Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2018
 or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     

Commission file number 001-01043
____________
 smallhiresa78.jpg
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.)

26125 N. Riverwoods Blvd., Suite 500, Mettawa, Illinois 60045-3420
 
(Address of principal executive offices, including zip code)

(847) 735-4700  
(Registrant’s telephone number, including area code)
 
 N/A
(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 o
 
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 o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of May 1, 2018 was 87,164,846.




BRUNSWICK CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2018
 
 
TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BRUNSWICK CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(unaudited)

 
Three Months Ended
(in millions, except per share data)
March 31,
2018
 
April 1,
2017
Net sales
$
1,155.4

 
$
1,082.1

Cost of sales
847.6

 
787.8

Selling, general and administrative expense
155.5

 
148.1

Research and development expense
35.7

 
34.5

Restructuring, exit, integration and impairment charges
1.2

 
8.3

Operating earnings
115.4

 
103.4

Equity earnings
1.0

 
2.3

Other income (expense), net
0.1

 
(1.3
)
Earnings before interest and income taxes
116.5

 
104.4

Interest expense
(6.9
)
 
(6.5
)
Interest income
0.7

 
0.5

Earnings before income taxes
110.3

 
98.4

Income tax provision
29.8

 
24.2

Net earnings from continuing operations
80.5

 
74.2

 
 
 
 
Loss from discontinued operations, net of tax
(7.6
)
 
(9.3
)
 
 
 
 
Net earnings
$
72.9

 
$
64.9

 
 
 
 
Earnings (loss) per common share:
 
 
 
Basic
 
 
 
Earnings from continuing operations
$
0.92

 
$
0.82

Loss from discontinued operations
(0.09
)
 
(0.10
)
Net earnings
$
0.83

 
$
0.72

 
 
 
 
Diluted
 
 
 
Earnings from continuing operations
$
0.91

 
$
0.81

Loss from discontinued operations
(0.09
)
 
(0.10
)
Net earnings
$
0.82

 
$
0.71

 
 
 
 
Weighted average shares used for computation of:
 
 
 
Basic earnings per common share
88.1

 
90.1

Diluted earnings per common share
88.8

 
91.1

 
 
 
 
Comprehensive income
$
83.9

 
$
72.1

 
 
 
 
Cash dividends declared per common share
$
0.19

 
$
0.165

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


3
Table of Contents

BRUNSWICK CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
(in millions)
March 31,
2018
 
December 31,
2017
 
April 1,
2017
Assets
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents, at cost, which approximates fair value
$
284.0

 
$
448.8

 
$
273.3

Restricted cash
9.4

 
9.4

 
11.2

Short-term investments in marketable securities
0.8

 
0.8

 
0.7

Total cash and short-term investments in marketable securities
294.2

 
459.0

 
285.2

Accounts and notes receivable, less allowances of $9.3, $9.1 and $10.5
617.5

 
480.2

 
516.7

Inventories
 
 
 
 
 
Finished goods
550.8

 
506.9

 
523.0

Work-in-process
98.6

 
96.8

 
80.5

Raw materials
180.3

 
161.9

 
143.9

Net inventories
829.7

 
765.6

 
747.4

Prepaid expenses and other
40.4

 
73.1

 
36.4

Current assets held for sale
80.9

 
68.8

 
85.3

Current assets
1,862.7

 
1,846.7

 
1,671.0

 
 
 
 
 
 
Property
 

 
 

 
 

Land
19.9

 
19.9

 
18.0

Buildings and improvements
347.5

 
340.6

 
321.9

Equipment
1,002.5

 
991.9

 
927.6

Total land, buildings and improvements and equipment
1,369.9

 
1,352.4

 
1,267.5

Accumulated depreciation
(827.3
)
 
(812.5
)
 
(787.6
)
Net land, buildings and improvements and equipment
542.6

 
539.9

 
479.9

Unamortized product tooling costs
130.5

 
119.6

 
103.4

Net property
673.1

 
659.5

 
583.3

 
 
 
 
 
 
Other assets
 

 
 

 
 

Goodwill
428.3

 
425.3

 
416.0

Other intangibles, net
143.3

 
144.4

 
158.6

Equity investments
29.5

 
25.0

 
26.6

Deferred income tax asset
171.0

 
165.6

 
297.6

Other long-term assets
47.0

 
45.1

 
46.1

Long-term assets held for sale
49.7

 
46.6

 
74.7

Other assets
868.8

 
852.0

 
1,019.6

 
 
 
 
 
 
Total assets
$
3,404.6

 
$
3,358.2

 
$
3,273.9

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

4
Table of Contents

BRUNSWICK CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)

(in millions)
March 31,
2018
 
December 31,
2017
 
April 1,
2017
Liabilities and shareholders’ equity
 
 
 
 
 
Current liabilities
 
 
 
 
 
Current maturities of long-term debt
$
5.1

 
$
5.6

 
$
4.7

Accounts payable
419.7

 
409.7

 
390.3

Accrued expenses
583.6

 
563.6

 
498.4

Current liabilities held for sale
68.0

 
56.2

 
63.1

Current liabilities
1,076.4

 
1,035.1

 
956.5

 
 
 
 
 
 
Long-term liabilities
 

 
 

 
 

Debt
428.9

 
431.8

 
435.4

Postretirement benefits
218.9

 
220.8

 
239.7

Other
196.8

 
184.9

 
164.5

Long-term liabilities held for sale
2.8

 
2.7

 
4.2

Long-term liabilities
847.4

 
840.2

 
843.8

 
 
 
 
 
 
Shareholders’ equity
 

 
 

 
 

Common stock; authorized: 200,000,000 shares, $0.75 par value; issued: 102,538,000 shares; outstanding: 87,277,000, 87,537,000 and 89,365,000 shares
76.9

 
76.9

 
76.9

Additional paid-in capital
357.4

 
374.4

 
364.1

Retained earnings
1,994.4

 
1,966.8

 
1,931.1

Treasury stock, at cost: 15,261,000, 15,001,000 and 13,173,000 shares
(599.1
)
 
(575.4
)
 
(471.1
)
Accumulated other comprehensive loss, net of tax
(348.8
)
 
