Form 10-Q/A
Amendment No. 1 to 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, 1995
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) (Zip Code)
(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 8, 1995, there were 95,774,988 shares of the Company's Common Stock
($.75 par value) outstanding.
Part I- Financial Information
Item I-Financial Statements
Brunswick Corporation
Consolidated Results Of Operations
for the three months ended March 31
(dollars in millions, except per share data)
1995 1994
(unaudited)
Net sales $ 774.2 $ 634.9
Cost of sales 558.8 458.6
Selling, general and administrative 141.8 131.6
Operating earnings 73.6 44.7
Interest expense (8.0) (6.4)
Interest income and other items, net (1.3) 3.5
Earnings before income taxes 64.3 41.8
Income tax provision 24.1 15.4
Net earnings $ 40.2 $ 26.4
Earnings per common share $ 0.42 $ 0.28
Cash dividends declared per common share $ 0.125 $ 0.11
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Balance Sheets
As of March 31, 1995 and December 31, 1994
(dollars in millions)
March 31, December 31,
Assets 1995 1994
Current assets (unaudited)
Cash and cash equivalents, at cost, which
approximates market $ 114.0 $ 185.2
Marketable securities 6.9 18.2
Accounts and notes receivable, less allowances
of $18.9 and $19.5 329.1 218.9
Inventories 446.7 409.0
Prepaid income taxes 186.9 175.0
Prepaid expenses 35.1 33.9
Income tax refunds receivable - 17.3
Current assets 1,118.7 1,057.5
Property
Land 61.1 61.0
Buildings 372.5 367.8
Equipment 800.6 779.9
1,234.2 1,208.7
Accumulated depreciation (663.8) (643.3)
Property 570.4 565.4
Other assets
Dealer networks 135.1 140.9
Trademarks and other 144.9 136.0
Excess of cost over net assets of businesses acquired 116.5 117.8
Investments 79.5 76.1
Other assets 476.0 470.8
Assets of continuing operations 2,165.1 2,093.7
Net assets of discontinued operations 26.9 28.6
Total assets $ 2,192.0 $ 2,122.3
Liabilities And Shareholders' Equity
Current liabilities
Short-term debt, including current maturities $ 7.7 $ 8.2
Accounts payable 164.7 157.3
Accrued expenses 435.1 455.8
Income taxes payable 41.3 -
Current liabilities 648.8 621.3
Long-term debt
Notes, mortgages and debentures 318.8 318.8
Deferred items
Income taxes 135.4 133.8
Postretirement and postemployment benefits 117.0 114.0
Compensation and other 25.2 23.7
Deferred items 277.6 271.5
Common shareholders' equity
Common stock; authorized: 200,000,000 shares,
$.75 par value; issued: 100,687,992 shares
at March 31, 1995 and December 31, 1994 75.5 75.5
Additional paid-in capital 260.8 261.5
Retained earnings 763.7 735.5
Treasury stock, at cost: 4,969,027 shares at March
31, 1995 and 5,236,856 shares at December 31, 1994 (91.8) (98.3)
Minimum pension liability adjustment (0.7) (0.7)
Unearned portion of restricted stock
issued for future services (4.0) (2.4)
Cumulative translation adjustments 14.2 11.8
Unamortized ESOP expense (70.9) (72.2)
Common shareholders' equity 946.8 910.7
Total liabilities and shareholders' equity $ 2,192.0 $ 2,122.3
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Statements Of Cash Flows
for the three months ended March 31
(dollars in millions)
1995 1994
(unaudited
Cash flows from operating activities
Net earnings $ 40.2 $ 26.4
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization by continuing operations 28.8 29.0
Changes in noncash current assets and current
liabilities of continuing operations (115.6) (155.2)
Increase in deferred items 7.2 17.5
Other, net 9.3 4.3
Decrease in net assets of discontinued operations 2.0 0.6
Net cash used for operating activities (28.1) (77.4)
Cash flows from investing activities
Capital expenditures (25.6) (19.9)
Investment in marketable securities 11.3 (13.5)
Investment in unconsolidated affiliates (6.6) -
Proceeds from sales of property 1.2 2.2
Investments (10.5) -
Other, net (0.1) (0.4)
Net investing activities of discontinued operations (0.3) (0.4)
Net cash used for investing activities (30.6) (32.0)
Cash flows from financing activities
Cash dividends paid (12.0) (10.5)
Other, net (0.5) 0.6
Net cash used for financing activities (12.5) (9.9)
Net decrease in cash and cash equivalents (71.2) (119.3)
Cash and cash equivalents at January 1 185.2 248.8
Cash and cash equivalents at March 31 $ 114.0 $ 129.5
Supplemental cash flow disclosures:
Interest paid $ 8.9 $ 9.8
Income taxes paid, net of refunds (19.1) 55.2
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Notes To Consolidated Financial Statements
March 31, 1995, December 31, 1994 and March 31, 1994
(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, 1994. 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, 1995 and 1994. The 1995 interim results are not
necessarily indicative of the results which may be expected for the remainder
of the year.
