as of the date of the filing of this report (February 19, 2020), and
the Company disclaims any obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Overview(1)
The Company's net income for 2019 was $423.6 million, or $2.68 per diluted
share, compared to $531.5 million, or $3.19 per diluted share, in 2018.
Operating income from the Motorcycles segment in 2019 was down $132.7 million
compared to 2018 due primarily to lower wholesale motorcycle shipments, a less
favorable product mix and higher costs related to the impact of recent European
Union (EU) and China tariffs, partially offset by lower recall costs and lower
restructuring expenses.
Operating income from the Financial Services segment in 2019 was down $25.2
million or 8.6% compared to 2018 due primarily to an increase in the provision
for credit losses.
Worldwide independent dealer retail sales of new Harley-Davidson motorcycles
decreased 4.3% in 2019 compared to 2018. Retail sales were down 5.2% in the U.S.
and decreased 3.0% in international markets compared to 2018. Internationally,
retail sales growth in emerging markets was more than offset by declines in
developed markets. Retail sales in the U.S. continued to be impacted by a weak
U.S. industry; however, the rate of decline for the U.S. industry moderated in
2019. The U.S. 601+cc industry declined 4.1% in 2019 compared to 2018, which was
the industry's lowest rate of decline since 2016. The Company expects continued
headwinds in 2020 in the U.S. and developed international markets.
The Company plans to continue to address these market challenges by focusing on
its strategy to build the next generation of riders globally and executing its
"More Roads to Harley-Davidson" (More Roads) plan. The More Roads plan, which
extends from 2018 to 2022, is designed to accelerate the Company's progress
towards building committed riders globally and deliver significant growth
starting in 2021. One of the Company's objectives is to expand total
Harley-Davidson riders in the U.S. to 4 million by the end of 2027. This
objective is focused on both attracting and retaining more riders each year.
At the end of 2019, there were 3.1 million Harley-Davidson riders in the U.S.,
55,000 more total riders than at the end of 2018. During 2019, 527,000 riders
joined the Harley-Davidson brand in the U.S., 25,000 more than the number that
joined Harley-Davidson in 2018.* (*Data and analysis based on IHS Markit
Motorcycles in Operation (MIO) for On-Highway and Dual purpose bikes in the U.S.
Snapshot based on data as of Dec. 31, 2019 compared to Dec. 31, 2018. IHS Markit
reports, data and information referenced herein (the "IHS Markit Materials") are
the copyrighted property of IHS Markit Ltd. and its subsidiaries ("IHS Markit").
The IHS Markit Materials are from sources considered reliable; however, the
accuracy and completeness thereof are not warranted, nor are the opinions and
analyses published by IHS Markit representations of fact. The

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IHS Markit Materials speak as of the original publication date thereof and are
subject to change without notice. IHS Markit and other trademarks appearing in
the IHS Markit Materials are the property of IHS Markit or their respective
owners.)
The Company aims to continue to improve annual progress towards building
committed riders to reach its 2027 objective and is executing its More Roads
plan to do so. The Company believes it advanced its More Roads plan during 2019
and is on-track to realize its expectation of significant growth in 2021.
Outlook(1)
On January 28, 2020, the Company announced the following expectations for 2020.
Motorcycles and Related Products Segment - In 2020, the Company expects
Motorcycles segment revenue to be approximately $4.53 billion to $4.66 billion,
or down 1% to up 2% compared to 2019. Beginning in 2020, the Company is
providing revenue guidance in place of motorcycle shipment guidance. The Company
believes revenue is a more comprehensive view of the business given the breadth
of revenue growth drivers included in the More Roads plan that would not be
reflected in motorcycle shipments. These include things such as small
displacement motorcycles, electric bicycles, electric two-wheelers for kids and
an expanded focus on broadening access to general merchandise products. As the
Company transitions from motorcycle shipment guidance to revenue guidance. it
provided the following outlook for motorcycle shipments. The Company expects
2020 worldwide motorcycle shipments, including its 601+cc and LiveWire™
motorcycles, to be down modestly, to up slightly, compared to 2019.
The Company expects U.S. retail sales of new Harley-Davidson motorcycles to be
lower in 2020 compared to 2019 behind lower U.S. industry sales, but expects the
rate of decline to continue to temper during 2020.
During 2020, the Company expects worldwide retail sales to be positively
impacted by:
•    Its focus on increasing committed riders and investment in the Stronger

Dealers growth catalyst of the More Roads plan

• Its model year 2020 and 2021 motorcycles, including the Pan America™ and

Harley-Davidson® Bronx™ middleweight models in late 2020

• Expansion of the international independent dealer network

However, the Company expects these positive sales impacts to continue to be met
by strong headwinds, including:
• A declining U.S. motorcycle industry

• A relative shift in rider preference toward market segments in which the

     Company does not currently compete, but plans to enter by the end of 2020


•    A marketplace crowded with highly competitive promotions, incentives and

discounts

In 2020, Motorcycles segment operating margin as a percent of revenue is
expected to be between 7% and 8%, up from 2019 operating margin of 6.3%.
Gross margin is expected to increase in 2020 behind lower year-over-year EU and
China tariffs and strong operational productivity, including approximately $23
million in incremental Manufacturing Optimization Plan savings, partially offset
by unfavorable changes in product mix. Refer to the "Restructuring Plan Costs
and Savings" section below for further information regarding the Manufacturing
Optimization Plan.
During 2020, the Company expects the impact of recent EU and China tariffs to be
approximately $35 million, which is down significantly from the 2019 impact of
recent EU and China tariffs of $97.9 million. The 2020 estimate includes EU
tariffs of approximately $20 million resulting from the shipment of remaining
high-tariff inventory in Europe and continued tariffs on Trike and CVO™ models
which the Company will continue to produce in the U.S. In addition, the Company
expects to incur approximately $15 million from U.S. tariffs on imports from
China (Section 301 tariffs).
While the Company plans to drive cost out of Selling, administrative and
engineering expense, it expects operating expenses to be higher in 2020 due to
increased investment in the More Roads plan and the absence of benefits recorded
in 2019 related to recalls. In 2019, the Company recognized approximately $34
million of recall benefits primarily driven by supplier recoveries that are not
expected to repeat in 2020. In 2020, investment in the More Roads plan is
expected to peak as the Company finalizes product development and plans to
launch:
• New middleweight motorcycles

• Electric bicycles

• A small displacement motorcycle in China

Finally, the Company does not expect to incur restructuring expense in 2020, which will compare favorably to $32.4 million of restructuring expense in 2019.

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Looking to the first quarter of 2020, the Company expects Motorcycles segment
revenue to be between $1.09 billion and $1.17 billion, down 2% to 9% compared to
the first quarter of 2019. First quarter 2020 Motorcycles segment operating
margin as a percent of revenue is also expected to be down approximately 2.5
percentage points compared to the prior year. First quarter 2020 Motorcycles
segment gross margin is expected to be flat to the prior year driven by
favorable tariff impacts and increased productivity, which are expected to be
offset by unfavorable mix. Selling, administrative and engineering expense is
expected to be higher in the first quarter of 2020 compared to the first quarter
of 2019 due primarily to the recall benefit of approximately $28.0 million
recorded in 2019.
Financial Services Segment - The Company expects 2020 Financial Services segment
operating income to be approximately flat compared to 2019 driven by modestly
higher interest income largely offset by an increased provision for credit
losses and higher interest expense as some lower rate debt matured during
2019. Credit losses are expected to be slightly higher due in part to increased
expected loss experience on certain financing programs.
Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU)
No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (ASU 2016-13). Adoption of this standard
will impact how the Company recognizes credit losses on its financial
instruments. The Company has completed its work surrounding model development,
documentation and validation as well as its evaluation of associated processes,
data sources, internal controls and policies. The Company is working through its
remaining steps for the adoption of ASU 2016-13, which includes finalizing
assumptions related to economic forecasts and appropriate qualitative factors
and their associated processes and internal controls. The impact of adoption is
expected to result in an initial increase in the allowance for credit losses in
the range of $70.0 million to $110.0 million, with a decrease in retained
earnings net of taxes.
The initial change in the allowance for credit losses at adoption and the
ongoing effect of ASU 2016-13 on the provision for credit losses will be
impacted by the size and composition of the Company's finance receivables
portfolio, economic conditions, reasonable and supportable forecasts, and other
appropriate factors at each reporting period. Favorable or unfavorable changes
in these key factors may cause additional volatility in the provision for credit
losses and, therefore, Financial Services segment operating income.

Harley-Davidson, Inc. - Capital expenditures in 2020 are expected to be $215
million to $235 million. The Company anticipates it will have the ability to
fund all capital expenditures in 2020 with cash flows generated by operations.
The Company expects its 2020 full year effective tax rate will be approximately
24% to 25%. This guidance excludes the effect of potential future adjustments,
including items associated with any potential new tax legislation or audit
settlements.
Restructuring Plan Costs and Savings(1)
In January 2018, the Company commenced a significant, multi-year manufacturing
optimization plan anchored by the consolidation of its plant in Kansas City,
Missouri into its plant in York, Pennsylvania and the closure of the Company's
wheel operations in Adelaide, Australia (Manufacturing Optimization Plan). The
consolidation of U.S. operations included the elimination of approximately 800
jobs at the Kansas City facility and the addition of approximately 450 jobs at
the York facility. The Adelaide facility closure resulted in the elimination of
approximately 90 jobs.
In November 2018, the Company implemented a reorganization of its workforce
(Reorganization Plan). As a result, approximately 70 employees left the Company
on an involuntary basis.

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The Company does not expect to incur any additional costs under the restructuring plans in 2020. The actual costs and estimated savings associated with the restructuring plans were as follows (dollars in millions):

                                            2018 Actual      2019 Actual      2020 Estimated           Total
Manufacturing Optimization Plan:
Costs related to temporary inefficiencies $        12.9     $      10.3     $              -     $        23.2
Restructuring expenses                             89.5            32.7                    -             122.2
                                          $       102.4     $      43.0     $              -     $       145.4
            Approximate cash expenditures                                                                  60%
Reorganization Plan:
Restructuring expenses (benefits)         $         3.9     $      (0.3 )   $              -     $         3.6
            Approximate cash expenditures                                                                  100 %
                                                                                                   Annual Ongoing
                                                             2019 Actual      2020 Estimated         Estimated
Annual cash savings:
Manufacturing Optimization Plan                                 $32.2           $50 - $60            $65 - $75
Reorganization Plan                                             $ 7.0               $7                   $7

Refer to Note 3 of the Notes to Consolidated financial statements for additional information regarding restructuring expenses.

                  Results of Operations 2019 Compared to 2018
                             Consolidated Results
(in thousands, except earnings per                                     

(Decrease)

share)                                      2019           2018         Increase      % Change
Operating income from Motorcycles and
Related Products                        $  289,620     $  422,363     $ (132,743 )      (31.4 )%
Operating income from Financial
Services                                   265,988        291,160        (25,172 )       (8.6 )
Operating income                           555,608        713,523       (157,915 )      (22.1 )
Other income (expense), net                 16,514          3,039         13,475        443.4
Investment income                           16,371            951         15,420     NM
Interest expense                            31,078         30,884            194          0.6
Income before provision for income
taxes                                      557,415        686,629       (129,214 )      (18.8 )
Provision for income taxes                 133,780        155,178        (21,398 )      (13.8 )
Net income                              $  423,635     $  531,451     $ (107,816 )      (20.3 )%
Diluted earnings per share              $     2.68     $     3.19     $    

(0.51 ) (16.0 )%

Consolidated operating income was down 22.1% in 2019 compared to 2018 driven by
a decrease in operating income from the Motorcycles segment of $132.7 million
and a decrease in operating income from the Financial Services segment of $25.2
million. Refer to the Motorcycles and Related Products Segment and Financial
Services Segment discussions for a more detailed analysis of the factors
affecting operating income.
Other income in 2019 was favorably impacted by lower amortization of actuarial
losses related to the Company's defined benefit plans. Investment income
increased in 2019 as compared to 2018 due to favorable changes in the fair value
of the Company's marketable securities and cash equivalents.
The effective income tax rate for 2019 was 24.0% compared to 22.6% for 2018. The
higher effective income tax rate was primarily due to favorable discrete income
tax adjustments recorded in 2018.

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Diluted earnings per share were $2.68 in 2019, down 16.0% compared to 2018.
Diluted earnings per share were adversely impacted by the 20.3% decrease in net
income, but benefited from lower diluted weighted average shares outstanding.
Diluted weighted average shares outstanding decreased from 166.5 million in 2018
to 157.8 million in 2019 driven by the Company's repurchases of common stock.
Refer to Liquidity and Capital Resources for additional information concerning
the Company's share repurchase activity.
                 Motorcycle Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a)
Retail unit sales of new Harley-Davidson motorcycles were as follows:
                                                       (Decrease)
                                   2019       2018      Increase     % Change
United States                    125,960    132,868       (6,908 )     (5.2 )%

Europe(b)                         38,441     41,179       (2,738 )     (6.6 )
EMEA - Other                       5,645      5,423          222        4.1
Total EMEA                        44,086     46,602       (2,516 )     (5.4 )

Asia Pacific(c)                   17,753     18,429         (676 )     (3.7 )
Asia Pacific - Other              11,760     10,295        1,465       14.2
Total Asia Pacific                29,513     28,724          789        2.7

Latin America                      9,768     10,167         (399 )     (3.9 )
Canada                             8,946      9,690         (744 )     (7.7 )

Total international retail sales 92,313 95,183 (2,870 ) (3.0 ) Total worldwide retail sales 218,273 228,051 (9,778 ) (4.3 )%

(a) Data source for retail sales figures shown above is new sales warranty and

registration information provided by Harley-Davidson dealers and compiled by

the Company. The Company must rely on information that its independent

dealers supply concerning new retail sales, and the Company does not

regularly verify the information that its independent dealers supply. This

information is subject to revision.

(b) Europe data includes Austria, Belgium, Denmark, Finland, France, Germany,

Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden,

Switzerland, and the United Kingdom

(c) Asia Pacific data includes Japan, Australia, New Zealand and Korea

Retail sales of new Harley-Davidson motorcycles in the U.S. were down 5.2% in
2019 compared to 2018 behind continued declines in the 601+cc U.S. industry,
which was down 4.1% compared to 2018. However, the Company was encouraged by the
tempering rates of decline experienced from 2018 to 2019. In 2018, retail sales
of new Harley-Davidson motorcycles were down 10.2% and the 601+cc U.S. industry
was down 8.7%, compared to 2017. The Company believes retail sales trends for
new Harley-Davidson motorcycles have benefited from a tempered rate of decline
in the U.S. industry, the Company's focus on its Stronger Dealers growth
catalyst of the More Roads plan and increased marketing investments.
The Company's U.S. market share of new 601+cc motorcycles for 2019 was 49.1%,
down 0.6 percentage points compared to 2018. The Company's U.S. market share
reflected the adverse impact of relatively strong growth in segments in which
the Company does not currently compete. In the cruiser and touring segments,
which represent approximately 70% of the 601+cc market and where the Company
currently competes, its market share was up 2.5 percentage points on a full-year
basis (Source: Motorcycle Industry Council).
International retail sales of new Harley-Davidson motorcycles were down 3.0% in
2019. Retail sales in developed markets were down 6.0% during 2019 partially
offset by higher retail sales in emerging markets, which increased 5.0%. Retail
sales increases in emerging markets during 2019 were driven by growth in various
markets, including China and the Company's Association of Southeast Asian
Nations (ASEAN) markets. The Company's Thailand manufacturing facility, which
enables lower tariffs, was a key factor supporting growth in the Company's ASEAN
markets.

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In developed international markets, retail sales across most European markets
were down in 2019 given strong 2018 initial retail sales of the Company's new
Softail® motorcycles and due to lower Street sales, which were adversely
impacted by a recall initiated in early 2019. Additionally, retail sales were
down in Japan and Australia in 2019 compared to 2018 behind contracting industry
sales and for Japan competitive new product introductions outside of the touring
and cruiser segments.
The Company's European market share of new 601+cc motorcycles for 2019 was 8.9%,
down 1.4 percentage points compared to 2018 (Source: Association des
Constructeurs Europeens de Motocycles).
The international independent dealer network expanded during 2019, adding 27 new
independent dealer points during the year. The Company remains confident in and
committed to the significant potential that international markets offer
Harley-Davidson. The Company believes it has the brand, products and
distribution network to drive sustainable growth in international markets.(1)
Motorcycle Registration Data - 601+cc(a)
Industry retail registration data for new motorcycles was as follows:
                                       (Decrease)
                   2019       2018      Increase     % Change
United States(b) 252,842    263,750      (10,908 )     (4.1 )%
Europe(c)        425,998    397,669       28,329        7.1  %

(a) Data includes on-road models with internal combustion engines with

displacements greater than 600cc's and in the United States electric

motorcycles with kilowatt (kW) peak power equivalents greater than 600cc's

(601+cc). On-road 601+cc models include dual purpose models, three-wheeled

motorcycles and autocycles. Registration data for Harley-Davidson Street® 500

motorcycles is not included in this table.

(b) United States industry data is derived from information provided by

Motorcycle Industry Council. This third-party data is subject to revision and

update.

(c) Europe data includes Austria, Belgium, Denmark, Finland, France, Germany,

Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden,

Switzerland, and the United Kingdom. Industry retail motorcycle registration

data includes 601+cc models derived from information provided by Association

    des Constructeurs Europeens de Motocycles, an independent agency. This
    third-party data is subject to revision and update.


                    Motorcycles and Related Products Segment
Motorcycle Unit Shipments
Wholesale Harley-Davidson motorcycle unit shipments were as follows:
                                2019                      2018                Unit         Unit
                         Units        Mix %        Units        Mix %       Decrease     % Change
Motorcycle Units:
United States           124,326         58.1 %    132,433         57.9 %     (8,107 )       (6.1 )%
International            89,613         41.9 %     96,232         42.1 %     (6,619 )       (6.9 )
                        213,939        100.0 %    228,665        100.0 %    (14,726 )       (6.4 )%
Motorcycle Units:
Touring motorcycle
units                    91,018         42.5 %    101,942         44.6 %    (10,924 )      (10.7 )%
Cruiser motorcycle
units(a)                 76,052         35.6 %     78,529         34.3 %     (2,477 )       (3.2 )
Sportster® / Street
motorcycle units         46,869         21.9 %     48,194         21.1 %     (1,325 )       (2.7 )
                        213,939        100.0 %    228,665        100.0 %    (14,726 )       (6.4 )%

(a) Includes Softail®, CVOTM, and LiveWireTM

During 2019, Harley-Davidson motorcycle shipments were down 6.4% compared to the
prior year and in line with the Company's guidance. The mix of Touring
motorcycles decreased as a percent of total shipments while the mix of Cruiser
and Sportster®/Street motorcycles increased compared to 2018.

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At the end of 2019, U.S. independent dealer retail inventory of new
Harley-Davidson motorcycles was down approximately 1,500 motorcycles compared to
the end of 2018. The Company plans to continue to aggressively manage supply in
line with demand. However, the Company does expect 2020 year-end worldwide
retail inventory to increase moderately compared to 2019 behind dealer fill of
the Company's new middleweight motorcycles and with the replenishment of
European dealer inventory, which was reduced at the end of 2019 in anticipation
of low-tariff motorcycles sourced from the Company's Thailand facility.(1)
Segment Results
Condensed statements of operations for the Motorcycles segment were as follows
(in thousands):
                                                                  (Decrease)       %
                                     2019            2018          Increase      Change
Revenue:
Motorcycles                      $ 3,538,269     $ 3,882,963     $ (344,694 )    (8.9 )%
Parts & Accessories                  713,400         754,663        (41,263 )    (5.5 )
General Merchandise                  237,566         241,964         (4,398 )    (1.8 )
Licensing                             35,917          38,676         (2,759 )    (7.1 )
Other                                 47,526          50,380         (2,854 )    (5.7 )
                                   4,572,678       4,968,646       (395,968 )    (8.0 )
Cost of goods sold                 3,229,798       3,351,796       (121,998 )    (3.6 )
Gross profit                       1,342,880       1,616,850       (273,970 )   (16.9 )
Operating expenses:
Selling & administrative expense     808,415         914,900       (106,485 )   (11.6 )
Engineering expense                  212,492         186,186         26,306      14.1
Restructuring expense                 32,353          93,401        (61,048 )   (65.4 )
                                   1,053,260       1,194,487       (141,227 )   (11.8 )
Operating income                 $   289,620     $   422,363     $ (132,743 )   (31.4 )%
Operating margin                         6.3 %           8.5 %         (2.2 )   pts.


The estimated impacts of the significant factors affecting the comparability of
revenue, cost of goods sold and gross profit from 2018 to 2019 were as follows
(in millions):
                                                Revenue       Cost of Goods Sold      Gross Profit
2018                                         $     4,969     $           3,352       $      1,617
Volume                                              (307 )                (202 )             (105 )
Price, net of related costs                           67                    34                 33
Foreign currency exchange rates and hedging          (67 )                 (40 )              (26 )
Shipment mix                                         (89 )                  (8 )              (82 )
Raw material prices                                    -                    (1 )                1
Manufacturing and other costs                          -                    95                (95 )
                                                    (396 )                (122 )             (274 )
2019                                         $     4,573     $           3,230       $      1,343


The following factors affected the comparability of net revenue, cost of goods
sold and gross profit from 2018 to 2019:
•    The decrease in volume was due to lower wholesale motorcycle shipments and

lower P&A and general merchandise sales.

• On average, wholesale prices for motorcycles shipped in 2019 were higher

than in the prior year resulting in a favorable impact on revenue. The

positive impact on revenue was partially offset by increased costs related

to the additional content added to motorcycles shipped in 2019 as compared

to the prior year.

• Revenue was adversely impacted by weaker foreign currency exchange rates,

relative to the U.S. dollar, as compared to the prior year. The unfavorable

revenue impact was partially offset by favorable net foreign currency gains

associated with hedging and balance sheet remeasurements, as compared to the

     prior year.



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• Shipment mix adversely impacted gross profit driven by unfavorable changes

     in the mix of motorcycle families, as well as the mix of models within
     motorcycle families.

• Manufacturing and other costs were negatively impacted by lower fixed cost

absorption and an increase in the impact of recent EU and China tariffs. The

impact of recent EU and China tariffs was $97.9 million or $74.2 million

higher in 2019 compared to 2018.

Operating expenses in 2019 were lower compared to 2018 driven by lower
restructuring expenses and favorable net warranty and recall costs. In 2019, net
warranty and recall costs were approximately $96 million lower than in 2018
driven by higher than normal supplier recoveries and lower warranty and recall
costs. Operating expenses were also impacted by increased investments in the
More Roads plan and higher marketing expenses in 2019. However, these increases
were partially offset by lower spending in other areas as the Company
aggressively managed cost.
                           Financial Services Segment
Segment Results
Condensed statements of operations for the Financial Services segment were as
follows (in thousands):
                                                                     Increase
                                            2019         2018       (Decrease)    % Change
Interest income                          $ 678,205    $ 645,985    $   32,220        5.0  %
Other income                               110,307      101,108         9,199        9.1
Securitization and servicing income            599        1,136          (537 )    (47.3 )
Financial Services revenue                 789,111      748,229        40,882        5.5
Interest expense                           210,438      193,187        17,251        8.9
Provision for credit losses                134,536      106,870        27,666       25.9
Operating expenses                         178,149      157,012        21,137       13.5
Financial Services expenses                523,123      457,069       

66,054 14.5 Operating income from Financial Services $ 265,988 $ 291,160 $ (25,172 ) (8.6 )%

Interest income was favorable in 2019 due to higher average outstanding finance
receivables at higher average yields. Interest expense increased due to higher
average outstanding debt at a higher cost of funds.
The provision for credit losses increased $27.7 million compared to 2018. The
retail motorcycle provision increased $27.2 million largely driven by higher
retail credit losses and an increase in the retail reserve rate compared to a
decrease in the retail reserve rate during 2018. The Company believes the
increase in credit losses was due to inefficiencies resulting from the
implementation of a new loan management system early in 2019, softer used
motorcycle prices at auction, and the impact of the Company's strategic efforts
to build riders, which includes programs such as first-time buyer and
dealer-paid no-money down. While these loans may increase the Company's credit
losses, the increased revenue from these programs is expected to offset the
risk(1).
Annual losses on the Company's retail motorcycle loans were 2.00% during 2019
compared to 1.76% in 2018. The 30-day delinquency rate for retail motorcycle
loans at December 31, 2019 increased to 4.39% from 4.12% at December 31, 2018.
Operating expenses increased $21.1 million compared to 2018, which includes
higher depreciation associated with the implementation of a new loan management
system.
Changes in the allowance for credit losses on finance receivables were as
follows (in thousands):
                                  2019          2018

Balance, beginning of period $ 189,885 $ 192,471 Provision for credit losses 134,536 106,870 Charge-offs, net of recoveries (125,840 ) (109,456 ) Balance, end of period $ 198,581 $ 189,885

At December 31, 2019, the allowance for credit losses on finance receivables was
$188.5 million for retail receivables and $10.1 million for wholesale
receivables. At December 31, 2018, the allowance for credit losses on finance
receivables was $182.1 million for retail receivables and $7.8 million for
wholesale receivables.

