SEC Info - Harley-Davidson, Inc. - ‘10-Q’ for 9/25/22

ASSETS

Current assets:

Cash and cash equivalents

i 1,730,250

i 1,874,745

i 2,061,303

Accounts receivable, net

i 300,454

i 182,148

i 282,627

Finance receivables, net of allowance of $ i 61,671, $ i 60,734, and $ i 62,406

i 1,807,718

i 1,465,544

i 1,540,822

Inventories, net

i 680,762

i 712,942

i 475,314

Restricted cash

i 287,264

i 128,935

i 153,873

Other current assets

i 205,734

i 185,777

i 194,481

i 5,012,182

i 4,550,091

i 4,708,420

Finance receivables, net of allowance of $ i 298,425, $ i 278,645, and $ i 293,428

i 5,534,730

i 5,106,377

i 5,322,436

Property, plant and equipment, net

i 641,651

i 683,984

i 671,836

Pension and postretirement assets

i 424,784

i 386,152

i 132,958

Goodwill

i 60,440

i 63,177

i 63,841

Deferred income taxes

i 69,734

i 82,922

i 128,059

Lease assets

i 40,543

i 49,625

i 47,507

Other long-term assets

i 143,547

i 128,727

i 124,747

i 11,927,611

i 11,051,055

i 11,199,804

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

i 438,534

i 374,978

i 382,216

Accrued liabilities

i 710,544

i 601,981

i 599,852

Short-term deposits, net

i 97,856

i 72,146

i 92,626

Short-term debt

i 692,551

i 751,286

i 749,620

Current portion of long-term debt, net

i 1,740,422

i 1,542,496

i 1,605,798

i 3,679,907

i 3,342,887

i 3,430,112

Long-term deposits, net

i 246,879

i 218,180

i 197,644

Long-term debt, net

i 4,738,234

i 4,595,617

i 4,876,292

Lease liabilities

i 23,836

i 29,904

i 26,017

Pension and postretirement liabilities

i 92,953

i 95,299

i 103,144

Deferred income taxes

i 8,312

i 9,261

i 8,585

Other long-term liabilities

i 297,280

i 206,663

i 224,116

Commitments and contingencies (Note 16)

Shareholders’ equity:

Common stock

i 1,704

i 1,694

Additional paid-in-capital

i 1,575,632

i 1,547,011

i 1,540,235

Retained earnings

i 2,471,795

i 1,842,421

i 1,843,964

Accumulated other comprehensive loss

( i 273,987)

( i 240,919)

( i 455,115)

Treasury stock, at cost

( i 934,934)

( i 596,963)

( i 596,884)

i 2,840,210

i 2,553,244

i 2,333,894

i 11,927,611

i 11,051,055

i 11,199,804

HARLEY-DAVIDSON, INC.

CONSOLIDATED BALANCE SHEETS (continued)

(In thousands)

(Unaudited)

Balances held by consolidated variable interest entities (Note 12):

Finance receivables, net - current

i 635,628

i 493,543

i 531,942

Other assets

i 9,582

i 2,982

i 2,754

Finance receivables, net - non-current

i 2,730,915

i 1,734,428

i 1,961,367

Restricted cash - current and non-current

i 205,878

i 144,284

i 167,865

Current portion of long-term debt, net

i 736,332

i 569,145

i 629,600

Long-term debt, net

i 2,158,148

i 1,330,586

i 1,565,022

The accompanying notes are integral to the consolidated financial statements.

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended
	September 25, 2022		September 26, 2021
Net cash provided by operating activities (Note 7)	$	i 574,704	$	i 925,551
Cash flows from investing activities:
Capital expenditures	( i 84,947)		( i 61,476)
Origination of finance receivables	( i 3,773,830)		( i 3,444,953)
Collections on finance receivables	i 3,110,881		i 2,968,397




Other investing activities	i 2,160		i 2,485
Net cash used by investing activities	( i 745,736)		( i 535,547)
Cash flows from financing activities:
Proceeds from issuance of medium-term notes	i 495,785		i —
Repayments of medium-term notes	( i 950,000)		( i 1,400,000)


Proceeds from securitization debt	i 1,826,891		i 1,169,910
Repayments of securitization debt	( i 1,054,939)		( i 1,013,820)
Borrowings of asset-backed commercial paper	i 448,255		i 27,406
Repayments of asset-backed commercial paper	( i 228,431)		( i 206,671)
Net decrease in unsecured commercial paper	( i 60,281)		( i 261,978)

Net increase in deposits	i 54,080		i 210,144
Deposit in advance of business combination	i 100,000		i —
Dividends paid	( i 70,163)		( i 69,316)
Repurchase of common stock	( i 338,496)		( i 11,545)
Other financing activities	( i 1,237)		i 4,324
Net cash provided (used) by financing activities	i 221,464		( i 1,551,546)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	( i 33,361)		( i 11,050)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	i 17,071	$	( i 1,172,592)

Cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash, beginning of period	$	i 2,025,219	$	i 3,409,168
Net increase (decrease) in cash, cash equivalents and restricted cash	i 17,071		( i 1,172,592)
Cash, cash equivalents and restricted cash, end of period	$	i 2,042,290	$	i 2,236,576

Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows:
Cash and cash equivalents	$	i 1,730,250	$	i 2,061,303
Restricted cash	i 287,264		i 153,873
Restricted cash included in Other long-term assets	i 24,776		i 21,400
Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows	$	i 2,042,290	$	i 2,236,576

The accompanying notes are integral to the consolidated financial statements.

HARLEY-DAVIDSON, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands, except share and per share amounts)

Common Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Total

Issued
Shares

Balance

Balance, December 31, 2021

i 169,364,686

i 1,694

i 1,547,011

i 1,842,421

( i 240,919)

( i 596,963)

i 2,553,244

Net income

—

i 222,502

—

i 222,502

Other comprehensive income, net of tax (Note 17)

—

i 11,309

—

i 11,309

Dividends ($ i 0.1575 per share)

—

( i 24,056)

—

( i 24,056)

Repurchase of common stock

—

( i 261,737)

Share-based compensation

i 976,062

i 10

i 7,829

—

i 7,839

Balance, March 27, 2022

i 170,340,748

i 1,704

i 1,554,840

i 2,040,867

( i 229,610)

( i 858,700)

i 2,509,101

Net income

—

i 215,849

—

i 215,849

Other comprehensive loss, net of tax (Note 17)

—

( i 12,666)

—

( i 12,666)

Dividends ($ i 0.1575 per share)

—

( i 23,090)

—

( i 23,090)

Repurchase of common stock

—

( i 64,091)

Share-based compensation

i 23,479

—

i 9,524

—

i 525

i 10,049

Balance, June 26, 2022

i 170,364,227

i 1,704

i 1,564,364

i 2,233,626

( i 242,276)

( i 922,266)

i 2,635,152

Net income

—

i 261,186

—

i 261,186

Other comprehensive loss, net of tax (Note 17)

—

( i 31,711)

—

( i 31,711)

Dividends ($ i 0.1575 per share)

—

( i 23,017)

—

( i 23,017)

Repurchase of common stock

—

( i 12,668)

Share-based compensation

i 26,625

—

i 11,268

—

i —

i 11,268

Balance, September 25, 2022

i 170,390,852

i 1,704

i 1,575,632

i 2,471,795

( i 273,987)

( i 934,934)

i 2,840,210

Common Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Total

Issued
Shares

Balance

Balance, December 31, 2020

i 168,503,526

i 1,685

i 1,507,706

i 1,284,823

( i 483,417)

( i 588,012)

i 1,722,785

Net income

—

i 259,144

—

i 259,144

Other comprehensive income, net of tax (Note 17)

—

i 13,780

—

i 13,780

Dividends ($ i 0.1500 per share)

—

( i 23,105)

—

( i 23,105)

Repurchase of common stock

—

( i 5,646)

Share-based compensation

i 483,326

i 5

i 9,423

—

i 9,428

Balance, March 28, 2021

i 168,986,852

i 1,690

i 1,517,129

i 1,520,862

( i 469,637)

( i 593,658)

i 1,976,386

Net income

—

i 206,340

—

i 206,340

Other comprehensive income, net of tax (Note 17)

—

i 14,500

—

i 14,500

Dividends ($ i 0.1500 per share)

—

( i 23,104)

—

( i 23,104)

Repurchase of common stock

—

( i 5,265)

Share-based compensation

i 322,015

i 3

i 14,327

—

i 1,085

i 15,415

Balance, June 27, 2021

i 169,308,867

i 1,693

i 1,531,456

i 1,704,098

( i 455,137)

( i 597,838)

i 2,184,272

Net income

—

i 162,973

—

i 162,973

Other comprehensive income, net of tax (Note 17)

—

i 22

—

i 22

Dividends ($ i 0.1500 per share)

—

( i 23,107)

—

( i 23,107)

Repurchase of common stock

—

( i 634)

Share-based compensation

i 49,831

i 1

i 8,779

—

i 1,588

i 10,368

Balance, September 26, 2021

i 169,358,698

i 1,694

i 1,540,235

i 1,843,964

( i 455,115)

( i 596,884)

i 2,333,894

The accompanying notes are integral to the consolidated financial statements.

HARLEY-DAVIDSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. i Basis of Presentation and Use of Estimates

Principles of Consolidation and Basis of Presentation – The consolidated financial statements include the accounts of Harley-Davidson, Inc. and its subsidiaries, all of which are wholly-owned (the Company), including the accounts of the groups of companies referred to as Harley-Davidson Motor Company and Harley-Davidson Financial Services. 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 have been eliminated.

