Form 10-Q
Securities and Exchange Commission
Washington, D. C. 20549
X Quarterly Report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994
Commission file number 1-1043
Brunswick Corporation
Exact name of registrant as specified in its charter
Delaware 36-0848180
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 N. Field Ct., Lake Forest, Illinois 60045-4811
(Address of principal executive offices) (Zipcode)
(708) 735-4700
Registrant's telephone number, including area code
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
At May 5, 1994, there were 95,409,408 shares of the Company's Common Stock
($.75 par value) outstanding.
Due to technical problems, the original 10-Q filing under EDGAR was
incomplete. This 10-Q/A files the 10-Q for the period ended March 31,
1994 in its entirety.
Part I- Financial Information
Item I-Financial Statements
Brunswick Corporation
Consolidated Results Of Operations
for the quarters ended March 31
(dollars in millions, except per share data)
1994 1993
(unaudited)
Net sales $ 634.9 $ 542.8
Cost of sales 458.6 402.7
Selling, general and administrative 131.6 118.6
Operating earnings 44.7 21.5
Interest expense (6.4) (7.2)
Interest income and other items, net 3.5 3.3
Earnings before income taxes 41.8 17.6
Income tax provision 15.4 7.8
Earnings from continuing operations before
cumulative effect of accounting change 26.4 9.8
Loss from discontinued operations - (0.8)
Cumulative effect on prior years of change in
accounting for postemployment benefits - (14.6)
Net earnings (loss) $ 26.4 $ (5.6)
Earnings (loss) per common share
Continuing operations $ 0.28 $ 0.10
Discontinued operations - (0.01)
Cumulative effect of change in
accounting principle - (0.15)
Net earnings (loss) per common share $ 0.28 $ (0.06)
Cash dividends declared per common share $ 0.11 $ 0.11
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Balance Sheets
As of March 31, 1994 and December 31, 1993
(dollars in millions)
March 31 December 31
Assets 1994 1993
Current assets (unaudited)
Cash and cash equivalents, at cost, which
approximates market $ 129.5 $ 248.8
Marketable securities 13.5 -
Accounts and notes receivable, less allowances
of $18.5 and $16.9 271.1 168.9
Inventories 341.2 321.4
Prepaid income taxes 194.8 186.5
Prepaid expenses 23.3 24.1
Current assets 973.4 949.7
Property
Land 61.1 60.9
Buildings 357.0 357.5
Equipment 730.1 720.9
1,148.2 1,139.3
Accumulated depreciation (605.9) (595.0)
Property 542.3 544.3
Other assets
Dealer networks 169.0 171.6
Trademarks and other 97.8 106.7
Excess of cost over net assets of businesses acquired 116.8 117.7
Investments 70.5 67.6
Other assets 454.1 463.6
Assets of continuing operations 1,969.8 1,957.6
Net assets of discontinued operations 25.9 26.1
Total assets $ 1,995.7 $ 1,983.7
Liabilities And Shareholders' Equity
Current liabilities
Short-term debt, including current maturities $ 12.5 $ 11.9
Accounts payable 131.1 122.8
Accrued expenses 416.3 404.5
Income taxes payable 16.3 62.7
Current liabilities 576.2 601.9
Long-term debt
Notes, mortgages and debentures 324.5 324.5
Deferred items
Income taxes 117.4 103.9
Postretirement and postemployment benefits 130.9 126.9
Compensation and other 22.5 22.1
Deferred items 270.8 252.9
Common shareholders' equity
Common stock; authorized: 200,000,000 shares,
$.75 par value; issued: 100,687,992 shares
at March 31, 1994 and December 31, 1993 75.5 75.5
Additional paid-in capital 261.1 261.4
Retained earnings 664.4 648.5
Treasury stock, at cost: 5,291,025 shares at March 31,
1994 and 5,430,523 shares at December 31, 1993 (99.1) (102.7)
