Form 10-Q
Securities and Exchange Commission
Washington, D. C. 20549
X Quarterly Report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994
Commission file number 1-1043
Brunswick Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-0848180
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 N. Field Ct., Lake Forest, Illinois 60045-4811
(Address of principal executive offices) (Zip Code)
(708) 735-4700
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
At August 4, 1994, there were 95,451,996 shares of the Company's Common Stock
($.75 par value) outstanding.
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<TABLE>
Part I- Financial Information
Item I-Financial Statements
Brunswick Corporation
Consolidated Results Of Operations
for the periods ended June 30
(dollars in millions, except per share data)
<CAPTION>
Quarter Six Months
ended June 30 ended June 30
1994 1993 1994 1993
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ 748.2 $ 589.0 $1,383.1 $ 1,131.8
Cost of sales 522.8 429.4 981.4 832.1
Selling, general and administrative 137.0 116.9 268.6 235.5
Operating earnings 88.4 42.7 133.1 64.2
Interest expense (6.9) (7.3) (13.3) (14.5)
Interest income and other items, net 6.2 4.8 9.7 8.1
Earnings before income taxes 87.7 40.2 129.5 57.8
Income tax provision 32.5 17.7 47.9 25.5
Earnings from continuing operations before
cumulative effect of accounting change 55.2 22.5 81.6 32.3
Earnings from discontinued operations - 0.8 - -
Cumulative effect on prior years
of change in accounting principle
for postemployment benefits - - - (14.6)
Net earnings $ 55.2 $ 23.3 $ 81.6 $ 17.7
Earnings (loss) per common share
Continuing operations $ 0.58 $ 0.24 $ 0.85 $ 0.34
Discontinued operations - 0.01 - -
Cumulative effect of change in accounting
principle - - - (0.15)
Net earnings per common share $ 0.58 $ 0.25 $ 0.85 $ 0.19
Cash dividends declared per common share $ 0.11 $ 0.11 $ 0.22 $ 0.22
The notes are an integral part of these consolidated statements.
</TABLE>
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<TABLE>
Brunswick Corporation
Consolidated Balance Sheets
As of June 30, 1994 and December 31, 1993
(dollars in millions)
<CAPTION>
June 30 December 31
Assets 1994 1993
Current assets (unaudited)
Cash and cash equivalents, at cost, which
<S> <C> <C>
approximates market $ 227.5 $ 248.8
Marketable securities 29.3 -
Accounts and notes receivable, less allowances
of $18.9 and $16.9 276.0 168.9
Inventories 344.6 321.4
Prepaid income taxes 198.3 186.5
Prepaid expenses 21.4 24.1
Current assets 1,097.1 949.7
Property
Land 61.2 60.9
Buildings 359.5 357.5
Equipment 741.3 720.9
1,162.0 1,139.3
Accumulated depreciation (620.5) (595.0)
Property 541.5 544.3
Other assets
Dealer networks 155.7 171.6
Trademarks and other 102.2 106.7
Excess of cost over net assets of businesses acquired 117.1 117.7
Investments 73.3 67.6
Other assets 448.3 463.6
Assets of continuing operations 2,086.9 1,957.6
Net assets of discontinued operations 25.0 26.1
Total assets $ 2,111.9 $ 1,983.7
Liabilities And Shareholders' Equity
Current liabilities
Short-term debt, including current maturities $ 15.2 $ 11.9
Accounts payable 142.4 122.8
Accrued expenses 458.2 404.5
Income taxes payable 24.0 62.7
Current liabilities 639.8 601.9
Long-term debt
Notes, mortgages and debentures 322.3 324.5
Deferred items
Income taxes 121.3 103.9
Postretirement and postemployment benefits 132.6 126.9
Compensation and other 23.4 22.1
Deferred items 277.3 252.9
Common shareholders' equity
Common stock; authorized: 200,000,000 shares,
$.75 par value; issued: 100,687,992 shares
at June 30, 1994 and December 31, 1993 75.5 75.5
Additional paid-in capital 261.3 261.4
Retained earnings 709.1 648.5
Treasury stock, at cost: 5,247,583 shares at June 30,
1994 and 5,430,523 shares at December 31, 1993 (98.6) (102.7)
Minimum pension liability adjustment (6.7) (6.7)
Unearned portion of restricted stock
issued for future services (3.3) (2.3)
Cumulative translation adjustments 9.9 7.9
Unamortized ESOP expense (74.7) (77.2)
Common shareholders' equity 872.5 804.4
Total liabilities and shareholders' equity $ 2,111.9 $ 1,983.7
The notes are an integral part of these consolidated statements.
