賓士域 (BC) 2010 Q4 法說會逐字稿

Good morning and welcome to the Brunswick Corporation's 2010 fourth-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, VP Corporate and Investor Relations. Please proceed.

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 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 will differ materially from these expectations. For 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 McCoy.

Thanks, Bruce, and good morning, everyone. By now, I hope everyone has had the opportunity to review our fourth-quarter earnings release.

2010 was an important transitional year for us. We continued to make significant strides in rationalizing our manufacturing footprint and executing against strategies that allowed us to operate our businesses more efficiently. These actions enabled us to demonstrate strong levels of operating earnings leverage in 2010, putting us in an excellent position to return to profitability in 2011.

Our full-year 2010 results reflect revenue growth of 23% and a loss of $1.25 per share, including $0.70 of restructuring charges and $0.03 per share of charges from special tax items. This compares to a 2009 loss of $6.63 per share, which included $1.95 per share of restructuring charges and $1.09 per share from special tax items.

Our full-year operating earnings, excluding restructuring, exit and impairment charges, were $79 million, an improvement of $477 million as compared to the loss experienced in the prior-year period. Our operating margin ex-restructuring charges was 2.3% in 2010, representing our highest annual consolidated operating margin since 2007, when the U.S. marine retail boat market was twice the size it was in 2010.

In the fourth quarter, a quarter in which less than 10% of annual marine industry retail sales occur, we reported a net loss of $1.17 per share on a sales increase of 11%. The quarterly EPS includes $0.21 per share of restructuring charges and a $0.02 per share charge for special tax items.

Our quarterly operating loss, excluding restructuring, exit and impairment charges was $56 million, an improvement of $63 million as compared to a loss experienced in the prior-year period. Increases in wholesale unit shipments in both our Marine Engine and Boat segments, combined with double-digit growth in our Fitness segment, were the main drivers of our 11% top-line growth. Our volume growth generated improvements in fixed cost absorption in our Marine and Fitness business.

Also contributing to the significant reduction in our fourth-quarter operating loss were approximately $10 million of lower discounts required to facilitate retail boat sales and about $14 million of reduced bad debt provisions, primarily in the Engine segment. Lower pension expense in the fourth quarter of approximately $15 million also had a favorable effect on the Marine Engine and Bowling and Billiards segments as well as on corporate expenses. A portion of the reduction in pension expense, along with lower bad debt expense, were the main factors that lowered our fourth-quarter's SG&A by 13% compared with 2009.

Our cash and marketable securities increased by nearly $130 million from year-end 2009, and net debt decreased by $150 million. Peter will comment in his remarks on the key factors affecting our improved cash position, as well as provide you with a perspective on our 2011 cash flow targets, supporting our objective of generating positive free cash flow.

Let's review the preliminary fourth-quarter U.S. Marine industry data. Fiberglass, sterndrive and inboard boat unit demand fell by 43%. This compares to declines of 38% in the third quarter of 2010 and 24% in the fourth quarter of 2009. Outboard fiberglass boat retail unit demand fell 14% in the fourth quarter. This compares to declines of 23% in the third quarter of 2010 and 9% in the fourth quarter of 2009.

Aluminum product demand increased by 2% in the quarter. This compares to a decrease of 2% in the third quarter of 2010 and a 19% decline in the fourth quarter of 2009. After taking into account the different unit volumes, preliminary total industry unit demand declined approximately 10% in the fourth quarter. This compares to a 17% decline in the third quarter. For the full year of 2010, total industry demand declined by 14%, bringing the U.S. industry retail powerboat units down to approximately 132,000 units.

Let me provide you with some additional commentary regarding the 2010 data. Aluminum demand in the last three quarters of 2010 did stabilize and was flat when compared to 2009. The pontoon market actually experienced a solid increase in units sold in 2010. And although higher-priced fiberglass boats have yet to experience similar trends, we believe the magnitude of their declines was affected by the pronounced discounting that occurred in 2009 but which was not replicated in 2010. I'll comment on our early perspectives for 2011 Marine retail demand in my outlook.

On the international front, our Engine segment sales outside the U.S. increased by 15% for the quarter compared to the fourth quarter of 2009. Our Boat sales outside the U.S. increased by 8% during the same period. We are pleased with our growth in Marine markets outside the U.S. Demand in key emerging markets continues to improve, with Q4 volume in China, Brazil, Russia and the Middle East all up substantially. Demand in Europe varied by country with France, Germany and Finland showing marked improvement.

