form10_q.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 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, including zip code)

(847) 735-4700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of August 2, 2010, was 88,624,909.

BRUNSWICK CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

July 3, 2010

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Consolidated Statements of Operations for the three months and six months ended July 3, 2010 (unaudited), and July 4, 2009 (unaudited)	1

	Condensed Consolidated Balance Sheets as of July 3, 2010 (unaudited), December 31, 2009, and July 4, 2009 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2010 (unaudited), and July 4, 2009 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40


PART II – OTHER INFORMATION

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 6.	Exhibits	41

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BRUNSWICK CORPORATION

Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended
(in millions, except per share data)	July 3, 2010			July 4, 2009			July 3, 2010			July 4, 2009

Net sales	$	1,014.7		$	718.3		$	1,859.1		$	1,453.0
Cost of sales		772.4			644.3			1,438.2			1,287.8
Selling, general and administrative expense		140.0			162.6			278.8			317.8
Research and development expense		22.4			21.3			44.7			45.2
Restructuring, exit and impairment charges		24.2			35.5			31.6			75.1
Operating earnings (loss)		55.7			(145.4	)		65.8			(272.9	)
Equity earnings (loss)		0.9			(4.1	)		0.8			(7.3	)
Other income (expense), net		(0.4	)		(0.2	)		0.6			(1.6	)
Earnings (loss) before interest, loss on early extinguishment of debt and income taxes		56.2			(149.7	)		67.2			(281.8	)
Interest expense		(23.9	)		(18.3	)		(48.2	)		(36.5	)
Interest income		0.7			1.0			1.6			1.5
Loss on early extinguishment of debt		(4.1	)		—			(4.4	)		—
Earnings (loss) before income taxes		28.9			(167.0	)		16.2			(316.8	)
Income tax provision (benefit)		15.2			(3.3	)		15.5			31.1
Net earnings (loss)	$	13.7		$	(163.7	)	$	0.7		$	(347.9	)

Earnings (loss) per common share:
Basic	$	0.15		$	(1.85	)	$	0.01		$	(3.94	)
Diluted	$	0.15		$	(1.85	)	$	0.01		$	(3.94	)

Weighted average shares used for computation of:
Basic earnings (loss) per common share		88.7			88.4			88.6			88.4
Diluted earnings (loss) per common share		91.8			88.4			91.3			88.4


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

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

(in millions)	July 3, 2010			December 31, 2009			July 4, 2009
	(unaudited)						(unaudited)
Assets
Current assets
Cash and cash equivalents, at cost, which approximates market	$	619.6		$	526.6		$	461.2
Accounts and notes receivable, less allowances of $43.9, $47.7 and $58.0		447.8			332.4			405.5
Inventories
Finished goods		203.6			234.4			299.0
Work-in-process		180.8			174.3			201.1
Raw materials		91.2			76.2			79.9
Net inventories		475.6			484.9			580.0
Deferred income taxes		16.1			79.3			16.4
Prepaid expenses and other		30.5			35.5			33.5
Current assets		1,589.6			1,458.7			1,496.6

Property
Land		90.6			100.0			105.9
Buildings and improvements		657.1			678.3			685.1
Equipment		1,069.1			1,078.9			1,133.7
Total land, buildings and improvements and equipment		1,816.8			1,857.2			1,924.7
Accumulated depreciation		(1,234.0	)		(1,221.8	)		(1,196.5	)
Net land, buildings and improvements and equipment		582.8			635.4			728.2
Unamortized product tooling costs		70.9			88.9			108.4
Net property		653.7			724.3			836.6

Other assets
Goodwill		288.9			292.5			291.1
Other intangibles, net		61.5			75.6			81.5
Investments		59.3			56.7			62.2
Other long-term assets		90.4			101.6			106.4
Other assets		500.1			526.4			541.2

Total assets	$	2,743.4		$	2,709.4		$	2,874.4


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

BRUNSWICK CORPORATION

Condensed Consolidated Balance Sheets

	July 3,			December 31,			July 4,
(in millions, except share data)	2010			2009			2009
	(unaudited)						(unaudited)
Liabilities and shareholders’ equity
Current liabilities
Short-term debt, including current maturities of long-term debt	$	4.8		$	11.5		$	82.4
Accounts payable		313.6			261.2			222.7
Accrued expenses		613.2			633.9			652.4
Current liabilities		931.6			906.6			957.5

Long-term liabilities
Debt		819.2			839.4			727.8
Deferred income taxes		67.9			10.1			52.5
Postretirement and postemployment benefits		531.9			535.7			516.8
Other		191.9			207.3			199.0
Long-term liabilities		1,610.9			1,592.5			1,496.1

