Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Harley-Davidson Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Amy Giuffre, Director of Investor Relations. Ms. Giuffre, you may begin.

Thank you, Sarah, and welcome to Harley-Davidson's Fourth Quarter 2012 Earnings Conference Call. The audio for today's call is being webcast live on harley-davidson.com. The supporting slides can be accessed on our website by clicking on Company, Investor Relations, then Events and Presentations. Our comments today will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others matters, we have noted in our latest earnings release and filings with the SEC. Harley-Davidson disclaims any obligation to update information in this call. This morning, you'll hear from Harley-Davidson's CEO, Keith Wandell; CFO, John Olin; and President of Harley-Davidson Financial Services, Larry Hund. Then we'll open the call for your questions. So let's get started. Keith?

Thank you, Amy. And good morning, and thanks for joining us today as we review our 2012 results and look ahead to next year. We appreciate very much your interest in Harley-Davidson. Our entire team takes pride in what we achieved last year. We did what we set out to do: driving improvements on many fronts and growing the business and shareholder value. EPS was up 16.7% for the full year, and new Harley-Davidson motorcycle retail sales grew 6.2% worldwide. We completed the highly successful launch of the ERP production system at our York plant, and shares of Harley-Davidson stock rose more than 25% in value during the year, once again outpacing the S&P 500. These are just some of the latest proof points of the vast improvements of Harley-Davidson's operations and performance since embarking on our strategy of transformation in 2009. Today, Harley-Davidson is leaner, more agile and more responsive to our customers and the changing marketplace than ever before. And we continue to move aggressively to raise our performance to new levels. All of this is only possible through the efforts and dedication of our employees, our dealers and suppliers. They are doing a truly outstanding job, and together, working as one team and moving in one direction, we are driving performance and delivering for our customers and all stakeholders. As we enter 2013, the restructuring of our production operations is largely behind us. The rollout of the ERP system at York in the third quarter went incredibly well and is beginning to yield results. Day by day, we are improving our ability to supply dealers with the mix of motorcycles they need for their customers and in a more timely manner. The ramp up of surge production in York has also gone well since we launched it…

Thanks, Keith, and good morning, everyone. I'll review the financial results starting with the fourth quarter on Slide 10. During the quarter, Harley-Davidson, Inc. consolidated revenue was down 1.1% behind a 7.2% decrease in shipments of Harley-Davidson motorcycles. Our fourth quarter income from continuing operations improved to $70.6 million, an increase of $16 million or 29.3%. Similarly, diluted earnings per share rose to $0.31 per share, up 29.2% from the year ago quarter, which was $0.24 per share. Operating income from the Motorcycle segment was $53.1 million, up 49.4% compared to last year's fourth quarter. The strong increase in Motorcycle business was driven by lower restructuring spending and a higher gross margin as compared to last year. Operating income at Harley-Davidson Financial Services was up 10.9%, behind higher net interest income and improved credit loss performance. We are very pleased with the fourth quarter results and our continued progress against our goal strategies. Now let's take a look at retail sales on Slide 11. Overall, worldwide retail sales of new Harley-Davidson motorcycles were up 7.5% in the fourth quarter. For the full year, worldwide retail sales were up 6.2% compared to 2011. This reflects the strength of the Harley-Davidson brand and appeal of our motorcycle model years 2012 and 2013, worldwide dealer efforts and a continued investment in growth opportunities around the world. Now let's take a look at the U.S. market on Slide 12. Retail sales in the quarter were up 8.4% compared to last year's fourth quarter, despite a challenging economic environment for consumers. Retail sales in the U.S. were driven by strong product appeal, success of outreach efforts and slightly improved product availability for most of the quarter. For the full year, U.S. retail sales were up 6.6%. Market share in the fourth quarter strengthened 1.6 points…

