RNS Number:5950E
Brunswick Corp
28 October 2004
Brunswick Reports EPS of $0.75 in Third Quarter
LAKE FOREST, Ill., Oct. 28 -- Brunswick Corporation (NYSE: BC) reported today
net earnings of $72.9 million, or $0.75 per diluted share, for the third quarter
of 2004, compared with $37.9 million, or $0.41 per diluted share, for the
year-ago quarter. The company said that earnings in the 2004 third quarter
benefited by approximately $0.10 per diluted share from completion of a tax
audit, discussed below. Operating earnings in the third quarter of 2004 rose 59
percent on a 23 percent sales gain.
"Led by our marine and fitness equipment units, we had another excellent quarter
of solid sales growth," commented Brunswick Chairman and Chief Executive Officer
George W. Buckley. "Higher unit volumes due to market growth and the success of
new products, strength in international markets and contributions from
acquisitions completed earlier this year were the primary drivers behind the 23
percent sales gain. Excluding sales from companies that were not in the
portfolio a year ago, sales were up 14 percent in the third quarter. Through
effective cost management and higher unit volumes, we leveraged our top-line
growth into a 59 percent increase in operating earnings to $99.3 million and a
180 basis point improvement in operating margins."
"We again ended the quarter with our balance sheet in excellent shape.
Debt-to-total capital was 30.7 percent at quarter end, compared with 33.3
percent a year earlier, and cash reached $493.1 million. This provides us with
the financial flexibility to make additional acquisitions and investments,
advance our core businesses and capitalize on opportunities to carry out our
growth strategy," Buckley said.
"Our third quarter results were achieved despite an increasingly competitive
global marketplace and disruptions caused by the four hurricanes that hit
Florida and impacted much of the Southeastern United States," Buckley added.
"Fortunately, their immediate effect on Brunswick was minimized through the grit
and determination of our dedicated employees. We estimate that interruptions to
our sales and production efforts during those trying weeks cost Brunswick about
$0.05 in earnings per diluted share in the third quarter."
"Although the storms have passed, we probably haven't seen the end of their
impact on our business," Buckley continued. "The fourth quarter is seasonally
the slowest for marine retail sales, and the sales effect of the hurricanes will
likely linger for a while longer. As you would expect, people will probably be
more focused on rebuilding and repairing their homes and getting their lives
back together than on repairing or replacing their boats. Once repairs have been
made to the infrastructure, such as damaged docks and marinas, there will,
however, be a longer-term new boat and repair part sales opportunity. Our
objective is to get a disproportionate share of that opportunity. The
replacement cycle will most likely be layered in over several quarters. Further,
industry estimates are still being compiled and, at this time, we don't know how
many boats were totally destroyed versus damaged. Insurance industry estimates
of sailboat and powerboat repairs and replacements from all four hurricanes
exceed $680 million, excluding damage that occurred in the Caribbean and to the
marine infrastructure. With many moving parts, these things are difficult to
predict accurately, but we have assumed some lingering hurricane impact in our
current-year earnings estimate."
Third Quarter Results
For the quarter ended Sept. 30, 2004, net sales increased 23 percent to $1,273.2
million, up from $1,036.3 million a year earlier. Operating earnings rose to
$99.3 million compared with $62.5 million in the year-ago quarter, and operating
margins improved to 7.8 percent from 6.0 percent. Net earnings totaled $72.9
million, or $0.75 per diluted share, up 92 percent from $37.9 million, or $0.41
per diluted share, for the third quarter of 2003.
Tax Provision for 2004
The company said that, during the third quarter, 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
in the third quarter of 2004. This is equivalent to approximately $0.10 per
diluted share in the quarter. Further, during the third quarter, Brunswick
reduced its projected tax rate for the year to 32.5 percent from 33 percent,
excluding the impact of the audits. This was due to effective tax planning and a
higher-than-anticipated tax benefit from export sales. As a result of these
items, the company's effective tax rate was 20.5 percent and 29.1 percent for
the quarter and nine months ended Sept. 30, 2004, respectively.
