SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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)
(847) 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, 1998, there were 99,435,511 shares of the Company's
Common Stock ($.75 par value) outstanding.
Part I- Financial Information
Item I-Financial Statements
Brunswick Corporation
Consolidated Statements of Income
for the three months ended March 31
(in millions, except per share data)
(unaudited)
1998 1997
Net sales 904.2 841.6
Cost of sales 647.9 601.0
Selling, general and administrative expense 148.2 147.2
Operating earnings 108.1 93.4
Interest expense (14.9) (11.1)
Other income and expense 1.8 2.8
Earnings before income taxes 95.0 85.1
Income tax provision 36.1 32.4
Net earnings 58.9 52.7
Earnings per common share
Basic 0.59 0.53
Diluted 0.59 0.53
Average shares used for computation of
Basic earnings per share 99.5 98.7
Diluted earnings per share 100.5 99.7
Cash dividends declared per common share 0.125 0.125
The notes are an integral part of these
consolidated statements.
Brunswick Corporation
Consolidated Balance Sheets
As of March 31, 1998 and December 31, 1997
(in millions, except share data)
(unaudited)
March 31, December 31,
1998 1997
Assets
Current assets
Cash and cash equivalents, at cost,
which approximates market 82.7 85.6
Accounts and notes receivable,
less allowances of $21.7 and $20.7 570.1 434.9
Inventories
Finished goods 365.1 313.4
Work-in-process 145.9 139.4
Raw materials 138.9 113.5
Net inventories 649.9 566.3
Prepaid income taxes 211.1 210.7
Prepaid expenses 44.6 46.0
Income tax refund receivable 0.0 22.5
Current assets 1,558.4 1,366.0
Property
Land 76.3 68.7
Buildings 434.9 425.8
Equipment 851.8 830.8
Total land, buildings and equipment 1,363.0 1,325.3
Accumulated depreciation (669.1) (656.7)
Net land, buildings and equipment 693.9 668.6
Unamortized product tooling costs 108.8 114.4
Net property 802.7 783.0
Other assets
Goodwill 731.5 726.4
Other intangibles 115.3 115.8
Investments 78.5 87.5
Other long-term assets 166.2 162.7
Other assets 1,091.5 1,092.4
Total Assets 3,452.6 3,241.4
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt, including
current maturities of long-term debt 296.2 109.3
Accounts payable 256.3 252.9
Accrued expenses 531.6 586.0
Income taxes payable 35.3 0.0
Current liabilities 1,119.4 948.2
Long-term debt
Notes, mortgages and debentures 645.5 645.5
Deferred items
Income taxes 137.7 144.3
Postretirement and postemployment benefits 138.2 137.3
Compensation and other 55.5 51.1
Deferred items 331.4 332.7
Common shareholders' equity
Common stock; authorized: 200,000,000 shares,
$.75 par value; issued: 102,538,000 shares 76.9 76.9
Additional paid-in capital 310.3 308.2
Retained earnings 1,098.7 1,052.2
Treasury stock, at cost:
3,039,000 and 3,057,000 shares (62.9) (59.0)
Unamortized ESOP expense and other (62.2) (63.1)
Accumulated other comprehensive income (4.5) (0.2)
Common shareholders' equity 1,356.3 1,315.0
Total liabilities and shareholders' equity 3,452.6 3,241.4
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)
(unaudited)
1998 1997
Cash flows from operating activities
Net earnings 58.9 52.7
Depreciation and amortization 39.5 37.1
Changes in noncash current assets and current
liabilities (255.1) (197.2)
Income taxes 58.9 30.2
Other, net (9.1) 8.1
Net cash used for operating activities (106.9) (69.1)
Cash flows from investing activities
Acquisitions of businesses (29.0) (151.6)
Unrestricted cash held for Igloo acquisition 0.0 143.0
Capital expenditures (36.8) (32.7)
Payments advanced for long-term
supply arrangements (5.5) 0.0
Other, net 7.8 0.0
Net cash used for investing activities (63.5) (41.3)
Cash flows from financing activities
Net proceeds from issuances of short-term
commercial paper and other short-term debt 186.2 0.0
Cash dividends paid (12.4) (12.3)
Stock repurchases (11.5) 0.0
Stock options exercised 4.4 5.4
Other, net 0.8 2.7
Net cash provided by (used for) financing activities 167.5 (4.2)
Net decrease in cash and cash equivalents (2.9) (114.6)
Cash and cash equivalents at January 1 85.6 238.5
Cash and cash equivalents at March 31 82.7 123.9
Supplemental cash flow disclosures:
Interest paid 18.9 10.6
Income tax refunds received, net 22.8 2.6
Treasury stock issued for compensation plans and other 9.5 11.5
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Notes to Consolidated Financial Statements
March 31, 1998, December 31, 1997 and March 31, 1997
(unaudited)
Note 1 - Accounting Policies
This unaudited 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. Certain previously reported
amounts have been reclassified to conform with 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 the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. 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, 1998 and 1997. The 1998 interim results
are not necessarily indicative of the results which may be
expected for the remainder of the year.
