form10_k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________
Form
10-K
[X] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES
EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2008
|
or
|
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF
1934
|
Commission
file number 1-1043
|
_______________
Brunswick
Corporation
(Exact
name of registrant as specified in its charter)
Delaware
|
36-0848180
|
(State
or other jurisdiction of incorporation
or
organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
1
N. Field Court, Lake Forest, Illinois
|
60045-4811
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
(847)
735-4700
|
(Registrant’s
telephone number, including area
code)
|
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
Title
of each class |
|
Name
of each exchange on which registered |
Common
Stock ($0.75 par value)
|
|
New
York and Chicago
|
|
|
Stock
Exchanges
|
Securities
registered pursuant to Section 12(g) of the Act: None
______________
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one): Large
accelerated filer [X] Accelerated filer [ ] Non-accelerated
filer [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes [ ] No [X]
As of
June 30, 2008, the aggregate market value of the voting stock of the registrant
held by non-affiliates was $923,903,886. Such number excludes stock beneficially
owned by officers and directors. This does not constitute an admission that they
are affiliates.
The
number of shares of Common Stock ($0.75 par value) of the registrant outstanding
as of February 23, 2009 was 88,163,535.
DOCUMENTS
INCORPORATED BY REFERENCE
Part
III of this Report on Form 10-K incorporates by reference certain information
that will be set forth in the
Company’s
definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to
be held on May 6, 2009.
BRUNSWICK
CORPORATION
INDEX
TO ANNUAL REPORT ON FORM 10-K
December
31, 2008
TABLE
OF CONTENTS
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|
Page
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PART
I
|
|
|
Item
1.
|
Business
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1
|
Item
1A.
|
Risk
Factors
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9
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Item
1B.
|
Unresolved
Staff Comments
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13
|
Item
2.
|
Properties
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14
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Item
3.
|
Legal
Proceedings
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14
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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17
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|
|
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PART
II
|
|
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder
Matters
and Issuer Purchases of Equity Securities
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19
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Item
6.
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Selected
Financial Data
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21
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations
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23
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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47
|
Item
8.
|
Financial
Statements and Supplementary Data
|
47
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting
and
Financial Disclosure
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47
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Item
9A.
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Controls
and Procedures
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48
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|
|
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PART
III
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|
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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49
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Item
11.
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Executive
Compensation
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49
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Item
12.
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Security
Ownership of Certain Beneficial Owners and
Management
and Related Stockholder Matters
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49
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Item
13.
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Certain
Relationships and Related Transactions, and Director Independence
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49
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Item
14.
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Principal
Accounting Fees and Services
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49
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|
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PART
IV
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|
|
Item
15.
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Exhibits
and Financial Statement Schedules
|
49
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PART
I
Item
1. Business
Brunswick
Corporation (Brunswick or the Company) is a leading global manufacturer and
marketer of recreation products including boats, marine engines, fitness
equipment and bowling and billiards equipment. Brunswick’s boat offerings
include fiberglass pleasure boats; luxury sportfishing convertibles and
motoryachts; offshore fishing boats; aluminum fishing, deck and pontoon boats;
rigid inflatable boats; and marine parts and accessories. The Company’s engine
products include outboard, sterndrive and inboard engines; trolling motors;
propellers; and engine control systems. Brunswick’s fitness products include both cardiovascular and strength training equipment.
Brunswick’s bowling offerings include products such as capital equipment,
aftermarket and consumer products; and billiards offerings include billiards
tables and accessories, Air Hockey tables and foosball tables. The Company also
owns and operates Brunswick bowling family entertainment centers in the United
States and other countries and a retail billiards store in the United
States.
Brunswick’s
long-term strategy is to introduce the highest quality product with the most
innovative technology and styling at a rate faster than its competitors; to
distribute products through a model that benefits its partners – dealers and
distributors – and provide world-class service to its customers; to develop and
maintain low-cost manufacturing and continually improve productivity and
efficiency; to manufacture and distribute products globally with local and
regional styling; and to attract and retain the best and the brightest people.
In addition, the Company pursues growth from expansion of existing businesses.
The Company’s objective is to enhance shareholder value by achieving returns on
investments that exceed its cost of capital. Brunswick’s short-term strategy is
to maintain strong liquidity, take actions necessary to maintain the health of
its dealer network and continue to position itself to emerge from the global
economic crisis stronger.
Refer to
Note 5 – Segment Information
and Note 20 –
Discontinued Operations in the Notes to Consolidated Financial Statements
for additional information regarding the Company’s segments and discontinued
operations, including net sales, operating earnings and total assets by segment
for 2008, 2007 and 2006.
Boat
Segment
The Boat
segment consists of the Brunswick Boat Group (Boat Group), which manufactures
and markets fiberglass pleasure boats, luxury sportfishing convertibles and
motoryachts, offshore fishing boats and aluminum fishing, pontoon and deck
boats and manufactures and distributes marine parts and accessories. The Company
believes that its Boat Group, which had net sales of $2,011.9 million during
2008, has the largest dollar sales and unit volume of pleasure boats in the
world.
The Boat
Group manages most of Brunswick’s boat brands; evaluates and enhances the
Company’s boat portfolio; expands the Company’s involvement in recreational
boating services and activities to enhance the consumer experience and dealer
profitability; and speeds the introduction of new technologies into boat
manufacturing processes.
The Boat
Group is comprised of the following boat brands: Cabo and Hatteras luxury
sportfishing convertibles and motoryachts; Sea Ray yachts, sport yachts, sport
cruisers and runabouts; Bayliner and Maxum sport cruisers and runabouts;
Meridian motoryachts; Sealine yachts and sport cruisers; Boston Whaler, Lund,
Triton and Trophy fiberglass fishing boats; Crestliner, Harris, Lowe, Lund,
Princecraft and Triton aluminum fishing, utility, pontoon and deck boats; and
Kayot deck and runabout boats. The Boat Group also includes a commercial and
governmental sales unit that sells products to the United States government,
state, local and foreign governments, and commercial customers. The Boat Group’s
parts and accessories business includes Attwood, Land ‘N’ Sea, Benrock Inc.,
Kellogg Marine Inc. and Diversified Marine Products L.P. The Boat Group procures
most of its outboard engines, gasoline sterndrive engines and gasoline inboard
engines from Brunswick’s Marine Engine segment. The Boat Group also purchases a
portion of its diesel engines from Cummins MerCruiser Diesel Marine LLC (CMD), a
joint venture of Brunswick’s Mercury Marine division with Cummins Marine, a
division of Cummins Inc.
The Boat
Group has active manufacturing facilities in California, Florida, Indiana,
Michigan, Minnesota, Missouri, North Carolina, Tennessee, Canada, China, Mexico
and the United Kingdom, as well as additional inactive manufacturing facilities
in Maryland, North Carolina, Ohio, Oregon and Washington. The Boat Group also
utilizes contract manufacturing facilities in Poland. During the first quarter
of 2008, Brunswick 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, close its Swansboro, North Carolina, boat plant and cease
manufacturing at one of its facilities in Merritt Island, Florida. In June 2008,
Brunswick announced a plan to expand on its previous restructuring initiatives
as a result of the prolonged downturn in the U.S. marine market. Specifically,
Brunswick announced the closing 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, and its intention to
close four additional boat plants. During the third quarter of 2008, Brunswick
accelerated its previously announced efforts to resize the Company by the end of
2009 in light of extraordinary developments within global financial markets
affecting the recreational marine industry. Specifically, Brunswick closed its
production facilities in Roseburg, Oregon, and Arlington, Washington, and
expects to close its production facility at Pipestone, Minnesota in the first
quarter of 2009. In addition, during the third quarter of 2008, Brunswick
mothballed its plant in Navassa, North Carolina. Brunswick also sold all of the
capital stock of Albemarle Boats on December 31, 2008, and expects to mothball
the majority of its Riverview boat manufacturing facility near Knoxville,
Tennessee, during the first quarter of 2009.
The Boat
Group’s products are sold to end users through a global network of approximately
2,300 dealers and distributors, each of which carries one or more of Brunswick’s
boat brands. Sales to the Boat Group’s largest dealer, MarineMax Inc., which has
multiple locations and carries a number of the Boat Group’s product lines,
represented approximately 13 percent of Boat Group
sales in 2008. Domestic retail demand for pleasure boats is seasonal, with sales
generally highest in the second calendar quarter of the year.
Marine
Engine Segment
The
Marine Engine segment, which had net sales of $1,955.9 million in 2008, consists
of the Mercury Marine Group (Mercury Marine). The Company believes its Marine
Engine segment has the largest dollar sales volume of recreational marine
engines in the world.
Mercury
Marine manufactures and markets a full range of sterndrive propulsion systems,
inboard engines, outboard engines and water jet propulsion systems under the
Mercury, Mercury MerCruiser, Mariner, Mercury Racing, Mercury SportJet and
Mercury Jet Drive brand names. In addition, Mercury Marine manufactures and
markets engine parts and marine accessories under the Quicksilver, Mercury
Precision Parts, Mercury Propellers and Motorguide brand names, including marine
electronics and control integration systems, steering systems, instruments,
controls, propellers, trolling motors, service aids and marine lubricants.
Mercury Marine’s sterndrive and inboard engines, outboard engines and water jet
propulsion systems are sold to independent boat builders; local, state and
foreign governments; and to the Boat Group. In addition, Mercury Marine’s
outboard engines and parts and accessories are sold to end-users through a
global network of approximately 4,500 marine dealers and distributors, specialty
marine retailers and marine service centers. Mercury Marine, through CMD,
supplies integrated diesel propulsion systems to the worldwide recreational and
commercial marine markets, including the Boat Group. In October 2008, Brunswick
sold all of its capital stock in MotoTron, a designer and supplier of engine
control and vehicle networking systems, while retaining the key marine related
assets of this business.
Mercury
Marine manufactures two-stroke OptiMax outboard engines ranging from 75 to 300
horsepower, all of which feature Mercury’s direct fuel injection (DFI)
technology, and four-stroke outboard engine models ranging from 2.5 to 350
horsepower. All of these low-emission engines are in compliance with U.S.
Environmental Protection Agency (EPA) requirements, which required a 75 percent
reduction in outboard engine emissions over a nine-year period, ending with the
2006 model year. Mercury Marine’s four-stroke outboard engines include Verado, a
collection of supercharged outboards ranging from 135 to 350 horsepower, and
Mercury Marine’s naturally aspirated four-stroke outboards, which are based on
Verado technology, ranging from 75 to 115 horsepower. In addition, Brunswick’s
sterndrive and inboard engines are now available with catalytic converters that
comply with environmental regulations that the State of California adopted
effective on January 1, 2008, and the Company expects that the EPA will enforce
similar environmental regulations in the remaining states by 2010.
To
promote advanced propulsion systems with improved handling, performance and
efficiency, Mercury Marine, both directly and through its joint venture, CMD,
has introduced and is continuing to develop advanced boat and engine steering
and control systems under the brand names of Zeus, Axius and MerCruiser
360.
Mercury
Marine’s sterndrive and outboard engines are produced primarily in Oklahoma and
Wisconsin, respectively. Mercury Marine manufactures 40, 50 and 60 horsepower
four-stroke outboard engines in a facility in China, and, in a joint venture
with its partner, Tohatsu Corporation, produces smaller outboard engines in
Japan. Some engine components are sourced from Asian suppliers. Mercury Marine
also manufactures engine component parts at plants in Florida and Mexico. Diesel
marine propulsion systems are manufactured in South Carolina by CMD. Further,
Mercury Marine operates a remanufacturing business for engines and service
parts in Wisconsin.
In
addition to its marine engine operations, Mercury Marine serves markets outside
the United States with a wide range of aluminum, fiberglass and inflatable boats
produced either by, or for, Mercury Marine in China, New Zealand, Poland,
Portugal, Russia and Sweden. These boats, which are marketed under the brand
names Arvor, Bermuda, Guernsey, Legend, Lodestar, Mercury, Örnvik, Protector,
Quicksilver, Uttern and Valiant, are typically equipped with engines
manufactured by Mercury Marine and often include other parts and accessories
supplied by Mercury Marine. Mercury Marine has an equity ownership interest in a
company that manufactures boats under the brand names Aquador, Bella and Flipper
in Finland. Mercury Marine also manufactures propellers and underwater sterngear
for inboard-powered vessels, under the Teignbridge brand, in the United
Kingdom.
Inter-company
sales to the Boat Group represented approximately 17 percent of Mercury
Marine sales in 2008. Domestic retail demand for the Marine Engine segment’s
products is seasonal, with sales generally highest in the second calendar
quarter of the year.
Fitness
Segment
Brunswick’s
Fitness segment is comprised of its Life Fitness division, which designs,
manufactures and markets a full line of reliable, high-quality cardiovascular
fitness equipment (including treadmills, total body cross-trainers, stair
climbers and stationary exercise bicycles) and strength-training equipment under
the Life Fitness and Hammer Strength brands.
The
Company believes that its Fitness segment, which had net sales of $639.5 million
during 2008, is the world’s largest manufacturer of commercial fitness equipment
and a leading manufacturer of high-end consumer fitness equipment. Life Fitness’
commercial sales are primarily to private health clubs, fitness facilities
operated by professional sports teams, the military, governmental agencies,
corporations, hotels, schools and universities. Commercial sales are made to
customers either directly, through domestic dealers or through international
distributors. Consumer products are sold through specialty retailers and on Life
Fitness’ Web site.
The
Fitness segment’s principal manufacturing facilities are located in Illinois,
Kentucky, Minnesota and Hungary. Life Fitness distributes its products worldwide
from regional warehouses and production facilities. Demand for Life Fitness’
products is seasonal, with sales generally highest in the first and fourth
calendar quarters of the year.
During
2008, Life Fitness completed its launch of its Elevation series, a full line of
commercial cardiovascular training equipment in the United States. The Elevation
series of treadmills, elliptical cross-trainers, and upright and recumbent
exercise bikes deliver state-of-the-art styling and include options that feature
seamless iPod integration through their consoles.
Bowling
& Billiards Segment
The
Bowling & Billiards segment is comprised of the Brunswick Bowling &
Billiards division (BB&B), which had net sales of $448.3 million during
2008. BB&B believes it is the leading full-line designer, manufacturer and
marketer of bowling products, including bowling balls and capital equipment,
which includes automatic pinsetters. Through licensing and manufacturing
arrangements, BB&B also offers bowling pins and an array of bowling consumer
products, including bowling shoes, bags and accessories. BB&B also designs
and markets a full line of high-quality consumer and commercial billiards
tables, Air Hockey table games, foosball tables and related
accessories.
BB&B
operates 104 bowling centers in the United States, Canada and Europe. BB&B
bowling centers offer bowling and, depending on size and location, the following
activities and facilities: billiards, video, redemption and other games of
skill, laser tag, pro shops, meeting and party rooms, restaurants and cocktail
lounges. Of the 104 bowling centers, 45 have been converted into Brunswick
Zones, which are modernized bowling centers that offer an array of
family-oriented entertainment activities. BB&B has further enhanced the
Brunswick Zone concept with expanded Brunswick Zone family entertainment
centers, branded Brunswick Zone XL, which are approximately 50 percent larger
than typical Brunswick Zones and feature multiple-venue entertainment offerings.
BB&B operates 11 Brunswick Zone XL centers, located in the Chicago; Denver;
Minneapolis; Philadelphia; Phoenix; El Centro, California; and St. Louis
markets. In 2008, BB&B exited a joint venture that operated 14 additional
centers in Japan and in which BB&B had been a partner since
1960.
BB&B’s
billiards business was established in 1845 and is Brunswick’s oldest enterprise.
BB&B designs and markets billiards tables, balls and cues, as well as game
room furniture and related accessories, under the Brunswick and Contender
brands. The Company believes it has the largest dollar sales volume of billiards
tables in the world. These products are sold worldwide in both commercial and
consumer billiards markets. BB&B also operates Valley-Dynamo, a leading
manufacturer of commercial and consumer billiards tables, Air Hockey table games
and foosball tables. In June 2008, Brunswick announced it was exploring
strategic options including the potential sale of the Valley-Dynamo
coin-operated commercial billiards business.
BB&B’s
primary manufacturing and distribution facilities are located in Mexico,
Michigan and Hungary. In 2006, Brunswick moved its bowling ball manufacturing
operations from Muskegon, Michigan, to Reynosa, Mexico and in early 2007
Brunswick transitioned its Valley-Dynamo manufacturing operations from Richland
Hills, Texas, to a facility also in Reynosa. Additionally, in January 2008,
Brunswick closed its bowling pin production plant in Antigo, Wisconsin, and
began sourcing bowling pins from a third party.
Brunswick’s
bowling and billiards products are sold through a variety of channels, including
distributors, dealers, mass merchandisers, bowling centers and retailers, and
directly to consumers on the Internet and through other outlets. BB&B
products are primarily distributed worldwide from regional warehouses and
factory stocks of merchandise. Domestic retail demand for BB&B’s products is
seasonal, with sales generally highest in the first and fourth calendar quarters
of the year.
Discontinued
Operations
On April
27, 2006, the Company announced its intention to sell the majority of its
Brunswick New Technologies (BNT) business unit, which consisted of the Company’s
marine electronics, portable navigation devices (PND) and wireless fleet
tracking business. In accordance with the criteria of Statement of Financial
Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” Brunswick reclassified the operations of BNT to
discontinued operations and shifted reporting for the retained businesses from
the Marine Engine segment to the Boat, Marine Engine and Fitness
segments.
In March
2007, Brunswick completed the sales of BNT’s marine electronics and PND
businesses to Navico International Ltd. and MiTAC International Corporation,
respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain
was recognized with the divestiture of these businesses in 2007.
In July
2007, the Company completed the sale of BNT’s wireless fleet tracking business
to Navman Wireless Holdings L.P. for net proceeds of $28.8 million, resulting in
an after-tax gain of $25.8 million.
The
Company completed the divestiture of the BNT discontinued operations during
2007. With the net asset impairment taken prior to the disposition of the BNT
businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the
subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales,
the net impact to the Company of these dispositions was a net loss of $55.8
million, after-tax.
Financial
Services
A Company
subsidiary, Brunswick Financial Services Corporation (BFS), has a 49 percent
ownership interest in a joint venture, Brunswick Acceptance Company, LLC (BAC).
CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation, owns the
remaining 51 percent. Under the terms of the joint venture agreement, BAC
provides secured wholesale floor-plan financing to the Company’s boat and engine
dealers. BAC also purchases and services a portion of Mercury Marine’s domestic
accounts receivable relating to its boat builder and dealer
customers.
Through
an agreement reached in the second quarter of 2008, the term of the joint
venture was extended through June 30, 2014. The joint venture agreement contains
provisions allowing for the renewal, purchase or termination by either partner
at the end of this term. The agreement also contained provisions allowing for
CDFV to terminate the joint venture if the Company is unable to maintain
compliance with certain financial covenants. During the fourth quarter of 2008,
the partners reached an agreement to amend the financial covenant to conform it
to the minimum fixed charges test contained in the Company’s amended and
restated revolving credit facility. The Company was in compliance with this
covenant at the end of the fourth quarter.
Refer to
Note 9 – Financial
Services in the Notes to Consolidated Financial Statements for more
information about the Company’s financial services.
Distribution
Brunswick
depends on distributors, dealers and retailers (Dealers) for the majority of its
boat sales and significant portions of marine engine, fitness and bowling and
billiards products sales. Brunswick has approximately 6,800 Dealers serving its
business segments worldwide. Brunswick’s marine Dealers typically carry boats,
engines and related parts and accessories.
Brunswick’s
Dealers are independent companies or proprietors that range in size from small,
family-owned businesses to large, publicly traded corporations with substantial
revenues and multiple locations. Some Dealers sell Brunswick’s products
exclusively, while others also carry competitors’ products. Brunswick works with
its boat dealer network to improve quality, distribution and delivery of parts
and accessories to enhance the boating customer’s experience.
Brunswick
owns Land ‘N’ Sea Corporation, Benrock Inc., Kellogg Marine Inc. and Diversified
Marine Products L.P., the primary parts and accessories distribution platforms
for the Boat Group. These companies are the leading distributors of marine parts
and accessories throughout the North American marine industry with 14
distribution warehouses throughout the United States and Canada offering
same-day or next-day service to a broad array of marine service
facilities.
Demand
for a significant portion of Brunswick’s products is seasonal, and a number of
Brunswick’s Dealers are relatively small or highly leveraged. As a result, many
Dealers require financial assistance to support their businesses and provide
stable channels for Brunswick’s products. In addition to the financial services
offered by BAC, the Company provides its Dealers with assistance, including
incentive programs, loans, loan guarantees and inventory repurchase commitments,
under which the Company is obligated to repurchase inventory from a finance
company in the event of a Dealer’s default. The Company believes that these
arrangements are in its best interest; however, the financial support that the
Company provides to its Dealers does expose the Company to credit and business
risk. Brunswick’s business units, along with BAC, maintain active credit
operations to manage this financial exposure, and the Company seeks
opportunities to sustain and improve the financial health of its various
distribution channel partners. Refer to Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements for
further discussion of these arrangements.
International
Operations
Brunswick’s
sales from continuing operations to customers in markets other than the United
States were $2,058.5 million (44 percent of net sales) and $2,016.4 million (36
percent of net sales) in 2008 and 2007, respectively. The Company transacts most
of its sales in non-U.S. markets in local currencies, and the cost of its
products is generally denominated in U.S. dollars. Strengthening or weakening of
the U.S. dollar affects the financial results of Brunswick’s non-U.S.
operations.
Non-U.S.
sales from continuing operations are set forth in Note 5 – Segment Information
in the Notes to Consolidated Financial Statements and are also included
in the table below, which details Brunswick’s non-U.S. sales by
region:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$ |
1,024.1 |
|
|
$ |
1,038.9 |
|
|
$ |
925.1 |
|
Canada
|
|
|
346.7 |
|
|
|
344.6 |
|
|
|
328.6 |
|
Pacific
Rim
|
|
|
318.1 |
|
|
|
338.2 |
|
|
|
303.2 |
|
Latin
America
|
|
|
247.8 |
|
|
|
196.6 |
|
|
|
158.3 |
|
Africa
& Middle East
|
|
|
121.8 |
|
|
|
98.1 |
|
|
|
87.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,058.5 |
|
|
$ |
2,016.4 |
|
|
$ |
1,802.4 |
|
Marine
Engine segment sales represented approximately 42 percent of Brunswick’s
non-U.S. sales in 2008. The segment’s primary operations include the
following:
|
•
|
A
propeller and underwater sterngear manufacturing plant in the United
Kingdom;
|
|
•
|
Sales
offices and distribution centers in Belgium, Brazil, Canada, China, Japan,
Malaysia, Mexico, New Zealand, Singapore and the United Arab
Emirates;
|
|
•
|
Sales
offices in Finland, France, Germany, Italy, the Netherlands, Norway,
Sweden and Switzerland;
|
|
•
|
Boat
manufacturing plants in China, New Zealand, Portugal and
Sweden;
|
|
•
|
An
outboard engine assembly plant in Suzhou, China;
and
|
|
•
|
A
marina and boat club in Suzhou, China, on Lake
Taihu.
|
Boat
segment sales comprised approximately 37 percent of Brunswick’s non-U.S. sales
in 2008. The Boat Group’s products are manufactured or assembled in the United
States, Canada, China, Mexico, Poland and the United Kingdom, and are sold
worldwide through dealers. The Boat Group has sales offices in France and the
Netherlands.
Fitness
segment sales comprised approximately 15 percent of Brunswick’s
non-U.S. sales in 2008. Life Fitness sells its products worldwide and has sales
and distribution centers in Brazil, Germany, Hong Kong, Japan, the Netherlands,
Spain and the United Kingdom, as well as sales offices in Hong Kong and Italy.
The Fitness segment also manufactures strength-training equipment and select
lines of cardiovascular equipment in Hungary for the international
markets.
Bowling
& Billiards segment sales comprised approximately 6 percent of Brunswick’s
non-U.S. sales in 2008. BB&B sells its products worldwide; has sales offices
in Germany, Hong Kong and Tokyo; and operates a plant that manufactures
automatic pinsetters in Hungary. BB&B commenced bowling ball manufacturing
in Reynosa, Mexico, in 2006 and completed the transition of manufacturing
operations from Muskegon, Michigan, to Reynosa in 2007. In addition, BB&B’s
Valley-Dynamo segment commenced operating at a manufacturing facility in
Reynosa, Mexico, in early 2007. BB&B operates bowling centers in Austria,
Canada and Germany.
Raw
Materials
Brunswick
purchases a wide variety of raw materials, parts, supplies, energy and other
goods and services from various sources for use in the manufacture of its
products. The Company is not currently experiencing any critical supply
shortages and normally does not carry substantial inventories of such raw
materials in excess of levels reasonably required to meet its production
requirements. Due to recent uncertainty in the global economy, Brunswick has
experienced fluctuations in commodity costs, most notably for raw materials such
as oil, aluminum, steel and resins used in its manufacturing processes. These
price fluctuations have been driven by instability in global demand, energy
prices and the U.S. dollar. The Company continues to expand its global
procurement operations to leverage its purchasing power across its divisions and
improve supply chain and cost efficiencies. The Company attempts to manage its
commodity price risk by using derivatives to economically hedge a portion of raw
material purchases.
In some
instances, the Company purchases components, parts and supplies from a single
source and may be at an increased risk for supply disruptions. Furthermore, the
inability or unwillingness of General Motors Corporation, the sole supplier of
engine blocks used in the manufacture of Brunswick’s gasoline sterndrive and
inboard engines, or the Company’s primary supplier of windshields used in
Brunswick’s boats, to supply it with parts and supplies could adversely affect
the Company’s production capacity.
Intellectual
Property
Brunswick
has, and continues to obtain, patent rights covering certain features of its
products and processes. By law, Brunswick’s patent rights, which consist of
patents and patent licenses, have limited lives and expire periodically. The
Company believes that its patent rights are important to its competitive
position in all of its business segments.
In the
Boat segment, patent rights principally relate to processes for manufacturing
fiberglass hulls, decks and components for boat products, as well as patent
rights related to boat seats, interiors and other boat features and
components.
In the
Marine Engine segment, patent rights principally relate to features of outboard
engines and inboard-outboard drives, including die-cast powerheads; cooling and
exhaust systems; drivetrain, clutch and gearshift mechanisms; boat/engine
mountings; shock-absorbing tilt mechanisms; ignition systems; propellers; marine
vessel control systems; fuel and oil injection systems; supercharged engines;
outboard mid-section structures; segmented cowls; hydraulic trim, tilt and
steering; screw compressor charge air cooling systems; and airflow
silencers.
In the
Fitness segment, patent rights principally relate to fitness equipment designs
and components, including patents covering internal processes, programming
functions, displays, design features and styling.
In the
Bowling & Billiards segment, patent rights principally relate to
computerized bowling scorers and bowling center management systems, bowling
center furniture, bowling lanes, lane conditioning machines and related
equipment, bowling balls, and billiards table designs and
components.
The
following are Brunswick’s primary trademarks for its continuing
operations:
Boat
Segment: Attwood, Bayliner, Boston Whaler, Cabo, Crestliner,
Diversified Marine, Harris, Hatteras, Kayot, Kellogg Marine, Land ‘N’ Sea, Lowe,
Lund, Master Dealer, Maxum, Meridian, Princecraft, Sea Ray, Seachoice,
Sealine, Swivl-Eze, Total Command, Triton and Trophy.
Marine Engine
Segment: Axius, Mariner, MercNet, MerCruiser, MerCruiser 360
Control, Mercury, MercuryCare, Mercury Marine, Mercury Parts Express, Mercury
Precision Parts, Mercury Propellers, Mercury Racing, MotorGuide, OptiMax,
Pinpoint, Quicksilver, Rayglass, SeaPro, SmartCraft, SportJet, Teignbridge
Propellers, Valiant, Verado and Zeus.
Fitness
Segment: Elevation, Flex Deck, Hammer Strength, Lifecycle,
Life Fitness and ParaBody.
Bowling & Billiards
Segment: Air Hockey, Ballworx, Brunswick, Brunswick Billiards,
Brunswick Home and Billiard, Brunswick Pavilion, Brunswick Zone, Brunswick Zone
XL, Centennial, Contender, Cosmic Bowling, Dynamo, Frameworx, Gold Crown,
Inferno, Lane Shield, Lightworx, Pro Lane, Throbot, Tornado, U.S. Play by
Brunswick, Valley, Vector, Virtual Bowling by Brunswick, Viz-A-Ball and
Zone.
Brunswick’s
trademark rights have indefinite lives, and many are well known to the public
and considered valuable assets.
Competitive
Conditions and Position
The
Company believes that it has a reputation for quality in its highly competitive
lines of business. Brunswick competes in its various markets by utilizing
efficient production techniques; innovative technological advancements;
effective marketing, advertising and sales efforts; providing high-quality
products at competitive prices; and offering extensive after-market
services.
Strong
competition exists in each of Brunswick’s product groups, but no single
manufacturer competes with Brunswick in all product groups. In each product
area, competitors range in size from large, highly diversified companies to
small, single-product businesses. Brunswick also competes with businesses that
seek to attract customers’ leisure time but do not compete in Brunswick’s
product groups.
The
following summarizes Brunswick’s competitive position in each
segment:
Boat Segment: The
Company believes it has the largest dollar sales and unit volume of pleasure
boats in the world. There are several major manufacturers of pleasure and
offshore fishing boats, along with hundreds of smaller manufacturers.
Consequently, this business is both highly competitive and highly fragmented.
The Company believes it has the broadest range of boat product offerings in the
world, with boats ranging from 10 to 100 feet, along with a leading parts and
accessories business. In all of its boat operations, Brunswick competes on the
basis of product features, technology, quality, dealer service, performance,
value, durability and styling, along with effective promotion, distribution and
pricing.
Marine Engine
Segment: The Company believes it has the largest dollar sales
volume of recreational marine engines in the world. The marine engine market is
highly competitive among several major international companies that comprise the
majority of the market, and several smaller companies. Competitive advantage in
this segment is a function of product features, technological leadership,
quality, service, performance and durability, along with effective promotion,
distribution and pricing.
Fitness
Segment: The Company believes it is the world’s largest
manufacturer of commercial fitness equipment and a leading manufacturer of
high-quality consumer fitness equipment. There are a few large manufacturers of
fitness equipment and hundreds of small manufacturers, which create a highly
fragmented, competitive landscape. Many of Brunswick’s fitness equipment
products feature industry-leading product innovations, and the Company places
significant emphasis on new product introductions. Competitive focus is also
placed on product quality, state-of-the-art biomechanics, marketing activities,
pricing and service.
Bowling & Billiards
Segment: The Company believes it is the world’s leading
designer, manufacturer and marketer of bowling products and billiards tables.
There are several large manufacturers of bowling products and competitive
emphasis is placed on product innovation, quality, service, marketing activities
and pricing. The billiards industry continues to experience competitive pressure
from low-cost billiards manufacturers outside the United States. The bowling
retail market, in which the Company’s bowling centers compete, is highly
fragmented, but Brunswick is one of the two largest competitors in the North
American bowling retail market, with an emphasis on larger, upscale, full
service family entertainment centers. The bowling retail business emphasizes the
bowling and entertainment experience, maintaining quality facilities and
providing excellent customer service.
Research
and Development
The
Company strives to improve its competitive position in all of its segments by
continuously investing in research and development to drive innovation in its
products and manufacturing technologies. Brunswick’s research and development
investments support the introduction of new products and enhancements to
existing products. Research and Development expenses as a percentage of net
sales were 2.6 percent, 2.4 percent and 2.3 percent in 2008, 2007 and 2006,
respectively. In light of the prolonged downturn in global financial markets
affecting the recreational marine industry, the Company has undertaken
significant efforts to reduce its fixed and variable expenses to adjust its cost
structure to current market conditions. In implementing these cost reductions,
the Company reduced research and development expenses for 2008. The Company
believes that the implementation of these actions will not undermine its ability
to successfully execute its long-term strategies, particularly as market
conditions improve. Research and development expenses for continuing operations
are shown below:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
40.3 |
|
|
$ |
39.8 |
|
|
$ |
38.0 |
|
Marine
Engine
|
|
|
59.6 |
|
|
|
68.1 |
|
|
|
70.3 |
|
Fitness
|
|
|
17.4 |
|
|
|
21.6 |
|
|
|
18.4 |
|
Bowling
& Billiards
|
|
|
4.9 |
|
|
|
5.0 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
122.2 |
|
|
$ |
134.5 |
|
|
$ |
132.2 |
|
Number
of Employees
The
approximate number of employees worldwide is shown below by
segment:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Total
|
|
|
Union
|
|
|
Total
|
|
|
Union
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
|
7,590 |
|
|
|
70 |
|
|
|
12,650 |
|
|
|
57 |
|
Marine
Engine
|
|
|
4,620 |
|
|
|
1,113 |
|
|
|
6,300 |
|
|
|
2,591 |
|
Fitness
|
|
|
1.940 |
|
|
|
147 |
|
|
|
2,000 |
|
|
|
135 |
|
Bowling
& Billiards
|
|
|
5,410 |
|
|
|
328 |
|
|
|
5,850 |
|
|
|
489 |
|
Corporate
|
|
|
200 |
|
|
|
— |
|
|
|
250 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,760 |
|
|
|
1,658 |
|
|
|
27,050 |
|
|
|
3,272 |
|
The
Marine Engine Segment's Fond du Lac, Wisconsin, facility has a union contract
with the International Association of Machinists Winnebago Lodge 1947 that was
renewed in June 2008. In January 2009, BB&B renewed union contracts with The
International Association of Machinists, Local 2497, and the Federal Labor
Union, Local 23409 AFL-CIO, both of which represent employees at the Muskegon,
Michigan, distribution facility. The Company believes that the relationships
between employees, unions and the Company are good.
Environmental
Requirements
See Item
3 of this report for a description of certain environmental
proceedings.
Available
Information
Brunswick
maintains an Internet Web site at http://www.brunswick.com that includes links
to Brunswick’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports (SEC Reports).
The SEC Reports are available without charge as soon as reasonably practicable
following the time that they are filed with, or furnished to, the SEC.
Shareholders and other interested parties may request email notification of the
posting of these documents through the Investors section of Brunswick’s Web
site.
Item
1A. Risk Factors
General
economic conditions, particularly in the United States and Europe, affect the
Company’s results.
Demand
for Brunswick’s products is affected by economic conditions and consumer
confidence worldwide, especially in the United States and Europe. In times of
economic uncertainty, consumers tend to defer expenditures for discretionary
items, which affects the Company’s financial performance, especially in its
marine, consumer bowling, consumer fitness and billiards businesses. The
Company’s businesses are cyclical in nature, and their success is dependent upon
favorable economic conditions, the overall level of consumer confidence and
discretionary income levels.
For
example, retail unit sales of powerboats in the United States have been
declining since 2005, with the rate of decline accelerating in 2008 due to a
weak United States economy, soft housing markets in key United States boating
states, and higher prices for everyday expenses that ultimately reduce the funds
available for discretionary purchases. On an industry level, retail unit sales
were down significantly during the twelve months ended December 31, 2008,
compared with the already low retail unit sales during the twelve months ended
December 31, 2007.
Any
continued deterioration in general economic conditions that further diminishes
consumer confidence or discretionary income may reduce Brunswick’s sales further
and adversely affect the Company’s financial results, including the potential
for future impairments. The impact of weakening consumer and corporate credit
markets; continued reduction in marine industry demand; corporate
restructurings; declines in the value of investments and residential real
estate, especially in large boating markets such as Florida and California;
higher fuel prices and increases in federal and state taxation, all can
negatively affect the Company’s results.
The
Company’s financial results may be adversely affected if it is unable to
maintain effective distribution.
The
Company relies on third party dealers and distributors to sell the majority of
its products, particularly in the marine business. The ability to
maintain a reliable network of dealers is essential to the Company’s success.
Continued weakness in the marine marketplace may adversely affect the ability of
the Company’s dealers to sell marine products, potentially resulting in higher
than desired dealer inventory levels, or to generate sufficient cash flow to
fund operations. If dealer inventory levels are higher than desired, dealers may
postpone additional product purchases from Brunswick until the current inventory
is sold, which may negatively affect the Company’s revenues. If dealers are
unable to generate sufficient cash flow to fund operations, dealers may cease
business and Brunswick may not be able to obtain alternate distribution in the
relevant market.
Brunswick’s
independent boat builder customers also can react negatively to competition from
Brunswick’s own boat brands, which can lead them to purchase marine engines and
marine engine supplies from competing marine engine
manufacturers.
The
Company’s financial results may be adversely affected if the financial health of
the Company’s dealers and distributors is adversely affected.
The
financial health of the Company’s distribution network, particularly in its
marine businesses, is critical to the Company’s success. Weak demand
for marine products may adversely affect the financial performance of the
Company’s dealers. In particular, reduced cash flow from decreased sales and
tighter credit markets may impair a dealer’s ability to fund operations. A
continued inability to fund operations may force dealers to cease business,
which may unfavorably affect Brunswick’s net sales and earnings from continuing
operations through lower market exposure and the associated decline in
sales.
In
addition, dealer inventory levels may be higher than desired and inventory may
be aging beyond preferred levels. These factors may impair a dealer’s
ability to purchase Brunswick products, secure financing for purchases, or meet
payment obligations to Brunswick or the dealer’s third-party financing sources.
If a dealer is unable to meet its obligations to third-party financing sources,
Brunswick may be required to repurchase a portion of the defaulting dealer’s
inventory from these third-party financing sources or it may experience credit
losses as a result of its recourse obligations on customers’ debt
obligations.
The
inability of the Company’s dealers and distributors to secure adequate access to
capital could adversely affect the Company’s sales.
Brunswick’s
dealers require adequate liquidity to finance continuing operations, including
purchases of Brunswick products. Dealers are subject to numerous risks and
uncertainties that could unfavorably affect their liquidity positions,
including, among other things, continued access to financing sources and
availability of financing on a timely basis or on reasonable
terms. The majority of our domestic dealers utilize secured wholesale
inventory floor-plan financing provided by Brunswick Acceptance Company (BAC),
the Company’s joint venture with CDF Ventures, LLC, a subsidiary of GE Capital
Corporation. If BAC or other providers of financing to the wholesale
marine industry cease to provide dealer financing, decrease the amount of
financing available to dealers or increase the costs related to dealer
financing, the financial health of dealers may be harmed, resulting in the
modification, delay or cancellation of additional dealer purchases of Brunswick
product or cessation of dealer business operations. Such results
could negatively impact Brunswick’s ability to sell boats and engines and
therefore adversely affect the Company’s financial results.
Inventory
reductions by major dealers, retailers and independent boat builders can
adversely affect the Company’s financial results.
If the
Company’s boat and engine dealers and distributors, as well as independent boat
builders who purchase Brunswick marine engine products, reduce their inventories
in response to weakness in retail demand, wholesale demand for Brunswick
products diminishes. In turn, Brunswick will need to reduce production, which
results in lower rates of absorption of fixed costs in the Company’s
manufacturing facilities and thus lower margins. Inventory reduction by dealers
and customers can hurt the Company’s short-term sales and results of operations
and limit the Company’s ability to meet increased demand when economic
conditions improve.
Tighter
credit markets can reduce demand, especially for marine products.
Customers
often finance purchases of Brunswick’s marine products, particularly boats.
Rising interest rates can have an adverse effect on consumers’ ability to
finance boat purchases, which can adversely affect Brunswick’s ability to sell
boats and engines and the profitability of Brunswick’s financing activities,
including those of BAC. Further, tighter credit markets may restrict funds
available for retail financing for marine products or require higher credit
scores from boat buyers.
The
Company’s restructuring initiatives, implemented as a result of the prolonged
downturn in the U.S. marine market, could result in additional costs or be
unsuccessful.
As a
result of the downturn in the U.S. marine market, the Company announced various
restructuring initiatives in 2006, 2007 and 2008, resulting in severance and
plant closure costs, asset write-downs and impairment charges. The Company
expects to incur additional restructuring, exit and other impairment charges in
2009 as a result of these restructuring initiatives. The Company cannot assure
that the restructuring plan will be successful or that further restructuring
efforts will not be required, resulting in additional costs, write-downs or
charges. If additional actions are required, Brunswick’s earnings could be
adversely affected.
Establishing
a smaller manufacturing footprint is critical to the Company’s operating and
financial results.
A
significant component in the Company’s cost-reduction efforts is establishing a
smaller manufacturing footprint by consolidating boat production into fewer
plants. Moving production to a new plant involves risks, including the inability
to start up production within the cost and time estimated, supply product to
dealers when expected, and attract a sufficient number of skilled workers to
handle the additional production. The inability to successfully implement the
manufacturing footprint initiatives could adversely affect Brunswick’s operating
and financial results.
A
variety of trends could negatively affect the Company’s liquidity position,
which in turn could have a material adverse effect on Brunswick’s
business.
The
ability to meet the Company’s capital requirements will depend on the continued
successful execution of the restructuring initiatives and reductions to the
manufacturing footprint to return Brunswick’s marine operations to profitability
and positive cash flow. Brunswick is subject to numerous risks and uncertainties
that could negatively affect its cash flow and liquidity position in the future.
