Harley-Davidson Sharpens Focus and Reignites Culture; Delivers Best Third Quarter Net Income Since 2015
"We have driven significant progress across each key element of The Rewire playbook, and we believe the positive changes we have executed are setting our course for a winning future," said
Driving A High-Performance Culture
Harley-Davidson is evolving its culture to drive a high-performing, winning organization. The company is ramping up the competitive spirit of its employees and dealers to promote the heritage and value of the Harley-Davidson brand. Earlier this year, the company revealed a new vision and mission that are guiding and defining the company's roadmap.
Vision: Building our legend and leading our industry through innovation, evolution and emotion.
Mission: More than building machines, we stand for the timeless pursuit of adventure. Freedom for the soul.
The Rewire
The Rewire efforts to date have strengthened the company's focus on customers and dealers and reinforced desirability for the company's brand and products, setting the foundation for its 2021-2025 strategic plan.
Highlights as of the end of the Third Quarter:
$250 million cash savings including SG&A and capital reductions expected in 2020$115 million annual savings from restructuring actions taken expected starting in 2021$3.6 billion cash and cash equivalents compared to$862 million in 2019$1.1 billion of cash generated from operating activities compared to$849 million in 2019- Global dealer inventory down over 30 percent compared to third quarter 2019
- 2020 motorcycles selling at full MSRP (avg.
U.S. during the third quarter) - Used Harley-Davidson prices up significantly (
U.S. )
Progress made across all five key elements of The Rewire include:
New Operating Model: Reduced Complexity and Increased Speed
The company's new operating model eliminated duplication and complexity across global operations, resulting in significant expected ongoing SG&A savings and vast improvements in agility and efficiency.
The company also refreshed the leadership structure and team with most of the leaders being new to their roles and many bringing new perspectives and capabilities from outside the company.
Reset Global Business and Focus on High-Potential Markets
Harley-Davidson plans to concentrate on approximately 50 markets, primarily in
- 36 highest potential markets will remain, with the resources and autonomy within a clearly defined framework, to best drive growth and profitability.
- 17 markets will transition to more cost-effective distributor models. This includes
India , where Hero MotoCorp will be the exclusive Harley-Davidson distributor and licensed to develop and sell a range of Harley-Davidson motorcycles. - 39 markets will be exited due to volume, profitability or potential that does not support continued investment.
Refined Motorcycle Line-Up and High-Impact Product Launches
The company has streamlined its planned product portfolio by 30 percent and overhauled launch timing and go-to-market practices for maximum impact and success.
Highlights of the new approach include:
- Further streamlining - Eliminating optional offerings in the product portfolio with low customer uptake
- Sharper focus - Reducing complexity and directing resources toward the highest priority and core stronghold products
- Priority - Deliver Harley-Davidson's first Adventure Touring motorcycle in 2021
- Outsource - New venture created for eBicycles with minority equity participation for Harley-Davidson; marketed as Serial 1, Powered by Harley-Davidson
- Seasonal alignment - Plans underway for a virtual, new model year launch for dealers and consumers in first quarter (shifted from August to be closer to the start of the riding season)
- Marketing that drives desirability - The company executed new marketing campaigns featuring
Jason Momoa andEwan McGregor andCharley Boorman , stars of The Long Way Up, generating significant leads and growing awareness, excitement and desirability for the Harley-Davidson brand and products.- 500 million+ views of 'United We
Will Ride ' video byJason Momoa - 56 million+ views of The Long Way Up trailer
- 92,000 visits to The Long Way Up page on H-D.com
- 105 million+ positive media impressions of Long Way Up
- 500 million+ views of 'United We
Growth through Parts & Accessories (P&A) and General Merchandise (GM)
To drive growth, Harley-Davidson established new business units for P&A and
P&A Strategy
- Better leverage opportunity to inspire riders through customization
- Synergize with motorcycle product strategy
- Improve pricing and inventory strategy; reduce SKUs by 15 percent for 2021
- Enhance training and field support to drive sales growth
GM Strategy
- Realign product in critical categories; build category management plans
- Reestablish design principles centered around authenticity, brand heritage and quality
- Sharpen focus on most profitable SKUs; reduce SKUs by 25 percent for 2021
Protecting Value
The company is operating with a remodeled approach to supply and inventory management with a focus on a powerful dealer network to better preserve the value and desirability of Harley-Davidson motorcycles for customers. Some initial outcomes of this approach as of the end of the third quarter include:
- Reduced price gap between new and used Harley-Davidson motorcycles in the
U.S. - Global dealer inventory down over 30 percent
- Essentially eliminated promotions and discounting with a focus on brand building
A strong network of profitable dealers is essential to delivering the most desirable Harley-Davidson experience. The company continues to optimize its network to strengthen priority markets and provide an improved and integrated customer experience.
