RNS Number:9058N
Brunswick Corp
23 July 2003
Brunswick Reports EPS of $0.59 in Second Quarter
LAKE FOREST, Ill., July 23 -- Brunswick Corporation (NYSE: BC) announced today a 16 percent increase in net earnings on
a 5 percent sales gain and a 12 percent increase in operating earnings in the second quarter of 2003. Diluted earnings
per share rose to $0.59 compared with $0.51 per diluted share for the second quarter of 2002.
Commenting on the announcement, Brunswick Chairman and Chief Executive Officer George W. Buckley said, "Overall we had a
very good second quarter with strong sales from the Brunswick Boat Group, which were up 12 percent, leading the way. We
also achieved higher sales of marine engines in international markets, domestic commercial fitness equipment and from
our retail bowling centers. The sales gain also reflects the impact of a weaker U.S. dollar. The benefit of higher boat
sales, coupled with our ongoing cost reduction efforts across all of our business units, is evident in the 12 percent
increase in operating earnings in the quarter. These factors helped offset the higher pension expense and health care
costs we continue to experience. Operating margins improved to 8.1 percent from 7.7 percent a year ago."
"During the quarter we completed three acquisitions that are significant to our growth strategy," Buckley noted. "The
purchase of Valley-Dynamo, the leading manufacturer of coin-operated pool, table hockey and foosball tables, will give
us a line of new products and a strong position in a new distribution channel. Valley-Dynamo is also the leader in home
table hockey and foosball tables, which are sold through specialty retailers, as are Brunswick's billiards tables. The
Brunswick Boat Group's goal of building a dedicated boat parts and accessories (P&A) business will be aided by the
acquisition of Land 'N' Sea, the largest distributor of marine P&A in North America. We also purchased 70 percent of
Navman, the New Zealand-based maker of global positioning system-based products, which will further support our efforts
to more fully integrate marine electronics into our boats. These companies will benefit from Brunswick's financial and
market strengths, as well as our industry expertise. They, in turn, will help fuel our growth across the board."
Second-Quarter Results
For the quarter ended June 30, 2003, the company reported net sales of $1,071.0 million, up 5 percent from $1,017.2
million a year earlier. Operating earnings rose to $87.2 million, up 12 percent from $77.9 million, and operating
margins reached 8.1 percent versus 7.7 percent a year ago. Net earnings totaled $53.6 million, or $0.59 per diluted
share, up 16 percent from $46.2 million, or $0.51 per diluted share, in the year-ago second quarter.
During the second quarter, the company made a $62 million payment (approximately $50 million after tax) to the Internal
Revenue Service relating to a tax case that is currently under appeal. The company elected to make the payment to avoid
accruing future interest costs. Consequently, the company lowered its effective tax rate to 35 percent from 36 percent.
Six-Month Results
For the six months ended June 30, 2003, the company had net sales of $2,005.5 million, up 6 percent from $1,883.9
million for the first half of 2002. Operating earnings reached $100.2 million for the first half of 2003, which includes
a $25 million litigation charge recorded in the first quarter of 2003. Excluding the litigation charge, operating
earnings were up 16 percent to $125.2 million in the first half of 2003 from $108.2 million for the same period a year
ago. Net earnings for the first six months of 2003 reached $57.4 million, or $0.63 per diluted share, including the
aforementioned litigation charge, which is equivalent to $0.18 per diluted share. Excluding the litigation charge,
earnings for the first half of 2003 totaled $0.81 per diluted share. Net earnings for the year-ago period totaled $34.3
million, or $0.38 per diluted share. Included in the 2002 results is the cumulative effect of adoption of Financial
Accounting Standards Board SFAS No. 142, "Goodwill and Other Intangible Assets." Adoption of this accounting standard
resulted in a non-cash, after-tax charge of $25.1 million, or $0.28 per diluted share, in the first quarter of 2002.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group and Brunswick New Technologies (BNT), reported net
sales of $521.9 million in the second quarter of 2003, up 3 percent from $505.8 million in the year-ago second quarter.
Strong international sales and recent acquisitions offset the decline in domestic sales. Operating earnings in the
second quarter were $64.2 million versus $77.8 million a year ago. Operating margins were 12.3 percent compared with
15.4 percent in the second quarter of 2002.
