Document

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 25, 2016
¨
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x   No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
Accelerated filer
 
¨
 
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes ¨ No  x
Number of shares of the registrant’s common stock outstanding at October 28, 2016: 176,773,435 shares


Harley-Davidson, Inc.

Form 10-Q

For The Quarter Ended September 25, 2016
 
Part I
 
 
 
Item 1.
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 

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
 
September 25,
2016
 
September 27,
2015
 
September 25,
2016
 
September 27,
2015
Revenue:
 
 
 
 
 
 
 
Motorcycles and Related Products
$
1,091,630

 
$
1,140,321

 
$
4,338,353

 
$
4,301,674

Financial Services
183,183

 
177,109

 
547,505

 
513,093

Total revenue
1,274,813

 
1,317,430

 
4,885,858

 
4,814,767

Costs and expenses:
 
 
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
724,611

 
746,282

 
2,773,496

 
2,670,146

Financial Services interest expense
42,573

 
41,214

 
131,387

 
120,938

Financial Services provision for credit losses
36,543

 
27,233

 
97,127

 
68,655

Selling, administrative and engineering expense
292,710

 
286,865

 
904,322

 
866,558

Total costs and expenses
1,096,437

 
1,101,594

 
3,906,332

 
3,726,297

Operating income
178,376

 
215,836

 
979,526

 
1,088,470

Investment income
2,300

 
3,211

 
3,754

 
5,983

Interest expense
7,706

 
4,879

 
21,968

 
4,897

Income before provision for income taxes
172,970

 
214,168

 
961,312

 
1,089,556

Provision for income taxes
58,905

 
73,821

 
316,327

 
379,545

Net income
$
114,065

 
$
140,347

 
$
644,985

 
$
710,011

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.64

 
$
0.69

 
$
3.57

 
$
3.43

Diluted
$
0.64

 
$
0.69

 
$
3.55

 
$
3.41

Cash dividends per common share
$
0.35

 
$
0.31

 
$
1.05

 
$
0.93

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


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Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three months ended
 
Nine months ended
 
September 25,
2016
 
September 27,
2015
 
September 25,
2016
 
September 27,
2015
Net income
$
114,065

 
$
140,347

 
$
644,985

 
$
710,011

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
     Foreign currency translation adjustments
3,853

 
(14,598
)
 
19,174

 
(37,368
)
     Derivative financial instruments
(2,031
)
 
(10,533
)
 
(7,374
)
 
(12,747
)
     Marketable securities
(11
)
 
(99
)
 
(88
)
 
(294
)
     Pension and postretirement benefit plans
7,572

 
8,799

 
22,715

 
26,395

Total other comprehensive income (loss), net of tax
$
9,383

 
$
(16,431
)
 
$
34,427

 
$
(24,014
)
Comprehensive income
$
123,448

 
$
123,916

 
$
679,412

 
$
685,997

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



4
Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
September 25,
2016
 
December 31,
2015
 
September 27,
2015
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
790,284

 
$
722,209

 
$
1,368,554

Marketable securities
5,038

 
45,192

 
47,358

Accounts receivable, net
346,176

 
247,405

 
294,054

Finance receivables, net
2,205,644

 
2,053,582

 
2,068,873

Inventories
426,547

 
585,907

 
466,657

Restricted cash
65,088

 
88,267

 
113,499

Deferred income taxes
123,609

 
102,769

 
100,558

Other current assets
139,958

 
132,552

 
150,667

Total current assets
4,102,344

 
3,977,883

 
4,610,220

Finance receivables, net
4,944,322

 
4,814,571

 
5,009,473

Property, plant and equipment, net
954,475

 
942,418

 
877,787

Goodwill
54,663

 
54,182

 
54,267

Deferred income taxes
80,831

 
99,614

 
71,952

Other long-term assets
75,591

 
84,309

 
88,335

 
$
10,212,226

 
$
9,972,977

 
$
10,712,034

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
291,594

 
$
235,614

 
$
316,894

Accrued liabilities
506,533

 
471,964

 
464,352

Short-term debt
1,055,428

 
1,201,380

 
990,049

Current portion of long-term debt, net
700,152

 
838,349

 
885,889

Total current liabilities
2,553,707

 
2,747,307

 
2,657,184

Long-term debt, net
5,170,609

 
4,832,469

 
5,040,644

Pension liability
120,494

 
164,888

 
61,458

Postretirement healthcare liability
182,825

 
193,659

 
193,406

Other long-term liabilities
192,223

 
195,000

 
199,669

Commitments and contingencies (Note 18)

 

 

Shareholders’ equity:
 
 
 
 
 
Preferred stock, none issued
—

 
—

 
—

Common stock
3,454

 
3,449

 
3,448

Additional paid-in-capital
1,364,694

 
1,328,561

 
1,314,693

Retained earnings
9,416,583

 
8,961,985

 
8,977,600

Accumulated other comprehensive loss
(580,778
)
 
(615,205
)
 
(538,957
)
Treasury stock, at cost
(8,211,585
)
 
(7,839,136
)
 