These include, among other things, continued access to short-term borrowing
sources; the continued ability to comply with credit facility covenants; the
continued reduction in marine industry demand as a result of a weak global
economy resulting in, among other things, (i) the failure of the Company’s
customers to pay amounts owed to Brunswick or to pay amounts owed to Brunswick
on a timely basis, or (ii) the obligation of the Company to repurchase Brunswick
products or make recourse payments on customers’ debt obligations. The
continuation of, or adverse change with respect to, one or more of these trends
could weaken the Company’s liquidity position and materially adversely affect
net revenues available for the Company’s anticipated cash needs.
Brunswick
relies on third party suppliers for the supply of the raw materials, parts and
components necessary to assemble Brunswick’s products. Brunswick’s financial
results may be adversely affected by an increase in cost, disruption of supply
or shortage of or defect in raw materials, parts or product
components.
Outside
suppliers and contract manufacturers provide raw materials used in Brunswick’s
manufacturing processes including oil, aluminum, steel and resins, as well as
product parts and components, such as engine blocks and boat windshields. The
prices for these raw materials, parts and components fluctuate depending on
market conditions. Substantial increases in the prices for the Company’s raw
materials, parts and components could increase the Company’s operating costs,
and could reduce Brunswick’s profitability if the Company cannot recoup the
increased costs through increased product prices. In addition, some components
the Company uses in its manufacturing processes are available from a sole or
limited number of suppliers. Financial difficulties or solvency problems at
these or other suppliers could adversely affect their ability to supply
Brunswick with the parts and components the Company needs, which could disrupt
Brunswick’s operations. It may be difficult to find a replacement supplier for a
limited or sole source raw material, part or component without significant delay
or on commercially reasonable terms. In addition, an uncorrected defect or
supplier’s variation in a raw material, part or component, either unknown to the
Company or incompatible with Brunswick’s manufacturing process, could harm
Brunswick’s ability to manufacture products. An increase in the cost, defect or
a sustained interruption in the supply or shortage of some of these raw
materials, parts or products that may be caused by financial pressures on
suppliers due to the weakening economy, a deterioration of Brunswick’s
relationships with suppliers or by events such as natural disasters, power
outages or labor strikes, could disrupt Brunswick’s operations and negatively
impact Brunswick’s net revenues and profits.
Brunswick’s
pension funding requirements and expenses are affected by certain factors
outside the Company’s control, including the performance of plan assets, the
discount rate used to value liabilities, actuarial data and experience, and
legal and regulatory changes.
Brunswick’s
funding obligations for its four qualified pension plans are driven by the
performance of assets set aside in trusts for these plans, the discount rate
used to value the plans’ liabilities, actuarial data and experience and legal
and regulatory funding requirements. In addition, the majority of the Company’s
pension plan assets are invested in equity securities. As market values of these
securities decline, Brunswick’s pension expenses could increase significantly.
In addition, Brunswick could be legally required to make increased contributions
to the pension plans, and these contributions could be material.
Higher
energy costs can adversely affect Brunswick’s results, especially in the marine
and retail bowling center businesses.
Higher
energy costs result in increases in operating expenses at Brunswick’s
manufacturing facilities and in the cost of shipping products to customers. In
addition, increases in energy costs can adversely affect the pricing and
availability of petroleum-based raw materials such as resins and foam that are
used in many of Brunswick’s marine products. Also, higher fuel prices may have
an adverse effect on both demand for marine retail products as they increase the
cost of boat ownership and on retail bowling sales as customers may choose to
reduce fuel purchases for leisure or discretionary trips. Finally, because
heating and air conditioning comprise a significant part of the cost of
operating a bowling center, any increase in the price of energy could adversely
affect the operating margins of Brunswick’s bowling centers.
The
Company’s profitability may suffer as a result of competitive pricing
pressures.
The
introduction of lower-priced alternative products by other companies can hurt
the Company’s competitive position in all of its businesses. The Company is
constantly subject to competitive pressures, particularly in the outboard engine
market, in which Asian manufacturers often have pursued a strategy of aggressive
pricing. Such pricing pressure can limit the Company’s ability to increase
prices for Brunswick’s products in response to raw material and other cost
increases.
The
Company’s growth depends on the successful introduction of new product
offerings.
Brunswick’s
ability to grow may be adversely affected by difficulties or delays in product
development, such as an inability to develop viable new products, gain market
acceptance of new products, generate sufficient capital to fund new product
development or obtain adequate intellectual property protection for new
products. To meet ever-changing consumer demands, the timing of market entry and
pricing of new products are critical.
Licensing
requirements and limited access to water can inhibit the Company’s ability to
grow its marine businesses.
Environmental
restrictions, permitting and zoning requirements and the increasing cost of, and
competition for, waterfront property can limit access to water for boating, as
well as marina and storage space. Brunswick’s boat and marine engine segments
can be adversely affected in areas that do not have sufficient marina and
storage capacity to satisfy demand. Certain jurisdictions both inside and
outside the United States require a license to operate a recreational boat,
which can deter potential customers.
Compliance
with environmental regulations for marine engines will increase costs and may
reduce demand for Brunswick products.
The State
of California adopted regulations requiring catalytic converters on sterndrive
and inboard engines, which the Company expects will be expanded by the U.S.
Environmental Protection Agency to apply to all states by 2010. Other
environmental regulatory bodies may impose higher emissions standards in the
future for engines. Compliance with these standards will increase the cost of
Brunswick engines, which could in turn reduce consumer demand for Brunswick’s
marine products. As a result, any increase in the cost of marine engines or
unforeseen delays in compliance with environmental regulations affecting these
products could have an adverse effect on the Company’s results of
operations.
Changes
in currency exchange rates can adversely affect the Company’s growth in
international sales.
Because
the Company derives a portion of its revenues from outside the United
States (44 percent in 2008), the Company’s ability to realize projected growth
rates can be adversely affected when the U.S. dollar strengthens against other
currencies. Brunswick manufactures its products primarily in the United States,
and the costs of its products are generally denominated in U.S. dollars,
although the manufacture and sourcing of products and materials outside the
United States is increasing. A strong U.S. dollar can make Brunswick products
less price-competitive relative to local products outside the United
States.
The
Company competes with a variety of other activities for consumers’ scarce
leisure time and discretionary income.
The vast
majority of Brunswick’s products are used for recreational purposes, and demand
for the Company’s products can be adversely affected by competition from other
activities that occupy consumers’ leisure time, including other forms of
recreation as well as religious, cultural and community activities. A decrease
in leisure time or discretionary income can reduce consumers’ willingness to
purchase and enjoy Brunswick’s products.
Adverse
weather conditions can have a negative effect on marine and retail bowling
center revenues.
Weather
conditions can have a significant effect on the Company’s operating and
financial results, especially in the marine and bowling retail businesses. Sales
of Brunswick’s marine products are generally stronger just before and during
spring and summer, and favorable weather during these months generally has a
positive effect on consumer demand. Conversely, unseasonably cool weather,
excessive rainfall or drought conditions during these periods can reduce demand.
Hurricanes and other storms can result in the disruption of Brunswick’s
distribution channel, as occurred in 2004, 2005 and 2008 on the Atlantic and
Gulf coasts of the United States. Since many of Brunswick’s boat products are
used on lakes and reservoirs, the viability of these for boating is important to
Brunswick’s boat segment. In addition, severely inclement weather on weekends
and holidays, particularly during the winter months, can adversely affect
patronage of Brunswick’s bowling centers and, therefore, revenues in the bowling
retail business.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Brunswick’s
headquarters are located in Lake Forest, Illinois. The Company also maintains
administrative offices in Chicago, Illinois. Brunswick has numerous
manufacturing plants, distribution warehouses, bowling family entertainment
centers, retail stores, sales offices and product test sites around the world.
Research and development facilities are decentralized within Brunswick’s
operating segments, and most are located at manufacturing sites.
The
Company believes its facilities are suitable and adequate for its current needs
and are well maintained and in good operating condition. Most plants and
warehouses are of modern, single-story construction, providing efficient
manufacturing and distribution operations. The Company believes its
manufacturing facilities have the capacity to meet current and anticipated
demand. Brunswick owns its Lake Forest, Illinois, headquarters and most of its
principal plants.
The
primary facilities used in Brunswick’s continuing operations are in the
following locations:
Boat
Segment: Adelanto, Los Angeles and Sacramento, California; Old
Lyme, Connecticut; Edgewater, Merritt Island, Palm Coast, Pompano Beach and St.
Petersburg, Florida; Fort Wayne, Indiana; Lowell, Michigan; Little Falls and New
York Mills, Minnesota; Lebanon, Missouri; New Bern and Raleigh, North Carolina;
Ashland City, Knoxville and Vonore, Tennessee; Pickering, Ontario, Canada;
Princeville, Quebec, Canada; Toronto, Ontario, Canada; Zhuhai, People’s Republic
of China; Reynosa, Mexico; and Kidderminster, United Kingdom. Brunswick owns all
of these facilities with the exception of the Adelanto, California; Pompano
Beach, Florida; Lowell, Michigan; Raleigh, North Carolina; and Pickering,
Ontario, Canada, facilities, which are leased.
Marine Engine
Segment: Miramar, Panama City and St. Cloud, Florida;
Stillwater and Tulsa, Oklahoma; Brookfield, Fond du Lac and Oshkosh, Wisconsin;
Petit Rechain, Belgium; Suzhou, People’s Republic of China; Juarez, Mexico;
Auckland, New Zealand; Vila Nova de Cerveira, Portugal; Singapore; Skelleftea,
Sweden; and Newton Abbot, United Kingdom. The Auckland, New Zealand; and
Skelleftea, Sweden facilities are leased. The remaining facilities are owned by
Brunswick.
Fitness
Segment: Franklin Park and Schiller Park, Illinois; Falmouth,
Kentucky; Ramsey, Minnesota; and Kiskoros and Szekesfehervar, Hungary. The
Schiller Park office and a portion of the Franklin Park facility are leased. The
remaining facilities are owned by Brunswick or, in the case of the Kiskoros,
Hungary, facility, by a company in which Brunswick is the majority
owner.
Bowling & Billiards
Segment: Lake Forest, Illinois; Muskegon, Michigan; Richland
Hills, Texas; Bristol, Wisconsin; Szekesfehervar, Hungary; and Reynosa, Mexico;
104 bowling recreation centers in the United States, Canada and Europe, and one
retail billiards store in a Boston suburb. Approximately 40 percent of
BB&B’s bowling centers, as well as the Richland Hills and Reynosa
manufacturing facilities and the retail billiards store and warehouses, are
leased. The remaining facilities are owned by Brunswick.
Item
3. Legal Proceedings
The
Company accrues for litigation exposure based upon its assessment, made in
consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company’s litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company’s consolidated financial position or results of
operations. If current estimates for the cost of resolving any claims are later
determined to be inadequate, results of operations could be adversely affected
in the period in which additional provisions are required.
Tax
Case
In
February 2003, the United States Tax Court issued a ruling upholding the
disallowance by the Internal Revenue Service (IRS) of capital losses and other
expenses for 1990 and 1991 related to two partnership investments entered into
by the Company. In 2003 and 2004, the Company made payments to the IRS comprised
of approximately $33 million in taxes due and approximately $39 million of
pretax interest (approximately $25 million after-tax) to avoid future interest
costs. Subsequently, the Company and the IRS settled all issues involved in and
related to this case. As a result, the Company reversed $42.6 million of tax
reserves in 2006, primarily related to the reassessment of underlying exposures,
received a refund of $12.9 million from the IRS, and recorded an additional tax
receivable of $4.1 million for interest related to these tax years. In 2008, the
Company protested that the IRS’s calculation of the $4.1 million interest
receivable due to the Company was understated. As a result, the IRS paid the
Company approximately $10 million for interest related to these tax years in
2008. Additionally, these tax years will be subject to tax audits by various
state jurisdictions to determine the state tax effect of the IRS's audit
adjustments.
Environmental
Matters
Brunswick
is involved in certain legal and administrative proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
other federal and state legislation governing the generation and disposal of
certain hazardous wastes. These proceedings, which involve both on- and off-site
waste disposal or other contamination, in many instances seek compensation or
remedial action from Brunswick as a waste generator under Superfund legislation,
which authorizes action regardless of fault, legality of original disposition or
ownership of a disposal site. Brunswick has established reserves based on a
range of cost estimates for all known claims.
The
environmental remediation and clean-up projects in which Brunswick is involved
have an aggregate estimated range of exposure of approximately $42.5 million to
$72.5 million as of December 31, 2008. At December 31, 2008 and 2007, Brunswick
had reserves for environmental liabilities of $46.9 million and $48.0 million,
respectively. There were environmental provisions of $0.0, $0.7
million and $0.0 for the years ended December 31, 2008, 2007 and 2006,
respectively.
Brunswick
accrues for environmental remediation related activities for which commitments
or clean-up plans have been developed and for which costs can be reasonably
estimated. All accrued amounts are generally determined in coordination with
third-party experts on an undiscounted basis and do not consider recoveries from
third parties until such recoveries are realized. In light of existing reserves,
the Company’s environmental claims, when finally resolved, will not, in the
opinion of management, have a material adverse effect on the Company’s
consolidated financial position or results of operations.
Asbestos
Claims
Brunswick’s
subsidiary, Old Orchard Industrial Corp., is a defendant in more than 8,000
lawsuits involving claims of asbestos exposure from products manufactured by
Vapor Corporation (Vapor), a former subsidiary that the Company divested in
1990. Virtually all of the asbestos suits involve numerous other defendants. The
claims generally allege that Vapor sold products that contained components, such
as gaskets, which included asbestos, and seek monetary damages. Neither
Brunswick nor Vapor is alleged to have manufactured asbestos. Several thousand
claims have been dismissed with no payment and no claim has gone to jury
verdict. In a few cases, claims have been filed against other Brunswick
entities, with a majority of these suits being either dismissed or settled for
nominal amounts. The Company does not believe that the resolution of these
lawsuits will have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Australia
Trade Practices Investigation
In
January 2005, Brunswick received a notice to furnish information and documents
to the Australian Competition and Consumer Commission (ACCC). A subsequent
notice was received in October of 2005. Following the completion of its
investigation in December 2006, the ACCC commenced proceedings against a former
Brunswick subsidiary, Navman Australia Pty Limited (Navman Australia), with
respect to its compliance with the Trade Practices Act of 1974 as it pertained
to Navman Australia’s sales practices from 2001 to 2005. The ACCC had alleged
that Navman Australia engaged in resale price maintenance in breach of the Act.
In December 2007, the Australian courts approved a settlement in favor of ACCC
for approximately $1.3 million, which the Company paid in January
2008.
Chinese
Supplier Dispute
Brunswick
was involved in an arbitration proceeding in Hong Kong arising out of a
commercial dispute with a former contract manufacturer in China, Shanghai
Zhonglu Industrial Company Limited (Zhonglu). The Company filed the arbitration
seeking damages based on Zhonglu's breach of a supply and distribution agreement
pursuant to which Zhonglu agreed to manufacture bowling equipment. Zhonglu had
asserted counterclaims seeking damages for alleged breach of contract among
other claims in August 2007. The arbitration tribunal issued a ruling in the
Company’s favor for a net amount of approximately $0.1 million. Zhonglu
subsequently sought relief from the ruling from the High Court of Hong Kong and
the Company filed pleadings in opposition to this requested relief. On February
10, 2009, the High Court of Hong Kong ruled in the Company's favor and affirmed
the arbitration award in all material respects.
Patent
Infringement Dispute.
In
October 2006, Brunswick was sued by Electromotive, Inc. (Electromotive) in the
United States District Court for the Northern District of Virginia.
Electromotive claimed that a number of engines sold by Brunswick’s Mercury
Marine business had infringed on an expired patent held by Electromotive related
to a method for ignition timing. On July 27, 2007, a jury returned a verdict in
favor of Electromotive in the amount of approximately $3 million. In October
2007, the Company and Electromotive reached an agreement to settle the case at a
level below the verdict in lieu of pursuing respective appeals.
Brazilian
Customs Dispute.
In June
2007, the Brazilian Customs Office issued an assessment against a Company
subsidiary in the amount of approximately $14 million related to the importation
of Life Fitness products into Brazil. The assessment was based on a
determination by Brazilian customs officials that the proper import value of
Life Fitness equipment imported into Brazil should be the manufacturer’s
suggested retail price of those goods in the United States. This assessment was
dismissed during 2008. The Brazilian Customs Office has appealed the ruling as a
matter of course.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders during the fourth quarter
of fiscal year 2008.
Executive
Officers of the Registrant
Brunswick’s
executive officers are listed in the following table:
Officer
|
|
Present
Position
|
|
Age
|
|
|
|
|
|
Dustan
E. McCoy
|
|
Chairman
and Chief Executive Officer
|
|
59
|
Peter
B. Hamilton
|
|
Senior
Vice President and Chief Financial Officer
|
|
62
|
Lloyd
C. Chatfield II
|
|
Vice
President, General Counsel and Secretary
|
|
40
|
Andrew
E. Graves
|
|
Vice
President and President – US Marine and Outboard Boats
|
|
49
|
Warren
N. Hardie
|
|
Vice
President and President – Brunswick Bowling &
Billiards
|
|
58
|
B.
Russell Lockridge
|
|
Vice
President and Chief Human Resources Officer
|
|
59
|
Alan
L. Lowe
|
|
Vice
President and Controller
|
|
57
|
John
C. Pfeifer
|
|
Vice
President, President – Brunswick Marine in EMEA and
President – Brunswick Global Structure
|
|
43
|
Mark
D. Schwabero
|
|
Vice
President and President – Mercury Marine
|
|
56
|
Richard
C. Stone
|
|
Vice
President and President – Sea Ray Group
|
|
53
|
John
E. Stransky
|
|
Vice
President and President – Life Fitness Division
|
|
56
|
There are
no familial relationships among these officers. The term of office of all
elected officers expires May 6, 2009. The Executive Officers are appointed from
time to time at the discretion of the Chief Executive Officer.
Dustan E. McCoy was named
Chairman and Chief Executive Officer of Brunswick in December 2005. He was Vice
President of Brunswick and President – Brunswick Boat Group from 2000 to 2005.
From 1999 to 2000, he was Vice President, General Counsel and Secretary of
Brunswick.
Peter B. Hamilton was named
Senior Vice President and Chief Financial Officer of Brunswick in September
2008. He served as Vice Chairman of the Board of Brunswick from 2000 until his
retirement in 2007; Executive Vice President and Chief Financial Officer of
Brunswick from 1998 to 2000; and Senior Vice President and Chief Financial
Officer of Brunswick from 1995 to 1998.
Lloyd C. Chatfield II was
named Vice President, General Counsel and Secretary of Brunswick in July 2007.
He has been with Brunswick Corporation since 2000 serving in various capacities,
most recently as Deputy General Counsel and Managing Director of Mergers and
Acquisitions.
Andrew E. Graves was named
Vice President and President – US Marine and Outboard Boats in February
2008. Previously, he was President – Brunswick Boat Group Freshwater
Group from 2005 to 2008. From 2003 to 2005, Mr. Graves was President
of Dresser Flow Solutions.
Warren N. Hardie was named
President – Brunswick Bowling & Billiards in February 2006. Previously, he
was President – Bowling Retail from 1998 to February 2006.
B. Russell Lockridge has been
Vice President and Chief Human Resources Officer of Brunswick since
1999.
Alan L. Lowe has been Vice
President and Controller of Brunswick since September 2003.
John C. Pfeifer was named
Vice President and President – Brunswick Marine in EMEA, as well as President –
Brunswick Global Structure, in February 2008. Mr. Pfeifer joined
Brunswick in 2006, serving most recently as President – Brunswick Asia/Pacific
Group. Prior to joining Brunswick, Mr. Pfeifer held executive
positions with ITT Corporation from 2000 to 2006.
Mark D. Schwabero was named
Vice President and President – Mercury Marine in December 2008. Previously, he
was President – Mercury Outboards since 2004.
Richard C. Stone was named
Vice President and President – Sea Ray Group in February
2006. Previously he was Vice President and Chief Financial Officer of
the Brunswick Boat Group from 2001 to 2006 and Senior Vice President and Chief
Financial Officer of Sea Ray from 1989 to 2001.
John E. Stransky was named
Vice President and President – Life Fitness Division in February 2006.
Previously, he was President – Brunswick Bowling & Billiards from February
2005 to February 2006 and President of the Billiards division from 1998 to
2005.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Brunswick’s
common stock is traded on the New York and Chicago Stock Exchanges. Quarterly
information with respect to the high and low prices for the common stock and the
dividends declared on the common stock is set forth in Note 21 – Quarterly Data in
the Notes to Consolidated Financial Statements. As of February 23, 2009, there
were 12,847 shareholders of record of the Company’s common stock.
In
October 2008, Brunswick announced its annual dividend on its common stock of
$0.05 per share, payable in December 2008. Brunswick intends to continue to pay
annual dividends at the discretion of the Board of Directors, subject to
continued capital availability and a determination that cash dividends continue
to be in the best interest of the Company’s stockholders.
In the
second quarter of 2005, Brunswick’s Board of Directors authorized a $200.0
million share repurchase program, to be funded with available cash. On April 27,
2006, the Board of Directors increased the Company’s remaining share repurchase
authorization of $62.2 million to $500.0 million. The Company did not repurchase
any shares during 2008. During 2007 and 2006, the Company repurchased
approximately 4.1 million and 5.6 million shares under this program for $125.8
million and $195.6 million, respectively. As of December 31, 2008, the Company
had repurchased approximately 11.7 million shares for $397.4 million since the
program’s inception with a remaining authorization of $240.4 million. The plan
has been suspended as the Company intends to retain cash to enhance its
liquidity rather than to repurchase shares.
Brunswick’s
dividend and share repurchase policies may be affected by, among other things,
the Company’s views on future liquidity, potential future capital requirements
and current restrictions contained in the amended and restated revolving credit
facility.
Performance
Graph
Comparison
of Five-Year Cumulative Total Return among Brunswick, S&P 500 Index and
S&P 500 Global Industry Classification Standard (GICS) Consumer
Discretionary Index
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008
|
|
Brunswick
|
|
100.00
|
|
|
157.81
|
|
|
131.35
|
|
|
104.76
|
|
|
57.36
|
|
|
14.23
|
|
S&P
500 Index
|
|
100.00
|
|
|
108.99
|
|
|
112.27
|
|
|
127.56
|
|
|
132.06
|
|
|
81.23
|
|
S&P
500 GICS Consumer Discretionary Index
|
|
100.00
|
|
|
112.15
|
|
|
103.90
|
|
|
121.80
|
|
|
104.36
|
|
|
68.12
|
|
The basis
of comparison is a $100 investment at December 31, 2003, in each of (i)
Brunswick, (ii) the S&P 500 Index, and (iii) the S&P 500 GICS Consumer
Discretionary Index. All dividends are assumed to be reinvested. The S&P 500
GICS Consumer Discretionary Index encompasses industries including automotive,
household durable goods, textiles and apparel, and leisure equipment. Brunswick
is included in this index and believes the other companies included in this
index provide a representative sample of enterprises that are in primary lines
of business that are similar to Brunswick.
Item
6. Selected Financial Data
The
selected historical financial data presented below as of and for the years ended
December 31, 2008, 2007 and 2006 have been derived from, and should be read in
conjunction with, the historical consolidated financial statements of the
Company, including the notes thereto, and Item 7 of this report, including the
Matters Affecting
Comparability section. The selected historical financial data presented
below as of and for the years ended December 31, 2005, 2004 and 2003 have been
derived from the consolidated financial statements of the Company that are not
included herein. The financial data presented below have been restated to
present discontinued operations in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets.”
(in
millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of operations data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
4,708.7 |
|
|
$ |
5,671.2 |
|
|
$ |
5,665.0 |
|
|
$ |
5,606.9 |
|
|
$ |
5,058.1 |
|
|
$ |
4,063.6 |
|
Operating
earnings (loss) (A)
|
|
|
(611.6 |
) |
|
|
107.2 |
|
|
|
341.2 |
|
|
|
468.7 |
|
|
|
394.8 |
|
|
|
223.5 |
|
Earnings
(loss) before interest and taxes (A)
|
|
|
(584.7 |
) |
|
|
136.3 |
|
|
|
354.2 |
|
|
|
524.1 |
|
|
|
408.4 |
|
|
|
233.6 |
|
Earnings
(loss) before income taxes (A)
|
|
|
(632.2 |
) |
|
|
92.7 |
|
|
|
309.7 |
|
|
|
485.9 |
|
|
|
373.3 |
|
|
|
204.0 |
|
Net
earnings (loss) from continuing operations (A)
|
|
|
(788.1 |
) |
|
|
79.6 |
|
|
|
263.2 |
|
|
|
371.1 |
|
|
|
263.8 |
|
|
|
137.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued operations,
net of tax (B)
|
|
|
— |
|
|
|
32.0 |
|
|
|
(129.3 |
) |
|
|
14.3 |
|
|
|
6.0 |
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) (A)
|
|
$ |
(788.1 |
) |
|
$ |
111.6 |
|
|
$ |
133.9 |
|
|
$ |
385.4 |
|
|
$ |
269.8 |
|
|
$ |
135.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations (A)
|
|
$ |
(8.93 |
) |
|
$ |
0.88 |
|
|
$ |
2.80 |
|
|
$ |
3.80 |
|
|
$ |
2.76 |
|
|
$ |
1.50 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued operations,
net of tax
|
|
|
— |
|
|
|
0.36 |
|
|
|
(1.38 |
) |
|
|
0.15 |
|
|
|
0.06 |
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) (A)
|
|
$ |
(8.93 |
) |
|
$ |
1.24 |
|
|
$ |
1.42 |
|
|
$ |
3.95 |
|
|
$ |
2.82 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares used for computation of basic
earnings per share
|
|
|
88.3 |
|
|
|
89.8 |
|
|
|
94.0 |
|
|
|
97.6 |
|
|
|
95.6 |
|
|
|
91.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations (A)
|
|
$ |
(8.93 |
) |
|
$ |
0.88 |
|
|
$ |
2.78 |
|
|
$ |
3.76 |
|
|
$ |
2.71 |
|
|
$ |
1.49 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued operations,
net of tax
|
|
|
— |
|
|
|
0.36 |
|
|
|
(1.37 |
) |
|
|
0.14 |
|
|
|
0.06 |
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) (A)
|
|
$ |
(8.93 |
) |
|
$ |
1.24 |
|
|
$ |
1.41 |
|
|
$ |
3.90 |
|
|
$ |
2.77 |
|
|
$ |
1.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares used for computation of diluted
earnings per share
|
|
|
88.3 |
|
|
|
90.2 |
|
|
|
94.7 |
|
|
|
98.8 |
|
|
|
97.3 |
|
|
|
91.9 |
|
(A)
|
2008
results include $688.4 million of pretax goodwill impairment charges,
trade name impairment charges and restructuring, exit and other impairment
charges. 2007 results include $88.6 million of pretax trade name
impairment charges and restructuring, exit and other impairment charges.
2006 results include $17.1 million of pretax restructuring, exit and other
impairment charges.
|
|
|
|
Earnings
(loss) from discontinued operations in 2007 include net gains of $29.8
million related to the sales of the discontinued businesses. Earnings
(loss) from discontinued operations in 2006 include an $85.6 million
impairment charge ($73.9 million pretax) related to the Company’s
announcement in December 2006 that proceeds from the sale of BNT were
expected to be less than its book value. See Note
20 – Discontinued Operations in the Notes to Consolidated Financial
Statements for further details. |
(in
millions, except per share and other data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets of continuing operations
|
|
$ |
3,223.9 |
|
|
$ |
4,365.6 |
|
|
$ |
4,312.0 |
|
|
$ |
4,414.8 |
|
|
$ |
4,198.9 |
|
|
$ |
3,523.4 |
|
Debt
Short-term
|
|
$ |
3.2 |
|
|
$ |
0.8 |
|
|
$ |
0.7 |
|
|
$ |
1.1 |
|
|
$ |
10.7 |
|
|
$ |
23.8 |
|
Long-term
|
|
|
728.5 |
|
|
|
727.4 |
|
|
|
725.7 |
|
|
|
723.7 |
|
|
|
728.4 |
|
|
|
583.8 |
|
Total
debt
|
|
|
731.7 |
|
|
|
728.2 |
|
|
|
726.4 |
|
|
|
724.8 |
|
|
|
739.1 |
|
|
|
607.6 |
|
Common
shareholders’ equity (A)
(B)
|
|
|
729.9 |
|
|
|
1,892.9 |
|
|
|
1,871.8 |
|
|
|
1,978.8 |
|
|
|
1,712.3 |
|
|
|
1,323.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization (A)
(B)
|
|
$ |
1,461.6 |
|
|
$ |
2,621.1 |
|
|
$ |
2,598.2 |
|
|
$ |
2,703.6 |
|
|
$ |
2,451.4 |
|
|
$ |
1,930.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow data
Net
cash provided by (used for) operating
of activities
continuing
operations
|
|
$ |
(12.1 |
) |
|
$ |
344.1 |
|
|
$ |
351.0 |
|
|
$ |
421.6 |
|
|
$ |
424.4 |
|
|
$ |
405.7 |
|
Depreciation
and amortization
|
|
|
177.2 |
|
|
|
180.1 |
|
|
|
167.3 |
|
|
|
156.3 |
|
|
|
153.6 |
|
|
|
149.4 |
|
Capital
expenditures
|
|
|
102.0 |
|
|
|
207.7 |
|
|
|
205.1 |
|
|
|
223.8 |
|
|
|
163.8 |
|
|
|
157.7 |
|
Acquisitions
of businesses
|
|
|
— |
|
|
|
6.2 |
|
|
|
86.2 |
|
|
|
130.3 |
|
|
|
248.2 |
|
|
|
140.0 |
|
Investments
|
|
|
(20.0 |
) |
|
|
(4.1 |
) |
|
|
(6.1 |
) |
|
|
18.1 |
|
|
|
16.2 |
|
|
|
39.3 |
|
Stock
repurchases
|
|
|
— |
|
|
|
125.8 |
|
|
|
195.6 |
|
|
|
76.0 |
|
|
|
— |
|
|
|
— |
|
Cash
dividends paid
|
|
|
4.4 |
|
|
|
52.6 |
|
|
|
55.0 |
|
|
|
57.3 |
|
|
|
58.1 |
|
|
|
45.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
data
Dividends
declared per share
|
|
$ |
0.05 |
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
$ |
0.50 |
|
Book
value per share (A)
(B)
|
|
|
8.27 |
|
|
|
20.99 |
|
|
|
19.76 |
|
|
|
20.03 |
|
|
|
17.60 |
|
|
|
14.40 |
|
Return
on beginning shareholders’ equity
|
|
|
(41.6 |
)% |
|
|
6.0 |
% |
|
|
6.8 |
% |
|
|
22.5 |
% |
|
|
20.4 |
% |
|
|
12.3 |
% |
Effective
tax rate
|
|
|
(24.7 |
)% |
|
|
14.1 |
% |
|
|
15.0 |
% |
|
|
23.6 |
% |
|
|
29.3 |
% |
|
|
32.8 |
% |
Debt-to-capitalization
rate (A)
(B)
|
|
|
50.1 |
% |
|
|
27.8 |
% |
|
|
28.0 |
% |
|
|
26.8 |
% |
|
|
30.2 |
% |
|
|
31.5 |
% |
Number
of employees
|
|
|
19,760 |
|
|
|
27,050 |
|
|
|
28,000 |
|
|
|
26,500 |
|
|
|
24,745 |
|
|
|
22,525 |
|
Number
of shareholders of record
|
|
|
12,842 |
|
|
|
13,052 |
|
|
|
13,695 |
|
|
|
14,143 |
|
|
|
14,952 |
|
|
|
15,373 |
|
Common
stock price (NYSE)
High
|
|
$ |
19.28 |
|
|
$ |
34.80 |
|
|
$ |
42.30 |
|
|
$ |
49.50 |
|
|
$ |
49.85 |
|
|
$ |
32.08 |
|
Low
|
|
|
2.01 |
|
|
|
17.05 |
|
|
|
27.56 |
|
|
|
35.09 |
|
|
|
31.25 |
|
|
|
16.35 |
|
Close
(last trading day)
|
|
|
4.21 |
|
|
|
17.05 |
|
|
|
31.90 |
|
|
|
40.66 |
|
|
|
49.50 |
|
|
|
31.83 |
|
(A)
|
Effective
December 31, 2006, the Company adopted the provisions of SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106,
and 132(R),” which resulted in a $60.7 million decrease to Common
shareholders’ equity. The Company adopted the provisions of FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (FIN
48) effective on January 1, 2007. As a result of the implementation of FIN
48, the Company recognized an $8.7 million decrease in the net liability
for unrecognized tax benefits, which was accounted for as an increase to
the January 1, 2007, balance of retained
earnings.
|
(B)
|
2008
results include $688.4 million of pretax goodwill impairment charges,
trade name impairment charges and restructuring, exit and other impairment
charges. 2007 results include $88.6 million of pretax trade name
impairment charges and restructuring, exit and other impairment charges.
2006 results include $17.1 million of pretax restructuring, exit and other
impairment charges.
|
The Notes
to Consolidated Financial Statements should be read in conjunction with the
above summary.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Certain
statements in Management’s Discussion and Analysis are based on non-GAAP
financial measures. Specifically, the discussion of the Company’s cash flows
includes an analysis of free cash flows. GAAP refers to generally accepted
accounting principles in the United States. A “non-GAAP financial measure” is a
numerical measure of a registrant’s historical or future financial performance,
financial position or cash flows that excludes amounts, or is subject to
adjustments that have the effect of excluding amounts, that are included in the
most directly comparable measure calculated and presented in accordance with
GAAP in the Statement of operations, balance sheet or statement of cash flows of
the issuer; or includes amounts, or is subject to adjustments that have the
effect of including amounts, that are excluded from the most directly comparable
measure so calculated and presented. Operating and statistical measures are not
non-GAAP financial measures.
The
Company includes non-GAAP financial measures in Management’s Discussion and
Analysis, as Brunswick’s management believes that these measures and the
information they provide are useful to investors because they permit investors
to view Brunswick’s performance using the same tools that management uses
and to better evaluate the Company's ongoing business
performance.
Certain
other statements in Management’s Discussion and Analysis are forward-looking as
defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations that are subject to risks and
uncertainties. Actual results may differ materially from expectations as of the
date of this filing because of factors discussed in Item 1A of this Annual
Report on Form 10-K.
Overview
and Outlook
General
In 2008,
Brunswick significantly restructured its business in order to operate
effectively in light of a difficult economic climate, while maintaining its
strategic objective to solidify its leadership position in the marine, fitness
and bowling & billiards industries, by:
|
•
|
Maintaining
strong liquidity during difficult economic
times;
|
|
•
|
Focusing
on cost reduction initiatives across the organization through the resizing
and realignment of Brunswick’s manufacturing operations and organizational
structure;
|
|
•
|
Shrinking
and consolidating its manufacturing footprint to a level that allows each
facility to produce at higher volumes and lower
costs;
|
|
•
|
Lowering
its marine production levels to achieve reductions in pipeline inventories
held by its dealers in order to maintain the health of the Company’s many
dealers in a difficult retail environment;
and
|
|
•
|
Distributing
products through a model that benefits the Company’s dealers and
distributors by providing additional products and services that will make
them more successful, improve the customer experience and, in turn, make
Brunswick more successful.
|
Accomplishments
in support of the Company’s strategic objectives in 2008 include:
–
|
Amended
its revolving credit facility, which provides the Company with an option
to borrow for operating cash requirements, if necessary;
and
|
–
|
Ended
the year with $317.5 million of cash, compared with $331.4 million at the
end of 2007, despite a difficult
economy.
|
Manufacturing
Realignment:
|
–
|
Adjustments
to the manufacturing footprint to streamline operations, including
permanent closure of eight facilities and the temporary closure of another
three facilities;
|
–
|
Several
boat manufacturing plants are now manufacturing multiple brands, rather
than dedicated facilities for single brands;
and
|
–
|
Reduced
the number of models being manufactured in order to better utilize the new
footprint and to reduce complexity and
costs.
|
Cost
Reduction Initiatives:
–
|
Reduced
total Company work force by 27
percent;
|
–
|
Consolidated
functions throughout the organization and removed layers of management;
and
|
–
|
Exited
or sold non-strategic businesses and
assets.
|
–
|
Removed
approximately 6,700 boats, or approximately 22 percent, from dealer
pipeline inventories; and
|
–
|
Extended
its Brunswick Acceptance Company, LLC (BAC) joint venture agreement with
CDF Ventures, LLC, a subsidiary of GE Capital Corporation, through 2014,
providing Brunswick’s boat and engine dealers secured wholesale inventory
floor-plan financing.
|
International
Operations:
|
–
|
Increased
its focus in Latin America and the Middle East. International sales now
represent approximately 44 percent of net sales from continuing
operations.
|
Despite
its success in executing these objectives, Brunswick saw a decline in its
financial performance due to difficult marine market conditions and contracting
global credit markets. Net sales from continuing operations in 2008 decreased to
$4,708.7 million from $5,671.2 million in 2007. The overall decrease in sales
was primarily due to the continued reduction in marine industry demand as a
result of a weak global economy, soft housing markets and the contraction of
liquidity in global credit markets. The reduction in marine industry demand is
evidenced by the declining number of retail unit sales of powerboats in the
United States since 2005, with the rate of decline accelerating during 2008.
Industry retail unit sales were down significantly during 2008 compared with the
already low retail unit sales during 2007. In 2008, the Company reported higher
sales in the Bowling & Billiards segments, as well as higher sales outside
the United States for the Boat, Fitness and Bowling & Billiards segments.
These increases were more than offset by a reduction in the Boat, Marine Engine
and Fitness segments’ sales in the United States.
Operating
losses from continuing operations for 2008 were $611.6 million, with negative
operating margins of 13.0 percent. Operating earnings from continuing operations
for 2007 were $107.2 million, with operating margins of 1.9 percent. The 2008
results included goodwill and trade name impairment charges of $511.1 million
and $177.3 million of restructuring, exit and other impairment charges, while
the 2007 results included trade name impairment charges of $66.4 million and
$22.2 million of restructuring, exit and other impairment charges. The operating
losses during 2008 primarily resulted from higher goodwill and trade name
impairment charges, lower sales from marine operations, reduced fixed-cost
absorption due to reduced production rates in the Company’s marine businesses in
an effort to achieve appropriate levels of dealer pipeline inventories and
higher restructuring, exit and other impairment charges. These factors were
partially offset by successful cost-reduction initiatives, as discussed in Note 2 – Restructuring
Activities in the Notes to Consolidated Financial
Statements.
In March
2008, Brunswick sold its interest in its bowling joint venture in Japan for
$40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and
other costs. The sale resulted in a $20.9 million pretax gain, $9.9 million
after-tax, and was recorded in Investment sale gains in the Consolidated
Statements of Operations.
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 has continued to decline,
Brunswick expanded its restructuring activities during 2006, 2007 and 2008 in
order to improve performance and better position the Company to address current
market conditions and enable long-term profitable growth.
The
Company has reported its restructuring initiatives into three classifications:
exit activities; restructuring activities; and definite-lived asset impairments.
The Company considers employee termination costs, lease exit costs, inventory
write-downs and facility shutdown costs related to the sale of certain Baja boat
business assets, the closure of its bowling pin manufacturing facility, the
potential sale of the Valley-Dynamo coin-operated commercial billiards business
and the divestiture of MotoTron to be exit activities. Other employee
termination costs, costs to retain and relocate employees, consulting costs and
costs to consolidate the manufacturing footprint are considered restructuring
activities. Definite-lived impairments are costs related to the write-downs of
fixed assets, tooling, patents and proprietary technology, and customer
relationships.
Total
restructuring, exit and other impairment charges in 2008 were $177.3 million,
which include $19.3 million of gains recognized on the sales of non-strategic
assets. The $177.3 million consists of $101.7 million in the Boat segment, $29.4
million in the Marine Engine segment, $3.3 million in the Fitness segment, $21.7
million in the Bowling & Billiards segment and $21.2 million at Corporate.
See Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements for further
details.
The
actions taken under these initiatives are expected to benefit future operations
by removing fixed costs of approximately $60 million from Cost of sales and
approximately $300 million from Selling, general and administrative in the
Consolidated Statements of Operations by the end of 2009 compared with 2007
spending levels. The majority of these costs are expected to be cash savings
once all restructuring initiatives are complete. The Company has begun to see
savings related to these initiatives in 2008 and expects all savings to be
realized by the end of 2009.
Goodwill
and Trade Name Impairments
Brunswick
accounts for goodwill and identifiable intangible assets in accordance with
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” (SFAS 142). Under this standard, Brunswick assesses the
impairment of goodwill and indefinite-lived intangible assets at least annually
and whenever events or changes in circumstances indicate that the carrying value
may not be recoverable.
During
the third quarter of 2008, Brunswick encountered a significant adverse change in
the business climate. A weak U.S. economy, soft housing markets and the
contraction of liquidity in global credit markets contributed to the continued
reduction in demand for certain Brunswick products and, consequently, the
reduced wholesale production rates for those affected products. As a result of
this reduced demand, along with lower-than-projected profits across certain
Brunswick brands and lower commitments received from its dealer network in the
third quarter, management revised its future cash flow expectations in the third
quarter of 2008, which lowered the fair value estimates of certain
businesses.
