賓士域 (BC) 2011 Q4 法說會逐字稿

Good morning, and welcome to Brunswick Corporation 2011 fourth quarter earnings conference call. All participants will be in a listen-only mode until the question-and-answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce Bruce Byots, Vice President Corporate and Investor Relations. Please proceed.

Good morning, and thank you for joining us. On the call this morning is Dusty McCoy, Brunswick's Chairman and CEO, and Peter Hamilton, our CFO. Before we begin with our prepared remarks, I would like to remind everyone that during this call our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations. For the details on the factors to consider, please refer to our recent SEC filings and today's press release. All of these documents are available on our website at Brunswick.com. I would now like to turn the call over to Dusty McCoy.

Thank you, Bruce, and good morning, everyone. By now I'm sure you've had the opportunity to review our earnings release. We're supplementing our remarks this morning with a slide deck that will be posted to our website at the end of our call. We're hopeful that this enhances our discussion of our financial performance for the quarter and the year.

2011 was an important year for Brunswick. With the backdrop of global economic challenges and overall flattish retail marine demand, our results reflect the significant progress that our company has made in growing its revenue and improving its earnings. Results for the year reflected the successful execution of our core strategy of generating free cash flow, performing better than the market, and demonstrating outstanding operating leverage. Market share gains throughout our organization, combined with improved production and operating efficiencies, generate a 10% revenue growth and increased our operating earnings by $176 million.

In 2011 net income also benefited from the marine plant consolidations and asset sales, lower restructuring costs, reductions in interest, lower warranty, depreciation and pension expenses, as well as from a lower tax provision. Operating earnings, excluding restructuring, exit and impairment charges, were $215 million for the year, an improvement of $137 million as compared to 2010. Operating margins ex-charges increased by about 340 basis points to 5.7%. For the year, our operating leverage was 40%.

Sales increased over $3.7 billion in 2011 with growth reflected in all of our segments. Life Fitness experienced the highest level of sales growth at 17%. Net earnings for 2011 were $0.78 per share including $0.25 of restructuring charges, $0.21 of losses on debt retirement, and a $0.07 benefit from special tax items. Excluding these three items, our diluted earnings per share would have been $1.17 per share. This compares to a net loss of $1.25 per share in the prior year which included $0.70 of restructuring charges, $0.06 of losses on debt impairments, and $0.03 of expenses from special tax items. Again, excluding these items, 2010's loss per share would have been $0.46. In summary, our adjusted EPS increased by $1.63.

At year end, our cash and marketable securities totaled $508 million. Total debt outstanding was $693 million, representing a reduction for the year of $138 million, and our lowest debt level since the first quarter of 2004. Peter will comment in his remarks on the key drivers of our strong cash flow as well as provide you with a perspective on our 2012 targets. Our quarterly results continue to demonstrate solid performances across all of our business segments. Results benefited from higher sales, company-wide cost reductions, and lower warranty costs partially offset by higher variable compensation expense. This was our best fourth quarter operating performance since the fourth quarter of 2007, and our consolidated results continue to demonstrate strong operating leverage.

Turning to our fourth quarter results in more detail, sales increased 8% with growth reflected in all of our segments. Our Boat segment experienced the highest increase at 20%, followed by Life Fitness at 11%. Operating losses, excluding restructuring charges, were $14 million in the quarter, an improvement of $43 million as compare to the prior year. All of our operating segments experienced year-over-year improvements. Operating margins ex-charges increased by 600 basis points. Our Q4 net loss was $0.33 per share which included $0.05 of restructuring charges, $0.03 of losses on debt retirement, and a $0.05 benefit from special tax items. Excluding these three items, our diluted loss per share would have been $0.30. This compares to a net loss of $1.17 per share in the prior year, which included $0.21 of restructuring charges and a $0.02 expense on special tax items. Again, excluding these items, 2010 fourth quarter loss per share would have been $0.94. In summary, our adjusted fourth quarter 2011 EPS increased by $0.64 from the prior period.

Now let's turn to our operating segments, starting with the marine engine segment. From a geographic perspective, sales to US marks grew by 10%, while sales to Mercury's non-US customers decreased 2% in the quarter. In the aggregate, the segment experienced top-line growth of 6% for the quarter. Non-US revenues were affected by varying market conditions around the world. Growth across Asia continued to be strong, especially China. On the other end of the spectrum, Australia continued to be weak, even during the height of the retail selling season. In Europe, business conditions were off slightly but with variations across the continent. We experienced significant growth in Russia with a moderate growth across a stronger economies of Germany, France, and the Netherlands. This growth was offset, however, by weakness across much of the Nordic region, as well as in Italy and other southern European markets. The sovereign debt crisis is certainly having some impact on demand, specifically with tightening credit in some market segments.

