Brunswick Corporation earnings from continuing operations of 47 cents per diluted share for the fourth quarter of 2006, compared with 85 cents per diluted share for the same quarter a year ago. Results for 2006 include a 25 cents per diluted share tax-related benefit and 14 cents per diluted share for costs associated with restructuring actions announced in November 2006. Results for 2005 include a 17 cents per diluted share tax-related benefit. Excluding the non-recurring tax benefits, earnings for the fourth quarter of 2006 totaled 22 cents per diluted share versus 68 cents per diluted share a year earlier.
Commenting on the quarter, Brunswick Chairman and Chief Executive Officer Dustan E. McCoy said, “We are pleased with our performance in light of the difficult marine market conditions we faced throughout the year. While sales from our marine operations were down 2 percent in their seasonally slow fourth quarter, the decline was partially offset by 9 percent growth from our fitness equipment business and sales gains at our bowling retail centers, which are seasonally stronger at this time of the year. These results demonstrate that we are continuing to make fundamental changes in our operating abilities and are a testament to the strength of our brands, the soundness of our strategy and the talents, abilities and commitment of our employees around the world.”
“Our balance sheet remained healthy with debt-to-total capital at 28.0 percent at year end, compared with 26.8 percent a year earlier, and cash totaled $283 million,” McCoy noted. “Our free cash flow from continuing operations for 2006 was $153 million, allowing us the financial flexibility to reinvest in our businesses and add value for our shareholders. For example, in 2006 between dividends and the repurchase of 5.6 million shares, we returned approximately $251 million to shareholders.”
Fourth Quarter Results
For the quarter ended Dec. 31, 2006, the company reported net sales from continuing operations of $1.37 billion, down slightly from $1,38 billion a year earlier. Excluding incremental sales from acquired businesses, sales declined 2% in the quarter. Operating earnings for the fourth quarter of 2006 totaled $30.5 million, as compared with $99.6 million in the year-ago quarter, and operating margins were 2.2% compared with 7.2% in the year-ago period. Contributing to the decline in both operating earnings and operating margins was an $18.9 million pre-tax restructuring charge recorded during the quarter for severance costs, asset write-downs and other costs associated with work force reductions, plant shutdowns and distribution realignment actions announced in November 2006.
Net earnings from continuing operations were $44.2 million, or 47 cents per diluted share, down from $83.7 million, or 85 cents per diluted share, for the fourth quarter of 2005. Net earnings per share for the fourth quarter of 2006 included tax-related benefits of 25 cents per diluted share, as well as the aforementioned restructuring charge equivalent to 14 cents per diluted share. The fourth quarter of 2005 included a 17 cents per diluted share tax-related benefit. Excluding tax-related benefits, earnings per diluted share totaled 22 cents and 68 cents for the fourth quarters of 2006 and 2005, respectively.
During the fourth quarter of 2006, the company repurchased approximately 1.0 million shares of its common stock for approximately $32.5 million.
In April 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 fourth quarter of 2006, the company reported a net loss from discontinued operations of $97.4 million, or $1.04 per diluted share, compared with net earnings of $4.6 million, or 5 cents per diluted share, for the fourth quarter of 2005.
In a December 2006 announcement, the company said that proceeds from the sale of BNT were expected to be less than its book value at that time. As a result, the company recorded $85.6 million of asset impairment charges, equivalent to 92 cents per diluted share, in the fourth quarter of 2006.
2006 Results
For the year ended Dec. 31, 2006, the company had net sales from continuing operations of $5,665.0 million, up 1% from $5,606.9 million in 2005. Excluding the benefit of acquisitions, sales were down 3%. Operating earnings from continuing operations totaled $341.2 million for the year, down from $468.7 million in 2005, and operating margins were 6.0% versus 8.4% a year ago. For 2006, operating earnings and operating margins were affected by the previously mentioned $18.9 million pre-tax restructuring charge.
Net earnings from continuing operations for 2006 were $263.2 million, or $2.78 per diluted share, compared with $371.1 million, or $3.76 per diluted share, in 2005. Results for 2006 included tax-related benefits of 50 cents per diluted share, as well as the previously mentioned 14 cents restructuring charge. Results for 2005 included tax-related benefits of 31 cents per diluted share and a 32 cents per diluted share gain on the sale of approximately 1.9 million shares of MarineMax, Inc. stock. Excluding the tax-related benefits and the gain on the stock sale, earnings for 2006 totaled $2.28 per diluted share compared with $3.13 per diluted share in 2005.
