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

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

Thank you Bruce and good morning everyone. By now, all of you had the opportunity to review our third quarter earnings release. It was last year at this time that we discussed with you the beginning of what's turned out to be a very significant drop-off in marine market demand. The three succeeding quarter our results have reflected the harsh realities of the market that is about to record its lowest level of demand in at least five decades. We reported a net loss in the quarter of a $1.29 per share on a sales decline of 36%. The net loss includes $0.32 per share restructuring charges and $0.24 per share of benefits from special tax items. While we can't control the economy and its impact on the industry segments in which we participate, we must execute flawlessly against our goal. In my brief comment this morning demonstrate that our organization is executing very well. We've made remarkable strides in improving our liquidity, bringing our pipelines to extremely low levels and making significant reductions and changes through our cost structure. Let me begin or to review of some preliminary third quarter marine industry data. Fiberglass, sterndrive, inboard boats unit demand fell by 21%. This compares to decline of 37% in the second quarter and 39% in the third quarter of 2008. Outboard fiberglass boat retail user demand fell by 17% in the third quarter of 2009. This compares to a decline of 32% in the previous quarter and 32% in the third quarter of 2008. Aluminum product demand fell 21% in the quarter, this compares to a decline of 29% in the previous quarter and 20% in the third quarter of 2008. Although today's overall macro economic environment feels much better than last year at this time. The buyers of…

Thanks very much Dusty. I'd like to begin with an overview of certain non-operating items included in our third quarter P&L. Let me start with restructuring, exit and impairment charges which were 28.8 million or $0.32 per share in third quarter. This amount reflects charges for our continuing actions to realign our manufacturing footprint and associated workforce reductions, for certain non-cash charges for impairments of various under utilized assets. Third quarter restructuring charges include 14.1 million associated with our decision to move our Mercury operation located in Stillwater, Oklahoma to Fond du Lac, Wisconsin, interest expense increased by approximately 11 million versus the prior year quarter. This increase was primarily caused by a higher average interest rate associated with our current debt portfolio, as well as higher debt balances. I will comment a few moments about the debt refinancing activities that occurred in Q3, which caused some of this increase. Based on our debt portfolio, as it stands today our estimate for interest expense for the fourth quarter is approximately $25 million. Now as a quick note regarding the fourth quarter, I want to remind you the 81 million of full adjustment that we recorded in the fourth quarter of 2008, this amount, as you may recall represented the reversal of variable compensation and benefit approvals that we have been recording in each of our operating segments during the first three quarters of 2008. We currently anticipate paying vertical compensation in 2010 based on 2009 performance. But these programs are discretionary and final decisions announced will not be made until the fourth quarter. Now let's turn to review of our cash flow. During the quarter, the company issued 350 million of senior secured notes during 2016. Our primary objective in raising this debt was to retire some of our near…

Thanks Peter. As I mentioned in my opening remarks, the accomplishment of our employees against our goals in these economic conditions thus far in 2009 have been simply outstanding. Improving our liquidity 740 million, reducing the dealer inventory to 21 weeks of supply and being on track to reduce fixed cost by approximately 260 million in 2009 versus 2008 and 420 million as compared to 2007. However, global economic data in Marine Market metrics continue to be mixed at best. In the overall outlook and our view will remain uncertain. In addition, oversupply conditions in above marketplace we'll continue for the next few quarters, and will have an impact on the overall pricing environment. We believe current indicators point was slow recovery for the economy over the next few years. For the remainder of 2009 and for 2010, our operating financial strategy will continue to be focused on maintaining strong liquidity taking all reasonable actions to protect our dealer network in positioning ourselves to take advantage of improvement in economic and marine market conditions as they occur. Much work remains to be done and our entire organization is focused on continued successful execution of our strategy. We're still on the process and been pulling our completing our 2010 plan. However, we've established certain assumptions, targets and corresponding action items. I'll share a few of them with you today. First, as we enter 2010, the majority of our both in engine manufacturing facilities will ramp up production. This is primarily the result of dealer inventories being at historically low levels, which means we will need to increase our wholesale shipments of both in the engines to meet retail demand. Increased production combined with our wholesale shipments should provide improved revenue and reduced losses throughout 2010. Second, the cash generated from improving…

Thank you very much. (Operator Instructions) James Hardiman with FTN Equity Capital Markets, your line is open.