The financial statements segregate the results of the Company's discontinued
Technical segment. The 1995 and 1994 operating results of the Technical Group
have been charged against a reserve established at the time the decision to
discontinue the segment was announced.
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 96.0 million and 95.7 million for the quarters ended March
31, 1995 and 1994, respectively.
Note 3 - Inventories
Inventories, of which approximately sixty percent were valued using the LIFO
method, consisted of the following at March 31, 1995 and December 31, 1994
(dollars in millions):
March 31 December 31
1995 1994
Finished goods $268.1 $233.4
Work in process 101.0 105.2
Raw materials 77.6 70.4
Inventories $446.7 $409.0
Note 4 - Investments
On January 20, 1995, the Company and Orbital Engine Corporation Ltd. of Perth,
Australia, formed a joint venture to design, manufacture and market fuel
systems for low-emission two-stoke engines. The Company contributed $6.6
million for its 50% share of this joint venture.
Note 5 - 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, 1995 100.7 $75.5 $261.5 $735.5 (5.2) ($98.3) ($0.7) ($2.4) $11.8 ($72.2)
Net Earnings - - - 40.2 - - - - - -
Dividends declared ($.125 per
common share) - - - (12.0) - - - - - -
Compensation plans and other - - (0.7) - 0.2 6.5 - (1.6) - -
Deferred Compensation-ESOP - - - - - - - - - 1.3
Currency translation - - - - - - - - 2.4 -
Balance, March 31, 1995 100.7 $75.5 $260.8 $763.7 (5.0) ($91.8) ($0.7) ($4.0) $14.2 ($70.9)
Note 6 - Debt
Long-term debt at March 31, 1995 and December 31, 1994 consisted of the
following (dollars in millions):
March 31 December 31
1995 1994
Notes, 8.125%, due 1997 (net of discount
of $0.1.) $ 99.9 $ 99.9
Mortgage notes and other, 3% to 10%,
payable through 1999 27.3 27.3
Debentures, 7.375%, due 2023,
(net of discount of $0.9) 124.1 124.1
Guaranteed ESOP debt, 8.13%, payable through 2004 73.1 73.1
324.4 324.4
Current maturities (5.6) (5.6)
Long-term debt $318.8 $318.8
As of March 31, 1995, the Company and seventeen banks had a short-term credit
agreement for $100 million and a long-term credit agreement for $300 million.
On November 7, 1994, both agreements were amended to reduce facility fees,
extend maturities and reduce spreads on borrowing options. The termination date
of the short-term agreement was extended to November 6, 1995 and the long-term
agreement was extended to December 31, 1999. With mutual agreement between the
Company and the banks, the short-term agreement may be extended.
Note 6 - Debt (Cont.)
Under terms of the amended 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 0.10% on the short-term
agreement and 0.15% on the long-term agreement.
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 8.4 to 1.0 at March
31, 1995. The leverage ratio of consolidated total debt to capitalization, as
defined, may not exceed 0.55 to 1.00 and at March 31, 1995, this ratio was 0.26
to 1.00.
The Company is also required to maintain shareholders' equity of least $776.0
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,
1995. There were no borrowings under the agreements at March 31, 1995.
Note 7 - 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, 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.
