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MarketScreener Homepage  >  Equities  >  Nyse  >  Brunswick Corporation    BC

BRUNSWICK CORPORATION

(BC)
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BRUNSWICK : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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05/07/2020 | 01:13pm EDT
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations of Brunswick Corporation (Brunswick or the
Company) are forward-looking statements. Forward-looking statements are based on
current expectations, estimates, and projections about Brunswick's business and
by their nature address matters that are, to different degrees, uncertain.
Actual results may differ materially from expectations and projections as of the
date of this filing due to various risks and uncertainties. For additional
information regarding forward-looking statements, refer to Forward-Looking
Statements below.

Certain statements in the Management's Discussion and Analysis are based on
non-GAAP financial measures. GAAP refers to generally accepted accounting
principles in the United States. For example, the discussion of the Company's
cash flows includes an analysis of free cash flows and total liquidity; the
discussion of the Company's net sales includes a discussion of net sales on a
constant currency basis; the discussion of the Company's earnings includes a
presentation of operating earnings and operating margin excluding restructuring,
exit and impairment charges, purchase accounting amortization,
acquisition-related costs and other applicable charges; and diluted earnings per
common share, as adjusted. A "non-GAAP financial measure" is a numerical measure
of a registrant's historical or future financial performance, financial position
or cash flows that excludes amounts, or is subject to adjustments that have the
effect of excluding amounts, that are included in the most directly comparable
measure calculated and presented in accordance with GAAP in the consolidated
statements of operations, balance sheets or statements of cash flows of the
issuer; or includes amounts, or is subject to adjustments that have the effect
of including amounts, that are excluded from the most directly comparable
measure so calculated and presented. Non-GAAP financial measures do not include
operating and statistical measures.

The Company includes non-GAAP financial measures in Management's Discussion and
Analysis, as Brunswick's management believes that these measures and the
information they provide are useful to investors because they permit investors
to view Brunswick's performance using the same tools that management uses and to
better evaluate the Company's ongoing business performance. In order to better
align Brunswick's reported results with the internal metrics used by the
Company's management to evaluate business performance as well as to provide
better comparisons to prior periods and peer data, non-GAAP measures exclude the
impact of purchase accounting amortization related to the Power Products and
Freedom Boat Club acquisitions.

Brunswick does not provide forward-looking guidance for certain financial
measures on a GAAP basis because it is unable to predict certain items contained
in the GAAP measures without unreasonable efforts. These items may include
restructuring, exit and impairment costs, special tax items, acquisition-related
costs, and certain other unusual adjustments.

Impact of COVID-19


On March 11, 2020, the World Health Organization announced that infections of
the novel coronavirus (COVID-19) had become a world-wide pandemic. On March 13,
2020, the President of the United States announced a National Emergency relating
to the disease. National, state and local authorities have enforced social
distancing and imposed quarantine and isolation measures on large portions of
the population, including mandatory business closures. These measures have had
serious adverse impacts on domestic and foreign economies of uncertain severity
and duration. The effectiveness of economic stabilization efforts, including
government payments to affected citizens and industries, is uncertain.

On March 23, 2020, the Company temporarily suspended manufacturing operations at
most engine and boat production facilities to ensure the health and safety of
affected employees and to balance inventory levels with anticipated reductions
in near-term demand. Beginning on April 13, 2020, the Company resumed partial
operations and limited production activities in certain manufacturing
facilities. As of May 7, 2020, the Company's significant manufacturing
facilities in the U.S. and Europe are back on-line with new temperature
screening, distancing, and cleaning protocols. Engine manufacturing facilities
in China and Japan remain operational, boat manufacturing operations such as
Portugal and Poland are fully operational and delivering boats, and distribution
centers such as the Belgian distribution center have remained open and are
supporting its strong global dealer network.

Approximately 80 percent of the Company's dealer network remains open in some
capacity, including providing service, with a large majority of these dealers
having the capability to sell boats and engines to their customer base. Many
European dealers have been closed since mid-March and are slowly re-opening as
countries remove shelter-in-place requirements. The Company's distribution
businesses have continued to operate, allowing dealers to get boats in the
water. Freedom Boat Club has also been affected as many locations were closed in
April due to local stay-at-home orders. However, Freedom Boat Club
non-franchised, company operated locations have since reopened beginning May 1,
2020 with new measures in place to protect employee and member health.


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The Company will continue to actively monitor the impact of COVID-19 and may
take further actions that alter business operations as may be required by
government authorities, or that are determined to be in the best interest of the
Company's employees, customers, dealers, suppliers and stakeholders. The full
extent of the impact of COVID-19 on the Company's business, operations and
financial results will depend on evolving factors that the Company cannot
accurately predict. Refer to Part II. Item 1A. Risk Factors below for further
information.

