賓士域 (BC) 2007 Q1 法說會逐字稿

Good morning and welcome to Brunswick Corporation's 2007 first-quarter earnings conference call. (OPERATOR INSTRUCTIONS). 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, Corporate and Investor Relations.

Good morning and thank you for joining us. With me today are Dusty McCoy, Brunswick's Chairman and CEO, and Pete Leemputte, our CFO.

Before we begin our remarks, let me 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 10-K for 2006 and our earnings news release issued this morning. Both are available upon request or by going to our Web site at brunswick.com. We certainly appreciate your taking time to be with us this morning, especially in the midst of the busy earnings reporting season. We'll try not to tie you up for more than about 45 minutes. Now I will turn the call over to Dusty.

Thank you, Kathryn. Let me add my welcome to all those who are listening in.

This morning I want to share my thoughts on three items. First, what we're seeing in the U.S. marine market; second, the status of our efforts to reduce our pipeline inventories; and third, our earnings expectations for the full year. Pete will then summarize our first-quarter results, and I will wrap up with a few closing remarks.

When we're finished, I hope that I've left you with three key messages.

First, while market conditions remain very challenging, the employees of Brunswick are highly committed to delivering the best possible performance for our shareholders in this downturn. And we're doing just that. I'd like to take a moment to thank all of our employees who are listening in and tell you what a privilege it is to work with you. What you're doing in these markets is incredible.

In 2007 we're seeing industry retail unit volumes that are below any year since our last earnings trough in 2001. Yet our earnings are still estimated to be more than 70% higher than they were back then. We've always said while we can't change the fact that we operate in a cyclical industry, we continue to demonstrate our ability to better manage the peaks and troughs.

Second, our strategies to diversify our revenue base are bearing fruit. Since 2001, we have increased our international presence, added a boat parts and accessories business, grown our engine parts and accessories business, launched a financial services operation, expanded our brand portfolio into new segments, and grown our non-marine businesses. You'll see in our numbers the positive benefits of these actions.

Third, while we're pleased with the results of our strategic initiatives to date, there is more to come and much more to do. For example, there are many more benefits to come from having a smaller, more flexible and nimble boat manufacturing footprint and marine operating structure. With that said, let's begin.

As you saw from the news release, we reported earnings per share of $0.35 from continuing operations in the first quarter. That was down 45% from the $0.64 we reported last year, with both figures excluding special tax items.

While our reported financial results came in as we had expected, the recreational marine industry in the United States is facing very challenging conditions. While boat registrations for many states are still missing from reported industry March quarter data, preliminary statistics suggest that the industry is facing widespread retail declines, both geographically and across all boat types and sizes. As a whole, the industry is seeing low-teen declines in retail unit demand compared with the first quarter of last year. If we break that industry data down a little further, we see mid-teen declines for sterndrive and inboard fiberglass boats, a segment where we have our strongest market positions. Outboard fiberglass boats saw a decline in the high single-digits, and aluminum product saw a low-teen reduction.

The weakness in fiberglass product runs across a broad size spectrum, from runabouts through cruisers, and even into yachts under 60 feet. We have spoken in prior quarterly calls about the decline for runabouts and cruisers, but the softer demand in larger sport yachts and yachts is a newer phenomenon. The effect of an uncertain economy, a difficult housing market -- particularly in states such as Florida, which normally drive first-quarter sales -- the recent rise in fuel prices, and inclement weather late in the quarter, all have had an impact.

Turning now to pipeline inventories, given the weak industry demand at this time, our focus remains on maintaining production and shipments at reduced levels to ensure pipeline inventories reflect current market conditions. Even in these difficult times, we have continued to make progress in chipping away at our pipelines. But, as you might imagine, in these circumstances progress is painful to the bottom line.

Our overall pipeline on March 31 stood at 34 weeks for boats, up two weeks from the same period in 2006. That represents steady improvement from the three weeks of increase in inventories seen at the end of December 2006 compared to the same date a year earlier, and five weeks of increase seen at the end of September 2006 compared with the end of the previous third quarter. Our wholesale shipments of boats ran at levels below retail purchases, and that led to healthier pipelines, even though retail demand fell more than we had expected.

