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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission file number 1-1043
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BRUNSWICK CORPORATION
(Exact name of registrant in its charter)
Delaware 36-0848180
(State of incorporation) (I.R.S. Employer Identification No.)
1 N. Field Ct. 60045-4811
Lake Forest, Illinois (zip code)
(Address of principal executive
offices)
(847) 735-4700
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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<S> <C>
Common Stock ($.75 par New York, Chicago, Pacific,
value) and London Stock Exchanges
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Securities Registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 23, 2000, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $1,669,854,576. Such number excludes
stock beneficially owned by officers and directors. This does not constitute
an admission that they are affiliates.
The number of shares of Common Stock ($.75 par value) of the registrant
outstanding as of February 23, 2000, was 91,813,310.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates by reference certain
information that will be set forth in the Company's definitive Proxy Statement
for the Annual Meeting scheduled to be held on April 26, 2000.
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PART I
Item 1. Business
Brunswick Corporation (the Company) is the global leader in consumer
products for active recreation with leading brands in pleasure boating, marine
engines, fitness equipment, fishing, camping, bowling, billiards and biking.
Its major brands include Mercury and Mariner outboard engines; Mercury
MerCruiser sterndrives and inboard engines; Mercury Precision Parts and marine
accessories; Sea Ray, Bayliner and Maxum pleasure boats; Baja high-performance
boats; Boston Whaler, Trophy and Robalo offshore fishing boats; Zebco,
Quantum, Martin and Browning fishing reels and reel/rod combinations;
MotorGuide, Pinpoint and Thruster electric trolling motors; Swivl-Eze marine
accessories; American Camper and Remington camping products; Remington and
Weather-Rite apparel; Igloo ice chests and beverage coolers and Kool Mate
thermoelectric products; Hoppe's shooting sports accessories; Mongoose Pro,
Mongoose and Roadmaster bicycles; Brunswick Recreation Centers and Brunswick
bowling capital equipment, supplies and consumer products; Life Fitness,
Hammer Strength and ParaBody fitness equipment; and Brunswick billiards
tables.
Since mid-1995, the Company has been implementing growth strategies to
expand its active recreation business by creating superior products and
services, pursuing innovation, aggressively marketing its leading brands and
acquiring complementary businesses to enhance growth of its core products.
Further, the Company focuses on effective cost management and investment in
technology to enhance its cost position.
The Company operates in four segments: Marine Engine, Boat, Outdoor
Recreation and Indoor Recreation. See Note 3 to consolidated financial
statements on pages 37 to 39 for financial information about these segments.
Marine Engine Segment
The Marine Engine segment consists of Mercury Marine. The Company believes
its Marine Engine segment has the largest dollar sales volume of recreational
marine engines in the world.
Mercury Marine markets and manufactures a full range of outboard engines,
sterndrives and inboard engines, and propless water-jet systems under the
familiar Mercury, Mariner, Mercury MerCruiser and Mercury SportJet brand
names. A portion of Mercury Marine's outboards and parts and accessories,
including steering systems, instruments, controls, propellers, service aids
and marine lubricants, are sold directly to end-users through dealers. The
remaining outboards and virtually all of the sterndrives, inboard engines and
water-jet systems are sold to either independent boat builders or to the
Company's boat units.
Mercury Marine has five OptiMax outboard engines ranging from 115
horsepower to 250 horsepower, which feature Mercury's new direct fuel
injection (DFI) technology, and Mercury Marine intends to introduce a 175-
horsepower OptiMax engine in 2000. DFI is part of Mercury's plan to reduce
engine emissions by 75 percent by 2006 to comply with U.S. Environmental
Protection Agency requirements. Mercury's line of low-emission engines also
includes four-cycle outboards ranging from 4 horsepower to 90 horsepower, and
Mercury Marine intends to introduce 60-horsepower and 115-horsepower four-
cycle outboards in 2000. These OptiMax and four-cycle outboards meet the EPA's
reduced emission levels. The California Air Resource Board has mandated that
the EPA's 2006 emission levels be met by 2001 in California and has scheduled
further emission reductions for 2004 and 2008. Mercury's OptiMax and four-
cycle outboards meet the California 2001 requirements, and some of these
engines meet the 2004 standards. Mercury Marine believes that it will be able
to satisfy the 2004 and 2008 California standards.
Mercury Marine expanded its product offerings in the international market
with the acquisition of a boat-manufacturing company, J.J. Savage and Sons
Boat Company in Melbourne, Australia, and a boat marketing and sales company,
Saint Cast Marine, in Saint Cast, France. Aluminum, fiberglass and inflatable
boats are produced by, or for, Mercury in Australia, France, Portugal, Sweden
and Norway for distribution in local markets. These boats are marketed under
the brand names Armor, Arvor, Askaladden, Bermuda, Mercury, Ornvik,
Quicksilver, Savage, Uttern and Valiant.
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Domestic retail demand for the Marine Engine segment's products is seasonal
with sales generally highest in the second quarter. Adverse weather, including
but not limited to excessive rain, prolonged below average temperatures and
severe heat or drought, in key geographical areas, can significantly influence
demand over the short-term, particularly in the key selling season. Demand for
marine engines is influenced by a number of other factors, including consumer
education about boating, economic conditions and, to some extent, prevailing
interest rates and consumer confidence.
Boat Segment
The Boat segment consists of Sea Ray and US Marine, marketers and
manufacturers of fiberglass pleasure and offshore fishing boats. The Company
believes its boat segment has the largest dollar sales volume of pleasure
boats in the world.
Sea Ray, best recognized for its luxury yachts, cruisers and sport boats
marketed and manufactured under the same name, also markets and manufactures
Baja high-performance boats and Boston Whaler offshore fishing boats. Sea Ray
obtains its outboard motors and its gasoline sterndrives and gasoline inboard
engines from Mercury Marine.
US Marine markets and manufactures Bayliner motor yachts, cruisers and
runabouts, Maxum cruisers and runabouts, and Trophy and Robalo sport fishing
boats. Escort boat trailers also are produced by US Marine and are sold with
smaller boats as part of boat-motor-trailer packages. US Marine obtains its
outboard motors, gasoline sterndrives and gasoline inboard engines from
Mercury Marine.
The Boat segment's products are sold directly to end-users through dealers.
Sales to one dealer, with multiple locations, comprised more than 10 percent
of Boat segment sales in 1999. Domestic retail demand for pleasure boats is
seasonal with sales generally highest in the second quarter. Adverse weather,
including but not limited to excessive rain, prolonged below average
temperatures and severe heat or drought, in key geographical areas, can
significantly influence demand over the short-term, particularly in the key
selling season. Demand for pleasure boats is influenced by a number of other
factors, including consumer education about boating, economic conditions and,
to some extent, prevailing interest rates and consumer confidence.
Outdoor Recreation Segment
The Outdoor Recreation segment consists of the Zebco, Brunswick Bicycles
and Igloo businesses.
Zebco markets and manufactures fishing equipment, and the Company believes
that it holds the leading domestic market share of fishing reels and reel/rod
combinations under the Zebco, Quantum, Martin, Lew's and Browning brands.
Zebco also manufactures and sells fishing pedestals, ski tows, pylons and
electric trolling motors under the MotorGuide, Pinpoint and Swivl-Eze brands
for anglers and for use by boat manufacturers, including the Company's boat
units. Zebco expanded its product offerings with the acquisition in September
1999, of Pinpoint, pioneers in the integration of sonar, fish-finder and
trolling-motor technology. The Company believes Zebco has the largest dollar
sales volume of trolling motors in the United States. In addition, Zebco
markets and manufactures camping products, which include sleeping bags, tents,
backpacks, canvas bags, foul-weather gear, waders, hunting apparel, propane
lanterns and stoves, cookware and utensils under the American Camper and
Remington brands; sleeping bags under the Igloo brand; and shooting sports
accessories under the Hoppe's brand.
Brunswick Bicycles currently designs, markets and manufactures bicycles
under the Mongoose Pro, Mongoose and Roadmaster brands. See Note 4 to the
consolidated financial statements on pages 39 to 40 for the strategic actions
taken to exit bicycle manufacturing, to source bicycles from Asia and to
streamline product offerings.
Igloo markets and manufactures ice chests, beverage coolers and
thermoelectric products. The Company believes that Igloo is the domestic
market leader in ice chests, beverage coolers and thermoelectric products.
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The Company's outdoor recreational products are sold by Company sales
personnel and manufacturers' representatives to mass merchants, retailers,
distributors, dealers and original equipment manufacturers. Sales to one mass
merchant customer comprised a substantial portion of the segment's sales. The
Company also sells certain products directly to consumers. Outdoor
recreational products are distributed worldwide from warehouses, sales offices
and factory stocks of merchandise.
Domestic retail demand for the Outdoor Recreation segment's products is
seasonal, with sales generally highest in the second and third quarters.
Adverse weather, including but not limited to excessive rain, prolonged below
average temperatures and severe heat or drought, in key geographical areas,
can significantly influence demand over the short-term, particularly in the
key selling season.
Indoor Recreation Segment
The Indoor Recreation segment includes the Brunswick Indoor Recreation
Group (BIRG) and the Life Fitness and Brunswick Billiards businesses.
BIRG is the leading manufacturer of bowling products, including bowling
balls and capital equipment, which includes bowling lanes, automatic
pinsetters, ball returns, seating and locker units. BIRG also sells
computerized bowling-scoring equipment, which is manufactured to its
specifications.
BIRG operates 125 bowling recreation centers worldwide, and its joint
ventures operate 28 centers. Recreation centers offer bowling and, depending
on size and location, the following activities and services: billiards, video
games, children's playrooms, restaurants and cocktail lounges. Five of BIRG's
locations operate as entertainment centers, which in addition to the above
activities, offer expanded and enhanced game, billiards, restaurant and
entertainment facilities. All of the centers offer Cosmic Bowling, a glow-in-
the-dark bowling experience that transforms bowling into a new and enhanced
form of recreation. Approximately 50 percent of the recreation center
facilities are owned by the Company.
BIRG has a 50 percent interest in Nippon Brunswick K. K., which sells
bowling equipment and operates bowling centers in Japan. BIRG has other joint
ventures to (i) build, own and operate bowling centers and family
entertainment centers in Thailand, which include bowling, billiards and other
games, and (ii) sell bowling equipment in China and Thailand.
The Company believes Life Fitness is the largest commercial fitness
equipment provider in the world. Life Fitness designs, markets and
manufactures a full line of reliable, high-quality cardiovascular fitness
equipment (including treadmills, cross-training equipment and stationary
bikes) and strength-training fitness equipment under the Life Fitness, Hammer
Strength and ParaBody brands. Life Fitness serves the commercial (health
clubs, gyms, professional sports teams, military, government, corporate and
university facilities) and high-end consumer markets.
Brunswick Billiards designs and markets billiards tables, billiards balls,
cues and related accessories under the Brunswick brand. Brunswick Billiards
domestically and internationally serves the commercial and consumer markets.
The Company believes it has the largest dollar sales volume of billiards
tables in the world.
The Company's indoor recreational products and services are sold through a
variety of channels, including mass merchants, distributors, dealers, bowling
centers and retailers, and directly to customers. Indoor recreational products
are distributed worldwide from regional warehouses, sales offices and factory
stocks of merchandise. Demand for the Indoor Recreation segment's products is
seasonal, with sales generally highest in the first and fourth quarters.
International Operations
The Company's sales to customers in international markets were $831.0
million (19.4 percent of net sales) and $806.8 million (20.5 percent of net
sales) in 1999 and 1998, respectively. In 1999, sales to Europe and the
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Pacific Rim were 52.0 percent and 18.8 percent, respectively, of foreign
sales. Sales of marine engine products comprised the largest share of
international sales in 1999. The Company's international sales are set forth
in Note 3 to the consolidated financial statements on pages 37 to 39.
Mercury Marine has a product customization plant and distribution center in
Belgium, sales and distribution centers in Australia, Brazil, China, Japan,
Malaysia, Mexico, New Zealand, Panama and Singapore and sales offices in
Australia, Belgium, Brazil, Columbia, Denmark, France, Germany, Indonesia,
Italy, Netherlands, Norway, Russia and Sweden. Mercury Marine has assembly
plants in Australia, France, Sweden and Mexico. Mercury Marine also operates a
marina in China.
Mercury Marine engines and Sea Ray and US Marine boats are sold worldwide
through dealers. US Marine has a sales office in France. Sea Ray has product
display offices in France and Brazil and a sales office in the Netherlands.
The Outdoor Recreation segment sells its products worldwide and has sales
and distribution centers in Brazil, France, Germany and the United Kingdom and
a distribution center in Canada.
BIRG sells its products worldwide, has sales offices in various countries,
and a plant that manufactures pinsetters in Hungary. BIRG operates recreation
centers in Canada, Austria and Germany and has joint ventures in Asia that
sell bowling equipment and/or operate bowling centers.
Life Fitness sells its products worldwide and has sales and distribution
centers in Brazil, Germany, Hong Kong, Japan, the Netherlands and the United
Kingdom as well as sales offices in Austria and Italy.
Raw materials
Raw materials are purchased from various sources. At present, the Company
is not experiencing any critical raw material shortages nor are any
anticipated. General Motors Corporation is the sole supplier of engine blocks
used to manufacture the Company's gasoline sterndrive engines.
Patents, trademarks and licenses
The Company has, and continues to obtain, patent rights, consisting of
patents and patent licenses, covering certain features of the Company's
products and processes. The Company's patents, by law, have a limited life,
and rights expire periodically.
In the Marine Engine segment, patent rights principally relate to features
of outboard engines and inboard-outboard drives, including die-cast
powerheads, cooling and exhaust systems, drive train, clutch and gearshift
mechanisms, boat/engine mountings, shock absorbing tilt mechanisms, ignition
systems, propellers, spark plugs and fuel and oil injection systems.
In the Outdoor Recreation segment, patent rights principally relate to
fishing reels, electric trolling motors, bicycles, ice chests, coolers and
thermoelectric products. In the Indoor Recreation segment, patent rights
principally relate to computerized bowling scorers and business information
systems, bowling lanes and related equipment, bowling balls, fitness equipment
and billiards table designs and components.
While the Company believes that marine engine, fitness equipment and
outdoor recreation patents are important to its competitive position in these
businesses, the Company believes that future success in all of its businesses
is mainly dependent upon its engineering, manufacturing and marketing
capabilities.
The following are trademarks or registered trademarks of the Company: ACS,
Air-Hockey, American Camper, Anvilane Pro Lane, Baja, Ball Wall, Bayliner,
Boston Whaler, Brunswick, Brunswick Billiards, Brunswick Zone, Capri,
Centennial, Clearview, Cosmic Bowling, DBA Products, Elite, Energy, Engine
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Guardian, Frameworx, Gold Crown, Hammer Strength, Hoppe's, Horizon,
HyperDrive, Igloo, Kool Mate, Lifecycle, Life Fitness, Lightworx, Mariner,
Martin, Maxum, MercNet, MerCruiser, Mercury, MercuryCare, Mercury Marine,
Mercury Precision Parts, Mercury Racing, Mongoose, Mongoose Pro, MotorGuide,
OptiMax, ParaBody, Pinpoint, Playmate, ProMax, Q Care, Quantum, QuickFit,
Quicksilver, Roadmaster, Robalo, SeaPro, Sea Ray, Softmate, SpaceMate,
SportJet, Swivl-Eze, Throbot, Thruster, TiMAG, Troll Control, Trophy, True
Technologies, Typhoon, U.S. Play by Brunswick, WaterMouse, Zebco and Zone.
These trademarks have indefinite lives, and many of these trademarks are well
known to the public and are considered valuable assets of the Company.
Brunswick uses the Browning trademark under licenses expiring in 2025 with two
renewal terms of 33 years each, the Remington trademark under licenses
expiring on December 31, 2000 with renewal terms expiring on December 31,
2006, and the Lew's trademark under a license expiring on June 14, 2009, with
automatic one-year renewals thereafter.
Competitive conditions and position
The Company believes that it has a reputation for quality in its highly
competitive lines of business. The Company competes in its various markets by
utilizing efficient production techniques and innovative marketing,
advertising and sales efforts, and by providing high-quality products at
competitive prices.
Strong competition exists with respect to each of the Company's product
groups, but no single manufacturer competes with the Company in all product
groups. In each product area, competitors range in size from large, highly
diversified companies to small single-product businesses. The following
summarizes the Company position in each segment.
Marine Engine. The Company believes it has the largest dollar sales volume
of recreational marine engines in the world. The marine engine market is
highly competitive among several major companies and many smaller ones. There
are also many competitors in the highly competitive marine accessories
business. Competitive advantage in the marine engine and accessories markets
is a function of product features, technology leadership, quality, service,
performance, durability, effective distribution and pricing.
Boat. The Company believes it has the largest dollar sales volume of
pleasure boats in the world. There are many manufacturers of pleasure and
offshore fishing boats; consequently, this business is highly competitive. The
Company competes on the basis of product features and technology, quality,
dealer service, performance, value, durability, styling, effective
distribution and pricing.
Outdoor Recreation. The Company competes directly with many manufacturers
of recreational products and faces increasing competition from Asian
competitors and from customers sourcing their products directly. In view of
the diversity of its recreational products, the Company cannot identify the
number of its competitors. The Company believes, however, that in the United
States, it is one of the largest manufacturers and marketers of fishing reels,
bicycles, sleeping bags, ice chests, beverage coolers, and thermoelectric
products. For these recreational products, competitive emphasis is placed on
product innovation, quality, marketing activities, cost, pricing and the
ability to meet delivery and performance requirements.
Indoor Recreation. The Company believes it is the world's largest
manufacturer of bowling capital equipment, billiards tables, commercial
fitness equipment, and one of the largest manufacturers of consumer fitness
equipment. Certain bowling products, such as automatic scorers and
computerized management systems, many billiards table designs and many fitness
equipment products represent innovative developments in the market. (See Item
3, Legal Proceedings, for a description of certain litigation involving
fitness equipment patents.) Competitive emphasis also is placed on quality,
marketing activities, pricing and service. The Company believes it has the
largest fitness equipment service network in the United States. The Company
operates 125 recreation centers worldwide. Each center competes directly with
centers owned by other parties in its immediate geographic area. Competitive
emphasis is, therefore, placed on customer service, quality facilities and
personnel, and pricing.
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Research and development
The Company's research and development investments, relating to new
products or to the improvement of existing products, are shown below:
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1999 1998 1997
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(In millions)
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Marine Engine........................................... $53.3 $49.7 $59.6
Boat.................................................... 17.7 17.6 15.3
Outdoor Recreation...................................... 3.7 3.6 3.3
Indoor Recreation....................................... 18.7 16.6 11.2
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$93.4 $87.5 $89.4
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Number of employees
The number of employees at December 31, 1999, is shown below by segment:
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Marine Engine...................................................... 6,700
Boat............................................................... 8,960
Outdoor Recreation................................................. 3,500
Indoor Recreation.................................................. 7,300
Corporate.......................................................... 140
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26,600
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There are approximately 2,200 employees in the Marine Engine segment, 620
employees in the Outdoor Recreation segment and 475 employees in the Indoor
Recreation segment who are represented by labor unions. The Company believes
that it has good relations with these labor unions.
Environmental requirements
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. The Company has established reserves based on current cost
estimates to cover all known claims. The Company believes that compliance with
federal, state and local environmental laws will not have a material effect on
the Company's capital expenditures, earnings or competitive position.
Item 2. Properties
The Company's headquarters are located in Lake Forest, Illinois. The
Company has numerous manufacturing plants, distribution warehouses, sales
offices and test sites. Research and development facilities are division-
related, and most are located at individual manufacturing sites.
The Company's plants are deemed to be suitable and adequate for the
Company's current needs. The Company believes that all of its properties are
well maintained and in good operating condition. Most plants and warehouses
are of modern, single-story construction, providing efficient manufacturing
and distribution operations. The Company's plants are operating at
approximately 79 percent of current capacity. The Company's headquarters and
most of its principal plants are owned by the Company.
Two plants where Mercury Marine boats are manufactured, in Skellefthamn,
Sweden, and Saint Cast, France, are leased.
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The two Texas plants, where Igloo products are manufactured, are leased.
One of these leases expires in 2003; the other expires in 2004 and has renewal
terms extending to 2029 with an option to purchase. The principal warehouse
for Igloo products in Houston, Texas, is leased until 2003. The offices and
warehouse for the American Camper business in Lenexa, Kansas, are leased until
2004 with renewal options to 2014. Two sleeping bag manufacturing plants are
leased. The sleeping bag plant in Haleyville, Alabama, is leased until 2007
with renewal options to 2016 and an option to purchase. The plant in St.
George, Utah, is leased until August 31, 2000. Zebco leases warehouse space in
Tulsa, Oklahoma, and contracts for warehouse facilities in Dauphin, Manitoba,
Canada.
Three plants where bicycles are manufactured, one in Olney, Illinois, and
two in Mexico, are leased. In conjunction with the restructuring of its
bicycle operations, the Company is exiting the two Mexican plants. The plant
in Olney, Illinois, is leased until 2001 with renewal terms extending to 2026
and will be used for warehousing and distribution.
The principal warehouse for the Life Fitness Division in Franklin Park,
Illinois, is leased through 2011 with an option to purchase in December 2000.
A Life Fitness plant in Paso Robles, California, is leased until 2003.