Change in Reportable Segments


Effective January 1, 2020, the Company changed its management reporting and
updated its reportable segments to Propulsion, Parts and Accessories and Boat
(inclusive of Business Acceleration) to align with its strategy. Refer to Note
11 - Segment Data in the Notes to Condensed Consolidated Financial Statements
for further information.

CARES Act

On March 27, 2020, the President of the United States signed the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act). The tax provisions include
changes to the net operating loss rules, a temporary increase to the limitation
on deductible business interest expense, and accelerated depreciation on
qualified improvement property. In addition, the CARES Act has provisions
designed to encourage eligible employers to keep employees on their payroll,
despite experiencing economic hardship related to COVID-19, with an employee
retention tax credit (Employee Retention Credit). At this time, the Company does
not expect the CARES Act to have a material impact on the Company's results of
operations.

Under the CARES Act, the Company deferred approximately $4 million of U.S.
income tax payments from the first and second quarters to the third quarter of
2020 and approximately $2 million of non-U.S. tax payments from the first
quarter to a subsequent quarter in 2020. The Company expects to defer the
payment of approximately $18 million to $20 million of payroll taxes normally
due between March 27, 2020 and December 31, 2020. These payroll taxes will be
paid in two equal installments in the fourth quarters of 2021 and 2022.

Discontinued Operations


On June 27, 2019, the Company completed the sale of its Fitness business. This
business, which was previously reported as the Company's Fitness segment, is
being reported as discontinued operations for all periods presented.

The Company's results for all periods presented, as discussed in Management's
Discussion and Analysis, are presented on a continuing operations basis, unless
otherwise noted. Refer to Note 3 - Discontinued Operations in the Notes to
Condensed Financial Statements for further information.

                              Overview and Outlook

Overview


Net sales decreased 8 percent during the first quarter of 2020 when compared
with the first quarter of 2019, primarily attributed to suspension of production
at many of the Company's manufacturing facilities and stay at home policies as a
result of COVID-19. The Propulsion segment reported sales that were relatively
consistent with the first quarter of 2019 with continued strong demand for
higher horsepower outboard engine categories and related controls and systems,
which was offset by lower sales of lower horsepower outboards and sterndrive
engines as anticipated. The Parts and Accessories segment reported sales
reductions in the first quarter as strong sales growth from Power Products was
offset by lower sales of engine parts and consumables due to stay-at-home
policies that disrupted both dealer operations and boating activity towards the
end of the quarter, when sales are normally accelerating. Boat segment sales
decreased, more than anticipated, due to the temporary manufacturing suspensions
at the end of the first quarter. International net sales for the Company
decreased 5 percent and 2 percent in the first quarter on a GAAP and constant
currency basis, respectively, due to manufacturing suspensions and stay-at-home
policies globally, although in Asia, the Propulsion segment experienced an
increase in sales of larger horsepower engines to commercial customers.

Operating earnings in the first quarter of 2020 were $103.2 million and included
$7.5 million of purchase accounting amortization, $0.7 million of acquisition
related costs, $0.7 million of IT transformation costs resulting from the sale
of the Fitness business, and $0.4 million of restructuring, exit, and impairment
charges. On an as adjusted basis, excluding these items, operating earnings for
the first quarter of 2020 were $112.5 million leading to an operating margin of
11.7 percent. In the first quarter of 2019, the Company reported operating
earnings of $114.1 million including $7.2 million of purchase accounting
amortization and restructuring, exit and impairment charges of $3.2 million. On
an as adjusted basis, excluding these items, operating earnings in the first
quarter of 2019 were $124.5 million with an operating margin of 11.8 percent.

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Outlook

Despite the challenging economic environment ahead, the Company continues to
execute operating and strategic priorities. Safely restarting production of all
manufacturing facilities is a common goal throughout the organization, as well
as a continued emphasis on structural cost reduction programs and general cost
controls. These measures will benefit the Company in the long-term.

The Company anticipates the global market will be down significantly in the
second quarter of 2020 with declines moderating over the second half of the
year. The Company projects the U.S. marine industry retail unit demand for the
full-year to be down high-teens to low-twenties percent from 2019 levels.
Additionally, the Company assumes that wholesale shipment comparisons will be
slightly better than retail in the back-half of the year due to favorable
comparisons as a result of pipeline reduction actions completed in the second
half of 2019. Assuming boat usage trends normalize in the back half of the year,
the Company expects that parts and accessories sales will be slightly below 2019
levels, with the aftermarket portion of the business performing at or slightly
above prior year.

