UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________
Form
10-K
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[X] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
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or
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[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
file number 1-1043
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_______________
Brunswick
Corporation
(Exact
name of registrant as specified in its charter)
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Delaware
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36-0848180
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1
N. Field Court, Lake Forest, Illinois
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60045-4811
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(Address
of principal executive offices)
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(Zip
Code)
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(847)
735-4700
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(Registrant’s
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Name
of each exchange on which registered
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Common
Stock ($0.75 par value)
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New
York and Chicago
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Stock
Exchanges
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Securities
registered pursuant to Section 12(g) of the Act: None
______________
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No
[ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
[ ] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer [ ] Accelerated filer [X] Non-accelerated
filer [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes [ ] No [X]
As of
June 30, 2009, the aggregate market value of the voting stock of the registrant
held by non-affiliates was $377,727,905. Such number excludes stock beneficially
owned by officers and directors. This does not constitute an admission that they
are affiliates.
The
number of shares of Common Stock ($0.75 par value) of the registrant outstanding
as of February
19, 2010 was 88,444,430.
DOCUMENTS
INCORPORATED BY REFERENCE
Part
III of this Report on Form 10-K incorporates by reference certain information
that will be set forth in the Company’s definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on May 5, 2010.
BRUNSWICK
CORPORATION
INDEX
TO ANNUAL REPORT ON FORM 10-K
December
31, 2009
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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9
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Item
1B.
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Unresolved
Staff Comments
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16
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Item
2.
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Properties
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16
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Item
3.
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Legal
Proceedings
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17
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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18
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder
Matters
and Issuer Purchases of Equity Securities
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20
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Item
6.
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Selected
Financial Data
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22
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations
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24
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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50
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Item
8.
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Financial
Statements and Supplementary Data
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50
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting
and
Financial Disclosure
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50
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Item
9A.
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Controls
and Procedures
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51
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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52
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Item
11.
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Executive
Compensation
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52
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Item
12.
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Security
Ownership of Certain Beneficial Owners and
Management
and Related Stockholder Matters
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52
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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52
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Item
14.
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Principal
Accounting Fees and Services
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52
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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52
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PART
I
Item
1. Business
Brunswick
Corporation (Brunswick or the Company) is a Delaware corporation, incorporated
on December 31, 1907. Brunswick is a leading global manufacturer and marketer of
recreation products including marine engines, boats, fitness equipment and
bowling and billiards equipment. Brunswick’s engine products include outboard,
sterndrive and inboard engines; trolling motors; propellers; engine control
systems; and marine parts and accessories. The Company’s boat offerings include
fiberglass pleasure boats; luxury sportfishing convertibles and motoryachts;
offshore fishing boats; aluminum fishing boats; and pontoon and deck boats.
Brunswick’s fitness products include both cardiovascular and strength training
equipment. Brunswick’s bowling offerings include products such as capital
equipment, after-market and consumer products; and billiards offerings such as
billiards and gaming tables and accessories. The Company also owns and operates
Brunswick bowling family entertainment centers in the United States and other
countries.
In 2009,
Brunswick’s primary focus was on liquidity. In 2010, Brunswick intends to focus
on generating positive cash flow, performing better than the market in each of
its business segments, and, as its revenue grows, taking advantage of its
considerable leverage. In the longer term, Brunswick’s strategy is to introduce
the highest quality products with the most innovative technology and styling at
a rate faster than its competitors; to distribute products through a model that
benefits its partners – dealers and distributors – and provides world-class
service to its customers; to develop and maintain low-cost manufacturing
processes and to continually improve productivity and efficiency; to manufacture
and distribute products globally with local and regional styling; and to attract
and retain skilled and knowledgeable people. These factors promote the Company’s
ability to grow from expansion of its existing businesses. The Company’s
objective is to enhance shareholder value by achieving returns on investments
that exceed its cost of capital.
During
the first quarter of 2009, the Company realigned the management of its marine
service, parts and accessories businesses. The Boat segment’s parts and
accessories businesses of Attwood, Land ‘N’ Sea, Benrock, Kellogg Marine and
Diversified Marine Products are now being managed by the Marine Engine segment’s
service and parts business leaders. As a result, the marine service, parts and
accessories operating results previously reported in the Boat segment are now
being reported in the Marine Engine segment. Segment results have been restated
for all periods presented to reflect the change in Brunswick’s reported
segments. Refer to Note 5 –
Segment Information and
Note 20 – Discontinued Operations in the Notes to Consolidated Financial
Statements for additional information regarding the Company’s segments and
discontinued operations, including net sales, operating earnings and total
assets by segment for 2009, 2008 and 2007.
Marine
Engine Segment
The
Marine Engine segment, which had net sales of $1,425.0 million in 2009, consists
of the Mercury Marine Group (Mercury Marine). The Company believes its Marine
Engine segment has the largest dollar sales volume of recreational marine
engines in the world.
Mercury
Marine manufactures and markets a full range of sterndrive propulsion systems,
inboard engines and outboard engines under the Mercury, Mercury MerCruiser,
Mariner, Mercury Racing, Mercury SportJet and Mercury Jet Drive, MotorGuide,
Axius, Zeus and MerCruiser 360 brand names. In addition, Mercury Marine
manufactures and markets marine parts and accessories under the Quicksilver,
Mercury Precision Parts, Mercury Propellers, Attwood, Land ‘N’ Sea, Benrock,
Kellogg Marine, Diversified Marine Products, Sea Choice and MotorGuide brand
names, including marine electronics and control integration systems, steering
systems, instruments, controls, propellers, trolling motors, service aids and
marine lubricants. Mercury Marine’s sterndrive engines, inboard engines and
outboard engines are sold to independent boat builders, local, state and foreign
governments, and to the Company’s Boat segment. In addition, Mercury Marine’s
outboard engines are sold to end-users through a global network of more than
4,000 marine dealers and distributors worldwide, specialty marine retailers and
marine service centers. Mercury Marine, through Cummins MerCruiser Diesel Marine
LLC (CMD), a joint venture between Brunswick’s Mercury Marine division and
Cummins Marine, a division of Cummins Inc., supplies integrated diesel
propulsion systems to the worldwide recreational and commercial marine markets,
including the Company’s Boat segment.
Mercury
Marine manufactures two-stroke OptiMax outboard engines ranging from 75 to 300
horsepower, all of which feature Mercury’s direct fuel injection (DFI)
technology, and four-stroke outboard engine models ranging from 2.5 to 350
horsepower. All of these low-emission engines are believed to be in compliance
with U.S. Environmental Protection Agency (EPA) requirements for 2010. Mercury
Marine’s four-stroke outboard engines include Verado, a collection of
supercharged outboards ranging from 135 to 350 horsepower, and Mercury Marine’s
naturally aspirated four-stroke outboards, ranging from 2.5 to 115 horsepower.
In addition, most of Mercury’s sterndrive and inboard engines are now available
with catalytic converters, and are compliant with environmental regulations
adopted by the State of California, effective January 1, 2008, and by the EPA,
effective January 1, 2010.
1
To
promote advanced propulsion systems with improved and easier handling,
performance and efficiency, Mercury Marine, both directly and through its joint
venture, CMD, manufactures and markets advanced boat and engine steering and
control systems under the brand names of Zeus, Axius and MerCruiser
360.
Mercury
Marine’s sterndrive and outboard engines are produced domestically in Oklahoma
and Wisconsin, respectively. During the third quarter of 2009, the Company
announced plans to consolidate engine production by transferring sterndrive
engine manufacturing operations from its Stillwater, Oklahoma plant to its Fond
du Lac, Wisconsin plant. This plant consolidation effort is expected to occur
throughout 2010 and 2011. Mercury Marine manufactures 40, 50 and 60 horsepower
four-stroke outboard engines in a facility in China, and, in a joint venture
with its partner, Tohatsu Corporation, produces smaller outboard engines in
Japan. Mercury Marine sources some engine components from Asian suppliers and
manufactures engine component parts at plants in Florida and Mexico. CMD
manufactures diesel marine propulsion systems in South Carolina. Mercury Marine
also operates a remanufacturing business for engines and service parts in
Wisconsin.
In
addition to its marine engine operations, Mercury Marine serves markets outside
of the United States with a wide range of aluminum, fiberglass and inflatable
boats produced either by, or for, Mercury Marine in China, New Zealand, Poland,
Portugal, and Vietnam. These boats, which are marketed under the brand names
Arvor, Guernsey, Legend, Mercury, Protector, Quicksilver, Uttern and
Valiant, are typically equipped with engines manufactured by Mercury Marine and
often include other parts and accessories supplied by Mercury Marine. Mercury
Marine also has an equity ownership interest in a company that manufactures
boats under the brand names Aquador, Bella and Flipper in Finland.
Mercury
Marine’s parts and accessories businesses include: Attwood, Land ‘N’ Sea,
Benrock, Kellogg Marine and Diversified Marine Products. These businesses are
the leading distributors of marine parts and accessories throughout North
America, offering same-day or next-day service to a broad array of marine
service facilities.
Inter-company
sales to the Company’s Boat segment represented approximately 7 percent of Mercury
Marine sales in 2009. Domestic demand for the Marine Engine segment’s products
is seasonal, with sales generally highest in the second calendar quarter of the
year.
Boat
Segment
The Boat
segment consists of the Brunswick Boat Group (Boat Group), which manufactures
and markets fiberglass pleasure boats, luxury sportfishing convertibles and
motoryachts, offshore and aluminum fishing boats, and pontoon and deck boats.
The Company believes that its Boat Group, which had net sales of $615.7 million
during 2009, has the largest dollar sales and unit volume of pleasure boats in
the world.
The Boat
Group manages most of Brunswick’s boat brands; evaluates and enhances the
Company’s boat portfolio; promotes recreational boating services and activities
to enhance the consumer experience and dealer profitability; and speeds the
introduction of new technologies into boat manufacturing processes.
The Boat
Group is comprised of the following boat brands: Cabo sportfishing express boats
and convertibles; Hatteras luxury sportfishing convertibles and motoryachts; Sea
Ray yachts, sport yachts, sport cruisers and runabouts; Bayliner sport cruisers
and runabouts; Meridian motoryachts; Sealine yachts and sport cruisers; Boston
Whaler, Lund, Triton and Trophy fiberglass fishing boats; and Crestliner,
Cypress Cay, Harris, Lowe, Lund, Princecraft and Triton aluminum fishing,
utility, pontoon and deck boats. The Boat Group also includes a commercial and
governmental sales unit that sells products to commercial customers, as well as
the United States government and state, local and foreign governments. The Boat
Group procures most of its outboard engines, gasoline sterndrive engines and
gasoline inboard engines from Brunswick’s Marine Engine segment. The Boat Group
also purchases a portion of its diesel engines from CMD.
The Boat
Group has active manufacturing facilities in California, Florida, Indiana,
Minnesota, Missouri, North Carolina, Tennessee, Canada, China, Mexico, Portugal
and the United Kingdom, as well as additional inactive manufacturing facilities
in Florida, Maryland, Minnesota, North Carolina, Ohio, Oregon, Tennessee and
Washington. The Boat Group also utilizes contract manufacturing facilities in
Poland and has an agreement with a local boat builder to manufacture boats in
Argentina. During 2009 the Boat Group continued its 2008 restructuring
activities by reducing its workforce, consolidating manufacturing operations and
disposing of non-strategic assets. In the first quarter of 2009, the
Company announced and completed the shutdown of its Riverview plant in
Knoxville, Tennessee, and completed the closure of its Pipestone, Minnesota
facility. Further, in the fourth quarter of 2009, the
Company reached a decision to sell its properties in Cape Canaveral, Florida and
Navassa, North Carolina. The Navassa, North Carolina property was mothballed
during 2008. Brunswick also sold all of the capital stock of the Albemarle Boats
business on December 31, 2008. In 2008, Brunswick announced the closure of
certain boat manufacturing plants in Merritt Island, Florida; Cumberland,
Maryland; Bucyrus, Ohio; Swansboro, North Carolina; Roseburg, Oregon; and
Arlington, Washington.
The Boat
Group’s products are sold to end-users through a global network of approximately
1,750 dealers and distributors, each of which carries one or more of Brunswick’s
boat brands. Sales to the Boat Group’s largest dealer, MarineMax Inc., which has
multiple locations and carries a number of the Boat Group’s product lines,
represented approximately 16 percent of Boat Group
sales in 2009. Domestic demand for pleasure boats is seasonal, with sales
generally highest in the second calendar quarter of the
year.
2
Fitness
Segment
Brunswick’s
Fitness segment is comprised of its Life Fitness division (Life Fitness), which
designs, manufactures and markets a full line of reliable, high-quality
cardiovascular fitness equipment (including treadmills, total body
cross-trainers, stair climbers and stationary exercise bicycles) and
strength-training equipment under the Life Fitness and Hammer Strength
brands.
The
Company believes that its Fitness segment, which had net sales of $496.8 million
during 2009, is the world’s largest manufacturer of commercial fitness equipment
and a leading manufacturer of high-end consumer fitness equipment. Life Fitness’
commercial sales are primarily made to health clubs, fitness facilities operated
by professional sports teams, the military, governmental agencies, corporations,
hotels, schools and universities. Commercial sales are made to customers either
directly, through domestic dealers, or through international distributors.
Consumer products are sold through specialty retailers and on Life Fitness’ Web
site.
The
Fitness segment’s principal manufacturing facilities are located in Illinois,
Kentucky, Minnesota and Hungary. Life Fitness distributes its products worldwide
from regional warehouses and production facilities. Demand for Life Fitness
products is seasonal, with sales generally highest in the first and fourth
calendar quarters of the year.
Bowling
& Billiards Segment
The
Bowling & Billiards segment is comprised of the Brunswick Bowling &
Billiards division (BB&B), which had net sales of $337.0 million during
2009. The Company believes BB&B is the leading full-line designer,
manufacturer and marketer of bowling products. BB&B also designs and markets
a full line of high-quality consumer billiard tables, Air Hockey table games,
foosball tables and related accessories. In addition, BB&B operates 100
bowling centers in the United States, Canada and Europe.
BB&B’s
bowling products business designs, manufactures and markets a wide variety of
bowling products, including capital equipment, which includes automatic
pinsetters, bowling balls and after-market products. Through licensing and
manufacturing arrangements, BB&B also offers bowling pins and a wide array
of bowling consumer products, including bowling shoes, bags and
accessories.
BB&B
retail bowling centers offer bowling and, depending on size and location, may
also offer the following activities and facilities: billiards, video games,
redemption and other games of skill, laser tag, pro shops, meeting and party
rooms, snack bars, restaurants and cocktail lounges. Of the 100 bowling centers,
44 have been converted into Brunswick Zones, which are modernized bowling
centers that offer an array of family-oriented entertainment activities.
BB&B has further enhanced the Brunswick Zone concept with expanded Brunswick
Zone family entertainment centers, branded Brunswick Zone XL, which are larger
than typical Brunswick Zones and feature multiple-venue entertainment offerings.
BB&B operates 11 Brunswick Zone XL centers. In 2008, BB&B exited a joint
venture that operated 14 additional centers in Japan, and in which BB&B had
been a partner since 1960.
BB&B’s
billiards business was established in 1845 and is Brunswick’s oldest enterprise.
BB&B designs and/or markets billiard tables, Air Hockey table games,
foosball tables, balls and cues, as well as game room furniture and related
accessories, under the Brunswick and Contender brands. The Company believes it
has the largest dollar sales volume of slate U.S. style pocket billiards tables
in the world. These products are sold worldwide in both commercial and consumer
billiards markets. BB&B also operated Valley-Dynamo, a leading manufacturer
of commercial and consumer billiards tables, Air Hockey table games and foosball
tables. The Valley-Dynamo business was sold in the second quarter of 2009,
although the Company retained the intellectual property rights to the Air Hockey
trademark.
BB&B’s
primary manufacturing and distribution facilities are located in Hungary,
Mexico, Michigan and Wisconsin.
Brunswick’s
bowling and billiards products are sold through a variety of channels, including
distributors, dealers, mass merchandisers, bowling centers and retailers, and
directly to consumers on the Internet and through other outlets. BB&B’s
sales are seasonal with sales generally highest in the first and fourth calendar
quarters of the year.
3
Discontinued
Operations
On April
27, 2006, the Company announced its intention to sell the majority of its
Brunswick New Technologies (BNT) business unit, which consisted of the Company’s
marine electronics, portable navigation devices (PND) and wireless fleet
tracking business. As a result, Brunswick reclassified the operations of BNT to
discontinued operations and shifted reporting for the retained businesses from
the Marine Engine segment to the Boat, Marine Engine and Fitness
segments.
In March
2007, Brunswick completed the sales of BNT’s marine electronics and PND
businesses to Navico International Ltd. and MiTAC International Corporation,
respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain
was recognized with the divestiture of these businesses in 2007.
In July
2007, the Company completed the sale of BNT’s wireless fleet tracking business
to Navman Wireless Holdings L.P. for net proceeds of $28.8 million, resulting in
an after-tax gain of $25.8 million.
The
Company completed the divestiture of the BNT discontinued operations during
2007. The Company recognized a net asset impairment of $85.6 million, after-tax,
in the fourth quarter of 2006, prior to the disposition of the BNT businesses,
and recorded 2007 gains of $29.8 million, after-tax, on the BNT business sales.
As a result, the financial impact to the Company of the BNT dispositions was a
net loss of $55.8 million, after-tax.
Financial
Services
A Company
subsidiary, Brunswick Financial Services Corporation (BFS), has a 49 percent
ownership interest in a joint venture, Brunswick Acceptance Company, LLC (BAC).
CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation, owns the
remaining 51 percent of the joint venture. Under the terms of the joint venture
agreement, BAC provides secured wholesale floorplan financing to the Company’s
engine and boat dealers. BAC also purchased and serviced a portion of Mercury
Marine’s domestic accounts receivable relating to its boat builder and dealer
customers, but this program was terminated in May 2009. The Company
replaced this program with the Mercury Receivables ABL Facility, which is
discussed in Note 14 – Debt
in the Notes to Consolidated Financial Statements.
The term
of the BAC joint venture extends through June 30, 2014. The joint venture
agreement contains provisions allowing for the renewal or purchase at the end of
this term. Alternatively, either partner may terminate the agreement at the end
of its term.
Refer to
Note 9 – Financial
Services in the Notes to Consolidated Financial Statements for more
information about the Company’s financial services.
Distribution
Brunswick
depends on distributors, dealers and retailers (Dealers) for the majority of its
boat sales and significant portions of its sales of marine engine, fitness and
bowling and billiards products. Brunswick has over 15,000 Dealers serving its
business segments worldwide. Brunswick’s marine Dealers typically carry boats,
engines and related parts and accessories.
Brunswick
owns Attwood, Land ‘N’ Sea, Benrock, Kellogg Marine and Diversified Marine
Products, which are the primary parts and accessories distribution platforms for
the Company’s Marine Engine segment. These businesses are the leading
distributors of marine parts and accessories throughout North America, with 14
distribution warehouses located throughout the United States and Canada offering
same-day or next-day service to a broad array of marine service
facilities.
Brunswick’s
Dealers are independent companies or proprietors that range in size from small,
family-owned businesses to a large, publicly-traded corporation with substantial
revenues and multiple locations. Some Dealers sell Brunswick’s products
exclusively, while others also carry competitors’ products. Brunswick works with
its boat dealer network to improve quality, distribution and delivery of parts
and accessories to enhance the boating customer’s experience.
Demand
for a significant portion of Brunswick’s products is seasonal, and a number of
Brunswick’s Dealers are relatively small or highly-leveraged. As a result, many
Dealers require financial assistance to support their businesses, allowing them
to provide stable channels for Brunswick’s products. In addition to the
financing offered by BAC, the Company provides its Dealers with assistance,
including incentive programs, loans, loan guarantees and inventory repurchase
commitments, under which the Company is obligated to repurchase
inventory from a finance company in the event of a Dealer's
default. The Company believes that these arrangements are in its best
interest; however, the financial support that the Company provides to its
Dealers does expose the Company to credit and business risk. Brunswick’s
business units, along with BAC, maintain active credit operations to manage this
financial exposure, and the Company continually seeks opportunities to sustain
and improve the financial health of its various distribution channel partners.
Refer to Note 11 – Commitments
and Contingencies in the Notes to Consolidated Financial Statements for
further discussion of these arrangements.
4
International
Operations
Brunswick’s
sales from continuing operations to customers in markets other than the United
States were $1,168.7 million (42 percent of net sales), $2,058.5 million (44
percent of net sales) and $2,016.4 million (36 percent of net sales) in 2009,
2008 and 2007, respectively. The Company transacts most of its sales in non-U.S.
markets in local currencies, and the cost of its products is generally
denominated in U.S. dollars. Strengthening or weakening of the U.S. dollar
affects the financial results of Brunswick’s non-U.S. operations.
Non-U.S.
sales from continuing operations are set forth in Note 5 – Segment Information
in the Notes to Consolidated Financial Statements and are also included
in the table below, which details Brunswick’s non-U.S. sales by
region:
|
(in
millions)
|
2009
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2008
|
2007
|
|||||||||
|
Europe
|
$ | 518.1 | $ | 1,024.1 | $ | 1,038.9 | ||||||
|
Pacific
Rim
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235.8 | 318.1 | 338.2 | |||||||||
|
Canada
|
178.1 | 346.7 | 344.6 | |||||||||
|
Latin
America
|
157.9 | 247.8 | 196.6 | |||||||||
|
Africa
& Middle East
|
78.8 | 121.8 | 98.1 | |||||||||
| $ | 1,168.7 | $ | 2,058.5 | $ | 2,016.4 | |||||||
Marine
Engine segment sales represented approximately 50 percent of Brunswick’s
non-U.S. sales in 2009. The segment’s primary non-U.S. operations include the
following:
|
|
•
|
Sales
offices and distribution centers in Australia, Belgium, Brazil, Canada,
China, Japan, Malaysia, Mexico, New Zealand and
Singapore;
|
|
|
•
|
Sales
offices in Finland, France, Germany, Italy, the Netherlands, Norway,
Sweden and Switzerland;
|
|
|
•
|
Boat
manufacturing plants in China, New Zealand, Poland and Portugal;
and
|
|
|
•
|
An
outboard engine assembly plant in Suzhou,
China.
|
Boat
segment sales comprised approximately 23 percent of Brunswick’s non-U.S. sales
in 2009. The Boat Group’s products are manufactured or assembled in the United
States, Canada, China, Mexico, Poland, Portugal and the United Kingdom, and are
sold worldwide through dealers. The Boat Group has sales offices in France,
Mexico and the Netherlands.
Fitness
segment sales comprised approximately 21 percent of Brunswick’s
non-U.S. sales in 2009. Life Fitness sells its products worldwide and has sales
and distribution centers in Brazil, Germany, Hong Kong, Japan, the Netherlands,
Spain and the United Kingdom, as well as sales offices in Hong Kong. The Fitness
segment also manufactures strength-training equipment and select lines of
cardiovascular equipment in Hungary for its international markets.
Bowling
& Billiard segment sales comprised approximately 6 percent of Brunswick’s
non-U.S. sales in 2009. BB&B sells its products worldwide, has sales offices
in Germany, Hong Kong and Tokyo, and operates a plant that manufactures
automatic pinsetters in Hungary. BB&B commenced bowling ball manufacturing
in Reynosa, Mexico in 2006, and completed the transition of manufacturing
operations from Muskegon, Michigan to Reynosa in 2007. BB&B operates retail
bowling centers in Austria, Canada and Germany.
Raw
Materials and Supplies
Brunswick
purchases a wide variety of raw materials from its supplier base, including oil,
aluminum, steel and resins, as well as product parts and components, such as
engine blocks and boat windshields. The prices for these raw materials, parts
and components fluctuate depending on market conditions. Significant increases
in the cost of such materials would increase the Company’s production and
operating costs. This could reduce the Company’s profitability if the Company
cannot recoup the increased costs through increased product
prices.
5
As a
result of recent worldwide economic conditions and the reduced demand for raw
materials, parts, supplies and goods, a number of Brunswick’s suppliers made the
decision to slow or temporarily cease production in 2008 and 2009. Additionally,
many of the Company’s suppliers have elected to reduce the size of their
workforces. As Brunswick’s manufacturing operations continue to increase
production in 2010, the Company’s need for raw materials and supplies will
likewise increase. Brunswick’s suppliers must be prepared to resume operations
and, in many cases, must recall or hire additional workers in order to fulfill
the orders placed by Brunswick and other customers. During this transition
period, the Company has experienced some delayed delivery of and shortages of
certain materials, parts and supplies that are essential to its manufacturing
operations. The Company will continue to address this issue by identifying
alternative suppliers, working to secure adequate inventories of critical
supplies and continually monitoring its supplier base.
Additionally,
some components used in Brunswick’s manufacturing processes, including engine
blocks and boat windshields, are available from a sole supplier or a limited
number of suppliers. Financial difficulties or solvency problems that these or
other suppliers currently face or may face in the future could adversely affect
their ability to supply Brunswick with the parts and components it needs, which
could significantly disrupt Brunswick’s operations.
The
Company also continues to expand its global procurement operations to leverage
its purchasing power across its divisions and to improve supply chain and cost
efficiencies. The Company attempts to manage its commodity price risk by using
derivatives to hedge a portion of its raw material purchases.
Intellectual
Property
Brunswick
has, and continues to obtain, patent rights covering certain features of its
products and processes. By law, Brunswick’s patent rights, which consist of
patents and patent licenses, have limited lives and expire periodically. The
Company believes that its patent rights are important to its competitive
position in all of its business segments.
In the
Marine Engine segment, patent rights principally relate to features of outboard
engines and inboard-outboard drives and pod drives, including: die-cast
powerheads; cooling and exhaust systems; drivetrain, clutch and gearshift
mechanisms; boat/engine mountings; shock-absorbing tilt mechanisms; ignition
systems; propellers; marine vessel control systems; fuel and oil injection
systems; supercharged engines; outboard mid-section structures; segmented cowls;
hydraulic trim, tilt and steering; screw compressor charge air cooling systems;
and airflow silencers.
In the
Boat segment, patent rights principally relate to processes for manufacturing
fiberglass hulls, decks and components for boat products, as well as patent
rights related to interiors and other boat features and components.
In the
Fitness segment, patent rights principally relate to fitness equipment designs
and components, including patents covering internal processes, programming
functions, displays, design features and styling.
In the
Bowling & Billiards segment, patent rights principally relate to
computerized bowling scorers and bowling center management systems, bowling
center furniture, bowling lanes, lane conditioning machines and related
equipment, bowling balls, and billiards table designs and
components.
The
following are Brunswick’s primary trademarks for its continuing
operations:
Marine Engine
Segment: Attwood, Axius, Diversified Marine, Kellogg Marine,
Land ‘N’ Sea, Mariner, MercNet, MerCruiser, Mercury, Mercury Marine, Mercury
Parts Express, Mercury Precision Parts, Mercury Propellers, Mercury Racing,
MotorGuide, OptiMax, Quicksilver, Rayglass, Seachoice, SeaPro, SmartCraft,
SportJet, Swivl-Eze, Valiant, Verado and Zeus.
Boat
Segment: Bayliner, Boston Whaler, Cabo, Crestliner, Harris,
Hatteras, Lowe, Lund, Master Dealer, Meridian, Princecraft, Sea Ray, Sealine,
Total Command, Triton and Trophy.
Fitness
Segment: Flex Deck, Hammer Strength, Lifecycle, Life Fitness
and ParaBody.
Bowling & Billiards
Segment: Air Hockey, Ballworx, Brunswick, Brunswick Billiards,
Brunswick Home and Billiard, Brunswick Pavilion, Brunswick Zone, Brunswick Zone
XL, Centennial, Contender, Cosmic Bowling, Frameworx, Gold Crown, Inferno, Lane
Shield, Lightworx, Pro Lane, U.S. Play by Brunswick, Vector, Viz-A-Ball and
Zone.
Brunswick’s
trademark rights have indefinite lives, and many are well known to the public
and are considered to be valuable assets.
6
Competitive
Conditions and Position
The
Company believes that it has a reputation for quality in its highly competitive
lines of business. Brunswick competes in its various markets by: utilizing
efficient production techniques; developing and promoting innovative
technological advancements; undertaking effective marketing, advertising and
sales efforts; providing high-quality products at competitive prices; and
offering extensive after-market services.
Strong
competition exists in each of Brunswick’s product groups, but no single
enterprise competes with Brunswick in all product groups. In each product area,
competitors range in size from large, highly-diversified companies to small,
single-product businesses. Brunswick also competes with businesses that offer
alternative leisure products or activities but do not compete directly with
Brunswick’s products.
The
following summarizes Brunswick’s competitive position in each
segment:
Marine Engine
Segment: The Company believes it has the largest dollar sales
volume of recreational marine engines in the world, along with a leading parts
and accessories business. The marine engine market is highly competitive among
several major international companies that comprise the majority of the market,
as well as several smaller companies. Competitive advantage in this segment is a
function of product features, technological leadership, quality, service,
pricing, performance and durability, along with effective promotion and
distribution.
Boat Segment: The
Company believes it has the largest dollar sales and unit volume of pleasure
boats in the world. There are several major manufacturers of pleasure and
offshore fishing boats, along with hundreds of smaller manufacturers.
Consequently, this business is both highly competitive and highly fragmented.
The Company believes it has the broadest range of boat product offerings in the
world, with boats ranging in size from 10 to 105 feet. In all of its boat
operations, Brunswick competes on the basis of product features, technology,
quality, dealer service, pricing, performance, value, durability and styling,
along with effective promotion and distribution.
Fitness
Segment: The Company believes it is the world’s largest
manufacturer of commercial fitness equipment and a leading manufacturer of
high-quality consumer fitness equipment. There are a few large manufacturers of
fitness equipment and hundreds of small manufacturers, which creates a highly
fragmented, competitive landscape. Many of Brunswick’s fitness equipment
offerings feature industry-leading product innovations, and the Company places
significant emphasis on introducing new fitness equipment to the market.
Competitive focus is also placed on product quality, service, pricing,
state-of-the-art biomechanics, and effective promotional
activities.
Bowling & Billiards
Segment: The Company believes it is the world’s leading
designer, manufacturer and marketer of bowling products and slate U.S. style
pocket billiards tables. There are other large manufacturers of bowling products
and competitive emphasis is placed on product innovation, quality, service,
marketing activities and pricing. The billiards industry continues to experience
competitive pressure from low-cost billiards manufacturers outside the United
States. The bowling retail market, in which the Company’s bowling centers
compete, is highly fragmented. Brunswick is one of the two largest competitors
in the North American bowling retail market, with an emphasis on larger,
upscale, full-service family entertainment centers. The bowling retail business
emphasizes the bowling and entertainment experience, maintaining quality
facilities and providing excellent customer service.
Research
and Development
The
Company strives to improve its competitive position in all of its segments by
continuously investing in research and development to drive innovation in its
products and manufacturing technologies. Brunswick’s research and development
investments support the introduction of new products and enhancements to
existing products. Research and development expenses as a percentage of net
sales was 3.2 percent, 2.6 percent and 2.4 percent in 2009, 2008 and 2007,
respectively. In light of the prolonged downturn in recreational marine industry
demand, the Company has undertaken significant efforts to reduce its fixed and
variable expenses to adjust its cost structure to current market conditions. In
implementing these cost reductions, the Company reduced selective research and
development expenses for 2008 and 2009. The Company believes that the
implementation of these actions would not materially limit its ability to
successfully execute its long-term strategies, particularly as market conditions
improve. Research and development expenses for continuing operations are shown
below:
7
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Marine
Engine
|
$ | 50.1 | $ | 61.3 | $ | 70.0 | ||||||
|
Boat
|
19.6 | 38.6 | 37.9 | |||||||||
|
Fitness
|
14.9 | 17.4 | 21.6 | |||||||||
|
Bowling
& Billiards
|
3.9 | 4.9 | 5.0 | |||||||||
|
Total
|
$ | 88.5 | $ | 122.2 | $ | 134.5 | ||||||
Number
of Employees
The
number of employees worldwide is shown below by segment:
|
December
31,
2009
|
December
31,
2008
|
|||||||||||||||
|
Total
|
Union
|
Total
|
Union
|
|||||||||||||
|
Marine
Engine
|
3,683 | 1,835 | 5,436 | 1,166 | ||||||||||||
|
Boat
|
4,744 | — | 6,774 | 17 | ||||||||||||
|
Fitness
|
1,668 | 135 | 1,940 | 147 | ||||||||||||
|
Bowling
& Billiards
|
4,756 | 99 | 5,410 | 328 | ||||||||||||
|
Corporate
|
152 | — | 200 | — | ||||||||||||
|
Total
|
15,003 | 2,069 | 19,760 | 1,658 | ||||||||||||
Mercury
Marine renegotiated its collective bargaining agreement for its Fond du Lac
facility with the International Association of Machinists Winnebago Lodge 1947.
The new agreement was ratified in August 2009. Additionally, the Marine Engine
segment’s Attwood facility in Lowell, Michigan has a collective bargaining
agreement with the International Brotherhood of Boilermakers, Iron Shipbuilders,
Blacksmiths, Forgers and Helpers AFL-CIO, Local M-7, which was ratified in
November 2009. In January 2009, BB&B renewed its collective bargaining
agreement with the International Association of Machinists, Local 2597, and the
Federal Labor Union, Local 23409 AFL-CIO, both of which represent employees at
the Muskegon, Michigan distribution facility. Life Fitness renewed
its collective bargaining agreement with the Chemical and Production
Workers Union, Local 30 AFL-CIO, at its Franklin Park, Illinois facility in
February 2010. The Company believes that the relationships between its
employees, the labor unions and the Company remain
stable.
Environmental
Requirements
See Item
3 of this report for a description of certain environmental
proceedings.
Available
Information
Brunswick
maintains an Internet Web site at http://www.brunswick.com that includes links
to Brunswick’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports (SEC Reports).
The SEC Reports are available without charge as soon as reasonably practicable
following the time that they are filed with, or furnished to, the SEC.
Shareholders and other interested parties may request email notification of the
posting of these documents through the Investors section of Brunswick’s Web
site.
8
Item
1A. Risk Factors
The Company’s operations and financial
results are subject to various risks and uncertainties, including those
described below, that could adversely affect the Company’s business, financial
condition, results of operations, cash flows and the trading price of the
Company’s common stock.
Worldwide
economic conditions, particularly in the United States and Europe, have
adversely affected the Company’s industry, business and results of operations
and may continue to do so.
In 2008
and 2009, general worldwide economic conditions, particularly in the United
States and Europe, experienced a downturn due to the effects of the subprime
lending crisis, general credit market crisis, collateral effects on the finance
and banking industries, increased energy costs, concerns about inflation, slower
economic activity, decreased consumer confidence, reduced corporate profits and
capital spending, adverse business conditions and liquidity
concerns. In times of economic uncertainty and contraction, consumers
tend to have less discretionary income and to defer expenditures for
discretionary items, which adversely affects the Company’s financial
performance, especially in its marine businesses. A significant
majority of the Company’s businesses are cyclical in nature and are highly
sensitive to personal discretionary spending levels, and their success is
dependent upon favorable economic conditions, the overall level of consumer
confidence and personal income levels. The impact of weakening consumer and
corporate credit markets; continued reduction in marine industry demand;
corporate restructurings; declines in the value of investments and residential
real estate, especially in large boating markets such as Florida and California;
and higher fuel prices, have negatively affected the Company’s financial results
and may continue to do so.
Demand
for the Company’s marine products has been significantly reduced by weak
economic conditions, a lack of consumer confidence, unemployment and increased
market volatility worldwide, especially in the United States and
Europe. The Company estimates that retail unit sales of powerboats in
the United States were down significantly during 2009, compared with the already
low retail unit sales during 2007 and 2008. Bankruptcies, reorganizations
outside of the bankruptcy process, restructurings, debt renegotiations and
closures have become significantly more numerous for the industry’s
manufacturers, distributors and suppliers around the globe. Any continued
deterioration in general economic conditions that further diminishes consumer
confidence or discretionary income may further reduce the Company’s sales and
adversely affect its financial results, including increasing the potential for
future impairment charges. The Company cannot predict the timing or
duration of the current economic slowdown or the timing or strength of a
subsequent economic recovery, either worldwide or in the specific markets where
it competes.
The
economic factors discussed above have also reduced the ability of fitness
centers and bowling retail centers to invest in new equipment, which has
adversely affected sales in the Company’s Fitness and Bowling & Billiards
segments.
Tight
consumer credit markets have reduced demand, especially for marine products, and
may continue to do so.
Customers
often finance purchases of the Company’s marine products, particularly
boats. Rising interest rates can have an adverse effect on consumers’
ability and willingness to finance boat purchases, which can adversely affect
the Company’s ability to sell boats and engines to dealers and
distributors. Further, the current tight credit markets in the United
States have resulted in a tightening of funds available for retail financing for
marine products and in some cases have resulted in lenders imposing stricter
eligibility requirements, such as higher credit scores for potential boat
buyers, loans with a higher interest rate than in prior periods, a decline in
loan advance rates, particularly on aged product, and larger down
payments. If the tightening of credit in the financial markets
continues to adversely affect the ability of customers to finance potential
purchases at acceptable terms and interest rates, it could result in a further
decrease in sales of the Company’s products or delay any improvement in its
sales.
The
Company’s financial results may be adversely affected if it is unable to
maintain effective distribution.
The
Company relies on third-party dealers and distributors to sell the majority of
its products, particularly in the marine business. The ability to
maintain a reliable network of dealers is essential to the Company’s
success. The Company faces competition from other boat manufacturers
in attracting and retaining distributors and independent boat dealers. A
significant deterioration in the number or effectiveness of the Company’s
dealers and distributors could have a material adverse effect on the
Company’s financial results.
9
Weak
demand for marine products has adversely affected and could continue to
adversely affect the financial performance of the Company’s
dealers. In particular, reduced cash flow from decreased sales and
tighter credit markets may impair a dealer’s ability to fund
operations. A continued inability to fund operations can force
dealers to cease business, and the Company may not be able to obtain alternate
distribution in the vacated market. An inability to obtain alternate
distribution could unfavorably affect the Company’s net sales through lower
market exposure. The Company anticipates that dealer failures or voluntary
market exits will continue into future periods.
Inventory
reductions by major dealers, retailers and independent boat builders can
adversely affect the Company’s financial results.
In 2008
and the first half of 2009, dealer inventory levels were higher than desired and
dealer inventory was aged beyond the Company’s preferred
level. Consequently, in 2009, the Company implemented an aggressive
pipeline strategy to reduce the number of units held by its dealers, which
reduced field inventory by 13,700 units versus 2008 levels. Such
efforts, combined with retail discounting, resulted in diminished wholesale
levels of the Company’s products in 2009. To achieve these reductions, the
Company: reduced boat production for 2009 by approximately 65 percent as
compared to the prior year (which has resulted in lower rates of absorption of
fixed costs in the Company’s manufacturing facilities and thus lower margins);
provided substantial support to dealers through retail discount programs aimed
at reducing aged inventory; and, for most of the Company’s brands, delayed the
start of the 2010 model year to September 1, 2009 in order to clear aged
inventory to make room for new models. Continued inventory reduction
efforts by dealers and independent boatbuilder customers could impair the
Company’s future sales and results of operations.
Excess
supply of repossessed and aged boats can adversely affect industry
pricing.
Boats
entering the market through non-traditional avenues, such as dealer and
independent boat builder failures and rising levels of consumer-related
repossessions, have resulted in an excess supply of repossessed boats that has
had an adverse effect on industry pricing. Failed or struggling dealers and boat
builders may be required to sell their inventory at significantly reduced prices
or liquidation prices in order to pay their financial obligations. These supply
conditions, combined with the Company’s inventory pipeline reduction strategy,
have resulted in higher discounts and sales incentives used to facilitate retail
boat sales, which can lead to lower sales or result in pressure on wholesale
prices.
The
Company may be required to repurchase inventory or accounts of certain
dealers.
The
Company has agreements with certain third-party finance companies to provide
financing to the Company’s customers to enable the purchase of its
products. In connection with these agreements, the Company may have
obligations to either repurchase the Company’s products from the finance
company, or may have recourse obligations to the finance company on the dealers
receivables. These obligations are triggered if the Company’s dealers
default on their debt obligations to the finance companies.
The
Company’s maximum contingent obligation to repurchase inventory and its maximum
contingent recourse obligations on customer receivables are less than the total
balances of dealer financings outstanding under these programs, as the Company’s
obligations under certain of these arrangements are subject to caps, or limit
the Company’s obligations based on the age of product. The Company’s
risk related to these arrangements is mitigated by the proceeds it receives on
the resale of repurchased product to other dealers, or by recoveries on
receivables purchased under the recourse obligations.
The
Company’s inventory repurchase obligations relate primarily to the inventory
floorplan credit facilities of the Company’s boat and engine dealers. The
Company’s actual historical repurchase experience related to these arrangements
has been substantially less than the Company’s maximum contractual obligations.
If additional dealers file for bankruptcy or cease operations, additional losses
associated with the repurchase of the Company’s products will be
incurred. The Company’s net sales and earnings may be unfavorably
affected as a result of reduced market coverage and the associated decline in
sales.
Continued
weakness in the marine industry could cause an increase in future repurchase
activity, or could require the Company to incur losses in excess of established
reserves. In addition, the Company’s cash flow and loss experience
could be adversely affected if inventory is not successfully distributed to
other dealers in a timely manner, or if the recovery rate on the resale of the
product declines. In addition, the finance companies could require
changes in repurchase or recourse terms that would result in an increase in the
Company’s contractual contingent obligations.
The
inability of the Company’s dealers and distributors to secure adequate access to
capital could adversely affect the Company’s sales.
The
Company’s dealers require adequate liquidity to finance their operations,
including purchases of the Company’s products. Dealers are subject to
numerous risks and uncertainties that could unfavorably affect their liquidity
positions, including, among other things, continued access to adequate financing
sources on a timely basis on reasonable terms. These sources of
financing are vital to the Company’s ability to sell products through the
Company’s distribution network, particularly to its boat and engine
dealers. During the recent credit crisis, several third-party
floorplan lenders ceased their lending operations, or materially reduced their
exposure. A significant portion of the Company’s domestic and
international boat and engine sales to dealers are financed through entities
affiliated with GE Capital Corporation (GECC), including BAC (the
Company’s 49 percent owned joint venture,
with the other 51 percent being owned by CDFV, a subsidiary of
GECC), which provides floorplan financing to domestic marine
dealers. During 2009, GECC implemented several changes to its lending
terms that significantly increased the cost of financing, imposed stricter
lending criteria and required more rigorous terms, such as the timing of
curtailment payments due on product based on aging. These
changes have translated to higher costs for dealers to carry inventory, which in
part has led the Company and its dealers to reassess and ultimately reduce
wholesale orders and dealer inventories.
10
BAC
commenced operations in 2003, and in the second quarter of 2008, the term of the
joint venture was extended through June 2014. The joint venture is
funded with the capital contributions from the joint venture partners, along
with a $1.0 billion secured credit line provided by GE Commercial Distribution
Finance Corporation (GECDF), which is in place through the term of the joint
venture, and through receivable sales to a securitization facility arranged by
GECDF. The Company does not guarantee the debt of
BAC. GECDF may, however, terminate the joint venture if the Company
is unable to maintain compliance with the minimum fixed-charge coverage ratio
covenant included in the joint venture agreement, which is the same as the
covenant included in the Company’s revolving credit facility.
The
availability and terms of financing offered by the Company’s dealer floorplan
financing providers (including BAC and others) will continue to be influenced by
their ability to access certain markets, including the securitization and the
commercial paper markets, and to fund their operations in a cost effective
manner; the performance of their overall credit portfolios; their willingness to
accept the risks associated with lending to marine dealers; and the overall
creditworthiness of those dealers. The Company’s sales could be
adversely affected if BAC were to be terminated, if further declines in
floorplan financing availability occur, or if financing terms become more
adverse. This could require the Company to find alternative sources
of financing, including the Company providing this financing directly to
dealers, which could require additional capital to fund the associated
receivables.
An
impairment in the carrying value of goodwill, trade names and other long-lived
assets could negatively affect the Company’s consolidated results of operations
and net worth.
Goodwill
and indefinite-lived intangible assets, such as the Company’s trade names, are
recorded at fair value at the time of acquisition and are not amortized, but are
reviewed for impairment at least annually or more frequently if impairment
indicators arise. In evaluating the potential for impairment of
goodwill and trade names, the Company makes assumptions regarding future
operating performance, business trends and market and economic
conditions. Such analyses further require the Company to make certain
assumptions about sales, operating margins, growth rates and discount
rates. There are inherent uncertainties related to these factors and
in applying these factors to the assessment of goodwill and trade name
recoverability. Goodwill reviews are prepared using estimates of the
fair value of reporting units based on market multiples of EBITDA (earnings
before interest, taxes, depreciation and amortization) or on the estimated
present value of future discounted cash flows. The Company could be
required to evaluate the recoverability of goodwill or trade names prior to the
annual assessment if it experiences disruptions to the business, unexpected
significant declines in operating results, divestiture of a significant
component of the Company’s business or market capitalization
declines.
The
Company also continually evaluates whether events or circumstances have occurred
that indicate the remaining estimated useful lives of its definite-lived
intangible assets, excluding goodwill, and other long-lived assets may warrant
revision or whether the remaining balance of such assets may not be
recoverable. The Company uses an estimate of the related undiscounted
cash flow over the remaining life of the asset in measuring whether the asset is
recoverable.
If the
future operating performance of the Company’s reporting units is not consistent
with the Company’s assumptions, the Company could be required to record
additional non-cash impairment charges. Impairment charges could
substantially affect the Company’s reported earnings in the periods of such
charges. In addition, impairment charges could indicate a reduction
in business value which could limit the Company’s ability to obtain adequate
financing in the future. As of December 31, 2009, the Company had
$272.2 million of goodwill related to the Life Fitness segment and $20.3 million
of goodwill related to the Marine Engine segment. As of December 31,
2009, the Company’s total goodwill represented approximately 11 percent of total
assets.
The
Company’s business requires it to maintain a large fixed cost base that can
affect its profitability.
The high
levels of fixed costs of operating marine production plants can put pressure on
profit margins. The Company’s profitability is dependent, in part, on its
ability to spread fixed costs over an increasing number of products sold and
shipped, and if the Company continues to reduce its rate of production, as it
did in 2008 and 2009, gross margins will be negatively impacted. Decreased
demand or the need to reduce inventories can lower the Company’s ability to
absorb fixed costs and materially impact its results of operations.
11
Successfully
establishing a smaller manufacturing footprint is critical to the Company’s
operating and financial results.
A
significant component of the Company’s cost-reduction efforts has been focused
on reducing its manufacturing footprint by consolidating boat and engine
production into fewer plants. Since January 1, 2007, the Company has
closed 14 of its boat manufacturing facilities. Additionally, during
the third quarter of 2009, the Company announced plans to consolidate engine
production by transferring sterndrive engine manufacturing operations from its
Stillwater, Oklahoma plant to its Fond du Lac, Wisconsin plant. This plant
consolidation effort is underway and is expected to occur throughout 2010 and
2011.
