Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 30, 2019
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-01043
____________
Brunswick Corporation
(Exact name of registrant as specified in its charter)
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Delaware | | 36-0848180 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
26125 N. Riverwoods Blvd., Suite 500, Mettawa, Illinois 60045-3420
(Address of principal executive offices, including zip code)
(847) 735-4700
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | x | Accelerated filer | o |
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Non-accelerated filer | o | Smaller reporting company | o |
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Emerging growth company | o | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
Common stock, par value $0.75 per share 6.500% Senior Notes due 2048 6.625% Senior Notes due 2049 6.375% Senior Notes due 2049 | | BC BC-A BC-B BC-C | | New York Stock Exchange |
The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of April 29, 2019 was 87,076,644.
BRUNSWICK CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 30, 2019
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION | Page |
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PART II – OTHER INFORMATION | |
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
BRUNSWICK CORPORATION Condensed Consolidated Statements of Comprehensive Income (unaudited)
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| Three Months Ended |
(in millions, except per share data) | March 30, 2019 | | March 31, 2018 |
Net sales | $ | 1,275.9 |
| | $ | 1,211.4 |
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Cost of sales | 938.4 |
| | 901.4 |
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Selling, general and administrative expense | 189.6 |
| | 163.5 |
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Research and development expense | 35.0 |
| | 37.6 |
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Restructuring, exit, integration and impairment charges | 141.5 |
| | 3.8 |
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Operating earnings (loss) | (28.6 | ) | | 105.1 |
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Equity earnings | 1.9 |
| | 1.0 |
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Other expense, net | (1.6 | ) | | (0.0 | ) |
Earnings (loss) before interest and income taxes | (28.3 | ) | | 106.1 |
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Interest expense | (19.8 | ) | | (6.7 | ) |
Interest income | 0.4 |
| | 0.7 |
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Earnings (loss) before income taxes | (47.7 | ) | | 100.1 |
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Income tax provision (benefit) | (11.4 | ) | | 27.2 |
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Net earnings (loss) | $ | (36.3 | ) | | $ | 72.9 |
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Earnings (loss) per common share: | | | |
Basic | $ | (0.42 | ) | | $ | 0.83 |
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Diluted | $ | (0.42 | ) | | $ | 0.82 |
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Weighted average shares used for computation of: | | | |
Basic earnings (loss) per common share | 87.5 |
| | 88.1 |
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Diluted earnings (loss) per common share | 87.5 |
| | 88.8 |
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Comprehensive income (loss) | $ | (35.3 | ) | | $ | 83.9 |
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.
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BRUNSWICK CORPORATION Condensed Consolidated Balance Sheets (unaudited) |
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(in millions) | March 30, 2019 | | December 31, 2018 | | March 31, 2018 |
Assets | | | | | |
Current assets | | | | | |
Cash and cash equivalents, at cost, which approximates fair value | $ | 161.5 |
| | $ | 294.4 |
| | $ | 284.0 |
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Restricted cash | 9.1 |
| | 9.0 |
| | 9.4 |
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Short-term investments in marketable securities | 0.8 |
| | 0.8 |
| | 0.8 |
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Total cash and short-term investments in marketable securities | 171.4 |
| | 304.2 |
| | 294.2 |
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Accounts and notes receivable, less allowances of $10.0, $11.3 and $9.4 | 683.7 |
| | 550.7 |
| | 623.6 |
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Inventories | | | | | |
Finished goods | 650.2 |
| | 614.2 |
| | 562.0 |
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Work-in-process | 112.1 |
| | 106.1 |
| | 133.1 |
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Raw materials | 228.8 |
| | 223.4 |
| | 208.0 |
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Net inventories | 991.1 |
| | 943.7 |
| | 903.1 |
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Prepaid expenses and other | 91.6 |
| | 81.6 |
| | 41.8 |
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Current assets | 1,937.8 |
| | 1,880.2 |
| | 1,862.7 |
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Property | |
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Land | 24.0 |
| | 24.0 |
| | 25.2 |
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Buildings and improvements | 477.6 |
| | 469.7 |
| | 420.1 |
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Equipment | 1,145.5 |
| | 1,128.9 |
| | 1,038.6 |
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Total land, buildings and improvements and equipment | 1,647.1 |
| | 1,622.6 |
| | 1,483.9 |
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Accumulated depreciation | (967.7 | ) | | (952.4 | ) | | (910.6 | ) |
Net land, buildings and improvements and equipment | 679.4 |
| | 670.2 |
| | 573.3 |
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Unamortized product tooling costs | 131.8 |
| | 135.1 |
| | 149.4 |
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Net property | 811.2 |
| | 805.3 |
| | 722.7 |
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Other assets | |
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Goodwill | 634.1 |
| | 767.1 |
| | 428.3 |
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Other intangibles, net | 636.7 |
| | 646.4 |
| | 148.0 |
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Operating lease assets | 99.2 |
| | — |
| | — |
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Deferred income tax asset | 109.4 |
| | 96.1 |
| | 171.0 |
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Equity investments | 38.5 |
| | 34.6 |
| | 29.5 |
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Other long-term assets | 62.9 |
| | 56.0 |
| | 42.4 |
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Other assets | 1,580.8 |
| | 1,600.2 |
| | 819.2 |
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Total assets | $ | 4,329.8 |
| | $ | 4,285.7 |
| | $ | 3,404.6 |
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements. |
BRUNSWICK CORPORATION Condensed Consolidated Balance Sheets (unaudited)
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(in millions) | March 30, 2019 | | December 31, 2018 | | March 31, 2018 |
Liabilities and shareholders’ equity | | | | | |
Current liabilities | | | | | |
Short-term debt and current maturities of long-term debt | $ | 40.9 |
| | $ | 41.3 |
| | $ | 5.1 |
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Accounts payable | 473.3 |
| | 527.8 |
| | 431.0 |
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Accrued expenses | 691.5 |
| | 687.4 |
| | 640.3 |
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Current liabilities | 1,205.7 |
| | 1,256.5 |
| | 1,076.4 |
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Long-term liabilities | |
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Debt | 1,245.6 |
| | 1,179.5 |
| | 428.9 |
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Operating lease liabilities | 83.8 |
| | — |
| | — |