Approximately 50 percent of BIRG's recreation centers, one test facility
and six distribution centers are leased.
The Company's primary facilities are in the following locations:
Marine Engine
Placida and St. Cloud, Florida; Stillwater, Oklahoma; Fond du Lac,
Milwaukee and Oshkosh, Wisconsin; Melbourne, Australia; Petit Rechain,
Belgium; Saint Cast, France; Juarez, Mexico; and Skellefthamn, Sweden.
Boat
Phoenix, Arizona; Edgewater, Merritt Island, Palm Coast and Tallahassee,
Florida; Valdosta, Georgia; Cumberland and Salisbury, Maryland; Pipestone,
Minnesota; Bucyrus, Ohio; Claremore and Miami, Oklahoma; Roseburg, Oregon;
Dandridge, Knoxville and Vonore, Tennessee; and Arlington and Spokane,
Washington.
Outdoor Recreation
Haleyville, Alabama; Olney, Illinois; Lenexa, Kansas; Starkville,
Mississippi; Tulsa, Oklahoma; Coatesville, Pennsylvania; Houston, Katy and
Lancaster, Texas; St. George, Utah.
Indoor Recreation
Paso Robles, California; Franklin Park, Illinois; Falmouth, Kentucky;
Muskegon, Michigan; Ramsey, Minnesota; Bristol, Wisconsin; Szekesfehervar,
Hungary; and 125 recreation centers in the United States, Canada and Europe.
Item 3. Legal Proceedings
On June 19, 1998, a jury awarded $133.2 million, after trebling, in damages
to Independent Boat Builders, Inc., a buying group of boat manufacturers and
22 of its members, in a suit brought against the Company in December 1995. 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 was
trebled, and plaintiffs were awarded attorneys' fees and interest on both the
award and attorneys' fees. Under current law, any and all amounts paid by the
Company will be deductible for tax purposes.
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The Company filed an appeal contending the Concord verdict was erroneous as
a matter of law, both as to liability and damages, and plaintiffs filed a
cross appeal. Oral argument was heard by the appeals court in September 1999,
and the Company is currently awaiting a ruling.
Following the Concord verdict, six additional suits were filed, including
five class-action lawsuits seeking to rely on the allegations and findings of
that verdict. The Company has reached agreements to settle or dismiss all of
these lawsuits. As a result, the Company recorded a charge to operating
earnings of $116.0 million in 1999. Payments relating to these settlements
totaled $57.6 million in 1999, with the remainder expected to be paid through
2001. The settled lawsuits are described below.
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 sought to represent a class of all allegedly
similarly situated boat builders whose claims were not resolved in Concord or
in other judicial proceedings.
On December 23, 1998, Volvo Penta of the Americas, Inc., the Company'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
invoked the antitrust allegations of the Concord action and sought injunctive
relief and damages in an unspecified amount for an unspecified time period.
On February 10, 1999, a former dealer of the Company's 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), sought class status purporting
to represent a class of all marine dealers who purchased directly from the
Company sterndrive or inboard engines or boats equipped with sterndrive or
inboard engines during the period January 1, 1986, to June 30, 1998. 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 September 16, 1999, another suit, Howard S. Cothran, d/b/a Sonny's Marine
v. Brunswick Corporation (Cothran), was filed in the United States District
Court for the Southern District of Illinois 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 sought to represent a class of all indirect purchasers of
boats equipped with Brunswick sterndrive or inboard engines in these 17
jurisdictions. The plaintiff claimed damages in an unspecified amount during
the period from 1986 to the filing of the complaint and also requested
injunctive relief.
The settlement with the boat builders comprising the named class in KK
Motors included a subgroup of boat builders, the American Boatbuilders
Association (ABA). Under the terms of the agreement with the ABA, the Company
has paid the ABA $35 million. If, as a result of the Concord appeal or in
settlement, the Company ultimately makes a payment to the Concord plaintiffs
in excess of $35 million, the Company will make an equal payment to the ABA,
less $35 million already paid to the ABA. If the Company makes no payment to
the Concord plaintiffs, or payment in an amount less than $35 million, the
Company will not be required to make any additional payment to the ABA. In
addition, as part of the Volvo settlement, the Company has entered into a
long-term supply agreement to purchase diesel sterndrive and inboard engines
from Volvo for use in certain models of boats manufactured by the Company. The
Couch and KK Motors class-action settlements are subject to approval by the
courts.
While there can be no assurance, the Company believes it is likely to
prevail on the Concord appeal and obtain either a new trial or judgment in its
favor. In addition, the Company is unable to predict the outcome of
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the Concord case, and accordingly, no expense for this case has been recorded.
If the Concord judgment is sustained after all appeals, however, the
additional amounts the Company would be required to pay to conclude all of the
lawsuits described above would total, as of the date of the filing of this
1999 Annual Report on Form 10-K, approximately $262 million.
On October 26, 1999, a jury awarded Precor, a subsidiary of Illinois Tool
Works, Inc., approximately $5.2 million in a patent infringement trial against
Life Fitness, on the basis that certain Life Fitness treadmills willfully
infringed a Precor design patent. Precor was awarded up to $5.3 million in
attorneys' fees and will be entitled to prejudgment interest on the damage
award. The Company will appeal the verdict and award of attorneys' fees. While
there can be no assurance, the Company believes it is likely to prevail on the
Precor appeal and obtain either a new trial or judgment in its favor. In
addition, the Company is unable to predict the outcome of the Precor case, and
accordingly, no expense for this case has been recorded.
On October 27, 1999, the United States Tax Court issued a ruling that
upheld the Internal Revenue Service determination that resulted in an increase
in the short-term capital gains and income distributions from two partnership
investments for 1990 and 1991. This decision increases the Company's tax
liability relating to those years by approximately $60 million, plus accrued
interest, but will not have an unfavorable effect on the Company's results of
operations. The Company is awaiting a final determination from the IRS and is
evaluating whether to appeal this decision.
The Federal Trade Commission (FTC) began an investigation in 1997 of
certain of the Company's marketing practices related to the sale of sterndrive
marine engines to boat builders and dealers. The Company believes such
practices were lawful; however, they were discontinued for business reasons
prior to the initiation of the FTC's investigation.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Company
The Company's executive officers are listed in the following table:
<TABLE>
<CAPTION>
Officer Present Position Age
------- ----------------------------------------------------- ---
<S> <C> <C>
Peter N. Larson*........ Chairman and Chief Executive Officer 60
George W. Buckley*...... Executive Vice President 54
Peter B. Hamilton*...... Executive Vice President 53
Dudley E. Lyons*........ Senior Vice President--Strategic Business Development 59
and Chairman--US Marine
Victoria J. Reich*...... Senior Vice President and Chief Financial Officer 42
William J. Barrington*.. Vice President and President--Sea Ray Group 49
Kathryn J. Chieger...... Vice President--Corporate and Investor Relations 51
B. Russell Lockridge.... Vice President and Chief Human Resources Officer 50
Dustan E. McCoy......... Vice President, General Counsel and Secretary 50
Augustine L. Nieto*..... Vice President and President--Life Fitness Division 42
Richard S. O'Brien...... Vice President and Treasurer 50
James A. Schenk......... Vice President--Acquisitions 57
Robert L. Sell.......... Vice President and Chief Information Officer 49
Judith P. Zelisko....... Vice President--Tax 49
John D. Russell......... President--US Marine Division 47
</TABLE>
- --------
*Members of the Operating Committee
9
<PAGE>
There are no family relationships among these officers. The term of office
of all elected officers expires April 26, 2000. The Group and Division
Presidents are appointed from time to time at the discretion of the Chief
Executive Officer.
Peter N. Larson has been Chairman and Chief Executive Officer of the
Company since 1995. He was an Executive Officer, Johnson & Johnson, a leading
health care company, from 1991 to 1995, where he served as Chairman of the
Worldwide Consumer and Personal Care Group and a member of the Executive
Committee and the Board of Directors.
George W. Buckley became Executive Vice President in February 2000 and has
been President--Mercury Marine Group since 1997 with responsibility for the
Igloo Division since 1999. He was Senior Vice President and President--Mercury
Marine Group from 1998 to 2000 and Vice President and President--Mercury
Marine Group from 1997 to 1998. He was President of the U.S. Electrical Motors
Division of Emerson Electric Co., a manufacturer of electrical, electronic,
and electromagnetic products (Emerson), from 1996 to 1997, and President of
Emerson's Automotive and Precision Motors Division from 1994 to 1996.
Peter B. Hamilton has been Executive Vice President since 1998 and assumed
responsibility for the Brunswick Indoor Recreation Group, the Life Fitness
Division and the Bicycle Division in February 2000. He was Executive Vice
President, Chief Financial Officer and Chairman--Indoor Recreation from 1998
to 2000 and Senior Vice President and Chief Financial Officer from 1995 to
1998. He was Vice President and Chief Financial Officer, Cummins Engine
Company, Inc., a leading worldwide designer and manufacturer of diesel engines
and related products, from 1988 to 1995.
Dudley E. Lyons has been Senior Vice President--Strategic Business
Development and Chairman--US Marine since 1998. He was Vice President--
Strategic Business Development from 1997 to 1998. From 1992 to 1997 he was
President of the Management Consulting Group of Marketing Corporation of
America, a management consulting, sales promotion and market research firm.
Victoria J. Reich became Senior Vice President and Chief Financial Officer
in February 2000. She was Vice President and Controller of the Company from
1996 to 2000. She was Finance Manager of the General Electric Company's Wiring
Devices business from 1994 to 1996.
William J. Barrington has been Vice President since 1998 and President--Sea
Ray Group since 1989. He has been an employee of the Company since 1985.
Kathryn J. Chieger has been Vice President--Corporate and Investor
Relations of the Company since 1996. She was Vice President--Corporate Affairs
of Gaylord Container Corporation, a paper manufacturer, from 1994 to 1996.
B. Russell Lockridge has been Vice President and Chief Human Resources
Officer of the Company since 1999. From 1996 to 1999, he was Senior Vice
President, Human Resources of IMC Global, Inc., a company that produces crop
nutrients, animal feed ingredients and salt, and from 1992 to 1996, he served
as Corporate Director, Executive Compensation and Development at FMC
Corporation, a chemicals and machinery company.
Dustan E. McCoy has been Vice President, General Counsel and Secretary
since 1999. He was Executive Vice President for Witco Corporation, a specialty
chemical company, in 1999; Senior Vice President from 1998 to 1999; Senior
Vice President, General Counsel and Corporate Secretary from 1996 to 1998; and
Vice President, General Counsel and Corporate Secretary from 1993 to 1996.
Augustine L. Nieto has been Vice President since 1998 and President--Life
Fitness Division since the Company acquired it in 1997. He co-founded Life
Fitness in 1977 and had been its President since 1987.
Richard S. O'Brien has been Vice President of the Company since 1996 and
Treasurer of the Company since 1988. He has been an employee of the Company
since 1971.
10
<PAGE>
James A. Schenk has been Vice President--Acquisitions since 1998. He was
Staff Vice President--Acquisitions and Alliances from 1997 to 1998 and Staff
Vice President--Corporate Planning from 1996 to 1997. He was Corporate
Director of Planning and Development of the Company from 1988 to 1996.
Robert L. Sell has been Vice President and Chief Information Officer of the
Company since 1998. From 1996 to 1997 he was Vice President--Information
Technology of Coors Brewing Company, a manufacturer and distributor of beer
and other malt beverages (Coors), and from 1989 to 1996 he was Director of
Applications for Information Technology of Coors.
Judith P. Zelisko has been Vice President--Tax since 1998. She was Staff
Vice President--Tax from 1996 to 1998 and was Director of Tax and Assistant
Vice President from 1983 to 1996. She has been an employee of the Company
since 1978.
John D. Russell has been President--US Marine Division since 1998. He was
President of the Brunswick Billiards business during 1998. He was Executive
Vice President--Strategy and Operations of the Mercury Marine Group during
1997 and was Executive Vice President--Strategy and Finance of the Mercury
Marine Group from 1994 to 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on the New York, Chicago, Pacific, and
London Stock Exchanges. Quarterly information with respect to the high and low
prices for the common stock and the dividends declared on the common stock is
set forth in Note 18 to consolidated financial statements on page 54. As of
December 31, 1999, there were approximately 14,500 shareholders of record of
the Company's common stock.
Item 6. Selected Financial Data
Net sales, net earnings, basic and diluted earnings per common share, cash
dividends declared per common share, assets of continuing operations, long-
term debt and other financial data are shown in the Six-Year Financial Summary
on pages 55 and 56.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis is presented on pages 17 to 28.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Risk Management is presented on pages 27 and 28.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements are set forth on pages 31
to 58 and are listed in the index on page 16.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
11
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company and Section 16(a)
Beneficial Ownership Reporting Compliance will be set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
on April 26, 2000 (the Proxy Statement). All of the foregoing information is
hereby incorporated by reference. The Company's executive officers are listed
herein on pages 9 to 11.
Item 11. Executive Compensation
Information with respect to executive compensation will be set forth in the
Proxy Statement and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to the securities of the Company owned by the
directors and certain officers of the Company, by the directors and officers
of the Company as a group and by the only persons known to the Company to own
beneficially more than 5 percent of the outstanding voting securities of the
Company will be set forth in the Proxy Statement, and such information is
hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K
a.) Financial Statements and Exhibits
Financial Statements
Financial statements and schedules are incorporated in the Annual Report on
Form 10-K, as indicated in the index on page 16.
<TABLE>
<CAPTION>
Exhibits
--------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company filed as
Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1987, and hereby incorporated by
reference.
3.2 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for 1995, and hereby
incorporated by reference.
3.3 By-Laws of the Company filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, and hereby incorporated by reference.
4.1 Indenture dated as of March 15, 1987, between the Company and
Continental Illinois National Bank and Trust Company of Chicago
filed as Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1987, and hereby
incorporated by reference.
4.2 Officers' Certificate setting forth terms of the Company's
$125,000,000 principal amount of 7-3/8% Debentures due September
1, 2023, filed as Exhibit 4.3 to the Company's Annual Report on
Form 10-K for 1993, and hereby incorporated by reference.
4.3 Form of the Company's $250,000,000 principal amount of 6-3/4%
Notes due December 15, 2006, filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated December 10, 1996, and
hereby incorporated by reference.
4.4 Form of the Company's $200,000,000 principal amount of 7-1/8%
Notes due August 1, 2007, filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K dated August 4, 1997, and hereby
incorporated by reference.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Exhibits
--------
<C> <S>
4.5 The Company's agreement to furnish additional debt instruments
upon request by the Securities and Exchange Commission filed as
Exhibit 4.10 to the Company's Annual Report on Form 10-K for
1980, and hereby incorporated by reference.
4.6 Rights Agreement dated as of February 5, 1996, between the
Company and Harris Trust and Savings Bank filed as Exhibit 1 to
the Company's Registration Statement for Preferred Share Purchase
Rights on Form 8-A dated March 13, 1996, and hereby incorporated
by reference.
10.1* Amended and Restated Employment Agreement dated January 4, 1999,
by and between the Company and Peter N. Larson filed as Exhibit
10.1 to the Company's Annual Report on Form 10-K for 1998, and
hereby incorporated by reference.
10.2* Amended and Restated Employment Agreement dated December 1, 1998,
by and between the Company and Dudley E. Lyons filed as Exhibit
10.2 to the Company's Annual Report on Form 10-K for 1998, and
hereby incorporated by reference.
10.3* Employment Agreement dated December 1, 1995, by and between the
Company and Peter B. Hamilton filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for 1995, and hereby
incorporated by reference.
10.4* Amendment dated as of October 9, 1998, to Employment Agreement by
and between the Company and Peter B. Hamilton filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, and hereby incorporated by
reference.
10.5* Form of Change of Control Agreement by and between the Company
and each of W. J. Barrington, G. W. Buckley, K. J. Chieger, P. B.
Hamilton, B. R. Lockridge, D. E. Lyons, D. E. McCoy, R. S.
O'Brien, V. J. Reich, J. D. Russell, J. A. Schenk, R. L. Sell,
and J. P. Zelisko filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and hereby incorporated by reference.
10.6* 1994 Stock Option Plan for Non-Employee Directors filed as
Exhibit A to the Company's definitive Proxy Statement dated March
25, 1994, for the Annual Meeting of Stockholders on April 27,
1994, and hereby incorporated by reference.
10.7* 1995 Stock Plan for Non-Employee Directors filed as Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, and hereby incorporated by reference.
10.8* Supplemental Pension Plan filed as Exhibit 10.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and hereby incorporated by reference.
10.9* Form of insurance policy issued for the life of each of the
Company's executive officers, together with the specifications
for each of these policies, filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for 1980, and hereby
incorporated by reference. The Company pays the premiums for
these policies and will recover these premiums, with some
exceptions, from the policy proceeds.
10.10* Form of Indemnification Agreement by and between the Company and
each of N. D. Archibald, J. L. Bleustein, M. J. Callahan, M. A.
Fernandez, P. Harf, J. W. Lorsch, B. Martin Musham, K. Roman, R.
L. Ryan and R. W. Schipke filed as Exhibit 19.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1986, and hereby incorporated by reference.
10.11* Indemnification Agreement dated April 1, 1995, by and between the
Company and P. N. Larson filed as Exhibit 10.17 to the Company's
Annual Report on Form 10-K for 1995, and hereby incorporated by
reference.
10.12* Indemnification Agreement by and between the Company and each of
W. J. Barrington, G. W. Buckley, K. J. Chieger, P. B. Hamilton,
B. R. Lockridge, D. E. Lyons, D. E. McCoy, R. S. O'Brien, V. J.
Reich, J. D. Russell, J. A. Schenk, R. L. Sell, and J. P. Zelisko
filed as Exhibit 19.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1986, and hereby
incorporated by reference.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibits
--------
<C> <S>
10.13* 1991 Stock Plan filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999, and
hereby incorporated by reference.
10.14* Change in Control Severance Plan filed as Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and hereby incorporated by reference.
10.15* Brunswick Performance Plan for 1998 filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for 1997, and hereby
incorporated by reference.
10.16* Brunswick Performance Plan for 1999 filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for 1998, and hereby
incorporated by reference.
10.17* Brunswick Performance Plan for 2000.
10.18* Brunswick Strategic Incentive Plan for 1997-1998 filed as Exhibit
10.25 to the Company's Annual Report on Form 10-K for 1997, and
hereby incorporated by reference.
10.19* Brunswick Strategic Incentive Plan for 1998-1999 filed as Exhibit
10.26 to the Company's Annual Report on Form 10-K for 1997, and
hereby incorporated by reference.
10.20* Brunswick Strategic Incentive Plan for 1999-2000 filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for 1998, and
hereby incorporated by reference.
10.21* Brunswick Strategic Incentive Plan for 2000-2001.
10.22* 1997 Stock Plan for Non-Employee Directors filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, and hereby incorporated by reference.
10.23* Elective Deferred Compensation Plan filed as Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and hereby incorporated by reference.
10.24* Automatic Deferred Compensation Plan filed as Exhibit 10.9 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and hereby incorporated by reference.
10.25* Employment Agreement dated July 1, 1997, by and between the
Company and Augustine Nieto filed as Exhibit 10.30 to the
Company's Annual Report on Form 10-K for 1997, and hereby
incorporated by reference.
12 Statement regarding computation of ratio of earnings to fixed
charges.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Public Accountants is on page 57 of this
Report.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
*Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of
this Report.
b.) Reports on Form 8-K
On October 14, 1999, the Company filed a Current Report on Form 8-K
dated October 7, 1999, reporting in Item 5 that it had settled three
pending lawsuits.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Victoria J. Reich
By:
Victoria J. Reich
Senior Vice President and
Chief Financial Officer
February 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -------------------------------------------
<S> <C>
Peter N. Larson Chairman and Chief Executive Officer
(Principal Executive Officer) and Director
Victoria J. Reich Senior Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Nolan D. Archibald Director
Jeffrey L. Bleustein Director
Michael J. Callahan Director
Manuel A. Fernandez Director
Peter Harf Director
Jay W. Lorsch Director
Bettye Martin Musham Director
Kenneth Roman Director
Robert L. Ryan Director
Roger W. Schipke Director
</TABLE>
Victoria J. Reich, as Principal Financial and Accounting Officer and
pursuant to a Power of Attorney (executed by each of the other officers and
directors listed above and filed with the Securities and Exchange Commission,
Washington, D.C.), by signing her name hereto does hereby sign and execute
this report of Brunswick Corporation on behalf of each of the officers and
directors named above in the capacities in which the names of each appear
above.
/s/ Victoria J. Reich
By:
Victoria J. Reich
Senior Vice President and
Chief Financial Officer
February 28, 2000
15
<PAGE>
BRUNSWICK CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Discussion and Analysis....................................... 17
Report of Management....................................................... 29
Report of Independent Public Accountants................................... 29
Consolidated Statements of Income 1999, 1998 and 1997...................... 31
Consolidated Balance Sheets December 31, 1999 and 1998..................... 32
Consolidated Statements of Cash Flows 1999, 1998 and 1997.................. 34
Consolidated Statements of Shareholders' Equity 1999, 1998 and 1997........ 35
Notes to Consolidated Financial Statements 1999, 1998 and 1997............. 36
Six-Year Financial Summary................................................. 55
Consent of Independent Public Accountants.................................. 57
Schedule II--Valuation and Qualifying Accounts 1999, 1998 and 1997......... 58
</TABLE>
All other schedules are not submitted because they are not applicable or not
required or because the required information is included in the consolidated
financial statements or in the notes thereto. These notes should be read in
conjunction with these schedules.
