May 1, 2009
Executives
Dusty McCoy - Chairman and CEO Peter Hamilton - CFO Bruce Byots - VP, Corporate and IR
Analysts
Ed Aaron - RBC Capital Markets Joe Hovorka - Raymond James Jason Byun - Sigma Capital Tim Conder - Wells Fargo Matt Vitorioso - Barclays Capital Hayley Wolf - Rochdale Securities
Operator
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.
Bruce Byots
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.
Dusty McCoy
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 a drop 41% in the fourth quarter of 2008.
Aluminum product demand fell 30% in the first quarter of this year, compared to a decline of 17% in the first quarter of 2008 and a drop of 30% in the fourth quarter of last year. In addition to the impact of the changes in retail financings, we like to focus for a moment on developments in floor-plan financing.
The first significant development has been the exit of several national lenders in this segment of the lending industry. As a result, the impacted dealers have been forced to transition to new sources of floor-plan lending or to close their businesses.
Our dealer network was not materially impacted by the exit of these lenders as there is significant portion of our dealer's floor-plan through our joint venture with GE. The second significant development has been changed on floor-plan lending terms and conditions, as the remaining floor-plan lenders, seek to improve the quality of their loan portfolios.
Beginning April 1st, dealers including those financings through our joint venture with GE Capital, Brunswick Acceptance Company, are incurring higher financing costs and long curtailment payments, as well as our reduction in the length of time the inventory will be financed. The overall impact of these changes will be higher cost to carry inventory and a lessening of dealer inventories going forward.
As dealers began to adjust to the new floor-plan terms, they necessarily began to curtail their wholesale orders. While, these changes require dealers and us to adjust on the fly, so to speak, we and our dealers will be healthier in long-term, with less inventories in their showrooms.
In response to these conditions, we've reduced the number of boat units that we sold to dealers about 61%, during the quarter versus last year. As a result Brunswick, Boat segment sales declined by 64%, compared to our fourth quarter of last year, boat sales declined of 58%.
The same factors that drove lower sales and earnings in our Boat segments also impacted Marine Engines. Mercury sales declined 45% in the first quarter versus the first quarter of 2008, this compares to our fourth quarter 2008 sales decline of 43%.
In response to these retail and wholesale declines, we adjusted our production rates throughout the quarter, the levels that were below our wholesale unit sales. This lower level of production reflected a 64% decline in units produced versus the first quarter of 2008.
More importantly perhaps in our fiberglass boat business, our production levels were about 50% of our retail demand. The lower production levels at both our boat and engine facilities lead the pressure on our operating margins.
In light of market decline aged product increased repossessions from consumers, dealer failures or voluntary cessation of business by them and distress by certain manufacturers, product pricing across the industry on a global basis is becoming sloppy, with significant discounting become a part of the landscape. As a result in addition to the lower fixed cost absorption caused by lower production and sales volumes, margins were also negatively affected by pricing and discount activity, occurring at both wholesale and retail level.
These factors were partially offset by ongoing cost reduction efforts. The three business imperatives that we outlined on our last conference call remain a focal point of our current business actions.
We are successfully managing through these difficult conditions by, first, maintaining solid liquidity without additional borrowings, second remaining focused and taking appropriate actions to maintain the health of our dealers and third, continuing to position ourselves to exit this downturn as the stronger company. And although day-to-day challenges remain acute, we have performed exceptionally well relative to these three imperatives.
Let me start with the first and probably most important item on our agenda, our overall liquidity. We ended the quarter with $359 million of cash on our balance sheet, compared to $317 million at year-end.
We ended the quarter with no borrowings under our revolver credit facility and we did not draw on that facility at any point during the period. Our cash performance reflects the results of the successful execution of a variety of operating actions taken throughout our company.
Net working capital contributed nearly $80 million to our cash from operations, which primarily came from reduced inventory levels and lower accounts receivables. We also received a tax refund of $67 million.
The second area of focus is for our marine businesses to take the necessary actions to maintain the health of the dealer networks. I have already described to you our basic plan, which is to produce and sell at wholesale fewer boats than are sold at retail.
We've worked together with our dealers to manage their declining inventory requirements. This is a critical step that must occur before stability and improved performance can occur in our marine businesses.
This focus had a positive influence on our efforts to reduce the dealer pipeline. At the end of the first quarter, we reduced our both dealer pipelines 9,800 units versus a year ago, a 27% reduction.