"Sales benefited from a strong performance in international markets, which were up 22 percent in the quarter," Buckley
noted. "By contrast, the U.S. outboard market remains challenging as many of our competitors continue to offer deep
discounts. We lowered production to keep inventories in balance and ended the quarter with 19 weeks of supply of engines
in the pipeline, the same as last year. The lower production volumes and shifts in product mix to low-emission
outboards, along with higher pension and health care costs and investments in BNT, are the primary drivers behind the
margin decline. We are beginning to see the impact of cost reduction actions taken in the second quarter, which will be
even more evident in the second half of the year."
"We continue to focus on new product development, and the technology transition from traditional carbureted two-stroke
outboard engines to low-emission direct fuel injected (DFI) two-stroke and four-stroke products," Buckley added. "We
recently introduced a new 115-horsepower OptiMax DFI two-stroke and our Project "X" high-horsepower four-stroke outboard
is on track for a spring 2004 launch. These products will further enhance our position in this important segment."
Boat Segment
The Brunswick Boat Group comprises the Boat segment and includes the Sea Ray, Bayliner, Meridian, Maxum, Sealine,
Hatteras, Boston Whaler, Trophy, Baja and Princecraft boat brands. The Boat segment reported sales for the second
quarter of $418.9 million, up 12 percent compared with $373.3 million in the year-ago quarter. Operating earnings rose
to $32.3 million, nearly triple the $11.0 million reported for the corresponding period last year. Operating margins in
the second quarter improved to 7.7 percent from 2.9 percent a year ago.
"Nearly all of our boat brands posted strong sales growth in the quarter, with new products doing particularly well,"
Buckley commented. "Retail markets remain challenging, especially in the larger boat segments; however, we continue to
see good demand for our entry-level Bayliner 175 runabout, and new models from Sea Ray, Sealine and Boston Whaler.
Higher volumes and global sourcing efforts, along with significant improvements at our US Marine division, are driving
improvement in operating earnings and operating margins."
"As we enter the 2004 model year, field inventories remain in excellent shape at 22 weeks of supply compared with 23
weeks a year ago. This is right where we want to be going into the seasonally-slower second half of the year," Buckley
explained.
Fitness Segment
The Fitness segment is comprised of the Life Fitness division, which manufacturers and sells Life Fitness, Hammer
Strength and ParaBody fitness equipment, and operates Omni Fitness retail stores. Segment sales in the second quarter of
2003 totaled $105.1 million, up 1 percent from $103.6 million in the year-ago quarter. Operating earnings rose 33
percent to $5.3 million from $4.0 million, and operating margins were 5.0 percent, up from 3.9 percent in the second
quarter of 2002.
"Life Fitness sales in the domestic commercial segment were up double digits in the second quarter with increases coming
primarily from the regional health club and military markets," Buckley said. "This strong performance helped offset
weakness in international markets, as well as lower retail sales. We are beginning to see some signs of improvement in
Asian markets, where SARS had virtually shut down health clubs and delayed expansion plans among clubs and hotel chains.
Life Fitness continues to improve on its market-leading position with an onslaught of new product introductions, many of
which include integrated electronics and features to enhance the users' experience. We are poised to fully benefit as
the negative effects of these market conditions eventually subside."
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of the Brunswick retail bowling centers; bowling equipment and products;
and billiards, table hockey and foosball tables. Segment sales in the second quarter of 2003 totaled $94.1 million, down
2 percent compared with $95.7 million in the year-ago quarter. Operating earnings were $1.9 million in the quarter
versus an operating loss of $1.7 million in the comparable quarter in 2002. Segment operating margins improved to 2.0
percent in the second quarter compared with a negative 1.8 percent in the second quarter a year ago. Margins are
historically low in the second and third quarters due to lower seasonal activity in retail bowling.
"Our retail bowling business recorded improved sales demonstrating the stability and resiliency of this business even
during challenging economic times," Buckley said. "Sales of bowling and billiards products were down
quarter-over-quarter, as proprietors and distributors continued to take a wait-and-see attitude toward the economy. Cost
reduction efforts and supply chain initiatives implemented over the past two years throughout this segment were major
contributors to the improvement in operating earnings in the quarter."
Looking Ahead
Commenting on the current year, Buckley said, "We remain on track to meet our earnings expectations for 2003. While the
outlook remains mixed, consumers appear to believe the economy is stabilizing. We're not predicting an upturn, but we're
not expecting conditions to worsen. When we look at current marine market conditions, the low pipeline inventories, new
products scheduled for launch, along with a few cents contributed from recent acquisitions and a lower effective tax
rate, we are more comfortable that we can hit the higher end of our previously indicated range of $1.40 to $1.50 per
diluted share for 2003, excluding the $0.18 per share litigation charge taken in the first quarter. Therefore, we are
narrowing our EPS estimate to $1.45 to $1.50, compared with $1.14 reported for 2002. This would indicate earnings for
the third quarter of between $0.35 and $0.40 per diluted share versus $0.26 per diluted share for the third quarter of
2002."
