(Mark one)
(X)
Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 2003
( ) Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-1043
BRUNSWICK CORPORATION
(Exact name of
registrant as specified in its charter)
| Delaware | 36-0848180 |
|---|---|
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 1 N. Field Court, Lake Forest, IL | 60045-4811 |
|---|---|
| (Address of principal executive offices) | (Zip Code) |
(847) 735-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of the Exchange Act).
Yes X No
At November 7, 2003, there were 91,521,390 shares of common stock ($0.75 par value) outstanding.
Part I. Financial Information
Item 1 - Financial Statements
Brunswick Corporation
Consolidated Statements of Income
for the periods ended September 30
(in millions, except per share data)
(unaudited)
| Quarter ended September 30 |
Nine Months ended September 30 |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| Net sales | $ | 1,036.3 | $ | 900.0 | $ | 3,041.8 | $ | 2,783.9 | ||||||
| Cost of sales | 781.2 | 694.4 | 2,314.1 | 2,147.1 | ||||||||||
| Selling, general and administrative expense | 192.6 | 158.3 | 540.0 | 481.3 | ||||||||||
| Litigation charge | -- | -- | 25.0 | -- | ||||||||||
| Operating earnings | 62.5 | 47.3 | 162.7 | 155.5 | ||||||||||
| Interest expense | (10.1 | ) | (10.9 | ) | (30.9 | ) | (32.5 | ) | ||||||
| Other income | 5.9 | 0.5 | 14.8 | 6.5 | ||||||||||
| Earnings before income taxes | 58.3 | 36.9 | 146.6 | 129.5 | ||||||||||
| Income tax provision | 20.4 | 13.3 | 51.3 | 46.5 | ||||||||||
| Earnings before cumulative effect of change in accounting principle | 37.9 | 23.6 | 95.3 | 83.0 | ||||||||||
| Cumulative effect of change in accounting principle, net of tax | -- | -- | -- | (25.1 | ) | |||||||||
| Net earnings | $ | 37.9 | $ | 23.6 | $ | 95.3 | $ | 57.9 | ||||||
| Basic earnings per common share: | ||||||||||||||
| Earnings before cumulative effect of change in accounting principle | $ | 0.42 | $ | 0.26 | $ | 1.05 | $ | 0.92 | ||||||
| Cumulative effect of change in accounting principle | -- | -- | -- | (0.28 | ) | |||||||||
| Net earnings | $ | 0.42 | $ | 0.26 | $ | 1.05 | $ | 0.64 | ||||||
| Diluted earnings per common share: | ||||||||||||||
| Earnings before cumulative effect of change in accounting principle | $ | 0.41 | $ | 0.26 | $ | 1.04 | $ | 0.92 | ||||||
| Cumulative effect of change in accounting principle | -- | -- | -- | (0.28 | ) | |||||||||
| Net earnings | $ | 0.41 | $ | 0.26 | $ | 1.04 | $ | 0.64 | ||||||
| Average shares used for computation of: | ||||||||||||||
| Basic earnings per share | 91.2 | 90.5 | 90.9 | 89.8 | ||||||||||
| Diluted earnings per share | 92.3 | 91.0 | 91.4 | 90.7 | ||||||||||
The notes are an integral part of these consolidated statements. | ||||||||||||||
Brunswick Corporation
Consolidated Balance Sheets
as of September 30, 2003, December 31, 2002, and September 30, 2002
(in millions)
| September 30, 2003 |
December 31, 2002 |
September 30, 2002 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | (unaudited) | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents, at cost, | |||||||||||
| which approximates market | $ | 353.9 | $ | 351.4 | $ | 368.1 | |||||
| Accounts and notes receivable, | |||||||||||
| less allowances of $32.7, $31.8 and $29.6 | 348.1 | 401.4 | 418.8 | ||||||||
| Inventories | |||||||||||
| Finished goods | 297.6 | 272.5 | 254.6 | ||||||||
| Work-in-process | 210.8 | 201.6 | 194.5 | ||||||||
| Raw materials | 89.7 | 72.8 | 64.6 | ||||||||
| Net inventories | 598.1 | 546.9 | 513.7 | ||||||||
| Prepaid income taxes | 321.8 | 305.1 | 331.2 | ||||||||
| Prepaid expenses and other | 45.2 | 49.5 | 40.1 | ||||||||
| Income tax refunds receivable | -- | 5.9 | -- | ||||||||
| Current assets | 1,667.1 | 1,660.2 | 1,671.9 | ||||||||
| Property | |||||||||||
| Land | 70.0 | 68.3 | 66.1 | ||||||||
| Buildings and improvements | 493.7 | 478.2 | 479.6 | ||||||||
| Equipment | 1,041.4 | 998.2 | 968.6 | ||||||||
