UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 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 June 28, 2008
|
|
or
|
|
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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|
Commission
file number 1-1043
|
_______________
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.)
|
|
1
N. Field Court, 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 [ ] | ||||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): | |||||
| Large accelerated filer | [X] | Accelerated filer | [ ] | ||
| Non-accelerated filer | [ ] | Smaller reporting company | [ ] | ||
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | |||||
| Yes [ ] | No [X] | ||||
| The number of shares of Common Stock ($0.75 par value) of the registrant outstanding as of July 25, 2008, was 87,603,646. | |||||
BRUNSWICK
CORPORATION
INDEX
TO QUARTERLY REPORT ON FORM 10-Q
June
28, 2008
TABLE
OF CONTENTS
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Page
|
|||||
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PART
I – FINANCIAL INFORMATION
|
|||||
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Item
1.
|
Consolidated
Financial Statements
|
||||
|
Consolidated
Statements of Income for the three months and six months ended June 28,
2008 (unaudited), and June 30, 2007 (unaudited)
|
1 | ||||
|
Condensed
Consolidated Balance Sheets as of June 28, 2008 (unaudited), December 31,
2007, and June 30, 2007 (unaudited)
|
2 | ||||
|
Condensed
Consolidated Statements of Cash Flows for the six months ended June 28,
2008 (unaudited), and Revised June 30, 2007 (unaudited)
|
4 | ||||
|
Notes
to Consolidated Financial Statements (unaudited)
|
5 | ||||
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
24 | |||
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
38 | |||
|
Item
4.
|
Controls
and Procedures
|
38 | |||
|
PART
II – OTHER INFORMATION
|
|||||
|
Item
1.
|
Legal
Proceedings
|
39 | |||
|
Item
1A.
|
Risk
Factors
|
39 | |||
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
40 | |||
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
40 | |||
|
Item
6.
|
Exhibits
|
40 | |||
PART
I – FINANCIAL INFORMATION
Item
1. Consolidated Financial Statements
|
BRUNSWICK
CORPORATION
|
|
Consolidated
Statements of Income
|
|
(unaudited)
|
| (in millions, except per share data) |
Three
Months Ended
|
Six
Months Ended
|
||||||||||||||
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
|||||||||||||
|
Net
sales
|
$ | 1,485.4 | $ | 1,522.9 | $ | 2,832.2 | $ | 2,909.0 | ||||||||
|
Cost
of sales
|
1,182.0 | 1,190.3 | 2,259.2 | 2,275.5 | ||||||||||||
|
Selling,
general and administrative expense
|
205.5 | 209.5 | 408.7 | 416.3 | ||||||||||||
|
Research
and development expense
|
32.0 | 35.7 | 65.9 | 69.2 | ||||||||||||
|
Restructuring,
exit and impairment charges
|
83.1 | 1.1 | 105.3 | 8.7 | ||||||||||||
|
Operating earnings
(loss)
|
(17.2 | ) | 86.3 | (6.9 | ) | 139.3 | ||||||||||
|
Equity
earnings
|
6.3 | 7.1 | 11.1 | 13.4 | ||||||||||||
|
Investment
sale gain
|
1.2 | – | 20.9 | – | ||||||||||||
|
Other
income (expense), net
|
0.8 | 0.2 | 1.9 | (0.2 | ) | |||||||||||
|
Earnings (loss) before interest
and income taxes
|
(8.9 | ) | 93.6 | 27.0 | 152.5 | |||||||||||
|
Interest
expense
|
(11.4 | ) | (13.3 | ) | (22.9 | ) | (26.9 | ) | ||||||||
|
Interest
income
|
1.5 | 1.9 | 2.9 | 3.7 | ||||||||||||
|
Earnings (loss) before income
taxes
|
(18.8 | ) | 82.2 | 7.0 | 129.3 | |||||||||||
|
Income
tax (benefit) provision
|
(12.8 | ) | 25.3 | (0.3 | ) | 38.1 | ||||||||||
|
Net
earnings (loss) from continuing operations
|
(6.0 | ) | 56.9 | 7.3 | 91.2 | |||||||||||
|
Discontinued
operations:
|
||||||||||||||||
|
Earnings
from discontinued operations, net of tax
|
– | 0.6 | – | 4.0 | ||||||||||||
|
Gain
(loss) on disposal of discontinued operations, net of tax
|
– | (0.2 | ) | – | 7.7 | |||||||||||
|
Net
earnings from discontinued operations
|
– | 0.4 | – | 11.7 | ||||||||||||
|
Net
earnings (loss)
|
$ | (6.0 | ) | $ | 57.3 | $ | 7.3 | $ | 102.9 | |||||||
|
Earnings
per common share:
|
||||||||||||||||
|
Basic
|
||||||||||||||||
|
Net
earnings (loss) from continuing operations
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.00 | |||||||
|
Earnings
from discontinued operations, net of tax
|
– | – | – | 0.04 | ||||||||||||
|
Gain
(loss) on disposal of discontinued operations, net of tax
|
– | – | – | 0.09 | ||||||||||||
|
Net
earnings (loss)
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.13 | |||||||
|
Diluted
|
||||||||||||||||
|
Net
earnings (loss) from continuing operations
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.00 | |||||||
|
Earnings
from discontinued operations, net of tax
|
– | – | – | 0.04 | ||||||||||||
|
Gain
(loss) on disposal of discontinued operations, net of tax
|
– | – | – | 0.09 | ||||||||||||
|
Net
earnings (loss)
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.13 | |||||||
|
Weighted
average shares used for computation of:
|
||||||||||||||||
|
Basic
earnings per share
|
88.3 | 90.5 | 88.3 | 91.0 | ||||||||||||
|
Diluted
earnings per share
|
88.3 | 91.0 | 88.4 | 91.5 | ||||||||||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||||||||||
1
|
BRUNSWICK
CORPORATION
|
|
Condensed
Consolidated Balance Sheets
|
|
June
28,
|
December
31,
|
June
30,
|
||||||||||
|
(in
millions)
|
2008
|
2007
|
2007
|
|||||||||
|
(unaudited)
|
(unaudited)
|
|||||||||||
|
Assets
|
||||||||||||
|
Current
assets
|
||||||||||||
|
Cash
and cash equivalents, at cost, which approximates
market
|
$ | 392.8 | $ | 331.4 | $ | 278.8 | ||||||
|
Accounts
and notes receivable, less allowances
of $38.1, $31.2 and $28.5
|
604.8 | 572.4 | 575.4 | |||||||||
|
Inventories
|
||||||||||||
|
Finished
goods
|
471.0 | 446.7 | 462.2 | |||||||||
|
Work-in-process
|
311.6 | 323.4 | 328.9 | |||||||||
|
Raw
materials
|
139.7 | 136.6 | 141.5 | |||||||||
|
Net
inventories
|
922.3 | 906.7 | 932.6 | |||||||||
|
Deferred
income taxes
|
242.6 | 249.9 | 240.7 | |||||||||
|
Prepaid
expenses and other
|
44.8 | 53.9 | 63.6 | |||||||||
|
Current
assets held for sale
|
– | – | 27.4 | |||||||||
|
Current
assets
|
2,207.3 | 2,114.3 | 2,118.5 | |||||||||
|
Property
|
||||||||||||
|
Land
|
108.0 | 103.5 | 93.7 | |||||||||
|
Buildings
and improvements
|
703.1 | 697.4 | 644.9 | |||||||||
|
Equipment
|
1,210.3 | 1,205.7 | 1,200.4 | |||||||||
|
Total
land, buildings and improvements and equipment
|
2,021.4 | 2,006.6 | 1,939.0 | |||||||||
|
Accumulated
depreciation
|
(1,161.9 | ) | (1,117.8 | ) | (1,071.7 | ) | ||||||
|
Net
land, buildings and improvements and equipment
|
859.5 | 888.8 | 867.3 | |||||||||
|
Unamortized
product tooling costs
|
142.4 | 164.0 | 153.6 | |||||||||
|
Net
property
|
1,001.9 | 1,052.8 | 1,020.9 | |||||||||
|
Other
assets
|
||||||||||||
|
Goodwill
|
677.3 | 678.9 | 670.1 | |||||||||
|
Other
intangibles, net
|
213.1 | 245.6 | 318.7 | |||||||||
|
Investments
|
103.1 | 132.1 | 146.5 | |||||||||
|
Other
long-term assets
|
142.4 | 141.9 | 184.8 | |||||||||
|
Long-term
assets held for sale
|
– | – | 24.6 | |||||||||
|
Other
assets
|
1,135.9 | 1,198.5 | 1,344.7 | |||||||||
