UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2018~~March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-9183

Harley-Davidson, Inc.

(Exact name of registrant as specified in its charter)



Wisconsin		39-1382325
(State of organization)		(I.R.S. Employer Identification No.)

3700 West Juneau Avenue Milwaukee, Wisconsin		53208
(Address of principal executive offices)		(Zip code)

Registrants telephone number: (414) 342-4680

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Securities Registered Pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
COMMON STOCK PAR VALUE $.01 PER SHARE	HOG	NEW YORK STOCK EXCHANGE

Number of shares of the registrant’s common stock outstanding at ~~November 2, 2018: 162,832,750~~May 3, 2019: 159,072,779 shares

Harley-Davidson, Inc.

Form 10-Q

For The Quarter Ended ~~September 30, 2018~~March 31, 2019

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three months ended					Nine months ended				Three months ended
	September 30, 2018			September 24, 2017		September 30, 2018		September 24, 2017		March 31, 2019		April 1, 2018
Revenue:
Motorcycles and Related Products	$	1,123,945		$	962,136	$	4,013,013	$	3,867,982	$	1,195,637	$	1,363,947
Financial Services	191,724			189,059		558,000		550,314		188,743		178,174
Total revenue	1,315,669			1,151,195		4,571,013		4,418,296		1,384,380		1,542,121
Costs and expenses:
Motorcycles and Related Products cost of goods sold	776,530			687,823		2,659,740		2,545,884		848,198		890,174
Financial Services interest expense	44,696			46,169		145,089		133,866		52,324		48,450
Financial Services provision for credit losses	23,530			29,253		72,462		99,059		34,491		30,052
Selling, administrative and engineering expense	306,665			293,538		909,898		856,606		268,625		290,186
Restructuring expense	14,832			—		74,044		—		13,630		46,842
Total costs and expenses	1,166,253			1,056,783		3,861,233		3,635,415		1,217,268		1,305,704
Operating income	149,416			94,412		709,780		782,881		167,112		236,417
Other income (expense), net	644			2,296		1,509		6,887		4,660		220
Investment (loss) income	(1,106		)	1,083		2,630		2,539
Investment income										6,358		1,203
Interest expense	7,762			7,896		23,180		23,295		7,731		7,690
Income before provision for income taxes	141,192			89,895		690,739		769,012		170,399		230,150
Provision for income taxes	27,337			21,686		159,783		255,567		42,454		55,387
Net income	$	113,855		$	68,209	$	530,956	$	513,445	$	127,945	$	174,763
Earnings per common share:
Basic	$	0.69		$	0.40	$	3.18	$	2.96	$	0.80	$	1.04
Diluted	$	0.68		$	0.40	$	3.17	$	2.95	$	0.80	$	1.03
Cash dividends per common share	$	0.370		$	0.365	$	1.110	$	1.095	$	0.375	$	0.370

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

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three months ended						Nine months ended						Three months ended
	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018
Net income	$	113,855		$	68,209		$	530,956		$	513,445		$	127,945		$	174,763
Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:
Foreign currency translation adjustments	(2,212		)	25,013			(21,779		)	50,207			331			6,915
Derivative financial instruments	123			(17,407		)	24,808			(36,871		)	(441		)	765
Marketable securities	—			—			—			1,194
Pension and postretirement benefit plans	12,401			7,257			110,568			21,769			7,743			85,765
Total other comprehensive income, net of tax	10,312			14,863			113,597			36,299			7,633			93,445
Comprehensive income	$	124,167		$	83,072		$	644,553		$	549,744		$	135,578		$	268,208

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

HARLEY-DAVIDSON, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	(Unaudited)						(Unaudited)			(Unaudited)						(Unaudited)
	September 30, 2018			December 31, 2017			September 24, 2017			March 31, 2019			December 31, 2018			April 1, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	926,992		$	687,521		$	683,134		$	749,600		$	1,203,766		$	753,517
Marketable securities	10,011			—			—			10,003			10,007			—
Accounts receivable, net	332,309			329,986			343,124			353,541			306,474			355,107
Finance receivables, net	2,116,386			2,105,662			2,058,168			2,443,899			2,214,424			2,341,918
Inventories	516,247			538,202			469,091			595,806			556,128			564,571
Restricted cash	36,471			47,518			52,209			43,471			49,275			54,569
Other current assets	151,042			175,853			182,416			177,761			144,368			150,472
Total current assets	4,089,458			3,884,742			3,788,142			4,374,081			4,484,442			4,220,154
Finance receivables, net	5,187,176			4,859,424			5,042,857			4,994,693			5,007,507			4,784,524
Property, plant and equipment, net	884,960			967,781			934,615			876,003			904,132			934,645
Prepaid pension costs	140,763			19,816			—			—			—			122,230
Goodwill	55,318			55,947			55,898			64,131			55,048			56,524
Deferred income taxes	63,559			109,073			180,575			132,988			141,464			77,624
Lease assets										55,305			—			—
Other long-term assets	82,566			75,889			86,272			83,412			73,071			81,920
	$	10,503,800		$	9,972,672		$	10,088,359		$	10,580,613		$	10,665,664		$	10,277,621
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	310,967		$	227,597		$	277,117		$	380,918		$	284,861		$	319,040
Accrued liabilities	564,832			529,822			573,958			644,171			601,130			566,408
Short-term debt	1,373,859			1,273,482			834,875			1,192,925			1,135,810			1,036,976
Current portion of long-term debt, net	1,526,156			1,127,269			1,530,401			1,372,050			1,575,799			1,872,679
Total current liabilities	3,775,814			3,158,170			3,216,351			3,590,064			3,597,600			3,795,103
Long-term debt, net	4,196,517			4,587,258			4,607,791			4,744,694			4,887,667			4,108,511
Pension liability	54,138			54,606			52,471
Postretirement healthcare liability	112,798			118,753			162,925
Lease liabilities										39,516			—			—
Pension liabilities										98,862			107,776			54,921
Postretirement healthcare liabilities										93,897			94,453			113,031
Other long-term liabilities	211,561			209,608			192,001			215,969			204,219			210,106
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 17)
Shareholders’ equity:
Preferred stock, none issued	—			—			—			—			—			—
Common stock	1,819			1,813			1,813			1,826			1,819			1,818
Additional paid-in-capital	1,453,035			1,422,808			1,413,254			1,465,581			1,459,620			1,432,692
Retained earnings	1,958,445			1,607,570			1,660,997			2,074,669			2,007,583			1,725,626
Accumulated other comprehensive loss	(386,452		)	(500,049		)	(529,082		)	(622,051		)	(629,684		)	(406,604		)
Treasury stock, at cost	(873,875		)	(687,865		)	(690,162		)	(1,122,414		)	(1,065,389		)	(757,583		)
Total shareholders’ equity	2,152,972			1,844,277			1,856,820			1,797,611			1,773,949			1,995,949
	$	10,503,800		$	9,972,672		$	10,088,359		$	10,580,613		$	10,665,664		$	10,277,621

HARLEY-DAVIDSON, INC.

CONSOLIDATED BALANCE SHEETS (continued)

(In thousands)


	(Unaudited)				(Unaudited)		(Unaudited)				(Unaudited)
	September 30, 2018		December 31, 2017		September 24, 2017		March 31, 2019		December 31, 2018		April 1, 2018
Balances held by consolidated variable interest entities (Note 11)
Balances held by consolidated variable interest entities (Note 13)
Current finance receivables, net	$	128,005	$	194,813	$	204,873	$	130,454	$	175,043	$	182,033
Other assets	$	1,408	$	2,148	$	2,440	$	1,416	$	1,563	$	2,175
Non-current finance receivables, net	$	331,415	$	521,940	$	579,936	$	480,936	$	591,839	$	464,185
Restricted cash - current and non-current	$	33,726	$	48,706	$	55,307	$	39,764	$	47,203	$	55,140
Current portion of long-term debt, net	$	140,189	$	209,247	$	225,267	$	137,488	$	189,693	$	205,055
Long-term debt, net	$	253,329	$	422,834	$	484,874	$	408,153	$	488,191	$	361,049

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

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine months ended						Three months ended
	September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018
Net cash provided by operating activities (Note 7)	$	1,122,555		$	949,075
Net cash provided by operating activities (Note 8)							$	32,671		$	191,594
Cash flows from investing activities:
Capital expenditures	(119,845		)	(114,022		)	(35,255		)	(28,436		)
Origination of finance receivables	(3,039,160		)	(2,927,372		)	(851,372		)	(798,067		)
Collections on finance receivables	2,564,695			2,480,122			815,824			809,800
Acquisition of business							(7,000		)	—
Other	(21,753		)	7,272			603			(4,948		)
Net cash used by investing activities	(616,063		)	(554,000		)	(77,200		)	(21,651		)
Cash flows from financing activities:
Proceeds from issuance of medium-term notes	1,144,018			893,668			546,655			347,553
Repayments of medium-term notes	(877,488		)	(400,000		)	(750,000		)	—
Repayments of securitization debt	(224,507		)	(367,298		)	(76,505		)	(67,955		)
Borrowings of asset-backed commercial paper	120,903			371,253			—			35,504
Repayments of asset-backed commercial paper	(156,258		)	(129,690		)	(72,401		)	(45,907		)
Net increase (decrease) in credit facilities and unsecured commercial paper	102,154			(225,038		)	58,527			(234,145		)
Dividends paid	(186,105		)	(190,121		)	(60,859		)	(62,731		)
Purchase of common stock for treasury	(195,998		)	(465,167		)	(61,712		)	(72,968		)
Issuance of common stock under employee stock option plans	3,157			7,884			616			1,719
Net cash used by financing activities	(270,124		)	(504,509		)	(415,679		)	(98,930		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(12,567		)	28,817			(409		)	2,034
Net increase (decrease) in cash, cash equivalents and restricted cash	$	223,801		$	(80,617	)
Net (decrease) increase in cash, cash equivalents and restricted cash							$	(460,617	)	$	73,047
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash—beginning of period	$	746,210		$	827,131		$	1,259,748		$	746,210
Net increase (decrease) in cash, cash equivalents and restricted cash	223,801			(80,617		)
Net (decrease) increase in cash, cash equivalents and restricted cash							(460,617		)	73,047
Cash, cash equivalents and restricted cash—end of period	$	970,011		$	746,514		$	799,131		$	819,257

Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheet:
Cash and cash equivalents	$	926,992		$	683,134		$	749,600		$	753,517
Restricted cash	36,471			52,209			43,471			54,569
Restricted cash included in other long-term assets	6,548			11,171			6,060			11,171
Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows	$	970,011		$	746,514		$	799,131		$	819,257

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

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands, except share amounts)

(Unaudited)



	Common Stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Balance			Total
	Issued Shares	Balance		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Balance			Total
Balance December 31, 2018	181,931,225	$	1,819	$	1,459,620	$	2,007,583		$	(629,684	)	$	(1,065,389	)	$	1,773,949
Net income	—	—		—		127,945			—			—			127,945
Total other comprehensive income, net of tax (Note 18)	—	—		—		—			7,633			—			7,633
Dividends	—	—		—		(60,859		)	—			—			(60,859		)
Repurchase of common stock	—	—		—		—			—			(61,712		)	(61,712		)
Share-based compensation	702,687	7		5,961		—			—			4,687			10,655
Balance March 31, 2019	182,633,912	$	1,826	$	1,465,581	$	2,074,669		$	(622,051	)	$	(1,122,414	)	$	1,797,611

	Common Stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Balance			Total
	Issued Shares	Balance		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Balance			Total
Balance December 31, 2017	181,286,547	$	1,813	$	1,422,808	$	1,607,570		$	(500,049	)	$	(687,865	)	$	1,844,277
Net income	—	—		—		174,763			—			—			174,763
Total other comprehensive income, net of tax (Note 18)	—	—		—		—			93,445			—			93,445
Dividends	—	—		—		(62,731		)	—			—			(62,731		)
Repurchase of common stock	—	—		—		—			—			(72,968		)	(72,968		)
Share-based compensation	489,896	5		9,884		—			—			3,250			13,139
Cumulative effect of change in accounting	—	—		—		6,024			—			—			6,024
Balance April 1, 2018	181,776,443	$	1,818	$	1,432,692	$	1,725,626		$	(406,604	)	$	(757,583	)	$	1,995,949

HARLEY-DAVIDSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Use of Estimates

The consolidated financial statements include the accounts of Harley-Davidson, Inc. and its wholly-owned subsidiaries (the Company), including the accounts of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). In addition, certain variable interest entities (VIEs) related to secured financing are consolidated as the Company is the primary beneficiary. All intercompany accounts and material intercompany transactions are eliminated.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated balance sheets as of ~~September 30, 2018~~March 31, 2019 and ~~September 24, 2017~~April 1, 2018, the consolidated statements of income for the three ~~and nine~~ month periods then ended, the consolidated statements of comprehensive income for the three ~~and nine~~ month periods then ended, the consolidated statements of cash flows for the three month periods then ended, and the consolidated statements of ~~cash flows~~shareholders' equity for the ~~nine~~three month periods then ended.

Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. These consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

The Company operates in two reportable segments: Motorcycles and Related Products (Motorcycles) and Financial Services.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

2. New Accounting Standards

Accounting Standards Recently Adopted

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09 Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 on January 1, 2018. The Company applied the standard to all contracts using the modified retrospective method. As such, the Company recognized the cumulative effect of the adoption as an adjustment to the opening balance of retained earnings. The comparative information has not been restated.

The majority of the Company’s Motorcycles and Related Products revenue will continue to be recognized when products are shipped to customers. For a limited number of vehicle sales where revenue was previously deferred due to a guaranteed resale value, the Company will now recognize revenue when those vehicles are shipped in accordance with ASU 2014-09. The Company recorded a net increase to the opening balance of retained earnings of $6.0 million, net of income taxes, as of January 1, 2018 as a result of adopting ASU 2014-09. The Company also adjusted other assets and accrued liabilities associated with these vehicle sales in connection with its adoption of ASU 2014-09.

The majority of the Financial Services segment’s revenues relate to loan and servicing activities which are outside the scope of this guidance. Financial Services revenues that fall under the scope of ASU 2014-09 continue to be recognized at the point of sale, or over the estimated life of the contract, as appropriate.

~~The following tables illustrate the impact of adoption of ASU 2014-09 on the consolidated statements of income and the consolidated balance sheet (in thousands):~~

~~Consolidated Statements of Income~~

Three months ended September 30, 2018 Nine months ended September 30, 2018
As Reported Without Adoption of ASC 606 Effect of Change As Reported Without Adoption of ASC 606 Effect of Change
Revenue:
Motorcycles and Related Products $ 1,123,945
$ 1,125,698
$ (1,753 ) $ 4,013,013
$ 3,994,066
$ 18,947
Costs and expenses:
Motorcycles and Related Products cost of goods sold $ 776,530
$ 775,831
$ 699
$ 2,659,740
$ 2,640,454
$ 19,286
Operating income $ 149,416
$ 151,868
$ (2,452 ) $ 709,780
$ 710,119
$ (339 )
Income before provision for income taxes $ 141,192
$ 143,644
$ (2,452 ) $ 690,739
$ 691,078
$ (339 )
Provision for income taxes $ 27,337
$ 27,931
$ (594 ) $ 159,783
$ 159,865
$ (82 )
Net income $ 113,855
$ 115,713
$ (1,858 ) $ 530,956
$ 531,213
$ (257 )

~~Consolidated Balance Sheet~~

September 30, 2018
As Reported Without Adoption of ASC 606 Effect of Change
ASSETS
Other current assets $ 151,042
$ 186,784
$ (35,742 )
Deferred income taxes $ 63,559
$ 65,407
$ (1,848 )

LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities $ 564,832
$ 608,189
$ (43,357 )
Retained earnings $ 1,958,445
$ 1,952,678
$ 5,767

In March 2017, the FASB issued ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 amends ASC 715, Compensation - Retirement Benefits by requiring employers to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost will be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. The guidance also limits the components that are eligible for capitalization in assets. The Company adopted ASU 2017-07 retrospectively on January 1, 2018. As a result, the non-service cost components of net periodic benefit cost have been presented in Other income (expense), net and the prior period has been recast to reflect the new presentation. The Company elected the practical expedient allowing the use of previously disclosed benefit components as the basis for the retrospective application. Net periodic benefit credit (cost) previously recorded in Motorcycles and Related Products cost of goods sold and Selling, administrative and engineering expense of $2.7 million and $(0.4) million, respectively, for the three months ended September 24, 2017, and $8.0 million and $(1.1) million, respectively, for the nine months ended September 24, 2017, has been reclassified to Other income (expense), net.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As such, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted ASU 2016-18 on January 1, 2018 on a retrospective basis. As a result, the change in restricted cash has been excluded from financing activities and included in the change in cash, cash equivalents and restricted cash and the prior period has been recast to reflect the new presentation.

In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 enhances the existing financial instruments reporting model by modifying fair value measurement tools, simplifying impairment assessments for certain equity instruments and modifying overall presentation and disclosure requirements. The ASU was subsequently amended by ASU No. 2018-03 and ASU No. 2018-04. The Company adopted ASU 2016-01 on January 1, 2018 on a prospective basis. The adoption of ASU 2016-01 did not have a material impact on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses eight specific cash flow items with the objective of reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement of cash flows. The Company adopted ASU 2016-15 on January 1, 2018 on a retrospective basis. The adoption of ASU 2016-15 did not have a material impact on its financial statements.

In October 2016, the FASB issued ASU No. 2016-16 Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). ASU 2016-16 states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted ASU 2016-16 on January 1, 2018 using a modified retrospective approach. The adoption of ASU 2016-16 did not have a material impact on its financial statements.

~~Accounting Standards Not Yet Adopted~~

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (ASU 2016-02). ASU 2016-02 amends the existing lease accounting model by requiring a lessee to recognize the rights and obligations resulting from certain leases as assets and liabilities on the balance sheet. ASU 2016-02 also requires a company to disclose key information about their leasing arrangements. The Company ~~is required to adopt~~adopted ASU 2016-02 ~~for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018~~on January 1, 2019 using a modified retrospective approach. Pursuant to ASU 2018-11, Leases (Topic 842): Targeted Improvements, the Company ~~plans to apply~~applied the new leases standard at the adoption date and ~~recognize~~recognized a cumulative effect adjustment to the opening balance sheet on January 1, 2019.

The Company elected the package of ~~retained earnings in the period of~~practical expedients upon transition that allows entities not to reassess lease identification, classification and initial direct costs for leases that existed prior to adoption. The Company ~~is currently in~~also elected the ~~process~~short-term lease practical expedient that allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of ~~gathering and analyzing information necessary to quantify the impact of adopting ASU 2016-02 and evaluating the transition practical expedients it will apply upon adoption.~~12 months or less. The Company ~~anticipates~~has elected the practical expedient allowing entities to not separate non-lease components from lease components, but instead account for such components as a single lease component for all leases except leases involving assets operated by a third-party.

The adoption of ASU 2016-02 ~~will result~~resulted in ~~an increase in~~the initial recognition of right of use assets and lease liabilities ~~recognized on the balance sheet~~ related to the Company's leasing arrangements totaling approximately $60 million on January 1, 2019. The adoption of ASU 2016-02 had no impact on opening retained earnings on January 1, 2019 and is not expected to materially impact consolidated net income or cash flows on an on-going basis.

In August 2017, the FASB issued ASU No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 amends ASC 815, Derivatives and Hedging to improve the financial reporting of hedging relationships and to simplify the application of the hedge accounting guidance. The ASU makes various updates to the hedge accounting model, including changing the recognition and presentation of changes in the fair value of the hedging instrument and amending disclosure requirements, among other things. The Company adopted ASU 2017-12 on January 1, 2019. The adoption of ASU 2017-12 did not have a material impact on its ~~leasing arrangements.~~financial statements.

Accounting Standards Not Yet Adopted

In July 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. The Company is required to adopt ASU 2016-13 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019 on a modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2018. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. Adoption of this standard will impact how the Company recognizes credit losses on its financial instruments. The Company is currently evaluating the impact of adoption of ASU 2016-13 but anticipates the adoption of ASU 2016-13 will result in an increase in the annual provision for credit losses and the related allowance for credit losses.

In January 2017, the FASB issued ASU No. 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill. Rather, the goodwill impairment is calculated by comparing the fair value of a reporting unit to its carrying value, and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. All reporting units apply the same impairment test under the new standard. The Company is required to adopt ASU 2017-04 for its annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

In August ~~2017,~~2018, the FASB issued ASU No. ~~2017-12 Derivatives and Hedging~~2018-13, Fair Value Measurement (Topic ~~815)~~820): ~~Targeted Improvements~~Disclosure Framework - Changes to ~~Accounting~~the Disclosure Requirements for ~~Hedging Activities~~Fair Value Measurement (ASU ~~2017-12)~~2018-13). ASU ~~2017-12~~2018-13 amends ASC ~~815, Derivatives~~820 to eliminate, modify, and Hedging to improve the financial reporting of hedging relationships and to simplify the application of the hedge accounting guidance. The ASU makes various updates to the hedge accounting model, including changing the recognition and presentation of changes in theadd certain disclosure requirements for fair value ~~of the hedging instrument and amending disclosure requirements, among other things.~~measurements. The ~~Company~~guidance is ~~required to adopt ASU 2017-12~~effective for fiscal years beginning after December 15, ~~2018,~~2019 and for interim periods within those fiscal years. Early adoption is

permitted in any ~~interim~~ period, ~~after issuance of~~for either the ~~ASU. For cash flow and net investment hedges existing at~~whole standard or only the ~~date of adoption, the Company must apply a cumulative effect adjustment as of the beginning of the fiscal year in which the standard is adopted.~~provisions that eliminate or modify requirements. The amendments ~~related to presentation and disclosure~~ are required ~~prospectively.~~to be applied retrospectively, with the exception of a few disclosure additions, which are to be applied on a prospective basis. The Company is currently evaluating the impact of adopting ASU ~~2017-12.~~

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). Under existing U.S. GAAP, the effects of changes in tax rates and laws2018-13, but does not believe that it will have a significant impact on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company’s provisional adjustments recorded in 2017 to account for the impact of the 2017 Tax Cuts and Jobs Act resulted in stranded tax effects. The Company is currently evaluating the impact of adopting ASU 2018-02.

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) (ASU 2018-14). The amendments in ASU 2018-14 modify the annual disclosure requirements for defined benefit pension and other postretirement benefit plans. The FASB modified, added, and deleted specific disclosures in an effort to improve usefulness to financial statement users and reduce unnecessary costs for companies. The amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2018-14.its disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) (ASU 2018-15). The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the existing internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2018-15.

~~3. Revenue~~

~~The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer.~~3. Revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue.

The following table includes revenue disaggregated by major source (in thousands):

Three months ended Nine months ended
September 30, 2018 September 30, 2018
Motorcycles and Related Products:
Motorcycles $ 821,670
$ 3,144,796
Parts & Accessories 212,406
612,495
General Merchandise 58,266
183,520
Licensing 10,680
29,445
Other 20,923
42,757
Revenue from Motorcycles and Related Products 1,123,945
4,013,013
Financial Services:
Interest income 166,013
478,693
Securitization and servicing fee income 260
916
Other income 25,451
78,391
Revenue from Financial Services 191,724
558,000
Total revenue $ 1,315,669
$ 4,571,013

~~The following is a description of principal activities from which the Company generates its revenue, by reportable segment.~~

~~Motorcycles and Related Products~~

~~Motorcycles, Parts & Accessories, and General Merchandise -~~ Sales of motorcycles, parts & accessories, and general merchandise are recorded when control is transferred to wholesale customers (independent dealers). This generally takes place upon shipment of the products. The sale of products to independent dealers outside the U.S. and Canada is generally on open account with terms that generally approximate 30-120 days and the resulting receivables are included in accounts receivable in the consolidated balance sheets. The sale of products in the U.S. and Canada is financed by the purchasing dealers through HDFS and the related receivables are included in finance receivables in the consolidated balance sheets.

The Company offers sales incentive programs to dealers and retail customers designed to promote the sale of motorcycles, parts & accessories, and general merchandise. The Company estimates its variable consideration related to motorcycles and related products sold under its sales incentive programs using the expected value method. Further, the Company accounts for consideration payable to a customer as part of its sales incentives as a reduction of revenue, which is accrued at the later of the date the related sale is recorded or the date the incentive program is both approved and communicated.

The Company offers to its dealers the right to return eligible parts & accessories and general merchandise. When the Company offers a right to return, it estimates returns based on an analysis of historical trends and records revenue on the initial sale only in the amount that it expects to be entitled. The remaining consideration is deferred in a refund liability account. The refund liability is remeasured for changes in the estimate at each reporting date with a corresponding adjustment to revenue.

Variable consideration related to sales incentives and rights to return is adjusted at the earliest of when the amount of consideration the Company expects to receive changes or the consideration becomes fixed. Adjustments for variable consideration related to previously recognized sales decreased revenue by an immaterial amount during the three and nine months ended September 30, 2018.

Shipping and handling costs associated with freight after control of a product has transferred to a customer are accounted for as fulfillment costs. The Company accrues for the shipping and handling in the same period that the related revenue is recognized.

The Company offers standard, limited warranties on its motorcycles and parts & accessories. These warranties provide assurance that the product will function as expected and are not separate performance obligations. The Company accounts for estimated warranty costs as a liability when control of the product transfers to the customer.

~~Licensing~~ - The Company licenses the name “Harley-Davidson” and other trademarks owned by the Company and collects royalties from its customers (licensees). The trademark licenses are considered symbolic intellectual property, which grant the customer a right to access the Company’s intellectual property. The Company satisfies its performance obligation over the license period, as the Company fulfills its promise to grant the customer rights to use and benefit from the intellectual property as well as maintain the intellectual property.

Payment is typically due within thirty days of the end of each quarter, for the royalties earned in that quarter. Revenue, in the form of sales-based royalties, is recognized when the customers’ subsequent sales occur. The Company applies the practical expedient in ASC 606-10-55-18 to recognize licensing revenues in the amount that the Company has the right to invoice because the royalties due each period correspond directly with the value of the Company’s performance to date. Revenue will be recognized over the remaining contract terms which range up to 6 years.

~~Other Revenue~~ - Other Revenue consists primarily of revenue from Harley Ownership Group (H.O.G.) membership sales, motorcycle rental commissions, dealer software sales, museum admissions and events, and other miscellaneous products and services.

~~Financial Services~~

~~Interest income~~ - Interest income on finance receivables is recorded as earned and is based on the average outstanding daily balance for wholesale and retail receivables. Accrued and uncollected interest is classified with finance receivables. Certain loan origination costs related to finance receivables, including payments made to dealers for certain retail loans, are deferred and recorded within finance receivables and amortized over the estimated life of the contract.

