UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended October 2, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 1-1043
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 60045-4811
(Address of principal executive offices, including zip code)
(847) 735-4700
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨ (Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of November 1, 2010, was 88,656,402.
BRUNSWICK CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
October 2, 2010
TABLE OF CONTENTS
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Page
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PART I – FINANCIAL INFORMATION
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Item 1.
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Condensed Consolidated Financial Statements
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Consolidated Statements of Operations for the three months and nine months ended October 2, 2010 (unaudited), and October 3, 2009 (unaudited)
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1
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Condensed Consolidated Balance Sheets as of October 2, 2010 (unaudited), December 31, 2009, and October 3, 2009 (unaudited)
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2
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Condensed Consolidated Statements of Cash Flows for the nine months ended October 2, 2010 (unaudited)
and October 3, 2009 (unaudited)
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4
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Notes to Condensed Consolidated Financial Statements (unaudited)
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5
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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32
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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49
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Item 4.
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Controls and Procedures
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49
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PART II – OTHER INFORMATION
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| Item 1. | Legal Proceedings | 50 |
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Item 1A.
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Risk Factors
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50
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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50
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Item 6.
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Exhibits
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50
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PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
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BRUNSWICK CORPORATION
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Consolidated Statements of Operations
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(unaudited)
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Three Months Ended
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Nine Months Ended
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|||||||||||||||
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(in millions, except per share data)
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October 2,
2010
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October 3,
2009
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October 2,
2010
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October 3,
2009
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||||||||||||
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Net sales
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$ | 815.4 | $ | 665.8 | $ | 2,674.5 | $ | 2,118.8 | ||||||||
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Cost of sales
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632.1 | 590.2 | 2,070.3 | 1,878.0 | ||||||||||||
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Selling, general and administrative expense
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122.8 | 136.7 | 401.6 | 454.5 | ||||||||||||
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Research and development expense
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23.1 | 19.5 | 67.8 | 64.7 | ||||||||||||
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Restructuring, exit and impairment charges
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12.2 | 28.8 | 43.8 | 103.9 | ||||||||||||
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Operating earnings (loss)
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25.2 | (109.4 | ) | 91.0 | (382.3 | ) | ||||||||||
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Equity loss
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(2.0 | ) | (3.8 | ) | (1.2 | ) | (11.1 | ) | ||||||||
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Other income (expense), net
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(2.2 | ) | 0.3 | (1.6 | ) | (1.3 | ) | |||||||||
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Earnings (loss) before interest, loss on early
extinguishment of debt and income taxes
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21.0 | (112.9 | ) | 88.2 | (394.7 | ) | ||||||||||
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Interest expense
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(22.7 | ) | (23.6 | ) | (70.9 | ) | (60.1 | ) | ||||||||
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Interest income
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0.9 | 0.7 | 2.5 | 2.2 | ||||||||||||
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Loss on early extinguishment of debt
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(1.1 | ) | (0.1 | ) | (5.5 | ) | (0.1 | ) | ||||||||
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Earnings (loss) before income taxes
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(1.9 | ) | (135.9 | ) | 14.3 | (452.7 | ) | |||||||||
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Income tax provision (benefit)
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5.3 | (21.6 | ) | 20.8 | 9.5 | |||||||||||
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Net loss
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$ | (7.2 | ) | $ | (114.3 | ) | $ | (6.5 | ) | $ | (462.2 | ) | ||||
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Loss per common share:
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Basic
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$ | (0.08 | ) | $ | (1.29 | ) | $ | (0.07 | ) | $ | (5.23 | ) | ||||
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Diluted
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$ | (0.08 | ) | $ | (1.29 | ) | $ | (0.07 | ) | $ | (5.23 | ) | ||||
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Weighted average shares used for computation of:
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Basic loss per common share
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88.8 | 88.4 | 88.7 | 88.4 | ||||||||||||
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Diluted loss per common share
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88.8 | 88.4 | 88.7 | 88.4 | ||||||||||||
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.
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1
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BRUNSWICK CORPORATION
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Condensed Consolidated Balance Sheets
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(in millions)
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October 2,
2010
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December 31,
2009
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October 3,
2009
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(unaudited)
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(unaudited)
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Assets
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Current assets
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Cash and cash equivalents, at cost, which
approximates market
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$ | 676.5 | $ | 526.6 | $ | 624.1 | ||||||
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Accounts and notes receivable, less
allowances of $44.0, $47.7 and $60.7
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367.4 | 332.4 | 368.2 | |||||||||
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Inventories
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Finished goods
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245.8 | 234.4 | 238.8 | |||||||||
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Work-in-process
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177.5 | 174.3 | 182.9 | |||||||||
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Raw materials
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95.1 | 76.2 | 81.5 | |||||||||
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Net inventories
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518.4 | 484.9 | 503.2 | |||||||||
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Deferred income taxes
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1.8 | 79.3 | 13.1 | |||||||||
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Prepaid expenses and other
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30.0 | 35.5 | 34.6 | |||||||||
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Current assets
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1,594.1 | 1,458.7 | 1,543.2 | |||||||||
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Property
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Land
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89.9 | 100.0 | 105.6 | |||||||||
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Buildings and improvements
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654.8 | 678.3 | 682.5 | |||||||||
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Equipment
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1,073.3 | 1,078.9 | 1,104.9 | |||||||||
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Total land, buildings and improvements and
equipment
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1,818.0 | 1,857.2 | 1,893.0 | |||||||||
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Accumulated depreciation
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(1,245.8 | ) | (1,221.8 | ) | (1,193.7 | ) | ||||||
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Net land, buildings and improvements and
equipment
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572.2 | 635.4 | 699.3 | |||||||||
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Unamortized product tooling costs
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65.3 | 88.9 | 99.1 | |||||||||
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Net property
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637.5 | 724.3 | 798.4 | |||||||||
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Other assets
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Goodwill
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291.1 | 292.5 | 292.6 | |||||||||
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Other intangibles, net
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59.6 | 75.6 | 78.5 | |||||||||
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Investments
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59.9 | 56.7 | 57.8 | |||||||||
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Other long-term assets
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89.5 | 101.6 | 109.9 | |||||||||
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Other assets
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500.1 | 526.4 | 538.8 | |||||||||
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Total assets
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$ | 2,731.7 | $ | 2,709.4 | $ | 2,880.4 | ||||||
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.
