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

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02/21/2018 | 10:57pm CET
Harley-Davidson, Inc. is the parent company of the groups of companies doing
business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial
Services (HDFS). Unless the context otherwise requires, all references to the
"Company" include Harley-Davidson, Inc. and all its subsidiaries. The Company
operates in two reportable segments: Motorcycles & Related Products
(Motorcycles) and Financial Services.
The "% Change" figures included in the "Results of Operations" section were
calculated using unrounded dollar amounts and may differ from calculations using
the rounded dollar amounts presented.

(1) Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report are
"forward-looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such by
reference to this footnote or because the context of the statement will include
words such as the Company "believes," "anticipates," "expects," "plans," or
"estimates" or words of similar meaning. Similarly, statements that describe
future plans, objectives, outlooks, targets, guidance or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially, unfavorably or favorably, from those anticipated as of the date of
this report. Certain of such risks and uncertainties are described in close
proximity to such statements or elsewhere in this report, including under the
caption "Risk Factors" in Item 1A and under "Cautionary Statements" in Item 7 of
this report. Shareholders, potential investors, and other readers are urged to
consider these factors in evaluating the forward-looking statements and
cautioned not to place undue reliance on such forward-looking statements. The
forward-looking statements included in the Outlook section are only made as of
January 30, 2018 and the remaining forward-looking statements in this report are
only made as of the date of the filing of this report (February 21, 2018), and
the Company disclaims any obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Overview(1)
The Company's net income for 2017 was $521.8 million, or $3.02 per diluted
share, compared to $692.2 million, or $3.83 per diluted share, in 2016.
Operating income from the Motorcycles segment was down $157.4 million compared
to 2016 primarily due to a 7.9% decrease in wholesale motorcycle shipments.
Operating income from the Financial Services segment in 2017 was slightly lower
than the prior year, decreasing $0.2 million, or 0.1%.
Worldwide independent dealer retail sales of new Harley-Davidson motorcycles
decreased 6.7% in 2017 compared to the prior year. U.S. retail sales fell 8.5%
and international retail sales decreased 3.9% compared to 2016. In the U.S., the
601+cc motorcycle industry continued to face significant challenges and
international retail sales finished below the Company's expectations.

In 2017, the Company remained committed to a disciplined supply management
approach focused on allowing U.S. dealers to achieve the right quantity and
model-year mix of motorcycle inventory. The Company also focused on positioning
its cost structure to better compete in the current environment. At the same
time, the Company remained grounded in its long-term strategy and made good
progress on its long-term objective to build riders globally. In 2017, the
Company finished the year with a net increase of over 32,000 Harley-Davidson
riders in the U.S. compared to the prior year. (Source: IHS Markit Motorcycles
in Operation (MIO) data for On-Highway and Dual Purpose bikes in the U.S. as of
January 1, 2018)

In 2018, the Company expects new Harley-Davidson motorcycle retail sales to grow
internationally, but continues to expect challenges in the U.S. The Company's
global retail expectations and disciplined supply strategy are reflected in its
expectation for reduced wholesale shipments in 2018. In addition, to further
improve its cost structure and maintain its world-class manufacturing
operations, the Company is commencing a significant, multi-year manufacturing
optimization plan anchored by the consolidation of its final assembly plant in
Kansas City, Missouri into its plant in York, Pennsylvania. As the operations
are consolidated, the Company expects approximately 800 jobs will be eliminated
with the closure of Kansas City operations and approximately 450 jobs will be
added in York by 2019. As part of this manufacturing optimization plan the
Company will also close its wheel operations in Adelaide, Australia. Refer to
the "Manufacturing Optimization Costs and Savings" below for further
information.

As the Company looks forward, it will continue to focus on its long-term
strategy of growing ridership in the U.S. and growing its reach and impact
internationally, while growing market share and profitability globally. In 2018,
the Company will continue to expand its independent dealer network outside the
U.S. In addition, operations will begin at the Company's new facility in
Thailand. This plant, like the Company's facility in Brazil, will support more
competitive retail pricing in some of the

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

In 2018, the Company will also continue to invest in new products. A portion of
the benefit from the 2017 Tax Cuts and Jobs Act (2017 Tax Act) enacted in the
U.S. in late 2017 will support the Company's objective to invest in high-impact
product by redefining product in traditional spaces and expanding into new
spaces such as the rapidly evolving electric vehicle landscape. The Company
plans to bring Project Livewire, an electric Harley-Davidson motorcycle, to
market within 18 months and will increase its investment in electric motorcycle
technology, products and infrastructure in 2018 and beyond. The Company expects
its increased commitment and investment will help accelerate the development of
this market and assure its leadership in electric motorcycles.

Outlook(1)

On January 30, 2018 the Company announced the following expectations for 2018.

The Company expects to ship between 231,000 and 236,000 motorcycles to dealers
in 2018, which is down approximately 2% to 4% from 2017. The Company's shipment
expectation assumes that U.S. dealer retail sales will be down, partially offset
by growth in international retail sales. The Company expects 2018 year-end U.S.
retail inventory to be flat to 2017 and flat to up in international markets as
it continues to add new dealers.

During 2018, the Company expects retail sales to be positively impacted by: • Increased focus and investment on growing global ridership

•            New product momentum with model-year 2018 motorcycles and the
             addition of new high-impact models yet to be introduced

• A rebound in emerging-market retail sales performance

• Expansion of the international dealer network



However, these positive impacts are expected to be more than offset by strong
headwinds including:
•            A very weak U.S. industry for new motorcycles driven by flat to
             declining total demand for combined new and used motorcycles and
             soft, but improving, Harley-Davidson used motorcycle prices


•            Competitive pressure from continued new product

introductions

             throughout markets globally, particularly in lower price, smaller
             displacement motorcycles



Operating income as a percent of revenue for the Motorcycles segment is expected
to be approximately 9.5% to 10.5% for the full year 2018. This reduction of
approximately 2 to 3 percentage points compared to 2017, is primarily due to
expected manufacturing optimization plan costs of $120 to $140 million. Also,
operating margin will be reduced by approximately 0.2 percentage points due to
the adoption of an accounting standard update that will require the Company to
present the non-service cost components of its pension and postretirement plan
expense as non-operating income. The Company estimates this will result in
approximately $10 million of non-operating income in 2018 that would have been
included in operating income under existing accounting standards. The new
presentation will be applied retrospectively to prior periods in the Company's
results for 2018 and forward.

Gross margin as a percent of revenue in 2018 is expected to benefit from pricing
on model-year 2018 and 2019 motorcycles, a more favorable foreign currency
exchange environment than 2017 and positive mix. However, the Company expects
these positive impacts to be more than offset by rising steel and aluminum costs
and increased manufacturing expense.

Manufacturing expense is expected to be higher than in 2017, due in part to
increased depreciation from recent capital investments related to the new
model-year 2018 Softail motorcycles. However, the larger driver of increased
manufacturing costs in 2018, as compared to 2017, will be higher costs of $20 to
$25 million due to temporary inefficiencies related to the manufacturing
optimization plan.

The Company expects selling, administrative and engineering expense to be higher
in 2018 compared to 2017, but level with 2017 when expressed as a percent of
revenue. The Company expects selling, administrative and engineering expense to
be up behind increased investments in marketing and product development as the
Company works to grow ridership globally.

In the first quarter of 2018, the Company expects to ship 60,000 to 65,000
motorcycles to dealers, which is down approximately 8% to 15% percent from 2017.
While the Company expects U.S. retail inventory will be tighter than in the
first quarter of 2017, it believes the composition of previous and current
model-year motorcycles will be considerably improved from last year. The Company
expects Motorcycles segment operating income as a percent of revenue in the
first quarter of

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

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

The Company expects operating income from Financial Services to be down in 2018
compared to 2017 due to lower net interest income, partially offset by a lower
provision for credit losses.

Capital expenditures in 2018 are expected to be $250 to $270 million, which includes approximately $50 million to support the manufacturing optimization plan. The Company anticipates it will have the ability to fund all capital expenditures in 2018 with cash flows generated by operations.

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

Manufacturing Optimization Plan Costs and Savings(1)

The following table summarizes the expected costs and savings associated with
the Company's manufacturing optimization plan which is described in more detail
in the "Overview" above. The restructuring costs relate to employee termination
benefits, accelerated depreciation and other project implementation costs.

(in millions)                               2018         2019        2020   

Total

Cost related to temporary inefficiencies $ 20 - $ 25 $15 - $20 n/a

   $ 35 - $ 45
Restructuring expenses                   $100 - $115   $35 - $40      n/a      $135 - $155
                                         $120 - $140   $50 - $60               $170 - $200
                                  % cash     70%          75%                      70%
                                                                                 Annual
                                            2018         2019        2020       On-going
Annual cash savings                           -        $25 - $30   $45 - $50    $65 - $75


The Company expects total capital expenditures of $75 million associated with the manufacturing optimization plan through 2019.

