SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
Commission file number 1-1043
BRUNSWICK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-0848180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1 N. FIELD CT., LAKE FOREST, ILLINOIS 60045-4811
(Address of principal executive offices) (Zip Code)
(847) 735-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
AT NOVEMBER 13, 2000, THERE WERE 87,362,222 SHARES OF COMMON STOCK ($0.75 PAR
VALUE) OUTSTANDING.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 939.1 $ 861.9 $ 2,935.3 $ 2,677.9
Cost of sales 668.5 616.7 2,077.3 1,905.0
Selling, general and administrative expense 162.9 152.9 488.2 461.3
Unusual charges 55.1 48.0 55.1 48.0
------------- ------------- ------------- -------------
OPERATING EARNINGS 52.6 44.3 314.7 263.6
Interest expense (17.7) (15.5) (52.9) (46.1)
Other income (expense) (2.6) 1.4 (1.9) 2.8
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 32.3 30.2 259.9 220.3
Income tax provision (14.6) (9.4) (100.0) (80.7)
------------- ------------- ------------- -------------
EARNINGS FROM CONTINUING OPERATIONS 17.7 20.8 159.9 139.6
Earnings (loss) from discontinued operations, net of tax (5.4) (3.0) (68.4) 18.2
Loss from disposal of discontinued operations, net of tax (104.6) - (229.6) -
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ (92.3) $ 17.8 $ (138.1) $ 157.8
============= ============= ============= =============
BASIC EARNINGS PER COMMON SHARE:
Earnings from continuing operations $ 0.20 $ 0.23 $ 1.80 $ 1.52
Earnings (loss) from discontinued operations (0.06) (0.03) (0.77) 0.20
Loss from disposal of discontinued operations (1.19) - (2.58) -
------------- ------------- ------------- -------------
Net earnings (loss) $ (1.05) $ 0.19 $ (1.55) $ 1.72
============= ============= ============= =============
DILUTED EARNINGS PER COMMON SHARE:
Earnings from continuing operations $ 0.20 $ 0.22 $ 1.79 $ 1.51
Earnings (loss) from discontinued operations (0.06) (0.03) (0.77) 0.20
Loss from disposal of discontinued operations (1.19) - (2.58) -
------------- ------------- ------------- -------------
Net earnings (loss) $ (1.05) $ 0.19 $ (1.55) $ 1.70
============= ============= ============= =============
AVERAGE SHARES USED FOR COMPUTATION OF:
BASIC EARNINGS PER SHARE 87.6 91.9 89.0 91.9
DILUTED EARNINGS PER SHARE 87.6 93.1 89.1 92.7
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.125 $ 0.125 $ 0.375 $ 0.375
The notes are an integral part of these consolidated statements.
</TABLE>
2
<PAGE>
<TABLE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000, DECEMBER 31, 1999, AND SEPTEMBER 30, 1999
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, December 31, September 30,
2000 1999 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost,
which approximates market $ 129.9 $ 100.8 $ 122.9
Accounts and notes receivable,
less allowances of $20.9, $18.4 and $19.3 404.1 345.9 344.4
Inventories
Finished goods 262.7 202.3 201.5
Work-in-process 154.0 137.7 132.7
Raw materials 75.2 66.4 66.5
--------------- --------------- ---------------
Net inventories 491.9 406.4 400.7
--------------- --------------- ---------------
Prepaid income taxes 386.7 257.2 228.4
Prepaid expenses 58.3 51.2 55.8
Income tax refunds receivable - 25.1 0.8
Net assets of discontinued operations offered for sale 453.6 569.5 772.2
--------------- --------------- ---------------
CURRENT ASSETS 1,924.5 1,756.1 1,925.2
--------------- --------------- ---------------
PROPERTY
Land 71.7 70.4 66.4
Buildings 394.1 381.2 377.3
Equipment 940.8 925.1 890.5
--------------- --------------- ---------------
Total land, buildings and equipment 1,406.6 1,376.7 1,334.2
Accumulated depreciation (744.4) (711.5) (705.2)
--------------- --------------- ---------------
Net land, buildings and equipment 662.2 665.2 629.0
Unamortized product tooling costs 107.7 109.4 97.4
--------------- --------------- ---------------
NET PROPERTY 769.9 774.6 726.4
--------------- --------------- ---------------
OTHER ASSETS
Goodwill 394.9 404.8 408.3
Other intangibles 75.9 85.6 88.2
Investments 77.4 64.3 84.6
Other long-term assets 180.2 169.4 172.8
--------------- --------------- ---------------
OTHER ASSETS 728.4 724.1 753.9
--------------- --------------- ---------------
TOTAL ASSETS $ 3,422.8 $ 3,254.8 $ 3,405.5
=============== =============== ===============
The notes are an integral part of these consolidated statements.
</TABLE>
3
<PAGE>
<TABLE>
BRUNSWICK CORPORATION
CONSOLIDATED BALANCE SHEETS
as of SEPTEMBER 30, 2000, DECEMBER 31, 1999, AND SEPTEMBER 30, 1999
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, December 31, September 30,
2000 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt, including
current maturities of long-term debt $ 251.5 $ 107.7 $ 166.5
Accounts payable 226.7 248.9 214.2
Accrued expenses 918.0 632.2 585.3
Accrued income taxes 23.8 - -
---------------- ---------------- ----------------
CURRENT LIABILITIES 1,420.0 988.8 966.0
---------------- ---------------- ----------------
LONG-TERM DEBT
NOTES, MORTGAGES AND DEBENTURES 611.3 622.5 626.7
---------------- ---------------- ----------------
DEFERRED ITEMS
Income taxes 136.4 131.9 167.9
Postretirement and postemployment benefits 142.7 141.2 142.3
Compensation and other 72.1 70.2 68.5
---------------- ---------------- ----------------
DEFERRED ITEMS 351.2 343.3 378.7
---------------- ---------------- ----------------
COMMON SHAREHOLDERS' EQUITY
Common stock; authorized: 200,000,000 shares,
$0.75 par value; issued: 102,538,000 shares 76.9 76.9 76.9
Additional paid-in capital 314.4 314.3 314.0
Retained earnings 1,010.1 1,181.5 1,312.8
Treasury stock, at cost:
15,194,000; 10,727,000 and 10,664,000 shares (296.4) (214.0) (211.7)
Unamortized ESOP expense and other (42.9) (49.3) (50.2)
Accumulated other comprehensive income (loss) (21.8) (9.2) (7.7)
---------------- ---------------- ----------------
COMMON SHAREHOLDERS' EQUITY 1,040.3 1,300.2 1,434.1
---------------- ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,422.8 $ 3,254.8 $ 3,405.5
================ ================ ================
The notes are an integral part of these consolidated statements.
