UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended April 4,
2009
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from
to
Commission
file number
1-1043
 |
|
Brunswick
Corporation
|
(Exact
name of registrant as specified in its charter)
|
Delaware
|
36-0848180
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
|
1 N. Field Court, Lake Forest,
Illinois 60045-4811
|
| (Address of principal executive offices, including zip code) |
|
(847)
735-4700
|
|
(Registrant’s telephone number,
including area code)
|
|
(Former name, former address
and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
|
x
|
Accelerated filer
|
¨
|
|||
|
Non-accelerated
filer
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¨ (Do
not check if a smaller reporting company)
|
Smaller reporting company
|
¨
|
|||
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
number of shares of Common Stock ($0.75 par value) of the registrant outstanding
as of May 1, 2009, was 88,201,004.
|
BRUNSWICK CORPORATION
|
| INDEX TO QUARTERLY REPORT ON FORM 10-Q |
| April 4, 2009 |
TABLE
OF CONTENTS
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Page
|
|||||
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PART
I – FINANCIAL INFORMATION
|
|||||
|
Item
1.
|
Consolidated
Financial Statements
|
||||
|
Consolidated
Statements of Operations for the three months ended April 4, 2009
(unaudited), and March 29, 2008 (unaudited)
|
1 | ||||
|
Condensed
Consolidated Balance Sheets as of April 4, 2009 (unaudited),
December 31, 2008, and March 29, 2008 (unaudited)
|
2 | ||||
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Condensed
Consolidated Statements of Cash Flows for the three months ended April 4,
2009 (unaudited), and March 29, 2008 (unaudited)
|
4 | ||||
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Notes
to Consolidated Financial Statements (unaudited)
|
5 | ||||
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
25 | |||
|
Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
|
38 | |||
|
Item
4.
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Controls
and Procedures
|
38 | |||
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PART
II – OTHER INFORMATION
|
|||||
|
Item
1.
|
Legal
Proceedings
|
39 | |||
|
Item
1A.
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Risk
Factors
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39 | |||
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
39 | |||
|
Item
6.
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Exhibits
|
39 | |||
PART
I – FINANCIAL INFORMATION
Item
1. Consolidated Financial Statements
|
BRUNSWICK
CORPORATION
|
|
Consolidated
Statements of Operations
|
|
(unaudited)
|
|
Three
Months Ended
|
||||||||
|
(in
millions, except per share data)
|
April
4,
2009
|
March
29,
2008
|
||||||
|
Net
sales
|
$ | 734.7 | $ | 1,346.8 | ||||
|
Cost
of sales
|
643.5 | 1,077.3 | ||||||
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Selling,
general and administrative expense
|
155.2 | 203.1 | ||||||
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Research
and development expense
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23.9 | 33.9 | ||||||
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Restructuring,
exit and impairment charges
|
39.6 | 22.2 | ||||||
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Operating earnings
(loss)
|
(127.5 | ) | 10.3 | |||||
|
Equity
earnings (loss)
|
(3.2 | ) | 4.8 | |||||
|
Investment
sale gain
|
– | 19.7 | ||||||
|
Other
income (expense), net
|
(1.4 | ) | 1.1 | |||||
|
Earnings (loss) before interest
and income taxes
|
(132.1 | ) | 35.9 | |||||
|
Interest
expense
|
(18.2 | ) | (11.5 | ) | ||||
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Interest
income
|
0.5 | 1.4 | ||||||
|
Earnings (loss) before income
taxes
|
(149.8 | ) | 25.8 | |||||
|
Income
tax provision
|
34.4 | 12.5 | ||||||
|
Net
earnings (loss)
|
$ | (184.2 | ) | $ | 13.3 | |||
|
Earnings
(loss) per common share:
|
||||||||
|
Basic
|
$ | (2.08 | ) | $ | 0.15 | |||
|
Diluted
|
$ | (2.08 | ) | $ | 0.15 | |||
|
Weighted
average shares used for computation of:
|
||||||||
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Basic
earnings (loss) per common share
|
88.4 | 88.2 | ||||||
|
Diluted
earnings (loss) per common share
|
88.4 | 88.3 | ||||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||
1
|
BRUNSWICK
CORPORATION
|
|
Condensed
Consolidated Balance Sheets
|
|
April
4,
|
December
31,
|
March
29,
|
||||||||||
|
(in
millions)
|
2009
|
2008
|
2008
|
|||||||||
|
(unaudited)
|
(unaudited)
|
|||||||||||
|
Assets
|
||||||||||||
|
Current
assets
|
||||||||||||
|
Cash
and cash equivalents, at cost, which approximates
market
|
$ | 359.1 | $ | 317.5 | $ | 267.3 | ||||||
|
Accounts
and notes receivable, less allowances
of $39.6, $41.7 and $35.4
|
381.9 | 444.8 | 648.8 | |||||||||
|
Inventories
|
||||||||||||
|
Finished
goods
|
371.7 | 457.7 | 494.3 | |||||||||
|
Work-in-process
|
232.6 | 248.2 | 346.0 | |||||||||
|
Raw
materials
|
97.0 | 105.8 | 143.9 | |||||||||
|
Net
inventories
|
701.3 | 811.7 | 984.2 | |||||||||
|
Deferred
income taxes
|
13.3 | 103.2 | 241.9 | |||||||||
|
Prepaid
expenses and other
|
48.8 | 59.7 | 57.5 | |||||||||
|
Current
assets
|
1,504.4 | 1,736.9 | 2,199.7 | |||||||||
|
Property
|
||||||||||||
|
Land
|
106.8 | 107.1 | 105.7 | |||||||||
|
Buildings
and improvements
|
677.2 | 683.8 | 703.7 | |||||||||
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Equipment
|
1,137.6 | 1,156.6 | 1,210.7 | |||||||||
|
Total
land, buildings and improvements and equipment
|
1,921.6 | 1,947.5 | 2,020.1 | |||||||||
|
Accumulated
depreciation
|
(1,163.2 | ) | (1,155.4 | ) | (1,140.4 | ) | ||||||
|
Net
land, buildings and improvements and equipment
|
758.4 | 792.1 | 879.7 | |||||||||
|
Unamortized
product tooling costs
|
117.4 | 125.5 | 154.7 | |||||||||
|
Net
property
|
875.8 | 917.6 | 1,034.4 | |||||||||
|
Other
assets
|
||||||||||||
|
Goodwill
|
287.8 | 290.9 | 678.4 | |||||||||
|
Other
intangibles, net
|
83.4 | 86.6 | 242.6 | |||||||||
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Investments
|
70.9 | 75.4 | 118.3 | |||||||||
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Other
long-term assets
|
114.3 | 116.5 | 138.0 | |||||||||
|
Other
assets
|
556.4 | 569.4 | 1,177.3 | |||||||||
|
Total
assets
|
$ | 2,936.6 | $ | 3,223.9 | $ | 4,411.4 | ||||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||||||
2
|
BRUNSWICK
CORPORATION
|
|
Condensed
Consolidated Balance Sheets
|
|
April
4,
|
December
31,
|
March
29,
|
||||||||||
|
(in
millions, except share data)
|
2009
|
2008
|
2008
|
|||||||||
|
(unaudited)
|
(unaudited)
|
|||||||||||
|
Liabilities
and shareholders’ equity
|
||||||||||||
|
Current
