EX-99.1 2 a8kq42017exhibit991.htm 2017 Q4 EARNINGS RELEASE Exhibit

Harley-Davidson Announces Fourth Quarter, Full-Year 2017 Results

Announces Progress in Building Riders

Initiates Manufacturing Optimization

Expands Product Development Through Increased Investment in Electric Motorcycle Technology


MILWAUKEE, Jan. 30, 2018 - Harley-Davidson, Inc. (NYSE:HOG) fourth quarter 2017 diluted EPS decreased to $0.05 from $0.27 in the fourth quarter of 2016. Fourth quarter 2017 net income was $8.3 million on consolidated revenue of $1.23 billion versus net income of $47.2 million on consolidated revenue of $1.11 billion in the fourth quarter of 2016. Fourth quarter 2017 revenue was up on higher shipments. Net income and EPS were adversely impacted by a $53.1 million income tax charge related to the enactment of the 2017 Tax Cuts and Jobs Act and a $29.4 million pre-tax charge for a voluntary product recall.

Full-year 2017 diluted EPS decreased to $3.02 from $3.83 in 2016. Full-year net income was $521.8 million on consolidated revenue of $5.65 billion versus net income of $692.2 million on consolidated revenue of $6.00 billion a year ago.

Harley-Davidson worldwide retail motorcycle sales were down 6.7 percent in 2017 compared to 2016. U.S. retail sales decreased 8.5 percent and international retail sales were down 3.9 percent.

“Our actions to address the current environment through disciplined supply and cost management position us well as we drive to achieve our long-term objectives to build the next generation of Harley-Davidson riders globally,” said Matt Levatich, president and chief executive officer, Harley-Davidson, Inc. “We finished 2017 with over 32,000 more Harley-Davidson riders in the U.S. than one year ago, and we delivered another year of strong cash generation and cash returns to our shareholders.”

Objective to Build Riders Globally
As the company executed against its long-term objective to build the next generation of Harley-Davidson riders globally, 57 new international dealer points were added in 2017, and U.S. dealers trained more than 62,000 riders through the Harley-Davidson Riding Academy. The company also maintained its number one 601+cc motorcycle market share position in countries including the U.S., Canada, Japan, Australia and India for 2017.

The company also launched its model year 2018 lineup of motorcycles, featuring the all-new, highly-acclaimed Softail® motorcycles featuring the powerful Milwaukee-Eight® engine. Harley-Davidson remains fully committed to investing in product development to inspire new riders through redefining its product in traditional spaces and expanding into new spaces. The company is on target to launch its first electric motorcycle within 18 months. Today, the company announces it will invest more aggressively to lead in the application of electric motorcycle technology to inspire ridership among a new audience.

“The EV motorcycle market is in its infancy today, but we believe premium Harley-Davidson electric motorcycles will help drive excitement and participation in the sport globally,” stated Levatich. “As we expand our EV capabilities and commitment, we get even more excited about the role electric motorcycles will play in growing our business.”

Manufacturing Optimization



Harley-Davidson plans to further improve its manufacturing operations and cost structure by commencing a multi-year manufacturing optimization initiative anchored by the consolidation of its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa. The company expects to incur restructuring and other consolidation costs of $170 to $200 million and capital investment of approximately $75 million over the next two years and expects ongoing annual cash savings of $65 to $75 million after 2020.

“The decision to consolidate our final assembly plants was made after very careful consideration of our manufacturing footprint and the appropriate capacity given the current business environment. Our Kansas City assembly operations will leave a legacy of safety, quality, collaboration and manufacturing leadership,” stated Levatich.

Harley-Davidson Retail Motorcycle Sales
 
4th Quarter
Full-Year
2017
2016
% Change
2017
2016
% Change
U.S.
23,195
26,077
(11.1)
147,972
161,658
(8.5)
Canada
1,318
1,257
4.9
10,081
10,203
(1.2)
Latin America
2,449
2,637
(7.1)
9,452
9,701
(2.6)
EMEA
7,460
7,891
(5.5)
44,935
45,838
(2.0)
Asia Pacific
7,720
8,748
(11.8)
30,348
32,889
(7.7)
International Total
18,947
20,533
(7.7)
94,816
98,631
(3.9)
Worldwide Total
42,142
46,610
(9.6)
242,788
260,289
(6.7)

In the fourth quarter, Harley-Davidson worldwide retail motorcycle sales declined 9.6 percent versus the prior year. Harley-Davidson U.S. retail motorcycle sales were down 11.1 percent and the overall industry was down 6.5 percent compared to the year-ago quarter. Harley-Davidson U.S. market share was 50.8 percent in the 601+cc segment in the fourth quarter.