</TABLE>
4
<PAGE>
<TABLE>
BRUNSWICK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(IN MILLION)
(UNAUDITED)
<CAPTION>
2000 1999
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (138.1) $ 157.8
Depreciation and amortization 109.7 106.2
Changes in noncash current assets and current liabilities (141.2) (115.4)
Income taxes 42.8 (14.0)
Litigation settlement payments (49.0) -
Unusual charges 55.1 48.0
Loss (gain) on discontinued operations 298.0 (18.2)
Other, net (12.3) (6.5)
-------------- -------------
NET CASH PROVIDED BY CONTINUING OPERATIONS 165.0 157.9
NET CASH (USED FOR) PROVIDED BY DISCONTINUED OPERATIONS (14.4) 23.1
-------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 150.6 181.0
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (92.1) (87.9)
Investments (37.2) (13.6)
Acquisitions of businesses - (4.2)
Other, net 8.7 6.1
-------------- -------------
NET CASH USED FOR CONTINUING OPERATIONS (120.6) (99.6)
NET CASH USED FOR DISCONTINUED OPERATIONS (16.6) (30.8)
-------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES (137.2) (130.4)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net issuances/repayments of commercial paper and other
short-term debt 141.6 (5.1)
Payments of long-term debt including current maturities (8.9) (7.1)
Cash dividends paid (33.3) (34.5)
Stock repurchases (86.4) (15.4)
Stock options exercised 2.7 8.3
-------------- -------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 15.7 (53.8)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 29.1 (3.2)
Cash and cash equivalents at January 1 100.8 126.1
-------------- -------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 129.9 $ 122.9
============== =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 53.6 $ 42.0
Income taxes paid, net $ 57.3 $ 105.0
Treasury stock issued for compensation plans and other $ 3.2 $ 16.8
The notes are an integral part of these consolidated statements.
</TABLE>
5
<PAGE>
BRUNSWICK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, DECEMBER 31, 1999, AND SEPTEMBER 30, 1999
(unaudited)
NOTE 1 - ACCOUNTING POLICIES
This unaudited financial data has been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and disclosures normally included in financial statements and notes
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. Brunswick Corporation (the Company) believes that the
disclosures in these statements are adequate to make the information presented
not misleading. Certain previously reported amounts have been reclassified to
conform with the current-period presentation.
These financial statements should be read in conjunction with, and have been
prepared in conformity with, the accounting principles reflected in the
consolidated financial statements and related notes included in the Company's
1999 Annual Report on Form 10-K. These interim results include, in the opinion
of management, all normal and recurring adjustments necessary to present fairly
the results of operations for the periods ended September 30, 2000 and 1999. The
interim results are not necessarily indicative of the results that may be
expected for the remainder of the year.
NOTE 2 - EARNINGS PER COMMON SHARE
There is no difference in the net earnings used to compute basic and diluted
earnings per share. The difference in the average number of shares of common
stock outstanding used to compute basic and diluted earnings per share is the
amount of potential common stock relating to employee stock options. The average
number of shares of potential common stock was less than 0.1 million for the
quarter ended September 30, 2000, and 1.2 million for the quarter ended
September 30, 1999. The average number of shares of potential common stock was
0.1 million and 0.8 million for the nine-month periods ended September 30, 2000
and 1999, respectively.
NOTE 3 - DEBT
Commercial paper outstanding increased to $235.4 million at September 30, 2000,
compared with $95.0 million at December 31, 1999, to fund working capital
requirements, capital expenditures and stock repurchases. The weighted-average
interest rates for commercial paper borrowings were 6.78 percent and 5.38
percent for the quarters ended September 30, 2000 and 1999, respectively, and
6.49 percent and 5.22 percent for the nine-month periods ended September 30,
2000 and 1999, respectively.
NOTE 4 - LEGAL AND ENVIRONMENTAL
On March 24, 2000, the United States Court of Appeals for the Eighth Circuit
issued an opinion reversing and vacating a verdict entered against the Company
in the case CONCORD BOAT CORPORATION, ET AL. V. BRUNSWICK CORPORATION (CONCORD).
In June 1998, a jury had awarded the CONCORD plaintiffs treble damages totaling
$133.2 million based on alleged antitrust violations involving the sale of
sterndrive and inboard marine engines. The CONCORD plaintiffs were also awarded
attorneys' fees and costs. The Company appealed and the appellate court reversed
and vacated the judgment, including the award of fees and costs, remanding the
case for entry of judgment in the Company's favor. Additionally, the appellate
court ordered the release of a $133.2 million surety bond that was issued in
1998 to secure damages previously awarded in the CONCORD suit, relieving the
Company from any and all obligation to maintain the surety bond. The CONCORD
plaintiffs sought discretionary review of the appellate court's decision by the
United States Supreme Court, which the Company opposed. On November 6, 2000, the
United States Supreme Court, without comment, denied review of the appellate
court's decision in the CONCORD suit, letting stand the judgment in favor of
the Company.
6
<PAGE>
NOTE 4 - LEGAL AND ENVIRONMENTAL (CONTINUED)
The Company previously reached agreements to settle or dismiss six additional
suits, including five class-action lawsuits, filed after the 1998 CONCORD
verdict seeking to rely on the allegations and findings in the CONCORD suit.
Reserves related to these settlements decreased from $58.4 million at December
31, 1999, to $9.4 million at September 30, 2000, as a result of payments made
under the terms of the settlements. Refer to Note 6 to the consolidated
financial statements in the Company's 1999 Annual Report on Form 10-K for a more
detailed description of the CONCORD suit and settled actions.