| Total land, buildings and improvements and equipment | 1,605.1 | 1,544.7 | 1,514.3 | ||||||||
| Accumulated depreciation | (925.1 | ) | (871.0 | ) | (850.4 | ) | |||||
| Net land, buildings and improvements and equipment | 680.0 | 673.7 | 663.9 | ||||||||
| Unamortized product tooling costs | 117.5 | 119.0 | 112.8 | ||||||||
| Net property | 797.5 | 792.7 | 776.7 | ||||||||
| Other assets | |||||||||||
| Goodwill | 500.0 | 452.8 | 432.9 | ||||||||
| Other intangibles | 187.5 | 117.5 | 122.0 | ||||||||
| Investments | 132.2 | 95.4 | 97.2 | ||||||||
| Other long-term assets | 294.7 | 288.5 | 272.4 | ||||||||
| Other assets | 1,114.4 | 954.2 | 924.5 | ||||||||
| Total assets | $ | 3,579.0 | $ | 3,407.1 | $ | 3,373.1 | |||||
The notes are an integral part of these consolidated statements | |||||||||||
Brunswick Corporation
Consolidated Balance Sheets
as of September 30, 2003, December 31, 2002, and September 30, 2002
(in millions, except per share data)
| September 30, 2003 |
December 31, 2002 |
September 30, 2002 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | (unaudited) | ||||||||||
| Liabilities and shareholders' equity | |||||||||||
| Current liabilities | |||||||||||
| Short-term debt, including | |||||||||||
| current maturities of long-term debt | $ | 30.5 | $ | 28.9 | $ | 29.6 | |||||
| Accounts payable | 317.8 | 291.2 | 253.0 | ||||||||
| Accrued expenses | 724.2 | 685.5 | 669.4 | ||||||||
| Current liabilities | 1,072.5 | 1,005.6 | 952.0 | ||||||||
| Long-term debt | |||||||||||
| Notes, mortgages and debentures | 584.5 | 589.5 | 597.7 | ||||||||
| Deferred items | |||||||||||
| Income taxes | 95.9 | 144.1 | 203.2 | ||||||||
| Postretirement and postemployment benefits | 399.9 | 399.3 | 215.7 | ||||||||
| Compensation and other | 193.3 | 166.8 | 168.0 | ||||||||
| Deferred items | 689.1 | 710.2 | 586.9 | ||||||||
| 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 | 308.7 | 308.9 | 309.1 | ||||||||
| Retained earnings | 1,208.0 | 1,112.7 | 1,137.3 | ||||||||
| Treasury stock, at cost: | |||||||||||
| 11,739,000, 12,377,000 and 12,411,000 shares | (214.0 | ) | (228.7 | ) | (229.6 | ) | |||||
| Unamortized ESOP expense and other | (13.8 | ) | (22.2 | ) | (25.3 | ) | |||||
| Accumulated other comprehensive loss | (132.9 | ) | (145.8 | ) | (31.9 | ) | |||||
| Common shareholders' equity | 1,232.9 | 1,101.8 | 1,236.5 | ||||||||
| Total liabilities and shareholders' equity | $ | 3,579.0 | $ | 3,407.1 | $ | 3,373.1 | |||||
The notes are an integral part of these consolidated statements | |||||||||||
Brunswick Corporation
Consolidated Statements of Cash Flows
For the nine months ended September 30
(in millions)
(unaudited)
| 2003 |
2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities | ||||||||
| Net earnings | $ | 95.3 | $ | 57.9 | ||||
| Depreciation and amortization | 111.2 | 111.4 | ||||||
| Change in accounting principle, net of tax | -- | 25.1 | ||||||
| Changes in noncash current assets and current liabilities | 98.1 | 39.6 | ||||||
| Income taxes | (23.0 | ) | 41.7 | |||||
| Other, net | 23.5 | 41.8 | ||||||
| Net cash provided by operating activities | 305.1 | 317.5 | ||||||
| Cash flows from investing activities | ||||||||
| Capital expenditures | (93.7 | ) | (64.8 | ) | ||||
| Investments | (35.6 | ) | (6.7 | ) | ||||
| Acquisitions of businesses, net of cash acquired | (172.6 | ) | (8.8 | ) | ||||
| Other, net | 3.4 | 8.4 | ||||||
| Net cash used for investing activities | (298.5 | ) | (71.9 | ) | ||||
| Cash flows from financing activities | ||||||||
| Net issuances (repayments) of commercial paper and other | ||||||||
| short-term debt | 3.1 | (8.6 | ) | |||||
| Payments of long-term debt including current maturities | (19.3 | ) | (17.6 | ) | ||||
| Stock options exercised | 12.1 | 40.2 | ||||||
| Net cash provided by (used for) financing activities | (4.1 | ) | 14.0 | |||||
| Net increase in cash and cash equivalents | 2.5 | 259.6 | ||||||