(359.8
)
 
(427.4
)
Shareholders’ equity
1,480.8

 
1,482.9

 
1,473.6

 
 
 
 
 
 
Total liabilities and shareholders’ equity
$
3,404.6

 
$
3,358.2

 
$
3,273.9

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

5
Table of Contents

BRUNSWICK CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
Three Months Ended
(in millions)
March 31,
2018
 
April 1,
2017
Cash flows from operating activities
 
 
 
Net earnings
$
72.9

 
$
64.9

Less: loss from discontinued operations, net of tax
(7.6
)
 
(9.3
)
Net earnings from continuing operations
80.5

 
74.2

Depreciation and amortization
27.8

 
23.6

Stock compensation expense
1.9

 
4.0

Pension expense, net of (funding)
0.9

 
(33.6
)
Deferred income taxes
20.5

 
13.3

Changes in certain current assets and current liabilities
(210.2
)
 
(146.6
)
Long-term extended warranty contracts and other deferred revenue
2.6

 
0.7

Income taxes
34.5

 
2.6

Other, net
(1.6
)
 
(4.5
)
Net cash used for operating activities of continuing operations
(43.1
)
 
(66.3
)
Net cash used for operating activities of discontinued operations
(24.0
)
 
(20.3
)
Net cash used for operating activities
(67.1
)
 
(86.6
)
 
 
 
 
Cash flows from investing activities
 

 
 

Capital expenditures
(34.5
)
 
(56.6
)
Sales or maturities of marketable securities
—

 
35.0

Investments
(4.8
)
 
(3.6
)
Proceeds from the sale of property, plant and equipment
0.1

 
7.6

Other, net
(0.2
)
 
(0.5
)
Net cash used for investing activities of continuing operations
(39.4
)
 
(18.1
)
Net cash used for investing activities of discontinued operations
(2.6
)
 
(4.2
)
Net cash used for investing activities
(42.0
)
 
(22.3
)
 
 
 
 
Cash flows from financing activities
 

 
 

Payments of long-term debt including current maturities
(0.1
)
 
(0.1
)
Common stock repurchases
(35.0
)
 
(20.0
)
Cash dividends paid
(16.6
)
 
(14.8
)
Proceeds from share-based compensation activity
1.0

 
3.2

Tax withholding associated with shares issued for share-based compensation
(9.3
)
 
(11.4
)
Net cash used for financing activities of continuing operations
(60.0
)
 
(43.1
)
Net cash used for financing activities of discontinued operations
—

 
(0.1
)
Net cash used for financing activities
(60.0
)
 
(43.2
)
 
 
 
 
Effect of exchange rate changes
4.3

 
3.0

Net decrease in Cash and cash equivalents and Restricted cash
(164.8
)
 
(149.1
)
Cash and cash equivalents and Restricted cash at beginning of period
458.2

 
433.6

 
 
 
 
Cash and cash equivalents and Restricted cash at end of period
293.4

 
284.5

     Less: Restricted cash
9.4

 
11.2

Cash and cash equivalents at end of period
$
284.0

 
$
273.3

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

 
 
 

6
Table of Contents

BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Note 1 – Significant Accounting Policies

Interim Financial Statements. The unaudited interim condensed consolidated financial statements of Brunswick Corporation (Brunswick or the Company) have been prepared pursuant to Securities and Exchange Commission (SEC) rules and regulations. 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 2017 Annual Report on Form 10-K for the year ended December 31, 2017 (the 2017 Form 10-K). These results include, in management's opinion, all normal and recurring adjustments necessary to present fairly Brunswick's financial position, results of operations and cash flows. 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 approximately thirteen weeks. The first quarter ends on the Saturday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first quarter of fiscal year 2018 ended on March 31, 2018 and the first quarter of fiscal year 2017 ended on April 1, 2017.

On March 1, 2018, the Company announced that its Board of Directors authorized proceeding with a spin-off of its Fitness business. Following the proposed transaction, the Fitness business will be an independent, standalone, publicly-traded company, which will be formally named at a later date. The proposed transaction is anticipated to be tax-free to Brunswick shareholders and is expected to be completed in the first quarter of 2019.

Recently Adopted Accounting Standards

Presentation of Benefit Costs: In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amended the Accounting Standards Codification (ASC) related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The amendment requires entities to present the current-service-cost component with other current compensation costs in the income statement within income from operations and present the other components outside of income from operations. The amendment is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this amendment retrospectively during the first quarter of 2018. As a result, $1.1 million and $1.4 million were reclassified from Cost of sales and Selling, general and administrative expense, respectively, to Other income (expense), net for the three months ended April 1, 2017 to conform to current period presentation. The Company elected to apply the practical expedient that permits the use of previously disclosed service cost and other costs from the prior year postretirement benefits footnote in the comparative periods as appropriate estimates when retrospectively changing the presentation of these costs.

Statement of Cash Flows Classifications: In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amended the ASC to add and/or clarify guidance on the classification of certain transactions in the statement of cash flows. The amendment is to be applied retrospectively and is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company adopted this amendment during the first quarter of 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Revenue Recognition: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, (new revenue standard), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. On January 1, 2018, the Company adopted the new revenue standard and all related amendments for all contracts using the modified retrospective method. The Company did not elect to separately evaluate contract modifications occurring before the adoption date. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to

7
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

the January 1, 2018 balance of retained earnings. Prior period information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The Company recognizes revenue in accordance with the terms of sale, primarily upon shipment to customers. Under the new revenue standard, estimated costs associated with retail sales promotions anticipated to be offered to customers within the Company's Boat segment are recognized at the time of sale, whereas under previous guidance, these promotions were recorded at the later of when the program was communicated to the customer or the time of sale. In addition, certain Fitness segment customer contracts offer incentives in the form of rebates settled with free product. These rebates are deemed to be separate performance obligations under the new revenue standard, and the revenue associated with the product rebates is deferred and recognized upon customer redemption. Under previous guidance, these product rebates were recorded in Cost of sales at the time of product sale. These impacts result in a change in the timing of when certain promotions and rebates are recorded, however, the total amount of cumulative revenue recognized over the life of the contract remains unchanged.
The cumulative effect of the changes made to the Company's Condensed Consolidated Balance Sheets as of January 1, 2018 for the adoption of the new revenue standard was as follows:
(in millions)
Balance as of December 31, 2017
 