On the other hand, demand across southern Europe remains extremely weak, specifically in those countries most affected by the sovereign debt crisis. We continue to see signs of a modest demand recovery in the Nordic region in the coming season. Demand in the Australian and New Zealand markets remained steady.

The U.S. retail boat finance market continues to show signs of improvement. Lending conditions are much healthier than a year ago, which is evidenced by improvements in close rates on boat loans. Lending capacity continued to increase in the fourth quarter. In addition, interest rates continue at historic low levels, particularly for the high-quality customer.

Now let's look at our dealer pipeline. Compared to 2009, our fourth-quarter ending pipeline reflected about 300 fewer units, or a 2% reduction. Our ending pipeline of approximately 15,000 units is equal to our previously stated targeted year-end balance. Because this reduction is less than the decrease in the retail market, the quarter ended with about 31 weeks of product in the pipeline on a trailing 12 months retail sales basis compared to 27 weeks at the end of 2009. We adjust production and wholesale shipments in order to meet our dealers' required stocking levels.

To maintain appropriate levels, we increased our fourth-quarter boat production versus the very low 2009 levels and increased shipments of boats to our dealers by about 5% versus last year. For the full year, we increased our boat production by about 80% compared to 2009 levels and increased shipments of boats to our dealers by approximately 45% versus 2009.

Throughout the year, the level of aged product in the industry has been reduced and now closely reflects more normal levels. During most of 2010, however, the market continued to be influenced by retail discounting. The combined effect of the increased wholesale unit shipment levels and lower discounts in the quarter and the year led to a Boat segment sales increase of 7% in the fourth quarter and 48% for the full year.

Our fourth-quarter growth rate was less than anticipated, primarily as a result of a shortfall in larger boat sales, which was driven by our efforts to manage field inventories. Our dealers made excellent progress in improving the health of their floorplan financing metrics in 2010. Total domestic floorplan loans outstanding declined 24% as compared to year-end 2009 levels. The mix of aged versus new product in the fourth quarter also continued to move in a favorable direction and is at healthy levels.

Outstanding floorplan loans on domestic inventory aged greater than 12 months was reduced by 70% as compared to year-end 2009.

In our Engine business, global production in the fourth quarter and full year was significantly higher than year-ago levels. In the fourth quarter, all of Mercury's main operations once again experienced strong increases in sales. A review of the mix of businesses within Mercury will give you a more detailed view of what drove the Marine Engine segment's 17% growth in fourth-quarter revenues.

Our domestic parts and accessories business, which in the quarter represented about 21% of the segment's revenues, was up approximately 10%. The growth experienced in this business continues to demonstrate the strength of overall boating participation. International sales, which represented about 51% of the segment's revenues in the fourth quarter, increased by 15%. The combined revenue growth of these two sub-segments, which account for almost three-fourths of the overall Engine segment in the fourth quarter, was about 14%. The revenue growth rate of our U.S. Engine operations was slightly higher. Mercury's strong top-line growth, which was weighted more heavily toward the outboard engine business, combined with lower bad debt and pension expenses, incentives associated with Mercury's plant consolidation activities, fixed cost reductions and improved operating efficiencies, helped drive even stronger improvement in Q4 operating results.

Now let's take a look at our two recreational segments. Life Fitness continued to perform exceptionally well. Sales were up 11% as compared to last year's fourth quarter. Domestic, commercial and consumer equipment sales increases were the main contributors to revenue growth during the quarter. Segment operating earnings grew by about $4 million, or 19%. In addition to benefits from increased unit volumes, increased fixed cost absorption contributed to the higher level of profits.

Sales in Bowling and Billiards declined 3% in the quarter. Same-store retail bowling revenues were flat while bowling products experienced a decline in sales. The segment's operating earnings were slightly above break-even levels for the quarter and experienced a decline of approximately $2 million compared to the prior year. This decline reflects slower sales in the effect of a write-down of vacant property.

Now I'll turn the call over to Peter for a closer look at our financials, and then I'll come back to give you an update on our perspective in 2011.

Thanks, Dusty. I'd like to begin with an overview of certain items included in our fourth-quarter P&L, and we'll also comment on certain forward-looking data points. Let me start with restructuring, exit and impairment charges, which were $18.5 million, or $0.21 a share in the quarter. For the full year, charges were $62.3 million, or $0.70 per share.

The fourth-quarter charges primarily reflect actions at our Marine operations, including those relating to the consolidation and production of our Cabo Yacht brand into our existing Hatteras manufacturing facility and the plant consolidation actions at Mercury. Since the consolidation activities at Hatteras and Mercury are continuing beyond 2010, we will continue to incur restructuring charges in 2011, with a full-year estimate of $15 million.