Minimum pension liability adjustment (6.7) (6.7)
Unearned portion of restricted stock
issued for future services (3.6) (2.3)
Cumulative translation adjustments 8.6 7.9
Unamortized ESOP expense (76.0) (77.2)
Common shareholders' equity 824.2 804.4
Total liabilities and shareholders' equity $ 1,995.7 $ 1,983.7
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Statement Of Cash Flows
for the quarters ended March 31
(dollars in millions)
1994 1993
(unaudited)
Cash flows from operating activities
Net earnings(loss) $ 26.4 $ (5.6)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization by continuing operations 29.0 28.9
Changes in noncash current assets and current
liabilities of continuing operations (155.2) (74.3)
Increase in deferred items 17.5 10.0
Other, net 4.3 (1.9)
Cumulative effect of change in accounting principle - 14.6
Increase in net assets of discontinued operations 0.6 0.1
Net cash used for operating activities (77.4) (28.2)
Cash flows from investing activities
Capital expenditures (19.9) (18.6)
Investment in marketable securities (13.5) -
Proceeds from sales of property 2.2 0.1
Other, net (0.4) (0.7)
Net investing activities of discontinued operations (0.4) (0.6)
Net cash used for investing activities (32.0) (19.8)
Cash flows from financing activities
Payments of long-term debt, including current maturities (0.1) (6.6)
Cash dividends paid (10.5) (10.4)
Other, net 0.7 (4.2)
Net cash used for financing activities (9.9) (21.2)
Net decrease in cash and cash equivalents (119.3) (69.2)
Cash and cash equivalents at January 1 248.8 195.5
Cash and cash equivalents at March 31 $ 129.5 $ 126.3
Supplemental cash flow disclosures:
Interest paid $ 9.8 $ 5.5
Income taxes paid, net of refunds 55.2 (0.1)
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Notes To Consolidated Financial Statements
March 31, 1994, December 31, 1993 and March 31, 1993
(unaudited)
Note 1 - Accounting policies
This financial data has been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain information and
disclosures, normally included in financial statements and footnotes prepared
in accordance with generally accepted accounting principles, have been
condensed or omitted. Brunswick Corporation (the Company) believes that the
disclosures in these statements are adequate to make the information presented
not misleading.
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 the Company's
Annual Report on Form 10-K for the year ended December 31, 1993. These interim
results include, in the opinion of the Company, all normal and recurring
adjustments necessary to present fairly the results of operations for the
quarters ended March 31, 1994 and 1993. The 1994 interim results are not
necessarily indicative of the results which may be expected for the remainder
of the year.
The financial statements have been restated to segregate the results of the
Company's discontinued Technical segment. The 1994 operating losses of the
Technical Group have been charged against a reserve that was provided in 1992.
Results for the quarter ended March 31, 1993 have been restated for the
cumulative effect of the adoption of SFAS No. 112, which represented a change
in accounting for employees' postemployment benefits and was adopted by the
Company in 1993 retroactive to January 1, 1993.
Note 2 - Earnings per common share
Earnings(loss) per common share are based on the weighted average number of
common and common equivalent shares outstanding during each period. Such
average shares were 95.7 million and 95.2 million for the quarters ended March
31, 1994 and 1993, respectively.