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                  Results of Operations 2017 Compared to 2016
                             Consolidated Results
(in thousands, except earnings per                                       (Decrease)         %
share)                                       2017           2016          Increase       Change
Operating income from Motorcycles &
Related Products                         $  615,958     $   773,406     $ (157,448 )      (20.4 )%
Operating income from Financial
Services                                    275,305         275,530           (225 )       (0.1 )
Operating income                            891,263       1,048,936       (157,673 )      (15.0 )
Investment income                             3,580           4,645         (1,065 )      (22.9 )
Interest expense                             31,004          29,670          1,334          4.5
Income before income taxes                  863,839       1,023,911       (160,072 )      (15.6 )
Provision for income taxes                  342,080         331,747         10,333          3.1
Net income                               $  521,759     $   692,164     $ (170,405 )      (24.6 )%
Diluted earnings per share               $     3.02     $      3.83     $    (0.81 )      (21.1 )%


Consolidated operating income was down 15.0% in 2017 driven by a decrease in
operating income from the Motorcycles segment which was down $157.4 million
compared to 2016. Operating income for the Financial Services segment decreased
by $0.2 million during 2017 as compared to 2016. Please refer to the
"Motorcycles and Related Products Segment" and "Financial Services Segment"
discussions following for a more detailed discussion of the factors affecting
operating income.
The effective income tax rate for 2017 was 39.6% compared to 32.4% for 2016. The
higher effective income tax rate was primarily due to the impact of the 2017 Tax
Act enacted in December 2017. The 2017 Tax Act reduces the federal corporate
income tax rate beginning in 2018 from 35% to 21%; however, because the 2017 Tax
Act was enacted in 2017, the Company was required to remeasure its net deferred
tax assets in the fourth quarter. The impact of remeasuring the deferred tax
asset balances combined with other adjustments related to the 2017 Tax Act
resulted in a non-cash income tax charge of $53.1 million in the fourth quarter
of 2017.
Diluted earnings per share were $3.02 in 2017, down 21.1% compared to 2016.
Diluted earnings per share were adversely impacted by the 24.6% decrease in net
income, but benefited from lower diluted weighted average shares outstanding.
Diluted weighted average shares outstanding decreased from 180.5 million in 2016
to 172.9 million in 2017 driven by the Company's repurchases of common stock.
Please refer to "Liquidity and Capital Resources" for additional information
concerning the Company's share repurchase activity.

                                       26
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                 Motorcycle Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a)
The following table includes retail unit sales of new Harley-Davidson
motorcycles:
                                                                           %
                                        2017       2016     Decrease     Change
United States                         147,972    161,658    (13,686 )    (8.5 )%

Europe(b)                              39,773     39,942       (169 )    (0.4 )
EMEA - Other                            5,162      5,896       (734 )   (12.4 )
   Total EMEA                          44,935     45,838       (903 )    (2.0 )

Japan                                   9,506     10,279       (773 )    (7.5 )
Asia Pacific - Other                   20,842     22,610     (1,768 )    (7.8 )
Total Asia Pacific                     30,348     32,889     (2,541 )    (7.7 )

Latin America                           9,452      9,701       (249 )    (2.6 )
Canada                                 10,081     10,203       (122 )    (1.2 )

Total International Retail Sales 94,816 98,631 (3,815 ) (3.9 )

Total Worldwide Retail Sales 242,788 260,289 (17,501 ) (6.7 )%

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

registration information provided by Harley-Davidson dealers and compiled by

the Company. The Company must rely on information that its dealers supply

     concerning new retail sales, and the Company does not regularly verify the
     information that its dealers supply. This information is subject to
     revision.

(b) Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy,

     Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and
     the United Kingdom.


In the U.S., retail sales of new Harley-Davidson motorcycles were lower than in
2016 driven by ongoing industry weakness and limited availability of model-year
2018 product. The Company believes the industry for new motorcycles continued to
be adversely impacted by soft used motorcycle prices, although prices did
improve in the fourth quarter of 2017 on a year-over-year basis. In addition,
retail sales of used Harley-Davidson motorcycles in the U.S., which the Company
believes is an important indicator of overall demand for the Company's
motorcycles, were up through November 2017 year-to-date. Combined retail sales
of new and used Harley-Davidson motorcycles in the U.S. were down slightly on a
year-to-date basis through November 2017, as compared to the same period in
2016. However, the Company's 2017 November year-to-date share of combined new
and used motorcycles registered increased for the ninth consecutive year.
(Source for used data: IHS Markit Used Registrations for On-Highway and Dual
Purpose motorcycles with engines 601 and greater in the U.S. from 2008 through
November 2017).

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

The Company's U.S. market share of 601+cc motorcycles for 2017 was 50.7%, down
0.5 percentage points compared to 2016 (Source: Motorcycle Industry Council).
International retail sales in 2017 were below expectations; however, the Company
continues to believe that its strong brand, products and expanded distribution
will drive growth in international markets over time. In EMEA, retail sales in
Europe were down slightly from 2016 while other EMEA markets decreased 12.4%
behind softness in emerging markets including Russia, Middle East and South
Africa. In Asia Pacific, retail sales were down compared to 2016 on softness in
Japan and Australia and lower retail sales in emerging markets compared to 2016.
Retail sales in Latin America during 2017 were down on softness in Mexico
partially offset by an increase in Brazil. Canada retail sales were down
slightly from the prior year.

                                       27
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Despite the difficult year in international markets, there were positive
developments. The Company believes its new model-year 2018 Softail motorcycles
are being very well received by customers internationally. In the fourth quarter
of 2017, the Company experienced strong sell-through rates with limited
availability throughout the quarter. The Company believes the strong customer
response to the new Softail models, coupled with the fact that international
retail sales generally include a greater mix of Softail models than in the U.S.,
is a good early indicator of the potential impact of these new models.(1)
Additionally, in line with the Company's strategy to increase brand access
internationally, it continued to expand the international dealer network. The
Company added 57 and 40 new international dealers during 2017 and 2016,
respectively. The Company plans to add a total of 150 to 200 new international
dealerships from 2016 through 2020.(1) The Company remains committed to its
long-term international growth strategy and expects to return to international
retail sales growth in 2018.(1)
Motorcycle Registration Data - 601+cc(a)
The following table includes industry retail motorcycle registration data:
                                                        %
                     2017       2016     Decrease    Change
United States(b)   288,802    311,710    (22,908 )   (7.3 )%
Europe(c)          390,619    391,936     (1,317 )   (0.3 )%


(a) Data includes on-road 601+cc models. On-road 601+cc models include dual

purpose models, three-wheeled motorcycles and autocycles. Registration data

for Harley-Davidson Street® 500 motorcycles is not included in this table.

(b)  United States industry data is derived from information provided by
     Motorcycle Industry Council (MIC). This third-party data is subject to
     revision and update.

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

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

Switzerland, and the United Kingdom. Industry retail motorcycle registration

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

des Constructeurs Europeens de Motocycles (ACEM), an independent agency.

     This third-party data is subject to revision and update.



                    Motorcycles and Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesale motorcycle unit shipments for the
Motorcycles segment:
                                   2017                      2016               Unit         Unit
                                                                              Decrease        %
                            Units        Mix %        Units        Mix %                    Change
United States              144,893         60.0 %    161,839         61.7 %   (16,946 )     (10.5 )%
International               96,605         40.0 %    100,382         38.3 %    (3,777 )      (3.8 )
Harley-Davidson
motorcycle units           241,498        100.0 %    262,221        100.0 %   (20,723 )      (7.9 )%
Touring motorcycle
units                       99,745         41.3 %    107,410         41.0 %    (7,665 )      (7.1 )%
Cruiser motorcycle
units                       87,344         36.2 %     93,422         35.6 %    (6,078 )      (6.5 )
Sportster® / Street
motorcycle units            54,409         22.5 %     61,389         23.4 %    (6,980 )     (11.4 )
Harley-Davidson
motorcycle units           241,498        100.0 %    262,221        100.0 %   (20,723 )      (7.9 )%


During 2017, wholesale shipments of Harley-Davidson motorcycles were down 7.9%
compared to the prior year, slightly more than the 6.7% decrease in dealer
retail sales of new Harley-Davidson motorcycles. International shipments as a
percentage of the total were up slightly in 2017 as compared to 2016. Shipments
of Cruiser motorcycles increased as a percentage of total shipments in 2017
behind the launch of the new model-year 2018 Softail motorcycles. The Softail
motorcycle platform was completely redesigned for model-year 2018 and merged the
former Softail and Dyna platforms.
Dealer inventory of new Harley-Davidson motorcycles in the U.S. at the end of
2017 was down approximately 3,000 motorcycles compared to the end of 2016. The
Company believes its supply management discipline delivered the intended results
and the dealer network is well-positioned for 2018.(1)

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Segment Results The following table includes the condensed statement of operations for the Motorcycles segment (in thousands):

                                                                   (Decrease)       %
                                        2017           2016         Increase      Change
Revenue:
Motorcycles                         $ 3,825,206    $ 4,122,113    $ (296,907 )    (7.2 )%
Parts & Accessories                     804,363        842,637       (38,274 )    (4.5 )
General Merchandise                     262,776        284,583       (21,807 )    (7.7 )
Other                                    22,682         22,043           639       2.9
Total revenue                         4,915,027      5,271,376      (356,349 )    (6.8 )
Cost of goods sold                    3,261,683      3,419,710      (158,027 )    (4.6 )
Gross profit                          1,653,344      1,851,666      (198,322 )   (10.7 )
Selling & administrative expense        866,083        907,059       (40,976 )    (4.5 )
Engineering expense                     171,303        171,201           102       0.1
Operating expense                     1,037,386      1,078,260      

(40,874 ) (3.8 ) Operating income from Motorcycles $ 615,958 $ 773,406 $ (157,448 ) (20.4 )%

The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from 2016 to 2017 (in millions):

                                                           Cost of
                                                 Net        Goods       Gross
                                               Revenue      Sold       Profit
2016                                          $ 5,272     $ 3,420     $ 1,852
Volume                                           (435 )      (264 )      (171 )
Price, net of related costs                       120          59          61
Foreign currency exchange rates and hedging        13          (3 )        16
Shipment mix                                      (55 )       (18 )       (37 )
Raw material prices                                 -          17         (17 )
Manufacturing and other costs                       -          51         (51 )
Total                                            (357 )      (158 )      (199 )
2017                                          $ 4,915     $ 3,262     $ 1,653


The following factors affected the comparability of net revenue, cost of goods
sold and gross profit from 2016 to 2017:
•     The decrease in volume was due to lower wholesale motorcycle shipments, as

well as lower P&A and general merchandise sales. P&A and general

merchandise sales were down due in large part to lower motorcycle shipments

and lower retail motorcycle sales.