The separate financial statements of Brunswick Corporation (the parent
company Registrant) are omitted because consolidated financial statements of
Brunswick Corporation and its subsidiaries are included. The parent company is
primarily an operating company, and all consolidated subsidiaries are wholly
owned and do not have any indebtedness (which is not guaranteed by the parent
company) to any person other than the parent or the consolidated subsidiaries
in an amount that is material in relation to consolidated assets.
16
<PAGE>
BRUNSWICK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
In 1999, the Company continued implementation of its growth strategies:
creating superior products and services by pursuing innovation and
aggressively marketing its leading brands. The success of these strategies is
evident in the Company's results for 1999. Sales increased 9 percent to a
record $4,283.8 million on strong contributions from the Boat and Marine
Engine segments and from the fitness equipment business. Further, the Company
focuses on effective cost management and investment in technology to enhance
its cost position.
Net earnings per diluted share totaled $0.41 in 1999 versus $1.88 in 1998
and $1.50 in 1997. Comparisons of net earnings per diluted share are affected
by several unusual items, which are discussed in later sections. The effect of
these items on diluted earnings per share is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ -----
<S> <C> <C> <C>
Net earnings per diluted share--as reported*............. $0.41 $ 1.88 $1.50
Strategic charges and asset write-downs.................. 1.23 0.42 0.63
Litigation settlement charges............................ 0.77 -- --
Cumulative effect of change in accounting principle...... -- -- 0.01
Gain from discontinued operations........................ -- (0.08) --
----- ------ -----
Net earnings per diluted share--pro forma*............... $2.41 $ 2.22 $2.14
===== ====== =====
</TABLE>
- --------
* Amounts include a $0.10 per diluted share gain from a settlement with a
boat dealer in 1998.
The Company has completed acquisitions totaling $559.6 million over the
past three years. These acquisitions did not significantly affect the
comparability of results between 1999 and 1998, but did affect the
comparability of 1998 to 1997.
Results of Operations
The following table sets forth certain ratios and relationships calculated
from the consolidated statements of income:
<TABLE>
<CAPTION>
1999 1998* 1997
-------- -------- --------
(Dollars in millions,
except per share data)
<S> <C> <C> <C>
Net sales................. $4,283.8 $3,945.2 $3,657.4
Percent increase.......... 8.6% 7.9% 15.7%
Operating earnings........ $ 111.3 $ 340.2 $ 270.8
Net earnings.............. $ 37.9 $ 186.3 $ 150.5
Diluted earnings per
share.................... $ 0.41 $ 1.88 $ 1.50
Expressed as a percentage
of net sales
Gross margin............ 26.5% 27.5% 27.9%
Selling, general and
administrative expense. 15.5% 15.2% 15.8%
Operating margin........ 2.6% 8.6% 7.4%
</TABLE>
The amounts in the above table include an asset write-down and strategic
charge of $151.0 million pretax and an inventory write-down of $27.0 million
pretax (total of $178.0 million pretax, $114.0 million after tax, $1.23 per
diluted share) and $116.0 million pretax ($71.5 million after tax, $0.77 per
diluted share) of litigation
17
<PAGE>
charges recorded in 1999. Results for 1998 include a $60.0 million pretax
($41.4 million after tax, $0.42 per diluted share) strategic charge and an
after-tax gain from discontinued operations of $7.7 million ($0.08 per diluted
share). Results for 1997 include a strategic charge of $82.9 million pretax
and an inventory write-down of $15.6 million pretax (total of $98.5 million
pretax, $63.0 million after tax, $0.63 per diluted share) and a charge for the
cumulative effect of a change in accounting principle of $0.7 million after
tax ($0.01 per diluted share) recorded in 1997. On a pro forma basis,
excluding these items, the amounts are as follows:
<TABLE>
<CAPTION>
1999 1998* 1997
------ ------ ------
(Dollars in
millions, except per
share data)
<S> <C> <C> <C>
Operating earnings................................... $405.3 $400.2 $369.3
Percent increase..................................... 1.3% 8.4% 21.2%
Net earnings......................................... $223.4 $220.0 $214.2
Percent increase..................................... 1.5% 2.7% 15.3%
Diluted earnings per share........................... $ 2.41 $ 2.22 $ 2.14
Percent increase..................................... 8.6% 3.7% 13.8%
Operating margin..................................... 9.5% 10.1% 10.1%
</TABLE>
- --------
*Operating earnings include income of $15.0 million from a settlement with a
boat dealer in 1998.
Net sales rose 8.6 percent to $4,283.8 million in 1999, up from $3,945.2
million in 1998. The gain of $338.6 million is primarily due to increased
sales of boats, marine engines and fitness equipment and first-half gains in
sales of bicycles.
International sales increased 3.0 percent to $831.0 million in 1999, an
increase of $24.2 million from 1998 levels. Sales to Europe increased 4.6
percent to $431.8 million in 1999 versus $412.8 million in 1998, reflecting
stronger sales of fitness equipment and boats which offset softness in sales
of fishing and marine engine products. The Company's sales to the Pacific Rim
increased 11.8 percent to $156.4 million in 1999 from $139.9 million in 1998,
primarily due to stronger sales of marine engine products. Sales of marine
engine products comprised the largest share of international sales in 1999.
Sales increased to $3,945.2 million in 1998, up 7.9 percent from $3,657.4
million in 1997. Of the $287.8 million increase, $135.0 million was due to
incremental sales contributed by the businesses acquired in 1998 and 1997. The
Company also experienced growth in the boat, marine engine, bicycle, fitness
equipment and ice chest and beverage cooler businesses. Gains in these
businesses were partially offset by substantial declines in sales of bowling
capital equipment into Asian markets as unfavorable economic trends slowed
shipments.
The Company's 1998 international sales declined 6.5 percent to $806.8
million versus $863.1 million in 1997. In the Pacific Rim, the Company's sales
declined to $139.9 million from $270.6 million, primarily due to the
previously mentioned decline in sales of bowling capital equipment into Asian
markets. Sales to Europe increased 18.5 percent to $412.8 million in 1998
versus $348.3 million in 1997, reflecting stronger sales of marine engine
products and fitness equipment. Sales of marine engine products comprised the
largest share of international sales in 1998.
The Company's gross margin percentage was 27.1 percent in 1999 versus 27.5
percent in 1998, excluding the $27.0 million inventory write-down included in
the strategic charge in 1999. The decrease reflects second-half market price
reductions in the bicycle business, successful inventory reduction efforts in
the camping and fishing businesses and a shift in outboard engine sales mix to
low-emission products. These factors were partially offset by the benefits
from increased sales of larger, higher-margin boats and margin gains in the
bowling business attributable to the strategic actions taken in late 1998.
Gross margin percentages decreased to 27.5 percent in 1998, versus 28.3
percent in 1997, excluding the $15.6 million inventory write-down included in
the 1997 strategic charge. This decline reflects the effects of volume
declines and pricing pressures experienced in the bowling capital equipment,
fishing and camping businesses. Additionally, the Company increased marketing
spending in the Boat segment. In the Marine Engine segment, higher costs for
the introduction of low-emission outboard engines were more than offset by the
benefits of productivity enhancements.
18
<PAGE>
Selling, general and administrative (SG&A) expense increased 10.7 percent
to $662.7 million in 1999 versus $598.4 million in 1998. SG&A expense in 1998
includes income of $15.0 million related to a settlement with a boat dealer.
Excluding this settlement, SG&A expense as a percent of sales remained flat at
15.5 percent as strong sales growth and cost-management efforts offset
investments in growth initiatives.
SG&A expense increased $22.1 million to $598.4 million in 1998, including
the aforementioned settlement. Excluding this settlement, SG&A expense as a
percentage of sales was 15.5 percent in 1998 and 15.8 percent in 1997,
reflecting effective cost management.
In 1999, operating earnings totaled $111.3 million versus $340.2 million in
1998 and $270.8 million in 1997. Excluding the previously mentioned charges,
1999 operating earnings increased 1.3 percent to $405.3 million and in 1998
increased 8.4 percent to $400.2 million versus $369.3 million in 1997.
Operating margins on a pre-charge basis were 9.5 percent in 1999 and 10.1
percent in 1998 and 1997. In addition, operating earnings in 1998 also include
the aforementioned $15.0 million dealer settlement gain. Excluding this
settlement, operating earnings would have been $385.2 million and operating
margins would have been 9.8 percent.
Other income totaled $4.7 million in 1999, $6.3 million in 1998 and $16.7
million in 1997. The decrease between 1998 and 1997 primarily relates to the
effect of changes in foreign currency-related adjustments, along with a
reduction in the contribution from joint ventures.
The Company's effective tax rate was 31.1 percent in 1999, 37.1 percent in
1998 and 36.0 percent in 1997. Excluding the unusual charges, the effective
tax rate was 36.0 percent in all three years. The average shares used to
calculate diluted earnings per share were 92.6 million, 99.0 million and 100.3
million in 1999, 1998 and 1997, respectively. The decrease in average shares
outstanding in 1999 and 1998 is due primarily to a 7.0 million share
repurchase program that was completed in the fourth quarter of 1998. (See Cash
Flow, Liquidity and Capital Resources section below for a discussion of
additional share repurchase program activity.)
Earnings from continuing operations totaled $37.9 million in 1999, $178.6
million in 1998 and $151.2 million in 1997. Excluding the previously mentioned
unusual charges, earnings from continuing operations were $223.4 million in
1999, $220.0 million in 1998 and $214.2 million in 1997. Net earnings per
diluted share were $0.41 in 1999, $1.88 in 1998 and $1.50 in 1997. Excluding
the previously mentioned unusual charges, net earnings per diluted share were
$2.41 in 1999, $2.22 in 1998 and $2.14 in 1997.
1999 Asset Write-Down and Strategic Charges
Despite the Company's successful initiatives to expand distribution and
reduce costs in its bicycle business, the profitability of the business eroded
as competition from Asian imports substantially reduced market pricing for
bicycles. While the price competition affected virtually all bicycles, the
effects were extremely pronounced at the opening price points. Consequently,
in the fourth quarter of 1999, the Company determined that the goodwill
associated with this business was impaired. Additionally, to further reduce
costs, the Company committed to plans to exit manufacturing, reduce warehouse
capacity and administrative expenses and rationalize product offerings. As a
result of these actions, the Company recorded $178.0 million of charges in the
Outdoor Recreation segment in the fourth quarter of 1999. These charges
included the write-off of goodwill of $133.6 million, inventory write-downs of
$27.0 million and $10.5 million of fixed asset write-downs, along with other
incremental costs associated with the actions of $6.9 million. Additional
costs estimated at $7.0 million for severance and other incremental costs are
expected to be incurred in the first quarter of 2000.
The write-off of the goodwill was based on an analysis of projected
undiscounted cash flows, which were no longer deemed adequate to support the
value of goodwill associated with the business. The inventory write-down was
required as a result of a substantial decrease in market pricing for bikes and
as a result of the Company's decision to exit manufacturing and rationalize
product offerings, which will adversely affect the recoverability of the
inventory. The fixed asset write-downs relate to $16.5 million of
manufacturing and distribution assets that will be disposed. The realization
of these assets was determined based on previous experience and third-party
appraisals.
19
<PAGE>
The cash and earnings benefits from these actions in 1999 were not
material. The Company expects to generate cash benefits from these actions of
approximately $20.0 million over the next two years as assets are sold and the
cash benefits from tax deductions recognized. Operating results of the bicycle
business for the first half of 2000 will be affected by the liquidation of
inventory, as this product will be sold at reduced margins, and by anticipated
transition inefficiencies. Operating results in 2000 will benefit by
approximately $5.0 million pretax from the elimination of goodwill
amortization and other decreases in operating expenses. An estimated
incremental $3.0 million of savings is expected to be achieved in 2001 when
actions will have been in effect for a full year. Except for the expected
pretax savings, these actions are not expected to have a significant effect on
the Company's revenue or income.
1998 Strategic Charge
During the third quarter of 1998, the Company announced strategic
initiatives to streamline operations and enhance operating efficiencies in
response to the effect of the Asian economic situation on its businesses.
These strategic actions included exiting and disposing of 15 retail bowling
centers in Asia, Brazil and Europe; rationalizing bowling equipment
manufacturing by closing a pinsetter manufacturing plant in China;
accelerating the shutdown of a pinsetter manufacturing plant in Germany;
exiting the manufacture of electronic scorers and components; closing bowling
sales offices in four countries; reducing administrative support;
consolidating certain North American manufacturing operations and closing
seven domestic distribution warehouses for outdoor recreation products. These
projects were substantially completed by the end of 1998. The Company's
financial results for 1998 include a $60.0 million ($41.4 million after tax)
charge to operating earnings in the Indoor Recreation ($50.8 million) and
Outdoor Recreation ($9.2 million) segments to cover exit and asset disposition
costs related to these strategic initiatives.
The benefits from the above actions did not have a material effect on the
Company's 1998 financial results. In 1999, the Company achieved pretax savings
in line with original expectations of approximately $18 million, with an
estimated $2 million incremental increase expected in 2000. The savings are
the result of reduced administrative and sales overhead; the elimination of
losses from underperforming international bowling centers; more efficient
manufacturing and distribution operations achieved both in the Outdoor and
Indoor Recreation segments through reduced manufacturing personnel, reduced
depreciation expense, reduced lease expense and reductions in operating
overhead. Except for the expected pretax savings, the actions taken in the
strategic charge have not had a significant effect on the Company's revenue or
income.
1997 Strategic Charge
During the third quarter of 1997, the Company announced strategic
initiatives to streamline its operations and improve global manufacturing
costs. The initiatives included terminating development efforts on a line of
personal watercraft; closing boat plant manufacturing facilities in Ireland
and Oklahoma; centralizing European marketing and customer service in the
Marine Engine segment; rationalizing manufacturing of bowling equipment
including the shutdown of a pinsetter manufacturing plant in Germany and
outsourcing the manufacture of certain components in the bowling division;
consolidating fishing reel manufacturing; and other actions directed at
manufacturing rationalization, product profitability improvements and general
and administrative expense efficiencies. These actions were substantially
completed at the end of 1998. Included in the Company's financial results in
1997 was a $98.5 million ($63.0 million after tax) charge to operating
earnings to cover exit and asset disposition costs related to the strategic
initiatives. The charge consisted of $60.6 million recorded in the Marine
Engine segment, $14.1 million recorded in the Boat segment, $3.4 million
recorded in the Outdoor Recreation segment and $20.4 million recorded in the
Indoor Recreation segment.
The benefits from the above actions did not have a material effect on the
Company's 1997 financial results. In 1998 and 1999, the Company achieved
pretax savings resulting from the strategic actions in line with the original
expectations of approximately $15 million and $20 million, respectively. The
annual savings are the result of a decline in administrative and sales
overhead achieved through reduced personnel, depreciation
20
<PAGE>
expense, lease expense and operating expense; the elimination of losses from
the development of the personal watercraft product and underperforming bowling
center assets; and from more efficient manufacturing operations achieved
through reduced manufacturing personnel, depreciation expense and other
manufacturing overhead costs. Except for the expected pretax savings, the
actions taken in the strategic charge have not had a significant effect on the
Company's revenue or income.
Segment Information
Marine Engine Segment
The following table sets forth Marine Engine segment results:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Net sales.................................... $1,614.8 $1,482.5 $1,410.8
Percentage increase.......................... 8.9% 5.1% 2.4%
Operating earnings........................... $ 126.5 $ 222.4 $ 124.3
Percentage increase (decrease)............... (43.1)% 78.9% (26.0)%
Operating margin............................. 7.8% 15.0% 8.8%
Capital expenditures......................... $ 77.1 $ 66.4 $ 67.7
The above table includes litigation charges of $116.0 million recorded in
1999 and a $60.6 million strategic charge recorded in 1997. On a pro forma
basis, excluding these charges, the Marine Engine segment results for the
years ended December 31, 1999, 1998 and 1997, were as follows:
<CAPTION>
1999 1998 1997
-------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Operating earnings........................... $ 242.5 $ 222.4 $ 184.9
Percentage increase.......................... 9.0% 20.3% 10.1%
Operating margin............................. 15.0% 15.0% 13.1%
</TABLE>
In 1999, Marine Engine segment sales increased 8.9 percent to $1,614.8
million, compared with $1,482.5 million in 1998. This gain primarily reflects
strong domestic demand for outboard engines, particularly those complying with
new low-emission standards. Sales of sterndrive engines also increased, driven
by improved consumer demand, and parts and accessories sales benefited from
increased distribution and new products.
Operating earnings were $126.5 million in 1999, including $116.0 million of
litigation settlements, and $222.4 million in 1998. Excluding the 1999
litigation charges, operating earnings in 1999 increased 9.0 percent to $242.5
million and operating margins were 15.0 percent in 1999 and 1998. Operating
margin comparisons between periods reflect productivity gains in the engine
businesses along with growth in sales of higher-margin marine parts and
accessories. These benefits were partially offset by the unfavorable margin
differential between low-emission outboards and traditional offerings due to
higher initial production costs, increased spending on marketing and product
development investments, and softness in global outboard and sterndrive
pricing.
In 1998, sales improved 5.1 percent to $1,482.5 million, up from $1,410.8
million in 1997, as a result of strong consumer demand for new low-emission
outboard engines, an improved mix of sterndrive engines and growth in sales of
marine parts and accessories.
Operating earnings for the segment were $222.4 million in 1998, compared
with $124.3 million in 1997, including the $60.6 million strategic charge.
Excluding the strategic charge in 1997, operating earnings in 1998 increased
20.3 percent to $222.4 million. Operating margins, excluding the strategic
charge, increased to 15.0 percent in 1998 from 13.1 percent in 1997. The
improvement in operating margins reflects the benefits of cost-management
initiatives and actions taken in connection with the 1997 strategic charge,
along with sales growth and an improved sales mix. These benefits more than
offset the higher costs associated with the introduction of low-emission
outboard engines.
21
<PAGE>
Boat Segment
The following table sets forth Boat segment results:
<TABLE>
<CAPTION>
1999 1998* 1997
-------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Net sales..................................... $1,476.6 $1,332.3 $1,227.8
Percentage increase........................... 10.8% 8.5% 5.9%
Operating earnings............................ $ 120.7 $ 112.7 $ 70.0
Percentage increase (decrease)................ 7.1% 61.0% (24.3)%
Operating margin.............................. 8.2% 8.5% 5.7%
Capital expenditures.......................... $ 46.6 $ 48.8 $ 52.4
The above table includes a $14.1 million strategic charge recorded in 1997.
On a pro forma basis, excluding this charge, the Boat segment results for the
years ended December 31, 1999, 1998 and 1997, were as follows:
<CAPTION>
1999 1998* 1997
-------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Operating earnings............................ $ 120.7 $ 112.7 $ 84.1
Percentage increase (decrease)................ 7.1% 34.0% (9.1)%
Operating margin.............................. 8.2% 8.5% 6.8%
</TABLE>
- --------
* Boat segment operating earnings include income of $15.0 million from a
settlement with a boat dealer in 1998.
In 1999, Boat segment sales increased 10.8 percent to $1,476.6 million,
compared with $1,332.3 million in 1998. This improvement is primarily the
result of continued strong sales of larger cruisers and yachts resulting from
strong consumer demand and new products. These results were achieved while
reducing field inventory levels.
Operating earnings for the Boat segment totaled $120.7 million in 1999
versus $112.7 million in 1998. Segment operating earnings improved 23.5
percent in 1999 from $97.7 million in 1998, excluding a $15.0 million gain
recorded in 1998 relating to a settlement with a boat dealer. Operating
margins improved to 8.2 percent in 1999 from 7.3 percent in 1998, excluding
the settlement. Improvements in these comparisons reflect a reduction in
retail price incentives; the aforementioned strong performance in sales of
larger, higher-margin cruisers and yachts; and productivity gains resulting
from the rationalization of product lines and manufacturing operations.
In 1998, Boat segment sales increased 8.5 percent to $1,332.3 million, up
from $1,227.8 million in 1997, resulting primarily from an improved sales mix
of larger cruisers and yachts. These results were achieved while reducing
field inventory levels.
Operating earnings for the Boat segment totaled $112.7 million in 1998 and
$70.0 million in 1997. Excluding the $15.0 million settlement in 1998 and the
$14.1 million 1997 strategic charge, operating earnings in 1998 increased 16.2
percent from 1997. Operating margins before the settlement and charge rose to
7.3 percent in 1998 from 6.8 percent in 1997 as a result of the improved sales
mix of larger, higher-margin cruisers and yachts, which was partially offset
by increased marketing spending.
