Edgar Filing: BRUNSWICK CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

form10_q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2011

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 x 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):

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 August 4, 2011, was 89,076,560.

BRUNSWICK CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

July 2, 2011

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Consolidated Statements of Operations for the three months and six months ended July 2, 2011 (unaudited), and July 3, 2010 (unaudited)	1

	Condensed Consolidated Balance Sheets as of July 2, 2011 (unaudited), December 31, 2010, and July 3, 2010 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the six months ended July 2, 2011 (unaudited), and July 3, 2010 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60

Item 4.	Controls and Procedures	60


PART II – OTHER INFORMATION

Item 1A.	Risk Factors	61

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 6.	Exhibits	62

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BRUNSWICK CORPORATION

Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended
(in millions, except per share data)	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010

Net sales	$	1,096.3		$	1,014.7		$	2,082.2		$	1,859.1
Cost of sales		821.5			772.4			1,571.1			1,438.2
Selling, general and administrative expense		142.8			140.0			283.4			278.8
Research and development expense		24.4			22.4			47.8			44.7
Restructuring, exit and impairment charges		(0.3	)		24.2			5.0			31.6
Operating earnings		107.9			55.7			174.9			65.8
Equity earnings (loss)		(0.7	)		0.9			(0.2	)		0.8
Other income (expense), net		0.9			(0.4	)		0.9			0.6
Earnings before interest, loss on early extinguishment of debt and income taxes		108.1			56.2			175.6			67.2
Interest expense		(21.2	)		(23.9	)		(44.5	)		(48.2	)
Interest income		0.9			0.7			1.7			1.6
Loss on early extinguishment of debt		(0.9	)		(4.1	)		(5.2	)		(4.4	)
Earnings before income taxes		86.9			28.9			127.6			16.2
Income tax provision		17.6			15.2			30.8			15.5
Net earnings	$	69.3		$	13.7		$	96.8		$	0.7

Earnings per common share:
Basic	$	0.78		$	0.15		$	1.08		$	0.01
Diluted	$	0.75		$	0.15		$	1.05		$	0.01

Weighted average shares used for computation of:
Basic earnings per common share		89.3			88.7			89.3			88.6
Diluted earnings per common share		92.6			91.8			92.5			91.3

The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

(in millions)	July 2, 2011			December 31, 2010			July 3, 2010
	(unaudited)						(unaudited)
Assets
Current assets
Cash and cash equivalents, at cost, which approximates market	$	527.0		$	551.4		$	619.6
Short-term investments in marketable securities		78.8			84.7			0.8
Total cash, cash equivalents and short-term investments in marketable securities		605.8			636.1			620.4
Accounts and notes receivable, less allowances of $32.8, $38.0 and $43.9		447.2			327.3			447.8
Inventories
Finished goods		261.8			276.9			203.6
Work-in-process		174.5			164.0			180.8
Raw materials		91.0			86.6			91.2
Net inventories		527.3			527.5			475.6
Deferred income taxes		20.8			17.0			16.1
Prepaid expenses and other		29.1			27.9			29.7
Current assets		1,630.2			1,535.8			1,589.6

Property
Land		88.8			88.9			90.6
Buildings and improvements		642.3			651.3			657.1
Equipment		1,068.7			1,079.3			1,069.1
Total land, buildings and improvements and equipment		1,799.8			1,819.5			1,816.8
Accumulated depreciation		(1,265.5	)		(1,250.3	)		(1,234.0	)
Net land, buildings and improvements and equipment		534.3			569.2			582.8
Unamortized product tooling costs		69.6			61.0			70.9
Net property		603.9			630.2			653.7

Other assets
Goodwill		293.1			290.9			288.9
Other intangibles, net		52.9			56.7			61.5
Long-term investments in marketable securities		71.0			21.0			—
Equity investments		55.8			53.7			59.3
Other long-term assets		85.1			89.7			90.4
Other assets		557.9			512.0			500.1

Total assets	$	2,792.0		$	2,678.0		$	2,743.4

The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

	July 2,			December 31,			July 3,
(in millions, except share data)	2011			2010			2010
	(unaudited)						(unaudited)
Liabilities and shareholders’ equity
Current liabilities
Short-term debt, including current maturities of long-term debt	$	1.7		$	2.2		$	4.8
Accounts payable		324.7			288.2			313.6
Accrued expenses		641.5			661.2			613.2
Current liabilities		967.9			951.6			931.6