• On average, wholesale prices for motorcycles shipped in 2017 were higher

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

positive impact on revenue was partially offset by increased costs related

to the additional content added to motorcycles shipped in 2017 as compared

to last year.

• Revenue was positively impacted by slightly stronger weighted-average

      foreign currency rates, relative to the U.S. dollar, as compared to last
      year. In addition, cost was favorably impacted by a higher net gain
      resulting from the remeasurement of foreign-denominated balance sheet
      accounts net of losses incurred on hedging activities, as compared to last
      year.


•     Shipment mix changes resulted in a negative impact on gross profit
      resulting from unfavorable changes in the mix of

models within motorcycle families as well as changes in P&A product mix. • Raw material prices were higher due primarily to increased steel and

       aluminum costs.


• Manufacturing costs were negatively impacted by lower fixed cost absorption

due to lower production volumes, higher model-year startup costs and higher

depreciation.

Operating expense which consists of selling, administrative and engineering expenses, was down compared to 2016. The decrease in spending was due in large part to aggressive cost management, lower employee costs following a 2016 reorganization and the non-recurrence of related employee termination costs recorded in the fourth quarter of 2016.

                                       29
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During the fourth quarter of 2017, the Company recorded a $29.4 million charge
associated with the previously disclosed NHTSA investigation opened in 2016
related to certain motorcycles equipped with anti-lock breaking systems. In
January 2018, the Company announced a voluntary recall of model-year 2008-2011
Touring and V-ROD® motorcycles which the Company believes addresses the NHTSA
investigation. Despite this charge, overall warranty and recall costs in 2017
were favorable compared to 2016 driven by lower year-over-year warranty expense.
                           Financial Services Segment

Segment Results The following table includes the condensed statement of operations for the Financial Services segment (in thousands):

                                                                       Increase         %
                                              2017         2016       (Decrease)      Change
Interest income                            $ 633,113    $ 628,432    $     4,681       0.7  %
Other income                                  97,151       85,788         11,363      13.2
Securitization and servicing income            1,933       10,862         (8,929 )   (82.2 )
Financial services revenue                   732,197      725,082          7,115       1.0
Interest expense                             180,193      173,756          6,437       3.7
Provision for credit losses                  132,444      136,617         (4,173 )    (3.1 )
Operating expenses                           144,255      139,179          5,076       3.6
Financial Services expense                   456,892      449,552         

7,340 1.6 Operating income from Financial Services $ 275,305 $ 275,530 $ (225 ) (0.1 )%


Interest income was favorable in 2017 due to higher average retail receivables
partially offset by lower average wholesale receivables and lower average yields
across the portfolios. Other income was favorable due to increased licensing
revenue and investment income. Securitization and servicing income was lower
primarily due to a $9.3 million gain on the sale of finance receivables
recognized as a result of the second quarter 2016 off-balance sheet asset-backed
securitization. There was no comparable transaction in the current year.
Interest expense increased due to a higher cost of funds, partially offset by
lower average outstanding debt.
The provision for credit losses decreased $4.2 million compared to 2016. The
retail motorcycle provision decreased $6.5 million during 2017 as a result of a
smaller increase in the retail reserve rate and lower receivables partially
offset by higher retail credit losses. Credit losses were higher as a result of
unfavorable performance across the retail motorcycle portfolio. The wholesale
provision increased $1.0 million due to a smaller decrease in the wholesale
reserve rate compared to 2016.
Annual losses on the Company's retail motorcycle loans were 1.90% during 2017
compared to 1.83% in 2016. The 30-day delinquency rate for retail motorcycle
loans at December 31, 2017 decreased to 4.21% from 4.25% at December 31, 2016.
Changes in the allowance for credit losses on finance receivables were as
follows (in thousands):
                                    2017          2016

Balance, beginning of period $ 173,343 $ 147,178 Provision for credit losses 132,444 136,617 Charge-offs, net of recoveries (113,316 ) (107,161 ) Other (a)

                                -        (3,291 )
Balance, end of period           $ 192,471     $ 173,343



(a) Related to the sale of finance receivables during the second quarter of 2016

with a principal balance of $301.8 million through an off-balance sheet

asset-backed securitization transaction (see Note 10 of the Notes to

Consolidated Financial Statements for additional information).


At December 31, 2017, the allowance for credit losses on finance receivables was
$186.3 million for retail receivables and $6.2 million for wholesale
receivables. At December 31, 2016, the allowance for credit losses on finance
receivables was $166.8 million for retail receivables and $6.5 million for
wholesale receivables.

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The Company's periodic evaluation of the adequacy of the allowance for credit
losses on finance receivables is generally based on the Company's past loan loss
experience, known and inherent risks in the portfolio, current economic
conditions and the estimated value of any underlying collateral. Please refer to
Note 5 of the Notes to Consolidated Financial Statements for further discussion
regarding the Company's allowance for credit losses on finance receivables.

                  Results of Operations 2016 Compared to 2015
                             Consolidated Results
                                                                            (Decrease)        %
(in thousands, except earnings per share)        2016           2015         Increase      Change
Operating income from Motorcycles &
Related Products                             $  773,406     $  875,490     $ (102,084 )    (11.7 )%
Operating income from Financial Services        275,530        280,205         (4,675 )     (1.7 )
Operating income                              1,048,936      1,155,695       (106,759 )     (9.2 )
Investment income                                 4,645          6,585         (1,940 )    (29.5 )
Interest expense                                 29,670         12,117         17,553      144.9
Income before income taxes                    1,023,911      1,150,163       (126,252 )    (11.0 )
Provision for income taxes                      331,747        397,956        (66,209 )    (16.6 )
Net income                                   $  692,164     $  752,207     $  (60,043 )     (8.0 )%
Diluted earnings per share                   $     3.83     $     3.69     $     0.14        3.8  %


Consolidated operating income was down 9.2% in 2016 driven by a decrease in
operating income from the Motorcycles segment which decreased by $102.1 million
compared to 2015. Operating income for the Financial Services segment decreased
by $4.7 million during 2016 as compared to 2015. Please refer to the
"Motorcycles and Related Products Segment" and "Financial Services Segment"
discussions following for a more detailed discussion of the factors affecting
operating income.

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

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                 Motorcycles Retail Sales and Registration Data
Harley-Davidson Motorcycle Retail Sales(a)
The following table includes retail unit sales of Harley-Davidson motorcycles:
                                                            (Decrease)       %
                                        2016       2015      Increase      Change
United States                         161,658    168,240       (6,582 )    (3.9 )%

Europe(b)                              39,942     36,894        3,048       8.3
EMEA - Other                            5,896      6,393         (497 )    (7.8 )
   Total EMEA                          45,838     43,287        2,551       5.9

Japan                                  10,279      9,700          579       6.0
Asia Pacific - Other                   22,610     22,558           52       0.2
Total Asia Pacific                     32,889     32,258          631       2.0

Latin America                           9,701     11,173       (1,472 )   (13.2 )
Canada                                 10,203      9,669          534       5.5

Total International Retail Sales 98,631 96,387 2,244 2.3

Total Worldwide Retail Sales 260,289 264,627 (4,338 ) (1.6 )%

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

registration information provided by Harley-Davidson dealers and compiled by

the Company. The Company must rely on information that its dealers supply

     concerning new retail sales and the Company does not regularly verify the
     information that its dealers supply. This information is subject to
     revision.

(b) Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy,

     Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and
     the United Kingdom.


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

In EMEA, retail sales of Harley-Davidson motorcycles for 2016
increased 5.9% compared to the prior year due in part to a positive reception to
its model-year 2016 S-model cruisers and its new model-year 2017 motorcycles
featuring the Milwaukee-EightTM engine.

In Asia Pacific, retail sales of Harley-Davidson motorcycles for 2016
increased 2.0% compared to the prior year. Overall growth in Asia Pacific was
partially offset by lower sales in India and Indonesia. In India, the Company
believes retail sales of Harley-Davidson motorcycles were negatively impacted by
India's currency demonetization in the fourth quarter of 2016. In

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

Retail sales of Harley-Davidson motorcycles in Latin America for 2016
decreased 13.2% compared to the prior year. The Company believes retail sales in
Brazil continued to be negatively impacted by a price increase on its
motorcycles initiated in the first quarter of 2016 and by a slowing economy,
consumer uncertainty and aggressive price competition.

Retail sales of Harley-Davidson motorcycles in Canada increased 5.5% in 2016
compared to 2015. The Company believes the market responded favorably to the
change to a direct distribution model implemented in July 2015 and pricing
adjustments that were implemented with the model-year 2016 motorcycles.

International retail sales as a percent of total retail sales
in 2016 were 37.9% compared to 36.4% in 2015.
Motorcycle Registration Data - 601+cc(a)
The following table includes industry retail motorcycle registration data:
                                         (Decrease)       %
                     2016       2015      Increase     Change
United States(b)   311,710    328,818      (17,108 )   (5.2 )%
Europe(c)          391,936    351,773       40,163     11.4  %


(a) Data includes on-road 601+cc models. On-road 601+cc models include dual

purpose models, three-wheeled motorcycles and autocycles. Registration data

for Harley-Davidson Street® 500 motorcycles is not included in this table.