Outdoor Recreation Segment
The following table sets forth Outdoor Recreation segment results:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Net sales......................................... $ 743.4 $711.3 $665.3
Percentage increase............................... 4.5% 6.9 % 79.7%
Operating earnings (loss)......................... $(163.4) $ 38.5 $ 62.6
Percentage increase (decrease).................... n/m (38.5)% 61.8%
Operating margin.................................. (22.0)% 5.4 % 9.4%
Capital expenditures.............................. $ 31.4 $ 33.3 $ 23.2
</TABLE>
- --------
n/m = not meaningful
22
<PAGE>
The above table includes $178.0 million of unusual charges recorded in
1999, a $9.2 million strategic charge recorded in 1998 and a $3.4 million
strategic charge recorded in 1997. On a pro forma basis, excluding these
charges, the Outdoor Recreation segment results for the years ended December
31, 1999, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
(Dollars in
millions)
<S> <C> <C> <C>
Operating earnings.................................. $ 14.6 $ 47.7 $66.0
Percentage increase (decrease)...................... (69.4)% (27.7)% 70.5%
Operating margin.................................... 2.0% 6.7% 9.9%
</TABLE>
In 1999, Outdoor Recreation segment sales increased 4.5 percent to $743.4
million, compared with $711.3 million in 1998. The gain reflects the benefits
received in the first half of 1999 from increased market share and
distribution of Mongoose-branded bicycle products. Additionally, domestic
sales of fishing tackle increased, and, due to an extended selling season,
sales of cooler products improved. These gains were partially offset by the
effects of second-half price reductions in the bicycle business and by lower
camping equipment sales, reflecting actions taken in 1999 to reduce the number
of products offered, concentrating efforts on higher-margin, differentiated
products.
Operating losses were $163.4 million in 1999 versus operating earnings of
$38.5 million in 1998, including unusual charges of $178.0 million in 1999 and
$9.2 million in 1998. Excluding the unusual charges, operating earnings
decreased 69.4 percent in 1999 to $14.6 million from $47.7 million in 1998,
and operating margins decreased 4.7 points to 2.0 percent in 1999. The decline
in operating margins is primarily attributable to the aforementioned pricing
pressures in the bicycle business and selling products at reduced prices to
liquidate inventory in the fishing and camping businesses. Additionally, labor
shortages and start-up costs associated with new manufacturing equipment in
the cooler business and increased spending in the fishing business to support
marketing and information technology investments also adversely affected
margins.
Outdoor Recreation segment sales increased 6.9 percent to $711.3 million in
1998, up from $665.3 million in 1997. The gain primarily reflects higher
revenues in the bicycle and ice chest and beverage cooler businesses due to
expanded distribution and new products. Offsetting this gain were decreased
sales in the fishing tackle and camping equipment businesses caused by weak
markets for those products, increased competition from Asian imports and
retail inventory reductions. Operating earnings decreased to $38.5 million in
1998 from $62.6 million in 1997. Excluding the strategic charges in 1998 and
1997, operating earnings decreased 27.7 percent to $47.7 million versus $66.0
million in 1997. Operating margins decreased 3.2 points to 6.7 percent,
excluding the charges, due to the aforementioned sales volume declines in
camping and fishing products, product mix changes and increased advertising
spending.
Indoor Recreation Segment
The following table sets forth Indoor Recreation segment results:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(Dollars in
millions)
<S> <C> <C> <C>
Net sales........................................... $733.4 $682.5 $607.8
Percentage increase................................. 7.5% 12.3 % 19.8%
Operating earnings.................................. $ 73.9 $ 3.8 $ 54.1
Percentage increase (decrease)...................... n/m (93.0)% 14.1%
Operating margin.................................... 10.1% 0.6 % 8.9%
Capital expenditures................................ $ 41.9 $ 47.9 $ 39.2
</TABLE>
- --------
n/m = not meaningful
23
<PAGE>
The above table includes a $50.8 million strategic charge recorded in 1998
and a $20.4 million strategic charge recorded in 1997. On a pro forma basis,
excluding these charges, the Indoor Recreation segment results for the years
ended December 31, 1999, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ -----
(Dollars in
millions)
<S> <C> <C> <C>
Operating earnings.................................... $73.9 $ 54.6 $74.5
Percentage increase (decrease)........................ 35.3% (26.7)% 57.2%
Operating margin...................................... 10.1% 8.0% 12.3%
</TABLE>
Sales for the Indoor Recreation segment increased 7.5 percent to $733.4
million in 1999, compared with $682.5 million in 1998. The sales gain was
primarily driven by double-digit growth in fitness equipment revenues due to
increased sales to health clubs in the United States, strong growth in the
United Kingdom and new product introductions. Also contributing were increased
North American bowling center revenues and increased sales of bowling
equipment and supplies.
The Indoor Recreation segment reported operating earnings of $73.9 million
in 1999, compared with $3.8 million in 1998. Excluding the strategic charge
mentioned above, operating earnings increased 35.3 percent in 1999 to $73.9
million from $54.6 million in 1998. Operating margins increased to 10.1
percent in 1999 from 8.0 percent in 1998, excluding the strategic charge.
These improvements reflect the benefits in the bowling business from strategic
actions taken in 1998 to address the effect of the Asian economic situation on
bowling equipment sales, which offset the effects of increased investment in
the fitness equipment business for new product development and marketing
activities.
Indoor Recreation segment sales increased 12.3 percent to $682.5 million in
1998 from $607.8 million in 1997. This gain primarily reflects $118.3 million
of incremental sales contributed by the fitness equipment acquisitions, along
with sales gains in the fitness equipment business due to increased sales to
health clubs, strong growth in the European markets and expanded sales in the
military, hospital and school channels. Partially offsetting these gains was a
significant decline in bowling capital equipment sales resulting from the
Asian economic situation.
Operating earnings in 1998 were $3.8 million, compared with $54.1 million
in 1997. Excluding the strategic charges in 1998 and 1997, operating earnings
decreased 26.7 percent to $54.6 million from $74.5 million in 1997. Operating
margins, excluding the strategic charges, declined to 8.0 percent in 1998 from
12.3 percent in 1997. The decline in operating earnings is primarily related
to the decrease in bowling capital equipment sales resulting from the effects
of the Asian economic situation and was partially offset by earnings gains in
the fitness equipment business.
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 $100.8 million at the end of 1999,
compared with $126.1 million in 1998.
Net cash provided by operating activities totaled $299.2 million in 1999,
compared with $429.0 million in 1998 and $261.7 million in 1997. Cash from
operating activities in 1999 includes $57.6 million of cash paid in connection
with litigation settlements that are discussed in Legal Proceedings below. The
tax benefits relating to these payments will be realized in 2000. Cash from
operating activities in 1998 benefited from tax deductions resulting from
strategic actions taken in 1997. The amount for 1998 also includes $40.1
million of one-time benefits resulting from a settlement with a boat dealer,
the favorable settlement of a lawsuit related to the divested Technical
segment and a dividend from an equity investment.
24
<PAGE>
The Company invested $198.1 million, $198.0 million and $190.5 million in
capital expenditures in 1999, 1998 and 1997, respectively. A majority of these
expenditures were made for continued investments to achieve improved
production efficiencies and product quality, introduce new products and expand
existing product lines. In addition, included in these totals for 1999, 1998
and 1997 were $22.0 million, $41.6 million and $18.0 million, respectively,
related to company-wide systems upgrade projects. In 1999, the Company
invested $11.4 million to acquire Pinpoint (9/99), a manufacturer of
integrated electric trolling motor and depth-finder systems, and two small
international boat companies. In 1998, the Company invested $32.8 million to
acquire 12 bowling centers and ParaBody fitness equipment (1/98). The Company
invested $515.4 million in 1997 to acquire various businesses, including Igloo
ice chests and beverage coolers (1/97), Mongoose bicycles (4/97), Hoppe's
shooting sports accessories (3/97), Life Fitness (7/97) and Hammer Strength
(11/97) fitness equipment and DBA Products bowling lane supplies (11/97). The
Company anticipates spending approximately $235.0 million for capital
expenditures in 2000. In addition to necessary maintenance spending, the
Company will focus on investments in new products and improved productivity.
Management will also evaluate acquisition opportunities to complement the
Company's active recreation businesses.
Total debt at year end 1999 was $730.2 million versus $805.5 million at the
end of 1998, primarily reflecting decreases in short-term commercial paper
borrowings. Debt-to-capitalization ratios were 36.0 percent at December 31,
1999, and 38.1 percent at December 31, 1998.
During the fourth quarter of 1998, the Company completed a seven-million-
share repurchase program for $127.7 million. The Company also has a program to
repurchase systematically up to five million shares of its common stock to
offset shares the Company expects to issue under its stock option and other
compensation plans. Under this program, the Company repurchased 0.8 million,
1.2 million and 0.3 million shares for $18.3 million, $32.2 million and $8.4
million in 1999, 1998 and 1997, respectively. A total of 2.7 million
additional shares may be repurchased under this program. In addition, on
February 8, 2000, the Company announced a program to repurchase $100 million
of the Company's common stock. The common stock will be acquired from time to
time in the open market or through privately negotiated transactions. The
Company anticipates continuing to buy shares under these programs in 2000.
These repurchases will be funded with cash generated from operations and
short-term borrowings, as required.
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
had $95.0 million in outstanding commercial paper at December 31, 1999, with
additional borrowing capacity of $305.0 million under the Company's $400.0
million long-term credit agreement with a group of banks (see Note 9 to
Consolidated Financial Statements). Under the terms of the long-term credit
agreement, the Company has multiple borrowing options, and, if utilized, the
borrowing rate, as calculated in accordance with the terms described in Note 9
to Consolidated Financial Statements, would have been 6.02 percent at December
31, 1999. The Company also has $150.0 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 short-term and
long-term needs.
Refer to Note 6 to Consolidated Financial Statements and the Legal
Proceedings section below for disclosure of the potential cash requirements of
legal and environmental proceedings. On October 27, 1999, the United States
Tax Court issued a ruling that upheld an Internal Revenue Service (IRS)
determination that resulted in an increase in the short-term capital gains and
income distributions from two partnership investments for 1990 and 1991. This
decision increases the Company's tax liability relating to those years by
approximately $60.0 million, plus accrued interest, but will not have an
unfavorable effect on the Company's results of operations. The Company is
awaiting a final determination from the IRS and is evaluating whether to
appeal this decision.
Legal Proceedings
In June 1998, an adverse verdict was reached in a lawsuit brought by a
buying group of boat-builder customers who purchased the Company's sterndrive
and inboard marine engines and whose purchases represented less than one-fifth
of all direct sales of sterndrive and inboard engines to boat builders during
the
25
<PAGE>
damage period relevant to that action. That verdict and resulting damage
judgment of $133.2 million, after trebling, has been appealed, and the Company
is awaiting a ruling from the appeals court. While there can be no assurance,
the Company believes it is likely to prevail on appeal and obtain either a new
trial or judgment in its favor.
Following the verdict, six additional suits were filed, including five
class-action lawsuits, seeking to rely on the allegations and findings of that
verdict. The Company has reached agreements to settle or dismiss these
additional lawsuits. As a result, the Company recorded charges to operating
earnings of $116.0 million ($71.5 million after tax, or $0.77 per diluted
share) in 1999. Payments totaling $57.6 million related to the settled
lawsuits were made in 1999, with the remainder expected to occur through 2001.
In addition, as part of the settlement with a competing seller of sterndrive
marine engines, the Company has entered into a long-term supply agreement to
purchase diesel sterndrive and inboard engines from the competitor for use in
certain models of boats manufactured by the Company. Also, as a part of the
agreement with a subset of one of the classes, additional payments may be
required based on the final resolution of the boat-builder suit. Two of the
class-action settlements are subject to approval by the courts.
While there can be no assurance, the Company believes it is likely to
prevail on the Concord appeal and obtain either a new trial or judgment in its
favor. In addition, the Company is unable to predict the outcome of the
Concord case, and accordingly, no expense for this case has been recorded. If
the Concord judgment is sustained after all appeals, however, the additional
amounts the Company would be required to pay to conclude all of the lawsuits
described above would total, as of the date of the filing of this 1999 Annual
Report on Form 10-K, approximately $262.0 million.
Engine Emission Regulations
U.S. Environmental Protection Agency (EPA) regulations finalized in 1996
require that certain exhaust emissions from gasoline marine outboard engines
be reduced by 8.3 percent per year for nine years beginning with the 1998
model year. The Company has implemented a plan that meets the EPA compliance
schedule. It includes both modifying automotive fuel-injection technology for
marine use and substituting certain two-cycle engines with four-cycle engines.
Both of these technologies yield emission reductions on the order of 80
percent or better. The Company expects the amount of low-emission engine sales
as a percentage of total Marine Engine segment sales to continue to increase.
Costs associated with the introduction of low-emission engines will continue
to have an adverse effect on Marine Engine segment operating margins.
More recently, the California Air Resources Board (CARB) voted to adopt
regulations more stringent than the EPA regulations. These regulations will
bring forward the EPA targeted emissions reductions from 2006 to 2001. This
affects new engines sold in California beginning with the model year 2001,
with further emission reductions scheduled in 2004 and 2008. The Company
believes that its current implementation plan designed to meet the EPA exhaust
emissions regulations will allow the Company to comply with the more stringent
regulations as currently proposed by CARB. Product-development costs, however,
are likely to be accelerated, which may adversely affect short-term results.
Year 2000
During 1999, the Company concluded its efforts 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 preparation
focused on identifying and mitigating risks involving the Company's internal
systems, products and supplier readiness. The Company also prepared
contingency plans in the event of Year 2000-related failures.
The Company addressed the Year 2000 issue involving its internal systems
through a combination of replacement and remediation projects. Costs
associated with the replacement of non-Year 2000 ready systems
26
<PAGE>
were included in capital expenditures as part of the company-wide systems
upgrade projects. Additional costs associated with preparing for the Year
2000, including remediation projects, totaled approximately $18.0 million, of
which approximately 45 percent was incurred in 1999. These costs were expensed
as incurred. The Company does not anticipate any additional material
expenditures as a result of Year 2000 issues.
The Company has not experienced any significant disruption or changes in
its operations as a result of the Year 2000 issue. Additionally, the Company
is not aware of any significant issues that have arisen as a result of product
or supplier Year 2000-related failures. As there can be no assurance that the
Company's efforts to achieve Year 2000 readiness have been successful, or that
critical suppliers and customers will not experience Year 2000-related
failures in the future, the Company will continue to monitor its exposure to
Year 2000 issues and will leave its contingency plans in place in the event
that any significant Year 2000 issues arise.
New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) 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 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.
Euro Conversion
The Company has and will continue to evaluate the effects on its operations
of the European Economic Monetary Union conversion to the Euro. The costs to
prepare for this conversion, including the costs to adapt information systems,
are not expected to be material to the Company's results of operations,
financial position or cash flows. The Company does not currently expect the
introduction and use of the Euro to have a material effect on its foreign
exchange and hedging activities, or on its use of derivative financial
instruments. While the Company does not expect the Euro conversion to have a
material effect on its operations, some uncertainty exists as to the effect
that the conversion to the Euro, and the accompanying economic policies, will
have on the economies of the member countries. Accordingly, the effect on the
Company's operations cannot be predicted with certainty.
Forward Looking Statements
Certain statements in this Annual Report 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 Report. These risks
include, but are not limited to, further price deterioration in bicycles; the
ability to successfully transition bicycle production to Asian sources; the
ability to liquidate inventory and cease bicycle manufacturing operations
within the time, cost and manner estimated; imports from Asia and competition
from Asian competitors; the dependence of the Outdoor Recreation segment on
mass merchants; adverse weather conditions retarding sales of outdoor
recreation products; inventory adjustments by major retailers; competitive
pricing pressures; the success of marketing and cost-management programs; the
outcome of pending or potential litigation; adverse domestic or foreign
economic conditions; the Company's ability to develop and produce new
products; new and competing technology; and shifts in market demand for the
Company's products.
Risk Management
The Company is exposed to market risk from changes in foreign currency
exchange rates, interest rates and commodity prices. The Company enters into
various hedging transactions to mitigate these risks in accordance with
guidelines established by the Company's management. The Company does not use
financial instruments for trading or speculative purposes.
27
<PAGE>
The Company uses foreign currency forward and option contracts to manage
foreign exchange exposure related to transactions, assets and liabilities that
are subject to risk from foreign currency rate changes. The Company's
principal currency exposures relate to the Taiwanese dollar, Canadian dollar,
Japanese yen, European currencies and the Australian dollar. Hedging of an
asset or liability is accomplished through the use of financial instruments as
the gain or loss on the hedging instrument offsets the gain or loss on the
asset or liability. Hedging of anticipated transactions is accomplished with
financial instruments as the realized gain or loss occurs on or near the
maturity date of the anticipated transaction.
The Company uses interest rate swap agreements to mitigate the effect of
changes in interest rates on the Company's investments and borrowings. The
Company's net exposure to interest rate risk primarily consists of fixed-rate
instruments. Interest rate risk management is accomplished through the use of
interest rate swaps and floating-rate instruments that are benchmarked to U.S.
and European short-term money market interest rates.
Raw materials used by the Company are exposed to the effect of changing
commodity prices. Accordingly, the Company uses commodity swap agreements to
manage fluctuations in prices of anticipated purchases of certain raw
materials.
The Company uses a value-at-risk (VAR) computation to estimate the maximum
potential one-day reduction in the fair market value of its interest rate-
sensitive financial instruments and to estimate the maximum one-day reduction
in pretax earnings related to its foreign currency, interest rate and
commodity price-sensitive derivative financial instruments. The VAR
computation includes the Company's debt, foreign currency forwards and
options, interest rate swap agreements and commodity swap agreements.
The amounts shown below represent the estimated potential loss that the
Company could incur from adverse changes in foreign exchange rates, interest
rates or commodity prices using the VAR estimation model. The VAR model uses
the variance-covariance statistical modeling technique and uses historical
foreign exchange rates, interest rates and commodity prices to estimate the
volatility and correlation of these rates and prices in future periods. It
estimates a loss in fair market value using statistical modeling techniques
and includes substantially all market risk exposures. The estimated potential
losses shown in the table below have no effect on the Company's results of
operations or financial condition.
<TABLE>
<CAPTION>
Amount
in Time Confidence
Risk Category Millions Period Level
------------- -------- ------ ----------
<S> <C> <C> <C>
Foreign exchange.................................. $0.1 1 day 95%
Interest rates.................................... $5.1 1 day 95%
Commodity prices.................................. $0.6 1 day 95%
</TABLE>
The 95 percent confidence level signifies the Company's degree of
confidence that actual losses would not exceed the estimated losses shown
above. The amounts shown disregard the possibility that interest rates,
foreign currency exchange rates and commodity prices could move in the
Company's favor. The VAR model assumes that all movements in rates and
commodity prices will be adverse. Actual experience has shown that gains and
losses tend to offset each other over time, and it is highly unlikely that the
Company could experience losses such as these over an extended period of time.
These amounts should not be considered projections of future losses, since
actual results may differ significantly depending upon activity in the global
financial markets.
28
<PAGE>
BRUNSWICK CORPORATION
REPORT OF MANAGEMENT AND INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation, integrity and
objectivity of the financial statements and other financial information
presented in this report. The financial statements have been prepared in
conformity with generally accepted accounting principles and reflect the
effects of certain estimates and judgments made by management.
The Company's management maintains a system of internal controls that is
designed to provide reasonable assurance, at reasonable cost, that assets are
safeguarded and that transactions and events are recorded properly. The
Company's internal audit program includes periodic reviews of these systems
and controls and compliance therewith.
The Audit and Finance Committee of the Board of Directors, comprised
entirely of outside directors, meets regularly with the independent public
accountants, management and internal auditors to review accounting, reporting
and internal control matters. The Committee has direct and private access to
both the internal and external auditors.
/s/ Peter N. Larson /s/ Victoria J. Reich
Peter N. Larson Victoria J. Reich
Chairman and Chief Executive Officer Senior Vice President and Chief Financial
Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Brunswick Corporation:
We have audited the accompanying consolidated balance sheets of Brunswick
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brunswick Corporation and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Chicago, Illinois
January 24, 2000
29
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
December 31
----------------------------
1999 1998 1997
-------- -------- --------
(In millions, except per
share data)
<S> <C> <C> <C>
Net sales........................................ $4,283.8 $3,945.2 $3,657.4
Cost of sales.................................... 3,122.4 2,859.1 2,622.4
Cost of sales--strategic charges................. 27.0 -- 15.6
Selling, general and administrative expense...... 662.7 598.4 576.3
Research and development expense................. 93.4 87.5 89.4
Asset write-down and strategic charges........... 151.0 60.0 82.9
Litigation charges............................... 116.0 -- --
-------- -------- --------
Operating earnings........................... 111.3 340.2 270.8
-------- -------- --------
Interest expense................................. (61.0) (62.7) (51.3)
Other income..................................... 4.7 6.3 16.7
-------- -------- --------
Earnings before income taxes................. 55.0 283.8 236.2
Income tax provision............................. (17.1) (105.2) (85.0)
-------- -------- --------
Earnings from continuing operations.......... 37.9 178.6 151.2
Cumulative effect of change in accounting
principle....................................... -- -- (0.7)
Gain from discontinued operations................ -- 7.7 --
-------- -------- --------
Net earnings................................. $ 37.9 $ 186.3 $ 150.5
======== ======== ========
Basic earnings per common share
Earnings from continuing operations............ $ 0.41 $ 1.82 $ 1.52
Cumulative effect of change in accounting
principle..................................... -- -- (0.01)
Gain from discontinued operations.............. -- 0.08 --
-------- -------- --------
Net earnings................................. $ 0.41 $ 1.90 $ 1.52
======== ======== ========
Average shares used for computation of basic
earnings per share.............................. 92.0 98.3 99.2
Diluted earnings per common share
Earnings from continuing operations............ $ 0.41 $ 1.80 $ 1.51
Cumulative effect of change in accounting
principle..................................... -- -- (0.01)
Gain from discontinued operations.............. -- 0.08 --
-------- -------- --------
Net earnings................................. $ 0.41 $ 1.88 $ 1.50
======== ======== ========
Average shares used for computation of diluted
earnings per share.............................. 92.6 99.0 100.3
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
31
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of December 31
------------------------
1999 1998
----------- -----------
(Dollars in millions,
except per share data)
<S> <C> <C>
Current assets
Cash and cash equivalents, at cost, which
approximates market................................. $ 100.8 $ 126.1
Accounts and notes receivable, less allowances of
$27.2 and $22.5..................................... 515.7 420.8
Inventories..........................................
