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 March 28, 2020



☐	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) (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, a 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.



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
Common stock, par value $0.75 per share	BC	Chicago 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 May 4, 2020 was 79,128,451.

BRUNSWICK CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 28, 2020

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION		Page

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 28, 2020 and March 30, 2019	3

	Condensed Consolidated Balance Sheets (unaudited) as of March 28, 2020, December 31, 2019 and March 30, 2019	4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 28, 2020 and March 30, 2019	6

	Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the three months ended March 28, 2020 and March 30, 2019	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36


PART II – OTHER INFORMATION

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 5.	Other Information	39

Item 6.	Exhibits	40

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
(in millions, except per share data)	March 28, 2020			March 30, 2019
Net sales	$	965.5		$	1,050.7
Cost of sales	721.7			771.2
Selling, general and administrative expense	111.3			133.5
Research and development expense	28.9			28.7
Restructuring, exit and impairment charges	0.4			3.2
Operating earnings	103.2			114.1
Equity earnings	1.8			1.9
Other income (expense), net	0.7			(1.6		)
Earnings before interest and income taxes	105.7			114.4
Interest expense	(16.9		)	(19.8		)
Interest income	0.3			0.4
Earnings before income taxes	89.1			95.0
Income tax provision	18.4			18.8
Net earnings from continuing operations	70.7			76.2

Discontinued operations:
Loss from discontinued operations, net of tax	(0.6		)	(112.5		)
Loss on disposal of discontinued operations, net of tax	(1.1		)	—
Net loss from discontinued operations, net of tax	(1.7		)	(112.5		)
Net earnings (loss)	$	69.0		$	(36.3	)

Earnings (loss) per common share:
Basic
Earnings from continuing operations	$	0.88		$	0.87
Loss from discontinued operations	(0.02		)	(1.29		)
Net earnings (loss)	$	0.86		$	(0.42	)

Diluted
Earnings from continuing operations	$	0.88		$	0.87
Loss from discontinued operations	(0.02		)	(1.28		)
Net earnings (loss)	$	0.86		$	(0.41	)

Weighted average shares used for computation of:
Basic earnings (loss) per common share	80.0			87.5
Diluted earnings (loss) per common share	80.3			88.0

Comprehensive income (loss)	$	61.1		$	(35.3	)

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

Table of Contents

BRUNSWICK CORPORATION Condensed Consolidated Balance Sheets (unaudited)

(in millions)	March 28, 2020			December 31, 2019			March 30, 2019
Assets
Current assets
Cash and cash equivalents, at cost, which approximates fair value	$	502.9		$	320.3		$	161.5
Restricted cash	11.6			11.6			9.1
Short-term investments in marketable securities	0.8			0.8			0.8
Total cash and short-term investments in marketable securities	515.3			332.7			171.4
Accounts and notes receivable, less allowances of $12.0, $8.5 and $8.1	465.4			331.8			499.2
Inventories
Finished goods	549.3			554.3			520.8
Work-in-process	108.3			101.3			103.7
Raw materials	182.5			168.9			192.8
Net inventories	840.1			824.5			817.3
Prepaid expenses and other	49.0			36.8			80.5
Current assets held for sale	—			—			369.4
Current assets	1,869.8			1,525.8			1,937.8

Property
Land	17.8			17.8			16.5
Buildings and improvements	419.7			415.4			367.5
Equipment	1,107.3			1,090.1			1,000.3
Total land, buildings and improvements and equipment	1,544.8			1,523.3			1,384.3
Accumulated depreciation	(877.3		)	(863.8		)	(805.5		)
Net land, buildings and improvements and equipment	667.5			659.5			578.8
Unamortized product tooling costs	143.1			136.9			124.7
Net property	810.6			796.4			703.5

Other assets
Goodwill	414.0			415.0			381.8
Other intangibles, net	575.0			583.5			578.1
Operating lease assets	82.3			83.2			79.5
Deferred income tax asset	109.7			118.7			110.5
Equity investments	31.3			29.5			35.5
Other long-term assets	11.9			12.3			15.7
Long-term assets held for sale	—			—			492.5
Other assets	1,224.2			1,242.2			1,693.6

Total assets	$	3,904.6		$	3,564.4		$	4,334.9

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

Table of Contents

BRUNSWICK CORPORATION Condensed Consolidated Balance Sheets (unaudited)

