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•	Expand total Harley-Davidson riders to 4 million in the U.S.

•	Grow international business to 50% of annual HDMC revenue

•	Launch 100 new, high-impact Harley-Davidson motorcycles beginning in 2017

•	Deliver superior return on invested capital for HDMC that falls within the top quartile of the S&P® 500

•	Grow the business without growing its environmental impact

•	New products – keeping riders inspired by extending the Company's leadership in the market segments it has shaped and defined while unlocking new market opportunities

•	Broader access – creating new pathways to Harley-Davidson, expanding access and appeal to more people around the world

•	Stronger dealers – working side-by-side with the Company's global dealers to build stronger capabilities that lead to improved channel performance, greater profitability and a Harley-Davidson experience that exceeds riders' expectations

•	Amplify brand – enhancing the Harley-Davidson experience to inspire interest in riding, foster moto-culture and build an even bigger, more passionate community of Harley-Davidson riders

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•	Cruiser – emphasizes styling, customization and casual riding

•	Touring – emphasizes rider comfort and load capacity and incorporates features such as fairings and luggage compartments ideal for long rides

•	Standard – a basic motorcycle typically featuring upright seating for one or two passengers

•	Sportbike – incorporates racing technology and performance and aerodynamic styling and riding position

•	Dual – designed with the capability for use on-road as well as for some off-road recreational use

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(a)	Data includes on-road 601+cc models and electric motorcycles with kW peak power equivalents greater than 600cc's. On-road 601+cc models include dual models, three-wheeled motorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table.

(b)

U.S. industry data is derived from information provided by the Motorcycle Industry Council. This third-party data is subject to revision and update. The retail registration data for Harley-Davidson motorcycles presented in this table will differ from the Harley-Davidson retail sales data presented in Item 7. Management's Discussion and Analysis. The Company’s source for retail sales data in Item 7. Management's Discussion and Analysis is sales and warranty registrations provided by independent Harley-Davidson dealers as compiled by the Company. The retail sales data in Item 7. Management's Discussion and Analysis includes sales of Harley-Davidson Street® 500 motorcycles which are excluded from this table. In addition, small differences may arise related to the timing of data submissions to the independent sources.

(a)	Data includes on-road 601+cc models. On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table.

(b)

Europe industry data includes retail sales in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data is derived from information provided by the Association des Constructeurs Europeens de Motocycles, an independent agency. This third-party data is subject to revision and update. The retail registration data for Harley-Davidson motorcycles presented in this table will differ from the Harley-Davidson retail sales data presented in Item 7. Management's Discussion and Analysis. The Company’s source for retail sales data in Item 7. Management's Discussion and Analysis is sales and warranty registrations provided by Harley-Davidson dealers as compiled by the Company. The retail sales data in Item 7. Management's Discussion and Analysis includes sales of Harley-Davidson Street® 500 motorcycles which are excluded from this table. In addition, some differences may arise related to the timing of data submissions to the independent sources.

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•	York, Pennsylvania – International Association of Machinist and Aerospace Workers (IAM), agreement will expire on October 15, 2022

•	Milwaukee, Wisconsin – United Steelworkers of America (USW) and IAM, agreements will expire on March 31, 2024