|
Total
assets
|
$ | 4,345.1 | $ | 4,365.6 | $ | 4,484.1 | ||||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||||||
2
|
BRUNSWICK
CORPORATION
|
|
Condensed
Consolidated Balance Sheets
|
|
June
28,
|
December
31,
|
June
30,
|
||||||||||
|
(in
millions, except share data)
|
2008
|
2007
|
2007
|
|||||||||
|
(unaudited)
|
(unaudited)
|
|||||||||||
|
Liabilities
and shareholders’ equity
|
||||||||||||
|
Current
liabilities
|
||||||||||||
|
Short-term
debt, including current maturities of
long-term debt
|
$ | 0.8 | $ | 0.8 | $ | 0.4 | ||||||
|
Accounts
payable
|
421.6 | 437.3 | 414.6 | |||||||||
|
Accrued
expenses
|
836.8 | 858.1 | 850.1 | |||||||||
|
Current
liabilities held for sale
|
– | – | 19.4 | |||||||||
|
Current
liabilities
|
1,259.2 | 1,296.2 | 1,284.5 | |||||||||
|
Long-term
liabilities
|
||||||||||||
|
Debt
|
726.9 | 727.4 | 724.8 | |||||||||
|
Deferred
income taxes
|
3.2 | 12.3 | 43.9 | |||||||||
|
Postretirement
and postemployment benefits
|
194.5 | 192.8 | 224.7 | |||||||||
|
Other
|
236.1 | 244.0 | 275.5 | |||||||||
|
Long-term
liabilities held for sale
|
– | – | 10.7 | |||||||||
|
Long-term
liabilities
|
1,160.7 | 1,176.5 | 1,279.6 | |||||||||
|
Shareholders’
equity
|
||||||||||||
|
Common
stock; authorized: 200,000,000 shares, $0.75
par value; issued: 102,538,000 shares
|
76.9 | 76.9 | 76.9 | |||||||||
|
Additional
paid-in capital
|
412.1 | 409.0 | 384.3 | |||||||||
|
Retained
earnings
|
1,895.7 | 1,888.4 | 1,932.3 | |||||||||
|
Treasury
stock, at cost:
|
||||||||||||
|
14,937,000;
15,092,000 and 13,631,000 shares
|
(425.9 | ) | (428.7 | ) | (390.8 | ) | ||||||
|
Accumulated
other comprehensive loss, net of tax
|
(33.6 | ) | (52.7 | ) | (82.7 | ) | ||||||
|
Shareholders’
equity
|
1,925.2 | 1,892.9 | 1,920.0 | |||||||||
|
Total
liabilities and shareholders’ equity
|
$ | 4,345.1 | $ | 4,365.6 | $ | 4,484.1 | ||||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||||||
3
|
BRUNSWICK
CORPORATION
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
(unaudited)
|
|
Six
Months Ended
|
||||||||
|
(in
millions)
|
June
28,
2008
|
Revised
June
30,
2007
|
||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
earnings
|
$ | 7.3 | $ | 102.9 | ||||
|
Net
earnings from discontinued operations
|
– | 11.7 | ||||||
|
Net
earnings from continuing operations
|
7.3 | 91.2 | ||||||
|
Depreciation
and amortization
|
90.5 | 84.8 | ||||||
|
Changes
in non-cash current assets and current liabilities
|
(91.5 | ) | (97.3 | ) | ||||
|
Impairment
charges
|
52.8 | – | ||||||
|
Income
taxes
|
1.2 | 49.2 | ||||||
|
Other,
net
|
2.3 | 6.6 | ||||||
|
Net cash provided by operating
activities of continuing operations
|
62.6 | 134.5 | ||||||
|
Net cash used for operating
activities of discontinued operations
|
– | (26.8 | ) | |||||
|
Net cash provided by operating
activities
|
62.6 | 107.7 | ||||||
|
Cash
flows from investing activities
|
||||||||
|
Capital
expenditures
|
(58.0 | ) | (82.5 | ) | ||||
|
Acquisitions
of businesses, net of cash acquired
|
– | (1.6 | ) | |||||
|
Investments
|
13.0 | 4.5 | ||||||
|
Proceeds
from investment sale
|
40.4 | – | ||||||
|
Proceeds
from the sale of property, plant and equipment
|
3.4 | 1.6 | ||||||
|
Other,
net
|
0.2 | 12.4 | ||||||
|
Net cash used for investing
activities of continuing operations
|
(1.0 | ) | (65.6 | ) | ||||
|
Net cash provided by investing
activities of discontinued operations
|
– | 30.2 | ||||||
|
Net cash used for investing
activities
|
(1.0 | ) | (35.4 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Net
issuances of commercial paper and other short-term debt
|
0.3 | – | ||||||
|
Payments
of long-term debt including current maturities
|
(0.5 | ) | (0.5 | ) | ||||
|
Stock
repurchases
|
– | (87.2 | ) | |||||
|
Stock
options exercised
|
– | 10.8 | ||||||
|
Net
cash used for financing activities of continuing
operations
|
(0.2 | ) | (76.9 | ) | ||||
|
Net cash used for financing
activities of discontinued operations
|
– | – | ||||||
|
Net cash used for financing
activities
|
(0.2 | ) | (76.9 | ) | ||||
|
Net
increase (decrease) in cash and cash equivalents
|
61.4 | (4.6 | ) | |||||
|
Cash
and cash equivalents at beginning of period
|
331.4 | 283.4 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 392.8 | $ | 278.8 | ||||
|
The
Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
|
||||||||
4
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
1 – Significant Accounting Policies
Interim Financial Statements.
The unaudited interim consolidated financial statements of Brunswick
Corporation (Brunswick or the Company) have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). 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 have been condensed or omitted. Certain previously
reported amounts have been reclassified to conform to 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 Brunswick’s 2007 Annual
Report on Form 10-K (the 2007 Form 10-K), except as it relates to fair value
measurements, as discussed in Note 4 – Fair Value
Measurements. As indicated in Note 2 – Discontinued
Operations, Brunswick’s results as discussed in the Notes to Consolidated
Financial Statements reflect continuing operations only, unless otherwise noted.
These interim results include, in the opinion of management, all normal and
recurring adjustments necessary to present fairly the financial position of
Brunswick as of June 28, 2008, December 31, 2007, and June 30, 2007, the results
of operations for the three months and six months ended June 28, 2008, and June
30, 2007, and the cash flows for the six months ended June 28, 2008, and June
30, 2007. Due to the seasonality of Brunswick’s businesses and the restructuring
activities underway, 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 ending on the Saturday closest to the end
of the period (thirteen-week periods). The first two quarters of fiscal year
2008 ended on March 29, 2008, and June 28, 2008, and the first two quarters of
fiscal year 2007 ended on March 31, 2007, and June 30, 2007.
Revisions. The Company
expanded its presentation of the Consolidated Statements of Cash Flows to
include net earnings and net earnings from discontinued operations. Accordingly,
the Company revised the June 30, 2007, Consolidated Statement of Cash Flows. Net
cash flows from operating, investing and financing activities have not
changed.
Recent Accounting
Pronouncements. In September 2006, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” (SFAS 157),
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. Effective January 1, 2008, the Company adopted SFAS
157. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2,
“Effective Date of FASB Statement No. 157,” which provides a one year
deferral of the effective date of SFAS 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually. Therefore, the Company has
adopted the provisions of SFAS 157 with respect to its financial assets and
liabilities only. The adoption of this statement did not have a material impact
on the Company’s consolidated results of operations and financial condition. See
Note 4 – Fair Value
Measurements for additional disclosures.
