Brunswick Corporation reported net sales for the second quarter of 2009 were $718.3 million, down from $1,485.4 million a year earlier. For the quarter, the company reported an operating loss of $145.4 million, which included $35.5 million of restructuring charges. In the second quarter of 2008, the company had an operating loss of $17.2 million, which included $83.1 million of restructuring charges.
For the second quarter of 2009, Brunswick reported a net loss of $163.7 million, or $1.85 per diluted share, as compared with a net loss of $6.0 million, or $0.07 per diluted share, for the second quarter of 2008. The diluted loss per share for the second quarter of 2009 included restructuring charges of $0.40 per diluted share and a $0.05 per diluted share benefit from special tax items. Diluted earnings per share for the second quarter of 2008 included $0.59 per diluted share of restructuring charges, as well as special tax benefits and a gain on an investment sale totaling $0.04 per diluted share.
Global demand for our products continues to be constrained across all of our businesses and is consistent with the trends experienced in the previous two quarters,” said Brunswick's Chairman and Chief Executive Officer Dustan E. McCoy. “We continue to successfully manage our operations for cash and maintain excellent levels of liquidity. At the end of the second quarter, we had more than $460 million of cash, a $144 million and $102 million increase from year-end and previous quarter levels, respectively.
“Our ongoing inventory management and pipeline reduction strategy is to produce fewer units than we are wholesaling, and sell at wholesale at lower levels than our dealers are retailing. This strategy has enabled us to reduce overall marine inventories and has assisted our dealers in reducing the number of boats and engines on their showroom floors. Additionally these efforts have supported our strategy of maintaining the health of our dealers, which was reflected in our second quarter boat repurchase obligations, which remain at manageable levels.
“Our focus of reducing overall inventory levels combined with difficult marine market conditions, has resulted in higher discounts and sales incentives to facilitate retail boat sales, leading to increased losses during the quarter. Lower sales levels, reduced fixed-cost absorption and higher pension and bad debt expense were also factors in our reduced earnings. Partially offsetting these factors were cost savings generated from our successful and ongoing fixed-cost reduction activities and lower restructuring, exit and impairment charges,” McCoy said.
Review of Cash Flow and Balance Sheet
On May 29, 2009, the company entered into a new asset-based loan, secured by domestic Mercury Marine trade receivables. Prior to the second quarter of 2009, these specific receivables had been sold to Brunswick Acceptance Company, the company's financial services joint venture with CDF Ventures, LLC, a subsidiary of GE Capital Corporation, and consequently these trade receivables were not reflected on Brunswick's balance sheet. This transaction did not have a material impact on cash, but resulted in an increase in working capital of approximately $84 million and an increase in short-term debt of approximately $81 million. After adjusting for this transaction, debt balances were flat compared with year-end 2008.
Cash and cash equivalents were $461 million at the end of the second quarter, up $144 million from year-end 2008 levels. The company's increased cash position resulted primarily from a change in certain current assets and current liabilities of $214 million and net tax refunds of approximately $78 million, partially offset by net losses experienced in the first half. This change was primarily the result of reductions of the company's inventory and accounts and notes receivable, partially offset by decreased accounts payable and lower accrued expenses.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine service, parts and accessories businesses, reported net sales of $415.2 million in the second quarter of 2009, down 43 percent from $723.6 million in the year-ago second quarter.
International sales, which represented 42 percent of total segment sales in the quarter, declined by 45 percent. For the quarter, the Marine Engine segment reported an operating loss of $7.8 million, including restructuring charges of $9.6 million. This compares with operating earnings of $58.9 million in the year-ago quarter, including $17.6 million of restructuring charges.
Sales were off across all Marine Engine operations, with sterndrive engines experiencing a greater sales decline than outboard engines. Sales from the segment's marine service, parts and accessories businesses, which represented 35 percent of total segment sales in the quarter, were down low single-digits, as boat usage and the purchase of parts and accessories remained relatively stable.
Mercury's manufacturing facilities continued to cut production rates and take plant furloughs during the quarter in response to lower retail demand and to reduce pipeline levels. Lower sales, reduced fixed-cost absorption on lower production and higher bad debt expense had an adverse effect on operating earnings, which were partially offset by Mercury Marine's expense reductions.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group and includes 17 boat brands. The Boat segment reported net sales for the second quarter of 2009 of $138.8 million, down 77 percent compared with $591.7 million in the second quarter of 2008. International sales, which represented 49 percent of total segment sales in the quarter, decreased by 75 percent during the period. For the second quarter of 2009, the Boat segment reported an operating loss of $107.9 million, including restructuring charges of $17.9 million. This compares with an operating loss of $42.2 million, including restructuring charges of $37.6 million, in the second quarter of 2008.