COVID-19 Response and Recovery
The company continues to proactively manage its business through the pandemic and has maintained robust protocols to keep workers safe in its factories. Most non-production workers will continue to work from home at least until the end of the year.
Included in the company's broad cost and cash savings measures are SG&A reductions, curtailed capital spending, suspended discretionary share repurchases and a prudent approach to dividend payments. The company will pay a fourth quarter cash dividend of
The company has also maintained its strong liquidity position with
Third Quarter 2020 Results |
||||||
|
||||||
$ in millions (except EPS) |
3rd quarter |
9 months |
||||
2020 |
2019 |
Change |
2020 |
2019 |
Change |
|
Revenue |
|
|
(8)% |
|
|
(22)% |
Net Income |
|
|
39% |
|
|
(76)% |
GAAP Diluted EPS |
|
|
42% |
|
|
(75)% |
Adjusted Diluted EPS |
|
|
50% |
|
|
(61)% |
Net income in Q3 2020 was
Retail Motorcycle Sales |
||||||
Motorcycles (thousands) |
3rd quarter |
9 months |
||||
2020 |
2019 |
Change |
2020 |
2019 |
Change |
|
|
31.3 |
34.9 |
(10)% |
86.4 |
105.8 |
(18)% |
|
1.9 |
2.6 |
(25)% |
5.7 |
7.8 |
(27)% |
|
33.2 |
37.5 |
(11)% |
92.0 |
113.5 |
(19)% |
EMEA |
11.2 |
10.5 |
7% |
29.9 |
36.9 |
(19)% |
|
7.6 |
8.1 |
(6)% |
20.3 |
21.8 |
(7)% |
|
1.8 |
2.5 |
(29)% |
4.8 |
7.3 |
(34)% |
Worldwide Total |
53.8 |
58.5 |
(8)% |
147.0 |
179.5 |
(18)% |
Global retail motorcycle sales in the third quarter of 2020 were down 8 percent compared to the prior year reflecting, among other things, the company's shift in timing of the launch of new model year motorcycles from August each year to early Q1 to better align with seasonality.
Motorcycles and Related Products Segment Results |
||||||
$ in millions |
3rd quarter |
9 months |
||||
2020 |
2019 |
Change |
2020 |
2019 |
Change |
|
Motorcycle Shipments (thousands) |
43.0 |
45.8 |
(6)% |
124.3 |
173.5 |
(28)% |
Total Revenue |
|
|
(10)% |
|
|
(26)% |
Motorcycles Revenue |
|
|
(12)% |
|
|
(29)% |
Parts & Accessories Revenue |
|
|
3% |
|
|
(12)% |
General Merchandise Revenue |
|
|
(18)% |
|
|
(24)% |
Gross Margin |
29.8% |
29.9% |
(0.1) pts. |
26.1% |
30.3% |
(4.2) pts. |
Operating Income |
|
|
(0)% |
|
|
(97)% |
Operating Margin |
4.8% |
4.4% |
0.5 pts. |
0.4% |
9.1% |
(8.7) pts. |
Revenue from the Motorcycles and Related Products segment was down in Q3 compared to the prior year due to, among other things, the shift in timing of its motorcycle model year change-over from August to early Q1 annually. Gross margin was flat to prior year and operating margin was up during the quarter compared to Q3 2019 primarily due to aggressive cost management in the face of the COVID-19 pandemic and actions taken under The Rewire.
Financial Services Segment Results |
||||||
$ in millions |
3rd Quarter |
9 months |
||||
2020 |
2019 |
Change |
2020 |
2019 |
Change |
|
Revenue |
|
|
(1)% |
|
|
1% |
Operating Income |
|
|
25% |
|
|
(43)% |
Financial Services segment third quarter operating income was up 25 percent due primarily to a decrease in the provision for loan losses driven by lower actual losses at the end of Q3 versus the previous quarter.
Other Results
Cash - Cash and cash equivalents were
Tax Rate - Harley-Davidson's year-to-date effective tax rate was 10.8 percent in Q3 2020 compared to 24.6 percent in Q3 2019. The decline in the effective tax rate was primarily due to discrete income tax benefits which reduced the Company's income tax expense.