Thanks, John. And good morning. During the fourth quarter, HDFS retail motorcycle loan originations increased 17.6% or $61.5 million compared to the same period last year. The increase was driven by higher new motorcycle loan originations behind the strong increase in retail sales and a 2.8 percentage point increase in market share. Used motorcycle loan originations also increased compared to last year. For the full year, HDFS retail financing market share of new Harley-Davidson motorcycles sold in the U.S. was 50.9%, flat compared to 2011. The overall loan portfolio was solid, comprised of profitable loans funded in both the prime and subprime segments. In 2012, approximately 80% of our new loan originations were prime. At year end, 88% of the total portfolio was comprised of loans originated after underwriting changes HDFS made in January 2009. With the higher level of receivables originated prior to the start of the economic downturn rolling off the books, finance receivables outstanding decreased 0.4% compared to a year ago. This decline in receivables pool reflects the lower U.S. retail sales due to downturn that we expect will continue to impact HDFS net interest income through the first half of 2013. Moving on to credit performance on Slide 21. The 30-day delinquency rate for retail motorcycle loans at December 31, 2012, was 3.94% or 9 basis points higher than 2011. I want to point out that 2011 and 2012 are the only years where HDFS has finished the year with a 30-day delinquency rate below 4.5%, so credit quality remained in good shape. Annual retail credit losses improved by 41 basis points to 0.79% in 2012 compared to 2011, driven by the impact of changes in underwriting and collections as well as a lower frequency of loss. This is the lowest level of retail credit losses at HDFS in over 10 years. A portion of this loss improvement is due to recoveries in loans written off in prior years. Given the strong credit performance of loans originated since 2009, we expect lower levels of recoveries in future periods. We are pleased with the progress at HDFS in 2012. During the year, we maintained a strong liquidity position, reduced our cost of funds and delivered strong profitability. We remain focused on enabling sales of Harley-Davidson motorcycles while providing an attractive return to Harley-Davidson, Inc. A recent example of this is the $185 million dividend HDFS paid to Harley-Davidson, Inc. earlier this month. Now let me turn it back to John.

Thanks, Larry. Now let's take a look at cash and liquidity on Slide 22. You will see at the end of the quarter, we had $1.2 billion of cash and marketable securities, which includes the impact of the repayment of a $400 million HDFS Medium Term Note. In addition, HDFS had $1.66 billion of available liquidity through bank credit and conduit facilities. We currently have and intend to continue to maintain a minimum of 12 months of projected liquidity needs in cash and/or committed credit facilities. Earlier this month, there were 2 significant transactions related to cash. Larry just mentioned the dividend HDFS paid to H-D Inc. We also made $175 million contribution to our qualified pension plans. This contribution reduces the $221 million Q4 2012 increase in our pension and postretirement liability, which resulted from the discount rate assumption changing from 5.3% to 4.2%. And I'm also very pleased to report that during the fourth quarter, we repurchased approximately 1.2 million shares of Harley-Davidson stock for $53.4 million. As we have stated, returning value to our shareholders through increasing dividends and share repurchases is its top priority. We will continue to evaluate opportunities to enhance value for our shareholders. Now I'll review the remaining HDFS Inc. financials on Slide 23. I'd like to highlight 2 items on this slide. First, with regards to continuing operations, the company generated operating cash of $793.1 million during 2012, even after a $200 million contribution to our pension plans in January of last year. And second, our full year effective tax rate from continuing operations was 35.1% compared to 30.9% in 2011. The 2011 tax rate benefited from a change in Wisconsin tax laws associated with certain net operating losses, the favorable settlement of an IRS audit and the impact of the federal…

[Operator Instructions] And your first question comes from the line of Ed Aaron from RBC Capital Markets.

I actually want to ask a couple of clarification questions about the first quarter, if I could. I think the Q1 shipment guidance is higher than most expected. Is that entirely a reflection of the surge capabilities coming on line or is there also sort of a message in there about either kind of view of retail sales this year or kind of view of inventories being lower than you want them to be? And then my follow-up is just a clarification question on the currency impact for Q1. John, when you say similar to Q4, are you referring to that on a gross profit dollar basis or on a gross profit margin basis?

