Edgar Filing: BRUNSWICK CORP

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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 October 1, 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 November 4, 2011, was 89,096,699.

BRUNSWICK CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

October 1, 2011

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Consolidated Statements of Operations for the three months and nine months ended October 1, 2011 (unaudited), and October 2, 2010 (unaudited)	1

	Condensed Consolidated Balance Sheets as of October 1, 2011 (unaudited), December 31, 2010, and October 2, 2010 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the nine months ended October 1, 2011 (unaudited), and October 2, 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	42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64

Item 4.	Controls and Procedures	64


PART II – OTHER INFORMATION

Item 1A.	Risk Factors	65

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65

Item 6.	Exhibits	66

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BRUNSWICK CORPORATION

Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Nine Months Ended
(in millions, except per share data)	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010

Net sales	$	876.7		$	815.4		$	2,958.9		$	2,674.5
Cost of sales		673.9			632.1			2,245.0			2,070.3
Selling, general and administrative expense		128.9			122.8			412.3			401.6
Research and development expense		25.1			23.1			72.9			67.8
Restructuring, exit and impairment charges		13.2			12.2			18.2			43.8
Operating earnings		35.6			25.2			210.5			91.0
Equity loss		(0.2	)		(2.0	)		(0.4	)		(1.2	)
Other income (expense), net		(0.6	)		(2.2	)		0.3			(1.6	)
Earnings before interest, loss on early extinguishment of debt and income taxes		34.8			21.0			210.4			88.2
Interest expense		(19.3	)		(22.7	)		(63.8	)		(70.9	)
Interest income		0.9			0.9			2.6			2.5
Loss on early extinguishment of debt		(11.7	)		(1.1	)		(16.9	)		(5.5	)
Earnings (loss) before income taxes		4.7			(1.9	)		132.3			14.3
Income tax provision		—			5.3			30.8			20.8
Net earnings (loss)	$	4.7		$	(7.2	)	$	101.5		$	(6.5	)

Earnings (loss) per common share:
Basic	$	0.05		$	(0.08	)	$	1.14		$	(0.07	)
Diluted	$	0.05		$	(0.08	)	$	1.10		$	(0.07	)

Weighted average shares used for computation of:
Basic earnings (loss) per common share		89.4			88.8			89.3			88.7
Diluted earnings (loss) per common share		91.8			88.8			92.3			88.7

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

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

(in millions)	October 1, 2011			December 31, 2010			October 2, 2010
	(unaudited)						(unaudited)
Assets
Current assets
Cash and cash equivalents, at cost, which approximates market	$	384.5		$	551.4		$	676.5
Short-term investments in marketable securities		74.1			84.7			0.8
Total cash, cash equivalents and short-term investments in marketable securities		458.6			636.1			677.3
Restricted cash		20.0			—			—
Accounts and notes receivable, less allowances of $33.3, $38.0 and $44.0		389.0			327.3			367.4
Inventories
Finished goods		282.7			276.9			245.8
Work-in-process		164.4			164.0			177.5
Raw materials		81.9			86.6			95.1
Net inventories		529.0			527.5			518.4
Deferred income taxes		8.8			17.0			1.8
Prepaid expenses and other		29.0			27.9			29.2
Current assets		1,434.4			1,535.8			1,594.1

Property
Land		85.0			88.9			89.9
Buildings and improvements		616.1			651.3			654.8
Equipment		1,058.5			1,079.3			1,073.3
Total land, buildings and improvements and equipment		1,759.6			1,819.5			1,818.0
Accumulated depreciation		(1,244.8	)		(1,250.3	)		(1,245.8	)
Net land, buildings and improvements and equipment		514.8			569.2			572.2
Unamortized product tooling costs		66.2			61.0			65.3
Net property		581.0			630.2			637.5

Other assets
Goodwill		291.0			290.9			291.1
Other intangibles, net		51.1			56.7			59.6
Long-term investments in marketable securities		88.1			21.0			—
Equity investments		53.9			53.7			59.9
Other long-term assets		78.3			89.7			89.5
Other assets		562.4			512.0			500.1