•	Tomahawk, Wisconsin – USW, agreement will expire on March 31, 2024

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The Company may not be able to successfully execute its short-term and long-term business plans and strategies. There is no assurance that the Company will be able to execute its business plans and strategies, including the elements of the More Roads plan for growth that the Company disclosed on July 30, 2018 and updated September 24, 2019, and strengthen its existing business while enabling growth. The Company’s ability to meet the objectives, milestones, outlooks, and goals in the More Roads plan depends upon, among other factors, the Company’s ability to: (i) realize expectations concerning market demand for electric, middleweight, and small-displacement models, which may depend in part on the building of necessary infrastructure, (ii) develop and introduce products on a timely basis that the market accepts, that enable the Company to generate desired sales levels and that provide the desired financial returns, (iii) successfully carry out its global manufacturing and assembly operations, (iv) manage risks that arise through expanding international manufacturing, operations and sales, (v) effectively implement changes relating to its dealers and distribution methods, (vi) accurately analyze, predict and react to changing market conditions, (vii) perform in a manner that enables the Company to benefit from market opportunities while competing against existing and new competitors, (viii) reduce other costs to offset costs of the More Roads plan and redirect capital without adversely affecting its existing operations, and (ix) avoid adverse impacts to its operations and/or demand for its products that may result from widespread infectious disease, in particular as it relates to its small displacement plans in Asia. Without limitation, the Company sees 2020 as the pivotal year in the transformation of the Company under the More Roads plan, and the Company faces challenges, risks and uncertainties in executing the plan. As a result, the Company may not realize its expectation of significant growth in 2021 or its goals for 2022 under the plan. The Company also may not be able to achieve the 2027 objectives under the Company's long-term strategy to build the next generation of Harley-Davidson riders globally.

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The Company’s strategy to grow ridership may not be successful. The Company has been successful in marketing its products in large part by promoting the experience of Harley-Davidson motorcycling. To sustain and grow the business over the long-term, the Company must grow the sport of motorcycling and continue to be successful selling products and promoting the experience of motorcycling to new customers, including new riders, competitive riders and those who have motorcycle licenses but do not currently ride. The Company’s efforts toward expanding to 4 million total Harley-Davidson riders in the U.S. through 2027 and growing ridership internationally may not be successful, and achieving such growth in ridership may still not adequately meet the desired result of driving unit sales growth. Further, growing ridership in the U.S. may be challenging because the motorcycle market in the U.S. has been stagnant or declining, and the Company expects those conditions to continue. Failure to successfully drive demand for the Company's products may have a material adverse effect on the Company's business and results of operations.

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

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Changes in general economic and business conditions, tightening of credit and retail markets, political events or other factors may adversely impact independent dealers’ retail sales. The motorcycle industry is impacted by general economic conditions over which motorcycle manufacturers have little control. These factors can weaken the retail environment and lead to weaker demand for discretionary purchases such as motorcycles. Weakened economic conditions in certain business sectors and geographic areas can also result in reduced demand for the Company's products. Tightening of credit can limit the availability of funds from financial institutions and other lenders and sources of capital which could adversely affect the ability of retail consumers to obtain loans for the purchase of

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

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The financial services operations are exposed to credit risk on its retail and wholesale finance receivables. Credit risk is the risk of loss arising from a failure by a customer, including the Company's independent dealers, to meet the terms of any contract with the Company’s financial services operations. Credit losses are influenced by general business and economic conditions, including unemployment rates, bankruptcy filings and other factors that negatively affect household incomes, as well as contract terms and customer credit profiles. Credit losses are also influenced by the markets for new and used motorcycles, and the Company and its independent dealers can and do take actions that impact those markets. For example, the introduction of new models by the Company that represent significant upgrades on previous models may result in increased supply or decreased demand in the market for used Harley-Davidson branded motorcycles, including those motorcycles that serve as collateral or security for credit that HDFS has extended. This in turn could adversely impact the prices at which repossessed motorcycles may be sold, which may lead to increased credit losses for HDFS. Negative changes in general business, economic or market factors may have an additional adverse impact on the Company’s financial services credit losses and future earnings. The Company believes HDFS' retail credit losses may continue to increase over time due to changing consumer credit behavior, HDFS' efforts to increase prudently structured loan approvals to sub-prime borrowers, and new financing programs that may result in different loan performance than our existing programs.

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

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Expanding international sales and operations subjects the Company to risks that may have a material adverse effect on its business. Expanding international sales and operations is a part of the Company’s long-term business strategy, particularly in light of the U.S. market conditions. There is no assurance that the Company will accomplish this international expansion. Further, to support that strategy, the Company must increase its presence outside the U.S., including additional employees and investment in business infrastructure and operations. International operations and sales are subject to various risks, including political and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade barriers, the impact of foreign government laws and regulations and U.S. laws and regulations that apply to international operations, the effects of income and withholding taxes, governmental expropriation and differences in business practices. The Company may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international operations and sales that could cause loss of revenues and earnings. Unfavorable changes in the political, regulatory and business climate could have a material adverse effect on the Company’s net sales, financial condition, profitability and cash flows. This includes, for example, the uncertainty related to the impact of United Kingdom’s withdrawal from the European Union (EU)

