Brunswick Corporation is a manufacturer and marketer of leading consumer brands in four segments: Marine Engines Boats Fitness and Bowling & Billiards. The company also owns and operates: Brunswick bowling centers across the United States and internationally; Land 'N' Sea a distributor of marine parts and accessories; and Omni Fitness a chain of specialty fitness equipment retail stores. Brunswick Corp. has a market cap of $418.24 million; its shares were traded at around $2.73 with and P/S ratio of 0.07. The dividend yield of Brunswick Corp. stocks is 1.05%.
Highlight of Business Operations:Quarterly and year-to-date operating losses from continuing operations were $566.3 million and $573.2 million, with negative operating margins of 54.5 percent and 14.8 percent, respectively. These results included goodwill and trade name impairment charges of $495.1 million in the third quarter of 2008 and $511.1 million during the first nine months of 2008. In the three months and nine months ended September 29, 2007, quarterly operating losses and year-to-date operating earnings from continuing operations were $46.3 million and $93.0 million, with operating margins of (3.5) percent and 2.2 percent, respectively, which included trade name impairment charges of $66.4 million during the three and nine months ended September 29, 2007. The operating losses during 2008 were primarily as a result of higher goodwill and trade name impairment charges, lower sales from marine operations, reduced fixed-cost absorption due to reduced production rates in the Company s marine businesses in an effort to achieve appropriate levels of dealer pipeline inventories and higher restructuring, exit and other impairment charges. These factors were partially offset by successful cost-reduction initiatives, as discussed in Note 3 – Restructuring Activities in the Notes to Consolidated Financial Statements.
In March 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds after post-closing adjustments, $37.4 million net of cash paid for taxes and other costs, For the nine months ended September 27, 2008, the sale resulted in a $20.9 million pretax gain, $9.9 million after-tax, and was recorded as Investment sale gains in the Consolidated Statements of Operations.
Total restructuring, exit and other impairment charges in the third quarter were $39.1 million for the three months ended September 27, 2008. The $39.1 million consists of $15.8 million in the Boat segment, $12.9 million in the Marine Engine segment, $0.8 million in the Fitness segment, $1.8 million in the Bowling & Billiards segment and $7.8 million at Corporate. Total restructuring, exit and other impairment charges during the first nine months of 2008 were $128.4 million. The $128.4 million consists of $61.1 million in the Boat segment, $31.4 million in the Marine Engine segment, $2.1 million in the Fitness segment, $17.9 million in the Bowling & Billiards segment and $15.9 million at Corporate. See Note 3 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.
As a result of the lower fair value estimates, Brunswick concluded that the carrying amounts of its Boat segment and Bowling Retail and Billiards reporting units within the Bowling & Billiards segment exceeded their respective fair values. The Company compared the implied fair value of the goodwill in each reporting unit with the carrying value and concluded that a $374.0 million pretax impairment charge needed to be recognized in the third quarter of 2008. Of this amount, $361.3 million relates to the Boat segment reporting unit and $1.7 million relates to the Bowling Retail reporting unit and $11.0 million relates to the Billiards reporting unit within the Bowling & Billiards segment. As a result of these impairments, all goodwill has been written down to zero at these respective reporting units.
In conjunction with the goodwill impairment testing, the Company analyzed the valuation of its other indefinite-lived intangibles, consisting exclusively of acquired trade names. Brunswick estimated the fair value of trade names by performing a discounted cash flow analysis based on the relief-from-royalty approach. This approach treats the trade name as if it were licensed by the Company rather than owned, and calculates its value based on the discounted cash flow of the projected license payments. The analysis resulted in a pretax trade name impairment charge of $121.1 million, representing the excess of the carrying cost of the trade names over the calculated fair value. Of this amount, $115.7 million relates to the Boat segment reporting unit, $4.5 million relates to the Marine Engine segment reporting unit and $0.9 million relates to the Billiards reporting unit within the Bowling & Billiards segment.
Tax Items. The comparison of net earnings per diluted share between 2008 and 2007 is affected by special tax items. During the three months and nine months ended September 27, 2008, the Company recognized special tax provisions of $153.4 million and $153.1 million, respectively, on operating losses. Typically, the Company would recognize a tax benefit on operating losses; however, due to the uncertainty of the realization of certain net deferred tax assets, $294.8 million and $292.8 million of special tax charges were recognized, respectively, primarily as a result of the establishment of a deferred tax asset valuation allowance of $292.7 million. During the three months and nine months ended September 29, 2007, the Company reduced its tax provision by $3.7 million and $5.6 million, respectively, primarily as a result of favorable tax reassessments and its election to apply the indefinite reversal criterion of APB 23 to the undistributed net earnings of certain foreign subsidiaries, as discussed in Note 13 – Income Taxes in the Notes to Consolidated Financial Statements. These benefits were partially offset by expense related to changes in estimates of prior years tax return filings and the impact of a foreign jurisdiction tax rate reduction on the underlying net deferred tax asset.
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