Good morning.

Good morning, James.

Couple of questions for you guys and just to make sure I'm 100% clear here. Obviously 21 weeks of inventories is unbelievable improvement versus what we saw last year and great accomplishment. So obviously from a seasonal perspective, you're still going to want to sell down both and tend into the end of the year. But it sounds like you're saying as early as the first quarter you're going to look to shift inline with what you're seeing going out of retail, is that pretty accurate?

That's pretty accurate.

Okay. And then just in terms of your production, obviously you've scaled back pretty meaningfully and once you start to ship inline with the retail, sales should go up predominantly. Where you stand today in terms of how quickly you could get your production back up, in other words, what from a boat segment standpoint can we expect to see given sort of reasonable levels of retail sales next year and how quickly can ramp back up?

James, we believe if the market were to go flat next year, the amount we would have the increased production would be 85% plus and our judgment is we would likely not be able to meet all market demand, if the market were to go flat. And the reason we wouldn't be able to is, we're going to start back up matching production to sales and encouraging our dealers to match orders with as best they can, consumer sales or for smaller boats are stocking that they're absolutely comfortable that they can move. And then if the market were to begin to full hard, it will be hard for us to match flat market next year. And now going forward, as we gear back up from bring people back on in the facilities we have, we're quite comfortable that we can serve a marine market and using U.S. units as a proxy for them, the global marine market. We can serve a market that's in excess of 200,000 units even with all of the footprint reductions we've made and cost take out we've achieved.

Okay. So 200,000 units for the industry is based on today's manufacturing footprint, you could accommodate and much beyond that you have to obviously add some capacity on to some--?

That's at, I think it maybe in 2010 something like that in revenue was, but that's where we think we are.

Okay. But assuming no production limitations, your boat sales would be up 85%, given where you actually stand, do you think it will be half of that 85% and most of that 85% are we going to close to that number or--?

So remember I said if the market were flat per units in order to serve that market because we got no pipelines though, even if we kept the pipeline at the same level for that produced that. The real unknown risk is what the market is going to be. So, in order for us to start talking about the increase required, that I make a market prediction James that's not really smart enough for value.

Yeah, me neither, fair enough. What can you tell us about what's going on internationally, you gave us some great numbers in terms of some of the domestic numbers, are big international markets where you guys did business, are those trending better than U.S. or worst than U.S.?

Equal to the U.S.

Okay.

Not a lot better, not a lot worst. And we're up to 42, 43% of Marine sales are outside the U.S., where we really track those markets closely. In the end as you think about those markets, they're very different. And we think they come down as Europe, Middle East and Africa as one, Latin America as another, Asia Pacific, Australia as another. And we look at all of those together, they look just about like the U.S. market.

Okay, great. And then just last question. To the extent that you can, can you talk a little bit about your cost structure sticked versus variable, where you stand today versus a year ago? And where you expect that to go from here, especially if you consolidate your engine manufacturing?

It's Peter, James. We very generally said that we headed into this significant recession slowdown, with an approximate fixed to variable ratio of 25, 75. Now as we've gone into the significant reductions in volume that would seem that ratio has probably disadvantaged itself somewhat to move up in the 25% fixed to somewhat more than that, but not much more than that. And we see, as the volumes increase in 2010 to 2011, the markets return, not only returning to the 25, 75, but hopefully improving on that, as a result of over fixed cost reductions that we have made in the past two years.

Great. Thanks a lot guys.

Thank you, James.

Our next question comes from Ed Aaron with RBC Capital Markets.

Thanks. Good morning everybody.

Hi Ed.

So, it's great to see those inventory numbers in the field down so low. As we lay out the map and that inventory going out in the next year, it seems like there, you're actually building out potential for us slide shortages. And Dusty, also you could talk a little bit about what systems or process that you're putting in place to make sure that you get the right boats in the right place at the right time next year?

