10-Q 1 hog-04012018x10q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2018
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number 1-9183
 
 
Harley-Davidson, Inc.
(Exact name of registrant as specified in its charter)
 
Wisconsin
 
39-1382325
(State of organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3700 West Juneau Avenue
Milwaukee, Wisconsin
 
53208
(Address of principal executive offices)
 
(Zip code)
Registrants telephone number: (414) 342-4680
None
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x   No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
Accelerated filer
 
¨
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ¨
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes ¨ No  x
Number of shares of the registrant’s common stock outstanding at May 4, 2018: 166,436,632 shares



Harley-Davidson, Inc.

Form 10-Q

For The Quarter Ended April 1, 2018
 



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
Three months ended
 
April 1,
2018
 
March 26,
2017
Revenue:
 
 
 
Motorcycles and Related Products
$
1,363,947

 
$
1,328,711

Financial Services
178,174

 
173,221

Total revenue
1,542,121

 
1,501,932

Costs and expenses:
 
 
 
Motorcycles and Related Products cost of goods sold
890,174

 
853,888

Financial Services interest expense
48,450

 
43,289

Financial Services provision for credit losses
30,052

 
43,589

Selling, administrative and engineering expense
290,186

 
271,984

Restructuring expense
46,842

 

Total costs and expenses
1,305,704

 
1,212,750

Operating income
236,417

 
289,182

Other income (expense), net
220

 
2,296

Investment income
1,203

 
879

Interest expense
7,690

 
7,673

Income before provision for income taxes
230,150

 
284,684

Provision for income taxes
55,387

 
98,315

Net income
$
174,763

 
$
186,369

Earnings per common share:
 
 
 
Basic
$
1.04

 
$
1.06

Diluted
$
1.03

 
$
1.05

Cash dividends per common share
$
0.370

 
$
0.365

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


3


HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three months ended
 
April 1,
2018
 
March 26,
2017
Net income
$
174,763

 
$
186,369

Other comprehensive income (loss), net of tax:
 
 
 
  Foreign currency translation adjustments
6,915

 
15,557

  Derivative financial instruments
765

 
(9,052
)
  Marketable securities

 
(10
)
  Pension and postretirement benefit plans
85,765

 
7,256

Total other comprehensive income, net of tax
93,445

 
13,751

Comprehensive income
$
268,208

 
$
200,120

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



4


HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
753,517

 
$
687,521

 
$
839,700

Marketable securities

 

 
5,004

Accounts receivable, net
355,107

 
329,986

 
335,578

Finance receivables, net
2,341,918

 
2,105,662

 
2,354,095

Inventories
564,571

 
538,202

 
485,476

Restricted cash
54,569

 
47,518

 
75,705

Other current assets
150,472

 
175,853

 
142,362

Total current assets
4,220,154

 
3,884,742

 
4,237,920

Finance receivables, net
4,784,524

 
4,859,424

 
4,792,027

Property, plant and equipment, net
934,645

 
967,781

 
953,044

Prepaid pension costs
122,230

 
19,816

 

Goodwill
56,524

 
55,947

 
53,967

Deferred income taxes
77,624

 
109,073

 
165,196

Other long-term assets
81,920

 
75,889

 
79,701

 
$
10,277,621

 
$
9,972,672

 
$
10,281,855

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
319,040

 
$
227,597

 
$
358,684

Accrued liabilities
566,408

 
529,822

 
547,637

Short-term debt
1,036,976

 
1,273,482

 
953,357

Current portion of long-term debt, net
1,872,679

 
1,127,269

 
697,061

Total current liabilities
3,795,103

 
3,158,170

 
2,556,739

Long-term debt, net
4,108,511

 
4,587,258

 
5,320,797

Pension liability
54,921

 
54,606

 
52,559

Postretirement healthcare liability
113,031

 
118,753

 
171,143

Other long-term liabilities
210,106

 
209,608

 
187,208

Commitments and contingencies (Note 15)

 

 

Shareholders’ equity:
 
 
 
 
 
Preferred stock, none issued

 

 

Common stock
1,818

 
1,813

 
1,813

Additional paid-in-capital
1,432,692

 
1,422,808

 
1,397,172

Retained earnings
1,725,626

 
1,607,570

 
1,459,431

Accumulated other comprehensive loss
(406,604
)
 
(500,049
)
 
(551,630
)
Treasury stock, at cost
(757,583
)
 
(687,865
)
 
(313,377
)
Total shareholders’ equity
1,995,949

 
1,844,277

 
1,993,409

 
$
10,277,621

 
$
9,972,672

 
$
10,281,855



5


HARLEY-DAVIDSON, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
 
(Unaudited)
 
 
 
(Unaudited)
 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
Balances held by consolidated variable interest entities (Note 11)
 
 
 
 
 
Current finance receivables, net
$
182,033

 
$
194,813

 
$
218,001

Other assets
$
2,175

 
$
2,148

 
$
3,204

Non-current finance receivables, net
$
464,185

 
$
521,940

 
$
825,825

Restricted cash - current and non-current
$
55,140

 
$
48,706

 
$
79,254

Current portion of long-term debt, net
$
205,055

 
$
209,247

 
$
253,070

Long-term debt, net
$
361,049

 
$
422,834

 
$
718,509

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

6


HARLEY-DAVIDSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three months ended
 
April 1,
2018
 
March 26,
2017
Net cash provided by operating activities (Note 7)
$
191,594

 
$
159,939

Cash flows from investing activities:
 
 
 
Capital expenditures
(28,436
)
 
(23,967
)
Origination of finance receivables
(798,067
)
 
(844,692
)
Collections on finance receivables
809,800

 
781,154

Other
(4,948
)
 
52

Net cash used by investing activities
(21,651
)
 
(87,453
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of medium-term notes
347,553

 
497,406

Repayments of medium-term notes

 
(400,000
)
Repayments of securitization debt
(67,955
)
 
(111,359
)
Borrowings of asset-backed commercial paper
35,504

 
305,209

Repayments of asset-backed commercial paper
(45,907
)
 
(29,383
)
Net decrease in credit facilities and unsecured commercial paper
(234,145
)
 
