賓士域 (BC) 2002 Q1 法說會逐字稿

Good morning and welcome to Brunswick Corporation's 2002 First Quarter Earnings Conference Call. All participants will be in listen-only mode until the question and answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Kathryn Chieger, Vice President of Corporate and Investor Relations. Ma'am, you may begin

Good morning, everyone. Welcome. With me today are George Buckley, our Chairman and CEO and Vicki Reich, our CFO. First, I'll remind everyone that during this call our comments will include certain forward-looking statements about our future results. Keep in mind that our actual results could differ materially from expectations as of today. For the details on the factors to consider, take a look at our 10K for 2001 and our earnings press release issued this morning, both of which are available upon request or by going to our website at Brunswick.com. I've asked Vicki to start us off with a financial review and a report on what's happening in the recreation segment. George will follow up with an outlook for the year and news on some very exciting products coming out of our marine businesses. I know a lot of companies are reporting earnings today, so I'll try to wrap up in about 45 minutes. With that, I'll turn the call over to Vicki.

Thank you, Kathryn and good morning, everyone. As you know, we reported diluted earnings per share of 15 cents in the first quarter. While the comparison to last year's first quarter earnings of 45 cents reflects the challenges of the current economy, we were pleased that our performance was modestly better than our previously announced expectation of 10 cents. We knew that the first quarter would be difficult, both seasonably and cyclically. The marine retail season is just beginning to take shape, and as far as economic cycles go, we may well have reached the bottom of this one, but the timing and magnitude of a recovery remain very unclear.

Our sales in the quarter of $867 million were slightly better than expected but down 5 percent from last year. Sales were helped by our 2001 acquisitions of Princecraft, Sealine, Hatteras and Omni, which added $81 million of incremental sales for the quarter. The major drivers of the sales reduction in the first quarter were sluggish marine retail activities and actions we took to reduce Sea Ray's pipeline inventories. We also saw some cooling off of international growth rates, particularly in Europe. However, our acquisition of Sealine helped us to deliver 10 percent growth in international sales which accounted for 26 percent of total sales in the quarter. As has been the case during the past year, pricing trends were flat to up slightly for the quarter and this is after netting out the costs of sales programs that are typical during the boat show season. As we forecast, gross margin for the quarter was 22.1 percent, down 260 basis points from last year. Under absorption of fixed costs was once again the major culprit in this comparison as production rates were down an average of 15-30 percent against the first quarter of last year when we were just beginning our aggressive production rate cuts and plant closures. Now while a drop of 260 basis points is no cause for celebration, we are encouraged that the gap is narrowing versus the 500 to 600 basis point reductions we experienced throughout 2001. Our cost reductions in materials and plant overhead are taking hold and will accelerate our margin expansion as sales and production volumes recover. People are buying smaller boats, so an unfavorable product mix also depressed gross margins. Small boats benefited from consumer promotions and lean pipeline inventories, while sales of larger boats are still inconsistent at retail. Hence the actions we took to reduce the pipeline inventories. SG&A expense increased from $147 to $161 million. The increase was entirely attributable to the acquisitions we completed last year. Year over year, we're seeing our cost reduction actions take hold and we also benefited from the discontinuation of goodwill amortization. These good guys were offset by higher pension and insurance costs as well as funding of key new product programs which George will discuss in just a moment.

As we expected, operating margins declined to 3.5 percent from 8.7 percent last year. To give you an accurate picture, it's important to understand that the businesses we acquired last year delivered double digit operating margins this quarter. These businesses are tracking with our expectations and we're really pleased with their performance. Interest expense was also better and down from 13.6 to 11 million, benefiting from our cash flow and debt reduction efforts as well as significantly lower short term interest rates. Speaking of cash flow, in a quarter when Brunswick typically uses cash, we generated $19 million of free cash flow. Working capital management, and a particular inventory reduction , was a real highlight in the quarter. Reported inventories of $539 million were down 5 percent from last year and if you remove the effect of the 2001 acquisitions that were not in year ago numbers, inventories were down 16 percent. The global supply chain expertise we're building, combined with our BVA measurement systems, will drive continued improvements to our capital efficiency. Our balance sheet further strengthened in the first quarter. Debt to total capital was 35.5 percent, right on our target, and cash balances reached $144 million, so overall, some good enhancements to our financial flexibility.

