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Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Jan. 31, 2012
Jun. 26, 2011
Document And Entity Information [Abstract]
Document Type 10-K
Document Period End Date Dec 31, 2011
Document Fiscal Year Focus 2011
Document Fiscal Period Focus FY
Amendment Flag false
Entity Registrant Name HARLEY DAVIDSON INC
Entity Central Index Key 0000793952
Entity Current Reporting Status Yes
Entity Voluntary Filers No
Current Fiscal Year End Date --12-31
Entity Filer Category Large Accelerated Filer
Entity Well-known Seasoned Issuer Yes
Entity Common Stock, Shares Outstanding 230,497,185
Entity Public Float $ 8,881,219,627
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Consolidated Statements Of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Revenue:
Motorcycles and related products $ 4,662,264 [1] $ 4,176,627 [1] $ 4,287,130 [1]
Financial services 649,449 682,709 494,779
Total revenue 5,311,713 4,859,336 4,781,909
Costs and expenses:
Motorcycles and related products cost of goods sold 3,106,288 2,749,224 2,900,934
Financial services interest expense 229,492 272,484 283,634
Financial services provision for credit losses 17,031 93,118 169,206
Selling, administrative and engineering expense 1,060,943 1,020,371 979,384
Restructuring expense and asset impairment 67,992 163,508 224,278
Goodwill impairment 28,387
Total costs and expenses 4,481,746 4,298,705 4,585,823
Operating income 829,967 560,631 196,086
Investment income 7,963 5,442 4,254
Interest expense 45,266 90,357 21,680
Loss on debt extinguishment 9,608 85,247
Income before provision for income taxes 792,664 390,469 178,660
Provision for income taxes 244,586 130,800 108,019
Income from continuing operations 548,078 259,669 70,641
Income (loss) from discontinued operations, net of tax 51,036 (113,124) (125,757)
Net income (loss) $ 599,114 $ 146,545 $ (55,116)
Earnings per common share from continuing operations:
Basic $ 2.35 $ 1.11 $ 0.3
Diluted $ 2.33 $ 1.11 $ 0.3
Earnings (loss) per common share from discontinued operations:
Basic $ 0.22 $ (0.48) $ (0.54)
Diluted $ 0.22 $ (0.48) $ (0.54)
Earnings (loss) per common share:
Basic $ 2.57 $ 0.63 $ (0.24)
Diluted $ 2.55 $ 0.62 $ (0.24)
Cash dividends per common share $ 0.475 $ 0.4 $ 0.4
[1] Revenue is attributed to geographic regions based on location of customer.
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
Cash and cash equivalents $ 1,526,950 $ 1,021,933
Marketable securities 153,380 140,118
Accounts receivable, net 219,039 262,382
Finance receivables, net 1,168,603 1,080,432
Restricted finance receivables held by variable interest entities, net 591,864 699,026
Inventories 418,006 326,446
Restricted cash held by variable interest entities 229,655 288,887
Deferred income taxes 132,331 146,411
Other current assets 102,378 100,991
Total current assets 4,542,206 4,066,626
Finance receivables, net 1,754,441 1,553,781
Restricted finance receivables held by variable interest entities, net 2,271,773 2,684,330
Property, plant and equipment, net 809,459 815,112
Goodwill 29,081 29,590
Deferred income taxes 202,439 213,989
Other long-term assets 64,765 67,312
Total assets 9,674,164 9,430,740
Current liabilities:
Accounts payable 255,713 225,346
Accrued liabilities 564,172 556,671
Short-term debt 838,486 480,472
Current portion of long-term debt 399,916
Current portion of long-term debt held by variable interest entities 640,331 751,293
Total current liabilities 2,698,618 2,013,782
Long-term debt 2,396,871 2,516,650
Long-term debt held by variable interest entities 1,447,015 2,003,941
Pension liability 302,483 282,085
Postretirement healthcare liability 268,582 254,762
Other long-term liabilities 140,339 152,654
Commitments and contingencies (Note 17)      
Shareholders' equity:
Series A Junior participating preferred stock, none issued      
Common stock, 339,107,230 and 338,260,456 shares issued in 2011 and 2010, respectively 3,391 3,382
Additional paid-in-capital 968,392 908,055
Retained earnings 6,824,180 6,336,077
Accumulated other comprehensive loss (476,733) (366,222)
Stockholders equity before treasury stock 7,319,230 6,881,292
Less: Treasury stock (108,566,699 and 102,739,587 shares in 2011 and 2010, respectively), at cost (4,898,974) (4,674,426)
Total shareholders' equity 2,420,256 2,206,866
Total liabilities and shareholders' equity $ 9,674,164 $ 9,430,740
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Consolidated Balance Sheets (Parenthetical)
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Preferred stock, shares issued 0 0
Common stock, shares issued 339,107,230 338,260,456
Treasury stock, shares 108,566,699 102,739,587
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Cash Flows [Abstract]
Net cash provided by operating activities of continuing operations (Note 2) $ 885,291 $ 1,163,418 $ 609,010
Cash flows from investing activities of continuing operations:
Capital expenditures (189,035) (170,845) (116,748)
Origination of finance receivables (2,622,024) (2,252,532) (1,378,226)
Collections on finance receivables 2,760,049 2,668,962 607,168
Collection of retained securitization interests 61,170
Purchases of marketable securities (142,653) (184,365) (39,685)
Sales and redemptions of marketable securities 130,121 84,217
Other, net 2,834
Net cash (used by) provided by investing activities of continuing operations (63,542) 145,437 (863,487)
Cash flows from financing activities of continuing operations:
Proceeds from issuance of medium term notes 447,076 496,514
Repayment of medium term notes (59,211) (200,000)
Proceeds from issuance of senior unsecured notes 595,026
Repayment of senior unsecured notes (380,757)
Proceeds from securitization debt 1,082,599 598,187 2,413,192
Repayments of securitization debt (1,754,568) (1,896,665) (263,083)
Net increase (decrease) in credit facilities and unsecured commercial paper 237,827 30,575 (1,083,331)
Net repayments in asset-backed commercial paper (483) (845) (513,168)
Net change in restricted cash 59,232 77,654 (167,667)
Dividends (111,011) (94,145) (93,807)
Purchase of common stock for treasury, net of issuances (224,548) (1,706) (1,920)
Excess tax benefits from share-based payments 6,303 3,767 170
Issuance of common stock under employee stock option plans 7,840 7,845 11
Net cash (used by) provided by financing activities of continuing operations (308,944) (1,856,090) 1,381,937
Effect of exchange rate changes on cash and cash equivalents of continuing operations (7,788) 4,940 6,789
Net increase (decrease) in cash and cash equivalents of continuing operations 505,017 (542,295) 1,134,249
Cash flows from discontinued operations:
Cash flows from operating activities of discontinued operations (71,073) (71,298)
Cash flows from investing activities of discontinued operations (18,805)
Effect of exchange rate changes on cash and cash equivalents of discontinued operations (1,195) (1,208)
Net cash used by discontinued operations, total (72,268) (91,311)
Net increase (decrease) in cash and cash equivalents 505,017 (614,563) 1,042,938
Cash and cash equivalents:
Cash and cash equivalents - beginning of period 1,021,933 1,630,433 568,894
Cash and cash equivalents of discontinued operations - beginning of period 6,063 24,664
Net increase (decrease) in cash and cash equivalents 505,017 (614,563) 1,042,938
Less: Cash and cash equivalents of discontinued operations - end of period (6,063)
Cash and cash equivalents - end of period $ 1,526,950 $ 1,021,933 $ 1,630,433
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Consolidated Statements Of Shareholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Balance [Member]
Total
Beginning Balance at Dec. 31, 2008 $ 3,357 $ 846,796 $ 6,458,778 $ (522,526) $ (4,670,802) $ 2,115,603
Beginning Balance, shares at Dec. 31, 2008 335,653,577
Comprehensive income:
Net income (loss) (55,116) (55,116)
Other comprehensive income (loss):
Foreign currency translation adjustment 30,932 30,932
Amortization of net prior service cost, net of taxes 2,679 2,679
Amortization of actuarial loss, net of taxes 11,761 11,761
Pension and post-retirement plan funded status adjustment, net of taxes 29,111 29,111
Pension and post-retirement plan settlement and curtailment, net of taxes 32,197 32,197
Change in net unrealized gains (losses):
Investment in retained securitization interests, net of taxes 13,600 13,600
Derivative financial instruments, net of tax benefit (1,239) (1,239)
Comprehensive income 63,925
Adjustment to apply measurement date provisions of FSP 115-2, net of taxes 14,413 (14,413)
Dividends (93,807) (93,807)
Repurchase of common stock (1,920) (1,920)
Share-based compensation and 401(k) match made with Treasury shares 27,363 2 27,365
Issuance of nonvested stock (in shares) 1,147,393
Issuance of nonvested stock 11 (11)
Tax benefit of stock options and nonvested stock (3,048) (3,048)
Ending Balance at Dec. 31, 2009 3,368 871,100 6,324,268 (417,898) (4,672,720) 2,108,118
Ending Balance, shares at Dec. 31, 2009 336,800,970
Comprehensive income:
Net income (loss) 146,545 146,545
Other comprehensive income (loss):
Foreign currency translation adjustment 9,449 9,449
Amortization of net prior service cost, net of taxes 925 925
Amortization of actuarial loss, net of taxes 20,944 20,944
Pension and post-retirement plan funded status adjustment, net of taxes 18,431 18,431
Pension and post-retirement plan settlement and curtailment, net of taxes 1,549 1,549
Change in net unrealized gains (losses):
Derivative financial instruments, net of tax benefit (2,972) (2,972)
Marketable securities, net of tax benefit (133) (133)
Comprehensive income 194,738
Adjustment for consolidation of QSPEs under ASC Topics 810 and 860 (40,591) 3,483 (37,108)
Dividends (94,145) (94,145)
Repurchase of common stock (1,706) (1,706)
Share-based compensation and 401(k) match made with Treasury shares 26,961 26,961
Issuance of nonvested stock (in shares) 823,594
Issuance of nonvested stock 8 (8)
Exercise of stock options 6 7,839 7,845
Exercise of stock options (in shares) 635,892
Tax benefit of stock options and nonvested stock 2,163 2,163
Ending Balance at Dec. 31, 2010 3,382 908,055 6,336,077 (366,222) (4,674,426) 2,206,866
Ending Balance, shares at Dec. 31, 2010 338,260,456
Comprehensive income:
Net income (loss) 599,114 599,114
Other comprehensive income (loss):
Foreign currency translation adjustment (5,616) (5,616)
Amortization of net prior service cost, net of taxes (564) (564)
Amortization of actuarial loss, net of taxes 23,584 23,584
Pension and post-retirement plan funded status adjustment, net of taxes (146,768) (146,768)
Pension and post-retirement plan settlement and curtailment, net of taxes 174 174
Change in net unrealized gains (losses):
Derivative financial instruments, net of tax benefit 18,219 18,219
Marketable securities, net of tax benefit 460 460
Comprehensive income 488,603
Dividends (111,011) (111,011)
Repurchase of common stock (224,551) (224,551)
Share-based compensation and 401(k) match made with Treasury shares 49,993 3 49,996
Issuance of nonvested stock (in shares) 473,240
Issuance of nonvested stock 5 (5)
Exercise of stock options 4 7,836 7,840
Exercise of stock options (in shares) 373,534 374,000
Tax benefit of stock options and nonvested stock 2,513 2,513
Ending Balance at Dec. 31, 2011 $ 3,391 $ 968,392 $ 6,824,180 $ (476,733) $ (4,898,974) $ 2,420,256
Ending Balance, shares at Dec. 31, 2011 339,107,230
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Consolidated Statements Of Shareholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Shareholders' Equity [Abstract]
Amortization of net prior service cost, taxes $ 332 $ (544) $ (1,576)
Amortization of actuarial loss, taxes (13,875) (12,322) (6,919)
Pension and post-retirement plan funded status adjustment, taxes 86,345 (7,056) (17,126)
Pension and post-retirement plan settlement and curtailment, taxes (102) (911) (18,942)
Investment in retained securitization interests, tax (expense) benefit (7,619)
Derivative financial instruments, tax (expense) benefit (10,645) 1,761 1,184
Marketable securities, tax (271) 78
Adjustment to apply measurement date provisions of FSP 115-2, taxes $ (8,108)
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Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]
Summary Of Significant Accounting Policies

