Good morning, and welcome to Brunswick Corporation's 2009 first quarter Earnings Call. All participants will be in a listen-only mode, until the question-and-answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Bruce Byots, Vice President, Corporate and Investor Relations. Sir, you may begin.

Good morning and thank you for joining us. On the call this morning is Dusty McCoy, Brunswick's Chairman and CEO, and Peter Hamilton, our CFO. Before we begin with our prepared remarks, I'd like to remind everyone that during this call our comments will include certain forward-looking statements of our future results. Please keep in mind that, our actual results could differ materially from these expectations. For the details on the factors to consider, please refer to our 10-K and today's press release. All of these documents are available on our website at brunswick.com. I will now like to turn the call over to, Dusty.

Thanks, Bruce and good morning, everyone. So now, I hope you've had the opportunity to review our first quarter earnings release. Our results continue to reflect the difficult global economic conditions in which we are operating. We reported a net loss in the quarter of $2.08 per share on a sales decline of 45%. The net loss includes a $0.45 per share of restructuring charges for activities that we'd announced previously, and implemented during the period. I'll comment further on these, as well as other incremental actions that we plan on taking their remainder of 2009. The loss also includes $0.40 per share of non-cash charges for special tax items that Peter will discuss in his remarks. As we stated in the late January, we enter 2009 against the backdrop of a harsh operating environment, with the view that demand for our products would be down significantly and that consumers will be cautious. Our late January view, concerning consumer caution has proven to be true. Change in the marine retail financing landscape also has impacted consumer demand in the quarter. National lenders are now requiring more down payment, shorter terms and higher credit scores. As a result, many of our dealers are turning to credit unions and local banks for retail financing. But the overall result has been lost sales. Let me review some of the preliminary first quarter United States industry data. Starting with fiberglass, sterndrive and inboard units, which fell 45% in the first quarter of 2009, this compares to a decline of 28% in the first quarter of 2008 and a drop of 48% in the fourth quarter of 2008. Outboard fiberglass boat retail unit demand fell 37% in the first quarter of 2009, this compares to decline of 20% in the first quarter of 2008 and…

Thanks, Dusty. Before I provide some comments on our Marine businesses, I'd like to point out that we've reorganized and therefore restated certain components of our Marine operating segments. Beginning with the first quarter of 2009, the company announced the integration of its boat and engine parts and accessories operations under a single business entity. This new integrated structure will maintain the identities of the existing businesses while consolidating all of their functional areas under Mercury Marine. The integration will result in streamlining operations, eliminating business complexity and positioning the company to be more responsive to the North American marine marketplace. US GAAP requires segment results to reflect the company's organizational structure. As a result historical operating results of parts and accessories operations previously reported in the Boat segment are now reported in the Marine Engine segment. These changes are attached as an appendix to our news release. Moving now to first quarter performance, the reduction in the company's first quarter operating earnings is a function of our marine businesses. Boat segment sales were of $360 million or 64% which drove an operating loss of $72.3 million versus a loss of $17.4 in the first quarter of last year. The $55 million reduction in earnings results primarily from the net effects of the few major factors. As Dusty detailed, this difficult marine market, coupled with our efforts to protect our dealer network, required both aggressive curtailment of marine production and reductions of wholesale shipments. Both plant closures and extended shutdowns across all our brands limited production to 69% of this year's retail demand and the 64% reduction versus last years first quarter reduction. These curtailments were necessary to reduce our dealer's inventory by nearly 10,000 units compared to Q1 2008. However, as we all know production cutbacks result in very…

Thanks Peter. I'll conclude our call with a discussion of the third leg of our near-term actions, which is focused on making decisions which allow us to successfully emerge in this global economic crisis even stronger than before. During 2008, we achieved actual fixed-cost reductions versus 2007 affecting both cost of sales and SG&A of approximately $160 million. These reductions did not reflect amount saved by not paying bonuses based upon 2008 performance and did not reflect the negative effect of restructuring expense. In 2009, we believe additional cost reductions of approximately $214 million will be generated, largely related to the full-year impact of 2008 cost reduction initiatives, as well as actions already initiated our plan for 2009. For the year 2009, these additional savings do not reflect the unfavorable effects of restructuring expenses, variable compensations and pension obligations. A major portion of our cost savings has been a result of workforce reduction. Since the beginning of 2008 till the end of the first quarter of 2009, we reduced our total company workforce by 37%. In our marine operations, we have reduced our total workforce by nearly 50% during the same period. These actions are painful and disruptive for the individuals involved and for our organization. So we have no choice, but to size our workforce to demand. We have remade our manufacturing footprint, exited brands, reduced our product model count and exited non-strategic businesses and activities. We have consolidated functions and removed layers of management throughout the enterprise. Peter described to you in his remarks one example of this type of activity with the consolidation of our marine parts and accessories businesses. All of these actions are at the core of our belief that we have positioned Brunswick for outstanding margin growth when global economic conditions improved. However, we remain realistic in our assessment of economic conditions and our markets in the near-term. So while we are well positioned for the future, we are squarely focused on handling the near-term issues we face and are optimistic in our ability to move beyond the difficult financial climate in which we are operating. Thank you for listening to us for some fairly long comments and we'll now be happy to take your questions.