Okay. Number one is, in the Q4, we have shipment guidance of 71,000 to 76,000 units, and that's up 10% to 18%. And yes, that is driven by our surge manufacturing capability in our York facility. So the overall strategy has been to produce closer to customer demand. The customer demand is toward the end of the first quarter and the second quarter, and so we will put the units in and increase overall availability in the first quarter. Now having said that, we ended a year ago at very low inventories. As a matter of fact, 2 years ago, we're pretty low, and last year, we fell another 4,400 units. So as we exit the first quarter with the increased shipments, we would expect inventories to be up on a year-over-year basis. The second question, Ed, you asked was with regards to Q1 currency. And the comment was we expected to be in line with what we saw in Q4, and that would be, yes, both from a revenue standpoint and a gross -- impact on gross profit standpoint. So we would expect continued devaluation on a year-over-year basis affecting revenue and also the loss on overall hedging similar to what we saw in Q1 -- I'm sorry, loss similar to what we saw in Q4.

And the next question comes from the line of Tim Conder from Wells Fargo Securities.

John, on that FX, just to continue that on for 2013, in your Slide 17, you had $17 million negative FX impact for 2012. Collectively for '13, do you anticipate that at this point being higher, lower, similar to that? And then also on the gross margin guidance that you have here, is there any way to quantify what would be maybe a surge learning curve impact or at minimum, just is that some factor here that is within your gross margin guidance for 2013?

Okay. Tim, the first question was on a full year basis. In 2012, we had $17 million impact on foreign currency. We're not going to quantify that further. Again, the first quarter is going to look similar to the fourth quarter of last year, and to say that on a full year basis, we expect currency to adversely impact both revenue and gross profit. The second question that you had was with regards to the surge learning curve and how is that incorporated into the, I believe, the gross margin guidance. So one is some of the onetime aspects of surge is incorporated in our temporary inefficiencies, and some of those came in 2012 as we prepared. The first part of the surge opportunity was in hiring -- recruiting and hiring, and a lot of that took place last year would be included in temporary inefficiencies in 2012. As we look forward into next year, there are some costs that would be included and fall under gross margin through temporary inefficiencies. And then also at the end of the year, we've got Kansas City going onto surge, and we would expect some similar onetime costs as we set the system up and get over that learning curve that you mentioned.

Your next question is from the line of Craig Kennison from Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: John, could you just clarify with respect to dealer inventory for all of 2013 whether you still expect to reduce that inventory on a year-over-year basis or whether it might be closer to flat, given what you're doing in York? And then secondly, just comment on used bike values.

So the question with regards to dealer inventory, let's take a look at the entire year. For the last couple of years, we talked about inventory being light, in particular in the first, second and third quarter. We've been constrained from a capacity standpoint, largely through our York facility, for probably 6 of the last 6 or 7 quarters. Those constraints were lifted in the fourth quarter of 2012, and you saw the mix dramatically shift to Touring. As we enter into 2013, we feel very good about our overall mix of inventories, but as we look at the entire year, we would expect to improve availability or improve overall inventories in the first, second and third quarters. We continue to expect in the fourth quarter that overall retail inventory will fall slightly, and that is, again, in anticipation of our Kansas City facility being able to surge its production similar to what we're seeing in York this year, and therefore, we won't need to put as much in the dealer network on the fourth quarter when customers are not buying as many motorcycles. So improved availability for most of the year, Qs 1 through 3, and down slightly at the end of the year as we prepare for a surge at Kansas City. The second question was, what are we seeing in used bike values? Again, we saw the big inflection of used bike values was in Q4 of 2011. Since then, we've really seen stable values. We haven't seen many moves in either direction, and again, it just leads us to believe that the used bike glut issue is behind us and that we can grow our new bike sales at or above the rate of used bike into the future.

Your next question comes from the line of Jim Hardiman from Longbow Research.

I just wanted to follow up on the 1Q shipment guidance and figure out how that fits into the year. Obviously, the growth in the first quarter is way ahead of the growth for the year, which implies the rest of the year will need to be short of that full year rate. Is that entirely a fourth quarter event or will we see that sort of revert to the mean in 2Q or 3Q? And just a clarification separately on the SG&A side, you talked about how that was higher than you anticipated in the fourth quarter. Were there some items that you'd like to call out there? Does that flow through into 2013 or is it sort of a onetime event?

