賓士域 (BC) 2009 Q1 法說會逐字稿

Good morning and welcome to Brunswick Corporation's 2009 first-quarter earnings conference call. All participants will be in a 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 Mr. Bruce Byots, Vice President Corporate and Investor Relations. Sir, you may begin.

Good morning and thank you for joining us. On the call this morning is Dusty McCoy, Brunswick's Chairman and CEO, and Peter Hamilton, our CFO.

Before we begin with our prepared remarks I'd like to remind everyone that during this call our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations.

For the details on the factors to consider, please refer to our 10-K and today's press release. All these documents are available on our website at Brunswick.com. I would now like to turn the call over to Dusty.

Thanks, Bruce, and good morning, everyone. Now I hope you've had the opportunity to review our first-quarter earnings release. Our results continue to reflect the difficult global economic conditions in which we're operating.

We reported a net loss in the quarter of $2.08 per share on a sales decline of 45%. The net loss includes $0.45 per share of restructuring charges for activity that we had announced previously and implemented during the period. I'll comment further on these as well as other incremental actions that we plan on taking during the remainder of 2009. The loss also includes $0.40 per share of non-cash charges for special tax items that Peter will discuss in his remarks.

As we stated in late January, we entered 2009 against the backdrop of a harsh operating environment with the view that demand for our products would be down significantly and that consumers would be cautious. Our late January view concerning consumer caution has proven to be true.

Change in the marine retail financing landscape also has impacted consumer demand in the quarter. National lenders are now requiring more down payment, shorter terms and higher credit scores. As a result, many of our dealers are turning to credit unions and local banks for retail financing, but the overall result has been lost sales.

Let me review some of the preliminary first-quarter United States industry data starting with fiberglass sterndrive and inboard units, which fell 45% in the first quarter of 2009. This compares to a decline of 28% in the first quarter of 2008, and a drop of 48% in the fourth quarter of 2008.

Outboard fiberglass boat retail unit demand fell 37% in the first quarter of 2009; this compares to a decline of 20% in the first quarter of 2008 and a drop of 41% in the fourth quarter of 2008. Aluminum product demand fell 30% in the first quarter of this year compared to a decline of 17% in the first quarter of 2008, and a drop of 30% in the fourth quarter of last year.

In addition to the impact of the changes in retail financing, we have to focus for a moment on developments in floorplan financing. The first significant development has been the exit of several national lenders from this segment of the lending industry. As a result the impacted dealers have been forced to transition to new sources of floorplan lending, or to close their businesses. Our dealer network was not materially impacted by the exit of these lenders as the significant portion of our dealers' floorplan through our joint venture with GE.

The second significant development has been the change from floorplan lending terms and conditions, as the remaining floorplan lenders seek to improve the quality of their loan portfolios. Beginning April 1 dealers, including those financing through our joint venture with GE Capital, Brunswick's Acceptance Company, are incurring higher financial costs and loan curtailment payments as well as a reduction in length of time the inventory will be financed. The overall impact of these changes will be higher cost to carry inventory and a lessening of dealer inventories going forward.

As dealers began to adjust to the new floorplan terms, they necessarily began to curtail their wholesale orders. While these changes require our dealers and us to adjust on the fly, so to speak, we and our dealers will be healthier in the long term with less inventory in their showrooms.

In response to these conditions we reduce the number of boat units that we sold to dealers by 61% during the quarter versus last year. As a result Brunswick's Boat segment sales declined by 64% compared to a fourth-quarter last year boat sales decline of 58%.

The same factors that drove lower sales and earnings in our Boat segment also impacted Marine Engines. Mercury sales declined 45% in the first quarter versus the first quarter of 2008. This compares to a fourth-quarter 2008 sales decline of 43%.

In response to these retail and wholesale declines we adjusted our production rates throughout the quarter to levels that were below our wholesale unit sales. This lower level of production reflected a 64% decline in units produced versus the first quarter of 2008. More importantly perhaps, in our fiberglass boat business our production levels were about 50% of our retail demand.

The lower production levels at both our boat and engine facilities led to pressure on our operating margins. In light of market declines, aged product, increased repossessions from consumers, dealer failures or voluntary cessation of business by them, and distress by certain manufacturers, product pricing across the industry on a global basis is becoming sloppy with significant discounting becoming a part of the landscape.

As a result, in addition to lower fixed-cost absorption caused by lower production and sales volumes, margins were also negatively affected by pricing and discount activity occurring at both wholesale and retail levels. These factors were partially offset by ongoing cost reduction efforts.

The three business imperatives that we outlined on our last conference call remain the focal point of our current business actions. We are successfully managing through these difficult conditions by -- first, maintaining solid liquidity without additional borrowings; second, remaining focused and taking appropriate actions to maintain the health of our dealers; and third, continuing to position ourselves to exit this downturn as a stronger company. And although day-to-day challenges remain acute, we have performed exceptionally well relative to these three imperatives.