Adjustments Due to ASC 606
 
Balance as of January 1, 2018
Assets
 
 
 
 
 
Accounts and notes receivable
$
480.2

 
$
1.2

 
$
481.4

Deferred income tax asset
165.6

 
9.3

 
174.9

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accrued expenses
563.6

 
25.4

 
589.0

Current liabilities held for sale
56.2

 
13.7

 
69.9

 
 
 
 
 
 
Shareholders' equity
 
 
 
 
 
Retained earnings
1,966.8

 
(28.6
)
 
1,938.2

The impact to the Company's Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Balance Sheets as of and for the three months ended March 31, 2018 as a result of applying the new revenue standard was as follows:
(in millions)
As Reported
 
Effect of Change
 
Balances without adoption of ASC 606
Net sales
$
1,155.4

 
$
(1.8
)
 
$
1,153.6

Cost of sales
847.6

 
0.9

 
848.5

 
 
 
 
 
 
Earnings before income taxes
110.3

 
(2.7
)
 
107.6

Income tax provision
29.8

 
(0.6
)
 
29.2

Net earnings from continuing operations
80.5

 
(2.1
)
 
78.4

 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
   Loss from discontinued operations, net of tax
(7.6
)
 
(2.3
)
 
(9.9
)
 
 
 
 
 
 
   Net earnings
$
72.9

 
$
(4.4
)
 
$
68.5


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Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

 
As Reported
 
Effect of Change
 
Balances without adoption of ASC 606
Assets
 
 
 
 
 
Accounts and notes receivable
$
617.5

 
$
(1.2
)
 
$
616.3

Deferred income tax asset
171.0

 
(8.0
)
 
163.0

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accrued expenses
583.6

 
(22.8
)
 
560.8

Current liabilities held for sale
68.0

 
(10.8
)
 
57.2

 
 
 
 
 
 
Shareholders' equity
 
 
 
 
 
Retained earnings
1,994.4

 
24.2

 
2,018.6

Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied; this occurs when control of promised goods (engines, engine parts and accessories, boats, and fitness equipment) is transferred to the customer. The Company recognizes revenue related to the sale of extended warranty contracts that extend the coverage period beyond the standard warranty period over the life of the extended warranty period.
Revenue is measured as the amount of consideration expected to be entitled in exchange for transferring goods or providing services. The Company has excluded sales, value add, and other taxes collected concurrent with revenue-producing activities from the determination of the transaction price for all contracts. The Company has elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity. For all contracts with customers, the Company has not adjusted the promised amount of consideration for the effects of a significant financing component as the period between the transfer of the promised goods and the customer's payment is expected to be one year or less.
Recently Issued Accounting Standards

Tax Effects in Other Comprehensive Income: In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which permits companies to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 on items within AOCI to retained earnings. The ASU also requires certain new disclosures. The amendment is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASC amendment, but does not expect it will have a material impact on its consolidated financial statements.

Hedge Accounting: In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, to simplify the application of hedge accounting and to better align an entity's risk management activities with the financial reporting of hedging relationships. The amendment is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASC amendment, but does not expect it will have a material impact on its consolidated financial statements.

Recognition of Leases: In February 2016, the FASB issued ASU 2016-02, Leases, which amended the ASC to require lessees to recognize assets and liabilities on the balance sheet for all leases with terms greater than twelve months. Lessees will recognize expenses similar to current lease accounting. The amendment is to be applied using a modified retrospective method with certain practical expedients, and is effective for fiscal years and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that the adoption of the new standard will have on its condensed consolidated financial statements.


9
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

Note 2 – Revenue Recognition
    
The following table presents the Company's revenue for the three months ended March 31, 2018 into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:

Marine Engine
 
Boat
 
Fitness
 
Total
Geographic Markets
 
 
 
 
 
 
 
United States
$
474.6

 
$
217.4

 
$
121.6

 
$
813.6

Europe
98.3

 
34.6

 
53.4

 
186.3

Asia-Pacific
51.2

 
4.8

 
42.1

 
98.1

Canada
28.9

 
44.3

 
7.1

 
80.3

Rest-of-World
34.1

 
2.9

 
20.2

 
57.2

Marine eliminations
(80.1
)
 
—

 
—

 
(80.1
)
Total
$
607.0

 
$
304.0

 
$
244.4

 
$
1,155.4

 
 
 
 
 
 
 
 
Major Product Lines
 
 
 
 
 
 
 
Propulsion
$
378.9

 
$
—

 
$
—

 
$
378.9

Parts & Accessories
308.2

 
—

 
—

 
308.2

Aluminum Freshwater Boats
—

 
162.5

 
—

 
162.5

Fiberglass Freshwater Boats
—

 
55.8

 
—

 
55.8

Fiberglass Saltwater Boats
—

 
85.7

 
—

 
85.7

Commercial Cardio Fitness Equipment
—

 
—

 
132.3

 
132.3

Commercial Strength Fitness Equipment
—

 
—

 
90.9

 
90.9

Consumer Fitness Equipment
—

 
—

 
21.2

 
21.2

Marine eliminations
(80.1
)
 