(7,197,111
)
Total shareholders' equity
1,992,368

 
1,839,654

 
2,559,673

 
$
10,212,226

 
$
9,972,977

 
$
10,712,034



5
Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
September 25,
2016
 
December 31,
2015
 
September 27,
2015
Balances held by consolidated variable interest entities (Note 12)
 
 
 
 
 
Current finance receivables, net
$
236,561

 
$
322,768

 
$
357,713

Other assets
$
3,043

 
$
4,706

 
$
4,492

Non-current finance receivables, net
$
754,970

 
$
1,250,919

 
$
1,475,179

Restricted cash - current and non-current
$
69,364

 
$
100,151

 
$
125,561

Current portion of long-term debt, net
$
261,188

 
$
351,123

 
$
398,689

Long-term debt, net
$
664,431

 
$
1,108,254

 
$
1,303,043

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

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Table of Contents

HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine months ended
 
September 25,
2016
 
September 27,
2015
Net cash provided by operating activities (Note 3)
$
927,809

 
$
1,020,957

Cash flows from investing activities:
 
 
 
Capital expenditures
(162,726
)
 
(139,054
)
Origination of finance receivables
(3,009,479
)
 
(3,112,827
)
Collections on finance receivables
2,440,466

 
2,393,355

Proceeds from finance receivables sold
312,571

 
—

Sales and redemptions of marketable securities
40,014

 
9,500

Acquisition of business
—

 
(59,910
)
Other
251

 
5,172

Net cash used by investing activities
(378,903
)
 
(903,764
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of senior unsecured notes
—

 
740,949

Proceeds from issuance of medium-term notes
1,193,396

 
595,386

Repayments of medium-term notes
(451,336
)
 
(600,000
)
Proceeds from securitization debt
—

 
1,195,668

Repayments of securitization debt
(535,616
)
 
(764,909
)
Net (decrease) increase in credit facilities and unsecured commercial paper
(146,328
)
 
258,734

Borrowings of asset-backed commercial paper
33,428

 
69,191

Repayments of asset-backed commercial paper
(55,170
)
 
(55,124
)
Net change in restricted cash
30,981

 
(15,165
)
Dividends paid
(190,387
)
 
(191,451
)
Purchase of common stock for treasury
(374,234
)
 
(894,565
)
Excess tax benefits from share-based payments
1,291

 
2,878

Issuance of common stock under employee stock option plans
6,444

 
16,755

Net cash (used by) provided by financing activities
(487,531
)
 
358,347

Effect of exchange rate changes on cash and cash equivalents
6,700

 
(13,666
)
Net increase in cash and cash equivalents
$
68,075

 
$
461,874

Cash and cash equivalents:
 
 
 
Cash and cash equivalents—beginning of period
$
722,209

 
$
906,680

Net increase in cash and cash equivalents
68,075

 
461,874

Cash and cash equivalents—end of period
$
790,284

 
$
1,368,554

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


7
Table of Contents

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 25, 2016 and September 27, 2015, the consolidated statements of income for the three and nine month periods then ended, the consolidated statements of comprehensive income for the three and nine month periods then ended and the consolidated statements of cash flows for the nine month periods then ended.
Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. These consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
The Company operates in two principal reportable segments: Motorcycles & Related Products (Motorcycles) and Financial Services.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
2. New Accounting Standards
Accounting Standards Recently Adopted
In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-02 Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 amends the guidance within Accounting Standards Codification (ASC) Topic 810, "Consolidation,” to change the analysis that a reporting entity must perform to determine whether it should consolidate certain legal entities. The Company adopted ASU 2015-02 on January 1, 2016. The adoption of ASU 2015-02 had no impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03 Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 amends the guidance within ASC Topic 835, "Interest," to require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt premiums and discounts. In August 2015, the FASB further clarified its views on debt costs incurred in connection with a line of credit arrangement by issuing ASU No. 2015-15 Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (ASU 2015-15). ASU 2015-15 amends the guidance within ASC Topic 835, “Interest,” to allow an entity to defer and present debt issuance costs associated with a line of credit arrangement as an asset, regardless of whether there are any outstanding borrowings on the line of credit arrangement.
The Company adopted ASU 2015-03 and ASU 2015-15 retrospectively on January 1, 2016. As a result, debt issuance costs related to its medium-term notes, senior unsecured notes, and term asset-backed securitizations are now classified as a reduction to the carrying amount of the related debt on the balance sheet. Debt issuance costs previously recorded in other current assets and other long-term assets totaling $18.2 million and $19.5 million as of December 31, 2015 and September 27, 2015, respectively, on the balance sheet have been reclassified to current portion of long-term debt, net and long-term debt, net to reflect the adoption of the new guidance. The required new disclosures are also presented in Note 11. The Company will continue to classify debt issuance costs related to line of credit arrangements, which include its asset-backed commercial paper and unsecured commercial paper programs and its credit facilities, as an asset, regardless of whether it has any outstanding borrowings on the line of credit arrangements.
In April 2015, the FASB issued ASU No. 2015-05 Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which amends ASC 350-40, "Intangibles-Goodwill and Other Internal-Use Software" (ASU 2015-05). ASU