Let me start with the first and probably most important item on our agenda, our overall liquidity. We ended the quarter with $359 million of cash on our balance sheet compared to $317 million at year end. We ended the quarter with no borrowings under our revolving credit facility and we did not draw on that facility at any point during the period.

Our cash performance reflects the results of the successful execution of a variety of operating actions taken throughout our company. Net working capital contributed nearly $80 million to our cash from operations, which primarily came from reduced inventory levels and lower accounts receivable. We also received a tax refund of $67 million.

The second area of focus is for our Marine businesses to take the necessary actions to maintain the health of their dealer networks. I've already described to you our basic plan, which is to produce and sell at wholesale fewer boats than are sold at retail. We've worked together with our dealers to manage their declining inventory requirements. This is a critical step that must occur before stability and improved performance can occur in our Marine businesses.

This focus had a positive influence on our efforts to reduce the dealer pipeline. At the end of the first quarter, we reduced our boat dealer pipeline by 9,800 units versus a year ago, a 27% reduction. We ended the quarter with 36 weeks of product in the pipeline on a trailing 12-month retail basis compared to 34 weeks at the end of the year, which is a remarkable achievement given the dramatic retail declines. I would like to once again thank and commend our dealers for the aggressive inventory management they've demonstrated over this very difficult period.

Looking specifically at financing statistics, total domestic floorplan loans outstanding dropped 5% during the quarter versus year-end 2008 levels. This is a significant accomplishment for our dealers in light of the very weak retail demand in a bit of an off-season period.

And although the inventory of boats aged less than 12 months was down 13% at the close of the first quarter versus year-end 2008 levels, and was down 47% from a year ago, our dealers did experience growth of 8% in inventory greater than 12 months in age in the first quarter. We're focused on reducing aged product in the field and we're working closely with our dealers to get this product sold through at retail during this selling season which is just beginning.

The tough economic environment has required that we repurchase inventory from a small percentage of our boat dealers. During the quarter our gross repurchases were about $6 million with a net cost to the Company of less than 20% of that amount, once the boats have been placed with other dealers.

If the difficult industry conditions in which we're operating continue unabated through 2009, we believe it is likely that we will experience an increase in the rate of dealer failures or voluntary market exits by dealers. Our experience in prior downturns, and during this particular downturn, continues to give us confidence that we will manage through dealer dislocation without endangering our financial health.

Before turning the call over to Peter, I want to take a moment to mention the performance of our Fitness and Bowling & Billiards businesses. Although under top-line pressure, these businesses continue to contribute positive earnings in cash flow to Brunswick. Life Fitness reported essentially breakeven operating earnings on a sales decrease of nearly 21%. Operating expense reductions of 19% were critical in helping to partially offset the margin impact of lower sales.

The club fitness industry experienced modest revenue gains in 2008 and we assume that industry revenues will remain basically flat in 2009, although there will probably be a reduced number of new club openings. Despite this relatively stable environment at the club retail level, club owners in the United States and overseas have become cautious about purchasing new equipment because of the overall economic uncertainty as well as reduced access to financing. And of course, purchasers of consumer or home exercise equipment have become even more cautious, particularly within the high-end consumer segment where Life Fitness competes.

Brunswick Bowling & Billiards sales were down 12% for the quarter, while operating earnings improved from slightly under $1 million in the first quarter of 2008 to $10.6 million in the first quarter of this year. Sales declines in our Bowling Products and Billiards businesses reflected the same factors as the Fitness industry. Bowling center providers and billiards consumers were cautious about purchases in the current economic environment.

Credit availability is also a factor for significant buys of bowling capital equipment. Retail bowling sales were less adversely affected and were down mid-single digits. Despite the negative gross margin impact of lower sales, the Bowling & Billiards segment recorded improved operating earnings as a result of continuing cost reductions and the absence in this quarter of charges taken in the first quarter of 2008. Now I'll turn the call over to Peter for a closer look at our financials.

Thanks, Dusty. Before I provide some comments on our Marine businesses I would like to point out that we have reorganized and therefore restated certain components of our Marine operating segments. Beginning with the first quarter 2009, the Company announced the integration of its boat and engine parts and accessories operations under a single business entity. This new integrated structure will maintain the identities of the existing businesses while consolidating all of their functional areas under Mercury Marine.

The integration will result in streamlining operations, eliminating business complexity and positioning the Company to be more responsive to the North American Marine marketplace. US GAAP requires segment results to reflect the Company's organizational structure. As a result historical operating results of parts and accessories operations previously reported in the Boat segment are now reported in the Marine engine segment. These changes are attached as an appendix to our news release.

Moving now to first-quarter performance. The reduction in the Company's first-quarter operating earnings is a function of our Marine businesses. Boat segment sales were off $360 million or 64% which drove an operating loss of $72.3 million versus a loss of $17.4 million in the first quarter of last year. The $55 million reduction in earnings results primarily from the net effect of a few major factors.