(Operator Instructions). Our first question comes from Ed Aaron, RBC Capital Markets. Your line is open.

Dusty this is I guess kind of a broad question and maybe not one with very clear answers. But I think, we're all kind of scratching our heads about what this industry is going look like in two or three years from now. And to your earlier point the credit environment is certainly changing the way that the industry manages around inventory. Just curious to get a little more insight into what assumptions you are making about, what is ultimately going to be considered the quote-unquote right amount of inventory, to have out their? And then also, how do you expect to manage around the production just from a seasonal standpoint, longer term considering the higher cost of providing floor-plan financing?

First, we're starting with two fundamental assumptions. We are not planning for the markets to come back to 2005 levels, likely within my working carrier, and I hope that's a fairly long carrier. Secondly, we've begun to plan on a dealer-by-dealer basis, what we think the minimum levels of inventory we ought to be carrying in the fields. And they are going to be a fair bit lower at than anything we've had out there. So, outstanding's for dealer's are going to have to go down or going to have to stay down. What that then is going to do is require us rather than level loading. We are going to have to think our production. We [want] to be thinking very hard about how we have much more flexible production and that has been at the core, and Ed, of our beginning to change the manufacturing footprint. And the way I described in the past we've gone from brand based manufacturing with multiple models to model base manufacturing with multiple brands. And that will permit us then to be much more flexible and to be more responsive to dealers so that we can respond on and make the order basis much better than we've done in the past. Rather than just level loading and push it out all through the four quarters, and then ask the dealers to carry inventory for a long time. So, we are focused on the industry being smaller, therefore we are positioning our cost so that we can have great margins in the smaller industry. We are planning for our dealers to carry a fair bit less inventory, I would even say significantly less inventory. And we've begun to think now hard for two years about what our manufacturing footprint needs to look like to permit us to be more responsive to nice order dealer network. Is that helpful at all?

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

First Ed, I'm being very careful not to say when I'm expecting and I say what we are planning for and those can be two different things. We want to plan for downsize. Well first, I need to describe the marketplace. I think the marketplace is abnormal right now and therefore, it's really difficult to understand what normal demand is, what normal seasonality is going to become. And the reason the markets are abnormal is, we've got some dealers who have decided to exit the business, this is now across the industry. Other dealers who have got into trouble and had their inventory repossessed, if you will, or repurchased by manufacturers. We've had consumers who have given up on paying for their boat and what we've gotten now is a body, and it's difficult to tell how big that body is, but a body of and I'll put quotes around this repossess boats that are now beginning to flush through the system. Therefore it's a little difficult to say what real consumer demand is because we've got this abnormal activity going through the marketplace right now. The real issue then I think we're all trying to ask, and maybe Ed, at the center of your question. Do we believe this recession and maybe in the marine industry we can call it a depression, is V-shaped or U-shaped and where are we are, we are at the bottom of the V, at the bottom of U, on our way down, on our way up. And what I can tell you is we don't know whether we're at the bottom, yet. But we have begun to see those little trickling signs in this industry, as well as what wanting to cross the entire global economic assessment. Perhaps things are slowing down. But my judgment is that we haven't really seen the bottom yet, but we've got to be getting darn close to it.

And then, just the last question Peter, you mentioned that the revolver with size down I think by $100 million. But you had one change that was $40 million of that. What was the other components to the changing the revolver?

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

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

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

Our next question comes from Joe Hovorka, Raymond James. Your line is open.

Thanks. Just one quick clarification on our [line] two, where is the effective borrowing amount right now, you said you had 183 available, but what was the total?

Well. It was 183 plus what we have outstanding against the facility and letters of credit and that's about 18.

$18 million of letters of credit?