From a product category perspective, sales in our global outboard engine business continued to experience solid growth, reflecting an improving aluminum and fiberglass outboard boat marketplace, in addition to market share gains. Global outboard engine production in Mercury in the quarter was higher than year-ago levels. Sales decreased modestly in Mercury's sterndrive engine business, compared to year-ago levels, as market share gains only partially offset declines in the overall market. Mercury's global parts and accessories business, which accounts for slightly more than 40% of the segment's annual sales, continued to report solid increases in revenues.

Mercury's top-line growth, the combined effect of cost reductions and improved operating efficiencies as well as lower warranty costs and restructuring charges, all had a positive impact on fourth quarter operating earnings. During the quarter these positive earnings factors were partially offset by higher material and variable compensation costs. The engine segment, excluding charges, finished the seasonally low sales quarter with above break-even operating earnings. Yet another indicator of the strong year Mercury had in 2011.

In our Boat segment, fourth quarter revenues were up compared to the prior period. And, if we exclude the divestiture of the Sealine brand completed on August 30, growth was even stronger. Strong global wholesale shipments in the quarter reflect the pipeline adjustments that were required to meet the small boat requirements of our dealers. This increase, combined with higher fiberglass shipments, reflecting manufacturing shutdowns experienced in 2010, also affected the quarter's growth.

On the international front, adjusting for divestitures, our Boat segment sales outside the US increased by about 17% for the quarter, compared to the fourth quarter of 2010. Canada, now our largest non-US boat market, experienced the strongest growth. European marine marks were under pressure due to consumer concerns about macroeconomic conditions. As a result, we are projecting a decline in European industry sales in 2012, which we believe can be partially offset with share gains. Returning to the US power boat market, as you can see from US power boat industry demand statistics provided by statistical surveys incorporated, the US retail marine market for 2011 unfolded generally as we had expected. Aluminum and fiberglass outboard boat markets experienced solid growth, while the fiberglass sterndrive inboard boat market continued to decline, although at a more moderate pace versus the prior year.

During the quarter on a full year, Brunswick's retail boat sales growth was greater than that experienced by the overall market. This performance reflects improving market share in the various categories in which we compete. Our recreational fiberglass brands achieved market share gains in most categories. Our aluminum brands also gained share, although at lower percentages than on the fiberglass side. During 2011, we increased our pipeline by approximately 2,000 units to reflect our view of stocking levels that are appropriate for current market conditions. Our unit pipeline is up 12% versus the fourth quarter of 2010.

The quarter ended with 32 weeks of product on hand on a trailing 12-month retail basis, comparable to the weeks on hand at the end of the fourth quarter in 2010. Our pipelines for all aluminum product and fiberglass boats under 24 feet are up over last year's level, while our pipeline for fiberglass product 24 feet and larger is down and remains at record low levels. The Boat segment's strong sales growth combined with increased fixed cost absorption and cost reductions, as well as lower restructuring charges, led to lower operating losses for the Boat segment in the quarter. Partially offsetting these factors, were an unfavorable shift in product mix and a higher variable compensation cost.

Now let's take a look at our two recreational segments. Life Fitness completed another outstanding quarter. Sales were up 11% as compared to last year's fourth quarter. For 2011, revenues increased by 17%. Commercial revenues continued to be strong during the quarter, with sales growth experienced in all major distribution channels. International sales were up in the quarter, but at a lower rate than that experienced in the US. Segment operating earnings in the quarter grew by about $4 million. For the year, the segment reported an operating margin of 14.7%, a record for Life Fitness. In addition to the benefits from accretion of volumes, a more favorable product mix contributed to the higher level of profits.

Sales in Boating and Billiards were up 2% in the quarter. Our Bowling products business experienced solid growth, while same-store retail bowling revenues were up slightly versus the previous year. The segment's operating earnings were about $3 million higher than last year's levels due to higher sales, lower bad debt expense, and improved operating efficiencies. Now, I will turn the call over to Peter for a closer look at our financials, and then I will get back on to give you an update on our perspective on 2012 and beyond.

