Brunswick Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied filing text does not provide a clear standalone fourth-quarter income statement or quarterly financial results. Brunswick designs, manufactures and markets marine propulsion products, parts and accessories, and recreational boats, and operates boat-club and other marine services businesses.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $5,846.2 million | $4,347.5 million |
| Operating earnings | $812.9 million | $539.3 million |
| Operating margin | 13.9% | 12.4% |
| Net earnings from continuing operations | $595.4 million | $374.7 million |
| Diluted EPS from continuing operations | $7.59 | $4.70 |
| Cash from continuing operating activities | $586.2 million | $800.0 million |
| Free cash flow (non-GAAP) | $320.8 million | $629.3 million |
| Total debt at year-end | $1,816.4 million | $951.4 million |
| Total liquidity (non-GAAP) | $852.5 million | $971.3 million |
Gross margin rose to 28.5% from 27.9%. Adjusted operating earnings were $886.8 million and adjusted diluted EPS was $8.28; these are non-GAAP measures. Continuing-operations results exclude the previously divested Fitness business; 2021 net earnings including discontinued operations were $593.3 million.
- Propulsion: Sales of $2,504.7 million, up 33.3%; operating earnings of $449.7 million, up 57.5%; operating margin of 18.0% versus 15.2%.
- Parts & Accessories: Sales of $2,008.1 million, up 33.1%; GAAP operating earnings of $335.8 million, up 21.9%. GAAP margin declined to 16.7% from 18.3%, reflecting acquisition-related amortization and costs and higher inputs.
- Boat: Sales of $1,703.1 million, up 36.2%; operating earnings of $142.3 million versus $70.2 million. Operating margin increased to 8.4% from 5.6%.
International sales were $1,884.3 million, or 32% of total sales, compared with $1,349.5 million, or 31%, in 2020.
Material changes and notable items
- Sales rose 34.5%, driven by strong demand, market-share gains, higher pricing and increased volume across segments. Gross margin and operating margin improved, with higher production and factory absorption benefits partly offset by material, labor and freight inflation.
- Operating cash flow declined by $213.8 million, primarily due to increased working capital. Inventory rose $343.2 million as the company supported higher production and sought to rebuild pipeline inventory; boat-dealer pipeline inventory stood at just over 15 weeks at year-end.
- Brunswick acquired marine-electronics company Navico on October 4 for $1.094 billion net cash consideration. The acquisition was financed with cash and new notes; Navico contributed $120.4 million of sales and a $7.4 million operating loss after acquisition, including purchase-accounting effects.
- 2021 included a $4.2 million loss on early debt extinguishment and $4.0 million in transaction financing charges related to the Navico financing. The effective tax rate was 19.1%, including a $21.0 million tax benefit from release of part of a valuation allowance.
Outlook, risks and contingencies
- For 2022, management anticipated capital expenditures of $375–$425 million, approximately $100 million of long-term debt retirement, and $100–$150 million of share repurchases, with capacity to repurchase $200 million or more if conditions warranted. It also expected continued M&A activity, primarily in Parts & Accessories and Business Acceleration. Estimated 2022 interest expense was approximately $70 million. The filing does not provide a clear consolidated revenue or earnings forecast.
- Management said strong demand had continued, while COVID-19 effects, supply-chain constraints, cost inflation and labor availability remained concerns. The company reported supply shortages and higher material costs in 2021, as well as operational disruption including a temporary New Zealand facility closure.
- Debt increased substantially following Navico financing. Year-end cash, cash equivalents and marketable securities were $355.3 million; available credit-facility borrowing capacity was $497.2 million. Brunswick reported covenant compliance and said it expected adequate liquidity.
- Potential exposures include dealer-financing guarantees and inventory repurchase commitments. Maximum potential repurchase payments were $58.5 million; customer-financing guarantees were $48.0 million. Environmental remediation exposure was estimated at $15.9–$38.7 million, with $16.4 million accrued. Management did not expect litigation or environmental matters, in light of recorded accruals, to have a material adverse effect.
- Other key risks include cyclical discretionary demand, interest rates and credit availability, foreign-exchange movements, supply disruption, weather and seasonality, competition, dealer health, acquisition integration, cybersecurity, product liability and changing environmental regulation. Management’s internal-control assessment and the auditor’s opinion were effective/unqualified, respectively, but Navico was excluded from the internal-control evaluation.
Important facts for investors to verify
- How much of the 2021 growth and margin improvement is sustainable as demand, pricing, production constraints and inflation change.
- Navico’s post-acquisition sales, profitability, integration progress and realization of expected strategic benefits.
- Cash conversion and working-capital needs, particularly inventory growth and the pace of dealer pipeline replenishment.
- Debt maturities, interest costs, covenant headroom and planned capital allocation against the company’s liquidity position.
- Actual losses, if any, on dealer repurchase obligations and financing guarantees, and developments in environmental remediation matters.
- The 2022 results versus management’s stated investment and capital-allocation plans; the filing does not give a clear earnings or revenue outlook.