SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
Commission file number 1-1043
BRUNSWICK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-0848180
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 N. Field Ct., Lake Forest, Illinois 60045-4811
(Address of principal executive offices) (Zip Code)
(847) 735-4700
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
At August 10, 1999, there were 92,009,953 shares of the
Company's Common Stock ($.75 par value) outstanding.
Part I- Financial Information
<TABLE>
Item I-Financial Statements
Brunswick Corporation
Consolidated Statements of Income
for the periods ended June 30
(in millions, except per share data)
(unaudited)
Quarter Six Months
ended June 30 ended June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales 1,175.2 1,113.0 2,258.2 2,017.2
Cost of sales 835.8 795.3 1,628.2 1,443.2
Selling, general and administrative expense 195.2 173.8 376.2 322.0
Operating earnings 144.2 143.9 253.8 252.0
Interest expense (15.1) (16.0) (30.6) (30.9)
Other income 2.0 4.7 0.8 6.5
Earnings before income taxes 131.1 132.6 224.0 227.6
Income tax provision 48.7 49.2 84.0 85.3
Net earnings 82.4 83.4 140.0 142.3
Earnings per common share:
Basic 0.90 0.84 1.52 1.43
Diluted 0.89 0.83 1.51 1.42
Average shares used for computation of:
Basic earnings per share 91.9 99.4 91.9 99.4
Diluted earnings per share 92.6 100.4 92.5 100.5
Cash dividends declared per common share 0.125 0.125 0.25 0.25
The notes are an integral part of these
consolidated statements.
</TABLE>
<TABLE>
Brunswick Corporation
Consolidated Balance Sheets
As of June 30, 1999, December 31, 1998, and June 30, 1998
(in millions, except share data)
(unaudited)
June 30, December 31, June 30,
1999 1998 1998
Assets
Current assets
Cash and cash equivalents, at cost,
<S> <C> <C> <C>
which approximates market 108.2 126.1 71.0
Accounts and notes receivable,
less allowances of $24.4, $22.5 and $22.0 595.2 420.8 610.4
Inventories
Finished goods 376.2 383.6 345.0
Work-in-process 143.5 141.3 142.6
Raw materials 122.0 120.6 133.6
Net inventories 641.7 645.5 621.2
Prepaid income taxes 228.0 208.7 221.6
Prepaid expenses 51.4 53.3 41.5
Current assets 1,624.5 1,454.4 1,565.7
Property
Land 70.6 72.0 74.3
Buildings 403.0 412.0 442.1
Equipment 973.0 950.9 884.4
Total land, buildings and equipment 1,446.6 1,434.9 1,400.8
Accumulated depreciation (730.8) (699.0) (693.8)
Net land, buildings and equipment 715.8 735.9 707.0
Unamortized product tooling costs 120.3 109.2 101.3
Net property 836.1 845.1 808.3
Other assets
Goodwill 707.4 718.9 728.6
Other intangibles 94.4 101.6 108.6
Investments 85.0 71.2 99.6
Other long-term assets 165.8 160.3 164.4
Other assets 1,052.6 1,052.0 1,101.2
Total Assets 3,513.2 3,351.5 3,475.2
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt, including
current maturities of long-term debt 188.1 170.1 225.6
Accounts payable 276.4 286.1 259.1
Accrued expenses 590.9 574.6 560.3
Income taxes payable 28.2 5.6 30.7
Current liabilities 1,083.6 1,036.4 1,075.7
Long-term debt
Notes, mortgages and debentures 629.1 635.4 641.8
Deferred items
Income taxes 161.2 165.1 138.3
Postretirement and postemployment benefits 142.4 141.1 139.5
Compensation and other 65.8 62.2 61.7
Deferred items 369.4 368.4 339.5
Common shareholders' equity
Common stock; authorized: 200,000,000 shares,
$.75 par value; issued: 102,538,000 shares 76.9 76.9 76.9
Additional paid-in capital 312.9 311.5 311.3
Retained earnings 1,306.5 1,189.5 1,169.6
Treasury stock, at cost:
10,690,000; 10,669,000 and 3,346,000 shares (209.8) (204.7) (74.1)
Unamortized ESOP expense and other (52.0) (56.1) (61.5)
Accumulated other comprehensive income (3.4) (5.8) (4.0)
Common shareholders' equity 1,431.1 1,311.3 1,418.2
Total liabilities and shareholders' equity 3,513.2 3,351.5 3,475.2
The notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
Brunswick Corporation
Consolidated Statements of Cash Flows
for the six months ended June 30
(dollars in millions)
(unaudited)
Six Months ended June 30
1999 1998
Cash flows from operating activities
<S> <C> <C>
Net earnings 140.0 142.3
Depreciation and amortization 83.6 79.3
Changes in noncash current assets and current
liabilities (158.2) (226.9)
Income taxes 4.9 45.6
Other, net 4.6 (2.7)
Net cash provided by operating activities 74.9 37.6
Cash flows from investing activities
Acquisitions of businesses (2.3) (31.9)
Capital expenditures (67.4) (73.0)
Payments advanced for long-term supply agreements (7.1) (5.5)
Investments 0.0 (21.6)
Other, net 3.1 10.3
Net cash used for financing activities (73.7) (121.7)
Cash flows from financing activities
Net proceeds from issuances of short-term
commercial paper and other short-term debt 16.2 116.2
Payments of long-term debt including current maturities (4.6) (3.5)
Cash dividends paid (23.0) (24.9)
Stock repurchases (10.5) (24.8)
Stock options exercised 2.8 6.5
Net cash (used for)/provided by financing activities (19.1) 69.5
Net decrease in cash and cash equivalents (17.9) (14.6)
Cash and cash equivalents at January 1 126.1 85.6
Cash and cash equivalents at June 30 108.2 71.0
Supplemental cash flow disclosures:
Interest paid 37.1 36.7
Income taxes paid, net 79.1 39.7
Treasury stock issued for compensation plans and other 8.4 12.4
The notes are an integral part of these consolidated statements.
</TABLE>
Brunswick Corporation
Notes to Consolidated Financial Statements
June 30, 1999, December 31, 1998 and
June 30, 1998
(unaudited)
Note 1 - Accounting Policies
This unaudited financial data has been prepared
pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly,
certain information and disclosures normally included
in financial statements and footnotes prepared in
accordance with generally accepted accounting
principles have been condensed or omitted. Brunswick
Corporation (the Company) believes that the
disclosures in these statements are adequate to make
the information presented not misleading. Certain
previously reported amounts have been reclassified to
conform with the current-period presentation.
These financial statements should be read in
conjunction with, and have been prepared in conformity
with, the accounting principles reflected in the
consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. These interim
results include, in the opinion of the Company, all
normal and recurring adjustments necessary to present
fairly the results of operations for the quarters
ended June 30, 1999 and 1998. The 1999 interim
results are not necessarily indicative of the results
that may be expected for the remainder of the year.