(101,702
)
Dividends paid
(62,731
)
 
(64,611
)
Purchase of common stock for treasury
(72,968
)
 
(79,753
)
Issuance of common stock under employee stock option plans
1,719

 
7,336

Net cash (used) provided by financing activities
(98,930
)
 
23,143

Effect of exchange rate changes on cash, cash equivalents and restricted cash
2,034

 
7,219

Net increase in cash, cash equivalents and restricted cash
$
73,047

 
$
102,848

Cash, cash equivalents and restricted cash:
 
 
 
Cash, cash equivalents and restricted cash—beginning of period
$
746,210

 
$
827,131

Net increase in cash, cash equivalents and restricted cash
73,047

 
102,848

Cash, cash equivalents and restricted cash—end of period
$
819,257

 
$
929,979

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheet:
Cash and cash equivalents
$
753,517

 
$
839,700

Restricted cash
54,569

 
75,705

Restricted cash included in other long-term assets
11,171

 
14,574

Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows
$
819,257

 
$
929,979

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


7


HARLEY-DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of Harley-Davidson, Inc. and its wholly-owned subsidiaries (the Company), including the accounts of the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). In addition, certain variable interest entities (VIEs) related to secured financing are consolidated as the Company is the primary beneficiary. All intercompany accounts and material intercompany transactions are eliminated.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated balance sheets as of April 1, 2018 and March 26, 2017, the consolidated statements of income for the three month periods then ended, the consolidated statements of comprehensive income for the three month periods then ended and the consolidated statements of cash flows for the three month periods then ended.
Certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. These consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
The Company operates in two reportable segments: Motorcycles & Related Products (Motorcycles) and Financial Services.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
2. New Accounting Standards
Accounting Standards Recently Adopted
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09 Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 on January 1, 2018. The Company applied the standard to all contracts using the modified retrospective method. As such, the Company recognized the cumulative effect of the adoption as an adjustment to the opening balance of retained earnings. The comparative information has not been restated.
The majority of the Company’s Motorcycles and related products revenue will continue to be recognized when products are shipped to customers. For a limited number of vehicle sales where revenue was previously deferred due to a guaranteed resale value the Company will now recognize revenue when those vehicles are shipped in accordance with ASU 2014-09. The Company recorded a net increase to the opening balance of retained earnings of $6.0 million, net of income taxes, as of January 1, 2018 as a result of adopting ASU 2014-09. The Company also adjusted other assets and accrued liabilities associated with these vehicle sales in connection with its adoption of ASU 2014-09.
The majority of the Financial Services segment’s revenues relate to loan and servicing activities which are outside the scope of this guidance. Financial Services revenues that fall under the scope of ASU 2014-09 continue to be recognized at the point of sale, or over the estimated life of the contract, as appropriate.

8


The following tables illustrate the impact of adoption of ASU 2014-09 on the consolidated statement of income for the three months ended April 1, 2018 and the consolidated balance sheet as of April 1, 2018 (in thousands):

Consolidated Statement of Income
 
As Reported
 
Without Adoption of ASC 606
 
Effect of Change
Revenue:
 
 
 
 
 
Motorcycles and Related Products
$
1,363,947

 
$
1,367,984

 
$
(4,037
)
Costs and expenses:
 
 
 
 
 
Motorcycles and Related Products cost of goods sold
$
890,174

 
$
890,238

 
$
(64
)
Operating income
$
236,417

 
$
240,390

 
$
(3,973
)
Income before provision for income taxes
$
230,150

 
$
234,123

 
$
(3,973
)
Provision for income taxes
$
55,387

 
$
56,350

 
$
(963
)
Net income
$
174,763

 
$
177,773

 
$
(3,010
)

Consolidated Balance Sheet
 
As Reported
 
Without Adoption of ASC 606
 
Effect of Change
ASSETS
 
 
 
 
 
Other current assets
$
150,472

 
$
166,864

 
$
(16,392
)
Deferred income taxes
$
77,624

 
$
79,472

 
$
(1,848
)
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
Accrued liabilities
$
566,408

 
$
587,662

 
$
(21,254
)
Retained earnings
$
1,725,626

 
$
1,722,612

 
$
3,014


In March 2017, the FASB issued ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 amends ASC 715, Compensation - Retirement Benefits by requiring employers to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost will be presented separately from the line item that includes the service cost and outside of any subtotal of operating income. The guidance also limits the components that are eligible for capitalization in assets. The Company adopted ASU 2017-07 retrospectively on January 1, 2018. As a result, the non-service cost components of net periodic benefit cost have been presented in Other income (expense), net and the prior period has been recast to reflect the new presentation. The Company elected the practical expedient allowing the use of previously disclosed benefit components as the basis for the retrospective application. Net periodic benefit cost (credit) previously recorded in Motorcycles and Related Products cost of goods sold and Selling, administrative and engineering expense of $2.7 million and $(0.4) million, respectively, for the three months ended March 26, 2017 has been reclassified to Other income (expense), net.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As such, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted ASU 2016-18 on January 1, 2018 on a retrospective basis. As a result, the change in restricted cash has been excluded from financing activities and included in the change in cash, cash equivalents and restricted cash and the prior period has been recast to reflect the new presentation.
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 enhances the existing financial instruments reporting model by modifying fair value measurement tools, simplifying impairment assessments for certain equity instruments and modifying overall presentation and disclosure requirements. The ASU was subsequently amended by ASU No. 2018-03 and ASU No. 2018-04. The Company adopted ASU 2016-01 on January 1, 2018 on a prospective basis. The adoption of ASU 2016-01 did not have a material impact on its financial statements.