5
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115” (SFAS 159). SFAS 159 permits entities to choose to measure
certain financial assets and financial liabilities at fair value at specified
election dates. Unrealized gains and losses on items for which the fair value
option has been elected are to be reported in earnings. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. The Company has elected not
to adopt the fair value option established by SFAS 159.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS
141(R)). SFAS 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired and any noncontrolling
interest in the acquiree. This statement also establishes disclosure
requirements to enable the evaluation of the nature and financial effect of the
business combination. SFAS 141(R) is effective for fiscal years beginning on or
after December 15, 2008. The Company is currently evaluating the impact that the
adoption of SFAS 141(R) may have on the financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (SFAS 160). SFAS
160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company is currently evaluating the
impact that the adoption of SFAS 160 may have on the financial
statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133” (SFAS 161). SFAS 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity’s financial position, financial performance, and cash flows. SFAS 161
is effective for fiscal years beginning after November 15, 2008. The
Company is currently evaluating the impact that the adoption of SFAS 161
may have on the financial statements.
6
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
2 – Discontinued Operations
In April
2006, the Company announced its intention to sell the majority of its Brunswick
New Technologies (BNT) business unit, which consisted of the Company’s marine
electronics, portable navigation device (PND) and wireless fleet tracking
businesses. Accordingly, the Company reported these BNT businesses as
discontinued operations in accordance with the criteria of SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” related to the
classification of assets to be disposed of by sale. These criteria include
reclassifying the operations of BNT for all periods presented.
In March
2007, Brunswick completed the sales of BNT’s marine electronics and PND
businesses to Navico International Ltd. and MiTAC International Corporation,
respectively. During the first six months of 2007, the Company recognized
proceeds of $44.2 million, resulting in an after-tax gain of $7.7 million before
all post-closing adjustments.
Each of
these sales was subject to post-closing adjustments, which were completed during
2007. Ultimately, the Company recorded net proceeds of $40.6 million and an
after-tax gain of $4.0 million for the year ended December 31,
2007.
There
were no sales or earnings from discontinued operations during the first six
months of 2008. The following table discloses the results of operations of the
BNT businesses reported as discontinued operations for the three months and six
months ended June 30, 2007:
|
(in
millions)
|
Three
Months Ended
|
Six
Months Ended
|
||||||
|
Net
sales
|
$ | 16.5 | $ | 97.5 | ||||
|
Pre-tax
earnings (loss)
|
$ | (2.6 | ) | $ | 2.1 | |||
There
were no remaining BNT net assets available for sale as of June 28, 2008, or
December 31, 2007. The following table reflects the financial position of the
BNT businesses reported as discontinued operations as of June 30,
2007:
|
(in
millions)
|
||||
|
Accounts
receivable
|
$ | 23.0 | ||
|
Inventory,
net
|
4.1 | |||
|
Other
current assets
|
0.3 | |||
|
Total
current assets
|
27.4 | |||
|
Goodwill
and intangible assets
|
13.1 | |||
|
Investments
|
8.0 | |||
|
Property,
plant and equipment
|
3.5 | |||
|
Total
assets
|
52.0 | |||
|
Accounts
payable
|
6.3 | |||
|
Accrued
expenses
|
13.1 | |||
|
Total
current liabilities
|
19.4 | |||
|
Long-term
liabilities
|
10.7 | |||
|
Total
liabilities
|
30.1 | |||
|
Net
assets
|
$ | 21.9 | ||
7
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
3 – Restructuring Activities
Restructuring
and exit charges
In
November 2006, Brunswick announced initiatives to improve the Company’s cost
structure, better utilize overall capacity and improve general operating
efficiencies. The restructuring initiatives included the consolidation of
certain boat manufacturing facilities, sales offices and distribution warehouses
and reductions in the Company’s global workforce.
The
Company announced further initiatives during 2007 to consolidate certain boat
manufacturing facilities in connection with the purchase of a manufacturing
facility in North Carolina, close a manufacturing facility in Mississippi and
shift boat production to Indiana and Minnesota, enhance U.S. engine production
efficiency and eliminate assembly operations for certain engines in
Europe.
During
the first quarter of 2008, the Company closed its bowling pin manufacturing
facility in Antigo, Wisconsin, and announced that it would close its boat plant
in Bucyrus, Ohio, in anticipation of the proposed sale of certain assets
relating to its Baja boat business, cease boat manufacturing at one of its
facilities in Merritt Island, Florida, and mothball its Swansboro, North
Carolina, boat plant.
The
Company announced a plan in June 2008 to expand on its previous restructuring
initiatives as a result of the prolonged downturn in the U.S. marine market. The
plan is designed to improve performance and better position the Company for
current market conditions and longer term growth. The plan will result in
significant changes in the Company’s organizational structure, most notably by
reducing the complexity of its operations, shrinking its North American
manufacturing footprint and enhancing its brand positioning. Specifically, the
Company has announced the closing of its production facility in Newberry, South
Carolina, due to its decision to cease production of its Bluewater Marine
brands, including Sea Pro, Sea Boss, Palmetto and Laguna; its intention to close
four additional boat plants; and the write-down of certain assets of the
Valley-Dynamo coin-operated commercial billiards business while it explores a
potential sale of that business. The second quarter results include severance
and plant closure costs, asset write-downs and impairment charges related to the
plan announced in June 2008 and certain costs related to restructuring actions
previously initiated.
The
nature of the costs incurred under actions related to the announced plan are
anticipated to be:
Restructuring
Activities – These amounts primarily relate to:
|
·
|
Employee
termination and other benefits
|
|
·
|
Costs
to retain and relocate employees
|
|
·
|
Consulting
costs
|
|
·
|
Consolidation
of manufacturing footprint
|
Exit
Activities – These amounts primarily relate to:
|
·
|
Employee
termination and other benefits
|
|
·
|
Lease
exit costs
|
|
·
|
Inventory
write-downs
|
|
·
|
Facility
shutdown costs
|
Specifically,
the Company considers actions related to the sale of certain Baja boat business
assets, the closure of its bowling pin manufacturing facility and the potential
sale of the Valley-Dynamo coin-operated commercial billiards business to be exit
activities. The Company considers all other actions taken to be restructuring
activities.
8
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
The
following is a summary of the expense associated with the restructuring
activities:
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
(in
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
|
Restructuring
activities
|
||||||||||||||||
|
Employee
termination and other benefits
|
$ | 9.4 | $ | 0.1 | $ | 11.4 | $ | 4.0 | ||||||||
|
Current
asset write-downs
|
2.0 | — | 2.0 | — | ||||||||||||
|
Transformation
and other costs
|
19.0 | — | 24.6 | 0.9 | ||||||||||||
|
Exit
activities
|
||||||||||||||||
|
Employee
termination and other benefits
|
1.1 | 0.4 | 3.3 | 0.9 | ||||||||||||
|
Current
asset write-downs
|
4.1 | 0.6 | 7.2 | 0.6 | ||||||||||||
|
Transformation
and other costs
|
3.1 | — | 4.0 | 2.3 | ||||||||||||
|
Total
restructuring and exit charges
|
$ | 38.7 | $ | 1.1 | $ | 52.5 | $ | 8.7 | ||||||||
The
effect of these actions on each the Company’s reportable segments for the three
months ended June 28, 2008, is summarized below:
|
(in
millions)
|
Boat
|
Marine
Engine
|
Fitness
|
Bowling
& Billiards
|
Corporate
|
Total
|
||||||||||||||||||
|
Employee
terminations and
other benefits
|
$ | 3.1 | $ | 6.3 | $ | — | $ | 1.0 | $ | 0.1 | $ | 10.5 | ||||||||||||
|
Current
asset write-downs
|
2.5 | — | 1.3 | 2.3 | — | 6.1 | ||||||||||||||||||
|
Transformation
and other costs
|
11.6 | 4.4 | — | 0.2 | 5.9 | 22.1 | ||||||||||||||||||
|
Total
restructuring and exit charges
|
$ | 17.2 | $ | 10.7 | $ | 1.3 | $ | 3.5 | $ | 6.0 | $ | 38.7 | ||||||||||||
The
effect of these actions on each the Company’s reportable segments for the six
months ended June 28, 2008, is summarized below:
|
(in
millions)
|
Boat
|
Marine
Engine
|
Fitness
|
Bowling
& Billiards
|
Corporate
|
Total
|
||||||||||||||
|
Employee
terminations and
other benefits
|
$ | 3.7 | $ | 7.8 | $ | — | $ | 2.6 | $ | 0.6 | $ | 14.7 | ||||||||
|
Current
asset write-downs
|
5.2 | — | 1.3 | 2.7 | — | 9.2 | ||||||||||||||
|
Transformation
and other costs
|
16.4 | 4.4 | — | 1.1 | 6.7 | 28.6 | ||||||||||||||
|
Total
restructuring and exit charges
|
$ | 25.3 | $ | 12.2 | $ | 1.3 | $ | 6.4 | $ | 7.3 | $ | 52.5 | ||||||||
The
Company anticipates that it will incur additional costs of $65 million to $75
million under these initiatives in 2008. The Company expects most of these
charges will be incurred in the Boat and Marine Engine
segments.