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The Company's periodic evaluation of the adequacy of the allowance for credit
losses on finance receivables is generally based on the Company's past loan loss
experience, known and inherent risks in the portfolio, current economic
conditions and the estimated value of any underlying collateral. Refer to Note 7
of the Notes to Consolidated financial statements for further discussion
regarding the Company's allowance for credit losses on finance receivables.
                  Results of Operations 2018 Compared to 2017
Refer to Item 7. Management's Discussion and Analysis of the Company's Form 10-K
for the year ended December 31, 2018 filed with the SEC on February 28, 2019 for
a detailed discussion of the results of operations for 2018 compared to 2017 and
liquidity and capital resources for 2018 compared to 2017.
                                 Other Matters
New Accounting Standards Not Yet Adopted
Refer to Note 1 of the Notes to Consolidated financial statements for a
discussion of new accounting standards that will become effective for the
Company in 2020 and 2021.
Critical Accounting Estimates
The Company's financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions. Management believes that the following are some of
the more critical judgment areas in the application of accounting policies that
currently affect the Company's financial condition and results of operations.
Management has discussed the development and selection of these critical
accounting estimates with the Audit and Finance Committee of the Company's Board
of Directors.
Allowance for Credit Losses on Retail Finance Receivables - The allowance for
uncollectible accounts is maintained at a level management believes is adequate
to cover the losses of principal in the existing retail finance receivables
portfolio.
The retail portfolio consists of a large number of small balance, homogeneous
finance receivables. The Company performs a periodic and systematic collective
evaluation of the adequacy of the retail allowance. The Company utilizes loss
forecast models which consider a variety of factors including, but not limited
to, historical loss trends, origination or vintage analysis, known and inherent
risks in the portfolio, the value of the underlying collateral, recovery rates
and current economic conditions including items such as unemployment rates.
Product Warranty and Recalls - Estimated warranty costs are recorded at the time
of sale and are based on a combination of historical claim cost data and other
known factors that may affect future warranty claims. The estimated costs
associated with voluntary recalls are recorded when the liability is both
probable and estimable. The accrued cost of a recall is based on an estimate of
the cost to repair each affected motorcycle and the number of motorcycles
expected to be repaired based on historical data concerning the percentage of
affected customers that take advantage of recall offers. In the case of both
warranty and recall costs, as actual experience becomes available it is used to
update the accruals.
The factors affecting actual warranty and recall costs can be volatile. As a
result, actual warranty claims experience and recall costs may differ from
estimates, which could lead to material changes in the Company's accrued
warranty and recall costs. The Company's warranty and recall liabilities are
discussed further in Note 14 of the Notes to Consolidated financial statements.
Pensions and Other Postretirement Healthcare Benefits - The Company has a
defined benefit pension plan and postretirement healthcare benefit plans, which
cover certain eligible employees and retirees of the Motorcycles segment. The
Company also has unfunded supplemental employee retirement plan agreements
(SERPA) with certain employees, which were instituted to replace benefits lost
under the Tax Revenue Reconciliation Act of 1993.
U.S. GAAP requires that companies recognize in their statement of financial
position a liability for defined benefit pension and postretirement plans that
are underfunded or an asset for defined benefit pension and postretirement
benefit plans that are overfunded.
Pension, SERPA and postretirement healthcare obligations and costs are
calculated through actuarial valuations. The valuation of benefit obligations
and net periodic benefit costs relies on key assumptions including discount
rates, mortality, long-term expected return on plan assets, future compensation
and healthcare cost trend rates.

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The Company determines its discount rate assumptions by referencing high-quality
long-term bond rates that are matched to the duration of its benefit
obligations. Based on this analysis, the Company decreased the weighted-average
discount rate for pension and SERPA obligations from 4.38% as of December 31,
2018 to 3.49% as of December 31, 2019. The Company decreased the
weighted-average discount rate for postretirement healthcare obligations from
4.23% as of December 31, 2018 to 3.26% as of December 31, 2019. The Company
determines its healthcare trend assumption for the postretirement healthcare
obligation by considering factors such as estimated healthcare inflation, the
utilization of healthcare benefits and changes in the health of plan
participants. Based on the Company's assessment of this data as of December 31,
2019, the Company set its healthcare cost trend rate at 7.25% as of December 31,
2019. The Company expects the healthcare cost trend rate to reach its ultimate
rate of 5.00% by 2029.(1) These assumption changes were reflected immediately in
the benefit obligation and will be amortized into net periodic benefit costs
over future periods.
Plan assets are measured at fair value and are subject to market volatility. In
estimating the expected return on plan assets, the Company considers the
historical returns on plan assets, adjusted to reflect the current view of the
long-term investment market.
Changes in the funded status of defined benefit pension and postretirement
benefit plans resulting from the difference between assumptions and actual
results are initially recognized in other comprehensive income and amortized to
expense over future periods. Sensitivity to changes in major assumptions used in
the pension and postretirement healthcare obligations and costs was as follows
(in thousands):
                                                                            Impact of a 1%        Impact of a 1%
                                   Amounts based      Impact of a 1%       decrease in the        increase in the
                                    on current        decrease in the          expected             healthcare
                                    assumptions        discount rate       return on assets       cost trend rate
2019 Net periodic benefit cost:
Pension and SERPA                $        11,149     $        32,638                    n/a     $          20,054
Postretirement healthcare        $            68     $          (540 )   $              587     $           1,938
2019 Benefit obligations:
Pension and SERPA                $     2,212,012     $       363,249                    n/a                   n/a
Postretirement healthcare        $       293,505     $        25,816     $            8,768                   n/a


The amounts based on current assumptions above exclude the impact of
settlements, curtailments and special early retirement benefits. This
information should not be viewed as predictive of future amounts. The analysis
of the impact of a 1% change in the table above does not take into account the
cost related to special termination benefits. The calculations of pension, SERPA
and postretirement healthcare obligations and costs are based on many factors in
addition to those discussed here. This information should be considered in
combination with the information provided in Note 15 of the Notes to
Consolidated financial statements.
Income Taxes - The Company accounts for income taxes in accordance with
Accounting Standards Codification Topic 740, Income Taxes (Topic 740). Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and other loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
The Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. These tax laws and regulations are complex and significant
judgment is required in determining the Company's worldwide provision for income
taxes and recording the related deferred tax assets and liabilities.
In the ordinary course of the Company's business, there are transactions and
calculations where the ultimate tax determination is uncertain. Accruals for
unrecognized tax benefits are provided for in accordance with the requirements
of Topic 740. An unrecognized tax benefit represents the difference between the
recognition of benefits related to items for income tax reporting purposes and
financial reporting purposes. The unrecognized tax benefit is included within
Other long-term liabilities on the Consolidated balance sheets. The Company has
a liability for interest and penalties on exposure items, if applicable, which
is recorded as a component of the overall income tax provision. The Company is
regularly audited by tax authorities as a normal course of business. Although
the outcome of tax audits is always uncertain, the Company believes that it has
appropriate support for the positions taken on its tax returns and that its
annual tax provision includes amounts sufficient to pay any assessments(1).
Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues
raised by the taxing authorities may differ materially from the amounts accrued
for each year.

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Contractual Obligations A summary of the Company's expected payments for significant contractual obligations as of December 31, 2019 is as follows (in thousands):

              2020        2021-2022      2023-2024      Thereafter       Total
Debt:
Principal $ 2,326,688    $ 3,102,410    $ 1,287,918    $   750,000    $ 7,467,016
Interest      187,544        199,978        102,435        307,125        797,082
Leases         20,755         31,240         11,177          4,589         67,761
          $ 2,534,987    $ 3,333,628    $ 1,401,530    $ 1,061,714    $ 8,331,859


Interest for floating rate instruments, as calculated above, assumes rates in
effect at December 31, 2019 remain constant. For purposes of the above, the
principal payment balances for medium-term notes, on-balance sheet asset-backed
securitizations, and senior unsecured notes are shown without reduction for
unamortized discounts and debt issuance costs.
As of December 31, 2019, the Company generally had no significant purchase
obligations, other than those created in the ordinary course of business.
Purchase orders issued for inventory and supplies used in product manufacturing
generally do not become firm commitments until 90 days prior to expected
delivery and can be modified to a certain extent until 30 days prior to expected
delivery.
The Company has long-term obligations related to its pension, SERPA and
postretirement healthcare plans at December 31, 2019. The Company's retirement
plan obligations and expected future contributions and payments related to these
plans are provided in Note 15 of the Notes to Consolidated financial statements.
As described in Note 4 of the Notes to Consolidated financial statements, the
Company has unrecognized tax benefits of $60.1 million and accrued interest and
penalties of $27.6 million as of December 31, 2019. However, the Company cannot
make a reasonably reliable estimate of the period of cash settlement for either
the liability for unrecognized tax benefits or accrued interest and penalties.
Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental,
product and other matters. In determining costs to accrue related to these
items, the Company carefully analyzes cases and considers the likelihood of
adverse judgments or outcomes, as well as the potential range of possible loss.
Any amounts accrued for these matters are monitored on an ongoing basis and are
updated based on new developments or new information as it becomes available for
each matter.
Environmental Protection Agency Notice - In December 2009, the Company received
formal, written requests for information from the United States Environmental
Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle
emissions and related designations and labels, (ii) aftermarket parts, and
(iii) warranty claims on emissions related components. The Company promptly
submitted written responses to the EPA's inquiry and has engaged in information
exchanges and discussions with the EPA. In August 2016, the Company entered into
a consent decree with the EPA regarding these issues, and the consent decree was
subsequently revised in July 2017 (the Settlement). In the Settlement, the
Company agreed to, among other things, pay a fine, and not sell tuning products
unless they are approved by the EPA or California Air Resources Board. In
December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the
Settlement with the U.S. District Court for the District of Columbia for the
purpose of obtaining court approval of the Settlement. Three amicus briefs
opposing portions of the Settlement were filed with the court by the deadline of
January 31, 2018. On March 1, 2018, the Company and the DOJ each filed separate
response briefs. The Company is awaiting the court's decision on whether or not
to finalize the Settlement, and on February 8, 2019, the DOJ filed a status
update reminding the court of the current status of the outstanding matter. The
Company has an accrual associated with this matter recorded in Accrued
liabilities on the Consolidated balance sheets, and as a result, if it is
finalized, the Settlement would not have a material adverse effect on the
Company's financial condition or results of operations. The Settlement is not
final until it is approved by the court, and if it is not approved by the court,
the Company cannot reasonably estimate the impact of any remedies the EPA might
seek beyond the Company's current reserve for this matter.

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York Environmental Matter - The Company is involved with government agencies and
the U.S. Navy related to a matter involving the cleanup of soil and groundwater
contamination at its York, Pennsylvania facility. The York facility was formerly
used by the U.S. Navy and AMF prior to the purchase of the York facility by the
Company from AMF in 1981. The Company has an agreement with the U.S. Navy which
calls for the U.S. Navy and the Company to contribute amounts into a trust equal
to 53% and 47%, respectively, of costs associated with environmental
investigation and remediation activities at the York facility (Response Costs).
A site wide remedial investigation/feasibility study and a proposed final remedy
for the York facility have been completed and approved by the Pennsylvania
Department of Environmental Protection and the EPA. The associated cleanup plan
documents were submitted for approval in December 2019 and remaining cleanup
activities will begin in mid-2020. The Company has an accrual for its share of
the estimated future Response Costs recorded in Other long-term liabilities on
the Consolidated balance sheets.
Product Liability Matters - The Company is involved in product liability suits
related to the operation of its business. The Company accrues for claim
exposures that are probable of occurrence and can be reasonably estimated. The
Company also maintains insurance coverage for product liability exposures. The
Company believes that its accruals and insurance coverage are adequate and that
product liability suits will not have a material adverse effect on the Company's
Consolidated financial statements.(1)
Off-Balance Sheet Arrangements
The Company participates in asset-backed financing both through asset-backed
securitization transactions and through asset-backed commercial paper conduit
facilities. In the Company's asset-backed financing programs, the Company
transfers retail motorcycle finance receivables to special purpose entities
(SPEs), which are considered variable interest entities (VIEs) under U.S. GAAP.
Each SPE then converts those assets into cash, through the issuance of debt. The
Company retains servicing rights for all of the retail motorcycle finance
receivables transferred to SPEs as part of an asset-backed financing.
The SPEs are separate legal entities that assume the risks and rewards of
ownership of the retail motorcycle finance receivables they hold. The assets of
the VIEs are not available to pay other obligations or claims of the Company's
creditors. The Company's economic exposure related to the VIEs is generally
limited to restricted cash reserve accounts, retained interests and ordinary
representations and warranties and related covenants. The VIEs have a limited
life and generally terminate upon final distribution of amounts owed to
investors.
The accounting treatment for asset-backed financings depends on the terms of the
related transaction and the Company's continuing involvement with the VIE. Most
of the Company's asset-backed financings do not meet the criteria to be treated
as a sale for accounting purposes as the Company, in addition to retaining
servicing rights, retains a financial interest in the VIE in the form of a debt
security. These transactions are treated as secured borrowings. As secured
borrowings, the retail motorcycle finance receivables remain on the balance
sheet with a corresponding obligation reflected as debt.
During 2016, the Company sold finance receivables with a principal balance of
$301.8 million into a securitization VIE. The transaction met the criteria to be
treated as a sale for accounting purposes and resulted in an off-balance sheet
arrangement as the Company did not retain any financial interest in the VIE
beyond servicing rights and ordinary representations and warranties and related
covenants. Refer to Note 12 of the Notes to Consolidated financial statements
for additional information.
            Liquidity and Capital Resources as of December 31, 2019
Over the long-term, the Company expects that its business model will continue to
generate cash that will allow it to invest in the business, fund future growth
opportunities, and return value to shareholders.(1) The Company will continue to
evaluate opportunities to return cash to its shareholders through increasing
dividends and repurchasing shares. The Company believes the Motorcycles segment
operations will continue to be primarily funded through cash flows generated by
operations.(1) The Company expects the Financial Services segment operations to
continue to be funded with unsecured debt, unsecured commercial paper,
asset-backed commercial paper conduit facilities, committed unsecured bank
facilities, and asset-backed securitizations.(1)

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The Company's strategy is to maintain a minimum of twelve months of its
projected liquidity needs through a combination of cash and cash equivalents and
availability under its credit facilities. The Company's cash and cash
equivalents and availability under its credit and conduit facilities at
December 31, 2019 were as follows (in thousands):
Cash and cash equivalents                                  $   833,868

Availability under credit and conduit facilities:
Credit facilities                                            1,168,005

Asset-backed U.S. commercial paper conduit facilities(a) 600,000 Asset-backed Canadian commercial paper conduit facility(a) 54,318

                                                             1,822,323
                                                           $ 2,656,191

(a) Includes facilities expiring in the next twelve months which the Company

expects to renew prior to expiration.(1)

The Company recognizes that it must continue to monitor and adjust its business
to changes in the lending environment. The Company intends to continue with a
diversified funding profile through a combination of short-term and long-term
funding vehicles and to pursue a variety of sources to obtain cost-effective
funding.(1) The Financial Services operations could be negatively affected by
higher costs of funding and increased difficulty of raising, or potential
unsuccessful efforts to raise, funding in the short-term and long-term capital
markets.(1) These negative consequences could in turn adversely affect the
Company's business and results of operations in various ways, including through
higher costs of capital, reduced funds available through its Financial Services
operations to provide loans to independent dealers and their retail customers,
and dilution to existing shareholders through the use of alternative sources of
capital.
Cash Flow Activity
Cash flow activities for the years ended December 31, were as follows (in
thousands):
                                                             2019           

2018

Net cash provided by operating activities                $   868,272     $ 

1,205,921

Net cash used by investing activities                       (508,126 )      (662,269 )
Net cash used by financing activities                       (712,223 )       (14,763 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                               (2,305 )       (15,351 )
Net (decrease) increase in cash, cash equivalents and
restricted cash                                          $  (354,382 )   $   513,538


Operating Activities
The decrease in operating cash flow in 2019 compared to 2018 was primarily due
to lower sales and unfavorable changes in working capital including the impact
of utilizing restructuring and recall liabilities in 2019.
There are no required qualified pension plan contributions expected in 2020.(1)
The Company expects that 2020 postretirement healthcare plan benefits and
benefits due under the SERPA will be paid by the Company or, in the case of
postretirement healthcare plan benefits, partially funded with plan assets.(1)
The Company's expected future contributions and benefit payments related to
these plans are discussed further in Note 15 of the Notes to Consolidated
financial statements.
Investing Activities
The Company's most significant investing activities consist of capital
expenditures and retail finance receivable originations and collections. Capital
expenditures were $181.4 million and $213.5 million during 2019 and 2018,
respectively. The Company anticipates it will continue to have the ability to
fund all planned capital expenditures in 2020 with cash flows generated by
operations.(1)
Net cash outflows for finance receivables in 2019, which consisted primarily of
retail finance receivables, were $79.5 million lower than in 2018 primarily due
to higher retail motorcycle loan collections during 2019.

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Financing Activities
The Company's financing activities consist primarily of dividend payments, share
repurchases and debt activity.
The Company paid dividends of $1.50 per share totaling $237.2 million during
2019 and $1.48 per share totaling $245.8 million during 2018.
Cash outflows from share repurchases were $296.5 million and $390.6 million for
2019 and 2018, respectively. Discretionary share repurchases during the years
ended December 31, 2019 and 2018 were $286.7 million or 8.2 million shares and
$382.0 million or 9.2 million shares, respectively. Share repurchases of common
stock that employees surrendered to satisfy withholding taxes in connection with
the vesting of restricted stock units were $9.8 million or 0.3 million shares
and $8.6 million or 0.2 million shares during the years ended December 31, 2019
and 2018, respectively. As of December 31, 2019, there were 8.2 million shares
remaining on a board-approved share repurchase authorization.
Financing cash flows related to debt activity resulted in net cash
(outflows)/inflows of $(182.1) million and $618.1 million for 2019 and 2018,
respectively. The Company's total outstanding debt consisted of the following as
of December 31, (in thousands):
                                                            2019           

2018

Unsecured commercial paper                              $   571,995    $ 

1,135,810

Asset-backed Canadian commercial paper conduit facility     114,693        155,951
Asset-backed U.S. commercial paper conduit facilities       490,427        582,717
Asset-backed securitization debt, net                       764,392         95,167
Medium-term notes, net                                    4,760,127      4,887,007
Senior notes, net                                           743,296        742,624
                                                        $ 7,444,930    $ 7,599,276


To access the debt capital markets, the Company relies on credit rating agencies
to assign short-term and long-term credit ratings. Generally, lower credit
ratings result in higher borrowing costs and reduced access to debt capital
markets. A credit rating agency may change or withdraw the Company's ratings
based on its assessment of the Company's current and future ability to meet
interest and principal repayment obligations. The Company's short-term debt
ratings affect its ability to issue unsecured commercial paper. The Company's
short- and long-term debt ratings as of December 31, 2019 were as follows:
                  Short-Term   Long-Term   Outlook
Moody's               P2         Baa1       Stable
Standard & Poor's     A2         BBB+      Negative
Fitch                 F1           A       Negative


Credit Facilities - In May 2019, the Company entered into a $195.0 million
364-day credit facility which matures in May 2020. The Company also has a $780.0
million five-year credit facility which matures in April 2023 and a $765.0
million five-year credit facility which matures in April 2021. The new 364-day
credit facility and the five-year credit facilities (together, the Global Credit
Facilities) bear interest at variable rates, which may be adjusted upward or
downward depending on certain criteria, such as credit ratings. The Global
Credit Facilities also require the Company to pay a fee based on the average
daily unused portion of the aggregate commitments under the Global Credit
Facilities. The Global Credit Facilities are committed facilities primarily used
to support the Company's unsecured commercial paper program.
Unsecured Commercial Paper - Subject to limitations, the Company could issue
unsecured commercial paper of up to $1.74 billion as of December 31, 2019
supported by the Global Credit Facilities. Outstanding unsecured commercial
paper may not exceed the unused portion of the Global Credit Facilities.
Maturities may range up to 365 days from the issuance date. The Company intends
to repay unsecured commercial paper as it matures with additional unsecured
commercial paper or through other means, such as borrowing under the Global
Credit Facilities, borrowing under its asset-backed U.S. commercial paper
conduit facilities or through the use of operating cash flow and cash on
hand.(1)

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Medium-Term Notes - The Company has the following unsecured medium-term notes
issued and outstanding at December 31, 2019 (in thousands):
Principal Amount       Rate         Issue Date     Maturity Date
    $600,000           2.15%       February 2015   February 2020
    $450,000       LIBOR + 0.50%     May 2018        May 2020
    $350,000           2.40%        March 2017       June 2020
    $600,000           2.85%       January 2016    January 2021
    $450,000       LIBOR + 0.94%   November 2018    March 2021
    $350,000           3.55%         May 2018        May 2021
    $550,000           4.05%       February 2019   February 2022
    $400,000           2.55%         June 2017       June 2022
    $350,000           3.35%       February 2018   February 2023
   $672,936(a)         3.14%       November 2019   November 2024

(a) Euro denominated €600.0 million par value remeasured to U.S. dollar at

December 31, 2019

The fixed-rate medium-term notes provide for semi-annual interest payments and
the floating-rate medium-term notes provide for quarterly interest payments.
Principal on the medium-term notes is due at maturity. Unamortized discount and
debt issuance costs on medium-term notes reduced the outstanding balance by
$12.8 million and $13.0 million at December 31, 2019 and 2018, respectively.
Senior Notes - In July 2015, the Company issued $750.0 million of unsecured
senior notes in an underwritten offering. The senior notes provide for
semi-annual interest payments and principal due at maturity. $450.0 million of
the senior notes mature in July 2025 and have an interest rate of 3.50%, and
$300.0 million of the senior notes mature in July 2045 and have an interest rate
of 4.625%. The Company used the proceeds from the debt to repurchase shares of
its common stock in 2015.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility - The
Company has a revolving facility agreement (Canadian Conduit) with a Canadian
bank-sponsored asset-backed commercial paper conduit. Under the agreement, the
Canadian Conduit is contractually committed, at the Company's option, to
purchase from the Company eligible Canadian retail motorcycle finance
receivables for proceeds up to C$220.0 million. The transferred assets are
restricted as collateral for the payment of the debt. The terms for this
facility provide for interest on the outstanding principal based on prevailing
market interest rates plus a specified margin. The Canadian Conduit also
provides for a program fee and an unused commitment fee based on the unused
portion of the total aggregate commitment of C$220.0 million. There is no
amortization schedule; however, the debt is reduced monthly as available
collections on the related finance receivables are applied to outstanding
principal. Upon expiration of the Canadian Conduit, any outstanding principal
will continue to be reduced monthly through available collections. The expected
remaining term of the related receivables is approximately 5 years. Unless
earlier terminated or extended by mutual agreement between the Company and the
lenders, as of December 31, 2019, the Canadian Conduit has an expiration date of
June 26, 2020.
Quarterly transfers of Canadian retail motorcycle finance receivables to the
Canadian Conduit and the respective proceeds include the following for the years
ended December 31, (in thousands):
                         2019                        2018
                Transfers      Proceeds     Transfers      Proceeds
First quarter  $         -    $       -    $     7,600    $   6,200
Second quarter      28,200       23,400         38,900       32,200
Third quarter            -            -              -            -
Fourth quarter           -            -         39,000       32,200
               $    28,200    $  23,400    $    85,500    $  70,600


On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE - The
Company has two separate agreements with third-party bank-sponsored asset-backed
U.S. commercial paper conduits under which it may transfer U.S. retail
motorcycle finance receivables to an SPE, which in turn may issue debt to those
third-party bank-sponsored asset-backed U.S. commercial paper conduits. In May
2019, the Company amended its $300.0 million revolving facility agreement to
allow for incremental borrowings, at the lender's discretion, of up to an
additional $300.0 million in excess of the $300.0 million commitment. The
aggregate commitment under this agreement is reduced monthly as collections on
the related finance

                                       37
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receivables are applied to the outstanding principal until the outstanding
principal balance is less than or equal to $300.0 million, at which point the
aggregate commitment will equal $300.0 million. On November 27, 2019, the
Company renewed its existing $600.0 million and amended $300.0 million revolving
facility agreements with third-party bank-sponsored asset-backed U.S. commercial
paper conduits. Availability under the revolving facilities (together, the U.S.
Conduit Facilities) is based on, among other things, the amount of eligible U.S.
retail motorcycle finance receivables held by the SPE as collateral.
Quarterly transfers of U.S. retail motorcycle finance receivables to the U.S.
Conduit Facilities and the respective proceeds include the following for the
years ended December 31, (in thousands):
                         2019                       2018

                Transfers     Proceeds     Transfers     Proceeds
First quarter  $        -    $       -    $   32,900    $  29,300
Second quarter          -            -        59,100       53,300
Third quarter     174,400      154,600             -            -
Fourth quarter          -            -       400,200      356,800
               $  174,400    $ 154,600    $  492,200    $ 439,400


The terms for this debt provide for interest on the outstanding principal based
on prevailing commercial paper rates or LIBOR to the extent the advance is not
funded by a conduit lender through the issuance of commercial paper plus, in
each case, a program fee based on outstanding principal. The U.S. Conduit
Facilities also provide for an unused commitment fee based on the unused portion
of the total aggregate commitment. There is no amortization schedule; however,
the debt will be reduced monthly as available collections on the related finance
receivables are applied to outstanding principal. Upon expiration of the U.S.
Conduit Facilities, any outstanding principal will continue to be reduced
monthly through available collections. The expected remaining term of the
related receivables held by the SPE is approximately 5 years. Unless earlier
terminated or extended by mutual agreement of the Company and the lenders, the
U.S. Conduit Facilities have an expiration date of November 25, 2020.
Asset-Backed Securitization VIEs - For all of its asset-backed securitization
transactions, the Company transfers U.S. retail motorcycle finance receivables
to separate VIEs, which in turn issue secured notes with various maturities and
interest rates to investors. All of the notes held by the VIEs are secured by
future collections of the purchased U.S. retail motorcycle finance receivables.
The U.S. retail motorcycle finance receivables included in the asset-backed
securitization transactions are not available to pay other obligations or claims
of the Company's creditors until the associated debt and other obligations are
satisfied. Restricted cash balances held by the VIEs are used only to support
the asset-backed securitizations.
The accounting treatment for asset-backed securitizations depends on the terms
of the related transaction and the Company's continuing involvement with the
VIE. Most of the Company's asset-backed securitizations do not meet the criteria
to be accounted for as a sale because, in addition to retaining servicing
rights, the Company retains a financial interest in the VIE in the form of a
debt security. These transactions are treated as secured borrowings. As secured
borrowings, the retail motorcycle finance receivables remain on the balance
sheet with a corresponding obligation reflected as debt. There is no
amortization schedule for the secured notes; however, the debt is reduced
monthly as available collections on the related retail motorcycle finance
receivables are applied to outstanding principal. The secured notes have various
contractual maturities ranging from 2020 to 2026.
In 2019, the Company transferred $1.12 billion of U.S. retail motorcycle finance
receivables to two separate SPEs. The SPEs in turn issued $1.03 billion, or
$1.02 billion net of discounts and issuance costs, of secured notes through two
separate on-balance sheet asset-backed securitization transactions. There were
no on-balance sheet asset-backed securitization transactions during 2018. There
were no off-balance sheet asset-backed securitization transactions during 2019
or 2018.
Support Agreement - The Company has a support agreement with HDFS whereby, if
required, the Company agrees to provide HDFS with financial support to maintain
HDFS' fixed-charge coverage at 1.25 and minimum net worth of $40.0 million.
Support may be provided at the Company's option as capital contributions or
loans. Accordingly, certain debt covenants may restrict the Company's ability to
withdraw funds from HDFS outside the normal course of business. No amount has
ever been provided to HDFS under the support agreement.
Operating and Financial Covenants - HDFS and the Company are subject to various
operating and financial covenants related to the credit facilities and various
operating covenants under the medium-term and senior notes and the U.S. and
Canadian asset-backed commercial paper conduit facilities. The more significant
covenants are described below.

