Financial and Managerial Accounting for MBAs 6th Edition Easton Solutions Manual

Financial and Managerial Accounting for MBAs 6th Edition Easton Solutions Manual. Balance Sheet Reporting and Analysis Harley-Davidson’s balance sheet is reproduced in Exhibit C.3 in thousands of dollars and in common size (as a % of total assets). The company reports total assets of $10,666 million in 2018, with noncurrent finance receivables as the largest asset (46.9% of total assets). Total current assets increased from 39.0% of total assets in 2017 to 42.0% in 2018. This decrease was primarily due to an increase in cash. Exhibit C.3 n Harley-Davidson Balance Sheet HARLEY-DAVIDSON INC. Consolidated Balance Sheets December 31, $ thousands, except share amounts As % of Total Assets Assets Current assets Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,203,766 $ 687,521 11.3% 6.9% Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,007 - 0.1% 0.0% Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,474 329,986 2.9% 3.3% Finance receivables, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,214,424 2,105,662 20.8% 21.1% Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556,128 538,202 5.2% 5.4% Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,275 47,518 0.5% 0.5% Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,368 175,853 1.4% 1.8% Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,484,442 3,884,742 42.0% 39.0% Finance receivables, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,007,507 4,859,424 46.9% 48.7% Property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 904,132 967,781 8.5% 9.7% Prepaid pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 19,816 0.0% 0.2% Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,048 55,947 0.5% 0.6% Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,464 109,073 1.3% 1.1% Other long-term assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,071 75,889 0.7% 0.8% $10,665,664 $9,972,672 100.0% 100.0% Liabilities and shareholders’ equity Current liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 284,861 $ 227,597 2.7% 2.3% Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601,130 529,822 5.6% 5.3% Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135,810 1,273,482 10.6% 12.8% Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,575,799 1,127,269 14.8% 11.3% Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,597,600 3,158,170 33.7% 31.7% Long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,887,667 4,587,258 45.8% 46.0% Pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,776 54,606 1.0% 0.5% Postretirement healthcare liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,453 118,753 0.9% 1.2% Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,219 209,608 1.9% 2.1% Commitments and contingencies Shareholders’ equity Preferred stock, none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 0.0% 0.0% Common stock, (181,931,225 and 181,286,547 shares issued, respectively) . . . 1,819 1,813 0.0% 0.0% Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,459,620 1,422,808 13.7% 14.3% Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,007,583 1,607,570 18.8% 16.1% Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (629,684) (500,049) (5.9)% (5.0)% Treasury stock (22,273,278 and 13,195,731 shares, respectively), at cost . . . . (1,065,389) (687,865) (10.0)% (6.9)% Total shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,773,949 1,844,277 16.6% 18.5% $10,665,664 $9,972,672 100.0% 100.0% C-9 Appendix C Comprehensive Case On the liability side, current liabilities increased as a percent of total assets from 31.7% in 2017 to 33.7% in 2018. This was largely due to an increase in current maturities of long-term debt and was partially offset by a reduction in short-term debt payable in one year. On balance, Harley is highly levered; only 16.6% of 2018 total assets are financed by owners and 71.2% of 2018 total assets are financed by debt (10.6% + 14.8% + 45.8%). Despite the large proportion of noncurrent assets and high debt levels, the company has strong liquidity measures: current ratio is 1.25 and Cash and marketable securities comprise 11.4% of total assets in 2018 ([$1,206.8 + $10.0] million/$10,665.7 million), up from 6.9% in 2017. The remainder of this section includes a brief review and analysis for each of Harley-Davidson’s balance sheet line items and its related footnote disclosures. Accounts Receivable Harley-Davidson reports $306.5 million in net accounts receivable and $7,221.9 million of short-term and long-term finance receivables at year-end 2018. This represents 70.6% of total assets [($2,214.4 million + $5,007.5 million) / $10,665.7 million]. Harley describes these receivables as follows. Accounts Receivable, Net—The Company’s motorcycles and related products are sold to independent dealers outside the U.S. and Canada generally on open account and the resulting receivables are included in accounts receivable in the Company’s consolidated balance sheets. The allowance for doubtful accounts deducted from total accounts receivable was $4.0 million and $4.1 million as of December 31, 2018 and 2017, respectively. Accounts receivable are written down once management determines that the specific customer does not have the ability to repay the balance in full. The Company’s sales