Good morning and welcome to Brunswick Corporation's 2008 First Quarter Earnings Conference Call. All participants will be in a listen-only mode, until the question-and-answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Kathryn Chieger, Vice President of Corporate and Investor Relations. Thank you. You may begin.

Good morning and thank you for joining us today. With me are Dustan McCoy, Brunswick's Chairman and CEO; and Pete Leemputte, our CFO. Before we begin our remarks, let me remind everyone that during this call our comments will include certain forward-looking statements about our future results. Please keep in mind that our actual results could differ materially from expectations as of today. For the details on the factors to consider, please look at our 10-K for 2007 which is available on request or by going to our website, at brunswick.com. We appreciate your taking time to be with us this morning, and given that we are in a busy earnings reporting season, we'll try to keep our remarks brief and wrap you the call in about 45 minutes. Now I would like to turn the call over to Dusty.

Thank you Kathryn, and thanks to all who have joined this call today. As most of you have already seen, we have reported earnings of $0.15 per share for the first quarter and down 61% from the $0.38 we earned in the first quarter of 2007. There are a few significant puts and takes in these figures that Pete will detail in a minute. As you will see, even excluding these items, this is a solid financial performance, given the difficult economic conditions impacting our consumers and the resulting very weak marine markets that we are facing. Preliminary industry reports show the retail demand for boats fell by about 17% in the first quarter compared to 2007. As we've seen for the past year, the decline is more pronounced in the fiberglass segment at 20% than it is in the aluminum, which is down 13%. I'll give some more color in a few minutes, but in any measure, the U.S marine industry is experiencing an unprecedented downturn, driven by adverse economic conditions. Against this setting, our financial performance is very good this quarter. This is due to the remarkable work of my 26,000 fellow employees at Brunswick and I thank each of them for their outstanding performance. I will now turn the call over to Pete, after which I'll wrap up our prepared remarks for this morning with further details about markets, along with some comments about our continuing efforts to position the company for the ultimate marine recovery.

Thanks Dusty and good morning everyone. As Dusty just mentioned, our earnings for the past quarter showed $0.15 per share, down from $0.38 in 2007. There are a number of factors outside of our usual operating performance that affected the year-over-year comparison, including two divestitures, restructuring charges and special tax items. Let me first review these briefly. During the quarter, we sold our 50% interest in MBK our Japanese bowling joint venture through our partner Mitsui. MBK sell bowling products to the Japanese markets and operated 14 bowling centers there. The inherent value of this business within retail real estate, not profits from ongoing operation; and as a result, we felt that it was to liquidate our investments by establishing new independent distribution for bowling products. The transaction resulted in a $0.10 per share gain during the quarter. Most importantly, it brought in $40 million in gross cash proceeds, $37 million after all costs for the transaction and taxes. We will be able to mitigate most cash taxes on the sale using capital loss carry forwards associated with last year's divestiture of Brunswick's new technologies. We also recorded a $0.07 per share loss in the first quarter from the planned sale of Baja, our performance boat brand to Fountain boats. The combination allows for boat brands to achieve greater scale advantages in production. We have signed a Letter of Intent and expect to close in the second quarter, with a further $0.03 to $0.05 per share loss to cover severance in closing costs. Consideration from Fountain will be in the form of a new supply agreement, whereby Mercury will continue to sell engines to Baja. These engine sales are profitable for Brunswick. Please note that almost all the Baja charges are non-cash. Excluding the impact of the MBK and Baja…

Thanks Pete. Let me begin by adding a bit more detail on trends that we are seeing in marine marketplace. And in early year that fiberglass retail boat demand fell by 20% in the first quarter. This is based on preliminary industry boat registrations as the data for the month of March only includes 24 states, which hover about 55% in the market. So the trends going into the retail selling seasons are established in our view by these statistics. Within the fiberglass category, the most important profitable segments for Brunswick is fiberglass boats powered by stern-drive engines. The industry data shows that retail registrations in this segment were down 24% in the first quarter. While no region of the country was immune, the large volume states of Florida, California, and New York were down between 20%, 24% and 50%. If there is a bright spot in any of this, it is the fact that we have gained significant market share in the important fiberglass category and have done so, without having a discount products at the levels that we were doing so last year. As Pete mentioned, our production of fiberglass boats was down over 20% in the first quarter. Given these market conditions, we will continue to cut production versus 2007 in the second quarter. All this speaks to the need to continue pursuing efficiency gains that occur in Brunswick as a marine market leader, and as a result of our often-stated strategy. We closed four boat plants last year and have announced the closure of mothballing of three more in the first quarter; further closures are unlikely. As we close plants, we consolidate boat production and fuel production facilities, an we are now manufacturing multiple brands in several of our plants. While we would be doing this…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our question comes from Tim Conder with Wachovia. Please go ahead.