Total assets	$	2,577.8		$	2,678.0		$	2,731.7

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

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

	October 1,			December 31,			October 2,
(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	$	2.1		$	2.2		$	4.3
Accounts payable		302.0			288.2			274.9
Accrued expenses		598.5			661.2			623.3
Current liabilities		902.6			951.6			902.5

Long-term liabilities
Debt		701.2			828.4			829.8
Deferred income taxes		85.2			71.6			52.8
Postretirement benefits		505.6			548.9			527.8
Other		193.8			207.1			201.7
Long-term liabilities		1,485.8			1,656.0			1,612.1

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		432.0			424.6			421.9
Retained earnings		491.8			390.3			498.7
Treasury stock, at cost: 13,459,000, 13,877,000 and 13,912,000 shares		(398.0	)		(405.9	)		(406.5	)
Accumulated other comprehensive loss, net of tax		(413.3	)		(415.5	)		(373.9	)
Shareholders’ equity		189.4			70.4			217.1

Total liabilities and shareholders’ equity	$	2,577.8		$	2,678.0		$	2,731.7

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

BRUNSWICK CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended
(in millions)	October 1, 2011			October 2, 2010

Cash flows from operating activities
Net earnings (loss)	$	101.5		$	(6.5	)
Depreciation and amortization		79.3			98.5
Pension expense, net of contributions		(18.3	)		12.1
(Gains) losses on sale of property, plant and equipment, net		(9.8	)		1.1
Other long-lived asset impairment charges		(0.9	)		19.0
Deferred income taxes		14.2			5.4
Loss on early extinguishment of debt		16.9			5.5
Changes in certain current assets and current liabilities		(130.1	)		(71.4	)
Income taxes		4.7			114.1
Other, net		23.7			14.8
Net cash provided by operating activities		81.2			192.6

Cash flows from investing activities
Capital expenditures		(57.9	)		(31.1	)
Purchases of marketable securities		(222.6	)		—
Sales or maturities of marketable securities		163.0			—
Transfers to restricted cash		(20.0	)		—
Investments		(0.9	)		(8.6	)
Proceeds from the sale of property, plant and equipment		22.5			5.9
Other, net		13.2			8.3
Net cash used for investing activities		(102.7	)		(25.5	)

Cash flows from financing activities
Net issuances (payments) of short-term debt		0.1			(6.8	)
Net proceeds from issuance of long-term debt		—			30.2
Payments of long-term debt including current maturities		(130.1	)		(36.7	)
Net premium paid on early extinguishment of debt		(14.9	)		(5.3	)
Net proceeds from stock compensation activity		4.1			1.4
Other, net		(4.6	)		—
Net cash used for financing activities		(145.4	)		(17.2	)

Net increase (decrease) in cash and cash equivalents		(166.9	)		149.9
Cash and cash equivalents at beginning of period		551.4			526.6

Cash and cash equivalents at end of period	$	384.5		$	676.5

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 results include, in the opinion of management, all normal and recurring adjustments necessary to present fairly the financial position of Brunswick as of October 1, 2011, December 31, 2010, and October 2, 2010, the results of operations for the three months and nine months ended October 1, 2011 and October 2, 2010, and the cash flows for the nine months ended October 1, 2011 and October 2, 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 three quarters of fiscal year 2011 ended on April 2, 2011, July 2, 2011 and October 1, 2011 and the first three quarters of fiscal year 2010 ended on April 3, 2010, July 3, 2010 and October 2, 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 nine months ended October 1, 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 when 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. Information regarding the Company’s troubled debt restructurings is included in Note 8 – Financing Receivables.

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.

Intangibles – Goodwill and Other: In September 2011, the FASB amended the ASC to simplify how entities test goodwill for impairment. The amendment to the ASC permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is considering early adoption of the ASC amendment and is evaluating the impact the adoption may have on the Company’s consolidated financial statements.