~~Securitization and servicing fee income~~ - Securitization and servicing fee income consists of revenue from servicing and ancillary fees associated with HDFS' off-balance sheet asset-backed securitization transaction. Refer to Note 11 of the Notes to Consolidated Financial Statements for further discussion regarding asset-backed financing.

~~Other income~~ - Other income consists primarily of insurance and licensing revenues. HDFS works with certain unaffiliated insurance companies to offer motorcycle insurance and protection products through most Harley-Davidson dealers in the U.S. and Canada. HDFS also works with third-party financial institutions that issue credit cards or offer other financial products bearing the Harley-Davidson brand in the U.S and internationally. For many of these contracts, the Company grants temporary rights to use the licensed trademarks owned by the Company and collects royalties from its customers in connection with sales of their products. The trademark licenses are considered symbolic intellectual property, which grant the customer a right to access the intellectual property. The Company satisfies its performance obligation over the license period, as it fulfills its promise to grant the customer rights to use and benefit from the intellectual property as well as maintain the intellectual property. Royalty and profit sharing amounts are received either quarterly or per annum, based upon the contract. Revenue, in the form of sales-based royalties, is recognized when the customers’ subsequent sales occur. Revenue will be recognized over the remaining contract terms which range up to 6 years. The Company is the primary obligor for certain other insurance related contracts and, as a result, revenue is recognized over the life of the contract as the Company fulfills its performance obligation.

~~Contract Liabilities~~



	Three months ended
	March 31, 2019		April 1, 2018
Motorcycles and Related Products:
Motorcycles	$	964,575	$	1,121,673
Parts & Accessories	159,703		169,075
General Merchandise	55,401		56,601
Licensing	8,577		8,358
Other	7,381		8,240
Revenue from Motorcycles and Related Products	1,195,637		1,363,947
Financial Services:
Interest income	159,804		154,041
Securitization and servicing fee income	189		352
Other income	28,750		23,781
Revenue from Financial Services	188,743		178,174
Total revenue	$	1,384,380	$	1,542,121

Deferred revenue relates to payments received at contract inception in advance of the Company’s performance under the contract and generally relates to the sale of ~~H.O.G.~~Harley Ownership Group memberships and extended service plan contracts. Deferred revenue is recognized as revenue as the Company performs under the contract. ~~On January 1, 2018, $23.4 million of deferred~~Deferred revenue, ~~was~~ included in Accrued liabilities and Other long-term liabilities inon the consolidated balance ~~sheet. $6.9 million and $16.0 million of this~~sheet, was as follows (in thousands):



	March 31, 2019		April 1, 2018
Balance, beginning of year	$	29,055	$	23,441
Balance, end of period	30,228		27,624

Previously deferred revenue recognized as revenue in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and April 1, 2018 ~~respectively. At September 30, 2018, the unearned revenue balance~~ was ~~$30.5 million.~~$6.1 million and $4.0 million, respectively. The Company expects to recognize approximately ~~$6.0~~$16.2 million of the remaining unearned revenue ~~in 2018, $12.3~~over the next 12 months and $14.0 million ~~in 2019 and $12.2 million~~ thereafter.

4. Restructuring Expenses

In January 2018, the Company initiated a plan to further improve its manufacturing operations and cost structure by commencing a multi-year manufacturing optimization plan which includes the consolidation of its motorcycle assembly plant in Kansas City, Missouri, into its plant in York, Pennsylvania, and the closure of its wheel operations in Adelaide, ~~Australia.~~Australia (Manufacturing Optimization Plan). As the U.S. 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 through 2019. Approximately 90 jobs will be eliminated in Adelaide.

The Company expects to incur restructuring and other consolidation costs of ~~$155~~$152 million to ~~$185~~$162 million in the Motorcycles segment related to ~~this plan~~the Manufacturing Optimization Plan through 2019, of which approximately 70% will be cash charges. ~~These cost estimates reflect a $15 million decrease from the Company's previous estimate.~~

The current estimate includes ~~$125~~$129 million to ~~$145~~$134 million of restructuring expense and ~~$30~~$23 million to ~~$40~~$28 million of costs related to temporary inefficiencies. The Company expects restructuring expenses to include the cost of employee termination benefits, accelerated depreciation, and other project implementation costs of $40 million to ~~$45~~$41 million, ~~$50~~$51 million to ~~$55~~$53 million, and ~~$35~~$38 million to ~~$45~~$40 million, respectively.

In November 2018, the Company implemented a reorganization of its workforce (Reorganization Plan). As a result, approximately 70 employees left the Company on an involuntary basis.

Restructuring expense related to these plans is recorded as a separate line item in the consolidated statements of income and the accrued restructuring liability is recorded in ~~accrued~~Accrued liabilities in on the consolidated balance sheet. The Company expects the ~~plan~~plans to be completed by mid-2019. Changes in the accrued restructuring liability (in thousands) were as follows:


													Three months ended March 31, 2019
	Three months ended September 30, 2018												Manufacturing Optimization Plan												Reorganization Plan
	Employee Termination Benefits			Accelerated Depreciation			Other			Total			Employee Termination Benefits			Accelerated Depreciation			Other			Total			Employee Termination Benefits			Total
Balance, beginning of period	$	36,758		$	—		$	77		$	36,835		$	24,958		$	—		$	79		$	25,037		$	3,461		$	28,498
Restructuring (benefit) expense	(649		)	9,420			6,061			14,832
Restructuring expense (benefit)													9			8,379			5,636			14,024			(394		)	13,630
Utilized - cash	(5,402		)	—			(6,053		)	(11,455		)	(2,600		)	—			(5,528		)	(8,128		)	(2,014		)	(10,142		)
Utilized - non cash	—			(9,420		)	—			(9,420		)	—			(8,379		)	—			(8,379		)	—			(8,379		)
Foreign currency changes	(140		)	—			(2		)	(142		)	34			—			—			34			(2		)	32
Balance, end of period	$	30,567		$	—		$	83		$	30,650		$	22,401		$	—		$	187		$	22,588		$	1,051		$	23,639


													Three months ended April 1, 2018
	Nine months ended September 30, 2018												Manufacturing Optimization Plan												Reorganization Plan
	Employee Termination Benefits			Accelerated Depreciation			Other			Total			Employee Termination Benefits			Accelerated Depreciation			Other			Total			Employee Termination Benefits		Total
Balance, beginning of period	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Restructuring expense	38,956			24,779			10,309			74,044			40,791			5,613			438			46,842			—		46,842
Utilized - cash	(7,835		)	—			(10,220		)	(18,055		)	(2,300		)	—			(374		)	(2,674		)	—		(2,674		)
Utilized - non cash	—			(24,779		)	—			(24,779		)	—			(5,613		)	—			(5,613		)	—		(5,613		)
Foreign currency changes	(554		)	—			(6		)	(560		)	(204		)	—			(1		)	(205		)	—		(205		)
Balance, end of period	$	30,567		$	—		$	83		$	30,650		$	38,287		$	—		$	63		$	38,350		$	—	$	38,350

During the three months ended ~~September 30, 2018,~~March 31, 2019, the ~~Company~~restructuring liability was adjusted ~~its termination benefit liability~~ to reflect updated assumptions resulting in a reversal of approximately ~~$0.9~~$0.4 million of previously recognized restructuring expense.

During the three months ended March 31, 2019 and ~~nine month periods ended September 30,~~April 1, 2018, the Company incurred ~~$6.2~~$3.6 million and ~~$9.3~~$0.7 million, respectively, of incremental cost of goods sold due to temporary inefficiencies resulting from implementing the ~~manufacturing optimization plan.~~Manufacturing Optimization Plan.

5. Income Taxes

The Company’s ~~2018~~2019 effective income tax rate for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was ~~23.1%~~24.9% compared to ~~33.2%~~24.1% for the nine months ended September 24, 2017. The Company's 2018 effective income tax rate reflects the impact of the 2017 Tax Cuts and Jobs Act (2017 Tax Act) that was enacted in December of 2017, as well as discrete tax benefits associated with reductions to the liability for uncertain tax positions and adjustments to the SAB 118 provisional amounts recorded in 2017.

The 2017 Tax Act included broad and complex changes to the U.S. tax code including a reduction of the corporate income tax rate from 35% to 21%, the move toward a territorial tax system, and the elimination of the domestic manufacturing deduction. During the three months ended December 31, 2017, the Company recorded a $53.1 million tax expense to recognize the initial effects of the 2017 Tax Act relating primarily to the remeasurement of deferred tax assets. The Company has deemed its income tax estimates related to the 2017 Tax Act to be provisional under SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118). The Company believes future guidance, interpretations, and pronouncements may add clarity to the numerous aspects of the 2017 Tax Act that may impact the Company and may result in revisions to the Company’s provisional estimates. During the nine month period ended September 30, 2018, the Company recorded a $7.2 million benefit to adjust the 2017 provisional remeasurement of deferred tax assets related to the 2017 Tax Act.April 1, 2018.

6. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):


	Three months ended				Nine months ended				Three months ended
	September 30, 2018		September 24, 2017		September 30, 2018		September 24, 2017		March 31, 2019		April 1, 2018
Numerator:
Net income used in computing basic and diluted earnings per share	$	113,855	$	68,209	$	530,956	$	513,445	$	127,945	$	174,763
Denominator:
Denominator for basic earnings per share - weighted-average common shares	165,927		169,850		166,885		173,362		159,311		168,139
Effect of dilutive securities - employee stock compensation plan	737		838		796		941		715		1,035
Denominator for diluted earnings per share - adjusted weighted-average shares outstanding	166,664		170,688		167,681		174,303		160,026		169,174
Earnings per common share:
Basic	$	0.69	$	0.40	$	3.18	$	2.96	$	0.80	$	1.04
Diluted	$	0.68	$	0.40	$	3.17	$	2.95	$	0.80	$	1.03

Outstanding options to purchase ~~0.8~~1.2 million and ~~0.9~~1.0 million shares of common stock for the three months ended ~~September 30,~~March 31, 2019 and April 1, 2018, ~~and September 24, 2017, respectively, and 1.1 million and 0.8 million shares of common stock for the nine months ended September 30, 2018 and September 24, 2017,~~ respectively, were not included in the Company’s computation of dilutive securities because the exercise price was greater than the market price, and therefore, the effect would have been anti-dilutive.

The Company has a share-based compensation plan under which employees may be granted share-based awards including restricted stock units (RSUs). Non-forfeitable dividend equivalents are paid on unvested RSUs. As such, RSUs are considered participating securities under the two-class method of calculating earnings per share as described in ASC Topic 260, “Earnings per Share.” The two-class method of calculating earnings per share did not have a material impact on the Company’s earnings per share calculation for the three ~~and nine~~ month periods ended ~~September 30, 2018~~March 31, 2019 and ~~September 24, 2017~~April 1, 2018.

7. Acquisition

On March 4, 2019, the Company purchased certain assets and liabilities of StaCyc, Inc. for total consideration of $14.9 million including cash paid at acquisition of $7.0 million. StaCyc produces electric-powered two-wheelers specifically designed for children and supports the Company’s plans to expand its portfolio of electric two-wheeled vehicles.

The Company has completed a provisional allocation of the purchase consideration which is subject to change upon the completion of the Company’s final valuation of acquired assets and liabilities. The primary assets acquired and included in the Motorcycles segment were goodwill of $9.5 million, which is expected to be tax deductible, and intangible assets of $5.3 million.

8. Additional Balance Sheet and Cash Flow Information

Investments in Marketable Securities

The Company’s marketable securities consisted of the following (in thousands):


	September 30, 2018		December 31, 2017		September 24, 2017		March 31, 2019		December 31, 2018		April 1, 2018
Certificate of deposit	$	10,011	$	—	$	—
Debt securities							$	10,003	$	10,007	$	—
Mutual funds	49,832		48,006		45,726		49,896		44,243		49,402
Total marketable securities	$	59,843	$	48,006	$	45,726	$	59,899	$	54,250	$	49,402

The ~~Company's~~ debt securities, which are included in Marketable securities on the consolidated balance sheets, are carried at fair value with ~~any~~ unrealized gains or losses reported in other comprehensive income. The mutual fund investments are held ~~by the Company~~ to fund certain deferred compensation obligations. These investments, which are included in Other long-term assets on the consolidated balance sheets, are carried at fair value with gains and losses recorded in net ~~income and are included in other long-term assets on the consolidated balance sheets.~~income.

Inventories

Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consisted of the following (in thousands):


	September 30, 2018			December 31, 2017			September 24, 2017			March 31, 2019			December 31, 2018			April 1, 2018
Raw materials and work in process	$	174,891		$	161,664		$	155,947		$	204,759		$	177,110		$	177,652
Motorcycle finished goods	251,794			289,530			232,141			304,386			301,630			289,046
Parts & accessories and general merchandise	141,918			139,363			129,270			145,300			136,027			150,228
Inventory at lower of FIFO cost or net realizable value	568,603			590,557			517,358			654,445			614,767			616,926
Excess of FIFO over LIFO cost	(52,356		)	(52,355		)	(48,267		)	(58,639		)	(58,639		)	(52,355		)
Total inventories, net	$	516,247		$	538,202		$	469,091		$	595,806		$	556,128		$	564,571

Operating Cash Flow

The reconciliation of net income to net cash provided by operating activities is as follows (in thousands):


	Nine months ended						Three months ended
	September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018
Cash flows from operating activities:
Net income	$	530,956		$	513,445		$	127,945		$	174,763
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles	196,461			163,974			64,372			62,473
Amortization of deferred loan origination costs	61,213			62,052			18,968			20,116
Amortization of financing origination fees	6,207			6,112			2,194			2,028
Provision for long-term employee benefits	28,162			22,427			3,156			9,747
Employee benefit plan contributions and payments	(11,035		)	(43,060		)	(2,507		)	(5,486		)
Stock compensation expense	29,122			25,581			6,537			7,962
Net change in wholesale finance receivables related to sales	(18,400		)	36,678			(237,569		)	(239,902		)
Provision for credit losses	72,462			99,059			34,491			30,052
Deferred income taxes	1,457			(5,151		)	5,981			3,188
Other, net	29,340			(11,122		)	2,731			(1,902		)
Changes in current assets and liabilities:
Accounts receivable, net	(14,784		)	(29,167		)	(49,746		)	(17,688		)
Finance receivables - accrued interest and other	1,374			317			92			4,758
Inventories	8,270			50,016			(40,600		)	(21,542		)
Accounts payable and accrued liabilities	183,606			88,758			123,975			148,923
Derivative instruments	1,227			2,752			867			702
Other	16,917			(33,596		)	(28,216		)	13,402
Total adjustments	591,599			435,630			(95,274		)	16,831
Net cash provided by operating activities	$	1,122,555		$	949,075		$	32,671		$	191,594

8.9. Finance Receivables

The Company provides retail financial services to customers of the Company’s independent dealers in the United States and Canada. The origination of retail loans is a separate and distinct transaction between the Company and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment sales ~~contracts.~~contracts and are primarily related to sales of motorcycles to the dealers' customers. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.

The Company offers wholesale financing to the Company’s independent dealers. Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada. Wholesale finance receivables are related primarily to sales of motorcycles and related parts and accessories to dealers.

Finance receivables, net, consisted of the following (in thousands):


	September 30, 2018			December 31, 2017			September 24, 2017			March 31, 2019			December 31, 2018			April 1, 2018
Retail	$	6,508,670		$	6,140,600		$	6,336,447		$	6,290,036		$	6,328,201		$	6,064,192
Wholesale	988,339			1,016,957			960,160			1,339,428			1,083,615			1,252,600
Total finance receivables	7,497,009			7,157,557			7,296,607			7,629,464			7,411,816			7,316,792
Allowance for credit losses	(193,447		)	(192,471		)	(195,582		)	(190,872		)	(189,885		)	(190,350		)
Finance receivables, net	$	7,303,562		$	6,965,086		$	7,101,025		$	7,438,592		$	7,221,931		$	7,126,442

A provision for credit losses on finance receivables is charged or credited to earnings in amounts that the Company believes are sufficient to maintain the allowance for credit losses at a level that is adequate to cover losses inherent in the existing portfolio. The allowance for credit losses represents management’s estimate of probable losses inherent in the finance

receivable portfolio as of the balance sheet date. However, due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company could differ from the amounts estimated.

Changes in the allowance for credit losses on finance receivables by portfolio were as follows (in thousands):


	Three months ended September 30, 2018									Three months ended March 31, 2019
	Retail			Wholesale			Total			Retail			Wholesale		Total
Balance, beginning of period	$	187,502		$	6,428		$	193,930		$	182,098		$	7,787	$	189,885
Provision for credit losses	23,629			(99		)	23,530			32,832			1,659		34,491
Charge-offs	(33,689		)	(8		)	(33,697		)	(44,721		)	—		(44,721		)
Recoveries	9,684			—			9,684			11,217			—		11,217
Balance, end of period	$	187,126		$	6,321		$	193,447		$	181,426		$	9,446	$	190,872

	Three months ended September 24, 2017									Three months ended April 1, 2018
	Retail			Wholesale			Total			Retail			Wholesale		Total
Balance, beginning of period	$	185,899		$	7,629		$	193,528		$	186,254		$	6,217	$	192,471
Provision for credit losses	30,964			(1,711		)	29,253			28,069			1,983		30,052
Charge-offs	(37,783		)	—			(37,783		)	(45,081		)	—		(45,081		)
Recoveries	10,584			—			10,584			12,908			—		12,908
Balance, end of period	$	189,664		$	5,918		$	195,582		$	182,150		$	8,200	$	190,350

	Nine months ended September 30, 2018
	Retail			Wholesale			Total
Balance, beginning of period	$	186,254		$	6,217		$	192,471
Provision for credit losses	72,350			112			72,462
Charge-offs	(107,717		)	(8		)	(107,725		)
Recoveries	36,239			—			36,239
Balance, end of period	$	187,126		$	6,321		$	193,447

	Nine months ended September 24, 2017
	Retail			Wholesale			Total
Balance, beginning of period	$	166,810		$	6,533		$	173,343
Provision for credit losses	99,674			(615		)	99,059
Charge-offs	(114,081		)	—			(114,081		)
Recoveries	37,261			—			37,261
Balance, end of period	$	189,664		$	5,918		$	195,582

Finance receivables are considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement. Portions of the allowance for credit losses are established to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance for credit losses covers estimated losses on finance receivables which are collectively reviewed for impairment.

The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes loss forecast models which consider a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates, and current economic conditions including items such as unemployment rates. Retail finance receivables are not evaluated individually for impairment prior to charge-off and, therefore, are not reported as impaired loans.

The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s evaluation for the wholesale allowance for credit losses is first based on a loan-by-loan review. A specific allowance for credit losses is established for wholesale finance receivables determined to be individually impaired when management concludes that the borrower will not be able to make full payment of the contractual amounts due based on the original terms of the loan

agreement. The impairment is determined based on the cash that the Company expects to receive discounted at the loan’s original interest rate or the fair value of the collateral, if the loan is collateral-dependent. Finance receivables in the wholesale portfolio that are not considered impaired on an individual basis are segregated, based on similar risk characteristics, according

to the Company’s internal risk rating system and collectively evaluated for impairment. The related allowance for credit losses is based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past loan loss experience, current economic conditions, and the value of the underlying collateral.

Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize the economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant.

The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, was as follows (in thousands):


	September 30, 2018						March 31, 2019
	Retail		Wholesale		Total		Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	187,126		6,321		193,447		181,426		9,446		190,872
Total allowance for credit losses	$	187,126	$	6,321	$	193,447	$	181,426	$	9,446	$	190,872
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	6,508,670		988,339		7,497,009		6,290,036		1,339,428		7,629,464
Total finance receivables	$	6,508,670	$	988,339	$	7,497,009	$	6,290,036	$	1,339,428	$	7,629,464

	December 31, 2017						December 31, 2018
	Retail		Wholesale		Total		Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	186,254		6,217		192,471		182,098		7,787		189,885
Total allowance for credit losses	$	186,254	$	6,217	$	192,471	$	182,098	$	7,787	$	189,885
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	6,140,600		1,016,957		7,157,557		6,328,201		1,083,615		7,411,816
Total finance receivables	$	6,140,600	$	1,016,957	$	7,157,557	$	6,328,201	$	1,083,615	$	7,411,816

	September 24, 2017						April 1, 2018
	Retail		Wholesale		Total		Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	184	$	184
Collectively evaluated for impairment	189,664		5,918		195,582		182,150		8,016		190,166
Total allowance for credit losses	$	189,664	$	5,918	$	195,582	$	182,150	$	8,200	$	190,350
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	220	$	220
Collectively evaluated for impairment	6,336,447		960,160		7,296,607		6,064,192		1,252,380		7,316,572
Total finance receivables	$	6,336,447	$	960,160	$	7,296,607	$	6,064,192	$	1,252,600	$	7,316,792

There are no wholesale finance receivables at March 31, 2019 or December 31, 2018 that are individually deemed to be impaired under ASC Topic 310, "Receivables". Additional information related to the wholesale finance receivables that are individually deemed to be impaired at April 1, 2018 includes (in thousands):



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Wholesale:
No related allowance recorded	$	—	$	—	$	—	$	—	$	—
Related allowance recorded	251		220		184		251		—
Total impaired wholesale finance receivables	$	251	$	220	$	184	$	251	$	—

Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed, or the receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until either collected or charged-off. Accordingly, as of ~~September 30, 2018~~March 31, 2019, December 31, ~~2017~~2018 and ~~September 24, 2017~~April 1, 2018, all retail finance receivables were accounted for as interest-earning receivables, of which $~~31.6~~39.0 million, $~~40.0~~41.2 million and $~~32.7~~27.9 million, respectively, were 90 days or more past due.

Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Wholesale finance receivables are written down once management determines that the specific borrower does not have the ability to repay the loan in full. Interest continues to accrue on past due finance receivables until the date the finance receivable becomes uncollectible and the finance receivable is placed on non-accrual status. The Company will resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured. While on non-accrual status, all cash received is applied to principal or interest as appropriate. There were no wholesale receivables on non-accrual status at ~~September 30, 2018,~~March 31, 2019 or December 31, ~~2017~~ or ~~September 24, 2017~~2018. The recorded investment in non-accrual status wholesale finance receivables at April 1, 2018 was $0.2 million. At ~~September 30, 2018~~March 31, 2019, December 31, ~~2017~~2018 and ~~September 24, 2017~~April 1, 2018, $~~0.2~~0.8 million, $~~0.1~~1.1 million, and $~~1.3~~0.2 million of wholesale finance receivables were 90 days or more past due and accruing interest, respectively.

An analysis of the aging of past due finance receivables was as follows (in thousands):


	September 30, 2018												March 31, 2019
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables		Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail	$	6,304,096	$	128,123	$	44,808	$	31,643	$	204,574	$	6,508,670	$	6,088,894	$	119,150	$	43,028	$	38,964	$	201,142	$	6,290,036
Wholesale	987,563		500		115		161		776		988,339		1,337,429		862		355		782		1,999		1,339,428
Total	$	7,291,659	$	128,623	$	44,923	$	31,804	$	205,350	$	7,497,009	$	7,426,323	$	120,012	$	43,383	$	39,746	$	203,141	$	7,629,464

	December 31, 2017												December 31, 2018
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables		Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail	$	5,913,473	$	139,629	$	47,539	$	39,959	$	227,127	$	6,140,600	$	6,100,186	$	136,945	$	49,825	$	41,245	$	228,015	$	6,328,201
Wholesale	1,016,000		595		245		117		957		1,016,957		1,081,729		522		273		1,091		1,886		1,083,615
Total	$	6,929,473	$	140,224	$	47,784	$	40,076	$	228,084	$	7,157,557	$	7,181,915	$	137,467	$	50,098	$	42,336	$	229,901	$	7,411,816

	September 24, 2017												April 1, 2018
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables		Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail	$	6,132,997	$	126,705	$	44,083	$	32,662	$	203,450	$	6,336,447	$	5,897,632	$	105,366	$	33,275	$	27,919	$	166,560	$	6,064,192
Wholesale	958,429		329		95		1,307		1,731		960,160		1,247,175		549		4,705		171		5,425		1,252,600
Total	$	7,091,426	$	127,034	$	44,178	$	33,969	$	205,181	$	7,296,607	$	7,144,807	$	105,915	$	37,980	$	28,090	$	171,985	$	7,316,792

A significant part of managing the Company's finance receivable portfolios includes the assessment of credit risk associated with each borrower. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit risk indicators for each portfolio.

The Company manages retail credit risk through its credit approval policy and ongoing collection efforts. The Company uses FICO scores, a standard credit rating measurement, to differentiate the expected default rates of retail credit applicants, enabling the Company to better evaluate credit applicants for approval and to tailor pricing according to this assessment. Retail loans with a FICO score of 640 or above at origination are considered prime, and loans with a FICO score below 640 are considered sub-prime. These credit quality indicators are determined at the time of loan origination and are not updated subsequent to the loan origination date.

The recorded investment in retail finance receivables, by credit quality indicator, was as follows (in thousands):


	September 30, 2018		December 31, 2017		September 24, 2017		March 31, 2019		December 31, 2018		April 1, 2018
Prime	$	5,321,464	$	4,966,193	$	5,107,718	$	5,160,942	$	5,183,754	$	4,923,237
Sub-prime	1,187,206		1,174,407		1,228,729		1,129,094		1,144,447		1,140,955
Total	$	6,508,670	$	6,140,600	$	6,336,447	$	6,290,036	$	6,328,201	$	6,064,192

The Company's credit risk on the wholesale portfolio is different from that of the retail portfolio. Whereas the retail portfolio represents a relatively homogeneous pool of retail finance receivables that exhibit more consistent loss patterns, the wholesale portfolio exposures are less consistent. The Company utilizes an internal credit risk rating system to manage credit risk exposure consistently across wholesale borrowers and individually evaluates credit risk factors for each borrower. The

Company uses the following internal credit quality indicators, based on an internal risk rating system, listed from highest level of risk to lowest level of risk for the wholesale portfolio: Doubtful, Substandard, Special Mention, Medium Risk and Low Risk. Based upon management’s review, the dealers classified in the Doubtful category are the dealers with the greatest likelihood of being charged-off, while the dealers classified as Low Risk are least likely to be charged-off. The internal rating system considers factors such as the specific borrower's ability to repay and the estimated value of any collateral. Dealer risk rating classifications are reviewed and updated on a quarterly basis.