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

In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Consolidated balance sheets as of September 25, 2022 and September 26, 2021, the Consolidated statements of operations for the three and nine month periods then ended, the Consolidated statements of comprehensive income for the three and nine month periods then ended, the Consolidated statements of cash flows for the nine month periods then ended, and the Consolidated statements of shareholders' equity for the three month periods within the nine month periods ended September 25, 2022 and September 26, 2021.

Certain information and disclosures normally included in complete financial statements have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

2. i New Accounting Standards

i Accounting Standards Not Yet Adopted

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02). ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard (ASU 2016-13) that introduced the current expected credit losses (CECL) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has already adopted ASU 2016-13, the new guidance is effective for the fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a material impact on the Company's consolidated financial statements.

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.

i Disaggregated revenue by major source was as follows (in thousands):

Three months ended

Nine months ended

Motorcycles and Related Products Revenue:

Motorcycles

i 1,133,558

i 885,626

i 3,132,717

i 2,931,669

Parts and accessories

i 201,003

i 204,506

i 581,068

i 577,035

Apparel

i 69,834

i 49,424

i 198,568

i 155,378

Licensing

i 10,662

i 8,481

i 28,940

i 22,865

Other

i 21,905

i 12,581

i 65,311

i 37,278

i 1,436,962

i 1,160,618

i 4,006,604

i 3,724,225

Financial Services Revenue:

Interest income

i 179,261

i 174,103

i 509,702

i 501,645

Other

i 32,352

i 30,589

i 96,542

i 94,005

i 211,613

i 204,692

i 606,244

i 595,650

i 1,648,575

i 1,365,310

i 4,612,848

i 4,319,875

The Company maintains certain deferred revenue balances related to payments received at contract inception in advance of the Company’s performance under the contract and generally relates to the sale of Harley Owners Group® memberships and various financial services products. Deferred revenue is recognized as revenue as the Company performs under the contract. i Deferred revenue, included in Accrued liabilities and Other long-term liabilities on the Consolidated balance sheets, was as follows (in thousands):

Balance, beginning of period

i 40,092

i 36,614

Balance, end of period

i 45,746

i 38,682

Previously deferred revenue recognized as revenue in the three months ended September 25, 2022 and September 26, 2021 was $ i 7.0 million and $ i 6.1 million, respectively, and $ i 22.4 million and $ i 17.9 million in the nine months ended September 25, 2022 and September 26, 2021, respectively. The Company expects to recognize approximately $ i 18.2 million of the remaining unearned revenue over the next i 12 months and $ i 27.6 million thereafter.

4. i Restructuring Activities

The Company's restructuring activities are included in Restructuring expense (benefit) on the Consolidated statements of operations.

In 2020, the Company initiated restructuring activities including a workforce reduction, the termination of certain current and future products, facility changes, optimizing its global dealer network, exiting certain international markets, and discontinuing its sales and manufacturing operations in India. The workforce reduction resulted in the termination of approximately i 500 employees. In addition, the India action resulted in the termination of approximately i 70 employees. These restructuring activities are essentially complete, and the Company does not expect restructuring expenses of any significance in 2022.

Since the inception of the restructuring activities in 2020 through the nine months ended September 25, 2022, the Company has incurred cumulative restructuring expenses of $ i 133.0 million, including $ i 121.5 million and $ i 11.5 million in the Motorcycles and Financial Services segments, respectively. i This includes restructuring expense (benefit) for the three and nine month periods ended September 25, 2022 and September 26, 2021 by segment as follows (in thousands):

Three months ended

Nine months ended

Motorcycles and Related Products

i 3

i 517

( i 389)

i 731

Financial Services

i —

i 98

i —

i 436

i 3

i 615

( i 389)

i 1,167

Changes in accrued restructuring expenses, which are included in Accrued liabilities on the Consolidated balance sheets, were as follows (in thousands):

Three months ended September 25, 2022

Employee Termination Benefits

Contract Terminations
& Other

Non-Current Asset Adjustments

Total

Balance, beginning of period

i 79

i 744

i —

i 823

Restructuring expense

i —

i 3

i —

i 3

Utilized – cash

( i 19)

( i 221)

i —

( i 240)

Utilized – non cash

i —

Foreign currency changes

( i 4)

( i 5)

i —

( i 9)

Balance, end of period

i 56

i 521

i —

i 577

Three months ended September 26, 2021

Employee Termination Benefits

Contract Terminations
& Other

Non-Current Asset Adjustments

Total

Balance, beginning of period

i 1,246

i 2,084

i —

i 3,330

Restructuring (benefit) expense

( i 165)

i 807

( i 27)

i 615

Utilized – cash

( i 397)

( i 1,197)

i —

( i 1,594)

Utilized – non cash

i —

i 27

Foreign currency changes

( i 7)

( i 21)

i —

( i 28)

Balance, end of period

i 677

i 1,673

i —

i 2,350

Nine months ended September 25, 2022

Employee Termination Benefits

Contract Terminations
& Other

Non-Current Asset Adjustments

Total

Balance, beginning of period

i 121

i 2,874

i —

i 2,995

Restructuring benefit

i —

( i 389)

i —

( i 389)

Utilized – cash

( i 55)

( i 1,949)

i —

( i 2,004)

Utilized – non cash

i —

Foreign currency changes

( i 10)

( i 15)

i —

( i 25)

Balance, end of period

i 56

i 521

i —

i 577

Nine months ended September 26, 2021

Employee Termination Benefits

Contract Terminations
& Other

Non-Current Asset Adjustments

Total

Balance, beginning of period

i 7,724

i 16,196

i —

i 23,920

Restructuring (benefit) expense

( i 1,131)

i 2,576

( i 278)

i 1,167

Utilized – cash

( i 5,743)

( i 16,987)

i —

( i 22,730)

Utilized – non cash

i —

i 278

Foreign currency changes

( i 173)

( i 112)

i —

( i 285)

Balance, end of period

i 677

i 1,673

i —

i 2,350

The Company’s effective income tax rate for the nine months ended September 25, 2022 was i 23.0% compared to i 22.8% for the nine months ended September 26, 2021.

6. i Earnings Per Share

i The computation of basic and diluted earnings per share was as follows (in thousands, except per share amounts):

Three months ended

Nine months ended

Net income

i 261,186

i 162,973

i 699,537

i 628,457

Basic weighted-average shares outstanding

i 146,217

i 153,863

i 148,673

i 153,700

Effect of dilutive securities – employee stock compensation plan

i 856

i 1,254

i 862

i 1,203

Diluted weighted-average shares outstanding

i 147,073

i 155,117

i 149,535

i 154,903

Net earnings per share:

Basic

i 1.79

i 1.06

i 4.71

i 4.09

Diluted

i 1.78

i 1.05

i 4.68

i 4.06

Shares of common stock related to share-based compensation that were not included in the effect of dilutive securities because the effect would have been anti-dilutive include i 3.9 million and i 0.5 million shares for the three months ended September 25, 2022 and September 26, 2021, respectively, and i 2.3 million and i 0.5 million shares for the nine months ended September 25, 2022 and September 26, 2021, respectively.

7. i Additional Balance Sheet and Cash Flow Information

i Investments in Marketable Securities – The Company’s investments in marketable securities consisted of the following (in thousands):

Mutual funds

i 33,631

i 49,650

i 48,766

Mutual funds, included in Other long-term assets on the Consolidated balance sheets, are carried at fair value with gains and losses recorded in income. Mutual funds are held to support certain deferred compensation obligations.

Inventories, net – Substantially all inventories located in the U.S. 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. Motorcycle finished goods inventories include motorcycles that are ready for sale and motorcycles that are substantially complete but awaiting installation of certain components affected by global supply chain constraints. i Inventories, net consisted of the following (in thousands):

Raw materials and work in process

i 311,424

i 347,915

i 279,699

Motorcycle finished goods

i 304,195

i 345,956

i 178,315

Parts and accessories and apparel

i 160,724

i 103,191

i 86,977

Inventory at lower of FIFO cost or net realizable value

i 776,343

i 797,062

i 544,991

Excess of FIFO over LIFO cost

( i 95,581)

( i 84,120)

( i 69,677)

i 680,762

i 712,942

i 475,314

Restricted cash – During the quarter ended September 25, 2022, the Company received a $ i 100 million cash deposit from an independent strategic investor, Kwang Yang Motor Co., Ltd. (KYMCO), in advance of the pending LiveWire transaction, discussed further in Note 20. Restricted cash recorded in connection with asset-backed financing is discussed further in Note 12.