9
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Impairment
charges
The
Company recognized a $44.4 million impairment charge in the second quarter of
2008, which is comprised of the following components:
|
(in
millions)
|
Goodwill
|
Other
Intangibles
|
Property
|
Total
|
||||||||||||
|
Boat
|
$ | — | $ | 13.4 | $ | 7.6 | $ | 21.0 | ||||||||
|
Marine
Engine
|
— | 4.9 | 1.4 | 6.3 | ||||||||||||
|
Bowling
& Billiards
|
1.7 | 11.6 | 3.0 | 16.3 | ||||||||||||
|
Corporate
|
— | — | 0.8 | 0.8 | ||||||||||||
|
Impairment
charge
|
$ | 1.7 | $ | 29.9 | $ | 12.8 | $ | 44.4 | ||||||||
The
Company recognized a $52.8 million impairment charge in the first six months of
2008, which is comprised of the following components:
|
(in
millions)
|
Goodwill
|
Other
Intangibles
|
Property
|
Total
|
||||||||||||
|
Boat
|
$ | 1.5 | $ | 13.4 | $ | 11.8 | $ | 26.7 | ||||||||
|
Marine
Engine
|
— | 4.9 | 1.4 | 6.3 | ||||||||||||
|
Bowling
& Billiards
|
1.7 | 11.6 | 5.7 | 19.0 | ||||||||||||
|
Corporate
|
— | — | 0.8 | 0.8 | ||||||||||||
|
Impairment
charge
|
$ | 3.2 | $ | 29.9 | $ | 19.7 | $ | 52.8 | ||||||||
The
Company had no comparable charges in either period of 2007.
10
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
4 – Fair Value Measurements
Fair
value is defined under SFAS 157 as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation techniques used
to measure fair value under SFAS 157 must maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard established a fair
value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable.
|
·
|
Level
1 - Quoted prices in active markets for identical assets or liabilities.
These are typically obtained from real-time quotes for transactions in
active exchange markets involving identical
assets
|
|
·
|
Level
2 - Inputs, other than quoted prices included within Level 1, which are
observable for the asset or liability, either directly or indirectly.
These are typically obtained from readily-available pricing sources for
comparable instruments.
|
|
·
|
Level
3 - Unobservable inputs, where there is little or no market activity for
the asset or liability. These inputs reflect the reporting entity’s own
assumptions about the assumptions that market participants would use in
pricing the asset or liability, based on the best information available in
the circumstances.
|
The
following table summarizes Brunswick’s financial assets and liabilities measured
at fair value on a recurring basis in accordance with SFAS 157 as of June
28, 2008:
|
(in
millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash
Equivalents
|
$ | 228.9 | $ | — | $ | — | $ | 228.9 | ||||||||
|
Investments
|
4.4 | — | — | 4.4 | ||||||||||||
|
Derivatives
|
— | 5.4 | — | 5.4 | ||||||||||||
|
Total
Assets
|
$ | 233.3 | $ | 5.4 | $ | — | $ | 238.7 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$ | — | $ | 10.8 | $ | — | $ | 10.8 | ||||||||
11
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
5 – Share-Based Compensation
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
2004), “Share-Based Payment,” (SFAS 123(R)), which is a revision of SFAS No.
123, “Accounting for Stock-Based Compensation.” SFAS 123R supersedes Accounting
Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to
Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” SFAS 123(R)
requires the Company to recognize all share-based payments to employees,
including grants of stock options and the compensatory elements of employee
stock purchase plans, in its income statement based upon the fair value of such
share-based payments. Share-based employee compensation cost (benefit) is
recognized as a component of Selling, general and administrative expense in the
Consolidated Statements of Income. Refer to Note 16 to the consolidated
financial statements in the 2007 Form 10-K for further details regarding the
Company’s adoption of SFAS 123(R).
Under
the 2003 Stock Incentive Plan (Plan), the Company may grant stock options, stock
appreciation rights (SARs), nonvested stock and other types of share-based
awards to executives and other management employees. Under the Plan, the Company
may issue up to 8.1 million shares, consisting of treasury shares and
authorized, but unissued shares of common stock. As of June 28, 2008, 0.5
million shares were available for grant under the Plan.
Stock
Options and SARs
Prior to
2005, the Company primarily issued share-based compensation in the form of stock
options, and had not issued any SARs. Since the beginning of 2005, the Company
has issued stock-settled SARs and has not issued any stock options. Generally,
stock options and SARs are exercisable over a period of 10 years, or as
otherwise determined by the Human Resources and Compensation Committee of the
Board of Directors, and subject to vesting periods of four years. The exercise
price of stock options and SARs issued under the Plan cannot be less than the
fair market value of the underlying shares at the date of grant.
During
the three and six months ended June 28, 2008, there were 0.0 million and 2.6
million SARs granted, respectively, which resulted in $2.4 million and $3.4
million of total expense, respectively, due to amortization of SARs granted.
During the three and six months ended June 30, 2007, there were 0.0 million and
0.9 million SARs granted, respectively, which resulted in $0.7 million and $2.4
million of total expense, respectively, due to amortization of SARs granted.
These expenses resulted in a deferred tax asset for the tax benefit to be
realized in future periods.
The
weighted average fair values of individual SARs granted were $5.71 and $9.91
during 2008 and 2007, respectively. The fair value of each grant was estimated
on the date of grant using the Black-Scholes-Merton pricing model utilizing the
following weighted average assumptions used for 2008 and 2007:
|
2008
|
2007
|
|||||||
|
Risk-free
interest rate
|
2.9 | % | 4.6 | % | ||||
|
Dividend
yield
|
2.3 | % | 1.8 | % | ||||
|
Volatility
factor
|
40.1 | % | 29.9 | % | ||||
|
Weighted
average expected life
|
5.4 - 6.2 years |
5.1 - 6.2 years
|
||||||
Nonvested
stock awards
The
Company issues nonvested stock awards (stock units) to key employees as
determined by the Human Resources and Compensation Committee of the Board of
Directors. In addition, employees entitled to receive cash payments under the
Company’s Strategic Incentive Plan (a long-term incentive plan for senior
employees), could have elected to receive a vested stock award instead with a 20
percent nonvested stock premium. Such awards vested at the time of deferral,
with the exception of the premium. Effective January 1, 2008, the Strategic
Incentive Plan was discontinued and, therefore, the right to receive a 20
percent nonvested stock premium no longer exists. Nonvested stock awards
(including the premium) have vesting periods of three or four years and are
eligible for dividends, which are reinvested and non-voting. All nonvested
awards have restrictions on the sale or transfer of such awards during the
nonvested period.
In 2008,
performance share awards were issued to senior management. The number of
performance share awards earned will be based on achieving key strategic and
financial goals by 2010. A portion of the payout will be based on relative total
shareholder return versus the S&P 500. Prior to any award being earned, the
Company must meet a minimum stock price threshold.
The cost
of nonvested stock awards is recognized on a straight-line basis over the
requisite service period. During the three and six months ended June 28, 2008,
there were 0.0 million and 0.9 million stock awards granted under these plans,
respectively, and, due to amortization of stock awards granted, $2.1 million and
$2.8 million was charged to compensation expense under these plans,
respectively. During the three and six months ended June 30, 2007, there were
0.0 million and 0.1 million stock awards granted under these plans,
respectively, and, due to amortization of stock awards granted, $0.9 million and
$2.3 million was charged to compensation expense under these plans,
respectively.
12
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
|
The
weighted average price per nonvested stock award at grant date was $15.84 and
$33.00 for the nonvested stock awards granted in 2008 and 2007, respectively. As
of June 28, 2008, there was $17.2 million of total
unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the Plan. That cost is expected to be recognized over
a weighted average period of 2.0 years.