(b)  United States industry data is derived from information provided by
     Motorcycle Industry Council (MIC). This third-party data is subject to
     revision and update.

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

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

Switzerland, and the United Kingdom. Industry retail motorcycle registration

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

des Constructeurs Europeens de Motocycles (ACEM), an independent agency.

     This third-party data is subject to revision and update.




                    Motorcycles and Related Products Segment
Motorcycle Unit Shipments
The following table includes wholesale motorcycle unit shipments for the
Motorcycles segment:
                                   2016                      2015                Unit         Unit
                                                                              (Decrease)        %
                            Units        Mix %        Units        Mix %       Increase      Change
United States              161,839         61.7 %    170,688         64.1 %      (8,849 )     (5.2 )%
International              100,382         38.3 %     95,694         35.9 %       4,688        4.9
Harley-Davidson
motorcycle units           262,221        100.0 %    266,382        100.0 %      (4,161 )     (1.6 )%
Touring motorcycle
units                      107,410         41.0 %    114,768         43.1 %      (7,358 )     (6.4 )%
Cruiser motorcycle
units                       93,422         35.6 %     89,207         33.5 %       4,215        4.7
Sportster® / Street
motorcycle units            61,389         23.4 %     62,407         23.4 %      (1,018 )     (1.6 )
Harley-Davidson
motorcycle units           262,221        100.0 %    266,382        100.0 %      (4,161 )     (1.6 )%


During 2016, wholesale shipments of Harley-Davidson motorcycles were
down 1.6% compared to the prior year in line with the 1.6% decrease in dealer
retail sales of new Harley-Davidson motorcycles. International shipments as a
percentage of the total were up in 2016 as compared to 2015. In addition,
shipments of Cruiser motorcycles as a percentage of total shipments increased in
2016 compared to the prior year driven by the strong acceptance of the
model-year 2016 S-model motorcycles. Touring motorcycle shipments were down in
2016; however, in the fourth quarter of 2016, the shipment mix of Touring
motorcycles increased reflecting the high demand for the new 2017 Touring
motorcycles featuring the Milwaukee-EightTM engine. Dealer retail inventory of
new Harley-Davidson motorcycles in the U.S. at the end of 2016 was approximately
flat compared to the end of 2015.


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Segment Results The following table includes the condensed statement of operations for the Motorcycles segment (in thousands):

                                                                   (Decrease)       %
                                        2016           2015         Increase      Change
Revenue:
Motorcycles                         $ 4,122,113    $ 4,127,739    $   (5,626 )    (0.1 )%
Parts & Accessories                     842,637        862,645       (20,008 )    (2.3 )
General Merchandise                     284,583        292,310        (7,727 )    (2.6 )
Other                                    22,043         26,050        (4,007 )   (15.4 )
Total revenue                         5,271,376      5,308,744       (37,368 )    (0.7 )
Cost of goods sold                    3,419,710      3,356,284        63,426       1.9
Gross profit                          1,851,666      1,952,460      (100,794 )    (5.2 )
Selling & administrative expense        907,059        916,669        (9,610 )    (1.0 )
Engineering expense                     171,201        160,301        10,900       6.8
Operating expense                     1,078,260      1,076,970        

1,290 0.1 Operating income from Motorcycles $ 773,406 $ 875,490 $ (102,084 ) (11.7 )%


The following table includes the estimated impact of the significant factors
affecting the comparability of net revenue, cost of goods sold and gross profit
from 2015 to 2016 (in millions):
                                                           Cost of
                                                 Net        Goods       Gross
                                               Revenue      Sold       Profit
2015                                          $ 5,309     $ 3,357     $ 1,952
Volume                                           (109 )       (62 )       (47 )
Price, net of related costs                        93          39          54
Foreign currency exchange rates and hedging        (3 )        45         (48 )
Shipment mix                                      (18 )        (5 )       (13 )
Raw material prices                                 -         (18 )        18
Manufacturing and other costs                       -          64         (64 )
Total                                             (37 )        63        (100 )
2016                                          $ 5,272     $ 3,420     $ 1,852


The following factors affected the comparability of net revenue, cost of goods
sold and gross profit from 2015 to 2016:
•      Volume decreases were driven by lower wholesale motorcycle shipments, as
       well as decreases in sales of parts and accessories and general
       merchandise.

• On average, wholesale prices on the Company's 2016 and 2017 model-year

motorcycles are higher than the prior model-years resulting in the

favorable impact on revenue during the period. The impact of revenue

favorability resulting from model-year price increases on gross profit was

partially offset by increases in cost related to the additional content

added to the 2016 and 2017 model-year motorcycles.

• Gross profit was negatively impacted by foreign currency due to lower

hedge gains, given the significant gains experienced in the prior year,

and lower revenues behind a slightly stronger U.S. dollar relative to its

foreign currency exposures.

• Shipment mix changes negatively impacted gross profit primarily due to

changes in motorcycle family mix, driven by strong customer demand for the

       Company's model-year 2016 S-model cruiser motorcycles, and model mix
       within its motorcycle families.


•      Manufacturing costs for 2016 were negatively impacted by higher costs

related to retooling and start-up costs at its Pilgrim Road manufacturing

facility associated with the Milwaukee-EightTM engine, the implementation

of the Company's ERP system at the Company's Kansas City manufacturing

facility and a higher fixed cost per unit due to lower volumes, partially

offset by favorable costs related to parts and accessories.



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

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However, these expense increases were mostly offset by decreases related to other items, including lower employee costs on fewer employees and lower reorganization costs. Reorganization costs, included in selling and administrative expenses, in the fourth quarters of 2016 and 2015, were $18.2 million and $23.3 million, respectively.

                           Financial Services Segment

Segment Results The following table includes the condensed statements of operations for the Financial Services segment (in thousands):

                                                                       Increase         %
                                              2016         2015       (Decrease)     Change
Interest income                            $ 628,432    $ 605,770    $    22,662      3.7  %
Other income                                  85,788       80,888          4,900      6.1
Securitization and servicing income           10,862            -         10,862        -
Financial services revenue                   725,082      686,658         38,424      5.6
Interest expense                             173,756      161,983         11,773      7.3
Provision for credit losses                  136,617      101,345         35,272     34.8
Operating expense                            139,179      143,125         (3,946 )   (2.8 )
Financial Services expense                   449,552      406,453        

43,099 10.6 Operating income from Financial Services $ 275,530 $ 280,205 $ (4,675 ) (1.7 )%



Interest income was favorable in 2016 due to higher average receivables in the
retail and wholesale portfolios. Other income was favorable primarily due to
increased revenue from credit card licensing, insurance and protection products
and international licensing revenue. Securitization and servicing income was
higher primarily due to a $9.3 million gain on the sale of finance receivables
with a principal balance of $301.8 million through an off-balance sheet
asset-backed securitization during the second quarter of 2016. There was no
comparable transaction in the prior year.

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

The provision for credit losses increased $35.3 million compared to 2015. The
retail motorcycle provision increased $39.8 million during 2016 as a result of
higher credit losses and increases in the retail reserve rate. Credit losses
were higher as a result of deteriorating performance across the portfolio, lower
used motorcycle values at auction, and continued unfavorable performance in
oil-dependent areas.

Annual losses on the Company's retail motorcycle loans were 1.83% during 2016
compared to 1.42% in 2015. The 30-day delinquency rate for retail motorcycle
loans at December 31, 2016 increased to 4.25% from 3.78% at December 31, 2015.
Changes in the allowance for credit losses on finance receivables were as
follows (in thousands):
                                    2016          2015

Balance, beginning of period $ 147,178 $ 127,364 Provision for credit losses 136,617 101,345 Charge-offs, net of recoveries (107,161 ) (81,531 ) Other (a)

                           (3,291 )           -
Balance, end of period           $ 173,343     $ 147,178



(a) Related to the sale of finance receivables during the second quarter of 2016

with a principal balance of $301.8 million through an off-balance sheet

     asset-backed securitization transaction (see Note 10 of the Notes to
     Consolidated Financial Statements for additional information).



At December 31, 2016, the allowance for credit losses on finance receivables
was $166.8 million for retail receivables and $6.5 million for wholesale
receivables. At December 31, 2015, the allowance for credit losses on finance
receivables was $139.3 million for retail receivables and $7.9 million for
wholesale receivables.


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The Company's periodic evaluation of the adequacy of the allowance for credit
losses on finance receivables is generally based on the Company's past loan loss
experience, known and inherent risks in the portfolio, current economic
conditions and the estimated value of any underlying collateral. Please refer to
Note 5 of the Notes to Consolidated Financial Statements for further discussion
regarding the Company's allowance for credit losses on finance receivables.