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Changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences, may continue to have a material adverse impact on our business, results of operations and outlook. Tariffs and/or other developments with respect to trade policies, trade agreements and government regulations could have a material adverse impact on the Company's business, financial condition and results of operations. Recent tariffs imposed by the EU and China resulted in material increases to the Company’s operating costs in 2018 and 2019. In 2018, the EU placed a 25% incremental tariff (31% total tariff) on motorcycles imported into the EU from the U.S., which is scheduled to increase to a 50% incremental tariff (56% total tariff) effective June 1, 2021. In addition, the U.S. government has imposed increased tariffs on imports from China (Section 301 tariffs), which has resulted in higher costs for components and products sourced from China.

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The Company may not be able to successfully execute its manufacturing strategy. The Company’s manufacturing strategy is designed to continuously improve product quality and increase productivity, while reducing costs and increasing flexibility to respond to ongoing changes in the marketplace. Based on the Company’s strategy, the Company may, from time to time, open, close, expand, contract or restructure one or more of its manufacturing facilities. The Company believes flexible manufacturing, including flexible supply chains and flexible labor agreements, is a key element to enable improvements in the Company’s ability to respond to customers in a cost effective manner(1). To execute this strategy, the Company must be successful in its implementation of facility changes and in its continuous improvement efforts, all of which are dependent on the involvement of management, production employees and suppliers. Any inability to achieve these objectives could adversely impact the profitability of the Company’s products and its ability to deliver the right product at the right time to the customer.

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

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

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The Company is exposed to market risk from changes in foreign currency exchange rates, commodity prices and interest rates. The Company sells its products internationally and in most markets those sales are made in the foreign country’s local currency. As a result, a weakening in those foreign currencies relative to the U.S. dollar can adversely affect the Company's revenue margin, and cause volatility in results of operations. Furthermore, many competitors headquartered outside the U.S. experience a financial benefit from a strengthening in the U.S. dollar relative to their home currency that can enable them to reduce prices to U.S. consumers. The Company is also subject to risks associated with changes in prices of commodities. Earnings from the Company’s financial services business are affected by changes in interest rates. Although the Company uses derivative financial instruments to some extent to attempt to manage a portion of its exposure to foreign currency exchange rates, commodity prices, and interest rate risks, the Company does not attempt to manage its entire expected exposure, and these derivative financial instruments generally do not extend beyond one year and may expose the Company to credit risk in the event of counterparty default to the derivative financial instruments. There can be no assurance that in the future the Company will successfully manage these risks.

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

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

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

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

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The financial services operations are highly dependent on accessing capital markets to fund operations at competitive interest rates, the Company’s access to capital and its cost of capital are highly dependent upon its credit ratings, and any negative credit rating actions will adversely affect its earnings and results of operations. Liquidity is essential to the Company’s financial services business. Disruptions in financial markets may cause lenders and institutional investors to reduce or cease to loan money to borrowers, including financial institutions. The Company’s financial services operations may be negatively affected by difficulty in raising capital in the long-term and short-term capital markets. These negative consequences may in turn adversely affect the Company’s business and results of operations in various ways, including through higher costs of capital and reduced funds available through its financial services operations to provide loans to independent dealers and their retail customers. Additionally, the ability of the Company and its financial services operations to access unsecured capital markets is influenced by their short-term and long-term credit ratings. If the Company’s credit ratings are downgraded or its ratings outlook is negatively changed, then the Company’s cost of borrowing could increase, which may result in reduced earnings and reduced interest margins, and the Company’s access to capital may be disrupted or impaired.