liabilities
|
||||||||||||
|
Short-term
debt, including current maturities of
long-term debt
|
$ | 2.4 | $ | 3.2 | $ | 0.9 | ||||||
|
Accounts
payable
|
238.2 | 301.3 | 488.0 | |||||||||
|
Accrued
expenses
|
653.7 | 696.7 | 832.2 | |||||||||
|
Current
liabilities
|
894.3 | 1,001.2 | 1,321.1 | |||||||||
|
Long-term
liabilities
|
||||||||||||
|
Debt
|
728.1 | 728.5 | 729.1 | |||||||||
|
Deferred
income taxes
|
48.6 | 25.0 | 16.0 | |||||||||
|
Postretirement
and postemployment benefits
|
518.7 | 528.3 | 193.6 | |||||||||
|
Other
|
199.6 | 211.0 | 234.6 | |||||||||
|
Long-term
liabilities
|
1,495.0 | 1,492.8 | 1,173.3 | |||||||||
|
Shareholders’
equity
|
||||||||||||
|
Common
stock; authorized: 200,000,000 shares,
$0.75
par value; issued: 102,538,000 shares
|
76.9 | 76.9 | 76.9 | |||||||||
|
Additional
paid-in capital
|
404.6 | 412.3 | 407.8 | |||||||||
|
Retained
earnings
|
911.7 | 1,095.9 | 1,901.7 | |||||||||
|
Treasury
stock, at cost:
|
||||||||||||
|
14,371,000;
14,793,000 and 14,956,000 shares
|
(415.1 | ) | (422.9 | ) | (426.2 | ) | ||||||
|
Accumulated
other comprehensive loss, net of tax
|
(430.8 | ) | (432.3 | ) | (43.2 | ) | ||||||
|
Shareholders’
equity
|
547.3 | 729.9 | 1,917.0 | |||||||||
|
Total
liabilities and shareholders’ equity
|
$ | 2,936.6 | $ | 3,223.9 | $ | 4,411.4 | ||||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||||||
3
|
BRUNSWICK
CORPORATION
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
(unaudited)
|
|
Three
Months Ended
|
||||||||
|
(in
millions)
|
April
4,
2009
|
March
29,
2008
|
||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
earnings (loss)
|
$ | (184.2 | ) | $ | 13.3 | |||
|
Depreciation
and amortization
|
41.6 | 44.3 | ||||||
|
Deferred
income taxes
|
35.0 | 9.4 | ||||||
|
Changes
in non-cash current assets and current liabilities
|
79.4 | (136.6 | ) | |||||
|
Impairment
charges
|
4.0 | 8.4 | ||||||
|
Income
taxes
|
69.1 | (1.2 | ) | |||||
|
Other,
net
|
5.6 | (11.7 | ) | |||||
|
Net cash provided by (used for)
operating activities
|
50.5 | (74.1 | ) | |||||
|
Cash
flows from investing activities
|
||||||||
|
Capital
expenditures
|
(7.2 | ) | (28.3 | ) | ||||
|
Investments
|
(1.4 | ) | (4.1 | ) | ||||
|
Proceeds
from investment sale
|
– | 40.4 | ||||||
|
Proceeds
from the sale of property, plant and equipment
|
0.9 | 1.7 | ||||||
|
Other,
net
|
(0.2 | ) | 0.2 | |||||
|
Net cash provided by (used for)
investing activities
|
(7.9 | ) | 9.9 | |||||
|
Cash
flows from financing activities
|
||||||||
|
Net
issuances (repayments) of short-term debt
|
(0.7 | ) | 0.3 | |||||
|
Payments
of long-term debt including current maturities
|
(0.3 | ) | (0.2 | ) | ||||
|
Net cash provided by (used for)
financing activities
|
(1.0 | ) | 0.1 | |||||
|
Net
increase (decrease) in cash and cash equivalents
|
41.6 | (64.1 | ) | |||||
|
Cash
and cash equivalents at beginning of period
|
317.5 | 331.4 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 359.1 | $ | 267.3 | ||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||
4
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Note
1 – Significant Accounting Policies
Interim Financial
Statements. The unaudited interim consolidated financial
statements of Brunswick Corporation (Brunswick or the Company) have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Therefore, certain information and disclosures
normally included in financial statements and related notes prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted. Certain previously reported amounts have
been reclassified to conform to the current period presentation.
These
financial statements should be read in conjunction with, and have been prepared
in conformity with, the accounting principles reflected in the consolidated
financial statements and related notes included in Brunswick’s 2008 Annual
Report on Form 10-K (the 2008 Form 10-K). These interim results include, in the
opinion of management, all normal and recurring adjustments necessary to present
fairly the financial position of Brunswick as of April 4, 2009, December 31,
2008, and March 29, 2008, the results of operations for the three months ended
April 4, 2009, and March 29, 2008, and the cash flows for the three months ended
April 4, 2009, and March 29, 2008. Due to the seasonality of
Brunswick’s businesses, the interim results are not necessarily indicative of
the results that may be expected for the remainder of the year.
The
Company maintains its financial records on the basis of a fiscal year ending on
December 31, with the fiscal quarters spanning thirteen weeks and ending on the
Saturday closest to the end of that thirteen-week period. The first
quarter of fiscal year 2009 ended on April 4, 2009, and the first quarter of
fiscal year 2008 ended on March 29, 2008.
Recent Accounting
Pronouncements. In December 2007, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 141(R), “Business Combinations” (SFAS 141(R)).
SFAS 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired and any noncontrolling
interest in the acquiree. This statement also establishes disclosure
requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS 141(R) is effective for fiscal years beginning on or
after December 15, 2008. The adoption of this statement did not have
a material impact on the Company’s consolidated results of operations and
financial condition.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (SFAS 160). SFAS
160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. SFAS 160 is
effective for fiscal years beginning on or after December 15,
2008. The adoption of this statement did not have a material impact
on the Company’s consolidated results of operations and financial
condition.
In March
2008, the FASB issued SFAS No. 161, “Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133” (SFAS 161). SFAS 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity’s financial position, financial performance, and cash flows. SFAS 161
is effective for fiscal years beginning after November 15,
2008. The adoption of this statement resulted in the Company
expanding its disclosures relative to its derivative instruments and hedging
activity, as reflected in Note
3 – Financial Instruments.
In
December 2008, the FASB issued FASB Staff Position (FSP) FAS 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS
132(R)-1). FSP FAS 132(R)-1 amends SFAS No. 132 (Revised 2003), “Employers’
Disclosures about Pensions and Other Postretirement Benefits,” to provide
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal
years ending after December 15, 2009. The Company is currently evaluating the
impact that the adoption of FSP FAS 132(R)-1 may have on the Company’s
consolidated financial statements.