</TABLE>
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<TABLE>
Brunswick Corporation
Consolidated Statements Of Cash Flows
for the six months ended June 30
(dollars in millions)
<CAPTION>
1994 1993
(unaudited)
Cash flows from operating activities
<S> <C> <C>
Net earnings(loss) $ 81.6 $ 17.7
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization by continuing operations 58.6 57.9
Changes in noncash current assets and current
liabilities of continuing operations (99.1) (57.3)
Increase in deferred items 23.7 8.0
Other, net 3.9 (1.1)
Cumulative effect of change in accounting principle - 14.6
Decrease(Increase) in net assets of discontinued operations 1.7 (5.2)
Net cash provided by operating activities 70.4 34.6
Cash flows from investing activities
Capital expenditures (39.1) (36.3)
Investment in marketable securities (29.3) -
Proceeds from sales of property 3.6 3.5
Investments in unconsolidated affiliates (0.3) (0.2)
Other, net (2.1) (0.7)
Net investing activities of discontinued operations (0.5) (0.9)
Net cash used for investing activities (67.7) (34.6)
Cash flows from financing activities
Payments of long-term debt, including current maturities (3.1) (8.9)
Cash dividends paid (21.0) (21.0)
Other, net 0.1 (4.0)
Net cash used for financing activities (24.0) (33.9)
Net decrease in cash and cash equivalents (21.3) (33.9)
Cash and cash equivalents at January 1 248.8 195.5
Cash and cash equivalents at June 30 $ 227.5 $ 161.6
Supplemental cash flow disclosures:
Interest paid $ 12.2 $ 14.9
Income taxes paid, net of refunds 79.8 11.1
The notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
Brunswick Corporation
Notes To Consolidated Financial Statements
June 30, 1994, December 31, 1993 and June 30, 1993
(unaudited)
Note 1 - Accounting policies
This financial data has been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain information and
disclosures, normally included in financial statements and footnotes prepared
in accordance with generally accepted accounting principles, have been
condensed or omitted. Brunswick Corporation (the "Company") believes that the
disclosures in these statements are adequate to make the information presented
not misleading.
These financial statements should be read in conjunction with, and have been
prepared in conformity with, the accounting principles reflected in the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993. 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
quarter and six-month periods ended June 30, 1994 and 1993. The 1994 interim
results are not necessarily indicative of the results which may be expected for
the remainder of the year.
The financial statements have been restated to segregate the results of the
Company's discontinued Technical segment. The 1994 operating losses of the
Technical Group have been charged against a reserve established at the time the
decision to discontinue the segment was announced.
Results for the six months ended June 30, 1993 have been restated for the
cumulative effect of the adoption of SFAS No. 112, which represented a change
in accounting for employees' postemployment benefits and was adopted by the
Company in 1993 retroactive to January 1, 1993.
Note 2 - Earnings per common share
Earnings (loss) per common share are based on the weighted average number of
common and common equivalent shares outstanding during each period. Such
average shares were 95.8 million and 95.2 million for the quarters ended June
30, 1994 and 1993, respectively, and 95.7 and 95.2 million for the six-month
periods ended June 30, 1994 and 1993, respectively.
Note 3 - Inventories
Inventories, of which approximately fifty percent were valued using the LIFO
method, consisted of the following at June 30, 1994 and December 31, 1993
(dollars in millions):
June 30 December 31
1994 1993
Finished goods $203.4 $188.1
Work in process 73.1 79.1
Raw materials 68.1 54.2
Inventories $344.6 $321.4
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<TABLE>
Note 4 - Consolidated common shareholders' equity
<CAPTION>
Minimum
Additional Pension Unearned Cumulative Unamortized
Common stock paid-in Retained Treasury stock liability restricted translation ESOP
(in millions) Shares Amount capital earnings Shares Amount adjustment stock adjustments Expense
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 100.7 $75.5 $261.4 $648.5 (5.4) ($102.7) ($6.7) ($2.3) $7.9 ($77.2)
Net Earnings - - - 81.6 - - - - - -
Dividends declared ($.22 per
common share) - - - (21.0) - - - - - -
Compensation plans and other - - (0.1) - 0.2 4.1 - (1.0) - -
Deferred Compensation-ESOP - - - - - - - - - 2.5
Currency translation - - - - - - - - 2.0 -
Balance, June 30, 1994 100.7 $75.5 $261.3 $709.1 (5.2) ($98.6) ($6.7) ($3.3) $9.9 ($74.7)
</TABLE>
Note 5 - Debt
Long-term debt at June 30, 1994 and December 31, 1993 consisted of the
following (dollars in millions):
June 30 December 31
1994 1993
Notes, 8.125%, due 1997 (net of discounts
of $0.1 and $0.2) $ 99.9 $ 99.8
Mortgage notes and other, 3% to 10%,
payable through 1999 28.0 27.9
Debentures, 7.375%, due 2023,
(net of discount of $0.9) 124.1 124.1
Guaranteed ESOP debt, 8.13%, payable through 2004 75.6 78.0
327.6 329.8
Current maturities (5.3) (5.3)
Long-term debt $322.3 $324.5
As of June 30, 1994, the Company and seventeen banks had a short-term credit
agreement for $100 million and a long-term credit agreement for $300 million
with termination dates of November 7, 1994 and December 31, 1996,
respectively. With mutual agreement between the Company and the banks, the
Company may extend both agreements. The short-term credit agreement may be
extended each 364 day anniversary, but not beyond December 31, 1996. The
long-term credit agreement contains two one-year extension options with the
extension requests permitted on the first and second anniversaries, the first
extension being November 8, 1994.