Tax-related benefits for both 2006 and 2005 were primarily due to the settlement of prior years' federal and state tax audits.
For 2006, the company reported a net loss from discontinued operations of $129.3 million, or $1.37 per diluted share, compared with net earnings of $14.3 million, or 14 cents per diluted share for 2005. The net loss for 2006 includes the previously mentioned $85.6 million, or 91 cents per diluted share, of asset impairment charges.
Boat Segment
The Brunswick Boat Group comprises the Boat segment and includes 19 boat brands, as well as a marine parts and accessories business. The Boat segment reported net sales for the fourth quarter of $664.5 million, down 1% compared with $671.7 million in the fourth quarter of 2005. Excluding contributions from 2006 acquisitions, Boat segment sales decreased 4% in the quarter. Operating earnings for the Boat segment decreased to $9.3 million, down from $30.6 million reported in the fourth quarter of 2005, and operating margins declined to 1.4% from 4.6%. Approximately $4.2 million of the previously mentioned $18.9 million restructuring charge was recorded in the Boat segment during the fourth quarter of 2006 for plant closures, work force reductions and other cost-cutting measures.
For 2006, Boat segment sales were up 3% to $2,864.4 million from $2,783.4 million in 2005. Excluding incremental sales from acquisitions, Boat segment sales were down 4% for the year. Operating earnings for the Boat segment were $135.6 million, down from $192.5 million in 2005, and operating margins were 4.7% compared with 6.9% a year ago.
“For the year, our increase in boat sales was completely driven by acquisitions,” McCoy explained. “During 2006 we acquired Cabo Yachts and Diversified Marine and also had the benefit of a full year's ownership of Kellogg Marine and our Triton and HarrisKayot boat brands. The reduction in operating margins was primarily due to lower production in most of our boat brands to manage pipeline inventories and a shift in product mix to lower-margin boats.”
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, reported net sales of $511.3 million in the fourth quarter of 2006, down 2% from $519.8 million in the year-ago fourth quarter. Operating earnings in the fourth quarter declined to $3.8 million versus $33.8 million, and operating margins were 0.7% compared with 6.5% for the same quarter in 2005. During the fourth quarter of 2006, approximately $9.5 million of the $18.9 million restructuring charge was recorded in the Marine Engine segment, primarily for severance costs.
For the full year, Marine Engine segment net sales were down 1% to $2,271.3 million from $2,300.6 million, and operating earnings were $193.8 million versus $250.5 million in 2005. Operating margins decreased for the year to 8.5% from 10.9% in 2005.
“Sales growth for the year was driven by contributions from Mercury Marine's non-U.S. markets,” McCoy said. “Mercury's international sales totaled nearly $822 million in 2006, up from approximately $791 million the previous year. Meanwhile, in our U.S. markets, sterndrive engine sales totaled $554 million for 2006 as compared with $561 million in 2005. The U.S. outboard engine business was off about 10 percent, coming in at $434 million in sales for the year, down from $480 million in 2005, reflecting the difficult U.S. marine market, as well as successful efforts to reduce pipeline inventories. Sales of Mercury's domestic parts and services were up slightly to $353 million versus $352 million in 2006 and 2005, respectively.”
The company said that the decrease in segment operating earnings was largely due to fixed-cost absorption as a result of lower production rates to reduce pipeline inventory levels. Other contributing factors were costs to ramp up Asian manufacturing plants, higher research and development expense and the full-year impact of the mix shift to low-emission outboard engines, as well as the previously mentioned restructuring charge.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness equipment. Segment net sales in the fourth quarter of 2006 totaled $192.8 million, up 9% from $176.1 million in the year-ago quarter. Operating earnings decreased 5 percent to $28.9 million from $30.4 million, and operating margins were 15.0%, down from 17.3% in the fourth quarter of 2005.
For 2006, the Fitness segment reported net sales of $593.1 million, up 8% from $551.4 million in 2005. Operating earnings in 2006 increased 3% to $57.8 million from $56.1 million, and operating margins were 9.7% compared with 10.2 percent a year ago.