Deposits – Harley-Davidson Financial Services offers brokered certificates of deposit to customers indirectly through contractual arrangements with third-party banks and/or securities brokerage firms through its bank subsidiary. The Company had $ i 344.7 million, $ i 290.3 million and $ i 290.3 million, net of fees, of interest-bearing brokered certificates of deposit outstanding as of September 25, 2022, December 31, 2021, and September 26, 2021, respectively. The liabilities for deposits are included in Short-term deposits, net or Long-term deposits, net on the Consolidated balance sheets based upon the term of each brokered certificate of deposit issued. Each separate brokered certificate of deposit is issued under a master certificate, and as such, all outstanding brokered certificates of deposit are considered below the Federal Deposit Insurance Corporation insurance coverage limits.

i Future maturities of the Company's certificates of deposit as of September 25, 2022 were as follows (in thousands):


2022	$	i 27,475
2023	i 80,106
2024	i 80,378
2025	i 24,006
2026	i 79,742
Thereafter	i 54,158
Future maturities	i 345,865
Unamortized fees	( i 1,130)
	$	i 344,735

i Operating Cash Flow – The reconciliation of Net income to Net cash provided by operating activities was as follows (in thousands):


	Nine months ended
	September 25, 2022		September 26, 2021
Cash flows from operating activities:
Net income	$	i 699,537	$	i 628,457
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization	i 114,867		i 122,483
Amortization of deferred loan origination costs	i 72,214		i 63,265
Amortization of financing origination fees	i 11,475		i 10,426
Provision for long-term employee benefits	( i 14,637)		i 19,640
Employee benefit plan contributions and payments	( i 4,766)		( i 14,677)
Stock compensation expense	i 33,595		i 34,032
Net change in wholesale finance receivables related to sales	( i 294,698)		( i 22,031)
Provision for credit losses	i 94,572		i 4,935



Deferred income taxes	( i 2,980)		i 10,626

Other, net	i 24,392		i 2,094
Changes in current assets and liabilities:
Accounts receivable, net	( i 150,726)		( i 148,670)
Finance receivables – accrued interest and other	i 3,566		i 11,088
Inventories, net	( i 6,577)		i 31,874
Accounts payable and accrued liabilities	i 37,745		i 168,306

Other current assets	( i 42,875)		i 3,703
	( i 124,833)		i 297,094
Net cash provided by operating activities	$	i 574,704	$	i 925,551

8. i Finance Receivables

The Company provides retail financial services to customers of its dealers in the U.S. 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 and are primarily related to dealer sales of motorcycles to retail customers. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.

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

i Finance receivables, net were as follows (in thousands):

Retail finance receivables

i 6,945,649

i 6,493,519

i 6,727,956

Wholesale finance receivables

i 756,895

i 417,781

i 491,136

i 7,702,544

i 6,911,300

i 7,219,092

Allowance for credit losses

( i 360,096)

( i 339,379)

( i 355,834)

i 7,342,448

i 6,571,921

i 6,863,258

The Company’s finance receivables are reported at amortized cost, net of the allowance for credit losses. Amortized cost includes the principal outstanding, accrued interest, and deferred loan fees and costs. The Company's allowance for credit losses reflects expected lifetime credit losses on its finance receivables. Based on differences in the nature of the finance receivables and the underlying methodology for calculating the allowance for credit losses, the Company segments its finance receivables into the retail and wholesale portfolios. The Company further disaggregates each portfolio by credit quality indicators. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit quality indicators for each portfolio.

The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilizes a vintage-based loss forecast methodology that includes decompositions for probability of default, exposure at default, attrition rate, and recovery balance rate. Reasonable and supportable economic forecasts for a i two-year period are incorporated into the methodology to reflect the estimated impact of changes in future economic conditions, such as unemployment rates, household obligations or other relevant factors, over the i two-year reasonable and supportable period. For periods beyond the Company’s reasonable and supportable forecasts, the Company reverts to its average historical loss experience using a mean-reversion process over a i three-year period. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, or term as well as other relevant factors.

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 to determine whether the loans share similar risk characteristics. The Company individually evaluates loans that do not share risk characteristics. Loans identified as those for which foreclosure is probable are classified as Non-Performing, and a specific allowance for credit losses is established when appropriate. The specific allowance is determined based on the amortized cost of the related finance receivable and the estimated fair value of the collateral, less selling costs and the cash that the Company expects to receive. Finance receivables in the wholesale portfolio not individually assessed are aggregated, based on similar risk characteristics, according to the Company’s internal risk rating system and measured collectively. 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 credit loss experience, reasonable and supportable economic forecasts, and the value of the underlying collateral and expected recoveries.

The Company considers various third-party economic forecast scenarios as part of estimating the allowance for expected credit losses and applies a probability-weighting to those economic forecast scenarios. Each quarter, the Company’s outlook on economic conditions impacts the Company's retail and wholesale estimates for expected credit losses. During the third quarter of 2022, economic recovery slowed and the ongoing pace of economic recovery remained uncertain as the magnitude of inflation continued to challenge the U.S. and global economies, near-term recession concerns have not abated, muted consumer confidence persisted, the conflict in Ukraine was wide-reaching with resolution uncertain, and global supply chain issues continued, among other factors. As such, at the end of the third quarter of 2022, the Company’s outlook on economic

conditions and its probability weighting of its economic forecast scenarios included continued slow economic improvement in certain factors, such as unemployment, with a high probability of a near-term recession.

Additionally, the historical experience incorporated into the portfolio-specific models does not fully reflect the Company's comprehensive expectations regarding the future. As such, the Company incorporated qualitative factors to establish an appropriate allowance for credit losses balance. These factors include motorcycle recovery value considerations, delinquency adjustments, specific problem loan trends, and changes in other portfolio-specific loan characteristics.

Due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company in either portfolio could differ from the amounts estimated. Further, the Company’s allowance for credit losses incorporates known conditions at the balance sheet date and the Company’s expectations surrounding the economic forecasts. The Company will continue to monitor future economic trends and conditions. Expectations surrounding the Company's economic forecasts may change in future periods as additional information becomes available.

i Changes in the Company's allowance for credit losses on its finance receivables by portfolio were as follows (in thousands):

Three months ended September 25, 2022

Nine months ended September 25, 2022

Retail

Wholesale

Total

Retail

Wholesale

Total

Balance, beginning of period

i 342,691

i 9,446

i 352,137

i 326,320

i 13,059

i 339,379

Provision for credit losses

i 34,697

i 1,920

i 36,617

i 96,265

( i 1,693)

i 94,572

Charge-offs

( i 40,283)

i —

( i 40,283)

( i 114,145)

i —

( i 114,145)

Recoveries

i 11,625

i —

i 11,625

i 40,290

i —

i 40,290

Balance, end of period

i 348,730

i 11,366

i 360,096

i 348,730

i 11,366

i 360,096

Three months ended September 26, 2021

Nine months ended September 26, 2021

Retail

Wholesale

Total

Retail

Wholesale

Total

Balance, beginning of period

i 342,490

i 16,321

i 358,811

i 371,738

i 19,198

i 390,936

Provision for credit losses

i 13,861

( i 2,653)

i 11,208

i 10,465

( i 5,530)

i 4,935

Charge-offs

( i 24,670)

i —

( i 24,670)

( i 76,366)

i —

( i 76,366)

Recoveries

i 10,335

i 150

i 10,485

i 36,179

i 150

i 36,329

Balance, end of period

i 342,016

i 13,818

i 355,834

i 342,016

i 13,818

i 355,834

The Company manages retail credit risk through its credit approval process 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. For the Company’s U.S. and Canadian retail finance receivables, the Company determines the credit quality indicator for each loan at origination and does not update the credit quality indicator subsequent to the loan origination date.

As loan performance by credit quality indicator differs between the U.S. and Canadian retail loans, the Company’s credit quality indicators vary for the i two portfolios. For U.S. retail finance receivables, those with a FICO score of 740 or above at origination are generally considered super prime, loans with a FICO score between 640 and 740 are generally categorized as prime, and loans with FICO score below 640 are generally considered sub-prime. For Canadian retail finance receivables, those with a FICO score of 700 or above at origination are generally considered super prime, loans with a FICO score between 620 and 700 are generally categorized as prime, and loans with FICO score below 620 are generally considered sub-prime.

The amortized cost of the Company's U.S. and Canadian retail finance receivables by vintage and credit quality indicator was as follows (in thousands):

2022

2021

2020

2019

2018

2017 & Prior

Total

U.S. Retail:

Super prime

i 1,002,057

i 684,597

i 312,641

i 187,399

i 87,508

i 36,424

i 2,310,626

Prime

i 1,281,483

i 982,085

i 476,677

i 297,481

i 160,552

i 102,887

i 3,301,165

Sub-prime

i 389,674

i 334,611

i 185,874

i 122,231

i 67,147

i 58,364

i 1,157,901

i 2,673,214

i 2,001,293

i 975,192

i 607,111

i 315,207

i 197,675

i 6,769,692

Canadian Retail:

Super prime

i 46,930

i 33,149

i 19,727

i 14,500

i 6,365

i 2,085

i 122,756

Prime

i 15,043

i 11,537

i 8,149

i 5,738

i 3,562

i 2,345

i 46,374

Sub-prime

i 1,984

i 1,552

i 1,321

i 991

i 582

i 397

i 6,827

i 63,957

i 46,238

i 29,197

i 21,229

i 10,509

i 4,827

i 175,957

i 2,737,171

i 2,047,531

i 1,004,389

i 628,340

i 325,716

i 202,502

i 6,945,649

2021

2020

2019

2018

2017

2016 & Prior

Total

U.S. Retail:

Super prime

i 1,010,636

i 484,479

i 316,390

i 171,763

i 65,753

i 27,424

i 2,076,445

Prime

i 1,391,385

i 712,858

i 470,177

i 277,206

i 142,288

i 82,169

i 3,076,083

Sub-prime

i 476,688

i 273,787

i 182,002

i 105,330

i 61,923

i 51,035

i 1,150,765

i 2,878,709

i 1,471,124

i 968,569

i 554,299

i 269,964

i 160,628

i 6,303,293

Canadian Retail:

Super prime

i 51,779

i 32,724

i 27,073

i 13,984

i 4,619

i 1,614

i 131,793

Prime

i 16,882

i 12,675

i 9,244

i 6,230

i 3,628

i 1,779

i 50,438

Sub-prime

i 2,356

i 2,134

i 1,571

i 947

i 606

i 381

i 7,995

i 71,017

i 47,533

i 37,888

i 21,161

i 8,853

i 3,774

i 190,226

i 2,949,726

i 1,518,657

i 1,006,457

i 575,460

i 278,817

i 164,402

i 6,493,519

2021

2020

2019

2018

2017

2016 & Prior

Total

U.S. Retail:

Super prime

i 896,163

i 551,078

i 367,490

i 206,333

i 83,674

i 38,494

i 2,143,232

Prime

i 1,228,335

i 805,349

i 538,440

i 323,554

i 171,308

i 107,715

i 3,174,701

Sub-prime

i 428,238

i 312,163

i 207,139

i 119,730

i 72,026

i 64,890

i 1,204,186

i 2,552,736

i 1,668,590

i 1,113,069

i 649,617

i 327,008

i 211,099

i 6,522,119

Canadian Retail:

Super prime

i 50,110

i 36,596

i 31,173

i 16,701

i 6,265

i 2,239

i 143,084

Prime

i 16,166

i 13,904

i 10,336

i 7,026

i 4,228

i 2,350

i 54,010

Sub-prime

i 2,345

i 2,436

i 1,694

i 1,090

i 704

i 474

i 8,743

i 68,621

i 52,936

i 43,203

i 24,817

i 11,197

i 5,063

i 205,837

i 2,621,357

i 1,721,526

i 1,156,272

i 674,434

i 338,205

i 216,162

i 6,727,956

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 the Company’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. Additionally, the Company classifies dealers identified as those in which foreclosure is probable as Non-Performing. 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 by the Company on a quarterly basis.

The amortized cost of the Company's wholesale financial receivables, by vintage and credit quality indicator, was as follows (in thousands):

2022

2021

2020

2019

2018

2017 & Prior

Total

Non-Performing

i —

Doubtful

i —

Substandard

i —

Special Mention

i —

Medium Risk

i —

Low Risk

i 714,122

i 22,850

i 7,169

i 3,749

i 8,607

i 398

i 756,895

i 714,122

i 22,850

i 7,169

i 3,749

i 8,607

i 398

i 756,895

2021

2020

2019

2018

2017

2016 & Prior

Total

Non-Performing

i —

Doubtful

i —

Substandard

i —

Special Mention

i —

Medium Risk

i —

Low Risk

i 380,211

i 11,379

i 11,047

i 10,565

i 3,662

i 917

i 417,781

i 380,211

i 11,379

i 11,047

i 10,565

i 3,662

i 917

i 417,781

2021

2020

2019

2018

2017

2016 & Prior

Total

Non-Performing

i —

Doubtful

i —

Substandard

i —

Special Mention

i —

Medium Risk

i —

Low Risk

i 432,088

i 19,082

i 22,821

i 11,218

i 4,222

i 1,705

i 491,136

i 432,088

i 19,082

i 22,821

i 11,218

i 4,222

i 1,705

i 491,136

Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables at amortized cost, excluding accrued interest, are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed, or the receivable is otherwise deemed uncollectible. The Company reverses accrued interest related to charged-off accounts against Financial Services interest income when the account is charged-off. The Company reversed $ i 3.9 million and $ i 3.1 million of accrued interest against Financial Services interest income during the three months ended September 25, 2022 and September 26, 2021, respectively, and $ i 13.0 million and $ i 11.6 million during the nine months ended September 25, 2022 and September 26, 2021, respectively. All retail finance

receivables accrue interest until either collected or charged-off. Due to the timely write-off of accrued interest, the Company made the election provided under Accounting Standards Codification (ASC) Topic 326, Financial Instruments - Credit Losses to exclude accrued interest from its allowance for credit losses. Accordingly, as of September 25, 2022, December 31, 2021 and September 26, 2021, all retail finance receivables were accounted for as interest-earning receivables.

Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Wholesale finance receivables are written down once the Company 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 Company determines that foreclosure is probable, 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. Once an account is charged-off, the Company will reverse the associated accrued interest against interest income. As the Company follows a non-accrual policy for interest, the allowance for credit losses excludes accrued interest for the wholesale portfolio. There were i i i i no / / / charged-off accounts during the three and nine months ended September 25, 2022 and September 26, 2021. As such, the Company did not reverse any accrued interest in those periods. There were no dealers on non-accrual status at September 25, 2022, December 31, 2021, and September 26, 2021.

i The aging analysis of the Company's finance receivables was as follows (in thousands):

Current

31-60 Days
Past Due

61-90 Days
Past Due

Greater than
90 Days
Past Due

Total
Past Due

Total

Retail finance receivables

i 6,714,095

i 136,957

i 49,260

i 45,337

i 231,554

i 6,945,649

Wholesale finance receivables

i 756,609

i 271

i 15

i —

i 286

i 756,895

i 7,470,704

i 137,228

i 49,275

i 45,337

i 231,840

i 7,702,544

Current

31-60 Days
Past Due

61-90 Days
Past Due

Greater than
90 Days
Past Due

Total
Past Due

Total

Retail finance receivables

i 6,298,485

i 115,942

i 44,326

i 34,766

i 195,034

i 6,493,519

Wholesale finance receivables

i 417,720

i 9

i 1

i 51

i 61

i 417,781

i 6,716,205

i 115,951

i 44,327

i 34,817

i 195,095

i 6,911,300

Current

31-60 Days
Past Due

61-90 Days
Past Due

Greater than
90 Days
Past Due

Total
Past Due

Total

Retail finance receivables

i 6,561,412

i 101,157

i 35,273

i 30,114

i 166,544

i 6,727,956

Wholesale finance receivables

i 490,974

i 46

i 92

i 24

i 162

i 491,136

i 7,052,386

i 101,203

i 35,365

i 30,138

i 166,706

i 7,219,092

Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total finance receivables in troubled debt restructurings were not significant as of September 25, 2022, December 31, 2021 and September 26, 2021. Additionally, in certain situations, the Company may offer short-term adjustments to customer payment due dates without affecting the associated interest rate or loan term. From the second quarter of 2020 through the end of the second quarter of 2021, in response to the impact of the COVID-19 pandemic, the Company granted an increased amount of short-term payment due date extensions on eligible retail loans to help retail customers get through financial difficulties associated with the COVID-19 pandemic. The Company continues to grant standard payment extensions to customers in accordance with its policies.

9. i Derivative Financial Instruments and Hedging Activities

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

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

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

The Company periodically utilizes treasury rate lock contracts to fix the interest rate on a portion of the principal related to an anticipated issuance of long-term debt and cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on its foreign currency-denominated debt. The Company also utilizes interest rate caps to facilitate certain asset-backed securitization transactions.

All derivative financial instruments are recognized on the Consolidated balance sheets at fair value. In accordance with ASC Topic 815, Derivatives and Hedging (ASC Topic 815), the accounting for changes in the fair value of a derivative financial 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 derivative financial instruments that are designated as cash flow hedges are initially recorded in Other comprehensive (loss) income (OCI) and subsequently reclassified into income when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an ongoing basis, whether the derivative financial instruments that are designated as cash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. No component of a designated hedging derivative financial instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative financial instruments not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign currency, commodity risks, and interest rate risks. Changes in the fair value of derivative financial instruments not designated as hedging instruments are recorded directly in income. Cash flow activity associated with the Company's derivative financial instruments is recorded in Cash flows from operating activities on the Consolidated statement of cash flow.

i The notional and fair values of the Company's derivative financial instruments under ASC Topic 815 were as follows (in thousands):

Derivative Financial Instruments
Designated as Cash Flow Hedging Instruments

Notional
Value

Assets(a)

Liabilities(b)

Notional
Value

Assets(a)

Liabilities(b)

Notional
Value

Assets(a)

Liabilities(b)

Foreign currency contracts

i 459,252

i 29,975

i 331

i 562,262

i 14,644

i 1,388

i 406,220

i 10,174

i 502

Commodity contracts

i 1,724

i 169

i —

i 996

i 19

i 39

i 1,000

i 458

i —

Cross-currency swaps

i 1,367,460

i —

i 149,479

i 1,367,460

i 35,071

i —

i 1,367,460

i 47,989

i —

i 1,828,436

i 30,144

i 149,810

i 1,930,718

i 49,734

i 1,427

i 1,774,680

i 58,621

i 502

Derivative Financial Instruments
Not Designated as Hedging Instruments

Notional
Value

Assets(a)

Liabilities(b)

Notional
Value

Assets(a)

Liabilities(b)

Notional
Value

Assets(a)

Liabilities(b)

Foreign currency contracts

i —

i 241,935

i 1,299

i 916

i 135,381

i 375

i 162

Commodity contracts

i 8,197

i 27

i 919

i 10,631

i 641

i 18

i 9,920

i 739

i 30

Interest rate caps

i 1,183,178

i 3,857

i —

i 504,526

i 360

i —

i 608,222

i 112

i —

i 1,191,375

i 3,884

i 919

i 757,092

i 2,300

i 934

i 753,523

i 1,226

i 192

(a)Includes $ i 3.9 million of interest rate caps recorded in Other long-term assets as of September 25, 2022 with all remaining amounts recorded in Other current assets.

(b)Includes $ i 82.7 million of cross-currency swaps recorded in Other long-term liabilities as of September 25, 2022 with all remaining amounts recorded in Accrued liabilities.