1.     Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation – 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 transactions are eliminated.

All of the Company's subsidiaries are wholly owned and are included in the consolidated financial statements. Substantially all of the Company's international subsidiaries use their respective local currency as their functional currency. Assets and liabilities of international subsidiaries have been translated at period-end exchange rates, and income and expenses have been translated using average exchange rates for the period.

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

On October 15, 2009, the Company announced its intent to divest MV Agusta (MV) and completed the sale of MV on August 6, 2010. MV is presented as a discontinued operation for all periods.

 

Use of Estimates – The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents – The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable – The Company's motorcycles and related products are sold to independent dealers and distributors outside the U.S. and Canada generally on open account and the resulting receivables are included in accounts receivable in the Company's Consolidated Balance Sheets. The allowance for doubtful accounts deducted from total accounts receivable was $5.0 million and $10.4 million as of December 31, 2011 and 2010, respectively. Accounts receivable are written down once management determines that the specific customer does not have the ability to repay the balance in full. The Company's sales of motorcycles and related products in the U.S. and Canada are financed by the purchasing dealers or distributors through HDFS and the related receivables are included in finance receivables in 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 totaling $215.2 million at December 31, 2011 and $153.4 million at December 31, 2010 are valued at the lower of cost or market using the first-in, first-out (FIFO) method.

 

Goodwill – Goodwill represents the excess of acquisition cost over the fair value of the net assets purchased. Goodwill is tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment test involves comparing the estimated fair value of the reporting unit associated with the goodwill to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, goodwill must be adjusted to its implied fair value. During 2011 and 2010, the Company tested its goodwill balances for impairment and no adjustments were recorded to goodwill as a result of those reviews. See Note 5 for a discussion of the Company's 2009 goodwill impairment.

Motorcycles and Related Products Revenue Recognition – Sales are recorded when products are shipped to wholesale customers (independent dealers and distributors) and ownership is transferred. The Company may offer sales incentive programs to both wholesale and retail customers designed to promote the sale of motorcycles and related products. The total costs of these programs are generally recognized as revenue reductions and are accrued at the later of the date the related sales are recorded or the date the incentive program is both approved and communicated.

Research and Development Expenses – Expenditures for research activities relating to product development and improvement are charged against income as incurred and included within selling, administrative and engineering expenses in the consolidated statement of operations. Research and development expenses were $145.4 million, $136.2 million and $143.1 million for 2011, 2010 and 2009, respectively.

Advertising Costs – The Company expenses the production cost of advertising the first time the advertising takes place. Advertising costs relate to the Company's efforts to promote its products and brands through the use of media. During 2011, 2010 and 2009, the Company incurred $82.3 million, $75.8 million and $80.2 million in advertising costs, respectively.

 

Shipping and Handling Costs – The Company classifies shipping and handling costs as a component of cost of goods sold.

Share-Based Award Compensation Costs – The Company recognizes the cost of its share-based awards in its statement of operations. The total cost of the Company's equity awards is equal to their grant date fair value and is recognized as expense on a straight-line basis over the service periods of the awards. The total cost of the Company's liability for cash-settled awards is equal to their settlement date fair value. The liability for cash-settled awards is revalued each period based on a recalculated fair value adjusted for vested awards. Total share-based award compensation expense recognized by the Company during 2011, 2010 and 2009 was $38.2 million, $30.4 million and $17.6 million, respectively, or $24.0 million, $19.2 million and $11.0 million net of taxes, respectively.

Income Tax Expense – The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.

New Accounting Standards

Accounting Standards Not Yet Adopted

In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." ASU No. 2011-04 clarifies the application of existing guidance within ASC Topic 820, "Fair Value Measurement" to ensure consistency between U.S. GAAP and International Financial Reporting Standards (IFRS). ASU No. 2011-04 also requires new disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements and also requires new disclosures around transfers into and out of Levels 1 and 2 in the fair value hierarchy. The Company is required to adopt ASU No. 2011-04 beginning in the first quarter of 2012, and the adoption of ASU No. 2011-04 will only impact the content of the current disclosure.

In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income." ASU No. 2011-05 amends the guidance within ASC Topic 220, "Comprehensive Income," to eliminate the option to present the components of other comprehensive income as part of the statement of shareholders' equity. ASU No. 2011-05 requires that all nonowner changes in shareholders' equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company is required to adopt ASU No. 2011-05 beginning in the first quarter of 2012, and the adoption of ASU No. 2011-05 will only impact the format of the current presentation.

Accounting Standards Recently Adopted

In April 2011, the FASB issued ASU No. 2011-02, "A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring." ASU No. 2011-02 amends the guidance within ASC Topic 310, "Receivables," to clarify how creditors determine when a restructuring constitutes a troubled debt restructuring. In addition, ASU No. 2011-02 clarifies the guidance on a creditor's evaluation of whether a debtor is experiencing financial difficulties even though the debtor may not be in payment default. The Company adopted ASU No. 2011-02 beginning June 27, 2011. Refer to Note 6 for further information regarding the Company's identification and disclosure of any troubled debt restructurings.

In July 2010, the FASB issued ASU No. 2010-20, "Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses." ASU No. 2010-20 amends the guidance with ASC Topic 310, "Receivables" to facilitate financial statement users' evaluation of (1) the nature of credit risk inherent in the entity's portfolio of financing receivables; (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) the changes and reasons for those changes in the allowance for credit losses. The amendments in ASU No. 2010-20 also require an entity to provide additional disclosures such as a rollforward schedule of the allowance for credit losses on a portfolio segment basis, credit quality indicators of financing receivables and the aging of past due financing receivables. The Company adopted the majority of ASU No. 2010-20 as of December 31, 2010 with the remainder as of January 1, 2011; please refer to Note 6 for further discussion.

Consolidation of Off-Balance Sheet Special Purpose Entities

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 166, "Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140." SFAS No. 166 amended the guidance within ASC Topic 860, "Transfers and Servicing," primarily by removing the concept of a qualifying special purpose entity as well as removing the exception from applying FASB Interpretation No. 46(R), "Consolidation of Variable Interest Entities." Upon the effective adoption date, former QSPEs as defined under prior U.S. GAAP had to be evaluated for consolidation within an entity's financial statements. Additionally, the guidance within ASC Topic 860 requires enhanced disclosures about the transfer of financial assets as well as an entity's continuing involvement, if any, in transferred financial assets. In connection with term asset-backed securitization transactions prior to 2009, HDFS utilized QSPEs as defined under prior U.S. GAAP which were not subject to consolidation in the Company's financial statements.

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)." SFAS No. 167 amended the guidance within ASC Topic 810, "Consolidations," by adding formerly off-balance sheet QSPEs to its scope (the concept of these entities was eliminated by SFAS No. 166). In addition, companies must perform an analysis to determine whether the company's variable interest or interests give it a controlling financial interest in a variable interest entity (VIE). Companies must also reassess on an ongoing basis whether they are the primary beneficiary of a VIE.

Effects of Adoption on January 1, 2010

The Company was required to adopt the new guidance within ASC Topic 810 and ASC Topic 860 as of January 1, 2010. The Company determined that the formerly unconsolidated QSPEs that HDFS utilized were VIEs, of which the Company was the primary beneficiary, and consolidated them into the Company's financial statements beginning January 1, 2010. In accordance with ASC Topic 810, the Company measured the initial carrying values of the assets and liabilities of the VIEs by determining what those values would have been on January 1, 2010 as if the new guidance had been in effect when the Company first met the conditions as the primary beneficiary. The adoption of ASC Topic 860 resulted in a decrease to retained earnings of $40.6 million and a reduction of accumulated other comprehensive loss of $3.5 million. The Company's VIEs are discussed in further detail in Note 7.

Financial Statement Comparability to Prior Periods

The new accounting guidance within ASC Topic 810 and ASC Topic 860 was adopted on a prospective basis. Periods prior to 2010 have not been restated and therefore will not be comparable to 2010 and 2011 as discussed below.

Under the new accounting guidance, the Company's securitization transactions are considered secured borrowings rather than asset sales. Beginning in 2010, the Company recognizes interest income and credit losses on the previously unconsolidated securitized receivables and interest expense on the related debt. The Company's statement of operations no longer includes income from securitizations which consisted of an initial gain or loss on new securitization transactions, income on the investment in retained securitization interests and servicer fees. In addition, the Company no longer incurs charges related to other-than-temporary impairments on its investment in retained securitization interests as that asset has been derecognized.