In addition, as a result of the extension of the research and development tax
credit by Congress in early October, the company said it expects to reduce
further its full-year tax rate to 32 percent in the fourth quarter of 2004. This
excludes the impact of the audits, noted above.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group and Brunswick
New Technologies (BNT), reported sales of $575.5 million in the third quarter of
2004, up 15 percent from $500.8 million in the year-ago third quarter. Operating
earnings in the third quarter increased 16 percent to $70.7 million versus $60.9
million, and operating margins were up slightly to 12.3 percent as compared with
12.2 percent for the same quarter in 2003.
"Our outboard and sterndrive engine sales increased during the quarter in both
the domestic and international markets," Buckley said. "Parts and accessories
sales, however, while up in the quarter, were adversely affected by the
unprecedented hurricane activity throughout the Southeast. Mother Nature kept
people off the water, not using their boats, and subsequently not requiring the
usual complement of maintenance and replacement parts and products."
"In the quarter, BNT again recorded strong sales growth along with positive
overall operating margins. This was primarily due to the contributions from
Navman, a producer of global positioning system-based products," Buckley noted.
"We continue to see strong demand for our Verado family of high-horsepower,
four-stroke outboard engines, which are designed to meet low-emission
requirements while maintaining the high-performance characteristics of
traditional two-stroke outboards," Buckley explained. "Operating margins,
however, were adversely affected by the typical start-up costs associated with
the introduction of Verado, the transition to low-emission outboards that carry
lower margins, expenses related to our China manufacturing plant currently under
construction, as well as by higher research and development spending, primarily
for BNT and new Verado models to be released next year. Margin improvement will
continue to be a focus in our Marine Engine segment as we seek to mitigate the
cost pressures through effective cost management, global sourcing and applying
the principles of Lean Six Sigma to improve productivity. Our China plant and
our expanded Japanese manufacturing plant are scheduled to come on line late in
the first quarter next year, which will gradually help improve our margins,"
Buckley said.
Boat Segment
The Brunswick Boat Group comprises the Boat segment and includes the Sea Ray,
Bayliner, Maxum, Hatteras, Sealine, Meridian, Boston Whaler, Trophy, Baja,
Crestliner, Lowe, Lund and Princecraft boat brands and the Land 'N' Sea and
Attwood marine parts and accessories distribution and manufacturing businesses.
The Boat segment reported sales for the third quarter of $567.3 million, up 40
percent compared with $404.5 million in the third quarter of 2003. Operating
earnings increased to $36.1 million, more than quadruple the $8.2 million
reported in the third quarter of 2003, and operating margins increased by 440
basis points, rising to 6.4 percent for the quarter from 2.0 percent a year ago.
About half of the sales gain was due to incremental sales from acquisitions,
primarily the aluminum boat brands purchased in April of this year.
Nevertheless, Boat segment sales absent acquisitions were up a healthy 18
percent for the quarter, even with the hurricane impact.
The significant improvement in operating margins was the result of a number of
factors, including higher unit volumes and a richer product mix. The Boat
segment also benefited from the turnaround at US Marine as the division reported
its third consecutive quarter of profitability.
"The hurricanes had a significant impact on the Boat segment," Buckley noted.
"We shut down our Sea Ray and Boston Whaler plants on the East Coast of Florida
for each of the hurricanes, losing several production days. In addition, our
Land 'N' Sea distribution facility in Lake Suzy, Fla., was virtually destroyed
by Hurricane Charley. We are grateful that all of our employees made it safely
through the storms and are pleased to report that our boat plants are all
operational, and our Land 'N' Sea customers are being serviced from our other
distribution centers."
Fitness Segment
The Fitness segment is comprised of the Life Fitness division, which
manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness
equipment, and operates Omni Fitness retail stores. Segment sales in the third
quarter of 2004 reached $132.2 million, up 26 percent from $105.1 million in the
year-ago quarter. Operating earnings for the quarter totaled $8.4 million
compared with $8.7 million in the third quarter of 2003, and operating margins
were 6.4 percent compared with 8.3 percent a year ago.
"Life Fitness continued to build sales momentum during the quarter, with gains
in the commercial segment being driven by the success of our new strength
products and increased sales to the military," Buckley said. "Further, the
success of new Life Fitness consumer products released during the quarter helped
advance sales."