Note 2 - Earnings Per Common Share
There is no difference in the net earnings used to
compute the Company's basic and diluted earnings per
share. The difference in the weighted-average number
of shares of common stock outstanding used to compute
basic and diluted earnings per share is the amount of
potential common stock relating to employee stock
options. The weighted-average number of shares of
potential common stock was 0.7 million and 1.0 million
for the quarters ended June 30, 1999 and 1998,
respectively, and 0.6 million and 1.1 million for the
six-month periods ended June 30, 1999 and 1998,
respectively.
Note 3 - Debt
Short-term debt, including current maturities of long-
term debt, increased to $188.1 million at June 30,
1999, versus $170.1 million at December 31, 1998, due
to increased short-term borrowings to fund seasonal
working capital requirements and capital expenditures.
Note 4 - Litigation
On June 19, 1998, a jury awarded $44.4 million in
damages in a suit brought in December 1995 by
Independent Boat Builders, Inc., a buying group of
boat manufacturers and 22 of its members. The
lawsuit, Concord Boat Corporation, et al. v. Brunswick
Corporation (Concord), was filed in the United States
District Court for the Eastern District of Arkansas,
and alleged that the Company unlawfully monopolized,
unreasonably restrained trade in, and made
acquisitions that substantially lessened competition
in the market for sterndrive and inboard marine
engines in the United States and Canada. Under the
antitrust laws, the damage award has been trebled, and
plaintiffs will be entitled to their attorneys' fees
and interest. Under current law, any and all amounts
paid by the Company will be deductible for tax
purposes.
The trial court judge denied the Company's post-trial
motions seeking to set aside the verdict and for a new
trial. The judge also denied all forms of equitable
relief sought by the plaintiffs in connection with the
jury verdict, including their requests for divestiture
of the Company's principal boat manufacturing
operations and orders precluding the Company from
implementing various marketing and pricing programs
and from acquiring other marine-related companies or
assets. The judge granted the Company's motion for
judgment as a matter of law on its counterclaim which
asserted a per se violation of the antitrust laws by a
group of six of the plaintiffs and awarded nominal damages.
Plaintiffs dismissed, voluntarily, two related claims which
had alleged that the Company attempted to monopolize the
outboard engine and sterndrive boat markets.
On November 4, 1998, the Company filed an appeal
contending the Concord verdict was erroneous as a
matter of law, both as to liability and damages.
Plaintiffs filed a cross appeal on the denial of
equitable relief and on the judgment against certain
of them on the counterclaim. Briefing on all issues
on appeal is complete and oral argument is expected in
the fall of 1999. The Company is not presently able
to reasonably estimate the ultimate outcome of this
case, and accordingly, no expense for this judgment
has been recorded. If the adverse judgment is
sustained after all appeals, satisfaction of the
judgment is likely to have a material adverse effect
on the Company's results of operations for a
particular year, but is not expected to have a
material adverse effect on the Company's financial
condition.
On October 23, 1998, a suit was filed in the United
States District Court for the District of Minnesota by
two independent boat builders alleging antitrust
violations by the Company in the sterndrive and
inboard engine business, seeking to rely on both the
liability and damage findings of the Concord
litigation. In this suit, KK Motors et al. v.
Brunswick Corporation (KK Motors), the named
plaintiffs also seek to represent a class of all
allegedly similarly situated boat builders whose
claims have not been resolved in Concord or in other
judicial proceedings. Sales of sterndrive and inboard
marine engines to the Concord plaintiffs are estimated
to have represented less than one-fifth of the total
sold to independent boat builders during the six-and-
one-half year time period for which damages were
awarded in that suit. The complaint in the KK Motors
case seeks damages for a time period covering slightly
less than four years.
On December 23, 1998, Volvo Penta of the Americas,
Inc., Brunswick's principal competitor in the sale of
sterndrive marine engines, filed suit in the United
States District Court for the Eastern District of
Virginia. That suit, Volvo Penta of the Americas v.
Brunswick Corporation (Volvo), also invokes the
antitrust allegations of the Concord action and seeks
injunctive relief and damages in an unspecified amount
for an unspecified time period.
On February 10, 1999, a former dealer of Brunswick
boats filed suit in the United States District Court
for the District of Minnesota, also seeking to rely on
the liability findings of the Concord action. This
suit, Amo Marine Products, Inc. v. Brunswick
Corporation (Amo) seeks class status purporting to
represent a class of all marine dealers who purchased
directly from Brunswick sterndrive or inboard engines
or boats equipped with sterndrive or inboard engines
during the period January 1, 1986, to June 30, 1998.
Sales by Brunswick of boats equipped with sterndrive
or inboard engines to dealers accounted for less than
half of such engines produced during the time period
covered by the complaint; sales of such engines
directly to dealers were de minimis. The complaint
seeks damages in an unspecified amount and requests
injunctive relief. On March 31, 1999, another suit,
Jack's Marina, Inc. v. Brunswick (Jack's Marina), was
filed in the same court seeking to represent the same
putative class as Amo.
On February 16, 1999, a suit was filed in the Circuit
Court of Washington County, Tennessee, by an
individual claiming that the same conduct challenged
in the Concord action violated various
antitrust and consumer protection laws of 16 states
and the District of Columbia. In that suit, Couch v.
Brunswick (Couch), plaintiff seeks to represent a
class of all indirect purchasers of boats equipped
with Brunswick sterndrive or inboard engines in
seventeen jurisdictions. The plaintiff claims damages
in an unspecified amount during the period from 1986
to the filing of the complaint and also requests
injunctive relief.
It is possible that additional suits will be filed, in
either federal or state court, asserting allegations
similar to those in the existing complaints and
purporting to represent similar or overlapping classes
of claimants.
The Company has answered or will answer each of these
new complaints denying liability and asserting various
defenses. In addition, the Company filed motions to
stay all proceedings or stipulated with the plaintiffs
to a stay in each of these matters pending the
resolution of the appeal in the Concord action because
it believes that an appellate decision in that matter
is likely to have an impact on each of these recently
filed actions. In the KK Motors and Amo cases, the
court granted a stay of all proceedings on the merits
of plaintiffs' claims, but has allowed the cases to
proceed on class certification and certain procedural
matters. In the Volvo case the court has denied the
stay. The Company is currently engaged in discovery
in the KK Motors, Amo and Volvo cases. The Volvo case
is currently set for trial in the first quarter of
2000.
Because litigation is subject to many uncertainties,
the Company is unable to predict the outcome of any of
the above referenced actions. While there can be no
assurance, the Company believes the adverse judgment
in the Concord case is likely to be reversed on appeal
and that any such reversal will have an impact on all
related actions. If the Concord judgment is sustained
after all appeals, however, and if the KK Motors
and/or Amo and Jack's Marina cases successfully
proceed as class actions on behalf of all described
potential claimants substantially as alleged, and if
plaintiffs are successful, the damages ultimately
payable by the Company would have a material adverse
effect on the Company's financial condition and
results of operations. The Company is unable at this
time to assess the magnitude of damages that either
Volvo or the Couch plaintiffs might assert. Because
of a variety of factors affecting both the likelihood
and size of any damage award to these or any other
potential claimants, the Company is unable to estimate
the range, amount or timing of its overall possible
exposure.