of motorcycles and related products in the U.S. and Canada are financed by the purchasing dealers through HDFS and the related receivables are included in finance receivables in the consolidated balance sheets. Finance Receivables, Net—Finance receivables include both retail and wholesale finance receivables, net, including amounts held by consolidated VIEs. Finance receivables are recorded in the financial statements at amortized cost net of an allowance for credit losses. The provision for credit losses on finance receivables is charged to earnings in amounts sufficient to maintain the allowance for credit losses at a level that is adequate to cover estimated losses of principal inherent in the existing portfolio. Portions of the allowance for credit losses are specified to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance covers estimated losses on finance receivables which are collectively reviewed for impairment. Finance receivables are considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the terms of the loan agreement. Harley’s receivables are a large asset for the company and our analysis of those receivables considers two dimensions. 1. Magnitude Receivables representing sales on open account, the smaller of the two balances for Harley, are generally non-interest-bearing and, therefore, do not earn a return. Further, the company incurs costs to finance them. Accordingly, a company wants to optimize its level of investment in receivables—that is, keep them as low as possible while still meeting industry-specific credit policies to meet customer demands. Finance receivables, such as those arising from lending or leasing activities, include interest. They are financed with borrowed money and the company must earn sufficient interest income to both cover the cost of borrowed funds and to cover the cost of uncollectible amounts. 2. Collectibility Receivables made on open account represent unsecured loans to customers. It is critical therefore, to understand the creditworthiness of these borrowers. Receivables are reported at net realizable value, that is, net of the allowance for doubtful accounts. Finance receivables are generally secured by the motorcycles financed with the loan or lease. This provides additional protection to Harley-Davidson, but the creditworthiness of the borrowers must be monitored nonetheless as repossessed motorcycles may not maintain sufficient resale value to cover the outstanding loan or lease balance. Appendix C Comprehensive Case C-10 Footnotes reveal an allowance for uncollectible accounts of $4.0 million for accounts receivable, about 1.2% of gross accounts receivable. Credit losses on open accounts are not a cause for concern. For its finance receivables, Harley’s allowance for uncollectible accounts is $189.9 million, about 2.6% of gross lease and notes receivable. Due to the greater exposure to credit losses on finance receivables, Harley reports additional data on the allowance for credit losses. For 2018, $ thousands Retail Wholesale Total Balance, beginning of period . . . . . . . . . . . . $186,254 $6,217 $192,471 Provision for credit losses. . . . . . . . . . . . . . . 105,292 1,578 106,870 Charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . (154,433) (8) (154,441) Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . 44,985 — 44,985 Balance, end of period . . . . . . . . . . . . . . . . . $182,098 $7,787 $189,885 The company reported a balance in the allowance for credit losses of $192.5 million at the beginning of 2018. During 2018, it increased this allowance account by $106.9 million. This is the amount of bad debt expense reported in the income statement. Write-offs of uncollectible accounts amounted to $154.4 million during the year, and recoveries of amounts written off (usually from the sale of the repossessed motorcycles) amounted to $45.0 million, yielding a $189.9 million balance at year-end. Because the estimated provision of $106.9 is approximately equal to the actual net credit losses for the year ($154.4 million − $45 million = $109.4 million), it appears that the company is adequately reserved for uncollectible accounts. The allowance for credit losses should always reflect the company’s best estimate of the potential loss in its finance receivables. This amount should not be overly conservative (which would understate profit), and it should not be inadequate (which would overstate profit). Harley’s estimate of its potential losses results from its own (unaudited) review of the age of its receivables (older receivables are at greater risk of uncollectibility). And the company provides detail relating to the age of its finance receivables in the footnotes. For 2018, $ thousands Current 31–60 Days Past Due 61–90 Days Past Due Greater than 90 Days Past Due Total Past Due Total Finance Receivables Retail . . . . . . . . . . . . . . . $6,100,186 $136,945 $49,825 $41,245 $228,015 $6,328,201 Wholesale. . . . . . . . . . . . 