Good morning, and welcome to Brunswick Corporation's 2009 second quarter earnings conference call. All participants will be in a listen-only mode until the question-and-answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Bruce Byots, Vice President, Corporate and Investor Relations. Thank you, 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 would like to remind everyone that during this call, our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For the details on the factors to consider, please refer to our recent SEC filing and today's press release. All of these documents are available on our Web site at Brunswick.com. I would now like to turn the call over to Dusty.

Thank you, Bruce. And good morning, everyone. By now, I hope you've had the opportunity to review our second quarter earnings release. Our results continue to reflect the difficult economic conditions in which we're operating. We've reported a net loss in the quarter of $1.95 per share on a sales decline of 52%. The net loss includes $0.40 per share of restructuring charges for activities that we previously announced and implemented during the quarter. The loss also includes a $0.05 per share of non-cash benefits from special tax items that Peter will discuss in his remarks. As we stated on recent earnings calls, we're operating in an extremely harsh economic environment. Overall, retail demand in the boat industry has been down in the mid-30% range over the last three quarters including the quarter just ended. Demand on our recreational businesses, fitness and bowling and billiards has also weakened, reflecting the broad reach of the weak economy. Productions in marine demand have been within the range of our expectations and reflect the assumptions we use to develop our liquidity and inventory management and pipeline reduction strategy as well as our cost reduction program. We're very pleased with the progress we've made in these areas, areas that are fundamental to our financial health and Brunswick emerging from this downturn as a stronger company. Our progress has been founded on the hard work and sacrifices of many. Furloughs, staff reductions, and increased pressures and demand due to this prolonged and difficult period have touched all Brunswick employees. Throughout, they've remained resilient, flexible, and committed to quality and customer service as demonstrated by the awards and accolades our products continue to receive. I would also like to thank once again and commend our dealers for the aggressive inventory management and resiliency they've demonstrated over…

Thanks very much, Dusty. I'd like to begin with a brief description of the $0.35 per share of restructuring and special tax items in the quarterly report. Restructuring, exit and impairment charges were $35.5 million or $0.40 per share. This amount reflects charges for our continuing actions to realign our manufacturing footprint and associated workforce reductions. In addition, we incurred non-cash charges for impairments of various underutilized assets. The $0.05 per share non-cash special tax benefit is primarily caused by the reversal as required by GAAP of certain tax valuation allowances. To put it as simply as I can, while our Company is in a loss position and we are reporting gains in other comprehensive income items on our balance sheet, such as pension experience and foreign currency translation, these gains lower our related deferred tax assets. To match reduction in our deferred tax assets, we have to reverse our previously recorded valuation allowance for these items and the accounting rules require us to record this reversal as a tax benefit in the P&L. Since we recorded the expense related to the establishment of the tax valuation reserve as a special tax item, we are recording this small reversal in a similar manner. Moving from the financials to the business, Dusty has explained that we expect an increase in the rate of dealer failures and exits in the second half of this year. Our experience over the past 18 months suggest that we can manage through this activity without major business or financial disruption. During the past 18 months of market weakness, dealers comprising about 16% of our boat group sales have failed voluntarily closed their doors. This percentage includes the Olympic bankruptcy, previously our second largest dealer. Our expense associated with shifting the inventory of these dealers to stronger…

Thanks, Peter. We've already accomplished much this year. Our cash position is very healthy at $461 million, our dealer pipeline is lower by thousands of units as well as on a weeks on hand basis compared to last year. The core of our dealer network remains strong, and we are signing new dealers in open markets. And our fixed costs are significantly and permanently lower. These accomplishments have come with real detriment to our sales and earnings. We're positioned to emerge from the global recession healthy on an absolute basis and remarkably so on relative basis in the four segments in which we operate. The remainder of this year will be difficult from a sales and earnings perspective as we continue to execute our strategies over the second half. However, by staying focused on these strategies, we plan to exit 2009 with cash in excess of $400 million, dealer pipelines reduced on a weeks on hand basis to levels not seen in the past 10 years and fixed cost reductions for activities already announced exceeding $260 million in 2009 and $400 million in 2008 and 2009 combined. Accomplishing our goals over the remainder of this year will position us to take advantage of flat and in improving market conditions when those occur. Our pipeline reductions will result in a number of boats in the pipeline being so low that restocking at our dealers may need to occur on a one for one basis as wholesale shipments match retail volumes over a 12-month period. Because wholesale shipments have been much lower than retail volumes and production volumes have been even lower than wholesale shipments. We will produce and ship significantly more product in future periods resulting in improved sales dollars. Along with these improved sales, the fixed cost reductions we're achieving…

(Operator instructions). Our first question comes from Ed Aaron with RBC Capital Markets. Sir, your line is open.