Historically, U.S. retail motorcycle finance receivables intended for securitization through off-balance sheet securitization transactions were initially classified as finance receivables held for sale. Accordingly, all of the related cash flows were classified as operating cash flows in the statement of cash flows. After the adoption of the new guidance within ASC Topic 810 and ASC Topic 860, all retail finance receivables are considered held for investment, as the Company has the intent and ability to hold the finance receivables for the foreseeable future, or until maturity. The adoption guidance within ASC Topic 810 and ASC Topic 860 requires the Company to apply the standards on a prospective basis as if they had always been in effect. Therefore, the Company has classified post-January 1, 2010 cash flows related to all of its retail motorcycle finance receivables as investing cash flows in the statement of cash flows.

 

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Additional Balance Sheet And Cash Flow Information
12 Months Ended
Dec. 31, 2011
Additional Balance Sheet And Cash Flow Information [Abstract]
Additional Balance Sheet And Cash Flow Information

2.    Additional Balance Sheet and Cash Flow Information

The following information represents additional detail for selected line items included in the consolidated balance sheets at December 31 and the statements of cash flows for the years ended December 31.

Balance Sheet Information:

Inventories, net (in thousands):

 

     2011     2010  

Components at the lower of FIFO cost or market

    

Raw materials and work in process

   $ 113,932      $ 100,082   

Motorcycle finished goods

     226,261        158,425   

Parts and accessories and general merchandise

     121,340        101,975   
  

 

 

   

 

 

 

Inventory at lower of FIFO cost or market

     461,533        360,482   

Excess of FIFO over LIFO cost

     (43,527     (34,036
  

 

 

   

 

 

 
   $ 418,006      $ 326,446   
  

 

 

   

 

 

 

Inventory obsolescence reserves deducted from FIFO cost were $24.8 million and $34.2 million as of December 31, 2011 and 2010, respectively.

Property, plant and equipment, at cost (in thousands):

 

     2011     2010  

Land and related improvements

   $ 59,995      $ 59,613   

Buildings and related improvements

     466,652        477,935   

Machinery and equipment

     1,920,485        2,068,842   

Construction in progress

     158,237        165,548   
  

 

 

   

 

 

 
     2,605,369        2,771,938   

Accumulated depreciation

     (1,795,910     (1,956,826
  

 

 

   

 

 

 
   $ 809,459      $ 815,112   
  

 

 

   

 

 

 

Accrued liabilities (in thousands):

 

     2011      2010  

Payroll, employee benefits and related expenses

   $ 226,381       $ 199,408   

Restructuring reserves

     43,310         35,234   

Warranty and recalls

     54,994         54,134   

Sales incentive programs

     41,448         35,762   

Tax-related accruals

     57,706         63,115   

Fair value of derivative financial instruments

     5,136         20,083   

Other

     135,197         148,935   
  

 

 

    

 

 

 
   $ 564,172       $ 556,671   
  

 

 

    

 

 

 

 

Components of accumulated other comprehensive loss, net of tax (in thousands):

 

     2011     2010  

Cumulative foreign currency translation adjustment

   $ 49,935      $ 55,551   

Unrealized net loss on derivative financial instruments

     6,307        (11,912

Unrealized net loss on marketable securities

     327        (133

Unrecognized pension and postretirement healthcare liabilities

     (533,302     (409,728
  

 

 

   

 

 

 
   $ (476,733   $ (366,222
  

 

 

   

 

 

 

Cash Flow Information:

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

 

     2011     2010     2009  

Cash flows from operating activities:

      

Net income (loss)

   $ 599,114      $ 146,545      $ (55,116

Income (loss) from discontinued operations

     51,036        (113,124     (125,757
  

 

 

   

 

 

   

 

 

 

Income from continuing operations

     548,078        259,669        70,641   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

      

Depreciation

     180,408        255,171        246,344   

Amortization of deferred loan origination costs

     78,695        87,223        66,779   

Amortization of financing origination fees

     10,790        19,618        27,145   

Provision for employee long-term benefits

     59,441        79,630        80,387   

Contributions to pension and postretirement plans

     (219,695     (39,391     (233,224

Stock compensation expense

     38,192        30,431        17,576   

Net change in wholesale finance receivables related to sales

     (2,335     81,527        332,167   

Origination of retail finance receivables held for sale

     —          —          (1,180,467

Collections on retail finance receivables held for sale

     —          —          919,201   

Impairment of retained securitization interests

     —          —          45,370   

Lower of cost or fair market value adjustment on finance receivables held for sale

     —          —          5,895   

Provision for credit losses

     17,031        93,118        169,206   

Loss on debt extinguishment

     9,608        85,247        —     

Pension and postretirement healthcare plan curtailment and settlement expense

     236        31,824        37,814   

Goodwill and other impairments

     —          —          46,411   

Deferred income taxes

     87,873        (17,591     6,931   

Foreign currency adjustments

     10,678        (21,480     (22,234

Other, net

     (15,807     11,910        9,665   

Changes in current assets and liabilities:

      

Accounts receivable, net

     43,050        2,905        8,809   

Finance receivables – accrued interest and other

     5,027        10,083        (3,360

Inventories

     (94,957     2,516        85,472   

Accounts payable and accrued liabilities

     120,291        215,013        (201,195

Restructuring reserves

     8,072        (32,477     65,988   

Derivative instruments

     (2,488     5,339        4,711   

Other

     3,103        3,133        2,978   
  

 

 

   

 

 

   

 

 

 

Total adjustments

     337,213        903,749        538,369   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities of continuing operations

   $ 885,291      $ 1,163,418      $ 609,010   
  

 

 

   

 

 

   

 

 

 

 

Cash paid during the period for interest and income taxes (in thousands):

 

     2011      2010      2009  

Interest

   $ 251,341       $ 346,855       $ 336,453   

Income taxes

   $ 84,984       $ 47,084       $ 123,232   

Interest paid represents interest payments of HDFS (included in financial services interest expense) and interest payments of the Company (included in interest expense).

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Discontinued Operations
12 Months Ended
Dec. 31, 2011
Discontinued Operations [Abstract]
Discontinued Operations

3.    Discontinued Operations

In October 2009, the Company unveiled a new business strategy to drive growth through a focus of efforts and resources on the unique strengths of the Harley-Davidson brand and to enhance productivity and profitability through continuous improvement. The Company's Board of Directors approved and the Company committed to the divestiture of MV as part of this strategy. The Company engaged a third party investment bank to assist with the marketing and sale of MV. During 2009, the Company recorded pre-tax impairment charges of $115.4 million related to MV.

At each subsequent reporting date in 2010 through the date of sale, the fair value less selling costs was re-assessed and additional impairment charges totaling $111.8 million were recognized in 2010. As the effort to sell MV progressed into 2010, adverse factors led to decreases in the fair value of MV. During 2010, challenging economic conditions continued to persist, negatively impacting the appetite of prospective buyers and the motorcycle industry as a whole. Information coming directly from the selling process, including discussions with the prospective buyers, indicated a fair value that was less than previously estimated.

On August 6, 2010, the Company concluded its sale of MV to MV Augusta Motor Holding S.r.l., a company controlled by the former owner of MV. Under the agreement relating to the sale, (1) the Company received nominal consideration in return for the transfer of MV and related assets; (2) the parties waived their respective rights under the stock purchase agreement and other documents related to the Company's purchase of MV in 2008, which included a waiver of the former owner's right to contingent earn-out consideration; and (3) the Company contributed 20.0 million Euros to MV as operating capital. The 20.0 million Euros contributed were factored into the Company's estimate of MV's fair value prior to the sale and was recognized in the 2010 impairment charges discussed above. As a result of the impairment charges recorded prior to the sale, the Company only incurred an immaterial loss on the date of sale, which was included in the loss from discontinued operations, net of tax, during the year ended December 31, 2010.

The following table summarizes the net revenue, pre-tax loss, net income (loss) and earnings (loss) per common share from discontinued operations for the following years ended December 31 (in thousands except per share amounts):

 

     2011     2010     2009  

Revenue

   $ —        $ 48,563      $ 56,729   

Loss before income taxes

   $ (407   $ (131,034   $ (165,383

Net income (loss)

   $ 51,036      $ (113,124   $ (125,757

Earnings (loss) per common share

   $ 0.22      $ (0.48   $ (0.54

During 2011, the Company recognized a $51.0 million benefit on income from discontinued operations, driven by the reversal of tax amounts reserved in prior years related to the divestiture of the Company's MV Agusta subsidiaries. The amounts had been reserved pending resolution with the IRS, which was finalized in 2011, on the tax treatment of the transaction.

During 2010, the Company incurred a $131.0 million pre-tax loss from discontinued operations, or $113.1 million net of tax. Included in the 2010 operating loss were impairment charges of $111.8 million, or $90.2 million net of tax, which represented the excess of net book value of the held-for-sale assets over the fair value less selling costs. The impairment charges consisted of $32.3 million accounts receivable valuation allowance; $25.2 million inventory valuation allowance; $26.9 million fixed asset impairment; $15.8 million intangible asset impairment; $2.6 million other asset valuation allowance; and $9.0 million of currency translation adjustment. As a result of these impairment charges, the Company only incurred an immaterial loss on the date of sale, which is included in loss from discontinued operations, net of tax, during the year ended December 31, 2010.

During 2009, the Company recorded an impairment charge of $115.4 million which represented the excess of net book value of the held-for sale assets over the fair value less selling costs. The impairment charge is included in loss from discontinued operations and consisted of $85.5 million goodwill impairment, $19.8 million fixed asset impairment and $10.1 million intangible asset impairment.

The effective tax rate for discontinued operations during 2010 and 2009 was 13.7% and 24.0%, respectively. At December 31, 2010, the Company had a reserve of $43.5 million related to uncertain tax benefits associated with discontinued operations that was included within accrued liabilities. At December 31, 2009, the reserve related to uncertain tax benefits associated with discontinued operations amount was $26.0 million.