1,081,729 522 273 1,091 1,886 1,083,615 Total . . . . . . . . . . . . . . $7,181,915 $137,467 $50,098 $42,336 $229,901 $7,411,816 Nearly 97% of its finance receivables are either current or no more than 30 days overdue. Current receivables are less likely to become uncollectible and that is the reason why Harley does not need a significant balance in the allowance for uncollectible accounts. Inventories Harley-Davidson reports $556.1 million in inventories as of 2018. Footnote disclosures reveal the following inventory costing policy. Inventories—Substantially all inventories located in the United States are valued using the last-in, first-out (LIFO) method. Other inventories totaling $247.6 million and $234.9 million at December 31, 2018 and 2017, respectively, are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. The use of multiple inventory costing methods for different pools of inventories is common and acceptable under GAAP. C-11 Appendix C Comprehensive Case Harley-Davidson provides the following footnote disclosure relating to inventories. $ thousands Components at the lower of FIFO cost or market Raw materials and work in process . . . . . . . . . . . . . . . . . $177,110 $161,664 Motorcycle finished goods . . . . . . . . . . . . . . . . . . . . . . . . 301,630 289,530 Parts and accessories and general merchandise. . . . . . . 136,027 139,363 Inventory at lower of FIFO cost or net realizable value. . . 614,767 590,557 Excess of FIFO over LIFO cost. . . . . . . . . . . . . . . . . . . . . (58,639) (52,355) Total inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . $556,128 $538,202 Companies aim to optimize their investment in inventories because inventory is a non-incomeproducing asset until sold. Inventories must also be financed, stored, moved, and insured at some cost. Harley-Davidson reports $177.1 million of raw materials and work-in-process inventories, which is 28.8% of the total of $614.8 million FIFO inventories (see table above). Finished goods inventories (motorcycles awaiting sale to dealers) amount to another $301.6 million, and parts and accessories and general merchandise inventories amount to $136.0 million. Harley-Davidson reports its total inventory cost at FIFO at $614.8 million then subtracts $58.6 million from this amount (the LIFO reserve) to yield the inventories balance of $556.1 million at LIFO as reported on the balance sheet. This means that, over time, Harley-Davidson has reduced gross profit and pretax operating profit by a cumulative amount of $58.6 million. This has also reduced pretax income and saved federal income tax and generated cash flow. For example, during 2018, Harley’s LIFO reserve increased by $6,284,000, which reduced pretax income by that amount and saved the company $1,382,480 in taxes, assuming a 22% marginal federal and state tax rate ($6,284,000 × 22%). Property, Plant, and Equipment Harley-Davidson reports Property, Plant, and Equipment (PPE), net, of $904.1 million at year-end 2018. $ thousands Land and related improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,025 $ 70,256 Buildings and related improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 483,965 464,454 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,740,405 1,890,126 Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,180 660,090 Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,786 200,396 3,236,361 3,285,322 Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,332,229) (2,317,541) Total property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . . $ 904,132 $ 967,781 PPE makes up 8.5% of total assets in 2018. Given the cost of depreciable assets of $2,957.6 million (calculated as $484.0 million in buildings, $1,740.4 million in machinery and equipment, and $733.2 million in capitalized software) and accumulated depreciation of $2,332.2 million, PPE is 78.9% depreciated assuming straight-line depreciation ($2,332.2 million/$2,957.6 million) as of 2018. We conclude that Harley-Davidson’s PPE is older than we would expect assuming a regular replacement policy. Footnotes reveal the following useful lives for depreciable assets. 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. Appendix C Comprehensive Case C-12 Harley-Davidson’s 2018 depreciation expense is $264.5 million (calculated as $264.9 million depreciation and amortization expense reported in the statement of cash flows less $0.4 million amortization expense reported in the footnotes). We calculate an average useful life of 11.3 years for PPE in 2018 as follows: [($2,957.6 million + $3,014.7 million*)/2/$264.5 million]. (2017 depreciable assets = $464.5 million in buildings + $1,890.1 million in machinery and equipment + $660.1 million in capitalized software.) Goodwill and Other Intangible Assets Harley-Davidson reports $55.0 million of goodwill at year-end 2018. This amount represents the excess of the purchase price for acquired companies over the fair market value of the acquired tangible and identifiable intangible assets (net of liabilities assumed). Under GAAP, goodwill is not systematically amortized, but is annually tested for impairment. It describes its accounting for goodwill as follows. 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 2018 and 2017, the Company performed a quantitative test on its goodwill balances for impairment and no adjustments were recorded to goodwill as a result of those reviews. Deferred Tax Assets and Liabilities Harley-Davidson provides the following disclosure relating to deferred tax assets and liabilities. $ thousands Deferred tax assets Accruals not yet tax deductible . . . . . . . . . . . . . . . . . . . . . . $108,284 $ 92,158 Pension and postretirement benefit plan obligations . . . . . 