On February 3, 1995, the Company announced a series of agreements with Genmar
Industries, Inc., including settlement of an antitrust lawsuit brought by
Genmar against the Company. Agreements were entered to supply Genmar with
marine engines manufactured by the Company and to acquire certain investments
in another boat manufacturer from Genmar. The Company's total cash payment
relating to these agreements was $22.5 million and had no material impact on
the results of operations of the Company.
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 8 - 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 agreed to allow amortization deductions for
virtually all of the acquired intangible assets, and the Company agreed to
increase the amortizable lives of most of the acquired intangible assets.
The revised lives created 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 created, and have been
recorded as deferred tax assets, this agreement had no impact on the Company's
consolidated results of operations.
Note 9 - 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, 1995 and 1994.
Quarter Ended March 31
1995 1994
Net Operating Net Operating
Sales Earnings Sales Earnings
Marine $ 575.7 $ 60.8 $ 457.5 $ 29.3
Recreation 198.5 23.9 177.4 26.5
Segments 774.2 84.7 634.9 55.8
Corporate - (11.1) - (11.1)
Consolidated $774.2 $ 73.6 $ 634.9 $ 44.7
Note 10 - Subsequent Event
On April 28, 1995, the Company completed the sale of substantially all the
assets of its Technical Group to Technical Products Group, Inc., a recently
formed company controlled by TPG Holdings in Atlanta, Georgia. Included in
the sale are Brunswick operations in Marion, Virginia; Lincoln, Nebraska;
Camden Arkansas; and DeLand, Florida. Excluded are the assets associated with
the unit's facility in Costa Mesa, California.
Management's Discussion and Anaysis
Cash Flow, Liquidity and Capital Resources
For the quarter ended March 31, 1995, cash and cash equivalents decreased $71.2
million compared to a decrease of $119.3 million for the comparable period of
1994. Net cash used for operating activities declined to $28.1 million from the
$77.4 million for the quarter ended March 31, 1994. The reduction of $49.3
million in cash used for operating activities was primarily because the 1994
activity included a $55.0 million income tax payment to the IRS in settlement
of a dispute as discussed on page 8, Note-8.
Net cash used for investing activities in the first quarter of 1995 was $30.6
million compared to $32.0 million for the same period of 1994. The decrease
resulted from the net redemption of marketable securities with maturities of
more than ninety days in 1995 compared to net investment in such securities in
1994, which was nearly offset by increased capital expenditures and investments
in unconsolidated affiliates.
Net cash used for financing activities was $12.5 million in the first quarter
of 1995 compared to $9.9 million in the same period of 1994. The change
resulted primarily from an increase in the cash dividends paid of $1.5 million,
or 12.5 cents per share in 1995 versus 11 cents per share in 1994.
Working capital at March 31, 1995 was $469.9 million compared to $436.2
million at December 31, 1994. The Company's current ratio was 1.7 at both
March 31, 1995 and December 31, 1994.
Total debt at March 31, 1995 was $326.5 million and $327.0 million at December
31, 1994. The Company's debt-to-capitalization ratio was 25.6% at March 31,
1995 compared to 26.4% at December 31, 1994.
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 6 - Debt.
Capital expenditures for the first three months of 1995 were $25.6 million
compared to $19.9 million for the comparable period of 1994. The Company
believes that operating cash flows and 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 1995 vs. First Quarter 1994
Net Sales
Consolidated net sales for the first quarter of 1995 rose 22% to $774.2 million
from $634.9 million in the first quarter of 1994. The Marine and Recreation
segments both contributed to the improvement.
The Marine segment net sales for the first quarter of 1995 were $575.7 million
versus $457.5 million in the 1994 period, or an increase of 26%. The
improvement resulted from international sales and domestic sales increases of
25% and 26%, respectively. The international sales improvement was lead by
strong demand for boats in Europe with the demand for marine engines showing a
moderate increase. Domestically, sales of engines were up 26% and boats were
higher by 24%. Dealer inventories have risen due to stocking to meet expected
increased retail sales demand, which historically has been strongest in the
second quarter.
The Recreation segment's first quarter net sales increased 12%, to $198.5
million, from $177.4 million for the same period of 1994. The improvement
resulted primarily from increased domestic and international demand for the
products of the Zebco Division. The Brunswick Division's sales increased
domestically in consumer products, golf shafts and billiards while
international sales of bowling capital capital equipment were flat compared
with 1994. The BRC Division's sales increased approximately 4%, primarily due
to price increases.