As of August 6, 2010, assets of discontinued operations that were sold consisted of $0.6 million of accounts receivable, net; $3.6 million of inventories; and $14.3 million of other assets. As of August 6, 2010, liabilities of discontinued operations that were sold consisted $41.7 million of accounts payable and accrued liabilities and $16.6 million of other liabilities.

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Restructuring Expense and Other Impairments
12 Months Ended
Dec. 31, 2011
Restructuring Expense And Other Impairments [Abstract]
Restructuring Expense and Other Impairments

4.    Restructuring Expense and Other Impairments

2011 Restructuring Plans

In December 2011, the Company made a decision to cease operations at New Castalloy, its Australian subsidiary and producer of cast motorcycle wheels and wheel hubs, and source those components through other existing suppliers (2011 New Castalloy Restructuring Plan). The Company expects the transition of supply from New Castalloy to be complete by mid-2013. The decision to close New Castalloy comes as part of the Company's overall long term strategy to develop world-class manufacturing capability throughout the Company by restructuring and consolidating operations for greater competitiveness, efficiency and flexibility. In connection with this decision, the Company will reduce its workforce by approximately 200 employees by mid-2013.

Under the 2011 New Castalloy Restructuring Plan restructuring expenses consist of employee severance and termination costs, accelerated depreciation and other related costs. The Company expects to incur about $30 million in restructuring charges related to the transition through 2012. Approximately 35 percent of the $30 million will be non-cash charges. During 2011, the Company recorded a $9.4 million restructuring charge related to the 2011 New Castalloy Restructuring Plan.

In February 2011, the Company's unionized employees at its facility in Kansas City, Missouri ratified a new seven-year labor agreement. The new agreement took effect on August 1, 2011. The new contract is similar to the labor agreements ratified at the Company's Wisconsin facilities in September 2010 and its York, Pennsylvania facility in December 2009, and allows for similar flexibility and increased production efficiency. Once the new contract is implemented, the production system in Kansas City, like Wisconsin and York, will include the addition of a flexible workforce component.

After taking actions to implement the new ratified labor agreement (2011 Kansas City Restructuring Plan), the Company expects to have about 145 fewer full-time hourly unionized employees in its Kansas City facility than would be required under the existing contract.

 

Under the 2011 Kansas City Restructuring Plan, restructuring expenses consist of employee severance and termination costs and other related costs. The Company expects to incur approximately $15 million in restructuring expenses related to the new contract through 2012, of which approximately 10% are expected to be non-cash. During 2011, the Company recorded an $8.8 million restructuring charge related to the 2011 Kansas City Restructuring Plan.

The following table summarizes the Motorcycle Segment's 2011 Kansas City Restructuring Plan and 2011 New Castalloy Restructuring Plan reserve activity and balances as recorded in accrued liabilities for the year ended December 31 (in thousands):

 

    2011  
    Kansas City     New Castalloy     Consolidated  
    Employee
Severance  and
Termination
Costs
    Other     Total     Employee
Severance  and
Termination
Costs
    Accelerated
Depreciation
    Other     Total     Total  
               
               
               

Restructuring expense

    8,447        342        8,789        8,428        656        305        9,389        18,178   

Utilized – cash

    (4,088     (342     (4,430     —          —          —          —          (4,430

Utilized – noncash

    (236     —          (236     —          (656     —          (656     (892
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 4,123      $ —        $ 4,123      $ 8,428      $ —        $ 305      $ 8,733      $ 12,856   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2010 Restructuring Plan

In September 2010, the Company's unionized employees in Wisconsin ratified three separate new seven-year labor agreements which take effect in April 2012 when the current contracts expire. The new contracts are similar to the labor agreement ratified at the Company's York, Pennsylvania facility in December 2009 and allow for similar flexibility and increased production efficiency. Once the new contracts are implemented, the production system in Wisconsin, like York, will include the addition of a flexible workforce component.

Based on the new ratified labor agreements, the Company expects to have about 250 fewer full-time hourly unionized employees in its Milwaukee-area facilities when the contracts are implemented in 2012 than would be required under the existing contract. In Tomahawk, the Company expects to have about 75 fewer full-time hourly unionized employees when the contract is implemented than would be required under the current contract.

Under the 2010 Restructuring Plan, restructuring expenses consist of employee severance and termination costs and other related costs. The Company expects to incur approximately $67 million in restructuring expenses related to the new contracts through 2012, of which approximately 42% are expected to be non-cash. On a cumulative basis, the Company has incurred $57.0 million of restructuring and impairment expense under the 2010 Restructuring Plan as of December 31, 2011, of which $12.6 million was incurred during the year ended December 31, 2011.

The following table summarizes the Motorcycle Segment's 2010 Restructuring Plan reserve activity and balances as recorded in accrued liabilities for the following years ended December 31 (in thousands):

 

     2011     2010  
     Employee
Severance  and
Termination Costs
    Employee
Severance  and
Termination Costs
 
    
    

Balance, beginning of period

   $ 8,652      $ —     

Restructuring expense

     12,575        44,383   

Utilized – cash

     (866     (7,557

Utilized – noncash

     —          (28,174
  

 

 

   

 

 

 

Balance, end of period

   $ 20,361      $ 8,652   
  

 

 

   

 

 

 

 

For the year ended December 31, 2010, restructuring expense included $28.2 million of noncash curtailment losses related to the Company's pension and postretirement healthcare plans that cover employees of the affected facilities in Milwaukee and Tomahawk, Wisconsin.

2009 Restructuring Plan

During 2009, in response to the U.S. economic recession and worldwide slowdown in consumer demand, the Company committed to a volume reduction and a combination of restructuring actions that are expected to be completed at various dates between 2009 and 2012. The actions were designed to reduce administrative costs, eliminate excess capacity and exit non-core business operations. The Company's significant announced actions include the restructuring and transformation of its York, Pennsylvania production facility including the implementation of a new more flexible unionized labor agreement; consolidation of facilities related to engine and transmission production; outsourcing of certain distribution and transportation activities and exiting the Buell product line.

The 2009 restructuring plans included a reduction of approximately 2,700 to 2,900 hourly production positions and approximately 720 non-production, primarily salaried positions within the Motorcycles segment and approximately 100 salaried positions in the Financial Services segment.

Under the 2009 Restructuring Plan, restructuring expenses consist of employee severance and termination costs, accelerated depreciation on the long-lived assets that will be exited as part of the 2009 Restructuring Plan and other related costs. The Company expects total costs related to the 2009 Restructuring Plan to result in restructuring and impairment expenses of approximately $388 million to $408 million from 2009 to 2012, of which approximately 30% are expected to be non-cash. On a cumulative basis, the Company has incurred $380.6 million of restructuring and impairment expense under the 2009 Restructuring Plan as of December 31, 2011, of which $37.2 million was incurred during the year ended December 31, 2011. Approximately 3,600 employees have left the Company under the 2009 Restructuring Plan as of December 31, 2011.

 

The following tables summarize the Company's 2009 Restructuring Plan reserve activity and balances as recorded in accrued liabilities for the following years ended December 31 (in thousands):

 

    2011  
  Motorcycles & Related Products     Financial Services     Consolidated  
  Employee
Severance

and
Termination
Costs
    Accelerated
Depreciation
    Asset
Impairment
    Other     Total     Employee
Severance

and
Termination
Costs
    Other     Total     Total  

Balance, beginning of period

  $ 23,818      $ —        $ —        $ 2,764      $ 26,582      $ —        $ —        $ —        $ 26,582   

Restructuring expense

    5,062        —          —          34,470        39,532        —          —          —          39,532   

Utilized – cash

    (16,498     —          —          (37,234     (53,732     —          —          —          (53,732

Utilized – noncash

    —          —          —          —          —          —          —          —          —     

Noncash reserve release

    (2,293           (2,293           (2,293
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 10,089      $ —        $ —        $ —        $ 10,089      $ —        $ —        $ —        $ 10,089   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    2010  
    Motorcycles & Related Products     Financial Services     Consolidated  
  Employee
Severance
and
Termination
Costs
    Accelerated
Depreciation
    Asset
Impairment
    Other     Total     Employee
Severance
and
Termination
Costs
    Other     Total     Consolidated
Total
 

Balance, beginning of period

  $ 36,070      $ —        $ —        $ 31,422      $ 67,492      $ 219      $ —        $ 219      $ 67,711   

Restructuring expense

    31,119        47,923        —          40,083        119,125        —          —          —          119,125   

Utilized – cash

    (44,394     —          —          (61,514     (105,908     (44     —          (44     (105,952

Utilized – noncash

    1,023        (47,923     —          (3,406     (50,306     (175     —          (175     (50,481

Noncash reserve release

    —          —          —          (3,821     (3,821     —          —          —          (3,821
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 23,818      $ —        $ —        $ 2,764      $ 26,582      $ —        $ —        $ —        $ 26,582   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    2009  
    Motorcycles & Related Products     Financial Services     Consolidated  
  Employee
Severance
and
Termination
Costs
    Accelerated
Depreciation
    Asset
Impairment
    Other     Total     Employee
Severance
and
Termination
Costs
    Other     Total     Consolidated
Total
 

Restructuring expense

  $ 103,769      $ 26,905      $ 18,024      $ 72,278      $ 220,976      $ 1,679      $ 1,623      $ 3,302      $ 224,278   

Utilized – cash

    (29,885     —          —          (40,856     (70,741     (1,460     (1,197     (2,657     (73,398

Utilized – noncash

    (37,814     (26,905     (18,024     —          (82,743     —          (426     (426     (83,169
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 36,070      $ —        $ —        $ 31,422      $ 67,492      $ 219      $ —        $ 219      $ 67,711   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                 

Other restructuring costs include items such as the exit costs for terminating supply contracts, lease termination costs and moving costs. During the fourth quarter of 2011, the Company released $2.3 million of its 2009 Restructuring Plan reserve related to employee severance costs as these costs are no longer expected to be incurred. In addition, the Company released $3.8 million of its 2009 Restructuring Plan reserve related to exiting the Buell product line during the fourth quarter of 2010, as these costs are no longer expected to be incurred.