Net interest expense was $22 million in the quarter, a decrease of $3 million versus the same period in 2009. During the fourth quarter of 2010, we recorded a debt extinguishment loss of approximately $200,000 on the retirement of approximately 1.4 million of 11.75% 2013 notes, which were retired at a premium versus their book value. This compares to a debt extinguishment loss of $13 million in the fourth quarter of 2009. The total principal amount of the 11.75% notes retired during 2010 was $36 million.

As we look forward, absent any additional retirement of debt, we expect net interest expense to be approximately $22 million per quarter in 2011.

During the quarter, foreign currency had a negligible effect on operating earnings as compared to the prior year, which reflected a mix of favorable and unfavorable exchange rate movements. This includes the impact of hedging activity, which helps to moderate the impact that currency exchange rate fluctuations have on our year-to-year earnings comparisons. Changes in foreign currency had a slightly unfavorable effect on our sales growth in the quarter.

In the fourth quarter we reported a tax provision of $5.1 million, which primarily relates to earnings from our foreign operations. In the fourth quarter of 2009, we recorded a $108 million tax benefit, which reflected our ability to carry back domestic tax losses for five years to years in which we paid taxes.

Now, as a quick reminder, due to the Company's three years of cumulative book losses in various taxing jurisdictions, GAAP requires that the realization of the belated deferred assets be considered uncertain. Consequently, we continued to adjust our deferred tax valuation allowance, resulting in effectively no recorded federal tax benefit or provision associated with our losses or our income. Our 2011 tax expense will, therefore, continue to be comprised primarily of foreign and state income taxes. Because we anticipate modestly increased earnings from our foreign operations in 2011, the overall 2011 tax provision should be somewhat higher than in 2010.

One final comment on our income statement -- for 2011, our diluted shares outstanding -- pardon me, for 2010 -- our diluted shares outstanding did not include the dilutive impact of any common stock equivalents, and consequently diluted shares outstanding equaled basic shares outstanding. This treatment of common stock equivalents is required by GAAP when net losses are reported. In 2011 we anticipate reporting net income and will need to improve the impact of the common stock equivalents in determining diluted shares outstanding. At the current stock price, this could add an incremental 3 million shares to diluted shares outstanding in 2011.

Now let's turn to a review of our cash flow statement, which supports our ongoing objective of maintaining strong liquidity by generating positive free cash flow. Beginning with cash from operations, cash flows from operating activities were $13 million in the fourth quarter and, when added to the first nine months, totaled $205 million for the full year. As a reminder, the first quarter benefited from a $109 million federal tax refund.

Some other key items in this section of the cash flow statement include adjustments to earnings for non-cash charges, such as depreciation and amortization, which was $129 million for 2010. Our current estimate for D&A in 2011 is approximately $105 million.

Pension expense resulting from our defined benefit plans totaled approximately $10 million in the fourth quarter compared to $25 million in the prior year. For the full year, pension expense was $39 million compared to $96 million in 2009. This decline primarily stems from decisions in 2008 and 2009 to freeze benefits in the Company's two largest plants.

Now, in the fourth quarter, the Company made cash contributions to its defined benefit plans of approximately $20 million, bringing the year-to-date total to $37 million.

We ended 2010 with an underfunded position of $474 million versus an underfunded position of $462 million at the end of 2009. The primary factor that caused the increase in the underfunded position was a decrease in the discount rate used to value plan liabilities. This was mostly offset by favorable investment returns and contributions. We expect our pension expense in 2011 to be approximately $32 million, which is an improvement of $7 million from 2010. This improvement reflects the benefit of higher asset levels, contributions and lower interest cost associated with plan liabilities.

For 2011, the Company plans on making cash contributions to its defined benefit pension plans of approximately $60 million.

Changes in our primary working capital accounts were a source of cash in 2010 and totaled approximately $14 million. This is an improvement from our previously-stated goal of ending the year with approximately breakeven levels. Accounts payable and accrued expenses increased by $54 million. Prepaid expenses decreased by $7 million. Accounts and notes receivable decreased by $2 million. And partially offsetting these positive factors was an increase in inventories of $49 million, primarily in the Marine Engine segment. I would point out, however, that inventory turns for the Company actually improved from 3.2 to 4.1 over the year.

