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Brunswick Corp. Reports Operating Results (10-Q)

November 05, 2009 | About:
Sheldon Shi

10qk

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Brunswick Corp. (BC) filed Quarterly Report for the period ended 2009-11-03.

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 $976.1 million; its shares were traded at around $11.06 with and P/S ratio of 0.2. The dividend yield of Brunswick Corp. stocks is 0.5%.

Highlight of Business Operations:

Net sales during the third quarter of 2009 decreased 36 percent to $665.8 million from $1,038.8 million in the third quarter of 2008. During the nine months ended October 3, 2009, net sales decreased 45 percent to $2,118.8 million from $3,871.0 million during the nine months ended September 27, 2008. For the three months and nine months ended October 3, 2009, the Company reported lower global sales across all of its segments. Reduction in marine industry demand and demand for other consumer discretionary products as a result of a weak global economy, the credit market crisis, soft U.S. housing markets, and decreased consumer confidence have all contributed to the decrease in demand for the Company s products and have lowered the Company s net sales. In addition, the Company has implemented an inventory management and pipeline reduction strategy to produce fewer boat units than it sells wholesale to dealers, and to sell to dealers wholesale at lower levels than dealers are selling to customers at retail. While this strategy is enabling the Company to reduce its overall boat and marine engine inventories and has assisted our dealers in reducing the number of boats and engines in stock to appropriate pipeline inventory levels, it has also resulted in greater declines in wholesale sales compared with declines in retail demand. The overall decline in net sales has led to lower fixed-cost absorption, which has contributed to the decrease in Company earnings during the quarter and year-to-date periods.

Operating losses in the third quarter of 2009 were $109.4 million with negative operating margins of 16.4 percent. These results included $28.8 million of restructuring, exit and impairment charges. In the three months ended September 27, 2008, operating losses were $566.3 million, with negative operating margins of 54.5 percent, which included goodwill impairment charges of $374.0 million; trade name impairment charges of $121.1 million; and restructuring, exit and impairment charges of $39.1 million. Operating losses during the nine months ended October 3, 2009 were $382.3 million, which included $103.9 million of restructuring, exit and impairment charges, while operating losses during the nine months ended September 27, 2008 were $573.2 million, which included goodwill impairment charges of $377.2 million; trade name impairment charges of $133.9 million; and restructuring, exit and impairment charges of $128.4 million.

In March 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds, $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 in Investment sale gain in the Consolidated Statements of Operations.

During the third quarter of 2009, the Company recognized a tax benefit of $21.6 million on a loss before income taxes of $135.9 million for an effective tax rate of 15.9 percent. In periods in which there is a pretax operating loss and pretax income in Other comprehensive income, the pretax income in Other comprehensive income is considered a source of income and reduces a corresponding portion of the valuation allowance. The reduction in the valuation allowance resulted in a $9.4 million income tax benefit during the three months ended October 3, 2009. In addition, the Company filed its 2008 federal income tax return in the third quarter of 2009, which generated a $10.3 million income tax benefit for the quarter.

Restructuring, exit and impairment charges. Brunswick announced initiatives to improve the Company s cost structure, better utilize overall capacity and improve general operating efficiencies. During the third quarter of 2009, the Company recorded a charge of $28.8 million related to restructuring activities as compared with $39.1 million in the third quarter of 2008. Restructuring charges during the first nine months of 2009 were $103.9 million, compared with $128.4 million during the first nine months of 2008. See Note 2 – Restructuring Activities in the Notes to Consolidated Financial Statements for further details.

Investment sale gains. In March 2008, Brunswick sold its interest in its bowling joint venture in Japan for $40.4 million gross cash proceeds, $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 in Investment sale gain in the Consolidated Statements of Operations.

Read the The complete ReportBC is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, Arnold Schneider of Schneider Capital Management, Kenneth Fisher of Fisher Asset Management, LLC, Charles Brandes of Brandes Investment.

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