Importantly, our fiberglass brands saw only a one-week increase in pipelines for the quarter compared with 2006, down from the four-week increase at the end of December compared with levels at the end of the previous fourth quarter. Fiberglass boats account for almost 85% of our boat sales, measured in dollars. And therefore, this segment plays a very critical role in our financial performance. We are pleased with the progress we've made here, but it clearly also detracted from our bottom-line performance.

For a number of our marine operations, the significant drop in demand led to incremental growth in pipelines. Our aluminum brands experienced softer retail sellthrough, which resulted in higher weeks of supply in the quarter compared with levels at the end of the first quarter last year.

On the engine side, at the end of March, pipelines stood at 31 weeks of supply compared with 28 weeks last year. The increase was driven by higher sterndrive engine pipelines. Part of this increase is attributable to higher shipments to customers who made purchases in advance of a systems conversion at Mercury. In addition, we supply sterndrive engines not only to our own boat companies, but also to independent boat builders in the segment of the industry that, as I said earlier, experienced the biggest decline in retail demand in the quarter. Therefore, making progress on reducing our sterndrive pipeline remains a priority.

Let me spend a few moments now translating these conditions into our projected financial performance for the remainder of this year. We're holding our full-year earnings estimate in the range of $1.65 to $2.00 per share. There are always puts and takes at work, but offsetting weaker domestic marine markets are a number of important and positive factors.

First, as we entered 2007, we had production plans in place that pushed wholesale shipments well below then-anticipated retail demand across a significant piece of our marine portfolio. Therefore, while our retail markets proved tougher than we had anticipated, we can absorb some of this weakness without modifying our production pipelines. This will, however, mean that our pipeline corrections will take longer to achieve than originally expected.

It's always a bit of an art to balance what is happening in the market against the rate at which we bring pipelines down and our own staffing needs. We could significantly reduce production rates, bring manufacturing headcount down quickly and, therefore, drop the pipeline very fast. But that's not always the right approach because of the difficulty in restaffing as conditions improve. Employee retention is a key consideration across the marine cycle.

Although further reductions are planned, as I mentioned earlier, we have made solid progress with our fiberglass boat pipelines. In addition, fiberglass margins in general are higher than our aluminum brands. Since fiberglass pipelines require less adjustment, that mitigates somewhat the impact onour financial results moving forward.

Solid international growth is also important for us to maintain our earnings range. Reported sales dollars for Brunswick in total in the quarter fell by 2%. That consists of a 6% decline in the United States and 6% growth internationally. The growth outside the U.S. came from all geographic regions and spread across our engine and boat operations, as well as with Life Fitness. International sales now represent 34% of the Company total, compared with 32% in the first quarter of 2006.

During times like these, one of our marine businesses that continues to grow is parts and accessories, which represents an increasing percentage of our marine sales. Marine parts and accessories now account for 15% of our total marine sales, up from just 9% in 2001.

Finally, we remain focused on our cost reduction efforts. In fact, restructuring savings already underway are realizing better-than-anticipated savings, which will continue throughout the year. Reduced spending, particularly on our manufacturing facility restructuring, is having a more meaningful impact than we had forecast at the beginning of the year.

So, in summary, while we're facing difficult conditions, we have a number of positive factors also working in our favor. Therefore, with what we know today, we're still projecting earnings in the range of $1.65 to $2.00 per share. This range is wider than we would normally forecast at this time of year, but we're just entering the key retail selling season and uncertainty remains at higher-than-normal levels.

With that, I want to turn the call over to Pete for a summary of our financial results in the quarter, and then I will wrap up with our prepared remarks.

Thanks, Dusty, and good morning, everyone.

Looking at our first quarter, sales fell by 2% to just under $1.4 billion, with excellent growth at Life Fitness offset by lower sales at our marine businesses and at Bowling and Billiards. Organic sales, excluding acquisitions, were down by 3%.