First, it's a great question. We're at one-on-one with the dealer network working on three things. The first thing we're doing and we've done it frankly better with some brands and others that we're clearly after it across the our whole dealer network, is a rethinking with our dealers, why do we really need to have in stock in order to attract consumers and meet fundamental demand. And that's why Ed, we've been pushing this pipeline down so low, and while we're beginning to get comfortable even though they're at historical lows in terms of numbers. So we're probably going to be able to live there, we may even work on it little more next year as we plan to do. So that's sort of discussion one. Discussion two is a real analysis of what's going on in a particular boat dealers market, with a lot of dealer dislocation going on in a way, both we and dealers typically thought of individual markets, it may need to be rethought after looking at that dislocation, so that's number two. And then number three, is we want to be very realistic with the dealer network to say. Don't take any thing more than you got, so number one or number two. And let me just focus on that as larger boats are on a really for driving our organization to be make demand, not made to stock. And we and the dealers all got to get comfortable, if that can get done and we're comfortable we can, but it is going to require lots of discussion. And then on smaller products obviously we can't make all of that to order and we are going to have to meet certain stocking requirements with the dealers and again that's going to be a market-by-market…

Thanks for the color there. And then I was also looking if you may be share any insight you might have in terms of any price elasticity analysis that you guys might have done internally, the reason I ask you that it's a bit difficult for us to understand what's the 135,000 of units of demand this year would look like if not for just discounting? And obviously discounting is going to go away which is significantly over the next few quarters as the inventory come in line, so how do you--, assuming you're not making any big changes about economic growth assumptions, how do you think about with that 135 or so close to kind a more normal pricing environment?

Honestly, we don't know. We're worried about a lot. We've run a lot of models, we talked about a lot. So, let me take one thing that means got to happen is as an industry and we as an industry leader have got to begin the control the pricing of those. Because in this industry we lived very much with let's say, add a bunch of price on and then if it doesn't sell, we'll discount it. So Ed, where this thing has to go is we've got to begin to give to the consumer. Last the lower pricing and that were to offset for some of the discounting that has to occur and that already helped with some of the elasticity questions that we're having in our own minds.

Hey thanks. I have a couple more, but I'll jump back in the queue.

Thank you.

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

Good evening, thanks gentlemen for the color so far. Dusty, just to clarify couple of your previous comments, if the market is going to flat in units, you would need to produce 85% plus. So, but again, you said you can't, you couldn't get there. So, you were saying the maximum increase you could have was still in that 50, 60% area on unit basis year-over-year?

Well, you guys are working very hard to predict.

Predict here and predict our sales.

We can certainly do that.

Okay. But that if theoretically, if you could, if you have to produce 85% plus is what you're saying and the market was flat, you need the balance out of inventory, if you could meet that 85%, is that what you're saying?

No. What we're saying is that if we kept pipeline flat, so that we will ended the year 2010 at the same levels we ended 2009. And then if retail were flat, versus our wholesale sales this year, it will be almost nothing in the backyard.

Right.

Then we have to come up to that 85% level.

Okay, okay. And then--.

And Tim, I want to keep saying that if retail is flat and lord knows what it's going to be, but frankly we're not sure it's going to be flat next year.

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

Down.

Okay. Is it fair to say that, I mean obviously you're in much better shape with your channel inventories than the majority of your competitors, would it be fair to say that you guys couldn't actually loose market share this year or given that you won't be discounting, I mean intent, given you only discounting as much as your competitors, but obviously I would think you'd be very well-positioned to gain share thereafter given your cost structure and so forth, are we off based with that type of thinking?

It's a great question. And warn that frankly I've pondered well in other night many times. Here is going to be all the mix that goes in. The other stuffs sending out there, but I think we're not going to be making, there going to be a lot of manufactures, they're not going to be a making a lot of product to retail because their dealers aren't going to be able to take it right now. So that's issue number one. And for people who are making products, I think we see across the industry a reduction in the model count with many brands because everybody is wanting to be more efficient coming out. And we're like that.

Okay.

I think certainly as you look at us and you look at Brunswick market share, if everything stays even we'll be down. At all present got now is certain brand.

Right.

Now, if you look at brand market share, that maybe that may begin to be a different picture. And then lastly the ability of both our sales and our competitors to bring out new product is obviously going to have an impact on the market share. And we got a fair bit of new products down the way in 2010.

Okay.

So, I'll put all that together. I don't know.

Okay.

From a mix standpoint, Dusty, would you say that industry-wise and maybe you also your comments that on larger boats yourselves in the industry, yourselves for sure in the industry may also follow you to produce more on and as ordered basis rather than for inventory. So, would that imply that one of the units may recover the dollar mix would most probably skew down a little bit for yourself and the industry over the next year or two?

I want to separate ourselves from the industry a bit. My comments about boats, over a 150, they are being lots of them and then apply that.