"Operating margins in this segment continue to be under pressure from
significantly higher steel prices, a competitive pricing environment in the
European market, and a shift in product mix towards hot selling, but lower
margin, strength equipment," Buckley explained. "The year-over-year margin gap
is narrowing as we continue to improve efficiency in U.S.-based manufacturing
and restructure our overall manufacturing footprint. Our new Hungarian
cardiovascular equipment plant is on schedule to open in the first quarter of
next year where material costs, as well as labor, are significantly lower than
in the United States. Local manufacturing will help us reduce shipping costs and
improve delivery times on cardiovascular products to better serve 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 2004 totaled $106.6 million, up 9
percent compared with $97.5 million in the year-ago quarter. Operating earnings
rose to $4.0 million in the third quarter versus $0.1 million, and operating
margins improved to 3.8 percent compared with 0.1 percent in 2003.
"The quarter again saw double-digit sales gains in our bowling products group,
where our new Vector scoring system and popular new bowling balls, like the
Inferno, continue to sell well," Buckley said. "Billiards sales were up for the
quarter, with good growth in our traditional tables business, driven by the
popularity of new models. Always a reliable and consistent performer, our
bowling retail centers also posted solid growth, despite the hurricanes shutting
down some of our centers for several days during the quarter."
"We believe our family friendly approach to bowling is a key ingredient to the
success of our new bowling entertainment centers, building on our popular
Brunswick Zone concept. These centers are nearly twice the size of our
traditional Brunswick Zones and feature expanded recreation options in addition
to bowling," Buckley said. "The two we opened during the second quarter in
suburban Chicago and Denver continue to perform at or above our forecasts."
Nine-Month Results
For the nine months ended Sept. 30, 2004, the company had net sales of $3,895.5
million, up 28 percent from $3,041.8 million for the first three quarters of
2003. Excluding contributions from acquired businesses, sales were up 16
percent. Operating earnings totaled $317.3 million for the first nine months of
2004, up from $162.7 million reported for the corresponding period in 2003, and
operating margins reached 8.1 percent versus 5.3 percent a year ago. Operating
earnings for the first nine months of 2003 include a $25.0 million litigation
charge ($16.0 million after tax) recorded in the first quarter of 2003.
Excluding the litigation charge, operating earnings were $187.7 million, and
operating margins were 6.2 percent for the first nine months of 2003.
Net earnings for the first nine months of 2004 reached $211.0 million, or $2.18
per diluted share, up from $95.3 million, or $1.04 per diluted share, for the
same period in 2003. Excluding the previously mentioned litigation charge, net
earnings for the nine months of 2003 totaled $111.3 million, or $1.22 per
diluted share. Results for 2004 also benefited from a 29.1 percent effective tax
rate for the nine-month period. This lower tax rate was due to the same factors
that affected the tax rate for the third quarter of 2004, discussed above.
Looking Ahead
"2004 is shaping up to be a record year for Brunswick, resulting from the
efforts of our entire team to successfully execute our growth strategy," Buckley
said. "Innovative new products and acquisitions are driving top-line growth, and
effective cost management and operational improvements are leading to higher
operating margins. Consequently, we are estimating diluted EPS for 2004 in the
range of $2.70 to $2.75 per share. While this is above our previous estimate of
$2.60 to $2.68 per share, keep in mind that this new estimate includes
approximately $0.10 per share related to the completion of the four-year tax
return audit. In addition, we have factored into our estimate some carryover
impact of the hurricanes, which will be somewhat offset by the lower full-year
tax rate, as discussed previously."
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 ability to
maintain effective distribution; the success of global sourcing and supply chain
initiatives; the ability to successfully integrate acquisitions; the success of
new product introductions; the impact of weather conditions on demand for marine
products and retail bowling center revenues; the financial strength of dealers
and independent boat builders; shifts in currency exchange rates; adverse
foreign economic conditions; the company's ability to develop product
technologies that comply with regulatory requirements; the impact of interest
rates and fuel prices on demand for marine products; the impact of financial
markets on pension expense and funding levels; the ability to maintain market
share in high-margin products; the ability to maintain product quality and
service standards expected by our customers; the success of marketing and cost
management programs; the ability to successfully manage pipeline inventories;
the ability to obtain component parts from suppliers; the ability to resolve
contract disputes with suppliers; the ability to complete environmental
remediation efforts and resolve claims and litigation at the cost estimated; the
impact of possible duties on Japanese-manufactured outboard engines sold in the
United States; competition from new technologies; imports from Asia and
increased competition from Asian competitors; and increases in tariffs on the
company's bowling equipment sales into Europe. Additional factors are included
in the company's Annual Report on Form 10-K for 2003 and Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004.