Turning to our business segment, George will be covering more detail on the dynamics in our marine business, so I'll focus for a moment on our recreation businesses. First, bowling and billiards. Results in the bowling retail business were steady as she goes. In good times and bad, this business continues to generate predictable earnings and cash flows as we attract more family and social bowlers to replace the declining numbers of league bowlers. Bowling products, despite lower first quarter sales, is tracking to the operating plan for 2002 which will show significant earnings improvement on the back of aggressive cost cuts and business simplification actions. We are encouraged by early signs of renewed interest in bowling center upgrades by proprietors who are starting to feel better about the economy. I have to mention the stellar performance of our billiards business which posted continued sales and earnings growth. This business has defied the economic trends with a powerful combination of new products, brand management and an exciting new retailing concept we're rolling out to our dealers. It's called the Brunswick Pavilion and it's a store within store model. That's a dramatic departure from the typical retail store where billiard tables are hidden behind the swimming pool supplies.

In Life Fitness, sales to the commercial health club channels remains strong, supported by industry trends that show U.S. health club memberships were up 3$ in 2001. The number of people who worked out in the clubs rose even faster at a 7 percent clip. Life Fitness plans to continue capturing more than their fair share of active market with over two dozen new product introductions slated for this year alone. In the first quarter we launched three new Life Cycle bikes. As the industry leader for 30 years in this category, we just keep making the best even better. Life Fitness is innovating in new categories, too, with the first quarter introduction of a new line of independent stair climbers that complement our full suite of cardiovascular products and provide numerous features and benefits for both club owners and members. We're very excited about the positive changes taking place in Brunswick and there's a growing sense of momentum that is contagious. To tell you more, I'm now going to turn the call over to George.

Thank you, Vicki, and good morning, everybody. It gives me great pleasure to get to speak to you again and to report on our first quarter performance. After the economic and restructuring trials of the past 18 months, for a change I've almost nothing but good news to report to you. While we still have some very hard work, the first quarter turned out to be rather better than we had expected. As Vicki told you, we exceeded our earnings expectations and made a very solid 15 center per share as against the 10 cents per share that we had forecast. This improved earnings performance came off the back of slightly better than expected sales and the impact of cost reduction actions that we've been taking over the previous four quarters and we expect the bite of cost reductions to become better in the second quarter.

In our fourth quarter call we explained that we thought the first quarter would be the bottom of the economic barrel. We said this because we knew both our Mercury and Sea Ray units had good first quarters last year, making year over year comparisons pretty hard. Sea Ray was the last of our units to see the downturn and Mercury sales also benefited from OMC's bankruptcy at that time. We also saw little reason for the dealer channel to be optimistic on retail pull through. In addition, due to the big production cuts that we needed to make in the first quarter of this year, we knew that factory cost absorption would be an issue. We also knew from Sea Ray's filming interest, that we still had some nasty medicine to take there. These are the primary causes of year over year margin erosion, though in some model segments, promotional costs were higher also. So all in all, we expected tough conditions in Q1 and for the most part, we were right.

As Vicki described, we did an excellent job managing inventories but before anyone begins to worry that we'll miss possible future sales, let me say two things. Firstly, total field inventories are, on average, about six months supply on hand. So while they are lower than traditionally one sees at this time of year, they're still pretty healthy. Moreover, the blend of quality of that inventory has continued to improve. So we don't anticipate any significant product shortages going forward. Further, the inventory improvement boards well for better market response when the economy eventually recovers to more normal levels for us. Vicki mentioned that our old inventories had dropped significantly and I'd like to just give you one example. At U.S. Marine, our boat yard finished goods inventory is 70 percent more today than it was a year ago and this is testament to the great inventory management that we executed over the past year. Secondly, on engines, as we explained in the last quarter, we have staged key long lead parts inventory to respond to any uptake in sales if they come. The one remaining area where we need to address inventory is at Hatteras.