On October 26, 1999, a federal court jury in Seattle, Washington, awarded
Precor, a subsidiary of Illinois Tool Works, Inc., approximately $5.2 million in
a patent infringement trial against the Company, as successor in interest to the
predecessor entities of its Life Fitness division, upon 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 has appealed the verdict
and the award of attorneys' fees. On May 23, 2000, a $13.0 million surety bond
was issued to secure damages while the Company pursues its appeal. While there
can be no assurances, the Company believes it is likely to prevail on the Precor
appeal and obtain either a new trial or judgment in its favor. The Company is
unable to predict the outcome of the Precor case, and accordingly, no reserves
relating to the resolution of this case have been recorded.
During the third quarter of 2000, the Company increased its reserves for
environmental liabilities by approximately $41 million for the estimated cost of
remediation of contamination alleged to have come from a closed manufacturing
facility of the Company.
The Company is also 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, involving both on-
and off-site waste disposal or other contamination, 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. Refer to Note 6 to the consolidated financial
statements in the Company's 1999 Annual Report on Form 10-K for disclosure of
the potential cash requirements of environmental proceedings as of December 31,
1999.
NOTE 5 - SEGMENT DATA
In conjunction with its October 13, 2000, and June 27, 2000, announcements to
divest its fishing, camping, bicycle, coolers and hunting sports and marine
accessories businesses, the Company's segments have been realigned to be
consistent with the remaining businesses and current reporting structure. The
Company's reportable segments are: Marine Engine, Boat and Recreation.
Prior-year numbers have been restated to conform with the discontinued
operations and new segment presentations.
The Marine Engine segment markets and manufactures outboard, sterndrive and
inboard engines and marine parts and accessories, which are principally sold
directly to boat builders or through dealers worldwide. The segment 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 also primarily in the United States.
The Boat segment markets and manufacturers 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.
7
<PAGE>
NOTE 5 - SEGMENT DATA (CONTINUED)
The Recreation segment markets and manufactures fitness equipment, including
treadmills, cross-training equipment, stationary bikes and weight-training
equipment; bowling capital equipment, including lanes, pinsetters, automatic
scorers, bowling balls and other accessories; billiards tables and accessories;
and operates bowling centers. These products are manufactured in plants in the
United States and 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 to consumers
through specialty retail shops. Bowling capital equipment is sold through a
direct sales force in the United States and foreign markets, primarily Europe
and Asia. Bowling balls and billiards equipment are predominately sold in the
United States and are distributed primarily through mass merchandisers, sporting
goods stores and specialty shops.
The following table sets forth net sales and operating earnings of each of the
Company's reportable segments for the quarter and nine-month periods ended
September 30, 2000 and 1999 (in millions):
<TABLE>
<CAPTION>
Quarter ended September 30
------------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Net Operating Net Operating
Sales Earnings Sales Earnings
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Marine Engine $ 434.9 $ 75.2 $ 394.8 $ 66.8
Boat 396.0 33.1 360.5 28.1
Marine eliminations (70.4) -- (67.5) --
-------------- ---------------- --------------- ---------------
Total Marine 760.5 108.3 687.8 94.9
Recreation 178.6 11.1 174.1 10.4
Corporate/Other -- (11.7) -- (13.0)
-------------- ---------------- --------------- ---------------
Total $ 939.1 107.7 $ 861.9 92.3
============== ===============
Unusual charges (a) (55.1) (48.0)
---------------- ---------------
Total continuing operations $ 52.6 $ 44.3
================ ===============
Nine Months ended September 30
------------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Net Operating Net Operating
Sales Earnings Sales Earnings
-------------- ---------------- --------------- ---------------
Marine Engine $ 1,391.3 $ 240.3 $ 1,250.6 $ 207.8
Boat 1,223.8 118.1 1,119.6 97.3
Marine eliminations (233.8) -- (213.7) --
-------------- ---------------- --------------- ---------------
Total Marine 2,381.3 358.4 2,156.5 305.1
Recreation 554.0 44.1 521.4 41.4
Corporate/Other -- (32.7) -- (34.9)
-------------- ---------------- --------------- ---------------
Total $ 2,935.3 369.8 $ 2,677.9 311.6
============== ===============
Unusual charges (a) (55.1) (48.0)
---------------- ---------------
Total continuing operations $ 314.7 $ 263.6
================ ===============
(a) Operating earnings for the quarter and nine-month periods ended September
30, 2000, include a $55.1 million unusual charge to increase environmental
reserves related to a cleanup of contamination from a closed manufacturing
facility and to account for the write-down of investments in certain
Internet-related businesses. Operating earnings for the quarter and
nine-month periods ended September 30, 1999, include a $48.0 million
unusual charge to settle litigation (See Note 4).
</TABLE>
8
<PAGE>
NOTE 5 - SEGMENT DATA (CONTINUED)
The following table sets forth the total assets of each of the Company's
reportable segments at September 30, 2000, and December 31, 1999 (in millions):
September 30, 2000 December 31, 1999
---------------------- --------------------
Marine Engine $ 802.7 $ 725.1
Boat 619.6 594.1
---------------------- --------------------
Total Marine 1,422.3 1,319.2
Recreation 866.0 821.2
Corporate/Other 680.9 544.9
---------------------- --------------------
Total continuing operations 2,969.2 2,685.3
Discontinued operations 453.6 569.5
---------------------- --------------------
Total assets $ 3,422.8 $ 3,254.8
====================== ====================
NOTE 6 - DISCONTINUED OPERATIONS
On October 13, 2000, the Company announced its intention to divest its hunting
sports and marine accessories and coolers businesses. In addition, on June 27,
2000, the Company announced its intention to divest its fishing, camping and
bicycle businesses. The consolidated financial statements for all periods have
been restated to present these businesses as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30. The Company intends
to dispose of the assets of these businesses through sales transactions.