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 GPS-based products; IDS dealer
management systems; Sea Ray, Bayliner, Maxum, Hatteras, Meridian, Sealine,
Bermuda, Ornvik, Savage and Uttern pleasure boats; Baja high-performance boats;
Arvor, Boston Whaler and Trophy offshore fishing boats; Crestliner, Lowe, Lund
and Princecraft aluminum fishing, deck and pontoon boats; Attwood marine parts
and accessories; Land 'N' Sea marine parts and accessories distributor; 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)
Quarter Ended September 30
2004 2003 % Change
Net sales $1,273.2 $1,036.3 23%
Cost of sales 956.2 781.2 22%
Selling, general and administrative
expense 186.5 162.6 15%
Research and development expense 31.2 30.0 4%
Operating earnings 99.3 62.5 59%
Interest expense (12.1) (10.1) 20%
Other income 4.4 5.9 -25%
Earnings before income taxes 91.6 58.3 57%
Income tax provision 18.7 20.4
Net earnings $72.9 $37.9 92%
Earnings per common share:
Basic $0.76 $0.42 81%
Diluted $0.75 $0.41 83%
Average shares used for computation of:
Basic earnings per share 96.2 91.2 5%
Diluted earnings per share 97.7 92.3 6%
Effective tax rate (a) 20.5% 35.0%
(a) The decrease in the effective tax rate for the third quarter was
primarily due to a reduction in tax reserves of approximately
$10 million arising from the completion of audit examinations of years
1998 to 2001, as well as the cumulative impact of lowering of the
full-year tax rate to 32.5 percent from 33 percent.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Nine Months Ended September 30
2004 2003 % Change
Net sales $3,895.5 $3,041.8 28%
Cost of sales 2,913.4 2,314.1 26%
Selling, general and administrative
expense 571.5 454.8 26%
Research & development expense 93.3 85.2 10%
Litigation charge - 25.0
Operating earnings (a) 317.3 162.7 95%
Interest expense (32.6) (30.9) 6%
Other income 13.0 14.8 -12%
Earnings before income taxes 297.7 146.6 NM
Income tax provision 86.7 51.3
Net earnings $211.0 $95.3 NM
Basic earnings per common share $2.22 $1.05 NM
Diluted earnings per common share $2.18 $1.04 NM
Average shares used for computation
of:
Basic earnings per share 95.1 90.9 5%
Diluted earnings per share 96.8 91.4 6%
Effective tax rate (b) 29.1% 35.0%
(a) Operating earnings include a $25.0 million litigation charge recorded
in the first quarter of 2003 in connection with a patent infringement
lawsuit relating to the design of a cross trainer.
(b) The decrease in the effective tax rate for the nine months of 2004
was primarily due to a reduction in tax reserves in the third quarter
of approximately $10 million arising from the completion of audit
examinations of years 1998 to 2001, as well as the lowering of the
full-year tax rate to 32.5 percent from 33 percent.
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information
Quarter Ended September 30
Net Sales Operating Operating
Earnings Margin
% %
2004 2003 Change 2004 2003 Change 2004 2003
Marine Engine $575.5 $500.8 15% $70.7 $60.9 16% 12.3% 12.2%
Boat 567.3 404.5 40% 36.1 8.2 NM 6.4% 2.0%
Marine
eliminations (107.1) (71.5) - -
Total Marine 1,035.7 833.8 24% 106.8 69.1 55% 10.3% 8.3%
Fitness 132.2 105.1 26% 8.4 8.7 -3% 6.4% 8.3%
Bowling &
Billiards 106.6 97.5 9% 4.0 0.1 NM 3.8% 0.1%
Eliminations (1.3) (0.1) - -
Corporate/Other - - (19.9) (15.4) 29%
Total $1,273.2 $1,036.3 23% $99.3 $62.5 59% 7.8% 6.0%
Nine Months Ended September 30
Net Sales Operating Operating
Earnings Margin
% %
2004 2003 Change 2004 2003 Change 2004 2003
Marine Engine $1,768.6 $1,435.5 23% $208.9 $144.4 45% 11.8% 10.1%
Boat 1,709.2 1,202.0 42% 125.1 54.6 NM 7.3% 4.5%
Marine
eliminations (287.2) (201.5) - -
Total Marine 3,190.6 2,436.0 31% 334.0 199.0 68% 10.5% 8.2%
Fitness (a) 385.1 329.4 17% 20.5 1.5 NM 5.3% 0.5%
Bowling &
Billiards 322.6 276.7 17% 21.7 10.4 NM 6.7% 3.8%
Eliminations (2.8) (0.3) - -
Corporate/Other - - (58.9) (48.2) 22%
Total $3,895.5 $3,041.8 28% $317.3 $162.7 95% 8.1% 5.3%
(a) Fitness segment operating earnings include a $25.0 million litigation
charge recorded in the first quarter of 2003 in connection with a
patent infringement lawsuit relating to the design of a cross trainer.