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Postretirement benefits | 70.0 |
| | 71.6 |
| | 218.9 |
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Other | 197.8 |
| | 195.5 |
| | 199.6 |
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Long-term liabilities | 1,597.2 |
| | 1,446.6 |
| | 847.4 |
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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; outstanding: 87,063,000, 86,757,000 and 87,277,000 shares | 76.9 |
| | 76.9 |
| | 76.9 |
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Additional paid-in capital | 359.9 |
| | 371.1 |
| | 357.4 |
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Retained earnings | 2,081.1 |
| | 2,135.7 |
| | 1,994.4 |
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Treasury stock, at cost: 15,475,000, 15,781,000 and 15,261,000 shares | (628.9 | ) | | (638.0 | ) | | (599.1 | ) |
Accumulated other comprehensive loss | (362.1 | ) | | (363.1 | ) | | (348.8 | ) |
Shareholders’ equity | 1,526.9 |
| | 1,582.6 |
| | 1,480.8 |
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Total liabilities and shareholders’ equity | $ | 4,329.8 |
| | $ | 4,285.7 |
| | $ | 3,404.6 |
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements. |
BRUNSWICK CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited) |
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| Three Months Ended |
(in millions) | March 30, 2019 | | March 31, 2018 |
Cash flows from operating activities | | | |
Net earnings (loss) | $ | (36.3 | ) | | $ | 72.9 |
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Depreciation and amortization | 39.8 |
| | 27.8 |
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Stock compensation expense | 3.3 |
| | 1.9 |
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Pension expense, net of funding | 0.3 |
| | 0.9 |
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Asset impairment charges | 138.7 |
| | — |
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Deferred income taxes | (3.4 | ) | | 20.0 |
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Changes in certain current assets and current liabilities | (211.2 | ) | | (224.2 | ) |
Long-term extended warranty contracts and other deferred revenue | 1.2 |
| | 2.6 |
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Fitness business separation costs | 7.8 |
| | — |
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Cash paid for Fitness business separation costs | (1.5 | ) | | — |
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Income taxes | (16.2 | ) | | 32.5 |
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Other, net | (1.9 | ) | | (1.5 | ) |
Net cash used for operating activities | (79.4 | ) | | (67.1 | ) |
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Cash flows from investing activities | |
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Capital expenditures | (88.1 | ) | | (37.1 | ) |
Investments | (3.8 | ) | | (4.8 | ) |
Proceeds from the sale of property, plant and equipment | — |
| | 0.1 |
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Other, net | — |
| | (0.2 | ) |
Net cash used for investing activities | (91.9 | ) | | (42.0 | ) |
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Cash flows from financing activities | |
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Proceeds from issuances of short-term debt | 215.0 |
| | — |
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Payments of short-term debt | (215.0 | ) | | — |
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Net proceeds from issuances of long-term debt | 222.0 |
| | — |
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Payments of long-term debt including current maturities | (159.0 | ) | | (0.1 | ) |
Common stock repurchases | — |
| | (35.0 | ) |
Cash dividends paid | (18.3 | ) | | (16.6 | ) |
Proceeds from share-based compensation activity | 0.5 |
| | 1.0 |
|
Tax withholding associated with shares issued for share-based compensation | (6.8 | ) | | (9.3 | ) |
Other, net | (0.2 | ) | | — |
|
Net cash provided by (used for) financing activities | 38.2 |
| | (60.0 | ) |
| | | |
Effect of exchange rate changes | 0.3 |
| | 4.3 |
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Net decrease in Cash and cash equivalents and Restricted cash | (132.8 | ) | | (164.8 | ) |
Cash and cash equivalents and Restricted cash at beginning of period | 303.4 |
| | 458.2 |
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Cash and cash equivalents and Restricted cash at end of period | 170.6 |
| | 293.4 |
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Less: Restricted cash | 9.1 |
| | 9.4 |
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Cash and cash equivalents at end of period | $ | 161.5 |
| | $ | 284.0 |
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The Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.
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Brunswick Corporation Condensed Consolidated Statements of Shareholders' Equity (unaudited) |
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(in millions, except per share data) | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance at December 31, 2018 | $ | 76.9 |
| | $ | 371.1 |
| | $ | 2,135.7 |
| | $ | (638.0 | ) | | $ | (363.1 | ) | | $ | 1,582.6 |
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Net loss | — |
| | — |
| | (36.3 | ) | | — |
| | — |
| | (36.3 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 1.0 |
| | 1.0 |
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Dividends ($0.21 per common share) | — |
| | — |
| | (18.3 | ) | | — |
| | — |
| | (18.3 | ) |
Compensation plans and other | — |
| | (11.2 | ) | | — |
| | 9.1 |
| | — |
| | (2.1 | ) |
Balance at March 30, 2019 | $ | 76.9 |
| | $ | 359.9 |
| | $ | 2,081.1 |
| | $ | (628.9 | ) | | $ | (362.1 | ) | | $ | 1,526.9 |
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(in millions, except per share data) | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance at December 31, 2017 | $ | 76.9 |
| | $ | 374.4 |
| | $ | 1,966.8 |
| | $ | (575.4 | ) | | $ | (359.8 | ) | | $ | 1,482.9 |
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Net earnings | — |
| | — |
| | 72.9 |
| | — |
| | — |
| | 72.9 |
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Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 11.0 |
| | 11.0 |
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Dividends ($0.19 per common share) | — |
| | — |
| | (16.6 | ) | | — |
| | — |
| | (16.6 | ) |
Compensation plans and other | — |
| | (17.0 | ) | | — |
| | 11.3 |
| | — |
| | (5.7 | ) |
Common stock repurchases | — |
| | — |
| | — |
| | (35.0 | ) | | — |
| | (35.0 | ) |
ASU No. 2014-09 adoption | — |
| | — |
| | (28.7 | ) | | — |
| | — |
| | (28.7 | ) |
Balance at March 31, 2018 | $ | 76.9 |
| | $ | 357.4 |
| | $ | 1,994.4 |
| | $ | (599.1 | ) | | $ | (348.8 | ) | | $ | 1,480.8 |
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The Notes to Condensed Consolidated Financial Statements are an integral part of these condensed consolidated statements.
BRUNSWICK CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 – Significant Accounting Policies
Interim Financial Statements. The unaudited interim condensed consolidated financial statements of Brunswick Corporation (Brunswick or the Company) have been prepared pursuant to Securities and Exchange Commission (SEC) rules and regulations. Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted.
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 2018 Annual Report on Form 10-K for the year ended December 31, 2018 (the 2018 Form 10-K). These results include, in management's opinion, all normal and recurring adjustments necessary to present fairly Brunswick's financial position, results of operations and cash flows. Due to the seasonality of Brunswick’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Saturday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first quarter of fiscal year 2019 ended on March 30, 2019 and the first quarter of fiscal year 2018 ended on March 31, 2018.