As Dusty detailed, this difficult Marine market, coupled with our efforts to protect our dealer network, required both aggressive curtailment of Marine production and reductions of wholesale shipments. Both plant closures and extended shutdowns across all our brands limited production to 69% of this year's retail demand and a 64% reduction versus last year's first-quarter reduction.

These curtailments were necessary to reduce our dealers' inventory by nearly 10,000 units compared to Q1 2008. However, as we all know, production cutbacks result in very heavy penalties to earnings. In addition, our success in reducing dealer pipelines required not only curtailments to our planned production, but also aggressive retail discount programs and wholesale dealer support. These incentive programs had a sizable negative impact on operating margins.

The majority of our Boat segment earnings shortfall versus last year is a direct result of reduced gross margins on our lower wholesale shipments, the unfavorable impact of lower fixed-cost absorption on reduced production, and the impact of higher discounts. Now additionally as we continue to dial back production, reduce our fixed cost and reduce our salaried workforce restructuring activities and costs increased as well.

During Q1 our restructuring costs in the Boat group were $25 million, nearly twice the expense we incurred in last year's first quarter. And finally, our Boat brands have done an outstanding job of identifying and successfully implementing continuous cost reduction programs. Staffing reductions, plant closures and consolidations, aggressive spending reductions plus brand divestitures have helped mitigate the unfavorable impacts of the previous factors. Approximately 50% of Brunswick's planned cost reductions will be reported into our Boat segment.

Turning now to our Engine segment -- Mercury sales at $344 million were down 45% or $285 million and the segment's operating loss of $50.6 million was unfavorable to its Q1 2008 earnings of $33.6 million. As you would expect, the key drivers of the engine segment's first-quarter performance reflect the factors that influenced the Boat segment sales and earnings.

The reduction in the Engine segment's top-line is less than the percentage reduction reported by our Boat businesses; there are two reasons for this. First, as we have discussed, to improve the efficiency of our P&A and service and parts operations we consolidated the management and reporting of these businesses in the engine segment. Since existing boaters require parts, service and accessories, the reduction in our P&A service and parts sales was far less severe than the sales reduction of boats and engines.

And second, Mercury's international sales mix is higher than in our Boat businesses and Mercury's international sales decline was less than the decline in our domestic and international boat sales. Absent these factors the sales reduction in our Engine segment would have approached the percentage decline in our Boat segment.

The majority of the Engine segment's reduced earnings were a direct function of lower wholesale shipments and lower fixed-cost absorption on reduced production. Our first-quarter outboard and MerCruiser production is down 77% versus Q1 of last year. Consistent with our objective at the Boat group, these production curtailments have been implemented in response to unprecedented low levels of retail demand and they improve both our cash flow by reducing our working capital investment and they improve the health of our dealers' pipelines.

In addition to the overall sales decline, Mercury's earnings were negatively affected by a proportionately greater reduction in sterndrive engine volume. And finally restructuring cost reported within the Engine segment increased by more than $10 million in Q1 versus last year. Severance cost was the primary contributor to higher restructuring expense. These staffing cuts coupled with a material reduction in discretionary spending, partially mitigated the unfavorable effects of lower sales and productions, product milk and higher restructuring costs. Approximately 35% of our total cost reduction savings will be reported in the engine segments.

Moving now to our tax provision. As you may recall, in 2008 the Company was required to establish a valuation allowance against certain of its deferred tax assets resulting in a non-cash provision for the year in which we actually recorded a significant pretax loss. As we entered 2009, we recognized that the Company would be unable to book a tax benefit for operating losses in this year because we would be required to put up further valuation allowances against the deferred tax assets generated by those losses. Therefore it was argued that the Company's pretax loss in 2009 would essentially be its after-tax loss.

What has changed since then is that in response to continued weakness in the Marine retail marketplace we have reduced production and wholesale shipments further and our anticipated losses have increased. The prospect of these additional losses has triggered a requirement under GAAP to book in Q1 a $36.6 million non-cash valuation allowance against the Company's state and foreign deferred tax assets.

The methodology for evaluating the requirement to book a valuation allowance is somewhat different for federal versus state and foreign deferred tax assets and this difference has dictated the timing of recording the valuation allowances in 2008 and 2009. Looking ahead to the rest of 2009, we do not expect to be able to benefit the Company's pretax losses because of the need to offset such benefits with valuation allowances resulting in pretax loss falling directly to the bottom line.

And now I want to turn to cash flow and augment some of Dusty's comments. Brunswick's cash balances ended in the first quarter at $359 million, which is $42 million greater than year-end 2008 and more than $90 million higher than the first quarter of 2008. We did not have any cash borrowings under our revolving credit agreement at any time during the quarter.

Significant sources of cash in the quarter were changes in working capital and a federal tax refund. Cash from working capital changes totaled approximately $80 million as the Company drove down inventory and receivables and, as anticipated, we received a federal tax refund of $67 million resulting from carrying back losses incurred in 2008 to our '06 and '07 returns which were years in which we paid taxes.