All in all, we're very pleased with this performance. It shows the discipline we have exerted on our company and it demonstrates our ability to execute against the tough market conditions most all U.S. manufacturers have experienced this past 18 months. We believe all our investors, our customers and our employees alike, should be very proud of this performance. As a little extra icing on the Q1 cake, during the quarter we also announced the sale of our European fishing operation which was part of Zebco that was not sold earlier in the U.S. piece of that company. This transaction marked essentially the end of our divestiture program, so cause for celebration there, I think.

I'd like now to speak a little bit about the second quarter. Based on pipeline orders, early indications are that sales will improve somewhat against our earlier forecast. Additionally, we'll also see a little higher level of cost reductions bite home in the second quarter. So on that basis, we believe we'll run somewhere between 40 and 44 cents per share in Q2. This is close to what we did in the second quarter of last year while still down from former boom time highs when sales were very strong. On that basis, we're going to raise our full year earnings expectations from $1.00 a share to somewhere between $1.05 and $1.10 per share. We know that some will believe these early indications are good and we accept that they are. But I'd like to remind everyone again that this is still very early in our seasonable boating business and significant uncertainty still exists over the fledgling year's economic improvement. There's still plenty of bad news in the economy to go along with some of the good that we're now seeing. As Vicki has mentioned earlier, for example, we are seeing a little economic activity cooling in overseas markets and we forecast that. Lastly, the descent of the U.S. dollar poses significant challenges for us against both foreign competition here in the U.S. and overseas plus the impact it has on our ability to sell U.S. manufactured products competitively and profitably overseas. We simply just need to be there and that's why most of our investment activity recently has been mostly overseas.

Further, in downsizing our global procurement activities and for manufacturing generally, will clearly help mitigate this problem over time. But for now, it's the environment we have to compete in. On that point, despite hedging, currency issues alone cost us nearly 2 cents per share EPS in this quarter. So on that basis, we believe caution and prudence are still the by words we need to employ for just a little while longer.

I want now to tell you about some really exciting news on products and cooperative ventures. Firstly, in February, we announced a 50/50 joint venture in marine diesels with Cummins Engine Company. This new company, called , or CMD, is now the largest recreational marine diesel supplier in the world. We believe this venture will grow to around $300 million in sales over the next five years. Strategically, I can't stress enough the significance of this very importance collaboration because it facilitates power growth in engine sales as well as boat sales in overseas markets especially where diesel power is pre-eminent. But it also prepares us strategically for the future day when diesel engines penetrate more small boat sales here in the U.S., and so in summary, it enables us to compete far more effectively in diesels than at any time in our history. We believe that this is game changing play number one.

Next, let me tell you about the new product coming out of Bayliner. As you all know, we've been working very hard over the past year to strengthen and reposition the Bayliner brand. What I'm about to tell you is just the first of many exciting initiatives coming from Bayliner we'll be announcing to you in the coming weeks and months. While we understand that you can't always recreate history, one concept we have is to rekindle the concept of the family boat, America's boat is what we're calling it. To that end, I'm pleased to announce the release of a small opening price point boat in the 17 and 18 foot range under the Bayliner brand. Now to help listeners with the importance of this new product, in 1988, Bayliner made more than 50,000 boats in this size range, but price creep over the years across the industry lost this. So our goal is to bring young, active families back into boating with a high quality affordable product. This boat will be sold in new innovative ways all across the country so expect to hear more on that a little later.

Our timing on this may well be perfect. Since 9/11, American families have been much more aware of the need to bond together and have recognized that the limited time that we have together is very precious. In a nutshell, I probably should say in life, it's always later than we think. In recent years, small boats like these have been loss leaders to manufacturers and dealers alike. Nobody has made any money on these boats with the exception of the engine manufacturers. But off the back of our best cost producer approach, and through global sourcing and keen control of manufacturing costs, we found ways to make very attractive double digit margins for each player in the value chain, even at the suggested retail price of $9,999.00 for the boat, engine and trailer. We've been working on this very exciting project for about the last 15 months and we expect that this boat will quickly become a true market leader, significantly improving Bayliner's market share over time. While we expect some competitor response, we believe this boat will generate genuine category growth as its impact takes hold in the dealer channel and the economy improves. In that sense, everyone in the boating industry will benefit, even some of our competitors. But we also believe, perhaps more importantly, that it will reach into the segment of the market traditionally filled by used boats. So it will capture share and sales from that segment as well. Used boats are the largest competitors, sales wise, to new ones. Over the next few years, this boat and derivatives that we plan, can prove significant growth to bounce back and re-establish the Bayliner brand as America's boat. We believe this is game changing play number two.