Thank you operator. First of all guys, it's tough out there, but you are doing a good job. So, just keep plugging away.

Thank you, Tim.

Couple of questions; Pete, and I apologize if I missed this in your commentary. Could you just state again what the ForEx benefit was in the quarter, both on sales and potentially the EBITDA lines? And then also if I missed in your commentary I apologize but I did not see it in the pres release, so but... any comments on the weeks on your channel inventories on the engine side?

Yes, first with regards to FX impacts on sales. If you look at the 11% growth that we mentioned, a little more than half, not much was driven by FX, and the remainder was driven by performance. In terms of the impact on EPS quarter-over-quarter, it was about $0.02 favorable from foreign exchange impact. And I am sorry, Tim your second question?

Relating to the weeks of inventory... on the unit inventory on the engine side?

Yes, we are not reporting that anymore. And really the reason why is it's difficult to track engine pipeline. Unlike boats where we are selling to dealers, and we actually keep records of how many boats are still sitting in our dealers hands, on the engine side, we sell to OEMs and they export products in many cases and since engine pipelines are based on warranty registrations, they come and they are outside the U.S, we never see that. So, particularly over the last couple of years of export activity has grown across the industry, it's more difficult for us to track it. But the best data we would have says that we are in okay shape overall and we are probably up one or two weeks to roughly 29 weeks or so, versus last year on that adjusted basis.

Okay and Dusty, I think you mentioned that again we will see further cuts and probably likely continuing to what we have seen in the... sort of that 25 to 45 foot segment, which entails more of the in-board engines.

Currently there Tim, but we may see it in other places. We are trying to be very... on top of the markets, we are staying in close contact with our dealers. And frankly, Tim, if we begin to feel softness anywhere we are trying to slow production down rather quickly. As we go into the selling season, it's important that we have enough products there for consumers, but we also don't want to end the selling season with too much. So we're on a knife-edge here and doing the best we can.

Okay. And then two other questions here; any comment on how things are going with Cummins. Talk how that the joint venture operations performed during the quarter, and then I have one other follow up.

Cummins joint venture is performing magnificently. Clearly one of the best joint ventures we have ever entered. You know in my comments Tim, I alluded to redirecting of both resources and talent in growing segments of the marine market. That's one place we are in conjunction with Cummings, we are very focused. We believe there is great opportunity for us in smaller and larger product drives and for instance new diesel stern-drives et cetera, et cetera all which are really growing segments in the market. Cummins has been a great partner and the joint venture and doing very, very well for us.

And good double digit growth and process in the quarter that shows up in other income.

Okay, okay. And then finally are we sort of at the point or not to where additional incentives are promotions to dealers to help move current and non-current inventories. Is that effective or is it just more effective to cut back the production? I mean again what's already in the field is what's in the field, but I mean is throwing more dollars after is helping to move it or really not?

It frankly depends on the marketing types of products. We do this on a dealer-by-dealer basis and work with dealers in a particular market to understand what will help this product. If discounting will, we would, but if you notice our numbers we are growing any abnormal or out of ordinary discounting right now. Because it doesn't help in those markets; the bar is just not there.

Okay.

So the best governor here is not getting the boats into the dealership.

Okay, okay. Thank you all.

Welcome.

Thank you, Tim.

Thank you our next question comes from Ed Aaron with RBC Capital Markets. Please go ahead.

Thanks. Good morning, guys

Good morning, Ed.

Couple questions for you. First, did I hear you correctly, that you are planning, is it 40 million of restructuring this year?

Yes, excluding the Baja divestiture, it should be about $40 million based on actions that we've taken to-date and the activity that we've already planned. It's very possible and I would say probably likely it's going to go even higher than that.