| Cash and cash equivalents at January 1 | 351.4 | 108.5 | ||||||
| Cash and cash equivalents at September 30 | $ | 353.9 | $ | 368.1 | ||||
The notes are an integral part of these consolidated statements | ||||||||
Interim Financial Statements. The unaudited financial data of Brunswick Corporation (the Company) 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. 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 2002 Annual Report on Form 10-K (the 2002 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, 2003 and 2002. Due to the seasonality of the Company’s businesses, the interim results are not necessarily indicative of the results that may be expected for the remainder of the year.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters ending on the Saturday closest to the end of the period (thirteen-week periods). For ease of reference, all references to period end dates have been presented as though the period ended on the last day of the calendar month. The first three quarters of fiscal year 2003 ended on March 29, 2003, June 28, 2003, and September 27, 2003. The first three quarters of fiscal year 2002 ended on March 30, 2002, June 29, 2002, and September 28, 2002.
New Accounting Standards. In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — An Interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.” This interpretation clarifies the requirements for a guarantor’s accounting for, and disclosures of, certain guarantees issued and outstanding. FIN 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee. FIN 45 is effective for guarantees entered into or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on the financial statements. See Note 3, Commitments and Contingencies, for further discussion.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities — An Interpretation of Accounting Research Bulletin (ARB) No. 51.” This interpretation provides guidance on how to identify variable interest entities and how to determine whether or not those entities should be consolidated. FIN 46 applies to variable interest entities created after January 31, 2003. The Company did not create any material variable interest entities since January 31, 2003. FIN 46, as amended, also applies in the first fiscal quarter or interim period ending after December 15, 2003, in which the Company holds a variable interest in an entity that it acquired before February 1, 2003. The Company is evaluating the impact that FIN 46 will have on the Company.
Goodwill and Other Intangible Assets. Goodwill and other intangible assets generally result from business acquisitions. The excess of cost over net assets of businesses acquired is recorded as goodwill. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which requires that, effective January 1, 2002, goodwill and certain other intangible assets deemed to have an indefinite useful life are no longer amortized. While amortization of goodwill and certain other intangible assets is no longer permitted, these accounts must be reviewed annually for impairment. In the third quarter of 2002, the Company completed its impairment testing and recorded a one-time, non-cash charge of $29.8 million pre-tax ($25.1 million after-tax, or $0.28 per diluted share) as a cumulative effect of a change in accounting principle to reduce the carrying amount of goodwill. The Company restated the first quarter of 2002 to reflect the impairment charge effective January 1, 2002, as required under SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.”
Stock-based Compensation. The Company continues to apply the provisions of Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees.” Under APB No. 25, the Company recognizes no compensation cost related to stock options granted in its Consolidated Statements of Income because the option terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. In accordance with SFAS No. 123, “Accounting f