Long-term liabilities
Debt		785.2			828.4			819.2
Deferred income taxes		96.7			71.6			67.9
Postretirement benefits		525.6			548.9			531.9
Other		206.2			207.1			191.9
Long-term liabilities		1,613.7			1,656.0			1,610.9

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		429.2			424.6			418.5
Retained earnings		487.1			390.3			506.0
Treasury stock, at cost: 13,487,000, 13,877,000 and 13,938,000 shares		(398.4	)		(405.9	)		(407.0	)
Accumulated other comprehensive loss, net of tax		(384.4	)		(415.5	)		(393.5	)
Shareholders’ equity		210.4			70.4			200.9

Total liabilities and shareholders’ equity	$	2,792.0		$	2,678.0		$	2,743.4

The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
(in millions)	July 2, 2011			July 3, 2010

Cash flows from operating activities
Net earnings	$	96.8		$	0.7
Depreciation and amortization		53.9			67.7
Pension expense, net of contributions		(5.0	)		10.6
(Gains) losses on sale of property, plant and equipment, net		(10.0	)		0.7
Deferred income taxes		14.7			2.6
Other long-lived asset impairment charges		0.4			19.9
Loss on early extinguishment of debt		5.2			4.4
Changes in certain current assets and current liabilities		(109.4	)		(74.0	)
Income taxes		7.3			114.8
Other, net		27.3			(9.3	)
Net cash provided by operating activities		81.2			138.1

Cash flows from investing activities
Capital expenditures		(31.8	)		(18.8	)
Purchases of marketable securities		(125.3	)		—
Sales or maturities of marketable securities		79.3			—
Investments		(0.4	)		(8.6	)
Proceeds from the sale of property, plant and equipment		16.2			2.5
Other, net		7.0			7.3
Net cash used for investing activities		(55.0	)		(17.6	)

Cash flows from financing activities
Net payments of short-term debt		(0.3	)		(5.7	)
Net proceeds from issuance of long-term debt		—			10.0
Payments of long-term debt including current maturities		(44.7	)		(28.9	)
Net premium paid on early extinguishment of debt		(5.2	)		(4.3	)
Net proceeds from stock compensation activity		4.2			1.4
Other, net		(4.6	)		—
Net cash used for financing activities		(50.6	)		(27.5	)

Net increase (decrease) in cash and cash equivalents		(24.4	)		93.0
Cash and cash equivalents at beginning of period		551.4			526.6

Cash and cash equivalents at end of period	$	527.0		$	619.6

The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

BRUNSWICK CORPORATION

Notes to Condensed 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 (GAAP) 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 2010 Annual Report on Form 10-K (the 2010 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 July 2, 2011, December 31, 2010, and July 3, 2010, the results of operations for the three months and six months ended July 2, 2011 and July 3, 2010, and the cash flows for the six months ended July 2, 2011 and July 3, 2010. 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 two quarters of fiscal year 2011 ended on April 2, 2011, and July 2, 2011, and the first two quarters of fiscal year 2010 ended on April 3, 2010, and July 3, 2010.

Recent Accounting Pronouncements. The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (FASB), the SEC, and the Emerging Issues Task Force (EITF), to determine the impact of new pronouncements on GAAP and the impact on the Company. The following are recent accounting pronouncements that have been adopted during the six months ended July 2, 2011 or will be adopted in future periods.

Revenue Recognition: In October 2009, the FASB amended the Accounting Standards Codification (ASC) to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The amendment is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The adoption of this amendment on January 1, 2011 did not have a material impact on the Company’s consolidated results of operations and financial condition.

Receivables: In July 2010, the FASB amended the ASC to include additional disclosure requirements related to the Company’s financing receivables and associated credit risk. The disclosure requirements presented as of the end of a reporting period are effective for interim and annual periods ending on or after December 15, 2010 and were first included in the Company’s 2010 Form 10-K. The disclosure requirements about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010, and are included in expanded disclosures in Note 8 – Financing Receivables.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

In April 2011, the FASB amended the ASC to clarify the guidance on whether a restructuring of a receivable constitutes a troubled debt restructuring. The amendment is effective for the first interim or annual period beginning on or after June 15, 2011. The amendment must be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. The Company is currently evaluating the impact the adoption of the ASC amendment may have on the Company’s consolidated financial statements.

Fair Value Measurements: In May 2011, the FASB amended the ASC to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards. The amendment is effective for the first interim or annual period beginning on or after December 15, 2011. The Company is currently evaluating the impact the adoption of the ASC amendment may have on the Company’s consolidated financial statements.

