Document

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 June 29, 2019



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

For the transition period from to

Commission file number 001-01043

____________

Brunswick Corporation

(Exact name of registrant as specified in its charter)



Delaware		36-0848180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

26125 N. Riverwoods Blvd., Suite 500, Mettawa, IL 60045-3420

(Address of principal executive offices, including zip code)

(847) 735-4700

(Registrant’s telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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



Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, par value $0.75 per share	BC	New York Stock Exchange
6.500% Senior Notes due 2048	BC-A	New York Stock Exchange
6.625% Senior Notes due 2049	BC-B	New York Stock Exchange
6.375% Senior Notes due 2049	BC-C	New York Stock Exchange

The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of July 31, 2019 was 85,724,337.

BRUNSWICK CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

June 29, 2019

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION		Page

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 29, 2019 and June 30, 2018	3

	Condensed Consolidated Balance Sheets as of June 29, 2019, December 31, 2018 and June 30, 2018	4

	Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2019 and June 30, 2018	6

	Condensed Consolidated Statements of Shareholders' Equity for the three months and six months ended June 29, 2019 and June 30, 2018	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41


PART II – OTHER INFORMATION

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 6.	Exhibits	43

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BRUNSWICK CORPORATION Condensed Consolidated Statements of Comprehensive Income (unaudited)

	Three Months Ended						Six Months Ended
(in millions, except per share data)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net sales	$	1,163.5		$	1,148.7		$	2,214.2		$	2,115.7
Cost of sales	835.5			867.5			1,606.7			1,591.4
Selling, general and administrative expense	126.4			121.4			259.9			237.6
Research and development expense	33.5			32.5			62.2			62.3
Restructuring, exit and impairment charges	5.4			34.2			8.6			36.8
Operating earnings	162.7			93.1			276.8			187.6
Equity earnings	1.6			1.4			3.5			2.4
Other expense, net	(0.1		)	(2.4		)	(1.7		)	(2.8		)
Earnings before interest and income taxes	164.2			92.1			278.6			187.2
Interest expense	(20.8		)	(8.2		)	(40.6		)	(14.9		)
Interest income	0.4			0.6			0.8			1.3
Earnings before income taxes	143.8			84.5			238.8			173.6
Income tax provision	31.7			16.4			50.5			41.7
Net earnings from continuing operations	112.1			68.1			188.3			131.9

Discontinued operations:
Earnings (loss) from discontinued operations, net of tax	6.9			10.9			(105.6		)	20.0
Loss on disposal of discontinued operations, net of tax	(41.5		)	—			(41.5		)	—
Net (loss) earnings from discontinued operations, net of tax	(34.6		)	10.9			(147.1		)	20.0
Net earnings	$	77.5		$	79.0		$	41.2		$	151.9

Earnings (loss) per common share:
Basic
Earnings from continuing operations	$	1.29		$	0.78		$	2.16		$	1.50
Earnings (loss) from discontinued operations	(0.40		)	0.12			(1.69		)	0.23
Net earnings	$	0.89		$	0.90		$	0.47		$	1.73

Diluted
Earnings from continuing operations	$	1.28		$	0.77		$	2.15		$	1.49
Earnings (loss) from discontinued operations	(0.39		)	0.13			(1.68		)	0.23
Net earnings	$	0.89		$	0.90		$	0.47		$	1.72

Weighted average shares used for computation of:
Basic earnings (loss) per common share	86.9			87.6			87.2			87.8
Diluted earnings (loss) per common share	87.3			88.2			87.7			88.5

Comprehensive income	$	93.1		$	68.6		$	57.8		$	152.5

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

Table of Contents

BRUNSWICK CORPORATION Condensed Consolidated Balance Sheets (unaudited)

(in millions)	June 29, 2019			December 31, 2018			June 30, 2018
Assets
Current assets
Cash and cash equivalents, at cost, which approximates fair value	$	656.1		$	294.4		$	435.9
Restricted cash	11.6			9.0			9.4
Short-term investments in marketable securities	0.8			0.8			0.8
Total cash and short-term investments in marketable securities	668.5			304.2			446.1
Accounts and notes receivable, less allowances of $8.7, $8.7 and $7.3	484.5			351.8			412.4
Inventories
Finished goods	528.8			490.8			371.1
Work-in-process	98.2			94.1			106.3
Raw materials	174.8			189.1			163.9
Net inventories	801.8			774.0			641.3
Prepaid expenses and other	56.6			72.9			36.8
Current assets held for sale	—			377.2			354.4
Current assets	2,011.4			1,880.1			1,891.0