Results from discontinued operations for the quarter and nine-month periods
ended September 30, 2000 and 1999, were as follows (in millions):
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
--------------------------- -----------------------------
2000 1999 2000 1999
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales $ 154.3 $ 143.1 $ 583.1 $ 585.8
PRETAX EARNINGS (LOSS):
Earnings (loss) from discontinued operations $ (8.7) $ (5.3) $ (104.6) $ 28.6
Loss from disposal of discontinued operations (116.3) -- (305.3) --
------------ ----------- ------------ -------------
Pretax earnings (loss) $ (125.0) $ (5.3) $ (409.9) $ 28.6
============ =========== ============ =============
</TABLE>
Losses from discontinued operations included the results of operations from the
businesses to be disposed as follows: hunting sports and marine accessories and
coolers businesses through September 30, 2000, and fishing, camping and bicycle
businesses through June 30, 2000. Losses relating to these businesses subsequent
to these dates are being applied to the reserve established as part of the loss
recorded on the disposition. The year-to-date loss from discontinued
operations, $104.6 million pretax, included the write-off of goodwill and other
long-term assets related to the camping business ($76.0 million pretax, $50.0
million after tax) that was recorded in the second quarter of 2000. The
write-off was necessary as the Company determined that additional actions would
not improve operating performance to levels sufficient to recover its investment
in these assets. Also included were asset write-downs and restructuring costs,
primarily severance in the fishing and camping businesses, necessitated by a
change in business conditions and the decision to source certain fishing reels
that were previously manufactured. The year-to-date results for the discontinued
operations include a $7.0 million strategic charge that was recorded in the
first quarter of 2000 for the bicycle business, which is discussed further in
Note 7 to the consolidated financial statements.
9
<PAGE>
NOTE 6 - DISCONTINUED OPERATIONS (CONTINUED)
The loss from disposal recorded in the third quarter totaled $116.3 million
pretax and $104.6 million after tax and totaled $305.3 million pretax and $229.6
million after tax for the year-to-date periods. The losses associated with the
disposition of these businesses were based on an estimate of cash proceeds, net
of costs to sell, along with an estimate of results of operations for these
businesses from the date the decision was made to dispose of the businesses
through the actual disposition date. The tax benefits associated with the
disposal reflect the non-deductibility of anticipated losses on the sale of the
coolers business.
The Company completed the sale of a portion of its camping business, the
sleeping bag business, during the third quarter of 2000. The loss associated
with this transaction was charged against the divestiture accrual that was
established in connection with the recognition of the loss on disposal of the
discontinued operations.
The net assets of these businesses have been segregated as net assets of
discontinued operations offered for sale. Net assets of discontinued operations
offered for sale at September 30, 2000, of $453.6 million, consisted of current
assets and liabilities and net property, plant and equipment. The balance of the
accrual established in connection with the divestiture of the discontinued
operations at September 30, 2000, was $262.9 million.
NOTE 7 - ASSET WRITE-DOWNS AND STRATEGIC CHARGES
During the fourth quarter of 1999, prior to the announcement of its intention to
divest the bicycle business, the Company committed to and initiated plans to
exit bicycle manufacturing facilities, reduce warehouse capacity and
administrative expenses and rationalize product offerings. As a result of these
actions, the Company recorded a $178.0 million charge to operating earnings
relating to the bicycle business 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 fixed asset write-downs of $10.5 million, along with other
incremental costs associated with the actions of $6.9 million. An additional
charge of $7.0 million for severance, related to the termination of
approximately 1,250 employees, and other incremental costs was recorded in the
first quarter of 2000. Essentially all of the planned severance actions have
been completed as of the end of the third quarter of 2000.
During the third quarter of 1998, the Company recorded a pretax charge of $60.0
million to cover costs associated with strategic initiatives designed to
streamline operations and enhance operating efficiencies in response to the
effect of the economic situation in Asia and other emerging markets on its
businesses.
The following table sets forth the activity in the accrued expense balances
relating to the above-mentioned strategic charges at September 30, 2000 (in
millions):
<TABLE>
<CAPTION>
December 31, 2000 2000 September 30,
1999 Charge Activity 2000
----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Severance $ -- $ 4.0 $ (4.0) $ --
Lease termination 10.9 -- (2.9) 8.0
Other incremental costs 5.5 3.0 (3.3) 5.2
----------------- ---------------- -------------- ----------------
Total $ 16.4 $ 7.0 $ (10.2) $ 13.2
================= ================ ============== ================
</TABLE>
Lease termination costs are expected to be paid over the contractual terms of
the leases. Fixed assets to be disposed under the 1999 charge totaled $16.5
million at December 31, 1999, and $8.5 million at September 30, 2000. Related
reserves were $10.5 million at December 31, 1999, and $3.2 million at September
30, 2000.
10
<PAGE>
NOTE 8 - COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income includes cumulative foreign currency
translation adjustments, unrealized gains and losses on investments and minimum
pension liability adjustments. Comprehensive income (loss) for the quarter and
nine-month periods ended September 30, 2000 and 1999, was as follows (in
millions):
Quarter ended Nine Months ended
September 30 September 30
--------------------- -------------------------
2000 1999 2000 1999
--------- ----------- ------------ -----------
Net earnings (loss) $ (92.3) $ 17.8 $ (138.1) $ 157.8
Other comprehensive loss (3.3) (4.3) (12.6) (1.9)
---------- ---------- ------------ -----------
Comprehensive income (loss) $ (95.6) $ 13.5 $ (150.7) $ 155.9
========== ========== ============ ===========
NOTE 9 - INCOME TAXES
On October 27, 1999, the United States Tax Court issued a ruling that upheld an
Internal Revenue Service (IRS) determination that resulted in the disallowance
of capital losses and other expenses from two partnership investments for 1990
and 1991. On July 17, 2000, the Company filed a Notice of Appeals for the
District of Columbia seeking a reversal of the United States Tax Court's
decision and filed a $79.8 million surety bond to secure payment of tax
deficiencies plus accrued interest related to the Company's appeal of the United
States Tax Court's determination.
If the Company does not prevail in its appeal, the amount of taxes due would
total approximately $60 million, plus interest, net of tax, of approximately $50
million. The Company is also in the process of settling IRS audits on open tax
years 1989 through 1991 and anticipates favorable adjustments that would
decrease the total tax owed to approximately $40 million, with the accompanying
interest, net of tax, of approximately $30 million. The interest components and
resulting total cash payment will continue to increase until the tax liability
is resolved. The cash payments related to an unfavorable resolution in this
matter are not likely to occur until 2002. The Company does not anticipate any
adverse effects on its results of operations in the event of an unfavorable
resolution of this matter. This matter is more fully described in Note 13 to the
consolidated financial statements in the Company's 1999 Annual Report on Form
10-K.
NOTE 10 - SUBSEQUENT EVENTS
On October 4, 2000, the Company completed the sale of its tents and camping
accessories businesses. The loss associated with this transaction will be
charged against the divestiture accrual that was established in connection with
the recognition of the loss on disposal of the discontinued operations.