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Goodwill
12 Months Ended
Dec. 31, 2011
Goodwill [Abstract]
Goodwill

5.    Goodwill

The following table summarizes changes in the carrying amount of goodwill in each of the Company's reporting segments for the following years ended December 31(in thousands):

 

     Motorcycles     Financial
Services
    Total  
      

Balance, December 31, 2008

   $ 31,291      $ 28,840      $ 60,131   

Impairment

     —          (28,387     (28,387

Currency translation

     609        —          609   

Other

     (500     (453     (953
  

 

 

   

 

 

   

 

 

 

Balance, December 31, 2009

   $ 31,400      $ —        $ 31,400   

Currency translation

     (1,810     —          (1,810
  

 

 

   

 

 

   

 

 

 

Balance, December 31, 2010

   $ 29,590      $ —        $ 29,590   

Currency translation

     (509     —          (509
  

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

   $ 29,081      $ —        $ 29,081   
  

 

 

   

 

 

   

 

 

 

As a result of the Company's lower retail sales volume projections and the decline in operating performance at HDFS during 2009 due to significant write-downs of its loan portfolio and investment in retained securitization interests, the Company performed an impairment test of the goodwill balance associated with HDFS as of June 28, 2009. The results of the impairment test indicated the current fair value of HDFS at that time had declined below its carrying value and as such the Company recorded a goodwill impairment charge of $28.4 million during 2009.

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Finance Receivables
12 Months Ended
Dec. 31, 2011
Finance Receivables [Abstract]
Finance Receivables

6.    Finance Receivables

Finance receivables, net at December 31 for the past five years were as follows (in thousands):

 

     2011     2010     2009     2008     2007  

Wholesale

          

United States

   $ 778,320      $ 735,481      $ 787,891      $ 1,074,377      $ 1,132,748   

Europe

     —          —          —          —          86,947   

Canada

     46,320        78,516        82,110        89,859        108,756   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total wholesale

     824,640        813,997        870,001        1,164,236        1,328,451   

Retail

          

United States

     4,858,781        5,126,699        3,835,235        514,637        485,579   

Canada

     228,709        250,462        256,658        226,084        228,850   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total retail

     5,087,490        5,377,161        4,091,893        740,721        714,429   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     5,912,130        6,191,158        4,961,894        1,904,957        2,042,880   

Allowance for credit losses

     (125,449     (173,589     (150,082     (40,068     (30,295
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     5,786,681        6,017,569        4,811,812        1,864,889        2,012,585   

Investment in retained securitization interests

     —          —          245,350        330,674        407,742   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 5,786,681      $ 6,017,569      $ 5,057,162      $ 2,195,563      $ 2,420,327   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Finance receivables held for sale at December 31 for the past five years were as follows (in thousands):

 

     2011      2010      2009      2008      2007  

Retail

              

United States

   $ —         $ —         $ —         $ 2,443,965       $ 781,280   

 

HDFS 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. Effective January 1, 2008, the finance receivables and related assets of the international wholesale operations located in Oxford, England were transferred at book value to Harley-Davidson Europe Ltd., a subsidiary of HDMC. Beginning in 2008, HDMC assumed responsibility for the collection of all wholesale receivables in Europe.

At December 31, 2011 and 2010, unused lines of credit extended to HDFS' wholesale finance customers totaled $909.9 million and $1.04 billion, respectively. Approved but unfunded retail finance loans totaled $139.3 million and $96.5 million at December 31, 2011 and 2010, respectively.

HDFS provides retail financial services to customers of the Company's independent dealers in the U.S. and Canada. The origination of retail loans is a separate and distinct transaction between HDFS and the retail customer, unrelated to the Company's sale of product to its dealers. Retail finance receivables consist of secured promissory notes and installment loans. HDFS holds either titles or liens on titles to vehicles financed by promissory notes and installment loans. As of December 31, 2011 and 2010, approximately 11% of gross outstanding finance receivables were originated in Texas.

During the second quarter of 2009, the Company reclassified $3.14 billion of finance receivables held for sale at the lower of cost or fair value to finance receivables held for investment due to the Company's intent to structure subsequent securitization transactions in a manner that did not qualify for accounting sale treatment under prior U.S. GAAP. As a result of the reclassification, the Company recorded a $72.7 million increase to the allowance for credit losses during the second quarter of 2009 in order to establish the initial reserve for the reclassified receivables. Included in finance receivables held for sale at December 31, 2008 is a lower of cost or market adjustment of $31.7 million. At December 31, 2011 and 2010, the Company's Consolidated Balance Sheet included finance receivables, net of $2.86 billion and $3.38 billion, respectively, which were restricted as collateral for the payment of debt held by VIEs and other related obligations as discussed in Note 8.

HDFS has cross-border outstandings in Canada which total $88.4 million, $88.7 million and $77.1 million as of December 31, 2011, 2010 and 2009, respectively.

Wholesale finance receivables are related primarily to motorcycles and related parts and accessories sales to independent Harley-Davidson dealers and are generally contractually due within one year. Retail finance receivables are primarily related to sales of motorcycles to the dealers' customers. On December 31, 2011, contractual maturities of finance receivables were as follows (in thousands):

 

     United States      Canada      Total  

2012

   $ 1,701,602       $ 89,131       $ 1,790,733   

2013

     1,005,315         46,158         1,051,473   

2014

     1,136,485         51,471         1,187,956   

2015

     1,284,797         57,395         1,342,192   

2015

     395,711         30,874         426,585   

Thereafter

     113,191         —           113,191   
  

 

 

    

 

 

    

 

 

 

Total

   $ 5,637,101       $ 275,029       $ 5,912,130   
  

 

 

    

 

 

    

 

 

 

As of December 31, 2011, all finance receivables due after one year were at fixed interest rates.

 

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

 

     2011  
   Retail     Wholesale     Total  

Balance, beginning of period

   $ 157,791      $ 15,798      $ 173,589   

Provision for finance credit losses

     23,054        (6,023     17,031   

Charge-offs

     (118,993     (503     (119,496

Recoveries

     54,260        65        54,325   
  

 

 

   

 

 

   

 

 

 

Balance, end of period(1)

   $ 116,112      $ 9,337      $ 125,449   
  

 

 

   

 

 

   

 

 

 

Changes in the allowance for finance credit losses on finance receivables for the years ended December 31 were as follows (in thousands):

 

     2010     2009  

Balance, beginning of period

   $ 150,082      $ 40,068   

Allowance related to newly consolidated finance receivables(1)

     49,424        —     

Provision for finance credit losses

     93,118        169,206   

Charge-offs, net of recoveries

     (119,035     (59,192
  

 

 

   

 

 

 

Balance, end of period

   $ 173,589      $ 150,082   
  

 

 

   

 

 

 

The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, at December 31, were as follows (in thousands):

 

     2011  
     Retail      Wholesale      Total  

Allowance for credit losses, ending balance:

        

Individually evaluated for impairment

   $ —         $ —         $ —     

Collectively evaluated for impairment

     116,112         9,337         125,449   
  

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 116,112       $ 9,337       $ 125,449   
  

 

 

    

 

 

    

 

 

 

Finance receivables, ending balance:

        

Individually evaluated for impairment

   $ —         $ —         $ —     

Collectively evaluated for impairment

     5,087,490         824,640         5,912,130   
  

 

 

    

 

 

    

 

 

 

Total finance receivables

   $ 5,087,490       $ 824,640       $ 5,912,130   
  

 

 

    

 

 

    

 

 

 
     2010  
     Retail      Wholesale      Total  

Allowance for credit losses, ending balance:

        

Individually evaluated for impairment

   $ —         $ 3,566       $ 3,566   

Collectively evaluated for impairment

     157,791         12,232         170,023   
  

 

 

    

 

 

    

 

 

 

Total allowance for credit losses

   $ 157,791       $ 15,798       $ 173,589   
  

 

 

    

 

 

    

 

 

 

Finance receivables, ending balance:

        

Individually evaluated for impairment

   $ —         $ 5,423       $ 5,423   

Collectively evaluated for impairment

     5,377,161         808,574         6,185,735   
  

 

 

    

 

 

    

 

 

 

Total finance receivables

   $ 5,377,161       $ 813,997       $ 6,191,158   
  

 

 

    

 

 

    

 

 

 

 

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 loan agreement. As retail finance receivables are collectively and not individually reviewed for impairment, this portfolio does not have specifically impaired finance receivables. A specific allowance is established for wholesale finance receivables determined to be individually impaired in accordance with the applicable accounting standards 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 agreements. The impairment is determined based on the cash that the Company expects to receive discounted at the loan's original interest rate and the fair value of the collateral, if the loan is collateral-dependent. In establishing the allowance, management considers a number of factors including the specific borrower's financial performance as well as ability to repay. At December 31, 2011, there are no wholesale finance receivables that are individually deemed to be impaired under ASC Topic 310, "Receivables". Additional information related to the wholesale finance receivables individually deemed to be impaired under ASC Topic 310 at December 31 includes (in thousands):

 

     2010  
            Unpaid             Average      Interest  
     Recorded      Principal      Related      Recorded      Income  
     Investment      Balance      Allowance      Investment      Recognized  

Wholesale:

              

No related allowance recorded

   $ —         $ —         $ —         $ —         $ —     

Related allowance recorded

     5,423         5,358         3,566         5,577         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired wholesale finance receivables

   $ 5,423       $ 5,358       $ 3,566       $ 5,577       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail finance receivables accrue interest until either collected or charged-off. Interest continues to accrue on past due wholesale finance receivables until the date the collection of the finance receivables becomes doubtful, at which time the finance receivable is placed on non-accrual status. The Company will resume accruing interest on these wholesale finance receivables when payments are current according to the terms of the loan agreements and future payments are reasonably assured. At December 31, 2011, there were no wholesale finance receivables on non-accrual status. The recorded investment of non-accrual status wholesale finance receivables at December 31, 2010 was $5.4 million.

An analysis of the aging of past due finance receivables, which includes non-accrual status finance receivables, at December 31 were as follows (in thousands):

 

The recorded investment of retail and wholesale finance receivables, which excludes non-accrual status finance receivables and are contractually past due 90 days or more at December 31 for the past five years were as follows (in thousands):

 

     2011      2010      2009      2008      2007  

United States

   $ 27,171       $ 34,391       $ 24,629       $ 23,678       $ 6,205   

Canada

     1,207         1,351         2,161         1,275         1,759   

Europe

     —           —           —           —           386   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 28,378       $ 35,742       $ 26,790       $ 24,953       $ 8,350   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2011, all finance receivables contractually past due 90 days or more are accruing interest. Included in the $35.7 million of finance receivables which are accruing interest and are contractually past due 90 or more days at December 31, 2010 are $34.1 million of retail finance receivables and $1.6 million of wholesale finance receivables.