On March 1, 2018, the Company's Board of Directors authorized proceeding with separating its Fitness business from the Company portfolio. While the Company continues to maintain its preparedness for a spin-off of the Fitness business, there has been a strong level of buyer interest in the sales process. Should the separation take the form of a sale, the Company anticipates a sale would be announced in the second quarter of 2019.
Recently Adopted Accounting Standards
Recognition of Leases: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases, (new leasing standard), which amended the Accounting Standards Codification (ASC) to require lessees to recognize assets and liabilities on the balance sheet for all leases with terms greater than twelve months. On January 1, 2019, the Company adopted the new leasing standard and all related amendments. The Company elected the optional transition method provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements, and as a result, has not restated its condensed consolidated financial statements for prior periods presented. The Company has elected the practical expedients upon transition to retain the lease classification and initial direct costs for any leases that existed prior to adoption. The Company has also not reassessed whether any contracts entered into prior to adoption are leases.
The standard did not have a material impact on the Company's Condensed Consolidated Statements of Comprehensive Income. The cumulative effect of the changes made to the Company's Consolidated Balance Sheet as of January 1, 2019 for the adoption of the new leasing standard was as follows:
Notes to Condensed Consolidated Financial Statements
(unaudited)
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(in millions) | Balance as of December 31, 2018 | | Adjustments Due to ASC 842 | | Balance as of January 1, 2019 |
Assets | | | | | |
Operating lease assets | $ | — |
| | $ | 101.2 |
| | $ | 101.2 |
|
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Current liabilities | | | | | |
Accrued expenses | 687.4 |
| | 19.3 |
| | 706.7 |
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Long-term liabilities | | | | | |
Other | 195.5 |
| | (3.4 | ) | | 192.1 |
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Operating lease liabilities | — |
| | 85.3 |
| | 85.3 |
|
The Company determines if an arrangement is a lease at lease inception. Operating lease right-of-use (ROU) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's lease contracts do not include an implicit rate, the Company uses its incremental borrowing rate based on information available at commencement date in determining the present value of future payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The operating lease ROU asset also includes any initial direct costs and lease payments made prior to lease commencement, and excludes lease incentives incurred.
The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has certain lease agreements that contain both lease and non-lease components, which it has elected to account for as a single lease component for all asset classes.
Measurement of Goodwill Impairment: In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The standard simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Instead, goodwill impairment is measured as the difference between the fair value and the carrying value of the reporting unit. The standard also clarifies the treatment of the income tax effect of tax-deductible goodwill when measuring goodwill impairment loss. The Company early adopted this amendment on January 1, 2019.
Tax Effects in Other Comprehensive Income: In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which requires certain new disclosures and permits companies to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 on items within AOCI to retained earnings. The Company currently records its stranded tax effects in AOCI using the portfolio approach. Upon adoption, the Company elected not to reclassify stranded tax effects in AOCI to retained earnings and there was no impact on its consolidated financial statements.
Hedge Accounting: In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, to simplify the application of hedge accounting and to better align an entity's risk management activities with the financial reporting of hedging relationships. The Company adopted this ASC amendment and it did not have a material impact on its consolidated financial statements.
Note 2 – Revenue Recognition
The following table presents the Company's revenue into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:
Notes to Condensed Consolidated Financial Statements
(unaudited)
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| Three Months Ended |
| March 30, 2019 |
| Marine Engine | | Boat | | Fitness | | Total |
Geographic Markets | | | | | | | |
United States | $ | 524.2 |
| | $ | 273.9 |
| | $ | 115.1 |
| | $ | 913.2 |
|
Europe | 119.2 |
| | 36.7 |
| | 45.4 |
| | 201.3 |
|
Asia-Pacific | 56.1 |
| | 5.4 |
| | 35.7 |
| | 97.2 |
|
Canada | 31.3 |
| | 50.0 |
| | 6.4 |
| | 87.7 |
|
Rest-of-World | 35.2 |
| | 7.3 |
| | 22.6 |
| | 65.1 |
|
Marine eliminations | (88.6 | ) | | — |
| | — |
| | (88.6 | ) |
Total | $ | 677.4 |
| | $ | 373.3 |
| | $ | 225.2 |
| | $ | 1,275.9 |
|
| | | | | | | |
Major Product Lines | | | | | | | |
Propulsion | $ | 400.0 |
| | $ | — |
| | $ | — |
| | $ | 400.0 |
|
Parts & Accessories | 366.0 |
| | — |
| | — |
| | 366.0 |
|
Aluminum Freshwater Boats | — |
| | 166.2 |
| | — |
| | 166.2 |
|
Recreational Fiberglass Boats | — |
| | 115.0 |
| | — |
| | 115.0 |
|
Saltwater Fishing Boats | — |
| | 90.2 |
| | — |
| | 90.2 |
|
Commercial Cardio Fitness Equipment | — |
| | — |
| | 121.5 |
| | 121.5 |
|
Commercial Strength Fitness Equipment | — |
| | — |
| | 84.8 |
| | 84.8 |
|
Consumer Fitness Equipment | — |
| | — |
| | 18.9 |
| | 18.9 |
|
Other | — |
| | 1.9 |
| | — |
| | 1.9 |
|
Marine eliminations | (88.6 | ) | | — |
| | — |
| | (88.6 | ) |
Total | $ | 677.4 |
| | $ | 373.3 |
| | $ | 225.2 |
| | $ | 1,275.9 |
|
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2018 |
| Marine Engine | | Boat | | Fitness | | Total |
Geographic Markets | | | | | | | |
United States | $ | 476.5 |
| | $ | 274.7 |
| | $ | 121.6 |
| | $ | 872.8 |
|
Europe | 97.8 |
| | 43.1 |
| | 53.4 |
| | 194.3 |
|
Asia-Pacific | 50.4 |
| | 7.0 |
| | 42.1 |
| | 99.5 |
|
Canada | 28.9 |
| | 46.8 |
| | 7.1 |
| | 82.8 |
|
Rest-of-World | 33.5 |
| | 4.9 |
| | 20.2 |
| | 58.6 |
|
Marine eliminations | (96.6 | ) | | — |
| | — |
| | (96.6 | ) |
Total | $ | 590.5 |
| | $ | 376.5 |
| | $ | 244.4 |
| | $ | 1,211.4 |
|
| | | | | | | |
Major Product Lines | | | | | | | |
Propulsion | $ | 379.0 |
| | $ | — |
| | $ | — |
| | $ | 379.0 |
|
Parts & Accessories | 308.1 |
| | — |
| | — |
| | 308.1 |
|
Aluminum Freshwater Boats | — |
| | 161.6 |
| | — |
| | 161.6 |
|
Recreational Fiberglass Boats | — |
| | 127.7 |
| | — |
| | 127.7 |
|
Saltwater Fishing Boats | — |
| | 85.7 |
| | — |
| | 85.7 |
|
Commercial Cardio Fitness Equipment | — |
| | — |
| | 132.3 |
| | 132.3 |
|
Commercial Strength Fitness Equipment | — |
| | — |
| | 90.9 |
| | 90.9 |
|
Consumer Fitness Equipment | — |
| | — |
| | 21.2 |
| | 21.2 |
|
Other | — |
| | 1.5 |
| | — |
| | 1.5 |
|
Marine eliminations | (96.6 | ) | | — |
| | — |
| | (96.6 | ) |
Total | $ | 590.5 |
| | $ | 376.5 |
| | $ | 244.4 |
| | $ | 1,211.4 |
|
As of January 1, 2019, $178.7 million of contract liabilities associated with extended warranties, customer deposits, and product rebates were reported in Accrued expenses and Other Long-term liabilities and $28.2 million of this amount was recognized as revenue during the three months ended March 30, 2019. As of March 30, 2019, total contract liabilities were $187.7 million. The total amount of the transaction price allocated to unsatisfied performance obligations as of March 30, 2019 was $163.1 million for contracts greater than one year, which includes both extended warranties and product rebates. The Company expects to recognize approximately $45.3 million of this amount in 2019, $57.7 million in 2020, and $60.1 million thereafter.