Shareholders’ equity
Common stock; authorized: 200,000,000 shares, $0.75 par value; issued: 102,538,000 shares		76.9			76.9			76.9
Additional paid-in capital		418.5			415.1			406.7
Retained earnings		506.0			505.3			748.0
Treasury stock, at cost:
13,938,000; 14,275,000 and 14,321,000 shares		(407.0	)		(412.2	)		(414.1	)
Accumulated other comprehensive loss, net of tax		(393.5	)		(374.8	)		(396.7	)
Shareholders’ equity		200.9			210.3			420.8

Total liabilities and shareholders’ equity	$	2,743.4		$	2,709.4		$	2,874.4


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

BRUNSWICK CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
(in millions)	July 3, 2010			July 4, 2009

Cash flows from operating activities
Net earnings (loss)	$	0.7		$	(347.9	)
Depreciation and amortization		67.7			80.6
Pension expense, net of funding		10.6			42.3
Provision for doubtful accounts		0.7			26.9
Deferred income taxes		2.6			31.4
Long-lived asset impairment charges		19.9			14.4
Equity in earnings of unconsolidated affiliates, net of dividends		(0.7	)		7.6
Loss on early extinguishment of debt		4.4			—
Changes in certain current assets and current liabilities		(74.0	)		214.4
Income taxes		114.8			78.5
Repurchase of accounts receivable		—			(84.2	)
Other, net		(8.6	)		4.1
Net cash provided by operating activities		138.1			68.1

Cash flows from investing activities
Capital expenditures		(18.8	)		(13.7	)
Investments		(8.6	)		5.4
Proceeds from the sale of property, plant and equipment		2.5			5.4
Other, net		7.3			(0.2	)
Net cash used for investing activities		(17.6	)		(3.1	)

Cash flows from financing activities
Net issuances (payments) of short-term debt		(5.7	)		5.5
Net proceeds from asset-based lending facility		—			73.9
Net proceeds from issuance of long-term debt		10.0			—
Payments of long-term debt including current maturities		(28.9	)		(0.7	)
Payments of premium on early extinguishment of debt		(4.3	)		—
Stock options and appreciation rights exercised, net		1.4			—
Net cash provided by (used for) financing activities		(27.5	)		78.7

Net increase in cash and cash equivalents		93.0			143.7
Cash and cash equivalents at beginning of period		526.6			317.5

Cash and cash equivalents at end of period	$	619.6		$	461.2


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

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Significant Accounting Policies

Interim Financial Statements. The unaudited interim consolidated financial statements of Brunswick Corporation (Brunswick or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Certain previously reported amounts have been reclassified to conform to the current period presentation.

These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Brunswick’s 2009 Annual Report on Form 10-K (the 2009 Form 10-K). These interim results include, in the opinion of management, all normal and recurring adjustments necessary to present fairly the financial position of Brunswick as of July 3, 2010, December 31, 2009, and July 4, 2009, the results of operations for the three months and six months ended July 3, 2010 and July 4, 2009, and the cash flows for the six months ended July 3, 2010 and July 4, 2009. Due to the seasonality of Brunswick’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning thirteen weeks and ending on the Saturday closest to the end of that thirteen-week period. The first two quarters of fiscal year 2010 ended on April 3, 2010, and July 3, 2010 and the first two quarters of fiscal year 2009 ended on April 4, 2009, and July 4, 2009.

Recent Accounting Pronouncements. In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 166, “Accounting for Transfers of Financial Assets” (SFAS 166) (codified within the FASB Accounting Standards Codification (ASC) 860 “Transfers and Servicing”). SFAS 166 amends the derecognition guidance in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS 140). SFAS 166 is effective for fiscal years beginning after November 15, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167) (codified within ASC 810 “Consolidation”). SFAS 167 amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective for fiscal years beginning after November 15, 2009. The adoption of this statement resulted in the Company expanding its disclosures relative to its variable interest entity, as reflected in Note 11 – Financial Services.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13) (codified within ASC Topic 605 “Revenue Recognition”). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact that the adoption of the amendments to the ASC resulting from ASU 2009-13 may have on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (ASU 2010-06) (codified within ASC 820 “Fair Value Measurements and Disclosures” (ASC 820)). ASU 2010-06 improves disclosures originally required under SFAS No. 157, “Fair Value Measurements” (codified under ASC 820). ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this ASU resulted in the Company expanding its disclosures, as reflected in Note 4 – Fair Value Measurements.

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements” (ASU 2010-09) (codified within ASC 855 “Subsequent Events”). ASU 2010-09 amended SFAS No. 165, “Subsequent Events” (codified within ASC 855 “Subsequent Events”) to resolve conflicts with SEC reporting requirements. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations and financial condition.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 2 – Restructuring Activities

In November 2006, Brunswick announced restructuring initiatives to improve the Company’s cost structure, better utilize overall capacity and improve general operating efficiencies. These initiatives reflected the Company’s response to a difficult marine market. As the marine market continued to decline, Brunswick expanded its restructuring activities during 2007, 2008, 2009 and 2010 in order to improve performance and better position the Company for current market conditions and longer-term profitable growth. These initiatives have resulted in the recognition of restructuring, exit and impairment charges in the Statement of Operations during 2009 and 2010.