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

HDFS manages retail credit risk through its credit approval policy and ongoing collection efforts. HDFS uses FICO scores 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 of retail finance receivables, by credit quality indicator, at December 31 were as follows (in thousands):

 

     2011      2010  

Prime

   $ 4,097,048       $ 4,303,050   

Sub-prime

     990,442         1,074,111   
  

 

 

    

 

 

 

Total

   $ 5,087,490       $ 5,377,161   
  

 

 

    

 

 

 

HDFS' 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. HDFS utilizes an internal credit risk rating system to manage credit risk exposure consistently across wholesale borrowers and capture credit risk factors for each borrower.

HDFS uses the following internal credit quality indicators, based on the Company's 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 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 of wholesale finance receivables, by internal credit quality indicator, at December 31 were as follows (in thousands):

 

     2011      2010  

Doubtful

   $ 13,048       $ 23,570   

Substandard

     5,052         7,139   

Special Mention

     14,361         18,330   

Medium risk

     3,032         16,766   

Low risk

     789,147         748,192   
  

 

 

    

 

 

 

Total

   $ 824,640       $ 813,997   
  

 

 

    

 

 

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Asset-Backed Financing
12 Months Ended
Dec. 31, 2011
Asset-Backed Financing [Abstract]
Asset-Backed Financing

7.    Asset-Backed Financing

Term 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.

In 2011, 2010 and 2009, HDFS transferred $1.21 billion, $670.8 million and $3.08 billion, respectively, of U.S. retail motorcycle finance receivables to seven separate SPEs. The SPEs in turn issued the following secured notes with the related maturity dates and interest rates (in thousands):

 

Issue Date

   Principal
Amount
     Weighted-Average
Rate at Date of
Issuance
   

Maturity Date

November 2011

   $ 513,300         0.88   November 2012- February 2018

August 2011

   $ 573,380         0.76   September 2012- August 2017

November 2010

   $ 600,000         1.05   December 2011- April 2018

December 2009

   $ 562,499         1.55   December 2010- June 2017

October 2009

   $ 700,000         1.16   October 2010- April 2017

July 2009

   $ 700,000         2.11   July 2010- February 2017

May 2009

   $ 500,000         2.77   May 2010- January 2017

As discussed in Note 1, the Company adopted new accounting guidance within ASC Topic 810 and ASC Topic 860 as of January 1, 2010 that ultimately required the Company to consolidate its formerly off-balance sheet QSPEs. As a result, the following secured notes, which were issued by the former QSPEs, are included in the Company's condensed consolidated balance sheets at December 31, 2011 (in thousands):

 

Issue Date

   Principal
Amount
     Weighted-Average
Rate at Date of
Issuance
   

Maturity Date

       

February 2008

   $ 486,000         3.94   February 2009- December 2013

August 2007

   $ 782,000         5.50   September 2008- May 2015

May 2007

   $ 950,000         5.20   May 2008- August 2015

Each term asset-backed securitization SPE is a separate legal entity and the U.S. retail motorcycle finance receivables included in the term asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the term asset-backed securitization transactions and are not available to pay other obligations or claims of the Company's creditors until the associated secured debt and other obligations are satisfied. Cash and cash equivalent 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 following table presents the assets and liabilities of the consolidated term asset-backed securitization SPEs at December 31 (in thousands):

 

     2011     2010  

Assets:

    

Finance receivables

   $ 2,916,219      $ 3,458,274   

Allowance for credit losses

     (65,735     (102,967

Restricted cash

     228,776        287,336   

Other assets

     6,772        11,630   
  

 

 

   

 

 

 

Total assets

   $ 3,086,032      $ 3,654,273   
  

 

 

   

 

 

 

Liabilities

    

Term asset-backed securitization debt

     2,087,346        2,755,234   

For the year ended December 31, 2011 and 2010, the SPEs recorded interest expense on the secured notes of $60.2 million and $106.3 million, respectively, which is included in financial services interest expense. The weighted average interest rate of the outstanding term asset-backed securitization transactions was 1.96% and 3.11% at December 31, 2011 and 2010, respectively.

Asset-Backed Commercial Paper Conduit Facility VIE

On September 9, 2011, the Company amended and restated its third-party bank sponsored asset-backed commercial paper conduit facility which provides for a total aggregate commitment of up to $600.0 million based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the SPE as collateral. The amended agreement has similar terms as the prior agreement and is for the same amount. Under the facility, HDFS may transfer U.S. retail motorcycle finance receivables to a SPE, which in turn may issue debt to third-party bank-sponsored asset-backed commercial paper conduits. 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 plus a specified margin to the extent the advance is not funded by a conduit lender through the issuance of commercial paper. The conduit facility also provides for an unused commitment fee based on the unused portion of the total aggregate commitment of $600.0 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 conduit facility, any outstanding principal will continue to be reduced monthly through available collections. Unless earlier terminated or extended by mutual agreement of HDFS and the lenders, the conduit facility has an expiration date of September 7, 2012.

The following table presents the assets of the consolidated asset-backed commercial paper conduit facility SPEs at December 31 (in thousands):

 

     2011     2010  

Finance receivables

   $ 13,455      $ 28,907   

Allowance for credit losses

     (302     (859

Restricted cash

     879        1,626   

Other assets

     449        937   
  

 

 

   

 

 

 

Total assets

   $ 14,481      $ 30,611   
  

 

 

   

 

 

 

The SPE had no borrowings outstanding under the conduit facility at December 31, 2011 or 2010; therefore, these assets are restricted as collateral for the payment of fees associated with the unused portion of the total aggregate commitment of $600.0 million.

 

For the years ended December 31, 2011 and 2010, the SPE recorded interest expense of $1.5 million and $9.3 million, respectively, related to the unused portion of the total aggregate commitment of $600.0 million. Interest expense on the conduit facility is included in financial services interest expense. There was no weighted average interest rate at December 31, 2011 or 2010 as HDFS had no outstanding borrowings under the conduit facility during 2011 or 2010.

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Off-Balance Sheet Finance Receivable Securitization Transactions
12 Months Ended
Dec. 31, 2011
Off-Balance Sheet Finance Receivable Securitization Transactions [Abstract]
Off-Balance Sheet Finance Receivable Securitization Transactions

8.    Off-Balance Sheet Finance Receivable Securitization Transactions

The following disclosures apply to the Company's term asset-backed securitization activities prior to 2009, when pre-2009 term asset-backed securitization transactions utilized off-balance sheet QSPEs that qualified for accounting sale treatment under prior U.S. GAAP. During 2009, the FASB issued new accounting guidance within ASC Topic 810 and ASC Topic 860 which ultimately required the Company to consolidate these formerly off-balance sheet QSPEs.

Prior to 2009, the Company sold retail motorcycle finance receivables through securitization transactions utilizing QSPEs. As part of these transactions, the Company retained an interest in excess cash flows, subordinated securities and cash reserve account deposits, collectively referred to as investment in retained securitization interests (a component of finance receivables in the Company's Consolidated Balance Sheets). The investment in retained securitization interests was recorded at fair value. Key assumptions in the valuation of the investment in retained securitization interests and in calculating the gain or loss on current year securitizations were credit losses, prepayments and discount rate.

On March 30, 2009, the Company adopted new guidance codified within ASC Topic 320 "Investments-Debt and Equity Securities" regarding the recognition and presentation of other-than-temporary impairments. In accordance with this guidance, if management has no intent to sell the other-than-temporarily impaired investment and it is more likely than not that it will not be required to sell, only the credit loss component of the impairment is recognized in earnings, while the rest of the impairment is recognized as an unrealized loss in other comprehensive income. The credit loss component recognized in earnings is identified as the amount of cash flows not expected to be received over the remaining life of the investment as projected using assumptions for credit losses, prepayments and discounts rates as discussed below.

During the nine months from the date of adoption to December 31, 2009, the Company recorded other-than-temporary impairments related to its investment in retained securitization interests. The impairments were due to higher actual and anticipated credit losses partially offset by a slowing in actual and expected prepayment speeds on certain securitization portfolios. As prescribed by the new guidance within ASC Topic 320, the Company recognized the credit component of the other-than-temporary impairment in earnings and the non-credit component in other comprehensive income as the Company did not intend to sell the investment and it was more likely than not that the Company would not be required to sell it prior to recovery of its cost basis. The components of the impairment were as follows for the nine months ended December 31 (in thousands):

 

     2009  

Total other-than-temporary impairment losses

   $ 22,240   

Portion of loss reclassified from other comprehensive income

     6,000   
  

 

 

 

Net impairment losses recognized in earnings

   $ 28,240   
  

 

 

 

 

The following activity only applied to other-than-temporary impairments on investment in retained securitization interests for which a component of the impairment was recognized in earnings and a component was recognized in other comprehensive income. The total credit component of other-than-temporary impairments recognized in earnings for all investment in retained securitization interests held as of December 31, 2009 was as follows for the nine months ended December 31 (in thousands):

 

Prior to March 30, 2009, if an impairment existed and management deemed it to be other-than-temporary, the entire impairment was recorded in the consolidated statements of operations. During the three months ended March 29, 2009, the Company recorded an other-than-temporary impairment charge of $17.1 million related to its investment in retained securitization interests which included both the credit and non-credit components.

Expected cumulative net credit losses were a key assumption in the valuation of the investment in retained securitization interests. As of December 31, 2009, weighted-average expected net credit losses for all active securitizations were 5.70%. The table below summarizes, as of December 31, 2009, expected weighted-average cumulative net credit losses by year of securitization, expressed as a percentage of the original balance of loans securitized for all securitizations completed during the years noted.

 

Expected weighted-average cumulative net credit losses (%) as of :

   2008     2007     2006  

December 31, 2009

     5.75     6.12     5.32

The following table provides information regarding certain cash flows received from and paid to all motorcycle loan securitization trusts during the year ended December 31 (in thousands):

 

     2009  

Proceeds from new securitizations

   $ —     

Servicing fees received

   $ 26,693   

Other cash flows received on retained interests

   $ 69,418   

10% clean-up call repurchase option

   $ (161,390 )
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Fair Value Of Financial Instruments
12 Months Ended
Dec. 31, 2011
Fair Value Of Financial Instruments [Abstract]
Fair Value Of Financial Instruments

9.     Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash and cash equivalents, marketable securities, trade receivables, finance receivables, net, trade payables, debt, foreign currency contracts and interest rate swaps (derivative instruments are discussed further in Note 11). Under U.S. GAAP certain of these items are required to be recorded in the financial statements at fair value, while others are required to be recorded at historical cost.