The 8% sales growth at Life Fitness was broad-based, covering international markets, as well as domestic commercial and consumer businesses. We continue to invest in R&D and we're launching a wide range of new products in our cardio and strength lines. Sales growth will remain strong throughout the year.

Turning to our marine operations, we reduced wholesale unit shipments in many of our marine businesses to drive pipeline improvements. MerCruiser sterndrives and inboard shipments fell in the high single-digits, while the drop at our Boat group averaged in double-digit territory. As Dusty mentioned, while weak retail demand in some cases limited our ability to make more significant reductions in pipelines, good progress was seen with our fiberglass boat operations.

Despite significantly lower wholesale marine shipments, total marine sales dollars were off by only 3%. This reflects the benefits of revenue diversification, as Dusty mentioned earlier. International marine sales, when coupled with our parts and accessories businesses, together account for just under half of our total marine revenue. The mid to high single-digit growth from these operations provide a very meaningful offset to weak domestic boat and engine sales. There are some other boat brands, such as our largest yacht business at Hatteras, that are generating very impressive topline growth. Finally, price increases were also at work and averaged under 2%, net of discounts.

I should point out the drivers of the 8% sales drop at Bowling and Billiards. The most significant impact here comes from the ramp-up of manufacturing for bowling balls and coin-operated billiards tables from our two new manufacturing facilities in Mexico. That situation will reverse as we finish training new employees and bring production rates up further. In addition, the timing of sales for capital equipment at bowling products led to a sales shortfall in the quarter.

Sales for our retail bowling operations were down slightly, reflecting the divestiture in 2006 of one center. This was partially offset by revenues from our new Brunswick Zone XL, opened here in the Chicago area during the second quarter of 2006. We will have at least three new Brunswick Zone XLs coming onstream in 2007.

Turning to profits, operating margins for the Company fell by 310 basis points compared with the year-ago quarter, which was right in line with our expectations. Gross margins account for 80 basis points of the decline, while higher operating expenses, measured on a percentage of sales basis, drove the remaining 230 basis point slippage.

The reduction in gross margins is largely attributable to fixed-cost absorption from lower production at our marine engine and boat operations. While retail programs and wholesale discounts from our Boat brands also had a measurable and unfavorable effect, this was offset to a significant degree by cost reductions from our restructuring activities. We should point out as well, at Bowling and Billiards we also saw the continuing start-up expenses associated with the two new plants in Mexico.

Looking forward, the unfavorable effect from lower production will continue into the second quarter. In the second half of the year, we expect to see improvement in the comparisons versus 2006, since we were reducing line rates last year as the market softness became more apparent.

The increase in operating expenses comes from a fair number of small factors that add up to meaningful dollars. These include the following, and please bear with me while I list them out for you -- additional restructuring costs, largely for severance, higher spending from acquisitions, the impact of a weaker dollar internationally, increased R&D spending, the effect of inflation, and higher variable compensation accruals. Many of these will continue to affect operating expenses to varying degrees as we move through the rest of the year, but will be offset in part by cost reduction benefits. In addition, there were two nonrecurring gains from asset sales in 2006 that result in an unfavorable comparison in operating expenses in the first quarter. One was a facility previously held by Mercury, and the second, a retail bowling center.

Let's now turn our attention to free cash flow and the balance sheet. We entered the quarter with a cash balance of $204 million and a debt to capital ratio of 27.7%, both down from $283 million and 28%, respectively, last December. We clearly have the financial strength to pursue growth opportunities as well as our share repurchase program.

We saw a free cash outflow of about $52 million from continuing operations during the quarter. That's a normal seasonal trend, but one that was cut more than in half from the $124 million outflow in the prior-year quarter. That occurred despite a $40 million drop in net income. A lower working capital build was at work, along with lower capital spending. The favorable working capital performance is the result of the elimination of variable compensation payouts for many of our 2006 incentive plans, as markets weakened last year.