The costs incurred under these initiatives include:

Restructuring Activities – These amounts primarily relate to:

·	Employee termination and other benefits

·	Costs to retain and relocate employees

·	Consulting costs

·	Consolidation of manufacturing footprint

Exit Activities – These amounts primarily relate to:

·	Employee termination and other benefits

·	Lease exit costs

·	Inventory write-downs

·	Facility shutdown costs

Asset Disposition Actions – These amounts primarily relate to sales of assets and definite-lived asset impairments of:

·	Fixed assets

Tooling

·	Patents and proprietary technology

·	Dealer networks

Impairments of definite-lived assets are recognized when, as a result of the restructuring activities initiated, the carrying amount of the long-lived asset is not expected to be fully recoverable, in accordance with ASC 360, “Property, Plant, and Equipment.” The impairments recognized were equal to the difference between the carrying amount of the asset and the fair value of the asset, which was determined using observable inputs, including the use of appraisals from independent third parties, when available, and, when observable inputs were not available, based on the Company’s assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Specifically, the Company used discounted cash flows to determine the fair value of the asset when observable inputs were unavailable.

The Company has reported restructuring and exit activities based on the specific driver of the cost and reflected the expense in the accounting period when the cost has been committed or incurred. The Company considers actions related to the anticipated divestiture of its Triton fiberglass boat business, the sale of certain Baja boat business assets, the closure of its bowling pin manufacturing facility, the sale of the Valley-Dynamo and Integrated Dealer Systems businesses and the divestiture of MotoTron, to be exit activities. All other actions taken are considered to be restructuring activities.

The following table is a summary of the expense associated with the restructuring, exit and impairment activities for the three months and six months ended July 3, 2010 and July 4, 2009. The 2010 charge consists of expenses related to actions initiated in 2010, 2009 and 2008:

	Three Months Ended				Six Months Ended
(in millions)	July 3, 2010		July 4, 2009		July 3, 2010		July 4, 2009

Restructuring activities:
Employee termination and other benefits	$	2.0	$	10.2	$	5.8	$	29.6
Current asset write-downs		—		0.8		—		3.4
Transformation and other costs:
Consolidation of manufacturing footprint		3.0		7.2		6.2		19.6
Retention and relocation costs		—		—		—		0.1
Consulting costs		—		—		—		0.3
Exit activities:
Employee termination and other benefits		0.7		0.3		0.7		0.4
Current asset write-downs		0.9		0.5		0.9		1.1
Transformation and other costs:
Consolidation of manufacturing footprint		—		5.9		—		6.6
Asset disposition actions:
Trade name impairments		1.1		—		1.1		—
Definite-lived asset impairments		16.5		10.6		16.9		14.0

Total restructuring, exit and impairment charges	$	24.2	$	35.5	$	31.6	$	75.1

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company anticipates it will incur approximately $26 million of additional restructuring charges in 2010. Approximately $10 million of this amount relates to known restructuring activities that have been or will be initiated in 2010, and approximately $16 million relates to restructuring activities initiated in 2009 and 2008. The Company expects most of these charges will be incurred in the Boat and Marine Engine segments. Further reductions in demand for the Company’s products, or further opportunities to reduce costs, may result in additional restructuring, exit or impairment charges in 2010.

Actions initiated in 2010

During 2010, the Company continued its restructuring activities by disposing of non-strategic assets, consolidating manufacturing operations and reducing the Company’s global workforce. During the second quarter of 2010, the Company finalized plans to divest its Triton fiberglass boat brand and consolidate its Cabo Yachts production into its Hatteras facility in New Bern, North Carolina. The Company also recorded impairment charges for its Ashland City, Tennessee facility in connection with the divestiture of Triton and its decision to evaluate strategic alternatives for its Trophy boat brand.

The restructuring, exit and impairment charges recorded in the three months and six months ended July 3, 2010, related to actions initiated in 2010 for each of the Company’s reportable segments, are summarized below:

(in millions)	Three Months Ended July 3, 2010		Six Months Ended July 3, 2010

Boat	$	18.7	$	18.7
Bowling & Billiards		0.1		0.2

Total	$	18.8	$	18.9

The following is a summary of the charges by category associated with the 2010 restructuring initiatives:

(in millions)	Three Months Ended July 3, 2010		Six Months Ended July 3, 2010

Restructuring activities:
Employee termination and other benefits	$	0.2	$	0.3
Exit activities:
Employee termination and other benefits		0.7		0.7
Current asset write-downs		0.9		0.9
Asset disposition actions:
Trade name impairments		1.1		1.1
Definite-lived asset impairments		15.9		15.9

Total restructuring, exit and impairment charges	$	18.8	$	18.9

The restructuring charges related to actions initiated in 2010, for each of the Company’s reportable segments for the six months ended July 3, 2010, are summarized below:

(in millions)	Boat		Bowling & Billiards		Total

Employee termination and other benefits	$	0.8	$	0.2	$	1.0
Current asset write-downs		0.9		—		0.9
Asset disposition actions		17.0		—		17.0

Total restructuring, exit and impairment charges	$	18.7	$	0.2	$	18.9

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes the 2010 charges taken for restructuring, exit and impairment charges related to actions initiated in 2010 and the related status as of July 3, 2010. The accrued amounts remaining as of July 3, 2010 represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2010 and is included in Accrued expenses in the Condensed Consolidated Balance Sheets.