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2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If an arrangement includes a software license, the accounting for the license will be consistent with the licenses of other intangible assets. If the arrangement does not include a license, the arrangement will be accounted for as a service contract. The Company adopted ASU 2015-05 prospectively on January 1, 2016. The adoption of ASU 2015-05 had no material impact on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Acquirers must recognize measurement-period adjustments during the period in which they determine the amounts. This would include any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The Company adopted ASU 2015-16 on January 1, 2016. The adoption of ASU 2015-16 had no impact on the Company's consolidated financial statements.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers: Deferral of Effective Date (ASU 2015-14) to defer the effective date of the new revenue recognition standard by one year to fiscal years beginning after December 15, 2017 and for interim periods therein. The guidance may be adopted using either a full retrospective or modified retrospective approach. Early adoption is permitted as early as fiscal years beginning after December 15, 2016 and interim periods therein. The Company is currently evaluating the impact of adoption of ASU 2014-09 and ASU 2015-14.
In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value. ASU 2015-11 does not apply to inventory measured using the last-in, first-out method. The Company is required to adopt ASU 2015-11 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. Early adoption will be permitted. The adoption of ASU 2015-11 will not have a material effect on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 eliminates the requirement for a Company to separate deferred income tax liabilities and assets into current and noncurrent amounts on a classified statement of financial position and requires that deferred tax liabilities and assets be classified as noncurrent. The Company is required to adopt ASU 2015-17 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016 on either a retrospective or prospective basis. Early adoption is permitted. The Company plans to early adopt ASU 2015-17 in the fourth quarter of 2016 on a prospective basis.
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 enhances the existing financial instruments reporting model by modifying fair value measurement tools, simplifying impairment assessments for certain equity instruments, and modifying overall presentation and disclosure requirements. The Company is required to adopt ASU 2016-01 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a prospective basis. The Company is currently evaluating the impact of adoption of ASU 2016-01.
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (ASU 2016-02). ASU 2016-02 amends the existing lease accounting model by requiring a lessee to recognize the rights and obligations resulting from certain leases as assets and liabilities on the balance sheet. ASU 2016-02 also requires a company to disclose key information about their leasing arrangements. The Company is required to adopt ASU 2016-02 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the impact of adoption of ASU 2016-02.
In March 2016, the FASB issued ASU No. 2016-09 Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 amends the guidance on several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The Company is required to adopt ASU 2016-09 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016 on both a retrospective and prospective basis dependent upon the nature of the subtopic. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of adoption of ASU 2016-09.

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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.
In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement of cash flows. The standard provides guidance on the classification of the following items: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows. The Company is required to adopt ASU 2016-15 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a retrospective basis. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of adoption of ASU 2016-15.
3. Additional Balance Sheet and Cash Flow Information
Marketable Securities
The Company’s marketable securities consisted of the following (in thousands):
 
September 25,
2016
 
December 31,
2015
 
September 27,
2015
Available-for-sale: Corporate bonds
$
5,038

 
$
45,192

 
$
47,358

Trading securities: Mutual funds
39,063

 
36,256

 
35,258

 
$
44,101

 
$
81,448

 
$
82,616

The Company’s available-for-sale securities are carried at fair value with any unrealized gains or losses reported in other comprehensive income. During the first nine months of 2016 and 2015, the Company recognized gross unrealized losses of approximately $140,000 and $467,000, respectively, or $88,000 and $294,000 net of taxes, respectively, to adjust amortized cost to fair value. The marketable securities have contractual maturities that come due over the next 7 months.
The Company's trading securities relate to investments held by the Company to fund certain deferred compensation obligations. The trading securities are carried at fair value with gains and losses recorded in net income, and investments are included in other long-term assets on the consolidated balance sheets.
Inventories
Inventories are valued at the lower of cost or market. 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 market using the first-in, first-out (FIFO) method. Inventories consist of the following (in thousands):
 
September 25,
2016
 
December 31,
2015
 
September 27,
2015
Components at the lower of FIFO cost or market
 
 
 
 
 
Raw materials and work in process
$
159,209

 
$
161,704

 
$
153,779

Motorcycle finished goods
182,019

 
327,952

 
228,243

Parts and accessories and general merchandise
134,587

 
145,519

 
134,537

Inventory at lower of FIFO cost or market
475,815

 
635,175

 
516,559

Excess of FIFO over LIFO cost
(49,268
)
 
(49,268
)
 
(49,902
)
 
$
426,547

 
$
585,907

 
$
466,657


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Operating Cash Flow
The reconciliation of net income to net cash provided by operating activities is as follows (in thousands):
 
Nine months ended
 
September 25,
2016
 
September 27,
2015
Cash flows from operating activities:
 
 
 
Net income
$
644,985

 
$
710,011

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of intangibles
154,565

 
142,024

Amortization of deferred loan origination costs
65,445

 
71,012

Amortization of financing origination fees
7,212

 
7,331

Provision for long-term employee benefits
27,608

 
36,954

Employee benefit plan contributions and payments
(47,658
)
 
(19,358
)
Stock compensation expense
24,909

 
23,732

Net change in wholesale finance receivables related to sales
(169,599
)
 
(157,532
)
Provision for credit losses
97,127

 
68,655

Gain on off-balance sheet asset-backed securitization
(9,269
)
 