Note 5 - Segment Data
The following table sets forth net sales and operating
earnings of each of the Company's operating segments
for the quarter and six-month periods ended June 30,
1999 and 1998 (in millions):
Quarter ended June 30,
1999 1998
Net Operating Net Operating
Sales Earnings Sales Earnings
Outdoor Recreation $ 229.6 $ 21.0 $ 231.4 $ 27.3
Indoor Recreation 162.5 7.4 159.5 1.6
Boat * 390.7 39.8 360.6 43.2
Marine Engine 469.1 87.5 441.0 79.3
Corporate/Other (76.7) (11.5) (79.5) (7.5)
Consolidated $ 1,175.2 $ 144.2 $ 1,113.0 $ 143.9
Six Months ended June 30,
1999 1998
Net Operating Net Operating
Sales Earnings Sales Earnings
Outdoor Recreation $ 442.7 $ 34.6 $ 389.1 $ 45.7
Indoor Recreation 347.3 31.0 323.1 17.8
Boat * 759.1 69.2 674.3 75.5
Marine Engine 855.8 141.0 772.7 128.6
Corporate/Other (146.7) (22.0) (142.0) (15.6)
Consolidated $ 2,258.2 $ 253.8 $ 2,017.2 $ 252.0
*Boat segment operating earnings for the quarter and
six-month periods ended June 30, 1998, include $7.5 million and
$15.0 million, respectively, of income recorded in
connection with a settlement with certain boat dealers.
Note 6 - Strategic Charges
During the third quarter of 1998, the Company recorded
a pretax charge of $60.0 million ($41.4 million after
tax) in the Indoor and Outdoor Recreation segments to
cover costs associated with strategic initiatives
designed to streamline operations and enhance
operating efficiencies in response to the effect of
the economic situation in Asia and other emerging
markets on its businesses. These actions were
substantially completed during 1998.
During the third quarter of 1997, the Company recorded
a pretax charge of $98.5 million ($63.0 million after
tax) to cover costs associated with strategic
initiatives designed to streamline its operations and
improve global manufacturing costs. These actions were
substantially completed during 1998.
The Company's accrued expense balances relating to
1998 and 1997 strategic charges as of June 30, 1999, and
December 31, 1998, were as follows (in millions):
December 31, 1999 June 30,
1998 Activity 1999
Severance $ 16.1 $ 6.4 $ 9.7
Lease termination 10.6 1.3 9.3
Other incremental costs 10.8 2.3 8.5
Total $ 37.5 $ 10.0 $ 27.5
In connection with these charges, the Company is
disposing of certain assets. Assets to be disposed as
a result of the 1998 charge had a gross carrying value
of $35.2 million as of September 30, 1998, with
related reserves of $28.8 million. These assets had a
gross carrying value of $11.3 million as of June 30,
1999, with related reserves of an equal amount.
Assets to be disposed as a result of the 1997 charge
had a gross carrying value of $30.1 million as of
September 30, 1997, with related reserves of $26.4
million. These assets had a gross carrying value of
$10.3 million as of June 30, 1999, with related
reserves of an equal amount.
The Company is pursuing plans to complete the
remaining sales of these assets in 1999.
Note 7 - Comprehensive Income
Accumulated other comprehensive income includes
cumulative translation, unrealized gains and losses
on investments and minimum pension liability
adjustments. Comprehensive income for the quarters
and six-month periods ended June 30, 1999 and 1998,
was as follows (in millions):
Quarter ended Six Months ended
June 30 June 30
1999 1998 1999 1998
Net earnings $ 82.4 $ 83.4 $ 140.0 $ 142.3
Other comprehensive income (loss) 2.0 0.5 2.4 (3.8)
Comprehensive income $ 84.4 $ 83.9 $ 142.4 $ 138.5
Item 2. - Management's Discussion and Analysis
Overview
The Company's financial results in the second quarter
of 1999 continue to reflect the favorable effect of its
growth strategy, which includes expanding existing
brands through effective marketing programs and product
innovations, and managing costs to improve operating
margins.
Results of Operations
Consolidated
The following table sets forth certain ratios and
relationships calculated from the consolidated
statements of income for the quarter and six-month
periods ended June 30:
Quarter Six Months
ended ended
June 30 June 30
1999 1998 1999 1998
Percentage increase (decrease)
versus the prior year in:
Net sales 5.6% 10.4% 11.9% 9.0%
Operating earnings 0.2% 4.3% 0.7% 8.9%
Net earnings (1.2%) 0.6% (1.6%) 4.9%
Diluted earnings per share 7.2% 0.0% 6.3% 4.4%
Expressed as a percentage of net
sales:
Gross margin 28.9% 28.5% 27.9% 28.5%
Selling, general and
administrative expense 16.6% 15.6% 16.7% 16.0%
Operating margin 12.3% 12.9% 11.2% 12.5%
In the second quarter of 1999, sales increased $62.2
million or 5.6 percent to $1,175.2 million from $1,113.0 million
in 1998. The gain in second quarter revenues reflects continued
improvement in the mix of boat sales driven by
increased sales of larger boats, along with sales
gains due to strong demand for marine parts and
accessories, sterndrive engines and new low-emission
outboard engines. In the year-to-date period, sales
increased by $241.0 million to $2,258.2 million from
$2,017.2 million in 1998 due to the aforementioned
improvements in boat and marine engine sales and
increased sales of bicycles in the first quarter of
1999 due to expanded distribution.
Gross margins improved to 28.9 percent in the second
quarter of 1999 versus 28.5 percent in 1998 while the
year-to-date comparisons resulted in a decline to 27.9
percent in 1999 versus 28.5 percent in 1998. The
improvement in gross margins for the quarter reflects
margin gains in the bowling business attributable to
the strategic actions taken in late 1998. Also
contributing to the gain was an improvement in boat
margins caused by a decline in retail incentives and
the continued growth in sales of larger, higher-margin
boats. The decline in year-to-date gross margins
reflects a shift in sales mix resulting from strong
sales gains in lower-margin product offerings
including bikes and low-emission engines, along with a
$5.0 million inventory write-down resulting from
actions taken in the camping business in the first
quarter of 1999.
Selling, general and administrative expenses (SG&A
expenses) increased 12.3 percent to $195.2 million in
the second quarter of 1999 versus $173.8 million in
1998. In the year-to-date period, SG&A expenses
increased 16.8 percent totaling $376.2 million in 1999
and $322.0 million in 1998. SG&A expenses in 1998
include income of $7.5 million recorded in the second
quarter and $15.0 million recorded in the year-to-date
period relating to a settlement reached with certain
of the Company's boat dealers, MarineMax, Inc.
Excluding this settlement, SG&A expenses as a percent
of sales in the quarter increased slightly to 16.6
percent from 16.3 percent and in the year-to-date
period remained flat at 16.7 percent.
Operating earnings totaled $144.2 million in the
second quarter of 1999 versus $143.9 million in 1998.
In 1999, year-to-date operating earnings totaled $253.8 million compared
with $252.0 million in the same period last year.