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The Company must invest in and successfully implement new information systems and technology. The Company is continually modifying and enhancing its systems and technology to increase productivity and efficiency and to mitigate failure risks from older/aged technologies currently in its portfolio. The Company has several large, strategic information system projects in process. As new systems and technologies (and related strategies) are implemented, the Company could experience unanticipated difficulties resulting in unexpected costs and adverse impacts to its manufacturing and other business processes. When implemented, the systems and technology may not provide the benefits anticipated and could add costs and complications to ongoing operations. Also, older technologies may fail, which may have a material adverse effect on the Company’s business and results of operations. In the case of the Company's planned electronic vehicle services offering, these risks are heightened because these services are dependent on (i) the successful implementation of complex third-party cloud solutions, (ii) the ability of a rider's motorcycle and mobile application to successfully connect to each other and (iii) the support of cellular carriers.

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

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

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The Company’s Motorcycles segment is dependent upon unionized labor. A substantial portion of the hourly production employees working in the Motorcycles segment are represented by unions and covered by collective bargaining agreements. HDMC is currently a party to three collective bargaining agreements with local affiliates of the International Association of Machinists and Aerospace Workers and the United Steelworkers of America. Current collective bargaining agreements with hourly employees in Wisconsin will expire in 2024, and the agreement with employees in Pennsylvania will expire in 2022. There is no certainty that the Company will be successful in negotiating new agreements with these unions that extend beyond the current expiration dates or that these new agreements will be on terms that will allow the Company to be competitive. The Company's decisions regarding opening, closing, expanding, contracting or restructuring its facilities may require changes to existing or new bargaining agreements. Failure to renew agreements when they expire or to establish new collective bargaining agreements on terms acceptable to the Company and the unions could result in the relocation of production facilities, work stoppages or other labor disruptions which may have a material adverse effect on the Company’s business and results of operations.

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

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The Company is and may in the future become subject to legal proceedings and commercial or contractual disputes. The uncertainty associated with substantial unresolved claims and lawsuits may harm the Company’s business, financial condition, reputation and brand. The defense of the lawsuits may result in the expenditures of significant financial resources and the diversion of management’s time and attention away from business operations. In addition, although the Company is unable to determine the amount, if any, that it may be required to pay in connection with the resolution of the lawsuits by settlement or otherwise, any such payment may have a material adverse effect on the Company’s business and results of operations. Refer to Item 3. Legal Proceedings in this Form 10-K and in the other periodic reports that the Company files with the SEC for additional detail regarding lawsuits and other claims against the Company.

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

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

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

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

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Regulations related to materials that the Company purchases to use in its products could cause the Company to incur additional expenses and may have other adverse consequences. Laws or regulations impacting the Company's supply chain, such as the UK Modern Slavery Act, could affect the sourcing and availability of some of the raw materials that the Company uses in the manufacturing of its products. The Company's supply chain is complex, and if it is not able to fully understand its supply chain, then the Company may face reputational challenges with customers, investors or others and other adverse consequences. For example, many countries in which the Company distributes its products are beginning to introduce regulations that require knowledge and disclosure of virtually all materials and chemicals in the Company’s products. Accordingly, the Company could incur significant costs related to the process of complying with these laws, including potential difficulty or added costs in satisfying the disclosure requirements.

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The Company relies on third parties to perform certain operating and administrative functions for the Company. Similar to suppliers of raw materials and components, the Company may experience problems with outsourced services, such as unfavorable pricing, untimely delivery of services, or poor quality. Also, these suppliers may experience adverse economic conditions due to difficulties in the global economy that could lead to difficulties supporting the Company's operations. In light of the amount and types of functions that the Company has outsourced, these service provider risks may have a material adverse effect on the Company's business and results of operations.

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(a)	Motorcycle powertrain production

(b)	Production and painting of motorcycle component parts

(c)	Motorcycle parts fabrication, painting and assembly

(d)	Production of select models for certain Asian and European markets

(e)	Assembly of select models for the Brazilian market

(f)	Assembly of select models for the Indian market and production of Harley-Davidson® Street motorcycles for markets outside of North America

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(a)	Includes discretionary share repurchases and shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units

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(a)	The Company adopted Accounting Standards Update (ASU) No. 2015-03 and ASU No. 2015-15 on January 1, 2016. Upon adoption, the Company reclassified debt issuance cost, other than those related to line of credit arrangements, from other assets to debt.