5
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
In
June 2008, the FASB issued FSP Emerging Issues Task Force (EITF)
No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities,” (FSP EITF 03-6-1). FSP EITF 03-6-1
requires that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for
fiscal years beginning after December 15, 2008 and interim periods within
those years, and requires that all prior period earnings per share data
presented be adjusted retrospectively to conform with its provisions. The
adoption of this statement did not have a material impact on the Company’s
consolidated results of operations and financial condition.
Note
2 – Restructuring Activities
In
November 2006, Brunswick announced restructuring initiatives to improve the
Company’s cost structure, better utilize overall capacity and improve general
operating efficiencies. These initiatives reflected the Company’s response to a
difficult marine market. As the marine market has continued to decline,
Brunswick expanded its restructuring activities across all business segments
during 2007, 2008 and 2009 in order to improve performance and better position
the Company for current market conditions and longer-term growth. These
initiatives have resulted in the recognition of restructuring, exit and other
impairment charges in the Statement of Operations during 2008 and
2009.
The
actions taken under these initiatives are expected to benefit future operations
by removing fixed costs of approximately $100 million from Cost of sales and
approximately $300 million from Selling, general and administrative expense in
the Consolidated Statements of Operations in 2009 compared with 2007 spending
levels. The majority of these costs are expected to be cash savings once all
restructuring initiatives are complete. The Company expects savings to be
realized through 2009.
The costs
incurred under these initiatives include:
Restructuring
Activities – These amounts primarily relate to:
|
●
|
Employee termination and other benefits | |
|
●
|
Costs to retain and relocate employees | |
|
●
|
Consulting costs | |
|
●
|
Consolidation of manufacturing footprint |
Exit Activities – These amounts primarily relate to:
|
●
|
Employee termination and other benefits | |
|
●
|
Lease exit costs | |
|
●
|
Inventory write-downs | |
|
●
|
Facility shutdown costs |
Asset Disposition Actions – These amounts primarily relate to sales of
assets and definite-lived asset impairments on:
|
●
|
Fixed assets | |
|
●
|
Tooling | |
|
●
|
Patents and proprietary technology | |
|
●
|
Dealer networks |
6
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Impairments
of definite-lived assets are recognized when, as a result of the restructuring
activities initiated, the carrying amount of the long-lived asset is not
expected to be fully recoverable, in accordance with SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.” The impairments recognized
were equal to the difference between the carrying amount of the asset and the
fair value of the asset, which was determined using observable inputs when
available, and when observable inputs were not available, based on the Company’s
assumptions of the data that market participants would use in pricing the asset
or liability, based on the best information available in the circumstances.
Specifically, the Company used discounted cash flows to determine the fair value
of the asset when observable inputs were unavailable.
The
Company has reported restructuring and exit activities based on the specific
driver of the cost and reflected the expense in the accounting period when the
cost has been committed or incurred, in accordance with SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal Activities.” The Company
considers actions related to the sale of certain Baja boat business assets, the
closure of its bowling pin manufacturing facility, the potential sale of the
Valley-Dynamo business and the divestiture of MotoTron, a designer and supplier
of engine control and vehicle networking systems, to be exit activities. All
other actions taken are considered to be restructuring activities.
The
following table is a summary of the expense associated with the restructuring
activities for the quarters ended April 4, 2009, and March 29, 2008. The 2009
charge consists of expenses related to actions initiated in both 2009 and
2008:
|
Three
Months Ended
|
||||||||
|
(in
millions)
|
April
4,
2009
|
March
29,
2008
|
||||||
|
Restructuring
activities:
|
||||||||
|
Employee
termination and other benefits
|
$ | 19.4 | $ | 2.8 | ||||
|
Current
asset write-downs
|
2.6 | 0.4 | ||||||
|
Transformation
and other costs:
|
||||||||
|
Consolidation
of manufacturing footprint
|
12.4 | 3.9 | ||||||
|
Retention
and relocation costs
|
0.1 | 0.7 | ||||||
|
Consulting
costs
|
0.3 | 0.4 | ||||||
|
Exit
activities:
|
||||||||
|
Employee
termination and other benefits
|
0.1 | 1.6 | ||||||
|
Current
asset write-downs
|
0.6 | 3.1 | ||||||
|
Transformation
and other costs:
|
||||||||
|
Consolidation
of manufacturing footprint
|
0.7 | 0.9 | ||||||
|
Asset
disposition actions:
|
||||||||
|
Definite-lived
asset impairments
|
3.4 | 8.4 | ||||||
|
Total
restructuring, exit and
other
impairment charges
|
$ | 39.6 | $ | 22.2 | ||||
The
Company anticipates that it will incur approximately $35 million of additional
costs through the remainder of 2009 related to the 2009 and 2008
restructuring initiatives; however, more significant reductions in demand for
the Company’s products may necessitate additional restructuring or exit charges
in 2009. Net cash payments related to 2009 and 2008 restructuring activities
were $40.8 million in the first quarter of 2009.
7
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Actions Initiated in 2009
During
the first quarter of 2009, the Company continued its restructuring activities by
reducing the Company’s global workforce, consolidating manufacturing operations
and disposing non-strategic assets.
The
following is a summary of the expense associated with the 2009 restructuring
activities:
|
(in
millions)
|
Total
|
|||
|
Restructuring
activities:
|
||||
|
Employee
termination and other benefits
|
$ | 12.9 | ||
|
Current
asset write-downs
|
0.3 | |||
|
Transformation
and other costs:
|
||||
|
Consolidation
of manufacturing footprint
|
2.8 | |||
|
Retention
and relocation costs
|
0.1 | |||
|
Consulting
costs
|
0.3 | |||
|
Exit
activities:
|
||||
|
Asset
disposition actions:
|
||||
|
Definite-lived
asset impairments
|
1.5 | |||
|
Total
restructuring, exit and
other
impairment charges
|
$ | 17.9 | ||
The
restructuring charges taken during 2009, for each of the Company’s reportable
segments in the first quarter of 2009 is summarized below:
|
(in
millions)
|
Marine
Engine
|
Boat
|
Fitness
|
Bowling
& Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee
terminations and
other benefits
|
$ | 6.2 | $ | 5.3 | $ | 1.0 | $ | 0.1 | $ | 0.3 | $ | 12.9 | ||||||||||||
|
Current
asset write-downs
|
— | 0.3 | — | — | — | 0.3 | ||||||||||||||||||
|
Transformation and
other costs
|
2.7 | 0.1 | — | — | 0.4 | 3.2 | ||||||||||||||||||
|
Asset
disposition actions
|
0.8 | 0.7 | — | — | — | 1.5 | ||||||||||||||||||
|
Total
restructuring, exit and other
impairment
charges
|
$ | 9.7 | $ | 6.4 | $ | 1.0 | $ | 0.1 | $ | 0.7 | $ | 17.9 | ||||||||||||
8
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
The
following table summarizes the 2009 charges taken for restructuring, exit and
other impairment charges related to actions initiated in 2009 and the related
status as of April 4, 2009. The accrued amounts remaining as of April 4, 2009,
represent cash expenditures needed to satisfy remaining obligations. The
majority of the accrued costs are expected to be paid by the end of 2009 and are
included in Accrued expenses in the Condensed Consolidated Balance
Sheets.