NM = Not Meaningful
Brunswick Corporation
Comparative Consolidated Balance Sheets
(in millions)
September December September
30, 2004 31, 2003 30, 2003
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $493.1 $345.9 $353.9
Accounts and notes receivables, net 432.0 374.4 348.1
Inventories
Finished goods 386.5 325.3 297.6
Work-in-process 260.3 205.7 210.8
Raw materials 130.0 92.8 89.7
Net inventories 776.8 623.8 598.1
Prepaid income taxes 314.9 302.3 321.8
Prepaid expenses and other 55.9 68.8 45.2
Current assets 2,072.7 1,715.2 1,667.1
Net property 852.4 827.1 797.5
Other assets
Goodwill and other intangibles 894.8 699.7 687.5
Investments and other long-term
assets 382.1 360.5 331.9
Total assets $4,202.0 $3,602.5 $3,484.0
Liabilities and shareholders' equity
Current liabilities
Short-term debt $13.5 $23.8 $30.5
Accounts payable 341.0 321.3 317.8
Accrued expenses and accrued income
taxes 838.3 756.7 724.2
Current liabilities 1,192.8 1,101.8 1,072.5
Long-term debt 729.8 583.8 584.5
Deferred items 604.1 593.9 594.1
Common shareholders' equity 1,675.3 1,323.0 1,232.9
Total liabilities and shareholders'
equity $4,202.0 $3,602.5 $3,484.0
Supplemental Information
Debt-to-capitalization rate 30.7% 31.5% 33.3%
Brunswick Corporation
Comparative Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Nine months ended September 30
2004 2003
Cash flows from operating activities
Net earnings $211.0 $95.3
Depreciation and amortization 117.5 111.2
Changes in noncash current assets and
current liabilities (122.2) 98.1
Income taxes and other, net 43.8 0.5
Net cash provided by operating activities 250.1 305.1
Cash flows from investing activities
Capital expenditures (114.0) (93.7)
Investments (2.6) (35.6)
Acquisitions of businesses, net of debt and
cash acquired (213.9) (172.6)
Other, net 4.7 3.4
Net cash used for investing activities (325.8) (298.5)
Cash flows from financing activities
Net issuances of commercial paper and other
short-term debt (5.1) 3.1
Net proceeds from issuances of long-term debt 150.1 -
Payments of long-term debt including current
maturities (6.0) (19.3)
Stock options exercised 83.9 12.1
Net cash provided by (used for) financing
activities 222.9 (4.1)
Net increase in cash and cash equivalents 147.2 2.5
Cash and cash equivalents at January 1 345.9 351.4
Cash and cash equivalents at September 30 $493.1 $353.9
Free Cash Flow
Net cash provided by operating activities $250.1 $305.1
Net cash provided by (used for):
Capital expenditures (114.0) (93.7)
Other, net 4.7 3.4
Total Free Cash Flow $140.8 $214.8
10/28/2004
CONTACT: Kathryn Chieger, Vice President - Corporate and Investor
Relations of Brunswick Corporation, 1-847-735-4612
Web site: http://www.brunswick.com (BC)
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Statements in this press release regarding Brunswick Corporation's
business which are not historical facts are "forward-looking statements" that
involve risks and uncertainties. For a discussion of such risks and
uncertainties, which could cause actual results to differ from those contained
in the forward-looking statements, see "Risk Factors" in the Company's Annual
Report or Form 10-K for the most recently ended fiscal year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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