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

Okay. So 183 minus 60 plus 80, okay?

That's the cash capacity.

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

Versus year-end, that's correct.

Versus year-end and what was that versus a year ago and the first quarter?

I gave you that number and let me find it in my prepared remarks, so this is not coming back for me 47%.

Okay. That's, I must have missed that. I was wondering why wasn't down more?

No, [when] that's a bad number. I don't have that number right in front of me, wait just a moment we'll get it to you.

Okay. And then the other question was you said a 36 weeks inventory at the end of the first quarter and I believe you a 35 weeks at the end of the first quarter last year. I'm surprised that went up too. I would have expected weeks inventory to start to fall, given that you are producing so much less then retail. Why is that continuing to arise and where do you want that to be?

Just the way the math works, it's continued to rise because of rate of decline at retail. So even though we are taking production down dramatically, retail has been falling even faster or even larger. Actually I'm really comfortable with where we are right now. The real question then is going to be how much we sell out of dealer inventory in this selling season, because we didn't want the number to be lower. But Joe we're coming to a fulcrum point here at some point as we watch the economy. We have so few units we're driving towards so few units in the dealer pipeline and our production levels are so low, if the market were to turn flat we are going to have to turn on the spigot perhaps harder than we ever turned it on in this company.

Right.

It's going to be a high-class problem.

Sure.

But that's what we're driving towards. So I'm actually quite comfortable with where we are on trailing 12 months sales very comfortable. And I'm also quite comfortable we are going to be driving that down, as we go on through the year on a comparable basis.

Throughout the year

Yes.

Yeah, okay.

Outstanding's down.

Yeah, the outstandings were down at 27% year-over-year.

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

No, that's all of our dealer's outstandings.

Okay. Minus 27% year-over-year?

Yes.

Our next question comes from Tim Conder, Wells Fargo. Your line is open.

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

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

Okay.

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

Okay. And then, Dusty just the clarification also, you said the incremental savings this year is that 140 or 240 you mentioned?

240.

240.

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

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

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

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

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

Okay. So everything shifting to the September model year?

Yes.

Our next question comes from Jason Byun, Sigma Capital. Your line is open.

Just going back to some potential of balance sheet exposure, you guys did mention that you had basically $6 million of boats coming back to you guys from dealer bankruptcies. I'm just curious in terms of I guess seasonality going forward, provided that this is a difficult selling season in the spring. Just curious as to where do you think that could potentially ramp up, if you guys have any sense for what that potential liability could be? And also if you got hit on any of your boat party of vendor guarantees which are separate from your inventory repurchase guarantees?

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

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

Here's the way I'd answer first is no. And the reason it's no, Jason, is, we are going into the selling season in most regions in the United States and this is the time when dealers are able to generate cash flow, because they are fundamentally selling more products and their selling in the warm weather months, than they do in the cold weather months. So I think here for the next pick a time, but let's call it spring and summer, dealers will be working hard to generate cash. And therefore we are not just seeing any significant pick up in dealer failures. I think the next crucial point will be when the selling season ends and the cash flow that derives from a good selling effort and activity dries up, then that's when we'll be looking at the next round of dealer exiting.

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

Well that is something of a moving target, because it depends upon where the discount rate and the asset values in our various plans end up as of 1/1/2010. We know that we have a minimum obligation of probably about $20 million to pay in '010. And then the extent to which we need to go beyond that in order to meet minimum funding requirements is going to be a function of where the assets are and where the discount rate is at beginning or the end of this year. And that of course is anyone's guess.

Okay and as of today, do you have any sense for whether you guys will be able to see if anymore tax refunds?

Well. There will be the potential of small refunds as we continue to work through tax years with the IRS. The only large potential and it was actually with subject to the question on the call at the end of the fourth quarter. The only large potential for a refund comes with the possibility of what is now two year carry back of losses been carried back five years. And, we are not clearly worrying about what the Congress is going to do, but given the substantial short falls and the Congress being able to fund what it's already done. The likelihood of the five year carry back it's certainly gotten less in the three months since we were together on the phone last and we would hope that it would happen. We will lend our voice to it happening because we think it's a responsible thing dealing with lot of the economic situation, but we are not planning on it happen.

And do you have any sense for what that could be? What the incremental refund would be if you're carried back five years?

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

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

No. no, that has, they are not lend.

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

600 million there about.

Uncertainty out of the outstanding's at BAC it's somewhat less than 600.

We have a question from Matt Vitorioso from Barclays Capital. Your line is open.

