Brunswick Corp. reported net sales of $728.8 million in the fourth quarter, up 11% from $657.3 million a year earlier. Operating loss reached $74.7 million, which included $18.5 million of restructuring, exit and impairment charges, marking a $113.5 million improvement from a year earlier when operating loss reached $188.2 million including $68.6 million of restructuring, exit and impairment charges.
The maker of fitness, bowling and marine products reported a net loss of $104.1 million, or $1.17 per diluted share, compared to a loss of $124.0, or $1.40 in the prior year. The diluted loss per share included restructuring, exit and impairment charges of 21 cents per diluted share and a 2 cent per diluted share charge for special tax items. The loss per diluted share for the fourth quarter of 2009 included 78 cents per diluted share of restructuring, exit and impairment charges, and a $1.20 per diluted share benefit from special tax items.
“The factors that positively affected our revenues and earnings in the fourth quarter of 2010, compared to the previous year, included higher sales levels in our marine and fitness businesses and lower discounts required to facilitate retail boat sales,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “During the quarter, we also benefited from lower restructuring charges and reduced losses on early extinguishment of debt, as well as lower pension and bad debt expenses. Partially offsetting these factors were higher income tax provisions.”
Review of Cash Flow and Balance Sheet
Cash and marketable securities totaled $657.1 million at the end of the fourth quarter, up $129.7 million from year-end 2009 levels. This increase reflects net cash provided by operating activities of $205.4 million, which included the receipt of a $109.5 million federal tax refund. Net cash provided by operating activities was positively affected by changes in certain current assets and current liabilities during 2010. These changes were largely the result of increases in accrued expenses and accounts payable, partially offset by increases in net inventories.
Cash and marketable securities totaled $657.1 million at the end of the fourth quarter, up $129.7 million from year-end 2009 levels. This increase reflects net cash provided by operating activities of $205.4 million, which included the receipt of a $109.5 million federal tax refund. Net cash provided by operating activities was positively affected by changes in certain current assets and current liabilities during 2010. These changes were largely the result of increases in accrued expenses and accounts payable, partially offset by increases in net inventories.
Net debt (defined as total debt, less cash and marketable securities) was $173.5 million, down $150.0 million from year-end 2009 levels. The change in net debt primarily reflects the $129.7 million increase in total cash and investments. The company's total liquidity (defined as cash and marketable securities, plus amounts available under its asset-backed lending facilities) was $819 million, up $203 million from year-end 2009 levels.
Marine Engine Segment
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $353.3 million in the fourth quarter of 2010, up 17 percent from $302.4 million in the fourth quarter of 2009. International sales, which represented 51 percent of total segment sales in the quarter, increased by 15 percent. For the quarter, the Marine Engine segment reported an operating loss of $17.4 million, including restructuring charges of $7.4 million. This compares with an operating loss of $59.4 million in the year-ago quarter, which included $8.2 million of restructuring and impairment charges.
Sales were higher across all of the segment's main operations, including a 10 percent increase in the domestic marine parts and accessories businesses, which represented 21 percent of total segment sales in the quarter. The segment's outboard engine business experienced the greatest percentage sales growth.
Mercury's manufacturing facilities continued to increase production during the quarter in response to customer requirements. Lower bad debt and pension expenses, incentives associated with Mercury's plant consolidation activities, higher sales, fixed-cost reductions, increased fixed-cost absorption and improved operating efficiencies, all had a positive effect on operating earnings during the quarter.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, and includes 16 boat brands. The Boat segment reported net sales of $163.6 million for the fourth quarter of 2010, an increase of 7 percent compared with $153.4 million in the fourth quarter of 2009. International sales, which represented 40 percent of total segment sales in the quarter, increased by 8 percent during the period. For the fourth quarter of 2010, the Boat segment reported an operating loss of $69.3 million, including restructuring, exit and impairment charges of $10.0 million. This compares with an operating loss of $131.6 million, including restructuring, exit and impairment charges of $58.3 million, in the fourth quarter of 2009.