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2
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BRUNSWICK CORPORATION
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Condensed Consolidated Balance Sheets
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October 2,
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December 31,
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October 3,
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(in millions, except share data)
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2010
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2009
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2009
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(unaudited)
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(unaudited)
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Liabilities and shareholders’ equity
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Current liabilities
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Short-term debt, including current maturities
of long-term debt
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$ | 4.3 | $ | 11.5 | $ | 11.5 | ||||||
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Accounts payable
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274.9 | 261.2 | 232.6 | |||||||||
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Accrued expenses
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623.3 | 633.9 | 628.4 | |||||||||
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Current liabilities
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902.5 | 906.6 | 872.5 | |||||||||
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Long-term liabilities
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Debt
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829.8 | 839.4 | 904.8 | |||||||||
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Deferred income taxes
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52.8 | 10.1 | 54.4 | |||||||||
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Postretirement and postemployment benefits
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527.8 | 535.7 | 517.6 | |||||||||
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Other
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201.7 | 207.3 | 195.3 | |||||||||
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Long-term liabilities
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1,612.1 | 1,592.5 | 1,672.1 | |||||||||
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Shareholders’ equity
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Common stock; authorized: 200,000,000 shares,
$0.75 par value; issued: 102,538,000 shares
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76.9 | 76.9 | 76.9 | |||||||||
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Additional paid-in capital
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421.9 | 415.1 | 412.6 | |||||||||
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Retained earnings
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498.7 | 505.3 | 633.7 | |||||||||
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Treasury stock, at cost:
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13,912,000; 14,220,000 and 14,275,000 shares
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(406.5 | ) | (412.2 | ) | (413.3 | ) | ||||||
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Accumulated other comprehensive loss, net of tax
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(373.9 | ) | (374.8 | ) | (374.1 | ) | ||||||
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Shareholders’ equity
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217.1 | 210.3 | 335.8 | |||||||||
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Total liabilities and shareholders’ equity
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$ | 2,731.7 | $ | 2,709.4 | $ | 2,880.4 | ||||||
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.
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3
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BRUNSWICK CORPORATION
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Condensed Consolidated Statements of Cash Flows
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(unaudited)
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Nine Months Ended
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(in millions)
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October 2,
2010
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October 3,
2009
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Cash flows from operating activities
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Net loss
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$ | (6.5 | ) | $ | (462.2 | ) | ||
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Depreciation and amortization
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98.5 | 119.8 | ||||||
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Pension expense, net of funding
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12.1 | 58.7 | ||||||
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Provision for doubtful accounts
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1.1 | 33.1 | ||||||
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Deferred income taxes
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5.4 | 9.9 | ||||||
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Long-lived asset impairment charges
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19.0 | 18.0 | ||||||
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Equity in earnings of unconsolidated affiliates, net of dividends
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1.4 | 11.4 | ||||||
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Loss on early extinguishment of debt
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5.5 | 0.1 | ||||||
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Changes in certain current assets and current liabilities
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(71.4 | ) | 314.3 | |||||
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Income taxes
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114.1 | 90.6 | ||||||
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Repurchase of accounts receivable
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— | (84.2 | ) | |||||
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Other, net
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13.4 | 20.8 | ||||||
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Net cash provided by operating activities
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192.6 | 130.3 | ||||||
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Cash flows from investing activities
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Capital expenditures
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(31.1 | ) | (20.2 | ) | ||||
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Investments
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(8.6 | ) | 7.5 | |||||
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Proceeds from the sale of property, plant and equipment
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5.9 | 11.7 | ||||||
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Other, net
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8.3 | 1.9 | ||||||
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Net cash provided by (used for) investing activities
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(25.5 | ) | 0.9 | |||||
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Cash flows from financing activities
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Net issuances (payments) of short-term debt
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(6.8 | ) | 8.3 | |||||
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Proceeds from asset-based lending facility
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— | 81.1 | ||||||
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Payments of asset-based lending facility
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— | (81.1 | ) | |||||
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Net proceeds from issuance of long-term debt
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30.2 | 329.9 | ||||||
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Payments of long-term debt including current maturities
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(36.7 | ) | (162.6 | ) | ||||
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Payments of premium on early extinguishment of debt
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(5.3 | ) | (0.2 | ) | ||||
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Net stock compensation activity
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1.4 | — | ||||||
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Net cash provided by (used for) financing activities
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(17.2 | ) | 175.4 | |||||
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Net increase in cash and cash equivalents
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149.9 | 306.6 | ||||||
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Cash and cash equivalents at beginning of period
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526.6 | 317.5 | ||||||
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Cash and cash equivalents at end of period
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$ | 676.5 | $ | 624.1 | ||||
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.
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4
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 – Significant Accounting Policies
Interim Financial Statements. The unaudited interim consolidated financial statements of Brunswick Corporation (Brunswick or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Certain previously reported amounts have been reclassified to conform to the current period presentation.