If you look at our March 31st balance sheet, you might ask what's driving higher accounts receivable and inventories compared with the prior year. For the $25 million increase in receivables half is attributable to acquisitions, with the remainder coming from international marine growth. In the United States, we get paid each month from floor planning companies that finance our dealers, and we carry very low receivables as a result. On the international side, floor planning is not a common practice, although we're working to change that, and we offer terms to our dealers typical of the market.

Inventories at March 31st stood at $945 million, up $48 million from a year earlier. Higher international inventories to support growth at Mercury, coupled with higher parts and accessories inventories from acquisitions, explain just under half of the increase. Higher inventories at Hatteras due to the ramp-up of production for the Swansboro plant that was acquired in late 2005 are the other key driver. Our own backyard inventory remains a key area of focus for cash flow management.

The drop in capital spending is driven by the absence of the joint purchase of a marina in St. Petersburg with MarineMax during the first quarter of 2006. On a full-year basis, we expect capital spending to run at about $190 million during 2007, with depreciation and amortization expense coming in about $175 million. It is possible we could exceed the capital spending figure, depending on our ability to identify additional locations for new Brunswick Zone XLs. However, we expect the cash flow impact to be offset by proceeds raised from financing options that are under consideration.

We are very pleased with the progress on the sale of Brunswick New Technologies. During the quarter we closed the sale of BNT's personal navigation device -- or PND -- business, to MiTAC, a Taiwanese manufacturer, and the marine electronics business to Navico, who also owns the Simrad and Lowrance brands. Total cash proceeds in the quarter from the two divestitures were $31 million. We are talking with parties who have an interest in BNT's profitable third operation, which sells vehicle tracking systems and software for small fleets. Net book value for BNT stood at $20 million at the end of March.

You will note that during the quarter we generated $0.12 per share in earnings from discontinued operations. About $0.09 per share came from gains on the sale of the two businesses, due to the slightly higher proceeds than had been estimated when the fourth quarter impairment charge was taken, as well as tax benefits. Operations, including additional tax benefits during the quarter, generated the remaining $0.03 per share in earnings.

During the quarter we bought 1 million shares of stock for just over $33 million. We believe that Brunswick remains an excellent investment and we will continue to be aggressive in share repurchases during the remainder of the year. As of March 31st we had $333 million available for stock purchases under our existing board authorization.

With that, let me turn the call over to Dusty.

Thanks, Pete. We've discussed what's going on in our markets, our expected financial results, and the benefits we're starting to see from some of the strategic work that has been underway at Brunswick. By no means has everything worked exactly according to plan. But overall we're pleased with what we've delivered to date considering the market conditions we face. Let me end by highlighting some of the additional work underway, some of which is still in its early stages.

We launched Brunswick Dealer Advantage at the Miami Boat Show, which is designed to help our dealers be more profitable and win in the marketplace. The reception to this offering of tools and services has been amazing as we've toured the country, and this should be an important aid in continuing to build on what is already the best marine dealer network in the industry. We truly believe that Brunswick will succeed as our dealers do.

Dealer certification programs in our Sea Ray, Boston Whaler and US Marine brands have been extremely successful in driving consumer satisfaction and market share improvements for the dealers carrying these brands and who become certified. In July, with the start of model year 2008, we will roll out dealer certification programs for all of our boat brands.

We continue to focus on introducing a significant number of new products with creative and innovative technologies for model year 2008. During our next call we'll review a few of these introductions that will have been made by then.

We just started down a path on realigning manufacturing to drive efficiency improvements. Our target is to produce more product in fewer plants. We announced two moves back in November, but further footprint changes will be made during 2007. While there is the potential for additional restructuring costs that are not included in our EPS guidance, the benefits are very important to us.

There is much more to do around sourcing, engineering, product development and logistics functions, as we continuously improve these functional activities. We have new marketing initiatives to complete that better position our great brands with consumers. Our manufacturing professionals are redefining their operating parameters and goals as they strive to become world-class, not only in the boat industry, but in any industry.

In short, we're hard at work improving our fundamentals. Though our market conditions are surprisingly difficult, we stay focused both on achieving near-term results while continuing to accomplish the longer-term goals we have established for ourselves.

