賓士域 (BC) 2012 Q4 法說會逐字稿

Good morning, and welcome to the Brunswick Corporation's 2012 fourth-quarter earnings conference call. All participants will be in listen-only mode until question-and-answer period. Today's meeting will be recorded, and if you have any objections, you may disconnect at this time. I would now like to introduce Mr. Bruce Byots, Vice President, Corporate and Investor Relations. You may proceed.

Good morning, and thank you for joining us. On the call this morning is Dusty McCoy, Brunswick's Chairman and CEO, Peter Hamilton, CFO, and Bill Metzger, our Treasurer.

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 www.brunswick.com.

During our presentation today, we are using certain non-GAAP financial information. Reconciliations of the GAAP to non-GAAP financial measures are provided in this presentation, as well as in the supplemental information sections of the consolidated financial statements accompanying today's results. Finally, earlier this month, we announced our intention to sell the Hatteras and CABO businesses. Beginning with this earnings release, the results of Hatteras and CABO, which were previously in the boat segment, are now being reported as Discontinued Operations for all periods presented. The figures in this presentation reflect continuing operations only unless otherwise noted.

I would like to turn the call over to Dusty McCoy.

Thanks, Bruce. Good morning, everyone. I'm going to start with an overview of our 2012 results.

In 2012, we successfully navigated through extreme variability in markets and business conditions. US marine market began a recovery, but the recovery is a historically unique one, based only on Outboard products while larger sterndrive inboard product continues decline. Excellent sales growth was achieved in all regions but Europe, where sales excluding Sealine, declined a remarkable 15%. In these conditions, we are proud that our results in 2012 represent the third consecutive year of strong improvement in operating earnings and net earnings.

Operating earnings and diluted earnings per common share as adjusted increased by 23% and 54% respectively for the year. In addition, increased earnings contributed to the continued generation of solid free cash flow. As a result, we made significant progress in improving our balance sheet by reducing debt balances by $121 million, which contributed to a $14 million reduction in interest expense.

Over the past several years, our entire organization has done an excellent job of executing our business plan and transforming our Business to promote growth and identify operating efficiencies. The 2012 results and the strategic actions taken during the year have strengthened our overall financial profile, providing a solid platform for further improvements in future financial results. Our 2013 EPS guidance of $2.20 to $2.45 targets another year of continued growth in earnings and shareholder value.

Our sales the 2012 increased by 1%. If we exclude sales from the Sealine brand, divested in 2011, our sales increased by 2%. Our full-year top Iine was significantly affected by revenue declines experienced in our ongoing European businesses. 2012 sales to Europe declined by $84 million, or 15%. Revenue growth in the US and rest of world, however, reflected solid growth and was in line with our original growth expectations for the consolidated Company. Europe now represents about 13% of our total sales as a result of the declines in revenue.

Operating earnings, excluding restructuring, exit and impairment charges, were $290 million for the year, an increase of 23% compared to 2011. All of our operating segments reported improvements for the year. Operating margins ex-charges increased by 140 basis points to 7.8%. This important metric represents 150 basis point improvement over the operating margin recorded in 2006, a year in which the Company reported almost $2 billion more in annual revenues. And, the US power boat and marine industry was almost double today's volume.

2012 net earnings were $1.59 per share, including $0.28 of restructuring charges, $0.18 of losses on debt retirements, and $0.04 of charges from special tax items. Excluding these items, our diluted earnings per share were $2.09 per share. This compares to 2011 net earnings of $0.98 per share in the prior year, which included $0.24 of restructuring charges, $0.21 of losses on debt retirements, and a $0.07 benefit from special tax items. Excluding these items, 2011 earnings per share were $1.36. Therefore, our adjusted 2012 EPS of $2.09 increased by $0.73, or 54%. If we combine both continuing and Discontinued Operations on an adjusted basis, EPS was $1.77 for the year. This amount represents the EPS that compares to our previous guidance for full-year of 2012 of $1.65 to $1.75.

Turning now to the fourth quarter, sales grew by 9% with all of our segments reporting increases. Sales of our European businesses declined, but only by $3 million in the quarter. I'll comment in a few moments about some of the major factors that affected our top line during the quarter.

Adjusted operating earnings were $17.5 million for the quarter, an increase of $26.7 million compared to 2011. Operating margins ex-charges increased by 330 basis points to 2.1%. This increase in operating earnings reflects strong sales growth and gross margin improvements, partially offset by a modest increase in operating expenses. The net loss for the quarter was $0.18 per share, including $0.11 of charges for restructuring, $0.05 of losses on debt retirements, and $0.04 of losses from special tax items. Therefore, excluding these items, our diluted earnings per share as adjusted equaled $0.02 per share. This compares to a net loss of $0.28 per share in the prior year, which included $0.04 of charges for restructuring, $0.03 of losses on debt retirements, and a $0.05 benefit from special tax items. Again, excluding these items, 2011's loss per share equaled $0.26. In summary, our adjusted EPS increased by $0.28.

Now, let's turn to our operating segments. If we start with the Marine Engine segment, from a geographic perspective, fourth-quarter sales to US markets were up 13% and rest-of-world sales were up 7% year-over-year. Sales from Mercury's European customers decreased 1%. In the aggregate, Mercury's sales increased 12% for the quarter. US sales growth was led by strength in outboard engines and parts and accessories. Rest of world experienced solid growth in all major product categories.