(in millions)	Costs Recognized in 2010		Non-cash Charges		Net Cash Payments			Accrued Costs as of July 3, 2010

Employee termination and other benefits	$	1.0	$	—	$	(0.1	)	$	0.9
Current asset write-downs		0.9		0.9		—			—
Asset disposition actions:
Trade name impairments		1.1		1.1		—			—
Definite-lived asset impairments		15.9		15.9		—			—

Total restructuring, exit and impairment charges	$	18.9	$	17.9	$	(0.1	)	$	0.9

Actions initiated in 2009

During the third quarter of 2009, the Company announced plans to reduce excess manufacturing capacity by relocating inboard and sterndrive production to Fond du Lac, Wisconsin, and closing its Stillwater, Oklahoma plant. This plant consolidation effort is expected to occur through 2011. In connection with this action, the Company’s hourly union workforce in Fond du Lac ratified a new collective bargaining agreement on August 31, 2009, which resulted in net restructuring charges as a result of employee incentives and changes to employees’ current and postretirement benefits. The Company continued to consolidate the Boat segment’s manufacturing footprint in 2009 and began marketing for sale certain previously closed boat production facilities in the fourth quarter of 2009, including the previously mothballed plants in Navassa and Swansboro, North Carolina, and its Riverview plant in Knoxville, Tennessee. The Company also recorded impairments during 2009 on tooling, its Cape Canaveral, Florida, and Little Falls, Minnesota properties and a marina in St. Petersburg, Florida, to record these assets at their fair value. These actions in the Company’s marine businesses are expected to provide long-term cost savings by reducing its fixed-cost structure.

The restructuring, exit and impairment charges recorded in the three months and six months ended July 3, 2010 and July 4, 2009, related to actions initiated in 2009 for each of the Company’s reportable segments, are summarized below:

	Three Months Ended				Six Months Ended
(in millions)	July 3, 2010		July 4, 2009		July 3, 2010		July 4, 2009

Marine Engine	$	2.1	$	9.2	$	4.5	$	18.9
Boat		1.2		12.2		3.9		18.6
Fitness		0.1		0.2		0.1		1.2
Bowling & Billiards		0.1		0.4		0.2		0.5
Corporate		0.1		1.7		0.4		2.4
Total	$	3.6	$	23.7	$	9.1	$	41.6

The following is a summary of the charges by category associated with the 2009 restructuring activities:

	Three Months Ended				Six Months Ended
(in millions)	July 3, 2010		July 4, 2009		July 3, 2010		July 4, 2009

Restructuring activities:
Employee termination and other benefits	$	1.7	$	8.9	$	5.4	$	21.8
Current asset write-downs		—		0.7		—		1.0
Transformation and other costs:
Consolidation of manufacturing footprint		1.9		2.7		3.7		5.5
Retention and relocation costs		—		—		—		0.1
Consulting costs		—		—		—		0.3
Exit activities:
Transformation and other costs:
Consolidation of manufacturing footprint		—		3.6		—		3.6
Asset disposition actions:
Definite-lived asset impairments		—		7.8		—		9.3

Total restructuring, exit and impairment charges	$	3.6	$	23.7	$	9.1	$	41.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The restructuring charges related to actions initiated in 2009, for each of the Company’s reportable segments for the six months ended July 3, 2010, are summarized below:

(in millions)	Marine Engine		Boat		Fitness		Bowling & Billiards		Corporate		Total

Employee termination and other benefits	$	2.1	$	2.7	$	0.1	$	0.2	$	0.3	$	5.4
Transformation and other costs		2.4		1.2		—		—		0.1		3.7

Total restructuring, exit and impairment charges	$	4.5	$	3.9	$	0.1	$	0.2	$	0.4	$	9.1

The restructuring charges related to actions initiated in 2009, for each of the Company’s reportable segments for the six months ended July 4, 2009, are summarized below:

(in millions)	Marine Engine		Boat		Fitness		Bowling & Billiards		Corporate		Total

Employee termination and other benefits	$	10.2	$	7.8	$	1.2	$	0.5	$	2.1	$	21.8
Current asset write-downs		0.3		0.7		—		—		—		1.0
Transformation and other costs		8.2		1.0		—		—		0.3		9.5
Asset disposition actions		0.2		9.1		—		—		—		9.3

Total restructuring, exit and impairment charges	$	18.9	$	18.6	$	1.2	$	0.5	$	2.4	$	41.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes the 2010 charges taken for restructuring, exit and impairment charges related to actions initiated in 2009 and the related status as of July 3, 2010. The accrued amounts remaining as of July 3, 2010 represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2010 and is included in Accrued expenses in the Condensed Consolidated Balance Sheets.

