Corporate and Financial
Brunswick Reports EPS of $0.99 From Continuing Operations in Second Quarter
LAKE FOREST, Ill., July 27 /PRNewswire-FirstCall/ -- Brunswick Corporation
(NYSE: BC) reported today earnings from continuing operations of $0.99 per
diluted share for the second quarter of 2006, compared with $1.12 per diluted
share for the year-ago second quarter. Earnings from continuing operations
for the second quarter of 2006 include a $0.06 per diluted share benefit from
tax-related items.
"We are pleased with our second quarter results given the increasingly
difficult economic environment in which consumers are deferring expenditures
for discretionary items, a factor affecting retail demand especially for
marine products," said Brunswick Chairman and Chief Executive Officer Dustan
E. McCoy. "Total sales increased 1 percent in the quarter due to
contributions from our boat and fitness equipment operations. If we exclude
incremental sales from acquired businesses, however, organic sales actually
declined 5 percent. Lower organic sales, a mix shift to lower-margin products
along with higher raw material and component costs, partially offset by lower
operating expense, were the primary drivers behind a reduction in operating
margins to 9.0 percent in the second quarter of 2006 from 11.0 percent in the
comparable quarter a year ago."
Second Quarter Results
For the quarter ended June 30, 2006, net sales increased 1 percent to
$1,543.1 million, up from $1,531.6 million a year earlier. Operating earnings
declined 18 percent to $138.2 million compared with $168.2 million in the
year-ago quarter, and operating margins were 9.0 percent, down from
11.0 percent. Net earnings from continuing operations totaled $94.5 million,
or $0.99 per diluted share, down from $111.0 million, or $1.12 per diluted
share, for the second quarter of 2005. In the second quarter of 2006, the
company recorded a tax benefit of $0.06 per diluted share resulting primarily
from the resolution of a long-standing tax case with the Internal Revenue
Service. Debt-to-total capital was 26.2 percent at quarter end as compared
with 27.7 percent a year earlier, and cash totaled $310.6 million.
During the second quarter of 2006, the company announced its decision to
pursue the sale of substantially all of its Brunswick New Technologies (BNT)
business unit. As a result, the portions of BNT proposed for sale are being
accounted for as discontinued operations. For the second quarter of 2006, the
company reported a net loss from discontinued operations of $11.3 million, or
$0.12 per diluted share, compared with net earnings of $3.1 million, or $0.03
per diluted share, for the second quarter of 2005.
The company said that during the second quarter of 2006, it acquired
approximately 1.5 million shares of its common stock for approximately
$56 million under a $500 million repurchase authorization. Over the past
year, approximately 5.1 million shares have been acquired for about
$193 million. Diluted shares outstanding averaged 95.5 million in the second
quarter of 2006, down from 99.2 million for the second quarter of 2005.
Boat Segment
The Brunswick Boat Group comprises the Boat segment and produces
fiberglass and aluminum boats and marine parts and accessories, as well as
offers dealer management systems. The Boat segment reported net sales for the
second quarter of $769.7 million, up 3 percent compared with $745.5 million in
the second quarter of 2005. Excluding incremental sales from acquired
businesses, organic boat sales declined 7 percent. Operating earnings
decreased to $53.1 million from $74.9 million reported in the second quarter
of 2005, and operating margins were 6.9 percent, down from 10.0 percent.
"We reduced production and increased promotional efforts in select product
lines to manage pipeline inventories during the quarter," McCoy said. "The
lower fixed cost absorption due to reduced production levels, coupled with the
fact that we had lower sales in some of our higher-margin product lines, had
an adverse effect on operating margins."
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group,
reported net sales of $668.5 million in the second quarter of 2006, down
2 percent from $683.5 million in the year-ago quarter. Operating earnings in
the second quarter decreased 9 percent to $94.7 million versus $103.5 million,
and operating margins declined to 14.2 percent from 15.1 percent for the same
quarter in 2005.
"The reduction in sales was primarily driven by a decline in our domestic
outboard engine business, partially offset by increased sales of products
outside of the United States," McCoy said. "Operating margins were adversely
affected by lower sales along with the shift in product mix to lower-margin,
low-emission outboard engines. Approximately 91 percent of our U.S. outboard
sales in the second quarter of 2006 came from low-emission engines, up from
71 percent in the year-ago quarter."
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 segment sales increased 8 percent in the quarter to
$129.7 million, up from $120.4 million in the year-ago quarter. Operating
earnings for the quarter totaled $7.4 million, up 45 percent from $5.1 million
in the second quarter of 2005, and operating margins increased 150 basis
points to 5.7 percent from 4.2 percent a year ago.