For the Propulsion segment, the Company is focusing to satisfy outboard engine
demand as well as expanding market share, specifically in the 175 and above
horsepower categories, leveraging recently completed investments in production
capacity for higher horsepower engines. The Company expects benefits from
improved mix as we meet greater levels of demand in the dealer, repower and
international channels. The Company will continue to focus on further developing
new product platforms and technology for engines and related controls systems
and investing in new products that will enable top-line and earnings growth in
the future. For the Parts and Accessories segment, the Company assumes boat
usage trends will normalize in the back half of the year, despite the
continuation of social distancing measures in the near future. The Parts and
Accessories segment is approximately 75 percent aftermarket-based and therefore,
is better equipped to perform in challenging economic conditions as boaters are
expected to use their product and generate the need for replacement parts and
accessories. Power Products continues to be the market leader in electrical
systems and products and continues to perform consistently with its long-term
projections since acquisition. For the Boat segment, the Company anticipates
revenue levels to be influenced by retail activity over the remainder of 2020.
The Company will continue to monitor market demand and adjust production plans
accordingly to appropriately manage inventory pipelines in the near future.

Despite the uncertainty and a challenging times ahead, the Company believes it
will be able to operate profitably in the quarter, with positive free cash flow,
given the strength of the Parts and Accessories segment, the Company's variable
cost structure, and the safe restart of production that is well underway.

The Company anticipates its effective tax rate in 2020 to be between 21 and 22 percent based on the existing tax law.

                        Matters Affecting Comparability

Certain events have occurred which the Company believes affect the comparability
of the results of operations. The table below summarizes the impact of changes
in currency exchange rates, recent acquisitions on the Company's net sales:
                                                           Three Months Ended
                                      Net Sales                              2020 vs. 2019
                               March 28,      March 30,                      Constant         Acquisition
(in millions)                    2020            2019          GAAP       Currency Sales        Benefit
Propulsion                   $     448.6$    452.4         (0.8 )%     (0.0)%                  - %
Parts & Accessories                301.6          313.6         (3.8 )%       (3.0 )%               - %
Boat                               291.5          373.3        (21.9 )%      (23.5 )%             2.0 %
Marine Eliminations                (76.2 )        (88.6 )      (14.0 )%      (13.9 )%               - %
Total                        $     965.5$  1,050.7         (8.1 )%       (7.9 )%             1.0 %



Acquisitions.  The Company completed an acquisition in 2019, which affected the
comparability of net sales. The impact on consolidated and segment sales
comparisons are reflected above. Refer to Note 5 - Acquisitions in the Notes to
Condensed Consolidated Financial Statements for further information.

Changes in Foreign Currency Rates. Percentage changes in net sales expressed in
constant currency reflect the impact that changes in currency exchange rates had
on comparisons of net sales. To determine this information, net sales transacted
in currencies

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other than U.S. dollars have been translated to U.S. dollars using the average
exchange rates that were in effect during the comparative period. The percentage
change in net sales expressed on a constant currency basis better reflects the
changes in the underlying business trends, excluding the impact of translation
arising from foreign currency exchange rate fluctuations. Approximately 22
percent of the Company's annual net sales are transacted in a currency other
than the U.S. dollar. The Company's most material exposures include sales in
Euros, Canadian dollars, Australian dollars and Brazilian reais.

Additionally, operating earnings were negatively affected by foreign exchange
rates by approximately $7 million in the first quarter of 2020 when compared
with the same period in 2019. These estimates include the impact of translation
on all sales and costs transacted in a currency other than the U.S. dollar and
the impact of hedging activities.

Acquisition and IT transformation-related costs. In connection with the Freedom
Boat Club acquisition in the second quarter of 2019, the Company recorded $0.7
million of costs in Selling, general and administrative expense (SG&A) within
the Boat segment. In addition, the Company also recorded $0.7 million in the
three months ended March 28, 2020, of IT transformation costs in SG&A within
Corporate/Other resulting from the sale of the Fitness business.

Restructuring, exit, and impairment charges. The Company recorded restructuring,
exit, and impairment charges during the three months ended March 28, 2020 and
March 30, 2019 of $0.4 million and $3.2 million respectively. Refer to Note 4 -
Restructuring, Exit and Impairment Activities in the Notes to Condensed
Consolidated Financial Statements for further information.

Tax items. The Company recognized an income tax provision for the three months
ended March 28, 2020 of $18.4 million. The income tax provision included a net
benefit of $0.8 million primarily related to net excess tax benefits related to
share-based compensation. The Company recognized an income tax provision for the
three months March 30, 2019 of $18.8 million which included net tax benefits of
$2.8 million primarily related to state tax rate changes and net excess tax
benefits related share-based compensation. The excess tax benefit for the three
months ended March 28, 2020 and March 30, 2019, was $0.5 million and $1.2
million, respectively. The effective tax rate, which was calculated as the
income tax provision as a percentage of earnings before income taxes, for the
three months ended March 28, 2020 was 20.7 percent. The effective tax rate for
the three months ended March 30, 2019 was 19.8 percent. Refer to Note 13 -
Income Taxes in the Notes to Condensed Consolidated Financial Statements for
further details.


