Brunswick Corporation reported net sales for the fourth quarter ended Dec. 31, 2009 were $657.3 million, down 22% from $837.7 million a year earlier.  For the quarter, the company reported an operating loss of $188.2 million, which included $68.6 million of impairment and restructuring charges.  In the fourth quarter of 2008, the company had an operating loss of $38.4 million, which included an $81.2 million benefit from the reversal of variable compensation and defined contribution retirement accruals, affecting all of the company's segments, and $48.9 million of impairment and restructuring charges. 


For the fourth quarter of 2009, Brunswick reported a net loss of $124.0 million, or $1.40 per diluted share, as compared with a net loss of $66.3 million, or 75 cents per diluted share, for the fourth quarter of 2008.  The diluted loss per share for the fourth quarter of 2009 included impairment and restructuring charges of 78 cents per diluted share, and a $1.20 per diluted share benefit from special tax items.  Diluted loss per share for the fourth quarter of 2008 included 34 cents per diluted share of impairment and restructuring charges, and 59 cents per diluted share of non-cash charges for special tax items.


2009 Full-Year Results


For the year ended Dec. 31, 2009, the company reported net sales of $2.78 billion, down from $4.71 billion a year earlier, and an operating loss of $570.5 million, which included $172.5 million of impairment and restructuring charges.  In 2008, the company had an operating loss of $611.6 million, which included $688.4 million of impairment and restructuring charges. 


For 2009, the company reported a net loss of $586.2 million, or $6.63 per diluted share, as compared with a net loss of $788.1 million, or $8.93 per diluted share, for 2008.  The diluted loss per share for 2009 included impairment and restructuring charges of $1.95 per diluted share, and a $1.09 per diluted share benefit from special tax items.  Diluted loss per share for 2008 included $5.68 per diluted share of impairment and restructuring charges, $3.90 per diluted share of non-cash charges for special tax items, and 11 cents per diluted share gain on investment sales.


Review of Cash Flow and Balance Sheet


During the quarter, the company completed open market purchases of approximately $85 million of its outstanding 11.75 percent notes due 2013. Combined with previous period purchases, the company reduced the amount of its 2013 notes outstanding to approximately $153 million, representing the only significant long-term debt maturity from 2010 to 2015.


Cash and cash equivalents were $527 million at the end of the fourth quarter, up $209 million from year-end 2008 levels. The company's increased cash position resulted primarily from a change in certain current assets and current liabilities and net tax refunds, partially offset by net losses experienced during the year. The change in certain current assets and current liabilities was largely the result of reductions of the company's inventory and accounts and notes receivable, partially offset by lower accrued expenses and decreased accounts payable.


Net debt (defined as total debt, less cash and cash equivalents) was $324 million, down $90 million from year-end 2008 levels. The company's total liquidity (defined as cash and cash equivalents, plus amounts available under its asset-backed lending facilities) totaled $615 million, up $96 million from year-end 2008 levels.


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 $302.4 million in the fourth quarter of 2009, down 11% from $340.2 million in the year-ago fourth quarter. 


International sales, which represented 51%of total segment sales in the quarter, declined by 3%. For the quarter, the Marine Engine segment reported an operating loss of $59.4 million, including restructuring charges of $8.2 million.  This compares with an operating loss of $12.9 million in the year-ago quarter, which benefited from a $0.8 million gain related to restructuring activities.

Sales were lower across all Marine Engine operations, with sterndrive engines experiencing a greater sales decline than outboard engines.  Sales from the segment's domestic marine service, parts and accessories businesses, which represented 22% of total segment sales in the quarter, were down mid-single digits, as boat usage and the purchase of parts and accessories remained relatively stable.


Mercury's manufacturing facilities began to ramp up production during the quarter in response to customer inventory requirements.  Lower sales, higher pension expense and restructuring charges as well as a reversal of variable compensation and defined contribution retirement accruals that benefited the fourth quarter of 2008 had an adverse effect on operating earnings comparisons, 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 of $153.4 million for the fourth quarter of 2009, down 38% compared with $248.0 million in the fourth quarter of 2008.  International sales, which represented 40% of total segment sales in the quarter, decreased by 51% during the period.  For the fourth quarter of 2009, the Boat segment reported an operating loss of $131.6 million, including impairment and restructuring charges of $58.3 million.  This compares with an operating loss of $59.4 million, including impairment and restructuring charges of $39.4 million, in the fourth quarter of 2008.


Boat manufacturing facilities also began to ramp up production during the quarter to address inventory requirements of their dealers, although production levels remained below the prior year quarter. Lower sales, reduced fixed-cost absorption on lower production volumes, higher discounts to support retail sales by dealers, higher impairment and restructuring charges, as well as a reversal of variable compensation and defined contribution retirement accruals that benefited the fourth quarter of 2008, had an adverse effect on operating earnings comparisons, 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 fourth quarter of 2009 totaled $146.4 million, down 15% from $171.8 million in the year-ago quarter.  International sales, which represented 52 percent of total segment sales in the quarter, declined by 10%.   For the quarter, the Fitness segment reported operating earnings of $20.5 million, including $0.5 million of restructuring charges.  This compares with operating earnings of $25.6 million, including restructuring charges of $1.2 million, in the fourth 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 during the quarter.  Lower operating earnings in the fourth quarter of 2009, when compared with 2008, reflect the unfavorable effect of lower sales and a reversal of variable compensation and defined contribution retirement accruals that benefited the fourth quarter of 2008, partially offset by actions taken by Life Fitness to reduce expenses, including improvements in material costs.


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 fourth quarter of 2009 totaled $82.2 million, down 27% compared with $113.2 million in the year-ago quarter.  For the quarter, the segment reported operating earnings of $2.2 million, including restructuring charges of $0.5 million.  This compares with operating earnings of $16.6 million, including impairment and restructuring charges of $3.8 million in the fourth quarter of 2008.


For the quarter, retail bowling equivalent-center sales declined by a mid-single-digit percentage.  The bowling products and the billiards businesses experienced greater sales declines, as bowling center operators and retail billiards customers remained cautious about purchases.  Lower operating earnings in the fourth quarter of 2009, when compared with 2008, reflect the unfavorable effect of the reduced sales, higher pension expenses and a reversal of variable compensation and defined contribution retirement accruals that benefited the fourth quarter of 2008, partially offset by Bowling & Billiards' cost reduction activities.


Outlook

 

“We remain committed to the strategic focus that has ensured our financial health and uniquely positioned us compared to most of our competitors in the marine, fitness and bowling and billiards segments,” McCoy said. “We will continue to focus on maintaining strong liquidity at our current net debt levels, taking all reasonable actions to strengthen our dealer network, and doing the work necessary to come out of this downturn stronger than when we began the period. 

 

“Although our plans reflect a modest reduction in retail marine demand, our boat facilities will gradually increase wholesale shipments throughout the year because dealer inventories are at historically low levels. The increase in wholesale boat shipments will require us to raise production rates throughout the year.  Additionally, although over-supply conditions still exist in the overall marine market, we believe that based on our 2009 achievements in lowering our dealer pipeline, the amount of discounts will be lower in 2010 as compared to 2009.

 

“The factors affecting our Boat segment should also lead to revenue growth in our engine business, but the anticipated sales improvement will be less due to the mix of businesses within the Marine Engine segment. Specifically, Mercury's parts and accessories business and its international operations, which together currently account for roughly 72 percent of the segment's revenues, are expected to grow at substantially lower rates than Brunswick's Boat segment.

 

“As a result of the favorable fundamentals affecting our marine segments, our plan reflects improved revenue and significantly reduced operating losses in 2010.  Additionally, our plan reflects that our Fitness and Bowling & Billiards segments will experience modest growth in both revenue and operating earnings.  Contributing to the decline in operating losses for the company are lower impairment and restructuring costs and pension expense.  Partially offsetting the improvement in operating losses will be slightly higher interest expense during 2010.

 

“Our extraordinary performance against our strategic goals in this recession has positioned Brunswick to transition from a focus on liquidity, to a focus on continuous improvement in financial results and strength relative to the competition in all of our business segments.

“So while the economy and markets in which our businesses operate may remain challenging for the foreseeable future, this transition requires that in 2010 and beyond, as the world's economies improve, we remain disciplined to: generate positive cash flow, perform better than the market in each of our business segments, and grow earnings faster than we grow sales,” McCoy concluded.