Note 2 - Earnings Per Common Share
There is no difference in the earnings used to compute the
Company's basic and diluted earnings per share. The difference in
the weighted-average number of shares of common stock outstanding
used to compute basic and diluted earnings per share is caused by
potential common stock relating to employee stock options. The
weighted-average number of shares of potential common stock was
1.0 million for the quarters ended March 31, 1998 and 1997.
Note 3 - Acquisitions
On January 30, 1998, the Company acquired the assets of ParaBody,
Inc. a manufacturer and marketer of a leading consumer line of
multistation gyms, benches and racks. ParaBody is part of the
Life Fitness division in the Recreation segment. The Company also
acquired the assets of certain bowling centers in the first
quarter of 1998.
Note 4 - Debt
During the first quarter of 1998, commercial paper outstanding
increased to $272.5 million at March 31, 1998, versus $86.3
million at December 31, 1997, to fund working capital
requirements, acquisitions and capital expenditures.
Note 5 - Litigation
There have been no significant changes in the status of the items
set forth in Note 6: "Commitments and Contingencies," in the 1997
Annual Report to Shareholders.
Note 6 - 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, 1998 and 1997 (in millions):
Quarter Ended March 31,
1998 1997
Net Operating Net Operating
Sales Earnings Sales Earnings
Marine $582.9 $81.5 $568.6 $67.0
Recreation 321.3 34.6 273.0 36.8
Corporate - (8.0) - (10.4)
Consolidated $904.2 $108.1 $841.6 $93.4
Marine segment operating earnings for the quarter ended March 31,
1998, include $7.5 million of income recorded in connection with a
settlement with certain boat dealers.
Note 7 - Strategic Charge
During the third quarter of 1997, the Company announced a
strategic initiative to streamline its operations and improve
global manufacturing costs. The initiative includes the
termination of development efforts on a line of personal
watercraft; closing boat plant manufacturing facilities in Cork,
Ireland and Miami, Oklahoma; centralizing European marketing and
customer service in the Marine segment; outsourcing the
manufacture of certain components in the Company's bowling
division; consolidating fishing reel manufacturing; and other
actions directed at manufacturing rationalization, product
profitability improvements and general and administrative expense
efficiencies. Management anticipates that these actions will be
substantially completed by the end of 1998. In the third quarter
of 1997, the Company recorded a pretax charge of $98.5 million
($63.0 million after tax) to cover exit costs related to these
actions. The charge consisted of $74.7 million recorded in the
Marine segment and $23.8 million recorded in the Recreation
segment. The components of the charge included $32.6 million for
severance costs, $42.0 million for asset disposition costs and
$23.9 million for other incremental costs related to exit
activities.
The Company's accrued expense balance relating to these
initiatives as of March 31, 1998, and December 31, 1997, were as
follows (in millions):
March 31, December 31,
1998 1997
Severance $20.7 $23.2
Other 16.9 17.2
Total $37.6 $40.4
The Company has completed approximately 70 percent of the employee
reduction program included in the charge. The balance of the
severance-related accruals at March 31, 1998, covers future
payments to be made for severance actions.