Generally,
grants of nonvested stock options, SARs and stock units are forfeited if
employment is terminated prior to vesting. However, with respect to stock
options and SARs, all grants vest immediately: (i) in the event of a change in
control; (ii) upon death or disability of the grantee; and (iii) beginning in
2007, upon the sale or divestiture of the business unit to which the grantee is
assigned. Stock option and SARs grants made prior to 2006 also vest immediately
if the sum of (A) the age of the grantee and (B) the grantee’s total number of
years of service, equals 65 or more; grants made in 2006 and later vest
immediately if (A) the grantee has attained the age of 62 and (B) the grantee’s
age plus total years of service equals 70 or more. Nonvested stock awards
granted prior to 2006 vest pro rata if the sum of (A) the age of the grantee and
(B) the grantee’s total number of years of service equals 65 or more; grants
made in 2006 and later vest pro rata if (A) the age of grantee and (B) the
grantee’s total number of years of service equals 70 or more.
Director
Awards
The
Company issues stock awards to directors in accordance with the terms and
conditions determined by the Nominating and Corporate Governance Committee of
the Board of Directors. One-half of each director’s annual fee is paid in
Brunswick common stock, the receipt of which may be deferred until a director
retires from the Board of Directors. Each director may elect to have the
remaining one-half paid either in cash, in Brunswick common stock distributed at
the time of the award, or in deferred Brunswick common stock units with a 20
percent premium. Each non-employee director is also entitled to an annual grant
of restricted stock units, which is deferred until the director retires from the
Board.
13
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
6 – Earnings per Common Share
The
Company calculates earnings per share in accordance with SFAS No. 128, “Earnings
per Share.” Basic earnings per share is calculated by dividing net earnings by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is calculated similarly, except that the calculation
includes the dilutive effect of stock options and nonvested stock awards.
Weighted average basic shares decreased by 2.2 million shares and 2.7 million
shares in the three and six months ended June 28, 2008, respectively, versus the
comparable periods in 2007, primarily due to the effect of the Company’s share
repurchase program, as discussed in Note 14 – Share Repurchase
Program.
Basic and
diluted earnings per share for the three and six months ended June 28, 2008, and
for the comparable periods ended June 30, 2007, were calculated as
follows:
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
(in
millions, except per share data)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
|
Net
earnings (loss) from continuing operations
|
$ | (6.0 | ) | $ | 56.9 | $ | 7.3 | $ | 91.2 | |||||||
|
Earnings
from discontinued operations, net of tax
|
– | 0.6 | – | 4.0 | ||||||||||||
|
Gain
(loss) on disposal of discontinued operations, net of tax
|
– | (0.2 | ) | – | 7.7 | |||||||||||
|
Net
earnings (loss)
|
$ | (6.0 | ) | $ | 57.3 | $ | 7.3 | $ | 102.9 | |||||||
|
Average
outstanding shares – basic
|
88.3 | 90.5 | 88.3 | 91.0 | ||||||||||||
|
Dilutive
effect of common stock equivalents
|
– | 0.5 | 0.1 | 0.5 | ||||||||||||
|
Average
outstanding shares – diluted
|
88.3 | 91.0 | 88.4 | 91.5 | ||||||||||||
|
Basic
earnings per share
|
||||||||||||||||
|
Net
earnings (loss) from continuing operations
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.00 | |||||||
|
Earnings
from discontinued operations, net of tax
|
– | – | – | 0.04 | ||||||||||||
|
Gain
(loss) on disposal of discontinued operations, net of tax
|
– | – | – | 0.09 | ||||||||||||
|
Net
earnings (loss)
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.13 | |||||||
|
Diluted
earnings per share
|
||||||||||||||||
|
Net
earnings from continuing operations
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.00 | |||||||
|
Earnings
from discontinued operations, net of tax
|
– | – | – | 0.04 | ||||||||||||
|
Gain
(loss) on disposal of discontinued operations, net of tax
|
– | – | – | 0.09 | ||||||||||||
|
Net
earnings (loss)
|
$ | (0.07 | ) | $ | 0.63 | $ | 0.08 | $ | 1.13 | |||||||
As of
June 28, 2008, there were 6.7 million options outstanding, of which 3.1 million
were exercisable. This compares to 4.4 million options outstanding, of which 2.5
million were exercisable as of June 30, 2007. During the three and six months
ended June 28, 2008, there were 6.7 million and 5.9 million weighted average
shares of options outstanding, respectively, for which the exercise price, based
on the average price, was higher than the average market price of the Company’s
shares for the period then ended. These options were not included in the
computation of diluted earnings per share because the effect would have been
anti-dilutive. This compares to 2.9 million and 2.7 million anti-dilutive
options that were excluded from the corresponding periods ended June 30, 2007.
During the three months ended June 28, 2008, the Company incurred a net loss
from continuing operations. As common stock equivalents have an anti-dilutive
effect on the net loss, the equivalents were not included in the computation of
diluted earnings per share for the three months ended June 28,
2008.
14
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
7 – Commitments and Contingencies
Financial
Commitments
The
Company has entered into guarantees of indebtedness of third parties, which
primarily relate to arrangements with financial institutions in connection with
customer financing programs. Under these arrangements, the Company has
guaranteed customer obligations to the financial institutions in the event of
customer default, generally subject to a maximum amount, which is less than
total obligations outstanding. The Company has also guaranteed collection of
customer receivables sold to third parties by Brunswick. In most instances, upon
repurchase of the debt obligation, the Company receives rights to the collateral
securing the financing. The maximum potential cash obligation associated with
these customer financing arrangements was $101.7 million, as of June 28, 2008,
of which $37.0 million is related to the Fitness segment, $31.7 million is
related to the Marine Engine segment, $30.1 million is related to the Bowling
& Billiards segment and $2.9 million is related to the Boat segment.
Potential payments on these customer financing arrangements would extend over
several years with the maximum single year obligation related to these
arrangements of $72.6 million, of which $25.6 million is related to the Fitness
segment, $31.7 million is related to the Marine Engine segment, $12.4 million is
related to the Bowling & Billiards segment and $2.9 million is related to
the Boat segment.
The
Company has also entered into arrangements with third-party lenders where it has
agreed, in the event of a default by the customer, to repurchase, from the
third-party lender, select Brunswick products repossessed from the customer.
These arrangements are typically subject to repurchase criteria and a maximum
repurchase amount. The Company’s risk under these arrangements is mitigated by
the value of the products repurchased as part of the transaction. The maximum
amount of collateral the Company could be required to purchase was $186.5
million as of June 28, 2008, with $151.5 million relating to the Company’s U.S.
boat business. The maximum single year repurchase obligation is $138.4 million,
with $112.3 million relating to the Company’s U.S. boat business.
Based on
historical experience and current facts and circumstances, and in accordance
with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others – An Interpretation of FASB Statements No. 5, 57, and 107 and Rescission
of FASB Interpretation No. 34,” the Company has recorded the estimated net
liability associated with losses from these guarantee and repurchase obligations
on its Condensed Consolidated Balance Sheets. Historical cash requirements and
losses associated with these obligations have not been significant, but could
increase if dealer defaults increase as a result of the difficult market
conditions in the United States.
Financial
institutions have issued standby letters of credit and surety bonds
conditionally guaranteeing obligations on behalf of the Company totaling $75.7
million as of June 28, 2008. This amount is primarily comprised of standby
letters of credit and surety bonds issued in connection with the Company’s
self-insured workers’ compensation program as required by its insurance
companies and various state agencies. The Company has recorded reserves to cover
liabilities associated with these programs. Under certain circumstances, such as
an event of default under the Company’s revolving credit facility, or, in the
case of surety bonds, a ratings downgrade below investment grade, the Company
could be required to post collateral to support the outstanding letters of
credit and surety bonds. As a result of the recent downgrade of the Company’s
long-term debt by one of the rating agencies, the Company may be required to
post letters of credit as collateral against a portion of surety bonds totaling
$8.3 million.
15
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Product
Warranties
The
Company records a liability for product warranties at the time revenue is
recognized. The liability is estimated using historical warranty experience,
projected claim rates and expected costs per claim. The Company adjusts its
liability for specific warranty matters when they become known and the exposure
can be estimated. The Company’s warranty reserves are affected by product
failure rates as well as material usage and labor costs incurred in correcting a
product failure. If these estimated costs differ from actual costs, a revision
to the warranty reserve would be required.