(in millions)	March 28, 2020			December 31, 2019			March 30, 2019
Liabilities and shareholders’ equity
Current liabilities
Short-term debt and current maturities of long-term debt	$	425.7		$	41.3		$	40.9
Accounts payable	366.8			393.5			420.6
Accrued expenses	493.7			509.6			503.3
Current liabilities held for sale	—			—			240.9
Current liabilities	1,286.2			944.4			1,205.7

Long-term liabilities
Debt	1,069.0			1,068.0			1,245.6
Operating lease liabilities	69.6			70.1			67.0
Postretirement benefits	72.1			73.6			70.0
Other	104.0			107.4			100.4
Long-term liabilities held for sale	—			—			119.3
Long-term liabilities	1,314.7			1,319.1			1,602.3

Shareholders’ equity
Common stock; authorized: 200,000,000 shares, $0.75 par value; issued: 102,538,000 shares; outstanding: 79,114,000, 79,569,000 and 87,063,000 shares	76.9			76.9			76.9
Additional paid-in capital	358.8			369.2			359.9
Retained earnings	1,981.1			1,931.3			2,081.1
Treasury stock, at cost: 23,424,000, 22,969,000 and 15,475,000 shares	(1,051.8		)	(1,023.1		)	(628.9		)
Accumulated other comprehensive loss	(61.3		)	(53.4		)	(362.1		)
Shareholders’ equity	1,303.7			1,300.9			1,526.9

Total liabilities and shareholders’ equity	$	3,904.6		$	3,564.4		$	4,334.9

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

Table of Contents

BRUNSWICK CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited)

	Three Months Ended
(in millions)	March 28, 2020			March 30, 2019
Cash flows from operating activities
Net earnings (loss)	$	69.0		$	(36.3	)
Less: net loss from discontinued operations, net of tax	(1.7		)	(112.5		)
Net earnings from continuing operations, net of tax	70.7			76.2
Stock compensation expense	(0.1		)	2.8
Depreciation and amortization	35.2			33.1
Pension expense, net of (funding)	(0.6		)	0.3
Asset impairment charges	—			1.5
Deferred income taxes	10.6			8.6
Changes in certain current assets and current liabilities	(196.9		)	(202.7		)
Long-term extended warranty contracts and other deferred revenue	1.0			1.5
Income taxes	(2.5		)	4.2
Other, net	(1.3		)	1.3
Net cash used for operating activities of continuing operations	(83.9		)	(73.2		)
Net cash provided by (used for) operating activities of discontinued operations	4.8			(6.2		)
Net cash used for operating activities	(79.1		)	(79.4		)

Cash flows from investing activities
Capital expenditures	(55.9		)	(86.2		)
Investments	(3.6		)	(2.8		)
Proceeds from the sale of property, plant and equipment	0.4			—
Net cash used for investing activities of continuing operations	(59.1		)	(89.0		)
Net cash used for investing activities of discontinued operations	—			(2.9		)
Net cash used for investing activities	(59.1		)	(91.9		)

Cash flows from financing activities
Proceeds from issuances of short-term debt	610.0			215.0
Payments of short-term debt	(225.0		)	(215.0		)
Net proceeds from issuances of long-term debt	—			222.0
Payments of long-term debt including current maturities	(0.3		)	(159.0		)
Common stock repurchases	(34.1		)	—
Cash dividends paid	(19.2		)	(18.3		)
Proceeds from share-based compensation activity	0.4			0.5
Tax withholding associated with shares issued for share-based compensation	(6.5		)	(6.8		)
Other, net	(0.1		)	(0.2		)
Net cash provided by financing activities	325.2			38.2

Effect of exchange rate changes	(4.4		)	0.3
Net increase (decrease) in Cash and cash equivalents and Restricted cash	182.6			(132.8		)
Cash and cash equivalents and Restricted cash at beginning of period	331.9			303.4

Cash and cash equivalents and Restricted cash at end of period	514.5			170.6
Less: Restricted cash	11.6			9.1
Cash and cash equivalents at end of period	$	502.9		$	161.5

The Notes to Condensed Consolidated Financial Statements are an integral part of these condensed 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, 2019	$	76.9	$	369.2		$	1,931.3		$	(1,023.1	)	$	(53.4	)	$	1,300.9
Net earnings	—		—			69.0			—			—			69.0
Other comprehensive loss	—		—			—			—			(7.9		)	(7.9		)
Dividends ($0.24 per common share)	—		—			(19.2		)	—			—			(19.2		)
Compensation plans and other	—		(10.4		)	—			5.4			—			(5.0		)
Common stock repurchases	—		—			—			(34.1		)	—			(34.1		)
Balance at March 28, 2020	$	76.9	$	358.8		$	1,981.1		$	(1,051.8	)	$	(61.3	)	$	1,303.7



(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

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

Basis of Presentation. Effective January 1, 2020, the Company changed its management reporting and updated its reportable segments to Propulsion, Parts and Accessories (P&A) and Boat (inclusive of Business Acceleration) to align with its strategy. As a result of this change, the Company has recast all segment information for all prior periods presented. Refer to Note 11 – Segment Data for further information on the Company's reportable segments.

