EXPERIENCEBUSINESS - Harley-Davidson

HARLEY- DAVIDSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
impairment based on fair value. Market quotes are generally
not available for retained interests, therefore the Company
estimates fair value based on the present value of future
expected cash flows using management’s best estimates of the
key assumptions for credit losses, prepayment speeds and discount
rates commensurate with the risks involved.
Investment in retained securitization interests consists of
interest-only strip receivables and reserve account deposits
and are included in finance receivables. Interest-only strip
receivables represent the present value of the projected future
cash flows arising after the investors in the securitization have
received the cash flows for which they have contracted, taking
into consideration estimated prepayments, defaults, and servicing
costs. The receivables are reported at fair value and the
unrealized gains and losses on those receivables are reported
net of tax, as a component of other comprehensive income.
Unrealized gain as of December 31, 2000 and 1999 was $15.2
million and $4.5 million, or $9.9 million and $2.9 million,
net of taxes, respectively.
Reserve account deposits with trustees represent interestearning
cash deposits required under the terms of the securitization
operating agreements. The funds collateralize estimated
future cashflows of the securitization pool. The funds
are not available for use by the Company until such time as
required reserve account balances exceed specified thresholds
or the specific securities are liquidated.
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 $49.3 million in 2000 and $40.9
million in 1999 are valued at the lower of cost or market
using the first-in, first-out (FIFO) method.
Depreciation – Depreciation of plant and equipment is determined
on the straight-line basis over the estimated useful lives
of the assets. Accelerated methods are used for income tax
purposes.
Product Warranty – Product warranty costs are charged to operations
based upon the estimated warranty cost per unit sold.
Research and Development Expenses – Research and development
expenses were approximately $75.8 million, $70.3 million
and $58.7 million for 2000, 1999 and 1998, respectively.
Internal-Use Software – Costs incurred in connection with
developing or obtaining software for internal-use of $13.9
million, $15.2 million and $9.1 million were capitalized during
2000, 1999 and 1998, respectively.
Goodwill – Goodwill represents the excess of the acquisition
cost over the fair value of the net assets purchased. Goodwill
is amortized on a straight-line basis over a 15-20 year period.
Reclassifications – Certain prior year amounts have been
reclassified in order to conform to current year presentation.
Derivative Financial Instruments – The Company uses forward
foreign exchange contracts to mitigate the adverse
impact of fluctuations in currency exchange rates. The
Company has exposure to exchange rate fluctuations in its foreign
cash flows resulting from its firm commitments for the
sale of products to foreign customers. Realized and unrealized
gains and losses on forward foreign exchange contracts resulting
from changes in the spot exchange rate are deferred and
recognized at the time the hedged transaction is settled.
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