                                       38
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The operating covenants limit the Company's and HDFS' ability to: • Assume or incur certain liens;

• Participate in certain mergers or consolidations; and

• Purchase or hold margin stock.

Under the current financial covenants of the Global Credit Facilities, the ratio
of HDFS' consolidated debt, excluding secured debt, to HDFS' consolidated
shareholders' equity, excluding accumulated other comprehensive loss (AOCL),
cannot exceed 10.0 to 1.0 as of the end of any fiscal quarter. In addition, the
ratio of the Company's consolidated debt to the Company's consolidated debt and
consolidated shareholders' equity (where the Company's consolidated debt in each
case excludes that of HDFS and its subsidiaries, and the Company's consolidated
shareholders' equity excluding AOCL), cannot exceed 0.7 to 1.0 as of the end of
any fiscal quarter. No financial covenants are required under the medium-term
and senior notes or the U.S. or Canadian asset-backed commercial paper conduit
facilities.
At December 31, 2019 and 2018, HDFS and the Company remained in compliance with
all of the then existing covenants.
                             Cautionary Statements
The Company intends that certain matters discussed in this report are
"forward-looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such by
reference to this footnote or because the context of the statement will include
words such as the Company "believes," "anticipates," "expects," "plans," "may,"
"will," "estimates," "is on-track" or words of similar meaning. Similarly,
statements that describe or refer to future expectations, future plans,
strategies, objectives, outlooks, targets, guidance, commitments or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially, unfavorably or favorably, from those anticipated as of the date of
this report. Certain of such risks and uncertainties are described below.
Shareholders, potential investors, and other readers are urged to consider these
factors in evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements. The forward-looking
statements included in this report are only made as of the date of this report,
and the Company disclaims any obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
The Company's ability to meet the targets and expectations noted above depends
upon, among other factors, the Company's ability to (i) execute its business
plans and strategies, including the elements of the More Roads to
Harley-Davidson accelerated plan for growth that the Company disclosed on July
30, 2018 and updated September 24, 2019, and strengthen its existing business
while enabling growth, (ii) manage and predict the impact that new or adjusted
tariffs may have on the Company's ability to sell products internationally, and
the cost of raw materials and components, (iii) execute its strategy of growing
ridership, globally, (iv) successfully carry out its global manufacturing and
assembly operations, (v) accurately analyze, predict and react to changing
market conditions and successfully adjust to shifting global consumer needs and
interests, (vi) develop and maintain a productive relationship with Zhejiang
Qianjiang Motorcycle Co., Ltd. and launch related products in a timely manner,
(vii) develop and introduce products, services and experiences on a timely basis
that the market accepts, that enable the Company to generate desired sales
levels and that provide the desired financial returns, (viii) perform in a
manner that enables the Company to benefit from market opportunities while
competing against existing and new competitors, (ix) realize expectations
concerning market demand for electric models, which will depend in part on the
building of necessary infrastructure, (x) prevent, detect, and remediate any
issues with its motorcycles or any issues associated with the manufacturing
processes to avoid delays in new model launches, recall campaigns, regulatory
agency investigations, increased warranty costs or litigation and adverse
effects on its reputation and brand strength, and carry out any product programs
or recalls within expected costs and timing, (xi) manage supply chain issues,
including quality issues and any unexpected interruptions or price increases
caused by raw material shortages or natural disasters, (xii) manage the impact
that prices for and supply of used motorcycles may have on its business,
including on retail sales of new motorcycles, (xiii) reduce other costs to
offset costs of the More Roads to Harley-Davidson plan and redirect capital
without adversely affecting its existing business, (xiv) balance production
volumes for its new motorcycles with consumer demand, (xv) manage risks that
arise through expanding international manufacturing, operations and sales, (xvi)
manage through changes in general economic and business conditions, including
changing capital, credit and retail markets, and the changing political
environment, (xvii) successfully determine, implement on a timely basis, and
maintain a manner in which to sell motorcycles in the European Union, China, and
ASEAN countries that does not subject its motorcycles to incremental tariffs,
(xviii) accurately estimate and adjust to fluctuations in foreign currency
exchange rates, interest rates and commodity prices, (xix) continue to develop
the capabilities of its distributors and dealers, effectively implement changes
relating to its dealers and distribution methods and manage the risks that its
independent dealers may have difficulty obtaining capital and managing through
changing economic conditions and consumer demand, (xx) retain and attract
talented employees, (xxi) prevent a cybersecurity breach involving consumer,
employee, dealer, supplier, or Company data and respond to evolving regulatory
requirements regarding data security, (xxii) manage the credit quality, the loan
servicing and collection activities, and the recovery rates of HDFS' loan
portfolio, (xxiii) adjust to tax reform, healthcare inflation and reform and
pension reform, and successfully estimate the impact of any such

                                       39
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reform on the Company's business, (xxiv) manage through the effects inconsistent
and unpredictable weather patterns may have on retail sales of motorcycles,
(xxv) implement and manage enterprise-wide information technology systems,
including systems at its manufacturing facilities, (xxvi) manage changes and
prepare for requirements in legislative and regulatory environments for its
products, services and operations, (xxvii) manage its exposure to product
liability claims and commercial or contractual disputes, (xxviii) successfully
access the capital and/or credit markets on terms (including interest rates)
that are acceptable to the Company and within its expectations, (xxix) manage
its Thailand corporate and manufacturing operations in a manner that allows the
Company to avail itself of preferential free trade agreements and duty rates,
and sufficiently lower prices of its motorcycles in certain markets, (xxx)
continue to manage the relationships and agreements that the Company has with
its labor unions to help drive long-term competitiveness, (xxxi) accurately
predict the margins of its Motorcycles and Related Products segment in light of,
among other things, tariffs, the cost associated with the More Roads to
Harley-Davidson plan, the Company's Manufacturing Optimization Plan, and the
Company's complex global supply chain, and (xxxii) successfully launch a smaller
displacement motorcycle in India.
The Company's operations and/or demand for its products could be adversely
impacted by work stoppages, strikes, natural causes, widespread infectious
disease, terrorism, or other factors. Other factors are described in Item 1A.
Risk Factors of this report. Many of these risk factors are impacted by the
current changing capital, credit and retail markets and the Company's ability to
manage through inconsistent economic conditions.
The Company's ability to sell its motorcycles and related products and services
and to meet its financial expectations also depends on the ability of the
Company's independent dealers to sell its motorcycles and related products and
services to retail customers. The Company depends on the capability and
financial capacity of its independent dealers to develop and implement effective
retail sales plans to create demand for the motorcycles and related products and
services they purchase from the Company. In addition, the Company's independent
dealers and distributors may experience difficulties in operating their
businesses and selling Harley-Davidson motorcycles and related products and
services as a result of weather, economic conditions or other factors.
In recent years, HDFS has experienced historically low levels of retail credit
losses, but there is no assurance that this will continue. The Company believes
that HDFS' retail credit losses may increase over time due to changing consumer
credit behavior and HDFS' efforts to increase prudently structured loan
approvals to sub-prime borrowers, as well as actions that the Company has taken
and could take that impact motorcycle values.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency exchange
rates, commodity prices and interest rates. To reduce such risks, the Company
selectively uses derivative financial instruments. All hedging transactions are
authorized and executed pursuant to regularly reviewed policies and procedures,
which prohibit the use of financial instruments for speculative trading
purposes. Sensitivity analysis is used to manage and monitor foreign currency
exchange rate and interest rate risk. Further disclosure relating to the fair
value of derivative financial instruments is included in Note 9 of the Notes to
Consolidated financial statements.
The Company sells its products internationally and in most markets those sales
are made in the foreign country's local currency. As a result, the Company's
earnings are affected by fluctuations in the value of the U.S. dollar relative
to foreign currencies. The Company's most significant foreign currency exchange
rate risk relates to the Euro, Australian dollar, Japanese yen, Brazilian real,
Canadian dollar, Mexican peso, Indian rupee, and Pound sterling. The Company
utilizes foreign currency contracts to mitigate the effect of certain
currencies' fluctuations on earnings. The foreign currency contracts are entered
into with banks and allow the Company to exchange a specified amount of foreign
currency for U.S. dollars at a future date, based on a fixed exchange rate. At
December 31, 2019 and 2018, the notional U.S. dollar value of outstanding Euro,
Australian dollar, Japanese yen, Brazilian real, Canadian dollar, Mexican peso,
Indian rupee, and Pound sterling foreign currency contracts was $654.5 million
and $443.0 million, respectively. The Company estimates that a uniform 10%
weakening in the value of the U.S. dollar relative to the currencies underlying
these contracts would result in a decrease in the fair value of the contracts of
approximately $65.5 million and $39.9 million as of December 31, 2019 and 2018,
respectively.
The Company's earnings are affected by changes in the prices of commodities used
in the production of motorcycles. The Company uses derivative financial
instruments on a limited basis to hedge the prices of certain commodities. At
December 31, 2019, the notional value of these instruments was $8.9 million and
the fair value was a net liability of $0.1 million. As of December 31, 2018, the
notional value of these instruments was $6.1 million and the fair value was a
net liability of $0.5 million. The potential decrease in fair value of these
contracts from a 10% adverse change in the underlying commodity prices would not
be significant.

                                       40
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HDFS' earnings are affected by changes in interest rates. HDFS' interest rate
sensitive financial instruments include finance receivables, debt and interest
rate derivatives. HDFS utilizes interest rate swaps and caps to reduce the
impact of fluctuations in interest rates on its debt. As of December 31, 2019,
HDFS had interest rate swaps outstanding with a notional value of $900.0 million
and interest rate caps outstanding with a notional value of $376.0 million. As
of December 31, 2018, HDFS had interest rate swaps outstanding with a notional
value of $900.0 million and no outstanding interest rate caps. HDFS estimates
that a 10% decrease in interest rates would result in a decrease in the fair
value of the interest rate swap and cap agreements of $10.2 million and $8.3
million as of December 31, 2019 and 2018, respectively.
HDFS has currency exposure related to financing in currencies other than the
functional currency. HDFS utilizes cross-currency swaps to mitigate the effect
of the foreign currency exchange rate fluctuations. At December 31, 2019, HDFS'
exposure relates to the Euro. As of December 31, 2019, HDFS had a cross-currency
swap outstanding with a notional value of $660.8 million. As of December 31,
2018, HDFS had no cross-currency swaps outstanding. HDFS estimates that a 10%
adverse change in the underlying foreign currency exchange rate would result in
a $4.6 million decrease in the fair value of the swap agreement.
HDFS has short-term commercial paper and debt issued through the commercial
paper conduit facilities that is subject to changes in interest rates. HDFS
estimates that a one-percentage point increase in the interest rate on
commercial paper and debt issued through the commercial paper conduit facilities
would increase Financial Services interest expense in 2020 by approximately
$10.4 million. This analysis does not consider the effects of the reduced level
of overall economic activity that could exist in such an environment. Further,
in the event of a change in interest rates, HDFS may take actions to mitigate
its exposure to the change. However, due to the uncertainty of the specific
actions that would be taken and their possible effects, the sensitivity analysis
does not account for these impacts.

                                       41
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Item 8. Consolidated Financial Statements and Supplementary Data

                                                                  Page
  Reports of Independent Registered Public Accounting Firm          43
  Consolidated statements of income                                 46
  Consolidated statements of comprehensive income                   47
  Consolidated balance sheets                                       48
  Consolidated statements of cash flows                             50
  Consolidated statements of shareholders' equity                   51
  Notes to Consolidated financial statements                        52
  1. Summary of significant accounting policies                     52
  2. Revenue                                                        54
  3. Restructuring expenses                                         56
  4. Income taxes                                                   57
  5. Capital stock and earnings per share                           60
  6. Additional balance sheet and cash flow information             61
  7. Finance receivables                                            63
  8. Goodwill and intangible assets                                 68
  9. Derivative financial instruments and hedging activities        69
  10. Leases                                                        71
  11. Debt                                                          72
  12. Asset-backed financing                                        74
  13. Fair value                                                    78
  14. Product warranty and recall campaigns                         80
  15. Employee benefit plans and other postretirement benefits      80
  16. Commitments and contingencies                                 88
  17. Share-based awards                                            89
  18. Accumulated other comprehensive loss                          91
  19. Reportable segments and geographic information                92
  20. Supplemental consolidating data                               94
  21. Supplementary unaudited quarterly financial data             103
  22. Subsequent event                                             103



                                       42

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            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on Internal Control over Financial Reporting

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

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) (PCAOB), the consolidated balance
sheets of Harley-Davidson, Inc. as of December 31, 2019 and 2018, and the
related consolidated statements of income, comprehensive income, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 2019, and the related notes and financial statement schedule listed
in the Index at item 15(a) and our report dated February 19, 2020 expressed an
unqualified opinion thereon.

Basis for Opinion

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

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

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

Definitions and Limitations of Internal Control Over Financial Reporting

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

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


/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 19, 2020




                                       43

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            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements

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

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework), and our
report dated February 19, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

Critical Audit Matters

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


                                       44
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            Allowance for Credit Losses - Retail Finance Receivables
Description The Company's retail receivable portfolio totaled $6.4 billion as of
of the      December 31, 2019, and the associated allowance for credit losses
Matter      (ACL) was $188.5 million. As discussed in Note 7 to the consolidated
            financial statements, management utilizes a loss forecast model to
            estimate losses of its retail receivable portfolio. The loss
            forecast model utilizes a variety of assumptions including, but not
            limited to, historical loss trends, known and inherent risk in the
            portfolio, the value of the underlying collateral, recovery rates
            and current economic conditions including items such as

unemployment

            rates. Management applies judgment in determining appropriate
            parameters and assumptions when estimating incurred losses,
            including the assessment of historical loss experience, the
            percentage of borrowers that are expected to default, and the
            valuation of collateral.
            Auditing management's estimate of the ACL for retail finance
            receivables involved a high degree of judgment in evaluating
            management's assumptions.
How We      We tested certain of the Company's controls over the ACL process,
Addressed   which included, among others, management's review and approval of
the Matter  the model used to calculate the ACL, management's validation of data
in Our      inputs as well as their review and approval of subjective model
Audit       inputs. We also tested the Company's controls over the computational
            accuracy of the output of the model.
            To test the ACL, our audit procedures included, among others,
            assessing the appropriateness of the significant assumptions and
            parameters in the ACL model by evaluating whether historical data
            utilized within the model was representative of current
            circumstances, including giving consideration to current economic
            conditions and recent losses incurred in the portfolio. In
            performing this evaluation, we also considered any adjustments
            management made to historical data in response to current trends.
            Lastly, we tested the completeness and accuracy of data from
            underlying informational systems used in the model.
            Product Recall Liability
Description The Company's liability for product recalls, which represents a loss
of the      contingency, was $36.4 million as of December 31, 2019. As discussed
Matter      in Note 14 to the consolidated financial statements, the Company
            records the estimated recall cost when the liability is both
            probable and estimable. The accrued cost of a recall is based on an
            estimate of the cost to repair each affected motorcycle and the
            number of motorcycles expected to be repaired based on

historical

            data concerning the percentage of affected customers that take
            advantage of recall offers. Management applies judgment in
            determining when to initiate voluntary product recall 

campaigns.

            Management also applies judgment in determining assumptions 

that are

            in part based on historical experience when estimating the 

expected

            costs to repair the motorcycle and the percentage of customers
            expected to participate in the recall.
            Auditing the completeness and valuation of the product recall
            liability involved a high degree of subjectivity in evaluating
            management's assumptions.
How We      We tested certain of the Company's controls over the product recall
Addressed   liability process, which included, among others, management's review
the Matter  of claims and identification of claims trends, and development of
in Our      the assumptions and inputs used to estimate the cost of the product
Audit       recall, including the motorcycle population subject to the product
            recall, the cost per motorcycle to repair, and the estimated
            customer participation percentage. We also tested controls over the
            completeness of the recalls accrued and the accuracy of the
            liability calculation.
            To test the product recall liability, our audit procedures included
            among others, assessing the appropriateness of the significant
            assumptions in the product recall calculation by evaluating whether
            the historical data was representative of current

circumstances,

            including giving consideration to the nature of the current recalls
            as compared to prior recalls as well as the actual customer
            participation to-date activity for the identified recalls and the
            related actual repair costs incurred to-date. In performing the
            evaluation, we also considered any adjustments management made to
            historical data in response to current trends, as applicable. We
            performed sensitivity analyses to assess the impact of possible
            changes to inputs and assumptions. We reviewed third-party product
            recall announcements and tested the completeness and accuracy of
            motorcycle population and repair cost data from underlying systems
            used in the calculation. Lastly, we performed a lookback

analysis of

            retro rate adjustments, which would be indicative of product
            performance concerns not captured in the form of a product recall.



/s/ Ernst & Young LLP
We have served as the Company's auditor since 1982
Milwaukee, Wisconsin
February 19, 2020

                                       45
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                             HARLEY-DAVIDSON, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 2019, 2018 and 2017
                    (In thousands, except per share amounts)

                                                2019             2018             2017
Revenue:
Motorcycles and Related Products           $  4,572,678     $  4,968,646     $  4,915,027
Financial Services                              789,111          748,229          732,197
                                              5,361,789        5,716,875        5,647,224
Costs and expenses:
Motorcycles and Related Products cost of
goods sold                                    3,229,798        3,351,796    

3,272,330

Financial Services interest expense             210,438          193,187    

180,193

Financial Services provision for credit
losses                                          134,536          106,870    

132,444

Selling, administrative and engineering
expense                                       1,199,056        1,258,098        1,180,176
Restructuring expense                            32,353           93,401                -
                                              4,806,181        5,003,352        4,765,143
Operating income                                555,608          713,523          882,081
Other income (expense), net                      16,514            3,039            9,182
Investment income                                16,371              951            3,580
Interest expense                                 31,078           30,884           31,004

Income before provision for income taxes 557,415 686,629

      863,839
Provision for income taxes                      133,780          155,178          342,080
Net income                                 $    423,635     $    531,451     $    521,759
Earnings per share:
Basic                                      $       2.70     $       3.21     $       3.03
Diluted                                    $       2.68     $       3.19     $       3.02
Cash dividends per common share            $       1.50     $       1.48

$ 1.46

The accompanying notes are an integral part of the consolidated financial

                                  statements.

                                       46
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                             HARLEY-DAVIDSON, INC.
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                  Years ended December 31, 2019, 2018 and 2017
                                 (In thousands)

                                                  2019          2018          2017
Net income                                     $ 423,635     $ 531,451     $ 521,759
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments           8,795       (25,010 )    

46,280

Marketable securities                                  -             -      

1,194

Derivative financial instruments                 (16,371 )      20,009       (29,778 )
Pension and postretirement benefit plans         100,311       (16,286 )      47,636
                                                  92,735       (21,287 )      65,332
Comprehensive income                           $ 516,370     $ 510,164     $ 587,091

The accompanying notes are an integral part of the consolidated financial

                                  statements.

                                       47
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                             HARLEY-DAVIDSON, INC.
                          CONSOLIDATED BALANCE SHEETS
                           December 31, 2019 and 2018
                      (In thousands, except share amounts)
                                             2019             2018
ASSETS
Current assets:
Cash and cash equivalents               $    833,868     $  1,203,766
Marketable securities                              -           10,007
Accounts receivable, net                     259,334          306,474
Finance receivables, net                   2,272,522        2,214,424
Inventories, net                             603,571          556,128
Restricted cash                               64,554           49,275
Other current assets                         168,974          144,368
                                           4,202,823        4,484,442
Finance receivables, net                   5,101,844        5,007,507
Property, plant and equipment, net           847,382          904,132
Prepaid pension costs                         56,014                -
Goodwill                                      64,160           55,048
Deferred income taxes                        101,204          141,464
Lease assets                                  61,618                -
Other long-term assets                        93,114           73,071
                                        $ 10,528,159     $ 10,665,664
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                        $    294,380     $    284,861
Accrued liabilities                          582,288          601,130
Short-term debt                              571,995        1,135,810

Current portion of long-term debt, net 1,748,109 1,575,799

                                           3,196,772        3,597,600
Long-term debt, net                        5,124,826        4,887,667
Lease liabilities                             44,447                -
Pension liabilities                           56,138          107,776
Postretirement healthcare liabilities         72,513           94,453
Deferred income taxes                          8,135                -
Other long-term liabilities                  221,329          204,219
Commitments and contingencies (Note 16)
Shareholders' equity:
Preferred stock, none issued                       -                -
Common stock (Note 5)                          1,828            1,819
Additional paid-in-capital                 1,491,004        1,459,620
Retained earnings                          2,193,997        2,007,583

Accumulated other comprehensive loss (536,949 ) (629,684 ) Treasury stock, at cost (Note 5) (1,345,881 ) (1,065,389 )

                                           1,803,999        1,773,949
                                        $ 10,528,159     $ 10,665,664




                                       48

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HARLEY-DAVIDSON, INC.
                    CONSOLIDATED BALANCE SHEETS (continued)
                           December 31, 2019 and 2018
                      (In thousands, except share amounts)
                                                               2019            2018

Balances held by consolidated variable interest entities (Note 12) Finance receivables, net - current

$   291,444     $  175,043
Other assets                                               $     2,420     $    1,563
Finance receivables, net - non-current                     $ 1,027,179     $  591,839
Restricted cash - current and non-current                  $    63,812     $   47,203
Current portion of long-term debt, net                     $   317,607     $  189,693
Long-term debt, net                                        $   937,212     $  488,191



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


                                       49

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                             HARLEY-DAVIDSON, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2019, 2018 and 2017
                                 (In thousands)

                                                        2019            2018            2017
Net cash provided by operating activities (Note 6)  $   868,272     $ 1,205,921     $ 1,005,061
Cash flows from investing activities:
Capital expenditures                                   (181,440 )      (213,516 )      (206,294 )
Origination of finance receivables                   (3,847,322 )    (3,752,817 )    (3,591,948 )
Collections on finance receivables                    3,499,717       3,325,669       3,228,311
Purchases of marketable securities                            -         (10,007 )             -
Sales and redemptions of marketable securities           10,007               -           6,916
Acquisition of business                                  (7,000 )             -               -
Other investing activities                               17,912         (11,598 )           547
Net cash used by investing activities                  (508,126 )      (662,269 )      (562,468 )
Cash flows from financing activities:
Proceeds from issuance of medium-term notes           1,203,236       1,591,828         893,668
Repayments of medium-term notes                      (1,350,000 )      (877,488 )      (800,000 )
Proceeds from securitization debt                     1,021,453               -               -
Repayments of securitization debt                      (353,251 )      (257,869 )      (444,671 )
Borrowings of asset-backed commercial paper             177,950         509,742         469,932
Repayments of asset-backed commercial paper            (318,006 )      (212,729 )      (176,227 )
Net (decrease) increase in credit facilities and
unsecured commercial paper                             (563,453 )      (135,356 )       212,809
Dividends paid                                         (237,221 )      (245,810 )      (251,862 )
Repurchase of common stock                             (296,520 )      (390,606 )      (465,263 )
Issuance of common stock under employee stock
option plans                                              3,589           3,525          11,353
Net cash used by financing activities                  (712,223 )       (14,763 )      (550,261 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                          (2,305 )       (15,351 )        26,747
Net (decrease) increase in cash, cash equivalents
and restricted cash                                 $  (354,382 )   $   

513,538 $ (80,921 )

Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash,
beginning of period                                 $ 1,259,748     $   746,210     $   827,131
Net (decrease) increase in cash, cash equivalents
and restricted cash                                    (354,382 )       

513,538 (80,921 ) Cash, cash equivalents and restricted cash, end of period

$   905,366     $ 

1,259,748 $ 746,210

Reconciliation of cash, cash equivalents and
restricted cash on the Consolidated balance sheets
to the Consolidated statements of cash flows:
Cash and cash equivalents                           $   833,868     $ 1,203,766     $   687,521
Restricted cash                                          64,554          49,275          47,518
Restricted cash included in Other long-term assets        6,944           6,707          11,171
Cash, cash equivalents and restricted cash per the
Consolidated statements of cash flows               $   905,366     $ 

1,259,748 $ 746,210

The accompanying notes are an integral part of the consolidated financial

                                  statements.