As a
result of the lower fair value estimates, Brunswick concluded that the carrying
amounts of its Boat segment and bowling retail and billiards reporting units
within the Bowling & Billiards segment exceeded their respective fair
values. The Company compared the implied fair value of the goodwill in each
reporting unit with the carrying value and concluded that a $374.0 million
pretax impairment charge needed to be recognized in the third quarter of 2008.
Of this amount, $361.3 million relates to the Boat segment reporting unit, $1.7
million relates to the bowling retail reporting unit within the Bowling &
Billiards segment and $11.0 million relates to the billiards reporting unit
within the Bowling & Billiards segment. The Company also recognized goodwill
impairment charges of $1.5 million in the Boat segment reporting unit and $1.7
million related to the billiards reporting unit within the Bowling &
Billiards segment earlier in 2008 as a result of deciding to exit certain
businesses. As a result of the $377.2 million of impairments, all goodwill at
these respective reporting units has been written down to zero.
In
conjunction with the goodwill impairment testing, the Company analyzed the
valuation of its other indefinite-lived intangibles, consisting exclusively of
acquired trade names. Brunswick estimated the fair value of trade names by
performing a discounted cash flow analysis based on the relief-from-royalty
approach. This approach treats the trade name as if it were licensed by the
Company rather than owned, and calculates its value based on the discounted cash
flow of the projected license payments. The analysis resulted in a pretax trade
name impairment charge of $121.1 million in the third quarter of 2008,
representing the excess of the carrying cost of the trade names over the
calculated fair value. Of this amount, $115.7 million relates to the Boat
segment reporting unit, $4.5 million relates to the Marine Engine segment
reporting unit and $0.9 million relates to the billiards reporting unit within
the Bowling & Billiards segment. The Company also recognized trade name
impairment charges of $5.2 million in the Boat segment reporting unit and $7.6
million related to the billiards reporting unit within the Bowling &
Billiards segment earlier in 2008 as a result of deciding to exit certain
businesses.
Discontinued
Operations
As
discussed in Note 20 –
Discontinued Operations in the Notes to Consolidated Financial
Statements, on April 27, 2006, the Company announced its intention to sell the
majority of the Brunswick New Technologies (BNT) business unit, consisting of
the Company’s marine electronics, portable navigation device (PND) and wireless
fleet tracking businesses. During the second quarter of 2006, Brunswick began
reporting the results of these BNT businesses, which were previously reported in
the Marine Engine segment, as discontinued operations for all periods presented.
The Company’s results, as discussed in Management’s Discussion and Analysis,
reflect continuing operations only, unless otherwise noted. The Company
completed the divestiture of the BNT discontinued operations in
2007.
Outlook
for 2009
Looking
ahead to 2009, the Company expects 2009 revenues to be lower when compared with
2008, with higher relative percentage declines occurring in the first half of
the year. The expectation of lower revenues reflects the view that marine retail
demand will continue to decline, at least through the first six months of the
year, and that the Company is planning to sell product at wholesale and
manufacture at levels below marine retail demand.
Operating
earnings and margins for 2009 are expected to be adversely affected by the
reduction in production and wholesale shipments, as discussed above. These
actions are expected to have an unfavorable effect on margins due to reduced
gross margins on lower sales volumes and lower fixed-cost absorption on reduced
production. These reductions in sales demand and production volumes, along with
incremental pension-related expenses of approximately $75 million pretax and the
possible resumption of variable compensation, are expected to lead to lower
earnings and margins in 2009 when compared with 2008 earnings and margins before
goodwill and trade name impairments. Partially offsetting these factors are
expected to be nearly $200 million of net cost reductions resulting from the
full-year effect of actions taken in 2008 and further cost reduction activities
implemented and planned in 2009. Also partially mitigating the impact of lower
sales and production is the effect of lower restructuring charges of
approximately $125 million in 2009 versus 2008. More significant reductions in
demand for the Company’s products may necessitate additional restructuring or
exit charges in 2009. Excluding the effect of any special tax items that may
occur or any changes to tax legislation, Brunswick is expecting to record a tax
provision on operating losses in 2009. This is primarily the result of the
expected inability to recognize tax benefits on projected domestic net operating
losses and a projected tax provision on foreign earnings.
Matters
Affecting Comparability
The
following events have occurred during 2008, 2007 and 2006, which the Company
believes affect the comparability of the results of operations:
Goodwill impairment charges.
As a result of the continued reduction in demand for certain Brunswick
products, along with lower-than-projected profits across certain Brunswick
brands, management revised its future cash flow expectations in the third
quarter of 2008. The revised future cash flow expectations resulted in the
Company lowering its estimate of fair value of certain businesses and required
the Company to take a $374.0 million pretax goodwill impairment charge during
the third quarter of 2008, as prescribed by SFAS 142.
In 2008,
the Company incurred $377.2 million of goodwill impairment charges, which
include the aforementioned $374.0 million, along with impairments related to the
analyses of its Baja boat business and its Valley-Dynamo coin-operated
commercial billiards business in the second quarter of 2008. There were no
comparable charges recognized in 2007 or 2006. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
Trade name impairment
charges. In conjunction with the goodwill impairment testing, the Company
analyzed the valuation of its trade names in accordance with SFAS 142. The
analysis resulted in a pretax trade name impairment charge of $121.1 million
during the third quarter of 2008, representing the excess of the carrying cost
of the trade names over the calculated fair value. This compares with a $66.4
million pretax trade name impairment charge taken in the third quarter of 2007
as a result of a valuation analysis performed on certain outboard boat company
trade names.
In 2008,
the Company has taken $133.9 million of trade name impairment charges, which
include the aforementioned $121.1 million and additional impairments related to
the previous analyses of its Bluewater Marine boat business and its
Valley-Dynamo coin-operated commercial billiards business in the second quarter
of 2008. This charge compares with the $66.4 million trade name impairment
charge taken in 2007, related to the impairment of certain outboard boat trade
names. There were no comparable charges recognized in 2006. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
Restructuring, exit and other
impairment charges. Brunswick announced initiatives to improve the
Company’s cost structure, better utilize overall capacity and improve general
operating efficiencies. During 2008, the Company recorded a charge of $177.3
million related to these restructuring activities as compared with $22.2 million
during 2007 and $17.1 million during 2006. See Note 2 – Restructuring Activities
in the Notes to Consolidated Financial Statements for further
details.
Investment sale gains. In
March 2008, Brunswick sold its interest in its bowling joint venture in Japan
for $40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes
and other costs. The sale resulted in a $20.9 million pretax gain, $9.9 million
after-tax, and was recorded in Investment sale gains in the Consolidated
Statements of Operations.
In
September 2008, Brunswick sold its investment in a foundry located in Mexico for
$5.1 million gross cash proceeds. The sale resulted in a $2.1 million pretax
gain and was recorded in Investment sale gains in the Consolidated Statements of
Operations.
Tax Items. During 2008, the
Company recognized a tax provision of $155.9 million on operating losses from
continuing operations of $632.2 million for an effective tax rate of (24.7)
percent. Typically, the Company would recognize a tax benefit on operating
losses; however, due to the uncertainty of the realization of certain net
deferred tax assets, a provision of $338.3 million was recognized to increase
the deferred tax asset valuation allowance. See Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements for further details.
During
2007, the Company recognized special tax benefits of $9.8 million, primarily as
a result of favorable tax reassessments and its election to apply the indefinite
reversal criterion of APB 23 to the undistributed net earnings of certain
foreign subsidiaries, as discussed in Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements. These benefits were partially offset
by expense related to changes in estimates of prior years’ tax return filings
and the impact of a foreign jurisdiction tax rate reduction on the underlying
net deferred tax asset.
During
2006, the Company reduced its tax provision primarily due to $47.0 million of
tax benefits, consisting mostly of $40.2 million of tax reserve reassessments of
underlying exposures. Refer to Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements for
further detail.
Results
of Operations
Consolidated
The
following table sets forth certain amounts, ratios and relationships calculated
from the Consolidated Statements of Operations for the years ended December 31,
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2008
vs. 2007
|
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
Increase/(Decrease)
|
|
(in
millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
4,708.7 |
|
|
$ |
5,671.2 |
|
|
$ |
5,665.0 |
|
|
$ |
(962.5 |
) |
|
|
(17.0 |
)% |
|
$ |
6.2 |
|
|
|
0.1 |
% |
Gross
margin (A)
|
|
|
867.4 |
|
|
|
1,157.8 |
|
|
|
1,233.3 |
|
|
|
(290.4 |
) |
|
|
(25.1 |
)% |
|
|
(75.5 |
) |
|
|
(6.1 |
)% |
Goodwill
impairment charges
|
|
|
377.2 |
|
|
|
— |
|
|
|
— |
|
|
|
377.2 |
|
|
NM
|
|
|
|
— |
|
|
|
— |
|
Trade
name impairment charges
|
|
|
133.9 |
|
|
|
66.4 |
|
|
|
— |
|
|
|
67.5 |
|
|
NM
|
|
|
|
66.4 |
|
|
NM
|
|
Restructuring,
exit and other impairment charges
|
|
|
177.3 |
|
|
|
22.2 |
|
|
|
17.1 |
|
|
|
155.1 |
|
|
NM
|
|
|
|
5.1 |
|
|
|
29.8 |
% |
Operating
earnings (loss)
|
|
|
(611.6 |
) |
|
|
107.2 |
|
|
|
341.2 |
|
|
|
(718.8 |
) |
|
NM
|
|
|
|
(234.0 |
) |
|
|
(68.6 |
)% |
Net
earnings (loss) from continuing operations
|
|
|
(788.1 |
) |
|
|
79.6 |
|
|
|
263.2 |
|
|
|
(867.7 |
) |
|
NM
|
|
|
|
(183.6 |
) |
|
|
(69.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
(8.93 |
) |
|
$ |
0.88 |
|
|
$ |
2.78 |
|
|
$ |
(9.81 |
) |
|
NM
|
|
|
$ |
(1.90 |
) |
|
|
(68.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expressed
as a percentage of Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
18.4 |
% |
|
|
20.4 |
% |
|
|
21.7 |
% |
|
|
|
|
|
(200
|
)bpts |
|
|
|
|
|
(130
|
)bpts |
Selling,
general and administrative expense
|
|
|
14.2 |
% |
|
|
14.5 |
% |
|
|
13.1 |
% |
|
|
|
|
|
(30
|
)bpts |
|
|
|
|
|
140
|
bpts |
Research
& development expense
|
|
|
2.6 |
% |
|
|
2.4 |
% |
|
|
2.3 |
% |
|
|
|
|
|
20
|
bpts |
|
|
|
|
|
10
|
bpts |
Goodwill
impairment charges
|
|
|
8.0 |
% |
|
|
— |
% |
|
|
— |
% |
|
|
|
|
|
800
|
bpts |
|
|
|
|
|
|
— |
|
Trade
name impairment charges
|
|
|
2.8 |
% |
|
|
1.2 |
% |
|
|
— |
% |
|
|
|
|
|
160
|
bpts |
|
|
|
|
|
120
|
bpts |
Restructuring,
exit and other impairment charges
|
|
|
3.8 |
% |
|
|
0.4 |
% |
|
|
0.3 |
% |
|
|
|
|
|
340
|
bpts |
|
|
|
|
|
10
|
bpts |
Operating
margin
|
|
|
(13.0 |
)% |
|
|
1.9 |
% |
|
|
6.0 |
% |
|
|
|
|
|
NM
|
|
|
|
|
|
|
(410
|
)bpts |
__________
bpts = basis
points
NM = not
meaningful
(A) Gross
margin is defined as Net sales less Cost of sales as presented in the
Consolidated Statements of Operations.
2008
vs. 2007
The
decrease in net sales was primarily due to reduced marine industry demand
compared with 2007 as a result of uncertainty in the global economy and the
related contraction of liquidity in global credit markets. Weakness in marine
retail demand was previously isolated to the United States; however, the recent
uncertainty in the global economy has had an adverse effect on worldwide retail
demand. As a result of the prolonged decline in marine retail demand and tighter
credit markets, a large dealer filed for bankruptcy in 2008. If additional
dealers file for bankruptcy, Brunswick’s net sales and earnings from continuing
operations may be unfavorably affected through lower market exposure and the
associated decline in sales and the potential for the repurchase of Brunswick
products or recourse payments on customers’ debt obligations.
Although
net sales in 2008 were down 17 percent from 2007, the Company saw strong sales
of commercial fitness equipment and bowling products and experienced increases
in revenue from Brunswick Zone XL centers.
Sales
outside the United States increased $42.1 million to $2,058.5 million in 2008,
with the largest increase in contributions coming from the Latin American
region, which increased $51.2 million to $247.8 million, and the Africa &
Middle East region, which increased $23.7 million to $121.8 million. The total
growth outside the United States was largely attributable to higher sales from
the Boat, Bowling & Billiards and Fitness segments.
Brunswick’s
gross margin percentage decreased 200 basis points in 2008 to 18.4 percent from
20.4 percent in 2007. The decrease was primarily due to lower fixed-cost
absorption and inefficiencies due to reduced production rates, as a result of
the Company’s efforts to achieve appropriate levels of marine customer pipeline
inventories in light of lower retail demand, and higher raw material and
component costs. This decrease was partially offset by price increases at
certain businesses, successful cost-reduction efforts and lower variable
compensation expense.
Operating
expenses decreased by $171.4 million to $790.6 million in 2008. The decrease was
primarily driven by successful cost reduction initiatives and lower variable
compensation expense, but was partially offset by the effect of unfavorable
foreign currency translation.
During
2008, the Company incurred $511.1 million of impairment charges related to its
goodwill and trade names. These charges compare with the $66.4 million
impairment charge taken on certain trade names during the comparable 2007
period. See Note 3 – Goodwill
and Trade Name Impairments in the Notes to Consolidated Financial
Statements for further details.
During
2008, the Company announced additional restructuring activities including the
closing of its bowling pin manufacturing facility in Antigo, Wisconsin; closing
of its boat plant in Bucyrus, Ohio, in connection with the divestiture of its
Baja boat business; closing of its Swansboro, North Carolina, boat plant;
closing its production facility in Newberry, South Carolina; the cessation of
boat manufacturing at one of its facilities in Merritt Island, Florida; the
write-down of certain assets of the Valley-Dynamo coin-operated commercial
billiards business; the closing of its production facilities in Pipestone,
Minnesota; Roseburg, Oregon; and Arlington, Washington; mothballing its Navassa,
North Carolina, boat plant; and the reduction of its employee workforce across
the Company. See Note 2 –
Restructuring Activities in the Notes to Consolidated Financial
Statements for further details.
The
decrease in operating earnings was mainly due to reduced sales volumes, along
with lower fixed-cost absorption, goodwill and trade name impairments taken
during 2008 and the restructuring activities discussed above.
Equity
earnings decreased $14.8 million to $6.5 million in 2008. The decrease in equity
earnings was mainly the result of lower earnings from the Company’s marine joint
ventures and the absence of earnings from its bowling joint venture in Japan, as
the joint venture was sold in the first quarter of 2008.
During
2008, Brunswick sold its interest in its bowling joint venture in Japan for
$40.4 million gross cash proceeds and its investment in a foundry located in
Mexico for $5.1 million gross cash proceeds. These sales resulted in $23.0
million of pretax gains.
The
decrease in Other income (expense), net was due to the absence of a legal claim
settlement against a third-party service provider in 2007. The 2007 settlement
resulted in $7.1 million of income, net of legal fees, and was reflected in
Other income (expense), net.
Interest
expense increased $1.9 million to $54.2 million in 2008 compared with 2007,
primarily as a result of higher interest rates on outstanding debt. In July
2008, the Company issued $250 million of notes due in 2013 to fund the maturity
of $250 million of notes due in July 2009, as described in Note 14 – Debt in the Notes to
Consolidated Financial Statements. Interest income decreased $2.0 million to
$6.7 million in 2008 compared with 2007 primarily as a result of lower invested
balances during 2008.
During
2008, the Company recognized a tax provision of $155.9 million on operating
losses from continuing operations of $632.2 million for an effective tax rate of
(24.7) percent. Typically, the Company would recognize a tax benefit on
operating losses; however, due to the uncertainty of the realization of certain
net deferred tax assets, a provision of $338.3 million was recognized to
increase the deferred tax asset valuation allowance. See Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements for further details.
In 2007,
the Company’s effective tax rate of 14.1 percent was lower than the statutory
rate primarily due to benefits from $12.7 million related to reassessments of
the deductibility of restructuring reserves and depreciation timing differences;
foreign earnings in tax jurisdictions with lower effective tax rates; and a
research and development tax credit. These benefits were partially offset by
$3.8 million of additional taxes related to changes in estimates related to
prior year’s filings, as discussed in Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements.
Net
earnings and diluted earnings per share decreased primarily due to the same
factors discussed above in operating earnings.
Weighted
average common shares outstanding used to calculate diluted earnings per share
decreased to 88.3 million in 2008 from 90.2 million in 2007. Although no shares
were repurchased during 2008, the average outstanding shares in 2007 did not
fully reflect the effects of the 4.1 million shares repurchased in 2007, as
discussed in Note 19 – Share
Repurchase Program in the Notes to Consolidated Financial
Statements.
There was
no activity related to discontinued operations in 2008 as the disposition was
completed during 2007.
2007
vs. 2006
The
increase in net sales was primarily due to the strong performance of boat and
engine sales outside the United States, higher Fitness segment sales resulting
from increased sales volumes, higher sales of marine parts and accessories, and
sales gains at bowling retail entertainment centers. These factors slightly
outpaced the impact of continued reduction in United States marine industry
demand.
Sales
outside the United States increased $214.0 million to $2,016.4 million in 2007,
with the largest contributions coming from the European region, which increased
$113.9 million to $1,038.9 million, the Latin American region, which increased
$38.3 million to $196.6 million, and the Asia Pacific region, which increased
$35.0 million to $338.2 million. This growth was largely attributable to higher
sales of engines, fitness equipment and boats.
Brunswick’s
gross margin percentage decreased 130 basis points in 2007 to 20.4 percent from
21.7 percent in 2006. This decrease was the result of lower fixed-cost
absorption and inefficiencies due to reduced production rates as a result of the
Company’s effort to achieve appropriate levels of marine customer pipeline
inventories in light of lower retail demand; higher raw material and component
costs; increased promotional incentives, restructuring expenses and unfavorable
warranty experiences in the Boat segment; and a mix shift toward lower
horsepower four-stroke engines manufactured by a joint venture that carry lower
margins. These unfavorable factors were partially offset by successful
cost-reduction efforts, the benefit of a weaker dollar and increased worldwide
sales volume in the Fitness segment.
Operating
expenses increased $87.0 million to $962.0 million in 2007, due to higher
variable compensation expense, inflation and the effects of a weaker dollar, the
absence of the gains on sales of property sold in 2006 and the absence of a
favorable settlement with an insurance carrier on environmental coverage
received in 2006.
Also
contributing to the decline in both operating earnings and margins was a $66.4
million pretax trade name impairment charge recorded during the third quarter of
2007, as discussed in Note 3 –
Goodwill and Trade Name Impairments in the Notes to Consolidated
Financial Statements and $22.2 million of restructuring, exit and other
impairment charges as discussed in Note 2 – Restructuring Activities
in the Notes to Consolidated Financial Statements. There were no
comparable trade name impairments in 2006, while there were $17.1 million of
restructuring, exit and other impairment charges in 2006.
Operating
earnings decreased to $107.2 million in 2007 from $341.2 million in 2006. The
decrease in operating earnings was mainly due to the decline in Boat segment
sales volumes and the unfavorable factors affecting gross margin and operating
expenses discussed above.
Equity
earnings increased $6.4 million to $21.3 million in 2007. The increase in equity
earnings was mainly the result of additional earnings from the Company’s CMD
joint venture.
In August
2007, the Company settled a legal claim against a third-party service provider.
The settlement resulted in $7.1 million of income, net of legal fees, and was
reflected in Other income (expense), net for the period.
Interest
expense decreased $8.2 million to $52.3 million in 2007 compared with 2006,
primarily as a result of lower debt levels in 2007. In July 2006, the Company
issued $250 million of notes due in 2009 to fund the maturity of $250 million of
notes due in December 2006, as described in Note 14 – Debt in the Notes to
Consolidated Financial Statements. Interest income decreased $7.3 million to
$8.7 million in 2007 compared with 2006 primarily as a result of income earned
in 2006 on the proceeds from the aforementioned notes issued in July
2006.
In 2007,
the Company’s effective tax rate of 14.1 percent was lower than the statutory
rate primarily due to benefits from $12.7 million related to reassessments of
the deductibility of restructuring reserves and depreciation timing differences;
foreign earnings in tax jurisdictions with lower effective tax rates; and a
research and development tax credit. These benefits were partially offset by
$3.8 million of additional taxes related to changes in estimates related to
prior year’s filings, as discussed in Note 10 – Income Taxes in the
Notes to Consolidated Financial Statements.
During
the year ended December 31, 2006, the Company recognized tax benefits of $47.0
million, consisting primarily of $40.2 million of tax reserve reassessments of
underlying exposures, as discussed in Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial
Statements.
Net
earnings and diluted earnings per share decreased primarily due to the same
factors discussed above in operating earnings.
Weighted
average common shares outstanding used to calculate diluted earnings per share
decreased to 90.2 million in 2007 from 94.7 million in 2006. The decrease in
average shares outstanding was primarily due to the repurchase of 4.1 million
shares during 2007, as discussed in Note 19 – Share Repurchase Program
in the Notes to Consolidated Financial Statements.
Sales
from discontinued operations were $99.7 million during 2007, compared with
$306.3 million during 2006. Sales declined significantly as a result of the
sales of BNT’s marine electronics and PND businesses, which were disposed of
during the first quarter of 2007 and the BNT wireless fleet tracking business,
which was sold in July 2007. The July sale completed the disposal of the BNT
businesses. The discontinued operations generated after-tax earnings from the
BNT business operations, excluding the gains on the sales of the businesses, of
$2.2 million in 2007, compared with after-tax operating losses, which include
impairment charges of $85.6 million after-tax, of $43.7 million during 2006. The
2007 earnings from these operations were almost exclusively related to
post-closing income tax adjustments as a result of the finalization of BNT sales
agreements. The comparable 2006 loss was the result of costs associated with
reducing inventories and maintaining competitive pricing in the
marketplace.
In March
2007, Brunswick completed the sales of BNT’s marine electronics and PND
businesses to Navico International Ltd. and MiTAC International Corporation,
respectively, for net proceeds of $40.6 million. A $4.0 million after-tax gain
was recognized with the divestiture of these businesses in 2007.
In July
2007, the Company completed the sale of BNT’s wireless fleet tracking business
to Navman Wireless Holdings L.P. for net proceeds of $28.8 million, resulting in
an after-tax gain of $25.8 million.
The
Company completed the divestiture of the BNT discontinued operations during
2007. With the net asset impairment taken prior to the disposition of the BNT
businesses in the fourth quarter of 2006 of $85.6 million, after-tax, and the
subsequent 2007 gains of $29.8 million, after-tax, on the BNT business sales,
the net impact to the Company of these dispositions was a net loss of $55.8
million, after-tax.
Segments
The
Company operates in four reportable segments: Boat, Marine Engine, Fitness and
Bowling & Billiards. Refer to Note 5 – Segment Information
in the Notes to Consolidated Financial Statements for details on the operations
of these segments.
Boat
Segment
The
following table sets forth Boat segment results for the years ended December 31,
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2008
vs. 2007
|
|
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
|
Increase/(Decrease)
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
$ |
|
|
|
% |
|
|
|
$ |
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,011.9 |
|
|
$ |
2,690.9 |
|
|
$ |
2,864.4 |
|
|
$ |
(679.0 |
) |
|
|
(25.2 |
)% |
|
|
$ |
(173.5 |
) |
|
|
(6.1 |
)% |
Goodwill
impairment charges
|
|
$ |
362.8 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
362.8 |
|
|
NM
|
|
|
|
$ |
— |
|
|
|
— |
|
Trade
name impairment charges
|
|
$ |
120.9 |
|
|
$ |
66.4 |
|
|
$ |
— |
|
|
$ |
54.5 |
|
|
|
82.1 |
% |
|
|
$ |
66.4 |
|
|
NM
|
|
Restructuring,
exit and other impairment charges
|
|
$ |
101.7 |
|
|
$ |
15.9 |
|
|
$ |
4.2 |
|
|
$ |
85.8 |
|
|
NM
|
|
|
|
$ |
11.7 |
|
|
NM
|
|
Operating
earnings
|
|
$ |
(653.7 |
) |
|
$ |
(81.4 |
) |
|
$ |
135.6 |
|
|
$ |
(572.3 |
) |
|
NM
|
|
|
|
$ |
(217.0 |
) |
|
NM
|
|
Operating
margin
|
|
|
(32.5 |
)% |
|
|
(3.0 |
)% |
|
|
4.7 |
% |
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
(770
|
)bpts |
Capital
expenditures
|
|
$ |
42.6 |
|
|
$ |
94.9 |
|
|
$ |
75.8 |
|
|
$ |
(52.3 |
) |
|
|
(55.1 |
)% |
|
|
$ |
19.1 |
|
|
|
25.2 |
% |
__________
bpts =
basis points
NM = not
meaningful
2008
vs. 2007
The
decrease in Boat segment net sales was largely attributable to the effect of
reduced marine retail demand in U.S. markets and lower shipments to dealers in
an effort to achieve appropriate levels of pipeline inventories. In addition to
the weak retail demand, the contraction of liquidity in global credit markets
has led to lower net sales in 2008, especially during the second half of the
year.
The
goodwill and trade name impairment charges in 2008 were primarily the result of
its SFAS 142 analysis performed during the third quarter of 2008. The remaining
charges were the result of deciding to exit certain businesses. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
During
2008, Brunswick continued its restructuring initiatives as described in Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements. Certain
significant actions taken at the Boat segment include the sale of certain assets
of its Baja boat business, the cessation of production of Bluewater Marine group
boats and the closure of several of its US Marine production facilities, as
described below.
During
the second quarter of 2008, the Company sold certain assets of its Baja boat
business (Baja) to Fountain Powerboat Industries, Inc. (Fountain). The
transaction was aimed at further refining the Company’s product portfolio and
focusing its resources on brands and marine segments that are considered to be
core to the Company’s future success. The Company ramped down production at its
Bucyrus, Ohio, plant through the end of May. The total costs of the Baja
transaction were approximately $15 million, all of which were incurred during
2008. The majority of the $15 million charge consisted of asset write-downs
related to selected assets sold to Fountain and the residual assets sold to
third parties.
During
the second quarter of 2008, the Company ceased production of boats for its
Bluewater Marine group (Bluewater), including the Sea Pro, Sea Boss, Palmetto
and Laguna brands, which were manufactured at its Newberry, South Carolina,
facility. The total costs of the Bluewater cessation were approximately $24
million, all of which were incurred during 2008. The majority of the $24 million
charge consisted of asset write-downs related to the disposition of selected
assets.
During
the second half of 2008, the Company closed several of its US Marine production
facilities, which produce Bayliner, Maxum and Trophy boats and Meridian yachts,
in an effort to continue to consolidate its manufacturing footprint. The Company
incurred approximately $26 million in costs related to these closures in 2008
and expects to incur approximately $17 million of additional costs in 2009. The
majority of the approximately $43 million in costs represents asset write-downs
related to the disposition of selected assets and severance
charges.
Boat
segment operating earnings decreased from 2007 primarily due to goodwill and
trade name impairment charges, a decrease in sales volume and increased
restructuring, exit and other impairment charges. Additionally, lower fixed-cost
absorption and increased inventory repurchase obligation accruals contributed to
the decline in operating earnings. This decrease was partially offset by savings
from successful cost-reduction initiatives and lower variable compensation
expense.
Capital
expenditures in 2008 were largely attributable to tooling costs for the
production of new models. Capital spending was lower during 2008 as a result of
discretionary capital spending constraints and the acquisition of the boat
manufacturing facility in Navassa, North Carolina, in 2007.
2007
vs. 2006
The
decrease in Boat segment net sales was largely attributable to the impact of
reduced marine retail demand in United States markets and lower shipments to
dealers in an effort to achieve appropriate levels of pipeline inventories.
Increased promotional incentives also contributed to lower net sales. Sales were
positively affected by growth outside the United States and gains in the Boat
segment’s parts and accessories business. Additionally, sales were favorably
affected by acquisitions completed in 2007 and 2006.
Boat
segment operating earnings decreased from 2006, primarily due to a decrease in
sales volume and the $66.4 million pretax impairment charges taken on certain
indefinite-lived intangible assets, as discussed in Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements.
Additionally, increased promotional incentives, higher raw material costs,
higher restructuring costs, increased variable compensation expense and
additional warranty costs also contributed to the decline in operating
earnings.
Capital
expenditures increased in 2007 as a result of the acquisition of a boat
manufacturing facility in Navassa, North Carolina. Other than the acquisition of
the manufacturing facility in 2007 and a marina in 2006, the 2007 and 2006
capital expenditures were largely attributable to tooling costs for the
production of new models across all boat brands.
Marine
Engine Segment
The
following table sets forth Marine Engine segment results for the years ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2008
vs. 2007
|
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
Increase/(Decrease)
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,955.9 |
|
|
$ |
2,357.5 |
|
|
$ |
2,271.3 |
|
|
$ |
(401.6 |
) |
|
|
(17.0 |
)% |
|
$ |
86.2 |
|
|
|
3.8 |
% |
Trade
name impairment charges
|
|
$ |
4.5 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4.5 |
|
|
NM
|
|
|
$ |
— |
|
|
|
— |
|
Restructuring,
exit and other impairment charges
|
|
$ |
29.4 |
|
|
$ |
3.4 |
|
|
$ |
9.5 |
|
|
$ |
26.0 |
|
|
NM
|
|
|
$ |
(6.1 |
) |
|
|
(64.2 |
)% |
Operating
earnings
|
|
$ |
68.3 |
|
|
$ |
183.7 |
|
|
$ |
193.8 |
|
|
$ |
(115.4 |
) |
|
|
(62.8 |
)% |
|
$ |
(10.1 |
) |
|
|
(5.2 |
)% |
Operating
margin
|
|
|
3.5 |
% |
|
|
7.8 |
% |
|
|
8.5 |
% |
|
|
|
|
|
(430
|
)bpts |
|
|
|
|
|
(70
|
)bpts |
Capital
expenditures
|
|
$ |
21.7 |
|
|
$ |
54.8 |
|
|
$ |
72.5 |
|
|
$ |
(33.1 |
) |
|
|
(60.4 |
)% |
|
$ |
(17.7 |
) |
|
|
(24.4 |
)% |
__________
bpts =
basis points
NM = not
meaningful
2008
vs. 2007
Net sales
recorded by the Marine Engine segment decreased compared with 2007 primarily due
to the Company’s reduction in wholesale shipments in response to reduced marine
retail demand in the United States. In addition
to the weak retail demand in the United States, the contraction of liquidity in
global credit markets in the second half of 2008 also led to lower net sales
outside the United States in 2008.
As a
result of its SFAS 142 review of goodwill and trade names, Brunswick incurred
trade name charges within the Marine Engine segment during 2008. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
The
restructuring, exit and other impairment charges recognized during 2008 are
primarily related to severance charges and other restructuring activities
initiated in 2008 and include $19.3 million of gains recognized on the sales of
non-strategic assets. See Note
2 – Restructuring Activities in the Notes to Consolidated Financial
Statements for further details.
Marine
Engine segment operating earnings decreased in 2008 as a result of lower sales
volumes; restructuring, exit and other impairment charges associated with the
Company’s initiatives to reduce costs across all business units; and trade name
impairment charges. Additionally, lower fixed-cost absorption and an increased
concentration of sales in lower-margin products contributed to the decline in
operating earnings. This decrease was partially offset by the savings from
successful cost-reduction initiatives and lower variable compensation
expense.
Capital
expenditures in 2008 and 2007 were primarily related to the continued
investments in new products, but were lower during 2008 as a result of
discretionary capital spending constraints.
2007
vs. 2006
Net sales
recorded by the Marine Engine segment increased compared with 2006. The increase
was the result of sales growth outside the United States across all major
regions, volume increases in the low horsepower four-stroke engines manufactured
by a joint venture, the favorable effect of foreign currency translation and
higher engine pricing. This increase was partially offset by a slight decline in
sales within the United States.
Marine
Engine segment operating earnings decreased in 2007 as a result of increases in
raw materials costs and other inflationary effects, concentration of sales in
lower margin products, higher variable compensation expense, costs related to
inventory adjustments, an adverse settlement related to a patent infringement
lawsuit and the absence of a favorable settlement with an insurance carrier on
environmental coverage received in 2006. This decrease was partially offset by
the impact of increased net sales outside the United States, the favorable
effect of foreign currency translation, increased manufacturing efficiencies in
outboard engine manufacturing, favorable warranty experience in 2007 and reduced
promotional incentives.
The
decrease in capital expenditures was primarily attributable to investments in
2006 associated with the completion of a second four-stroke outboard production
line, plant expansions for die cast operations and investments in information
technology.
Fitness
Segment
The
following table sets forth Fitness segment results for the years ended December
31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2008
vs. 2007
|
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
Increase/(Decrease)
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
639.5 |
|
|
$ |
653.7 |
|
|
$ |
593.1 |
|
|
$ |
(14.2 |
) |
|
|
(2.2 |
)% |
|
$ |
60.6 |
|
|
|
10.2 |
% |
Restructuring,
exit and other impairment charges
|
|
$ |
3.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3.3 |
|
|
NM
|
|
|
$ |
— |
|
|
|
— |
|
Operating
earnings
|
|
$ |
52.2 |
|
|
$ |
59.7 |
|
|
$ |
57.8 |
|
|
$ |
(7.5 |
) |
|
|
(12.6 |
)% |
|
$ |
1.9 |
|
|
|
3.3 |
% |
Operating
margin
|
|
|
8.2 |
% |
|
|
9.1 |
% |
|
|
9.7 |
% |
|
|
|
|
|
(90
|
)bpts |
|
|
|
|
|
(60
|
)bpts |
Capital
expenditures
|
|
$ |
4.5 |
|
|
$ |
11.8 |
|
|
$ |
11.0 |
|
|
$ |
(7.3 |
) |
|
|
(61.9 |
)
% |
|
$ |
0.8 |
|
|
|
7.3 |
% |
__________
bpts =
basis points
NM = not
meaningful
2008
vs. 2007
The
decrease in Fitness segment net sales was largely attributable to volume
declines in consumer equipment sales in the United States, as individuals
continue to defer purchasing discretionary items. Competitive pricing pressures
in global markets also contributed to the sales decline in 2008. These decreases
were partially offset by sales of the recently introduced Elevation line of new
cardiovascular products.
The
restructuring, exit and other impairment charges recognized during 2008 are
related to write-downs of non-strategic assets and severance charges. See Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements for further
details.
The
Fitness segment operating earnings were adversely affected by lower sales of
consumer equipment in the United States, competitive pricing pressures,
increases in raw material and fuel costs and the implementation of various
restructuring activities. Operating earnings benefited from successful
cost-reduction initiatives and lower variable compensation expense.
2008
capital expenditures were primarily related to tooling for new products, but
were lower during 2008 as a result of the substantial completion of the
Elevation series of cardiovascular equipment in early 2008.
2007
vs. 2006
The
increase in Fitness segment net sales was largely attributable to commercial
equipment sales growth in the United States and Europe, as health clubs
continued to expand, as well as consumer equipment sales growth in Europe.
Additionally, favorable foreign currency translation led to higher sales in 2007
as compared with 2006. The sales growth in 2007 was partially offset by
competitive pricing pressures in markets outside the United States.
The
Fitness segment operating earnings benefited from sales volume growth in
commercial products, higher contributions from the resale of certified pre-owned
fitness equipment in Europe and a decline in United States freight and
installation costs. These benefits were partially offset by a mix shift in sales
toward lower margin products in the United States and Europe, the unfavorable
effect of inflation on wages and benefits, higher research and development and
marketing costs related to the launch of new cardiovascular products and higher
product warranty costs.
2007
capital expenditures were related to continued investments in a new line of
cardiovascular products while capital expenditures in 2006 were primarily
related to investment in an engineering research and development
facility.
Bowling
& Billiards Segment
The
following table sets forth Bowling & Billiards segment results for the years
ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2008
vs. 2007
|
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
Increase/(Decrease)
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
448.3 |
|
|
$ |
446.9 |
|
|
$ |
458.3 |
|
|
$ |
1.4 |
|
|
|
0.3 |
% |
|
$ |
(11.4 |
) |
|
|
(2.5 |
)% |
Goodwill
impairment charges
|
|
$ |
14.4 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
14.4 |
|
|
NM
|
|
|
$ |
– |
|
|
|
– |
|
Trade
name impairment charges
|
|
$ |
8.5 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
8.5 |
|
|
NM
|
|
|
$ |
– |
|
|
|
– |
|
Restructuring,
exit and other impairment charges
|
|
$ |
21.7 |
|
|
$ |
2.8 |
|
|
$ |
2.7 |
|
|
$ |
18.9 |
|
|
NM
|
|
|
$ |
0.1 |
|
|
|
3.7 |
% |
Operating
earnings
|
|
$ |
(12.7 |
) |
|
$ |
16.5 |
|
|
$ |
22.1 |
|
|
$ |
(29.2 |
) |
|
NM
|
|
|
$ |
(5.6 |
) |
|
|
(25.3 |
)% |
Operating
margin
|
|
|
(2.8 |
)% |
|
|
3.7 |
% |
|
|
4.8 |
% |
|
|
|
|
|
(650)
|
bpts |
|
|
|
|
|
(110)
|
bpts |
Capital
expenditures
|
|
$ |
26.9 |
|
|
$ |
41.6 |
|
|
$ |
43.7 |
|
|
$ |
(14.7 |
) |
|
|
(35.3 |
)% |
|
$ |
(2.1 |
) |
|
|
(4.8 |
)% |
__________
bpts =
basis points
NM = not
meaningful
2008
vs. 2007
Bowling
& Billiards segment net sales were up from prior year levels primarily as a
result of sales associated with Brunswick Zone XL centers opened during 2007 and
2008 and stronger capital equipment sales. Mostly offsetting this increase was a
decline in equivalent bowling retail entertainment center sales as well as
volume declines in consumer and commercial billiards tables.
The
goodwill and trade name impairment charges in 2008 were primarily the result of
its SFAS 142 analysis performed during the third quarter of 2008. The remaining
charges related to the Valley-Dynamo business. See Note 3 – Goodwill and Trade Name
Impairments in the Notes to Consolidated Financial Statements for further
details.
During
2008, Brunswick continued its restructuring initiatives as described in Note 2 – Restructuring
Activities in the Notes to Consolidated Financial Statements. The Company
evaluated several strategic options, including the potential sale of its
Valley-Dynamo coin-operated commercial billiards business. The Company incurred
approximately $19 million of costs in 2008 related to the potential sale and
expects to incur additional costs of approximately $4 million in 2009. The
majority of the $23 million charge relates to asset write-downs.
The
decrease in 2008 operating earnings was attributable to goodwill and trade name
impairment charges, restructuring, exit and other impairment charges as well as
the impact of lower sales of consumer and commercial billiards tables and lower
non-Brunswick Zone XL bowling retail entertainment sales. Partially offsetting
this decrease was the impact of increased capital equipment sales, improved
efficiency at the Reynosa, Mexico, bowling ball manufacturing facility, savings
from successful cost-reduction initiatives and the full year impact of recently
opened Brunswick Zone XL centers.
Decreased
capital expenditures in 2008 were driven primarily by reduced spending for
Brunswick Zone XL centers, as the Company had more centers under construction
during 2007 compared with 2008.
2007
vs. 2006
Bowling
& Billiards segment net sales in 2007 decreased from prior year levels,
primarily due to declines in sales of bowling products as a result of difficult
market conditions; operational inefficiencies at the Reynosa, Mexico bowling
ball facility; the absence of sales related to instant redemption games, where
Brunswick’s supplier modified its distribution channel and began selling
directly to retail entertainment centers; the loss of sales from divested
bowling centers and a decline in Valley-Dynamo coin-operated billiards table
sales. This decrease has been partially offset by increased sales at three new
Brunswick Zone XL centers and higher revenues at existing bowling
centers.
The
decrease in 2007 operating earnings was attributable to lower sales, additional
costs associated with operational inefficiencies of the Reynosa bowling ball
plant, write-downs taken on certain bowling center fixed assets where the
carrying value was not expected to be fully recoverable, the absence of earnings
from the instant redemption games discussed above, the lack of gains from sales
of bowling centers in 2006 and higher costs associated with the start-up of
three new Brunswick Zone XL centers noted above. This decrease was partially
offset by the absence of 2006 losses from bowling centers disposed of during
2007 and improved warranty experience related to bowling products.
Decreased
capital expenditures in 2007 were driven by reduced spending for the new bowling
ball manufacturing facility in Reynosa, Mexico, partially offset by capital
expenditures associated with three new Brunswick Zone XL centers opened in 2007
compared with one in 2006.