Excluding the aforementioned settlement in 1998,
second quarter operating earnings increased 5.7
percent and operating margins were 12.3 percent in
both the 1999 and 1998 periods while year-to-date
operating earnings increased 7.1 percent and operating
margins declined to 11.2 percent in 1999 from 11.7
percent in 1998.
Other income was $2.0 million in the second quarter of
1999 versus $4.7 million in 1998. In the year-to-
date period, other income totaled $0.8 million in 1999
and $6.5 million in 1998. These declines primarily
reflect the unfavorable effects of foreign currency-
related adjustments along with reductions in interest
income.
Net earnings were $82.4 million in the second quarter
of 1999 versus $83.4 million in 1998, and diluted
earnings per share for those periods were $0.89 and $0.83, respectively. For
the year-to-date periods, net earnings totaled $140.0
million in 1999 and $142.3 million in 1998 while
diluted earnings per share totaled $1.51 and $1.42,
respectively. Excluding the aforementioned gain
recorded on the settlement with boat dealers, net
earnings in the second quarter and year-to-date periods
of 1998 were $78.8 million and $133.1 million,
respectively, and diluted earnings per share
in those periods totaled $0.78 and $1.32, respectively.
Excluding the settlement, net earnings for the quarter
and year-to-date periods increased 4.6 percent and 5.2
percent, respectively. Diluted earnings per share
increased 14.1 percent and 14.4 percent, respectively,
for the quarter and year-to-date periods.
Average common shares outstanding used to calculate
diluted earnings per share for the quarter decreased to
92.6 million in 1999 from 100.4 million in 1998, and in
the six-month period decreased to 92.5 million in 1999
from 100.5 million in 1998. These decreases reflect
primarily the 7.0 million shares of stock repurchased
during the fourth quarter of 1998 along with shares
repurchased under a systematic share repurchase program
initiated in 1997.
Outdoor Recreation Segment
The following table sets forth Outdoor Recreation
segment results for the quarter and six-month periods
ended June 30 (dollars in millions):
Quarter ended June 30 Six Months ended June 30
1999 1998 1999 1998
Net sales $ 229.6 $ 231.4 $ 442.7 $ 389.1
Operating earnings $ 21.0 $ 27.3 $ 34.6 $ 45.7
Operating margin 9.1% 11.8% 7.8% 11.7%
Capital expenditures $ 8.0 $ 4.4 $ 16.4 $ 11.1
In the second quarter of 1999, Outdoor Recreation
segment sales decreased 0.8 percent to $229.6 million,
while sales for the first six months of 1999 increased
13.8 percent to $442.7 million. In the second quarter
of 1999, an increase in fishing equipment sales due to
demand for recently introduced new products was offset by
lower sales in the camping, bikes and coolers
businesses. The six-month sales improvement was the
result of increased bicycle sales due to expanded
distribution and improvements in sales of ice chests,
beverage coolers and fishing equipment driven by new
product introductions, partially offset by lower
camping equipment sales.
Operating earnings for the segment decreased to $21.0
million or 23.1 percent in the second quarter of 1999,
compared with $27.3 million in the same period last
year, and operating margins decreased to 9.1 percent
from 11.8 percent. The decline in segment operating
earnings was primarily due to labor shortages and
start-up costs associated with new manufacturing
equipment in the coolers business, marketing
expenditures in the fishing business for
Zebco's 50th anniversary promotions and increased
investments in information technology for the fishing
and camping businesses.
Outdoor Recreation segment operating earnings for the
first six months of 1999 were $34.6 million, a 24.3 percent
decrease compared with $45.7 million in 1998.
Operating margins declined to 7.8 percent compared with
11.7 percent in 1998. The decline in
operating margins reflects a shift in sales mix
resulting from strong sales gains in lower-margin
bikes, the aforementioned factors in the cooler and
fishing businesses and actions taken in the first
quarter to better position this segment to improve its
performance in the future. In the first quarter of
1999, the Company implemented promotional programs
designed to lower inventories of slower moving camping
products and reduced the number of products offered to
concentrate efforts on fewer, but higher-margin
products. This resulted in a $5.0 million inventory
write-down in the first quarter of 1999. These actions
along with continued emphasis on effective cost
management, investments in new product launches and
aggressive marketing activities are expected to result
in earnings growth for this segment in the later part
of the year.
Indoor Recreation Segment
The following table sets forth Indoor Recreation
segment results for the quarter and six-month periods
ended June 30 (dollars in millions):
Quarter ended June 30 Six Months ended June 30
1999 1998 1999 1998
Net sales $ 162.5 $ 159.5 $ 347.3 $ 323.1
Operating earnings $ 7.4 $ 1.6 $ 31.0 $ 17.8
Operating margin 4.6% 1.0% 8.9% 5.5%
Capital expenditures $ 7.1 $ 9.1 $ 12.8 $ 18.6
The Indoor Recreation segment recorded sales of $162.5
million in the second quarter of 1999, which represents
a 1.9 percent increase from $159.5 million in the same
period last year. Sales for the first six months of
1999 increased 7.5 percent to $347.3 million from
$323.1 million in 1998. The sales increase for both
periods was a result of growth in fitness equipment
sales due to a continuing strong health club market in
the United States, Europe and the United Kingdom,
increased sales of bowling equipment to upgrade bowling
centers in the United States and increased bowling
center revenues. These improvements were partially
offset by weak bowling equipment sales in the Asian and
European markets.
Operating earnings in the second quarter of 1999
increased to $7.4 million from $1.6 million in 1998,
and operating margins for the segment were 4.6 percent
compared with 1.0 percent in 1998. Operating earnings
for the first six months of 1999 increased 74.2 percent
to $31.0 million from $17.8 million in 1998, and
operating margins increased to 8.9 percent from 5.5
percent. These improvements reflect the benefits from
strategic actions taken in 1998 to address the effect
of the Asian economic situation on bowling equipment
sales along with increased sales.
Boat Segment
The following table sets forth Boat segment results for
the quarter and six-month periods ended June 30
(dollars in millions):
Quarter ended June 30 Six Months ended June 30
1999 1998 1999 1998
Net sales $ 390.7 $ 360.6 $ 759.1 $ 674.3
Operating earnings $ 39.8 $ 43.2 $ 69.2 $ 75.5
Operating margin 10.2% 12.0% 9.1% 11.2%
Capital expenditures $ 9.2 $ 10.6 $ 15.6 $ 19.3
The Boat segment reported sales of $390.7 million in
the second quarter of 1999, an 8.3 percent increase
from $360.6 million in 1998. Sales for the six-month
period of 1999 increased 12.6 percent to $759.1 million
from $674.3 million in 1998. These improvements are
the result of continued strong demand for larger boats.
Operating earnings for the segment were $39.8 million
in the second quarter of 1999 compared with $43.2
million in the same period of 1998, and operating
margins decreased to 10.2 percent from 12.0 percent.
