Corporate and Financial
Brunswick Reports EPS of $0.89 in Third Quarter; On Track for Record Earnings in 2005
LAKE FOREST, Ill., Oct. 28 /PRNewswire-FirstCall/ -- Brunswick Corporation
(NYSE: BC) reported today net earnings of $88.4 million, or $0.89 per diluted
share, for the third quarter of 2005, compared with net earnings of $72.9
million, or $0.75 per diluted share, for the year-ago quarter. The company
said diluted earnings per share include $0.16 and $0.10 in the third quarters
of 2005 and 2004, respectively, from tax-related items, discussed below.
"We reported a good third quarter with sales up 13 percent. When you
factor in the combined effects of high fuel prices, lower consumer confidence
and two hurricanes, we are very pleased with our results," commented Brunswick
Chairman and Chief Executive Officer George W. Buckley. "Sales growth was
driven by strong contributions from Brunswick New Technologies, good
performance from our marine businesses, as well as acquisitions completed
since the end of 2004. Excluding acquisitions, our organic sales growth was 7
percent, led by significant gains from some of our most established boat
brands. Operating earnings rose 7 percent in the third quarter, and operating
margins declined slightly by 40 basis points to 7.4 percent. This was
primarily due to higher investment spending to expand our global manufacturing
footprint and to develop new products, the shift in product mix to low-
emission outboard engines, and the impact of lower production rates to
maintain pipeline inventories at healthy levels as we enter the off-season."
"From a balance sheet perspective, we ended the quarter in excellent
shape," Buckley added. "Debt-to-total capital was 26.9 percent at quarter
end, compared with 30.7 percent a year earlier. For the first nine months of
2005, we generated $164.5 million of free cash flow. With cash totaling
$535.9 million at quarter end, we have significant financial flexibility to
invest in our core businesses, to make acquisitions and to repurchase stock."
The company said that during the third quarter of 2005, it repurchased 375,000
shares of Brunswick common stock at an average price of $41.90 per share. To
date in the fourth quarter of 2005, the company has repurchased an additional
1 million shares of common stock at an average price of $37.80 per share.
Third Quarter Results
For the quarter ended Sept. 30, 2005, net sales increased 13 percent to
$1,434.6 million, up from $1,273.2 million a year earlier. Operating earnings
rose 7 percent to $105.9 million compared with $99.3 million in the year-ago
quarter, and operating margins were down slightly to 7.4 percent from 7.8
percent. Net earnings totaled $88.4 million, or $0.89 per diluted share, up
21 percent from $72.9 million, or $0.75 per diluted share, for the third
quarter of 2004. The company said that net earnings and diluted earnings per
share in both 2005 and 2004 benefited from lower tax provisions.
Tax Provisions
Due to the large growth opportunities emerging in Europe and Asia, the
company said that earnings from certain of its foreign subsidiaries would be
indefinitely reinvested outside of the United States, resulting in a change in
the application of APB 23, "Accounting for Income Taxes - Special Areas,"
effective July 1, 2005, for those entities. Further, the company said it had
refined its tax planning strategies for research and foreign export tax
benefits. The cumulative effect of these actions reduced the company's tax
provision for the third quarter of 2005, which benefited earnings by
approximately $0.16 per diluted share.
In the third quarter 2004, the Internal Revenue Service completed its
routine audit of tax years 1998 through 2001. Following the completion of the
examination of this four-year period, Brunswick reduced its tax reserves and,
consequently, its tax provision, by approximately $10 million, or
approximately $0.10 per diluted share, in the third quarter of 2004.
"We have made a concerted effort these past five years to reduce our
effective tax rate through good tax planning and by supporting manufacturing
investments in low-cost and low-tax-rate areas. These efforts have produced a
steady reduction in tax rates over time, and we expect that to continue. In
the third quarter, we lowered our estimated full-year effective tax rate for
2005 to 30.6 percent from 32 percent for the first half of 2005, and we
estimate that for 2006 it will remain in the 30 percent to 31 percent range,"
Buckley noted. For 2004, the company's full-year effective tax rate was 31.4
percent. The 2005 and 2004 effective tax rates exclude the impact of the tax
items noted above.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group and
Brunswick New Technologies (BNT), reported net sales of $643.4 million in the
third quarter of 2005, up 12 percent from $575.5 million in the year-ago
quarter. Operating earnings in the third quarter decreased 8 percent to $64.9
million versus $70.7 million, while operating margins declined to 10.1 percent
from 12.3 percent for the same quarter in 2004.