The amounts of gains and losses related to the Company's derivative financial instruments designated as cash flow hedges were as follows (in thousands):

Gain/(Loss)
Recognized in OCI

Gain/(Loss)
Reclassified from AOCL into Income

Three months ended

Nine months ended

Three months ended

Nine months ended

Foreign currency contracts

i 26,657

i 8,653

i 54,429

i 20,829

i 15,202

( i 3,504)

i 30,484

( i 16,051)

Commodity contracts

i 88

i 390

i 816

i 546

i 147

i 65

i 627

i 36

Cross-currency swaps

( i 94,912)

( i 40,741)

( i 184,551)

( i 90,633)

( i 95,111)

( i 33,600)

( i 201,377)

( i 77,775)

Treasury rate lock contracts

i —

( i 90)

( i 127)

( i 335)

( i 375)

Interest rate swaps

i —

i 397

i —

( i 2,689)

( i 68,167)

( i 31,698)

( i 129,306)

( i 68,861)

( i 79,852)

( i 37,166)

( i 170,601)

( i 96,854)

The location and amount of gains and losses recognized in income related to the Company's derivative financial instruments designated as cash flow hedges were as follows (in thousands):

Motorcycles
cost of goods sold

Selling, administrative &
engineering expense

Interest expense

Financial Services interest expense

Three months ended September 25, 2022

Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded

i 946,656

i 265,841

i 8,124

i 60,740

Gain/(loss) reclassified from AOCL into income:

Foreign currency contracts

i 15,202

—

Commodity contracts

i 147

—

Cross-currency swaps

—

( i 95,111)

—

Treasury rate lock contracts

—

( i 90)

i —

Three months ended September 26, 2021

Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded

i 850,193

i 254,312

i 7,779

i 44,770

Gain/(loss) reclassified from AOCL into income:

Foreign currency contracts

( i 3,504)

—

Commodity contracts

i 65

—

Cross-currency swaps

—

( i 33,600)

—

Treasury rate lock contracts

—

( i 91)

( i 36)

Motorcycles
cost of goods sold

Selling, administrative &
engineering expense

Interest expense

Financial Services interest expense

Nine months ended September 25, 2022

Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded

i 2,721,913

i 740,699

i 23,555

i 150,488

Gain/(loss) reclassified from AOCL into income:

Foreign currency contracts

i 30,484

—

Commodity contracts

i 627

—

Cross-currency swaps

—

( i 201,377)

—

Treasury rate lock contracts

—

( i 272)

( i 63)

Nine months ended September 26, 2021

Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded

i 2,586,264

i 747,665

i 23,209

i 149,098

Gain/(loss) reclassified from AOCL into income:

Foreign currency contracts

( i 16,051)

—

Commodity contracts

i 36

—

Cross-currency swaps

—

( i 77,775)

—

Treasury rate lock contracts

—

( i 272)

( i 103)

Interest rate swaps

—

( i 2,689)

The amount of net gain included in Accumulated other comprehensive loss (AOCL) at September 25, 2022, estimated to be reclassified into income over the next 12 months was $ i 1.8 million.

The amount of gains and losses recognized in income related to derivative financial instruments not designated as hedging instruments were as follows (in thousands). Gains and losses on foreign currency contracts and commodity contracts were recorded in Motorcycles cost of goods sold. Gains and losses on interest rate caps were recorded in Selling, administrative & engineering expense.

Amount of Gain/(Loss)
Recognized in Income

Three months ended

Nine months ended

Foreign currency contracts

i 3,061

i 2,152

i 9,348

( i 3,396)

Commodity contracts

( i 760)

i 102

i 472

i 1,528

Interest rate caps

i 1,997

( i 39)

i 2,015

i 65

i 4,298

i 2,215

i 11,835

( i 1,803)

The Company is exposed to credit loss risk in the event of non-performance by counterparties to its derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to its derivative financial instruments to fail to meet their 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 their position.

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

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

In accordance with ASC Topic 842, Leases (ASC Topic 842), the Company elected the short-term lease practical expedient that allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company has also elected the practical expedient under ASC Topic 842 allowing entities to not separate non-lease components from lease components, but instead account for such components as a single lease component for all leases except leases involving assets used in manufacturing and distribution processes.

The Company has operating lease arrangements for sales and administrative offices, manufacturing and distribution facilities, product testing facilities, equipment and vehicles. The Company’s leases have remaining lease terms ranging from i 1 to i 6 years, some of which include options to extend the lease term for periods generally not greater than i 5 years and some of which include options to terminate the leases within i 1 year. Certain leases also include options to purchase the leased asset. The Company's leases do not contain any material residual value guarantees or material restrictive covenants.

Operating lease expense for the three months ended September 25, 2022 and September 26, 2021 was $ i 6.2 million and $ i 6.1 million, respectively, and $ i 19.3 million and $ i 18.7 million for the nine months ended September 25, 2022 and September 26, 2021, respectively. This includes variable lease costs related to assets used in manufacturing and distribution processes of approximately $ i 0.8 million and $ i 0.9 million for the three months ended September 25, 2022 and September 26, 2021, respectively, and $ i 2.7 million and $ i 3.4 million for the nine months ended September 25, 2022 and September 26, 2021, respectively. Other variable and short-term lease costs were not material.

i Balance sheet information related to the Company's leases was as follows (in thousands):

Lease assets

i 40,543

i 49,625

i 47,507

Accrued liabilities

i 15,366

i 17,369

i 18,468

Lease liabilities

i 23,836

i 29,904

i 26,017

i 39,202

i 47,273

i 44,485

i Future maturities of the Company's operating lease liabilities as of September 25, 2022 were as follows (in thousands):


2022	$	i 4,502
2023	i 14,351
2024	i 8,437
2025	i 6,121
2026	i 4,927
Thereafter	i 2,130
Future lease payments	i 40,468
Present value discount	( i 1,266)
Lease liabilities	$	i 39,202

Other lease information surrounding the Company's operating leases was as follows (dollars in thousands):

Three months ended

Nine months ended

Cash outflows for amounts included in the measurement of lease liabilities

i 5,391

i 4,756

i 14,985

i 20,479

ROU assets obtained in exchange for lease obligations, net of modifications

i 1,980

i 11,189

i 8,333

i 17,390

Weighted-average remaining lease term (in years)

i 3.43

i 3.86

i 3.36

Weighted-average discount rate

i 2.1

i 1.9

i 2.4

i Debt with a contractual term less than 12 months is generally classified as short-term and consisted of the following (in thousands):

Unsecured commercial paper

i 692,551

i 751,286

i 749,620

Debt with a contractual term greater than 12 months is generally classified as long-term and consisted of the following (in thousands):

Secured debt:

Asset-backed Canadian commercial paper conduit facility

i 82,154

i 85,054

i 98,310

Asset-backed U.S. commercial paper conduit facility

i 489,074

i 272,589

i 242,254

Asset-backed securitization debt

i 2,416,075

i 1,634,753

i 1,961,571

Unamortized discounts and debt issuance costs

( i 10,669)

( i 7,611)

( i 9,203)

i 2,976,634

i 1,984,785

i 2,292,932

Unsecured notes (at par value):

Medium-term notes:

Due in 2022, issued February 2019

i 4.05

i —

i 550,000

Due in 2022, issued June 2017

i 2.55

i —

i 400,000

Due in 2023, issued February 2018

i 3.35

i 350,000

Due in 2023, issued May 2020(a)

i 4.94

i 632,586

i 737,302

i 756,763

Due in 2024, issued November 2019(b)

i 3.14

i 583,926

i 680,586

i 698,550

Due in 2025, issued June 2020

i 3.35

i 700,000

Due in 2027, issued February 2022

i 3.05

i 500,000

i —

Unamortized discounts and debt issuance costs

( i 9,682)

( i 9,228)

( i 10,649)

i 2,756,830

i 3,408,660

i 3,444,664

Senior notes:

Due in 2025, issued July 2015

i 3.50

i 450,000

Due in 2045, issued July 2015

i 4.625

i 300,000

Unamortized discounts and debt issuance costs

( i 4,808)

( i 5,332)

( i 5,506)

i 745,192

i 744,668

i 744,494

i 3,502,022

i 4,153,328

i 4,189,158

Long-term debt

i 6,478,656

i 6,138,113

i 6,482,090

Current portion of long-term debt, net

( i 1,740,422)

( i 1,542,496)

( i 1,605,798)

Long-term debt, net

i 4,738,234

i 4,595,617

i 4,876,292

(a)€ i i i 650.0 / / million par value remeasured to U.S. dollar at September 25, 2022, December 31, 2021, and September 26, 2021, respectively

(b)€ i i i 600.0 / / million par value remeasured to U.S. dollar at September 25, 2022, December 31, 2021, and September 26, 2021, respectively

i Future principal payments of the Company's debt obligations as of September 25, 2022 were as follows (in thousands):


2022	$	i 978,288
2023	i 1,701,700
2024	i 1,257,491
2025	i 1,866,611
2026	i 521,545
Thereafter	i 870,731
Future principal payments	i 7,196,366
Unamortized discounts and debt issuance costs	( i 25,159)
	$	i 7,171,207

12. i Asset-Backed Financing

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

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

In transactions where the Company is not the primary beneficiary of the VIE, the Company must determine whether it can achieve a sale for accounting purposes under ASC Topic 860, Transfers 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 Consolidated balance sheets 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 on the Consolidated statements of operations.