Boat operating earnings for the first six months of
1999 were $69.2 million compared with $75.5 million in
1998 and operating margins decreased to 9.1 percent in
1999 from 11.2 percent in 1998. The Company recorded
income of $7.5 million and $15.0 million in the second
quarter and six-month periods of 1998, respectively, in
connection with the aforementioned settlement reached
with certain of the Company's boat dealers. Excluding
this settlement, operating earnings totaled $35.7
million and operating margins were 9.9 percent in the
second quarter of 1998 and operating earnings were $60.5
million and operating margins were 9.0 percent in the
six-month period of 1998. The improvements in
operating earnings and margins in both reporting
periods, excluding the settlement, reflects the
benefits from a reduction in retail price incentives
and strong demand for larger, higher-margin boats. In
addition, actions taken in the first quarter to
rationalize certain product lines and manufacturing
operations contributed to the improvement in second
quarter operating margins.
Marine Engine Segment
The following table sets forth Marine Engine segment
results for the quarter and six-month periods ended
June 30 (dollars in millions):
Quarter ended June 30 Six Months ended June 30
1999 1998 1999 1998
Net sales $ 469.1 $ 441.0 $ 855.8 $ 772.7
Operating earnings $ 87.5 $ 79.3 $ 141.0 $ 128.6
Operating margin 18.7% 18.0% 16.5% 16.6%
Capital expenditures $ 11.4 $ 11.7 $ 21.8 $ 22.7
Marine Engine segment sales increased 6.4 percent to
$469.1 million in the second quarter of 1999 and 10.8
percent to $855.8 million in the first six months of
1999. The increase in both periods is due to strong
growth in sterndrive engines, parts and accessories and
new low-emission outboard engines.
Operating earnings for the segment increased to $87.5
million in the second quarter of 1999 compared with
$79.3 million in 1998, and operating margins increased
to 18.7 percent from 18.0 percent. For the first six
months of 1999, operating earnings increased to $141.0
million from $128.6 million, and operating margins
decreased to 16.5 percent from 16.6 percent. Operating
earnings increased in both periods due to higher sales
along with improved operating margins in the second
quarter of 1999. Second quarter operating margin
improvement reflects a favorable shift in sterndrive
engine product mix, strong sales of high-margin parts
and accessories and continued focus on cost management.
The slight decline in operating margins in the six-
month period is due to the increased sales of low-
emission outboard engines that have lower margins than
traditional outboards due to higher initial production
costs, as well as increased investments in product
development, service initiatives and brand-building
marketing activities.
Cash Flow, Liquidity and Capital Resources
Cash generated from operating activities, available
cash balances and selected borrowings are the Company's
major sources of funds for investments and dividend
payments. Cash and cash equivalents totaled $108.2
million at June 30, 1999, down from $126.1 million at
the end of 1998.
Cash provided by operating activities for the first six
months of 1999 and 1998 totaled $74.9 million and $37.6
million, respectively. The primary components of cash
provided by operating activities include the Company's
net earnings adjusted for noncash expenses; the timing
of cash flows relating to operating expenses, sales and
income taxes; and the management of inventory levels.
The increase in cash provided by operating activities
between periods reflects the benefits of improved
working capital management partially offset by the
effect of the timing of tax payments between the two
years.
During the first six months of 1999, the Company
invested $67.4 million in capital expenditures,
compared with $73.0 million in 1998. Total debt at
June 30, 1999, increased to $817.2 million
versus $805.5 million at December 31, 1998, due to
increased short-term note borrowings to fund seasonal
working capital requirements and capital expenditures.
Debt-to-capitalization ratios at these dates were 36.3
percent and 38.1 percent, respectively.
During the first six months of 1999, the Company
repurchased 450,000 shares of its common stock for
$10.5 million in open market transactions under the
systematic repurchase program initiated in 1997.
The Company's financial flexibility and access to
capital markets is supported by its balance sheet
position, investment-grade credit ratings and ability
to generate significant cash from operating
activities. The Company has a $400 million long-term
credit agreement with a group of banks. The Company
has $150 million available under a universal shelf
registration filed in 1996 with the Securities and
Exchange Commission for the issuance of equity and/or
debt securities. Management believes that these
factors provide adequate sources of liquidity to meet
its longterm and short-term needs.
Refer to Note 4 to consolidated financial statements
and the Legal Proceedings section below for disclosure
of the potential cash requirements of legal
proceedings and to Note 6 to the 1998 consolidated
financial statements in the Company's Annual Report on
Form 10-K for environmental proceedings.
Additionally, the Company is in the process of
litigating certain findings from Federal tax audits
for the years 1990 and 1991 as described in Note 13 to
the 1998 consolidated financial statements in the
Company's Annual Report on Form 10-K. Should the IRS
prevail in these proceedings, the Company may be
required to pay up to $60 million for taxes due, plus
accrued interest.
Legal Proceedings
Six lawsuits, more fully described in Note 4 to the
consolidated financial statements, are currently
pending wherein it is claimed the Company violated
various provisions of federal and state antitrust and
state consumer protection laws in connection with its
sales of MerCruiser sterndrive and inboard engines and
its acquisitions of the Sea Ray and US Marine boat
companies. In June 1998, an adverse verdict was
reached in the first of these suits. That suit was
brought by a buying group of boat-builder customers
whose purchases represent less than one-fifth of all
direct sales of sterndrive and inboard engines to boat
builders during the damage period relevant to that
action. That verdict and resulting damage judgment of
$133.2 million, after trebling, has been appealed and
while there can be no assurance, the Company believes
the adverse judgment is likely to be reversed.
Following the verdict, five additional suits were
filed seeking to rely on the allegations and findings
of that verdict. The first purports to represent a
class of all other boat-builder customers and seeks
damages on the same model as the initial suit. The
second was brought by the Company's principal
competitor in the sterndrive engine business and
claims damages in an unspecified amount. Two other
suits seek to represent a class of all dealers that
purchased sterndrive or inboard engines or boats
equipped with such engines directly from the Company,
and the remaining suit seeks to represent indirect
purchasers from 17 jurisdictions of boats equipped
with such engines. Because of a variety of factors
affecting both the likelihood and size of any damage
award to these or any other potential claimants, the
Company is unable to estimate the range, amount or
timing of its overall possible exposure, and
accordingly, no expense for either the judgment or
related lawsuits has been recorded. If the adverse
judgment is sustained after all appeals, and if the
class actions proceed and are successful, the damages
ultimately payable by the Company would have a
material adverse effect on the Company's financial
condition and results of operations.
New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133" (SFAS 137). SFAS 137 is
effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (March 31, 2001, for the
Company). The Company is assessing the effect of SFAS
137 and currently believes it will not have a material
effect on its results of operations or financial
position.
Year 2000
In January 1998, the Company initiated a formal
program to address the Year 2000 issue. The Year 2000
issue involves the inability of date-sensitive
computer applications to process dates beyond the year
2000. The Company's Year 2000 Project Office leads
initiatives that address areas with the potential of
having a major adverse effect on the business. The
Company's program encompasses the use of both internal
and external resources to identify, remediate and test
systems for Year 2000 readiness. External resources
include nationally recognized consulting firms and
other contractual resources to supplement available
internal resources.