Comprehensive Income: In June 2011, the FASB amended the ASC to increase the prominence of the items reported in other comprehensive income. Specifically, the amendment to the ASC eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment must be applied retrospectively and is effective for fiscal years and the interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact the adoption of the ASC amendment may have on the Company’s consolidated financial statements.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 2 – Restructuring Activities

In November 2006, Brunswick announced restructuring initiatives designed 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 continued to decline, Brunswick expanded its restructuring activities during 2007, 2008, 2009, 2010 and 2011 in order to improve performance and better position the Company for current market conditions and longer-term profitable growth. These initiatives have resulted in the recognition of restructuring, exit and impairment charges in the Statement of Operations during 2010 and 2011.

The costs incurred under these initiatives include:

Restructuring Activities – These amounts mainly relate to:

·	Employee termination and other benefits

·	Costs to retain and relocate employees

·	Consulting costs

·	Consolidation of manufacturing footprint

Exit Activities – These amounts mainly relate to:

·	Employee termination and other benefits

·	Lease exit costs

·	Inventory write-downs

·	Facility shutdown costs

Asset Disposition Actions – These amounts mainly relate to sales of assets and impairments of:

·	Fixed assets

Tooling

·	Patents and proprietary technology

·	Dealer networks

BRUNSWICK CORPORATION

Notes to Condensed 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. The impairments recognized were equal to the difference between the carrying amount of the asset and the estimated fair value of the asset, which was determined using observable inputs, including the use of appraisals from independent third parties, 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, 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, as appropriate. The Company considers actions related to the divestiture of its Triton fiberglass boat business, the closure of a marine electronics business, the sale of certain Baja boat business assets and the sale of the Valley-Dynamo business 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, exit and impairment activities for the three months and six months ended July 2, 2011 and July 3, 2010. The 2011 charges consist of expenses related to actions initiated in 2011, 2010, 2009 and 2008. The 2010 charges consist of expenses related to actions initiated in 2010, 2009 and 2008:

	Three Months Ended					Six Months Ended
(in millions)	July 2, 2011			July 3, 2010		July 2, 2011			July 3, 2010

Restructuring activities:
Employee termination and other benefits	$	0.4		$	2.0	$	1.6		$	5.8
Transformation and other costs:
Consolidation of manufacturing footprint		3.9			3.0		7.8			6.2
Exit activities:
Employee termination and other benefits		—			0.7		—			0.7
Current asset write-downs		—			0.9		—			0.9
Transformation and other costs:
Consolidation of manufacturing footprint		—			—		0.6			—
Asset disposition actions:
Trade name impairments		—			1.1		—			1.1
Definite-lived asset impairments and (gains) on disposal		(4.6	)		16.5		(5.0	)		16.9

Total restructuring, exit and impairment charges	$	(0.3	)	$	24.2	$	5.0		$	31.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company anticipates it will incur between $1 million and $5 million of additional restructuring charges in 2011 primarily related to known restructuring activities initiated in 2010 and 2009. The Company expects most of these charges will be incurred in the Marine Engine and Boat segments. The Company may incur additional restructuring, exit and impairment charges if there are reductions in demand for the Company’s products, further opportunities to reduce costs or future operating losses.

Actions Initiated in 2011 and 2010

No significant restructuring, exit or impairment charges have been recorded through the six months ended July 2, 2011 related to 2011 initiatives. During 2010, the Company continued its restructuring activities by disposing of non-strategic assets, consolidating manufacturing operations and reducing the Company’s global workforce. During the second quarter of 2010, the Company finalized plans to divest its Triton fiberglass boat brand and completed an asset sale transaction in the third quarter of 2010. The Company also reached a decision to consolidate its Cabo Yachts production into its Hatteras facility in New Bern, North Carolina in the second quarter of 2010. Additionally, the Company recorded impairment charges for its Ashland City, Tennessee facility in connection with the divestiture of its Triton fiberglass boat brand.