Moving
production to a different plant involves risks, including the inability to start
up production within the cost and timeframe estimated, to supply product to
dealers when expected and to attract a sufficient number of skilled workers to
handle the additional production demands. The inability to
successfully implement the Company’s manufacturing footprint initiatives could
adversely affect its operating and financial results. Additionally, expenses
associated with plant consolidation, including severance costs, pension funding
requirements and loss of trained employees with knowledge of the Company’s
business and operations could exceed projections and negatively impact financial
results.
The
Company’s inability to successfully implement its restructuring initiatives and
other uncertainties could negatively affect the Company’s liquidity position,
which in turn could have a material adverse effect on the Company’s
business.
The
Company’s ability to successfully generate cash flow will depend on its
continued successful execution of the Company’s restructuring initiatives and
its plans to consolidate manufacturing operations, in order to return the
Company’s marine operations to profitability. The Company is subject
to numerous other risks and uncertainties that could negatively affect its cash
flow in the future. These include, among other things, the continued
reduction in marine industry demand as a result of a weak global economy
resulting in, among other things: (i) the failure of the Company’s customers to
pay amounts owed or to pay amounts owed to it on a timely basis, or (ii) an
increase in the Company’s obligations to repurchase its products or make
recourse payments on customers’ debt obligations. The continuation
of, or adverse change with respect to, one or more of these trends would weaken
the Company’s competitive position and materially adversely affect the Company’s
ability to satisfy its anticipated cash requirements.
The
Company relies on third-party suppliers for the supply of the raw materials,
parts and components necessary to assemble its products. The
Company’s financial results may be adversely affected by an increase in cost,
disruption of supply or shortage of or defect in raw materials, parts or product
components.
Outside
suppliers and contract manufacturers provide the Company with raw materials used
in its manufacturing processes including oil, aluminum, steel and resins, as
well as product parts and components, such as engine blocks and boat
windshields. The prices for these raw materials, parts and components
fluctuate depending on market conditions. Substantial increases in
the prices of the Company’s raw materials, parts and components would increase
the Company’s operating costs, and could reduce its profitability if the Company
cannot recoup the increased costs through increased product
prices. In addition, some components used in the Company’s
manufacturing processes, including engine blocks and boat windshields, are
available from a sole supplier or a limited number of
suppliers. Financial difficulties or solvency problems that these or
other suppliers currently face or may face in the future could adversely affect
their ability to supply the Company with the parts and components it needs,
which could significantly disrupt the Company’s operations. It may be
difficult to find a replacement supplier for a limited or sole source raw
material, part or component without significant delay or on commercially
reasonable terms. In addition, an uncorrected defect or supplier’s
variation in a raw material, part or component, either unknown to the Company or
incompatible with the Company’s manufacturing process, could harm the Company’s
ability to manufacture products. An increase in the cost of, a
shortage of, or defects or a sustained interruption in the supply of some
of these raw materials, parts or products that may be caused by delayed start-up
periods experienced by the Company’s suppliers as they ramp up production
efforts, financial pressures on the Company’s suppliers due to the weakening
economy, a deterioration of the Company’s relationships with suppliers or by
events such as natural disasters, power outages or labor strikes, could disrupt
the Company’s operations, impair the Company’s ability to deliver products to
the Company’s customers and negatively affect the Company’s financial results.
In addition to the risks described above regarding interruption of supplies,
which are exacerbated in the case of single-source suppliers, the exclusive
supplier of a key component potentially could exert significant bargaining power
over price, quality, warranty claims, or other terms relating to a
component.
Additionally,
as a result of recent worldwide economic conditions and the reduced demand for
raw materials, parts, supplies and goods, many of the Company’s suppliers made
the decision to slow or temporarily cease production in 2008 and 2009.
Additionally, many of the Company’s suppliers have elected to reduce the size of
their workforces. As the Company’s manufacturing operations continue to ramp up
production in 2010, the Company’s need for raw materials and supplies will
likewise increase. The Company’s suppliers must be prepared to resume operations
and, in many cases, must recall or hire additional workers in order to fulfill
the orders placed by the Company and other customers. In 2009, the
Company
began experiencing some supply shortages and continues working to address this
issue by indentifying alternative suppliers, working to secure adequate
inventories of critical supplies and continually monitoring its supplier base.
During this transition period, however, the Company may continue to experience
shortages of and delayed delivery of key materials, parts and supplies that are
essential to its manufacturing operations.
12
The Company’s
pension funding requirements and expenses are affected by certain factors
outside of its control, including the performance of plan assets, the discount
rate used to value liabilities, actuarial data and experience and legal and
regulatory changes.
The
Company’s funding obligations and pension expense for its four qualified pension
plans are driven by the performance of assets set aside in trusts for these
plans, the discount rate used to value the plans’ liabilities, actuarial data
and experience and legal and regulatory funding requirements. Changes
in these factors can affect the accounting expense and cash funding requirements
associated with these plans, which could have an adverse impact on the Company’s
results of operations, liquidity or shareholders’ equity. In
addition, a significant percentage of the Company’s pension plan assets are
invested in equity securities. Due to significant declines in
worldwide financial market conditions, the funded status of the Company’s
pension plans was adversely affected and the level of the Company’s funding of
its pension liabilities has declined to approximately 60% (including the impact
of non-qualified pension liabilities) as of December 31, 2009. The Company’s
future pension expenses and funding requirements could further increase
significantly due to the effect of the discount rate, changes in asset levels
and a decline in the estimated return on plan assets. In addition, the Company
could be legally required to make increased contributions to the pension plans,
and these contributions could be material and negatively affect the Company’s
cash flow.
Higher
energy costs can adversely affect the Company’s results, especially in the
marine and retail bowling center businesses.
Higher
energy and fuel costs result in increases in operating expenses at the Company’s
manufacturing facilities and in the cost of shipping products to
customers. In addition, increases in energy costs can adversely
affect the pricing and availability of petroleum-based raw materials such as
resins and foam that are used in many of the Company’s marine
products. Also, higher fuel prices may have an adverse effect on
demand for marine retail products as they increase the cost of boat
ownership. Finally, because heating and air conditioning comprise a
significant part of the cost of operating a bowling center, any increase in the
price of energy could adversely affect the operating margins of the Company’s
bowling centers.
The
Company’s profitability may suffer as a result of competitive pricing and other
pressures.
The
introduction of lower-priced alternative products by other companies can hurt
the Company’s competitive position in all of its businesses. The
Company is constantly subject to competitive pressures, particularly in the
outboard engine market, in which predominantly Asian manufacturers often have
pursued a strategy of aggressive pricing. Such pricing pressure has
limited the Company’s ability to increase prices for its products in response to
raw material and other cost increases and has negatively affected the Company’s
profit margins and may continue to do so. The Company has also
experienced pricing pressure from dealers with large unsold inventories and
increasing levels of repossessed boats, and faces a meaningful volume of
significantly discounted product coming into the market from failed or
struggling manufacturers or dealers.
In
addition, the Company’s independent boat builder customers may react negatively
to potential competition for their products from Brunswick’s own boat brands,
which can lead them to purchase marine engines and marine engine supplies from
competing marine engine manufacturers and may negatively affect demand for the
Company’s products.
13
The
Company’s ability to remain competitive depends on the successful introduction
of new product offerings.
The
Company believes that its customers rigorously evaluate their suppliers on the
basis of product quality, development capability and new product innovation. The
Company’s ability to remain competitive may be adversely affected by
difficulties or delays in product development, such as an inability to develop
viable new products, gain market acceptance of new products, generate sufficient
capital to fund new product development or obtain adequate intellectual property
protection for new products. Additionally, in 2008 and 2009, the Company
decreased the amount spent on research and development and capital expenditures
which, as a result, affects the number of new products it may be able to
develop. To meet ever-changing consumer demands, the timing of market entry and
pricing of new products are critical. As a result, the Company may
not be able to introduce new products necessary to remain competitive in all
markets that it serves.
The
Company competes with a variety of other activities for consumers’ scarce
discretionary income and leisure time.
The vast
majority of the Company’s products are used for recreational purposes, and
demand for the Company’s products can be adversely affected by competition from
other activities that occupy consumers’ leisure time, including other forms of
recreation as well as religious, cultural and community activities. A decrease
in discretionary income as a result of the current economic environment has
reduced consumers’ willingness to purchase and enjoy the Company’s
products.
The
Company’s success depends upon the continued strength of its
brands.
The
Company believes that its brands, including Brunswick, Mercury, Sea Ray, Boston
Whaler, Hatteras and Life Fitness, are significant contributors to the success
of the Company’s business and that maintaining and enhancing the brands are
important to expanding the Company’s customer base. Failure to
protect the Company’s brands from infringers may adversely affect the Company’s
business and results of operations.
The
Company’s operations are dependent upon the services of key individuals, the
loss of which could materially harm us.
The
Company’s operations depend, in part, on the efforts of the Company’s executive
officers and other key employees. In addition, the Company’s future
success will depend on, among other factors, its ability to attract and retain
other qualified personnel. The loss of the services of any of the Company’s key
employees or the failure to attract or retain employees could have a material
adverse effect on the Company. The Company’s restructuring
activities, which have resulted in substantial employee terminations, may make
it more difficult for the Company to attract or retain employees and it may be
adversely affected for some time by the loss of trained employees with knowledge
of the Company’s business and industries. If the Company is unable to
attract and retain qualified individuals, or the Company’s costs to do so
increase significantly, the Company’s operations could be materially adversely
affected.
The
Company manufactures and sells products that create exposure to potential
product liability, warranty liability, personal injury and property damage
claims and litigation.
The
Company’s products may expose it to potential liabilities for product liability,
warranty liability, personal injury or property damage claims relating to the
use of those products. The Company’s manufacturing consolidation efforts could
result in a disruption to its production processes and its increased
production rates could result in product quality issues, thereby increasing the
risk of litigation and potential liability. Historically, the resolution of such
claims has not materially adversely affected the Company’s business, and the
Company maintains insurance which it believes to be
adequate. However, the Company may experience material losses in the
future, incur significant costs to defend claims or experience claims in excess
of its insurance coverage or claims that will not be covered by
insurance. Furthermore, the Company’s reputation may be adversely
affected by such claims, whether or not successful, including potential negative
publicity about its products.
Environmental
and zoning requirements can inhibit the Company’s ability to grow its marine
businesses.
Environmental
restrictions, boat plant emission restrictions and permitting and zoning
requirements can limit access to water for boating, as well as marina and
storage space. In addition, certain jurisdictions both inside and
outside the United States require or are considering requiring a license to
operate a recreational boat. While such licensing requirements are
not expected to be unduly restrictive, they may deter potential customers,
thereby reducing the Company’s sales.
14
Compliance
with environmental regulations affecting marine engines will increase costs and
may reduce demand for the Company’s products.
The U.S.
Environmental Protection Agency recently adopted emission regulations requiring
certain gasoline sterndrive and inboard engines to be equipped with a catalyst,
with an effective date of January 1, 2010. It is possible that
environmental regulatory bodies may impose higher emissions standards in the
future for marine engines. Compliance with these standards would
increase the cost to manufacture and the price to the customer of the Company’s
engines, which could in turn reduce consumer demand for the Company’s marine
products. Any increase in the cost of marine engines, an increase in the retail
price to consumers or unforeseen delays in compliance with environmental
regulations affecting these products could have an adverse effect on the
Company’s results of operations.
The
Company’s businesses may be adversely affected by compliance obligations and
liabilities under environmental and other laws and
regulations.
The
Company is subject to federal, state, local and foreign environmental, health
and safety laws and other regulations, including exposure restrictions in
connection with manufacturing processes. While the Company believes
that it maintains all requisite licenses and permits and that it is in material
compliance with all applicable laws and regulations, a failure to satisfy these
and other regulatory requirements could cause the Company to incur fines or
penalties or could increase its cost of operations. The adoption of
additional laws, rules and regulations could also increase the Company’s capital
or operations costs.
The
Company’s manufacturing processes involve the use, handling, storage and
contracting for recycling or disposal of hazardous or toxic substances or
wastes. Accordingly, the Company is subject to regulations regarding
these substances, and the misuse or mishandling of such substances could expose
it to liabilities, including claims for property or natural resources
damages, personal injury, or fines. The Company is also subject
to laws requiring the cleanup of contaminated property. If a release
of hazardous substances occurs at or from any of the Company’s current or former
properties or another location where it has disposed of hazardous materials, the
Company may be held liable for the contamination, regardless of knowledge or
whether it was at fault in connection with the release, and the amount of such
liability could be material.
If
the Company’s intellectual property protection is inadequate, others may be able
to use its technologies and thereby reduce the Company’s ability to compete,
which could have a material adverse effect on the Company, its financial
condition and results of operations.
The
Company regards much of the technology underlying its products as
proprietary. The steps the Company takes to protect its proprietary
technology may be inadequate to prevent misappropriation of the Company’s
technology, or third parties may independently develop similar
technology. The Company relies on a combination of patents,
trademark, copyright and trade secret laws, employee and third party
non-disclosure agreements and other contracts to establish and protect its
technology and other intellectual property rights. The agreements may
be breached or terminated, and the Company may not have adequate remedies for
any breach, and existing patent, trademark, copyright and trade secret laws
afford it limited protection. Policing unauthorized use of the
Company’s intellectual property is difficult. A third party could
copy or otherwise obtain and use the Company’s products or technology without
authorization. Litigation may be necessary for the Company to defend against
claims of infringement or to protect its intellectual property rights and could
result in substantial cost. Further, the Company might not prevail in
such litigation, which could harm its business.
Some
of the Company’s operations are conducted by joint ventures that it cannot
operate solely for its benefit.
Some of
the Company’s operations are carried on through jointly owned companies such as
BAC or Cummins MerCruiser Diesel Marine LLC (CMD), Mercury Marine’s joint
venture with Cummins Marine, a division of Cummins Inc. With respect
to these joint ventures, the Company shares ownership and management of these
companies with one or more parties who may not have the same goals, strategies,
priorities or resources as the Company. These joint ventures are
intended to be operated for the equal benefit of all co-owners, rather than for
the Company’s exclusive benefit.
Changes
in currency exchange rates can adversely affect the Company’s
results.
Because
the Company derives a portion of its revenues from outside the United States
(42% in 2009), the Company’s financial performance can be adversely affected
when the U.S. dollar strengthens against other currencies. The
Company manufactures its products primarily in the United States and the costs
of the Company’s products are generally denominated in U.S. dollars, although
the increasing manufacture and sourcing of products and materials outside the
United States continues to be a strategic focus. The Company sells
most of these products in currencies other than the U.S. dollar. Consequently, a
strong U.S. dollar can make the Company’s products less price-competitive
relative to local products outside the United States.
15
Although
the Company enters into currency exchange contracts to reduce its risk related
to currency exchange fluctuations, it is impossible to hedge against all
currency risk, especially over the long term, and changes in the relative values
of currencies occur from time to time and may, in some instances, affect the
Company’s results of operations. The Company is also exposed to the
risk that its counterparties to hedging contracts could default on their
obligations, which may have an adverse effect on the Company.
A
growing portion of the Company’s revenue may be derived from international
sources, which exposes it to additional
uncertainty.
Approximately
42% of the Company’s 2009 sales were derived from sources outside of the United
States, and the Company intends to continue to expand its international
operations and customer base. Sales outside of the United States,
especially in emerging markets, are subject to various risks including
governmental embargoes or foreign trade restrictions, tariffs, fuel duties,
inflation and political difficulties in enforcing agreements and collecting
receivables through foreign legal systems, compliance with international laws,
treaties and regulations and unexpected changes in regulatory environments,
disruptions in distribution, dependence on foreign personnel and unions, as well
as economic and social instability. In addition, there may be tax
inefficiencies in repatriating cash flow from non-U.S.
subsidiaries. If the Company continues to expand its business
globally, its success will depend, in part, on the Company’s ability to
anticipate and effectively manage these and other risks. These and
other factors may have a material impact on the Company’s international
operations or its business as a whole.
Adverse weather
conditions can have a negative effect on marine and retail bowling center
revenues.
Weather
conditions can have a significant effect on the Company’s operating and
financial results, especially in the marine and retail bowling center
businesses. Sales of the Company’s marine products are generally
stronger just before and during spring and summer, and favorable weather during
these months generally has a positive effect on consumer
demand. Conversely, unseasonably cool weather, excessive rainfall or
drought conditions during these periods can reduce demand. Hurricanes
and other storms can result in the disruption of the Company’s distribution
channel. In addition, severely inclement weather on weekends and holidays,
particularly during the winter months, can adversely affect patronage of the
Company’s bowling centers and, therefore, revenues in the retail bowling center
business. Additionally, in the event that climate change occurs, which
could result in environmental changes including, but not limited to, severe
weather, rising sea levels or reduced access to water, the Company's business
could be disrupted and negatively impacted.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Brunswick’s
headquarters are located in Lake Forest, Illinois. Brunswick has numerous
manufacturing plants, distribution warehouses, bowling family entertainment
centers, retail stores, sales offices and product test sites around the world.
Research and development facilities are decentralized within Brunswick’s
operating segments and most are located at manufacturing sites.
The
Company believes its facilities are suitable and adequate for its current needs
and are well maintained and in good operating condition. Most plants and
warehouses are of modern, single-story construction, providing efficient
manufacturing and distribution operations. The Company believes its
manufacturing facilities have the capacity to meet current and anticipated
demand. Brunswick owns its Lake Forest, Illinois headquarters and most of its
principal plants.
The
primary facilities used in Brunswick’s continuing operations are in the
following locations:
Marine Engine
Segment: Fresno and Los Angeles, California; Old Lyme,
Connecticut; Miramar, Panama City, Pompano Beach and St. Cloud, Florida;
Atlanta, Georgia; Lowell, Michigan; Stillwater, Oklahoma; Brookfield and Fond du
Lac, Wisconsin; Petit Rechain, Belgium; Toronto, Ontario, Canada; Suzhou,
People’s Republic of China; Juarez, Mexico; Auckland, New Zealand; Vila Nova de
Cerveira, Portugal; and Singapore. The Fresno and Los Angeles, California; Old
Lyme, Connecticut; Miramar and Pompano Beach, Florida; Lowell, Michigan;
Toronto, Ontario, Canada; and Auckland, New Zealand facilities are leased. The
remaining facilities are owned by Brunswick.
Boat
Segment: Adelanto, California; Edgewater, Merritt Island and
Palm Coast, Florida; Fort Wayne, Indiana; Little Falls and New York Mills,
Minnesota; Lebanon, Missouri; New Bern, North Carolina; Vila Nova de Cerveira,
Portugal; Ashland City, Knoxville and Vonore, Tennessee; Princeville, Quebec,
Canada; Zhuhai, People’s Republic of China; Reynosa, Mexico; and Kidderminster,
United Kingdom. Brunswick owns all of these facilities with the exception of the
Adelanto, California facility, which is leased.
Fitness
Segment: Franklin Park and Schiller Park, Illinois; Falmouth,
Kentucky; Ramsey, Minnesota; and Kiskoros and Szekesfehervar, Hungary. The
Schiller Park office and a portion of the Franklin Park facility are leased. The
remaining facilities are owned by Brunswick or, in the case of the Kiskoros,
Hungary facility, by a company in which Brunswick is the majority
owner.
16
Bowling & Billiards
Segment: Lake Forest, Illinois; Muskegon, Michigan; Bristol,
Wisconsin; Szekesfehervar, Hungary; and Reynosa, Mexico; 100 bowling recreation
centers in the United States, Canada and Europe; and one retail billiards store
in a Boston suburb. Approximately 35 percent of BB&B’s bowling centers, as
well as the Reynosa manufacturing facility and the retail billiards store, are
leased. The remaining facilities are owned by Brunswick.
Item
3. Legal Proceedings
The
Company accrues for litigation exposure based upon its assessment, made in
consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company’s litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company’s consolidated financial position or results of
operations. If current estimates for the cost of resolving any claims are later
determined to be inadequate, results of operations could be adversely affected
in the period in which additional provisions are required.
Tax
Case
In
February 2003, the United States Tax Court issued a ruling upholding the
disallowance by the Internal Revenue Service (IRS) of capital losses and other
expenses for 1990 and 1991 related to two partnership investments entered into
by the Company. In 2003 and 2004, the Company made payments to the IRS comprised
of approximately $33 million in taxes due and approximately $39 million of
pretax interest (approximately $25 million after-tax) to avoid future interest
costs. Subsequently, the Company and the IRS settled all issues involved in and
related to this case. As a result, the Company reversed $42.6 million of tax
reserves in 2006, primarily related to the reassessment of underlying exposures,
received a refund of $12.9 million from the IRS, and recorded an additional tax
receivable of $4.1 million for interest related to these tax years. In 2008, the
Company protested that the IRS’s calculation of the $4.1 million interest
receivable due to the Company was understated. As a result, the IRS paid the
Company approximately $10 million for interest related to these tax years in
2008. Additionally, these tax years will be subject to tax audits by various
state jurisdictions to determine the state tax effect of the IRS's audit
adjustments.
German
Tax Audit
As the
result of a German tax audit for years 1998 through 2001, the Company’s German
subsidiary received a proposed audit adjustment in the fourth quarter of 2009,
which is being contested by the Company, related to the shutdown of the
subsidiary’s pinsetter manufacturing operation and sale of the subsidiary’s
pinsetter assets to a related subsidiary.
Environmental
Matters
Brunswick
is involved in certain legal and administrative proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
other federal and state legislation governing the generation and disposal of
certain hazardous wastes. These proceedings, which involve both on- and off-site
waste disposal or other contamination, in many instances seek compensation or
remedial action from Brunswick as a waste generator under Superfund legislation,
which authorizes action regardless of fault, legality of original disposition or
ownership of a disposal site. Brunswick has established reserves based on a
range of cost estimates for all known claims.
The
environmental remediation and clean-up projects in which Brunswick is involved
have an aggregate estimated range of exposure of approximately $46.2 million to
$80.4 million as of December 31, 2009. At December 31, 2009 and 2008, Brunswick
had reserves for environmental liabilities of $48.0 million and $46.9 million,
respectively. The Company recorded environmental provisions of $2.4 million,
$0.0 and $0.7 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
Brunswick
accrues for environmental remediation related activities for which commitments
or clean-up plans have been developed and for which costs can be reasonably
estimated. All accrued amounts are generally determined in coordination with
third-party experts on an undiscounted basis and do not consider recoveries from
third parties until such recoveries are realized. In light of existing reserves,
the Company’s environmental claims, when finally resolved, will not, in the
opinion of management, have a material adverse effect on the Company’s
consolidated financial position or results of operations.
17
Asbestos
Claims
Brunswick’s
subsidiary, Old Orchard Industrial Corp., is a defendant in more than 8,000
lawsuits involving claims of asbestos exposure from products manufactured by
Vapor Corporation (Vapor), a former subsidiary that the Company divested in
1990. Virtually all of the asbestos suits involve numerous other defendants. The
claims generally allege that Vapor sold products that contained components, such
as gaskets, which included asbestos, and seek monetary damages. Neither
Brunswick nor Vapor is alleged to have manufactured asbestos. Several thousand
claims have been dismissed with no payment and no claim has gone to jury
verdict. In a few cases, claims have been filed against other Brunswick
entities, with a majority of these suits being either dismissed or settled for
nominal amounts. The Company does not believe that the resolution of these
lawsuits will have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Brazilian
Customs Dispute
In June
2007, the Brazilian Customs Office issued an assessment against a Company
subsidiary in the amount of approximately $14 million related to the importation
of Life Fitness products into Brazil. The assessment was based on a
determination by Brazilian customs officials that the proper import value of
Life Fitness equipment imported into Brazil should be the manufacturer’s
suggested retail price of those goods in the United States. This assessment was
dismissed during 2008. The Brazilian Customs Office has appealed the ruling as a
matter of course.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders during the fourth quarter
of 2009.
Executive
Officers of the Registrant
Brunswick’s
Executive Officers are listed in the following table:
|
Officer
|
Present
Position
|
Age
|
||
|
Dustan
E. McCoy
|
Chairman
and Chief Executive Officer
|
60
|
||
|
Peter
B. Hamilton
|
Senior
Vice President and Chief Financial Officer
|
63
|
||
|
Kristin
M. Coleman
|
Vice
President, General Counsel and Secretary
|
41
|
||
|
Andrew
E. Graves
|
Vice
President and President – Brunswick Boat Group
|
50
|
||
|
Kevin
S. Grodzki
|
Vice
President and President – Mercury Marine Sales, Marketing and Commercial
Operations
|
54
|
||
|
Warren
N. Hardie
|
Vice
President and President – Brunswick Bowling &
Billiards
|
59
|
||
|
B.
Russell Lockridge
|
Vice
President and Chief Human Resources Officer
|
60
|
||
|
Alan
L. Lowe
|
Vice
President and Controller
|
58
|
||
|
John
C. Pfeifer
|
Vice
President, President – Brunswick Marine in EMEA and President – Brunswick
Global Structure
|
44
|
||
|
Mark
D. Schwabero
|
Vice
President and President – Mercury Marine
|
57
|
||
|
John
E. Stransky
|
Vice
President and President – Life Fitness
|
58
|
||
|
Stephen
M. Wolpert
|
Vice
President and Vice President – Global Boat Operations
|
55
|
There are
no familial relationships among these officers. The term of office of all
elected officers expires May 5, 2010. The Executive Officers are appointed from
time to time at the discretion of the Chief Executive Officer.
Dustan E. McCoy was named
Chairman and Chief Executive Officer of Brunswick in December 2005. He was Vice
President of Brunswick and President – Brunswick Boat Group from 2000 to 2005.
From 1999 to 2000, he was Vice President, General Counsel and Secretary of
Brunswick.
Peter B. Hamilton was named
Senior Vice President and Chief Financial Officer of Brunswick in September
2008. He served as Vice Chairman of the Board of Brunswick from 2000 until his
retirement in 2007; Executive Vice President and Chief Financial Officer of
Brunswick from 1998 to 2000; and Senior Vice President and Chief Financial
Officer of Brunswick from 1995 to 1998.
Kristin M. Coleman was named
Vice President, General Counsel and Secretary of Brunswick in May 2009. Prior to
her appointment, she was Vice President and Associate General Counsel for Mead
Johnson Nutrition Company. She had previously been with Brunswick Corporation
from 2003 to 2008, serving in a number of positions of increasing
responsibility.
18
Andrew E. Graves was named
Vice President and President – Brunswick Boat Group in October
2009. Previously, he was Vice President and President – US Marine and
Outboard Boats from 2008 to 2009; and President – Brunswick Boat Group
Freshwater Group from 2005 to 2008. From 2003 to 2005, Mr. Graves was
President of Dresser Flow Solutions, a global energy infrastructure
company.
Kevin S. Grodzki was named
Vice President and President – Mercury Marine Sales, Marketing and Commercial
Operations in November of 2008. He has been with Mercury since 2005. Prior to
that assignment, he was President of Brunswick’s Life Fitness
Division.
Warren N. Hardie was named
Vice President and President – Brunswick Bowling & Billiards in February
2006. Previously, he was President – Bowling Retail from 1998 to February
2006.
B. Russell Lockridge has been
Vice President and Chief Human Resources Officer of Brunswick since
1999.
Alan L. Lowe has been Vice
President and Controller of Brunswick since September 2003.
John C. Pfeifer was named
Vice President and President – Brunswick Marine in EMEA, as well as President –
Brunswick Global Structure, in February 2008. Mr. Pfeifer joined
Brunswick in 2006, serving most recently as President – Brunswick Asia-Pacific
Group. Prior to joining Brunswick, Mr. Pfeifer held executive
positions with ITT Corporation, a high-technology engineering and manufacturing
company, from 2000 to 2006.
Mark D. Schwabero was named
Vice President and President – Mercury Marine in December 2008. Previously, he
was President – Mercury Outboards from 2004 to 2008.
John E. Stransky was named
Vice President and President – Life Fitness in February 2006. Previously, he was
President – Brunswick Bowling & Billiards from February 2005 to February
2006 and President of the Billiards division from 1998 to 2005.
Stephen M. Wolpert was named
Vice President and Vice President – Global Boat Operations in November of 2009.
Mr. Wolpert most recently was Vice President of Manufacturing and, prior to that
appointment, served as President – US Marine Division. He joined the
Brunswick Boat Group as its Vice President – Manufacturing in 2001, and
continued serving in positions of increasing responsibility.
19
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Brunswick’s
common stock is traded on the New York and Chicago Stock Exchanges. Quarterly
information with respect to the high and low prices for the common stock and the
dividends declared on the common stock is set forth in Note 22 – Quarterly Data
(unaudited) in the Notes to Consolidated Financial Statements. As of February
19, 2010, there were 12,517 shareholders of record of the Company’s common
stock.
In
October 2009 and October 2008, Brunswick announced its annual dividend on its
common stock of $0.05 per share, payable in December 2009 and December 2008,
respectively. Brunswick intends to continue to pay annual dividends at the
discretion of the Board of Directors, subject to continued capital availability
and a determination that cash dividends continue to be in the best interest of
the Company’s stockholders.
In the
second quarter of 2005, Brunswick’s Board of Directors authorized and announced
a $200.0 million share repurchase program, to be funded with available cash. On
April 27, 2006, the Board of Directors increased the Company’s remaining share
repurchase authorization of $62.2 million to $500.0 million. The Company did not
repurchase any shares during 2009 or 2008. During 2007, the Company repurchased
approximately 4.1 million shares under this program for $125.8 million. As of
December 31, 2009, the Company had repurchased approximately 11.7 million shares
for $397.4 million since the program’s inception with a remaining authorization
of $240.4 million. The plan has been suspended as the Company intends to retain
cash to enhance its liquidity rather than to repurchase shares.
Brunswick’s
dividend and share repurchase policies may be affected by, among other things,
the Company’s views on future liquidity, potential future capital requirements
and restrictions contained in certain credit agreements.
20
Performance
Graph
Comparison
of Five-Year Cumulative Total Return among Brunswick, S&P 500 Index and
S&P 500 Global Industry Classification Standard (GICS) Consumer
Discretionary Index
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
|
|
Brunswick
|
100.00
|
83.23
|
66.38
|
36.35
|
9.02
|
27.39
|
|
S&P
500 Index
|
100.00
|
103.00
|
117.03
|
121.16
|
74.53
|
92.01
|
|
S&P
500 GICS Consumer Discretionary Index
|
100.00
|
92.64
|
108.61
|
93.05
|
60.74
|
83.07
|
The basis
of comparison is a $100 investment at December 31, 2004, in each of (i)
Brunswick, (ii) the S&P 500 Index, and (iii) the S&P 500 GICS Consumer
Discretionary Index. All dividends are assumed to be reinvested. The S&P 500
GICS Consumer Discretionary Index encompasses industries including automotive,
household durable goods, textiles and apparel, and leisure equipment. Brunswick
believes the companies included in this index provide a representative sample of
enterprises that are in primary lines of business that are similar to
Brunswick’s.
21
Item
6. Selected Financial Data
The
selected historical financial data presented below as of and for the years ended
December 31, 2009, 2008 and 2007 have been derived from, and should be read in
conjunction with, the historical consolidated financial statements of the
Company, including the notes thereto, and Item 7 of this report, including the
Matters Affecting
Comparability section. The selected historical financial data presented
below as of and for the years ended December 31, 2006 and 2005 have been derived
from the consolidated financial statements of the Company for the years that are
not included herein. The financial data presented below have been restated to
present discontinued operations separately from continuing
operations.
|
(in
millions, except per share data)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Results
of operations data
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,776.1 | $ | 4,708.7 | $ | 5,671.2 | $ | 5,665.0 | $ | 5,606.9 | ||||||||||
|
Operating
earnings (loss) (A)
|
(570.5 | ) | (611.6 | ) | 107.2 | 341.2 | 468.7 | |||||||||||||
|
Earnings
(loss) before interest, loss on early
extinguishment of debt and income taxes (A)
|
(588.7 | ) | (584.7 | ) | 136.3 | 354.2 | 524.1 | |||||||||||||
|
Earnings
(loss) before income taxes (A)
|
(684.7 | ) | (632.2 | ) | 92.7 | 309.7 | 485.9 | |||||||||||||
|
Net
earnings (loss) from continuing operations (A)
|
(586.2 | ) | (788.1 | ) | 79.6 | 263.2 | 371.1 | |||||||||||||
|
Discontinued
operations:
|
||||||||||||||||||||
|
Earnings
(loss) from discontinued
operations,
net of tax (B)
|
— | — | 32.0 | (129.3 | ) | 14.3 | ||||||||||||||
|
Net
earnings (loss) (A)
|
$ | (586.2 | ) | $ | (788.1 | ) | $ | 111.6 | $ | 133.9 | $ | 385.4 | ||||||||
|
Basic
earnings (loss) per common share:
|
||||||||||||||||||||
|
Earnings
(loss) from continuing operations (A)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 0.88 | $ | 2.80 | $ | 3.80 | ||||||||
|
Discontinued
operations:
|
||||||||||||||||||||
|
Earnings
(loss) from discontinued
operations,
net of tax
|
— | — | 0.36 | (1.38 | ) | 0.15 | ||||||||||||||
|
Net
earnings (loss) (A)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 1.24 | $ | 1.42 | $ | 3.95 | ||||||||
|
Average
shares used for computation of
basic
earnings (loss) per share
|
88.4 | 88.3 | 89.8 | 94.0 | 97.6 | |||||||||||||||
|
Diluted
earnings (loss) per common share:
|
||||||||||||||||||||
|
Earnings
(loss) from continuing operations (A)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 0.88 | $ | 2.78 | $ | 3.76 | ||||||||
|
Discontinued
operations:
|
||||||||||||||||||||
|
Earnings
(loss) from discontinued
operations,
net of tax
|
— | — | 0.36 | (1.37 | ) | 0.14 | ||||||||||||||
|
Net
earnings (loss) (A)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 1.24 | $ | 1.41 | $ | 3.90 | ||||||||
|
Average
shares used for computation of
diluted
earnings per share
|
88.4 | 88.3 | 90.2 | 94.7 | 98.8 | |||||||||||||||
|
(A)
|
2009
results include $172.5 million of pretax restructuring, exit and
impairment charges. 2008 results include $688.4 million of pretax goodwill
impairment charges, trade name impairment charges and restructuring, exit
and impairment charges. 2007 results include $88.6 million of pretax trade
name impairment charges and restructuring, exit and impairment charges.
2006 results include $17.1 million of pretax restructuring, exit and
impairment charges.
|
|
(B)
|
Earnings
(loss) from discontinued operations in 2007 include net gains of $29.8
million related to the sales of the discontinued businesses. Earnings
(loss) from discontinued operations in 2006 include an $85.6 million
impairment charge ($73.9 million pretax) related to the Company’s
announcement in December 2006 that proceeds from the sale of BNT were
expected to be less than its book value. See Note
20 – Discontinued Operations in the Notes to Consolidated Financial
Statements for further details.
|
22
|
(in
millions, except per share and other data)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Balance
sheet data
|
||||||||||||||||||||
|
Total
assets of continuing operations
|
$ | 2,709.4 | $ | 3,223.9 | $ | 4,365.6 | $ | 4,312.0 | $ | 4,414.8 | ||||||||||
|
Debt
Short-term
|
$ | 11.5 | $ | 3.2 | $ | 0.8 | $ | 0.7 | $ | 1.1 | ||||||||||
|
Long-term
|
839.4 | 728.5 | 727.4 | 725.7 | 723.7 | |||||||||||||||
|
Total
debt
|
850.9 | 731.7 | 728.2 | 726.4 | 724.8 | |||||||||||||||
|
Common
shareholders’ equity (A)
(B)
|
210.3 | 729.9 | 1,892.9 | 1,871.8 | 1,978.8 | |||||||||||||||
|
Total
capitalization (A)
(B)
|
$ | 1,061.2 | $ | 1,461.6 | $ | 2,621.1 | $ | 2,598.2 | $ | 2,703.6 | ||||||||||
|
Cash
flow data
Net
cash provided by (used for)
operating
activities of continuing operations
|
$ | 125.5 | $ | (12.1 | ) | $ | 344.1 | $ | 351.0 | $ | 421.6 | |||||||||
|
Depreciation
and amortization
|
157.3 | 177.2 | 180.1 | 167.3 | 156.3 | |||||||||||||||
|
Capital
expenditures
|
33.3 | 102.0 | 207.7 | 205.1 | 223.8 | |||||||||||||||
|
Acquisitions
of businesses
|
— | — | 6.2 | 86.2 | 130.3 | |||||||||||||||
|
Investments
|
(6.2 | ) | (20.0 | ) | (4.1 | ) | (6.1 | ) | 18.1 | |||||||||||
|
Stock
repurchases
|
— | — | 125.8 | 195.6 | 76.0 | |||||||||||||||
|
Cash
dividends paid
|
4.4 | 4.4 | 52.6 | 55.0 | 57.3 | |||||||||||||||
|
Other
data
Dividends
declared per share
|
$ | 0.05 | $ | 0.05 | $ | 0.60 | $ | 0.60 | $ | 0.60 | ||||||||||
|
Book
value per share (A)
(B)
|
2.38 | 8.27 | 20.99 | 19.76 | 20.03 | |||||||||||||||
|
Return
on beginning shareholders’ equity
|
(80.3)% | (41.6)% | 6.0% | 6.8% | 22.5% | |||||||||||||||
|
Effective
tax rate
|
14.4% | (24.7)% | 14.1% | 15.0% | 23.6% | |||||||||||||||
|
Debt-to-capitalization
rate (A)
(B)
|
80.2% | 50.1% | 27.8% | 28.0% | 26.8% | |||||||||||||||
|
Number
of employees
|
15,003 | 19,760 | 27,050 | 28,000 | 26,500 | |||||||||||||||
|
Number
of shareholders of record
|
12,602 | 12,842 | 13,052 | 13,695 | 14,143 | |||||||||||||||
|
Common
stock price (NYSE)
High
|
$ | 13.11 | $ | 19.28 | $ | 34.80 | $ | 42.30 | $ | 49.50 | ||||||||||
|
Low
|
2.18 | 2.01 | 17.05 | 27.56 | 35.09 | |||||||||||||||
|
Close
(last trading day)
|
12.71 | 4.21 | 17.05 | 31.90 | 40.66 | |||||||||||||||
|
(A)
|
Effective December
31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106, and 132(R),” codified under
ASC 715 “Compensation – Retirement Benefits,” which resulted in a $60.7
million decrease to Shareholders’ equity. The Company adopted the
provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” (FIN 48), codified under ASC 740 “Income Taxes,” effective
on January 1, 2007. As a result of the implementation of FIN 48, the
Company recognized an $8.7 million decrease in the net liability for
unrecognized tax benefits, which was accounted for as an increase to the
January 1, 2007, opening retained
earnings.
|
|
(B)
|
2009
results include $172.5 million of pretax restructuring, exit and
impairment charges. 2008 results include $688.4 million of pretax goodwill
impairment charges, trade name impairment charges and restructuring, exit
and impairment charges. 2007 results include $88.6 million of pretax trade
name impairment charges and restructuring, exit and impairment charges.
2006 results include $17.1 million of pretax restructuring, exit and
impairment charges.
|
The Notes
to Consolidated Financial Statements should be read in conjunction with the
above summary.
23
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Certain
statements in Management’s Discussion and Analysis are based on non-GAAP
financial measures. Specifically, the discussion of the Company’s cash flows
includes an analysis of free cash flows, net debt and total liquidity. GAAP
refers to generally accepted accounting principles in the United States. A
“non-GAAP financial measure” is a numerical measure of a registrant’s historical
or future financial performance, financial position or cash flows that excludes
amounts, or is subject to adjustments that have the effect of excluding amounts,
that are included in the most directly comparable measure calculated and
presented in accordance with GAAP in the statement of operations, balance sheet
or statement of cash flows of the issuer; or includes amounts, or is subject to
adjustments that have the effect of including amounts, that are excluded from
the most directly comparable measure so calculated and presented. Operating and
statistical measures are not non-GAAP financial measures.
The
Company includes non-GAAP financial measures in Management’s Discussion and
Analysis, as Brunswick’s management believes that these measures and the
information they provide are useful to investors because they permit investors
to view Brunswick’s performance using the same tools that management uses and to
better evaluate the Company’s ongoing business performance.
Certain
other statements in Management’s Discussion and Analysis are forward-looking as
defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations that are subject to risks and
uncertainties. Actual results may differ materially from expectations as of the
date of this filing because of factors discussed in Item 1A of this Annual
Report on Form 10-K.
Overview
and Outlook
General
In 2009,
Brunswick continued its restructuring activities in order to operate effectively
in a difficult economy and marine industry, while positioning itself to take
advantage of market opportunities as they evolve, and maintaining its strategic
objective to solidify its leadership position in the marine, fitness and bowling
and billiards industries, by:
|
|
•
|
Maintaining
strong liquidity during difficult economic
times;
|
|
|
•
|
Focusing
on cost reduction initiatives across the organization through the resizing
and realignment of Brunswick’s manufacturing operations and organizational
structure;
|
|
|
•
|
Continuing
to shrink and consolidate its manufacturing footprint to a level that
allows each facility to produce at higher volumes and lower costs;
and
|
|
|
•
|
Lowering
its marine production levels to achieve reductions in pipeline inventories
held by its dealers in order to maintain the health of the Company’s many
dealers in a difficult retail
environment.
|
Actions
in support of the Company’s strategic objectives in 2009 include:
|
Maintaining
Liquidity:
|
|
–
|
Increased
its overall liquidity and reduced its net debt position, when compared
with the end of 2008, through cost reduction efforts, combined with
inventory management strategies;
|
|
–
|
Reduced
its near-term debt obligations through a $350.0 million debt offering due
in 2016. The Company used a portion of the proceeds to repay
99.6 percent of the Company’s notes due in 2011 and to reduce the amount
of its 2013 notes outstanding to $153.4 million, representing the only
significant long-term debt maturity from 2010 to 2015;
and
|
|
–
|
Ended
the year with $526.6 million of cash, compared with $317.5 million at the
end of 2008, despite a significant reduction in sales and a difficult
economy.
|
24
|
Cost
Reduction Initiatives and Manufacturing
Realignment:
|
|
–
|
Achieved
the Company’s goal of reducing its fixed-cost structure compared with 2007
by approximately $420 million through continued reduction of the Company’s
global workforce, consolidation of manufacturing operations and
disposition of non-strategic
assets;
|
|
–
|
Reduced
total Company workforce by 24 percent in 2009 and 45 percent since
2007;
|
|
–
|
Removed approximately 13,700 boats, or 47 percent, from dealer pipeline inventories; and |
|
–
|
Further
adjusted the boat manufacturing footprint to streamline operations by
having several plants manufacture multiple brands, rather than having
dedicated facilities for single brands;
and
|
|
–
|
Reduced
the number of boat models being manufactured in order to better utilize
the new footprint and to reduce complexity and costs.
|
|
Dealer
Health:
|
|
–
|
Announced
plans to consolidate engine production by transferring sterndrive engine
manufacturing operations from its Stillwater, Oklahoma plant to its Fond
du Lac, Wisconsin plant, which currently produces the Company’s outboard
engines;
|
|
–
|
Maintained
the Company’s dealer network by replacing those dealers who were
underperforming and/or exiting the market with healthier dealers in the
same territories, thereby ensuring adequate brand representation. The
Company experienced a net loss of boat brand representation at
dealers of approximately 1
percent.
|
Brunswick
incurred financial losses in 2009 due to continued weakness in marine markets,
contracting global credit markets and the effects of its restructuring and
dealer health actions. Net sales from continuing operations in 2009 decreased to
$2,776.1 million from $4,708.7 million in 2008. The overall decrease in sales
was primarily due to the continued reduction in marine industry demand as a
result of a weak global economy, soft housing markets and the contraction of
liquidity in global credit markets. The reduction in marine industry demand is
evidenced by the declining number of retail unit sales of powerboats in the
United States since 2005, with the rate of decline accelerating throughout 2009.
Industry retail unit sales were down significantly during 2009 compared with the
already low retail unit sales during 2008. In 2009, the Company reported lower
sales across all segments and global regions.
Operating
losses from continuing operations for 2009 were $570.5 million, with negative
operating margins of 20.6 percent. Operating losses from continuing operations
for 2008 were $611.6 million, with negative operating margins of 13.0 percent.
The 2009 results included $172.5 million of restructuring, exit and impairment
charges, while the 2008 results included goodwill and trade name impairment
charges of $511.1 million and $177.3 million of restructuring, exit and
impairment charges. The lower operating losses during 2009 primarily resulted
from the absence of goodwill and trade name impairment charges and the benefit
of cost-reduction initiatives, as discussed in Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements. These
factors were partially offset by lower sales across all segments, higher pension
expense, the absence of variable compensation and defined contribution accruals
in 2008, higher dealer incentive programs and sales discounts and reduced
fixed-cost absorption due to reduced production rates in the Company’s marine
businesses.
25
Restructuring
Activities
In
November 2006, Brunswick announced restructuring initiatives to improve the
Company’s cost structure, better utilize overall capacity and improve general
operating efficiencies. As the marine market entered a sustained decline in
2007, Brunswick expanded its restructuring activities during 2007, 2008 and 2009
in order to improve performance and better position the Company to address
current market conditions and enable long-term profitable growth. These
initiatives have resulted in the recognition of restructuring, exit and
impairment charges in the Statement of Operations during 2009, 2008 and
2007.
Total
restructuring, exit and impairment charges in 2009 were $172.5 million which
consists of $48.3 million in the Marine Engine segment, $107.8 million in the
Boat segment, $2.1 million in the Fitness segment, $5.3 million in the Bowling
& Billiards segment and $9.0 million at Corporate. See Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements for further
details.
The
actions taken under these initiatives will benefit future operations as the
Company has removed fixed costs of approximately $100 million from Cost of sales
and approximately $320 million from Selling, general and administrative
expense in the Consolidated Statements of Operations when compared with
2007 spending levels. The majority of these costs are cash savings. The Company
anticipates it will incur approximately $30 million of additional charges in
2010 related to known restructuring activities that will be initiated in 2010 or
have been initiated in 2009.
Goodwill
and Trade Name Impairments
Brunswick
accounts for goodwill and identifiable intangible assets in accordance with
Accounting Standards Codification (ASC) 350 “Intangibles – Goodwill and Other”
(ASC 350). Under this standard, Brunswick assesses the impairment of goodwill
and indefinite-lived intangible assets at least annually in the fourth quarter
and whenever events or changes in circumstances indicate that the carrying value
may not be recoverable.
The
Company did not record any goodwill or indefinite-lived intangible asset
impairments during 2009 after completing its annual impairment test. While the
Company has a plan to restore itself to profitability, as discussed in Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements, it has no
assurance that the plan will be achieved or that the Company will return to
profitability in the foreseeable future. As a result, the Company may be
required to take an impairment charge in a future period if it experiences any
significant adverse changes in its businesses or as part of its annual
impairment testing for goodwill to the extent that the carrying value of the
reporting unit’s goodwill may not be recoverable. As of December 31, 2009, the
carrying value of goodwill at the Company’s Fitness and Marine Engine segments
was $272.2 million and $20.3 million, respectively. While the Company does not
believe it will incur an impairment loss on its Marine Engine segment, a
reasonable possibility exists that an impairment loss might be required for the
Fitness segment in future periods. The Fitness segment’s fair value exceeded its
carrying value by approximately 10 percent during the testing performed in 2009.