“Sales momentum grew during the year, particularly in the consumer segment where new products such as the popular elliptical line and the T5 and T7 series of treadmills fueled growth in the fourth quarter,” McCoy explained. “Operating earnings and margins were under some pressure due to higher spending for research and development, the shift in our mix to lower-margin strength equipment and higher freight and installation costs.”
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 net sales in the fourth quarter of 2006 totaled $120.1 million, down 5% compared with $126.2 million in the year-ago quarter. Operating earnings were $5.6 million in the quarter versus $15.2 million in the comparable quarter in 2005, and operating margins were 4.7% compared with 12.0% a year ago. During the fourth quarter of 2006, the Bowling & Billiards segment recognized $4.5 million in restructuring charges, primarily for costs associated with distribution realignment activities.
For 2006, the segment reported net sales of $458.3 million, down 1% from $464.5 million in 2005. Operating earnings for the year were $22.1 million compared with $37.2 million in 2005, and operating margins were 4.8% versus 8.0% a year earlier. The decline in operating earnings was primarily due to the aforementioned restructuring charge, costs associated with the transition of bowling ball and coin-operated billiards table production to Mexico, as well as lower gains on the sale of bowling centers.
“For the quarter and the year, our bowling retail business benefited from the success of marketing efforts designed to bring more customers into our centers. This resulted in solid sales growth at both our Brunswick Zones, as well as the newer and larger Brunswick Zone XL centers,” McCoy said. “We plan to open three new Zone XL centers during 2007. Sales of bowling capital equipment were down in the quarter versus a year ago when we had a large shipment to an international customer, which resulted in a difficult year-over-year comparison. Sales of Brunswick billiards products increased due to strong demand for new tables introduced in the second half of the year, offsetting a decline in our Valley-Dynamo coin-operated billiards table segment. The move of coin-operated table manufacturing to Mexico will help us reduce costs in this operation.”
Looking Ahead
“As we look to 2007, we remain focused on our strategic initiatives, which will serve us well in the long term,” McCoy said. “Managing pipeline inventories in the near term, however, is important in a cyclical business. There were 34 weeks of supply of boats in the pipeline at year end, up from 31 weeks at the end of 2005, whereas engines were flat at 26 weeks of supply. For our planning purposes, we are not counting on an increase in retail demand this year to reduce field inventories. We are assuming marine retail demand will be down in the low-to mid-single digits. Therefore, we will be reducing production through at least the first half of 2007 to shrink pipelines. Reduced fixed-cost absorption on lower production will adversely affect sales and earnings.”
“Overall sales are expected to be relatively flat, give or take a couple of percentage points, with declines in our marine operations offset by mid-single digit growth from our fitness and bowling and billiards operations,” McCoy added. “Operating margins will be adversely affected by lower fixed-cost absorption on reduced production volumes, higher pricing offset by inflationary pressures on raw material costs, increased variable compensation costs, additional restructuring charges and a higher effective tax rate. The midpoint of our earnings estimate assumes operating margins will be down about 100 basis points. For 2007, we are estimating earnings in the range of $1.65 to $2.00 per share. The year-over-year comparisons will be the most difficult in the first quarter as the first part of 2006 was strong relative to the rest of the year. Consequently, our earnings will be more second-half weighted compared with the earnings pattern we would typically see.”
“Despite the challenges of a soft marine market, we continue to execute against our strategy, emphasizing the critical need to: get the product right, get the distribution right, be best cost in our industries, be global and attract and retain talent,” McCoy continued. “This has enabled us to grow through the ups and downs of the marine cycles and produce higher peak and trough earnings than in prior cycles. It is the dedication and contributions of our employees around the world that makes that happen.”