Corporate
The
following table sets forth restructuring activities undertaken at Corporate for
the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2008
vs. 2007
|
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
Increase/(Decrease)
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
|
% |
|
|
$
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring,
exit and other impairment
charges
|
|
$ |
21.2 |
|
|
$ |
0.1 |
|
|
$ |
0.7 |
|
|
$ |
21.1 |
|
|
NM
|
|
|
$ |
(0.6 |
) |
|
NM
|
|
__________
NM = not
meaningful
The
restructuring, exit and other impairment charges recognized during 2008 are
related to write-downs and disposals of non-strategic assets and severance
charges. See Note 2 –
Restructuring Activities in the Notes to Consolidated Financial
Statements for further details.
Cash
Flow, Liquidity and Capital Resources
The
following table sets forth an analysis of free cash flow for the years ended
December 31, 2008, 2007 and 2006:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used for) operating activities of continuing
operations
|
|
$ |
(12.1 |
) |
|
$ |
344.1 |
|
|
$ |
351.0 |
|
Net
cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(102.0 |
) |
|
|
(207.7 |
) |
|
|
(205.1 |
) |
Proceeds
from investment sales
|
|
|
45.5 |
|
|
|
— |
|
|
|
— |
|
Proceeds
from the sale of property, plant and equipment
|
|
|
28.3 |
|
|
|
10.1 |
|
|
|
7.2 |
|
Other,
net
|
|
|
17.2 |
|
|
|
25.6 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Free
cash flow from continuing operations *
|
|
$ |
(23.1 |
) |
|
$ |
172.1 |
|
|
$ |
152.7 |
|
__________
|
*
|
The
Company defines Free cash flow from continuing operations as cash flow
from operating and investing activities of continuing operations
(excluding cash used for acquisitions and investments) and excluding
financing activities. Free cash flow from continuing operations is not
intended as an alternative measure of cash flow from operations, as
determined in accordance with generally accepted accounting principles
(GAAP) in the United States. The Company uses this financial measure, both
in presenting its results to shareholders and the investment community and
in its internal evaluation and management of its businesses. Management
believes that this financial measure and the information it provides are
useful to investors because it permits investors to view the Company’s
performance using the same tool that management uses to gauge progress in
achieving its goals. Management believes that the non-GAAP financial
measure “Free cash flow from continuing operations” is also useful to
investors because it is an indication of cash flow that may be available
to fund further investments in future growth
initiatives.
|
Brunswick’s
major sources of funds for investments, acquisitions and dividend payments are
cash generated from operating activities, available cash balances and selected
borrowings. The Company evaluates potential acquisitions, divestitures and joint
ventures in the ordinary course of business.
2008
vs. 2007
In 2008,
net cash used for operating activities of continuing operations totaled $12.1
million, compared with net cash provided by operating activities of continuing
operations in 2007 of $344.1 million. This decrease was driven by a $788.1
million net loss from continuing operations, adjusted for non-cash pretax
charges for goodwill, trade name and other impairments of $564.3 million.
Additionally, the Company experienced an increase of $100.0 million in working
capital in 2008, compared with a decrease in working capital of $3.5 million in
2007. Working capital is defined as non-cash current assets less current
liabilities. The 2008 increase in working capital was primarily the result of
reductions in the Company's accounts payable and accrued expenses relating to
the reduced level of production activity, largely in the marine engine and boat
segments, the cancellation of variable compensation for 2008 and lower accrued
discounts during 2008. These declines were partially offset by lower inventories
and lower trade receivables which were driven by reduced demand for its marine
products.
Cash
flows from investing activities included capital expenditures of $102.0 million,
compared with $207.7 million in 2007. There were no acquisitions in 2008 and,
therefore no cash was paid during 2008. Cash paid for acquisitions, net of cash
acquired, totaled $6.2 million in 2007. See Note 7 – Acquisitions in the
Notes to Consolidated Financial Statements for further details on Brunswick’s
acquisitions. Additionally, cash flows from investing activities in 2008
benefited from the $45.5 million in proceeds from the sale of its interest in
its bowling joint venture in Japan and its investment in a foundry located in
Mexico, as well as the $14.0 million of proceeds from the sale of MotoTron and
the $3.0 million of proceeds from the sale of Albemarle.
The
Company expects investments for capital expenditures in 2009 to be below 2008
levels as discretionary capital spending constraints will require the Company to
focus primarily on investments to maintain Company operations and position it to
respond when marine markets recover.
Cash
flows from financing activities of continuing operations resulted in a use of
cash of $10.8 million in 2008 compared with $167.8 million in 2007. The decrease
was due to a reduction in the dividend declared to $0.05 per share in 2008
compared with a $0.60 per share dividend declared in 2007. The dividends
resulted in dividend payouts of $4.4 million in 2008 and $52.6 million in 2007.
Additionally, no shares were repurchased in 2008, compared with $125.8 million
of share repurchases in 2007. The Company did not receive any cash from stock
options exercised in 2008, compared with $10.8 million in 2007. Also, included
in Net issuances of short-term debt is $9.4 million of fees that were incurred
in 2008 in connection with the amendment to the Company’s revolving credit
facility.
Cash and
cash equivalents totaled $317.5 million as of December 31, 2008, a decrease of
$13.9 million from $331.4 million in 2007. Total debt as of December 31, 2008
and December 31, 2007, was $731.7 million and $728.2 million, respectively.
Brunswick’s debt-to-capitalization ratio increased to 50.1 percent as of
December 31, 2008, from 27.8 percent as of December 31, 2007, as a result of
current year losses from continuing operations and the loss of value in the
assets supporting the pension plan.
From
time-to-time, the Company utilizes short-term borrowings to fund interim working
capital requirements, particularly during the first half of the calendar year.
In the past, if short-term borrowings were required, the Company issued
commercial paper, which was supported with a revolving credit facility. The
Company’s corporate credit ratings were lowered throughout 2008, with Standard
and Poor’s Rating Services currently assigning a rating of B- and Moody’s
Investors Service currently assigning a rating of B2. At current ratings levels,
the Company no longer has access to commercial paper markets as a short-term
borrowing source.
The
Company has a $400.0 million revolving credit facility (Facility) in place with
a group of banks, as described in Note 14 – Debt in the Notes to
Consolidated Financial Statements. In December 2008, the Company converted the
Facility into a $400.0 million secured, asset-based facility, which remains in
place through May 2012. Borrowings under this Facility are subject to the value
of the borrowing base, consisting of certain cash balances, accounts receivable,
inventory, and machinery and equipment of the Company’s domestic subsidiaries.
As of December 31, 2008, the borrowing base totaled $290.0 million and available
capacity totaled $201.1 million, net of $88.9 million of letters of credit
outstanding under the Facility. The December 31, 2008, borrowing base does
not include any values for machinery and equipment or cash, which will be added
when required documentation is completed. The borrowing base will be affected by
changes in eligible collateral in future periods. The Facility contains a
minimum fixed-charges coverage covenant, which is effective when the available
borrowing capacity under the Facility falls below certain thresholds. There were
no loan borrowings under the Facility in 2008 or 2007. The Company has the
ability to issue up to $150.0 million in letters of credit under the Facility.
The Company pays a facility fee of 75 to 100 basis points per annum, which is
based on the daily average utilization of the Facility. The borrowing rate, as
calculated in accordance with the Facility, was 4.47% as of December 31.
2008.
Continued
weakness in the marine marketplace can jeopardize the financial stability of the
Company’s dealers. Specifically, dealer inventory levels may be higher than
desired, inventory may be aging beyond preferred levels and dealers may
experience reduced cash flow. These factors may impair a dealer’s ability to
meet payment obligations to Brunswick or to third-party financing sources and
obtain financing for new product. If a dealer is unable to meet its obligations
to third-party financing sources, Brunswick may be required to repurchase a
portion of its own products from these third-party financing sources. See Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements for
further details.
While
there can be no assurances in light of the current economic environment, with
the amended revolving credit facility in place, management believes that
available cash balances, along with free cash flow, are expected to be adequate
to fund the Company’s near-term operating cash requirements. Management believes
that, in spite of recent credit rating downgrades, the Company has access to
adequate sources of liquidity and financing to meet the Company’s short-term and
long-term needs.
The
aggregate funded status of the Company’s qualified pension plans, measured as a
percentage of the projected benefit obligation, declined to 63.2 percent in 2008
from 99.9 percent in 2007 primarily as a result of negative asset returns in
2008. As of December 31, 2008, the Company’s qualified pension plans were
underfunded on an aggregate projected benefit obligation basis by $381.1
million. See Note 15 –
Postretirement Benefits in the Notes to Consolidated
Financial Statements for more details.
The
Company contributed $2.6 million to fund benefit payments in its nonqualified
plan in both 2008 and 2007. The Company was not required to make contributions
to its qualified pension plans in 2008 or 2007.
2007
vs. 2006
For the
year ended December 31, 2007, the Company changed its presentation of the
consolidated statements of cash flows to include net earnings and net earnings
(loss) from discontinued operations. Accordingly, the Company revised the 2006
consolidated statement of cash flows. Net cash flows from operating, investing
and financing activities have not changed.
In 2007,
net cash provided by operating activities of continuing operations totaled
$344.1 million, compared with $351.0 million in 2006. This decrease was caused
by a $142.1 million decline in net earnings from continuing operations, adjusted
for the non-cash pretax impairment charge of $66.4 million ($41.5 million
after-tax). The decrease in net earnings from continuing operations was
primarily offset by more favorable changes in working capital between periods as
the Company experienced a $3.5 million decrease in working capital, defined as
non-cash current assets less current liabilities, in 2007 versus a $92.8 million
increase in 2006. The favorable change in working capital was driven by a
decrease in cash variable compensation payouts during 2007, as well as increased
accrued promotional incentives in the Boat and Engine segments, compared with
prior year. These factors were partially offset by operating cash used to fund
inventory increases in 2007, compared with 2006. Although production rates were
lowered to help achieve reduced levels of marine pipeline inventories, increases
in inventory balances exceeded those in the prior year as a result of the
reduction in retail demand for both boats and engines, higher engine inventories
to support growth in markets outside the United States, acquisitions completed
during 2006 and the ramp up of production at the Company’s Hatteras facility in
Swansboro, North Carolina, which opened in late 2005, as well as the Navassa
facility acquired in July 2007. Additionally, accounts receivable balances
increased due to growth in marine sales outside the United States, which carry
longer terms.
Cash
flows from investing activities included capital expenditures of $207.7 million
in 2007, which increased from $205.1 million in 2006. Significant capital
expenditures in 2007 included the purchase of a new boat manufacturing facility
in Navassa, North Carolina, tooling expenditures for new models and product
innovations in the Boat and Fitness segments and higher capital spending for new
Brunswick Zone XL centers and existing bowling centers.
Cash paid
for acquisitions, net of cash acquired, totaled $6.2 million and $86.2 million
in 2007 and 2006, respectively. See Note 7 – Acquisitions in the
Notes to Consolidated Financial Statements for further details on Brunswick’s
acquisitions. Brunswick received $4.1 million from its joint ventures, net of
investments, in 2007 compared with $6.1 million, net of investments, in 2006.
Additionally, cash flows from investing activities in 2007 benefited from the
Company’s receipt of proceeds on notes associated with divestitures that
occurred in previous years.
Cash
flows from financing activities of continuing operations resulted in a use of
cash of $167.8 million in 2007 compared with $235.7 million in 2006. This change
was primarily due to the Company’s share repurchase program, under which the
Company repurchased 4.1 million shares for $125.8 million in 2007, compared with
repurchases of approximately 5.6 million shares for $195.6 million in 2006. See
Note 19 – Share Repurchase
Program in the Notes to Consolidated Financial Statements for further
details. The Company received $10.8 million from stock options exercised in
2007, compared with $15.9 million during the same period in 2006. An annual
dividend of $0.60 per share was declared and paid in both 2007 and 2006,
resulting in dividend payments of $52.6 million and $55.0 million,
respectively.
Cash and
cash equivalents totaled $331.4 million as of December 31, 2007, an increase of
$48.0 million from $283.4 million at December 31, 2006. Total debt as of
December 31, 2007, and December 31, 2006, was $728.2 million and $726.4 million,
respectively. Brunswick’s debt-to-capitalization ratio decreased slightly to
27.8 percent as of December 31, 2007, from 28.0 percent as of December 31,
2006.
The
aggregate funded status of the Company’s qualified pension plans, measured as a
percentage of the projected benefit obligation, improved to 99.9 percent in 2007
from 96.7 percent in 2006 primarily as a result of positive asset returns in
2007, and the favorable impacts of an increase in the discount rate and
demographic gains on the determination of the projected benefit obligation in
2007, partially offset by the impact of updating expected mortality assumptions.
As of December 31, 2007, the Company’s qualified pension plans were underfunded
on an aggregate projected benefit obligation basis by a net balance of $0.1
million. See Note 15 –
Postretirement Benefits in the Notes to Consolidated
Financial Statements for more details.
The
Company contributed $2.6 million and $2.4 million to fund benefit payments in
its nonqualified plan in 2007 and 2006, respectively. The Company was not
required to make contributions to its qualified pension plans in 2007. During
2006, the Company funded $15.0 million of discretionary contributions into its
qualified pension plans.
Financial
Services
The
Company, through its Brunswick Financial Services Corporation (BFS) subsidiary,
owns a 49 percent interest in a joint venture, Brunswick Acceptance Company, LLC
(BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation (GECC),
owns the remaining 51 percent. BAC commenced operations in 2003 and provides
secured wholesale inventory floor-plan financing to Brunswick’s boat and engine
dealers. BAC also purchases and services a portion of Mercury Marine’s domestic
accounts receivable relating to its boat builder and dealer
customers.
Through
an agreement reached in the second quarter of 2008, the term of the joint
venture was extended through June 30, 2014. The joint venture agreement contains
provisions allowing for the renewal, purchase or termination by either partner
at the end of this term. The agreement also contained provisions allowing for
CDFV to terminate the joint venture if the Company is unable to maintain
compliance with financial covenants. During the fourth quarter of 2008, the
partners reached an agreement to amend the financial covenant to conform it to
the minimum fixed charges test contained in the Company’s amended and restated
revolving credit facility. The Company was in compliance with this covenant at
the end of the fourth quarter.
BAC is
funded in part through a $1.0 billion secured borrowing facility from GE
Commercial Distribution Finance Corporation (GECDF), which is in place through
the term of the joint venture, and with equity contributions from both partners.
BAC also sells a portion of its receivables to a securitization facility, the GE
Dealer Floorplan Master Note Trust, which is arranged by GECC. The sales of
these receivables meet the requirements of a “true sale” under SFAS No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities – a replacement of FASB Statement No. 125,” (SFAS
140), and are
therefore not retained on the financial statements of BAC. The indebtedness of
BAC is not guaranteed by the Company or any of its subsidiaries. In addition,
BAC is not responsible for any continuing servicing costs or obligations with
respect to the securitized receivables.
BFS’s
investment in BAC is accounted for by the Company under the equity method and is
recorded as a component of Investments in its Condensed Consolidated Balance
Sheets. The Company records BFS’s share of income or loss in BAC based on its
ownership percentage in the joint venture in Equity earnings in its Consolidated
Statements of Operations. BFS and GECDF also have an
income sharing arrangement related to income generated from the receivables sold
by BAC to the securitization facility.
BFS’s
equity investment is adjusted monthly to maintain a 49 percent interest in
accordance with the capital provisions of the joint venture agreement. The
Company funds its investment in BAC through cash contributions and reinvested
earnings. BFS’s total investment in BAC at December 31, 2008, and December 31,
2007, was $26.7 million and $47.0 million, respectively. The reduction in BFS’s
total investment in BAC is the result of lower outstanding receivables balances
and a lower total investment requirement.
BFS
recorded income related to the operations of BAC of $7.5 million, $12.7 million
and $13.2 million for the years ended December 31, 2008, 2007 and 2006,
respectively. These amounts include amounts earned by BFS under the
aforementioned income sharing agreement, but exclude the discount expense paid
by the Company on the sale of Mercury Marine’s accounts receivable to the joint
venture noted below.
Accounts
receivable totaling $715.4 million, $887.3 million and $832.0 million were sold
to BAC in 2008, 2007 and 2006, respectively. Discounts of $5.8 million, $8.0
million and, $7.6 million for the years ended December 31, 2008, 2007 and 2006,
respectively, have been recorded as an expense in Other income (expense), net,
in the Consolidated Statements of Operations. The outstanding balance of
receivables sold to BAC was $77.4 million as of December 31, 2008, compared with
$93.1 million as of December 31, 2007. Pursuant to the joint venture agreement,
BAC reimbursed Mercury Marine $2.6 million, $2.7 million and, $2.2 million in
2008, 2007 and 2006, respectively, for the related credit, collection and
administrative costs incurred in connection with the servicing of such
receivables.
As of December 31, 2008
and 2007, the Company had a retained interest in $41.0 million and $46.4 million
of the total outstanding accounts receivable sold to BAC,
respectively. The Company’s maximum exposure as of December 31, 2008
and 2007, related to these amounts was $28.2 million and $28.9 million,
respectively. In accordance with SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,”
the Company treats the sale of receivables in which the Company retains an
interest as a secured obligation. Accordingly, the amount of the Company’s
maximum exposure was recorded in Accounts and notes receivable, and Accrued
expenses in the Consolidated Balance Sheets. These balances are included in the
amounts in Note 11 –
Commitments and Contingencies in the Notes to Consolidated Financial
Statements.
Off-Balance
Sheet Arrangements
Guarantees. Based on
historical experience and current facts and circumstances, and in accordance
with Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45),
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others — An Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34,” the
Company has reserves to cover potential losses associated with guarantees and
repurchase obligations. Historical cash requirements and losses associated with
these obligations have not been significant. See Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements for a
description of these arrangements.
Contractual
Obligations
The
following table sets forth a summary of the Company’s contractual cash
obligations for continuing operations as of December 31, 2008:
|
|
Payments
due by period
|
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
|
|
|
More
than
|
|
(in
millions)
|
|
Total
|
|
|
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
(1)
|
|
$ |
731.7 |
|
|
$ |
3.2 |
|
|
$ |
153.1 |
|
|
$ |
251.4 |
|
|
$ |
324.0 |
|
Interest
payments on long-term debt
|
|
|
579.1 |
|
|
|
59.3 |
|
|
|
116.2 |
|
|
|
94.5 |
|
|
|
309.1 |
|
Operating
leases (2)
|
|
|
195.1 |
|
|
|
45.3 |
|
|
|
73.3 |
|
|
|
38.3 |
|
|
|
38.2 |
|
Purchase
obligations (3)
|
|
|
171.7 |
|
|
|
139.9 |
|
|
|
31.8 |
|
|
|
— |
|
|
|
— |
|
Deferred
management compensation (4)
|
|
|
38.7 |
|
|
|
0.2 |
|
|
|
16.2 |
|
|
|
7.2 |
|
|
|
15.1 |
|
Other
tax liabilities (5)
|
|
|
11.8 |
|
|
|
11.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
long-term liabilities (6)
|
|
|
203.4 |
|
|
|
24.3 |
|
|
|
76.7 |
|
|
|
23.7 |
|
|
|
78.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations
|
|
$ |
1,931.5 |
|
|
$ |
284.0 |
|
|
$ |
467.3 |
|
|
$ |
415.1 |
|
|
$ |
765.1 |
|
__________
|
(1)
|
See
Note 14 – Debt in
the Notes to Consolidated Financial Statements for additional information
on the Company’s debt.
|
|
(2)
|
See
Note 18 – Leases
in the Notes to Consolidated Financial Statements for additional
information on the Company’s operating
leases.
|
|
(3)
|
Purchase
obligations represent agreements with suppliers and vendors at the end of
2008 for raw materials and other supplies as part of the normal course of
business.
|
|
(4)
|
Amounts
primarily represent long-term deferred compensation plans for Company
management. Payments are assumed to be equal to the remaining
liability.
|
|
(5)
|
Represents
the liability reported in accordance with the Company’s adoption of the
provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes.” As of December 31, 2008, the Company’s liability for
uncertain income tax positions was $44.2 million including interest. Due
to the high degree of uncertainty regarding the timing of potential future
cash outflows associated with these liabilities, other than the items
included in the table above, the Company was unable to make a reasonably
reliable estimate of the amount and period in which these remaining
liabilities might be paid.
|
|
(6)
|
Other
long-term liabilities include amounts reflected on the balance sheet,
which primarily include certain agreements that provide for the assignment
of lease and other long-term receivables originated by the Company to
third parties and are treated as a secured obligation under SFAS No. 140,
postretirement benefit obligations, and obligations under deferred revenue
arrangements.
|
Legal
Proceedings
See Note 11 – Commitments and
Contingencies in the Notes to Consolidated Financial Statements for
disclosure of the potential cash requirements related to legal and environmental
proceedings.
Environmental
Regulation
In its
Marine Engine segment, Brunswick will continue to develop engine technologies to
reduce engine emissions to comply with current and future emissions
requirements. The costs associated with these activities may have an adverse
effect on Marine Engine segment operating margins and may affect short-term
operating results. The State of California adopted regulations that required
catalytic converters on sterndrive and inboard engines that became effective on
January 1, 2008. Other environmental regulatory bodies in the United States and
other countries may also impose higher emissions standards than are currently in
effect for those regions. The Company expects to comply fully with these
regulations, but compliance will increase the cost of these products for the
Company and the industry. The Boat segment continues to pursue fiberglass boat
manufacturing technologies and techniques to reduce air emissions at its boat
manufacturing facilities. The Company does not believe that compliance with
federal, state and local environmental laws will have a material adverse effect
on Brunswick’s competitive position.
Critical
Accounting Policies
The
preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amount of
reported assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and revenues
and expenses during the periods reported. Actual results may differ from those
estimates. If current estimates for the cost of resolving any specific matters
are later determined to be inadequate, results of operations could be adversely
affected in the period in which additional provisions are required. The Company
records a reserve when it is probable that a loss has been incurred and the loss
can be reasonably estimated. The Company establishes its reserve based on its
best estimate within a range of losses. If the Company is unable to identify the
best estimate, the Company records the minimum amount in the range. The Company
has discussed the development and selection of the critical accounting policies
with the Audit Committee of the Board of Directors and believes the following
are the most critical accounting policies that could have an effect on
Brunswick’s reported results.
Revenue Recognition and Sales
Incentives. The Company’s revenue is derived primarily from the sale of
boats, marine engines, fitness equipment, bowling products, retail bowling
activities and billiards tables. Revenue is recognized in accordance with the
terms of the sale, primarily upon shipment to customers, once the sales price is
fixed or determinable and collectibility is reasonably assured. Brunswick offers
discounts and sales incentives that include retail promotional activities and
rebates. The estimated liability for sales incentives is recorded at the later
of the time of program communication to the customer or at the time of sale in
accordance with Emerging Issues Task Force (EITF) No. 01-9, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of a
Vendor’s Products).” The liability is estimated based on the costs for the
incentive program, the planned duration of the program and historical
experience. If actual costs are different from estimated costs, the recorded
value of the liability and revenue is adjusted.
Allowances for Doubtful Accounts.
The Company records an allowance for uncollectible trade receivables
based upon currently known bad debt risks and provides reserves based on loss
history, customer payment practices and economic conditions. Actual collection
experience may differ from the current estimate of reserves. The Company also
provides a reserve based on historical, current and estimated future purchasing
levels in connection with its long-term notes receivables for Brunswick’s supply
agreements. These assumptions are re-evaluated considering the customer’s
financial position and product purchase volumes. Changes to the allowance for
doubtful accounts may be required if a future event or other circumstance
results in a change in the estimate of the ultimate collectibility of a specific
account or note.
Reserve for Excess and Obsolete
Inventories. The Company records a reserve for excess and obsolete
inventories in order to ensure inventories are carried at the lower of cost or
fair market value. Fair market value can be affected by assumptions about market
demand and conditions, historical usage rates, model changes and new product
introductions. If model changes or new product introductions create more or less
than favorable market conditions, the reserve for excess and obsolete
inventories may need to be adjusted.
Warranty Reserves. The
Company records a liability for standard product warranties at the time revenue
is recognized. The liability is recorded using historical warranty experience to
estimate projected claim rates and expected costs per claim. If necessary, the
Company adjusts its liability for specific warranty matters when they become
known and are reasonably estimable. The Company’s warranty reserves are affected
by product failure rates and material usage and labor costs incurred in
correcting a product failure. If these estimated costs differ from actual
product failure rates and actual material usage and labor costs, a revision to
the warranty reserve would be required.
Restructuring. From time to
time, the Company engages in actions associated with cost reduction initiatives
which are accounted for under SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities.” The Company’s restructuring actions
require significant estimates including (a) expenses for severance and other
employee separation costs, (b) remaining lease obligations, including sublease
income, and (c) other exit costs. The Company has accrued amounts that it
believes are its best estimates of the obligations it expects to incur in
connection with these actions, but these estimates are subject to change due to
market conditions and final negotiations. Should the actual amounts differ from
the originally estimated amounts, Brunswick’s earnings could
decrease.
The
Company recognized $177.3 million, $22.2 million and $17.1 million in
restructuring charges in 2008, 2007 and 2006, respectively, which are discussed
in more detail in Note 2 -
Restructuring Activities in the Notes to Consolidated Financial
Statements.
Goodwill and Indefinite-lived
Intangible Assets. In assessing the value of goodwill and
indefinite-lived intangible assets, management relies on a number of factors to
value anticipated future cash flows including operating results, business plans
and present value techniques. Rates used to value and discount cash flows are
dependent upon royalty rate assumptions, interest rates and the cost of capital
at a point in time. There are inherent uncertainties related to these factors
and management’s judgment in applying them to the analysis of intangible asset
impairment. It is possible that operating results or assumptions underlying the
impairment analysis will change in such a manner that impairment in value may
occur in the future.
Litigation. In the normal
course of business, the Company is subject to claims and litigation, including
obligations assumed or retained as part of acquisitions and divestitures. The
Company accrues for litigation exposure based upon its assessment, made in
consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company’s litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company’s consolidated financial position.
Environmental. The Company
accrues for environmental remediation-related activities for which commitments
or clean-up plans have been developed and for which costs can be reasonably
estimated. Accrued amounts are generally determined in coordination with
third-party experts on an undiscounted basis and do not consider recoveries from
third parties until such recoveries are realized. In light of existing reserves,
the Company’s environmental claims, when finally resolved, will not, in the
opinion of management, have a material adverse effect on the Company’s
consolidated financial position or results of operations.
Self-Insurance Reserves. The
Company records a liability for self-insurance obligations, which include
employee-related health care benefits and claims for workers’ compensation,
product liability, general liability and auto liability. In estimating the
obligations associated with self-insurance reserves, the Company primarily uses
loss development factors based on historical claim experience, which incorporate
anticipated exposure for losses incurred, but not yet reported. These loss
development factors are used to estimate ultimate losses on incurred claims.
Actual costs associated with a specific claim can vary from an earlier estimate.
If the facts were to change, the liability recorded for expected costs
associated with a specific claim may need to be revised.
Postretirement Benefit Reserves.
Postretirement costs and obligations are actuarially determined and are
affected by assumptions, including the discount rate, the estimated future
return on plan assets, the annual rate of increase in compensation for plan
employees, the increase in costs of health care benefits and other factors. The
Company evaluates assumptions used on a periodic basis and makes adjustments to
these liabilities as necessary. Postretirement benefit reserves are determined
in accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS
No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions.” Effective December 31, 2006, the Company adopted the
provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88,
106, and 132(R).”
Income Taxes. Deferred taxes
are recognized for the future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for the years in
which the differences are expected to reverse. In 2008, the Company recorded an
increase to its deferred tax asset valuation allowance due to uncertainty
surrounding the realization of certain net deferred tax assets using the
guidance provided by SFAS No. 109, “Accounting for Income Taxes.” The Company
estimates its tax obligations based on historical experience and current tax
laws and litigation. The judgments made at any point in time may change based on
the outcome of tax audits and settlements of tax litigation, as well as changes
due to new tax laws and regulations and the Company’s application of those laws
and regulations. These factors may cause the Company’s tax rate and deferred tax
balances to increase or decrease.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,”
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. Effective January 1, 2008, the Company adopted
SFAS 157. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2,
“Effective Date of FASB Statement No. 157,” which provides a one year
deferral of the effective date of SFAS 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually. Therefore, the Company has
adopted the provisions of SFAS 157 with respect to its financial assets and
liabilities only. The adoption of this statement did not have a material impact
on the Company’s consolidated results of operations and financial condition. See
Note 6 – Fair Value
Measurements in the Notes to Consolidated Financial Statements for
additional disclosures.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115,” (SFAS 159). SFAS 159 permits entities to choose to measure
certain financial assets and financial liabilities at fair value at specified
election dates. Unrealized gains and losses on items for which the fair value
option has been elected are to be reported in earnings. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. The Company has elected not
to adopt the SFAS 159 fair value option.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (SFAS
141(R)). SFAS 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired and any noncontrolling
interest in the acquiree. This statement also establishes disclosure
requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS 141(R) is effective for fiscal years beginning on or
after December 15, 2008. The Company is currently evaluating the impact that the
adoption of SFAS 141(R) may have on the consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51,” (SFAS 160).
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company is currently evaluating the
impact that the adoption of SFAS 160 may have on the consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133,” (SFAS 161). SFAS 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity’s financial position, financial performance, and cash flows. SFAS 161
is effective for fiscal years beginning after November 15, 2008. The
Company is currently evaluating the impact that the adoption of SFAS 161
may have on the consolidated financial statements.
In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employer’s Disclosures about
Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends
SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and
Other Postretirement Benefits,” to provide guidance on an employer’s disclosures
about plan assets of a defined benefit pension or other postretirement plan. FSP
FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The
Company is currently evaluating the impact that the adoption of FSP FAS 132(R)-1
may have on the consolidated financial statements.
Forward-Looking
Statements
Certain
statements in this Annual Report on Form 10-K (Annual Report) are
forward-looking as defined in the Private Securities Litigation Reform Act of
1995. Forward-looking statements in this Annual Report may include words such as
“expect,” “anticipate,” “believe,” “may,” “should,” “could” or “estimate.” These
statements involve certain risks and uncertainties that may cause actual results
to differ materially from expectations as of the date of this filing. These
risks include, but are not limited to, those set forth under Item 1A of this
report.
Caution
should be taken not to place undue reliance on the Company’s forward-looking
statements, which represent the Company’s views only as of the date this report
is filed. The Company undertakes no obligation to update publicly or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
The
Company is exposed to market risk from changes in foreign currency exchange
rates, interest rates and commodity prices. The Company enters into various
hedging transactions to mitigate these risks in accordance with guidelines
established by the Company’s management. The Company does not use financial
instruments for trading or speculative purposes.
The
Company uses foreign currency forward and option contracts to manage foreign
exchange exposure related to anticipated transactions, and assets and
liabilities that are subject to risk from foreign currency rate changes. The
Company’s principal currency exposures relate to the Euro, Japanese yen,
Canadian dollar, Australian dollar, British pound and New Zealand dollar.
Hedging of anticipated transactions is accomplished with financial instruments
whose maturity date, along with the realized gain or loss, occurs on or near the
execution of the anticipated transaction. The Company manages foreign currency
exposure of assets or liabilities through the use of derivative financial
instruments such that the gain or loss on the derivative financial instrument
offsets the loss or gain recognized on the asset or liability,
respectively.
The
Company uses interest rate swap agreements to mitigate the effect that changes
in interest rates have on the fair market value of the Company’s debt and to
lower the Company’s borrowing costs on current or anticipated issuances of debt.
The Company’s net exposure to interest rate risk is primarily attributable to
its outstanding debt. Interest rate risk management is accomplished through the
use of fixed-to-floating interest rate swaps, forward starting floating-to-fixed
interest rate swaps and floating rate instruments that are benchmarked to U.S.
and European short-term money market interest rates.
Raw
materials used by the Company are exposed to the effect of changing commodity
prices. Accordingly, the Company uses commodity swap agreements, futures
contracts and supplier agreements to manage fluctuations in prices of
anticipated purchases of certain raw materials, including aluminum and natural
gas.
The
following analyses provide quantitative information regarding the Company’s
exposure to foreign currency exchange rate risk, interest rate risk and
commodity price risk. The Company uses a model to evaluate the sensitivity of
the fair value of financial instruments with exposure to market risk that
assumes instantaneous, parallel shifts in exchange rates, interest rate yield
curves and commodity prices. For options and instruments with nonlinear returns,
models appropriate to the instrument are utilized to determine the impact of
market shifts. There are certain shortcomings inherent in the sensitivity
analyses presented, primarily due to the assumption that exchange rates change
in a parallel fashion and that interest rates change
instantaneously.
The
amounts shown below represent the estimated reduction in fair market value that
the Company would incur on its derivative financial instruments from a 10
percent adverse change in quoted foreign currency rates, interest rates, and
commodity prices.
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Risk
Category
|
|
|
|
|
|
|
Foreign
exchange
|
|
$ |
17.7 |
|
|
$ |
37.7 |
|
Interest
rates
|
|
$ |
– |
|
|
$ |
5.3 |
|
Commodity
prices
|
|
$ |
1.7 |
|
|
$ |
2.0 |
|
Item
8. Financial Statements and Supplementary Data
See Index
to Financial Statements and Financial Statement Schedule on page
50.
Item
9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and Procedures
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of the Company’s management, including
the Chief Executive Officer and the Chief Financial Officer of the Company (its
principal executive officer and principal financial officer, respectively), the
Company has evaluated its disclosure controls and procedures (as defined in
Securities Exchange Act Rules 12a -15(e) and 15d -15(e)) as of the end of the
period covered by this annual report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures are effective in ensuring that all material
information required to be filed has been made known in a timely
manner.
Management’s
Report on Internal Control Over Financial Reporting
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, the Company included a report
of management’s assessment of the design and effectiveness of its internal
controls as part of this Annual Report for the fiscal year ended December 31,
2008. Management’s report is included in the Company’s 2008 Financial Statements
under the captions entitled “Report of Management on Internal Control Over
Financial Reporting” and is incorporated herein by reference.
The Audit
Committee of the Board of Directors, comprised entirely of independent
directors, meets regularly with the independent public accountants, management
and internal auditors to review accounting, reporting, internal control and
other financial matters. The Committee regularly meets with both the internal
and external auditors without members of management present.
Changes
in Internal Control Over Financial Reporting
While
performing the Company’s annual valuation allowance assessment procedures in the
fourth quarter of 2008, the Company discovered an error in its deferred tax
asset valuation analysis. In connection therewith, the Company identified a
material weakness in internal control over financial reporting. The Company
determined that it had not maintained effective controls to correctly assess a
valuation allowance to reduce certain net deferred tax assets to their
anticipated realizable value in accordance with Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109) as of
September 27, 2008. The ineffective controls resulted in a misstatement of
deferred income taxes and a non-cash charge to net earnings (loss) from
continuing operations for the third quarter of 2008. Accordingly, the Company
filed a Form 10-Q/A for the period ended September 27, 2008, restating the
financial statements to correct for the misstatement. Solely as a result of this
material weakness, the Company concluded that its disclosure controls were not
effective as of September 27, 2008.
Although
the Company believes that it had designed effective controls related to deferred
tax assets as of the end of the third quarter of 2008, the operating
effectiveness of these controls was inadequate as of the end of that period. In
order to improve the operating effectiveness of these controls, the Company
implemented more extensive and comprehensive technical tax accounting reviews
and more complete book and tax reconciliation procedures. These remediation
efforts implemented during the fourth quarter of 2008 validated the operating
effectiveness of these controls and confirmed that the material weakness cited
above had been corrected as of December 31, 2008.
Other
than as set forth in this Form 10-K, there have been no changes in the
Company’s internal control over financial reporting during the quarter ended
December 31, 2008, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
Information
pursuant to this Item with respect to the Directors of the Company is
incorporated by reference from the discussion under the headings Proposal No. 1:
Election of Directors and Corporate Governance in the Company’s proxy statement
for the 2009 Annual Meeting of Stockholders (Proxy Statement). Information
pursuant to this Item with respect to the Company’s Audit Committee and the
Company’s code of ethics is incorporated by reference from the discussion under
the heading Corporate Governance in the Proxy Statement. Information pursuant to
this Item with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated by reference from the discussion under the
heading Section 16(a) Beneficial Ownership Reporting Requirements in the Proxy
Statement.
The
information required by Item 401 of Regulation S-K regarding executive officers
is included under “Executive Officers of the Registrant” following Item 4 in
Part I of this Annual Report.
Item
11. Executive Compensation
Information
pursuant to this Item with respect to compensation paid to Directors of the
Company is incorporated by reference from the discussion under the heading
Director Compensation in the Proxy Statement. Information pursuant to this Item
with respect to executive compensation is incorporated by reference from the
discussion under the heading Executive Compensation in the Proxy
Statement.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information
pursuant to this Item with respect to the securities of the Company owned by the
Directors and certain officers of the Company, by the Directors and officers of
the Company as a group and by the persons known to the Company to own
beneficially more than 5 percent of the outstanding voting securities of the
Company is incorporated by reference from the discussion under the heading Stock
Held By Directors, Executive Officers And Principal Shareholders in the Proxy
Statement. Information pursuant to this Item with respect to securities
authorized for issuance under the Company’s equity compensation plans is hereby
incorporated by reference from the discussion under the heading Equity
Compensation Plan Information in the Proxy Statement.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Information
pursuant to this Item with respect to certain relationships and related
transactions is incorporated from the discussion under the heading Corporate
Governance in the Proxy Statement.
Item
14. Principal Accounting Fees and Services
Information
pursuant to this Item with respect to fees for professional services rendered by
the Company’s independent registered public accounting firm and the Audit
Committee’s policy on pre-approval of audit and permissible non-audit services
of the Company’s independent registered public accounting firm is incorporated
by reference from the discussion under the headings Ratification of Independent
Registered Public Accounting Firm–Fees Incurred for Services of Ernst &
Young and Ratification of Independent Registered Public Accounting Firm–Approval
of Services Provided by Independent Registered Public Accounting Firm in the
Proxy Statement.
PART
IV
Item
15. Exhibits and Financial Statement Schedules
The
financial statements and schedule filed as part of this Annual Report are listed
in the accompanying Index to Financial Statements and Financial Statement
Schedule on page 50. The exhibits filed as a part of this Annual Report are
listed in the accompanying Exhibit Index on page 103.
Index
to Financial Statements and Financial Statement Schedule
Brunswick
Corporation
|
|
Page
|
|
Financial
Statements:
|
|
|
|
Report
of Management on Internal Control over Financial Reporting
|
|
|
51 |
|
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
|
|
|
52 |
|
Report
of Independent Registered Public Accounting Firm
|
|
|
53 |
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008, 2007 and
2006
|
|
|
54 |
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
|
|
55 |
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
2006 (Revised)
|
|
|
57 |
|
Consolidated
Statements of Shareholders’ Equity for the Years Ended December 31, 2008,
2007 and 2006
|
|
|
58 |
|
Notes
to Consolidated Financial Statements
|
|
|
59 |
|
|
|
|
|
|
Financial
Statement Schedule:
|
|
|
|
|
Schedule
II - Valuation and Qualifying Accounts
|
|
|
101 |
|
BRUNSWICK
CORPORATION
REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Company’s management is responsible for the preparation, integrity and
objectivity of the financial statements and other financial information
presented in this report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
and reflect the effects of certain estimates and judgments made by
management.
The
Company’s management is also responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Securities
Exchange Act Rule 13a-15(f). Under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive Officer and
the Chief Financial Officer, the Company conducted an evaluation of the
effectiveness of its internal control over financial reporting based on the
framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on
the Company’s evaluation under the framework in Internal Control – Integrated
Framework, management concluded that internal control over financial reporting
was effective as of December 31, 2008. The effectiveness of internal control
over financial reporting as of December 31, 2008, has been audited by Ernst
& Young LLP, an independent registered public accounting firm, as stated in
their report, which is included herein.
Brunswick
Corporation
Lake
Forest, Illinois
February
24, 2009
/s/ DUSTAN E. McCOY
|
/s/ PETER B. HAMILTON
|
Dustan
E. McCoy
|
Peter
B. Hamilton
|
Chairman
and Chief Executive Officer
|
Senior
Vice President and Chief Financial
Officer
|
BRUNSWICK
CORPORATION
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Board of
Directors and Shareholders
Brunswick
Corporation
We have
audited Brunswick Corporation’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Brunswick Corporation’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
effectiveness of the company’s internal control over financial reporting based
on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing a risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Brunswick Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Brunswick
Corporation as of December 31, 2008 and 2007, and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2008, of Brunswick Corporation and
our report dated February 24, 2009, expressed an unqualified opinion
thereon.
/s/ ERNST & YOUNG
LLP
Chicago,
Illinois
February
24, 2009
BRUNSWICK
CORPORATION
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Brunswick
Corporation
We have
audited the accompanying consolidated balance sheets of Brunswick Corporation as
of December 31, 2008 and 2007, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2008. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements
and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Brunswick Corporation
at December 31, 2008 and 2007, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2008, in accordance with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 10 to the
consolidated financial statements, on January 1, 2007, Brunswick Corporation
changed its method of accounting for uncertain tax positions to conform with
Financial Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes.” Additionally, on December 31, 2006,
Brunswick Corporation changed its method of accounting for defined benefit
pension and other postretirement benefit plans to conform with SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106 and
132(R).”
We also have audited,
in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Brunswick Corporation's internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 24, 2009, expressed an
unqualified opinion thereon.