Okay. James, with regards to the first quarter, we do expect to be up more than our full year average. So first quarter, up 10% to 18%; on full year basis, we would look to be up 4.5% to 6.5%. Again, the reason we're doing that is we finished a year ago at extremely low inventories. And obviously, it's looking right at our selling season that really starts in late March and April, so we look to replenish a lot of those inventories. With regards to that, we're not going to provide guidance for the other 3 quarters, except as you pointed it out, in terms of a growth rate, they will be, on average, less than the first quarter. But we're not going to provide that. One quarter out, we'll provide the next quarter shipment guidance. The second question is with regards to SG&A in the fourth quarter. Yes, 3 months ago, we sat here and we thought that we would down slightly. We ended up up slightly. And there's nothing big driving it. It's really just the timing of year-end expenses. When we looked at the overall quarter, we had a favorability on a year-over-year basis due to a recall that we had in 2011. And a lot of that was replaced by investment in our future growth. We spent about $7 million in the quarter investing in future growth. And that's in line with our overall rate of investment on a full year basis. On a full year basis, we spent about a little over $30 million in our future growth initiatives. We would expect that type of spending and growth into 2013, and we do expect 2013 SG&A to be higher than 2012 but lower as a percent of revenue.

Your next question comes from the line of Felicia Hendrix from Barclays.

John, with the temporary inefficiencies, I believe you said $17 million for the year. I was just wondering, can you just walk us through how that might fall in the quarters? I believe on your last call, you said that they were just mainly be the inefficiencies in the first half and then the second half wouldn't have any, so I was just trying to reconcile that.

Yes. So this year, we had 33 -- I'm sorry, in 2012, $33 million. We expect about half of that to go away, so we would expect about $17 million next year. We don't provide that gating, Felicia, by quarter. But there's 3 main activities that are going to drive that spending. One is continued training at our Wisconsin and Kansas City facilities. That should be largely even through the year, maybe starting to taper off at the end of the year. The second piece is what I just mentioned. In preparation for surge, we have a little bit of a cost due York in the first quarter and then we'll be preparing for Kansas City in the fourth quarter. And then finally, as we exit our facility in Australia, those expenses will build throughout the year until we completely exit that facility. So I don't think that there's any dramatic change in the spending of that, but I can't provide quarterly guidance with regards to temporary inefficiencies.

Your next question comes from the line of Rod Lache from Deutsche Bank.

It's Pat Nolan for Rod. Just a couple of follow-up questions. First, on the shipment guidance and what's kind of underlying that as far as your assumptions, could you give us just some color on what you're expecting for overall industry growth next year? And also as a follow-up on your comments about pricing and mix, so if we look at it on a full year basis, pricing was about a $30 million positive in 2012 and mix was a $5 million positive. You said mix was going to be less of a positive but pricing still positive. Do you think it could be in the same range of benefit which you achieved in 2012?

Okay, Pat, the first question on shipment guidance and what we expect out of industry growth. We don't provide a forecast of the industry. But just in general, we feel very good about the industry and the strength of the industry. In 2012, the overall industry was up 4%, and actually in the fourth quarter, it was up 5.3%. So we see the overall industry strengthening as our competition works through some of the used bike pricing issues that they have. We do see growth next year, but we don't provide a quantification of that. When we look at our growth of 4.5% to 6.5%, it's driven by the appeal of the brand and our 110th year, model year product that we feel very good about, 2013 model year product has been very strong for the last several months, and we would expect that. And then we're very excited about what we're coming out with for the 2014 product. Outreach continues to go well. We would expect that next year for outreach to grow faster than our core customer, and in 2012, it grew at double that rate. And then product availability I've talked about, then finally, international distribution, we'll continue to expand that. Tempering some of those things are the overall concern with world economies, in particular, in the U.S. and Europe. The next question that you asked is the magnitude of motorcycle pricing and mix favorability. We are not going to provide overall line item guidance on the elements that make up gross margin. But as you know, we took pricing in August of 2012. So that will, on a year-over-year basis, lap for about 8 months, and that was about a 0.75% price increase on a worldwide basis. And again, overall, product mix was up slightly when you look at family mix of Touring. We feel good about how we entered the year on mix within family, within models and within regions of the world. We expect slight mix favorability into next year, but that's about all I can provide with regards to quantifying.