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 release. These risks include, but are not limited to, the effect of a weak
economy and stock market on consumer confidence and thus on demand for marine, fitness, billiards and bowling products;
the impact of interest rates, fuel prices and weather conditions on demand for marine products; the ability to maintain
effective distribution; competitive pricing pressures; the ability to maintain product quality and service standards
expected by our customers; the ability to successfully integrate acquisitions; the financial strength of dealers and
independent boat builders; the ability to successfully manage pipeline inventories; adverse foreign economic conditions;
shifts in currency exchange rates; the effect of weak financial markets on pension expense and funding levels; the
ability to complete environmental remediation efforts and resolve claims and litigation at the cost estimated; the
success of global sourcing and supply chain management initiatives; the company's ability to develop and produce new
products; new and competing technologies; and imports from Asia and increased competition from Asian competitors.
Additional factors are included in the company's Annual Report on Form 10-K for 2002 and Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003.
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; Teignbridge propellers; MotoTron electronic controls; Northstar marine electronics; Navman GPS-based products;
IDS dealer management systems; Sea Ray, Bayliner, Maxum, Hatteras, Meridian and Sealine pleasure boats; Baja
high-performance boats; Boston Whaler and Trophy offshore fishing boats; Princecraft fishing, deck and pontoon boats;
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, table
hockey and foosball tables. For more information, visit www.brunswick.com.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Quarter Ended June 30
2003 2002 % Change
Net sales $1,071.0 $1,017.2 5%
Cost of sales 807.2 777.4
Selling, general and administrative
expense 176.6 161.9
Operating earnings 87.2 77.9 12%
Interest expense (10.1) (10.6) -5%
Other income 5.3 4.7
Earnings before income taxes 82.4 72.0 14%
Income tax provision 28.8 25.8
Net earnings $53.6 $46.2 16%
Earnings per common share:
Basic $0.59 $0.51 16%
Diluted $0.59 $0.51 16%
Average shares used for computation of:
Basic earnings per share 90.8 90.2 1%
Diluted earnings per share 91.3 91.4 0%
Effective tax rate 34.9% 35.8%
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Six Months Ended June 30
2003 2002 % Change
Net sales $2,005.5 $1,883.9 6%
Cost of sales 1,532.9 1,452.7
Selling, general and administrative
expense 347.4 323.0
Litigation charge 25.0 -
Operating earnings (a) 100.2 108.2 -7%
Interest expense (20.8) (21.6) -4%
Other income 8.9 6.0
Earnings before income taxes 88.3 92.6 -5%
Income tax provision 30.9 33.2
Earnings before cumulative effect of
change in accounting principle 57.4 59.4 -3%
Cumulative effect of change in
accounting principle, net of tax (b) - (25.1)
Net earnings $57.4 $34.3 67%
Basic earnings per common share:
Earnings before cumulative effect of
change in accounting principle $0.63 $0.66 -5%
Cumulative effect of change in
accounting principle (b) - (0.28)
Net earnings $0.63 $0.38 66%
Diluted earnings per common share:
Earnings before cumulative effect of
change in accounting principle $0.63 $0.66 -5%
Cumulative effect of change in
accounting principle (b) - (0.28)
Net earnings $0.63 $0.38 66%
Average shares used for computation of:
Basic earnings per share 90.7 89.5 1%
Diluted earnings per share 91.0 90.6 0%
Effective tax rate 35.0% 35.9%
(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 company adopted SFAS No. 142, effective Jan. 1, 2002.