—

Loss on debt extinguishment
118

 
—

Pension plan settlement expense
900

 
—

Deferred income taxes
(11,261
)
 
(9,272
)
Foreign currency adjustments
(11,741
)
 
22,010

Other, net
(11,529
)
 
5,000

Changes in current assets and liabilities:
 
 
 
Accounts receivable, net
(86,796
)
 
(60,687
)
Finance receivables—accrued interest and other
364

 
(98
)
Inventories
173,975

 
(36,109
)
Accounts payable and accrued liabilities
97,190

 
211,045

Derivative instruments
(1,992
)
 
(6,734
)
Other
(16,744
)
 
12,973

Total adjustments
282,824

 
310,946

Net cash provided by operating activities
$
927,809

 
$
1,020,957

4. Acquisition
On August 4, 2015, the Company completed its purchase of certain assets and liabilities from Fred Deeley Imports, Ltd. (Deeley Imports) including, among other things, the acquisition of the exclusive right to distribute the Company's motorcycles and other products in Canada (Transaction) for total consideration of $59.9 million. The majority equity owner of Deeley Imports is a member of the Board of Directors of the Company. The acquisition of the Canadian distribution rights allowed the Company to align its distribution in Canada with its global go-to-market approach.
The financial impact of the acquisition, which is part of the Motorcycles segment, has been included in the Company's consolidated financial statements from the date of acquisition. Proforma information reflecting this acquisition has not been disclosed as the proforma impact on consolidated net income would not be material.

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The following table summarizes the fair values of the Deeley Imports assets acquired and liabilities assumed at the date of acquisition (in thousands):
 
August 4, 2015
Current assets
$
11,088

Property, plant and equipment
144

Intangible assets
20,842

Goodwill
28,567

   Total assets
60,641

Current liabilities
731

Net assets acquired
$
59,910

As noted above, in conjunction with the acquisition of certain assets and assumption of certain liabilities of Deeley Imports, the Company recorded goodwill of $28.6 million, all of which the Company believes is tax deductible, and intangible assets with an initial fair value of $20.8 million. Of the total intangible assets acquired, $13.3 million was assigned to reacquired distribution rights with a useful life of two years and $7.5 million was assigned to customer relationships with a useful life of twenty years. The Company agreed to reimburse Deeley Imports for certain severance costs associated with the Transaction, resulting in $3.3 million of expense included in selling, administrative and engineering expense in the third quarter of 2015. The Company did not acquire any cash as part of the Transaction.
5. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the Motorcycles segment were as follows (in thousands):
 
Three months ended
 
Nine months ended
 
September 25, 2016
 
September 27, 2015
 
September 25, 2016
 
September 27, 2015
Balance, beginning of period
54,542

 
26,105

 
$
54,182

 
$
27,752

Business acquisitions
—

 
28,567

 
—

 
28,567

Currency translations
121

 
(405
)
 
481

 
(2,052
)
Balance, end of period
54,663

 
54,267

 
$
54,663

 
$
54,267


12
Table of Contents

The Motorcycles segment intangible assets consisted of the following (in thousands):
 
September 25, 2016
 
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Estimated useful life (years)
Other intangible assets
 
 
 
 
 
 
 
   Reacquired distribution rights
$
13,357

 
$
(7,792
)
 
$
5,565

 
2
   Customer relationships
7,535

 
(439
)
 
7,096

 
20
Total other intangible assets
$
20,892

 
$
(8,231
)
 
$
12,661

 
 
 
December 31, 2015
 
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Estimated useful life (years)
Other intangible assets
 
 
 
 
 
 
 
   Reacquired distribution rights
$
12,614

 
$
(2,628
)
 
$
9,986

 
2
   Customer relationships
7,116

 
(148
)
 
6,968

 
20
Total other intangible assets
$
19,730

 
$
(2,776
)
 
$
16,954

 
 
 
September 27, 2015
 
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Estimated useful life (years)
Other intangible assets
 
 
 
 
 
 
 
   Reacquired distribution rights
$
13,117

 
$
(1,093
)
 
$
12,024

 
2
   Customer relationships
7,399

 
(62
)
 
7,337

 
20
Total other intangible assets
$
20,516

 
$
(1,155
)
 
$
19,361

 
 
Intangible assets other than goodwill are included in other long-term assets on the Company's consolidated balance sheets. The gross carrying amounts differ from the acquisition date amounts due to changes in foreign currency exchange rates.
Amortization expense of other intangible assets for the three months ended September 25, 2016 and September 27, 2015 was $1.8 million and $1.2 million, respectively. Amortization expense of other intangible assets for the nine months ended September 25, 2016 and September 27, 2015 was $5.2 million and $1.2 million, respectively. The Company estimates future amortization to be approximately as follows (in thousands):
 
 
Estimated Amortization
2016 (remaining 3 months)
 
$
1,767

2017
 
4,278

2018
 
372

2019
 
372

2020
 
372

2021
 
372

Thereafter
 
5,128

 
 
$
12,661

The Financial Services segment did not have a goodwill or intangible assets balance at September 25, 2016, December 31, 2015 and September 27, 2015.
6. Finance Receivables
The Company provides retail financial services to customers of the Company’s independent dealers in the United States and Canada. The origination of retail loans is a separate and distinct transaction between the Company and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment sales contracts. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.