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.

i The assets and liabilities related to the on-balance sheet asset-backed financings included in the Consolidated balance sheets were as follows (in thousands):

Finance receivables

Allowance for credit losses

Restricted cash

Other assets

Total assets

Asset-backed debt, net

On-balance sheet assets and liabilities:

Consolidated VIEs:

Asset-backed securitizations

i 3,003,578

( i 150,672)

i 170,297

i 8,274

i 3,031,477

i 2,405,406

Asset-backed U.S. commercial paper conduit facility

i 540,751

( i 27,114)

i 35,581

i 1,308

i 550,526

i 489,074

Unconsolidated VIEs:

Asset-backed Canadian commercial paper conduit facility

i 93,781

( i 3,874)

i 6,162

i 168

i 96,237

i 82,154

i 3,638,110

( i 181,660)

i 212,040

i 9,750

i 3,678,240

i 2,976,634

Finance receivables

Allowance for credit losses

Restricted cash

Other assets

Total assets

Asset-backed debt, net

On-balance sheet assets and liabilities:

Consolidated VIEs:

Asset-backed securitizations

i 2,048,194

( i 102,779)

i 123,717

i 2,328

i 2,071,460

i 1,627,142

Asset-backed U.S. commercial paper conduit facility

i 297,454

( i 14,898)

i 20,567

i 654

i 303,777

i 272,589

Unconsolidated VIEs:

Asset-backed Canadian commercial paper conduit facility

i 97,180

( i 3,990)

i 6,191

i 139

i 99,520

i 85,054

i 2,442,828

( i 121,667)

i 150,475

i 3,121

i 2,474,757

i 1,984,785

Finance receivables

Allowance for credit losses

Restricted cash

Other assets

Total assets

Asset-backed debt, net

On-balance sheet assets and liabilities:

Consolidated VIEs:

Asset-backed securitizations

i 2,362,454

( i 119,975)

i 148,177

i 2,228

i 2,392,884

i 1,952,368

Asset-backed U.S. commercial paper conduit facility

i 264,226

( i 13,396)

i 19,688

i 526

i 271,044

i 242,254

Unconsolidated VIEs:

Asset-backed Canadian commercial paper conduit facility

i 112,374

( i 4,729)

i 7,408

i 157

i 115,210

i 98,310

i 2,739,054

( i 138,100)

i 175,273

i 2,911

i 2,779,138

i 2,292,932

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 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. 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 currently have various contractual maturities ranging from 2024 to 2030.

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

Quarterly transfers of U.S. retail motorcycle finance receivables to SPEs, the respective proceeds, and the respective proceeds, net of discounts and issuance costs were as follows (in millions):

2022

2021

Transfers

Proceeds

Proceeds, net

Transfers

Proceeds

Proceeds, net

First quarter

i —

i 663.1

i 600.0

i 597.4

Second quarter

i 2,176.4

i 1,836.3

i 1,826.9

i —

Third quarter

i —

i 635.5

i 575.0

i 572.5

i 2,176.4

i 1,836.3

i 1,826.9

i 1,298.6

i 1,175.0

i 1,169.9

On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facility VIE – On September 23, 2022, the Company amended its $ i 900.0 million revolving facility agreement (the U.S. Conduit Facility) with third-party banks and their asset-backed U.S. commercial paper conduits, increasing the aggregate commitment to $ i 1.5 billion. Under the revolving facility agreement, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party banks and their asset-backed U.S. commercial paper conduits. In addition to the $ i 1.5 billion aggregate commitment, the agreement allows for additional borrowings, at the lender’s discretion, of up to $ i 300.0 million. Availability under the U.S. Conduit Facility is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the SPE as collateral.

Under the U.S. Conduit Facility, 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 if funded by a conduit lender through the issuance of commercial paper. Subsequent to the amendment date, the interest rate on any borrowings, if not funded by a conduit lender through the issuance of commercial paper, along with the current outstanding debt as of the date of the borrowings, is based on the Secured Overnight Financing Rate (SOFR). Prior to the amendment date, if not funded by a conduit lender through the issuance of commercial paper, the terms of the interest were based on LIBOR, with provisions for a transition to other benchmark rates. In each of these cases, a program fee is assessed based on the outstanding debt principal balance. The U.S. Conduit Facility also provides for an unused commitment fee based on the unused portion of the total aggregate commitment. When calculating the unused fee, the aggregate commitment does not include any unused portion of the $ i 300.0 million additional borrowings allowed. 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 U.S. Conduit Facility, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately i 4 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of September 25, 2022, the U.S. Conduit Facility has an expiration date of November 18, 2022.

The Company is the primary beneficiary of its U.S. Conduit Facility 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.

There were i no finance receivable transfers under the U.S. Conduit Facility during the third quarter of 2022. During the second quarter of 2022, the Company transferred $ i 420.8 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $ i 362.8 million of debt under the U.S. Conduit Facility. During the first quarter of 2022, the Company transferred $ i 47.1 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $ i 41.3 million of debt under the U.S. Conduit Facility. There were i no finance receivable transfers under the U.S. Conduit Facility during the nine months ended September 26, 2021.

On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility – In June 2022, the Company renewed its facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase eligible Canadian retail motorcycle finance receivables for proceeds up to C$ i 125.0 million. The transferred assets are restricted as collateral for the

payment of the associated 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$ i 125.0 million. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables is approximately i 5 years. Unless earlier terminated or extended by mutual agreement between the Company and the lenders, as of September 25, 2022, the Canadian Conduit has an expiration date of June 30, 2023.

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

As the Company participates in and does not consolidate the Canadian bank-sponsored, multi-seller conduit VIE, the maximum exposure to loss associated with this VIE, which would only be incurred in the unlikely event that all the finance receivables and underlying collateral have no residual value, was $ i 14.1 million at September 25, 2022. The maximum exposure is not an indication of the Company's expected loss exposure.

Quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds were as follows (in millions):

2022

2021

Transfers

Proceeds

Transfers

Proceeds

First quarter

i 25.3

i 21.2

i —

Second quarter

i —

Third quarter

i 27.8

i 23.0

i 32.8

i 27.4

i 53.1

i 44.2

i 32.8

i 27.4

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

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

Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity prices, and yield curves. The Company uses the market approach to derive the fair value for its Level 2 fair value measurements. Foreign currency contracts, commodity contracts, and cross-currency swaps are valued using quoted forward rates and prices; interest rate caps are valued using quoted interest rates and yield curves.

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

i Recurring Fair Value Measurements – The Company’s assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

Balance

Level 1

Level 2

Assets:

Cash equivalents

i 1,324,705

i 1,057,000

i 267,705

Marketable securities

i 33,631

i —

Derivative financial instruments

i 34,028

i —

i 34,028

i 1,392,364

i 1,090,631

i 301,733

Liabilities:

Derivative financial instruments

i 150,729

i —

i 150,729

Balance

Level 1

Level 2

Assets:

Cash equivalents

i 1,617,887

i 1,337,900

i 279,987

Marketable securities

i 49,650

i —

Derivative financial instruments

i 52,034

i —

i 52,034

i 1,719,571

i 1,387,550

i 332,021

Liabilities:

Derivative financial instruments

i 2,361

i —

i 2,361

Balance

Level 1

Level 2

Assets:

Cash equivalents

i 1,753,398

i 1,503,400

i 249,998

Marketable securities

i 48,766

i —

Derivative financial instruments

i 59,847

i —

i 59,847

i 1,862,011

i 1,552,166

i 309,845

Liabilities:

Derivative financial instruments

i 694

i —

i 694

Nonrecurring Fair Value Measurements – Repossessed inventory is recorded at the lower of cost or net realizable value through a nonrecurring fair value measurement. Repossessed inventory was $ i 20.3 million at September 25, 2022 and $ i 18.3 million at December 31, 2021 and September 26, 2021, for which the fair value adjustment was a decrease of $ i 2.5 million, $ i 2.9 million and $ i 1.4 million, respectively. Fair value is estimated using Level 2 inputs based on the recent market values of repossessed inventory.

Fair Value of Financial Instruments Measured at Cost – The carrying value of the Company's Cash and cash equivalents and Restricted cash approximates their fair values. i The fair value and carrying value of the Company’s remaining financial instruments that are measured at cost or amortized cost were as follows (in thousands):

Fair Value

Carrying Value

Fair Value

Carrying Value

Fair Value

Carrying Value

Assets:

Finance receivables, net

i 7,555,135

i 7,342,448

i 6,794,499

i 6,571,921

i 7,117,828

i 6,863,258

Liabilities:

Deposits, net

i 369,429

i 344,735

i 293,602

i 290,326

i 292,284

i 290,270

Debt:

Unsecured commercial paper

i 692,551

i 751,286

i 749,620

Asset-backed U.S. commercial paper conduit facility

i 489,074

i 272,589

i 242,254

Asset-backed Canadian commercial paper conduit facility

i 82,154

i 85,054

i 98,310

Asset-backed securitization debt

i 2,385,056

i 2,405,406

i 1,633,749

i 1,627,142

i 1,967,893

i 1,952,368

Medium-term notes

i 2,612,372

i 2,756,830

i 3,513,815

i 3,408,660

i 3,583,411

i 3,444,664

Senior notes

i 637,494

i 745,192

i 790,373

i 744,668

i 798,518

i 744,494

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

Deposits, net – The carrying value of deposits is amortized cost, net of fees. The fair value of deposits is estimated based upon rates currently available for deposits with similar terms and maturities. Fair value is calculated using Level 3 inputs.

