(Mark one)
(X)
Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2004
( ) 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 April 30, 2004, there were 94,718,071 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 three months ended March 31
(in millions, except per share data)
(unaudited)
| 2004 | 2003 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 1,199.6 | $ | 934.5 | ||||||
| Cost of sales | 902.3 | 725.7 | ||||||||
| Selling, general and administrative expense | 186.1 | 143.1 | ||||||||
| Research and development expense | 32.7 | 27.7 | ||||||||
| Litigation charge | - | 25.0 | ||||||||
| Operating earnings | 78.5 | 13.0 | ||||||||
| Interest expense | (10.1 | ) | (10.7 | ) | ||||||
| Other income | 3.2 | 3.6 | ||||||||
| Earnings before income taxes | 71.6 | 5.9 | ||||||||
| Income tax provision | 23.6 | 2.1 | ||||||||
| Net earnings | $ | 48.0 | $ | 3.8 | ||||||
| Basic earnings per common share | $ | 0.51 | $ | 0.04 | ||||||
| Diluted earnings per common share | 0.50 | 0.04 | ||||||||
Average shares used for computation of: | ||||||||||
| Basic earnings per share | 93.7 | 90.6 | ||||||||
| Diluted earnings per share | 95.6 | 90.6 | ||||||||
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Balance Sheets
as of March 31, 2004, December 31, 2003, and March 31, 2003
(in millions)
| March 31, | December 31, | March 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2003 | |||||||||
| (unaudited) | (unaudited) | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents, at cost, | |||||||||||
| which approximates market | $ | 173.8 | $ | 345.9 | $ | 280.0 | |||||
| Accounts and notes receivable, | |||||||||||
| less allowances of $32.3, $31.3 and $31.5 | 455.3 | 374.4 | 441.7 | ||||||||
| Inventories | |||||||||||
| Finished goods | 394.7 | 325.3 | 293.4 | ||||||||
| Work-in-process | 222.6 | 205.7 | 209.8 | ||||||||
| Raw materials | 105.5 | 92.8 | 64.5 | ||||||||
| Net inventories | 722.8 | 623.8 | 567.7 | ||||||||
| Prepaid income taxes | 297.5 | 302.3 | 302.6 | ||||||||
| Prepaid expenses and other | 51.4 | 68.8 | 43.4 | ||||||||
| Current assets | 1,700.8 | 1,715.2 | 1,635.4 | ||||||||
| Property | |||||||||||
| Land | 70.9 | 70.3 | 67.9 | ||||||||
| Buildings and improvements | 527.4 | 505.7 | 480.5 | ||||||||
| Equipment | 1,057.0 | 1,042.5 | 998.2 | ||||||||
| Total land, buildings and improvements and equipment | 1,655.3 | 1,618.5 | 1,546.6 | ||||||||
| Accumulated depreciation | (933.1 | ) | (912.4 | ) | (888.2 | ) | |||||
| Net land, buildings and improvements and equipment | 722.2 | 706.1 | 658.4 | ||||||||
| Unamortized product tooling costs | 125.6 | 121.0 | 119.4 | ||||||||
| Net property | 847.8 | 827.1 | 777.8 | ||||||||
| Other assets | |||||||||||
| Goodwill | 573.8 | 515.1 | 463.0 | ||||||||
| Other intangibles | 283.5 | 184.6 | 114.9 | ||||||||
| Investments | 164.5 | 148.1 | 103.6 | ||||||||
| Other long-term assets | 219.8 | 212.4 | 195.3 | ||||||||
| Other assets | 1,241.6 | 1,060.2 | 876.8 | ||||||||
| Total assets | $ | 3,790.2 | $ | 3,602.5 | $ | 3,290.0 | |||||
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Balance Sheets
as of March 31, 2004, December 31, 2003, and March 31, 2003
(in millions, except per share data)
| March 31, | December 31, | March 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2003 | |||||||||
| (unaudited) | (unaudited) | ||||||||||
| Liabilities and shareholders' equity | |||||||||||
| Current liabilities | |||||||||||
| Short-term debt, including | |||||||||||
| current maturities of long-term debt | $ | 48.8 | $ | 23.8 | $ | 30.7 | |||||