I'm also pleased to announce that in May of this year we will launch our very first closed mold manufactured boat under the Sea Ray brand, made with proprietary technology. While we already make boats with conventional technology, the quality of these hulls made with this new technology is just quite remarkable. Many people think that this closed molding approach is just another manufacturing technique. It's not. Its impact goes much further and can be found in the environment, in the quality of the product, in its effect on the supply chain, in the technology needed to design them, and in that capital investment profile of this industry. So over time, as we continue to develop and improve this technology, extending its size range and its applicability, we believe it will absolutely revolutionize the manufacturing process for all stages of boat production. Obviously, I don't plan to tell our competitors here in detail how we plan to do all this, but please be assured that with good execution, that it will. Be believe that this is game changing play number three.

I'm also pleased to announce that Mercury is four years into the development of a completely brand new range of large four-stroke engines. I want to stress that these are all new, all Mercury engines and have nothing to do with any other manufacturer anywhere in the world. It will eventually comprise a family of six engines beginning with a 250 horsepower engine with others going down to 135 horsepower. There's a lot of confusion about the issue of two-stroke versus four-stroke in the market. Four-stroke typically are more environmentally friendly than two-strokes, but are substantially heavier and have poorer performance overall. So the challenge to a manufacturer like us is to design a four-stroke engine that has sharp performance and that is, in fact, what we've done. Our engine will be lighter than any four-stroke engine made by anybody in the market, about 60 pounds lighter than those of our Japanese competitors. It produces 30-50 percent more power and torque than any other competitor engine all the way up the performance curve. It's performance both on the test end and live boats is absolutely blistering. We know. We've measured all of them. It's also smoother and quieter with revolutionary new mounting systems that isolate vibration and noise from the boat. Transmitted vibration is about one quarter of the industry's conventional engine mounting systems, including those of our competitors. The engine is also fully compatible with Mercury small craft engine control technology, allowing for digital throttle and shift. These are the so-called "steer by wire" and "throttle by wire" systems that we've talked about before. These are all another industry first. There are also many other blockbuster features, and I mean that quite sincerely, in the mid-section which I haven't spoken about here that I will keep as unpleasant surprises for our competition in the future.

We'll begin extensive field testing of the engine in the fall and production is expected to commence in 2003. As you can imagine, we're truly excited about this product and I could go on and on about it. In truth, the innovative features of the engine and its method of construction are just too numerous to mention here. This engine is all power, it's all grace, it's all smooth, and most importantly in my mind as an adopted countryman, it's all American. This is game changing play number four.

I think you can see from what we've said here that we re very proud of these new product programs and in the sort of Churchillian way, all I'll say now is this is not the end for Brunswick. It's not even the beginning of the end. But it may well be the end of the beginning. I expect to see much, much more of the above being announced by us in the coming months. So in conclusion, overall our performance was good in the first quarter and the long term improvements we have made and continue to make are beginning to take hold very seriously and they're all very, very encouraging. With that overview, I'd like to open the floor now for any questions that you might have. Thank you very much, everyone.

Thank you, sir. At this time we will begin the question and answer session. If you have a questions, simply press star one on your telephone touch pad. If you are using speaker equipment, you may need to lift your handset prior to pressing star one. Should you wish to cancel your question or if your question has already been answered, simply press star two. One again, that was star one to ask your question and star two to cancel. One moment while the questions register. This question comes from Jill from Solomon Smith Barney.

Thanks very much. Good morning and congratulations, George. Could you talk a little bit about the margin outlook for the marine segment? I know you talked about a lot of different initiatives. What do you see for margins, how the expansion potential over this year and perhaps the next couple years and do you see the buildup in the parts and accessories business playing a part in that over time?