Your next question comes from the line of Gerrick Johnson from BMO Capital Markets.

Now that it's over, what was the dealer reaction to the model year shift? Is this something you'll continue with going forward or will there be more changes? And is there any way to quantify what kind of impact it may have had to retail sales in the year?

Gerrick, actually, the dealer response was very positive. The reason we did it was because the dealers requested that we push it back. So the response was positive. It certainly was a difficult time to do it. When we plan to do it a couple of years prior, we didn't realize we would also be putting in the ERP system. So I think that added some complexity to our third quarter and drove inventories a little bit lower, well, a fair amount lower than we would have anticipated. But we are very pleased with the dealer show being in late August, and we expect to continue that into the future.

Your next question comes from the line of Jaime Katz from MorningStar.

I know that dealer presence or the rate that you're kind of opening them globally remains unchanged, but can you talk a little bit about how you guys perceive your opportunities in the different geographic regions as kind of Europe has began to struggle a little bit more or do you see more opportunities in maybe Asia now than before, and how are you addressing that?

Yes. This is Keith. First of all, we said, I think 3 years ago, that we were going to open between 100 and 150 new dealers around the world. As you mentioned, we're certainly on plan to do that. We believe that there is still opportunity really in every market. We feel that the strength of the brand, the products that -- the new products that we're bringing to market have tremendous appeal. Clearly, and John mentioned it in his comments, Southern Europe is weak right now because of some of the economic struggles that they're seeing. We did mention in our notes earlier, we have a very strong year in Latin America. We think there is still upside and opportunity in that region. We had a strong year in Asia Pacific, and we highlighted some of those areas, and a couple of them we talked about were China and India, and we think there is tremendous potential there as well. Our sales, while increasing every year in those regions, are still pretty small. And so we think that as disposable personal income in those regions continue to grow and we provide the right kind of products in those markets, we think there's upside there for us. Then there's other emerging markets, which we've just sort of have begun to touch, so we think the future is very bright in terms of our international expansion

Your next question comes from the line of Ed Aaron from RBC Capital Markets.

Just a follow-up on HDFS if I could. You mentioned expectations for some changing consumer behavior in 2013. I was wondering if you could maybe elaborate on that a little bit. I guess delinquencies are still low, but this was the first time we've seen a tick up a little bit in the last few years, so just maybe a little bit more color around on how you see that unfolding in '13?

Sure. I think -- Ed, this is Larry Hund. If you look over the last year or 2, what we've seen is consumer behavior, consumers have really been focused on rebuilding their credit profile, deleveraging, paying off debt. And I think that's benefited us and other vehicle finance lenders. So in the fourth quarter, we saw a very slight increase in our delinquency, and I think that's pretty consistent with what we're seeing out in the market as well. I think you're starting to see consumers take on a little bit more debt, maybe being a little bit less conservative. And I think when that behavior changes, the offshoot of it is slightly higher delinquency and slightly higher credit losses, and I think that's what we signaled for next year.

Your question comes from the line of Felicia Hendrix from Barclays.

Keith, I had a bigger picture question for you. You guys gave us some good color about how to think about gross margins in '13 given what we know now. But now that you have the surge capacity in place, I'm assuming that at York, it doesn't just stop there. So I was wondering if you could help us understand what type of continuous improvement programs you might be looking at or just other ways to continuously -- or to use that word again, to continuously improve kind of the excellent productivity that you'll be getting out of York just with this surge capacity, and then perhaps also out of Kansas City.