Note 3 - Inventories
Inventories, of which approximately fifty percent were valued using the LIFO
method, consisted of the following at March 31, 1994 and December 31, 1993
(dollars in millions):
March 31 December 31
1994 1993
Finished goods $207.2 $188.1
Work in process 76.8 79.1
Raw materials 57.2 54.2
Inventories $341.2 $321.4
Note 4 - Consolidated common shareholders' equity
Minimum
Additional pension Unearned Cumulative Unamortized
Common stock paid-in Retained Treasury stoc liability restrictedtranslation ESOP
(in millions) Shares Amount capital earnings Shares Amount adjustment stock adjustments Expense
Balance, January 1, 1994 100.7 $75.5 $261.4 $648.5 (5.4) ($102.7) ($6.7) ($2.3) $7.9 ($77.2)
Net Earnings - - - 26.4 - - - - - -
Dividends declared ($.11 per
common share) - - - (10.5) - - - - - -
Compensation plans and other - - (0.3) - 0.1 3.6 - (1.3) - -
Deferred Compensation-ESOP - - - - - - - - - 1.2
Currency translation - - - - - - - - 0.7 -
Balance, March 31, 1994 100.7 $75.5 $261.1 $664.4 (5.3) ($99.1) ($6.7) ($3.6) $8.6 ($76.0)
Note 5 - Debt
Long-term debt at March 31, 1994 and December 31, 1993 consisted of the
following (dollars in millions):
March 31 December 31
1994 1993
Notes, 8.125%, due 1997 (net of discounts
of $0.1 and $0.2) $ 99.9 $ 99.8
Mortgage notes and other, 3% to 10%,
payable through 1999 27.8 27.9
Debentures, 7.375%, due 2023,
(net of discount of $0.9) 124.1 124.1
Guaranteed ESOP debt, 8.13%, payable through 2004 78.0 78.0
329.8 329.8
Current maturities ( 5.3) ( 5.3)
Long-term debt $324.5 $324.5
As of March 31, 1994, the Company and seventeen banks had a short-term credit
agreement for $100 million and a long-term credit agreement for $300 million
with termination dates of November 7, 1994 and December 31, 1996,
respectively. With mutual agreement between the Company and the banks, the
Company may extend both agreements. The short-term credit agreement may be
extended each 364 day anniversary, but not beyond December 31, 1996. The
long-term credit agreement contains two one-year extension options with the
extension requests permitted on the first and second anniversaries, the first
extension being November 8, 1994.
Under terms of the agreements, the Company has multiple borrowing options,
including borrowings at a corporate base rate, as announced by The First
National Bank of Chicago, or a rate tied to the Eurodollar rate. Currently,
the Company must pay a facility fee of 0.1875% on the short-term agreement and
0.25% on the long-term agreement.
Note 5 - Debt(Cont.)
Under the agreements, the Company is subject to interest coverage, net worth
and leverage tests as well as a restriction on secured debt, as defined. On
the interest coverage test, the Company is required to maintain a ratio of
consolidated income before interest and taxes, as defined, to consolidated
interest expense of not less than 2.0 to 1.0 on a cumulative twelve month
basis. The ratio, on a cumulative twelve-month basis, was 4.7 to 1.0 at March
31, 1994. The leverage ratio of consolidated total debt to capitalization, as
defined, may not exceed 0.55 to 1.00 and at March 31, 1994, this ratio was 0.29
to 1.00. The Company also is required to maintain shareholders' equity of at
least $711.6 million, with the required level of shareholders' equity at
December 31 of each year being increased by 50% of net earnings for that year.
The Company has complied with this limitation and the secured debt limitation
as of March 31, 1994. There were no borrowings under the agreements at March
31, 1994.
Note 6 - Litigation
The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. In light of existing reserves, the Company's litigation and
claims, including that discussed below, when finally resolved, will not, in the
opinion of management, have a material adverse effect on the Company's
consolidated financial position and results of operations.
The Company 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
disposition of certain hazardous wastes. These proceedings, which involve both
on and off site waste disposal, in many instances seek compensation from the
Company as a waste generator under Superfund legislation which authorizes
action regardless of fault, legality of original disposition or ownership of a
disposal site.
In June 1992, Genmar Industries brought an action against the Company and
certain of its subsidiaries in the United States District Court for the
District of Minnesota, alleging that the Company (i) has monopolized or
attempted to monopolize the sale of recreational marine engines and boats, (ii)
has unlawfully coerced engine purchasers to buy the Company's boats, (iii) has
breached its contract with Genmar, (iv) has not dealt in good faith with
Genmar, and (v) has interfered with Genmar's existing and prospective business
relationships. Genmar has asked that the Company be required to divest its
boat manufacturing business, be enjoined from continuing its partnership with
Tracker Marine, and pay damages, including treble damages under antitrust
laws. The Company believes, based upon its assessment of the complaint and in
consultation with counsel, that this litigation is without merit and intends to
defend itself vigorously. Parties to this suit have exchanged written
discovery and have begun depositions.
Note 6 - Litigation(Cont.)