|
(in
millions)
|
Costs
Recognized
in 2009
|
Non-cash
Charges
|
Net
Cash Payments
|
Accrued
Costs
as of
April
4,
2009
|
||||||||||||
|
Employee
termination and other benefits
|
$ | 12.9 | $ | — | $ | (5.8 | ) | $ | 7.1 | |||||||
|
Current
asset write-downs
|
0.3 | (0.3 | ) | — | — | |||||||||||
|
Transformation
and other costs:
|
||||||||||||||||
|
Consolidation
of manufacturing footprint
|
2.8 | (2.7 | ) | (0.1 | ) | — | ||||||||||
|
Retention
and relocation costs
|
0.1 | — | (0.1 | ) | — | |||||||||||
|
Consulting
costs
|
0.3 | — | — | 0.3 | ||||||||||||
|
Asset
disposition actions:
|
||||||||||||||||
|
Definite-lived
asset impairments
|
1.5 | (1.5 | ) | — | — | |||||||||||
|
Total
restructuring, exit and
other
impairment charges
|
$ | 17.9 | $ | (4.5 | ) | $ | (6.0 | ) | $ | 7.4 | ||||||
The
Company anticipates that it will incur approximately $20 million of additional
costs related to restructuring activities that will be initiated during 2009;
however, more significant reductions in demand for the Company’s products may
necessitate additional restructuring or exit charges in 2009. The Company
expects most of these charges will be incurred in the Boat and Marine Engine
segments.
Actions
initiated in 2008
During
the first quarter of 2008, the Company continued its restructuring activities by
closing its bowling pin manufacturing facility in Antigo, Wisconsin, and
announcing that it would close its boat plant in Bucyrus, Ohio, in anticipation
of the proposed sale of certain assets relating to its Baja boat business, cease
boat manufacturing at one of its facilities in Merritt Island, Florida, and
close its Swansboro, North Carolina, boat plant.
The
Company announced additional actions in June 2008 as a result of the prolonged
downturn in the U.S. marine market. The plan was designed to improve performance
and better position the Company for market conditions and longer-term growth.
The plan is anticipated to result in significant changes in the Company’s
organizational structure, most notably by reducing the complexity of its
operations and further shrinking its North American manufacturing footprint.
Specifically, the Company announced the closure of its production facility in
Newberry, South Carolina, due to its decision to cease production of its
Bluewater Marine brands, including Sea Pro, Sea Boss, Palmetto and Laguna; its
intention to close four additional boat plants; and the write-down of certain
assets of the Valley-Dynamo business.
During
the third quarter of 2008, the Company accelerated its previously announced
efforts to resize the Company by the end of 2009 in light of extraordinary
developments within global financial markets that are affecting the recreational
marine industry. Specifically, the Company closed its production facilities in
Cumberland, Maryland; Pipestone, Minnesota; Roseburg, Oregon; and Arlington,
Washington. The Company also decided to mothball its plant in Navassa, North
Carolina. The Company completed the Arlington, Cumberland, Roseburg and Navassa
shutdowns in the fourth quarter of 2008, and the Pipestone facility shutdown in
the first quarter of 2009.
9
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
The
following is a summary of the total expense associated with the 2008
restructuring initiatives recognized during 2009 and 2008:
|
2008
Initiative Costs (Gains)
Recognized
in:
|
||||||||||||
|
Three
months ended
|
Full
year
|
|||||||||||
|
(in
millions)
|
Total
|
April
4, 2009
|
2008
|
|||||||||
|
Restructuring
activities:
|
||||||||||||
|
Employee
termination and other benefits
|
$ | 50.7 | $ | 6.5 | $ | 44.2 | ||||||
|
Current
asset write-downs
|
8.2 | 2.3 | 5.9 | |||||||||
|
Transformation
and other costs:
|
||||||||||||
|
Consolidation
of manufacturing footprint
|
68.4 | 9.6 | 58.8 | |||||||||
|
Retention
and relocation costs
|
5.5 | — | 5.5 | |||||||||
|
Consulting
costs
|
5.4 | — | 5.4 | |||||||||
|
Exit
activities:
|
||||||||||||
|
Employee
termination and other benefits
|
3.4 | 0.1 | 3.3 | |||||||||
|
Current
asset write-downs
|
9.4 | 0.6 | 8.8 | |||||||||
|
Transformation
and other costs:
|
||||||||||||
|
Consolidation
of manufacturing footprint
|
5.5 | 0.7 | 4.8 | |||||||||
|
Gain
on sale of non-strategic assets
|
(12.6 | ) | — | (12.6 | ) | |||||||
|
Asset
disposition actions:
|
||||||||||||
|
Definite-lived
asset impairments
|
61.8 | 1.9 | 59.9 | |||||||||
|
Gain
on sale of non-strategic assets
|
(6.7 | ) | — | (6.7 | ) | |||||||
|
Total
restructuring, exit and
other
impairment charges
|
$ | 199.0 | $ | 21.7 | $ | 177.3 | ||||||
The
restructuring charges related to 2008 initiatives for each of the Company’s
reportable segments in the first quarter of 2009 is summarized
below:
|
(in
millions)
|
Marine
Engine
|
Boat
|
Fitness
|
Bowling
& Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee
terminations and
other benefits
|
$ | 0.6 | $ | 5.5 | $ | — | $ | 0.1 | $ | 0.4 | $ | 6.6 | ||||||||||||
|
Current
asset write-downs
|
0.7 | 1.6 | — | 0.6 | — | 2.9 | ||||||||||||||||||
|
Transformation and
other costs
|
0.7 | 9.6 | — | — | — | 10.3 | ||||||||||||||||||
|
Asset
disposition actions
|
— | 1.9 | — | — | — | 1.9 | ||||||||||||||||||
|
Total
restructuring, exit and
other
impairment charges
|
$ | 2.0 | $ | 18.6 | $ | — | $ | 0.7 | $ | 0.4 | $ | 21.7 | ||||||||||||
10
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
The
following table summarizes the 2009 charges taken for restructuring, exit and
other impairment charges related to actions initiated in 2008 and the related
status as of April 4, 2009. The accrued amounts remaining as of April 4, 2009,
represent cash expenditures needed to satisfy remaining obligations. The
majority of the accrued costs are expected to be paid by the end of 2009 and are
included in Accrued expenses in the Consolidated Balance Sheets.
|
(in
millions)
|
Accrued
Costs
as of
Jan.
1,
2009
|
Costs
Recognized
in
2009
|
Non-cash
Charges
|
Net
Cash Payments
|
Accrued
Costs
as of
Apr.