Restructuring activities to further reduce the Company's fixed cost represented a $40 million use of cash in the first quarter. In addition to cash, the Company's next source of immediate liquidity is its revolving credit facility. At the end of the first quarter our net available borrowing capacity under the revolver totaled $183 million. This amount reflects a borrowing base of $272 million minus outstanding letters of credit backed by the facility.

Our cash flow objective for the full-year 2009 continues to be that we end this year with greater cash balances than year-end 2008 without the benefit of additional borrowings. As previously stated, we expect appreciation and amortization to be about $155 million. We now estimate capital expenditures to approximate $50 million. In view of the continuing difficult Marine environment, we are increasing the estimate of 2009 restructuring charges to about $75 million, the majority of which will be cash for actions currently implemented or planned.

Another factor that will influence cash flow in 2009 is pension funding. As a result of recent rulings on funding regulations, we now anticipate that our minimum funding obligation for 2009 will be less than $5 million. However, we will continue to assess the trade-offs at making discretionary contributions this year to address our long-term pension fund agreements.

By far the greatest contributor to cash flow in 2009 is expected to be from working capital. We now anticipate cash flow from working capital to exceed $250 million. The reason for this large contribution is the lower production levels we have planned for the remainder of 2009. We will be purchasing fewer goods and meeting a greater percentage of our sales requirements from inventory currently on hand. Over the past four quarters we've reduced inventory levels by more than $280 million.

The anticipated reduction in working capital will reduce our revolving credit facility borrowing base as the year progresses. In addition, in the second quarter we will effectively lose $60 million of borrowing capacity under the facility as a result of having fallen below a minimum fixed-charge coverage threshold.

Because of these two factors our revolver borrowing capacity will be reduced by approximately $100 million over the remainder of this year. However, our inner-month cash requirements have declined as a result of our work to decrease spending which ultimately lowers the amount of cash required to fund our businesses. This provides a greater level of cash cushion and decreased reliance on the revolving credit facility.

Consequently, we expect that cash balances and cash flow will be more than adequate to fund operations over the remainder of this year and we do not anticipate drawing on the revolver. Simply put, we would rather convert our inventory and receivables to cash in the Brunswick treasury than maintain them on the balance sheet with assets against which we can borrow. I'll now turn the call back to Dusty for some concluding comments.

Thanks, Peter. I'll conclude our call with a discussion of the third leg of our near-term actions, which is focused on making decisions which allow us to successfully emerge in this global economic crisis even stronger than before.

During 2008, we achieved actual fixed-cost reductions versus 2007, affecting both cost of sales and SG&A, of approximately $160 million. These reductions did not reflect amounts saved by not paying bonuses based upon 2008 performance and did not reflect the negative effects of restructuring expense.

In 2009, we believe additional cost reductions of approximately $240 million will be generated, largely related to the full-year impact of 2008 cost reduction initiatives as well as actions already initiated or planned for 2009. For the year 2009, these additional savings do not reflect the unfavorable effects of restructuring expenses, variable compensation and pension obligations.

A major portion of our cost savings has been a result of workforce reductions. Since the beginning of 2008 to the end of the first quarter of 2009 we've reduced our total company workforce by 37%. In our Marine operations we've reduced our total workforce by nearly 50% during the same period. These actions are painful and disruptive for the individuals involved and for our organization. But we have no choice but to size our workforce to demand.

We have remade our manufacturing footprint, exited brands, reduced our product model count and exited non-strategic businesses and activities. We've consolidated functions and removed layers of management throughout the enterprise. Peter described to you in his remarks one example of this type of activity with the consolidation of our Marine parts and accessories businesses.

All of these actions are at the core of our belief that we've positioned Brunswick for outstanding margin growth when global economic conditions improve. However, we remain realistic in our assessment of economic conditions in our markets in the near-term. So while we're well positioned for the future, we're squarely focused on handling the near-term issues we face and are optimistic in our ability to move beyond the difficult financial climate in which we're operating.

Thank you for listening to us for some fairly long comments and we'll now be happy to take your questions.

(Operator Instructions). Ed Aaron, RBC Capital Markets.

Good morning, guys. Dusty, this is a broad question and maybe not one with very clear answers, but I think we're all kind of scratching our heads about what this industry is going to look like two or three years from now. And to your earlier point, the credit environment is certainly changing the way that the industry manages around inventory.

And just curious to get a little more insight into what assumptions you're making about what is ultimately going to be considered the quote-unquote right amount of inventory to have out there? And then also, how do you expect to manage around the production just from a seasonal standpoint longer term, considering the higher cost of providing floorplan financing?

Good question, Ed. First, we're starting with two fundamental assumptions -- we are not planning for the market to come back to 2005 levels likely within my working career, and I hope that's a fairly long career. Secondly, we've begun to plan on a dealer-by-dealer basis what we think the minimum levels of inventory we ought to be carrying in the field, and they're going to be a fair bit lower, Ed, than anything we've had out there.