The outcome of the testing performed is largely dependent on the segment’s
forecasted future cash flows and the selection of an appropriate discount rate
to apply to those future cash flows. The Fitness segment’s fourth quarter has
historically represented approximately 50 percent of the segment’s operating
earnings for the entire year, and as a result, the operating earnings in future
fourth quarters will have a significant impact on the Company’s forecasted
future cash flows used in the annual goodwill impairment test.
During
the third quarter of 2008, Brunswick encountered a significant adverse change in
the business climate. A weak U.S. economy, soft housing markets and the
contraction of liquidity in global credit markets contributed to the continued
reduction in demand for certain Brunswick products and, consequently, reduced
wholesale production rates for those affected products. As a result of this
reduced demand, along with lower-than-projected profits across certain Brunswick
brands and lower commitments received from its dealer network in the third
quarter, management revised its future cash flow expectations in the third
quarter of 2008, which lowered the fair value estimates of certain
businesses.
As a
result of the lower fair value estimates, Brunswick concluded that the carrying
amounts of its Boat segment and bowling retail and billiards reporting units
within the Bowling & Billiards segment exceeded their respective fair
values. The Company compared the implied fair value of the goodwill in each
reporting unit with the carrying value and concluded that a $374.0 million
pretax impairment charge needed to be recognized in the third quarter of 2008.
Of this amount, $361.3 million related to the Boat segment reporting unit, $1.7
million related to the bowling retail reporting unit within the Bowling &
Billiards segment and $11.0 million related to the billiards reporting unit
within the Bowling & Billiards segment. The Company also recognized goodwill
impairment charges of $1.5 million in the Boat segment reporting unit and $1.7
million related to the billiards reporting unit within the Bowling &
Billiards segment earlier in 2008 as a result of deciding to exit certain
businesses. As a result of the $377.2 million of impairments, all goodwill at
these respective reporting units has been written down to zero.
26
In
conjunction with the goodwill impairment testing, the Company analyzed the
valuation of its other indefinite-lived intangibles, consisting of acquired
trade names. Brunswick estimated the fair value of trade names by performing a
discounted cash flow analysis based on the relief-from-royalty approach. This
approach treats the trade name as if it were licensed by the Company rather than
owned, and calculates its value based on the discounted cash flow of the
projected license payments. The analysis resulted in a pretax trade name
impairment charge of $121.1 million in the third quarter of 2008, representing
the excess of the carrying cost of the trade names over the calculated fair
value. Of this amount, $115.7 million related to the Boat segment reporting
unit, $4.5 million related to the Marine Engine segment reporting unit and $0.9
million related to the billiards reporting unit within the Bowling &
Billiards segment. The Company also recognized trade name impairment charges of
$5.2 million in the Boat segment reporting unit and $7.6 million related to the
billiards reporting unit within the Bowling & Billiards segment earlier in
2008 as a result of deciding to exit certain businesses.
Discontinued
Operations
As
discussed in Note 20 –
Discontinued Operations in the Notes to Consolidated Financial
Statements, in April 2006, the Company announced its intention to sell the
majority of the Brunswick New Technologies (BNT) business unit, consisting of
the Company’s marine electronics, portable navigation device (PND) and wireless
fleet tracking businesses. During the second quarter of 2006, Brunswick began
reporting the results of these BNT businesses, which were previously reported in
the Marine Engine segment, as discontinued operations for all periods presented.
The Company’s results, as discussed in Management’s Discussion and Analysis,
reflect continuing operations only, unless otherwise noted. The Company
completed the divestiture of the BNT discontinued operations in
2007.
Outlook
for 2010
Looking
ahead to 2010, the Company expects 2010 revenues to be higher when compared with
2009, primarily in the Marine Engine and Boat segments. The
expectation of higher revenues is a result of the Company’s expected marine
wholesale shipments in 2010 more closely matching marine retail demand, whereas
2009 wholesale shipments were significantly lower than retail sales. In
addition, the Company expects to offer reduced discounts to incent marine
retail demand for prior model year boats. The Company also expects the Fitness
and Bowling & Billiards segments to experience a modest growth in
revenues.
Due to
higher sales and production volumes in the Company’s marine segments, 2010 gross
margins are expected to be improved and operating losses are expected to be
significantly reduced. Actions in 2009 to lower dealer pipeline inventories are
expected to have a favorable effect on margins due to reduced discounts on
higher sales volumes and higher fixed-cost absorption on increased production.
Contributing to the decline in expected operating losses for the Company are
lower restructuring, exit and impairment charges, and decreased pension and bad
debt expenses. An increase in interest expense in 2010 is expected to
partially offset the improvement in operating losses. Excluding the effect of
any special tax items that may occur or any changes to legislation, the
Company’s tax provision or benefit in 2010 will primarily be related to its
state and foreign earnings or losses as the Company will continue to provide
deferred tax asset valuation allowances on its anticipated domestic federal tax
losses in 2010.
27
Matters
Affecting Comparability
The
following events have occurred during 2009, 2008 and 2007, which the Company
believes affect the comparability of the results of operations:
Goodwill impairment charges.
In 2008, the Company incurred $377.2 million of goodwill impairment
charges. This was a result of the continued reduction in demand for certain
products, along with lower-than-projected profits across certain brands, which
led management to revise its future cash flow expectations in the third quarter
of 2008. The revised future cash flow expectations resulted in the Company
lowering its estimate of fair value of certain businesses and required the
Company to take a $374.0 million pretax goodwill impairment charge during the
third quarter of 2008, as prescribed by ASC 350. Additionally, impairments were
recorded in the second quarter of 2008 related to the analyses of its Baja boat
business and its Valley-Dynamo coin-operated commercial billiards business.
There were no comparable charges recognized in 2009 or 2007. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
Trade name impairment
charges. In 2008, the Company recorded $133.9 million of trade name
impairment charges. In conjunction with the goodwill impairment testing, the
Company analyzed the valuation of its trade names in accordance with ASC 350.
The analysis resulted in a pretax trade name impairment charge of $121.1 million
during the third quarter of 2008, representing the excess of the carrying cost
of the trade names over the calculated fair value. Additionally, impairments
were recorded in the second quarter of 2008 related to analyses of its Bluewater
Marine boat business (Bluewater Marine group), which previously manufactured the
Sea Pro, Sea Boss, Palmetto and Laguna brands of fishing boats, and its
Valley-Dynamo coin-operated commercial billiards business. This compares with a
$66.4 million pretax trade name impairment charge taken in the third quarter of
2007 as a result of a valuation analysis performed on certain outboard boat
company trade names. There were no comparable charges in 2009. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
Restructuring, exit and impairment
charges. The Company implemented initiatives to improve its cost
structure, better utilize overall capacity and improve general operating
efficiencies. During 2009, the Company recorded a charge of $172.5 million
related to these restructuring activities as compared with $177.3 million during
2008 and $22.2 million during 2007. See Note 2 – Restructuring Activities
in the Notes to Consolidated Financial Statements for further
details.
Investment sale gains. In
March 2008, the Company sold its interest in its bowling joint venture in Japan
for $40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes
and other costs. The sale resulted in a $20.9 million pretax gain, $9.9 million
after-tax, and was recorded in Investment sale gains in the Consolidated
Statements of Operations.
In
September 2008, the Company sold its investment in a foundry located in Mexico
for $5.1 million gross cash proceeds. The sale resulted in a $2.1 million pretax
gain and was recorded in Investment sale gains in the Consolidated Statements of
Operations.
Tax Items. During 2009, the
Company recognized a tax benefit of $98.5 million on operating losses from
continuing operations of $684.7 million for an effective tax rate of 14.4
percent. In November 2009, new legislation was signed into law which included
provisions allowing the Company to carryback its 2009 domestic tax losses up to
five years. As a result, the Company reduced its need for tax valuation
allowances by $109.5 million during 2009 related to anticipated tax refunds,
which are expected to be received during the first half of 2010. Additionally,
when maintaining a deferred tax asset valuation allowance in periods in which
there is a pretax operating loss and pretax income in Other comprehensive
income, the pretax income in Other comprehensive income is considered a source
of income and reduces a corresponding portion of the valuation allowance. The
reduction in the valuation allowance, as a result of Other comprehensive income,
was a $29.9 million income tax benefit during 2009. The Company also filed its
2008 federal income tax return in the third quarter of 2009, which generated an
additional $10.3 million income tax benefit in 2009. Partially offsetting these
tax benefits was the recording of a $36.6 million tax valuation allowance in the
first quarter of 2009 to reduce certain state and foreign net deferred tax
assets to their anticipated realizable value. The remaining realizable value was
determined by evaluating the potential to recover the value of these assets
through the utilization of loss carrybacks.
During
2008, the Company recognized a tax provision of $155.9 million on operating
losses from continuing operations of $632.2 million for an effective tax rate of
(24.7) percent. Typically, the Company would recognize a tax benefit on
operating losses; however, due to the uncertainty of the realization of certain
net deferred tax assets, a provision of $338.3 million was recognized to
increase the deferred tax asset valuation allowance. See Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements for further
details.
28
During
2007, the Company recognized special tax benefits of $9.8 million, primarily as
a result of favorable tax reassessments and its election to apply the indefinite
reversal criterion ASC 740 “Income Taxes” to the undistributed net earnings of
certain foreign subsidiaries, which are intended to be permanently reinvested,
as discussed in Note 10 –
Income Taxes in the Notes to Consolidated Financial Statements. These
benefits were partially offset by expense related to changes in estimates of
prior years’ tax return filings and the impact of a foreign jurisdiction tax
rate reduction on the underlying net deferred tax asset.
Results
of Operations
Consolidated
The
following table sets forth certain amounts, ratios and relationships calculated
from the Consolidated Statements of Operations for the years ended December 31,
2009, 2008 and 2007:
|
2009
vs. 2008
|
2008
vs. 2007
|
||||||||||||||||||||||||||
|
Increase/(Decrease)
|
Increase/(Decrease)
|
||||||||||||||||||||||||||
|
(in millions, except
per share data)
|
2009
|
2008
|
2007
|
$ | % | $ | % | ||||||||||||||||||||
|
Net
sales
|
$ | 2,776.1 | $ | 4,708.7 | $ | 5,671.2 | $ | (1,932.6 | ) | (41.0)% | $ | (962.5 | ) | (17.0)% | |||||||||||||
|
Gross
margin (A)
|
315.6 | 867.4 | 1,157.8 | (551.8 | ) | (63.6)% | (290.4 | ) | (25.1)% | ||||||||||||||||||
|
Goodwill
impairment charges
|
— | 377.2 | — | (377.2 | ) |
NM
|
377.2 |
NM
|
|||||||||||||||||||
|
Trade
name impairment charges
|
— | 133.9 | 66.4 | (133.9 | ) |
NM
|
67.5 |
NM
|
|||||||||||||||||||
|
Restructuring,
exit and impairment charges
|
172.5 | 177.3 | 22.2 | (4.8 | ) | (2.7)% | 155.1 |
NM
|
|||||||||||||||||||
|
Operating
earnings (loss)
|
(570.5 | ) | (611.6 | ) | 107.2 | 41.1 | 6.7% | (718.8 | ) |
NM
|
|||||||||||||||||
|
Net
earnings (loss) from continuing
operations
|
(586.2 | ) | (788.1 | ) | 79.6 | 201.9 | 25.6% | (867.7 | ) |
NM
|
|||||||||||||||||
|
Diluted
earnings (loss) per share
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 0.88 | $ | 2.30 |
NM
|
$ | (9.81 | ) |
NM
|
||||||||||||
|
Expressed
as a percentage of Net sales
|
|||||||||||||||||||||||||||
|
Gross
margin
|
11.4% | 18.4% | 20.4% |
(700)
bpts
|
(200)
bpts
|
||||||||||||||||||||||
|
Selling,
general and administrative expense
|
22.5% | 14.2% | 14.5% |
830
bpts
|
(30)
bpts
|
||||||||||||||||||||||
|
Research
& development expense
|
3.2% | 2.6% | 2.4% |
60 bpts
|
20 bpts
|
||||||||||||||||||||||
|
Goodwill
impairment charges
|
—% | 8.0% | —% |
(800)
bpts
|
800 bpts
|
||||||||||||||||||||||
|
Trade
name impairment charges
|
—% | 2.8% | 1.2% |
(280)
bpts
|
160 bpts
|
||||||||||||||||||||||
|
Restructuring,
exit and impairment charges
|
6.2% | 3.8% | 0.4% |
240
bpts
|
340 bpts
|
||||||||||||||||||||||
|
Operating
margin
|
(20.6)% | (13.0)% | 1.9% |
(760)
bpts
|
NM
|
||||||||||||||||||||||
__________
bpts =
basis points
NM = not
meaningful
(A) Gross margin is defined as
Net sales less Cost of sales as presented in the Consolidated Statements of
Operations.
2009
vs. 2008
The
decrease in net sales was primarily due to reduced global demand for the
Company’s products and services across all segments compared with 2008, most
notably in the marine industry. The continued uncertainty in the
global economy and increased credit constraints have limited the Company’s
retail and other customers’ purchasing power and have curtailed both retail and
wholesale activity. As a result of the prolonged decline in marine retail demand
and tighter credit markets, a number of the Company’s dealers have filed for
bankruptcy or voluntarily ceased operations. As a result, the Company has
repurchased Company product from finance companies under contractual repurchase
obligations and resold the repurchased inventory to stronger dealers. If
additional dealers file for bankruptcy or cease operations, the Company’s net
sales and earnings may be unfavorably affected as a result of lower market
coverage and the associated decline in sales. The decline in the
Marine Engine segment’s net sales was less severe than the percentage reduction
in the Boat segment’s net sales for the year due to continued customer purchases
in 2009 from the Marine Engine segment’s marine service, parts and accessories
businesses. Net sales in the Fitness and Bowling & Billiards
segments also declined during the year as operators in these industries continue
to experience reduced access to capital and remained cautious about making
capital purchases.
Sales
outside the United States in 2009 decreased to $1,168.7 million from $2,058.5
million in 2008, with the largest reduction in international sales coming from
Europe, which decreased $506.0 million to $518.1 million. The
decrease in international sales impacted all segments at rates relatively
consistent with the domestic reductions.
The
Company’s gross margin percentage decreased 700 basis points in 2009 to 11.4
percent from 18.4 percent in 2008. The decrease was primarily due to lower
fixed-cost absorption and inefficiencies due to reduced production rates, as a
result of the Company’s efforts to achieve appropriate levels of marine customer
pipeline inventories in light of lower retail demand, as well as higher pension
expense, variable compensation expense and increased dealer incentive programs
as a percentage of sales. The decrease in gross margin percentage was partially
offset by successful cost reduction efforts.
29
Selling,
general and administrative expense decreased by $43.3 million to $625.1 million
in 2009. The decrease was primarily driven by successful cost reduction
initiatives, which were partially offset by higher variable compensation,
pension and bad debt expense.
During
2009, the Company did not incur impairment charges related to its goodwill and
trade names. In 2008, the Company incurred $511.1 million of impairment charges
related to its goodwill and trade names. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
During
2009, the Company continued its restructuring activities, which included
reducing the Company’s global workforce, consolidating manufacturing operations
and disposing of non-strategic assets. During the third quarter of
2009, the Company announced plans to consolidate engine production by
transferring sterndrive engine manufacturing operations from its Stillwater,
Oklahoma plant to its Fond du Lac, Wisconsin plant, which currently produces the
Company’s outboard engines. This plant consolidation effort is
expected to continue through 2011. In connection with this
action, the Company’s hourly union workforce in Fond du Lac ratified a new
collective bargaining agreement in August 2009, which resulted in net
restructuring charges as a result of changes to employees’ current and
postretirement benefits. The Company 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 plant in Navassa, North Carolina.
See Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements for further
details.
The
decrease in operating loss was mainly due to the absence of goodwill and trade
name impairment charges in 2009 and successful cost reduction efforts, partially
offset by reduced sales volumes, along with lower fixed-cost absorption and the
absence of variable compensation and defined contribution accruals in
2008.
Equity
earnings (loss) decreased $22.2 million to a loss of $15.7 million in 2009. The
decrease in equity earnings was mainly the result of lower earnings from the
Company’s marine joint ventures.
In 2009,
the Company did not sell any investments. During 2008, Brunswick sold
its interest in its bowling joint venture in Japan for $40.4 million gross cash
proceeds and its investment in a foundry located in Mexico for $5.1 million
gross cash proceeds. These sales resulted in $23.0 million of pretax
gains.
Interest
expense increased $31.9 million to $86.1 million in 2009 compared with 2008,
primarily as a result of higher interest rates combined with higher average
outstanding debt levels. In August 2009, the Company issued $350 million of
notes due in 2016 to fund the retirement of $150 million of notes due in
2011 and a portion of notes due in 2013, as described in Note 14 – Debt in the Notes to
Consolidated Financial Statements. In connection with the repurchase
of the 2013 notes, the Company recognized a loss on early extinguishment of debt
of $13.1 million, while there was no comparable charge in 2008. Interest income
decreased $3.5 million to $3.2 million in 2009 compared with 2008, primarily as
a result of lower rates earned on invested balances during 2009.
During
2009, the Company recognized a tax benefit of $98.5 million on operating losses
from continuing operations of $684.7 million for an effective tax rate of 14.4
percent. In November 2009, new legislation was signed into law which included
provisions allowing the Company to carryback its 2009 domestic tax losses up to
five years. As a result, the Company reduced its need for tax valuation
allowances by $109.5 million during 2009 related to anticipated tax refunds,
which are expected to be received during the first half of 2010. Additionally,
when maintaining a deferred tax asset valuation allowance in periods in which
there is a pretax operating loss and pretax income in Other comprehensive
income, the pretax income in Other comprehensive income is considered a source
of income and reduces a corresponding portion of the valuation allowance. The
reduction in the valuation allowance, as a result of Other comprehensive income,
was a $29.9 million income tax benefit during 2009. The Company also filed its
2008 federal income tax return in the third quarter of 2009, which generated a
$10.3 million income tax benefit in 2009. Partially offsetting these tax
benefits was the recording of a $36.6 million tax valuation allowance in the
first quarter of 2009 to reduce certain state and foreign net deferred tax
assets to their anticipated realizable value. The remaining realizable value was
determined by evaluating the potential to recover the value of these assets
through the utilization of loss carrybacks.
During
2008, the Company recognized a tax provision of $155.9 million on operating
losses from continuing operations of $632.2 million for an effective tax rate of
(24.7) percent. Typically, the Company would recognize a tax benefit on
operating losses; however, due to the uncertainty of the realization of certain
net deferred tax assets, a provision of $338.3 million was recognized to
increase the deferred tax asset valuation allowance. See Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements for further details.
30
Net loss
from continuing operations and Diluted loss per share were lower in 2009 when
compared with 2008, primarily due to the same factors discussed above in
operating loss and interest expense.
Weighted
average common shares outstanding used to calculate Diluted earnings (loss) per
share increased to 88.4 million in 2009 from 88.3 million in 2008. No shares
were repurchased during 2009 or 2008.
2008
vs. 2007
The
decrease in net sales was primarily due to reduced marine industry demand
compared with 2007 as a result of uncertainty in the global economy and the
related contraction of liquidity in global credit markets.
Although
net sales in 2008 were down 17 percent from 2007, the Company saw strong sales
of commercial fitness equipment and bowling products and experienced increases
in revenue from Brunswick Zone XL centers.
Sales
outside the United States increased $42.1 million to $2,058.5 million in 2008,
with the largest increase coming from the Latin America region, which increased
$51.2 million to $247.8 million, and the Africa & Middle East region, which
increased $23.7 million to $121.8 million. The total growth outside the United
States was largely attributable to higher sales from the Boat, Bowling &
Billiards and Fitness segments.
Brunswick’s
gross margin percentage decreased 200 basis points in 2008 to 18.4 percent from
20.4 percent in 2007. The decrease was primarily due to lower fixed-cost
absorption and inefficiencies due to reduced production rates, as a result of
the Company’s efforts to achieve appropriate levels of marine customer pipeline
inventories in light of lower retail demand, and higher raw material and
component costs. This decrease was partially offset by price increases at
certain businesses, successful cost-reduction efforts and lower variable
compensation expense.
Operating
expenses decreased by $171.4 million to $790.6 million in 2008. The decrease was
primarily driven by successful cost reduction initiatives and lower variable
compensation expense, but was partially offset by the effect of unfavorable
foreign currency translation.
During
2008, the Company incurred $511.1 million of impairment charges related to its
goodwill and trade names. These charges compare with the $66.4 million
impairment charge taken on certain trade names during the comparable 2007
period. See Note 3 – Goodwill
and Trade Name Impairments in the Notes to Consolidated Financial
Statements for further details.
During
2008, the Company announced additional restructuring activities including the
closing of its bowling pin manufacturing facility in Antigo, Wisconsin; closing
of its boat plant in Bucyrus, Ohio, in connection with the divestiture of its
Baja boat business; closing of its Swansboro, North Carolina boat plant; closing
of its production facility in Newberry, South Carolina; the cessation of boat
manufacturing at one of its facilities in Merritt Island, Florida; the
write-down of certain assets of the Valley-Dynamo coin-operated commercial
billiards business; the closing of its production facilities in Pipestone,
Minnesota; Roseburg, Oregon; and Arlington, Washington; mothballing its Navassa,
North Carolina boat plant; and the reduction of its employee workforce across
the Company. See Note 2 –
Restructuring Activities in the Notes to Consolidated Financial
Statements for further details.
The
decrease in operating earnings when compared with 2007 was mainly due to reduced
sales volumes, along with lower fixed-cost absorption, goodwill and trade name
impairments taken during 2008 and the restructuring activities discussed
above.
Equity
earnings decreased $14.8 million to $6.5 million in 2008. The decrease in equity
earnings was mainly the result of lower earnings from the Company’s marine joint
ventures and the absence of earnings from its bowling joint venture in Japan,
which was sold in the first quarter of 2008.
During
2008, Brunswick sold its interest in its bowling joint venture in Japan for
$40.4 million gross cash proceeds and its investment in a foundry located in
Mexico for $5.1 million gross cash proceeds. These sales resulted in $23.0
million of pretax gains.
The
decrease in Other income (expense), net was due to the absence of a legal claim
settlement against a third-party service provider in 2007. The 2007 settlement
resulted in $7.1 million of income, net of legal fees, and was reflected in
Other income (expense), net.
31
Interest
expense increased $1.9 million to $54.2 million in 2008 compared with 2007,
primarily as a result of higher interest rates on outstanding debt. In July
2008, the Company issued $250 million of notes due in 2013 to fund the maturity
of $250 million of notes due in July 2009, as described in Note 14 – Debt in the Notes to
Consolidated Financial Statements. Interest income decreased $2.0 million to
$6.7 million in 2008, compared with 2007, primarily as a result of lower
invested balances during 2008.
During
2008, the Company recognized a tax provision of $155.9 million on operating
losses from continuing operations of $632.2 million for an effective tax rate of
(24.7) percent. Typically, the Company would recognize a tax benefit on
operating losses; however, due to the uncertainty of the realization of certain
net deferred tax assets, a provision of $338.3 million was recognized to
increase the deferred tax asset valuation allowance. See Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements for further details.
In 2007,
the Company’s effective tax rate of 14.1 percent was lower than the statutory
rate primarily due to benefits from $12.7 million related to reassessments of
the deductibility of restructuring reserves and depreciation timing differences;
foreign earnings in tax jurisdictions with lower effective tax rates; and a
research and development tax credit. These benefits were partially offset by
$3.8 million of additional taxes related to changes in estimates related to
prior year’s filings, as discussed in Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements.
Net
earnings and diluted earnings per share decreased primarily due to the same
factors discussed above affecting operating earnings.
Weighted
average common shares outstanding used to calculate diluted earnings per share
decreased to 88.3 million in 2008 from 90.2 million in 2007. Although no shares
were repurchased during 2008, the average outstanding shares in 2007 did not
fully reflect the effect of the 4.1 million shares repurchased in 2007, as
discussed in Note 19 – Share
Repurchase Program in the Notes to Consolidated Financial
Statements.
There was
no activity related to discontinued operations in 2008 as the disposition was
completed during 2007.
32
Segments
The
Company operates in four reportable segments: Marine Engine, Boat, Fitness and
Bowling & Billiards. Refer to Note 5 – Segment Information
in the Notes to Consolidated Financial Statements for details on the operations
of these segments.
Marine
Engine Segment
The
following table sets forth Marine Engine segment results for the years ended
December 31, 2009, 2008 and 2007:
|
2009
vs. 2008
|
2008
vs. 2007
|
||||||||||||||||||||||||||
|
Increase/(Decrease)
|
Increase/(Decrease)
|
||||||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
$ | % | $ | % | ||||||||||||||||||||
|
Net
sales
|
$ | 1,425.0 | $ | 2,207.6 | $ | 2,639.5 | $ | (782.6 | ) | (35.5)% | $ | (431.9 | ) | (16.4)% | |||||||||||||
|
Trade
name impairment charges
|
$ | — | $ | 4.5 | $ | — | $ | (4.5 | ) |
NM
|
$ | 4.5 |
NM
|
||||||||||||||
|
Restructuring,
exit and impairment charges
|
$ | 48.3 | $ | 32.4 | $ | 4.8 | $ | 15.9 | 49.1% | $ | 27.6 |
NM
|
|||||||||||||||
|
Operating
earnings (loss)
|
$ | (131.2 | ) | $ | 69.9 | $ | 195.8 | $ | (201.1 | ) |
NM
|
$ | (125.9 | ) | (64.3)% | ||||||||||||
|
Operating
margin
|
(9.2) | % | 3.2 | % | 7.4 | % |
NM
|
(420)
bpts
|
|||||||||||||||||||
|
Capital
expenditures
|
$ | 12.3 | $ | 23.5 | $ | 58.0 | $ | (11.2 | ) | (47.7)% | $ | (34.5 | ) | (59.5)% | |||||||||||||
__________
bpts =
basis points
NM = not
meaningful
2009
vs. 2008
Net sales
recorded by the Marine Engine segment decreased compared with 2008, primarily
due to the continued reduction in global marine retail demand and the
corresponding decline in wholesale shipments. Despite the poor economic climate,
sales in the segment’s domestic marine service, parts and accessories
businesses, which represented 31 percent of the total segment sales for 2009,
only experienced a single digit percentage decline in sales when compared with
2008.
As a
result of its impairment analysis of goodwill and trade names, Brunswick
incurred trade name charges within the Marine Engine segment during 2008. There
were no comparable charges in 2009. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
During
2009, the Marine Engine segment recognized restructuring, exit and impairment
charges primarily related to severance charges and other restructuring
activities initiated in 2009 and 2008. These charges increased by
$15.9 million compared to 2008, primarily due to additional restructuring
initiatives, including the announcement of the consolidation of marine
sterndrive engine production in Fond du Lac, Wisconsin. The restructuring, exit
and impairment charges recognized during 2008 were primarily related to
severance charges and other restructuring activities initiated in 2008 and
included $19.3 million of gains recognized on the sales of non-strategic assets.
See Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements for further
details.
Marine
Engine segment operating earnings (loss) decreased in 2009 as a result of lower
sales volumes, reduced fixed-cost absorption on lower production, higher
restructuring, exit and impairment charges associated with the Company’s
initiatives to reduce costs across all business units and higher pension and bad
debt expense. Lower fixed-cost absorption was caused by the Company’s continued
efforts to reduce inventory by reducing production rates by approximately 43
percent compared with 2008. These additional costs were partially offset by the
savings from successful cost-reduction initiatives and favorable settlements
reached during the year.
Capital
expenditures in 2009 and 2008 were primarily related to profit-maintaining
investments and were lower during 2009 as a result of discretionary capital
spending constraints.
33
2008
vs. 2007
Net sales
recorded by the Marine Engine segment decreased compared with 2007, primarily
due to the Company’s reduction in wholesale shipments in response to reduced
marine retail demand in the United States. In addition
to the weak retail demand in the United States, the contraction of liquidity in
global credit markets in the second half of 2008 also led to lower net sales
outside the United States in 2008.
As a
result of its impairment analysis of goodwill and trade names, Brunswick
incurred trade name charges within the Marine Engine segment during 2008. See
Note 3 – Goodwill and Trade
Name Impairments in the Notes to Consolidated Financial Statements for
further details.
The
restructuring, exit and impairment charges recognized during 2008 were primarily
related to severance charges and other restructuring activities initiated in
2008 and include $19.3 million of gains recognized on the sales of non-strategic
assets. See Note 2 –
Restructuring Activities in the Notes to Consolidated Financial
Statements for further details.
Marine
Engine segment operating earnings decreased in 2008 when compared with 2007 as a
result of lower sales volumes; restructuring, exit and impairment charges
associated with the Company’s initiatives to reduce costs across all business
units; and trade name impairment charges. Additionally, lower fixed-cost
absorption and an increased concentration of sales in lower-margin products
contributed to the decline in operating earnings. This decrease was partially
offset by the savings from successful cost-reduction initiatives and lower
variable compensation expense.
Capital
expenditures in 2008 and 2007 were primarily related to the continued
investments in new products but were lower during 2008 as a result of
discretionary capital spending constraints.
34
Boat
Segment
The
following table sets forth Boat segment results for the years ended December 31,
2009, 2008 and 2007:
|
2009
vs. 2008
|
2008
vs. 2007
|
|||||||||||||||||||||||||||
|
Increase/(Decrease)
|
Increase/(Decrease)
|
|||||||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
$ | % | $ | % | |||||||||||||||||||||
|
Net
sales
|
$ | 615.7 | $ | 1,719.5 | $ | 2,367.5 | $ | (1,103.8 | ) | (64.2)% | $ | (648.0 | ) | (27.4)% | ||||||||||||||
|
Goodwill
impairment charges
|
$ | — | $ | 362.8 | $ | — | $ | (362.8 | ) |
NM
|
$ | 362.8 |
NM
|
|||||||||||||||
|
Trade
name impairment charges
|
$ | — | $ | 120.9 | $ | 66.4 | $ | (120.9 | ) |
NM
|
$ | 54.5 | 82.1% | |||||||||||||||
|
Restructuring,
exit and
impairment charges
|
$ | 107.8 | $ | 98.7 | $ | 14.5 | $ | 9.1 | 9.2% | $ | 84.2 |
NM
|
||||||||||||||||
|
Operating
loss
|
$ | (398.5 | ) | $ | (655.3 | ) | $ | (93.5 | ) | $ | 256.8 | 39.2% | $ | (561.8 | ) |
NM
|
||||||||||||
|
Operating
margin
|
(64.7) | % | (38.1) | % | (3.9) | % |
NM
|
NM
|
||||||||||||||||||||
|
Capital
expenditures
|
$ | 15.5 | $ | 40.8 | $ | 91.7 | $ | (25.3 | ) | (62.0)% | $ | (50.9 | ) | (55.5)% | ||||||||||||||
__________
bpts =
basis points
NM = not
meaningful
2009
vs. 2008
The
decrease in Boat segment net sales was largely the result of the continued
reduction in marine retail demand in global markets and lower shipments to
dealers in an effort to achieve appropriate levels of pipeline inventories, as
well as higher dealer incentive programs and sales discounts. Weak retail market
conditions, paired with the Company’s objective of protecting its dealer network
by selling fewer units at wholesale than are being sold by the dealers at
retail, resulted in approximately 50 percent fewer unit sales when compared to
2008.
No
goodwill and trade name impairment charges were recognized in
2009. This compares to the goodwill and trade name impairment charges
in 2008, which were primarily the result of its impairment analysis performed
during the third quarter of 2008. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
The
restructuring, exit and impairment charges recognized during 2009 were primarily
related to asset impairments, additional programs to realign the Company’s boat
manufacturing footprint and other restructuring activities initiated in both
2008 and 2009. Asset impairments recorded in 2009 primarily relate to writing
down the carrying value of several previously closed boat production facilities
to their fair value as these properties were marketed for sale, the largest of
which relates to the previously mothballed plants in Navassa and Swansboro,
North Carolina, and the Riverview plant in Knoxville, Tennessee. The Company
also recorded impairments during 2009 on tooling, its Cape Canaveral, Florida
property and on a marina in St. Petersburg, Florida, to record these assets at
their fair value. Refer to Note
2 – Restructuring Activities in the Notes to Consolidated Financial
Statements for further discussion.
The Boat
segment’s operating loss decreased from 2008, primarily due to the absence of
goodwill and trade name impairment charges that were taken in 2008, as well as
savings from successful cost-reduction initiatives. This decrease was
partially offset by a decrease in sales volume, lower fixed-cost absorption,
higher dealer incentive programs and sales discounts, the absence of variable
compensation and defined contribution accruals in 2008, and increased
restructuring, exit and impairment charges.
Capital
expenditures in 2009 were largely attributable to tooling costs for the
production of new models and profit maintaining capital. Capital spending was
lower during 2009 as a result of discretionary capital spending constraints and
a smaller manufacturing footprint.
2008
vs. 2007
The
decrease in Boat segment net sales was largely attributable to the effect of
reduced marine retail demand in U.S. markets and lower shipments to dealers in
an effort to achieve appropriate levels of pipeline inventories. In addition to
the weak retail demand, the contraction of liquidity in global credit markets
led to lower net sales in 2008.
35
The
goodwill and trade name impairment charges in 2008 were primarily the result of
the Company’s impairment analysis performed during the third quarter of 2008,
which determined that the carrying value of goodwill and trade names exceeded
the calculated fair value. The remaining charges in 2008 were the result of the
Company’s decision to exit certain businesses. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details on the 2008 charges, as well as the $66.4 million pretax impairment
charge taken on certain indefinite-lived intangible assets in 2007.
During
2008, the Boat segment continued its restructuring initiatives as described in
Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements. Certain
significant actions taken at the Boat segment included the sale of certain
assets of its Baja boat business (Baja), the cessation of production of
Bluewater Marine group boat brands and the closure of several of its US Marine
production facilities, as described below.
During
the second quarter of 2008, the Company sold certain assets of Baja to Fountain
Powerboat Industries, Inc. (Fountain). The transaction was aimed at further
refining the Company’s product portfolio and focusing its resources on brands
and marine segments that were considered to be core to the Company’s future
success. The total costs of the Baja transaction were approximately $15 million,
all of which were incurred during 2008. The majority of the $15 million charge
consisted of asset write-downs related to selected assets sold to Fountain and
the residual assets sold to third parties.
During
the second quarter of 2008, the Company ceased production of boats for its
Bluewater Marine group, including the Sea Pro, Sea Boss, Palmetto and Laguna
brands, which were manufactured at its Newberry, South Carolina facility. The
total costs of the Bluewater cessation were approximately $24 million, all of
which were incurred during 2008. The $24 million charge primarily consisted of
asset write-downs related to the disposition of selected assets.
During
the second half of 2008, the Company closed several of its US Marine production
facilities, which produced Bayliner, Maxum and Trophy boats and Meridian yachts,
in an effort to continue to consolidate its manufacturing footprint. The Company
incurred approximately $26 million in costs related to these closures in 2008.
The majority of the costs represented asset write-downs related to the
disposition of selected assets and severance charges.
Boat
segment operating earnings in 2008 decreased from 2007, primarily due to
goodwill and trade name impairment charges, a decrease in sales volume and
increased restructuring, exit and impairment charges. Additionally, lower
fixed-cost absorption and increased inventory repurchase obligation accruals
contributed to the decline in operating earnings. This decrease was partially
offset by savings from successful cost-reduction initiatives and lower variable
compensation expense.
Capital
expenditures in 2008 were largely attributable to tooling costs for the
production of new models. Capital spending was lower during 2008 as a result of
discretionary capital spending constraints and the acquisition of a boat
manufacturing facility in 2007.
36
Fitness
Segment
The
following table sets forth Fitness segment results for the years ended December
31, 2009, 2008 and 2007:
|
2009
vs. 2008
|
2008
vs. 2007
|
|||||||||||||||||||||||||||
|
Increase/(Decrease)
|
Increase/(Decrease)
|
|||||||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
$ | % | $ | % | |||||||||||||||||||||
|
Net
sales
|
$ | 496.8 | $ | 639.5 | $ | 653.7 | $ | (142.7 | ) | (22.3)% | $ | (14.2 | ) | (2.2)% | ||||||||||||||
|
Restructuring,
exit and impairment charges
|
$ | 2.1 | $ | 3.3 | $ | — | $ | (1.2 | ) | (36.4)% | $ | 3.3 |
NM
|
|||||||||||||||
|
Operating
earnings
|
$ | 33.5 | $ | 52.2 | $ | 59.7 | $ | (18.7 | ) | (35.8)% | $ | (7.5 | ) | (12.6)% | ||||||||||||||
|
Operating
margin
|
6.7 | % | 8.2 | % | 9.1 | % |
(150)
bpts
|
(90)
bpts
|
||||||||||||||||||||
|
Capital
expenditures
|
$ | 2.2 | $ | 4.5 | $ | 11.8 | $ | (2.3 | ) | (51.1)% | $ | (7.3 | ) | (61.9)% | ||||||||||||||
__________
bpts =
basis points
NM = not
meaningful
2009
vs. 2008
The
decrease in Fitness segment net sales was largely attributable to reduced volume
of worldwide commercial equipment sales, as gym and fitness club operators
delayed purchasing new equipment and deferred building new fitness centers as a
result of general economic weakness and reduced credit availability. Commercial
and consumer equipment sales in the United States and Canada declined
approximately 23 percent compared to 2008, while other international sales
decreased approximately 20 percent.
The
restructuring, exit and impairment charges recognized during 2009 are primarily
employee severance and other benefits charges. Restructuring, exit and
impairment charges recorded during 2008 included asset write-downs and employee
severance and other benefits charges. See Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements for further
details.
The
Fitness segment operating earnings were negatively affected in 2009 by lower
worldwide sales volumes of both commercial equipment and consumer equipment as
well as the absence of variable compensation and defined contribution accruals
in 2008. Operating earnings were favorably impacted by the savings from
successful cost-reduction measures and reduced restructuring, exit and
impairment charges.
2009
capital expenditures were primarily related to profit-maintaining investments
and were lower compared to 2008 as a result of discretionary capital spending
constraints.
2008
vs. 2007
The
decrease in Fitness segment net sales was largely attributable to volume
declines in consumer equipment sales in the United States, as individuals
continued to defer purchasing discretionary items. Competitive pricing pressures
in global markets also contributed to the sales decline in 2008. These decreases
were partially offset by sales of the recently introduced Elevation line of new
cardiovascular products.
The
restructuring, exit and impairment charges recognized during 2008 were related
to write-downs of non-strategic assets and severance charges. See Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements for further
details.
The
Fitness segment operating earnings were adversely affected by lower sales of
consumer equipment in the United States, competitive pricing pressures,
increases in raw material and fuel costs and the implementation of various
restructuring activities. Operating earnings benefited from successful
cost-reduction initiatives and lower variable compensation expense.
2008
capital expenditures were primarily related to tooling for new products, but
were lower during 2008 as a result of the substantial completion of the
Elevation series of cardiovascular equipment in early 2008.
37
Bowling
& Billiards Segment
The
following table sets forth Bowling & Billiards segment results for the years
ended December 31, 2009, 2008 and 2007:
|
2009
vs. 2008
|
2008
vs. 2007
|
|||||||||||||||||||||||||||
|
Increase/(Decrease)
|
Increase/(Decrease)
|
|||||||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
$ | % | $ | % | |||||||||||||||||||||
|
Net
sales
|
$ | 337.0 | $ | 448.3 | $ | 446.9 | $ | (111.3 | ) | (24.8)% | $ | 1.4 | 0.3% | |||||||||||||||
|
Goodwill
impairment charges
|
$ | — | $ | 14.4 | $ | — | $ | (14.4 | ) |
NM
|
$ | 14.4 |
NM
|
|||||||||||||||
|
Trade
name impairment charges
|
$ | — | $ | 8.5 | $ | — | $ | (8.5 | ) |
NM
|
$ | 8.5 |
NM
|
|||||||||||||||
|
Restructuring,
exit and impairment charges
|
$ | 5.3 | $ | 21.7 | $ | 2.8 | $ | (16.4 | ) | (75.6)% | $ | 18.9 |
NM
|
|||||||||||||||
|
Operating
earnings (loss)
|
$ | 3.1 | $ | (12.7 | ) | $ | 16.5 | $ | 15.8 |
NM
|
$ | (29.2 | ) |
NM
|
||||||||||||||
|
Operating
margin
|
0.9 | % | (2.8 | )% | 3.7 | % |
370
bpts
|
(650)
bpts
|
||||||||||||||||||||
|
Capital
expenditures
|
$ | 3.3 | $ | 26.9 | $ | 41.6 | $ | (23.6 | ) | (87.7)% | $ | (14.7 | ) | (35.3)% | ||||||||||||||
__________
bpts =
basis points
NM = not
meaningful
2009
vs. 2008
Bowling
& Billiards segment net sales were down from prior year levels, primarily as
a result of lower sales from its Bowling Products business as new center
developments and upgrades to existing centers were delayed by proprietors due to
weak economic conditions and reduced access to capital. Bowling
retail sales were also reduced during the year due to the loss of sales from
divested centers and lower sales from existing centers. Equivalent
bowling center sales decreased in mid-single digit percentages. Net
sales were also reduced due to the sale of the Valley-Dynamo business in early
2009.
The
goodwill and trade name impairment charges in 2008 were primarily the result of
the Company’s impairment analysis performed during the third quarter of 2008.
The remaining charges related to the Valley-Dynamo business. There were no
comparable charges in 2009. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
During
2009, Brunswick continued its restructuring initiatives as described in Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements. The Company
completed the sale of its Valley-Dynamo coin-operated commercial billiards
business in 2009. The Company incurred approximately $4 million and $19 million
of costs related to the sale of the Valley-Dynamo business in 2009 and 2008,
respectively. The majority of these charges related to asset write-downs. The
Company also incurred costs in 2008 related to the closing of its bowling pin
manufacturing facility in Antigo, Wisconsin.
The
increase in 2009 operating earnings (loss) was the result of the absence of
$14.4 million and $8.5 million of goodwill and trade name impairment charges,
respectively, reduced restructuring, exit and impairment charges, as well as
savings from successful cost-reduction initiatives. These factors were partially
offset by the effect of lower sales, higher pension expense and the absence of
variable compensation and defined contribution accruals in 2008.
Decreased
capital expenditures in 2009 were driven primarily by reduced spending for new
Brunswick Zone XL centers and constraints on capital spending for existing
centers.
38
2008
vs. 2007
Bowling
& Billiards segment net sales were up from prior year levels, primarily as a
result of sales associated with Brunswick Zone XL centers opened during 2007 and
2008 and stronger capital equipment sales. Mostly offsetting this increase was a
decline in equivalent bowling retail entertainment center sales as well as
volume declines in consumer and commercial billiards tables.
The
goodwill and trade name impairment charges in 2008 were primarily the result of
the Company’s impairment analysis performed during the third quarter of 2008.
The remaining charges related to the Valley-Dynamo business. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
During
2008, Brunswick continued its restructuring initiatives as described in Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements. The Company
evaluated several strategic options, including the potential sale of its
Valley-Dynamo coin-operated commercial billiards business. The Company incurred
approximately $19 million of costs in 2008 related to the potential sale, which
primarily related to asset write-downs. The Company also incurred costs in 2008
related to the closing of its bowling pin manufacturing facility in Antigo,
Wisconsin.
The
decrease in 2008 operating earnings when compared with 2007 was attributable to
goodwill and trade name impairment charges, restructuring, exit and impairment
charges as well as the impact of lower sales of consumer and commercial
billiards tables and lower non-Brunswick Zone XL bowling retail entertainment
sales. Partially offsetting this decrease was the impact of increased capital
equipment sales, improved efficiency at the Reynosa, Mexico bowling ball
manufacturing facility, savings from successful cost-reduction initiatives and
the full year impact of recently opened Brunswick Zone XL centers.
Decreased
capital expenditures in 2008 were driven primarily by reduced spending for
Brunswick Zone XL centers, as the Company had more centers under construction
during 2007 compared with 2008.
Corporate
The
following table sets forth charges for restructuring activities undertaken at
Corporate for the years ended December 31, 2009, 2008 and 2007:
|
2009
vs. 2008
|
2008
vs. 2007
|
|||||||||||||||||||||||||||
|
Increase/(Decrease)
|
Increase/(Decrease)
|
|||||||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
$ | % | $ | % | |||||||||||||||||||||
|
Restructuring,
exit and impairment charges
|
$ | 9.0 | $ | 21.2 | $ | 0.1 | $ | (12.2 | ) | (57.5 | )% | $ | 21.1 |
NM
|
||||||||||||||
__________
NM = not
meaningful
The
restructuring, exit and impairment charges recognized during 2009 and 2008 were
related to write-downs and disposals of non-strategic assets and severance
charges. See Note 2 –
Restructuring Activities in the Notes to Consolidated Financial
Statements for further details.
39
Cash
Flow, Liquidity and Capital Resources
The
following table sets forth an analysis of free cash flow for the years ended
December 31, 2009, 2008 and 2007:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
cash provided by (used for) operating activities of continuing
operations
|
$ | 125.5 | $ | (12.1 | ) | $ | 344.1 | |||||
|
Net
cash provided by (used for):
|
||||||||||||
|
Capital
expenditures
|
(33.3 | ) | (102.0 | ) | (207.7 | ) | ||||||
|
Proceeds
from investment sales
|
— | 45.5 | — | |||||||||
|
Proceeds
from the sale of property, plant and equipment
|
13.0 | 28.3 | 10.1 | |||||||||
|
Other,
net
|
1.8 | 17.2 | 25.6 | |||||||||
|
Free
cash flow from continuing operations (A)
|
$ | 107.0 | $ | (23.1 | ) | $ | 172.1 | |||||
|
(A)
|
The
Company defines Free cash flow from continuing operations as cash flow
from operating and investing activities of continuing operations
(excluding cash used for acquisitions and investments) and excluding
financing activities. Free cash flow from continuing operations is not
intended as an alternative measure of cash flow from operations, as
determined in accordance with generally accepted accounting principles
(GAAP) in the United States. The Company uses this financial measure, both
in presenting its results to shareholders and the investment community and
in its internal evaluation and management of its businesses. Management
believes that this financial measure and the information it provides are
useful to investors because it permits investors to view the Company’s
performance using the same tool that management uses to gauge progress in
achieving its goals. Management believes that the non-GAAP financial
measure “Free cash flow from continuing operations” is also useful to
investors because it is an indication of cash flow that may be available
to fund investments in future growth
initiatives.
|
Brunswick’s
major sources of funds for investments, acquisitions and dividend payments are
cash generated from operating activities, available cash balances and selected
borrowings. The Company evaluates potential acquisitions, divestitures and joint
ventures in the ordinary course of business.