                                 Other Matters
New Accounting Standards Not Yet Adopted
Refer to Note 1. Summary of Significant Accounting Policies of the Notes to the
Financial Statements for a discussion of new accounting standards that will
become effective for the Company in 2018, 2019 and 2020.
Critical Accounting Estimates
The Company's financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions. Management believes that the following are some of
the more critical judgment areas in the application of accounting policies that
currently affect the Company's financial condition and results of operations.
Management has discussed the development and selection of these critical
accounting estimates with the Audit and Finance Committee of the Board of
Directors.
Allowance for Credit Losses on Finance Receivables - The allowance for
uncollectible accounts is maintained at a level management believes is adequate
to cover the losses of principal in the existing finance receivables portfolio.
The retail portfolio consists of a large number of small balance, homogeneous
finance receivables. The Company performs a periodic and systematic collective
evaluation of the adequacy of the retail allowance. The Company utilizes loss
forecast models which consider a variety of factors including, but not limited
to, historical loss trends, origination or vintage analysis, known and inherent
risks in the portfolio, the value of the underlying collateral, recovery rates
and current economic conditions including items such as unemployment rates.
The wholesale portfolio is primarily composed of large balance, non-homogeneous
finance receivables. The Company's wholesale allowance evaluation is first based
on a loan-by-loan review. A specific allowance is established for wholesale
finance receivables determined to be individually impaired when management
concludes that the borrower will not be able to make full payment of contractual
amounts due based on the original terms of the loan agreement. The impairment is
determined based on the cash that the Company expects to receive discounted at
the loan's original interest rate or the fair value of the collateral, if the
loan is collateral-dependent. Finance receivables in the wholesale portfolio
that are not individually evaluated for impairment are segregated, based on
similar risk characteristics, according to the Company's internal risk rating
system and collectively evaluated for impairment. The related allowance is based
on factors such as the Company's past loan loss experience, the specific
borrower's financial performance as well as ability to repay, current economic
conditions as well as the value of the underlying collateral.
Product Warranty and Recalls - Estimated warranty costs are accrued at the time
of sale and are based on a combination of historical claim cost data and other
known factors that may affect future warranty claims. The estimated costs
associated with voluntary recalls are accrued in the period that management
approves and commits to the recall. The accrued cost of a recall is based on an
estimate of the cost to repair each affected motorcycle and the number of
motorcycles expected to be repaired based on historical data concerning the
percentage of affected customers that take advantage of recall offers. In the
case of both warranty and recall costs, as actual experience becomes available
it is used to update the accruals.
The factors affecting actual warranty and recall costs can be volatile. As a
result, actual warranty claims experience and recall costs may differ from
estimates, which could lead to material changes in the Company's accrued
warranty and recall costs. The Company's warranty and recall liabilities are
discussed further in Note 1 of the Notes to Consolidated Financial Statements.
Pensions and Other Postretirement Healthcare Benefits - The Company has a
defined benefit pension plan and several postretirement healthcare benefit
plans, which cover employees of the Motorcycles segment. The Company also has
unfunded supplemental employee retirement plan agreements (SERPA) with certain
employees, which were instituted to replace benefits lost under the Tax Revenue
Reconciliation Act of 1993.
U.S. GAAP requires that companies recognize in their statement of financial
position a liability for defined benefit pension and postretirement plans that
are underfunded or an asset for defined benefit pension and postretirement
benefit plans that are overfunded.

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Pension, SERPA and postretirement healthcare obligations and costs are
calculated through actuarial valuations. The valuation of benefit obligations
and net periodic benefit costs relies on key assumptions including discount
rates, mortality, long-term expected return on plan assets, future compensation
and healthcare cost trend rates.
The Company determines its discount rate assumptions by referencing high-quality
long-term bond rates that are matched to the duration of its own benefit
obligations. Based on this analysis, the Company decreased the weighted-average
discount rate for pension and SERPA obligations from 4.30% as of December 31,
2016 to 3.71% as of December 31, 2017. The Company decreased the
weighted-average discount rate for postretirement healthcare obligations from
4.03% to 3.52%. The Company determines its healthcare trend assumption for the
postretirement healthcare obligation by considering factors such as estimated
healthcare inflation, the utilization of healthcare benefits and changes in the
health of plan participants. Based on the Company's assessment of this data as
of December 31, 2017, the Company set its healthcare cost trend rate at 7.00% as
of December 31, 2017. The Company expects the healthcare cost trend rate to
reach its ultimate rate of 5.00% by 2026.(1) These assumption changes were
reflected immediately in the benefit obligation and will be amortized into net
periodic benefit costs over future periods.
Plan assets are measured at fair value and are subject to market volatility. In
estimating the expected return on plan assets, the Company considers the
historical returns on plan assets, adjusted to reflect the current view of the
long-term investment market.
Changes in the funded status of defined benefit pension and postretirement
benefit plans resulting from the difference between assumptions and actual
results are initially recognized in other comprehensive income and amortized to
expense over future periods. The following information is provided to illustrate
the sensitivity of pension and postretirement healthcare obligations and costs
to changes in these major assumptions (in thousands):
                                                                               Impact of a 1%        Impact of a 1%
                                    Amounts based       Impact of a 1%        decrease in the        increase in the
                                     on current         decrease in the           expected             healthcare
                                     assumptions         discount rate        return on assets       cost trend rate
2017 Net periodic benefit costs
Pension and SERPA                 $        20,286     $          27,460     $           19,507                   n/a
Postretirement healthcare         $         9,615     $           1,162     $            1,741     $           1,687
2017 Benefit obligations
Pension and SERPA                 $     2,201,021     $         358,953                    n/a                   n/a
Postretirement healthcare         $       338,488     $          31,824                    n/a     $          11,984


This information should not be viewed as predictive of future amounts. The
analysis of the impact of a 1% change in the table above does not take into
account the cost related to special termination benefits. The calculation of
pension, SERPA and postretirement healthcare obligations and costs is based on
many factors in addition to those discussed here. This information should be
considered in combination with the information provided in Note 12 of the Notes
to Consolidated Financial Statements.
Income Taxes - The Company accounts for income taxes in accordance with ASC
Topic 740, Income Taxes (Topic 740). Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and other loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. These tax laws and regulations are complex and significant
judgment is required in determining the Company's worldwide provision for income
taxes and recording the related deferred tax assets and liabilities. In December
2017, the 2017 Tax Act was enacted into law introducing significant changes to
the U.S. tax code including a reduction in the U.S. corporate income tax rate
from 35% to 21%. In accordance with Topic 740, the Company's 2017 financial
statements reflect the impacts of the 2017 Tax Act based on reasonable
estimates, and the Company considers these estimates to be provisional under SAB
118. Future guidance, interpretations and pronouncements may add clarity to the
numerous aspects of the 2017 Tax Act that may impact the Company. Future
clarifications may give rise to additional unanticipated impacts on the
Company's tax liabilities or effective tax rate and revisions to the Company's
provisional estimates related to the 2017 Tax Act included in the Company's 2017
income tax provision. Any such adjustments will be recorded as discrete income
tax expenses or benefits in future periods. The provisional amount recorded in
the 2017 provision for income taxes related to the enactment of the 2017 Tax Act
was $53.1 million.

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In the ordinary course of the Company's business, there are transactions and
calculations where the ultimate tax determination is uncertain. Accruals for
unrecognized tax benefits are provided for in accordance with the requirements
of Topic 740. An unrecognized tax benefit represents the difference between the
recognition of benefits related to items for income tax reporting purposes and
financial reporting purposes. The unrecognized tax benefit is included within
other long-term liabilities in the Consolidated Balance Sheets. The Company has
a liability for interest and penalties on exposure items, if applicable, which
is recorded as a component of the overall income tax provision. The Company is
regularly audited by tax authorities as a normal course of business. Although
the outcome of tax audits is always uncertain, the Company believes that it has
appropriate support for the positions taken on its tax returns and that its
annual tax provision includes amounts sufficient to pay any assessments.
Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues
raised by the taxing authorities may differ materially from the amounts accrued
for each year.
Contractual Obligations
A summary of the Company's expected payments for significant contractual
obligations as of December 31, 2017 is as follows (in thousands):
                                 2018          2019-2020       2021-2022      Thereafter         Total
Principal payments on debt   $ 2,405,569     $ 2,693,007     $ 1,159,715     $   750,000     $ 7,008,291
Interest payments on debt        160,265         182,093          79,803         366,375         788,536
Operating lease payments          15,074          23,826          14,715           8,379          61,994
                             $ 2,580,908     $ 2,898,926     $ 1,254,233     $ 1,124,754     $ 7,858,821


Interest for floating rate instruments assumes December 31, 2017 rates remain
constant.
As of December 31, 2017, the Company generally had no significant purchase
obligations, other than those created in the ordinary course of business.
Purchase orders issued for inventory and supplies used in product manufacturing
generally do not become firm commitments until 90 days prior to expected
delivery and can be modified to a certain extent until 30 days prior to expected
delivery.
The Company has long-term obligations related to its pension, SERPA and
postretirement healthcare plans at December 31, 2017. The Company's retirement
plan obligations and expected future contributions and payments related to these
plans are provided in Note 12 of the Notes to Consolidated Financial Statements.
As described in Note 11 of the Notes to Consolidated Financial Statements, the
Company has unrecognized tax benefits of $72.2 million and accrued interest and
penalties of $30.9 million as of December 31, 2017. However, the Company cannot
make a reasonably reliable estimate of the period of cash settlement for either
the liability for unrecognized tax benefits or accrued interest and penalties.
Commitments and Contingencies
The Company is subject to lawsuits and other claims related to environmental,
product and other matters. In determining costs to accrue related to these
items, the Company carefully analyzes cases and considers the likelihood of
adverse judgments or outcomes, as well as the potential range of possible loss.
Any amounts accrued for these matters are monitored on an ongoing basis and are
updated based on new developments or new information as it becomes available for
each matter.