The Company uses software and related technologies
throughout its businesses and in certain of its
products that will be affected by the Year 2000 issue.
A comprehensive inventory and assessment of business
systems and processes that may be affected by Year
2000 issues has been completed. Key areas requiring
priority focus are the Company's information (IT)
systems including financial, invoicing, order entry,
purchasing, payroll, inventory management and
production management systems along with IT systems
infrastructure, as well as the Company's manufacturing
and other non-IT systems.
The Company is in the final stages of implementing its
plan to address its critical IT and non-IT systems
that includes a combination of replacement projects,
which are being done in connection with company-wide
IT system upgrade projects, and remediation
activities. While implementation of this plan is
substantially complete, conversion (which includes
replacement and remediation) of the remaining critical
systems, as well as miscellaneous personal computers,
is expected to be completed in the third quarter. The
Company's testing activities include system testing,
unit testing and Year 2000 multiple-date testing.
Testing efforts are ongoing, with an expected finish
date for substantially all critical IT systems in the
third quarter. Replacement and remediation of critical
non-IT systems is also ongoing, with a targeted finish
date of the third quarter for substantially all such
systems.
An inventory and assessment of the technology
incorporated into the Company's products is complete.
Key areas of focus included bowling products
consisting of electronic scorers and bowling center
management systems. The Company has taken steps to
address these products on a case-by-case basis
including notifying known users and making Year 2000
solutions available, where appropriate. These steps
have been substantially completed except for certain
bowling products sold in Asia for which we expect an
August 1999 completion date.
The Company is assessing the Year 2000 readiness of
its critical customers and suppliers and has sent
letters inquiring as to their Year 2000 readiness. Of
approximately 1,300 suppliers considered critical,
approximately 5 percent are high risk based on their
responses and approximately 24 percent have not yet
responded to inquiries. The Company has supplemented,
and will continue to supplement, this written
correspondence with additional procedures, which may
include telephone interviews and on-site visits to
evaluate risks associated with third parties. The
Company will consider the results from these
procedures in establishing contingency plans that may
include, among other actions, identifying alternative
sources of supply and building additional inventory.
The Company believes that its efforts to address the
Year 2000 issue will be successful in avoiding any
material adverse effect on the Company's results of
operations or financial condition;
however, given the complexity and number of potential
risks, there can be no guarantee that the Company's
efforts will be successful. The risks to a successful
Year 2000 plan include, but are not limited to, the
readiness of customers and suppliers, including
suppliers of sole and internationally sourced
products; the availability of technical resources; and
the effectiveness of systems replacement and
remediation programs and product fixes.
If the Company's efforts to achieve Year 2000
readiness are unsuccessful, the impact could have a
material adverse effect on the Company's results of
operation and financial condition. The potential
adverse effects include a limited ability to
manufacture and distribute products and process daily
business transactions.
The Company has developed contingency plans designed
to mitigate the potential disruptions that may result
from the Year 2000 issue. These plans may include
shifting from replacement to remediation activities
for IT systems, securing alternative sources for key
suppliers of materials and services, replacing
electronic applications with manual processes,
developing emergency backup and recovery procedures,
investing in safety stocks of key raw materials and
finished goods and other measures considered
appropriate by management. These contingency plans
and the related cost estimates will be continually
refined as additional information becomes available.
The costs of remediating existing software and other
Year 2000 related expenses are expected to total
approximately $17 million to $18 million. The Company
has expensed approximately $16 million of costs since
the Year 2000 assessment process began in 1997. The
majority of this amount was expensed in 1998. Costs
associated with the replacement of non-Year 2000
compliant systems are included in capital expenditures
as part of the company-wide systems upgrade projects.
Spending on replacement projects necessary for Year
2000 readiness is substantially complete.
The foregoing discussion regarding the Year 2000
project timing, effectiveness, implementation and
costs is based on management's current evaluation
using available information. Factors that might cause
material changes include, but are not limited to, the
availability of resources, the readiness of third
parties and the Company's ability to respond to
unforeseen Year 2000 compliance issues.
Forward Looking Statements
Certain statements in this Form 10-Q are forward
looking as defined in the Private Securities
Litigation Reform Act of 1995. These statements
involve certain risks and uncertainties that may cause
actual results to differ materially from expectations
as of the date of this filing. These risks include,
but are not limited to, Year 2000 issues including the
effectiveness of the Company's remediation and
replacement initiatives, the readiness of third
parties including customers and suppliers and the
Company's ability to complete the information systems
initiatives within the time and cost estimated;
inventory adjustments by major retailers; competitive
pricing pressures; the outcome of pending litigation;
and adverse weather conditions retarding sales of
outdoor recreation products.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Note 4 to the Financial Statements in Part I of this
Quarterly Report on pages 6 to 8 is hereby
incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10. 1991 Stock Plan.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K
during the three months ended June 30,
1999.
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 12, 1999 By: /s/ Victoria J. Reich
Victoria J. Reich
Vice President and Controller*
*Ms. Reich is signing this report both as a duly
authorized officer and as the principal accounting
officer.
EXHIBIT 10
BRUNSWICK CORPORATION
1991 STOCK PLAN
(As Amended Through April 21, 1999)
1. Purpose. The purpose of the Brunswick Corporation
1991 Stock Plan (the "Plan") is to promote the long term
financial interests and growth of Brunswick Corporation (the
"Company") by (a) attracting and retaining management
personnel, (b) motivating management personnel by means of
growth-related incentives, (c) providing incentive
compensation opportunities that are competitive with those of
other major corporations, and (d) furthering the identity of
interests of participants with those of the stockholders of
the Company.
2. Definitions. The following definitions are
applicable to the Plan:
"Affiliate" means any entity in which the Company has a
direct or indirect equity interest which is so designated by
the Committee.
"Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute.
"Committee" means the Human Resource and Compensation
Committee of the Board of Directors of the Company.
"Common Stock" means the Common Stock, par value $.75
per share, of the Company or such other securities as may be
substituted therefor pursuant to paragraph 5(c).
The "fair market value" of the Common Stock shall be
determined in accordance with procedures established by the
Committee.
"Participant" means any management employee of the
Company or an Affiliate selected by the Committee.
"Rule 16b-3" means such rule adopted under the
Securities Exchange Act of 1934, as amended, or any successor
rule.
3. Limitation on Aggregate Shares. The number of shares
of Common Stock with respect to which awards may be granted
under the Plan and which may be issued upon the exercise or
payment thereof shall not exceed, in the aggregate, 16,200,000
shares (of which no more than 2,000,000 shares may be awards
granted pursuant to paragraphs 4(c) or (d) after February 9,
1999), except for adjustments provided for in paragraph 5(c)
of the Plan and provided, however, that shares related to
awards that expire unexercised or are forfeited, surrendered,
terminated, cancelled, withheld for taxes, or settled in cash
in lieu of stock or in such manner that all or some of the
shares covered by an award are not issued to a participant
shall immediately become available for additional awards under
the Plan. Such 16,200,000 shares of Common Stock may be
either authorized and unissued shares, treasury shares, or a
combination thereof, as the Committee shall determine.