Motorcycles and Related Products Segment Results
$ in thousands
4th Quarter
Full-Year
2017
2016
% Change
2017
2016
% Change
Motorcycle Shipments (vehicles)
47,198
42,414
11.3
241,498
262,221
(7.9)
Revenue
 
 
 
 
 
 
 Motorcycles
$801,726
$685,047
17.0
$3,825,206
$4,122,113
(7.2)
 Parts & Accessories
$168,131
$169,445
(0.8)
$804,363
$842,637
(4.5)
 General Merchandise
$71,236
$72,919
(2.3)
$262,776
$284,583
(7.7)
Gross Margin Percent
30.9%
30.7%
0.2 pts.
33.6%
35.1%
(1.5) pts.
Operating Income
$37,821
$9,271
307.9
$615,958
$773,406
(20.4)
Operating Margin Percent
3.6%
1.0%
2.6 pts.
12.5%
14.7%
(2.2) pts.

Fourth quarter revenue from motorcycles and related products was up versus the prior year behind higher motorcycle shipments. Operating margin as a percent of revenue increased in the quarter compared to the same period in 2016.

Financial Services Segment Results
$ in thousands
4th Quarter
Full-Year
2017
2016
% Change
2017
2016
% Change
Revenue
$181,883
$177,577
2.4
$732,197
$725,082
1.0
Operating Income
$63,674
$60,139
5.9
$275,305
$275,530
(0.1)


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Financial services operating income increased 5.9 percent in the fourth quarter compared to the year ago period.

Income Tax Rate
For 2017, Harley-Davidson's effective tax rate was 39.6 percent compared to 32.4 percent in the prior year. The increased tax rate was largely due to the impact of the write-down of deferred tax assets related to the 2017 Tax Cuts and Jobs Act.

The Company expects its 2018 full-year effective tax rate to be approximately 23.5 to 25.0 percent, down considerably behind the expected benefit of the new tax legislation.
    
Other Results
Cash and marketable securities were $687.5 million at the end of 2017, compared to $765.5 million at the end of 2016. Harley-Davidson generated $1.01 billion of cash from operating activities in 2017 compared to $1.17 billion in 2016. On a discretionary basis, Harley-Davidson repurchased 8.7 million shares of its common stock at a cost of $456.1 million during 2017. During the fourth quarter of 2017, 169.2 million weighted-average diluted common shares were outstanding. At the end of 2017, 10.6 million shares remained on a board-approved share repurchase authorization.

2018 Outlook    
For 2018, Harley-Davidson anticipates full-year motorcycle shipments to be approximately 231,000 to 236,000 motorcycles. In the first quarter of 2018, Harley-Davidson expects to ship approximately 60,000 to 65,000 motorcycles.

Harley-Davidson expects full-year 2018 operating margin as a percent of revenue to be approximately 9.5 to 10.5 percent including manufacturing optimization costs of $120 to $140 million.

The company anticipates 2018 capital expenditures of $250 million to $270 million which includes approximately $50 million to support manufacturing optimization.

Company Background
Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Since 1903, Harley-Davidson Motor Company has fulfilled dreams of personal freedom with custom, cruiser and touring motorcycles, riding experiences and events and a complete line of Harley-Davidson motorcycle parts, accessories, general merchandise, riding gear and apparel. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, extended service and other protection plans and credit card programs to Harley-Davidson dealers and riders in the U.S., Canada and other select international markets. For more information, visit Harley-Davidson's Web site at www.harley-davidson.com.

Conference Call and Webcast Presentation
Harley-Davidson will discuss fourth quarter and full-year 2017 results on a webcast at 8:00 a.m. CT today. The webcast login and supporting slides can be accessed at http://investor.harley-davidson.com/news-and-events/events-and-presentations. The audio will be posted by approximately 10:00 a.m. CT.

Forward-Looking Statements
The company intends that certain matters discussed in this release are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the company "believes," "anticipates," "expects," "plans," or "estimates" or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-