And that's not net of the one-time gain that you had this quarter. Right?

No, that is not net of that. That excludes any of the divestitures.

Okay, thanks for clearing that up. I wanted to ask a little bit on the timing of any additional changes in production. In a typical year, I think dealers often wait till the model year change over to adjust their order activity, if they're uncomfortable with their inventory levels. This is obviously not a particularly normal year, as you know. So just wondering, just thinking about the second quarter. I know you're not... you don't give quarterly guidance. But would you expect the rate of decline in your year-over-year production to accelerate for the next quarter, just kind of given the unusual dynamics that are in place this year?

The way we're seeing it, Ed, is we were down... our production was down slightly over 20% for stern-drive engines and inboard/outboard... I'm sorry, inboard, beetle-drive boats. We think that will be lower in the second quarter, for both. As I've said, we've seen the market be down around 24% through those segments, and we want to get down under market performance, so yes, it is going to be in excess of 20% in the second quarter. And then we'll have to see for the rest of the year, as we'll see what happens with the Cummins.

We're taking more outages in the second quarter than we normally would.

Okay, thanks. And then the... obviously earnings are down significantly just given the environment, but the negative call it incremental margins I guess, in the marine business were actually quite a bit improved in Q1 versus what you had reported in the second half of last year, if I back out the restructuring charges. Would you just chalk that up to execution and some of the cost-cutting initiatives kind of coming to fruition, or are there other factors that might be involved that I am not catching there?

There certainly is an impact from the cost-reduction activity pretty much across the board in our marine businesses. The other factor though, too, Ed, is, we are comparing of a base that was down in terms of production versus the prior year. You have first quarter of 07 versus fourth quarter of 06 has been a steady sort of decline. So that also played as work up to a small extent.

But Ed, and I think we could say with great confidence, that many of our plants are performing significantly better than they have performed in prior years. It's significantly better.

Okay. Helpful, thanks. And then, just one last question if I could; from a much longer term, call it three to five-year perspective, and your efforts to reduce your footprint size over time. What is the best way to think about, in relation to the overall size of your company, what the footprint will look like in several years? I know it's a tough question but... to answer at this point, but if I am thinking about it say for maybe like looking at your PP&E as a percentage of your sales, which is somewhere close to 20% right now, what do you think that as an example might look like much farther down the road? Or is that not the right way to think about it?

Well, that is one way to think about it, and I couldn't argue with that way. I think it's just a bit premature for us to be telling you about that. As we get further through this year and do a little more strategic work, I think we will be prepared to talk about that.

Okay. Good luck with the rest of the year, thanks.

Thanks, Ed.

Thanks, Ed.

Thank you. Our next question comes from Joe Hovorka with Raymond James. Please go ahead.

Thanks guys. A few quick questions; first, the decline in corporate expense in the quarter, what was that and is that sustainable for the rest of the year?

Part of that was driven by the timing on incentive accrual. That was... probably about half of that and the rest was driven by cost reduction activity.

And is that then... I am thinking that the cost reduction part is sustainable, and the other accruals were just timing?

The cost reduction part of sustainable. You've got to be careful too, because there's always some noise that goes through it with specific items, because that also includes some activity that we do with old discontinued operations. So I don't want you to move forward and say that it's going to be there every quarter. But certainly, you should see progress over time with even additional cost reductions.

Okay, and it may be too early to answer this yet, but production cuts into model year 09, is that... will we see them?

I think it's too early to call that one, Joe.

Okay. And then have you heard anything anecdotal coming out of the dealers regarding retail credit availability. Has that changed at all in the last three months or six months, whether from... it actually just being available, or tightening or loosening credit standards?

Yes, it's still generally available, Joe. What we have seen is there's some trend for some of the banks that are out there. If they would have taken a score of 740 in the past, they have kicked it up to 760. They are trying to, if you will, upgrade their portfolio and they might be raising rates on lower credit scores. But it's still generally available out there to people that want to buy.

Okay. Any change in things like loan-to-value ratios as well, or no?

Slightly, there has been a slight increase in some foreclosures and when you look at the aging of receivables. For example, with Brunswick Acceptance, our joint venture with GE, there has been a slight increase, not massive but slight, when you look at boats that have been... that are sitting out there for 12 months. The 12 to 18-month category has gone up a little bit. So it is something we are watching closely.