Thanks. Good morning, guys.

Good morning, Ed.

Dusty, I was interested in your comment about dealer pipeline inventories expected to be at 10-year lows after the end of this year, can you just remind us what that 10-year low number is historically?

Ed, that's not a number I'm prepared to disclose. But it's obviously quite low.

Okay. And (inaudible) I've been trying to figure out is, historically, the right level of inventory has been somewhere in the, I guess the low-to-mid 20s, that's kind of a good number for the dealer channel to be, but with everything going on there today, it seems like that right number might be lower going forward. And just was wondering if you have, what do you consider to be an appropriate reach the inventory target for this business, assuming really no change in the dealer floor plan, financing environment or really no change in demand from here.

Okay, thanks for the clarity there. Peter, why were the SG&A dollars up sequentially from Q1 to Q2?

Well, let me say they're certainly down compared to the second quarter of '08, and so that's the first point I think is needs to be made. The second point is that there are larger restructuring dollars in there and bad debt reserves, which we call down in the cash flow statement.

Okay, thanks. And then last question, perhaps I may have missed it during your prepared remarks. You gave a number in there about what you shipped versus retail demand. It was a 13% number. I didn't cash exactly what that was.

That actually was in our fiberglass businesses, Ed. We produced 13% of what the dealers actually retailed in terms of even numbers. The way to think about is, our sales were down in the 70% range -- let's put it this way. Retail was down across the industry in the low 30s. Our shipments at wholesale were down 60%. Our production levels were down in excess of 80%. Does that help?

It does. Pretty staggering comparison, but thanks.

Oh, yes, it's (inaudible). That's obviously what's happening to our sales and earnings, but that's what's positioning us to come out of this, Ed.

Understood. Thank you.

You're welcome.

Our next question comes from Hayley Wolff with Rochdale Research. Ma'am, you may ask your question.

Hi, guys.

Hi, Haley.

Just a couple of questions. Just trying to drill down on what Ed was asking. Can you give us some context for the 11,600 units in the pipeline, maybe percent versus historical average? Because when you think about it on a trailing sales basis, it almost becomes a meaningless number as the industry has shrunk so much over the past 12 months. So just some context. And then second question, can you give an update on the cost savings that you've generated thus far, how we think about it feathering into 2009 and 2010? And then lastly, can you clarify for me, I always have this issue, you talked about the dealer inventories coming down, and what your shipments have to look like in terms of restocking. And did you say it means your sales have to go up? I was kind of unclear on that.

Okay. I'm going to answer the first and third questions and I'll let Peter take the second one. First, Hayley, the 11,600 units for what the pipeline was reduced by, not what's in the pipeline and that was a 38% reduction, so you can do the math and figure out what's in the pipeline. And the way we actually look at that was the one thing we do disclose is what that is in a weeks basis in terms of trailing 12-month retail. We also look at it on what we think it is on forward-looking retail, as we make our own views about what the market is going to be. Because we're taking it even lower in the second half, means we've got a great start, we've turned the corner, this has been very hard work now over about six quarters to finally have this breakthrough, but we want to go much, much lower, Hayley. Now, then if I jump to the third question, and that may be confusing in the way I presented it. What I'm trying to say is by the time we finish this, this year, we're not going to be making many boats, we're not going to be selling much at wholesale, and we’ll not take the pain for the remainder of the year. We will have our dealer inventory so low that once the market flattens or begins to improve or even has a lower rate of decline, we got to make a lot more boats and sell them at a wholesale into the dealer network, and that's when we will begin to see the increase in volume and sales.

Okay.

Is that helpful? I hope.

Yes.

And then, Hayley, in terms of your question about cost savings, the $260 million of cost savings that we expect to achieve that are incremental to the 140 million in '07, will feather in throughout this year, and so we will exit this year with savings of 260 million in excess of when we began the year, 400 million is a number, of course, for the two year period when we started this journey in real energy in '07. The benefits of those numbers you see come in through SG&A, where despite the fact that pension is up considerably by the amounts we have given, the SG&A numbers are down despite the fact that bad debt is up by the amounts that we've explained, SG&A is down and reductions also come in ways that are harder to see through cost of sales.