Note 3 – Restructuring, Exit, Integration and Impairment Activities
As discussed in Note 9 – Goodwill and Other Intangibles, in the first quarter of 2019 the Company determined that the carrying value of its Fitness reporting unit was in excess of its fair value. As a result, the Company recorded a goodwill impairment charge of $137.2 million within the Fitness segment.
In the first quarter of 2019, the Company recorded restructuring charges within the Boat segment related to consolidating its commercial and government products operations in order to rationalize its product line to better align with customer demand.
In the first quarter of 2019, the Company recorded charges within Corporate for headcount reductions aimed at streamlining the cost structure.
In the first quarter of 2019 and 2018, the Company implemented headcount reductions in the Fitness segment aimed at improving general operating efficiencies.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company recorded restructuring, exit, integration and impairment charges in the Condensed Consolidated Statements of Comprehensive Income as a result of the activities described above. The following table is a summary of the expense associated with the restructuring, exit, integration and impairment activities for the three months ended March 30, 2019 and March 31, 2018, as discussed above:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 30, 2019 | | March 31, 2018 |
(in millions) | Fitness | | Boat | | Corporate | | Total | | Fitness | | Boat | | Total |
Restructuring and exit activities: | | | | | | | | | | | | | |
Employee termination and other benefits | $ | 1.1 |
| | $ | 0.4 |
| | $ | 1.2 |
| | $ | 2.7 |
| | $ | 0.8 |
| | $ | 2.0 |
| | $ | 2.8 |
|
Current asset write-downs (gains on disposal) | — |
| | 0.2 |
| | — |
| | 0.2 |
| | (0.4 | ) | | — |
| | (0.4 | ) |
Professional fees | — |
| | — |
| | — |
| | — |
| | — |
| | 0.6 |
| | 0.6 |
|
Other | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
|
Asset disposition and impairment actions: | | | | | | | | | | | | | |
Goodwill impairment | 137.2 |
| | — |
| | — |
| | 137.2 |
| | — |
| | — |
| | — |
|
Definite-lived and other asset impairments | — |
| | 1.3 |
| | — |
| | 1.3 |
| | — |
| | — |
| | — |
|
Integration activities: | | | | | | | | | | | | | |
Employee termination and other benefits | — |
| | — |
| | — |
| | — |
| | 0.0 |
| | — |
| | 0.0 |
|
Professional fees | — |
| | — |
| | — |
| | — |
| | 0.7 |
| | — |
| | 0.7 |
|
Other | — |
| | — |
| | — |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
Total restructuring, exit, integration and impairment charges | $ | 138.3 |
| | $ | 2.0 |
| | $ | 1.2 |
| | $ | 141.5 |
| | $ | 1.2 |
| | $ | 2.6 |
| | $ | 3.8 |
|
| | | | | | | | | | | | | |
Total cash payments for restructuring, exit, integration and impairment charges (A) | $ | 0.7 |
| | $ | 5.0 |
| | $ | 0.2 |
| | $ | 5.9 |
| | $ | 2.0 |
| | $ | 0.2 |
| | $ | 2.5 |
|
Accrued charges at end of the period (B) | $ | 4.0 |
| | $ | 10.8 |
| | $ | 2.0 |
| | $ | 16.8 |
| | $ | 4.4 |
| | $ | 3.4 |
| | $ | 8.0 |
|
(A) Total cash payments for the three months ended March 31, 2018 also include $0.3 million of payments for Corporate restructuring, exit, integration and impairment charges. Cash payments may include payments related to prior period charges.
(B) Restructuring, exit, integration and impairment charges accrued as of March 31, 2018 also include $0.2 million of Corporate charges. The accrued charges as of March 30, 2019 are expected to be paid during 2019 and 2020.
Note 4 – Acquisitions
2018 Acquisitions
On August 9, 2018, the Company completed its acquisition of the Global Marine & Mobile business of Power Products Holdings, LLC (Power Products) for $909.6 million in cash, on a cash-free, debt-free basis. Brunswick used proceeds from a combination of 364-day, three-year and five-year term loans (Term Loans) totaling $800.0 million as described in the 2018 Form 10-K along with cash on hand to fund this acquisition.
Power Products is a leading provider of electrical products to marine and other recreational and specialty vehicle markets. The acquisition advances Brunswick’s leadership by adding integrated electrical systems solutions to the marine market and an array of other mobile, specialty vehicle and industrial applications. Power Products is managed as part of the Marine Engine segment.