Thanks, Dusty. I would like to begin with an overview of certain items included in our fourth quarter P&L. And, I will also comment on certain forward-looking data points. Let me start with restructuring, exit, and impairment charges which were 4.5 million or $0.05 a share in the quarter. The majority of the charges related to the previously announced actions at our Marine operations. Also in the quarter, we incurred a $3.8 million of charges pertaining to the announced dissolution of our Marine Engine segment joint venture. This amount is reflected in the equity loss line in the consolidated statement of operations. Our current estimate for 2012 restructuring charges is $10 million or $0.10 a share for actions that we have previously announced.

Net interest expense, which includes interest expense, interest income, and debt extinguishment losses, was $19.6 million in the quarter, a decrease of $3 million versus the same period in 2010, primarily due to lower outstanding debt balances. Our plan for 2012 contemplates debt reduction in the range of $75 million to $100 million, which would result in net interest expense for the year of approximately $76 million to $80 million. This would reflect reduction in net interest of $18 million to $22 million compared to 2011. During the fourth quarter, we lowered debt by about $11 million, resulting in a $138 million reduction for the year. As you can see from the chart, the nearest maturity, the 11.75% 2013 notes, have an outstanding balance of under $75 million, which can be easily funded by a portion of our cash on hand. It remains our objective to regain our investment grade status, as we continue to lower debt levels and increase EBITDA.

During the quarter, foreign currency had a negligible effect on sales and operating earnings as compared to the prior year which reflected a mix of favorable and unfavorable exchange rate movements. This includes the impact of hedging activity, which helps to moderate the effect that currency exchange rate fluctuations have on year-over-year earnings comparisons. For the year, currency had a modest favorable effect on sales, with a negligible effect on operating earnings. For 2012, we expect that currency will have a modestly unfavorable impact on sales due primarily to a weaker euro versus the dollar. There will be only a slight decline in margin percentage due to currency, resulting primarily from a stronger yen versus the dollar and the euro. Our planning incorporates yen and euro exchange rates that approximate the current market rates. A further 10% weakening of the euro would reduce margins by approximately 10 basis points.

Our effective tax rate for 2012 was approximately 20%. This rate is lower than our previous tax rate guidance due to higher than expected domestic earnings where, due to our three-year cumulative loss position, we don't record a tax provision. As a result of the decrease in the effective tax rate, our tax benefit in the fourth quarter was about 31%. In the fourth quarter of 2010 we actually recognized tax expense of 5.1 million, primarily related to earnings from foreign operations. Our 2012 tax expense is will continue to be primarily composed of foreign and state income taxes. Given our current earnings guidance range, we expect our overall 2012 effective tax rate to be consistent with 2011, or approximately 20%.

Now let's turn to a review of our cash flow statement. Cash provided by operations in 2012 was $89 million. Some of the key items in this section of the cash flow statement include adjustments to earnings for non-cash charges, such as depreciation and amortization of $105 million. Our current estimate for D&A in 2012 is approximately $95 million. Pension expense, resulting from our defined benefit pension plans, totaled $32 million in 2011, compared to $39 million in the prior year. In 2011, the company made cash contributions to its defined benefit pension plans of approximately $80 million in total. The outflow on the cash flow statement in 2011 reflects the amount by which cash contributions made during this period exceeded pension expense. We expect our 2012 pension expense to be approximately $24 million, which is a decrease of $8 million from 2011. This reflects the benefit of higher asset levels, planned contributions, and lower interest costs associated with planned liabilities. In 2012, the Company plans on making cash contributions to its defined benefit pension plans in the range of $75 million to $85 million.

Changes in our primary working capital accounts, excluding the impact of divestitures, resulted in the use of cash in the year and totaled approximately $78 million. By category, accounts and notes receivable increased by $17 million, inventories increased by $26 million, and accrued expenses and accounts payable decreased by $33 million. Our investment in working capital was higher than our previous estimate, but this has not been caused by deterioration in our working capital metrics. Our receivable collection metrics continued to improve across all of our operating segments, while our inventory turnover and payable metrics remained strong at prior year levels.

The increase in working capital was predominantly related to timing considerations. We increased both our engine and small boat inventory in advance of the Marine selling season, and our accrued expenses were lower than our prior estimate, largely due to delays in the collection of customer deposits for our larger boats. These deposits have or will be collected early in 2012. For 2012, our working capital performance will primarily be a function of our revenue assumptions. And, given the seasonality of sales in our Marine businesses, we anticipate using cash to fund working capital in the first quarter of the year, and then generate cash from the liquidation of working capital over the remainder of the year. This activity is expected to net to a modest usage for the year.

