Harley-Davidson (HOG), perhaps one of the ultimate consumer discretionary companies, is obviously struggling in this downturn. The motorcycle company said on its Q408 conference call that it had lost market share last year:
The first nine months of this year much of our competition was heavily discounting prior year product that they'd overproduced and they were giving ungodly rebates to the dealer, the customer and then zero percent financing to [pull] through prior year products. It certainly had implications on market share in the first nine months.
The biggest problem though seems to be funding. The company accessed the Fed’s commercial paper program, and plans to access TALF when it is finalized. Is that enough?
Last quarter I estimated HDFS [Harley-Davidson Financial Services] funding needs to be up to $1.5 billion for the full year of 2009. Based on our updated volume scenarios and projections, we now believe HDFS's 2009 funding needs will be approximately $1 billion.
Cash and cash equivalents totaled $594 million as of December 31, 2008. Cash used by operations was $685 million during the full year of 2008 compared to $798 million of cash provided during the full year of 2007… During 2008, HDFS funded a greater percentage of its business with proceeds from commercial paper and medium-term notes than during 2007.
Q: You laid out three different priorities [for HDFS funding]. You have the TALF part, which we don't really know about yet, the unsecured debt markets, which seem like they're currently not open, and then on the asset-backed commercial paper line, I thought you said that if you rolled that it wouldn't count against that $1 billion. So I guess I'm trying to understand how you have comfort that we're going to be able to get the financing that we need through the year?
A:It's in the best interests of our shareholders to work aggressively as we can on those three alternatives… We are [also] being very prudent with the managing of cash in the company… At the same time, we have filed the shelf registration in December that does give us additional options and additional flexibility to pursue other paths in the event that we need to.
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