9


In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses eight specific cash flow items with the objective of reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement of cash flows. The Company adopted ASU 2016-15 on January 1, 2018 on a retrospective basis. The adoption of ASU 2016-15 did not have a material impact on its financial statements.
In October 2016, the FASB issued ASU No. 2016-16 Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). ASU 2016-16 states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted ASU 2016-16 on January 1, 2018 using a modified retrospective approach. The adoption of ASU 2016-16 did not have a material impact on its financial statements.
Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (ASU 2016-02). ASU 2016-02 amends the existing lease accounting model by requiring a lessee to recognize the rights and obligations resulting from certain leases as assets and liabilities on the balance sheet. ASU 2016-02 also requires a company to disclose key information about their leasing arrangements. The Company is required to adopt ASU 2016-02 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach. Early adoption is permitted. The Company is currently in the process of gathering and analyzing information necessary to quantify the impact of adopting ASU 2016-02 and evaluating the transition practical expedients it will apply upon adoption. The Company anticipates the adoption of ASU 2016-02 will result in an increase in assets and liabilities recognized in the balance sheet related to its lease arrangements.
In July 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. The Company is required to adopt ASU 2016-13 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019 on a modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2018. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. Adoption of this standard will impact how the Company recognizes credit losses on its financial instruments. The Company is currently evaluating the impact of adoption of ASU 2016-13 but anticipates the adoption of ASU 2016-13 will result in an increase in the annual provision for credit losses and the related allowance for credit losses.

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

In August 2017, the FASB issued ASU No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 amends ASC 815, Derivatives and Hedging to improve the financial reporting of hedging relationships and to simplify the application of the hedge accounting guidance. The ASU makes various updates to the hedge accounting model, including changing the recognition and presentation of changes in the fair value of the hedging instrument and amending disclosure requirements, among other things. The Company is required to adopt ASU 2017-12 for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the ASU. For cash flow and net investment hedges existing at the date of adoption, the Company must apply a cumulative-effect adjustment as of the beginning of the fiscal year in which the standard is adopted. The amendments related to presentation and disclosure are required prospectively. The Company is currently evaluating the impact of adoption of ASU 2017-12.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects

10


become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company’s provisional adjustments recorded in 2017 to account for the impact of the 2017 Tax Cuts and Jobs Act resulted in stranded tax effects. The Company is currently evaluating the impact of adopting ASU 2018-02.
3. Revenue

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

The following table disaggregates revenue by major source for the three months ended April 1, 2018 (in thousands):
Motorcycles and Related Products:
 
 
Motorcycles
 
$
1,121,673

Parts & Accessories
 
169,075

General Merchandise
 
56,601

Licensing
 
8,358

Other
 
8,240

Revenue from Motorcycles and Related Products
 
1,363,947

Financial Services:
 
 
Interest income
 
154,041

Securitization and servicing fee income
 
352

Other income
 
23,781

Revenue from Financial Services
 
178,174

Total revenue
 
$
1,542,121


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

Motorcycles and Related Products

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

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

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

Variable consideration related to sales incentives and rights to return is adjusted at the earliest of when the amount of consideration the Company expects to receive changes or the consideration becomes fixed. Adjustments for variable

11


consideration related to previously recognized sales decreased revenue by an immaterial amount during the three months ended April 1, 2018.
 
Shipping and handling costs associated with freight after control of a product has transferred to a customer are accounted for as fulfillment costs. The Company accrues for the shipping and handling in the same period that the related revenue is recognized.

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

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

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

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

Financial Services

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

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

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

Contract Liabilities

Deferred revenue relates to payments received at contract inception in advance of the Company’s performance under the contract and generally relates to the sale of H.O.G. memberships and extended service plan contracts. Deferred revenue is recognized as revenue as the Company performs under the contract. On January 1, 2018, $23.4 million of deferred revenue was included in Accrued liabilities and Other long-term liabilities in the consolidated balance sheet. $4.0 million of this was recognized as revenue in the three months ended April 1, 2018. At April 1, 2018, the unearned revenue balance was $27.6

12


million. The Company expects to recognize approximately $12.7 million of the remaining unearned revenue in 2018, $7.2 million in 2019 and $7.8 million thereafter.

4. Restructuring Expenses
In January 2018, the Company initiated a plan to further improve its manufacturing operations and cost structure by commencing a multi-year manufacturing optimization plan which includes the consolidation of its motorcycle assembly plant in Kansas City, Missouri, into its plant in York, Pennsylvania, and the closure of its wheel operations in Adelaide, Australia. As the U.S. operations are consolidated, the Company expects approximately 800 jobs will be eliminated with the closure of Kansas City operations and approximately 450 jobs will be added in York by 2019. Approximately 90 jobs will be eliminated in Adelaide.
The Company expects to incur restructuring and other consolidation costs of $170 to $200 million in the Motorcycles segment related to this plan through 2019, of which approximately 70% will be cash charges. This includes $135 million to $155 million of restructuring expense and $35 million to $45 million of costs related to temporary inefficiencies. The Company expects restructuring expenses to include the cost of employee termination benefits, accelerated depreciation and other project implementation costs of $50 million to $60 million, $45 million to $50 million and $40 million to $45 million, respectively. Restructuring expense is recorded as a separate line item in the consolidated statement of income and the accrued restructuring liability is recorded in accrued liabilities in the consolidated balance sheet. The Company expects the plan to be completed by mid-2019. Changes in the accrued restructuring liability (in thousands) were as follows:
 
Three months ended April 1, 2018
 
Employee Termination Benefits
 
Accelerated Depreciation
 
Other
 
Total
Balance, beginning of period
$

 
$

 
$

 
$

Restructuring expense
(40,791
)
 
(5,613
)
 
(438
)
 
(46,842
)
Utilized - cash
2,300

 

 
374

 
2,674

Utilized - non cash

 
5,613

 

 
5,613

Foreign currency changes
204

 

 
1

 
205

Balance, end of period
$
(38,287
)
 
$

 
$
(63
)
 
$
(38,350
)
The Company incurred $0.7 million of incremental cost of goods sold during the three month period ended April 1, 2018 due to temporary inefficiencies resulting from implementing the manufacturing optimization plan.
5. Income Taxes
The Company’s 2018 effective income tax rate for the three months ended April 1, 2018 was 24.1% compared to 34.5% for the three months ended March 26, 2017. The Company's effective income tax rate was lower in 2018 due primarily to the impact of the 2017 Tax Cuts and Jobs Act (2017 Tax Act) that was enacted in December of 2017. The 2017 Tax Act included broad and complex changes to the U.S. tax code including a reduction of the corporate income tax rate from 35% to 21%, the move toward a territorial tax system and the elimination of the domestic manufacturing deduction. During the three months ended December 31, 2017, the Company recorded a $53.1 million tax expense to recognize the initial effects of the 2017 Tax Act relating primarily to the remeasurement of deferred tax assets. The Company has deemed its income tax estimates related to the 2017 Tax Act to be provisional under SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118). The Company believes future guidance, interpretations and pronouncements will add clarity to the numerous aspects of the 2017 Tax Act that may impact the Company which may result in revisions to the Company’s provisional estimates. There were no material changes to these provisional estimates during the three month period ended April, 1 2018.