Capital expenditures in 2011 were $90 million. For 2012, our plan is for approximately $120 million in expenditures. This increase primarily reflects amounts required to fund our growth initiatives. Partially offsetting our capital expenditures in 2011 were $31 million in proceeds from the sale of property, plant, and equipment in our Marine segments. In summary, during 2011 we generated $43 million in free cash flow. After using approximately $163 million to retire debt, plus the $20 million transferred to restricted cash, our cash and marketable securities decreased by about $149 million, ending with a balance of $508 million. Supplementing our cash and marketable securities balances is the net available borrowing capacity from our revolver of approximately $231 million, which when combined with our cash and marketable securities provides with us total available liquidity of $739 million. I will now turn the call back to Dusty for some concluding comments.

Thanks, Peter. We continue to believe global economic and marine markets in 2012 will remain challenging and comparable to 2011. While we are confident that global and marine markets will improve over time, we are targeting mid single-digit revenue growth in 2012, along with a strong increase in operating earnings in a flat marine market environment. We will focus on delivering growth by designing and introducing new products to expand our current portfolio, and by increasing our focus on the marketing and sales of products in those markets where the opportunity for sales growth is highest. It is our objective to capitalize on immediate growth opportunities, while funding future growth initiatives.

Additionally, our entire organization remains focused on maintaining its favorable cost position, a reflection of the significant actions taken over the past several years. We will continue to benefit from our strong brands, outstanding product quality, and a premier distribution network, which have enabled us to grow our business during this very challenging period. As a result of continued cost reductions and improvements in operating efficiencies, our target gross margin for 2012 is approximately 24%, up 140 basis points from 2011. 2012 capital expenditures, SG&A, and R&D expenses will be higher than in 2011 as we fund growth initiatives, partially offset by a modest reduction in pension expense. And as Peter commented, 2012 net income will further benefit from lower restructuring costs and reductions in interest expense.

We expect to continue to generate positive strong cash flow and will use that cash flow, along with existing cash balances, to opportunistically retire debt and pursue the full-funding and eventual de-risking of our frozen defined benefit pension plans. After take all factors into consideration, we expect 2012 GAAP EPS to be in the range of $1.20 to $1.50 per share. We do expect a slow start to the year in our first quarter top-line performance. Revenues are likely to be down in the mid single-digit range in the first quarter, compared to 2011 when sales increased 17%. Some of the factors influencing this decline are the absence of Sealine revenues, the strengthening US dollar, a large order from one of Life Fitness' major customers in the first quarter of 2011, and lower Engine segment sales resulting from a reduction in the availability of sterndrive engine use.

Regarding sterndrive availability, over the past year Mercury has been engaged in a complex consolidation of its sterndrive and large outboard engine manufacturing, into a single facility in Fond du Lac, Wisconsin. This closure of our Stillwater, Oklahoma factory, where the sterndrive engine was previously assembled, was completed late last year as the manufacturer of these products transitioned to Fond du Lac. As the pace of assembly has accelerated at Fond du Lac, we've experienced a slower ramp-up that will reduce the number of sterndrive engines we were planning to build in the first half of this year to meet expected customer demand. This will negatively affect our engine and boat sales until this issue is resolved. Meeting our customers requirements for sterndrive engines has the absolute highest priority at Mercury. We are intensely focused on taking the necessary operational actions.

We plan on discussing our outlook in further detail at our investor event in Miami on February 16, which will also be webcast. At that time we will review our three-year plan, which we are basing on the conservative assumption that the global economic and marine market outlook will continue to be challenging and comparable to 2011. Despite this conservative assumption, the growth programs we will describe in Miami drive mid single-digit revenue compound annual growth and double-digit operating earnings compound annual growth over the three-year period as well as strong free cash flow. Of course, marine market improvements to our base case would accelerate sales and earnings growth. We look forward to describing our growth plans on February 16 in Miami.

And with that, we're through with our prepared remarks, and we'll be pleased and happy to take your questions.

Thank you.

(Operator Instructions)

James Hardiman, Longbow Research.

Congratulations on another great quarter. Couple quick questions for you guys.

As I start to think about that $1.20 to $1.50 worth of guidance, it sounds like you're essentially saying that the working assumption is a flat industry, so two questions. What are the major sources of variability between the lower-end and the upper-end of your guidance? And, then ultimately how does that guidance change under different industry assumptions to the extent that you could even qualitatively talk about that?