The 12 to 18, I think you're talking about the inventory in the dealer lots?

Yes. Yes.

Okay. And then last question; you had been buying brands for many years in North America, and now from the press release it seems like you want to shed brands. What's... can you comment on the change in strategy there? What's driving it, and will we see any of the brands that were purchased in the last six or seven years be part of that portfolio brand rationalization?

First off, let me go on the change in strategy. I wouldn't call it a fundamental change in strategy. I think it's more driven by a change in markets. It's clear that we entered some pieces of the market just before they began to significantly fall. For instance, in the aluminum markets which we entered in 2004, we began to see in late 2005 a significant decline in those markets, all driven by economic conditions. And those markets are down fundamentally... production for those markets down fundamentally about 50%. So I mean, I am not saying what we are going to do with those businesses, but I am using that as an example, Joe. And that's the sort of businesses then we are looking at to say, on a long-term basis, will the consumer be back in those markets? If we make certain assumptions about cost of fuel, cost of food, cost of education, insurance, medical, whatever, all of which impacts disposable income. We're asking ourselves the hard questions about the ability of those consumers going forward to continue to participate in that segment of boating. We also did some acquisitions in order to look for synergies across our marine businesses, I mean boats and engines. And I think what we're finding is, our engine business, particularly our outboard business, is performing very well now. We have a great product line-up across the entire segment. Fundamentally, perhaps we don't need to be in those sorts of businesses, because our engine business is very healthy and it performs very well on a standalone basis and we just don't need the transforms to support it. So it's that sort of analysis Joe, that we're going through. As to whether some of the brands we've purchased in the last few years would be brands we could exit, the answer is clearly yes, we could exit them. And we are doing all that work right now.

Okay, so you are basically looking for places that you think that have structurally changed, as opposed to cyclically changed. If am --

Correct.

Okay. And that may or may not be some of the brands that you had purchased in the last several years?

We can work hard on cyclical changes and hunt [ph] down and take costs out, lower production, et cetera, et cetera. And you're exactly right, it's those structural changes that we're trying to make sure we understand and make good decisions on.

Okay, great. Thanks guys.

Okay, thank you, Joe.

Thank you. Our next comes from Chris Hussey with Goldman Sachs. Please go ahead.

Good morning, guys. A question, a follow up on that, I mean your engine business. What's happened over the last couple or three years, would you say, that's maybe made your engine business able to stand on its own, more than what you thought back then when you were buying those brands to support it?

Full product line-up. We now have a four-stroke line-up that goes from a 2.5 horsepower to 300 horsepower. We are the only manufacturer in the world now that has that complete line-up. We've got a great manufacturing footprint now in China and Japan and in our facility up in Wisconsin. They are doing an absolutely magnificent job of getting costs out including in improving productivity. We've got a lot more to do and they know that, but they are clearly after it. We have been gaining share nicely. Following the OMC bankruptcy in 2001, the market changed rather dramatically and we needed to get good in four-stroke and we have done so. So we have got great share position in the U.S, we are very comfortable with that. And of course that's where we have been attempting to pursue this strategy of marrying transform with engines in order to make sure the engine business was healthy. So, the business is a great business, it's going to perform well in the future. In fact it's going to perform better, as both the market improves and our folks out in facility [ph] continue to improve their productivity. So we are very satisfied with that business.

And I would add that even on the stern-drive side with MerCruiser, we are very optimistic as well about the Axius and Zeus products coming to market as we speak. We think those are going to be pretty game-changing products out in that piece of the market as well.

If I would imagine that you embarked on that strategy to add transforms that, you had anticipated you were going to go out with a full product line and get the China and Japanese footprints in place. Has anything happened to your competition would you qualify that has sort of allowed you to be even better off today relative to your competition than you thought would be when you were buying the transforms?

You mean in our engine business?

In the engine business, yes because again what you meant by... I hear you and I know about that, and the now retired Pat Mackey has done a great job there. But the... you guys were telling us about that for awhile. I mean you would have anticipated that, when you were buying those transforms, I would have thought.