For 2011, our working capital performance will primarily be a function of our revenue assumptions. We currently believe the range should be between flat to a modest usage of cash. As in 2010, given the seasonality of our Marine businesses, we would anticipate using cash to fund working capital in the first quarter of the year and then generate cash from the liquidation of working capital in the subsequent three quarters.

Capital expenditures for the full year were $57 million. Our 2011 plan reflects an increase of $23 million, resulting in a total of approximately $80 million. This increase reflects expenditures to develop new products in anticipation of improving market conditions and to fund our Marine consolidation activities.

During the fourth quarter of 2010, the Company expanded its cash investment program to include marketable securities with a maturity beyond 90 days. Consequently, the cash flow statement includes $106 million of expenditures for investments made in short and long-term marketable securities. The new program is designed to increase earnings on a portion of the Company's cash reserves. The investments have maturities of two years or less and include high-grade corporate commercial paper and government securities.

As the Company reports free cash flow, it will exclude the purchases and sales of these marketable securities and will also include these securities in its calculation of liquidity.

So in summary, during 2010 we generated about $163 million in free cash flow. In 2011 we are again planning to generate positive free cash flow. Our total cash and marketable securities investments increased by approximately $130 million from year-end 2009 with a balance of $657 million at the end of 2010.

Supplementing our cash and marketable securities balances is the net available borrowing capacity from our two ABL facilities of approximately $162 million, which, when combined with our cash and marketable securities, provides us with a total available liquidity of $819 million, more than $200 million higher than at the end of 2009.

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

Thanks, Peter. I'll conclude by reviewing our 2011 outlook. As in 2010, we will continue in 2011 to remain disciplined to generate positive free cash flow, perform better than the market and demonstrate outstanding operating leverage. We've stated many times in 2010 our objective to return to profitability in 2011, subject to the state of economic and marine market conditions. And although our visibility into these conditions remains limited, we plan for Brunswick to return to positive earnings in 2011, beginning in the first quarter.

We believe the significant decline in the industry marine retail demand has bottomed in 2010. But at this early point in the marine market season we are unable to determine if 2011 marine retail demand will remain consistent with 2010 or improve. What also remains a bit unclear to us at this point in time is the specific timing of when such improvement will occur in 2011 and how each boat category will perform versus 2010 levels. Our current view is that smaller boats, as they did in 2010, will continue to outperform larger ones.

Lacking a clear view of marine demand, we are planning for modest consolidated revenue growth for the Company. In our Marine segments, wholesale shipments and productions will closely match retail demand on an annual basis. Therefore, the level of 2011 revenue and earnings growth will be significantly affected by marine retail demand. Our Marine growth will also be a function of our ability to gain market share, product mix, and our success in pursuing specific regional opportunities throughout the global marketplace.

Our current manufacturing footprint and cost structure should allow us to report strong future earnings leverage. Without considering the effects of changes to our fixed manufacturing cost structure or operating expense, our leverage on incremental revenues should approximate 30%.

So, for every $100 increase in revenue, we should be able to increase our operating earnings by $30, absent changes in our fixed cost. Our last four quarters of strong operating earnings leverage give us confidence in our ability to continue to demonstrate this performance. Our 2011 net income should also benefit from our previously announced marine plant consolidations as well as from the items Peter already discussed with you -- lower restructuring cost and reduced net interest, pension and depreciation expenses, largely offset by a modest increase in our tax provision.

From a P&L line perspective we expect our SG&A will be slightly higher than 2010 levels.

After taking all these factors into consideration, we expect our 2011 earnings per share to be in the range of $0.05 per share to $0.40 per share on a GAAP basis. At the time of our next earnings release, we should have a better view of marine retail demand for 2011, and we will provide an updated outlook at that time.

Before we take your questions, I do want to take the opportunity to mention a couple of topics that we plan to discuss at our annual investor event that will be held at the Miami International Boat Show on February 17. One topic we will highlight at this year's event is the strength of our distribution system, which is the most respected in the industry. In fact, a leading marine publication, Boating Industry, recently ranked the top 100 dealers in North America. 52 of the top 100 were sellers of Brunswick boat brands and 82 handled Mercury engines. We think our dealer network is a true competitive advantage for all of us, and we will elaborate on this during our presentations.

At the event, we will also discuss our outstanding products from our leading brands, which have recently been recipients of certain best-in-class awards. Specifically, in London, Sealine F-42 model earned the coveted Best Flybridge Motorboat Under 55 Feet. Also Quicksilver's Active 675 Open, one of three models introduced by this brand for model year 2011, won Powerboat of the Year at the Dusseldorf show, which is still going on through this weekend.