3


looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this release. Certain of such risks and uncertainties are described below. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this release are only made as of the date of this release, and the company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The company's ability to meet the targets and expectations noted depends upon, among other factors, the company's ability to (i) execute its business strategy, (ii) execute its strategy of growing ridership, globally, (iii) effectively execute its manufacturing optimization initiative within expected costs and timing, (iv) develop and introduce products, services and experiences that are successful in the marketplace, (v) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, (vi) balance production volumes for its new motorcycles with consumer demand, including in circumstances where competitors may be supplying new motorcycles to the market in excess of demand at reduced prices, (vii) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing political environment, (viii) manage risks that arise through expanding international manufacturing, operations and sales, (ix) successfully execute the company’s manufacturing strategy, including its flexible production strategy, (x) prevent and detect any issues with its motorcycles or any associated manufacturing processes to avoid delays in new model launches, recall campaigns, regulatory agency investigations, increased warranty costs or litigation and adverse effects on its reputation and brand strength, and carry out any product programs or recalls within expected costs and timing, (xi) continue to manage the relationships and agreements that the company has with its labor unions to help drive long-term competitiveness, (xii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xiii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio, (xiv) retain and attract talented employees, (xv) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (xvi) continue to develop the capabilities of its distributors and dealers and manage the risks that its independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xvii) adjust to tax reform, healthcare inflation and reform and pension reform, and successfully estimate the impact of any such reform on the company’s business, (xviii) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xix) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xx) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xxi) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xxii) manage its exposure to product liability claims and commercial or contractual disputes, and (xxiii) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the company and within its expectations.

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 that the company has disclosed in documents previously filed with the Securities and Exchange Commission.

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 and distributors 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 and distributors 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.

Contact: Media, Michael Pflughoeft, +1-414-343-7100; Financial, Amy Giuffre, +1-414-343-8002


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Harley-Davidson, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
 
 
Three months ended
 
Twelve months ended
 
 
December 31,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Motorcycles and Related Products revenue
 
$
1,047,045

 
$
933,023

 
$
4,915,027

 
$
5,271,376

Gross profit
 
323,261

 
286,809

 
1,653,344

 
1,851,666

Selling, administrative and engineering expense
 
285,440

 
277,538

 
1,037,386

 
1,078,260

Operating income from Motorcycles and Related Products
 
37,821

 
9,271

 
615,958

 
773,406

 
 
 
 
 
 
 
 
 
Financial Services revenue
 
181,883

 
177,577

 
732,197

 
725,082

Financial Services expense
 
118,209

 
117,438

 
456,892

 
449,552

Operating income from Financial Services
 
63,674

 
60,139

 
275,305

 
275,530

 
 
 
 
 
 
 
 
 
Operating income
 
101,495

 
69,410

 
891,263

 
1,048,936

Investment income
 
1,041

 
891

 
3,580

 
4,645

Interest expense
 
7,709

 
7,702

 
31,004

 
29,670

Income before provision for income taxes
 
94,827

 
62,599

 
863,839

 
1,023,911

Provision for income taxes
 
86,513

 
15,420

 
342,080

 
331,747

Net income
 
$
8,314

 
$
47,179

 
$
521,759

 
$
692,164

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
    Basic
 
$
0.05

 
$
0.27

 
$
3.03

 
$
3.85

    Diluted
 
$
0.05

 
$
0.27

 
$
3.02

 
$
3.83

 
 
 
 
 
 
 
 
 
Weighted-average common shares:
 
 
 
 
 
 
 
 
    Basic
 
168,271

 
176,616

 
171,995

 
179,676

    Diluted
 
169,195

 
177,642

 
172,932

 
180,535

 
 
 
 
 
 
 
 
 
Cash dividends per common share
 
$
0.365

 
$
0.350

 
$
1.460

 
$
1.400





Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
 
 
(Unaudited)
 
 
 
 
December 31,
2017
 
December 31,
2016
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
687,521

 
$
759,984

Marketable securities
 
—

 
5,519

Accounts receivable, net
 
329,986

 
285,106

Finance receivables, net
 
2,105,662

 
2,076,261

Inventories
 
538,202

 
499,917

Restricted cash
 
47,518

 
52,574

Other current assets
 
175,853

 
174,491

Total current assets
 
3,884,742

 
3,853,852

Finance receivables, net
 
4,859,424

 
4,759,197

Other long-term assets
 
1,228,506

 
1,277,191

 
 
$
9,972,672

 
$
9,890,240

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable & accrued liabilities
 
$
757,419

 
$
721,970

Short-term debt
 
1,273,482

 
1,055,708

Current portion of long-term debt, net
 
1,127,269

 
1,084,884

Total current liabilities
 
3,158,170

 
2,862,562

Long-term debt, net
 
4,587,258

 
4,666,975

Pension and postretirement healthcare liabilities
 
173,359

 
257,709

Other long-term liabilities
 
209,608

 
182,836

 
 
 
 
 
Total shareholders’ equity
 
1,844,277

 
1,920,158

 
 
$
9,972,672

 
$
9,890,240






Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
 
 
(Unaudited)
 
 
 
 
Twelve months ended
 
 
December 31,
2017
 
December 31,
2016
Net cash provided by operating activities
 
$
1,005,061

 
$
1,174,339

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(206,294
)
 