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
Three Months Ended December 31
2006 2005 % Change
(unaudited)
Net sales $1,370.8 $1,381.7 -1%
Cost of sales 1,102.2 1,073.4 3%
Selling, general and administrative expense 202.5 175.7 15%
Research and development expense 35.6 33.0 8%
Operating earnings (1) 30.5 99.6 -69%
Equity earnings 0.2 4.2 -95%
Other income (expense), net 0.3 (0.4) NM
Earnings before interest and income taxes 31.0 103.4 -70%
Interest expense (17.0) (13.6) 25%
Interest income 5.6 4.9 14%
Earnings before income taxes 19.6 94.7 -79%
Income tax provision (benefit) (24.6) 11.0
Net earnings from continuing operations 44.2 83.7 -47%
Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax (11.8) 4.6
Impairment charges on assets held
for sale, net of tax (85.6) -
Net earnings (loss) from discontinued
operations, net of tax (97.4) 4.6 NM
Net earnings (loss) $(53.2) $88.3 NM
Earnings per common share:
Basic
Earnings from continuing operations $0.48 $0.86 -44%
Earnings (loss) from discontinued
operations (1.05) 0.05 NM
Net earnings (loss) $(0.57) $0.91 NM
Diluted
Earnings from continuing operations $0.47 $0.85 -45%
Earnings (loss) from discontinued
operations (1.04) 0.05 NM
Net earnings (loss) $(0.57) $0.90 NM
Weighted average number of shares
used for computation of:
Basic earnings per share 92.3 96.7 -5%
Diluted earnings per share 93.0 97.8 -5%
Effective tax rate (2) NM 11.6%
Supplemental Information
Diluted earnings from continuing operations $0.47 $0.85 -45%
Non-recurring tax benefits (2) (0.25) (0.17) NM
Diluted earnings from continuing
operations, as adjusted $0.22 $0.68 -68%
Diluted earnings (loss) from
discontinued operations $(1.04) $0.05 NM
Impairment charges on assets held for sale 0.92 - NM
Diluted earnings (loss) from
discontinued operations, as adjusted $(0.12) $0.05 NM
(1) Operating earnings in the fourth quarter of 2006 include an
$18.9 million pre-tax restructuring charge, equivalent to $0.14 per
diluted share.
(2) The decrease in the effective tax rate for the fourth quarter of 2006
was primarily due to higher non-recurring tax benefits of
$23.6 million, compared with $17.0 million in the fourth quarter of
2005.
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
Years Ended December 31
2006 2005 % Change
(unaudited)
Net sales $5,665.0 $5,606.9 1%
Cost of sales 4,439.3 4,285.3 4%
Selling, general and administrative expense 752.3 729.4 3%
Research and development expense 132.2 123.5 7%
Operating earnings (1) 341.2 468.7 -27%
Equity earnings 14.9 18.1 -18%
Investment sale gain (2) - 38.7 NM
Other expense, net (1.9) (1.4) -36%
Earnings before interest and income taxes 354.2 524.1 -32%
Interest expense (60.5) (53.2) 14%
Interest income 16.0 15.0 7%
Earnings before income taxes 309.7 485.9 -36%
Income tax provision 46.5 114.8
Net earnings from continuing operations 263.2 371.1 -29%
Discontinued operations:
Earnings (loss) from discontinued
operations, net of tax (43.7) 14.3
Impairment charges on assets held
for sale, net of tax (85.6) -
Net earnings (loss) from discontinued
operations, net of tax (129.3) 14.3 NM
Net earnings $133.9 $385.4 -65%
Earnings per common share:
Basic
Earnings from continuing operations $2.80 $3.80 -26%
Earnings (loss) from discontinued
operations (1.38) 0.15 NM
Net earnings $1.42 $3.95 -64%
Diluted
Earnings from continuing operations $2.78 $3.76 -26%
Earnings (loss) from discontinued
operations (1.37) 0.14 NM
Net earnings $1.41 $3.90 -64%
Weighted average number of shares
used for computation of:
Basic earnings per share 94.0 97.6 -4%
Diluted earnings per share 94.7 98.8 -4%
Effective tax rate (3) 15.0% 23.6%
Supplemental Information
Diluted earnings from continuing operations $2.78 $3.76 -26%
Non-recurring tax benefits (3) (0.50) (0.31) NM
Investment sale gain (2) - (0.32) NM
Diluted earnings from continuing
operations, as adjusted $2.28 $3.13 -27%
Diluted earnings (loss) from
discontinued operations $(1.37) $0.14 NM
Non-recurring tax benefits - (0.02) NM
Impairment charges on assets held for sale 0.91 - NM
Diluted earnings (loss) from
discontinued operations, as adjusted $(0.46) $0.12 NM
(1) Operating earnings in 2006 include an $18.9 million pre-tax
restructuring charge, equivalent to $0.14 per diluted share.
(2) The company sold its investment in MarineMax, Inc., pursuant to a
registered public offering by MarineMax.
(3) The decrease in the effective tax rate for fiscal year 2006 was
primarily due to higher non-recurring tax benefits of $47.0 million,
compared with $30.8 million in fiscal year 2005.