13


6. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
 
Three months ended
 
April 1,
2018
 
March 26,
2017
Numerator:
 
 
 
Net income used in computing basic and diluted earnings per share
$
174,763

 
$
186,369

Denominator:
 
 
 
Denominator for basic earnings per share - weighted-average common shares
168,139

 
176,001

Effect of dilutive securities - employee stock compensation plan
1,035

 
1,069

Denominator for diluted earnings per share - adjusted weighted-average shares outstanding
169,174

 
177,070

Earnings per common share:
 
 
 
Basic
$
1.04

 
$
1.06

Diluted
$
1.03

 
$
1.05

Outstanding options to purchase 1.0 million and 0.8 million shares of common stock for the three months ended April 1, 2018 and March 26, 2017, respectively, were not included in the Company’s computation of dilutive securities because the exercise price was greater than the market price, and therefore, the effect would have been anti-dilutive.
The Company has a share-based compensation plan under which employees may be granted share-based awards including restricted stock units (RSUs). Non-forfeitable dividend equivalents are paid on unvested RSUs. As such, RSUs are considered participating securities under the two-class method of calculating earnings per share as described in ASC Topic 260, “Earnings per Share.” The two-class method of calculating earnings per share did not have a material impact on the Company’s earnings per share calculation for the three month periods ended April 1, 2018 and March 26, 2017.
7. Additional Balance Sheet and Cash Flow Information
Marketable Securities
The Company’s marketable securities consisted of the following (in thousands):
 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
Available-for-sale corporate bonds
$

 
$

 
$
5,004

Mutual funds
49,402

 
48,006

 
41,674

Total marketable securities
$
49,402

 
$
48,006

 
$
46,678

The Company’s available-for-sale corporate debt securities are carried at fair value with any unrealized gains or losses reported in other comprehensive income. During the first three months of 2017, unrealized losses were not material. There were no available-for-sale debt securities outstanding at April 1, 2018. The mutual fund investments are held by the Company to fund certain deferred compensation obligations. These investments are carried at fair value with gains and losses recorded in net income and are included in other long-term assets on the consolidated balance sheets.
Inventories
Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consisted of the following (in thousands):

14


 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
Raw materials and work in process
$
177,652

 
$
161,664

 
$
153,195

Motorcycle finished goods
289,046

 
289,530

 
263,408

Parts and accessories and general merchandise
150,228

 
139,363

 
117,140

Inventory at lower of FIFO cost or net realizable value
616,926

 
590,557

 
533,743

Excess of FIFO over LIFO cost
(52,355
)
 
(52,355
)
 
(48,267
)
Total inventories, net
$
564,571

 
$
538,202

 
$
485,476

Operating Cash Flow
The reconciliation of net income to net cash provided by operating activities is as follows (in thousands):
 
Three months ended
 
April 1,
2018
 
March 26,
2017
Cash flows from operating activities:
 
 
 
Net income
$
174,763

 
$
186,369

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of intangibles
62,473

 
54,900

Amortization of deferred loan origination costs
20,116

 
20,078

Amortization of financing origination fees
2,028

 
2,076

Provision for long-term employee benefits
9,747

 
7,475

Employee benefit plan contributions and payments
(5,486
)
 
(29,957
)
Stock compensation expense
7,962

 
6,992

Net change in wholesale finance receivables related to sales
(239,902
)
 
(317,087
)
Provision for credit losses
30,052

 
43,589

Deferred income taxes
3,188

 
3,989

Other, net
(1,902
)
 
(5,334
)
Changes in current assets and liabilities:
 
 
 
Accounts receivable, net
(17,688
)
 
(39,230
)
Finance receivables - accrued interest and other
4,758

 
5,142

Inventories
(21,542
)
 
23,476

Accounts payable and accrued liabilities
148,923

 
182,928

Derivative instruments
702

 
3,120

Other
13,402

 
11,413

Total adjustments
16,831

 
(26,430
)
Net cash provided by operating activities
$
191,594

 
$
159,939

8. Finance Receivables
The Company provides retail financial services to customers of the Company’s independent dealers in the United States and Canada. The origination of retail loans is a separate and distinct transaction between the Company and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment sales contracts. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.
The Company offers wholesale financing to the Company’s independent dealers. Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada.
Finance receivables, net, consisted of the following (in thousands):

15


 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
Retail
$
6,064,192

 
$
6,140,600

 
$
6,002,550

Wholesale
1,252,600

 
1,016,957

 
1,327,602

Total finance receivables
7,316,792

 
7,157,557

 
7,330,152

Allowance for credit losses
(190,350
)
 
(192,471
)
 
(184,030
)
Finance receivables, net
$
7,126,442

 
$
6,965,086

 
$
7,146,122

A provision for credit losses on finance receivables is charged or credited to earnings in amounts that the Company believes are sufficient to maintain the allowance for credit losses at a level that is adequate to cover losses of principal inherent in the existing portfolio. The allowance for credit losses represents management’s estimate of probable losses inherent in the finance receivable portfolio as of the balance sheet date. However, due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company could differ from the amounts estimated.
Changes in the allowance for credit losses on finance receivables by portfolio were as follows (in thousands):
 
Three months ended April 1, 2018
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
186,254

 
$
6,217

 
$
192,471

Provision for credit losses
28,069

 
1,983

 
30,052

Charge-offs
(45,081
)
 

 
(45,081
)
Recoveries
12,908

 

 
12,908

Balance, end of period
$
182,150

 
$
8,200

 
$
190,350

 
 
 
 
 
 