OK, let me take the last question first if I can, Jill. On P&A, yes, we do see that, and the acquisition of the company that we did in the U.K., Teambridge, was a particular play in that respect. We recently hired somebody to focus on our parts and accessories business in the boat operations as well as that we already have in our engine business. So for us, it's a focus not just on larger enhancements, but also just ongoing growth so, yes, that will be very much a feature for us in the future. Just one last comment on that - - what we found last year was in the two parts of the parts and accessories business, one piece is obviously tied to new boats, but the other is in ongoing usage and that piece, which is really the largest piece, which was in the ongoing usage, was essentially recession proof. It continued to do well for us, so we see that as a very important growth area for us, margin area for us, and a way of insulating us against some of the cycles. On margin expansion generally, I've talked to a number of people over the last couple of years about this. The margin expansion comes in a couple of different ways. One of the things we talked about this morning, really two of the things we talked about this morning - - we've had a very, very strong focus on cost reductions in the small boating area to make sure that instead of these things being loss leaders for us, that we can enhance the margin in small boats progressively over the coming couple of years. We also believe that the second announcement that we made this morning, the closed mold technology, will over time, elevate the standard of boat manufacturing and the quality of the product and will, generally speaking, produce growth opportunities for us, so we'll get some volume leverage, but we also believe that over the course of time, unless people make changes to this manufacturing technology, quite frankly, they're going to be under some pressure and we think that - - I mean, this is essentially classic competitive dynamics of raising barriers to entry through capital and through technology, so I see over time, Jill, if you add to that our cost reduction activities, I see some significant enhancement in margins over time.

Great. Thank you, George.

Thank you, Jill.

Our next question comes from Tim from A.G. Edwards.

George, congratulations to you and to everyone there at Brunswick on the fabulous quarter. Could you speak - - in the first quarter, it sounds like you have seen the peak as far as your idle capacity. Could you quantify in any way, both in the boat and engine division, what that idle capacity potentially could have cost you? Then secondly, where do you stand currently with idle capacity both in boats and engines and where do you see that normalizing as far as a capacity utilization?

Tim, Vicki is just going to look up - - it's really the under-absorption number that we are just going to pull up for you. But in general, as a general answer to your question, in the boat plants, Tim, there might be a few percentage points from plant to plant depending on the segment that they serve, but on a four day a week basis, one shift, which is traditionally what these guys have done in Sea Ray in particular, the capacity runs at around - - utilization runs at around 75 percent today. So this is one of the reasons why we've been so confident we don't have a capacity issue going forward when the market picks up. In the engine business, it's a little better than that. I don't know the exact number, Tim, but its in the early 80's. Typically, in our plants - - I mean, the common sort of folklore that you would have is plans to operate efficiently need to be in capacities in excess of 85 percent and so typically, and again, it depends on the time of the economy you're speaking about, but certainly the good times are running well into the 90s in terms of capacity in engines. So we're just going to get he under-absorption number here now.

Tim, in the first quarter, the under-absorption represented about one third of the decrease in our operating earnings and as I said in my comments, it really was reflective of the underlying productions rates which were still dramatically lower than the first quarter a year ago because of the timing of when we took rates down, which was the end of the first quarter last year, beginning of the second quarter when we got the plants closed and the rates down. So this will begin to stabilize going into the second quarter of this year.

Vicki, again, one third of your corporate wide operating earnings declined?

That's correct.

OK. Can you, George, maybe address a little bit more - - where in your opinion is the company and/or the channel still heavy in inventory and then maybe an area where a couple of those could be a little bit light or a little bit under where you would like to see inventory levels?

Well, we've seen a lot stronger sales than we expected in small boats and so they've been sort of nipping out the door fairly well, and on big boats, they're still sluggish. If you think of it as a couple of sequential waves, Tim, the small boats were affected first, they fell away first, they seem to be coming back first. The big boats were the last to be affected and they're showing more sluggish signs of recovery. Also, if you overlay the complexity that the manufacturing cycle times on the very largest boats, some of them could be 9 months or even a year, so it's reasonable to understand and believe why they were the last affected and why they will be the last to come back. So we think that for awhile here, we're going to see strength in small boats, probably some more weakness in big boats, and its why our push on cost reductions and brining margin enhancements to small boats is so important. Remember, also, we sell engines and make money on the engines as well.