The
following activity related to product warranty liabilities from continuing
operations was recorded in Accrued expenses and Long-term liabilities – Other
during the six months ended June 28, 2008:
|
(in
millions)
|
2008
|
|||
|
Balance
at beginning of period
|
$ | 163.9 | ||
|
Payments
made
|
(57.5 | ) | ||
|
Provisions/additions
for contracts issued/sold
|
56.0 | |||
|
Aggregate
changes for preexisting warranties
|
— | |||
|
Balance
at end of period
|
$ | 162.4 | ||
Additionally,
marine engine customers may purchase a contract from the Company that extends
product protection beyond the standard product warranty period. For certain
extended warranty contracts in which the Company retains the warranty
obligation, a deferred liability is recorded based on the aggregate sales price
for contracts sold. The deferred liability is reduced and revenue is recognized
over the contract period as costs are expected to be incurred. Deferred revenue
associated with contracts sold by the Company that extend product protection
beyond the standard product warranty period, not included in the table above,
was $20.2 million as of June 28, 2008.
Legal
and Environmental
The
Company accrues for litigation exposure based upon its assessment, made in
consultation with counsel, of the likely range of exposure stemming from the
claim. In light of existing reserves, the Company’s litigation claims, when
finally resolved, will not, in the opinion of management, have a material
adverse effect on the Company’s consolidated financial position. If current
estimates for the cost of resolving any claims are later determined to be
inadequate, results of operations could be adversely affected in the period in
which additional provisions are required.
Refer to
Note 11 to the consolidated financial statements in the 2007 Form 10-K for
discussion of other legal and environmental matters as of December 31,
2007.
16
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note 8 – Segment
Data
Brunswick
is a manufacturer and marketer of leading consumer brands, and operates in four
reportable segments: Boat, Marine Engine, Fitness and Bowling & Billiards.
The Company’s segments are defined by management reporting structure and
operating activities.
The
Company evaluates performance based on business segment operating earnings.
Operating earnings of segments do not include the expenses of corporate
administration, earnings from equity affiliates, other expenses and income of a
non-operating nature, interest expense and income or provisions for income
taxes.
Corporate/Other
results include items such as corporate staff and overhead costs as well as the
financial results of the Company’s joint venture, Brunswick Acceptance Company,
LLC (BAC), which is discussed in further detail in Note 11 – Financial Services.
Corporate/Other assets consist primarily of cash and marketable securities,
prepaid income taxes and investments in unconsolidated affiliates. Marine
eliminations are eliminations between the Marine Engine and Boat segments for
sales transactions consummated at established arm’s length transfer
prices.
The
following table sets forth net sales and operating earnings (loss) of each of
the Company’s reportable segments for the three months ended June 28, 2008, and
June 30, 2007:
|
Net
Sales
|
Operating
Earnings (Loss)
|
|||||||||||||||
|
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||
|
(in
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
|
Boat
|
$ | 687.9 | $ | 732.8 | $ | (37.7 | ) | $ | 19.3 | |||||||
|
Marine
Engine
|
643.5 | 669.6 | 54.4 | 80.3 | ||||||||||||
|
Marine
eliminations
|
(113.1 | ) | (126.7 | ) | – | – | ||||||||||
|
Total
Marine
|
1,218.3 | 1,275.7 | 16.7 | 99.6 | ||||||||||||
|
Fitness
|
156.9 | 144.0 | 8.2 | 7.4 | ||||||||||||
|
Bowling
& Billiards
|
110.4 | 103.2 | (19.8 | ) | (2.7 | ) | ||||||||||
|
Eliminations
|
– | – | – | – | ||||||||||||
|
Corporate/Other
|
(0.2 | ) | – | (22.3 | ) | (18.0 | ) | |||||||||
|
Total
|
$ | 1,485.4 | $ | 1,522.9 | $ | (17.2 | ) | $ | 86.3 | |||||||
17
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
The
following table sets forth net sales and operating earnings (loss) of each of
the Company’s reportable segments for the six months ended June 28, 2008, and
June 30, 2007:
|
Net
Sales
|
Operating
Earnings (Loss)
|
|||||||||||||||
|
Six
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
(in
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
|
Boat
|
$ | 1,325.7 | $ | 1,431.8 | $ | (52.4 | ) | $ | 38.8 | |||||||
|
Marine
Engine
|
1,209.5 | 1,242.2 | 85.3 | 115.0 | ||||||||||||
|
Marine
eliminations
|
(232.9 | ) | (262.9 | ) | – | – | ||||||||||
|
Total
Marine
|
2,302.3 | 2,411.1 | 32.9 | 153.8 | ||||||||||||
|
Fitness
|
306.1 | 289.0 | 16.3 | 15.5 | ||||||||||||
|
Bowling
& Billiards
|
224.0 | 209.0 | (18.9 | ) | 5.6 | |||||||||||
|
Eliminations
|
(0.2 | ) | (0.1 | ) | – | – | ||||||||||
|
Corporate/Other
|
– | – | (37.2 | ) | (35.6 | ) | ||||||||||
|
Total
|
$ | 2,832.2 | $ | 2,909.0 | $ | (6.9 | ) | $ | 139.3 | |||||||
Note
9 – Investments
The
Company has certain unconsolidated international and domestic affiliates that
are accounted for using the equity method. See Note 11 – Financial Services
for more details on the Company’s joint venture, Brunswick Acceptance Company,
LLC (BAC). Refer to Note 8 to the consolidated financial statements in the 2007
Form 10-K for further detail relating to the Company’s investments.
In March
2008, Brunswick sold its interest in its bowling joint venture in Japan for
$40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and
other costs, after post-closing adjustments. For the six months ended June 28,
2008, the sale resulted in a $20.9 million pretax gain, $9.9 million after-tax,
and was recorded as an Investment sale gain in the Consolidated Statements of
Income. As a result of post-closing adjustments made during the second quarter,
an additional $1.2 million pretax gain, $0.8 million after-tax, was recorded as
an Investment sale gain in the Consolidated Statements of Income.
18
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
10 – Comprehensive Income
The
Company reports certain changes in equity during a period in accordance with
SFAS No. 130, “Reporting Comprehensive Income.” Accumulated other comprehensive
loss includes prior service costs and net actuarial gains and losses for defined
benefit plans; foreign currency cumulative translation adjustments; and
unrealized derivative and investment gains and losses, all net of tax. Effective
December 31, 2006, the Company adopted the provisions of SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R),” (SFAS 158),
eliminating the minimum pension liability concept under which adjustments were
recorded to other comprehensive income. The Company’s adoption of SFAS 158 also
required the inclusion of prior service costs and net actuarial gains and losses
in other comprehensive income (loss). Components of other comprehensive income
(loss) for the three months and six months ended June 28, 2008, and June 30,
2007, were as follows:
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
(in
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
|
Net
earnings (loss)
|
$ | (6.0 | ) | $ | 57.3 | $ | 7.3 | $ | 102.9 | |||||||
|
Other
comprehensive income (loss):
|
||||||||||||||||
|
Foreign
currency cumulative translation adjustment
|
4.8 | 6.6 | 16.1 | 2.6 | ||||||||||||
|
Net
change in unrealized gains (losses) on investments
|
(1.1 | ) | 0.1 | (2.5 | ) | 0.1 | ||||||||||
|
Net
change in unamortized prior service cost
|
0.6 | 0.6 | 1.1 | 1.1 | ||||||||||||
|
Net
change in unamortized actuarial loss
|
0.4 | 1.3 | 1.1 | 2.6 | ||||||||||||
|
Net
change in accumulated unrealized derivative
gains (losses)
|
4.9 | (0.5 | ) | 3.3 | (0.1 | ) | ||||||||||
|
Total
other comprehensive income (loss)
|
9.6 | 8.1 | 19.1 | 6.3 | ||||||||||||
|
Comprehensive
income
|
$ | 3.6 | $ | 65.4 | $ | 26.4 | $ | 109.2 | ||||||||
Note
11 – Financial Services
The
Company, through its Brunswick Financial Services Corporation (BFS) subsidiary,
owns a 49 percent interest in a joint venture, Brunswick Acceptance Company, LLC
(BAC). CDF Ventures, LLC (CDFV), a subsidiary of GE Capital Corporation (GECC),
owns the remaining 51 percent. BAC commenced operations in 2003 and provides
secured wholesale inventory floor-plan financing to Brunswick’s boat and engine
dealers. BAC also purchases and services a portion of Mercury Marine’s domestic
accounts receivable relating to its boat builder and dealer
customers.