The restructuring, exit and impairment charges recorded in the three months and six months ended July 2, 2011 and July 3, 2010, related to actions initiated in 2011 and 2010, by reportable segment, are summarized below:

	Three Months Ended					Six Months Ended
(in millions)	July 2, 2011			July 3, 2010		July 2, 2011			July 3, 2010

Marine Engine	$	(0.2	)	$	—	$	(0.2	)	$	—
Boat		(0.6	)		18.7		0.8			18.7
Fitness		0.1			—		0.1			—
Bowling & Billiards		—			0.1		—			0.2
Corporate		—			—		0.1			—

Total	$	(0.7	)	$	18.8	$	0.8		$	18.9

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following is a summary of the charges by category associated with the Company’s 2011 and 2010 restructuring initiatives:

	Three Months Ended					Six Months Ended
(in millions)	July 2, 2011			July 3, 2010		July 2, 2011			July 3, 2010

Restructuring activities:
Employee termination and other benefits	$	(0.2	)	$	0.2	$	—		$	0.3
Transformation and other costs:
Consolidation of manufacturing footprint		0.5			—		1.2			—
Exit activities:
Employee termination and other benefits		—			0.7		—			0.7
Current asset write-downs		—			0.9		—			0.9
Transformation and other costs:
Consolidation of manufacturing footprint		—			—		0.6			—
Asset disposition actions:
Trade name impairments		—			1.1		—			1.1
Definite-lived asset impairments and (gains) on disposal		(1.0	)		15.9		(1.0	)		15.9

Total restructuring, exit and impairment charges	$	(0.7	)	$	18.8	$	0.8		$	18.9

The restructuring charges related to actions initiated in 2011 and 2010, by reportable segment, for the six months ended July 2, 2011, are summarized below:

(in millions)	Marine Engine			Boat			Fitness		Corporate		Total

Employee termination and other benefits	$	(0.2	)	$	0.1		$	—	$	0.1	$	—
Transformation and other costs		—			1.7			0.1		—		1.8
Asset disposition actions		—			(1.0	)		—		—		(1.0	)

Total restructuring, exit and impairment charges	$	(0.2	)	$	0.8		$	0.1	$	0.1	$	0.8

The restructuring charges related to actions initiated in 2010, by reportable segment, for the six months ended July 3, 2010, are summarized below:

(in millions)	Boat		Bowling & Billiards		Total

Employee termination and other benefits	$	0.8	$	0.2	$	1.0
Current asset write-downs		0.9		—		0.9
Asset disposition actions		17.0		—		17.0

Total restructuring, exit and impairment charges	$	18.7	$	0.2	$	18.9

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes the 2011 charges recorded for restructuring, exit and impairment charges related to actions initiated in 2011 and 2010 and the related status as of July 2, 2011. The accrued amounts remaining as of July 2, 2011 represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2011 and is included in Accrued expenses in the Condensed Consolidated Balance Sheets.

(in millions)	Accrued Costs as of Jan. 1, 2011		Costs (Gains) Recognized in 2011			Non-cash Gains		Net Cash Payments			Accrued Costs as of July 2, 2011

Employee termination and other benefits	$	0.8	$	—		$	0.2	$	(0.9	)	$	0.1
Transformation and other costs:
Consolidation of manufacturing footprint		1.4		1.8			—		(3.2	)		—
Retention and relocation costs		0.5		—			—		(0.1	)		0.4
Asset disposition actions:
Definite-lived asset impairments (gains) on disposal		—		(1.0	)		1.0		—			—

Total restructuring, exit and impairment charges	$	2.7	$	0.8		$	1.2	$	(4.2	)	$	0.5

Actions Initiated in 2009

During the third quarter of 2009, the Company announced plans to reduce excess manufacturing capacity by relocating inboard and sterndrive production to Fond du Lac, Wisconsin and closing its Stillwater, Oklahoma plant. This plant consolidation effort is expected to continue through 2011. During the second quarter of 2011, the Company recognized gains on the sale of certain Marine Engine properties. The Company continued to consolidate the Boat segment’s manufacturing footprint in 2009. These actions in the Company’s marine businesses are expected to provide long-term cost savings by reducing its fixed-cost structure. The Company also began marketing for sale certain previously closed boat production facilities in the fourth quarter of 2009, including the previously mothballed plants in Navassa and Swansboro, North Carolina, and its Riverview plant in Knoxville, Tennessee.

The restructuring, exit and impairment charges recorded in the three months and six months ended July 2, 2011 and July 3, 2010, related to actions initiated in 2009, by reportable segment, are summarized below:

	Three Months Ended					Six Months Ended
(in millions)	July 2, 2011			July 3, 2010		July 2, 2011			July 3, 2010

Marine Engine	$	(0.1	)	$	2.1	$	4.2		$	4.5
Boat		—			1.2		(0.4	)		3.9
Fitness		—			0.1		—			0.1
Bowling & Billiards		—			0.1		—			0.2
Corporate		—			0.1		(0.1	)		0.4