Finished goods..................................... 350.3 383.6
Work-in-process.................................... 148.0 141.3
Raw materials...................................... 125.0 120.6
----------- -----------
Net inventories.................................. 623.3 645.5
----------- -----------
Prepaid income taxes................................. 257.2 208.7
Prepaid expenses..................................... 56.1 53.3
Income tax refunds receivable........................ 25.1 --
----------- -----------
Current assets................................. 1,578.2 1,454.4
----------- -----------
Property
Land............................................... 73.5 72.0
Buildings.......................................... 403.1 412.0
Equipment.......................................... 1,036.2 950.9
----------- -----------
Total land, buildings and equipment.............. 1,512.8 1,434.9
Accumulated depreciation........................... (762.2) (699.0)
----------- -----------
Net land, buildings and equipment................ 750.6 735.9
Unamortized product tooling costs.................. 131.2 109.2
----------- -----------
Net property................................... 881.8 845.1
----------- -----------
Other assets
Goodwill........................................... 569.6 718.9
Other intangibles.................................. 88.8 101.6
Investments........................................ 65.9 71.2
Other long-term assets............................. 170.5 160.3
----------- -----------
Other assets..................................... 894.8 1,052.0
----------- -----------
Total assets................................... $ 3,354.8 $ 3,351.5
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
32
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
As of December 31
------------------------
1999 1998
----------- -----------
(Dollars in millions,
except per share data)
<S> <C> <C>
Current liabilities
Short-term debt, including current maturities of
long-term debt...................................... $ 107.7 $ 170.1
Accounts payable..................................... 310.7 286.1
Accrued expenses..................................... 670.0 574.6
Accrued income taxes................................. -- 5.6
----------- -----------
Current liabilities.............................. 1,088.4 1,036.4
----------- -----------
Long-term debt
Notes, mortgages and debentures.................... 622.5 635.4
----------- -----------
Deferred items
Income taxes....................................... 131.9 165.1
Postretirement and postemployment benefits......... 141.7 141.1
Compensation and other............................. 70.1 62.2
----------- -----------
Deferred items................................... 343.7 368.4
----------- -----------
Common shareholders' equity
Common stock; authorized: 200,000,000 shares, $.75
par value; issued: 102,538,000 shares............... 76.9 76.9
Additional paid-in capital........................... 314.3 311.5
Retained earnings.................................... 1,181.5 1,189.5
Treasury stock, at cost: 10,727,000 shares and
10,669,000 shares................................... (214.0) (204.7)
Unamortized ESOP expense and other................... (49.3) (56.1)
Accumulated other comprehensive income............... (9.2) (5.8)
----------- -----------
Common shareholders' equity...................... 1,300.2 1,311.3
----------- -----------
Total liabilities and shareholders' equity..... $ 3,354.8 $ 3,351.5
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
33
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31
-------------------------
1999 1998 1997
------- ------- -------
(In millions)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings........................................ $ 37.9 $ 186.3 $ 150.5
Depreciation and amortization....................... 165.6 159.7 156.9
Changes in noncash current assets and current
liabilities:
Change in accounts and notes receivable........... (95.0) 18.4 (57.1)
Change in inventories............................. (1.0) (77.9) (55.6)
Change in prepaid expenses........................ (2.8) (7.1) (11.9)
Change in accounts payable........................ 23.2 31.2 25.9
Change in accrued expenses........................ 29.8 (41.3) (40.9)
Income taxes........................................ (98.8) 59.4 (1.5)
Dividends received from equity investments.......... 2.2 19.0 6.3
Litigation charges net of cash payments............. 58.4 -- --
Asset write-down and strategic charges.............. 178.0 60.0 98.5
Other, net.......................................... 1.7 21.3 (9.4)
------- ------- -------
Net cash provided by operating activities....... 299.2 429.0 261.7
------- ------- -------
Cash flows from investing activities
Acquisitions of businesses.......................... (11.4) (32.8) (515.4)
Unrestricted cash held for acquisition of Igloo..... -- -- 143.0
Capital expenditures................................ (198.1) (198.0) (190.5)
Investments in marketable securities................ -- -- 3.6
Other, net.......................................... 15.4 (6.7) (3.2)
------- ------- -------
Net cash used for investing activities.......... (194.1) (237.5) (562.5)
------- ------- -------
Cash flows from financing activities
Net issuances (retirements) of short-term commercial
paper and other short-term debt.................... (59.7) 62.1 94.9
Net proceeds from issuances of long-term debt....... -- -- 198.6
Payments of long-term debt.......................... (15.6) (11.4) (107.4)
Cash dividends paid................................. (45.9) (49.0) (49.6)
Stock repurchases................................... (18.3) (159.9) (8.4)
Stock options exercised............................. 9.1 7.2 19.8
------- ------- -------
Net cash provided by (used for) financing
activities..................................... (130.4) (151.0) 147.9
------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ (25.3) 40.5 (152.9)
Cash and cash equivalents at beginning of year...... 126.1 85.6 238.5
------- ------- -------
Cash and cash equivalents at end of year............ $ 100.8 $ 126.1 $ 85.6
------- ------- -------
Supplemental cash flow disclosures
Interest paid....................................... $ 57.7 $ 59.0 $ 44.9
Income taxes paid, net.............................. 115.9 50.6 86.6
Treasury stock issued for compensation plans and
other.............................................. 18.1 17.1 30.6
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
34
<PAGE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unamortized Accumulated
Additional ESOP other
Common paid-in Retained Treasury expense comprehensive
stock capital earnings stock and other income Total
------ ---------- -------- -------- ----------- ------------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... $76.9 $302.0 $ 951.3 $ (75.4) $(68.3) $11.2 $1,197.7
----- ------ -------- ------- ------ ----- --------
Comprehensive income
Net earnings........... -- -- 150.5 -- -- -- 150.5
Currency translation
adjustments........... -- -- -- -- -- (11.1) (11.1)
Other comprehensive
income................ -- -- -- -- -- (0.3) (0.3)
----- ------ -------- ------- ------ ----- --------
Total comprehensive
income--1997.......... -- -- 150.5 -- -- (11.4) 139.1
Dividends ($.50 per
common share).......... -- -- (49.6) -- -- -- (49.6)
Compensation plans and
other.................. -- 6.2 -- 24.8 (1.2) -- 29.8
Deferred compensation--
ESOP................... -- -- -- -- 6.4 -- 6.4
Stock repurchased....... -- -- -- (8.4) -- -- (8.4)
----- ------ -------- ------- ------ ----- --------
Balance, December 31,
1997................... $76.9 $308.2 $1,052.2 $ (59.0) $(63.1) $(0.2) $1,315.0
----- ------ -------- ------- ------ ----- --------
Comprehensive income
Net earnings........... -- -- 186.3 -- -- -- 186.3
Currency translation
adjustments........... -- -- -- -- -- (1.1) (1.1)
Other comprehensive
income................ -- -- -- -- -- (4.5) (4.5)
----- ------ -------- ------- ------ ----- --------
Total comprehensive
income--1998.......... -- -- 186.3 -- -- (5.6) 180.7
Stock repurchased....... -- -- -- (159.9) -- -- (159.9)
Dividends ($.50 per
common share).......... -- -- (49.0) -- -- -- (49.0)
Compensation plans and
other.................. -- 3.3 -- 14.2 0.1 -- 17.6
Deferred compensation--
ESOP................... -- -- -- -- 6.9 -- 6.9
----- ------ -------- ------- ------ ----- --------
Balance, December 31,
1998................... $76.9 $311.5 $1,189.5 $(204.7) $(56.1) $(5.8) $1,311.3
----- ------ -------- ------- ------ ----- --------
Comprehensive income
Net earnings........... -- -- 37.9 -- -- -- 37.9
Currency translation
adjustments........... -- -- -- -- -- (5.7) (5.7)
Other comprehensive
income................ -- -- -- -- -- 2.3 2.3
----- ------ -------- ------- ------ ----- --------
Total comprehensive
income--1999.......... -- -- 37.9 -- -- (3.4) 34.5
Stock repurchased....... -- -- -- (18.3) -- -- (18.3)
Dividends ($.50 per
common share).......... -- -- (45.9) -- -- -- (45.9)
Compensation plans and
other.................. -- 2.8 -- 9.0 (0.6) -- 11.2
Deferred compensation--
ESOP................... -- -- -- -- 7.4 -- 7.4
----- ------ -------- ------- ------ ----- --------
Balance, December 31,
1999................... $76.9 $314.3 $1,181.5 $(214.0) $(49.3) $(9.2) $1,300.2
===== ====== ======== ======= ====== ===== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
35
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Principles of consolidation. The Company's consolidated financial
statements include the accounts of its significant domestic and foreign
subsidiaries, after eliminating transactions between Brunswick Corporation and
such subsidiaries. Investments in certain affiliates are reported using the
equity method. Additionally, certain previously reported amounts have been
reclassified to conform with current-year presentations.
Use of estimates in the financial statements. The preparation of financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect reported
amounts and related disclosures. Actual results could differ from those
estimates.
Cash and cash equivalents. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Inventories. Approximately 63 percent of the Company's inventories are
valued at the lower of first-in, first-out (FIFO) cost or market (replacement
cost or net realizable value). Inventories valued at last-in, first-out (LIFO)
cost were $80.8 million and $79.1 million lower than the FIFO cost of
inventories at December 31, 1999 and 1998, respectively. Inventory cost
includes material, labor and manufacturing overhead.
Property. Property, including major improvements and product tooling costs,
is recorded at cost. Maintenance and repair costs are charged against results
of operations as incurred. Depreciation is charged against results of
operations over the estimated service lives of the related assets, principally
using the straight-line method.
Software development costs. The Company expenses all software development
and implementation costs incurred until the Company has determined that the
software will result in probable future economic benefit and management has
committed to funding the project. Once this is determined, external direct
cost of material and services, payroll-related costs of employees working on
the project and related interest costs incurred during the application
development stage are capitalized. These capitalized costs are amortized over
their estimated useful lives for periods of up to seven years, beginning when
the system is placed in service. Training costs and costs to re-engineer
business processes are expensed as incurred.
Intangibles. The excess of cost over net assets of businesses acquired is
recorded as goodwill and amortized using the straight-line method over its
estimated useful life, principally 40 years. Accumulated amortization was
$233.9 million and $79.9 million at December 31, 1999 and 1998, respectively.
The December 31, 1999 amount includes a write-off of impaired goodwill of
$133.6 million in the Outdoor Recreation segment (see Note 4 for additional
information). The costs of other intangible assets are amortized over their
expected useful lives using the straight-line method. Accumulated amortization
was $338.7 million and $326.2 million at December 31, 1999 and 1998,
respectively.
Long-lived assets. The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful lives
of its intangible and other long-lived assets may warrant revision or that the
remaining balance of such assets may not be recoverable. The Company uses an
estimate of the related undiscounted cash flows over the remaining life of the
asset in measuring whether the asset is recoverable.
Other long-term assets. Other long-term assets include pension assets and
long-term notes receivable. Long-term notes receivable include cash advances
made to customers, or their owners, in connection with long-term supply
arrangements. These transactions have occurred in the normal course of
business and are backed by secured notes receivable that are reduced as
purchases of qualifying products are made. Amounts outstanding related to
these arrangements as of December 31, 1999 and 1998, totaled $70.0 million and
$66.1 million, respectively. One customer and its owner comprised 67 percent
and 77 percent of these amounts as of December 31, 1999 and 1998,
respectively.
36
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising costs. The costs of advertising are expensed in the year in
which the advertising first takes place.
Revenue recognition. Revenue from product sales is recognized in accordance
with terms of sale, primarily upon shipment to customers. Provisions for
discounts and rebates to customers, warranties, returns and other adjustments
are provided for in the same period the related sales are recorded.
Comprehensive income. Accumulated other comprehensive income includes
currency translation adjustments, unrealized gains and losses on investments
and minimum pension liability adjustments.
Change in accounting principle. In 1997, the Company adopted the consensus
reached in the Financial Accounting Standards Board's Emerging Issues Task
Force Issue No. 97-13, requiring that the cost of business process re-
engineering associated with internal-use software development activities be
expensed as incurred. The remaining unamortized portion of previously
capitalized costs for these activities of $1.1 million ($0.7 million after
tax) was written off and reported as a cumulative effect of a change in
accounting principle in 1997.
Derivatives. The Company uses derivative financial instruments to manage
its risk associated with movements in foreign currency exchange rates,
interest rates and commodity prices. These instruments are used in accordance
with guidelines established by the Company's management and are not used for
trading or speculative purposes.
Forward exchange contracts generally are not accounted for as hedges, and
as such, unrealized gains and losses are recognized and included in other
income. When realized, gains and losses are reclassified from other income and
recognized primarily as a component of cost of sales. The interest rate
differential to be paid or received under interest rate swap agreements is
recognized over the lives of the agreements as an adjustment of net earnings.
Under commodity swap agreements, which are accounted for as hedges, the
Company receives or makes payments based on the differential between a
specified price and the market price of the commodity. The Company records the
payments when received or made against cost of sales and does not have a
carrying value recorded.
The Company has terminated financial instruments in the past as a result of
a change in the volume or characteristics of the transaction being hedged. If,
subsequent to entering into a forward contract, the underlying transaction is
no longer likely to occur, the Company may terminate the forward contract and
any gain or loss on the terminated contract is included in net earnings. Gains
and losses on commodity swaps that are terminated prior to the execution of
the inventory purchase are recorded in inventory until the inventory is sold.
Gains and losses on terminated interest rate swap agreements are recognized or
deferred, as appropriate.
2. Earnings per Common Share
There is no difference in the earnings used to compute the Company's basic
and diluted earnings per share. The difference in the average shares of common
stock outstanding used to compute basic and diluted earnings per share is
caused by potential common stock relating to employee compensation plans. The
average number of shares of potential common stock was 0.6 million, 0.7
million and 1.1 million in 1999, 1998 and 1997, respectively.
3. Segment Information
The Company is a multinational marketer and manufacturer of branded
consumer products designed for outdoor and indoor active recreation
participants, primarily in pleasure boating, marine engines, fitness
equipment, fishing, camping, bowling, billiards and biking. The Company
reports in four operating segments: Marine Engine, Boat, Outdoor Recreation
and Indoor Recreation.
The Marine Engine segment markets and manufactures outboard, sterndrive and
inboard engines, and marine parts and accessories, which are sold directly to
boat builders or through dealers worldwide. The segment
37
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
also manufactures and distributes boats in certain international markets. The
Company's engine manufacturing plants are located primarily in the United
States, and sales are primarily in the United States.
The Boat segment markets and manufactures a complete line of pleasure boats
including runabouts, cruisers, yachts, high-performance boats and offshore
fishing boats, which are marketed through dealers. The segment's boat plants
are located in the United States, and sales are primarily in the United
States. Sales to one dealer, with multiple locations, comprised more than 10
percent of Boat segment sales in 1999.
Within the Outdoor Recreation segment, the Company markets and manufactures
fishing products, including fishing reels and reel/rod combinations, trolling
motors and other fishing accessories; camping products, including tents,
sleeping bags, backpacks, cookware and other accessories; a complete line of
ice chests, beverage coolers and thermoelectric products; bicycles; and
shooting sports accessories. These products are either manufactured in plants
throughout the United States or sourced from or manufactured in foreign
locations. The segment's products are predominantly sold in the United States
and are distributed primarily through mass merchants, sporting goods stores
and specialty retailers. Sales to one mass merchant customer comprised a
substantial portion of the segment's sales in 1999, 1998 and 1997.
Within the Indoor Recreation segment, the Company markets and manufactures
fitness equipment including treadmills, cross-training equipment, stationary
bikes and weight-training equipment; bowling capital equipment, including
lanes, pinsetters, and automatic scorers; bowling balls and other accessories;
and billiards tables and accessories; and operates bowling and family
entertainment centers. These products are primarily manufactured in plants
throughout the United States and, in some cases, sourced from or manufactured
in foreign locations. Fitness equipment is sold primarily in the United States
and Europe to health clubs, military, government, corporate and university
facilities and high-end consumer markets. Bowling balls and billiards
equipment are predominantly sold in the United States and are distributed
primarily through mass merchants, sporting good stores and specialty shops.
Bowling capital equipment is sold through a direct sales force into the United
States and foreign markets, primarily Europe and Asia.
Information as to the operations of the Company's four operating segments
is set forth below:
Operating Segments
<TABLE>
<CAPTION>
Assets of Continuing
Sales to Customers Operating Earnings Operations
---------------------------- ----------------------- --------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------ ------ -------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Engine........... $1,614.8 $1,482.5 $1,410.8 $ 126.5 $222.4 $124.3 $ 725.0 $ 669.0 $ 628.0
Boat.................... 1,476.6 1,332.3 1,227.8 120.7 112.7 70.0 594.1 567.4 579.1
Marine eliminations..... (283.5) (262.4) (251.8) -- -- -- -- -- --
-------- -------- -------- ------- ------ ------ -------- -------- --------
Total Marine........... 2,807.9 2,552.4 2,386.8 247.2 335.1 194.3 1,319.1 1,236.4 1,207.1
Outdoor Recreation...... 743.4 711.3 665.3 (163.4) 38.5 62.6 669.4 850.8 794.7
Indoor Recreation 733.4 682.5 607.8 73.9 3.8 54.1 821.2 759.9 726.1
Corporate/other......... (0.9) (1.0) (2.5) (46.4) (37.2) (40.2) 545.1 504.4 513.5
-------- -------- -------- ------- ------ ------ -------- -------- --------
Total.................. $4,283.8 $3,945.2 $3,657.4 $ 111.3 $340.2 $270.8 $3,354.8 $3,351.5 $3,241.4
======== ======== ======== ======= ====== ====== ======== ======== ========
<CAPTION>
Depreciation and Research and
Capital Expenditures Amortization Development Expense
---------------------------- ----------------------- --------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------ ------ -------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Engine........... $ 77.1 $ 66.4 $ 67.7 $ 51.5 $ 49.8 $ 50.4 $ 53.3 $ 49.7 $ 59.6
Boat.................... 46.6 48.8 52.4 49.3 46.1 52.1 17.7 17.6 15.3
Outdoor Recreation...... 31.4 33.3 23.2 24.2 24.3 24.2 3.7 3.6 3.3
Indoor Recreation....... 41.9 47.9 39.2 39.0 38.0 27.8 18.7 16.6 11.2
Corporate............... 1.1 1.6 8.0 1.6 1.5 2.4 -- -- --
-------- -------- -------- ------- ------ ------ -------- -------- --------
Total.................. $ 198.1 $ 198.0 $ 190.5 $ 165.6 $159.7 $156.9 $ 93.4 $ 87.5 $ 89.4
======== ======== ======== ======= ====== ====== ======== ======== ========
</TABLE>
38
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographic Segments
<TABLE>
<CAPTION>
Assets of Continuing
Sales to Customers Operations
-------------------------- --------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
United States............ $3,452.8 $3,138.4 $2,794.3 $2,515.8 $2,562.5 $2,456.7
Foreign.................. 831.0 806.8 863.1 293.9 284.6 271.2
Corporate................ -- -- -- 545.1 504.4 513.5
-------- -------- -------- -------- -------- --------
Total................... $4,283.8 $3,945.2 $3,657.4 $3,354.8 $3,351.5 $3,241.4
======== ======== ======== ======== ======== ========
</TABLE>
The Company evaluates performance based on several factors, of which the
primary financial measure is business segment operating earnings. Operating
earnings of segments do not include the expenses of corporate administration,
other expenses and income of a non-operating nature, and provisions for income
taxes. Corporate assets consist primarily of prepaid income taxes, cash and
marketable securities, pension assets and investments in unconsolidated
affiliates.
Outdoor Recreation segment operating earnings include asset write-down and
strategic charges of $178.0 million, and Marine Engine segment operating
earnings include litigation charges of $116.0 million in 1999. The 1998 Boat
segment operating earnings include a $15.0 million gain from a settlement with
a boat dealer. The 1998 operating earnings of the Outdoor Recreation and
Indoor Recreation segments include strategic charges of $9.2 million and $50.8
million, respectively. The 1997 operating earnings include strategic charge
amounts of $60.6 million in Marine Engine, $14.1 million in Boat, $3.4 million
in Outdoor Recreation and $20.4 million in Indoor Recreation.
4. Asset Write-Down and Strategic Charges
Despite the Company's successful initiatives to expand distribution and
reduce costs in its bicycle business, the profitability of the business eroded
as competition from Asian imports substantially reduced market pricing for
bicycles. While the price competition affected virtually all bicycles, the
effects were extremely pronounced at the opening price points. Consequently,
in the fourth quarter of 1999, the Company determined that the goodwill
associated with this business was impaired. Additionally, to further reduce
costs, the Company committed to plans to exit manufacturing, reduce warehouse
capacity and administrative expenses and rationalize product offerings. As a
result of these actions, the Company recorded $178.0 million of charges in the
Outdoor Recreation segment in the fourth quarter of 1999. These charges
included the write-off of goodwill of $133.6 million, inventory write-downs of
$27.0 million and $10.5 million of fixed asset write-downs, along with other
incremental costs associated with the actions of $6.9 million. Other costs
estimated at $7.0 million for severance and other incremental costs are
expected to be incurred in the first quarter of 2000.