 
Three months ended March 26, 2017
 
Retail
 
Wholesale
 
Total
Balance, beginning of period
$
166,810

 
$
6,533

 
$
173,343

Provision for credit losses
42,160

 
1,429

 
43,589

Charge-offs
(45,924
)
 

 
(45,924
)
Recoveries
13,022

 

 
13,022

Balance, end of period
$
176,068

 
$
7,962

 
$
184,030


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

16


Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize the economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant.
The allowance for credit losses and finance receivables by portfolio, segregated by those amounts that are individually evaluated for impairment and those that are collectively evaluated for impairment, was as follows (in thousands):
 
April 1, 2018
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$
184

 
$
184

Collectively evaluated for impairment
182,150

 
8,016

 
190,166

Total allowance for credit losses
$
182,150

 
$
8,200

 
$
190,350

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$
220

 
$
220

Collectively evaluated for impairment
6,064,192

 
1,252,380

 
7,316,572

Total finance receivables
$
6,064,192

 
$
1,252,600

 
$
7,316,792

 
 
 
 
 
 
 
December 31, 2017
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
186,254

 
6,217

 
192,471

Total allowance for credit losses
$
186,254

 
$
6,217

 
$
192,471

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
6,140,600

 
1,016,957

 
7,157,557

Total finance receivables
$
6,140,600

 
$
1,016,957

 
$
7,157,557

 
 
 
 
 
 
 
March 26, 2017
 
Retail
 
Wholesale
 
Total
Allowance for credit losses, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
176,068

 
7,962

 
184,030

Total allowance for credit losses
$
176,068

 
$
7,962

 
$
184,030

Finance receivables, ending balance:
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
6,002,550

 
1,327,602

 
7,330,152

Total finance receivables
$
6,002,550

 
$
1,327,602

 
$
7,330,152

Additional information related to the wholesale finance receivables that are individually deemed to be impaired under ASC Topic 310, “Receivables,” at April 1, 2018 includes (in thousands):
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Wholesale:
 
 
 
 
 
 
 
 
 
No related allowance recorded
$

 
$

 
$

 
$

 
$

Related allowance recorded
251

 
220

 
184

 
251

 

Total impaired wholesale finance receivables
$
251

 
$
220

 
$
184

 
$
251

 
$

Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is 120 days or more delinquent, the related asset is

17


repossessed or the receivable is otherwise deemed uncollectible. All retail finance receivables accrue interest until either collected or charged-off. Accordingly, as of April 1, 2018December 31, 2017 and March 26, 2017, all retail finance receivables were accounted for as interest-earning receivables, of which $27.9 million, $40.0 million and $28.5 million, respectively, were 90 days or more past due.
Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Wholesale finance receivables are written down once management determines that the specific borrower does not have the ability to repay the loan in full. Interest continues to accrue on past due finance receivables until the date the finance receivable becomes uncollectible and the finance receivable is placed on non-accrual status. The Company will resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured. While on non-accrual status, all cash received is applied to principal or interest as appropriate. The recorded investment of non-accrual status wholesale finance receivables at April 1, 2018 was $0.2 million. There were no wholesale receivables on non-accrual status at December 31, 2017 or March 26, 2017. At April 1, 2018December 31, 2017 and March 26, 2017, $0.2 million, $0.1 million, and $0.6 million of wholesale finance receivables were 90 days or more past due and accruing interest, respectively.
An analysis of the aging of past due finance receivables was as follows (in thousands):
 
April 1, 2018
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,897,632

 
$
105,366

 
$
33,275

 
$
27,919

 
$
166,560

 
$
6,064,192

Wholesale
1,247,175

 
549

 
4,705

 
171

 
5,425

 
1,252,600

Total
$
7,144,807

 
$
105,915

 
$
37,980

 
$
28,090

 
$
171,985

 
$
7,316,792

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,913,473

 
$
139,629

 
$
47,539

 
$
39,959

 
$
227,127

 
$
6,140,600

Wholesale
1,016,000

 
595

 
245

 
117

 
957

 
1,016,957

Total
$
6,929,473

 
$
140,224

 
$
47,784

 
$
40,076

 
$
228,084

 
$
7,157,557

 
 
 
 
 
 
 
 
 
 
 
 
 
March 26, 2017
 
Current
 
31-60 Days
Past Due
 
61-90 Days
Past Due
 
Greater than
90 Days
Past Due
 
Total
Past Due
 
Total
Finance
Receivables
Retail
$
5,840,164

 
$
100,471

 
$
33,403

 
$
28,512

 
$
162,386

 
$
6,002,550

Wholesale
1,325,575

 
1,129

 
273

 
625

 
2,027

 
1,327,602

Total
$
7,165,739

 
$
101,600

 
$
33,676

 
$
29,137

 
$
164,413

 
$
7,330,152

A significant part of managing the Company's finance receivable portfolios includes the assessment of credit risk associated with each borrower. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit risk indicators for each portfolio.
The Company manages retail credit risk through its credit approval policy and ongoing collection efforts. The Company uses FICO scores, a standard credit rating measurement, to differentiate the expected default rates of retail credit applicants, enabling the Company to better evaluate credit applicants for approval and to tailor pricing according to this assessment. Retail loans with a FICO score of 640 or above at origination are considered prime, and loans with a FICO score below 640 are considered sub-prime. These credit quality indicators are determined at the time of loan origination and are not updated subsequent to the loan origination date.
The recorded investment in retail finance receivables, by credit quality indicator, was as follows (in thousands):
 
April 1, 2018
 
December 31, 2017
 
March 26, 2017
Prime
$
4,923,237

 
$
4,966,193

 
$
4,806,730

Sub-prime
1,140,955

 
1,174,407

 
1,195,820

Total
$
6,064,192

 
$
6,140,600

 
$
6,002,550


18


The Company's credit risk on the wholesale portfolio is different from that of the retail portfolio. Whereas the retail portfolio represents a relatively homogeneous pool of retail finance receivables that exhibit more consistent loss patterns, the wholesale portfolio exposures are less consistent. The Company utilizes an internal credit risk rating system to manage credit risk exposure consistently across wholesale borrowers and individually evaluates credit risk factors for each borrower. The Company uses the following internal credit quality indicators, based on an internal risk rating system, listed from highest level of risk to lowest level of risk for the wholesale portfolio: Doubtful, Substandard, Special Mention, Medium Risk and Low Risk. Based upon management’s review, the dealers classified in the Doubtful category are the dealers with the greatest likelihood of being charged-off, while the dealers classified as Low Risk are least likely to be charged-off. The internal rating system considers factors such as the specific borrower's ability to repay and the estimated value of any collateral. Dealer risk rating classifications are reviewed and updated on a quarterly basis.
The recorded investment in wholesale finance receivables, by internal credit quality indicator, was as follows (in thousands):
 