(256,263
)
Finance receivables, net
 
(363,637
)
 
(489,464
)
Proceeds from sale of finance receivables
 
—

 
312,571

  Net change in marketable securities
 
6,916

 
40,014

Other
 
547

 
411

Net cash used by investing activities
 
(562,468
)
 
(392,731
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of medium-term notes
 
893,668

 
1,193,396

Repayments of medium-term notes
 
(800,000
)
 
(451,336
)
Repayments of securitization debt
 
(444,671
)
 
(665,400
)
Net increase (decrease) in credit facilities and unsecured commercial paper
 
212,809

 
(145,812
)
Borrowings of asset-backed commercial paper
 
469,932

 
62,396

Repayments of asset-backed commercial paper
 
(176,227
)
 
(71,500
)
Net change in restricted cash
 
8,458

 
43,495

Dividends paid
 
(251,862
)
 
(252,321
)
Purchase of common stock for treasury
 
(465,263
)
 
(465,341
)
Excess tax benefits from share-based payments
 
—

 
2,251

Issuance of common stock under employee stock option plans
 
11,353

 
15,782

Net cash used by financing activities
 
(541,803
)
 
(734,390
)
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
26,747

 
(9,443
)
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
 
$
(72,463
)
 
$
37,775

 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents - beginning of period
 
759,984

 
722,209

Net (decrease) increase in cash and cash equivalents
 
(72,463
)
 
37,775

Cash and cash equivalents - end of period
 
$
687,521

 
$
759,984













Motorcycles and Related Products Revenue and
Motorcycle Shipment Data
(Unaudited)
 
 
Three months ended
 
Twelve months ended
 
 
December 31,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)
 
 
 
 
 
 
 
 
Motorcycles
 
$
801,726

 
$
685,047

 
$
3,825,206

 
$
4,122,113

Parts & Accessories
 
168,131

 
169,445

 
804,363

 
842,637

General Merchandise
 
71,236

 
72,919

 
262,776

 
284,583

Other
 
5,952

 
5,612

 
22,682

 
22,043

 
 
$
1,047,045

 
$
933,023

 
$
4,915,027

 
$
5,271,376

MOTORCYCLE SHIPMENTS:
 
 
 
 
 
 
 
 
United States
 
26,475

 
20,131

 
144,893

 
161,839

International
 
20,723

 
22,283

 
96,605

 
100,382

Total
 
47,198

 
42,414

 
241,498

 
262,221

MOTORCYCLE PRODUCT MIX:
 
 
 
 
 
 
 
 
Touring
 
19,353

 
17,943

 
99,745

 
107,410

Cruiser
 
19,651

 
14,852

 
87,344

 
93,422

Sportster® / Street
 
8,194

 
9,619

 
54,409

 
61,389

Total
 
47,198

 
42,414

 
241,498

 
262,221







Worldwide Retail Sales of Harley-Davidson Motorcycles(1) 
 
 
Three months ended
 
Twelve months ended
 
 
December 31,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
 
 
 
 
 
 
 
 
 
United States
 
23,195

 
26,077

 
147,972

 
161,658

 
 
 
 
 
 
 
 
 
Europe(2)
 
6,462

 
6,734

 
39,773

 
39,942

EMEA - Other
 
998

 
1,157

 
5,162

 
5,896

Total EMEA
 
7,460

 
7,891

 
44,935

 
45,838

 
 
 
 
 
 
 
 
 
Japan
 
2,512

 
2,648

 
9,506

 
10,279

Asia Pacific - Other
 
5,208

 
6,100

 
20,842

 
22,610

Total Asia Pacific
 
7,720

 
8,748

 
30,348

 
32,889

 
 
 
 
 
 
 
 
 
Latin America
 
2,449

 
2,637

 
9,452

 
9,701

Canada
 
1,318

 
1,257

 
10,081

 
10,203

Total International Retail Sales
 
18,947

 
20,533

 
94,816

 
98,631

Total Worldwide Retail Sales
 
42,142

 
46,610

 
242,788

 
260,289

(1) Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning new retail sales, and the Company does not regularly verify the information that its dealers supply. This information is subject to revision.
 
(2) Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
Motorcycle Registration Data(1) 
 
 
Twelve months ended
 
 
December 31,
2017
 
December 31,
2016
United States(2)
 
288,802

 
311,710

Europe(3)
 
390,619

 
391,936


(1) Data includes on-road 601+cc models. On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles.

(2) United States data is derived from information provided by Motorcycle Industry Council (MIC). This third-party data is subject to revision and update.

(3) Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data includes 601+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. This third-party data is subject to revision and update.