In Europe, difficult economic conditions had only a modest negative impact as compared to previous quarters. From a product category perspective, sales in our US Outboard Engine business delivered strong growth, reflecting a healthy aluminum and fiberglass outboard boat marketplace. Strong demand continued for our new 150 FourStroke, the Verado engine family, and engines in the 75, 90, and 115-horsepower range. Gains in the US outboard sales were partially offset by lower sales in Europe while rest of world markets were stable. Unfavorable global demand trends continue to affect revenues from sterndrive engines although our sales in the quarter were higher than the prior year.

Mercury's parts and accessories business reported strong sales increases in the United States and rest-of-world markets, reflecting stable boating participation, new product launches, and market share gains. Record annual sales and earnings were achieved by land and sea in Attwood. Both of these organizations have done an excellent job of delivering outstanding products and services to a very demanding Marine marketplace. European P&A experienced modest growth in the quarter. However, for the full year, sales declined.

Mercury's adjusted operating earnings increased by approximately $8 million during the fourth quarter. The quarter reflected strong improvements in sales and production in the outboard business, continued solid performance in P&A, and an increase in sterndrive production. The segment also benefited from cost reduction activities and lower variable compensation expense, partially offset by spending on growth initiatives. Q4 operating margins, excluding charges, were 4.4% in the quarter and 12.5% for the full year. 2012 was another really outstanding year for the entire Mercury organization.

In our boat segment, Q4 revenues were up 17% compared to the prior period. For the full year, excluding the impact of Sealine, revenues increased by 3%. In the quarter, our sales to Europe declined 16%. Rest-of-world sales increased by 38%, which include the growth driven by our Brazil initiative. In the US, which represents about two-thirds of the segment, strong wholesale shipments resulted in a 13% sales increase. This increase primarily related to aluminum boat dealers increasing their pipeline levels in response to strong retail demand trend.

But, before we explore the increase in sales, let's first take a look at US power boat industry statistics provided by Statistical Surveys Incorporated to get a view of how retail demand is unfolding by boat category in the United States. As you can see, based on preliminary fourth-quarter data, aluminum and fiberglass outboard boat markets continued to demonstrate strong growth. The fiberglass sterndrive inboard boat market decreased, but at a slower rate than the previous quarter. In SSI's industry report, published in sounding straight only, fiberglass boats greater than 30 feet in length, which represents about 50% of our fiberglass sterndrive inboard revenues, were down 8% year to date. Fiberglass boats smaller than 30 feet were down 2% year to date.

In 2012, global retail unit sales of Brunswick boats grew by approximately 7%, and global wholesale shipments increased by 3%. Our dealers ended the year at 33 weeks of boats on hand on a trailing 12-month retail basis, which is comparable to the weeks on hand a year earlier. Pipelines for aluminum product are up over last year's level on a unit basis, but weeks on hand, determined on a trailing 12-month retail basis, are down slightly as growth at retail has outpaced wholesale. Assuming current global retail trends continue, we would expect aluminum wholesale unit shipments to grow in parity with retail demand in 2013.

Pipelines for fiberglass sterndrive inboard product, 24 feet and larger, are down and continue at record low levels. During 2012, dealers reduced their stocking levels in response to weak demand. During the first half of 2013, our plan reflects the continuation of declines in large boat pipeline inventories, as we and our dealers continue to respond to weak market conditions in this segment. As a result, our boat group is likely to experience modest revenue declines in the first quarter.

Understanding the market and working closely with our dealers on pipeline management is important for two reasons. Lean pipelines will enable us to respond quickly to the market upturn we will eventually see. In addition, our product plan contemplates a significant volume of new product introductions. And, healthy pipelines facilitate the flow of this product to the market.

The boat segment's fourth-quarter adjusted operating loss improved by $3.7 million when compared to the prior year. The major factor driving the improvement was the increase in, which was partially offset by investments made in our growth initiatives and the unfavorable change in product mix. For the year, this segment's adjusted operating loss was $7.2 million, approximately a $12 million improvement from the prior year and a $64 million improvement from the adjusted operating loss in 2010.

Now, let's take a look at our two recreational segments. Sales at Life Fitness increased by 2% compared to last your's fourth quarter. This increase reflected solid sales to US health club customers and net gains in international markets, which included continued sales weakness in Europe. For the year, sales were flat. Excluding the impact of 2011's large order from one of our customer categories, sales for Life Fitness increased by 3% in 2012.

Segment operating earnings in the quarter grew by $8 million. The major factors driving this improvement were higher sales, lower variable compensation and warranty expenses, and improved operating efficiencies, for the year, the segment reporting an operating margin of 16.2%. This is a record for Life Fitness.

Sales in bowling and billiards increased 5% in the quarter. In the Retail business, sales were flat in the quarter as increases in US equivalent center sales were offset by operating pure United States bowling centers. Bowling products posted strong revenue gains in the quarter and ended the year with a solid growth rate.

The segment's adjusted operating earnings increased by approximately $3 million during the quarter, as well as the full year. For the year, the segment reported an adjusted operating margin of 9%, which is a 120 basis point improvement compared to 2011 and a 310 basis point improvement over 2010. These impressive gains in margin are the result of the outstanding efforts by the entire Bowling & Billiards organization.

Now, I'm going to turn the call over to Peter for a closer look at our financials.

Thanks very much, Dusty.

I would like to begin with an overview of certain items included in our fourth-quarter financial statements. I'll then turn the call over to Bill to comment on some forward-looking data points that support our 2013 Outlook.