4,
2009
|
|||||||||||||||
|
Employee
termination and other benefits
|
$ | 17.0 | $ | 6.6 | $ | — | $ | (14.4 | ) | $ | 9.2 | |||||||||
|
Current
asset write-downs
|
— | 2.9 | (2.9 | ) | — | — | ||||||||||||||
|
Transformation
and other costs:
|
||||||||||||||||||||
|
Consolidation
of manufacturing footprint
|
5.7 | 10.3 | — | (15.8 | ) | 0.2 | ||||||||||||||
|
Retention
and relocation costs
|
0.8 | — | — | (0.1 | ) | 0.7 | ||||||||||||||
|
Consulting
costs
|
4.5 | — | — | (4.5 | ) | — | ||||||||||||||
|
Asset
disposition actions:
|
||||||||||||||||||||
|
Definite-lived
asset impairments
|
— | 1.9 | (1.9 | ) | — | — | ||||||||||||||
|
Total
restructuring, exit and other
impairment charges
|
$ | 28.0 | $ | 21.7 | $ | (4.8 | ) | $ | (34.8 | ) | $ | 10.1 | ||||||||
The
Company anticipates that it will incur approximately $15 million of additional
costs related to the 2008 initiatives through the remainder of 2009, when the
2008 initiatives are expected to be complete. The Company expects most of these
charges will be incurred in the Boat segment.
The
restructuring charges related to 2008 initiatives for each of the Company’s
reportable segments in the first quarter of 2008 is summarized
below:
|
(in
millions)
|
Marine
Engine
|
Boat
|
Fitness
|
Bowling
& Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee
terminations and
other benefits
|
$ | 1.5 | $ | 0.6 | $ | — | $ | 1.6 | $ | 0.7 | $ | 4.4 | ||||||||||||
|
Current
asset write-downs
|
— | 3.1 | — | 0.4 | — | 3.5 | ||||||||||||||||||
|
Transformation and
other costs
|
— | 4.4 | — | 0.9 | 0.6 | 5.9 | ||||||||||||||||||
|
Asset
disposition actions
|
— | 5.7 | — | 2.7 | — | 8.4 | ||||||||||||||||||
|
Total
restructuring, exit and
other
impairment charges
|
$ | 1.5 | $ | 13.8 | $ | — | $ | 5.6 | $ | 1.3 | $ | 22.2 | ||||||||||||
11
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Note
3 – Financial Instruments
The
Company operates globally, with manufacturing and sales facilities in various
locations around the world. Due to the Company’s global operations, the Company
engages in activities involving both financial and market risks. The Company
utilizes normal operating and financing activities, along with derivative
financial instruments to minimize these risks.
Derivative Financial Instruments.
The Company uses derivative financial instruments to manage its risks
associated with movements in foreign currency exchange rates, interest rates and
commodity prices. Derivative instruments are not used for trading or speculative
purposes. For certain derivative contracts, on the date a derivative contract is
entered into, the Company designates the derivative as a hedge of a forecasted
transaction (cash flow hedge). The Company formally documents its hedge
relationships, including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and strategies for
undertaking the hedge transaction. This process includes linking derivatives
that are designated as hedges to specific forecasted transactions. The Company
also assesses, both at the inception and monthly thereafter, whether the
derivatives used in hedging transactions are highly effective in offsetting the
changes in the anticipated cash flows of the hedged item. There were no material
adjustments to the results of operations as a result of ineffectiveness for the
quarters ended April 4, 2009, and March 29, 2008. If the hedging relationship
ceases to be highly effective, or it becomes probable that a forecasted
transaction is no longer expected to occur, gains and losses on the derivative
are recorded in Other income (expense), net. The fair market value of derivative
financial instruments is determined through market-based valuations and may not
be representative of the actual gains or losses that will be recorded when these
instruments mature due to future fluctuations in the markets in which they are
traded. The effects of derivative and financial instruments are not expected to
be material to the Company’s financial position or results of operations when
considered together with the underlying exposure being hedged.
Fair Value Derivatives.
During 2009 and 2008, the Company entered into foreign currency forward
contracts to manage foreign currency exposure related to changes in the value of
assets or liabilities caused by changes in the exchange rates of foreign
currencies. The change in the fair value of the foreign currency derivative
contract and the corresponding change in the fair value of the asset or
liability of the Company are both recorded through earnings (loss), each month
as incurred.
Cash Flow Derivatives.
Certain derivative instruments qualify as cash flow hedges under the
requirements of SFAS Nos. 133, “Accounting
for Derivative Instruments and Hedging Activities,” and 138,
“Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133.” The Company executes both forward and
option contracts, based on forecasted transactions, to manage foreign exchange
exposure mainly related to inventory purchase and sales transactions. The
Company also enters into commodity swap agreements, based on anticipated
purchases of aluminum, copper and natural gas to manage exposure related to risk
from price changes. In prior periods, the Company entered into forward starting
interest rate swaps to hedge the interest rate risk associated with the
anticipated issuance of debt.
A cash
flow hedge requires that as changes in the fair value of derivatives occur, the
portion of the change deemed to be effective is recorded temporarily in
Accumulated other comprehensive loss and reclassified into earnings in the same
period or periods during which the hedged transaction affects earnings. As of
April 4, 2009, the term of derivative instruments hedging forecasted
transactions ranged from one to 32 months.
Foreign Currency. The Company
enters into forward and option contracts to manage foreign exchange exposure
related to forecasted transactions, and assets and liabilities that are subject
to risk from foreign currency rate changes. These include product costs;
revenues and expenses; associated receivables and payables; intercompany
obligations and receivables; and other related cash flows.
12
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Forward
exchange contracts outstanding at April 4, 2009, and March 29, 2008, had
notional contract values of $172.2 million and $300.0 million, respectively.
Option contracts outstanding at April 4, 2009, and March 29, 2008, had notional
contract values of $71.4 million and $262.2 million, respectively. The forward
and options contracts outstanding at April 4, 2009, mature during 2009 and 2010
and primarily relate to the Euro, Mexican peso, Canadian dollar, British pound,
Japanese yen and Australian dollar. As of April 4, 2009, the Company estimates
that during the next 12 months, it will reclassify approximately $12 million in
net gains (based on current rates) from Accumulated other comprehensive loss to
Cost of sales.
Interest Rate. The Company
has historically utilized fixed-to-floating interest rate swaps to mitigate the
interest rate risk associated with its long-term debt. There were no
fixed-to-floating interest rate swaps outstanding at April 4, 2009. As of March
28, 2008, the Company had swaps with a notional value of $50.0 million. These
instruments have been treated as fair value hedges, with the offset to the fair
market value recorded in long-term debt; see Note 14 to the consolidated
financial statements in the 2008 Form 10-K for further details.
As of
April 4, 2009 and March 29, 2008, the Company had $5.4 million and $1.1 million,
respectively, of net deferred gains associated with all forward starting
interest rate swaps included in Accumulated other comprehensive loss. These
amounts include gains deferred on $250.0 million of forward starting interest
rate swaps terminated in July 2006 and losses deferred on $150.0 million of
notional value forward starting swaps, which were terminated in August 2008.