The purchase price allocation for the assets acquired and liabilities assumed is preliminary and subject to change within the allowed measurement period as the Company finalizes its fair value estimates. The following table is a summary of the assets acquired, liabilities assumed and net cash consideration paid for the Power Products acquisition during 2018:
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
| | | | | |
(in millions) | Fair Value | | Useful Life |
Accounts and notes receivable | $ | 38.3 |
| | |
Inventory | 64.3 |
| | |
Goodwill (A) (B) | 348.6 |
| | |
Trade names | 111.0 |
| | Indefinite |
Customer relationships | 430.0 |
| | 15 years |
Property and equipment | 10.6 |
| | |
Other assets | 5.6 |
| | |
Total assets acquired | 1,008.4 |
| | |
| | | |
Accounts payable (B) | 24.3 |
| | |
Accrued expenses (B) | 19.8 |
| | |
Deferred tax liabilities | 54.7 |
| | |
Total liabilities assumed | 98.8 |
| | |
| | | |
Net cash consideration paid | $ | 909.6 |
| | |
(A) The goodwill recorded for the acquisition of Power Products is partially deductible for tax purposes.
(B) Includes $4.4 million of purchase accounting adjustments in the first quarter of 2019 related to contingency reserves.
Pro Forma Financial Information (Unaudited)
The pro forma information has been prepared as if the Power Products acquisition and the related debt financing had occurred on January 1, 2018. These pro forma results are based on estimates and assumptions which the Company believes to be reasonable. They are not the results that would have been realized had the acquisition actually occurred on January 1, 2018 and are not necessarily indicative of Brunswick's consolidated net earnings in future periods. The pro forma results include adjustments primarily related to interest expense on the Term Loans and amortization of intangible assets.
|
| | | | | | | |
| Three Months Ended |
(in millions) | March 30, 2019 | | March 31, 2018 |
Pro forma Net sales | $ | 1,275.9 |
| | $ | 1,272.7 |
|
Pro forma Operating earnings (loss) | (28.6 | ) | | 93.8 |
|
Pro forma Net earnings (loss) | (34.9 | ) | | 59.2 |
|
The pro forma results reflect an effective income tax rate of 23.9 percent and 22.5 percent for the three months ended March 30, 2019 and March 31, 2018, respectively.
Note 5 – Financial Instruments
The Company operates globally with manufacturing and sales facilities around the world. Due to the Company’s global operations, the Company engages in activities involving both financial and market risks. The Company utilizes normal operating and financing activities, along with derivative financial instruments, to minimize these risks. See Note 15 in the Notes to Consolidated Financial Statements in the 2018 Form 10-K for further details regarding the Company's financial instruments and hedging policies.
Foreign Currency Derivatives. Forward exchange contracts outstanding at March 30, 2019, December 31, 2018 and March 31, 2018 had notional contract values of $493.8 million, $424.1 million and $436.0 million, respectively. There were no option contracts outstanding at March 30, 2019. Option contracts outstanding at December 31, 2018 and March 31, 2018 had notional contract values of $27.2 million and $18.0 million, respectively. The forward contracts outstanding at March 30, 2019 mature through 2020 and mainly relate to the Euro, Japanese yen, Canadian dollar and Australian dollar. As of March 30, 2019, the Company estimates
Notes to Condensed Consolidated Financial Statements
(unaudited)
that during the next 12 months, it will reclassify approximately $6.8 million of net gains (based on current rates) from Accumulated other comprehensive loss to Cost of sales.
Interest Rate Derivatives. The Company enters into fixed-to-floating interest rate swaps to convert a portion of the Company's long-term debt from fixed to floating rate debt. As of March 30, 2019, December 31, 2018 and March 31, 2018, the outstanding swaps had notional contract values of $200.0 million, of which $150.0 million corresponds to the Company's 4.625 percent Senior notes due 2021 and $50.0 million corresponds to the Company's 7.375 percent Debentures due 2023. These instruments have been designated as fair value hedges, with the fair value recorded in long-term debt.
As of March 30, 2019, December 31, 2018 and March 31, 2018, the Company had $2.4 million, $2.5 million and $3.2 million, respectively, of net deferred losses associated with all settled forward-starting interest rate swaps, which were designated as cash flow hedges with gains and losses included in Accumulated other comprehensive loss. As of March 30, 2019, the Company estimates that during the next 12 months, it will reclassify approximately $0.6 million of net losses resulting from settled forward-starting interest rate swaps from Accumulated other comprehensive loss to Interest expense.
As of March 30, 2019, December 31, 2018 and March 31, 2018, the fair values of the Company’s derivative instruments were:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | | | | | | | | | | | |
| | Derivative Assets | | Derivative Liabilities |
Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
| | | | Mar 30, 2019 | | Dec 31, 2018 | | Mar 31, 2018 | | | | Mar 30, 2019 | | Dec 31, 2018 | | Mar 31, 2018 |
Derivatives Designated as Cash Flow Hedges | | | | | | | | | | | | | | |
Foreign exchange contracts | | Prepaid expenses and other | | $ | 6.9 |
| | $ | 8.1 |
| | $ | 2.8 |
| | Accrued expenses | | $ | 1.0 |
| | $ | 1.1 |
| | $ | 5.8 |
|
| | | | | | | | | | | | | | | | |
Derivatives Designated as Fair Value Hedges | | | | | | | | | | | | | | |
Interest rate contracts | | Prepaid expenses and other | | $ | 0.0 |
| | $ | 0.0 |
| | $ | 2.9 |
| | Accrued expenses | | $ | 0.2 |
| | $ | 0.1 |
| | $ | 2.6 |
|
Interest rate contracts | | Other long-term assets | | 0.9 |
| | — |
| | — |
| | Other long-term liabilities | | 0.4 |
| | 1.8 |
| | 2.8 |
|
Total | | | | $ | 0.9 |
| | $ | 0.0 |
| | $ | 2.9 |
| | | | $ | 0.6 |
| | $ | 1.9 |
| | $ | 5.4 |
|
| | | | | | | | | | | | | | | | |
Other Hedging Activity | | | | | | | | | | | | | | |
Foreign exchange contracts | | Prepaid expenses and other | | $ | 1.3 |
| | $ | 1.0 |
| | $ | 0.4 |
| | Accrued expenses | | $ | 0.2 |
| | $ | 0.1 |
| | $ | 0.5 |
|