Note 8 - Comprehensive Income
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 requires reporting certain
transactions that result in a change in equity, such as currency
translation, unrealized gains and losses and minimum pension
liability adjustments, as components of comprehensive income. The
adoption of this Statement had no impact on the Company's net
income or shareholders' equity. During the first quarter of 1998
and 1997, total comprehensive income amounted to $54.6 million and
$47.4 million, respectively. Accumulated other comprehensive
income includes cumulative translation and minimum pension
liability adjustments.
Item 2. - Management's Discussion and Analysis
Overview
The Company's financial results in the first quarter of 1998
continue to reflect the favorable effect of strategic initiatives,
which include acquiring active recreation businesses, expanding
existing brands through effective marketing programs and product
innovations, and managing costs to improve operating margins.
Several acquisitions affect the comparison of the Company's first
quarter 1998 results to the prior year. These acquisitions
include Hoppe's hunting accessories acquired on March 7, 1997;
Mongoose bicycles acquired on April 28, 1997; Life Fitness
cardiovascular and strength training equipment on July 9, 1997;
Hammer Strength plate-loaded strength training equipment on
November 13, 1997; DBA Products bowling lane supplies on November
20, 1997; and ParaBody multistation gyms, benches and racks on
January 30, 1998.
Results of Operations
Consolidated
The following table sets forth certain ratios and relationships
calculated from the consolidated statements of income for the
quarters ended March 31:
1998 1997
Percentage increase versus the prior year in
Net sales 7.4% 13.9%
Operating earnings 15.7% 21.9%
Net earnings from continuing operations 11.8% 13.6%
Diluted earnings per share from
continuing operations 11.3% 12.8%
Expressed as a percentage of net sales
Gross Margin 28.3% 28.6%
Selling, general and administrative
expense 16.3% 17.5%
Operating margin 12.0% 11.1%
Sales increased by $62.6 million to $904.2 million in the first
quarter of 1998 compared with $841.6 million in 1997. In 1998,
the Marine segment recorded a sales increase of $14.3 million, and
the Recreation segment added $48.3 million. These increases
primarily reflect growth in sales of higher-priced large boats and
the effect of revenues from the companies acquired in 1997 and
1998.
The Company's gross margin percentage decreased slightly from last
year due to the effects of volume declines in the bowling
equipment business. The decline was partially offset by an
improved sales mix and the favorable impact of the recently
acquired Life Fitness business. Selling, general and
administrative expenses as a percent of sales decreased to 16.3
percent in the first quarter of 1998 from 17.5 percent in the
first quarter of 1997 as a result of income recorded in 1998 in
connection with the settlement reached with certain of the
Company's boat dealers, MarineMax, Inc., along with increased
economies of scale and effective cost management designed to keep
the growth in costs at rates below the growth in revenues. Under
the terms of the aforementioned settlement, MarineMax has agreed
to pay Brunswick $15.0 million at December 31, 1998, of which $7.5
million was recognized as income in the first quarter. The
Company expects to recognize the remainder of this gain during
1998.
Operating margins in the first quarter of 1998 improved 0.9 points
to 12.0 percent compared with 1997. Operating earnings increased
15.7 percent in the first quarter of 1998, while net earnings
increased 11.8 percent to $58.9 million. Interest expense
increased by $3.8 million, or 34.2 percent, in the first quarter
of 1998 compared with the same period in 1997 due to increased
debt levels related to the funding of acquisitions.
The Company's effective tax rate was at 38.0 percent in the first
quarter of 1998 and 1997. Diluted earnings per share increased
11.3 percent to $0.59 in the first quarter of 1998 from $0.53 in
1997. Weighted common shares outstanding used to calculate
diluted earnings per share increased to 100.5 million in 1998 from
99.7 million in 1997 reflecting stock issued under compensation
plans and the effect of stock appreciation on employee stock
options.