Mercury Marine recently was named favorite outboard manufacturer and favorite sterndrive manufacturer by Trailer Boats Magazine readers in that publication's first-ever readers' choice awards this November.

Powerboat Magazine readers also named MerCruiser favorite sterndrive manufacturer in the magazine's inaugural readers' choice awards earlier this summer.

During the recently completed fourth quarter, the quality of Brunswick's Bowling products and services was again confirmed by its selection by the PBA, the Professional Bowlers Association, to continue as its exclusive lane maintenance and capital equipment supplier. The renewal of this long-standing partnership is affirmation of Brunswick's industry-leading status in bowling.

And the outstanding performance of Life Fitness is driven by its continued introduction of popular new products. Its Signature Series cable motion dual-adjustable pulley now offers a 15-inch LCD console with 60 video demonstrations of that product, ranging from setup to performance. And it recently introduced Facebook compatibility to its virtual trainer website to allow exercisers to better connect with others, find greater motivation and improve the effectiveness of their workouts.

Throughout Brunswick, product innovation remains a critical priority. Thank you, and we are now ready for questions.

(Operator instructions) Ed Aaron, RBC Capital Markets.

So, Dusty, correct me if I'm jumping to false conclusions about your view that -- of industry retail sales in 2011, but you seem to have developed a bit more confidence that we've bottomed compared to what your thoughts seemed to be a few months ago. Is that a fair statement? And if so, would that be a reflection of just your perceptions of the macro environment? Or is it because of some trends that you are seeing within the business?

Well, first, I hope I've stated it clearly enough, we do believe we hit bottom in 2011. And the real issue then -- I mean, in 2010 -- the real issue for 2011 is, are we going to bounce along the bottom, or are we going to continue to see some improvement?

Ed, we are looking at primarily three things. First, we never have said boat shows are a good indicator of future sales. Boat shows are up, and we say that when boat shows are up or down. But what's more important is, we are hearing from our dealers at boat shows and from the showroom floor that traffic has increased and the level of discussion, the quality of the questions and the true interest and potential buying intent of people coming to boat shows and going to the showroom floors is significantly different than it has been in past years. That's the first thing.

The second thing, as we look at macroeconomic conditions, they are clearly improving. And with a certainly improving macroeconomic condition, we believe -- of which there's a lot of pent-up demand for new boats will gradually begin to come to the fore. We've seen used boats, Ed, decline significantly less than new boats. The number of used boats available has declined significantly. The level of discounting of new boats has declined significantly, and ultimately this pent-up demand will turn to new product, and we think we'll begin to feel that in 2011.

And then lastly, we've done, as well as the entire industry, a lot of work with the dealer network. And I believe fundamentally the dealer network throughout the industry is healthier than it has been in the last three years. Dealers have available floorplan financing capacity, and they are now beginning to focus on meeting consumer needs, rather than survival.

So when we add all this up, we think we've seen the bottom. The question is - when is the upturn going to really kick in? But I'm tickled to death that we found the bottom because it gives us now lots of opportunity, which we haven't had for awhile.

That's a very thorough answer, so thanks for that. Just one quick follow-up, just -- and elaborating on Q4 retail sales, it looked to us like to get to that minus 10% number for the industry in the quarter, there was a pretty big bump up in the month of December. Is that consistent with what you see?

No, I don't think so. I think December was fundamentally consistent, with the rest of the quarter. So we must be looking at different numbers. The real help in bringing the decline to minus 10% versus minus 17% has been aluminum product in general and, in particular, pontoons. And, as we were looking at boat shows, the interest level for pontoons continues to be up quite dramatically in shows.

Great, thank you.

James Hardiman, Longbow Research.

I was hoping you could give us some sort of color around the leverage of your business. Obviously, you've given us the 30% leverage number. But in the past -- and I'm sure you knew you would get this question, since you've done it in the past. But you've given us earnings levels based on different industry assumptions. Do you care to do that again? And conversely, is it safe to say -- you've talked about, you think the industry is going to be flat in 2011. The lower end of your guidance is $0.05. Are those two scenarios equivalent to one another? And if so, sort of the $0.40 high end of your guidance -- what's the best case from an industry standpoint?

First, I want to make one slight correction, in case I've miscommunicated it in my -- we're not really saying our view is that the market is going to be flat. We're saying our view is that the market has hit bottom, and it is unclear whether it will bounce along that bottom, or begin to improve.

So then, to take that to the nickel, clearly we believe that we can earn $0.05 in a flat market. And we believe the $0.05 represents any reasonable set of circumstances that could befall us as we go through 2011, and we're pretty comfortable with that.

In terms of our earnings potential going forward, we've talked about -- we used to say we thought we could do well at 150,000. Well, now I think we are saying, we are going to hang in there, we think, quite respectably with a market of 132,000, 133,000, 135,000 units. We then, I think, have been saying at 170,000 our margin percentage would equal or exceed what the market -- what we were able to obtain when the market was at 300,000 units. And at 200,000, margin dollars would equal or exceed what we were able to obtain when the market was 300,000. And those are all still in place.

We haven't done a ton of work on updating those numbers. My suspicion is, the units might move down a little because we've moved down our ability to make money at lower unit levels, James, but we haven't done any more math on that in awhile.

Okay, that makes sense. Drilling down a little bit further, to the point that you made about the fourth quarter coming in a little bit worse than you expected in the Boat segment -- I think you were looking for high teens to low 20s, and it came in at 7% -- that said, the industry did about what you expected. And I think you commented on it in the prepared remarks, that that was the results of -- the industry overall did what you expected, but the mix of the industry was tilted against you, so to speak. The higher-end boats that you guys really have a significant mix of didn't do as well.

As I look at 2011, what industry mix assumptions should I be making? In other words, if the industry were flat in 2011 but fiberglass inboard were still down 20%, could you make your guidance? Or are you assuming that fiberglass is going to come back as well?

First, looking at the fourth quarter, the way you deduce what we've said [in number is] exactly correct. And one of the reasons we didn't sell as many large boats as we had initially planned is we've been very intent on working with the dealers to keep our minimum stocking levels positioned well so that they can do well going into 2011. So we just backed off wholesale sales.

As we look at mix in 2011, fundamentally our judgment is that the 2011 mix will not be a lot different than the 2010 mix when the year ends, at wholesale sales. So if you look at 2011 -- and, I'm sorry -- 2010 mix, aluminum has done well, and we are seeing the improvement in smaller fiberglass product. But when the dust settles, we think the overall mix should be about the same from a dollar perspective.

And so, does that imply -- let me think about this for a second. Does that, then, imply that if the mix is the same, then the growth rates are the same? Right? So does that imply that fiberglass -- the growth rate in fiberglass is comparable to the growth rate in aluminum in 2010 -- in 2011, I should say? Or, am I thinking about that the wrong way?

No, no; I think you're thinking about it correctly, and the growth rate will be better for smaller fiberglass boats than larger.

Okay, that makes sense. And then I guess the last question -- you talked about your minimum stocking levels, and I guess that's about 15,000 boats. But inventory actually built a little bit in 2011, at least towards the end of the year, because retail wasn't great in certain types of boats. Does that, then, mean that there's going to be any sort of drag if 15,000 boats is your minimum level and you begin to -- growth resumes, is there a little bit of a drag while you get that inventory -- I don't want to say the inventory is high, because that's clearly not the case. But is there any sort of drag as a result of getting ahead on a weeks of inventory basis of where you were previously?

First, just to make sure you and I are speaking on the same basis, the number of units actually declined. What went up was the trailing 12 months retail, and of course retail was down. Interestingly, we will have to watch, going forward, whether 15,000 units in the pipeline is enough to meet dealer stocking levels. We are getting some pressure from some dealers that we may not have enough boats out there for them.

So the import of that, then, is we have no worry about the number of units out there being a drag on the ability to accelerate, if the market began to improve.

Excellent, very helpful as usual, thanks guys.

Carla Casella, JP Morgan.

Hi, this is [Mimi Siuni] here for Carla. Can you talk about whether you bought back any debt in the quarter?

The question was debt --

Yes, debt.

-- reduction in the quarter? Yes; we actually -- looking at the full year, we reduced our debt by buying back 2011 and 2013 notes, by $36 million. At the same time, we had some increases in debt associated with the plant consolidation activities at Mercury and the state incentives that were a part of that whole program, so that our debt actually went from, at the end of 2009, $850 million to $830 million at the end of 2010.

And now that you believe the boat industry is beginning to stabilize, what is your view on your strong cash balance? Do you still feel you will need to keep $500 million cash on hand?

Yes. We have, as you said, a very strong cash balance. We will continue to maintain that. There will be a call, a substantial call on that cash balance as a result of the seasonal first-quarter working capital needs, which we will experience in 2011, as we have in other years. And we will continue -- so we will use our cash balances to deal with that temporary outflow of cash in the first quarter. And we will also use our cash balances to selectively buy back predominantly our 2013, which is our closest-in debt.