(b)	The Company adopted ASU No. 2014-09 on January 1, 2018. Upon adoption, the Company recorded a net increase to the opening balance of Retained earnings of $6.0 million, net of income taxes, to recognize the cumulative effect of the adoption.

(c)	The Company adopted ASU No. 2016-02 on January 1, 2019. Upon adoption, the Company recorded Lease assets and related lease liabilities related to the Company's leasing arrangements totaling approximately $60 million.

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•	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

•	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

•	New middleweight motorcycles

•	Electric bicycles

•	A small displacement motorcycle in China

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(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

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(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.

(a)	Includes Softail®, CVOTM, and LiveWireTM

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•	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.

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

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(a)	Euro denominated €600.0 million par value remeasured to U.S. dollar at December 31, 2019

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•	Assume or incur certain liens;

•	Participate in certain mergers or consolidations; and

•	Purchase or hold margin stock.

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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.

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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.

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.

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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

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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

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 Benefits				Accelerated Depreciation				Other				Total				Employee Termination 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 Benefits				Accelerated Depreciation				Other				Total				Employee Termination 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

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.

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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	%

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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.

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.

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.

---

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.

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):

	Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income 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
	Current				31-60 Days Past Due				61-90 Days Past Due				Greater than 90 Days Past Due				Total Past Due				Total Finance Receivables
Retail finance receivables	$	6,171,930			$	142,479			$	53,995			$	48,024			$	244,498			$	6,416,428
Wholesale financial 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
	Current				31-60 Days Past Due				61-90 Days Past Due				Greater than 90 Days Past Due				Total Past Due				Total Finance Receivables
Retail finance receivables	$	6,100,186			$	136,945			$	49,825			$	41,245			$	228,015			$	6,328,201
Wholesale financial 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

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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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 Value				Other Current Assets				Accrued Liabilities				Notional Value				Other Current Assets				Accrued Liabilities
	Foreign currency contracts	$	434,321			$	3,505			$	3,661			$	442,976			$	15,071			$	313
	Commodity 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 Value				Other Current Assets				Accrued Liabilities				Notional Value				Other Current Assets				Accrued 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) Recognized in OCI												Gain/(Loss) Reclassified from AOCL into Income
	2019				2018				2017				2019				2018				2017
Foreign currency contracts	$	8,235			$	41,657			$	(53,964	)		$	21,433			$	11,492			$	(7,202	)
Commodity contracts	(103		)		34				(246		)		(70		)		24				—
Cross-currency 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 cost of goods sold				Selling, administrative & engineering expense				Interest expense				Financial Services interest expense
	2019
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded	$	3,229,798			$	1,199,056			$	31,078			$	210,438
Gain/(loss) reclassified from AOCL into income:
Foreign currency contracts	$	21,433			$	—			$	—			$	—
Commodity contracts	$	(70	)		$	—			$	—			$	—
Cross-currency swap	$	—			$	12,156			$	—			$	—
Treasury rate locks	$	—			$	—			$	(362	)		$	(130	)
Interest rate swaps	$	—			$	—			$	—			$	(5,295	)
	2018
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded	$	3,351,796			$	1,258,098			$	30,884			$	193,187
Gain/(loss) reclassified from AOCL into income:
Foreign currency contracts	$	11,492			$	—			$	—			$	—
Commodity contracts	$	24			$	—			$	—			$	—
Treasury rate locks	$	—			$	—			$	(362	)		$	(136	)
Interest rate swaps	$	—			$	—			$	—			$	(1,552	)
	2017
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded	$	3,272,330			$	1,180,176			$	31,004			$	180,193
Gain/(loss) reclassified from AOCL into income:
Foreign currency contracts	$	(7,202	)		$	—			$	—			$	—
Treasury rate locks	$	—			$	—			$	(362	)		$	(80	)

 

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

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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.

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	%

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.

