Brunswick Corporation reported net earnings of $39.9 million, or $0.43 per diluted share, for the fourth quarter of 2003, nearly double net earnings of $20.5
million, or $0.22 per diluted share, for the year-ago quarter. The company said the 95 percent increase in net earnings came on a 17 percent increase in sales and a 43 percent improvement in operating earnings.
Commenting on the quarter, Brunswick Chairman and Chief Executive Officer
George W. Buckley said, “We reported an excellent fourth quarter, and we are
very pleased with the performance of all of our business units. Each of our
operating segments — Marine Engine, Boat, Fitness and Bowling & Billiards —
reported double-digit sales growth for the quarter. These results reflect the
success of our strategy to develop and introduce new products and technologies
that inspire and excite our customers, as well as the benefit of acquisitions
and the impact of a weaker U.S. dollar. Excluding acquisitions, net sales for
the quarter were up 10 percent. Ongoing effective cost management efforts
contributed to the increase in operating earnings and a 100 basis point
improvement in operating margins to 5.4 percent.”
“We enter 2004 with our balance sheet in excellent shape, largely due to
our ability to generate significant free cash flow. Good working capital
management combined with the increase in earnings resulted in $240 million of
free cash flow for the year after capital expenditures of $160 million. Debt-
to-total capital at year end was 31.5 percent compared with 35.9 percent a
year earlier, providing us the financial flexibility to seek out opportunities
to continue to improve and grow our business,” Buckley said.
Fourth Quarter Results
For the quarter ended Dec. 31, 2003, the company reported that net sales
increased 17 percent to $1,086.9 million, up from $928.0 million a year
earlier. Sales in the fourth quarter of 2003 benefited from higher volumes,
improved performance at the company's US Marine division, the impact of a
weaker U.S. dollar and incremental sales from acquisitions that were not in
the year-ago quarter. Operating earnings rose to $58.7 million compared with
$41.1 million in the year-ago quarter, and operating margins improved to 5.4
percent from 4.4 percent. In addition to the higher sales, the company said
that effective cost management throughout the organization led to the improved
operating leverage and helped offset a $7 million increase in pension and
health-care costs compared with the year-ago fourth quarter. Other income,
consisting primarily of earnings from joint ventures and equity investments as
well as interest income, contributed $5.9 million of pre-tax earnings in the
fourth quarter of 2003 versus $1.8 million in the fourth quarter a year ago.
Net earnings totaled $39.9 million, or $0.43 per diluted share, up from
$20.5 million, or $0.22 per diluted share, for the fourth quarter of 2002.
Net earnings in the fourth quarter of 2003 also benefited from a lower
effective tax rate. The company said its effective tax rate for the year was
reduced to 32.75 percent from 35 percent through the first three quarters of
2003. To make the cumulative adjustment for the year, the effective tax rate
in the fourth quarter was 26.7 percent compared with 36.1 percent in the year-
ago quarter. The company was able to reduce its effective tax rate in large
part due to the prepayment of taxes related to an outstanding IRS case and
higher international earnings that were taxed at rates lower than domestic
rates.
Full Year 2003 Results
For the year ended Dec. 31, 2003, the company had net sales of
$4,128.7 million, up 11 percent from $3,711.9 million in 2002. All business
segments contributed to the company's good performance for the year, along
with the benefit of acquisitions. Excluding acquisitions, net sales were up 8
percent. Operating earnings reached $221.4 million for the year, which
includes a $25 million litigation charge recorded in the first quarter, and
operating margins were 5.4 percent. Excluding the litigation charge,
operating earnings rose 25 percent to $246.4 million, up from $196.6 million
for 2002, and operating margins improved to 6.0 percent from 5.3 percent a
year ago. Further, the company said that earnings from joint ventures and
equity investments plus interest income contributed $20.7 million to pre-tax
earnings in 2003, compared with $8.3 million a year ago.
Net earnings for 2003 were $135.2 million, or $1.47 per diluted share,
which includes the aforementioned litigation charge ($0.18 per diluted share).
Excluding the litigation charge, earnings per diluted share totaled $1.65 for
the year. Net earnings for 2002 totaled $78.4 million, or $0.86 per diluted
share. The cumulative effect of adoption of Financial Accounting Standards
Board SFAS No. 142, “Goodwill and Other Intangible Assets” is included in the
2002 results. 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. Excluding the effect of the accounting change, net earnings
for 2002 totaled $103.5 million, or $1.14 per diluted share.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group and
Brunswick New Technologies, reported sales of $473.4 million in the fourth
quarter of 2003, up 18 percent from $402.8 million in the year-ago fourth
quarter. Operating earnings in the fourth quarter were up 60 percent to
$26.7 million versus $16.7 million, and operating margins increased to 5.6
percent compared with 4.1 percent for the same quarter in 2002.
For the full year, Marine Engine segment sales rose 12 percent to
$1,908.9 million, and operating earnings were $171.1 million versus
$170.9 million a year ago. Operating margins for the year declined to 9.0
percent versus 10.0 percent in 2002.