"BNT and Mercury's international operations led the sales gain for the
segment during the quarter," Buckley said. "BNT sales were up 82 percent for
the period, with Navman once again the source of this growth, nearly doubling
its sales from the year-ago quarter. Navman continues to expand its offerings
of GPS-based land navigation products, as well as its marine electronics
products."
"Though Hurricanes Katrina and Rita caused disruptions, outboard and
sterndrive sales still grew in single digits during the quarter," Buckley
said. "We are also working through the migration of our customers from
conventional two-stroke outboard engines to low-emission outboards, which are
a growing percentage of our sales mix. Low-emission engines accounted for 95
percent of Mercury's outboard sales during the third quarter, up from 63
percent a year ago. This transition affects operating margins for the segment
as low-emission engines are more technically complex, have higher-cost
components and, consequently, lower margins."
The company said that segment operating margins were also affected by
higher research and development spending for new products, cost of new product
launches, lower production rates, and start-up spending for Asian
manufacturing plants. "As we ramp up production and realize cost reductions
at these facilities, we anticipate margin improvement for the segment,"
Buckley added.
"Managing pipeline inventories is especially important in a cyclical
business. While retail demand remains robust, to ensure that our production
is in alignment with wholesale demand, we selectively reduced production rates
in some product areas during the quarter," Buckley said. "Due to the seasonal
nature of the marine industry, we would typically see inventories begin to
build during the third quarter from levels at the end of June. In this
quarter, however, engine pipeline inventories declined by one week to 19 weeks
of supply at the end of September, a very healthy level for this time of the
year. As we announced last month, we will adjust production rates as needed
to ensure that inventories remain healthy."
Boat Segment
The Brunswick Boat Group comprises the Boat segment. The group has 19
boat brands, including Sea Ray, Bayliner, Hatteras, Meridian, Boston Whaler,
Trophy and Triton along with the Land 'N' Sea, Attwood and Kellogg Marine
parts and accessories distribution and manufacturing businesses.
The Boat segment reported net sales for the third quarter of $682.7
million, up 20 percent compared with $567.3 million in the third quarter of
2004. Boat segment sales for the quarter benefited from the Albemarle, Sea
Pro, Triton, Kellogg Marine and HarrisKayot acquisitions, all made since the
end of 2004. Excluding the sales of these businesses, organic Boat segment
sales increased 7 percent in the quarter. Operating earnings increased to
$38.0 million as compared with $36.1 million reported in the third quarter of
2004, and operating margins were 5.6 percent, down from 6.4 percent.
"Sales gains in the Boat segment were again led by several of our leading
brands, including Sea Ray, Boston Whaler and Hatteras," noted Buckley. "All
showed double-digit sales increases as did the Boat Group's parts and
accessories business. Operating margins were affected by higher research and
development spending, costs associated with new product launches and lower
production rates noted earlier at certain of our boat brands to manage
pipeline inventories."
"As we enter the marine off-season when retail activity slows, we are
carefully adjusting production rates on selected brands to ensure production
remains consistent with current market conditions," Buckley added. "At
quarter end, boat pipeline inventories stood at 22 weeks of supply, down one
week from 23 weeks at the end of June. Again, this is the same trend we saw
on the engine side of our business. In addition, boat pipelines are down one
week from 23 weeks of supply at the end of the third quarter of 2004. Our
goal is to position ourselves and our boat customers, just like our engine
customers, in the best possible manner as we prepare for the spring selling
season," Buckley explained. "We aim to have healthy pipelines and fresh
product for our dealers to address consumer desires."
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which
manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness
equipment. Fitness equipment sales were flat for the quarter, excluding sales
from the Omni retail stores that were sold in late 2004. Segment sales in the
third quarter of 2005 reached $127.4 million, down from $132.2 million in the
year-ago quarter, which included Omni retail sales. Fitness segment operating
earnings for the quarter totaled $14.2 million, up 69 percent from $8.4
million in the third quarter of 2004, and operating margins advanced 470 basis
points to 11.1 percent from 6.4 percent a year ago.
"We are very pleased with the margin improvement at Life Fitness. The
significant increase in operating margins was primarily due to a higher sales
mix of cardiovascular equipment versus strength equipment, improved
manufacturing efficiencies and ongoing effective cost management," Buckley
said. "Further, our expanded manufacturing plant in Hungary is giving us
access to lower material and labor costs, as well as reduced shipping costs
and improved delivery times to our European customers."