Okay.

We really got our skinny. So, I'm not sure we're going to be following the industry in terms of index at all Tim.

Okay, okay. Well I'll hop back in queue with any other questions or so.

Our next question comes from Hayley Wolff from Rochdale Securities.

Hi guys.

Hi Hayley.

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

We can but we won't. In all seriousness, we've a really good idea to say we're going to be in material. I think it's premature for us to start talking about them, that only because much is going to depend upon but what happens in the market, the volume we begin to push through, timing et cetera. And we are deep into the work of the transition. And I want to give our marked realization plenty of time as I work through that. In terms of the help we're getting from city, county and state folks, I think it's more appropriate that they talk about it and ourselves and when they are ready to begin that discussion, we'll be happy to be standing beside them. And I think that will be coming up in a relatively near future.

Okay, fair enough. Next question, the Florida big debt and you're carrying substantial amount of cash, because you didn't get, you didn't tender as many bonds as you thought, what opportunities are there in the future to repay debt and then how do we think about working capital as we go into 2010 given that you start to ramp-up production?

Hayley, we will deal with the remaining use of proceeds from our data offering on an opportunistic basis that we have no strategic mandates that we've given to ourselves, we have no timing mandates. We will do what's right for the capital structure and what's right for the P&L and what's right for our cash flows as the opportunities rise. In terms of second question was for working capital of 2010. We're in very early stages of designing our 2010 plans. We do not expect however that there will be a significant use of cash in working capital in 2010 as we look at our planning now.

Okay. And if the government have extended tax loss carry back period as they're discussing, what type of cash could that represent for you?

That's very much a moving target Hayley, for two reasons. First, whether they extended it at all, second is in what form. On virtually now on the basis, there were changes to perform this NOL provision. And the benefits to us in terms of potential tax refunds next year range from zero that doesn't pass to very significant number that could be more than $70 million, so anything in between. So, it's very, very much up in the air.

Okay.

Please call your congress men and senator, help them think about this price.

I was just going to say that, lets hope they pass those. Thank you.

Thank you, Hayley.

Matt Vittorioso with Barclays Capital. Your line is open.

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

For the 21 weeks Matt is only our. So are you asking is there, if all that is sitting out there, causing there to meet more, way more than 21 and for the rest of the industry.

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

I believe it’s getting better and slowly clearing out, but I believe we're going to 2010 with the rest of pressure point.

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

I think it will Matt, don't know for how long, yet, I think we rather go into 2010 planning on that.

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

It is just a function of the fact that our production will go up and we will start to build significant accounts receivables in our Life Fitness exercise equipment business, because fourth quarter is the major selling season but the collection season is first quarter next year. It's something that we think if we do have a modest usage of cash flow from operations, free cash flow, we think it will come from that area.

Okay. And then lastly from me, on the pension front the expenses has gone up, the contributions you haven't had to contribute a whole lot, what's the outlook for pension contributions? Can you give us any visibility over the next couple of years and what's the funded status today?

Well, the funded status today is about very generally that 60% funded we've had a good year in terms of our investment returns, like most other portfolios. But unfortunately the decreases of discount rate have offset that. In terms of funding going forward, I gave the numbers for this year '09, 2010 will definitely be higher. We know there are minimum funded departments we've to make that certainly planning on something in neighborhood of 30 billion as a minimum whether we go higher than that, it will be a function at the year-end valuations and whether we want to make voluntary contributions. Depending upon where discount rate goes over the next years and where the asset rates goes over the next years, we'll dictate our funding requirements in the years after 2010.

Okay. Thank you very much

You're welcome.

Ed Aaron with RBC Capital Markets, your line is open.

Hi, great. Just a couple of follow-ups, so first on the discounting, is it fair to say that your discounting should normalize with you ramping up production in early 2010. And then secondly, Dusty as in another follow up, if you adjust for seasonality, do you think that retail sales were either up or down in the third quarter?

First, I do not believe as we ramp up production that we can expect at least in early 2010 that the dollars we're discounting will abate. We may see the percentage of abate, because it's going to be dollars against more units, but I think there is going to be more than normal discounting it, until lot of this stuff gets cleaned out. How much we don't know and we're prepared to do what we have to do in the marketplace. That's, what was the second question? I'm sorry.