Total	$	(0.1	)	$	3.6	$	3.7		$	9.1

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following is a summary of the charges by category associated with the 2009 restructuring activities recognized during the three months and six months ended July 2, 2011 and July 3, 2010:

	Three Months Ended					Six Months Ended
(in millions)	July 2, 2011			July 3, 2010		July 2, 2011			July 3, 2010

Restructuring activities:
Employee termination and other benefits	$	0.6		$	1.7	$	1.6		$	5.4
Transformation and other costs:
Consolidation of manufacturing footprint		3.4			1.9		6.6			3.7
Asset disposition actions:
Definite-lived asset impairments and (gains) on disposal		(4.1	)		—		(4.5	)		—

Total restructuring, exit and impairment charges	$	(0.1	)	$	3.6	$	3.7		$	9.1

The restructuring charges related to actions initiated in 2009, by reportable segment, for the six months ended July 2, 2011, are summarized below:

(in millions)	Marine Engine			Boat			Corporate			Total

Employee termination and other benefits	$	1.6		$	—		$	—		$	1.6
Transformation and other costs		6.7			—			(0.1	)		6.6
Asset disposition actions		(4.1	)		(0.4	)		—			(4.5	)

Total restructuring, exit and impairment charges	$	4.2		$	(0.4	)	$	(0.1	)	$	3.7

The restructuring charges related to actions initiated in 2009, by reportable segment, for the six months ended July 3, 2010, are summarized below:

(in millions)	Marine Engine		Boat		Fitness		Bowling & Billiards		Corporate		Total

Employee termination and other benefits	$	2.1	$	2.7	$	0.1	$	0.2	$	0.3	$	5.4
Transformation and other costs		2.4		1.2		—		—		0.1		3.7

Total restructuring, exit and impairment charges	$	4.5	$	3.9	$	0.1	$	0.2	$	0.4	$	9.1

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes the 2011 charges recorded for restructuring, exit and impairment charges related to actions initiated in 2009 and the related status as of July 2, 2011. The accrued amounts remaining as of July 2, 2011 represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2011 and is included in Accrued expenses in the Condensed Consolidated Balance Sheets.

(in millions)	Accrued Costs as of Jan. 1, 2011		Costs (Gains) Recognized in 2011			Non-cash Gains		Net Cash Payments			Accrued Costs as of July 2, 2011

Employee termination and other benefits	$	6.8	$	1.6		$	—	$	(1.8	)	$	6.6
Transformation and other costs:
Consolidation of manufacturing footprint		1.5		6.6			—		(6.8	)		1.3
Asset disposition actions:
Definite-lived asset impairments and (gains) on disposal		—		(4.5	)		4.5		—			—

Total restructuring, exit and impairment charges	$	8.3	$	3.7		$	4.5	$	(8.6	)	$	7.9

Actions Initiated in 2008

The restructuring, exit and impairment charges recorded in 2011 and 2010 relate to the following actions initiated by the Company in 2008: closing its boat plant in Bucyrus, Ohio, in anticipation of the proposed sale of certain assets relating to its Baja boat business; ceasing boat manufacturing at one of its facilities in Merritt Island, Florida; closing its Swansboro, North Carolina, boat plant; writing-down certain assets of the Valley-Dynamo coin-operated commercial billiard business; announcing the closure of its boat production facilities in Cumberland, Maryland; Pipestone, Minnesota; Roseburg, Oregon; and Arlington, Washington; and mothballing its plant in Navassa, North Carolina.

The restructuring, exit and impairment charges recorded in the three months and six months ended July 2, 2011 and July 3, 2010, related to actions initiated in 2008, by reportable segment, are summarized below:

	Three Months Ended				Six Months Ended
(in millions)	July 2, 2011		July 3, 2010		July 2, 2011		July 3, 2010

Boat	$	0.5	$	1.8	$	0.5	$	3.2
Corporate		—		—		—		0.4

Total	$	0.5	$	1.8	$	0.5	$	3.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following is a summary of the charges by category associated with the 2008 restructuring activities recognized during the three months and six months ended July 2, 2011 and July 3, 2010:

	Three Months Ended				Six Months Ended
(in millions)	July 2, 2011		July 3, 2010		July 2, 2011		July 3, 2010

Restructuring activities:
Employee termination and other benefits	$	—	$	0.1	$	—	$	0.1
Transformation and other costs:
Consolidation of manufacturing footprint		—		1.1		—		2.5
Asset disposition actions:
Definite-lived asset impairments		0.5		0.6		0.5		1.0