Well, first, we are guiding to a flat marine market. Our view is that aluminum product, both fishing and pontoon, will continue to increase. That we will see also increases with smaller than aluminum and outboard fiberglass, and in small sterndrive product. We believe larger fiberglass product will continue to be under pressure.

I think what could move us between -- or within the range, would first be any worsening in the European situation than we're presently seeing. We think we're doing a good job there; we think we understand how we can perform. But, if that situation were to change dramatically, or I'll put quotes around these words, meltdown in Europe, that could be a significant issue for us.

We're a bit -- befuddled would be my word, maybe not the organization's word, about what the presidential election is going to do to the economy. So again, we're assuming that the economy continues to behave generally as it has been behaving over the past six months. If the economy were to get better, of course, we would be moving to the upside of those numbers. And, if it would get worse, we would be moving to the downside.

That's generally the things that we've got on our mind, that we're concerned about.

Okay. Real quickly, on the Boat segment, obviously I think better than expected performance over the course of the year, but still a little bit of an operating loss during 2011. What levers remain to help you drive a profit in 2012? And, I guess ultimately should we expect a profit in 2012? Are there any incremental cuts to the brand portfolio that we should be expecting? Once upon a time, there were two brands that you were considering getting rid of, and it looks like you got rid of one of them. What's the status on the second?

Well, first, we haven't been actually considering getting rid of brands. We've had the view that our boat business must be running at a break-even basis as we exit '12. And, we're fundamentally -- well, not fundamentally -- we are there in this entire business, save for one brand.

We continue to believe that the plan we're following for that brand will produce profitability, not in '12, but in '13, and it will be exiting '12 on a run rate basis. And, if as we work through the plan and events unfold, we ever reach the conclusion that our plan is not going to come to fruition, then we'll take appropriate action, James. But, right now we're continuing to work the plan, and our view is that the Boat segment will post an operating loss in '12, but we ought to be running at a break-even basis so that as we go into '13 we should plan on '13 being at worst break-even.

That's very helpful. One last question, then I'll hop back in the queue. Sealine for the year, now that you've gotten rid of that, how much of a net benefit on operating income do we get just by not including Sealine?

$5 million.

$5 million, great, thanks, guys.

Ed Aaron, RBC Capital Markets.

Congrats on a great year.

None of the people in this room had much to do with it. It's all the folks are out in the field that brought this one in, but thank you.

I don't want to steal too much of your thunder from Miami, but I was hoping you could maybe talk in a little bit more specifics about your investment spending plans. I'm interested in learning how you're allocating those dollars across your different businesses, and how you're thinking about the incremental returns on that spending?

Ed, I would like to wait until we get to Miami to jump into that in detail, but you will see in Miami that we are increasing investment in all of our businesses. And, I think we will be prepared to talk about generally how we're going to up capital expenditures, expenditures in R&D, and we can work it in business.

Peter, you want to provide some more color for Ed?

As Dusty said, we'll provide much more color in Miami, but as you might expect, Ed, the growth investments have an international tilt to them. We've already announced the resilient boat plant facility which is underway, which, incidentally, will be a source of growth in our Boat business even if the US market does not improve in 2012.

We will be focusing more on diesel initiatives in the wake of our switching our joint venture. You will see in our other Life Fitness and Boat and Bowling business segments, you will see some new product enhancements that we believe will drive growth.

Great. My other question, you've got some comparability issues that affect your top line in 2012 between currency, the divestiture, and then some inventory comparison issues.

By my math, a single-digit top line is really more like high single-digits when you adjust for those factors, which in a flat market would imply quite a bit of market share gain. I was hoping you could maybe rank order where you see those gains coming from across your different businesses?

We expect to have growth in all of our businesses, and you're right that our sales growth, as adjusted, will look better than just on the face of the comparisons. And again, I think in Miami, we will be able to provide more detail on exactly where the growth is coming from, but it's not as a result of any particular large impact on growth in any particular segment of the business.

It occurs in Mercury, with new products that they have brought out. It occurs in the Boat Group with international expansions and with market share gains. It occurs at Life Fitness with new product introductions and market share gains. And, we are putting more capital against our retail bowling centers now to refresh and modernize some of them, and we see some gains there. So, it really is across the board.

Ed, as we look -- just to supplement what Peter said, when we're guiding the mid single-digits, we see across all of our business units a remarkable uniformity in what we believe will be their top line growth rates in '12.