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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 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. The Company anticipates the court will make a decision whether
or not to finalize the Settlement in the following months. The Company has an
accrual associated with this matter which is included in accrued liabilities in
the Consolidated Balance Sheets, and as a result, if it is finalized, the
Settlement would not have a material adverse effect on the Company's financial
condition or results of operations. The Settlement is not final until it is
approved by the court, and if it is not approved by the court, the Company
cannot reasonably estimate the impact of any remedies the EPA might seek beyond
the Company's current reserve for this matter.
York Environmental Matters:
The Company is involved with government agencies and groups of potentially
responsible parties related to a matter involving the cleanup of soil and
groundwater contamination at its York, Pennsylvania facility. The York facility
was formerly used by the U.S. Navy and AMF prior to the purchase of the York
facility by the Company from AMF in 1981. Although the Company is not certain as
to the full extent of the environmental contamination at the York facility, it
has been working with the Pennsylvania Department of Environmental Protection
(PADEP) since 1986 in undertaking environmental investigation and remediation
activities, including a site-wide remedial investigation/feasibility study
(RI/FS).
In January 1995, the Company entered into a settlement agreement (the Agreement)
with the Navy, and the parties amended the Agreement in 2013 to address ordnance
and explosive waste. The Agreement calls for the Navy and the Company to
contribute amounts into a trust equal to 53% and 47%, respectively, of costs
associated with environmental investigation and remediation activities at the
York facility (Response Costs). The trust administers the payment of the
Response Costs incurred at the York facility as covered by the Agreement.
The Company has an accrual for its estimate of its share of the future Response
Costs at the York facility which is included in other long-term liabilities in
the Consolidated Balance Sheets. While much of the work on the RI/FS is
complete, it is still under agency review and given the uncertainty that exists
concerning the nature and scope of additional environmental investigation and
remediation that may ultimately be required under the RI/FS that is finally
approved or otherwise at the York facility, the Company is unable to make a
reasonable estimate of those additional costs, if any, that may result.
The estimate of the Company's future Response Costs that will be incurred at the
York facility is based on reports of independent environmental consultants
retained by the Company, the actual costs incurred to date and the estimated
costs to complete the necessary investigation and remediation activities.
Product Liability Matters:
The Company is involved in product liability suits related to the operation of
its business. The Company accrues for claim exposures that are probable of
occurrence and can be reasonably estimated. The Company also maintains insurance
coverage for product liability exposures. The Company believes that its accruals
and insurance coverage are adequate and that product liability suits will not
have a material adverse effect on the Company's consolidated financial
statements.(1)
National Highway Traffic Safety Administration Matters:
In July 2016, the National Highway Traffic Safety Administration (NHTSA) began
an investigation into certain of the Company's motorcycles equipped with
anti-lock braking systems (ABS). NHTSA's investigation is in response to rider
complaints related to brake failures and applies to model-year 2008-2013 Touring
and model-year 2008-2017 V-ROD® motorcycles. NHTSA noted that Harley-Davidson
has a two-year brake fluid replacement interval that owners either are unaware
of or ignore. During 2017, the Company estimated and recorded a $29.4 million
accrual associated with the NHTSA matter which is included in accrued
liabilities. On January 30, 2018, the Company announced a voluntary recall,
which offers a free brake fluid flush for model-year 2008-2011 Touring and
V-ROD® motorcycles. The Company believes the accrued liability it has recorded
will adequately cover the cost of the recall.

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Off-Balance Sheet Arrangements
The Company participates in asset-backed financing both through asset-backed
securitization transactions and through asset-backed commercial paper conduit
facilities. In the Company's asset-backed financing programs, the Company
transfers retail motorcycle finance receivables to special purpose entities
(SPE), which are considered Variable Interest Entities (VIE) under U.S. GAAP.
Each SPE then converts those assets into cash, through the issuance of debt. The
Company retains servicing rights for all of the retail motorcycle finance
receivables transferred to SPEs as part of an asset-backed financing.
The SPEs are separate legal entities that assume the risks and rewards of
ownership of the retail motorcycle finance receivables they hold. The assets of
the VIEs are not available to pay other obligations or claims of the Company's
creditors. The Company's economic exposure related to the VIEs is generally
limited to restricted cash reserve accounts, retained interests and ordinary
representations and warranties and related covenants. The VIEs have a limited
life and generally terminate upon final distribution of amounts owed to
investors.
The accounting treatment for asset-backed financings depends on the terms of the
related transaction and the Company's continuing involvement with the VIE. Most
of the Company's asset-backed financings do not meet the criteria to be treated
as a sale for accounting purposes because, in addition to retaining servicing
rights, the Company retains a financial interest in the VIE in the form of a
debt security. These transactions are treated as secured borrowings. As secured
borrowings, the retail motorcycle finance receivables remain on the balance
sheet with a corresponding obligation reflected as debt.
During the second quarter of 2016, the Company sold finance receivables with a
principal balance of $301.8 million into a securitization VIE. The transaction
met the criteria to be treated as a sale for accounting purposes and resulted in
an off-balance sheet arrangement because the Company did not retain any
financial interest in the VIE beyond servicing rights and ordinary
representations and warranties and related covenants. Upon sale, the retail
motorcycle finance receivables were removed from the Company's balance sheet and
a gain of $9.3 million was recognized in Financial Services Revenue. For more
information see Note 10 of the Notes to Consolidated Financial Statements.
            Liquidity and Capital Resources as of December 31, 2017
Over the long-term, the Company expects that its business model will continue to
generate cash that will allow it to invest in the business, fund future growth
opportunities and return value to shareholders.(1) The Company believes the
Motorcycles operations will continue to be primarily funded through cash flows
generated by operations.(1) The Company's Financial Services operations will
continue to be funded with unsecured debt, unsecured commercial paper,
asset-backed commercial paper conduit facilities, committed unsecured bank
facilities and asset-backed securitizations.
The Company's strategy is to maintain a minimum of twelve months of its
projected liquidity needs through a combination of cash and cash equivalents and
availability under credit facilities. The following table summarizes the
Company's cash and cash equivalents and availability under credit and conduit
facilities (in thousands):

                                                               December 31,
                                                                   2017
Cash and cash equivalents                                     $      687,521

Credit facilities (a)                                                291,518
Asset-backed U.S. commercial paper conduit facilities (a)            

620,543

Asset-backed Canadian commercial paper conduit facility (a)              

491

Total availability under credit and conduit facilities               912,552
Total                                                         $    1,600,073


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

Company expects to renew prior to expiration.(1)


The Company recognizes that it must continue to adjust its business to changes
in the lending environment. The Company intends to continue with a diversified
funding profile through a combination of short-term and long-term funding
vehicles and to pursue a variety of sources to obtain cost-effective funding.(1)
The Financial Services operations could be negatively affected by higher costs
of funding and the increased difficulty of raising, or potential inability to
raise, funding in the short-term and long-term capital markets.(1) These
negative consequences could in turn adversely affect the Company's business and
results of operations in various ways, including through higher costs of
capital, reduced funds available through its Financial Services

                                       40
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operations to provide loans to independent dealers and their retail customers,
and dilution to existing shareholders through the use of alternative sources of
capital.
Cash Flow Activity
The following table summarizes the cash flow activity of continuing operations
for the years ended December 31, 2017, 2016 and 2015 (in thousands):
                                                 2017             2016      

2015

Net cash provided by operating activities $ 1,005,061 $ 1,174,339

   $  1,100,118
Net cash used by investing activities           (562,468 )       (392,731 )       (915,848 )
Net cash used by financing activities           (541,803 )       (734,390 )       (354,064 )
Effect of exchange rate changes on cash
and cash equivalents                              26,747           (9,443 )        (14,677 )
Net (decrease) increase in cash and cash
equivalents                                 $    (72,463 )   $     37,775     $   (184,471 )


Operating Activities
The decrease in operating cash flow in 2017 compared to 2016 was due primarily
to lower net income, unfavorable changes in working capital and higher
retirement plan contributions. These negative impacts were partially offset by
lower net cash outflows for wholesale lending.
The increase in operating cash flow in 2016 compared to 2015 was due primarily
to lower net cash outflows from wholesale lending and favorable changes in
working capital driven by a reduction in inventory during 2016. These favorable
impacts were partially offset by the impact of a retirement plan contribution
and lower net income.
During 2017, the Company voluntarily contributed $25.0 million to its qualified
pension plan and $15.0 million to its postretirement healthcare plans. This
compares to a qualified pension plan contribution of $25.0 million in 2016 and
no contributions in 2015. The Company expects that no qualified pension
contributions will be required in 2018.(1) The Company also expects that 2018
postretirement healthcare plan benefits and benefits due under the SERPA will be
paid by the Company or funded with plan assets.(1) The Company's expected future
contributions and benefit payments related to these plans are provided in Note
12 of the Notes to Consolidated Financial Statements.(1)
Investing Activities
The Company's investing activities consist primarily of capital expenditures,
net changes in retail finance receivables and short-term investment activity.
Capital expenditures were $206.3 million, $256.3 million and $260.0 million
during 2017, 2016 and 2015, respectively.
Net cash outflows for finance receivables in 2017, which consisted primarily of
retail finance receivables, were $125.8 million lower than 2016 primarily as a
result of a decrease in retail motorcycle loan originations during 2017.
Similarly, 2016 net cash outflows for finance receivables were $125.5 million
lower than 2015 primarily due to lower retail motorcycle loan originations
during 2016.
Cash inflows from maturities of marketable securities were $6.9 million, $40.0
million and $11.5 million in 2017, 2016 and 2015, respectively.
During 2016, the Company completed a sale of finance receivables through an
off-balance sheet asset-backed securitization. The proceeds from the sale of
finance receivables, which positively impacted cash flow, were $312.6 million.
There were no comparable transactions in 2017 or 2015.
During 2015, the Company purchased certain assets and liabilities from Fred
Deeley Imports, Ltd. resulting in a $59.9 million cash outflow. There were no
business acquisitions in 2017 or 2016.
Financing Activities
The Company's financing activities consist primarily of dividend payments, share
repurchases and debt activity.
The Company paid dividends of $1.46 per share totaling $251.9 million during
2017, $1.40 per share totaling $252.3 million during 2016 and $1.24 per share
totaling $249.3 million during 2015.
Cash outflows from share repurchases were $465.3 million, $465.3 million and
$1,537.0 million for 2017, 2016 and 2015, respectively. Share repurchases during
2017, 2016 and 2015 included 8.8 million, 9.9 million and 28.0 million shares of