Total restructuring, exit and impairment charges	$	0.5	$	1.8	$	0.5	$	3.6

The restructuring charges related to actions initiated in 2008, by reportable segment for the six months ended July 2, 2011, are summarized below:

(in millions)	Boat		Total

Asset disposition actions	$	0.5	$	0.5

Total restructuring, exit and impairment charges	$	0.5	$	0.5

The restructuring charges related to actions initiated in 2008, by reportable segment for the six months ended July 3, 2010, are summarized below:

(in millions)	Boat		Corporate		Total

Employee termination and other benefits	$	0.1	$	—	$	0.1
Transformation and other costs		2.5		—		2.5
Asset disposition actions		0.6		0.4		1.0

Total restructuring, exit and impairment charges	$	3.2	$	0.4	$	3.6

The following table summarizes the related status of actions initiated in 2008 as of July 2, 2011. The accrued amounts remaining as of July 2, 2011 represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2011 and is included in Accrued expenses in the Consolidated Balance Sheets.

(in millions)	Accrued Costs as of Jan. 1, 2011		Costs Recognized in 2011		Non-cash Charges			Net Cash Payments			Accrued Costs as of July 2, 2011

Employee termination and other benefits	$	0.7	$	—	$	—		$	(0.3	)	$	0.4
Transformation and other costs:
Consolidation of manufacturing footprint		1.5		—		—			(0.3	)		1.2
Asset disposition actions:
Definite-lived asset impairments		—		0.5		(0.5	)		—			—

Total restructuring, exit and impairment charges	$	2.2	$	0.5	$	(0.5	)	$	(0.6	)	$	1.6

BRUNSWICK CORPORATION

Notes to Condensed 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 hedge’s 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. 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 Cost of sales or Interest expense as appropriate. There were no material adjustments as a result of ineffectiveness to the results of operations for the three months and six months ended July 2, 2011 and July 3, 2010. 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 Hedges. During 2011 and 2010, 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 each period as incurred.

Cash Flow Hedges. The Company enters into certain derivative instruments that qualify as cash flow hedges. 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 and natural gas, to manage risk related to 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, an equity account, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of July 2, 2011, the term of derivative instruments hedging forecasted transactions ranged from one to 17 months.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

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.

Forward exchange contracts outstanding at July 2, 2011 and December 31, 2010 had notional contract values of $146.9 million and $138.3 million, respectively. Option contracts outstanding at July 2, 2011 and December 31, 2010 had notional contract values of $116.6 million and $181.1 million, respectively. The forward and options contracts outstanding at July 2, 2011 mature during 2011 and 2012 and mainly relate to the Euro, Japanese yen, Canadian dollar, Australian dollar, Mexican peso, Norwegian krone, Swedish krona, British pound, New Zealand dollar and Hungarian forint. As of July 2, 2011, the Company estimates that during the next 12 months, it will reclassify approximately $4.1 million in net losses (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate. As of July 2, 2011 and December 31, 2010, the Company had $3.4 million and $3.9 million, respectively, of net deferred gains associated with all forward starting interest rate swaps, which were 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 July 2, 2011. For the three months and six months ended July 2, 2011, the Company recognized $0.2 million and $0.5 million, respectively, of net amortization gains in Interest expense 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 July 2, 2011 and December 31, 2010 had notional values of $8.2 million and $14.0 million, respectively. The contracts outstanding mature throughout 2011. The amount of gain or loss associated with these instruments is deferred in Accumulated other comprehensive loss and is recognized in Cost of sales in the same period or periods during which the hedged transaction affects earnings. As of July 2, 2011, the Company estimates that during the next 12 months, it will reclassify approximately $1.8 million in net gains (based on current prices) from Accumulated other comprehensive loss to Cost of sales.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

As of July 2, 2011, 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

Foreign exchange contracts	Prepaid expenses and other	$	1.4	Accrued expenses	$	2.5
Commodity contracts	Prepaid expenses and other		1.5	Accrued expenses		0.1

Total		$	2.9		$	2.6

As of December 31, 2010, 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

Foreign exchange contracts	Prepaid expenses and other	$	1.1	Accrued expenses	$	3.4
Commodity contracts	Prepaid expenses and other		2.4	Accrued expenses		0.2

Total		$	3.5		$	3.6

The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended July 2, 2011 was:

(in millions)
Fair Value Hedging Instruments	Location of (Loss) on Derivatives Recognized in Earnings	Amount of (Loss) on Derivatives Recognized in Earnings

Foreign exchange contracts	Cost of sales	$	(1.0	)

Total		$	(1.0	)