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 receivables				Allowance for credit losses				Restricted cash				Other assets				Total assets				Asset-backed debt
On-balance sheet assets and liabilities:
Consolidated VIEs:
Asset-backed securitizations	$	826,047			$	(24,935	)		$	36,037			$	778			$	837,927			$	764,392
Asset-backed U.S. commercial paper conduit 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 receivables				Allowance for credit losses				Restricted cash				Other assets				Total assets				Asset-backed debt
On-balance sheet assets and liabilities:
Consolidated VIEs:
Asset-backed securitizations	$	158,718			$	(4,691	)		$	17,191			$	329			$	171,547			$	95,167
Asset-backed U.S. commercial paper conduit facilities	631,588				(18,733		)		30,012				1,234				644,101				582,717
Unconsolidated VIEs:
Asset-backed Canadian commercial paper conduit facility	181,774				(3,130		)		8,779				343				187,766				155,951
	$	972,080			$	(26,554	)		$	55,982			$	1,906			$	1,003,414			$	833,835

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): 

Issue Date		Principal Amount at Date of Issuance		Weighted-Average Rate at Date of Issuance		Contractual Maturity Date
June 2019		$525,000		2.37%		July 2020 - November 2026
May 2019		$500,000		3.05%		July 2026

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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): 

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

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

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).

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 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.

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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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): 

	Shares & Units			Weighted-Average 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

---

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): 

Price Range		Weighted-Average Contractual Life		Options			Weighted-Average Exercise Price
$20.01 to $30		0.5		4			$	24
$40.01 to $50		1.6		207			$	44
$50.01 to $60		2.9		157			$	52
$60.01 to $70		4.3		448			$	63
Options outstanding		3.0		816			$	56
Options exercisable		3.0		816			$	56

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

	2019
	Foreign currency translation adjustments				Marketable securities				Derivative financial instruments				Pension and postretirement benefit plans				Total
Balance, beginning of period	$	(49,608	)		$	—			$	1,785			$	(581,861	)		$	(629,684	)
Other comprehensive income, before 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 translation adjustments				Marketable securities				Derivative financial instruments				Pension and postretirement benefit plans				Total
Balance, beginning of period	$	(21,852	)		$	—			$	(17,254	)		$	(460,943	)		$	(500,049	)
Other comprehensive (loss) income, before reclassifications	(28,212		)		—				35,686				(84,725		)		(77,251		)
Income tax benefit (expense)	3,202				—				(8,455		)		19,893				14,640
	(25,010		)		—				27,231				(64,832		)		(62,611		)
Reclassifications:
Net gain on derivative instruments	—				—				(9,466		)		—				(9,466		)
Prior service credits(a)	—				—				—				(2,262		)		(2,262		)
Actuarial losses(a)	—				—				—				66,590				66,590
Curtailment and settlement gains(a)	—				—				—				(886		)		(886		)
Reclassifications before tax	—				—				(9,466		)		63,442				53,976
Income tax benefit (expense)	—				—				2,244				(14,896		)		(12,652		)
	—				—				(7,222		)		48,546				41,324
Other comprehensive (loss) income	(25,010		)		—				20,009				(16,286		)		(21,287		)
Reclassification of certain tax effects	(2,746		)		—				(970		)		(104,632		)		(108,348		)
Balance, end of period	$	(49,608	)		$	—			$	1,785			$	(581,861	)		$	(629,684	)

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	2017
	Foreign currency translation adjustments				Marketable securities				Derivative financial instruments				Pension and postretirement benefit plans				Total
Balance, beginning of period	$	(68,132	)		$	(1,194	)		$	12,524			$	(508,579	)		$	(565,381	)
Other comprehensive income (loss), before reclassifications	52,145				1,896				(54,929		)		24,321				23,433
Income tax (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.