And in 2010, there should be incremental cost savings?

Yes, because 2010 will receive the full benefit of the 260 million rather than '09, which is receiving the benefit as the reductions are incrementally rolled in.

And Hayley, towards the end of my prepared remarks, we're going to do more and we're just not prepared to tell people how much that is or the way it will evolve. So we're fundamentally reaching view that the market is going to be a slowly recovering market. It's not going to recover at a level it did in the past, and we're going to continue that everything we have to do to make ourselves nicely profitable with very nice margins in a much slower market.

Okay. Great. Thank you.

Our next question comes from Tim Conder with Wells Fargo. Sir, your line is open.

Thank you. Dusty, again maybe this is along the line of the previous two questions here. I don't know if it's an answerable question at this point, but what would you guesstimate the new potential industry cycle range of unit sales could be?

Let me tell you what our planning is, which is a lot different than saying what we think the market will be. If in round numbers, Tim and we all can debate in the industry what numbers we're looking at, so just to put a peg down, let's say this year is 130,000 units, 135,000 units, our planning is that we've got to be nicely profitable at 150,000 units. And that we've got to be really profitable at 170, and we probably shouldn't plan on the market being over 200. That's compared to, Tim, 310 in the 2007 timeframe.

Okay. That helps, sir. Thank you. Back to the channel inventory question regarding the aged inventories, you mentioned it was down, the percentage that you quantified there. But if we look at it, Dusty, as a percent that is over 12 months old, that is currently in the channel, what is that percentage now versus first quarter versus a year ago? And do you have any guesstimate where that's going to be at year-end?

Right now, the inventory is about half current and half over 12. But we have made more reductions in the over 12 and Peter and I are looking at --

The percentage of age inventory in before weakness in the markets occurred, percentage of age inventory was lower than the approximately 50/50 that we are experiencing now, but I think the point is, as we've said, we made good progress in reducing aged inventory in the last quarter. We're going to continue in pursuing quarters, and the main reason why it seems at a relatively high, 50/50, is that we had such a low number, less than 12 months inventory on the dealers floors at the present time and the less than 12 months that is on the dealers floor is selling pretty well.

When we give that percentage, I want to reiterate what Peter said. We have been wholesaling so little product that product sitting in the field as it reaches a higher percentage. So that bodes very well then, Tim, for the future, because we have so little product sitting in the network that's co-current. We're going to need to accelerate quickly when this thing turns.

Okay. And, gentlemen, goals for year-end, as far as that mix, and then along that line, it sounds like, if I'm reading between the lines correctly, sometime in early 2010, the first half of '10, you're actually planning on the production what will definitely have to be up on a year-over-year basis?

Well, I can give you one number that may not mean a lot to you, but it's goal setting. We said we want our non-current at end of the year to have been down more than 50% versus where we ended the year and we're on track to get that. Yes, we're going to have to increase production next year on almost any market condition, the question we're going to see how much, how fast, when we gear it up.

And then on the restructuring, you stated that of the 90 million to 100 million for this year that contemplates additional restructuring yet to be announced. By year-end, should we have the majority of material restructurings put on the table, whether that be Mercury or other potential boat areas?

Well, just to clarify, and then perhaps Dusty will want to answer the second part of the question, the 90 million relates to restructuring costs that we currently estimate for projects that are either underway, we absolutely know that we're going to do and are detailed out and there is a business plan for. Now, in possible addition to that….

There will be more, Tim, as we go forward. As we keep thinking of what our cost position really needs to be and our goals that I've outlined for you earlier or maybe Hayley, I forget now, I think in your question, Tim, profitability at certain levels -- Tim, we're very focused on the fact that the industry is going to be smaller, it's going to come back slower, and we want to be best prepared as we can be for that eventuality, and yes, there will be some additional restructuring.

Okay. Thank you, gentlemen. I'll get back in queue.

Our next question comes from Richard Whiting with Broadview Advisors. Sir, your line is open for your question.

Thank you. When we talk about changes in the number of units shipped, like fiber glass units, it tends to be an apples to apples type conversation, but I'm wondering if you're seeing, from either retail or dealer orders, reduction in factory installed content or maybe size of engines, so is the value of a unit in '09 or conceivably in '010 different measurably different than it might have been six quarters ago?