Boat manufacturing facilities also continued to significantly cut production rates and take plant furloughs during the quarter to address inventory levels held by the company and its dealers. Lower sales, reduced fixed-cost absorption on lower production and higher discounts and sales incentives on retail sales by dealers had an adverse effect on operating earnings, which were partially offset by the Boat Group's expense reductions.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which manufactures and sells Life Fitness and Hammer Strength fitness equipment. Fitness segment sales in the second quarter of 2009 totaled $105.0 million, down 33 percent from $156.9 million in the year-ago quarter. International sales, which represented 45 percent of total segment sales in the quarter, declined by 40 percent. For the quarter, the Fitness segment reported operating earnings of $0.2 million, including $0.2 million of restructuring charges. This compares with operating earnings of $8.2 million, including restructuring charges of $1.3 million in the second quarter of 2008.
Commercial equipment sales, which account for the largest percentage of Fitness segment sales, declined in the quarter as gym and fitness club operators remained cautious about ordering equipment. Sales of consumer exercise equipment were also down, although at lower rates than sales of commercial equipment. Operating earnings reflected the unfavorable effect of lower sales, which was partially mitigated by actions taken by Life Fitness to reduce expenses.
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers; bowling equipment and products; and billiards tables and accessories. Segment sales in the second quarter of 2009 totaled $77.4 million, down 30 percent compared with $110.4 million in the year-ago quarter. For the quarter, the segment reported an operating loss of $5.9 million, including restructuring charges of $3.2 million. This compares with an operating loss of $19.8 million, including restructuring charges of $19.8 million in the second quarter of 2008.
Retail bowling equivalent-center sales declined by a low double-digit percentage during the quarter. The bowling products and billiards businesses experienced greater sales declines, as bowling center operators and retail billiards customers remained cautious about purchases. Operating losses reflected the unfavorable effect of the reduced sales, which was partially offset by Bowling & Billiards' cost reduction activities.
Outlook
We continue to successfully execute our strategy to maintain liquidity without borrowing, take all reasonable actions to protect our dealer network, and position ourselves to take advantage of improvements in economic conditions as they occur,” McCoy said. “While the actions undertaken to execute our strategy have negatively affected our sales and earnings in the first half of this year, as they will in the second half, they are purposeful and necessary to position Brunswick for success. Our $100 million of cash generation in the quarter and $461 million of cash at quarter end, declining inventory in the field and weeks-on-hand in the pipeline, and cost reductions ensure our health and ability to significantly improve sales and margins when the economy and marine markets stabilize.
“We plan to end the year with cash in excess of $400 million, dealer pipelines at levels lower than at any time in the past 10 years, a reduction in net fixed costs of $260 million in 2009 alone, and new low-cost products in our marine markets. In addition, we continue to analyze our manufacturing footprint, brands, models, and cost and operating structure. Our success in navigating through these very difficult market conditions places us in a strong competitive position when economic conditions improve. As such, we are uniquely positioned for continued market leadership in our marine and recreation businesses,” McCoy concluded.
Brunswick Corporation
Comparative Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
Three Months Ended
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July 4, June 28,
2009 2008 % Change
---- ---- --------
Net sales $718.3 $1,485.4 -52%
Cost of sales 644.3 1,182.0 -45%
Selling, general and administrative expense 162.6 205.5 -21%
Research and development expense 21.3 32.0 -33%
Restructuring, exit and impairment charges 35.5 83.1 -57%
---- ----
Operating loss (145.4) (17.2) NM
Equity earnings (loss) (4.1) 6.3 NM
Investment sale gain - 1.2 NM
Other income (expense), net (0.2) 0.8 NM
---- ---
Loss before interest and income taxes (149.7) (8.9) NM
Interest expense (18.3) (11.4) -61%
Interest income 1.0 1.5 -33%
--- ---
Loss before income taxes (167.0) (18.8) NM
Income tax benefit (3.3) (12.8)
---- -----
Net loss $(163.7) $(6.0) NM
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Loss per common share:
Basic $(1.85) $(0.07)
Diluted $(1.85) $(0.07)
Weighted average shares used for
computation of:
Basic loss per common share 88.4 88.3
Diluted loss per common share 88.4 88.3
Effective tax rate 2.0% 68.2%
Supplemental Information
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Diluted net loss $(1.85) $(0.07)
Restructuring, exit and impairment
charges (1) 0.40 0.59
Investment sale gain, net of tax - (0.01)
Special tax items (0.05) (0.03)
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Diluted net earnings (loss), as adjusted $(1.50) $0.48
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