Boat segment production increased during the quarter, compared to the low levels in the fourth quarter of 2009, in response to the inventory requirements of dealers. Lower restructuring, exit and impairment charges, reduced discounts required to support retail sales by dealers and higher sales had a positive effect on the segment's reduction in operating losses in the quarter.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which designs, manufactures, and sells Life Fitness and Hammer Strength fitness equipment. Fitness segment sales in the fourth quarter of 2010 totaled $162.0 million, up 11 percent from $146.4 million in the year-ago quarter. International sales, which represented 47 percent of total segment sales in the quarter, decreased by one percent. For the quarter, the Fitness segment reported operating earnings of $24.4 million, which included restructuring charges of $0.1 million. This compares with operating earnings of $20.5 million in the fourth quarter of 2009, which included restructuring charges of $0.5 million.
Domestic commercial and consumer equipment sales increased during the quarter. Improved operating earnings in the fourth quarter of 2010, when compared with 2009, reflect higher sales and increased fixed-cost absorption.
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers; bowling equipment and products; and billiards tables and accessories. Segment sales in the fourth quarter of 2010 totaled $79.5 million, down 3 percent compared with $82.2 million in the year-ago quarter. International sales, which represented 23 percent of total segment sales in the quarter, decreased by 12 percent. For the quarter, the segment reported operating earnings of $0.2 million, including restructuring and exit charges of $1.2 million. This compares with operating earnings of $2.2 million, including restructuring and exit charges of $0.5 million in the fourth quarter of 2009.
For the quarter, equivalent-center sales for retail bowling were flat, while bowling products experienced a decline in sales. The reduction in operating earnings in the fourth quarter of 2010, when compared with 2009, reflects lower sales, the effect of a write-down of a vacant property, and higher restructuring and exit charges, partially offset by lower pension and bad debt expenses.
The Marine Engine segment, consisting of the Mercury Marine Group, including the marine parts and accessories businesses, reported net sales of $353.3 million in the fourth quarter of 2010, up 17 percent from $302.4 million in the fourth quarter of 2009. International sales, which represented 51 percent of total segment sales in the quarter, increased by 15 percent. For the quarter, the Marine Engine segment reported an operating loss of $17.4 million, including restructuring charges of $7.4 million. This compares with an operating loss of $59.4 million in the year-ago quarter, which included $8.2 million of restructuring and impairment charges.
Sales were higher across all of the segment's main operations, including a 10 percent increase in the domestic marine parts and accessories businesses, which represented 21 percent of total segment sales in the quarter. The segment's outboard engine business experienced the greatest percentage sales growth.
Mercury's manufacturing facilities continued to increase production during the quarter in response to customer requirements. Lower bad debt and pension expenses, incentives associated with Mercury's plant consolidation activities, higher sales, fixed-cost reductions, increased fixed-cost absorption and improved operating efficiencies, all had a positive effect on operating earnings during the quarter.
Boat Segment
The Boat segment is comprised of the Brunswick Boat Group, and includes 16 boat brands. The Boat segment reported net sales of $163.6 million for the fourth quarter of 2010, an increase of 7 percent compared with $153.4 million in the fourth quarter of 2009. International sales, which represented 40 percent of total segment sales in the quarter, increased by 8 percent during the period. For the fourth quarter of 2010, the Boat segment reported an operating loss of $69.3 million, including restructuring, exit and impairment charges of $10.0 million. This compares with an operating loss of $131.6 million, including restructuring, exit and impairment charges of $58.3 million, in the fourth quarter of 2009.
Boat segment production increased during the quarter, compared to the low levels in the fourth quarter of 2009, in response to the inventory requirements of dealers. Lower restructuring, exit and impairment charges, reduced discounts required to support retail sales by dealers and higher sales had a positive effect on the segment's reduction in operating losses in the quarter.