—

 
—

 
(80.1
)
Total
$
607.0

 
$
304.0

 
$
244.4

 
$
1,155.4


For product sales, the Company transfers control and recognizes revenue at the time the product ships from a manufacturing or distribution facility ("free on board shipping point"), or at the time the product arrives at the customer's facility ("free on board destination"). When the shipping terms are "free on board shipping point", the customer obtains control and is able to direct the use of, and obtain substantially all of the benefits from, the products at the time the products are shipped. For shipments provided under “free on board destination”, control transfers to the customer upon delivery. Payment terms vary but are generally due within 30 days of transferring control. For the Company's Boat and Marine Engine segments, most product sales are wholesale financed by customers through the Company's joint venture, Brunswick Acceptance Company, LLC (BAC), or other lending institutions, and payment is typically due in the month of shipment. For further information on the BAC joint venture, refer to Note 10 – Financial Services, in the Notes to Consolidated Financial Statements in the 2017 Form 10-K. In addition, periodically the Company may require the customer to provide up front cash deposits in advance of performance.
The Company also sells separately priced extended warranty contracts that extend the coverage period beyond the standard warranty period included with the product sale. When determining an appropriate allocation of the transaction price to the extended warranty performance obligation, the Company uses an observable price to determine the stand-alone selling price. Extended warranties typically range from an additional 1 year to 3 years. The Company receives payment at the inception of the contract and recognizes revenue over the extended warranty coverage period. This time-elapsed method is used to measure progress because the Company, on average, satisfies its performance obligation evenly over the warranty period.
For certain customers within the Fitness segment, the Company provides rebate incentives settled in free product. These rebates provide the customer with a material right which would not have been received without entering into the contract and, therefore, represent a separate performance obligation to which revenue is allocated based on the products' stand-alone selling price. This revenue is deferred and recognized at a point in time upon rebate redemption, with a commensurate charge to Cost of

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Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

sales for related product costs. The Company also provides product installation services to certain customers for which the Company recognizes revenue at the time of installation, using an observable price to determine the stand-alone selling price.     
As of January 1, 2018, $170.8 million of contract liabilities associated with extended warranties, customer deposits, and product rebates were reported in Accrued expenses and Other Long-term liabilities and $30.1 million of this amount was recognized as revenue during the three months ended March 31, 2018, which primarily related to customer deposits. As of March 31, 2018, total contract liabilities were $176.6 million. The total amount of the transaction price allocated to unsatisfied performance obligations as of March 31, 2018 is $153.2 million for contracts greater than one year. The Company expects to recognize approximately $42.7 million of this amount in 2018, $52.4 million in 2019, and $58.1 million thereafter. Contract assets as of January 1, 2018 and March 31, 2018 were not material. In addition, costs to obtain and fulfill contracts during the period were not material.
The amount of consideration received can vary, primarily because of customer incentive or rebate arrangements. In addition, the Company provides customers the right to return eligible products under certain circumstances. The Company estimates variable consideration based on the expected value of total consideration to which customers are likely to be entitled based on historical experience and projected market expectations. Included in the estimate, is an assessment as to whether any variable consideration is constrained. Revenue estimates are adjusted at the earlier of a change in the expected value of consideration or when the consideration becomes fixed.


11
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

Note 3 – Discontinued Operations

On December 5, 2017, the Board of Directors authorized the Company to exit its Sea Ray businesses, including the Meridian brand, as a result of, among other things, a change in strategic direction and a review of the expected future cash flows, market conditions and business trends. The Company considered both quantitative and qualitative factors in reaching its decision to report these businesses as discontinued operations, with key factors including: the exit is part of the Company's strategic shift to focus on outboard boat categories; represents a material portfolio shift and reduction in the boat segment revenues; and represents the exit from substantially all of its boat brands participating in the inboard/sterndrive boat category, particularly large and premium offerings. The Company has determined that exiting the Sea Ray businesses represents a material strategic shift, with commensurate impacts on Brunswick’s operations and financial results. The Company commenced its process to sell the Sea Ray businesses in December 2017 and is targeting completion of the sales process in the first half of 2018.

As a result, the Company reclassified the assets and liabilities of these businesses as held for sale on the Condensed Consolidated Balance Sheets for all periods presented. Additionally, these businesses, which were previously reported in the Company's Boat segment, are being reported as discontinued operations in the Condensed Consolidated Statements of Comprehensive Income for all periods presented. General allocations of corporate overhead and Boat segment shared services costs are not included in these results.

The following table discloses the results of operations of the businesses reported as discontinued operations for the three months ended March 31, 2018 and April 1, 2017, respectively:
 
Three Months Ended
(in millions)
March 31,
2018
 
April 1,
2017
Net sales
$
72.6

 
$
97.8

 
 
 
 
Loss from discontinued operations before income taxes
$
(10.2
)
 
$
(11.5
)
Income tax benefit
(2.6
)
 
(2.2
)
Loss from discontinued operations, net of tax (A)
$
(7.6
)
 
$
(9.3
)

(A) Loss from discontinued operations, net of tax includes restructuring, exit, integration and impairment charges, net of tax of $6.2 million for the three months ended April 1, 2017.

























12
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

The following table reflects the summary of assets and liabilities held for sale as of March 31, 2018, December 31, 2017 and April 1, 2017 for the Sea Ray businesses included in discontinued operations:

(in millions)
March 31, 2018
 
December 31,
2017
 
April 1,
2017
Accounts and notes receivable, net
$
6.1

 
$
5.0

 
$
12.8

Net inventory
73.4

 
62.1

 
70.2

Prepaid expenses and other
1.4

 
1.7

 
2.3

Current assets held for sale
80.9

 
68.8

 
85.3

 
 
 
 
 
 
Net property (A)
36.8

 
33.8

 
63.4

Other intangibles, net
4.7

 
4.7

 
4.7

Other long-term assets (B)
(4.6
)
 
(4.6
)
 
0.3

Long-term assets held for sale (C)
36.9

 
33.9

 
68.4

Assets held for sale
$
117.8

 
$
102.7

 
$
153.7

 
 
 
 
 
 
Accounts payable
$
11.2

 
$
10.8

 
$
16.5

Accrued expenses
56.8

 
45.4

 
46.6

Current liabilities held for sale
68.0

 
56.2

 
63.1

 
 
 
 
 
 
Other liabilities
2.8

 
2.7

 
4.2

Long-term liabilities held for sale
2.8

 
2.7

 
4.2

Liabilities held for sale
$
70.8

 
$
58.9

 
$
67.3


(A) Net property held for sale at March 31, 2018 and December 31, 2017 reflects an impairment of $31.0 million recorded in Q4 2017.
(B) Includes a $5.0 million valuation allowance on the disposal group at March 31, 2018 and December 31, 2017.
(C) As of March 31, 2018, December 31, 2017 and April 1, 2017, the Company had $12.8 million, $12.7 million and $6.3 million, respectively, of net long-term assets classified as held for sale that were not related to businesses reported as discontinued operations.