Under terms of the agreements, the Company has multiple borrowing options,
including borrowings at a corporate base rate, as announced by The First
National Bank of Chicago, or a rate tied to the Eurodollar rate. Currently,
the Company must pay a facility fee of 0.1875% on the short-term agreement and
0.25% on the long-term agreement.
<PAGE>
Note 5 - Debt(Cont.)
Under the agreements, the Company is subject to interest coverage, net worth
and leverage tests as well as a restriction on secured debt, as defined. On
the interest coverage test, the Company is required to maintain a ratio of
consolidated income before interest and taxes, as defined, to consolidated
interest expense of not less than 2.0 to 1.0 on a cumulative twelve-month
basis. The ratio, on a cumulative twelve-month basis, was 6.7 to 1.0 at June
30, 1994. The leverage ratio of consolidated total debt to capitalization, as
defined, may not exceed 0.55 to 1.00 and at June 30, 1994, this ratio was 0.28
to 1.00. The Company also is required to maintain shareholders' equity of at
least $711.6 million, with the required level of shareholders' equity at
December 31 of each year being increased by 50% of net earnings for that year.
The Company has complied with this limitation and the secured debt limitation
as of June 30, 1994. There were no borrowings under the agreements at June 30,
1994.
Note 6 - Litigation
The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. In light of existing reserves, the Company's litigation and
claims, including that discussed below, when finally resolved, will not, in the
opinion of management, have a material adverse effect on the Company's
consolidated financial position and results of operations.
The Company is involved in certain legal and administrative proceedings under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 and other federal and state legislation governing the generation and
disposition of certain hazardous wastes. These proceedings, which involve both
on and off site waste disposal, in many instances seek compensation from the
Company as a waste generator under Superfund legislation which authorizes
action regardless of fault, legality of original disposition or ownership of a
disposal site.
In June 1992, Genmar Industries brought an action against the Company and
certain of its subsidiaries in the United States District Court for the
District of Minnesota, alleging that the Company (i) has monopolized or
attempted to monopolize the sale of recreational marine engines and boats, (ii)
has unlawfully coerced engine purchasers to buy the Company's boats, (iii) has
breached its contract with Genmar, (iv) has not dealt in good faith with
Genmar, and (v) has interfered with Genmar's existing and prospective business
relationships. Genmar has asked that the Company be required to divest its
boat manufacturing business, be enjoined from continuing its partnership with
Tracker Marine, and pay damages, including treble damages under antitrust
laws. The Company believes, based upon its assessment of the complaint and in
consultation with counsel, that this litigation is without merit and intends to
defend itself vigorously. Parties to this suit have exchanged written
discovery and have begun depositions.
The Company has received a Grand Jury subpoena from the U.S. Attorney's Office
in Abingdon, Virginia relating to an investigation of its quality control and
inspection procedures of radomes for F-16 aircraft at its Marion, Virginia
plant. The Company for the past two years has been fully cooperating with the
investigation and does not believe that it has violated any laws, or that the
investigation, once completed, will have a material impact on the Company.
However, until these matters are resolved, the sale of the Company's Technical
Group is being delayed.
<PAGE>
Note 6 - Litigation(Cont.)
The Federal Trade Commission is conducting an investigation of whether the
formation or operations of Tracker Marine L.P. and the Company's contracts with
Tracker Marine L.P. violate the antitrust laws. The Company has received and
responded to a subpoena seeking information relating to the Company's outboard
motor sales. The Company understands that other marine companies have received
similar subpoenas from the Federal Trade Commission.