The Federal Trade Commission is conducting an investigation of whether the
formation or operations of Tracker Marine L.P. and the Company's contracts with
Tracker Marine L.P. violate the antitrust laws. The Company has received and
responded to a subpoena seeking information relating to the Company's outboard
motor sales. The Company understands that other marine companies have received
similar subpoenas from the Federal Trade Commission.
Note 7 - Income Taxes
In January 1994, the Company reached an agreement with the U.S. Internal
Revenue Service(IRS) regarding its examination of the Company for the years
1985 and 1986. The issues of this examination dealt primarily with the
deductibility of approximately $500 million of acquired intangible assets,
which the IRS proposed to reclassify to non-deductible intangible assets.
Under the terms of the agreement, the IRS has agreed to allow amortization
deductions for virtually all of the acquired intangible assets, and the Company
has agreed to increase the amortizable lives of most of the acquired intangible
assets.
The revised lives create a temporary difference which resulted in an initial
obligation by the Company to pay the IRS approximately $55 million during the
first quarter of 1994, representing taxes and interest, net of taxes, for the
years 1986 through 1993. This initial $55 million obligation will subsequently
be reduced by the future tax benefits of the temporary difference created by
the agreeement. Since the interest was charged to existing reserves and the
taxes paid represent temporary differences which create, and have been recorded
as, deferred tax assets, this agreement had no impact on the Company's
consolidated results of operations.
Note 8 - Segment Data
The following table sets forth net sales and operating earnings of each of the
Company's industry segments for the quarters ended March 31, 1994 and 1993.
Quarter Ended March 31
1994 1993
Net Operating Net Operating
Sales Earnings Sales Earnings
Marine $ 457.5 $ 29.3 $ 372.5 $ 0.9
Recreation 177.4 26.5 170.3 29.4
Segments 634.9 55.8 542.8 30.3
Corporate - (11.1) - (8.8)
Consolidated $ 634.9 $ 44.7 $ 542.8 $ 21.5
Management's Discussion and Analysis
Cash Flow, Liquidity and Capital Resources
For the first quarter ended March 31, 1994, cash and cash equivalents decreased
$119.3 million compared to a decrease of $69.2 million in the first quarter of
1993. Net cash used for operating activities increased $49.2 million to $77.4
million for the first quarter of 1994 compared to the same period of 1993. The
increase in cash used was a result of increased non-cash working capital
requirements for accounts receivable and inventory and a payment to the IRS in
settlement of a dispute relating to the years 1985 and 1986(as discussed on
page 8, Note 7).
Net cash used for investing activities in the first quarter of 1994 increased
$12.2 million to $32.0 million from the $19.8 million in the comparable period
of 1993 primarily as a result of investing in marketable securities with
maturities greater than 90 days.
Net cash used for financing activities decreased to $9.9 million in the first
quarter of 1994 from $21.2 million in the same period of 1993. The decrease
resulted primarily from decreased payments on long-term debt.
Working capital at March 31, 1994 was $397.2 million compared to $347.8 million
at December 31, 1993. The Company's current ratio was 1.7 at March 31, 1994
compared to 1.6 at December 31, 1993.
Total debt at March 31, 1994 was $337.0 million compared to $336.4 million at
December 31, 1993. The Company's debt-to-capitalization ratio was 29.0% at
March 31, 1994 compared to 29.5% at December 31, 1993.
The Company maintains a $100 million short-term and a $300 million long-term
line of credit agreement with a group of banks. For an explanation of the
agreement and a discussion of the specific covenant restrictions, see page 6,
Note 5 - Debt.
Capital expenditures for the first quarter of 1994 were $19.9 million compared
to $18.6 million for the comparable period of 1993. The Company continues to
monitor capital expenditures and cash flow and will continue to do so in the
future. The Company believes that operating cash flows, existing cash balances
supplemented when necessary with short and/or long-term borrowings, will
continue to provide the financial resources necessary for capital expenditures
and working capital requirements.
Management's Discussion and Analysis
Results of Operations
First Quarter 1994 vs. First Quarter of 1993
Net Sales
Consolidated net sales from continuing operations for the first quarter of 1994
improved 17% to $634.9 million from $542.8 million in the same period of 1993
on increased sales in both the Marine and Recreation segments.