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                             Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships calculated from the Condensed Consolidated Statements of Comprehensive Income for the three months ended:

                                          March 28,      March 30,           $              %
(in millions, except per share data)        2020            2019          Change         Change
Net sales                               $     965.5$  1,050.7$    (85.2 )         (8.1 )%
Gross margin(A)                               243.8          279.5          (35.7 )        (12.8 )%
Restructuring, exit and impairment
charges                                         0.4            3.2           (2.8 )        (87.5 )%
Operating earnings                            103.2          114.1          (10.9 )         (9.6 )%
Net earnings from continuing operations        70.7           76.2          

(5.5 ) (7.2 )%


Diluted earnings per common share from
continuing operations                   $      0.88$     0.87$     0.01            1.1  %

Expressed as a percentage of Net sales:
Gross margin (A)                               25.3 %         26.6 %                  (130) bpts
Selling, general and administrative
expense                                        11.5 %         12.7 %                  (120) bpts
Research and development expense                3.0 %          2.7 %                     30 bpts
Restructuring, exit and impairment
charges                                         0.0 %          0.3 %                   (30) bpts
Operating margin                               10.7 %         10.9 %                   (20) bpts



NM = not meaningful
bpts = basis points

(A) Gross margin is defined as Net sales less Cost of sales as presented in the

Condensed Consolidated Statements of Comprehensive Income.




The following is a summary of Adjusted operating earnings and Adjusted diluted
earnings per common share from continuing operations for the three month ended
March 28, 2020 when compared with the same prior year comparative period:
                                                    Operating Earnings      

Diluted Earnings (Loss) Per Share

                                                 March 28,      March 30,          March 28,              March 30,
(in millions, except per share data)                2020           2019              2020                   2019
GAAP                                            $   103.2$    114.1     $          0.88         $          0.87
Restructuring, exit, and impairment charges           0.4             3.2                0.00                    0.03
Purchase accounting amortization                      7.5             7.2                0.06                    0.06
Acquisition and IT transformation related costs       1.4               -                0.02                       -
Special tax items                                       -               -               (0.00 )                 (0.02 )
As Adjusted                                     $   112.5$    124.5     $          0.96         $          0.94

Operating margin GAAP                                10.7 %          10.9 %
Operating margin, as adjusted                        11.7 %          11.8 %



Net sales decreased 8 percent during the first quarter of 2020 when compared
with the same prior year period. Refer to the Propulsion, Parts and Accessories,
and Boat segments for further details on the drivers of net sales changes.

Gross margin percentage decreased 130 basis points, in the first quarter of
2020 when compared with the same prior year period, reflecting the impacts of
manufacturing suspensions and stay at home policies, unfavorable changes in
foreign exchange rates, and tariffs, which were partially offset by favorable
sales mix.

Selling, general and administrative expense (SG&A) decreased during the first
quarter of 2020 when compared with the same prior year period. SG&A included
purchase accounting amortization, acquisition and IT transformation-related
costs, as applicable. Excluding these items, SG&A as a percentage of sales was
lower in the first quarter of 2020 compared with the same prior year

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period, reflecting the impact of cost control measures. Research and development expense was relatively consistent in 2020 versus 2019, reflecting continued investment in new products in all segments.


The Company recorded restructuring, exit and impairment charges of $0.4 million
during the three months ended March 28, 2020 and recorded $3.2 million during
the three months ended March 30, 2019. Refer to Note 4 - Restructuring, Exit and
Impairment Activities in the Notes to Condensed Consolidated Financial
Statements for further information.

The Company recorded Equity earnings of $1.8 million and $1.9 million in the
three months ended March 28, 2020 and March 30, 2019, respectively, which were
mainly related to the Company's marine and technology-related joint ventures.

The Company recognized $0.7 million and $(1.6) million in Other income (expense), net in the three months ended March 28, 2020 and March 30, 2019, respectively. Other income (expense), net primarily includes other postretirement benefit costs and remeasurement gains and losses resulting from changes in foreign currency rates.


Net interest expense decreased for the three months ended March 28, 2020 when
compared with the same prior year period due to reduction in average daily debt
outstanding, which was influenced by the timing of debt retirements and debt
issuances. Refer to Note 15 - Debt in the Notes to Condensed Consolidated
Financial Statements and Note 16 in the Notes to Consolidated Financial
Statements in the 2019 Form 10-K.

The Company recognized an income tax provision for the three months ended
March 28, 2020 of $18.4 million. The income tax provision for the period
included a net benefit of $0.8 million primarily associated with the net excess
tax benefits related to share-based compensation. The Company recognized an
income tax provision for the three months ended March 30, 2019 of $18.8 million,
which included a net benefit of $2.8 million primarily related to state tax rate
changes and net excess tax benefits related to share-based compensation. The
excess tax benefit for the three months ended March 28, 2020 and March 30, 2019,
was $0.5 million and $1.2 million, respectively.

The effective tax rate, which is calculated as the income tax provision as a
percentage of earnings before income taxes, for the three months ended March 28,
2020 was 20.7 percent and 21.3 percent on an as adjusted basis. The effective
tax rate for the three months ended March 30, 2019 was 19.8 percent and 21.5
percent on an as adjusted basis.

