Corporate and Financial
Brunswick Reports EPS of $0.54 From Continuing Operations in Third Quarter
LAKE FOREST, Ill., Oct. 27 /PRNewswire-FirstCall/ -- Brunswick Corporation
(NYSE: BC) reported today earnings from continuing operations of $0.54 per
diluted share for the third quarter of 2006 compared with $0.83 per diluted
share for the same period in 2005. Earnings from continuing operations
include tax-related benefits of $0.06 per diluted share and $0.14 per diluted
share in the third quarters of 2006 and 2005, respectively.
"We were pleased with our results for the quarter, especially in light of
a challenging marine market," Brunswick Chairman and Chief Executive Officer
Dustan E. McCoy said. "The most important consideration when operating in a
cyclical industry is to manage pipeline inventories. As previously announced,
we cut production in certain product lines in the third quarter to make
pipeline corrections. Reducing production volumes was the right thing to do;
however, lower fixed-cost absorption on lower production had an adverse effect
on operating margins and earnings. Sales for the quarter were down 1 percent
to $1.3 billion with gains from our Fitness and Bowling & Billiards segments
and growth in international markets more than offset by a decline in domestic
marine sales. Excluding incremental sales from acquired businesses, our
organic sales declined 3 percent. A combination of a mix shift to lower-
margin products; reduced fixed-cost absorption on lower production; and higher
operating expenses due to acquisitions, inflation, and increased research and
development spending on strategic initiatives led to the decline in operating
margins to 5.6 percent for the third quarter compared with 7.6 percent a year
ago."
Third Quarter Results
For the quarter ended Sept. 30, 2006, net sales from continuing operations
decreased 1 percent to $1,337.8 million, down from $1,351.1 million a year
earlier. Operating earnings decreased 27 percent to $74.3 million compared
with $102.1 million in the year-ago quarter, and operating margins were
5.6 percent, down from 7.6 percent. Net earnings from continuing operations
for the third quarter of 2006 totaled $50.4 million, or $0.54 per diluted
share, down from $82.4 million, or $0.83 per diluted share, for the third
quarter of 2005. Both quarters include tax-related benefits discussed below.
During the second quarter of 2006, the company announced its decision to
pursue the sale of substantially all of its Brunswick New Technologies
business unit, which is being accounted for as a discontinued operation. For
the third quarter of 2006, the company reported a net loss from discontinued
operations of $13.9 million, or $0.15 per diluted share, compared with net
earnings of $6.0 million, or $0.06 per diluted share for the third quarter of
2005.
The company said that during the third quarter of 2006, it acquired
1.5 million shares of its common stock for approximately $46 million under a
$500 million repurchase authorization. Since the beginning of the year,
approximately 4.6 million shares have been acquired for about $163 million.
Diluted shares outstanding averaged 93.7 million in the third quarter of 2006,
down from 99.3 million for the third quarter of 2005.
Tax Benefits
In the third quarter of 2006, the company recorded a tax benefit of
approximately $0.06 per diluted share, primarily due to a claim for interest
on open audits. In the third quarter of 2005, the company determined 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. Further, the company said it had refined its tax
planning strategies for research and foreign export tax benefits. These
actions benefited earnings from continuing operations by $0.14 per diluted
share and earnings from discontinued operations by $0.02 per diluted share in
the third quarter of 2005.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, which 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
third quarter of 2006 of $679.2 million, down 1 percent compared with
$685.5 million in the third quarter of 2005. Excluding incremental sales from
acquired businesses, organic boat sales declined 5 percent. Operating
earnings decreased to $24.8 million from $37.9 million reported in the third
quarter of 2005, and operating margins were 3.7 percent, down from
5.5 percent.
"During the quarter, we saw sales gains in boat parts and accessories as
well as some of our larger models," McCoy said. "Significant declines were
seen in sales of our smaller freshwater boat lines that are sold primarily in
the upper Midwest where regional economic issues have affected discretionary
spending among purchasers of these boats. The margin decline was driven by an
unfavorable mix shift away from our higher-margin cruiser business as we work
to rebalance these pipelines, as well as lower fixed-cost absorption due to
reduced production levels."
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group,
reported net sales of $536.5 million in the third quarter of 2006, down from
$555.0 million in the year-ago quarter. Operating earnings in the third
quarter decreased to $50.4 million versus $61.2 million, while operating
margins declined to 9.4 percent from 11.0 percent for the same quarter in
2005.
"Stronger sales in Mercury's international operations during the quarter
helped to offset lower year-over-year domestic sales, particularly in the
outboard category, which was down double digits for the quarter," McCoy
explained. "Segment results reflect both the tough operating climate and the
effect of reducing production rates in some product areas during the quarter.