Dividend & Share Repurchase - The company paid a cash dividend of
Outlook
Given the uncertainty that remains surrounding the impact and duration of the COVID-19 pandemic, the company is not providing 2020 financial guidance.
Harley-Davidson is developing its 2021-2025 strategic plan, The
Company Background
Webcast Presentation
Harley-Davidson will discuss financial results, developments in the business, a summary of The Rewire efforts and a first look at The Hardwire on an audio 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 replay will be available by approximately
Non-GAAP Disclosure
This press release includes financial measures that have not been calculated in accordance with
The non-GAAP measures included in this press release are adjusted net income and adjusted diluted EPS excluding restructuring plan costs and the impact of tariffs. Restructuring plan costs include restructuring expenses as presented in the consolidated statements of income and costs associated with temporary inefficiencies incurred in connection with the manufacturing optimization initiative included in Motorcycles and Related Products cost of goods sold. The impact of tariffs includes incremental
Cautionary Note Regarding Forward-Looking Statements
The company intends that certain matters discussed in this press 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," "may," "will," "estimates," "is on-track" or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments, or goals are also forward-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 press 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 are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this press release are only made as of the date of this press release, and the company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Important factors that could affect future results and cause those results to differ materially from those expressed in the forward-looking statements include, among others, the following: (i) the COVID-19 pandemic, including the length and severity of the pandemic across the globe and the pace of recovery following the pandemic and (ii) the company's ability to: (A) create and execute its business plans and strategies, including developing The
The company's operations, demand for its products, and its liquidity could be adversely impacted by work stoppages, facility closures, strikes, natural causes, widespread infectious disease, terrorism, or other factors. Other factors are described in risk factors that the company has disclosed in documents previously filed with the
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 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, the impact of COVID-19, 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 to sub-prime borrowers, as well as actions that the company has taken and could take that impact motorcycle values. Refer to "Risk Factors" under Item 1A of the company's Annual Report on Form 10-K for the year ended
### (HOG-F)
|
||||||||
Condensed Consolidated Statements of Operations |
||||||||
(In thousands, except per share amounts) |
||||||||
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||
Three months ended |
Nine months ended |
|||||||
|
|
|
|
|||||
2020 |
2019 |
2020 |
2019 |
|||||
Motorcycles and Related Products revenue |
|
$ 1,068,942 |
$ 2,733,091 |
$ 3,698,583 |
||||
Gross profit |
287,233 |
320,064 |
713,781 |
1,122,241 |
||||
Selling, administrative and engineering expense |
196,912 |
265,464 |
618,912 |
754,479 |
||||
Restructuring expense |
43,581 |
7,629 |
84,586 |
31,682 |
||||
Operating income from Motorcycles and Related Products |
46,740 |
46,971 |
10,283 |
336,080 |
||||
Financial Services revenue |
201,655 |
203,577 |
596,064 |
590,935 |
||||
Financial Services expense |
110,177 |
130,704 |
475,771 |
383,802 |
||||
Financial Services restructuring expense |
334 |
- |
1,278 |
- |
||||
Operating income from Financial Services |
91,144 |
72,873 |
119,015 |
207,133 |
||||
Operating income |
137,884 |
119,844 |
129,298 |
543,213 |