/s/ ERNST & YOUNG
LLP
Chicago,
Illinois
February
24, 2009
BRUNSWICK
CORPORATION
|
Consolidated
Statements of Operations
|
|
|
For
the Years Ended December 31
|
|
(in
millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
4,708.7 |
|
|
$ |
5,671.2 |
|
|
$ |
5,665.0 |
|
Cost
of sales
|
|
|
3,841.3 |
|
|
|
4,513.4 |
|
|
|
4,431.7 |
|
Selling,
general and administrative expense
|
|
|
668.4 |
|
|
|
827.5 |
|
|
|
742.8 |
|
Research
and development expense
|
|
|
122.2 |
|
|
|
134.5 |
|
|
|
132.2 |
|
Goodwill
impairment charges
|
|
|
377.2 |
|
|
|
- |
|
|
|
- |
|
Trade
name impairment charges
|
|
|
133.9 |
|
|
|
66.4 |
|
|
|
- |
|
Restructuring,
exit and other impairment charges
|
|
|
177.3 |
|
|
|
22.2 |
|
|
|
17.1 |
|
Operating
earnings (loss)
|
|
|
(611.6 |
) |
|
|
107.2 |
|
|
|
341.2 |
|
Equity
earnings
|
|
|
6.5 |
|
|
|
21.3 |
|
|
|
14.9 |
|
Investment
sale gains
|
|
|
23.0 |
|
|
|
- |
|
|
|
- |
|
Other
income (expense), net
|
|
|
(2.6 |
) |
|
|
7.8 |
|
|
|
(1.9 |
) |
Earnings
(loss) before interest and income taxes
|
|
|
(584.7 |
) |
|
|
136.3 |
|
|
|
354.2 |
|
Interest
expense
|
|
|
(54.2 |
) |
|
|
(52.3 |
) |
|
|
(60.5 |
) |
Interest
income
|
|
|
6.7 |
|
|
|
8.7 |
|
|
|
16.0 |
|
Earnings
(loss) before income taxes
|
|
|
(632.2 |
) |
|
|
92.7 |
|
|
|
309.7 |
|
Income
tax provision
|
|
|
155.9 |
|
|
|
13.1 |
|
|
|
46.5 |
|
Net
earnings (loss) from continuing operations
|
|
|
(788.1 |
) |
|
|
79.6 |
|
|
|
263.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued operations, net of tax
|
|
|
– |
|
|
|
2.2 |
|
|
|
(43.7 |
) |
Gain
on disposal of discontinued operations, net of tax
|
|
|
– |
|
|
|
29.8 |
|
|
|
– |
|
Impairment
charges on assets held for sale, net of tax
|
|
|
– |
|
|
|
– |
|
|
|
(85.6 |
) |
Net
earnings (loss) from discontinued operations
|
|
|
– |
|
|
|
32.0 |
|
|
|
(129.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(788.1 |
) |
|
$ |
111.6 |
|
|
$ |
133.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) from continuing operations
|
|
$ |
(8.93 |
) |
|
$ |
0.88 |
|
|
$ |
2.80 |
|
Net
earnings (loss) from discontinued operations
|
|
|
– |
|
|
|
0.36 |
|
|
|
(1.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(8.93 |
) |
|
$ |
1.24 |
|
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) from continuing operations
|
|
$ |
(8.93 |
) |
|
$ |
0.88 |
|
|
$ |
2.78 |
|
Net
earnings (loss) from discontinued operations
|
|
|
– |
|
|
|
0.36 |
|
|
|
(1.37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(8.93 |
) |
|
$ |
1.24 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used for computation of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
88.3 |
|
|
|
89.8 |
|
|
|
94.0 |
|
Diluted
earnings per share
|
|
|
88.3 |
|
|
|
90.2 |
|
|
|
94.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
0.05 |
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
|
BRUNSWICK
CORPORATION
|
Consolidated
Balance Sheets
|
|
|
As
of December 31
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents, at cost, which approximates market
|
|
$ |
317.5 |
|
|
$ |
331.4 |
|
Accounts
and notes receivable, less allowances of $41.7 and $31.2
|
|
|
444.8 |
|
|
|
572.4 |
|
Inventories
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
457.7 |
|
|
|
446.7 |
|
Work-in-process
|
|
|
248.2 |
|
|
|
323.4 |
|
Raw
materials
|
|
|
105.8 |
|
|
|
136.6 |
|
Net
inventories
|
|
|
811.7 |
|
|
|
906.7 |
|
Deferred
income taxes
|
|
|
103.2 |
|
|
|
249.9 |
|
Prepaid
expenses and other
|
|
|
59.7 |
|
|
|
53.9 |
|
Current
assets
|
|
|
1,736.9 |
|
|
|
2,114.3 |
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
107.1 |
|
|
|
103.5 |
|
Buildings
and improvements
|
|
|
683.8 |
|
|
|
697.4 |
|
Equipment
|
|
|
1,156.6 |
|
|
|
1,205.7 |
|
Total
land, buildings and improvements and equipment
|
|
|
1,947.5 |
|
|
|
2,006.6 |
|
Accumulated
depreciation
|
|
|
(1,155.4 |
) |
|
|
(1,117.8 |
) |
Net
land, buildings and improvements and equipment
|
|
|
792.1 |
|
|
|
888.8 |
|
Unamortized
product tooling costs
|
|
|
125.5 |
|
|
|
164.0 |
|
Net
property
|
|
|
917.6 |
|
|
|
1,052.8 |
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
290.9 |
|
|
|
678.9 |
|
Other
intangibles
|
|
|
86.6 |
|
|
|
245.6 |
|
Investments
|
|
|
75.4 |
|
|
|
132.1 |
|
Other
long-term assets
|
|
|
116.5 |
|
|
|
141.9 |
|
Other
assets
|
|
|
569.4 |
|
|
|
1,198.5 |
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,223.9 |
|
|
$ |
4,365.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
|
|
BRUNSWICK
CORPORATION
|
Consolidated
Balance Sheets
|
|
|
As
of December 31
|
(in
millions, except share data)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Short-term
debt, including $1.3 and $0.8 of current maturities of long-term
debt
|
|
$ |
3.2 |
|
|
$ |
0.8 |
|
Accounts
payable
|
|
|
301.3 |
|
|
|
437.3 |
|
Accrued
expenses
|
|
|
696.7 |
|
|
|
858.1 |
|
Current
liabilities
|
|
|
1,001.2 |
|
|
|
1,296.2 |
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
728.5 |
|
|
|
727.4 |
|
Deferred
income taxes
|
|
|
25.0 |
|
|
|
12.3 |
|
Postretirement
benefits
|
|
|
528.3 |
|
|
|
192.8 |
|
Other
|
|
|
211.0 |
|
|
|
244.0 |
|
Long-term
liabilities
|
|
|
1,492.8 |
|
|
|
1,176.5 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
Common
stock; authorized: 200,000,000 shares,
$0.75
par value; issued: 102,538,000 shares
|
|
|
76.9 |
|
|
|
76.9 |
|
Additional
paid-in capital
|
|
|
412.3 |
|
|
|
409.0 |
|
Retained
earnings
|
|
|
1,095.9 |
|
|
|
1,888.4 |
|
Treasury
stock, at cost: 14,793,000 and 15,092,000 shares
|
|
|
(422.9 |
) |
|
|
(428.7 |
) |
Accumulated
other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
28.8 |
|
|
|
50.8 |
|
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
Prior
service costs
|
|
|
(8.9 |
) |
|
|
(9.2 |
) |
Net
actuarial losses
|
|
|
(452.1 |
) |
|
|
(92.6 |
) |
Unrealized
investment gains (losses)
|
|
|
(2.5 |
) |
|
|
1.5 |
|
Unrealized
gains (losses) on derivatives
|
|
|
2.4 |
|
|
|
(3.2 |
) |
Total
accumulated other comprehensive loss
|
|
|
(432.3 |
) |
|
|
(52.7 |
) |
Shareholders’
equity
|
|
|
729.9 |
|
|
|
1,892.9 |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
3,223.9 |
|
|
$ |
4,365.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
|
|
|
|
|
BRUNSWICK
CORPORATION
|
Consolidated
Statements of Cash Flows
|
|
|
For
the Years Ended December 31
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
Revised
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(788.1 |
) |
|
$ |
111.6 |
|
|
$ |
133.9 |
|
Less:
net earnings (loss) from discontinued operations
|
|
|
– |
|
|
|
32.0 |
|
|
|
(129.3 |
) |
Net
earnings (loss) from continuing operations
|
|
|
(788.1 |
) |
|
|
79.6 |
|
|
|
263.2 |
|
Depreciation
and amortization
|
|
|
177.2 |
|
|
|
180.1 |
|
|
|
167.3 |
|
Deferred
income taxes
|
|
|
236.2 |
|
|
|
(44.4 |
) |
|
|
(30.0 |
) |
Goodwill
impairment charges
|
|
|
377.2 |
|
|
|
– |
|
|
|
– |
|
Trade
name impairment charges
|
|
|
133.9 |
|
|
|
66.4 |
|
|
|
– |
|
Other
impairment charges
|
|
|
53.2 |
|
|
|
0.4 |
|
|
|
– |
|
Income
taxes
|
|
|
(72.5 |
) |
|
|
50.8 |
|
|
|
4.5 |
|
Changes
in non-cash current assets and current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in accounts and notes receivable
|
|
|
123.4 |
|
|
|
(45.9 |
) |
|
|
(4.3 |
) |
Change
in inventory
|
|
|
81.7 |
|
|
|
(42.9 |
) |
|
|
(28.7 |
) |
Change
in prepaid expenses and other
|
|
|
(2.3 |
) |
|
|
3.3 |
|
|
|
0.8 |
|
Change
in accounts payable
|
|
|
(135.0 |
) |
|
|
(13.5 |
) |
|
|
9.5 |
|
Change
in accrued expenses
|
|
|
(167.8 |
) |
|
|
102.5 |
|
|
|
(70.1 |
) |
Other,
net
|
|
|
(29.2 |
) |
|
|
7.7 |
|
|
|
38.8 |
|
Net
cash provided by (used for) operating activities of continuing
operations
|
|
|
(12.1 |
) |
|
|
344.1 |
|
|
|
351.0 |
|
Net cash used for operating
activities of discontinued operations
|
|
|
– |
|
|
|
(29.8 |
) |
|
|
(35.7 |
) |
Net cash provided by (used for)
operating activities
|
|
|
(12.1 |
) |
|
|
314.3 |
|
|
|
315.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(102.0 |
) |
|
|
(207.7 |
) |
|
|
(205.1 |
) |
Acquisitions
of businesses, net of cash acquired
|
|
|
– |
|
|
|
(6.2 |
) |
|
|
(86.2 |
) |
Investments
|
|
|
20.0 |
|
|
|
4.1 |
|
|
|
6.1 |
|
Proceeds
from investment sales
|
|
|
45.5 |
|
|
|
– |
|
|
|
– |
|
Proceeds
from the sale of property, plant and equipment
|
|
|
28.3 |
|
|
|
10.1 |
|
|
|
7.2 |
|
Other,
net
|
|
|
17.2 |
|
|
|
25.6 |
|
|
|
(0.4 |
) |
Net cash provided by (used for)
investing activities of continuing operations
|
|
|
9.0 |
|
|
|
(174.1 |
) |
|
|
(278.4 |
) |
Net cash provided by (used for)
investing activities of
discontinued operations
|
|
|
– |
|
|
|
75.6 |
|
|
|
(5.5 |
) |
Net cash provided by (used for)
investing activities
|
|
|
9.0 |
|
|
|
(98.5 |
) |
|
|
(283.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuances
of short-term debt
|
|
|
(7.4 |
) |
|
|
– |
|
|
|
(0.2 |
) |
Net
proceeds from issuance of long-term debt
|
|
|
252.0 |
|
|
|
0.7 |
|
|
|
250.3 |
|
Payments
of long-term debt including current maturities
|
|
|
(251.0 |
) |
|
|
(0.9 |
) |
|
|
(251.1 |
) |
Cash
dividends paid
|
|
|
(4.4 |
) |
|
|
(52.6 |
) |
|
|
(55.0 |
) |
Stock
repurchases
|
|
|
– |
|
|
|
(125.8 |
) |
|
|
(195.6 |
) |
Stock
options exercised
|
|
|
– |
|
|
|
10.8 |
|
|
|
15.9 |
|
Net cash used for financing
activities of continuing operations
|
|
|
(10.8 |
) |
|
|
(167.8 |
) |
|
|
(235.7 |
) |
Net cash used for financing
activities of discontinued operations
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net cash used for financing
activities
|
|
|
(10.8 |
) |
|
|
(167.8 |
) |
|
|
(235.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(13.9 |
) |
|
|
48.0 |
|
|
|
(204.3 |
) |
Cash
and cash equivalents at January 1
|
|
|
331.4 |
|
|
|
283.4 |
|
|
|
487.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at December 31
|
|
$ |
317.5 |
|
|
$ |
331.4 |
|
|
$ |
283.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
48.3 |
|
|
$ |
54.8 |
|
|
$ |
61.2 |
|
Income
taxes paid (received), net
|
|
$ |
(7.8 |
) |
|
$ |
6.7 |
|
|
$ |
72.0 |
|
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
|
BRUNSWICK
CORPORATION
|
Consolidated
Statements of Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Other
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
Compensation
|
|
|
Comprehensive
|
|
|
|
|
(in millions, except per share data)
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
and Other
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
$ |
76.9 |
|
|
$ |
368.3 |
|
|
|
$1,741.8 |
|
|
$ |
(136.0 |
) |
|
$ |
(6.1 |
) |
|
$ |
(66.1 |
) |
|
$ |
1,978.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
— |
|
|
|
— |
|
|
|
133.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
133.9 |
|
Translation
adjustments, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24.7 |
|
|
|
24.7 |
|
Unrealized
investment losses, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Unrealized
losses on derivatives, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.6 |
) |
|
|
(2.6 |
) |
Minimum
pension liability adjustment, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15.8 |
|
|
|
15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
— |
|
|
|
— |
|
|
|
133.9 |
|
|
|
— |
|
|
|
— |
|
|
|
37.8 |
|
|
|
171.7 |
|
Adoption
of FASB Statement No. 158, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(60.7 |
) |
|
|
(60.7 |
) |
Dividends
($0.60 per common share)
|
|
— |
|
|
|
— |
|
|
|
(55.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(55.0 |
) |
Stock
repurchases
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(195.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
(195.6 |
) |
Tax
benefit relating to stock options
|
|
— |
|
|
|
2.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.9 |
|
Adoption
of FASB Statement No. 123(R)
|
|
— |
|
|
|
(6.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
6.1 |
|
|
|
— |
|
|
|
— |
|
Compensation
plans and other
|
|
— |
|
|
|
13.6 |
|
|
|
— |
|
|
|
16.1 |
|
|
|
— |
|
|
|
— |
|
|
|
29.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
76.9 |
|
|
|
378.7 |
|
|
|
1,820.7 |
|
|
|
(315.5 |
) |
|
|
— |
|
|
|
(89.0 |
) |
|
|
1,871.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
— |
|
|
|
— |
|
|
|
111.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
111.6 |
|
Translation
adjustments, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12.0 |
|
|
|
12.0 |
|
Unrealized
investment gains, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
1.7 |
|
Unrealized
losses on derivatives, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8.5 |
) |
|
|
(8.5 |
) |
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.0 |
|
|
|
2.0 |
|
Net
actuarial gains, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29.1 |
|
|
|
29.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
— |
|
|
|
— |
|
|
|
111.6 |
|
|
|
— |
|
|
|
— |
|
|
|
36.3 |
|
|
|
147.9 |
|
Adoption
of FASB Interpretation No. 48
|
|
— |
|
|
|
— |
|
|
|
8.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.7 |
|
Dividends
($0.60 per common share)
|
|
— |
|
|
|
— |
|
|
|
(52.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(52.6 |
) |
Stock
repurchases
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(125.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(125.8 |
) |
Tax
benefit relating to stock options
|
|
— |
|
|
|
1.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.2 |
|
Compensation
plans and other
|
|
— |
|
|
|
29.1 |
|
|
|
— |
|
|
|
12.6 |
|
|
|
— |
|
|
|
— |
|
|
|
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
76.9 |
|
|
|
409.0 |
|
|
|
1,888.4 |
|
|
|
(428.7 |
) |
|
|
— |
|
|
|
(52.7 |
) |
|
|
1,892.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
— |
|
|
|
— |
|
|
|
(788.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(788.1 |
) |
Translation
adjustments, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22.0 |
) |
|
|
(22.0 |
) |
Unrealized
investment losses, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.0 |
) |
|
|
(4.0 |
) |
Unrealized
gains on derivatives, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.6 |
|
|
|
5.6 |
|
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
0.3 |
|
Net
actuarial losses, net of tax
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(359.5 |
) |
|
|
(359.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
— |
|
|
|
— |
|
|
|
(788.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(379.6 |
) |
|
|
(1,167.7 |
) |
Dividends
($0.05 per common share)
|
|
— |
|
|
|
— |
|
|
|
(4.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.4 |
) |
Compensation
plans and other
|
|
— |
|
|
|
3.3 |
|
|
|
— |
|
|
|
5.8 |
|
|
|
— |
|
|
|
— |
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
$ |
76.9 |
|
|
$ |
412.3 |
|
|
$ |
1,095.9 |
|
|
$ |
(422.9 |
) |
|
$ |
— |
|
|
$ |
(432.3 |
) |
|
$ |
729.9 |
|
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
1 – Significant Accounting Policies
Basis
of Presentation. The consolidated financial statements of Brunswick
Corporation (Brunswick or the Company) have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). Certain
previously reported amounts have been reclassified to conform to the
current-period presentation. As indicated in Note
20 – Discontinued Operations, Brunswick’s results as discussed in the
financial statements reflect continuing operations only, unless otherwise noted.
Revisions.
The Company expanded its presentation of the Consolidated Statements of
Cash Flows to include net earnings (loss) and net earnings (loss) from
discontinued operations. Accordingly, the Company revised the 2006 Consolidated
Statement of Cash Flows. Net cash flows from operating, investing and financing
activities have not changed.
Principles
of Consolidation. The consolidated financial statements of Brunswick
include the accounts of all consolidated domestic and foreign subsidiaries,
after eliminating transactions between the Company and such
subsidiaries.
Use
of Estimates. The preparation of the consolidated financial statements in
accordance with accounting principles generally accepted in the United States
(GAAP) requires management to make certain
estimates. Actual results could differ materially from those estimates. These
estimates affect:
-
The reported amounts of
assets and liabilities at the date of the financial
statements;
-
The disclosure of
contingent assets and liabilities at the date of the financial statements;
and
-
The reported amounts of
revenues and expenses during the reporting periods.
Estimates in these
consolidated financial statements include, but are not limited to:
-
Allowances for doubtful
accounts;
-
Inventory valuation
reserves;
-
Reserves for dealer
allowances;
-
Warranty related
reserves;
-
Losses on litigation and
other contingencies;
-
Environmental
reserves;
-
Insurance
reserves;
-
Income tax
reserves;
-
Valuation of goodwill
and other intangible assets;
-
Valuation allowances on
deferred tax assets;
-
Reserves related to
repurchase and recourse obligations;
-
Reserves related to
restructuring activities; and
-
Postretirement benefit
liabilities.
The Company records a reserve when it is probable that a loss has been
incurred and the loss can be reasonably estimated. The Company establishes its
reserve based on its best estimate within a range of losses. If the Company is
unable to identify the best estimate, the Company records the minimum amount in
the range.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Cash
and Cash Equivalents. The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash
equivalents.
Accounts
Receivable and Allowance for Doubtful Accounts. The Company carries its
accounts receivable at their face amounts less an allowance for doubtful
accounts. On a regular basis, the Company records an allowance for uncollectible
receivables based upon known bad debt risks and past loss history, customer
payment practices and economic conditions. Actual collection experience may
differ from the current estimate of net receivables. A change to the allowance
for doubtful accounts may be required if a future event or other change in
circumstances results in a change in the estimate of the ultimate collectibility
of a specific account.
Accounts receivable also
include domestic accounts receivable sold with full and partial recourse by
Brunswick’s Marine Engine segment to Brunswick Acceptance Company LLC, as
discussed in Note
9 – Financial Services. As of December 31, 2008 and 2007, the Company had
a retained interest in $41.0 million and $46.4 million of the total outstanding
accounts receivable sold to BAC, respectively, as a result of recourse
provisions. The Company’s maximum exposure as of December 31, 2008 and 2007,
related to these amounts was $28.2 million and $28.9 million, respectively. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities,” the Company treats the sale of receivables in which the Company
retains an interest as a secured obligation. Accordingly, the amount of
receivables subject to recourse was recorded in Accounts and notes receivable
with an offsetting amount recorded in Accrued expenses in the Consolidated
Balance Sheets. These balances are included in the amounts in Note
11 – Commitments and Contingencies.
Inventories.
Inventories are valued at the lower of cost or market, with market based
on replacement cost or net realizable value. Approximately 62 percent and 63
percent of Brunswick’s inventories were determined by the first-in, first-out
method (FIFO) at December 31, 2008 and 2007, respectively. Inventories valued at
the last-in, first-out method (LIFO), which results in a better matching of
costs and revenue, were $121.0 million and $116.2 million lower than the FIFO
cost of inventories at December 31, 2008 and 2007, respectively. Inventory cost
includes material, labor and manufacturing overhead. During 2008, certain
inventory quantities were reduced, which resulted in liquidations of LIFO
inventory layers. The LIFO reserve increase was partially offset by the effect
of LIFO liquidations, which decreased cost of sales by $1.6 million in
2008.
Property.
Property, including major improvements and product tooling costs, is
recorded at cost. Product tooling costs principally comprise the cost to acquire
and construct various long-lived molds, dies and other tooling owned by the
Company and used in its manufacturing processes. Design and prototype
development costs associated with product tooling are expensed as incurred.
Maintenance and repair costs are also expensed as incurred. Depreciation is
recorded over the estimated service lives of the related assets, principally
using the straight-line method. Buildings and improvements are depreciated over
a useful life of five to forty years. Equipment is depreciated over a useful
life of two to twenty years. Product tooling costs are amortized over the
shorter of the useful life of the tooling or the useful life of the applicable
product, for a period not to exceed eight years. Gains and losses recognized on
the sale of property are included in Selling, general and administrative
(SG&A) expenses. The amount of gains and losses included in SG&A for the
years ended December 31 was as follows:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Gains
on the sale of property
|
|
$ |
4.2 |
|
|
$ |
4.2 |
|
|
$ |
3.3 |
|
Losses
on the sale of property
|
|
|
(4.4 |
) |
|
|
(2.5 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gains (losses) on sale of property
|
|
$ |
(0.2 |
) |
|
$ |
1.7 |
|
|
$ |
1.1 |
|
Software
Development Costs. The Company expenses all software development and
implementation costs incurred until the Company has determined that the software
will result in probable future economic benefit and management has committed to
funding the project. Once this is determined, external direct costs of material
and services, payroll-related costs of employees working on the project and
related interest costs incurred during the application development stage are
capitalized. These capitalized costs are amortized over three to seven years.
Training costs and costs to re-engineer business processes are expensed as
incurred.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Goodwill
and Other Intangibles. Goodwill and other intangible assets primarily
result from business acquisitions. The excess of cost over net assets of
businesses acquired is recorded as goodwill. Under SFAS No. 142, “Goodwill and
Other Intangible Assets,” (SFAS 142), the amortization of goodwill and
indefinite-lived intangible assets is no longer permitted; however, these assets
must be reviewed for impairment at least annually and whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. The
impairment test for goodwill is a two-step process. The first step is to compare
the fair value of a reporting unit with its carrying amount. The Company
considers the Boat segment, Marine Engine segment, Fitness segment, bowling
products business, bowling retail business and billiards business within the
Bowling & Billiards segment to be reporting units for goodwill testing. If
the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered impaired. If the carrying amount of the
reporting unit exceeds its fair value, the second step is performed to measure
the amount of the impairment loss, if any. In this second step, the implied fair
value of the reporting unit’s goodwill is compared with the carrying amount of
the goodwill. If the carrying amount of the reporting unit’s goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess, not to exceed the carrying amount of the goodwill.
The Company’s primary
intangible assets are customer relationships and trade names acquired in
business combinations. The costs of amortizable intangible assets are amortized
over their expected useful lives, typically between 3 and 15 years, to their
estimated residual values using the straight-line method. Intangible assets that
are subject to amortization are evaluated for impairment using a process similar
to that used to evaluate long-lived assets described below. Intangible assets
not subject to amortization are assessed for impairment at least annually and
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The impairment test for indefinite-lived intangible assets
consists of a comparison of the fair value of the intangible asset with its
carrying amount. An impairment loss is recognized for the amount by which the
carrying value exceeds the fair value of the asset. The fair value of trade
names is measured using a relief-from-royalty approach, which assumes the value
of the trade name is the discounted cash flows of the amount that would be paid
had the Company not owned the trade name and instead licensed the trade name
from another company.
The Company tests
indefinite-lived intangible assets (which consist of acquired trade names) and
goodwill for impairment in the fourth quarter of each year unless triggering
events suggest that the assets may be impaired. During the third quarter of
2008, Brunswick encountered a significant adverse change in the business
climate. A weak U.S. economy, soft housing markets and the emergence of a global
credit crisis significantly reduced demand for certain Brunswick products. As a
result of this reduced demand, along with lower-than-projected profits across
certain Brunswick brands and lower purchase commitments received from its dealer
network in the third quarter, management revised its future cash flow
expectations in the third quarter of 2008, which lowered the fair value
estimates of certain businesses.
As a result of the lower
fair value estimates, the Company performed an interim analysis of impairment in
the third quarter of 2008 and concluded that the carrying amounts of its Boat
segment reporting unit and the bowling retail and billiards reporting units
within the Bowling & Billiards segment exceeded their respective fair
values. As a result, the Company compared the implied fair value of the goodwill
in each reporting unit with the carrying value and recorded a $374.0 million
pretax impairment charge in the third quarter of 2008. The Company also
recognized goodwill impairment charges of $3.2 million in the first half of 2008
as a result of deciding to exit certain businesses.
In conjunction with the
goodwill impairment testing, the Company analyzed the valuation of its other
indefinite-lived intangibles, consisting exclusively of acquired trade names.
Brunswick estimated the fair value of trade names by performing a discounted
cash flow analysis based on the relief-from-royalty approach. This approach
treats the trade name as if it were licensed by the Company rather than owned,
and calculates its value based on the discounted cash flow of the projected
license payments. The analysis resulted in a pretax trade name impairment charge
of $121.1 million in the third quarter of 2008, representing the excess of the
carrying cost of the trade names over the calculated fair value. The Company
also recognized trade name impairment charges of $12.8 million in the first half
of 2008 as a result of deciding to exit certain businesses.
A similar analysis was
performed during the third quarter of 2007 related to certain outboard boat
trade names as a result of reduced revenue forecasts and adverse adjustments to
projected royalty rates for those trade names. A $66.4 million pretax impairment
charge was recorded during the third quarter of 2007 as a result of that
analysis. Refer to Note
3 – Goodwill and Trade Name Impairments for further details.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Postretirement
Benefits. Effective December 31, 2006, the Company adopted the provisions
of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R),” (SFAS 158), eliminating the minimum liability concept under which any
adjustments to recognize the Company’s additional minimum liability were offset
with the recognition of an intangible asset. Refer to Note
15 – Postretirement Benefits for further details regarding the Company’s
adoption of SFAS 158.
Investments.
For investments in which Brunswick owns or controls from 20 percent to 50
percent of the voting shares, which includes all of Brunswick’s unconsolidated
joint venture investments, the equity method of accounting is used. The
Company’s share of net earnings or losses from equity method investments is
included in the Consolidated Statements of Operations. The Company accounts for
its long-term investments that represent less than 20 percent ownership using
SFAS No. 115, “Accounting for Certain Investments in Debt and Equity
Securities,” (SFAS 115). The Company has investments in certain equity
securities that have readily determinable market values and are being accounted
for as available-for-sale equity investments in accordance with SFAS 115.
Therefore, these investments are recorded at fair market value with changes
reflected in Accumulated other comprehensive income (loss), a component of
Shareholders’ equity, on an after-tax basis.
Other investments for
which the Company does not have the ability to exercise significant influence
and for which there is not a readily determinable market value are accounted for
under the cost method of accounting. The Company periodically evaluates the
carrying value of its investments, and at December 31, 2008 and 2007, such
investments were recorded at the lower of cost or fair value.
Long-Lived
Assets. In accordance with SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets,” (SFAS 144), the Company continually evaluates
whether events and circumstances have occurred that indicate the remaining
estimated useful lives of its definite-lived intangible assets, excluding
goodwill, and other long-lived assets may warrant revision or that the remaining
balance of such assets may not be recoverable. The Company uses an estimate of
the related undiscounted cash flows over the remaining life of the asset in
measuring whether the asset is recoverable. The Company tested its long-lived
asset balances for impairment as triggering events occurred during 2008 and
2007, resulting in impairment charges of $59.9 million and $4.8 million,
respectively.
Other
Long-Term Assets. Other long-term assets are primarily long-term notes
receivable, which include cash advances made to customers, principally boat
builders and fitness equipment customers, or their owners, in connection with
long-term supply arrangements. These transactions have occurred in the normal
course of business and are backed by secured or unsecured notes receivable.
Credits earned by these customers through qualifying purchases are applied to
the outstanding note balance in lieu of payment. The reduction in the note
receivable balance is recorded as a reduction in the Company’s sales revenue as
a sales discount. In the event sufficient product purchases are not made, the
outstanding balance remaining under the notes is subject to full collection.
Amounts outstanding related to these arrangements as of December 31, 2008 and
2007, totaled $23.4 million and $25.2 million, respectively. One boat builder
customer and its owner comprised approximately 33 percent and 50 percent of
these amounts as of December 31, 2008 and 2007, respectively.
Other long-term notes
receivable also include leases and other long-term receivables originated by the
Company and assigned to third parties. As of December 31, 2008 and 2007, these
amounts totaled $55.4 million and $57.6 million, respectively. Under SFAS No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” the assignment is treated as a secured
obligation as a result of the Company’s commitment to repurchase the obligation
in the event of customer non-payment. Accordingly, these amounts were recorded
in the Consolidated Balance Sheets under Other long-term assets and Long-term
liabilities — Other.
Revenue
Recognition. Brunswick’s revenue is derived primarily from the sale of
boats, marine engines, marine parts and accessories, fitness equipment, bowling
products, bowling retail activities and billiards tables. Revenue is recognized
in accordance with the terms of the sale, primarily upon shipment to customers,
once the sales price is fixed or determinable and collectibility is reasonably
assured. Brunswick offers discounts and sales incentives that include retail
promotional activities, rebates and manufacturer coupons. The estimated
liability for sales incentives is recorded at the later of when the program has
been communicated to the customer or at the time of sale in accordance with
Emerging Issues Task Force (EITF) No. 01-9, “Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of a Vendor’s Products).”
Revenues from freight are included as a part of Net sales in the Consolidated
Statements of Operations, whereas shipping, freight and handling costs are
included in Cost of sales.
Advertising
Costs. Advertising and promotion costs, included in SG&A expenses,
are expensed when the advertising first takes place. Advertising and promotion
costs were $62.0 million, $71.8 million and $67.7 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Foreign
Currency. The functional currency for the majority of Brunswick’s
operations is the U.S. dollar. All assets and liabilities of operations with a
functional currency other than the U.S. dollar are translated at current rates.
The resulting translation adjustments are charged to Accumulated other
comprehensive income (loss) in the Consolidated Statements of Shareholders’
Equity, net of tax. Revenues and expenses of operations with a functional
currency other than the U.S. dollar are translated at the average exchange rates
for the period.
Comprehensive
Income. Accumulated other comprehensive income (loss) includes prior
service costs and net actuarial gains and losses for defined benefit plans,
currency translation adjustments and unrealized derivative and investment gains
and losses, all net of tax. The net effect of these items reduced Shareholders’
equity on a cumulative basis by $432.3 million and $52.7 million as of December
31, 2008 and 2007, respectively. The change from 2007 to 2008 was primarily due
to an increase in net actuarial losses related to the Company’s pension and
postretirement benefit plans totaling $359.2 million, largely related to the
loss of value in the assets supporting the pension plans, and unfavorable
foreign currency translation adjustments of $22.0 million. The tax effect
included in Accumulated other comprehensive income (loss) was $(11.0) million,
which includes a valuation allowance on items in other comprehensive income
(loss), for the year ended December 31, 2008, and $42.5 million for the year
ended December 31, 2007.
The $60.7 million decrease
to Accumulated other comprehensive income (loss) resulting from the Company’s
adoption of SFAS 158 at December 31, 2006, included the elimination of the
Company’s $72.2 million minimum pension liability, offset by the recognition of
prior service costs and net actuarial losses of $11.2 million and $121.7
million, net of tax, respectively. Refer to Note
15 – Postretirement Benefits for further details regarding the Company’s
adoption of SFAS 158.
Stock-Based
Compensation. On January 1, 2006, the Company adopted the provisions of
SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS 123(R)), which is a
revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123(R)
supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.”
SFAS 123(R) requires all share-based payments to employees, including grants of
stock options and the compensatory elements of employee stock purchase plans, to
be recognized in the income statement based upon their fair values. Share-based
employee compensation costs are recognized as a component of selling, general
and administrative expense in the Consolidated Statements of Operations. See
Note
16 – Stock Plans and Management Compensation for a description of the
Company’s accounting for stock-based compensation plans.
Derivatives.
The Company uses derivative financial instruments to manage its risk
associated with movements in foreign currency exchange rates, interest rates and
commodity prices. These instruments are used in accordance with guidelines
established by the Company’s management and are not used for trading or
speculative purposes. All derivatives are recorded on the consolidated balance
sheet at fair value. See Note
12 – Financial Instruments for further discussion.
Recent
Accounting Pronouncements. In September 2006, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, “Fair Value Measurements,” (SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements.
Effective January 1, 2008, the Company adopted SFAS 157. In February 2008,
the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB
Statement No. 157,” which provides a one year deferral of the effective
date of SFAS 157 for non-financial assets and non-financial liabilities, except
those that are recognized or disclosed in the financial statements at fair value
at least annually. Therefore, the Company has adopted the provisions of SFAS 157
with respect to its financial assets and liabilities only. The adoption of this
statement did not have a material impact on the Company’s consolidated results
of operations and financial condition. See Note
6 – Fair Value Measurements for additional disclosures.
In February 2007, the FASB
issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – Including an amendment of FASB Statement No. 115,” (SFAS 159).
SFAS 159 permits entities to choose to measure certain financial assets and
financial liabilities at fair value at specified election dates. Unrealized
gains and losses on items for which the fair value option has been elected are
to be reported in earnings. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The Company has elected not to adopt the SFAS 159 fair
value option.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
In December 2007, the FASB
issued SFAS No. 141(R), “Business Combinations,” (SFAS 141(R)). SFAS 141(R)
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, the goodwill acquired and any noncontrolling interest in
the acquiree. This statement also establishes disclosure requirements to enable
the evaluation of the nature and financial effect of the business combination.
SFAS 141(R) is effective for fiscal years beginning on or after December 15,
2008. The Company is currently evaluating the impact that the adoption of SFAS
141(R) may have on the consolidated financial statements.
In December 2007, the FASB
issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements – an amendment of ARB No. 51,” (SFAS 160). SFAS 160 amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008. The Company is currently evaluating the impact that the
adoption of SFAS 160 may have on the consolidated financial
statements.
In March 2008, the FASB
issued SFAS No. 161, “Disclosures About Derivative Instruments and
Hedging Activities – an amendment of FASB Statement No. 133,”
(SFAS 161). SFAS 161 is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. SFAS 161 is effective for
fiscal years beginning after November 15, 2008. The Company is currently
evaluating the impact that the adoption of SFAS 161 may have on the
consolidated financial statements.
In December 2008, the FASB
issued FSP FAS 132(R)-1, “Employer’s Disclosures about Postretirement Benefit
Plan Assets” (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends SFAS No. 132
(Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is
effective for fiscal years ending after December 15, 2009. The Company is
currently evaluating the impact that the adoption of FSP FAS 132(R)-1 may have
on the consolidated financial statements.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
2 – Restructuring Activities
In November 2006,
Brunswick announced restructuring initiatives designed to improve the Company’s
cost structure, better utilize overall capacity and improve general operating
efficiencies. These initiatives reflected the Company’s response to a difficult
marine market. As the marine market continued to decline, Brunswick expanded its
restructuring activities during 2007 and 2008 in order to improve performance
and better position the Company for current market conditions and longer-term
growth. These initiatives have resulted in the recognition of restructuring,
exit and other impairment charges in the Statement of Operations during 2006,
2007 and 2008.
The actions taken under
these initiatives are expected to benefit future operations by removing fixed
costs of approximately $60 million from Cost of sales and approximately $300
million from Selling, general and administrative in the Consolidated Statements
of Operations by the end of 2009 compared with 2007 spending levels. The
majority of these costs are expected to be cash savings once all restructuring
initiatives are complete. The Company has begun to see savings related to these
initiatives in 2008 and expects all savings to be realized by the end of
2009.
The nature of the costs
incurred under these initiatives include:
Restructuring Activities –
These amounts primarily relate to:
·
Employee termination and other benefits
·
Costs to retain and relocate employees
·
Consulting costs
·
Consolidation of manufacturing footprint
Exit Activities – These
amounts primarily relate to:
·
Employee termination and other benefits
·
Lease exit costs
·
Inventory write-downs
·
Facility shutdown costs
Asset Disposition Actions
– These amounts primarily relate to sales of assets and definite-lived asset
impairments on:
·
Fixed assets
·
Tooling
·
Patents and proprietary technology
·
Dealer networks
Definite-lived asset
impairments 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 SFAS 144. 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, when
available, and, when observable inputs were not available, based on the
Company’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. Specifically, the Company used discounted cash flows to determine
the fair value of the asset when observable inputs were
unavailable.
The Company has reported
restructuring and exit activities based on the specific driver of the cost and
reflected the expense in the accounting period when the cost has been committed
or incurred, in accordance with SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities.” The Company considers actions related to the
sale of certain Baja boat business assets, the closure of its bowling pin
manufacturing facility, the potential sale of the Valley-Dynamo coin-operated
commercial billiards business and the divestiture of MotoTron to be exit
activities. All other actions taken are considered to be restructuring
activities.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The specific actions
undertaken and their related status are described below.
Actions
initiated in 2006
In November 2006,
Brunswick announced initiatives to improve the Company’s cost structure, better
utilize overall capacity and improve general operating efficiencies. The
restructuring initiatives included the consolidation of certain boat
manufacturing facilities, sales offices and distribution warehouses and
reductions in the Company’s global workforce. Through 2006, the Company incurred
restructuring costs of $17.1 million related to these initiatives. At December
31, 2006, the Company estimated that it would incur additional expenses of
approximately $9 million related to these initiatives during 2007; however, the
Company actually incurred approximately $4 million of additional costs in 2007,
which concluded the 2006 initiatives.
Actions
initiated in 2007
In 2007, the Company
initiated restructuring activities to consolidate certain boat manufacturing
facilities in connection with the purchase of a manufacturing facility in
Navassa, North Carolina; close a manufacturing facility in Aberdeen, Mississippi
and shift its boat production to Fort Wayne, Indiana; and eliminate assembly
operations for certain engines in Europe. Through 2007, the Company incurred
restructuring costs of $18.1 million related to these initiatives. At December
31, 2007, the Company estimated that it would incur additional expenses of
approximately $7 million related to these initiatives during 2008; however, the
Company subsequently adjusted its plans and did not incur any significant
additional costs for these initiatives during 2008. Substantially all of the
2007 initiatives were completed during 2007.
Actions
initiated in 2008
During the first quarter
of 2008, the Company continued its restructuring activities by closing its
bowling pin manufacturing facility in Antigo, Wisconsin, and announcing that it
would close its boat plant in Bucyrus, Ohio, in anticipation of the proposed
sale of certain assets relating to its Baja boat business, cease boat
manufacturing at one of its facilities in Merritt Island, Florida, and close its
Swansboro, North Carolina, boat plant.
The Company announced
additional actions in June 2008 as a result of the prolonged downturn in the
U.S. marine market. The plan is designed to improve performance and better
position the Company for current market conditions and longer-term growth. The
plan will result in significant changes in the Company’s organizational
structure, most notably by reducing the complexity of its operations and further
shrinking its North American manufacturing footprint. Specifically, the Company
announced the closure of its production facility in Newberry, South Carolina,
due to its decision to cease production of its Bluewater Marine brands,
including Sea Pro, Sea Boss, Palmetto and Laguna; its intention to close four
additional boat plants; and the write-down of certain assets of the
Valley-Dynamo coin-operated commercial billiards business.
During the third quarter
of 2008, the Company accelerated its previously announced efforts to resize the
Company by the end of 2009 in light of extraordinary developments within global
financial markets that are affecting the recreational marine industry.