 

The following table summarizes the fair value and carrying value of the Company's financial instruments at December 31 (in thousands):

 

     2011      2010  
     Fair Value      Carrying Value      Fair Value      Carrying Value  

Assets:

           

Cash and cash equivalents

   $ 1,526,950       $ 1,526,950       $ 1,021,933       $ 1,021,933   

Marketable securities

   $ 153,380       $ 153,380       $ 140,118       $ 140,118   

Accounts receivable, net

   $ 219,039       $ 219,039       $ 262,382       $ 262,382   

Derivatives

   $ 16,443       $ 16,443       $ 37       $ 37   

Finance receivables, net

   $ 5,888,040       $ 5,786,681       $ 6,120,682       $ 6,017,569   

Restricted cash held by variable interest entities

   $ 229,655       $ 229,655       $ 288,887       $ 288,887   

Liabilities:

           

Accounts payable

   $ 255,713       $ 255,713       $ 225,346       $ 225,346   

Derivatives

   $ 5,136       $ 5,136       $ 20,083       $ 20,083   

Unsecured commercial paper

   $ 874,286       $ 874,286       $ 582,572       $ 582,572   

Credit facilities

   $ 159,794       $ 159,794       $ 213,772       $ 213,772   

Medium-term notes

   $ 2,561,458       $ 2,298,193       $ 2,018,429       $ 1,897,778   

Senior unsecured notes

   $ 376,513       $ 303,000       $ 395,384       $ 303,000   

Term asset-backed securitization debt

   $ 2,099,060       $ 2,087,346       $ 2,805,954       $ 2,755,234   

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Net and Accounts Payable – With the exception of certain money-market investments, these items are recorded in the financial statements at 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.

Marketable Securities – Marketable securities are recorded in the financial statements at fair value. The fair value of marketable securities is based primarily on quoted market prices. Changes in fair value are recorded, net of tax, as other comprehensive income and included as a component of shareholders' equity.

Finance Receivables, Net – Finance receivables, net includes finance receivables, net and restricted finance receivables held by VIEs, net. Retail and wholesale finance receivables are recorded in the financial statements at historical cost less an allowance for finance 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. The historical 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 – Interest rate swaps and foreign currency exchange contracts are derivative financial instruments and are carried at fair value on the balance sheet. The fair value of interest rate swaps is determined using pricing models that incorporate quoted prices for similar assets and observable inputs such as interest rates and yield curves. The fair value of foreign currency exchange contracts is determined using publicly quoted spot and forward prices.

Debt – Debt is generally recorded in the financial statements at historical cost. The carrying value of debt provided under credit facilities approximates fair value since the interest rates charged under the facilities are tied directly to market rates and fluctuate as market rates change. The carrying value of unsecured commercial paper approximates fair value due to its short maturity.

The fair values of the medium-term notes are estimated based upon rates currently available for debt with similar terms and maturities.

 

The fair value of the senior unsecured notes is estimated based upon rates currently available for debt with similar terms and remaining maturities.

The fair value of the debt related to term asset-backed securitization transactions is estimated based on pricing currently available for transactions with similar terms and maturities.

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Fair Value Measurements
12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]
Fair Value Measurements
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Derivative Instruments And Hedging Activities
12 Months Ended
Dec. 31, 2011
Derivative Instruments And Hedging Activities [Abstract]
Derivative Instruments And Hedging Activities

11.     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 9). In accordance with ASC Topic 815, 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, at both 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 which 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's most significant foreign currency risk relates to the Euro, the Australian dollar and the Japanese yen. The Company utilizes foreign currency contracts to mitigate the effect of these currencies' fluctuations on earnings. The foreign currency contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate.

The Company utilizes natural gas contracts to hedge portions of the cost of natural gas consumed in the Company's motorcycle production operations.

The Company's foreign currency contracts and natural gas contracts generally have maturities of less than one year.

The Company's earnings are affected by changes in interest rates. HDFS utilizes interest rate swaps to reduce the impact of fluctuations in interest rates on its unsecured commercial paper by converting a portion from a floating rate basis to a fixed rate basis. In addition, HDFS utilized interest rate swaps with its medium-term notes which matured in December 2010; however, the impact was to convert from a fixed rate basis to a floating rate basis. HDFS also entered into derivative contracts to facilitate its first quarter 2008 term asset-backed securitization transaction as well as its third quarter 2007 term asset-backed securitization transaction. These derivatives, which hedge assets held by VIEs, did not qualify for hedge accounting treatment. During 2011, the derivative contracts related to the 2008 term asset-backed securitization transaction expired. The derivative contracts related to the 2007 term asset-backed securitization expired during 2010. Additionally, to facilitate asset-backed commercial paper conduit facility agreements that the Company entered into April 2009, HDFS entered into derivative contracts which did not qualify for hedge accounting treatment. These derivative contracts were terminated in 2010.

The following tables summarize the fair value of the Company's derivative financial instruments at December 31 (in thousands):

 

The following tables summarize the amount of gains and losses for the following years ended December 31 related to derivative financial instruments designated as cash flow hedges (in thousands):

 

     Amount of Gain/(Loss)
Recognized in OCI
 

Cash Flow Hedges

   2011     2010     2009  

Foreign currency contracts

   $ (304   $ (6,896   $ (4,402

Natural gas contracts

     (558     (1,164     (1,329

Interest rate swaps – unsecured commercial paper

     (662     (4,318     (1,299

Interest rate swaps – conduit facility

     —          —          (1,447
  

 

 

   

 

 

   

 

 

 

Total

   $ (1,524   $ (12,378   $ (8,477
  

 

 

   

 

 

   

 

 

 

 

 

For the years ended December 31, 2011 and 2010, 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.

The following tables summarize the amount of gains and losses for the years ended December 31 related to derivative financial instruments designated as fair value hedges (in thousands):

 

The following table summarizes the amount of gains and losses for the years ended December 31 related to derivative financial instruments not designated as hedging instruments (in thousands):

 

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Comprehensive Income
12 Months Ended
Dec. 31, 2011
Comprehensive Income [Abstract]
Comprehensive Income

12.    Comprehensive Income

The following table sets forth the reconciliation of net income (loss) to comprehensive income for the years ended December 31 (in thousands):

 

     2011     2010     2009  

Net income (loss)

     $ 599,114        $ 146,545        $ (55,116

Other comprehensive income, net of tax:

            

Foreign currency translation adjustment

       (5,616       9,449          30,932   

Investment in retained securitization interest:

            

Unrealized net gains (losses) arising during the period

     —            —            9,760     

Less: net losses reclassified into net income

     —          —          —          —          (3,840     13,600   
  

 

 

     

 

 

     

 

 

   

Derivative financial instruments:

            

Unrealized net losses arising during period

     (966       (7,852       (4,242  

Less: net losses reclassified into net income

     (19,185     18,219        (4,880     (2,972     (3,003     (1,239
  

 

 

     

 

 

     

 

 

   

Marketable securities

            

Unrealized gains (losses) on marketable securities

     460          (133       —       

Less: net losses reclassified into net income

     —          460        —          (133     —          —     
  

 

 

     

 

 

     

 

 

   

Pension and postretirement healthcare plans:

            

Amortization of net prior service cost

     (564       925          2,679     

Amortization of actuarial loss

     23,584          20,944          11,761     

Pension and postretirement healthcare funded status adjustment

     (146,768       18,431          37,504     

Less: actuarial loss reclassified into net income due to settlement

     (173       (2,942       (884  

Less: net prior service credit (cost) reclassified into net (loss) income due to curtailment

     (1     (123,574     1,393        41,849        (22,920     75,748   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     $ 488,603        $ 194,738        $ 63,925   
    

 

 

     

 

 

     

 

 

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Debt
12 Months Ended
Dec. 31, 2011
Debt [Abstract]
Debt

13.    Debt

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

 

     2011      2010  

Unsecured commercial paper

   $ 838,486       $ 480,472   

 

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

 

     2011     2010  

Unsecured commercial paper

   $ 35,800      $ 102,100   

Bank borrowings

    

Credit facilities

     159,794        213,772   

Secured debt

    

Term asset-backed securitization debt

     2,087,346        2,755,234   

Unsecured notes

    

5.25% Medium-term notes due in 2012 ($400.0 million par value)

     399,916        399,825   

5.75% Medium-term notes due in 2014 ($500.0 million par value)

     499,544        499,383   

3.75% Medium-term notes due in 2016 ($450.0 million par value)

     449,775        —     

6.80% Medium-term notes due in 2018 ($950.1 million par value)

     948,958        998,570   

15.00% senior unsecured notes due in 2014 ($600.0 million par value)

     303,000        303,000   
  

 

 

   

 

 

 

Gross long-term debt

     4,884,133        5,271,884   

Less: current portion of long-term debt

     (1,040,247     (751,293
  

 

 

   

 

 

 

Long-term debt

   $ 3,843,886      $ 4,520,591   
  

 

 

   

 

 

 

The Company has classified $195.6 million and $315.9 million related to its unsecured commercial paper and its Global Credit Facilities as long-term debt as of December 31, 2011 and 2010, respectively. This amount has been excluded from current liabilities because it is supported by the Global Credit Facilities and is expected to remain outstanding for an uninterrupted period extending beyond one year from the balance sheet date.

Commercial paper maturities may range up to 365 days from the issuance date. The weighted-average interest rate of outstanding commercial paper balances was 1.05% and 1.38% at December 31, 2011 and 2010, respectively. The December 31, 2011 and 2010 weighted-average interest rates include the impact of interest rate swap agreements.

On April 28, 2011, the Company and HDFS entered into a new $675.0 million four-year credit facility to refinance and replace a $675.0 million 364-day credit facility that matured in April 2011. The new four-year credit facility matures in April 2015. The Company and HDFS also have a $675.0 million three-year credit facility which matures in April 2013. The new-four year credit facility and the three-year credit facility agreement (together, the Global Credit Facilities) bear interest at various variable interest rates, which may be adjusted upward or downward depending on certain criteria, such as credit ratings. The Global Credit Facilities also require the Company to pay a fee based upon the average daily unused portion of the aggregate commitments under the Global Credit Facilities. The Global Credit Facilities are committed facilities and primarily used to support HDFS' unsecured commercial paper program.

