Brunswick Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results. Brunswick designs, manufactures and markets marine engines, boats, fitness equipment, bowling and billiards products, and operates bowling centers.
Financial performance and liquidity
- Revenue: $3.748 billion, up 10.1% from $3.403 billion in 2010. International sales were $1.495 billion, or 40% of revenue.
- Profitability: Gross margin was $875.4 million, or 23.4% of sales, versus $720.0 million, or 21.2%, in 2010. Operating earnings were $192.4 million (5.1% margin), compared with $16.3 million (0.5%). Net earnings were $71.9 million, or $0.78 diluted per share, versus a net loss of $110.6 million, or $1.25 per share.
- Cash flow: Operating cash flow was $89.1 million, down from $205.4 million. Company-defined free cash flow was $43.1 million versus $163.2 million; the 2011 measure included $30.8 million of property-sale proceeds and $13.2 million of other net items. Capital expenditures were $90.0 million.
- Debt and liquidity: Total debt was $692.8 million, down from $830.6 million. Cash, cash equivalents and marketable securities totaled $507.8 million, down from $657.1 million; net debt, a non-GAAP measure, increased to $185.0 million from $173.5 million. Total liquidity, including available asset-based borrowing capacity, was $739.3 million. Shareholders’ equity was $30.9 million, and debt-to-capitalization was 95.7%.
- Fourth quarter: Net sales were $789.1 million versus $728.8 million a year earlier. Net loss was $29.6 million, or $0.33 per diluted share, versus a $104.1 million loss, or $1.17 per share, in Q4 2010.
Changes versus prior periods
- Revenue rose across every operating segment: Marine Engine +9.5%, Boat +11.3%, Fitness +17.2%, and Bowling & Billiards +0.6%. Management attributed growth principally to market-share gains and higher wholesale shipments; U.S. powerboat retail demand was estimated to be relatively flat.
- Operating improvement reflected higher volumes, improved production efficiency and fixed-cost absorption, lower warranty and pension costs, cost reductions, and lower restructuring charges. Restructuring, exit and impairment charges declined to $22.7 million from $62.3 million.
- Operating earnings excluding restructuring, exit and impairment charges were $215.1 million, compared with $78.6 million in 2010. This is a company-presented adjusted measure, not GAAP operating earnings.
- Operating cash flow fell notably from 2010, which benefited from $113.6 million in tax refunds. In 2011, cash flow was affected by working-capital uses and $79.6 million of pension contributions.
Outlook, commentary and risks
- 2012 outlook: Management expected mid-single-digit revenue growth and higher earnings per share, citing organic growth, new products, market-share gains, manufacturing-footprint improvements, and lower restructuring, interest, depreciation, variable compensation and pension expenses. Planned capital expenditures were approximately $120 million; management expected year-end net debt to be comparable to 2011. These are forward-looking expectations, not guarantees.
- Approximately $10 million of additional restructuring charges were expected in 2012. Management also noted that further demand weakness or cost-reduction actions could lead to additional charges.
- Key operating risks include continued economic weakness and discretionary-spending sensitivity; marine-market and consumer-credit conditions; dealer financing and dealer failures; inventory adjustments; competition and pricing pressure; and supply shortages, cost increases or reliance on limited-source suppliers.
- Other material exposures include pension funding and actuarial assumptions, foreign-exchange and commodity-price movements, product warranty and liability claims, and execution of manufacturing consolidations. The qualified pension plans were approximately 62% funded, with a $480.5 million projected-benefit-obligation shortfall; anticipated 2012 pension contributions were approximately $75 million to qualified plans plus approximately $4 million for nonqualified benefits.
- Dealer-related guarantees and repurchase arrangements expose the Company to contingent losses. Maximum repurchase obligations were $105.4 million and maximum customer-financing guarantee obligations were $45.4 million at year-end; historical losses had not been significant, but could rise if defaults increase.
- Environmental remediation exposure was estimated at $41 million to $79 million, against recorded reserves of $48.0 million. The filing also disclosed more than 2,500 asbestos-related lawsuits involving a former subsidiary; management did not expect these matters, based on existing reserves, to materially affect consolidated financial position or results.
- Unusual items included a $19.8 million loss on early debt extinguishment after repurchasing $142.8 million of notes, a $3.8 million charge related to the planned dissolution of the Cummins MerCruiser Diesel joint venture, and a $6.8 million gain on sale of an Australian distribution facility. Brunswick planned to transition the diesel joint venture to a supply agreement by Q2 2012.
Most important facts for investors to verify
- Whether 2012 revenue and earnings growth materialized, particularly given flat marine retail demand and the Company’s reliance on wholesale shipments and share gains.
- Whether operating cash generation can support planned investment, debt reduction and substantial pension contributions; note 2011 cash and securities declined while net debt rose.
- Progress and costs of the engine and boat manufacturing consolidations, including the diesel joint-venture transition and the expected additional restructuring charges.
- Changes in pension funding, discount rates and asset performance, and any resulting effects on cash contributions, equity and earnings.
- Actual dealer defaults, guarantee and repurchase losses, environmental remediation costs, warranty claims, and availability of dealer financing and critical supplies.