Compensation – Retirement Benefits – Multiemployer Plans: In September 2011, the FASB amended the ASC to require additional qualitative and quantitative disclosures for employers that participate in multiemployer pension plans. The amendment to the ASC requires that employers disclose the significant multiemployer plans in which the employer participates, the level of participation in the plans, the financial health of the plans and the nature of the employer’s commitments to the plans. The amendment is effective for annual periods ending 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, which continued to decline through 2010 and led to expanded restructuring activities between 2007 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 Consolidated Statements 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 Sealine boat business, 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 nine months ended October 1, 2011 and October 2, 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						Nine Months Ended
(in millions)	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010

Restructuring activities:
Employee termination and other benefits	$	1.3		$	1.5		$	2.9		$	7.3
Current asset write-downs		—			1.7			—			1.7
Transformation and other costs:
Consolidation of manufacturing footprint		3.5			4.1			11.3			10.3
Retention and relocation costs		—			0.2			—			0.2
Exit activities:
Employee termination and other benefits		—			—			—			0.7
Current asset write-downs (adjustments)		—			(0.2	)		—			0.7
Transformation and other costs:
Consolidation of manufacturing footprint		9.8			5.9			10.4			5.9
Asset disposition actions:
Trade name impairments		—			—			—			1.1
Definite-lived asset impairments and (gains) on disposal		(1.4	)		(1.0	)		(6.4	)		15.9

Total restructuring, exit and impairment charges	$	13.2		$	12.2		$	18.2		$	43.8

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company anticipates it will incur between $2 million and $7 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

During 2011, the Company continued its restructuring activities by disposing of non-strategic assets, consolidating manufacturing operations and reducing the Company’s global workforce. In the third quarter of 2011, the Company divested its Sealine boat brand and recognized a loss on the sale of $9.4 million. The loss includes a gain related to the write-off of cumulative translation adjustments, which were included in Accumulated other comprehensive loss, net of tax. See Note 11 – Comprehensive Income (Loss) for further discussion. Results of operations of Sealine are not material for the periods presented.

The restructuring and exit charges recorded in the three months and nine months ended October 1, 2011, related to actions initiated in 2011, by reportable segment, are summarized below:

(in millions)	Three Months Ended October 1, 2011		Nine Months Ended October 1, 2011

Boat	$	9.4	$	9.4
Fitness		—		0.1
Bowling & Billiards		0.1		0.1
Corporate		—		0.1

Total	$	9.5	$	9.7

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 restructuring initiatives:

(in millions)	Three Months Ended October 1, 2011		Nine Months Ended October 1, 2011

Restructuring activities:
Employee termination and other benefits	$	0.1	$	0.2
Transformation and other costs:
Consolidation of manufacturing footprint		—		0.1
Exit activities:
Transformation and other costs:
Consolidation of manufacturing footprint		9.4		9.4

Total restructuring and exit charges	$	9.5	$	9.7

The restructuring charges related to actions initiated in 2011, by reportable segment, for the nine months ended October 1, 2011, are summarized below:

(in millions)	Boat		Fitness		Bowling & Billiards		Corporate		Total

Employee termination and other benefits	$	—	$	—	$	0.1	$	0.1	$	0.2
Transformation and other costs		9.4		0.1		—		—		9.5

Total restructuring, exit and impairment charges	$	9.4	$	0.1	$	0.1	$	0.1	$	9.7

The following table summarizes the 2011 charges recorded for restructuring, exit and impairment charges related to actions initiated in 2011 and the related status as of October 1, 2011. The accrued amounts remaining as of October 1, 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)	Costs Recognized in 2011		Non-cash Charges			Net Cash Payments			Accrued Costs as of October 1, 2011

Employee termination and other benefits	$	0.2	$	—		$	(0.1	)	$	0.1
Transformation and other costs:
Consolidation of manufacturing footprint		9.5		(7.3	)		(1.5	)		0.7

Total restructuring, exit and impairment charges	$	9.7	$	(7.3	)	$	(1.6	)	$	0.8

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Actions Initiated in 2010

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 nine months ended October 1, 2011 and October 2, 2010, related to actions initiated in 2010, by reportable segment, are summarized below:

	Three Months Ended					Nine Months Ended
(in millions)	October 1, 2011			October 2, 2010		October 1, 2011			October 2, 2010

Marine Engine	$	—		$	—	$	(0.2	)	$	—
Boat		(0.4	)		7.2		0.4			25.9
Bowling & Billiards		—			0.1		—			0.3

Total	$	(0.4	)	$	7.3	$	0.2		$	26.2

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

	Three Months Ended						Nine Months Ended
(in millions)	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010

Restructuring activities:
Employee termination and other benefits	$	—		$	0.1		$	(0.1	)	$	0.4
Current asset write-downs		—			1.1			—			1.1
Transformation and other costs:
Consolidation of manufacturing footprint		0.5			1.5			1.6			1.5
Exit activities:
Employee termination and other benefits		—			—			—			0.7
Current asset write-downs (adjustments)		—			(0.2	)		—			0.7
Transformation and other costs:
Consolidation of manufacturing footprint		0.2			6.0			0.8			6.0
Asset disposition actions:
Trade name impairments		—			—			—			1.1
Definite-lived asset impairments and (gains) on disposal		(1.1	)		(1.2	)		(2.1	)		14.7

Total restructuring, exit and impairment charges	$	(0.4	)	$	7.3		$	0.2		$	26.2

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The restructuring charges related to actions initiated in 2010, by reportable segment, for the nine months ended October 1, 2011, are summarized below:

(in millions)	Marine Engine			Boat			Total

Employee termination and other benefits	$	(0.2	)	$	0.1		$	(0.1	)
Transformation and other costs		—			2.4			2.4
Asset disposition actions		—			(2.1	)		(2.1	)

Total restructuring, exit and impairment charges	$	(0.2	)	$	0.4		$	0.2

The restructuring charges related to actions initiated in 2010, by reportable segment, for the nine months ended October 2, 2010, are summarized below:

(in millions)	Boat		Bowling & Billiards		Total

Employee termination and other benefits	$	0.8	$	0.3	$	1.1
Current asset write-downs		1.8		—		1.8
Transformation and other costs		7.5		—		7.5
Asset disposition actions		15.8		—		15.8

Total restructuring, exit and impairment charges	$	25.9	$	0.3	$	26.2

The following table summarizes the 2011 charges recorded for restructuring, exit and impairment charges related to actions initiated in 2010 and the related status as of October 1, 2011. The accrued amounts remaining as of October 1, 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 October 1, 2011

Employee termination and other benefits	$	0.8	$	(0.1	)	$	0.1	$	(0.5	)	$	0.3
Transformation and other costs:
Consolidation of manufacturing footprint		1.4		2.4			—		(3.8	)		—
Retention and relocation costs		0.5		—			—		(0.2	)		0.3
Asset disposition actions:
Definite-lived asset impairments (gains) on disposal		—		(2.1	)		2.1		—			—

Total restructuring, exit and impairment charges	$	2.7	$	0.2		$	2.2	$	(4.5	)	$	0.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

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. The Company also continued to consolidate the Boat segment’s manufacturing footprint in 2009 and 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. During the second quarter of 2011, the Company recognized gains on the sale of certain Marine Engine properties. These actions in the Company’s marine businesses are expected to provide long-term cost savings by reducing its fixed-cost structure.

The restructuring, exit and impairment charges recorded in the three months and nine months ended October 1, 2011 and October 2, 2010, related to actions initiated in 2009, by reportable segment, are summarized below:

	Three Months Ended					Nine Months Ended
(in millions)	October 1, 2011			October 2, 2010		October 1, 2011			October 2, 2010

Marine Engine	$	4.2		$	1.7	$	8.4		$	6.2
Boat		(0.3	)		1.6		(0.7	)		5.5
Fitness		—			—		—			0.1
Bowling & Billiards		—			0.1		—			0.3
Corporate		—			0.1		(0.1	)		0.5

Total	$	3.9		$	3.5	$	7.6		$	12.6

The following is a summary of the charges by category associated with the 2009 restructuring activities recognized during the three months and nine months ended October 1, 2011 and October 2, 2010:

	Three Months Ended						Nine Months Ended
(in millions)	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010

Restructuring activities:
Employee termination and other benefits	$	1.2		$	1.4		$	2.8		$	6.8
Transformation and other costs:
Consolidation of manufacturing footprint		3.0			2.0			9.6			5.7
Retention and relocation costs		—			0.2			—			0.2
Exit activities:
Transformation and other adjustments:
Consolidation of manufacturing footprint		—			(0.1	)		—			(0.1	)
Asset disposition actions:
Definite-lived asset impairments and (gains) on disposal		(0.3	)		—			(4.8	)		—

Total restructuring, exit and impairment charges	$	3.9		$	3.5		$	7.6		$	12.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The restructuring charges related to actions initiated in 2009, by reportable segment, for the nine months ended October 1, 2011, are summarized below:

(in millions)	Marine Engine			Boat			Corporate			Total

Employee termination and other benefits	$	2.8		$	—		$	—		$	2.8
Transformation and other costs		9.7			—			(0.1	)		9.6
Asset disposition actions		(4.1	)		(0.7	)		—			(4.8	)

Total restructuring, exit and impairment charges	$	8.4		$	(0.7	)	$	(0.1	)	$	7.6

The restructuring charges related to actions initiated in 2009, by reportable segment, for the nine months ended October 2, 2010, are summarized below:

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

Employee termination and other benefits	$	2.5	$	3.6	$	0.1	$	0.3	$	0.3	$	6.8
Transformation and other costs		3.7		1.9		—		—		0.2		5.8

Total restructuring, exit and impairment charges	$	6.2	$	5.5	$	0.1	$	0.3	$	0.5	$	12.6

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 October 1, 2011. The accrued amounts remaining as of October 1, 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 October 1, 2011

Employee termination and other benefits	$	6.8	$	2.8		$	—	$	(2.2	)	$	7.4
Transformation and other costs:
Consolidation of manufacturing footprint		1.5		9.6			—		(9.9	)		1.2
Asset disposition actions:
Definite-lived asset impairments and (gains) on disposal		—		(4.8	)		4.8		—			—

Total restructuring, exit and impairment charges	$	8.3	$	7.6		$	4.8	$	(12.1	)	$	8.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 nine months ended October 1, 2011 and October 2, 2010, related to actions initiated in 2008, by reportable segment, are summarized below:

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010

Boat	$	—	$	1.4	$	0.5	$	4.6
Bowling & Billiards		0.2		—		0.2		—
Corporate		—		—		—		0.4

Total	$	0.2	$	1.4	$	0.7	$	5.0

The following is a summary of the charges by category associated with the 2008 restructuring activities recognized during the three months and nine months ended October 1, 2011 and October 2, 2010:

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2011		October 2, 2010		October 1, 2011		October 2, 2010

Restructuring activities:
Employee termination and other benefits	$	—	$	—	$	—	$	0.1
Current asset write-downs		—		0.6		—		0.6
Transformation and other costs:
Consolidation of manufacturing footprint		—		0.6		—		3.1
Exit activities:
Transformation and other costs:
Consolidation of manufacturing footprint		0.2		—		0.2		—
Asset disposition actions:
Definite-lived asset impairments		—		0.2		0.5		1.2

Total restructuring, exit and impairment charges	$	0.2	$	1.4	$	0.7	$	5.0

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The restructuring charges related to actions initiated in 2008, by reportable segment for the nine months ended October 1, 2011, are summarized below:

(in millions)	Boat		Bowling & Billiards		Total

Transformation and other costs	$	—	$	0.2	$	0.2
Asset disposition actions		0.5		—		0.5

Total restructuring, exit and impairment charges	$	0.5	$	0.2	$	0.7

The restructuring charges related to actions initiated in 2008, by reportable segment for the nine months ended October 2, 2010, are summarized below:

(in millions)	Boat		Corporate		Total

Employee termination and other benefits	$	0.1	$	—	$	0.1
Current asset write-downs		0.6		—		0.6
Transformation and other costs		3.1		—		3.1
Asset disposition actions		0.8		0.4		1.2