“Mercury Marine's international unit had an excellent 2003 with sales
increasing 22 percent, driven by share gains as well as the impact of the
weaker U.S. dollar,” Buckley said. “Higher sales in the domestic market
during the latter part of the year helped offset a slow start in the first
half resulting in relatively flat year-over-year domestic sales. Pipeline
engine inventories continue to be in excellent shape at 22 weeks of supply at
the end of 2003 as compared with 23 weeks of supply a year ago.”
“Brunswick New Technologies also contributed to the sales gain for the
Marine Engine segment, primarily due to the acquisition of Navman NZ Limited,
which was completed in the second quarter,” Buckley added. “The addition of
this producer of global positioning system-based products further enhances our
ability to manufacture boats with integrated marine electronics.”
“The Marine Engine segment posted a significant improvement in operating
margins in the second half of the year, despite higher R&D spending in support
of Brunswick New Technologies, increased pension and health-care expense and
margin pressure from a shift in our outboard product mix to low-emission
engines that have lower margins,” Buckley said. “The investments in BNT and
new engine technologies are an important part of our strategy to enhance our
capabilities and product offerings for the long term.”
“During the year, we completed the development of Project “X”, our high
horsepower four-stroke outboard engine. This game-changing engine will be
formally launched at the Miami International Boat Show in a couple of weeks,
with shipments scheduled to begin in April,” Buckley noted.
Boat Segment
The Brunswick Boat Group comprises the Boat segment and includes the Sea
Ray, Bayliner, Maxum, Hatteras, Sealine, Meridian, Boston Whaler, Trophy, Baja
and Princecraft boat brands and the Land 'N' Sea and Attwood marine parts and
accessories distribution and manufacturing businesses. The Boat segment
reported sales for the fourth quarter of $414.9 million, up 21 percent
compared with $344.2 million in the fourth quarter of 2002. Boat segment
sales benefited from incremental sales from its new P&A business, which began
with the acquisition of Land 'N' Sea and Attwood Marine in June and September
of 2003, respectively. Excluding these acquisitions, sales increased 13
percent in the quarter. Operating earnings for the Boat segment increased to
$9.3 million, more than double the $4.5 million reported in the fourth quarter
of 2002, and operating margins rose to 2.2 percent, up from 1.3 percent.
For 2003, Boat segment sales were up 15 percent to $1,616.9 million from
$1,405.3 million in 2002. Excluding the new P&A businesses, Boat segment
sales were up 11 percent for the year. Operating earnings for the Boat
segment more than tripled to $63.9 million from $19.0 million in 2002, and
operating margins improved to 4.0 percent compared with 1.4 percent in 2002.
“Our Boat Group showed remarkable strength across all brands and segments
in 2003,” Buckley said. “The improvement in retail demand that began toward
the end of the second quarter has continued, leading to stronger wholesale
shipments to our dealers. Importantly, pipeline inventories are in excellent
shape at 28 weeks of supply at year end, unchanged from the same time a year
ago.”
“Among the most significant accomplishments during the year has been the
turnaround at our US Marine Division, which we expect to return to
profitability in 2004,” Buckley remarked. “By starting with exciting new
products such as the Bayliner 175 (an entry-level boat, engine and trailer
package with a suggested retail price of $9,995), and then adding the Bayliner
185, we've re-established Bayliner as the leader in family boating. Sea Ray
also contributed to the Boat segment's strong performance for the year with
double-digit sales and earnings growth driven by the success of a number of
new models.”
“During 2003, we continued to expand our offerings of products and
services, including boat parts and accessories and wholesale financing,”
Buckley added. “The acquisition of Land 'N' Sea and Attwood and the launch of
Brunswick Acceptance Company were instrumental in achieving our goal of
enveloping our dealers with the competitive advantages that will make them,
and Brunswick, more successful.”
Fitness Segment
The Fitness segment is comprised of the Life Fitness division, which
manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness
equipment, and operates Omni Fitness retail stores. Segment sales in the
fourth quarter of 2003 totaled $157.2 million, up 13 percent from
$139.4 million in the year-ago quarter. Operating earnings rose 27 percent to
$28.3 million from $22.3 million, and operating margins were 18.0 percent, up
200 basis points from 16.0 percent in the fourth quarter of 2002.
For 2003, the Fitness segment reported sales of $486.6 million, up 7
percent from $456.7 million in 2002. Operating earnings in 2003 increased 22
percent to $54.8 million and operating margins rose to 11.3 percent, excluding
the previously mentioned $25 million litigation charge. Operating margins,
including the charge, were 6.1 percent in 2003. In 2002, operating earnings
were $44.9 million and operating margins were 9.8 percent.
“During 2003, Life Fitness successfully introduced 50 new products,”
Buckley said. “The market's response to our Pro II and Signature strength
products and the industrial design of our cardiovascular products was beyond
our expectations. The success of these products, increased market share and
the weaker U.S. dollar are behind the strong sales and earnings performance
for the Fitness segment.”