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of the Brunswick retail
bowling centers; bowling equipment and products; and billiards, Air Hockey and
foosball tables. Segment sales in the third quarter of 2005 totaled $111.9
million, up 5 percent compared with $106.6 million in the year-ago quarter.
Operating earnings increased 43 percent in the third quarter to $5.7 million
versus $4.0 million, and operating margins improved by 130 basis points to 5.1
percent compared with 3.8 percent in 2004.
"Segment sales were driven by advances in both bowling retail centers and
bowling products," Buckley said. "Bowling products, with its popular bowling
balls and turnkey packages for new and modernized bowling centers, had a
double-digit gain for the quarter, with sales especially strong in Europe.
Likewise, our strategy of pursuing the Brunswick Zone retail concept, as well
as still larger, destination-oriented centers that offer families a growing
number of entertainment options, contributed to the segment's good
performance. Additionally, effective target marketing efforts concentrated
around center locations have been quite effective in driving increased traffic
and volume through our centers during peak and off-peak hours."
Nine-Month Results
For the nine months ended Sept. 30, 2005, the company had net sales of
$4,434.3 million, up 14 percent from $3,895.5 million for the first three
quarters of 2004. Excluding contributions from acquired businesses, sales
were up 9 percent, led by new products and share gains. Operating earnings
totaled $376.7 million for the first nine months of 2005, up 19 percent from
the $317.3 million for the corresponding period in 2004, and operating margins
were 8.5 percent versus 8.1 percent a year ago.
Net earnings for the first nine months of 2005 increased 41 percent to
$297.1 million, or $3.00 per diluted share, from $211.0 million, or $2.18 per
diluted share, for the same period in 2004. As previously announced, during
the first quarter of 2005 the company completed the sale of approximately 1.9
million shares of MarineMax, Inc. stock. Results for the first nine months of
2005 include a pre-tax gain of $38.7 million, equivalent to $0.32 per diluted
share, recorded on the stock sale in the first quarter. Net earnings and
diluted earnings per share in the first three quarters of 2005 and 2004 also
benefited from the tax-related actions described above.
Looking Ahead
"As we approach the end of 2005, we continue to see strong retail demand
for marine products, consistent with our assumption that retail would be up in
the mid-single digits for the year," Buckley remarked. "While we will keep a
watchful eye on pipeline inventories as we enter the off-season, we remain
confident that we are on track for another record earnings year for Brunswick,
and we expect continued growth next year. We are maintaining our previously
announced estimate of earnings for 2005 in the range of $3.20 to $3.25 per
diluted share, excluding the gain on the MarineMax stock and the tax matters
mentioned earlier. This would imply earnings in the fourth quarter of $0.68
to $0.73 per diluted share, which compares with $0.59 per diluted share for
the year-ago fourth quarter."
Forward-Looking Statements
Certain statements in this press release are forward looking as defined in
the Private Securities Litigation Reform Act of 1995. These statements
involve certain risks and uncertainties that may cause actual results to
differ materially from expectations as of the date of this filing. These
risks include, but are not limited to: the effect of a weak economy and stock
market on consumer confidence and thus the demand for marine, fitness,
billiards and bowling equipment and products; competitive pricing pressures;
the success of new product introductions; the ability to maintain market share
in high-margin products; competition from new technologies; imports from Asia
and increased competition from Asian competitors; the ability to obtain
component parts from suppliers; the ability to maintain effective
distribution; the financial strength of dealers, distributors and independent
boat builders; the ability to transition and ramp up certain manufacturing
operations within time and budgets allowed; the ability to maintain product
quality and service standards expected by our customers; the ability to
successfully manage pipeline inventories; the success of global sourcing and
supply chain initiatives; the ability to successfully integrate acquisitions;
the success of marketing and cost management programs; the ability to develop
product technologies that comply with regulatory requirements; the ability to
complete environmental remediation efforts and resolve claims and litigation
at the cost estimated; the impact of weather conditions on demand for marine
products and retail bowling center revenues; shifts in currency exchange
rates; adverse foreign economic conditions; and the impact of interest rates
and fuel prices on demand for marine products. Additional factors are
included in the company's Annual Report on Form 10-K for 2004 and Quarterly
Report on Form 10-Q for the quarter ended June 30, 2005.