                                       50
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                             HARLEY-DAVIDSON, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  Years ended December 31, 2019, 2018 and 2017
                      (In thousands, except share amounts)
                                                                                        Accumulated
                                Common Stock           Additional                          Other
                            Issued                       Paid-in        Retained       Comprehensive
                            Shares        Balance        Capital        Earnings            Loss          Treasury Stock         Total
Balance, December 31,
2016                     180,595,054     $  1,806     $ 1,381,862     $ 

1,337,673 $ (565,381 ) $ (235,802 ) $ 1,920,158 Net income

                         -            -               -         521,759                  -                   -         521,759
Other comprehensive
income, net of tax (Note
18)                                -            -               -               -             65,332                   -          65,332
Dividends                          -            -               -        (251,862 )                -                   -        (251,862 )
Repurchase of common
stock                              -            -               -               -                  -            (465,263 )      (465,263 )
Share-based compensation           -            -          29,600               -                  -              13,200          42,800
Issuance of nonvested
stock                        408,950            4              (4 )             -                  -                   -               -
Exercise of stock
options                      282,543            3          11,350               -                  -                   -          11,353
Balance, December 31,
2017                     181,286,547        1,813       1,422,808       1,607,570           (500,049 )          (687,865 )     1,844,277
Net income                         -            -               -         531,451                  -                   -         531,451
Other comprehensive
loss, net of tax (Note
18)                                -            -               -               -            (21,287 )                 -         (21,287 )
Dividends                          -            -               -        (245,810 )                -                   -        (245,810 )
Repurchase of common
stock                              -            -               -               -                  -            (390,606 )      (390,606 )
Share-based compensation           -            -          33,293               -                  -              13,082          46,375
Issuance of nonvested
stock                        485,005            4              (4 )             -                  -                   -               -
Exercise of stock
options                      159,673            2           3,523               -                  -                   -           3,525
Cumulative effect of
change in accounting               -            -               -           6,024                  -                   -           6,024
Reclassification of
certain tax effects                -            -               -         108,348           (108,348 )                 -               -
Balance, December 31,
2018                     181,931,225        1,819       1,459,620       2,007,583           (629,684 )        (1,065,389 )     1,773,949
Net income                         -            -               -         423,635                  -                   -         423,635
Other comprehensive
income, net of tax (Note
18)                                -            -               -               -             92,735                   -          92,735
Dividends                          -            -               -        (237,221 )                -                   -        (237,221 )
Repurchase of common
stock                              -            -               -               -                  -            (296,520 )      (296,520 )
Share-based compensation           -            -          27,804               -                  -              16,028          43,832
Issuance of nonvested
stock                        715,579            7              (7 )             -                  -                   -               -
Exercise of stock
options                      169,732            2           3,587               -                  -                   -           3,589
Balance, December 31,
2019                     182,816,536     $  1,828     $ 1,491,004     $ 2,193,997     $     (536,949 )   $    (1,345,881 )   $ 1,803,999



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


                                       51

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                             HARLEY-DAVIDSON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation - All of the Company's
subsidiaries are wholly-owned. The consolidated financial statements include the
accounts of Harley-Davidson, Inc. and its wholly-owned subsidiaries (the
Company), including the accounts of the groups of companies doing business as
Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services
(HDFS). In addition, certain variable interest entities (VIEs) related to
secured financing are consolidated as the Company is the primary beneficiary.
All intercompany accounts and material intercompany transactions have been
eliminated.
The Company operates in two reportable segments: Motorcycles and Related
Products (Motorcycles) and Financial Services.
Substantially all of the Company's international subsidiaries use their
respective local currency as their functional currency. Assets and liabilities
of international subsidiaries have been translated at period-end exchange rates,
and revenues and expenses have been translated using average exchange rates for
the period. Monetary assets and liabilities denominated in a currency that is
different from an entity's functional currency are remeasured from the
transactional currency to the entity's functional currency on a monthly basis.
The aggregate transaction gain/(loss) resulting from foreign currency
remeasurements was $18.0 million, $(19.9) million, and $15.0 million for the
years ended December 31, 2019, 2018 and 2017, respectively.
Use of Estimates - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles (U.S. GAAP) requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and the accompanying notes. Actual results
could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid investments
with a maturity of 90 days or less when purchased to be cash equivalents.
Accounts Receivable, net - The Company's motorcycles and related products are
sold to independent dealers outside the U.S. and Canada generally on open
account and the resulting receivables are included in Accounts receivable, net
on the Consolidated balance sheets. The allowance for doubtful accounts deducted
from total accounts receivable was $4.9 million and $4.0 million as of
December 31, 2019 and 2018, respectively. Accounts receivable are written down
once management determines that the specific customer does not have the ability
to repay the balance in full. The Company's sales of motorcycles and related
products in the U.S. and Canada are financed through HDFS by the purchasing
independent dealers and the related receivables are included in Finance
receivables, net on the Consolidated balance sheets.
Inventories, net - Substantially all inventories located in the U.S. are valued
using the last-in, first-out (LIFO) method. Other inventories totaling $326.5
million and $247.6 million at December 31, 2019 and 2018, respectively, are
valued at the lower of cost or net realizable value using the first-in,
first-out (FIFO) method.
Repossessed Inventory - Repossessed inventory representing recovered collateral
on impaired finance receivables is recorded at the lower of cost or net
realizable value through a fair value remeasurement. In the period during which
the collateral is repossessed, the related finance receivable is adjusted to the
fair value of the collateral through a change to the allowance for credit losses
and reclassified to repossessed inventory, included in Other current assets on
the Consolidated balance sheets.
Property, Plant and Equipment, net - Property, plant and equipment is recorded
at cost, net of accumulated depreciation and amortization. Depreciation is
determined using the straight-line method over the estimated useful lives of the
assets. The estimated useful lives of each class of property, plant and
equipment generally consist of 30 years for buildings, 7 years for building and
land improvements, 3 to 10 years for machinery and equipment, and 3 to 7 years
for software. Accelerated methods of depreciation are used for income tax
purposes.
Goodwill - Goodwill represents the excess of acquisition cost over the fair
value of the net assets purchased. Goodwill is tested for impairment, based on
financial data related to the reporting unit to which it has been assigned, at
least annually or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The impairment test involves comparing
the estimated fair value of the reporting unit associated with the goodwill to
its carrying amount, including goodwill. If the carrying amount of the reporting
unit exceeds its fair value, goodwill must be adjusted to its implied fair
value. During 2019 and 2018, the Company performed a quantitative test on its
goodwill balances for impairment and no adjustments were recorded to goodwill as
a result of those reviews.

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Long-lived Assets - The Company periodically evaluates the carrying value of
long-lived assets to be held and used when events and circumstances warrant such
review. If the carrying value of a long-lived asset is considered impaired, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the long-lived asset for assets to be held and used. The Company
also reviews the useful life of its long-lived assets when events and
circumstances indicate that the actual useful life may be shorter than
originally estimated. In the event that the actual useful life is deemed to be
shorter than the original useful life, depreciation is adjusted prospectively so
that the remaining book value is depreciated over the revised useful life. Refer
to Note 3 for additional details surrounding the Company's restructuring
activities impacting long-lived assets.
Asset groups classified as held for sale are measured at the lower of carrying
amount or fair value less cost to sell, and a loss is recognized for any initial
adjustment required to reduce the carrying amount to the fair value less cost to
sell in the period the held for sale criteria are met. The fair value less cost
to sell must be assessed each reporting period that the asset group remains
classified as held for sale. Gains or losses not previously recognized resulting
from the sale of an asset group will be recognized on the date of sale.
Research and Development Expenses - Expenditures for research activities
relating to product development and improvements are charged against income as
incurred and included within Selling, administrative and engineering expense on
the Consolidated statements of income. Research and development expenses were
$216.5 million, $191.6 million and $175.2 million for 2019, 2018 and 2017,
respectively.
Advertising Costs - The Company expenses the production cost of advertising the
first time the advertising takes place within Selling, administrative and
engineering expense. Advertising costs relate to the Company's efforts to
promote its products and brands through the use of media and other means. During
2019, 2018 and 2017, the Company incurred $171.4 million, $144.3 million and
$135.5 million in advertising costs, respectively.
Shipping and Handling Costs - The Company classifies shipping and handling costs
as a component of Motorcycles and Related Products cost of goods sold.
New Accounting Standards
Accounting Standards Recently Adopted
In February 2016, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2016-02 Leases (Topic 842) (ASU 2016-02).
ASU 2016-02 amends the lease accounting model by requiring a lessee to recognize
the rights and obligations resulting from certain leases as assets and
liabilities on the balance sheet. ASU 2016-02 also requires a company to
disclose key information about their leasing arrangements. The Company adopted
ASU 2016-02 on January 1, 2019 using a modified retrospective approach. Pursuant
to ASU 2018-11, Leases (Topic 842): Targeted Improvements, the Company applied
the new leases standard at the adoption date and recognized a cumulative effect
adjustment to the opening balance sheet on January 1, 2019.
The Company elected the package of practical expedients upon transition that
allows entities not to reassess lease identification, classification and initial
direct costs for leases that existed prior to adoption. The Company also elected
the short-term lease practical expedient that allows entities to recognize lease
payments on a straight-line basis over the lease term for leases with a term of
12 months or less. The Company has elected the practical expedient allowing
entities to not separate non-lease components from lease components, but instead
account for such components as a single lease component for all leases except
leases involving assets operated by a third-party.
The adoption of ASU 2016-02 resulted in the initial recognition of lease assets
and lease liabilities related to the Company's leasing arrangements totaling
approximately $60 million on January 1, 2019. The adoption of ASU 2016-02 had no
impact on opening retained earnings on January 1, 2019 and is not expected to
materially impact consolidated net income or cash flows on an ongoing basis.
In August 2017, the FASB issued ASU No. 2017-12 Derivatives and Hedging (Topic
815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12).
ASU 2017-12 amends Accounting Standards Codification (ASC) 815, Derivatives and
Hedging to improve the financial reporting of hedging relationships and to
simplify the application of the hedge accounting guidance. The ASU makes various
updates to the hedge accounting model, including changing the recognition and
presentation of changes in the fair value of the hedging instrument and amending
disclosure requirements, among other things. The Company adopted ASU 2017-12 on
January 1, 2019 on a prospective basis. The adoption of ASU 2017-12 did not have
a material impact on its financial statements.

                                       53
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Accounting Standards Not Yet Adopted
In July 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU
2016-13). ASU 2016-13 changes how to recognize expected credit losses on
financial assets. The standard requires a more timely recognition of credit
losses on loans and other financial assets and also provides additional
transparency about credit risk. The current credit loss standard generally
requires that a loss actually be incurred before it is recognized, while the new
standard will require recognition of full lifetime expected losses upon initial
recognition of the financial instrument. The Company will adopt ASU 2016-13
effective January 1, 2020 on a modified retrospective basis. Adoption of this
standard will impact how the Company recognizes credit losses on its financial
instruments. An entity will apply the standard by recording a cumulative effect
adjustment to retained earnings upon adoption. The Company has completed its
work surrounding model development, documentation and validation as well as its
evaluation of associated processes, data sources, internal controls and
policies. The Company is working through its remaining steps for the adoption of
ASU 2016-13, which includes finalizing assumptions related to economic forecasts
and appropriate qualitative factors and their associated processes and internal
controls. The impact of adoption is expected to result in an initial increase in
the allowance for credit losses, with a decrease in retained earnings net of
taxes. The initial change in the allowance for credit losses at adoption and the
ongoing effect of ASU 2016-13 on the provision for credit losses will be
impacted by the size and composition of the Company's finance receivables
portfolio, economic conditions, reasonable and supportable forecasts, and other
appropriate factors at each reporting period.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles - Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04).
ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the
requirement to calculate the implied fair value of goodwill. Rather, the
goodwill impairment is calculated by comparing the fair value of a reporting
unit to its carrying value, and an impairment loss is recognized for the amount
by which the carrying amount exceeds the fair value, limited to the total
goodwill allocated to the reporting unit. All reporting units apply the same
impairment test under the new standard. The Company is required to adopt ASU
2017-04 for its annual and any interim goodwill impairment tests in fiscal years
beginning after December 15, 2019 on a prospective basis.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic
820): Disclosure Framework - Changes to the Disclosure Requirements for Fair
Value Measurement (ASU 2018-13). ASU 2018-13 amends ASC 820 to eliminate,
modify, and add certain disclosure requirements for fair value measurements. The
guidance is effective for fiscal years beginning after December 15, 2019 and for
interim periods within those fiscal years. Early adoption is permitted in any
period, for either the whole standard or only the provisions that eliminate or
modify requirements. The amendments are required to be applied retrospectively,
with the exception of a few disclosure additions, which are to be applied on a
prospective basis. The Company does not expect the adoption of ASU 2018-13 to
have material impact on its disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and
Other - Internal-Use Software (Subtopic 350-40) (ASU 2018-15). The new guidance
requires a customer in a cloud computing arrangement that is a service contract
to follow the existing internal-use software guidance to determine which
implementation costs to capitalize as assets or expense as incurred. The
guidance is effective for fiscal years beginning after December 15, 2019, and
interim periods within those fiscal years. The Company does not expect the
adoption of ASU 2018-15 to have a material impact on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting
for Income Taxes (ASU No. 2019-12). The new guidance eliminates certain
exceptions related to the approach for intraperiod tax allocation, the
methodology for calculating income taxes in an interim period and the
recognition of deferred tax liabilities for outside basis differences. The new
guidance also simplifies aspects of the accounting for franchise taxes and
enacted changes in tax laws or rates and clarifies the accounting for
transactions that result in a step-up in the tax basis of goodwill. The guidance
is effective for fiscal years beginning after December 15, 2020 and for interim
periods within those fiscal years. Early adoption is permitted. The Company is
currently evaluating the impact of adopting ASU 2019-12.
2. Revenue
The Company recognizes revenue when it satisfies a performance obligation by
transferring control of a good or service to a customer. Revenue is measured
based on the consideration that the Company expects to be entitled to in
exchange for the goods or services transferred. Taxes that are collected from a
customer concurrent with revenue-producing activities are excluded from revenue.

                                       54
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Disaggregated revenue by major source was as follows for the years ended December 31, (in thousands):

                                              2019           2018
Motorcycles and Related Products Revenue:
Motorcycles                               $ 3,538,269    $ 3,882,963
Parts & accessories                           713,400        754,663
General merchandise                           237,566        241,964
Licensing                                      35,917         38,676
Other                                          47,526         50,380
                                            4,572,678      4,968,646
Financial Services Revenue:
Interest income                               678,205        645,985
Securitization and servicing fee income           599          1,136
Other income                                  110,307        101,108
                                              789,111        748,229
                                          $ 5,361,789    $ 5,716,875



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

                                       55
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Company has the right to invoice because the royalties due each period
correspond directly with the value of the Company's performance to date. Revenue
will be recognized over the remaining contract terms which range up to 5 years.
Other Revenue - Other revenue consists primarily of revenue from Harley Owners
Group (H.O.G.®) membership sales, motorcycle rental commissions, museum
admissions and events, and other miscellaneous products and services.
Financial Services
Interest Income - Interest income on finance receivables is recorded as earned
and is based on the average outstanding daily balance for wholesale and retail
receivables. Accrued and uncollected interest is classified with Finance
receivables, net. Certain loan origination costs related to finance receivables,
including payments made to dealers for certain retail loans, are deferred and
recorded within Finance receivables, net and amortized over the life of the
contract.
Securitization and Servicing Fee Income - Securitization and servicing fee
income consists of revenue from servicing and ancillary fees associated with
HDFS' off-balance sheet asset-backed securitization transaction, discussed
further in Note 12.
Other Income - Other income consists primarily of insurance and licensing
revenues. HDFS works with certain unaffiliated insurance companies to offer
motorcycle insurance and protection products through most Harley-Davidson
independent dealers in the U.S. and Canada. HDFS also works with third-party
financial institutions that issue credit cards or offer other financial products
bearing the Harley-Davidson brand in the U.S. and internationally. For many of
these contracts, the Company grants temporary rights to use the licensed
trademarks owned by the Company and collects royalties from its customers in
connection with sales of their products. The trademark licenses are considered
symbolic intellectual property, which grant the customer a right to access the
intellectual property. The Company satisfies its performance obligation over the
license period, as it fulfills its promise to grant the customer rights to use
and benefit from the intellectual property as well as maintain the intellectual
property. Royalty and profit sharing amounts are received either quarterly or
per annum, based upon the contract. Revenue, in the form of sales-based
royalties, is recognized when the customers' subsequent sales occur. Revenue
will be recognized over the remaining contract terms which range up to 6 years.
The Company is the primary obligor for certain other insurance related contracts
and, as a result, revenue is recognized over the life of the contract as the
Company fulfills its performance obligation.
Contract Liabilities
The Company also maintains certain deferred revenue balances related to payments
received at contract inception in advance of the Company's performance under the
contract and generally relates to the sale of H.O.G. memberships and extended
service plan contracts. Deferred revenue is recognized as revenue as the Company
performs under the contract. Deferred revenue, included in Accrued liabilities
and Other long-term liabilities on the Consolidated balance sheets, was as
follows (in thousands):
                               2019        2018
Balance, beginning of period $ 29,055    $ 23,441
Balance, end of period         29,745      29,055



Previously deferred revenue recognized as revenue in 2019 and 2018 was $26.3
million and $19.6 million, respectively. The Company expects to recognize
approximately $15.8 million of the remaining unearned revenue in 2020 and $13.9
million thereafter.
3. Restructuring Expenses
In January 2018, the Company initiated a plan to further improve its
manufacturing operations and cost structure by commencing a multi-year
manufacturing optimization plan which includes the consolidation of its plant in
Kansas City, Missouri, into its plant in York, Pennsylvania, and the closure of
its wheel operations in Adelaide, Australia (Manufacturing Optimization Plan).
The consolidation of operations resulted in the elimination of approximately 800
jobs at the Kansas City facility and the addition of approximately 450 jobs at
the York facility through 2019. The Adelaide facility closure resulted in the
elimination of approximately 90 jobs.
The Motorcycles segment incurred $145.4 million of restructuring expenses and
other consolidation costs under the Manufacturing Optimization Plan since its
inception in 2018, including $43.0 million in 2019. Approximately 60% of total
restructuring expenses and other consolidation costs under the Manufacturing
Optimization Plan were cash charges.
In November 2018, the Company implemented a reorganization of its workforce
(Reorganization Plan). As a result, approximately 70 employees left the Company
on an involuntary basis.

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Restructuring expense related to the restructuring plans is presented as a line
item in the Consolidated statements of income and the accrued restructuring
liability is recorded in Accrued liabilities on the Consolidated balance sheets.
Changes in the accrued restructuring liability during the years ended December
31, were as follows (in thousands):
                                                                                2019
                                                Manufacturing Optimization Plan                             Reorganization Plan
                       Employee Termination                                                                 Employee Termination
                             Benefits            Accelerated Depreciation        Other           Total            Benefits            Total
Balance, beginning of
period                 $        24,958          $               -            $         79     $  25,037     $          3,461       $  28,498
Restructuring expense               15                     14,684                  17,971        32,670                 (317 )        32,353
Utilized - cash                (24,102 )                        -                 (16,950 )     (41,052 )             (3,118 )       (44,170 )
Utilized - non cash                  -                    (14,684 )                (1,094 )     (15,778 )                  -         (15,778 )
Foreign currency
changes                             (6 )                        -                      (4 )         (10 )                (26 )           (36 )
Balance, end of period $           865          $               -            $          2     $     867     $              -       $     867



                                                                              2018
                                             Manufacturing Optimization Plan                              Reorganization Plan
                   Employee Termination                                                                   Employee Termination
                         Benefits            Accelerated Depreciation         Other           Total             Benefits            Total
Balance, beginning
of period          $             -          $               -            $           -     $        -     $              -       $        -
Restructuring
expense                     38,666                     34,654                   16,182         89,502                3,899           93,401
Utilized - cash            (13,060 )                        -                  (16,095 )      (29,155 )               (444 )        (29,599 )
Utilized - non
cash                             -                    (34,654 )                      -        (34,654 )                  -          (34,654 )
Foreign currency
changes                       (648 )                        -                       (8 )         (656 )                  6             (650 )
Balance, end of
period             $        24,958          $               -            $          79     $   25,037     $          3,461       $   28,498



The Company incurred incremental Motorcycles and Related Products cost of goods
sold due to temporary inefficiencies resulting from implementing the
Manufacturing Optimization Plan during 2019 and 2018 of $10.3 million and $12.9
million, respectively.
4. Income Taxes
Provision for income taxes for the years ended December 31, consists of the
following (in thousands):
             2019         2018          2017
Current:
Federal   $  82,484    $ 136,202     $ 245,189
State         6,421       23,134        24,898
Foreign      23,328       29,823        21,138
            112,233      189,159       291,225
Deferred:
Federal      18,760      (23,181 )      47,046
State           402       (6,787 )       2,688
Foreign       2,385       (4,013 )       1,121
             21,547      (33,981 )      50,855
          $ 133,780    $ 155,178     $ 342,080



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

                                       57
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The 2017 Tax Act subjects U.S. shareholders to current tax on global intangible
low-taxed income (GILTI) earned by certain foreign subsidiaries for which a
company can elect to either recognize deferred taxes or to provide tax expense
in the year incurred. The Company has elected to account for GILTI in the year
the tax is incurred.
The components of Income before provision for income taxes for the years ended
December 31, were as follows (in thousands):
            2019         2018         2017
Domestic $ 465,798    $ 593,099    $ 788,878
Foreign     91,617       93,530       74,961
         $ 557,415    $ 686,629    $ 863,839

The Provision for income taxes differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate for the years ended December 31, due to the following items:

                                                            2019      2018  

2017

Provision at statutory rate                                21.0  %   21.0  %   35.0  %
State taxes, net of federal benefit                         2.5       2.6   

1.9

Foreign rate differential                                   0.3       0.4      (0.8 )
Domestic manufacturing deduction                              -         -      (2.2 )
Foreign derived intangible income                          (0.6 )    (1.2 ) 

-

Research and development credit                            (1.5 )    (1.1 )    (0.7 )
Unrecognized tax benefits including interest and penalties  0.1      (0.6 ) 

2.3

Valuation allowance adjustments                             1.4       0.1      (0.1 )
State credits                                              (0.8 )       -   

-

Deferred tax balance remeasurement for rate change            -      (1.2 ) 

5.5

Territorial tax                                               -       1.4      (0.1 )
Global intangible low-taxed income                          0.2       0.4   

-

Adjustments for previously accrued taxes                   (0.3 )    (1.0 )    (1.2 )
Rate differential on intercompany transfers                   -       0.9   

-

Executive compensation limitation                           0.5       0.5         -
Other foreign inclusions                                    0.8         -         -
Other                                                       0.4       0.4         -
Provision for income taxes                                 24.0  %   22.6  %   39.6  %




                                       58

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The principal components of the Company's deferred income tax assets and liabilities as of December 31, include the following (in thousands):

                                                          2019          

2018

Deferred income tax assets:
Accruals not yet tax deductible                        $  95,746     $ 

108,284

Pension and postretirement healthcare plan obligations 17,685 48,347 Stock compensation

                                        11,867        

13,295

Net operating loss carryforward                           45,279        34,842
Valuation allowance                                      (29,024 )     (21,868 )
Other, net                                                64,833        43,870
                                                         206,386       226,770
Deferred income tax liabilities:
Depreciation, tax in excess of book                      (83,477 )     (79,326 )
Other                                                    (29,840 )      (5,980 )
                                                        (113,317 )     (85,306 )
                                                       $  93,069     $ 141,464



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



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

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The Company recognizes interest and penalties related to unrecognized tax
benefits in Provision for income taxes. Changes in the Company's gross liability
for unrecognized tax benefits, excluding interest and penalties, were as follows
(in thousands):
                                                           2019             

2018

Unrecognized tax benefits, beginning of period $ 61,411 $

72,230

Increase in unrecognized tax benefits for tax
positions taken in a prior period                             1,067         

940

Decrease in unrecognized tax benefits for tax
positions taken in a prior period                            (5,608 )          (9,783 )
Increase in unrecognized tax benefits for tax
positions taken in the current period                         4,576         

3,355

Statute lapses                                                 (325 )       