Operating Earnings
Operating earnings rose to $73.6 million for the first quarter of 1995 compared
to $44.7 million in the first quarter of 1994. The Marine segment was
responsible for this increase, while Recreation segment earnings declined from
the prior year.
The Marine segment reported operating earnings of $60.8 million for the first
quarter of 1995 compared to $29.3 million for the same period of 1994. The
previously discussed domestic and international sales increases accounted for
the improvement.
The Recreation segment operating earnings decreased 10% to $23.9 million in the
first quarter of 1995, from $26.5 million in the same period of 1994. The
operating earnings decrease resulted despite the sales increases discussed
previously because of the Brunswick Division's higher operating expenses
associated with the introduction of a new product line of capital equipment and
lower margins on sales of German manufactured pinsetters due to currency
fluctuations. The Zebco and BRC Divisions' operating earnings increased in line
with their sales increases.
Corporate expenses remained unchanged at $11.1 million in the first quarter of
1995 compared to 1994.
Interest Expense and Other Items, Net
Interest expense for the first quarter of 1995 increased $1.6 million to $8.0
million from $6.4 million in the same period of 1994. The increase resulted
primarily from increased interest rate swap expenses. Interest income and other
items, net was a $1.3 million expense in 1995 versus $4.5 million income in
1994, primarily due to increased foreign currency losses and decreased income
from an unconsolidated affiliate.
Income Taxes
The effective tax rate from continuing operations for first quarter of 1995 was
37.5% compared to 37% for the same period of 1994. The increase in the
effective tax rate resulted primarily from decreased tax credits. The effective
tax rate for both periods exceeds the statutory rate due to the impact of
non-deductible permanent differences and the effect of higher foreign tax
rates.
Management Changes
On April 3, 1995, the Company announced that Peter N. Larson, 55, had been
elected President and Chief Executive Officer and been made a member of the
Board of Directors. Jack F. Reichert, the former President and Chief Executive
Officer, will remain as Chairman until his retirement on October 1, 1995.
Mr. Larson had been Chairman of the Worldwide Consumer and Personal Care Group
at Johnson & Johnson, where he also was served as a member of the Executive
Committee and the Board of Directors.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At the April 26, 1995 Annual Meeting of Stockholders of the
Company (the "1995 Annual Meeting"), Messrs. Bernd K. Koken, Jay
W. Lorsch and Robert N. Rasmus were elected directors of the
Company for terms expiring at the 1996 Annual Meeting. The
following numbers of shares were voted with respect to these
directors:
Nominees For Withheld
Bernd K. Koken 83,468,399 1,393,754
Jay W. Lorsch 83,477,996 1,384,157
Robert N. Rasmus 84,317,541 544,612
At the 1995 Annual Meeting Messrs. John P. Diesel and George D.
Kennedy were elected directors of the Company for terms expiring
at the 1997 Annual Meeting. The following numbers of shares were
voted with respect to these directors:
Nominees For Withheld
John P. Diesel 83,459,280 1,402,873
George D. Kennedy 83,427,399 1,434,755
At the 1995 Annual Meeting Ms. Bettye Martin Musham and Messrs.
Jack F. Reichert and Roger W. Schipke were elected directors of
the Company for terms expiring at the 1998 Annual Meeting. The
following numbers of shares were voted with respect to these
directors:
Nominees For Withheld
Bettye Martin Musham 84,323,960 538,193
Jack F. Reichert 84,296,809 565,344
Roger W. Schipke 84,342,117 520,037
At the 1995 Annual Meeting the Board of Directors' appointment of
Arthur Andersen LLP as auditors for the Company and its
subsidiaries for the year 1995 was ratified pursuant to the
following vote:
Number of Shares Voted
For 83,854,574
Against 675,164
Abstain 332,417
There were no broker nonvotes at the 1995 Annual Meeting.
Part II. Other Information
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, 1995.
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 15, 1995 By /s/ Thomas K. Erwin,
Thomas K. Erwin, Controller*
*Mr. Erwin is signing this report both as a duly authorized officer and as the
chief accounting officer.