The effect of derivative instruments on the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 30, 2019 and March 31, 2018 was:
|
| | | | | | | | | | | | | | | | | | |
(in millions) | | | | | | | | | | |
Derivatives Designated as Cash Flow Hedging Instruments | | Amount of Gain (Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss | | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings | | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings |
| | Mar 30, 2019 | | Mar 31, 2018 | | | | Mar 30, 2019 | | Mar 31, 2018 |
Interest rate contracts | | $ | — |
| | $ | — |
| | Interest expense | | $ | (0.1 | ) | | $ | (0.3 | ) |
Foreign exchange contracts | | 1.5 |
| | (3.6 | ) | | Cost of sales | | 2.8 |
| | (2.6 | ) |
Total | | $ | 1.5 |
| | $ | (3.6 | ) | | | | $ | 2.7 |
| | $ | (2.9 | ) |
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
| | | | | | | | | | |
Derivatives Designated as Fair Value Hedging Instruments | | Location of Gain (Loss) on Derivatives Recognized in Earnings | | Amount of Gain (Loss) on Derivatives Recognized in Earnings |
| | | | Mar 30, 2019 | | Mar 31, 2018 |
Interest rate contracts | | Interest expense | | $ | (0.1 | ) | | $ | 0.2 |
|
|
| | | | | | | | | | |
Other Hedging Activity | | Location of Gain (Loss) on Derivatives Recognized in Earnings | | Amount of Gain (Loss) on Derivatives Recognized in Earnings |
| | | | Mar 30, 2019 | | Mar 31, 2018 |
Foreign exchange contracts | | Cost of sales | | $ | 1.3 |
| | $ | (3.7 | ) |
Foreign exchange contracts | | Other expense, net | | 0.0 |
| | (1.1 | ) |
Total | | | | $ | 1.3 |
| | $ | (4.8 | ) |
Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents and accounts and notes receivable approximate their fair values because of the short maturity of these instruments. At March 30, 2019, December 31, 2018 and March 31, 2018, the fair value of the Company’s long-term debt was approximately $1,363.0 million, $1,292.9 million and $497.6 million, respectively, and was determined using Level 1 and Level 2 inputs described in Note 8 to the Notes to Consolidated Financial Statements in the 2018 Form 10-K. The carrying value of long-term debt, including current maturities, was $1,310.1 million, $1,226.4 million and $438.8 million as of March 30, 2019, December 31, 2018 and March 31, 2018, respectively.
Note 6 – Fair Value Measurements
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 30, 2019:
|
| | | | | | | | | | | |
(in millions) | Level 1 | | Level 2 | | Total |
Assets: | | | | | |
Cash equivalents | $ | 0.2 |
| | $ | — |
| | $ | 0.2 |
|
Short-term investments in marketable securities | 0.8 |
| | — |
| | 0.8 |
|
Restricted cash | 9.1 |
| | — |
| | 9.1 |
|
Derivatives | — |
| | 9.1 |
| | 9.1 |
|
Total assets | $ | 10.1 |
| | $ | 9.1 |
| | $ | 19.2 |
|
| | | | | |
Liabilities: | |
| | |
| | |
|
Derivatives | $ | — |
| | $ | 1.8 |
| | $ | 1.8 |
|
Deferred compensation | 3.8 |
| | 24.6 |
| | 28.4 |
|
Total liabilities at fair value | $ | 3.8 |
| | $ | 26.4 |
| | $ | 30.2 |
|
Liabilities measured at net asset value | | | | | 10.2 |
|
Total liabilities | | | | | $ | 40.4 |
|
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018:
|
| | | | | | | | | | | |
(in millions) | Level 1 | | Level 2 | | Total |
Assets: | | | | | |
Short-term investments in marketable securities | $ | 0.8 |
| | $ | — |
| | $ | 0.8 |
|
Restricted cash | 9.0 |
| | — |
| | 9.0 |
|
Derivatives | — |
| | 9.1 |
| | 9.1 |
|
Total assets | $ | 9.8 |
| | $ | 9.1 |
| | $ | 18.9 |
|
| | | | | |
Liabilities: | |
| | |
| | |
|
Derivatives | $ | — |
| | $ | 3.1 |
| | $ | 3.1 |
|
Deferred compensation | 3.5 |
| | 22.9 |
| | 26.4 |
|
Total liabilities at fair value | $ | 3.5 |
| | $ | 26.0 |
| | $ | 29.5 |
|
Liabilities measured at net asset value | | | | | 10.2 |
|
Total liabilities | | | | | $ | 39.7 |
|
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2018:
|
| | | | | | | | | | | |
(in millions) | Level 1 | | Level 2 | | Total |
Assets: | | | | | |
Short-term investments in marketable securities | $ | 0.8 |
| | $ | — |
| | $ | 0.8 |
|
Restricted cash | 9.4 |
| | — |
| | 9.4 |
|
Derivatives | — |
| | 6.1 |
| | 6.1 |
|
Total assets | $ | 10.2 |
| | $ | 6.1 |
| | $ | 16.3 |
|
| | | | | |
Liabilities: | |
| | |
| | |
|
Derivatives | $ | — |
| | $ | 11.7 |
| | $ | 11.7 |
|
Deferred compensation | 3.6 |
| | 27.8 |
| | 31.4 |
|
Total liabilities at fair value | $ | 3.6 |
| | $ | 39.5 |
| | $ | 43.1 |
|
Liabilities measured at net asset value | | | | | 8.8 |
|
Total liabilities | | | | | $ | 51.9 |
|
In addition to the items shown in the tables above, refer to Note 18 in the Notes to Consolidated Financial Statements in the 2018 Form 10-K for further discussion regarding the fair value measurements associated with the Company’s postretirement benefit plans.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 7 – Share-Based Compensation
Under the Brunswick Corporation 2014 Stock Incentive Plan, the Company may grant stock appreciation rights (SARs), non-vested stock awards and performance awards to executives, other employees and non-employee directors from treasury shares and from authorized, but unissued, shares of common stock initially available for grant, in addition to: (i) the forfeiture of past awards; (ii) shares not issued upon the net settlement of SARs; or (iii) shares delivered to or withheld by the Company to pay the withholding taxes related to awards. As of March 30, 2019, 4.9 million shares remained available for grant.
Non-Vested Stock Awards
The Company grants both stock-settled and cash-settled non-vested stock units and awards to key employees as determined by management and the Human Resources and Compensation Committee of the Board of Directors. The Company granted 0.3 million of stock awards during both the three months ended March 30, 2019 and March 31, 2018. The Company recognizes the cost of non-vested stock units and awards on a straight-line basis over the requisite vesting period. Additionally, cash-settled non-vested stock units and awards are recorded as a liability on the balance sheet and adjusted to fair value each reporting period through stock compensation expense. During the three months ended March 30, 2019 and March 31, 2018, the Company charged $2.6 million and $2.5 million, respectively, to compensation expense for non-vested stock awards.