So outstandings for dealers are going to have to go down and are going to have to stay down. What that then is going to do is require us, rather than level loading, we're going to have to think -- our production, we're going to be thinking very hard about how we have much more flexible production and that has been at the core, Ed, of our beginning to change the manufacturing footprint.

And the way I've described it in the past, we've gone from brand-based manufacturing with multiple models to model-based manufacturing with multiple brands. And that will permit us then to be much more flexible, and to be more responsive to dealers so that we can respond on a made-to-order basis much better than we've done in the past, rather than just level loading and push it out all through the four quarters and then ask the dealers to carry inventory for a long time.

So we're focused on the industry being smaller, therefore we're positioning our cost so that we can have great margins in the smaller industry. We're planning for dealers to carry a fair bit less inventory, I would even say significantly less inventory and we've begun to think now hard for two years about what our manufacturing footprint needs to look like to permit us to be more responsive to the made-to-order dealer network. Is that helpful at all?

It is, thank you. And then also, you mentioned you're not really expecting much in the way of a recovery this year, but consumer confidence is picking up, at least from a very low base. Seasonally speaking at the right time, just was wondering if in the last several weeks if you've seen any changes in activity above and beyond what you might attribute to just seasonality?

First, Ed, I'm being very careful not to say what I'm expecting when I say what we're planning for, and those can be two different things. We want to plan for downsizing. We've not seen -- well first, I need to describe the marketplace. I think the marketplace is abnormal right now, and therefore, it's really difficult to understand what normal demand is and what normal seasonality is going to become.

The reason the market is abnormal is we've got some dealers who have decided to exit the business -- this is now across the industry -- other dealers who have gotten into trouble and had their inventory repossessed, if you will, or repurchased by manufacturers. We've had consumers who have given up on paying for their boat and what we've gotten now is a body, and it's difficult to tell how big that body is, but a body of -- and I'll put quotes around this -- "repossessed boats" that are now beginning to flush to the system.

Therefore, it's a little difficult to tell what real consumer demand is because we've got this abnormal activity going through the marketplace right now. The real issue then I think we're all trying to ask, and may be, Ed, at the center of your question -- do we believe this recession, and maybe in the Marine industry we can call it a depression, is V-shaped or U-shaped, and where are we -- are we at the bottom of the V, at the bottom of the U, on our way down, on our way up?

And what I can tell you is, we don't know whether we're at the bottom yet, but we have begun to see those little trickling signs in this industry as well as what one sees across the entire global economic assessment of perhaps things are slowing down. But my judgment is we haven't really seen the bottom yet, but we've got to be getting darn close to it.

That's helpful, thanks. And then just the last question. Peter, you mentioned that the revolver was sized down I think by $100 million, but you had one change that was $40 million of that. What was the other component to the change in the revolver?

The other, Ed, component was $60 million of effectively reduced capacity because as of the beginning of the second quarter we will no longer be in compliance with the fixed-charge coverage threshold, and so it is not an event of default, it doesn't change the revolver, it merely reduces the $60 million of capacity until such time as we could come back into compliance with it.

So I actually had it backwards, that was the one I did catch. What's the other $40 million then?

Well, the other $40 million was, as we continue to burn off inventory and receivables it is our very rough judgment about the expected reduction in the borrowing base.

Thank you.

Joe Hovorka, Raymond James.

Just one quick clarification (inaudible). Where's the effective borrowing amount right now? You said you had $183 million available, but what was the total?

Well, it was $183 million plus what we have outstanding against the facility and letters of credit. And that's about $80 million.

$80 million of letters of credit?

Yes, that you would add to the $183 million and that is the capacity -- the capacity we had ending the quarter still had the $60 million in it. The capacity we have today is effectively the $183 million minus the $60 million.

Okay. So $183 million minus $60 million plus $80 million.

That's the cash capacity.

Right. Okay.

(Inaudible - microphone inaccessible).

And then a couple questions on your dealer inventories. I think you said that your wholesale or your floorplan loans outstanding were down 5%, was that correct?

Versus year end, that's correct.

Oh, versus year end. What was that versus a year ago in the first quarter?

I gave you that number, let me find it in my prepared remarks because it's not coming back to me -- 47%.

I must have missed that. I was wondering why it wasn't down more.

Wait a minute, that's a bad number. I don't have that number right in front of me. Wait just a moment and we'll get it to you.

Okay. And then the other question was, you said 36 weeks inventory at the end of the first quarter and I believe you were at 35 weeks at the end of the first quarter last year? I'm surprised that went up, too. I would have expected week's inventory to start to fall given that you're producing so much less than retail. Why does that continue to rise and are you -- where do you want that to be?

First, just the way the math works, it's continued to rise because the rate of decline at retail. So even though we're taking production down dramatically retail has been falling even faster or even larger.

Actually I'm really comfortable with where we are right now. The real question then is going to be how much we sell out of dealer inventory in this selling season. Because we do want the number to be lower. But Joe, we're coming to a fulcrum point here at some point as we watch the economy.