(in millions)	Accrued Costs as of Jan. 1, 2010		Costs Recognized in 2010		Net Cash Payments			Accrued Costs as of July 3, 2010

Employee termination and other benefits	$	8.5	$	5.4	$	(7.4	)	$	6.5
Transformation and other costs:
Consolidation of manufacturing footprint		2.0		3.7		(3.7	)		2.0

Total restructuring, exit and impairment charges	$	10.5	$	9.1	$	(11.1	)	$	8.5

Actions initiated in 2008

During the first quarter of 2008, the Company closed its bowling pin manufacturing facility in Antigo, Wisconsin and announced that it would: close its boat plant in Bucyrus, Ohio, in anticipation of the proposed sale of certain assets relating to its Baja boat business; cease boat manufacturing at one of its facilities in Merritt Island, Florida; and close its Swansboro, North Carolina boat plant.

The Company announced additional actions in June 2008 designed to improve performance and better position the Company for a prolonged downturn in the U.S. marine market. The plan reduced the complexity of the Company’s operations and shrank its North American manufacturing footprint. Specifically, the Company announced: the closure of its production facility in Newberry, South Carolina, due to its decision to cease production of its Bluewater Marine brands, including Sea Pro, Sea Boss, Palmetto and Laguna; its intention to close four additional boat plants; and the write-down of certain assets of the Valley-Dynamo coin-operated commercial billiards business.

During the third quarter of 2008, the Company accelerated its previously announced restructuring efforts. Specifically, the Company announced the closure of its boat production facilities in Cumberland, Maryland; Pipestone, Minnesota; Roseburg, Oregon; and Arlington, Washington. The Company also decided to mothball its plant in Navassa, North Carolina. The Company completed the Cumberland, Roseburg, Arlington and Navassa facility shutdowns in the fourth quarter of 2008, and completed the Pipestone facility shutdown in the first quarter of 2009.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The restructuring, exit and impairment charges related to actions initiated in 2008 for the three months and six months ended July 3, 2010 and July 4, 2009, for each of the Company’s reportable segments, are summarized below:

	Three Months Ended				Six Months Ended
(in millions)	July 3, 2010		July 4, 2009		July 3, 2010		July 4, 2009

Marine Engine	$	—	$	0.4	$	—	$	2.4
Boat		1.8		5.7		3.2		24.3
Bowling & Billiards		—		2.8		—		3.5
Corporate		—		2.9		0.4		3.3

Total	$	1.8	$	11.8	$	3.6	$	33.5

The following is a summary of the total expense by category associated with the 2008 restructuring initiatives for the three months and six months ended July 3, 2010 and July 4, 2010:

	Three Months Ended				Six Months Ended
(in millions)	July 3, 2010		July 4, 2009		July 3, 2010		July 4, 2009

Restructuring activities:
Employee termination and other benefits	$	0.1	$	1.3	$	0.1	$	7.8
Current asset write-downs		—		0.1		—		2.4
Transformation and other costs:
Consolidation of manufacturing footprint		1.1		4.5		2.5		14.1
Exit activities:
Employee termination and other benefits		—		0.3		—		0.4
Current asset write-downs		—		0.5		—		1.1
Transformation and other costs:
Consolidation of manufacturing footprint		—		2.3		—		3.0
Asset disposition actions:
Definite-lived asset impairments		0.6		2.8		1.0		4.7

Total restructuring, exit and impairment charges	$	1.8	$	11.8	$	3.6	$	33.5

The restructuring charges related to actions initiated in 2008, for each of the Company’s reportable segments for the six months ended July 3, 2010, are summarized below:

(in millions)	Boat		Corporate		Total

Employee termination and other benefits	$	0.1	$	—	$	0.1
Transformation and other costs		2.5		—		2.5
Asset disposition actions		0.6		0.4		1.0

Total restructuring, exit and impairment charges	$	3.2	$	0.4	$	3.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The restructuring charges related to actions initiated in 2008, for each of the Company’s reportable segments for the six months ended July 4, 2009, are summarized below:

(in millions)	Marine Engine		Boat		Bowling & Billiards		Corporate		Total

Employee termination and other benefits	$	0.9	$	6.3	$	0.6	$	0.4	$	8.2
Current asset write-downs		0.7		1.7		1.1		—		3.5
Transformation and other costs		0.8		14.4		1.8		0.1		17.1
Asset disposition actions		—		1.9		—		2.8		4.7

Total restructuring, exit and impairment charges	$	2.4	$	24.3	$	3.5	$	3.3	$	33.5

The following table summarizes the 2010 charges taken for restructuring, exit and impairment charges related to actions initiated in 2008 and the related status as of July 3, 2010. The accrued amounts remaining as of July 3, 2010, represent cash expenditures needed to satisfy remaining obligations. The majority of the accrued costs is expected to be paid by the end of 2010 and is included in Accrued expenses in the Consolidated Balance Sheets.