April 1, 2018
 
December 31, 2017
 
March 26, 2017
Doubtful
$
1,582

 
$
688

 
$
1,133

Substandard
3,368

 
3,837

 
9,213

Special Mention
33,085

 
26,866

 
19,898

Medium Risk
10,512

 
9,917

 
14,648

Low Risk
1,204,053

 
975,649

 
1,282,710

Total
$
1,252,600

 
$
1,016,957

 
$
1,327,602

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

19


The following tables summarize the fair value of the Company’s derivative financial instruments (in thousands):
 
 
April 1, 2018
 
December 31, 2017
 
March 26, 2017
Derivatives Designated As Hedging
Instruments Under ASC Topic 815
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
Foreign currency contracts(c)
 
$
720,869

 
$
3,442

 
$
22,807

 
$
675,724

 
$
1,388

 
$
21,239

 
$
534,652

 
$
12,195

 
$
1,015

Commodity
contracts(c)
 
728

 

 
11

 
915

 

 
69

 
1,027

 
23

 

Total
 
$
721,597

 
$
3,442

 
$
22,818


$
676,639

 
$
1,388

 
$
21,308


$
535,679

 
$
12,218

 
$
1,015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
April 1, 2018
 
December 31, 2017
 
March 26, 2017
Derivatives Not Designated As Hedging
Instruments Under ASC Topic 815
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
 
Notional
Value
 
Asset
Fair  Value(a)
 
Liability
Fair  Value(b)
Commodity contracts
 
$
4,577

 
$
171

 
$
32

 
$
4,532

 
$
381

 
$

 
$
5,046

 
$
228

 
$
37

Total
 
$
4,577


$
171

 
$
32

 
$
4,532

 
$
381

 
$

 
$
5,046

 
$
228

 
$
37

 
(a)
Included in other current assets
(b)
Included in accrued liabilities
(c)
Derivative designated as a cash flow hedge
The following tables summarize the amount of gains and losses related to derivative financial instruments designated as cash flow hedges (in thousands):
 
 
Amount of Gain/(Loss) Recognized in OCI, before tax
 
 
Three months ended
Cash Flow Hedges
 
April 1,
2018
 
March 26,
2017
Foreign currency contracts
 
$
(5,890
)
 
$
(11,797
)
Commodity contracts
 
(16
)
 
(106
)
Total
 
$
(5,906
)
 
$
(11,903
)
 
 
Amount of Gain/(Loss) Reclassified from AOCL into Income
 
 
 
 
Three months ended
 
Expected to be Reclassified
Cash Flow Hedges
 
April 1,
2018
 
March 26,
2017
 
Over the Next Twelve Months
Foreign currency contracts(a)
 
$
(6,709
)
 
$
2,516

 
$
(15,783
)
Commodity contracts(a)
 
(73
)
 
48

 
1

Treasury rate locks(b)
 
(126
)
 
(90
)
 
(506
)
Total
 
$
(6,908
)
 
$
2,474

 
$
(16,288
)
(a)
Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) to income is included in cost of goods sold
(b)
Gain/(loss) reclassified from AOCL to income is included in interest expense
For the three months ended April 1, 2018 and March 26, 2017, 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.

20


The following table summarizes the amount of gains and losses related to derivative financial instruments not designated as hedging instruments (in thousands):
 
 
Amount of Gain/(Loss) Recognized in Income on Derivative
 
 
Three months ended
Derivatives Not Designated As Hedges
 
April 1,
2018
 
March 26,
2017
Commodity contracts(a)
 
$
6

 
$
20

Total
 
$
6

 
$
20

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

21


10. Debt
Debt with a contractual term of one year or less is generally classified as short-term debt and consisted of the following (in thousands):
 
 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
Unsecured commercial paper
 
$
1,036,976

 
$
1,273,482

 
$
953,357

          Total short-term debt
 
$
1,036,976

 
$
1,273,482

 
$
953,357

Debt with a contractual term greater than one year is generally classified as long-term debt and consisted of the following (in thousands): 
 
 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
Secured debt (Note 11)
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
 
$
158,162

 
$
174,779

 
$
141,013

Asset-backed U.S. commercial paper conduit facilities
 
281,311

 
279,457

 
286,205

Asset-backed securitization debt
 
285,130

 
353,085

 
686,396

Less: unamortized discount and debt issuance costs
 
(337
)
 
(461
)
 
(1,022
)
Total secured debt
 
724,266

 
806,860

 
1,112,592

 
 
 
 
 
 
 
Unsecured notes (at par value)
 
 
 
 
 
 
1.55% Medium-term notes due in 2017, issued November 2014
 

 

 
400,000

6.80% Medium-term notes due in 2018, issued May 2008
 
877,488

 
877,488

 
877,488

2.25% Medium-term notes due in 2019, issued January 2016
 
600,000

 
600,000

 
600,000

Floating-rate Medium-term notes due in 2019, issued March 2017(a)
 
150,000

 
150,000

 
150,000

2.40% Medium-term notes due in 2019, issued September 2014
 
600,000

 
600,000

 
600,000

2.15% Medium-term notes due in 2020, issued February 2015
 
600,000

 
600,000

 
600,000

2.40% Medium-term notes due in 2020, issued March 2017
 
350,000

 
350,000

 
350,000

2.85% Medium-term notes due in 2021, issued January 2016
 
600,000

 
600,000

 
600,000

2.55% Medium-term notes due in 2022, issued June 2017
 
400,000

 
400,000

 

3.35% Medium-term notes due in 2023, issued February 2018
 
350,000

 

 

