Harley Davidson 2015 Annual Report Download - page 46

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46
(xx) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to
the Company and within its expectations,
(xxi) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan
portfolio, and
(xxii) continue to manage the relationships and agreements that the Company has with its labor unions to help drive
long-term competitiveness.
In addition, the Company could experience delays or disruptions in its operations as a result of work stoppages, strikes,
natural causes, terrorism or other factors. Other factors are described in “Risk Factors” under Item 1A which includes a
discussion of additional risk factors and a more complete discussion of some of the cautionary statements noted above.
The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also
depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail
customers. The Company depends on the capability and financial capacity of its independent dealers to develop and implement
effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the
Company.
In addition, the Company’s independent dealers may experience difficulties in operating their businesses and selling
Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.
In recent years, HDFS has experienced historically low levels of retail credit losses, but there is no assurance that this
will continue. The Company believes that 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign exchange rates and interest rates. To reduce such risks,
the Company selectively uses derivative financial instruments. All hedging transactions are authorized and executed pursuant to
regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes.
Sensitivity analysis is used to manage and monitor foreign exchange and interest rate risk.
The Company sells its products internationally and in most markets those sales are made in the foreign country’s local
currency. As a result, the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign
currency. The Company’s most significant foreign currency risk relates to the Euro, the Australian dollar, the Japanese yen, the
Brazilian real and the Mexican peso. The Company utilizes foreign currency contracts to mitigate the effect of certain
currencies' fluctuations on earnings. The foreign currency contracts are entered into with banks and allow the Company to
exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate. At
December 31, 2015, the notional U.S. dollar value of outstanding Euro, Australian dollar, Japanese yen, Brazilian real and
Mexican peso foreign currency contracts was $436.4 million. The Company estimates that a uniform 10% weakening in the
value of the U.S. dollar relative to the currencies underlying these contracts would result in a decrease in the fair value of the
contracts of approximately $41.6 million as of December 31, 2015. Further disclosure relating to the fair value of derivative
financial instruments is included in Note 8 of the Notes to Consolidated Financial Statements.