As of March 30, 2019, there was $27.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. The Company expects this cost to be recognized over a weighted average period of 2.4 years.
Performance Awards
In both February of 2019 and 2018, the Company granted 0.1 million performance shares to certain senior executives. Performance share awards are based on three performance measures: a cash flow return on investment (CFROI) measure, an operating margin (OM) measure and a total shareholder return (TSR) modifier. Performance shares are earned based on a three-year performance period commencing at the beginning of the calendar year of each grant. The performance shares earned are then subject to a TSR modifier based on the Company's stock returns measured against stock returns of a predefined comparator group over a three-year performance period. Additionally, in February 2019 and 2018, the Company granted 24,605 and 24,490 performance shares, respectively, to certain officers and certain senior managers based on the respective measures and performance periods described above but excluding the TSR modifier. During the three months ended March 30, 2019 and March 31, 2018, the Company recognized a charge of $0.7 million and a benefit of $0.5 million, respectively, based on projections of probable attainment of the performance measures and the projected TSR modifier used to determine the performance awards.
The fair values of the senior executives' performance share award grants with a TSR modifier for grants in 2019 and 2018 were $49.64 and $61.59, respectively, which were estimated using the Monte Carlo valuation model, and incorporated the following assumptions:
|
| | | | | |
| 2019 | | 2018 |
Risk-free interest rate | 2.9 | % | | 2.4 | % |
Dividend yield | 1.7 | % | | 1.3 | % |
Volatility factor | 41.0 | % | | 38.9 | % |
Expected life of award | 2.9 years |
| | 2.9 years |
|
The fair value of certain officers' and certain senior managers' performance awards granted based solely on the CFROI and OM performance factors was $47.61 and $57.19 in 2019 and 2018, respectively, which was equal to the stock price on the date of grant in 2019 and 2018, respectively, less the present value of expected dividend payments over the vesting period.
As of March 30, 2019, the Company had $8.4 million of total unrecognized compensation cost related to performance awards. The Company expects this cost to be recognized over a weighted average period of 1.5 years.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Director Awards
The Company issues stock awards to non-employee directors in accordance with the terms and conditions determined by the Nominating and Corporate Governance Committee of the Board of Directors. A portion of each director’s annual fee is paid in Brunswick common stock, the receipt of which may be deferred until a director retires from the Board of Directors. Each director may elect to have the remaining portion paid in cash, in Brunswick common stock distributed at the time of the award, or in deferred Brunswick common stock with a 20 percent premium.
Note 8 – Commitments and Contingencies
There were no material changes during the three months ended March 30, 2019 to the financial commitments or the legal and environmental contingencies that were discussed in Note 14 in the Notes to Consolidated Financial Statements in the 2018 Form 10-K.
Product Warranties
The following activity related to product warranty liabilities was recorded in Accrued expenses during the three months ended March 30, 2019 and March 31, 2018:
|
| | | | | | | |
(in millions) | March 30, 2019 | | March 31, 2018 |
Balance at beginning of period | $ | 141.9 |
| | $ | 127.2 |
|
Payments made | (23.4 | ) | | (16.2 | ) |
Provisions/additions for contracts issued/sold | 18.9 |
| | 19.0 |
|
Aggregate changes for preexisting warranties | 0.1 |
| | (4.3 | ) |
Foreign currency translation | (0.0 | ) | | 0.7 |
|
Other | 0.5 |
| | (0.1 | ) |
Balance at end of period | $ | 138.0 |
| | $ | 126.3 |
|
Extended Warranties
The following activity related to deferred revenue for extended product warranty contracts was recorded in Accrued expenses and Other long-term liabilities during the three months ended March 30, 2019 and March 31, 2018:
|
| | | | | | | |
(in millions) | March 30, 2019 | | March 31, 2018 |
Balance at beginning of period | $ | 133.1 |
| | $ | 112.1 |
|
Extended warranty contracts sold | 16.8 |
| | 12.9 |
|
Revenue recognized on existing extended warranty contracts | (14.1 | ) | | (10.1 | ) |
Foreign currency translation | 0.1 |
| | 0.5 |
|
Balance at end of period | $ | 135.9 |
| | $ | 115.4 |
|
Note 9 – Goodwill and Other Intangibles
Changes in the Company's goodwill during the three months ended March 30, 2019, by segment, are summarized below:
|
| | | | | | | | | | | | | | | |
(in millions) | December 31, 2018 | | Impairments | | Adjustments | | March 30, 2019 |
Marine Engine | $ | 375.1 |
| | $ | — |
| | $ | 4.5 |
| | $ | 379.6 |
|
Boat | 2.2 |
| | — |
| | — |
| | 2.2 |
|
Fitness | 389.8 |
| | (137.2 | ) | | (0.3 | ) | | 252.3 |
|
Total | $ | 767.1 |
| | $ | (137.2 | ) | | $ | 4.2 |
| | $ | 634.1 |
|
Notes to Condensed Consolidated Financial Statements
(unaudited)
Changes in the Company's goodwill during the three months ended March 31, 2018, by segment, are summarized below: |
| | | | | | | | | | | | | | | |
(in millions) | December 31, 2017 | | Impairments | | Adjustments | | March 31, 2018 |
Marine Engine | $ | 31.7 |
| | $ | — |
| | $ | 1.2 |
| | $ | 32.9 |
|
Boat | 2.2 |
| | — |
| | — |
| | 2.2 |
|
Fitness | 391.4 |
| | — |
| | 1.8 |
| | 393.2 |
|
Total | $ | 425.3 |
| | $ | — |
| | $ | 3.0 |
| | $ | 428.3 |
|
Due to recent, significant progress made toward the planned Fitness business separation and the strong level of buyer interest in the sales process, the Company re-evaluated the fair value of the Fitness reporting unit in the first quarter of 2019. To assess fair value, the Company performed a quantitative test using a combination of the market approach and the income approach. Fair value under the market approach was informed by significant progress made on the sale process during the quarter. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach utilizing a Gordon Growth model. Internally forecasted future cash flows are discounted using a weighted average cost of capital (Discount Rate) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure of risk related to the specific reporting unit’s forecasted performance.
As a result of performing the fair value test, the Company determined the fair value of the Fitness reporting unit was less than its carrying value resulting in a pre-tax goodwill impairment charge of $137.2 million ($103.0 million after tax) for the three months ended March 30, 2019. The impairment was calculated in accordance with ASU 2017-04 as discussed in Note 1 - Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements. The charge was recorded within the Company’s Fitness segment within Restructuring, exit, integration and impairment in the Condensed Consolidated Statements of Comprehensive Income.