3.50% Senior unsecured notes due in 2025, issued July 2015
 
450,000

 
450,000

 
450,000

4.625% Senior unsecured notes due in 2045, issued July 2015
 
300,000

 
300,000

 
300,000

Less: unamortized discount and debt issuance costs
 
(20,564
)
 
(19,821
)
 
(22,222
)
Gross long-term debt
 
5,981,190

 
5,714,527

 
6,017,858

Less: current portion of long-term debt, net of unamortized discount and debt issuance costs
 
(1,872,679
)
 
(1,127,269
)
 
(697,061
)
Total long-term debt
 
$
4,108,511

 
$
4,587,258

 
$
5,320,797

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

11. Asset-Backed Financing
The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash, through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing. The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE.
In transactions where the Company has power over the significant activities of the VIE and has an obligation to absorb losses or the right to receive benefits from the VIE that are potentially significant to the VIE, the Company is the primary beneficiary of the VIE and consolidates the VIE within its consolidated financial statements. On a consolidated basis, the asset-

22


backed financing is treated as a secured borrowing in this type of transaction and is referred to as an on-balance sheet asset-backed financing.
In transactions where the Company is not the primary beneficiary of the VIE, the Company must determine whether it can achieve a sale for accounting purposes under ASC Topic 860, "Transfers and Servicing." To achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond the Company’s control. If the Company does not meet all of these criteria for sale accounting, then the transaction is accounted for as a secured borrowing and is referred to as an on-balance sheet asset-backed financing.
If the Company meets all three of the sale criteria above, the transaction is recorded as a sale for accounting purposes and is referred to as an off-balance sheet asset-backed financing. Upon sale, the retail motorcycle finance receivables are removed from the Company’s balance sheet and a gain or loss is recognized for the difference between the cash proceeds received, the assets derecognized, and the liabilities recognized as part of the transaction. The gain or loss on sale is included in Financial Services revenue in the Consolidated Statement of Income.
The Company is not required, and does not currently intend, to provide any additional financial support to the on or off-balance sheet VIEs associated with these transactions. Investors and creditors in these transactions only have recourse to the assets held by the VIEs.

23


The following tables show the assets and liabilities related to the on-balance sheet asset-backed financings included in the financial statements (in thousands):
 
April 1, 2018
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securitizations
$
367,584

 
$
(11,387
)
 
$
38,207

 
$
1,207

 
$
395,611

 
$
284,793

Asset-backed U.S. commercial paper conduit facilities
299,318

 
(9,297
)
 
16,933

 
968

 
307,922

 
281,311

Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
183,073

 
(3,085
)
 
10,600

 
320

 
190,908

 
158,162

Total on-balance sheet assets and liabilities
$
849,975

 
$
(23,769
)
 
$
65,740

 
$
2,495

 
$
894,441

 
$
724,266

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securitizations
$
439,301

 
$
(13,686
)
 
$
34,919

 
$
1,260

 
$
461,794

 
$
352,624

Asset-backed U.S. commercial paper conduit facilities
300,530

 
(9,392
)
 
13,787

 
888

 
305,813

 
279,457

Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
203,691

 
(3,746
)
 
9,983

 
470

 
210,398

 
174,779

Total on-balance sheet assets and liabilities
$
943,522

 
$
(26,824
)
 
$
58,689

 
$
2,618

 
$
978,005

 
$
806,860

 
 
 
 
 
 
 
 
 
 
 
 
 
March 26, 2017
 
Finance receivables
 
Allowance for credit losses
 
Restricted cash
 
Other assets
 
Total assets
 
Asset-backed debt
On-balance sheet assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securitizations
$
772,152

 
$
(23,239
)
 
$
63,473

 
$
2,532

 
$
814,918

 
$
685,374

Asset-backed U.S. commercial paper conduit facilities
304,091

 
(9,178
)
 
15,781

 
672

 
311,366

 
286,205

Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Asset-backed Canadian commercial paper conduit facility
155,240

 
(3,048
)
 
11,025

 
382

 
163,599

 
141,013

Total on-balance sheet assets and liabilities
$
1,231,483

 
$
(35,465
)
 
$
90,279

 
$
3,586

 
$
1,289,883

 
$
1,112,592

On-Balance Sheet Asset-Backed Securitization VIEs
The Company transfers U.S. retail motorcycle finance receivables to SPEs which in turn issue secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. Each on-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors until the associated secured debt and other obligations are satisfied. Restricted cash balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual lives have various maturities ranging from 2020 to 2022.
The Company is the primary beneficiary of its on-balance sheet asset-backed securitization VIEs because it retains servicing rights and a residual interest in the VIEs in the form of a debt security. As the servicer, the Company is the variable

24


interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.
There were no on-balance sheet asset-backed securitization transactions during the first quarter of 2018 or 2017.
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facilities VIE
In December 2017, the Company renewed its existing $300.0 million and $600.0 million revolving facility agreements with a third-party bank-sponsored asset-backed U.S. commercial paper conduit. Availability under the revolving facilities (together, the U.S. Conduit Facilities) is based on, among other things, the amount of eligible U.S. retail motorcycle receivables held by the relevant SPE as collateral.
Under the U.S. Conduit Facilities, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to the third party bank-sponsored asset-backed commercial paper conduit. The assets of the SPE are restricted as collateral for the payment of the debt or other obligations arising in the transaction and are not available to pay other obligations or claims of the Company’s creditors. The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates or LIBOR to the extent the advance is not funded by a conduit lender through the issuance of commercial paper plus, in each case, a program fee based on outstanding principal. The U.S. Conduit Facilities also provide for an unused commitment fee based on the unused portion of the total aggregate commitment of $900.0 million. There is no amortization schedule; however, the debt will be reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the U.S. Conduit Facilities, any outstanding principal will continue to be reduced monthly through available collections. The contractual maturity of the debt is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of April 1, 2018, the U.S. Conduit Facilities have an expiration date of December 12, 2018.