Additionally, as of March 31, 2018 the Company recorded a $23.0 million indemnification receivable and an offsetting accrued settlement loss relating to the unfavorable settlement of an ongoing legal matter associated with Hatteras Yachts, which the Company sold in 2013. The offsetting balance sheet amounts are recorded within Accounts and notes receivable and Accrued expenses on the Condensed Consolidated Balance Sheets. There was no impact to the Company's Condensed Consolidated Statements of Comprehensive Income.

Note 4 – Restructuring, Exit, Integration and Impairment Activities

In the first quarter of 2018, the Company implemented further headcount reductions in the Fitness segment aimed at improving general operating efficiencies.

In the first quarter of 2018 and 2017, the Company executed certain integration activities within the Fitness segment related to its acquisition of Cybex International, Inc.

In the first quarter of 2017, the Company announced the closure of its boat manufacturing facility in Joinville, Santa Catarina, Brazil, as a result of continued market weakness due partially to unfavorable foreign currency impacts in the region. As a result, the Company recorded restructuring, exit, integration and impairment charges, including the write-down of inventory. The facility manufactured certain Bayliner and Sea Ray boat models for the Latin American market. The long-lived assets at this facility were previously fully impaired.

In the first quarter of 2017, the Company recorded restructuring, exit, integration and impairment charges within Corporate related to the transition of certain corporate officers.


13
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

The Company recorded restructuring, exit, integration and impairment charges in the Condensed Consolidated Statements of Comprehensive Income as a result of the activities described above. The following table is a summary of the expense associated with the restructuring, exit, integration and impairment activities for the three months ended March 31, 2018 and April 1, 2017, as discussed above:
 
March 31, 2018
 
April 1, 2017
(in millions)
Fitness
 
Total
 
Corporate
 
Fitness
 
Boat
 
Total
Restructuring and exit activities:
 
 
 
 
 
 
 
 
 
 
 
Employee termination and other benefits
$
0.8

 
$
0.8

 
$
2.4

 
$
—

 
$
1.1

 
$
3.5

Current asset write-downs (gains on disposal)
(0.4
)
 
(0.4
)
 
—

 
—

 
2.2

 
2.2

Professional fees
—

 
—

 
—

 
—

 
0.2

 
0.2

Integration activities:
 
 
 
 
 
 
 
 
 
 
 
Employee termination and other benefits
0.0

 
0.0

 
—

 
1.1

 
—

 
1.1

Professional fees
0.7

 
0.7

 
—

 
1.2

 
—

 
1.2

Other
0.1

 
0.1

 
—

 
0.1

 
—

 
0.1

Total restructuring, exit, integration and impairment charges
$
1.2

 
$
1.2

 
$
2.4

 
$
2.4

 
$
3.5

 
$
8.3

 
 
 
 
 
 
 
 
 
 
 
 
Total cash payments for restructuring, exit, integration and impairment charges (A)
$
2.0

 
$
2.3

 
$
0.6

 
$
3.5

 
$
0.6

 
$
4.7

Accrued charges at end of the period (B)
$
4.4

 
$
4.6

 
$
1.1

 
$
2.8

 
$
1.2

 
$
5.1


(A) Total cash payments for the three months ended March 31, 2018 also include $0.3 million of payments for Corporate restructuring, exit, integration and impairment charges. Cash payments may include payments related to prior period charges.
(B) Restructuring, exit, integration and impairment charges accrued as of March 31, 2018 also include $0.2 million of Corporate charges. All of the accrued charges are expected to be paid during 2018.

Note 5 – Financial Instruments

The Company operates globally with manufacturing and sales facilities 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. See Note 14 in the Notes to Consolidated Financial Statements in the 2017 Form 10-K for further details regarding the Company's financial instruments and hedging policies.

Foreign Currency Derivatives. Forward exchange contracts outstanding at March 31, 2018, December 31, 2017 and April 1, 2017 had notional contract values of $436.0 million, $312.6 million and $263.1 million, respectively. Option contracts outstanding at March 31, 2018, December 31, 2017 and April 1, 2017 had notional contract values of $18.0 million, $18.0 million and $0.5 million, respectively. The forward and option contracts outstanding at March 31, 2018 mature through 2019 and mainly relate to the Euro, Japanese yen, Canadian dollar and Australian dollar. As of March 31, 2018, the Company estimates that during the next 12 months, it will reclassify approximately $5.1 million of net losses (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate Derivatives. The Company enters into fixed-to-floating interest rate swaps to convert a portion of the Company's long-term debt from fixed to floating rate debt. As of March 31, 2018, December 31, 2017 and April 1, 2017, the outstanding swaps had notional contract values of $200.0 million, of which $150.0 million corresponds to the Company's 4.625 percent Senior notes due 2021 and $50.0 million corresponds to the Company's 7.375 percent Debentures due 2023. These instruments have been designated as fair value hedges, with the fair value recorded in long-term debt.

As of March 31, 2018, December 31, 2017 and April 1, 2017, the Company had $3.2 million, $3.4 million and $4.2 million, respectively, of net deferred losses associated with all settled forward-starting interest rate swaps, which were designated as cash flow hedges with gains and losses included in Accumulated other comprehensive loss. As of March 31, 2018, the Company estimates that during the next 12 months, it will reclassify approximately $0.8 million of net losses resulting from settled forward-starting interest rate swaps from Accumulated other comprehensive loss to Interest expense.