We have so few units, we're driving towards so few units in the dealer pipeline and our production levels are so low, if the market were to turn flat we're going to have to turn on the spigot perhaps harder than we've ever turned it on in this company.

Right.

It's going to be a high-class problem, but that's what we're driving towards. So I'm actually quite comfortable with where we are on trailing -- on weeks -- on trailing 12-month sales, very comfortable and I'm also quite comfortable we're going to be driving that down as we go on through the year on a comparable basis.

Throughout the year?

Yes.

Okay.

Outstandings are down.

Yes, the outstandings are down at 27% year-over-year.

And that's for BAC or that's for everything that you're aware of?

That's all of our -- all of our dealers' outstandings that we're aware of.

Okay. Minus 27% year over year?

Yes.

Okay, great. Thanks, guys.

Tim Conder, Wells Fargo.

Peter, the incremental restructuring charges that you talked about, the $25 million, would you say that was all primarily related to green-related initiatives or was it quite -- didn't quite catch what you were saying there? And then, gentlemen, regarding the promotions and discounts during the quarter, was that at a higher pace than you anticipated three months ago? And then what, I guess, drove that decision? Are you basically just pushing the accelerator to the floor, or what drove that decision if that was the case?

Tim, first on your first question, our currently estimated additional $25 million of restructuring cost really comes from a fairly typical combination of reductions in people and in reductions in facilities and downsizing of facilities, it's really more of the same.

Okay, okay.

Promotions and discounts, Tim. We actually had planned for the level of discounting that's going on, that was planning we had done in the December time frame. And it was our view that the way the market is evolving would play out pretty much the way we've been thinking, which is everybody is going to need to try to move as many boats as possible this year; that consumers would continue to be cautious about their buying activity and we believe there would be a fair number of repossessions, etc., that would come floating into the marketplace and we were going to need to be prepared to compete against those.

Okay. And then, Dusty, just a clarification also. You said the incremental savings this year, was it $140 million or $240 million you mentioned?

$240 million.

$240 million?

Yes. We've been, in our last call, Tim, looking at $200 million, but as we've watched the year unfold we've taken another $40 million out.

Okay, great. And then regarding incremental brand closures, divestitures, should we anticipate maybe seeing a little bit more of that as '09 progresses here?

Tim, I don't want to get out in front of ourselves on that one. But we're continuing to look at everything in this company right now. And we're doing that as a part of making our own assessment of what we think consumer behavior is going to be, what segments are going to do well, what segments are not going to come back as quickly and then the performance of our individual businesses in those segments. And we'll be making those decisions as, and when we need to, as the year unfolds.

Okay. And then finally, gentlemen, you've shifted obviously the end of the model year for some of your brands. That was only some of them, correct? And if so, why not all the brands move to a model year or did I miss something along the way there?

We've done it for everybody, we've only made announcements for some and others will just begin to evolve as the year unfolds, Tim.

Okay, so everything is shifting to the September model year?

Yes.

Great, thank you.

[Jason Byun], Sigma Capital.

Good morning. Just going at back to some potential off-balance-sheet exposure, you guys did mention that you had basically $6 million of boats coming back to you guys from dealer bankruptcies. I'm just curious in terms of, I guess, seasonality going forward, provided that this is a difficult selling season in the spring.

Just curious as to whether you think that could potentially ramp up. If you guys have any sense for what that potential liability could be? And also, if you got hit on any of your boat party lender guarantees, which are separate from your inventory repurchase guarantees?

First on our total repurchase exposure for the quarter, first quarter it actually went down on a two-year basis from $167 million at year-end '08 to about $161 million at the end of the first quarter. So as Dusty explained, as the industry is currently contracting, the outstandings are going down and that is reducing our repurchase exposure. And so I think that the possibility of potentially a greater percentage of outstandings coming back to us is being mitigated by the results of the absolute size of the outstandings going down.

So you wouldn't expect that percentage -- you expect the percentage to come back to you being offset by a $7 million reduction? I'm just curious in terms of seasonality, whether the dealership network would incrementally be weaker in the subsequent quarters than you've seen in the first quarter?

Here's the way I'd -- the answer first is no. And the reason it's no, Jason, is we're going into the selling season in most regions of the United States and this is the time when dealers are able to generate cash flow because they're fundamentally selling more product in the selling -- in the warm weather months than they do in the cold weather months.

So I think here for the next -- pick a time, but let's call it spring and summer, dealers will be working hard to generate cash, and therefore we ought not to see any significant pick up and dealer failures. I think the next crucial point will be when the selling season ends and the cash flow that derives from good selling effort and activity dries up, then that's when we'll be looking at the next round of dealer exits.

Okay. And just to follow on to that, in terms of pension cash contributions, curious as to if you guys have any estimate as to what that could be in 2010?

Well, that is something of a moving target because it depends upon where the discount rate and the asset values in our various plans end up as of 1-1-2010. We know that we have a minimum obligation of probably about $20 million to pay in '10. And then the extent to which we need to go beyond that in order to meet minimum funding requirements is going to be a function of where the assets are and where the discount rate is at the beginning or the end of this year and, that of course, is anyone's guess.