-

Settlements with taxing authorities                          (1,009 )          (5,331 )
Unrecognized tax benefits, end of period              $      60,112     $   

61,411

The amount of unrecognized tax benefits as of December 31, 2019 and 2018 that,
if recognized, would affect the effective tax rate was $53.1 million and $53.7
million, respectively.
The total gross amount of benefit related to interest and penalties associated
with unrecognized tax benefits recognized during 2019, 2018 and 2017 in the
Consolidated statements of income was $0.1 million, $3.2 million and $2.8
million, respectively.
The total gross amount of interest and penalties associated with unrecognized
tax benefits recognized at December 31, 2019 and 2018 in the Consolidated
balance sheets was $27.6 million and $27.7 million, respectively.
The Company does not expect a significant change to the total amounts of
unrecognized tax benefits related to continuing operations during the fiscal
year ending December 31, 2020. However, the Company is under regular audit by
tax authorities. The Company believes that it has appropriate support for the
positions taken on its tax returns and that its annual tax provision includes
amounts sufficient to pay any assessments. Nonetheless, the amounts ultimately
paid, if any, upon resolution of the issues raised by the taxing authorities may
differ materially from the amounts accrued for each year.
The Company or one of its subsidiaries files income tax returns in the U.S.
federal and Wisconsin state jurisdictions and various other state and foreign
jurisdictions. The Company is no longer subject to income tax examinations for
Wisconsin state income taxes before 2015 or for U.S. federal income taxes before
2014. The Company is currently under audit for U.S. federal income taxes for
years 2015 and 2016.
5. Capital Stock and Earnings Per Share
Capital Stock - The Company is authorized to issue 2,000,000 shares of preferred
stock of $1.00 par value, none of which is outstanding. The Company's common
stock has a par value of $0.01 per share. Share information regarding the
Company's common stock at December 31, was as follows:
                          2019           2018
Common stock shares:
Authorized            800,000,000    800,000,000
Issued                182,816,536    181,931,225
Outstanding           152,468,442    159,657,947

Treasury stock shares 30,348,094 22,273,278

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

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Earnings Per Share - The computation of basic and diluted earnings per share for
the years ended December 31, was as follows (in thousands except per share
amounts):
                                                 2019            2018             2017
Net income                                   $   423,635     $   531,451     $    521,759

Basic weighted-average shares outstanding 157,054 165,672

171,995

Effect of dilutive securities - employee
stock compensation plan                              750             832    

937

Diluted weighted-average shares outstanding 157,804 166,504

      172,932
Earnings per share:
Basic                                        $      2.70     $      3.21     $       3.03
Diluted                                      $      2.68     $      3.19     $       3.02



Outstanding options to purchase 1.1 million, 1.1 million and 0.8 million shares
of common stock during 2019, 2018 and 2017, respectively, were not included in
the effect of dilutive securities because the exercise price was greater than
the market price and therefore, the effect would have been anti-dilutive.
The Company has a share-based compensation plan under which employees may be
granted share-based awards including RSUs. Non-forfeitable dividend equivalents
are paid on unvested RSUs. As such, RSUs are considered participating securities
under the two-class method of calculating earnings per share as described in ASC
Topic 260, Earnings Per Share. The two-class method of calculating earnings per
share did not have a material impact on the Company's earnings per share
calculation as of December 31, 2019, 2018 and 2017.
6. Additional Balance Sheet and Cash Flow Information
The Company's investments in marketable securities consisted of the following at
December 31, (in thousands):
                  2019        2018
Debt securities $      -    $ 10,007
Mutual funds      52,575      44,243
                $ 52,575    $ 54,250



Debt securities, included in Marketable securities on the Consolidated balance
sheets, were carried at fair value with unrealized gains or losses reported in
other comprehensive income. Mutual funds, which are included in Other long-term
assets on the Consolidated balance sheets, are carried at fair value with gains
and losses recorded in net income. The mutual funds are held to support certain
deferred compensation obligations.
Inventories, net consisted of the following as of December 31, (in thousands):
                                                           2019          

2018

Raw materials and work in process                       $ 235,433     $ 

177,110

Motorcycle finished goods                                 280,306       

301,630

Parts & accessories and general merchandise               144,258       

136,027

Inventory at lower of FIFO cost or net realizable value   659,997       614,767
Excess of FIFO over LIFO cost                             (56,426 )     (58,639 )
                                                        $ 603,571     $ 556,128

Inventory obsolescence reserves deducted from FIFO cost were $49.3 million and $39.0 million as of December 31, 2019 and 2018, respectively.

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Property, plant and equipment, net consisted of the following as of December 31, (in thousands):

                                       2019            2018
Land and related improvements      $    75,798     $    73,025
Buildings and related improvements     507,178         483,965
Machinery and equipment              1,609,582       1,740,405
Software                               750,978         733,180
Construction in progress               148,805         205,786
                                     3,092,341       3,236,361
Accumulated depreciation            (2,244,959 )    (2,332,229 )
                                   $   847,382     $   904,132



Software, net of accumulated amortization, included in Property, plant and
equipment, net, was $138.9 million and $159.0 million as of December 31, 2019
and 2018, respectively.
Accrued liabilities consisted of the following as of December 31, (in
thousands):
                                                   2019         2018
Payroll, employee benefits and related expenses $ 113,621    $ 125,056
Sales incentive programs                           73,354       57,525
Warranty and recalls                               57,068      103,074
Accrued interest                                   49,213       47,977
Tax-related accruals                               29,871       43,083
Leases                                             19,013            -
Fair value of derivative financial instruments     13,934        5,316
Restructuring                                         867       28,498
Other                                             225,347      190,601
                                                $ 582,288    $ 601,130




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Operating Cash Flow - The reconciliation of Net income to Net cash provided by operating activities for the years ended December 31, is as follows (in thousands):

                                                 2019            2018       

2017

Cash flows from operating activities:
Net income                                   $   423,635     $   531,451     $   521,759
Adjustments to reconcile Net income to Net
cash provided by operating activities:
Depreciation and amortization                    232,537         264,863    

222,188

Amortization of deferred loan origination
costs                                             76,326          81,315    

82,911

Amortization of financing origination fees         9,823           8,367    

8,045

Provision for long-term employee benefits 13,344 36,481

29,900

Employee benefit plan contributions and
payments                                         (13,256 )       (10,544 )       (63,277 )
Stock compensation expense                        33,733          35,539    

32,491

Net change in wholesale finance receivables
related to sales                                  (5,822 )       (56,538 )        35,172
Provision for credit losses                      134,536         106,870         132,444
Deferred income taxes                             21,547         (33,981 )        50,855
Other, net                                           298          37,554           8,559
Changes in current assets and liabilities:
Accounts receivable, net                          44,902           9,143         (18,149 )
Finance receivables - accrued interest and
other                                            (11,119 )           773          (1,313 )
Inventories, net                                 (47,576 )       (31,059 )       (20,584 )
Accounts payable and accrued liabilities         (18,462 )       196,192    

10,128

Derivative financial instruments                   1,936             473           1,866
Other                                            (28,110 )        29,022         (27,934 )
                                                 444,637         674,470         483,302

Net cash provided by operating activities $ 868,272 $ 1,205,921

$ 1,005,061

Cash paid during the years ended December 31, for interest and income taxes was as follows (in thousands):

                2019         2018         2017
Interest     $ 229,678    $ 207,484    $ 204,866
Income taxes $ 149,828    $ 149,436    $ 300,133



Interest paid represents interest payments of HDFS and interest payments of the
Company, included in Financial Services interest expense and Interest expense on
the Consolidated statements of income.
7. Finance Receivables
Finance receivables include both retail and wholesale finance receivables,
including amounts held by consolidated VIEs. Finance receivables are recorded in
the financial statements at amortized cost net of an allowance for credit
losses.
The Company provides retail financial services to customers of the Company's
independent dealers in the U.S. and Canada. The origination of retail loans is a
separate and distinct transaction between the Company and the retail customer,
unrelated to the Company's sale of product to its dealers. Retail finance
receivables consist of secured promissory notes and secured installment
contracts and are primarily related to sales of motorcycles to the dealers'
customers. The Company holds either titles or liens on titles to vehicles
financed by promissory notes and installment sales contracts. As of December 31,
2019 and 2018, approximately 11% of gross outstanding retail finance receivables
were originated in Texas; there were no other states that accounted for more
than 10% of gross outstanding retail finance receivables.
The Company offers wholesale financing to the Company's independent dealers.
Wholesale loans to independent dealers are generally secured by financed
inventory or property and are originated in the U.S. and Canada. Wholesale
finance receivables are related primarily to motorcycles and related parts and
accessories sales.

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Finance receivables, net at December 31, were as follows (in thousands):

                             2019            2018            2017            2016            2015
Retail finance
receivables:
United States            $ 6,180,236     $ 6,103,378     $ 5,901,002     $

5,769,410     $ 5,803,071
Canada                       236,192         224,823         239,598         212,801         188,400
                           6,416,428       6,328,201       6,140,600       5,982,211       5,991,471
Wholesale finance
receivables:
United States              1,067,880       1,007,956         939,621         961,150         965,379
Canada                        88,639          75,659          77,336          65,440          58,481
                           1,156,519       1,083,615       1,016,957       1,026,590       1,023,860
                           7,572,947       7,411,816       7,157,557       7,008,801       7,015,331
Allowance for credit
losses                      (198,581 )      (189,885 )      (192,471 )      (173,343 )      (147,178 )
                         $ 7,374,366     $ 7,221,931     $ 6,965,086     $ 6,835,458     $ 6,868,153



Approved but unfunded retail finance loans totaled $160.4 million and $154.8
million at December 31, 2019 and 2018, respectively. Unused lines of credit
extended to the Company's wholesale finance customers totaled $1.14 billion and
$1.21 billion at December 31, 2019 and 2018, respectively.
Wholesale finance receivables are generally contractually due within one year.
As of December 31, 2019, contractual maturities of total finance receivables
were as follows (in thousands):
            United States       Canada        Total
2020       $     2,177,277    $ 138,251    $ 2,315,528
2021             1,188,915       52,390      1,241,305
2022             1,329,148       56,629      1,385,777
2023             1,486,564       61,211      1,547,775
2024             1,061,450       16,350      1,077,800
Thereafter           4,762            -          4,762
           $     7,248,116    $ 324,831    $ 7,572,947



The provision for credit losses on finance receivables is charged or credited to
earnings in amounts that the Company believes are sufficient to maintain the
allowance for credit losses at a level that is adequate to cover estimated
losses inherent in the existing portfolio. The allowance for credit losses
represents management's estimate of probable losses inherent in the finance
receivable portfolio as of the balance sheet date.
The retail portfolio primarily consists of a large number of small balance,
homogeneous finance receivables. The Company performs a periodic and systematic
collective evaluation of the adequacy of the retail allowance for credit losses.
The Company utilizes loss forecast models which consider a variety of factors
including, but not limited to, historical loss trends, origination or vintage
analysis, known and inherent risks in the portfolio, the value of the underlying
collateral, recovery rates and current economic conditions including items such
as unemployment rates. Retail finance receivables are not evaluated individually
for impairment prior to charge-off and therefore are not reported as impaired
loans
The wholesale portfolio is primarily composed of large balance, non-homogeneous
loans. The Company's evaluation for the wholesale allowance for credit losses is
first based on a loan-by-loan review. A specific allowance for credit losses is
established for wholesale finance receivables determined to be individually
impaired when management concludes that the borrower will not be able to make
full payment of contractual amounts due based on the original terms of the loan
agreement. The impairment is determined based on the cash that the Company
expects to receive, discounted at the loan's original interest rate or the fair
value of the collateral, if the loan is collateral-dependent. Finance
receivables in the wholesale portfolio that are not considered impaired on an
individual basis are segregated, based on similar risk characteristics,
according to the Company's internal risk rating system and collectively
evaluated for impairment. The related allowance for credit losses is based on
factors such as the specific borrower's financial performance and ability to
repay, the Company's past loan loss experience, current economic conditions and
the value of the underlying collateral.

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The allowance for credit losses on finance receivables is comprised of individual components relating to wholesale and retail finance receivables. Changes in the allowance for credit losses on finance receivables by portfolio for the year ended December 31, were as follows (in thousands):

                                               2019
                               Retail       Wholesale        Total

Balance, beginning of period $ 182,098 $ 7,787 $ 189,885 Provision for credit losses 132,243

           2,293      134,536
Charge-offs                   (173,358 )             -     (173,358 )
Recoveries                      47,518               -       47,518
Balance, end of period       $ 188,501     $    10,080    $ 198,581



                                               2018
                               Retail       Wholesale        Total
Balance, beginning of period $ 186,254     $    6,217     $ 192,471
Provision for credit losses    105,292          1,578       106,870
Charge-offs                   (154,433 )           (8 )    (154,441 )
Recoveries                      44,985              -        44,985
Balance, end of period       $ 182,098     $    7,787     $ 189,885



                                               2017
                               Retail       Wholesale        Total

Balance, beginning of period $ 166,810 $ 6,533 $ 173,343 Provision for credit losses 132,760

           (316 )     132,444
Charge-offs                   (160,972 )            -      (160,972 )
Recoveries                      47,656              -        47,656
Balance, end of period       $ 186,254     $    6,217     $ 192,471



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.
Impaired finance receivables also include loans that have been modified in
troubled debt restructurings as a concession to borrowers experiencing financial
difficulty. Generally, it is the Company's policy not to change the terms and
conditions of finance receivables. However, to minimize the economic loss, the
Company may modify certain finance receivables in troubled debt restructurings.
Total restructured finance receivables are not significant.

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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, at December 31, was as follows (in
thousands):
                                                                2019
                                                Retail       Wholesale        Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment        $         -    $     2,100    $     2,100
Collectively evaluated for impairment            188,501          7,980     

196,481

$   188,501    $    10,080    $   198,581
Finance receivables, ending balance:
Individually evaluated for impairment        $         -    $     4,601    $     4,601
Collectively evaluated for impairment          6,416,428      1,151,918      7,568,346
                                             $ 6,416,428    $ 1,156,519    $ 7,572,947
                                                                2018
                                                Retail       Wholesale        Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment        $         -    $         -    $         -
Collectively evaluated for impairment            182,098          7,787     

189,885

$   182,098    $     7,787    $   189,885
Finance receivables, ending balance:
Individually evaluated for impairment        $         -    $         -    $         -
Collectively evaluated for impairment          6,328,201      1,083,615      7,411,816
                                             $ 6,328,201    $ 1,083,615    $ 7,411,816

Additional information related to the wholesale finance receivables that are individually deemed to be impaired under ASC Topic 310, Receivables at December 31, 2019 includes (in thousands):

                                                        Unpaid
                                     Recorded          Principal         

Related Average Recorded Interest Income

                                    Investment          Balance         Allowance         Investment         Recognized
Wholesale:
No related allowance recorded    $            -     $           -     $          -     $             -     $           -
Related allowance recorded                4,994             4,601            2,100               4,976                 -
                                 $        4,994     $       4,601     $      2,100     $         4,976     $           -



Retail finance receivables are contractually delinquent if the minimum payment
is not received by the specified due date. Retail finance receivables are
generally charged-off when the receivable is 120 days or more delinquent, the
related asset is repossessed, or the finance receivable is otherwise deemed
uncollectible. All retail finance receivables accrue interest until either
collected or charged-off.
Wholesale finance receivables are delinquent if the minimum payment is not
received by the contractual due date. Wholesale finance receivables are written
down once the Company determines that the specific borrower does not have the
ability to repay the loan in full. Interest continues to accrue on past due
finance receivables until the date the finance receivable becomes uncollectible
and the finance receivable is placed on non-accrual status. The Company will
resume accruing interest on these accounts when payments are current according
to the terms of the loans and future payments are reasonably assured. While on
non-accrual status, all cash received is applied to principal or interest as
appropriate. The recorded investment of non-accrual status wholesale finance
receivables at December 31, 2019 was $5.0 million. At December 31, 2019, $2.6
million of wholesale finance receivables were over 90 days or more past due and
on non-accrual status. There were no wholesale receivables on non-accrual status
at December 31, 2018.

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An aging analysis of finance receivables at December 31, was as follows (in
thousands):
                                                                     2019
                                                                           Greater than                       Total
                                         31-60 Days       61-90 Days         90 Days           Total         Finance
                          Current         Past Due         Past Due          Past Due        Past Due      Receivables
Retail finance
receivables            $ 6,171,930     $    142,479     $     53,995     $       48,024     $ 244,498     $  6,416,428
Wholesale financial
receivables              1,152,416            1,145              384              2,574         4,103        1,156,519
                       $ 7,324,346     $    143,624     $     54,379     $       50,598     $ 248,601     $  7,572,947



                                                                     2018
                                                                           Greater than                       Total
                                         31-60 Days       61-90 Days         90 Days           Total         Finance
                          Current         Past Due         Past Due          Past Due        Past Due      Receivables
Retail finance
receivables            $ 6,100,186     $    136,945     $     49,825     $       41,245     $ 228,015     $  6,328,201
Wholesale financial
receivables              1,081,729              522              273              1,091         1,886        1,083,615
                       $ 7,181,915     $    137,467     $     50,098     $       42,336     $ 229,901     $  7,411,816



The recorded investment of retail and wholesale finance receivables, excluding
non-accrual status finance receivables, that were contractually past due 90 days
or more at December 31, for the past five years was as follows (in thousands):
                2019        2018        2017        2016        2015
United States $ 47,138    $ 41,285    $ 39,051    $ 39,399    $ 31,677
Canada             888       1,051       1,025       1,326       1,192
              $ 48,026    $ 42,336    $ 40,076    $ 40,725    $ 32,869



A significant part of managing the Company's finance receivable portfolios
includes the assessment of credit risk associated with each borrower. As the
credit risk varies between the retail and wholesale portfolios, the Company
utilizes different credit risk indicators for each portfolio.
The Company manages retail credit risk through its credit approval policy and
ongoing collection efforts. The Company uses FICO scores, a standard credit
rating measurement, to differentiate the expected default rates of retail credit
applicants, enabling the Company to better evaluate credit applicants for
approval and to tailor pricing according to this assessment. Retail loans with a
FICO score of 640 or above at origination are generally considered prime, and
loans with a FICO score below 640 are generally considered sub-prime. These
credit quality indicators are determined at the time of loan origination and are
not updated subsequent to the loan origination date.
The recorded investment of retail finance receivables, by credit quality
indicator at December 31, was as follows (in thousands):
              2019           2018
Prime     $ 5,278,093    $ 5,183,754
Sub-prime   1,138,335      1,144,447
          $ 6,416,428    $ 6,328,201



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.

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The recorded investment of wholesale finance receivables, by internal credit quality indicator at December 31, was as follows (in thousands):

                    2019           2018
Doubtful        $    11,664    $     2,210
Substandard           6,122          9,660
Special Mention      16,125         10,299
Medium Risk          16,800         25,802
Low Risk          1,105,808      1,035,644
                $ 1,156,519    $ 1,083,615



8. Goodwill and Intangible Assets
On March 4, 2019, the Company purchased certain assets and liabilities of
StaCyc, Inc. StaCyc produces electric-powered two-wheelers specifically designed
for children and supports the Company's plans to expand its portfolio of
electric two-wheeled vehicles. Total consideration of the transaction was $14.9
million including cash paid at acquisition of $7.0 million. The primary assets
acquired and included in the Motorcycles segment were goodwill of $9.5 million,
which is tax deductible, and intangible assets of $5.3 million.
Changes in the carrying amount of goodwill in the Motorcycles segment for the
years ended December 31, was as follows (in thousands):
                                2019         2018        2017
Balance, beginning of period $ 55,048     $ 55,947     $ 53,391
Acquisitions                    9,520            -            -
Currency translation             (408 )       (899 )      2,556
Balance, end of period       $ 64,160     $ 55,048     $ 55,947



Intangible assets, excluding goodwill, included in the Motorcycles segment
consist primarily of customer relationships and trademarks with useful lives
ranging from 5 to 20 years. Intangible assets are amortized on a straight-line
basis over their estimated useful lives. Intangible assets are recorded in Other
long-term assets on the Consolidated balance sheets. The gross carrying amounts
at December 31, 2019 and 2018 differ from the acquisition date amounts due to
changes in foreign currency exchange rates. Intangible assets at December 31,
were as follows (in thousands):
                            2019        2018        2017

Gross carrying amount $ 12,837 $ 7,234 $ 7,860 Accumulated amortization (2,240 ) (1,236 ) (950 )

$ 10,597     $ 5,998     $ 6,910



Amortization of intangible assets, excluding goodwill, is recorded in Selling,
administrative and engineering expense on the Consolidated statements of income
and was $0.9 million, $0.4 million and $4.2 million for 2019, 2018 and 2017,
respectively. Future amortization of the Company's intangible assets as of
December 31, 2019 is as follows (in thousands):
2020       $  1,061
2021          1,061
2022          1,061
2023          1,061
2024            820
Thereafter    5,533
           $ 10,597

The Financial Services segment had no goodwill or intangible assets at December 31, 2019 and 2018.

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9. Derivative Financial Instruments and Hedging Activities
The Company is exposed to risks from fluctuations in foreign currency exchange
rates, interest rates and commodity prices. To reduce its exposure to such
risks, the Company selectively uses derivative financial instruments. All
derivative transactions are authorized and executed pursuant to regularly
reviewed policies and procedures which prohibit the use of financial instruments
for speculative trading purposes.
The Company sells products in foreign currencies and utilizes foreign currency
exchange contracts to mitigate the effects of foreign currency exchange rate
fluctuations related to the Euro, Australian dollar, Japanese yen, Brazilian
real, Canadian dollar, Mexican peso, Indian rupee, and Pound sterling. The
Company's foreign currency exchange contracts generally have maturities of less
than one year.
The Company utilizes commodity contracts to mitigate the effects of commodity
price fluctuations related to metals and fuel consumed in the Company's
motorcycle operations. The Company's commodity contracts generally have
maturities of less than one year.
The Company periodically utilizes treasury rate lock contracts to fix the
interest rate on a portion of the principal related to an anticipated issuance
of long-term debt, interest rate swaps to reduce the impact of fluctuations in
interest rates on medium-term notes with floating interest rates, as well as
cross-currency swaps to mitigate the effect of foreign currency exchange rate
fluctuations on foreign denominated debt. The Company also utilizes interest
rate caps to facilitate certain asset-backed securitization transactions.
All derivative financial instruments are recognized on the Consolidated balance
sheets at fair value. In accordance with ASC Topic 815, Derivatives and Hedging
(ASC Topic 815), the accounting for changes in the fair value of a derivative
financial instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, further, on the type of hedging
relationship.
Changes in the fair value of derivative financial instruments that are
designated as cash flow hedges are initially recorded in other comprehensive
income (OCI) and subsequently reclassified into earnings when the hedged item
affects income. The Company assesses, both at the inception of each hedge and on
an ongoing basis, whether the derivative financial instruments that are used in
cash flow hedging transactions are highly effective in offsetting changes in
cash flows of the hedged items. No component of a hedging derivative financial
instrument's gain or loss is excluded from the assessment of hedge
effectiveness. Derivative financial instruments not designated as hedges are not
speculative and are used to manage the Company's exposure to foreign currency,
commodity risks, and interest rate risks. Changes in the fair value of
derivative financial instruments not designated as hedging instruments are
recorded directly in earnings.
The notional and recorded fair values of the Company's derivative financial
instruments under ASC Topic 815, at December 31, were as follows (in thousands):
                                                          Derivative Financial Instruments
                                                    Designated as Cash Flow Hedging Instruments
                                            2019                                                   2018
                      Notional            Other             Accrued          Notional            Other              Accrued
                        Value        Current Assets       Liabilities      

Value Current Assets Liabilities

  Foreign currency
  contracts         $   434,321     $         3,505     $        3,661     $   442,976     $        15,071     $           313
  Commodity
  contracts                 616                   -                 80             827                   -                  46
  Cross-currency
  swap                  660,780               8,326                  -               -                   -                   -
  Interest rate
  swaps                 900,000                   -              9,181         900,000                   -               4,494
                    $ 1,995,717     $        11,831     $       12,922     $ 1,343,803     $        15,071     $         4,853
                                                          Derivative Financial Instruments
                                                       Not Designated as Hedging Instruments
                                            2019                                                   2018
                      Notional            Other             Accrued          Notional            Other              Accrued
                        Value        Current Assets       Liabilities      

Value Current Assets Liabilities

  Foreign currency
  contracts         $   220,139     $           721     $          865     $         -     $             -     $             -
  Commodity
  contracts               8,270                  95                147           5,239                   -                 463
  Interest rate cap     375,980                   2                  -               -                   -                   -
                    $   604,389     $           818     $        1,012     $     5,239     $             -     $           463




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The amount of gains and losses related to derivative financial instruments
designated as cash flow hedges for the years ended December 31, were as follows
(in thousands):
                                 Gain/(Loss)                                    Gain/(Loss)
                              Recognized in OCI                     

Reclassified from AOCL into Income

                      2019           2018           2017            2019             2018            2017
Foreign currency
contracts         $    8,235     $   41,657     $  (53,964 )   $    21,433       $    11,492     $   (7,202 )
Commodity
contracts               (103 )           34           (246 )           (70 )              24              -
Cross-currency
swap                   8,326              -              -          12,156                 -              -
Treasury rate
locks                      -             41           (719 )          (492 )            (498 )         (442 )
Interest rate
swaps                 (9,981 )       (6,046 )            -          (5,295 )          (1,552 )            -
                  $    6,477     $   35,686     $  (54,929 )   $    27,732       $     9,466     $   (7,644 )

The location and amount of gains and losses recognized in income related to derivative financial instruments designated as cash flow hedges for the years ended December 31, were as follows (in thousands):

                                    Motorcycles          Selling,
                                   cost of goods     administrative &                          Financial Services
                                        sold        engineering expense    

Interest expense interest expense

2019

Line item on the Consolidated
statements of income in which the
effects of cash flow hedges are
recorded                           $  3,229,798     $       1,199,056     $ 

31,078 $ 210,438

Gain/(loss) reclassified from AOCL
into income:
Foreign currency contracts         $     21,433     $               -     $             -      $           -
Commodity contracts                $        (70 )   $               -     $             -      $           -
Cross-currency swap                $          -     $          12,156     $             -      $           -
Treasury rate locks                $          -     $               -     $          (362 )    $        (130 )
Interest rate swaps                $          -     $               -     $             -      $      (5,295 )
                                                                        2018
Line item on the Consolidated
statements of income in which the
effects of cash flow hedges are
recorded                           $  3,351,796     $       1,258,098     $ 

30,884 $ 193,187

Gain/(loss) reclassified from AOCL
into income:
Foreign currency contracts         $     11,492     $               -     $             -      $           -
Commodity contracts                $         24     $               -     $             -      $           -
Treasury rate locks                $          -     $               -     $          (362 )    $        (136 )
Interest rate swaps                $          -     $               -     $             -      $      (1,552 )
                                                                        2017
Line item on the Consolidated
statements of income in which the
effects of cash flow hedges are
recorded                           $  3,272,330     $       1,180,176     $ 

31,004 $ 180,193

Gain/(loss) reclassified from AOCL
into income:
Foreign currency contracts         $     (7,202 )   $               -     $             -      $           -
Treasury rate locks                $          -     $               -     $          (362 )    $         (80 )



The amount of net gain included in Accumulated other comprehensive loss (AOCL)
at December 31, 2019, estimated to be reclassified into income over the next
twelve months was $16.4 million.