"Through its market drive and increasing focus on improving productivity,
Life Fitness produced a quarter of both solid sales increases with improving
margins," McCoy explained. "Segment sales benefited from continued expansion
of health clubs in both domestic and international markets. At the same time,
our continued emphasis on containing operating expenses led to the operating
margin improvement."
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 second quarter of 2006 totaled
$110.1 million, down 4 percent compared with $114.9 million in the year-ago
quarter. Year-over-year operating earnings were $0.6 million in the second
quarter versus $5.2 million, and operating margins fell to 0.5 percent
compared with 4.5 percent in 2005.
"Segment sales were affected by a decline in sales of bowling equipment
compared with a year ago. Quarterly product sales tend to fluctuate
throughout the year as they are tied to the timing of new center openings by
independent proprietors. The segment also reported lower billiards sales,
reflecting customers' desire to postpone discretionary purchases in these
economic times," McCoy commented. "Despite fewer centers versus a year ago,
our bowling retail operation posted single-digit sales gains due to increased
traffic at existing centers and the addition of two new Brunswick Zone XLs.
Operating margins were adversely affected by lower equipment sales, new center
start-up costs, as well as the costs associated with the closure of four
bowling centers and renovation of a Massachusetts bowling center damaged by
floods in the second quarter."
Six-Month Results
For the six months ended June 30, 2006, the company had net sales of
$2,956.4 million, up 3 percent from $2,874.1 million for the first half of
2005. Excluding contributions from acquired businesses, sales were down
3 percent. Operating earnings totaled $236.4 million for the first half of
2006, down from $267.0 million for the corresponding period in 2005, and
operating margins declined to 8.0 percent versus 9.3 percent a year ago. Net
earnings from continuing operations for the first six months of 2006 were
$168.6 million, or $1.76 per diluted share, down from $205.0 million, or $2.07
per diluted share, for the same period in 2005. Results for the first half of
2006 include the $0.06 per diluted share tax benefit recorded in the second
quarter, as noted above, and a $0.13 per diluted share tax benefit recorded in
the first quarter. Results for the first half of 2005 include an after-tax
gain of $31.5 million, equivalent to $0.32 per diluted share, recorded in the
first quarter on the sale of MarineMax, Inc. stock.
For the first half of 2006, the company reported a net loss from
discontinued operations of $18.0 million, or $0.19 per diluted share, compared
with net earnings of $3.7 million, or $0.04 per diluted share, for the same
period in 2005.
Looking Ahead
"Throughout the second quarter of 2006, we experienced declining retail
demand for marine products, which has resulted in an increase in pipeline
inventories. At quarter end, there were 26 weeks of supply of boats and
21 weeks of supply of engines, up from 23 weeks for boats and 20 weeks for
engines a year ago," McCoy said. "Managing pipelines is essential in a
cyclical, as well as a seasonal, business. With the off-season quickly
approaching, we can't rely solely on retail demand to rebalance the pipeline.
So, we are planning further production cuts to manage pipelines for the 2007
model year, which began on July 1. As we previously announced, we are
estimating that our 2006 earnings from continuing operations will fall in the
range of $2.40 to $2.55 per diluted share, excluding tax-related benefits
either already realized or expected for the year. That compares with the
$3.13 per share we reported in 2005 from continuing operations, excluding
tax-related benefits and the gain on the sale of MarineMax stock. The decline
in earnings is primarily due to reduced sales and the impact of fixed cost
absorption from production cuts needed to adjust pipeline inventories."
"While we can't control market conditions, we will continue to operate our
businesses in the most efficient manner possible and continue to execute
relentlessly against our five key strategies: having new, high-quality
products coming to the market faster than the competition; providing our
dealers with profit opportunities not available elsewhere; be best cost in our
industries; be global; and attract and retain talent," McCoy added. "In doing
so, we will achieve our long-term value creation objectives and better
position the company to benefit our shareholders when industry conditions
improve."
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; competition in the
consumer electronics markets; 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 ability to successfully complete
announced divestitures; 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 2005 and Quarterly Report on Form 10-Q for the quarter ended March 31,
2006.