Due to the factors described in the preceding paragraphs, operating earnings and
net earnings from continuing operations decreased. Diluted earnings per common
share from continuing operations increased during the first quarter of 2020 when
compared with the same prior year period due to lower weighted shares
outstanding due to share repurchases in 2019 and during the first quarter in
2020.

Propulsion Segment

The following table sets forth Propulsion segment results for the three months
ended:
                    March 28,      March 30,         $          %
(in millions)          2020           2019        Change      Change
Net sales          $    448.6$    452.4$ (3.8 )      (0.8 )%
Operating earnings       61.3           59.9        1.4         2.3  %
Operating margin         13.7 %         13.2 %              50 bpts



bpts = basis points

The Propulsion segment net sales slightly decreased in the first quarter versus
2019. Net sales benefited from continued robust demand for higher horsepower
outboard engine categories introduced in 2018 and 2019, particularly in the 175
and above horsepower categories, and related controls and systems. The
Propulsion segment continues to gain market share in high horsepower engines,
specifically in saltwater markets. This increase was more than offset by
unfavorable absorption due to lower production, and lower sales of outboard
engines 150 horsepower and below and sterndrive engines, as anticipated.

International net sales were 35 percent of the segment's net sales through the
first quarter of 2020 and increased 11 percent from the prior year on a GAAP
basis. On a constant currency basis, international net sales increased 14
percent mainly due to increases in China and Asia-Pacific, particularly in
higher horsepower engines in commercial applications, partially offset by
declines in Europe and Canada, resulting mostly from the impact of COVID-19
related manufacturing suspensions and stay-at-home policies on original
equipment manufacturer (OEM) and dealer customers.


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Propulsion segment operating earnings for the quarter was $61.3 million, an
increase of 2 percent, which was the result of favorable changes in cost control
measures and favorable changes in sales mix, partially offset by unfavorable
changes in foreign exchange rates, tariffs, and volume declines due to
manufacturing suspensions from COVID-19.

Parts & Accessories Segment


The following table sets forth Parts and Accessories (P&A) segment results for
the three months ended:
                                   March 28,        March 30,            $               %
(in millions)                         2020             2019           Change          Change
Net sales                        $      301.6$      313.6$     (12.0 )         (3.8 )%

Operating Earnings GAAP          $       46.2$       47.8            (1.6 )         (3.3 )%
Purchase accounting amortization          7.2              7.2               -              -  %
Restructuring, exit and
impairment charges                        0.3                -             0.3             NM
Operating Earnings, as adjusted  $       53.7$       55.0            (1.3 )         (2.4 )%

Operating margin GAAP                    15.3 %           15.2 %                      10 bpts
Operating margin, as adjusted            17.8 %           17.5 %                      30 bpts



NM = not meaningful
bpts = basis points

The P&A segment net sales decreased $12 million, or 4 percent in the first quarter of 2020 versus the first quarter of 2019, as strong sales growth at Power Products was offset by lower sales in other business categories. The decrease in sales was primarily due to stay at home policies as a result of COVID-19, which disrupted both dealer operations and boat activity in many locations towards the end of the first quarter, at a time when seasonal sales are usually accelerating.


International sales were 30 percent of the P&A segment's net sales in the first
quarter of 2020 and decreased 9 percent year over year on a GAAP basis. On a
constant currency basis, international net sales decreased 6 percent as
increases in Asia-Pacific were offset by declines in most other regions due to
the impact of stay-at-home policies.

P&A segment operating earnings for the quarter were $46.2 million, a decrease of 3 percent, which was relatively consistent the revenue decline.

Boat Segment


The following table sets forth Boat segment results for the three months ended:
                                       March 28,       March 30,           $              %
(in millions)                            2020            2019           Change         Change
Net sales                            $     291.5$     373.3$    (81.8 )        (21.9 )%

Operating Earnings GAAP              $       5.1$      27.0          (21.9 )        (81.1 )%
Restructuring, exit and impairment
charges                                        -             2.0           (2.0 )           NM
Acquisition related cost                     0.7               -            0.7             NM
Purchase accounting amortization             0.3               -            0.3             NM
Operating Earnings, as adjusted      $       6.1$      29.0          (22.9 )        (79.0 )%

Operating margin GAAP                        1.7 %           7.2 %                  (550) bpts
Operating margin, as adjusted                2.1 %           7.8 %                  (570) bpts



NM = not meaningful
bpts = basis points


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Boat segment net sales decreased $81.8 million, or 22 percent in the first
quarter of 2020 versus the first quarter of 2019. The Boat segment net sales
were affected by temporary suspension of manufacturing and shipping in most
plants towards the end of the quarter as a result of COVID-19. Premium boat
brands continue to perform strongly at retail, including Boston Whaler, the
market leader in the saltwater fishing category. However, sales declined in the
quarter due to challenging comparisons versus 2019, due partially to the
continued production ramp up of new models in 2020. International sales were 26
percent of the segment's net sales in the first three months of 2020 and
decreased 24 percent on a GAAP basis. On a constant currency basis,
international sales decreased 22 percent, reflecting declines in Canada and
Rest-of-World.