Now, let me start with restructuring, exit, and impairment charges from continuing operations which were $10.5 million in the quarter. These charges mainly reflect consolidation actions taken during the quarter in the boat segment, and to a lesser extent, previously announced actions in our Marine Engine segment. Looking forward, we currently estimate charges pertaining to actions taken in 2012 to be in the $5 million to $6 million range in 2013. Net interest expense, which includes interest expense and interest income, was $14.6 million in the quarter, a decrease of $2.1 million versus the same period in 2011. The reduction was the result of lower debt balances.

In the fourth quarter, we repurchased approximately $25 million of the 11.25% notes due in 2016. This resulted in a $4.4 million of debt extinguishment losses. For the year, net interest expense declined by $12.7 million compared to 2011. Over the last two years, we have lowered our net interest expense by $25.6 million. As a result of our debt reduction activities in the quarter our debt outstanding at the end of 2012 was $572 million, representing $121 million reduction in 2012 and a $259 million reduction for the past two years.

During the quarter, foreign currency had less than a 1% negative effect on sales due to a stronger dollar versus certain currencies in key sales markets, including the euro. Currency had a minimal impact on fourth-quarter 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 our year-over-year earnings comparisons.

Our tax provision for the fourth quarter was $3.6 million compared to a benefit of $12.8 million in the fourth quarter of 2011. Our fourth-quarter and full-year tax expense was comprised of mostly foreign taxes, as well as specific, nonrecurring charges from special tax items. These nonrecurring special tax items reduced our EPS by $0.04 in both the quarterly and year-to-date periods in 2012. For the year, our effective tax rate on a GAAP basis was slightly under 19%, and if you exclude special tax items, restructuring charges and losses on debt retirements from our pretax income, our effective tax rate was 13.5%.

Turning to a review of our cash flow statement. Cash provided by continuing operations in 2012 was $184 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 $90 million. Pension expense, resulting from our defined-benefit pension plans, totaled $25 million in 2012 compared to $32 million in the prior year. During the year, the Company made cash contributions to its plans of approximately $69 million.

For the full year, primary working capital accounts were a use of cash. This cash usage includes the impacted decisions to increase inventories in our engine and outboard boat businesses in response to strong market demand and to meet our seasonal requirements.

Capital spending in 2012 was approximately $115 million. This increase from 2011 primarily reflects amounts required to fund our growth initiatives. Partially offsetting our capital expenditures in 2012 were $19 million of proceeds from the sale of property, plant, and equipment in our marine segments. Total free cash flow from continuing operations totaled $90.2 million, and if we exclude the cash outflow from Discontinued Operations, total free cash flow for the year was 61 -- pardon me, $64.1 million.

Now, for the year, we used free cash flow in cash from our balance sheet to reduce debt. As a result, cash and marketable securities ended the year at $429 million, about $80 million lower than year-end 2011. Supplementing our cash and marketable securities balances is the net available borrowing capacity from our revolver of approximately $273 million, which when combined with our cash and marketable securities, provides us with total available liquidity of $702 million.

I'll now turn the call over to Bill Metzger for some comments regarding the assumptions that we are using in connection with our 2013 guidance.

Thank you, Peter.

I would like to take a few minutes to describe some of the key assumptions that support our 2013 guidance. Let me start with those affecting the P&L. Our plan reflects a 3% to 5% revenue growth with all four segments reporting improvement in the year. Dusty is going to describe to you in more detail on how anticipated market and product trends will impact our top line in 2013. We are targeting to maintain gross margins of approximately 25%. Gross margins increased by 150 basis points in 2012 reflecting improvements in all segments. We believe we can maintain these strong margins in 2013 and will continue to explore opportunities to further expand them.

Operating expenses are projected to be higher in 2013 versus 2012 as we increase spending on growth initiatives. SG&A expenses are expected to increase modestly, and R&D expenses will increase in both dollars and as a percentage of sales. Pension expense, which affects both gross margin and operating expenses, is projected to be lower by about $7 million. We are planning for an effective tax rate in the range of 16% to 18% on an as-adjusted earnings basis. This estimated rate excludes the impact of one-time pretax charges such as debt extinguishment losses and restructuring charges along with any nonrecurring special tax adjustments.

As you may recall, the Company had substantially reserved its deferred tax assets due to being in a cumulative three-year loss position in the United States and other jurisdictions. It is possible the Company may be out of a cumulative three-year loss position in 2013, and we will be evaluating the need to continue to maintain these valuation reserves against the deferred tax assets. Our tax rate estimate for 2013 excludes the impact of any potential reversals that would be triggered by this change in accounting. Regarding foreign currency, our plan on a full-year basis does not reflect any material impact on sales or earnings from changes in currency rates.

Now, let's turn to our 2013 capital strategy, which is consistent with the plans we have shared with you over the past several years. Reducing outstanding debt continues to be a priority for the Company with targeted debt reductions of $100 million to $125 million planned for the year. This plan contemplates the retirement of our 2016 notes, thereby eliminating the 11.25% coupon from our debt portfolio.

This retirement will be funded using the combination of cash and proceeds from a new debt offering and will substantially complete our planned debt reductions. We expect net interest expense to be reduced by $13 million to $17 million, excluding extinguishment losses of $25 million to $30 million. The exact timing of retirements is one of the factors that will determine where we fall within these ranges.