Okay. And as of today, do you have any sense for whether you guys will receive any more tax refunds?

Well, there will be the potential of small refunds as we continue to work through tax years with the IRS. The only large potential -- and it was actually the subject of a question on the call at the end of the fourth quarter. The only large potential for a refund comes with the possibility of what is now a two-year carryback of losses being carried back five years.

We're not clairvoyant about what the Congress is going to do, but given the substantial shortfalls in the Congress being able to fund what it's already done, the likelihood of the five-year carryback, it's certainly gotten less in the three months since we were together on the phone last. And we would hope that it would happen, we will lend our voice to it happening because we think it's a responsible thing to do in light of the economic situation, but we're not planning on it happening.

And do you have any sense for what that could be, what the incremental refund would be if you carry back five years?

That's a very significant number, but at this point I'm not even quoting it anymore within Brunswick because I regrettably think the likelihood of it happening is now getting to be so low.

Okay. And lastly in terms of -- you guys mentioned you were going to have $60 million reduced from your revolver availability as a result of not meeting fixed-charge coverage thresholds. I'm curious, does that change your funding ability at the GE JV at all?

No, they are not linked.

Okay. And what's your outstanding amount in terms of that JV in receivables?

$600 million, thereabouts.

The outstandings at BAC?

Yes.

It's somewhat less than $600 million.

Okay, thanks a lot.

Matt [Vittorioso], Barclays Capital.

Good morning, guys. Hoping you could help us understand -- as I look at your earnings, as we look at EBITDA in the first quarter. I know there are a lot of moving parts, you're taking a cost, but you're also cutting production pretty significantly and, as you stated, the pricing environment is pretty sloppy. If we look at the first quarter, close to negative $50 million of EBITDA, how should we think about the pluses and minuses of that working out over the balance of the year?

Well, that's a combination of two things, the EBIT and the DA. And the DA is not going to change, it's $155 million. And we would expect to see versions of the same phenomenon we've seen in the first quarter in that we're going to be encountering lower production rates in our plans. But going beyond that generality, we'd be moving into giving earnings guidance and we are, I think very appropriately, in light of the volatility of the marketplace, not doing that.

Understood. And then as I look at your guidance for generating $250 million of cash from working capital, I think you had been saying previously that your full-year free cash flow guidance was something around neutral to slightly positive. Does this change the cash flow guidance or how does that work?

No, it does not change the cash flow guidance. There are some parts that are moving in the equation from three months ago, earnings are less than we would have anticipated, but benefits of working capital are greater, our pension contribution is somewhat less, our cash restructuring is somewhat more. So there are a lot of things moving around. The tax refund actually came in, which was very good. And after we total all those things up and draw the line, we still think it is an appropriate objective for us to have to be at least cash breakeven this year.

Okay.

Without borrowings, without further borrowings.

Right, right. Somewhat of a high-level question. As I read through your credit agreement, it talked about the admin agent having some sort of discretion over regardless of what the borrowing base calculation is - he has some discretion over dictating what that borrowing base would look like. How would you characterize your relationship with the Bank and just their ability to understand what's going on at your business right now?

I would characterize that relationship as very, very strong. The lead bank, JPMorgan, and this has been with us for a long time, they understand the Marine business, they understand Brunswick Corp. and how our businesses operate. The work of evaluating the borrowing base and the due diligence associated with that was very, very strong on the front end, we continue through our treasury operation to have conversations with the banks and with the people who appraise our assets as to the valuation of those assets and I don't think we're going to encounter any surprises.

Okay, and then lastly from me. Not to harp on the dealer repurchases, but just curious if you could put it into a little bit more plain English terms? What kind of scenario would have to play out where maybe you're repurchasing half of that $160 million? Is it just a function of inventory not moving all that well over the course of the year, what exactly would trigger that kind of event?

It would be dealer failures and then dealer failures would be caused by their inability to meet their payment obligations to whoever was providing their floorplan lending, and that will be driven by their inability to sell product. And so now we go back to what are we doing with them?

We're in contact with the entire dealer network, and in many cases we work with them on a customer-by-customer basis to ensure as best we both can that they can complete sales for customers who are (inaudible). But it will ultimately come down, Matt, to inability to sell product which will require the dealers then to find other sources to go take care of the floorplan obligations and not to be able to come up with it.

Okay. In the past you had said you had a watch list of dealerships. Is that list getting longer or is it changing at all? Any color you can provide there?

It changes, people come on and go off as we go through a week-by-week basis with them. And we focus primarily on a week-by-week basis with those dealers who have a little older inventory so we can help them move it.

Okay, thanks.

Matt, I do want to say something about the revolving credit agreement, if I may.

Sure.

We're pretty open, very open about how it works, borrowing availability, etc., but I want to stress, there is nobody in this company who believes we're ever going to go borrow a penny under that agreement. We said we're going to run this place out of our own pocket and that's what we're doing.