Property
Land	17.9			16.5			17.1
Buildings and improvements	396.8			359.8			337.8
Equipment	1,043.9			983.0			914.5
Total land, buildings and improvements and equipment	1,458.6			1,359.3			1,269.4
Accumulated depreciation	(836.5		)	(791.9		)	(802.7		)
Net land, buildings and improvements and equipment	622.1			567.4			466.7
Unamortized product tooling costs	124.9			127.1			128.3
Net property	747.0			694.5			595.0

Other assets
Goodwill	410.7			377.3			33.5
Other intangibles, net	599.4			585.8			58.5
Operating lease assets	80.4			—			—
Deferred income tax asset	144.2			97.8			176.6
Equity investments	32.7			32.6			30.0
Other long-term assets	15.0			13.1			12.5
Long-term assets held for sale	—			610.3			639.6
Other assets	1,282.4			1,716.9			950.7

Total assets	$	4,040.8		$	4,291.5		$	3,436.7

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

Table of Contents

BRUNSWICK CORPORATION Condensed Consolidated Balance Sheets (unaudited)

(in millions)	June 29, 2019			December 31, 2018			June 30, 2018
Liabilities and shareholders’ equity
Current liabilities
Short-term debt and current maturities of long-term debt	$	40.3		$	41.3		$	4.7
Accounts payable	412.9			458.2			374.6
Accrued expenses	562.5			502.1			503.8
Current liabilities held for sale	—			255.0			232.1
Current liabilities	1,015.7			1,256.6			1,115.2

Long-term liabilities
Debt	1,240.1			1,179.5			429.0
Operating lease liabilities	67.1			—			—
Postretirement benefits	69.2			71.6			180.6
Other	111.4			101.6			114.4
Long-term liabilities held for sale	—			99.6			96.5
Long-term liabilities	1,487.8			1,452.3			820.5

Shareholders’ equity
Common stock; authorized: 200,000,000 shares, $0.75 par value; issued: 102,538,000 shares; outstanding: 85,687,000, 86,757,000 and 86,792,000 shares	76.9			76.9			76.9
Additional paid-in capital	363.0			371.1			361.8
Retained earnings	2,140.5			2,135.7			2,056.9
Treasury stock, at cost: 16,851,000, 15,781,000 and 15,746,000 shares	(696.6		)	(638.0		)	(635.4		)
Accumulated other comprehensive loss	(346.5		)	(363.1		)	(359.2		)
Shareholders’ equity	1,537.3			1,582.6			1,501.0

Total liabilities and shareholders’ equity	$	4,040.8		$	4,291.5		$	3,436.7

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

Table of Contents

BRUNSWICK CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited)

	Six Months Ended
(in millions)	June 29, 2019			June 30, 2018
Cash flows from operating activities
Net earnings	$	41.2		$	151.9
Less: net earnings (loss) from discontinued operations, net of tax	(147.1		)	20.0
Net earnings from continuing operations	188.3			131.9
Stock compensation expense	7.0			6.2
Depreciation and amortization	66.4			49.9
Pension expense, net of (funding)	1.2			(33.3		)
Asset impairment charges	2.9			24.9
Deferred income taxes	29.3			14.0
Changes in certain current assets and current liabilities	(154.0		)	(58.7		)
Long-term extended warranty contracts and other deferred revenue	6.1			6.0
Income taxes	6.4			29.9
Other, net	(6.2		)	(3.8		)
Net cash provided by operating activities of continuing operations	147.4			167.0
Net cash (used for) provided by for operating activities of discontinued operations	(8.1		)	33.9
Net cash provided by operating activities	139.3			200.9

Cash flows from investing activities
Capital expenditures	(135.2		)	(81.7		)
Investments	(0.2		)	(5.8		)
Acquisition of businesses, net of cash acquired	(64.4		)	—
Proceeds from the sale of property, plant and equipment	—			0.1
Other, net	—			(0.2		)
Net cash used for investing activities of continuing operations	(199.8		)	(87.6		)
Net cash provided by (used for) investing activities of discontinued operations	481.9			(8.5		)
Net cash provided by (used for) investing activities	282.1			(96.1		)

Cash flows from financing activities
Proceeds from issuances of short-term debt	655.0			—
Payments of short-term debt	(655.0		)	—
Net proceeds from issuances of long-term debt	223.1			—
Payments of long-term debt including current maturities	(168.1		)	(0.3		)
Common stock repurchases	(69.8		)	(70.0		)
Cash dividends paid	(36.4		)	(33.1		)
Proceeds from share-based compensation activity	0.9			1.2
Tax withholding associated with shares issued for share-based compensation	(8.0		)	(12.0		)
Other, net	(0.2		)	—
Net cash used for financing activities	(58.5		)	(114.2		)

Effect of exchange rate changes	1.4			(3.5		)
Net increase (decrease) in Cash and cash equivalents and Restricted cash	364.3			(12.9		)
Cash and cash equivalents and Restricted cash at beginning of period	303.4			458.2