Please note that since our guidance is on an as-adjusted basis, the exact amount of extinguishment losses will not affect our EPS guidance range. In addition to debt retirement, we plan to continue to make contributions to our defined-benefit pension plans in the range of $50 million to $60 million in 2013. Our operating results and capital strategy will allow us to continue to maintain healthy levels of liquidity, although total cash balances will be reduced due to the planned debt retirements.

Now, let me conclude with comments on some of the items that will impact our cash flow in 2013. Our estimate for depreciation and amortization is approximately $95 million. We expect capital expenditures to increase versus prior years as we fund our growth initiatives. Our current plan reflects an amount that would approximate 3.5% to 4% of projected sales. Our working capital performance will primarily be a function of our revenue assumptions.

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 net activity is expected to reflect a use of cash for working capital for the full year in the range of $25 million to $50 million. Despite higher spending levels and a usage of cash for working capital, we plan to generate solid free cash flow for the full year.

I'll now turn the call back to Dusty for some concluding comments.

Thank you, Bill.

Now that Bill has described many of the assumptions that underlie our 2013 plan, I am going to spend the remaining time describing our early perspectives on the global marketplace in which we compete, and, how we plan to sustain our earnings growth in the marketplace. In February of 2012 at our Investor Day in Miami, we outlined the plan premised on the reality that the global economic and marine market could continue to be challenging. With this environment as our base-case scenario, we felt it was imperative that we develop both operational and financial strategies that would allow us to continue to increase shareholder value.

Operational plans were developed throughout the organization to grow our businesses by increasing market share, developing new products and services that would expand our markets, and pursuing specific regional opportunities throughout the global marketplace. Despite the expense associated with these plans, we knew we had to maintain our favorable cost position, while exploring opportunities to improve operating efficiencies and further expand our margins. Continued reduction in outstanding debt balances and reduction in pension underfunding were also important parts of our overall plan. 2012 represented a successful step in achieving the goals and targets we presented in Miami, and, we are confident that we can continue our progress in 2013.

In the global marine sector, we expect to benefit from the continuing, albeit very uneven, recovery in the overall US power boat market. Our 2013 plan reflects solid growth in the outboard categories, following the double-digit growth rates experienced in 2012, and growth in 2011. We also expect to once again benefit from growth in our Parts and Accessories businesses, given stable boat participation in an aging US boat fleet.

As you can see on this slide, Mercury's outboard engine and P&A businesses represent 85%, or about $1.7 billion of the segment's total revenues. Therefore, our largest segment is well-positioned for continuing growth in 2013. In addition to solid industry fundamentals, Mercury's strong outboard product lineup, including the award-winning,150 FourStroke engine, as well as new and exciting products and technologies being featured at boat shows throughout the world, should enable them to successfully compete in the global marketplace. Although weak market conditions may continue to challenge our sterndrive category, our plan is to grow this category in 2013 based on Mercury having the broadest offering in gasoline sterndrive engines, combined with its progress in the global diesel segment.

The favorable trends affecting the outboard market will also benefit our both segment. Based on 2012 sales, aluminum fiberglass outboard boats represent about 60% of the segment's total revenues and are well-positioned for continued growth in 2013. Our brands in these categories, Boston Whaler, Lund, Lowe, Crestliner, Princecraft, Harris FloteBote, and Cypress Cay have done an excellent job of competing in the salt and freshwater fish markets, as well as in the rapidly growing pontoon category.

The numerous product launches from these brands in the upcoming Marine season will further enhance growth. For example, Boston Whaler's 270 Dauntless, which is one of four new models Whaler will be highlighting at this year's Miami boat show. That's on top of five new models they debuted last year.

The remaining 40% of the segment's revenues compete in the fiberglass sterndrive inboard market. While the trends in these boats under 30 feet have been improving, our plan assumes that the larger boat market will continue to experience weakness. Actions to offset potential market weaknesses include new and exciting boats in the day boat category. For example, the recently introduced Bayliner Element and our entry into the jet boat category with our Sea Ray and Bayliner brands. Enhanced and innovative products in the larger boat category, including the new Sea Ray 510 and Sea Ray 370 Venture, both award-winning boats. And, although it's early stages, our Brazil initiative is making good progress in its first full season of competing in this major marine marketplace.

Positive health and fitness trends have positioned our Fitness business to continue to deliver excellent results. The segment will benefit from the full-year effect of 2012 product introductions, such as the new Synergy 360 and Lifecycle GX, as well as from the introduction of the Discover Serious Cardio Equipment in 2013. We believe these products will drive higher demand from health clubs as they seek ways to differentiate themselves in the marketplace. In addition to growth in the domestic club business, we believe the US hospitality market will improve, given the expected growth in revenue per available room. The Life Fitness plan also reflects growth from emerging markets such as China, Brazil, and Russia, while Europe remains a region that may continue to experience weakness.

In our Bowling Retail business, we will benefit from increasing investments to modernize existing Brunswick centers, while exploring new concepts and formats to drive sales in an evolving bowling retail market. In addition, we are planning for continued share gains in our Bowling Products business as we introduce product enhancements and expand and improve worldwide distribution.

To sum it all up, driven by the strength of our global brands and contributions from our growth initiatives, we believe that a 3% to 5% revenue growth rate is achievable in 2013. Our plan reflects that we maintain the strong gross margins achieved in 2012, and we will continue to explore opportunities to further expand these markets. Our organic growth platform will benefit from increased investments in capital projects and research and development programs along with the SG&A to support them.