We ended the quarter with 36 weeks of products in the pipeline on the trailing 12 months retail basis, compared to 34 weeks at the end of the year, which is a remarkable achievement given the dramatic retail declines. I would like to once again thank and commend our dealers for the aggressive inventory management they've demonstrated over this very difficult period.
Looking specifically at financing statistics, total domestic floor-plan loans outstanding dropped 5% during the quarter versus year-end 2008 levels. This is a significant accomplishment for our dealers in light of the very weak retail demand in a bit of an off-season period.
And although the inventory of boats age less than 12 months was down 13% at the close of the first quarter versus year-end 2008 levels and was down 47% from a year ago. Our dealers did experience growth of 8% in the inventory greater than 12 months in age in the first quarter.
We are focused on reducing aged product in the field and we are working closely with our dealers to get this product sold through at retail during this selling season which is just beginning. The tough economic environment has required that we repurchase inventory from a small percentage of our boat dealers.
During the quarter, our gross repurchases were about $6 million with the net cost of the company of less than 20% of that amount, once the boats have been placed with other dealers. If the difficult industry conditions in which we are operating continue unabated through 2009, we believe it is likely that we will experience an increase in a rate of dealer failures or voluntary market exits by dealers.
Our experience in prior downturns and during this particularly downturn continues to give us confidence that we will manage through dealer dislocations without endangering our financial health. Before turning the call over to Peter, I want to take a moment to mention the performance of our Fitness and Bowling and Billiards businesses.
Although under topline pressure, these businesses continue to contribute positive earnings in cash flow to Brunswick. Life Fitness reported essentially breakeven operating earnings on a sales decrease of nearly 21%.
Operating expense reductions of 19% were critical in helping to partially offset the margin impact of lower sales. The club fitness industry experience modest revenue gains in 2008 and we assume that industry revenues will remain basically flat in 2009, although there will probably be a reduced number of new club openings.
Despite this relatively stable environment at the club retail level, club owners in the United States and overseas have become cautious about purchasing new equipment, because of the overall economic uncertainty, as well as reduced access to financing, and of course purchases of consumer for a home exercise equipment have become even more cautious, particularly within high-end consumer segment where Life Fitness competes. Brunswick Bowling and Billiard sales were down 12% fro the quarter.
Our operating earnings improved from slightly under $1 million in the first quarter of 2008 to $10.6 million in the first quarter of this year. Sales declines in our bowling products and billiards businesses reflected the same factors as the fitness industry.
Bowling centre proprietors and various consumers were cautious about purchases in the current economic environment. Credit availability is also a factor for significant buyers of bowling capital equipments.
Retail bowling to sales were less adversely affected and were down mid-single digits. Despite the negative gross margin impact of lower sales the Bowling and Billiard segment recorded improved operating earnings as a result of continuing cost reductions and the absence in this quarter of charges taken in the first quarter of 2008.
Now, I'll turn the call over to, Peter for a closer look at our financials.
Peter Hamilton
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 heavy penalties to earnings. In addition, our success in reducing dealer pipelines required not only curtailments to our planned reduction, but also aggressive retail discount programs and wholesale dealers support.
These incentive programs had a sizable negative impact on operating margins. The majority of our Boat segment earnings shortfall versus last year is a direct result of reduced gross margins on our lower wholesales shipments, the unfavorable impact of lower fixed cost absorption on reduced production and the impact of higher discounts.
Now additionally, as we continue to dial back production reduce our fixed cost and reduce our salaried work force, restructuring activities and costs increased as well. During Q1, our restructuring costs in the Boat group were $25 million, nearly twice the expense we incurred in last years first quarter.
And finally, our Boat brands have done an outstanding job in identifying and successful implementing continuous cost reduction programs. Staffing reductions, plan closures and consolidations, aggressive spending reductions plus brand divestures have helped to mitigate the unfavorable impacts of the previous factors.
Approximately 50% of Brunswick's planned cost reductions will be reported in our Boat segment. Turning now to our Engine segment.
Mercury sales at $344 million were down 45% or $285 million and the segment's operating loss of $50.6 million was unfavorable to which Q1, 2008 earnings of $33.6 million. As you would expect the key drivers of the Engine segments first quarter performance, reflect the factors that influenced the Boat segment sales and earnings.
