賓士域 (BC) 2009 Q3 法說會逐字稿

Good morning and welcome to Brunswick Corporation's 2009 third-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 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 Dustan McCoy, Brunswick's Chairman and CEO, and Peter Hamilton, our CFO.

Before we begin with our prepared remarks I would 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 recent SEC filings and today's press release. All of these documents are available on our website at Brunswick.com.

I would now like to turn the call over to Dusty.

Thank you, Bruce, and good morning, everyone. By now, most of you have had the opportunity to review our third-quarter earnings release. It was last year at this time that we discussed with you the beginning of what has turned out to be a very significant drop-off in marine market demand. For each succeeding quarter, our results have reflected the harsh realities of a market that is about to record its lowest level of demand in at least five decades.

We reported a net loss in the quarter of $1.29 per share on a sales decline of 36%. The net loss includes $0.32 per share of restructuring charges and $0.24 per share of benefits of from special tax items. While we can't control the economy and its impact on the industry segments in which we participate, we must execute flawlessly against our goals, and my brief comments this morning demonstrate that our organization is executing very well.

We have made remarkable strides in improving our liquidity, bringing our pipelines to extremely low levels, and making significant reductions and changes to our cost structure.

Let me begin with a review of some preliminary third-quarter marine industry data. Fiberglass and sterndrive inboard boats unit demand fell by 21%. This compares to a decline of 37% in the second quarter and 39% in the third quarter of 2008.

Outboard fiberglass boat retail unit demand fell by 17% in the third quarter of 2009. This compares to a decline of 32% in the previous quarter and 32% in the third quarter of 2008.

Aluminum product demand fell 21% in the quarter. This compares to a decline of 29% in the previous quarter and 20% in the third quarter of 2008.

Although today's overall macroeconomic environment feels much better than last year at this time, the buyers of discretionary products remain quite cautious about their near-term outlook. In addition, the retail financing environment continues to be challenging for consumers, as underwriting standards and the overall credit approval process remain rather tight. We have, however, begun to hear that these lending conditions are improving a bit.

Also influencing the wholesale purchaser -- that is, our marine dealers -- is the availability and cost of floorplan financing which, combined with the uncertainty about the economy, causes our dealers to be cautious in their volume planning for the next several quarters.

As we entered 2009 we established as one of our top priorities a pipeline reduction strategy intended to support our dealer network in these difficult markets. To that end, we have reduced the number of units we sold to dealers by nearly 60% in the third quarter versus last year. This is similar to the percentage decline experienced in both the first and second quarters of 2009.

The global marine market is being heavily influenced at this time by retail discounting. We continue to observe that throughout the industry boats are entering the marketplace via nontraditional avenues -- consumer-related repossessions, finance companies exiting the marine space, or from OEMs and dealers going out of business. In addition, dealers and OEMs are offering significant discounts to sell boats in their inventories.

Until these conditions abate, or are addressed via similar methods that we have taken, there will continue to be an oversupply of boats throughout the industry. In addition, we believe there is an industrywide oversupply of larger boats in the field; that would be boats having a retail value over $150,000.

These conditions combined with our pipeline reduction strategy resulted in higher year-over-year discounts and incentives being used to facilitate retail boat sales. We anticipate these factors will continue during the fourth quarter and most likely into 2010.

As a result of our reduced wholesale unit levels and the impact of higher discounts, Brunswick boat segment sales declined by 62% in the third quarter compared to a decline of 77% in the prior quarter and a decline of 41% in the third quarter of 2008.

As for our dealers, the reduction in wholesale unit shipments has allowed them to reduce boat inventory in the field by 13,700 units versus a year ago. That is a 50% reduction.

As a result, the quarter ended with 21 weeks of product in the pipeline on a trailing 12-month retail basis compared to 30 weeks at the end of the third quarter of 2008. Simply an outstanding achievement given the retail declines.

Our dealers also continue to make excellent progress in the health of their floorplan financing metrics. Total floorplan loans outstanding declined 49% compared to third-quarter 2008 levels, and declined 27% versus the second quarter of 2009. We are particularly pleased to see that our focus on helping dealers sell product greater than 12 months old is showing positive results. Outstanding loans on inventory greater than 12 months were reduced by 22% in the third quarter compared to the second quarter this year and reduced by 39% compared to year-end 2008.

As I remarked last quarter it remains likely that we will experience an increase in the rate of dealer failures or voluntary market exits over the next couple of quarters. However I think it bears repeating that our experience in prior downturns, the continued reduction in floorplan loans outstanding, and our experiences so far during this particular downturn continue to give us confidence that we will be able to manage through any further dealer dislocation without endangering our financial health.

Complementing the pipeline reduction is our inventory management strategy, which has been an important factor in our ability to maintain our high levels of liquidity. Our boat production rates during the quarter were once again below our wholesale unit sales.

This lower level of production reflected a 70% decline in units produced versus the third quarter of 2008. This compares to our 60% decline in third-quarter wholesale shipments that I previously mentioned. More importantly in our fiberglass boat business, our production levels were about 75% less than our retail demand.

In our engine business, overall production was reduced by approximately 35%. This follows a 60% and 75% reduction in the second and first quarters of 2009, respectively. Once again similar factors that drove lower sales and earnings in our boat segment also affected marine engines.

The engine segment service parts and accessories business experienced a modest decline in revenues. However P&A's operating earnings increased, as they had in the previous quarter. These P&A results partially offset the performance in Mercury's other businesses.

In the third quarter Mercury's overall sales declined by 29% versus the same period in 2008. This compares to a decline of 43% in the previous quarter, and a decline of 20% in the third quarter of 2008.

Sales for non-marine businesses -- that is Life Fitness and Brunswick Bowling & Billiards -- were down 22% and 30%, respectively. Same-store retail bowling revenues were down in the high single digits. However, our exercise and bowling equipment businesses, which focus on commercial customers that rely on financing availability, declined more significantly.

Ultimately we believe sales improvement will occur in these businesses as financing becomes available and as proprietors of health clubs and bowling centers become concerned that dated equipment is affecting their ability to attract and retain customers. However our expectations for the fourth quarter at Life Fitness reflect further revenue declines on a year-over-year basis, albeit at a lesser rate.

Our top-line expectations for rates of decline in Bowling & Billiards for the fourth quarter are comparable to the third. Both Life Fitness and Bowling & Billiards continue to generate strong cash flows.

Quickly summarizing the factors that resulted in our quarterly operating loss, the execution of our pipeline reduction and inventory management strategy resulted in lower sales and production levels at both our boat and engine facilities, which led to pressures on our marine operating margins. Increased discounting activity on retail sales as a result of efforts to reduce aged product and to respond to the industry dislocation also had a negative impact on our boat earnings.

Our pension and bad debt expense were additional factors that had a negative impact on our operating results. These items were partially offset by the successful execution of our cost reduction program.

It is the success of our cost reduction program, combined with our inventory management strategy, that has enabled us to continue to make outstanding progress in increasing overall liquidity as well as reducing our net debt position. We ended the quarter with about $625 million of cash on our balance sheet compared to $461 million at the end of the second quarter.

Our net debt position dropped below $300 million, which is the lowest level since the fourth quarter of 2005. And our overall liquidity, which includes available borrowing capacity on our ABL credit facilities, at quarter end approached $0.75 billion.

Reductions of certain current assets and liabilities contributed nearly $315 million to our cash balances in the first nine months, which primarily came from reduced inventory levels and lower accounts receivable. Peter will provide more detail on our cash flows, including the effect of our recent debt offering, the proceeds of which partially offset -- of which were partially used to retire approximately $150 million of debt that was maturing in 2011. We believe this provides us an excellent runway over the next three years without any material debt repayments.

Now I will turn the call over to Peter for a closer look at our financials, and then I will return to give you our perspective on our near-term outlook.

Thanks very much, Dusty. I would like to begin with an overview of certain nonoperating items included in our third-quarter P&L. Let me start with restructuring, exit, and impairment charges, which were $28.8 million or $0.32 per share in the third quarter.

This amount reflects charges for our continuing actions to realign our manufacturing footprint and associated workforce reductions, plus certain non-cash charges for impairments at various underutilized assets. Third-quarter restructuring charges include $14.1 million associated with our decision to move our Mercury operation located in Stillwater, Oklahoma, to Fond du Lac, Wisconsin.

Interest expense increased by approximately $11 million versus the prior year quarter. This increase was primarily caused by a higher average interest rate associated with our current debt portfolio as well as higher debt balances. I will comment in a few moments about the debt refinancing activities that occurred in Q3, which caused some of this increase.

Based on our debt portfolio as it stands today, our estimate for interest expense for the fourth quarter is approximately $25 million.

Now as a quick note regarding the fourth quarter, I want to remind you of the $81 million accrual adjustment that we recorded in the fourth quarter of 2008. This amount, as you may recall, represented the reversal of variable compensation and benefit accruals that we had been recording in each of our operating segments during the first three quarters of 2008. We currently anticipate paying variable compensation in 2010 based on 2009 performance. These programs are discretionary; final decisions as to the amounts will not be made until the fourth quarter.

Now let's turn to a review of cash flow. During the quarter, the Company issued $350 million of senior secured notes due in 2016. A primary objective in raising this debt was to retire some of our nearer-term debt maturities thereby enhancing our overall financial flexibility.

The net proceeds from this financing of approximately $330 million were used to retire almost all of our senior notes due in 2011 and $12 million of our senior notes due in 2013.

Also during the quarter the Company paid down the entire $74 million outstanding on its Mercury Marine asset-based loan. Since this facility does not currently have any outstanding balance, we still have the entire amount of borrowing capacity, as determined by its asset base, available to us. At the end of the third quarter, available capacity under this facility was $60 million.

Given our strong cash position, we will continue to evaluate possible uses of these funds, including additional long-term debt retirements, pension contributions, or simply supplementing our liquidity.

In addition to the extensive cost reductions that helped mitigate our losses, the most significant source of cash in the nine-month period came from a reduction in certain current assets and current liabilities of approximately $315 million. A reduction in inventory of $308 million was the primary driver of reduced working capital.

In the third quarter we received an additional net federal tax refund of approximately $12 million, bringing the total refunded amount for the year to $91 million. This relates to the filing of our final 2008 federal tax return and carrying back the net operating losses to prior years.

Capital expenditures in the quarter were limited to $6 million, bringing the year-to-date number to $20 million.

Next let's take a look at the major items that reduced our earnings, but not our cash, for the nine months. Depreciation and amortization was $120 million. Pension costs were $71 million, which is the amount expensed during the nine months; pension cash funding was $12 million, the majority of which was contributed in the third quarter. We do not anticipate further contributions to our qualified plans this calendar year. We will evaluate our 2010 contributions as part of our financial planning process for next year and after year-end 2009 funding positions are known.

Finally, we recorded provisions for doubtful accounts of approximately $33 million year-to-date as well as impairment charges of about $18 million that mainly relate to our restructuring activities.

Our cash balance at the end of the third quarter was $624 million, $307 million greater than year-end 2008 and more than $160 million greater than the second quarter of 2009. We did not have cash borrowings under our revolving credit agreement at any time during the nine-month period. And as I mentioned, we also reduced our Mercury Marine ABL borrowings to zero at the end of the third quarter. As a result we ended the third quarter with net available borrowing capacity of $116 million under these two facilities.

When you combine the available borrowing from both facilities with our cash balance, we enter the fourth quarter with [$740 million] (corrected by company after the call) of liquidity.

Now let's take a look at some of the cash flow factors that will be affecting the fourth quarter. We expect our annual depreciation and amortization to be about $155 million. Our current 2009 capital expenditure estimate is between $30 million and $35 million.

We currently estimate that restructuring charges will be in the range of $120 million to $125 million for the full year for actions that are currently implemented or planned, including the fourth-quarter component of the plant consolidation actions at Mercury. The vast majority of our restructuring charges in the fourth quarter will be cash.

I would like to point out that in the fourth quarter we expect to receive certain state and local incentives to support the Mercury consolidation, which should more than offset any fourth-quarter incremental cash restructuring charges associated with this move.

We are expecting to end the year without any amounts outstanding on both of our ABL facilities. We estimate that at year-end our combined net borrowing capacity will be approximately $120 million. This estimate takes into account the $60 million minimum availability adjustment required, a fixed charge test, and the revolving credit facility.

So in summary, based on the strength of our nine-month cash generation and our forecast for Q4, we believe that we will end 2009 with extremely solid levels of liquidity. It is possible that we will have somewhat higher levels of net debt at year-end than we had at the end of the third quarter as we begin to prepare for the spring selling season.

Last I would like to supplement Dusty's remarks with an update on some key metrics that we have been sharing with you regarding our obligations to repurchase boats from dealers that exit the marketplace. For the first nine months of 2009, boats tendered to us for repurchase totaled approximately $15 million, virtually all of which have been placed with alternative dealers. The actual cost to us during this period in carrying out this repurchase obligation was about $3 million.

We continue to conduct a detailed dealer-by-dealer analysis of potential future repurchase losses at each quarter. We actually decreased our reserve for this exposure by approximately $4 million in Q3, resulting in a total accrual of about $12 million at quarter-end. This data indicates that our actions taken thus far to maintain the health of our dealer network have been quite successful and that our repurchase risk is declining.

I'll now turn the call back to Dusty for some concluding comments.

Thanks, Peter. As I mentioned in my opening remarks the accomplishments of our employees against our goals in these economic conditions thus far in 2009 have been simply outstanding. Improving our liquidity to $740 million, reducing dealer inventory to 21 weeks of supply, and being on track to reduce fixed costs by approximately $260 million in 2009 versus 2008, and $420 million as compared to the 2007.

However, global economic data and marine market metrics continue to be mixed at best; and the overall outlook in our view remains uncertain. In addition, oversupply conditions in the boat marketplace will continue for the next few quarters and will have an impact on the overall pricing environment.

We believe current indicators point to a slow recovery for the economy over the next few years. For the remainder of 2009 and for 2010 our operating and financial strategy will continue to be focused on maintaining strong liquidity; taking all reasonable actions to protect our dealer network; and positioning ourselves to take advantage of improvements in economic and marine market conditions as they occur. Much work remains to be done and our entire organization is focused on continued successful execution of our strategy.

We are still in the process of completing our 2010 plan. However we have established certain assumptions, targets, and corresponding action items. I will share of few of them with you today.

First, as we enter 2010 the majority of our boat and engine manufacturing facilities will ramp up production. This is primarily the result of dealer inventories being at historically low levels, which means we will need to increase our wholesale shipments of boats and engines to meet retail demand. Increased production, combined with higher wholesale shipments, should provide improved revenue and reduced losses throughout 2010.

Second, the cash generated from improving EBITDA, combined with continued tight working capital management as well as continued focus on our cost management programs, should enable us to maintain high levels of liquidity.

Third, we will continue to focus on opportunities to evaluate and refine our manufacturing footprint, brands, and models, as well as both our costs and operating structures. The decision to consolidate our U.S. engine casting and machining from Stillwater to Fond du Lac is an example. The transition will take approximately 24 months and will ultimately result in significant net cost reductions beginning gradually in 2010.

The rate and height of the economic recovery in 2010 and beyond are not visible to us at this point. But we are well -- and perhaps in our industry segment uniquely -- positioned as a result of the hard work and great execution by our organization in 2009. Because of our significant pipeline reductions this year, which necessitate our need in 2010 to keep wholesale and retail volumes well matched, we can maintain strong liquidity in 2010 even if the market does not improve.

As a result of the fixed cost reductions and efficiency improvements we have achieved, we are also well positioned to take advantage of improving markets should that occur in 2010. Our task is to remain patient and execute well, qualities which we think we have consistently demonstrated.

And with that we will be happy to take your questions.

(Operator Instructions) James Hardiman, FTN Equity Capital Markets.

Good morning. A couple questions for you guys. Just to make sure I am 100% clear here, obviously 21 weeks of inventory is unbelievable improvement versus what we saw last year and a great accomplishment. So obviously from a seasonal perspective you're still going to want to sell down boats heading into the end of the year.

But it sounds like you are saying as early as the first quarter you are going to look to ship in line with what you are seeing going out of retail. Is that pretty accurate?

That is pretty accurate.

Okay. Then just in terms of your production, obviously you have scaled back pretty meaningfully; and once you start to ship in line with the retail, sales should go up pretty meaningfully.

Where do you stand today in terms of how quickly you could get your production back up? In other words what, from a boat segment standpoint, can we expect to see given sort of reasonable levels of retail sales next year? How quickly can you ramp back up?

James, we believe if the market were to go flat next year, the amount we would have to increase production would be 85%-plus. And our judgment is we would likely not be able to meet all market demand if the market were to go flat.

The reason we wouldn't be able to is we are going to start back up matching production to sales, and encouraging our dealers to match orders with -- as best they can -- consumer sales, or for smaller boats a stocking that they are absolutely comfortable that they can move. Then if the market were to begin to pull hard, it will be hard for us to match a flat market next year.

Now going forward as we gear back up and bring people back on in the facilities we have, we are quite comfortable that we can serve a marine market -- and using U.S. units as a proxy for the global marine market, we can serve a market that is in excess of 200,000 units even with all of the footprint reductions we have made and costs take-out we have achieved.

Okay, so 200,000 units for the industry is based on today's manufacturing footprint you could accommodate; and much beyond that you have to obviously add some capacity on some (multiple speakers).

Actually I think it may be 210,000, something like that in rough numbers; but that is where we think we are.

Okay. But assuming no production limitations your boat sales would be up 85%. Given where you actually stand, do you think we will be half of that 85%, most of that 85%? Are we going to get close to that number?

Well, remember I said if the market were flat in units, in order to serve that market -- because we have gotten our pipeline so low, if we kept the pipeline at the same level, we would have to produce that.

The real unknown here is what the market is going to be. So in order for us to start talking about the increase, requires that I make a market prediction, James, that I am not really smart enough to make right now.

Me neither. Fair enough. What can you tell us about what is going on internationally? You give us some great numbers in terms of some of the domestic numbers.

Are the big international markets, where you guys do business, are those trending better than the U.S.? Worse than the U.S.?

Equal to the U.S. Not a lot better, not a lot worse. We are up to 42%, 43% of our marine sales are outside the U.S. We really track those markets closely.

Again as you think about those markets they are very different. We think of them as Europe, Middle East, and Africa as one; Latin America as another; Asia-Pacific Australia as another. As we look at all those together they look just about like the U.S. market.

Okay, great. Then just last question. To the extent that you can, can you talk a little bit about your cost structure, fixed versus variable? Where you stand today versus, I don't know, a year ago; and where you expect that to go from here especially as you consolidate your engine manufacturing.

It's Peter, James. We have very generally said that we headed into this significant recession slowdown with an approximate fixed-to-variable ratio of 25/75. Now, as we have gone into the significant reductions in volume that we have seen, that ratio has probably disadvantaged itself somewhat to move up from the 25% fixed to somewhat more than that. But, not much more than that.

And we see as the volumes increase in 2010 and 2011, as the markets return, not only returning to the 25/75, but hopefully improving on that as a result of all the fixed-cost reductions that we have made in the past two years.

Great. Thanks a lot, guys.

Ed Aaron, RBC Capital Markets.

Good morning, everybody. So great to see those inventory numbers in the field down so well. As we lay out the map on that inventory going out into next year, I mean it seems like there actually really is some potential for some supply shortages.

Dusty, I was hoping you could talk a little bit about what systems or processes are you putting in place to make sure that you get the right boats in the right place at the right time next year?

Well, first it's a great question. We are out one-on-one with the dealer network working on three things. The first thing we are doing -- and we have done it frankly better with some brands than others, but we are clearly after it across the whole dealer network -- is a re-thinking with our dealers. What do we really need to have in stock in order to attract consumers and meet fundamental demand?

That is why, Ed, we have been pushing this pipeline down so low and why we are beginning to get comfortable, even though they are at historical lows in terms of numbers, that we are probably going to be able to live there. We may even work on it a little more next year as we fine-tune it. So, that is sort of Discussion one.

Discussion two then is a real analysis of what is going on in a particular boat dealer's market. There is a lot of dealer dislocation going on. And the way both we and dealers typically thought of individual markets may need to be re-thought after looking at that dislocation. So that is number two.

Then number three is we want to be very realistic with the dealer network to say -- don't take anything more than you have got sold, number one or number two; and then let me just focus on that a minute.

Larger boats, we are going to really -- we are driving our organization to be make-to-demand, not make-to-stock. And we and the dealers all have to get comfortable that that can get done. We are comfortable it can, but it is going to require lots of discussion.

Then on smaller product, obviously we can't make all of that to order. We are going to have to meet certain stocking requirements with the dealers. Again, that is going to be a market-by-market analysis.

We don't want dealers to run out, but we also don't want them to end the year with too many. We are going to miss it some each way.

So then the last process we have put in place is across the entire dealer network, through a system we call Compass, for dealers to be able to know within all of the brands where other product may be located. We are encouraging our dealers, even without our involvement, to really get to work with each other to move that product around. So that if somebody is short and somebody is over, it can be met.

We have been really happy with the wonderful cooperation our dealers have been achieving in the second and third quarters of this year. There has been some really remarkable work done in many regions where our dealer network and certain brands are just pulling together to say, let's get the right thing done for the consumer across markets.

So when we add all that up, we hope we are going to be great at it; but it is all new for both the dealers and us. But I am confident it is going to work well. It will work great in succeeding years, but I think we are going to be just fine in '10.

Thanks for the color there. Then I was also hoping you could maybe share any insight you might have in terms of any price elasticity analysis that you guys might have done just internally. The reason I ask is that it is a bit difficult for us to understand what the 135,000 or so units of demand this year would look like if not for such extreme discounting. And obviously that discounting is going to go away, or at least ease significantly, over the next few quarters as the inventories come in line.

So like how do you -- assuming you are not making any big changes about economic growth assumptions, how do you think about what that 135,000 or so goes to in a more normal pricing environment?

In all honesty, we don't know. We've worried about it a lot. We have run a lot of models. We have talked about it a lot.

So let me tell you one thing that I think has got to happen, is as an industry and we as an industry leader have got to begin to control the pricing of boats. Because as an industry we have lived very much with -- let's add a bunch of price on, and then if it doesn't sell we will discount it. So Ed, where this thing has to go is we have got to begin to give to the consumer flat to lower pricing. That ought to offset for some of the discounting that has to occur, and that ought to help with some of the elasticity questions that we are having in our own minds.

Okay, thanks. I have a couple more but I will jump back in the queue.

Tim Conder, Wells Fargo.

Great. Thanks, gentlemen, for the color so far. Dusty, just to clarify a couple of your previous comments.

If the market again is flat in units you would need to produce 85%-plus. But again you said you couldn't get there. So are you saying the maximum increase you could have is still in that 50%, 60% area on a unit basis year-over-year?

Boy, you guys are working me hard to predict next year. (multiple speakers) sales. We could certainly do that.

Okay. Because I mean theoretically if you could -- if you would have to produce 85%-plus is what you are saying if the market was flat, you would meet the balance out of inventory if you could meet that 85%? Is that what you are saying?

No, what we are saying is if we kept the pipeline flat so that we ended the year 2010 at the same level as we ended 2009, and then if retail were flat versus our wholesale sales this year, because we have almost nothing in the backyard, we would have to come up to that 85% level.

Okay, okay. Then --

Now Tim, I want to keep saying that is if retail is flat. And Lord knows what it is going to be, but we frankly we are not sure it is going to be flat next year.

And if you had to lean one side are you thinking up or down at this point?

Down.

Okay. Is it fair to say that -- I mean obviously you are in much better shape with your channel inventories than the majority of your competitors. Would it be fair to say that you guys could actually lose market share this year given that you won't be discounting? I mean in '10, given you won't be discounting as much as your competitors?

But obviously I would think you would be very well positioned to gain share thereafter, given your cost structure and so forth. Are we off base with that type of thinking?

It's a great question and one that frankly I have pondered well into the night many times. Here is going to be all the mix that goes in.

Yes, there is stuff sitting out there. But people are not going to be making. There are going to be a lot of manufacturers who are not going to be making a lot of product to refill, because their dealers are not going to be able to take it right now. So that is issue number one.

Then for people who are making product, I think you will see across the industry a reduction in the model count with many brands. Because everybody is going to want be more efficient coming out. And we are like that.

I think thirdly, as you look at us and you look at Brunswick market share, we are -- if everything stays even, we will be down a little because we have gotten out of certain brands.

Right.

If you looked at brand market share that may begin to be a different picture.

Then lastly the ability of both ourselves and our competitors to bring out new product is obviously going to have an impact on market share. We have got a fair bit of new product on the way in 2010. So when I put all that together, I don't know.

Okay. From a mix standpoint, Dusty, would you say that industry-wise and maybe also your comment that on larger boats yourselves and the industry - yourselves, for sure, and the industry may also follow you to produce more on an as-ordered basis rather than for inventory.

So would that imply that while the units may recover, the dollar mix would most probably skew down a little bit for yourselves and the industry over the next year or two?

I want to separate ourselves from the industry a bit. My comments about boats over $150,000, there being lots of them, that doesn't apply to us. We have really got ours skinny. So I am not sure we are going to be following the industry in terms of mix at all, Tim.

Okay. Well, I will hop back in queue with any other questions also.

Hayley Wolff, Rochdale Securities.

Hi, guys. Just a couple questions. First, on the engine restructuring, can you give us any early sense of what potential cost savings are there? And then what kind of payment you may be getting to have stayed up in Fond du Lac.

We can, but we won't. In all seriousness, we have a really good idea of the savings and are going to be material. But I think it is premature for us to start talking about them, Hayley, because much is going to depend on what happens in the market, the volume we begin to push through, timing, etc.

And we are deep into the work of the transition. I want to give our Mercury organization plenty of time to work through that.

In terms of the help we are getting from city, county, and state folks, I think it is more appropriate that they talk about it than ourselves. And when they are ready to begin that discussion, we will be happy to be standing beside them; and I think that will be coming up in the relatively near future.

Okay, fair enough. Next question. You floated the debt, and you are carrying a substantial amount of cash because you didn't tender as many bonds as you thought.

What opportunities are there in the future to repay debt? And then how do we think about working capital as we go into 2010 given that you start to ramp up production?

Hayley, we will deal with the remaining use of proceeds from our debt offering on an opportunistic basis. We have no strategic mandates that we have given to ourselves; we have no timing mandates. We will do what is right for the capital structure, and what is right for the P&L, and what is right for our cash flows as the opportunities arise.

In terms of -- the second question was --?

Working capital.

Working capital in 2010? You know we are in very early stages of designing our 2010 plans. We do not expect, however, that there will be a significant use of cash in working capital in 2010 as we look at our planning now.

Okay. And if the government does extend the tax loss carryback period as they are discussing, what type of cash could that represent for you?

That is very much a moving target, Hayley, for two reasons. First, whether they extend it at all. Second is, in what form?

On virtually an hourly basis there are changes in the form of this NOL provision. And the benefits to us in terms of potential tax refunds next year range from zero, if it doesn't pass, to a very significant number that could be north of $70 million, to anything in between. So it is very, very much up in the air.

Okay.

Please call your congressman and senator and help them think about this right.

I was just going to say let's hope it passes. Thank you.

Matt Vittorioso, Barclays Capital.

Thank you. I was just wondering if you could help us understand. You spoke about in your comments, inventory coming into the market from some other sources -- repos, OEMs and dealers going out of business, etc. How do we think about that in the context of the 21 weeks of inventory? Is that all caught up in there? Or does that almost represent sort of shadow inventory that can continue to put pressure on the market?

21 weeks, Matt, is only ours. So are you asking if all that that is sitting out there causes there to be way more than 21 for the rest of the industry?

Yes, I guess how does that impact the broader inventory picture away from just Brunswick? And do you feel like that, those sources of inventory are getting better or clearing out? Or is that going to be a source of pressure throughout the 2010 time frame?

I believe it is getting better and slowly clearing out. But I believe we are going into 2010 with it as a pressure point.

And that will continue to put pressure on pricing as well and keep discounting sort of in the marketplace?

I think it will, Matt. Don't know for how long yet. I think we have got it going into 2010 planning on that.

Okay. Then just real quick. You talked about net debt possibly going up here in Q4 as you plan for the spring selling season. Is that just a possible increase in inventory as you look forward to early 2010, so that we might see a use of cash from working capital in Q4? Is that how we should think about that?

It is just a function of the fact that our production will go up, and we will start to build significant accounts receivables in our Life Fitness exercise equipment business. Because fourth quarter is the major selling season, but the collection season is first quarter of next year.

It is something that we think if we do have a modest usage of cash flow from operations, free cash flow, we think it will come from that area.

Okay. Then lastly for me on the pension front. The expense has gone up, but the contributions -- you haven't had to contribute a whole lot. What is the outlook for pension contributions? Can you give us any visibility over the next couple years? And what is the funded status today?

Well, the funded status today is at about -- very generally about 60% funded. We have had a good year in terms of our investment returns, like most other portfolios. But unfortunately the decreases in the discount rate have offset that.

In terms of funding going forward, I gave the numbers for this year '09. 2010 will definitely be higher. We know there are minimum funding requirements we will have to make that we are certainly planning on something in the neighborhood of $30 million as a minimum.

Whether we go higher than that will be a function of the year-end valuations and whether we want to make voluntary contributions. Depending upon where the discount rate goes over the next years and where the asset base goes over the next years will dictate our funding requirements in the years after 2010.

Okay. Thank you very much.

Ed Aaron, RBC Capital Markets.

Great, just a couple follow-ups. So first on the discounting, is it fair to say that your discounting should normalize coincident with your ramping up production in early 2010?

Then secondly, Dusty, as another follow-up, if you adjust for seasonality do you think that retail sales were either up or down in the third quarter?

First, I do not believe as we ramp up production that we can expect at least in early 2010 that the dollars we are discounting will abate. We may see the percentage abate, because it is going to be dollars against more units.

But I think there is going to be more than normal discounting, Ed, until a lot of this stuff gets cleaned out. How much we don't know and we are prepared to do what we have to do in the marketplace.

What was the second question? I'm sorry.

It was just on the retail sales, thinking about the third quarter. Wondering if sequentially if to you adjust for seasonality if they got any better or worse.

The reason I ask is that the rate of decline was obviously much lower, but you had an easier comparison. So, just trying to understand if adjusting for seasonality, if we have hit bottom in terms of retail, or how close we are to that.

Well, it is certainly less worse. But here is the wild card in all this -- is all the discounting that occurred in the third quarter in order to move product. I think the discounting in many places, including ourselves, was really dramatic in the third quarter as we were going to the slower selling season. Those who had the ability to do it were really trying to drive their inventories as low as we could get them.

So it is really difficult for me to tell where steady-state demand is. I think it is clearly -- the rate of decline is getting better. Whether it is flattened yet in normal cases, I don't know. We have some brands where our sales were up. But we spent a lot of money to get that.

So I think it is just very difficult to tell right now.

Fair enough. Thank you.

James Hardiman, FTN Equity Capital Markets.

Thanks. I just wanted to piggyback on a question I think Tim asked earlier. Obviously the market share question in 2010 is a great question; it's a tough one to answer.

But can you talk a little bit about even what you have seen over the last few months? I think the numbers you give us in terms of down 17, down 21, those are industry numbers.

Do you have any idea where your numbers have trended from a retail perspective relative to those industry numbers as we have seen you, but probably more significantly some of your competitors, discounting their boats?

When I take out discontinued brands, we are fundamentally flat in market share as we look at real share now.

I am hesitating, James, and I'll just say it this way. One of the real issues as we look across the industry with the data -- and the data gathering is precise as it can be, but it depends upon registrations in states. And there is lots of activity that occurs that makes registrations lumpy.

But we are pretty darn comfortable that from a market share perspective we are fundamentally flat. Now, I will say I am less worried about that right now than I have been in my career here at Brunswick because the market -- there is such dislocation in the market.

I think the key is for us to stay focused on our metrics and what we have to do around liquidity and the pipeline; and then our share is going to be what it is going to be right now.

Then as the market comes back, it is an interesting time. Survival with great liquidity is beginning to be a competitive separating factor. And we will just wait and see when the market comes back how well we are able to leverage that.

That makes a lot of sense. Then in terms of the discounting, I will go ahead and ask another question that you probably won't really be able to answer with any conviction. But if we are seeing units for the industry down say 20%, what do we think dollars are down?

Don't have any idea in the world.

Okay, fair enough.

It would be a real shot in the dark and I just don't want to do that.

Right. Fair enough. Thanks guys.

Tim Conder, Wells Fargo.

Peter, at this point what do you see for the total restructuring charges that you will take in '10?

Well, we have not put a number out on that; and it is very much a function of any continuing plant reductions or brand issues that we might deal with in 2010.

I think we can assume it is going to be considerably less than our current $120 million or so. But at this point I wouldn't want to render a guess, except to say it will be considerably less, Tim.

Okay. I guess in relation to that question I would think the majority of it would be related to the Mercury consolidation. I guess to maybe continue on that thought line, would you anticipate the majority of those restructuring charges related to Mercury to occur in '10 or could some of that residual be into '11?

No, I think the answer to your questions are that much of next year's much reduced amount will be Mercury consolidation related. I think that between the restructuring charges in '09 and '10 that will pretty much clear the decks of that.

Of course, it will take -- the consolidation itself will continue over that two-year period as well.

Okay, okay. Then the repo and so forth before, how is that -- is that included, the net cost amount that you have had year to date in -- well, you wrote that off from your bad debt reserve. And then you reduced the reserve.

I guess the main question is, what is your total bad debt expense for this year, the reserve allowance that you have put on, net?

You are asking for bad debt write-offs, or you're asking for the reserve that we put on our repurchase obligation?

I guess I will take both components, the total. The gross reserve that you have added on year to date, and then the portion that you have actually incurred and so, therefore, has reduced that reserve amount. The beginning balance and then your reserves that you put on, then obviously your write-off, and then sort of come up with an ending number I guess was obviously where we are going with that.

I don't want to shoot from the hip here with three numbers from the big balance sheet, Tim.

Okay, we could follow up on that. Last question would be -- it sounds like not much has changed from this. I just wanted a direct update on it.

Your breakeven level, you gentlemen have talked about it in two respects. Number one, you said your total Company sales collective of everything would be in that $3.5 billion to $4 billion range. And then if you benchmark it against U.S. boat industry retail unit sales, you said in that 145 to 150 range. Has either one of those changed in any magnitude?

No.

Okay, thank you.

You're welcome. And with that we have been at it about hour and five minutes. I want to thank everyone for great questions.

I follow a lot of conference calls, and it seems like we got all the smart people on ours. These questions are all great and we appreciate it very much.

If people with direct follow-up and the like, obviously, can feel free to talk to Bruce. And thank you for your time. Goodbye.

That does conclude today's conference. Thank you all for joining. You may disconnect your lines at this time.