During
the second quarter of 2008, the parties agreed to extend the term of the venture
through June 30, 2014. The joint venture
agreement contains provisions allowing for renewal, purchase, or termination by
either of the partners at the end of this term or subsequent extensions.
The agreement also contains provisions allowing CDFV to terminate the
joint venture if the Company is unable to maintain compliance with certain
financial metrics. The Company was in compliance with these metrics at the end
of the second quarter.
BAC is
funded in part through a $1.0 billion secured borrowing facility from GE
Commercial Distribution Finance Corporation (GECDF), which is in place through
the term of the joint venture, and with equity contributions from both partners.
BAC also sells a portion of its receivables to a securitization facility, the GE
Dealer Floorplan Master Note Trust, which is arranged by GECC. The sales of
these receivables meet the requirements of a “true sale” under SFAS No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities – a replacement of FASB Statement No. 125,” (SFAS
140), and are
therefore not retained on the financial statements of BAC. The indebtedness of
BAC is not guaranteed by the Company or any of its subsidiaries. In addition,
BAC is not responsible for any continuing servicing costs or obligations with
respect to the securitized receivables.
BFS’s
investment in BAC is accounted for by the Company under the equity method and is
recorded as a component of Investments in its Condensed Consolidated Balance
Sheets. The Company records BFS’s share of income or loss in BAC based on its
ownership percentage in the joint venture in Equity earnings in its Consolidated
Statements of Income. BFS and GECDF also have an
income sharing arrangement related to income generated from the receivables sold
by BAC to the securitization facility.
19
|
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
|
BFS’s
equity investment is adjusted monthly to maintain a 49 percent interest in
accordance with the capital provisions of the joint venture agreement. The
Company funds its investment in BAC through cash contributions and reinvested
earnings. BFS’s total investment in BAC at June 28, 2008, and December 31, 2007,
was $34.0 million and $47.0 million, respectively.
BFS
recorded income related to the operations of BAC of $2.9 million and $5.7
million for the three months and six months ended June 28, 2008, respectively.
These amounts compare to $3.3 million and $6.7 million in the corresponding
periods ended June 30, 2007, respectively. These amounts include amounts earned
by BFS under the aforementioned income sharing agreement, but exclude the
discount expense paid by the Company on the sale of Mercury Marine’s accounts
receivable to the joint venture noted below.
Accounts
receivable totaling $234.8 million and $443.9 million were sold to BAC during
the three months and six months ended June 28, 2008, respectively, compared with
$252.4 million and $460.6 million during the corresponding periods ended June
30, 2007. Discounts of $1.5 million and $3.3 million for the three months and
six months ended June 28, 2008, respectively, have been recorded as an
expense in Other expense, net, in the Consolidated Statements of Income. These
amounts compare with $2.2 million and $4.1 million for the same periods in the
prior year. The outstanding balance of receivables sold to BAC was $107.8
million as of June 28, 2008, up from $93.1 million as of December 31, 2007.
Pursuant to the joint venture agreement, BAC reimbursed Mercury Marine $1.2
million and $1.1 million for the six months ended June 28, 2008, and June 30,
2007, respectively, for the related credit, collection and administrative costs
incurred in connection with the servicing of such receivables.
As of
June 28, 2008, and December 31, 2007, the Company had a retained interest in
$41.3 million and $46.4 million of the total outstanding accounts receivable
sold to BAC, respectively. The Company’s maximum exposure as of June 28, 2008,
and December 31, 2007, related to these amounts was $25.1 million and $28.9
million, respectively. In accordance with SFAS 140, the Company treats the sale
of receivables in which the Company retains an interest as a secured obligation.
Accordingly, the amount of the Company’s retained interest was recorded in
Accounts and notes receivable, and Accrued expenses in the Condensed
Consolidated Balance Sheets. These balances are included in the amounts in Note 7 – Commitments and
Contingencies.
20
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
12 – Income Taxes
The
Company recognized an income tax benefit for both the three months and six
months ended June 28, 2008. The effective tax rate from continuing operations,
which is based on an income tax benefit, for the three months and six months
ended June 28, 2008, was 68.2 percent and 5.0 percent, respectively. The
effective tax rate benefit for the three months ended June 28, 2008, was higher
than the statutory rate primarily due to the $2.5 million of tax benefits
related to an interest refund received from the IRS. Additionally, for the six
months ended June 28, 2008, the effective tax rate was lower than the statutory
rate primarily due to the interest refund received from the IRS, but was
partially offset by a higher tax rate on the sale of the Company’s interest in
its bowling joint venture in Japan.
The
Company’s effective tax rate from continuing operations for the three months and
six months ended June 30, 2007, was 30.8 percent and 29.5 percent, respectively.
The effective tax rates for both periods were lower than the statutory rate
mainly due to the favorable effect of the research and development tax credit.
Additionally, the effective tax rate for the six months ended June 30, 2007, was
lower than the statutory rate primarily due to $1.9 million of special benefits,
primarily related to the Company’s election to apply the indefinite reversal
criterion of Accounting Principles Board No. 23, “Accounting for Income Taxes –
Special Areas,” (APB 23) as discussed in the following paragraphs.
The
Company has historically provided deferred taxes under APB 23 for the presumed
ultimate repatriation to the United States of earnings from all non-U.S.
subsidiaries and unconsolidated affiliates. The indefinite reversal criterion of
APB 23 allows the Company to overcome that presumption to the extent the
earnings are indefinitely reinvested outside the United States.
As of
January 1, 2007, the Company determined that approximately $25.8 million of
certain additional foreign subsidiaries’ current undistributed net earnings, as
well as the future net earnings, will be permanently reinvested. As a result of
the additional APB 23 change in assertion, the Company reduced its deferred tax
liabilities related to undistributed foreign earnings by $2.0 million during the
first quarter of 2007.
The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes,” (FIN 48) on January 1, 2007. As a result of the
implementation of FIN 48, the Company recognized an $8.7 million decrease in the
net liability for unrecognized tax benefits, which was accounted for as an
increase to the January 1, 2007, balance of retained earnings.
As of
June 30, 2008, and December 31, 2007, the Company had approximately $36 million
and $39 million of gross unrecognized tax benefits, excluding interest. The
Company believes it is reasonably possible that the total amount of gross
unrecognized tax benefits, as of June 30, 2008, could decrease by approximately
$1 million in the next 12 months due to settlements with taxing
authorities.
The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense. As of June 30, 2008, and December 31, 2007, the Company
had approximately $6.0 million and $5.4 million accrued for the payment of
interest. There were no amounts accrued for penalties at either June 30, 2008,
or December 31, 2007.
The
Company is regularly audited by federal, state and foreign tax authorities. The
IRS has completed its audits of the Company’s United States income tax returns
through the 2003 taxable year and is currently auditing the Company’s United
States income tax returns for taxable years 2004 and 2005. Primarily as a result
of filing amended tax returns, which were generated by the closing of federal
income tax audits, the Company is still open to state and local audits dating
back to the 1986 taxable year. With the exception of Germany, where the Company
is currently undergoing a tax audit for taxable years 1998 through 2001, the
Company is no longer subject to income tax examinations by any other major
foreign tax jurisdiction tax authorities for years prior to 2001.
21
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
13 – Pension and Other Postretirement Benefits
The
Company has defined contribution plans, qualified and nonqualified pension
plans, and other postretirement benefit plans covering substantially all of its
employees. On December 31, 2006, the Company adopted the provisions of SFAS 158,
which requires recognition of the overfunded or underfunded status of pension
and other postretirement plans in the statement of financial position, as well
as recognition of changes in that funded status through comprehensive income in
the year in which they occur. SFAS 158 was adopted on a prospective basis, as
required. Prior years’ amounts have not been restated. Effective for the year
ended December 31, 2007, SFAS 158 also required measurement of a plan’s assets
and benefit obligations as of the date of the employer’s fiscal year end. As the
Company already measured plan assets and benefit obligations as of December 31,
2006, the adoption of this element of SFAS 158 had no impact on the Company in
2007. See Note 15 to the consolidated financial statements in the 2007 Form 10-K
for further details regarding these plans.