In addition, despite these higher spending levels, we plan to generate positive free cash flow and execute against our ongoing strategic financial objective of further lowering debt levels, thereby reducing interest expense. As a result, our 2013 diluted earnings per common share as adjusted is expected to be in the range of $2.20 to $2.45 per share. The midpoint of this range would represent a double-digit percent growth rate over the $2.09 earned in 2012.

Plenty of the new and exciting engine and boat products that I've just highlighted will be the focus at our meeting in Miami on February 14. It should, hopefully, give you a sense of why we are excited about this upcoming marine season. We're planning to have a total Company Investor Day most likely in the fourth quarter of 2013. We will firm up our plans and communicate them on our next earnings call in April. This concludes my formal remarks about the business, but before we take your questions, I want to make a couple of personal remarks.

Peter Hamilton is retiring in a little over a month, and today is his last earnings call with us. I know Peter is looking forward to retirement and improving on his already astounding golf handicap. So, we, who have been privileged to work with Peter every day are sending Peter into well-earned retirement with a mixture of emotions. We are happy for Peter, and maybe a little envious. However selfishly, our sadness at not being able to interact with Peter every day overwhelms our happiness for him. Peter is wise and knowing. He teaches every day in a way that students -- that's all of us who work with him -- can learn without understanding we're being taught and made smarter and better.

Peter's decisiveness -- is decisive, but his decisiveness is never overbearing or intrusive in others' decision-making space. Peter is pretty tough. He demands excellence in performance and doesn't mind ensuring we meet his standards. His sense of humor is immense, subtle, and dry and he's kept us on an even keel many, many times. Finally, he's a friend to all of us, and we always miss friends when they move on. Excuse me.

Today is Bill Metzger 's first earnings call. Bill has a long and distinguished career and history at Brunswick even though he is still quite young. He knows our business like no other CFO ever has on their first days in this seat. He brings enormous intellect to our team, and we have no doubt that he will push all of our thinking forward. And importantly, for all of us who will work with Bill day in and day out for many years to come, he is a great human being who cares deeply about the success of Brunswick and all of his fellow employees. So, we're gaining a great asset and a friend who will ensure we continually improve. Bill, welcome to your new position. We're glad to have you on board.

And, with that, we will take your questions.

(Operator Instructions)

Ed Aaron, RBC.

Thanks. Good morning, everybody. Congrats on another good year. Dusty, it sounds like you're still pretty cautious about the large fiberglass boat market. Do you believe that that market is going to be down this year? Or, do you think that it's reasonable to expect that it could finally at least flatten out?

It is reasonable that it could flatten out, and to be honest, Ed, our planning is sort of down to flat now.

Thanks for that. Just based on your guidance, I kind of backed into an incremental operating margin, something that is a little less than 20%, including the benefit that you are going to be getting from the cruiser restructuring that you've done. You've kind of talked in the past about leverage rate of more like 30%. Is that differential? Is that entirely a reflection of investments that you plan to make this year? Or, has there been any change to kind of your variable leverage rate that you see in your business?

Ed, it's Peter. We don't see any secular change in our leverage rate. The 30% number that we cite from time to time is our variable contribution, and after covering fixed expenses, our models and our guidance that we gave in Miami tend to reflect about a 20% operating leverage number over time. And so, if our 2013 guidance is coalescing around there, that's about normal, I would say.

Okay. Thanks, my last question -- I will pass it on. I think you have a fair amount of more product activity this year than in past years. How would you suggest that we think about just kind of how much that change in the level of new product introductions that could do for your top line growth rate in 2013?

Ed, we've included the impact of the new products in our 2013 top line guidance.

All right. Thanks, everybody.

Tim Conder, Wells Fargo Securities.

Thank you. Gentlemen, let me also offer my congratulations on the excellent year, and Peter, on a long, distinguished career. We will miss you, sir. And Bill, welcome aboard.

Let me take a step back. Dusty, I asked this on the last call, but given now the light of 2012, given the divestiture that you've announced here with Hatteras and CABO, which I think you had to do to get to the things that you outlined in Miami. But, it appears now with your guidance for '13, the $2.45 is basically the high end of your base-case scenario from Miami for 2014. So, now are you saying that you are pretty solidly in that 5%-plus scenario which I think the Miami EPS for '14 would imply $2.70 to $3.20?

No. As I sit here today, Tim, I don't think we're into solidly 5% guidance, and let me tell you why. Overall -- first, when we gave those numbers, we focused on a couple of [peg] points. First was, the improvement in the Global Marine market, and secondly was, what we thought the world economies would look like as a way to judge our recreational businesses. On a global basis, growth in the Marine markets was [mixed] in 2012.

Sorry, Dusty, you were cutting out there some. I don't know if it's the connection or what?

As we look at global marine market growth in 2012, and it was negligible. As we look at global marine market growth in 2013, we think it's more likely to be low single digits. And then, as we look at the global economy and its impact on our recreation businesses, the global economy is playing out just about like we thought. 2% GDP growth on a global basis. So, when I add all that up, I'd say we're looking at to be between the base-case and the 5% case, and as we sit right now and look at markets -- that is what we are shooting at.

Okay. But, I guess maybe the components, Dusty, to get there? Your base-case for Mercury implied 10% to 11% op margins. You posted a 12.5% here. Boats, clearly you've got a little more work to do to get there. But, Life Fitness, you implied 12% to 15%, and you posted a 16%. So, it would seem that engines are going to likely to continue to hold above that and exceed that. And maybe, does Life Fitness get any competitive pressure or not? Are you still looking for that? And then, I guess the other piece of that is, what do you have specifically baked in for Europe for 2013 overall.