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


	September 30, 2018		December 31, 2017		September 24, 2017		March 31, 2019		December 31, 2018		April 1, 2018
Doubtful	$	—	$	688	$	4,666	$	8,679	$	2,210	$	1,582
Substandard	8,953		3,837		8,724		7,866		9,660		3,368
Special Mention	25,459		26,866		5,261		11,484		10,299		33,085
Medium Risk	15,825		9,917		4,987		917		25,802		10,512
Low Risk	938,102		975,649		936,522		1,310,482		1,035,644		1,204,053
Total	$	988,339	$	1,016,957	$	960,160	$	1,339,428	$	1,083,615	$	1,252,600

9.10. Derivative Instruments and Hedging Activities

The Company is exposed to certain risks such as foreign currency exchange rate risk, interest rate risk and commodity price risk. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures which prohibit the use of financial instruments for speculative trading purposes.

The Company sells products in foreign currencies and utilizes foreign currency exchange contracts to mitigate the effects of foreign currency exchange rate fluctuations related to the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollar and the Mexican peso. The foreign currency exchange contracts generally have maturities of less than one year.

The Company utilizes commodity contracts to mitigate the effects of commodity price fluctuations related to metals and fuel consumed in the Company’s motorcycle production and distribution processes. The commodity contracts generally have maturities of less than one year.

The Company periodically utilizes treasury rate lock contracts to fix the interest rate on a portion of the principal related to the anticipated issuance of long-term debt as well as interest rate swaps to reduce the impact of fluctuations in interest rates on long-term debt.

All derivative instruments are recognized on the balance sheet at fair value. In accordance with ASC Topic 815, ~~“Derivatives~~Derivatives and Hedging,” the accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.

Changes in the fair value of derivatives that are designated as ~~fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative instruments that are designated as~~ cash flow hedges ~~the effective portion of gains and losses that result from changes in the fair value of derivative instruments is~~are initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in ~~its~~cash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. ~~Any ineffective portion is immediately recognized in earnings.~~ No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. ~~Derivative instruments that do~~Derivatives not ~~qualify for hedge accounting~~designated as hedges are ~~recorded at fair value,~~not speculative and ~~any changes in fair value~~ are ~~recorded in current period earnings.~~

~~The Company sells its products internationally, and in most markets those sales are made in the foreign country’s local currency. As a result,~~used to manage the Company’s ~~earnings can be affected by fluctuations in the value of the U.S. dollar relative~~exposure to foreign ~~currency. The Company utilizes foreign~~ currency exchange contracts to mitigate the effects of the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollar and the Mexican peso. The foreign currency exchange contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate.

~~The Company utilizes commodity contracts to hedge portions of the cost of certain commodities consumed in the Company’s motorcycle production and distribution operations.~~

~~The Company’s foreign currency exchange contracts~~ and commodity ~~contracts generally have maturities of less than one year.~~

The Company periodically utilizes treasury rate lock contracts to fix the interest rate on a portion of the principal related to the anticipated issuance of long-term debt. To the extent effective, the gains and losses onrisks. Changes in the fair value of ~~the treasury rate lock~~derivatives not designated in hedging relationships are recorded directly in ~~accumulated other comprehensive loss until the forecasted debt is issued. Gains and losses are subsequently reclassified into earnings over the life of the debt.~~

~~The Company periodically utilizes interest rate swaps to reduce the impact of fluctuations in interest rates on its long-term debt.~~

earnings.

The following tables summarize the notional and recorded fair ~~value~~values of the Company’s derivative financial instruments (in thousands):

September 30, 2018 December 31, 2017 September 24, 2017
Derivatives Designated As Hedging
Instruments Under ASC Topic 815

Notional
Value

Asset
Fair Value^(a)

Liability
Fair Value^(b)

Notional
Value

Asset
Fair Value^(a)

Liability
Fair Value^(b)

Notional
Value

Asset
Fair Value^(a)

Liability
Fair Value^(b)
Foreign currency contracts^(c)
$ 512,071
$ 11,687
$ 718
$ 675,724
$ 1,388
$ 21,239
$ 746,378
$ 439
$ 32,352
Commodity
contracts^(c)
925
9
—
915
—
69
1,273
—
62
Treasury rate locks^(c)
50,000
52
—
—
—
—
—
—
—
Interest rate swap - medium-term notes^(c)

450,000
550
—
—
—
—
—
—
—
Total $ 1,012,996
$ 12,298
$ 718

$ 676,639
$ 1,388
$ 21,308

$ 747,651
$ 439
$ 32,414

September 30, 2018 December 31, 2017 September 24, 2017
Derivatives Not Designated As Hedging
Instruments Under ASC Topic 815

Notional
Value

Asset
Fair Value^(a)

Liability
Fair Value^(b)

Notional
Value

Asset
Fair Value^(a)

Liability
Fair Value^(b)

Notional
Value

Asset
Fair Value^(a)

Liability
Fair Value^(b)
Commodity contracts $ 5,207
$ 233
$ 213
$ 4,532
$ 381
$ —
$ 4,234
$ 285
$ —
Total $ 5,207

$ 233
$ 213
$ 4,532
$ 381
$ —
$ 4,234
$ 285
$ —



	Derivatives Designated as Cash Flow Hedging Instruments Under ASC Topic 815
	March 31, 2019						December 31, 2018						April 1, 2018
Derivative	Notional Value		Other Current Assets		Accrued Liabil-ities		Notional Value		Other Current Assets		Accrued Liabil-ities		Notional Value		Other Current Assets		Accrued Liabil-ities
Foreign currency contracts	$	480,937	$	15,576	$	646	$	442,976	$	15,071	$	313	$	720,869	$	3,442	$	22,807
Commodity contracts	589		—		6		827		—		46		728		—		11
Interest rate swaps	900,000		—		6,893		900,000		—		4,494		—		—		—
Total	$	1,381,526	$	15,576	$	7,545	$	1,343,803	$	15,071	$	4,853	$	721,597	$	3,442	$	22,818

	Derivatives Not Designated as Hedging Instruments Under ASC Topic 815
	March 31, 2019						December 31, 2018						April 1, 2018
Derivative	Notional Value		Other Current Assets		Accrued Liabil-ities		Notional Value		Other Current Assets		Accrued Liabil-ities		Notional Value		Other Current Assets		Accrued Liabil-ities
Foreign currency contracts	$	157,678	$	413	$	69	$	—	$	—	$	—	$	—	$	—	$	—
Commodity contracts	7,225		94		119		5,239		—		463		4,577		171		32
Total	$	164,903	$	507	$	188	$	5,239	$	—	$	463	$	4,577	$	171	$	32


~~(a)~~	~~Included in other current assets~~


~~(b)~~	~~Included in accrued liabilities~~


~~(c)~~	~~Derivative designated as a cash flow hedge~~

The following tables summarize the amount of gains and losses related to derivative financial instruments designated as cash flow hedges (in thousands):


	Amount of Gain/(Loss) Recognized in OCI, before tax											Amount of Gain/(Loss) Recognized in OCI, before tax						Amount of Gain/(Loss) Reclassified from AOCL into Income						Location of Gain/(Loss) Reclassified from AOCL into Income	Total Statement of Income Amount for Line Items in which the Effects of Cash Flow Hedges are Recorded
	Three months ended					Nine months ended						Three months ended						Three months ended							Three months ended
Cash Flow Hedges	September 30, 2018		September 24, 2017			September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018			Income statement line item	March 31, 2019		April 1, 2018
Foreign currency contracts	$	4,508	$	(35,687	)	$	31,253		$	(59,335	)	$	4,152		$	(5,890	)	$	2,453		$	(6,709	)	Motorcycles cost of goods sold	$	848,198	$	890,174
Commodity contracts	5		(5		)	(7		)	(191		)	30			(16		)	(10		)	(73		)	Motorcycles cost of goods sold	$	848,198	$	890,174
Treasury rate locks	52		—			93			(719		)	—			—			(90		)	(90		)	Interest expense	$	7,731	$	7,690
Interest rate swap - medium-term notes	486		—			(400		)	—
Treasury rate locks												—			—			(32		)	(36		)	Financial Services interest expense	$	52,324	$	48,450
Interest rate swaps												(3,005		)	—			(606		)	—			Financial Services interest expense	$	52,324	$	48,450
Total	$	5,051	$	(35,692	)	$	30,939		$	(60,245	)	$	1,177		$	(5,906	)	$	1,715		$	(6,908	)

Amount of Gain/(Loss) Reclassified from AOCL into Income
Three months ended Nine months ended Expected to be Reclassified
Cash Flow Hedges September 30,
2018 September 24,
2017 September 30,
2018 September 24,
2017 Over the Next Twelve Months
Foreign currency contracts^(a)
$ 5,695
$ (7,901 ) $ (58 ) $ (1,428 ) $ 14,709
Commodity contracts^(a)
—
(16 ) (85 ) 49
21
Treasury rate locks^(b)
(123 ) (126 ) (374 ) (315 ) (475 )
Interest rate swap - medium-term notes^(b)
(661 ) —
(950 ) —
(178 )
Total $ 4,911
$ (8,043 ) $ (1,467 ) $ (1,694 ) $ 14,077


~~(a)~~	~~Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) into income is included in cost of goods sold~~


~~(b)~~	~~Gain/(loss) reclassified from AOCL into income is included in interest expense~~

~~For the three and nine months ended September 30, 2018 and September 24, 2017, the cash flow hedges were highly effective and, as a result, the~~The amount of ~~hedge ineffectiveness~~net gain included in accumulated other comprehensive loss at March 31, 2019, estimated to be reclassified into income over the next twelve months was ~~not material. No amounts were excluded from effectiveness testing.~~$11.6 million.

The following table summarizes the amount of gains and losses recognized in income related to derivative financial instruments not designated as hedging ~~instruments~~instruments. The following amounts were recorded in Motorcycles cost of goods sold (in thousands):

Amount of Gain/(Loss) Recognized in Income on Derivative
Three months ended Nine months ended
Derivatives Not Designated As Hedges September 30,
2018 September 24,
2017 September 30,
2018 September 24,
2017
Commodity contracts^(a)
$ (85 ) $ 433
$ 59
$ 259
Total $ (85 ) $ 433
$ 59
$ 259



	Amount of Gain Recognized in Income on Derivative
	Three months ended
Derivatives Not Designated as Hedges	March 31, 2019		April 1, 2018
Foreign currency contracts	$	887	$	—
Commodity contracts	317		6
Total	$	1,204	$	6


~~(a)~~	~~Gain/(loss) recognized in income is included in cost of goods sold~~

The Company is exposed to credit loss risk in the event of non-performance by counterparties to these derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to these derivative financial instruments to fail to meet its obligations. To manage credit loss risk, the Company evaluates counterparties based on credit ratings and, on a quarterly basis, evaluates each hedge’s net position relative to the counterparty’s ability to cover its position.

11. Leases

The Company determines if an arrangement is or contains a lease at contract inception. Right-of-use (ROU) assets related to leases are recorded in Lease assets and lease liabilities are recorded in Accrued liabilities and Lease liabilities on the consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement date based on the present value of future lease payments over the lease term. The ROU asset also includes prepaid lease payments and initial direct costs and is reduced for lease incentives paid by the lessor. The discount rate used to determine the present value is generally the Company's incremental borrowing rate because the implicit rate in the lease is not readily determinable. The lease term used to calculate the ROU asset and lease liability includes periods covered by options to extend or terminate when the Company is reasonably certain the lease term will include these optional periods.

~~10.~~The Company has lease arrangements for sales and administrative offices, manufacturing and distribution facilities, product testing facilities, equipment and vehicles. All of the Company’s lease arrangements are accounted for as operating leases. The Company’s leases have remaining lease terms ranging from 1 to 13 years, some of which include options to extend the leases for periods generally not greater than 5 years and some of which include options to terminate the leases within 1 year. Certain leases also include options to purchase the leased asset. Leases do not contain any material residual value guarantees or material restrictive covenants.

Operating lease expense for the three months ended March 31, 2019 was $6.3 million. This includes variable lease costs related to leases involving assets operated by a third-party of approximately $1.1 million. Other variable and short-term lease costs were not material.

Balance sheet information related to leases was as follows (in thousands):



	March 31, 2019
Lease assets	$	55,305

Accrued liabilities	$	17,391
Lease liabilities	39,516
	$	56,907

Future maturities of lease liabilities were as follows as of March 31, 2019 (in thousands):



	Operating Leases
2019	$	14,743
2020	15,023
2021	12,467
2022	8,837
2023	3,511
Thereafter	6,291
Total present value of lease payments	60,872
Less present value discount	3,965
Total lease liability	$	56,907

Other lease information is as follows:



	Three months ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities (in millions):
Operating cash flows	$	5,361
Right-of-use assets obtained in exchange for lease obligations (in millions)	298



	March 31, 2019
Weighted average remaining lease term (in years)	4.61
Weighted average discount rate	3.3	%

12. Debt

Debt with a contractual term of one year or less is generally classified as short-term debt and consisted of the following (in thousands):


	September 30, 2018		December 31, 2017		September 24, 2017		March 31, 2019		December 31, 2018		April 1, 2018
Unsecured commercial paper	$	1,373,859	$	1,273,482	$	834,875	$	1,192,925	$	1,135,810	$	1,036,976
Total short-term debt	$	1,373,859	$	1,273,482	$	834,875	$	1,192,925	$	1,135,810	$	1,036,976

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


	September 30, 2018			December 31, 2017			September 24, 2017			March 31, 2019			December 31, 2018			April 1, 2018
Secured debt (Note 11)
Secured debt (Note 13)
Asset-backed Canadian commercial paper conduit facility	$	149,418		$	174,779		$	122,130		$	142,676		$	155,951		$	158,162
Asset-backed U.S. commercial paper conduit facilities	265,044			279,457			280,308			526,947			582,717			281,311
Asset-backed securitization debt	128,577			353,085			430,457			18,712			95,216			285,130
Less: unamortized discount and debt issuance costs	(103		)	(461		)	(624		)	(18		)	(49		)	(337		)
Total secured debt	542,936			806,860			832,271			688,317			833,835			724,266

Unsecured notes (at par value)
1.55% Medium-term notes due in 2017, issued November 2014	—			—			400,000
6.80% Medium-term notes due in 2018, issued May 2008	—			877,488			877,488			—			—			877,488
2.25% Medium-term notes due in 2019, issued January 2016	600,000			600,000			600,000			—			600,000			600,000
Floating-rate Medium-term notes due in 2019, issued March 2017^(a)	150,000			150,000			150,000			—			150,000			150,000
2.40% Medium-term notes due in 2019, issued September 2014	600,000			600,000			600,000			600,000			600,000			600,000
2.15% Medium-term notes due in 2020, issued February 2015	600,000			600,000			600,000			600,000			600,000			600,000
Floating-rate Medium-term notes due in 2020, issued May 2018^(b)	450,000			—			—			450,000			450,000			—
2.40% Medium-term notes due in 2020, issued March 2017	350,000			350,000			350,000			350,000			350,000			350,000
2.85% Medium-term notes due in 2021, issued January 2016	600,000			600,000			600,000			600,000			600,000			600,000
Floating-rate Medium-term notes due in 2021, issued November 2018^(c)										450,000			450,000			—
3.55% Medium-term notes due in 2021, issued May 2018	350,000			—			—			350,000			350,000			—
4.05% Medium-term notes due in 2022, issued February 2019										550,000			—			—
2.55% Medium-term notes due in 2022, issued June 2017	400,000			400,000			400,000			400,000			400,000			400,000
3.35% Medium-term notes due in 2023, issued February 2018	350,000			—			—			350,000			350,000			350,000
3.50% Senior unsecured notes due in 2025, issued July 2015	450,000			450,000			450,000			450,000			450,000			450,000
4.625% Senior unsecured notes due in 2045, issued July 2015	300,000			300,000			300,000			300,000			300,000			300,000
Less: unamortized discount and debt issuance costs	(20,263		)	(19,821		)	(21,567		)	(21,573		)	(20,369		)	(20,564		)
Gross long-term debt	5,722,673			5,714,527			6,138,192			6,116,744			6,463,466			5,981,190
Less: current portion of long-term debt, net of unamortized discount and debt issuance costs	(1,526,156		)	(1,127,269		)	(1,530,401		)	(1,372,050		)	(1,575,799		)	(1,872,679		)
Total long-term debt	$	4,196,517		$	4,587,258		$	4,607,791		$	4,744,694		$	4,887,667		$	4,108,511

~~(a) Floating interest rate based on LIBOR plus 35 bps.~~


(a)	Floating interest rate based on LIBOR plus 35 bps.


(b)	Floating interest rate based on LIBOR plus 50 bps. The Company utilized an interest rate swap designated as a cash flow hedge to convert this from a floating rate basis to a fixed rate basis. Refer to Note 910 of the Notes to the Consolidated Financial Statements for further details.


(c)	Floating interest rate based on LIBOR plus 94 bps. The Company utilized an interest rate swap designated as a cash flow hedge to convert this from a floating rate basis to a fixed rate basis. Refer to Note 10 of the Notes to the Consolidated Financial Statements for further details.

~~11.~~13. Asset-Backed Financing

The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing. The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE.

In transactions where the Company has power over the significant activities of the VIE and has an obligation to absorb losses or the right to receive benefits from the VIE that are potentially significant to the VIE, the Company is the primary beneficiary of the VIE and consolidates the VIE within its consolidated financial statements. On a consolidated basis, the asset-backed financing is treated as a secured borrowing in this type of transaction and is referred to as an on-balance sheet asset-backed financing.

In transactions where the Company is not the primary beneficiary of the VIE, the Company must determine whether it can achieve a sale for accounting purposes under ASC Topic 860, ~~"Transfers~~Transfers and Servicing." To achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond the Company’s control. If the Company does not meet all of these criteria for sale accounting, then the transaction is accounted for as a secured borrowing and is referred to as an on-balance sheet asset-backed financing.

If the Company meets all three of the sale criteria above, the transaction is recorded as a sale for accounting purposes and is referred to as an off-balance sheet asset-backed financing. Upon sale, the retail motorcycle finance receivables are removed from the Company’s balance sheet and a gain or loss is recognized for the difference between the cash proceeds received, the assets derecognized, and the liabilities recognized as part of the transaction. The gain or loss on sale is included in Financial Services revenue in the consolidated ~~statement~~statements of income.

The Company is not required, and does not currently intend, to provide any additional financial support to the on- or off-balance sheet VIEs associated with these transactions. Investors and creditors in these transactions only have recourse to the assets held by the VIEs.

The following tables show the assets and liabilities related to the on-balance sheet asset-backed financings included in the financial statements (in thousands):


	September 30, 2018													March 31, 2019
	Finance receivables		Allowance for credit losses			Restricted cash		Other assets		Total assets		Asset-backed debt		Finance receivables		Allowance for credit losses			Restricted cash		Other assets		Total assets		Asset-backed debt
On-balance sheet assets and liabilities
Consolidated VIEs
Asset-backed securitizations	$	190,461	$	(5,634	)	$	18,508	$	437	$	203,772	$	128,474	$	62,771	$	(1,855	)	$	8,199	$	134	$	69,249	$	18,694
Asset-backed U.S. commercial paper conduit facilities	282,986		(8,393		)	15,218		971		290,782		265,044		567,295		(16,821		)	31,565		1,282		583,321		526,947
Unconsolidated VIEs
Asset-backed Canadian commercial paper conduit facility	173,395		(3,115		)	9,293		324		179,897		149,418		164,779		(3,003		)	9,767		282		171,825		142,676
Total on-balance sheet assets and liabilities	$	646,842	$	(17,142	)	$	43,019	$	1,732	$	674,451	$	542,936	$	794,845	$	(21,679	)	$	49,531	$	1,698	$	824,395	$	688,317

	December 31, 2017
	Finance receivables		Allowance for credit losses			Restricted cash		Other assets		Total assets		Asset-backed debt
On-balance sheet assets and liabilities
Consolidated VIEs
Asset-backed securitizations	$	439,301	$	(13,686	)	$	34,919	$	1,260	$	461,794	$	352,624
Asset-backed U.S. commercial paper conduit facilities	300,530		(9,392		)	13,787		888		305,813		279,457
Unconsolidated VIEs
Asset-backed Canadian commercial paper conduit facility	203,691		(3,746		)	9,983		470		210,398		174,779
Total on-balance sheet assets and liabilities	$	943,522	$	(26,824	)	$	58,689	$	2,618	$	978,005	$	806,860

	September 24, 2017
	Finance receivables		Allowance for credit losses			Restricted cash		Other assets		Total assets		Asset-backed debt
On-balance sheet assets and liabilities
Consolidated VIEs
Asset-backed securitizations	$	511,643	$	(15,798	)	$	40,385	$	1,513	$	537,743	$	429,833
Asset-backed U.S. commercial paper conduit facilities	298,197		(9,233		)	14,922		927		304,813		280,308
Unconsolidated VIEs
Asset-backed Canadian commercial paper conduit facility	139,413		(2,560		)	8,073		350		145,276		122,130
Total on-balance sheet assets and liabilities	$	949,253	$	(27,591	)	$	63,380	$	2,790	$	987,832	$	832,271



	December 31, 2018
	Finance receivables		Allowance for credit losses			Restricted cash		Other assets		Total assets		Asset-backed debt
On-balance sheet assets and liabilities
Consolidated VIEs
Asset-backed securitizations	$	158,718	$	(4,691	)	$	17,191	$	329	$	171,547	$	95,167
Asset-backed U.S. commercial paper conduit facilities	631,588		(18,733		)	30,012		1,234		644,101		582,717
Unconsolidated VIEs
Asset-backed Canadian commercial paper conduit facility	181,774		(3,130		)	8,779		343		187,766		155,951
Total on-balance sheet assets and liabilities	$	972,080	$	(26,554	)	$	55,982	$	1,906	$	1,003,414	$	833,835

	April 1, 2018
	Finance receivables		Allowance for credit losses			Restricted cash		Other assets		Total assets		Asset-backed debt
On-balance sheet assets and liabilities
Consolidated VIEs
Asset-backed securitizations	$	367,584	$	(11,387	)	$	38,207	$	1,207	$	395,611	$	284,793
Asset-backed U.S. commercial paper conduit facilities	299,318		(9,297		)	16,933		968		307,922		281,311
Unconsolidated VIEs
Asset-backed Canadian commercial paper conduit facility	183,073		(3,085		)	10,600		320		190,908		158,162
Total on-balance sheet assets and liabilities	$	849,975	$	(23,769	)	$	65,740	$	2,495	$	894,441	$	724,266

On-Balance Sheet Asset-Backed Securitization VIEs

The Company transfers U.S. retail motorcycle finance receivables to SPEs which in turn issue secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. Each on-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors until the associated secured debt and other obligations are satisfied. Restricted cash balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured ~~notes’~~notes have a contractual ~~lives have various maturities ranging from 2020 to~~life maturing in 2022.

The Company is the primary beneficiary of its on-balance sheet asset-backed securitization VIEs because it retains servicing rights and a residual interest in the VIEs in the form of a debt security. As the servicer, the Company is the variable

interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.

There were no on-balance sheet asset-backed securitization transactions during the ~~nine months ended September 30, 2018~~first quarter of 2019 or ~~September 24, 2017.~~2018.

On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE

~~In December 2017, the~~The Company ~~renewed its existing $300.0 million and $600.0 million revolving facility~~has agreements with a third-party bank-sponsored asset-backed U.S. commercial paper ~~conduit.~~conduits under which it may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party bank-sponsored asset-backed U.S. commercial paper conduits. In November 2018, the Company renewed its existing $600.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits. Also at that time, the Company amended its existing $300.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits, increasing the aggregate initial commitment to $600.0 million. The aggregate commitment under this agreement is reduced monthly as collections on the related finance receivables are applied to the outstanding

principal until the outstanding principal balance is less than or equal to $300.0 million, at which point the aggregate commitment will equal $300.0 million. Availability under the revolving facilities (together, the U.S. Conduit Facilities) is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the ~~relevant~~ SPE as collateral.

Under the U.S. Conduit Facilities, the ~~Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to the third-party bank-sponsored asset-backed commercial paper conduit. The~~ assets of the SPE are restricted as collateral for the payment of the debt or other obligations arising in the transaction and are not available to pay other obligations or claims of the Company’s creditors. The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates or LIBOR to the extent the advance is not funded by a conduit lender through the issuance of commercial paper plus, in each case, a program fee based on outstanding principal. The U.S. Conduit Facilities also provide for an unused commitment fee based on the unused portion of the total aggregate ~~commitment of $900.0 million.~~commitment. There is no amortization schedule; however, the debt ~~will be~~is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the U.S. Conduit Facilities, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of ~~September 30, 2018,~~March 31, 2019, the U.S. Conduit Facilities have an expiration date of ~~December 12, 2018.~~November 29, 2019.

The Company is the primary beneficiary of its U.S. Conduit Facilities VIE because it retains servicing rights and a residual interest in the VIE in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.

~~The following table includes quarterly~~There were no finance receivable transfers under the U.S. Conduit Facilities during the first quarter of 2019. During the first quarter of 2018, the Company transferred $32.9 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $29.3 million of debt under the U.S. Conduit ~~and the respective proceeds (in thousands):~~

2018 2017
Transfers Proceeds Transfers Proceeds
First quarter $ 32,900
$ 29,300
$ 333,400
$ 300,000
Second quarter 59,100
53,300
28,200
24,000
Third quarter —
—
34,100
29,600
$ 92,000
$ 82,600
$ 395,700
$ 353,600

Facilities.

On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility

In June 2018, the Company renewed its facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase eligible Canadian retail motorcycle finance receivables for proceeds up to C$220.0 million. The transferred assets are restricted as collateral for the payment of the debt. The terms for this debt provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment of C$220.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables is approximately 5 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of ~~September 30, 2018,~~March 31, 2019, the Canadian Conduit has an expiration date of June 28, 2019.

The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company does not consolidate the VIE. However, the Company treats the conduit facility as a secured borrowing as it maintains effective control over the assets transferred to the VIE and, therefore, does not meet the requirements for sale accounting.

As the Company participates in and does not consolidate the Canadian bank-sponsored, multi-seller conduit VIE, the maximum exposure to loss associated with this VIE, which would only be incurred in the unlikely event that all the finance receivables and underlying collateral have no residual value, was ~~$30.5~~$29.1 million at ~~September 30, 2018.~~March 31, 2019. The maximum exposure is not an indication of the Company's expected loss exposure.

~~The following table includes quarterly~~There were no finance receivable transfers under the Canadian Conduit Facilities during the first quarter of 2019. During the first quarter of 2018, the Company transferred $7.6 million of Canadian retail motorcycle finance receivables to the Canadian Conduit ~~and the respective~~for proceeds ~~(in thousands):~~

2018 2017
Transfers Proceeds Transfers Proceeds
First quarter $ 7,600
$ 6,200
$ 6,300
$ 5,500
Second quarter 38,900
32,200
14,200
12,400
Third quarter —
—
—
—
$ 46,500
$ 38,400
$ 20,500
$ 17,900
of $6.2 million.

Off-Balance Sheet Asset-Backed Securitization VIE

There were no off-balance sheet asset-backed securitization transactions during the ~~nine months ended September 30, 2018~~first quarter of 2019 or ~~September 24, 2017.~~2018. During the second quarter of 2016, the Company sold retail motorcycle finance receivables with a principal balance of $301.8 million into a securitization VIE that was not ~~consolidated.~~consolidated, recognized a gain of $9.3 million and received cash proceeds of $312.6 million. Similar to an on-balance sheet asset-backed securitization, the Company transferred U.S. retail motorcycle finance receivables to an SPE which in turn issued secured notes to investors, with various maturities and interest rates, secured by

future collections of the purchased U.S. retail motorcycle finance receivables. The off-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitization are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors. In an on-balance sheet asset-backed securitization, the Company retains a financial interest in the VIE in the form of a debt security. As part of this off-balance sheet securitization, the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants.

The Company is not the primary beneficiary of the off-balance sheet asset-backed securitization VIE because it only retained servicing rights and does not have the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. Accordingly, this transaction met the accounting sale requirements under ASC Topic 860 and was recorded as a sale for accounting purposes. Upon the sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet and a gain was recognized for the difference between the cash proceeds received, the assets derecognized and the liabilities recognized as part of the transaction. The gain on sale was included in Financial Services revenue in the consolidated ~~statement~~statements of income.

At ~~September 30, 2018,~~March 31, 2019, the assets of this off-balance sheet asset-backed securitization VIE were ~~$93.1~~$67.1 million and represented the current unpaid principal balance of the retail motorcycle finance receivables, which was the Company’s maximum exposure to loss in the off-balance sheet VIE at ~~September 30, 2018.~~March 31, 2019. This is based on the unlikely event that all the receivables have underwriting defects or other defects that trigger a violation of certain covenants and that the underlying collateral has no residual value. This maximum exposure is not an indication of expected losses.

Servicing Activities

The Company services all retail motorcycle finance receivables that it originates. When the Company transfers retail motorcycle finance receivables to SPEs through asset-backed financings, the Company retains the right to service the finance receivables and receives servicing fees based on the securitized finance receivables balance and certain ancillary fees. In on-balance sheet asset-backed financings, servicing fees are eliminated in consolidation and therefore are not recorded on a consolidated basis. In off-balance sheet asset-backed financings, servicing fees and ancillary fees are recorded in Financial Services revenue in the consolidated statements of income. The fees the Company is paid for servicing represent adequate compensation, and consequently, the Company does not recognize a servicing asset or liability. The Company recognized servicing fee income of ~~$0.9~~$0.2 million and ~~$1.5~~$0.4 million during the ~~nine months ended September 30,~~first quarter of 2019 and 2018, ~~and September 24, 2017,~~ respectively.

The unpaid principal balance of retail motorcycle finance receivables serviced by the Company was as follows (in thousands):


	September 30, 2018		December 31, 2017		September 24, 2017		March 31, 2019		December 31, 2018		April 1, 2018
On-balance sheet retail motorcycle finance receivables	$	6,360,907	$	5,993,185	$	6,185,144	$	6,159,058	$	6,185,350	$	5,923,564
Off-balance sheet retail motorcycle finance receivables	93,147		146,425		165,169		67,062		79,613		127,643
Total serviced retail motorcycle finance receivables	$	6,454,054	$	6,139,610	$	6,350,313	$	6,226,120	$	6,264,963	$	6,051,207

The unpaid principal balance of retail motorcycle finance receivables serviced by the Company 30 days or more delinquent was as follows (in thousands):


	Amount 30 days or more past due:						Amount 30 days or more past due:
	September 30, 2018		December 31, 2017		September 24, 2017		March 31, 2019		December 31, 2018		April 1, 2018
On-balance sheet retail motorcycle finance receivables	$	204,574	$	227,127	$	203,450	$	201,142	$	228,015	$	166,560
Off-balance sheet retail motorcycle finance receivables	1,767		2,106		1,720		1,194		1,658		1,652
Total serviced retail motorcycle finance receivables	$	206,341	$	229,233	$	205,170	$	202,336	$	229,673	$	168,212

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


	Three months ended				Nine months ended				Three months ended
	September 30, 2018		September 24, 2017		September 30, 2018		September 24, 2017		March 31, 2019		April 1, 2018
On-balance sheet retail motorcycle finance receivables	$	24,005	$	27,199	$	71,478	$	76,820	$	33,504	$	32,173
Off-balance sheet retail motorcycle finance receivables	230		299		729		865		231		361
Total serviced retail motorcycle finance receivables	$	24,235	$	27,498	$	72,207	$	77,685	$	33,735	$	32,534

~~12.~~14. Fair Value

The Company assesses the inputs used to measure fair value using a three-tier hierarchy.

Level 1 inputs include quoted prices for identical instruments and are the most observable.

Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity prices, and yield curves. The Company uses the market approach to derive the fair value for its Level 2 fair value measurements. Forward contracts for foreign currency, commodities, and treasury rate locks are valued using quoted forward rates and prices; interest rate swaps are valued using quoted interest rates and yield curves; investments in marketable securities and cash equivalents are valued using quoted prices.

Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

Recurring Fair Value Measurements

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):


	September 30, 2018								March 31, 2019
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	687,956	$	446,300	$	241,656	$	—	$	498,207	$	321,300	$	176,907	$	—
Marketable securities	59,843		49,832		10,011		—		59,899		49,896		10,003		—
Derivatives	12,531		—		12,531		—		16,083		—		16,083		—
Total	$	760,330	$	496,132	$	264,198	$	—	$	574,189	$	371,196	$	202,993	$	—
Liabilities:
Derivatives	$	931	$	—	$	931	$	—	$	7,733	$	—	$	7,733	$	—

	December 31, 2017								December 31, 2018
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	488,432	$	358,500	$	129,932	$	—	$	998,601	$	728,800	$	269,801	$	—
Marketable securities	48,006		48,006		—		—		54,250		44,243		10,007		—
Derivatives	1,769		—		1,769		—		15,071		—		15,071		—
Total	$	538,207	$	406,506	$	131,701	$	—	$	1,067,922	$	773,043	$	294,879	$	—
Liabilities:
Derivatives	$	21,308	$	—	$	21,308	$	—	$	5,316	$	—	$	5,316	$	—

	September 24, 2017
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	425,000	$	425,000	$	—	$	—
Marketable securities	45,726		45,726		—		—
Derivatives	724		—		724		—
Total	$	471,450	$	470,726	$	724	$	—
Liabilities:
Derivatives	$	32,414	$	—	$	32,414	$	—



	April 1, 2018
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	653,124	$	326,324	$	326,800	$	—
Marketable securities	49,402		49,402		—		—
Derivatives	3,613		—		3,613		—
Total	$	706,139	$	375,726	$	330,413	$	—
Liabilities:
Derivatives	$	22,850	$	—	$	22,850	$	—

Nonrecurring Fair Value Measurements

Repossessed inventory is recorded at the lower of cost or net realizable value through a nonrecurring fair value measurement. Repossessed inventory was ~~$19.5~~$21.4 million, ~~$19.6~~$20.2 million and ~~$21.3~~$23.8 million at ~~September 30, 2018,~~March 31, 2019, December 31, ~~2017~~2018 and ~~September 24, 2017,~~April 1, 2018, respectively, for which the fair value adjustment was ~~$6.7~~$9.3 million, ~~$9.0~~$9.7 million and ~~$9.0~~$8.3 million, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.

Fair Value of Financial Instruments Measured at Cost

The carrying value of the Company's cash and cash equivalents and restricted cash approximates their fair values.

The following table summarizes the fair value and carrying value of the Company’s remaining financial instruments that are measured at cost or amortized cost (in thousands):


	September 30, 2018				December 31, 2017				September 24, 2017				March 31, 2019				December 31, 2018				April 1, 2018
	Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value
Assets:
Finance receivables, net	$	7,394,684	$	7,303,562	$	7,021,549	$	6,965,086	$	7,159,632	$	7,101,025	$	7,520,418	$	7,438,592	$	7,304,334	$	7,221,931	$	7,195,908	$	7,126,442
Liabilities:
Unsecured commercial paper	$	1,373,859	$	1,373,859	$	1,273,482	$	1,273,482	$	834,875	$	834,875	$	1,192,925	$	1,192,925	$	1,135,810	$	1,135,810	$	1,036,976	$	1,036,976
Asset-backed U.S. commercial paper conduit facilities	$	265,044	$	265,044	$	279,457	$	279,457	$	280,308	$	280,308	$	526,947	$	526,947	$	582,717	$	582,717	$	281,311	$	281,311
Asset-backed Canadian commercial paper conduit facility	$	149,418	$	149,418	$	174,779	$	174,779	$	122,130	$	122,130	$	142,676	$	142,676	$	155,951	$	155,951	$	158,162	$	158,162
Medium-term notes	$	4,386,030	$	4,437,279	$	4,189,092	$	4,165,706	$	4,612,083	$	4,564,124	$	4,675,767	$	4,685,636	$	4,829,671	$	4,887,007	$	4,486,399	$	4,514,798
Senior unsecured notes	$	707,252	$	742,458	$	784,433	$	741,961	$	774,693	$	741,797	$	719,544	$	742,791	$	707,198	$	742,624	$	750,440	$	742,126
Asset-backed securitization debt	$	127,906	$	128,474	$	351,767	$	352,624	$	430,038	$	429,833	$	18,674	$	18,694	$	94,974	$	95,167	$	283,591	$	284,793

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

Debt – The carrying value of debt in the financial statements is generally amortized cost, net of discounts and debt issuance costs. The carrying value of unsecured commercial paper calculated using Level 2 inputs approximates fair value due to its short maturity. The carrying value of debt provided under the U.S. ~~conduit facilities~~Conduit Facilities and Canadian ~~conduit facility~~Conduit Facility calculated using Level 2 inputs approximates fair value since the interest rates charged under the facility are tied directly to market rates and fluctuate as market rates change. The fair values of the medium-term notes and senior unsecured notes are estimated based upon rates currently available for debt with similar terms and remaining maturities (Level 2 inputs). The fair value of the debt related to on-balance sheet asset-backed securitization transactions is estimated based on pricing currently available for transactions with similar terms and maturities (Level 2 inputs).

~~13.~~15. Product Warranty and Recall Campaigns

The Company currently provides a standard two-year limited warranty on all new motorcycles sold worldwide, except for Japan, where the Company currently provides a standard three-year limited warranty on all new motorcycles sold. In addition, the Company provides a one-year warranty for Parts & Accessories (P&A). The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company accrues for future warranty claims using an estimated cost based primarily on historical Company claim information. Additionally, the Company has from time to time initiated certain voluntary recall campaigns. The Company accrues for the estimated cost associated with voluntary recalls in the period that management approves and commits to the recall. Changes in the Company’s warranty and recall liability were as follows (in thousands):


	Three months ended						Nine months ended						Three months ended
	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018
Balance, beginning of period	$	89,943		$	80,681		$	94,202		$	79,482		$	131,740		$	94,202
Warranties issued during the period	12,038			11,802			43,548			46,638			11,617			14,606
Settlements made during the period	(21,550		)	(22,322		)	(59,965		)	(62,855		)	(19,617		)	(16,638		)
Recalls and changes to pre-existing warranty liabilities	3,493			646			6,139			7,542			(1,353		)	2,905
Balance, end of period	$	83,924		$	70,807		$	83,924		$	70,807		$	122,387		$	95,075

The liability for recall campaigns was $~~23.9~~64.1 million, $~~35.3~~73.3 million and $~~6.2~~32.3 million as of ~~September 30, 2018~~March 31, 2019, December 31, ~~2017~~2018 and ~~September 24, 2017~~April 1, 2018, respectively. The Company recorded supplier recoveries within operating expenses separate from the amounts disclosed above of $28.0 million for the three months ended March 31, 2019.

~~14.~~16. Employee Benefit Plans

The Company has a defined benefit qualified pension plan and postretirement healthcare benefit plans that cover certain employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. Service cost is allocated among ~~selling,~~Selling, administrative and engineering expense, ~~cost~~Cost of goods sold and ~~inventory.~~ Inventory. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit cost are presented in ~~other~~Other income (expense), ~~net. Refer to Note 2 regarding the adoption of ASU 2017-07 for further discussion of the impact on~~ net ~~periodic benefit cost.~~. Components of net periodic benefit cost were as follows (in thousands):


	Three months ended						Nine months ended						Three months ended
	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018
Pension and SERPA Benefits
Service cost	$	8,063		$	7,896		$	24,281		$	23,688		$	6,632		$	8,155
Interest cost	20,729			21,269			62,048			63,807			21,371			20,590
Expected return on plan assets	(36,925		)	(35,345		)	(110,742		)	(106,035		)	(35,581		)	(36,891		)
Amortization of unrecognized:
Prior service (credit) cost	(105		)	256			(316		)	764
Prior service credit													(483		)	(106		)
Net loss	16,318			10,998			48,455			32,994			11,128			15,819
Curtailment loss	—			—			1,018			—			—			1,018
Net periodic benefit cost	$	8,080		$	5,074		$	24,744		$	15,218		$	3,067		$	8,585
Postretirement Healthcare Benefits
Service cost	$	1,789		$	1,875		$	5,390		$	5,625		$	1,184		$	1,812
Interest cost	2,886			3,412			8,669			10,236			2,938			2,897
Expected return on plan assets	(3,541		)	(3,156		)	(10,623		)	(9,468		)	(3,507		)	(3,541		)
Amortization of unrecognized:
Prior service credit	(460		)	(543		)	(1,380		)	(1,629		)	(595		)	(460		)
Net loss	454			815			1,362			2,445			69			454
Net periodic benefit cost	$	1,128		$	2,403		$	3,418		$	7,209		$	89		$	1,162

During the ~~nine~~three months ended ~~September 30,~~April 1, 2018, the qualified pension plan and certain postretirement healthcare plan assets and obligations were remeasured as a result of a curtailment of benefits related to the planned closure of the Company's motorcycle assembly plant in Kansas City, Missouri, discussed further in Note 4. As a result of the remeasurement, the Company recorded a benefit of $96.4 million before income taxes in other comprehensive income during the ~~nine~~three months ended ~~September 30,~~April 1, 2018.

There are no required or planned qualified pension plan contributions for ~~2018~~2019. The Company expects it will continue to make ongoing benefit payments under the SERPA and postretirement healthcare plans.

~~15.~~17. Commitments and Contingencies

The Company is subject to lawsuits and other claims related to environmental, product and other matters. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter.

Environmental Protection Agency Notice:

In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses to the EPA’s inquiry and has engaged in information exchanges and discussions with the EPA. In August 2016, the Company entered into a consent decree with the EPA regarding these issues, and the consent decree was subsequently revised in July 2017 (the Settlement). In the Settlement, the Company agreed to, among other things, pay a fine, and not sell tuning products unless they are approved by the EPA or California Air Resources Board. In December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the Settlement with the U.S. District Court for the District of Columbia for the purpose of obtaining court approval of the Settlement. Three amicus briefs opposing portions of the Settlement were filed with the court by the deadline of January 31, 2018. On March 1, 2018, the Company and the ~~EPA~~DOJ each filed separate response briefs. The Company ~~anticipates~~is awaiting the ~~court will make a~~court's decision on whether or not to finalize the Settlement, inand on February 8, 2019 the ~~following months.~~DOJ filed a status update reminding the court of the current status of the outstanding matter. The Company has an accrual associated with this matter which is included in ~~accrued~~Accrued liabilities in on the consolidated balance sheets, and as a result, if it is finalized, the Settlement would not have a material adverse effect on the Company's financial condition or results of operations. The Settlement is not final until it is approved by the court, and if it is not approved by the court, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter.

York Environmental 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. The Company has been working with the Pennsylvania Department of Environmental Protection (PADEP) since 1986 and with the U.S. Environmental Protection Agency (EPA) 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~~Other long-term liabilities in on the consolidated balance sheets. While the work on the RI/FS is now complete and the final remedy was proposed in late 2018, it has not yet been ~~proposed or~~ approved, and given the uncertainty that exists concerning the nature and scope of additional environmental remediation that may ultimately be required under the approved final remedy, 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.

~~16.~~18. Accumulated Other Comprehensive Loss

The following tables set forth the changes in accumulated other comprehensive loss (AOCL) (in thousands):

Three months ended September 30, 2018
Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ (41,419 ) $ —
$ 7,431
$ (362,776 ) $ (396,764 )
Other comprehensive (loss) income before reclassifications (2,037 ) —
5,051
—
3,014
Income tax expense (175 ) —
(1,180 ) —
(1,355 )
Net other comprehensive (loss) income before reclassifications (2,212 ) —
3,871
—
1,659
Reclassifications:
Realized (gains) losses - foreign currency contracts^(a)
—
—
(5,695 ) —
(5,695 )
Realized (gains) losses - treasury rate locks^(b)
—
—
123
—
123
Realized (gains) losses - interest rate swap^(b)
—
—
661
—
661
Prior service credits^(c)
—
—
—
(565 ) (565 )
Actuarial losses^(c)
—
—
—
16,772
16,772
Total reclassifications before tax —
—
(4,911 ) 16,207
11,296
Income tax benefit (expense) —
—
1,163
(3,806 ) (2,643 )
Net reclassifications —
—
(3,748 ) 12,401
8,653
Other comprehensive (loss) income (2,212 ) —
123
12,401
10,312
Balance, end of period $ (43,631 ) $ —
$ 7,554
$ (350,375 ) $ (386,452 )



	Three months ended March 31, 2019
	Foreign currency translation adjustments			Derivative financial instruments			Pension and postretirement benefit plans			Total
Balance, beginning of period	$	(49,608	)	$	1,785		$	(581,861	)	$	(629,684	)
Other comprehensive income before reclassifications	606			1,177			—			1,783
Income tax expense	(275		)	(314		)	—			(589		)
Net other comprehensive income before reclassifications	331			863			—			1,194
Reclassifications:
Realized gains - foreign currency contracts^(a)	—			(2,453		)	—			(2,453		)
Realized losses - commodity contracts^(a)	—			10			—			10
Realized losses - treasury rate locks^(b)	—			122			—			122
Realized losses - interest rate swap^(b)	—			606			—			606
Prior service credits^(c)	—			—			(1,078		)	(1,078		)
Actuarial losses^(c)	—			—			11,197			11,197
Total reclassifications before tax	—			(1,715		)	10,119			8,404
Income tax benefit (expense)	—			411			(2,376		)	(1,965		)
Net reclassifications	—			(1,304		)	7,743			6,439
Other comprehensive income (loss)	331			(441		)	7,743			7,633
Balance, end of period	$	(49,277	)	$	1,344		$	(574,118	)	$	(622,051	)


	Three months ended April 1, 2018
	Foreign currency translation adjustments			Derivative financial instruments			Pension and postretirement benefit plans			Total
Balance, beginning of period	$	(21,852	)	$	(17,254	)	$	(460,943	)	$	(500,049	)
Other comprehensive income (loss) before reclassifications	6,915			(5,906		)	96,374			97,383
Income tax benefit (expense)	—			1,387			(22,629		)	(21,242		)
Net other comprehensive income (loss) before reclassifications	6,915			(4,519		)	73,745			76,141
Reclassifications:
Realized losses - foreign currency contracts^(a)	—			6,709			—			6,709
Realized losses - commodity contracts^(a)	—			73			—			73
Realized losses - treasury rate locks^(b)	—			126			—			126
Prior service credits^(c)	—			—			(566		)	(566		)
Actuarial losses^(c)	—			—			16,273			16,273
Total reclassifications before tax	—			6,908			15,707			22,615
Income tax expense	—			(1,624		)	(3,687		)	(5,311		)
Net reclassifications	—			5,284			12,020			17,304
Other comprehensive income	6,915			765			85,765			93,445
Balance, end of period	$	(14,937	)	$	(16,489	)	$	(375,178	)	$	(406,604	)

Three months ended September 24, 2017
Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ (42,938 ) $ —
$ (6,940 ) $ (494,067 ) $ (543,945 )
Other comprehensive income (loss) before reclassifications 26,754
—
(35,692 ) —
(8,938 )
Income tax (expense) benefit (1,741 ) —
13,220
—
11,479
Net other comprehensive income (loss) before reclassifications 25,013
—
(22,472 ) —
2,541
Reclassifications:
Realized (gains) losses - foreign currency contracts^(a)
—
—
7,901
—
7,901
Realized (gains) losses - commodity contracts^(a)
—
—
16
—
16
Realized (gains) losses - treasury rate locks^(b)
—
—
126
—
126
Prior service credits^(c)
—
—
—
(287 ) (287 )
Actuarial losses^(c)
—
—
—
11,813
11,813
Total reclassifications before tax —
—
8,043
11,526
19,569
Income tax expense —
—
(2,978 ) (4,269 ) (7,247 )
Net reclassifications —
—
5,065
7,257
12,322
Other comprehensive income (loss) 25,013
—
(17,407 ) 7,257
14,863
Balance, end of period $ (17,925 ) $ —
$ (24,347 ) $ (486,810 ) $ (529,082 )

Nine months ended September 30, 2018
Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ (21,852 ) $ —
$ (17,254 ) $ (460,943 ) $ (500,049 )
Other comprehensive (loss) income before reclassifications (21,604 ) —
30,939
96,374
105,709
Income tax expense (175 ) —
(7,269 ) (22,629 ) (30,073 )
Net other comprehensive (loss) income before reclassifications (21,779 ) —
23,670
73,745
75,636
Reclassifications:
Realized (gains) losses - foreign currency contracts^(a)
—
—
58
—
58
Realized (gains) losses - commodity contracts^(a)
—
—
85
—
85
Realized (gains) losses - treasury rate locks^(b)
—
—
374
—
374
Realized (gains) losses - interest rate swap^(b)
—
—
950
—
950
Prior service credits^(c)
—
—
—
(1,696 ) (1,696 )
Actuarial losses^(c)
—
—
—
49,817
49,817
Total reclassifications before tax —
—
1,467
48,121
49,588
Income tax expense —
—
(329 ) (11,298 ) (11,627 )
Net reclassifications —
—
1,138
36,823
37,961
Other comprehensive (loss) income (21,779 ) —
24,808
110,568
113,597
Balance, end of period $ (43,631 ) $ —
$ 7,554
$ (350,375 ) $ (386,452 )

Nine months ended September 24, 2017
Foreign currency translation adjustments Marketable securities Derivative financial instruments Pension and postretirement benefit plans Total
Balance, beginning of period $ (68,132 ) $ (1,194 ) $ 12,524
$ (508,579 ) $ (565,381 )
Other comprehensive income (loss) before reclassifications 51,834
1,896
(60,245 ) —
(6,515 )
Income tax (expense) benefit (1,627 ) (702 ) 22,307
—
19,978
Net other comprehensive income (loss) before reclassifications 50,207
1,194
(37,938 ) —
13,463
Reclassifications:
Realized (gains) losses - foreign currency contracts^(a)
—
—
1,428
—
1,428
Realized (gains) losses - commodity contracts^(a)
—
—
(49 ) —
(49 )
Realized (gains) losses - treasury rate locks^(b)
—
—
315
—
315
Prior service credits^(c)
—
—
—
(865 ) (865 )
Actuarial losses^(c)
—
—
—
35,439
35,439
Total reclassifications before tax —
—
1,694
34,574
36,268
Income tax expense —
—
(627 ) (12,805 ) (13,432 )
Net reclassifications —
—
1,067
21,769
22,836
Other comprehensive income (loss) 50,207
1,194
(36,871 ) 21,769
36,299
Balance, end of period $ (17,925 ) $ —
$ (24,347 ) $ (486,810 ) $ (529,082 )


(a)	Amounts reclassified to net income are included in Motorcycles and Related Products cost of goods sold


(b)	Amounts reclassified to net income are included in Interest expense and Financial Services interest expense


(c)	Amounts reclassified are included in the computation of net periodic benefit cost; see Note 1416 for information related to pension and postretirement benefit plans

~~17.~~19. Business Segments

Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in two segments: the Motorcycles and Related Products (Motorcycles) segment and the Financial Services segment. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations. Selected segment information is set forth below (in thousands):


	Three months ended				Nine months ended				Three months ended
	September 30, 2018		September 24, 2017		September 30, 2018		September 24, 2017		March 31, 2019		April 1, 2018
Motorcycles net revenue	$	1,123,945	$	962,136	$	4,013,013	$	3,867,982	$	1,195,637	$	1,363,947
Gross profit	347,415		274,313		1,353,273		1,322,098		347,439		473,773
Selling, administrative and engineering expense	266,921		256,961		797,323		750,848		225,428		254,093
Restructuring expense	14,832		—		74,044		—		13,630		46,842
Operating income from Motorcycles	65,662		17,352		481,906		571,250		108,381		172,838
Financial Services revenue	191,724		189,059		558,000		550,314		188,743		178,174
Financial Services expense	107,970		111,999		330,126		338,683		130,012		114,595
Operating income from Financial Services	83,754		77,060		227,874		211,631		58,731		63,579
Operating income	$	149,416	$	94,412	$	709,780	$	782,881	$	167,112	$	236,417

As discussed in Note 2, the Company adopted ASU 2017-07 on January 1, 2018, which required the Company to record the non-service cost components of net periodic benefit costs in non-operating income on a prospective and retrospective basis. As a result, operating income from Motorcycles excludes these costs for all periods presented.

~~18.~~20. Supplemental Consolidating Data

The supplemental consolidating data for the periods noted is presented for informational purposes. The supplemental consolidating data may be different than segment information presented elsewhere due to the allocation of intercompany eliminations to the reportable segments. All supplemental data is presented in thousands.



	Three months ended March 31, 2019
	HDMC Entities		HDFS Entities		Eliminations			Consolidated
Revenue:
Motorcycles and Related Products	$	1,200,009	$	—	$	(4,372	)	$	1,195,637
Financial Services	—		186,753		1,990			188,743
Total revenue	1,200,009		186,753		(2,382		)	1,384,380
Costs and expenses:
Motorcycles and Related Products cost of goods sold	848,703		—		(505		)	848,198
Financial Services interest expense	—		52,324		—			52,324
Financial Services provision for credit losses	—		34,491		—			34,491
Selling, administrative and engineering expense	227,992		42,588		(1,955		)	268,625
Restructuring expense	13,630		—		—			13,630
Total costs and expenses	1,090,325		129,403		(2,460		)	1,217,268
Operating income	109,684		57,350		78			167,112
Other income (expense), net	4,660		—		—			4,660
Investment income	51,358		—		(45,000		)	6,358
Interest expense	7,731		—		—			7,731
Income before provision for income taxes	157,971		57,350		(44,922		)	170,399
Provision for income taxes	28,557		13,897		—			42,454
Net income	$	129,414	$	43,453	$	(44,922	)	$	127,945


	Three months ended September 30, 2018
	HDMC Entities			HDFS Entities		Eliminations			Consolidated
Revenue:
Motorcycles and Related Products	$	1,126,977		$	—	$	(3,032	)	$	1,123,945
Financial Services	—			192,188		(464		)	191,724
Total revenue	1,126,977			192,188		(3,496		)	1,315,669
Costs and expenses:
Motorcycles and Related Products cost of goods sold	776,530			—		—			776,530
Financial Services interest expense	—			44,696		—			44,696
Financial Services provision for credit losses	—			23,530		—			23,530
Selling, administrative and engineering expense	267,316			42,776		(3,427		)	306,665
Restructuring expense	14,832			—		—			14,832
Total costs and expenses	1,058,678			111,002		(3,427		)	1,166,253
Operating income	68,299			81,186		(69		)	149,416
Other income (expense), net	644			—		—			644
Investment loss	(1,106		)	—		—			(1,106		)
Interest expense	7,762			—		—			7,762
Income before provision for income taxes	60,075			81,186		(69		)	141,192
Provision for income taxes	10,613			16,724		—			27,337
Net income	$	49,462		$	64,462	$	(69	)	$	113,855

	Nine months ended September 30, 2018											Three months ended April 1, 2018
	HDMC Entities			HDFS Entities		Eliminations			Consolidated			HDMC Entities		HDFS Entities		Eliminations			Consolidated
Revenue:
Motorcycles and Related Products	$	4,021,268		$	—	$	(8,255	)	$	4,013,013		$	1,366,246	$	—	$	(2,299	)	$	1,363,947
Financial Services	—			559,436		(1,436		)	558,000			—		178,460		(286		)	178,174
Total revenue	4,021,268			559,436		(9,691		)	4,571,013			1,366,246		178,460		(2,585		)	1,542,121
Costs and expenses:
Motorcycles and Related Products cost of goods sold	2,659,740			—		—			2,659,740			890,174		—		—			890,174
Financial Services interest expense	—			145,089		—			145,089			—		48,450		—			48,450
Financial Services provision for credit losses	—			72,462		—			72,462			—		30,052		—			30,052
Selling, administrative and engineering expense	798,544			120,830		(9,476		)	909,898			254,401		38,391		(2,606		)	290,186
Restructuring expense	74,044			—		—			74,044			46,842		—		—			46,842
Total costs and expenses	3,532,328			338,381		(9,476		)	3,861,233			1,191,417		116,893		(2,606		)	1,305,704
Operating income	488,940			221,055		(215		)	709,780			174,829		61,567		21			236,417
Other income (expense), net	1,509			—		—			1,509			220		—		—			220
Investment income	112,630			—		(110,000		)	2,630			111,203		—		(110,000		)	1,203
Interest expense	23,180			—		—			23,180			7,690		—		—			7,690
Income before provision for income taxes	579,899			221,055		(110,215		)	690,739			278,562		61,567		(109,979		)	230,150
Provision for income taxes	110,529			49,254		—			159,783			40,233		15,154		—			55,387
Net income	$	469,370		$	171,801	$	(110,215	)	$	530,956		$	238,329	$	46,413	$	(109,979	)	$	174,763

Three months ended September 24, 2017
HDMC Entities HDFS Entities Eliminations Consolidated
Revenue:
Motorcycles and Related Products $ 964,942
$ —
$ (2,806 ) $ 962,136
Financial Services —
189,932
(873 ) 189,059
Total revenue 964,942
189,932
(3,679 ) 1,151,195
Costs and expenses:
Motorcycles and Related Products cost of goods sold 687,823
—
—
687,823
Financial Services interest expense —
46,169
—
46,169
Financial Services provision for credit losses —
29,253
—
29,253
Selling, administrative and engineering expense 257,357
39,383
(3,202 ) 293,538
Total costs and expenses 945,180
114,805
(3,202 ) 1,056,783
Operating income 19,762
75,127
(477 ) 94,412
Other income (expense), net 2,296
—
—
2,296
Investment income 91,083
—
(90,000 ) 1,083
Interest expense 7,896
—
—
7,896
Income before provision for income taxes 105,245
75,127
(90,477 ) 89,895
Provision for income taxes (6,134 ) 27,820
—
21,686
Net income $ 111,379
$ 47,307
$ (90,477 ) $ 68,209

Nine months ended September 24, 2017
HDMC Entities HDFS Entities Eliminations Consolidated
Revenue:
Motorcycles and Related Products $ 3,875,669
$ —
$ (7,687 ) $ 3,867,982
Financial Services —
552,201
(1,887 ) 550,314
Total revenue 3,875,669
552,201
(9,574 ) 4,418,296
Costs and expenses:
Motorcycles and Related Products cost of goods sold 2,545,884
—
—
2,545,884
Financial Services interest expense —
133,866
—
133,866
Financial Services provision for credit losses —
99,059
—
99,059
Selling, administrative and engineering expense 752,134
113,445
(8,973 ) 856,606
Total costs and expenses 3,298,018
346,370
(8,973 ) 3,635,415
Operating income 577,651
205,831
(601 ) 782,881
Other income (expense), net 6,887
—
—
6,887
Investment income 198,539
—
(196,000 ) 2,539
Interest expense 23,295
—
—
23,295
Income before provision for income taxes 759,782
205,831
(196,601 ) 769,012
Provision for income taxes 179,058
76,509
—
255,567
Net income $ 580,724
$ 129,322
$ (196,601 ) $ 513,445



	March 31, 2019
	HDMC Entities		HDFS Entities		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	384,390	$	365,210	$	—		$	749,600
Marketable securities	10,003		—		—			10,003
Accounts receivable, net	666,782		—		(313,241		)	353,541
Finance receivables, net	—		2,443,899		—			2,443,899
Inventories	595,806		—		—			595,806
Restricted cash	—		43,471		—			43,471
Other current assets	137,167		40,594		—			177,761
Total current assets	1,794,148		2,893,174		(313,241		)	4,374,081
Finance receivables, net	—		4,994,693		—			4,994,693
Property, plant and equipment, net	820,634		55,369					876,003
Goodwill	64,131		—					64,131
Deferred income taxes	96,500		37,487		(999		)	132,988
Lease assets	48,513		6,792		—			55,305
Other long-term assets	154,687		19,149		(90,424		)	83,412
	$	2,978,613	$	8,006,664	$	(404,664	)	$	10,580,613
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	351,831	$	342,328	$	(313,241	)	$	380,918
Accrued liabilities	544,560		98,778		833			644,171
Short-term debt	—		1,192,925		—			1,192,925
Current portion of long-term debt, net	—		1,372,050		—			1,372,050
Total current liabilities	896,391		3,006,081		(312,408		)	3,590,064
Long-term debt, net	742,791		4,001,903		—			4,744,694
Lease liabilities	32,520		6,996		—			39,516
Pension liability	98,862		—		—			98,862
Postretirement healthcare liability	93,897		—		—			93,897
Other long-term liabilities	174,150		39,070		2,749			215,969
Commitments and contingencies (Note 17)
Shareholders’ equity	940,002		952,614		(95,005		)	1,797,611
	$	2,978,613	$	8,006,664	$	(404,664	)	$	10,580,613


	September 30, 2018									December 31, 2018
	HDMC Entities		HDFS Entities		Eliminations			Consolidated		HDMC Entities		HDFS Entities		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	576,670	$	350,322	$	—		$	926,992	$	544,548	$	659,218	$	—		$	1,203,766
Marketable securities	10,011		—		—			10,011		10,007		—		—			10,007
Accounts receivable, net	640,416		—		(308,107		)	332,309		425,727		—		(119,253		)	306,474
Finance receivables, net	—		2,116,386		—			2,116,386		—		2,214,424		—			2,214,424
Inventories	516,247		—		—			516,247		556,128		—		—			556,128
Restricted cash	—		36,471		—			36,471		—		49,275		—			49,275
Other current assets	106,259		44,783		—			151,042		91,172		59,070		(5,874		)	144,368
Total current assets	1,849,603		2,547,962		(308,107		)	4,089,458		1,627,582		2,981,987		(125,127		)	4,484,442
Finance receivables, net	—		5,187,176		—			5,187,176		—		5,007,507		—			5,007,507
Property, plant and equipment, net	833,279		51,681		—			884,960		847,176		56,956		—			904,132
Prepaid pension costs	140,763		—		—			140,763
Goodwill	55,318		—		—			55,318		55,048		—		—			55,048
Deferred income taxes	25,780		39,203		(1,424		)	63,559		105,388		37,603		(1,527		)	141,464
Other long-term assets	151,815		19,799		(89,048		)	82,566		144,122		18,680		(89,731		)	73,071
	$	3,056,558	$	7,845,821	$	(398,579	)	$	10,503,800	$	2,779,316	$	8,102,733	$	(216,385	)	$	10,665,664
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	291,395	$	327,679	$	(308,107	)	$	310,967	$	258,587	$	145,527	$	(119,253	)	$	284,861
Accrued liabilities	483,964		80,427		441			564,832		496,643		110,063		(5,576		)	601,130
Short-term debt	—		1,373,859		—			1,373,859		—		1,135,810		—			1,135,810
Current portion of long-term debt, net	—		1,526,156		—			1,526,156		—		1,575,799		—			1,575,799
Total current liabilities	775,359		3,308,121		(307,666		)	3,775,814		755,230		2,967,199		(124,829		)	3,597,600
Long-term debt, net	742,458		3,454,059		—			4,196,517		742,624		4,145,043		—			4,887,667
Pension liability	54,138		—		—			54,138		107,776		—		—			107,776
Postretirement healthcare liability	112,798		—		—			112,798		94,453		—		—			94,453
Other long-term liabilities	170,464		38,003		3,094			211,561		164,243		37,142		2,834			204,219
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 17)
Shareholders’ equity	1,201,341		1,045,638		(94,007		)	2,152,972		914,990		953,349		(94,390		)	1,773,949
	$	3,056,558	$	7,845,821	$	(398,579	)	$	10,503,800	$	2,779,316	$	8,102,733	$	(216,385	)	$	10,665,664


	December 31, 2017									April 1, 2018
	HDMC Entities		HDFS Entities		Eliminations			Consolidated		HDMC Entities		HDFS Entities		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	338,186	$	349,335	$	—		$	687,521	$	403,009	$	350,508	$	—		$	753,517
Accounts receivable, net	483,709		—		(153,723		)	329,986		686,265		—		(331,158		)	355,107
Finance receivables, net	—		2,105,662		—			2,105,662		—		2,341,918		—			2,341,918
Inventories	538,202		—		—			538,202		564,571		—		—			564,571
Restricted cash	—		47,518		—			47,518		—		54,569		—			54,569
Other current assets	132,999		48,521		(5,667		)	175,853		108,613		44,724		(2,865		)	150,472
Total current assets	1,493,096		2,551,036		(159,390		)	3,884,742		1,762,458		2,791,719		(334,023		)	4,220,154
Finance receivables, net	—		4,859,424		—			4,859,424		—		4,784,524		—			4,784,524
Property, plant and equipment, net	922,280		45,501		—			967,781		887,522		47,123		—			934,645
Prepaid pension costs	19,816		—		—			19,816		122,230		—		—			122,230
Goodwill	55,947		—		—			55,947		56,524		—		—			56,524
Deferred income taxes	66,877		43,515		(1,319		)	109,073		36,140		42,543		(1,059		)	77,624
Other long-term assets	138,344		23,593		(86,048		)	75,889		145,344		23,514		(86,938		)	81,920
	$	2,696,360	$	7,523,069	$	(246,757	)	$	9,972,672	$	3,010,218	$	7,689,423	$	(422,020	)	$	10,277,621
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	214,263	$	167,057	$	(153,723	)	$	227,597	$	297,162	$	353,036	$	(331,158	)	$	319,040
Accrued liabilities	444,028		90,942		(5,148		)	529,822		462,279		106,149		(2,020		)	566,408
Short-term debt	—		1,273,482		—			1,273,482		—		1,036,976		—			1,036,976
Current portion of long-term debt, net	—		1,127,269		—			1,127,269		—		1,872,679		—			1,872,679
Total current liabilities	658,291		2,658,750		(158,871		)	3,158,170		759,441		3,368,840		(333,178		)	3,795,103
Long-term debt, net	741,961		3,845,297		—			4,587,258		742,126		3,366,385		—			4,108,511
Pension liability	54,606		—		—			54,606		54,921		—		—			54,921
Postretirement healthcare liability	118,753		—		—			118,753		113,031		—		—			113,031
Other long-term liabilities	171,200		35,503		2,905			209,608		171,389		35,899		2,818			210,106
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 17)
Shareholders’ equity	951,549		983,519		(90,791		)	1,844,277		1,169,310		918,299		(91,660		)	1,995,949
	$	2,696,360	$	7,523,069	$	(246,757	)	$	9,972,672	$	3,010,218	$	7,689,423	$	(422,020	)	$	10,277,621

September 24, 2017
HDMC Entities HDFS Entities Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ 311,029
$ 372,105
$ —
$ 683,134
Accounts receivable, net 690,152
—
(347,028 ) 343,124
Finance receivables, net —
2,058,168
—
2,058,168
Inventories 469,091
—
—
469,091
Restricted cash —
52,209
—
52,209
Other current assets 146,012
46,956
(10,552 ) 182,416
Total current assets 1,616,284
2,529,438
(357,580 ) 3,788,142
Finance receivables, net —
5,042,857
—
5,042,857
Property, plant and equipment, net 892,260
42,355
—
934,615
Goodwill 55,898
—
—
55,898
Deferred income taxes 109,116
73,424
(1,965 ) 180,575
Other long-term assets 149,257
22,499
(85,484 ) 86,272
$ 2,822,815
$ 7,710,573
$ (445,029 ) $ 10,088,359
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 257,205
$ 366,940
$ (347,028 ) $ 277,117
Accrued liabilities 479,753
104,814
(10,609 ) 573,958
Short-term debt —
834,875
—
834,875
Current portion of long-term debt, net —
1,530,401
—
1,530,401
Total current liabilities 736,958
2,837,030
(357,637 ) 3,216,351
Long-term debt, net 741,797
3,865,994
—
4,607,791
Pension liability 52,471
—
—
52,471
Postretirement healthcare liability 162,925
—
—
162,925
Other long-term liabilities 154,696
34,071
3,234
192,001
Commitments and contingencies (Note 15)
Shareholders’ equity 973,968
973,478
(90,626 ) 1,856,820
$ 2,822,815
$ 7,710,573
$ (445,029 ) $ 10,088,359



	Three months ended March 31, 2019
	HDMC Entities			HDFS Entities		Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	129,414		$	43,453	$	(44,922	)	$	127,945
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles	62,187			2,185		—			64,372
Amortization of deferred loan origination costs	—			18,968		—			18,968
Amortization of financing origination fees	167			2,027		—			2,194
Provision for long-term employee benefits	3,156			—		—			3,156
Employee benefit plan contributions and payments	(2,507		)	—		—			(2,507		)
Stock compensation expense	5,845			692		—			6,537
Net change in wholesale finance receivables related to sales	—			—		(237,569		)	(237,569		)
Provision for credit losses	—			34,491		—			34,491
Deferred income taxes	6,195			314		(528		)	5,981
Other, net	1,886			922		(77		)	2,731
Changes in current assets and liabilities:
Accounts receivable, net	(243,734		)	—		193,988			(49,746		)
Finance receivables - accrued interest and other	—			92		—			92
Inventories	(40,600		)	—		—			(40,600		)
Accounts payable and accrued liabilities	122,462			180,980		(179,467		)	123,975
Derivative instruments	834			33		—			867
Other	(41,339		)	18,997		(5,874		)	(28,216		)
Total adjustments	(125,448		)	259,701		(229,527		)	(95,274		)
Net cash provided by operating activities	3,966			303,154		(274,449		)	32,671

Nine months ended September 30, 2018
HDMC Entities HDFS Entities Eliminations Consolidated
Cash flows from operating activities:
Net income $ 469,370
$ 171,801
$ (110,215 ) $ 530,956
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles 193,289
3,172
—
196,461
Amortization of deferred loan origination costs —
61,213
—
61,213
Amortization of financing origination fees 497
5,710
—
6,207
Provision for long-term employee benefits 28,162
—
—
28,162
Employee benefit plan contributions and payments (11,035 ) —
—
(11,035 )
Stock compensation expense 26,122
3,000
—
29,122
Net change in wholesale finance receivables related to sales —
—
(18,400 ) (18,400 )
Provision for credit losses —
72,462
—
72,462
Deferred income taxes (2,991 ) 4,343
105
1,457
Other, net 28,426
699
215
29,340
Changes in current assets and liabilities:
Accounts receivable, net (169,168 ) —
154,384
(14,784 )
Finance receivables - accrued interest and other —
1,374
—
1,374
Inventories 8,270
—
—
8,270
Accounts payable and accrued liabilities 170,001
152,028
(138,423 ) 183,606
Derivative instruments 1,124
103
—
1,227
Other 19,411
3,173
(5,667 ) 16,917
Total adjustments 292,108
307,277
(7,786 ) 591,599
Net cash provided by operating activities 761,478
479,078
(118,001 ) 1,122,555



	Three months ended March 31, 2019
	HDMC Entities			HDFS Entities			Eliminations			Consolidated
Cash flows from investing activities:
Capital expenditures	(34,657		)	(598		)	—			(35,255		)
Origination of finance receivables	—			(1,691,416		)	840,044			(851,372		)
Collections on finance receivables	—			1,426,419			(610,595		)	815,824
Acquisition of business	(7,000		)	—			—			(7,000		)
Other	603			—			—			603
Net cash used by investing activities	(41,054		)	(265,595		)	229,449			(77,200		)
Cash flows from financing activities:
Proceeds from issuance of medium-term notes	—			546,655			—			546,655
Repayments of medium-term notes	—			(750,000		)	—			(750,000		)
Repayments of securitization debt	—			(76,505		)	—			(76,505		)
Repayments of asset-backed commercial paper	—			(72,401		)	—			(72,401		)
Net increase in credit facilities and unsecured commercial paper	—			58,527			—			58,527
Dividends paid	(60,859		)	(45,000		)	45,000			(60,859		)
Purchase of common stock for treasury	(61,712		)	—			—			(61,712		)
Issuance of common stock under employee stock option plans	616			—			—			616
Net cash used by financing activities	(121,955		)	(338,724		)	45,000			(415,679		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,115		)	706			—			(409		)
Net decrease in cash, cash equivalents and restricted cash	$	(160,158	)	$	(300,459	)	$	—		$	(460,617	)
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash—beginning of period	$	544,548		$	715,200		$	—		$	1,259,748
Net decrease in cash, cash equivalents and restricted cash	(160,158		)	(300,459		)	—			(460,617		)
Cash, cash equivalents and restricted cash—end of period	$	384,390		$	414,741		$	—		$	799,131

Nine months ended September 30, 2018
HDMC Entities HDFS Entities Eliminations Consolidated
Cash flows from investing activities:
Capital expenditures (110,493 ) (9,352 ) —
(119,845 )
Origination of finance receivables —
(5,845,799 ) 2,806,639
(3,039,160 )
Collections on finance receivables —
5,363,333
(2,798,638 ) 2,564,695
Other (21,753 ) —
—
(21,753 )
Net cash used by investing activities (132,246 ) (491,818 ) 8,001
(616,063 )
Cash flows from financing activities:
Proceeds from issuance of medium-term notes —
1,144,018
—
1,144,018
Repayments of medium-term notes —
(877,488 ) —
(877,488 )
Repayments of securitization debt —
(224,507 ) —
(224,507 )
Borrowings of asset-backed commercial paper —
120,903
—
120,903
Repayments of asset-backed commercial paper —
(156,258 ) —
(156,258 )
Net increase in credit facilities and unsecured commercial paper —
102,154
—
102,154
Dividends paid (186,105 ) (110,000 ) 110,000
(186,105 )
Purchase of common stock for treasury (195,998 ) —
—
(195,998 )
Issuance of common stock under employee stock option plans 3,157
—
—
3,157
Net cash used by financing activities (378,946 ) (1,178 ) 110,000
(270,124 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash (11,802 ) (765 ) —
(12,567 )
Net increase (decrease) in cash, cash equivalents and restricted cash $ 238,484
$ (14,683 ) $ —
$ 223,801
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash—beginning of period $ 338,186
$ 408,024
$ —
$ 746,210
Net increase (decrease) in cash, cash equivalents and restricted cash 238,484
(14,683 ) —
223,801
Cash, cash equivalents and restricted cash—end of period $ 576,670
$ 393,341
$ —
$ 970,011



	Three months ended April 1, 2018
	HDMC Entities			HDFS Entities		Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	238,329		$	46,413	$	(109,979	)	$	174,763
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles	61,405			1,068		—			62,473
Amortization of deferred loan origination costs	—			20,116		—			20,116
Amortization of financing origination fees	165			1,863		—			2,028
Provision for long-term employee benefits	9,747			—		—			9,747
Employee benefit plan contributions and payments	(5,486		)	—		—			(5,486		)
Stock compensation expense	7,072			890		—			7,962
Net change in wholesale finance receivables related to sales	—			—		(239,902		)	(239,902		)
Provision for credit losses	—			30,052		—			30,052
Deferred income taxes	2,469			979		(260		)	3,188
Other, net	(2,081		)	200		(21		)	(1,902		)
Changes in current assets and liabilities:
Accounts receivable, net	(195,123		)	—		177,435			(17,688		)
Finance receivables - accrued interest and other	—			4,758		—			4,758
Inventories	(21,542		)	—		—			(21,542		)
Accounts payable and accrued liabilities	121,833			201,056		(173,966		)	148,923
Derivative instruments	666			36		—			702
Other	9,935			6,269		(2,802		)	13,402
Total adjustments	(10,940		)	267,287		(239,516		)	16,831
Net cash provided by operating activities	227,389			313,700		(349,495		)	191,594

Nine months ended September 24, 2017
HDMC Entities HDFS Entities Eliminations Consolidated
Cash flows from operating activities:
Net income $ 580,724
$ 129,322
$ (196,601 ) $ 513,445
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles 158,938
5,036
—
163,974
Amortization of deferred loan origination costs —
62,052
—
62,052
Amortization of financing origination fees 491
5,621
—
6,112
Provision for long-term employee benefits 22,427
—
—
22,427
Employee benefit plan contributions and payments (43,060 ) —
—
(43,060 )
Stock compensation expense 23,223
2,358
—
25,581
Net change in wholesale finance receivables related to sales —
—
36,678
36,678
Provision for credit losses —
99,059
—
99,059
Deferred income taxes 3,450
(8,656 ) 55
(5,151 )
Other, net (14,671 ) 2,946
603
(11,122 )
Changes in current assets and liabilities:
Accounts receivable, net (211,115 ) —
181,948
(29,167 )
Finance receivables - accrued interest and other —
317
—
317
Inventories 50,016
—
—
50,016
Accounts payable and accrued liabilities 75,957
199,855
(187,054 ) 88,758
Derivative instruments 2,708
44
—
2,752
Other (45,830 ) 1,731
10,503
(33,596 )
Total adjustments 22,534
370,363
42,733
435,630
Net cash provided by operating activities 603,258
499,685
(153,868 ) 949,075



	Three months ended April 1, 2018
	HDMC Entities			HDFS Entities			Eliminations			Consolidated
Cash flows from investing activities:
Capital expenditures	(25,746		)	(2,690		)	—			(28,436		)
Origination of finance receivables	—			(1,786,309		)	988,242			(798,067		)
Collections on finance receivables	—			1,558,547			(748,747		)	809,800
Other	(4,948		)	—			—			(4,948		)
Net cash used by investing activities	(30,694		)	(230,452		)	239,495			(21,651		)
Cash flows from financing activities:
Proceeds from issuance of medium-term notes	—			347,553			—			347,553
Repayments of securitization debt	—			(67,955		)	—			(67,955		)
Borrowings of asset-backed commercial paper	—			35,504			—			35,504
Repayments of asset-backed commercial paper	—			(45,907		)	—			(45,907		)
Net decrease in credit facilities and unsecured commercial paper	—			(234,145		)	—			(234,145		)
Dividends paid	(62,731		)	(110,000		)	110,000			(62,731		)
Purchase of common stock for treasury	(72,968		)	—			—			(72,968		)
Issuance of common stock under employee stock option plans	1,719			—			—			1,719
Net cash used by financing activities	(133,980		)	(74,950		)	110,000			(98,930		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	2,108			(74		)	—			2,034
Net increase in cash, cash equivalents and restricted cash	$	64,823		$	8,224		$	—		$	73,047
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash—beginning of period	$	338,186		$	408,024		$	—		$	746,210
Net increase in cash, cash equivalents and restricted cash	64,823			8,224			—			73,047
Cash, cash equivalents and restricted cash—end of period	$	403,009		$	416,248		$	—		$	819,257

Nine months ended September 24, 2017
HDMC Entities HDFS Entities Eliminations Consolidated
Cash flows from investing activities:
Capital expenditures (105,591 ) (8,431 ) —
(114,022 )
Origination of finance receivables —
(5,791,241 ) 2,863,869
(2,927,372 )
Collections on finance receivables —
5,386,123
(2,906,001 ) 2,480,122
Other 7,272
—
—
7,272
Net cash used by investing activities (98,319 ) (413,549 ) (42,132 ) (554,000 )
Cash flows from financing activities:
Proceeds from issuance of medium-term notes —
893,668
—
893,668
Repayments of medium-term notes —
(400,000 ) —
(400,000 )
Repayments of securitization debt —
(367,298 ) —
(367,298 )
Borrowings of asset-backed commercial paper —
371,253
—
371,253
Repayments of asset-backed commercial paper —
(129,690 ) —
(129,690 )
Net decrease in credit facilities and unsecured commercial paper —
(225,038 ) —
(225,038 )
Dividends paid (190,121 ) (196,000 ) 196,000
(190,121 )
Purchase of common stock for treasury (465,167 ) —
—
(465,167 )
Issuance of common stock under employee stock option plans 7,884
—
—
7,884
Net cash used by financing activities (647,404 ) (53,105 ) 196,000
(504,509 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash 27,954
863
—
28,817
Net (decrease) increase in cash, cash equivalents and restricted cash $ (114,511 ) $ 33,894
$ —
$ (80,617 )
Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash—beginning of period $ 425,540
$ 401,591
$ —
$ 827,131
Net (decrease) increase in cash, cash equivalents and restricted cash (114,511 ) 33,894
—
(80,617 )
Cash, cash equivalents and restricted cash—end of period $ 311,029
$ 435,485
$ —
$ 746,514

~~19. Subsequent Event~~

In October 2018, the Company announced a voluntary safety recall for a hydraulic clutch assembly on all model year 2017 and 2018 Touring, Trike and CVO Touring models and certain 2017 Softail models. The recall includes approximately 238,300 motorcycles globally. The Company estimates the cost of the recall to the Company to be approximately $35 million, which will be recorded in the fourth quarter of 2018.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Harley-Davidson, Inc. is the parent company of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). Unless the context otherwise requires, all references to the "Company" include Harley-Davidson, Inc. and all its subsidiaries. The Company operates in two segments: Motorcycles and Related Products (Motorcycles) and Financial Services. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations.

The Motorcycles segment consists of HDMC which designs, manufactures and sells at wholesale on-road Harley-Davidson motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services. The Company's products are sold to retail customers through a network of independent dealers. The Company conducts business on a global basis, with sales in the United States, Canada, Latin America, Europe/Middle East/Africa (EMEA) and the Asia Pacific region.

The Financial Services segment consists of HDFS which is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans, primarily for the purchase of Harley-Davidson motorcycles. HDFS also works with certain unaffiliated insurance companies to provide motorcycle insurance and protection products to motorcycle owners. HDFS conducts business principally in the United States and Canada.

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 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 “Cautionary Statements” and in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the Overview and Outlook sections are only made as of ~~October~~April 23, ~~2018~~2019 and the remaining forward-looking statements in this report are made as of the date of the filing of this report ~~(November 8, 2018)~~(May 9, 2019), 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 was ~~$113.9~~$127.9 million, or ~~$0.68~~$0.80 per diluted share, for the ~~third~~first quarter of ~~2018~~2019 compared to ~~$68.2~~$174.8 million, or ~~$0.40~~$1.03 per diluted share, in the ~~third~~first quarter of ~~2017.~~2018. Operating income from the Motorcycles segment ~~increased $48.3~~decreased $64.5 million compared to last year’s ~~third~~first quarter ~~primarily due to a 16.7% increase in wholesale motorcycle shipments.~~and was impacted by lower shipments, unfavorable mix and incremental tariffs, partially offset by lower operating expenses. Operating income from the Financial Services segment in the ~~third~~first quarter of ~~2018~~2019 was ~~$83.8~~$58.7 million, ~~up 8.7%~~down 7.6% compared to the year-ago quarter ~~primarily due to~~on a ~~lower~~higher provision for credit ~~losses.~~losses and higher operating expenses.

Worldwide dealer retail sales of new Harley-Davidson motorcycles in the ~~third~~first quarter of ~~2018~~2019 were down ~~7.8%~~3.8% compared to the ~~third~~first quarter of ~~2017.In the U.S., retail~~2018. Retail sales were down ~~13.3% on a weak~~4.2% in the U.S. ~~industry which declined 9.8% for the same period. Retail sales~~and down 3.3% in international markets ~~were up 2.6%~~ compared to the prior year ~~third~~first quarter. ~~International~~Retail sales results in the first quarter improved significantly from recent trends despite limited availability of Street motorcycles. During the first quarter of 2019, retail sales ~~grew behind strong performance~~of Street motorcycles were adversely impacted by limited availability following a recent recall. Excluding retail sales of Street motorcycles from both 2018 and 2019, worldwide retail sales were up 0.4% in ~~western Europe and emerging markets.~~the first quarter of 2019 compared to the same period last year. Retail sales of Street motorcycles resumed in late March 2019.

The Company was encouraged by first quarter retail sales performance, but remains cautious as it moves into the height of its selling season. The Company expects its business to remain under pressure in 2019 driven by continuing challenges in the U.S. industry to remain challenged into 2019 and will continue to proactively address these weak conditions. In the near-term, the Company is introducing exciting new products and adding innovation that customers value on its new motorcycles.motorcycle industry. The Company will continue to aggressively manage supply in line with demand and execute marketing efforts to encourage ~~motorcycle trials~~trial, create new riders and increase ~~the~~ conversion ~~of these trials into sales.~~to sale. In ~~the mid-to-long term,~~addition, the Company ~~is accelerating~~continues work to accelerate its strategy to build the next generation of Harley-Davidson ~~riders. The Company's previously announced~~riders through 2022 through its More Roads to Harley-Davidson ~~plan is aimed~~(More Roads) plan.

Finally, unionized workers at ~~strengthening~~ the ~~Company's core business as it grows more riders globally.~~Company’s operations in the Milwaukee area and Tomahawk, Wisconsin ratified new five-year labor agreements in April 2019. The Company believes the new contracts will enable it ~~is building~~to compete in a challenging business environment and advance its strategy to build the ~~proper foundation and driving the right fundamentals to help steer the industry back to growth.~~next generation of riders globally.

Outlook⁽¹⁾

On ~~October~~April 23, ~~2018,~~2019, the Company provided the following information concerning its expectations for ~~2018:~~the remainder of 2019:

Motorcycles and Related Products Segment - Full Year

The Company ~~continues~~expects the U.S. industry to ~~expect~~continue to ~~meet its 2018 shipment guidance despite the weak U.S. industry; however, it expects shipments to be toward the low end of its guidance range.~~decline in 2019, but at a more tempered pace than in 2018. The Company expects ~~to ship 231,000 to 236,000 motorcycles to dealers worldwide in 2018, which is down approximately 2% to 4% from 2017. In the fourth quarter of 2018,~~international retail sales growth during 2019. As a result, the Company expects to ship between 217,000 and 222,000 motorcycles to dealers in 2019 which is down approximately ~~45,800~~3% to ~~50,800 motorcycles, compared to 47,198 units shipped in the fourth quarter of 2017.~~5% from 2018. The Company also expects ~~that 2018 full year~~year-end U.S. dealer ~~retail sales will~~inventory of new motorcycles to be down compared to ~~2017 partially offset by growth in international retail sales compared to the prior year.~~ 2018.

The Company expects ~~2018 year-end U.S. retail inventory to be flat to 2017 and retail inventory in international markets to be up as it has continued to add new dealers.~~

~~The Company continues to expect operating~~Motorcycles segment gross margin as a percent of revenue ~~for the Motorcycles segment~~ to be ~~approximately 9% to 10% for the full year 2018. However, given the expected cost of~~lower than 2018 driven by a ~~voluntary safety recall announced~~significant increase in the ~~fourth quarter~~impact of 2018, the Company believes its full year operating margin will likely finish at the low end of the guidance range. The voluntary safety recall relates to a hydraulic clutch assembly on all model year 2017incremental tariffs, lower shipment volumes and 2018 Touring, Trike and CVO Touring models and certain 2017 Softail models. The voluntary recall includes approximately 238,300 motorcycles globally. The Company estimates the cost of the recall to be approximately $35 million, which will be recorded in the fourth quarter of 2018.

The Company expects the gross margin percent for the Motorcycles segment to be down for the full year 2018 compared to 2017. Gross margin as a percent of revenue in 2018 is expected to benefit from pricing on model year 2018 and 2019 motorcycles, favorableunfavorable product mix, ~~and favorable foreign currency exchange rates. However, the Company expects these positive impacts to be more than~~partially offset by ~~increased manufacturing expense and incremental tariff costs. Manufacturing expense is expected to be higher than in 2017 due to $15~~aggressive cost reductions, including the benefit of $25 million to ~~$20~~$30 million of ~~temporary inefficiencies related to~~savings from the Company's ~~manufacturing optimization plan and higher depreciation.~~Manufacturing Optimization plan. Refer to ~~"Manufacturing Optimization~~"Restructuring Plan Costs and Savings" below for further information regarding the ~~Company’s manufacturing optimization plan.~~Manufacturing Optimization Plan.

The Company expects incremental costs related to tariffs of approximately $43 million to $48 million in 2018, down from its prior expectation of $45 million to $55 million. The Company's expectations for the impact of recently enacted tariffs includes incremental costs of approximately $15 million to $20 million related to U.S. tariffs on imported steel and aluminum and approximately $25 million for European Union tariffs imposed on the Company’s products. Additionally, China recently increased tariffs on imported motorcycles produced in the U.S. by 25 percentage points, and the U.S. has increased tariffs for certain products imported from China. The Company's expectation for incremental costs related to tariffs includes approximately $3 million related to China.

The Company continues to expect selling, administrative and engineering expense for the Motorcycles segment to be higher in 2018 compared to 2017, but largely flat to 2017 when expressed as a percent of revenue. The Company expects selling, administrative and engineering ~~expense~~expenses for the Motorcycles segment to be uplower in 2019 behind ~~increased investments in marketing~~aggressive cost management and ~~product development~~lower recall costs.

Incremental tariffs include incremental European Union and China tariffs imposed on the Company's products shipped from the U.S., as well as incremental U.S. tariffs on certain items imported from certain international markets. Incremental tariff costs exclude metals cost resulting from the U.S. steel and aluminum tariffs, although the Company ~~works~~does expect higher metals cost which are included in the 2019 gross margin guidance above.

As previously disclosed, the Company expects the impact of incremental tariff costs to ~~grow ridership globally.~~

be approximately $100 million to $120 million in 2019. While the Company's preference has always been to serve the EU market from its U.S. manufacturing operations, the Company plans to mitigate the impact of the incremental European Union and China tariffs by the end of 2019 by serving those markets with motorcycles from its Thailand facility.

The ~~Company's 2018~~Company is pursuing regulatory approval in the European Union to that end; however, there is material risk that regulatory approval will not be granted. As a result, the Company is considering multiple other options to serve the EU market should they be required. These other options to serve the EU market would most likely not mitigate the full impact of the current incremental European Union tariff by the end of 2019.

For 2019, the Motorcycles segment operating margin ~~guidance includes~~as a percent of revenue is expected ~~manufacturing optimization costs~~to be between 8.0% and 9.0%. Based on its current plans, the Company expects Motorcycles segment operating income in 2020 to improve by approximately $170 to $200 million compared to 2019. This expectation assumes that the Company will complete its Manufacturing Optimization Plan and successfully execute its plan to mitigate the impact of incremental tariffs by the end of 2019.

Motorcycles and Related Products Segment - Second Quarter

In the second quarter of 2019, the Company expects to ship between 65,500 and 70,500 motorcycles, which ~~consist~~is down approximately 3% to 10% compared to the second quarter of 2018. Motorcycles segment operating margin as a percent of revenue is expected to be down approximately 4 percentage points compared to the ~~cost~~second quarter of ~~temporary inefficiencies noted above as well as $85 million to $95 million~~2018 driven in ~~restructuring expenses.~~part by the impact of incremental tariffs, lower planned shipments and unfavorable mix.

Financial Services Segment

The Company ~~now~~ expects Financial Services segment operating income ~~from Financial Services~~in 2019 to be ~~up in 2018 as~~down compared to ~~2017. The Company had~~2018 driven by a higher cost of debt and higher depreciation associated with its 2018 investment in a new loan management system which went into service in January 2019.

Harley-Davidson, Inc.

Capital expenditures in 2019 are expected ~~2018 operating income from Financial Services~~ to be ~~flat~~$225 million to ~~up slightly compared to 2017.~~

As described in Note 2 of the Notes to Consolidated Financial Statements, the Company adopted ASU 2017-07 in 2018 which requires the Company to record the non-service cost components of net periodic retirement plan costs in non-operating income and to recast prior periods to reflect the new classification. The Company expects 2018 full year non-operating income related to net periodic retirement plan costs of approximately $2 million in 2018 compared to $9.2 million in 2017. The reduction is due to an increase in the amortization of actuarial losses following the 2018 first quarter remeasurement of the assets and obligations of the Company's qualified pension plan. The remeasurement was required as a result of the curtailment of qualified pension plan benefits associated with the manufacturing optimization plan.

The Company now expects its full year effective tax rate will be approximately 22.5% to 24.0%, which is down from its previous expectation of 23.5% to 25.0%. This guidance excludes the effect of potential future adjustments associated with revisions to the tax expense recorded in the fourth quarter of 2017 related to the enactment of the 2017 Tax Act, other new tax

legislation, or audit settlements. The Company continues to regard its income tax estimates related to the 2017 Tax Act as provisional under SAB 118. The Company believes future guidance, interpretations, and pronouncements may add clarity to the numerous aspects of the 2017 Tax Act that may impact the Company and may result in revisions to the Company’s provisional estimates.

~~The Company has reduced its estimated capital expenditures for 2018 by $20 million and now expects capital expenditures to be between $230 million and $250~~$245 million, which includes approximately ~~$50~~$20 million to support the ~~manufacturing optimization plan.~~Manufacturing Optimization Plan. The Company anticipates it will have the ability to fund all capital expenditures in ~~2018~~2019 with cash flows generated by operations.

The Company expects its 2019 full year effective tax rate will be approximately 24% to 25%. This guidance excludes the effect of potential future adjustments, including items associated with any potential new tax legislation or audit settlements.

~~Manufacturing Optimization~~Restructuring Plan Costs and Savings⁽¹⁾

In January 2018, the Company commenced a significant, multi-year ~~manufacturing optimization plan~~Manufacturing Optimization Plan anchored by the consolidation of its final assembly plant in Kansas City, Missouri into its plant in York, ~~Pennsylvania.~~Pennsylvania by mid-2019. 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 through ~~2019.~~2019 (Manufacturing Optimization Plan). As part of ~~this manufacturing optimization plan,~~the Manufacturing Optimization Plan, the Company will also close its wheel operations in Adelaide, Australia resulting in the elimination of approximately 90 jobs.

In November 2018, the Company implemented a workforce reorganization plan (Reorganization Plan). As a result, approximately 70 employees left the Company on an involuntary basis.

The following table summarizes the expected costs and savings associated with ~~the manufacturing optimization plan~~these plans as of ~~October~~April 23, ~~2018:~~2019:


(in millions)	2018	2019	2020	Total	2018 Actual	2019 Estimated	2020 Estimated	Total
Costs related to temporary inefficiencies	$15 - $20	$15 - $20	n/a	$30 - $40
Manufacturing Optimization Plan
Cost related to temporary inefficiencies					$ 12.9	$10 - $15	n/a	$ 23 - $ 28
Restructuring expenses	$85 - $95	$40 - $50	n/a	$125 - $145	$ 89.5	$40 - $45	n/a	$129 - $134
	$100 - $115	$55 - $70		$155 - $185	$102.4	$50 - $60		$152 - $162
% cash	70%	70%		70%	70%	70%		70%

Reorganization Plan - restructuring expenses					$3.9	$1		$5
% cash					100%	100%		100%
	2018	2019	2020	Ongoing
Annual cash savings	-	$25 - $30	$45 - $50	$65 - $75		2019 Estimated	2020 Estimated	Annual Ongoing
Manufacturing Optimization Plan						$25 - $30	$45 - $50	$65 - $75
Reorganization Plan						$7	$7	$7

The cost estimates above reflect a $15 million decrease in total costs from the Company's previous estimates. This includes a reduction in 2018 of $20 million and $25 million to the low and high ends of the range, respectively, offset by increases in 2019 of $5 million and $10 million to the low and high ends of the range, respectively.

~~The Company expects~~expected restructuring expenses to include the estimated cost of employee termination benefits, accelerated depreciation, and other project implementation costs of $40 million to ~~$45~~$41 million, ~~$50~~$51 million to ~~$55~~$53 million and ~~$35~~$38 million to ~~$45~~$40 million, respectively. The timing of cash payments for restructuring costs may not occur in the same fiscal period that the Company records the expense.

The Company recorded restructuring expenses totaling $14.8 million and $74.0 million and costs related to temporary inefficiencies of $6.2 million and $9.3 million during the three and nine month periods ended September 30, 2018, respectively. Refer to Note 4 of the Notes to Consolidated Financial Statements for additional information concerning restructuring expenses. The Company expects total capital expenditures of ~~$75~~$65 million associated with the ~~manufacturing optimization plan~~Manufacturing Optimization Plan through 2019, including ~~$50~~$20 million in ~~2018.~~2019.

Results of Operations for the Three Months Ended~~September 30, 2018~~March 31, 2019

Compared to the Three Months Ended~~September 24, 2017~~April 1, 2018

Consolidated Results


	Three months ended										Three months ended
(in thousands, except earnings per share)	September 30, 2018			September 24, 2017		Increase (Decrease)			% Change		March 31, 2019		April 1, 2018		(Decrease) Increase			% Change
Operating income from Motorcycles and Related Products	$	65,662		$	17,352	$	48,310		278.4	%	$	108,381	$	172,838	$	(64,457	)	(37.3	)%
Operating income from Financial Services	83,754			77,060		6,694			8.7		58,731		63,579		(4,848		)	(7.6	)
Operating income	149,416			94,412		55,004			58.3		167,112		236,417		(69,305		)	(29.3	)
Other income (expense), net	644			2,296		(1,652		)	(72.0	)	4,660		220		4,440			2,018.2
Investment (loss) income	(1,106		)	1,083		(2,189		)	(202.1	)
Investment income											6,358		1,203		5,155			428.5
Interest expense	7,762			7,896		(134		)	(1.7	)	7,731		7,690		41			0.5
Income before provision for income taxes	141,192			89,895		51,297			57.1		170,399		230,150		(59,751		)	(26.0	)
Provision for income taxes	27,337			21,686		5,651			26.1		42,454		55,387		(12,933		)	(23.4	)
Net income	$	113,855		$	68,209	$	45,646		66.9	%	$	127,945	$	174,763	$	(46,818	)	(26.8	)%
Diluted earnings per share	$	0.68		$	0.40	$	0.28		70.0	%	$	0.80	$	1.03	$	(0.23	)	(22.3	)%

~~Consolidated operating income was up $55.0 million in the~~ ~~third quarter~~ of ~~2018, or 58.3%, compared to the same period last year. Operating income from the Motorcycles segment~~ ~~improved$48.3 million, or~~ ~~278.4%, compared to the~~ ~~third quarter~~ of ~~2017, and operating income from the Financial Services segment increased $6.7 million, or 8.7%, compared to the~~ ~~third quarter~~ of ~~2017~~. 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.

Other income in the third quarter was adversely impacted by higher amortization of actuarial losses following a 2018 first quarter remeasurement of the assets and obligations of the qualified pension plan.

The effective income tax rate for the third quarter of 2018 was 19.4% compared to 24.1% for the third quarter of 2017. The lower effective income tax rate was primarily due to the impact of the 2017 Tax Act enacted in December 2017, partially offset by a lower benefit from discrete tax adjustments recorded in the third quarter of 2018 compared to the third quarter of 2017.

Diluted earnings per share were $0.68 in the third quarter of 2018, up 70.0% from the same period in the prior year. The increase in diluted earnings per share was driven by a 66.9% increase in net income and also benefited from lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from ~~170.7 million~~ ~~in the~~ ~~third quarter~~ of ~~2017~~ to ~~166.7 million~~ ~~in the~~ ~~third quarter~~ of ~~2018, 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.~~

~~Harley-Davidson Motorcycle Retail Sales~~^(a)

~~The following table includes retail unit sales of Harley-Davidson motorcycles:~~

Three months ended
September 30,
2018 September 30,
2017
(Decrease)
Increase

%
Change
United States 36,220
41,793
(5,573 ) (13.3 )%

Europe^(b)
9,239
8,970
269
3.0
EMEA - Other 1,304
1,108
196
17.7
Total EMEA 10,543
10,078
465
4.6

Asia Pacific^(c)
4,578
5,136
(558 ) (10.9 )
Asia Pacific - Other 2,855
2,321
534
23.0
Total Asia Pacific 7,433
7,457
(24 ) (0.3 )

Latin America 2,577
2,306
271
11.8
Canada 2,453
2,575
(122 ) (4.7 )
Total International Retail Sales 23,006
22,416
590
2.6
Total Worldwide Retail Sales 59,226
64,209
(4,983 ) (7.8 )%


~~(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.~~


~~(c)~~	~~Includes Japan, Australia, New Zealand and Korea. Prior period Asia Pacific retail sales have been reclassified to conform to the current year presentation.~~

Retail sales of new Harley-Davidson motorcycles in the U.S. were down 13.3% in the third quarter of 2018. Overall, U.S. retail sales of new Harley-Davidson motorcycles were adversely impacted by the continued weak U.S. industry, which was down 9.8% in the third quarter compared to the third quarter of 2017. The Company believes that industry sales of new motorcycles continued to be adversely impacted by soft used motorcycle prices, partially offset by less severe hurricane impacts compared to the third quarter of 2017. The Company believes Hurricane Florence had a nominal impact on 2018 third quarter retail sales of new Harley-Davidson motorcycles.

Prices for used Harley-Davidson motorcycles remain at historically low levels compared to new; however, the Company is encouraged by positive momentum in used motorcycle pricing. Wholesale prices of used Harley-Davidson motorcycles at auction during the third quarter of 2018 were up from year-ago levels, and third-party pricing services continued to publish higher retail values year-over-year for used Harley-Davidson motorcycles during the third quarter of 2018. Additionally, for the fifth consecutive quarter, prices of used Harley-Davidson motorcycles in the Company's dealer network were higher than prior year.

Retail sales of used Harley-Davidson motorcycles in the U.S. were up through August 2018 compared to the prior year. Additionally, the share of combined new and used motorcycle registrations in the U.S. attributable to Harley-Davidson motorcycles was up in 2018 through August after having also been up for each of the last 9 consecutive full years. (Source for data regarding used motorcycle sales: IHS Markit Used Registrations for On-Highway and Dual Purpose motorcycles with engines 601+cc in the U.S. from 2008 through August 2018). While the Company does not benefit directly from sales of used motorcycles, the Company believes used motorcycle sales are an indicator of the health of the Harley-Davidson brand and provide prospects for future new motorcycle sales.

The Company's U.S. market share of new 601+cc motorcycles for the third quarter of 2018 was 50.9%, down 2.2 percentage points from the same period last year. The Company's U.S. market share reflects the adverse impact of relatively strong growth in segments in which it does not currently compete. In the Touring and Cruiser segments, which represent

approximately 70% of the 601+cc market, where the Company does compete, its market share was up slightly during the third quarter and was up 1.0 percentage point on a year-to-date basis (Source: Motorcycle Industry Council).

International retail sales of new Harley-Davidson motorcycles were up 2.6% in the third quarter. Retail sales in emerging markets were up 17.5% during the third quarter partially offset by lower retail sales in developed markets, which declined 2.5% during the third quarter. In developed markets, retail sales grew in western Europe driven by strong sales of the Company's new Softail motorcycles. However, retail sales in Japan and Australia continued to be weak in the third quarter behind contracting industry sales and competitive new product introductions in segments outside of the Touring and Cruiser segments. Retail sales in Canada were also down 4.7% in the third quarter of 2018. The Company continues efforts to drive demand in these markets through marketing programs with a significant focus on national test ride campaigns. The Company also continued to expand its international dealer network, opening 9 new dealers during the third quarter of 2018.

~~Motorcycles and Related Products Segment~~

~~Motorcycle Unit Shipments~~

~~The following table includes wholesale motorcycle unit shipments for the Motorcycles segment:~~

Three months ended
September 30, 2018 September 24, 2017 Unit Unit
Units Mix % Units Mix %
Increase
(Decrease)

%
Change
United States 26,213
53.9 % 19,668
47.2 % 6,545
33.3 %
International 22,426
46.1 % 21,994
52.8 % 432
2.0
Harley-Davidson motorcycle units 48,639
100.0 % 41,662
100.0 % 6,977
16.7 %
Touring motorcycle units 22,204
45.7 % 14,674
35.2 % 7,530
51.3 %
Cruiser motorcycle units 16,049
33.0 % 17,292
41.5 % (1,243 ) (7.2 )
Sportster^® / Street motorcycle units
10,386
21.3 % 9,696
23.3 % 690
7.1
Harley-Davidson motorcycle units 48,639
100.0 % 41,662
100.0 % 6,977
16.7 %

The Company shipped 48,639 Harley-Davidson motorcycles worldwide during the third quarter of 2018, which was 16.7% higher than the third quarter of 2017 and in line with the Company's expectations. In the third quarter of last year, the Company reduced shipments to U.S. dealers to allow them to focus on selling model year 2017 motorcycles and reduce retail inventory levels as the Company launched its model year 2018 motorcycles. The shipment reduction in 2017 also resulted in a lower than normal mix of Touring motorcycles in the third quarter of 2017. In the fourth quarter of 2018, the Company expects mix to be largely flat compared to the fourth quarter of 2017.⁽¹⁾

The Company believes its 2018 shipment cadence resulted in lower U.S. dealer inventory throughout the selling season and significantly improved the mix of new model year versus prior model year motorcycle inventory in the U.S. dealer network. At the end of the third quarter of 2018, U.S. dealer retail inventory of new motorcycles was down approximately 2,200 motorcycles compared to the end of the prior year quarter. Combined with the reduction of 12,200 motorcycles at the end of last year’s third quarter compared to the prior year, U.S. retail inventory at the end of the third quarter of 2018 has been reduced by approximately 14,400 units over the last two years.

~~Segment Results~~

~~The following table includes the condensed statements of operations for the Motorcycles segment (in thousands):~~

Three months ended
September 30, 2018 September 24, 2017 Increase
(Decrease) %
Change
Revenue^(a):

Motorcycles $ 821,670
$ 639,849
$ 181,821
28.4 %
Parts & Accessories 212,406
228,993
(16,587 ) (7.2 )
General Merchandise 58,266
72,687
(14,421 ) (19.8 )
Licensing 10,680
9,904
776
7.8
Other 20,923
10,703
10,220
95.5
Total revenue 1,123,945
962,136
161,809
16.8
Cost of goods sold 776,530
687,823
88,707
12.9
Gross profit 347,415
274,313
73,102
26.6
Operating expenses:
Selling & administrative expense 221,812
212,553
9,259
4.4
Engineering expense 45,109
44,408
701
1.6
Restructuring expense 14,832
—
14,832
—
Operating expense 281,753
256,961
24,792
9.6
Operating income from Motorcycles $ 65,662
$ 17,352
$ 48,310
278.4 %


~~(a)~~	In connection with the adoption of ASU 2014-09, the Company has changed its presentation of disaggregated Motorcycles segment revenue and the prior period has been recast to reflect the new presentation.

~~The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the~~ ~~third quarter~~ of ~~2017~~ ~~to the~~ ~~third quarter~~ of ~~2018~~ ~~(in millions):~~

Net
Revenue

Cost of
Goods Sold

Gross
Profit
Three months ended September 24, 2017 $ 962.1
$ 687.8
$ 274.3
Volume 84.6
56.4
28.2
Price, net of related cost 31.8
11.0
20.8
Foreign currency exchange rates and hedging (14.4 ) (7.0 ) (7.4 )
Shipment mix 59.8
25.7
34.1
Raw material prices —
3.8
(3.8 )
Manufacturing and other costs —
(1.2 ) 1.2
Total 161.8
88.7
73.1
Three months ended September 30, 2018 $ 1,123.9
$ 776.5
$ 347.4

~~The following factors affected the comparability of net revenue, cost of goods sold and gross profit from the~~ ~~third quarter~~ of ~~2017~~ ~~to the~~ ~~third quarter~~ of ~~2018~~:

The increase in volume was due to higher wholesale motorcycle shipments partially offset by decreased P&A and general merchandise sales. The P&A revenue decline was in line with the decline in new motorcycle retail sales during the quarter and general merchandise revenue was down given last year’s strong sell-in of the Company's 115th anniversary product.

On average, wholesale prices for motorcycles shipped in the current period were higher than in the same period last 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 the current period as compared to the same period last year. Wholesale and manufacturer's suggested retail weighted-average pricing of the Company's new model year 2019 motorcycles increased approximately 2.5%.

Revenue was adversely impacted by weaker weighted-average foreign currency exchange rates, relative to the U.S. dollar, as compared to the same period last year. The unfavorable revenue impact was partially offset by higher net gains associated with foreign currency hedging and the remeasurement of foreign-denominated balance sheet accounts.

~~Revenue and gross profit were positively impacted by a shift in the mix of motorcycle families shipped during the quarter as compared to prior year.~~

~~Raw material prices were higher primarily due to increased steel and aluminum costs which includes the impacts of U.S. tariffs on steel and aluminum imports.~~

Manufacturing and other costs benefited from increased fixed cost absorption on higher production volume; however, these benefits were mostly offset by higher tariff costs and temporary inefficiencies associated with the manufacturing optimization plan. In the third quarter of 2018, the Company incurred incremental tariff costs of $9.9 million associated with tariffs enacted in the European Union.

The increase in operating expenses during the third quarter of 2018 was due to higher selling, administrative and engineering expenses and a $14.8 million restructuring expense related to the Company's manufacturing optimization plan.

~~Financial Services Segment~~

~~Segment Results~~

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

Three months ended
September 30, 2018 September 24, 2017 Increase
(Decrease) %
Change
Interest income $ 166,013
$ 163,831
$ 2,182
1.3 %
Other income 25,451
24,777
674
2.7
Securitization and servicing fee income 260
451
(191 ) (42.4 )
Financial Services revenue 191,724
189,059
2,665
1.4
Interest expense 44,696
46,169
(1,473 ) (3.2 )
Provision for credit losses 23,530
29,253
(5,723 ) (19.6 )
Operating expenses 39,744
36,577
3,167
8.7
Financial Services expense 107,970
111,999
(4,029 ) (3.6 )
Operating income from Financial Services $ 83,754
$ 77,060
$ 6,694
8.7 %

~~Interest income was favorable in the third quarter of 2018 due to higher average retail receivables and a higher average wholesale yield, partially offset by lower average wholesale receivables.~~

Interest expense decreased due to lower cost of funds driven by the repayment of the Company's 6.80% medium-term notes which matured in June 2018, partially offset by effects of a rising interest rate environment.

The provision for credit losses decreased $5.7 million compared to the third quarter of 2017. The retail motorcycle provision decreased $7.3 million primarily due to a decrease in the retail reserve rate as compared to an increase in the reserve rate during the third quarter of 2017, driven by lower retail credit losses. This favorability was partially offset by higher retail receivables in the third quarter of 2018 compared to the third quarter of 2017. The wholesale provision increased $1.6 million as a result of an increase in the wholesale reserve rate and a smaller decrease in wholesale receivables during the third quarter of 2018 compared to the third quarter of 2017.

~~Operating expenses increased $3.2 million compared to the third quarter of 2017 driven primarily by higher employee-related expenses.~~

~~Changes in the allowance for credit losses on finance receivables were as follows (in thousands):~~

Three months ended
September 30,
2018 September 24,
2017
Balance, beginning of period $ 193,930
$ 193,528
Provision for credit losses 23,530
29,253
Charge-offs, net of recoveries (24,013 ) (27,199 )
Balance, end of period $ 193,447
$ 195,582

~~Results of Operations for the~~ ~~Nine Months EndedSeptember 30, 2018~~

~~Compared to the~~ ~~Nine Months EndedSeptember 24, 2017~~

~~Consolidated Results~~

Nine months ended
(in thousands, except earnings per share) September 30,
2018 September 24,
2017 (Decrease)
Increase %
Change
Operating income from Motorcycles and Related Products $ 481,906
$ 571,250
$ (89,344 ) (15.6 )%
Operating income from Financial Services 227,874
211,631
16,243
7.7
Operating income 709,780
782,881
(73,101 ) (9.3 )
Other income (expense), net 1,509
6,887
(5,378 ) (78.1 )
Investment income 2,630
2,539
91
3.6
Interest expense 23,180
23,295
(115 ) (0.5 )
Income before provision for income taxes 690,739
769,012
(78,273 ) (10.2 )
Provision for income taxes 159,783
255,567
(95,784 ) (37.5 )
Net income $ 530,956
$ 513,445
$ 17,511
3.4 %
Diluted earnings per share $ 3.17
$ 2.95
$ 0.22
7.5 %

Consolidated operating income was down ~~9.3%~~29.3% in the first ~~nine~~three months of ~~2018~~2019 due to a decrease in operating income from the Motorcycles segment of ~~$89.3~~$64.5 million~~, or~~ ~~15.6%, compared to the first nine months of~~ ~~2017. The decline~~ and a $4.8 million decrease in operating income from ~~the Motorcycles segment was partially offset by an increase in operating income from the~~ Financial Services, ~~segment of $16.2 million in the first nine months of~~ ~~2018~~ compared to the same period last year. Please refer to the “Motorcycles and Related Products Segment” and “Financial Services Segment” discussions following for a more detailed ~~discussion~~analysis of the factors affecting operating income.

Other income in the first ~~nine months~~quarter of 2019 was ~~adversely~~favorably impacted by ~~higher~~lower amortization of actuarial losses ~~and pension curtailment expense following a 2018~~related to the Company's defined benefit plans. Investment income was up in the first quarter ~~remeasurement~~ of 2019 compared to the ~~assets~~same period last year driven by higher income from investments in marketable securities and ~~obligations of the qualified pension plan.~~cash equivalents.

The Company's effective income tax rate for the first ~~nine~~three months of ~~2018~~2019 was ~~23.1% compared to 33.2% for~~24.9% up slightly from 24.1% in the same period in ~~2017. The lower effective~~2018 due to slightly higher discrete income tax ~~rate was primarily due to~~amounts recorded during the ~~impact~~first quarter of ~~the 2017 Tax Act enacted in December 2017.~~2019.

Diluted earnings per share were ~~$3.17~~$0.80 in the first ~~nine months~~quarter of ~~2018, up~~ ~~7.5%~~2019, down 22.3% from the same period ~~in the prior~~last year on ~~higher~~lower net income and lower diluted weighted average shares outstanding. Diluted weighted average shares outstanding decreased from ~~174.3~~169.2 million in the first ~~nine months~~quarter of ~~2017~~2018 to ~~167.7~~160.0 million in the first ~~nine months~~quarter of ~~2018,~~2019, driven by the Company's repurchases of common stock. Please refer to "Liquidity and Capital Resources" for additional information concerning the Company's share repurchase activity.

Motorcycles Retail Sales and Registration Data

Harley-Davidson Motorcycle Retail Sales^(a)

The following table includes retail unit sales of Harley-Davidson motorcycles:


	Nine months ended						Three months ended
	September 30, 2018	September 30, 2017	(Decrease) Increase		% Change		March 31, 2019	March 31, 2018	(Decrease) Increase		% Change
United States	112,019	124,777	(12,758	)	(10.2	)%	28,091	29,309	(1,218	)	(4.2	)%

Europe^(b)	34,967	33,311	1,656		5.0		9,508	9,716	(208	)	(2.1	)
EMEA - Other	4,282	4,164	118		2.8		1,289	1,146	143		12.5
Total EMEA	39,249	37,475	1,774		4.7		10,797	10,862	(65	)	(0.6	)

Asia Pacific^(c)	14,126	15,782	(1,656	)	(10.5	)	3,786	4,452	(666	)	(15.0	)
Asia Pacific - Other	7,354	6,846	508		7.4		2,288	1,877	411		21.9
Total Asia Pacific	21,480	22,628	(1,148	)	(5.1	)	6,074	6,329	(255	)	(4.0	)

Latin America	7,652	7,003	649		9.3		2,241	2,506	(265	)	(10.6	)
Canada	8,340	8,763	(423	)	(4.8	)	1,948	2,080	(132	)	(6.3	)
Total International Retail Sales	76,721	75,869	852		1.1		21,060	21,777	(717	)	(3.3	)
Total Worldwide Retail Sales	188,740	200,646	(11,906	)	(5.9	)%	49,151	51,086	(1,935	)	(3.8	)%


(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.


(c)	Includes Japan, Australia, New Zealand and Korea. ~~Prior period Asia Pacific retail sales have been reclassified to conform to the current year presentation.~~

Retail sales of new Harley-Davidson motorcycles in the U.S. were down ~~10.2%~~4.2% in the first ~~nine months~~quarter of ~~2018 and continued to be adversely impacted by~~2019 on a weak U.S. industry, ~~which~~partially offset by an increase in market share. The first quarter retail sales decline of 4.2% represents the lowest rate of decline for retail sales of new Harley-Davidson motorcycles in the U.S. over the last nine quarters. The U.S. industry was down ~~8.7%~~4.7% percent in the first quarter of 2019, which also represented an improvement compared to recent industry sales trends. The Company believes the ~~same period last year.~~ U.S. industry for new motorcycles continues to be challenged by soft used motorcycle prices and that the improvement in the U.S. industry sales trend was due in part to a highly competitive and promotional marketplace.

Prices for used Harley-Davidson motorcycles in the U.S. remained at near historical low levels compared to new; however, the Company is encouraged by the firming of used motorcycle prices over the past several quarters. Prices of used Harley-Davidson motorcycles in the Company's dealer network were higher in the first quarter of 2019 than the prior year quarter for the seventh consecutive quarter.

The Company's U.S. market share of new 601+cc motorcycles for the first ~~nine months~~quarter of ~~2018~~2019 was ~~49.7%~~51.1%, ~~down 1.0~~up 0.6 percentage ~~point~~points compared to the same period last ~~year (Source:~~year. The Company believes its U.S. market share gains were due in part to the execution of its "stronger dealer" growth catalyst under its More Roads plan which included increased marketing and sales support. The Company believes its share gains were partially offset by increased competitive promotional activity and stronger performance in segments in which it does not currently compete. In the Touring and Cruiser segments, which represent approximately 70% of the 601+cc market, the Company's market share was up 2.5 percentage points in the first quarter of 2019 compared to the same quarter last year. (Market share source: Motorcycle Industry Council).

International retail sales of new Harley-Davidson motorcycles were ~~up 1.1%~~down 3.3% in the first ~~nine months~~quarter of ~~2018.~~2019. In the first quarter of 2019 international retail sales were down in developed markets, partially offset by increases in emerging markets. Overall, international retail sales were adversely impacted by the limited availability of Street motorcycles during the first quarter of 2019. Excluding Street motorcycles from both 2018 and 2019, first quarter international retail sales were up 4.7% in 2019 compared to the same quarter last year.

During the first quarter of 2019, international emerging market retail sales were up 5.2% driven by growth in numerous markets. Retail sales in developed international ~~emerging~~ markets were ~~up 7.1% during~~down 6.2% in the first ~~nine months of 2018 while retail sales in developed markets declined 0.7%. In developed markets, retail sales growth in western Europe was more than offset by lower retail~~quarter. Retail sales in Japan and Australia continued to be weak in the first quarter of 2019 behind contracting industry sales and ~~Canada.~~competitive new product introductions in segments outside of touring and cruisers. The Company continues to support its dealers in these markets with incentives and a strong focus on national test ride campaigns.

The Company's ~~2018~~2019 market share of new 601+cc motorcycles in Europe was ~~10.4%~~8.8% through ~~September, up 0.8 percentage points~~March, compared to 10.4% for the ~~prior~~same period last year (Source: Association des Constructeurs Europeens de Motocycles).

The Company remains confident in, and committed to, the great potential that international markets offer Harley-Davidson. Furthermore, with its Thailand facility up and running, the Company is excited about the growth opportunities in the ASEAN (Association of Southeast Asian Nations) region now that it can offer more competitive pricing. The Company believes its brand, products and distribution will drive sustainable growth in international markets.⁽¹⁾

Motorcycle Registration Data^(a)

The following table includes industry retail motorcycle registration data:


	Nine months ended						Three months ended
	September 30, 2018	September 30, 2017	(Decrease) Increase		% Change		March 31, 2019	March 31, 2018	(Decrease) Increase		% Change
United States^(b)	222,468	243,718	(21,250	)	(8.7	)%	54,324	57,026	(2,702	)	(4.7	)%
Europe^(c)	347,884	345,701	2,183		0.6	%	111,317	93,217	18,100		19.4	%


(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:


	Nine months ended										Three months ended
	September 30, 2018			September 24, 2017							March 31, 2019			April 1, 2018
	Units	Mix %		Units	Mix %		Unit (Decrease) Increase		Unit % Change		Units	Mix %		Units	Mix %		Unit (Decrease) Increase		Unit % Change
United States	108,057	58.4	%	118,418	60.9	%	(10,361	)	(8.7	)%	34,505	58.6	%	38,797	60.7	%	(4,292	)	(11.1	)%
International	77,119	41.6	%	75,882	39.1	%	1,237		1.6		24,386	41.4	%	25,147	39.3	%	(761	)	(3.0	)
Harley-Davidson motorcycle units	185,176	100.0	%	194,300	100.0	%	(9,124	)	(4.7	)%	58,891	100.0	%	63,944	100.0	%	(5,053	)	(7.9	)%
Touring motorcycle units	84,125	45.4	%	80,392	41.4	%	3,733		4.6	%	25,043	42.5	%	30,857	48.3	%	(5,814	)	(18.8	)%
Cruiser motorcycle units	61,951	33.5	%	67,693	34.8	%	(5,742	)	(8.5	)	20,451	34.7	%	21,554	33.7	%	(1,103	)	(5.1	)
Sportster^® / Street motorcycle units	39,100	21.1	%	46,215	23.8	%	(7,115	)	(15.4	)	13,397	22.8	%	11,533	18.0	%	1,864		16.2
Harley-Davidson motorcycle units	185,176	100.0	%	194,300	100.0	%	(9,124	)	(4.7	)%	58,891	100.0	%	63,944	100.0	%	(5,053	)	(7.9	)%

The Company shipped ~~185,176~~58,891 Harley-Davidson motorcycles worldwide during the first ~~nine months~~quarter of ~~2018,~~2019, which was ~~4.7%~~7.9% lower than the same period in ~~2017 on slower year-over-year retail sales in the U.S.~~2018. The ~~shipment~~ mix of Touring motorcycles ~~increased~~decreased as a percent of total shipments while the mix of Cruiser and Sportster^®~~, and~~ /Street ~~motorcycle~~motorcycles increased compared to the same period last year. The mix of Touring motorcycles in 2019 was down compared to 2018 due to the relatively high shipment mix of Touring motorcycles in the first quarter of 2018. In addition, during the first quarter of 2019, Sportster shipments ~~declined slightly~~ as a percent of total shipments were up behind an improved retail sales rate compared to the same period last year.

U.S. retail inventory of new Harley-Davidson motorcycles at the end of the first quarter of 2019 was down approximately 3,450 motorcycles compared to the end of the first quarter of 2018. The Company is very pleased with dealer inventory levels and the mix of products in the field as it moves into the height of the selling season. The Company believes its market discipline is important in maintaining customer and dealer value and will ultimately result in stronger retail sales of new motorcycles.⁽¹⁾

Segment Results

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

Nine months ended
September 30, 2018 September 24, 2017 Increase
(Decrease)
%
Change
Revenue^(a):

Motorcycles $ 3,144,796
$ 2,975,650
$ 169,146
5.7 %
Parts & Accessories 612,495
633,532
(21,037 ) (3.3 )
General Merchandise 183,520
191,540
(8,020 ) (4.2 )
Licensing 29,445
29,237
208
0.7
Other 42,757
38,023
4,734
12.5
Total revenue 4,013,013
3,867,982
145,031
3.7
Cost of goods sold 2,659,740
2,545,884
113,856
4.5
Gross profit 1,353,273
1,322,098
31,175
2.4
Operating expenses:
Selling & administrative expense 653,666
622,905
30,761
4.9
Engineering expense 143,657
127,943
15,714
12.3
Restructuring expense 74,044
—
74,044
—
Operating expense 871,367
750,848
120,519
16.1
Operating income from Motorcycles $ 481,906
$ 571,250
$ (89,344 ) (15.6 )%


~~(a)~~	In connection with the adoption of ASU 2014-09, the Company has changed its presentation of disaggregated Motorcycles segment revenue and the prior period has been recast to reflect the new presentation.



	Three months ended
	March 31, 2019		April 1, 2018		(Decrease) Increase			% Change
Revenue:
Motorcycles	$	964,575	$	1,121,673	$	(157,098	)	(14.0	)%
Parts & Accessories	159,703		169,075		(9,372		)	(5.5	)
General Merchandise	55,401		56,601		(1,200		)	(2.1	)
Licensing	8,577		8,358		219			2.6
Other	7,381		8,240		(859		)	(10.4	)
Total revenue	1,195,637		1,363,947		(168,310		)	(12.3	)
Cost of goods sold	848,198		890,174		(41,976		)	(4.7	)
Gross profit	347,439		473,773		(126,334		)	(26.7	)
Operating expenses:
Selling & administrative expense	176,544		207,544		(31,000		)	(14.9	)
Engineering expense	48,884		46,549		2,335			5.0
Restructuring expense	13,630		46,842		(33,212		)	(70.9	)
Operating expense	239,058		300,935		(61,877		)	(20.6	)
Operating income from Motorcycles	$	108,381	$	172,838	$	(64,457	)	(37.3	)%

The following table includes the estimated impact of significant factors affecting the comparability of net revenue, cost of goods sold and gross profit from the first ~~nine months~~quarter of ~~2017~~2018 to the first ~~nine months~~quarter of ~~2018~~2019 (in millions):


	Net Revenue			Cost of Goods Sold			Gross Profit			Net Revenue			Cost of Goods Sold			Gross Profit
Nine months ended September 24, 2017	$	3,868.0		$	2,545.9		$	1,322.1
Three months ended April 1, 2018										$	1,363.9		$	890.1		$	473.8
Volume	(196.5		)	(119.7		)	(76.8		)	(108.1		)	(66.7		)	(41.4		)
Price, net of related costs	95.9			54.4			41.5			23.2			6.8			16.4
Foreign currency exchange rates and hedging	47.9			39.6			8.3			(29.8		)	(14.7		)	(15.1		)
Shipment mix	197.7			100.7			97.0			(53.6		)	(14.3		)	(39.3		)
Raw material prices	—			13.2			(13.2		)	—			3.1			(3.1		)
Manufacturing and other costs	—			25.6			(25.6		)	—			43.9			(43.9		)
Total	145.0			113.8			31.2			(168.3		)	(41.9		)	(126.4		)
Nine months ended September 30, 2018	$	4,013.0		$	2,659.7		$	1,353.3
Three months ended March 31, 2019										$	1,195.6		$	848.2		$	347.4

The following factors affected the comparability of net revenue, cost of goods sold and gross profit from the first ~~nine months~~quarter of ~~2017~~2018 to the first ~~nine months~~quarter of ~~2018:~~

2019:

The decrease in revenue and gross profit related to volume was due primarily to lower wholesale motorcycle shipments, ~~as well as decreased~~lower P&A sales and ~~general merchandise sales.~~an increased level of motorcycle sales support.

Revenue was ~~positively~~adversely impacted by ~~stronger weighted-average~~weaker foreign currency exchange rates, relative to the U.S. dollar, as compared to the same period last year. The ~~favorable~~unfavorable revenue impact was partially offset by higher net foreign currency ~~losses~~gains due primarily to ~~the remeasurement of foreign-denominated balance sheet accounts,~~foreign currency hedging, as compared to the prior year.

~~Shipment mix changes resulted~~Changes in ~~a positive impact on gross profit resulting from favorable changes in~~ the shipment mix of motorcycle families, as well as the mix of models within motorcycle ~~families.~~families, had an adverse impact on revenue and gross profit during the quarter.

Raw material prices were higher primarily due to increased steel ~~and aluminum costs which includes the impacts of U.S. tariffs on steel and aluminum imports.~~costs.

Manufacturing and other costs were negatively impacted by lower fixed cost absorption due to lower production, ~~higher depreciation, higher tariff costs~~temporary inefficiencies and ~~temporary~~the cost of incremental tariffs. Costs associated with incremental tariffs implemented in mid-2018 were $21.0 million during the first quarter of 2019. Temporary inefficiencies associated with the ~~manufacturing optimization plan. In 2018, the Company incurred incremental tariff costs of $9.9~~Manufacturing Optimization Plan were $3.6 million ~~associated with tariffs enacted~~and $0.7 million in the ~~European Union.~~first quarters of 2019 and 2018, respectively.

~~The increase~~Operating expenses were lower in ~~operating expenses during~~ the first ~~nine months~~quarter of ~~2018 was due primarily to increased spending on marketing and product development activities as well as a $74.0 million restructuring expense related~~2019 compared to the ~~Company's manufacturing optimization plan.~~prior year driven by lower restructuring expenses and favorable net warranty and recall costs. In the first quarter of 2019, net warranty and recall costs were approximately $35 million lower than prior year, driven by higher than normal recoveries and lower warranty costs.

Financial Services Segment

Segment Results

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


	Nine months ended									Three months ended
	September 30, 2018		September 24, 2017		Increase (Decrease)			% Change		March 31, 2019		April 1, 2018		Increase (Decrease)			% Change
Interest income	$	478,693	$	471,988	$	6,705		1.4	%	$	159,804	$	154,041	$	5,763		3.7	%
Other income	78,391		76,790		1,601			2.1		28,750		23,781		4,969			20.9
Securitization and servicing fee income	916		1,536		(620		)	(40.4	)	189		352		(163		)	(46.3	)
Financial Services revenue	558,000		550,314		7,686			1.4		188,743		178,174		10,569			5.9
Interest expense	145,089		133,866		11,223			8.4		52,324		48,450		3,874			8.0
Provision for credit losses	72,462		99,059		(26,597		)	(26.8	)	34,491		30,052		4,439			14.8
Operating expenses	112,575		105,758		6,817			6.4		43,197		36,093		7,104			19.7
Financial Services expense	330,126		338,683		(8,557		)	(2.5	)	130,012		114,595		15,417			13.5
Operating income from Financial Services	$	227,874	$	211,631	$	16,243		7.7	%	$	58,731	$	63,579	$	(4,848	)	(7.6	)%

Interest income was ~~higher for~~favorable in the first ~~nine months~~quarter of ~~2018~~2019 primarily due to higher average retail receivables ~~partially offset by lower~~at a higher average ~~wholesale receivables.~~yield. Other income was favorable primarily due to higher investment income and insurance related revenue.

Interest expense increased due to higher average outstanding debt and a higher cost of ~~funds and higher average outstanding debt.~~funds.

The provision for credit losses ~~decreased $26.6~~increased $4.4 million compared to the first ~~nine months~~quarter of ~~2017.~~2018. The retail motorcycle provision ~~decreased $27.3~~increased $4.9 million driven by higher retail credit losses, a ~~decrease in the~~flat retail reserve rate as compared to ~~an increase~~a decrease in the reserve rate during the first ~~nine months~~quarter of ~~2017, driven by lower retail credit losses. This favorability was partially offset by~~2018, and a ~~larger increase~~smaller decrease in retail receivables as compared to the first ~~nine months~~quarter of ~~2017. The wholesale provision increased $0.7 million.~~2018.

Annualized credit losses for the Company's retail motorcycle loans were ~~1.55%~~2.22% through ~~September 30, 2018~~March 31, 2019 compared to ~~1.73%~~2.15% through ~~September 24, 2017.~~April 1, 2018. The 30-day delinquency rate for retail motorcycle loans at ~~September 30, 2018~~March 31, 2019 was ~~3.60%~~3.73% compared to ~~3.72%~~3.31% at ~~September 24, 2017.~~April 1, 2018. The Company believes inefficiencies resulting from the implementation of a new loan management system were a driver for the higher delinquency rate. The Company expects these inefficiencies to be temporary.

Operating expenses increased ~~$6.8~~$7.1 million compared to the ~~nine months ended September 24, 2017~~first quarter of 2018 driven ~~primarily~~ by higher ~~employee-related~~depreciation associated with the implementation of a new loan management system as well as higher consulting expenses.

Changes in the allowance for credit losses on finance receivables were as follows (in thousands):


	Nine months ended						Three months ended
	September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018
Balance, beginning of period	$	192,471		$	173,343		$	189,885		$	192,471
Provision for credit losses	72,462			99,059			34,491			30,052
Charge-offs, net of recoveries	(71,486		)	(76,820		)	(33,504		)	(32,173		)
Balance, end of period	$	193,447		$	195,582		$	190,872		$	190,350

Other Matters

Contractual Obligations

The Company has updated the contractual obligations table under the caption “Contractual Obligations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 as of ~~September 30, 2018~~March 31, 2019 to reflect the new projected principal and interest payments for the remainder of ~~2018~~2019 and beyond as follows (in thousands):


	2018		2019-2020		2021-2022		Thereafter		Total		2019		2020-2021		2022-2023		Thereafter		Total
Principal payments on debt	$	1,414,961	$	3,050,982	$	1,550,955	$	1,100,000	$	7,116,898	$	1,912,597	$	3,104,227	$	1,564,436	$	750,000	$	7,331,260
Interest payments on debt	34,921		259,504		141,178		374,206		809,809		142,180		272,995		112,046		336,750		863,971
	$	1,449,882	$	3,310,486	$	1,692,133	$	1,474,206	$	7,926,707	$	2,054,777	$	3,377,222	$	1,676,482	$	1,086,750	$	8,195,231

Interest obligations for floating rate instruments, as calculated above, assume rates in effect at ~~September 30, 2018~~March 31, 2019 remain constant. For purposes of the above, the principal payment balances for medium-term notes, on-balance sheet asset-backed securitizations, and senior unsecured notes are shown without reduction for debt issuance costs. Refer to Note 1012 for a breakout of the finance costs consistent with ASU No. 2015-03.