13
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The Company offers wholesale financing to the Company’s independent dealers. Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada.
Finance receivables, net, consisted of the following (in thousands):
 
September 25,
2016
 
December 31,
2015
 
September 27,
2015
Retail
$
6,165,999

 
$
5,991,471

 
$
6,194,332

Wholesale
1,155,483

 
1,023,860

 
1,029,397

Total finance receivables
7,321,482

 
7,015,331

 
7,223,729

Allowance for credit losses
(171,516
)
 
(147,178
)
 
(145,383
)
Finance receivables, net
$
7,149,966

 
$
6,868,153

 
$
7,078,346

A provision for credit losses on finance receivables is charged or credited to earnings in amounts that the Company believes are sufficient to maintain the allowance for credit losses at a level that is adequate to cover losses of principal inherent in the existing portfolio. The allowance for credit losses represents management’s estimate of probable losses inherent in the finance receivable portfolio as of the balance sheet date. However, due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company could differ from the amounts estimated.
Changes in the allowance for credit losses on finance receivables by portfolio were as follows (in thousands):
 
Three months ended September 25, 2016
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
152,998

 
$
8,355

 
$
161,353

Provision for credit losses
38,143

 
(1,600
)
 
36,543

Charge-offs
(35,749
)
 
—

 
(35,749
)
Recoveries
9,369

 
—

 
9,369

Balance, end of period
$
164,761

 
$
6,755

 
$
171,516

 
 
 
 
 
 
 
Three months ended September 27, 2015
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
131,903

 
$
7,328

 
$
139,231

Provision for credit losses
28,309

 
(1,076
)
 
27,233

Charge-offs
(30,203
)
 
—

 
(30,203
)
Recoveries
9,122

 
—

 
9,122

Balance, end of period
$
139,131

 
$
6,252

 
$
145,383

 
 
 
 
 
 
 
Nine months ended September 25, 2016
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
139,320

 
$
7,858

 
$
147,178

Provision for credit losses
98,230

 
(1,103
)
 
97,127

Charge-offs
(101,853
)
 
—

 
(101,853
)
Recoveries
32,355

 
—

 
32,355

Other (a)
(3,291
)
 
—

 
(3,291
)
Balance, end of period
$
164,761

 
$
6,755

 
$
171,516

 
 
 
 
 
 
 
Nine months ended September 27, 2015
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
122,025

 
$
5,339

 
$
127,364

Provision for credit losses
67,742

 
913

 
68,655

Charge-offs
(83,939
)
 
—

 
(83,939
)
Recoveries
33,303

 
—

 
33,303

Balance, end of period
$
139,131

 
$
6,252

 
$
145,383


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Table of Contents

(a)
Related to the sale of finance receivables during the second quarter of 2016 with a principal balance of $301.8 million through an off-balance sheet asset-backed securitization transaction (see Note 12 for additional information).
Finance receivables are considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement. Portions of the allowance for credit losses are established to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance for credit losses covers estimated losses on finance receivables which are collectively reviewed for impairment.
The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes loss forecast models which consider a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates, and current economic conditions including items such as unemployment rates. Retail finance receivables are not evaluated individually for impairment prior to charge-off and therefore are not reported as impaired loans.
The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s evaluation for the wholesale allowance for credit losses is first based on a loan-by-loan review. A specific allowance for credit losses is established for wholesale finance receivables determined to be individually impaired when management concludes that the borrower will not be able to make full payment of the contractual amounts due based on the original terms of the loan agreement. The impairment is determined based on the cash that the Company expects to receive discounted at the loan’s original interest rate or the fair value of the collateral, if the loan is collateral-dependent. Finance receivables in the wholesale portfolio that are not considered impaired on an individual basis are segregated, based on similar risk characteristics, according to the Company’s internal risk rating system and collectively evaluated for impairment. The related allowance for credit losses is based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past loan loss experience, current economic conditions, and the value of the underlying collateral.
Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize the economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant.

15
Table of Contents

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 25, 2016
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
164,761

 
6,755

 
171,516

Total allowance for credit losses
$
164,761

 
$
6,755

 
$
171,516

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
6,165,999

 
1,155,483

 
7,321,482

Total finance receivables
$
6,165,999

 
$
1,155,483

 
$
7,321,482

 
 
 
 
 
 
 
December 31, 2015
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
139,320

 
7,858

 
147,178

Total allowance for credit losses
$
139,320

 
$
7,858

 
$
147,178

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
5,991,471

 
1,023,860

 
7,015,331

Total finance receivables
$
5,991,471

 
$
1,023,860

 
$
7,015,331

 
 
 
 
 
 
 
September 27, 2015
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
139,131

 
6,252

 
145,383

Total allowance for credit losses
$
139,131

 
$
6,252

 
$
145,383

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

Collectively evaluated for impairment
6,194,332

 
1,029,397

 
7,223,729

Total finance receivables
$
6,194,332

 
$
1,029,397

 
$
7,223,729

There were no wholesale finance receivables at September 25, 2016, December 31, 2015, or September 27, 2015 that were individually deemed to be impaired under ASC Topic 310, “Receivables.”
Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed or the receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until either collected or charged-off. Accordingly, as of September 25, 2016, December 31, 2015 and September 27, 2015, all retail finance receivables were accounted for as interest-earning receivables, of which $31.3 million, $32.8 million and $23.8 million, respectively, were 90 days or more past due.