About Brunswick
Headquartered in Lake Forest, Ill., Brunswick Corporation endeavors to
instill "Genuine Ingenuity"(TM) in all its leading consumer brands, including
Mercury and Mariner outboard engines; Mercury MerCruiser sterndrives and
inboard engines; MotorGuide trolling motors; Teignbridge propellers; MotoTron
electronic controls; Northstar marine electronics; Navman marine and GPS-based
products; IDS dealer management systems; Albemarle, Arvor, Baja, Bayliner,
Bermuda, Boston Whaler, Crestliner, HarrisKayot, Hatteras, Lowe, Lund, Maxum,
Meridian, Ornvik, Palmetto, Princecraft, Quicksilver, Savage, Sea Boss, Sea
Pro, Sea Ray, Sealine, Triton, Trophy, Uttern and Valiant boats; Attwood
marine parts and accessories; Land 'N' Sea and Kellogg Marine parts and
accessories distributors; Life Fitness, Hammer Strength and ParaBody fitness
equipment; Brunswick bowling centers, equipment and consumer products;
Brunswick billiards tables; and Valley-Dynamo pool, Air Hockey and foosball
tables. For more information, visit http://www.brunswick.com .
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Three Months Ended September 30
2005 2004 % Change
Net sales $1,434.6 $1,273.2 13%
Cost of sales 1,101.6 956.2 15%
Selling, general and administrative
expense 191.3 186.5 3%
Research and development expense 35.8 31.2 15%
Operating earnings 105.9 99.3 7%
Interest expense (13.5) (12.1) -12%
Other income 7.0 4.4 59%
Earnings before income taxes 99.4 91.6 9%
Income tax provision 11.0 18.7
Net earnings $88.4 $72.9 21%
Earnings per common share:
Basic $0.90 $0.76 18%
Diluted 0.89 0.75 19%
Weighted average number of shares
used for computation of:
Basic earnings per share 98.1 96.2 2%
Diluted earnings per share 99.3 97.7 2%
Effective tax rate (1) 11.1% 20.5%
(1) The decrease in the effective tax rate for the three months ended
September 30, 2005, was primarily due to non-recurring tax benefits
arising from a change in assertions on indefinitely reinvested
earnings in selected international operations, refined tax planning
strategies for research and foreign export tax benefits, and
projected higher foreign earnings in lower effective-tax-rate
jurisdictions.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Nine Months Ended September 30
2005 2004 % Change
Net sales $4,434.3 $3,895.5 14%
Cost of sales 3,346.8 2,913.4 15%
Selling, general and administrative
expense 604.7 571.5 6%
Research and development expense 106.1 93.3 14%
Operating earnings 376.7 317.3 19%
Interest expense (39.6) (32.6) 21%
Investment sale gain (1) 38.7 -
Other income 23.0 13.0 77%
Earnings before income taxes 398.8 297.7 34%
Income tax provision 101.7 86.7
Net earnings $297.1 $211.0 41%
Earnings per common share:
Basic $3.03 $2.22 36%
Diluted $3.00 $2.18 38%
Weighted average number of shares
used for computation of:
Basic earnings per share 97.9 95.1 3%
Diluted earnings per share 99.2 96.8 2%
Effective tax rate (2) 25.5% 29.1%
(1) The Company sold its investment in MarineMax, Inc., pursuant to a
registered public offering by MarineMax.
(2) The decrease in the effective tax rate for the nine months ended
September 30, 2005, was primarily due to non-recurring tax benefits
arising from a change in assertions on indefinitely reinvested
earnings in selected international operations, refined tax planning
strategies for research and foreign export tax benefits, and
projected higher foreign earnings in lower effective-tax-rate
jurisdictions.