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The amount of gains and losses recognized in income related to derivative
financial instruments not designated as hedging instruments were as follows (in
thousands). Foreign currency contracts and commodity contracts were recorded in
Motorcycles cost of goods sold and the interest rate cap was recorded in
Financial Services interest expense.
                                Amount of Gain/(Loss)
                                Recognized in Income
                              2019         2018      2017
Foreign currency contracts $   191       $    -     $   -
Commodity contracts             17         (430 )     503
Interest rate cap             (143 )          -         -
                           $    65       $ (430 )   $ 503



The Company is exposed to credit loss risk in the event of non-performance by
counterparties to its derivative financial instruments. Although no assurances
can be given, the Company does not expect any of the counterparties to its
derivative financial instruments to fail to meet their obligations. To manage
credit loss risk, the Company evaluates counterparties based on credit ratings
and, on a quarterly basis, evaluates each hedge's net position relative to the
counterparty's ability to cover their position.
10. Leases
The Company determines if an arrangement is or contains a lease at contract
inception. Right-of-use (ROU) assets related to leases are recorded in Lease
assets and lease liabilities are recorded in Accrued liabilities and Lease
liability on the Consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the
lease term and lease liabilities represent the Company's obligation to make
lease payments arising from the lease. ROU assets and lease liabilities are
recognized at the lease commencement date based on the present value of future
lease payments over the lease term. The ROU asset also includes prepaid lease
payments and initial direct costs and is reduced for lease incentives paid by
the lessor. The discount rate used to determine the present value is generally
the Company's incremental borrowing rate because the implicit rate in the lease
is not readily determinable. The lease term used to calculate the ROU asset and
lease liabilities includes periods covered by options to extend or terminate
when the Company is reasonably certain the lease term will include these
optional periods.
The Company has operating lease arrangements for sales and administrative
offices, manufacturing and distribution facilities, product testing facilities,
equipment and vehicles. The Company's leases have remaining lease terms ranging
from 1 to 13 years, some of which include options to extend the lease term for
periods generally not greater than 5 years and some of which include options to
terminate the leases within 1 year. Certain leases also include options to
purchase the leased asset. Leases do not contain any material residual value
guarantees or material restrictive covenants.
Operating lease expense for the year ended December 31, 2019 was $27.4 million.
This includes variable lease costs related to leases involving assets operated
by a third-party of approximately $6.5 million. Other variable and short-term
lease costs were not material.
Balance sheet information related to the Company's leases at December 31, was as
follows (in thousands):
                      2019
Lease assets        $ 61,618

Accrued liabilities $ 19,013
Lease liabilities     44,447
                    $ 63,460




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Future maturities of the Company's operating lease liabilities at December 31,
2019 were as follows (in thousands):
2020                   $ 20,755
2021                     17,972
2022                     13,268
2023                      6,590
2024                      4,587
Thereafter                4,589
Future lease payments    67,761
Present value discount   (4,301 )
Lease liability        $ 63,460

Other lease information surrounding the Company's operating leases as of December 31, was as follows (dollars in thousands):

2019

Cash outflows for amounts included in the measurement of lease liabilities

                                                          $     

21,491

Right-of-use assets obtained in exchange for lease obligations $ 21,759

                                                  2019

Weighted-average remaining lease term (in years) 4.68 Weighted-average discount rate

                    2.1 %

11. Debt Debt with a contractual term less than one year is generally classified as short-term debt and consisted of the following at December 31, (in thousands):

                              2019          2018

Unsecured commercial paper $ 571,995 $ 1,135,810

Debt with a contractual term greater than one year is generally classified as long-term debt and consisted of the following at December 31, (in thousands):

                                                                 2019       

2018

Secured debt:
Asset-backed Canadian commercial paper conduit facility      $  114,693     $ 155,951
Asset-backed U.S. commercial paper conduit facilities           490,427     

582,717

Asset-backed securitization debt                                766,965     

95,216

Unamortized discounts and debt issuance costs                    (2,573 )         (49 )
                                                              1,369,512       833,835




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                                                                    2019    

2018

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

600,000

Due in 2019, issued March 2017                LIBOR + 0.35%               - 

150,000

Due in 2019, issued September 2014                     2.40 %             - 

600,000

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

600,000

Due in 2020, issued May 2018                  LIBOR + 0.50%         450,000 

450,000

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

350,000

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

600,000

Due in 2021, issued in November 2018 LIBOR + 0.94% 450,000

450,000

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

350,000

Due in 2022, issued February 2019                      4.05 %       550,000               -
Due in 2022, issued June 2017                          2.55 %       400,000 

400,000

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

350,000

Due in 2024, issued November 2019(a)                   3.14 %       672,936               -
Unamortized discounts and debt issuance costs                       (12,809 

) (12,993 )

                                                                  4,760,127 

4,887,007

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

450,000

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

300,000

Unamortized discounts and debt issuance costs                        (6,704 )        (7,376 )
                                                                    743,296         742,624
                                                                  5,503,423       5,629,631
Long-term debt                                                    6,872,935       6,463,466
Current portion of long-term debt, net                           (1,748,109 )    (1,575,799 )
Long-term debt, net                                             $ 5,124,826     $ 4,887,667

(a) Euro denominated €600.0 million par value remeasured to U.S. dollar at

December 31, 2019

The Company's future principal payments on debt obligations as of December 31,
2019 were as follows (in thousands):
2020       $ 2,326,688
2021         1,751,129
2022         1,351,281
2023           614,982
2024           672,936
Thereafter     750,000
           $ 7,467,016



Unsecured Commercial Paper - Commercial paper maturities may range up to 365
days from the issuance date. The weighted-average interest rate of outstanding
commercial paper balances was 1.94% and 2.79% at December 31, 2019 and 2018,
respectively.
Credit Facilities - In May 2019, the Company entered into a $195.0 million
364-day credit facility which matures in May 2020. The Company also has a $780.0
million five-year credit facility which matures in April 2023 and a $765.0
million five-year credit facility which matures in April 2021. The new 364-day
credit facility and the five-year credit facilities (together, the Global Credit
Facilities) bear interest at variable rates, which may be adjusted upward or
downward depending on certain criteria, such as credit ratings. The Global
Credit Facilities also require the Company to pay a fee based on the average
daily unused portion of the aggregate commitments under the Global Credit
Facilities. The Global Credit Facilities are committed facilities primarily used
to support the Company's unsecured commercial paper program.

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Unsecured Notes - The fixed-rate unsecured notes provide for semi-annual
interest payments and the floating-rate unsecured notes provide for quarterly
interest payments. Principal on the unsecured notes is due at maturity.
During January, March, and September of 2019, $600.0 million of 2.25%, $150.0
million of floating-rate, and $600.0 million of 2.40% medium-term notes matured,
respectively, and the principal and accrued interest were paid in full. During
June 2018, $877.5 million of 6.80% medium-term notes matured, and the principal
and accrued interest were paid in full.
Operating and Financial Covenants - HDFS and the Company are subject to various
operating and financial covenants related to the credit facilities and various
operating covenants under the medium-term and senior notes and the U.S. and
Canadian asset-backed commercial paper conduit facilities. The more significant
covenants are described below.
The operating covenants limit the Company's and HDFS' ability to:
• Assume or incur certain liens;

• Participate in certain mergers or consolidations; and

• Purchase or hold margin stock.

Under the current financial covenants of the Global Credit Facilities, the ratio
of HDFS' consolidated debt, excluding secured debt, to HDFS' consolidated
shareholders' equity, excluding accumulated other comprehensive loss (AOCL),
cannot exceed 10.0 to 1.0 as of the end of any fiscal quarter. In addition, the
ratio of the Company's consolidated debt to the Company's consolidated debt and
consolidated shareholders' equity (where the Company's consolidated debt in each
case excludes that of HDFS and its subsidiaries, and the Company's consolidated
shareholders' equity excluding AOCL), cannot exceed 0.7 to 1.0 as of the end of
any fiscal quarter. No financial covenants are required under the medium-term
and senior or the U.S. or Canadian asset-backed commercial paper conduit
facilities.
At December 31, 2019 and 2018, HDFS and the Company remained in compliance with
all of the then existing covenants.
12. Asset-Backed Financing
The Company participates in asset-backed financing both through asset-backed
securitization transactions and through asset-backed commercial paper conduit
facilities. 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 (ASC Topic 860). To achieve a sale
for accounting purposes, the assets being transferred must be legally isolated,
not be constrained by restrictions from further transfer, and be deemed to be
beyond the Company's control. If the Company does not meet all of these criteria
for sale accounting, then the transaction is accounted for as a secured
borrowing and is referred to as an on-balance sheet asset-backed financing.
If the Company meets all three of the sale criteria above, the transaction is
recorded as a sale for accounting purposes and is referred to as an off-balance
sheet asset-backed financing. Upon sale, the retail motorcycle finance
receivables are removed from the Company's Consolidated balance sheets and a
gain or loss is recognized for the difference between the cash proceeds
received, the assets derecognized, and the liabilities recognized as part of the
transaction. The gain or loss on sale is included in Financial Services revenue
in the Consolidated statements of income.
The Company is not required, and does not currently intend, to provide any
additional financial support to the on- or off-balance sheet VIEs associated
with these transactions. Investors and creditors in these transactions only have
recourse to the assets held by the VIEs.

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The assets and liabilities related to the on-balance sheet asset-backed
financings included in the Consolidated balance sheets at December 31, were as
follows (in thousands):
                                                                                    2019
                                Finance        Allowance for
                              receivables      credit losses      Restricted cash      Other assets       Total assets       Asset-backed debt
On-balance sheet assets and
liabilities:
Consolidated VIEs:
Asset-backed securitizations $    826,047     $   (24,935 )     $          36,037     $         778     $      837,927     $           764,392
Asset-backed U.S. commercial
paper conduit facilities          533,587         (16,076 )                27,775             1,642            546,928                 490,427
Unconsolidated VIEs:
Asset-backed Canadian
commercial paper conduit
facility                          232,699          (2,786 )                 7,686               296            237,895                 114,693
                             $  1,592,333     $   (43,797 )     $          71,498     $       2,716     $    1,622,750     $         1,369,512
                                                                                    2018
                                Finance        Allowance for
                              receivables      credit losses      Restricted cash      Other assets       Total assets       Asset-backed debt
On-balance sheet assets and
liabilities:
Consolidated VIEs:
Asset-backed securitizations $    158,718     $    (4,691 )     $          17,191     $         329     $      171,547     $            95,167
Asset-backed U.S. commercial
paper conduit facilities          631,588         (18,733 )                30,012             1,234            644,101                 582,717
Unconsolidated VIEs:
Asset-backed Canadian
commercial paper conduit
facility                          181,774          (3,130 )                 8,779               343            187,766                 155,951
                             $    972,080     $   (26,554 )     $          55,982     $       1,906     $    1,003,414     $           833,835



On-Balance Sheet Asset-Backed Securitization VIEs - The Company transfers U.S.
retail motorcycle finance receivables to SPEs which in turn issue secured notes
to investors, with various maturities and interest rates, secured by future
collections of the purchased U.S. retail motorcycle finance receivables. Each
on-balance sheet asset-backed securitization SPE is a separate legal entity, and
the U.S. retail motorcycle finance receivables included in the asset-backed
securitizations are only available for payment of the secured debt and other
obligations arising from the asset-backed securitization transactions and are
not available to pay other obligations or claims of the Company's creditors
until the associated secured debt and other obligations are satisfied.
Restricted cash balances held by the SPEs are used only to support the
securitizations. There are no amortization schedules for the secured notes;
however, the debt is reduced monthly as available collections on the related
U.S. retail motorcycle finance receivables are applied to outstanding principal.
The secured notes have various contractual maturities ranging from 2020 to 2026.
The Company is the primary beneficiary of its on-balance sheet asset-backed
securitization VIEs because it retains servicing rights and a residual interest
in the VIEs in the form of a debt security. As the servicer, the Company is the
variable interest holder with the power to direct the activities of the VIE that
most significantly impact the VIE's economic performance. As a residual interest
holder, the Company has the obligation to absorb losses and the right to receive
benefits which could potentially be significant to the VIE.
During 2019, the Company transferred $539.1 million and $580.2 million,
respectively, of U.S. retail motorcycle finance receivables to SPEs. The SPEs in
turn issued $500.0 million and $525.0 million, or $498.7 million and $522.6
million net of discounts and issuance costs, respectively, of secured notes
through on-balance sheet asset-backed securitization transactions. There were no
on-balance sheet asset-backed securitization transactions during 2018. At
December 31, 2019, the Consolidated balance sheets included outstanding balances
related to the following secured notes with the related maturity dates and
interest rates (in thousands):
              Principal Amount     Weighted-Average Rate
Issue Date   at Date of Issuance    at Date of Issuance    Contractual Maturity Date
June 2019         $525,000                 2.37%           July 2020 - November 2026
 May 2019         $500,000                 3.05%                   July 2026




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In addition, outstanding balances related to the following secured notes included in the Consolidated balance sheets at December 31, 2018 were repaid during 2019 (in thousands):

                        Principal Amount     Weighted-Average Rate       Contractual
     Issue Date        at Date of Issuance    at Date of Issuance       Maturity Date
                                                                     May 2016 - December
      May 2015              $500,000                 0.88%                  2022
                                                                       February 2016 -
    January 2015            $700,000                 0.89%               August 2022



For the years ended December 31, 2019 and 2018, interest expense on the secured
notes was $13.3 million and $3.2 million, respectively, which is included in
Financial Services interest expense. The weighted average interest rate of the
outstanding on-balance sheet asset-backed securitization transactions was 2.36%
and 1.67% at December 31, 2019 and 2018, respectively.
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE - The
Company has two separate agreements with third-party bank-sponsored asset-backed
U.S. commercial paper conduits under which it may transfer U.S. retail
motorcycle finance receivables to an SPE, which in turn may issue debt to those
third-party bank-sponsored asset-backed U.S. commercial paper conduits. In May
2019, the Company amended its $300.0 million revolving facility agreement to
allow for incremental borrowings, at the lender's discretion, of up to an
additional $300.0 million in excess of the $300.0 million commitment. The
aggregate commitment under this agreement is reduced monthly as collections on
the related finance receivables are applied to the outstanding principal until
the outstanding principal balance is less than or equal to $300.0 million, at
which point the aggregate commitment will equal $300.0 million. On November
27, 2019, the Company renewed its existing $600.0 million and amended $300.0
million revolving facility agreements with third-party bank-sponsored
asset-backed U.S. commercial paper conduits. Availability under the revolving
facilities (together, the U.S. Conduit Facilities) is based on, among other
things, the amount of eligible U.S. retail motorcycle finance receivables held
by the SPE as collateral.
Under the U.S. Conduit Facilities, the assets of the SPE are restricted as
collateral for the payment of the debt or other obligations arising in the
transaction and are not available to pay other obligations or claims of the
Company's creditors. The terms for this debt provide for interest on the
outstanding principal based on prevailing commercial paper rates or LIBOR to the
extent the advance is not funded by a conduit lender through the issuance of
commercial paper plus, in each case, a program fee based on outstanding
principal. The U.S. Conduit Facilities also provide for an unused commitment fee
based on the unused portion of the total aggregate commitment. There is no
amortization schedule; however, the debt will be reduced monthly as available
collections on the related finance receivables are applied to outstanding
principal. Upon expiration of the U.S. Conduit Facilities, any outstanding
principal will continue to be reduced monthly through available collections. The
expected remaining term of the related receivables held by the SPE is
approximately 5 years. Unless earlier terminated or extended by mutual agreement
of the Company and the lenders, the U.S. Conduit Facilities have an expiration
date of November 25, 2020.
The Company is the primary beneficiary of its U.S. Conduit Facilities VIE
because it retains servicing rights and a residual interest in the VIE in the
form of a debt security. As the servicer, the Company is the variable interest
holder with the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance. As a residual interest
holder, the Company has the obligation to absorb losses and the right to receive
benefits which could potentially be significant to the VIE.
The following table includes quarterly transfers of U.S. retail motorcycle
finance receivables to the U.S. Conduit Facilities and the respective proceeds
(in thousands):
                         2019                       2018

                Transfers     Proceeds     Transfers     Proceeds
First quarter  $        -    $       -    $   32,900    $  29,300
Second quarter          -            -        59,100       53,300
Third quarter     174,400      154,600             -            -
Fourth quarter          -            -       400,200      356,800
               $  174,400    $ 154,600    $  492,200    $ 439,400



For the years ended December 31, 2019 and 2018, interest expense under the U.S.
Conduit Facilities was $18.5 million and $10.9 million, respectively, which is
included in Financial Services interest expense. The weighted average interest
rate of the outstanding U.S. Conduit Facilities was 2.63% and 3.26% at
December 31, 2019 and 2018, respectively.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility - In
June 2019, the Company renewed its facility agreement (Canadian Conduit) with a
Canadian bank-sponsored asset-backed commercial paper conduit. Under the

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agreement, the Canadian Conduit is contractually committed, at the Company's
option, to purchase eligible Canadian retail motorcycle finance receivables for
proceeds up to C$220.0 million. The transferred assets are restricted as
collateral for the payment of debt. The terms for this debt provide for interest
on the outstanding principal based on prevailing market interest rates plus a
specified margin. The Canadian Conduit also provides for a program fee and an
unused commitment fee based on the unused portion of the total aggregate
commitment of C$220.0 million. There is no amortization schedule; however, the
debt is reduced monthly as available collections on the related finance
receivables are applied to outstanding principal. Upon expiration of the
Canadian Conduit, any outstanding principal will continue to be reduced monthly
through available collections. The expected remaining term of the related
receivables is approximately 5 years. Unless earlier terminated or extended by
mutual agreement of the Company and the lenders, the Canadian Conduit expires on
June 26, 2020.
The Company is not the primary beneficiary of the Canadian bank-sponsored,
multi-seller conduit VIE; therefore, the Company does not consolidate the VIE.
However, the Company treats the conduit facility as a secured borrowing as it
maintains effective control over the assets transferred to the VIE and therefore
does not meet the requirements for sale accounting.
As the Company participates in and does not consolidate the Canadian
bank-sponsored, multi-seller conduit VIE, the maximum exposure to loss
associated with this VIE, which would only be incurred in the unlikely event
that all the finance receivables and underlying collateral have no residual
value, is $123.2 million at December 31, 2019. The maximum exposure is not an
indication of the Company's expected loss exposure.
The following table includes quarterly transfers of Canadian retail motorcycle
finance receivables to the Canadian Conduit and the respective proceeds (in
thousands):
                         2019                        2018
                Transfers      Proceeds     Transfers      Proceeds
First quarter  $         -    $       -    $     7,600    $   6,200
Second quarter      28,200       23,400         38,900       32,200
Third quarter            -            -              -            -
Fourth quarter           -            -         39,000       32,200
               $    28,200    $  23,400    $    85,500    $  70,600



For the years ended December 31, 2019 and 2018, interest expense on the Canadian
Conduit was $3.6 million and $3.8 million, respectively, which is included in
Financial Services interest expense. The weighted average interest rate of the
outstanding Canadian Conduit was 2.68% at December 31, 2019 and 2018.
Off-Balance Sheet Asset-Backed Securitization VIE - There were no off-balance
sheet asset-backed securitization transactions during the years ended
December 31, 2019, 2018 and 2017. During the second quarter of 2016, the Company
sold retail motorcycle finance receivables with a principal balance of $301.8
million into a securitization VIE that was not consolidated, recognized a gain
of $9.3 million and received cash proceeds of $312.6 million. Similar to an
on-balance sheet asset-backed securitization, the Company transferred U.S.
retail motorcycle finance receivables to a 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 Consolidated balance sheets and a gain was
recognized for the difference between the cash proceeds received, the assets
derecognized and the liabilities recognized as part of the transaction. The gain
on sale was included in Financial Services revenue in the Consolidated
statements of income.

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At December 31, 2019, the assets of this off-balance sheet asset-backed
securitization VIE were $35.2 million and represented the current unpaid
principal balance of the retail motorcycle finance receivables, which was the
Company's maximum exposure to loss in the off-balance sheet VIE at December 31,
2019. This is based on the unlikely event that all the receivables have
underwriting defects or other defects that trigger a violation of certain
covenants and that the underlying collateral has no residual value. This maximum
exposure is not an indication of expected losses.
Servicing Activities - The Company services all retail motorcycle finance
receivables that it originates. When the Company transfers retail motorcycle
finance receivables to SPEs through asset-backed financings, the Company retains
the right to service the finance receivables and receives servicing fees based
on the securitized finance receivables balance and certain ancillary fees. In
on-balance sheet asset-backed financings, servicing fees are eliminated in
consolidation and therefore are not recorded on a consolidated basis. In
off-balance sheet asset-backed financings, servicing fees and ancillary fees are
recorded in Financial Services revenue in the Consolidated statements of income.
The fees the Company is paid for servicing represent adequate compensation and,
consequently, the Company does not recognize a servicing asset or liability. The
Company recognized servicing fee income of $0.6 million and $1.1 million for the
years ended December 31, 2019 and December 31, 2018, respectively.
The unpaid principal balance of retail motorcycle finance receivables serviced
by the Company at December 31, was as follows (in thousands):
                                                            2019           

2018

On-balance sheet retail motorcycle finance receivables $ 6,274,551 $ 6,185,350 Off-balance sheet retail motorcycle finance receivables 35,197 79,613

$ 6,309,748    $ 6,264,963


The unpaid principal balance of retail motorcycle finance receivables serviced
by the Company 30 days or more delinquent at December 31, was as follows (in
thousands):
                                                          Amount 30 days or more past due
                                                                2019              2018

On-balance sheet retail motorcycle finance receivables $ 244,498

   $   228,015
Off-balance sheet retail motorcycle finance receivables               885           1,658
                                                         $        245,383     $   229,673


Credit losses, net of recoveries for the retail motorcycle finance receivables
serviced by the Company, for the years ended December 31, were as follows (in
thousands):
                                                           2019         

2018

On-balance sheet retail motorcycle finance receivables $ 125,840 $ 109,448 Off-balance sheet retail motorcycle finance receivables 458 907

$ 126,298    $ 110,355



13. Fair Value
The Company assesses the inputs used to measure fair value using a three-tier
hierarchy.
Level 1 inputs include quoted prices for identical instruments and are the most
observable.
Level 2 inputs include quoted prices for similar assets and observable inputs
such as interest rates, foreign currency exchange rates, commodity prices, and
yield curves. The Company uses the market approach to derive the fair value for
its Level 2 fair value measurements. Foreign currency contracts, commodity
contracts, cross-currency swaps, and treasury rate locks are valued using quoted
forward rates and prices; interest rate swaps and caps are valued using quoted
interest rates and yield curves; investments in marketable securities and cash
equivalents are valued using quoted prices.
Level 3 inputs are not observable in the market and include the Company's
judgments about the assumptions market participants would use in pricing the
asset or liability.