Specifically, the Company is closing its production facilities in Pipestone,
Minnesota; Roseburg, Oregon; and Arlington, Washington. The Company also decided
to mothball its plant in Navassa, North Carolina. The Company completed the
Arlington, Roseburg and Navassa shutdowns in the fourth quarter of 2008, and
expects to shutdown the Pipestone facility in the first quarter of 2009.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The following is a summary
of the expense associated with the restructuring activities:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
2006 (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
activities
|
|
|
|
|
|
|
|
|
|
|
Employee
termination and other benefits
|
|
$ |
44.2 |
|
|
$ |
4.0 |
|
|
$ |
10.4 |
|
Current
asset write-downs
|
|
|
5.9 |
|
|
|
— |
|
|
|
3.1 |
|
Transformation
and other costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
of manufacturing footprint
|
|
|
58.8 |
|
|
|
3.0 |
|
|
|
3.6 |
|
Retention
and relocation costs
|
|
|
5.5 |
|
|
|
— |
|
|
|
— |
|
Consulting
costs
|
|
|
5.4 |
|
|
|
— |
|
|
|
— |
|
Exit
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination and other benefits
|
|
|
3.3 |
|
|
|
1.6 |
|
|
|
— |
|
Current
asset write-downs
|
|
|
8.8 |
|
|
|
4.5 |
|
|
|
— |
|
Transformation
and other costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
of manufacturing footprint
|
|
|
4.8 |
|
|
|
4.3 |
|
|
|
— |
|
Gain
on sale of non-strategic assets
|
|
|
(12.6 |
) |
|
|
— |
|
|
|
— |
|
Asset
disposition actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived
asset impairments
|
|
|
59.9 |
|
|
|
4.8 |
|
|
|
— |
|
Gain
on sale of non-strategic assets
|
|
|
(6.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
restructuring, exit and other
impairment charges
|
|
$ |
177.3 |
|
|
$ |
22.2 |
|
|
$ |
17.1 |
|
(A) The Company
also incurred $1.8 million of Equity earnings charges in 2006 related to asset
write-downs.
The restructuring charges
taken during 2008, all of which were related to the 2008 initiatives, for each
of the Company’s reportable segments in 2008 is summarized below:
(in
millions)
|
|
Boat
|
|
|
Marine
Engine
|
|
|
Fitness
|
|
|
Bowling
& Billiards
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
terminations and
other benefits
|
|
$ |
20.5 |
|
|
$ |
18.4 |
|
|
$ |
1.3 |
|
|
$ |
4.4 |
|
|
$ |
2.9 |
|
|
$ |
47.5 |
|
Current
asset write-downs
|
|
|
6.3 |
|
|
|
2.8 |
|
|
|
2.0 |
|
|
|
3.6 |
|
|
|
— |
|
|
|
14.7 |
|
Transformation and
other costs (gains)
|
|
|
47.9 |
|
|
|
(1.1 |
) |
|
|
— |
|
|
|
1.4 |
|
|
|
13.7 |
|
|
|
61.9 |
|
Asset
disposition actions
|
|
|
27.0 |
|
|
|
9.3 |
|
|
|
— |
|
|
|
12.3 |
|
|
|
4.6 |
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
restructuring, exit and other impairment charges
|
|
$ |
101.7 |
|
|
$ |
29.4 |
|
|
$ |
3.3 |
|
|
$ |
21.7 |
|
|
$ |
21.2 |
|
|
$ |
177.3 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The restructuring charges
taken during 2007, most of which were related to the 2007 initiatives, for each
of the Company’s reportable segments in 2007 is summarized below:
(in
millions)
|
|
Boat
|
|
|
Marine
Engine
|
|
|
Fitness
|
|
|
Bowling
& Billiards
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
terminations and
other benefits
|
|
$ |
3.6 |
|
|
$ |
1.9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
5.6 |
|
Current
asset write-downs
|
|
|
4.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.5 |
|
Transformation and
other costs
|
|
|
5.8 |
|
|
|
1.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.3 |
|
Asset
disposition actions
|
|
|
2.0 |
|
|
|
— |
|
|
|
— |
|
|
|
2.8 |
|
|
|
— |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring, exit and other impairment charges
|
|
$ |
15.9 |
|
|
$ |
3.4 |
|
|
$ |
— |
|
|
$ |
2.8 |
|
|
$ |
0.1 |
|
|
$ |
22.2 |
|
The restructuring charges
taken during 2006, all of which were related to the 2006 initiatives, for each
of the Company’s reportable segments in 2006 is summarized below:
(in
millions)
|
|
Boat
|
|
|
Marine
Engine
|
|
|
Fitness
|
|
|
Bowling
& Billiards
|
|
|
Corporate
|
|
|
Total
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
terminations and
other benefits
|
|
$ |
2.1 |
|
|
$ |
6.2 |
|
|
$ |
— |
|
|
$ |
1.4 |
|
|
$ |
0.7 |
|
|
$ |
10.4 |
|
Current
asset write-downs
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
1.3 |
|
|
|
— |
|
|
|
3.1 |
|
Transformation and
other costs
|
|
|
1.2 |
|
|
|
2.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring, exit and other impairment charges
|
|
$ |
4.2 |
|
|
$ |
9.5 |
|
|
$ |
— |
|
|
$ |
2.7 |
|
|
$ |
0.7 |
|
|
$ |
17.1 |
|
(A) The
Company also incurred $1.8 million of Equity earnings charges in 2006 related to
asset write-downs.
The
following table summarizes the charges taken for restructuring, exit and other
impairment charges related to actions initiated in 2008 and the related status
as of December 31, 2008. The accrued amounts remaining as of December 31, 2008,
represent cash expenditures needed to satisfy remaining obligations. The
majority of the accrued costs are expected to be paid by the end of 2009 and are
included in Accrued expenses in the Consolidated Balance Sheets.
(in
millions)
|
|
Costs
(Gains) Recognized in 2008
|
|
|
Noncash
Charges
|
|
|
Net
Cash (Payments)
and
Receipts
|
|
|
Accrued
Costs
as of
Dec.
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination and other benefits
|
|
$ |
47.5 |
|
|
$ |
— |
|
|
$ |
(30.5 |
) |
|
$ |
17.0 |
|
Current
asset write-downs
|
|
|
14.7 |
|
|
|
(14.7 |
) |
|
|
— |
|
|
|
— |
|
Transformation
and other costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
of manufacturing footprint
|
|
|
63.6 |
|
|
|
(0.8 |
) |
|
|
(57.1 |
) |
|
|
5.7 |
|
Retention
and relocation costs
|
|
|
5.5 |
|
|
|
— |
|
|
|
(4.7 |
) |
|
|
0.8 |
|
Consulting
costs
|
|
|
5.4 |
|
|
|
— |
|
|
|
(0.9 |
) |
|
|
4.5 |
|
Gain
on sale of non-strategic assets
|
|
|
(12.6 |
) |
|
|
(4.4 |
) |
|
|
17.0 |
|
|
|
— |
|
Asset
disposition actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived
asset impairments
|
|
|
59.9 |
|
|
|
(59.9 |
) |
|
|
— |
|
|
|
— |
|
Gain
on sale of non-strategic assets
|
|
|
(6.7 |
) |
|
|
(1.1 |
) |
|
|
7.8 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
restructuring, exit and other
impairment charges
|
|
$ |
177.3 |
|
|
$ |
(80.9 |
) |
|
$ |
(68.4 |
) |
|
$ |
28.0 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The Company anticipates
that it will incur approximately $30 million of additional costs related to the
2008 initiatives during 2009, when the 2008 initiatives are expected to be
complete. The Company expects most of these charges will be incurred in the Boat
segment.
The Company has identified
approximately $20 million of costs related to restructuring activities that will
be initiated during 2009; however, more significant reductions in demand for the
Company’s products may necessitate additional restructuring or exit charges in
2009.
Note
3 – Goodwill and Trade Name Impairments
During the third quarter
of 2008, Brunswick encountered a significant adverse change in the business
climate. A weak U.S. economy, soft housing markets and the emergence of a global
credit crisis accelerated the reduction in demand for certain Brunswick
products. As a result of this reduced demand, along with lower-than-projected
profits across certain Brunswick brands and lower purchase commitments received
from its dealer network in the third quarter, management revised its future cash
flow expectations in the third quarter of 2008, which lowered the fair value
estimates of certain businesses.
As a result of the lower
fair value estimates, Brunswick concluded that the carrying amounts of its Boat
segment reporting unit and the bowling retail and billiards reporting units
within the Bowling & Billiards segment exceeded their respective fair
values. As a result, the Company compared the implied fair value of the goodwill
in each reporting unit with the carrying value and recorded a $374.0 million
pretax impairment charge in the third quarter of 2008. In 2008, the Company
incurred $377.2 million of goodwill impairment charges, which include the
aforementioned $374.0 million, along with impairments related to the analyses of
its Baja boat business and its Valley-Dynamo coin-operated commercial billiards
business in the second quarter of 2008.
In conjunction with the
goodwill impairment testing, the Company analyzed the valuation of its other
indefinite-lived intangibles, consisting exclusively of acquired trade names.
Brunswick estimated the fair value of trade names by performing a discounted
cash flow analysis based on the relief-from-royalty approach. This approach
treats the trade name as if it were licensed by the Company rather than owned,
and calculates its value based on the discounted cash flow of the projected
license payments. The analysis resulted in a pretax trade name impairment charge
of $121.1 million in the third quarter of 2008, representing the excess of the
carrying cost of the trade names over the calculated fair value. In 2008, the
Company has taken $133.9 million of trade name impairment charges, which include
the aforementioned $121.1 million and additional impairments related to the
Company’s decision to exit its Bluewater Marine boat business and its
Valley-Dynamo coin-operated commercial billiards business in the second quarter
of 2008. A similar analysis was performed during the third quarter of 2007
related to certain outboard boat trade names as a result of reduced revenue
forecasts and adverse adjustments to projected royalty rates for those trade
names. A $66.4 million pretax impairment charge was recorded during the third
quarter of 2007 as a result of that analysis.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The following table
summarizes the goodwill impairment charges:
(in
millions) |
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
362.8 |
|
|
$ |
— |
|
|
$ |
— |
|
Bowling
& Billiards
|
|
|
14.4 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
377.2 |
|
|
$ |
— |
|
|
$ |
— |
|
The following table
summarizes the trade name impairment charges:
(in
millions) |
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
120.9 |
|
|
$ |
66.4 |
|
|
$ |
— |
|
Marine
Engine
|
|
|
4.5 |
|
|
|
— |
|
|
|
— |
|
Bowling
& Billiards
|
|
|
8.5 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
133.9 |
|
|
$ |
66.4 |
|
|
$ |
— |
|
A summary of changes in
the Company’s goodwill during the period ended December 31, 2008, by segment is
as follows:
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
(in
millions)
|
|
2007
|
|
|
Acquisitions
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
366.6 |
|
|
$ |
— |
|
|
$ |
(362.8 |
) |
|
$ |
(3.8 |
) |
|
$ |
— |
|
Marine
Engine
|
|
|
23.4 |
|
|
|
— |
|
|
|
— |
|
|
|
(4.6 |
) |
|
|
18.8 |
|
Fitness
|
|
|
274.0 |
|
|
|
— |
|
|
|
— |
|
|
|
(1.9 |
) |
|
|
272.1 |
|
Bowling
& Billiards
|
|
|
14.9 |
|
|
|
— |
|
|
|
(14.4 |
) |
|
|
(0.5 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
678.9 |
|
|
$ |
— |
|
|
$ |
(377.2 |
) |
|
$ |
(10.8 |
) |
|
$ |
290.9 |
|
A summary of changes in
the Company’s goodwill during the period ended December 31, 2007, by segment is
as follows:
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
(in
millions)
|
|
2006
|
|
|
Acquisitions
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
362.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4.6 |
|
|
$ |
366.6 |
|
Marine
Engine
|
|
|
14.7 |
|
|
|
7.8 |
|
|
|
— |
|
|
|
0.9 |
|
|
|
23.4 |
|
Fitness
|
|
|
272.3 |
|
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
274.0 |
|
Bowling
& Billiards
|
|
|
14.6 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
14.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
663.6 |
|
|
$ |
8.1 |
|
|
$ |
— |
|
|
$ |
7.2 |
|
|
$ |
678.9 |
|
Adjustments in 2008 and
2007 primarily relate to the effect of foreign currency translation and changes
in the fair value of net assets subject to purchase accounting adjustments,
primarily arising from the Company’s acquisitions as described in Note
7 – Acquisitions.
A summary of changes in
the Company’s net trade names during the period ended December 31, 2008, by
segment is as follows:
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
(in
millions)
|
|
2007
|
|
|
Acquisitions
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
151.9 |
|
|
$ |
— |
|
|
$ |
(120.9 |
) |
|
$ |
(0.7 |
) |
|
$ |
30.3 |
|
Marine
Engine
|
|
|
4.4 |
|
|
|
— |
|
|
|
(4.5 |
) |
|
|
2.0 |
|
|
|
1.9 |
|
Fitness
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.6 |
|
Bowling
& Billiards
|
|
|
8.5 |
|
|
|
— |
|
|
|
(8.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
165.4 |
|
|
$ |
— |
|
|
$ |
(133.9 |
) |
|
$ |
1.3 |
|
|
$ |
32.8 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
A summary of changes in
the Company’s net trade names during the period ended December 31, 2007, by
segment is as follows:
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
(in
millions)
|
|
2006
|
|
|
Acquisitions
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
217.8 |
|
|
$ |
— |
|
|
$ |
(66.4 |
) |
|
$ |
0.5 |
|
|
$ |
151.9 |
|
Marine
Engine
|
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
4.4 |
|
Fitness
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
0.6 |
|
Bowling
& Billiards
|
|
|
8.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
230.9 |
|
|
$ |
— |
|
|
$ |
(66.4 |
) |
|
$ |
0.9 |
|
|
$ |
165.4 |
|
Adjustments in 2008 and
2007 primarily relate to the effect of foreign currency translation and changes
in the fair value of net assets subject to purchase accounting adjustments,
primarily arising from the Company’s acquisitions as described in Note
7 – Acquisitions.
Other intangibles
consist of the following:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
(in
millions)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$ |
260.4 |
|
|
$ |
(219.0 |
) |
|
$ |
271.4 |
|
|
$ |
(211.9 |
) |
Other
|
|
|
36.7 |
|
|
|
(24.3 |
) |
|
|
40.7 |
|
|
|
(20.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
297.1 |
|
|
$ |
(243.3 |
) |
|
$ |
312.1 |
|
|
$ |
(231.9 |
) |
Amortized intangible
assets – Other includes patents, non-compete agreements and other intangible
assets. Gross amounts and related accumulated amortization amounts include
adjustments related to the impact of foreign currency translation and changes in
the fair value of net assets subject to purchase accounting adjustments,
primarily arising from the Company’s acquisitions as described in Note
7 – Acquisitions. Aggregate amortization expense for intangibles was
$12.4 million, $14.8 million and $14.2 million for the years ended December 31,
2008, 2007 and 2006, respectively. Estimated amortization expense for intangible
assets is approximately $11 million for the year ending December 31, 2009,
approximately $10 million in both 2010 and 2011, and approximately $9 million in
both 2012 and 2013.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
4 – Earnings (Loss) per Common Share
The Company calculates
earnings (loss) per share in accordance with SFAS No. 128, "Earnings per
Share." Basic earnings (loss) per share is calculated by dividing net
earnings (loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share is calculated similarly,
except that the calculation includes the dilutive effect of stock options and
nonvested stock awards. Weighted average basic shares decreased by 1.5 million
shares in 2008 compared with 2007, primarily due to the share repurchase
program. Although no shares were repurchased during 2008, the average
outstanding shares in 2007 did not fully reflect the effects of the shares
repurchased in 2007. Weighted average basic shares decreased by 4.2 million
shares in 2007 compared with 2006, primarily due to the share repurchase program
as discussed in Note
19 – Share Repurchase Program. The decrease was partially offset by
shares issued upon the exercise of employee stock options.
Basic and diluted earnings
(loss) per share for the years ended December 31, 2008, 2007 and 2006 are
calculated as follows:
(in
millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) from continuing operations
|
|
$ |
(788.1 |
) |
|
$ |
79.6 |
|
|
$ |
263.2 |
|
Net
earnings (loss) from discontinued operations, net
of tax
|
|
|
- |
|
|
|
32.0 |
|
|
|
(129.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(788.1 |
) |
|
$ |
111.6 |
|
|
$ |
133.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
outstanding shares – basic
|
|
|
88.3 |
|
|
|
89.8 |
|
|
|
94.0 |
|
Dilutive
effect of common stock equivalents
|
|
|
- |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
outstanding shares – diluted
|
|
|
88.3 |
|
|
|
90.2 |
|
|
|
94.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(8.93 |
) |
|
$ |
0.88 |
|
|
$ |
2.80 |
|
Discontinued
operations
|
|
|
- |
|
|
|
0.36 |
|
|
|
(1.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(8.93 |
) |
|
$ |
1.24 |
|
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(8.93 |
) |
|
$ |
0.88 |
|
|
$ |
2.78 |
|
Discontinued
operations
|
|
|
- |
|
|
|
0.36 |
|
|
|
(1.37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(8.93 |
) |
|
$ |
1.24 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008,
there were 6.5 million options outstanding, of which 2.9 million were
exercisable. As of December 31, 2007 and 2006, there were 2.9 million and 2.0
million, respectively, of common stock options outstanding excluded from the
computation of diluted earnings per share as the exercise price of the options
was greater than the average market price of the Company’s shares for the period
then ended. During the year ended December 31, 2008, the Company incurred a net
loss from continuing operations. As common stock equivalents have an
anti-dilutive effect on the net loss, the equivalents were not included in the
computation of diluted earnings (loss) per share for 2008.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
5 – Segment Information
Brunswick is a
manufacturer and marketer of leading consumer brands, and operates in four
reportable segments: Boat, Marine Engine, Fitness and Bowling & Billiards.
The Company’s segments are defined by management reporting structure and
operating activities.
The Boat segment designs,
manufactures and markets fiberglass pleasure boats, offshore fishing boats and
aluminum fishing, deck and pontoon boats, which are sold primarily through
dealers. The segment also owns and operates marine parts and accessories
distribution and manufacturing businesses. The Boat segment’s products are
manufactured primarily in the United States. Sales to the segment’s largest boat
dealer, MarineMax, which has multiple locations, comprised approximately 13
percent of Boat segment sales in 2008, approximately 21 percent in 2007 and
approximately 26 percent in 2006.
The Marine Engine segment
manufactures and markets a full range of sterndrive engines, inboard engines,
outboard engines, water jet propulsion systems, and parts and accessories, which
are principally sold directly to boat builders, including Brunswick’s Boat
segment, or through marine retail dealers worldwide. Mercury Marine also
manufactures and distributes boats in certain markets outside the United States.
The Company’s engine manufacturing plants are located primarily in the United
States, China and Japan, with sales primarily to United States, European and
Asian markets.
The Fitness segment
designs, manufactures and markets fitness equipment, including treadmills, total
body cross-trainers, stair climbers, stationary bikes and strength-training
equipment. These products are manufactured primarily in the United States or
sourced from international locations. Fitness equipment is sold primarily in
North America, Europe and Asia to health clubs, military, government, corporate
and university facilities, and to consumers through specialty retail
dealers.
The Bowling &
Billiards segment designs, manufactures and markets bowling capital equipment
and associated parts and supplies, including automatic pinsetters and scorers;
bowling balls and other accessories; billiards, Air Hockey and foosball tables
and accessories; game room furniture; and operates bowling centers. Products are
manufactured or sourced from domestic and international locations. Bowling
products and commercial billiards, Air Hockey and foosball tables are sold
through a direct sales force or distributors in the United States and through
distributors in non-U.S. markets, primarily Europe and Asia. Consumer billiards
equipment is predominantly sold in the United States and distributed primarily
through dealers.
As discussed in Note
20 – Discontinued Operations,
during the second quarter of 2006, Brunswick began reporting the majority
of its Brunswick New Technologies (BNT) businesses as discontinued operations.
These businesses were previously reported in the Marine Engine segment. Segment
results have been restated for all periods presented to reflect the change in
Brunswick’s reported segments. Additionally, the BNT businesses that are being
retained are now reported as part of the Boat, Marine Engine and Fitness
segments, consistent with the manner in which Brunswick’s management views these
businesses.
The Company evaluates
performance based on business segment operating earnings. Operating earnings of
segments do not include the expenses of corporate administration, earnings from
equity affiliates, other expenses and income of a non-operating nature, interest
expense and income or provisions for income taxes.
Corporate/Other results
include items such as corporate staff and overhead costs as well as the
financial results of the Company’s joint venture, Brunswick Acceptance Company,
LLC (BAC), which is discussed in further detail in Note
9 – Financial Services. Corporate/Other total assets consist primarily of
cash and marketable securities, prepaid income taxes and investments in
unconsolidated affiliates. Marine eliminations are eliminations between the
Marine Engine and Boat segments for sales transactions consummated at
established arm’s length transfer prices.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Information as to the
operations of Brunswick’s operating segments is set forth below:
Operating
Segments
|
|
Net
Sales
|
|
|
Operating
Earnings (Loss)
|
|
|
Total
Assets
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
2,011.9 |
|
|
$ |
2,690.9 |
|
|
$ |
2,864.4 |
|
|
$ |
(653.7 |
) |
|
$ |
(81.4 |
) |
|
$ |
135.6 |
|
|
$ |
920.4 |
|
|
$ |
1,515.6 |
|
Marine
Engine
|
|
|
1,955.9 |
|
|
|
2,357.5 |
|
|
|
2,271.3 |
|
|
|
68.3 |
|
|
|
183.7 |
|
|
|
193.8 |
|
|
|
747.6 |
|
|
|
959.1 |
|
Marine
eliminations
|
|
|
(346.7 |
) |
|
|
(477.6 |
) |
|
|
(521.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
Marine
|
|
|
3,621.1 |
|
|
|
4,570.8 |
|
|
|
4,613.9 |
|
|
|
(585.4 |
) |
|
|
102.3 |
|
|
|
329.4 |
|
|
|
1,668.0 |
|
|
|
2,474.7 |
|
Fitness
|
|
|
639.5 |
|
|
|
653.7 |
|
|
|
593.1 |
|
|
|
52.2 |
|
|
|
59.7 |
|
|
|
57.8 |
|
|
|
636.3 |
|
|
|
695.4 |
|
Bowling
& Billiards
|
|
|
448.3 |
|
|
|
446.9 |
|
|
|
458.3 |
|
|
|
(12.7 |
) |
|
|
16.5 |
|
|
|
22.1 |
|
|
|
340.8 |
|
|
|
409.2 |
|
Eliminations
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Corporate/Other
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(65.7 |
) |
|
|
(71.3 |
) |
|
|
(68.1 |
) |
|
|
578.8 |
|
|
|
786.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,708.7 |
|
|
$ |
5,671.2 |
|
|
$ |
5,665.0 |
|
|
$ |
(611.6 |
) |
|
$ |
107.2 |
|
|
$ |
341.2 |
|
|
$ |
3,223.9 |
|
|
$ |
4,365.6 |
|
|
|
Depreciation
|
|
|
Amortization
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
55.8 |
|
|
$ |
60.4 |
|
|
$ |
52.1 |
|
|
$ |
10.2 |
|
|
$ |
11.2 |
|
|
$ |
11.0 |
|
Marine
Engine
|
|
|
69.6 |
|
|
|
66.5 |
|
|
|
63.4 |
|
|
|
0.5 |
|
|
|
0.6 |
|
|
|
2.0 |
|
Fitness
|
|
|
11.1 |
|
|
|
10.0 |
|
|
|
10.8 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Bowling
& Billiards
|
|
|
25.0 |
|
|
|
24.0 |
|
|
|
21.8 |
|
|
|
1.4 |
|
|
|
2.7 |
|
|
|
0.9 |
|
Corporate/Other
|
|
|
3.3 |
|
|
|
4.4 |
|
|
|
5.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
164.8 |
|
|
$ |
165.3 |
|
|
$ |
153.1 |
|
|
$ |
12.4 |
|
|
$ |
14.8 |
|
|
$ |
14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development
|
|
|
|
Capital
Expenditures
|
|
|
Expense
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
42.6 |
|
|
$ |
94.9 |
|
|
$ |
75.8 |
|
|
$ |
40.3 |
|
|
$ |
39.8 |
|
|
$ |
38.0 |
|
Marine
Engine
|
|
|
21.7 |
|
|
|
54.8 |
|
|
|
72.5 |
|
|
|
59.6 |
|
|
|
68.1 |
|
|
|
70.3 |
|
Fitness
|
|
|
4.5 |
|
|
|
11.8 |
|
|
|
11.0 |
|
|
|
17.4 |
|
|
|
21.6 |
|
|
|
18.4 |
|
Bowling
& Billiards
|
|
|
26.9 |
|
|
|
41.6 |
|
|
|
43.7 |
|
|
|
4.9 |
|
|
|
5.0 |
|
|
|
5.5 |
|
Corporate/Other
|
|
|
6.3 |
|
|
|
4.6 |
|
|
|
2.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
102.0 |
|
|
$ |
207.7 |
|
|
$ |
205.1 |
|
|
$ |
122.2 |
|
|
$ |
134.5 |
|
|
$ |
132.2 |
|
Geographic
Segments
|
|
Net
Sales
|
|
|
Long-Lived
Assets
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
2,650.2 |
|
|
$ |
3,654.8 |
|
|
$ |
3,862.6 |
|
|
$ |
857.8 |
|
|
$ |
1,002.3 |
|
International
|
|
|
2,058.5 |
|
|
|
2,016.4 |
|
|
|
1,802.4 |
|
|
|
115.9 |
|
|
|
139.1 |
|
Corporate/Other
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
135.8 |
|
|
|
185.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,708.7 |
|
|
$ |
5,671.2 |
|
|
$ |
5,665.0 |
|
|
$ |
1,109.5 |
|
|
$ |
1,326.7 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
6 – Fair Value Measurements
Fair value is defined
under SFAS 157 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 SFAS 157 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.
The following table
summarizes Brunswick’s financial assets and liabilities measured at fair value
on a recurring basis in accordance with SFAS 157 as of December 31,
2008:
(in
millions)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Equivalents
|
|
$ |
170.8 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
170.8 |
|
Investments
|
|
|
3.1 |
|
|
|
- |
|
|
|
- |
|
|
|
3.1 |
|
Derivatives
|
|
|
- |
|
|
|
14.3 |
|
|
|
- |
|
|
|
14.3 |
|
Total
Assets
|
|
$ |
173.9 |
|
|
$ |
14.3 |
|
|
$ |
- |
|
|
$ |
188.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
- |
|
|
$ |
19.1 |
|
|
$ |
- |
|
|
$ |
19.1 |
|
During 2008, the Company
has undertaken various restructuring activities, as discussed in Note
2 – Restructuring Activities and has tested its goodwill and trade names,
as discussed in Note
3 – Goodwill and Trade Name Impairments. The restructuring activities and
testing of goodwill and trade names required the Company to perform fair value
measurements, on a non-recurring basis, on certain asset groups to test for
potential impairments. Certain of these fair value measurements indicated that
the asset groups were impaired and, therefore, the assets were written down to
fair value. Once an asset has been impaired, it is not remeasured at fair value
on a recurring basis; however, it is still subject to fair value measurements to
test for recoverability of the carrying amount. Other than the assets measured
at fair value on a recurring basis, as shown in the table above, the asset
balances shown in the Condensed Consolidated Balance Sheets include an
insignificant amount of assets measured at fair value on a non-recurring
basis.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
7 – Acquisitions
All acquisitions are
accounted for under the purchase method and in accordance with SFAS No. 141,
“Business Combinations.”
The Company did not
complete any acquisitions during 2008.
In 2007, consideration
paid for acquisitions, net of cash acquired, and other consideration provided
was as follows:
(in
millions)
Date
|
|
Name/Description
|
|
Net
Cash
Consideration(A)
|
|
|
Other
Consideration
|
|
|
Total
Consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/04/07
|
|
Marine
Innovations Warranty Corporation
|
|
$ |
1.5 |
|
|
$ |
– |
|
|
$ |
1.5 |
|
8/24/07
|
|
Rayglass
Sales & Marketing Limited (51 percent)
|
|
|
4.6 |
|
|
|
– |
|
|
|
4.6 |
|
Various
|
|
Miscellaneous
|
|
|
0.1 |
|
|
|
0.5 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.2 |
|
|
$ |
0.5 |
|
|
$ |
6.7 |
|
(A) Net cash
consideration is subject to subsequent changes resulting from final purchase
agreement adjustments.
The Company made an
additional payment of $1.5 million for the April 1, 2004, acquisition of Marine
Innovations Warranty Corporation (Marine Innovations), an administrator of
extended warranty contracts for the marine industry. This was the final payment
required under the purchase agreement as Marine Innovations fulfilled earnings
targets. The post-acquisition results of Marine Innovations are included in the
Boat segment.
Brunswick purchased a 49
percent equity interest in Rayglass Sales & Marketing Limited (Rayglass), a
manufacturer of boats and marine equipment located in New Zealand, on July 15,
2003, for $5.5 million. On August 24, 2007, the Company exercised its option to
purchase the remaining 51 percent interest in the New Zealand company for $4.6
million. The acquisition expands the global manufacturing footprint of the
marine operations and develops additional international sales opportunities. The
post-acquisition results of Rayglass are included in the Marine Engine
segment.
In 2006, consideration
paid for acquisitions, net of cash acquired, was as follows:
(in
millions)
Date
|
|
Name/Description
|
|
Net
Cash
Consideration(A)
|
|
|
|
|
|
|
|
2/16/06
|
|
Cabo
Yachts, Inc.
|
|
$ |
60.6 |
|
3/24/06
|
|
Marine
Innovations Warranty Corporation
|
|
|
2.3 |
|
4/26/06
|
|
Diversified
Marine Products, L.P.
|
|
|
14.2 |
|
9/20/06
|
|
Protokon
LLC (13.3 percent)
|
|
|
5.6 |
|
10/19/06
|
|
Blue
Water Dealer Services, Inc.
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
86.2 |
|
|
|
|
|
|
|
|
(A)
Net cash consideration is subject to subsequent changes
resulting from final purchase agreement adjustments.
Brunswick acquired certain
assets of Cabo Yachts, Inc. (Cabo) for $60.6 million. Cabo manufactures offshore
sportfishing boats ranging from 31 to 52 feet. The purchase of Cabo complements
Brunswick’s previous acquisitions of Hatteras Yachts, Inc. and Albemarle Boats,
Inc. (Albemarle), discussed below, and allows the Company to offer a full range
of sportfishing convertibles and motoryachts from 24 to 100 feet. The
post-acquisition results of Cabo are included in the Boat segment.
The Company made an
additional payment of $2.3 million for the April 1, 2004, acquisition of Marine
Innovations. This payment was required under the purchase agreement as Marine
Innovations fulfilled earnings targets. The post-acquisition results of Marine
Innovations are included in the Boat segment.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
On April 26, 2006,
Brunswick acquired the outstanding stock of Diversified Marine Products, L.P.
(Diversified) for $14.2 million. Diversified is a leading wholesale distributor
of marine parts and accessories headquartered in Los Angeles, California. The
acquisition of Diversified complements Brunswick’s previous acquisitions of
Benrock, Inc. (Benrock), Land ‘N’ Sea Corporation and Kellogg Marine, Inc.
(Kellogg) and allows Brunswick to provide same- or next-day delivery of marine
parts and accessories nationwide by expanding its parts and accessories business
to the West Coast of the United States. The post-acquisition results of
Diversified are included in the Boat Segment.
On September 20, 2006, the
Company acquired an additional 13.3 percent of the outstanding stock of Protokon
LLC (Protokon), a Hungarian equipment manufacturer, for $5.6 million. Brunswick
previously purchased 80 percent of the outstanding stock of Protokon in 2003 and
has the option to acquire the remaining 6.7 percent interest in Protokon under
certain circumstances. The acquisition of Protokon has allowed Brunswick
to manufacture fitness equipment closer to the European marketplace, thereby
reducing freight costs and offering better service to fitness customers in
Europe. The post-acquisition results of Protokon are included in the Fitness
Segment.
On October 19, 2006,
Brunswick acquired the outstanding stock of Blue Water Dealer Services, Inc. and
its affiliates (Blue Water) for $3.5 million. Blue Water, headquartered in
Wilmington, North Carolina, is a provider of retail financial services to marine
dealers. The acquisition of Blue Water allows Brunswick to offer a more complete
line of financial services to its boat and marine engine dealers and their
customers. The post-acquisition results of Blue Water are included in the Boat
Segment.
These acquisitions were
not and would not have been material to Brunswick’s net sales, results of
operations or total assets in the years ended December 31, 2008, 2007 or 2006.
Accordingly, Brunswick’s consolidated results from operations do not differ
materially from historical performance as a result of these acquisitions, and
therefore, pro forma results are not presented.
Purchase price allocations
for acquisitions are subject to adjustment, pending final third-party
valuations, up to one year from the date of acquisition. Any adjustments are not
expected to be material to Brunswick’s Consolidated Balance Sheets. See Note
1 – Significant Accounting Policies and Note
3 – Goodwill and Trade Name Impairments for further detail regarding the
Company’s accounting for goodwill and other intangible assets.
The following table shows
the gross amount of goodwill and intangible assets recorded as of December 31
for the acquisitions completed in 2007 and 2006. There were no acquisitions
recorded in 2008:
|
|
|
|
(in
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Indefinite-lived:
|
|
|
|
|
|
|
Goodwill
|
|
$ |
8.1 |
|
|
$ |
32.9 |
|
Trademarks/trade
names
|
|
$ |
— |
|
|
$ |
17.8 |
|
Amortizable:
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$ |
— |
|
|
$ |
9.1 |
|
Other
|
|
$ |
— |
|
|
$ |
3.2 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
8 – Investments
The Company has certain
unconsolidated international and domestic affiliates that are accounted for
using the equity method. Refer to Note
9 – Financial Services for more details on the Company’s Brunswick
Acceptance Company, LLC joint venture. The Company did not make any
contributions to other existing joint ventures in 2008, while it contributed
$0.2 million to other existing joint ventures in 2007.
Brunswick received
dividends from its unconsolidated affiliates of $5.4 million, $11.6 million and
$6.8 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
The Company’s sales to and
purchases from its investments, along with the corresponding receivables and
payables, were not material to the Company’s overall results of operations for
the years ended December 31, 2008, 2007 and 2006, respectively, and its
financial position as of December 31, 2008 and 2007.
In March 2008, Brunswick
sold its interest in its bowling joint venture in Japan for $40.4 million gross
cash proceeds, $37.4 million net of cash paid for taxes and other costs. The
sale resulted in a $20.9 million pretax gain, $9.9 million after-tax, and was
recorded in Investment sale gains in the Consolidated Statements of Operations.
In September 2008,
Brunswick sold its investment in a foundry located in Mexico for $5.1 million
gross cash proceeds. The sale resulted in a $2.1 million pretax gain and was
recorded in Investment sale gains in the Consolidated Statements of Operations.
The Company, through its
Brunswick Financial Services Corporation (BFS) subsidiary, owns a 49 percent
interest in a joint venture, Brunswick Acceptance Company, LLC (BAC). CDF
Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation (GECC), owns the
remaining 51 percent. BAC commenced operations in 2003 and provides secured
wholesale inventory floor-plan financing to Brunswick’s boat and engine dealers.
BAC also purchases and services a portion of Mercury Marine’s domestic accounts
receivable relating to its boat builder and dealer customers.
Through an agreement
reached in the second quarter of 2008, the term of the joint venture was
extended through June 30, 2014. The joint venture agreement contains provisions
allowing for the renewal, purchase or termination by either partner at the end
of this term. The agreement also contained provisions allowing for CDFV to
terminate the joint venture if the Company is unable to maintain compliance
with financial covenants. During the fourth quarter of 2008, the partners
reached an agreement to amend the financial covenant to conform it to the
minimum fixed charges test contained in the Company’s amended and restated
revolving credit facility. The Company was in compliance with this covenant at
the end of the fourth quarter.
BAC is funded in part
through a $1.0 billion secured borrowing facility from GE Commercial
Distribution Finance Corporation (GECDF), which is in place through the term of
the joint venture, and with equity contributions from both partners. BAC also
sells a portion of its receivables to a securitization facility, the GE Dealer
Floorplan Master Note Trust, which is arranged by GECC. The sales of these
receivables meet the requirements of a “true sale” under SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities – a replacement of FASB Statement No. 125,” (SFAS 140), and are
therefore not retained on the financial statements of BAC. The indebtedness of
BAC is not guaranteed by the Company or any of its subsidiaries. In addition,
BAC is not responsible for any continuing servicing costs or obligations with
respect to the securitized receivables.
BFS’s investment in BAC is
accounted for by the Company under the equity method and is recorded as a
component of Investments in its Condensed Consolidated Balance Sheets. The
Company records BFS’s share of income or loss in BAC based on its ownership
percentage in the joint venture in Equity earnings in its Consolidated
Statements of Operations. BFS and GECDF also have an income sharing arrangement
related to income generated from the receivables sold by BAC to the
securitization facility.
BFS’s equity
investment is adjusted monthly to maintain a 49 percent interest in accordance
with the capital provisions of the joint venture agreement. The Company funds
its investment in BAC through cash contributions and reinvested earnings. BFS’s
total investment in BAC at December 31, 2008, and December 31, 2007, was $26.7
million and $47.0 million, respectively. The reduction in BFS’s total investment
in BAC is the result of lower outstanding receivables balances and a lower total
investment requirement.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
BFS recorded income
related to the operations of BAC of $7.5 million, $12.7 million and $13.2
million for the years ended December 31, 2008, 2007 and 2006, respectively.
These amounts include amounts earned by BFS under the aforementioned income
sharing agreement, but exclude the discount expense paid by the Company on the
sale of Mercury Marine’s accounts receivable to the joint venture noted
below.
Accounts receivable
totaling $715.4 million, $887.3 million and $832.0 million were sold to BAC in
2008, 2007 and 2006, respectively. Discounts of $5.8 million, $8.0 million and,
$7.6 million for the years ended December 31, 2008, 2007 and 2006, respectively,
have been recorded as an expense in Other income (expense), net, in the
Consolidated Statements of Operations. The outstanding balance of receivables
sold to BAC was $77.4 million as of December 31, 2008, compared with $93.1
million as of December 31, 2007. Pursuant to the joint venture agreement, BAC
reimbursed Mercury Marine $2.6 million, $2.7 million and, $2.2 million in 2008,
2007 and 2006, respectively, for the related credit, collection and
administrative costs incurred in connection with the servicing of such
receivables.
As of December 31, 2008 and
2007, the Company had a retained interest in $41.0 million and $46.4 million of
the total outstanding accounts receivable sold to BAC, respectively. The
Company’s maximum exposure as of December 31, 2008 and 2007, related to these
amounts was $28.2 million and $28.9 million, respectively. In accordance
with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities,” the Company treats the sale of receivables
in which the Company retains an interest as a secured obligation. Accordingly,
the amount of the Company’s maximum exposure was recorded in Accounts and notes
receivable, and Accrued expenses in the Consolidated Balance Sheets. These
balances are included in the amounts in Note
11 – Commitments and Contingencies.
The sources of earnings
(loss) before income taxes are as follows:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
(606.0 |
) |
|
$ |
64.7 |
|
|
$ |
285.6 |
|
Foreign
|
|
|
(26.2 |
) |
|
|
28.0 |
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before income taxes
|
|
$ |
(632.2 |
) |
|
$ |
92.7 |
|
|
$ |
309.7 |
|
The income tax provision
consisted of the following:
(in
millions) |
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Current
tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
U.S.
