Harley Davidson 2012 Annual Report Download - page 62

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Servicing fees paid by VIEs to HDFS are eliminated in consolidation and therefore are not recorded on a consolidated
basis. HDFS is not required, and does not currently intend, to provide any additional financial support to its VIEs. Investors
and creditors only have recourse to the assets held by the VIEs.
Inventories – Inventories are valued at the lower of cost or market. Substantially all inventories located in the United
States are valued using the last-in, first-out (LIFO) method. Other inventories totaling $195.0 million at December 31, 2012
and $215.2 million at December 31, 2011 are valued at the lower of cost or market using the first-in, first-out (FIFO) method.
Property, Plant and Equipment – Property, plant and equipment is recorded at cost. Depreciation is determined on the
straight-line basis over the estimated useful lives of the assets. The following useful lives are used to depreciate the various
classes of property, plant and equipment: buildings – 30 years; building equipment and land improvements – 7 years;
machinery and equipment –3 to 10 years; furniture and fixtures -5 years; and software 3 to 7 years. Accelerated methods of
depreciation are used for income tax purposes.
Goodwill – Goodwill represents the excess of acquisition cost over the fair value of the net assets purchased. Goodwill is
tested for impairment, based on financial data related to the reporting unit to which it has been assigned, at least annually or
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment test
involves comparing the estimated fair value of the reporting unit associated with the goodwill to its carrying amount, including
goodwill. If the carrying amount of the reporting unit exceeds its fair value, goodwill must be adjusted to its implied fair value.
During 2012 and 2011, the Company tested its goodwill balances for impairment and no adjustments were recorded to goodwill
as a result of those reviews.
Long-lived Assets – The Company periodically evaluates the carrying value of long-lived assets to be held and used when
events and circumstances warrant such review. If the carrying value of a long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset for assets to be held
and used. The Company also reviews the useful life of its long-lived assets when events and circumstances indicate that the
actual useful life may be shorter than originally estimated. In the event that the actual useful life is deemed to be shorter than
the original useful life, depreciation is adjusted prospectively so that the remaining book value is depreciated over the revised
useful life.
Asset groups classified as held for sale are measured at the lower of carrying amount or fair value less cost to sell, and a
loss is recognized for any initial adjustment required to reduce the carrying amount to the fair value less cost to sell in the
period the held for sale criteria are met. The fair value less cost to sell must be assessed each reporting period the asset group
remains classified as held for sale. Gains or losses not previously recognized resulting from the sale of an asset group will be
recognized on the date of sale.
Product Warranty and Safety Recall Campaigns – The Company currently provides a standard two-year limited warranty
on all new motorcycles sold worldwide, except for Japan, where the Company provides a standard three-year limited warranty
on all new motorcycles sold. In addition, the Company started offering a one-year warranty for Parts & Accessories (P&A) in
2012. The warranty coverage for the retail customer generally begins when the product is sold to a retail customer. The
Company maintains reserves for future warranty claims which are based primarily on historical Company claim information.
Additionally, the Company has from time to time initiated certain voluntary safety recall campaigns. The Company reserves for
all estimated costs associated with safety recalls in the period that the safety recalls are announced.
Changes in the Company’s warranty and safety recall liability were as follows (in thousands):
2012 2011 2010
Balance, beginning of period $ 54,994 $ 54,134 $ 68,044
Warranties issued during the period 54,394 44,092 36,785
Settlements made during the period (67,247)(55,386)(58,067)
Recalls and changes to pre-existing warranty liabilities 18,122 12,154 7,372
Balance, end of period $ 60,263 $ 54,994 $ 54,134
The liability for safety recall campaigns was $4.6 million, $10.7 million and $3.2 million at December 31, 2012, 2011
and 2010, respectively.
Derivative Financial Instruments – The Company is exposed to certain risks such as foreign currency exchange rate risk,
interest rate risk and commodity price risk. To reduce its exposure to such risks, the Company selectively uses derivative