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Recurring Fair Value Measurements - The Company's assets and liabilities
measured at fair value on a recurring basis as of December 31, (in thousands):
                                                  2019
                                   Balance       Level 1      Level 2
Assets:
Cash equivalents                 $   624,832    $ 459,885    $ 164,947
Marketable securities                 52,575       52,575            -
Derivative financial instruments      12,649            -       12,649
                                 $   690,056    $ 512,460    $ 177,596

Liabilities:

Derivative financial instruments $ 13,934 $ - $ 13,934

                                                  2018
                                   Balance       Level 1      Level 2
Assets:
Cash equivalents                 $   998,601    $ 728,800    $ 269,801
Marketable securities                 54,250       44,243       10,007
Derivative financial instruments      15,071            -       15,071
                                 $ 1,067,922    $ 773,043    $ 294,879

Liabilities:

Derivative financial instruments $ 5,316 $ - $ 5,316

Nonrecurring Fair Value Measurements - Repossessed inventory was $21.4 million
and $20.2 million at December 31, 2019 and 2018, respectively, for which the
fair value adjustment was $11.9 million and $9.7 million, respectively. Fair
value is estimated using Level 2 inputs based on the recent market values of
repossessed inventory.
Fair Value of Financial Instruments Measured at Cost - The carrying value of the
Company's Cash and cash equivalents and Restricted cash approximates their fair
values. The fair value and carrying value of the Company's remaining financial
instruments that are measured at cost or amortized cost at December 31, were as
follows (in thousands):
                                                2019                                 2018
                                  Fair Value       Carrying Value      Fair Value       Carrying Value
Assets:
Finance receivables, net         $ 7,419,627     $      7,374,366     $ 7,304,334     $      7,221,931
Liabilities:
Debt:
Unsecured commercial paper       $   571,995     $        571,995     $ 1,135,810     $      1,135,810
Asset-backed U.S. commercial
paper conduit facilities         $   490,427     $        490,427     $   582,717     $        582,717
Asset-backed Canadian commercial
paper conduit facility           $   114,693     $        114,693     $   155,951     $        155,951
Medium-term notes                $ 4,816,153     $      4,760,127     $ 4,829,671     $      4,887,007
Senior notes                     $   774,949     $        743,296     $  

707,198 $ 742,624 Asset-backed securitization debt $ 768,094 $ 764,392 $ 94,974 $ 95,167

Finance Receivables, net - The carrying value of retail and wholesale finance
receivables is amortized cost less an allowance for credit losses. The fair
value of retail finance receivables is generally calculated by discounting
future cash flows using an estimated discount rate that reflects current credit,
interest rate and prepayment risks associated with similar types of instruments.
Fair value is determined based on Level 3 inputs. The amortized cost basis of
wholesale finance receivables approximates fair value because they either are
short-term or have interest rates that adjust with changes in market interest
rates.

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Debt - The carrying value of debt is generally amortized cost, net of discounts
and debt issuance costs. The fair value of unsecured commercial paper is
calculated using Level 2 inputs and approximates carrying value due to its short
maturity. The fair value of debt provided under the U.S. Conduit Facilities and
Canadian Conduit Facility is calculated using Level 2 inputs and approximates
carrying value since the interest rates charged under the facility are tied
directly to market rates and fluctuate as market rates change. The fair values
of the medium-term notes and senior notes are estimated based upon rates
currently available for debt with similar terms and remaining maturities (Level
2 inputs). The fair value of the debt related to on-balance sheet asset-backed
securitization transactions is estimated based on pricing currently available
for transactions with similar terms and maturities (Level 2 inputs).
14. Product Warranty and Recall Campaigns
The Company currently provides a standard two-year limited warranty on all new
motorcycles sold worldwide, except in Japan, where the Company provides a
standard three-year limited warranty. In addition, the Company provides a
one-year warranty for parts and accessories. The warranty coverage for the
retail customer generally begins when the product is sold to a retail customer.
The Company accrues for future warranty claims at the time of sale using an
estimated cost based primarily on historical Company claim information.
Additionally, the Company has from time to time initiated certain voluntary
recall campaigns. The Company records estimated recall costs when the liability
is both probable and estimable. This generally occurs when management approves
and commits to a recall. Changes in the Company's warranty and recall liability
were as follows (in thousands):
                                                 2019            2018       

2017

Balance, beginning of period                 $   131,740     $    94,200     $    79,482
Warranties issued during the period               50,470          53,367    

57,834

Settlements made during the period               (90,404 )       (79,300 )       (82,554 )
Recalls and changes to pre-existing warranty
liabilities                                       (2,013 )        63,473          39,438
Balance, end of period                       $    89,793     $   131,740     $    94,200



The liability for recall campaigns was $36.4 million, $73.3 million and $35.3
million at December 31, 2019, 2018 and 2017, respectively. Additionally, the
Company recorded supplier recoveries within operating expenses separate from the
amounts disclosed above of $28.0 million in 2019.
15. Employee Benefit Plans and Other Postretirement Benefits
The Company has a qualified defined benefit pension plan and postretirement
healthcare benefit plans. The plans cover certain eligible employees and
retirees of the Motorcycles segment. The Company also has unfunded supplemental
employee retirement plan agreements (SERPA) with certain employees which were
instituted to replace benefits lost under the Tax Revenue Reconciliation Act of
1993.
Pension benefits are based primarily on years of service and, for certain plans,
levels of compensation. Plan participants are eligible to receive postretirement
healthcare benefits upon attaining age 55 after rendering at least 10 years of
service to the Company. Some of the plans require participant contributions to
partially offset benefit costs.

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Obligations and Funded Status:
The changes in the benefit obligation, fair value of plan assets and the funded
status of the Company's pension and SERPA plans and the postretirement
healthcare plans as of the Company's measurement dates of December 31, were as
follows (in thousands):
                                    Pension and SERPA Benefits         

Postretirement Healthcare Benefits

                                       2019             2018               2019                   2018
Change in benefit obligation:
Benefit obligation, beginning of
period                           $    1,984,708     $ 2,201,021     $        286,574       $        338,488
Service cost                             25,408          32,340                4,449                  7,180
Interest cost                            85,483          82,778               11,753                 11,556
Actuarial losses (gains)                236,719        (213,583 )              9,590                (42,039 )
Plan participant contributions                -               -                1,999                  2,492
Plan amendments                           8,371         (12,926 )                  -                 (4,710 )
Special early retirement
benefits                                  1,583               -                    -                      -
Benefits paid                          (126,079 )      (106,280 )            (20,860 )              (23,448 )
Net curtailments and settlements         (4,181 )         1,358                    -                 (2,945 )
Benefit obligation, end of
period                                2,212,012       1,984,708              293,505                286,574

Change in plan assets:
Fair value of plan assets,
beginning of period                   1,874,618       2,162,885              190,357                217,537
Return on plan assets                   459,388        (185,468 )             41,717                (13,287 )
Plan participant contributions                -               -                1,999                  2,492
Benefits paid                          (124,784 )      (102,799 )            (13,081 )              (16,385 )
Fair value of plan assets, end
of period                             2,209,222       1,874,618              220,992                190,357

Funded status of the plan $ (2,790 ) $ (110,090 ) $

(72,513 ) $ (96,217 )

Funded status as recognized on
the Consolidated balance sheets:
Prepaid pension costs            $       56,014     $         -     $              -       $              -
Accrued liabilities                      (2,666 )        (2,314 )                  -                 (1,764 )
Pension liabilities                     (56,138 )      (107,776 )                  -                      -
Postretirement healthcare
liabilities                                   -               -              (72,513 )              (94,453 )
                                 $       (2,790 )   $  (110,090 )   $        (72,513 )     $        (96,217 )

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



During 2019, the actuarial losses related to the obligation for pension and
SERPA benefits were due primarily to a decrease in the discount rate.
Conversely, during 2018, the actuarial gains related to this obligation were due
primarily to an increase in the discount rate.
During 2019, the actuarial losses related to the obligation for postretirement
healthcare benefits were due primarily to a decrease in the discount rate
partially offset by favorable claim cost adjustments. During 2018, the actuarial
gains related to this obligation were due primarily to an increase in the
discount rate, favorable claim cost experience and a change in the benefit
delivery structure.

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The funded status of the qualified pension plan and the SERPA plans are combined
above. Plans with projected benefit obligations (PBO) or accumulated benefit
obligations (ABO) in excess of the fair value of plan assets at December 31, is
presented below (in thousands):
                                                         2019          2018
Plans with PBO in excess of fair value of plan assets:
PBO                                                    $ 58,804    $ 1,984,708
Fair value of plan assets                              $      -    $ 1,874,618

Plans with ABO in excess of fair value of plan assets:
ABO                                                    $ 44,232    $    40,085
Fair value of plan assets                              $      -    $         -



The total ABO for all the Company's pension and SERPA plans combined was $2.12
billion and $1.90 billion as of December 31, 2019 and 2018, respectively.
Benefit Costs:
Service costs are allocated among Selling, administrative and engineering
expense, Motorcycles and Related Products cost of goods sold and Inventories,
net. Amounts capitalized in inventory are not significant. Non-service cost
components of net periodic benefit cost are presented in Other income (expense),
net. Components of net periodic benefit costs for the years ended December 31,
include the following (in thousands):
                             Pension and SERPA Benefits                   

Postretirement Healthcare Benefits

                         2019           2018            2017            2019              2018            2017
Service cost         $   25,408     $    32,340     $   31,584     $     4,449       $     7,180      $     7,500
Interest cost            85,483          82,778         85,076          11,753            11,556           13,648
Expected return on
plan assets            (142,323 )      (147,671 )     (141,385 )       (14,030 )         (14,161 )        (12,623 )
Amortization of
unrecognized:
Prior service
(credit) cost            (1,930 )          (420 )        1,018          (2,381 )          (1,842 )         (2,171 )
Net loss                 44,511          64,773         43,993             277             1,817            3,261
Special early
retirement benefits       1,583               -              -               -                 -                -
Curtailment loss
(gain)                        -           1,017              -            (960 )            (886 )              -
Settlement loss           1,503               -              -               -                 -                -
Net periodic benefit
cost                 $   14,235     $    32,817     $   20,286     $      (892 )     $     3,664      $     9,615



The expected return on plan assets is calculated based on the market related
value of plan assets. The market related value of plan assets is different from
the fair value in that asset gains and losses are smoothed over a five-year
period.
Unrecognized gains and losses related to plan obligations and assets are
initially recorded in other comprehensive income and result from actual
experience that differs from assumed or expected results, and the impacts of
changes in assumptions. Unrecognized plan asset gains and losses not yet
reflected in the market related value of plan assets are not subject to
amortization. Remaining unrecognized gains and losses that exceed 10% of the
greater of the projected benefit obligation or the market related value of plan
assets are amortized to earnings over the estimated future service period of
active plan participants. The impacts of plan amendments, if any, are amortized
over the estimated future service period of plan participants at the time of the
amendment.

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Assumptions:

Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost at December 31, were as follows:

                                  Pension and SERPA Benefits           

Postretirement Healthcare Benefits

                                2019          2018        2017         2019           2018           2017
Assumptions for benefit
obligations:
Discount rate                   3.49 %        4.38 %       3.71 %       3.26 %         4.23 %         3.52 %
Rate of compensation
increase                        3.39 %        3.38 %       3.43 %        n/a            n/a            n/a
Assumptions for net periodic
benefit cost:
Discount rate                   4.38 %        3.71 %       4.30 %       4.23 %         3.52 %         4.03 %
Expected return on plan
assets                          7.10 %        7.25 %       7.25 %       7.25 %         7.25 %         7.25 %
Rate of compensation
increase                        3.38 %        3.43 %       3.50 %        n/a            n/a            n/a



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

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The following tables present the fair values of the plan assets related to the
Company's pension and postretirement healthcare plans within the fair value
hierarchy as defined in Note 13. The fair values of the Company's pension plan
assets at December 31, 2019 were as follows (in thousands):
                                             Balance        Level 1       Level 2
Cash and cash equivalents                  $    35,463    $         -    $  35,463
Equity holdings:
U.S. companies                                 728,892        707,276       21,616
Foreign companies                               79,707         77,275        2,432
Harley-Davidson common stock                    47,365         47,365            -
Pooled equity funds                            377,301        377,301            -
Other                                               72             72            -
                                             1,233,337      1,209,289       24,048
Fixed-income holdings:
U.S. Treasuries                                 67,234         67,234            -
Federal agencies                                15,434              -       15,434
Corporate bonds                                583,475              -      583,475
Pooled fixed income funds                      142,134         48,674       93,460
Foreign bonds                                  103,439              -      103,439
Municipal bonds                                 12,339              -       12,339
                                               924,055        115,908      808,147

Plan assets subject to fair value leveling 2,192,855 $ 1,325,197 $ 867,658

Plan assets measured at net asset value:
Limited partnership interests                    4,118
Real estate investment trusts                   12,249
                                                16,367
                                           $ 2,209,222

Included in the pension plan assets are 1,273,592 shares of the Company's common stock with a market value of $47.4 million at December 31, 2019.

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The fair values of the Company's postretirement healthcare plan assets at December 31, 2019 were as follows (in thousands):

                                            Balance      Level 1      Level 2
Cash and cash equivalents                  $   2,458    $       -    $  2,458
Equity holdings:
U.S. companies                               104,399      104,399           -
Foreign companies                             22,422       21,744         678
Pooled equity funds                           25,029       25,029           -
Other                                              7            7           -
                                             151,857      151,179         678
Fixed-income holdings:
U.S. Treasuries                                5,782        5,782           -
Federal agencies                               7,986            -       7,986
Corporate bonds                                8,425            -       8,425
Pooled fixed income funds                     36,720       36,720           -
Foreign bonds                                    672            -         672
Municipal bonds                                  454            -         454
                                              60,039       42,502      17,537

Plan assets subject to fair value leveling 214,354 $ 193,681 $ 20,673

Plan assets measured at net asset value:
Real estate investment trusts                  6,638
                                           $ 220,992





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The fair values of the Company's pension plan assets at December 31, 2018 were
as follows (in thousands):
                                             Balance        Level 1       Level 2
Cash and cash equivalents                  $    40,984    $         -    $  40,984
Equity holdings:
U.S. companies                                 636,308        621,459       14,849
Foreign companies                               66,143         66,143            -
Harley-Davidson common stock                    43,455         43,455            -
Pooled equity funds                            330,476        330,476            -
Other                                               85             85            -
                                             1,076,467      1,061,618       14,849
Fixed-income holdings:
U.S. Treasuries                                 45,102         45,102            -
Federal agencies                                27,811              -       27,811
Corporate bonds                                434,070              -      434,070
Pooled fixed income funds                      140,630         42,400       98,230
Foreign bonds                                   83,852            266       83,586
Municipal bonds                                  9,276              -        9,276
                                               740,741         87,768      652,973

Plan assets subject to fair value leveling 1,858,192 $ 1,149,386 $ 708,806

Plan assets measured at net asset value:
Limited partnership interests                    5,918
Real estate investment trust                    10,508
                                                16,426
                                           $ 1,874,618

Included in the pension plan assets were 1,273,592 shares of the Company's common stock with a market value of $43.5 million at December 31, 2018.

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The fair values of the Company's postretirement healthcare plan assets at December 31, 2018 were as follows (in thousands):

                                            Balance      Level 1      Level 2
Cash and cash equivalents                  $   5,276    $       -    $  5,276
Equity holdings:
U.S. companies                                86,975       86,949          26
Foreign companies                             16,342       16,342           -
Pooled equity funds                           20,747       20,747           -
Other                                              9            9           -
                                             124,073      124,047          26
Fixed-income holdings:
U.S. Treasuries                                8,707        8,707           -
Federal agencies                               5,445            -       5,445
Corporate bonds                                6,590            -       6,590
Pooled fixed income funds                     33,959       33,959           -
Foreign bonds                                    538            -         538
Municipal bonds                                  272            -         272
                                              55,511       42,666      12,845

Plan assets subject to fair value leveling 184,860 $ 166,713 $ 18,147

Plan assets measured at net asset value:
Real estate investment trust                   5,497
                                           $ 190,357



For 2020, the Company's overall expected long-term rate of return is 6.70% for
pension assets and 7.00% for postretirement healthcare plan assets. The expected
long-term rate of return is based on the portfolio as a whole and not on the sum
of the returns on individual asset categories. The return is based on historical
returns adjusted to reflect the current view of the long-term investment market.
Postretirement Healthcare Cost:
The weighted-average healthcare cost trend rates used in determining the
accumulated postretirement benefit obligation of the healthcare plans were as
follows:
                                                             2019           

2018

Healthcare cost trend rate for next year                       7.25 %       

6.75 % Rate to which the cost trend rate is assumed to decline (the ultimate rate)

                                            5.00 %         5.00 %
Year that the rate reaches the ultimate trend rate             2029         

2026

Future Contributions and Benefit Payments:
During 2019, the Company did not make any voluntary contributions to its
qualified pension plan or postretirement healthcare plans. No pension plan
contributions are required in 2020. The Company expects that 2020 postretirement
healthcare plan benefits and benefits due under the SERPA plans will be paid by
the Company or, in the case of postretirement healthcare plan benefits,
partially funded with plan assets.

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The Company's future expected benefit payments as of December 31, 2019 were as
follows (in thousands):
           Pension Benefits     SERPA Benefits     Postretirement Healthcare Benefits
2020      $          97,227    $         2,666    $                             23,328
2021      $          98,376    $         3,000    $                             23,501
2022      $         101,566    $         3,309    $                             23,625
2023      $         104,864    $         4,176    $                             23,307
2024      $         108,436    $         4,401    $                             22,902
2025-2028 $         590,687    $        29,048    $                            109,195



Defined Contribution Plans:
The Company has various defined contribution benefit plans that in total cover
substantially all full-time employees. Employees can make voluntary
contributions in accordance with the provisions of their respective plan, which
includes a 401(k) tax deferral option. The Company makes additional
contributions to the plans on behalf of the employees and expensed $21.9
million, $20.1 million and $19.0 million during 2019, 2018 and 2017,
respectively related to the contributions.
16. Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental,
product and other matters. In determining costs to accrue related to these
items, the Company carefully analyzes cases and considers the likelihood of
adverse judgments or outcomes, as well as the potential range of possible loss.
Any amounts accrued for these matters are monitored on an ongoing basis and are
updated based on new developments or new information as it becomes available for
each matter.
Environmental Protection Agency Notice - In December 2009, the Company received
formal, written requests for information from the United States Environmental
Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle
emissions and related designations and labels, (ii) aftermarket parts, and
(iii) warranty claims on emissions related components. The Company promptly
submitted written responses to the EPA's inquiry and has engaged in information
exchanges and discussions with the EPA. In August 2016, the Company entered into
a consent decree with the EPA regarding these issues, and the consent decree was
subsequently revised in July 2017 (the Settlement). In the Settlement, the
Company agreed to, among other things, pay a fine, and not sell tuning products
unless they are approved by the EPA or California Air Resources Board. In
December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the
Settlement with the U.S. District Court for the District of Columbia for the
purpose of obtaining court approval of the Settlement. Three amicus briefs
opposing portions of the Settlement were filed with the court by the deadline of
January 31, 2018. On March 1, 2018, the Company and the DOJ each filed separate
response briefs. The Company is awaiting the court's decision on whether or not
to finalize the Settlement, and on February 8, 2019 the DOJ filed a status
update reminding the court of the current status of the outstanding matter. The
Company has an accrual associated with this matter recorded in Accrued
liabilities on the Consolidated balance sheets, and as a result, if it is
finalized, the Settlement would not have a material adverse effect on the
Company's financial condition or results of operations. The Settlement is not
final until it is approved by the court, and if it is not approved by the court,
the Company cannot reasonably estimate the impact of any remedies the EPA might
seek beyond the Company's current reserve for this matter.
York Environmental Matter - The Company is involved with government agencies and
the U.S. Navy related to a matter involving the cleanup of soil and groundwater
contamination at its York, Pennsylvania facility. The York facility was formerly
used by the U.S. Navy and AMF prior to the purchase of the York facility by the
Company from AMF in 1981. The Company has an agreement with the U.S. Navy which
calls for the U.S. Navy and the Company to contribute amounts into a trust equal
to 53% and 47%, respectively, of costs associated with environmental
investigation and remediation activities at the York facility (Response Costs).
A site wide remedial investigation/feasibility study and a proposed final remedy
for the York facility have been completed and approved by the Pennsylvania
Department of Environmental Protection and the EPA. The associated cleanup plan
documents were submitted for approval in December 2019 and remaining cleanup
activities will begin in mid-2020. The Company has an accrual for its share of
the estimated future Response Costs recorded in Other long-term liabilities on
the Consolidated balance sheets.
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.

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17. Share-Based Awards
The Company has a share-based compensation plan which was approved by its
shareholders in April 2014 (the Plan) under which its Board of Directors may
grant to employees share-based awards including restricted stock units (RSUs),
performance shares, and nonqualified stock options. Performance shares include a
three-year performance period with vesting based on achievement of internal
performance targets. RSUs granted under the Plan vest ratably over a three-year
period with the first one-third of the grant vesting one year after the date of
grant. Dividends are paid on RSUs settled with stock and performance shares
settled with stock. Dividend equivalents are paid on RSUs and performance shares
settled with cash. Stock options expire 10 years from the date of grant. At
December 31, 2019, there were 7.2 million shares of common stock available for
future awards under the Plan.
The Company recognizes the cost of its share-based awards in the Consolidated
statements of income. The cost of each share-based equity award is based on the
grant date fair value and the cost of each share-based cash-settled award is
based on the settlement date fair value. Forfeitures for share-based awards are
estimated at the grant date and adjusted when it is likely to change.
Share-based award expense is recognized on a straight-line basis over the
service or performance periods of each separately vesting tranche within the
awards. The expense recognized reflects the number of awards that are ultimately
expected to vest based on the service and, if applicable, performance
requirements of each award. Total share-based award compensation expense
recognized by the Company during 2019, 2018 and 2017 was $33.7 million, $35.5
million and $32.5 million, respectively, or $25.8 million, $27.2 million and
$20.5 million net of taxes, respectively.
Restricted Stock Units and Performance Shares - Settled in Stock - The fair
value of RSUs and performance shares settled in stock is determined based on the
market price of the Company's shares on the grant date. The activity for these
awards for the year ended December 31, 2019 was as follows (in thousands, except
for per share amounts):
                                                                             Weighted-Average
                                                         Shares & Units    Fair Value Per Share
Nonvested, beginning of period                                 1,894       $               48
Granted                                                        1,149       $               37
Vested                                                          (717 )     $               46
Forfeited                                                       (315 )     $               41
Nonvested, end of period                                       2,011       $               43



As of December 31, 2019, there was $31.1 million of unrecognized compensation
cost related to RSUs and performance shares settled in stock (net of estimated
forfeitures) that is expected to be recognized over a weighted-average period of
1.7 years.
Restricted Stock Units and Performance Shares - Settled in Cash - RSUs and
performance shares settled in cash are recorded in the Consolidated balance
sheets as a liability until vested. The fair value is determined based on the
market price of the Company's stock and is remeasured at each balance sheet
date. The activity for these awards for the year ended December 31, 2019 was as
follows (in thousands, except for per share amounts):
                               Units     Weighted-Average Fair Value Per 

Share

Nonvested, beginning of period  105     $                                    39
Granted                          94     $                                    38
Vested                          (48 )   $                                    37
Forfeited                       (24 )   $                                    35
Nonvested, end of period        127     $                                    38




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Stock Options - There were no stock options granted in 2019, 2018 or 2017. All
outstanding stock options were vested as of December 31, 2018. The Company's
policy is to issue new shares of common stock upon the exercise of employee
stock options. The stock option transactions for the year ended December 31,
2019 were as follows (in thousands, except for per share amounts):
                                 Options     Weighted-Average Exercise 

Price

Outstanding, beginning of period  1,055     $                              50
Exercised                          (168 )   $                              21
Forfeited                           (71 )   $                              54
Outstanding, end of period          816     $                              56

Exercisable, end of period          816     $                              56



The aggregate intrinsic value related to stock options exercised, outstanding
and exercisable as of and for the years ended December 31, was as follows (in
thousands):
              2019       2018       2017
Exercised   $ 2,614    $ 3,855    $  4,051
Outstanding $    52    $ 2,366    $ 11,711
Exercisable $    52    $ 2,366    $ 11,711



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

Options exercisable                3.0       816    $               56




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18. Accumulated Other Comprehensive Loss Changes in Accumulated other comprehensive loss (AOCL) for the years ended December 31, were as follows (in thousands):

                                                                            2019
                            Foreign currency                                Derivative             Pension and
                               translation            Marketable             financial        postretirement benefit
                               adjustments            securities            instruments               plans               Total
Balance, beginning of
period                    $       (49,608 )       $               -     $        1,785        $        (581,861 )      $ (629,684 )
Other comprehensive
income, before
reclassifications                   9,229                         -              6,477                   90,071           105,777
Income tax expense                   (434 )                       -             (1,541 )                (21,149 )         (23,124 )
                                    8,795                         -              4,936                   68,922            82,653
Reclassifications:
Net gain on derivative
instruments                             -                         -            (27,732 )                      -           (27,732 )
Prior service credits(a)                -                         -                  -                   (4,311 )          (4,311 )
Actuarial losses(a)                     -                         -                  -                   44,788            44,788
Curtailment and
settlement losses(a)                    -                         -                  -                      543               543
Reclassifications before
tax                                     -                         -            (27,732 )                 41,020            13,288
Income tax benefit
(expense)                               -                         -              6,425                   (9,631 )          (3,206 )
                                        -                         -            (21,307 )                 31,389            10,082
Other comprehensive
income (loss)                       8,795                         -            (16,371 )                100,311            92,735
Balance, end of period    $       (40,813 )       $               -     $      (14,586 )      $        (481,550 )      $ (536,949 )



                                                                            2018
                            Foreign currency                                Derivative             Pension and
                               translation            Marketable             financial        postretirement benefit
                               adjustments            securities            instruments               plans               Total
Balance, beginning of
period                    $       (21,852 )       $               -     $      (17,254 )      $        (460,943 )      $ (500,049 )
Other comprehensive
(loss) income, before
reclassifications                 (28,212 )                       -             35,686                  (84,725 )         (77,251 )
Income tax benefit
(expense)                           3,202                         -             (8,455 )                 19,893            14,640
                                  (25,010 )                       -             27,231                  (64,832 )         (62,611 )
Reclassifications:
Net gain on derivative
instruments                             -                         -             (9,466 )                      -            (9,466 )
Prior service credits(a)                -                         -                  -                   (2,262 )          (2,262 )
Actuarial losses(a)                     -                         -                  -                   66,590            66,590
Curtailment and
settlement gains(a)                     -                         -                  -                     (886 )            (886 )
Reclassifications before
tax                                     -                         -             (9,466 )                 63,442            53,976
Income tax benefit
(expense)                               -                         -              2,244                  (14,896 )         (12,652 )
                                        -                         -             (7,222 )                 48,546            41,324
Other comprehensive
(loss) income                     (25,010 )                       -             20,009                  (16,286 )         (21,287 )
Reclassification of
certain tax effects                (2,746 )                       -               (970 )               (104,632 )        (108,348 )
Balance, end of period    $       (49,608 )       $               -     $        1,785        $        (581,861 )      $ (629,684 )




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                                                                           2017
                           Foreign currency                              Derivative             Pension and
                              translation           Marketable            financial        postretirement benefit
                              adjustments           securities           instruments               plans                Total
Balance, beginning of
period                   $       (68,132 )       $      (1,194 )     $       12,524        $        (508,579 )      $  (565,381 )
Other comprehensive
income (loss), before
reclassifications                 52,145                 1,896              (54,929 )                 24,321             23,433
Income tax (expense)
benefit                           (5,865 )                (702 )             20,338                   (5,711 )            8,060
                                  46,280                 1,194              (34,591 )                 18,610             31,493
Reclassifications:
Net loss on derivative
instruments                            -                     -                7,644                        -              7,644
Prior service credits(a)               -                     -                    -                   (1,153 )           (1,153 )
Actuarial losses(a)                    -                     -                    -                   47,254             47,254
Reclassifications before
tax                                    -                     -                7,644                   46,101             53,745
Income tax expense                     -                     -               (2,831 )                (17,075 )          (19,906 )
                                       -                     -                4,813                   29,026             33,839
Other comprehensive
income (loss)                     46,280                 1,194              (29,778 )                 47,636             65,332
Balance, end of period   $       (21,852 )       $           -       $      (17,254 )      $        (460,943 )      $  (500,049 )

(a) Amounts reclassified are included in the computation of net periodic benefit

cost, discussed further in Note 15.