14
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

As of March 31, 2018, December 31, 2017 and April 1, 2017, 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
 
 
 
 
Mar 31, 2018
 
Dec 31, 2017
 
Apr 1, 2017
 
 
 
Mar 31, 2018
 
Dec 31, 2017
 
Apr 1, 2017
Derivatives Designated as Cash Flow Hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other
 
$
2.8

 
$
2.5

 
$
3.3

 
Accrued expenses
 
$
5.8

 
$
5.5

 
$
1.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives Designated as Fair Value Hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
Prepaid expenses and other
 
$
2.9

 
$
2.1

 
$
2.9

 
Accrued expenses
 
$
2.6

 
$
1.8

 
$
2.3

Interest rate contracts
 
Other long-term assets
 
—

 
0.7

 
1.4

 
Other long-term liabilities
 
2.8

 
0.3

 
0.0

Total
 
 
 
$
2.9

 
$
2.8

 
$
4.3

 
 
 
$
5.4

 
$
2.1

 
$
2.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Hedging Activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other
 
$
0.4

 
$
0.7

 
$
0.2

 
Accrued expenses
 
$
0.5

 
$
0.1

 
$
0.7


The effect of derivative instruments on the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and April 1, 2017 was: 
(in millions)
 
 
 
 
 
 
 
 
 
 
Derivatives Designated as Cash Flow Hedging 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)
 
 
Mar 31, 2018
 
Apr 1, 2017
 
 
 
Mar 31, 2018
 
Apr 1, 2017
Interest rate contracts
 
$
—

 
$
—

 
Interest expense
 
$
(0.3
)
 
$
(0.3
)
Foreign exchange contracts
 
(3.6
)
 
(2.5
)
 
Cost of sales
 
(2.6
)
 
1.0

Total
 
$
(3.6
)
 
$
(2.5
)
 
 
 
$
(2.9
)
 
$
0.7


Derivatives Designated as Fair Value Hedging Instruments
 
Location of Gain on Derivatives
Recognized in Earnings
 
Amount of Gain on Derivatives Recognized in Earnings
 
 
 
 
Mar 31, 2018
 
Apr 1, 2017
Interest rate contracts
 
Interest expense
 
$
0.2

 
$
0.6


Other Hedging Activity
 
Location of Gain (Loss) on Derivatives
Recognized in Earnings
 
Amount of Gain (Loss) on Derivatives Recognized in Earnings
 
 
 
 
Mar 31, 2018
 
Apr 1, 2017
Foreign exchange contracts
 
Cost of sales
 
$
(3.7
)
 
$
(2.8
)
Foreign exchange contracts
 
Other income (expense), net
 
(1.1
)
 
(0.7
)
Total
 
 
 
$
(4.8
)
 
$
(3.5
)
    
Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents and accounts and notes receivable approximate their fair values because of the short maturity of these instruments. At March 31, 2018, December 31, 2017 and April 1, 2017, the fair value of the Company’s long-term debt was

15
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

approximately $497.6 million, $492.1 million and $494.2 million, respectively, and was determined using Level 1 and Level 2 inputs described in Note 7 to the Notes to Consolidated Financial Statements in the 2017 Form 10-K. The carrying value of long-term debt, including current maturities, was $438.8 million, $439.1 million and $441.3 million as of March 31, 2018, December 31, 2017 and April 1, 2017, respectively.


16
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

Note 6 – Fair Value Measurements

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2018:
(in millions)
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Short-term investments in marketable securities
$
0.8

 
$
—

 
$
0.8

Restricted cash
9.4

 
—

 
9.4

Derivatives
—

 
6.1

 
6.1

Total assets
$
10.2

 
$
6.1

 
$
16.3

 
 
 
 
 
 
Liabilities:
 

 
 

 
 

Derivatives
$
—

 
$
11.7

 
$
11.7

Deferred compensation
3.6

 
27.8

 
31.4

Total liabilities at fair value
$
3.6

 
$
39.5

 
$
43.1

Liabilities measured at net asset value
 
 
 
 
8.8

Total liabilities
 
 
 
 
$
51.9


The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017:
(in millions)
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Cash equivalents
$
34.4

 
$
—

 
$
34.4

Short-term investments in marketable securities
0.8

 
—

 
0.8

Restricted cash
9.4

 
—

 
9.4

Derivatives
—

 
6.0

 
6.0

Total assets
$
44.6

 
$
6.0

 
$
50.6

 
 
 
 
 
 
Liabilities:
 

 
 

 
 

Derivatives
$
—

 
$
7.7

 
$
7.7

Deferred compensation
4.0

 
28.6

 
32.6

Total liabilities at fair value
$
4.0

 
$
36.3

 
$
40.3

Liabilities measured at net asset value
 
 
 
 
10.5

Total liabilities
 
 
 
 
$
50.8



17
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of April 1, 2017:
(in millions)
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Cash equivalents
$
3.7

 
$
—

 
$
3.7

Short-term investments in marketable securities
0.7

 
—

 
0.7

Restricted cash
11.2

 
—

 
11.2

Derivatives
—

 
7.8

 
7.8

Total assets
$
15.6

 
$
7.8

 
$
23.4

 
 
 
 
 
 
Liabilities:
 

 
 

 
 

Derivatives
$
—

 
$
4.8

 
$
4.8

Deferred compensation
4.3

 
27.2

 
31.5

Total liabilities at fair value
$
4.3

 
$
32.0

 
$
36.3

Liabilities measured at net asset value
 
 
 
 
10.4

Total liabilities
 
 
 
 
$
46.7


In addition to the items shown in the tables above, refer to Note 17 in the Notes to Consolidated Financial Statements in the 2017 Form 10-K for further discussion regarding the fair value measurements associated with the Company’s postretirement benefit plans.

Note 7 – Share-Based Compensation

Under the Brunswick Corporation 2014 Stock Incentive Plan, the Company may grant stock options, stock appreciation rights (SARs), non-vested stock awards and performance awards to executives, other employees and non-employee directors from treasury shares and from authorized, but unissued, shares of common stock initially available for grant, in addition to: (i) the forfeiture of past awards; (ii) shares not issued upon the net settlement of SARs; or (iii) shares delivered to or withheld by the Company to pay the withholding taxes related to awards. As of March 31, 2018, 5.1 million shares remained available for grant.

Share information includes all outstanding awards for both continuing and discontinued operations.

Non-Vested Stock Awards

The Company grants both stock-settled and cash-settled non-vested stock units and awards to key employees as determined by management and the Human Resources and Compensation Committee of the Board of Directors. The Company granted 0.3 million and 0.2 million of stock awards during the three months ended March 31, 2018 and April 1, 2017, respectively. The Company recognizes the cost of non-vested stock units and awards on a straight-line basis over the requisite vesting period. Additionally, cash-settled non-vested stock units and awards are recorded as a liability on the balance sheet and adjusted to fair value each reporting period through stock compensation expense. During the three months ended March 31, 2018 and April 1, 2017, the Company charged $2.4 million and $2.6 million, respectively, to compensation expense for non-vested stock awards.