Let me do Europe first. We are baking in flat.

Flat for Europe, okay.

Yes, in 2013. When we look at Fitness, we believe 2013 will be another year of top line growth for Fitness. They've really set a high margin for themselves in margins by their 2012 performance. But, we are pushing the Life Fitness organization to hang in there with margins, and we will see what they are able to do. But, I am very comfortable that we are probably in the top end of the Miami investor forecast fitness margins.

Can I correct your number, too, Tim. That 10% to 11% -- that was our original Miami, but subsequent to that when we did some in April, we increased those margins up to 11.5%. At our current Investor Day, you have the restated Miami numbers for Mercury.

And, Tim, the only other thing I would mention from my end is that as you're looking at a run rate from '10, '11, '12, through '14. Remember that it is distinctly possible that as we move from '13 to '14, the tax rate will move from the teens to something with a 3 in front of it, so that will retard the stated EPS number in '14.

Okay. Thank you, gentleman.

The only other thing I would say is as we are looking around the organization, the markets are not unfolding. The marine market is clearly in recovery, but it's in recovery in a way none of us had ever anticipated. When we spoke in February of last year, we were thinking as a marine market group, we would see it grow proportionately across all segments. What's happening now is unprecedented. It's growing only in outboard, and we're making adjustments to that. And, I'm really, really proud of the organization and all the changes we are having to make in operating plans, strategies, production schedules, on and on and on. But, our guys are doing -- men and women are doing a great job at it. And, I'm really comfortable with how we're performing.

Okay, great. Thank you, Dusty. Appreciate the color.

You're welcome.

Jimmy Baker, B. Riley Caris.

Thank you. Let me start by offering my best wishes to Peter in his well-deserved retirement, and also, congratulations to Bill in his new role. First, you talked about under-shipping retail demand again here in 2013 on the boat side. Can you just expand on that strategy a little? And, is that specifically the case here domestically?

Well, first let's kind of chop up the boat business. We will not in aluminum -- let's say in outboard-based products, Jimmy, be under-shipping retail demand. And, we said in our prepared remarks that we expected post-sale and retail to be on parity. And, as a result, you will see the pipeline grow in outboard-based products, but you'll see weeks-on-hand continue to come down. So, where we are under-shipping retail is primarily in larger fiberglass product, and the reason we are doing that is we are feeling the green shoots -- not seeing them yet. But, if one is out walking around in the spring, you feel the sun even though you don't see the shoots. And, we want to make sure that we're positioning those businesses to do well when the recovery comes, and we know what the new product pipeline is looking like that we have in all these product ranges. And, we want to be able to get all that product into the field as we're ready.

Okay, so just to clarify. I am looking at slide 21 here, and it suggests that the growth rate in global wholesale shipments is going to be less than global retail shipments? But, I thought I just heard you mention that they would actually be at parity. So, am I missing something there?

I said aluminum would be at parity.

Okay.

And, larger fiberglass will be down.

Okay, understood. And then, I just had one question that's maybe a little off the radar. I'm hoping you can explain the decline in inter-Company sales from Mercury to your boat brands? It is a trend that has really emerged this year. It was particularly pronounced in Q4. I'm just having a little difficulty reconciling that understanding that your P&A business is still so strong, but your wholesale activity in boat brands that carry the higher ASP Mercury engines obviously hasn't been so strong. So, why is growth in marine eliminations drastically outpacing growth in either of your marine businesses?

Jimmy, I will take that. I would attribute that to the success that our outboard businesses have had in the marketplace and taking more product.

Your outboard boat brands, that is?

Even though the fiberglass sales have been weaker, on the outboard side, those businesses have been performing very well and taking share.

Okay, that's helpful. Lastly, just a housekeeping item. Did you give the sales contribution from discontinued items here in Q4?

No, that's not in the presentation or in the release.

And, not something you're willing to provide?

Not something we have available right here.

Okay, fair enough. Thank you.

James Hardiman, Longbow Research.

Good morning. Thanks for taking my call, and congrats on another great year. Let me follow up on, I think it was Tim's line of questioning, sort of circling back to the longer term guidance you gave back in Miami. But, focusing maybe a little bit on the high end -- let's get hopeful here for a second. Ex-CABO and Hatteras and even Bayliner, I think the common perception is that by getting rid of the two yacht brands that you are sacrificing a bit of high-end upside in terms of earnings to get better earnings power today. Can you sort of talk about what this does to your upside? And, maybe some initiatives taking place in some of your -- some of the boat brands that you are holding on to that might replace some of that -- the higher end of your portfolio?

Clearly, if one just does arithmetic, you say -- yes, we lose some upside. But, we're not actually thinking that way. Those businesses -- as '12 progressed, and as we look forward, are tough businesses to be in. They are in segments of the market that have continued to decline, have great competitors, and all the sort of thing, James, that we have looked at over the years when we would make a decision to get out. But, as we relook at our businesses and again continue to focus on the ability to grow in Brazil, all of the new market introductions and new product introductions that we have. We are not, on a Brunswick-wide business, bearing our outlook for what we can do versus our projections in February of last year. And, as I was mentioning with Tim, it is not unfolding as we had planned, but that's okay. We're adjusting as we need to, and we will do better in engines.