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; Albemarle, Arvor, Baja, Bayliner, Bermuda, Boston Whaler,
Cabo Yachts, Crestliner, HarrisKayot, Hatteras, Laguna, 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, Kellogg Marine, Diversified Marine
and Benrock parts and accessories distributors; IDS dealer management systems;
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 June 30
2006 2005 % Change
Net sales $1,543.1 $1,531.6 1%
Cost of sales 1,188.3 1,145.0 4%
Selling, general and administrative
expense 182.6 187.9 -3%
Research and development expense 34.0 30.5 11%
Operating earnings 138.2 168.2 -18%
Equity earnings 6.6 5.6 18%
Other income (expense), net (2.5) 0.1 NM
Earnings before interest and income taxes 142.3 173.9 -18%
Interest expense (14.2) (13.1) 8%
Interest income 2.4 3.5 -31%
Earnings before income taxes 130.5 164.3 -21%
Income tax provision 36.0 53.3
Net earnings from continuing operations 94.5 111.0 -15%
Net earnings (loss) from discontinued
operations, net of tax (11.3) 3.1 NM
Net earnings $83.2 $114.1 -27%
Earnings per common share:
Basic
Earnings from continuing operations $1.00 $1.13 -12%
Earnings (loss) from discontinued
operations (0.12) 0.03 NM
Net earnings $0.88 $1.16 -24%
Diluted
Earnings from continuing operations $0.99 $1.12 -12%
Earnings (loss) from discontinued
operations (0.12) 0.03 NM
Net earnings $0.87 $1.15 -24%
Weighted average number of shares
used for computation of:
Basic earnings per share 94.7 98.0 -3%
Diluted earnings per share 95.5 99.2 -4%
Effective tax rate (1) 27.6% 32.4%
Supplemental Information
Diluted earnings from continuing
operations $0.99 $1.12 -12%
Tax reserve reassessment (1) (0.06) - NM
Earnings from continuing operations,
as adjusted $0.93 $1.12 -17%
(1) The decrease in the effective tax rate for the second quarter of 2006
was primarily due to a tax reserve reassessment of $5.8 million.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Six Months Ended June 30
2006 2005 % Change
Net sales $2,956.4 $2,874.1 3%
Cost of sales 2,288.2 2,166.3 6%
Selling, general and administrative
expense 367.3 380.4 -3%
Research and development expense 64.5 60.4 7%
Operating earnings 236.4 267.0 -11%
Equity earnings 11.8 10.6 11%
Investment sale gain (1) - 38.7 NM
Other expense, net (2.7) (0.8) NM
Earnings before interest and income taxes 245.5 315.5 -22%
Interest expense (27.8) (26.1) 7%
Interest income 5.4 6.2 -13%
Earnings before income taxes 223.1 295.6 -25%
Income tax provision 54.5 90.6
Net earnings from continuing operations 168.6 205.0 -18%
Net earnings (loss) from discontinued
operations, net of tax (18.0) 3.7 NM
Net earnings $150.6 $208.7 -28%
Earnings per common share:
Basic
Earnings from continuing operations $1.77 $2.09 -15%
Earnings (loss) from discontinued
operations (0.19) 0.04 NM
Net earnings $1.58 $2.13 -26%
Diluted
Earnings from continuing operations $1.76 $2.07 -15%
Earnings (loss) from discontinued
operations (0.19) 0.04 NM
Net earnings $1.57 $2.11 -26%
Weighted average number of shares
used for computation of:
Basic earnings per share 95.2 97.8 -3%
Diluted earnings per share 96.1 99.1 -3%
Effective tax rate (2) 24.4% 30.6%
Supplemental Information
Diluted earnings from continuing
operations $1.76 $2.07 -15%
Tax reserve reassessment (2) (0.19) - NM
Investment sale gain (1) - (0.32) NM
Earnings from continuing operations,
as adjusted $1.57 $1.75 -10%
(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 first six months of
2006 was primarily due to a tax reserve reassessment of
$18.2 million.