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 2019 Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K). These results include, in management's opinion, all normal and recurring adjustments necessary to present fairly Brunswick's financial position, results of operations and cash flows. Due to the seasonality of Brunswick’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Saturday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first quarter of fiscal year 2020 ended on March 28, 2020 and the first quarter of fiscal year 2019 ended on March 30, 2019.

On June 27, 2019, the Company completed the sale of its Fitness business. The Company determined that the sale of its Fitness business represented a strategic shift that had 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

Current Expected Credit Loss: In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments, which updated the Accounting Standards Codification (ASC) to add an impairment model that is based on expected losses rather than incurred losses. On January 1, 2020, the Company adopted this standard and the adoption did not have an impact on the condensed consolidated financial statements.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 2 – Revenue Recognition

Consistent with the Company's change in reportable segments as described in Note 1 – Significant Accounting Policies, the Company has made a change to its revenue disaggregation presentation to align with the new segment structure. The following table presents the Company's revenue into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:



	Three Months Ended
	March 28, 2020
(in millions)	Propulsion			Parts & Accessories			Boat		Total
Geographic Markets
United States	$	290.9		$	210.9		$	215.5	$	717.3
Europe	69.6			42.8			35.1		147.5
Asia-Pacific	49.3			24.7			5.6		79.6
Canada	14.1			13.7			31.8		59.6
Rest-of-World	24.7			9.5			3.5		37.7
Segment Eliminations	(69.1		)	(7.1		)	—		(76.2		)
Total	$	379.5		$	294.5		$	291.5	$	965.5

Major Product Lines
Outboard Engines	$	353.8		$	—		$	—	$	353.8
Controls, Rigging, and Propellers	57.5			—			—		57.5
Sterndrive Engines	37.3			—			—		37.3
Distribution Parts and Accessories	—			121.3			—		121.3
Advanced Systems Group	—			103.1			—		103.1
Engine Parts and Accessories	—			77.2			—		77.2
Aluminum Freshwater Boats	—			—			120.5		120.5
Recreational Fiberglass Boats	—			—			101.8		101.8
Saltwater Fishing Boats	—			—			59.8		59.8
Business Acceleration	—			—			9.4		9.4
Segment Eliminations	(69.1		)	(7.1		)	—		(76.2		)
Total	$	379.5		$	294.5		$	291.5	$	965.5

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)



	Three Months Ended
	March 30, 2019
(in millions)	Propulsion			Parts & Accessories			Boat		Total
Geographic Markets
United States	$	309.8		$	214.4		$	273.9	$	798.1
Europe	73.1			46.1			36.7		155.9
Asia-Pacific	31.4			24.7			5.4		61.5
Canada	14.9			16.4			50.0		81.3
Rest-of-World	23.2			12.0			7.3		42.5
Segment Eliminations	(79.0		)	(9.6		)	—		(88.6		)
Total	$	373.4		$	304.0		$	373.3	$	1,050.7

Major Product Lines
Outboard Engines	$	352.3		$	—		$	—	$	352.3
Controls, Rigging, and Propellers	53.2			—			—		53.2
Sterndrive Engines	46.9			—			—		46.9
Distribution Parts and Accessories	—			124.2			—		124.2
Advanced Systems Group	—			104.0			—		104.0
Engine Parts and Accessories	—			85.4			—		85.4
Aluminum Freshwater Boats	—			—			166.2		166.2
Recreational Fiberglass Boats	—			—			115.0		115.0
Saltwater Fishing Boats	—			—			90.2		90.2
Business Acceleration	—			—			1.9		1.9
Segment Eliminations	(79.0		)	(9.6		)	—		(88.6		)
Total	$	373.4		$	304.0		$	373.3	$	1,050.7

As of January 1, 2020, $96.2 million of contract liabilities associated with extended warranties and customer deposits were reported in Accrued expenses and Other Long-term liabilities, of which $13.1 million was recognized as revenue during the three months ended March 28, 2020. As of March 28, 2020, total contract liabilities were $95.5 million. The total amount of the transaction price allocated to unsatisfied performance obligations as of March 28, 2020 was $88.8 million for contracts greater than one year, which primarily relates to extended warranties. The Company expects to recognize approximately $19.1 million of this amount in 2020, $20.1 million in 2021, and $49.6 million thereafter.