Reduction in the Engine segments topline is less than percentage reduction reported by our boat businesses. There are two reasons for this.
First, as we have discussed to improve the efficiency of our P&A and service and parts operations, we consolidated the management in reporting of these businesses in the Engine segment. Since existing boaters require a part, service and accessories.
The reduction in our P&A service and part sales was far less severe than the sales reduction of boats and engines. And second, Mercury's international sales mix is higher than in our boat businesses and Mercury's international sales decline was less than the decline in our domestic and international boat sales.
Absent these factors, the sales reduction in our engine segment would have approached the percentage decline in our Boat segment. The majority of the Engine segment's reduced earnings were a direct function of lower wholesale shipments and lower fixed cost absorption on reduced production.
Our first quarter Outboard and MerCruiser production is down 77% versus Q1 of last year, consistent with our objective at the Boat group. These production curtailments have been implemented in response to unprecedented low levels of retail demand and they improved both our cash flow, by reducing our working capital investment and they improved to health of our dealer's pipelines.
In addition to the overall sales decline, Mercury's earnings were negatively affected by a proportionately greater reduction in sterndrive engine volume. And finally restructuring cost reported within the Engine segment, increased by more than $10 million in Q1 versus last year.
Severance cost was a primary contributor to higher restructuring expense. These staffing cuts, coupled with a material reduction and discretionary spending, partially mitigated the unfavorable effects of lower sales and productions, product mix and higher restructuring costs.
Approximately 35% of our total cost reduction savings will be reported in the Engine segments. Moving now to our tax provision.
As you may recall in 2008, the company was required to establish a valuation allowance against certain of its differed tax assets, resulting in a non-cash provision for year in which we actually reported a significant pretax loss. As we entered 2009, we recognized that the company would be unable to book a tax benefit for operating losses in this year, because we would be required to put up further valuation allowances against the deferred assets generated by those losses.
Therefore, it was our view that the company's pretax loss in 2009 would essentially be its after tax loss. What has changed since then is that in response to continued weakness in the marine retail marketplace, we have reduced production and wholesale shipments further and our anticipated losses have increased.
The prospect of these additional losses has triggered the requirement under GAAP to book in Q1 a $36.6 million, non-cash valuation allowance against the company's state and foreign deferred tax assets. The methodology for evaluating the requirement to book the valuation allowance is somewhat different for federal versus state and foreign deferred tax assets and this difference has dictated the timing of recording the valuation allowances in 2008 and 2009.
Looking ahead to the rest of 2009, we do not expect to be able to benefit the company's pretax losses because of the need to offset such benefits with valuation allowances resulting in pretax loss falling directly to the bottom line. Now I want to turn to cash flow and augment some of Dusty's comments.
Brunswick's cash balances ended in first quarter at $359 million which is $42 million greater than year-end 2008 and more than $90 million higher than the first quarter of 2008. We did not have any cash borrowings under our revolving credit agreement at anytime during the quarter.
Significant sources of cash in the quarter with changes in working capital and a federal tax refund. Cash from working capital changes totaled approximately $80 million, as the company drove down inventory and receivables.
And, as anticipated we received the federal tax refund at $67 million resulting from carrying back losses incurred in 2008 through our '06 and '07 returns, which were years in which we paid taxes. Restructuring activities to further reduce the company's fixed cost represented a $40 million use of cash in the first quarter.
In addition, to cash, the company's next source of immediate liquidity is its revolver credit facility. At the end of the first quarter, our net available borrowing capacity under the revolver totaled $183 million.
This amount reflects a borrowing base of $272 million minus outstanding letters of credit backed by the facility. Our cash flow objective for the full-year 2009 continues to be that, we end this year with greater cash balances than year-end 2008, without the benefit of additional volumes.
As previously stated, we expect depreciation and amortization to be about a $155 million. We now estimate capital expenditures to approximate $50 million.
In view of the continuing difficult marine environment, we are increasing the estimate of 2009 restructuring charges to about $75 billion, the majority of which will be cash for actions currently implemented or planned. Now another factor that will influence cash flow in 2009 is pension funding.
As a result of recent rulings on funding regulations, we now anticipate that our minimum funding obligation for '09 will be less than $5 million. However, we will continue to assess the trade-offs at making discretionary contributions this year to address our long-term pension funding needs.