On October 13, 2000, the Company announced that it had executed a non-binding
letter of intent to sell certain of its outdoor recreation businesses to K2 Inc.
for a total consideration of approximately $200 million in cash, subordinated
debt and convertible equity securities, subject to adjustment. Included in this
transaction were certain assets of the Company's fishing equipment, hunting
sports and marine accessories and coolers businesses. On November 6, 2000, the
Company announced that it had terminated its letter of intent and discussions
with K2 Inc.
As a result of its decision to divest additional businesses, on October 13,
2000, the Company also announced that in the third quarter of 2000, it would
record an after tax charge for discontinued operations (related to the
hunting sports and marine accessories and coolers businesses) of approximately
$110 million. The charge included anticipated losses on disposition of the
businesses, losses from discontinued operations for the third quarter and
estimated losses for future quarters. This matter is more fully described in
Note 6 to the consolidated financial statements.
11
<PAGE>
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED)
On November 6, 2000, the United States Supreme Court, without comment, denied
review of the decision of the United States Court of Appeals for the Eighth
Circuit in the case CONCORD BOAT CORPORATION, ET AL. V. BRUNSWICK CORPORATION,
reversing and vacating a verdict entered against the Company. This matter is
more fully described in Note 4 to the consolidated financial statements.
12
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MATTERS AFFECTING COMPARABILITY
On October 13, 2000, the Company announced its intention to divest its hunting
sports and marine accessories and coolers businesses. In addition, on June 27,
2000, the Company announced its intention to divest its fishing, camping and
bicycle businesses. The consolidated financial statements present the results
from these businesses as discontinued operations. In conjunction with these
announcements, the Company's segments have been realigned to be consistent with
the remaining businesses and current reporting structure. The Company's
reportable segments are: Marine Engine, Boat and Recreation. Refer to Note 5 to
the consolidated financial statements for a description of the businesses that
comprise each of the reportable segments. Prior-year numbers have been restated
to conform with the discontinued operations and new segment presentations.
RESULTS OF OPERATIONS
CONSOLIDATED
The following table sets forth certain amounts, ratios and relationships
calculated from the consolidated statements of income for the quarter and
nine-month periods ended September 30, 2000 and 1999 (dollars in millions,
except per share data):
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
-------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 939.1 $ 861.9 $ 2,935.3 $ 2,677.9
Operating earnings $ 52.6 $ 44.3 $ 314.7 $ 263.6
Earnings from continuing operations $ 17.7 $ 20.8 $ 159.9 $ 139.6
Earnings (loss) from discontinued operations,
net of tax (5.4) (3.0) (68.4) 18.2
Loss from disposal of discontinued
operations, net of tax (104.6) -- (229.6) --
-------------- --------------- --------------- --------------
Net earnings (loss) $ (92.3) $ 17.8 $ (138.1) $ 157.8
============== =============== =============== ==============
Diluted earnings per share from continuing
operations $ 0.20 $ 0.22 $ 1.79 $ 1.51
Diluted earnings (loss) per share from
discontinued operations (0.06) (0.03) (0.77) 0.20
Diluted loss per share from disposal of
discontinued operations (1.19) -- (2.58) --
-------------- --------------- --------------- --------------
Diluted earnings (loss) per share $ (1.05) $ 0.19 $ (1.55) $ 1.70
============== =============== =============== ==============
EXPRESSED AS A PERCENTAGE OF NET SALES:
Gross margin 28.8% 28.4% 29.2% 28.9%
Selling, general and administrative expense 17.3% 17.7% 16.6% 17.2%
Operating margin 5.6% 5.1% 10.7% 9.8%
</TABLE>
The amounts in the above table include a $55.1 million pretax ($40.0 million
after tax), $0.46 per diluted share in the quarter, unusual charge to operating
earnings to increase environmental reserves related to a cleanup of
contamination from a closed manufacturing facility and to account for the
write-down of investments in certain Internet-related businesses recorded in the
third quarter of 2000 and a $48.0 million pretax ($30.7 million after tax),
$0.33 per diluted share in the quarter, litigation charge recorded in the third
quarter of 1999.
13
<PAGE>
On a pro forma basis, excluding these unusual items, amounts are as follows
(dollars in millions, except per share data):
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
--------------------------- -----------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operating earnings $ 107.7 $ 92.3 $ 369.8 $ 311.6
Operating margin 11.5% 10.7% 12.6% 11.6%
Earnings from continuing operations $ 57.7 $ 51.5 $ 199.9 $ 170.3
Net earnings (loss) $ (52.3) $ 48.5 $ (98.1) $ 188.5
Diluted earnings per share from continuing operations $ 0.66 $ 0.55 $ 2.24 $ 1.84
Diluted earnings (loss) per share $ (0.59) $ 0.52 $ (1.10) $ 2.03
</TABLE>
In the third quarter of 2000, sales increased $77.2 million or 9.0 percent over
the comparable period of 1999 to $939.1 million. Sales increased 9.6 percent
in the year-to-date period, improving by $257.4 million. The sales gain
in both the quarter and nine-month periods was primarily due to continued
improvement in sales of larger, higher-margin cruisers and yachts; double-digit
growth in international engine operations and strong consumer demand for
low-emission outboard engines; and increased fitness equipment sales that
benefited from the growth of the health club market in the United States and
Europe, higher military market sales and the continued success of new product
launches.
Gross margins improved to 28.8 percent in the third quarter of 2000 versus 28.4
percent in the third quarter of 1999, and the year-to-date comparisons resulted
in an increase of 30 basis points to 29.2 percent in 2000. The gains in gross
margin for the quarter and year-to-date periods include improvements resulting
from effective cost management and an improved product mix combined with
increased sales volumes, which were partially offset by the effects of the
strong dollar against key currencies.
Selling, general and administrative expenses (SG&A) expressed as a percent of
sales decreased 40 basis points to 17.3 percent in the third quarter of 2000. In
the year-to-date period, SG&A expenses as a percent of sales decreased 60 basis
points to 16.6 percent from 17.2 percent in the comparable period of 1999. The
improvement in both periods was the result of successful cost containment
efforts, especially in the Marine Engine and Boat segments. SG&A expenses in
1999 also included spending on legal matters and Year 2000 readiness
activities, which were not repeated in 2000.