Recreation Segment
The following table sets forth Recreation segment results for the
quarters ended March 31 (dollars in millions):
1998 1997
Net sales $321.3 $273.0
Percentage increase versus the
prior year 17.7% 41.9%
Operating earnings $ 34.6 $ 36.8
Percentage increase (decrease)
versus the prior year (6.0)% 69.6%
Operating margin 10.8% 13.5%
Capital expenditures $ 16.7 $ 12.6
In 1998, Recreation segment sales increased 17.7 percent to $321.3
million. The sales gain reflects the contribution of the
aforementioned businesses acquired in 1997 and 1998 along with
improvements in sales of ice chests and beverage coolers. These
gains were partially offset by weakness in revenues from bowling
equipment as credit restrictions in China led to significantly
lower sales into that market.
Operating earnings in 1998 decreased 6.0 percent from 1997 to
$34.6 million and operating margins for the segment were 10.8
percent during the first quarter of 1998, a decrease of 2.7 points
from 13.5 percent in 1997. The decline in operating margins
reflects the impact of lower bowling equipment sales and weak
markets for bicycles and camping equipment during a period of
adverse weather conditions. These factors were partially offset
by productivity gains primarily in fishing equipment.
Marine Segment
The following table sets forth Marine segment results for the
quarters ended March 31 (dollars in millions):
1998 1997
Net sales $582.9 $568.6
Percentage increase versus
the prior year 2.5% 4.0%
Operating earnings $ 81.5 $ 67.0
Percentage increase versus
the prior year 21.6% 4.2%
Operating margin 14.0% 11.8%
Capital expenditures $ 19.7 $ 19.3
The Marine segment posted a sales gain of 2.5 percent as a result
of successful marketing programs and an improved sales mix of
larger, higher-margin boats.
Operating earnings for the segment were $81.5 million in the first
quarter of 1998, compared with $67.0 million in the same period
last year, and operating margins improved to 14.0 percent from
11.8 percent. Operating margins benefited from $7.5 million of
income recorded in 1998 in connection with the aforementioned
MarineMax settlement along with higher sales of larger boats and
the benefits of cost management actions. Excluding the $7.5
million settlement, operating earnings increased 10.4 percent and
operating margins improved to 12.7 percent.
Cash Flow, Liquidity and Capital Resources
Cash generated from operating activities, available cash balances
and selected borrowings are the Company's major sources of funds
for investments and dividend payments.
Cash and cash equivalents totaled $82.7 million at March 31, 1998,
down $2.9 million from the end of 1997.
Cash used for operating activities totaled $106.9 million in 1998,
versus $69.1 million in 1997. The primary components of cash used
for operating activities include the Company's net earnings
adjusted for noncash expenses; the timing of cash flows relating
to operating expenses, sales and income taxes; and the management
of inventory levels. The increase in cash used for operating
activities between 1997 and 1998 is due to the increase in cash
used to fund working capital investments versus the prior year,
primarily related to inventory and the timing of expense payments,
partially offset by stronger operating results.
During the first quarter of 1998, the Company invested $36.8
million in capital expenditures, compared with $32.7 million in
1997. The 1998 capital expenditure budget is approximately $200
million, principally for growth and productivity initiatives. A
significant portion of the 1998 capital expenditures budget is
dedicated to substantially upgrading information system
capabilities company wide.
Investments in acquisitions of businesses totaled $29.0 million in
the first quarter of 1998.
Total debt at March 31, 1998, increased to $941.7 million versus
$754.8 million at the end of 1997 due to increased commercial
paper borrowings to fund working capital requirements,
acquisitions and capital expenditures. Debt-to-capitalization
ratios at these dates were 41.0 percent and 36.5 percent,
respectively.
During the first quarter of 1998, the Company repurchased 370,000
shares of its common stock for $11.5 million in open market
transactions under the repurchase program announced in 1997.
The Company's financial flexibility and access to capital markets
result from its strong balance sheet, investment-grade credit
ratings and ability to generate significant cash from operating
activities. The Company has a $400 million long-term credit
agreement with a group of banks and $150 million available under a
universal shelf registration filed in 1996 with the Securities and
Exchange Commission for the issuance of equity and/or debt
securities.