Right, right. OK. And would you say in the earlier comment that you made as it related to U.S. Marine, with your inventories down in that division 70 percent year over year, would you characterize U.S. Marine Bayliner as your inventory, the excesses now have been corrected in those divisions?

I think I'd say that is largely the case, but you know, it's always been our policy to be very aggressive on trying to keep inventory low and I think the heavy state there is largely at an end in U.S. Marine, Tim. I think that's probably the best way to characterize it. But as I eluded earlier, we've probably got a little bit more in Hatteras to do and Sea Ray, maybe some marginal correction now, but for the most part, inventory is now at a place where we're happy.

Great. Congratulations to everyone again.

Our next question comes from Burt Koontz from Merrill Lynch.

Good morning, everybody. Great quarter. I just have a couple of questions. At what level of field inventories do you begin to think about ramping up production levels I guess largely in Sea Ray and if you could just give us a little more color on events in your global supply chain as related to initiatives?

Let me take the last question first. What we did, and I'll try to make it relatively short here because this is actually a long story and I'll try to lose the temptation to go down that pathway. We put together a group here at corporate who led the installation of supply chain folks in Europe, in Mexico and in Asia. Of course, they're outsourcing, they're folks who are supply quality, development people, procurement people, contract people, and we used a couple of projects as catalysts to drive that activity. The small boat for U.S. Marine Bayliner was an example of that and there's lots of changes in policies and procedures. We've gone after it in generable consumables, in MRO, in strategic materials, and it's really getting some traction and of course I know the number that we're targeting for the long run but it's probably best that I don't say it on this conference call if I want to survive the morning with my colleagues. But it's been a very significant contributor to our cost reduction activities and we expect it, as our professionalism, our disciplines and processes get stronger and stronger, I expect it to bring more improvement to our bottom line.

Thanks. On the field inventories?

Field inventories - I'm not sure if I'm getting the question properly here, forgive me if I don't. On field inventories, they are lower in small boats, they are down about five months on hand which is probably a good couple of months lower than it would be traditionally in this industry at this time of year. On larger boats, it's a little longer than six months on hand and so it's not really even brand specific, it's size specific is where it is.

Burt, it's Kathryn. In terms of what would cause us to start ramping up production, I think it's going to be not so much an inventory issue but more a function of how our dealers feel going into the second half, the traditionally slower part of the season, and their willingness to increase inventories to higher levels if they've got confidence that going into the 2003 model year, there's going to be a significant pickup in retail demand.

Great, thank you.

Our next question comes from Dean from J.P. Morgan.

Hi, good quarter. Two questions. There's been a lot of noise about your four-stroke engines and Yamaha. Obviously, you discussed a new product that sounds great. Are there any issues in the near term before that product is ready? Secondly, on the parts and accessories and side, what kind of growth have you seen in that business as of late? Has it been higher than normal or would you say steady or are you talking flat year over year? Also, you talked, I think last quarter, about maybe some higher R&D expenditures. That may be what crimped some of the cost cutting. Have you actually witnessed any of that or do you expect any of that? Finally, now that you have divested all the non-core operations, is there anything else, maybe bowling or billiards, that you look at and think may not be core over the long run and would you maybe increase the thought of divesting one of those businesses? Thanks.

On the four-stroke question and really the question that you asked on Yamaha, Dean, I don't know if you know, but we've had a long working relationship going back many, many years, I think 25 years or more, with Yamaha, and we actually at one time in our history, owned 40 percent of , which is their manufacturing arm. So these sorts of relationships with them are very normal parts of our business and as an example, they make some power heads for us and we make some power heads for them. So this kind of sharing manufacturing capacity has been a feature of relationships with them for many, many years. By the way, very similar sharing in some sense is between the and Suzuki. We also have a joint venture with in Japan which we own 40 percent of, so these sorts of shared relationships are very normal in this industry and they're increasingly normal, now of course, in automotive. We have talked to Yamaha about buying some products from them. These are large four-strokes that are good engines although they don't perform perhaps quite as well as the new ones I talked about, but they've also talked to us about buying some of our products, so that kind of debate in ongoing at the moment. There is evidence that those talks will probably pop out of the pipeline over a period of time over the next two or three months in my belief.