2009
Cash Flow
In 2009,
net cash provided by operating activities of continuing operations totaled
$125.5 million. The most significant source of cash provided by
operating activities was from a reduction in working capital of $400.8
million. Working capital is defined as non-cash current assets less
non-debt current liabilities. Inventory balances changed favorably by
$325.1 million, primarily due to decreased production and procurement across the
Company, especially in the Marine Engine and Boat segments, which produced less
inventory than was sold at wholesale. Additionally, favorable changes
in accounts receivable of $159.9 million resulted from lower sales and continued
collection activities of outstanding receivables. Accrued expenses
and accounts payable were an unfavorable change to working capital of $56.8
million and $39.9 million, respectively, primarily as a result of the reduced
level of the Company’s business activities in 2009 compared with
2008. The Company also received net tax refunds of $90.6 million
during the year, primarily related to its 2008 taxable
losses. Partially offsetting these factors were the Company’s net
loss from operations adjusted for non-cash charges and the Company’s repurchase
of $84.2 million of accounts receivable from Brunswick Acceptance Company, LLC
in May 2009, as part of its new asset-based lending facility (Mercury Receivable
ABL Facility). See Note 9 – Financial Services
and Note 14 – Debt in
the Notes to Consolidated Financial Statements for more details on the Company’s
sale of accounts receivable program and Mercury Receivables ABL Facility,
respectively.
In 2009,
net cash used for investing activities totaled $12.3 million, which included
capital expenditures of $33.3 million. The Company has significantly
reduced its capital spending since 2007 by focusing on non-discretionary,
profit-maintaining investments and investments required for the introduction of
new products. Cash provided from investments primarily represented a return on
the Company’s investment in its Brunswick Acceptance Company, LLC joint
venture. The Company also received $13.0 million of proceeds during
the year from the sale of property, plant and equipment in the normal course of
business.
Cash
flows from financing activities provided net cash of $95.9 million in
2009. The cash inflow was primarily the result of issuing $350.0
million of notes due in 2016 to pay down substantially all of the Company’s
notes due in 2011 and a portion of notes due in 2013. The Company
received net proceeds of $353.7 million during 2009, primarily from the issuance
of the 2016 notes and another $20.0 million from the Fond du Lac County Economic
Development Council in the form of partially forgivable debt associated with the
Company’s efforts to consolidate its Marine Engine segment’s engine production
facilities in its Fond du Lac, Wisconsin plant. As discussed above, the Company
made payments on it long-term debt in 2009 of $247.9 million, primarily related
to the retirement of 2011 and 2013 notes, and also paid a premium of $13.2
million to repurchase a portion of the Company’s outstanding 2013 notes. See
Note 14 – Debt in the
Notes to Consolidated Financial Statements for further
discussion.
40
2008
Cash Flow
In 2008,
net cash used for operating activities of continuing operations totaled $12.1
million. The primary driver of the cash used for operating activities
was from an increase in working capital of $132.3 million. The 2008
increase in working capital was primarily the result of reductions in the
Company’s accounts payable and accrued expenses relating to the reduced level of
production activity, largely in the Marine Engine and Boat segments, and lower
accrued discounts. These declines were partially offset by lower inventories and
lower trade receivables, which were driven by reduced demand for the Company’s
marine products. Partially offsetting the changes in working
capital were the Company’s operating results, which provided cash during
2008 after adjusting the net loss on continuing operations for non-cash charges
such as goodwill, trade name and other long-lived asset impairments, charges
associated with recording additional tax valuation allowances and adding back
depreciation and amortization.
Cash
provided by investing activities totaled $9.0 million in 2008. The
Company received $45.5 million in proceeds from the sale of its interest in its
bowling joint venture in Japan and its investment in a foundry located in
Mexico; $20.0 million primarily from reduced equity requirements associated with
the Company’s investment in its Brunswick Acceptance Company, LLC joint venture;
$17.2 million of proceeds primarily from the sale of MotoTron and Albemarle; and
$28.3 million from the sale of property, plant and equipment in the normal
course of business. Offsetting these proceeds was $102.0 million in
capital expenditures. The Company significantly reduced its capital
spending from 2007 levels by limiting its discretionary purchases and focusing
on profit-maintaining investments and investments required for the introduction
of new products.
The
Company used $10.8 million of net cash in its financing activities during 2008,
reflecting net issuances of short-term debt of $7.4 million and a $4.4 million
dividend payment. The Company also issued $250 million of notes due
in 2013 to retire the $250 million of notes due in 2009.
2007
Cash Flow
In 2007,
net cash provided by operating activities of continuing operations totaled
$344.1 million. The primary driver was cash provided by the Company’s
operating results adjusted for non-cash charges. Changes in working
capital amounted to a use of cash of $7.2 million during the
year. Cash used in investing activities during 2007 was $207.7
million and was primarily related to capital expenditures.
The
Company used $167.8 million of net cash for financing activities during
2007. The primary uses of cash included the Company repurchasing 4.1
million shares for $125.8 million under its share repurchase program, and the
payment of a $52.6 million dividend in 2007. Partially offsetting
this was the receipt of $10.8 million from stock options exercised during the
year.
Liquidity
and Capital Resources
The
following table sets forth an analysis of net debt for the years ended December
31, 2009 and 2008:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Short-term
debt, including current maturities of long-term debt
|
$ | 11.5 | $ | 3.2 | ||||
|
Long-term
debt
|
839.4 | 728.5 | ||||||
|
Total
debt
|
850.9 | 731.7 | ||||||
|
Less:
Cash and cash equivalents
|
526.6 | 317.5 | ||||||
|
Net
debt (A)
|
$ | 324.3 | $ | 414.2 | ||||
|
(A)
|
The
Company defines Net debt as Short-term and long-term Debt, less Cash
and cash equivalents, as presented in the Consolidated Balance Sheets. Net
debt is not intended as an alternative measure to debt, as determined in
accordance with GAAP in the United States. The Company uses this financial
measure, both in presenting its results to shareholders and the investment
community and in its internal evaluation and management of its businesses.
Management believes that this financial measure and the information it
provides are useful to investors because it permits investors to view the
Company’s performance using the same tool that management uses to gauge
progress in achieving its goals. Management believes that the non-GAAP
financial measure “Net debt” is also useful to investors because it is an
indication of the Company’s ability to repay its outstanding debt using
its current Cash and cash equivalents.
|
41
The
following table sets forth an analysis of total liquidity for the years ended
December 31, 2009 and 2008:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Cash
and cash equivalents
|
$ | 526.6 | $ | 317.5 | ||||
|
Amounts
available under its asset-based lending facilities (B)
|
88.5 | 201.1 | ||||||
|
Total
liquidity (A)
|
$ | 615.1 | $ | 518.6 | ||||
|
(A)
|
The
Company defines Total liquidity as Cash and cash equivalents as presented
in the Consolidated Balance Sheets, plus amounts available under its
asset-based lending facilities. Total liquidity is not intended as an
alternative measure to Cash and cash equivalents, as determined in
accordance with GAAP in the United States. The Company uses this financial
measure, both in presenting its results to shareholders and the investment
community and in its internal evaluation and management of its businesses.
Management believes that this financial measure and the information it
provides are useful to investors because it permits investors to view the
Company’s performance using the same tool that management uses to gauge
progress in achieving its goals. Management believes that the non-GAAP
financial measure “Total liquidity” is also useful to investors because it
is an indication of the Company’s available highly liquid assets and
immediate sources of financing.
|
|
(B)
|
Represents
the sum of (1) $106.2 million of unused brrowing capacity underthe
Company's Revolving Credit Facility discussed below, reduced by the $60.0
million minimum availability requirement and (2) the available borrowing
capacity of $42.2 million under the Company's Mercury Receivables ABL
Facility as discussed below.
|
Cash and
cash equivalents totaled $526.6 million as of December 31, 2009, an increase of
$209.1 million from $317.5 million as of December 31, 2008. Total debt as of
December 31, 2009 and December 31, 2008, was $850.9 million and $731.7 million,
respectively. As a result, the Company’s Net debt was reduced $89.9 million in
2009 to $324.3 million from $414.2 million in 2008. Brunswick’s
debt-to-capitalization ratio increased to 80.2 percent as of December 31, 2009,
from 50.1 percent as of December 31, 2008, as a result of the current year
losses from continuing operations on Shareholders’ equity and increased debt
levels.
In May
2009, the Company entered into the Mercury Receivables ABL Facility with GE
Commercial Distribution Finance Corporation (GECDF) to replace the Mercury
Marine accounts receivable sale program the Company had with Brunswick
Acceptance Company, LLC (BAC) as described in Note 9 – Financial Services.
The Mercury Receivables ABL Facility agreement provides for a base level of
borrowings of $100.0 million that are secured by the domestic accounts
receivable of Mercury Marine, a division of the Company, at a borrowing rate,
set at the beginning of each month, equal to the one-month LIBOR rate plus 4.25
percent, provided, however, that the one-month LIBOR rate shall not be less than
1.0 percent. Borrowings under the Mercury Receivables ABL Facility can be
adjusted to $120.0 million to accommodate seasonal increases in accounts
receivable from May to August. Borrowing availability under this facility is
subject to a borrowing base consisting of Mercury Marine domestic accounts
receivable, adjusted for eligibility requirements, with an 85 percent advance
rate. The Company was also able to borrow an additional $21.5 million in excess
of the borrowing base according to the over-advance feature through November
2009, which is now declining ratably each month through November 2010.
Borrowings under the Mercury Receivables ABL Facility are further limited to the
lesser of the total amount available under the Mercury Receivables ABL Facility
or the Mercury Marine receivables, excluding certain amounts, pledged as
collateral against the Mercury Receivables ABL Facility. The Mercury Receivables
ABL Facility also includes a financial covenant, which corresponds to the
minimum fixed-charge coverage ratio covenant included in the Company’s revolving
credit facility and the BAC joint venture agreement described in Note 9 – Financial Services.
The Mercury Receivables ABL Facility’s term will expire concurrently with the
termination of BAC, by the Company with 90 days notice or by GECDF upon the
Company’s default under the Mercury Receivables ABL Facility, including failure
to comply with the facility’s financial covenant. Initial borrowings under the
Mercury Receivables ABL Facility were $81.1 million. The Company has since
reduced the borrowings outstanding and ended 2009 with no borrowings under this
facility. The amount of borrowing capacity available under this facility at
December 31, 2009 was $42.2 million.
The
Company has a $400.0 million secured, asset-based revolving credit facility
(Revolving Credit Facility) in place with a group of banks through May 2012, as
described in Note 14 –
Debt in the Notes to Consolidated Financial Statements. There were no
loan borrowings under the Revolving Credit Facility in 2009 or 2008. The Company
has the ability to issue up to $150.0 million in letters of credit under the
Revolving Credit Facility. The Company pays a facility fee of 75 to 100 basis
points per annum, which is based on the daily average utilization of the
Revolving Credit Facility.
42
The
Company may borrow amounts under the Revolving Credit Facility equal to the
value of the borrowing base, which consists of certain accounts receivable,
inventory and machinery and equipment of certain of its domestic subsidiaries.
The borrowing base had a value of $191.3 million, excluding cash, as of
December 31, 2009. The Company had no borrowings outstanding under this facility
at December 31, 2009. Letters of credit outstanding under the facility totaled
$85.0 million as of December 31, 2009, resulting in unused borrowing capacity of
$106.3 million. However, the Company’s borrowing capacity is also affected by
the facility’s minimum fixed-charge coverage ratio covenant. This covenant
requires that the Company meet a
minimum fixed-charge coverage ratio test only if unused borrowing capacity under
the facility falls below $60.0 million. If unused borrowing capacity under the
facility exceeds $60.0 million, the Company need not meet the minimum
fixed-charge coverage ratio covenant. Due to current operating performance, the
Company’s fixed-charge coverage ratio was below the minimum requirement at the
end of 2009. However, because the Company’s unused borrowing capacity under the
Revolving Credit Facility exceeded $60.0 million at the end of the year, the
Company is in compliance with the covenant. Taking into account the minimum
availability requirement, the Company’s unused borrowing capacity is effectively
reduced by $60.0 million to $46.3 million in order to maintain compliance with
the covenant. The Company expects unused borrowing capacity under the
facility to continue to exceed $60.0 million (and therefore to be in compliance
with the minimum fixed-charge coverage ratio covenant) during 2010.
Management
believes that the Company has adequate sources of liquidity to meet the
Company’s short-term and long-term needs. Through actions taken in
2009, the Company has reduced its near-term debt obligations, including the
repayment of 99.6 percent of its notes due in 2011 and the reduction of the
amounts outstanding on its 2013 notes to $153.4 million, representing the only
significant long-term debt maturity from 2010 to 2015. Management expects that
the Company’s near-term operating cash requirements, which have declined due to
lower spending, will be met out of existing cash balances and free cash flow.
Specifically, the Company is anticipating significantly reduced losses from
continuing operations and restructuring activities in 2010 from increasing sales
as the year progresses and plans on maintaining flat year-over-year working
capital levels by increasing inventory turns, in line with historical levels,
and reducing days sales outstanding in its accounts receivable. The Company also
expects to receive a tax refund of $109.5 million in the first half of 2010
related to its 2009 federal domestic tax losses. The Company also plans to
increase capital expenditures in 2010 to approximately $60 million to develop
new products in anticipation of the slowly improving economy and to fund
projects to reduce operating costs. In 2010, the Company anticipates
receiving approximately $35 million of additional funding, primarily from
government programs, in connection with its plant consolidation activities in
Fond du Lac, Wisconsin. Based on the factors described above, the
Company believes it will end 2010 with net debt levels comparable to the end of
2009.
Continued
weakness in the marine marketplace may jeopardize the financial stability of the
Company’s dealers. Specifically, dealer inventory levels may increase to levels
higher than desired, inventory may be aged beyond preferred levels and dealers
may experience reduced cash flow. These factors may impair a dealer’s ability to
meet payment obligations to the Company or to third-party financing sources and
to obtain financing to purchase new product. If a dealer is unable to meet its
obligations to third-party financing sources, Brunswick may be required to
repurchase a portion of its own products from these third-party financing
sources. See Note 11 –
Commitments and Contingencies in the Notes to Consolidated Financial
Statements for further details.
The
aggregate funded status of the Company’s qualified pension plans, measured as a
percentage of the projected benefit obligation, was 62.0 percent in 2009
compared to 63.2 percent in 2008. As of December 31, 2009, the Company’s
qualified pension plans were underfunded on an aggregate projected benefit
obligation basis by $418.7 million. See Note 15 – Postretirement Benefits
in the Notes to Consolidated Financial Statements for more
details.
The
Company contributed $10.0 million to its qualified pension plans in 2009. No
contributions were required to be made to the Company’s qualified pension plans
in 2008. The Company also contributed $11.6 million and $2.6 million to fund
benefit payments in its nonqualified pension plan in 2009 and 2008,
respectively. The 2009 contribution included an $8.5 million lump sum
distribution to a former executive for benefits earned in the nonqualified
pension plan. The Company anticipates contributing approximately $22 million to
fund the qualified pension plans and approximately $3 million to cover benefit
payments in the unfunded, nonqualified pension plans in 2010. Company
contributions are subject to change based on market conditions, pension funding
regulations and Company discretion.
Financial
Services
The
Company, through its Brunswick Financial Services Corporation (BFS) subsidiary,
owns a 49 percent interest in a joint venture, Brunswick Acceptance Company, LLC
(BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation (GECC),
owns the remaining 51 percent. BAC commenced operations in 2003 and provides
secured wholesale inventory floor-plan financing to Brunswick’s boat and engine
dealers. BAC also purchased and serviced a portion of Mercury Marine’s domestic
accounts receivable relating to its boat builder and dealer customers. In 2009,
this program was terminated and replaced with a new facility discussed below and
in Note 14 –
Debt.
The term
of the joint venture extends through June 30, 2014. The joint venture agreement
contains provisions allowing for the renewal or purchase at the end of this
term. Alternatively, either partner may terminate the agreement at the end of
its term. Concurrent with finalizing the amended and restated asset-based
revolving credit facility (Revolving Credit Facility) in the fourth quarter of
2008, the Company and CDFV amended the joint venture agreement to conform the
financial covenant contained in that agreement to the minimum fixed-charge
coverage ratio covenant contained in the Revolving Credit Facility. Compliance
with the fixed-charge coverage ratio covenant under the joint venture agreement
is only required when the Company’s available, unused borrowing capacity under
the Revolving Credit Facility is below $60.0 million. As available unused
borrowing capacity under the Revolving Credit Facility was above $60.0 million
at the end of 2009, the Company was not required to meet the minimum
fixed-charge coverage ratio covenant.
43
BAC is funded in part
through a $1.0 billion secured borrowing facility from GE Commercial
Distribution Finance Corporation (GECDF), which is in place through the term of
the joint venture, and with equity contributions from both partners. BAC also
sells a portion of its receivables to a securitization facility, the GE Dealer
Floorplan Master Note Trust, which is arranged by GECC. The sales of these
receivables meet the requirements of a “true sale” under ASC 860
“Transfers and Servicing,” and are therefore
not retained on the financial statements of BAC. The indebtedness of BAC is not
guaranteed by the Company or any of its subsidiaries. In addition, BAC is not
responsible for any continuing servicing costs or obligations with respect to
the securitized receivables. BFS and GECDF have an income sharing arrangement
related to income generated from the receivables sold by BAC to the
securitization facility. The Company records this income in Other income
(expense), net, in the Consolidated Statements of Operations.
BFS’s
investment in BAC is accounted for by the Company under the equity method and is
recorded as a component of Investments in its Condensed Consolidated Balance
Sheets. The Company records BFS’s share of income or loss in BAC based on its
ownership percentage in the joint venture in Equity earnings (loss) in its
Consolidated Statements of Operations. BFS’s equity investment is adjusted
monthly to maintain a 49 percent interest in accordance with the capital
provisions of the joint venture agreement. The Company funds its investment in
BAC through cash contributions and reinvested earnings. BFS’s total investment
in BAC at December 31, 2009, and December 31, 2008, was $16.2 million and $26.7
million, respectively. The reduction in BFS’s total investment in BAC is the
result of lower outstanding receivable balances, which resulted in a reduced
investment requirement.
BFS
recorded income related to the operations of BAC of $3.1 million, $7.5 million
and $12.7 million for the years ended December 31, 2009, 2008 and 2007,
respectively. These amounts include amounts earned by BFS under the
aforementioned income sharing agreement, but exclude the discount expense paid
by the Company on the sale of Mercury Marine’s accounts receivable to the joint
venture noted below.
Accounts
receivable totaling $186.4 million, $715.4 million and $887.3 million were sold
to BAC in 2009, 2008 and 2007, respectively. Fewer accounts receivable were sold
to BAC in 2009 when compared to 2008 and 2007 due to the replacement of the
program in May 2009. Discounts of $1.3 million, $5.8 million and $8.0 million
for the years ended December 31, 2009, 2008 and 2007, respectively, have been
recorded as an expense in Other income (expense), net, in the Consolidated
Statements of Operations. Pursuant to the joint venture agreement, BAC
reimbursed Mercury Marine $1.1 million, $2.6 million and $2.7 million in 2009,
2008 and 2007, respectively, for the related credit, collection and
administrative costs incurred in connection with the servicing of such
receivables. In May 2009, the Company entered into an asset-based lending
facility (Mercury Receivables ABL Facility) with GECDF to replace the Mercury
Marine accounts receivable sale program the Company had with BAC. See Note 14 – Debt for more
details on the Company’s Mercury Receivables ABL Facility. Concurrent with
entering into the Mercury Receivables ABL Facility, the Company repurchased
$84.2 million of accounts receivable from BAC in May 2009. There was no
outstanding balance of receivables sold to BAC as of December 31, 2009. The
outstanding balance of receivables sold to BAC under the former Mercury Marine
accounts receivable sale program was $77.4 million as of December 31,
2008.
In
accordance with ASC 860, “Transfers and Servicing,” the Company treats the sale
of receivables in which the Company retains an interest as a secured obligation.
Accordingly, the amount of receivables subject to recourse was recorded in
Accounts and notes receivable, and Accrued expenses in the Consolidated Balance
Sheets. As a result of the Mercury Receivables ABL Facility transaction noted
above, there is no outstanding retained interest recorded as of December 31,
2009. At December 31, 2008, the Company had a retained interest of $41.0 million
of the total outstanding accounts receivable sold to BAC as a result of recourse
provisions. The Company’s maximum exposure as of December 31, 2008, related to
these amounts was $28.2 million. These balances are included in the amounts in
Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial
Statements.
Off-Balance
Sheet Arrangements
Guarantees. Based on
historical experience and current facts and circumstances, and in accordance
with Accounting Standards Codification 460, “Guarantees,” the Company has
reserves to cover potential losses associated with guarantees and repurchase
obligations. Historical cash requirements and losses associated with these
obligations have not been significant. See Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements for a
description of these arrangements.
44
Contractual
Obligations
The
following table sets forth a summary of the Company’s contractual cash
obligations for continuing operations as of December 31, 2009:
|
Payments
due by period
|
||||||||||||||||||||
|
Less
than
|
More
than
|
|||||||||||||||||||
|
(in
millions)
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
5
years
|
|||||||||||||||
|
Contractual
Obligations
|
||||||||||||||||||||
|
Debt
(1)
|
$ | 865.8 | $ | 11.5 | $ | 8.3 | $ | 165.7 | $ | 680.3 | ||||||||||
|
Interest
payments on long-term debt
|
734.5 | 81.6 | 163.8 | 145.4 | 343.7 | |||||||||||||||
|
Operating
leases (2)
|
163.4 | 41.3 | 62.0 | 29.0 | 31.1 | |||||||||||||||
|
Purchase
obligations (3)
|
132.4 | 98.9 | 33.5 | — | — | |||||||||||||||
|
Deferred
management compensation (4)
|
38.3 | 8.0 | 12.2 | 3.2 | 14.9 | |||||||||||||||
|
Other
tax liabilities (5)
|
4.0 | 4.0 | — | — | — | |||||||||||||||
|
Other
long-term liabilities (6)
|
206.6 | 55.5 | 96.0 | 18.8 | 36.3 | |||||||||||||||
|
Total
contractual obligations
|
$ | 2,145.0 | $ | 300.8 | $ | 375.8 | $ | 362.1 | $ | 1,106.3 | ||||||||||
__________
|
|
(1)
|
See Note
14 – Debt in the Notes to Consolidated Financial Statements
for additional information on the Company’s debt. “Debt” refers to future
cash principal payments.
|
|
|
(2)
|
See
Note 18 – Leases
in the Notes to Consolidated Financial Statements for additional
information on the Company’s operating
leases.
|
|
|
(3)
|
Purchase
obligations represent agreements with suppliers and vendors at the end of
2009 for raw materials and other supplies as part of the normal course of
business.
|
|
|
(4)
|
Amounts
primarily represent long-term deferred compensation plans for Company
management. Payments are assumed to be equal to the remaining
liability.
|
|
|
(5)
|
Represents
the expected cash obligations related to the Company’s liability for
uncertain income tax positions. As of December 31, 2009, the Company’s
total liability for uncertain tax positions including interest was $45.9
million. Due to the high degree of uncertainty regarding the timing of
potential future cash outflows associated with these liabilities, other
than the items included in the table above, the Company was unable to make
a reasonably reliable estimate of the amount and period in which these
remaining liabilities might be
paid.
|
|
|
(6)
|
Other
long-term liabilities include amounts reflected on the balance sheet,
which primarily include certain agreements that provide for the assignment
of lease and other long-term receivables originated by the Company to
third parties and are treated as a secured obligation under ASC 460.
Amounts above also include obligations under deferred revenue arrangements
and future projected payments related to the Company’s nonqualified
pension plans. Other long-term liabilities also include $22.2 million and
$4.9 million scheduled to be paid during 2010 related to the Company’s
qualified pension plans and its retiree health care and life insurance
benefit plans, respectively. Due to the high degree of uncertainty
regarding the potential future cash outflows associated with these plans,
the Company is unable to provide a reasonably reliable estimate of the
amounts and periods in which any additional liabilities might be
paid.
|
45
Legal
Proceedings
See Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements for
disclosure of the potential cash requirements related to legal and environmental
proceedings.
Environmental
Regulations
In its
Marine Engine segment, Brunswick will continue to develop engine technologies to
reduce engine emissions to comply with current and future emissions
requirements. The costs associated with these activities may have an adverse
effect on Marine Engine segment operating margins and may affect short-term
operating results. The State of California adopted regulations that required
catalytic converters on sterndrive and inboard engines that became effective on
January 1, 2008. The EPA adopted similar environmental regulations governing
engine sales, effective January 1, 2010. Other environmental regulatory bodies
in the United States and other countries may also impose higher emissions
standards than are currently in effect for those regions. The Company expects to
comply fully with these regulations, but compliance will increase the cost of
these products for the Company and the industry. The Boat segment continues to
pursue fiberglass boat manufacturing technologies and techniques to reduce air
emissions at its boat manufacturing facilities. The Company does not believe
that compliance with federal, state and local environmental laws will have a
material adverse effect on Brunswick’s competitive position.
Critical
Accounting Policies
The
preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amount of
reported assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and revenues
and expenses during the periods reported. Actual results may differ from those
estimates. If current estimates for the cost of resolving any specific matters
are later determined to be inadequate, results of operations could be adversely
affected in the period in which additional provisions are required. The Company
records a reserve when it is probable that a loss has been incurred and the loss
can be reasonably estimated. The Company establishes its reserve based on its
best estimate within a range of losses. If the Company is unable to identify the
best estimate, the Company records the minimum amount in the range. The Company
has discussed the development and selection of the critical accounting policies
with the Audit Committee of the Board of Directors and believes the following
are the most critical accounting policies that could have an effect on
Brunswick’s reported results.
Revenue Recognition and Sales
Incentives. The Company’s revenue is derived primarily from the sale of
marine engines, parts and accessories, boats, fitness equipment, bowling
products, retail bowling activities and billiards tables. Revenue is recognized
in accordance with the terms of the sale, primarily upon shipment to customers,
once the sales price is fixed or determinable and collectibility is reasonably
assured. Brunswick offers discounts and sales incentives that include retail
promotional activities and rebates. The estimated liability for sales incentives
is recorded at the later of the time of program communication to the customer or
at the time of sale. The liability is estimated based on the costs for the
incentive program, the planned duration of the program and historical
experience. If actual costs are different from estimated costs, the recorded
value of the liability and revenue is adjusted.
Allowances for Doubtful Accounts.
The Company records an allowance for uncollectible trade receivables
based upon currently known bad debt risks and provides reserves based on loss
history, customer payment practices and economic conditions. Actual collection
experience may differ from the current estimate of reserves. The Company also
provides a reserve based on historical, current and estimated future purchasing
levels in connection with its long-term notes receivable for Brunswick’s supply
agreements. These assumptions are re-evaluated considering the customer’s
financial position and product purchase volumes. Changes to the allowance for
doubtful accounts may be required if a future event or other circumstance
results in a change in the estimate of the ultimate collectibility of a specific
account or note.
Reserve for Excess and Obsolete
Inventories. The Company records a reserve for excess and obsolete
inventories in order to ensure inventories are carried at the lower of cost or
fair market value. Fair market value can be affected by assumptions about market
demand and conditions, historical usage rates, model changes and new product
introductions. If model changes or new product introductions create more or less
than favorable market conditions, the reserve for excess and obsolete
inventories may need to be adjusted.
Warranty Reserves. The
Company records a liability for standard product warranties at the time revenue
is recognized. The liability is recorded using historical warranty experience to
estimate projected claim rates and expected costs per claim. If necessary, the
Company adjusts its liability for specific warranty matters when they become
known and are reasonably estimable.
The Company’s warranty reserves are affected by product failure rates and
material usage and labor costs incurred in correcting a product failure. If
these estimated costs differ from actual product failure rates and actual
material usage and labor costs, a revision to the warranty reserve would be
required.
46
Restructuring. From time to
time, the Company engages in actions associated with cost reduction initiatives.
The Company’s restructuring actions require significant estimates including: (a)
expenses for severance and other employee separation costs, (b) remaining lease
obligations, including sublease income, and (c) other exit costs. The Company
has accrued amounts that it believes are its best estimates of the obligations
it expects to incur in connection with these actions, but these estimates are
subject to change due to market conditions and final negotiations. Should the
actual amounts differ from the originally estimated amounts, Brunswick’s
earnings could decrease.
The
Company recognized $172.5 million, $177.3 million and $22.2 million in
restructuring charges in 2009, 2008 and 2007, respectively, which are discussed
in more detail in Note 2 -
Restructuring Activities in the Notes to Consolidated Financial
Statements.
Goodwill and Indefinite-lived
Intangible Assets. In assessing the value of goodwill and
indefinite-lived intangible assets, management relies on a number of factors to
value anticipated future cash flows including operating results, business plans
and present value techniques. Rates used to value and discount cash flows are
dependent upon royalty rate assumptions, interest rates and the cost of capital
at a point in time. There are inherent uncertainties related to these factors
and management must exercise its judgment in applying them to the analysis of
intangible asset impairment. It is possible that operating results or
assumptions underlying the impairment analysis will change in such a manner that
impairment in value may occur in the future.
Long-Lived Assets. In
accordance with ASC 360, “Property, Plant and Equipment,” (ASC 360), the Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful lives of its definite-lived intangible
assets, excluding goodwill, and other long-lived assets may warrant revision or
that the remaining balance of such assets may not be recoverable. The Company
uses an estimate of the related undiscounted cash flows over the remaining life
of the asset in measuring whether the asset is recoverable. The Company tested
its long-lived asset balances for impairment as triggering events occurred
during 2009, 2008 and 2007, resulting in impairment charges of $68.1 million,
$59.9 million and $4.8 million, respectively, which are recognized in
Restructuring, exit and impairment charges in the Consolidated Statements of
Operations.
Litigation. In the normal
course of business, the Company is subject to claims and litigation, including
obligations assumed or retained as part of acquisitions and divestitures. The
Company accrues for litigation exposure based upon its assessment, made in
consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company’s litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company’s consolidated financial position.
Environmental. The Company
accrues for environmental remediation-related activities for which commitments
or clean-up plans have been developed and for which costs can be reasonably
estimated. Accrued amounts are generally determined in coordination with
third-party experts on an undiscounted basis and do not consider recoveries from
third parties until such recoveries are realized. In light of existing reserves,
the Company’s environmental claims, when finally resolved, will not, in the
opinion of management, have a material adverse effect on the Company’s
consolidated financial position or results of operations.
Self-Insurance Reserves. The
Company records a liability for self-insurance obligations, which include
employee-related health care benefits and claims for workers’ compensation,
product liability, general liability and auto liability. In estimating the
obligations associated with self-insurance reserves, the Company primarily uses
loss development factors based on historical claim experience, which incorporate
anticipated exposure for losses incurred, but not yet reported. These loss
development factors are used to estimate ultimate losses on incurred claims.
Actual costs associated with a specific claim can vary from an earlier estimate.
If the facts were to change, the liability recorded for expected costs
associated with a specific claim may need to be revised.
Postretirement Benefit Reserves.
Postretirement costs and obligations are actuarially determined and are
affected by assumptions, including the discount rate, the estimated future
return on plan assets, the annual rate of increase in compensation for plan
employees, the increase in costs of health care benefits and other factors. The
Company evaluates assumptions used on a periodic basis and makes adjustments to
these liabilities as necessary. Postretirement benefit reserves are determined
in accordance with ASC 715, “Compensation – Retirement Benefits.”
47
Income Taxes. Deferred taxes
are recognized for the future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for the years in
which the differences are expected to reverse. The Company evaluates the
realizability of net deferred tax assets and, as necessary, records valuation
allowances against them. The Company
estimates its tax obligations based on historical experience and current tax
laws and litigation. The judgments made at any point in time may change based on
the outcome of tax audits and settlements of tax litigation, as well as changes
due to new tax laws and regulations and the Company’s application of those laws
and regulations. These factors may cause the Company’s tax rate and deferred tax
balances to increase or decrease.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (SFAS
141(R)) (codified under ASC 805, “Business Combinations”). SFAS 141(R)
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, the goodwill acquired and any noncontrolling interest in
the acquiree. This statement also establishes disclosure requirements to enable
the evaluation of the nature and financial effect of the business combination.
SFAS 141(R) is effective for fiscal years beginning on or after December 15,
2008. The adoption of this statement did not have a material impact on the
Company’s consolidated results of operations and financial condition, but will
affect future acquisitions.
In March
2008, the FASB issued SFAS No. 161, “Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133,” (SFAS 161) (codified within ASC 815 “Derivatives and
Hedging”). SFAS 161 is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. SFAS 161 is effective for
fiscal years beginning after November 15, 2008. The adoption of this
statement resulted in the Company expanding its disclosures relative to its
derivative instruments and hedging activity, as reflected in Note 12 – Financial
Instruments.
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2) (codified
within ASC 320 “Investments – Debt and Equity Securities”). FSP FAS 115-2 and
FAS 124-2 change the method for determining whether an other-than-temporary
impairment exists for debt securities and the amount of the impairment to be
recorded in earnings. FSP FAS 115-2 and FAS 124-2 are effective for interim and
annual periods ending after June 15, 2009. The adoption of these statements did
not have a material impact on the Company’s consolidated results of operations
and financial condition.
In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1) (codified
within ASC 825 “Financial Instruments”). FSP FAS 107-1 and APB 28-1 require fair
value disclosures in both interim as well as annual financial statements in
order to provide more timely information about the effects of current market
conditions on financial instruments. FSP FAS 107-1 and APB 28-1 are effective
for interim and annual periods ending after June 15, 2009. The Company has
included the required disclosures as reflected in Note 12 – Financial
Instruments.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165) (codified
within ASC 855 “Subsequent Events”). SFAS 165 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before the financial statements are issued or are available to be issued.
Specifically, SFAS 165 sets forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements,
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 is effective prospectively for
interim and annual periods ending after June 15, 2009. The adoption of this
statement did not have a material impact on the Company’s consolidated results
of operations and financial condition as management followed a similar approach
prior to the adoption of this standard. See Note 21 – Subsequent Events
for further discussion.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets” (SFAS 166) (codified within ASC 860 “Transfers and Servicing”). SFAS 166
amends the derecognition guidance in SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No.
140). SFAS 166 is effective for fiscal years beginning after November 15, 2009.
The Company is currently evaluating the impact that the adoption of SFAS 166 may
have on the Company’s consolidated financial statements.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (SFAS 167) (codified within ASC 810 “Consolidation”). SFAS 167 amends the
consolidation guidance applicable to variable interest entities and affects the
overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is
effective for fiscal years beginning after November 15, 2009. The Company is
currently evaluating the impact that the adoption of SFAS 167 may have on the
Company’s consolidated financial statements.
48
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles – a replacement of
FASB Statement No. 162” (SFAS 168) (codified within ASC 105 “Generally Accepted
Accounting Principles”). SFAS 168 stipulates that the FASB Accounting Standards
Codification is the source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. SFAS 168 is effective for interim and
annual periods ending after September 15, 2009. In conjunction with
the issuance of SFAS 168, the SEC issued interpretive guidance Final Rule 80
(FR-80) regarding FASB’s Accounting Standards Codification. Under FR-80, the SEC
clarified that the ASC is not the authoritative source for SEC guidance and that
the ASC does not supersede any SEC rules or regulations. Further, any references
within the SEC rules and staff guidance to specific standards under U.S. GAAP
should be understood to mean the corresponding reference in the ASC. FR-80 is
also effective for interim and annual periods ending after September 15, 2009.
The adoption of these pronouncements did not impact the Company’s consolidated
results of operations and financial condition; however, the Company was required
to update its disclosures where appropriate. The Company used the FASB
Accounting Standards Codification as its source of authoritative U.S. GAAP
within this report.
In August
2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05) (codified within ASC 820 “Fair Value
Measurements and Disclosures”). ASU 2009-05 amends the fair value and
measurement topic to provide guidance on the fair value measurement of
liabilities. ASU 2009-05 is effective for interim and annual periods beginning
after August 26, 2009. The adoption of the amendments to the FASB Accounting
Standards Codification resulting from ASU 2009-05 did not have a material impact
on the Company’s consolidated financial statements.
In
September 2009, the FASB issued ASU No. 2009-12, “Investments in Certain
Entities that Calculate Net Asset Value per Share (or its Equivalent)” (ASU
2009-12) (codified within ASC 820 “Fair Value Measurements and Disclosures”).
ASU 2009-12 amends the input classification guidance under ASC Topic 820. ASU
2009-12 is effective for interim and annual periods ending after December 15,
2009. The adoption of this ASU did not have a material impact on the Company’s
consolidated results of operations and financial condition.
In
October 2009, the FASB issued ASU No. 2009-13, “Multiple Deliverable Revenue
Arrangements - a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13)
(codified within ASC Topic 605). ASU 2009-13 addresses the accounting for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. ASU 2009-13
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 Company is currently evaluating the impact that the
adoption of the amendments to the FASB Accounting Standards Codification
resulting from ASU 2009-13 may have on the Company’s consolidated financial
statements.
In
January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair
Value Measurements” (ASU 2010-06) (codified within ASC 820 “Fair Value
Measurements and Disclosures”). ASU 2010-06 improves disclosures originally
required under SFAS No. 157. ASU 2010-16 is effective for interim and annual
periods beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward of activity in
Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those
years. The Company is currently evaluating the impact that the adoption of the
amendments to the FASB Accounting Standards Codification resulting from ASU
2010-06 may have on the Company’s consolidated financial
statements.
Forward-Looking
Statements
Certain
statements in this Annual Report on Form 10-K (Annual Report) are
forward-looking as defined in the Private Securities Litigation Reform Act of
1995. Forward-looking statements in this Annual Report may include words such as
“expect,” “anticipate,” “believe,” “may,” “should,” “could” or “estimate.” These
statements involve certain risks and uncertainties that may cause actual results
to differ materially from expectations as of the date of this filing. These
risks include, but are not limited to, those set forth under Item 1A of this
Annual Report.
Placing
undue reliance on the Company’s forward-looking statements should be avoided, as
the forward-looking statements represent the Company’s views only as of the date
this Annual Report is filed. The Company undertakes no obligation to update
publicly or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
49
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
The
Company is exposed to market risk from changes in foreign currency exchange
rates, interest rates and commodity prices. The Company enters into various
hedging transactions to mitigate these risks in accordance with guidelines
established by the Company’s management. The Company does not use financial
instruments for trading or speculative purposes.
The
Company uses foreign currency forward and option contracts to manage foreign
exchange rate exposure related to anticipated transactions, and assets and
liabilities that are subject to risk from foreign currency rate changes. The
Company’s principal currency exposures relate to the Euro, Japanese yen,
Canadian dollar, Australian dollar, British pound and New Zealand dollar.
Hedging of anticipated transactions is accomplished with financial instruments
whose maturity date, along with the realized gain or loss, occurs on or near the
execution of the anticipated transaction. The Company manages foreign currency
exposure of assets or liabilities through the use of derivative financial
instruments such that the gain or loss on the derivative financial instrument
offsets the loss or gain recognized on the asset or liability,
respectively.
Raw
materials used by the Company are exposed to the effect of changing commodity
prices. Accordingly, the Company uses commodity swap agreements, futures
contracts and supplier agreements to manage fluctuations in prices of
anticipated purchases of certain raw materials, including aluminum and natural
gas.
The
following analyses provide quantitative information regarding the Company’s
exposure to foreign currency exchange rate risk and commodity price risk. The
Company uses a model to evaluate the sensitivity of the fair value of financial
instruments with exposure to market risk that assumes instantaneous, parallel
shifts in exchange rates and commodity prices. For options and instruments with
nonlinear returns, models appropriate to the instrument are utilized to
determine the impact of market shifts. There are certain shortcomings inherent
in the sensitivity analyses presented, primarily due to the assumption that
exchange rates change in a parallel fashion.
The
amounts shown below represent the estimated reduction in fair market value that
the Company would incur on its derivative financial instruments from a 10
percent adverse change in quoted foreign currency rates, and commodity
prices.
|
(in
millions)
|
2009
|
2008
|
||||||
|
Risk
Category
|
||||||||
|
Foreign
exchange
|
$ | 11.5 | $ | 17.7 | ||||
|
Commodity
prices
|
$ | 2.1 | $ | 1.7 | ||||
Item
8. Financial Statements and Supplementary Data
See Index
to Financial Statements and Financial Statement Schedule on page
53.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
None.
50
Item
9A. Controls and Procedures
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of the Company’s management, including
the Chief Executive Officer and the Chief Financial Officer of the Company (its
principal executive officer and principal financial officer, respectively), the
Company has evaluated its disclosure controls and procedures (as defined in
Securities Exchange Act Rules 13a -15(e) and 15d -15(e)) as of the end of the
period covered by this Annual Report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures are effective in ensuring that all material
information required to be filed has been made known in a timely
manner.
Management’s
Report on Internal Control Over Financial Reporting
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, the Company included a report
of management’s assessment of the design and effectiveness of its internal
controls as part of this Annual Report for the fiscal year ended December 31,
2009. Management’s report is included in the Company’s 2009 Financial Statements
under the captions entitled “Report of Management on Internal Control Over
Financial Reporting” and is incorporated herein by reference.
The Audit
Committee of the Board of Directors, comprised entirely of independent
directors, meets regularly with the independent public accountants, management
and internal auditors to review accounting, reporting, internal control and
other financial matters. The Committee regularly meets with both the internal
and external auditors without members of management present.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
during the quarter ended December 31, 2009, that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
51
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
Information
pursuant to this Item with respect to the Directors of the Company is
incorporated by reference from the discussion under the headings Proposal No. 1:
Election of Directors and Corporate Governance in the Company’s proxy statement
for the 2010 Annual Meeting of Stockholders (Proxy Statement). Information
pursuant to this Item with respect to the Company’s Audit Committee and the
Company’s code of ethics is incorporated by reference from the discussion under
the heading Corporate Governance in the Proxy Statement. Information pursuant to
this Item with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated by reference from the discussion under the
heading Section 16(a) Beneficial Ownership Reporting Requirements in the Proxy
Statement.
The
information required by Item 401 of Regulation S-K regarding executive officers
is included under “Executive Officers of the Registrant” following Item 4 in
Part I of this Annual Report.
Item
11. Executive Compensation
Information
pursuant to this Item with respect to compensation paid to Directors of the
Company is incorporated by reference from the discussion under the heading
Director Compensation in the Proxy Statement. Information pursuant to this Item
with respect to executive compensation is incorporated by reference from the
discussion under the heading Executive Compensation in the Proxy
Statement.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information
pursuant to this Item with respect to the securities of the Company owned by the
Directors and certain officers of the Company, by the Directors and officers of
the Company as a group and by the persons known to the Company to own
beneficially more than 5 percent of the outstanding voting securities of the
Company is incorporated by reference from the discussion under the heading Stock
Held By Directors, Executive Officers And Principal Shareholders in the Proxy
Statement. Information pursuant to this Item with respect to securities
authorized for issuance under the Company’s equity compensation plans is hereby
incorporated by reference from the discussion under the heading Equity
Compensation Plan Information in the Proxy Statement.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Information
pursuant to this Item with respect to certain relationships and related
transactions is incorporated from the discussion under the heading Corporate
Governance in the Proxy Statement.
Item
14. Principal Accounting Fees and Services
Information
pursuant to this Item with respect to fees for professional services rendered by
the Company’s independent registered public accounting firm and the Audit
Committee’s policy on pre-approval of audit and permissible non-audit services
of the Company’s independent registered public accounting firm is incorporated
by reference from the discussion under the headings Ratification of Independent
Registered Public Accounting Firm–Fees Incurred for Services of Ernst &
Young and Ratification of Independent Registered Public Accounting Firm–Approval
of Services Provided by Independent Registered Public Accounting Firm in the
Proxy Statement.
PART
IV
Item
15. Exhibits and Financial Statement Schedules
The
financial statements and schedule filed as part of this Annual Report are listed
in the accompanying Index to Financial Statements and Financial Statement
Schedule on page 53. The exhibits filed as a part of this Annual Report are
listed in the accompanying Exhibit Index on page 113.
52
Index
to Financial Statements and Financial Statement Schedule
Brunswick
Corporation
|
|
Page
|
|
Financial
Statements:
|
|
|
Report
of Management on Internal Control over Financial Reporting
|
54 |
|
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
|
55 |
|
Report
of Independent Registered Public Accounting Firm
|
56 |
|
Consolidated
Statements of Operations for the Years Ended December 31, 2009, 2008 and
2007
|
57 |
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
58 |
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
|
60 |
|
Consolidated
Statements of Shareholders’ Equity for the Years Ended December 31, 2009,
2008 and 2007
|
61 |
|
Notes
to Consolidated Financial Statements
|
62
|
|
Financial
Statement Schedule:
|
|
|
Schedule
II - Valuation and Qualifying Accounts
|
111 |
53
BRUNSWICK
CORPORATION
REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Company’s management is responsible for the preparation, integrity and
objectivity of the financial statements and other financial information
presented in this Annual Report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
and reflect the effects of certain estimates and judgments made by
management.
The
Company’s management is also responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Securities
Exchange Act Rule 13a-15(f). Under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive Officer and
the Chief Financial Officer, the Company conducted an evaluation of the
effectiveness of its internal control over financial reporting based on the
framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on
the Company’s evaluation under the framework in Internal Control – Integrated
Framework, management concluded that internal control over financial reporting
was effective as of December 31, 2009. The effectiveness of internal control
over financial reporting as of December 31, 2009, has been audited by Ernst
& Young LLP, an independent registered public accounting firm, as stated in
their attestation report, which is included herein.
Brunswick
Corporation
Lake
Forest, Illinois
February
22, 2010
|
/s/ DUSTAN E. McCOY
|
/s/ PETER B. HAMILTON
|
|
Dustan
E. McCoy
|
Peter
B. Hamilton
|
|
Chairman
and Chief Executive Officer
|
Senior
Vice President and Chief Financial
Officer
|
54
BRUNSWICK
CORPORATION
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Board of
Directors and Shareholders
Brunswick
Corporation
We have
audited Brunswick Corporation’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Brunswick Corporation’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
effectiveness of the company’s internal control over financial reporting based
on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing a risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Brunswick Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Brunswick
Corporation as of December 31, 2009 and 2008, and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2009, of Brunswick Corporation and
our report dated February 22, 2010 expressed an unqualified opinion
thereon.