Cash Flow Hedge Instruments	Amount of Gain (Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss (Effective Portion)			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)

Interest rate contracts	$	—		Interest expense	$	0.2
Foreign exchange contracts		(1.8	)	Cost of sales		(4.4	)
Commodity contracts		(0.4	)	Cost of sales		1.2

Total	$	(2.2	)		$	(3.0	)

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The effect of derivative instruments on the Consolidated Statement of Operations for the six months ended July 2, 2011 was:

(in millions)
Fair Value Hedging Instruments	Location of (Loss) on Derivatives Recognized in Earnings	Amount of (Loss) on Derivatives Recognized in Earnings

Foreign exchange contracts	Cost of sales	$	(2.3	)
Foreign exchange contracts	Other income (expense), net		(0.1	)

Total		$	(2.4	)

Cash Flow Hedge Instruments	Amount of Gain (Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss (Effective Portion)			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)

Interest rate contracts	$	—		Interest expense	$	0.5
Foreign exchange contracts		(6.7	)	Cost of sales		(6.1	)
Commodity contracts		1.2		Cost of sales		2.0

Total	$	(5.5	)		$	(3.6	)

The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended July 3, 2010 was:

(in millions)
Fair Value Hedging Instruments	Location of Gain on Derivatives Recognized in Earnings	Amount of Gain on Derivatives Recognized in Earnings

Foreign exchange contracts	Cost of sales		$	2.7
Foreign exchange contracts	Other income (expense), net			0.2

Total			$	2.9

Cash Flow Hedge Instruments	Amount of Gain on Derivatives Recognized in Accumulated Other Comprehensive Loss (Effective Portion)		Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)	Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)

Interest rate contracts	$	—	Interest expense	$	0.2
Foreign exchange contracts		3.3	Cost of sales		0.6
Commodity contracts		0.4	Cost of sales		0.8

Total	$	3.7		$	1.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The effect of derivative instruments on the Consolidated Statement of Operations for the six months ended July 3, 2010 was:

(in millions)
Fair Value Hedging Instruments	Location of Gain on Derivatives Recognized in Earnings	Amount of Gain on Derivatives Recognized in Earnings

Foreign exchange contracts	Cost of sales		$	4.0
Foreign exchange contracts	Other income (expense), net			0.5

Total			$	4.5

Cash Flow Hedge Instruments	Amount of Gain (Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss (Effective Portion)			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)	Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)

Interest rate contracts	$	—		Interest expense	$	0.5
Foreign exchange contracts		5.2		Cost of sales		0.2
Commodity contracts		(2.5	)	Cost of sales		0.5

Total	$	2.7			$	1.2

Concentration of Credit Risk. The Company enters into financial instruments and invests a portion of its cash reserves in marketable debt securities with banks and investment firms with which the Company has business relationships and regularly monitors the credit ratings of its counterparties. The Company sells a broad range of recreation products to a worldwide customer base and extends credit to its customers based upon an ongoing credit evaluation program. The Company’s business units maintain credit organizations to manage financial exposure. Credit risk assessments are performed on an individual account basis. Accounts are not aggregated into categories for credit risk determinations. There are no concentrations of credit risk resulting from accounts receivable that are considered material to the Company’s financial position. Refer to Note 8 – Financing Receivables for more information.

Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash equivalents, accounts and notes receivable and short-term debt, including current maturities of long-term debt, approximate their fair values because of the short maturity of these instruments. At July 2, 2011, the fair value of the Company’s long-term debt was approximately $842.8 million as estimated using quoted market prices or discounted cash flows based on market rates for similar types of debt. The carrying value of long-term debt, including current maturities, was $786.7 million as of July 2, 2011.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 4 – Fair Value Measurements

Fair value is defined 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. There is 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 as of July 2, 2011:

(in millions)	Level 1		Level 2		Level 3		Total

Assets:
Cash equivalents	$	320.3	$	—	$	—	$	320.3
Short-term investments in marketable securities		5.8		73.0		—		78.8
Long-term investments in marketable securities		71.0		—		—		71.0
Equity investments		2.1		—		—		2.1
Derivatives		—		2.9		—		2.9

Total assets	$	399.2	$	75.9	$	—	$	475.1

Liabilities:
Derivatives	$	—	$	2.6	$	—	$	2.6

Total liabilities	$	—	$	2.6	$	—	$	2.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes Brunswick’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010:

(in millions)	Level 1		Level 2		Level 3		Total

Assets:
Cash equivalents	$	353.9	$	15.0	$	—	$	368.9
Short-term investments in marketable securities		10.8		73.9		—		84.7
Long-term investments in marketable securities		21.0		—		—		21.0
Equity investments		2.0		—		—		2.0
Derivatives		—		3.5		—		3.5

Total assets	$	387.7	$	92.4	$	—	$	480.1

Liabilities:
Derivatives	$	—	$	3.6	$	—	$	3.6

Total liabilities	$	—	$	3.6	$	—	$	3.6

Refer to Note 3 – Financial Instruments for additional information related to the fair value of derivative assets and liabilities by class. In addition to the items shown in the table above, refer to Note 15 in the Company’s 2010 Form 10-K for further discussion regarding the fair value measurements associated with the Company’s postretirement benefit plans.

During the three months and six months ended July 2, 2011 and July 3, 2010, the Company undertook various restructuring activities, as discussed in Note 2 – Restructuring Activities. The restructuring activities required the Company to perform fair value measurements, on a non-recurring basis, of certain asset groups to test for potential impairments. Certain of these fair value measurements indicated that the asset groups were impaired and, therefore, the assets were written down to fair value. Once an asset has been impaired, it is not remeasured at fair value on a recurring basis; however, it is still subject to fair value measurements to test for recoverability of the carrying amount. Other than the assets measured at fair value on a recurring basis, as shown in the table above, the definite-lived asset balances shown in the Condensed Consolidated Balance Sheets that were measured at fair value on a non-recurring basis during 2011 were $0.8 million, all of which were measured as of July 2, 2011. Asset balances measured at fair value on a non-recurring basis during 2010 were $17.4 million, of which $8.5 million, $2.9 million, $2.5 million and $3.5 million were measured as of December 31, 2010, October 2, 2010, July 3, 2010 and April 3, 2010, respectively. Assets measured at fair value on a nonrecurring basis relate primarily to assets no longer being used. Those balances were determined with the market approach using Level 2 inputs, including third-party appraisals of comparable property.

Note 5 – Share-Based Compensation

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 13.1 million shares, consisting of treasury shares and authorized, but unissued shares of common stock. As of July 2, 2011, 2.6 million shares were available for grant.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Stock Options and SARs

Prior to 2005, the Company mainly 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. During the three months and six months ended July 2, 2011, the Company granted 0.0 million and 0.9 million SARs, respectively. During the three months and six months ended July 3, 2010, the Company granted 0.0 million and 1.9 million SARS, respectively. In the three months and six months ended July 2, 2011, there was $3.1 million and $6.1 million, respectively, of total expense after adjusting for forfeitures, due to amortization of SARs granted. In the three months and six months ended July 3, 2010, there was $4.0 million and $6.6 million, respectively, of total expense after adjusting for forfeitures, due to amortization of SARs granted.

The weighted average fair values of individual SARs granted were $11.14 and $5.63 during the six months ending July 2, 2011 and July 3, 2010, respectively. The Company estimated the fair value of each grant on the date of grant using the Black-Scholes-Merton pricing model, utilizing the following weighted average assumptions for 2011 and 2010:

	2011	2010

Risk-free interest rate	2.8%	2.8%
Dividend yield	0.2%	0.7%
Volatility factor	52.3%	53.0%
Weighted average expected life	5.2 – 6.7 years	5.8 – 6.6 years

Non-vested Stock Awards

During the three months and six months ended July 2, 2011, the Company granted 0.0 million and 0.2 million stock awards, respectively. The Company granted 0.0 million and 0.2 million stock awards during the three months and six months ended July 3, 2010, respectively. The Company recognizes the cost of non-vested stock awards on a straight-line basis over the requisite service period. During the three months and six months ended July 2, 2011, $0.9 million and $1.8 million, respectively, was charged to compensation expense from the amortization of previous grants. During the three months and six months ended July 3, 2010, $0.6 million and $1.1 million, respectively, was charged to compensation expense from the amortization of previous grants.

As of July 2, 2011, there was $4.2 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 1.5 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. Prior to May 2009, each non-employee director also received an annual grant of restricted stock units, which is deferred until the director retires from the Board.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 6 – Earnings per Common Share

Basic earnings per common share is calculated by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated similarly, except that the calculation includes the dilutive effect of stock options and SARs (collectively “options”) and non-vested stock awards.

Basic and diluted earnings per common share for the three months and six months ended July 2, 2011 and for the comparable periods ended July 3, 2010 were calculated as follows:

Three Months Ended

Six Months Ended

(in millions, except per share data)

July 2,