| Accounts payable | 334.1 | 321.3 | 281.0 | ||||||||
| Accrued expenses | 758.4 | 756.7 | 650.5 | ||||||||
| Current liabilities | 1,141.3 | 1,101.8 | 962.2 | ||||||||
| Long-term liabilities | |||||||||||
| Debt | 585.8 | 583.8 | 588.1 | ||||||||
| Deferred income taxes | 169.1 | 167.6 | 139.4 | ||||||||
| Postretirement and postemployment benefits | 234.1 | 232.0 | 317.2 | ||||||||
| Other | 206.6 | 194.3 | 177.3 | ||||||||
| Long-term liabilities | 1,195.6 | 1,177.7 | 1,222.0 | ||||||||
| 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 | 322.4 | 310.0 | 308.8 | ||||||||
| Retained earnings | 1,250.0 | 1,202.0 | 1,116.5 | ||||||||
| Treasury stock, at cost: | |||||||||||
| 8,133,000, 10,408,000 and 12,286,000 shares | (131.7) | (183.6) | (226.6) | ||||||||
| Unamortized ESOP expense and other | (5.3) | (10.1) | (20.7) | ||||||||
| Accumulated other comprehensive income (loss) | (59.0) | (72.2) | (149.1) | ||||||||
| Shareholders' equity | 1,453.3 | 1,323.0 | 1,105.8 | ||||||||
| Total liabilities and shareholders' equity | $ | 3,790.2 | $ | 3,602.5 | $ | 3,290.0 | |||||
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Consolidated Statements of Cash Flows
For the three months ended March 31
(unaudited)
(in millions)
| 2004 | 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities | ||||||||
| Net earnings | $ | 48.0 | $ | 3.8 | ||||
| Depreciation and amortization | 38.3 | 35.6 | ||||||
| Changes in noncash current assets and current liabilities | (155.6 | ) | (110.3 | ) | ||||
| Income taxes | 37.9 | 6.0 | ||||||
| Other, net | 16.2 | 22.7 | ||||||
| Net cash used for operating activities | (15.2 | ) | (42.2 | ) | ||||
| Cash flows from investing activities | ||||||||
| Capital expenditures | (32.5 | ) | (19.9 | ) | ||||
| Investments | (4.9 | ) | (11.9 | ) | ||||
| Acquisitions of businesses, net of cash acquired | (196.2 | ) | - | |||||
| Other, net | (0.9 | ) | - | |||||
| Net cash used for investing activities | (234.5 | ) | (31.8 | ) | ||||
| Cash flows from financing activities | ||||||||
| Net issuances of commercial paper and other | ||||||||
| short-term debt | 24.2 | 2.2 | ||||||
| Stock options exercised | 53.4 | 0.4 | ||||||
| Net cash provided by financing activities | 77.6 | 2.6 | ||||||
| Net decrease in cash and cash equivalents | (172.1 | ) | (71.4 | ) | ||||
| Cash and cash equivalents at January 1 | 345.9 | 351.4 | ||||||
| Cash and cash equivalents at March 31 | $ | 173.8 | $ | 280.0 | ||||
The notes are an integral part of these consolidated statements.
Brunswick Corporation
Notes to Consolidated Financial Statements
March 31, 2004, December 31, 2003, and March 31, 2003
(unaudited)
Note 1 — Significant Accounting Policies
Interim Financial Statements. The unaudited financial data of Brunswick Corporation (the Company) have 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 2003 Annual Report on Form 10-K (the 2003 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 March 31, 2004 and 2003. 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 (13-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 quarters of fiscal year 2004 and 2003 ended on April 3, 2004, and March 29, 2003, respectively.
Inventories. As a result of the growth in, and demonstrated viability of, the Company’s engine remanufacturing business, the Company began capturing and valuing used engine core inventory in the first quarter of 2004. These cores were principally obtained through returns under the Company’s warranty programs and, to a lesser extent, trade-ins on the purchase of remanufactured engines.