Well, a couple of things went on. First, we needed to ensure we had volume to support the investment quickly. Now, as against the engine competitors, I think that we just have a lot better engines right now. Our Verado engines are technological marvel. No one has approached the technology and performance of those engines, and then our cost position in the Japan and China plants in the smaller engines is unequaled. So the competition just hasn't kept up with us right now.

That's fair enough. Last question then, sticking with engines is that fuel is like $117 oil is $117 a barrel. It just seems to keep going up, and what are you guys doing from a development standpoint at all to address a world in which may be marine fuel is sitting up $5, $6 a gallon on a sustained basis? Are you addressing that at all? Is there a Prius [ph] in your line-up in the future? Why do you laugh, you always wanted to be the Toyota of the sea.

I don't want to tell our competition too much, that's why I hate to say. Let me answer your question this way, Chris. Again in my prepared remarks, I talked about redirecting significant dollars and talent, and that is one of the places we are in the process of really up talenting and putting money on it. There is a lot of potential there for it. And even today, with our existing engines, for instance, with our Verado engines, we've decreased fuel consumption by 30%, by doing some real great engineering work and tweaking those engines, and the engines that are out there now actually perform that better. So when we look at these product drives, that's a hidden attributes in product drives is they also are about 30% more fuel efficient than are normal stern-drive or the old V-drives as I call them, inboards. But looking around the corner I guess we have some ideas and we've got a lot of work going on looking around the corner, and we want to be one of the industry leaders in doing that. So, you'll hear us talk about it more in time as it evolves.

Thanks very much, fellows. Good luck.

You are welcome.

Thanks, Chris.

Thank you. Our next question comes from Hakan Ipekci with Merrill Lynch. Please go ahead.

Thank you. Two questions; one is, I know it's early in the retail season, but if the current trends persist into the most of the retail season, would you anticipate your shipments to be up or down in the back half of the year?

I think the answer to that question is going to lie with what is the mood of the dealer if you will in the second half of the year. And it's difficult to predict that until you get through the season. Retail activity in the second quarter is going to be key to the inventory that they are going to hold going into the second half.

Hakan, if I can add to that, here's the way we are thinking about it. If there is hesitation on the part of one of our dealers to take product, then they ought not take it. And if we have any concern about building a product, we are not building it. And we think that's important for both our dealer network and ourselves, as we go through this sort of downturn.

Okay. And the other question is again related to dealers. What's the health of the dealership network at this point? I mean it's been a pretty rough time, and what's the rate... has there been an uptick in the rate of exits, bankruptcies and what are you seeing out there?

No we are not seeing a pickup in the rate of bankruptcies and exits. Clearly, the entire industry is under stress; all of us who are OEMS are under stress, and many of our dealers are under stress. We have very, very close contact with our entire dealer network, and for any dealer who is having difficulties... difficult in any particular market, we try to show up immediately with the dealer and work through a get-well plan and a get through the difficult economic time plan with that dealer. We have a few... but I would say a very few, dealers with whom we are working through those sorts of conditions with. I believe that, as an industry and our dealer network, as opposed to the early 90s when I wasn't here, and the early 2000s, our dealers are becoming much more savvy business people they are very focused on their inventories as a key gating item for the success of their business. And we've done a much better job in working with our dealers on controlling inventory. Our programs, like our certification programs, the master dealer, ambassador, pro dealer, all the certification programs we've put out, help we and our dealers work together much better in order to keep them healthy. So I think the partnering is really paying off now. And I'm, at a personal level, really proud of our dealer network, and I know life is tough, but I think will are being very good partners with all of our dealers, and we have surprisingly few dealers who are having issues..

I see. Do you think, given the severity of the downturn in some of these... because I would have expected, given what happened out there, that there would be more exits, and do you think, this is... some of the efforts have been delaying some of the weaker ones to exit?

Well I think, you have to be careful too, because there is the... they have seasonality of cash flow just like we do, and they are going into the prime selling season right now. So, the fact is they are going into it with fewer boats than they had a year ago, so their inventory carrying costs are down, not to mention the fact that rates are down, to some extent as well, and it will depend how the next three... three, four months move in the marketplace, but at this point that's not the scenario, and it is pipeline management, that's why Dusty said earlier, if we think that dealers don't need it, we are not shipping it to them, not producing it.

Okay, great. Thank you very much.

