Harley Davidson 2013 Annual Report Download - page 14

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• The Company’s financial services operations are exposed to credit risk on its retail and wholesale receivables.
Credit risk is the risk of loss arising from a failure by a customer, including the Company's independent dealers and
distributors, to meet the terms of any contract with the Company’s financial services operations. Credit losses are
influenced by general business and economic conditions, including unemployment rates, bankruptcy filings and other
factors that negatively affect household incomes, as well as contract terms, customer credit profiles and the new and
used motorcycle market. Negative changes in general business, economic or market factors may have an additional
adverse impact on the Company’s financial services credit losses and future earnings. While HDFS continued to
experience historically low levels of retail credit losses during 2013, the Company believes HDFS' retail credit losses
may increase over time due to changing consumer credit behavior and HDFS' efforts to increase prudently structured
loan approvals in the sub-prime lending environment. Credit losses are also adversely impacted by increases in the
frequency of loss and by decreases in the value of repossessed Harley-Davidson branded motorcycles. If there are
adverse circumstances that involve a material decline in values of Harley-Davidson branded motorcycles, those
circumstances or any related decline in resale values for Harley-Davidson branded motorcycles could contribute to
increased delinquencies and credit losses.
• The Company has a number of competitors, some of which have greater financial resources than the Company.
Many of the Company’s competitors are more diversified than the Company, and they may compete in all segments of
the motorcycle market, other powersports markets and/or the automotive market. Also, the Company’s manufacturer’s
suggested retail price for its motorcycles is generally higher than its competitors, and if price becomes a more
important competitive factor for consumers in the markets in which the Company competes, the Company may be at a
competitive disadvantage. In addition, the Company’s financial services operations face competition from various
banks, insurance companies and other financial institutions that may have access to additional sources of capital at
more competitive rates and terms, particularly for borrowers in higher credit tiers. The Company's responses to these
competitive pressures, or its failure to adequately address and respond to these competitive pressures, may have a
material adverse effect on the Company’s business and results of operations.
• The Company’s marketing strategy of appealing to and growing sales to multi-generational and multi-cultural
customers worldwide may not continue to be successful. The Company has been successful in marketing its
products in large part by promoting the experience of Harley-Davidson motorcycling. To sustain and grow the
business over the long-term, the Company must continue to be successful selling products and promoting the
experience of motorcycling to both core customers and outreach customers such as women, young adults and
ethnically diverse adults. The Company must also execute its multi-generational and multi-cultural strategy without
adversely impacting the strength of the brand with core customers.
• The Company’s success depends upon the continued strength of the Harley-Davidson brand. The Company
believes that the Harley-Davidson brand has significantly contributed to the success of its business and that
maintaining and enhancing the brand is critical to expanding its customer base. Failure to protect the brand from
infringers or to grow the value of the Harley-Davidson brand may have a material adverse effect on the Company’s
business and results of operations.
• The Company is exposed to market risk from changes in foreign exchange rates, commodity prices and interest
rates. The Company sells its products internationally and in most markets those sales are made in the foreign
country’s local currency. Shifting foreign exchange rates can adversely affect the Company's revenue and margin, and
cause volatility in results of operations. The Company is also subject to risks associated with changes in prices of
commodities. Earnings from the Company’s financial services business are affected by changes in interest rates.
Although the Company uses derivative financial instruments to some extent to attempt to manage its exposure to
foreign currency exchange rates, commodity price and interest rate risks, these instruments generally do not extend
beyond one year and may expose the Company to credit risk in the event of counterparty default to the derivative
financial instruments. There can be no assurance that in the future the Company will successfully manage these risks.
• The Company’s operations are dependent upon attracting and retaining skilled employees, including skilled
labor, executive officers and other senior leaders. The Company’s future success depends on its continuing
ability to identify, hire, develop, motivate, retain and promote skilled personnel for all areas of its organization.
The Company’s current and future total compensation arrangements, which include benefits and incentive awards,
may not be successful in attracting new employees and retaining and motivating the Company’s existing employees. In
addition, the Company must cultivate and sustain a work environment where employees are engaged and energized in
their jobs to maximize their performance. If the Company does not succeed in attracting new personnel, retaining
existing personnel, implementing effective succession plans and motivating and engaging personnel, including