Tim Conder, Wells Fargo Securities.

Let me continue on with that. Dusty or Peter, whoever wants to take this, if you could maybe spend a little bit more time on the -- and a little bit more depth on the diesel opportunity. And, sort of segment the changes with Cummins and how that relationship has changed, then how that compares to Volkswagen. Granted, Volkswagen is in the smaller diesel engines, but where you see the opportunity there.

And, then you talked about also, now that you have very good saltwater product, and now that you're through the financial crisis depth, triage-mode, to take outboards and looking at those international markets against a large Japanese competitor, where you haven't competed before. Maybe a little more color on those two items?

We'll deal with diesel first. We, with our joint venture partner, made the decision that we ought to dissolve the venture for a couple of reasons. First, we -- maybe three reasons, Tim. We had established the venture at a time when we were going to be, and we were extremely successful going in with a great diesel engine provided by our joint venture partner, great drive systems established by us, and then using our combined distribution network, going into the market, we made a whole lot of money there.

The market obviously declined fairly significantly on a global basis, and the game changed, if you will, more technology needed to come into that market. What we found is that we were each carrying within our respective organizations, a level of R&D and SG&A to support the venture, and the venture was carrying a level of R&D and SG&A, and we had a level of expense that our view wasn't sustainable. And, our judgment was, we could continue to serve the market very well from our venture partner and from ourselves, with a lot less cost and a lot more service capability.

Where we are now is, our partner will continue to supply larger, I'll call them mid-range to high-range large size, diesel engines to the marine market. We will provide, commensurate with that, drive systems and joystick docking systems to the market, and they can easily be married.

And then in addition, we've now become the exclusive distributor of the Volkswagen high-speed diesel engines, which are going to be in the range of 300 horsepower or under. Which in our view as the marine market recovers, there will be more and more focus, first outside the US, but in my view, eventually in the US, for these very powerful, great diesel engines that Volkswagen makes.

If anybody on the call has driven any of the cars in which these TDI engines -- diesel TDI engines are placed, unbelievable performance, just outstanding. So, it puts us into a great segment of the market with another great partner, i.e. Volkswagen.

So we, our joint venture partner, and Volkswagen are now happy, in my view, as to how we're going to be able to go attack the market. As we look at the outboard market, it's our view that we -- and I'm going to put quotes around this because this is the way we're going to need to start thinking about this -- we're entitled to the share outside the US that we have inside the US, well we've got to go get it. Our share inside the US is higher than any of our other competitors.

Outside the US, first we've been hampered a bit by the fact that one of our large competitors has a very complete -- I call it dirty two-stroke -- high emission, two-stroke engines that are wonderful engines and have served the market very well over time. But, as the world begins to move toward four-stroke product, and the environmental requirements that those products permit everyone to comply with, as well as the great performance and ease of use of four-stroke product; we now have, in our view, a great product offering.

We've now put the organization in place all around the world to go attack these markets, and we've begun to understand that we can do much better in commercial markets than perhaps we have in the past. We are going to continue to invest in new outboard product. Our new 150 product is the foundation for an entire engine line and an entire new set of engine platforms. And, we're putting the money in; the engines will continue to roll out. And, we're very confident that there's a lot of up-side for us in the outboard market outside the US.

Is that helpful, Tim?

That is, Dusty. Also, I wanted to say thank you for the broad color on '12 and then the '12 to '14 framework, that was helpful, also.

Thank Bruce for that. He's teaching us that we -- we've got to start talking to people.

One other, just to revisit more on the immediate term, '12, and then maybe after that '14. You had talked about, previously, that '12 and maybe for a year or two beyond that, that roughly you would see a 30% incremental operating margin -- operating profit flow-down rate from incremental revenue. Just wanted to revisit that and any additional color you would have around that?

Tim, it's Peter. I would hasten to add at this point that our 30% number has always been characterized as our variable contribution margin. And of course, we've done better than 30% over the past couple years because we have been significantly reducing fixed costs, which has increased our 30% variable contribution run-rate to percentages above that.

We expect to maintain, certainly in this year 2012 and see no reason why we cannot in the out years, our 30% variable contribution margin. But, as you can see from Dusty's comments on SG&A and R&D, we will, in the pursuit of our growth initiatives, be adding dollars to those accounts. So, we will actually have fixed costs increase in 2012, and that in turn will lead to -- if you just run the math, it will lead to an operating leverage of less than 30%.