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

14. i Product Warranty and Recall Campaigns

The Company currently provides a standard i two-year limited warranty on all new motorcycles sold worldwide, except in certain markets, where the Company currently provides a standard i three-year limited warranty. The Company also provides a i five-year limited warranty on the battery for electric motorcycles. In addition, the Company provides a i one-year warranty for parts and accessories. The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The Company accrues for future warranty claims at the time of shipment using an estimated cost based primarily on historical Company claim information.

Additionally, the Company has from time to time initiated certain voluntary recall campaigns. The Company records estimated recall costs when the liability is both probable and estimable. This generally occurs when the Company's management approves and commits to a recall. The warranty and recall liability is included in Accrued liabilities and Other long-term liabilities on the Consolidated balance sheets. i Changes in the Company’s warranty and recall liabilities were as follows (in thousands):

Three months ended

Nine months ended

Balance, beginning of period

i 61,727

i 73,626

i 61,621

i 69,208

Warranties issued during the period

i 11,094

i 9,516

i 31,522

i 34,006

Settlements made during the period

( i 12,099)

( i 10,860)

( i 29,228)

( i 29,823)

Recalls and changes to pre-existing warranty liabilities

i 17,181

( i 569)

i 13,988

( i 1,678)

Balance, end of period

i 77,903

i 71,713

i 77,903

i 71,713

The liability for recall campaigns, included in the balance above, was $ i 31.2 million, $ i 16.9 million and $ i 21.9 million at September 25, 2022, December 31, 2021 and September 26, 2021, respectively.

15. i Employee Benefit Plans

The Company has a qualified pension plan and postretirement healthcare benefit plans. The plans cover certain eligible employees and retirees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees. Service cost is allocated among Selling, administrative and engineering expense, Motorcycles cost of goods sold and Inventories, net. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit (income) cost are presented in Other income, net. i Components of net periodic benefit (income) cost for the Company's defined benefit plans were as follows (in thousands):

Three months ended

Nine months ended

Pension and SERPA Benefits:

Service cost

i 4,763

i 6,348

i 14,289

i 19,044

Interest cost

i 15,473

i 15,472

i 46,418

i 46,412

Expected return on plan assets

( i 31,476)

( i 32,720)

( i 94,428)

( i 98,160)

Amortization of unrecognized:

Prior service credit

( i 328)

( i 312)

( i 984)

( i 936)

Net loss

i 7,978

i 18,386

i 23,934

i 55,158

Settlement (gain) loss

i —

( i 256)

i 816

Net periodic benefit (income) cost

( i 3,590)

i 7,174

( i 11,027)

i 22,334

Postretirement Healthcare Benefits:

Service cost

i 1,161

i 1,288

i 3,482

i 3,864

Interest cost

i 1,904

i 1,626

i 5,712

i 4,878

Expected return on plan assets

( i 3,809)

( i 3,495)

( i 11,427)

( i 10,485)

Amortization of unrecognized:

Prior service credit

( i 581)

( i 1,743)

Net loss

i 122

i 264

i 366

i 792

Net periodic benefit income

( i 1,203)

( i 898)

( i 3,610)

( i 2,694)

There are no required or planned voluntary qualified pension plan contributions for 2022. The Company expects it will continue to make ongoing benefit payments under the SERPA and postretirement healthcare plans.

16. i Commitments and Contingencies

Litigation and Other Claims – The Company is subject to lawsuits and other claims related to product, product recall, commercial, employee, environmental and other matters. In determining costs to accrue related to these items, the Company carefully analyzes cases and considers the likelihood of adverse judgments or outcomes, as well as the potential range of possible loss. The Company accrues for matters when losses are both probable and estimable. Any amounts accrued for these matters are monitored on an ongoing basis and are updated based on new developments or new information as it becomes available for each matter. The Company also maintains insurance coverage for product liability exposures. The Company believes that its accruals and insurance coverage are adequate and there are no material exposures to loss in excess of amounts accrued and insured for losses related to these matters.

Supply Matter – During the second quarter of 2022, the Company received information from a third-party supplier concerning a regulatory compliance matter relating to the supplier's component part. As a result, out of an abundance of caution, the Company suspended all vehicle assembly and shipments (excluding LiveWire models) for approximately two weeks during the second quarter of 2022. The Company continues to work through the regulatory compliance matter with its relevant suppliers and the regulatory agency. Given the uncertainties related to this matter, the Company is currently unable to reasonably estimate any potential additional costs or recall expenses it may incur. While at this time the Company does not expect that this matter will result in additional costs or recall expenses that are material, it is possible that the Company could incur additional costs or recall expenses that are material.

17. i Accumulated Other Comprehensive Loss

i Changes in Accumulated other comprehensive loss were as follows (in thousands):

Three months ended September 25, 2022

Foreign currency translation adjustments

Derivative financial instruments

Pension and postretirement benefit plans

Total

Balance, beginning of period

( i 79,543)

i 20,775

( i 183,508)

( i 242,276)

Other comprehensive loss, before reclassifications

( i 47,333)

( i 68,167)

—

( i 115,500)

Income tax benefit

i 1,088

i 14,803

—

i 15,891

( i 46,245)

( i 53,364)

—

( i 99,609)

Reclassifications:

Net loss on derivative financial instruments

—

i 79,852

—

i 79,852

Prior service credits(a)

—

( i 909)

Actuarial losses(a)

—

i 8,100

Reclassifications before tax

—

i 79,852

i 7,191

i 87,043

Income tax expense

—

( i 17,457)

( i 1,688)

( i 19,145)

—

i 62,395

i 5,503

i 67,898

Other comprehensive (loss) income

( i 46,245)

i 9,031

i 5,503

( i 31,711)

Balance, end of period

( i 125,788)

i 29,806

( i 178,005)

( i 273,987)

Three months ended September 26, 2021

Foreign currency translation adjustments

Derivative financial instruments

Pension and postretirement benefit plans

Total

Balance, beginning of period

( i 23,512)

( i 29,088)

( i 402,537)

( i 455,137)

Other comprehensive loss, before reclassifications

( i 18,296)

( i 31,698)

—

( i 49,994)

Income tax benefit

i 460

i 6,928

—

i 7,388

( i 17,836)

( i 24,770)

—

( i 42,606)

Reclassifications:

Net loss on derivative financial instruments

—

i 37,166

—

i 37,166

Prior service credits(a)

—

( i 893)

Actuarial losses(a)

—

i 18,650

Reclassifications before tax

—

i 37,166

i 17,757

i 54,923

Income tax expense

—

( i 8,126)

( i 4,169)

( i 12,295)

—

i 29,040

i 13,588

i 42,628

Other comprehensive (loss) income

( i 17,836)

i 4,270

i 13,588

i 22

Balance, end of period

( i 41,348)

( i 24,818)

( i 388,949)

( i 455,115)

Nine months ended September 25, 2022

Foreign currency translation adjustments

Derivative financial instruments

Pension and postretirement benefit plans

Total

Balance, beginning of period

( i 44,401)

( i 2,005)

( i 194,513)

( i 240,919)

Other comprehensive loss, before reclassifications

( i 82,737)

( i 129,306)

—

( i 212,043)

Income tax benefit

i 1,350

i 28,025

—

i 29,375

( i 81,387)

( i 101,281)

—

( i 182,668)

Reclassifications:

Net loss on derivative financial instruments

—

i 170,601

—

i 170,601

Prior service credits(a)

—

( i 2,727)

Actuarial losses(a)

—

i 24,300

Reclassifications before tax

—

i 170,601

i 21,573

i 192,174

Income tax expense

—

( i 37,509)

( i 5,065)

( i 42,574)

—

i 133,092

i 16,508

i 149,600

Other comprehensive (loss) income

( i 81,387)

i 31,811

i 16,508

( i 33,068)

Balance, end of period

( i 125,788)

i 29,806

( i 178,005)

( i 273,987)

Nine months ended September 26, 2021

Foreign currency translation adjustments

Derivative financial instruments

Pension and postretirement benefit plans

Total

Balance, beginning of period

( i 7,589)

( i 46,116)

( i 429,712)

( i 483,417)

Other comprehensive loss, before reclassifications

( i 33,648)

( i 68,861)

—

( i 102,509)

Income tax (expense) benefit

( i 111)

i 15,026

—

i 14,915

( i 33,759)

( i 53,835)

—

( i 87,594)

Reclassifications:

Net loss on derivative financial instruments

—

i 96,854

—

i 96,854

Prior service credits(a)

—

( i 2,679)

Actuarial losses(a)

—

i 55,950

Reclassifications before tax

—

i 96,854

i 53,271

i 150,125

Income tax expense

—

( i 21,721)

( i 12,508)

( i 34,229)

—

i 75,133

i 40,763

i 115,896

Other comprehensive (loss) income

( i 33,759)

i 21,298

i 40,763

i 28,302

Balance, end of period

( i 41,348)

( i 24,818)

( i 388,949)

( i 455,115)

(a)Amounts reclassified are included in the computation of net periodic benefit (income) cost, discussed further in Note 15

18. i Reportable Segments

Harley-Davidson, Inc. is the parent company for the groups of companies referred to as Harley-Davidson Motor Company and Harley-Davidson Financial Services. The Company operates in i two business segments: Motorcycles and Related Products (Motorcycles) and Financial Services. The Company's reportable segments are strategic business units that offer different products and services and are managed separately based on the fundamental differences in their operations.

The Motorcycles segment consists of the activities of Harley-Davidson Motor Company which designs, manufactures and sells motorcycles. The Motorcycles segment also sells motorcycle parts, accessories, and apparel as well as licenses its trademarks. The Company's products are sold to retail customers primarily through a network of dealers.