On P&A growth, P&A growth up until coming into the recession, Mercury was running at about an 8 percent clip, 7 or 8 percent clip, some of which was price, not just underlying growth. Then, as the recession bit, we found that shrinkage in that P&A piece of the business that was dedicated to do boat sales just obviously rode down with new boat building contraction. But that portion of the business which was tied to just consumable, existing boats if you like, grew one or two percentage points in the year, which is why I mention it became almost like a bowling business in that respect. It became sort of a little bit recession proofing for us.

On the higher R&D costs, yes, they have been there. There's no questing. We expected it and forecast it and baked it into our numbers. You can see probably, Dean, from the number of things that we announced this morning, that we have been busy little bees for awhile. In particular, the largest expenditures were in the engine development. They were not only there, but that's where they were. That will probably continue through the year along with supporting cap ex investments. Again, all of which have been baked into the budgets and to the numbers that we talked about previously. You know that we're committed to technology being a real differentiator for us and so I think this will be a feature of life in Brunswick for some time to come.

On bowling and billiards, well some people could judge that it's not a core piece of our business but I think Vick outline earlier, we've certainly seen in the last year that that business brings quite a lot to us. It brought stability, it burg cash flow and it, particularly the bowling retail business, there's essentially no receivables and our attitude, I suppose, is that whatever it is that do, whether it's marine engines, whether it's boats, whether it's bowling, whether it's billiards, whether it's Life Fitness - - as long as we focus on operational excellence in all of these units, as long as we apply the proper capital to protect the investments, as long as we do the right amount of R&D, then there's always a welcome home for those businesses in Brunswick. On the other hand, if you would like to offer us a very large, fat check, we'll consider it.

That helps a lot. My bonus hasn't been that big. Thanks.

Mine neither. Thanks, Dean.

Our next question come from Chris Cox from Goldman Sachs.

The first question is - - at your fourth quarter call you had been budgeting, I think, for full year domestic retail sales to be down around 10 percent and wholesale shipments to be down about 155. Can you give us an update to that if there is one?

Chris, it's Vicki. I wouldn't say we feel very different. At this stage of the game, we wouldn't update that. Perhaps tweak it that it may be modestly better based on the early signals that we've seen at boat shows and dealers beginning to feel a little bit better. But frankly, the traffic has not picked up yet in the showrooms. So what we've baked into the new guidance that we gave you for the second quarter and the year is perhaps just a tweak better than that on both wholesale and retail.

Second question, you had mentioned that the three boat acquisitions that you had done in 2001 where you're seeing margins in the double digits, I guess low teens, somewhere in that region. Can you quantify in the first quarter what sales or what operating income may have been excluding those acquisitions?

No, we're not going to go there, Chris. We will say that incrementally they delivered roughly $81 million of sales and the margins for those businesses were, indeed, low double digits.

OK, and then last, in terms of Bayliner, you had said that similar small product in 1998 you had done around 50,000 units. How big do you think the opportunity is for this new boat at the $10,000 price point?

Let me correct your date, Chris. It was 1988, not 1998, just so you get that. Some folks have heard me use my quotation for these cases. It frankly is very difficult, especially when it concerns the future and especially when it concerns new products and new ventures. You can never be certain All we can do is we know the price points in the marketplace. We know the market conditions are favoring smaller boats. We've constructed a business plan and the cost of coming in are actually a little bit better than forecast. We think we're well placed to sell a significant amount of boats. But the issue in these sorts of cases, in any new start up ventures, Chris, is getting the capacity up and on ramp rapidly. I think, quite frankly, that it's likely that demand will exceed our capacity to supply this year in those small boats. But if we see that, of course, we'll be adding capacity as soon as we possibly can. So it's probable a few thousand units this year and we will follow it up as fast as we can.

Well, we promised that we would keep our call to 45 minutes and I think that we've hit that time so I want to thank everybody for participating in our call. We will be here today if any of you have any follow up questions. Again, thank you again.

This concludes today's Brunswick Corporation teleconference. Thanks for attending and have a great day.