And of course, as I said in my remarks, we are increasing our capital investing. And so those will be the main calls on our cash balances in 2011. We continue to maintain a very, very conservative balance sheet; very, very conservative cash position until we start to see some significant improvement in both retail markets.

Thank you.

Richard Whiting, Broadview Advisors.

Dusty, of the 132,000 units that was the industry volume last year, how many units would have been Brunswick's share of that? What was your market share, if you can give that?

I can. I'm sitting here debating whether I want to. I'd just as soon not, but --

Would it be fair to say that you're gaining share? Have there been some marginal manufacturers who have gone by the wayside?

No. In fact, we lost a little share in 2010. And, Richard, we had said we thought we would lose a little share, and that is driven by a couple things. First, no manufacturer has really -- no brand has really gone by the wayside. We did retire some brands, and a couple of other folks retired some. And when you add all the brands retired, it's less than 10. And they remain well over 1,000 brands selling boats in this market.

And then, as we saw brands get into trouble and either go through bankruptcies, restructurings or re-organizations, then a lot of people who had made investments in those situations need to get volume moving and get their plants alive. So we've seen a bunch of deals, if you will, come into the marketplace for the dealer network as people tried to get up and running. And we expected that that would happen, and therefore we did suffer -- not a significant, but enough that we felt it, market share loss in 2010. So in 2011, with our great dealer network, one of our priorities now is to begin to rebuild that share.

So would be fair to say, then, as you look at your strategy for dealer incentives, customer incentives in 2011, on the one hand you can balance a leaner dealer inventory and less distressed merchandise, which would tend to make you -- would lead to a decline in incentives, but you have to balance that against what's coming out of the other manufacturers who are probably more volume oriented and probably incentivizing the market to keep volume up?

An absolute fair statement, but I will say we believe that our incentives in the boat business will drop slightly under 10% of gross sales. We have run, in 2009, Richard, at about 25%; 2010 was around 11%; and we think 2011, 2011 will go a little bit under 10%.

Excellent, thank you, Dusty.

Joe Hovorka, Raymond James.

Question on the bottoming of the boat market -- I'm struggling with this a little bit. If I look at your -- you give the categories by fiberglass and aluminum. Obviously, you guys are more weighted towards fiberglass. If I weight that roughly what your percent of revenue is, it doesn't look like there's been any improvement. In fact, as you go through the year, it looks like things have weakened. I struggle how you translate that to a -- one, to a bottom; and, two, to a flatter, better industry in 2011.

Well, our sales at times don't bear complete relationship with what's going on in the industry. Clearly, the industry was going down. And we've been focused as we've worked our way through this to getting the minimum stocking levels correct, Joe.

So the real question begins to become, for all of us in the industry, as we've cleaned out inventory, we've made the dealer network healthy, we've got new product coming into the market, we've got consumers who I believe have had pent-up demand beginning to show up again -- is all of this together going to cause the market to flatten? So my comments there were directed to the market. And following our sales versus the market in 2010 probably wasn't the right thing to do. So that's wholesale versus retail comparisons. But we are --

I guess that's what I'm trying to figure out, because obviously you're getting closer tied in 2011; right? Retail goes up, wholesale goes up, and the opposite would probably occur also in 2011 --

That's correct.

-- Versus you had to do your catch-up in 2010. And when I look at the -- like I said, weighting the numbers, it looks like we entered the year down about 21.5% and we exited the year down just a shade under 30%. And that's where I struggle seeing how those numbers suggest a bottom, for one.

That would not be our view. We think we exited the year down about 14%. That's the industry.

Right, but what I'm saying is I'm weighting it for -- for instance, fiberglass obviously is much more important to you than aluminum is. And fiberglass sterndrive is more important than fiberglass outboard. So the fact that aluminum is up 2% in the fourth quarter is good -- I guess it's more good for the industry than it is for Brunswick, if that makes sense, right, because it's a lower percent of your sales than it is for the industry.

Yes. I think, as a general statement, that's true.

Right, so when I look at it, when I take those industry segments and weight them for where Brunswick participates, that is, fiberglass sterndrive being your biggest part, it doesn't look like there's been any improvement. In fact, it looks like it has actually weakened a bit.

And I think that's clearly the case in 2010, but now we are -- so what you're questioning, Joe, is our look forward and whether our look forward is in any way rational.

Well, I'm just trying to understand how we go from, let's say, a minus 25% or 30% to a flatter or slightly up with a flip of a switch; you know, we turn the calendar from 2010 to 2011, and the trend completely changes. I'm not saying your view is wrong; I'm just trying to understand how to get there.