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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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
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Revenue:
Motorcycles and Related Products	$	4,593,585			$	—			$	(20,907	)		$	4,572,678
Financial Services	—				779,163				9,948				789,111
	4,593,585				779,163				(10,959		)		5,361,789
Costs and expenses:
Motorcycles and Related Products cost of goods 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
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Revenue:
Motorcycles and Related Products	$	4,981,445			$	—			$	(12,799	)		$	4,968,646
Financial Services	—				747,432				797				748,229
	4,981,445				747,432				(12,002		)		5,716,875
Costs and expenses:
Motorcycles and Related Products cost of goods 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
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Revenue:
Motorcycles and Related Products	$	4,925,003			$	—			$	(9,976	)		$	4,915,027
Financial Services	—				734,008				(1,811		)		732,197
	4,925,003				734,008				(11,787		)		5,647,224
Costs and expenses:
Motorcycles and Related Products cost of goods 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
	HDMC Entities				HDFS Entities				Consolidating 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

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	December 31, 2018
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	544,548			$	659,218			$	—			$	1,203,766
Marketable 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

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	Year Ended December 31, 2019
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Cash flows from operating activities:
Net income	$	403,042			$	200,429			$	(179,836	)		$	423,635
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and 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		)

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

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	Year Ended December 31, 2018
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Cash flows from operating activities:
Net income	$	553,640			$	212,727			$	(234,916	)		$	531,451
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of 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		)

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	Year Ended December 31, 2018
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Cash flows from financing activities:
Proceeds from issuance of medium-term notes	—				1,591,828				—				1,591,828
Repayments of medium-term notes	—				(877,488		)		—				(877,488		)
Repayments of securitization debt	—				(257,869		)		—				(257,869		)
Borrowings of asset-backed commercial paper	—				509,742				—				509,742
Repayments of asset-backed commercial paper	—				(212,729		)		—				(212,729		)
Net decrease in credit facilities and unsecured commercial paper	—				(135,356		)		—				(135,356		)
Dividends paid	(245,810		)		(235,000		)		235,000				(245,810		)
Repurchase of common stock	(390,606		)		—				—				(390,606		)
Issuance of common stock under employee stock option 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

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	Year Ended December 31, 2017
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Cash flows from operating activities:
Net income	$	578,727			$	139,234			$	(196,202	)		$	521,759
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and 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
	HDMC Entities				HDFS Entities				Consolidating Adjustments				Consolidated
Cash flows from financing activities:
Proceeds from issuance of medium-term notes	—				893,668				—				893,668
Repayments of medium-term notes	—				(800,000		)		—				(800,000		)
Repayments of securitization debt	—				(444,671		)		—				(444,671		)
Borrowings of asset-backed commercial paper	—				469,932				—				469,932
Repayments of asset-backed commercial paper	—				(176,227		)		—				(176,227		)
Net increase in credit facilities and unsecured commercial paper	—				212,809				—				212,809
Dividends paid	(251,862		)		(196,000		)		196,000				(251,862		)
Repurchase of common stock	(465,263		)		—				—				(465,263		)
Issuance of common stock under employee stock option 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

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

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Years ended December 31, 2019, 2018 and 2017

(In thousands)

	2019				2018				2017
Accounts receivable - Allowance for doubtful accounts
Balance, beginning of period	$	4,007			$	4,091			$	2,741
Provision charged to expense	1,569				731				1,328
Reserve adjustments	7				(137		)		99
Write-offs, net of recoveries	(655		)		(678		)		(77		)
Balance, end of period	$	4,928			$	4,007			$	4,091
Finance receivables - Allowance for credit losses
Balance, beginning of period	$	189,885			$	192,471			$	173,343
Provision for credit losses	134,536				106,870				132,444
Charge-offs, net of recoveries	(125,840		)		(109,456		)		(113,316		)
Balance, end of period	$	198,581			$	189,885			$	192,471
Inventories - Allowance for obsolescence(a)
Balance, beginning of period	$	39,015			$	38,669			$	39,873
Provision charged to expense	24,984				25,722				16,940
Reserve adjustments	(39		)		(332		)		306
Write-offs, net of recoveries	(14,611		)		(25,044		)		(18,450		)
Balance, end of period	$	49,349			$	39,015			$	38,669
Deferred tax assets - Valuation allowance
Balance, beginning of period	$	21,868			$	21,561			$	30,953
Adjustments	7,156				307				(9,392		)
Balance, end of period	$	29,024			$	21,868			$	21,561

(a)	Inventory obsolescence reserves deducted from cost determined on first-in, first-out (FIFO) basis, before deductions for last-in, first-out (LIFO) valuation reserves.

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