We will continue to adjust production rates as needed to manage pipeline
inventories through the model year. Operating margins were adversely affected
by lower sales along with lower fixed-cost absorption on reduced production."
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 increased 7 percent in the third quarter
of 2006 to $136.6 million, up from $127.4 million in the year-ago quarter.
Fitness segment operating earnings for the quarter totaled $12.6 million, down
from $14.2 million in the third quarter of 2005, and operating margins were
9.2 percent compared with 11.1 percent a year ago.
"The sales gain was driven primarily by a double-digit increase in
international sales," McCoy said. "Margins in Europe are lower than in the
United States, which, along with a mix shift to lower-margin strength
equipment and higher research and development spending for new products, led
to the decline in operating margins."
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 2006 totaled
$113.4 million, up 1 percent compared with $111.9 million in the year-ago
quarter. Operating earnings decreased in the third quarter to $3.1 million
versus $5.7 million, and operating margins were 2.7 percent compared with
5.1 percent in 2005.
"Sales gains posted by bowling retail centers offset a single-digit
decline in billiards products, which is also affected by lower discretionary
spending by its customers," McCoy said. "Costs for moving certain
manufacturing operations to Mexico contributed to the segment's lower
operating earnings for the quarter. Our transition of bowling ball
manufacturing to Reynosa, Mexico, is almost complete, and, as previously
announced, we are beginning the move of Valley-Dynamo coin-operated billiards
table manufacturing to an adjacent location in Reynosa."
Nine-Month Results
For the nine months ended Sept. 30, 2006, the company had net sales from
continuing operations of $4,294.2 million, up 2 percent from $4,225.2 million
for the first three quarters of 2005. Excluding contributions from acquired
businesses, sales were down 3 percent. Operating earnings totaled
$310.7 million for the first nine months of 2006, down from $369.1 million for
the corresponding period in 2005, and operating margins were 7.2 percent
versus 8.7 percent a year ago.
Net earnings from continuing operations for the first nine months of 2006
totaled $219.0 million, or $2.30 per diluted share, compared with
$287.4 million, or $2.90 per diluted share, for the same period in 2005.
Results for the first nine months of 2006 include $0.25 per diluted share of
tax-related benefits recorded in the current and earlier quarters of the year.
Results for the first three quarters of 2005 include the $0.14 per diluted
share tax benefit recorded in the third quarter and 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 nine months of 2006, the company reported a net loss from
discontinued operations of $31.9 million, or $0.34 per diluted share, compared
with net earnings of $9.7 million, or $0.10 per diluted share, for the
comparable period a year ago.
Looking Ahead
"The decline in retail demand for marine products we experienced in the
first half of 2006 continued into the third quarter with retail demand down in
the high-single digits, which has resulted in an increase in pipeline
inventories. At quarter end there were 27 weeks of supply of boats and 20
weeks of supply of engines, up from 22 weeks for boats and 19 weeks for
engines a year ago," McCoy said. "As we have said, managing pipelines is
essential in a cyclical, as well as a seasonal, business. We are now in the
off-season, and 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 runs through June 30 next year. We are estimating
that our 2006 earnings from continuing operations will be in the range of
$2.40 to $2.46 per share, excluding non-recurring tax benefits. That compares
with the $3.13 per share we reported in 2005 from continuing operations,
excluding non-recurring tax benefits and the gain on the MarineMax stock sale.
The year-over-year decline in earnings is primarily due to reduced sales, a
mix shift to lower-margin products, and the effect of fixed-cost absorption
from production cuts needed to adjust pipeline inventories. Our 2006 estimate
also assumes that Congress extends the research and development tax credit
retroactive to the first of the year, which would reduce our effective tax
rate for the full year to about 31 percent, excluding tax-related benefits.
Should Congress fail to take action, our earnings estimate range would be
adversely affected by about $0.06 per share."