48,347 37,357 Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,295 12,669 Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . 34,842 33,171 Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,868) (21,561) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,870 52,422 226,770 206,216 Deferred tax liabilities Depreciation, tax in excess of book . . . . . . . . . . . . . . . . . . (79,326) (88,989) Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,980) (8,154) (85,306) (97,143) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,464 $109,073 Most of Harley’s deferred tax assets (benefit) results from expenses that are recognized currently in Harley’s income statement that are not deductible until paid. They, therefore, represent future tax deductions and future benefits. Examples include accrued expenses and pension expenses as well as stock compensation expenses. All of these expenses are recognized in Harley’s income statement, but will not be recognized in Harley’s tax returns until a later date when the items are settled in cash. Harley also reports a deferred tax asset of $34.8 million relating to a net operating loss carryforward. The IRS allows companies to carry forward taxable losses to offset future taxable income, thereby reducing future tax expense. This benefit can only be recorded as an asset on the balance sheet if the company expects to generate taxable income before the carryforwards expire. If the company deems it more likely than not that the carryforwards will not be realized, a valuation allowance for the unrealizable portion is required (this is similar to establishing an allowance for C-13 Appendix C Comprehensive Case uncollectible accounts receivable). As of 2018, Harley-Davidson has such a valuation allowance (of $21.9 million). Following is its discussion relating to this allowance. The Company reviews its deferred tax asset valuation allowances on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with any positive or negative evidence including tax law changes. Since future financial results and tax law may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary. At December 31, 2018, the Company had approximately $270.4 million of gross state operating loss carryforwards expiring in 2031. At December 31, 2018, the Company also had Wisconsin research and development credit carryforwards of $11.4 million expiring in 2024–2028. The Company had a deferred tax asset of $25.9 million as of December 31, 2018 for the benefit of these losses and credits. A valuation allowance of $2.9 million was established against the deferred tax asset, which is a decrease of $1.6 million from the prior year. The Company had foreign net operating losses (NOL) totaling $8.9 million as of December 31, 2018. It had a valuation allowance of $18.9 million against both the NOLs and other deferred tax assets of $10.0 million. The valuation allowance on foreign net operating losses increased by $1.8 million, reflecting movement related to realizability assessment on additional earnings and loss, as well as movements related to foreign currency rates. Tax loss carryforwards reduce income tax expense in the year they are recognized. However, companies commonly establish both the loss carryforward and the valuation allowance concurrently. The net effect is to leave tax expense (and net income) unchanged. In future years, however, a reduction of the valuation account, in anticipation of utilization of the tax carry forwards (and not as a result of their expiration), reduces tax expense and increases net income. This is a transitory increase in profit and should not be factored into forecasts. Current Liabilities Harley-Davidson reports current liabilities of $3,597.6 million on its year-end balance sheet for 2018, which consists of the following. $ thousands Current liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 284,861 $ 227,597 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 601,130 529,822 Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135,810 1,273,482 Current portion of long-term debt . . . . . . . . . . . . . 1,575,799 1,127,269 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . $3,597,600 $3,158,170 Of Harley’s current liabilities, $2,711.6 million relates to debt. The remaining items in current liabilities arise from common transactions, such as trade accounts payable and accrued expenses. These transactions are less prone to management reporting bias. We must, however, determine the presence of excessive “leaning on the trade” as a means to boost operating cash flow. Harley’s trade accounts payable have not increased significantly and the increase is not of concern. The possibility of management reporting bias is typically greater for accrued liabilities, which are often estimated (and difficult to audit), involve no external transaction, and can markedly impact reported balance sheet and income statement amounts. All accruals have similar effects on the financial statements: when the accrual is established, the company recognizes both an expense in the income statement and a liability on the balance sheet. The company subsequently reduces the liability as payments are made. Companies can (and do) use accruals to shift income from one period to another, say by over-accruing in