Thank you very much for listening to us this morning, and let me now take questions.

(OPERATOR INSTRUCTIONS). Michael Savner, Banc of America Securities.

First, just to kind of better understand the way you think about inventory levels -- because you talk about making progress as the increase wasn't as significant as December, but nonetheless, inventory levels still seem to be moving in the wrong direction. Is it because international growth is outstripping expectations that you're comfortable with the inventories moving higher? Or, it would seem that if retail sales come in line with expectations you're still going to be in a negative position and potentially have to decrease production or ramp up promotions from their current levels. So just more color on how to think about that. And then, maybe a little bit more clarity on what internationally is working. Excluding the parts and accessories, maybe where are marine sales strong internationally specifically, and what are the growth rates? And lastly just, again, your thoughts on whether you're still looking at '07 as being, hopefully, a trough year for the boat cycle, or whether that's not as -- you're not as comfortable with that anymore. Thanks.

You bet. Deal with the pipeline first. The overall units in the Boat pipeline are down versus the same period in 2006. The reason the weeks of supply look like they're up is because retail has declined so significantly. And we have production plans that will continue to keep production below retail, and this will just continue to work through.

Your question, or statement, Michael, perhaps, around international sales is very perceptive. Because international sales do increase the boats in the pipeline, and that is a benefit. And perhaps -- and I don't want to give too much guidance here -- but if we were not increasing international sales, the pipeline might look a little different.

Next question was growth rates outside the United States, and I think you asked by regions. First, we have -- we are growing in every region outside the United States. Particular strengths have been seen in Europe and Latin America. And smaller in the Far East, and we expect the Middle East, which has been perking right along, will continue to do so. Are we in the trough? Michael, I'm not smart enough to tell you. And we're not trying to run the business as we're in the trough, or as it's coming up, or as it's getting better; we're just trying to run it on what we see right now. And I really don't know whether this industry is at the bottom this year.

Ed Aaron, RBC Capital Markets.

Nice job on the execution. A couple questions. First, if I were to operate under the assumption that your customers would be less willing or able to trade up for some period of time, how do you plan to manage around that from kind of a product development and pricing perspective? In other words, I know you've been working on a lot of things that are innovative, products like project Zeus for example, that would -- customers would want, but it would add cost to the boat at a time where maybe those customers couldn't tolerate it. How do you plan to manage your business around that, assuming you believe the statement that I just made?

First, I don't believe the statement you made is quite as broad as you made it. The markets are, obviously, down. So, yes, there are fewer people buying boats. And that, clearly, means for some of our brands where we get a lot of repeat buyers, that there are fewer people trading up. So I will take that as a given. But I won't say that there are customers there who won't trade up when they see two things. First, new product in terms of styling. But more importantly, new product with enormous innovation in the product.

And as we talk with our dealers and look at some of the new product that we're bringing to the marketplace -- I think you know what those are -- around propulsion, for instance, and around different types of engines, which then permits boats to perform differently and permits us to even design boats differently, we're pretty confident that we will continue to have people trade up. But it is going to be at a slower rate than it has been in the past, but that's just a part of the overall market. So I can't accept it, Ed, as a total statement. But it has a grain of truth in it. And this industry has continually, continually lived on new product sales.

Now, there is another item in this that we've got to continue to work very hard on, and that is the cost of new products. So as we work hard on manufacturing realignment, work hard on our cost attainment above the gross margin line, that begins to give us headroom to work on the overall pricing of the product, which is going to be important not only for us, but this industry, as we go forward.

That's helpful. Thank you. Your prior -- your guidance for the year, when you gave it last quarter, had an assumption of a retail market that was down low to mid single-digits. And I know there are a lot of puts and takes involved, and maybe you can tolerate a lower -- a slower rate of growth than that and still hit your guidance. But I'm assuming there's some kind of break point in terms of retail growth where you can't hit that guidance. And I'm going to take a stab at asking you what you think that break point is.