Adjustments for the three months ended March 30, 2019 mainly relate to refining purchase accounting related to the Power Products acquisition. See Note 4 – Acquisitions for further details on the Company's acquisitions. Adjustments in both periods include the effect of foreign currency translation on goodwill denominated in currencies other than the U.S. dollar.
As of March 30, 2019 the Company had $137.2 million of accumulated impairment loss on Goodwill. There was no accumulated impairment loss on Goodwill as of December 31, 2018 and March 31, 2018.
The Company's intangible assets, included within Other intangibles, net on the Condensed Consolidated Balance Sheets as of March 30, 2019, December 31, 2018 and March 31, 2018, are summarized by intangible asset type below:
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| | | | | | | | | | | | | | | | | | | | | | | |
| March 30, 2019 | | December 31, 2018 | | March 31, 2018 |
(in millions) | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
Intangible assets: | | | | | | | | | | | |
Customer relationships | $ | 734.3 |
| | $ | (265.2 | ) | | $ | 734.4 |
| | $ | (256.5 | ) | | $ | 306.5 |
| | $ | (240.1 | ) |
Trade names | 164.5 |
| | (0.6 | ) | | 164.4 |
| | — |
| | 76.1 |
| | — |
|
Other | 22.4 |
| | (18.7 | ) | | 22.3 |
| | (18.2 | ) | | 22.6 |
| | (17.1 | ) |
Total | $ | 921.2 |
| | $ | (284.5 | ) | | $ | 921.1 |
| | $ | (274.7 | ) | | $ | 405.2 |
| | $ | (257.2 | ) |
The Company's intangible assets, included within Other intangibles, net on the Condensed Consolidated Balance Sheets as of March 30, 2019, December 31, 2018 and March 31, 2018, are summarized by segment below:
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| | | | | | | | | | | | | | | | | | | | | | | |
| March 30, 2019 | | December 31, 2018 | | March 31, 2018 |
(in millions) | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
Intangible assets: | | | | | | | | | | | |
Marine Engine | $ | 618.6 |
| | $ | (59.7 | ) | | $ | 618.3 |
| | $ | (52.0 | ) | | $ | 79.1 |
| | $ | (39.2 | ) |
Boat | 223.4 |
| | (204.2 | ) | | 223.4 |
| | (203.9 | ) | | 223.6 |
| | (203.2 | ) |
Fitness | 79.2 |
| | (20.6 | ) | | 79.4 |
| | (18.8 | ) | | 102.5 |
| | (14.8 | ) |
Total | $ | 921.2 |
| | $ | (284.5 | ) | | $ | 921.1 |
| | $ | (274.7 | ) | | $ | 405.2 |
| | $ | (257.2 | ) |
Notes to Condensed Consolidated Financial Statements
(unaudited)
Other intangible assets primarily consist of patents. Gross amounts and related accumulated amortization amounts include adjustments related to the impact of foreign currency translation. Aggregate amortization expense for intangibles was $9.8 million and $2.2 million for the three months ended March 30, 2019 and March 31, 2018, respectively.
Note 10 – Segment Data
Reportable Segments
The following table sets forth net sales and operating earnings (loss) of each of the Company's reportable segments for the three months ended March 30, 2019 and March 31, 2018:
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| | | | | | | | | | | | | | | |
| Net Sales | | Operating Earnings (Loss) |
(in millions) | March 30, 2019 | | March 31, 2018 | | March 30, 2019 | | March 31, 2018 |
Marine Engine | $ | 766.0 |
| | $ | 687.1 |
| | $ | 112.9 |
| | $ | 95.7 |
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Boat | 373.3 |
| | 376.5 |
| | 22.0 |
| | 14.4 |
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Marine eliminations | (88.6 | ) | | (96.6 | ) | | — |
| | — |
|
Total Marine | 1,050.7 |
| | 967.0 |
| | 134.9 |
| | 110.1 |
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Fitness | 225.2 |
| | 244.4 |
| | (139.1 | ) | | 11.0 |
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Corporate/Other | — |
| | — |
| | (24.4 | ) | | (16.0 | ) |
Total | $ | 1,275.9 |
| | $ | 1,211.4 |
| | $ | (28.6 | ) | | $ | 105.1 |
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The following table sets forth total assets of each of the Company's reportable segments: |
| | | | | | | | | | | |
| Total Assets |
(in millions) | March 30, 2019 | | December 31, 2018 | | March 31, 2018 |
Marine Engine | $ | 2,628.4 |
| | $ | 2,380.9 |
| | $ | 1,384.6 |
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Boat | 433.6 |
| | 423.2 |
| | 449.7 |
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Total Marine | 3,062.0 |
| | 2,804.1 |
| | 1,834.3 |
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Fitness | 844.9 |
| | 972.7 |
| | 1,004.9 |
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Corporate/Other | 422.9 |
| | 508.9 |
| | 565.4 |
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Total | $ | 4,329.8 |
| | $ | 4,285.7 |
| | $ | 3,404.6 |
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As of March 30, 2019, December 31, 2018 and March 31, 2018, the Company had $8.9 million, $8.9 million and $12.8 million, respectively, of net assets classified as held-for-sale within Net property in the Condensed Consolidated Balance Sheets.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 11 – Comprehensive Income
Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets includes foreign currency cumulative translation adjustments; prior service costs and credits and net actuarial gains and losses for defined benefit plans; and unrealized derivative gains and losses, all net of tax. Changes in the components of Accumulated other comprehensive loss, all net of tax, for the three months ended March 30, 2019 and March 31, 2018 were as follows:
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| | | | | | | |
(in millions) | March 30, 2019 | | March 31, 2018 |
Net earnings (loss) | $ | (36.3 | ) | | $ | 72.9 |
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Other comprehensive income (loss): | |
| | |
|
Foreign currency cumulative translation adjustment | 0.1 |
| | 9.9 |
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Net change in unamortized prior service credits | (0.1 | ) | | (0.1 | ) |
Net change in unamortized actuarial losses | 1.9 |
| | 1.9 |
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Net change in unrealized derivative losses | (0.9 | ) | | (0.7 | ) |
Total other comprehensive income | 1.0 |
| | 11.0 |
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Comprehensive income (loss) | $ | (35.3 | ) | | $ | 83.9 |
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The following table presents the changes in Accumulated other comprehensive loss by component, all net of tax, for the three months ended March 30, 2019: