Brunswick Corporation reported a 27% increase in net earnings on 12% sales growth and a 23% improvement in operating earnings for the second quarter of 2005. Net earnings totaled $114.1 million, or $1.15 per diluted share, for the second quarter, compared with net earnings of $90.1 million, or 93 cents per diluted share, for the year-ago quarter.

“It was a record quarter for Brunswick, evidence of our ability to leverage our competitive and technological advantages to extend our leadership position in all of our market segments,” said Brunswick chairman and chief executive officer George W. Buckley. “We saw strength in our marine operations where our customer-led strategy of offering new products incorporating the technologies and features that resonate with consumers continues to drive sales growth. For the quarter, marine engine and boat sales advanced 14% and 18%, respectively, energized by share gains by some of our most established brands. While acquisitions contributed to the company's 12% overall sales increase, our organic growth was an impressive 10%. We head into the remainder of the year with good sales momentum and a positive market outlook that will aid our efforts to grow the business, while our strong balance sheet affords us flexibility to invest further in our business and pursue attractive acquisition opportunities.”

Second Quarter Results

For the quarter ended June 30, 2005, net sales increased 12% to $1,598.6 million, up from $1,422.7 million a year earlier. Excluding the effect of acquired businesses that were not part of the company a year ago, sales were up 10% in the quarter. Operating earnings rose 23% to $171.7 million compared with $139.5 million in the year-ago quarter, and operating margins improved to 10.7% from 9.8%. Net earnings totaled $114.1 million, or $1.15 per diluted share, up 27% from $90.1 million, or 93 cents per diluted share, for the second quarter of 2004. Debt-to-total capital was 27.7% at quarter end as compared with 31.9 percent a year earlier, and cash totaled $508.6 million.

Marine Engine Segment

The Marine Engine segment, consisting of the Mercury Marine Group and Brunswick New Technologies (BNT), reported net sales of $755.5 million in the second quarter of 2005, up 14% from $665.2 million in the year-ago quarter. Operating earnings in the second quarter increased 12% to $107.0 million versus $95.6 million, while operating margins declined slightly to 14.2% from 14.4 percent for the same quarter in 2004.

“Our Mercury Marine engine business continued to show strength, with solid sales growth reported for outboard and sterndrive engines as well as parts and accessories in both the domestic and international markets,” Buckley explained. “In addition, BNT sales remained robust, up 65% for the quarter, primarily driven by an 80% increase at Navman with its growing family of marine electronics products, as well as an expanding assortment of new GPS-based products for land navigation.”

“During the quarter we continued to invest in projects that will lead to improved financial performance in the coming year. Our new engine plants in China and Japan that started up in the first quarter are good examples of this effort,” Buckley noted. “While we incurred costs associated with the ramp up of production at these facilities, we will begin to see the benefit of our improved cost structure as we build volume over the coming year.”

The China facility is making 40 to 60 horsepower four-stroke outboard engines, while Mercury uses the Japan operation, with joint venture partner, Tohatsu, to make four-stroke outboards from 2.5 to 30 horsepower.

“Effective the first of July, Mercury became the first major engine maker to exit the carbureted two-stroke outboard market, fulfilling our commitment to discontinue producing non-emission compliant two-strokes for sale in the United States and Canada beginning with the 2006 model year,” Buckley noted. “We now have a full line of low-emission engines that includes our direct fuel injected OptiMax two-stroke outboards as well as four-stroke engines ranging from 2.5 horsepower to our new Verado supercharged outboards with offerings up to 275 horsepower. Indeed, low-emission engines accounted for 71% of our outboard sales during the quarter, up from 56% in the year-ago period. We are very pleased with consumers' response to our new offerings; however, they generally have lower margins than carbureted two-strokes due to their more advanced technology and higher-cost components. Increased volumes as well as our move to lower cost manufacturing areas are helping to improve that situation.”

Boat Segment

The Brunswick Boat Group comprises the Boat segment. The group has 18 boat brands, including Sea Ray, Bayliner, Maxum, Hatteras, Sealine, Meridian, Boston Whaler, Trophy, Baja, Sea Pro and Triton along with the Land 'N' Sea and Attwood marine parts and accessories distribution and manufacturing businesses.

The Boat segment reported net sales for the second quarter of $742.2 million, up 18% compared with $629.9 million in the second quarter of 2004. Boat segment sales for the quarter benefited from the Albemarle, Sea Pro and Triton acquisitions, all made since the end of 2004. Excluding the sales of these businesses, Boat segment sales increased 13 percent in the quarter. Operating earnings increased to $74.8 million, 31% ahead of the $57.0 million reported in the second quarter of 2004, and operating margins rose 110 basis points to 10.1%, up from 9.0%.

“Our sales growth was driven by a stellar performance from Sea Ray with a 26 percent gain in the quarter as well as from strong contributions from Bayliner and our other fiberglass boat brands. Our customer-led strategy means getting the product right and getting the distribution right. The strong retail demand for our products that we saw in the second quarter is evidence of the success of that approach.”

“Additionally, our strategy of organizing and grouping our boat brands around specific market segments is sharpening our focus and firmly establishing Brunswick as a major player in such areas as freshwater and saltwater fishing,” Buckley explained. “Last year, for example, we had two brands — Boston Whaler and Trophy — targeting offshore fishing. Now with the formation of the Saltwater Boat Group and the addition of the Sea Pro, Sea Boss and Palmetto brands, Brunswick now offers our dealers and consumers more choices to meet their saltwater boating needs and preferences.”

“The same is happening in the Freshwater Boat Group, where we acquired Triton Boats during the quarter,” Buckley added. “One of the leading bass boat brands, Triton also offers us additional pontoon and aluminum models to address the needs of anglers and boating enthusiasts. And while we have recently seen some regional weakness in the aluminum boat market, particularly in the Midwest and Northeast where poor weather at the start of the boating season dampened demand, we believe we have put together a formidable line-up of freshwater boats that will provide our dealers with a full array of products to meet their customers' needs. During the quarter we reduced production at two of our aluminum plants to properly balance supply to demand and prune pipeline inventories in advance of the start of the 2006 model year.”

Buckley also pointed out that Brunswick's acquisition efforts have not been confined to the U.S. boat market. “During the quarter, we completed the acquisition of the portion that we previously did not own of Valiant, a leading European maker of rigid inflatable boats. We expect to be more active on the international front in the future as we look to 'fill in the white space' in other world markets.”

The Brunswick Boat Group's growing parts and accessories business also had a strong quarter with Land 'N' Sea registering a double-digit sales increase. In July, Brunswick acquired Kellogg Marine of Old Lyme, Conn., to serve as a hub for its parts distribution efforts in the Northeast. Brunswick is nearing its goal, set just two years ago, of offering same- or next-day service on parts and accessories to anywhere in the continental U.S. and Canada.

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 2% in the quarter, excluding sales from the Omni retail stores that were sold in late 2004. Segment sales in the second quarter of 2005 reached $120.4 million, down from $122.3 million in the year-ago quarter, which included Omni retail sales. Fitness segment operating earnings for the quarter totaled $5.1 million, up 76% from $2.9 million in the second quarter of 2004, and operating margins advanced 180 basis points to 4.2% from 2.4% a year ago.

“The increase in fitness equipment sales was driven by strong demand in the domestic commercial markets. Double-digit growth in the United States was partially offset by a decline in European sales where we continue to face competitive pricing pressure. Our many efforts to improve productivity and operating results within the Fitness segment are beginning to bear fruit, with improvement in operating margins evident during the most recent quarter,” Buckley said. “By concentrating on manufacturing and supply chain efficiencies, as well as expense control, we have been able to improve our margins and operating performance at Life Fitness. It is for these reasons and others we anticipate that improvement in financial performance will continue as our Fitness operations sharpen their focus on market segments to better leverage the enduring power of our brands and the excitement of new products.”

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 2005 totaled $114.9 million, up 9% compared with $105.8 million in the year-ago quarter. Year-over-year operating earnings advanced 24% to $5.2 million in the second quarter versus $4.2 million, and operating margins improved to 4.5% compared with 4.0% in 2004.

“Every segment of Bowling & Billiards advanced its sales during the quarter,” Buckley said. “Bowling products had a double-digit gain for the quarter and built sales momentum with the introduction of Brunswick Premium Furniture at a late June trade event. The new living-room styled furniture is more inviting and comfortable than traditional configurations. Meant to be more appealing to the casual bowler, who continues to grow in importance for center operators, this furniture invites longer time spent in the bowling centers, more repeat business and, subsequently, greater revenue opportunities.”

“Likewise, our bowling retail operations continue to prove to be dependable revenue generators thanks to our management expertise and our continuing efforts to expand our Brunswick Zone concept,” Buckley added. “We have been particularly happy with the response to our larger bowling entertainment centers. They continue to grow at rates that eclipse traditional locations.”

Six-Month Results

For the six months ended June 30, 2005, the company had net sales of $2,999.7 million, up 14% from $2,622.3 million for the first half of 2004. Excluding contributions from acquired businesses, sales were up 10 percent. Operating earnings totaled $270.8 million for the first half of 2005, up 24% from the $218.0 million for the corresponding period in 2004, and operating margins expanded 70 basis points, reaching 9.0% versus 8.3% a year ago. Net earnings for the first six months of 2005 increased 51% to $208.7 million, or $2.11 per diluted share, from $138.1 million, or $1.43 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 half 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.

Looking Ahead

“At the beginning of the year we based our planning on the assumption that marine retail demand would be up in the mid-single digits. Although there have been puts and takes in various geographical areas and market segments, results through the first half of 2005 continue to support that assumption,” Buckley said. “We are also seeing positive trends in pipeline inventories with 23 weeks of supply for boats and 20 weeks of supply of engines in the channel, down eight weeks and nine weeks, respectively, from the end of March. This reflects the strong demand at retail we saw in the second quarter and our dealers' expectations for continued growth at retail for the remainder of the year.”

“While keeping in mind the impact of underlying economic and stock market conditions, we expect to report another record year for Brunswick,” Buckley said. “Based on our performance in the second quarter and outlook for the second half, we are raising our estimate for the year to $3.62 to $3.72 per diluted share, which includes the 32 cent gain on the stock sale. This compares with $2.77 per diluted share for 2004. This would imply earnings for the second half in the range of $1.51 to $1.61 per diluted share, which we believe will be more or less evenly divided between the third and fourth quarters. The wild card is the timing of planned investment spending, which could result in a few pennies shifting between the two quarters.”

 Brunswick Corporation
    Comparative Consolidated Statements of Income
    (in millions, except per share data)
    (unaudited)

                                                Three Months Ended June 30
                                               2005         2004     % Change

    Net sales                                $1,598.6     $1,422.7      12%
    Cost of sales                             1,186.0      1,054.9      12%
    Selling, general and administrative
     expense                                    204.8        198.9       3%
    Research and development expense             36.1         29.4      23%
    Operating earnings                          171.7        139.5      23%
    Interest expense                            (13.1)       (10.4)    -26%
    Other income                                  9.2          5.4      70%
    Earnings before income taxes                167.8        134.5      25%
    Income tax provision                         53.7         44.4

    Net earnings                               $114.1        $90.1      27%

    Earnings per common share:
    Basic                                       $1.16        $0.94      23%
    Diluted                                      1.15         0.93      24%

    Weighted average number of shares used for
     computation of:
    Basic earnings per share                     98.0         95.4       3%
    Diluted earnings per share                   99.2         97.2       2%

    Effective tax rate                          32.0%        33.0%