By far the greatest contributor to cash flow in 2009 is expected to be from working capital. We now anticipate cash flow from working capital to exceed $250 million.
The reason for this large contribution is a lower production levels we will plan for the remainder of 2009. We will be purchasing fewer goods and meeting a greater percentage of our sales requirements from inventory currently on hand.
Over the past four quarters, we have reduced inventory levels by more than $280 million. The anticipated reduction in working capital will reduce our revolving credit facility borrowing days as the year progresses.
In addition, in the second quarter, we will effectively loose $60 million of borrowing capacity under the facility as a result of having fallen below a minimum fixed-charge coverage threshold. Because of these two factors our revolver borrowing capacity will be reduced by approximately $100 million over the remainder of this year.
However, our inter-month cash requirements have declined as a result of our work to decrease spending which ultimately lowers the amount of cash required to fund our business. This provides a greater level of cash cushion and decrease reliance on revolving credit facility.
Consequently, we expect that cash balances and cash flow will be more than adequate to fund operations over the remainder of this year and we do not anticipate drawing on the revolver. Simply put, we would rather convert our inventory and receivables to cash in a Brunswick treasury than maintain them on a balance sheet, its assets, against which we can borrow.
And I'll turn the call back to, Dusty for some concluding comments.
Dusty McCoy
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
(Operator Instructions). Our first question comes from Ed Aaron, RBC Capital Markets.
Your line is open.
Ed Aaron - RBC Capital Markets
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?
Dusty McCoy
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?
Ed Aaron - RBC Capital Markets
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?
Dusty McCoy
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.
Ed Aaron - RBC Capital Markets
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?
Peter Hamilton
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.
Ed Aaron - RBC Capital Markets
So I actually had a backwards that was the one I did catch. What's the other $40 million?
Peter Hamilton
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.
Operator
Our next question comes from Joe Hovorka, Raymond James. Your line is open.
Joe Hovorka - Raymond James
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?
Peter Hamilton
Well. It was 183 plus what we have outstanding against the facility and letters of credit and that's about 18.
Joe Hovorka - Raymond James
$18 million of letters of credit?
Peter Hamilton
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.
Joe Hovorka - Raymond James
Okay. So 183 minus 60 plus 80, okay?
Peter Hamilton
That's the cash capacity.
Joe Hovorka - Raymond James
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?
Dusty McCoy
Versus year-end, that's correct.
Joe Hovorka - Raymond James
Versus year-end and what was that versus a year ago and the first quarter?
Dusty McCoy
I gave you that number and let me find it in my prepared remarks, so this is not coming back for me 47%.
Joe Hovorka - Raymond James
Okay. That's, I must have missed that.
I was wondering why wasn't down more?
Dusty McCoy
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.
Joe Hovorka - Raymond James
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?
Dusty McCoy
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.
Joe Hovorka - Raymond James
Right.
Dusty McCoy
It's going to be a high-class problem.
Joe Hovorka - Raymond James
Sure.
Dusty McCoy
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.
Joe Hovorka - Raymond James
Throughout the year
Dusty McCoy
Yes.
Joe Hovorka - Raymond James
Yeah, okay.
Peter Hamilton
Outstanding's down.
Dusty McCoy
Yeah, the outstandings were down at 27% year-over-year.
Joe Hovorka - Raymond James
And that's for BAC or that's for everything that you are aware of?
Dusty McCoy
No, that's all of our dealer's outstandings.
Joe Hovorka - Raymond James
Okay. Minus 27% year-over-year?
Dusty McCoy
Yes.
Operator
Our next question comes from Tim Conder, Wells Fargo. Your line is open.
Tim Conder - Wells Fargo
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?
Peter Hamilton
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.
Tim Conder - Wells Fargo
Okay.
Dusty McCoy
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.
Tim Conder - Wells Fargo
Okay. And then, Dusty just the clarification also, you said the incremental savings this year is that 140 or 240 you mentioned?
Dusty McCoy
240.
Tim Conder - Wells Fargo
240.
Dusty McCoy
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.
Tim Conder - Wells Fargo
Okay, great. And then regarding incremental brand closure, divestures, should we anticipate maybe seeing a little bit more of that as '09 progresses here?
Dusty McCoy
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.
Tim Conder - Wells Fargo
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?
Dusty McCoy
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.