The write-off of the goodwill was based on an analysis of projected
undiscounted cash flows, which were no longer deemed adequate to support the
value of goodwill associated with the business. The inventory write-down was
required as a result of a substantial decrease in market pricing for bicycles
and as a result of the Company's decision to exit manufacturing and
rationalize product offerings, which will adversely affect the recoverability
of the inventory. The fixed asset write-downs relate to $16.5 million of
manufacturing and distribution assets that will be disposed. The realization
of these assets was determined based on previous experience and third-party
appraisals.
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 exit and asset disposition 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 strategic actions included
exiting and disposing of 15 retail bowling centers in Asia, Brazil and Europe;
rationalizing manufacturing of bowling equipment, including closing a
pinsetter manufacturing plant in China, accelerating the shutdown of a
pinsetter manufacturing plant in Germany and exiting the manufacture of
electronic scorers
39
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and components; closing bowling sales and administrative offices in four
countries; and rationalizing the manufacture and distribution of outdoor
recreation products including the consolidation of certain North American
manufacturing operations and the closing of seven domestic distribution
warehouses. These actions were substantially completed during 1998.
The 1998 strategic charge includes lease termination costs, severance
costs, other incremental costs and asset disposition costs. Lease termination
costs of $11.3 million consist primarily of costs to exit leased international
bowling facilities as well as distribution and warehouse facilities in the
Outdoor Recreation segment. Severance costs of $10.6 million relate to the
termination of approximately 750 employees in the Company's bowling businesses
and 330 employees in the Company's Outdoor Recreation segment. During 1999,
the Company completed the severance actions. Other incremental costs of $9.3
million include contract termination costs related to the manufacture and sale
of bowling equipment; cleanup, holding and shutdown costs related to the
closing of domestic distribution warehouses and manufacturing facilities; and
legal costs. Asset disposition costs primarily relate to the write-down of
facilities and equipment at international bowling centers in the Indoor
Recreation segment and manufacturing facilities in the Outdoor Recreation
segment. Assets to be disposed had a gross carrying value of $35.2 million as
of September 30, 1998, with related reserves of $28.8 million. As of December
31, 1999, the asset disposals were substantially completed.
During the third quarter of 1997, the Company announced strategic
initiatives to streamline its operations and improve global manufacturing
costs and recorded a pretax charge of $98.5 million ($63.0 million after tax)
to cover exit and asset disposition costs related to these actions. The
initiatives included terminating development efforts on a line of personal
watercraft; closing boat plant manufacturing facilities in Ireland and
Oklahoma; centralizing European marketing and customer service in the Marine
Engine segment; rationalizing manufacturing of bowling equipment including the
shutdown of a pinsetter manufacturing plant in Germany and outsourcing the
manufacture of certain components in the Company's bowling division;
consolidating fishing reel manufacturing; and other actions directed at
manufacturing rationalization, product profitability improvements and general
and administrative expense efficiencies. These actions were substantially
completed during 1998.
These actions included termination of approximately 900 hourly and salaried
employees and severance and related benefits totaling $32.6 million. During
1998, the Company substantially completed the severance actions of both hourly
and salaried employees. Asset disposition costs consist of the write-down of
facilities and equipment related to the development of a line of personal
watercraft, boat manufacturing facilities in Ireland and Oklahoma and an
international pinsetter plant. Assets to be disposed had a gross carrying
value of $30.1 million as of September 30, 1997, with related reserves of
$26.4 million. As of December 31, 1999, the asset disposals were substantially
completed. Product and inventory write-downs related to exit activities were
$15.6 million. Other incremental costs related to exit activities were $23.9
million.
The Company's accrued expense balances and activity relating to the 1999,
1998 and 1997 strategic charges for the years ending December 31, 1999, 1998
and 1997, were as follows:
<TABLE>
<CAPTION>
Lease Other
Severance Termination Costs Total
--------- ----------- ------ ------
(In millions)
<S> <C> <C> <C> <C>
1997 Charge............................ $ 32.6 $ -- $ 23.9 $ 56.5
Activity............................... (9.4) -- (6.7) (16.1)
------ ------ ------ ------
Balance at December 31, 1997........... 23.2 -- 17.2 40.4
------ ------ ------ ------
1998 Charge............................ 10.6 11.3 9.3 31.2
Activity............................... (17.7) (0.7) (15.7) (34.1)
------ ------ ------ ------
Balance at December 31, 1998........... 16.1 10.6 10.8 37.5
------ ------ ------ ------
1999 Charge............................ -- 3.4 3.5 6.9
Activity............................... (16.1) (3.1) (8.8) (28.0)
------ ------ ------ ------
Balance at December 31, 1999........... $ -- $ 10.9 $ 5.5 $ 16.4
====== ====== ====== ======
</TABLE>
40
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Acquisitions
On January 3, 1997, the Company acquired the stock of Igloo Holdings, Inc.,
the leading manufacturer and marketer of ice chests and beverage coolers, for
approximately $152.1 million in cash, which included $9.8 million paid to
certain management employees under stock option arrangements that existed
prior to acquisition. On April 28, 1997, the Company purchased for
approximately $20.9 million the inventory and trademarks of the Mongoose
bicycle and parts business of Bell Sports Corporation. These operations are
part of the Outdoor Recreation segment.
On July 9, 1997, the Company purchased substantially all of the facilities,
equipment, inventory and other assets of Life Fitness, a designer,
manufacturer and marketer of the leading global brand of computerized
cardiovascular and strength-training fitness equipment for commercial use. The
purchase price was approximately $314.9 million after post-closing
adjustments, of which $12.8 million was deferred pursuant to an incentive
compensation plan in connection with the waiver of employee stock options
granted by Life Fitness. Life Fitness is part of the Indoor Recreation
segment.
Cash consideration paid for other acquisitions totaled $11.4 million in
1999, $32.8 million in 1998 and $40.3 million in 1997.
The acquisitions were accounted for as purchases and resulted in goodwill
of $9.3 million, $10.7 million and $388.5 million in 1999, 1998 and 1997,
respectively, that will be amortized using the straight-line method over its
estimated useful life, principally 40 years. The assets and liabilities of the
acquired companies have been recorded in the Company's consolidated financial
statements at their estimated fair values at the acquisition dates. The
operating results of each acquisition are included in the Company's results of
operations since the date of acquisition.
6. Commitments and Contingencies
Financial Commitments. The Company has entered into agreements, which are
customary in the marine industry, that provide for the repurchase of its
products from a financial institution in the event of repossession upon a
dealer's default. Repurchases and losses incurred under these agreements have
not had, and are not expected to have, a significant effect on the Company's
results of operations. The maximum potential repurchase commitments were
approximately $179.0 million at December 31, 1999 and 1998.
The Company also has various agreements with financial institutions that
provide limited recourse on bowling capital equipment, fitness equipment and
marine equipment sales. Recourse losses have not had, and are not expected to
have, a significant effect on the Company's results of operations. The maximum
potential recourse liabilities outstanding under these programs at December
31, 1999 and 1998, were approximately $61.0 million and $44.0 million,
respectively.
The Company had outstanding standby letters of credit and financial
guarantees of approximately $150.0 million and $174.0 million at December 31,
1999 and 1998, respectively, representing conditional commitments whereby the
Company guarantees performance to a third party. Included in these amounts is
a $133.2 million surety bond issued in 1998 to secure damages awarded in a
suit brought in December 1995 while the Company pursues its appeal as further
discussed below. The remaining commitments include guarantees of premium
payment under certain of the Company's insurance programs and other guarantees
issued in the ordinary course of business.
Legal and Environmental. The Company is subject to certain legal and
environmental proceedings and claims that have arisen in the ordinary course
of its business.
41
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 19, 1998, a jury awarded $133.2 million, after trebling, in damages
to Independent Boat Builders, Inc., a buying group of boat manufacturers and
22 of its members, in a suit brought against the Company in December 1995. 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 was
trebled, and plaintiffs were awarded attorneys' fees and interest on both the
award and attorneys' fees. Under current law, any and all amounts paid by the
Company will be deductible for tax purposes.
The Company filed an appeal contending the Concord verdict was erroneous as
a matter of law, both as to liability and damages, and plaintiffs filed a
cross appeal. Oral argument was heard by the appeals court in September 1999
and the Company is currently awaiting a ruling.
Following the Concord verdict, six additional suits were filed, including
five class-action lawsuits seeking to rely on the allegations and findings of
that verdict. The Company has reached agreements to settle or dismiss all of
these lawsuits. As a result, the Company recorded a charge to operating
earnings of $116.0 million in 1999. Payments relating to these settlements
totaled $57.6 million in 1999, with the remainder expected to be paid through
2001. The settled lawsuits are described below.
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 sought to represent a class of all allegedly
similarly situated boat builders whose claims were not resolved in Concord or
in other judicial proceedings.
On December 23, 1998, Volvo Penta of the Americas, Inc., the Company'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
invoked the antitrust allegations of the Concord action and sought injunctive
relief and damages in an unspecified amount for an unspecified time period.
On February 10, 1999, a former dealer of the Company's 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), sought class status purporting
to represent a class of all marine dealers who purchased directly from the
Company sterndrive or inboard engines or boats equipped with sterndrive or
inboard engines during the period January 1, 1986, to June 30, 1998. 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 September 16, 1999, another suit, Howard S. Cothran, d/b/a Sonny's Marine
v. Brunswick Corporation (Cothran), was filed in the United States District
Court for the Southern District of Illinois 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 sought to represent a class of all indirect purchasers of
boats equipped with Brunswick sterndrive or inboard engines in these 17
jurisdictions. The plaintiff claimed damages in an unspecified amount during
the period from 1986 to the filing of the complaint and also requested
injunctive relief.
42
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The settlement with the boat builders comprising the named class in KK
Motors included a subgroup of boat builders, the American Boatbuilders
Association (ABA). Under the terms of the agreement with the ABA, the Company
has paid the ABA $35 million. If, as a result of the Concord appeal or in
settlement, the Company ultimately makes a payment to the Concord plaintiffs
in excess of $35 million, the Company will make an equal payment to the ABA,
less $35 million already paid to the ABA. If the Company makes no payment to
the Concord plaintiffs, or payment in an amount less than $35 million, the
Company will not be required to make any additional payment to the ABA. In
addition, as part of the Volvo settlement, the Company has entered into a
long-term supply agreement to purchase diesel sterndrive and inboard engines
from Volvo for use in certain models of boats manufactured by the Company. The
Couch and KK Motors class-action settlements are subject to approval by the
courts.
While there can be no assurance, the Company believes it is likely to
prevail on the Concord appeal and obtain either a new trial or judgment in its
favor. In addition, the Company is unable to predict the outcome of the
Concord case, and accordingly, no expense for this case has been recorded. If
the Concord judgment is sustained after all appeals, however, the additional
amounts the Company would be required to pay to conclude all of the lawsuits
described above would total, as of the date of the filing of this 1999 Annual
Report on Form 10-K, approximately $262.0 million.
On October 26, 1999, a jury awarded Precor, a subsidiary of Illinois Tool
Works, Inc., approximately $5.2 million in a patent infringement trial against
Life Fitness, on the basis that certain Life Fitness treadmills willfully
infringed a Precor design patent. Precor was also awarded up to $5.3 million
in attorneys' fees and will be entitled to prejudgment interest on the damage
award. The Company will appeal the verdict and the award of attorneys' fees.
While there can be no assurance, the Company believes it is likely to prevail
on the Precor appeal and obtain either a new trial or judgment in its favor.
In addition, the Company is unable to predict the outcome of the Precor case,
and accordingly, no expense for this case has been recorded.
The Federal Trade Commission (FTC) began an investigation in 1997 of
certain of the Company's marketing practices related to the sale of sterndrive
marine engines to boat builders and dealers. The Company believes such
practices were lawful; however, they were discontinued for business reasons
prior to the initiation of the FTC's investigation.
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.
The Company is involved in numerous environmental remediation and clean-up
projects with an aggregate estimated range of exposure of approximately $18
million to $39 million as of December 31, 1999. At December 31, 1999 and 1998,
the Company had reserves for environmental liabilities of $24.9 million and
$26.2 million, and environmental provisions of $3.0 million, $7.3 million and
$4.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company accrues for environmental remediation-related
activities for which commitments or clean-up plans have been developed and for
which costs can be reasonably estimated. All accrued amounts are generally
determined in coordination with third-party experts on an undiscounted basis
and do not consider recoveries from third parties until such recoveries are
realized. In light of existing reserves, the Company's environmental claims,
including those discussed, 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.
43
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Financial Instruments
The Company enters into various financial instruments in the normal course
of business and in connection with the management of its assets and
liabilities. The Company does not hold or issue financial instruments for
trading or speculative purposes. The Company prepares periodic analyses of its
positions in derivatives to assess the current and projected status of these
agreements. The Company monitors and controls market risk from financial
instrument activities by utilizing floating rates that historically have moved
in tandem with each other, matching positions and limiting the terms of
contracts to short durations. The effect of financial instruments transactions
is not material to the Company's results of operations.
The carrying values of the Company's short-term financial instruments,
including cash and cash equivalents, accounts and notes receivable and short-
term debt, approximate their fair values because of the short maturity of
these instruments. At December 31, 1999 and 1998, the fair value of the
Company's long-term debt was $556.6 million and $622.7 million, respectively,
as estimated using quoted market prices or discounted cash flows based on
market rates for similar types of debt. The fair market value of derivative
financial instruments is determined through dealer quotes and may not be
representative of the actual gains or losses that will be recorded when these
instruments mature due to future fluctuations in the markets in which they are
traded.
Forward Exchange Contracts. The Company enters into forward exchange
contracts and options to manage foreign exchange exposure related to
transactions, assets and liabilities that are subject to risk from foreign
currency rate changes. These include product costs, revenues and expenses;
associated receivables and payables; intercompany obligations and receivables;
and other related cash flows. Forward exchange contracts outstanding at
December 31, 1999 and 1998, had contract values of $44.7 million and $58.0
million, respectively. The fair value of forward exchange contracts was
approximately $0.5 million at December 31, 1999 and 1998. The contracts
outstanding at December 31, 1999, mature during 2000 and relate primarily to
the German mark and Canadian dollar.
Interest Rate Swaps. The Company has entered into interest rate swap
agreements to reduce the impact of changes in interest rates on the Company's
investments and borrowings. At December 31, 1999 and 1998, the Company had
three outstanding floating-to-floating interest rate swap agreements, each
with a notional principal amount of $260.0 million, that expire in September
2003. The estimated aggregate market value of these three agreements was a
loss of $1.4 million and $0.2 million at December 31, 1999 and 1998,
respectively, and represents the costs to settle outstanding agreements.
Commodity Swaps. The Company uses commodity swap agreements to hedge
anticipated purchases of raw materials. Commodity swap contracts outstanding
at December 31, 1999 and 1998, had notional values of $56.9 million and $21.3
million, respectively. At December 31, 1999 and 1998, the fair value of these
swap contracts was a net gain of $6.7 million and a net loss of $3.3 million,
respectively. The contracts outstanding at December 31, 1999, mature through
2002.
Credit Risk. The Company enters into financial instruments with banks and
investment firms with which the Company has continuing business relationships
and regularly monitors the credit ratings of its counterparties. The Company
sells a broad range of active recreation products to a worldwide customer base
and extends credit to its customers based upon an ongoing credit evaluation
program and security is obtained if required. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base; however, periodic
concentrations can occur due to the seasonality of the Company's businesses.
The Company has one mass merchant customer that comprised 13 percent and 12
percent of its net receivable balances at December 31, 1999 and 1998,
respectively.
44
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Accrued Expenses
Accrued expenses at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(In millions)
<S> <C> <C>
Dealer allowances and discounts............................. $137.9 $103.0
Payroll and other compensation.............................. 124.9 109.9
Product warranties.......................................... 114.3 101.0
Antitrust litigation settlement reserves.................... 58.4 --
Insurance reserves.......................................... 56.3 60.1
Strategic charge reserve.................................... 16.4 37.5
Other....................................................... 161.8 163.1
------ ------
Accrued expenses............................................ $670.0 $574.6
====== ======
9. Debt
Short-term debt at December 31 consisted of the following:
<CAPTION>
1999 1998
------ ------
(In millions)
<S> <C> <C>
Commercial paper............................................ $ 95.0 $156.3
Notes payable............................................... 1.6 --
Current maturities of long-term debt........................ 11.1 13.8
------ ------
Short-term debt............................................. $107.7 $170.1
====== ======
The weighted-average interest rate for commercial paper borrowings during
1999 and 1998 was 5.43 percent and 5.74 percent, respectively.
Long-term debt at December 31 consisted of the following:
<CAPTION>
1999 1998
------ ------
(In millions)
<S> <C> <C>
Mortgage notes and other, 5.07% to 9.95% payable through
2003....................................................... $ 20.6 $ 29.1
Notes, 6.75% due 2006, net of discount of $1.5 and $1.7..... 248.5 248.3
Notes, 7.125% due 2027, net of discount of $1.3............. 198.7 198.7
Debentures, 7.375% due 2023, net of discount of $0.8........ 124.2 124.2
Guaranteed ESOP debt, 8.13% payable through 2004............ 41.6 48.9
------ ------
633.6 649.2
------ ------
Current maturities.......................................... (11.1) (13.8)
------ ------
Long-term debt.............................................. $622.5 $635.4
====== ======
Scheduled maturities
2001...................................................... $ 8.6
2002...................................................... 9.4
2003...................................................... 10.2
2004...................................................... 5.4
Thereafter................................................ 588.9
------
Total................................................... $622.5
======
</TABLE>
45
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has a $400.0 million long-term revolving credit agreement with
a group of banks, of which $40.0 million terminates on May 22, 2002, and
$360.0 million terminates on May 22, 2003. Under terms of the agreement, the
Company has multiple borrowing options, including borrowing at the greater of
the prime rate as announced by The Chase Manhattan Bank or the federal funds
effective rate plus 0.5 percent, or a rate tied to the Eurodollar rate. The
Company pays a facility fee of 0.08 percent per annum. Under the terms of the
agreement, the Company is subject to a leverage test, as well as a restriction
on secured debt. The Company was in compliance with these covenants at
December 31, 1999. There were no borrowings under the revolving credit
agreement during 1999, and the agreement continues to serve as support for
commercial paper borrowings when commercial paper is outstanding. At December
31, 1999, the Company had additional borrowing capacity of $305.0 million
under the terms of this agreement.
On August 4, 1997, the Company sold $200.0 million of 7.125 percent notes
due August 1, 2027. The proceeds from the sale of the notes were used to
retire a portion of the commercial paper issued to finance the acquisition of
Life Fitness. On December 10, 1996, the Company sold $250.0 million of 6.75
percent notes due December 15, 2006. The proceeds from the sale of the notes
were used to finance the purchase of Igloo on January 3, 1997, and to repay
the $100.0 million principal amount of 8.125 percent notes due April 1, 1997.
10. Discontinued Operations
During 1998, the Company recognized $7.7 million of after-tax income from
discontinued operations resulting primarily from the favorable cash settlement
of a lawsuit brought by the Company related to the previously disposed
Technical segment.
11. Stock Plans and Management Compensation
Under the 1991 Stock Plan, the Company may grant stock options, stock
appreciation rights, restricted stock and other various types of awards to
executives and other management employees. Issuances under the plan may be
from either authorized, but unissued shares or treasury shares. As of December
31, 1999, the plan allows for the issuance of a maximum of 16.2 million
shares, which includes a 1999 amendment that increased this amount by 5.0
million. Shares available for grant totalled 5.1 million at December 31, 1999.
Stock options issued are generally exercisable over a period of 10 years,
or as determined by the Human Resource and Compensation Committee of the Board
of Directors. Options vest over three or five years, although the Company
provides for accelerated vesting should certain earnings per share or stock
price levels be attained, or immediately in the event of a change in control.