These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Brunswick’s 2009 Annual Report on Form 10-K (the 2009 Form 10-K). These interim results include, in the opinion of management, all normal and recurring adjustments necessary to present fairly the financial position of Brunswick as of October 2, 2010, December 31, 2009, and October 3, 2009, the results of operations for the three months and nine months ended October 2, 2010 and October 3, 2009, and the cash flows for the nine months ended October 2, 2010 and October 3, 2009. Due to the seasonality of Brunswick’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning thirteen weeks and ending on the Saturday closest to the end of that thirteen-week period. The first three quarters of fiscal year 2010 ended on April 3, 2010, July 3, 2010 and October 2, 2010 and the first three quarters of fiscal year 2009 ended on April 4, 2009, July 4, 2009 and October 3, 2009.
Recent Accounting Pronouncements. In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 166, “Accounting for Transfers of Financial Assets” (SFAS 166) (codified within the FASB Accounting Standards Codification (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 166 is effective for fiscal years beginning after November 15, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition.
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 adoption of this statement resulted in the Company expanding its disclosures relative to its variable interest entity, as reflected in Note 11 – Financial Services.
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 ASC 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” (ASC 820)). ASU 2010-06 improves disclosures originally required under SFAS No. 157, “Fair Value Measurements” (codified under ASC 820). ASU 2010-06 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 adoption of this ASU resulted in the Company expanding its disclosures, as reflected in Note 4 – Fair Value Measurements.
In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements” (ASU 2010-09) (codified within ASC 855, “Subsequent Events” (ASC 855)). ASU 2010-09 amended SFAS No. 165, “Subsequent Events” (codified within ASC 855) to resolve conflicts with SEC reporting requirements. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.
In July 2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (ASU 2010-20) (codified within ASC 310, “Receivables”). ASU 2010-20 amends the codification to include additional disclosure requirements related to the Company’s financing receivables and associated credit risk. The disclosure requirements presented as of the end of a reporting period are effective for interim and annual periods ending on or after December 15, 2010. The disclosure requirements about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this ASU is expected to result in the Company expanding its disclosures.
5
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 2 – Restructuring Activities
In November 2006, Brunswick announced restructuring initiatives to improve the Company’s cost structure, better utilize overall capacity and improve general operating efficiencies. These initiatives reflected the Company’s response to a difficult marine market. As the marine market continued to decline, Brunswick expanded its restructuring activities during 2007, 2008, 2009 and 2010 in order to improve performance and better position the Company for current market conditions and longer-term profitable growth. These initiatives have resulted in the recognition of restructuring, exit and impairment charges in the Consolidated Statement of Operations during 2009 and 2010.
The costs incurred under these initiatives include:
Restructuring Activities – These amounts mainly relate to:
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·
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Employee termination and other benefits
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·
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Costs to retain and relocate employees
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·
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Consulting costs
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·
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Consolidation of manufacturing footprint
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Exit Activities – These amounts mainly relate to:
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·
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Employee termination and other benefits
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·
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Lease exit costs
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·
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Inventory write-downs
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·
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Facility shutdown costs
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Asset Disposition Actions – These amounts mainly relate to sales of assets and definite-lived asset impairments of:
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·
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Fixed assets
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·
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Tooling
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·
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Patents and proprietary technology
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·
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Dealer networks
|
6
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Impairments of definite-lived assets are recognized when, as a result of the restructuring activities initiated, the carrying amount of the long-lived asset is not expected to be fully recoverable, 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 to or incurred. The Company considers actions related to the divestiture of its Triton fiberglass boat business, 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, to be exit activities. All other actions taken are considered to be restructuring activities.
The following table is a summary of the expense associated with the restructuring, exit and impairment activities for the three months and nine months ended October 2, 2010 and October 3, 2009. The 2010 charge consists of expenses related to actions initiated in 2010, 2009 and 2008:
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Three Months Ended
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Nine Months Ended
|
|||||||||||||||
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(in millions)
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October 2,
2010
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October 3,
2009
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October 2,
2010
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October 3,
2009
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||||||||||||
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Restructuring activities:
|
||||||||||||||||
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Employee termination and other benefits
|
$ | 1.5 | $ | 9.8 | $ | 7.3 | $ | 39.4 | ||||||||
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Current asset write-downs
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1.7 | 0.3 | 1.7 | 3.7 | ||||||||||||
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Transformation and other costs:
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||||||||||||||||
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Consolidation of manufacturing footprint
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4.1 | 16.7 | 10.3 | 39.9 | ||||||||||||
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Retention and relocation costs
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0.2 | — | 0.2 | 0.1 | ||||||||||||
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Consulting costs
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— | — | — | 0.3 | ||||||||||||
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Exit activities:
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||||||||||||||||
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Employee termination and other benefits
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— | 0.3 | 0.7 | 0.7 | ||||||||||||
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Current asset write-downs (adjustments)
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(0.2 | ) | — | 0.7 | 1.1 | |||||||||||
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Transformation and other costs (adjustments):
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||||||||||||||||
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Consolidation of manufacturing footprint
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5.9 | (1.7 | ) | 5.9 | 1.3 | |||||||||||
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Asset disposition actions:
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||||||||||||||||
|
Trade name impairments
|
— | — | 1.1 | — | ||||||||||||
|
Definite-lived asset impairments
|
||||||||||||||||
|
(adjustments)
|
(1.0 | ) | 3.4 | 15.9 | 17.4 | |||||||||||
|
Total restructuring, exit and impairment charges
|
$ | 12.2 | $ | 28.8 | $ | 43.8 | $ | 103.9 | ||||||||
7
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company anticipates it will incur approximately $17 million of additional restructuring charges in 2010. Approximately $3 million of this amount relates to known restructuring activities that have been or will be initiated in 2010, and approximately $14 million relates to continued restructuring activities initiated in 2009 and 2008. The Company expects most of these charges will be incurred in the Marine Engine and Boat 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 2010
During 2010, the Company continued its restructuring activities by disposing of non-strategic assets, consolidating manufacturing operations and reducing the Company’s global workforce. During the second quarter of 2010, the Company finalized plans to divest its Triton fiberglass boat brand and completed an asset sale transaction in the third quarter of 2010. The Company also reached a decision to consolidate its Cabo Yachts production into its Hatteras facility in New Bern, North Carolina. The Company also recorded impairment charges for its Ashland City, Tennessee, facility in connection with the divestiture of its Triton fiberglass boat brand.