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information
Three Months Ended June 30
Operating Operating
Net Sales Earnings Margin
% %
2006 2005 Change 2006 2005 Change 2006 2005
Boat $769.7 $745.5 3% $53.1 $74.9 -29% 6.9% 10.0%
Marine
Engine 668.5 683.5 -2% 94.7 103.5 -9% 14.2% 15.1%
Marine
eliminations (134.9) (132.3) - -
Total
Marine 1,303.3 1,296.7 1% 147.8 178.4 -17% 11.3% 13.8%
Fitness 129.7 120.4 8% 7.4 5.1 45% 5.7% 4.2%
Bowling &
Billiards 110.1 114.9 -4% 0.6 5.2 -88% 0.5% 4.5%
Eliminations - (0.4) - -
Corp/Other - - (17.6) (20.5) 14%
Total $1,543.1 $1,531.6 1% $138.2 $168.2 -18% 9.0% 11.0%
Six Months Ended June 30
Operating Operating
Net Sales Earnings Margin
% %
2006 2005 Change 2006 2005 Change 2006 2005
Boat $1,520.7 $1,426.2 7% $101.5 $124.0 -18% 6.7% 8.7%
Marine
Engine 1,223.5 1,225.8 0% 139.6 155.5 -10% 11.4% 12.7%
Marine
eliminations (276.2) (250.9) - -
Total
Marine 2,468.0 2,401.1 3% 241.1 279.5 -14% 9.8% 11.6%
Fitness 263.7 247.9 6% 16.3 11.5 42% 6.2% 4.6%
Bowling &
Billiards 224.8 226.4 -1% 13.4 16.3 -18% 6.0% 7.2%
Eliminations (0.1) (1.3) - -
Corp/Other - - (34.4) (40.3) 15%
Total $2,956.4 $2,874.1 3% $236.4 $267.0 -11% 8.0% 9.3%
Brunswick Corporation
Comparative Consolidated Balance Sheets
(in millions)
(unaudited)
June 30, December 31, June 30,
2006 2005 2005
Assets
Current assets
Cash and cash equivalents $310.6 $487.7 $508.6
Accounts and notes receivables, net 542.5 471.6 481.2
Inventories
Finished goods 393.4 384.3 397.3
Work-in-process 338.6 298.5 305.9
Raw materials 141.9 134.1 140.5
Net inventories 873.9 816.9 843.7
Deferred income taxes 266.4 274.8 298.3
Prepaid expenses and other 64.4 70.3 54.5
Current assets held for sale 113.5 113.7 80.6
Current assets 2,171.3 2,235.0 2,266.9
Net property 989.0 953.3 879.3
Other assets
Goodwill and other intangibles 995.3 949.2 931.5
Investments and other long-term
assets 385.5 391.0 369.4
Long-term assets held for sale 92.3 93.0 89.7
Other assets 1,473.1 1,433.2 1,390.6
Total assets $4,633.4 $4,621.5 $4,536.8
Liabilities and shareholders' equity
Current liabilities
Short-term debt $1.0 $1.1 $3.1
Accounts payable 406.5 431.7 408.9
Accrued expenses and accrued income
taxes 786.7 803.8 791.8
Current liabilities held for sale 64.9 68.6 45.5
Current liabilities 1,259.1 1,305.2 1,249.3
Long-term debt 722.6 723.7 729.4
Other long-term liabilities 601.4 608.1 642.3
Long-term liabilities held for sale 6.8 5.7 5.0
Common shareholders' equity 2,043.5 1,978.8 1,910.8
Total liabilities and shareholders'
equity $4,633.4 $4,621.5 $4,536.8
Supplemental Information
Debt-to-capitalization rate 26.2% 26.8% 27.7%
Brunswick Corporation
Comparative Consolidated Condensed Statements of Cash Flows
(in millions)
(unaudited)
Six Months
Ended June 30
2006 2005
Cash flows from operating activities
Net earnings $168.6 $205.0
Depreciation and amortization 81.7 75.9
Changes in noncash current assets
and current liabilities (150.9) (153.4)
Income taxes and other, net 27.0 (21.0)
Net cash provided by (used for)
operating activities of
continuing operations 126.4 106.5
Net cash provided by (used for)
operating activities of
discontinued operations (32.7) 4.9
Net cash provided by (used for)
operating activities 93.7 111.4
Cash flows from investing activities
Capital expenditures (97.3) (79.9)
Acquisitions of businesses, net of
cash and debt acquired (74.0) (86.8)
Investments 2.7 (4.7)
Proceeds from sale of property,
plant and equipment 5.4 11.8
Proceeds from investment sale (1) - 57.9
Net cash provided by (used for)
investing activities of
continuing operations (163.2) (101.7)
Net cash provided by (used for)
investing activities of
discontinued operations (3.5) (9.5)
Net cash provided by (used for)
investing activities (166.7) (111.2)
Cash flows from financing activities
Net issuances (repayments) of
commercial paper and
other short-term debt 0.4 1.1
Payments of long-term debt
including current maturities (0.6) (1.9)
Stock repurchases (117.3) -
Stock options exercised 13.4 9.4
Net cash provided by (used for)
financing activities of
continuing operations (104.1) 8.6
Net cash provided by (used for)
financing activities of
discontinued operations - -
Net cash provided by (used for)
financing activities (104.1) 8.6
Net increase (decrease) in cash and
cash equivalents (177.1) 8.8
Cash and cash equivalents at January 1 487.7 499.8
Cash and cash equivalents at June 30 $310.6 $508.6
Free Cash Flow from Continuing Operations
Net cash provided by (used for) operating
activities of continuing operations $126.4 $106.5
Net cash provided by (used for):
Capital expenditures (97.3) (79.9)
Proceeds from investment sale (1) - 57.9
Proceeds from sale of
property, plant and equipment 5.4 11.8
Total Free Cash Flow from
Continuing Operations $34.5 $96.3
(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