There were no forward starting interest rate swaps outstanding at April 4, 2009.
For the three months ended April 4, 2009, the Company recognized $0.2 million of
net amortization gains related to all settled forward starting interest rate
swaps.
Commodity Price. The Company
uses commodity swaps to hedge anticipated purchases of aluminum and natural gas.
Commodity swap contracts outstanding at April 4, 2009, and March 29, 2008, had
notional values of $34.3 million and $14.8 million, respectively. The contracts
outstanding mature from 2009 to 2011. The amount of gain or loss is reclassified
from Accumulated other comprehensive loss to Cost of sales in the same period or
periods during which the hedged transaction affects earnings. As of April 4,
2009, the Company estimates that during the next 12 months, it will reclassify
approximately $12 million in net losses (based on current prices) from
Accumulated other comprehensive loss to Cost of sales.
As of
April 4, 2009, the fair values of the Company’s derivative instruments
were:
|
(in
millions)
|
|||||||||||
|
Derivative
Assets
|
Derivative
Liabilities
|
||||||||||
|
Instrument
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
|||||||
|
Interest
rate contracts
|
Prepaid
Expenses and Other
|
$ | — |
Accrued
Expenses
|
$ | — | |||||
|
Foreign
exchange contracts
|
Prepaid
Expenses and Other
|
12.2 |
Accrued
Expenses
|
3.0 | |||||||
|
Commodity
contracts
|
Prepaid
Expenses and Other
|
0.1 |
Accrued
Expenses
|
10.1 | |||||||
|
Total
|
$ | 12.3 | $ | 13.1 | |||||||
13
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
As of
March 29, 2008, the fair values of the Company’s derivative instruments
were:
|
(in
millions)
|
|||||||||||
|
Derivative
Assets
|
Derivative
Liabilities
|
||||||||||
|
Instrument
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
|||||||
|
Interest
rate contracts
|
Prepaid
Expenses and Other
|
$ | 3.9 |
Accrued
Expenses
|
$ | 11.1 | |||||
|
Foreign
exchange contracts
|
Prepaid
Expenses and Other
|
4.3 |
Accrued
Expenses
|
10.0 | |||||||
|
Commodity
contracts
|
Prepaid
Expenses and Other
|
2.2 |
Accrued
Expenses
|
— | |||||||
|
Total
|
$ | 10.4 | $ | 21.1 | |||||||
The
effect of derivative instruments on the Consolidated Statement of Operations for
the three months ended April 4, 2009, was:
|
(in
millions)
|
||||||
|
Fair
Value Hedging Instruments
|
Location
of Gain/(Loss)
Recognized
in Income on
Derivatives
|
Amount
of Gain/(Loss)
Recognized
in Income on
Derivatives
|
||||
|
Foreign
exchange contracts
|
Cost
of Sales
|
$ |
(0.1
|
) |
|
Cash
Flow Hedge Instruments
|
Amount
of
Gain/(Loss)
Recognized
on
Derivatives
in
Accumulated
other
comprehensive
loss
(Effective
Portion)
|
Location
of Gain/(Loss)
Reclassified
from
Accumulated
other
comprehensive
loss into
Income
(Effective
Portion)
|
Amount
of Gain/(Loss)
Reclassified
from
Accumulated
other
comprehensive
loss into
Income
(Effective
Portion)
|
||||||
|
Interest
rate contracts
|
$ | — |
Interest
Income
|
$ | 0.2 | ||||
|
Foreign
exchange contracts
|
2.9 |
Cost
of Sales
|
5.9 | ||||||
|
Commodity
contracts
|
(1.8 | ) |
Cost
of Sales
|
(3.8 | ) | ||||
|
Total
|
$ | 1.1 | $ | 2.3 | |||||
14
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Note
4 – Fair Value Measurements
Fair
value is defined under SFAS 157, “Fair Value Measurements,” (SFAS 157) as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
under SFAS 157 must maximize the use of observable inputs and minimize the use
of unobservable inputs. SFAS 157 established a fair value hierarchy
based on three levels of inputs, of which the first two are considered
observable and the last unobservable.
| ● | Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. | |
| ● | Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments. | |
| ● | Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. | |
The
following table summarizes Brunswick’s financial assets and liabilities measured
at fair value on a recurring basis in accordance with SFAS 157 as of April
4, 2009:
|
(in
millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash
Equivalents
|
$ | 209.6 | $ | — | $ | — | $ | 209.6 | ||||||||
|
Investments
|
3.2 | — | — | 3.2 | ||||||||||||
|
Derivatives
|
— | 12.3 | — | 12.3 | ||||||||||||
|
Total
Assets
|
$ | 212.8 | $ | 12.3 | $ | — | $ | 225.1 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$ | — | $ | 13.1 | $ | — | $ | 13.1 | ||||||||
Note
5 – Share-Based Compensation
Total
stock option expense, after adjusting for forfeitures, was $0.0 for the three
months ended April 4, 2009, and $1.0 million for the three months ended March
29, 2008, and resulted in a deferred tax asset for the tax benefit to be
realized in future periods. In accordance with SFAS No. 123 (revised 2004),
“Share-Based Payment,” (SFAS 123(R)), the fair value of option grants is
estimated as of the date of grant using the Black-Scholes-Merton option pricing
model. Share-based employee compensation cost is recognized as a component of
Selling, general and administrative expense in the Consolidated Statements of
Operations.
Under the
2003 Stock Incentive Plan (Plan), the Company may grant stock options, stock
appreciation rights (SARs), nonvested stock and other types of share-based
awards to executives and other management employees. Under the Plan, the Company
may issue up to 8.1 million shares, consisting of treasury shares and
authorized, but unissued shares of common stock. As of April 4, 2009,
0.6 million shares were available for grant.
15
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Stock
Options and SARs
Prior to
2005, the Company primarily issued share-based compensation in the form of stock
options, and had not issued any SARs. Since the beginning of 2005,
the Company has issued stock-settled SARs and has not issued any stock options.
Generally, stock options and SARs are exercisable over a period of 10 years, or
as otherwise determined by the Human Resources and Compensation Committee of the
Board of Directors, and subject to vesting periods of generally four years.
However, with respect to stock options and SARs, all grants vest immediately:
(i) in the event of a change in control; (ii) upon death or disability of the
grantee; and (iii) with respect to awards granted prior to 2008, upon the sale
or divestiture of the business unit to which the grantee is assigned. With
respect to stock option and SAR awards granted prior to 2006, grantees continue
to vest in accordance with the applicable vesting schedule even upon termination
of employment if the sum of (A) the age of the grantee and (B) the grantee’s
total number of years of service, equals 65 or more. With respect to SARs
granted in 2006 and later, grantees continue to vest in accordance with the
vesting schedule even upon termination if (A) the grantee has attained the age
of 62 and (B) the grantee’s age plus total years of service equals 70 or more.