Total restructuring, exit and impairment charges	$	4.6	$	0.4	$	5.0

The following table summarizes the related status of actions initiated in 2008 as of October 1, 2011. The accrued amounts remaining as of October 1, 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 October 1, 2011

Employee termination and other benefits	$	0.7	$	—	$	—		$	(0.4	)	$	0.3
Current asset write-downs		—
Transformation and other costs:
Consolidation of manufacturing footprint		1.5		0.2		—			(0.4	)		1.3
Asset disposition actions:
Definite-lived asset impairments		—		0.5		(0.5	)		—			—

Total restructuring, exit and impairment charges	$	2.2	$	0.7	$	(0.5	)	$	(0.8	)	$	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 nine months ended October 1, 2011 and October 2, 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. The Company also enters 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 October 1, 2011, the term of derivative instruments hedging forecasted transactions ranged from one to 25 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 October 1, 2011 and December 31, 2010 had notional contract values of $113.0 million and $138.3 million, respectively. Option contracts outstanding at October 1, 2011 and December 31, 2010 had notional contract values of $126.5 million and $181.1 million, respectively. The forward and options contracts outstanding at October 1, 2011 mature during 2011 and 2012 and mainly relate to the Euro, Canadian dollar, Mexican peso, Australian dollar, British pound, Japanese yen, Swedish krona, New Zealand dollar, Norwegian krone, and Hungarian forint. As of October 1, 2011, the Company estimates that during the next 12 months, it will reclassify approximately $3.5 million in net losses (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate. In the third quarter of 2011, the Company entered into forward starting interest rate swaps with a combined notional value of $50.0 million to hedge the interest rate risk associated with an anticipated debt issuance in 2013 to refinance the Company’s senior notes due in 2016.

As of October 1, 2011 and December 31, 2010, the Company had $0.7 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 notional value forward starting interest rate swaps terminated in July 2006, losses deferred on $150.0 million of notional value forward starting swaps, which were terminated in August 2008, and losses deferred on $50.0 million of notional value forward starting swaps, which were outstanding at October 1, 2011. For the three months and nine months ended October 1, 2011, the Company recognized $0.2 million and $0.7 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 October 1, 2011 and December 31, 2010 had notional values of $23.5 million and $14.0 million, respectively. The contracts outstanding mature through 2013. 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 October 1, 2011, the Company estimates that during the next 12 months, it will reclassify approximately $1.1 million in net losses (based on current prices) from Accumulated other comprehensive loss to Cost of sales.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

As of October 1, 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	$	5.3	Accrued expenses	$	1.0
Commodity contracts	Prepaid expenses and other		0.4	Accrued expenses		2.2
Interest rate contracts	Prepaid expenses and other		—	Accrued expenses		2.5

Total		$	5.7		$	5.7

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 October 1, 2011 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	$	1.2
Foreign exchange contracts	Other income (expense), net		0.2

Total		$	1.4

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	$	(2.5	)	Interest expense	$	0.2
Foreign exchange contracts		3.9		Cost of sales		(3.3	)
Commodity contracts		(2.5	)	Cost of sales		0.9

Total	$	(1.1	)		$	(2.2	)

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The effect of derivative instruments on the Consolidated Statement of Operations for the nine months ended October 1, 2011 was:

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

Foreign exchange contracts	Cost of sales	$	(1.1	)
Foreign exchange contracts	Other income (expense), net		0.1

Total		$	(1.0	)

Cash Flow Hedge Instruments	Amount of 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	$	(2.5	)	Interest expense	$	0.7
Foreign exchange contracts		(2.8	)	Cost of sales		(9.4	)
Commodity contracts		(1.3	)	Cost of sales		2.8

Total	$	(6.6	)		$	(5.9	)

The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended October 2, 2010 was:

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

Foreign exchange contracts	Cost of sales	$	(2.2	)
Foreign exchange contracts	Other income (expense), net		(0.2	)

Total		$	(2.4	)