/s/ ERNST & YOUNG
LLP
Chicago,
Illinois
February
22, 2010
55
BRUNSWICK
CORPORATION
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Brunswick
Corporation
We have
audited the accompanying consolidated balance sheets of Brunswick Corporation as
of December 31, 2009 and 2008, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements
and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Brunswick Corporation
at December 31, 2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2009, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Brunswick Corporation's internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 22, 2010
expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG
LLP
Chicago,
Illinois
February 22,
2010
56
|
BRUNSWICK
CORPORATION
|
|
Consolidated
Statements of Operations
|
|
For
the Years Ended December 31
|
||||||||||||
|
(in
millions, except per share data)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 2,776.1 | $ | 4,708.7 | $ | 5,671.2 | ||||||
|
Cost
of sales
|
2,460.5 | 3,841.3 | 4,513.4 | |||||||||
|
Selling,
general and administrative expense
|
625.1 | 668.4 | 827.5 | |||||||||
|
Research
and development expense
|
88.5 | 122.2 | 134.5 | |||||||||
|
Goodwill
impairment charges
|
- | 377.2 | - | |||||||||
|
Trade
name impairment charges
|
- | 133.9 | 66.4 | |||||||||
|
Restructuring,
exit and impairment charges
|
172.5 | 177.3 | 22.2 | |||||||||
|
Operating
earnings (loss)
|
(570.5 | ) | (611.6 | ) | 107.2 | |||||||
|
Equity
earnings (loss)
|
(15.7 | ) | 6.5 | 21.3 | ||||||||
|
Investment
sale gains
|
- | 23.0 | - | |||||||||
|
Other
income (expense), net
|
(2.5 | ) | (2.6 | ) | 7.8 | |||||||
|
Earnings
(loss) before interest, loss on early extinguishment of debt and income
taxes
|
(588.7 | ) | (584.7 | ) | 136.3 | |||||||
|
Interest
expense
|
(86.1 | ) | (54.2 | ) | (52.3 | ) | ||||||
|
Interest
income
|
3.2 | 6.7 | 8.7 | |||||||||
|
Loss
on early extinguishment of debt
|
(13.1 | ) | - | - | ||||||||
|
Earnings
(loss) before income taxes
|
(684.7 | ) | (632.2 | ) | 92.7 | |||||||
|
Income
tax provision (benefit)
|
(98.5 | ) | 155.9 | 13.1 | ||||||||
|
Net
earnings (loss) from continuing operations
|
(586.2 | ) | (788.1 | ) | 79.6 | |||||||
|
Discontinued
operations:
|
||||||||||||
|
Earnings
from discontinued operations, net of tax
|
– | – | 2.2 | |||||||||
|
Gain
on disposal of discontinued operations, net of tax
|
– | – | 29.8 | |||||||||
|
Net
earnings from discontinued operations
|
– | – | 32.0 | |||||||||
|
Net
earnings (loss)
|
$ | (586.2 | ) | $ | (788.1 | ) | $ | 111.6 | ||||
|
Earnings
(loss) per common share:
|
||||||||||||
|
Basic
|
||||||||||||
|
Net
earnings (loss) from continuing operations
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 0.88 | ||||
|
Net
earnings from discontinued operations
|
– | – | 0.36 | |||||||||
|
Net
earnings (loss)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 1.24 | ||||
|
Diluted
|
||||||||||||
|
Net
earnings (loss) from continuing operations
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 0.88 | ||||
|
Net
earnings from discontinued operations
|
– | – | 0.36 | |||||||||
|
Net
earnings (loss)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 1.24 | ||||
|
Weighted
average shares used for computation of:
|
||||||||||||
|
Basic
earnings (loss) per share
|
88.4 | 88.3 | 89.8 | |||||||||
|
Diluted
earnings (loss) per share
|
88.4 | 88.3 | 90.2 | |||||||||
|
Cash
dividends declared per common share
|
$ | 0.05 | $ | 0.05 | $ | 0.60 | ||||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||||||
57
|
BRUNSWICK
CORPORATION
|
|
Consolidated
Balance Sheets
|
|
As
of December 31
|
||||||||
|
(in
millions)
|
2009
|
2008
|
||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents, at cost, which approximates market
|
$ | 526.6 | $ | 317.5 | ||||
|
Accounts
and notes receivable, less allowances of $47.7 and $41.7
|
332.4 | 444.8 | ||||||
|
Inventories
|
||||||||
|
Finished
goods
|
234.4 | 457.7 | ||||||
|
Work-in-process
|
174.3 | 248.2 | ||||||
|
Raw
materials
|
76.2 | 105.8 | ||||||
|
Net
inventories
|
484.9 | 811.7 | ||||||
|
Deferred
income taxes
|
79.3 | 103.2 | ||||||
|
Prepaid
expenses and other
|
35.5 | 59.7 | ||||||
|
Current
assets
|
1,458.7 | 1,736.9 | ||||||
|
Property
|
||||||||
|
Land
|
100.0 | 107.1 | ||||||
|
Buildings
and improvements
|
678.3 | 683.8 | ||||||
|
Equipment
|
1,078.9 | 1,156.6 | ||||||
|
Total
land, buildings and improvements and equipment
|
1,857.2 | 1,947.5 | ||||||
|
Accumulated
depreciation
|
(1,221.8 | ) | (1,155.4 | ) | ||||
|
Net
land, buildings and improvements and equipment
|
635.4 | 792.1 | ||||||
|
Unamortized
product tooling costs
|
88.9 | 125.5 | ||||||
|
Net
property
|
724.3 | 917.6 | ||||||
|
Other
assets
|
||||||||
|
Goodwill
|
292.5 | 290.9 | ||||||
|
Other
intangibles
|
75.6 | 86.6 | ||||||
|
Investments
|
56.7 | 75.4 | ||||||
|
Other
long-term assets
|
101.6 | 116.5 | ||||||
|
Other
assets
|
526.4 | 569.4 | ||||||
|
Total
assets
|
$ | 2,709.4 | $ | 3,223.9 | ||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||
58
|
BRUNSWICK
CORPORATION
|
|
Consolidated
Balance Sheets
|
|
As
of December 31
|
||||||||
|
(in
millions, except share data)
|
2009
|
2008
|
||||||
|
Liabilities
and shareholders’ equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Short-term
debt, including $1.8 and $1.3 of current maturities of long-term
debt
|
$ | 11.5 | $ | 3.2 | ||||
|
Accounts
payable
|
261.2 | 301.3 | ||||||
|
Accrued
expenses
|
633.9 | 696.7 | ||||||
|
Current
liabilities
|
906.6 | 1,001.2 | ||||||
|
Long-term
liabilities
|
||||||||
|
Debt
|
839.4 | 728.5 | ||||||
|
Deferred
income taxes
|
10.1 | 25.0 | ||||||
|
Postretirement
benefits
|
535.7 | 528.3 | ||||||
|
Other
|
207.3 | 211.0 | ||||||
|
Long-term
liabilities
|
1,592.5 | 1,492.8 | ||||||
|
Shareholders’
equity
|
||||||||
|
Common
stock; authorized: 200,000,000 shares,
$0.75
par value; issued: 102,538,000 shares
|
76.9 | 76.9 | ||||||
|
Additional
paid-in capital
|
415.1 | 412.3 | ||||||
|
Retained
earnings
|
505.3 | 1,095.9 | ||||||
|
Treasury
stock, at cost: 14,275,000 and 14,793,000 shares
|
(412.2 | ) | (422.9 | ) | ||||
|
Accumulated
other comprehensive income (loss), net of tax:
|
||||||||
|
Foreign
currency translation
|
39.7 | 28.8 | ||||||
|
Defined
benefit plans:
|
||||||||
|
Prior
service credits
|
15.5 | 1.9 | ||||||
|
Net
actuarial losses
|
(438.8 | ) | (462.9 | ) | ||||
|
Unrealized
investment gains (losses)
|
2.6 | (2.5 | ) | |||||
|
Unrealized
gains on derivatives
|
6.2 | 2.4 | ||||||
|
Total
accumulated other comprehensive loss
|
(374.8 | ) | (432.3 | ) | ||||
|
Shareholders’
equity
|
210.3 | 729.9 | ||||||
|
Total
liabilities and shareholders’ equity
|
$ | 2,709.4 | $ | 3,223.9 | ||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||
59
|
BRUNSWICK
CORPORATION
|
|
Consolidated
Statements of Cash Flows
|
|
For
the Years Ended December 31
|
||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
earnings (loss)
|
$ | (586.2 | ) | $ | (788.1 | ) | $ | 111.6 | ||||
|
Less:
net earnings from discontinued operations
|
– | – | 32.0 | |||||||||
|
Net
earnings (loss) from continuing operations
|
(586.2 | ) | (788.1 | ) | 79.6 | |||||||
|
Depreciation
and amortization
|
157.3 | 177.2 | 180.1 | |||||||||
|
Deferred
income taxes
|
(99.2 | ) | 236.2 | (44.4 | ) | |||||||
|
Pension
expense, net of funding
|
74.6 | 11.3 | 9.4 | |||||||||
|
Goodwill,
trade name, and other long-lived asset impairments
|
63.0 | 564.3 | 66.8 | |||||||||
|
Provision
for doubtful accounts
|
49.7 | 32.3 | 10.7 | |||||||||
|
Equity
in earnings of unconsolidated affiliates, net of dividends
|
16.0 | 1.3 | (9.7 | ) | ||||||||
|
Loss
on early extinguishment of debt
|
13.1 | – | – | |||||||||
|
Changes
in certain current assets and current liabilities
|
||||||||||||
|
Change
in accounts and notes receivable
|
159.9 | 91.1 | (56.6 | ) | ||||||||
|
Change
in inventory
|
325.1 | 81.7 | (42.9 | ) | ||||||||
|
Change
in prepaid expenses and other
|
12.5 | (2.3 | ) | 3.3 | ||||||||
|
Change
in accounts payable
|
(39.9 | ) | (135.0 | ) | (13.5 | ) | ||||||
|
Change
in accrued expenses
|
(56.8 | ) | (167.8 | ) | 102.5 | |||||||
|
Income
taxes
|
91.2 | (72.5 | ) | 50.8 | ||||||||
|
Repurchase
of accounts receivable
|
(84.2 | ) | – | – | ||||||||
|
Other,
net
|
29.4 | (41.8 | ) | 8.0 | ||||||||
|
Net
cash provided by (used for) operating activities of continuing
operations
|
125.5 | (12.1 | ) | 344.1 | ||||||||
|
Net cash used for operating
activities of discontinued operations
|
– | – | (29.8 | ) | ||||||||
|
Net cash provided by (used for)
operating activities
|
125.5 | (12.1 | ) | 314.3 | ||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Capital
expenditures
|
(33.3 | ) | (102.0 | ) | (207.7 | ) | ||||||
|
Acquisitions
of businesses, net of cash acquired
|
– | – | (6.2 | ) | ||||||||
|
Investments
|
6.2 | 20.0 | 4.1 | |||||||||
|
Proceeds
from investment sales
|
– | 45.5 | – | |||||||||
|
Proceeds
from the sale of property, plant and equipment
|
13.0 | 28.3 | 10.1 | |||||||||
|
Other,
net
|
1.8 | 17.2 | 25.6 | |||||||||
|
Net cash (used for) provided by
investing activities of continuing operations
|
(12.3 | ) | 9.0 | (174.1 | ) | |||||||
|
Net cash provided by investing
activities of
discontinued operations
|
– | – | 75.6 | |||||||||
|
Net cash (used for) provided by
investing activities
|
(12.3 | ) | 9.0 | (98.5 | ) | |||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Net
issuances of short-term debt
|
7.7 | (7.4 | ) | – | ||||||||
|
Initial
proceeds from asset based lending facility
|
81.1 | – | – | |||||||||
|
Net
payments related to asset based lending facility
|
(81.1 | ) | – | – | ||||||||
|
Net
proceeds from issuance of long-term debt
|
353.7 | 252.0 | 0.7 | |||||||||
|
Payments
of long-term debt including current maturities
|
(247.9 | ) | (251.0 | ) | (0.9 | ) | ||||||
|
Payments
of premium on debt
|
(13.2 | ) | – | – | ||||||||
|
Cash
dividends paid
|
(4.4 | ) | (4.4 | ) | (52.6 | ) | ||||||
|
Stock
repurchases
|
– | – | (125.8 | ) | ||||||||
|
Stock
options exercised
|
– | – | 10.8 | |||||||||
|
Net cash provided by (used for)
financing activities of continuing operations
|
95.9 | (10.8 | ) | (167.8 | ) | |||||||
|
Net cash provided by (used for)
financing activities of discontinued operations
|
– | – | – | |||||||||
|
Net cash provided by (used for)
financing activities
|
95.9 | (10.8 | ) | (167.8 | ) | |||||||
|
Net
increase (decrease) in cash and cash equivalents
|
209.1 | (13.9 | ) | 48.0 | ||||||||
|
Cash
and cash equivalents at January 1
|
317.5 | 331.4 | 283.4 | |||||||||
|
Cash
and cash equivalents at December 31
|
$ | 526.6 | $ | 317.5 | $ | 331.4 | ||||||
|
Supplemental
cash flow disclosures:
|
||||||||||||
|
Interest
paid
|
$ | 89.1 | $ | 48.3 | $ | 54.8 | ||||||
|
Income
taxes paid (received), net
|
$ | (90.6 | ) | $ | (7.8 | ) | $ | 6.7 | ||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||||||
60
|
BRUNSWICK
CORPORATION
|
|
Consolidated
Statements of Shareholders’ Equity
|
|
Accumulated
|
||||||||||||||||||||||||
|
Additional
|
Other
|
|||||||||||||||||||||||
|
Common
|
Paid-in
|
Retained
|
Treasury
|
Comprehensive
|
||||||||||||||||||||
|
(in millions, except
per share data)
|
Stock
|
Capital
|
Earnings
|
Stock
|
Income (Loss)
|
Total
|
||||||||||||||||||
|
Balance,
December 31, 2006
|
$ | 76.9 | $ | 378.7 | $ | 1,820.7 | $ | (315.5 | ) | $ | (89.0 | ) | $ | 1,871.8 | ||||||||||
|
Net
earnings
|
— | — | 111.6 | — | — | 111.6 | ||||||||||||||||||
|
Translation
adjustments, net of tax
|
— | — | — | — | 12.0 | 12.0 | ||||||||||||||||||
|
Unrealized
investment gains, net of tax
|
— | — | — | — | 1.7 | 1.7 | ||||||||||||||||||
|
Unrealized
losses on derivatives, net of tax
|
— | — | — | — | (8.5 | ) | (8.5 | ) | ||||||||||||||||
|
Defined
benefit plans:
|
||||||||||||||||||||||||
|
Prior
service credits, net of tax
|
— | — | — | — | 2.0 | 2.0 | ||||||||||||||||||
|
Net
actuarial gains, net of tax
|
— | — | — | — | 29.1 | 29.1 | ||||||||||||||||||
|
Comprehensive
income
|
— | — | 111.6 | — | 36.3 | 147.9 | ||||||||||||||||||
|
Adoption
of FASB Interpretation No. 48 (codified within ASC 740 “Income
Taxes”)
|
— | — | 8.7 | — | — | 8.7 | ||||||||||||||||||
|
Dividends
($0.60 per common share)
|
— | — | (52.6 | ) | — | — | (52.6 | ) | ||||||||||||||||
|
Stock
repurchases
|
— | — | — | (125.8 | ) | — | (125.8 | ) | ||||||||||||||||
|
Tax
benefit relating to stock options
|
— | 1.2 | — | — | — | 1.2 | ||||||||||||||||||
|
Compensation
plans and other
|
— | 29.1 | — | 12.6 | — | 41.7 | ||||||||||||||||||
|
Balance,
December 31, 2007
|
76.9 | 409.0 | 1,888.4 | (428.7 | ) | (52.7 | ) | 1,892.9 | ||||||||||||||||
|
Net
loss
|
— | — | (788.1 | ) | — | — | (788.1 | ) | ||||||||||||||||
|
Translation
adjustments, net of tax
|
— | — | — | — | (22.0 | ) | (22.0 | ) | ||||||||||||||||
|
Unrealized
investment losses, net of tax
|
— | — | — | — | (4.0 | ) | (4.0 | ) | ||||||||||||||||
|
Unrealized
gains on derivatives, net of tax
|
— | — | — | — | 5.6 | 5.6 | ||||||||||||||||||
|
Defined
benefit plans:
|
||||||||||||||||||||||||
|
Prior
service credits, net of tax
|
— | — | — | — | 11.1 | 11.1 | ||||||||||||||||||
|
Net
actuarial losses, net of tax
|
— | — | — | — | (370.3 | ) | (370.3 | ) | ||||||||||||||||
|
Comprehensive
loss
|
— | — | (788.1 | ) | — | (379.6 | ) | (1,167.7 | ) | |||||||||||||||
|
Dividends
($0.05 per common share)
|
— | — | (4.4 | ) | — | — | (4.4 | ) | ||||||||||||||||
|
Compensation
plans and other
|
— | 3.3 | — | 5.8 | — | 9.1 | ||||||||||||||||||
|
Balance,
December 31, 2008
|
76.9 | 412.3 | 1,095.9 | (422.9 | ) | (432.3 | ) | 729.9 | ||||||||||||||||
|
Net
loss
|
— | — | (586.2 | ) | — | — | (586.2 | ) | ||||||||||||||||
|
Translation
adjustments, net of tax
|
— | — | — | — | 10.9 | 10.9 | ||||||||||||||||||
|
Unrealized
investment gains, net of tax
|
— | — | — | — | 5.1 | 5.1 | ||||||||||||||||||
|
Unrealized
gains on derivatives, net of tax
|
— | — | — | — | 3.8 | 3.8 | ||||||||||||||||||
|
Defined
benefit plans:
|
||||||||||||||||||||||||
|
Prior
service credits, net of tax
|
— | — | — | — | 13.6 | 13.6 | ||||||||||||||||||
|
Net
actuarial gains, net of tax
|
— | — | — | — | 24.1 | 24.1 | ||||||||||||||||||
|
Comprehensive
income (loss)
|
— | — | (586.2 | ) | — | 57.5 | (528.7 | ) | ||||||||||||||||
|
Dividends
($0.05 per common share)
|
— | — | (4.4 | ) | — | — | (4.4 | ) | ||||||||||||||||
|
Compensation
plans and other
|
— | 2.8 | — | 10.7 | — | 13.5 | ||||||||||||||||||
|
Balance,
December 31, 2009
|
$ | 76.9 | $ | 415.1 | $ | 505.3 | $ | (412.2 | ) | $ | (374.8 | ) | $ | 210.3 | ||||||||||
The Notes
to Consolidated Financial Statements are an integral part of these consolidated
statements.
61
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
1 – Significant Accounting Policies
Basis of Presentation. The
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). Certain previously reported amounts
have been reclassified to conform to the current-period presentation. As
indicated in Note 20 –
Discontinued Operations, Brunswick’s results as discussed in the
financial statements reflect continuing operations only, unless otherwise
noted.
Revisions. During the first
quarter of 2009, the Company realigned the management of its marine service,
parts and accessories businesses. The Boat segment’s parts and accessories
businesses of Attwood, Land ‘N’ Sea, Benrock, Kellogg Marine and Diversified
Marine Products are now being managed by the Marine Engine segment’s service and
parts business leaders. As a result, the marine service, parts and accessories
operating results previously reported in the Boat segment are now being reported
in the Marine Engine segment. Segment results have been restated for all periods
presented to reflect the change in Brunswick’s reported segments.
Principles of Consolidation.
The consolidated financial statements of Brunswick include the accounts
of all consolidated domestic and foreign subsidiaries, after eliminating
transactions between the Company and such subsidiaries.
Use of Estimates. The
preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States (GAAP) requires
management to make certain estimates. Actual results could differ materially
from those estimates. These estimates affect:
– The
reported amounts of assets and liabilities at the date of the financial
statements;
– The
disclosure of contingent assets and liabilities at the date of the financial
statements; and
– The
reported amounts of revenues and expenses during the reporting
periods.
Estimates
in these consolidated financial statements include, but are not limited
to:
– Allowances
for doubtful accounts;
– Inventory
valuation reserves;
– Reserves
for dealer allowances;
– Warranty
related reserves;
– Losses on
litigation and other contingencies;
– Environmental
reserves;
– Insurance
reserves;
– Income
tax reserves;
– Valuation
of goodwill and other intangible assets;
– Valuation
allowances on deferred tax assets;
– Reserves
related to repurchase and recourse obligations;
– Reserves
related to restructuring activities; and
– Postretirement
benefit liabilities.
62
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
Company records a reserve when it is probable that a loss has been incurred and
the loss can be reasonably estimated. The Company establishes its reserve based
on its best estimate within a range of losses. If the Company is unable to
identify the best estimate, the Company records the minimum amount in the
range.
Cash and Cash Equivalents.
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash
equivalents.
Accounts Receivable and Allowance
for Doubtful Accounts. The Company carries its accounts receivable at
their face amounts less an allowance for doubtful accounts. On a regular basis,
the Company records an allowance for uncollectible receivables based upon known
bad debt risks and past loss history, customer payment practices and economic
conditions. Actual collection experience may differ from the current estimate of
net receivables. A change to the allowance for doubtful accounts may be required
if a future event or other change in circumstances results in a change in the
estimate of the ultimate collectibility of a specific account.
Accounts
receivable in 2008 also include domestic accounts receivable sold with full and
partial recourse by Brunswick’s Marine Engine segment to Brunswick Acceptance
Company, LLC (BAC). This program was terminated and replaced in May 2009, as
discussed in Note 9 – Financial
Services. As of December 31, 2008, the Company had a retained interest in
$41.0 million of the total outstanding accounts receivable sold to BAC as a
result of recourse provisions. The Company’s maximum exposure as of December 31,
2008, related to these amounts was $28.2 million. In accordance with Accounting
Standards Codification (ASC) 860, “Transfers and Servicing,” the Company treats
the sale of receivables in which the Company retains an interest as a secured
obligation. Accordingly, the amount of receivables subject to recourse was
recorded in Accounts and notes receivable with an offsetting amount recorded in
Accrued expenses in the Consolidated Balance Sheets. These balances are included
in the amounts in Note 11 –
Commitments and Contingencies.
Inventories. Inventories are
valued at the lower of cost or market, with market based on replacement cost or
net realizable value. Approximately 43 percent and 62 percent of Brunswick’s
inventories were determined by the first-in, first-out method (FIFO) at December
31, 2009 and 2008, respectively. Inventories valued at the last-in, first-out
method (LIFO), which results in a better matching of costs and revenue, were
$118.2 million and $121.0 million lower than the FIFO cost of inventories at
December 31, 2009 and 2008, respectively. Inventory cost includes material,
labor and manufacturing overhead. During 2009 and 2008, certain inventory
quantities were reduced, which resulted in liquidations of LIFO inventory
layers. LIFO liquidations decreased cost of sales by $11.2 million and $3.0
million in 2009 and 2008, respectively.
Property. Property, including
major improvements and product tooling costs, is recorded at cost. Product
tooling costs principally comprise the cost to acquire and construct various
long-lived molds, dies and other tooling owned by the Company and used in its
manufacturing processes. Design and prototype development costs associated with
product tooling are expensed as incurred. Maintenance and repair costs are also
expensed as incurred. Depreciation is recorded over the estimated service lives
of the related assets, principally using the straight-line method. Buildings and
improvements are depreciated over a useful life of five to forty years.
Equipment is depreciated over a useful life of two to twenty years. Product
tooling costs are amortized over the shorter of the useful life of the tooling
or the useful life of the applicable product, for a period not to exceed eight
years. Gains and losses recognized on the sale and disposal of property are
included in either Selling, general and administrative (SG&A) expenses or
Restructuring, exit and impairment charges. The amount of gains and losses for
the years ended December 31 was as follows:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Gains
on the sale of property
|
$ | 6.0 | $ | 4.2 | $ | 4.2 | ||||||
|
Losses
on the sale and disposal of property
|
(11.9 | ) | (4.4 | ) | (2.5 | ) | ||||||
|
Net
gains (losses) on sale and disposal of property
|
$ | (5.9 | ) | $ | (0.2 | ) | $ | 1.7 | ||||
Software Development Costs.
The Company expenses all software development and implementation costs
incurred until the Company has determined that the software will result in
probable future economic benefit and management has committed to funding the
project. Once this is determined, external direct costs of material and
services, payroll-related costs of employees working on the project and related
interest costs incurred during the application development stage are
capitalized. These capitalized costs are amortized over three to seven years.
Training costs and costs to re-engineer business processes are expensed as
incurred.
63
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Goodwill and Other Intangibles.
Goodwill and other intangible assets primarily result from business
acquisitions. The excess of cost over net assets of businesses acquired is
recorded as goodwill. Under Accounting Standards Codification (ASC) 350,
“Intangibles – Goodwill and Other,” (ASC 350), the amortization of goodwill and
indefinite-lived intangible assets is no longer permitted; however, these assets
must be reviewed for impairment at least annually and whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. The
impairment test for goodwill is a two-step process. The first step is to compare
the fair value of a reporting unit with its carrying amount. The Company
considers the Boat segment, Marine Engine segment, Fitness segment, bowling
products business, bowling retail business and billiards business within the
Bowling & Billiards segment to be reporting units for goodwill testing. If
the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered impaired. If the carrying amount of the
reporting unit exceeds its fair value, the second step is performed to measure
the amount of the impairment loss, if any. In this second step, the implied fair
value of the reporting unit’s goodwill is compared with the carrying amount of
the goodwill. If the carrying amount of the reporting unit’s goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess, not to exceed the carrying amount of the
goodwill.
The
Company’s primary intangible assets are customer relationships and trade names
acquired in business combinations. The costs of amortizable intangible assets
are amortized over their expected useful lives, typically between three and
fifteen years, to their estimated residual values using the straight-line
method. Intangible assets that are subject to amortization are evaluated for
impairment using a process similar to that used to evaluate long-lived assets
described below. Intangible assets not subject to amortization are assessed for
impairment at least annually and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The impairment test for
indefinite-lived intangible assets consists of a comparison of the fair value of
the intangible asset with its carrying amount. An impairment loss is recognized
for the amount by which the carrying value exceeds the fair value of the asset.
The fair value of trade names is measured using a relief-from-royalty approach,
which assumes the value of the trade name is the discounted cash flows of the
amount that would be paid had the Company not owned the trade name and instead
licensed the trade name from another company.
Investments. For investments
in which Brunswick owns or controls from 20 percent to 50 percent of the voting
shares, which includes all of Brunswick’s unconsolidated joint venture
investments, the equity method of accounting is used. The Company’s share of net
earnings or losses from equity method investments is included in the
Consolidated Statements of Operations. The Company accounts for its long-term
investments that represent less than 20 percent ownership using ASC 320
“Investments – Debt and Equity Securities” (ASC 320). The Company has
investments in certain equity securities that have readily determinable market
values and are being accounted for as available-for-sale equity investments in
accordance with ASC 320. Therefore, these investments are recorded at fair
market value with changes reflected in Accumulated other comprehensive income
(loss), a component of Shareholders’ equity, on an after-tax basis.
Other
investments for which the Company does not have the ability to exercise
significant influence and for which there is not a readily determinable market
value are accounted for under the cost method of accounting. The Company
periodically evaluates the carrying value of its investments, and at December
31, 2009 and 2008, such investments were recorded at the lower of cost or fair
value.
Long-Lived Assets. In
accordance with ASC 360, “Property, Plant and Equipment,” (ASC 360), the Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful lives of its definite-lived intangible
assets, excluding goodwill, and other long-lived assets may warrant revision or
that the remaining balance of such assets may not be recoverable. The Company
uses an estimate of the related undiscounted cash flows over the remaining life
of the asset in measuring whether the asset is recoverable. The Company tested
its long-lived asset balances for impairment as triggering events occurred
during 2009, 2008 and 2007, resulting in impairment charges of $68.1 million,
$59.9 million and $4.8 million, respectively, which are recognized in
Restructuring, exit and impairment charges in the Consolidated Statements of
Operations.
Other Long-Term Assets. Other
long-term assets are primarily long-term notes receivable, which include cash
advances made to customers, principally boat builders and fitness equipment
customers, or their owners, in connection with long-term supply arrangements.
These transactions have occurred in the normal course of business and are backed
by secured or unsecured notes receivable. Credits earned by these customers
through qualifying purchases are applied to the outstanding note balance in lieu
of payment. The reduction in the note receivable balance is recorded as a
reduction in the Company’s sales revenue as a sales discount. In the event
sufficient product purchases are not made, the outstanding balance remaining
under the notes is subject to full collection. Amounts outstanding related to
these arrangements as of December 31, 2009 and 2008, totaled $8.9 million and
$23.4 million, respectively. One boat builder customer and its owner comprised
approximately 60 percent and 33 percent of these amounts as of December 31, 2009
and 2008, respectively.
64
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Other
long-term notes receivable also include leases and other long-term receivables
originated by the Company and assigned to third parties. As of December 31, 2009
and 2008, these amounts totaled $46.3 million and $55.4 million, respectively.
Under ASC 860, the assignment is treated as a secured obligation as a result of
the Company’s commitment to repurchase the obligation in the event of customer
non-payment. Accordingly, these amounts were recorded in the Consolidated
Balance Sheets under Other long-term assets and Long-term liabilities —
Other.
Revenue Recognition.
Brunswick’s revenue is derived primarily from the sale of boats, marine
engines, marine parts and accessories, fitness equipment, bowling products,
bowling retail activities and billiards tables. Revenue is recognized in
accordance with the terms of the sale, primarily upon shipment to customers,
once the sales price is fixed or determinable and collectibility is reasonably
assured. Brunswick offers discounts and sales incentives that include retail
promotional activities, rebates and manufacturer coupons that are recorded as
reductions of revenues in Net sales in the Consolidated Statements of
Operations. The estimated liability for sales incentives is recorded at the
later of when the program has been communicated to the customer or at the time
of sale. Revenues from freight are included as a part of Net sales in the
Consolidated Statements of Operations, whereas shipping, freight and handling
costs are included in Cost of sales.
Advertising Costs.
Advertising and promotion costs are included in SG&A expenses and
expensed when the advertising first takes place. Advertising and promotion costs
were $33.8 million, $62.0 million and $71.8 million for the years ended December
31, 2009, 2008 and 2007, respectively.
Foreign Currency. The
functional currency for the majority of Brunswick’s operations is the U.S.
dollar. All assets and liabilities of operations with a functional currency
other than the U.S. dollar are translated at current rates. The resulting
translation adjustments are charged to Accumulated other comprehensive income
(loss) in the Consolidated Statements of Shareholders’ Equity, net of tax.
Revenues and expenses of operations with a functional currency other than the
U.S. dollar are translated at the average exchange rates for the
period.
Comprehensive Income (Loss).
Accumulated other comprehensive loss includes prior service costs and
credits and net actuarial gains and losses for defined benefit plans, currency
translation adjustments and unrealized derivative and investment gains and
losses, all net of tax. The net effect of these items reduced Shareholders’
equity on a cumulative basis by $374.8 million and $432.3 million as of December
31, 2009 and 2008, respectively. The change from 2008 to 2009 was primarily due
to a decrease in net actuarial losses related to the Company’s pension benefit
plan and negative plan amendments in the postretirement benefit plans totaling
$24.1 million, largely resulting from the amortization of net actuarial losses
during 2009. Additionally, Prior service credits increased by $13.6 million
primarily as a result of curtailments in the Company’s pension and
postretirement benefit plans, and favorable foreign currency translation
adjustments of $10.9 million reduced the Company’s Accumulated other
comprehensive loss. The tax effect included in Accumulated other comprehensive
loss increased losses by $40.9 million and $11.0 million, for which a
corresponding valuation allowance has been recorded as of December 31, 2009 and
2008, respectively.
Stock-Based Compensation. The
Company accounts for Stock-based compensation in accordance with ASC 718
“Compensation – Stock Compensation,” which requires all share-based payments to
employees, including grants of stock options and the compensatory elements of
employee stock purchase plans, to be recognized in the income statement based
upon their fair values. Share-based employee compensation costs are recognized
as a component of Selling, general and administrative expense in the
Consolidated Statements of Operations. See Note 16 – Stock Plans and Management
Compensation for a description of the Company’s accounting for
stock-based compensation plans.
Derivatives. The Company uses
derivative financial instruments to manage its risk associated with movements in
foreign currency exchange rates, interest rates and commodity prices. These
instruments are used in accordance with guidelines established by the Company’s
management and are not used for trading or speculative purposes. All derivatives
are recorded on the consolidated balance sheet at fair value. See Note 12 – Financial
Instruments for further discussion.
Recent Accounting
Pronouncements. In September
2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” (SFAS
157) (codified under ASC 820, “Fair Value Measurements and Disclosures,”) (ASC
820), which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair
value measurements. Effective January 1, 2008, the Company adopted SFAS
157. The adoption of this statement did not have a material impact on the
Company’s consolidated results of operations and financial condition. See Note 6 – Fair Value
Measurements in the Notes to Consolidated Financial Statements for
additional disclosures.
65
Brunswick
Corporation
Notes to
Consolidated Financial Statements
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115,” (SFAS 159) (codified under ASC 820). SFAS 159 permits
entities to choose to measure certain financial assets and financial liabilities
at fair value at specified election dates. Unrealized gains and losses on items
for which the fair value option has been elected are to be reported in earnings.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. The
Company has elected not to adopt the SFAS 159 fair value option.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (SFAS
141(R)) (codified under ASC 805, “Business Combinations”). SFAS 141(R)
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, the goodwill acquired and any noncontrolling interest in
the acquiree. This statement also establishes disclosure requirements to enable
the evaluation of the nature and financial effect of the business combination.
SFAS 141(R) is effective for fiscal years beginning on or after December 15,
2008. The adoption of this statement did not have a material impact on the
Company’s consolidated results of operations and financial condition, but will
affect future acquisitions.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51,” (SFAS 160)
(codified within ASC 810 “Consolidation”). SFAS 160 amends ARB 51 to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008. The adoption of this statement did not have a material
impact on the Company’s consolidated results of operations and financial
condition.
In March
2008, the FASB issued SFAS No. 161, “Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133,” (SFAS 161) (codified within ASC 815 “Derivatives and
Hedging”). SFAS 161 is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. SFAS 161 is effective for
fiscal years beginning after November 15, 2008. The adoption of this
statement resulted in the Company expanding its disclosures relative to its
derivative instruments and hedging activity, as reflected in Note 12 – Financial
Instruments.
In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employer’s Disclosures about
Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1) (codified under ASC 715
“Compensation – Retirement Benefits”). FSP FAS 132(R)-1 amends SFAS No. 132
(Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is
effective for fiscal years ending after December 15, 2009. The adoption of FSP
FAS 132(R)-1 resulted in additional disclosures about the Company’s pension plan
assets as reflected in Note 15
– Postretirement Benefits.
In
June 2008, the FASB issued FSP Emerging Issues Task Force (EITF)
No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities,” (FSP EITF 03-6-1) (codified within
ASC 260 “Earnings Per Share”). FSP EITF 03-6-1 requires that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years, and requires
that all prior period earnings per share data presented be adjusted
retrospectively to conform to its provisions. The adoption of this statement did
not have a material impact on the Company’s consolidated results of operations
and financial condition.
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2) (codified
within ASC 320 “Investments – Debt and Equity Securities”). FSP FAS 115-2 and
FAS 124-2 change the method for determining whether an other-than-temporary
impairment exists for debt securities and the amount of the impairment to be
recorded in earnings. FSP FAS 115-2 and FAS 124-2 are effective for interim and
annual periods ending after June 15, 2009. The adoption of these statements did
not have a material impact on the Company’s consolidated results of operations
and financial condition.
In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1) (codified
within ASC 825 “Financial Instruments”). FSP FAS 107-1 and APB 28-1 require fair
value disclosures in both interim as well as annual financial statements in
order to provide more timely information about the effects of current market
conditions on financial instruments. FSP FAS 107-1 and APB 28-1 are effective
for interim and annual periods ending after June 15, 2009. The Company has
included the required disclosures as reflected in Note 12 – Financial
Instruments.
66
Brunswick
Corporation
Notes to
Consolidated Financial Statements
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165) (codified
within ASC 855 “Subsequent Events”). SFAS 165 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before the financial statements are issued or are available to be issued.
Specifically, SFAS 165 sets forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements,
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 is effective prospectively for
interim and annual periods ending after June 15, 2009. The adoption of this
statement did not have a material impact on the Company’s consolidated results
of operations and financial condition as management followed a similar approach
prior to the adoption of this standard. See Note 21 – Subsequent Events
for further discussion.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets” (SFAS 166) (codified within ASC 860 “Transfers and Servicing”). SFAS 166
amends the derecognition guidance in SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No.
140). SFAS 166 is effective for fiscal years beginning after November 15, 2009.
The Company is currently evaluating the impact that the adoption of SFAS 166 may
have on the Company’s consolidated financial statements.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (SFAS 167) (codified within ASC 810 “Consolidation”). SFAS 167 amends the
consolidation guidance applicable to variable interest entities and affects the
overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is
effective for fiscal years beginning after November 15, 2009. The Company is
currently evaluating the impact that the adoption of SFAS 167 may have on the
Company’s consolidated financial statements.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles – a replacement of
FASB Statement No. 162” (SFAS 168) (codified within ASC 105 “Generally Accepted
Accounting Principles”). SFAS 168 stipulates that the FASB Accounting Standards
Codification is the source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. SFAS 168 is effective for interim and
annual periods ending after September 15, 2009. In conjunction with
the issuance of SFAS 168, the SEC issued interpretive guidance Final Rule 80
(FR-80) regarding FASB’s Accounting Standards Codification. Under FR-80, the SEC
clarified that the ASC is not the authoritative source for SEC guidance and that
the ASC does not supersede any SEC rules or regulations. Further, any references
within the SEC rules and staff guidance to specific standards under U.S. GAAP
should be understood to mean the corresponding reference in the ASC. FR-80 is
also effective for interim and annual periods ending after September 15, 2009.
The adoption of these pronouncements did not impact the Company’s consolidated
results of operations and financial condition; however, the Company was required
to update its disclosures where appropriate. The Company used the
FASB Accounting Standards Codification as its source of authoritative U.S. GAAP
within this report.
In August
2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05) (codified within ASC 820 “Fair Value
Measurements and Disclosures”). ASU 2009-05 amends the fair value and
measurement topic to provide guidance on the fair value measurement of
liabilities. ASU 2009-05 is effective for interim and annual periods beginning
after August 26, 2009. The adoption of the amendments to the FASB Accounting
Standards Codification resulting from ASU 2009-05 did not have a material impact
on the Company’s consolidated financial statements.
In
September 2009, the FASB issued ASU No. 2009-12, “Investments in Certain
Entities that Calculate Net Asset Value per Share (or its Equivalent)” (ASU
2009-12) (codified within ASC 820 “Fair Value Measurements and Disclosures”).
ASU 2009-12 amends the input classification guidance under ASC Topic 820. ASU
2009-12 is effective for interim and annual periods ending after December 15,
2009. The adoption of this ASU did not have a material impact on the Company’s
consolidated results of operations and financial condition.
67
Brunswick
Corporation
Notes to
Consolidated Financial Statements
In
October 2009, the FASB issued ASU No. 2009-13, “Multiple Deliverable Revenue
Arrangements - a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13)
(codified within ASC Topic 605 “Revenue Recognition”). ASU 2009-13 addresses the
accounting for multiple-deliverable arrangements to enable vendors to account
for products or services (deliverables) separately rather than as a combined
unit. ASU 2009-13 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 Company is currently evaluating the impact
that the adoption of the amendments to the FASB Accounting Standards
Codification resulting from ASU 2009-13 may have on the Company’s consolidated
financial statements.
In
January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair
Value Measurements” (ASU 2010-06) (codified within ASC 820 “Fair Value
Measurements and Disclosures”). ASU 2010-06 improves disclosures originally
required under SFAS No. 157. ASU 2010-16 is effective for interim and annual
periods beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward of activity in
Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those
years. The Company is currently evaluating the impact that the adoption of the
amendments to the FASB Accounting Standards Codification resulting from ASU
2010-06 may have on the Company’s consolidated financial
statements.
68
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note 2 – Restructuring Activities
In
November 2006, Brunswick announced restructuring initiatives designed to improve
the Company’s cost structure, better utilize overall capacity and improve
general operating efficiencies. These initiatives reflected the Company’s
response to a difficult marine market. As the marine market continued to
decline, Brunswick expanded its restructuring activities during 2007, 2008 and
2009 in order to improve performance and better position the Company for current
market conditions and longer-term profitable growth. These initiatives have
resulted in the recognition of restructuring, exit and impairment charges in the
Statement of Operations during 2007, 2008 and 2009.
The
nature of the costs incurred under these initiatives include:
Restructuring
Activities – These amounts primarily relate to:
|
·
|
Employee
termination and other benefits
|
|
·
|
Costs
to retain and relocate employees
|
|
·
|
Consulting
costs
|
|
·
|
Consolidation
of manufacturing footprint
|
Exit
Activities – These amounts primarily relate to:
|
·
|
Employee
termination and other benefits
|
|
·
|
Lease
exit costs
|
|
·
|
Inventory
write-downs
|
|
·
|
Facility
shutdown costs
|
Asset
Disposition Actions – These amounts primarily relate to sales of assets and
definite-lived asset impairments of:
|
·
|
Fixed
assets
|
|
·
|
Tooling
|
|
·
|
Patents
and proprietary technology
|
|
·
|
Dealer
networks
|
Impairments
of definite-lived assets are recognized when, as a result of the restructuring
activities initiated, the carrying amount of the long-lived asset is not
expected to be fully recoverable, in accordance with ASC 360, “Property, Plant,
and Equipment.” The impairments recognized were equal to the difference between
the carrying amount of the asset and the fair value of the asset, which was
determined using observable inputs, 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 or liability, based on the best
information available in the circumstances. Specifically, the Company used
discounted cash flows to determine the fair value of the asset when observable
inputs were unavailable.
The
Company has reported restructuring and exit activities based on the specific
driver of the cost and reflected the expense in the accounting period when the
cost has been committed or incurred. The Company considers actions related to
the sale of certain Baja boat business assets, the closure of its bowling pin
manufacturing facility, the sale of the Valley-Dynamo and Integrated Dealer
Systems businesses and the divestiture of MotoTron, a designer and supplier of
engine control and vehicle networking systems, to be exit activities. All other
actions taken are considered to be restructuring activities.
69
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
following table is a summary of the expense associated with the restructuring,
exit and impairment activities for 2009, 2008 and 2007. The 2009
charge consists of expenses related to actions initiated in both 2009 and
2008. The 2008 charge consists of expenses related to actions
initiated in 2008. The 2007 charge consists of expenses related to
actions initiated in 2007 and 2006.
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Restructuring
activities
|
||||||||||||
|
Employee
termination and other benefits
|
$ | 44.1 | $ | 44.2 | $ | 4.0 | ||||||
|
Current
asset write-downs
|
6.4 | 5.9 | — | |||||||||
|
Transformation
and other costs:
|
||||||||||||
|
Consolidation
of manufacturing footprint
|
49.9 | 58.8 | 3.0 | |||||||||
|
Retention
and relocation costs
|
0.1 | 5.5 | — | |||||||||
|
Consulting
costs
|
0.3 | 5.4 | — | |||||||||
|
Exit
activities
|
||||||||||||
|
Employee
termination and other benefits
|
0.8 | 3.3 | 1.6 | |||||||||
|
Current
asset write-downs
|
1.4 | 8.8 | 4.5 | |||||||||
|
Transformation
and other costs:
|
||||||||||||
|
Consolidation
of manufacturing footprint
|
1.4 | 4.8 | 4.3 | |||||||||
|
Gain
on sale of non-strategic assets
|
— | (12.6 | ) | — | ||||||||
|
Asset
disposition actions:
|
||||||||||||
|
Definite-lived
asset impairments and loss on disposal
|
68.1 | 59.9 | 4.8 | |||||||||
|
Gain
on sale of non-strategic assets
|
— | (6.7 | ) | — | ||||||||
|
Total
restructuring, exit and impairment
charges
|
$ | 172.5 | $ | 177.3 | $ | 22.2 | ||||||
The
Company anticipates it will incur approximately $30 million of additional
restructuring charges in 2010. Approximately $5 million of this amount relates
to known restructuring activities that will be initiated in 2010, and
approximately $25 million relates to restructuring activities initiated in 2009.
The Company does not anticipate incurring additional charges for restructuring
activities initiated prior to 2009. The Company expects most of these charges
will be incurred in the Boat and Marine Engine segments. Further reductions in
demand for the Company’s products, or further opportunities to reduce costs, may
result in additional restructuring, exit or impairment charges in
2010.
Actions
initiated in 2009
During
2009, the Company continued its restructuring activities by reducing the
Company’s global workforce, consolidating manufacturing operations and disposing
of non-strategic assets. During the third quarter of 2009, the
Company announced plans to consolidate engine production by transferring
sterndrive engine manufacturing operations from its Stillwater, Oklahoma plant
to its Fond du Lac, Wisconsin plant, which currently produces the Company’s
outboard engines. This plant consolidation effort is expected to
occur through 2011. In connection with this action, the Company’s
hourly union workforce in Fond du Lac ratified a new collective bargaining
agreement on August 31, 2009, which resulted in net restructuring charges as a
result of incentives and changes to employees’ current and postretirement
benefits. The Company 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. The Company also recorded impairments
during 2009 on tooling, its Cape Canaveral, Florida property and on a marina in
St. Petersburg, Florida, to record these assets at their fair value. These
actions in the Company’s marine businesses are expected to provide long-term
cost savings by reducing its fixed-cost structure.
70
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The restructuring, exit and impairment charges recorded in 2009, related to actions initiated in 2009 for each of the Company’s reportable segments, are summarized below:
|
(in
millions)
|
2009
|
|||
|
Marine
Engine
|
$ | 45.0 | ||
|
Boat
|
72.0 | |||
|
Fitness
|
2.1 | |||
|
Bowling
& Billiards
|
1.1 | |||
|
Corporate
|
5.6 | |||
|
Total
|
$ | 125.8 | ||
The following is a summary of
the charges by category associated with the 2009 restructuring
activities:
|
(in
millions)
|
2009
|
|||
|
Restructuring
activities
|
||||
|
Employee
termination and other benefits
|
$ | 35.6 | ||
|
Current
asset write-downs
|
4.0 | |||
|
Transformation
and other costs:
|
||||
|
Consolidation
of manufacturing footprint
|
28.8 | |||
|
Retention
and relocation costs
|
0.1 | |||
|
Consulting
costs
|
0.3 | |||
|
Exit
activities
|
||||
|
Transformation
and other costs (gains):
|
||||
|
Consolidation
of manufacturing footprint
|
(1.9 | ) | ||
|
Asset
disposition actions:
|
||||
|
Definite-lived
asset impairments and loss on disposal
|
58.9 | |||
|
Total
restructuring, exit and impairment
charges
|
$ | 125.8 | ||
The
restructuring, exit and impairment charges related to actions initiated in 2009,
for each of the Company’s reportable segments for 2009, are summarized
below:
|
(in
millions)
|
Marine
Engine
|
Boat
|
Fitness
|
Bowling
& Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee
termination
and
other benefits
|
$ | 19.5 | $ | 10.7 | $ | 2.0 | $ | 0.8 | $ | 2.6 | $ | 35.6 | ||||||||||||
|
Current
asset write-downs
|
0.7 | 3.3 | — | — | — | 4.0 | ||||||||||||||||||
|
Transformation and
other costs
|
20.6 | 3.4 | 0.1 | 0.2 | 3.0 | 27.3 | ||||||||||||||||||
|
Asset
disposition actions
|
4.2 | 54.6 | — | 0.1 | — | 58.9 | ||||||||||||||||||
|
Total
restructuring, exit and
impairment
charges
|
$ | 45.0 | $ | 72.0 | $ | 2.1 | $ | 1.1 | $ | 5.6 | $ | 125.8 | ||||||||||||
71
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
following table summarizes the 2009 charges taken for restructuring, exit and
impairment charges related to actions initiated in 2009. The accrued
amounts remaining as of December 31, 2009, represent cash expenditures needed to
satisfy remaining obligations. The majority of the accrued cost is
included in Accrued expenses in the Condensed Balance Sheets.
|
(in
millions)
|
Costs
Recognized
in 2009
|
Non-cash
Charges
|
Net
Cash Payments
|
Accrued
Costs
as
of
Dec.