As of March 31, 2018, there was $22.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. The Company expects this cost to be recognized over a weighted average period of 1.7 years.

Performance Awards

In February of 2018 and 2017, the Company granted 0.1 million performance shares to certain senior executives. Performance share awards are based on three performance measures: a cash flow return on investment (CFROI) measure, an operating margin (OM) measure and a total shareholder return (TSR) modifier. Performance shares are earned based on a three-year performance period commencing at the beginning of the calendar year of each grant. The performance shares earned are then subject to a TSR modifier based on stock returns measured against stock returns of a predefined comparator group over a three-year performance period. Additionally, in February 2018 and 2017, the Company granted 24,490 and 26,300 performance shares, respectively, to

18
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

certain officers and certain senior managers based on the respective measures and performance periods described above but excluding the TSR modifier. During the three months ended March 31, 2018 and April 1, 2017, the Company recognized a benefit of $0.5 million and a charge of $1.4 million, respectively, based on projections of probable attainment of the performance measures and the projected TSR modifier used to determine the performance awards.

The fair values of the senior executives' performance share award grants with a TSR modifier for grants in 2018 and 2017 were $61.59 and $64.82, respectively, which were estimated using the Monte Carlo valuation model, and incorporated the following assumptions:
 
2018
 
2017
Risk-free interest rate
2.4
%
 
1.5
%
Dividend yield
1.3
%
 
1.1
%
Volatility factor
38.9
%
 
38.3
%
Expected life of award
2.9 years

 
2.9 years


The fair value of the certain officers' and certain senior managers' performance awards granted based solely on the CFROI and OM performance factors was $57.19 and $58.77 in 2018 and 2017, respectively, which was equal to the stock price on the date of grant in 2018 and 2017, respectively, less the present value of expected dividend payments over the vesting period.

As of March 31, 2018 , the Company had $8.6 million of total unrecognized compensation cost related to performance awards. The Company expects this cost to be recognized over a weighted average period of 1.8 years.

Director Awards

The Company issues stock awards to non-employee directors in accordance with the terms and conditions determined by the Nominating and Corporate Governance Committee of the Board of Directors. A portion 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 portion paid in cash, in Brunswick common stock distributed at the time of the award, or in deferred Brunswick common stock with a 20 percent premium.


19
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

Note 8 – Earnings per Common Share

Basic earnings per common share is calculated by dividing Net earnings by the weighted average outstanding shares which includes certain vested, unissued equity awards during the period. Diluted earnings per common share is calculated similarly, except that the calculation includes the dilutive effect of stock-settled SARs, non-vested stock awards and performance awards.

Basic and diluted earnings per common share for the three months ended March 31, 2018 and April 1, 2017 were calculated as follows:
 
Three Months Ended
(in millions, except per share data)
March 31,
2018
 
April 1,
2017
Net earnings from continuing operations
$
80.5

 
$
74.2

Loss from discontinued operations, net of tax
(7.6
)
 
(9.3
)
Net earnings
$
72.9

 
$
64.9

 
 
 
 
Weighted average outstanding shares-basic
88.1

 
90.1

Dilutive effect of common stock equivalents
0.7

 
1.0

Weighted average outstanding shares-diluted
88.8

 
91.1

 
 
 
 
Basic earnings (loss) per common share:
 
 
 
Continuing operations
$
0.92

 
$
0.82

Discontinued operations
(0.09
)
 
(0.10
)
Net earnings
$
0.83

 
$
0.72

 
 
 
 
Diluted earnings (loss) per common share:
 
 
 
Continuing operations
$
0.91

 
$
0.81

Discontinued operations
(0.09
)
 
(0.10
)
Net earnings
$
0.82

 
$
0.71


Share awards that were not included in the computation of diluted earnings per share because their inclusion was anti-dilutive were immaterial for all periods presented.

Note 9 – Commitments and Contingencies
 
There were no material changes during the three months ended March 31, 2018 to the financial commitments or the legal and environmental contingencies that were discussed in Note 13 in the Notes to Consolidated Financial Statements in the 2017 Form 10-K. 


20
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    


Product Warranties and Extended Warranties

The following activity related to product warranty liabilities was recorded in Accrued expenses during the three months ended March 31, 2018 and April 1, 2017:
(in millions)
March 31,
2018
 
April 1,
2017
Balance at beginning of period
$
111.3

 
$
100.2

Payments made
(14.0
)
 
(12.6
)
Provisions/additions for contracts issued/sold
17.2

 
15.1

Aggregate changes for preexisting warranties
(4.0
)
 
(3.6
)
Foreign currency translation
0.4

 
0.7

Other
0.2

 
(1.3
)
Balance at end of period
$
111.1

 
$
98.5


The following activity related to deferred revenue for extended product warranty contracts was recorded in Accrued expenses and Other long-term liabilities during the three months ended March 31, 2018 and April 1, 2017:
(in millions)
March 31,
2018
 
April 1,
2017
Balance at beginning of period
$
112.1

 
$
90.6

Extended warranty contracts sold
12.9

 
9.9

Revenue recognized on existing extended warranty contracts
(10.1
)
 
(7.4
)
Foreign currency translation
0.5

 
0.2

Balance at end of period
$
115.4

 
$
93.3


Note 10 – Goodwill and Other Intangibles

Changes in the Company's goodwill during the three months ended March 31, 2018, by segment, are summarized below:
(in millions)
December 31,
2017
 
Acquisitions
 
Impairments
 
Adjustments
 
March 31,
2018
Marine Engine
$
31.7

 
$
—

 
$
—

 
$
1.2

 
$
32.9

Boat
2.2

 
—

 
—

 
—

 
2.2

Fitness
391.4

 
—

 
—

 
1.8

 
393.2

    Total
$
425.3

 
$
—

 
$
—

 
$
3.0

 
$
428.3

  

21
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

Changes in the Company's goodwill during the three months ended April 1, 2017, by segment, are summarized below:
(in millions)
December 31,
2016
 
Acquisitions
 
Impairments
 
Adjustments
 
April 1,
2017
Marine Engine
$
25.1

 
$
—

 
$
—

 
$
0.4

 
$
25.5

Boat
2.2

 
—

 
—

 
—

 
2.2

Fitness
386.5

 
—

 
—

 
1.8

 
388.3

    Total
$
413.8

 
$
—

 
$
—

 
$
2.2

 
$
416.0


Adjustments for the three months ended March 31, 2018 and April 1, 2017 primarily relate to the effect of foreign currency translation on goodwill denominated in currencies other than the U.S. dollar.