Note 7 - Income Taxes
In January 1994, the Company reached an agreement with the U.S. Internal
Revenue Service ("IRS") regarding its examination of the Company for the years
1985 and 1986. The issues of this examination dealt primarily with the
deductibility of approximately $500 million of acquired intangible assets,
which the IRS proposed to reclassify to non-deductible intangible assets.
Under the terms of the agreement, the IRS has agreed to allow amortization
deductions for virtually all of the acquired intangible assets, and the Company
has agreed to increase the amortizable lives of most of the acquired intangible
assets.
The revised lives create a temporary difference which resulted in an initial
obligation by the Company to pay the IRS approximately $55 million during the
first quarter of 1994, representing taxes and interest, net of taxes, for the
years 1986 through 1993. This initial $55 million obligation will subsequently
be reduced by the future tax benefits of the temporary difference created by
the agreeement. Since the interest was charged to existing reserves and the
taxes paid represent temporary differences which create, and have been recorded
as, deferred tax assets, this agreement had no impact on the Company's
consolidated results of operations.
Note 8 - Segment Data
The following table sets forth net sales and operating earnings of each of the
Company's industry segments for the quarter and six-month periods ended June
30, 1994 and 1993.
Quarter Ended June 30
1994 1993
Net Operating Net Operating
Sales Earnings Sales Earnings
Marine $ 563.0 $ 79.0 $ 431.9 $ 32.2
Recreation 185.2 22.0 157.1 17.7
Segments 748.2 101.0 589.0 49.9
Corporate - (12.6) - (7.2)
Consolidated $ 748.2 $ 88.4 $ 589.0 $ 42.7
Six-Months Ended June 30
1994 1993
Net Operating Net Operating
Sales Earnings Sales Earnings
Marine $1,020.5 $ 108.3 $ 804.4 $ 33.1
Recreation 362.6 48.5 327.4 47.1
Segments 1,383.1 156.8 1,131.8 80.2
Corporate - (23.7) - (16.0)
Consolidated $1,383.1 $ 133.1 $1,131.8 $ 64.2
<PAGE>
Management's Discussion and Analysis
Cash Flow, Liquidity and Capital Resources
For the six months ended June 30, 1994, cash and cash equivalents decreased
$21.3 million compared to a decrease of $33.9 million in the first six months
of 1993. Net cash provided by operating activities increased to $70.4 million
for the first six months of 1994 from the $34.6 million in the same period of
1993. The increase in cash provided by operating activities was a result of the
increase in net earnings to $81.6 million from $17.7 million in 1993, which was
partially offset by increased non-cash working capital requirements for
accounts receivable, inventory, accounts payable and a payment to the IRS in
settlement of a dispute relating to the years 1985 and 1986 (as discussed on
page 8, Note 7).
Net cash used for investing activities in the first six months of 1994
increased $33.1 million to $67.7 million from the $34.6 million in the
comparable period of 1993 primarily as a result of investing $29.3 million in
marketable securities with maturities greater than 90 days.
Net cash used for financing activities decreased to $24.0 million in the first
six months of 1994 from $33.9 million in the same period of 1993. The decrease
resulted primarily from decreased payments on long-term debt.
Working capital at June 30, 1994 was $457.3 million compared to $347.8 million
at December 31, 1993. The Company's current ratio was 1.7 at June 30, 1994
compared to 1.6 at December 31, 1993.
Total debt at June 30, 1994 was $337.5 million compared to $336.4 million at
December 31, 1993. The Company's debt-to-capitalization ratio was 27.9% at
June 30, 1994 compared to 29.5% at December 31, 1993.
The Company maintains a $100 million short-term and a $300 million long-term
line of credit agreement with a group of banks. For an explanation of the
agreement and a discussion of the specific covenant restrictions, see page 6,
Note 5 - Debt.
Capital expenditures for the first six months of 1994 were $39.1 million
compared to $36.3 million for the comparable period of 1993. The Company
believes that operating cash flows and existing cash balances, supplemented
when necessary with short and/or long-term borrowings, will continue to provide
the financial resources necessary for capital expenditures and working capital
requirements.
<PAGE>
Management's Discussion and Analysis
Results of Operations
Second Quarter and First Six Months of 1994 vs. 1993
Net Sales
Consolidated net sales from continuing operations for the second quarter of
1994 increased 27% to $748.2 million from $589.0 million in the second quarter
of 1993. For the six months ended June 30, 1994, net sales from continuing
operations improved 22% to $1,383.1 million from $1,131.8 million for the same
period of 1993. The Marine and Recreation segments each contributed to the
increases in both periods.