Pension
and other postretirement benefit costs included the following components for the
three months ended June 28, 2008, and June 30, 2007:
|
Pension
Benefits
|
Other
Postretirement
Benefits
|
|||||||||||||||
|
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||
|
(in
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
|
Service
cost
|
$ | 3.7 | $ | 4.4 | $ | 0.8 | $ | 0.8 | ||||||||
|
Interest
cost
|
16.9 | 15.7 | 1.7 | 1.9 | ||||||||||||
|
Expected
return on plan assets
|
(21.0 | ) | (20.5 | ) | – | – | ||||||||||
|
Amortization
of prior service costs
|
1.6 | 1.6 | (0.5 | ) | (0.5 | ) | ||||||||||
|
Amortization
of net actuarial loss
|
0.9 | 1.8 | – | 0.3 | ||||||||||||
|
Net
pension and other benefit costs
|
$ | 2.1 | $ | 3.0 | $ | 2.0 | $ | 2.5 | ||||||||
Pension
and other postretirement benefit costs included the following components for the
six months ended June 28, 2008, and June 30, 2007:
|
Pension
Benefits
|
Other
Postretirement
Benefits
|
|||||||||||||||
|
Six
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
(in
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
|
Service
cost
|
$ | 7.5 | $ | 8.7 | $ | 1.5 | $ | 1.5 | ||||||||
|
Interest
cost
|
33.8 | 31.4 | 3.3 | 3.3 | ||||||||||||
|
Expected
return on plan assets
|
(42.0 | ) | (40.9 | ) | – | – | ||||||||||
|
Amortization
of prior service costs
|
3.2 | 3.2 | (0.9 | ) | (0.9 | ) | ||||||||||
|
Amortization
of net actuarial loss
|
1.8 | 3.6 | – | 0.5 | ||||||||||||
|
Net
pension and other benefit costs
|
$ | 4.3 | $ | 6.0 | $ | 3.9 | $ | 4.4 | ||||||||
Employer Contributions.
During the six months ended June 28, 2008, the Company contributed $1.1
million to fund benefit payments to its nonqualified plan. The Company’s plans
for additional contributions are subject to equity market returns and discount
rate movements, among other items.
22
Brunswick
Corporation
Notes
to Consolidated Financial Statements
(unaudited)
Note
14 – Share Repurchase Program
In the
second quarter of 2005, Brunswick’s Board of Directors authorized a $200.0
million share repurchase program, to be funded with available cash. On April 27,
2006, the Board of Directors increased the Company’s remaining share repurchase
authorization of $62.2 million to $500.0 million. The Company expects to
repurchase shares on the open market or in private transactions from time to
time, depending on market conditions and the Company’s financial objectives. The
Company has not repurchased any shares during 2008. During the three months and
six months ended June 30, 2007, the Company repurchased 1.6 million and 2.6
million shares under this program for $53.8 million and $87.2 million,
respectively. Through the second quarter of 2008, the Company had repurchased
approximately 11.7 million shares for $397.4 million since the program’s
inception. As of June 28, 2008, the Company’s remaining share repurchase
authorization for the program was $240.4 million; however, the Company
intends to retain cash to enhance its liquidity rather than repurchasing
shares.
23
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Certain
statements in Management’s Discussion and Analysis are based on non-GAAP
financial measures. Specifically, the discussion of the Company’s cash flows
includes an analysis of free cash flows. GAAP refers to generally accepted
accounting principles in the United States. A “non-GAAP financial measure” is a
numerical measure of a registrant’s historical or future financial performance,
financial position or cash flows that excludes amounts, or is subject to
adjustments that have the effect of excluding amounts, that are included in the
most directly comparable measure calculated and presented in accordance with
GAAP in the statement of income, balance sheet or statement of cash flows of the
issuer; or includes amounts, or is subject to adjustments that have the effect
of including amounts, that are excluded from the most directly comparable
measure so calculated and presented. Operating and statistical measures are not
non-GAAP financial measures.
The
Company includes non-GAAP financial measures in Management’s Discussion and
Analysis. Brunswick’s management believes that these measures and the
information they provide are useful to investors because they permit investors
to view Brunswick’s performance using the same tools that Brunswick uses and to
better evaluate its ongoing business performance.
Certain
other statements in Management’s Discussion and Analysis are forward-looking as
defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations that are subject to risks and
uncertainties. Actual results may differ materially from expectations as of the
date of this filing because of factors discussed in Item 1A – Risk Factors of
Brunswick’s 2007 Annual Report on Form 10-K (the 2007 Form 10-K).
Overview
and Outlook
General
Net sales
from continuing operations during the second quarter of 2008 decreased 2.5
percent to $1,485.4 million from $1,522.9 million in 2007. During the six months
ended June 28, 2008, net sales decreased 2.6 percent to $2,832.2 million from
$2,909.0 million during the six months ended June 30, 2007. For the three months
and six months ended June 28, 2008, the Company reported higher sales in the
Fitness and Bowling & Billiards segments, as well as higher sales outside
the United States for all segments, which were more than offset by a reduction
in the Boat and Marine Engine segments’ sales in the United States. The overall
decrease in sales in the United States was primarily due to the continued
reduction in marine industry demand as a result of a weak U.S. economy, soft
housing markets in key U.S. boating states, and higher food and fuel prices that
ultimately reduce the funds available for discretionary purchases. Retail unit
sales of powerboats in the United States have been declining since 2005, with
the rate of decline accelerating in 2008. Industry retail unit sales were down
significantly during the first half of 2008 compared with the already low retail
unit sales during the first half of 2007.
Quarterly
and year-to-date operating losses from continuing operations of $17.2 million
and $6.9 million, and negative operating margins of 1.2 percent and 0.2 percent,
respectively, decreased from the same periods in the prior year, primarily as a
result of lower sales from marine operations, reduced fixed-cost absorption due
to reduced production rates in the Company’s marine businesses in an effort to
achieve appropriate levels of dealer pipeline inventories and higher
restructuring, exit and impairment charges. These factors were partially offset
by successful cost-reduction initiatives, as discussed in Note 3 – Restructuring
Activities in the Notes to Consolidated Financial Statements. In the
three months and six months ended June 30, 2007, the Company reported operating
earnings from continuing operations of $86.3 million and $139.3 million with
related operating margins of 5.7 percent and 4.8 percent,
respectively.
During
the first quarter of 2008, the Company signed a letter of intent to sell certain
assets of its Baja boat business (Baja) to Fountain Powerboat Industries, Inc.
(Fountain). The transaction was aimed at further refining the Company’s product
portfolio and focusing its resources on brands and marine segments that are
considered to be core to the Company’s future success. The Company ramped down
production at its Bucyrus, Ohio, plant through the end of May, when the sale was
completed. The Company estimates that asset write-downs, along with severance
and other costs associated with the Baja plant closure, will total approximately
$15 million in 2008. In addition to the $8.9 million charge taken during the
first quarter of 2008, Brunswick incurred an additional $4.5 million during the
second quarter of 2008 related to the sale of Baja assets to Fountain. The
majority of the $13.4 million charge consists of asset write-downs related to
selected assets sold to Fountain and the residual assets expected to be sold to
third parties.
In March
2008, Brunswick sold its interest in its bowling joint venture in Japan for
$40.4 million gross cash proceeds, $37.4 million net of cash paid for taxes and
other costs, after post-closing adjustments. For the six months ended June
28, 2008, the sale resulted in a $20.9 million pretax gain, $9.9 million
after-tax, and was recorded as an Investment sale gain in the Consolidated
Statements of Income. As a result of post-closing adjustments made during the
second quarter, an additional $1.2 million pretax gain, $0.8 million after-tax,
was recorded as an Investment sale gain in the Consolidated Statements of
Income.
During
the second quarter of 2008, the Company ceased production of boats for its
Bluewater Marine group, including Sea Pro, Sea Boss, Palmetto and Laguna brands,
which were manufactured at its Newberry, South Carolina, facility. As a result,
the Company incurred a $20.8 million charge during the second quarter of 2008.
The majority of the $20.8 million charge consists of asset write-downs related
to selected assets being disposed. The Company estimates that total asset
write-downs, along with severance and other costs associated with the closure of
the Newberry, South Carolina, facility, could total between $25 million and $30
million.
24
During
the second quarter of 2008, the Company determined that it would evaluate a
potential sale of its Valley-Dynamo coin-operated commercial billiards business.
The Company plans to concentrate its efforts on more profitable lines of
business such as its Brunswick branded billiards tables, furniture, and
accessories and