Boat segment operating earnings for the quarter was $5.1 million, a decrease of
81 percent as a result of lower volume, along with less favorable sales mix and
higher retail discounts offered to lower non-current pipeline inventories. These
negative factors were partly offset by benefits from cost reduction measures.

Corporate/Other


The following table sets forth Corporate/Other results for the three months
ended:
                                            March 28,     March 30,         $         %
(in millions)                                 2020           2019        Change    Change
Operating loss GAAP                        $    (9.4 )$    (20.6 )$ 11.2      54.4 %
Restructuring, exit and impairment charges       0.1            1.2       (1.1 )      NM
IT transformation cost                           0.7              -        0.7        NM
Operating loss, as adjusted                $    (8.6 )$    (19.4 )     10.8      55.7 %



NM = not meaningful

Corporate operating expenses decreased 54 percent in the first quarter versus
2019, as a result of several factors which included cost reduction measures, a
reduction in bonus accruals due to market conditions, and favorable
mark-to-market adjustments for deferred compensation arrangements.

                   Cash Flow, Liquidity and Capital Resources

The following table sets forth an analysis of free cash flow for the three
months ended:
                                                                 March 28,      March 30,
(in millions)                                                       2020           2019
Net cash used for operating activities of continuing operations $    (83.9 )$    (73.2 )
Net cash provided by (used for):
Plus: Capital expenditures                                           (55.9 )        (86.2 )
Plus: Proceeds from the sale of property, plant and equipment          0.4              -
Plus: Effect of exchange rate changes                                 (4.4 )          0.3
Total free cash flow from continuing operations (A)             $   (143.8 

) $ (159.1 )




(A) The Company defines "Free cash flow" as cash flow from operating and
investing activities of continuing operations (excluding cash provided by or
used for acquisitions, investments, purchases or sales/maturities of marketable
securities and other investing activities) and the effect of exchange rate
changes on cash and cash equivalents. Free cash flow is not intended as an
alternative measure of cash flow from operations, as determined in accordance
with GAAP in the United States. The Company uses this financial measure both in
presenting its results to shareholders and the investment community and in its
internal evaluation and management of its businesses. Management believes that
this financial measure and the information it provides are useful to investors
because it permits investors to view Brunswick's performance using the same tool
that management uses to gauge progress in achieving its goals. Management
believes that the non-GAAP financial measure "Free cash flow" is also useful to
investors because it is an indication of cash flow that may be available to fund
investments in future growth initiatives.

Brunswick's major sources of funds for capital investments, acquisitions, share
repurchase programs and dividend payments are cash generated from operating
activities, available cash and marketable securities balances, proceeds from
divestitures and potential borrowings. The Company evaluates potential
acquisitions, divestitures and joint ventures in the ordinary course of
business.


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2020 Cash Flow


Net cash used for operating activities of continuing operations in the first
three months of 2020 totaled $83.9 million versus $73.2 million in the
comparable period of 2019. This comparison reflected lower earnings, net of
non-cash items (depreciation and amortization, impairments and income tax
impacts not yet realized in cash) offset by reduced capital expenditures.
Working capital is defined as Accounts and notes receivable, Inventories and
Prepaid expenses and other, net of Accounts payable and Accrued expenses as
presented in the Condensed Consolidated Balance Sheets, excluding the impact of
acquisitions and non-cash adjustments. Accounts and notes receivable increased
$143.2 million primarily due to seasonal changes in sales in the Propulsion and
P&A segments. Inventory increased $15.6 million, driven by the impact of
temporary production suspensions in response to COVID-19, which resulted in
slightly higher increases in raw material and work-in-process inventories.
Accrued expenses decreased $15.6 million, primarily driven by payment of prior
year variable compensation, which had been accrued as of December 31, 2019.
Accounts payable decreased $13.3 million primarily due to timing of payments and
lower production levels across all reportable segments due to temporary
production suspensions in response to COVID-19.

Net cash used for investing activities of continuing operations was $59.1
million, which included capital expenditures of $55.9 million. The Company's
capital spending was significantly lower than prior year as the Company deferred
capital spending related to lower priority projects.

Net cash provided by financing activities was $325.2 million and primarily
related to net proceeds from issuances from short-term debt, which exceeded
common stock repurchases and cash dividends paid to common shareholders. Refer
to Note 15 - Debt in the Notes to Condensed Consolidated Financial Statements
for further details on the Company's debt activity during the quarter.