The Marine segment net sales for the second quarter of 1994 increased 30% to
$563.0 million from $431.9 million for the same period of 1993. For the six
months ended June 30, 1994, net sales improved to $1,020.5 million, or 27%,
over the first six months of 1993. For the quarter ended June 30, 1994,
domestic sales increased 36% while international sales increased 14%. For the
six months ended June 30, 1994, domestic sales improved 32% and international
sales rose 12% over prior year levels. Worldwide demand for marine engines and
boats was responsible for the increases in both reporting periods. Dealer
inventories have declined due to the strong increase in retail sales in the
quarter and six month periods.
The Recreation segment's net sales for the second quarter of 1994 rose 18% to
$185.2 million from $157.1 million for the same period of 1993. For the six
months ended June 30, 1994, net sales increased 11% to $362.6 million compared
to $327.4 million in 1993. The increase in second quarter and six months' net
sales resulted primarily from increased demand for the products of the Zebco
Division and continued strong demand in international markets, principally, the
Far East and Europe, for bowling capital equipment of the Brunswick Division.
Although the BRC Division's sales increased by 1% in the second quarter, the
Division's six-month sales declined slighty from 1993 levels due to reduced
bowling lineage as a result of the severe winter weather experienced in many
sections of the United States and Canada, and the California earthquake, which
closed several recreation centers in the first quarter of 1994.
Operating Earnings
For the second quarter of 1994, operating earnings from continuing operations
rose to $88.4 million from $42.7 million in the second quarter of 1993. For the
six months ended June 30, 1994, operating earnings were $133.1 million compared
to $64.2 million for the same period of 1993.
The Marine segment reported operating earnings of $79.0 million for the second
quarter of 1994 compared to $32.2 million for the same period of 1993. For the
six-months ended June 30, 1994, operating earnings increased to $108.3 million
from the $33.1 million in the comparable period of 1993. In both periods, the
domestic and international sales increases discussed previously, combined with
a more favorable product mix and the benefits of the cost reductions and
consolidation programs that began in 1989 resulted in the improvement.
<PAGE>
Operating Earnings(Cont.)
The Recreation segment operating earnings rose to $22.0 million in the second
quarter of 1994 from $17.7 million in the same period of 1993. For the six
months ended June 30, 1994, operating earnings were $48.5 million compared to
$47.1 million in the 1993 period. The increase in both reporting periods
resulted primarily from the sales increase at the Zebco Division offset by
increased start-up costs associated with new business projects, both
internationally and domestically, and an operating loss in the golf unit at the
Brunswick Division, and start-up costs associated with the BRC Division's
Circus World Pizza operations.
Corporate expenses for the second quarter ended June 30, 1994 increased to
$12.6 million from $7.2 million in 1993 and for the six months ended June 30,
1994 increased to $23.7 million from $16.0 million in 1993 primarily due to a
second quarter charge for severance of $1.6 million, losses on interest rate
swaps of $1.0 million in each of the two quarters of 1994 and increased
incentive compensation expenses of $0.5 million and $0.6 million in the first
and second quarters of 1994, respectively.
Interest Expense and Other Items, Net
Interest expense for the first six months of 1994 declined to $13.3 million
from $14.5 million in the same period of 1993. The decline resulted primarily
from average lower levels of ESOP and other debt, and reduced interest expense
on the $125 million 7.375% debentures that were issued on August 25, 1993
versus the $100 million 9.875% sinking fund debentures that were redeemed on
August 9, 1993. For the second quarter 1994, interest income and other items,
net increased to $6.2 million from $4.8 million for the same period of 1993
primarily from increased foreign currency gains and interest income. For the
six months ended June 30, 1994, interest income and other items, net increased
to $9.7 million from the $8.1 million for the same period of 1993 primarily due
to increases in equity in earnings from unconsolidated affiliates and interest
income.
Income Taxes
The effective tax rate from continuing operations for the second quarter and
first six months of 1994 was 37% compared to 44% for the same periods of 1993.
The decline in the effective tax rate resulted primarily from increased tax
credits and the impact of tax rates on the mix of the Company's income, as well
as the settlement of a dispute with the IRS, as discussed in Note 7 on page 8.
The effective tax rate for both periods exceeds the statutory rate due to the
impact of nondeductible permanent differences and the effect of higher foreign
tax rates.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the
three months ended June 30, 1994.
<PAGE>
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
August 9, 1994 By /s/ Thomas K. Erwin *
*Mr. Erwin is signing this report both as a duly authorized officer and as the
chief accounting officer.
