Harley Davidson 2015 Annual Report Download - page 16

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countries have laws and regulations that prohibit motorcycles from being operated on certain roads and
highways. These types of laws and regulations could adversely impact the Company’s plans to expand international
sales.
• 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. Certain competitors appear to be
increasing their investment in products that compete with the Company's products. 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. Furthermore, many competitors headquartered outside the U.S. experience a
financial benefit from a strengthening in the U.S. dollar relative to their home currency that can be used to fund
discounted prices to U.S. consumers. 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 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
executive officers, the Company may be unable to develop and distribute products and services and effectively execute
its plans and strategies.
• The Financial Services operations rely on external sources to finance a significant portion of its operations.
Liquidity is essential to the Company’s Financial Services business. Disruptions in financial markets may cause
lenders and institutional investors to reduce or cease to loan money to borrowers, including financial institutions. The
Company’s Financial Services operations may be negatively affected by difficulty in raising capital in the long-term
and short-term capital markets. These negative consequences may in turn adversely affect the Company’s business and
results of operations in various ways, including through higher costs of capital, reduced funds available through its
financial services operations to provide loans to independent dealers and their retail customers, and dilution to existing
share value through the use of alternative sources of capital.
• The Financial Services operations are highly dependent on accessing capital markets to fund their operations at
competitive interest rates, the Company’s access to capital and its cost of capital are highly dependent upon its
credit ratings, and any negative credit rating actions will adversely affect its earnings and results of operations.
The ability of the Company and its Financial Services operations to access unsecured capital markets is influenced by
their short-term and long-term credit ratings. If the Company’s credit ratings are downgraded or its ratings outlook is
negatively changed, the Company’s cost of borrowing could increase, resulting in reduced earnings and interest
margins, or the Company’s access to capital may be disrupted or impaired. The Company borrowed $750,000,000 in
2015 to fund the repurchase of its Common Stock, which increased the Company's leverage. Having increased
leverage increases the risk of a downgrade in the Company's credit ratings.
• The 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, 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 and customer credit profiles. Credit losses are also influenced by the
markets for new and used motorcycles, and the Company and its independent dealers can and do take actions that
impact those markets. For example, the introduction of new models by the Company that represent significant
upgrades on previous models or a decrease in the inventory of used motorcycles available for sale at Harley-Davidson
dealers in the U.S. may result in increased supply or decreased demand in the market for used Harley-Davidson-
branded motorcycles, including motorcycles securing credit that HDFS has extended. This in turn could adversely
impact the prices at which those motorcycles may be sold, which may lead to increased credit losses for HDFS.