Fitness Segment
The Fitness segment is comprised of the Life Fitness Division, which designs, manufactures, and sells Life Fitness and Hammer Strength fitness equipment. Fitness segment sales in the fourth quarter of 2010 totaled $162.0 million, up 11 percent from $146.4 million in the year-ago quarter. International sales, which represented 47 percent of total segment sales in the quarter, decreased by one percent. For the quarter, the Fitness segment reported operating earnings of $24.4 million, which included restructuring charges of $0.1 million. This compares with operating earnings of $20.5 million in the fourth quarter of 2009, which included restructuring charges of $0.5 million.
Domestic commercial and consumer equipment sales increased during the quarter. Improved operating earnings in the fourth quarter of 2010, when compared with 2009, reflect higher sales and increased fixed-cost absorption.
Bowling & Billiards Segment
The Bowling & Billiards segment is comprised of Brunswick retail bowling centers; bowling equipment and products; and billiards tables and accessories. Segment sales in the fourth quarter of 2010 totaled $79.5 million, down 3 percent compared with $82.2 million in the year-ago quarter. International sales, which represented 23 percent of total segment sales in the quarter, decreased by 12 percent. For the quarter, the segment reported operating earnings of $0.2 million, including restructuring and exit charges of $1.2 million. This compares with operating earnings of $2.2 million, including restructuring and exit charges of $0.5 million in the fourth quarter of 2009.
For the quarter, equivalent-center sales for retail bowling were flat, while bowling products experienced a decline in sales. The reduction in operating earnings in the fourth quarter of 2010, when compared with 2009, reflects lower sales, the effect of a write-down of a vacant property, and higher restructuring and exit charges, partially offset by lower pension and bad debt expenses.
“Throughout the past several years, Brunswick has undergone a profound transformation against the backdrop of very difficult global economic and marine markets,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “In 2010, we continued to make significant strides in rationalizing our manufacturing footprint and executing against strategies that have allowed us to operate our businesses more efficiently, contributing to strong levels of operating leverage. During 2010, our annual revenues increased by 23 percent and, excluding restructuring charges, our operating earnings increased by approximately $477 million as compared to 2009. In addition, we achieved our objective of being free cash flow positive during 2010.”
Full year results
For the year ended Dec. 31, 2010, the company reported net sales of $3,403.3 million, up from $2,776.1 million a year earlier, and operating earnings of $16.3 million, which included $62.3 million of restructuring, exit and impairment charges. In 2009, the company had an operating loss of $570.5 million, which included $172.5 million of restructuring, exit and impairment charges.
For 2010, the company reported a net loss of $110.6 million, or $1.25 per diluted share, compared with a net loss of $586.2 million, or $6.63 per diluted share, for 2009. The diluted loss per share for 2010 included restructuring, exit and impairment charges of $0.70 per diluted share, and a $0.03 per diluted share charge from special tax items. The loss per diluted share for 2009 included $1.95 per diluted share of restructuring, exit and impairment charges, and a $1.09 per diluted share benefit from special tax items.
Full year results
For the year ended Dec. 31, 2010, the company reported net sales of $3,403.3 million, up from $2,776.1 million a year earlier, and operating earnings of $16.3 million, which included $62.3 million of restructuring, exit and impairment charges. In 2009, the company had an operating loss of $570.5 million, which included $172.5 million of restructuring, exit and impairment charges.
For 2010, the company reported a net loss of $110.6 million, or $1.25 per diluted share, compared with a net loss of $586.2 million, or $6.63 per diluted share, for 2009. The diluted loss per share for 2010 included restructuring, exit and impairment charges of $0.70 per diluted share, and a $0.03 per diluted share charge from special tax items. The loss per diluted share for 2009 included $1.95 per diluted share of restructuring, exit and impairment charges, and a $1.09 per diluted share benefit from special tax items.
Outlook
In 2011, we will continue to remain disciplined to generate positive free cash flow, perform better than the market and demonstrate outstanding operating leverage,” McCoy said.