The Company uses its cash balances and other sources of liquidity
to invest in its current businesses to promote innovation and new
product lines, and to acquire complementary businesses. These
investments, along with other actions taken to improve the profit
margins of current businesses, are designed to continue
improvement in the Company's financial performance and enhance
shareholder value.
New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued
Statements No. 130, "Reporting Comprehensive Income, " and No.
131, "Disclosures About Segments of an Enterprise and Related
Information," which require adoption in 1998. Statement No. 130
requires companies to report certain transactions that result in a
change in equity, such as foreign currency translation, unrealized
gains and losses and minimum pension liability adjustments, as
components of comprehensive income as part of the financial
statements. This statement, which was adopted effective January
1, 1998, had no impact on the Company's net income or
shareholders' equity. During the first quarter of 1998 and 1997,
total comprehensive income amounted to $54.6 million and $47.4
million, respectively.
Statement No. 131 requires companies to report segment information
based on how management disaggregates its businesses for
evaluating performance and making operating decisions. The
Company intends to adopt this statement by December 31, 1998.
Year 2000
The Company continues to assess and address the impact of the Year
2000 issue on its businesses. This issue affects computer systems
that have date-sensitive programs that may not properly recognize
the year 2000. The Company uses software and related technologies
throughout its businesses and in its products that will be
affected by this issue. The Company has completed its review of
the information systems used in its internal business operations
and its production processes. An assessment of the technology
incorporated into the Company's products and of the information
systems of its customers and suppliers is continuing and is
scheduled to be substantially completed by mid-1998. If changes
addressing the Year 2000 issue are not made on a timely basis
prior to the year 2000, the Company's internal financial and
production operations may be hindered by the miscalculation of
information and certain products may not function properly. This
could have a material adverse effect on the Company's results of
operations and financial condition.
The Company is aggressively pursuing a Year 2000 compliance plan
that combines remediating existing software and replacing systems
as part of a company-wide systems upgrade project. A Year 2000
Project Office is leading the initiatives that address areas with
the potential of major business impact. The total cost of
modifying existing software and related technologies has not been
determined; however, based on preliminary information, the cost is
currently not expected to be material to the Company's results of
operations or financial condition. Costs associated with the
company-wide systems upgrade are included in the Company's capital
expenditures budget.
Forward Looking Statements
Certain statements in this Form 10-Q are forward looking as
defined in the Private Securities Litigation Reform Act of 1995.
These statements involve certain risks and uncertainties that may
cause actual results to differ materially from expectations as of
the date of this filing. These risks include, but are not limited
to, the ability to complete the planned strategic initiatives,
Year 2000 actions and information systems initiatives within the
time and cost estimated; the effect of economic conditions in
Asia; adverse weather conditions retarding sales of outdoor
recreation products; inventory adjustments by major retailers;
competitive pricing pressures; the ability to integrate
acquisitions; the success of marketing and cost-management
programs; and shifts in market demand for the Company's products.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the April 22, 1998, Annual Meeting of Shareholders of the
Company (the "1998 Annual Meeting"), Messrs. Nolan D. Archibald,
Jeffrey L. Bleustein and Kenneth Roman were elected directors of
the Company for terms expiring at the 2001 Annual Meeting, and Ms.
Bettye Martin Musham was elected director of the Company for a
term expiring at the 1999 Annual Meeting. The numbers of shares
voted with respect to these directors were:
Nominees For Withheld
Nolan D. Archibald 80,910,128 983,741
Jeffrey L. Bleustein 80,888,604 1,005,265
Kenneth Roman 80,523,569 1,370,300
Bettye Martin Musham 80,839,029 1,054,840
At the 1998 Annual Meeting, the Board of Directors' appointment of
Arthur Andersen LLP as auditors for the Company and its
subsidiaries for the year 1998 was ratified pursuant to the
following vote:
Number of Shares
For 81,306,310
Against 316,255
Abstain 271,304
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, 1998.
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, 1998 By: /s/ Victoria J. Reich
Victoria J. Reich,
Vice President and Controller*
*Ms. Reich is signing this report both as a duly authorized
officer and as the principal accounting officer.