Cash and cash equivalents and Restricted cash at end of period	667.7			445.3
Less: Restricted cash	11.6			9.4
Cash and cash equivalents at end of period	$	656.1		$	435.9

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

Table of Contents

Brunswick Corporation Condensed Consolidated Statements of Shareholders' Equity (unaudited)

(in millions, except per share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2018	$	76.9	$	371.1		$	2,135.7		$	(638.0	)	$	(363.1	)	$	1,582.6
Net loss	—		—			(36.3		)	—			—			(36.3		)
Other comprehensive income	—		—			—			—			1.0			1.0
Dividends ($0.21 per common share)	—		—			(18.3		)	—			—			(18.3		)
Compensation plans and other	—		(11.2		)	—			9.1			—			(2.1		)
Balance at March 30, 2019	76.9		359.9			2,081.1			(628.9		)	(362.1		)	1,526.9
Net earnings	—		—			77.5			—			—			77.5
Other comprehensive income	—		—			—			—			15.6			15.6
Dividends ($0.21 per common share)	—		—			(18.1		)	—			—			(18.1		)
Compensation plans and other	—		3.1			—			2.1			—			5.2
Common stock repurchases	—		—			—			(69.8		)	—			(69.8		)
Balance at June 29, 2019	$	76.9	$	363.0		$	2,140.5		$	(696.6	)	$	(346.5	)	$	1,537.3



(in millions, except per share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2017	$	76.9	$	374.4		$	1,966.8		$	(575.4	)	$	(359.8	)	$	1,482.9
Net earnings	—		—			72.9			—			—			72.9
Other comprehensive income	—		—			—			—			11.0			11.0
Dividends ($0.19 per common share)	—		—			(16.6		)	—			—			(16.6		)
Compensation plans and other	—		(17.0		)	—			11.3			—			(5.7		)
Common stock repurchases	—		—			—			(35.0		)	—			(35.0		)
ASU No. 2014-09 adoption	—		—			(28.7		)	—			—			(28.7		)
Balance at March 31, 2018	76.9		357.4			1,994.4			(599.1		)	(348.8		)	1,480.8
Net earnings	—		—			79.0			—			—			79.0
Other comprehensive loss	—		—			—			—			(10.4		)	(10.4		)
Dividends ($0.19 per common share)	—		—			(16.5		)	—			—			(16.5		)
Compensation plans and other	—		4.4			—			(1.3		)	—			3.1
Common stock repurchases	—		—			—			(35.0		)	—			(35.0		)
Balance at June 30, 2018	$	76.9	$	361.8		$	2,056.9		$	(635.4	)	$	(359.2	)	$	1,501.0

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

Table of Contents

BRUNSWICK CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Significant Accounting Policies

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

These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Brunswick’s 2018 Annual Report on Form 10-K for the year ended December 31, 2018 (the 2018 Form 10-K). These results include, in management's opinion, all normal and recurring adjustments necessary to present fairly Brunswick's financial position, results of operations and cash flows. Due to the seasonality of Brunswick’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Saturday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The second quarter of fiscal year 2019 ended on June 29, 2019 and the second quarter of fiscal year 2018 ended on June 30, 2018.

On June 27, 2019, the Company completed the sale of its Fitness business. The Company determined that the sale of its Fitness business represents a strategic shift that has a major effect on the Company's operations and financial results. As a result, the Company classified the assets and liabilities of the Fitness business as held for sale on the Condensed Consolidated Balance Sheets for all prior periods. Additionally, this business, which was previously reported in the Company's Fitness segment, is being reported as discontinued operations in the Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows for all periods presented. See Note 3 – Discontinued Operations for further information.

Recently Adopted Accounting Standards

Recognition of Leases: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases, (new leasing standard), which amended the Accounting Standards Codification (ASC) to require lessees to recognize assets and liabilities on the balance sheet for all leases with terms greater than twelve months. On January 1, 2019, the Company adopted the new leasing standard and all related amendments. The Company elected the optional transition method provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements, and as a result, has not restated its condensed consolidated financial statements for prior periods presented. The Company has elected the practical expedients upon transition to retain the lease classification and initial direct costs for any leases that existed prior to adoption. The Company has also not reassessed whether any contracts entered into prior to adoption are leases.

The standard did not have a material impact on the Company's Condensed Consolidated Statements of Comprehensive Income. The cumulative effect of the changes made to the Company's Consolidated Balance Sheet as of January 1, 2019 for the adoption of the new leasing standard was as follows:

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)



(in millions)	Balance as of December 31, 2018		Adjustments Due to ASC 842		Balance as of January 1, 2019
Assets
Operating lease assets	$	—	$	80.1	$	80.1
Long-term assets held for sale	610.3		21.1		631.4

Current liabilities
Accrued expenses	502.1		16.4		518.5
Current liabilities held for sale	255.0		2.9