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information
Quarter Ended June 30
Net Sales
%
2003 2002 Change
Marine Engine $521.9 $505.8 3%
Boat 418.9 373.3 12%
Marine eliminations (69.0) (61.2)
Total Marine 871.8 817.9 7%
Fitness 105.1 103.6 1%
Bowling & Billiards 94.1 95.7 -2%
Corporate/Other - -
Total $1,071.0 $1,017.2 5%
Quarter Ended June 30
Operating Operating
Earnings Margin
%
2003 2002 Change 2003 2002
Marine Engine $64.2 $77.8 -17% 12.3% 15.4%
Boat 32.3 11.0 NM 7.7% 2.9%
Marine eliminations - -
Total Marine 96.5 88.8 9% 11.1% 10.9%
Fitness 5.3 4.0 33% 5.0% 3.9%
Bowling & Billiards 1.9 (1.7) NM 2.0% -1.8%
Corporate/Other (16.5) (13.2) 25%
Total $87.2 $77.9 12% 8.1% 7.7%
Six Months Ended June 30
Net Sales
%
2003 2002 Change
Marine Engine $934.7 $876.2 7%
Boat 797.5 727.2 10%
Marine eliminations (130.2) (114.0)
Total Marine 1,602.0 1,489.4 8%
Fitness (a) 224.3 208.6 8%
Bowling & Billiards 179.2 185.9 -4%
Corporate/Other - -
Total $2,005.5 $1,883.9 6%
Six Months Ended June 30
Operating Operating
Earnings Margin
%
2003 2002 Change 2003 2002
Marine Engine $83.5 $102.5 -19% 8.9% 11.7%
Boat 46.4 14.3 NM 5.8% 2.0%
Marine eliminations - -
Total Marine 129.9 116.8 11% 8.1% 7.8%
Fitness (a) (7.2) 12.9 NM -3.2% 6.2%
Bowling & Billiards 10.3 6.8 51% 5.7% 3.7%
Corporate/Other (32.8) (28.3) 16%
Total $100.2 $108.2 -7% 5.0% 5.7%
(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)
June 30, December 31, June 30,
2003 2002 2002
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $254.1 $351.4 $334.5
Accounts and notes receivables, net 496.7 401.4 484.7
Inventories
Finished goods 310.4 272.5 273.4
Work-in-process 203.5 201.6 199.4
Raw materials 71.0 72.8 54.2
Net inventories 584.9 546.9 527.0
Prepaid income taxes 313.0 305.1 322.1
Prepaid expenses and income tax
refunds receivable 43.1 55.4 26.7
Current assets 1,691.8 1,660.2 1,695.0
Net property 787.4 792.7 784.4
Other assets
Goodwill and other intangibles 653.4 570.3 555.3
Investments and other long-term assets 401.2 383.9 369.6
Total assets $3,533.8 $3,407.1 $3,404.3
Liabilities and shareholders' equity
Current liabilities
Short-term debt $43.6 $28.9 $45.8
Accounts payable 308.6 291.2 264.0
Accrued expenses and accrued income
taxes 729.6 685.5 694.9
Current liabilities 1,081.8 1,005.6 1,004.7
Long-term debt 588.5 589.5 600.9
Deferred items 686.9 710.2 586.6
Common shareholders' equity 1,176.6 1,101.8 1,212.1
Total liabilities and shareholders'
equity $3,533.8 $3,407.1 $3,404.3
Supplemental Information
Debt-to-capitalization rate 34.9% 35.9% 34.8%
Brunswick Corporation
Comparative Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Six Months Ended June 30
2003 2002
Cash flows from operating activities
Net earnings $57.4 $34.3
Depreciation and amortization 72.9 75.2
Change in accounting principle, net of tax - 25.1
Changes in noncash current assets
and current liabilities (61.9) 11.9
Income taxes and other, net (7.0) 92.1
Net cash provided by operating activities 61.4 238.6
Cash flows from investing activities
Capital expenditures (52.2) (41.0)
Investments (11.7) (6.7)
Acquisitions of businesses, net of cash
acquired (97.4) (8.8)
Other, net 3.3 4.0
Net cash used for investing activities (158.0) (52.5)
Cash flows from financing activities
Net issuances of commercial paper and other
short-term debt 1.5 18.5
Payments of long-term debt
including current maturities (5.0) (18.0)
Stock options exercised 2.8 39.4
Net cash provided by (used for) financing
activities (0.7) 39.9
Net increase (decrease) in cash and
cash equivalents (97.3) 226.0
Cash and cash equivalents at January 1 351.4 108.5
Cash and cash equivalents at June 30 $254.1 $334.5
Free Cash Flow
Net cash provided by operating activities $61.4 $238.6
Net cash provided by (used for):
Capital expenditures (52.2) (41.0)
Investments (11.7) (6.7)
Other, net 3.3 4.0
Total Free Cash Flow $0.8 $194.9
Free cash flow is defined as cash flow from operating and investing
activities, excluding acquisition and financing activities.
SOURCE Brunswick Corporation
-0- 07/23/2003
/CONTACT: Kathryn Chieger, Vice President, Corporate and Investor
Relations of Brunswick Corporation, +1-847-735-4612/
/Web site: http://www.brunswick.com /(BC)
This information is provided by RNS
The company news service from the London Stock Exchange
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