The boat business will not over time be materially different than we laid out even though we don't have Hatteras and CABO, and Fitness continues to do well both on top line and margin. So, we're comfortable with the guidance we gave. We're pretty relaxed that we're going to be able to hit it, and it is just all sleeves rolled up here and working hard to perform well.

Great, and just a quick housekeeping question here. Fitness segment margins were fantastic. I think they were north of 19%. Was there something special going on there? I'm assuming we can't even come close to rolling that forward. Was there something in particular in the quarter that I should be thinking about there?

Well, first I wouldn't plan to roll them forward. Competition is not going to let margins that stay near 20%. And, in terms of what they were able to do in the quarter, I think it was just really great expense control as they were finishing up the year.

Got it. And then, Dusty, just bigger picture here as you talk to dealers and customers maybe -- I don't know if you've gone to a whole lot of boat shows as of late. But, we've gotten past the fiscal cliff. We've at least put off the debt ceiling. Taxes have gone up, but maybe not as much as a lot of people were expecting, at least for that $200,000 to $500,000 income group. Are you seeing the beginnings of maybe some better confidence among the dealers that you are talking to whether in person or at the shows? At the end of the day, this is a consumer confidence business. What's -- I understand that your guidance has to be somewhat conservative. Are you hearing anything incremental from the people that you talk to in the channel that gives you some hope going forward?

I'll say it this way. First, shows are not a good example of anything although the shows are unfolding exactly as the way we guided for the rest of the year, James. As we're out talking to dealers, the folks who have outboard product continue to be incredibly upbeat and believe they are going to have a great year. As we look at larger product, the real world is -- as we've looked at how those buyers are going to come back. We've always said there are several things that our going to impact them. First, they need to know the way I've tongue-in-cheek described it is what their role in deficit reduction is going to be, and while individual income tax rates have presumably been set, it's also clear the administration has said we are not through raising taxes. And, have even said in some cases, we've already done all the spending cuts we want to do.

So, a lot of our customers for this type product are business owners, and they are going to wait to see how that unfolds. They need unemployment -- or feel that it is important that unemployment is on a steady decline. We've not yet seen that. They need their investments to be improving. We are seeing that. They need the value of their real estate to begin steady improvement, and it feels like to me it is sort of patchy. So, when we add all that up, there's a lot more positive today than there was at this time last year. But, our judgment is, and as I talk to our dealers, there is still enough pressure on that, that we just want to be very smart and make sure we keep our top lines very healthy and our dealers positioned to move forward.

Very helpful. I just wanted to reiterate -- Peter, great working with you, safe travels, and enjoy your post-Brunswick life. And Bill, welcome to the team. Thanks.

Michael Swartz, SunTrust.

Good morning. I guess I just wanted to touch on gross margin here. The commentary -- you kind of consistent growth margin in 2013 with 2012, and I guess I'm kind of surprised with that given the leverage in the business and the cost-cutting. Could you maybe outline some of the puts and takes to that outlook?

Well, the things that will enhance margin are some of the investments that we continue to make in our manufacturing structure. Some of which is embedded in the increased capital spending as a percentage of sales. We continue to work on efficiency gains in our factories throughout the Company, and that is taking place globally as well as in the US. The things that will push against that will be continued pricing pressure from our competition, and the things that will be pushing against that are the inevitable cost increases that come from some of the raw materials that we have to put into the product. So, when we put all that together and run it through our system, we think that the numbers that we gave are achievable, and that's what we expect to hit.

I think of it, too, if you look at our 2014, then back up to '12 -- we made a massive leap forward in our ability to produce gross margin. I think we need to think about 2013 as with all the pressures that Peter said, especially to reduce margins as the year -- to really dig in to solidify those margins and make sure we're comfortable that they're really solidly entrenched in our business psyche as we go forward.

Okay, great. And then, one final question. It looks like in the fourth quarter, just kind of backing it out to the press release -- it looks like the US fitness business was down year-over-year. Could you explain what that was? Was there any kind of order shift into the first quarter? Or, am I missing something?

It was down just a bit. And, one of the things that has been going on is there has been a consolidation in the club market. And, fourth quarters are times a lot of deals get completed, et cetera. And, as those happen, there's not reordering. That's all getting completed, and we're comfortable that market will easily go back into growth mode in '13.

We're also, at fitness, introducing a lot of new product, and it could well be that the clubs are waiting to make sure that they get the new product.

Okay, great. Thank you.

Craig Kennison, Robert W Baird.

Good morning. Thanks for taking my questions as well. Dusty, as you know, we like to focus on the used boat market somewhat. Could you give us an update on trends in that at the dealer level? And especially, any used boat price information you may have?

We continue to be told by the dealer network that they can get their hands on a good used boat it's a happy day, and they can sell it quickly. We have not seen, and we've talked about this before, however, used boat pricing to continue the increase except in certain segments and in and around certain brands. I mentioned Boston Whaler in the past as example for our brand. So, we continue, Craig, to see no difference in the used boat market than we've seen over the past year actually. And, it continues to be something our dealers focus on because it's good for them if they can find them. But again, the availability of used boats continues to be an issue.

And, is there any dispersion between the low end and the high end when you look at the used boat market? And, the appetite for consumers who already own a boat to trade up?

We see it more in the high end. We've talked about new volumes are down, but boaters as a category like to have a different boat and a bigger boat. And, the way they're achieving that today is they are buying used rather than new.