Operating earnings totaled $52.6 million in the third quarter of 2000 versus
$44.3 million in 1999, and year-to-date operating earnings totaled $314.7
million, compared with $263.6 million in the same period last year. Operating
earnings for the quarter and nine-month periods of 2000 and 1999 included the
aforementioned $55.1 million pretax ($40.0 million after tax) unusual charge and
$48.0 million pretax ($30.7 million after tax) litigation charge, respectively.
Excluding these charges, operating earnings increased $15.4 million and $58.2
million for the quarter and year-to-date periods ended September 30, 2000,
respectively. Operating margins also increased for both periods, improving 50
basis points in the third quarter and 90 basis points in the year-to-date
period, versus the comparable periods of 1999. Excluding the aforementioned
charges, the improvements in operating margins for the quarter and nine-month
periods of 2000 were 80 basis points and 100 basis points, respectively.
Interest expense was $17.7 million in the third quarter of 2000 versus $15.5
million in 1999. Interest expense for the nine-month period ended September 30,
2000, totaled $52.9 million, which was $6.8 million higher than the comparable
period of 1999. Contributing to the increase in interest expense in both periods
was a higher average outstanding debt balance and higher weighted-average
interest rate on commercial paper in 2000 versus the comparable periods of 1999.
14
<PAGE>
The Company's effective tax rate was 45.2 percent in the third quarter of 2000,
compared with 31.1 percent in the third quarter of 1999. Excluding the
aforementioned unusual charges, the effective tax rate was 34.0 percent and 34.1
percent for the comparable quarters, respectively. For the year-to-date period,
the effective tax rate was 38.5 percent versus 36.6 percent in 1999. Excluding
unusual charges, the effective tax rate was 36.5 percent for both years. The
effective tax rates for the quarter and nine-month periods of 2000, including
the unusual charge, were affected by the non-deductibility of the losses
resulting from the write-down of certain Internet-related investments.
For the quarter ended September 30, 2000, earnings from continuing operations of
$17.7 million were $3.1 million lower than the comparable quarter of 1999.
Excluding the previously noted unusual charges, earnings from continuing
operations improved 12.0 percent in the quarter. Year-to-date earnings from
continuing operations increased $20.3 million over 1999; $29.6 million before
unusual charges. Net earnings, including the discontinued operations discussed
below, resulted in a $92.3 million and $138.1 million loss for the quarter and
nine-month periods ended September 30, 2000, respectively. These results were in
comparison to net earnings of $17.8 million and $157.8 million for the quarter
and nine-month periods ended September 30, 1999, respectively.
Average common shares outstanding used to calculate diluted earnings per share
for the quarter decreased to 87.6 million in 2000 from 93.1 million in 1999, and
in the nine-month period decreased to 89.1 million in 2000 from 92.7 million in
1999. The decrease in both periods principally reflects the effects of stock
repurchased during the first half of 2000.
DISCONTINUED OPERATIONS
Losses from discontinued operations included the results of operations from the
businesses to be disposed as follows: hunting sports and marine accessories and
coolers businesses through September 30, 2000, and fishing, camping and bicycle
businesses through June 30, 2000. Losses relating to these businesses subsequent
to these dates are being applied to the reserve established as part of the loss
recorded on the disposition. The year-to-date loss from discontinued operations,
$68.4 million after tax ($104.6 million pretax), included the write-off of
goodwill and other long-term assets related to the camping business ($50.0
million after tax, $76.0 million pretax) that was recorded in the second quarter
of 2000. The write-off was necessary as the Company determined that additional
actions would not improve operating performance to levels sufficient to recover
its investment in these assets. Also included were asset write-downs and
restructuring costs, primarily severance in the fishing and camping businesses,
necessitated by a change in business conditions and the decision to source
certain fishing reels that were previously manufactured.
The loss from disposal recorded in the third quarter totaled $116.3 million
pretax and $104.6 million after tax and totaled $305.3 million pretax and $229.6
million after tax for the year-to-date periods. The losses associated with the
disposition of these businesses were based on an estimate of cash proceeds, net
of costs to sell, along with an estimate of results of operations for these
businesses from the date the decision was made to dispose of the businesses
through the actual disposition date. The tax benefits associated with the
disposal reflect the non-deductibility of anticipated losses on the sale of the
coolers business.
The Company has completed the sale of its sleeping bags, tents and camping
accessories businesses. The loss associated with these transactions will be
charged against the divestiture accrual. That was established in connection
with the recognition of the loss on disposal of discontinued operations.
The Company anticipates disposing of the remaining businesses by June 2001. Cash
generated from these dispositions, including cash proceeds, costs to sell, cash
required to fund operations through disposition and related tax benefits
realized in connection with the divestitures, is expected to approximate $275
million. The cash benefits are likely to be realized in 2001 and 2002. The
timing of these cash receipts is tied to the completion of the related
transactions and the impact on the Company's tax payments. The amounts
ultimately realized by the Company could differ materially from the amounts
assumed in arriving at the loss from disposal of discontinued operations and
could result in future gains or losses from disposal of discontinued operations.
15
<PAGE>
Risks that could influence the outcome include, but are not limited to, the
Company's ability to dispose of its fishing, camping, bicycle, coolers and
hunting sports and marine accessories businesses within the time, price and
manner estimated and its ability to maintain key customers during the
divestiture period.
MARINE ENGINE SEGMENT
The following table sets forth Marine Engine segment results for the quarter and
nine-month periods ended September 30, 2000 and 1999 (dollars in millions):
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
----------------------------------- ------------------------------------
2000 1999 2000 1999
---------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 434.9 $ 394.8 $ 1,391.3 $ 1,250.6
Operating earnings $ 75.2 $ 66.8 $ 240.3 $ 207.8
Operating margin 17.3% 16.9% 17.3% 16.6%
Capital expenditures $ 15.1 $ 15.0 $ 38.6 $ 36.8
</TABLE>
Marine Engine segment sales increased 10.2 percent to $434.9 million in the
third quarter of 2000 over 1999 and year-to-date sales increased to $1,391.3
million in 2000, up 11.3 percent from the comparable period of 1999. Quarter and
year-to-date improvements resulted from on-going double-digit growth in
international engine operations in spite of unfavorable currency movements
between years. In addition, increased sales also reflect strong domestic growth
in outboards resulting from the continued demand for the low-emission outboard
engines. Growth in sales of sterndrive engines, however, slowed in the quarter
reflecting a softening in industry sales of small boats.