The exercise price of stock options and SARs issued under the Plan cannot be
less than the fair market value of the underlying shares at the date of
grant.
During
the three months ended April 4, 2009, and March 29, 2008, there were 0.8 million
and 2.6 million SARs granted, respectively, which resulted in total expenses of
$0.0, after adjusting for forfeitures, and $1.0 million, respectively, due to
amortization of SARs granted. These expenses resulted in a deferred
tax asset for the tax benefit to be realized in future periods.
The
weighted average fair values of individual SARs granted were $2.16 and $5.72
during the first quarters of 2009 and 2008, respectively. The fair
value of each grant was estimated on the date of grant using the
Black-Scholes-Merton pricing model utilizing the following weighted average
assumptions for 2009 and 2008:
|
2009
|
2008
|
|||||||
|
Risk-free
interest rate
|
3.0 | % | 2.9 | % | ||||
|
Dividend
yield
|
1.9 | % | 2.3 | % | ||||
|
Volatility
factor
|
73.9 | % | 40.1 | % | ||||
|
Weighted
average expected life
|
5.7
– 6.3 years
|
5.4
– 6.2
years
|
||||||
Nonvested
stock awards
The
Company grants nonvested stock units and awards to key employees as determined
by the Human Resources and Compensation Committee of the Board of Directors.
Nonvested stock units and awards have vesting periods of three or four years.
Nonvested stock units and awards are eligible for dividends, subject to vesting,
which are reinvested and non-voting. All nonvested units and awards have
restrictions on the sale or transfer of such awards during the nonvested
period.
Generally,
grants of nonvested stock units and awards are forfeited if employment is
terminated prior to vesting. Nonvested stock units and awards granted in 2006
and later vest pro rata if the sum of (A) the age of the grantee and (B) the
grantee’s total number of years of service equals 70 or more.
In 2008,
the Company granted performance shares to certain members of senior management.
The number of performance shares to be issued pursuant to the 2008 grant will be
based on the Company’s performance against three key financial goals and the
Company’s relative total shareholder return versus the S&P 500 as of the end
of the performance period in 2010; provided, however, that no award will be
earned if the Company’s stock price does not meet a minimum threshold as of the
end of the performance period.
The cost
of nonvested stock awards is recognized on a straight-line basis over the
requisite service period. During the three months ended April 4, 2009, and March
29, 2008, there were 0.0 and 0.9 million stock awards granted under these plans,
respectively. As a result of reversing the amortization of certain awards, the
Company recognized income of $0.2 million in the first quarter of 2009, while
$0.7 million was charged to compensation expense under these plans in the first
quarter of 2008.
16
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
The
weighted average price per nonvested stock award at grant date was $15.83 for
the nonvested stock awards granted in the first quarter of 2008. As
of April 4, 2009, there was $1.2 million of total
unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the Plan. That cost is expected to be
recognized over a weighted average period of 0.9 years.
Director
Awards
The
Company issues stock awards to directors in accordance with the terms and
conditions determined by the Nominating and Corporate Governance Committee of
the Board of Directors. One-half of each director’s annual fee is
paid in Brunswick common stock, the receipt of which may be deferred until a
director retires from the Board of Directors. Each director may elect
to have the remaining one-half paid either in cash, in Brunswick common stock
distributed at the time of the award, or in deferred Brunswick common stock
units with a 20 percent premium. Each non-employee director is also
entitled to an annual grant of restricted stock units, which is deferred until
the director retires from the Board.
Note
6 – Earnings (Loss) per Common Share
The
Company calculates earnings (loss) per common share in accordance with SFAS No.
128, "Earnings per Share." Basic earnings (loss) per common share is
calculated by dividing net earnings (loss) by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per common
share is calculated similarly, except that the calculation includes the dilutive
effect of stock options and nonvested stock awards.
Basic and
diluted earnings (loss) per common share for the three months ended April 4,
2009, and March 29, 2008, were calculated as follows:
|
Three
Months Ended
|
||||||||
|
(in
millions, except per share data)
|
April
4,
2009
|
March
29,
2008
|
||||||
|
Net
earnings (loss)
|
$ | (184.2 | ) | $ | 13.3 | |||
|
Weighted
average outstanding shares – basic
|
88.4 | 88.2 | ||||||
|
Dilutive
effect of common stock equivalents
|
— | 0.1 | ||||||
|
Weighted
average outstanding shares – diluted
|
88.4 | 88.3 | ||||||
|
Basic
earnings (loss) per common share
|
$ | (2.08 | ) | $ | 0.15 | |||
|
Diluted
earnings (loss) per common share
|
$ | (2.08 | ) | $ | 0.15 | |||
As of
April 4, 2009, there were 6.3 million options outstanding, of which 3.5 million
were exercisable. This compares with 6.8 million options outstanding,
of which 3.0 million were exercisable as of March 29, 2008. During
the three months ended April 4, 2009, and March 29, 2008, there were 6.3 million
and 5.1 million weighted average shares of options outstanding, respectively,
for which the exercise price, based on the average price, was greater than the
average market price of the Company’s shares for the period then
ended. During the quarter ended April 4, 2009, the Company incurred a
net loss. As common stock equivalents have an anti-dilutive effect on the net
loss, the equivalents were not included in the computation of diluted earnings
(loss) per common share for 2009.
17
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Note
7 – Commitments and Contingencies
Financial
Commitments
The
Company has entered into guarantees of indebtedness of third parties, primarily
in connection with customer financing programs. Under these arrangements, the
Company has guaranteed customer obligations to the financial institutions in the
event of customer default, generally subject to a maximum amount which is less
than total obligations outstanding. The Company has also guaranteed payments to
third parties that have purchased customer receivables from Brunswick and, in
certain instances, has guaranteed secured term financing of its customers.
Potential payments in connection with these customer financing arrangements
would likely extend over several years. The potential cash payments associated
with these customer financing arrangements as of April 4, 2009, and March 29,
2008, were:
|
Single
Year Obligation
|
Maximum
Obligation
|
|||||||||||||||
|
(in
millions)
|
April
4,
2009
|
March
29,
2008
|
April
4,
2009
|
March
29,
2008
|
||||||||||||
|
Marine
Engine
|
$ | 31.2 | $ | 48.6 | $ | 31.2 | $ | 48.6 | ||||||||
|
Boat
|
3.2 | 0.9 | 3.2 | 0.9 | ||||||||||||
|
Fitness
|
26.9 | 23.5 | 37.2 | 33.5 | ||||||||||||
|
Bowling
& Billiards
|
10.5 | 12.3 | 25.3 | 29.8 | ||||||||||||
|
Total
|
$ | 71.8 | $ | 85.3 | $ | 96.9 | $ | 112.8 | ||||||||
In most instances, upon repurchase of
the debt obligation, the Company receives rights to the collateral securing the
financing. The Company’s
risk under these arrangements is mitigated by the value of the collateral that
secures the financing. The Company had $6.5 million accrued for potential losses
related to recourse exposure at April 4, 2009.