Federal
|
|
$ |
(92.0 |
) |
|
$ |
25.7 |
|
|
$ |
66.3 |
|
State
and local
|
|
|
0.3 |
|
|
|
(1.8 |
) |
|
|
8.8 |
|
Foreign
|
|
|
11.4 |
|
|
|
33.6 |
|
|
|
1.4 |
|
Total
current
|
|
|
(80.3 |
) |
|
|
57.5 |
|
|
|
76.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Federal
|
|
|
228.3 |
|
|
|
(29.5 |
) |
|
|
(28.6 |
) |
State
and local
|
|
|
2.1 |
|
|
|
(3.7 |
) |
|
|
(4.3 |
) |
Foreign
|
|
|
5.8 |
|
|
|
(11.2 |
) |
|
|
2.9 |
|
Total
deferred
|
|
|
236.2 |
|
|
|
(44.4 |
) |
|
|
(30.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision
|
|
$ |
155.9 |
|
|
$ |
13.1 |
|
|
$ |
46.5 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Temporary differences and
carryforwards giving rise to deferred tax assets and liabilities at December 31,
2008 and 2007, were as follows:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
Loss
carryovers
|
|
$ |
80.7 |
|
|
$ |
16.3 |
|
Product
warranties
|
|
|
48.4 |
|
|
|
53.0 |
|
Sales
incentives and discounts
|
|
|
29.6 |
|
|
|
43.8 |
|
Tax
credit carryovers
|
|
|
23.3 |
|
|
|
8.2 |
|
Litigation
and environmental reserves
|
|
|
23.0 |
|
|
|
21.5 |
|
Insurance
reserves
|
|
|
17.1 |
|
|
|
20.2 |
|
Bad
debt and other receivable reserves
|
|
|
16.5 |
|
|
|
12.7 |
|
Other
|
|
|
89.4 |
|
|
|
87.8 |
|
Gross
current deferred tax assets
|
|
|
328.0 |
|
|
|
263.5 |
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(209.7 |
) |
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
Total
net current deferred tax assets
|
|
|
118.3 |
|
|
|
261.2 |
|
|
|
|
|
|
|
|
|
|
Current
deferred tax liabilities:
|
|
|
(15.1 |
) |
|
|
(11.3 |
) |
|
|
|
|
|
|
|
|
|
Total
net current deferred taxes
|
|
$ |
103.2 |
|
|
$ |
249.9 |
|
|
|
|
|
|
|
|
|
|
Non-current
deferred tax assets:
|
|
|
|
|
|
|
|
|
Pension
|
|
$ |
202.0 |
|
|
$ |
64.9 |
|
Loss
carryforwards
|
|
|
69.3 |
|
|
|
54.6 |
|
Postretirement
and postemployment benefits
|
|
|
40.0 |
|
|
|
45.9 |
|
Deferred
compensation
|
|
|
19.5 |
|
|
|
31.3 |
|
Other
|
|
|
15.1 |
|
|
|
24.9 |
|
Gross
non-current deferred tax assets
|
|
|
345.9 |
|
|
|
221.6 |
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(283.4 |
) |
|
|
(14.2 |
) |
|
|
|
|
|
|
|
|
|
Total
net non-current deferred tax assets
|
|
|
62.5 |
|
|
|
207.4 |
|
|
|
|
|
|
|
|
|
|
Non-current
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Pension
|
|
|
(40.3 |
) |
|
|
(42.8 |
) |
Depreciation
and amortization
|
|
|
(20.7 |
) |
|
|
(139.1 |
) |
Other
|
|
|
(26.5 |
) |
|
|
(37.8 |
) |
Total
non-current deferred tax liabilities
|
|
|
(87.5 |
) |
|
|
(219.7 |
) |
|
|
|
|
|
|
|
|
|
Total
net non-current deferred taxes
|
|
$ |
(25.0 |
) |
|
$ |
(12.3 |
) |
At December 31, 2008, the
Company had a total valuation allowance of $493.1 million, $209.7 million
current and $283.4 million non-current. This valuation allowance is primarily
due to uncertainty concerning the realization of certain net deferred tax
assets, as prescribed by SFAS No. 109, “Accounting for Income Taxes.” For the
year ended December 31, 2008, the valuation allowance increased $476.6 million.
This increase was recorded as a $338.3 million charge to income tax expense and
a $138.7 million charge to other comprehensive income primarily due to an
increase to the deferred tax asset associated with pensions. The remaining
realizable value of net deferred tax assets at December 31, 2008, was determined
by evaluating the potential to recover the value of these assets through the
utilization of tax loss and credit carrybacks and certain tax planning
strategies.
At December 31, 2008, loss
carryovers totaling $150.0 million were available to reduce tax liabilities.
This deferred tax asset was comprised of $69.7 million of the tax benefit of a
federal net operating loss (NOL) carryback, $36.8 million of the tax benefit of
state NOL carryforwards, $29.6 million of the tax benefit of foreign NOL
carryforwards and $13.9 million of the tax benefit of unused capital losses. NOL
carryforwards of $43.7 million expire at various intervals between the years
2009 and 2028, while $22.7 million have an unlimited life.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The Company has
historically provided deferred taxes under APB No. 23, “Accounting for Income
Taxes – Special Areas,” (APB 23) for the presumed ultimate repatriation to the
United States of earnings from all non-U.S. subsidiaries and unconsolidated
affiliates. The indefinite reversal criterion of APB 23 allows the Company to
overcome that presumption to the extent the earnings are indefinitely reinvested
outside the United States.
As of January 1, 2007, the
Company determined that $25.8 million of current undistributed net earnings, as
well as the future net earnings, of certain foreign subsidiaries will be
permanently reinvested. As a result of the APB 23 change in assertion, the
Company reduced its deferred tax liabilities related to undistributed foreign
earnings by $2.0 million during the first quarter of 2007.
The Company has
undistributed earnings from continuing operations of foreign subsidiaries of
$113.4 million at December 31, 2008, for which deferred taxes have not been
provided. Such earnings are indefinitely reinvested in the foreign subsidiaries.
If such earnings were repatriated, additional tax may result. The Company
continues to provide deferred taxes, as required, on the undistributed net
earnings of foreign subsidiaries and unconsolidated affiliates that are not
indefinitely reinvested in operations outside the United States.
The Company adopted the
provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes,” (FIN 48) effective on January 1, 2007. As a result of the implementation
of FIN 48, the Company recognized an $8.7 million decrease in the net liability
for unrecognized tax benefits, which was accounted for as an increase to the
January 1, 2007, balance of retained earnings. As of January 1, 2008, the
Company had $44.4 million of gross unrecognized tax benefits, including
interest. Of this amount, $37.4 million represents the portion that, if
recognized, would impact the effective tax rate. The Company recognizes interest
and penalties related to unrecognized tax benefits in income tax expense. As of
January 1, 2008, the Company had $5.4 million accrued for the payment of
interest, and no amounts accrued for penalties.
The following is a
reconciliation of the total amounts of unrecognized tax benefits excluding
interest and penalties for the 2008 annual reporting period:
(in
millions)
|
|
2008
|
|
|
|
|
|
Balance
at January 1
|
|
$ |
39.0 |
|
Gross
increases – tax positions prior periods
|
|
|
3.2 |
|
Gross
decreases – tax positions prior periods
|
|
|
(0.4 |
) |
Gross
increases – current period tax positions
|
|
|
1.5 |
|
Decreases
– settlements with taxing authorities
|
|
|
(6.0 |
) |
|
|
|
|
|
Balance
at December 31
|
|
$ |
37.3 |
|
As of December 31, 2008,
the Company had $44.2 million of gross unrecognized tax benefits, including
interest. Of this amount, $37.0 million represents the portion that, if
recognized, would impact the effective tax rate. The Company recognizes interest
and penalties related to unrecognized tax benefits in income tax expense. As of
December 31, 2008, the Company had $6.9 million accrued for the payment of
interest, and no amounts accrued for penalties.
The Company believes that
it is reasonably possible that the total amount of unrecognized tax benefits as
of December 31, 2008, will decrease by approximately $11.8 million in 2009 as a
result of expected settlements with taxing authorities. Due to the various
jurisdictions in which the Company files tax returns and the uncertainty
regarding the timing of the settlement of tax audits, it is possible that there
could be other significant changes in the amount of unrecognized tax benefits in
2009, but the amount cannot be estimated.
The Company is regularly
audited by federal, state and foreign tax authorities. In the fourth quarter of
2006, the IRS completed its audit of the Company’s taxable years 2002 and 2003.
As discussed in Note
11 – Commitments and Contingencies, the Company and the IRS reached
settlements in 2005 for taxable years 1986 through 2001, and the statute of
limitations related to these taxable years expired on March 9, 2006. The
Company’s taxable years 2004 through 2007 are currently open for IRS examination
and the IRS is in the process of completing its audits for 2004 and 2005.
Primarily as a result of filing amended tax returns, which were generated by the
closing of federal income tax audits, the Company is still open to state and
local tax audits in major tax jurisdictions dating back to the 1999 taxable
year. With the exception of Germany, where the Company is currently undergoing a
tax audit for taxable years 1998 through 2007, the Company is no longer subject
to income tax examinations by any other major foreign tax jurisdiction for years
prior to 2003.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The difference between the
actual income tax provision and the tax provision (benefit) computed by applying
the statutory Federal income tax rate to earnings (loss) before taxes is
attributable to the following:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit) at 35 percent
|
|
$ |
(221.3 |
) |
|
$ |
32.4 |
|
|
$ |
108.4 |
|
State
and local income taxes, net of Federal income tax effect
|
|
|
(17.8 |
) |
|
|
1.3 |
|
|
|
7.8 |
|
Deferred
tax asset valuation allowance
|
|
|
338.3 |
|
|
|
0.4 |
|
|
|
— |
|
Nondeductible
impairment charges
|
|
|
68.1 |
|
|
|
— |
|
|
|
— |
|
Asset
dispositions
|
|
|
(13.3 |
) |
|
|
— |
|
|
|
— |
|
Change
in estimates related to prior years and prior
years’
amended tax return filings
|
|
|
5.0 |
|
|
|
3.8 |
|
|
|
(4.4 |
) |
Research
and development credit
|
|
|
(4.8 |
) |
|
|
(8.1 |
) |
|
|
(8.5 |
) |
Deferred
tax reassessments
|
|
|
1.6 |
|
|
|
(12.7 |
) |
|
|
— |
|
Lower
taxes related to foreign income, net of credits
|
|
|
(0.9 |
) |
|
|
(2.9 |
) |
|
|
(5.2 |
) |
Tax
reserve reassessment
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
(40.2 |
) |
Extraterritorial
income benefit
|
|
|
— |
|
|
|
— |
|
|
|
(9.8 |
) |
Other
|
|
|
0.6 |
|
|
|
(1.6 |
) |
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
income tax provision
|
|
$ |
155.9 |
|
|
$ |
13.1 |
|
|
$ |
46.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
(24.7 |
)% |
|
|
14.1 |
% |
|
|
15.0 |
% |
Income tax provision
(benefit) allocated to continuing operations and discontinued operations for the
years ended December 31 was as follows:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
155.9 |
|
|
$ |
13.1 |
|
|
$ |
46.5 |
|
Discontinued
operations
|
|
|
— |
|
|
|
(8.1 |
) |
|
|
(9.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
tax provision
|
|
$ |
155.9 |
|
|
$ |
5.0 |
|
|
$ |
36.9 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
11 – Commitments and Contingencies
Financial
Commitments
The Company has entered
into guarantees of indebtedness of third parties, primarily in connection with
customer financing programs. Under these arrangements, the Company has
guaranteed customer obligations to the financial institutions in the event of
customer default, generally subject to a maximum amount which is less than total
obligations outstanding. The Company has also guaranteed payments to third
parties that have purchased customer receivables from Brunswick and, in certain
instances, has guaranteed secured term financing of its customers. Potential
payments in connection with these customer financing arrangements would likely
extend over several years. The potential liabilities associated with these
customer financing arrangements as of December 31, 2008 and 2007, respectively,
were:
|
|
Single
Year Obligation
|
|
|
Maximum
Obligation
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
3.2 |
|
|
$ |
- |
|
|
$ |
3.2 |
|
|
$ |
- |
|
Marine
Engine
|
|
|
35.4 |
|
|
|
35.6 |
|
|
|
35.4 |
|
|
|
35.6 |
|
Fitness
|
|
|
26.9 |
|
|
|
23.8 |
|
|
|
38.3 |
|
|
|
33.7 |
|
Bowling
& Billiards
|
|
|
11.3 |
|
|
|
13.9 |
|
|
|
27.1 |
|
|
|
36.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
76.8 |
|
|
$ |
73.3 |
|
|
$ |
104.0 |
|
|
$ |
106.2 |
|
In most instances, upon
repurchase of the debt obligation, the Company receives rights to the collateral
securing the financing. The Company’s risk under these arrangements is mitigated
by the value of the collateral that secures the financing. The Company had $6.4
million and $8.2 million accrued for potential losses related to recourse
exposure at December 31, 2008 and December 31, 2007, respectively.
The Company has also
entered into arrangements with third-party lenders where it has agreed, in the
event of a default by the customer, to repurchase from the third-party lender
Brunswick products repossessed from the customer. These arrangements are
typically subject to a maximum repurchase amount. The amount of collateral the
Company could be required to purchase as of December 31, 2008 and 2007,
respectively, was:
|
|
Single
Year Obligation
|
|
|
Maximum
Obligation
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boat
|
|
$ |
127.6 |
|
|
$ |
115.8 |
|
|
$ |
161.9 |
|
|
$ |
161.6 |
|
Marine
Engine
|
|
|
4.0 |
|
|
|
2.8 |
|
|
|
4.0 |
|
|
|
2.8 |
|
Bowling
& Billiards
|
|
|
1.2 |
|
|
|
4.5 |
|
|
|
1.2 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
132.8 |
|
|
$ |
123.1 |
|
|
$ |
167.1 |
|
|
$ |
168.9 |
|
The Company’s risk under
these arrangements is mitigated by the value of the products repurchased as part
of the transaction. The Company had $11.9 million and $3.1 million accrued for
potential losses related to repurchase exposure at December 31, 2008 and
December 31, 2007, respectively.
In accordance with FASB
Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others – An
Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
Interpretation No. 34” (FIN 45), the Company has recorded the fair market value
of these guarantee and repurchase obligations as a liability on the Consolidated
Balance Sheets based on historical experience and current facts and
circumstances. Historical cash requirements and losses associated with these
obligations have not been significant.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Financial institutions
have issued standby letters of credit and surety bonds conditionally
guaranteeing obligations on behalf of the Company totaling $106.8 million and
$70.1 million as of December 31, 2008 and 2007, respectively. These amounts are
primarily comprised of standby letters of credit and surety bonds issued in
connection with the Company’s self-insured workers’ compensation program as
required by its insurance companies and various state agencies. The Company has
recorded reserves to cover liabilities associated with these programs. Under
certain circumstances, such as an event of default under the Company’s revolving
credit facility, or, in the case of surety bonds, a ratings downgrade below
investment grade, the Company could be required to post collateral to support
the outstanding letters of credit and surety bonds. As a result of the recent
downgrade of the Company’s long-term debt by the rating agencies, the Company
has posted letters of credit totaling $10.8 million as collateral against $17.4
million of outstanding surety bonds.
Product
Warranties
The Company records a
liability for product warranties at the time revenue is recognized. The
liability is estimated using historical warranty experience, projected claim
rates and expected costs per claim. The Company adjusts its liability for
specific warranty matters when they become known and the exposure can be
estimated. The Company’s warranty reserves are affected by product failure rates
and material usage and labor costs incurred in correcting a product failure. If
these estimated costs differ from actual costs, a revision to the warranty
reserve would be required.
The following activity
related to product warranty liabilities from continuing operations was recorded
in Accrued expenses and Long-term liabilities — other at December
31:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
|
$ |
163.9 |
|
|
$ |
161.0 |
|
Payments
made
|
|
|
(116.0 |
) |
|
|
(119.5 |
) |
Provisions/additions
for contracts issued/sold
|
|
|
95.4 |
|
|
|
119.1 |
|
Aggregate
changes for preexisting warranties
|
|
|
2.1 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
Balance
at December 31
|
|
$ |
145.4 |
|
|
$ |
163.9 |
|
Additionally, marine
engine customers may purchase a contract from the Company that extends product
protection beyond the standard product warranty period. For certain extended
warranty contracts in which the Company retains the warranty obligation, a
deferred liability is recorded based on the aggregate sales price for contracts
sold. The deferred liability is reduced and revenue is recognized over the
contract period as costs are expected to be incurred. Deferred revenue
associated with contracts sold by the Company that extend product protection
beyond the standard product warranty period, not included in the table above,
was $21.8 million and $16.2 million at December 31, 2008 and 2007,
respectively.
Legal
and Environmental
The Company accrues for
litigation exposure based upon its assessment, made in consultation with
counsel, of the likely range of exposure stemming from the claim. In light of
existing reserves, the Company’s litigation claims, when finally resolved, will
not, in the opinion of management, have a material adverse effect on the
Company’s consolidated financial position or results of operations. If current
estimates for the cost of resolving any claims are later determined to be
inadequate, results of operations could be adversely affected in the period in
which additional provisions are required.
Tax
Case. In February 2003, the United States Tax Court issued a
ruling upholding the disallowance by the Internal Revenue Service (IRS) of
capital losses and other expenses for 1990 and 1991 related to two partnership
investments entered into by the Company. In 2003 and 2004, the Company made
payments to the IRS comprised of approximately $33 million in taxes due and
approximately $39 million of pretax interest (approximately $25 million
after-tax) to avoid future interest costs. Subsequently, the Company and the IRS
settled all issues involved in and related to this case. As a result, the
Company reversed $42.6 million of tax reserves in 2006, primarily related to the
reassessment of underlying exposures, received a refund of $12.9 million from
the IRS, and recorded an additional tax receivable of $4.1 million for interest
related to these tax years. In 2008, the Company protested that the IRS’
calculation of the $4.1 million interest receivable due to the Company was
understated. As a result, the IRS paid the Company approximately $10 million for
interest related to these tax years in 2008. Additionally, these tax years will
be subject to tax audits by various state jurisdictions to determine the state
tax effect of the IRS's audit adjustments.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Environmental
Matters. Brunswick is involved in certain legal and administrative
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and other federal and state legislation governing the
generation and disposal of certain hazardous wastes. These proceedings, which
involve both on- and off-site waste disposal or other contamination, in many
instances seek compensation or remedial action from Brunswick as a waste
generator under Superfund legislation, which authorizes action regardless of
fault, legality of original disposition or ownership of a disposal site.
Brunswick has established reserves based on a range of cost estimates for all
known claims.
The environmental
remediation and clean-up projects in which Brunswick is involved have an
aggregate estimated range of exposure of approximately $42.5 million to $72.5
million as of December 31, 2008. At December 31, 2008 and 2007, Brunswick had
reserves for environmental liabilities of $46.9 million and $48.0 million,
respectively. There were environmental provisions of $0.0, $0.7 million and $0.0
for the years ended December 31, 2008, 2007 and 2006, respectively.
Brunswick accrues for
environmental remediation related activities for which commitments or clean-up
plans have been developed and for which costs can be reasonably estimated. All
accrued amounts are generally determined in coordination with third-party
experts on an undiscounted basis and do not consider recoveries from third
parties until such recoveries are realized. In light of existing reserves, the
Company’s environmental claims, when finally resolved, will not, in the opinion
of management, have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Asbestos
Claims. Brunswick’s subsidiary,
Old Orchard Industrial Corp., is a defendant in more than 8,000 lawsuits
involving claims of asbestos exposure from products manufactured by Vapor
Corporation (Vapor), a former subsidiary that the Company divested in 1990.
Virtually all of the asbestos suits involve numerous other defendants. The
claims generally allege that Vapor sold products that contained components, such
as gaskets, which included asbestos, and seek monetary damages. Neither
Brunswick nor Vapor is alleged to have manufactured asbestos. Several thousand
claims have been dismissed with no payment and no claim has gone to jury
verdict. In a few cases, claims have been filed against other Brunswick
entities, with a majority of these suits being either dismissed or settled for
nominal amounts. The Company does not believe that the resolution of these
lawsuits will have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Australia Trade
Practices Investigation. In January 2005, Brunswick
received a notice to furnish information and documents to the Australian
Competition and Consumer Commission (ACCC). A subsequent notice was received in
October of 2005. Following the completion of its investigation in December 2006,
the ACCC commenced proceedings against a former Brunswick subsidiary, Navman
Australia Pty Limited (Navman Australia), with respect to its compliance with
the Trade Practices Act of 1974 as it pertains to Navman Australia’s sales
practices from 2001 to 2005. The ACCC had alleged that Navman Australia engaged
in resale price maintenance in breach of the Act. In December 2007, the
Australian courts approved a settlement in favor of ACCC for approximately $1.3
million, which the Company paid in January
2008.
Chinese
Supplier Dispute. Brunswick was involved in an arbitration proceeding in
Hong Kong arising out of a commercial dispute with a former contract
manufacturer in China, Shanghai Zhonglu Industrial Company Limited (Zhonglu).
The Company filed the arbitration seeking damages based on Zhonglu's breach of a
supply and distribution agreement pursuant to which Zhonglu agreed to
manufacture bowling equipment. Zhonglu had asserted counterclaims seeking
damages for alleged breach of contract among other claims in August 2007. The
arbitration tribunal issued a ruling in the Company’s favor for a net amount of
approximately $0.1 million. Zhonglu subsequently sought relief from the ruling
from the High Court of Hong Kong and the Company filed pleadings in opposition
to this requested relief. On February 10, 2009, the High Court of Hong Kong
ruled in the Company's favor and affirmed the arbitration award in all material
respects.
Patent
Infringement Dispute. In October 2006, Brunswick was sued by
Electromotive, Inc. (Electromotive) in the United States District Court for the
Northern District of Virginia. Electromotive claimed that a number of engines
sold by Brunswick’s Mercury Marine business had infringed on an expired patent
held by Electromotive related to a method for ignition timing. On July 27, 2007,
a jury returned a verdict in favor of Electromotive in the amount of
approximately $3 million. In October 2007, the Company and Electromotive reached
an agreement to settle the case at a level below the verdict in lieu of pursuing
respective appeals.
Brazilian
Customs Dispute. In June 2007, the Brazilian Customs Office issued an
assessment against a Company subsidiary in the amount of approximately $14
million related to the importation of Life Fitness products into Brazil. The
assessment was based on a determination by Brazilian customs officials that the
proper import value of Life Fitness equipment imported into Brazil should be the
manufacturer’s suggested retail price of those goods in the United States. This
assessment was dismissed during 2008. The Brazilian Customs Office has appealed
the ruling as a matter of course.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
12 – Financial Instruments
The Company operates
globally, with manufacturing and sales facilities in various locations around
the world. Due to the Company’s global operations, the Company engages in
activities involving both financial and market risks. The Company utilizes
normal operating and financing activities, along with derivative financial
instruments to minimize these risks.
Derivative
Financial Instruments. The Company uses derivative financial instruments
to manage its risks associated with movements in foreign currency exchange
rates, interest rates and commodity prices. Derivative instruments are not used
for trading or speculative purposes. For certain derivative contracts, on the
date a derivative contract is entered into, the Company designates the
derivative as a hedge of a forecasted transaction (cash flow hedge). The Company
formally documents its hedge relationships, including identification of the
hedging instruments and the hedged items, as well as its risk management
objectives and strategies for undertaking the hedge transaction. This process
includes linking derivatives that are designated as hedges to specific
forecasted transactions. The Company also assesses, both at the inception and at
least quarterly thereafter, whether the derivatives used in hedging transactions
are highly effective in offsetting the changes in the anticipated cash flows of
the hedged item. There were no material adjustments as a result of
ineffectiveness to the results of operations for the years ended December 31,
2008, 2007 and 2006. 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 Other income
(expense), net. The fair market value of derivative financial instruments is
determined through market-based valuations and may not be representative of the
actual gains or losses that will be recorded when these instruments mature due
to future fluctuations in the markets in which they are traded. The effects of
derivative and financial instruments are not expected to be material to the
Company’s financial position or results of operations when considered together
with the underlying exposure being hedged.
Fair
Value Derivatives. During 2008 and 2007, 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).
Cash
Flow Derivatives. Certain derivative instruments qualify as cash
flow hedges under the requirements of SFAS Nos. 133, Accounting for Derivative
Instruments and Hedging Activities, and 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities an amendment of FASB Statement No.
133. The Company executes forward contracts and options, 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 certain raw materials, natural gas
and aluminum forward contracts, based on projected purchases, to manage exposure
related to risk from 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
in the same period or periods during which the hedged transaction affects
earnings.
The following activity
related to cash flow hedges were recorded in Accumulated other comprehensive
income (loss) as of December 31:
|
|
Accumulated
Unrealized Derivative
|
|
|
|
Gains
(Losses)
|
|
|
|
2008
|
|
|
2007
|
|
(in
millions)
|
|
Pretax
|
|
|
After-tax
|
|
|
Pretax
|
|
|
After-tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(4.5 |
) |
|
$ |
(3.2 |
) |
|
$ |
7.6 |
|
|
$ |
5.3 |
|
Net
change associated with current period hedging activity
|
|
|
2.3 |
|
|
|
1.6 |
|
|
|
(34.6 |
) |
|
|
(24.2 |
) |
Net
amount recognized into earnings (loss)
|
|
|
6.0 |
|
|
|
4.0 |
|
|
|
22.5 |
|
|
|
15.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
3.8 |
|
|
$ |
2.4 |
|
|
$ |
(4.5 |
) |
|
$ |
(3.2 |
) |
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The Company estimates that
$1.2 million of after-tax net realized losses from derivatives that have been
settled and deferred in Accumulated other comprehensive income (loss) at
December 31, 2008, will be realized in earnings over the next twelve months. At
December 31, 2008, the term of derivative instruments hedging forecasted
transactions ranges from one to eighteen months. Derivative assets are recorded
in the Prepaid expenses and other line in the Consolidated Balance Sheets and
derivative liabilities are recorded in the Accrued expenses line in the
Consolidated Balance Sheets.
Foreign
Currency. The Company enters into forward exchange contracts and options
to manage foreign exchange exposure related to forecasted transactions, and
assets and liabilities that are subject to risk from foreign currency rate
changes. These include product costs; revenues and expenses; associated
receivables and payables; intercompany obligations and receivables; and other
related cash flows. Forward exchange contracts outstanding at December 31, 2008
and 2007, had notional contract values of $106.3 million and $284.2 million,
respectively. The approximate fair value of forward exchange contracts was a net
asset of $6.7 million and net liability of $5.0 million at December 31, 2008 and
2007, respectively. Option contracts outstanding at December 31, 2008 and 2007,
had notional contract values of $137.9 million and $343.8 million, respectively.
The approximate fair value of options contracts outstanding was a net asset of
$3.7 million and a net liability of $1.2 million at December 31, 2008 and 2007,
respectively. The forward and options contracts outstanding at December 31,
2008, mature during 2009 and 2010 and primarily relate to the Euro, Canadian
dollar, British pound, Japanese yen and New Zealand dollar.
Interest
Rate. The Company has historically utilized fixed-to-floating interest
rate swaps to mitigate the interest rate risk associated with its long-term
debt. There are no outstanding interest rate swaps outstanding at December 31,
2008. As of December 31, 2007 and 2006 the Company had swaps with a notional
value of $50.0 million and an associated asset with a fair value of $1.4 million
as of December 31, 2007, and a liability with a fair value of $0.2 million as of
December 31, 2006. These instruments have been treated as fair value hedges,
with the offset to the aforementioned fair market value (loss) recorded in
long-term debt; see Note
14 – Debt in the Notes to Consolidated Financial Statements for further
details.
As of December 31, 2008
and 2007, the Company had $5.7 million and $11.9 million, respectively, of net
deferred gains associated with all forward starting interest rate swaps included
in Accumulated other comprehensive income (loss). These amounts include gains
deferred on $250.0 million of forward starting interest rate swaps terminated in
July 2006, which had been designated as cash flow hedges of long-term fixed rate
debt expected to be issued in 2006 to refinance notes maturing in December 2006.
These forward starting swaps resulted in net realized cash proceeds gain of
$14.2 million. In 2006, the Company refinanced its debt due in December 2006
with $250.0 million of floating rate notes due in July 2009 which were callable
beginning in July 2007, and recognized $1.6 million of the gain as the
ineffective portion of the hedge and deferred the remainder in Accumulated other
comprehensive income (loss) pending refinancing of the 2009 notes with
long-term, fixed rate debt. In 2007, the Company recognized an additional $0.7
million of the gain as ineffective, as the long-term fixed rate debt issuance
did not occur. During 2008, the Company recognized an additional $0.9 million of
the gain as ineffective. In August 2008, the Company completed the offering of a
$250 million aggregate principal amount of 9.75% Senior Notes due in 2013. As a
result of ratings actions that occurred after the issuance of the notes, the
interest rate on the Senior Notes is currently 11.75%. The Company also had $150.0
million of notional value forward starting swaps, which had been
designated as cash flow hedges of long-term fixed rate debt expected to be
issued in 2009 to refinance the notes that matured in December 2009. These
forward starting swaps resulted in a net realized loss of $5.0 million. In 2008,
the Company recognized $0.3 million of amortization related to all settled
forward starting interest rate swaps. There were no forward starting interest
rate swaps outstanding as of December 31, 2008.
Commodity
Price. The Company uses commodity swap and futures contracts to hedge
anticipated purchases of certain raw materials. Commodity swap contracts
outstanding at December 31, 2008 and 2007 had notional values of $31.7 million
and $23.2 million, respectively. At December 31, 2008 and 2007, the estimated
fair value of these swap contracts was a net liability of $14.4 million and net
asset of $0.5 million, respectively. The contracts outstanding at December 31,
2008, mature throughout 2009 and 2010. The Company also uses futures contracts
to manage its exposure to fluctuating natural gas prices, which had a notional
contract value of $1.5 million and $1.8 million outstanding at December 31, 2008
and 2007, respectively. The estimated fair value of the futures contracts was a
net liability of $0.8 million and $0.4 million at December 31, 2008 and 2007,
respectively.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Concentration
of Credit Risk. The Company enters into financial instruments with banks
and investment firms with which the Company has continuing business
relationships and regularly monitors the credit ratings of its counterparties.
The Company sells a broad range of recreation products to a worldwide customer
base and extends credit to its customers based upon an ongoing credit evaluation
program. Concentrations of credit risk with respect to accounts receivable are
not material to the Company’s financial position, due to the large number of
customers comprising the Company’s customer base and their dispersion across
many different geographic areas, with the exception of one boat builder
customer. This customer had trade accounts receivable and long-term notes
receivable, in connection with a supply agreement, with net credit exposure of
$15.6 million and $23.7 million at December 31, 2008 and 2007,
respectively.
Fair
Value of Other Financial Instruments. The carrying values of the
Company’s short-term financial instruments, including cash and cash equivalents,
accounts and notes receivable and short-term debt, approximate their fair values
because of the short maturity of these instruments. At December 31, 2008 and
2007, the fair value of the Company’s long-term debt was approximately $325.4
million and $717.8 million, respectively, as estimated using quoted market
prices or discounted cash flows based on market rates for similar types of debt.
Note
13 – Accrued Expenses
Accrued Expenses at
December 31 were as follows:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Product
warranties
|
|
$ |
145.4 |
|
|
$ |
161.8 |
|
Sales
incentives and discounts
|
|
|
111.5 |
|
|
|
172.3 |
|
SFAS
140 obligations
|
|
|
84.6 |
|
|
|
92.1 |
|
Accrued
compensation and benefit plans
|
|
|
82.8 |
|
|
|
159.5 |
|
Deferred
revenue
|
|
|
61.4 |
|
|
|
74.5 |
|
Environmental
reserves
|
|
|
46.9 |
|
|
|
48.0 |
|
Insurance
reserves
|
|
|
45.3 |
|
|
|
50.2 |
|
Other
|
|
|
118.8 |
|
|
|
99.7 |
|
|
|
|
|
|
|
|
|
|
Total
accrued expenses
|
|
$ |
696.7 |
|
|
$ |
858.1 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
14 – Debt
Long-Term Debt at December
31 consisted of the following:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Senior
notes, currently 11.75% due 2013
|
|
$ |
250.0 |
|
|
$ |
- |
|
Floating
rate notes, due 2009
|
|
|
- |
|
|
|
250.0 |
|
Notes,
7.125% due 2027, net of discount of $0.9 and $0.9
|
|
|
199.1 |
|
|
|
199.1 |
|
Notes,
5.0% due 2011, net of discount of $0.3 and $0.4
|
|
|
151.4 |
|
|
|
151.0 |
|
Debentures,
7.375% due 2023, net of discount of $0.4 and $0.5
|
|
|
124.6 |
|
|
|
124.5 |
|
Notes,
1.82% to 4.0% payable through 2015
|
|
|
4.7 |
|
|
|
3.6 |
|
|
|
|
729.8 |
|
|
|
728.2 |
|
Current
maturities
|
|
|
(1.3 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
728.5 |
|
|
$ |
727.4 |
|
Scheduled
maturities
2009
|
|
$ |
1.3 |
|
|
|
|
|
2010
|
|
|
0.9 |
|
|
|
|
|
2011
|
|
|
152.2 |
|
|
|
|
|
2012
|
|
|
0.8 |
|
|
|
|
|
2013
|
|
|
250.6 |
|
|
|
|
|
Thereafter
|
|
|
324.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
$ |
729.8 |
|
|
|
|
|
In
December 2008, the Company converted its revolving credit facility into a $400.0
million secured, asset-based facility (Facility), which remains in place through
May 2012. Borrowings under this Facility are subject to the value of the
borrowing base, consisting of certain cash balances, accounts receivable,
inventory, and machinery and equipment of the Company’s domestic subsidiaries.
As of December 31, 2008, the borrowing base totaled $290.0 million and available
capacity totaled $201.1 million, net of $88.9 million of letters of credit
outstanding under the Facility. The borrowing base does not include any values
for machinery and equipment or cash, which will be added when certain required
documentation is completed. The borrowing base will be affected by changes in
eligible collateral in future periods. Under the terms of the Facility, the
Company has multiple borrowing options, including borrowing at a rate tied to
adjusted LIBOR plus 4.00% or the highest of the Federal Funds rate plus 0.50%,
the prime rate established by JPMorgan Chase Bank, N.A. or the one month
adjusted LIBOR rate plus 1.00%; plus a margin of 3.50%. The Facility contains a
minimum fixed-charges coverage covenant, which is effective when the available
borrowing capacity under the Facility falls below certain thresholds. There were
no loan borrowings under the Facility during 2008. The Company has the ability
to issue up to $150.0 million in letters of credit under the Facility. The
Company pays a facility fee of 75 to 100 basis points per annum, which is based
on the daily average utilization of the facility.
Under the
terms of the Facility, the existing $150.0 million principal amount of 5% Notes
due 2011, must be repaid by December 31, 2010, or otherwise subject to cash
collateral or escrow arrangements. The Facility provides the Company with
various refinancing options in order to meet this requirement.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
On
August 15, 2008, the Company completed the offering of a $250 million aggregate
principal amount of 9.75% Senior Notes due in 2013 under a universal shelf
registration. The proceeds from this offering were used to repay the Company’s
outstanding $250.0 million principal amount of Floating Rate Notes due July
2009. Interest on the Senior Notes will be paid semi-annually commencing on
February 15, 2009. The interest rate payable on the Senior Notes is subject to
adjustment from time to time if the rating assigned to the Senior Notes is
changed under circumstances described in the prospectus supplement. Total
interest rate adjustments are capped at 2.00%. As a result of ratings actions
that occurred after the issuance of the notes, the interest rate on the Senior
Notes is currently 11.75%.
On
July 24, 2006, the Company completed the offering of a $250.0 million aggregate
principal amount of senior unsubordinated floating rate notes due in July 2009
under the Company’s universal shelf registration. Interest under these notes was
due quarterly and accrued at the rate of three-month LIBOR plus 65 basis points,
set at the beginning of each quarterly period. On September 17, 2008, the
Company exercised its option to redeem the floating rate notes at par, plus
accrued interest.
Included in Notes, 5.0%
due 2011, is the settlement of the fixed-to-floating interest rate
swaps discussed in
Note 12 – Financial
Instruments.
Note
15 – Postretirement Benefits
Overview.
The Company has defined contribution plans, qualified and nonqualified pension
plans, and other postretirement benefit plans covering substantially all of its
employees. The Company’s contributions to its defined contribution plans are
largely discretionary and are based on various percentages of compensation, and
in some instances are based on the amount of the employees’ contributions to the
plans. The expense related to these plans was $12.5 million, $42.0 million and
$47.6 million in 2008, 2007 and 2006, respectively. Company contributions to
multiemployer plans were $0.5 million, $0.5 million and $0.4 million in 2008,
2007 and 2006, respectively.
The Company’s
domestic pension and retiree health care and life insurance benefit plans, which
are discussed below, provide benefits based on years of service and, for some
plans, the average compensation prior to retirement. The Company uses a December
31 measurement date for these plans. The Company’s foreign benefit plans are not
significant individually or in the aggregate.
The Company’s salaried
pension plan was closed to new participants effective April 1, 1999. This plan
was replaced with a defined contribution plan for certain employees not meeting
age and service requirements and for new hires. On December 31, 2008, the
Company froze benefit accruals for salaried pension plan participants effective
December 31, 2009. Age and years of service eligibility under the retiree health
care benefit plan for salaried participants was also affected by this freeze.
The Company recognized these actions as curtailments at December 31, 2008. The
Company also recognized curtailments in two of the hourly pension plans due to
employee terminations. In connection with these curtailments, the Company
recognized a reduction of its projected benefit obligation for pension and
retiree healthcare benefits of $19.7 million and $17.5 million, respectively,
and recorded a pretax curtailment loss (gain) of $5.2 million and $(0.6)
million, respectively.
In December 2003, the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act)
was signed into law. The Act introduces a prescription drug benefit under
Medicare as well as a subsidy to sponsors of retiree health care benefit plans
that provide a benefit that is at least actuarially equivalent to Medicare Part
D. The Company’s postretirement benefit obligation and net periodic benefit cost
do not reflect the effects of the Act, as the Company does not anticipate
qualifying for the subsidy based on its current plan designs.
FAS
158 Adoption. On December 31, 2006, the Company adopted the provisions of
SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R),” (SFAS 158). SFAS 158 requires recognition of the overfunded or
underfunded status of pension and other postretirement plans in the statement of
financial position, as well as recognition of changes in that funded status
through comprehensive income (loss) in the year in which they occur. SFAS 158
was adopted on a prospective basis as required. Prior years’ amounts were not
restated. Effective for the year ended December 31, 2007, SFAS 158 also requires
measurement of a plan’s assets and benefit obligations as of the date of the
employer’s fiscal year end. As the Company already measured plan assets and
benefit obligations as of December 31, 2006, the adoption of this element of
SFAS 158 did not have any impact on the Company in 2007.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The prior
accounting for defined pension and other postretirement plans allowed for
delayed recognition of changes in plan assets and benefit obligations and
recognition of a liability that may have been significantly less than the
underfunded status of the plans or an asset for plans that may have been
underfunded. The following table illustrates the incremental effect
of applying SFAS 158 for pension, postretirement and postemployment benefits on
individual line items in the Company’s Consolidated Balance Sheet as of December
31, 2006:
(in
millions)
|
|
Before
Application of SFAS 158
|
|
|
SFAS
158 Adjustments
Increase
(Decrease)
|
|
|
After
Application of SFAS 158
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
Other
intangibles
|
|
$ |
353.8 |
|
|
$ |
(31.2 |
) |
|
$ |
322.6 |
|
Other
long-term assets
|
|
$ |
216.4 |
|
|
$ |
(21.3 |
) |
|
$ |
195.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
4,502.8 |
|
|
$ |
(52.5 |
) |
|
$ |
4,450.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
$ |
124.9 |
|
|
$ |
(38.6 |
) |
|
|
$86.3 |
|
Postretirement
benefits
|
|
$ |
177.4 |
|
|
$ |
46.8 |
|
|
$ |
224.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income (loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
$ |
— |
|
|
$ |
(11.2 |
) |
|
$ |
(11.2 |
) |
Net
actuarial losses
|
|
$ |
— |
|
|
$ |
(121.7 |
) |
|
$ |
(121.7 |
) |
Minimum
pension liability
|
|
$ |
(72.2 |
) |
|
$ |
72.2 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
$ |
1,932.5 |
|
|
$ |
(60.7 |
) |
|
$ |
1,871.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
4,502.8 |
|
|
$ |
(52.5 |
) |
|
$ |
4,450.3 |
|
Costs.
Pension and other postretirement benefit costs included the following
components for 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Other
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
15.0 |
|
|
$ |
17.3 |
|
|
$ |
18.5 |
|
|
$ |
2.9 |
|
|
$ |
3.0 |
|
|
$ |
2.9 |
|
Interest
cost
|
|
|
67.6 |
|
|
|
62.8 |
|
|
|
58.9 |
|
|
|
6.5 |
|
|
|
6.6 |
|
|
|
6.0 |
|
Expected
return on plan assets
|
|
|
(84.0 |
) |
|
|
(81.9 |
) |
|
|
(78.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization
of prior service costs (credits)
|
|
|
6.5 |
|
|
|
6.5 |
|
|
|
6.8 |
|
|
|
(1.7 |
) |
|
|
(1.8 |
) |
|
|
(2.1 |
) |
Amortization
of net actuarial loss
|
|
|
3.6 |
|
|
|
7.3 |
|
|
|
10.4 |
|
|
|
0.1 |
|
|
|
1.0 |
|
|
|
1.2 |
|
Special
termination benefit
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Curtailment
loss (gain)
|
|
|
5.2 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
pension and other benefit costs
|
|
$ |
13.9 |
|
|
$ |
12.0 |
|
|
$ |
16.4 |
|
|
$ |
7.2 |
|
|
$ |
8.8 |
|
|
$ |
8.0 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Benefit
Obligations and Funded Status. A reconciliation of the changes in the
plans’ benefit obligations and fair value of assets over the two-year period
ending December 31, 2008, and a statement of the funded status at December 31
for these years for the Company’s pension and other postretirement benefit plans
follow:
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at previous December 31
|
|
$ |
1,071.3 |
|
|
$ |
1,077.2 |
|
|
$ |
107.0 |
|
|
$ |
113.9 |
|
Service
cost
|
|
|
15.0 |
|
|
|
17.3 |
|
|
|
2.9 |
|
|
|
3.0 |
|
Interest
cost
|
|
|
67.6 |
|
|
|
62.8 |
|
|
|
6.5 |
|
|
|
6.6 |
|
Participant
contributions
|
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
|
|
1.0 |
|
Plan
amendments
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
Plan
combinations
|
|
|
3.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Curtailment
(gains) losses
|
|
|
(19.7 |
) |
|
|
— |
|
|
|
(17.5 |
) |
|
|
— |
|
Actuarial
(gains) losses(A)
|
|
|
10.2 |
|
|
|
(30.3 |
) |
|
|
9.7 |
|
|
|
(9.3 |
) |
Benefit
payments
|
|
|
(60.0 |
) |
|
|
(55.9 |
) |
|
|
(9.2 |
) |
|
|
(8.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at December 31
|
|
$ |
1,088.0 |
|
|
$ |
1,071.3 |
|
|
$ |
100.7 |
|
|
$ |
107.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at previous December 31
|
|
$ |
1,016.7 |
|
|
$ |
991.0 |
|
|
$ |
— |
|
|
$ |
— |
|
Actual
return (loss) on plan assets
|
|
|
(303.8 |
) |
|
|
79.0 |
|
|
|
— |
|
|
|
— |
|
Employer
contributions
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
7.9 |
|
|
|
7.2 |
|
Participant
contributions
|
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
|
|
1.0 |
|
Benefit
payments
|
|
|
(60.0 |
) |
|
|
(55.9 |
) |
|
|
(9.2 |
) |
|
|
(8.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at December 31
|
|
$ |
655.5 |
|
|
$ |
1,016.7 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status at December 31
|
|
$ |
(432.5 |
) |
|
$ |
(54.6 |
) |
|
$ |
(100.7 |
) |
|
$ |
(107.0 |
) |
(A) The
actuarial losses for pension benefits arising during 2008 are primarily a result
of the decrease in the the discount rate, partially offset by the impact of
demographic gains. The actuarial losses for
other postretirement benefits arising during 2008 are primarily the result of
demographic losses and the impact
of updating to a
longer-term trend table. The actuarial gains for pension and other
postretirement benefits arising during 2007 are primarily a result of the
increase in the
discount rate and demographic gains, partially offset by the impact of
updating expected mortality assumptions using the RP-2000
Generational
Mortality tables.