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

i Selected segment information is set forth below (in thousands):

Three months ended

Nine months ended

Motorcycles and Related Products:

Motorcycles revenue

i 1,436,962

i 1,160,618

i 4,006,604

i 3,724,225

Gross profit

i 490,306

i 310,425

i 1,284,691

i 1,137,961

Selling, administrative and engineering expense

i 232,541

i 212,243

i 632,756

i 626,211

Restructuring expense (benefit)

i 3

i 517

( i 389)

i 731

Operating income

i 257,762

i 97,665

i 652,324

i 511,019

Financial Services:

Financial Services revenue

i 211,613

i 204,692

i 606,244

i 595,650

Financial Services expense

i 130,657

i 98,047

i 353,003

i 275,487

Restructuring expense

i —

i 98

i —

i 436

Operating income

i 80,956

i 106,547

i 253,241

i 319,727

Operating income

i 338,718

i 204,212

i 905,565

i 830,746

Total assets for the Motorcycles and Financial Services segments were $ i 3.4 billion and $ i 8.5 billion, respectively, as of September 25, 2022, $ i 3.3 billion and $ i 7.7 billion, respectively, as of December 31, 2021, and $ i 3.0 billion and $ i 8.2 billion, respectively, as of September 26, 2021.

19. i Supplemental Consolidating Data

The supplemental consolidating legal entity data for Harley-Davidson Motor Company, Harley-Davidson Financial Services and related consolidating adjustments are presented for informational purposes. The legal entity income statement information presented below differs from reportable segment income statement information due to the allocation of legal entity consolidating adjustments to income for reportable segments. i Supplemental consolidating data is as follows (in thousands):

Three months ended September 25, 2022

Harley-Davidson Motor Company

Harley-Davidson Financial Services

Consolidating Adjustments

Consolidated

Revenue:

Motorcycles and Related Products

i 1,439,894

i —

( i 2,932)

i 1,436,962

Financial Services

i —

i 212,100

( i 487)

i 211,613

i 1,439,894

i 212,100

( i 3,419)

i 1,648,575

Costs and expenses:

Motorcycles and Related Products cost of goods sold

i 946,656

i —

i 946,656

Financial Services interest expense

i —

i 60,740

i —

i 60,740

Financial Services provision for credit losses

i —

i 36,617

i —

i 36,617

Selling, administrative and engineering expense

i 233,151

i 36,231

( i 3,541)

i 265,841

Restructuring expense

i 3

i —

i 3

i 1,179,810

i 133,588

( i 3,541)

i 1,309,857

Operating income

i 260,084

i 78,512

i 122

i 338,718

Other income, net

i 9,358

i —

i 9,358

Investment income

i 201,723

i —

( i 200,000)

i 1,723

Interest expense

i 8,124

i —

i 8,124

Income before income taxes

i 463,041

i 78,512

( i 199,878)

i 341,675

Provision for income taxes

i 61,390

i 19,099

i —

i 80,489

Net income

i 401,651

i 59,413

( i 199,878)

i 261,186

Nine months ended September 25, 2022

Harley-Davidson Motor Company

Harley-Davidson Financial Services

Consolidating Adjustments

Consolidated

Revenue:

Motorcycles and Related Products

i 4,015,779

i —

( i 9,175)

i 4,006,604

Financial Services

i —

i 607,876

( i 1,632)

i 606,244

i 4,015,779

i 607,876

( i 10,807)

i 4,612,848

Costs and expenses:

Motorcycles and Related Products cost of goods sold

i 2,721,913

i —

i 2,721,913

Financial Services interest expense

i —

i 150,488

i —

i 150,488

Financial Services provision for credit losses

i —

i 94,572

i —

i 94,572

Selling, administrative and engineering expense

i 634,506

i 117,117

( i 10,924)

i 740,699

Restructuring benefit

( i 389)

i —

( i 389)

i 3,356,030

i 362,177

( i 10,924)

i 3,707,283

Operating income

i 659,749

i 245,699

i 117

i 905,565

Other income, net

i 30,443

i —

i 30,443

Investment (income) loss

i 196,214

i —

( i 200,000)

( i 3,786)

Interest expense

i 23,555

i —

i 23,555

Income before income taxes

i 862,851

i 245,699

( i 199,883)

i 908,667

Provision for income taxes

i 150,231

i 58,899

i —

i 209,130

Net income

i 712,620

i 186,800

( i 199,883)

i 699,537

Three months ended September 26, 2021

Harley-Davidson Motor Company

Harley-Davidson Financial Services

Consolidating Adjustments

Consolidated

Revenue:

Motorcycles and Related Products

i 1,167,432

i —

( i 6,814)

i 1,160,618

Financial Services

i —

i 202,080

i 2,612

i 204,692

i 1,167,432

i 202,080

( i 4,202)

i 1,365,310

Costs and expenses:

Motorcycles and Related Products cost of goods sold

i 850,193

i —

i 850,193

Financial Services interest expense

i —

i 44,770

i —

i 44,770

Financial Services provision for credit losses

i —

i 11,208

i —

i 11,208

Selling, administrative and engineering expense

i 216,030

i 42,686

( i 4,404)

i 254,312

Restructuring expense

i 517

i 98

i —

i 615

i 1,066,740

i 98,762

( i 4,404)

i 1,161,098

Operating income

i 100,692

i 103,318

i 202

i 204,212

Other income, net

i 858

i —

i 858

Investment income

i 120,198

i —

( i 120,000)

i 198

Interest expense

i 7,779

i —

i 7,779

Income before income taxes

i 213,969

i 103,318

( i 119,798)

i 197,489

Provision for income taxes

i 7,408

i 27,108

i —

i 34,516

Net income

i 206,561

i 76,210

( i 119,798)

i 162,973

Nine months ended September 26, 2021

Harley-Davidson Motor Company

Harley-Davidson Financial Services

Consolidating Adjustments

Consolidated

Revenue:

Motorcycles and Related Products

i 3,742,869

i —

( i 18,644)

i 3,724,225

Financial Services

i —

i 590,468

i 5,182

i 595,650

i 3,742,869

i 590,468

( i 13,462)

i 4,319,875

Costs and expenses:

Motorcycles and Related Products cost of goods sold

i 2,586,264

i —

i 2,586,264

Financial Services interest expense

i —

i 149,098

i —

i 149,098

Financial Services provision for credit losses

i —

i 4,935

i —

i 4,935

Selling, administrative and engineering expense

i 635,902

i 125,053

( i 13,290)

i 747,665

Restructuring expense

i 731

i 436

i —

i 1,167

i 3,222,897

i 279,522

( i 13,290)

i 3,489,129

Operating income

i 519,972

i 310,946

( i 172)

i 830,746

Other income, net

i 1,825

i —

i 1,825

Investment income

i 244,331

i —

( i 240,000)

i 4,331

Interest expense

i 23,209

i —

i 23,209

Income before income taxes

i 742,919

i 310,946

( i 240,172)

i 813,693

Provision for income taxes

i 112,974

i 72,262

i —

i 185,236

Net income

i 629,945

i 238,684

( i 240,172)

i 628,457

Harley-Davidson Motor Company

Harley-Davidson Financial Services

Consolidating Adjustments

Consolidated

ASSETS

Current assets:

Cash and cash equivalents

i 926,389

i 803,861

i —

i 1,730,250

Accounts receivable, net

i 695,899

i —

( i 395,445)

i 300,454

Finance receivables, net

i —

i 1,807,718

i —

i 1,807,718

Inventories, net

i 680,762

i —

i 680,762

Restricted cash

i 100,000

i 187,264

i —

i 287,264

Other current assets

i 167,999

i 54,251

( i 16,516)

i 205,734

i 2,571,049

i 2,853,094

( i 411,961)

i 5,012,182

Finance receivables, net

i —

i 5,534,730

i —

i 5,534,730

Property, plant and equipment, net

i 616,382

i 25,269

i —

i 641,651

Pension and postretirement assets

i 424,784

i —

i 424,784

Goodwill

i 60,440

i —

i 60,440

Deferred income taxes

i 15,806

i 79,162

( i 25,234)

i 69,734

Lease assets

i 34,230

i 6,313

i —

i 40,543

Other long-term assets

i 206,409

i 43,368

( i 106,230)

i 143,547

i 3,929,100

i 8,541,936

( i 543,425)

i 11,927,611

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

i 414,448

i 419,531

( i 395,445)

i 438,534

Accrued liabilities

i 532,808

i 193,328

( i 15,592)

i 710,544

Short-term deposits, net

i —

i 97,856

i —

i 97,856

Short-term debt

i —

i 692,551

i —

i 692,551

Current portion of long-term debt, net

i —

i 1,740,422

i —

i 1,740,422

i 947,256

i 3,143,688

( i 411,037)

i 3,679,907

Long-term deposits, net

i —

i 246,879

i —

i 246,879

Long-term debt, net

i 745,192

i 3,993,042

i —

i 4,738,234

Lease liabilities

i 17,524

i 6,312

i —

i 23,836

Pension and postretirement liabilities

i 92,953

i —

i 92,953

Deferred income taxes

i 32,199

i 582

( i 24,469)

i 8,312

Other long-term liabilities

i 157,112

i 138,027

i 2,141

i 297,280

Commitments and contingencies (Note 16)

Shareholders’ equity

i 1,936,864

i 1,013,406

( i 110,060)

i 2,840,210

i 3,929,100

i 8,541,936

( i 543,425)

i 11,927,611