“We currently expect to have positive earnings per share in 2011, beginning in the first quarter. We believe the significant decline in overall industry marine retail demand has bottomed in 2010, but at this early point in the marine selling season, we are unable to determine if 2011 marine retail demand will remain consistent with 2010 or improve.
“We are also unable to determine the specific timing of any improvement and how each boat category will perform versus 2010 levels. Without a clear view of 2011 marine demand, we are currently expecting modest revenue growth for the consolidated company. In our marine segments, we believe that wholesale and production units will closely match retail demand on an annual basis. Therefore, the level of 2011 revenue and earnings growth will be primarily governed by marine retail demand.
“Our current manufacturing footprint and cost structure should allow us to report strong future earnings leverage. Without considering the effects of changes to our fixed manufacturing cost structure or operating expenses, our earnings leverage (on incremental revenue) should approximate 30 percent. Our 2011 net income should also benefit from our previously announced marine plant consolidations, lower restructuring costs, net interest, depreciation and pension expenses, partially offset by a modest increase in our tax provision.
“After taking all these factors into consideration, we expect our 2011 earnings per share to be in the range of 5 cents per share to 40 cents per share. At the time of our first quarter earnings release, we should have a clearer view of marine retail demand for 2011 and we will provide an updated outlook for 2011,” McCoy concluded.
In 2011, we will continue to remain disciplined to generate positive free cash flow, perform better than the market and demonstrate outstanding operating leverage,” McCoy said.
“We currently expect to have positive earnings per share in 2011, beginning in the first quarter. We believe the significant decline in overall industry marine retail demand has bottomed in 2010, but at this early point in the marine selling season, we are unable to determine if 2011 marine retail demand will remain consistent with 2010 or improve.
“We are also unable to determine the specific timing of any improvement and how each boat category will perform versus 2010 levels. Without a clear view of 2011 marine demand, we are currently expecting modest revenue growth for the consolidated company. In our marine segments, we believe that wholesale and production units will closely match retail demand on an annual basis. Therefore, the level of 2011 revenue and earnings growth will be primarily governed by marine retail demand.
“Our current manufacturing footprint and cost structure should allow us to report strong future earnings leverage. Without considering the effects of changes to our fixed manufacturing cost structure or operating expenses, our earnings leverage (on incremental revenue) should approximate 30 percent. Our 2011 net income should also benefit from our previously announced marine plant consolidations, lower restructuring costs, net interest, depreciation and pension expenses, partially offset by a modest increase in our tax provision.
“After taking all these factors into consideration, we expect our 2011 earnings per share to be in the range of 5 cents per share to 40 cents per share. At the time of our first quarter earnings release, we should have a clearer view of marine retail demand for 2011 and we will provide an updated outlook for 2011,” McCoy concluded.
| Three Months Ended | |||||
| December 31, 2010 | December 31, 2009 | ||||
| % Change | |||||
| _________________ | _________________ | ________ | |||
| Net sales | $ | 728.8 | $ | 657.3 | 11% |
| Cost of sales | 613.0 | 582.5 | 5% | ||
| Selling, general and administrative expense | 147.8 | 170.6 | -13% | ||
| Research and development expense | 24.2 | 23.8 | 2% | ||
| Restructuring, exit and impairment charges | 18.5 | 68.6 | -73% | ||
| _________________ | _________________ | ||||
| Operating loss | (74.7) | (188.2) | -60% | ||
| Equity loss | (1.8) | (4.6) | -61% | ||
| Other income (expense), net | 0.1 | (1.2) | NM | ||
| _________________ | _________________ | ||||
| Loss before interest, loss on early extinguishment of debt and income taxes | (76.4) | (194.0) | -61% | ||
| Interest expense | (23.5) | (25.9) | -9% | ||
| Interest income | 1.1 | 1.0 | 10% | ||
| Loss on early extinguishment of debt | (0.2) | (13.1) | -98% | ||
| _________________ | ________________ | ||||
| Loss before income taxes | (99.0) | (232.0) | -57% | ||
| Income tax provision (benefit) | 5.1 | (108.0) | |||
| _________________ | |||||