(in millions)	Accrued Costs as of Jan. 1, 2010		Costs Recognized in 2010		Non-cash Charges			Net Cash Payments			Accrued Costs as of July 3, 2010

Employee termination and other benefits	$	1.2	$	0.1	$	—		$	(0.9	)	$	0.4
Transformation and other costs:
Consolidation of manufacturing footprint		1.9		2.5		—			(2.8	)		1.6
Asset disposition actions:
Definite-lived asset impairments		—		1.0		(1.0	)		—			—

Total restructuring, exit and impairment charges	$	3.1	$	3.6	$	(1.0	)	$	(3.7	)	$	2.0

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 – Financial Instruments

The Company operates globally, with manufacturing and sales facilities in various locations around the world. Due to the Company’s global operations, the Company engages in activities involving both financial and market risks. The Company utilizes normal operating and financing activities, along with derivative financial instruments to minimize these risks.

Derivative Financial Instruments. The Company uses derivative financial instruments to manage its risks associated with movements in foreign currency exchange rates, interest rates and commodity prices. Derivative instruments are not used for trading or speculative purposes. For certain derivative contracts, on the date a derivative contract is entered into, the Company designates the derivative as a hedge of a forecasted transaction (cash flow hedge). The Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are designated as hedges to specific forecasted transactions. The Company also assesses, both at the inception and monthly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in the anticipated cash flows of the hedged item. If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, gains and losses on the derivative are recorded in Cost of sales or Interest expense as appropriate. There were no material adjustments as a result of ineffectiveness to the results of operations for the three and six months ended July 3, 2010 and July 4, 2009. The fair market value of derivative financial instruments is determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded. The effects of derivative and financial instruments are not expected to be material to the Company’s financial position or results of operations when considered together with the underlying exposure being hedged.

Fair Value Hedges. During 2010 and 2009, the Company entered into foreign currency forward contracts to manage foreign currency exposure related to changes in the value of assets or liabilities caused by changes in the exchange rates of foreign currencies. The change in the fair value of the foreign currency derivative contract and the corresponding change in the fair value of the asset or liability of the Company are both recorded through earnings (loss), each period as incurred.

Cash Flow Hedges. Certain derivative instruments qualify as cash flow hedges under the requirements of ASC 815 “Derivatives and Hedging.” The Company executes both forward and option contracts, based on forecasted transactions, to manage foreign exchange exposure mainly related to inventory purchase and sales transactions. The Company also enters into commodity swap agreements, based on anticipated purchases of aluminum and natural gas, to manage risk related to price changes. In prior periods, the Company entered into forward starting interest rate swaps to hedge the interest rate risk associated with the anticipated issuance of debt.

A cash flow hedge requires that as changes in the fair value of derivatives occur, the portion of the change deemed to be effective is recorded temporarily in Accumulated other comprehensive income (loss), an equity account, and reclassified into earnings (loss) in the same period or periods during which the hedged transaction affects earnings. As of July 3, 2010, the forecasted hedged transactions ranged from one to 18 months.

Foreign Currency. The Company enters into forward and option contracts to manage foreign exchange exposure related to forecasted transactions, and assets and liabilities that are subject to risk from foreign currency rate changes. These include: product costs; revenues and expenses; associated receivables and payables; intercompany obligations and receivables; and other related cash flows.

Forward exchange contracts outstanding at July 3, 2010 and December 31, 2009, had notional contract values of $85.1 million and $101.9 million, respectively. Option contracts outstanding at July 3, 2010 and December 31, 2009, had notional contract values of $144.6 million and $103.7 million, respectively. The forward and options contracts outstanding at July 3, 2010, mature during 2010 and 2011 and primarily relate to the Euro, Japanese yen, Canadian dollar, British pound, Norwegian krone, Australian dollar, Mexican peso, Swedish krona, Hungarian forint, and New Zealand dollar. As of July 3, 2010, the Company estimates that during the next 12 months, it will reclassify approximately $4.4 million in net gains (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate. As of July 3, 2010 and December 31, 2009, the Company had $4.3 million and $4.8 million, respectively, of net deferred gains associated with all forward starting interest rate swaps included in Accumulated other comprehensive loss. These amounts include gains deferred on $250.0 million of forward starting interest rate swaps terminated in July 2006 and losses deferred on $150.0 million of notional value forward starting swaps, which were terminated in August 2008. There were no forward starting interest rate swaps outstanding at July 3, 2010. For the three and six months ended July 3, 2010, the Company recognized $0.2 million and $0.5 million, respectively, of net amortization gains in Interest expense related to all settled forward starting interest rate swaps.