The amounts included in
the Company’s Consolidated Balance Sheets as of December 31, 2008 and 2007, were
as follows:
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
long-term assets
|
|
$ |
— |
|
|
$ |
29.3 |
|
|
$ |
— |
|
|
$ |
— |
|
Accrued
expenses
|
|
|
(3.9 |
) |
|
|
(3.1 |
) |
|
|
(10.4 |
) |
|
|
(8.8 |
) |
Postretirement
benefits
|
|
|
(428.6 |
) |
|
|
(80.8 |
) |
|
|
(90.3 |
) |
|
|
(98.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amount recognized
|
|
$ |
(432.5 |
) |
|
$ |
(54.6 |
) |
|
$ |
(100.7 |
) |
|
$ |
(107.0 |
) |
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The following pretax
activity related to pensions and other postretirement benefits was recorded in
Accumulated other comprehensive income (loss) as of December 31:
|
|
|
|
|
Other
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension
Benefits
|
|
|
Benefits
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost (credit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
28.9 |
|
|
$ |
35.2 |
|
|
$ |
(4.3 |
) |
|
$ |
(6.1 |
) |
Prior
service cost arising during the period
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
Amount
recognized as component of net benefit costs
|
|
|
(11.7 |
) |
|
|
(6.5 |
) |
|
|
2.3 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
17.2 |
|
|
$ |
28.9 |
|
|
$ |
(2.0 |
) |
|
$ |
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
138.1 |
|
|
$ |
172.8 |
|
|
$ |
11.7 |
|
|
$ |
22.0 |
|
Actuarial
loss (gain) arising during the period
|
|
|
378.2 |
|
|
|
(27.4 |
) |
|
|
(7.9 |
) |
|
|
(9.3 |
) |
Amount
recognized as component of net benefit costs
|
|
|
(3.6 |
) |
|
|
(7.3 |
) |
|
|
(0.1 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
512.7 |
|
|
$ |
138.1 |
|
|
$ |
3.7 |
|
|
$ |
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
529.9 |
|
|
$ |
167.0 |
|
|
$ |
1.7 |
|
|
$ |
7.4 |
|
The estimated pretax prior
service cost and net actuarial loss in Accumulated other comprehensive income
(loss) at December 31, 2008, expected to be recognized as components of net
periodic benefit cost in 2009 for the Company’s pension plans are $4.4 million
and $49.8 million, respectively. The estimated pretax prior service credit and
net actuarial loss in Accumulated other comprehensive income (loss) at December
31, 2008, expected to be recognized as components of net periodic benefit cost
in 2009 for the Company’s other postretirement benefit plans are $1.2 million
and $0.0, respectively.
The accumulated benefit
obligation for the Company’s pension plans was $1,087.3 million and $1,040.3
million at December 31, 2008 and 2007, respectively. The projected benefit
obligation, accumulated benefit obligation and fair value of plan assets for
pension plans with a projected benefit obligation in excess of plan assets, and
pension plans with an accumulated benefit obligation in excess of plan assets,
at December 31 were as follows:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
$ |
1,088.0 |
|
|
$ |
687.6 |
|
Accumulated
benefit obligation
|
|
$ |
1,087.3 |
|
|
$ |
656.6 |
|
Fair
value of plan assets
|
|
$ |
655.5 |
|
|
$ |
603.7 |
|
The funded status of these
pension plans as a percentage of the projected benefit obligation was 60 percent
in 2008 compared to 88 percent in 2007. In the aggregate, the Company’s
qualified pension plans had assets greater than their accumulated benefit
obligations at December 31, 2007. The projected benefit obligation for the
Company’s unfunded, nonqualified pension plan was $51.4 million and $54.5
million at December 31, 2008 and 2007, respectively. The accumulated benefit
obligation for the unfunded, nonqualified plan was $51.4 million and $52.2
million at December 31, 2008 and 2007, respectively.
The Company’s nonqualified
pension plan and other postretirement benefit plans are not funded.
Prior service costs are
amortized on a straight-line basis over the average remaining service period of
active plan participants. Actuarial gains and losses in excess of 10 percent of
the greater of the benefit obligation or the market value of assets are
amortized over the remaining service period of active plan
participants.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Once participants eligible
for other postretirement benefits turn 65 years old, the health care benefits
become a flat dollar amount based on age and years of service. The assumed
health care cost trend rate for other postretirement benefits for pre-age 65
benefits as of December 31 was as follows:
|
|
Pre-age
65 Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Health
care cost trend rate for next year
|
|
|
8.2%
|
|
|
|
8.5%
|
|
Rate
to which the cost trend rate is assumed to decline
(the
ultimate trend rate)
|
|
|
4.5%
|
|
|
|
5.0%
|
|
Year
rate reaches the ultimate trend rate
|
|
2028
|
|
|
2015
|
|
The health care cost trend
rate assumption has an effect on the amounts reported. A one percent change in
the assumed health care trend rate at December 31, 2008, would have the
following effects:
|
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
on total service and interest cost
|
|
$ |
0.5
|
|
|
$ |
(0.4)
|
|
Effect
on accumulated postretirement benefit obligation
|
|
$ |
4.5
|
|
|
$ |
(4.1)
|
|
The Company monitors the
cost of health care and life insurance benefit plans and reserves the right to
make additional changes or terminate these benefits in the future.
Weighted average
assumptions used to determine pension and other postretirement benefit
obligations at December 31 were as follows:
|
|
|
|
|
Other
|
|
|
|
|
|
|
Postretirement
|
|
|
Pension
Benefits
|
|
Benefits
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.25 |
% |
|
|
6.50 |
% |
|
|
6.25 |
% |
|
|
6.35 |
% |
Rate
of compensation increase(A)
|
|
|
0.00 |
% |
|
|
3.25 |
% |
|
|
— |
|
|
|
— |
|
(A)
Assumption used in determining pension benefit obligation only. The rate of
compensation increase was reduced to 0.00% at December 31, 2008,
as a result of the
impact of the freeze of future benefit accruals
for salaried pension participants.
Weighted average
assumptions used to determine net pension and other postretirement benefit costs
for the years ended December 31 were as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate for pension benefits
|
|
|
6.50
|
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Discount
rate for other postretirement benefits
|
|
|
6.35 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Long-term rate of
return on plan assets(A)
|
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
8.50 |
% |
Rate of compensation
increase(A)
|
|
|
3.25 |
% |
|
|
3.75 |
% |
|
|
3.75 |
% |
(A)
Assumption used in determining pension benefit cost only.
The Company utilized a
yield curve analysis to determine the discount rates for pension and other
postretirement benefit obligations in 2008 and 2007. The yield curve consists of
spot interest rates at half yearly increments for each of the next 30 years and
was developed based on pricing and yield information for high quality corporate
bonds rated Aa by Moody’s, excluding callable bonds, bonds of less that a
minimum size and other filtering criteria. The yield curve analysis matched the
cash flows of the Company’s benefit obligations.
The Company utilized a
long-term corporate bond model to determine the discount rate used to calculate
plan liabilities at December 31, 2006 and 2005. The corporate bond model
calculated the yield of a portfolio of bonds whose cash flows approximated the
plans’ expected benefit payments. The yield of this portfolio was compared to
the Moody’s Aa Corporate Bond Yield Index at a comparable measurement date to
determine the yield differential, which was 22 basis points and 27 basis points
in 2006 and 2005, respectively. This differential was added to the year-end
Moody’s index to determine the discount rate. These rates were used to determine
the benefit costs for the subsequent year.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The Company evaluates its
assumption regarding the estimated long-term rate of return on plan assets based
on historical experience and future expectations of investment returns. The
Company’s long-term rate of return on assets assumption of 8.50 percent in 2008,
2007 and 2006, reflects market trends and is consistent with historical weighted
average total returns achieved by the plans’ assets.
Plan
Assets. The Company’s asset allocation for its qualified pension plans at
December 31 by asset category was as follows:
|
|
Percentage
of Plan
Assets
|
|
|
Target
Allocation
Ranges
|
|
Asset
Category |
|
2008
|
|
|
2007
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
57 |
% |
|
|
66 |
% |
|
|
75 |
% |
|
|
55 |
% |
Debt
securities
|
|
|
21 |
|
|
|
14 |
|
|
|
22 |
|
|
|
12 |
|
Real
estate
|
|
|
20 |
|
|
|
14 |
|
|
|
18 |
|
|
|
10 |
|
Other
|
|
|
2 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
Equity securities do not
include any shares of the Company’s common stock at December 31, 2008 and 2007.
Assets of the Company’s
Master Pension Trust (Trust) are invested solely in the interest of the plan
participants for the purpose of providing benefits to participants and their
beneficiaries. Investment decisions within the Trust are made after giving
appropriate consideration to the prevailing facts and circumstances that a
prudent person acting in a like capacity would use in a similar situation, and
follow the guidelines and objectives established within the investment policy
statement for the Trust. The Trust strategically diversifies its investments
among various asset classes in order to reduce risks and enhance returns.
Long-term strategic weightings for the Trust of 57 percent for equity securities
and 21 percent for debt securities are within the Company’s target allocation
ranges. The real estate weighting of 20 percent is slightly above the high end
of the target allocation range as a result of declining equity market conditions
in the fourth quarter of 2008. All investments are continually monitored and
reviewed, with evaluation considerations focusing on strategic target
allocations, investment vehicles and performance of the individual investment
managers, as well as overall Trust performance.
Expected
Cash Flows. The expected cash flows for the Company’s pension and other
postretirement benefit plans follow:
(in
millions)
|
|
Pension
Benefits
|
|
|
Other
Post- retirement Benefits
|
|
|
|
|
|
|
|
|
Company
contributions expected to be made in 2009 (A)
|
|
$ |
3.9 |
|
|
$ |
10.4 |
|
Expected
benefit payments (which reflect future service):
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
65.9 |
|
|
$ |
10.4 |
|
2010
|
|
$ |
68.9 |
|
|
$ |
10.1 |
|
2011
|
|
$ |
72.1 |
|
|
$ |
10.2 |
|
2012
|
|
$ |
75.8 |
|
|
$ |
9.8 |
|
2013
|
|
$ |
78.8 |
|
|
$ |
9.8 |
|
2014-2018
|
|
$ |
423.1 |
|
|
$ |
44.8 |
|
(A)
|
The
Company currently anticipates funding approximately $3.9 million to cover
benefit payments in the unfunded, nonqualified pension plan in 2009. The
Company is evaluating the impact of the Pension Protection Act of 2006 on
2009 contributions to the qualified pension plans. Company contributions
are subject to change based on market conditions or Company
discretion.
|
|
Brunswick also provides
postemployment benefits to qualified former or inactive employees. The
incremental effect of adopting SFAS 158 for these postemployment benefit plans
resulted in a $6.6 million after-tax ($10.8 million pretax) increase in
Accumulated other comprehensive income (loss), net of tax, at December 31, 2006.
The pretax prior service credit in Accumulated other comprehensive income (loss)
recognized in income in 2008 was $1.3 million. The estimated pretax prior
service credit in Accumulated other comprehensive income (loss) at December 31,
2008, expected to be recognized in income in 2009, is $1.3 million.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
16 – Stock Plans and Management Compensation
Total stock option expense
from continuing operations was $8.3 million, $5.2 million and $5.8 million for
the years ended December 31, 2008, 2007 and 2006, respectively, and resulted in
a deferred tax asset for the tax benefit to be realized in future periods. In
accordance with SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS
123(R)), the fair value of option grants is estimated as of the date of grant
using the Black-Scholes-Merton option pricing model.
Under the 2003 Stock
Incentive Plan (Plan), the Company may grant stock options, stock appreciation
rights (SARs), nonvested stock and other types of share-based awards to
executives and other management employees. Under the Plan, the Company may issue
up to 8.1 million shares, consisting of treasury shares and authorized, but
unissued shares of common stock. As of December 31, 2008, 0.7 million shares
were available for grant.
Stock
Options and SARs
Prior to
2005, the Company primarily issued share-based compensation in the form of stock
options, and had not issued any SARs. Since the beginning of 2005, the Company
has issued stock-settled SARs and has not issued any stock options. Generally,
stock options and SARs are exercisable over a period of 10 years, or as
otherwise determined by the Human Resources and Compensation Committee of the
Board of Directors, and subject to vesting periods of generally four years.
However, with respect to stock options and SARs, all grants vest immediately:
(i) in the event of a change in control; (ii) upon death or disability of the
grantee; and (iii) with respect to awards granted prior to 2008, upon the sale
or divestiture of the business unit to which the grantee is assigned. With
respect to stock option and SAR awards granted prior to 2006, grantees continue
to vest in accordance with the applicable vesting schedule even upon termination
of employment if the sum of (A) the age of the grantee and (B) the grantee’s
total number of years of service, equals 65 or more. With respect to SARs
granted in 2006 and later, grantees continue to vest in accordance with the
vesting schedule even upon termination if (A) the grantee has attained the age
of 62 and (B) the grantee’s age plus total years of service equals 70 or more.
The exercise price of stock options and SARs issued under the Plan cannot be
less than the fair market value of the underlying shares at the date of grant.
SARs activity for all plans for the three years ended December 31, 2008, 2007
and 2006, was as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
(in
thousands, except
exercise
price and terms)
|
|
SARs/
Stock
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic Value
|
|
|
SARs/
Stock
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
SARs/
Stock
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
on January 1
|
|
|
4,219 |
|
|
$ |
33.22
|
|
|
|
|
|
|
|
4,001 |
|
|
$ |
32.62
|
|
|
|
3,844 |
|
|
$ |
29.91
|
|
Granted
|
|
|
3,122 |
|
|
$ |
15.03 |
|
|
|
|
|
|
|
900 |
|
|
$ |
32.89
|
|
|
|
906 |
|
|
$ |
39.06
|
|
Exercised
|
|
|
—
|
|
|
$ |
—
|
|
|
|
$ |
—
|
|
|
|
(410) |
|
|
$ |
23.94
|
|
|
|
(548) |
|
|
$ |
21.95
|
|
Forfeited
|
|
|
(857) |
|
|
$ |
27.61 |
|
|
|
|
|
|
|
|
(272) |
|
|
$ |
37.39
|
|
|
|
(201) |
|
|
$ |
38.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
on December 31
|
|
|
6,484 |
|
|
$ |
25.20 |
|
6.4
years
|
|
$ |
366
|
|
|
|
4,219 |
|
|
$ |
33.22
|
|
|
|
4,001
|
|
|
$ |
32.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
on December 31
|
|
|
2,883 |
|
|
$ |
32.02 |
|
3.5
years
|
|
$ |
—
|
|
|
|
2,428 |
|
|
$ |
30.02
|
|
|
|
2,338 |
|
|
$ |
26.73
|
|
The following table
summarizes information about SARs and stock options outstanding as of December
31, 2008:
|
Range
of Exercise
Price
|
|
|
Number
Outstanding
(in
thousands)
|
|
Weighted
Average
Remaining Years of
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
(in
thousands)
|
|
Weighted
Average
Remaining Years of
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.37 to $19.92
|
|
|
|
3,187
|
|
8.0
years
|
|
$ |
15.42 |
|
|
444 |
|
1.9
years
|
|
$ |
19.56 |
|
|
$19.93
to $29.30
|
|
|
|
973
|
|
2.5
years
|
|
$ |
23.48 |
|
|
964 |
|
2.5
years
|
|
$ |
23.47 |
|
|
$29.31
to $39.56 |
|
|
|
1,598
|
|
6.6
years
|
|
$ |
36.33 |
|
|
804 |
|
5.7
years
|
|
$ |
37.45 |
|
|
$39.57
to $46.51 |
|
|
|
725
|
|
3.8
years
|
|
$ |
46.02 |
|
|
672 |
|
3.6
years
|
|
$ |
46.02 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
The weighted average fair
values of individual SARs granted were $5.03, $9.85 and $12.02 during 2008, 2007
and 2006, respectively. The fair value of each grant was estimated on the date
of grant using the Black-Scholes-Merton pricing model utilizing the following
weighted average assumptions used for 2007, 2006 and 2005:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.9 |
% |
|
|
4.6 |
% |
|
|
4.4 |
% |
Dividend
yield
|
|
|
2.3 |
% |
|
|
1.8 |
% |
|
|
1.5 |
% |
Volatility
factor
|
|
|
40.1 |
% |
|
|
29.9 |
% |
|
|
31.2 |
% |
Weighted
average expected life
|
|
5.4
– 6.2 years
|
|
5.1
– 6.2 years
|
|
4.8
- 6.1
years
|
Nonvested
stock awards
The
Company grants nonvested stock units and awards to key employees as determined
by the Human Resources and Compensation Committee of the Board of Directors.
Nonvested stock units and awards have vesting periods of three or four years.
Nonvested stock units and awards are eligible for dividends, which are
reinvested and non-voting. All nonvested units and awards have restrictions on
the sale or transfer of such awards during the nonvested period.
Generally,
grants of nonvested stock units and awards are forfeited if employment is
terminated prior to vesting. Nonvested stock units and awards granted in 2006
and later vest pro rata if the sum of (A) the age of the grantee and (B) the
grantee’s total number of years of service equals 70 or more.
In 2006,
2007 and 2008, the Company granted performance shares to certain members of
senior management. The number of performance shares to be issued pursuant to the
2006 and 2007 grants will be based on the average payout percentage of the
Company’s annual incentive plan over the consecutive three year period beginning
in the year the award was granted. The number of performance shares to be issued
pursuant to the 2008 grant will be based on the Company’s performance against
three key financial goals and the Company’s relative total shareholder return
versus the S&P 500 as of the end of the performance period in 2010; provided
however, that no award will be earned if the Company’s stock price does not meet
a minimum threshold as of the end of the performance period
The cost of nonvested
stock awards is recognized on a straight-line basis over the requisite service
period. During December 31, 2008, 2007 and 2006, there was $2.0 million, $4.1
million and $7.0 million charged to compensation expense under the Plan,
respectively.
The weighted average price
per nonvested stock award at grant date was $15.66, $33.00 and $39.15 for the
nonvested stock awards granted in 2008, 2007 and 2006, respectively. Nonvested
stock award activity for all plans for the three years ended December 31 was as
follows:
(in
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1
|
|
|
435 |
|
|
|
550 |
|
|
|
519 |
|
Granted
|
|
|
1,014 |
|
|
|
127 |
|
|
|
325 |
|
Released
|
|
|
(69 |
) |
|
|
(195 |
) |
|
|
(227 |
) |
Forfeited
|
|
|
(173 |
) |
|
|
(47 |
) |
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31
|
|
|
1,207 |
|
|
|
435 |
|
|
|
550 |
|
As of December 31, 2008,
there was $1.9 million of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the Plan. That
cost is expected to be recognized over a weighted average period of 0.6
years.
Director
Awards
The Company issues stock
awards to directors in accordance with the terms and conditions determined by
the Nominating and Corporate Governance Committee of the Board of Directors.
One-half of each director’s annual fee is paid in Brunswick common stock, the
receipt of which may be deferred until a director retires from the Board of
Directors. Each director may elect to have the remaining one-half paid either in
cash, in Brunswick common stock distributed at the time of the award, or in
deferred Brunswick common stock units with a 20 percent premium. Each
non-employee director is also entitled to an annual grant of restricted stock
units, which is deferred until the director retires from the
Board.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
17 – Treasury and Preferred Stock
Treasury stock activity
for the three years ended December 31, 2008, 2007 and 2006, was as
follows:
(Shares
in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
|
|
15,092 |
|
|
|
11,671 |
|
|
|
6,881 |
|
Common
stock repurchase program
|
|
|
- |
|
|
|
4,100 |
|
|
|
5,638 |
|
Compensation
plans and other
|
|
|
(299 |
) |
|
|
(679 |
) |
|
|
(848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31
|
|
|
14,793 |
|
|
|
15,092 |
|
|
|
11,671 |
|
At December 31, 2008, 2007
and 2006, the Company had no preferred stock outstanding (12.5 million shares
authorized, $0.75 par value at December 31, 2008, 2007 and 2006).
Note
18 – Leases
The Company has various
lease agreements for offices, branches, factories, distribution and service
facilities, certain Company-operated bowling centers and certain personal
property. The longest of these obligations extends through 2038. Most leases
contain renewal options, some contain purchase options or escalation clauses,
and many provide for contingent rentals based on percentages of gross revenue.
No leases contain
restrictions on the Company’s activities concerning dividends, additional debt
or further leasing. Rent expense consisted of the following:
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Basic
expense
|
|
$ |
52.6 |
|
|
$ |
51.4 |
|
|
$ |
48.8 |
|
Contingent
expense
|
|
|
2.2 |
|
|
|
2.7 |
|
|
|
2.6 |
|
Sublease
income
|
|
|
(1.2 |
) |
|
|
(0.7 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent
expense, net
|
|
$ |
53.6 |
|
|
$ |
53.4 |
|
|
$ |
50.5 |
|
Future minimum rental
payments at December 31, 2008, under agreements classified as operating leases
with non-cancelable terms in excess of one year, were as follows:
(in
millions)
|
|
|
|
|
|
|
|
2009
|
|
$ |
45.3 |
|
2010
|
|
|
39.8 |
|
2011
|
|
|
33.5 |
|
2012
|
|
|
23.4 |
|
2013
|
|
|
14.9 |
|
Thereafter
|
|
|
38.2 |
|
|
|
|
|
|
Total
(not reduced by minimum sublease rentals of $2.1)
|
|
$ |
195.1 |
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
19 – Share Repurchase Program
In the second quarter of
2005, Brunswick’s Board of Directors authorized a $200.0 million share
repurchase program, to be funded with available cash. On April 27, 2006, the
Board of Directors increased the Company’s remaining share repurchase
authorization of $62.2 million to $500.0 million. The Company did not repurchase
any shares during 2008. During 2007 and 2006, the Company repurchased
approximately 4.1 million and 5.6 million shares under this program for $125.8
million and $195.6 million, respectively. As of December 31, 2008, the Company
had repurchased approximately 11.7 million shares for $397.4 million since the
program’s inception with a remaining authorization of $240.4 million. The plan
has been suspended as the Company intends to retain cash to enhance its
liquidity rather than to repurchase shares.
Note
20 – Discontinued Operations
In April 2006, the Company
announced its intention to sell the majority of its Brunswick New Technologies
(BNT) business unit, which consisted of the Company’s marine electronics,
portable navigation device (PND) and wireless fleet tracking businesses.
Accordingly, the Company reported these BNT businesses as discontinued
operations in accordance with the criteria of SFAS No. 144.
In March 2007, Brunswick
completed the sales of BNT’s marine electronics and PND businesses to Navico
International Ltd. and MiTAC International Corporation, respectively, for net
proceeds of $40.6 million. A $4.0 million after-tax gain was recognized with the
divestiture of these businesses in 2007.
In July 2007, the Company
completed the sale of BNT’s wireless fleet tracking business to Navman Wireless
Holdings L.P. for net proceeds of $28.8 million, resulting in an after-tax gain
of $25.8 million.
The sale of BNT’s wireless
fleet tracking completed the divestiture of the BNT discontinued operations.
After accounting for the net asset impairment taken prior to the disposition of
the BNT businesses in the fourth quarter of 2006 of $85.6 million, after-tax,
and the subsequent 2007 gains of $29.8 million, after-tax, on the BNT business
sales, the net impact to the Company of these dispositions was a net loss of
$55.8 million, after-tax.
There were no sales or
earnings from discontinued operations during 2008. The following table discloses
the results of operations for BNT, including the gain on the divestitures,
reported as discontinued operations for years ended December 31, 2007 and 2006,
respectively:
(in
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
99.7 |
|
|
$ |
306.3 |
|
Earnings
(loss) before income taxes (A)
|
|
|
(2.4 |
) |
|
|
(138.9 |
) |
Income
tax (benefit) provision
|
|
|
(4.6 |
) |
|
|
(9.6 |
) |
Earnings
(loss) from operations
|
|
|
2.2 |
|
|
|
(129.3 |
) |
Gain
on divestitures, net of tax (B)
|
|
|
29.8 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
32.0 |
|
|
$ |
(129.3 |
) |
(A)
Earnings (loss) before income taxes in 2006 include a pretax impairment charge
of $73.9 million with an after-tax effect of $85.6 million.
(B)
The Gain on divestitures in 2007 includes pretax net gains of $26.3 million and
net tax benefits of $3.5 million.
There were no remaining
BNT net assets available for sale as of December 31, 2008, or December 31,
2007.
Brunswick
Corporation
Notes
to Consolidated Financial Statements
Note
21 – Quarterly Data (unaudited)
Brunswick maintains its
financial records on the basis of a fiscal year ending on December 31, with the
fiscal quarters ending on the Saturday closest to the end of the period (13-week
periods). The first three quarters of fiscal year 2008 ended on March 29, 2008,
June 28, 2008, and September 27, 2008, and the first three quarters of fiscal
year 2007 ended on March 31, 2007, June 30, 2007, and September 29,
2007.
|
|
Quarter
Ended
|
|
|
|
|
(in
millions, except per share data)
|
|
March
29,
2008
|
|
|
June
28,
2008
|
|
|
Sept.
27,
2008
(B)
|
|
|
Dec.
31,
2008
(C)
|
|
|
Year
Ended
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,346.8 |
|
|
$ |
1,485.4 |
|
|
$ |
1,038.8 |
|
|
$ |
837.7 |
|
|
$ |
4,708.7 |
|
Gross
margin (A)
|
|
|
269.5 |
|
|
|
303.4 |
|
|
|
176.5 |
|
|
|
117.9 |
|
|
|
867.4 |
|
Net
earnings (loss)
|
|
|
13.3 |
|
|
|
(6.0 |
) |
|
|
(729.1 |
) |
|
|
(66.3 |
) |
|
|
(788.1 |
) |
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
0.15 |
|
|
$ |
(0.07 |
) |
|
$ |
(8.26 |
) |
|
$ |
(0.75 |
) |
|
$ |
(8.93 |
) |
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
0.15 |
|
|
$ |
(0.07 |
) |
|
$ |
(8.26 |
) |
|
$ |
(0.75 |
) |
|
$ |
(8.93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price (NYSE
symbol: BC):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
19.28 |
|
|
$ |
17.41 |
|
|
$ |
15.44 |
|
|
$ |
12.86 |
|
|
$ |
19.28 |
|
Low
|
|
$ |
14.87 |
|
|
$ |
11.25 |
|
|
$ |
9.66 |
|
|
$ |
2.01 |
|
|
$ |
2.01 |
|
|
|
Quarter
Ended
|
|
|
|
|
(in
millions, except per share data)
|
|
March
31,
2007
|
|
|
June
30,
2007
|
|
|
Sept.
29,
2007
|
|
|
Dec.
31,
2007
|
|
|
Year
Ended
Dec.
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,386.1 |
|
|
$ |
1,522.9 |
|
|
$ |
1,326.2 |
|
|
$ |
1,436.0 |
|
|
$ |
5,671.2 |
|
Gross
margin (A)
|
|
|
300.9 |
|
|
|
332.6 |
|
|
|
262.7 |
|
|
|
261.5 |
|
|
|
1,157.8 |
|
Net
earnings (loss) from continuing operations
|
|
|
34.3 |
|
|
|
56.9 |
|
|
|
(23.7 |
) |
|
|
12.1 |
|
|
|
79.6 |
|
Net
earnings
|
|
|
45.6 |
|
|
|
57.3 |
|
|
|
1.9 |
|
|
|
6.8 |
|
|
|
111.6 |
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) from continuing operations
|
|
$ |
0.38 |
|
|
$ |
0.63 |
|
|
$ |
(0.27 |
) |
|
$ |
0.14 |
|
|
$ |
0.88 |
|
Net
earnings (loss) from discontinued operations
|
|
|
0.12 |
|
|
|
— |
|
|
|
0.29 |
|
|
|
(0.06 |
) |
|
|
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
0.50 |
|
|
$ |
0.63 |
|
|
$ |
0.02 |
|
|
$ |
0.08 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) from continuing operations
|
|
$ |
0.38 |
|
|
$ |
0.63 |
|
|
$ |
(0.27 |
) |
|
$ |
0.14 |
|
|
$ |
0.88 |
|
Net
earnings (loss) from discontinued operations
|
|
|
0.12 |
|
|
|
— |
|
|
|
0.29 |
|
|
|
(0.06 |
) |
|
|
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
0.50 |
|
|
$ |
0.63 |
|
|
$ |
0.02 |
|
|
$ |
0.08 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price (NYSE
symbol: BC):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
34.62 |
|
|
$ |
34.80 |
|
|
$ |
33.12 |
|
|
$ |
24.21 |
|
|
$ |
34.80 |
|
Low
|
|
$ |
30.02 |
|
|
$ |
30.38 |
|
|
$ |
21.49 |
|
|
$ |
17.05 |
|
|
$ |
17.05 |
|
(A) Gross
margin is defined as Net sales less Cost of sales as presented in the
Consolidated Statements of Operations.
(B) Results
for the third quarter of 2008 include $534.2 million of pretax goodwill
impairment charges, trade name impairment charges and restructuring, exit and
other impairment charges.
(C) In the
fourth quarter of 2008, the Company reversed $81.2 million, or $0.56 per diluted
share, of variable compensation accruals. The reversal decreased Cost of sales
by $17.8 million and Selling, general and administrative expense by $63.4
million. Of the $81.2 million reversal, $37.9 million was reversed in the Boat
segment, $22.0 million was reversed in the Marine Engine segment, $8.2 million
was reversed in the Fitness segment, $5.0 million was reversed in the Bowling
& Billiards segment and $8.1 million was reversed at Corporate.
BRUNSWICK
CORPORATION
SCHEDULE II —
VALUATION AND QUALIFYING ACCOUNTS
(in
millions)
Allowances
for
Losses
on Receivables
|
|
Balance
at
Beginning
of
Year
|
|
|
Charges
to
Profit
and Loss
|
|
|
Write-offs
|
|
|
Recoveries
|
|
|
Other
|
|
|
Balance
at
End
of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
31.2
|
|
|
$ |
32.2
|
|
|
$ |
(18.9) |
|
|
$ |
(0.6) |
|
|
$ |
(2.2) |
|
|
$ |
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
29.7
|
|
|
$ |
10.7
|
|
|
$ |
(10.4) |
|
|
$ |
0.3 |
|
|
$ |
0.9 |
|
|
$ |
31.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$ |
22.1
|
|
|
$ |
9.2 |
|
|
$ |
(5.7) |
|
|
$ |
(1.5) |
|
|
$ |
5.6 |
|
|
$ |
29.7 |
|
Deferred
Tax Asset
Valuation
Allowance
|
|
Balance
at
Beginning
of
Year
|
|
|
Charges
to
Profit
and Loss(A)
|
|
|
Write-offs
|
|
|
Recoveries
|
|
|
Other(A)
|
|
|
Balance
at
End
of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
16.5 |
|
|
$ |
338.3 |
|
|
$ |
(2.3) |
|
|
$ |
— |
|
|
$ |
140.6 |
|
|
$ |
493.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
10.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6.5 |
|
|
$ |
16.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$ |
12.4 |
|
|
$ |
(0.1) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(2.3) |
|
|
$ |
10.0 |
|
|
(A) |
For the
year ended December 31, 2008, the valuation allowance increased $476.6
million. This increase was recorded as a $338.3 million charge to income
tax expense and a $138.3 million charge to other comprehensive income
primarily from an increase to the deferred tax asset associated with
pensions.
|
|
|
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
BRUNSWICK
CORPORATION |
|
|
|
|
|
February
24, 2009
|
By:
|
/s/ ALAN
L. LOWE |
|
|
|
Alan
L. Lowe |
|
|
|
Vice
President & Controller |
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
|
|
|
|
|
|
|
February
24, 2009
|
By:
|
/s/ DUSTAN
E. MCCOY |
|
|
|
Dustan
E. McCoy |
|
|
|
Chairman
and Chief Executive Officer |
|
|
|
(Principal
Executive Officer) |
|
|
|
|
|
|
|
|
February
24, 2009
|
By:
|
/s/ PETER
B. HAMILTON |
|
|
|
Peter
B. Hamilton |
|
|
|
Senior
Vice President and Chief Financial Officer |
|
|
|
(Principal
Financial Officer) |
|
|
|
|
|
|
|
|
February
24, 2009
|
By:
|
/s/ ALAN
L.LOWE |
|
|
|
Alan
L. Lowe |
|
|
|
Vice
President and Controller |
|
|
|
(Principal
Accounting Officer) |
|
This report has been
signed by the following directors, constituting the remainder of the Board of
Directors, by Peter B. Hamilton, Attorney-in-Fact.
Nolan D. Archibald
|
Anne E. Bélec
|
Jeffrey L. Bleustein
|
Michael J. Callahan
|
Cambria W.
Dunaway
|
Manuel A. Fernandez
|
Graham H. Phillips
|
Ralph C. Stayer
|
J. Steven
Whisler
|
Lawrence A. Zimmerman
|
|
|
|
|
February
24, 2009
|
By:
|
/s/ PETER
B. HAMILTON |
|
|
|
Peter
B. Hamilton |
|
|
|
Attorney-in-Fact |
|
|
|
|
|
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
|
|
3.1
|
Restated
Certificate of Incorporation of the Company filed as Exhibit 19.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
1987, and hereby incorporated by reference.
|
3.2
|
Certificate
of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock filed as Exhibit 3.2 to the Company’s Annual Report on
Form 10-K for 1995, and hereby incorporated by
reference.
|
3.3
|
By-Laws
of the Company filed as Exhibit 3.3 to the Company’s Annual Report on Form
10-K for 2002, and hereby incorporated by reference.
|
4.1
|
Indenture
dated as of March 15, 1987, between the Company and Continental Illinois
National Bank and Trust Company of Chicago filed as Exhibit 4.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
1987, and hereby incorporated by reference.
|
4.2
|
Officers’
Certificate setting forth terms of the Company’s $125,000,000 principal
amount of 7 3/8% Debentures due September 1, 2023, filed as Exhibit 4.3 to
the Company’s Annual Report on Form 10-K for 1993, and hereby incorporated
by reference.
|
4.3
|
Form
of the Company’s $200,000,000 principal amount of 7 1/8% Notes due August
1, 2027, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K
dated August 4, 1997, and hereby incorporated by
reference.
|
4.4
|
The
Company’s agreement to furnish additional debt instruments upon request by
the Securities and Exchange Commission filed as Exhibit 4.10 to the
Company’s Annual Report on Form 10-K for 1980, and hereby incorporated by
reference.
|
4.5
|
Form
of the Company’s $150,000,000 principal amount of 5% Notes due 2011, filed
as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 26,
2004, and hereby incorporated by reference.
|
4.6
|
Form
of the Company’s $250,000,000 principal amount of 9.75% Senior Notes due
2013, as filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K
dated August 12, 2008, and hereby incorporated by
reference.
|
4.7
|
Amended
and Restated Credit Agreement, dated December 19, 2008, between Brunswick
Corporation, the subsidiaries party thereto, the lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities
Inc. and RBS Securities Corporation, as joint lead arrangers, J.P. Morgan
Securities Inc., RBS Securities Corporation, Banc of America Securities
LLC, SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as
joint bookrunners, JPMorgan Chase Bank, N.A. and The Royal Bank of
Scotland PLC, as syndication agents, and Bank of America, N.A., SunTrust
Bank and Wells Fargo Bank, National Association, as documentation agents,
filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
December 19, 2008, and hereby incorporated by
reference.
|
10.1*
|
Terms
and Conditions of Employment between the Company and D. E. McCoy, filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September
18, 2006, and hereby incorporated by reference.
|
10.2*
|
Amendment
dated December 4, 2008 to Terms and Conditions of Employment between the
Company and D. E. McCoy dated September 18, 2006.
|
10.3*
|
Terms
and Conditions of Employment by and between Brunswick Corporation and
Peter B. Hamilton dated October 29, 2008, filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K/A dated October 29, 2008, and hereby
incorporated by reference.
|
10.4*
|
Terms
and Conditions of Peter B. Hamilton Stock Appreciation Rights Grant dated
November 3, 2008.
|
10.5*
|
Form
of Officer Terms and Conditions of Employment filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated January 18, 2007, and hereby
incorporated by reference.
|
10.6*
|
Form
of Amendment to Officer Terms and Conditions of Employment effective
December 2008.
|
10.7*
|
1994
Stock Option Plan for Non-Employee Directors filed as Exhibit A to the
Company’s definitive Proxy Statement dated March 25, 1994, for the Annual
Meeting of Stockholders on April 27, 1994, and hereby incorporated by
reference.
|
10.8*
|
Brunswick
Corporation Supplemental Pension Plan as amended and restated effective
February 3, 2009.
|
10.9*
|
Form
of Non-Employee Director Indemnification Agreement filed as Exhibit 10.5
to the Company’s Annual Report on Form 10-K for 2007, and hereby
incorporated by reference.
|
10.10*
|
1991
Stock Plan filed as Exhibit 10 to the Company’s Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, and hereby incorporated by
reference.
|
EXHIBIT
INDEX (Cont'd)
Exhibit No.
|
Description
|
10.11*
|
Brunswick Performance Plan for 2007 filed as Exhibit 10.8 to the
Company’s Annual Report on Form 10-K for
2006, and hereby incorporated by reference.
|
10.12*
|
2008 Brunswick Performance Plan as amended October 20,
2008.
|
10.13*
|
Brunswick Strategic Incentive Plan for 2006 – 2007 filed as Exhibit
10.10 to the Company’s Annual Report on Form 10-K for 2006, and hereby
incorporated by reference.
|
10.14*
|
Brunswick Strategic Incentive Plan for 2007 – 2008 filed as Exhibit
10.11 to the Company’s Annual Report on Form 10-K for 2006, and hereby
incorporated by reference.
|
10.15*
|
1997 Stock Plan for Non-Employee Directors filed as Exhibit 10.3 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and hereby incorporated by
reference.
|
10.16*
|
Brunswick Corporation 2005 Elective Deferred Compensation Plan as
amended and restated effective January 1, 2009.
|
10.17*
|
First Amendment to Brunswick Corporation 2005 Elective Deferred
Compensation Plan as amended and restated effective January 1,
2009.
|
10.18*
|
Brunswick Corporation 2005 Automatic Deferred Compensation Plan as
amended and restated effective January 1, 2009.
|
10.19*
|
Brunswick 2003 Stock Incentive Plan filed as Exhibit 4.5 to the
Company’s Registration Statement on Form S-8 (333-112880) filed February
17, 2004, and hereby incorporated by reference.
|
10.20*
|
2008 Performance Share Grant Terms and Conditions Pursuant to the
Brunswick Corporation 2003 Stock Incentive Plan filed as Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended March
29, 2008, and hereby incorporated by reference.
|
10.21*
|
2008 Restricted Stock Unit Grant Terms and Conditions Pursuant to
the Brunswick Corporation 2003 Stock Incentive Plan as amended October 20,
2008.
|
10.22*
|
2008 Stock-Settled Stock Appreciation Rights Grants Terms and
conditions Pursuant to the Brunswick corporation 2003 Stock Incentive Plan
filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 29, 2008, and hereby incorporated by
reference.
|
10.23*
|
S-8 (333-112880) filed February 17, 2004, and hereby incorporated
by reference.
|
10.24
|
Consulting Services Agreement dated October 7, 2008 by and between
the Company and Inisfail Consulting.
|
12.1
|
Statement regarding computation of ratios.
|
21.1
|
Subsidiaries of the Company.
|
23.1
|
Consent of Independent Registered Public Accounting
Firm.
|
24.1
|
Power of Attorney.
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
_______
*
Management contract or compensatory plan or arrangement.