2019 Cash Flow


In the first three months of 2019, net cash used for operating activities of
continuing operations totaled $73.2 million. The primary driver of the cash
provided by operating activities was net earnings net of non-cash expense items,
offset by seasonal increase in working capital. Accounts and notes receivable
increased $147.5 million due primarily to seasonal changes in net sales and
timing of collections in the Propulsion segment. Inventory increased $43.6
million primarily driven by increases to support higher production volumes in
advance of the marine selling season. Accrued expenses decreased $24.5 million
driven by payment of prior year's variable compensation, which had been accrued
as of December 31, 2018. Accounts payable increased $13.1 million, primarily
driven by timing of payments.
Net cash used for investing activities during the first three months of 2019
totaled $91.9 million, primarily driven by capital expenditures of $86.2
million. The Company's capital spending focused on investments in new products
as well as capacity expansion initiatives.

Net cash provided by financing activities was $38.2 million during the first
quarter of 2019. The cash inflow was related to net issuances of long-term debt,
partially offset by cash dividends paid to common shareholders.

Liquidity and Capital Resources


The Company views its highly liquid assets as of March 28, 2020, December 31,
2019 and March 30, 2019 as:
                                                         March 28,      December 31,       March 30,
(in millions)                                              2020             2019             2019
Cash and cash equivalents                              $     502.9$       320.3$     161.5
Short-term investments in marketable securities                0.8               0.8             0.8

Total cash, cash equivalents and marketable securities $ 503.7 $

   321.1     $     162.3




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The following table sets forth an analysis of total liquidity as of March 28, 2020, December 31, 2019 and March 30, 2019:

                                                      March 28,      December 31,       March 30,
(in millions)                                           2020             2019             2019

Cash, cash equivalents and marketable securities $ 503.7$ 321.1$ 162.3 Amounts available under lending facility (A)

                2.9             387.9           396.4
Total liquidity (B)                                 $     506.6$       709.0$     558.7



(A) See Note 15 - Debt in the Notes to Condensed Consolidated Financial
Statements for further details on the Company's lending facility.
(B) The Company defines Total liquidity as Cash and cash equivalents and
Short-term investments in marketable securities as presented in the Condensed
Consolidated Balance Sheets, plus amounts available for borrowing under its
lending facilities. Total liquidity is not intended as an alternative measure to
Cash and cash equivalents and Short-term investments in marketable securities as
determined in accordance with GAAP in the United States. The Company uses this
financial measure both in presenting its results to shareholders and the
investment community and in its internal evaluation and management of its
businesses. Management believes that this financial measure and the information
it provides are useful to investors because it permits investors to view the
Company's performance using the same metric that management uses to gauge
progress in achieving its goals. Management believes that the non-GAAP financial
measure "Total liquidity" is also useful to investors because it is an
indication of the Company's available highly liquid assets and immediate sources
of financing.

Cash, cash equivalents and marketable securities totaled $503.7 million as
of March 28, 2020, an increase of $182.6 million from $321.1 million as of
December 31, 2019, and an increase of $341.4 million from $162.3 million as of
March 30, 2019. Total debt as of March 28, 2020, December 31, 2019 and March 30,
2019 was $1,494.7 million, $1,109.3 million and $1,286.5 million,
respectively. The Company's debt-to-capitalization ratio was 53.4 percent as of
March 28, 2020, up from 46.0 percent as of December 31, 2019 and from 45.7
percent as of March 30, 2019.

During the first three months of 2020, the Company borrowed a total of $385.0
million under the Credit Facility. The maximum amount utilized under the Credit
Facility during the period, including letters of credit outstanding, was $387.9
million. The Company borrowed $215.0 million under the credit facility, all of
which was repaid during the first quarter of 2019.

The level of borrowing capacity under the Company's credit revolving facility is
limited by both a leverage and interest coverage test. These covenants also
pertain to termination provisions included in the Company's wholesale financing
joint venture arrangements with Wells Fargo Distribution Finance. Based on the
Company's anticipated earnings generation throughout the year, the Company
expects to maintain sufficient cushion against the existing debt covenants and
will continue to monitor opportunities to increase liquidity.

2020 Cash Flow Outlook and Capital Plan


Net activity in working capital is projected to reflect a usage of cash in 2020
in the range of $40 million to $60 million. Additionally, the Company is
planning for capital expenditures in the range of approximately $150 million to
$160 million, including investments in critical product programs and digital
initiatives that will drive future earnings growth and market share gains, which
also reflects the deferral of lower priority projects. Including these and other
factors, the Company plans to generate free cash flow in 2020 in excess of $125
million.

The Company ended the first quarter of 2020 with approximately $515 million of
cash on hand, which included proceeds from the Company's drawn-down revolver. As
a result of the retail bond issuances undertaken after the Power Products
acquisition, the Company's maturity profile has been greatly extended, with no
significant long-term debt maturities until 2023. The Company plans on reducing
debt outstanding by $40 million in 2020, consistent with scheduled maturities,
which will be funded from free cash flow. The Company estimates net interest
expense of $70 million, which reflects higher borrowings under the revolving
credit facility.

The Company repurchased $34.1 million of shares in the first three months of
2020, lowering the total remaining authorization to $200.7 million. Due to
global economic uncertainty, the Company suspended all share repurchase activity
for the remainder of 2020.

The Company estimated its effective tax rate to be between 21 and 22 percent for the year, with cash tax rate to be in the low double digit percentage range.

Financing Joint Venture

Through the Company's Brunswick Financial Services Corporation subsidiary, Brunswick owns a 49 percent interest in a joint venture, Brunswick Acceptance Company, LLC (BAC). Under the terms of the joint venture agreement, BAC provides

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secured wholesale inventory floorplan financing to Brunswick's boat and engine
dealers. A subsidiary of Wells Fargo & Company owns the remaining 51 percent.
The Company's financial services joint venture, Brunswick Acceptance Company,
LLC, is detailed in the 2019 Form 10-K.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company's off-balance sheet arrangements and contractual obligations, as of December 31, 2019, are detailed in the 2019 Form 10-K. There have been no material changes in these arrangements and obligations outside the ordinary course of business since December 31, 2019.

Environmental Regulation

There were no material changes in the Company's environmental regulatory requirements since the filing of its 2019 Form 10-K.

Critical Accounting Policies

There were no further material changes in the Company's critical accounting policies since the filing of its 2019 Form 10-K.


As discussed in the 2019 Form 10-K, the preparation of the consolidated
financial statements in conformity with GAAP requires management to make certain
estimates and assumptions that affect the amount of reported assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and revenues and expenses during the
periods reported. Actual results may differ from those estimates.

Recent Accounting Pronouncements

Refer to Note 1 - Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements for the recent accounting pronouncements that have been adopted during the three months ended March 28, 2020, or will be adopted in future periods.

Forward-Looking Statements


Certain statements in this Quarterly Report on Form 10-Q are forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on current expectations, estimates, and
projections about Brunswick's business and by their nature address matters that
are, to different degrees, uncertain. Words such as "may," "could," "expect,"
"anticipate," "intend," "position," "intend," "target," "plan," "seek,"
"estimate," "believe," "predict," "outlook," "project," "outlook," "goal," and
similar expressions are intended to identify forward-looking statements.
Forward-looking statements are not guarantees of future performance and involve
certain risks and uncertainties that may cause actual results to differ
materially from expectations as of the date of this Quarterly Report on Form
10-Q. These risks include, but are not limited to: the novel coronavirus
(COVID-19) pandemic, including, without limitation, the impact on global
economic conditions and on capital and financial markets, changes in consumer
behavior and demand, the potential unavailability of personnel or key
facilities, modifications to the Company's operations, and the potential
implementation of regulatory actions; the effect of adverse general economic
conditions, including the amount of disposable income consumers have available
for discretionary spending, tight consumer credit markets, and the level of
consumer confidence on the demand for our products and services; our ability to
successfully implement our strategic plan and growth initiatives; our ability to
integrate targeted acquisitions, including the Global Marine & Mobile Business
of Power Products; the risk that unexpected costs will be incurred in connection
with these transactions; the possibility that the expected synergies and value
creation from these transactions will not be realized or will not be realized
within the expected time period; having to record an impairment to the value of
goodwill and other assets; changes to U.S. trade policy and tariffs; the
inability to identify and complete targeted acquisitions; negative currency
trends, including shifts in exchange rates; fiscal policy concerns; adequate
financing access for dealers and customers and our ability to access capital and
credit markets; maintaining effective distribution; adverse economic, credit,
and capital market conditions; loss of key customers; attracting and retaining
skilled labor, implementing succession plans for key leadership, and executing
organizational and leadership changes; inventory reductions by dealers,
retailers, or independent boat builders; requirements for us to repurchase
inventory; actual or anticipated increases in costs, disruptions of supply, or
defects in raw materials, parts, or components we purchase from third parties,
including as a result of new tariffs on raw materials, increased demand for
shipping carriers, and transportation disruptions; higher energy and fuel costs;
our ability to protect our brands and intellectual property; absorbing fixed
costs in production; managing our manufacturing footprint; outages, breaches, or
other cybersecurity events regarding our technology systems, which could result
in lost or stolen information and associated remediation costs; managing our
share repurchases; competitive pricing pressures; our ability to develop new and
innovative products and services at a competitive price, in legal

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compliance with existing rules; maintaining product quality and service
standards; product liability, warranty, and other claims risks; legal and
regulatory compliance, including increased costs, fines, and reputational risks;
changes in income tax legislation or enforcement; certain divisive shareholder
activist actions; joint ventures that do not operate solely for our benefit;
international business risks; and weather and catastrophic event risks.

Additional risk factors are included in the 2019 Form 10-K and in Item 1A. Risk
Factors in Part II - Other Information below. Forward-looking statements speak
only as of the date on which they are made, and Brunswick does not undertake any
obligation to update them to reflect events or circumstances after the date of
this Quarterly Report on Form 10-Q.

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