||||
Other income, net |
155 |
3,160 |
466 |
11,857 |
||||
Investment income |
2,672 |
2,041 |
3,082 |
11,970 |
||||
Interest expense |
7,783 |
7,789 |
23,307 |
23,304 |
||||
Income before income taxes |
132,928 |
117,256 |
109,539 |
543,736 |
||||
Provision for income taxes |
12,710 |
30,693 |
11,843 |
133,597 |
||||
Net income |
|
$ 86,563 |
$ 97,696 |
$ 410,139 |
||||
Earnings per share: |
||||||||
Basic |
$ 0.78 |
$ 0.55 |
$ 0.64 |
$ 2.59 |
||||
Diluted |
$ 0.78 |
$ 0.55 |
$ 0.64 |
$ 2.58 |
||||
Weighted-average shares: |
||||||||
Basic |
153,252 |
156,239 |
153,153 |
158,117 |
||||
Diluted |
153,915 |
156,944 |
153,790 |
158,794 |
||||
Cash dividends per share: |
$ 0.020 |
$ 0.375 |
$ 0.420 |
$ 1.125 |
|
||||||||
Reconciliation of GAAP Amounts to Non-GAAP Amounts |
||||||||
(In thousands, except per share amounts) |
||||||||
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||
Three months ended |
Nine months ended |
|||||||
|
|
|
|
|||||
2020 |
2019 |
2020 |
2019 |
|||||
Net income excluding restructuring plan costs and the |
||||||||
Net income (GAAP) |
|
$ 86,563 |
$ 97,696 |
$ 410,139 |
||||
Restructuring plan costs |
43,915 |
10,091 |
85,864 |
41,715 |
||||
Impact of incremental tariffs |
2,690 |
21,594 |
22,397 |
76,971 |
||||
Tax effect of adjustments(a) |
(5,477) |
(8,063) |
(19,486) |
(29,160) |
||||
Adjustments, net of tax |
41,128 |
23,622 |
88,775 |
89,526 |
||||
Adjusted net income (non-GAAP) |
|
$ 110,185 |
$ 186,471 |
$ 499,665 |
||||
Diluted EPS excluding restructuring plan costs and the |
||||||||
Diluted EPS (GAAP) |
$ 0.78 |
$ 0.55 |
$ 0.64 |
$ 2.58 |
||||
Adjustments net of tax, per share |
0.27 |
0.15 |
0.58 |
0.56 |
||||
Adjusted diluted EPS (non-GAAP) |
$ 1.05 |
$ 0.70 |
$ 1.22 |
$ 3.14 |
||||
(a) The income tax effect of adjustments has been computed using the company's effective income tax rate |
|
||||||||
Condensed Consolidated Balance Sheets |
||||||||
(In thousands) |
||||||||
(Unaudited) |
(Unaudited) |
|||||||
|
|
|
||||||
2020 |
2019 |
2019 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ 3,560,950 |
$ 833,868 |
$ 862,381 |
|||||
Accounts receivable, net |
232,845 |
259,334 |
307,616 |
|||||
Finance receivables, net |
1,701,478 |
2,272,522 |
2,210,001 |
|||||
Inventories, net |
322,375 |
603,571 |
489,098 |
|||||
Restricted cash |
160,155 |
64,554 |
79,115 |
|||||
Other current assets |
178,931 |
168,974 |
140,786 |
|||||
6,156,734 |
4,202,823 |
4,088,997 |
||||||
Finance receivables, net |
5,142,014 |
5,101,844 |
5,305,579 |
|||||
Other long-term assets |
1,233,527 |
1,223,492 |
1,181,654 |
|||||
$ 12,532,275 |
$ 10,528,159 |
$ 10,576,230 |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ 880,384 |
$ 876,668 |
$ 905,941 |
|||||
Short-term debt |
1,227,763 |
571,995 |
1,013,137 |
|||||
Current portion of long-term debt, net |
2,109,284 |
1,748,109 |
1,779,673 |
|||||
4,217,431 |
3,196,772 |
3,698,751 |
||||||
Long-term debt, net |
6,171,676 |
5,124,826 |
4,607,041 |
|||||
Pension and postretirement healthcare liabilities |
126,232 |
128,651 |
171,593 |
|||||
Other long-term liabilities |
247,038 |
273,911 |
262,626 |
|||||
Shareholders' equity |
1,769,898 |
1,803,999 |
1,836,219 |
|||||
$ 12,532,275 |
$ 10,528,159 |
$ 10,576,230 |
|
||||||||
Condensed Consolidated Statements of Cash Flows |
||||||||
(In thousands) |
||||||||
(Unaudited) |
(Unaudited) |
|||||||
Nine months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
Net cash provided by operating activities |
$ 1,135,068 |
$ 848,649 |
||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(92,295) |
(121,161) |
||||||
Finance receivables, net |
(143,093) |
(445,708) |
||||||
Acquisition of business |
- |
(7,000) |
||||||
Other investing activities |
334 |
22,395 |
||||||
Net cash used by investing activities |
(235,054) |
(551,474) |
||||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of medium-term notes |
1,396,602 |
546,655 |
||||||
Repayments of medium-term notes |
(1,400,000) |
(1,350,000) |
||||||
Proceeds from securitization debt |
2,064,450 |
1,021,353 |
||||||