Fair question; one I was expecting. Let me turn it around just a bit, and let's focus on our production rates and how much we can pull those down, and then what it does to pipeline versus retail, and then staying within the guidance range. And I will do it this way. We believe we can be within this range if our production rates are down high single-digits to mid-teens. And you can, obviously, begin to interpolate that, the high-end versus the bottom-end. That's number one.

Secondly, as we're looking out for the remainder of the year, there are several other things at work. We believe we're going to continue to have international growth, and that growth is a bit more profitable for us than is domestic growth. Secondly, our parts and accessories businesses are continuing to do very well, and there's actually logic in that. As people stay on their product longer, they need more parts in order to keep the product running. We've done a lot of work in re-positioning our systems so that it's easier for people to do that. We've established a great distribution system through all the work we've done in our boat business. And we're comfortable that's going to continue to give us a nice, stable base, or floor, if you will. It's helpful in establishing a floor.

Next, we're doing a ton of work, and I think you begin to see it as you look at our gross margins, even on reduced sales and reduced volumes, particularly led by Mercury. We're getting a lot of cost savings above the gross margin line. And we've got more of that work to do, but it will continue to deliver nice results for us.

And then lastly, as we're looking out over the remainder of the year, we're expecting Life Fitness and Bowling and Billiards to produce upside for us compared to last year. So, there's a whole bucket of things that we're looking at in giving this number. And you asked the right question around marine, but there are several other things that we're working hard on.

Dean Gianoukos, J.P. Morgan.

Can you tell us where your production levels are, how much they're down relative to the last bottom? Secondly, can you give us the number in restructuring costs in the quarter, and whether you expect any more of that coming forward? Can you also tell us what the impact of FX was for the quarter, and finally what your plans are for the buyback? I would guess some people might have hoped for more money to be spent on the buyback, especially since you've talked about, certainly in Europe, multiples being high. And it seems like that would be a pretty good use of cash here.

Sure. On the production side, Dusty talked about kind of the range of figures that we had in there with high single-digits to mid-teen declines. I would point out to you, there's no -- it's not consistent across every brand, so you've got to be careful what you do with that data, all of you who are modeling off it. But you also have to keep in mind, too, that as I said, that the comparisons versus 2006 are particularly tough in the first half of this calendar year in 2007. Because we really started to see significant weakness in the marketplace in the second quarter of '06, and we were pulling our production rates down in the second half as a result. So, the comparison gets a little bit easier in the second half.

With regard to restructuring costs, just to make sure everybody is grounded, we had $19 million in the fourth quarter of last year. We expected another $10 million coming through this year, and this was all based on the activity that we announced in November. And we expected savings of $26 million. I will tell you there has been -- there were a couple of other projects that were not part of that November restructuring. Most significantly was a plant floor reconfiguration effort that we're undertaking at Mercury that was built into our initial guidance. And the cost for that has come down very significantly, and the savings have come in higher than we had originally anticipated due to some fine work at Mercury. So, net net -- and I want to move away from kind of talking about restructuring charges, because the basis continues to change as we move forward -- but there is literally $10 million of upside or more that we are now incorporating into our guidance.

On FX, the impact was probably on the order of $0.02 to $0.03 a share, we estimate, all in -- mostly centered in our marine businesses; a little bit in Life Fitness. And with regard to the stock buyback, we're going to continue to be aggressive on it. I don't want to give specific numbers out there, because quite honestly, we make decisions several days after the close, do it through 10b-5 plan. But I think you will see us probably pick up the pace a bit.

Just a follow-up. So, where are you in production versus the last bottom? Are you basically, with your projections, at where you were?

We are below that, probably, on average, 10 to 13%.

10 to 13% below where you were at the last bottom?

Yes.

I would like to add one comment on stock repurchases in the first quarter. The first quarter is the most difficult cash quarter for us. And a question we always ask ourselves is do we go lever up in order to buy back stock. And that's a question that we make a judgment on as we're working through the quarter. We could have done some levering up in the first quarter and bought some more stock, but we tried to manage it out of our cash flow. So as you see cash flow get better in subsequent quarters --

And also is we have more certainty around how we're performing during the year as well.

Maybe I can sneak one more in. What percentage of your business is in Florida? Because it seems like, certainly, from looking at MarineMax, that market seems to be a lot worse than some of the other ones. Can you just give us a rough idea where you are, how big you are in Florida?

I wouldn't have any idea how to tell you that. I'm sorry.

And the problem with looking at units sometimes, which is what -- industry data out there can be misleading. But, it's an important state. It isn't just Florida that was weak, where we think the housing market is having an impact; it was also California. And it's geographically very dispersed across the country.

What percentage of the total market is Florida? Do you know that? Total boat market.

We do, but we don't have it in front of us. Maybe that could be a follow-up.

Tim Conder, A.G. Edwards.

Just a clarification on the topic of where we are below the last bottom. And, Dusty, to your comments also -- we're talking units, dollars?

We're talking units. And the answer Pete gave around production levels was also units.

That helps a lot. And again, just to update, you still anticipate the U.S. industry -- I think you had said at retail you'd given some guidance back in January. If you can sort of update us on that perspective, from an industry perspective. You've, obviously, given your thoughts there on the wholesale shipments. But where do you see dollars in both wholesale and retail for the overall industry for this year?

Anything I told you in January, throw out the window. Because, obviously, the market was much worse than we had anticipated. And I actually can't guess it. I will say this. Never in the history of the industry has an industry gone through an entire season at the rates down -- on the preliminary information that we have seen for the first quarter. So look at this first quarter information. 20% of sales throughout the industry go through the first quarter. And the available information to us is about 50% of that 20%. So we're looking at reported 10% of a year down, as we said, low double-digits. Never has the industry on a sustained basis gone through that through an entire season. So hopefully we're not going to go through that, but we're all just going to have to wait and see.

And I would add, Tim, if you're trying to look at our guidance from before, realize what we said about kind of the overall retail market. We had made an assumption, and Dusty touched on it, that our wholesale production rates were going to be well below retail, even in that earlier guidance. So we are able to absorb some of that. It may mean that the pipeline correction goes out a little bit longer than we otherwise would have been, but we've got to judge what do we need to do with production with what's going on in the market in a real-time basis.

Again, are you implying on the marine side that your productions will then be down modestly in the back half, even against those easier comps, or flattish?

No. It's still down in the second half.

And internationally, obviously, definitely picking up the slack. And the fortuitous decisions that you've made in the past to broaden your reach internationally have played out extremely well. How do you see the trajectory there? You said, I think, international marine was up 6% in the first quarter. How do you see that trajectory at this point in time looking for the whole year internationally?

A couple things first. We ought not to give ourselves too much credit for being smart internationally. I think a lot of us in the boat industry are doing that. We believe, on a longer-term basis, as a percentage of sales of Brunswick, that we ought to be above 40% and maybe approaching 50% of our total sales across the whole company outside the U.S. We have fairly quietly, but I believe effectively, put in some great organizations outside the United States under some great leadership. Our U.S.-based businesses are working very, very hard to understand the international markets and get product right, etcetera. A lot of our folks have logged more air miles in the first quarter outside the U.S. than they probably have in the past three or four years. So we're very focused on that as a growth opportunity as something we've got to keep moving on. But overall, it's got to become a much bigger piece of Brunswick as we go forward.

Both you gentlemen mentioned, regarding the footprint, reducing your boat manufacturing footprint. Can you kind of update us on a timetable where you're looking to get that completed by?

About the time I retire. It will be a continual activity. We will work on our footprint and improve efficiency and productivity on a continual basis. So it's one we're just going to always be working on.

So there's no big thing in the works over the next two to three years, big leap here that we're looking at?

I don't know how to define a big leap. I'm not trying to be evasive. As I said in the prepared remarks, there's more coming in 2007. And we're just going to continue, through our really great manufacturing folks, continue to look at how we continue to get better. And we'll just keep grinding through this over time.

Geoff Kuli, Fidelity Investments.

Mine was the last question. Thank you.

Jeremy Dent, GE Asset.

I had a question about the high-end of the market. It looks like through 2006 it's held up pretty well in comparison to some of the lower and mid-range boats. And it seems like it might be headed for -- starting to soften now in 2007. How do you see that affecting your revenues going forward this year? And my second question is, in terms of acquisitions, do you see anything on the horizon, or any potential competitors that might not be doing so well in the market conditions that you think you could buy maybe at a discount?

First, the big boat market -- we need to define big boats, I think, first. Hatteras continues to do well, and Hatteras starts at 50 feet. And the bulk of its product is above 60 feet. And that market continues to do well and is strong. In, say, the 40 to 60-foot range, we have seen weakness here that we have not seen in the past. And as we have looked at our projections for the year, we're assuming that that market is -- continues to be down somewhat versus 2006.

On acquisitions, we've been fairly clear that we have the brands, the portfolio that we think we need in order to be successful and in order to build the appropriate dealer network. Frankly, the competition does a nice job. I don't think anybody is going to run in here and say, will you buy me for $1? And the only way we would be looking at an acquisition would be if it were just some unbelievable transaction. And we don't anticipate any of those will be coming in the door here in the U.S.

James Hardiman, FTN Midwest Securities.

First, can you comment -- I know your data on the first quarter is somewhat limited, but can you comment on, from a retail perspective, what impact mix and pricing had? In other words, you've talked about how far down unit sales were. Do you have the number for revenues?

We don't give that out. But let me just say that there was unfavorable mix at Mercury moving towards smaller horsepower product in terms of our wholesale shipments. Some of that is we're bringing capacity online from Asia for some of the smallest product that we offer on outboards. We saw a little bit of that as well with the MerCruiser business.

When you look at the boat side of the business, particularly at Sea Ray, our biggest brand, there has been a slight mix down there towards sport boats, which is driven to some extent by some production constraints we had as we were starting up a new production facility last year. So that's actually having an adverse effect and is already reflected in the quarter and in the guidance that we gave. And there are some other businesses that are slightly positive.

So, just directionally, should I assume it's roughly in line with the unit contraction, or maybe a little bit worse?

It's probably a little bit worse than the overall unit contraction, just because it's going to be slightly mixed down. But there was less of an impact of that, quite honestly, on our reported sales, because it's a smaller piece of our overall revenue base. We had a fairly significant piece of our revenue in fiberglass boats over 35 feet.

Great. The second question here, on the Mercury side, you talked about an increase in shipments as customers made purchases ahead of that systems conversion. Did that ultimately pull demand forward here a little bit? Did that help the engine growth number for the quarter, and how should I think about that as we move forward the next couple of quarters? Is that going to reverse itself? Is that going to continue to be a benefit, at least in the second quarter? How should I think about that?

I think the way to best think of it is, when you look at production plans, they go out more than one quarter. We're generally looking out a quarter or two, and that had been factored into our thinking. There was a slight impact on Mercury's growth, positive, as you stated. But it doesn't explain -- it's not that meaningful to the overall growth in their number; probably half a percent or less.

Joe Hovorka, Raymond James.

Just one quick question. Dusty, I think, you mentioned that we've never seen a full year that's been down as much as it has been down in the first quarter. If I recall correctly, back in '90, '91, the market seemed to be down about 20, 25% in each of those (multiple speakers)

That's a fair comment. And that was so before my time, it's not on my horizon. You're exactly right.

I just wanted to make sure we weren't looking at different numbers.

I'm talking about the modern era, when I showed up to work here. That was a good catch. Thank you.

Sir, at this time I'm showing no further questions. I'll turn the conference back over to you.

Thanks, everyone, very much; a bunch of really great questions. The folks who follow us really understand this industry. We appreciate your knowledge and the questions you ask us because, frankly, it makes us better. We'll put our head down and go back to work, and let's wait and see what these markets do overall. We appreciate your time today.

Thanks very much.

This concludes today's conference. We thank you for your participation today.