16
Table of Contents

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 25, 2016, December 31, 2015 or September 27, 2015. At September 25, 2016, December 31, 2015 and September 27, 2015, $0.4 million, $0.1 million, and $0.1 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 25, 2016
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,973,108

 
$
119,709

 
$
41,866

 
$
31,316

 
$
192,891

 
$
6,165,999

Wholesale
1,154,617

 
366

 
114

 
386

 
866

 
1,155,483

Total
$
7,127,725

 
$
120,075

 
$
41,980

 
$
31,702

 
$
193,757

 
$
7,321,482

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,796,003

 
$
118,996

 
$
43,680

 
$
32,792

 
$
195,468

 
$
5,991,471

Wholesale
1,022,365

 
888

 
530

 
77

 
1,495

 
1,023,860

Total
$
6,818,368

 
$
119,884

 
$
44,210

 
$
32,869

 
$
196,963

 
$
7,015,331

 
 
 
 
 
 
 
 
 
 
 
 
 
September 27, 2015
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
6,024,620

 
$
111,393

 
$
34,511

 
$
23,808

 
$
169,712

 
$
6,194,332

Wholesale
1,028,981

 
106

 
162

 
148

 
416

 
1,029,397

Total
$
7,053,601

 
$
111,499

 
$
34,673

 
$
23,956

 
$
170,128

 
$
7,223,729

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 25, 2016
 
December 31, 2015
 
September 27, 2015
Prime
$
4,900,752

 
$
4,777,448

 
$
4,936,438

Sub-prime
1,265,247

 
1,214,023

 
1,257,894

Total
$
6,165,999

 
$
5,991,471

 
$
6,194,332

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

17
Table of Contents

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 borrowers’ 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 25, 2016
 
December 31, 2015
 
September 27, 2015
Doubtful
$
—

 
$
5,169

 
$
—

Substandard
16,244

 
21,774

 
14,949

Special Mention
—

 
6,271

 
3,706

Medium Risk
7,667

 
11,494

 
6,496

Low Risk
1,131,572

 
979,152

 
1,004,246

Total
$
1,155,483

 
$
1,023,860

 
$
1,029,397

7. Fair Value Measurements
Certain assets and liabilities are recorded at fair value in the financial statements; some of these are measured on a recurring basis while others are measured on a non-recurring basis. Assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when required by particular events or circumstances. In determining the fair value of assets and liabilities, the Company uses various valuation techniques. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable.
Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates and commodity prices. The Company uses the market approach to derive the fair value for its level 2 fair value measurements. Forward contracts for foreign currency, commodities and interest rates are valued using current quoted forward rates and prices; investments in marketable securities and cash equivalents are valued using publicly quoted prices.
Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the following tables.

18
Table of Contents

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 25, 2016
 
Balance
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
526,228

 
$
372,850

 
$
153,378

 
$
—

Marketable securities
44,101

 
39,063

 
5,038

 
—

Derivatives
6,606

 
—

 
6,606

 
—

 
$
576,935

 
$
411,913

 
$
165,022

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
1,388

 
$
—

 
$
1,388

 
$
—

 
 
 
 
 
 
 
 
 
December 31, 2015
 
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
$
555,910

 
$
390,706

 
$
165,204

 
$
—

Marketable securities
81,448

 
36,256

 
45,192

 
—

Derivatives
16,235

 
—

 
16,235

 
—

 
$
653,593

 
$
426,962

 
$
226,631

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
1,300

 
$
—

 
$
1,300

 
$
—

 
 
 
 
 
 
 
 
 
September 27, 2015
 
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
$
1,111,571

 
$
719,854

 
$
391,717

 
$
—

Marketable securities
82,616

 
35,258

 
47,358

 
—

Derivatives
18,015

 
—

 
18,015

 
—

 
$
1,212,202

 
$
755,112

 
$
457,090

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
1,309

 
$
—

 
$
1,309

 
$
—

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 $18.5 million, $17.7 million and $16.6 million at September 25, 2016, December 31, 2015 and September 27, 2015, for which the fair value adjustment was $8.2 million, $8.6 million and $6.7 million, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.