The Marine segment net sales for the first quarter of 1994 increased 23% to
$457.5 million from $372.5 million for the same period of 1993. Domestic sales
increased 28% and international sales increased 10% in the quarter. Demand for
marine engines increased worldwide while demand for boats increased
domestically but declined in international markets, primarily Europe and Japan.
Dealer inventories have increased above 1993 levels as dealers have increased
their purchases in light of a strong increase in retail sales in the quarter.
The Recreation segment's net sales for the first quarter of 1994 rose 4% to
$177.4 million from $170.3 million for the same period of 1993. The improvement
in sales was primarily the result of continued strong demand in international
markets, primarily the Far East, for bowling capital equipment of the Brunswick
Division. Zebco Division's sales declined slightly as a result of decreased
demand in Europe, as continued economic softness slowed retail spending. The
BRC Division also experienced a decline in sales primarily because of reduced
bowling lineage as a result of the severe winter weather experienced in many
sections of the United States and Canada, and the California earthquake, which
closed several recreation centers.
Operating Earnings
Operating earnings from continuing operations rose to $44.7 million for the
first quarter of 1994 from $21.5 million in the same period of 1993. The Marine
segment was responsible for this improvement as Recreation segment earnings
declined.
The Marine segment operating earnings of $29.3 million for the first quarter of
1994 compared to $0.9 million for the same period of 1993. The sales increases
discussed above and effects of the cost cutting programs and consolidations
that began in 1989 contributed to the improvement.
The Recreation segment operating earnings declined 10% to $26.5 million in the
first quarter of 1994 from the $29.4 million in the same period of 1993. The
decrease in operating earnings, despite the segment's sales increase, resulted
to a large degree from operating losses by the golf unit of the Brunswick
Division and start-up costs associated with the BRC Division's new Circus World
Pizza restaurant complexes.
Interest Expense
Interest expense for the first quarter of 1994 declined to $6.4 million from
$7.2 million in the same period of 1993. The decline resulted primarily from
average lower levels of ESOP and other debt, and lower interest expense on the
$125 million 7.375% debentures that were issued on August 25, 1993 than on the
$100 million 9.875% sinking fund debentures that were redeemed on August 9,
1993.
Income Taxes
The effective tax rate from continuing operations for the first quarter of 1994
was 37% compared to 44% for the same period of 1993. The decline in the
effective tax rate resulted primarily from increased tax credits and the impact
of tax rates on the mix of the Company's income, as well as the settlement of a
dispute with the IRS, as discussed in Note 7 on page 8. The effective tax rate
for both periods exceeds the statutory rate due to the impact of nondeductible
permanent differences and the effect of higher foreign tax rates.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At the April 27, 1994 Annual Meeting of Stockholders of the Company,
Messrs. Michael J. Callahan, Jack F. Reichert and Roger W. Schipke
were elected directors of the Company for three-year terms expiring at
the 1997 Annual Meeting. The following numbers of shares were voted
with respect to these directors:
Directors For Withheld
Michael J. Callahan 78,484,359 679,885
Jack F. Reichert 78,414,308 749,936
Roger W. Schipke 78,471,318 692,926
At the 1994 Annual Meeting the 1994 Stock Option Plan for Non-Employee
Directors was approved pursuant to the following vote:
Number of Shares Voted
For 69,977,821
Against 7,428,970
Abstain 1,757,453
At the 1994 Annual Meeting the Board of Directors' appointment of
Arthur Andersen & Co. as auditors for the Company and its subsidiaries
for the year 1994 was ratified pursuant to the following vote:
Number of Shares Voted
For 78,089,458
Against 437,596
Abstain 637,190
There were no broker nonvotes at the 1994 Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3. By-Laws of the Company.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three months
ended March 31, 1994.
Signatures
Pursuant to the requirements 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
May 12, 1994 By /s/ Thomas K. Erwin
*Mr. Erwin is signing this report both as a duly authorized officer and as the
chief accounting officer.