As of ~~September 30, 2018,~~March 31, 2019, there have been no other material changes to the Company’s summary of expected payments for significant contractual obligations in the contractual obligations table in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Commitments and Contingencies

Environmental Protection Agency Notice:

In December 2009, the Company received formal, written requests for information from the United States Environmental Protection Agency (EPA) regarding: (i) certificates of conformity for motorcycle emissions and related designations and labels, (ii) aftermarket parts, and (iii) warranty claims on emissions related components. The Company promptly submitted written responses to the EPA’s inquiry and has engaged in information exchanges and discussions with the EPA. In August 2016, the Company entered into a consent decree with the EPA regarding these issues, and the consent decree was subsequently revised in July 2017 (the Settlement). In the Settlement, the Company agreed to, among other things, pay a fine, and not sell tuning products unless they are approved by the EPA or California Air Resources Board. In December 2017, the Department of Justice (DOJ), on behalf of the EPA, filed the Settlement with the U.S. District Court for the District of Columbia for the purpose of obtaining court approval of the Settlement. Three amicus briefs opposing portions of the Settlement were filed with the court by the deadline of January 31, 2018. On March 1, 2018, the Company and the ~~EPA~~DOJ each filed separate response briefs. The Company ~~anticipates~~is awaiting the ~~court will make a~~court's decision on whether or not to finalize the Settlement, inand on February 8, 2019, the ~~following months.~~DOJ filed a status update reminding the court of the current status of the outstanding matter. The Company has an accrual associated with this matter which is included in ~~accrued~~Accrued liabilities in on the consolidated balance sheets, and as a result, if it is finalized, the Settlement would not have a material adverse effect on the Company's financial condition or results of operations. The Settlement is not final until it is approved by the court, and if it is not approved by the court, the Company cannot reasonably estimate the impact of any remedies the EPA might seek beyond the Company's current reserve for this matter.

York Environmental Matters:

additional environmental remediation that may ultimately be required under the approved final remedy, the Company is unable to make a reasonable estimate of those additional costs, if any, that may result.

Product Liability Matters:

Off-Balance Sheet Arrangements

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. For more information, see Note ~~11.~~13.

Liquidity and Capital Resources as of ~~September 30, 2018~~March 31, 2019⁽¹⁾

Over the long-term, the Company expects that its business model will continue to generate cash that will allow it to invest in the business, fund future growth opportunities, and return value to shareholders.⁽¹⁾ The Company will evaluate opportunities to return cash to its shareholders through increasing dividends and repurchasing shares. The Company believes the Motorcycles operations will continue to be primarily funded through cash flows generated by operations.⁽¹⁾ The Company expects the Financial Services operations ~~have been~~to continue to be funded with unsecured debt, unsecured commercial paper, asset-backed commercial paper conduit facilities, committed unsecured bank facilities, and asset-backed securitizations.

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 availability under credit and conduit facilities (in thousands):


	September 30, 2018		March 31, 2019
Cash and cash equivalents	$	926,992	$	749,600
Current marketable securities	10,011		10,003
Total cash and cash equivalents and marketable securities	937,003		759,603

Credit facilities	196,141		352,075
Asset-backed U.S. commercial paper conduit facilities^(a)	634,956		600,000
Asset-backed Canadian commercial paper conduit facility^(a)	20,998		22,111
Total availability under credit and conduit facilities	852,095		974,186
Total	$	1,789,098	$	1,733,789


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

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

Cash Flow Activity

The following table summarizes the cash flow activity for the periods indicated (in thousands):


	Nine months ended						Three months ended
	September 30, 2018			September 24, 2017			March 31, 2019			April 1, 2018
Net cash provided by operating activities	$	1,122,555		$	949,075		$	32,671		$	191,594
Net cash used by investing activities	(616,063		)	(554,000		)	(77,200		)	(21,651		)
Net cash used by financing activities	(270,124		)	(504,509		)	(415,679		)	(98,930		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(12,567		)	28,817			(409		)	2,034
Net increase (decrease) in cash, cash equivalents and restricted cash	$	223,801		$	(80,617	)
Net (decrease) increase in cash, cash equivalents and restricted cash							$	(460,617	)	$	73,047

Operating Activities

The ~~increase~~decrease in cash provided by operating activities for the first ~~nine months~~quarter of ~~2018~~2019 compared to the same period in ~~2017~~2018 was primarily due to ~~favorable~~lower sales and unfavorable changes in working ~~capital and lower cash outflows for retirement plans. During the first nine months of 2017, the Company made a $25.0 million~~capital. There were no voluntary ~~contribution to its~~ qualified pension ~~plan. There was no comparable voluntary contribution~~plan contributions in the first ~~nine months~~quarter of 2018 or 2019 and ~~none~~no contributions are planned for the remainder of ~~2018.~~2019.⁽¹⁾

Investing Activities

The Company’s most significant investing activities consist of capital expenditures and retail finance originations and collections. Capital expenditures were ~~$119.8~~$35.3 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to ~~$114.0~~$28.4 million in the same period last year. Net cash outflows for finance receivables for the first ~~nine months~~quarter of ~~2018~~2019 were ~~$474.5 million, which was $27.2~~$47.3 million higher than the same period last year.

Financing Activities

The Company’s financing activities consist primarily of share repurchases, dividend payments, and debt activity. Cash outflows for share repurchases were ~~$196.0~~$61.7 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to ~~$465.2~~$73.0 million in the same period last year. Share repurchases during the first ~~nine~~three months of ~~2018 totaled 4.3~~2019 included 1.5 million shares of common stock related to discretionary share repurchases and 0.2 million shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock units. As of ~~September 30, 2018,~~March 31, 2019, there were ~~21.3~~14.9 million shares remaining on a board-approved share repurchase ~~authorizations.~~authorization. The Company paid dividends of ~~$1.110~~$0.375 and ~~$1.095~~$0.370 per share totaling ~~$186.1~~$60.9 million and ~~$190.1~~$62.7 million during the first ~~nine months~~quarter of ~~2018~~2019 and ~~2017,~~2018, respectively.

Financing cash flows related to debt activity resulted in net cash ~~inflows~~outflows of ~~$108.8~~$293.7 million in the first ~~nine~~three months of ~~2018~~2019 compared to net cash inflows of ~~$142.9~~$35.1 million in the first ~~nine~~three months of ~~2017.~~2018. The Company’s total outstanding debt consisted of the following (in thousands):


	September 30, 2018		September 24, 2017		March 31, 2019		April 1, 2018
Unsecured commercial paper	$	1,373,859	$	834,875	$	1,192,925	$	1,036,976
Asset-backed Canadian commercial paper conduit facility	149,418		122,130		142,676		158,162
Asset-backed U.S. commercial paper conduit facilities	265,044		280,308		526,947		281,311
Medium-term notes, net	4,437,279		4,564,124		4,685,636		4,514,798
Senior unsecured notes, net	742,458		741,797		742,791		742,126
Asset-backed securitization debt, net	128,474		429,833		18,694		284,793
Total debt	$	7,096,532	$	6,973,067	$	7,309,669	$	7,018,166

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 ~~September 30, 2018~~April 5, 2019 were as follows:



	Short-Term	Long-Term	Outlook
Moody’s	P2	A3	Stable
Standard & Poor’s	A2	BBB+	Negative ~~(long-term only)~~
Fitch	F1	A	~~Stable~~Negative

Credit Facilities – In April 2018, the Company entered into a $780.0 million five-year credit facility to replace the $675.0 million five-year credit facility that was due to mature in April 2019 and also terminated the $100.0 million 364-day credit facility that would have matured at the end of April 2018. The new five-year credit facility matures in April 2023. The Company also has a $765.0 million five-year credit facility which matures in April 2021. The two five-year credit facilities (together, the Global Credit Facilities) bear interest at variable rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based on the average daily unused portion of the aggregate commitments under the Global Credit Facilities. The Global Credit Facilities are committed facilities primarily used to support the Company's unsecured commercial paper program. In ~~May 2018,~~February 2019, the Company ~~renewed~~terminated its 364-day $25.0 million ~~364-day~~ credit facility that was due to mature in that month. The $25.0 million credit facility bears interest at variable interest rates, and the Company pays a fee based on the unused portion of the $25.0 million commitment. This credit facility matures in May 2019.

Unsecured Commercial Paper – Subject to limitations, the Company could issue unsecured commercial paper of up to $1.55 billion as of ~~September 30, 2018~~March 31, 2019 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 ~~facility~~facilities or through the use of operating cash flow and cash on hand.⁽¹⁾

Medium-Term Notes – The Company had the following medium-term notes (collectively, the Notes) issued and outstanding at ~~September 30, 2018~~March 31, 2019 (in thousands):

Principal Amount

Rate

Issue Date

Maturity Date

Rate

Issue Date

Maturity Date

$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

2.40%

September 2014

September 2019

$600,000

2.15%

February 2015

February 2020

2.15%

February 2015

February 2020

$450,000

Floating-rate^(b)

May 2018

May 2020

Floating-rate ^(a)

May 2018

May 2020

$350,000

2.40%

March 2017

June 2020

2.40%

March 2017

June 2020

$600,000

2.85%

January 2016

January 2021

2.85%

January 2016

January 2021

$450,000

Floating-rate^(b)

November 2018

March 2021

$350,000

3.55%

May 2018

May 2021

3.55%

May 2018

May 2021

$550,000

4.05%

February 2019

February 2022

$400,000

2.55%

June 2017

June 2022

2.55%

June 2017

June 2022

$350,000

3.35%

February 2018

February 2023

3.35%

February 2018

February 2023


(a)	~~Floating interest rate based on LIBOR plus 35 bps.~~


~~(b)~~	Floating interest rate based on LIBOR plus 50 bps. The Company utilized an interest rate swap designated as a cash flow hedge to convert this from a floating rate basis to a fixed rate basis. Refer to Note 910 of the Notes to the Consolidated Financial Statements for further details.


(b)	Floating interest rate based on LIBOR plus 94 bps. The Company utilized an interest rate swap designated as a cash flow hedge to convert this from a floating rate basis to a fixed rate basis. Refer to Note 10 of the Notes to the Consolidated Financial Statements for further details.

The fixed-rate Notes provide for semi-annual interest payments and the floating-rate Notes provide for quarterly interest payments. Principal on the Notes is due at maturity. Unamortized discount and debt issuance costs on the Notes reduced the outstanding balance by $14.4 million and $12.7 million at March 31, 2019 and ~~$13.4 million at September 30,~~April 1, 2018, ~~and September 24, 2017,~~ respectively. During the ~~nine months ended September 30, 2018 and September 24, 2017, $877.5~~first quarter of 2019, $600.0 million of ~~6.80%~~2.25% and ~~$400.0~~$150.0 million of ~~2.70%~~floating-rate medium-term notes matured, ~~respectively,~~ and the principal and accrued interest were paid in full.

There were no medium-term note maturities during the first quarter of 2018.

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. The expected remaining term of the related receivables is approximately 5 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of ~~September 30, 2018,~~March 31, 2019, the Canadian Conduit has an expiration date of June 28, 2019.

of $6.2 million.

On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE – ~~In December 2017, the~~The Company ~~renewed its existing $300.0 million and $600.0 million revolving facility~~has agreements with a third-party bank-sponsored asset-backed U.S. commercial paper ~~conduit.~~conduits under which it may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party bank-sponsored asset-backed U.S. commercial paper conduits. In November 2018, the Company renewed its existing $600.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits. Also at that time, the Company amended its existing $300.0 million revolving facility agreement with third-party bank-sponsored asset-backed U.S. commercial paper conduits, increasing the aggregate initial commitment to $600.0 million. The aggregate commitment under this agreement is reduced

monthly as collections on the related finance receivables are applied to the outstanding principal until the outstanding principal balance is less than or equal to $300.0 million, at which point the aggregate commitment will equal $300.0 million. Availability under the revolving facilities (together, the U.S. Conduit Facilities) is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the ~~relevant~~ SPE as collateral.

Facilities.

The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates or LIBOR to the extent the advance is not funded by a conduit lender through the issuance of commercial paper plus, in each case, a program fee based on outstanding principal. The U.S. Conduit Facilities also provide for an unused commitment fee based on the unused portion of the total aggregate ~~commitment of $900.0 million.~~commitment. There is no amortization schedule; however, the debt ~~will be~~is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the U.S. Conduit Facilities, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of ~~September 30, 2018,~~March 31, 2019, the U.S. Conduit Facilities have an expiration date of ~~December 12, 2018.~~November 29, 2019.

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 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’~~notes have a contractual ~~lives have various maturities ranging from 2020 to~~life maturing in 2022.

There were no on or off-balance sheet asset-backed securitization transactions during the ~~nine months ended September 30, 2018~~first quarter of 2019 or ~~September 24, 2017.~~2018.

Support Agreement - The Company has a support agreement with HDFS whereby, if required, the Company agrees to provide HDFS with financial support to maintain HDFS’ fixed-charge coverage at 1.25 and minimum net worth of $40.0 million. Support may be provided at the Company’s option as capital contributions or loans. Accordingly, certain debt covenants may restrict the Company’s ability to withdraw funds from HDFS outside the normal course of business. No amount has ever been provided to HDFS under the support agreement.

Operating and Financial Covenants – HDFS and the Company are subject to various operating and financial covenants related to the credit facilities and various operating covenants under the Notes and the U.S. and Canadian asset-backed commercial paper conduit facilities. The more significant covenants are described below.

The operating covenants limit the Company’s and HDFS’ ability to:

Assume or incur certain liens;

Participate in certain mergers or consolidations; and

Purchase or hold margin stock.

Under the current financial covenants of the Global Credit Facilities, the ratio of ~~HDFS’s~~HDFS’ consolidated debt, excluding secured debt, to ~~HDFS’s~~HDFS’ consolidated shareholders' equity, excluding accumulated other comprehensive income (loss), cannot exceed 10.0 to 1.0 as of the end of any fiscal quarter. In addition, the ratio of the Company's consolidated debt to the Company's consolidated debt and consolidated shareholders’ equity (where the Company's consolidated debt in each case excludes that of HDFS and its subsidiaries, and the Company's consolidated shareholders’ equity excludes accumulated other

comprehensive income (loss)), cannot exceed 0.7 to 1.0 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 ~~September 30, 2018~~March 31, 2019, 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 above depends upon, among other factors, the Company's ability to (i) execute its business plans and strategies, including the elements of the More Roads to Harley-Davidson plan for growth that the Company disclosed on July 30, 2018, and strengthen its existing business while enabling growth, (ii) manage and predict the impact that new or adjusted tariffs may have on our ability to sell product internationally, and the cost of raw materials and components, ~~and our ability to sell product internationally,~~ (iii) execute its strategy of growing ridership, globally, (iv) effectively execute the Company’s manufacturing optimization initiative within expected costs and timing and successfully carry out its global manufacturing and assembly operations, (v) accurately analyze, predict and react to changing market conditions and successfully adjust to shifting global consumer needs and interests, (vi) negotiate and successfully implement a strategic alliance relationship with a local partner in Asia, (vii) develop and introduce products, services and experiences on a timely basis that the market accepts, that enable the Company to generate desired sales levels and that provide the desired financial returns, (viii) perform in a manner that enables the Company to benefit from market opportunities while competing against existing and new competitors, (ix) realize expectations concerning market demand for electric models, which may depend in part on the building of necessary infrastructure, (x) prevent, detect, and remediate any issues with its motorcycles or any issues associated with manufacturing processes to avoid delays in new model launches, recall campaigns, regulatory agency investigations, increased warranty costs or litigation and adverse effects on its reputation and brand strength, and carry out any product programs or recalls within expected costs and timing, (xi) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xii) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, (xiii) reduce other costs to offset costs of the More Roads to Harley-Davidson plan and redirect capital without adversely affecting its existing business, (xiv) balance production volumes for its new motorcycles with consumer demand, (xv) manage risks that arise through expanding international manufacturing, operations and sales, (xvi) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing political environment, (xvii) continue to manage the relationships and agreements that the Company has with its labor unions to help drive long-term competitiveness, (xviii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xix) continue to develop the capabilities of its distributors and dealers, effectively implement changes relating to its dealers and distribution methods and manage the risks that its independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xx) retain and attract talented employees, (xxi) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or Company data and respond to evolving regulatory requirements regarding data security, (xxii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio, (xxiii) adjust to tax reform, healthcare inflation and reform and pension reform, and successfully estimate the impact of any such reform on the Company’s business, (xxiv) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xxv) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xxvi) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xxvii) manage its exposure to product liability claims and commercial or contractual disputes, ~~and~~ (xxviii) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the Company and within its ~~expectations.~~expectations, (xxix) conduct its operations in Thailand in a manner that sufficiently mitigates certain international tariffs and lowers prices of its motorcycles in certain markets, (xxx) accurately and successfully determine, implement, and maintain a manner in which to sell motorcycles in the E.U., China, and ASEAN countries that is not subject to tariffs; (xxxi) have its application to mitigate E.U. tariffs approved, or the appeal of a denied application acted on in a manner favorable to the Company, and (xxxii) accurately predict the margins of its Motorcycles and Related Products segment in light of, among other things, tariffs, the cost associated with the More Roads to Harley-Davidson plan, the Company's Manufacturing Optimization Plan, and the Company's global supply chain.

~~In addition, the~~The Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Further, actual foreign currency exchange rates may vary from underlying assumptions. Other factors are described in risk factors that the Company has disclosed in documents previously filed with the Securities and Exchange Commission. Many of these risk factors are impacted by the current changing capital, credit and retail markets and the Company's ability to manage through inconsistent economic conditions.

The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company. In addition, the Company’s independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.

In recent years, HDFS has experienced historically low levels of retail credit losses, but there is no assurance that this will continue. The Company believes that HDFS' retail credit losses may increase over time due to changing consumer credit

behavior and HDFS' efforts to increase prudently structured loan approvals to sub-prime borrowers, as well as actions that the Company has taken and could take that impact motorcycle values.

Refer to “Risk Factors” under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for a discussion of additional risk factors and a more complete discussion of some of the cautionary statements noted above.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The ~~Company’s earnings related~~Company is exposed to ~~its operations outside the U.S. are impacted by~~market risk from changes in foreign ~~currency~~ exchange rates, commodity prices and interest rates. To reduce such risks, the Company selectively uses derivative financial instruments. All hedging transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes. Sensitivity analysis is used to manage and monitor foreign exchange and interest rate risk.

The ~~majority~~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 ~~exposure~~most significant foreign currency risk relates to the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollar, Mexican peso, and Brazilian real. A weakening in foreign currencies relative to the U.S. dollar will generally have an adverse effect on revenue related to sales made in those foreign currencies offset by a corresponding positive impact from natural hedges created by the operating costs incurred in those same foreign currencies. As the majority of the Company’s manufacturing occurs in the U.S., the Company’s operating expenses paid in foreign currencies generally include limited manufacturing costs and the ~~selling and administrative costs incurred at the Company’s international locations. In addition, to the extent the~~Mexican peso. The Company ~~carries foreign-denominated cash, receivables or accounts payable, those amounts are also exposed to~~utilizes foreign currency ~~remeasurements that can impact~~contracts to mitigate the ~~Company’s~~effect of certain currencies' fluctuations on earnings.

The Company also uses derivative financial instruments to hedge a portion of the forecasted cash flows in its key foreign currencies. These instruments generally have terms of up to 12 months and are purchased over time so that at any point in time some portion of the next 12 months of expected foreign currency ~~exposure is hedged. The hedging instruments~~contracts are entered into with banks and allow the Company to ~~lock~~exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate.

The Company's earnings are affected by changes in the ~~exchange rate~~prices of commodities used in the production of motorcycles. The Company uses derivative instruments on ~~future foreign currency cash flows based on~~a limited basis to hedge the ~~forward rates available at the time~~prices of ~~purchase. The level of gain or loss on these instruments will depend on the spread between the forward rate and the corresponding spot rate at the date the instruments are settled.~~certain commodities.

HDFS’ earnings are affected by changes in interest rates. HDFS’ interest-rate sensitive financial instruments include finance receivables, debt and interest rate ~~swaps.~~derivatives. HDFS utilizes interest rate swaps to reduce the impact of fluctuations in interest rates on its debt.

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for further information concerning the Company's market risk. There have been no material changes to the market risk information included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting during the quarter ended ~~September 30, 2018~~March 31, 2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

The information required under this Item 1 of Part II is contained in Item 1 of Part I of this Quarterly Report on Form 10-Q in Note 1517 of the Notes to Consolidated Financial Statements, and such information is incorporated herein by reference in this Item 1 of Part II.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains detail related to the Company's repurchase of its common stock based on the date of trade during the quarter ended ~~September 30, 2018:~~March 31, 2019:

2018 Fiscal Month Total Number of
Shares Purchased (a) Average Price
Paid per Share Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
July 2 to August 5 5,109
$ 42
5,109
23,247,303
August 6 to September 2 1,110,548
$ 43
1,110,548
22,137,398
September 3 to September 30 830,900
$ 44
830,900
21,306,498
Total 1,946,557
$ 44
1,946,557



2019 Fiscal Month	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to February 3	457,779	$	34	457,779	15,952,906
February 4 to March 3	1,254,645	$	37	1,254,645	14,943,706
March 4 to March 31	1,588	$	37	1,588	14,943,706
Total	1,714,012	$	36	1,714,012


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

In February 2016, the Company's Board of Directors authorized the Company to repurchase up to 20.0 million shares of its common stock with no dollar limit or expiration date which superseded the share repurchase authority granted by the Board of Directors in December 1997. The Company repurchased ~~1.9~~1.4 million shares on a discretionary basis during the quarter ended ~~September 30, 2018~~March 31, 2019 exhausting the remaining shares under this authorization. In February 2018, the Company's Board of Directors authorized the Company to repurchase up to 15.0 million additional shares of its common stock with no dollar limit or expiration date. The Company repurchased 56,294 shares on a discretionary basis during the quarter ended March 31, 2019 under this authorization. As of ~~September 30, 2018, 21.3~~March 31, 2019, 14.9 million shares remained under ~~these authorizations.~~this authorization.

Under the share repurchase authorizations, the Company’s common stock may be purchased through any one or more of a Rule 10b5-1 trading plan and discretionary purchases on the open market, block trades, accelerated share repurchases, or privately negotiated transactions. The number of shares repurchased, if any, and the timing of repurchases will depend on a number of factors, including share price, trading volume, and general market conditions, as well as on working capital requirements, general business conditions, and other factors. The repurchase authority has no expiration date but may be suspended, modified, or discontinued at any time.

The Harley-Davidson, Inc. 2014 Incentive Stock Plan and predecessor stock plans permit participants to satisfy all or a portion of the statutory federal, state, and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company withhold shares otherwise issuable under the award, (b) tender back shares received in connection with such award, or (c) deliver other previously owned shares, in each case having a value equal to the amount to be withheld. During the ~~third~~first quarter of ~~2018~~2019, the Company acquired ~~5,752~~247,408 shares of common stock that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock units.

Item 6 – Exhibits

Refer to the Exhibit Index immediately following this page.

Harley-Davidson, Inc.

Exhibit Index to Form 10-Q



Exhibit No.		Description
4.1		Officers' Certificate, dated February 4, 2019, pursuant to Sections 102 and 301 of the Indenture, dated March 4, 2011, with the form of 4.05% Medium-Term Notes due 2022
31.1		Chief Executive Officer Certification pursuant to Rule 13a-14(a)
31.2		Chief Financial Officer Certification pursuant to Rule 13a-14(a)
32.1		Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. §1350
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	HARLEY-DAVIDSON, INC.

Date: ~~November 8, 2018~~May 9, 2019	/s/ John A. Olin
	John A. Olin
	Senior Vice President and
	Chief Financial Officer
	(Principal financial officer)



Date: ~~November 8, 2018~~May 9, 2019	/s/ Mark R. Kornetzke
	Mark R. Kornetzke
	Chief Accounting Officer
	(Principal accounting officer)

6860



Part I	Financial Information	3

Item 1.	Financial Statements	3
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Shareholders' Equity	8
	Notes to Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4542

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6557

Item 4.	Controls and Procedures	6557

Part II	Other Information	6658

Item 1.	Legal Proceedings	6658

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6658

Item 6.	Exhibits	6658

Signatures		6860



	Three months ended September 30, 2018							Nine months ended September 30, 2018
	As Reported		Without Adoption of ASC 606		Effect of Change			As Reported		Without Adoption of ASC 606		Effect of Change
Revenue:
Motorcycles and Related Products	$	1,123,945	$	1,125,698	$	(1,753	)	$	4,013,013	$	3,994,066	$	18,947
Costs and expenses:
Motorcycles and Related Products cost of goods sold	$	776,530	$	775,831	$	699		$	2,659,740	$	2,640,454	$	19,286
Operating income	$	149,416	$	151,868	$	(2,452	)	$	709,780	$	710,119	$	(339	)
Income before provision for income taxes	$	141,192	$	143,644	$	(2,452	)	$	690,739	$	691,078	$	(339	)
Provision for income taxes	$	27,337	$	27,931	$	(594	)	$	159,783	$	159,865	$	(82	)
Net income	$	113,855	$	115,713	$	(1,858	)	$	530,956	$	531,213	$	(257	)



	2018				2017
	Transfers		Proceeds		Transfers		Proceeds
First quarter	$	32,900	$	29,300	$	333,400	$	300,000
Second quarter	59,100		53,300		28,200		24,000
Third quarter	—		—		34,100		29,600
	$	92,000	$	82,600	$	395,700	$	353,600



2018 Fiscal Month	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 2 to August 5	5,109	$	42	5,109	23,247,303
August 6 to September 2	1,110,548	$	43	1,110,548	22,137,398
September 3 to September 30	830,900	$	44	830,900	21,306,498
Total	1,946,557	$	44	1,946,557