4. Awards. The Committee may grant to
participants, in accordance with this paragraph 4 and the
other provisions of the Plan, stock options, stock
appreciation rights ("SARs"), restricted stock and other
awards. The maximum number of shares of Common Stock as to
which a participant may receive stock options and stock
appreciation rights under the Plan in 1996 or in any
subsequent calendar year is 300,000 subject to the provisions
of Section 5(c) hereof.
(a) Options.
(i) Options granted under the Plan may be incentive stock
options ("ISOs") within the meaning of Section 422 of the Code
or any successor provision, or in such other form, consistent
with the Plan, as the Committee may determine.
(ii) The option price per share of Common Stock shall be
fixed by the Committee at not less than 100% of the fair
market value of a share of Common Stock on the date of grant,
provided that in no event shall the option price be less than
the par value.
(iii) The Committee may require options other than ISOs to
be purchased by participants for a purchase price determined
by the Committee.
(iv) Options shall be exercisable at such time or times as
the Committee shall determine at or subsequent to grant,
except that no options may be exercised after ten years from
the date of their award.
(v) Options shall be exercised in whole or in part by
written notice to the Company (to the attention of the
Corporate Secretary) and payment in full of the option price.
Payment of the option price may be made, at the discretion of
the optionee, and to the extent permitted by the Committee,
(A) in cash (including check, bank draft, or money order), (B)
in Common Stock (valued at the fair market value thereof on
the date of exercise), (C) by a combination of cash and Common
Stock or (D) with any other consideration (including payment
in accordance with a cashless exercise program under which, if
so instructed by the participant, shares of Common Stock may
be issued directly to the participant's broker or dealer upon
receipt of the option price in cash from the broker or
dealer).
(b) SARs.
(i) An SAR shall entitle its holder to receive from the
Company, at the time of exercise of such right, an amount
equal to the excess of the fair market value (at the date of
exercise) of a share of Common Stock over a specified price
fixed by the Committee multiplied by the number of shares as
to which the holder is exercising the SAR. SARs may be in
tandem with any previously or contemporaneously granted option
or independent of any option. The specified price of a tandem
SAR shall be the option price of the related option. The
amount payable may be paid by the Company in Common Stock
(valued at its fair market value on the date of exercise),
cash or a combination thereof, as the Committee may determine,
which determination shall be made after considering any
preference expressed by the holder.
(ii) An SAR shall be exercised by written notice to the
Company (to the attention of the Corporate Secretary) at any
time prior to its stated expiration. To the extent a tandem
SAR is exercised, the related option will be cancelled and, to
the extent the related option is exercised, the tandem SAR
will be cancelled.
(c) Restricted Stock.
(i) The Committee may award to any participant shares of
Common Stock, subject to this paragraph 4(c) and such other
terms and conditions as the Committee may prescribe (such
shares being called "restricted stock"). Each certificate for
restricted stock shall be registered in the name of the
participant and deposited, together with a stock power
endorsed in blank, with the Company.
(ii) There shall be established for each restricted stock
award a restriction period (the "restriction period") of such
length as shall be determined by the Committee. Shares of
restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as hereinafter
provided, during the restriction period. Except for the
restrictions on transfer and such other restrictions as the
Committee may impose, the participant shall have all the
rights of holder of Common Stock as to such restricted stock.
At the expiration of the restriction period, the Company shall
redeliver to the participant (or the participant's legal
representative) the certificates deposited pursuant to this
paragraph.
(iii) Except as provided by the Committee at the time of
grant or otherwise, upon termination of employment for any
reason during the restriction period all shares still subject
to restriction shall be forfeited by the participant.
(d) Other Awards. Other awards, including, without
limitation, performance shares and other forms of awards
measured in whole or in part by the value of shares, the
performance of the participant or the performance of the
Company, may be granted under the Plan. Such awards may be
payable in Common Stock, cash or both, and shall be subject to
such restrictions and conditions, as the Committee shall
determine. At the time of such an award, the Committee shall,
if applicable, determine a performance period and performance
goals to be achieved during the performance period, subject to
such later revisions as the Committee shall deem appropriate
to reflect significant unforeseen events. Following the
conclusion of each performance period, the Committee shall
determine the extent to which performance goals have been
attained or the degree of achievement between maximum and
minimum levels during the performance period in order to
evaluate the level of payment to be made, if any.
5. Miscellaneous Provisions.
(a) Administration. The Plan shall be administered by the
Committee. Subject to the limitations of the Plan, the
Committee shall have the sole and complete authority: (i) to
select participants in the Plan, (ii) to make awards in such
forms and amounts as it shall determine, (iii) to impose such
limitations, restrictions and conditions upon such awards as
it shall deem appropriate, (iv) to interpret the Plan and to
adopt, amend and rescind administrative guidelines and other
rules and regulations relating to the Plan, (v) to correct any
defect or omission or to reconcile any inconsistency in the
Plan or in any award granted hereunder and (vi) to make all
other determinations and to take all other actions necessary
or advisable for the implementation and administration of the
Plan. The Committee's determinations on matters within its
authority shall be conclusive and binding upon the Company and
all other persons. All expenses associated with the Plan
shall be borne by the Company, subject to such allocation to
its Affiliates and operating units as it deems appropriate.
The Committee may, to the extent that such action will not
prevent the Plan from complying with Rule 16b-3, delegate any
of its authority hereunder to such persons as it deems
appropriate.
(b)Transferability. An award under the Plan may be
transferred only (i) by will or the laws of descent
and distribution, (ii) in accordance with
guidelines established by the Committee, or (iii)
pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules
thereunder (but only if permitting such transfer
will not affect the status of the award under the
Code). Any purported transfer contrary to this
provision will nullify the award.
(c)Changes in Capitalization and Similar Changes. In
the event that each of the outstanding shares of
Common Stock shall be changed into or exchanged for
a different number or kind of shares of stock or
securities of the Company or of another corporation
(whether by reason of merger, consolidation,
recapitalization, reclassification, stock dividend,
stock split, combination of shares, or otherwise),
then there shall be substituted for each share of
Common Stock then offered or available for offer
under the Plan the number and kind of shares of
stock into which such outstanding shares of the
Common Stock of the company shall be so changed or
for which such shares shall be so exchanged. The
Committee in its sole discretion shall make any
equitable adjustments as may be necessary. No
fraction of a share of Common Stock shall be
delivered if an adjustment in the number of shares
is necessary. In the event of a spin-off,
extraordinary dividend or other distribution or
similar transaction, the Committee may adjust
equitably the exercise price of any outstanding
options or the terms of any outstanding SARs.
(d)Tax Withholding. The Committee shall have the
power to withhold, or require a participant to
remit to the Company, an amount sufficient to
satisfy any withholding or other tax due with
respect to any amount payable and/or shares
issuable under the Plan, and the Committee may
defer such payment or issuance unless indemnified
to its satisfaction. A participant may elect to
have shares of Common Stock otherwise issuable
under an award withheld, tender back to the Company
shares of Common Stock received pursuant to an
award or deliver to the Company previously acquired
shares of Common Stock having a fair market value
sufficient to satisfy all or part of the Company's
withholding tax obligations for the participant
associated with the transaction. Such election
must be made by a participant prior to the date on
which the tax obligation arises.