Right. Well, I mean, first of all, Felicia, if you look at our strategy that we've had in place since last several years, there is really only 4 pillars. And one of them is continuous improvement, right? And so I think you make a very good point. And what we've really been focused on is getting the entire organization to understand that no matter how well we're doing, whether it's in sales, in marketing or whether it’s in engineering or whether it's in manufacturing, that we can always do better. And so if you think about York, if you think about Kansas City, Pilgrim Road, all of our plants, Tomahawk, and the transformation that we're going through, certainly this is just sort of the beginning, right? I mean, in other words, we've just now kicked that off. And our expectation is that we will continue to improve, we'll continue to improve our productivity, we'll continue to improve our performance around quality, the health, safety and well-being of our employees, and certainly, all of those things tend to make for a much smoother, more efficient operations. So my -- our expectation is that we'll continue to get better as we go to surge the next year, the following year and the year after. I don't know if that answered your question specifically.

Your next question comes from the line of Gerrick Johnson from BMO Capital Markets.

I wish -- I was hoping you could just touch on your own company inventories, down about 6%, in preparation for flex. Should work-in-progress be up or are finished goods down? What were the puts and takes in the company inventory there?

This is John. The company inventory is down versus a year ago. The main driver of that, Gerrick, is if you recall a year ago, we were building inventory in the fourth quarter and we were keeping it in company-owned inventory, and we were going to release that, and we did release it when the ERP implementation went off. So with the new ERP implementation, we're expecting production to be down quite significantly in the month that we launched. So we had higher production in the fourth quarter than we did this year and last year, and also higher inventories. So that's the biggest reason for the drop. But as you pointed out, because production is going to be up a fair amount in the first quarter, yes, certainly, we have to bring on more materials for that production, and that would take our work-in-progress inventories up and our raw materials up a little bit as well. So those 2 work to offset each other, but net-net, we're down as you had mentioned.

Your next question comes from the line of James Hardiman from Longbow Research.

Another follow-up for Larry, if you would. You talked about HDFS being down in 2013. Obviously that was the initial expectation for 2012, and I think that's been better than expected across-the-board. Obviously, that's a testament to the work that Larry and the rest of the team has done over the course of the year. But can we talk about, as the year has progressed, what surprised you, maybe to the upside, in HDFS? And as we roll forward to 2013, talk about some of those same factors. What are the odds that 2013 could look a lot like 2012 in terms of outperforming expectations, or are we really at the end of the runway with some of these items?

Okay, James, this is Larry. The biggest thing, I think, surprise in 2012 was just how low the retail credit losses were. At 79 basis points, clearly the lowest we've seen in over a decade and considerably better than what we had seen in 2011. So really, you can say that drove a fair amount of profit for us last year. I would say, when you take a look at 2013, we don't think it's realistic to expect that continued drive downward in retail credit losses. I think we expect the credit portfolio to perform well, it's in good shape going into the year. But we think, as far as the consumer is concerned, that they're starting to shift their behavior a little bit. We may see a little bit higher credit losses. So as far as, call it surprises on the upside next year, we think there's probably less potential for that just given where -- how low credit losses were in 2012.

And your last question comes from the line of Tim Conder from Wells Fargo Securities.

Keith, just to revisit your point on the additional emerging markets. You'd commented previously a few times, about looking at some potential different approaches in especially the Indian market. Any update you can give us there or when we may start to see some fulfillment or evidence of that emerging?

Well, I think, Tim, you know that we have a fully up and running CKD operation in India, and we're actually assembling bikes over there and we assemble certain models, and more and more models. We continue to open dealerships. And we continue to look at what are other opportunities in that part of the world. So I think, going forward, we'll probably have more say about those things, but right now, that's kind of where we're at.

And there are no further questions in queue.

Thank you. We appreciate your investment in Harley-Davidson.

And thank you for your time this morning, everyone. The audio and visual support for today's call will be available at harley-davidson.com. The audio can also be accessed until February 12 by calling (404) 537-3406 or (855) 859-2056 in the U.S. The pin number is 83422435#. We appreciate your investment in Harley-Davidson. And if you have any questions, please contact Investor Relations at (414) 343-8002. Thanks.

And this concludes today's conference call. You may now disconnect.