But, the fundamental variable contribution margin stays the same, and then the operating leverage is going to be a function of whether we are in a growth mode, which we certainly are in 2012, or whether we are in a cost-reduction mode, which we were appropriately in, in years '08, '09, '10, '11.

So, you're saying, in general, '12 could be a tad less than that 30%, due to the incremental investments, and beyond we will see the 30% is still very reasonable, just to clarify, Peter?

What I'm saying for '12 is -- if you take restructuring out of it, just try to look at it on a [next] items basis. If you run the math, where we provided the data points, Dusty provided the data points, I think you are going to find that the number within our range dimensions will be lower than 30%.

With respect to years '13 and '14, we would expect to be slowly but surely improving on that number. But, it is very much a function of the growth opportunities we see in those years and the amount of money we put on those growth opportunities. But after we take all of that into account, and as we will be more specific in Miami, we believe that we will see the bottom-line growth in the dimensions that Dusty articulated in his comments.

Jimmy Baker, B. Riley & Company.

Before I get into my questions, one clarification point on the guidance. The GAAP guidance, $1.20 to $1.50 in earnings, but, I believe, looking at the slides that Peter was discussing that includes, what roughly $0.10 in restructuring charges and $0.10 to $0.15 a share in debt repurchase charges. Is my math correct that your adjusted 2012 EPS guidance is $1.40 to $1.75?

Yes, that's the arithmetic, yes, sir.

We're trying very hard to quote GAAP numbers.

Okay, fair enough, just wanted to make sure I had that right.

If we could just spend a moment on the Fitness business growing pretty rapidly here in 2011, but I guess more importantly, generating around $100 million in EBITDA for you, which I believe is roughly $30 million higher than its prior peak in '07. Hopefully you could give some color on what's driving the strong incremental profitability in that business and maybe what kind of visibility you have into continuing its momentum here in 2012, ex the Q1 comparable issue that you mentioned.

First, the overall answer I can say is that business unit is operating incredibly well right now. I think it first starts with -- we've become globally by far the most significant player with the best product, and it's permitted us to maintain margins very well in the marketplace.

Secondly, as we've introduced new product, we have begun to have this great ability to tier our product offering to clubs, and we make great money in the entire tiering, but it also permits us to serve various price requirements for club owners.

Thirdly, we have begun to see commercial clubs need to replenish -- up their capital expenditures, if you will, because most of the time the product they have on the floor represents their capital expenditures, and there's been a need to update what's on the club floor, and we're there with the best product.

And then lastly, I think in fairness, some of our competitors have gone through some difficulty, and our team has done a great job taking advantage of that and making sure that we secure a good place in all global markets.

I think as we look forward, we're quite excited about Life Fitness. We, of course, know the investment we're making in new product. We have a good view about what the new product will be able to do, its interaction with an exerciser who is using the product.

And, our view is that we're going to be able to continue to grow with fabulous product, with good margins -- it may be difficult when one begins to get the share we've gotten, to hold on to the margins we have because sometimes people need to attack the share with pricing, and our expectation is, in the coming months and years, there will be some pricing pressure. It may be hard to maintain operating margins at 15%, but they're not going to deteriorate a whole lot, but we should expect those margins are going to be difficult to hold on to.

Okay. Then also wanted to drill down a little bit on your P&A business. I guess on an annual basis for the P&A segment, could you provide maybe what that was as a percent of Mercury sales or even if its year-over-year growth rate would be helpful.

And, I would also be interested in understanding if P&A -- I know some of your P&A is on new boats and engines. Maybe you could provide some color on P&A content levels on an outboard boat versus sterndrive?

Well, first, in 2011, P&A represented about 40% of Mercury's segment sales. And, that is a little higher than we would have been in, say, 2005, 2006 when new engine sales were running higher, Jimmy.

Then in terms of whether it's P&A on new product or P&A on existing product, there's much more of this business that services existing product rather than new product. And, in fact, if you just step back and if we could all reflect on this a moment, new product is generally served by warranty. And, we go out and take care of that, many times without recording sales or income from honoring our warranties.

So the P&A product, the P&A revenue stream and earnings stream, is very much a reflection of what all do you have in the marketplace over time. Therefore, it always remains very important to us that Mercury in every product segment continued to grow share versus, because when we're profitable selling the base product, but it also always provides a much better and stronger annuity for the P&A stream.