The option price per share has not been less than the fair market value at the
date of grant. The Company has additional stock and stock option plans to
provide for compensation of nonemployee directors. Stock option activity for
all plans for the three years ending December 31, 1999, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Stock average Stock average Stock average
options exercise options exercise options exercise
outstanding price outstanding price outstanding price
----------- -------- ----------- -------- ----------- --------
(Options and shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding on January
1...................... 7,228 $22.62 6,498 $22.89 6,016 $19.51
Granted................. 1,597 $22.68 1,326 $20.53 1,752 $31.30
Exercised............... (507) $18.74 (381) $18.92 (1,099) $17.92
Forfeited............... (353) $24.87 (215) $25.53 (171) $21.72
----- ----- ------
Outstanding on December
31..................... 7,965 $22.78 7,228 $22.62 6,498 $22.89
===== ===== ======
Exercisable on December
31..................... 4,929 $21.79 3,776 $20.83 3,759 $20.71
</TABLE>
46
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------
Weighted
Range of Weighted Weighted average
exercise Number average average Number exercise
price outstanding contractual life exercise price exercisable price
-------- ----------- ---------------- -------------- ----------- --------
(Options in thousands)
<S> <C> <C> <C> <C> <C>
$12.56 to 16.75......... 467 3.1 years $15.36 436 $15.49
$16.76 to 20.25......... 3,166 6.7 years $19.30 2,083 $18.98
$20.26 to 25.50......... 2,800 7.7 years $23.15 1,806 $23.28
$25.51 to 35.44......... 1,532 7.7 years $31.56 604 $31.59
</TABLE>
If the accounting provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," had been applied over the
last three years, the Company's pro forma net income and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In millions, except
per share data)
<S> <C> <C> <C>
Earnings from continuing operations
As reported................................... $ 37.9 $ 178.6 $ 151.2
Pro forma..................................... 32.2 172.1 141.3
Basic earnings per common share from continuing
operations
As reported................................... $ 0.41 $ 1.82 $ 1.52
Pro forma..................................... 0.35 1.75 1.42
Diluted earnings per common share from
continuing operations
As reported................................... $ 0.41 $ 1.80 $ 1.51
Pro forma..................................... 0.35 1.74 1.41
The weighted-average fair value of individual options granted during 1999,
1998 and 1997 was $6.83, $5.62 and $9.51, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for 1999,
1998 and 1997, respectively:
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... 5.1% 5.5% 6.0%
Dividend yield.................................. 2.1% 2.5% 1.6%
Volatility factor............................... 31.9% 28.7% 27.3%
Weighted-average expected life.................. 5 years 5 years 5 years
The Company maintains a leveraged employee stock ownership plan (ESOP). In
April 1989, the ESOP borrowed $100 million to purchase 5,095,542 shares of the
Company's common stock at $19.625 per share. The debt of the ESOP is
guaranteed by the Company and is recorded in the Company's financial
statements. All ESOP shares are considered outstanding for earnings per share
purposes. The ESOP shares are maintained in a suspense account until released
and allocated to participants' accounts. Shares committed-to-be-released,
allocated and remaining in suspense at December 31 were as follows:
<CAPTION>
1999 1998
------- -------
(Shares in
thousands)
<S> <C> <C> <C>
Committed-to-be-released........................ 289 303
Allocated....................................... 1,981 1,801
Suspense........................................ 1,478 1,806
</TABLE>
47
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the grandfather provisions of SOP 93-6, the expense recorded by the
Company is based on cash contributed or committed to be contributed by the
Company to the ESOP during the year, net of dividends received, which are
primarily used by the ESOP to pay down debt. The Company's contributions to
the ESOP, along with related expense amounts, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(In millions)
<S> <C> <C> <C>
Compensation expense...................................... $ 5.5 $ 4.8 $ 4.2
Interest expense.......................................... 3.7 4.3 4.9
Dividends................................................. 2.0 2.1 2.1
----- ----- -----
Total debt service payments............................. $11.2 $11.2 $11.2
===== ===== =====
</TABLE>
The Company has certain employment agreements and a severance plan that
become effective upon a change in control of the Company, which will result in
compensation expense in the period that a change in control occurs.
12. Pension and Other Postretirement Benefits
The Company has qualified and nonqualified pension plans and other
postretirement benefit plans covering substantially all of its employees. The
Company's domestic pension and retiree health care and life insurance benefit
plans are discussed below. The Company's foreign benefit plans are not
significant individually or in the aggregate.
Pension and other postretirement benefit costs included the following
components for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
---------------------- -------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ --------- --------- ---------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 18.6 $ 17.2 $ 14.2 $ 1.7 $ 1.6 $ 1.5
Interest cost........... 47.6 45.8 44.7 3.7 4.1 4.1
Expected return on plan
assets................. (66.7) (63.6) (56.5) -- -- --
Amortization of prior
service cost........... 3.6 3.3 2.2 (0.5) (0.5) (0.3)
Amortization of net loss
(gain)................. 0.6 0.3 0.2 (0.8) (0.6) (0.6)
------ ------ ------ --------- --------- ---------
Net pension and other
benefit costs........ $ 3.7 $ 3.0 $ 4.8 $ 4.1 $ 4.6 $ 4.7
====== ====== ====== ========= ========= =========
</TABLE>
48
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the changes in the plans' benefit obligations and fair
value of assets over the two-year period ending December 31, 1999, and a
statement of the funded status at December 31 for these years for the
Company's domestic pension plans follows. Pension plan assets include 1.8
million shares of the Company's common stock at December 31, 1999.
<TABLE>
<CAPTION>
Other
Pension Postretirement
Benefits Benefits
--------------- ----------------
1999 1998 1999 1998
------- ------ ------- -------
(In millions)
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Benefit obligation at previous December
31.................................... $ 721.8 $656.9 $ 76.9 $ 75.3
Service cost........................... 18.6 17.2 1.7 1.6
Interest cost.......................... 47.6 45.8 3.7 4.1
Participant contributions.............. -- -- 1.6 1.8
Plan amendments........................ 0.6 1.1 0.1 (2.7)
Actuarial (gain) loss.................. (87.2) 36.3 (17.9) 1.5
Benefit payments....................... (37.8) (35.5) (4.8) (4.7)
------- ------ ------- -------
Benefit obligation at December 31........ 663.6 721.8 61.3 76.9
------- ------ ------- -------
Reconciliation of fair value of plan
assets
Fair value of plan assets at January 1. 720.2 687.4 -- --
Actual return on plan assets........... 119.5 66.8 -- --
Employer contributions................. 1.9 1.5 3.2 2.9
Participant contributions.............. -- -- 1.6 1.8
Benefit payments....................... (37.8) (35.5) (4.8) (4.7)
------- ------ ------- -------
Fair value of plan assets at December 31. 803.8 720.2 -- --
------- ------ ------- -------
Funded status
Funded status at December 31........... 140.2 (1.6) (61.3) (76.9)
Unrecognized prior service cost........ 23.8 26.0 (4.6) (5.1)
Unrecognized actuarial (gain) loss..... (113.4) 28.0 (26.0) (9.1)
------- ------ ------- -------
Prepaid (accrued) benefit cost........... $ 50.6 $ 52.4 $ (91.9) $ (91.1)
======= ====== ======= =======
The amounts included in the Company's balance sheets as of December 31 were
as follows:
<CAPTION>
Other
Pension Postretirement
Benefits Benefits
--------------- ----------------
1999 1998 1999 1998
------- ------ ------- -------
(In millions)
<S> <C> <C> <C> <C>
Prepaid benefit cost..................... $ 77.1 $ 76.1 $ -- $ --
Accrued benefit liability................ (26.8) (24.5) (91.9) (91.1)
Accumulated other comprehensive income... 0.3 0.8 -- --
------- ------ ------- -------
Net amount recognized.................. $ 50.6 $ 52.4 $ (91.9) $ (91.1)
======= ====== ======= =======
</TABLE>
The Company's unfunded, nonqualified pension plan had projected and
accumulated benefit obligations of $32.5 million and $26.7 million,
respectively, at December 31, 1999, and $31.0 million and $24.3 million,
respectively, at December 31, 1998. One of the Company's qualified plans had
an accumulated benefit obligation in excess of plan assets at December 31,
1998. This plan's projected and accumulated benefit obligation and fair value
of assets were $1.5 million and $1.2 million, respectively, at December 31,
1998. The Company's other postretirement benefit plans are not funded.
49
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Accumulated gains and losses
in excess of 10 percent of the greater of the benefit obligation or the
market-related value of assets are amortized over the remaining service period
of active plan participants. Benefit obligations were determined using assumed
discount rates of 8.0 percent in 1999 and 6.75 percent in 1998 and an assumed
compensation increase of 5.5 percent in 1999 and 1998. The assumed long-term
rate of return on plan assets was 9.5 percent in 1999 and 1998.
The health care cost trend rate for 1999 for pre-65 benefits was assumed to
be 6.6 percent, gradually declining to 5.0 percent in 2002 and remaining at
that level thereafter. The trend rate for post-65 benefits was assumed to be
5.0 percent. The health care cost trend rate assumption has a significant
effect on the amounts reported. A one percent increase in the assumed health
care trend rate would increase the service and interest cost components of net
postretirement health care benefit cost by $1.1 million in 1999 and increase
the health care component of the accumulated postretirement benefit obligation
by $8.5 million at December 31, 1999. A one percent decrease in the assumed
health care trend rate would decrease the service and interest cost components
of net postretirement health care benefit cost by $0.8 million in 1999 and the
health care component of the accumulated postretirement benefit obligation by
$7.0 million at December 31, 1999. The Company monitors the cost of health
care and life insurance benefit plans and reserves the right to make
additional changes or terminate these benefits in the future.
The Company also has defined contribution retirement plans covering most of
its employees. The Company's contributions to these plans are based on various
percentages of compensation, and in some instances are based on the amount of
the employees' contributions to the plans. The cost of these plans was $20.0
million, $13.1 million and $14.5 million in 1999, 1998 and 1997, respectively.
13. Income Taxes
The sources of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ ------
(In millions)
<S> <C> <C> <C>
United States......................................... $45.1 $285.7 $233.6
Foreign............................................... 9.9 (1.9) 2.6
----- ------ ------
Earnings before income taxes........................ $55.0 $283.8 $236.2
===== ====== ======
The income tax provision consisted of the following:
<CAPTION>
1999 1998 1997
----- ------ ------
(In millions)
<S> <C> <C> <C>
Current tax expense
U.S. Federal........................................ $71.3 $ 85.4 $ 69.9
State and local..................................... 6.0 10.4 4.4
Foreign............................................. 7.2 7.9 8.6
----- ------ ------
Total current..................................... 84.5 103.7 82.9
----- ------ ------
Deferred tax expense
U.S. Federal........................................ (57.7) 5.2 (1.9)
State and local..................................... (10.3) 2.3 3.9
Foreign............................................. 0.6 (6.0) 0.1
----- ------ ------
Total deferred.................................... (67.4) 1.5 2.1
----- ------ ------
Total provision................................... $17.1 $105.2 $ 85.0
===== ====== ======
</TABLE>
50
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Temporary differences and carryforwards that give rise to deferred tax
assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(In millions)
<S> <C> <C> <C>
Deferred tax assets
Product warranties..................................... $ 57.3 $ 46.1
Dealer allowances and discounts........................ 32.0 23.6
Insurance reserves..................................... 26.7 29.3
Strategic charge reserve............................... 29.9 24.0
Other.................................................. 111.6 86.0
Valuation allowance.................................... (0.3) (0.3)
------ ------
Total deferred tax assets............................ $257.2 $208.7
------ ------
Deferred tax liabilities (assets)
Depreciation and amortization.......................... $ 17.3 $ 52.8
Deferred compensation.................................. (13.0) (10.9)
Postretirement and postemployment benefits............. (27.2) (26.8)
Other assets and investments........................... 84.2 93.5
Other.................................................. 70.6 56.5
------ ------
Total deferred tax liabilities....................... $131.9 $165.1
====== ======
</TABLE>
No other valuation allowances were deemed necessary, as all deductible
temporary differences will be utilized primarily by carry back to prior years'
taxable income or as charges against reversals of future taxable temporary
differences. Based upon prior earnings history, it is expected that future
taxable income will be more than sufficient to utilize the remaining
deductible temporary differences. Deferred taxes have been provided, as
required, on the undistributed earnings of foreign subsidiaries and
unconsolidated affiliates.
The difference between the actual income tax provision and the tax
provision computed by applying the statutory Federal income tax rate to
earnings before taxes is attributable to the following:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ -----
(In millions)
<S> <C> <C> <C>
Income tax provision at 35%........................... $19.2 $ 99.3 $82.7
State and local income taxes, net of Federal income
tax effect........................................... (2.8) 8.3 5.4
Foreign sales corporation benefit..................... (4.2) (4.5) (3.3)
Taxes related to foreign income, net of credits....... 3.2 (0.4) 5.2
Goodwill and other amortization....................... 7.9 2.3 2.1
Other................................................. (6.2) 0.2 (7.1)
----- ------ -----
Actual income tax provision......................... $17.1 $105.2 $85.0
----- ------ -----
Effective tax rate.................................... 31.1% 37.1% 36.0%
===== ====== =====
</TABLE>
In December 1996, the Internal Revenue Service (IRS) notified the Company
that it allocated $190.0 million in short-term capital gains and $18.1 million
in ordinary income to the Company and its subsidiaries for 1990 and 1991 in
connection with two partnership investments made by the Company. The IRS
alleged that these investments lacked economic substance, were prearranged and
predetermined, and had no legitimate business purpose. On October 27, 1999,
the United States Tax Court issued a ruling that upheld the IRS determination.
51
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
This decision increases the Company's tax liability relating to those years by
approximately $60.0 million, plus accrued interest, but will not have an
unfavorable effect on the Company's results of operations. The Company is
awaiting a final determination from the IRS and is evaluating whether to
appeal this decision.
14. Leases
The Company has various lease agreements for offices, branches, factories,
distribution and service facilities, certain Company-operated bowling centers
and certain personal property. These obligations extend through 2032. Most
leases contain renewal options and some contain purchase options. Many leases
for Company-operated bowling centers contain escalation clauses, and many
provide for contingent rentals based on percentages of gross revenue. No
leases contain restrictions on the Company's activities concerning dividends,
additional debt or further leasing. Rent expense consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(In millions)
<S> <C> <C> <C>
Basic expense........................................... $45.8 $42.8 $35.2
Contingent expense...................................... 1.4 0.9 1.1
Sublease income......................................... (2.3) (1.7) (0.9)
----- ----- -----
Rent expense, net....................................... $44.9 $42.0 $35.4
===== ===== =====
</TABLE>
Future minimum rental payments at December 31, 1999, under agreements
classified as operating leases with non-cancelable terms in excess of one
year, are as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
2000........................................................... $ 28.6
2001........................................................... 25.4
2002........................................................... 21.4
2003........................................................... 17.7
2004........................................................... 15.4
Thereafter..................................................... 41.3
------
Total (not reduced by minimum sublease rentals of $5.5
million).................................................... $149.8
======
</TABLE>
15. Preferred Share Purchase Rights
In February 1996, the Board of Directors declared a dividend of one
Preferred Share Purchase Right (Right) on each outstanding share of the
Company's common stock. Under certain conditions, each holder of Rights may
purchase one one-thousandth of a share of a new series of junior participating
preferred stock at an exercise price of $85 for each Right held. The Rights
expire on April 1, 2006.
The Rights become exercisable at the earlier of (1) a public announcement
that a person or group acquired or obtained the right to acquire 15 percent or
more of the Company's common stock or (2) 15 days (or such later time as
determined by the Board of Directors) after commencement or public
announcement of an offer for more than 15 percent of the Company's common
stock. After a person or group acquires 15 percent or more of the common stock
of the Company, other shareholders may purchase additional shares of the
Company at 50 percent of the current market price. These Rights may cause
substantial ownership dilution to a person or group who attempts to acquire
the Company without approval of the Company's Board of Directors.
The Rights, which do not have any voting rights, may be redeemed by the
Company at a price of $.01 per Right at any time prior to a person's or
group's acquisition of 15 percent or more of the Company's common stock. A
Right also will be issued with each share of the Company's common stock that
becomes outstanding prior to the time the Rights become exercisable or expire.
52
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the event that the Company is acquired in a merger or other business
combination transaction, provision will be made so that each holder of Rights
will be entitled to buy the number of shares of common stock of the surviving
Company that at the time of such transaction would have a market value of two
times the exercise price of the Rights.
16. Investments
The Company has certain unconsolidated foreign and domestic affiliates that
are accounted for using the equity method. Summary financial information of
the unconsolidated affiliates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In millions)
<S> <C> <C> <C>
Net sales......................................... $ 409.0 $ 445.7 $ 483.3
------- ------- -------
Gross margin...................................... $ 67.1 $ 72.4 $ 80.9
------- ------- -------
Net earnings...................................... $ 9.9 $ 7.1 $ 10.9
------- ------- -------
Company's share of net earnings................... $ 3.9 $ 4.9 $ 6.8
------- ------- -------
Current assets.................................... $ 109.5 $ 182.3 $ 212.5
Noncurrent assets................................. 115.8 164.5 157.5
------- ------- -------
Total assets.................................... 225.3 346.8 370.0
Current liabilities............................... (139.1) (170.4) (182.3)
Noncurrent liabilities............................ (7.7) (33.3) (36.0)
------- ------- -------
Net assets...................................... $ 78.5 $ 143.1 $ 151.7
======= ======= =======
The Company's sales to and purchases from the above investments, along with
the corresponding receivables and payables, were not material to the Company's
overall results of operations for the three years ended December 31, 1999, and
its financial position as of December 31, 1999 and 1998.
In October 1999, the Company sold its minority position in a boat company
partnership to the majority partner for cash of $26.1 million and other
consideration. This transaction did not have a material effect on the
Company's 1999 results. Income recorded related to this partnership in 1999,
1998 and 1997 totaled $3.4 million, $3.0 million and $2.3 million,
respectively.
17. Treasury and Preferred Stock
Treasury stock activity for the past three years was as follows:
<CAPTION>
1999 1998 1997
------- ------- -------
(Shares in thousands)
<S> <C> <C> <C>
Balance at January 1.............................. 10,669 3,057 4,072
Compensation plans and other...................... (709) (576) (1,324)
Stock repurchases................................. 767 8,188 309
------- ------- -------
Balance at December 31............................ 10,727 10,669 3,057
======= ======= =======
</TABLE>
At December 31, 1999, 1998 and 1997, the Company had no preferred stock
outstanding (authorized: 12.5 million shares, $.75 par value at December 31,
1999).
53
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Quarterly Data (unaudited)
<TABLE>
<CAPTION>
Quarter
------------------------------------
1st 2nd 3rd 4th Year
--------- -------- -------- -------- ---------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
1999
Net sales...................... $ 1,083.0 $1,175.2 $1,004.6 $1,021.0 $ 4,283.8
--------- -------- -------- -------- ---------
Gross margin(1)................ $ 290.6 $ 339.4 $ 270.8 $ 233.6 $ 1,134.4
--------- -------- -------- -------- ---------
Net earnings (loss)(1)......... $ 57.6 $ 82.4 $ 17.8 $ (119.9) $ 37.9
--------- -------- -------- -------- ---------
Basic earnings (loss) per
common share(1)............... $ 0.63 $ 0.90 $ 0.19 $ (1.30) $ 0.41
--------- -------- -------- -------- ---------
Diluted earnings (loss) per
common share(1)............... $ 0.62 $ 0.89 $ 0.19 $ (1.30) $ 0.41
--------- -------- -------- -------- ---------
Dividends declared............. $ .125 $ .125 $ .125 $ .125 $ .50
--------- -------- -------- -------- ---------
Common stock price (NYSE)
High......................... $ 26 $28 1/16 $ 30 $ 25 $ 30
Low.......................... 18 1/8 18 1/16 24 3/8 20 18 1/16
1998
Net sales...................... $ 904.2 $1,113.0 $ 956.5 $ 971.5 $ 3,945.2
--------- -------- -------- -------- ---------
Gross margin................... $ 256.3 $ 317.7 $ 257.7 $ 254.4 $ 1,086.1
--------- -------- -------- -------- ---------
Earnings from continuing
operations(2)................. $ 58.9 $ 83.4 $ 4.1 $ 32.2 $ 178.6
Gain from discontinued
operations.................... -- -- -- 7.7 7.7
--------- -------- -------- -------- ---------
Net earnings(2)................ $ 58.9 $ 83.4 $ 4.1 $ 39.9 $ 186.3
--------- -------- -------- -------- ---------
Basic earnings per common share
Earnings from continuing
operations(2)................. $ 0.59 $ 0.84 $ 0.04 $ 0.34 $ 1.82
Gain from discontinued
operations.................... -- -- -- .08 .08
--------- -------- -------- -------- ---------
Net earnings(2)................ $ 0.59 $ 0.84 $ 0.04 $ 0.42 $ 1.90
--------- -------- -------- -------- ---------
Diluted earnings per common
share
Earnings from continuing
operations(2)................. $ 0.59 $ 0.83 $ 0.04 $ 0.34 $ 1.80
Gain from discontinued
operations.................... -- -- -- 0.08 0.08
--------- -------- -------- -------- ---------
Net earnings(2)................ $ 0.59 $ 0.83 $ 0.04 $ 0.42 $ 01.88
--------- -------- -------- -------- ---------
Dividends declared............. $ .125 $ .125 $ .125 $ .125 $ .50
--------- -------- -------- -------- ---------
Common stock price (NYSE)
High......................... $35 11/16 $35 3/16 $25 3/16 $25 1/16 $35 11/16
Low.......................... 27 3/8 22 9/16 12 13 12
</TABLE>
- --------
(1) Includes litigation settlement charges of $48.0 million pretax ($30.7
million after tax, $0.33 per diluted share) in the third quarter and an
asset write-down and strategic charge of $151.0 million pretax and an
inventory write-down of $27.0 million pretax (total of $178.0 million
pretax, $114.0 million after tax, $1.23 per diluted share) and litigation
settlement charges of $68.0 million pretax ($40.8 million after tax, $0.44
per diluted share) in the fourth quarter.
(2) Includes a $60.0 million pretax ($41.4 million after tax, $0.42 per
diluted share) strategic charge recorded in the third quarter.