The value on a per unit basis has been in this last quarter, it declined slightly. And in most of our previous quarters, it remained about the same, Richard.

Thank you.

(Operator instructions). Eric Engler with D.E. Shaw, your line is open.

Hi, guys. Just wondering what you're assuming for the rest of the year in terms of dealer defaults.

Hi, guys. Well, we've increased our reserve slightly and I think Peter gave the number we spent. Actual cost this year to date, have been 8 million cash cost. We're planning for the remainder of the year that it could be at that number or slightly higher, but not a material number.

Okay. Thanks.

You bet.

Tim Conder, your line is open for your question.

Thank you. Could you, Peter, just maybe tell us what Forex impact on sales, EBIT, EPS, in the quarter and year-to-date? I apologize if I missed that.

No, you didn't miss it. Actually I guess in more normal times, the foreign currency impact would have been a more significant or material factor in our earnings in these more turbulent times it seems less so. The second quarter, Tim, sales were down about $40 million or 3% as a result of the strengthening of the dollar compared to a year ago. Operating earnings affected that was about 7 million. Although it is 7 million and although it's 3% of sales, it does (inaudible) significance to some of the other more fundamental things that are going on in the Marine market at the current time. We continue to keep an eye on it, we continue to do some plain vanilla modest hedging to smooth and mitigate the effects of currency, but in general, it is really not a significant effect on our business currently.

Okay. And then along the same lines, Peter, maybe, I don't know, and for competitive reasons if you want to say this or not, but the promos that you're doing this year, year-to-date or what you expect for the year, just sort of have a benchmark as to see what that could come off as things normalize?

I'm going to let the boss answer this one.

Okay.

That's because I'll definitely get it wrong compared to Peter's analysis. We think discounting for the remainder of the year, and I have touched that in the prepared remarks, Tim, is going to continue to be a significant piece of our business, and are to remain at levels consistent with what we've seen in the last quarter. I'm not really giving you that number, but in round numbers, it's slightly more than twice what we would have seen in normal circumstances. Once we get through this year, the question is going to be, as we go through the fall, with how many other builders or dealers will fail and how much of their inventory will remain unsold as we go into the selling season, and if there's a lot of it that discounting could still be a factor next year, but this is a very much we're going to have to wait and see.

Okay. Thank you, guys again.

You're welcome, Tim.

Our next question comes from Ed Aaron with RBC Capital Markets. Your line is open for your question.

Great, thanks. Just quick follow-up. Just trying to think big picture about what your revenue base would look like if we sort of get into a steady state where demand is 150,000 units, there's no real changes happening in the inventory, destocking or restocking. Is $4 billion like roughly is a round number, a decent revenue opportunity for your company as a whole….

You're right in the ballpark, Ed.

Okay. Thank you.

You're welcome.

Our next question comes from James Hardiman with FTN Equity Capital Markets.

Good morning. And I apologize if you already answered this. I missed the very beginning of the call, but Marine Max obviously your biggest customer had a bit of good news on their call earlier this morning saying that July sales were actually comping positive versus last year, there are a lot of caveat around that, clearly they're being more promotional, but can you talk a little bit about if that's a Marine Max specific phenomenon, and if you're seeing that throughout the industry and what your thoughts are on that?

There's not an answer we can give throughout the industry. Even before July, we've had dealers, certain regions, certain brands, certain types of boats, that are up, down on a comp basis versus the previous year in any given month, and we are just absolutely tickled with that at line Max has aggressive units and the way they're moving product right now. They're doing nice job.

But you do think it's more of an issue of them stepping up their promotions than any change in demand, at least based on what you're seeing?

Well, I really don't know. I know they stepped up their promotions, but as we look around the whole industry, there's a fair number of boats getting sold, in my prepared remarks, I walked through sequentially, it sort of goes the last couple of quarters the industry was down in the 40s, low 40s. This quarter, it's down low 30s, and in the second quarter, and there's a lot of money moving boats during that time and there's a lot of money available in July moving boats, but I won't be surprised if it's a bit better. Still going to be down, bit better.

Excellent. Thanks, guys.

You're welcome. Well, thank you for all the questions. At this time, we're going to sign off. We appreciate, first, the quality of the questions, everyone's interest in our Company and listening us to patter on for a long time, but we felt there was a lot we needed to set up. We're very comfortable with where we are. Thank you.

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