The restructuring, exit and impairment charges recorded in the three months and nine months ended October 2, 2010, related to actions initiated in 2010 for each of the Company’s reportable segments, are summarized below:
|
(in millions)
|
Three
Months
Ended
October 2,
2010
|
Nine
Months
Ended
October 2,
2010
|
||||||
|
Boat
|
$ | 7.2 | $ | 25.9 | ||||
|
Bowling & Billiards
|
0.1 | 0.3 | ||||||
|
Total
|
$ | 7.3 | $ | 26.2 | ||||
8
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following is a summary of the charges by category associated with the 2010 restructuring initiatives for the three months and nine months ended October 2, 2010:
|
(in millions)
|
Three
Months
Ended
October 2,
2010
|
Nine
Months
Ended
October 2,
2010
|
||||||
|
Restructuring activities:
|
||||||||
|
Employee termination and other benefits
|
$ | 0.1 | $ | 0.4 | ||||
|
Current asset write-downs
|
1.1 | 1.1 | ||||||
|
Transformation and other costs
|
||||||||
|
Consolidation of manufacturing footprint
|
1.5 | 1.5 | ||||||
|
Exit activities:
|
||||||||
|
Employee termination and other benefits
|
— | 0.7 | ||||||
|
Current asset write-downs (adjustments)
|
(0.2 | ) | 0.7 | |||||
|
Transformation and other costs
|
||||||||
|
Consolidation of manufacturing footprint
|
6.0 | 6.0 | ||||||
|
Asset disposition actions:
|
||||||||
|
Trade name impairments
|
— | 1.1 | ||||||
|
Definite-lived asset impairments (adjustments)
|
(1.2 | ) | 14.7 | |||||
|
Total restructuring, exit and impairment charges
|
$ | 7.3 | $ | 26.2 | ||||
The restructuring charges related to actions initiated in 2010, for each of the Company’s reportable segments for the nine months ended October 2, 2010, are summarized below:
|
(in millions)
|
Boat
|
Bowling &
Billiards
|
Total
|
|||||||||
|
Employee termination and other benefits
|
$ | 0.8 | $ | 0.3 | $ | 1.1 | ||||||
|
Current asset write-downs
|
1.8 | — | 1.8 | |||||||||
|
Transformation and other costs
|
7.5 | — | 7.5 | |||||||||
|
Asset disposition actions
|
15.8 | — | 15.8 | |||||||||
|
Total restructuring, exit and impairment charges
|
$ | 25.9 | $ | 0.3 | $ | 26.2 | ||||||
9
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the 2010 charges taken for restructuring, exit and impairment charges related to actions initiated in 2010 and the related status as of October 2, 2010. The accrued amounts remaining as of October 2, 2010 represent cash expenditures needed to satisfy remaining obligations. The majority of accrued costs expected to be paid by the end of 2010 and included in Accrued expenses in the Condensed Consolidated Balance Sheets.
|
(in millions)
|
Costs
Recognized
in 2010
|
Non-cash
Charges
|
Net Cash
Payments
|
Accrued
Costs as of
October 2,
2010
|
||||||||||||
|
Employee termination and other benefits
|
$ | 1.1 | $ | — | $ | (0.4 | ) | $ | 0.7 | |||||||
|
Current asset write-downs
|
1.8 | (1.8 | ) | — | — | |||||||||||
|
Transformation and other costs
|
7.5 | (3.6 | ) | (2.5 | ) | 1.4 | ||||||||||
|
Asset disposition actions:
|
||||||||||||||||
|
Trade name impairments
|
1.1 | (1.1 | ) | — | — | |||||||||||
|
Definite-lived asset impairments
|
14.7 | (14.7 | ) | — | — | |||||||||||
|
Total restructuring, exit and
impairment charges
|
$ | 26.2 | $ | (21.2 | ) | $ | (2.9 | ) | $ | 2.1 | ||||||
Actions initiated in 2009
During the third quarter of 2009, the Company announced plans to reduce excess manufacturing capacity by relocating inboard and sterndrive production to Fond du Lac, Wisconsin, and closing its Stillwater, Oklahoma plant. This plant consolidation effort is expected to 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 employee incentives and changes to employees’ current benefits 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, and Little Falls, Minnesota properties and 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.
10
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The restructuring, exit and impairment charges recorded in the three months and nine months ended October 2, 2010 and October 3, 2009, related to actions initiated in 2009 for each of the Company’s reportable segments, are summarized below:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(in millions)
|
October 2,
2010
|
October 3,
2009
|
October 2,
2010
|
October 3,
2009
|
||||||||||||
|
Marine Engine
|
$ | 1.7 | $ | 18.5 | $ | 6.2 | $ | 37.4 | ||||||||
|
Boat
|
1.6 | 2.4 | 5.5 | 21.0 | ||||||||||||
|
Fitness
|
— | 0.4 | 0.1 | 1.6 | ||||||||||||
|
Bowling & Billiards
|
0.1 | 0.3 | 0.3 | 0.8 | ||||||||||||
|
Corporate
|
0.1 | 2.1 | 0.5 | 4.5 | ||||||||||||
|
Total
|
$ | 3.5 | $ | 23.7 | $ | 12.6 | $ | 65.3 | ||||||||
The following is a summary of the charges by category associated with the 2009 restructuring initiatives for the three months and nine months ended October 2, 2010 and October 3, 2009:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(in millions)
|
October 2,
2010
|
October 3,
2009
|
October 2,
2010
|
October 3,
2009
|
||||||||||||
|
Restructuring activities:
|
||||||||||||||||
|
Employee termination and other benefits
|
$ | 1.4 | $ | 9.6 | $ | 6.8 | $ | 31.4 | ||||||||
|
Current asset write-downs
|
— | 0.2 | — | 1.2 | ||||||||||||
|
Transformation and other costs:
|
||||||||||||||||
|
Consolidation of manufacturing footprint
|
2.0 | 14.1 | 5.7 | 23.2 | ||||||||||||
|
Retention and relocation costs
|
0.2 | — | 0.2 | 0.1 | ||||||||||||
|
Consulting costs
|
— | — | — | 0.3 | ||||||||||||
|
Exit activities:
|
||||||||||||||||
|
Transformation and other adjustments:
|
||||||||||||||||
|
Consolidation of manufacturing footprint
|
(0.1 | ) | (1.9 | ) | (0.1 | ) | (1.9 | ) | ||||||||
|
Asset disposition actions:
|
||||||||||||||||
|
Definite-lived asset impairments
|
— | 1.7 | — | 11.0 | ||||||||||||
|
Total restructuring, exit and
impairment charges
|
$ | 3.5 | $ | 23.7 | $ | 12.6 | $ | 65.3 | ||||||||
The restructuring charges related to actions initiated in 2009, for each of the Company’s reportable segments for the nine months ended October 2, 2010, are summarized below:
|
(in millions)
|
Marine
Engine
|
Boat
|
Fitness
|
Bowling &
Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee termination
and other benefits
|
$ | 2.5 | $ | 3.6 | $ | 0.1 | $ | 0.3 | $ | 0.3 | $ | 6.8 | ||||||||||||
|
Transformation
and other costs
|
3.7 | 1.9 | — | — | 0.2 | 5.8 | ||||||||||||||||||
|
Total restructuring, exit and
impairment charges
|
$ | 6.2 | $ | 5.5 | $ | 0.1 | $ | 0.3 | $ | 0.5 | $ | 12.6 | ||||||||||||
11
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The restructuring charges related to actions initiated in 2009, for each of the Company’s reportable segments for the nine months ended October 3, 2009, are summarized below:
|
(in millions)
|
Marine
Engine
|
Boat
|
Fitness
|
Bowling &
Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee termination
and other benefits
|
$ | 16.6 | $ | 9.7 | $ | 1.6 | $ | 0.8 | $ | 2.7 | $ | 31.4 | ||||||||||||
|
Current asset write-downs
|
0.4 | 0.8 | — | — | — | 1.2 | ||||||||||||||||||
|
Transformation
and other costs
|
18.5 | 1.4 | — | — | 1.8 | 21.7 | ||||||||||||||||||
|
Asset disposition actions
|
1.9 | 9.1 | — | — | — | 11.0 | ||||||||||||||||||
|
Total restructuring, exit and
impairment charges
|
$ | 37.4 | $ | 21.0 | $ | 1.6 | $ | 0.8 | $ | 4.5 | $ | 65.3 | ||||||||||||
The following table summarizes the 2010 charges taken for restructuring, exit and impairment charges related to actions initiated in 2009 and the related status as of October 2, 2010. The accrued amounts remaining as of October 2, 2010 represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs expected to be paid by the end of 2010 and is included in Accrued expenses in the Condensed Consolidated Balance Sheets.
|
(in millions)
|
Accrued
Costs as of
January 1,
2010
|
Costs
Recognized
in 2010
|
Net Cash
Payments
|
Accrued
Costs as of
October 2,
2010
|
||||||||||||
|
Employee termination and other benefits
|
$ | 8.5 | $ | 6.8 | $ | (9.3 | ) | $ | 6.0 | |||||||
|
Transformation and other costs:
|
||||||||||||||||
|
Consolidation of manufacturing footprint
|
2.0 | 5.8 | (5.9 | ) | 1.9 | |||||||||||
|
Total restructuring, exit and
impairment charges
|
$ | 10.5 | $ | 12.6 | $ | (15.2 | ) | $ | 7.9 | |||||||
Actions initiated in 2008
During the first quarter of 2008, the Company closed its bowling pin manufacturing facility in Antigo, Wisconsin and announced 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 designed to improve performance and better position the Company for a prolonged downturn in the U.S. marine market. The plan reduced the complexity of the Company’s operations and shrank 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.
12
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
During the third quarter of 2008, the Company accelerated its previously announced restructuring efforts. 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.
The restructuring, exit and impairment charges related to actions initiated in 2008 for the three months and nine months ended October 2, 2010 and October 3, 2009, for each of the Company’s reportable segments, are summarized below:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(in millions)
|
October 2,
2010
|
October 3,
2009
|
October 2,
2010
|
October 3,
2009
|
||||||||||||
|
Marine Engine
|
$ | — | $ | 0.3 | $ | — | $ | 2.7 | ||||||||
|
Boat
|
1.4 | 4.2 | 4.6 | 28.5 | ||||||||||||
|
Bowling & Billiards
|
— | 0.5 | — | 4.0 | ||||||||||||
|
Corporate
|
— | 0.1 | 0.4 | 3.4 | ||||||||||||
|
Total
|
$ | 1.4 | $ | 5.1 | $ | 5.0 | $ | 38.6 | ||||||||
The following is a summary of the total charges by category associated with the 2008 restructuring initiatives for the three months and nine months ended October 2, 2010 and October 3, 2009:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(in millions)
|
October 2,
2010
|
October 3,
2009
|
October 2,
2010
|
October 3,
2009
|
||||||||||||
|
Restructuring activities:
|
||||||||||||||||
|
Employee termination and other benefits
|
$ | — | $ | 0.2 | $ | 0.1 | $ | 8.0 | ||||||||
|
Current asset write-downs
|
0.6 | 0.1 | 0.6 | 2.5 | ||||||||||||
|
Transformation and other costs:
|
||||||||||||||||
|
Consolidation of manufacturing footprint
|
0.6 | 2.6 | 3.1 | 16.7 | ||||||||||||
|
Exit activities:
|
||||||||||||||||
|
Employee termination and other benefits
|
— | 0.3 | — | 0.7 | ||||||||||||
|
Current asset write-downs
|
— | — | — | 1.1 | ||||||||||||
|
Transformation and other costs:
|
||||||||||||||||
|
Consolidation of manufacturing footprint
|
— | 0.2 | — | 3.2 | ||||||||||||
|
Asset disposition actions:
|
||||||||||||||||
|
Definite-lived asset impairments
|
0.2 | 1.7 | 1.2 | 6.4 | ||||||||||||
|
Total restructuring, exit and
impairment charges
|
$ | 1.4 | $ | 5.1 | $ | 5.0 | $ | 38.6 | ||||||||
13
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The restructuring charges related to actions initiated in 2008, for each of the Company’s reportable segments for the nine months ended October 2, 2010, are summarized below:
|
(in millions)
|
Boat
|
Corporate
|
Total
|
|||||||||
|
Employee termination and other benefits
|
$ | 0.1 | $ | — | $ | 0.1 | ||||||
|
Current asset write-downs
|
0.6 | — | 0.6 | |||||||||
|
Transformation and other costs
|
3.1 | — | 3.1 | |||||||||
|
Asset disposition actions
|
0.8 | 0.4 | 1.2 | |||||||||
|
Total restructuring, exit and impairment charges
|
$ | 4.6 | $ | 0.4 | $ | 5.0 | ||||||
The restructuring charges related to actions initiated in 2008, for each of the Company’s reportable segments for the nine months ended October 3, 2009, are summarized below:
|
(in millions)
|
Marine
Engine
|
Boat
|
Bowling &
Billiards
|
Corporate
|
Total
|
|||||||||||||||
|
Employee termination and other benefits
|
$ | 0.9 | $ | 6.3 | $ | 1.1 | $ | 0.4 | $ | 8.7 | ||||||||||
|
Current asset write-downs
|
0.7 | 1.8 | 1.1 | — | 3.6 | |||||||||||||||
|
Transformation
and other costs
|
1.1 | 16.9 | 1.8 | 0.1 | 19.9 | |||||||||||||||
|
Asset disposition actions
|
— | 3.5 | — | 2.9 | 6.4 | |||||||||||||||
|
Total restructuring, exit and impairment charges
|
$ | 2.7 | $ | 28.5 | $ | 4.0 | $ | 3.4 | $ | 38.6 | ||||||||||
The following table summarizes the 2010 charges taken for restructuring, exit and impairment charges related to actions initiated in 2008 and the related status as of October 2, 2010. The accrued amounts remaining as of October 2, 2010 represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2010 and is included in Accrued expenses in the Consolidated Balance Sheets.
|
(in millions)
|
Accrued
Costs as of
January 1,
2010
|
Costs
Recognized
in 2010
|
Non-cash
Charges
|
Net Cash
Payments
|
Accrued
Costs as of
October 2,
2010
|
|||||||||||||||
|
Employee termination and other benefits
|
$ | 1.2 | $ | 0.1 | $ | — | $ | (1.0 | ) | $ | 0.3 | |||||||||
|
Current asset write-downs
|
— | 0.6 | (0.6 | ) | — | — | ||||||||||||||
|
Transformation and other costs:
|
||||||||||||||||||||
|
Consolidation of manufacturing footprint
|
1.9 | 3.1 | — | (3.5 | ) | 1.5 | ||||||||||||||
|
Asset disposition actions:
|
||||||||||||||||||||
|
Definite-lived asset impairments
|
— | 1.2 | (1.2 | ) | — | — | ||||||||||||||
|
Total restructuring, exit and impairment charges
|
$ | 3.1 | $ | 5.0 | $ | (1.8 | ) | $ | (4.5 | ) | $ | 1.8 | ||||||||
14
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 3 – Financial Instruments
The Company operates globally, with manufacturing and sales facilities in various locations around the world. Due to the Company’s global operations, the Company engages in activities involving both financial and market risks. The Company utilizes normal operating and financing activities, along with derivative financial instruments, to minimize these risks.
Derivative Financial Instruments. The Company uses derivative financial instruments to manage its risks associated with movements in foreign currency exchange rates, interest rates and commodity prices. Derivative instruments are not used for trading or speculative purposes. For certain derivative contracts, on the date a derivative contract is entered into, the Company designates the derivative as a hedge of a forecasted transaction (cash flow hedge). The Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are designated as hedges to specific forecasted transactions. The Company also assesses, both at the inception and monthly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in the anticipated cash flows of the hedged item. If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, gains and losses on the derivative are recorded in Cost of sales or Interest expense as appropriate. There were no material adjustments as a result of ineffectiveness to the results of operations for the three months and nine months ended October 2, 2010 and October 3, 2009. 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 exposures being hedged.
Fair Value Hedges. During 2010 and 2009, 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.
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 (loss) in the same period or periods during which the hedged transaction affects earnings. As of October 2, 2010, the duration of derivatives used for cash flow hedging ranged from one to 15 months.
Foreign Currency. The Company enters into forward and option contracts to manage foreign exchange exposure related to forecasted transactions, and assets and liabilities that are subject to risk from foreign currency rate changes. These include: product costs; revenues and expenses; associated receivables and payables; intercompany obligations and receivables; and other related cash flows.
Forward exchange contracts outstanding at October 2, 2010 and December 31, 2009, had notional contract values of $99.0 million and $101.9 million, respectively. Option contracts outstanding at October 2, 2010 and December 31, 2009, had notional contract values of $180.4 million and $103.7 million, respectively. The forward and options contracts outstanding at October 2, 2010, mature during 2010 and 2011 and mainly relate to the Euro, Canadian dollar, Japanese yen, Australian dollar, British pound, Mexican peso, Swedish krona, Norwegian krone, Hungarian forint and New Zealand dollar. As of October 2, 2010, the Company estimates that during the next 12 months, it will reclassify approximately $2.8 million of net losses (based on current rates) from Accumulated other comprehensive loss to Cost of sales.
Interest Rate. As of October 2, 2010 and December 31, 2009, the Company had $4.1 million and $4.8 million, respectively, of net deferred gains associated with all forward starting interest rate swaps, which were included in Accumulated other comprehensive loss. These amounts include gains deferred on $250.0 million of forward starting interest rate swaps terminated in July 2006 and losses deferred on $150.0 million of forward starting swaps terminated in August 2008. There were no forward starting interest rate swaps outstanding at October 2, 2010. For the three months and nine months ended October 2, 2010, the Company recognized $0.2 million and $0.7 million, respectively, of net gains in Interest expense related to the amortization of all settled forward starting interest rate swaps.
Commodity Price. The Company uses commodity swaps to hedge anticipated purchases of aluminum and natural gas. Commodity swap contracts outstanding at October 2, 2010 and December 31, 2009, had notional values of $11.0 million and $15.5 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 loss and are recognized in Cost of sales in the same period or periods during which the hedged transaction affects earnings. As of October 2, 2010, the Company estimates that during the next 12 months, it will reclassify approximately $2.7 million in net gains (based on current prices) from Accumulated other comprehensive loss to Cost of sales.
15
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of October 2, 2010, the fair values of the Company’s derivative instruments were:
|
(in millions)
|
|||||||||||
|
Derivative Assets
|
Derivative Liabilities
|
||||||||||
|
Instrument
|
Balance Sheet Location
|
Fair Value
|
Balance Sheet Location
|
Fair Value
|
|||||||
|
Foreign exchange contracts
|
Prepaid expenses and other
|
$ | 1.3 |
Accrued expenses
|
$ | 4.2 | |||||
|
Commodity contracts
|
Prepaid expenses and other
|
3.4 |
Accrued expenses
|
0.1 | |||||||
|
Total
|
$ | 4.7 | $ | 4.3 | |||||||
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 | |||||||
The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended October 2, 2010, was:
|
(in millions)
|
||||||
|
Fair Value Hedging Instruments
|
Location of Loss on Derivatives
Recognized in Earnings (loss)
|
Amount of Loss on
Derivatives Recognized in
Earnings (loss)
|
||||
|
Foreign exchange contracts
|
Cost of sales
|
$ | (2.2 | ) | ||
|
Foreign exchange contracts
|
Other income (expense), net
|
(0.2 | ) | |||
|
Total
|
$ | (2.4 | ) | |||
|
Cash Flow Hedge Instruments
|
Amount of Gain (Loss) on Derivatives recognized in Accumulated Other
Comprehensive Loss
(Effective Portion)
|
Location of Gain Reclassified from
Accumulated Other Comprehensive
Loss into Earnings (Loss)
(Effective Portion)
|
Amount of Gain
Reclassified from
Accumulated Other
Comprehensive Loss into
Earnings (Loss)
(Effective Portion)
|
||||||
|
Interest rate contracts
|
$ | — |
Interest expense
|
$ | 0.2 | ||||
|
Foreign exchange contracts
|
(5.4 | ) |
Cost of sales
|
2.0 | |||||
|
Commodity contracts
|
1.6 |
Cost of sales
|
0.5 | ||||||
|
Total
|
$ | (3.8 | ) | $ | 2.7 | ||||
16
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The effect of derivative instruments on the Consolidated Statement of Operations for the nine months ended October 2, 2010, was:
|
(in millions)
|
||||||
|
Fair Value Hedging Instruments
|
Location of Gain on Derivatives
Recognized in Earnings (Loss)
|
Amount of Gain on
Derivatives Recognized
in Earnings (Loss)
|
||||
|
Foreign exchange contracts
|
Cost of sales
|
$ | 1.8 | |||
|
Foreign exchange contracts
|
Other income (expense), net
|
0.3 | ||||
|
Total
|
$ | 2.1 | ||||
|
Cash Flow Hedge Instruments
|
Amount of Loss on
Derivatives Recognized in Accumulated Other
Comprehensive Loss
(Effective Portion)
|
Location of Gain Reclassified from
Accumulated Other Comprehensive
Loss into Earnings (Loss)
(Effective Portion)
|
Amount of Gain
Reclassified from Accumulated Other Comprehensive Loss
into Earnings (Loss)
(Effective Portion)
|
||||||
|
Interest rate contracts
|
$ | — |
Interest expense
|
$ | 0.7 | ||||
|
Foreign exchange contracts
|
(0.2 | ) |
Cost of sales
|
2.2 | |||||
|
Commodity contracts
|
(0.9 | ) |
Cost of sales
|
1.0 | |||||
|
Total
|
$ | (1.1 | ) | $ | 3.9 | ||||
The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended October 3, 2009, was:
|
(in millions)
|
||||||
|
Fair Value Hedging Instruments
|
Location of Loss on Derivatives
Recognized in Earnings (Loss)
|
Amount of Loss on Derivatives Recognized in Earnings (Loss)
|
||||
|
Foreign exchange contracts
|
Cost of sales
|
$ | (3.2 | ) | ||
|
Cash Flow Hedge Instruments
|
Amount of Gain/(Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss
(Effective Portion)
|
Location of Gain/(Loss) Reclassified
from Accumulated Other
Comprehensive Loss into Earnings
(Loss)
(Effective Portion)
|
Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Loss)
(Effective Portion)
|
||||||
|
Interest rate contracts
|
$ | — |
Interest income
|
$ | 0.2 | ||||
|
Foreign exchange contracts
|
(2.5 | ) |
Cost of sales
|
1.6 | |||||
|
Commodity contracts
|
1.8 |
Cost of sales
|
(3.5 | ) | |||||
|
Total
|
$ | (0.7 | ) | $ | (1.7 | ) | |||
17
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The effect of derivative instruments on the Consolidated Statement of Operations for the nine months ended October 3, 2009, was:
|
(in millions)
|
||||||
|
Fair Value Hedging Instruments
|
Location of Loss on
Derivatives Recognized in
Earnings (Loss)
|
Amount of Loss on Derivatives Recognized in Earnings (Loss)
|
||||
|
Foreign exchange contracts
|
Cost of sales
|
$ | (6.7 | ) | ||
|
Cash Flow Hedge Instruments
|
Amount of Gain/(Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss
(Effective Portion)
|
Location of Gain/(Loss) Reclassified
from Accumulated Other
Comprehensive Loss into Earnings
(Loss)
(Effective Portion)
|
Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Loss)
(Effective Portion)
|
||||||
|
Interest rate contracts
|
$ | — |
Interest income
|
$ | 0.7 | ||||
|
Foreign exchange contracts
|
(3.9 | ) |
Cost of sales
|
12.2 | |||||
|
Commodity contracts
|
2.3 |
Cost of sales
|
(12.2 | ) | |||||
|
Total
|
$ | (1.6 | ) | $ | 0.7 | ||||
Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash equivalents, accounts and notes receivable and short-term debt, approximate their fair values because of the short maturity of these instruments. At October 2, 2010, the fair value of the Company’s long-term debt, including current maturities, was approximately $844.0 million as estimated using quoted market prices or discounted cash flows based on market rates for similar types of debt. The carrying value of long-term debt, including current maturities, was $831.7 million as of October 2, 2010.
18
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 4 – 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 October 2, 2010:
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash equivalents
|
$ | 500.5 | $ | — | $ | — | $ | 500.5 | ||||||||
|
Other short-term investments
|
0.8 | — | — | 0.8 | ||||||||||||
|
Long-term investments
|
2.4 | — | — | 2.4 | ||||||||||||
|
Derivatives
|
— | 4.7 | — | 4.7 | ||||||||||||
|
Total assets
|
$ | 503.7 | $ | 4.7 | $ | — | $ | 508.4 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$ | — | $ | 4.3 | $ | — | $ | 4.3 | ||||||||
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 | ||||||||
|
Other short-term investments
|
0.8 | — | — | 0.8 | ||||||||||||
|
Long-term investments
|
4.3 | — | — | 4.3 | ||||||||||||
|
Derivatives
|
— | 8.2 | — | 8.2 | ||||||||||||
|
Total Assets
|
$ | 355.1 | $ | 8.2 | $ | — | $ | 363.3 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$ | — | $ | 1.4 | $ | — | $ | 1.4 | ||||||||
19
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Refer to Note 3 – Financial Instruments for additional information related to the fair value of derivative assets and liabilities by class. In addition to the items shown in the table above, refer to Note 15 in the Company’s 2009 Form 10-K for further discussion surrounding the fair value measurements associated with the Company’s postretirement benefit plans.
During 2010 and 2009, the Company undertook various restructuring activities, as discussed in Note 2 – Restructuring Activities. The restructuring activities required the Company to perform fair value measurements, on a non-recurring basis, 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 during the nine months ended October 2, 2010 were $8.9 million, of which $2.9 million, $2.5 million and $3.5 million were measured as of October 2, 2010, July 3, 2010 and April 3, 2010, respectively. Asset balances measured at fair value on a non-recurring basis during the year ended December 31, 2009 were $29.7 million, of which $21.3 million, $1.6 million and $6.8 million were measured as of December 31, 2009, October 3, 2009 and July 4, 2009, respectively. Assets measured at fair value on a nonrecurring basis relate primarily to assets no longer being used. These balances were determined with the market approach using Level 2 inputs, including third-party appraisals of comparable property.
Note 5 – Share-Based Compensation
Under the 2003 Stock Incentive Plan (Plan), the Company may grant stock options, stock appreciation rights (SARs), nonvested stock and other types of share-based awards to executives and other employees. Under the Plan, the Company may issue up to 13.1 million shares, consisting of treasury shares and authorized, but unissued, shares of common stock. As of October 2, 2010, 2.1 million shares were available for grant. Prior to 2005, the Company mainly issued share-based compensation in the form of stock options and had not issued any SARs. Since the beginning of 2005, the Company has issued stock-settled SARs and has not issued any stock options.
SARs
During the three months and nine months ended October 2, 2010, the Company granted 0.0 million and 1.9 million SARs, respectively. In the three months and nine months ended October 2, 2010, there was $3.2 million and $9.8 million of total expense, respectively, after adjusting for forfeitures, due to amortization of SARs granted. During the three months and nine months ended October 3, 2009, there were 0.0 million and 2.9 million SARs granted, respectively. In the three months and nine months ended October 3, 2009, there was $2.3 million and $4.6 million of total expense, respectively, after adjusting for forfeitures, due to amortization of SARs granted.
20
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The weighted average fair values of individual SARs granted were $5.65 and $2.99 during 2010 and 2009, respectively. The Company estimated the fair value of each grant on the date of grant using the Black-Scholes-Merton pricing model utilizing the following weighted average assumptions for 2010 and 2009:
|
|
|