(e)Listing and Legal Compliance. The Committee may
suspend the exercise or payment of any award so
long as it determines that securities exchange
listing or registration or qualification under any
securities laws is required in connection therewith
and has not been completed on terms acceptable to
the Committee.
(f)Rights to Participants. Nothing in the Plan shall
interfere with or limit in any way the right of the
Company to terminate any participant's employment
at any time, nor confer upon any participant any
right to continue in the employ of the Company for
any period of time or to continue his or her
present or any other rate of compensation. No
employee shall have a right to be selected as a
participant, or, having been so selected, to be
selected again as a participant.
(g)Amendment, Suspension and Termination of Plan. The
Board of Directors or the Committee may suspend or
terminate the Plan or any portion thereof at any
time and may amend it from time to time in such
respects as the Board of Directors or the Committee
may deem advisable; provided, however, that no such
amendment shall be made, without stockholder
approval to the extent such approval is required by
law, agreement or the rules of any exchange upon
which the Common Stock is listed. No such
amendment, suspension or termination shall impair
the rights of participants affected thereby or make
any change that would disqualify the Plan, or any
other plan of the Company intended to be so
qualified, from the exemption provided by Rule 16b-
3.
The Committee may amend or modify any award in any
manner to the extent that the Committee would have
had the authority under the Plan to initially grant
such award, except that the Committee may not
adjust the exercise price of any options other than
as provided in Section 5(c) hereof. No such
amendment or modification shall impair the rights
of any participant under any award without the
consent of such participant.
6. Change in Control. "Change in Control" of the Company
means the occurrence of any of the following events:
(a) any Person other than a trustee or other fiduciary of
securities held under an employee benefit plan of the Company
or any of its subsidiaries, is or becomes a Beneficial Owner,
directly or indirectly, of stock of the Company representing
30% or more of the total voting power of the Company's then
outstanding stock and securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in Clause (A) of paragraph (d), below;
(b) a tender offer (for which a filing has been made
with the Securities and Exchange Commission ("SEC")
which purports to comply with the requirements of
Section 14(d) of the Securities Exchange Act of 1934
and the corresponding SEC rules) is made for the
stock of the Company, which has not been negotiated
and approved by the Board of Directors of the
Company, then the first to occur of
(i) any time during the offer when the Person making the
offer owns or has accepted for payment stock of the Company
with 25% or more of the total voting power of the Company's
stock, or
(ii) three business days before the offer is to terminate
unless the offer is withdrawn first if the Person making the
offer could own, by the terms of the offer plus any shares
owned by this Person, stock with 50% or more of the total
voting power of the Company's stock when the offer terminates;
(c) individuals who, as of the date hereof,
constitute the Board of Directors (the "Incumbent
Board") of the Company, cease for any reason to
constitute a majority thereof; provided, however,
that any individual becoming a director whose
election, or nomination for election by the
Company's stockholders, was approved by a vote of at
least 75% of the directors then comprising the
Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a
result of an actual or threatened election contest
with respect to the election or removal of directors
or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person
other than the Board of Directors of the Company;
(d) there is consummated a merger or
consolidation of the Company (or any direct or
indirect subsidiary of the Company) with any other
corporation, other than (A) a merger or
consolidation which would result in the voting
securities of the Company outstanding immediately
prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by
being converted into voting securities of the
surviving entity or any parent thereof) at least
75% of the combined voting power of the stock and
securities of the Company or such surviving entity
or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger
or consolidation effected to implement a
recapitalization of the Company ( or similar
transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of stock
and securities of the Company representing more than
25% of the combined voting power of the Company's
then outstanding stock and securities; or
(e) the stockholders of the Company approve a
plan of complete liquidation or dissolution of the
Company or there is consummated an agreement for the
sale or disposition by the Company of all or
substantially all of the Company's assets other than
a sale or disposition by the Company of all or
substantially all of the assets to an entity at
least 75% of the combined voting power of the stock
and securities which is owned by Persons in
substantially the same proportions as their
ownership of the Company's voting stock immediately
prior to such sale.
"Person" shall mean any person (as defined in
Section 3(a)(9) of the Securities Exchange Act (the
"Exchange Act"), as such term is modified in Section
13(d) and 14(d) of the Exchange Act) other than (1)
any employee plan established by the Company, (2)
the Company or any of its affiliates (as defined in
Rule 12b-2 promulgated under the Exchange Act), (3)
an underwriter temporarily holding securities
pursuant to an offering of such securities, or (4) a
corporation owned, directly or indirectly, by
stockholders of the Company in substantially the
same proportions as their ownership of the Company.
"Beneficial Owner" shall mean beneficial owner as
defined in Rule 13d-3 under the Exchange Act.
The Committee may provide in any award that in the
event of a Change in Control, the participant may (a) exercise
any outstanding Options or SARs which would not then be
exercisable by the participant absent the Change in Control;
(b) require the Company to release all restrictions on shares
of restricted stock awarded to the participant; and (c)
require the Company to pay the participant the fair value
(prorated to the date of the Change in Control) of any other
awards under the Plan then held by the participant.
_______________________
NOTES:
1. On October 24, 1995 the Board of Directors amended the
Plan to increase the number of authorized shares under the
Plan from 5,000,000 to 11,200,000 and to provide that no
participant may receive stock options and appreciation rights
with respect to more than 300,000 shares under the 1991 Plan
in 1996 or any subsequent calendar year. These amendments
were approved by stockholders on April 24, 1996.
2. On July 28, 1998 the Board of Directors amended the
definition of Change in Control of the Company and eliminated
holding periods for stock options previously required by
Section 16(b) of the Securities Exchange Act of 1934.
3. On February 9, 1999 the Board of Directors amended (i)
paragraph 3 to provide that no more than 2,000,000 shares may
be awards of restricted stock granted after February 9, 1999,
(ii) paragraph 4(a) to eliminate the provision that the option
price could be reduced below the fair market value if the
participant forgoes current or deferred cash compensation in
an amount equal to the reduction, (iii) paragraph 5(d) to
eliminate the provision that the Committee had to consent to
tax withholding and could disapprove or limit any tax
withholding election, and (iv) paragraph 5(g) to provide that
the Committee could not adjust the exercise price of options
other than as provided in paragraph 5(c).
4. On February 9, 1999 the Board of Directors also amended
the plan to increase the
number of authorized shares under the plan from 11,200,000 to
16,200,000, subject to stockholder approval. This amendment
was approved by the stockholders on April 21, 1999.
5. On April 21, 1999 the Board of Directors amended paragraph
3 to provide that no more than 2,000,000 shares may be awards
granted pursuant to paragraphs 4(c) and (d) after February 9,
1999. The Board of Directors also amended paragraph 4(a)(iv)
to provide that no options may be exercisable after ten years
from the date of award.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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