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information
Three Months Ended September 30
Operating
Net Sales Operating Earnings Margin
% %
2005 2004 Change 2005 2004 Change 2005 2004
Marine Engine $643.4 $575.5 12% $64.9 $70.7 -8% 10.1% 12.3%
Boat 682.7 567.3 20% 38.0 36.1 5% 5.6% 6.4%
Marine
eliminations (130.1) (107.1) - -
Total Marine 1,196.0 1,035.7 15% 102.9 106.8 -4% 8.6% 10.3%
Fitness 127.4 132.2 -4% 14.2 8.4 69% 11.1% 6.4%
Bowling &
Billiards 111.9 106.6 5% 5.7 4.0 43% 5.1% 3.8%
Eliminations (0.7) (1.3) - -
Corporate/Other - - (16.9) (19.9) 15%
Total $1,434.6 $1,273.2 13% $105.9 $99.3 7% 7.4% 7.8%
Nine Months Ended September 30
Operating
Net Sales Operating Earnings Margin
% %
2005 2004 Change 2005 2004 Change 2005 2004
Marine Engine $2,004.5 $1,768.6 13% $223.9 $208.9 7% 11.2% 11.8%
Boat 2,102.4 1,709.2 23% 162.3 125.1 30% 7.7% 7.3%
Marine
eliminations (383.0) (287.2) - -
Total Marine 3,723.9 3,190.6 17% 386.2 334.0 16% 10.4% 10.5%
Fitness 375.3 385.1 -3% 25.7 20.5 25% 6.8% 5.3%
Bowling &
Billiards 338.3 322.6 5% 22.0 21.7 1% 6.5% 6.7%
Eliminations (3.2) (2.8) - -
Corporate/Other - - (57.2) (58.9) 3%
Total $4,434.3 $3,895.5 14% $376.7 $317.3 19% 8.5% 8.1%
Brunswick Corporation
Comparative Consolidated Condensed Balance Sheets
(in millions)
September December September
30, 31, 30,
2005 2004 2004
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $535.9 $499.8 $493.1
Accounts and notes receivables, net 488.1 463.2 432.0
Inventories
Finished goods 443.3 389.9 386.5
Work-in-process 314.6 260.5 260.3
Raw materials 168.3 136.4 130.0
Net inventories 926.2 786.8 776.8
Deferred income taxes 293.7 292.7 314.9
Prepaid expenses and other 54.6 56.2 55.9
Current assets 2,298.5 2,098.7 2,072.7
Net property 934.2 876.4 852.4
Other assets
Goodwill and other intangibles 1,026.1 952.8 894.8
Investments and other long-term
assets 359.7 418.5 382.1
Total assets $4,618.5 $4,346.4 $4,202.0
Liabilities and shareholders' equity
Current liabilities
Short-term debt $5.8 $10.7 $13.5
Accounts payable 447.5 387.9 341.0
Accrued expenses and accrued
income taxes 803.0 855.2 838.3
Current liabilities 1,256.3 1,253.8 1,192.8
Long-term debt 726.8 728.4 729.8
Other long-term liabilities 641.6 651.9 604.1
Shareholders' equity 1,993.8 1,712.3 1,675.3
Total liabilities and shareholders'
equity $4,618.5 $4,346.4 $4,202.0
Supplemental Information
Debt-to-capitalization rate 26.9% 30.2% 30.7%
Brunswick Corporation
Comparative Consolidated Condensed Statements of Cash Flows
(in millions)
(unaudited)
Nine Months Ended September 30
2005 2004
Cash flows from operating activities
Net earnings $297.1 $211.0
Depreciation and amortization 118.4 117.5
Changes in noncash current assets
and current liabilities (135.6) (122.2)
Income taxes and other, net (27.2) 43.8
Net cash provided by operating
activities 252.7 250.1
Cash flows from investing activities
Capital expenditures (157.8) (114.0)
Acquisitions of businesses, net of
cash and debt acquired (130.2) (213.9)
Investments 2.5 (2.6)
Proceeds from investment sale 57.9 -
Other, net 11.7 4.7
Net cash used for investing
activities (215.9) (325.8)
Cash flows from financing activities
Net issuances (repayments) of
commercial paper and
other short-term debt 4.4 (5.1)
Net proceeds from issuances of
long-term debt - 150.1
Payments of long-term debt
including current maturities (3.8) (6.0)
Stock repurchases (15.7) -
Stock options exercised 14.4 83.9
Net cash provided by financing
activities (0.7) 222.9
Net increase in cash and cash equivalents 36.1 147.2
Cash and cash equivalents at January 1 499.8 345.9
Cash and cash equivalents at
September 30 $535.9 $493.1
Free Cash Flow
Net cash provided by operating
activities $252.7 $250.1
Net cash provided by (used for):
Capital expenditures (157.8) (114.0)
Proceeds from investment sale (1) 57.9 -
Other, net 11.7 4.7
Total Free Cash Flow $164.5 $140.8
(1) Pre-tax proceeds from the sale of the Company's investment in
MarineMax, Inc., net of selling costs.
SOURCE: Brunswick Corporation
CONTACT: Kathryn Chieger, Vice President - Corporate and Investor
Relations of Brunswick Corporation, +1-847-735-4612
Web site: http://www.brunswick.com