19
Table of Contents

8. Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, finance receivables, net, debt, foreign currency exchange and commodity contracts (derivative instruments are discussed further in Note 9).
The following table summarizes the fair value and carrying value of the Company’s financial instruments (in thousands):
 
September 25, 2016
 
December 31, 2015
 
September 27, 2015
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
790,284

 
$
790,284

 
$
722,209

 
$
722,209

 
$
1,368,554

 
$
1,368,554

Marketable securities
$
44,101

 
$
44,101

 
$
81,448

 
$
81,448

 
$
82,616

 
$
82,616

Derivatives
$
6,606

 
$
6,606

 
$
16,235

 
$
16,235

 
$
18,015

 
$
18,015

Finance receivables, net
$
7,233,923

 
$
7,149,966

 
$
6,937,053

 
$
6,868,153

 
$
7,170,873

 
$
7,078,346

Restricted cash
$
79,661

 
$
79,661

 
$
110,642

 
$
110,642

 
$
137,217

 
$
137,217

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivatives
$
1,388

 
$
1,388

 
$
1,300

 
$
1,300

 
$
1,309

 
$
1,309

Unsecured commercial paper
$
1,055,428

 
$
1,055,428

 
$
1,201,380

 
$
1,201,380

 
$
990,049

 
$
990,049

Asset-backed Canadian commercial paper conduit facility
$
140,488

 
$
140,488

 
$
153,839

 
$
153,839

 
$
158,712

 
$
158,712

Medium-term notes
$
4,199,753

 
$
4,063,510

 
$
3,410,966

 
$
3,316,949

 
$
3,468,459

 
$
3,325,032

Senior unsecured notes
$
800,818

 
$
741,144

 
$
737,435

 
$
740,653

 
$
752,494

 
$
741,057

Term asset-backed securitization debt
$
929,775

 
$
925,619

 
$
1,455,776

 
$
1,459,377

 
$
1,707,076

 
$
1,701,732

Cash and Cash Equivalents and Restricted Cash – With the exception of certain cash equivalents, the carrying values of these items in the financial statements are based on historical cost. The historical cost basis for these amounts is estimated to approximate their respective fair values due to the short maturity of these instruments. Fair value is based on Level 1 or Level 2 inputs.
Marketable Securities – The carrying value of marketable securities in the financial statements is based on fair value. The fair value of marketable securities is determined primarily based on quoted prices for identical instruments or on quoted market prices of similar financial assets. Fair value is based on Level 1 or Level 2 inputs.
Finance Receivables, Net – The carrying value of retail and wholesale finance receivables in the financial statements is amortized cost less an allowance for credit losses. The fair value of retail finance receivables is generally calculated by discounting future cash flows using an estimated discount rate that reflects current credit, interest rate and prepayment risks associated with similar types of instruments. Fair value is determined based on Level 3 inputs. The amortized cost basis of wholesale finance receivables approximates fair value because they either are short-term or have interest rates that adjust with changes in market interest rates.
Derivatives – Forward contracts for foreign currency exchange and commodities are derivative financial instruments and are carried at fair value on the balance sheet. The fair value of these contracts is determined using quoted forward rates and prices. Fair value is calculated using Level 2 inputs.
Debt – The carrying value of debt in the financial statements is generally amortized cost, net of discounts and debt issuance costs. The carrying value of unsecured commercial paper approximates fair value due to its short maturity. Fair value is calculated using Level 2 inputs.
The carrying value of debt provided under the Canadian Conduit approximates fair value since the interest rates charged under the facility are tied directly to market rates and fluctuate as market rates change. Fair value is calculated using Level 2 inputs.
The fair values of the medium-term notes are estimated based upon rates available at the end of the period for debt with similar terms and remaining maturities. Fair value is calculated using Level 2 inputs.

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Table of Contents

The fair value of the senior unsecured notes is estimated based upon rates available at the end of the period for debt with similar terms and remaining maturities. Fair value is calculated using Level 2 inputs.
The fair value of the debt related to on-balance sheet term asset-backed securitization transactions is estimated based on pricing available at the end of the period for transactions with similar terms and maturities. Fair value is calculated using Level 2 inputs.
9. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks such as foreign currency exchange rate risk, interest rate risk and commodity price risk. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes.
All derivative instruments are recognized on the balance sheet at fair value (see Note 7). In accordance with ASC Topic 815, “Derivatives and Hedging,” the accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative instruments that are designated as cash flow hedges, the effective portion of gains and losses that result from changes in the fair value of derivative instruments is initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative instruments that do not qualify for hedge accounting are recorded at fair value, and any changes in fair value are recorded in current period earnings.
The Company sells its products internationally, and in most markets those sales are made in the foreign country’s local currency. As a result, the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. The Company utilizes foreign currency exchange contracts to mitigate the effects of the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollar, and the Mexican peso. The foreign currency exchange contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate.
The Company utilizes commodity contracts to hedge portions of the cost of certain commodities consumed in the Company’s motorcycle production and distribution operations.
The Company’s foreign currency exchange contracts and commodity contracts generally have maturities of less than one year.
During the second quarter of 2015, the Company entered into treasury rate locks to fix the interest rate on a portion of the principal related to its issuance of senior unsecured debt during the third quarter of 2015. The treasury rate lock contracts were settled in July 2015. The loss at settlement was recorded in accumulated other comprehensive loss and will be reclassified into earnings over the life of the debt.