As of March 31, 2018, December 31, 2017 and April 1, 2017, the Company had no accumulated impairment loss.

The Company's intangible assets, included within Other intangibles, net on the Condensed Consolidated Balance Sheets as of March 31, 2018, December 31, 2017 and April 1, 2017, are summarized by intangible asset type below:
 
March 31, 2018
 
December 31, 2017
 
April 1, 2017
(in millions)
Gross Amount
 
Accumulated Amortization
 
Gross Amount
 
Accumulated Amortization
 
Gross Amount
 
Accumulated Amortization
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
  Customer relationships
$
127.6

 
$
(61.2
)
 
$
126.7

 
$
(59.4
)
 
$
121.8

 
$
(53.9
)
  Trade names
71.4

 
—

 
71.2

 
—

 
83.5

 
—

  Other
22.6

 
(17.1
)
 
22.5

 
(16.6
)
 
22.4

 
(15.2
)
    Total
$
221.6

 
$
(78.3
)
 
$
220.4

 
$
(76.0
)
 
$
227.7

 
$
(69.1
)

The Company's intangible assets, included within Other intangibles, net on the Condensed Consolidated Balance Sheets as of March 31, 2018, December 31, 2017 and April 1, 2017, are summarized by segment below:
 
March 31, 2018
 
December 31, 2017
 
April 1, 2017
(in millions)
Gross Amount
 
Accumulated Amortization
 
Gross Amount
 
Accumulated Amortization
 
Gross Amount
 
Accumulated Amortization
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
  Marine Engine
$
79.1

 
$
(39.2
)
 
$
78.3

 
$
(38.5
)
 
$
73.0

 
$
(37.1
)
  Boat
40.0

 
(24.3
)
 
39.9

 
(24.1
)
 
39.9

 
(23.3
)
  Fitness
102.5

 
(14.8
)
 
102.2

 
(13.4
)
 
114.8

 
(8.7
)
    Total
$
221.6

 
$
(78.3
)
 
$
220.4

 
$
(76.0
)
 
$
227.7

 
$
(69.1
)

Other intangible assets primarily consist of patents. Gross amounts and related accumulated amortization amounts include adjustments related to the impact of foreign currency translation. Aggregate amortization expense for intangibles was $2.2 million and $2.0 million for the three months ended March 31, 2018 and April 1, 2017, respectively.

Note 11 – Segment Data

Reportable Segments

The following table sets forth net sales and operating earnings (loss) of each of the Company's reportable segments for the three months ended March 31, 2018 and April 1, 2017:

22
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

 
Net Sales
 
Operating Earnings (Loss)
(in millions)
March 31,
2018
 
April 1,
2017
 
March 31,
2018
 
April 1,
2017
Marine Engine
$
687.1

 
$
631.8

 
$
95.7

 
$
87.7

Boat
304.0

 
284.9

 
24.7

 
16.2

Marine eliminations
(80.1
)
 
(70.2
)
 
—

 
—

Total Marine
911.0

 
846.5

 
120.4

 
103.9

Fitness
244.4

 
235.6

 
11.0

 
18.3

Corporate/Other
—

 
—

 
(16.0
)
 
(18.8
)
Total
$
1,155.4

 
$
1,082.1

 
$
115.4

 
$
103.4


The following table sets forth total assets of each of the Company's reportable segments:
 
Total Assets
(in millions)
March 31,
2018
 
December 31,
2017
 
April 1,
2017
Marine Engine
$
1,384.6

 
$
1,205.0

 
$
1,251.3

Boat(A)
449.7

 
411.6

 
444.8

     Total Marine
1,834.3

 
1,616.6

 
1,696.1

Fitness
1,004.9

 
1,012.8

 
939.7

Corporate/Other(B)
565.4

 
728.8

 
638.1

Total
$
3,404.6

 
$
3,358.2

 
$
3,273.9


(A) As of March 31, 2018, December 31, 2017 and April 1, 2017, the Company had $117.8 million, $102.7 million and $153.7 million, respectively, of net assets classified as held for sale in the Condensed Consolidated Balance Sheets relating to discontinued operations. See Note 3 – Discontinued Operations for further details.
(B) As of March 31, 2018, the Company had a $23.0 million indemnification receivable relating to the settlement of an ongoing legal matter associated with a previously disposed operation. See Note 3 – Discontinued Operations for further details.


23
Table of Contents
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
    

Note 12 – Comprehensive Income

Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets includes foreign currency cumulative translation adjustments; prior service costs and credits and net actuarial gains and losses for defined benefit plans; and unrealized derivative gains and losses, all net of tax. Changes in the components of Accumulated other comprehensive loss, all net of tax, for the three months ended March 31, 2018 and April 1, 2017 were as follows:
(in millions)
March 31,
2018
 
April 1,
2017
Net earnings
$
72.9

 
$
64.9

Other comprehensive income (loss):
 

 
 

Foreign currency cumulative translation adjustment
9.9

 
7.4

Net change in unamortized prior service credits
(0.1
)
 
(0.1
)
Net change in unamortized actuarial losses
1.9

 
2.1

Net change in unrealized derivative losses
(0.7
)
 
(2.2
)
Total other comprehensive income
11.0

 
7.2

Comprehensive income
$
83.9

 
$
72.1


The following table presents the changes in Accumulated other comprehensive loss by component, all net of tax, for the three months ended March 31, 2018:
(in millions)
Foreign currency translation
 
Prior service credits
 
Net actuarial losses
 
Net derivative losses
 
Total
Beginning balance
$
(31.6
)
 
$
(5.6
)
 
$
(310.8
)
 
$
(11.8
)
 
$
(359.8
)
Other comprehensive income (loss) before reclassifications (A)
9.9

 
—