"As we go forward, we will continue to execute relentlessly against our
five key strategies: get the product right, get the distribution right, be
best cost in our industries, be global, and attract and retain talent," McCoy
added. "We can't control market conditions, but we will take actions
necessary to operate our businesses in the most efficient manner possible. 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 June 30,
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 September 30
2006 2005 % Change
Net sales $1,337.8 $1,351.1 -1%
Cost of sales 1,048.9 1,045.6 0%
Selling, general and administrative
expense 182.5 173.3 5%
Research and development expense 32.1 30.1 7%
Operating earnings 74.3 102.1 -27%
Equity earnings 2.9 3.3 -12%
Other income (expense), net 0.5 (0.2) NM
Earnings before interest and income taxes 77.7 105.2 -26%
Interest expense (15.7) (13.5) 16%
Interest income 5.0 3.9 28%
Earnings before income taxes 67.0 95.6 -30%
Income tax provision 16.6 13.2
Net earnings from continuing operations 50.4 82.4 -39%
Net earnings (loss) from discontinued
operations, net of tax (13.9) 6.0 NM
Net earnings $36.5 $88.4 -59%
Earnings per common share:
Basic
Earnings from continuing operations $0.54 $0.84 -36%
Earnings (loss) from discontinued
operations (0.15) 0.06 NM
Net earnings $0.39 $0.90 -57%
Diluted
Earnings from continuing operations $0.54 $0.83 -35%
Earnings (loss) from discontinued
operations (0.15) 0.06 NM
Net earnings $0.39 $0.89 -56%
Weighted average number of shares
used for computation of:
Basic earnings per share 93.2 98.1 -5%
Diluted earnings per share 93.7 99.3 -6%
Effective tax rate (1) 24.8% 13.9%
Supplemental Information
Diluted earnings from continuing
operations $0.54 $0.83 -35%
Non-recurring tax benefits (1) (0.06) (0.14) NM
Earnings from continuing operations,
as adjusted $0.48 $0.69 -30%
(1) The increase in the effective tax rate for the third quarter of 2006
was primarily due to lower non-recurring tax benefits of $5.2 million,
compared with $13.9 million in the third quarter of 2005.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Nine Months Ended September 30
2006 2005 % Change
Net sales $4,294.2 $4,225.2 2%
Cost of sales 3,337.1 3,211.9 4%
Selling, general and administrative
expense 549.8 553.7 -1%
Research and development expense 96.6 90.5 7%
Operating earnings 310.7 369.1 -16%
Equity earnings 14.7 13.9 6%
Investment sale gain (1) - 38.7 NM
Other expense, net (2.2) (1.0) NM
Earnings before interest and income taxes 323.2 420.7 -23%
Interest expense (43.5) (39.6) 10%
Interest income 10.4 10.1 3%
Earnings before income taxes 290.1 391.2 -26%
Income tax provision 71.1 103.8
Net earnings from continuing operations 219.0 287.4 -24%
Net earnings (loss) from discontinued
operations, net of tax (31.9) 9.7 NM
Net earnings $187.1 $297.1 -37%
Earnings per common share:
Basic
Earnings from continuing operations $2.32 $2.93 -21%
Earnings (loss) from discontinued
operations (0.34) 0.10 NM
Net earnings $1.98 $3.03 -35%
Diluted
Earnings from continuing operations $2.30 $2.90 -21%
Earnings (loss) from discontinued
operations (0.34) 0.10 NM
Net earnings $1.96 $3.00 -35%
Weighted average number of shares
used for computation of:
Basic earnings per share 94.5 97.9 -3%
Diluted earnings per share 95.3 99.2 -4%
Effective tax rate (2) 24.5% 26.5%
Supplemental Information
Diluted earnings from continuing
operations $2.30 $2.90 -21%
Non-recurring tax benefits (2) (0.25) (0.14) 79%
Investment sale gain (1) - (0.32) NM
Earnings from continuing operations,
as adjusted $2.05 $2.44 -16%
(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 nine months of
2006 was primarily due to higher non-recurring tax benefits of
$23.4 million, compared with $13.9 million in the first nine months
of 2005.
Brunswick Corporation
Selected Financial Information
(in millions)
(unaudited)
Segment Information
Three Months Ended September 30
Net Sales Operating Earnings Operating
% % Margin
2006 2005 Change 2006 2005 Change 2006 2005
Boat $679.2 $685.5 -1% $24.8 $37.9 -35% 3.7% 5.5%
Marine Engine 536.5 555.0 -3% 50.4 61.2 -18% 9.4% 11.0%
Marine
eliminations (127.8) (128.7) - -
Total
Marine 1,087.9 1,111.8 -2% 75.2 99.1 -24% 6.9% 8.9%
Fitness 136.6 127.4 7% 12.6 14.2 -11% 9.2% 11.1%
Bowling &
Billiards 113.4 111.9 1% 3.1 5.7 -46% 2.7% 5.1%
Eliminations (0.1) - - -
Corp/Other - - (16.6) (16.9) 2%
Total $1,337.8 $1,351.1 -1% $74.3 $102.1 -27% 5.6% 7.6%
Nine Months Ended September 30
Net Sales Operating Earnings Operating
% % Margin
2006 2005 Change 2006 2005 Change 2006 2005