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 Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” the fair value of option grants is estimated on the date of grant using the Black-Scholes option pricing model for pro forma footnote purposes. Refer to Notes 1 and 14 to the consolidated financial statements in the 2003 Form 10-K for further detail relating to the Company’s stock-based compensation.
The Company adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to all of its outstanding stock option plans as of March 31:
| (in millions, except per share data) | |||||||||
| 2004 | 2003 | ||||||||
| Net Earnings: | |||||||||
| As reported | $ | 48.0 | $ | 3.8 | |||||
| Less: Total stock-based employee compensation expense | |||||||||
| determined under fair value-based method for all | |||||||||
| awards, net of tax | 1.5 | 1.2 | |||||||
| Pro forma | $ | 46.5 | $ | 2.6 | |||||
| Basic earnings per common share: | |||||||||
| As reported | $ | 0.51 | $ | 0.04 | |||||
| Pro forma | 0.50 | 0.03 | |||||||
| Diluted earnings per common share: | |||||||||
| As reported | $ | 0.50 | $ | 0.04 | |||||
| Pro forma | 0.49 | 0.03 | |||||||
New Accounting Standards. In January 2003, the Financial Accounting Standards Board (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. The Company was required to apply FIN 46 by the end of the first reporting period after March 15, 2004, for entities which were created before February 1, 2003. The adoption of FIN 46 was immediate for variable interest entities created after January 31, 2003. The Company has evaluated the provisions of FIN 46 and determined that the Company does not have any material variable interest entities that require consolidation into the Company’s financial statements.
Note 2 — Earnings Per Common Share
The Company calculates earnings per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings per share is calculated by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated similarly, except that the calculation includes the dilutive effect of stock options and nonvested restricted shares.
Basic shares increased by 3.1 million in the first quarter of 2004, primarily due to shares issued upon the exercise of employee stock options. The increase in the dilutive effect for the 2004 quarterly period is a result of the increase in common stock equivalents related to unexercised employee stock options due to an increase in the Company’s average stock price during the period.
Basic and diluted earnings per share for the three months ended March 31, are calculated as follows:
| (in millions, except per share data) | |||||||||
| 2004 | 2003 | ||||||||
| Net earnings | $ | 48.0 | $ | 3.8 | |||||
Average outstanding shares - basic | 93.7 | 90.6 | |||||||
| Common stock equivalents | 1.9 | -- | |||||||
| Average outstanding shares - diluted | 95.6 | 90.6 | |||||||
Basic earnings per share: | $ | 0.51 | $ | 0.04 | |||||
| Diluted earnings per share: | $ | 0.50 | $ | 0.04 | |||||
As of March 31, 2004 and 2003, there were 0.4 million and 7.3 million, respectively, of options and nonvested restricted shares outstanding where the exercise price was greater than the average market price of the Company’s shares for the quarterly period then ended. These options and nonvested restricted shares were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. The 5.0 million increase in average common shares outstanding lowered diluted earnings per share by approximately three cents.
As of March 31, 2004 there were 5.7 million options outstanding, of which 3.4 million are exercisable.
Note 3 — Commitments and Contingencies
Financial Commitments. The Company has entered into arrangements with financial institutions in connection with customer financing programs. Under these arrangements, the Company has guaranteed customer obligations to the financial institutions in the event of customer default, generally subject to a maximum amount. The Company has also guaranteed customer payments to third parties that have purchased Company receivables, and, in certain instances, has guaranteed secured term financing for customers. In each type of arrangement, upon repurchase of the debt obligation, the Company frequently receives rights to the collateral securing the financing. The maximum potential liability associated with these customer financing arrangements was approximately $99 million as of March 31, 2004.
The Company has also entered into arrangements with third-party lenders where it has agreed, in the event of a default by the customer, to repurchase from the third-party lender Company products repossessed from the customer. These arrangements are typically subject to a maximum repurchase amount. The Company’s risk under these arrangements is mitigated by the value of the products repurchased as part of the transaction. The maximum amount of collateral the Company could be required to purchase as of March 31, 2004, totaled approximately $183 million.