19. Reportable Segments and Geographic Information
Reportable Segments - Harley-Davidson, Inc. is the parent company of
Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services
(HDFS). The Company operates in two segments: the Motorcycles and Related
Products (Motorcycles) and Financial Services. The Company's reportable segments
are strategic business units that offer different products and services and are
managed separately based on the fundamental differences in their operations.
The Motorcycles segment consists of HDMC which designs, manufactures and sells
Harley-Davidson motorcycles as well as motorcycle parts, accessories, general
merchandise and services. The Company's products are sold to retail customers
primarily through a network of independent dealers. The Company conducts
business on a global basis, with sales in the U.S., Canada, Europe/Middle
East/Africa (EMEA), Asia Pacific, and Latin America.
The Financial Services segment consists of HDFS which is engaged in the business
of financing and servicing wholesale inventory receivables and retail consumer
loans, primarily for the purchase of Harley-Davidson motorcycles. HDFS also
works with certain unaffiliated insurance companies to provide motorcycle
insurance and protection products to motorcycle owners. HDFS conducts business
principally in the U.S. and Canada.
Selected segment information is set forth below for the years ended December 31,
(in thousands):
                                                    2019           2018     

2017

Motorcycles and Related Products:
Motorcycles revenue                             $ 4,572,678    $ 4,968,646    $ 4,915,027
Gross profit                                      1,342,880      1,616,850  

1,642,697

Selling, administrative and engineering expense 1,020,907 1,101,086

    1,035,921
Restructuring expense                                32,353         93,401              -
Operating income                                    289,620        422,363        606,776
Financial Services:
Financial Services revenue                          789,111        748,229        732,197
Financial Services expense                          523,123        457,069        456,892
Operating income                                    265,988        291,160        275,305
Operating income                                $   555,608    $   713,523    $   882,081




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



 Geographic Information - Included in the Consolidated financial statements are
the following amounts relating to geographic locations for the years ended
December 31, (in thousands):
                                   2019           2018           2017
Motorcycles revenue(a):
United States                  $ 2,971,223    $ 3,159,049    $ 3,215,513
EMEA                               743,385        893,589        790,725
Canada                             210,381        230,211        232,883
Japan                              156,644        161,370        180,938
Australia and New Zealand          117,525        147,561        168,670
Other countries                    373,520        376,866        326,298
                               $ 4,572,678    $ 4,968,646    $ 4,915,027
Financial Services revenue(a):
United States                  $   754,535    $   712,898    $   698,383
Canada                              22,799         23,120         22,580
Europe                               8,435          8,411          6,845
Other countries                      3,342          3,800          4,389
                               $   789,111    $   748,229    $   732,197
Long-lived assets(b):
United States                  $   757,594    $   838,446    $   912,032
International:
Thailand                            78,651         50,331         31,087
Other countries                     11,137         15,355         24,662
                                    89,788         65,686         55,749
                               $   847,382    $   904,132    $   967,781

(a) Revenue is attributed to geographic regions based on location of customer.

(b) Long-lived assets include all long-term assets except those specifically

excluded under ASC Topic 280, Segment Reporting, such as deferred income

    taxes and finance receivables.



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20. Supplemental Consolidating Data
The supplemental consolidating data is presented for informational purposes and
is different than segment information due to the allocation of consolidating
reporting adjustments to the reportable segments. Supplemental consolidating
data is as follows (in thousands):
                                                                Year Ended December 31, 2019
                                                                                  Consolidating
                                         HDMC Entities       HDFS Entities         Adjustments         Consolidated
Revenue:
Motorcycles and Related Products       $     4,593,585     $             -     $       (20,907 )     $    4,572,678
Financial Services                                   -             779,163               9,948              789,111
                                             4,593,585             779,163             (10,959 )          5,361,789
Costs and expenses:
Motorcycles and Related Products cost
of goods sold                                3,229,798                   -                   -            3,229,798
Financial Services interest expense                  -             210,438                   -              210,438
Financial Services provision for
credit losses                                        -             134,536                   -              134,536
Selling, administrative and
engineering expense                          1,034,921             175,258             (11,123 )          1,199,056
Restructuring expense                           32,353                   -                   -               32,353
                                             4,297,072             520,232             (11,123 )          4,806,181
Operating income                               296,513             258,931                 164              555,608
Other income (expense), net                     16,514                   -                   -               16,514
Investment income                              196,371                   -            (180,000 )             16,371
Interest expense                                31,078                   -                   -               31,078
Income before provision for income
taxes                                          478,320             258,931            (179,836 )            557,415
Provision for income taxes                      75,278              58,502                   -              133,780
Net income                             $       403,042     $       200,429     $      (179,836 )     $      423,635



                                                                Year Ended December 31, 2018
                                                                                  Consolidating
                                         HDMC Entities       HDFS Entities         Adjustments         Consolidated
Revenue:
Motorcycles and Related Products       $     4,981,445     $             -     $       (12,799 )     $    4,968,646
Financial Services                                   -             747,432                 797              748,229
                                             4,981,445             747,432             (12,002 )          5,716,875
Costs and expenses:
Motorcycles and Related Products cost
of goods sold                                3,352,438                   -                (642 )          3,351,796
Financial Services interest expense                  -             193,187                   -              193,187
Financial Services provision for
credit losses                                        -             106,870                   -              106,870
Selling, administrative and
engineering expense                          1,104,919             164,623             (11,444 )          1,258,098
Restructuring expense                           93,401                   -                   -               93,401
                                             4,550,758             464,680             (12,086 )          5,003,352
Operating income                               430,687             282,752                  84              713,523
Other income (expense), net                      3,039                   -                   -                3,039
Investment income                              235,951                   -            (235,000 )                951
Interest expense                                30,884                   -                   -               30,884
Income before provision for income
taxes                                          638,793             282,752            (234,916 )            686,629
Provision for income taxes                      85,153              70,025                   -              155,178
Net income                             $       553,640     $       212,727     $      (234,916 )     $      531,451





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                                                                Year Ended December 31, 2017
                                                                                  Consolidating
                                         HDMC Entities       HDFS Entities         Adjustments         Consolidated
Revenue:
Motorcycles and Related Products       $     4,925,003     $             -     $        (9,976 )     $    4,915,027
Financial Services                                   -             734,008              (1,811 )            732,197
                                             4,925,003             734,008             (11,787 )          5,647,224
Costs and expenses:
Motorcycles and Related Products cost
of goods sold                                3,272,330                   -                   -            3,272,330
Financial Services interest expense                  -             180,193                   -              180,193
Financial Services provision for
credit losses                                        -             132,444                   -              132,444
Selling, administrative and
engineering expense                          1,037,529             154,232             (11,585 )          1,180,176
                                             4,309,859             466,869             (11,585 )          4,765,143
Operating income                               615,144             267,139                (202 )            882,081
Other income (expense), net                      9,182                   -                   -                9,182
Investment income                              199,580                   -            (196,000 )              3,580
Interest expense                                31,004                   -                   -               31,004
Income before provision for income
taxes                                          792,902             267,139            (196,202 )            863,839
Provision for income taxes                     214,175             127,905                   -              342,080
Net income                             $       578,727     $       139,234     $      (196,202 )     $      521,759




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                                                                      December 31, 2019
                                                                                   Consolidating
                                          HDMC Entities       HDFS Entities         Adjustments        Consolidated
ASSETS
Current assets:
Cash and cash equivalents               $       470,649     $       363,219     $             -       $     833,868
Marketable securities                                 -                   -                   -                   -
Accounts receivable, net                        369,717                   -            (110,383 )           259,334
Finance receivables, net                              -           2,272,522                   -           2,272,522
Inventories, net                                603,571                   -                   -             603,571
Restricted cash                                       -              64,554                   -              64,554
Other current assets                            110,145              59,665                (836 )           168,974
                                              1,554,082           2,759,960            (111,219 )         4,202,823
Finance receivables, net                              -           5,101,844                   -           5,101,844
Property, plant and equipment, net              794,131              53,251                   -             847,382
Prepaid pension costs                            56,014                   -                   -              56,014
Goodwill                                         64,160                   -                   -              64,160
Deferred income taxes                            62,768              39,882              (1,446 )           101,204
Lease assets                                     55,722               5,896                   -              61,618
Other long-term assets                          166,972              19,211             (93,069 )            93,114
                                        $     2,753,849     $     7,980,044     $      (205,734 )     $  10,528,159
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                        $       266,710     $       138,053     $      (110,383 )     $     294,380
Accrued liabilities                             463,491             119,186                (389 )           582,288
Short-term debt                                       -             571,995                   -             571,995
Current portion of long-term debt, net                -           1,748,109                   -           1,748,109
                                                730,201           2,577,343            (110,772 )         3,196,772
Long-term debt, net                             743,296           4,381,530                   -           5,124,826
Lease liability                                  38,783               5,664                   -              44,447
Pension liability                                56,138                   -                   -              56,138
Postretirement healthcare liability              72,513                   -                   -              72,513
Deferred income taxes                             6,219               1,916                   -               8,135
Other long-term liabilities                     180,033              38,693               2,603             221,329
Commitments and contingencies (Note 16)
Shareholders' equity                            926,666             974,898             (97,565 )         1,803,999
                                        $     2,753,849     $     7,980,044     $      (205,734 )     $  10,528,159




                                       96

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                                                                      December 31, 2018
                                                                                   Consolidating
                                          HDMC Entities       HDFS Entities         Adjustments        Consolidated
ASSETS
Current assets:
Cash and cash equivalents               $       544,548     $       659,218     $             -       $   1,203,766
Marketable securities                            10,007                   -                   -              10,007
Accounts receivable, net                        425,727                   -            (119,253 )           306,474
Finance receivables, net                              -           2,214,424                   -           2,214,424
Inventories, net                                556,128                   -                   -             556,128
Restricted cash                                       -              49,275                   -              49,275
Other current assets                             91,172              59,070              (5,874 )           144,368
                                              1,627,582           2,981,987            (125,127 )         4,484,442
Finance receivables, net                              -           5,007,507                   -           5,007,507
Property, plant and equipment, net              847,176              56,956                   -             904,132
Goodwill                                         55,048                   -                   -              55,048
Deferred income taxes                           105,388              37,603              (1,527 )           141,464
Other long-term assets                          144,122              18,680             (89,731 )            73,071
                                        $     2,779,316     $     8,102,733     $      (216,385 )     $  10,665,664
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                        $       258,587     $       145,527     $      (119,253 )     $     284,861
Accrued liabilities                             496,643             110,063              (5,576 )           601,130
Short-term debt                                       -           1,135,810                   -           1,135,810
Current portion of long-term debt, net                -           1,575,799                   -           1,575,799
                                                755,230           2,967,199            (124,829 )         3,597,600
Long-term debt, net                             742,624           4,145,043                   -           4,887,667
Pension liability                               107,776                   -                   -             107,776
Postretirement healthcare liability              94,453                   -                   -              94,453
Other long-term liabilities                     164,243              37,142               2,834             204,219
Commitments and contingencies (Note 16)
Shareholders' equity                            914,990             953,349             (94,390 )         1,773,949
                                        $     2,779,316     $     8,102,733     $      (216,385 )     $  10,665,664




                                       97

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                                                              Year Ended December 31, 2019
                                                                                Consolidating
                                        HDMC Entities      HDFS Entities         Adjustments        Consolidated
Cash flows from operating activities:
Net income                             $      403,042     $      200,429     $      (179,836 )     $     423,635
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization                 223,656              8,881                   -             232,537
Amortization of deferred loan
origination costs                                   -             76,326                   -              76,326
Amortization of financing origination
fees                                              672              9,151                   -               9,823
Provision for long-term employee
benefits                                       13,344                  -                   -              13,344
Employee benefit plan contributions
and payments                                  (13,256 )                -                   -             (13,256 )
Stock compensation expense                     30,396              3,337                   -              33,733
Net change in wholesale finance
receivables related to sales                        -                  -              (5,822 )            (5,822 )
Provision for credit losses                         -            134,536                   -             134,536
Deferred income taxes                          20,952                676                 (81 )            21,547
Other, net                                      4,425             (3,963 )              (164 )               298
Changes in current assets and
liabilities:
Accounts receivable, net                       53,772                  -              (8,870 )            44,902
Finance receivables - accrued interest
and other                                           -            (11,119 )                 -             (11,119 )
Inventories, net                              (47,576 )                -                   -             (47,576 )
Accounts payable and accrued
liabilities                                   (43,211 )           (4,107 )            28,856             (18,462 )
Derivative financial instruments                1,808                128                   -               1,936
Other                                         (33,105 )           10,033              (5,038 )           (28,110 )
                                              211,877            223,879               8,881             444,637
Net cash provided by operating
activities                                    614,919            424,308            (170,955 )           868,272
Cash flows from investing activities:
Capital expenditures                         (176,264 )           (5,176 )                 -            (181,440 )
Origination of finance receivables                  -         (7,053,898 )         3,206,576          (3,847,322 )
Collections on finance receivables                  -          6,715,338          (3,215,621 )         3,499,717
Sales and redemptions of marketable
securities                                     10,007                  -                   -              10,007
Acquisition of business                        (7,000 )                -                   -              (7,000 )
Other investing activities                     17,912                  -                   -              17,912

Net cash used by investing activities (155,345 ) (343,736 )

          (9,045 )          (508,126 )




                                       98

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                                                                Year Ended December 31, 2019
                                                                                  Consolidating
                                        HDMC Entities      HDFS Entities           Adjustments          Consolidated
Cash flows from financing activities:
Proceeds from issuance of medium-term
notes                                               -          1,203,236                         -        1,203,236
Repayments of medium-term notes                     -         (1,350,000 )                       -       (1,350,000 )
Proceeds from securitization debt                   -          1,021,453                         -        1,021,453
Repayments of securitization debt                   -           (353,251 )                       -         (353,251 )
Borrowings of asset-backed commercial
paper                                               -            177,950                         -          177,950
Repayments of asset-backed commercial
paper                                               -           (318,006 )                       -         (318,006 )
Net decrease in credit facilities and
unsecured commercial paper                          -           (563,453 )                       -         (563,453 )
Dividends paid                               (237,221 )         (180,000 )                 180,000         (237,221 )
Repurchase of common stock                   (296,520 )                -                         -         (296,520 )
Issuance of common stock under
employee stock option plans                     3,589                  -                         -            3,589

Net cash used by financing activities (530,152 ) (362,071 )

                180,000         (712,223 )
Effect of exchange rate changes on
cash, cash equivalents and restricted
cash                                           (3,321 )            1,016                         -           (2,305 )
Net decrease in cash, cash equivalents
and restricted cash                    $      (73,899 )   $     (280,483 )   $                   -     $   (354,382 )
Cash, cash equivalents and restricted
cash:
Cash, cash equivalents and restricted
cash, beginning of period              $      544,548     $      715,200     $                   -     $  1,259,748
Net decrease in cash, cash equivalents
and restricted cash                           (73,899 )         (280,483 )                       -         (354,382 )
Cash, cash equivalents and restricted
cash, end of period                    $      470,649     $      434,717     $                   -     $    905,366





                                       99

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                                                              Year Ended December 31, 2018
                                                                                Consolidating
                                        HDMC Entities      HDFS Entities         Adjustments        Consolidated
Cash flows from operating activities:
Net income                             $      553,640     $      212,727     $      (234,916 )     $     531,451
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization of
intangibles                                   260,707              4,156                   -             264,863
Amortization of deferred loan
origination costs                                   -             81,315                   -              81,315
Amortization of financing origination
fees                                              663              7,704                   -               8,367
Provision for long-term employee
benefits                                       36,481                  -                   -              36,481
Employee benefit plan contributions
and payments                                  (10,544 )                -                   -             (10,544 )
Stock compensation expense                     31,855              3,684                   -              35,539
Net change in wholesale finance
receivables related to sales                        -                  -             (56,538 )           (56,538 )
Provision for credit losses                         -            106,870                   -             106,870
Deferred income taxes                         (41,905 )            7,716                 208             (33,981 )
Other, net                                     36,840                798                 (84 )            37,554
Changes in current assets and
liabilities:
Accounts receivable, net                       43,613                  -             (34,470 )             9,143
Finance receivables - accrued interest
and other                                           -                773                   -                 773
Inventories, net                              (31,059 )                -                   -             (31,059 )
Accounts payable and accrued
liabilities                                   152,930             (1,778 )            45,040             196,192
Derivative financial instruments                  337                136                   -                 473
Other                                          39,031            (10,216 )               207              29,022
                                              518,949            201,158             (45,637 )           674,470
Net cash provided by operating
activities                                  1,072,589            413,885            (280,553 )         1,205,921
Cash flows from investing activities:
Capital expenditures                         (197,905 )          (15,611 )                 -            (213,516 )
Origination of finance receivables                  -         (7,192,063 )         3,439,246          (3,752,817 )
Collections on finance receivables                  -          6,719,362          (3,393,693 )         3,325,669
Purchases of marketable securities            (10,007 )                -                   -             (10,007 )
Other investing activities                    (11,598 )                -                   -             (11,598 )

Net cash used by investing activities (219,510 ) (488,312 )

          45,553            (662,269 )




                                      100

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                                                                Year Ended December 31, 2018
                                                                                  Consolidating
                                        HDMC Entities      HDFS Entities           Adjustments          Consolidated
Cash flows from financing activities:
Proceeds from issuance of medium-term
notes                                               -          1,591,828                         -        1,591,828
Repayments of medium-term notes                     -           (877,488 )                       -         (877,488 )
Repayments of securitization debt                   -           (257,869 )                       -         (257,869 )
Borrowings of asset-backed commercial
paper                                               -            509,742                         -          509,742
Repayments of asset-backed commercial
paper                                               -           (212,729 )                       -         (212,729 )
Net decrease in credit facilities and
unsecured commercial paper                          -           (135,356 )                       -         (135,356 )
Dividends paid                               (245,810 )         (235,000 )                 235,000         (245,810 )
Repurchase of common stock                   (390,606 )                -                         -         (390,606 )
Issuance of common stock under
employee stock option plans                     3,525                  -                         -            3,525
Net cash (used by) provided by
financing activities                         (632,891 )          383,128                   235,000          (14,763 )
Effect of exchange rate changes on
cash, cash equivalents and restricted
cash                                          (13,826 )           (1,525 )                       -          (15,351 )
Net increase in cash, cash equivalents
and restricted cash                    $      206,362     $      307,176     $                   -     $    513,538
Cash, cash equivalents and restricted
cash:
Cash, cash equivalents and restricted
cash, beginning of period              $      338,186     $      408,024     $                   -     $    746,210
Net increase in cash, cash equivalents
and restricted cash                           206,362            307,176                         -          513,538
Cash, cash equivalents and restricted
cash, end of period                    $      544,548     $      715,200     $                   -     $  1,259,748




                                      101

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                                                              Year Ended December 31, 2017
                                                                                Consolidating
                                        HDMC Entities      HDFS Entities         Adjustments        Consolidated
Cash flows from operating activities:
Net income                             $      578,727     $      139,234     $      (196,202 )     $     521,759
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization                 215,639              6,549                   -             222,188
Amortization of deferred loan
origination costs                                   -             82,911                   -              82,911
Amortization of financing origination
fees                                              655              7,390                   -               8,045
Provision for long-term employee
benefits                                       29,900                  -                   -              29,900
Employee benefit plan contributions
and payments                                  (63,277 )                -                   -             (63,277 )
Stock compensation expense                     29,570              2,921                   -              32,491
Net change in wholesale finance
receivables related to sales                        -                  -              35,172              35,172
Provision for credit losses                         -            132,444                   -             132,444
Deferred income taxes                          29,949             21,497                (591 )            50,855
Other, net                                      4,858              3,498                 203               8,559
Changes in current assets and
liabilities:
Accounts receivable, net                       (6,792 )                -             (11,357 )           (18,149 )
Finance receivables - accrued interest
and other                                           -             (1,313 )                 -              (1,313 )
Inventories, net                              (20,584 )                -                   -             (20,584 )
Accounts payable and accrued
liabilities                                     9,753            (11,497 )            11,872              10,128
Derivative financial instruments                1,785                 81                   -               1,866
Other                                         (31,868 )           (1,684 )             5,618             (27,934 )
                                              199,588            242,797              40,917             483,302
Net cash provided by operating
activities                                    778,315            382,031            (155,285 )         1,005,061
Cash flows from investing activities:
Capital expenditures                         (193,204 )          (13,090 )                 -            (206,294 )
Origination of finance receivables                  -         (7,109,624 )         3,517,676          (3,591,948 )
Collections on finance receivables                  -          6,786,702          (3,558,391 )         3,228,311
Sales and redemptions of marketable
securities                                      6,916                  -                   -               6,916
Other investing activities                        547                  -                   -                 547

Net cash used by investing activities (185,741 ) (336,012 )

         (40,715 )          (562,468 )





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                                                                Year Ended December 31, 2017
                                                                                  Consolidating
                                        HDMC Entities      HDFS Entities           Adjustments          Consolidated
Cash flows from financing activities:
Proceeds from issuance of medium-term
notes                                               -            893,668                         -           893,668
Repayments of medium-term notes                     -           (800,000 )                       -          (800,000 )
Repayments of securitization debt                   -           (444,671 )                       -          (444,671 )
Borrowings of asset-backed commercial
paper                                               -            469,932                         -           469,932
Repayments of asset-backed commercial
paper                                               -           (176,227 )                       -          (176,227 )
Net increase in credit facilities and
unsecured commercial paper                          -            212,809                         -           212,809
Dividends paid                               (251,862 )         (196,000 )                 196,000          (251,862 )
Repurchase of common stock                   (465,263 )                -                         -          (465,263 )
Issuance of common stock under
employee stock option plans                    11,353                  -                         -            11,353

Net cash used by financing activities (705,772 ) (40,489 )

                196,000          (550,261 )
Effect of exchange rate changes on
cash, cash equivalents and restricted
cash                                           25,844                903                         -            26,747
Net (decrease) increase in cash, cash
equivalents and restricted cash        $      (87,354 )   $        6,433     $                   -     $     (80,921 )
Cash, cash equivalents and restricted
cash:
Cash, cash equivalents and restricted
cash, beginning of period              $      425,540     $      401,591     $                   -     $     827,131
Net (decrease) increase in cash, cash
equivalents and restricted cash               (87,354 )            6,433                         -           (80,921 )
Cash, cash equivalents and restricted
cash, end of period                    $      338,186     $      408,024     $                   -     $     746,210

21. Supplementary Unaudited Quarterly Financial Data

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



22. Subsequent Event
In January 2020, HDFS issued $525.0 million of secured notes through an
on-balance sheet asset-backed securitization transaction at a weighted average
interest rate of 1.83%.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.

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