Boat $2,199.9 $2,111.7 4% $126.3 $161.9 -22% 5.7% 7.7%
Marine Engine 1,760.0 1,780.8 -1% 190.0 216.7 -12% 10.8% 12.2%
Marine
eliminations (404.0) (379.6) - -
Total
Marine 3,555.9 3,512.9 1% 316.3 378.6 -16% 8.9% 10.8%
Fitness 400.3 375.3 7% 28.9 25.7 12% 7.2% 6.8%
Bowling &
Billiards 338.2 338.3 0% 16.5 22.0 -25% 4.9% 6.5%
Eliminations (0.2) (1.3) - -
Corp/Other - - (51.0) (57.2) 11%
Total $4,294.2 $4,225.2 2% $310.7 $369.1 -16% 7.2% 8.7%
Brunswick Corporation
Comparative Consolidated Balance Sheets
(in millions)
September December September
30, 31, 30,
2006 2005 2005
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $559.5 $487.7 $535.9
Accounts and notes receivables, net 473.3 471.6 449.8
Inventories
Finished goods 398.5 384.3 406.0
Work-in-process 330.6 298.5 314.4
Raw materials 152.6 134.1 149.4
Net inventories 881.7 816.9 869.8
Deferred income taxes 282.8 274.8 293.7
Prepaid expenses and other 65.0 70.3 48.8
Current assets held for sale 111.3 113.7 100.5
Current assets 2,373.6 2,235.0 2,298.5
Net property 993.2 953.3 919.0
Other assets
Goodwill and other intangibles 1,005.2 949.2 952.2
Investments and other long-term assets 368.5 391.0 357.5
Long-term assets held for sale 94.2 93.0 91.3
Other assets 1,467.9 1,433.2 1,401.0
Total assets $4,834.7 $4,621.5 $4,618.5
Liabilities and shareholders' equity
Current liabilities
Short-term debt (1) $249.7 $1.1 $5.8
Accounts payable 403.3 431.7 406.8
Accrued expenses 742.5 803.8 778.3
Current liabilities held for sale 69.7 68.6 65.4
Current liabilities 1,465.2 1,305.2 1,256.3
Long-term debt (1) 726.0 723.7 726.8
Other long-term liabilities 596.8 608.1 636.2
Long-term liabilities held for sale 8.1 5.7 5.4
Common shareholders' equity 2,038.6 1,978.8 1,993.8
Total liabilities and shareholders'
equity $4,834.7 $4,621.5 $4,618.5
Supplemental Information
Debt-to-capitalization rate 32.4% 26.8% 26.9%
(1) The company completed the offering of $250 million aggregate principal
amount of floating rate notes due in 2009 under its universal shelf
registration, included in Long-term debt. The proceeds from this
offering will be used to repay the company's $250 million aggregate
principal amount of 6.75% notes due in December 2006.
Brunswick Corporation
Comparative Consolidated Condensed Statements of Cash Flows
(in millions)
(unaudited)
Nine Months
Ended September 30
2006 2005
Cash flows from operating activities
Net earnings $219.0 $287.4
Depreciation and amortization 123.1 114.3
Changes in noncash current assets
and current liabilities (143.7) (132.4)
Income taxes and other, net 17.6 (29.7)
Net cash provided by (used for)
operating activities of
continuing operations 216.0 239.6
Net cash provided by (used for)
operating activities of
discontinued operations (38.2) 13.1
Net cash provided by (used for)
operating activities 177.8 252.7
Cash flows from investing activities
Capital expenditures (139.7) (150.4)
Acquisitions of businesses, net of
cash and debt acquired (82.7) (127.5)
Investments 14.5 4.7
Proceeds from sale of property,
plant and equipment 6.8 13.4
Proceeds from investment sale (1) - 57.9
Other, net (0.4) (1.2)
Net cash provided by (used for)
investing activities of
continuing operations (201.5) (203.1)
Net cash provided by (used for)
investing activities of
discontinued operations (4.8) (12.8)
Net cash provided by (used for)
investing activities (206.3) (215.9)
Cash flows from financing activities
Net issuances (repayments) of
commercial paper and
other short-term debt (0.2) 4.4
Net proceeds from issuance of long-
term debt 250.0 -
Payments of long-term debt
including current maturities (0.8) (3.8)
Stock repurchases (163.1) (15.7)
Stock options exercised 14.4 14.4
Net cash provided by (used for)
financing activities of
continuing operations 100.3 (0.7)
Net cash provided by (used for)
financing activities of
discontinued operations - -
Net cash provided by (used for)
financing activities 100.3 (0.7)
Net increase (decrease) in cash and
cash equivalents 71.8 36.1
Cash and cash equivalents at January 1 487.7 499.8
Cash and cash equivalents at September 30 $559.5 $535.9
Free Cash Flow from Continuing Operations
Net cash provided by (used for)
operating activities of continuing
operations $216.0 $239.6
Net cash provided by (used for):
Capital expenditures (139.7) (150.4)
Proceeds from investment sale (1) - 57.9
Proceeds from sale of
property, plant and equipment 6.8 13.4
Other, net (0.4) (1.2)
Total Free Cash Flow from
Continuing Operations $82.7 $159.3
(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