It was just on the retail sales speaking about third quarter, I'm wondering if sequentially you adjust the seasonality, if they got any better or worse. The reason I ask is that the rate of decline was obviously much lower, but you have an easier comparison, so just try and understand adjusting for seasonality, if you could bottom in terms of retail or how close we are to that?

Well, certainly less worse. But here is the wild card in all this. It's all the discounting that occurred in the third quarter and ordered a new product. And I think that the discounting in many places including ourselves was really dramatic. And in the third quarter, as we're growing to the slower selling seasons, and those who had the ability to do over, really trying to drive their inventories as low as we could them. And so it is really difficult for me to tell where steady state demand is, I think it's clearly the rate of decline is getting better. Whether, it's flattened yet, in normal cases I don't know. We had some brands for ourselves as well. We spent a lot of money to get that. So I think it's very difficult to tell right now.

Fair enough. Thank you.

You're welcome.

James Hardiman with FTN Equity Capital Markets. Your line is open.

Thanks. I just wanted to figure back on question I think Tim asked earlier, obviously that the market share question 2010 is a the great question, it's a tough one to answer, but can you talk a little bit about even what you've seen over the last few months, I think the numbers you give us in terms of down 17, down 21 those are industry numbers. Do you have any idea where your numbers have trended from a retail perspective relative to those industry numbers as we've seen, you look probably more significantly some of your competitors discounting there both?

When I take out discontinued brands. We are fundamentally flat in market share. As we look at real share now. I'm hesitating, James and I just state this way. One of the real issues as we look across the industry with the data and the data gathering is precisely, they can be, but it depends upon registrations in the states. And there is lot of activity that occurs, that makes registrations lumpy. But we're pretty down and comfortable that from a market share perspective, we're fundamentally flat. Now, I will say, I'm less worried about that right now than I have been in my career here at Brunswick. Because the market is, there is such dislocation in the market, I think the key is for us to stay focused on our metrics and what we have to do around liquidity in the pipeline and then our shares is going to be what it's going to be right now. And then as the market comes back it's an interesting time. Survival with great liquidity is beginning to be a competitive separating factor and we will just wait and see when the markets comes back, how well we're able to leverage that?

No, that makes a lot of sense. And then in terms of the discounting, I'll go ahead ask another question that you probably won't really be able to answer without any conviction, but if we're seeing units for the industry down say 20%, what do we think dollars are down?

I don't have any idea in the world.

Okay.

Fair enough. It would really be a real shot in the dark, and I just don't want to do it.

Right, no fair enough. Thanks guys.

You're welcome.

Tim Conder with Wells Fargo, you may ask your question.

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

We have not put the number out on that. And it's very much a function of any continuing plant reductions or plant issues that we might deal with in 2010. I think we can assume it's going to be considerably less and our current 120 or so. But at this point, I would guess that except a safe will be considerably going steady.

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

No. I think the answer to your question is that the much of next years much reduced now and now will be Mercury consolidation related.

Okay.

I think it'll be restructuring charges in '09 and '10 pretty much clear to tax of that.

Okay.

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

Okay. Okay. And then, the amount that you talked about on the repo and so forth, before. How is that, is that included the net cost amount that you had year-to-date and what you wrote-off, you wrote that off in your bad debt reserve and then you reduced the reserve, what I guess, the main question is, what's your total bad debt expense for this year, the reserved allowance that you put on that?

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

I guess I'll take both components. The total, the growth reserve that you've added on for the year-to-date and then the portion that you have actually incurred and so therefore, to reduce that reserved amount that looks in the beginning balance and then your reserve that you put on and obviously your write-off and then sort of come up of an engine number I guess those obviously where we're going with that?

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

Okay. We could follow up on that. Last question would be, it sounds like not much has changed from this. But just wanted a direct update on it, your breakeven level you gentlemen have talked about it in two respects, number one is that your total company sales collective of everything would be in that 3.5 to 4 billion range. And then as you've benchmarked it against U.S. boat industry retail unit sales instead in that 145 to 150 range. These are one of those change in magnitude?

No.

Okay. Thank you.

You're welcome. And with that we've been added about an hour of 5 minutes. I want to thank everyone for great questions. I've held a lot of conference calls, still we've all the smart people on ours. These questions were all great. And we appreciate it very much. And people with direct follow-up and live coverage, they can feel free to talk to Bruce. And thank you for your time. Good bye.

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