31,
2009
|
||||||||||||
|
Employee
termination and other benefits
|
$ | 35.6 | $ | — | $ | (27.1 | ) | $ | 8.5 | |||||||
|
Current
asset write-downs
|
4.0 | (4.0 | ) | — | — | |||||||||||
|
Transformation
and other costs:
|
||||||||||||||||
|
Consolidation
of manufacturing footprint
|
26.9 | (15.6 | ) | (9.3 | ) | 2.0 | ||||||||||
|
Retention
and relocation costs
|
0.1 | — | (0.1 | ) | — | |||||||||||
|
Consulting
costs
|
0.3 | — | (0.3 | ) | — | |||||||||||
|
Asset
disposition actions:
|
||||||||||||||||
|
Definite-lived
asset impairments and loss on disposal
|
58.9 | (58.9 | ) | — | — | |||||||||||
|
Total
restructuring, exit and impairment charges
|
$ | 125.8 | $ | (78.5 | ) | $ | (36.8 | ) | $ | 10.5 | ||||||
Actions
initiated in 2008
During
the first quarter of 2008, the Company continued its restructuring activities by
closing its bowling pin manufacturing facility in Antigo, Wisconsin, and
announcing that it would close its boat plant in Bucyrus, Ohio, in anticipation
of the proposed sale of certain assets relating to its Baja boat business, cease
boat manufacturing at one of its facilities in Merritt Island, Florida, and
close its Swansboro, North Carolina, boat plant.
The
Company announced additional actions in June 2008 as a result of the prolonged
downturn in the U.S. marine market. The plan was designed to improve performance
and better position the Company for current market conditions. The plan resulted
in significant changes in the Company’s organizational structure, most notably
by reducing the complexity of its operations and further shrinking its North
American manufacturing footprint. Specifically, the Company announced: the
closure of its production facility in Newberry, South Carolina, due to its
decision to cease production of its Bluewater Marine brands, including Sea Pro,
Sea Boss, Palmetto and Laguna; its intention to close four additional boat
plants; and the write-down of certain assets of the Valley-Dynamo coin-operated
commercial billiards business.
During
the third quarter of 2008, the Company accelerated its previously announced
efforts to resize the Company in light of extraordinary developments within
global financial markets that affected the recreational marine industry.
Specifically, the Company announced the closure of its boat production
facilities in Cumberland, Maryland; Pipestone, Minnesota; Roseburg, Oregon; and
Arlington, Washington. The Company also decided to mothball its plant in
Navassa, North Carolina. The Company completed the Cumberland, Roseburg,
Arlington and Navassa facility shutdowns in the fourth quarter of 2008, and
completed the Pipestone facility shutdown in the first quarter of 2009.
72
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
restructuring, exit and impairment charges recorded in 2009 and 2008, related to
actions initiated in 2008 for each of the Company’s reportable segments, are
summarized below:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Marine
Engine
|
$ | 3.3 | $ | 32.4 | ||||
|
Boat
|
35.8 | 98.7 | ||||||
|
Fitness
|
— | 3.3 | ||||||
|
Bowling
& Billiards
|
4.2 | 21.7 | ||||||
|
Corporate
|
3.4 | 21.2 | ||||||
|
Total
|
$ | 46.7 | $ | 177.3 | ||||
The
following is a summary of the total expense by category associated with the 2008
restructuring initiatives recognized during 2009 and 2008:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Restructuring
activities:
|
||||||||
|
Employee
termination and other benefits
|
$ | 8.5 | $ | 44.2 | ||||
|
Current
asset write-downs
|
2.4 | 5.9 | ||||||
|
Transformation
and other costs:
|
||||||||
|
Consolidation
of manufacturing footprint
|
21.1 | 58.8 | ||||||
|
Retention
and relocation costs
|
— | 5.5 | ||||||
|
Consulting
costs
|
— | 5.4 | ||||||
|
Exit
activities:
|
||||||||
|
Employee
termination and other benefits
|
0.8 | 3.3 | ||||||
|
Current
asset write-downs
|
1.4 | 8.8 | ||||||
|
Transformation
and other costs:
|
||||||||
|
Consolidation
of manufacturing footprint
|
3.3 | 4.8 | ||||||
|
Gain
on sale of non-strategic assets
|
— | (12.6 | ) | |||||
|
Asset
disposition actions:
|
||||||||
|
Definite-lived
asset impairments and loss on disposal
|
9.2 | 59.9 | ||||||
|
Gain
on sale of non-strategic assets
|
— | (6.7 | ) | |||||
|
Total
restructuring, exit and impairment charges
|
$ | 46.7 | $ | 177.3 | ||||
The
restructuring, exit and impairment charges for actions initiated in 2008 for
each of the Company’s reportable segments for the year ended December 31, 2009,
are summarized below:
|
(in
millions)
|
Marine
Engine
|
Boat
|
Bowling
& Billiards
|
Corporate
|
Total
|
|||||||||||||||
|
Employee
termination
and
other benefits
|
$ | 0.9 | $ | 6.8 | $ | 1.2 | $ | 0.4 | $ | 9.3 | ||||||||||
|
Current
asset write-downs
|
0.8 | 1.9 | 1.1 | — | 3.8 | |||||||||||||||
|
Transformation
and
other costs
|
1.6 | 20.8 | 1.9 | 0.1 | 24.4 | |||||||||||||||
|
Asset
disposition actions
|
— | 6.3 | — | 2.9 | 9.2 | |||||||||||||||
|
Total
restructuring, exit and impairment charges
|
$ | 3.3 | $ | 35.8 | $ | 4.2 | $ | 3.4 | $ | 46.7 | ||||||||||
73
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
restructuring, exit and impairment charges for actions initiated in 2008 for
each of the Company’s reportable segments for the year ended December 31, 2008
are summarized below:
|
(in
millions)
|
Marine
Engine
|
Boat
|
Fitness
|
Bowling
& Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee
terminations
and
other benefits
|
$ | 19.2 | $ | 19.7 | $ | 1.3 | $ | 4.4 | $ | 2.9 | $ | 47.5 | ||||||||||||
|
Current
asset write-downs
|
2.9 | 6.2 | 2.0 | 3.6 | — | 14.7 | ||||||||||||||||||
|
Transformation and
other costs
|
1.0 | 45.8 | — | 1.4 | 13.7 | 61.9 | ||||||||||||||||||
|
Asset
disposition actions
|
9.3 | 27.0 | — | 12.3 | 4.6 | 53.2 | ||||||||||||||||||
|
Total
restructuring, exit and
impairment
charges
|
$ | 32.4 | $ | 98.7 | $ | 3.3 | $ | 21.7 | $ | 21.2 | $ | 177.3 | ||||||||||||
The
following table summarizes the 2009 charges taken for restructuring, exit and
impairment related to actions initiated in 2008. The accrued amounts
as of December 31, 2009, represent estimated cash expenditures needed to satisfy
remaining obligations. The majority of the costs are included in
Accrued expenses in the Consolidated Balance Sheets.
|
(in
millions)
|
Accrued
Costs
as of
Jan.
1, 2009
|
Costs
Recognized
in
2009
|
Non-cash
Charges
|
Net
Cash Payments
|
Accrued
Costs
as of
Dec.
31,
2009
|
|||||||||||||||
|
Employee
termination and other benefits
|
$ | 17.0 | $ | 9.3 | $ | — | $ | (25.1 | ) | $ | 1.2 | |||||||||
|
Current
asset write-downs
|
— | 3.8 | (3.8 | ) | — | — | ||||||||||||||
|
Transformation
and other costs:
|
||||||||||||||||||||
|
Consolidation
of manufacturing footprint
|
5.7 | 24.4 | — | (28.2 | ) | 1.9 | ||||||||||||||
|
Retention
and relocation costs
|
0.8 | — | — | (0.8 | ) | — | ||||||||||||||
|
Consulting
costs
|
4.5 | — | — | (4.5 | ) | — | ||||||||||||||
|
Asset
disposition actions:
|
||||||||||||||||||||
|
Definite-lived
asset impairments and loss on disposal
|
— | 9.2 | (9.2 | ) | — | — | ||||||||||||||
|
Total
restructuring, exit and
impairment
charges
|
$ | 28.0 | $ | 46.7 | $ | (13.0 | ) | $ | (58.6 | ) | $ | 3.1 | ||||||||
Actions
initiated in 2007
In 2007,
the Company initiated restructuring activities to consolidate certain boat
manufacturing facilities in connection with the purchase of a manufacturing
facility in Navassa, North Carolina; closure of a manufacturing facility in
Aberdeen, Mississippi and the shift of its boat production to Fort Wayne,
Indiana; and elimination of assembly operations for certain engines in Europe.
Through 2007, the Company incurred restructuring costs of $18.1 million related
to these initiatives. At December 31, 2007, the Company estimated that it would
incur additional expenses of approximately $7 million related to these
initiatives during 2008; however, the Company subsequently adjusted its plans
and did not incur any significant additional costs for these initiatives during
2009 or 2008.
74
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Actions
initiated in 2006
In
November 2006, the Company announced initiatives to improve its cost structure,
better utilize overall capacity and improve general operating efficiencies. The
restructuring initiatives included the consolidation of certain boat
manufacturing facilities, sales offices and distribution warehouses and
reductions in the Company’s global workforce. Through 2006, the Company incurred
restructuring costs of $17.1 million related to these initiatives. At December
31, 2006, the Company estimated that it would incur additional expenses of
approximately $9 million related to these initiatives during 2007; however, the
Company actually incurred approximately $4 million of additional costs in 2007,
which concluded the 2006 initiatives.
The
restructuring, exit and impairment charges recorded in 2007, related to actions
initiated in 2007 and 2006 for each of the Company’s reportable segments, are
summarized below:
|
(in
millions)
|
2007
|
|||
|
Marine
Engine
|
$ | 4.8 | ||
|
Boat
|
14.5 | |||
|
Fitness
|
— | |||
|
Bowling
& Billiards
|
2.8 | |||
|
Corporate
|
0.1 | |||
|
Total
|
$ | 22.2 | ||
The
following is a summary of the total expense by category associated with the 2007
and 2006 restructuring initiatives recognized during 2007:
|
(in
millions)
|
2007
|
|||
|
Restructuring
activities:
|
||||
|
Employee
termination and other benefits
|
$ | 4.0 | ||
|
Transformation
and other costs:
|
||||
|
Consolidation
of manufacturing footprint
|
3.0 | |||
|
Exit
activities:
|
||||
|
Employee
termination and other benefits
|
1.6 | |||
|
Current
asset write-downs
|
4.5 | |||
|
Transformation
and other costs:
|
||||
|
Consolidation
of manufacturing footprint
|
4.3 | |||
|
Asset
disposition actions:
|
||||
|
Definite-lived
asset impairments and loss on disposal
|
4.8 | |||
|
Total
restructuring, exit and impairment charges
|
$ | 22.2 | ||
The
restructuring, exit and impairment charges for actions initiated in 2007 and
2006 for each of the Company’s reportable segments for the year ended December
31, 2007, are summarized below:
|
(in
millions)
|
Marine
Engine
|
Boat
|
Bowling
& Billiards
|
Corporate
|
Total
|
|||||||||||||||
|
Employee
termination
and
other benefits
|
$ | 2.5 | $ | 3.0 | $ | — | $ | 0.1 | $ | 5.6 | ||||||||||
|
Current
asset write-downs
|
— | 4.5 | — | — | 4.5 | |||||||||||||||
|
Transformation and
other costs
|
2.3 | 5.0 | — | — | 7.3 | |||||||||||||||
|
Asset
disposition actions
|
— | 2.0 | 2.8 | — | 4.8 | |||||||||||||||
|
Total
restructuring, exit and
impairment
charges
|
$ | 4.8 | $ | 14.5 | $ | 2.8 | $ | 0.1 | $ | 22.2 | ||||||||||
75
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
3 – Goodwill and Trade Name Impairments
Brunswick
accounts for goodwill and identifiable intangible assets in accordance with ASC
350 “Intangibles – Goodwill and Other” (ASC 350). Under this standard, Brunswick
assesses the impairment of goodwill and indefinite-lived intangible assets at
least annually and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. After completing its annual impairment
test, the Company did not record any goodwill or indefinite-lived intangible
asset impairments during 2009.
During
the third quarter of 2008, Brunswick encountered a significant adverse change in
the business climate. A weak U.S. economy, soft housing markets and the
emergence of a global credit crisis accelerated the reduction in demand for
certain Brunswick products. As a result of this reduced demand, along with
lower-than-projected profits across certain Brunswick brands and lower purchase
commitments received from its dealer network in the third quarter, management
revised its future cash flow expectations in the third quarter of 2008, which
lowered the fair value estimates of certain businesses.
As a
result of the lower fair value estimates, Brunswick concluded that the carrying
amounts of its Boat segment reporting unit and the bowling retail and billiards
reporting units within the Bowling & Billiards segment exceeded their
respective fair values. As a result, the Company compared the implied fair value
of the goodwill in each reporting unit with the carrying value and recorded a
$374.0 million pretax impairment charge in the third quarter of 2008. In 2008,
the Company incurred $377.2 million of goodwill impairment charges, which
included the aforementioned $374.0 million, along with impairments primarily
related to its Valley-Dynamo coin-operated commercial billiards business in the
second quarter of 2008.
In
conjunction with the goodwill impairment testing, the Company analyzed the
valuation of its other indefinite-lived intangibles, consisting exclusively of
acquired trade names. Brunswick estimated the fair value of trade names by
performing a discounted cash flow analysis based on the relief-from-royalty
approach. This approach treats the trade name as if it were licensed by the
Company rather than owned, and calculates its value based on the discounted cash
flow of the projected license payments. The analysis resulted in a pretax trade
name impairment charge of $121.1 million in the third quarter of 2008,
representing the excess of the carrying cost of the trade names over the
calculated fair value. In 2008, the Company recorded $133.9 million of trade
name impairment charges, which included the aforementioned $121.1 million and
additional impairments related to the Company’s decision to exit its Bluewater
Marine boat business and its Valley-Dynamo coin-operated commercial billiards
business in the second quarter of 2008. A similar analysis was performed during
the third quarter of 2007 related to certain outboard boat trade names as a
result of reduced revenue forecasts and adverse adjustments to projected royalty
rates for those trade names. A $66.4 million pretax impairment charge was
recorded during the third quarter of 2007 as a result of that
analysis.
The
following table summarizes the goodwill impairment charges:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Boat
|
$ | — | $ | 362.8 | $ | — | ||||||
|
Bowling
& Billiards
|
— | 14.4 | — | |||||||||
|
Total
|
$ | — | $ | 377.2 | $ | — | ||||||
The
following table summarizes the trade name impairment charges:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Marine
Engine
|
$ | — | $ | 4.5 | $ | — | ||||||
|
Boat
|
— | 120.9 | 66.4 | |||||||||
|
Bowling
& Billiards
|
— | 8.5 | — | |||||||||
|
Total
|
$ | — | $ | 133.9 | $ | 66.4 | ||||||
76
Brunswick
Corporation
Notes to
Consolidated Financial Statements
A summary
of changes in the Company’s goodwill during the period ended December 31, 2009,
by segment follows:
|
December
31,
|
December
31,
|
|||||||||||||||||||
|
(in
millions)
|
2008
|
Acquisitions
|
Impairments
|
Adjustments
|
2009
|
|||||||||||||||
|
Marine
Engine
|
$ | 18.8 | $ | — | $ | — | $ | 1.5 | $ | 20.3 | ||||||||||
|
Fitness
|
272.1 | — | — | 0.1 | 272.2 | |||||||||||||||
|
Total
|
$ | 290.9 | $ | — | $ | — | $ | 1.6 | $ | 292.5 | ||||||||||
A summary
of changes in the Company’s goodwill during the period ended December 31, 2008,
by segment follows:
|
December
31,
|
December
31,
|
|||||||||||||||||||
|
(in
millions)
|
2007
|
Acquisitions
|
Impairments
|
Adjustments
|
2008
|
|||||||||||||||
|
Marine
Engine
|
$ | 23.4 | $ | — | $ | — | $ | (4.6 | ) | $ | 18.8 | |||||||||
|
Boat
|
366.6 | — | (362.8 | ) | (3.8 | ) | — | |||||||||||||
|
Fitness
|
274.0 | — | — | (1.9 | ) | 272.1 | ||||||||||||||
|
Bowling
& Billiards
|
14.9 | — | (14.4 | ) | (0.5 | ) | — | |||||||||||||
|
Total
|
$ | 678.9 | $ | — | $ | (377.2 | ) | $ | (10.8 | ) | $ | 290.9 | ||||||||
Adjustments
in 2009 relate to the effect of foreign currency translation on goodwill
denominated in currencies other than the U.S. dollar. Adjustments in 2008
primarily relate to the effect of foreign currency translation and changes in
the fair value of net assets subject to purchase accounting adjustments,
primarily arising from the Company’s acquisitions.
A summary
of changes in the Company’s net trade names during the period ended December 31,
2009, by segment follows:
|
December
31,
|
December
31,
|
|||||||||||||||||||
|
(in
millions)
|
2008
|
Acquisitions
|
Impairments
|
Adjustments
|
2009
|
|||||||||||||||
|
Marine
Engine
|
$ | 20.0 | $ | — | $ | — | $ | 0.3 | $ | 20.3 | ||||||||||
|
Boat
|
12.2 | — | — | — | 12.2 | |||||||||||||||
|
Fitness
|
0.6 | — | — | (0.1 | ) | 0.5 | ||||||||||||||
|
Total
|
$ | 32.8 | $ | — | $ | — | $ | 0.2 | $ | 33.0 | ||||||||||
A summary
of changes in the Company’s net trade names during the period ended December 31,
2008, by segment follows:
|
December
31,
|
December
31,
|
|||||||||||||||||||
|
(in
millions)
|
2007
|
Acquisitions
|
Impairments
|
Adjustments
|
2008
|
|||||||||||||||
|
Marine
Engine
|
$ | 22.5 | $ | — | $ | (4.5 | ) | $ | 2.0 | $ | 20.0 | |||||||||
|
Boat
|
133.8 | — | (120.9 | ) | (0.7 | ) | 12.2 | |||||||||||||
|
Fitness
|
0.6 | — | — | — | 0.6 | |||||||||||||||
|
Bowling
& Billiards
|
8.5 | — | (8.5 | ) | — | — | ||||||||||||||
|
Total
|
$ | 165.4 | $ | — | $ | (133.9 | ) | $ | 1.3 | $ | 32.8 | |||||||||
Adjustments
in 2009 and 2008 primarily relate to the effect of foreign currency translation
on trade names denominated in currencies other than the U.S.
dollar.
77
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Other
intangibles consist of the following:
|
December
31, 2009
|
December
31, 2008
|
|||||||||||||||
|
Gross
|
Accumulated
|
Gross
|
Accumulated
|
|||||||||||||
|
(in
millions)
|
Amount
|
Amortization
|
Amount
|
Amortization
|
||||||||||||
|
Amortized
intangible assets:
|
||||||||||||||||
|
Customer
relationships
|
$ | 253.6 | $ | (219.6 | ) | $ | 260.4 | $ | (219.0 | ) | ||||||
|
Other
|
34.8 | (26.2 | ) | 36.7 | (24.3 | ) | ||||||||||
|
Total
|
$ | 288.4 | $ | (245.8 | ) | $ | 297.1 | $ | (243.3 | ) | ||||||
Other
amortized intangible assets include patents, non-compete agreements and other
intangible assets. Gross amounts and related accumulated amortization amounts
include adjustments related to the impact of foreign currency translation and
changes in the fair value of net assets subject to purchase accounting
adjustments, primarily arising from the Company’s acquisitions as described in
Note 7 –
Acquisitions. Aggregate amortization
expense for intangibles was $11.1 million, $12.4 million and $14.8 million for
the years ended December 31, 2009, 2008 and 2007, respectively. Estimated
amortization expense for intangible assets is approximately $10 million for the
year ending December 31, 2010, approximately $9 million in 2011, and
approximately $8 million in 2012 and 2013, and approximately $7 million in 2014.
78
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
4 – Earnings (Loss) per Common Share
The
Company calculates earnings (loss) per share in accordance with ASC 260
“Earnings Per Share” (ASC 260). Basic earnings (loss) per share is
calculated by dividing net earnings (loss) by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per share
is calculated similarly, except that the calculation includes the dilutive
effect of stock options, Stock-settled Stock Appreciation Rights (SARs) and
non-vested stock awards, collectively “options.” Average outstanding basic
shares and diluted shares remained virtually unchanged in 2009 compared to 2008
due to low levels of stock plan activity. Common stock equivalents continued to
have anti-dilutive effect on the net losses from operations and were not
included in the diluted earnings (loss) per share computation in either 2009 or
2008. Weighted average basic shares decreased by 1.5 million shares in 2008
compared with 2007, primarily due to the share repurchase program as discussed
in Note 19 – Share Repurchase
Program. Although no shares were repurchased during 2008, the average
outstanding shares in 2007 did not fully reflect the effects of the shares
repurchased in 2007 due to the weighted average calculation.
Basic and
diluted earnings (loss) per share for the years ended December 31, 2009, 2008
and 2007 are calculated as follows:
|
(in
millions, except per share data)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
earnings (loss) from continuing operations
|
$ | (586.2 | ) | $ | (788.1 | ) | $ | 79.6 | ||||
|
Net
earnings (loss) from discontinued operations,
net
of tax
|
- | - | 32.0 | |||||||||
|
Net
earnings (loss)
|
$ | (586.2 | ) | $ | (788.1 | ) | $ | 111.6 | ||||
|
Average
outstanding shares – basic
|
88.4 | 88.3 | 89.8 | |||||||||
|
Dilutive
effect of common stock equivalents
|
- | - | 0.4 | |||||||||
|
Average
outstanding shares – diluted
|
88.4 | 88.3 | 90.2 | |||||||||
|
Basic
earnings (loss) per share
|
||||||||||||
|
Continuing
operations
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 0.88 | ||||
|
Discontinued
operations
|
- | - | 0.36 | |||||||||
|
Net
earnings (loss)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 1.24 | ||||
|
Diluted
earnings (loss) per share
|
||||||||||||
|
Continuing
operations
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 0.88 | ||||
|
Discontinued
operations
|
- | - | 0.36 | |||||||||
|
Net
earnings (loss)
|
$ | (6.63 | ) | $ | (8.93 | ) | $ | 1.24 | ||||
As of
December 31, 2009, there were 8.3 million options outstanding, of which 3.3
million were exercisable. During the years ended December 31, 2009 and 2008, the
Company incurred a net loss from continuing operations. As common stock
equivalents have an anti-dilutive effect on the net loss, the equivalents were
not included in the computation of diluted earnings (loss) per share for 2009
and 2008. As of December 31, 2008, there were 6.5 million options outstanding,
of which 2.9 million were exercisable. As of December 31, 2007, there were 2.9
million common stock options outstanding excluded from the computation of
diluted earnings per share as the exercise price of the options was greater than
the average market price of the Company’s shares for the period then
ended.
79
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
5 – Segment Information
Brunswick
is a manufacturer and marketer of leading consumer brands, and operates in four
reportable segments: Marine Engine, Boat, Fitness and Bowling & Billiards.
The Company’s segments are defined by management reporting structure and
operating activities.
The
Marine Engine segment manufactures and markets a full range of sterndrive
engines, inboard engines, outboard engines and marine parts and accessories,
which are principally sold directly to boat builders, including Brunswick’s Boat
segment, or through marine retail dealers worldwide. Mercury Marine also
manufactures and distributes boats in certain markets outside the United States.
The Company’s engine manufacturing plants are located primarily in the United
States, China and Japan, with sales primarily to United States, European and
Asian markets.
The Boat
segment designs, manufactures and markets fiberglass pleasure boats, offshore
fishing boats, aluminum fishing boats, pontoon and deck boats, which are sold
primarily through dealers. The Boat segment’s products are manufactured
primarily in the United States. Sales to the segment’s largest boat dealer,
MarineMax, which has multiple locations, comprised approximately 16 percent of
Boat segment sales in 2009, approximately 13 percent in 2008 and approximately
21 percent in 2007.
The
Fitness segment designs, manufactures and markets fitness equipment, including
treadmills, total body cross-trainers, stair climbers, stationary bikes and
strength-training equipment. These products are manufactured primarily in the
United States and Hungary or are sourced from international locations. Fitness
equipment is sold primarily in North America, Europe and Asia to health clubs,
military, government, corporate and university facilities, and to consumers
through specialty retail dealers.
The
Bowling & Billiards segment designs, manufactures and markets bowling
capital equipment and associated parts and supplies, including automatic
pinsetters and scorers; bowling balls and other accessories; and billiards
tables and accessories. It also operates retail bowling centers. Products are
manufactured or sourced from domestic and international locations. Bowling
products and commercial billiard tables are sold through a direct sales force or
distributors in the United States and through distributors in non-U.S. markets.
Consumer billiards equipment is predominantly sold in the United States and
distributed primarily through dealers.
During
the first quarter of 2009, the Company realigned the management of its marine
service, parts and accessories businesses. The Boat segment’s parts
and accessories businesses of Attwood, Land ‘N’ Sea, Benrock, Kellogg Marine and
Diversified Marine Products are now being managed by the Marine Engine segment’s
service and parts business leaders. As a result, the marine service,
parts and accessories operating results previously reported in the Boat segment
are now being reported in the Marine Engine segment. Segment results
have been restated for all periods presented to reflect the change in
Brunswick’s reported segments.
As
discussed in Note 20 –
Discontinued Operations, during the second
quarter of 2006, Brunswick began reporting the majority of its Brunswick New
Technologies (BNT) businesses as discontinued operations. These businesses were
previously reported in the Marine Engine segment. Segment results have been
restated for all periods presented to reflect the change in Brunswick’s reported
segments. Additionally, the BNT businesses that were retained are now reported
as part of the Boat, Marine Engine and Fitness segments, consistent with the
manner in which Brunswick’s management views these businesses.
The
Company evaluates performance based on business segment operating earnings.
Operating earnings of segments do not include the expenses of corporate
administration, earnings from equity affiliates, other expenses and income of a
non-operating nature, interest expense and income, loss on early extinguishment
of debt or provisions for income taxes.
Corporate/Other
results include items such as corporate staff and administrative costs as well
as the financial results of the Company’s joint venture, Brunswick Acceptance
Company, LLC (BAC), which is discussed in further detail in Note 9 – Financial Services.
Corporate/Other total assets consist primarily of cash and marketable
securities, deferred and prepaid income tax balances and investments in
unconsolidated affiliates.
Marine
eliminations are eliminations between the Marine Engine and Boat segments for
sales transactions consummated at established arm’s length transfer
prices.
80
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Information
as to the operations of Brunswick’s operating segments is set forth
below:
Operating
Segments
|
Net
Sales
|
Operating
Earnings (Loss)
|
Total
Assets
|
||||||||||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
2009
|
2008
|
||||||||||||||||||||||||
|
Marine
Engine
|
$ | 1,425.0 | $ | 2,207.6 | $ | 2,639.5 | $ | (131.2 | ) | $ | 69.9 | $ | 195.8 | $ | 649.4 | $ | 874.0 | |||||||||||||||
|
Boat
|
615.7 | 1,719.5 | 2,367.5 | (398.5 | ) | (655.3 | ) | (93.5 | ) | 476.5 | 794.0 | |||||||||||||||||||||
|
Marine
eliminations
|
(98.3 | ) | (306.0 | ) | (436.2 | ) | — | — | — | — | — | |||||||||||||||||||||
|
Total
Marine
|
1,942.4 | 3,621.1 | 4,570.8 | (529.7 | ) | (585.4 | ) | 102.3 | 1,125.9 | 1,668.0 | ||||||||||||||||||||||
|
Fitness
|
496.8 | 639.5 | 653.7 | 33.5 | 52.2 | 59.7 | 564.7 | 636.3 | ||||||||||||||||||||||||
|
Bowling
& Billiards
|
337.0 | 448.3 | 446.9 | 3.1 | (12.7 | ) | 16.5 | 288.8 | 340.8 | |||||||||||||||||||||||
|
Eliminations
|
(0.1 | ) | (0.2 | ) | (0.2 | ) | — | — | — | — | — | |||||||||||||||||||||
|
Corporate/Other
|
— | — | — | (77.4 | ) | (65.7 | ) | (71.3 | ) | 730.0 | 578.8 | |||||||||||||||||||||
|
Total
|
$ | 2,776.1 | $ | 4,708.7 | $ | 5,671.2 | $ | (570.5 | ) | $ | (611.6 | ) | $ | 107.2 | $ | 2,709.4 | $ | 3,223.9 | ||||||||||||||
|
Depreciation
|
Amortization
|
|||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||
|
Marine
Engine
|
$ | 63.8 | $ | 72.3 | $ | 69.1 | $ | 3.8 | $ | 3.7 | $ | 3.9 | ||||||||||||
|
Boat
|
46.3 | 53.1 | 57.8 | 6.3 | 7.0 | 7.9 | ||||||||||||||||||
|
Fitness
|
9.5 | 11.1 | 10.0 | 0.2 | 0.3 | 0.3 | ||||||||||||||||||
|
Bowling
& Billiards
|
23.2 | 25.0 | 24.0 | 0.9 | 1.4 | 2.7 | ||||||||||||||||||
|
Corporate/Other
|
3.3 | 3.3 | 4.4 | — | — | — | ||||||||||||||||||
|
Total
|
$ | 146.1 | $ | 164.8 | $ | 165.3 | $ | 11.2 | $ | 12.4 | $ | 14.8 | ||||||||||||
|
Research
& Development
|
||||||||||||||||||||||||
|
Capital
Expenditures
|
Expense
|
|||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||
|
Marine
Engine
|
$ | 12.3 | $ | 23.5 | $ | 58.0 | $ | 50.1 | $ | 61.3 | $ | 70.0 | ||||||||||||
|
Boat
|
15.5 | 40.8 | 91.7 | 19.6 | 38.6 | 37.9 | ||||||||||||||||||
|
Fitness
|
2.2 | 4.5 | 11.8 | 14.9 | 17.4 | 21.6 | ||||||||||||||||||
|
Bowling
& Billiards
|
3.3 | 26.9 | 41.6 | 3.9 | 4.9 | 5.0 | ||||||||||||||||||
|
Corporate/Other
|
— | 6.3 | 4.6 | — | — | — | ||||||||||||||||||
|
Total
|
$ | 33.3 | $ | 102.0 | $ | 207.7 | $ | 88.5 | $ | 122.2 | $ | 134.5 | ||||||||||||
Geographic
Segments
|
Net
Sales
|
Long-Lived
Assets
|
|||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
2009
|
2008
|
|||||||||||||||
|
United
States
|
$ | 1,607.4 | $ | 2,650.2 | $ | 3,654.8 | $ | 662.8 | $ | 857.8 | ||||||||||
|
International
|
1,168.7 | 2,058.5 | 2,016.4 | 106.4 | 115.9 | |||||||||||||||
|
Corporate/Other
|
— | — | — | 113.5 | 135.8 | |||||||||||||||
|
Total
|
$ | 2,776.1 | $ | 4,708.7 | $ | 5,671.2 | $ | 882.7 | $ | 1,109.5 | ||||||||||
81
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
6 – Fair Value Measurements
Fair
value is defined under ASC 820 “Fair Value Measurements and Disclosures” (ASC
820) as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair
value under ASC 820 must maximize the use of observable inputs and minimize the
use of unobservable inputs. The standard established a fair value hierarchy
based on three levels of inputs, of which the first two are considered
observable and the last unobservable.
|
·
|
Level
1 - Quoted prices in active markets for identical assets or liabilities.
These are typically obtained from real-time quotes for transactions in
active exchange markets involving identical
assets.
|
|
·
|
Level
2 - Inputs, other than quoted prices included within Level 1, which are
observable for the asset or liability, either directly or indirectly.
These are typically obtained from readily available pricing sources for
comparable instruments.
|
|
·
|
Level
3 - Unobservable inputs, where there is little or no market activity for
the asset or liability. These inputs reflect the reporting entity’s own
assumptions of the data that market participants would use in pricing the
asset or liability, based on the best information available in the
circumstances.
|
The
following table summarizes Brunswick’s financial assets and liabilities measured
at fair value on a recurring basis in accordance with ASC 820 as of December 31,
2009:
|
(in
millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash
Equivalents
|
$ | 350.0 | $ | — | $ | — | $ | 350.0 | ||||||||
|
Investments
|
5.1 | — | — | 5.1 | ||||||||||||
|
Derivatives
|
— | 8.2 | — | 8.2 | ||||||||||||
|
Total
Assets
|
$ | 355.1 | $ | 8.2 | $ | — | $ | 363.3 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$ | — | $ | 1.4 | $ | — | $ | 1.4 | ||||||||
The
following table summarizes Brunswick’s financial assets and liabilities measured
at fair value on a recurring basis in accordance with ASC 820 as of December 31,
2008:
|
(in
millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash
Equivalents
|
$ | 170.8 | $ | — | $ | — | $ | 170.8 | ||||||||
|
Investments
|
3.1 | — | — | 3.1 | ||||||||||||
|
Derivatives
|
— | 14.3 | — | 14.3 | ||||||||||||
|
Total
Assets
|
$ | 173.9 | $ | 14.3 | $ | — | $ | 188.2 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$ | — | $ | 19.1 | $ | — | $ | 19.1 | ||||||||
In
addition to the items shown in the table above, see Note 15 – Postretirement
Benefits for further discussion surrounding the fair value measurements
associated with the Company’s postretirement benefit plans.
During
2008 and 2009, the Company undertook various restructuring activities, as
discussed in Note 2 –
Restructuring Activities and tested its goodwill and trade names, as
discussed in Note 3 – Goodwill
and Trade Name Impairments. The restructuring activities and testing of
goodwill and trade names required the Company to perform fair value
measurements, on a non-recurring basis, on certain asset groups to test for
potential impairments. Certain of these fair value measurements indicated that
the asset groups were impaired and, therefore, the assets were written down to
fair value. Once an asset has been impaired, it is not remeasured at fair value
on a recurring basis; however, it is still subject to fair value measurements to
test for recoverability of the carrying amount. Other than the assets measured
at fair value on a recurring basis, as shown in the table above, the asset
balances shown in the Condensed Consolidated Balance Sheets that were measured
at fair value on a non-recurring basis were $29.7 million and $23.9 million
at December 31, 2009 and 2008, respectively, and relate primarily to assets no
longer being used.
82
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
7 – Acquisitions
All
acquisitions are accounted for under the purchase method and in accordance with
ASC 805 “Business Combinations.”
The
Company did not complete any significant acquisitions during 2009 or
2008.
In 2007,
consideration paid for acquisitions, net of cash acquired, and other
consideration provided was as follows:
|
(in
millions)
Date
|
Name/Description
|
Net
Cash
Consideration(A)
|
Other
Consideration
|
Total
Consideration
|
||||||||||
|
4/04/07
|
Marine
Innovations Warranty Corporation
|
$ | 1.5 | $ | — | $ | 1.5 | |||||||
|
8/24/07
|
Rayglass
Sales & Marketing Limited (51 percent)
|
4.6 | — | 4.6 | ||||||||||
|
Various
|
Miscellaneous
|
0.1 | 0.5 | 0.6 | ||||||||||
| $ | 6.2 | $ | 0.5 | $ | 6.7 | |||||||||
(A) Net
cash consideration is subject to subsequent changes resulting from final
purchase agreement adjustments.
The
Company made an additional payment of $1.5 million for the April 1, 2004,
acquisition of Marine Innovations Warranty Corporation (Marine Innovations), an
administrator of extended warranty contracts for the marine industry. This was
the final payment required under the purchase agreement as Marine Innovations
fulfilled earnings targets. The post-acquisition results of Marine Innovations
are included in the Boat segment.
Brunswick
purchased a 49 percent equity interest in Rayglass Sales & Marketing Limited
(Rayglass), a manufacturer of boats and marine equipment located in New Zealand,
in July 2003, for $5.5 million. In August 2007, the Company exercised its option
to purchase the remaining 51 percent interest in the New Zealand company for
$4.6 million. The acquisition expands the global manufacturing footprint of the
marine operations and develops additional international sales opportunities. The
post-acquisition results of Rayglass are included in the Marine Engine
segment.
The 2007
acquisitions were not and would not have been material to Brunswick’s net sales,
results of operations or total assets in the years ended December 31, 2009, 2008
or 2007. Accordingly, Brunswick’s consolidated results from
operations do not differ materially from historical performance as a result of
these acquisitions, and therefore, pro forma results are not
presented.
Purchase
price allocations for acquisitions are subject to adjustment, pending final
third-party valuations, up to one year from the date of acquisition. There are
no outstanding potential purchase agreement adjustments at December 31,
2009. See Note 1 –
Significant Accounting Policies and Note 3 – Goodwill and Trade Name
Impairments for further detail regarding the Company’s accounting for
goodwill and other intangible assets.
The gross
amount of goodwill recorded as of December 31, 2007 for acquisitions completed
in 2007 was $8.1 million.
83
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
8 – Investments
The
Company has certain unconsolidated international and domestic affiliates that
are accounted for using the equity method. Refer to Note 9 – Financial Services
for more details on the Company’s Brunswick Acceptance Company, LLC joint
venture. The Company contributed $0.7 million to other existing joint ventures
in 2009, did not make any contributions to other existing joint ventures in
2008, and contributed $0.2 million to other existing joint ventures in
2007.
Brunswick
received dividends from its unconsolidated affiliates of $0.3 million, $5.4
million and $11.6 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
The
Company’s sales to and purchases from its investments, along with the
corresponding receivables and payables, were not material to the Company’s
overall results of operations for the years ended December 31, 2009, 2008 and
2007, and its financial position as of December 31, 2009 and 2008.
In March
2008, Brunswick sold its interest in its bowling joint venture in Japan for
$40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and
other costs. The sale resulted in a $20.9 million pretax gain, $9.9 million
after-tax, and was recorded in Investment sale gains in the Consolidated
Statements of Operations.
In
September 2008, Brunswick sold its investment in a foundry located in Mexico for
$5.1 million gross cash proceeds. The sale resulted in a $2.1 million pretax
gain and was recorded in Investment sale gains in the Consolidated Statements of
Operations.
Note
9 – Financial Services
The
Company, through its Brunswick Financial Services Corporation (BFS) subsidiary,
owns a 49 percent interest in a joint venture, Brunswick Acceptance Company, LLC
(BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation (GECC),
owns the remaining 51 percent. BAC commenced operations in 2003 and provides
secured wholesale inventory floor-plan financing to Brunswick’s boat and engine
dealers. BAC also purchased and serviced a portion of Mercury Marine’s domestic
accounts receivable relating to its boat builder and dealer customers. This
program was terminated and replaced in May 2009 with a new facility discussed
below and in Note 14 -
Debt.
The term
of the joint venture extends through June 30, 2014. The joint venture
agreement contains provisions allowing for the renewal or purchase at the end of
its term. Alternatively, either partner may terminate the agreement at the end
of its term. Concurrent with finalizing the amended and restated asset-based
revolving credit facility (Revolving Credit Facility) in the fourth quarter of
2008, the Company and CDFV amended the joint venture agreement to conform the
financial covenant contained in that agreement to the minimum fixed-charge
coverage ratio test contained in the Revolving Credit
Facility. Compliance with the fixed-charge coverage ratio test under
the joint venture agreement is only required when the Company’s available,
unused borrowing capacity under the Revolving Credit Facility is below $60
million. As available unused borrowing capacity under the Revolving
Credit Facility was above $60 million at the end of 2009, the Company was not
required to meet the minimum fixed-charge test.
BAC is funded in part
through a $1.0 billion secured borrowing facility from GE Commercial
Distribution Finance Corporation (GECDF), which is in place through the term of
the joint venture, and with equity contributions from both partners. BAC also
sells a portion of its receivables to a securitization facility, the GE Dealer
Floorplan Master Note Trust, which is arranged by GECC. The sales of these
receivables meet the requirements of a “true sale” under ASC 860
“Transfers and Servicing,” and are therefore
not retained on the financial statements of BAC. The indebtedness of BAC is not
guaranteed by the Company or any of its subsidiaries. In addition, BAC is not
responsible for any continuing servicing costs or obligations with respect to
the securitized receivables. BFS and GECDF have an income sharing
arrangement related to income generated from the receivables sold by BAC to the
securitization facility. The Company records this income in Other
income (expense), net, in the Consolidated Statements of
Operations.
BFS’s
investment in BAC is accounted for by the Company under the equity method and is
recorded as a component of Investments in its Condensed Consolidated Balance
Sheets. The Company records BFS’s share of income or loss in BAC based on its
ownership percentage in the joint venture in Equity earnings (loss) in its
Consolidated Statements of Operations. BFS’s equity investment is
adjusted monthly to maintain a 49 percent interest in accordance with the
capital provisions of the joint venture agreement. The Company funds
its investment in BAC through cash contributions and reinvested
earnings. BFS’s total investment in BAC at December 31, 2009, and
December 31, 2008, was $16.2 million and $26.7 million, respectively. The reduction
in BFS’s total investment in BAC is the result of lower outstanding receivable
balances, which resulted in a reduced investment requirement.
84
Brunswick
Corporation
Notes to
Consolidated Financial Statements
BFS
recorded income related to the operations of BAC of $3.1 million, $7.5 million
and $12.7 million for the years ended December 31, 2009, 2008 and 2007,
respectively, in Equity earnings (loss) and Other income (expense) in the
Consolidated Statement of Operations. These amounts include amounts earned by
BFS under the aforementioned income sharing agreement, but exclude the discount
expense paid by the Company on the sale of Mercury Marine’s accounts receivable
to the joint venture as noted below.
Accounts
receivable totaling $186.4 million, $715.4 million and $887.3 million were sold
to BAC in 2009, 2008 and 2007, respectively. Fewer accounts
receivable were sold to BAC in 2009 when compared to 2008 and 2007 due to the
replacement of the program in May 2009. Discounts of $1.3 million, $5.8 million
and $8.0 million for the years ended December 31, 2009, 2008 and 2007,
respectively, have been recorded as an expense in Other income (expense), net,
in the Consolidated Statements of Operations. Pursuant to the joint venture
agreement, BAC reimbursed Mercury Marine $1.1 million, $2.6 million and, $2.7
million in 2009, 2008 and 2007, respectively, for the related credit, collection
and administrative costs incurred in connection with the servicing of such
receivables. In May 2009, the Company entered into an asset-based
lending facility (Mercury Receivables ABL Facility) with GECDF to replace the
Mercury Marine accounts receivable sale program the Company had with
BAC. See Note 14 –
Debt for more details on the Company’s Mercury Receivables ABL
Facility. Concurrent with entering into the Mercury Receivables ABL
Facility, the Company repurchased $84.2 million of accounts receivable from BAC
in May 2009. There was no outstanding balance of receivables sold to
BAC as of December 31, 2009. The outstanding balance of receivables
sold to BAC under the former Mercury Marine accounts receivable sale program was
$77.4 million as of December 31, 2008.
In
accordance with ASC 860, “Transfers and Servicing,” the Company treats the sale
of receivables in which the Company retains an interest as a secured
obligation. Accordingly, the amount of receivables subject to
recourse was recorded in Accounts and notes receivable, and Accrued expenses in
the Consolidated Balance Sheets. As a result of the Mercury
Receivables ABL Facility transaction noted above, there is no outstanding
retained interest recorded as of December 31, 2009. At December 31,
2008, the Company had a retained interest of $41.0 million of the total
outstanding accounts receivable sold to BAC as a result of recourse
provisions. The Company’s maximum exposure as of December 31, 2008,
related to these amounts was $28.2 million. These balances are
included in the recourse obligations table in Note 11 – Commitments and
Contingencies.
Note
10 – Income Taxes
The
sources of earnings (loss) before income taxes were as follows:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
United
States
|
$ | (690.8 | ) | $ | (606.0 | ) | $ | 64.7 | ||||
|
Foreign
|
6.1 | (26.2 | ) | 28.0 | ||||||||
|
Earnings
(loss) before income taxes
|
$ | (684.7 | ) | $ | (632.2 | ) | $ | 92.7 | ||||
The
income tax provision (benefit) consisted of the following:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Current
tax expense (benefit):
|
||||||||||||
|
U.S.
Federal
|
$ | (10.9 | ) | $ | (92.0 | ) | $ | 25.7 | ||||
|
State
and local
|
(0.2 | ) | 0.3 | (1.8 | ) | |||||||
|
Foreign
|
11.8 | 11.4 | 33.6 | |||||||||
|
Total
current
|
0.7 | (80.3 | ) | 57.5 | ||||||||
|
Deferred
tax expense (benefit):
|
||||||||||||
|
U.S.
Federal
|
(138.9 | ) | 228.3 | (29.5 | ) | |||||||
|
State
and local
|
32.0 | 2.1 | (3.7 | ) | ||||||||
|
Foreign
|
7.7 | 5.8 | (11.2 | ) | ||||||||
|
Total
deferred
|
(99.2 | ) | 236.2 | (44.4 | ) | |||||||
|
Total
provision (benefit)
|
$ | (98.5 | ) | $ | 155.9 | $ | 13.1 | |||||
85
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Temporary
differences and carryforwards giving rise to deferred tax assets and liabilities
at December 31, 2009 and 2008, were as follows:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Current
deferred tax assets:
|
||||||||
|
Loss
carryovers
|
$ | 113.8 | $ | 80.7 | ||||
|
Product
warranties
|
45.8 | 48.4 | ||||||
|
Sales
incentives and discounts
|
23.4 | 29.6 | ||||||
|
Bad
debt and other receivable reserves
|
21.0 | 16.5 | ||||||
|
Other
|
109.7 | 152.8 | ||||||
|
Gross
current deferred tax assets
|
313.7 | 328.0 | ||||||
|
Valuation
allowance
|
(207.7 | ) | (209.7 | ) | ||||
|
Total
net current deferred tax assets
|
106.0 | 118.3 | ||||||
|
Other
|
(26.7 | ) | (15.1 | ) | ||||
|
Total current deferred tax liabilities
|
(26.7 | ) | (15.1 | ) | ||||
|
Total
net current deferred taxes
|
$ | 79.3 | $ | 103.2 | ||||
|
Non-current
deferred tax assets:
|
||||||||
|
Pension
|
$ | 175.5 | $ | 202.0 | ||||
|
Loss
carryforwards
|
225.8 | 69.3 | ||||||
|
Postretirement
and postemployment benefits
|
42.1 | 40.0 | ||||||
|
Other
|
53.0 | 34.6 | ||||||
|
Gross
non-current deferred tax assets
|
496.4 | 345.9 | ||||||
|
Valuation
allowance
|
(429.6 | ) | (283.4 | ) | ||||
|
Total
net non-current deferred tax assets
|
66.8 | 62.5 | ||||||
|
Non-current
deferred tax liabilities:
|
||||||||
|
Unremitted
foreign earnings and withholding
|
(31.8 | ) | (12.3 | ) | ||||
|
Other
|
(45.1 | ) | (75.2 | ) | ||||
|
Total
non-current deferred tax liabilities
|
(76.9 | ) | (87.5 | ) | ||||
|
Total
net non-current deferred taxes
|
$ | (10.1 | ) | $ | (25.0 | ) | ||
At
December 31, 2009, the Company had a total valuation allowance of $637.3
million, of which $207.7 million was current and $429.6 million was non-current.