Commodity Price. The Company uses commodity swaps to hedge anticipated purchases of aluminum and natural gas. Commodity swap contracts outstanding at July 3, 2010 and December 31, 2009, had notional values of $13.3 million and $15.5 million, respectively. The contracts outstanding mature throughout 2010 and 2011. The amount of gain or loss associated with these instruments are deferred in Accumulated other comprehensive loss and are recognized in Cost of sales in the same period or periods during which the hedged transaction affects earnings. As of July 3, 2010, the Company estimates that during the next 12 months, it will reclassify approximately $1.6 million in net gains (based on current prices) from Accumulated other comprehensive loss to Cost of sales.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

As of July 3, 2010, the fair values of the Company’s derivative instruments were:

(in millions)
	Derivative Assets			Derivative Liabilities
Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Foreign exchange contracts	Prepaid expenses and other	$	4.3	Accrued expenses	$	0.8
Commodity contracts	Prepaid expenses and other		2.2	Accrued expenses		0.2

Total		$	6.5		$	1.0

As of December 31, 2009, the fair values of the Company’s derivative instruments were:

(in millions)
	Derivative Assets			Derivative Liabilities
Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Foreign exchange contracts	Prepaid expenses and other	$	1.8	Accrued expenses	$	1.4
Commodity contracts	Prepaid expenses and other		6.4	Accrued expenses		—

Total		$	8.2		$	1.4

The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended July 3, 2010, was:

(in millions)
Fair Value Hedging Instruments	Location of Gain Recognized in Income on Derivatives	Amount of Gain Recognized in Income on Derivatives

Foreign exchange contracts	Cost of sales	$	2.7
Foreign exchange contracts	Other income (expense), net		0.2

Total		$	2.9

Cash Flow Hedge Instruments	Amount of Gain Recognized on Derivatives in Accumulated other comprehensive loss (Effective Portion)		Location of Gain Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)

Interest rate contracts	$	—	Interest expense	$	0.2
Foreign exchange contracts		3.3	Cost of sales		0.6
Commodity contracts		0.4	Cost of sales		0.8

Total	$	3.7		$	1.6

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The effect of derivative instruments on the Consolidated Statement of Operations for the six months ended July 3, 2010, was:

(in millions)
Fair Value Hedging Instruments	Location of Gain Recognized in Income on Derivatives	Amount of Gain Recognized in Income on Derivatives

Foreign exchange contracts	Cost of sales	$	4.0
Foreign exchange contracts	Other income (expense), net		0.5

Total		$	4.5

Cash Flow Hedge Instruments	Amount of Gain/(Loss) Recognized on Derivatives in Accumulated other comprehensive loss (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)

Interest rate contracts	$	—		Interest expense	$	0.5
Foreign exchange contracts		5.2		Cost of sales		0.2
Commodity contracts		(2.5	)	Cost of sales		0.5

Total	$	2.7			$	1.2

The effect of derivative instruments on the Consolidated Statement of Operations for the three months ended July 4, 2009, was:

Cash Flow Hedge Instruments	Amount of Gain/(Loss) Recognized on Derivatives in Accumulated other comprehensive loss (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)

Interest rate contracts	$	—		Interest income	$	0.2
Foreign exchange contracts		(4.3	)	Cost of sales		4.7
Commodity contracts		2.3		Cost of sales		(4.9	)

Total	$	(2.0	)		$	—

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The effect of derivative instruments on the Consolidated Statement of Operations for the six months ended July 4, 2009, was:

Cash Flow Hedge Instruments	Amount of Gain/(Loss) Recognized on Derivatives in Accumulated other comprehensive loss (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated other comprehensive loss into Income (Effective Portion)

Interest rate contracts	$	—		Interest income	$	0.5
Foreign exchange contracts		(1.4	)	Cost of sales		10.6
Commodity contracts		0.5		Cost of sales		(8.7	)

Total	$	(0.9	)		$	2.4

Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash equivalents, accounts and notes receivable and short-term debt, including current maturities of long-term debt, approximate their fair values because of the short maturity of these instruments. At July 3, 2010, the fair value of the Company’s long-term debt, including current maturities, was approximately $784.0 million as estimated using quoted market prices or discounted cash flows based on market rates for similar types of debt. The carrying value of long-term debt, including current maturities, was $821.0 million as of July 3, 2010.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 4 – Fair Value Measurements

Fair value is defined under ASC 820 “Fair Value Measurements and Disclosures” (ASC 820) as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard established a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

·	Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

·	Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily available pricing sources for comparable instruments.

Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The following table summarizes Brunswick’s financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of July 3, 2010:

(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	454.6	$	—	$	—	$	454.6
Other short-term investments		0.8		—		—		0.8
Long-term investments		2.4		—		—		2.4
Derivatives		—		6.5		—		6.5
Total assets	$	457.8	$	6.5	$	—	$	464.3

Liabilities:
Derivatives	$	—	$	1.0	$	—	$	1.0

The following table summarizes Brunswick’s financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2009:

(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash Equivalents	$	350.0	$	—	$	—	$	350.0
Other short-term investments		0.8		—		—		0.8
Long-term investments		4.3		—		—		4.3
Derivatives		—		8.2		—		8.2
Total Assets	$	355.1	$	8.2	$	—	$	363.3

Liabilities:
Derivatives	$	—	$	1.4	$	—	$	1.4

Refer to Note 3 – Financial Instruments for additional information related to the fair value of derivative assets and liabilities by class. In addition to the items shown in the table above, refer to Note 15 in the Company’s 2009 Form 10-K for further discussion surrounding the fair value measurements associated with the Company’s postretirement benefit plans.

During 2010 and 2009, the Company undertook various restructuring activities, as discussed in Note 2 – Restructuring Activities. The restructuring activities required the Company to perform fair value measurements, on a non-recurring basis, on certain asset groups to test for potential impairments. Certain of these fair value measurements indicated that the asset groups were impaired and, therefore, the assets were written down to fair value. Once an asset has been impaired, it is not remeasured at fair value on a recurring basis; however, it is still subject to fair value measurements to test for recoverability of the carrying amount. Other than the assets measured at fair value on a recurring basis, as shown in the table above, the asset balances shown in the Condensed Consolidated Balance Sheets that were measured at fair value on a non-recurring basis were $8.6 million, $29.7 million and $18.3 million at July 3, 2010, December 31, 2009, and July 4, 2009, respectively, and relate primarily to assets no longer being used. These balances were determined with the market approach using Level 2 inputs, including third-party appraisals of comparable property.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 5 – Share-Based Compensation

Under the 2003 Stock Incentive Plan (Plan), the Company may grant stock options, stock appreciation rights (SARs), nonvested stock and other types of share-based awards to executives and other employees. Under the Plan, the Company may issue up to 13.1 million shares, consisting of treasury shares and authorized, but unissued, shares of common stock. As of July 3, 2010, 2.1 million shares were available for grant. 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.

SARs

During the three and six months ended July 3, 2010, the Company granted 0.0 million and 1.9 million SARs, respectively. In the three and six months ended July 3, 2010, there was $4.0 million and $6.6 million of total expense, respectively, after adjusting for forfeitures, due to amortization of SARs granted. During the three and six months ended July 4, 2009, there were 2.1 million and 2.9 million SARs granted, respectively. In the three and six months ended July 4, 2009, there was $2.3 million of total expense, after adjusting for forfeitures, due to amortization of SARs granted.

The weighted average fair values of individual SARs granted were $5.63 and $2.99 during 2010 and 2009, respectively. The Company estimated the fair value of each grant on the date of grant using the Black-Scholes-Merton pricing model utilizing the following weighted average assumptions for 2010 and 2009:

	2010	2009

Risk-free interest rate	2.8%	2.3%
Dividend yield	0.7%	1.9%
Volatility factor	53.0%	72.3%
Weighted average expected life	5.8 – 6.6 years	5.7 – 6.3 years

Non-vested stock awards

During the three and six months ended July 3, 2010, the Company granted 0.0 million and 0.2 million stock awards, respectively. No stock awards were granted during the first six months of 2009. The Company recognizes the cost of non-vested stock awards on a straight-line basis over the requisite service period. During the three and six months ended July 3, 2010, $0.6 million and $1.1 million, respectively, was charged to compensation expense from the amortization of previous grants. During the three and six months ended July 4, 2009, $0.3 million and $0.1 million, respectively, was charged to compensation expense from the amortization of previous grants including the result of reversing the amortization of certain awards in the first quarter of 2009.

As of July 3, 2010, there was $2.2 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 1.3 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. Prior to May 2009, each non-employee director also received an annual grant of restricted stock units, which is deferred until the director retires from the Board.

Note 6 – Earnings (Loss) per Common Share

The Company calculates earnings (loss) per common share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per common share is calculated by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated similarly, except that the calculation includes the dilutive effect of stock options and SARs, collectively “options,” and non-vested stock awards.

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Basic and diluted earnings (loss) per common share for the three and six months ended July 3, 2010 and for the comparable periods ended July 4, 2009, were calculated as follows:

	Three Months Ended					Six Months Ended
(in millions, except per share data)	July 3, 2010		July 4, 2009			July 3, 2010		July 4, 2009

Net earnings (loss)	$	13.7	$	(163.7	)	$	0.7	$	(347.9	)

Weighted average outstanding shares – basic		88.7		88.4			88.6		88.4
Dilutive effect of common stock equivalents		3.1		–			2.7		–

Weighted average outstanding shares – diluted		91.8		88.4			91.3		88.4

Basic earnings (loss) per common share	$	0.15	$	(1.85	)	$	0.01	$	(3.94	)