And the only thing I can go back to is the answer I gave Ed to begin the question part of this call, Joe. And this is our view of being out in the marketplace and working with our dealer network, working the shows, understanding these boat dynamics and understanding the overhang of old inventory and the consistent demand. And we're pretty comfortable that we've hit the bottom now.

On a quarter-by-quarter basis, I want to be clear; we may not see it exactly -- for instance, in the first quarter, could see it in the second quarter, could see it in the third quarter. I'm a bit unclear right now on timing. But I'm also pretty comfortable that, when the year ends, 2011 will have been flat.

Okay, very good, thanks guys.

John Harloe, Barrow, Hanley.

First thing, I want to congratulate you for getting us whole to the point where we are now. That was a hell of a cliff.

Thank you, and it was a fun ride.

Well, let's don't do it again.

I'm certainly not up to it.

I'm not, either. I saw a news story the other day of private equity money in Hinckley, which -- I'm just curious whether this is the beginning of a trend of some different kind of consolidation or financial engineering and the business has seen the date, or whether it's just a one-off transaction.

Did I lose you?

(technical difficulty)

We're back, Brunswick. John, I hope you're still on the line?

Yes. What did you do, pulled the lever on the trap door and let me go through it?

Well, this is the second time I've done this. I was going to -- I hit the volume button, and I hit the on and off button. So I'm not as technologically challenged as I appear to be, but I sure came across that way today.

So can you go back again? I'm sorry; we missed your question, John.

Okay, my question was the private equity money has found itself into the Hinckley Boat Company. And I was curious whether something is beginning or whether it's just a nonevent, one-off kind of a deal, to where there's private equity money that's going around trying to recapitalize and take advantage of (multiple speakers) or whatever in the industry.

I think it's real. Platinum ended up with a good portion of the Genmar assets, and as we go through several of the other smaller companies -- and I won't go through their names -- a lot of them now have private equity, either complete or partial ownership. So a lot of private equity folks have thought this was a good place to come.

Do you think that changes how competitive decisions are made forward? Or -- it may in those companies, but it may be so small that it really doesn't affect the way the business is -- competition is applied in the future. I was thinking, if private equity is a little smarter owner, a little more disciplined than what has occurred in the past; might be wrong.

Could be. I'll tell you, a lot of owners of boat companies, and they are great customers at Mercury, are really clever business people and perform exceptionally well in the market, John. So our view is that we are likely not to see any change. And more importantly, we've just got to stay very focused on our strategy and keep doing what we know how to do.

Okay, thanks.

Laura Starr, Nuveen Asset Management.

I got sort of hung up with all the calls being dropped, so I don't know if you answered this question. Did you give the breakdown for the year of international versus domestic sales? And can you talk a little bit more about international opportunities to the improving global economy?

So, for the year of 2010, 41% of our sales came from outside the United States, and that's versus 42% in 2009. If we went by segment, we continued in 2010 with more than half of our Life Fitness segment sales to be outside the U.S., and then Mercury runs in the 44%, 45%, 46%. The lowest would be Boating and Billiards.

There is real -- in Marine, real growth opportunities outside the United States. But we need to be very careful as we set expectations. We do very well in Canada and we do very well in Europe and we do very well in Australia, and these are mature markets. So there's share growth and some relative market growth in those markets. But on a percentage basis, the percentage of growth will not be dramatic.

In growing markets -- for instance, Brazil, Argentina, Mexico, the Middle East, Russia and other such markets -- the percentage of growth should be dramatic as we continue to stay better focused there. But the overall size of the growth and its impact on our Marine business will accumulate over time and will not be dramatic right off.

Is it the same picture for Mercury, or is the growth there faster?

I think it's the same picture for Mercury with an opportunity for a little faster growth in the Engine business than, perhaps, the Boat business, yes.

That's all I had.

With no further questions in the queue, I would now like to turn the call back over to Dusty McCoy for closing remarks. You may proceed.

I thank everyone for participating. I know, for many of you, today was a very busy earnings call day, so we appreciate your interest in Brunswick. If you have further questions, please contact us; we'll do our best to answer all your questions. I think we're going to be attending many conferences this year, perhaps more than normal. And I think, for many of you who are our shareholders who -- we have got meetings scheduled with you over the spring. So we look forward to the continuing dialogue and watching this marine market. Thank you very much.

Thank you for your participation in today's conference. That concludes the presentation. You may now disconnect and have a great day.