Tim Conder - Wells Fargo
Okay. So everything shifting to the September model year?
Dusty McCoy
Yes.
Operator
Our next question comes from Jason Byun, Sigma Capital. Your line is open.
Jason Byun - Sigma Capital
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?
Peter Hamilton
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.
Jason Byun - Sigma Capital
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?
Dusty McCoy
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.
Jason Byun - Sigma Capital
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?
Peter Hamilton
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.
Jason Byun - Sigma Capital
Okay and as of today, do you have any sense for whether you guys will be able to see if anymore tax refunds?
Peter Hamilton
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.
Jason Byun - Sigma Capital
And do you have any sense for what that could be? What the incremental refund would be if you're carried back five years?
Peter Hamilton
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.
Jason Byun - Sigma Capital
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?
Dusty McCoy
No. no, that has, they are not lend.
Jason Byun - Sigma Capital
Okay. And what's your outstanding amount in terms of that JV in receivables?
Dusty McCoy
600 million there about.
Peter Hamilton
Uncertainty out of the outstanding's at BAC it's somewhat less than 600.
Operator
We have a question from Matt Vitorioso from Barclays Capital. Your line is open.
Matt Vitorioso - Barclays Capital
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?
Peter Hamilton
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.
Matt Vitorioso - Barclays Capital
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?
Peter Hamilton
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.
Matt Vitorioso - Barclays Capital
Okay.
Peter Hamilton
Without further borrowings.
Matt Vitorioso - Barclays Capital
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?
Peter Hamilton
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.
Matt Vitorioso - Barclays Capital
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?
Dusty McCoy
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.
Matt Vitorioso - Barclays Capital
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?
Dusty McCoy
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.
Matt Vitorioso - Barclays Capital
Okay. Thanks.
Dusty McCoy
Hey Matt, I do want to say some thing about the revolving credit amendment if I may?
Matt Vitorioso - Barclays Capital
Sure.
Dusty McCoy
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.
Operator
There's a question from Hayley Wolf, Rochdale Securities. Your line is open.
Hayley Wolf - Rochdale Securities
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?
Dusty McCoy
This would have been in my comments, right?
Hayley Wolf - Rochdale Securities
It's actually in the news release as well.
Dusty McCoy
What outlook comment are you referring to Hayley? Maybe that will help us.
Hayley Wolf - Rochdale Securities
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?
Peter Hamilton
It's our 2008 base without restructuring charges and comparing 2009 without restructuring.
Hayley Wolf - Rochdale Securities
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.
Peter Hamilton
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.
Hayley Wolf - Rochdale Securities
Okay. I'm going to follow up with Bruce on that.
Bruce Byots
When you're looking at '08 GAAP, you've obviously got to take out the goodwill and the trade name.
Hayley Wolf - Rochdale Securities
Right.
Bruce Byots
Factors and you should probably strip out yours, these special tax effects.
Hayley Wolf - Rochdale Securities
All right, but I'm leaving in restructuring charges.
Bruce Byots
Yes.
Hayley Wolf - Rochdale Securities
Okay. Can you talk about in 2010 will there be incremental costs savings from the programs that are in place now?
Dusty McCoy
There will be incremental cost savings in 2010. Yes.
Hayley Wolf - Rochdale Securities
Can you share a number?
Dusty McCoy
I prefer not to at this moment, Hayley.
Hayley Wolf - Rochdale Securities
Okay.
Dusty McCoy
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.
Hayley Wolff - Rochdale Securities
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?
Dusty McCoy
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.
Hayley Wolff - Rochdale Securities
Okay. Sorry about that.
Dusty McCoy
That's okay. And that's what we're focused, Hayley.
Peter Hamilton
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.
Hayley Wolff - Rochdale Securities
Okay. So, I'm basically adding back everything from, okay.
Peter Hamilton
Yes.
Hayley Wolff - Rochdale Securities
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?
Dusty McCoy
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.
Hayley Wolf - Rochdale Securities
And did that 5 billion assume that the market rebounded somewhere close to '05 levels?
Dusty McCoy
No they're close to yes, would have been the correct answer. Yes.
Hayley Wolf - Rochdale Securities
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?
Dusty McCoy
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.
Hayley Wolf - Rochdale Securities
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?
Dusty McCoy
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.
Operator
That does conclude today's conference. Thank you for participating.
You may disconnect at this time.