You're welcome.

Sure.

Thank you. Our next question comes from Laura Richardson with BB&T. Please go ahead. Laura Richardson - BB&T Capital Markets: Thanks. Couple questions here, because I am just trying to get a sense for how some of the restructuring is going to play out in the earnings eventually. So Dusty, I apologize if you said this in the beginning, because I missed the first couple of things you said, but did you say what inning we are in terms of restructuring now?

No I didn't. Great question Laura; we are in the fourth innings. Laura Richardson - BB&T Capital Markets: Fourth inning, okay. And that... is that in terms of what you would want to change in manufacturing and sourcing, regardless of what was going on in the macro environment?

Yes. Laura Richardson - BB&T Capital Markets: Okay.

As I have said, the macro environment permits us... or maybe put differently pushes us to move faster. Laura Richardson - BB&T Capital Markets: Right.

So we are working through the process we always said we would... I think are dispatched a little faster. Laura Richardson - BB&T Capital Markets: Yeah, okay, that was helpful to hear. Thank you for saying that. Then, in terms of... and I am not trying to get into guidance at all. I am just trying to understand how the economics are going to work for the business. Is it theoretically possible that once you stop having to cut production, then earnings can be kind of flat? To whatever was the previous period? Or would they even be better because you... of some of the restructuring you will have completed by that point, whenever it happens?

Well, Laura, this is Pete. For the last year or so, we have been saying how we have been producing at rates below retail demand. In the first quarter, just because... we tend to steady-state produce, we produced a little bit higher, that's just a normal seasonal trend. But yes, the retail market fell a lot more in the first quarter than I thought... I think we believed going into the quarter. That's not exactly the case right now. But as we continue to cut production, you will come to the point when you get the retail pipeline, or the dealer pipeline, inventories to the level that you want, and you should be able to, in theory, raise production to the level of retail. And if you look at our historical trends, that's what happened in 2002 and 2003. We actually had higher earnings in our marine businesses than we did in 2001, even though the market continued to drop a little, because of that... that bounce effect that you get. But it's way too early to predict when that might occur. Laura Richardson - BB&T Capital Markets: Yes, exactly, that's the million dollar question I guess, or multimillion dollar question. Okay, thanks guys.

This is the twelfth straight quarter, that's which... we have been producing under retail, or attempting to produce under the retail, and retail has been falling that entire time. Laura Richardson - BB&T Capital Markets: Yes, pretty amazing. And I'm not going to ask you to predict when that's going to stop. So, okay thanks guys.

Thank you. Laura Richardson - BB&T Capital Markets: Okay, thank you.

Thank you. Our next question comes from Steven Rees of JPMorgan. Please go ahead.

Hi, thank you. Just on the marine segments, it looks like the international business is still holding up quite well, and I think you said up double digits in engines. Can you just talk about which markets are driving this growth and how this growth is trending relative to what you've seen over the last few years and if you've seen any volatility or slowing in any key international markets.

Sure.

Pete and I will double team this.

Go ahead.

Latin and South America, great growth engines for us right now. Russia and other of the far-eastern European countries are doing great, seeing a bit of weakness in Scandinavia, and Western and Central Europe are growing slightly. And the Middle East continues to be growing well also. Is that helpful?

Yes, could you just talk about... in the boat segment, could you talk about what the international sales were up year-over-year? I think you said double-digit for engines, but I am just curious --

They're both Mercury and Boat Group were probably up around that 11% average for the company, within a point or two of each other. So --

Okay.

The company average.

But you haven't seen a significant slowing in any in the real key market. Okay, thank you.

No and in fact as Pete mentioned, we're not getting some shipments we'd like to be making overseas, because we can't get space on the vessels.

Okay, great. Thank you very much.

You're welcome.

Thank you our next question comes from Hayley Wolff with Rochdale Securities. Please go ahead.

Hi guys. Just a couple questions; first, on the commercial fitness side, are you seeing any signs that health clubs are delaying upgrade cycles?

Generally no. I'd say at this point in time, it's probably driven Hayley by the fact that we've got great new products out there that Elevation series on the cardio side, and our strength line-up is doing extremely well in addition to the cardio.

Okay.