one period to intentionally depress current period profits, and later reducing the liability account, rather than recording an expense, to increase future period profits. Accruals are sometimes referred to as “pads.” They represent a cost that has previously been charged to the income statement. They also represent an account that can absorb future costs. We need to monitor accrual accounts carefully for evidence of earnings management. Appendix C Comprehensive Case C-14 Long-Term Debt Harley-Davidson reports $4,887.7 million of long-term debt as of 2018. Footnotes reveal the following. $ thousands Secured debt (Note 12) Asset-backed Canadian commercial paper conduit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,951 $ 174,779 Asset-backed U.S. commercial paper conduit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582,717 279,457 Asset-backed securitization debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,216 353,085 Less: unamortized discount and debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49) (461) Total secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833,835 806,860 Unsecured notes (at par value) 6.80% Medium-term notes due in 2018, issued May 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 877,488 2.25% Medium-term notes due in 2019, issued January 2016. . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 600,000 Floating rate medium-term notes due in 2019, issued March 2017 . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000 2.40% Medium-term notes due in 2019, issued September 2014 . . . . . . . . . . . . . . . . . . . . . . . 600,000 600,000 2.15% Medium-term notes due in 2020, issued February 2015 . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 600,000 Floating rate medium-term notes due in 2020, issued May 2018. . . . . . . . . . . . . . . . . . . . . . . . 450,000 — 2.40% Medium-term notes due in 2020, issued March 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 350,000 2.85% Medium-term notes due in 2021, issued January 2016. . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 600,000 Floating rate medium-term notes due in 2021, issued November 2018 . . . . . . . . . . . . . . . . . . . 450,000 — 3.55% Medium-term notes due in 2021, issued May 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 — 2.55% Medium-term notes due in 2022, issued June 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 400,000 3.35% Medium-term notes due in 2023, issued February 2018 . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 — 3.50% Senior unsecured notes due in 2025, issued July 2015 . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 450,000 4.625% Senior unsecured notes due in 2045, issued July 2015 . . . . . . . . . . . . . . . . . . . . . . . . 300,000 300,000 Less: unamortized discount and debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,369) (19,821) Gross long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,463,466 5,714,527 Less: current portion of long-term debt, net of unamortized discount and debt issuance costs. . . (1,575,799) (1,127,269) Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,887,667 $4,587,258 Most of its long-term financing is in the form of unsecured notes that mature over the next 30 years. GAAP requires disclosure of scheduled maturities for each of the five years subsequent to the balance sheet date. Harley-Davidson’s five-year maturity schedule follows. $ thousands 2023 Thereafter Total Principal payments on debt . . . $2,717,597 $1,562,889 $1,570,815 $578,256 $440,137 $750,000 $7,619,694 We analyze debt maturity to determine whether or not a company is able to repay debt as it comes due. Alternatively, a company can refinance the debt. If a company is unable or unwilling to repay or refinance its debt, it must approach creditors for a modification of debt terms for those issuances coming due. Creditors are often willing to oblige but will likely increase interest rates or impose additional debt covenants and restrictions. However, if creditors are unwilling to modify debt terms, the company might face the prospect of bankruptcy. This highlights the importance of long-term debt maturity disclosures. We have little concern about Harley’s debt maturity schedule as the company has strong cash flows. It is worth noting that Standard & Poor’s debt ratings for Harley is BBB+ with a negative outlook while Moody’s is A3 with a stable outlook. While both ratings are investment grade (described as “lower-medium grade” to “upper-medium grade” debt), S&P is slightly more concerned about the longer-term outlook for Harley given the competitive pressures cited earlier. Noncurrent Employee Benefits and Other Obligations Harley-Davidson reports a (negative) funded status for its pension plan of $(110.1) million at yearend 2018 as well as for its postretirement healthcare benefit plan of $(96.2) million. This means that the company’s pension and postretirement healthcare plans are underfunded by those amounts. This underfunding is computed as the difference between the benefit obligations of $1,984.7 million and $286.6 million, respectively, and the fair value of the plan assets of $1,874.6 million and $190.4 million, respectively. The reconciliation of the benefit obligations and plan assets is provided in the following table in Harley’s footnotes.