This valuation allowance is primarily due to uncertainty concerning the
realization of certain net deferred tax assets, as prescribed by ASC 740,
“Income taxes.” For the year ended December 31, 2009, the valuation allowance
increased $144.2 million primarily as a result of additional losses and the
recording of an additional $36.6 million in valuation allowances during the
first quarter of 2009 to reduce certain state and foreign net deferred tax
assets to their anticipated realizable value. Partially offsetting these items
was the reversal of $94.7 million in valuation allowances in the fourth quarter
of 2009 associated with legislation enacted in November 2009 that allows the
Company to carryback its 2009 federal domestic tax losses up to five years. The
Company expects to receive $109.5 million of tax refunds as a result of this new
legislation, which are expected to be received during the first half of 2010.
Additionally, the Company reversed $29.9 million in valuation allowances as a
result of reporting pretax income in Other comprehensive income (OCI) in a
period when the Company has reported an operating loss. The remaining realizable
value of net deferred tax assets at December 31, 2009, was determined by
evaluating the potential to recover the value of these assets through the
utilization of tax loss and credit carrybacks and certain tax planning
strategies.
At
December 31, 2009, loss carryovers totaling $339.6 million were available to
reduce tax liabilities. This deferred tax asset was comprised of $194.9 million
of the tax benefit of a federal net operating loss (NOL) carryback, $13.1
million of the tax benefit of a federal NOL carryforward, $62.6 million of the
tax benefit of state NOL carryforwards, $48.9 million of the tax benefit of
foreign NOL carryforwards and $20.1 million of the tax benefit of unused capital
losses. NOL carryforwards of $84.4 million expire at various intervals between
the years 2010 and 2029, while $40.2 million have an unlimited
life.
86
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
Company has historically provided deferred taxes under APB No. 23, “Accounting
for Income Taxes – Special Areas,” (APB 23) (codified within ASC 740) for the
presumed ultimate repatriation to the United States of earnings from all
non-U.S. subsidiaries and unconsolidated affiliates. The indefinite reversal
criterion of APB 23 allows the Company to overcome that presumption to the
extent the earnings are indefinitely reinvested outside the United
States.
The
Company had undistributed earnings from continuing operations of foreign
subsidiaries of $22.7 million and $113.4 million at December 31, 2009 and 2008,
respectively, for which deferred taxes have not been provided as such earnings
are indefinitely reinvested in the foreign subsidiaries. If such earnings were
repatriated, additional tax may result. In the fourth quarter of 2009, the
Company determined that undistributed earnings at certain foreign subsidiaries
would no longer be designated as permanently reinvested. As a result of this
change in assertion, the Company increased its deferred tax liabilities related
to undistributed foreign earnings by $18.9 million during the fourth quarter of
2009. The Company continues to provide deferred taxes, as required, on the
undistributed net earnings of foreign subsidiaries and unconsolidated affiliates
that are not indefinitely reinvested in operations outside the United
States.
The
Company adopted the provisions of accounting for uncertainty in income taxes in
ASC 740 effective on January 1, 2007. As a result of the implementation, the
Company recognized an $8.7 million decrease in the net liability for
unrecognized tax benefits, which was accounted for as an increase to the January
1, 2007, opening retained earnings.
As of
December 31, 2009, 2008 and 2007 the Company had $45.9 million, $44.2 million
and $44.4 million of gross unrecognized tax benefits, including interest,
respectively. Of these amounts, $42.2 million, $37.0 million, and $37.4 million,
respectively, represent the portion that, if recognized, would impact the
effective tax rate.
The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense. As of December 31, 2009, 2008 and 2007 the Company had
$6.0 million, $6.9 million and $5.4 million accrued for the payments of
interest, respectively, and no amounts accrued for penalties.
The
following is a reconciliation of the total amounts of unrecognized tax benefits
excluding interest and penalties for the 2009 annual reporting
period:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Balance
at January 1
|
$ | 37.3 | $ | 39.0 | ||||
|
Gross
increases – tax positions prior periods
|
11.3 | 3.2 | ||||||
|
Gross
decreases – tax positions prior periods
|
(2.9 | ) | (0.4 | ) | ||||
|
Gross
increases – current period tax positions
|
2.7 | 1.5 | ||||||
|
Decreases
– settlements with taxing authorities
|
(3.2 | ) | (6.0 | ) | ||||
|
Reductions
– lapse of statute of limitations
|
(5.9 | ) | — | |||||
|
Other
– CTA
|
0.6 | — | ||||||
|
Balance
at December 31
|
$ | 39.9 | $ | 37.3 | ||||
The
Company believes that it is reasonably possible that the total amount of
unrecognized tax benefits as of December 31, 2009, will decrease by
approximately $13 million in 2010 as a result of expected settlements with
taxing authorities. Due to the various jurisdictions in which the Company files
tax returns and the uncertainty regarding the timing of the settlement of tax
audits, it is possible that there could be other significant changes in the
amount of unrecognized tax benefits in 2010, but the amount cannot be
estimated.
The Company is regularly
audited by federal, state and foreign tax authorities. The Company’s taxable
years 2004 through 2008 are currently open for IRS examination. The IRS
has completed its field examination and has issued its Revenue Agents Report for
2004 and 2005 and all open issues have been resolved. The IRS examination for
2006, 2007 and 2008 is currently in process. Primarily as a result of filing
amended tax returns, which were generated by the closing of federal income tax
audits, the Company is still open to state and local tax audits in major tax
jurisdictions dating back to the 2003 taxable year. With the exception of
Germany, where the Company is currently undergoing a tax audit for taxable years
1998 through 2007, the Company is no longer subject to income tax examinations
by any other major foreign tax jurisdiction for years prior to 2003. As a result
of the German tax audit for the years 1998 through 2001, the Company’s German
subsidiary received a proposed audit adjustment in the fourth quarter of 2009,
which is being contested by the Company, related to the shutdown of the
subsidiary’s pinsetter manufacturing operation and sale of the subsidiary’s
pinsetter assets to a related subsidiary.
87
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
difference between the actual income tax provision (benefit) and the tax
provision (benefit) computed by applying the statutory Federal income tax rate
to Earnings (loss) before taxes is attributable to the following:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Income
tax provision (benefit) at 35 percent
|
$ | (239.7 | ) | $ | (221.3 | ) | $ | 32.4 | ||||
|
State
and local income taxes, net of Federal income tax effect
|
(20.6 | ) | (17.8 | ) | 1.3 | |||||||
|
Deferred
tax asset valuation allowance
|
179.5 | 338.3 | 0.4 | |||||||||
|
OCI
reclassification to continuing operations
|
(29.9 | ) | — | — | ||||||||
|
Change
in permanently reinvested assertion
|
18.9 | — | (2.0 | ) | ||||||||
|
Nondeductible
impairment charges
|
— | 68.1 | — | |||||||||
|
Asset
dispositions
|
(1.9 | ) | (13.3 | ) | — | |||||||
|
Change
in estimates related to prior years and prior
years’
amended tax return filings
|
(4.3 | ) | 5.0 | 3.8 | ||||||||
|
Research
and development credit
|
— | (4.8 | ) | (8.1 | ) | |||||||
|
Deferred
tax reassessments
|
0.7 | 1.6 | (12.7 | ) | ||||||||
|
Lower
taxes related to foreign income, net of credits
|
(9.1 | ) | (0.9 | ) | (2.9 | ) | ||||||
|
Tax
reserve reassessment
|
7.4 | 0.4 | 0.5 | |||||||||
|
Other
|
0.5 | 0.6 | 0.4 | |||||||||
|
Actual
income tax provision (benefit)
|
$ | (98.5 | ) | $ | 155.9 | $ | 13.1 | |||||
|
Effective
tax rate
|
14.4 | % | (24.7 | )% | 14.1 | % | ||||||
Income
tax provision (benefit) allocated to continuing operations and discontinued
operations for the years ended December 31 was as follows:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Continuing
operations
|
$ | (98.5 | ) | $ | 155.9 | $ | 13.1 | |||||
|
Discontinued
operations
|
— | — | (8.1 | ) | ||||||||
|
Total
tax provision (benefit)
|
$ | (98.5 | ) | $ | 155.9 | $ | 5.0 | |||||
88
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
11 – Commitments and Contingencies
Financial
Commitments
The
Company has entered into guarantees of indebtedness of third parties, primarily
in connection with customer financing programs. Under these arrangements, the
Company has guaranteed customer obligations to the financial institutions in the
event of customer default, generally subject to a maximum amount which is less
than total obligations outstanding. The Company has also extended
guarantees to third parties that have purchased customer receivables from
Brunswick and, in certain instances, has guaranteed secured term financing of
its customers. Potential payments in connection with these customer financing
arrangements generally extend over several years. The potential cash payments
associated with these customer financing arrangements as of December 31, 2009
and 2008 were:
|
Single
Year Obligation
|
Maximum
Potential Obligation
|
|||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Marine
Engine
|
$ | 6.4 | $ | 35.4 | $ | 6.4 | $ | 35.4 | ||||||||
|
Boat
|
3.6 | 3.2 | 3.6 | 3.2 | ||||||||||||
|
Fitness
|
27.5 | 26.9 | 35.0 | 38.3 | ||||||||||||
|
Bowling
& Billiards
|
7.0 | 11.3 | 15.9 | 27.1 | ||||||||||||
|
Total
|
$ | 44.5 | $ | 76.8 | $ | 60.9 | $ | 104.0 | ||||||||
The
reduction in potential obligations in the Marine Engine segment is a result of
the Company’s discontinuance of its sale of receivables program in May of
2009. See Note 9 –
Financial Services for further details.
In most instances, upon repurchase of
the debt obligation, the Company receives rights to the collateral securing the
financing. The Company’s
risk under these arrangements is mitigated by the value of the collateral that
secures the financing. The Company had $4.4 million and $6.4 million accrued for
potential losses related to recourse exposure at December 31, 2009 and 2008,
respectively.
The
Company has also entered into arrangements with third-party lenders where it has
agreed, in the event of a default by the customer, to repurchase from the
third-party lender Brunswick products repossessed from the customer. These
arrangements are typically subject to a maximum repurchase amount. The amount
the Company could be required to pay to purchase collateral as of December 31,
2009 and 2008 was:
|
Single
Year Obligation
|
Maximum
Potential Obligation
|
|||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Marine
Engine
|
$ | 2.6 | $ | 4.0 | $ | 2.6 | $ | 4.0 | ||||||||
|
Boat
|
91.5 | 127.6 | 111.5 | 161.9 | ||||||||||||
|
Bowling
& Billiards
|
0.5 | 1.2 | 0.5 | 1.2 | ||||||||||||
|
Total
|
$ | 94.6 | $ | 132.8 | $ | 114.6 | $ | 167.1 | ||||||||
The
Company had $9.0 million and $11.9 million accrued for potential losses related
to repurchase exposure at December 31, 2009 and 2008,
respectively. The Company’s risk under these repurchase arrangements
is mitigated by the value of the products repurchased as part of the
transaction. The Company’s repurchase accrual represents the expected
net losses on obligations to repurchase products, after giving effect to
proceeds anticipated to be received from the resale of those products to
alternative dealers.
Based on
historical experience and current facts and circumstances, and in accordance
with ASC 460 “Guarantees,” the Company has recorded the fair value of its
estimated net liability associated with losses from these guarantee and
repurchase obligations on its Consolidated Balance Sheets. Historical
cash requirements and losses associated with these obligations have not been
significant, but could increase if dealer defaults increase as a result of the
difficult market conditions.
Financial
institutions have issued standby letters of credit and surety bonds
conditionally guaranteeing obligations on behalf of the Company totaling $99.0
million and $106.8 million as of December 31, 2009 and 2008,
respectively. A large portion of these standby letters of credit and
surety bonds is related to the Company’s self-insured workers’ compensation
program as required by its insurance companies and various state agencies. The
Company has recorded reserves to cover liabilities associated with these
programs. In addition, the Company has provided a letter of credit to
GE Commercial Distribution Finance Corporation (GECDF) as a guarantee of the
Company’s obligations to GECDF and affiliates under
various agreements. Under certain circumstances, such as an event of
default under the Company’s revolving credit facility, or, in the case of surety
bonds, a ratings downgrade below investment grade, the Company could be required
to post collateral to support the outstanding letters of credit and surety
bonds. As the Company’s current long-term debt ratings are below
investment grade, the Company has posted letters of credit totaling $12.2
million as collateral against $13.4 million of outstanding surety bonds as of
December 31, 2009.
89
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Product
Warranties
The
Company records a liability for product warranties at the time revenue is
recognized. The liability is estimated using historical warranty
experience, projected claim rates and expected costs per claim. The
Company adjusts its liability for specific warranty matters when they become
known and the exposure can be estimated. The Company’s warranty reserves are
affected by product failure rates and material usage and labor costs incurred in
correcting a product failure. If these estimated costs differ from actual costs,
a revision to the warranty reserve is recorded.
The
following activity related to product warranty liabilities from continuing
operations was recorded in Accrued expenses at December 31:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Balance
at January 1
|
$ | 145.4 | $ | 163.9 | ||||
|
Payments
made
|
(95.9 | ) | (116.0 | ) | ||||
|
Provisions/additions
for contracts issued/sold
|
89.4 | 95.4 | ||||||
|
Aggregate
changes for preexisting warranties
|
0.9 | 2.1 | ||||||
|
Balance
at December 31
|
$ | 139.8 | $ | 145.4 | ||||
Additionally,
customers may purchase a contract from the Company that extends product
protection beyond the standard product warranty period in the Company’s Marine
Engine, Boat and Fitness segments. For certain extended warranty contracts in
which the Company retains the warranty obligation, a deferred liability is
recorded based on the aggregate sales price for contracts sold. The deferred
liability is reduced and revenue is recognized over the contract period as costs
are expected to be incurred. Deferred revenue associated with contracts sold by
the Company that extend product protection beyond the standard product warranty
period, not included in the table above, was $38.0 million and $21.8 million at
December 31, 2009 and 2008, respectively.
Legal
and Environmental
The
Company accrues for litigation exposure based upon its assessment, made in
consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company’s litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company’s consolidated financial position. If current
estimates for the cost of resolving any claims are later determined to be
inadequate, results of operations could be adversely affected in the period in
which additional provisions are required.
German Tax Audit
As
the result of a German tax audit for years 1998-2001, the Company’s German
subsidiary received a proposed audit adjustment on October 27, 2009, which is
being contested by the Company, related to the shutdown of the subsidiary’s
pinsetter manufacturing operation and sale of the subsidiary’s pinsetter assets
to a related subsidiary.
Environmental
Matters
Brunswick
is involved in certain legal and administrative proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
other federal and state legislation governing the generation and disposal of
certain hazardous wastes. These proceedings, which involve both on- and off-site
waste disposal or other contamination, in many instances seek compensation or
remedial action from Brunswick as a waste generator under Superfund legislation,
which authorizes action regardless of fault, legality of original disposition or
ownership of a disposal site. Brunswick has established reserves based on a
range of cost estimates for all known claims.
The
environmental remediation and clean-up projects in which Brunswick is involved
have an aggregate estimated range of exposure of approximately $46.2 million to
$80.4 million as of December 31, 2009. At December 31, 2009 and 2008, Brunswick
had reserves for environmental liabilities of $48.0 million and $46.9 million,
respectively, reflected in Accrued expenses
and Other long-term liabilities in the Consolidated Balance Sheets. There were
environmental provisions of $2.4 million, $0.0 and $0.7 million for the years
ended December 31, 2009, 2008 and 2007, respectively.
90
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Brunswick
accrues for environmental remediation related activities for which commitments
or clean-up plans have been developed and for which costs can be reasonably
estimated. All accrued amounts are generally determined in coordination with
third-party experts on an undiscounted basis and do not consider recoveries from
third parties until such recoveries are realized. In light of existing reserves,
the Company’s environmental claims, when finally resolved, will not, in the
opinion of management, have a material adverse effect on the Company’s
consolidated financial position or results of operations.
Asbestos Claims
Brunswick’s
subsidiary, Old Orchard Industrial Corp., is a defendant in more than 8,000
lawsuits involving claims of asbestos exposure from products manufactured by
Vapor Corporation (Vapor), a former subsidiary that the Company divested in
1990. Virtually all of the asbestos suits involve numerous other defendants. The
claims generally allege that Vapor sold products that contained components, such
as gaskets, which included asbestos, and seek monetary damages. Neither
Brunswick nor Vapor is alleged to have manufactured asbestos. Several thousand
claims have been dismissed with no payment and no claim has gone to jury
verdict. In a few cases, claims have been filed against other Brunswick
entities, with a majority of these suits being either dismissed or settled for
nominal amounts. The Company does not believe that the resolution of these
lawsuits will have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Brazilian
Customs Dispute
In
June 2007, the Brazilian Customs Office issued an assessment against a Company
subsidiary in the amount of approximately $14 million related to the importation
of Life Fitness products into Brazil. The assessment was based on a
determination by Brazilian customs officials that the proper import value of
Life Fitness equipment imported into Brazil should be the manufacturer’s
suggested retail price of those goods in the United States. This assessment was
dismissed during 2008. The Brazilian Customs Office has appealed the ruling as a
matter of course.
Note
12 – Financial Instruments
The
Company operates globally, with manufacturing and sales facilities in various
locations around the world. Due to the Company’s global operations, the Company
engages in activities involving both financial and market risks. The Company
utilizes normal operating and financing activities, along with derivative
financial instruments, to minimize these risks.
Derivative Financial Instruments.
The Company uses derivative financial instruments to manage its risks
associated with movements in foreign currency exchange rates, interest rates and
commodity prices. Derivative instruments are not used for trading or speculative
purposes. For certain derivative contracts, on the date a derivative contract is
entered into, the Company designates the derivative as a hedge of a forecasted
transaction (cash flow hedge). The Company formally documents its hedge
relationships, including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and strategies for
undertaking the hedge transaction. This process includes linking derivatives
that are designated as hedges to specific forecasted transactions. The Company
also assesses, both at the inception and monthly thereafter, whether the
derivatives used in hedging transactions are highly effective in offsetting the
changes in the anticipated cash flows of the hedged item. There were no material
adjustments as a result of ineffectiveness to the results of operations for the
years ended December 31, 2009, 2008 and 2007. 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. 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
2009 and 2008, the Company entered into foreign currency forward contracts to
manage foreign currency exposure related to changes in the value of assets or
liabilities caused by changes in the exchange rates of foreign currencies. The
change in the fair value of the foreign currency derivative contract and the
corresponding change in the fair value of the asset or liability of the Company
are both recorded through earnings (loss), each period as incurred.
Cash Flow Hedges. Certain
derivative instruments qualify as cash flow hedges under the requirements of ASC
815 “Derivatives and Hedging.” The Company executes both forward and
option contracts, based on forecasted transactions, to manage foreign exchange
exposure mainly related to inventory purchase and sales transactions. The
Company also enters into commodity swap agreements, based on anticipated
purchases of aluminum and natural gas, to manage risk related to price changes.
In prior periods, the Company entered into forward starting interest rate swaps
to hedge the interest rate risk associated with the anticipated issuance of
debt.
91
Brunswick
Corporation
Notes to
Consolidated Financial Statements
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 income (loss), an equity account, and
reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. As of December 31, 2009, the term of derivative
instruments hedging forecasted transactions ranged from one to 23
months.
The
following activity related to cash flow hedges were recorded in Accumulated
other comprehensive income (loss) as of December 31:
|
Accumulated
Unrealized Derivative
|
||||||||||||||||
|
Gains
(Losses)
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
(in
millions)
|
Pretax
|
After-tax
|
Pretax
|
After-tax
|
||||||||||||
|
Beginning
balance
|
$ | 3.8 | $ | 2.4 | $ | (4.5 | ) | $ | (3.2 | ) | ||||||
|
Net
change associated with current period hedging activity
|
2.7 | 1.7 | 2.3 | 1.6 | ||||||||||||
|
Net
amount recognized into earnings (loss)
|
1.7 | 1.0 | 6.0 | 4.0 | ||||||||||||
| Other | 1.4 | 1.1 | — | — | ||||||||||||
|
Ending
balance
|
$ | 9.6 | $ | 6.2 | $ | 3.8 | $ | 2.4 | ||||||||
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 December 31, 2009 and 2008, had notional
contract values of $101.9 million and $106.3 million, respectively. Option
contracts outstanding at December 31, 2009 and 2008, had notional contract
values of $103.7 million and $137.9 million, respectively. The forward and
options contracts outstanding at December 31, 2009, mature during 2010 and
primarily relate to the Euro, Mexican peso, Canadian dollar, British pound,
Japanese yen, New Zealand dollar and Australian dollar. As of December 31, 2009,
the Company estimates that during the next 12 months, it will reclassify
approximately $2.7 million in net gains (based on current rates) from
Accumulated other comprehensive income (loss) to Cost of sales.
Interest Rate. As of December
31, 2009 and 2008, the Company had $4.8 million and $5.7 million, respectively,
of net deferred gains associated with all forward starting interest rate swaps
included in Accumulated other comprehensive income (loss). These amounts include
gains deferred on $250.0 million of forward starting interest rate swaps
terminated in July 2006 and losses deferred on $150.0 million of notional value
forward starting swaps, which were terminated in August 2008. There
were no forward starting interest rate swaps outstanding as of December 31,
2009. In 2009, the Company recognized $0.9 million of income related to the net
amortization of deferred gains and losses resulting from 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 December 31, 2009 and 2008 had notional
values of $15.5 million and $33.8 million, respectively. The contracts
outstanding mature throughout 2010 and 2011. The amount of gain or loss
associated with these instruments are deferred in Accumulated other
comprehensive income (loss) and are recognized in Cost of sales in the same
period or periods during which the hedged transaction affects earnings. As of
December 31, 2009, the Company estimates that during the next 12 months, it will
reclassify approximately $3 million in net gains (based on current prices) from
Accumulated other comprehensive income (loss) to Cost of sales.
92
Brunswick
Corporation
Notes to
Consolidated Financial Statements
As of
December 31, 2009, the fair values of the Company’s derivative instruments
were:
|
(in
millions)
|
|||||||||||
|
Derivative
Assets
|
Derivative
Liabilities
|
||||||||||
|
Instrument
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
|||||||
|
Foreign
exchange contracts
|
Prepaid
Expenses and Other
|
$ | 1.8 |
Accrued
Expenses
|
$ | 1.4 | |||||
|
Commodity
contracts
|
Prepaid
Expenses and Other
|
6.4 |
Accrued
Expenses
|
— | |||||||
|
Total
|
$ | 8.2 | $ | 1.4 | |||||||
As of
December 31, 2008, the fair values of the Company’s derivative instruments
were:
|
(in
millions)
|
|||||||||||
|
Derivative
Assets
|
Derivative
Liabilities
|
||||||||||
|
Instrument
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
|||||||
|
Foreign
exchange contracts
|
Prepaid
Expenses and Other
|
$ | 14.3 |
Accrued
Expenses
|
$ | 3.9 | |||||
|
Commodity
contracts
|
Prepaid
Expenses and Other
|
— |
Accrued
Expenses
|
15.2 | |||||||
|
Total
|
$ | 14.3 | $ | 19.1 | |||||||
93
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
effect of derivative instruments on the Consolidated Statement of Operations for
the year ended December 31, 2009, was:
|
(in
millions)
|
||||||
|
Fair
Value Hedging Instruments
|
Location
of Gain/(Loss)
Recognized
in Income on
Derivatives
|
Amount
of Gain/(Loss) Recognized in Income on Derivatives
|
||||
|
Foreign
exchange contracts
|
Cost
of Sales
|
$ | (7.2 | ) | ||
|
Cash
Flow Hedge Instruments
|
Amount
of Gain/(Loss) Recognized on Derivatives in Accumulated other
comprehensive loss
(Effective
Portion)
|
Location
of Gain/(Loss)
Reclassified
from
Accumulated
other
comprehensive
loss into
Income
(Effective
Portion)
|
Amount
of Gain/(Loss) Reclassified from
Accumulated
other comprehensive loss into
Income
(Effective
Portion)
|
||||||
|
Interest
rate contracts
|
$ | — |
Interest
Expense
|
$ | 0.9 | ||||
|
Foreign
exchange contracts
|
(3.7 | ) |
Cost
of Sales
|
11.9 | |||||
|
Commodity
contracts
|
6.4 |
Cost
of Sales
|
(14.5 | ) | |||||
|
Total
|
$ | 2.7 | $ | (1.7 | ) | ||||
Concentration of Credit Risk. The Company enters into financial
instruments with banks and investment firms with which the Company has business
relationships and regularly monitors the credit ratings of its counterparties.
The Company sells a broad range of recreation products to a worldwide customer
base and extends credit to its customers based upon an ongoing credit evaluation
program. Concentrations of credit risk with accounts receivable are not material
to the Company’s financial position, due to the large number of customers
comprising the Company’s customer base and their dispersion across many
geographic areas.
Fair Value of Other Financial
Instruments. The carrying values of the Company’s short-term financial
instruments, including cash and cash equivalents, accounts and notes receivable
and short-term debt, approximate their fair values because of the short maturity
of these instruments. At December 31, 2009 and 2008, the fair value of the
Company’s long-term debt was approximately $811.2 million and $325.4 million,
respectively, as estimated using quoted market prices or discounted cash flows
based on market rates for similar types of debt. The carrying value of long-term
debt, including current maturities, was $841.2 million as of December 31,
2009.
94
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
13 – Accrued Expenses
Accrued
Expenses at December 31 were as follows:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Product
warranties
|
$ | 139.8 | $ | 145.4 | ||||
|
Compensation
and benefit plans
|
139.8 | 96.1 | ||||||
|
Sales
incentives and discounts
|
88.5 | 111.5 | ||||||
|
Repurchase,
recourse and ASC 860 obligations
|
59.5 | 102.9 | ||||||
|
Deferred
revenue and customer deposits
|
53.5 | 61.4 | ||||||
|
Insurance
reserves
|
43.7 | 45.3 | ||||||
|
Interest
|
23.0 | 19.9 | ||||||
|
Real,
personal and other non-income taxes
|
14.4 | 17.5 | ||||||
|
Environmental
reserves
|
9.7 | 5.6 | ||||||
|
Income
taxes
|
5.0 | 11.8 | ||||||
|
Other
|
57.0 | 79.3 | ||||||
|
Total
accrued expenses
|
$ | 633.9 | $ | 696.7 | ||||
Note
14 – Debt
Short-term
debt at December 31 consisted of the following:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Mercury
Receivables ABL Facility
|
$ | – | $ | – | ||||
|
Current
maturities of long-term debt
|
1.8 | 1.3 | ||||||
|
Other
short-term debt
|
9.7 | 1.9 | ||||||
|
Total
short-term debt
|
$ | 11.5 | $ | 3.2 | ||||
In May
2009, the Company entered into the Mercury Receivables ABL Facility with GE
Commercial Distribution Finance Corporation (GECDF) to replace the Mercury
Marine accounts receivable sale program the Company had with Brunswick
Acceptance Company, LLC (BAC) as described in Note 9 – Financial
Services. The Mercury Receivables ABL Facility agreement
provides for a base level of borrowings of $100.0 million and is secured by the
domestic accounts receivable of Mercury Marine, a division of the Company, at a
borrowing rate, set at the beginning of each month, equal to the one-month LIBOR
rate plus 4.25 percent, provided, however, that the one-month LIBOR rate shall
not be less than 1.0 percent. Borrowings under the Mercury
Receivables ABL Facility can be adjusted to $120.0 million to accommodate
seasonal increases in accounts receivable from May to
August. Borrowing availability under this facility is subject to a
borrowing base consisting of Mercury Marine domestic accounts receivable,
adjusted for eligibility requirements, with an 85 percent advance
rate. The Company had the capacity to borrow an additional $21.5
million in excess of the borrowing base according to the over-advance feature
through November 2009. The over-advance amount declines ratably each
month through November 2010. Borrowings under the Mercury Receivables
ABL Facility are further limited to the lesser of the total amount available
under the Mercury Receivables ABL Facility or the Mercury Marine receivables,
excluding certain accounts, pledged as collateral against the Mercury
Receivables ABL Facility. The Mercury Receivables ABL Facility also
includes a financial covenant, which corresponds to the minimum fixed-charge
coverage ratio covenant included in the Company’s revolving credit facility and
the BAC joint venture agreement described in Note 9 – Financial
Services. The Mercury Receivables ABL Facility’s term will
expire concurrently with the termination of BAC, by the Company with 90 days
notice or by GECDF upon the Company’s default under the Mercury Receivables ABL
Facility, including failure to comply with the facility’s financial covenant.
Initial borrowings under the Mercury Receivables ABL Facility were $81.1
million, but have since been repaid and the Company had no borrowings
outstanding at December 31, 2009.
95
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Long-Term
Debt at December 31 consisted of the following:
|
(in
millions)
|
2009
|
2008
|
||||||
|
Senior
notes, currently 11.25%, due 2016, net of discount of
$9.9
in 2009
|
$ | 340.1 | $ | - | ||||
|
Notes,
7.125% due 2027, net of discount of $0.8 and $0.9
|
199.2 | 199.1 | ||||||
|
Senior
notes, currently 11.75%, due 2013
|
153.4 | 250.0 | ||||||
|
Debentures,
7.375% due 2023, net of discount of $0.4 and $0.4
|
124.6 | 124.6 | ||||||
|
Loan
with Fond du Lac County Economic Development Corporation, 2.0% due 2021,
net of discount of $3.8 in 2009
|
16.2 | - | ||||||
|
Notes,
1.82% to 4.0% payable through 2015
|
7.5 | 4.7 | ||||||
|
Notes,
5.0% due 2011, net of discount of $0.3 in 2008
|
0.2 | 151.4 | ||||||
| 841.2 | 729.8 | |||||||
|
Current
maturities
|
(1.8 | ) | (1.3 | ) | ||||
|
Long-term
debt
|
$ | 839.4 | $ | 728.5 | ||||
|
Scheduled
maturities, net of discounts
2010
|
$ | 1.8 | ||||||
|
2011
|
1.8 | |||||||
|
2012
|
6.2 | |||||||
|
2013
|
159.5 | |||||||
|
2014
|
5.6 | |||||||
|
Thereafter
|
666.3 | |||||||
|
Total
long-term debt including current maturities
|
$ | 841.2 | ||||||
On
December 23, 2009, the Company entered into a $50.0 million loan agreement with
the Fond du Lac County Economic Development Corporation (FDL-EDC). Initial
borrowings under this loan were $20.0 million at a 2.0 percent interest rate,
due 2021. This loan is part of a $50.0 million appropriation made to the FDL-EDC
by the County of Fond du Lac, Wisconsin to provide financial assistance to
encourage and enable the Company’s Mercury Marine division to remain
headquartered in Fond du Lac. See Note 2 – Restructuring
Activities for further discussion. The Company anticipates borrowing an
additional $10.0 million in the first quarter of 2010, the third quarter of
2010, and the first quarter of 2011 under the same terms described above.
Principal payments under the FDL-EDC loan are due in equal annual installments
beginning December 23, 2012. Likewise, interest accrues on the loan and is
payable at the date of the first principal payment, and is due annually
thereafter. Under the terms of the FDL-EDC loan, up to approximately 43 percent
of the principal due under this loan is forgivable if the Company achieves
certain employment levels as outlined in the agreement.
Employment levels used to calculate loan forgiveness are based on average
employment levels at the end of the previous four quarters. The FDL-EDC loan is
secured by facilities and machinery and equipment located in Fond du Lac. The
carrying value of this debt at December 31, 2009, includes a $3.8 million
discount calculated using a market based interest rate of 3.79 percent rather
than the stated interest rate of 2.0 percent as the stated interest rate is
viewed as a below market interest rate.
In August
2009, the Company completed the offering of a $350.0 million aggregate principal
amount of 11.25 percent secured Senior notes due 2016 under a private
offering to qualified institutional buyers in accordance with Rule 144A, and to
persons outside the U.S. pursuant to Regulation S under the Securities Act of
1933, as amended. Interest is payable semi-annually in arrears on May
1 and November 1, and commenced on November 1, 2009. A portion of the
proceeds from this offering were used to repurchase $149.8 million of the
Company’s outstanding $150.0 million principal amount 5 percent Notes due 2011
and $96.6 million of its outstanding $250.0 million principal amount 11.75
percent Senior notes due 2013. The remaining proceeds will be used
for general corporate purposes, which may include funding intermediate and
long-term financial obligations, including additional long-term debt retirements
or pension funding, reducing short-term borrowings, or supplementing its
liquidity. During the year ended December 31, 2009, $13.1 million of
extinguishment loss was recorded in Loss on extinguishment of debt related to
the repayments discussed above. In
connection with the offering of the 2016 secured Senior notes, the Company also
amended its revolving credit facility discussed below to increase the amount of
permitted secured debt.
96
Brunswick
Corporation
Notes to
Consolidated Financial Statements
In
December 2008, the Company converted its revolving credit facility into a $400.0
million secured, asset-based facility (Facility), which remains in place through
May 2012. Borrowings under this Facility are subject to the value of the
borrowing base, consisting of certain cash balances, accounts receivable,
inventory, and machinery and equipment of certain of the Company’s domestic
subsidiaries. As of December 31, 2009, the borrowing base totaled $191.3
million, excluding cash, and available capacity totaled $106.3 million, net of
$85.0 million of letters
of credit outstanding under the Facility. The borrowing base will be
affected by changes in eligible collateral in future periods. Under the terms of
the Facility, the Company has multiple borrowing options, including borrowing at
a rate tied to adjusted LIBOR plus 4.00 percent, or the highest of the
following, plus a margin of 3.50 percent: the Federal Funds rate plus 0.50
percent, the prime rate established by JPMorgan Chase Bank, N.A. or the one
month adjusted LIBOR rate plus 1.00 percent. The Facility contains a minimum
fixed-charge coverage ratio covenant, which is effective when the available
borrowing capacity under the Facility falls below certain thresholds. The
Company was in compliance with this covenant in 2009. There were no loan
borrowings under the Facility during 2009 or 2008. The Company has the ability
to issue up to $150.0 million in letters of credit under the Facility. The
Company pays a facility fee of 75 to 100 basis points per annum, which is based
on the daily average utilization of the facility.
Under the
terms of the Facility, the $150.0 million principal amount of 5 percent Notes
due 2011, was required to be repaid by December 31, 2010, or otherwise subject
to cash collateral or escrow arrangements. During the third quarter of 2009, the
Company effectively satisfied this requirement by repaying substantially all of
the $150.0 million.
In August
2008, the Company completed the offering of a $250.0 million aggregate principal
amount of 9.75 percent Senior notes due in 2013 under a universal shelf
registration. The proceeds from this offering were used to repay the Company’s
outstanding $250.0 million principal amount of Floating Rate Notes due July
2009. Interest on the Senior notes is paid semi-annually in February and August.
The interest rate payable on the Senior notes is subject to adjustment from time
to time if the rating assigned to the Senior notes is changed under
circumstances described in the prospectus supplement. Total interest rate
adjustments are capped at 2.00 percent. As a result of ratings actions that
occurred after the issuance of the Senior notes, the interest rate on the Senior
notes is currently 11.75 percent. The Company repaid $96.6 million of its
principal during 2009.
Included
in Notes, 5.0 percent due 2011, is the settlement of the fixed-to-floating
interest rate swaps discussed in Note 12 – Financial Instruments.
Note
15 – Postretirement Benefits
Overview. The Company has
defined contribution plans, qualified and nonqualified pension plans, and other
postretirement benefit plans covering substantially all of its employees. The
Company’s contributions to its defined contribution plans are largely
discretionary and are based on various percentages of compensation, and in some
instances are based on the amount of the employees’ contributions to the plans.
The expense related to these plans was $22.5 million, $12.5 million and $42.0
million in 2009, 2008 and 2007, respectively. Company contributions to
multiemployer plans were $0.4 million, $0.5 million and $0.5 million in 2009,
2008 and 2007, respectively.
The
Company’s domestic pension and retiree health care and life insurance benefit
plans, which are discussed below, provide benefits based on years of service
and, for some plans, the average compensation prior to retirement. The Company
uses a December 31 measurement date for these plans. The Company’s foreign
benefit plans are not significant individually or in the aggregate.
During
2009, the Company froze future benefit accruals for certain hourly pension plan
participants effective December 31, 2009, and eliminated future service for
other hourly pension plan participants due to plant consolidation
actions. The Company recognized these actions as
curtailments. Additionally, a freeze of the retiree medical and life
insurance benefit plan for certain hourly participants was recognized as a
negative plan amendment due to the elimination of benefits earned and a
curtailment due to the elimination of future benefit accruals. Curtailments due
to employee terminations during 2009 were also recognized. In
connection with the negative plan amendment, the Company recognized a reduction
of its benefit obligation for hourly retiree medical and life insurance benefit
plans of $11.9 million.
On
December 31, 2008, the Company froze benefit accruals for salaried pension plan
participants effective December 31, 2009. Age and years of service eligibility
under the retiree health care benefit plan for salaried participants was also
affected by this freeze. The Company recognized these actions as a curtailment
and a negative plan amendment, respectively, at December 31, 2008. The Company
also recognized curtailments in two of the hourly pension plans in 2008 due to
employee terminations. In connection with these curtailments and negative plan
amendment, the Company recognized a reduction of its benefit obligation for
pension and retiree healthcare benefits of $19.7 million and $17.5 million,
respectively.
97
Brunswick
Corporation
Notes to
Consolidated Financial Statements
In
December 2003, the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (the Act) was signed into law. The Act introduces a prescription drug
benefit under Medicare as well as a subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least actuarially equivalent to
Medicare Part D. The Company’s postretirement benefit obligation and net
periodic benefit cost do not reflect the effects of the Act, as the Company does
not anticipate qualifying for the subsidy based on its current plan
designs.
Effective
for the year ended December 31, 2007, a plan’s assets and benefit obligations
are required to be measured as of the date of the employer’s fiscal year end. As
the Company already measured plan assets and benefit obligations as of December
31, 2006, there was no impact on the Company in 2007.
Costs. Pension and other
postretirement benefit costs included the following components for 2009, 2008
and 2007:
|
Other
Postretirement
|
||||||||||||||||||||||||
|
Pension
Benefits
|
Benefits
|
|||||||||||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||
|
Service
cost
|
$ | 9.2 | $ | 15.0 | $ | 17.3 | $ | 1.1 | $ | 2.9 | $ | 3.0 | ||||||||||||
|
Interest
cost
|
66.4 | 67.6 | 62.8 | 4.9 | 6.5 | 6.6 | ||||||||||||||||||
|
Expected
return on plan assets
|
(49.4 | ) | (84.0 | ) | (81.9 | ) | — | — | — | |||||||||||||||
|
Amortization
of prior service costs (credits)
|
3.6 | 6.5 | 6.5 | (2.4 | ) | (1.7 | ) | (1.8 | ) | |||||||||||||||
|
Amortization
of net actuarial loss
|
52.5 | 3.6 | 7.3 | — | 0.1 | 1.0 | ||||||||||||||||||
|
Curtailment
loss (gain)
|
12.4 | 5.2 | — | 0.7 | (0.6 | ) | — | |||||||||||||||||
|
Settlement
loss
|
1.5 | — | — | — | — | — | ||||||||||||||||||
|
Net
pension and other benefit costs
|
$ | 96.2 | $ | 13.9 | $ | 12.0 | $ | 4.3 | $ | 7.2 | $ | 8.8 | ||||||||||||
98
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Benefit Obligations and Funded
Status. A reconciliation of the changes in the plans’ benefit obligations
and fair value of assets over the two-year period ending December 31, 2009, and
a statement of the funded status at December 31 for these years for the
Company’s pension and other postretirement benefit plans follow:
|
Other
|
||||||||||||||||
|
Postretirement
|
||||||||||||||||
|
Pension
Benefits
|
Benefits
|
|||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Reconciliation
of benefit obligation:
|
||||||||||||||||
|
Benefit
obligation at previous December 31
|
$ | 1,088.0 | $ | 1,071.3 | $ | 100.7 | $ | 107.0 | ||||||||
|
Service
cost
|
9.2 | 15.0 | 1.1 | 2.9 | ||||||||||||
|
Interest
cost
|
66.4 | 67.6 | 4.9 | 6.5 | ||||||||||||
|
Participant
contributions
|
— | — | 1.5 | 1.3 | ||||||||||||
|
Actuarial
(gains) losses
|
52.3 | 10.2 | (11.6 | ) | 9.7 | |||||||||||
|
Benefit
payments
|
(64.5 | ) | (60.0 | ) | (8.8 | ) | (9.2 | ) | ||||||||
|
Plan
amendments
|
— | — | (11.9 | ) | (17.5 | ) | ||||||||||
|
Plan
combinations
|
— | 3.6 | — | — | ||||||||||||
|
Curtailment
(gains) losses
|
— | (19.7 | ) | 0.1 | — | |||||||||||
|
Settlement
loss
|
0.9 | — | — | — | ||||||||||||
|
Settlement
payment
|
(8.5 | ) | — | — | — | |||||||||||
|
Benefit
obligation at December 31
|
$ | 1,143.8 | $ | 1,088.0 | $ | 76.0 | $ | 100.7 | ||||||||
|
Reconciliation
of fair value of plan assets:
|
||||||||||||||||
|
Fair
value of plan assets at previous December 31
|
$ | 655.5 | $ | 1,016.7 | $ | — | $ | — | ||||||||
|
Actual
return (loss) on plan assets
|
78.1 | (303.8 | ) | — | — | |||||||||||
|
Employer
contributions
|
21.6 | 2.6 | 7.3 | 7.9 | ||||||||||||
|
Participant
contributions
|
— | — | 1.5 | 1.3 | ||||||||||||
|
Benefit
payments
|
(64.5 | ) | (60.0 | ) | (8.8 | ) | (9.2 | ) | ||||||||
|
Settlement
payment
|
(8.5 | ) | — | — | — | |||||||||||
|
Fair
value of plan assets at December 31
|
$ | 682.2 | $ | 655.5 | $ | — | $ | — | ||||||||
|
Funded
status at December 31
|
$ | (461.6 | ) | $ | (432.5 | ) | $ | (76.0 | ) | $ | (100.7 | ) | ||||
The
amounts included in the Company’s Consolidated Balance Sheets as of December 31,
2009 and 2008, were as follows:
|
Other
|
||||||||||||||||
|
Postretirement
|
||||||||||||||||
|
Pension
Benefits
|
Benefits
|
|||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Accrued
expenses
|
$ | (2.8 | ) | $ | (3.9 | ) | $ | (8.6 | ) | $ | (10.4 | ) | ||||
|
Postretirement
benefits
|
(458.8 | ) | (428.6 | ) | (67.4 | ) | (90.3 | ) | ||||||||
|
Net
amount recognized
|
$ | (461.6 | ) | $ | (432.5 | ) | $ | (76.0 | ) | $ | (100.7 | ) | ||||
99
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
accumulated benefit obligation for the Company’s pension plans was $1,143.8
million and $1,087.3 million at December 31, 2009 and 2008, respectively. The
projected benefit obligation, accumulated benefit obligation and fair value of
plan assets for pension plans with a projected benefit obligation in excess of
plan assets, and pension plans with an accumulated benefit obligation in excess
of plan assets, at December 31 were as follows:
|
(in
millions)
|
2009
|
2008
|
||||||
|
|
|
|||||||
|
Projected
benefit obligation
|
$ | 1,143.8 | $ | 1,088.0 | ||||
|
Accumulated
benefit obligation
|
$ | 1,143.8 | $ | 1,087.3 | ||||
|
Fair
value of plan assets
|
$ | 682.2 | $ | 655.5 | ||||
The
funded status of these pension plans as a percentage of the projected benefit
obligation was 60 percent in both 2009 and 2008, which includes the projected
benefit obligation for the Company’s unfunded, nonqualified pension plan of
$42.9 million and $51.4 million at December 31, 2009 and 2008, respectively. The
accumulated benefit obligation for the unfunded, nonqualified plan was $42.9
million and $51.4 million at December 31, 2009 and 2008,
respectively.
The
Company’s nonqualified pension plan and other postretirement benefit plans are
not funded.
The
following pretax activity related to pensions and other postretirement benefits
was recorded in Accumulated other comprehensive income (loss) as of December
31:
|
Other
|
||||||||||||||||
|
Postretirement
|
||||||||||||||||
|
Pension
Benefits
|
Benefits
|
|||||||||||||||
|
(in
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Prior
service costs (credits)
|
||||||||||||||||
|
Beginning
balance
|
$ | 17.2 | $ | 28.9 | $ | (19.5 | ) | $ | (4.3 | ) | ||||||
|
Prior
service credit arising during the period
|
— | — | (11.9 | ) | (17.5 | ) | ||||||||||
|
Amount
recognized as component of net benefit costs
|
(16.0 | ) | (11.7 | ) | 4.9 | 2.3 | ||||||||||
|
Ending
balance
|
$ | 1.2 | $ | 17.2 | $ | (26.5 | ) | $ | (19.5 | ) | ||||||
|
Net
actuarial losses
|
||||||||||||||||
|
Beginning
balance
|
$ | 512.7 | $ | 138.1 | $ | 21.2 | $ | 11.7 | ||||||||
|
Actuarial
losses (gains) arising during the period
|
24.5 | 378.2 | (14.6 | ) | 9.6 | |||||||||||
|
Amount
recognized as component of net benefit costs
|
(54.0 | ) | (3.6 | ) | — | (0.1 | ) | |||||||||
|
Ending
balance
|
$ | 483.2 | $ | 512.7 | $ | 6.6 | $ | 21.2 | ||||||||
|
Total
|
$ | 484.4 | $ | 529.9 | $ | (19.9 | ) | $ | 1.7 | |||||||
The
estimated pretax prior service cost and net actuarial loss in Accumulated other
comprehensive income (loss) at December 31, 2009, expected to be recognized as
components of net periodic benefit cost in 2010 for the Company’s pension plans,
are $0.4 million and $22.1 million, respectively. The estimated pretax prior
service credit and net actuarial loss in Accumulated other comprehensive income
(loss) at December 31, 2009, expected to be recognized as components of net
periodic benefit cost in 2010 for the Company’s other postretirement benefit
plans, are $3.9 million and $0.0 million, respectively.
Prior
service costs for pension benefits are amortized on a straight-line basis over
the average remaining service period of active plan participants. Prior service
costs and credits associated with other postretirement benefits are being
amortized on a straight-line basis over the average remaining service period of
active hourly plan participants and average remaining life expectancy for
salaried plan participants as all participants are fully eligible for
benefits. Actuarial gains and losses in excess of 10 percent of the
greater of the benefit obligation or the market value of assets are amortized
over the remaining service period of active plan participants.