54
<PAGE>
BRUNSWICK CORPORATION
SIX-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
(Dollars and shares in millions, except per share
data)
<S> <C> <C> <C> <C> <C> <C>
Results of operations
data
Net sales............... $4,283.8 $3,945.2 $3,657.4 $3,160.3 $2,906.3 $2,592.0
-------- -------- -------- -------- -------- --------
Unusual charges......... $ 294.0 $ 60.0 $ 98.5 -- $ 40.0 --
-------- -------- -------- -------- -------- --------
Operating earnings...... $ 111.3 $ 340.2 $ 270.8 $ 304.8 $ 218.3 $ 206.9
-------- -------- -------- -------- -------- --------
Earnings before income
taxes.................. $ 55.0 $ 283.8 $ 236.2 $ 290.3 $ 206.8 $ 195.3
-------- -------- -------- -------- -------- --------
Earnings from continuing
operations............. $ 37.9 $ 178.6 $ 151.2 $ 185.8 $ 133.6 $ 127.1
Cumulative effect of
change in accounting
principles............. -- -- (0.7) -- -- --
Discontinued operations
Gain (loss) from
discontinued
operations............ -- 7.7 -- -- (7.0) --
Earnings from
discontinued
operations............ -- -- -- -- 0.6 1.9
-------- -------- -------- -------- -------- --------
Net earnings......... $ 37.9 $ 186.3 $ 150.5 $ 185.8 $ 127.2 $ 129.0
-------- -------- -------- -------- -------- --------
Basic earnings per
common share
Earnings from continuing
operations............. $ 0.41 $ 1.82 $ 1.52 $ 1.89 $ 1.39 $ 1.33
Cumulative effect of
change in accounting
principles............. -- -- (0.01) -- -- --
Discontinued operations
Gain (loss) from
discontinued
operations............ -- 0.08 -- -- (0.07) --
Earnings from
discontinued
operations............ -- -- -- -- 0.01 0.02
-------- -------- -------- -------- -------- --------
Net earnings......... $ 0.41 $ 1.90 $ 1.52 $ 1.89 $ 1.33 $ 1.35
-------- -------- -------- -------- -------- --------
Average shares used for
computation of basic
earnings per share..... 92.0 98.3 99.2 98.3 95.9 95.4
Diluted earnings per
common share
Earnings from continuing
operations............. $ 0.41 $ 1.80 $ 1.51 $ 1.88 $ 1.38 $ 1.33
Cumulative effect of
change in accounting
principles............. -- -- (0.01) -- -- --
Discontinued operations
Gain (loss) from
discontinued
operations............ -- 0.08 -- -- (0.07) --
Earnings from
discontinued
operations............ -- -- -- -- 0.01 0.02
-------- -------- -------- -------- -------- --------
Net earnings......... $ 0.41 $ 1.88 $ 1.50 $ 1.88 $ 1.32 $ 1.35
-------- -------- -------- -------- -------- --------
Average shares used for
computation of diluted
earnings per share..... 92.6 99.0 100.3 98.8 96.2 95.7
</TABLE>
The Notes to Consolidated Financial Statements should be read in conjunction
with the above summary.
55
<PAGE>
BRUNSWICK CORPORATION
SIX-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
-------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data
Assets of continuing
operations............. $3,354.8 $ 3,351.5 $3,241.4 $2,802.4 $2,310.6 $2,048.3
Debt
Short-term............. $ 107.7 $ 170.1 $ 109.3 $ 112.6 $ 6.1 $ 8.2
Long-term.............. 622.5 635.4 645.5 455.4 312.8 318.8
-------- --------- -------- -------- -------- --------
Total debt........... 730.2 805.5 754.8 568.0 318.9 327.0
Common shareholders'
equity................. 1,300.2 1,311.3 1,315.0 1,197.7 1,043.1 910.7
-------- --------- -------- -------- -------- --------
Total capitalization. $2,030.4 $ 2,116.8 $2,069.8 $1,765.7 $1,362.0 $1,237.7
======== ========= ======== ======== ======== ========
Cash flow data
Net cash provided by
operating activities... $ 299.2 $ 429.0 $ 261.7 $ 395.8 $ 278.4 $ 121.2
Depreciation and
amortization........... 165.6 159.7 156.9 129.7 118.0 118.0
Capital expenditures.... 198.1 198.0 190.5 169.9 118.0 101.1
Acquisitions of
businesses............. 11.4 32.8 515.4 360.6 10.3 7.1
Stock repurchases....... 18.3 159.9 8.4 -- -- --
Cash dividends paid..... 45.9 49.0 49.6 49.3 47.9 42.0
Other data
Dividends declared per
share.................. $ .50 $ .50 $ .50 $ .50 $ .50 $ .44
Book value per share.... 14.16 14.27 13.22 12.16 10.66 9.55
Return on beginning
shareholders' equity... 2.9% 14.2% 12.6% 17.8% 14.7% 15.8%
Effective tax rate...... 31.1% 37.1% 36.0% 36.0% 35.5% 35.0%
Debt-to-capitalization
rate................... 36.0% 38.1% 36.5% 32.2% 23.4% 26.4%
Number of employees..... 26,600 25,500 25,300 22,800 19,800 19,800
Number of shareholders
of record.............. 14,500 15,600 16,200 18,400 22,400 25,800
Common stock price
(NYSE)
High................... $ 30 $35 11/16 $ 36 1/2 $ 25 3/4 $ 24 $ 25 1/8
Low.................... 18 1/16 12 23 5/8 18 1/8 16 3/8 17
Close.................. 22 1/4 24 3/4 30 5/16 24 24 18 7/8
</TABLE>
56
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated January 24, 2000 included in this Form 10-K, into the
Company's previously filed registration statements on Form S-8 (File No. 33-
55022), Form S-8 (File No. 33-56193), Form S-8 (File No. 33-61835), Form S-8
(File No. 33-65217), Form S-8 (File No. 333-04289), Form S-3 (File No. 333-
9997), Form S-8 (File No. 333-27157), Form S-8 (File No. 333-77431), and Form
S-8 (File No. 333-77457).
Arthur Andersen LLP
Chicago, Illinois
February 28, 2000
57
<PAGE>
BRUNSWICK CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In millions)
<TABLE>
<CAPTION>
Charges
to
Allowances for Balance at profit Balance
possible losses beginning and at end
on receivables of period loss Write-offs Recoveries Other of period
- --------------- ---------- ------- ---------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1999............... $22.5 $13.2 $ (7.8) $ -- $ (0.7) $27.2
----- ----- ------ ---- ------ -----
1998............... $20.7 $ 8.5 $ (6.0) $0.8 $ (1.5)* $22.5
===== ===== ====== ==== ====== =====
1997............... $17.2 $ 7.6 $ (6.5) $0.7 $ 1.7 * $20.7
===== ===== ====== ==== ====== =====
</TABLE>
- --------
*Includes $0.2 million and $3.6 million in 1998 and 1997, respectively,
relating to acquisitions.
This schedule reflects only the financial information of continuing
operations.
<TABLE>
<CAPTION>
Charges
to
Deferred tax Balance at profit Balance
asset valuation beginning and at end
allowance of period loss Write-offs Recoveries Other of period
- --------------- ---------- ------- ---------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
1999.................. $0.3 $-- $-- $-- $-- $0.3
==== === === === === ====
1998.................. $0.3 $-- $-- $-- $-- $0.3
==== === === === === ====
1997.................. $0.3 $-- $-- $-- $-- $0.3
==== === === === === ====
</TABLE>
This account reflects the adoption of SFAS No. 109, "Accounting for Income
Taxes," which was adopted effective January 1, 1992.
This schedule reflects only the financial information of continuing
operations.
58
<PAGE>
EXHIBIT 10.17
2000 BRUNSWICK PERFORMANCE PLAN
- --------------------------------------------------------------------------------
Purpose: To motivate and reward Senior Executives and other
management employees of the Company for the achievement
of specified annual financial goals and the enhancement
of management talent in the organization.
Eligibility: Approximately top 400 managers in the Company.
Target Award: Target awards under the Plan range from 30% to 100% of
a participant's base salary at the beginning of the
performance period depending upon the participant's
level of responsibility.
Performance Established annually by the CEO. Measures and
Measures: weightings may be modified year to year. Weightings for
2000 are as follows:
Groups
------
. 80% Brunswick Value Added (Division contribution
less working capital charge)
. 20% Organizational Goals
Corporate
---------
. 80% Earnings Per Share (EPS)
. 20% Organizational Goals
Brunswick Value Added is defined as Division
Contribution less a working capital charge. The
working capital charge is calculated by taking the
average (13 point) month end gross working capital
times the working capital charge.
Gross Working Capital is defined as gross receivables
and gross inventory less accounts payable.
Gross accounts receivable includes trade and other, but
excludes notes, rental and lease receivables, as well
as receivable reserves. Gross inventory includes
finished goods, raw materials and work in process, but
excludes inventory reserves.
Relationship of
Performance
to Payout: BUSINESS UNITS
--------------
The 80% of the bonus based upon the achievement of BVA
will generate a bonus pool as follows:
<PAGE>
2000 BRUNSWICK PERFORMANCE PLAN
- --------------------------------------------------------------------------------
Performance Level Bonus Pool
----------------- ----------
80% 50% of Target Pool
100% (Target) 100% of Target Pool
Above Target 100% Target Pool
Plus 9% of BVA
above target BVA
The 20% of bonus based upon the achievement of
organizational goals will be generated as follows:
Performance Level Bonus Pool
----------------- ----------
80% 50% of Target Pool
100% (Target) 100% of Target Pool
120% 125% of Target Pool
CORPORATE
---------
Performance Level Bonus Pool
----------------- ----------
80% 50% of Target Pool
100% (Target) 100% of Pool
120% 125% of Target Pool
PAYOUT FORM: Participants with a target bonus of 100% will be paid
as follows: 50% cash, 50% stock until mandated stock
ownership levels are achieved; thereafter the mix of
cash and stock will be at the participant's election.
President's Council and other management: 100% cash
PAYMENT: Bonus payments will be made after the year-end
financial results have been reviewed and certified by
Arthur Andersen LLP. Proposed bonus payments to the
Senior Executives will be reviewed and approved by the
Human Resource Compensation Committee.
Withholding: Subject to the payment restrictions, participants
receiving a portion of their bonus payment in stock may
elect to defer receipt, pay Federal, state and local
withholding tax obligations to the Company in cash or
request that the Company withhold a number of shares of
common stock equal in value to the withholding tax
amount, at the discretion of the Committee.
<PAGE>
EXHIBIT 10.21
2000-2001 STRATEGIC INCENTIVE PLAN
- --------------------------------------------------------------------------------
Purpose: To attract, retain, and significantly reward a select
group of individuals for the achievement of aggressive,
measurable standards of corporate performance. Payments
in stock are intended to assist participants in
achieving specified ownership guidelines and promote an
entrepreneurial approach to the business.
Eligibility: Approximately 150 executives in the Company
Performance Period: Two Years
Award Frequency: Annually, performance periods will be overlapping.
Performance
Measures: Groups
------
Aggregate Brunswick Value Added (Division contribution
less working capital charge) (2000 and 2001) Strategic
Goals
Corporate
---------
75% Earnings Per Share (EPS) (aggregate 2000 and 2001)
25% Strategic Goals
Brunswick Value Added is defined as Division
Contribution less a working capital charge. The working
capital charge is calculated by taking the average (13
point) month end gross working capital times the
working capital charge.
Gross Working Capital is defined as gross receivables
and gross inventory less accounts payable.
Gross accounts receivable includes trade and other, but
excludes notes, rental and lease receivables, as well
as receivable reserves. Gross inventory includes
finished goods, raw materials and work in process, but
excludes inventory reserves.
Business Unit Participants
Performance --------------------------
Weightings: For those participants with a target award of 100%:
Corporate Performance - 25%; Group BVA - 50%; Strategic
Goals - 25%.
For those participants with a target award of 75%:
Corporate Performance - 15%; Group BVA - 60%; Strategic
Goals - 25%.
<PAGE>
2000-2001 STRATEGIC INCENTIVE PLAN
- --------------------------------------------------------------------------------
For those Participants with a target award of 40%-60%:
Corporate Performance - 10%; Group BVA - 65%; Strategic
Goals - 25%.
Corporate Participants
For all Corporate participants: Corporate Performance - 100%
Relationship of Performance
to Payout:
Payout Level as of
Performance Level % of Target Award
----------------- ------------------
120% 125%
110% 110%
100% 100%
90% 70%
80% 50%
Bonus will not be paid below 80% level.
Target Award: For those participants with a target award equivalent to 100%
of base pay, the award is denominated 100% in stock units.
For those participants with a target award equivalent to 75% of
base pay, the award is denominated 75% in stock units.
For those participants with a target award equivalent to
40%-60% of base pay, the award is denominated 50% in stock
units.
Payout Form: The mix of payments under this Plan between cash and stock will
change as specified stock ownership guidelines are achieved.
Payments will be made in stock for that portion of the award
that is initially denominated in stock units as described
above.
Upon achievement of the ownership guidelines, the participant
may elect the form of payment, either cash or stock, with the
opportunity for voluntary deferrals.
Payment: Bonus payments will be made after the year-end financial
results have been reviewed and certified by Arthur Andersen
LLP. Proposed bonus payments for Senior Executives will be
reviewed and approved by the Human Resource and Compensation
Committee.
<PAGE>
2000-2001 STRATEGIC INCENTIVE PLAN
- --------------------------------------------------------------------------------
Withholding: Participants receiving a portion of their bonus payment
in stock may elect to pay Federal, state and local
withholding tax obligations to the Company in cash or
request that the Company withhold a number of shares of
common stock equal in value to the withholding tax
amount.
<PAGE>
<TABLE>
<CAPTION>
Brunswick Corporation Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
--------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Earnings as Adjusted
Earnings from continuing operations 37.9 178.6 151.2 185.8 133.6
Income tax provision 17.1 105.2 85.0 104.5 73.2
Interest expense 61.0 62.7 51.3 33.4 32.5
Interest portion of rent expense 15.3 14.3 10.7 9.8 7.2
Equity in earnings of less-than 50% owned affiliates 0.2 0.2 0.2 - 0.1
Dividends received from less-than 50% owned affiliates 0.1 0.1 - - -
------ ------ ------ ------ ------
131.6 361.1 298.4 333.5 246.6
====== ====== ====== ====== ======
Fixed Charges
Interest expense 61.0 62.7 51.3 33.4 32.5
Interest portion of rent expense 15.3 14.3 10.7 9.8 7.2
Capitalized interest 0.6 2.2 - - -
------ ------ ------ ------ ------
76.9 79.2 62.0 43.2 39.7
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 1.7x 4.6x 4.8x 7.7x 6.2x
------ ------ ------ ------ ------
</TABLE>
(a) For computation of the ratio of earnings to fixed charges, "earnings" have
been calculated by adding fixed charges (excluding capitalized interest) to
earnings from continuing operations before income taxes and then deducting
the undistributed earnings of affiliates. Fixed charges consist of interest
expense, estimated interest portion of rental expense and capitalized
interest.
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE COMPANY
---------------------------
The following corporations are direct or in-direct wholly-owned subsidiaries of
Brunswick Corporation:
<TABLE>
<CAPTION>
Place of
Incorporation
-------------
<S> <C>
American Outdoor Recreation, Inc. Delaware
Appletree Ltd. Bermuda
Baja Marine Corporation Delaware
Bayliner Marine Corporation Delaware
Boston Whaler, Inc. Delaware
Brunswick AG Switzerland
Brunswick Bowling & Billiards Corporation Delaware
Brunswick Bowling & Billiards Mexico, Mexico
S.A. de C.V.
Brunswick Bowling & Billiards (U.K.) Limited England
Brunswick Bowling e Billiards Ltda. Brazil
Brunswick Bowling Pin Corporation Delaware
Brunswick Centres, Inc. Ontario
Brunswick France S.A. France
Brunswick GmbH West Germany
Brunswick International (Canada) Limited Ontario
Brunswick International GmbH West Germany
Brunswick International Holdings, Inc. Delaware
Brunswick International Limited Delaware
Brunswick International Sales Corporation U.S. Virgin Islands
Brunswick Technology Corporation Delaware
Centennial Assurance Company, Ltd. Bermuda
DBA Products Co., Inc. Illinois
Escort Trailer Corporation Washington
Igloo Holdings Inc. Delaware
Igloo Products Corp. Delaware
Jupiter Marine, Inc. Delaware
Leiserv, Inc. Delaware
Life Fitness International Sales, Inc. Delaware
Life Fitness (U.K.) Limited United Kingdom
Marine Power Australia Pty. Limited Australia
Marine Power Europe, Inc. Delaware
Marine Power International Limited Delaware
Marine Power International Pty. Limited Delaware
Marine Power Italia S.p.A. Italy
Marine Power New Zealand Limited Delaware
Marine Xpress Corporation Delaware
Mercury Marine Limited Ontario
Mercury Marine Sdn Bhd Malaysia
Mongoose Sales Corporation Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Place of
Incorporation
-------------
<S> <C>
Normalduns B.V. Netherlands
OBC International Holdings Inc. Delaware
Productos Marine de Mexico, S.A. de C.V. Mexico
Quality Bowling Corporation California
Ray Industries, Inc. Arizona
SBC International Holdings Inc. Delaware
Sea Ray Boats Europe B.V. Netherlands
Sea Ray Boats, Inc. Arizona
Sea Ray Boats, Inc. Florida
Sea Ray International-Europe B.V. Netherlands
Skokie Investment Corporation Delaware
Wintergreen Finance, Inc. Delaware
Zebco Corporation Delaware
Zebco Sales Corporation Delaware
Zebco Sports Deutschland GmbH Germany
</TABLE>
In addition, Brunswick Corporation owns 50% of the outstanding stock of Nippon
Brunswick Kabushiki Kaisha, a Japanese corporation.
The names of a number of subsidiaries have been omitted. Such subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
-----------------
The undersigned directors and officers of Brunswick Corporation, a Delaware
corporation (the "Company"), do hereby nominate, constitute and appoint Peter B.
Hamilton and Victoria J. Reich and each of them individually, the true and
lawful attorney or attorneys of the undersigned, with power to act with or
without the others and with full power of substitution and resubstitution, to
execute in the name and on behalf of the undersigned as directors and officers
of the Company, the Annual Report of the Company on Form 10-K for the fiscal
year ended December 31, 1999 and any and all amendments thereto; and each of the
undersigned hereby ratifies and approves all that said attorneys or any of them
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney in one or more counterparts on the date set opposite his or her name.
Capacity Signature Date
-------- --------- ----
Chairman of the Board, /s/ Peter N. Larson February 8, 2000
Chief Executive Office -------------------
(Principal Executive Peter N. Larson
Officer) and Director
Executive Vice President /s/ Peter B. Hamilton February 8, 2000
and Chief Financial Officer ---------------------
(Principal Financial Officer) Peter B. Hamilton
Vice President and Controller /s/ Victoria J. Reich February 8, 2000
(Principal Accounting Officer) --------------------
Victoria J. Reich
Director /s/ Nolan D. Archibald February 8, 2000
----------------------
Nolan D. Archibald
Director /s/ Jeffrey L. Bleustein February 8, 2000
------------------------
Jeffrey L. Bleustein
<PAGE>
Capacity Signature Date
- -------- --------- ----
Director /s/ Michael J. Callahan February 8, 2000
-----------------------
Michael J. Callahan
Director /s/ Manuel A. Fernandez February 8, 2000
-----------------------
Manuel A. Fernandez
Director /s/ Peter Harf February 8, 2000
--------------
Peter Harf
Director /s/ Jay W. Lorsch February 8, 2000
-----------------
Jay W. Lorsch
Director /s/ Bettye Martin Musham February 8, 2000
------------------------
Bettye Martin Musham
Director /s/ Kenneth Roman February 8, 2000
-----------------
Kenneth Roman
Director /s/ Roger W. Schipke February 8, 2000
--------------------
Roger W. Schipke
2
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned director of Brunswick Corporation, a Delaware corporation
(the "Company"), does hereby nominate, constitute and appoint Peter B. Hamilton
and Victoria J. Reich and each of them individually, the true and lawful
attorney or attorneys of the undersigned, with power to act with or without the
others and with full power of substitution and resubstitution, to execute in the
name and on behalf of the undersigned as director of the Company, the Annual
Report of the Company on Form 10-K for the fiscal year ended December 31, 1999
and any and all amendments thereto; and the undersigned hereby ratifies and
approves all that said attorneys or any of them shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on
February 7, 2000.
/s/ Robert L. Ryan
-------------------
Robert L. Ryan
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 100,800
<SECURITIES> 0
<RECEIVABLES> 542,900
<ALLOWANCES> 27,200
<INVENTORY> 623,300
<CURRENT-ASSETS> 1,578,200
<PP&E> 1,644,000
<DEPRECIATION> 762,200
<TOTAL-ASSETS> 3,354,800
<CURRENT-LIABILITIES> 1,088,400
<BONDS> 622,500
0
0
<COMMON> 76,900
<OTHER-SE> 1,223,300
<TOTAL-LIABILITY-AND-EQUITY> 3,354,800
<SALES> 4,283,800
<TOTAL-REVENUES> 4,283,800
<CGS> 3,149,400
<TOTAL-COSTS> 3,149,400
<OTHER-EXPENSES> 1,023,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,000
<INCOME-PRETAX> 55,000
<INCOME-TAX> 17,100
<INCOME-CONTINUING> 37,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,900
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.41
</TABLE>