Thanks. And then, with respect to margin in your margin outlook, to what extent does the mix of boats and your decision on the high end affect your margin outlook, if at all? In terms of incremental margin?

Obviously, the mix pushes down margin, and that's something we're dealing with but we're pretty darn happy with the way we're pushing margins upward even though the mix is dramatically different than anything we've seen before.

Thanks, that's helpful. Peter and Bill, best of wishes to you as well.

Laura Starr, Nuveen Asset Management.

Hi. I have a couple questions. One, can you just talk about with Sandy, people getting their insurance checks? Have you seen any actual conversion of people buying boats in those areas where people lost boats in Sandy? Any higher increase in boat sales?

Here is what we are seeing with Sandy. Let's divide the Sandy impact into two buckets, Laura. First is, boats damaged, but not destroyed or lost. Those boaters are out looking for dealers who have the ability to perform repair and service, and a lot of dealers' facilities were wiped away or severely damaged. But, those dealers who have the ability to do repair and service are having a great business run right now and view that as continuing through '13.

For the person who has lost their boat and has received an insurance check, it looks like it is going to play out like all big hurricane events have. And, that is, upon receipt of that check, the owners first look at his or her life is they need their home taken care of. Then, their car. Then, all of their surroundings, and then eventually they turn back to boating. And, we are seeing that play out. I think the other thing we saw was marinas and places to boat underwent very severe damage in Sandy. And, therefore, even people who have gotten their check and may want a new boat are having to find a place, a marina they can even boat from. So, our view is that on the new boat side, this is not going to be a big 2013 event. And, we will see people begin to buy new boats whose boats were destroyed more in '14, '15, and that would be consistent with what we saw, for instance, in 2005 on the Gulf Coast with the big hurricanes there.

Okay, thanks. And then, could you talk -- you didn't mention on the call about some of the things, initiatives you're doing for international development. Off and on, you've talked about different places in the world where you're trying to expand either the engine, part, or boat sales. Could you give us an update on what is new there?

Well first, if you look at our sales number, once we back out Europe, we're having great sales increases all around the world.

Right.

The biggest single initiative is our entree into the Brazilian boat market through Bayliner and Sea Ray and the cruiser category. Our plant is up and running. We had the big official opening. We're beginning to fill the dealer network with boats, not only -- not so much, frankly, it's produced there because we're just getting up and running. But, boats we've been able to import with all the import help we got by being a builder in the country. So, that is moving right as we thought, and it's a big initiative. And, we'll really begin to see much more of an impact from that initiative, in my judgment, more into '14 range than even in '13. But, it's right on track.

And, given their geography, that's more of a year-round sales rise? So, it shouldn't be that seasonal? Is that correct in Brazil?

Depends on where you are in the country. Yes, but the further south you go, it's a little less seasonal. I mean, it's a little more seasonal than for instance, north. Brazil is a darn big country that covers a lot in latitude.

Then, my final question is, with all the divestitures you've done, what do you actually have in terms of like higher end boats that you could sell here domestically if the market really does begin to come back?

Let's define higher end boat by category. First, as we look at larger sterndrive inboard product, it's Marquis and Sea Ray. I mean -- I'm sorry, Meridian and Sea Ray.

Are those greater than 30 feet? Are any of them greater than 30 feet?

Oh, yes. Sure. We go well up to 60 feet in those categories, and we'll be over time bringing product out even larger than that.

And, are some of them up to $1 million?

Oh, yes. Easily. Then, if we go to fiberglass outboard product, Whaler in our judgment is the premium brand in that category. I would say there's one other brand that looks and feels as premium as Whaler, and we continue to get larger in that category. We have a 37 Outrage in that category, and you'll see us bringing even larger boats out in the Whaler category. And then, even if you want to go down to aluminum product in our Lund brand, our [Protaeus] are the premium brand in the marketplace and bring in a lot of revenue dollars per boat. And, they're very popular though for people who are serious fishermen.

And then, if we go to the pontoon category, again our Harris brand is a luxury brand in that category, and we've just come out with a new product there that I actually was doing an interview with a Dow Jones reporter, and we did it on that boat. And, its the most premium pontoon I've ever seen, and we couldn't finish the interview because there were so many people wanting to get on it. Because we think of premium in the boat market, our judgment is that we have premium brands who can cover premium categories in every type of boat.

Okay, thanks.

You're welcome.

At this time, we would like to turn the call back over to Dusty McCoy for concluding remarks. Have a great one.

As always, we thank everyone for joining us. We appreciate the great questions we get. As I hope you felt from the call, we're really proud of '12. We're confident of '13 and are very relaxed that all the targets we set for '14 are well within reach. And, as we said, we've just got to roll up our sleeves and keep doing what we've been doing and work hard.

Again, I want to thank Peter for everything he has done for this Company. Welcome, Bill. And, as we go through this change, the one thing about Brunswick is we've been around 168 years, we're pretty good at making change and going through evolution. So, we'll get through this.

Plus, the 15,000-plus people who work at Brunswick are what makes the CFO look good when the CFO looks good. And, nothing has changed there, indeed everything is getting better. So, thank you all for your kind comments, and I will be watching the Company very carefully. I will not be traveling anywhere because I want to be close to the headquarters to make sure that everything continues on the Miami guidance track. Thank you all.

Peter, threatens, by the way, he is going to come and have lunch every day and quiz us. So, we'll see how he does. Thanks everyone. We appreciate it.