                                       41
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common stock, respectively, related to discretionary share repurchases and
shares of common stock that employees surrendered to satisfy withholding taxes
in connection with the vesting of restricted stock awards. In February 2016, the
Company's Board of Directors separately authorized the Company to buy back up to
an additional 20.0 million shares of its common stock with no dollar limit or
expiration date of which 10.6 million shares remained available at December 31,
2017. In February 2018, the Company's Board of Directors authorized the Company
to repurchase up to 15.0 million additional shares of its common stock with no
dollar limit or expiration date.
Financing cash flows related to debt activity resulted in net cash inflows /
(outflows) of $155.5 million , ($78.3) million and $1.40 billion for 2017, 2016
and 2015 respectively. The Company's total outstanding debt consisted of the
following as of December 31, 2017, 2016 and 2015 (in thousands):
                                                 2017             2016      

2015

Unsecured commercial paper                  $  1,273,482     $  1,055,708     $  1,201,380
Asset-backed Canadian commercial paper
conduit facility                                 174,779          149,338   

153,839

Asset-backed U.S. commercial paper
conduit facilities                               279,457                -                -
Medium-term notes, net                         4,165,706        4,064,940        3,316,949
Senior unsecured notes, net                      741,961          741,306          740,653
Asset-backed securitization debt, net            352,624          796,275        1,459,377
Total debt                                  $  6,988,009     $  6,807,567     $  6,872,198


To access the debt capital markets, the Company relies on credit rating agencies
to assign short-term and long-term credit ratings. Generally, lower credit
ratings result in higher borrowing costs and reduced access to debt capital
markets. A credit rating agency may change or withdraw the Company's ratings
based on its assessment of the Company's current and future ability to meet
interest and principal repayment obligations. The Company's short-term debt
ratings affect its ability to issue unsecured commercial paper. The Company's
short- and long-term debt ratings as of January 2018 were as follows:
                    Short-Term   Long-Term   Outlook
Moody's                 P2          A3        Stable
Standard & Poor's       A2          A-       Negative
Fitch                   F1           A        Stable


Credit Facilities - In May 2017, the Company entered into a $100.0 million
364-day credit facility which matures in April 2018. The Company also has a
$675.0 million five-year credit facility which matures in April 2019 and a
$765.0 million five-year credit facility which matures in April 2021. The new
364-day credit facility and the five-year credit facilities (together, the
Global Credit Facilities) bear interest at variable interest rates, which may be
adjusted upward or downward depending on certain criteria, such as credit
ratings. The Global Credit Facilities also require the Company to pay a fee
based on the average daily unused portion of the aggregate commitments under the
Global Credit Facilities. The Global Credit Facilities are committed facilities
primarily used to support the Company's unsecured commercial paper program.
Additionally, during the second quarter of 2017, the Company renewed its $25.0
million credit facility which had expired in May 2017. The $25.0 million credit
facility bears interest at variable interest rates, and the Company must pay a
fee based on the unused portion of the $25.0 million commitment. The credit
facility expires in May 2018.
Unsecured Commercial Paper - Subject to limitations, the Company could issue
unsecured commercial paper of up to $1.54 billion as of December 31, 2017
supported by the Global Credit Facilities, as discussed above. Outstanding
unsecured commercial paper may not exceed the unused portion of the Global
Credit Facilities. Maturities may range up to 365 days from the issuance date.
The Company intends to repay unsecured commercial paper as it matures with
additional unsecured commercial paper or through other means, such as borrowing
under the Global Credit Facilities, borrowing under its asset-backed U.S.
commercial paper conduit facilities or through the use of operating cash flow
and cash on hand.(1)

                                       42
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Medium-Term Notes - The Company has the following medium-term notes
(collectively, the Notes) issued and outstanding at December 31, 2017 (in
thousands):
Principal Amount         Rate           Issue Date     Maturity Date
    $877,488            6.80%            May 2008        June 2018
    $600,000            2.25%          January 2016     January 2019
    $150,000       Floating-rate(a)     March 2017       March 2019
    $600,000            2.40%         September 2014   September 2019
    $600,000            2.15%         February 2015    February 2020
    $350,000            2.40%           March 2017       June 2020
    $600,000            2.85%          January 2016     January 2021
    $400,000            2.55%           June 2017        June 2022



(a)  Floating interest rate based on LIBOR plus 35 bps.
The Notes provide for semi-annual interest payments and principal due at
maturity.
Senior Unsecured Notes - In July 2015, the Company issued $750.0 million of
senior unsecured notes in an underwritten offering. The senior unsecured notes
provide for semi-annual interest payments and principal due at maturity. $450.0
million of the senior unsecured notes mature in July 2025 and have an interest
rate of 3.50%, and $300.0 million of the senior unsecured notes mature in July
2045 and have an interest rate of 4.625%. The Company used the proceeds from the
debt to repurchase shares of its common stock in 2015.
On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility - The
Company has a revolving facility agreement (Canadian Conduit) with a Canadian
bank-sponsored asset-backed commercial paper conduit. Under the agreement, the
Canadian Conduit is contractually committed, at the Company's option, to
purchase from the Company eligible Canadian retail motorcycle finance
receivables for proceeds up to C$220.0 million. The transferred assets are
restricted as collateral for the payment of the debt. The terms for this
facility provide for interest on the outstanding principal based on prevailing
market interest rates plus a specified margin. The Canadian Conduit also
provides for a program fee and an unused commitment fee based on the unused
portion of the total aggregate commitment of C$220.0 million. There is no
amortization schedule; however, the debt is reduced monthly as available
collections on the related finance receivables are applied to outstanding
principal. Upon expiration of the Canadian Conduit, any outstanding principal
will continue to be reduced monthly through available collections. Unless
earlier terminated or extended by mutual agreement of the Company and the
lenders, as of December 31, 2017, the Canadian Conduit has an expiration date of
June 30, 2018. The contractual maturity of the debt is approximately 5 years.

During 2017 and 2016, the Company transferred $105.4 million and $71.1 million,
respectively, of Canadian retail motorcycle finance receivables to the Canadian
Conduit for proceeds of $87.0 million and $62.4 million, respectively.
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE - On
December 13, 2017, the Company renewed its existing $300.0 million and $600.0
million revolving facility agreements with a third-party bank-sponsored
asset-backed U.S. commercial paper conduit. Availability under the revolving
facilities (together, the U.S. Conduit Facilities) is based on, among other
things, the amount of eligible U.S. retail motorcycle receivables held by the
relevant SPE as collateral.
During 2017, the Company transferred $429.7 million of U.S. retail motorcycle
finance receivables to an SPE which, in turn, issued $383.3 million of debt
under the U.S. Conduit Facilities. The VIE did not borrow under the U.S. Conduit
Facilities during 2016 and did not have an outstanding balance at December 31,
2016. The contractual maturity of the debt is approximately 5 years.
The terms for this debt provide for interest on the outstanding principal based
on prevailing commercial paper rates or LIBOR to the extent the advance is not
funded by a conduit lender through the issuance of commercial paper plus, in
each case, a program fee based on outstanding principal. The U.S. Conduit
Facilities also provide for an unused commitment fee based on the unused portion
of the total aggregate commitment of $900.0 million. There is no amortization
schedule; however, the debt will be reduced monthly as available collections on
the related finance receivables are applied to outstanding principal. Upon
expiration of the U.S. Conduit Facilities, any outstanding principal will
continue to be reduced monthly through available collections. Unless earlier
terminated or extended by mutual agreement of the Company and the lenders, the
U.S. Conduit Facilities have an expiration date of December 12, 2018.

                                       43
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Asset-Backed Securitization VIEs - For all of its asset-backed securitization
transactions, the Company transfers U.S. retail motorcycle finance receivables
to separate VIEs, which in turn issue secured notes with various maturities and
interest rates to investors. All of the notes held by the VIEs are secured by
future collections of the purchased U.S. retail motorcycle finance receivables.
The U.S. retail motorcycle finance receivables included in the asset-backed
securitization transactions are not available to pay other obligations or claims
of the Company's creditors until the associated debt and other obligations are
satisfied. Restricted cash balances held by the VIEs are used only to support
the asset-backed securitizations.