100
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Once
participants eligible for other postretirement benefits turn 65 years old, the
health care benefits become a flat dollar amount based on age and years of
service. The assumed health care cost trend rate for other
postretirement benefits for pre-age 65 benefits as of December 31 was as
follows:
|
Pre-age
65 Benefits
|
||||||||
|
|
2009
|
2008
|
||||||
|
Health
care cost trend rate for next year
|
8.0 | % | 8.2 | % | ||||
|
Rate
to which the cost trend rate is assumed to decline
(the
ultimate trend rate)
|
4.5 | % | 4.5 | % | ||||
|
Year
rate reaches the ultimate trend rate
|
2028 | 2028 | ||||||
The
health care cost trend rate assumption has an effect on the amounts reported. A
one percent change in the assumed health care trend rate at December 31, 2009,
would have the following effects:
|
One
Percent
|
One
Percent
|
|||||||
|
(in
millions)
|
Increase
|
Decrease
|
||||||
|
Effect
on total service and interest cost
|
$ | 0.2 | $ | (0.2 | ) | |||
|
Effect
on accumulated postretirement benefit obligation
|
$ | 2.1 | $ | (2.0 | ) | |||
The
Company monitors the cost of health care and life insurance benefit plans and
reserves the right to make additional changes or terminate these benefits in the
future.
Weighted
average assumptions used to determine pension and other postretirement benefit
obligations at December 31 were as follows:
|
Other
|
||||||||||||||||
|
Postretirement
|
||||||||||||||||
|
Pension
Benefits
|
Benefits
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Discount
rate
|
5.85% | 6.25% | 5.45% | 6.25% | ||||||||||||
|
Rate
of compensation increase(A)
|
0.00% | 0.00% | — | — | ||||||||||||
|
(A)
|
Assumption used in
determining pension benefit obligation only. The rate of compensation
increase was reduced to 0.00% at December 31, 2008, as a result of the
impact of the freeze of future benefit accruals for salaried pension
participants.
|
101
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Weighted
average assumptions used to determine net pension and other postretirement
benefit costs for the years ended December 31 were as follows:
|
|
2009
|
2008
|
2007
|
|||||||||
|
Discount
rate for pension benefits(A)
|
6.00 %-7.65% | 6.50% | 6.00% | |||||||||
|
Discount
rate for other postretirement benefits(A)
|
5.50 %-7.25% | 6.35% | 6.00% | |||||||||
|
Long-term
rate of return on plan assets(B)
|
8.00% | 8.50% | 8.50% | |||||||||
|
Rate
of compensation increase(B)
|
0.00% | 3.25% | 3.75% | |||||||||
|
(A)
|
Range
of discount rates in 2009 reflects the remeasurements of pension and
postretirement benefit costs during the year due to negative plan
amendments and curtailments
recognized.
|
|
(B)
|
Assumption
used in determining pension benefit cost
only.
|
The
Company utilized a yield curve analysis to determine the discount rates for
pension and other postretirement benefit obligations in 2009, 2008 and 2007. The
yield curve consists of spot interest rates at half yearly increments for each
of the next 30 years and was developed based on pricing and yield information
for high quality corporate bonds rated Aa by Moody’s, excluding callable bonds,
bonds of less than a minimum size and other filtering criteria. The yield curve
analysis matched the cash flows of the Company’s benefit
obligations.
The
Company utilized a long-term corporate bond model to determine the discount rate
used to calculate plan liabilities at December 31, 2006. The corporate bond
model calculated the yield of a portfolio of bonds whose cash flows approximated
the plans’ expected benefit payments. The yield of this portfolio was compared
to the Moody’s Aa Corporate Bond Yield Index at a comparable measurement date to
determine the yield differential, which was 22 basis points in 2006. This
differential was added to the year-end Moody’s index to determine the discount
rate. This rate was used to determine the 2007 benefit costs.
The
Company evaluates its assumption regarding the estimated long-term rate of
return on plan assets based on historical experience and future expectations of
investment returns. The Company’s long-term rate of return on assets assumptions
of 8.0 percent for 2009, and 8.5 percent for 2008 and 2007, reflects
expectations of projected market returns and is consistent with historical
weighted average total returns achieved by the plans’ assets.
Assets of
the Company’s Master Pension Trust (Trust) are invested solely in the interest
of the plan participants for the purpose of providing benefits to participants
and their beneficiaries. Investment decisions within the Trust are made after
giving appropriate consideration to the prevailing facts and circumstances that
a prudent person acting in a like capacity would use in a similar situation, and
follow the guidelines and objectives established within the investment policy
statement for the Trust. In recognition of long-term return implications, the
Trust strategically diversifies its investments among various asset classes in
order to enhance returns at an acceptable level of risk. In general, the Trust’s
investment strategy reflects the belief that equities will outperform
fixed-income investments over the long term and that the risk associated with
equity investments is acceptable given the time horizon over which benefits will
be paid. All investments are continually monitored and reviewed, with a focus on
strategic target allocations, investment vehicles and performance of the
individual investment managers, as well as overall Trust performance. Over time,
the Company may consider shifting a greater percentage of the Trust’s assets
into long-term fixed-income securities, with an objective of achieving an
improved matching of asset returns with changes in liabilities. The Company will
consider these changes in asset allocation based on a number of factors
including improvements in the plans’ funded position, performance of equity
investments and changes in the discount rate used to measure plan
liabilities.
The Trust
asset allocation at December 31, 2009 and 2008, and target allocations for 2009
were as follows:
|
2009
|
2008
|
Target
Allocations
|
||||||||||
|
Equity
securities
|
62% | 57% | 50% - 60% | |||||||||
|
Fixed-income
securities
|
25% | 21% | 25% - 35% | |||||||||
|
Real
estate
|
12% | 20% | 10% - 20% | |||||||||
|
Short-term
investments
|
1% | 2% | — | |||||||||
|
Total
|
100% | 100% | 100% | |||||||||
102
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The fair
values of the Trust’s pension assets at December 31, 2009, by asset category
were as follows:
| Fair Value Measurements at December 31, 2009 (A) | ||||||||||||||||
|
Quoted
Prices
|
||||||||||||||||
|
in
Active
|
||||||||||||||||
|
Markets
for
|
Significant
|
Significant
|
||||||||||||||
| (in millions) |
Identical
|
Observable
|
Unobservable
|
|||||||||||||
|
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
|
Asset
Category
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
|
Short-term
investments
|
$ | 10.3 | $ | — | $ | 10.3 | $ | — | ||||||||
|
Equity
securities (B):
|
||||||||||||||||
|
United
States (C)
|
332.2 | 329.5 | 0.4 | 2.3 | ||||||||||||
|
International
(D)
|
80.0 | — | 80.0 | — | ||||||||||||
|
Debt
securities:
|
||||||||||||||||
|
Government
securities (E)
|
31.3 | 30.1 | 1.2 | — | ||||||||||||
|
Corporate
securities (F)
|
9.9 | — | 9.9 | — | ||||||||||||
|
Commingled
funds (G)
|
129.9 | — | 126.7 | 3.2 | ||||||||||||
|
Real
estate (H)
|
82.8 | 3.0 | — | 79.8 | ||||||||||||
|
Other
investments (I)
|
5.5 | — | (0.3 | ) | 5.8 | |||||||||||
|
Total
pension assets at fair value
|
681.9 | $ | 362.6 | $ | 228.2 | $ | 91.1 | |||||||||
|
Other
assets (J)
|
0.3 | |||||||||||||||
|
Total
pension plan net assets
|
$ | 682.2 | ||||||||||||||
|
(A)
See Note
6 – Fair Value Measurements for a description of levels within the
fair value hierarchy.
|
||||||||||||||||
|
(B)
Equity securities do not include any shares of the Company's common stock
at December 31, 2009.
|
||||||||||||||||
|
(C)
United States equities are well diversified by industry sector and equity
style (large cap, small cap, growth and value).
|
||||||||||||||||
|
(D)
This category represents an equity strategy that primarily invests in
companies organized or conducting business in countries other than the
United States.
|
||||||||||||||||
|
(E)
Government securities are comprised primarily of U.S. Treasury bonds and
to a lesser extent other government securities.
|
||||||||||||||||
|
(F)
Corporate securities consist primarily of investment grade bonds issued by
companies in diversified industries.
|
||||||||||||||||
|
(G) This
category includes commingled funds that primarily invest in
government-related securities and investment grade corporate securities.
This category also includes nominal investments in non-agency
collateralized mortgage obligation and mortgage-backed securities, futures
and
options.
|
||||||||||||||||
| (H) This
category represents real estate funds with investments in commercial real
estate, apartments and REITs.
|
||||||||||||||||
|
(I)
This category primarily includes a fund that invests in equities
with a focus in oil, natural gas, oil exploration and oil services. This
investment was liquidated in January 2010. This category also includes a
small amount of derivatives (options and futures).
|
||||||||||||||||
| (J) This category includes dividends and interest receivable. | ||||||||||||||||
103
Brunswick
Corporation
Notes to
Consolidated Financial Statements
A
reconciliation of the changes in the fair value measurements of pension plan
assets using significant unobservable inputs (Level 3) for the year ended
December 31, 2009, follows:
| Fair Value Measurements Using Significant | ||||||||||||||||||||||||
|
Unobservable
Inputs (Level 3)
|
||||||||||||||||||||||||
|
(in
millions)
|
United
States
|
Corporate
Debt
|
Commingled
|
Real
|
Other
|
|||||||||||||||||||
|
Equities
|
Securities
|
Debt
Funds
|
Estate
|
Investments
|
Total
|
|||||||||||||||||||
|
Beginning
balance at December 31, 2008
|
$ | 1.0 | $ | 0.3 | $ | — | $ | 131.6 | $ | 7.5 | $ | 140.4 | ||||||||||||
|
Actual
return on plan assets:
|
||||||||||||||||||||||||
|
Unrealized
gains (losses)
|
0.4 | (0.3 | ) | — | (46.6 | ) | 5.3 | (41.2 | ) | |||||||||||||||
|
Realized
gains (losses)
|
0.1 | — | 0.1 | (0.4 | ) | (0.9 | ) | (1.1 | ) | |||||||||||||||
|
Purchases,
sales and settlements
|
(1.1 | ) | — | 3.1 | (4.8 | ) | (6.1 | ) | (8.9 | ) | ||||||||||||||
|
Other
|
1.9 | — | — | — | — | 1.9 | ||||||||||||||||||
|
Ending
balance at December 31, 2009
|
$ | 2.3 | $ | — | $ | 3.2 | $ | 79.8 | $ | 5.8 | $ | 91.1 | ||||||||||||
Expected Cash Flows. The
expected cash flows for the Company’s pension and other postretirement benefit
plans follow:
|
(in
millions)
|
Pension
Benefits
|
Other
Post-
retirement
Benefits
|
||||||
|
Company
contributions expected to be made in 2010 (A)
|
$ | 25.0 | $ | 8.6 | ||||
|
Expected
benefit payments (which reflect future service):
|
||||||||
|
2010
|
$ | 68.2 | $ | 8.6 | ||||
|
2011
|
$ | 70.4 | $ | 8.6 | ||||
|
2012
|
$ | 74.2 | $ | 8.1 | ||||
|
2013
|
$ | 77.3 | $ | 7.6 | ||||
|
2014
|
$ | 79.9 | $ | 6.7 | ||||
|
2015-2019
|
$ | 424.5 | $ | 29.4 | ||||
|
(A)
|
The
Company currently anticipates contributing approximately $22 million to
fund the qualified pension plans and approximately $3 million to cover
benefit payments in the unfunded, nonqualified pension plan in 2010.
Company contributions are subject to change based on market conditions or
Company discretion.
|
The
Company also provides postemployment benefits to qualified former or inactive
employees. The pretax prior service credits in Accumulated other comprehensive
income (loss) recognized in income in 2009 was $1.7 million. The estimated
pretax prior service credit in Accumulated other comprehensive income (loss) at
December 31, 2009, expected to be recognized in income in 2010, is $1.3
million.
104
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note 16 – Stock Plans and Management Compensation
Total
stock option and SARs expense from continuing operations was $8.4 million, $8.3
million and $5.2 million for the years ended December 31, 2009, 2008 and 2007,
respectively. In accordance with ASC 718 “Compensation – Stock
Compensation” (ASC 718), the fair value of option grants is estimated as of the
date of grant using the Black-Scholes-Merton option pricing model.
Under the
2003 Stock Incentive Plan (Plan), the Company may grant stock options, SARs,
non-vested stock and other types of share-based awards to executives and other
management employees. At the May 6, 2009 annual meeting, shareholders approved a
5.0 million share increase to the authorized number of common shares to be
issued under the Plan. The Company may now issue up to 13.1 million
shares, consisting of treasury shares and authorized, but unissued shares of
common stock. As of December 31, 2009, 4.0 million shares were
available for grant.
Stock
Options and SARs
Prior to
2005, the Company primarily issued share-based compensation in the form of stock
options, and had not issued any SARs. Since the beginning of 2005, the Company
has issued stock-settled SARs and has not issued any stock options. Generally,
stock options and SARs are exercisable over a period of 10 years, or as
otherwise determined by the Human Resources and Compensation Committee of the
Board of Directors, and subject to vesting periods of generally four years.
However, with respect to stock options and SARs, all grants vest immediately:
(i) in the event of a change in control; (ii) upon death or disability of the
grantee; and (iii) with respect to awards granted prior to 2008, upon the sale
or divestiture of the business unit to which the grantee is assigned. With
respect to stock option and SAR awards granted prior to 2006, grantees continue
to vest in accordance with the applicable vesting schedule even upon termination
of employment if the sum of (A) the age of the grantee and (B) the grantee’s
total number of years of service, equals 65 or more. With respect to SARs
granted in 2006 through April 2009, grantees continue to vest in accordance with
the vesting schedule even upon termination if (A) the grantee has attained the
age of 62 and (B) the grantee’s age plus total years of service equals 70 or
more. The exercise price of stock options and SARs issued under the Plan cannot
be less than the fair market value of the underlying shares at the date of
grant.
During
October 2009, the Human Resources and Compensation Committee modified the May
2009 SAR award to reflect certain changes in the retirement
provisions. Specifically, award recipients will continue to vest in
accordance with the vesting schedule even upon termination if (A) the grantee
has attained the age of 62 or (B) the grantee’s age plus total years of service
equals 70 or more. An additional provision of the May 2009 SAR award
modification included a provision that would prorate the grant in the event of
termination prior to the first anniversary of the date of grant provided the
participant had met the appropriate retirement age definition of rule of 70 or
age 62. The modification of the May SAR award did not result in
additional compensation cost from the originally calculated fair value using the
Black-Scholes-Merton pricing model; however, the modification did result in the
accelerated recognition of $1.6 million of additional compensation expense in
the fourth quarter of 2009. SARs activity for all plans for the three
years ended December 31, 2009, 2008 and 2007, was as follows:
|
2009
|
2008
|
2007
|
|||||||||||||||||||||||||||
|
(in
thousands, except exercise price and terms)
|
SARs/Stock
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
SARs/Stock
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
SARs/Stock
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||||||
|
Outstanding
on January
1
|
6,484 | $ | 25.20 | 4,219 | $ | 33.22 | 4,001 | $ | 32.62 | ||||||||||||||||||||
|
Granted
|
2,911 | $ | 5.30 | 3,122 | $ | 15.03 | 900 | $ | 32.89 | ||||||||||||||||||||
|
Exercised
|
(1 | ) | $ | 3.59 | $ | 7 | — | $ | — | (410 | ) | $ | 23.94 | ||||||||||||||||
|
Forfeited
|
(1,062 | ) | $ | 25.68 | (857 | ) | $ | 27.61 | (272 | ) | $ | 37.39 | |||||||||||||||||
|
Outstanding
on December
31
|
8,332 | $ | 18.27 |
6.9
years
|
$ | 24,291 | 6,484 | $ | 25.20 | 4,219 | $ | 33.22 | |||||||||||||||||
|
Exercisable
on December
31
|
3,271 | $ | 29.49 |
4.0
years
|
$ | 3 | 2,883 | $ | 32.02 | 2,428 | $ | 30.02 | |||||||||||||||||
105
Brunswick
Corporation
Notes to
Consolidated Financial Statements
The
following table summarizes information about SARs and stock options outstanding
as of December 31, 2009:
|
Range
of Exercise
Price
|
Number
Outstanding
(in
thousands)
|
Weighted
Average
Remaining
Years
of
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
(in
thousands)
|
Weighted
Average
Remaining
Years
of
Contractual
Life
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
| $ | 3.37 to $6.00 | 3,173 |
9.2
years
|
$ | 5.06 | — | — | $ | — | ||||||||||||||
| $ | 6.01 to $19.20 | 2,408 |
6.7
years
|
$ | 17.46 | 950 |
4.6
years
|
$ | 18.17 | ||||||||||||||
| $ | 19.21 to $39.56 | 2,266 |
4.3
years
|
$ | 31.69 | 1,834 |
3.7
years
|
$ | 30.98 | ||||||||||||||
| $ | 39.57 to $46.51 | 487 |
4.2
years
|
$ | 45.97 | 487 |
4.2
years
|
$ | 45.97 | ||||||||||||||
The
weighted average fair values of individual SARs granted were $2.99, $5.03 and
$9.85 during 2009, 2008 and 2007, respectively. The fair value of each grant was
estimated on the date of grant using the Black-Scholes-Merton pricing model
utilizing the following weighted average assumptions used for 2009, 2008 and
2007:
|
2009
|
2008
|
2007
|
|||
|
Risk-free
interest rate
|
2.3
%
|
2.9
%
|
4.6
%
|
||
|
Dividend
yield
|
1.9
%
|
2.3
%
|
1.8
%
|
||
|
Volatility
factor
|
72.3
%
|
40.1
%
|
29.9
%
|
||
|
Weighted
average expected life
|
5.7
– 6.3 years
|
5.4
– 6.2 years
|
5.1
– 6.2 years
|
Non-vested
stock awards
The
Company grants non-vested stock units and awards to key employees as determined
by the Human Resources and Compensation Committee of the Board of Directors.
Non-vested stock units and awards have vesting periods of three or four years.
Non-vested stock units and awards are eligible for dividends, which are
reinvested and non-voting. All non-vested units and awards have restrictions on
the sale or transfer of such awards during the non-vested period.
Generally,
grants of non-vested stock units and awards are forfeited if employment is
terminated prior to vesting. Non-vested stock units and awards granted in 2006
and later vest pro rata if the sum of (A) the age of the grantee and (B) the
grantee’s total number of years of service equals 70 or more.
In 2006,
2007 and 2008, the Company granted performance shares to certain members of
senior management. The number of performance shares to be issued pursuant to the
2006 and 2007 grants will be based on the average payout percentage of the
Company’s annual incentive plan over the consecutive three year period beginning
in the year the award was granted. The number of performance shares to be issued
pursuant to the 2008 grant will be based on the Company’s performance against
three key financial goals and the Company’s relative total shareholder return
versus the S&P 500 as of the end of the performance period in 2010; provided
however, that no award will be earned if the Company’s stock price does not meet
a minimum threshold as of the end of the performance period.
The cost
of non-vested stock awards, including the 2006 and 2007 performance grants, is
recognized on a straight-line basis over the requisite service period. During
December 31, 2009, 2008 and 2007, there was $0.6 million, $2.0 million and $4.1
million charged to compensation expense under the Plan, respectively. No
compensation expense has been recorded for the performance shares granted in
2008 based upon management’s current projections concerning the probability of
attaining the key financial goals outlined in the plan.
The
weighted average price per non-vested stock award at grant date was $10.71,
$15.66 and $33.00 for the non-vested stock awards granted in 2009, 2008 and
2007, respectively. Non-vested stock award activity for all plans for the three
years ended December 31 was as follows:
|
(in
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Outstanding
at January 1
|
1,207 | 435 | 550 | |||||||||
|
Granted
|
20 | 1,014 | 127 | |||||||||
|
Released
|
(168 | ) | (69 | ) | (195 | ) | ||||||
|
Forfeited
|
(150 | ) | (173 | ) | (47 | ) | ||||||
|
Outstanding
at December 31
|
909 | 1,207 | 435 | |||||||||
106
Brunswick
Corporation
Notes to
Consolidated Financial Statements
As of
December 31, 2009, there was $0.4 million of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the Plan. That cost is expected to be recognized in 2010.
Director
Awards
The
Company issues stock awards to directors in accordance with the terms and
conditions determined by the Nominating and Corporate Governance Committee of
the Board of Directors. One-half of each director’s annual fee is paid in
Brunswick common stock, the receipt of which may be deferred until a director
retires from the Board of Directors. Each director may elect to have the
remaining one-half paid either in cash, in Brunswick common stock distributed at
the time of the award, or in deferred Brunswick common stock units with a 20
percent premium. Prior to May 2009, each non-employee director also received an
annual grant of restricted stock units, which is deferred until the director
retires from the Board.
Note
17 – Treasury and Preferred Stock
Treasury
stock activity for the three years ended December 31, 2009, 2008 and 2007, was
as follows:
|
(Shares
in thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Balance
at January 1
|
14,793 | 15,092 | 11,671 | |||||||||
|
Common
stock repurchase program
|
— | — | 4,100 | |||||||||
|
Compensation
plans and other
|
(518 | ) | (299 | ) | (679 | ) | ||||||
|
Balance
at December 31
|
14,275 | 14,793 | 15,092 | |||||||||
At
December 31, 2009, 2008 and 2007, the Company had no preferred stock outstanding
(12.5 million shares authorized, $0.75 par value at December 31, 2009, 2008 and
2007).
Note
18 – Leases
The
Company has various lease agreements for offices, branches, factories,
distribution and service facilities, certain Company-operated bowling centers
and certain personal property. The longest of these obligations extends through
2038. Most leases contain renewal options, some contain purchase options or
escalation clauses, and many provide for contingent rentals based on percentages
of gross revenue.
No leases
contain restrictions on the Company’s activities concerning dividends,
additional debt or further leasing. Rent expense consisted of the
following:
|
(in
millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Basic
expense
|
$ | 44.4 | $ | 52.6 | $ | 51.4 | ||||||
|
Contingent
expense
|
1.4 | 2.2 | 2.7 | |||||||||
|
Sublease
income
|
(1.4 | ) | (1.2 | ) | (0.7 | ) | ||||||
|
Rent
expense, net
|
$ | 44.4 | $ | 53.6 | $ | 53.4 | ||||||
107
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Future
minimum rental payments at December 31, 2009, under agreements classified as
operating leases with non-cancelable terms in excess of one year, were as
follows:
|
(in
millions)
|
||||
|
2010
|
$ | 41.3 | ||
|
2011
|
35.4 | |||
|
2012
|
26.6 | |||
|
2013
|
17.9 | |||
|
2014
|
11.1 | |||
|
Thereafter
|
31.1 | |||
|
Total
(not reduced by minimum sublease income of $0.3)
|
$ | 163.4 | ||
Note
19 – Share Repurchase Program
In the
second quarter of 2005, the Company’s Board of Directors authorized and
announced a $200.0 million share repurchase program, to be funded with available
cash. On April 27, 2006, the Board of Directors increased the Company’s
remaining share repurchase authorization of $62.2 million to $500.0 million. The
Company did not repurchase any shares during 2009 or 2008. During 2007, the
Company repurchased approximately 4.1 million shares under this program for
$125.8 million. As of December 31, 2009, the Company had repurchased
approximately 11.7 million shares for $397.4 million since the program’s
inception with a remaining authorization of $240.4 million. The plan has been
suspended as the Company intends to retain cash to enhance its liquidity rather
than to repurchase shares.
Note
20 – Discontinued Operations
In April
2006, the Company announced its intention to sell the majority of its Brunswick
New Technologies (BNT) business unit, which consisted of the Company’s marine
electronics, portable navigation device (PND) and wireless fleet tracking
businesses. As a result, the Company reclassified the operations of BNT to
discontinued operations and shifted reporting for the retained businesses from
the Marine Engine segment to the Boat, Marine Engine and Fitness
segments.
In March
2007, the Company completed the sales of BNT’s marine electronics and PND
businesses to Navico International Ltd. and MiTAC International Corporation,
respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain
was recognized with the divestiture of these businesses in 2007.
In July
2007, the Company completed the sale of BNT’s wireless fleet tracking business
to Navman Wireless Holdings L.P. for net proceeds of $28.8 million, resulting in
an after-tax gain of $25.8 million.
The
Company completed the divestiture of the BNT discontinued operations during
2007. The Company recognized impairment of $85.6 million, after-tax, in the
fourth quarter of 2006, prior to the disposition of the BNT businesses, and
recorded 2007 gains of $29.8 million, after-tax, on the BNT business sales. As a
result, the financial impact to the Company of the BNT dispositions was a net
loss of $55.8 million, after-tax.
There
were no sales or earnings from discontinued operations during 2009 or 2008. The
following table discloses the results of operations for BNT, including the gain
on the divestitures, reported as discontinued operations for the year ended
December 31, 2007:
|
(in
millions)
|
2007
|
|||
|
Net
sales
|
$ | 99.7 | ||
|
Earnings
(loss) before income taxes
|
(2.4 | ) | ||
|
Income
tax (benefit) provision
|
(4.6 | ) | ||
|
Earnings
(loss) from operations
|
2.2 | |||
|
Gain
on divestitures, net of tax (A)
|
29.8 | |||
|
Net
earnings (loss)
|
$ | 32.0 | ||
| (A) |
The
Gain on divestitures includes pretax net gains of $26.3 million and net
tax benefits of $3.5 million.
|
There
were no remaining BNT net assets available for sale as of December 31, 2009,
December 31, 2008, or December 31, 2007.
108
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
21 – Subsequent Events
Management
has evaluated and disclosed, as required, any subsequent events up to and including February 22,
2010, the date of the filing of this report with the Securities
and Exchange Commission.
109
Brunswick
Corporation
Notes to
Consolidated Financial Statements
Note
22 – Quarterly Data (unaudited)
Brunswick
maintains its financial records on the basis of a fiscal year ending on December
31, with the fiscal quarters ending on the Saturday closest to the end of the
period (13-week periods). The first three quarters of fiscal year 2009 ended on
April 4, 2009, July 4, 2009, and October 3, 2009, and the first three quarters
of fiscal year 2008 ended on March 29, 2008, June 28, 2008, and September 27,
2008.
|
Quarter
Ended
|
||||||||||||||||||||
|
(in
millions, except per share data)
|
April
4,
2009
(B)
(D)
|
July
4,
2009
(B)
(D)
|
Oct.
3,
2009
(B)
(D)
|
Dec.
31,
2009
(B) (C)
(D) (E)
|
Year
Ended
Dec.
31,
2009
|
|||||||||||||||
|
Net
sales
|
$ | 734.7 | $ | 718.3 | $ | 665.8 | $ | 657.3 | $ | 2,776.1 | ||||||||||
|
Gross
margin (A)
|
91.2 | 74.0 | 75.6 | 74.8 | 315.6 | |||||||||||||||
|
Net
loss
|
(184.2 | ) | (163.7 | ) | (114.3 | ) | (124.0 | ) | (586.2 | ) | ||||||||||
|
Basic
loss per common share:
|
||||||||||||||||||||
|
Net
loss
|
$ | (2.08 | ) | $ | (1.85 | ) | $ | (1.29 | ) | $ | (1.40 | ) | $ | (6.63 | ) | |||||
|
Diluted loss
per common share:
|
||||||||||||||||||||
|
Net
loss
|
$ | (2.08 | ) | $ | (1.85 | ) | $ | (1.29 | ) | $ | (1.40 | ) | $ | (6.63 | ) | |||||
|
Dividends
declared
|
$ | — | $ | — | $ | — | $ | 0.05 | $ | 0.05 | ||||||||||
|
Common stock price (NYSE
symbol: BC):
|
||||||||||||||||||||
|
High
|
$ | 5.91 | $ | 7.63 | $ | 12.05 | $ | 13.11 | $ | 13.11 | ||||||||||
|
Low
|
$ | 2.18 | $ | 3.51 | $ | 3.51 | $ | 9.48 | $ | 2.18 | ||||||||||
|
Quarter
Ended
|
Year
Ended
Dec.
31,
2008
|
|||||||||||||||||||
|
(in
millions, except per share data)
|
March
29,
2008
(B)
(F)
|
June
28,
2008
(B)
(F)
|
Sept.
27,
2008
(B)
(D)
|
Dec.
31,
2008
(B) (D)
(E)
|
||||||||||||||||
|
Net
sales
|
$ | 1,346.8 | $ | 1,485.4 | $ | 1,038.8 | $ | 837.7 | $ | 4,708.7 | ||||||||||
|
Gross
margin (A)
|
269.5 | 303.4 | 176.5 | 117.9 | 867.4 | |||||||||||||||
|
Net
earnings (loss)
|
13.3 | (6.0 | ) | (729.1 | ) | (66.3 | ) | (788.1 | ) | |||||||||||
|
Basic
earnings (loss) per common share:
|
||||||||||||||||||||
|
Net
earnings (loss)
|
$ | 0.15 | $ | (0.07 | ) | $ | (8.26 | ) | $ | (0.75 | ) | $ | (8.93 | ) | ||||||
|
Diluted
earnings (loss) per common share:
|
||||||||||||||||||||
|
Net
earnings (loss)
|
$ | 0.15 | $ | (0.07 | ) | $ | (8.26 | ) | $ | (0.75 | ) | $ | (8.93 | ) | ||||||
|
Dividends
declared
|
$ | — | $ | — | $ | — | $ | 0.05 | $ | 0.05 | ||||||||||
|
Common stock price (NYSE
symbol: BC):
|
||||||||||||||||||||
|
High
|
$ | 19.28 | $ | 17.41 | $ | 15.44 | $ | 12.86 | $ | 19.28 | ||||||||||
|
Low
|
$ | 14.87 | $ | 11.25 | $ | 9.66 | $ | 2.01 | $ | 2.01 | ||||||||||
|
(A)
|
Gross
margin is defined as Net sales less Cost of sales as presented in the
Consolidated Statements of
Operations.
|
|
(B)
|
Restructuring,
exit and impairment charges recorded in the first through fourth quarters
of 2009 were $39.6 million, $35.5 million, $28.8 million and $68.6
million, respectively. Goodwill impairment charges, trade name
impairment charges and restructuring, exit and impairment charges recorded
in the first through fourth quarters of 2008 were $22.2 million, $83.1
million, $534.2 million and $48.9 million, respectively. See
Note
2 – Restructuring Activities and Note
3 - Goodwill and Trade Name Impairments in the Notes to
Consolidated Financial Statements for further
details.
|
|
(C)
|
In
the fourth quarter of 2009, a $13.1 million loss on extinguishment of debt
was recorded in conjunction with the Company’s offer to retire a portion
of its senior 11.75% notes, due 2013.
|
|
(D)
|
In
the fourth quarter of 2009, the Company recorded a $94.7 million deferred
tax asset valuation allowance reduction resulting from recent tax
legislation allowing for a 5-year carryback period. A $10.3
million income tax benefit was recorded in the third quarter of 2009 in
conjunction with the filing of the Company’s 2008 federal tax
return. In the first quarter of 2009, a deferred tax asset
valuation allowance of $36.6 million was recorded to reduce certain state
and foreign net deferred tax assets to their realizable value. Deferred
tax asset valuation allowance reductions recognized in the first through
fourth quarters of 2009 relative to pre-tax income recognized in Other
comprehensive income (OCI) were $1.0 million, $8.1 million, $9.4 million
and $11.4 million. In periods in which there is a pre-tax
operating loss and pre-tax income in OCI, the pre-tax income in OCI is
considered a source of income and reduces a corresponding portion of the
valuation allowance. In the third and fourth quarters of 2008, deferred
tax valuation allowances of $292.7 million and $45.6 million,
respectively, were recorded to reduce certain net deferred tax assets to
their anticipated realizable value. See Note
10 – Income Taxes in the Notes to Consolidated Financial Statements
for further details.
|
|
(E)
|
Variable
compensation and defined contribution accruals of $17.9 million were
recorded in the fourth quarter of 2009. In the fourth quarter of 2008, the
Company reversed $81.2 million of variable compensation and defined
contribution accruals. The reversal in 2008 decreased Cost of sales by
$17.8 million and Selling, general and administrative expense by $63.4
million.
|
|
(F)
|
In
March 2008, the Company sold its interest in a bowling joint venture in
Japan for $40.4 million, resulting in a $19.7 million pretax gain and a
$9.1 million after-tax gain. As a result of post-closing
adjustments recorded in the second quarter of 2008, the final pretax gain
recorded on the transaction was $20.9 million or $9.9 million on an
after-tax basis.
|
110
BRUNSWICK
CORPORATION
SCHEDULE
II — VALUATION AND QUALIFYING ACCOUNTS
(in
millions)
|
Allowances
for
Losses
on Receivables
|
Balance
at
Beginning
of
Year
|
Charges
to
Profit
and Loss
|
Write-offs
|
Recoveries
|
Other
|
Balance
at
End
of Year
|
||||||||||||||||||
|
2009
|
$ | 41.7 | $ | 49.7 | $ | (44.9 | ) | $ | 0.5 | $ | 0.7 | $ | 47.7 | |||||||||||
|
2008
|
$ | 31.2 | $ | 32.3 | $ | (18.9 | ) | $ | (0.6 | ) | $ | (2.3 | ) | $ | 41.7 | |||||||||
|
2007
|
$ | 29.7 | $ | 10.7 | $ | (10.4 | ) | $ | 0.3 | $ | 0.9 | $ | 31.2 | |||||||||||
|
Deferred
Tax Asset
Valuation
Allowance
|
Balance
at
Beginning
of
Year
|
Charges
to
Profit
and Loss(A)
|
Write-offs
|
Recoveries
|
Other(A)
|
Balance
at
End
of Year
|
||||||||||||||||||
|
2009
|
$ | 493.1 | $ | 149.6 | $ | (2.6 | ) | $ | — | $ | (2.8 | ) | $ | 637.3 | ||||||||||
|
2008
|
$ | 16.5 | $ | 338.3 | $ | (2.3 | ) | $ | — | $ | 140.6 | $ | 493.1 | |||||||||||
|
2007
|
$ | 10.0 | $ | — | $ | — | $ | — | $ | 6.5 | $ | 16.5 | ||||||||||||
(A)
For the year ended December
31, 2009, the deferred tax asset valuation allowance increased as a result of
additional losses and the recording of an additional $36.6 million in deferred
tax asset valuation allowances during the first quarter of 2009 to reduce
certain state and foreign net deferred tax assets to their anticipated
realizable value. For the year ended December 31, 2008, the deferred tax asset
valuation allowance increased $476.6 million. This increase was recorded as a
$338.3 million charge to income tax expense to reduce certain net deferred tax
assets to their anticipated realizable value and a $138.3 million charge to
other comprehensive income, primarily from an increase to the deferred tax asset
associated with pensions.
111
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
BRUNSWICK
CORPORATION
February
22,
2010 By: /s/ ALAN L.
LOWE
Alan
L. Lowe
Vice
President and Controller
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
February
22,
2010 By: /s/ DUSTAN E.
McCOY
Dustan
E. McCoy
Chairman
and Chief Executive Officer
(Principal
Executive Officer)
February
22,
2010 By: /s/ PETER B.
HAMILTON
Peter
B. Hamilton
Senior
Vice President and Chief Financial Officer
(Principal
Financial Officer)
February
22,
2010 By: /s/ ALAN L.
LOWE
Alan
L. Lowe
Vice
President and Controller
(Principal
Accounting Officer)
This
report has been signed by the following directors, constituting the remainder of
the Board of Directors, by Peter B. Hamilton, Attorney-in-Fact.
|
Nolan
D. Archibald
|
|
Anne
E. Bélec
|
|
Jeffrey
L. Bleustein
|
|
Cambria
W. Dunaway
|
|
Manuel
A. Fernandez
|
|
Graham
H. Phillips
|
|
Ralph
C. Stayer
|
|
J.
Steven Whisler
|
|
Lawrence
A. Zimmerman
|
February
22,
2010 By: /s/ PETER B.
HAMILTON
Peter
B. Hamilton
Attorney-in-Fact
112
EXHIBIT
INDEX
|
Exhibit No.
|
Description
|
|
3.1
|
Restated
Certificate of Incorporation of the Company, filed as Exhibit 19.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
1987, and hereby incorporated by reference.
|
|
3.2
|
Certificate
of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock, filed as Exhibit 3.2 to the Company’s Annual Report on
Form 10-K for 1995 as filed with the Securities and Exchange Commission on
March 28, 1996, and hereby incorporated by reference.
|
|
3.3
|
Amended
By-Laws of the Company, filed as Exhibit 3.1 to the Company’s Current
Report on Form 8-K as filed with the Securities and Exchange Commission on
February 4, 2010, and hereby incorporated by reference.
|
|
4.1
|
Indenture
dated as of March 15, 1987, between the Company and Continental Illinois
National Bank and Trust Company of Chicago, filed as Exhibit 4.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
1987, and hereby incorporated by reference.
|
|
4.2
|
First
Supplemental Indenture, between the Company and The Bank of New York
Mellon Trust Company, N.A., as trustee, to the Indenture dated as of March
15, 1987, between Brunswick Corporation and The Bank of New York Mellon
Trust Company, N.A., as successor trustee, filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K as filed with the Securities and
Exchange Commission on August 25, 2009, and hereby incorporated by
reference.
|
|
4.3
|
Officers’
Certificate setting forth terms of the Company’s $125,000,000 principal
amount of 7 3/8% Debentures due September 1, 2023, filed as Exhibit 4.3 to
the Company’s Annual Report on Form 10-K for 1993 as filed with the
Securities and Exchange Commission on March 29, 1994, and hereby
incorporated by reference.
|
|
4.4
|
Form
of the Company’s $200,000,000 principal amount of 7 1/8% Notes due August
1, 2027, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K
as filed with the Securities and Exchange Commission on August 21, 1997,
and hereby incorporated by reference.
|
|
4.5
|
The
Company’s agreement to furnish additional debt instruments upon request by
the Securities and Exchange Commission, filed as Exhibit 4.10 to the
Company’s Annual Report on Form 10-K for 1980, and hereby incorporated by
reference.
|
|
4.6
|
Form
of the Company’s $150,000,000 principal amount of 5% Notes due 2011, filed
as Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with
the Securities and Exchange Commission on May 26, 2004, and hereby
incorporated by reference.
|
|
4.7
|
Form
of the Company’s $250,000,000 principal amount of 9.75% Senior Notes due
2013, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 15, 2008, and
hereby incorporated by reference.
|
|
4.8
|
Indenture,
dated as of August 14, 2009, between Brunswick Corporation, the subsidiary
guarantors party thereto and The Bank of New York Mellon Trust Company,
N.A., as trustee and Form of 11.250% Senior Secured Notes due 2016
(included in Exhibit 4.1), filed as Exhibits 4.1 and 4.2, respectively, to
the Company’s Current Report on Form 8-K as filed with the Securities and
Exchange Commission on August 14, 2009, and hereby incorporated by
reference.
|
|
4.9
|
Amended
and Restated Credit Agreement, dated December 19, 2008, between Brunswick
Corporation, the subsidiaries party thereto, the lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities
Inc. and RBS Securities Corporation, as joint lead arrangers, J.P. Morgan
Securities Inc., RBS Securities Corporation, Banc of America Securities
LLC, SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as
joint bookrunners, JPMorgan Chase Bank, N.A. and The Royal Bank of
Scotland PLC, as syndication agents, and Bank of America, N.A., SunTrust
Bank and Wells Fargo Bank, National Association, as documentation agents,
filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on December 19, 2008, and
hereby incorporated by reference.
|
|
4.10
|
First
Amendment, dated August 11, 2009, to (i) the Amended and Restated Credit
Agreement, dated as of April 29, 2005, as amended and restated as of
December 19, 2008, between Brunswick Corporation, the subsidiaries party
thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., et. al.,
and (ii) the Pledge and Security Agreement, dated as of December 19, 2008,
among Brunswick Corporation, the subsidiary grantors thereto, and JPMorgan
Chase Bank, N.A., administrative agent, filed as Exhibit 10.1 to the
Company’s Current Reports on Form 8-K as filed with the Securities and
Exchange Commission on August 14, 2009, and hereby incorporated by
reference.
|
|
10.1*
|
Terms
and Conditions of Employment between Brunswick Corporation and Dustan E.
McCoy, dated September 18, 2006, filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on September 22, 2006, and hereby incorporated by
reference.
|
|
10.2*
|
Amendment
dated December 4, 2008 to Terms and Conditions of Employment between
Brunswick Corporation and Dustan E. McCoy dated September 18, 2006, filed
as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for
2008 as filed with the Securities and Exchange Commission on February 24,
2009, and hereby incorporated by reference.
|
|
10.3*
|
Terms
and Conditions of Employment between Brunswick Corporation and Peter B.
Hamilton dated October 29, 2008, filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K/A as filed with the Securities and Exchange
Commission on October 30, 2008, and hereby incorporated by
reference.
|
|
10.4*
|
Amendment
dated May 5, 2009, to Terms and Conditions of Employment between Brunswick
Corporation and Peter B. Hamilton dated October 29, 2008, filed as Exhibit
99.1 to the Company’s Current Report on Form 8-K as filed with the
Securities and Exchange Commission on May 5, 2009, and hereby incorporated
by reference.
|
|
10.5*
|
Terms
and Conditions of Peter B. Hamilton Stock Appreciation Rights Grant dated
November 3, 2008, filed as Exhibit 10.4 to the Company’s Annual Report on
Form 10-K for 2008 as filed with the Securities and Exchange
Commission on February 24, 2009, and hereby incorporated by
reference.
|
|
10.6*
|
Form
of Officer Terms and Conditions of Employment, filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K as filed with the Securities and
Exchange Commission on January 18, 2007, and hereby incorporated by
reference.
|
|
10.7*
|
Form
of Amendment to Officer Terms and Conditions of Employment effective
December 2008, filed as Exhibit 10.6 to the Company’s Annual Report on
Form 10-K for 2008 as filed with the Securities and Exchange
Commission on February 24, 2009, and hereby incorporated by
reference.
|
|
10.8*
|
Form
of Officer Terms and Conditions of Employment effective June
2009.
|
|
10.9*
|
1994
Stock Option Plan for Non-Employee Directors, filed as Exhibit A to the
Company’s definitive Proxy Statement as filed with the Securities and
Exchange Commission on March 24, 1994, for the Annual Meeting of
Stockholders on April 27, 1994, and hereby incorporated by
reference.
|
113
|
10.10*
|
Brunswick
Corporation Supplemental Pension Plan as amended and restated effective
February 3, 2009, filed as Exhibit 10.8 to the Company’s Annual Report on
Form 10-K for 2008 as filed with the Securities and Exchange Commission on
February 24, 2009, and hereby incorporated by
reference.
|
|
10.11*
|
Form
of Non-Employee Director Indemnification Agreement filed as Exhibit 10.5
to the Company’s Annual Report on Form 10-K for 2006 as filed with the
Securities and Exchange Commission on February 23, 2007, and hereby
incorporated by reference.
|
|
10.12*
|
1991
Stock Plan filed as Exhibit 10 to the Company’s Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, as filed with the Securities and
Exchange Commission on August 13, 1999, and hereby incorporated by
reference.
|
|
10.13*
|
Amendment
to Brunswick Corporation 2003 Stock Incentive Plan (incorporated by
reference to Appendix I of the Company’s Proxy Statement on Schedule 14A,
as filed with the Securities and Exchange Commission on March 25, 2009),
filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on May 6, 2009, and hereby
incorporated by reference.
|
|
10.14*
|
2009
Brunswick Performance Plan for 2009, filed as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended April 4,
2009, as filed with the Securities and Exchange Commission on May 8, 2009,
and hereby incorporated by reference.
|
|
10.15*
|
1997
Stock Plan for Non-Employee Directors, filed as Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 1998, as filed with the Securities and Exchange Commission on November
13, 1998, and hereby incorporated by reference.
|
|
10.16*
|
Brunswick
Corporation 2005 Elective Deferred Compensation Plan as amended and
restated effective January 1, 2009, filed as Exhibit 10.16 to the
Company’s Annual Report on Form 10-K for 2008 as filed with the Securities
and Exchange Commission on February 24, 2009, and hereby incorporated by
reference.
|
|
10.17*
|
First
Amendment to Brunswick Corporation 2005 Elective Deferred Compensation
Plan as amended and restated effective January 1, 2009, filed as Exhibit
10.17 to the Company’s Annual Report on Form 10-K for 2008 as filed with
the Securities and Exchange Commission on February 24, 2009, and hereby
incorporated by reference.
|
|
10.18*
|
Brunswick
Corporation 2005 Automatic Deferred Compensation Plan as amended and
restated effective January 1, 2009, filed as Exhibit 10.18 to the
Company’s Annual Report on Form 10-K for 2008 as filed with the Securities
and Exchange Commission on February 24, 2009, and hereby incorporated by
reference.
|
|
10.19*
|
Brunswick
2003 Stock Incentive Plan, filed as Exhibit 4.5 to the Company’s
Registration Statement on Form S-8 (333-112880), as filed with the
Securities and Exchange Commission on February 17, 2004, and hereby
incorporated by reference.
|
|
10.20*
|
2008
Performance Share Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2003 Stock Incentive Plan, filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 29,
2008, as filed with the Securities and Exchange Commission on May 1, 2008,
and hereby incorporated by reference.
|
|
10.21*
|
2008
Restricted Stock Unit Grant Terms and Conditions Pursuant to the Brunswick
Corporation 2003 Stock Incentive Plan as amended October 20, 2008, filed
as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for 2008 as
filed with the Securities and Exchange Commission on February 24, 2009,
and hereby incorporated by reference.
|
|
10.22*
|
2008
Stock-Settled Stock Appreciation Rights Grants Terms and Conditions
Pursuant to the Brunswick Corporation 2003 Stock Incentive Plan, filed as
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 29, 2008, as filed with the Securities and Exchange
Commission on May 1, 2008, and hereby incorporated by
reference.
|
|
10.23*
|
February
2009 Restricted Stock Unit Grant Terms and Conditions Pursuant to the
Brunswick Corporation 2003 Stock Incentive Plan as amended October 20,
2008.
|
|
10.24*
|
February
2009 Stock-Settled Appreciation Rights Grants Terms and Condition Pursuant
to the Brunswick Corporation 2003 Stock Incentive Plan.
|
|
10.25*
|
May
2009 Stock-Settled Stock Appreciation Right Grant Terms and Conditions
Pursuant
to the Brunswick Corporation 2003 Stock Incentive Plan granted to D. E.
McCoy.
|
|
10.26*
|
May
2009 Stock-Settled Stock Appreciation Right Grant Terms and Conditions
Pursuant
to the Brunswick Corporation 2003 Stock Incentive Plan granted to P. B.
Hamilton.
|
|
10.27*
|
May
2009 Stock-Settled Stock Appreciation Right Grant Terms and Conditions
Pursuant
to the Brunswick Corporation 2003 Stock Incentive Plan.
|
|
10.28*
|
The
Company’s Registration Statement on Form S-8 (333-112880), as filed with
the Securities and Exchange Commission on February 17, 2004, and hereby
incorporated by reference.
|
|
12.1
|
Statement
regarding computation of ratios.
|
|
21.1
|
Subsidiaries
of the Company.
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
|
24.1
|
Power
of Attorney.
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
*
|
Management
contract or compensatory plan or
arrangement.
|
114