Note 3 – Discontinued Operations

On June 27, 2019, the Company completed the sale of its Fitness business to KPS Capital Partners, LP. 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. Refer to Note 3 in the 2019 Form 10-K for further information.

The sale of the Fitness business resulted in net proceeds of $473.7 million and an after-tax loss of $43.9 million. In connection with the sale of its Fitness business, the Company retained assets of $26.4 million primarily related to VAT receivables, and retained liabilities of $45.1 million primarily related to VAT payables, product warranty liabilities and certain employee benefits. As of March 28, 2020, retained assets and liabilities were $11.1 million and $30.4 million, respectively.

Table of Contents

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table discloses the results of operations of the business reported as discontinued operations for the three months ended March 28, 2020 and March 30, 2019, respectively:



(in millions)	March 28, 2020			March 30, 2019
Net sales	$	—		$	225.2
Cost of sales	—			167.1
Selling, general and administrative expense ^(A)	0.8			56.4
Research and development expense	—			6.2
Restructuring, exit and impairment charges ^(B)	—			138.3
Loss from discontinued operations before income taxes ^{(A) (B)}	$	(0.8	)	$	(142.8	)
Income tax benefit	(0.2		)	(30.3		)
Loss from discontinued operations, net of tax ^{(B) (A)}	(0.6		)	(112.5		)
Loss on disposal of discontinued operations, net of tax ^(C)	(1.1		)	—
Net loss from discontinued operations, net of tax	$	(1.7	)	$	(112.5	)

(A) The Company recorded $7.8 million for the three months ended March 30, 2019 of net costs incurred in connection with the sale of the Fitness business.

(B) In the first quarter of 2019, the Company re-evaluated the fair value of the Fitness reporting unit and determined the fair value of the business was less than its carrying value. As a result, the Company recorded a $137.2 million ($103.0 million after tax) goodwill impairment charge for the three months ended March 30, 2019.

(C) Loss on disposal of discontinued operations, net of tax, for the three months ended March 28, 2020 includes a pre-tax loss of $1.5 million and a tax benefit of $0.4 million.

There were no assets and liabilities held for sale related to discontinued operations as of March 28, 2020. The following table reflects the summary of assets and liabilities held for sale as of March 30, 2019 primarily related to the Fitness business included in discontinued operations:



(in millions)	March 30, 2019
Accounts and notes receivable, net	$	184.5
Net inventory	173.8
Prepaid expenses and other	11.1
Current assets held for sale	369.4

Net property ^(A)	107.6
Goodwill	252.3
Other intangibles, net	58.6
Other long-term assets	74.0
Long-term assets held for sale	492.5
Assets held for sale	$	861.9

Accounts payable	$	52.7
Accrued expenses	188.2
Current liabilities held for sale	240.9

Other liabilities	119.3
Long-term liabilities held for sale	119.3
Liabilities held for sale	$	360.2

(A) As of March 30, 2019, the Company had $8.9 million of net long-term assets classified as held for sale that were not related to the business reported as discontinued operations.

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Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 4 – Restructuring, Exit and Impairment Activities

During 2019, the Company recorded restructuring charges within the Boat segment related to consolidating its commercial and government products operations in order to rationalize its product line to better align with customer demand. In addition, the Company announced headcount reductions aimed at streamlining the cost structure of its enterprise-wide general and administrative functions. These actions resulted in charges during the three months ended March 28, 2020 and March 30, 2019.

The Company recorded restructuring, exit and impairment charges in the Condensed Consolidated Statements of Comprehensive Income as a result of the activities described above. The following table is a summary of the expense associated with the restructuring, exit and impairment activities discussed above for the three months ended March 28, 2020 and March 30, 2019:



	March 28, 2020								March 30, 2019
(in millions)	Parts & Accessories		Boat			Corporate		Total	Boat	Corporate	Total
Restructuring and exit activities:
Employee termination and other benefits	$	0.3	$	(0.0	)	$	0.1	$