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

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

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

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

Okay.

Without further borrowings.

Okay, great. Somewhat of a high level question, as I went through your credit agreement it talked about the admin agent having some sort of discretion over regardless to what the borrowing base calculation as they have. He has some discretion over dictating what that borrowing base would look like. How would you characterize your relationship with the banks and just their ability to understand what's going on in your business right now?

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

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

It would be dealer failures and then dealer failures would be caused their inability to meet their payment obligations to whoever, who was providing their floor-plan lending. And then that will be driven by their inability to sell products. And so, now we'll go back to what are we doing with them. We are in contact with the entire dealer network and in many cases, we work with them on a customer by customer basis to insure as best we both can, taking complete sales for customers who have afford. But it will ultimately come down back to inability of sale product, which will require the dealers and then to find other sources to go take care of floor-plan obligations to not be able to come up with it.

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

It changes people come on and go off as we go for a week by week basis with them. And we focus primarily on a week by week basis and with those dealers who have a little over older inventory. So they can help them move it.

Okay. Thanks.

Hey Matt, I do want to say some thing about the revolving credit amendment if I may?

Sure.

We are pretty open, very open about how it works, borrowing availability et cetera, but I want to stress. No body in this company who believes where we can go for our opinion of that agreement. We have said we're going to run this place out of our own pocket and that's what we are doing.

There's a question from Hayley Wolf, Rochdale Securities. Your line is open.

First when you talk of, you gave a comment on outlook about 2009 earnings versus 2008. Can you just tell me what base you're working off of in 2008? As I have about six different reported and operating numbers for '08. So, it'd be helpful to know what you're using?

This would have been in my comments, right?

It's actually in the news release as well.

What outlook comment are you referring to Hayley? Maybe that will help us.

In the press release, although 2009 earnings will be down significantly compared with 2008 before restructuring charges, I'm just trying to get a sense of what your basis that you are using, as an operating earnings number your definition?

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

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

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

Okay. I'm going to follow up with Bruce on that.

When you're looking at '08 GAAP, you've obviously got to take out the goodwill and the trade name.

Right.

Factors and you should probably strip out yours, these special tax effects.

All right, but I'm leaving in restructuring charges.

Yes.

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

There will be incremental cost savings in 2010. Yes.

Can you share a number?

I prefer not to at this moment, Hayley.

Okay.

The reason I'm not, I know what we've done to-date that will fairly prove in 2010. But we have also got several things additional items that we consider on a fairly regular basis with our operating units [in here] corporate and we will continue to work on and evaluate those.

Okay. And the type of crush you had on pricing to move out inventory in the first quarter. Order of magnitude, is it the same in the quarter and can you characterize your mix of inventory in terms of both aged boats current inventory to give us a sense of when you work through old inventory and when hopefully the industry starts to work through model year '08?

I'll try to give you a sense of that in my prepared comments, where I'm not looking for them. I'd try to give Hayley the currents are down very dramatically and then the inventory aged over a year grew by 8%. So to give you a number now, our inventory about at the end of Q1 versus the end of the year less than 12 months in age was down 13% in year-over-year was down 47%. But, we did experience a growth of 8% in inventory age greater than 12 months in the first quarter compared to the fourth quarter.

Okay. Sorry about that.

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

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

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

Yes.

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

Whenever we begin to get a sense of where we think the industry is going to fall to and then our own judgment on top of that Hayley as the rate of improvements in it. We are not assuming the markets are going to come back to 2005 levels. And we are assuming that dealers are going to want and needed to carry less inventory and we are building our working mile around that, so that we can have great margins in that sort of scenario.

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

No they're close to yes, would have been the correct answer. Yes.

Okay and then the last question, clearly little color on international markets by geography and help me understand the lag and when the demand in that market dropped off these with US market and what that dynamic looks like in terms of recovery?

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

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

Channel inventory is not a lot different than it is here. And we are planning that those markets will go through recovery and commensurate with US markets. Hayley we've become now, if you look at boat engines and life fitness. All have more than 40% of their sales outside of the United States. Big businesses have become very global and we began to think now of performance, demand and how we have to make product and approach margin on a very global basis. And that's been a big change in the way we think of ourselves over the past several years. We've got no more questions apparently and we're able to look on the computer here and see who's on line, so there is nobody in queue. So with that, I'll thank each of you for joining us on the call. I apologize for the length and went significantly longer than most calls. We appreciate the questions, they're all good. And we look forward to seeing and talking to you as we go forward. Thank you.

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