It's a pretty... I would tell you too, when we talk commercial, it's a pretty diverse business, I think if you'd talk to us seven years ago, it would have been much more kind of clubs by themselves. Today it's not only clubs, it's hotels, it's the military, it's universities and professional athletic teams, and so we have a bit more diversity there going on and you do see trends in some of these that are pretty positive, like with university health club construction, things like that. And the other thing, even within the clubs, you have got some brands like Lifetime Fitness, whose more on the high end, and you also have club growth on the low end as well that are doing reasonably well, there is a number of clubs of, club chains that have been established that sell memberships at reasonably low rates, $15, $19. They may not have all the amenities like full locker rooms et cetera but they still carry excellent equipment, and we have done pretty well in that piece of the market too.

Okay, thanks. And then on... can you just review the inventory, I think I missed some of the moving parts in the inventory, and where is Baja into that equation?

Overall inventories were up $39 million year-over-year, $20 million of that came from Mercury, all in the international marketplace, some of it's driven by the weaker dollar but more of it's driven just by performance, we do have more product sitting particularly in Europe than we want to have at this point in time. The other piece, another $20 million came from Hatteras, and there were three relatively large boats that did not, and expensive boats, that did not ship at the end of March because of difficulties securing ocean freight, and that was the main driver there. So... and then the other factor, we did see an increase in Life Fitness that was higher than what we wanted it to be, particularly because of the consumer product. With that fall off in market, it's a very long lead time, we don't manufacture it, we source it from Asian suppliers, and we've shut down the supply chain, but it's going to take a couple quarters to see the benefit of that roll through. But we would... we are shooting to continue to post inventory declines as we move through the rest of the year, and we would expect that our free cash flow this year from working capital reductions is going to be significantly higher than what we reported last year.

Is Baja in the first quarter number inventory?

A small amount, it's not that big. It didn't move the needle at all in terms of what you see.

Okay. And then last question... or actually, two more questions; one is, is there any opportunity to ship more production over to China in the engine segment? And just looking at your basket of costs in a vacuum, sort of what percentage increase are you seeing now year-over-year?

First shipping, more Asian production over to China; yes, it's always a possibility. Our plant over there is obviously very good, but we are quite pleased with our production facilities right now and the progress we are making Hayley.

Okay.

Yes, and in terms of our cost inflation, I'd say on the materials side, it's probably averaging out maybe 3% across the portfolio, with some of the benefits that we have from are global sourcing offsetting it and that 3% is probable a net number. Wage inflation has been running 3%; benefits are going up close to 8%, 9%, 10%. I felt it probably is averaging out something around 4, I would say.

Okay. Okay. Thanks a lot guys.

Thank you.

Thank you the next question comes from Eli Lapp with Morgan Stanley. Please go ahead.

Thanks. You had mentioned briefly a sale lease-back transaction. I was wondering if you could give us some more detail on that, maybe timing, magnitude, use of proceeds that sort.

Sure. Generally, just as background, if you look at our historical portfolio of roughly 100 to 110 bowling centers, it has usually been 50% owned and 50% leased. For the majority, the vast majority of the new Brunswick Zone XL centers that are out there, we have nine right now, I believe, all but two of those are owned properties, and they are much more expensive to build. They might run $11 million, between land and construction and equipment cost. So, the sale lease-backs that we are looking are going to be, probably include a couple of those, as well as some of the older centers, and really it's not so much... what drives what centers we will sell and do lease-backs on is really driven more by tax factors than anything else because there's a potential for taxable gains, we want to try to minimize that. I think the proceeds that we are looking at bringing in could be in the 20 to $30 million range that we'd want to put back into that business. So I would say also we are looking at some other financing sources as well, just build to suit, and leasing new facilities moving forward.

Okay, thanks. And I am sorry, one more question. You had mentioned earlier that you expect your free cash flow to be significantly better than that last year.

No, I didn't say that. I said that with regard to working capital.

Okay.

You should see a positive trend in 2008 versus 2007 in terms of cash brought in from working capital reduction.

All right. Thank you.

Welcome.

Thank you. That's all the questions we have on our monitor. As usual, all the questions were great. We thank everyone for participating with us and having an interest in us. And we will go and get back to work.

Thank you, take care.

Thank you. That does conclude today's conference. Please disconnect at this time.