The
Company has also entered into arrangements with third-party lenders where it has
agreed, in the event of a default by the customer, to repurchase from the
third-party lender Brunswick products repossessed from the customer. These
arrangements are typically subject to a maximum repurchase amount. The amount of
collateral the Company could be required to purchase as of April 4, 2009, and
March 29, 2008, was:
|
Single
Year Obligation
|
Maximum
Obligation
|
|||||||||||||||
|
(in
millions)
|
April
4,
2009
|
March
29,
2008
|
April
4,
2009
|
March
29,
2008
|
||||||||||||
|
Marine
Engine
|
$ | 3.7 | $ | 4.5 | $ | 3.7 | $ | 4.5 | ||||||||
|
Boat
|
118.4 | 128.7 | 155.2 | 184.7 | ||||||||||||
|
Bowling
& Billiards
|
1.9 | 4.1 | 1.9 | 4.1 | ||||||||||||
|
Total
|
$ | 124.0 | $ | 137.3 | $ | 160.8 | $ | 193.3 | ||||||||
The
Company’s risk under these arrangements is mitigated by the value of the
products repurchased as part of the transaction. The Company had $12.1
million accrued for potential losses related to repurchase exposure at April 4,
2009.
Based on
historical experience and current facts and circumstances, and in accordance
with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others – An Interpretation of FASB Statements No. 5, 57, and 107 and Rescission
of FASB Interpretation No. 34,” the Company has recorded the estimated net
liability associated with losses from these guarantee and repurchase obligations
on its Condensed Consolidated Balance Sheets. Historical cash requirements and
losses associated with these obligations have not been significant, but could
increase if dealer defaults increase as a result of the difficult market
conditions in the United States.
18
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Financial
institutions have issued standby letters of credit and surety bonds
conditionally guaranteeing obligations on behalf of the Company totaling $102.2
million as of April 4, 2009. A large portion of these standby letters of credit
and surety bonds are related to the Company’s self-insured workers’ compensation
program as required by its insurance companies and various state agencies. The
Company has recorded reserves to cover liabilities associated with these
programs. In addition, the Company has provided a letter of credit to GE
Commercial Distribution Finance Corporation (GECDF) as a guarantee of the
Company's obligations to GECDF and affiliates under various agreements. Under
certain circumstances, such as an event of default under the Company’s revolving
credit facility, or, in the case of surety bonds, a ratings downgrade below
investment grade, the Company could be required to post collateral to support
the outstanding letters of credit and surety bonds. As the Company’s current
long-term debt ratings are below investment grade, the Company has posted
letters of credit totaling $11.2 million as collateral against $13.3 million of
outstanding surety bonds.
Product
Warranties
The
Company records a liability for product warranties at the time revenue is
recognized. The liability is estimated using historical warranty
experience, projected claim rates and expected costs per claim. The
Company adjusts its liability for specific warranty matters when they become
known and the exposure can be estimated. The Company’s warranty
reserves are affected by product failure rates as well as material usage and
labor costs incurred in correcting a product failure. If these
estimated costs differ from actual costs, a revision to the warranty reserve
would be required.
The
following activity related to product warranty liabilities was recorded in
Accrued expenses and Long-term liabilities – Other during the three months ended
April 4, 2009, and March 29, 2008:
| Three Months Ended | ||||||||
|
(in
millions)
|
April
4,
2009
|
March
29,
2008
|
||||||
|
Balance
at beginning of period
|
$ | 145.4 | $ | 163.9 | ||||
|
Payments
made
|
(22.5 | ) | (27.1 | ) | ||||
|
Provisions/additions
for contracts issued/sold
|
19.9 | 29.2 | ||||||
|
Aggregate
changes for preexisting warranties
|
0.8 | — | ||||||
|
Balance
at end of period
|
$ | 143.6 | $ | 166.0 | ||||
Additionally,
marine engine customers may purchase a contract from the Company that extends
product protection beyond the standard product warranty period. For
certain extended warranty contracts in which the Company retains the warranty
obligation, a deferred liability is recorded based on the aggregate sales price
for contracts sold. The deferred liability is reduced and revenue is
recognized over the contract period as costs are expected to be
incurred. Deferred revenue associated with contracts sold by the
Company that extend product protection beyond the standard product warranty
period, not included in the table above, was $20.8 million as of April 4,
2009.
Legal
and Environmental
The
Company accrues for litigation exposure based upon its assessment, made in
consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company’s litigation
claims, when finally resolved, will not, in the opinion of management, have a
material adverse effect on the Company’s consolidated financial
position. If current estimates for the cost of resolving any claims
are later determined to be inadequate, results of operations could be adversely
affected in the period in which additional provisions are required.
There
were no significant changes to the legal and environmental commitments that were
discussed in Note 11 to the consolidated financial statements in the 2008 Form
10-K.
19
|
BRUNSWICK
CORPORATION
|
|
Notes
to Consolidated Financial Statements
|
|
(unaudited)
|
Note
8 – Segment Data
Brunswick
is a manufacturer and marketer of leading consumer brands, and operates in four
reportable segments: Marine Engine, Boat, Fitness and Bowling &
Billiards. The Company’s segments are defined by management reporting
structure and operating activities.
During
the first quarter of 2009, the Company realigned the management of its marine
service, parts and accessories businesses. The Boat segment’s parts and
accessories businesses of Attwood, Land ‘N’ Sea, Benrock, Kellogg Marine and
Diversified Marine Products are now being managed by the Marine Engine segment’s
service and parts business leaders. As a result, the marine service, parts and
accessories operating results previously reported in the Boat segment are now
being reported in the Marine Engine segment. Segment results have been restated
for all periods presented to reflect the change in Brunswick’s reported
segments.
The
Company evaluates performance based on business segment operating earnings.
Operating earnings of segments do not include the expenses of corporate
administration, earnings from equity affiliates, other expenses and income of a
non-operating nature, interest expense and income or provisions for income
taxes.
Corporate/Other
results include items such as corporate staff and overhead costs. Marine
eliminations are eliminations between the Marine Engine and Boat segments for
sales transactions consummated at established arm’s length transfer
prices.
The
following table sets forth net sales and operating earnings (loss) of each of
the Company’s reportable segments for the three months ended April 4, 2009, and
March 29, 2008:
|
Net
Sales
|
Operating
Earnings (Loss)
|
|||||||||||||||
|
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||
|
(in
millions)
|
April
4,
2009
|
March
29,
2008
|
April
4,
2009
|
March
29,
2008
|
||||||||||||
|
Marine
Engine
|
$ | 343.9 | $ | 628.6 | $ | (50.6 | ) | $ | 33.6 | |||||||
|
Boat
|
205.3 | 565.6 | (72.3 | ) | (17.4 | ) | ||||||||||
|
Marine
eliminations
|
(33.0 | ) | (110.2 | ) | — | — | ||||||||||
|
Total
Marine
|
516.2 | 1,084.0 | (122.9 | ) | 16.2 | |||||||||||