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Table of Contents

The following table summarizes the fair value of the Company’s derivative financial instruments (in thousands):
 
September 25, 2016
 
December 31, 2015
 
September 27, 2015
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)
$
615,251

 
$
6,337

 
$
1,193

 
$
436,352

 
$
16,167

 
$
181

 
$
460,323

 
$
18,015

 
$
19

Commodity
contracts(c)
1,154

 
110

 
—

 
968

 
—

 
159

 
1,297

 
—

 
168

Total
$
616,405

 
$
6,447

 
$
1,193


$
437,320

 
$
16,167

 
$
340


$
461,620

 
$
18,015

 
$
187

 
September 25, 2016
 
December 31, 2015
 
September 27, 2015
Derivatives Not Designated As Hedging
Instruments Under ASC Topic 815
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
Commodity contracts
$
4,488

 
$
159

 
$
195

 
$
6,510

 
$
68

 
$
960

 
$
7,027

 
$
—

 
$
1,122

 
$
4,488


$
159

 
$
195

 
$
6,510

 
$
68

 
$
960

 
$
7,027

 
$
—

 
$
1,122

 
(a)
Included in other current assets
(b)
Included in accrued liabilities
(c)
Derivative designated as a cash flow hedge
The following tables summarize the amount of gains and losses related to derivative financial instruments designated as cash flow hedges (in thousands):
 
Amount of Gain/(Loss) Recognized in OCI, before tax
 
Three months ended
 
Nine months ended
Cash Flow Hedges
September 25,
2016
 
September 27,
2015
 
September 25,
2016
 
September 27,
2015
Foreign currency contracts
$
(938
)
 
$
6,796

 
$
(5,445
)
 
$
35,004

Commodity contracts
43

 
(138
)
 
(30
)
 
(284
)
Treasury rate locks
—

 
(10,746
)
 
—

 
(7,381
)
Total
$
(895
)
 
$
(4,088
)
 
$
(5,475
)
 
$
27,339

 
Amount of Gain/(Loss) Reclassified from AOCL into Income
 
 
 
Three months ended
 
Nine months ended
 
Expected to be Reclassified
Cash Flow Hedges
September 25,
2016
 
September 27,
2015
 
September 25,
2016
 
September 27,
2015
 
Over the Next Twelve Months
Foreign currency contracts(a)
$
2,399

 
$
12,771

 
$
6,806

 
$
48,175

 
$
4,488

Commodity contracts(a)
21

 
(68
)
 
(298
)
 
(530
)
 
110

Treasury rate locks(b)
(90
)
 
(60
)
 
(271
)
 
(60
)
 
(362
)
Total
$
2,330

 
$
12,643

 
$
6,237

 
$
47,585

 
$
4,236

(a)
Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) to income is included in cost of goods sold
(b)
Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) to income is included in interest expense
For the three and nine months ended September 25, 2016 and September 27, 2015, the cash flow hedges were highly effective and, as a result, the amount of hedge ineffectiveness was not material. No amounts were excluded from effectiveness testing.

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The following tables summarize the amount of gains and losses related to derivative financial instruments not designated as hedging instruments (in thousands):
 
Amount of Gain/(Loss) Recognized in Income on Derivative
 
Three months ended
 
Nine months ended
Derivatives Not Designated As Hedges
September 25,
2016
 
September 27,
2015
 
September 25,
2016
 
September 27,
2015
Commodity contracts(a)
$
45

 
$
(731
)
 
$
(179
)
 
$
(1,257
)
Total
$
45

 
$
(731
)
 
$
(179
)
 
$
(1,257
)
(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.
10. Accumulated Other Comprehensive Loss
The following tables set forth the changes in accumulated other comprehensive loss (AOCL) (in thousands):
 
 
Three months ended September 25, 2016
 
 
Foreign currency translation adjustments
 
Marketable securities
 
Derivative financial instruments
 
Pension and postretirement benefit plans
 
Total
Balance, beginning of period
 
$
(43,523
)
 
$
(1,171
)
 
$
543

 
$
(546,010
)
 
$
(590,161
)
Other comprehensive income (loss) before reclassifications
 
3,574

 
(18
)
 
(895
)
 
—

 
2,661

Income tax expense
 
279

 
7

 
332

 
—

 
618

Net other comprehensive income (loss) before reclassifications
 
3,853

 
(11
)
 
(563
)
 
—

 
3,279

Reclassifications:
 
 
 
 
 
 
 
 
 
 
Realized (gains) losses - foreign currency contracts(a)
 
—

 
—

 
(2,399
)
 
—

 
(2,399
)
Realized (gains) losses - commodities contracts(a)
 
—

 
—

 
(21
)
 
—

 
(21
)
Realized (gains) losses - treasury rate lock(c)
 
—

 
—

 
90

 
—

 
90

Prior service credits(b)
 
—

 
—

 
—

 
(446
)
 
(446
)
Actuarial losses(b)
 
—

 
—

 
—

 
12,472

 
12,472

Total reclassifications before tax
 
—

 
—

 
(2,330
)
 
12,026

 
9,696

Income tax expense (benefit)
 
—

 
—

 
862

 
(4,454
)
 
(3,592
)
Net reclassifications
 
—

 
—

 
(1,468
)
 
7,572

 
6,104

Other comprehensive income (loss)
 
3,853

 
(11
)
 
(2,031
)
 
7,572

 
9,383

Balance, end of period
 
$
(39,670
)
 
$
(1,182
)
 
$
(1,488
)
 
$
(538,438
)
 
$
(580,778
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Three months ended September 27, 2015