On September 9, 2011, the Company amended and restated its revolving asset-backed conduit facility which provides for a total aggregate commitment of $600.0 million. At December 31, 2011 and 2010, HDFS had no outstanding borrowings under the conduit facility. Refer to Note 7 for further discussion on the asset backed conduit facility.

As discussed in Note 7, during 2011, the Company issued $1.09 billion of secured notes through two term asset-backed securitization transactions. During 2010, the Company issued $600.0 million of secured notes through one term asset-backed securitization transaction. The term-asset backed securitization transactions are further discussed in Note 7.

HDFS' medium-term notes (collectively the Notes) provide for semi-annual interest payments and principal due at maturity. During 2011, HDFS repurchased an aggregate $49.9 million of its $1.0 billion, 6.8% medium-term notes which mature in June 2018. As a result, HDFS recognized in financial services interest expense a $9.6 million loss on extinguishment of debt, which included unamortized discounts and fees. During December 2010, the $200.0 million, 5.00% medium-term note matured, and the principal and accrued interest was paid in full. Unamortized discounts on the Notes reduced the balance by $1.9 million and $2.2 million at December 31, 2011 and 2010, respectively.

In February 2009, the Company issued $600.0 million of senior unsecured notes in an underwritten offering. The senior unsecured notes provide for semi-annual interest payments and principal due at maturity. The senior unsecured notes mature in February 2014 and have an annual interest rate of 15%. During the fourth quarter of 2010, the Company repurchased $297.0 million of the $600.0 million senior unsecured notes at a price of $380.8 million. As a result of the transaction, the Company incurred a loss on debt extinguishment of $85.2 million which also includes $1.4 million of capitalized debt issuance costs that were written-off. The Company used cash on hand for the repurchase and the repurchased notes were cancelled.

HDFS has a revolving credit line with the Company whereby HDFS may borrow up to $210.0 million at market rates of interest. As of December 31, 2011 and 2010, HDFS had no borrowings owed to the Company under the revolving credit agreement.

HDFS and the Company are subject to various operating and financial covenants related to the Global Credit Facilities and various operating covenants under the Notes and the asset-backed commercial paper conduit facility. The more significant covenants are described below.

The covenants limit the Company's and HDFS' ability to:

 

   

incur certain additional indebtedness;

 

   

assume or incur certain liens;

 

   

participate in a merger, consolidation, liquidation or dissolution; and

 

   

purchase or hold margin stock.

Under the financial covenants of the Global Credit Facilities, the consolidated debt to equity ratio of HDFS cannot exceed 10.0 to 1.0. In addition, the Company must maintain a minimum interest coverage ratio of 2.25 to 1.0 for each fiscal quarter ended through June 2013 and 2.5 to 1.0 for each fiscal quarter thereafter. No financial covenants are required under the Notes, asset-backed commercial paper conduit facility or the Company's senior unsecured notes.

At December 31, 2011 and 2010, HDFS and the Company remained in compliance with all of these covenants.

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Income Taxes
12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]
Income Taxes

14.    Income Taxes

Provision for income taxes for the years ended December 31 consists of the following (in thousands):

 

     2011     2010     2009  

Current:

      

Federal

   $ 135,232      $ 138,221      $ 94,984   

State

     12,177        6,919        5,201   

Foreign

     5,776        4,486        1,395   
  

 

 

   

 

 

   

 

 

 
     153,185        149,626        101,580   

Deferred:

      

Federal

     104,723        (18,428     (10,665

State

     (12,201     (1,361     22,690   

Foreign

     (1,121     963        (5,586
  

 

 

   

 

 

   

 

 

 
     91,401        (18,826     6,439   
  

 

 

   

 

 

   

 

 

 

Total

   $ 244,586      $ 130,800      $ 108,019   
  

 

 

   

 

 

   

 

 

 

The components of income before income taxes for the years ended December 31 were as follows (in thousands):

 

     2011      2010      2009  

Domestic

   $ 782,896       $ 377,416       $ 185,435   

Foreign

     9,768         13,053         (6,775
  

 

 

    

 

 

    

 

 

 
   $ 792,664       $ 390,469       $ 178,660   
  

 

 

    

 

 

    

 

 

 

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

 

     2011     2010     2009  

Provision at statutory rate

     35.0     35.0     35.0

State taxes, net of federal benefit

     1.6        1.0        2.7   

Domestic manufacturing deduction

     (1.8     (3.2     —     

Research and development credit

     (0.6     (1.0     (1.7

Unrecognized tax benefits including interest and penalties

     (1.1     (0.2     2.3   

Valuation allowance adjustments

     (2.0     0.7        12.4   

Goodwill impairment

     —          —          5.6   

Medicare Part D

     —          3.4        —     

Tax audit settlements

     (1.1     (0.4     3.6   

Investments in low-income housing partnerships

     —          0.6        2.6   

Adjustments for previously accrued taxes

     0.3        (2.8     0.5   

Other

     0.6        0.4        (2.5
  

 

 

   

 

 

   

 

 

 

Provision for income taxes

     30.9     33.5     60.5
  

 

 

   

 

 

   

 

 

 

 

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

 

     2011     2010  

Deferred tax assets:

    

Accruals not yet tax deductible

   $ 123,514      $ 122,211   

Pension and postretirement benefit plan obligations

     219,071        201,206   

Stock compensation

     32,486        29,156   

Net operating loss carryforward

     28,914        27,048   

Valuation allowance

     (14,914     (27,048

Other, net

     49,253        58,278   
  

 

 

   

 

 

 
     438,324        410,851   

Deferred tax liabilities:

    

Depreciation, tax in excess of book

     (77,787     (34,841

Other

     (25,767     (15,610
  

 

 

   

 

 

 
     (103,554     (50,451
  

 

 

   

 

 

 

Total

   $ 334,770      $ 360,400   
  

 

 

   

 

 

 

The Company reviews its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with any positive or negative evidence such as tax law changes. Since future financial results and tax law may differ from previous estimates, periodic adjustments to the Company's valuation allowances may be necessary.

At December 31, 2011, the Company had approximately $431.7 million state net operating loss carry-forwards expiring in 2031. At December 31, 2011 the Company also had Wisconsin research and development credit carryforwards of $9.2 million expiring in 2026. The Company had a deferred tax asset of $28.2 million as of December 31, 2011 for the benefit of these losses and credits. A valuation allowance of $14.2 million has been established against the deferred tax asset. A change in Wisconsin state tax law in the third quarter of 2011 provided for the ability to release a portion of the previous valuation of Wisconsin losses.

At December 31, 2011, the Company had $2.0 million federal capital loss carryforwards expiring between 2012 and 2013. The Company had a deferred tax asset of $0.7 million as of December 31, 2011 for the benefit of these losses. A valuation allowance of $0.7 million has been established against the deferred tax asset for these losses.

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

 

     2011     2010  

Unrecognized tax benefits, beginning of period

   $ 69,805      $ 77,846   

Increase in unrecognized tax benefits for tax positions taken in a prior period

     13,745        5,927   

Decrease in unrecognized tax benefits for tax positions taken in a prior period

     (21,574     (10,223

Increase in unrecognized tax benefits for tax positions taken in the current period

     3,036        4,448   

Statute lapses

     (2,249     (647

Settlements with taxing authorities

     (5,626     (7,546
  

 

 

   

 

 

 

Unrecognized tax benefits, end of period

   $ 57,137      $ 69,805   
  

 

 

   

 

 

 

 

The amount of unrecognized tax benefits as of December 31, 2011 that, if recognized, would affect the effective tax rate was $40.6 million.

The total gross amount of income related to interest and penalties associated with unrecognized tax benefits recognized during 2011 in the Company's Consolidated Statements of Operations was $1.8 million due to favorable settlements and statute lapses.

The total gross amount of interest and penalties associated with unrecognized tax benefits recognized at December 31, 2011 in the Company's Consolidated Balance Sheets was $24.3 million.

The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits related to continuing operations during the fiscal year ended December 31, 2012. However, the Company is under regular audit by tax authorities. The Company believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provision includes amounts sufficient to pay any assessments. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.

The Company or one of its subsidiaries files income tax returns in the United States federal and Wisconsin state jurisdictions and various other state and foreign jurisdictions. The Company is no longer subject to income tax examinations for Wisconsin state income taxes before 1998 or for United States federal income taxes before 2005.

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Employee Benefit Plans And Other Postretirement Benefits
12 Months Ended
Dec. 31, 2011
Employee Benefit Plans And Other Postretirement Benefits [Abstract]
Employee Benefit Plans And Other Postretirement Benefits

15.    Employee Benefit Plans and Other Postretirement Benefits

The Company has several defined benefit pension plans and several postretirement healthcare benefit plans, which cover substantially all 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.

Pension benefits are based primarily on years of service and, for certain plans, levels of compensation. Employees are eligible to receive postretirement healthcare benefits upon attaining age 55 after rendering at least 10 years of service to the Company. Some of the plans require employee contributions to partially offset benefit costs.

 

Obligations and Funded Status:

The following table provides the changes in the benefit obligations, fair value of plan assets and funded status of the Company's pension, SERPA and postretirement healthcare plans as of the Company's December 31, 2011 and 2010 measurement dates (in thousands):

 

     Pension and SERPA Benefits     Postretirement
Healthcare Benefits
 
     2011     2010     2011     2010  

Change in benefit obligation

        

Benefit obligation, beginning of period

   $ 1,390,374      $ 1,284,722      $ 378,341      $ 377,283   

Service cost

     37,341        42,889        7,630        9,957   

Interest cost

     80,805        77,996        19,644        20,774   

Plan amendments

     —          1,855        —          (22,282

Actuarial losses (gains)

     127,259        46,035        (1,364     (231

Plan participant contributions

     3,441        3,840        1,527        1,431   

Early Retirement Reinsurance Program Proceeds

     —          —          2,249        —     

Benefits paid, net of Medicare Part D subsidy

     (68,525     (81,188     (27,402     (23,729

Net curtailments and settlements

     235        14,225        —          15,138   
  

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation, end of period

  </