Operating earnings for the segment increased to $75.2 million in the third
quarter of 2000, compared with $66.8 million in 1999, and for the first nine
months of 2000, operating earnings increased $32.5 million to $240.3 million.
Operating margins in 2000 improved to 17.3 percent for both the quarter and
year-to-date periods, as compared to 16.9 percent and 16.6 percent for the
quarter and nine-month periods of 1999, respectively. These comparisons were
favorably affected by the aforementioned increases in sales, along with
increased production volumes. Non-recurring spending in 1999 on legal matters
also benefited these comparisons. These factors helped to mitigate the adverse
effect of a stronger dollar against key currencies and the unfavorable margin
differential between low-emission and traditional outboard offerings due to
higher initial production costs.
BOAT SEGMENT
The following table sets forth Boat segment results for the quarter and
nine-month periods ended September 30, 2000 and 1999 (dollars in millions):
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
----------------------------------- ------------------------------------
2000 1999 2000 1999
---------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 396.0 $ 360.5 $ 1,223.8 $ 1,119.6
Operating earnings $ 33.1 $ 28.1 $ 118.1 $ 97.3
Operating margin 8.4% 7.8% 9.7% 8.7%
Capital expenditures $ 12.4 $ 11.2 $ 33.6 $ 26.8
</TABLE>
The Boat segment reported sales of $396.0 million in the third quarter of 2000,
a 9.8 percent increase from the third quarter of 1999. Sales for the first nine
months of 2000 increased 9.3 percent to $1,223.8 million. These improvements
were primarily the result of strong on-going demand for larger cruisers and
yachts and an improved sales mix within the smaller boat category. Dealer
inventories of certain product categories have been building as retail demand
has slowed.
16
<PAGE>
Operating earnings for the segment were $33.1 million in the third quarter of
2000 compared with $28.1 million for the same period of 1999, and operating
margins increased to 8.4 percent from 7.8 percent. Boat operating earnings the
first nine months of 2000 were $118.1 million, up 21.4 percent over the prior
year. Operating margins for the year-to-date period of 9.7 percent were a full
percentage point above the comparable period of 1999. The solid growth in
operating margins was principally the result of a favorable product mix
resulting from the larger, higher-margin boat sales, combined with improved
pricing.
RECREATION SEGMENT
The following table sets forth Recreation segment results for the quarter and
nine-month periods ended September 30, 2000 and 1999 (dollars in millions):
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
------------------------------------ ----------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 178.6 $ 174.1 $ 554.0 $ 521.4
Operating earnings $ 11.1 $ 10.4 $ 44.1 $ 41.4
Operating margin 6.2% 6.0% 8.0% 7.9%
Capital expenditures $ 5.3 $ 10.6 $ 17.6 $ 23.4
</TABLE>
In the third quarter and nine-month periods of 2000, Recreation segment sales
increased 2.6 percent to $178.6 million, and 6.3 percent to $554.0 million,
respectively. This increase was a result of growth in fitness equipment sales
due to a continued strong health club market in the United States and Europe,
higher sales in the military market and the success of new product launches in
the commercial and high-end consumer segments. Bowling capital equipment sales
declined in the third quarter, but remained ahead of the prior year pace in the
year-to-date period. Revenues from bowling center operations also declined;
however, the decrease was primarily due to a 5 percent (6 bowling center)
reduction in the number of bowling centers versus the prior year. Sales from
upgraded bowling centers were up double digits in the quarter.
The Recreation segment operating earnings totaled $11.1 million in the third
quarter of 2000 versus $10.4 million in 1999, with an increase in operating
margins of 20 basis points to 6.2 percent. Year-to-date operating earnings
increased $2.7 million to $44.1 million from $41.4 million in 1999, with a
slight increase in operating margins to 8.0 percent. The primary driver of the
higher operating earnings and margins for both the quarter and year-to-date
periods was effective cost management in the bowling and billiards divisions
due to more disciplined supply chain management and organizational
consolidations, which helped to offset costs associated with new product
introductions and development 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 $129.9 million at September 30,
2000, up from $100.8 million at the end of 1999.
Cash provided by operating activities for the first nine months of 2000 and 1999
totaled $150.6 million and $181.0 million, respectively. Cash flow from
operating activities included changes in working capital that resulted in a use
of $141.2 million in 2000 versus $115.4 million in 1999. At September 30, 2000,
inventories were $491.9 million versus $406.4 million at December 31, 1999, and
$400.7 million at September 30, 1999. The year-over-year increase of $91.2
million was primarily due to growth in marine engine, boat and fitness equipment
inventories. Accounts receivable totaled $404.1 million at September 30, 2000,
versus $345.9 million at December 31, 1999, and $344.4 million at September 30,
1999. The $59.7 million increase in receivables over the prior year was
principally due to the growth in sales year-over-year. Accrued expenses
increased to $918.0 million at September 30, 2000, from $632.2 million at
December 31, 1999. This increase was primarily due to the divestiture accrual
established in connection with the recognition of the loss on disposal of the
discontinued operations and increases in warranty and similar accruals related
to growth in the business. Other
17
<PAGE>
significant items affecting comparability were the $41.0 million accrual
recorded for environmental matters which was more than offset by the effects of
payments related to the antitrust litigation settlements, which are discussed in
the LEGAL PROCEEDINGS AND CONTINGENCIES section below. Cash flow from operating
activities in 2000 also included more favorable income tax related cash flows
versus the prior year.
During the first nine months of 2000, the Company invested $92.1 million in
capital expenditures compared with $87.9 million in 1999. Investments of $37.2
million in the first three quarters of 2000 were primarily comprised of amounts
invested in Internet-related businesses and fitness equipment distribution
alliances. As part of the unusual charge recorded in the third quarter of 2000,
certain of the Internet-related business investments were written down to
estimated net realizable value. Total debt at September 30, 2000, increased to
$862.8 million versus $730.2 million at the end of 1999, due to increased
commercial paper borrowings to fund working capital requirements, capital
expenditures and stock repurchases. Debt-to-capitalization ratios at these dates
were 45.3 percent and 36.0 percent, respectively.