The accounting treatment for asset-backed securitizations depends on the terms
of the related transaction and the Company's continuing involvement with the
VIE. Most of the Company's asset-backed securitizations do not meet the criteria
to be accounted for as a sale because, in addition to retaining servicing
rights, the Company retains a financial interest in the VIE in the form of a
debt security. These transactions are treated as secured borrowings. As secured
borrowings, the retail motorcycle finance receivables remain on the balance
sheet with a corresponding obligation reflected as debt. There is no
amortization schedule for the secured notes; however, the debt is reduced
monthly as available collections on the related retail motorcycle finance
receivables are applied to outstanding principal. The secured notes' contractual
lives have various maturities ranging from 2019 to 2022.
There were no on or off-balance sheet asset-backed securitization transactions
during 2017. During the second quarter 2016, the Company sold U.S. retail
motorcycle finance receivables with a principal balance of $301.8 million into
an asset-backed securitization VIE, and the transaction met the criteria to be
accounted for as a sale because the Company did not retain any financial
interest in the VIE beyond servicing rights and ordinary representations and
warranties and related covenants. Upon the sale, the retail motorcycle finance
receivables were removed from the Company's balance sheet and a gain of $9.3
million was recognized in Financial Services revenue.
For more information see Note 10 of the Notes to Consolidated Financial
Statements.
Support Agreement - The Company has a support agreement with HDFS whereby, if
required, the Company agrees to provide HDFS with financial support to maintain
HDFS' fixed-charge coverage at 1.25 and minimum net worth of $40.0 million.
Support may be provided at the Company's option as capital contributions or
loans. Accordingly, certain debt covenants may restrict the Company's ability to
withdraw funds from HDFS outside the normal course of business. No amount has
ever been provided to HDFS under the support agreement.
Operating and Financial Covenants - HDFS and the Company are subject to various
operating and financial covenants related to the credit facilities and various
operating covenants under the 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
consolidated debt to equity ratio of HDFS cannot exceed 10.00 to 1.00 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 equity, in each case excluding the
debt of HDFS and its subsidiaries, cannot exceed 0.70 to 1.00 as of the end of
any fiscal quarter. No financial covenants are required under the Notes or the
U.S. or Canadian asset-backed commercial paper conduit facilities.
At December 31, 2017, 2016 and 2015, HDFS and the Company remained in compliance
with all of the then existing covenants.
                             Cautionary Statements

The Company's ability to meet the targets and expectations noted depends upon,
among other factors, the Company's ability to (i) execute its business strategy,
(ii) execute its strategy of growing ridership, globally, (iii) effectively
execute its manufacturing optimization plan within expected costs and timing,
(iv) develop and introduce products, services and experiences that are
successful in the marketplace, (v) manage the impact that prices for and supply
of used motorcycles may have on its business, including on retail sales of new
motorcycles, (vi) balance production volumes for its new motorcycles with
consumer demand, including in circumstances where competitors may be supplying
new motorcycles to the market in excess of demand at reduced prices, (vii)
manage through changes in general economic and business conditions, including
changing capital, credit and retail markets, and the changing political
environment, (viii) manage risks that arise through expanding international
manufacturing, operations and sales, (ix) successfully execute the Company's
manufacturing strategy, including its flexible production strategy, (x) prevent
and detect any issues with its motorcycles or any associated

                                       44
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manufacturing processes to avoid delays in new model launches, recall campaigns,
regulatory agency investigations, increased warranty costs or litigation and
adverse effects on its reputation and brand strength, and carry out any product
programs or recalls within expected costs and timing, (xi) continue to manage
the relationships and agreements that the Company has with its labor unions to
help drive long-term competitiveness, (xii) accurately estimate and adjust to
fluctuations in foreign currency exchange rates, interest rates and commodity
prices, (xiii) manage the credit quality, the loan servicing and collection
activities, and the recovery rates of HDFS' loan portfolio, (xiv) retain and
attract talented employees, (xv) prevent a cybersecurity breach involving
consumer, employee, dealer, supplier, or Company data and respond to evolving
regulatory requirements regarding data security, (xvi) continue to develop the
capabilities of its distributors and dealers and manage the risks that its
independent dealers may have difficulty obtaining capital and managing through
changing economic conditions and consumer demand, (xvii) adjust to tax reform,
healthcare inflation and reform and pension reform, and successfully estimate
the impact of any such reform on the Company's business, (xviii) manage through
the effects inconsistent and unpredictable weather patterns may have on retail
sales of motorcycles, (xix) manage supply chain issues, including quality issues
and any unexpected interruptions or price increases caused by raw material
shortages or natural disasters, (xx) implement and manage enterprise-wide
information technology systems, including systems at its manufacturing
facilities, (xxi) manage changes and prepare for requirements in legislative and
regulatory environments for its products, services and operations, (xxii) manage
its exposure to product liability claims and commercial or contractual disputes,
and (xxiii) successfully access the capital and/or credit markets on terms
(including interest rates) that are acceptable to the Company and within its
expectations.

In addition, the Company could experience delays or disruptions in its
operations as a result of work stoppages, strikes, natural causes, terrorism or
other factors. Other factors are described in risk factors that the Company has
disclosed in documents previously filed with the Securities and Exchange
Commission.

The Company's ability to sell its motorcycles and related products and services
and to meet its financial expectations also depends on the ability of the
Company's independent dealers to sell its motorcycles and related products and
services to retail customers. The Company depends on the capability and
financial capacity of its independent dealers and distributors to develop and
implement effective retail sales plans to create demand for the motorcycles and
related products and services they purchase from the Company. In addition, the
Company's independent dealers and distributors may experience difficulties in
operating their businesses and selling Harley-Davidson motorcycles and related
products and services as a result of weather, economic conditions or other
factors.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign exchange rates,
commodity prices and interest rates. To reduce such risks, the Company
selectively uses derivative financial instruments. All hedging transactions are
authorized and executed pursuant to regularly reviewed policies and procedures,
which prohibit the use of financial instruments for speculative trading
purposes. Sensitivity analysis is used to manage and monitor foreign exchange
and interest rate risk.
The Company sells its products internationally and in most markets those sales
are made in the foreign country's local currency. As a result, the Company's
earnings are affected by fluctuations in the value of the U.S. dollar relative
to foreign currency. The Company's most significant foreign currency risk
relates to the Euro, the Australian dollar, the Japanese yen, the Brazilian
real, the Canadian dollar, the British pound and the Mexican peso. The Company
utilizes foreign currency contracts to mitigate the effect of certain
currencies' fluctuations on earnings. The foreign currency contracts are entered
into with banks and allow the Company to exchange a specified amount of foreign
currency for U.S. dollars at a future date, based on a fixed exchange rate. At
December 31, 2017 and December 31, 2016, the notional U.S. dollar value of
outstanding Euro, Australian dollar, Japanese yen, Brazilian real, Canadian
dollar and Mexican peso foreign currency contracts was $675.7 million and $554.6
million, respectively. The Company estimates that a uniform 10% weakening in the
value of the U.S. dollar relative to the currencies underlying these contracts
would result in a decrease in the fair value of the contracts of approximately
$67.2 million and $52.2 million as of December 31, 2017 and December 31, 2016,
respectively. Further disclosure relating to the fair value of derivative
financial instruments is included in Note 7 of the Notes to Consolidated
Financial Statements.

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

HDFS' earnings are affected by changes in interest rates. HDFS' interest-rate
sensitive financial instruments include finance receivables and debt. With the
exception of short-term commercial paper and debt issued through the commercial
paper

                                       45
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conduit facilities, the majority of HDFS' debt instruments at December 31, 2017
have fixed interest rates. A one-percentage point increase in the interest rate
on commercial paper and debt issued through the commercial paper conduit
facilities would increase Financial Services interest expense in 2018 by
approximately $15 million. This analysis does not consider the effects of the
reduced level of overall economic activity that could exist in such an
environment. Further, in the event of a change in interest rates, HDFS may take
actions to mitigate its exposure to the change. However, due to the uncertainty
of the specific actions that would be taken and their possible effects, the
sensitivity analysis does not account for these impacts.




                                       46

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02/20HARLEY DAVIDSON : Costs Associated with Exit or Disposal Activities (form 8-K/A)
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02/19HARLEY DAVIDSON : Mama Tried Takes Over Milwaukee
PU
02/13HARLEY DAVIDSON : CEO asks investors for patience as sales, stock slide
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02/13HARLEY-DAVIDSON : Ex-dividend day for
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02/12HARLEY-DAVIDSON : Free Post Earnings Research Report: Harley-Davidson’s Quarterl..
AC
02/09U.S. consumer companies a relative refuge in recent market turmoil
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More news
News from SeekingAlpha
02/18Can Trump's Reciprocal Tax Threat Work For Harley-Davidson? 
02/1526 DIVIDEND INCREASES : February 5-9, 2018 (Part 2: Financials And Consumer Disc.. 
02/08Upcoming Dividends; 75 Companies, 33 Increases, 18 Double Digit Increases! 
02/06Polaris Didn't Deserve To Be Off-Roaded 
02/06Harley-Davidson declares $0.37 dividend 
Financials ($)
Sales 2018 4 955 M
EBIT 2018 756 M
Net income 2018 575 M
Debt 2018 5 536 M
Yield 2018 3,26%
P/E ratio 2018 13,94
P/E ratio 2019 11,48
EV / Sales 2018 2,69x
EV / Sales 2019 2,61x
Capitalization 7 792 M
Chart HARLEY-DAVIDSON
Duration : Period :
Harley-Davidson Technical Analysis Chart | HOG | US4128221086 | 4-Traders
Technical analysis trends HARLEY-DAVIDSON
Short TermMid-TermLong Term
TrendsBearishNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 21
Average target price 50,6 $
Spread / Average Target 9,2%
EPS Revisions
Managers
NameTitle
Matthew S. Levatich President, Chief Executive Officer & Director
Michael J. Cave Non-Executive Chairman
Michelle A. Kumbier Senior VP-Motor Company Product & Operations
John A. Olin Chief Financial Officer & Senior Vice President
Sara L. Levinson Independent Director
Sector and Competitors
1st jan.Capitalization (M$)
HARLEY-DAVIDSON-8.27%7 792
BAJAJ AUTO-10.92%13 443
YAMAHA MOTOR CO., LTD.-7.37%11 079
HERO MOTOCORP LTD-8.82%10 721
TVS MOTOR COMPANY LIMITED-17.56%4 626
LONCIN MOTOR CO LTD-8.40%2 116