“To better serve our European customers, in November we began shipping
strength products manufactured in our new plant in Hungary,” Buckley added.
“By manufacturing closer to our customers, we reduce lead times and freight
costs. We are also seeking to improve our operating efficiency in the United
States by consolidating the manufacture of strength equipment in our Ramsey,
Minn., plant. As previously announced, this will result in the closure of our
Paso Robles, Calif., plant, which will be completed in the next few months.”
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 fourth quarter of 2003 totaled
$115.7 million, up 12 percent compared with $103.1 million in the year-ago
quarter. Operating earnings were up 4 percent to $15.2 million in the quarter
versus $14.6 million in the comparable quarter in 2002. Operating margins
were 13.1 percent in the fourth quarter of 2003 compared with 14.2 percent in
2002.
For 2003, the segment reported sales of $392.4 million, up 4 percent from
$377.7 million in 2002. Operating earnings for the year were up 20 percent to
$25.6 million from $21.4 million in 2002, and operating margins improved to
6.5 percent from 5.7 percent.
“During the year, we expanded into the coin-operated billiards table
segment with the acquisition of Valley-Dynamo, which continues to meet
expectations. Incremental sales from this acquisition drove the sales gain
for the year,” Buckley said. “We have also been investing heavily in R&D and
quality programs to enhance our offerings of bowling products and services
such as Vector, a new bowling center scoring and business management system
introduced in the fourth quarter. We also continue to convert our bowling
centers into Brunswick Zones with 13 completed in 2003. About one-third of
our centers have been converted to date, and we will have 10 more Brunswick
Zones by the end of 2004. In addition to providing a clean, family-friendly
environment, we are expanding our customer base by offering more features that
attract the casual bowler.”
Looking Ahead
“As we enter 2004, we are very encouraged that many of our strategic
initiatives are starting to take hold,” Buckley noted. “With the economy
showing more stability and consumer confidence on the rise, we estimate marine
retail market growth in the mid-single digits for the year. When we couple
these factors along with new product introductions, share gains and
incremental sales from acquisitions completed in 2003, we expect to post sales
growth for our marine businesses in the low-double digits, and for our fitness
and bowling and billiards businesses in the high-single digits. Operating
margins will benefit from higher volumes as well as our ongoing focus on
effective cost management. This should more than offset costs associated with
new product introductions and new plant openings in Mexico and China, and the
margin impact of the transition to low-emission outboard engines. Our overall
operating margins improved by 70 basis points in 2003, and we would expect to
do better than that in 2004. As a result, we estimate diluted earnings per
share in the range of $2.10 to $2.30 for 2004.”
“When looking at the first quarter, keep in mind that we got off to a very
slow start in the first quarter of 2003 with marine retail down 15 to 20
percent,” Buckley explained. “Given the easy comparison, our first quarter
2004 performance should exceed the growth rates estimated for the full year.
We are estimating diluted earnings per share for the first quarter to be
between $0.35 and $0.40, compared with $0.22 per diluted share for 2003,
excluding the $0.18 per diluted share litigation charge recorded in the first
quarter of 2003.”
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
(unaudited)
Quarter Ended December 31
2003 2002 % Change
Net sales $1,086.9 $928.0 17%
Cost of sales 817.5 704.9
Selling, general and administrative
expense 177.7 152.5
Research and development expense 33.0 29.5
Operating earnings 58.7 41.1 43%
Interest expense (10.1) (10.8) -6%
Other income 5.9 1.8
Earnings before income taxes 54.5 32.1 70%
Income tax provision 14.6 11.6
Net earnings $39.9 $20.5 95%
Earnings per common share:
Basic $0.43 $0.23 87%
Diluted $0.43 $0.22 95%
Brunswick Corporation
Comparative Consolidated Statements of Income
(in millions, except per share data)
Year Ended December 31
2003 2002 % Change
(unaudited)
Net sales $4,128.7 $3,711.9 11%
Cost of sales 3,131.6 2,852.0
Selling, general and administrative
expense 632.5 560.5
Research and development expense 118.2 102.8
Litigation charge 25.0 -
Operating earnings (A) 221.4 196.6 13%
Interest expense (41.0) (43.3) -5%
Other income 20.7 8.3
Earnings before income taxes 201.1 161.6 24%
Income tax provision 65.9 58.1
Earnings before cumulative effect of
change in accounting principle 135.2 103.5 31%
Cumulative effect of change in
accounting principle, net of tax (B) - (25.1)
Net earnings $135.2 $78.4 72%
Basic earnings per common share:
Earnings before cumulative effect of
change in accounting principle $1.48 $1.15 29%
Cumulative effect of change in
accounting principle (B) - (0.28)
Net earnings $1.48 $0.87 70%
Diluted earnings per common share:
Earnings before cumulative effect of
change in accounting principle $1.47 $1.14 29%
Cumulative effect of change in
accounting principle (B) - (0.28)
Net earnings $1.47 $0.86 71%