Hayley Wolff, Rochdale Securities.

A couple questions, first, you gave a comment on outlook about 2009 earnings versus 2008. Can you just tell me what base you're working off of in 2008? I have about six different -- reported an operating number for '08. So it would be helpful to know what you're using.

This would have been in my comments, right?

It's actually in the news release as well.

What outlook comment are you referring to, Hayley, maybe that will help.

In the press release -- although our 2009 earnings will be down significantly compared with 2008 before restructuring charges -- I'm just trying to get a sense of what your base is that you're using? As an operating earnings number your definition.

It's our 2008 base without restructuring charges compared -- and comparing 2009 without restructuring.

Okay. So I'm adding back every charge, taxes, gains on sales, etc.? It wasn't an easy question. I can follow up with Bruce off-line on that.

You can look at it one of two ways. On a GAAP '08 to GAAP '09 basis or on a -- excluding special items basis, '08 to '09.

Okay. I'll follow up with Bruce on that.

But when you're looking at '08 GAP, you've obviously got to take out the goodwill and the trade name factors and you should probably strip out your -- these tax -- special tax effects.

Right. But I'm leaving in restructuring charges?

Yes.

Okay. Can you talk about in 2010 will there be incremental cost savings from the programs that are in place now?

There will be incremental cost savings in 2010, yes.

Can you share a number?

Prefer not to at this moment, Hayley, because -- and the reason I'm not, I know what we've done to date that will carry through in 2010, but we've also got several things -- additional items that we consider on a fairly regular basis with our operating units (inaudible) corporate and we'll continue to work on and evaluate those.

Okay. And the type of pressure you had on pricing to move out inventory in the first quarter -- order of magnitude, is it the same in the second quarter? And can you characterize your mix of inventory in terms of boats, aged boats, current inventory? Can you give us a sense of when you work through old inventory and when hopefully the industry starts to work through model year 2008?

I tried to give you a sense of that in my prepared comments where I -- and I'm now looking for them -- I tried to give you, Hayley, the current are down very dramatically. And then the inventory aged over a year grew by 8%. I'll give you the numbers now, our inventory of boats at the end of Q1 versus the end of the year, less than 12 months in age, was a down 13% and year-over-year it was down 47%. But we did experience a growth of 8% in inventory aged greater than 12 months in the first quarter compared to the fourth quarter.

Okay, sorry about that.

That's okay. And that's where we're focused, Hayley.

And, Hayley, just to return to your first question. I think the sentence in the press release, as I now look at it again, really does explain our position as we understand it to be that earnings will be down significantly in '09 compared to '08 before restructuring charges, before impairments and before these special tax items.

Okay, so I'm basically adding back everything from -- okay.

Yes.

About -- I guess a little over -- I guess several months ago you talked about this $5 billion sales target, mid-single-digit operating margin. Clearly we've fallen below that in the industry. At what point will you be comfortable sort of venturing out with an operating model based on the current realities of the market?

Whenever we begin to get a sense of where we think the industry is going to fall to and then our own judgment on top of that, Hayley, as the rate of improvement (inaudible). But we are not assuming the markets are going to come back to 2005 levels and we're assuming that dealers are going to want a (inaudible) to carry less inventory and we're building our working model around that so that we can add great margins in that sort of scenario.

And did that $5 billion assume that the market rebounded somewhere close to '05 levels?

Somewhere close, yes, would have been the correct answer, yes.

Okay. And then last question, can we have a little color on international markets by geography? And help me understand the lag in when the demand in that market dropped off, vis-a-vis the US market and what that dynamic looks like in terms of recovery?

The global markets, I think not only for our businesses but for everybody who's in the global market -- the drop came later than we saw in the U.S. markets. So that's a bit of the explanation why we began to feel it in the first quarter versus the fourth quarter of last year. The drop is spread in our businesses fairly equally around the globe except for our Asia-Pacific region where on a quarter-by-quarter comparison -- I'm sorry, for what I'll call Africa and the Middle East, on a quarter-by-quarter basis, didn't drop that much but it's not that important.

Okay. And then can we expect those markets to stay weaker longer versus the U.S. market because of the timing of when they weaken and what's channel inventory like over in the international markets?

Channel inventory is not a lot different than it is here. And we're planning that those markets will go through a recovery commensurate with U.S. markets. Hayley, we've become now, if you look at Boats, Engines and Life Fitness, all have more than 40% of their sales outside the United States. These businesses have become very global and we began to think now of performance, demand and how we have to make product and approach margins on a very global basis. And that's been a big change in the way we think of ourselves over the past several years.

Okay. Thank you.

We've got no more questions apparently and we're able to look on the computer here and see who's in line. So there's nobody in the queue. So with that I'll thank each of you for joining us on the call. I apologize for the length, it went significantly longer than most calls. We appreciate the questions, they were all good. And we look forward to seeing and talking to you as we go forward. Thank you.

That does conclude today's conference. Thank you for participating. You may disconnect at this time.