On February 8, 2000, the Company announced a program to repurchase $100 million
of its common stock from time to time in the open market or through privately
negotiated transactions. During the first nine months of 2000, the Company
repurchased 4.6 million shares of its common stock for $84.7 million in open
market transactions under this program with no shares being purchased during the
third quarter. During the current year, 0.1 million additional shares were
purchased for $1.6 million under a systematic repurchase program authorized in
October 1997. Future repurchases of the Company's common stock will be
considered; however, in the short-term the Company intends to use excess cash to
reduce debt.
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 $235.4
million in outstanding commercial paper at September 30, 2000, with additional
borrowing capacity of $164.6 million under the Company's $400 million long-term
credit agreement with a group of banks. The Company has $150 million available
under a universal shelf registration filed in 1996 with the Securities and
Exchange Commission for the issuance of equity and/or debt securities.
Management believes that these factors provide adequate sources of liquidity to
meet its long-term and short-term needs.
LEGAL PROCEEDINGS AND CONTINGENCIES
On March 24, 2000, the United States Court of Appeals for the Eighth Circuit
issued an opinion reversing and vacating a verdict entered against the Company
in the case CONCORD BOAT CORPORATION, ET AL. V. BRUNSWICK CORPORATION (CONCORD).
In June 1998, a jury had awarded the CONCORD plaintiffs treble damages totaling
$133.2 million based on alleged antitrust violations involving the sale of
sterndrive and inboard marine engines. The CONCORD plaintiffs were also awarded
attorneys' fees and costs. The Company appealed and the appellate court reversed
and vacated the judgment, including the award of fees and costs, remanding the
case for entry of judgment in the Company's favor. Additionally, the appellate
court ordered the release of a $133.2 million surety bond that was issued in
1998 to secure damages previously awarded in the CONCORD suit, relieving the
Company from any and all obligation to maintain the surety bond. The CONCORD
plaintiffs sought discretionary review of the appellate court's decision by the
United States Supreme Court, which the Company opposed. On November 6, 2000, the
United States Supreme Court, without comment, denied review of the appellate
court's decision in the CONCORD suit, letting stand the judgment in favor of
the Company.
The Company previously reached agreements to settle or dismiss six additional
suits, including five class-action lawsuits filed after the 1998 CONCORD
verdict, seeking to rely on the allegations and findings in the CONCORD suit.
The Company made payments totaling $49.0 million relating to these settlements
in the first nine months of 2000. The remaining payments, estimated at $9.4
million, are expected to be paid through 2001.
18
<PAGE>
On October 26, 1999, a federal court jury in Seattle, Washington, awarded
Precor, a subsidiary of Illinois Tool Works, Inc., approximately $5.2 million in
a patent infringement trial against the Company, as successor in interest to
predecessor entities of its Life Fitness division, upon 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 has appealed the verdict
and the award of attorneys' fees. While there can be no assurances, the Company
believes it is likely to prevail on the Precor appeal and obtain either a new
trial or judgment in its favor. The Company is unable to predict the outcome of
the Precor case, and accordingly, no reserves relating to the resolution of this
case have been recorded.
On October 27, 1999, the United States Tax Court issued a ruling that upheld an
Internal Revenue Service (IRS) determination that resulted in the disallowance
of capital losses and other expenses from two partnership investments for 1990
and 1991. On July 17, 2000, the Company filed a Notice of Appeals for the
District of Columbia seeking a reversal of the United States Tax Court's
decision.
If the Company does not prevail in its appeal, the amount of taxes due would
total approximately $60 million, plus interest, net of tax, of approximately $50
million. The Company is also in the process of settling IRS audits on open tax
years 1989 through 1991 and anticipates favorable adjustments that would
decrease the total tax owed to approximately $40 million, with the accompanying
interest, net of tax, of approximately $30 million. The interest components and
resulting total cash payment will continue to increase until the tax liability
is resolved. The cash payments related to an unfavorable resolution in this
matter are not likely to occur until 2002. The Company does not anticipate any
adverse effects on its results of operations in the event of an unfavorable
resolution of this matter. This matter is more fully described in Note 9 to the
consolidated financial statements.
During the third quarter of 2000, the Company increased its reserves for
environmental liabilities by approximately $41 million for the estimated cost of
remediation of contamination alleged to have come from a closed manufacturing
facility of the Company.
The Company is also 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, involving both on-
and off-site waste disposal or other contamination, 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. Refer to Note 6 to the consolidated financial
statements in the Company's 1999 Annual Report on Form 10-K for disclosure of
the potential cash requirements of environmental proceedings as of December 31,
1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133." SFAS 138 is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000 (quarter ended March 31, 2001, for the
Company). SFAS 138 amends several paragraphs of SFAS 133 that are effective the
same date as SFAS 138. The Company is assessing the effect of SFAS 138, and
management currently believes it will not have a material effect on results of
operations or financial position.
19
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q are forward looking as defined in the
Private Securities Litigation Reform Act of 1995. These statements involve
certain risks and uncertainties that may cause actual results to differ
materially from expectations as of the date of this filing. These risks include,
but are not limited to, the ability to dispose of the fishing, camping, bicycle,
coolers and hunting sports and marine accessories businesses within the time,
price and manner estimated, the ability to maintain key customers during the
divestiture period and the ability of the buyers to obtain financing; shifts in
market demand for the Company's products; the effect of unfavorable shifts in
currency exchange rates; the effect of interest rates and fuel prices on sales
of marine products; competitive pricing pressures; inventory adjustments by
major retailers or dealers; financial difficulties experienced by dealers;
adverse domestic or foreign economic conditions; adverse weather conditions
retarding sales of recreation products; the ability to complete environmental
remediation efforts at the cost estimated; the success of marketing and
cost-management programs; the Company's ability to develop and produce new
products; new and competing technologies; and imports from Asia and increased
competition from Asian competitors.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 4 to Consolidated Financial Statements in Part I of this Quarterly Report
on pages 6 and 7 is hereby incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRUNSWICK CORPORATION
(Registrant)
November 14, 2000 By: /S/ VICTORIA J. REICH
---------------------
Victoria J. Reich
Senior Vice President and
Chief Financial Officer*
*Ms. Reich is signing this report both as a duly authorized officer and as the
principal accounting officer.
21