Repayments of securitization debt |
(735,885) |
(244,250) |
||||||
Net increase (decrease) in unsecured commercial paper |
509,978 |
(120,707) |
||||||
Net increase in credit facilities |
150,000 |
- |
||||||
Borrowings of asset-backed commercial paper |
225,187 |
177,950 |
||||||
Repayments of asset-backed commercial paper |
(236,846) |
(240,008) |
||||||
Deposits |
29,992 |
- |
||||||
Dividends paid |
(65,002) |
(179,409) |
||||||
Repurchase of common stock |
(7,895) |
(217,454) |
||||||
Issuance of common stock under employee stock option plans |
96 |
2,180 |
||||||
Net cash provided (used) by financing activities |
1,930,677 |
(603,690) |
||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
6,071 |
(4,110) |
||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
$ 2,836,762 |
$ (310,625) |
||||||
Cash, cash equivalents and restricted cash: |
||||||||
Cash, cash equivalents and restricted cash, beginning of period |
$ 905,366 |
$ 1,259,748 |
||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
2,836,762 |
(310,625) |
||||||
Cash, cash equivalents and restricted cash, end of period |
$ 3,742,128 |
$ 949,123 |
||||||
Reconciliation of cash, cash equivalents and restricted cash on the |
||||||||
Cash and cash equivalents |
$ 3,560,950 |
$ 862,381 |
||||||
Restricted cash |
160,155 |
79,115 |
||||||
Restricted cash included in Other long-term assets |
21,023 |
7,627 |
||||||
Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows |
$ 3,742,128 |
$ 949,123 |
Motorcycles and Related Products Revenue |
||||||||
and Motorcycle Shipment Data |
||||||||
(Revenue in thousands) |
||||||||
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||
Three months ended |
Nine months ended |
|||||||
|
|
|
|
|||||
2020 |
2019 |
2020 |
2019 |
|||||
MOTORCYCLES AND RELATED PRODUCTS REVENUE |
||||||||
Motorcycles |
|
$ 779,344 |
$ 2,030,447 |
$ 2,871,982 |
||||
Parts & accessories |
209,808 |
203,173 |
513,201 |
584,134 |
||||
General merchandise |
49,356 |
60,334 |
136,321 |
180,379 |
||||
Licensing |
8,894 |
8,611 |
21,826 |
27,099 |
||||
Other |
11,627 |
17,480 |
31,296 |
34,989 |
||||
|
$ 1,068,942 |
$ 2,733,091 |
$ 3,698,583 |
|||||
|
25,284 |
25,572 |
69,359 |
101,481 |
||||
WORLDWIDE MOTORCYCLE SHIPMENTS |
||||||||
Touring |
16,505 |
19,905 |
47,811 |
75,871 |
||||
Cruiser(a) |
15,500 |
16,225 |
47,505 |
59,367 |
||||
Sportster®/ Street |
10,978 |
9,707 |
29,009 |
38,247 |
||||
42,983 |
45,837 |
124,325 |
173,485 |
|||||
(a) Includes Softail®, CVOTM, and LiveWireTM |
Worldwide Retail Sales of Harley-Davidson Motorcycles(a) |
||||||||
Three months ended |
Nine months ended |
|||||||
|
|
|
|
|||||
2020 |
2019 |
2020 |
2019 |
|||||
|
31,304 |
34,903 |
86,376 |
105,756 |
||||
|
1,915 |
2,560 |
5,668 |
7,787 |
||||
|
33,219 |
37,463 |
92,044 |
113,543 |
||||
|
9,742 |
9,018 |
26,014 |
31,997 |
||||
EMEA - Other |
1,442 |
1,465 |
3,864 |
4,902 |
||||
Total EMEA |
11,184 |
10,483 |
29,878 |
36,899 |
||||
|
4,444 |
4,889 |
12,517 |
13,219 |
||||
|
3,187 |
3,189 |
7,754 |
8,603 |
||||
Total |
7,631 |
8,078 |
20,271 |
21,822 |
||||
|
1,768 |
2,498 |
4,760 |
7,255 |
||||
Total worldwide retail sales |
53,802 |
58,522 |
146,953 |
179,519 |
(a) 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. |
||||||||
(b) Includes Austria, |
||||||||
(c) Includes |
Motorcycle Registration Data (a) |
||||||||
Nine months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
|
201,822 |
213,876 |
||||||
|
349,993 |
360,320 |
(a) Data includes on-road models with internal combustion engines with displacements greater than 600cc's and electric motorcycles with kilowatt peak power equivalents greater than 600cc's (601+cc). On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table. |
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(b) |
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(c) Europe data includes |
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SOURCE
Media, Jenni Coats, jenni.coats@Harley-Davidson.com, 414.343.7902 or Financial, Shannon Burns, shannon.burns@Harley-Davidson.com, 414.343.8002