Okay, that's very helpful. Lastly, I apologize if you went over this a little already, but you spoke about exiting 2012 on a break-even run rate in the Boat Group. Just wanted to get a little bit more specifics as to what exact steps you need to take to get there, and if that maybe requires some additional strategic refinement of your portfolio?

Well, again, we believe we can get there with the existing portfolio. Again, as I said we have one brand in one product segment within the Boat segment that is not there yet, and that's causing the entire segment to look as if it's not -- well, first, it's not profitable, and that particular brand, we have a very clear plan as to what we have to get done, and it involves product distribution, costs, several pieces.

The guys in that brand are working hard at executing against the plan. We'll either get there with that brand, or if we're not going to get there, then we will need to make strategic adjustments. That's about the best I can tell you, Jimmy, without going beyond what I think we ought to be doing competitively.

Thanks very much for the time and look forward to Miami.

Great, look forward to seeing you there.

Rommel Dionisio, Wedbush.

Dusty, in your prepared comments, you talked about tightening credit in Europe, and I wondered if you could walk us through the dealer health you are seeing there in some of the weaker markets. Is there an impact obviously, on floor plan financing, and are you seeing any dealer attrition in markets like Italy and some more challenging markets there?

First, great question. Dealer inventory is good in Europe. The dealers there, along with our teams, have done a good job of ensuring that we've not let, as sales have declined in view of the economic conditions there, let our dealer network get clogged up. That's number one.

There is less issue at financing at the wholesale level and more of an issue at financing at the retail level in Europe. And generally, our dealers are not having problems stocking product in Europe.

And, it's Peter, our floor plan financing outstandings, internationally which would basically be predominantly Europe, these are at essentially the same levels as they were at the end of the previous year, and that means that we're not getting a buildup of product there, nor are we getting a buildup of repurchase liabilities here.

Okay, great, that's helpful. Thanks very much, and congrats on the quarter.

Just to make a comment about the industry globally, it's our judgment that both ourselves and our dealer network globally, have become much, much more focused on maintaining very good inventory levels, having in inventory what's needed to service known and reasonably expected demand. None of us are very pie-in-the-sky about what's going to be coming at us, and we're all manage this very much better.

Craig Kennison, Robert W. Baird.

You've addressed most of my questions, but I will ask if you would just characterize the trends you're seeing in the used boat market, both in terms of volume at the dealer level, and what you're seeing in terms of price on those used boats?

Very good question; the consistent theme we hear throughout our dealer network is there is not enough good used product available to satisfy demand. And, that feels very common sense correct in the following way, the dealer network, in general, has gotten its inventories down to very healthy levels; the age of product in the field is increasing, we've documented that, and I think over the last decade, the age of power boats in the market has moved from an average of 15 years to about 21 years.

So, during this downturn people are holding on to their product longer and have not made the decision yet to go replace with new. As a result, the trade-ins, the movement that always occurrs with higher new boat sales, is just not occurring. And, dealers tell us if they can find a good used boat, they in some cases have a waiting list for it, and -- but selling prices for that have not continued to increase, and in fact, our judgment is that the relationship between new and used pricing is back to pre-2008 historical norms.

That's helpful.

Joe Hovorka, Raymond James.

Could you give your retail sales number -- how much retail was up in the fourth quarter, and then for the full year 2011? For Brunswick, not for the industry.

Let me -- can I take a look at a slide here real quick? Memory says we had that, but if we didn't -- yes, if you've got it up, it's our slide 19, Joe.

I think I'm doing something wrong, because I can't get the slides to move, I'm sorry.

Are you kidding me -- we did all this work, Joe, to make this easy for you. (laughter)

I'm moving it, Joe.

Joe, here's what we had on the slide. Q4 retail was up 21%, and full year retail was up 9%.

21% and 9%?

Yes, sir.

Great, sorry I missed that.

At this time, we would like to turn the call back to Dusty McCoy for some concluding remarks.

As always, thanks for everyone's participation. Thanks for the great questions that we get; it always indicates a real understanding of us and our industry by the people who follow us. We are pleased with '11. We've got a good plan for '12. We've got our sleeves rolled up.

We've said internally, we can't take what we did in '11 and expect ourselves to drift into '12 and achieve the results within the range that we're giving you. So, we know we've got a lot of work to do, and our sleeves are rolled up and we're at it. Hope everybody comes to see us in Miami or at least join the webcast. We're looking forward to talking about what we think our Company can do in '12 and beyond.

Thanks very much, and we look forward to seeing you in Miami.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. Now disconnect and have a great day.