The Company is the primary beneficiary of its U.S. Conduit Facilities VIE because it retains servicing rights and a residual interest in the VIE in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE.
The following table includes quarterly transfers of U.S. retail motorcycle finance receivables to the U.S. Conduit and the respective proceeds (in thousands):
 
2018
 
2017
 
Transfers
 
Proceeds
 
Transfers
 
Proceeds
First quarter
$
32,900

 
$
29,300

 
$
333,400

 
$
300,000


On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility
In June 2017, the Company amended its facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase eligible Canadian retail motorcycle finance receivables for proceeds up to C$220.0 million. The transferred assets are restricted as collateral for the payment of the debt. The terms for this debt provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment of C$220.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. The contractual maturity of the debt is approximately 5 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of April 1, 2018, the Canadian Conduit has an expiration date of June 30, 2018.
The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company does not consolidate the VIE. However, the Company treats the conduit facility as a secured borrowing as it maintains effective control over the assets transferred to the VIE and, therefore, does not meet the requirements for sale accounting.

25


As the Company participates in and does not consolidate the Canadian bank-sponsored, multi-seller conduit VIE, the maximum exposure to loss associated with this VIE, which would only be incurred in the unlikely event that all the finance receivables and underlying collateral have no residual value, was $32.7 million at April 1, 2018. The maximum exposure is not an indication of the Company's expected loss exposure.
The following table includes quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds (in thousands):
 
2018
 
2017
 
Transfers
 
Proceeds
 
Transfers
 
Proceeds
First quarter
$
7,600

 
$
6,200

 
$
6,300

 
$
5,500

Off-Balance Sheet Asset-Backed Securitization VIE
There were no off-balance sheet asset-backed securitization transactions during first quarter of 2018 or 2017. During the second quarter of 2016, the Company sold retail motorcycle finance receivables with a principal balance of $301.8 million into a securitization VIE that was not consolidated, recognized a gain of $9.3 million and received cash proceeds of $312.6 million. Similar to an on-balance sheet asset-backed securitization, the Company transferred U.S. retail motorcycle finance receivables to an SPE which in turn issued secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. The off-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitization are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transaction and are not available to pay other obligations or claims of the Company’s creditors. In an on-balance sheet asset-backed securitization, the Company retains a financial interest in the VIE in the form of a debt security. As part of this off-balance sheet securitization, the Company did not retain any financial interest in the VIE beyond servicing rights and ordinary representations and warranties and related covenants.
The Company is not the primary beneficiary of the off-balance sheet asset-backed securitization VIE because it only retained servicing rights and does not have the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. Accordingly, this transaction met the accounting sale requirements under ASC Topic 860 and was recorded as a sale for accounting purposes. Upon the sale, the retail motorcycle finance receivables were removed from the Company’s balance sheet and a gain was recognized for the difference between the cash proceeds received, the assets derecognized and the liabilities recognized as part of the transaction. The gain on sale was included in Financial Services revenue in the Consolidated Statement of Income.
At April 1, 2018, the assets of this off-balance sheet asset-backed securitization VIE were $127.6 million and represented the current unpaid principal balance of the retail motorcycle finance receivables, which was the Company’s maximum exposure to loss in the off-balance sheet VIE at April 1, 2018. This is based on the unlikely event that all the receivables have underwriting defects or other defects that trigger a violation of certain covenants and that the underlying collateral has no residual value. This maximum exposure is not an indication of expected losses.
Servicing Activities
The Company services all retail motorcycle finance receivables that it originates. When the Company transfers retail motorcycle finance receivables to SPEs through asset-backed financings, the Company retains the right to service the finance receivables and receives servicing fees based on the securitized finance receivables balance and certain ancillary fees. In on-balance sheet asset-backed financings, servicing fees are eliminated in consolidation and therefore are not recorded on a consolidated basis. In off-balance sheet asset-backed financings, servicing fees and ancillary fees are recorded in Financial Services revenue in the Consolidated Statement of Income. The fees the Company is paid for servicing represent adequate compensation, and consequently, the Company does not recognize a servicing asset or liability. The Company recognized servicing fee income of $0.4 million and $0.6 million during the first quarter of 2018 and 2017, respectively.
The unpaid principal balance of retail motorcycle finance receivables serviced by the Company was as follows (in thousands):
 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
On-balance sheet retail motorcycle finance receivables
$
5,923,564

 
$
5,993,185

 
$
5,867,143

Off-balance sheet retail motorcycle finance receivables
127,643

 
146,425

 
212,764

Total serviced retail motorcycle finance receivables
$
6,051,207

 
$
6,139,610

 
$
6,079,907


26


The unpaid principal balance of retail motorcycle finance receivables serviced by the Company 30 days or more delinquent was as follows (in thousands):
 
Amount 30 days or more past due:
 
April 1,
2018
 
December 31,
2017
 
March 26,
2017
On-balance sheet retail motorcycle finance receivables
$
166,560

 
$
227,127

 
$
162,386

Off-balance sheet retail motorcycle finance receivables
1,652

 
2,106

 
1,476

Total serviced retail motorcycle finance receivables
$
168,212

 
$
229,233

 
$
163,862

Credit losses, net of recoveries for the retail motorcycle finance receivables serviced by the Company were as follows (in thousands):
 
Three months ended
 
April 1,
2018
 
March 26,
2017
On-balance sheet retail motorcycle finance receivables
$
32,173

 
$
32,902

Off-balance sheet retail motorcycle finance receivables
361

 
414

Total serviced retail motorcycle finance receivables
$
32,534

 
$
33,316

12. Fair Value
The Company assesses the inputs used to measure fair value using a three-tier hierarchy.
Level 1 inputs include quoted prices for identical instruments and are the most observable.
Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates and commodity prices. The Company uses the market approach to derive the fair value for its Level 2 fair value measurements. Forward contracts for foreign currency and commodities are valued using current quoted forward rates and prices; investments in marketable securities and cash equivalents are valued using publicly quoted prices.
Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

27


Recurring Fair Value Measurements
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
 
April 1, 2018
 
Balance
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
653,124

 
$
326,324

 
$
326,800

 
$

Marketable securities
49,402

 
49,402

 

 

Derivatives
3,613

 

 
3,613

 

Total
$
706,139

 
$
375,726

 
$
330,413

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
22,850

 
$

 
$
22,850

 
$

 
 
 
 
 
 
 
 
 
December 31, 2017
 
Balance
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)